Corporate Overview and Strategy
Abbreviations & Definitions
Sundance Energy Australia Limited (ASX: SEA) is an
onshore oil and natural gas company focused on the
exploration, development and production of large,
repeatable resource plays in North America. The Company’s
oil and natural gas properties are located in premier U.S.
oil and natural gas basins, and its current operational
activities are focused in south Texas targeting the Eagle
Ford formation (‘‘Eagle Ford’’) and north central Oklahoma
targeting the Mississippian and Woodford formations
(‘‘Mississippian/Woodford’’).
The Company utilises its U.S.-based management and
technical team to appraise, develop, produce and grow its
portfolio of assets. The Company’s strategy focuses on
generating cash flow from its existing production base,
developing assets where it is the operator and has high
working interests, exploring for additional resources
within its existing basins and pursuing strategic merger
and acquisition opportunities, which positions it to
control the pace of its development and the allocation
of capital resources.
Contents
Performance Summary .......................................................1
Chairman’s Letter................................................................2
Managing Director’s Letter..................................................4
Financial Overview.............................................................6
Operations Overview ..........................................................8
Eagle Ford.........................................................................10
Greater Anadarko .............................................................12
Directors’ Report...............................................................15
Remuneration Report .......................................................28
Auditor’s Independence Declaration.................................45
Corporate Governance......................................................46
Financial Information.......................................................54
Directors’ Declaration .....................................................106
Auditor’s Report ..............................................................107
Additional Information...................................................109
Corporate Information....................................................111
Forward-Looking Statements .........................................111
Competent Persons Statement........................................111
1P Reserves — proved reserves which have at least a 90%
probability that the quantities actually recovered will equal or
exceed the estimate
2P Reserves — proved plus probable reserves which have at
least a 50% probability that the quantities actually recovered
will equal or exceed the estimate
3P Reserves — proved plus probable plus possible reserves
which have at least a 10% probability that the quantities
actually recovered will equal or exceed the estimate
Enterprise Value or EV — market capitalisation less cash
plus debt
PV10 — discounted cash flows of the Company’s reserves
using a 10% discount factor
Bbl — one barrel of oil
BOE — a barrel of oil equivalent, using the ratio of six Mcf of
natural gas to one Bbl of crude oil
BOEPD — barrels of oil equivalent per day
Constant Case — the reserve report case using first of month
average pricing for the trailing 12 months held constant
throughout the life of the reserves as prescribed by the US
Securities and Exchange Commission (SEC)
MBOE — a thousand barrels of oil equivalent
MMBOE — a million barrels of oil equivalent
MBbl — a thousand barrels of crude oil
Mcf — one thousand cubic feet of natural gas
MMcf — one million cubic feet of natural gas
M — when used with $ equals millions
Net Acres — gross acres multiplied by the Company’s
working interest
Net Wells — gross wells multiplied by the Company’s
working interest
PDP — proved developed producing reserves
PUD — proved undeveloped reserves
PV/I — net change in the proved PV10 of the constant case
reserve report divided by development capital expenditures
during the period under consideration less proceeds
from divestitures
ROCE — return on capital employed defined as earnings
before interest and taxes divided by assets minus
current liabilities
One barrel of oil is the energy equivalent of six Mcf of
natural gas.
All oil and gas quantity and revenue amounts presented in
this report are net of royalties.
All currency amounts presented in this report are shown in
US dollars except per share amounts which are presented in
Australian dollars or unless otherwise noted by “A$”, which
represents Australian dollars.
2014
As %
2013
As %
PERFORMANCE SUMMARY
Year Ended 31 December
FINANCIAL (In $000’s)
Oil, gas and NGL sales
Adjusted EBITDAX (% of sales)
Net cash provided by operating activities
Capital investment:
Development and production assets
Exploration and evaluation expenditures
TOTAL
Cash
Borrowing capacity
Total Liquidity
Total assets
Debt to Adjusted EBITDAX
Shareholders’ equity
OPERATIONAL
Proved reserves (Contant Case):
Oil (Mbbls)
NGL (Mbbls)
Natural gas (Mmcf)
TOTAL (Mboe)
Daily production:
Oil (Bbls)
NGL (Bbls)
Gas (Mcf)
TOTAL (Boe)
$ 159,793
126,373
128,087
$ 338,366
72,755
$ 411,121
$ 69,217
15,000
$ 84,217
$ 796,520
$ 130,000
$ 435,006
17,026
4,166
28,733
25,981
4,589
734
7,869
6,635
Realised price (net of royalty and transportation):
Oil (per Bbl)
NGL (per Bbl)
Gas (per Mcf)
TOTAL (per Boe)
$ 86.56
32.24
3.42
$ 71.22
62%
0.57
62%
13%
25%
75%
9%
16%
79%
1.03
66%
16%
18%
69%
11%
20%
$ 85,345
52,594
62,646
$ 217,514
165,142
$ 382,656
$ 96,871
33,000
$ 129,871
$ 625,169
$ 30,000
$ 347,241
12,956
2,683
30,655
20,748
2,267
263
2,915
3,015
$ 95.92
33.46
2.97
$ 79.10
DAILY PRODUCTION
(Mboe)
SALES AND
ADJUSTED EBITDAX
EXPLORATION AND
DEVELOPMENT (000’s)
PROVED RESERVES
(Constant Case) (Mboe)
7,000
6,000
5,000
4,000
3,000
2,000
1,000
$200,000
$150,000
20%
80%
$159,793
$126,373
$500,000
$400,000
$300,000
$165,142
$72,755
$338,366
16%
84%
$100,000
$85,345
$50,000
$52,594
$200,000
$217,514
$100,000
18%
82%
25%
75%
30,000
25,000
20,000
15,000
10,000
5,000
2013
2014
2013
2014
2013
2014
2013
2014
n Oil and NGL (Bbls)
n Natural gas (Mboe)
n Oil, natural gas and NGL sales
n ADJUSTED EBITDAX
n Exploration and evaluation
expenditures (incl acquisitions)
n Development and
production assets
n Oil and NGLs (Mbbls)
n Natural gas (Mboe)
Dear Fellow Shareholders,
I am pleased to present Sundance Energy Australia Limited’s
Annual Report for the 12 months ended 31 December 2014. It
has been another year of significant progress for Sundance
across our portfolio of liquids rich oil and gas assets in the US.
The Company’s strategic focus on growing production, cash flows and reserves from
large, repeatable resource plays in North America continues to deliver positive results
with growth in production, cash flows, and reserves.
During late 2013 and 2014, we completed the divestment of our interest in the Williston
Basin in North Dakota for $51 million which realised an internal rate of return of 45 percent;
and also opportunistically divested our interest in the Denver-Julesburg Basin in Colorado
for $114 million which realised an internal rate of return of 104 percent. These divestitures
of smaller, less scalable positions enabled us to focus on developing and growing our
assets in the Eagle Ford in Texas and our Mississippian/Woodford assets in Oklahoma.
Despite the reduction in crude oil and liquids prices towards the end of the year
and continuing into 2015, the operational performance and focused, value-adding
transactions during the past year have positioned the Company very favourably for
future growth in net asset value and shareholder returns.
A year of growing production, cash flow and reserves
In line with our strategy we continued to increase the level of company operated assets,
and successfully maintained a very strong focus on optimising our operations and reducing
costs. This resulted in an impressive improvement in well performance combined with a
top tier cost structure.
Through our operated development program, we ended 2014 with record production
of 9,434 barrels of oil equivalent per day (BOEPD) compared with an exit rate of 5,028
BOEPD in December 2013 and an average annual production of 6,635 BOEPD compared
to 3,015 BOEPD in 2013. During 2014 we drilled and completed 42.7 net wells, primarily
in the Eagle Ford, bringing our total well count to 81.3 by 31 December 2014. High
value oil comprised approximately 69 percent of our total 2014 annual production
and production from Sundance-operated projects accounted for 89 percent of total
production for the year.
Corresponding with the growth in annual production, the Company’s full year revenues
increased to $159.8 million and Adjusted EBITDAX increased to $126.4 million.
The Company’s development program also generated significant growth in Constant Case
reserves during the year. More details are contained elsewhere in this Annual Report,
but in summary our 1P Reserves at the end of 2014 were 26.0 MBOE, 2P Reserves 54.1
MBOE, and 3P Reserves 147.7 MBOE. This compares with Reserves of 20.7 MBOE, 34.6
MBOE, and 92.8 MBOE, respectively, at the end of 2013.
In the current price environment, we have elected to scale back our drilling program to
mainly concentrate on limited drilling obligations to hold Eagle Ford acreage. This will
enable us to maintain our low leverage profile, which was approximately 1.03x debt to
Adjusted EBITDAX at year end, and focus on growing our drilling inventory in an environ-
ment with less competition for leases and small acquisitions. Liquidity was $84 million at
year end, with a borrowing base redetermination in 2015 expected to materially increase
debt availability if the use of such funds is justified in line with our strategy.
The Eagle Ford – driving value and production growth
Sundance has grown its Eagle Ford acreage position from ~7,200 acres upon entering the
basin to approximately 26,160 net mineral acres in the Eagle Ford at the end of 2014
which includes the acquisition of approximately 18,000 net acreage in 2014. By the end of
the first quarter 2015 this had grown to 38,701 net mineral acres. Our growing presence
in this prolific oil and gas region has been driving significant value for the Company and
our shareholders, and continues to form our priority focus for development and acreage
growth in the coming years.
CHAIRMAN’S LETTER
Despite the reduction in
crude oil and liquids
prices towards the end of
the year and continuing
into 2015, the opertional
performance and focused,
value-adding transactions
during the past year have
positioned the Company
very favourably for future
growth in net asset value
and shareholder returns.
2
At year end, we had 197 gross 3P Reserves drilling locations across our Eagle Ford
acreage where we continue to pursue operational and drilling efficiencies, opportunities
to further improve well economics by improving recoveries and reducing costs. In 2014
this included a switch to pad drilling with zipper fracs and new completion techniques
that have provided significant upside in production.
Despite our current scaling back of drilling activity, we have set 2015 production guidance
at 7,850 – 8,500 BOEPD, an increase from the previous year of some 13 – 17 percent,
but a target that we believe is achievable while maintaining acceptable levels of liquidity
given our demonstrated abilities and growing footprint in the Eagle Ford.
Safety and Environment
Sundance has a strong culture throughout the organisation of ensuring that high standards
of safety are maintained and that our operations are conducted in an environmentally
responsible way. During 2014 our comprehensive safety program was enhanced and
further improvements will be a strong focus throughout 2015.
A strong financial position
Sundance is well placed for future growth in the Eagle Ford. The Company has a strong
balance sheet to withstand the current low oil price environment, and our sound financial
management strategy has seen the Company well supported by both new and existing
investors in Australia and internationally.
We expect that Sundance will grow organically and also through further leasing or
bolt-on acquisitions in our core Eagle Ford focus area within our current, conservative
balance sheet parameters.
Positive outlook for 2015
Despite the current oil pricing scenario, Sundance’s medium-to-long term growth
trajectory looks very positive.
We can demonstrate this through:
• A track record of capital efficient growth
• A track record of value creation
• Being a low cost/high margin operator
• Having top tier Eagle Ford assets with an extensive drilling inventory
• Having a clean balance sheet
As a mid-tier oil and gas producer and explorer in the S&P/ASX All Australian 200 index,
and with the increasing interest and support from institutional and retail investors. I believe
that Sundance will deliver significant long-term value from our assets for our shareholders.
Thank you for your support
We have had a busy year at Sundance and I would like to recognise the efforts and valued
contribution of the Board of Directors, management team and all staff and contractors of
the Company in helping us achieve our strategic goals. I am confident that we have the
right team and excellent assets in place to execute our clear and focused strategy that we
expect to deliver significant value for our shareholders.
On behalf of the Board and Company, I would like to thank our shareholders for your
strong support of the Company throughout the year. We are committed to delivering
long-term value for our shareholders and I look forward to reporting over the rest of the
coming year on the continued value creation and growth of Sundance.
Yours sincerely,
MIKE HANNELL
Chairman
The Company has a
strong balance sheet to
withstand the current low
oil price environment,
and our sound financial
management strategy
has seen the Company
well supported by
both new and existing
investors in Australia
and internationally.
3
CEO’S REPORT
Dear Fellow Shareholders,
2014 Review — 2014 was a year of stark economic contrasts
in our industry. During the first half as in the past several years,
historically volatile West Texas Intermediate oil prices seemed
range bound between $80 and $110 with geopolitical events
driving prices towards the ceiling and demand risks pushing
prices towards the floor of the range.
In the US, E&P companies were spending record amounts of capital, fueled by cheap
and plentiful debt, on horizontal drilling and completions to drive production growth
while making material strategic acquisitions in order to increase their long-term
exposure to oil prices.
The easy credit environment caused asset prices to increase significantly to the point
where, in our view, risk adjusted returns on new acquisitions were threatening cyclical
lows. In line with our strategy, Sundance had monetized several mature assets realizing
Sundance’s Performance versus the ASX 200
ANNUAL PERCENTAGE CHANGE
IN 2P PV10
(NET ASSET VALUE)
PER DEBT ADJUSTED SHARE
IN SUNDANCE
PRICE PER SHARE
21.6%
63.3%
-15.6%
59.7%
-48.0%
29.9%
87.8%
-44.6%
YEAR
2014
2013
2012
2011
IN ASX200
1.1%
15.1%
14.6%
-14.5%
~$50 million in current period gains while freeing up
~$165 million in invested capital.
We primarily reinvested this capital in production growth
and cash flow with only about $75 million reinvested in
acquiring oil and gas leases and producing properties. This
resulted in our production increasing from 5,028 BOEPD
to 9,434 BOEPD by December 2014 and full year EBITDAX
increasing $73.8 million to $126.4 million in 2014. Had
prices stayed steady, we likely would have generated
earnings before income taxes of over $85 million and a
return on capital in excess of 20%.
Our second capital priority for the year was to conclude the appraisal of the Woodford
formation in our Logan County, Oklahoma assets. We viewed this relatively modest, but
higher risk, investment as having a 25% chance of success with a 15x upside. Unfortunately,
we met with mixed success in our appraisal activities proving that in today’s onshore
US oil and gas industry that the best absolute returns are generated by drilling in proved
regions. There are plenty of solid opportunities to efficiently grow the business without
exposure to undue geologic risk.
Like many prior bubbles driven by new technologies, the second half of the year saw the
pricing environment come crashing down around us. The market became fundamentally
unbalanced, driving prices down almost 50% and rendering material portions of global
oil and gas development uneconomic.
Our peers went from talking about their growth prospects to fretting about cash costs
and liquidity, a stark contrast from the go-go growth times which existed in the first half
of the year. This shift in industry strategy has now come in line with our general business
philosophy — in the resource space, low-cost, low debt businesses will survive and thrive
across cycles; and, relative to our US onshore peer group, Sundance boasts a top 15%
cost structure and balance sheet.
Our position as a cost and balance sheet leader is underpinned by two key philosophies:
1) investment in a leading technical team that is encouraged to take reasonable risks to
improve recoveries and/or reduce costs, and 2) a ruthless focus on portfolio returns as
demonstrated by our consistent track record of divesting assets that don’t fit our strategic
objectives or promise lower forward return profiles.
Our high quality Eagle Ford acreage produces strong recoveries at reasonable costs and
thus generates good returns, even in a low price environment. Because of these character-
istics, the majority of our forward capital is expected to be invested generating strong
growth and shareholder returns in the Eagle Ford.
With mixed appraisal results in the Woodford, Sundance’s Mississippian/Woodford
position generally requires higher prices to meet our hurdle rates. Because of the mixed
Woodford results, higher overall unit costs, and depressed pricing at year end, we
recognized an impairment charge of ~$60 million on these assets at year 2014. Had
prices maintained their strength, we likely would have been in a position to recover our
investment from these assets.
4
As oil prices started to tumble, we reacted swiftly. In early November 2014, we began
terminating short-term service contracts (we had no long-term agreements), pushing
service providers to offer lower rates, extending drilling obligations with land owners,
and moderating forward capital deployment for drilling, leasing and acquisitions. These
actions are consistent with our core strategy of being a low cost operator and maintaining
a strong balance sheet as they have increased our flexibility in seeking ways to preserve
and ultimately grow shareholder value.
Because of our position as a low cost operator with a clean balance sheet, the Company
remains in a strong position to not only survive, but also to add both short and long-term
shareholder value during the pendency of this downturn in market prices.
Forward Strategy
As dire as the oil markets may appear today, they do remain very efficient in reacting
swiftly to changing prices. Logic would dictate that the highest cost barrel would be the
first off the market, but many of these high cost barrels come from long lead time projects
that have significant sunk costs so are comparatively slow to react. US shale plays, for
the most part, are not the marginal cost barrel but, because of the short lead times, are
often the quickest to react.
This has resulted in an extraordinarily fast reduction in active drilling rigs in the US
slowing the pace of growth which will ultimately and unavoidably lead to supply
restrictions from the US. While the rig count reduction is encouraging, some of the
wells drilled prior to the reduction are still waiting upon completion and the remaining
active rigs continue to drill away meaning new wells will continue to come online with
high flush production so we are unlikely to see a flattening and ultimate reduction in US
supply until late this year. The good news is that high initial production rates fade fast
so, as long as prices stay relatively low, there is likely to be a material decline in U.S.
production (say 8-9%) over the course of 2016.
While the supply reaction is well under way, demand continues to grow with the economy
(net of efficiency improvements) meaning that, like often in history, market fundamentals
will ultimately come back into balance and beyond, resulting in a period of under-supply
and, therefore, higher than normal prices. While this scenario seems likely as a historical
matter, it is also virtually impossible to predict timing with any degree of accuracy.
Fortunately, since US shale is not the marginal cost barrel in the long term, it will survive,
become more efficient, and outperform in when prices ultimately recover.
Our shareholders will benefit from our exposure to some of the highest quality US shale
acreage and production in the Eagle Ford along with our leading cost structure and
strong balance sheet. While prices are down, we intend to invest capital in development
opportunities with reasonable returns and to maintain leases and sustain production
levels while protecting our balance sheet and patiently increasing the size and quality of
our drilling inventory.
To implement this strategy, we will continue to drive down development costs by
capitalizing on weak service demand and improving efficiency to create a sustainable
cost advantage, leasing expired mineral rights in our core areas relinquished by peers
with weaker balance sheets, and striving to acquire additional Eagle Ford assets with
current production within our current, conservative balance sheet parameters. By creating
a sustainable cost advantage and growing drilling inventory while prices are low, we
anticipate generating strong shareholder returns through this cycle.
Finally, our Company remains well positioned because of the hard and creative work put
forth by our employees, board of directors, partners, contractors, and consultants. With
prices low we have a new set of circumstances we can capitalize on to strengthen our
business. Thanks to each and every one of you for your continued focus and passion to
take the calculated risks needed for generating superior shareholder returns and building
a stable, flourishing enterprise.
Sincerely,
ERIC MCCRADY
Managing Director & CEO
Our shareholders will
benefit from our exposure
to some of the highest
quality US shale acreage
and production in the
Eagle Ford along with
our leading cost structure
and strong balance sheet.
5
FINANCIAL OVERVIEW
Through our emphasis on operating and G&A cost control
initiatives, the Company’s record oil and natural gas sales
translated to best-in-class Adjusted EBITDAX Margin (79
percent) among peers our size and a full 10 absolute percentage
points higher than the average of our entire peer group.
As a result of its significant production increase, the Company’s 2014 oil, NGL and natural
gas sales revenue increased by $74.4 million to $159.8 million; an 87 percent increase
compared to $85.3 million in 2013.
REVENUE (US$000s) AND PRODUCTION (Boe/d)
10,000
8,000
6,000
4,000
2,000
$50,000
$40,000
$30,000
$20,000
$10,000
Q1-13
Q2-13
Q3-13
Q4-13
Q1-14
n REVENUE —— Boe/d
Q2-14
Q3-14
Q4-14
This topline growth resulted in Adjusted EBIDTAX increase of $73.8 million to $126.4
million (79 percent of revenue); a 140 percent increase compared to $52.6 million
(62 percent of revenue) in 2013. In other words, for every $1.00 of revenue growth
compared to 2013, the Company added $0.99 of 2014 Adjusted EBITDAX growth.
ADJUSTED EBITDAX AND MARGIN
This Adjusted EBITDAX (generally a good proxy for our
operating cash flow) increase was primarily the result of
increased revenue and the following cost controlled
operating expenses:
• Lease operating expenses increased only slightly (12 percent),
despite significant production increases (108 percent).
As a result of several changes in its field operations and
economies of scale, the Company has realized improvement
in its lease operating costs per barrel.
100%
80%
60%
40%
20%
• Production taxes also only increased slightly (11 percent),
despite significant revenue increase (87 percent). Through a
series of strategic dispositions, the Company has shifted its
state production mix from primarily high severance tax rate
jurisdictions (states of Colorado and North Dakota) to lower severance tax rate jurisdictions
(states of Texas and Oklahoma).
• General and administrative expenses remained relatively flat compared to prior year.
This is primarily due to the fact that the Company began ramping up staffing in 2013 as
it expected development growth in late 2013 and 2014.
Q1-13 Q2-13 Q3-13 Q4-13 Q1-14 Q2-14 Q3-14 Q4-14
$40,000
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
n ADJUSTED EBITDAX (US$000s)
—— ADJUSTED EBITDAX MARGIN (%)
6
COSTS PER BARREL OF OIL EQUIVALENT
$39.26
$33.41
$34.66
$29.70
$25.20
$40
$35
$30
$25
$20
$15
$10
$5
$19.87
$18.27
$11.03
Q1-13
Q2-13
Q3-13
Q4-13
Q1-14
Q2-14
Q3-14
Q4-14
n LOE/BOE n PRODUCTION TAXES/BOE n CASH G&A/BOE
In addition to the significantly improved operating profitability, the Company exited two
non-core basins which resulted in a gain on sales of non-current assets of $50.3 million.
The DJ and Bakken dispositions that occurred in 2014 are further proving the Company’s
track-record of large opportunistic dispositions that result in a high internal rate of
return; allowing the Company to reinvest proceeds in basins with higher risk-adjusted
returns. Since 2007, the Company disposed of six
prospects or basins with an aggregate transaction
value of nearly $400 million. These dispositions had a
transaction value weighted return of 83 percent. The
2014 DJ disposition (transaction value of $113 million)
yielded the Company’s highest internal rate of return
to date of 104 percent.
120%
100%
140%
$10.5
80%
$46.4
As a result of the increased revenue, cost controlled
operating and G&A expenses and gain on sales, offset
by the Company’s non-cash impairment of $71.2
million (due to the depressed oil commodity pricing
at year-end), the Company reported profits before
income tax for the year of $14.5 million.
60%
40%
20%
INTERNAL RATE OF RETURN AND TRANSACTION VALUES
(in millions)
$113.0
$172.0
$39.5
$14.0
DEC 07 DEC 08 DEC 09 DEC 10 DEC 11 DEC 12 DEC 13 DEC 14
• ASHLAND • NIOBRARA • SOUTH ANTELOPE • PHOENIX • DJ • GOLIATH
As mentioned above, the Company’s Adjusted EBITDAX for the period ($126.4 million)
approximates its operating cash flow of $128.1 million. This operating cash flow, along
with i) net proceeds from the disposition of the DJ and Bakken basins ($118.8 million),
ii) net proceeds from issuance of equity ($68.7 million) and iii) net debt draws ($100.0
million) were the Company’s primary sources of cash (collectively $415.6 million), fund-
ing $437.2 million of cash uses including, i) development expenditures ($362.0 million),
ii) exploration expenditures ($39.6 million) and iii) an acquisition of primarily undevel-
oped acreage in the Eagle Ford ($35.6 million).
Despite the Company’s robust 2014 drilling and completion program, it continued to
preserve liquidity with $69.2 million of cash and equivalents and $15.0 million of
undrawn borrowing capacity at year-end. The Company also maintains a low-leverage
model with outstanding principal of $130.0 million at year-end, which represents
1.0x the Company’s 2014 Adjusted EBITDAX. The Company ranks among the lowest
of its peers in this leverage metric, a full 272 absolute basis points below the mean of
its peers (3.8x).
7
In 2014, the Company continued to simplify its portfolio by
divesting its non-core lower-working interest remaining assets
in the DJ Basin and Bakken. The Company’s 2014 drilling and
completions were primarily focused in the Eagle Ford and
Greater Anadarko (Mississippian and Woodford Formations).
OPERATIONS OVERVIEW
PRODUCTION (Boe/d)
10,000
8,000
6,000
4,000
2,000
c
D e
e
c
i n
s
C A G R
DEC Q1 Q2
2012
2013
Q3 Q4 Q1
The Company had record production of 2.4 MMBOE (6,635 BOEPD) in 2014; a 1.3
MMBOE (120 percent) increase compared to 1.2 MMBOE (3,015 BOEPD) in 2013.
The Company’s 2014 exit rate was 9,434 BOEPD, above the Company’s guidance exit
3 %
1 7
=
2
0 1
2
r
e
e m b
rate of 8,000 – 9,000 BOEPD. Despite the DJ and Bakken dispositions
(approximately 1,181 BOEPD at time of dispositions), the Company’s
production has increased at a 173 percent compounded annual
growth rate (CAGR) during the two year 2013 – 2014 period.
Q2 Q3
2014
As a result of its robust 2014 drilling and completions program ($324.0
million), the Company brought on a total of 35 gross (26.1 net) in the
Eagle Ford and 40 gross (16.6 net) Greater Anadarko. In addition, the
Company had 19 gross (10.6 net) and 5 gross (3.1 net) Eagle Ford
and Greater Anadarko wells in progress, respectively, at year-end. The
Company also invested approximately $75.0 million in direct mineral leases and acreage
acquisitions in the Eagle Ford, which increased its net acreage position by 12,640 net
acres to 20,742 in the Eagle Ford and 5,418 in neighboring Maverick County.
Q4 EXIT
As at and for the
Year Ended 31 December 2014
Production (boe)
Production (BOEPD)
Liquids % of sales
Exit Rate (BOEPD)
D&P Capital Invested
E&E Capital Invested
Gross producing wells
Net Producing wells
Gross Wells in Progress
Net Wells in Progress
Net Acres
EAGLE
FORD
1,696,549
4,648
91%
8,177
$ 244,134
$ 59,903
77
53.8
19
10.6
26,160
GREATER
ANADARKO
DISPOSED
BASINS
TOTAL
532,916
1,460
78%
1,257
$ 79,851
$ 12,561
65
27.5
5
3.1
40,937
192,239
527
78%
–
$ 14,381
$ 291
–
–
–
–
640
2,421,704
6,635
87%
9,434
$ 338,366
$ 72,755
142
81.3
24
13.7
67,737
NET DRILLING LOCATIONS
(excluding contingent resources)
These acquisitions increased the Company’s net drilling locations and extended its drilling
inventory to almost 6 years assuming a two-rig program (at 18 wells per rig per year) in
both the Eagle Ford and Greater Anadarko (72 total wells per year).
450
400
350
300
250
200
150
100
50
JAN-13
JAN-14
JAN-15
7.0
6.0
5.0
4.0
3.0
2.0
1.0
Because of its successful drilling program and acreage acquisitions,
the Company increased Constant Case 1P Reserves by 5.3 MMBOE
(25 percent) to 26.0 MMBOE (PV10 of $531.7 million), compared to
20.7 mmboe at the beginning of the year (PV10 of $337.0 million).
This 25 percent Constant Case reserve increase is net of the disposed
DJ and Bakken 6.1 MMBOE reserves (PV10 of $78.2 million).
Excluding the disposed reserves, 1P Reserves increased 11.3 MMBOE
(77 percent). This increase in 1P Reserves, represents 5.5x the
n PROVED
n PROBABLE AND POSSIBLE
—— DRILLING INVENTORY (YEARS)
8
Company’s production for its remaining assets (reserve replacement rate). The 2014
reserve replacement rate is among the highest of our peers.
As at and for the
Year Ended 31 December 2014
EAGLE
FORD
1P Reserves (mboe)
3P Reserves (mboe)
1P Reserves (PV10 ($000s))
3P Reserves (PV10 ($000s))
Net 1P Reserves Drilling Locations
Net 3P Reserves Drilling Locations
18,131.9
100,404.1
$ 449,287.5
$1,202,313.1
42.6
153.7
GREATER
ANADARKO
7,849.4
47,318.7
$ 82,447.5
$ 282,913.8
41.8
259.3
Reserve information from NSAI SEC Constant Case Reserve Report
TOTAL
25,981.3
147,722.8
$ 531,735.0
$ 1,485,226.9
84.4
413.0
9
The Eagle Ford continues to have one of the highest internal
rates of return of any of the US unconventional resource plays.
EAGLE FORD
Because of its relatively low operating costs,
the Eagle Ford to remains profitable during
current oil commodity pricing conditions.
Sundance has quickly transformed the Eagle
Ford position acquired in its merger with
Texon Petroleum Ltd to its most valuable
asset in its portfolio through development
and growing its drilling inventory.
EAGLE FORD
As at and for the Year Ended 31 December 2014
1,696,549
Production (boe)
4,648
Production (BOEPD)
91%
Liquids % of sales
8,177
Exit Rate (BOEPD)
D&P Capital Invested
$ 244,134
E&E Capital Invested and Acquisitions $ 59,903
77
Gross producing wells
53.8
Net Producing wells
19
Gross Wells in Progress
10.6
Net Wells in Progress
26,160
Net Acres
NET EAGLE FORD DRILLING LOCATIONS
(excluding contingent resources)
200
150
100
50
5.0
4.0
3.0
2.0
1.0
In 2014, the Company
brought 35 gross (26.1
net) Eagle Ford wells into
production by D&P investments of $244 million. Through $26
million of direct mineral leases and $36 million of acquisitions
in 2014, the Company increased its Eagle Ford acreage position
to 20,742 net acres, which represents 153.7 net undrilled
3P Reserves locations.
JAN-13
JAN-14
JAN-15
Since its entrance into the Eagle Ford in March 2013, the Company has:
• increased its production over 10x to a 2014 exit rate of 8,177 BOEPD (a 290
percent CAGR);
• increased 1P Constant Case Reserves by 10x to 18,132 MBOE (PV10 of $449.3 million
(an 18x increase));
• increased its acreage to approximately 33,000 net acres, primarily in the volatile oil
and condensate window of the Eagle Ford (includes 14,180 net acres acquired in January
2015 and excludes 5,418 net acres targeting the Georgetown Formation in neighboring
Maverick County);
• increased its producing well count to 77
gross (53.8 net), with an additional 19 gross
(10.6 net) wells in progress at year-end;
• increased its undrilled 3P Reserves drilling
locations to 153.7 net; which represents a
4.3 year drilling inventory (assuming two rig
program drilling 36 net wells per year and
40-80 acre spacing)
1P Reserves (mboe)
3P Reserves (mboe)
1P Reserves (PV10 ($000s))
3P Reserves (PV10 ($000s))
Net 1P Reserves Drilling Locations
Net 3P Reserves Drilling Locations
EAGLE FORD CONSTANT CASE RESERVES
As at and for the Year Ended 31 December 2014
18,131.9
100,404.1
$ 449,287.5
$ 1,202,313.1
42.6
153.7
n PROVED
n PROBABLE AND POSSIBLE
—— DRILLING INVENTORY (YEARS)
10
11
The Company and offset operators continue to have success in
the Greater Anadarko Basin.
During 2014, the Company increased its production to 1,460 BOEPD; a 957 BOEPD
(190 percent) increase compared to 503 BOEPD of production in 2013.
GREATER ANADARKO
In 2014, the Company brought 40 gross
(16.6 net) Greater Anadarko wells into
production by D&P investments of $79.9
million. The Company maintained a strong
acreage position of 40,937 net acres, with
259.3 net 3P Reserves drilling locations (over
six years of drilling inventory assuming a
two-rig program drilling 18 wells/year).
GREATER ANADARKO
As at and for the Year Ended 31 December 2014
Production (boe)
Production (BOEPD)
Liquids % of sales
Exit Rate (BOEPD)
D&P Capital Invested
E&E Capital Invested
Gross producing wells
Net Producing wells
Gross Wells in Progress
Net Wells in Progress
Net Acres
532,916
1,460
78%
1,257
$ 79,851
$ 12,561
65
27.5
5
3.1
40,937
As at 31 December
2014, the Company’s
Greater Anadarko 1P
Reserves increased to 7,849 MBOE (PV10 of $82.4 million); a 3,445
MBOE (78 percent) increase compared to 4,404 MBOE (PV10 of
$66.7 million) at 31 December 2013.
GREATER ANADARKO CONSTANT
CARE RESERVES
As at and for the Year Ended 31 December 2014
1P Reserves (mboe)
3P Reserves (mboe)
1P Reserves (PV10 ($000s))
3P Reserves (PV10 ($000s))
Net 1P Reserves Drilling Locations
Net 3P Reserves Drilling Locations
7,849.4
47,318.7
$ 82,447.5
$ 282,913.8
41.8
259.3
NET GREATER ANADARKO DRILLING LOCATIONS
(excluding contingent resources)
300
250
200
150
100
50
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
JAN-13
JAN-14
JAN-15
n PROVED
n PROBABLE AND POSSIBLE
—— DRILLING INVENTORY (YEARS)
12
13
13
14
DIRECTORS’ REPORT
Your Directors present this report on the Company and its consolidated entities (“Group,” the “Company” or “Consolidated
Group”) for the financial year ended 31 December 2014.
Directors
The names of Directors in office at any time during or since the end of the year are:
• Michael D Hannell
• Damien A Hannes
• Neville W Martin
• Eric P McCrady
• H. Weldon Holcombe
These Directors have been in office since the start of the financial period to the date of this report.
Company Secretary
At the end of the financial period, Mr Damien Connor held the position of Company Secretary and has served as Company
Secretary since August 2013. Mr. Connor has been a member of the Institute of Chartered Accountants of Australia since 2002
and is a member of the Governance Institute of Australia and a graduate of the Australian Institute of Company Directors. He
is also Chief Financial Officer and Company Secretary of ASX-listed UraniumSA Limited and Archer Exploration Limited.
Principal Activities
The principal activities of the Group during the financial year were:
•
•
the exploration for and development and production of oil and natural gas in the United States of America; and,
the continued expansion of its portfolio of oil and gas leases in the United States of America.
No significant changes in the nature of the activities of the Group occurred during the year.
Highlights and Significant Changes in State of Affairs
Following is a summary of highlights and significant changes in the state of affairs of the Group during the year ended 31
December 2014:
•
•
•
•
•
Acquired approximately 4,800 net acres in the Eagle Ford for an initial purchase price of approximately $10.5 million.
Completed the acquisition of approximately 5,700 net Eagle Ford acres for approximately $36 million.
Divested the Company’s remaining Denver-Julesburg and Bakken assets for approximately $108.8 million and $14.0
million in net proceeds, respectively.
Completed a successful capital raise of approximately A$80 million during the year with proceeds being used primarily
to accelerate pace of the Company’s drilling program in the Eagle Ford.
Achieved record production in December 2014 of 9,434 Boe/d, which included 869 Boe/d of flared gas from wells
waiting to hook-up to pipelines. The December 2014 exit rate increased 88% over prior year’s exit rate of 5,028 Boe/d.
• Net revenue increased to $159.8 million, or 87% over the prior year.
•
EBITDAX increased to $126.4 million, or 140% over the prior year, and EBITDAX margin increased to 79%, a 17
percentage point increase over the prior year.
Due to our successful drilling program, brought 75 gross (42.7 net) wells into production and saw a significant increase
across 1P, 2P and 3P Reserves from prior year bringing total Constant Case 3P Reserves to 147,723 MBoe and PV10 of
3P Reserves to $1.5 billion.
Ended the year with $69.2 million of cash, total debt outstanding of $130 million and $15 million of unused borrowing
capacity under the Company’s credit facilities.
•
•
There were no other material changes in the state of affairs of the Company.
- 15 -
Review of Operations
Revenues and Production. The following table provides the components of our revenues for the year ended 31 December
2014 and 2013, as well as each year’s respective sales volumes:
Year ended 31 December
2014
2013
Change in
$
Change as
%
Revenue (US$‘000)
Oil sales ................................................................................
144,994
79,365
65,629
Natural gas sales ..................................................................
Natural gas liquids (NGL) sales .............................................
6,161
8,638
2,774
3,206
3,387
5,432
Product revenue ..................................................................
159,793
85,345
74,448
82.7
122.1
169.5
87.2
Year ended 31 December
Change in
2014
2013
Volume
Change as
%
Net sales volumes:
Oil (Bbls) ...............................................................................
1,675,078
Natural gas (Mcf) .................................................................
1,803,000
827,432
934,200
847,646
868,800
NGL (Bbls) ............................................................................
267,952
95,821
172,131
Oil equivalent (Boe) .............................................................
2,243,529
1,078,953
1,164,576
Average daily production (Boe/d)
6,147
2,956
3,191
102.4
93.0
179.6
107.9
107.9
Barrel of oil equivalent (Boe) and average net daily production (Boe/d). Sales volume increased by 1,164,576 Boe (107.9%)
to 2,243,529 Boe (6,147 Boe/d) for the year ended 31 December 2014 compared to 1,078,953 Boe (2,956 Boe/d) for the prior
year due to successfully bringing online 88 gross (50.1 net) producing wells primarily
in the Eagle Ford and
Mississippian/Woodford Formations.
The Eagle Ford contributed 4,187 Boe/d (68.1%) of total sales volume during the year ended 31 December 2014 compared to
1,371 Boe/d (46.4%) during the prior year. Mississippian/Woodford contributed 1,433 Boe/d (23.2%) of total sales volume
during the year ended 31 December 2014 compared to 503 Boe/d (17.0%) during the prior year. Our sales volume is
oil-weighted, with oil representing 75% and 77% of total sales volume for the year ended 31 December 2014 and 2013,
respectively.
Oil sales. Oil sales increased by $65.6 million (82.7%) to $145.0 million for the year ended 31 December 2014 from $79.4 million
for the prior year. The increase in oil revenues was the result of increased oil production volumes ($81.3 million) offset by a
decrease in product pricing ($15.7 million). Oil production volumes increased 102.4% to 1,675,078 Bbls for the year ended 31
December 2014 compared to 827,432 Bbls for the prior year. The average price we realised on (NGL) the sale of our oil
decreased by 9.8% to $86.56 per Bbl for the year ended 31 December 2014 from $95.92 per Bbl for the prior year.
Natural gas sales. Natural gas sales increased by $3.4 million (122.1%) to $6.2 million for the year ended 31 December 2014
from $2.8 million for the prior year. The increase in natural gas revenues was primarily the result of increased production
volumes ($2.6 million) and improved product pricing ($0.8 million). Natural gas production volumes increased 868,800 Mcf
(93.0%) to 1,803,000 Mcf for the year ended 31 December 2014 compared to 934,200 Mcf for the prior year. The average price
we realised on the sale of our natural gas increased by 15.1% to $3.42 per Mcf for the year ended 31 December 2014 from
$2.97 per Mcf for the prior year.
- 16 -
Natural gas liquids sales (NGL). NGL sales increased by $5.4 million (169.5%) to $8.6 million for the year ended 31 December
2014 from $3.2 million for the same period in prior year. The increase in NGL revenues was primarily the result of increased
production volumes in the Eagle Ford and Anardarko Basins. NGL production volumes increased 172,131 Bbls (179.6%) to
267,952 Bbls for the year ended 31 December 2014 compared to 95,821 Bbls for the prior year. The average price we realised
on the sale of our natural gas liquids decreased by 3.6% to $32.24 per Bbl for the year ended 31 December 2014 from $33.45
per Bbl for the prior year.
Year ended 31 December
Selected per Boe metrics (US$)
2014
2013
Total oil, natural gas and NGL revenue ...................................
Lease operating expense .........................................................
Production tax expense ...........................................................
Depreciation and amortisation expense .................................
General and administrative expense .......................................
Total Profit Margin ..................................................................
71.22
(6.03)
(3.10)
(38.15)
(6.92)
17.02
79.10
(11.23)
(5.80)
(33.57)
(14.18)
14.32
Change in
$
Change as
%
(7.88)
(5.21)
(2.70)
4.58
(7.26)
2.70
(10.0)
(46.4)
(46.5)
13.6
(51.2)
18.9
Lease operating expenses. Our lease operating expenses (LOE) increased by $1.4 million (11.6%) to $13.5 million for the year
ended 31 December 2014 from $12.1 million for the same period in prior year but decreased $5.21 per Boe to $6.03 per Boe
from $11.23 per Boe. The decrease in LOE per Boe is primarily due to the implementation of several cost saving initiatives in
our field operations such as replacing contract lease operators with Company employees and reducing total field head count
per well.
Production taxes. Our production taxes increased by $0.7 million (11.2%) to $7.0 million for the year ended 31 December
2014 from $6.3 million for the prior year but as a percent of revenue decreased 290 basis points to 4.4% from 7.3%. The
decrease in production taxes as a percent of revenue is the result of exiting North Dakota and Colorado, both higher production
tax rate jurisdictions, and increasing our investment in Texas and Oklahoma, which are lower production tax rate jurisdictions,
as well as an adjustment for lower than anticipated ad valorem taxes.
Depreciation and amortisation expense, including depletion. Our depreciation and amortisation expense increased by
$49.4 million (136.3%) to $85.6 million for the year ended 31 December 2014 from $36.2 million for the prior year and
increased $4.58 per Boe to $38.15 per Boe from $33.57 per Boe. The increase reflects our increase in production (107.9%), an
increase in our asset base subject to amortisation as a result of our acquisition and development activity, and increased
completion costs caused by high-demand for completion services and a shortage of trucks able to transport frac sand and
resultant higher trucking rates.
General and administrative expenses. General and administrative expenses per Boe decreased by 51.2% to $6.92 for the year
ended 31 December 2014 as compared to $14.18 per Boe for the prior year. The decrease in general and administrative
expenses per Boe is driven by increased production levels diluting fixed general and administrative costs.
Impairment expense. The Company recorded impairment expense of $71.2 million for the year ended 31 December 2014 on
the Company’s development and production assets that are located in Greater Anadarko and the Eagle Ford as the recoverable
amount was less than the carrying value primarily as a result of lower commodity pricing. No impairment was necessary on
the Company’s exploration and evaluation assets. See Note 17 of the Notes to the Consolidated Financial Statements for
further discussion.
Exploration expense. The Company incurred exploration expense of $10.9 million for the year ended 31 December 2014 on
three unsuccessful exploratory wells in the Anadarko Basin. The Company did not drill any unsuccessful exploratory wells in
the prior year.
- 17 -
Finance costs. Finance costs, net of amounts capitalised to exploration and development, increased by $0.9 million to
$0.7 million for the year ended 31 December 2014 as compared to net interest income of $0.2 million in the prior year. The
increase primarily relates to an increase in amortisation of deferred financing fees and additional interest incurred on undrawn
funds.
Gain (loss) on derivative financial instruments. The net gain (loss) on derivative financial instruments changed by $11.6 million
to an $11.0 million gain for the year ended 31 December 2014 as compared to the prior year. The gain on commodity hedging
consisted of $9.7 million of unrealised gains on commodity derivative contracts and $1.3 of realised gains on commodity
derivative contracts.
The Company had the following open contracts at 31 December 2014:
Contract Type
Counterparty
Basis
Quantity/mo
Strike Price
Term
Collar
Collar
Collar
Collar
Swap
Swap
Swap
Swap
Swap
Swap
Swap
Swap
Wells Fargo
Shell Trading US
Wells Fargo
Wells Fargo
Wells Fargo
Shell Trading US
Shell Trading US
Wells Fargo
Wells Fargo
Shell Trading US
Shell Trading US
Shell Trading US
WTI
LLS
WTI
WTI
LLS
LLS
LLS
WTI
LLS
LLS
LLS
HH
2,000 BBL
3,000 BBL
2,000 BBL
1,000 BBL
2,000 BBL
5,000 BBL
3,000 BBL
2,000 BBL
2,000 BBL
5,000 BBL
5,000 BBL
20,000 MCF
$75.00/$98.65
$85.00/$101.05
$80.00/$97.00
$80.00/$94.94
$91.65
$98.05
$94.10
$95.08
$97.74
$100.70
$94.10
$4.14
1 Jan 15 – 31 Dec 15
1 Jan 15 – 31 Dec 15
1 Jan 15 – 31 Dec 15
1 Jan 15 – 31 Dec 15
1 Jan 15 – 31 Dec 15
1 Jan 15 – 30 Jun 15
1 Jul 15 – 31 Dec 15
1 Jan 15 – 31 Dec 15
1 Jan 15 – 31 Dec 15
1 Jan 15 – 30 Jun 15
1 Jan 16 – 31 Dec 16
1 Jan 15 – 31 Dec 15
Income taxes. The components of our provision for income taxes are as follows:
(In US$‘000s)
Year ended 31 December
2014
2013
Current tax (expense)/benefit .....................................................................
(17)
21,398
Deferred tax benefit/(expense) ...................................................................
858
(26,965)
Total income tax benefit/(expense) .............................................................
Combined Federal and state effective tax rate
841
(5.8)%
(5,567)
25.9%
Our combined Federal and state effective tax rates differ from the Group’s statutory tax rate of 30% primarily due to US federal
and state tax rates, non-deductible expenses and the recognition of previously unrecognised tax losses. See Note 7 in the Notes
to the Consolidated Financial Statements of this report for further information regarding our income taxes.
Adjusted EBITDAX. Adjusted EBITDAX is defined as earnings before interest expense, income taxes, depreciation, depletion
and amortisation, property impairments, gain/(loss) on sale of non-current assets, exploration expense, share-based
compensation and gains and losses on commodity hedging, net of settlements of commodity hedging.
For the year ended 31 December 2014, adjusted EBITDAX was $126.4 million, or 79% of revenue, compared to $52.6 million,
or 62% of revenue, from the prior year.
- 18 -
The following table presents a reconciliation of the profit (loss) attributable to owners of Sundance to Adjusted EBITDAX:
(In US$‘000s)
Year ended 31 December
2014
2013
IFRS Profit Loss Reconciliation to Adjusted EBITDAX:
Profit attributable to owners of Sundance ..................................................
Income tax (benefit)/expense ......................................................................
Finance costs, net of amounts capitalised and interest received ................
15,321
(841)
494
(Gain) Loss on derivative financial instruments ...........................................
(10,792)
Settlement of derivative financial instruments............................................
Depreciation and amortisation expense ......................................................
Impairment of non-current assets ...............................................................
Exploration expense.....................................................................................
Stock compensation, value of services ........................................................
Gain on sale of non-current assets ..............................................................
Adjusted EBITDAX .......................................................................................
EBITDAX Margin ..........................................................................................
1,150
85,584
71,212
10,934
1,915
(48,604)
126,373
79%
15,942
5,567
(232)
554
282
36,225
-
-
1,590
(7,335)
52,594
62%
Exploration and Development
For the month of December 2014, the Company achieved record production of 9,434 Boe/d, which included 869 Boe/d of
flared gas from wells waiting to hook-up to pipelines. The December 2014 exit rate increased 88% over prior year’s exit rate
of 5,028 Boe/d. During the year ended 31 December 2014, the Company produced 2.4 MMBoe, which included 0.2 MMBoe
of flared gas. This result was more than double the production in prior year, primarily as a result of increased drilling activity
and production in the Eagle Ford Basin.
The Company’s exploration and development activities are focused in the Eagle Ford and the Mississippian/Woodford
Formations. Costs incurred for development and production expenditures for the Eagle Ford and Mississippian/Woodford
Formations during the year ended 31 December 2014 totalled $324.0 million, which included $295.9 million of drilling and
development expenditure related to our 2014 plan, $3.8 million on infrastructure, and $24.3 million of drilling and
development expenditure related to our 2015 plan. This investment resulted in the addition of 75 gross (42.7 net) wells into
production, including 50 gross (39.5 net) Sundance-operated horizontal wells. An additional 24 gross (13.7 net) wells were
drilling, being prepared for fracture stimulation or testing as at 31 December 2014, an increase of 7 gross (3.0 net) compared
to the beginning of the year.
Acquisitions
In April 2014, the Company acquired approximately 4,800 net acres in the Eagle Ford for an initial purchase price of
approximately $10.5 million and two separate earn out payments due upon commencement of drilling in each of three blocks
of acreage (total for all three blocks of $7.7 million) and payout of the first two wells drilled on each block of the acreage
($7.7 million). The term of the agreement is two years and provides a one year extension for $500 per acre extended. This
acquired acreage is adjacent to our existing acreage in McMullen County, Texas.
In July 2014, the Company completed the acquisition of approximately 5,700 net Eagle Ford acres in Dimmit County, South
Texas, for approximately $36 million and a commitment to drill four Eagle Ford wells. The Company also has the option, at its
sole discretion, to acquire the Seller’s remaining working interest for an additional $45 million for the earlier of one year from
closing the acquisition or six months from first production of hydrocarbons.
- 19 -
Dispositions
In July 2014, the Company sold its remaining Denver-Julesburg Basin assets. The net proceeds of approximately $108.8 million
in cash includes the reimbursement of capital expenditures incurred on 8 gross (3.1 net) non-operated horizontal wells.
In July 2014, the Company sold its remaining Williston assets for approximately $14.0 million, which included $10 million in
cash and approximately $4.0 million in settlement of a net liability due to the buyer.
Reserves
The Company’s reserves at 31 December 2014 were announced on 29 January 2015. Even though the Company disposed of
the remaining assets in the Williston and Denver-Julesburg Basins, the Company saw significant increases across 1P, 2P and 3P
reserves as compared to reserves at 31 December 2013 primarily through successful implementation of our drilling program
and the acquisition of acreage in the Eagle Ford.
The Company’s Proved, Probable and Possible reserve estimates are calculated by Netherland, Sewell & Associates, Inc. (NSAI)
as at 31 December 2014 in accordance with SEC guidelines. The reserve estimates are based on, and fairly represent,
information, supporting documentation prepared by, or under supervision of, Mr. Neil H. Little. Mr. Little is a Licensed
Professional Engineer in the State of Texas (No. 117966) with over 12 years of practical experience in petroleum engineering
studies and over 5 years of practical experience in evaluation of reserves. Mr. Little meets or exceeds the education, training
and experience requirements set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves
Information promulgated by the Society of Petroleum Engineers. We believe that he is proficient in judiciously applying
industry standard practices to engineering and geoscience evaluations as well as applying SEC and other industry reserves
definitions and guidelines. Mr. Little consents to the inclusion in this report of the information and context in which it appears.
Although current market prices have fallen significantly, under SEC guidelines, the commodity prices used in the 31 December
2014 reserve estimates were based on the 12-month unweighted arithmetic average of the first day of the month prices for
the prior 1 January 2014 through 1 December 2014, adjusted by lease for transportation fees and regional price differentials.
For crude oil volumes, the average West Texas Intermediate posted price of $91.48 per barrel used to calculate PV-10 at 31
December 2014 was down $1.94 per barrel from the average price of $93.42 per barrel used to calculate PV-10 at 31 December
2013. For natural gas volumes, the average Henry Hub spot price of $4.35 per million British thermal units (“MMBTU”) used to
calculate PV-10 at 31 December 2014 was up $0.68 per MMBTU from the average price of $3.67 per MMBTU used to calculate
PV-10 at 31 December 2013. All prices were held constant throughout the estimated economic life of the properties.
Summary reserve information based on NSAI SEC Constant Case is provided below. For management’s case reserve report
assumptions, see Note 17 for further information.
Sundance Total
Oil (mbbls) NGL (mbbls) Gas (mmcf) (1)
Mboe
PV10 (US$MM)
Proved Devel oped Produci ng
Proved Undevel oped
Total Proved Reserves
Proba bl e Devel oped
Proba bl e Undevel oped
Total 2P Reserves
Pos s i bl e Devel oped
Pos s i bl e Undevel oped
Total 3P Reserves
6,124
10,903
17,026
1,344
10,988
29,359
978
26,382
56,718
1,801
2,365
4,166
260
5,795
10,221
173
21,896
32,291
12,364
16,369
28,733
2,008
56,423
87,164
9,985
15,996
25,981
1,939
26,186
54,107
1,338
263,777
352,279
1,375
92,241
147,723
338.0
193.7
531.7
48.3
185.1
765.2
35.6
684.5
1,485.2
(1) One barrel of oil is the energy equivalent of six Mcf of natural gas.
Note: Totals may not foot due to rounding.
- 20 -
Financial Position
In May 2014, the borrowing capacity under our credit facilities increased from an aggregate of $63 million to $135 million. The
increase in the borrowing capacity was driven by the significant uplift of the Company’s proved oil and gas reserves as at 31
December 2013. In conjunction with the increase in the Company’s borrowing capacity, the Company expanded the syndicate
of banks under the Senior Credit Facility. Bank of America Merrill Lynch and the Bank of Nova Scotia have now joined the bank
group which is led by Wells Fargo.
In July 2014, the borrowing capacity increased an additional net $10 million, to $145 million, after taking into consideration
the removal of proved oil and gas reserves associated with the DJ and Williston Basin dispositions and the development of
proved oil and gas reserves in the Eagle Ford Formation.
At 31 December 2014, the Company had $130 million outstanding under our credit facilities and $15 million available under
our borrowing capacity. Ending cash at 31 December 2014 was $69.2 million.
Cashflow
Cash provided by operating activities for the year ended 31 December 2014 increased 104.5% to $128.1 million compared to
the prior year. This increase was primarily due to receipts from sales increasing $85.7 million, or 101.2%, to $170.4 million,
while keeping payments to suppliers and employees relatively stable with an increase of $8.2 million, or 37.7%, to $30.0 million.
See Review of Operations for more information.
Cash used in investing activities for the year ended 31 December 2014 increased $158.9 million, or 96.7%, to $323.2 million.
This increase is due to successful implementation of the Company’s strategy to develop and grow the reserves from our high
working interest, repeatable resource plays, primarily in the Eagle Ford. Due to funding available to the Company through
asset sales, capital raises and credit facilities, the Company was able to accelerate its 2015 drilling program into 2014. However,
due to the reduction in crude oil prices in the fourth quarter of 2014 and continuing into early 2015, the Company will scale
back its drilling program to concentrate on limited drilling obligations to hold Eagle Ford acreage during the 2015 year.
Cash provided by financing activities for the year ended 31 December 2014 increased $123.1 million, or 277.0%, to $167.6
million. This increase is a result of the increased availability and draws under the Company’s credit facilities and proceeds
received in a private placement of shares. In February 2014, the Company completed a private placement in which we sold
84.2 million ordinary shares at A$0.95 per share, resulting in net proceeds of approximately $68.4 million. The first tranche of
63.7 million shares was issued in March 2014 and the second tranche of 20.5 million shares was issued in April 2014.
Matters Subsequent to the End of the Financial Year
Subsequent to 31 December 2014, an additional $13.9 million was drawn-down the credit facilities, bringing total outstanding
debt to $143.9 million, with undrawn funds of $1.1 million.
In January 2015, the company acquired three leases totalling approximately 14,180 net acres in the Eagle Ford for
approximately $13.4 million.
Future Developments, Prospects and Business Strategies
The Group’s business strategies and prospects for growth in future financial years are presently concentrated on growing the
value of the Group’s current resource plays through direct leasing from mineral owners, small acquisitions of producing
properties, drilling inventory within the Group’s current balance sheet capabilities, and development of the Group’s current
acreage. Further information on likely development in the operations of the Group and expected results of operations has not
been included because the Directors believe it would result in unreasonable prejudice to the Group.
- 21 -
Environmental Issues
The Group is committed to the environmentally sustainable development of its operations and, while the Group’s operations
are subject to significant environmental regulation under the laws of the states in which we operate and the United States of
America, no notice of any breach has been received and the Directors believe no material breach of any environment
regulations has occurred. The Company maintains strict internal performance and reporting guidelines to capture all spills and
emissions. Additionally, a third party firm is used to conduct quarterly environmental inspections to ensure the company is
meeting both internal and external standards.
In the Group’s Oklahoma asset, significant company and regulatory scrutiny has been placed on seismic events in proximity to
salt water disposal wells (“SWDs”). Prior to the development and operation of our SWDs, the company undertook a study of
the state approved disposal zones and successfully drilled and completed its SWDs in state approved zones that accept
sufficient volumes of water to meet the company’s operational objectives while minimizing the potential risk of seismic events.
During 2014, all of the Group’s SWDs were reviewed and approved by the state regulatory agency.
During 2014 the Group undertook a review of its operations in Texas and has identified two main opportunities to reduce its
environmental impact: 1) water recycling and re-use for completion operations in the Eagle Ford; and 2) more efficient and
less environmentally impactful treatment of hydrogen sulphide (H2S) from the company’s natural gas production in the Eagle
Ford. During 2015 the Company expects to implement operational changes to capitalize on these opportunities to reduce its
environmental impact.
Health and Safety
The Company is committed to providing a best in class health and safety environment for its employees, contractors and
communities with a zero-defect target. The Company tracks both company and company plus contractor incident rates. During
2014 the company had an Occupational Safety and Health Administration (“OSHA”) Recordable Incident Rate (“ORIR”) of 0.0
per 200,000 man hours and company plus contractor ORIR of 0.25 per 200,000 man hours.
The Company maintains a comprehensive safety program that includes annual training of employees and regular monitoring
of employee and contractor safety certifications. The company uses a third party expert to conduct random safety audits of
its key operational activities and implements any changes identified by these audits. During 2014 the Company’s drilling
operations achieved a 98% audit rating. The Company expects to conduct further random safety audits for both its drilling and
completion operations in 2015.
The Company uses subcontractors and vendors (“Contractors”) for execution of a significant portion of its operating activities.
Prior to utilising the Contractors, the Company investigates the historical safety ratings of the Contractor utilizing the
Contractor’s Workers Compensation Experience Modification Ratio (“EMR”). Only contractors with EMRs below 1.0 are utilized
unless executive exception is granted. The Company investigates the safety certifications and experience of key Contractor
employees expected to work on the Company’s assets. As part of the Company’s policy all Contractors must provide written
documentation that they will comply with the Company’s comprehensive written Health, Safety and Environmental Plan.
The Company actively encourages its employees to participate in a variety of health and wellness programs, either self-directed
or those sponsored by the Company. As a result, many employees utilize the Company’s dedicated wellness centre to assist
in achievement of their individual health and wellness goals. Additionally, in 2014, the Company sponsored a 30-day walking
competition where company sponsored teams collectively walked 7.85 million steps or 3,925 miles with each participating
employee walking an average of 3.25 miles per day.
Dividends
No dividends were declared or paid during the financial year. No recommendation for payment of dividends has been made.
- 22 -
Information on Directors
Michael Damer Hannell
Chairman, BSc Eng (Hons), FIEAust
Experience
Mike has been a Director of Sundance since March 2006 and chairman of our board of directors since December 2008.
Mr. Hannell has over 45 years of experience in the oil and gas industry, initially in the downstream sector and subsequently in
the upstream sector. His extensive experience has been in a wide range of design and construction, engineering, operations,
exploration and development, marketing and commercial, financial and corporate areas in the United States, United Kingdom,
continental Europe and Australia at the senior executive level with Mobil Oil (now Exxon) and Santos Ltd. Mr. Hannell recently
finished his term as the chairman of Rees Operations Pty Ltd (doing business as Milford Industries Pty Ltd), an Australian
automotive components and transportation container manufacturer and supplier. He has also held a number of other board
appointments including the chairman of Sydac Pty Ltd, a designer and producer of simulation training products for industry.
Mr. Hannell has also served on a number of not-for-profit boards, with appointments as president of the Adelaide-based
Chamber of Mines and Energy, president of Business SA (formerly the South Australian Chamber of Commerce and Industry),
chairman of the Investigator Science and Technology Centre, chairman of the Adelaide Graduate School of Business, and a
member of the South Australian Legal Practitioners Conduct Board. Mr. Hannell holds a Bachelor of Science degree in
Engineering (with Honors) from the University of London and is a Fellow of the Institution of Engineers Australia.
Interest in Shares:
1,059,000 ordinary shares in Sundance Energy Australia Limited
Special Responsibilities:
-Chairman of the Board of Directors
-Chairman of the Remuneration and Nominations Committee
-Member of the Audit and Risk Management Committee
-Member of the Reserves Committee
Other Directorships:
Nil
Eric P. McCrady
Director, BS in Business Administration
Experience
Eric has been our Chief Executive Officer since April 2011 and Managing Director of our board of directors since November
2011. He also served as our Chief Financial Officer from June 2010 until becoming Chief Executive Officer in 2011. Mr. McCrady
has served in numerous positions in the energy, private investment and retail industries. From 2004 to 2010, Mr. McCrady was
employed by The Broe Group, a private investment firm, in various financial and executive management positions across a
variety of industry investment platforms, including energy, transportation and real estate. From 1997 to 2003, Mr. McCrady
was employed by American Coin Merchandising, Inc. in various corporate finance roles. Mr. McCrady holds a degree in Business
Administration from the University of Colorado, Boulder.
Interest in Shares, Restricted Share Units and Options:
1,908,581 Ordinary Shares in Sundance Energy Australia Limited and 791,561 Restricted Share Units
Special Responsibilities:
Managing Director and Chief Executive Officer of the Company
Other Directorships:
Nil
- 23 -
Damien Ashley Hannes
Director, CA, BBs
Experience
Damien has been a Director since August 2009. Mr. Hannes has over 25 years of finance experience. He has served over 15
years as a managing director and a member of the operating committee, among other senior management positions, for Credit
Suisse’s listed derivatives business in equities, commodities and fixed income in its Asia and Pacific region. From 1986 to 1993,
Mr. Hannes was a director for Fay Richwhite Australia, a New Zealand merchant bank. Prior to his tenure with Fay Richwhite,
Mr. Hannes was the director of operations and chief financial officer of Donaldson, Lufkin and Jenrette Futures Ltd, a U.S.
investment bank. He has successfully raised capital and developed and managed mining, commodities trading and
manufacturing businesses in the global market. Mr. Hannes also serves as the chairman of the board of directors of Goldsmith
Resources SAC, a gold mining company with operations in Peru, and as a director of Quill Stationery Manufacturers Limited, a
paper products business with operations in China. He holds a Bachelor of Business degree from the NSW University of
Technology in Australia. Mr. Hannes is a qualified chartered accountant.
Interest in Shares:
5,801,561 Ordinary Shares in Sundance Energy Australia Limited
Special Responsibilities:
-Chairman of the Audit and Risk Management Committee
-Member of the Remuneration and Nominations Committee
Other Directorships:
-Chairman of the Board of Directors of Goldsmith Resources SAC
-Director of Quill Stationery Manufacturers Limited
Neville Wayne Martin
Director, LLB
Experience
Neville has been a Director since January 2012. Prior to his election, he was an alternate director on our board of directors.
Mr. Martin has over 40 years of experience as a lawyer specializing in corporate law and mining, oil and gas law. He is currently
a consultant to the Australian law firm, Minter Ellison. Mr. Martin has served as a director on the boards of several Australian
companies listed on the Australian Securities Exchange, including Stuart Petroleum Ltd from 1999 to 2002, Austin Exploration
Ltd. from 2005 to 2008 and Adelaide Energy Ltd from 2005 to 2011. Mr. Martin is the former state president of the Australian
Resource and Energy Law Association. Mr. Martin holds a Bachelor of Laws degree from Adelaide University.
Interest in Shares:
422,800 Ordinary Shares in Sundance Energy Australia Limited
Special Responsibilities:
-Member of the Audit and Risk Management Committee
-Member of the Reserves Committee
Other Directorships:
Nil
- 24 -
H. Weldon Holcombe
Director, BS in Civil Engineering
Experience
Weldon has been a Director since December 2012. Mr. Holcombe has over 30 years of onshore and offshore U.S. oil and gas
including technology, reservoir engineering, drilling and completions, production operations,
industry experience,
construction, field development and optimization, Health, Safety and Environmental (“HSE”), and management of office, field
and contract personnel. Most recently, Mr. Holcombe served as the Executive Vice President, Mid Continental Region, for
Petrohawk Energy Corporation from 2006 until its acquisition by BHP Billiton in 2011, after which Mr. Holcombe served as Vice
President of New Technology Development for BHP Billiton. In his capacity as Executive Vice President for Petrohawk Energy
Corporation, Mr. Holcombe managed development of leading unconventional resource plays, including the Haynesville,
Fayetteville and Permian areas. In addition, Mr. Holcombe served as President of Big Hawk LLC, a subsidiary of Petrohawk
Energy Corporation, a provider of basic oil and gas construction, logistics and rental services. Mr. Holcombe also served as
corporate HSE officer for Petrohawk and joint chairperson of the steering committee that managed construction and operation
of a gathering system in Petrohawk’s Haynesville field with one billion cubic feet of natural gas of production per day. Prior to
Petrohawk, Mr. Holcombe served in a variety of senior level management, operations and engineering roles for KCS Energy
and Exxon. Mr. Holcombe holds a Bachelor of Science degree in civil engineering from the University of Auburn.
Interest in Shares:
596,700 Ordinary Shares in Sundance Energy Australia Limited
Special Responsibilities:
-Chairman of the Reserves Committee
-Member of the Remuneration and Nominations Committee
Other Directorships:
Nil
Meetings of Directors
The table below shows the number of meetings held during each Director’s tenure and the attendance by each Director and
respective members of the Committees. In addition to the formal meetings held and noted below, a number of informal
meetings were also held.
Board of Directors
Meetings
Audit and Risk
Management
Committee
Remuneration and
Nominations
Committee
Held
Attended
Held
Attended
Held
Attended
M Hannell
E McCrady
D Hannes
N Martin
W Holcombe
9
9
9
9
9
9
9
9
9
9
4
-
4
4
-
4
-
4
3
-
7
-
7
-
7
7
-
7
-
7
Reserves
Committee
Held
4
Attended
4
-
-
4
4
-
-
4
4
The Audit and Risk Management, the Remuneration and Nominations, and the Reserves Committees both have charters
approved by the Committees and, subsequently, the Board, which sets out the Committees’ objectives, composition, meeting
frequency, access, duties and responsibilities. Minutes are kept of all meetings and are tabled for adoption at the following
Committee meetings. These minutes are subsequently provided to the Board for information and any discussion that may be
necessary. The Audit and Risk Management Committee meets with the external auditor at least twice a year.
- 25 -
Board Committees
Chairmanship and current membership of each of the board committees at the date of this report are as follows:
Committee
Chairman
Members
Audit and Risk Management
D. Hannes
N. Martin, M. Hannell
Remuneration and Nominations
M. Hannell
D. Hannes, H. W. Holcombe
Reserves
H. W. Holcombe
M. Hannell, N. Martin
Indemnifying Officers
The Company has paid premiums to insure each of the directors, officers and consultants against liabilities for costs and
expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in the capacity of
director or executive of the Company, other than conduct involving a willful breach of duty in relation to the Company. The
policy does not specify the individual premium for each officer covered and the amount paid is confidential.
During or since the end of the reporting period, the Company has given an indemnity or entered into an agreement to
indemnify, paid or agreed to pay insurance premiums as follows:
• Michael Hannell
•
Eric McCrady
• Neville Martin
•
Damien A Hannes
• Weldon Holcombe
•
Cathy L. Anderson
•
Grace L. Ford
•
Damien Connor
Unlisted Options
At the date of this report, the options listed below are unexercised:
Grant Date
3 June 2011
6 June 2011
6 September 2011
5 December 2011
Option Type
2016 Ordinary
2015 Ordinary
2018 Ordinary
2019 Ordinary
Number of
Shares Subject to
Options Listed Exercise Price
500,000
30,000
1,200,000
1,000,000
2,730,000
A$0.65
A$0.95
A$0.95
A$0.95
Expiry Date
15 January 2016
1 September 2015
31 December 2018
5 March 2019
No person, or entity entitled to exercise the option had or has any right by virtue of the option to participate in any share issue
of any other body corporate.
Unlisted Restricted Share Units
At 31 December 2014, 2,964,177 unlisted restricted share units remain unvested and will primarily vest over the next two
years. Upon vesting, RSUs will be converted to ordinary shares.
- 26 -
Proceedings on Behalf of Company
No person has applied to the Court for leave to bring proceedings on behalf of the Company or to 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. The Company was not a party to any such proceedings during the year.
Non-Audit Services
The Board of Directors is satisfied that the provision of non-audit services during the reporting period is compatible with the
general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the
services disclosed below did not compromise the external auditor’s independence for the following reasons:
•
all non-audit services are reviewed and approved by the Board prior to commencement to ensure they do not adversely
affect the integrity and objectivity of the auditor; and
the nature of the services provided do not compromise the general principles relating to auditor independence in
accordance with APES 10 : Code of Ethics for Professional Accountants set by the Accounting Professional Ethics
Standards Board.
•
The following fees for non-audit services were incurred related to services performed by the external auditors during the year
ended 31 December 2014:
•
Australian taxation services - $68,815
Rounding of Amounts
The Company is an entity to which ASIC Class Order 98/100, issued by the Australian Securities and Investments Commission,
applies relating to the rounding off of amounts in the Directors’ Report. Accordingly, amounts in the Directors’ Report have
been rounded to the nearest thousand dollars, unless shown otherwise.
- 27 -
REMUNERATION REPORT
(audited)
The directors present the Remuneration Report prepared in accordance with section 30 of the Corporations Act 2001
(Corporations Act) for the consolidated entity for the fiscal year ended 31 December 2014. This Remuneration Report has been
audited as required by section 308(3C) of the Corporations Act and forms part of the Directors’ Report.
This report details the key remuneration activities for the fiscal year ended 31 December 2014 and provides remuneration
information for the Company’s non-executive Directors (NEDs), executive Director and other key management personnel (KMP)
of the consolidated entity. All amounts are in USD unless explicitly stated otherwise.
Table of Contents
A.
B.
C.
D.
E.
Key Fiscal Year 2014 Remuneration and Key Changes for Fiscal Year 2015
Executive Summary
Directors and Key Management Personnel (KMP)
Remuneration Governance
Remuneration Policy and Framework
o
o
o
Fixed Pay and Benefits
Short Term Incentives (STI)
Long Term Incentives (LTI)
Company Performance and Shareholder Wealth
Non-executive Director Remuneration Policy
Voting and Comments Made at Company’s Year Ended 31 December 2013 Annual General Meeting
Employment Contracts
Details of Remuneration
Outstanding KMP Options and Restricted Share Units (RSUs)
Shareholdings
Key Fiscal Year 2014 Remuneration and Key Changes for Fiscal Year 2015
2014 Remuneration
Action
Rationale
F.
G.
H.
I.
J.
K.
L.
A.
Fixed Remuneration
Cash Short-Term Incentive
Equity Long-Term Incentive
Increased Managing Director’s base
pay from $275,000 (fiscal year 2013)
to $370,000 (fiscal year 2014).
Increased CFO’s base pay from
$225,000 (fiscal year 2013) to
$295,000 (fiscal year 2014).
Authorised annual cash short-term
awards for 2013 performance to the
CEO of 87% of year-end 2013 base
salary and to the other KMPs at 65%
of year-end 2013 base salary.
Authorised long-term equity awards
that vest over three years to the CEO
with an aggregate grant date fair
value of $679,510 and to other KMPs
with an aggregate grant date fair
value totalling $681,886.
Award for progress towards strategic
goals and individual performance;
CEO’s base pay was below the 25th
percentile of the Company’s U.S. and
Australian market peers.
CFO’s base pay was below the 50th
percentile of the Company’s U.S.
market peers.
Annual cash awards were based on
the achievement of financial and
strategic objectives in 2013.
Annual long-term equity awards
were based on the achievement of
financial and strategic objectives in
2013.
- 28 -
2014 Remuneration
Action
Rationale
Non-executive Director
Compensation
Increased total director base
compensation during 2014 by
approximately A$65,000 per
Director.
Based on market review of director
compensation at peer group
companies and to reflect the
increasing complexity of the
Company’s operations and therefore
the related time commitment and
performance expectations of the
directors.
AMED E
Key Changes for 2015
Action
Fixed Remuneration
Cash Short-Term Incentive
Equity Long-Term Incentive
Non-executive Director
Compensation
COMPENSATION (cont’d)
B. Executive Summary
No increases to Managing Director’s
or KMP’s base salary.
Short-Term Incentive payments
earned for 2014 will be paid out in
Restricted Stock Units during 2015
instead of cash to reflect the current
low commodity price environment
and preserve liquidity.
Long-Term Incentive RSUs to KMPs
earned for 2014 will be paid out in
2015 with 50% time based vesting
and 50% vesting tied to Total
Shareholder Return compared to the
peer group over a three year period.
No increases to NED fees
What We Do:
What We Don’t Do:
• Pay for Performance – STI and LTI awarded is based on
historical Company performance.
• Utilize a Quantitative Process for Performance Cash
Bonuses – The Remuneration and Nominations
Committee establishes Company performance measures
and goals at the beginning of the performance year that
are assigned individual weightings. In considering bonus
awards for the year, the Committee scores the Company’s
performance on each measure in arriving at an overall
weighted score that determines the amount of any
bonuses.
• Require Stock Ownership by Executive Officers –
Board-adopted guidelines establish robust minimum stock
ownership levels for our executive officers to ensure
appropriate alignment with shareholders.
• Enter into Egregious Employment Contracts – The
Company does not enter into contracts containing multi-
year guarantees for salary increases, non-performance
based bonuses or equity compensation.
• Provide Excessive Severance and/or Change in Control
Provisions – Provisions do not require cash payments
exceeding three times base salary plus target/average/last
paid bonus; No liberal change in control definition in
individual contracts or equity plans that could result in
payments to executives without an actual change in
control or job loss occurring.
• Provide Tax Gross-Ups – The Company does not include
tax gross-up payments for any STI or LTI Plans.
- 29 -
What We Do:
What We Don’t Do:
• Provide for Clawback of Compensation - The
Committee may require reimbursement or forfeiture of all
or a portion of any performance cash bonus or LTI in the
event the Company is required to restate financial
statements or if the Company relied on materially
inaccurate information in making its incentive
compensation decisions.
• Allow Speculation on Our Company’s Stock – Company
policy prohibits our executives from engaging in short-
term or speculative transactions involving our common
stock. This policy prohibits trading in our stock on a short-
term basis, engaging in short sales, buying and selling puts
and calls, and discourages the practice of purchasing the
Company’s stock on margin.
• Permit Abusive Perquisites Practices - Perquisites made
available to our executives are limited.
• Equity Grant Practices - The Company does not
backdate or re-price equity awards retroactively.
Remuneration Practices and Policies
Our board of directors recognizes that the attraction and retention of high-calibre directors and executives with appropriate
incentives is critical to generating shareholder value. We have designed our remuneration program to provide rewards for
individual performance and corporate results and to encourage an ownership mentality among our executives and other key
employees. We believe a significant portion of our executives’ pay should be at-risk to performance.
Sundance stock is traded on the Australian Stock Exchange (ASX) and all of our management team and operations are located in
the United States. In order to retain our current talent and continue to attract highly skilled talent in the U.S., we have adopted
remuneration programs that align with best practices and competitive design in the U.S. marketplace while also meeting ASX
listing requirements.
The objectives of our compensation program are to:
•
Attract and retain highly trained, experienced, and committed executives who have the skills, education, business
acumen, and background to lead a mid-tier oil and gas business;
• Motivate and reward executives to drive and achieve our goal of increasing shareholder value;
•
Provide balanced incentives for the achievement of near-term and long-term objectives, without motivating executives
to take excessive risk; and
Track and respond to developments such as the tightening in the labor market or changes in competitive pay practices.
•
The primary components of our executive compensation program consist of long-term equity incentive awards, the opportunity
to receive an annual performance cash bonus, and base salary. We generally target each component, as well as the aggregate of
the components, at between approximately the 25th and 50th percentile of market compensation comparable within a group of
similarly-sized ASX and U.S. listed oil and gas exploration and production companies. Individual compensation levels may vary
from these targets based on performance, expertise, experience, or other factors unique to the individual or the Company. We
also provide retirement and other benefits typical for our peer group.
C. Directors and Key Management Personnel
• Michael D Hannell (Chairman)
•
Eric P McCrady (Managing Director and Chief Executive Officer)
•
Damien A Hannes (Non-Executive Director)
• Neville W Martin (Non-Executive Director)
•
•
•
H. Weldon Holcombe (Non-Executive Director)
Cathy L Anderson (Chief Financial Officer)
Grace Ford (Vice President of Exploration and Development) – appointed as KMP 1 January 2014
Based on her increased responsibilities due to the Company’s growth, Ms. Ford was deemed to be a Key Management Personnel
during the 2014 fiscal year. Prior to that time, Ms. Ford was not considered to be Key Management Personnel.
- 30 -
D. Remuneration Governance
In order to maximize shareholder value, our remuneration philosophy is to attract, motivate and retain high-calibre executives.
In assessing total remuneration, our objective is to be competitive with industry remuneration while considering individual and
company performance. The majority of each executive's remuneration is performance based and "at risk." We believe that equity
ownership is an important element of remuneration and that, over time, more of the executives' remuneration should be equity-
based rather than cash-based so as to better align executive remuneration with shareholder return. For the year ended 31
December 2013, the targeted "at risk" remuneration relating to performance variability with cash bonuses and LTI represents
approximately 78% for the Managing Director and approximately 71% for all other KMP’s, as illustrated in the table below.
U.S. Remuneration Basic Principles
While our stock is traded on the Australian Stock Exchange (ASX), all of our management team and operations are located in the
United States. As such, we have adopted the following objectives for managing executive remuneration:
•
•
•
•
•
•
•
Recognition that Sundance Energy is a publicly listed Australian company, with mainly Australian shareholders;
Recognition that remuneration must be competitive within the local working environment in order to attract and to retain
the necessary people to grow the company according to the Board approved strategy;
The scheme must achieve the appropriate balance between shareholder interests and management motivation;
Due recognition and observance of the ASX listing rules and the Corporations Act must be made;
The Committee should be advised by an appropriate independent industry expert;
The scheme is to include three basic elements:
o
o Annual cash bonuses based on predetermined targets recommended by the Remuneration and Nominations
Base salaries (which will be reviewed at the end of each financial year);
Committee and approved by the Board;
Long term incentives in the form of equity based on predetermined targets recommended by the Remuneration
and Nominations Committee and approved by the Board
o
The scheme is to include a discretionary component, which allows the Remuneration and Nominations Committee to
recommend to the Board the awarding of bonuses to executives where the Remuneration and Nominations Committee
believes they are warranted based on strong individual performance and meeting predetermined Company objectives.
- 31 -
Stock Ownership Guidelines
Ownership of our stock by our executives aligns their interests with the interests of our shareholders. Accordingly, the Board of
Directors maintains stock ownership guidelines for certain key executive officers. The applicable level of ownership is required to
be achieved within five years of the later of the date these guidelines were adopted or the date the person first became an
executive officer and is based on the executive’s salary at the time these guidelines were adopted or date person first became
subject to guidelines. The net shares acquired through incentive compensation plans (through the exercise of stock options, or
the vesting of RSUs or performance shares) must be retained if the executive has not satisfied his or her targeted ownership. An
executive’s failure to meet the stock ownership guidelines may influence an executive’s future mix of cash and non-cash
compensation awarded by the Committee. Executives are not permitted to pledge their shares or invest in derivatives involving
Company shares. Ownership is reviewed at least annually when compensation decisions are made.
Officer Title
Managing Director and Chief Executive Officer
Remaining Executive Officers
Share Ownership as Multiple of Base Pay
Five times annual base salary
Two and a half times annual base salary
The following table shows share ownership as a multiple of base pay as at 31 December 2014, based on the Company’s
weighted average closing stock pricing of $0.95, calculated at the weighted average closing stock price translated into USD by
multiplying by a weighted average FX rate (per the Reserve Bank of Australia), during the 2014 fiscal year.
Title
Name
E. McCrady MD/CEO
C. Anderson
G. Ford
CFO
VP of Exploration
and Development
Base Salary at
Commencement
Date
$275,000
$225,000
$230,000
Shares Owned as at
31 December 2014
1,908,581
275,370
376,403
Estimated Value of
Share Ownership
$1,813,152
$261,601
$357,583
Times Base
Salary
6.6
1.2
1.6
Claw Back Provisions
The Board, in its sole discretion, shall reserve the right to claw back any incentive awards issued if any of the following conditions
apply:
•
The Company’s financial statements are required to be restated due to material non-compliance with any financial
reporting requirements under the federal securities laws (other than a restatement due to a change in accounting rules);
and
o As a result of such restatement, a performance measure which was a material factor in determining the award
is restated, and
In the discretion of the Board, a lower payment would have been made to the executive officer based upon the
restated financial results;
o
•
•
•
Should it subsequently be found that the information or assumptions are materially erroneous;
In the event that there is evidence of fraud by any employee resulting in material adverse change in the Company’s
financial statements;
In the event that there is a material adverse change in the circumstances of the Company.
E. Remuneration Policy and Framework
The Remuneration and Nominations Committee
The Remuneration and Nominations Committee makes recommendations to our board of directors in relation to total
remuneration of directors and executives and reviews their remuneration annually. The Committee members are all independent
directors, and independent external advice is sought when required.
Remuneration Consultant
Given the unique structure of being traded on the ASX but having a U.S.-based management team and operations, the
Remuneration and Nominations Committee retained Meridian Compensation Partners, LLC (Meridian) as its independent
remuneration consultant for the 2014 fiscal year. Meridian was retained to provide executive and director remuneration
consulting services to the Committee, including advice regarding the design and implementation of remuneration programs that
are competitive and common among the U.S. oil and gas exploration and production industry, competitive market information,
comparison advice with Australian companies and practice, regulatory updates and analyses and trends on executive base salary,
- 32 -
short-term incentives, long-term incentives, benefits and perquisites. Amounts paid to Meridian for these services during fiscal
year 2014 was di minimis. Meridian did not provide any other services to the Company.
In order to ensure that any remuneration recommendations made by Meridian were free from undue influence by management,
the Remuneration and Nominations Committee engaged Meridian and any advice, work or recommendations made by Meridian
were provided to the committee chairman.
Elements of Remuneration
Cash
Remuneration
Component
Base Salary (Fixed)
Short-Term Incentives
(Performance Based)
Equity
Remuneration
Long-Term Incentives
(Performance Based)
Other Benefits
Health and Welfare
Benefit Plans (Other)
Description
Competitive pay to attract and retain talented executives.
Annual incentive plan designed to provide executives with an
opportunity to earn an annual cash incentive based on Company
financial and operational performance.
Restricted share awards that are tied to achievement of specific
performance metrics, intended to reward strong, sustained underlying
share value, and reward increasing shareholder value. Equity awards
further align the interests of our executives with those of our
shareholders.
Executives are eligible to participate in health and welfare benefit plans
generally available to other employees.
Base Salary
Base salaries for executives recognize their qualifications, experience and responsibilities as well as their unique value and
historical contributions to Sundance. In addition to being important to attracting and retaining executives, setting base salaries
at appropriate levels motivates employees to aspire to and accept enlarged opportunities. We do not consider base salaries to
be part of performance-based remuneration. In setting the amount, the individuals' performance is considered as well as the
length of time in their current position without a salary increase.
2013 Base Salaries and 2014 Salary Adjustments
Title
MD/CEO
Name
E. McCrady
2014 Salary 2013 Salary % Change
$275,000
$370,000
35 %
C. Anderson
CFO
$295,000
$225,000
31 %
G. Ford
VP of Exploration
and Development
$295,000
$230,000
28%
- 33 -
Rationale
Mr. McCrady’s salary was
increased effective January 2014
reflecting his significant
contribution to our performance
and to bring his pay closer to the
25th percentile of the Company’s
U.S. and Australian market peer
group. This is Mr. McCrady’s first
base pay increase since 2011.
Ms. Anderson’s salary was
increased effective January 2014
to bring her closer to the 50th
percentile of the Company’s U.S.
market peer group. This is Ms.
Anderson’s first base pay increase
since 2011.
Ms. Ford’s salary was increased
effective January 2014 to bring her
closer to the 50th percentile of the
Company’s U.S. market peer
group. This is Ms. Ford’s first base
pay increase since 2011.
Incentive Remuneration
We have an incentive remuneration program, comprised of short and long-term at-risk components, to incentivize key executives
and employees of Sundance and its subsidiaries. The goal of the incentive remuneration program is to motivate management
and senior employees to achieve short and long-term goals to improve shareholder value. This plan represents the performance-
based, at risk component of each executive's total remuneration. The incentive remuneration program is designed to: 1) align
management and shareholder interests, and 2) attract and retain management and senior employees to execute strategic
business plans to grow Sundance as approved by our board of directors. It is the practice of the Remuneration and Nominations
Committee to carefully monitor the incentive remuneration program to ensure its ongoing effectiveness.
The incentive remuneration program has provisions for an annual cash and equity bonus in addition to the base salary levels.
The annual cash bonus Short-Term Incentive ("STI") is established to reward short-term performance towards our goal of
increasing shareholder value. The equity component Long-Term Incentive ("LTI") is intended to reward progress towards our
long-term goals and to motivate and retain management to make decisions benefiting long-term value creation.
On an annual basis, targets are established and agreed by the Remuneration and Nominations Committee, subject to approval
by our board of directors. The targets are used to determine the bonus pool, but both the STI and LTI bonuses for the Key
Management Personnel require approval by the Remuneration and Nominations Committee and are fully discretionary. Bonuses
earned under the STI will be paid in cash and those under the LTI by means of awarding Restricted Share Units (RSUs) under the
RSU Plan. For 2013 performance year, bonus targets ranged from 75% to 100% of base salaries for STI and 175% to 250% of base
salaries for LTI. For 2014 performance year, bonus targets ranged from 75% to 100% of base salaries for STI and 225% to 325%
of base salaries for LTI. Due to the current low commodity pricing environment and to preserve the Company’s liquidity, any STI
earned on the 2014 financial performance metrics (to be paid in 2015) will be paid out in RSUs instead of cash.
Based on an assessment of the overall management team and Company performance achievement relative to financial metrics,
a bonus pool is formed, based on a percentage of each employee’s annual base salary, for allocating awards relative to the
individual performance category. The Managing Director recommends to the Remuneration and Nominations Committee the
allocation of such awards for Key Management Personnel other than himself. The Remuneration and Nominations Committee
determines the allocation of the Managing Director’s individual performance bonus, along with any adjustments (either positive
or negative) to the recommendations made by the Managing Director for other Key Management Personnel.
The Committee has put in place a ceiling on short-term incentive awards with specific metrics that are aligned with the interests
of shareholders. Annual incentive payouts should not exceed 10% of Net Operating Cash Flow (defined as Net Income adjusted
for changes in Working Capital and Non-Cash Operating Expenses).
Annual Incentives
The table below contains the payout leverage for performance achievement as a percent of target.
Level
Performance Achievement
Payout Earned
Threshold
Target
Maximum
Performance <90% results in zero payout
90%
50%
Every 1% increase in performance above threshold yields a 5% increase in payout up to target.
Every 1% increase in performance above target yields a 2% increase in payout up to maximum.
100%
100%
125%
150%
- 34 -
Performance Scorecard
The Company’s key financial performance metrics were chosen as outperformance on these capital efficiency focused metrics
are highly correlated to long-term total shareholder returns. The bonus targets, performance and results along with the resulting
payouts below were related to performance during the year ended 31 December 2013 and paid during 2014. The discretionary
payout earned was determined based on the level of achievement of multiple company goals, including, but not limited to,
strategic objectives over reserve, acreage and asset growth, cost control, balance sheet liquidity and treasury management,
financial reporting, acquisitions and divestitures, and process improvement.
Financial Performance
Metric
Production / 1,000
weighted average
debt adjusted share
Return on capital
employed (ROCE)
Net asset value /
debt adjusted share
Cash margin
Discretionary
Total Weighted
Achievements
Rationale
Increased production per
debt adjusted share
promotes capital efficient
growth of profitability and
cashflow
Maximizing return on capital
employed creates a culture
of return oriented, full-cycle
investment decisions
Increases in net asset value
per debt adjusted share
increase the long-term value
of each shareholders
investment
Efficient operations drive
cash flow for reinvestment
and long term sustainability
A
B
Year Ended 31 December 2013
D
E = C x D
C
Performance
Target
Actual
Performance
Target
Weighting
Payout
Earned
Weighted
Score
3.16
2.60
15.0%
0.0%
0.0%
5.5%
6.3%
20.0%
128.0%
25.6%
74.6%
82.4%
20.0%
120.9%
24.2%
63.8%
65.9%
15.0%
106.3%
30.0%
70.0%
100%
15.9%
21.0%
86.7%
Resulting Payouts for the year ended 31 December 2013:
Name
E. McCrady
C. Anderson
G. Ford
2013 Salary
$275,000
$225,000
$230,000
STI Target
(% of Salary)
100.0%
75.0%
75.0%
Achievement of
Financial Goals
(Company
Performance
Score)
86.7%
86.7%
86.7%
Total STI Payout
($) (1)
$240,000
$147,000
$150,000
(1) STI payout was calculated at actual performance score and then rounded to next thousand; reflects actual amounts paid.
- 35 -
For the year ended 31 December 2014 (to be paid in 2015), the following metrics were adopted as targets:
Financial Performance Metric
Production of oil and natural gas per 1,000 debt adjusted share
Cash margin
Net asset value per debt-adjusted share
PV/I (1)
Health, safety and environmental
Assessment of the performance of senior executives and managers
Performance
Target
4.06 Boe
72.6%
1.02
1.25
Qualitative
Qualitative
Target
Weight
17.5%
17.5%
17.5%
17.5%
10.0%
20.0%
(1)
Increase in PV10 of proved reserves divided by the capital spent to generate that growth during the period excluding
acquisitions and dispositions
The amount of any STI and LTI bonuses relative to the year ended 31 December 2014 will be determined subsequent to the filing
of this report and included in reported remuneration in next year’s Directors’ Report.
Long-Term Incentives
We have two active equity incentive plans under the LTI component of the incentive remuneration program. These are the
Sundance Employee Option Plan ("ESOP") and the Sundance Energy Australia Limited Restricted Share Units available only to our
U.S. employees under the Incentive Remuneration Plan (the "RSU Plan"). Any grants made to employees that also serve as a
director are subject to shareholder approval prior to issuance.
ESOP Plan
The ESOP provides for the issuance of stock options at an exercise price determined at the time of the issue by a committee
designated by the board (the "Plan Committee"). Options under the ESOP may be granted to eligible employees, as determined
by the Plan Committee, and typically include our executive officers, directors and key employees.
Historically, the Plan Committee has granted options in connection with attracting new employees, which grant is made once
employment has commenced. It is within the discretion of the Plan Committee, however, to authorize additional option grants
during the tenure of employment. Generally, an option vests 20 percent on the 90th day following the grant date, with an
additional 20 percent vesting on the first, second, third and fourth anniversaries thereof. Options are valued using the Black-
Scholes methodology and recognized as remuneration in accordance with their vesting conditions. In the event of a voluntary
winding up of the Company, unvested stock options vest immediately. We may amend the ESOP or any portion thereof, or waive
or modify the application of the ESOP rules in relation to a participant, at any time. Certain amendments to the ESOP may require
the approval of the option holders.
No stock options were granted to any officers or directors during fiscal years 2013 or 2014.
RSU Plan
The RSU Plan provides for the issuance of restricted share units ("RSUs") to our U.S. employees. The purpose of issuing RSUs is to
reward senior executives and employees for achievement of financial and operational performance targets established by our
board. The RSU Plan is administered by our board. RSUs may be granted to eligible employees from a bonus pool established at
the sole discretion of our board. The bonus pool is subject to board and management review of performance metrics with respect
to both our and the individual employee's performance over a measured period determined by the Remuneration and
Nominations Committee and the board. The RSUs may be settled in cash or shares at the discretion of our board.
Under the RSU Plan, which applies to 2014 payments earned in 2013, 25% of the RSUs vest upon satisfaction of the performance
criteria and share award determination, and 25% vest on each of next three anniversaries. The RSUs are based on performance
targets established and approved by our board. The number of RSUs awarded is calculated by dividing the value of the LTI award
by the closing price of the Company’s shares at the end of the fiscal year for which the award is granted.
- 36 -
Earned LTI Awards for 2014
The Earned LTI Awards for 2014 were related to performance during the year ended 31 December 2013 and granted during 2014.
2013 Salary
Name
E. McCrady
$275,000
C. Anderson $225,000
G. Ford
$230,000
LTI Target
(% of
Salary)
250%
175%
175%
Percent of
Target
RSUs
Earned
86.7%
86.7%
86.7%
# of RSUs
granted
in 2014
671,988 (1)
385,456
394,473
Grant Date
30/5/2014
15/4/2014
15/4/2014
Grant Date
Value of RSU
Award
$679,510
$337,001
$344,885
(1) LTI amount calculated based on a stock price at 15 April 2014 but grant date based on stock price at 30 May 2014, date of
approval at Annual General Shareholders Meeting.
We may amend, suspend or terminate the RSU Plan or any portion thereof at any time. Certain amendments to the RSU Plan may
require approval of the holders of the RSUs who will be affected by the amendment. In the event of a corporate take-over or
change in control (as defined in the RSU Plan), our board in its discretion may cause all unvested RSUs to vest and be satisfied by
the issue of one ordinary share each or provide for the cancellation of outstanding RSUs and a cash payment equal to the then-
fair market value of the RSUs.
2015 RSU Plan
Starting with the 2015 fiscal year, the RSU Plan has been amended for executives to reflect 50% time based vesting and 50%
vesting based on total shareholder return (TSR) relative to our peer group over a three-year period. The time-based vesting will
vest 1/3 on each of the three anniversaries following the grant date subject to continued employment with Sundance. TSR is
calculated as the change in stock price plus dividends over the three year period. The stock price used to calculate the starting
stock price value will be the average price of Sundance’s stock for the 20 trading days before the first day of the measurement
period. The ending-period stock price will be the average price of Sundance’s stock for the last 20 trading days of the
measurement period.
The number of shares that can be earned under TSR performance ranges from 0% to 200% of the target share grant based on
Sundance’s percentile rank among the peer set. If Sundance’s TSR is negative for the three-year period, but the percentile rank
is above median, the payout will be capped at the target payout. If Sundance’s TSR is between any of the percentile ranks listed
in the table below, the payout as a percent of target will be on a pro-rata basis.
TSR Percentile Rank
90th and above
50th
30th
Below 30th
Payout % of Target
200%
100%
50%
0%
- 37 -
TSR will be compared to a set of 22 oil and gas exploration and production companies headquartered in the United States and
Australia. The Australian-headquartered companies are highlighted. The chart on the right depicts the TSR over a three year
period ending 31 December 2014. Diamondback Energy Inc, Matador Resources Co and Midstates Petroleum Co Inc were
excluded from the chart as there was not enough historical data to measure the defined TSR.
Company
Abraxas Petroleum Corp/NV
Approach Resources Inc
Austex Oil Ltd
Beach Energy Ltd
Bonanza Creek Energy Inc.
Callon Petroleum CO/DE
Carrizo Oil & Gas Inc
Contango Oil & Gas Co
Diamondback Energy Inc
Drillsearch Energy Ltd
Emerald Oil Inc
Goodrich Petroleum Corp
Lonestar Resources Ltd
Matador Resources Co
Midstates Petroleum Co Inc
Panhandle Oil & Gas Inc
Red Fork Energy Ltd
Rex Energy Corp
Sanchez Energy Corp
Senex Energy Ltd
Synergy Resources Corp
Triangle Petroleum Corp
Retirement and Other Benefits
Executive management participates in the same benefit plans and on the same basis as other employees. Those plans include
health, dental and vision insurance (for which a premium contribution is required by the participant) and a 401(k) retirement plan
under which the Company makes an annual contribution equal to 3 percent of the participant’s eligible compensation.
Post-Termination and Change In Control Benefits
The Managing Director’s employment contract provides for payment of his base salary through the end of the contract term in
the event he is terminated as a result of a change in control event. Additionally, in the event of a corporate take-over or change
in control (as defined in the RSU Plan), our board in its discretion may cause all unvested RSUs to vest and be satisfied by the
issue of one share each or provide for the cancellation of outstanding RSUs and a cash payment equal to the then-fair market
value of the RSUs.
- 38 -
F. Company Performance and Shareholder Wealth
The following table sets out the Company’s performance during the years ended 31 December 2014, 2013, the six month
period ended 31 December 2012 and the preceding two years ended 30 June in respect of several key financial indicators (in
US thousands, except where otherwise stated):
Metric
Revenue
3P Reserves (MBOE)
Production (BOEPD)
Net profit (loss) after tax
EBITDAX
Earnings per share**
Dividends or other returns on
capital
Share price
31 December
2014
31 December
2013
31 December
2012*
159,793
147,723
6,147
15,321
126,373
0.03
Nil
A$0.52
85,345
92,780
2,956
15,942
52,594
0.04
Nil
A$1.00
17,724
46,501
1,298
76,210
9,223
0.27
Nil
A$0.77
* Six month period ended (all other periods shown are for full year periods)
** Basic and diluted
G. Remuneration of Non-Executive Directors
30 June
2012
29,787
50,138
1,163
6,012
17,093
0.02
30 June
2011
18,176
25,714
719
7,029
9,762
0.03
Nil
Nil
A$0.56
A$0.83
The Non-executive directors receive a basic annual fee for board membership and annual fees for committee service and
chairmanships. For the Australian non-executive directors this is inclusive of the superannuation guarantee contribution required
by the Australian government, which changed to 9.50% at 1 July 2014 (previously 9.25%). In accordance with ASX corporate
governance principles, they do not receive any other retirement benefits or any performance-related incentive payments by
means of cash or equity. Some individuals, however, have chosen to contribute part of their salary to superannuation in order to
access the available favourable tax advantage of doing so (“Salary sacrifice”).
To align directors' interests with shareholder interests, the directors are required to hold our ordinary shares equal to three times
their base board fees. Each Non-Executive Director has five years from their appointment to achieve this shareholding
requirement. All remuneration paid to directors and executives is valued in accordance with applicable IFRS accounting rules.
A review by Meridian was commissioned by the Remuneration and Nominations Committee in November 2014. The
Remuneration and Nominations Committee found that the NED fee structure was within competitive range of its Australian
peer companies, and that the remuneration per NED is near the median (46th percentile).
Summary of Non-Executive Director Pay Elements
Non-executive Directors’ fees are determined within an aggregate Directors’ fee pool limit, which is periodically recommended
for approval by shareholders. The maximum currently stands at $950,000 per annum which was approved by shareholders at
the Annual General Meeting on 28 May 2013.
- 39 -
The Directors’ fees for the 2014 fiscal year are:
Base fees
Board Service
Chairman
Non-executive Director
Committee Service
Audit and Risk Management Committee Chair
Remuneration and Nominations Committee Chair
Reserves Committee Chair
Member of the Audit and Risk Management or Remuneration and Nominations
Committee
Member of the Reserves Committee
Amount
A$132,500
A$100,000
A$29,500
A$20,250
A$17,500
A$11,000
A$8,250
(Note: The above amounts are paid to the Australian non-executive directors in Australian dollars. For the US based non-
executive director the same nominal amounts were paid in US dollars.)
During 2013, on the recommendation of the Managing Director, an additional amount of A$85,000 was paid to each of the three
Australian non-executive directors for the additional work carried out and additional time required during the second half of 2012
and the first quarter of 2013 related to the South Antelope sale, Wells Fargo Credit Facility, Wattenberg acquisition, and the
Texon Scheme of Arrangement. Also during 2013, an amount of US$80,000 was paid to the US-based non-executive director
upon joining the Board of Directors as an incentive to attract high calibre talent to the Board.
H. Voting and Comments made at the Company’s Year Ended 31 December 2013 Annual General Meeting
The Company received more than 96% of ‘yes’ votes on its remuneration report for the financial year ended 31 December 2013.
The Committee values feedback from the shareholders and engages in conversations with key shareholders and their advisors on
a regular basis.
I.
Employment Contracts
Eric McCrady - Managing Director and CEO
The Managing Director’s employment contract has a three year term commencing 1 January 2014 with base remuneration of
US$370,000 per year which is reviewed annually by the Remuneration and Nominations Committee. He is eligible to participate
in the Incentive Compensation Plan. The Managing Director is entitled to the specified remuneration and benefits through the
term of the agreement. The Company may terminate the Managing Director’s employment at any time for good cause (for
example, material breach of contract, gross negligence) without notice and the Managing Director may give 90 days’ notice to
terminate the employment contract; both of which result in the Managing Director receiving pay through the period of services
performed.
In the instance of a change in control of the Company, at the instigation of the Board of Directors, if the Managing Director’s title
and duties are substantially reduced then the Managing Director, within two months of such reduction in status, may provide
two weeks written notice to the Company as being terminated by the Company other than for good cause and will receive his
base salary through the end of the contract term.
At the date of this report, no other directors nor other key management personnel have employment contracts.
- 40 -
Potential payments Upon Termination of Employment or Change of Control
The following tables shows the estimated potential payments and benefits that would be received by the Managing Director and
CEO in the event of his termination of employment as a result of various circumstances discussed within his employment contract
and assumes that any termination was effective as of 31 December 2014. The actual amounts to be paid can only be determined
at the time of the Managing Director’s actual termination.
Executive Benefits and
Payments Upon
Termination
Cash Severance
RSUs
Health Benefits
Total
Voluntary
Termination
$ -
-
-
$ -
Early
Retirement
$ -
-
-
$ -
Normal
Retirement
$ -
-
-
$ -
Disability or
Death
$152,055
-
6,894
$158,949
Involuntary
Termination (for
cause)
$ -
-
-
$ -
Involuntary
Termination
(without cause)
$ 741,989
-
-
$ 741,989
Change in
Control
$ 741,989
-
-
$ 741,989
J. Details of Remuneration
Incentive compensation (STI and LTI) paid during 2014 relates to performance for the year ended 31 December 2013.
Director and KMP remuneration paid in accordance with Accounting Standards for fiscal years ended 31 December 2014 and
2013.
2014
Director
E McCrady
M Hannell
D Hannes
N Martin
W Holcombe
Fixed Based Remuneration
Share Based
Payments
Performance Based
Cash Salary and
Fees
Non-monetary
Benefits (1)
Post-employment
Benefits
$ 7,800
-
-
-
-
Superannuation
$ -
13,334
10,896
9,252
-
Options (2)
$ -
-
-
-
-
$ 18,816
-
-
-
-
$ 365,615
141,958
115,956
98,414
117,792
$ 839,735
$ 18,816
$ 7,800
$ 33,482 $ - $ 240,000
STI-Cash
Bonus
$ 240,000
LTI – Share
Based (3)
$ 542,310 $ 1,174,540
Total
-
-
-
-
-
-
-
-
155,293
126,852
107,666
117,792
$ 542,310 $ 1,682,143
$ 292,885
298,010
590,895
$ 1,133,205
$ 779,998
804,623
1,584,621
$ 3,266,764
Key Management Personnel
C Anderson
G Ford
$ 291,770
292,000
583,769
$ 1,423,505
$ 14,144
8,428
22,572
$ 41,388
$ 7,800
7,800
15,600
$ 23,400
$ 26,399 $ 147,000
$ -
-
-
48,385
74,784
$ 33,482 $ 74,784
150,000
297,000
$ 537,000
(1) Non-monetary benefits includes car parking fringe benefits and payment of health premiums.
(2) Fair value of services received in return for the options granted is measured using the Black-Scholes Option Pricing
Model, as further discussed in Note 31 to the Financial Report, and represents the portion of the grant date fair value
expense of the option during the year. Options were granted to Anderson and Ford in December 2011 and September
2011, respectively.
(3) Fair value of services received in return for the LTI share based awards are based on the allocable portion of aggregate
fair value expense recognised under AASB 2 for the year. The aggregate fair value is based on the number of RSUs
awarded valued at the Company’s stock price at the date of grant, translated at the foreign exchange rate in effect on
the date of grant. Vesting is 25% at the time of grant (following the performance period), with 25% cliff vesting each
subsequent year on the date of grant. The amount included as remuneration is not related to or indicative of the benefit
(if any) that individuals may ultimately realise when the RSUs vest.
- 41 -
2013
Director
E McCrady
M Hannell
D Hannes
N Martin
W Holcombe
Cash Salary and
Fees
$ 275,000
163,985
144,031
128,510
140,000
$ 851,526
Fixed Based Remuneration
Non-monetary
Benefits (1)
$ 15,165
-
-
-
-
$ 15,165
Post-employment
Benefits
$ 7,650
-
-
-
-
$ 7,650
Share Based
Payments
Performance Based
Superannuation
$ -
15,058
13,237
11,821
-
$ 40,116
Options (2)
$ -
-
-
-
-
$ -
STI-Cash
Bonus
$ 402,277
-
-
-
-
$ 402,277
LTI – Share
Based (3)
Total
$ 371,113 $ 1,071,205
179,043
157,268
140,331
140,000
$ 1,687,847
-
-
-
-
$ 371,113
Key Management Personnel
C Anderson
C Gooden*
$ 225,000
48,015
273,015
$ 1,124,541
$ 12,693
-
12,693
$ 27,858
$ 7,650
-
7,650
$ 15,300
$ -
-
-
$ 40,116
$ 44,532
-
44,532
$ 44,532
$ 310,075
-
310,075
$ 712,352
$ 209,516
-
209,516
$ 580,629
$ 809,466
48,015
857,481
$ 2,545,328
* C Gooden resigned as Company Secretary on 23 August 2013.
(1) Non-monetary benefits includes car parking fringe benefits and payment of health premiums.
(2) Fair value of services received in return for the options granted is measured using the Black-Scholes Option Pricing
Model, as further discussed in Note 31 to the Financial Report, and represents the portion of the grant date fair value
expense of the option during the year. Options were granted in December 2011.
(3) Fair value of services received in return for the LTI share based awards are based on the allocable portion of aggregate
fair value expense recognised under AASB 2 for the year. The aggregate fair value is based on the number of RSUs
awarded valued at the Company’s stock price at the date of grant, translated at the foreign exchange rate in effect on
the date of grant. Vesting is 25% at the time of grant (following the performance period), with 25% cliff vesting each
subsequent year on the date of grant. The amount included as remuneration is not related to or indicative of the benefit
(if any) that individuals may ultimately realise when the RSUs vest.
K. Outstanding KMP Options and Restricted Share Units
Number of Options held by Key Management Personnel
Key Management
Personnel
E McCrady
C Anderson
G Ford
Total
Balance
31.12.2013
-
1,000,000
1,200,000
2,200,000
Options
Exercised
-
-
-
-
Options
Cancelled/Lapsed
-
-
-
-
Balance
31.12.2014
-
1,000,000
1,200,000
2,200,000
Total
Vested
31.12.2014
-
600,000
800,000
1,400,000
Total
Unvested
31.12.2014
-
400,000
400,000
800,000
Number of Restricted Shares Units held by Key Management Personnel
Key
Management
Personnel
E McCrady(2)
C Anderson
G Ford
Total
Balance
31.12.2013
555,078
320,680
322,410
1,198,168
Issued as
Compensation
671,988
385,456
394,473
1,451,917
Forfeited
RSUs
-
-
-
-
RSUs
converted to
ordinary
shares
(435,505)
(225,579)
(228,410)
(889,494)
Balance at
31.12.2014
791,561
480,557
488,473
1,760,591
Market Value
Of Unvested
31.12.2014 (1)
$340,371
206,640
210,043
$757,054
(1) Market value based on the Company’s closing stock price on 31 December 2014 or USD$0.43 based on the foreign
currency exchange spot rate published by the Reserve Bank of Australia
(2) Mr. McCrady’s RSUs were approved by the shareholders at the Annual General Meeting held on 30 May 2014.
- 42 -
L.
Shareholdings
Number of Shares held by Key Management Personnel
Key
Management
Personnel
M Hannell
D Hannes
N Martin
W Holcombe
E McCrady
C Anderson
G Ford
Total
Balance
31.12.2013
937,442
5,681,561
270,300
220,000
1,353,076
126,225
147,993
8,736,597
Exercised
Share
Options
-
-
-
-
-
-
Value
Realised
Upon Option
Exercise
$ -
-
-
-
-
-
-
$ -
RSUs
converted
to ordinary
shares
-
-
-
-
435,505
225,579
228,410
889,494
Value
Realised
Upon RSU
Vesting
$ -
-
-
-
426,159
240,453
241,334
$907,946
Net Other
Changes
(1)
121,558
120,000
152,500
376,700
120,000
(76,434)
-
814,324
Balance
31.12.2014
1,059,000
5,801,561
422,800
596,700
1,908,581
275,370
376,403
10,440,415
(1) Includes market purchases and sales of shares to cover tax withholding liability related to shares issued on option exercises and vesting
of RSUs.
- 43 -
Auditor’s Declaration
The auditor’s independence declaration for the year ended 31 December 2014 has been received and can be found on page
45 of this report.
Signed in accordance with a resolution of the Board of Directors.
Michael Hannell
Chairman
Adelaide
Dated this 31 s t day of March 2015
- 44 -
Ernst & Young 680 George Street
Sydney NSW 2000 Australia
GPO Box 2646
Sydney NSW 2001
Tel: +61 2 9248 5555
Fax: +61 2 9248 5959
ey.com/au
Auditor’s Independence Declaration to the Directors of Sundance
Energy Australia Limited
In relation to our audit of the financial report of Sundance Energy Australia Limited for the financial
year ended 31 December 2014, to the best of my knowledge and belief, there have been no
contraventions of the auditor independence requirements of the Corporations Act 2001 or any
applicable code of professional conduct.
Ernst & Young
Michael Elliott
Partner
31 March 2015
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
- 45 -
Corporate Governance
- 46 -
CORPORATE GOVERNANCE
The Board of Sundance Energy Australia Limited (“Sundance” or “the Company”) is committed to the Principles and
Recommendations underpinning best practices in corporate governance as specified by the Australian Securities Exchange (the
“ASX”) Corporate Governance Council’s 2nd Edition of Corporate Governance Principles and Recommendations with 2010
Amendments. Sundance’s Board has taken, and will continue to take, all necessary actions to adopt the amended Principles in
each instance where that is appropriate, or to design policies and procedures to adopt them in a fashion modified appropriately
to the Company’s particular circumstances.
Sundance’s Board has carefully reviewed the Corporate Governance Principles and Recommendations. As is set forth below, the
vast majority of these have already been achieved in total accordance with the Principles and Recommendations. In a few
instances, the Company has adopted hybrid methodologies of compliance deemed appropriate to its size, structure and
situation. The Board is comfortable that its practices are satisfactory for an entity of its structure and size. In some instances
disclosures recommended by the ASX have been made in other areas of the Annual Report, namely the Directors’ Report, and
therefore will not be restated under this section.
In March 2014, the ASX Corporate Governance Council release the 3rd edition of the Corporate Governance Principles and
Recommendations, which applies to ASX listed companies in respect of their first full financial year commencing on or after 1
July 2014. Accordingly, the 3rd edition of the Corporate Governance Principles and Recommendations will apply to Sundance for
its financial year ended 31 December 2015. Sundance will report its compliance against those recommendations in the
Company’s Corporate Governance Statement for fiscal year 2015.
During fiscal year 2014, the Company’s corporate governance practices and policies discussed below have complied with those
outlined in the Corporate Governance Principles and Recommendations (2nd Edition), except as noted otherwise.
Principle 1: Lay Solid Foundations for Management and Oversight
The respective roles and responsibilities of the Board and management, including those matter expressly reserved to the Board,
are set out in the Board Charter, which is available in the corporate governance section of Sundance’s website.
1.1 Roles and Responsibilities
The Board is responsible for the corporate governance of the Company, including the setting and monitoring of objectives, goals
and corporate strategy. Management is responsible for the implementation of the strategy and running the day to day business
of the Company’s affairs.
Responsibilities of the board include –
•
Providing input into and final approval of management’s development of corporate strategy and performance
objectives;
Approving and monitoring the business plan, budget and corporate policies;
• Monitoring senior executives’ performance and implementation of the Company’s strategy;
•
• Monitoring and the approval of financial and other reporting;
•
•
•
•
•
•
Ensuring an effective system of internal controls exists and is functioning as required;
Establishing Sundance’s vision, mission, values and ethical standards as reflected in a Code of Conduct;
Delegating an appropriate level of authority to management and approving any additional change to those delegations;
Ensuring appropriate resources are available to senior executives;
Appointment, succession, performance assessment, remuneration and dismissal of the Managing Director;
Reviewing, ratifying and monitoring systems of risk management and internal control, codes of conduct, and legal
compliance; and
Approving and monitoring the progress of major capital expenditure, capital management, and acquisitions and
divestitures.
•
The Board has delegated responsibility to the Managing Director (“MD”) and the executive management team to manage the
day-to-day operations and administration of the Company. In carrying out this delegation, the MD, supported by the senior
executives, routinely reports to the Board regarding Sundance’s progress on achieving both the short and long-term plans for
the Company. The MD is accountable to the Board for the authority that is delegated by the Board.
- 47 -
Responsibilities of management include –
•
•
•
•
•
Implement the corporate strategy set by the Board;
Achieve the performance targets set by the Board;
Develop, implement and manage risk management and internal control frameworks;
Develop, implement and update policies and procedures;
Provide sufficient, relevant and timely information to the Board to enable the Board to effectively discharge its
responsibilities; and
• Manage human, physical and financial resources to achieve the Company’s objectives – in other words to run the day
to day business in an effective way.
1.2 Management Performance
Sundance’s Chairman, with Non-Executive Director input, is responsible for providing feedback to the MD on his performance
assessed against the responsibilities mentioned above. The MD, with Chairman and Non-Executive Directors input, is responsible
for providing feedback to senior executives and assessing their performance against the responsibilities mentioned above.
During fiscal year 2014, an annual performance evaluation of senior executives was completed in line with the Company’s
incentive compensation policy as well as periodic one on one discussions carried out by the MD. Appropriate induction
procedures are in place to allow new senior executives to participate fully and actively in management decision making at the
earliest opportunity.
Principle 2: Structure the Board to Add Value
2.1 Board Composition and Independence
The composition and operation of the Board is determined in accordance with the following requirements:
•
•
•
•
The constitution of Sundance specifies that there must be a minimum of three directors and a maximum of ten. The
Board may determine the size of the Board within those limits;
It is the intention of the Board that its membership consists of a majority of independent directors who satisfy the
criteria recommended by the ASX best practice corporate governance requirements, though it is recognized that this
intention may be impractical to implement given the size and scope of the Company’s business;
The Chairman of the Board should be an independent director who satisfies the criteria for independence
recommended by the ASX best practice corporate governance requirements; and
The Board should, collectively, have the appropriate level of personal qualities, skills, experience, and time
commitment to properly fulfil its responsibilities or have ready access to such skills where they are not available.
Sundance’s Board of Directors currently consists of one Managing Director based in the US, three Non-Executive Directors based
in Australia, and one Non-Executive Director based in the US. All of the Directors are shareholders of the Company. At all times
during the fiscal year 2014, all four of the Non-Executive Directors were independent. Sundance considers an independent
director to be a non-executive director who is not a member of management and who is free of any business or other relationship
that could materially interfere with, or could reasonably be perceived to materially interfere with, the independent exercise of
their judgement. Sundance believes that its current Board composition is appropriate at this time in the Company’s evolution.
Sundance will continue to address the appropriate structure and composition of the Board over time.
The composition of the Board at the date of this report is:
M D Hannell
E McCrady
N Martin
D Hannes
W Holcombe
Chairman, Independent Non-Executive Director
Managing Director and Chief Executive Officer
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Directors can have access, in appropriate circumstances, to independent professional advice at the Company’s expense. It is the
continuing practice for the four Non-Executive Directors to confer from time to time without the Executive Director being
present.
- 48 -
Sundance maintains a bright line division of responsibility between the Chairman and the MD as clearly specified in the Board
Charter and Role of Management document maintained in the corporate governance section of Sundance’s website.
Composition of skills and experience of the Board (out of 5 Directors)
Skills and Experience
Industry experience
Resources including oil & gas/minerals
Infrastructure
Engineering or science qualification
•
•
•
• Membership of industry related organisations
• Major projects (including mergers & acquisitions)
Executive leadership/management
• Outside directorships
•
Senior management positions
Financial acumen
Financial literacy
•
• Accounting or finance qualification
Health safety and environment
•
Experience related to managing HS&E issues in an
organisation
Governance and regulation
•
Experience in the governance of organisations
• Membership of governance industry bodies or
organisations
Strategy
•
Experience to analyse information, think
strategically and review and challenge management
in order to make informed decisions and assess
performance against strategy
International experience
•
•
Risk
•
Experience in a global organisation
Experience with
partners, cultures and communities
international assets, business
Experience in risk management and oversight
5
5
2
2
2
5
5
3
- 49 -
2.2 Remuneration and Nominations Committee
The remuneration and nominations committee is structured so that it:
Consists of a majority of independent Directors;
Is chaired by an independent Director; and
•
•
• Has at least three members.
The responsibilities of the committee include recommendations to the Board about:
•
•
•
•
•
Remuneration practices and levels of Executives and Non-executive Directors;
The necessary and desirable competencies of Directors;
Review of board succession plans;
The development of a process for evaluation of the performance of the board, its committees and Directors; and,
The appointment and re-election of Directors.
The combined Remuneration and Nominations Committee consists of three independent Non-Executive Directors and reports
its recommendations to the Board for approval. Formal minutes are kept of each meeting and submitted to the Board for review.
The members of the Remuneration and Nominations Committee is listed on page 26 of the Directors’ Report. A Remuneration
and Nominations Committee charter is published on the Company’s website.
The Board reviews the composition and skill sets of the Committee on a regular basis, and considers that the current
composition, size and skills of the Committee to be appropriate.
Currently no formal description of the procedure for the selection and appointment of new Directors or the re-election of
incumbent Directors exists as it is considered that due to the size of the Company that this process is effectively managed by the
Board. However, this activity is discussed by the Committee from time to time.
2.3 Director Performance Review and Evaluation
In fiscal year 2014, Sundance’s Board regularly met, both formally and informally, to discuss Board matters and to ensure that
the Board acts in an effective way. The Board is provided with information that allows it to discharge its duties effectively, and
Non-Executive Directors can and do request additional information as necessary to make informed decisions. The skills,
experience and expertise relevant to the position of Director held by each director in office at the date of the annual report can
be found in the Directors’ Report on pages 23 to 25.
No formal process exists for Directors to access continuing education, as this is not considered practicable for the size of the
Company and the financial resources available. However the four Non-Executive Directors have wide experience of directors’
duties and are involved in a variety of outside business and professional activities that add to their knowledge and
professionalism.
The Company Secretary is D Connor. He is accountable to the Board through the Chairman and accessible to all Directors. The
appointment and removal of the Company Secretary is a matter for decision by the Board as a whole.
Principle 3: Promote Ethical and Responsible Decision-making
3.1 Code of Conduct
The Company has a Code of Conduct and Ethics which establishes the practices that Directors, management and staff must
follow in order to comply with the law, meet shareholder expectations, maintain public confidence in the Company’s integrity,
and provide a process for reporting and investigating unethical practices. The Code of Conduct is available in the corporate
governance section of Sundance’s website.
3.2 Diversity
Sundance believes it is important to maintain a diverse, empowered and inclusive workforce to gain valuable perspectives from
people of different gender, race, religion, marital status, disability or national origin. Sundance management recruits on the
basis of skills, qualifications, abilities and achievements of the individual. Sundance has published a Diversity policy which is
available in the corporate governance section of Sundance’s website.
- 50 -
Historically, the oil and gas industry is a male dominated work force. The proportion of women employees in the whole
organisation, women in senior executive positions and women on the board is listed in the following table.
As at 31 December 2014
Males
Females
Total
Board
Senior Management
Other Employees
Total
3.3 Securities Trading Policy
5
-
5
3
2
5
30
24
54
38
26
64
59%
41%
Sundance has a Securities Trading Policy that regulates dealing in its securities by Directors, Key Management Personnel,
employees (personnel) and their associates. The Board restricts personnel from acting on inside information that is generally
available and if it were generally available, would, or would be likely to, influence persons who commonly invest in securities in
deciding whether to acquire or dispose of the relevant securities.
The Securities Trading Policy outlines:
• When personnel may and may not deal in shares of the Company, options over those shares and any other financial
products of the Company traded on the ASX (company Securities):
• When personnel may and may not deal in listed securities of another entity;
•
The procedure for obtaining prior clearance in exceptional circumstances for trading that would otherwise be contrary
to the Securities Trading Policy; and
Procedures to reduce the risk of insider trading.
•
The Securities Trading Policy was updated in February 2015 and is available in the corporate governance section of Sundance’s
website.
Principle 4: Safeguard Integrity in Financial Reporting
4.1 Audit and Risk Management Committee
The Audit and Risk Management Committee has three members, D Hannes (chairman), M D Hannell, and N Martin, all whom
are independent Non-Executive Directors. The Managing Director and Chief Executive Officer as well as the Chief Financial Officer
are non-voting management representatives who advise the committee as appropriate.
The objectives of the Audit and Risk Management Committee is to assist the Board in:
Ensuring the quality of financial controls is appropriate to Sundance;
•
• Making informed decisions regarding accounting , policies, practices and disclosures;
•
•
•
• Maintaining open lines of communication between the Board, management and external auditors, thus enabling
Reviewing the adequacy of the accounting and reporting systems;
Reviewing matters of significance affecting the financial welfare and risk exposure of Sundance;
Reviewing the scope and results of external and internal audits;
information and points of view to be freely exchanged; and
• Meeting its compliance obligations imposed by the energy regulators.
The specific attributes of the Audit and Risk Management Committee members that are relevant to this committee include
financial acumen, technical industry knowledge, experience in risk management and oversight. The Audit and Risk Management
Committee meets at least three times a year and the external auditor, Managing Director and Chief Financial Officer are invited
to attend the meetings, at the discretion of the Audit and Risk Management Committee. The committee keeps minutes of
meetings, which are submitted to the full Board for review.
- 51 -
The Audit and Risk Management Committee’s charter and information on the selection and appointment of the Company’s
external auditor is available in the corporate governance section on the Company’s website. Information regarding qualifications
and meeting attendance can be found in the Directors’ Report of this Annual Report.
Principle 5: Make Timely and Balanced Disclosure
The Company has adopted a Market Disclosure Policy to ensure compliance with its continuous disclosure obligations whereby
relevant information that could cause a reasonable person to expect a material effect on, or lead to a substantial movement in,
the value of Sundance’s share price, is immediately made available to shareholders and the public as a release to the ASX. D
Connor, as Company Secretary, has been nominated as the person primarily responsible for communications with the ASX. All
material information concerning the Company, including its financial situation, performance, ownership and governance is
posted on the Company’s web site to ensure all investors have equal and timely access. The Market Disclosure Policy is available
in the corporate governance section on Sundance’s website.
Principle 6: Respect the Rights of Shareholders
The Board fully recognises its responsibility to ensure that its shareholders are informed of all major developments affecting the
Company. All shareholders, who have elected to do so, receive a copy of the Company’s Annual Report and the Annual, Half
Yearly and Quarterly Reports are prepared and posted on the Company’s website in accordance with the ASX Listing Rules.
Regular updates on operations are made via ASX releases. All information disclosed to the ASX is posted on Sundance’s website
as soon as possible after it is disclosed to the ASX. When analysts are briefed on aspects of the Company’s operation, the material
used in the presentation is immediately released to the ASX and posted on the Company’s website. Sundance encourages its
shareholders to attend its annual meetings and to discuss and question its Board and management. The Company’s external
auditor is requested to attend the annual general meeting and be available to answer shareholder questions about the conduct
of the audit and the preparation and content of the audit report. The Shareholder Communications Policy is published on the
Company’s website under the corporate governance section.
Principle 7: Recognise and Manage Risk
7.1 Risk Assessment and Management
Sundance has established a Risk Management Policy whereby the primary purpose of the policy is to ensure that:
•
•
•
•
Appropriate systems are in place to identify, to the extent that is reasonably practical, all material risks that the
Company faces in conducting its business;
The financial impact of those risks is understood and appropriate controls are in place to limit exposures to them;
Appropriate responsibilities are delegated to control the risks; and
Any material changes to the Company’s risk profile are disclosed in accordance with the Company’s continuous Market
Disclosure Policy.
The Audit and Risk Management Committee is responsible for approving and monitoring the overall financial and operational
business risk profile of the Company, and reporting its findings to the full Board. In addition, by the nature of the upstream oil
and gas business this topic is intrinsically covered during each Board meeting. The Board requires the executives to design and
implement the risk management and internal control system to manage the Company, and to report to the Board.
The Board has received assurance from the Managing Director and Chief Financial Officer that the declaration provided in
accordance with section 295A of the Corporations Act 2001 is founded on a sound system of risk management and internal
control which is operating effectively.
- 52 -
7.2 Reserves Committee
During July 2014, the Board established a Reserves Committee to assist the Board in monitoring:
•
•
•
The integrity of the Company’s oil, natural gas, and natural gas liquid reserves (the “Reserves”);
The independence, qualifications and performance of the Company’s independent reservoir engineers; and
The compliance by the Company with legal and regulatory requirements.
The Reserves Committee consists of three members, H W Holcombe (chairman), M D Hannell, and N Martin, all whom are
independent Non-Executive Directors. Formal minutes are kept of each meeting and submitted to the Board for review.
The Reserves Committee Charter is available in the corporate governance section of Sundance’s website.
Principle 8: Remunerate Fairly and Responsibly
8.1 Remuneration and Nominations Committee
The Remuneration and Nominations Committee has three members, M D Hannell (chairman), D Hannes and H W Holcombe, all
whom are independent Non-Executive Directors, and reports its recommendations to the Board for approval. The Committee
determines remuneration levels of senior staff on an individual basis. Advice is sought from an independent consultant based in
the U.S.
The remuneration of Non-Executive Directors is structured separately from that of the executive Director and senior executives.
The Remuneration Report at pages 28 to 43 of this Annual Report sets out details of the Company’s policies and practices for
remunerating Directors (Executive and Non-Executive) and Key Management Personnel.
The Remuneration and Nominations Committee Charter is available in the corporate governance section of Sundance’s website.
- 53 -
Financial Information
- 54 -
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
For the year ended 31 December
Oil and natural gas revenue
Lease operating and production tax expense
General and administrative expense
Depreciation and amortisation expense
Impairment expense
Exploration expense
Finance costs
Gain on sale of non-current assets
Gain (loss) on derivative financial instruments
Other income
Profit before income tax
Income tax benefit/(expense)
Note
3
4
5
16, 19
17
18
6
7
2014
US$’000
159,793
(20,489)
(15,527)
(85,584)
(71,212)
(10,934)
(699)
48,604
11,009
(481)
2013
US$’000
85,345
(18,383)
(15,297)
(36,225)
-
-
232
7,335
(554)
(944)
14,480
21,509
841
(5,567)
Profit attributable to owners of the Company
15,321
15,942
Other comprehensive income
Items that may be reclassified subsequently to
profit or loss:
Exchange differences arising on translation
of foreign operations (no income tax effect)
Other comprehensive income (loss)
Total comprehensive income
attributable to owners of the Company
Earnings per share (cents)
Basic earnings
Diluted earnings
684
684
(421)
(421)
16,005
15,521
10
10
2.9
2.9
3.9
3.8
The accompanying notes are an integral part of these consolidated financial statements
- 55 -
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
For the year ended 31 December
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Derivative financial instruments
Income tax receivable
Other current assets
CURRENT ASSETS
Assets held for sale
TOTAL CURRENT ASSETS
NON-CURRENT ASSETS
Development and production assets
Exploration and evaluation expenditure
Property and equipment
Derivative financial instruments
Deferred tax assets
Other non-current assets
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
CURRENT LIABILITIES
Trade and other payables
Accrued expenses
Income tax payable
Derivative financial instruments
CURRENT LIABILITIES
Liabilities held for sale
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Derivative financial instruments
Credit facilities, net of deferred financing fees
Restoration provision
Deferred tax liabilities
Other non-current liabilities
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
EQUITY
Issued capital
Share option reserve
Foreign currency translation
Retained earnings
TOTAL EQUITY
Note
11
12
13
15
6
16
18
19
13
24
20
21
21
13
6
13
22
23
24
25
26
26
2014
US$’000
69,217
25,994
7,801
2,697
8,336
114,045
-
114,045
519,013
155,130
1,554
1,782
3,998
998
682,475
796,520
46,861
72,333
-
130
119,324
-
119,324
-
128,805
8,866
102,668
1,851
242,190
361,514
435,006
306,853
7,550
(832)
121,435
435,006
2013
US$’000
96,871
28,748
-
-
4,038
129,657
11,593
141,250
312,230
166,144
1,047
176
2,303
2,019
483,919
625,169
62,811
66,273
11,443
335
140,862
109
140,971
31
29,141
5,074
102,711
-
136,957
277,928
347,241
237,008
5,635
(1,516)
106,114
347,241
The accompanying notes are an integral part of these consolidated financial statements
- 56 -
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Issued
Capital
US$’000
Share
Option
Reserve
US$’000
Foreign
Currency
Translation
Reserve
US$’000
Retained
Earnings
US$’000
Total
US$’000
Balance at 31 December 2012
58,694
4,045
(1,095)
90,172
151,816
Profit attributable to owners of the Company
-
-
-
15,942
15,942
Other comprehensive loss for the year
-
-
(421)
-
(421)
Total comprehensive loss
Shares issued in connection with:
a) Merger with Texon
b) Private placement
c) Exercise of stock options
Cost of capital raising, net of tax
-
132,092
47,398
813
(1,989)
-
-
-
-
-
(421)
15,942
15,521
-
-
-
-
-
-
-
-
132,092
47,398
813
(1,989)
Stock compensation value of services
-
1,590
-
-
1,590
Balance at 31 December 2013
237,008
5,635
(1,516)
106,114
347,241
Profit attributable to owners of the Company
-
-
-
15,321
15,321
Other comprehensive income for the year
-
-
684
-
684
Total comprehensive income
Shares issued in connection with:
a) Private placement
b) Exercise of stock options
Cost of capital raising, net of tax
-
72,178
260
(2,593)
-
-
-
-
684
15,321
16,005
-
-
-
-
-
-
72,178
260
(2,593)
Stock compensation value of services
-
1,915
-
-
1,915
Balance at 31 December 2014
306,853
7,550
(832)
121,435
435,006
The accompanying notes are an integral part of these consolidated financial statements
- 57 -
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December
Note
2014
US$’000
2013
US$’000
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from sales
Payments to suppliers and employees
Interest received
Derivative proceeds, net
Income taxes paid, net
NET CASH PROVIDED BY OPERATING ACTIVITIES
30
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for development expenditure
Payments for exploration expenditure
Payments for acquisition of oil and gas properties
Sale of non-current assets
Transaction costs related to sale of non-current assets
Cash acquired from merger
Cash (paid) received from escrow and deposit
accounts, net
Payments for plant and equipment
NET CASH USED IN INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of shares
Payments for costs of capital raisings
Payments for acquisition related costs
Borrowing costs paid
Proceeds from borrowings
Repayments from borrowings
NET CASH PROVIDED BY FINANCING ACTIVITIES
170,442
(29,967)
201
(3)
(12,586)
128,087
(361,950)
(39,616)
(35,606)
115,284
(278)
-
(102)
84,703
(21,765)
126
253
(671)
62,646
(154,700)
(20,006)
(141,963)
37,848
(161)
114,690
837
(967)
(323,235)
(900)
(164,355)
72,438
(3,778)
-
(1,065)
165,000
(65,000)
167,595
48,211
(2,654)
(533)
(569)
15,000
(15,000)
44,455
Net decrease in cash held
(27,553)
(57,254)
Cash at beginning of period
Effect of exchange rates on cash
CASH AT END OF PERIOD
96,871
(101)
69,217
154,110
15
96,871
11
The accompanying notes are an integral part of these consolidated financial statements
- 58 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial report of Sundance Energy Australia Limited (“SEAL”) and its wholly owned subsidiaries,
(collectively, the “Company”, “Consolidated Group” or “Group”), for the year ended 31 December 2014 was
authorised for issuance in accordance with a resolution of the Board of Directors on 31 March 2015. The Group has
the power to amend and reissue the financial report.
The Group is a for-profit entity for the purpose of preparing the financial report. The principal activities of the Group
during the financial year are the exploration for, development and production of oil and natural gas in the United
States of America, and the continued expansion of its mineral acreage portfolio in the United States of America.
Basis of Preparation
The consolidated financial report is a general purpose financial report that has been prepared in accordance with
Australian Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of the
Australian Accounting Standards Board (“AASB”) and the Corporations Act 2001.
These consolidated financial statements comply with International Financial Reporting Standards (“IFRS”) as issued
by the International Accounting Standards Board (“IASB”). Material accounting policies adopted in the preparation
of this financial report are presented below. They have been consistently applied unless otherwise stated.
The consolidated financial statements are prepared on a historical basis, except for derivative financial instruments
which are measured at fair value. The consolidated financial statements are presented in US dollars and all values
are rounded to the nearest thousand (US$’000), except where stated otherwise.
Principles of Consolidation
A controlled entity is any entity over which SEAL is exposed, 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 consolidated
financial statements incorporate the assets and liabilities of all entities controlled by SEAL as at 31 December 2014
and the results of all controlled entities for the year then ended.
All inter-group balances and transactions between entities in the Group, including any recognised profits or losses,
are eliminated on consolidation.
Income Tax
a)
The income tax expense for the period comprises current income tax expense/(income) and deferred income tax
expense/(income).
Current income tax expense charged to the statement of profit or loss is the tax payable on taxable income calculated
using applicable income tax rates enacted, or substantially enacted, as at the reporting date. Current tax
liabilities/(assets) are therefore measured at the amounts expected to be paid to/(recovered from) the relevant
taxation authority.
Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the
period. Current and deferred income tax expense/(income) is charged or credited directly to equity instead of the
statement of profit or loss when the tax relates to items that are credited or charged directly to equity.
- 59 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES continued
Deferred tax assets and liabilities are ascertained based on temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets also result where
amounts have been fully expensed but future tax deductions are available. No deferred income tax will be recognised
from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on
accounting or taxable profit or loss.
Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the
asset recognised or the liability is settled, based on tax rates enacted or substantively enacted at the reporting date.
Their measurement also reflects the manner in which management expects to recover or settle the carrying amount
of the related asset or liability.
Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it
is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be
utilized. Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and joint
ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary
difference can be controlled and it is not probable that the reversal will occur in the foreseeable future.
Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that
net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred
tax assets and liabilities are offset where a legally enforceable right of set-off exists, the deferred tax assets and
liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different
taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective
asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are
expected to be recovered or settled.
Tax Consolidation
Sundance Energy Australia Limited and its wholly-owned Australian controlled entities have agreed to implement
the income tax consolidation regime, with Sundance Energy Australia Limited being the head company of the newly
consolidated group. Under this regime the group entities will be taxed as a single taxpayer. Whilst this choice is yet
to be communicated to the Australian Taxation Office, it is intended to be communicated prior to lodgement of the
31 December 2014 income tax return and will be effective from 1 January 2014. Sundance Energy Australia Limited
and its wholly-owned Australian controlled entities intend to enter into a Tax Sharing Agreement and Tax Funding
Agreement in due course.
The head entity of the income tax consolidated group and the controlled entities in the tax consolidated group
account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the
tax consolidated group continues to be a standalone taxpayer in its own right.
In addition to its own current and deferred tax amounts, Sundance Energy Australia Limited, as head company, also
recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused
tax credits assumed from controlled entities in the tax consolidated group.
- 60 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES continued
b) Exploration and Evaluation Expenditure
Exploration and evaluation expenditures incurred are accumulated in respect of each identifiable area of interest.
These costs are capitalised to the extent that they are expected to be recouped through the successful development
of the area or where activities in the area have not yet reached a stage that permits reasonable assessment of the
existence of economically recoverable reserves. Any such estimates and assumptions may change as new
information becomes available. If, after the expenditure is capitalized, information becomes available suggesting
that the recovery of the expenditure is unlikely, for example a dry hole, the relevant capitalized amount is written
off in the consolidated statement of profit or loss and other comprehensive income in the period in which new
information becomes available. The costs of assets constructed within the Group includes the leasehold cost,
geological and geophysical costs, and an appropriate proportion of fixed and variable overheads directly attributable
to the exploration and acquisition of undeveloped oil and gas properties.
When approval of commercial development of a discovered oil or gas field occurs, the accumulated costs for the
relevant area of interest are transferred to development and production assets. The costs of developed and
producing assets are amortised over the life of the area according to the rate of depletion of the proved and probable
developed reserves. The costs associated with the undeveloped acreage are not subject to depletion.
The carrying amounts of the Group’s exploration and evaluation assets are reviewed at each reporting date, in
conjunction with the impairment review process referred to in Note 1(f), to determine whether any of impairment
indicators exists. Impairment indicators could include i) tenure over the licence area has expired during the period
or will expire in the near future, and is not expected to be renewed, ii) substantive expenditure on further exploration
for and evaluation of mineral resources in the specific area is not budgeted or planned, iii) exploration for and
evaluation of resources in the specific area have not led to the discovery of commercially viable quantities of
resources, and the Group has decided to discontinue activities in the specific area, or iv) sufficient data exist to
indicate that although a development is likely to proceed, the carrying amount of the exploration and evaluation
asset is unlikely to be recovered in full from successful development or from sale. Where an indicator of impairment
exists, a formal estimate of the recoverable amount is made and any resulting impairment loss is recognized in the
income statement.
c) Development and Production Assets and Property and Equipment
Development and production assets, and property and equipment are carried at cost less, where applicable, any
accumulated depreciation, amortisation and impairment losses. The costs of assets constructed within the Group
includes the cost of materials, direct labor, borrowing costs and an appropriate proportion of fixed and variable
overheads directly attributable to the acquisition or development of oil and gas properties and facilities necessary
for the extraction of resources.
The carrying amount of development and production assets and property and equipment are reviewed at each
reporting date to ensure that they are not in excess of the recoverable amount from these assets. Development and
production assets are assessed for impairment on a cash-generating unit basis. A cash-generating unit is the smallest
grouping of assets that generates independent cash inflows. Management has assessed its CGUs as being an
individual basin, which is the lowest level for which cash inflows are largely independent of those of other assets.
Impairment losses recongised in respect of cash-generating units are allocated to reduce the carrying amount of the
assets in the unit on a pro-rata basis.
- 61 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES continued
An impairment loss is recognized in the income statement whenever the carrying amount of an asset or its cash-
generating unit exceeds its recoverable amount.
The recoverable amount of an asset is the greater of its fair value less costs to sell and its value-in-use. In assessing
value-in-use, an asset’s 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 assets/CGUs.
In addition, the Group considers market data related to recent transactions for similar assets.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only
when it is probable that future economic benefits associated with the item will flow to the group and the cost of the
item can be measured reliably. All other repairs and maintenance are charged to the consolidated statement of
profit or loss and comprehensive income during the financial period in which are they are incurred.
Depreciation and Amortisation Expense
Property and equipment are depreciated on a straight-line basis over their useful lives from the time the asset is
held and ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period
of the lease or the estimated useful life of the improvement.
The depreciation rates used for each class of depreciable assets are:
Class of Non-Current Asset Depreciation Rate Basis of Depreciation
Plant and Equipment 10 – 33% Straight Line
The Group uses the units-of-production method to amortise costs carried forward in relation to its development and
production assets. For this approach, the calculation is based upon economically recoverable reserves, being proved
developed reserves and probable developed reserves, over the life of an asset or group of assets.
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting
period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying
amount is greater than its estimated recoverable amount, and recorded as impairment expense within the
consolidated statement of profit or loss and other comprehensive income.
Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and
losses are included in the statement of profit or loss.
d) Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement
at date of inception. The arrangement is assessed to determine whether its fulfillment is dependent on the use of a
specific asset or assets and whether the arrangement conveys a right to use the asset, even if that right is not
explicitly specified in an arrangement.
Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and benefits
incidental to the ownership of the asset, but not the legal ownership to the entities in the Group. All other leases
are classified as operating leases.
- 62 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES continued
Finance leases are capitalised by recording an asset and a liability at the lower of the amounts equal to the fair value
of the leased property or the present value of the minimum lease payments, including any guaranteed residual
values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for
the period.
Assets under financing leases are depreciated on a straight-line basis over the shorter of their estimated useful lives
or the lease term. Lease payments for operating leases, where substantially all the risks and benefits remain with
the lessor, are charged as expenses in the periods in which they are incurred.
Lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis over the
life of the lease term.
e) Financial Instruments
Recognition and Initial Measurement
Financial instruments, incorporating financial assets and financial liabilities, are recognised when the entity becomes
a party to the contractual provisions of the instrument. Trade date accounting is adopted for financial assets that
are delivered within timeframes established by marketplace convention.
Financial instruments are initially measured at fair value plus transactions costs where the instrument is not classified
at fair value through profit or loss. Transaction costs related to instruments classified at fair value through profit or
loss are expensed to profit or loss immediately. Financial instruments are classified and measured as set out below.
Derivative Financial Instruments
The Group uses derivative financial instruments to economically hedge its exposure to changes in commodity prices
arising in the normal course of business. The principal derivatives that may be used are commodity crude oil price
swap, option and costless collar contracts and interest rate swaps. Their use is subject to policies and procedures as
approved by the Board of Directors. The Group does not trade in derivative financial instruments for speculative
purposes.
Derivative financial instruments are recognised at fair value. Subsequent to initial recognition, derivative financial
instruments are recognised at fair value. The fair value of these derivative financial instruments is the estimated
amount that the Group would receive or pay to terminate the contracts at the reporting date, taking into account
current market prices and the current creditworthiness of the contract counterparties. The derivatives are valued
on a mark to market valuation and the gain or loss on re-measurement to fair value is recognised through the
statement of profit or loss and other comprehensive income.
i) Financial assets at fair value through profit or loss
Financial assets are classified at fair value through profit or loss when they are held for trading for the purpose of
short term profit taking, when they are derivatives not held for hedging purposes, or designated as such to avoid an
accounting mismatch or to enable performance evaluation where a group of financial assets is managed by key
management personnel on a fair value basis in accordance with a documented risk management or investment
strategy. Realised and unrealised gains and losses arising from changes in fair value are included in profit or loss in
the period in which they arise.
- 63 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES continued
ii) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted
in an active market and are subsequently measured at amortised cost using the effective interest rate method.
iii) Held-to-maturity investments
Held-to-maturity investments are non-derivative financial assets that have fixed maturities and fixed or
determinable payments, and it is the Group’s intention to hold these investments to maturity. They are subsequently
measured at amortised cost using the effective interest rate method.
iv) Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets that are either designated as such or that are
not classified in any of the other categories. They comprise investments in the equity of other entities where there
is neither a fixed maturity nor fixed determinable payments.
v) Financial liabilities
Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost
using the effective interest rate method.
Derecognition
Financial assets are derecognised when the contractual right to receipt of cash flows expires or the asset is
transferred to another party whereby the entity no longer has any significant continuing involvement in the risks
and benefits associated with the asset. Financial liabilities are derecognised when the related obligations are either
discharged, cancelled or expire. The difference between the carrying value of the financial liability extinguished or
transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or
liabilities assumed, is recognised in profit or loss.
Impairment of Non-Financial Assets
f)
The carrying amounts of the Group’s assets are reviewed at each reporting date to determine whether there is any
indication of impairment. Where an indicator of impairment exists, a formal estimate of the recoverable amount is
made.
Exploration and evaluation assets are assessed for impairment in accordance with Note 1(b).
Development and production assets are assessed for impairment on a cash-generating unit basis. A cash-generating
unit is the smallest grouping of assets that generates independent cash inflows. Management has assessed its CGUs
as being an individual basin, which is the lowest level for which cash inflows are largely independent of those of
other assets. Impairment losses recognised in respect of cash-generating units are allocated to reduce the carrying
amount of the assets in the unit on a pro-rata basis.
An impairment loss is recognized in the income statement whenever the carrying amount of an asset or its cash-
generating unit exceeds its recoverable amount.
- 64 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES continued
The recoverable amount of an asset is the greater of its fair value less costs to sell (FVLCS) and its value-in-use (VIU).
In assessing VIU, an asset’s estimated future cash flows are discounted to their present value using an appropriate
discount rate that reflects current market assessments of the time value of money and the risks specific to the
assets/CGUs. In addition, the Group considers market data related to recent transactions for similar assets. In
determining the fair value of the Group's investment in shale properties, the Group considers a variety of valuation
metrics from recent comparable transactions in the market. These metrics include price per flowing barrel of oil
equivalent and undeveloped land values per acre held. Where an asset does not generate cash flows that are largely
independent from other assets or groups of assets, the recoverable amount is determined for the cash-generating
unit to which the asset belongs.
For development and production assets, the estimated future cash flows for the VIU calculation are based on
estimates, the most significant of which are hydrocarbon reserves, future production profiles, commodity prices,
operating costs and any future development costs necessary to produce the reserves. Under a FVLCS calculation,
future cash flows are based on estimates of hydrocarbon reserves in addition to other relevant factors such as value
attributable to additional reserves based on production plans.
Estimates of future commodity prices are based on the Group’s best estimates of future market prices with reference
to external market analysts’ forecasts, current spot prices and forward curves. At 31 December 2014, future NYMEX
strip prices, adjusted for basis differentials, were applied in 2015 and gradually increased through 2016 to $75/bbl
in 2017 and thereafter.
The discount rates applied to the future forecast cash flows are based on a third party participant’s post-tax weighted
average cost of capital, adjusted for the risk profile of the asset.
An impairment loss is reversed if there has been an increase in the estimated recoverable amount of a previously
impaired assets. 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 depletion if no impairment loss had
been recognized. The Company has not reversed an impairment loss during the years ended 31 December 2014 or
2013.
g) Foreign Currency Transactions and Balances
Functional and presentation currency
Both the functional currency and the presentation currency of the Group is US dollars. Some subsidiaries have
Australian dollar functional currencies which are translated to the presentation currency. All operations of the Group
are incurred at subsidiaries where the functional currency is the US dollar as all oil and gas properties are located in
North America.
Transactions and Balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the
date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non-
monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction.
Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were
determined.
- 65 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES continued
Exchange differences arising on the translation of non-monetary items are recognised directly in equity to the extent
that the gain or loss is directly recognised in equity, otherwise the exchange difference is recognised in the
consolidated statement of profit or loss and other comprehensive income.
Group Companies
The financial results and position of foreign subsidiaries whose functional currency is different from the Group’s
presentation currency are translated as follows:
-
-
-
assets and liabilities are translated at year-end exchange rates prevailing at that reporting date;
income and expenses are translated at average exchange rates for the period; and
retained profits, issued capital and paid-in-capital are translated at the exchange rates prevailing at the
date of the transaction.
Exchange differences arising on translation of foreign operations are transferred directly to the Group’s foreign
currency translation reserve. These differences are recognised in the statement of profit or loss and other
comprehensive income upon disposal of the foreign operation.
h) Employee Benefits
A provision is made for the Group’s liability for employee benefits arising from services rendered by employees to
the balance sheet date. Employee benefits that are expected to be settled within one year have been measured at
the amounts expected to be paid when the liability is settled, plus related on-costs. Employee benefits payable later
than one year have been measured at the present value of the estimated future cash outflows to be made for these
benefits. Those cash flows are discounted using market yields on national government bonds with terms to maturity
that match the expected timing of cash flows.
Equity - Settled Compensation
The Group has an incentive compensation plan where employees may be issued shares and/or options. The fair
value of the equity to which employees become entitled is measured at grant date and recognized as an expense
over the vesting period with a corresponding increase in equity. The fair value of shares issued is determined with
reference to the latest ASX share price. Options are fair valued using an appropriate valuation technique which takes
into account the vesting conditions.
Restricted Share Unit Plan
The group has a restricted share unit (“RSU”) plan to motivate management and employees to make decisions
benefiting long-term value creation, retain management and employees and reward the achievement of the Group’s
long-term goals. The target RSUs are based on goals established by the Remuneration and Nominations Committee
and approved by the Board. The actual RSUs, awarded annually, are modified according to actual results and
generally vest in four equal tranches beginning on the grant date and each of the first three subsequent
anniversaries.
i) Provisions
Provisions are recognised when the group has a legal or constructive obligation, as a result of past events, for which
it is probable that an outflow of economic benefits will result and that outflow can be reliably measured.
- 66 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES continued
j) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid
investments with original maturities of three months or less, unrestricted escrow accounts that management
expects to be used to settle current liabilities, capital or operating expenditures, or complete acquisitions and bank
overdrafts.
k) Revenue
Revenue from the sale of goods is recognised upon the delivery of goods to the customer. Revenue from the
rendering of a service is recognised upon the delivery of the service to the customers. All revenue is stated net of
the amount of goods and services tax (“GST”).
l) Borrowing Costs
Borrowing costs, including interest, directly attributable to the acquisition, construction or production of assets that
necessarily take a substantial period of time to prepare for their intended use or sale are added to the cost of those
assets until such time as the assets are substantially ready for their intended use or sale. Borrowings are recognised
initially at fair value, net of transaction costs incurred. Subsequent to initial recognition, borrowings are stated as
amortised cost with any difference between cost and redemption being recognised in the consolidated statement
of profit or loss and other comprehensive income over the period of the borrowings on an effective interest basis.
The Company capitalised eligible borrowing costs at 100 percent equal to $3.4 million and $1.3 million for the years
ended 31 December 2014 and 2013, respectively. All other borrowing costs are recognised in income in the period
in which they are incurred.
m) Goods and Services Tax
Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred
is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of
acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial
position are shown inclusive of GST.
Cash flows are presented in the consolidated statement of cash flows on a gross basis except for the GST component
of investing and financing activities, which are disclosed as operating cash flows.
n) Business Combinations
A business combination is a transaction in which an acquirer obtains control of one or more businesses. The
acquisition method of accounting is used to account for all business combinations regardless of whether equity
instruments or other assets are acquired. The acquisition method is only applied to a business combination when
control over the business is obtained. Subsequent changes in interests in a business where control already exists
are accounted for as transactions between owners. The cost of the business combination is measured at fair value
of the assets given, shares issued and liabilities incurred or assumed at the date of acquisition. Costs directly
attributable to the business combination are expensed as incurred, except those directly and incrementally
attributable to equity issuance.
- 67 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES continued
The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the
acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the net identifiable
asset acquired, if any, is recorded as goodwill. If those amounts are less than the fair value of the net identifiable
assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is
recognised directly in the consolidated statement of profit or loss and other comprehensive income as a bargain
purchase. Adjustments to the purchase price and excess on consideration transferred may be made up to one year
from the acquisition date.
o) Assets Held for Sale
The Company classifies property as held for sale when management commits to a plan to sell the property, the plan
has appropriate approvals, the sale of the property is probable within the next twelve months, and certain other
criteria are met. At such time, the respective assets and liabilities are presented separately on the Company’s
consolidated statement of financial position and amortisation is no longer recognized. Assets held for sale are
reported at the lower of their carrying amount or their estimated fair value, less the costs to sell the assets. The
Company recognizes an impairment loss if the current net book value of the property exceeds its fair value, less
selling costs. The company did not have any assets classified as held for sale as at 31 December 2014. As at 31
December 2013, all of the Company’s Williston properties were classified as held for sale.
p) Critical Accounting Estimates and Judgements
The Directors evaluate estimates and judgements incorporated into the financial report based on historical
knowledge and best available current information. Estimates assume a reasonable expectation of future events and
are based on current trends and economic data obtained both externally and within the Group. Revisions to
accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that
period, or in the period of the revision and future periods if the revision affects both current and future periods.
Management has made the following judgements, which have the most significant effect on the amounts recognised
in the consolidated financial statements.
Estimates of reserve quantities
The estimated quantities of hydrocarbon reserves reported by the Group are integral to the calculation of
amortisation (depletion) and to assessments of possible impairment of assets. Estimated reserve quantities are
based upon interpretations of geological and geophysical models and assessment of the technical feasibility and
commercial viability of producing the reserves. Management prepares reserve estimates which conform to
guidelines prepared by the Society of Petroleum Engineers. Management also prepares reserve estimates under SEC
guidelines. Reserve estimates conforming to the guidelines prepared by the Society of Petroleum Engineers are
utilized for accounting purposes. These assessments require assumptions to be made regarding future development
and production costs, commodity prices, exchange rates and fiscal regimes. The estimates of reserves may change
from period to period as the economic assumptions used to estimate the reserves can change from period to period,
and as additional geological data is generated during the course of operations.
- 68 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES continued
Impairment of Non-Financial Assets
The Group assesses impairment at each reporting date by evaluating conditions specific to the Group that may lead
to impairment of assets. Where an indicator of impairment exists, the recoverable amount of the cash-generating
unit to which the assets belong is then estimated based on the present value of future discounted cash flows. For
development and production assets, the expected future cash flow estimation is always based on a number of
factors, variables and assumptions, the most important of which are estimates of reserves, future production
profiles, commodity prices and costs. In most cases, the present value of future cash flows is most sensitive to
estimates of future oil price and discount rates. A change in the modeled assumptions in isolation could materially
change the recoverable amount. However, due to the interrelated nature of the assumptions, movements in any
one variable can have an indirect impact on others and individual variables rarely change in isolation. Additional,
management can be expected to respond to some movements, to mitigate downsides and take advantage of
upsides, as circumstances allow. Consequently, it is impracticable to estimate the indirect impact that a change in
one assumption has on other variables and therefore, on the extent of impairments under different sets of
assumptions in subsequent reporting periods. In the event that future circumstances vary from these assumptions,
the recoverable amount of the Group’s development and production assets could change materially and result in
impairment losses or the reversal of previous impairment losses.
Exploration and Evaluation
The Company’s policy for exploration and evaluation is discussed in Note 1 (b). The application of this policy requires
the Company to make certain estimates and assumptions as to future events and circumstances, particularly in
relation to the assessment of whether economic quantities of reserves have been found. Any such estimates and
assumptions may change as new information becomes available. If, after having capitalised exploration and
evaluation expenditure, management concludes that the capitalised expenditure is unlikely to be recovered by
future sale or exploitation, then the relevant capitalised amount will be written off through the consolidated
statement of profit or loss and other comprehensive income.
Restoration Provision
A provision for rehabilitation and restoration is provided by the Group to meet all future obligations for the
restoration and rehabilitation of oil and gas producing areas when oil and gas reserves are exhausted and the oil and
gas fields are abandoned. Restoration liabilities are discounted to present value and capitalised as a component part
of capitalised development expenditure. The capitalised costs are amortised over the units of production and the
provision is revised at each balance sheet date through the consolidated statement of profit or loss and other
comprehensive income as the discounting of the liability unwinds.
In most instances, the removal of the assets associated with these oil and gas producing areas will occur many years
in the future. The estimate of future removal costs therefore requires management to make significant judgements
regarding removal date or well lives, the extent of restoration activities required, discount and inflation rates.
Units of Production Depreciation
Development and production assets are depreciated using the units of production method over economically
recoverable reserves representing total proved and probable developed reserves. This results in a depreciation or
amortisation charge proportional to the depletion of the anticipated remaining production from the area of interest.
- 69 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES continued
The life of each item has regard to both its physical life limitations and present assessments of economically
recoverable reserves of the field at which the asset is located. Economically recoverable reserves are defined as
proved developed and probable developed reserves. These calculations require the use of estimates and
assumptions, including the amount of recoverable reserves and estimates of future capital expenditure. The
calculation of the units of production rate of depreciation or amortisation could be impacted to the extent that
actual production in the future is different from current forecast production based on total economically recoverable
reserves, or future capital expenditure estimates change. Changes to economically recoverable reserves could arise
due to change in the factors or assumptions used in estimating reserves, including the effect on economically
recoverable reserves of differences between actual commodity prices and commodity price assumptions and
unforeseen operational issues. Changes in estimates are accounted for prospectively.
Stock Based Compensation
The Group’s policy for stock based compensation is discussed in Note 1 (h). The application of this policy requires
management to make certain estimates and assumptions as to future events and circumstances. Stock based
compensation related to stock options use estimates for expected volatility of the Company’s share price and
expected term, including a forfeiture rate, if appropriate.
q) Change in Accounting Estimate
Effective 1 July 2013, the Company had a change in accounting estimate related to the economically recoverable
reserves in its Eagle Ford formation used in the units-of-production depletion calculation. Subsequent to the change,
the Company began to include management's best estimate of economically recoverable reserves associated with
developed properties, which include both proved developed and probable developed reserves. Prior to the change,
the Company used economically recoverable reserves associated only with proved developed reserves as probable
developed reserves were not significant.
r) Rounding of Amounts
The Company is of a kind referred to in Class Order 98/100 issued by the Australian Securities and Investment
Commission, relating to rounding of amounts in the financial statements. Amounts have been rounded to the
nearest thousand.
s) Parent Entity Financial Information
The financial information for the parent entity, SEAL (“Parent Company”), also the ultimate parent, discussed in Note
34, has been prepared on the same basis, using the same accounting policies as the consolidated financial
statements, except for its investments in subsidiaries which are accounted for at cost in the individual financial
statements of the parent entity less any impairment.
t) Earnings Per Share
The group presents basic and diluted earnings per share for its ordinary shares. Basic earnings per share is calculated
by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number
of ordinary shares outstanding during the year. Diluted earnings per share is determined by adjusting the profit or
loss attributable to ordinary shareholders and the weighted average number of ordinary shares for the dilutive
effect, if any, of outstanding share rights and share options which have been issued to employees.
- 70 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES continued
u) Adoption of New and Revised Accounting Standards
During the current reporting period the Group adopted all of the new and revised Australian Accounting Standards
and Interpretations applicable to its operations which became mandatory. The nature and effect of selected new
standards and amendments on the Group’s consolidated financial report are described below. Adoption of the other
new mandatorily applicable standards did not have a material impact on the financial statement, financial position
or performance of the Group.
AASB 2011-4 - Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel
Disclosure
This standard removes the requirements to include individual key management personnel disclosures in the notes
to and forming part of the Financial Report. This standard also removes the individual KMP disclosure requirements
for all disclosing entities in relation to equity holdings, loans and other related party transactions.
Amendments to IAS 32 - Offsetting Financial Assets and Financial Liabilities
The amendments to IAS 32 clarify the requirements relating to the offset of financial assets and financial liabilities.
Specifically, the amendments clarify the meaning of ‘currently has a legally enforceable right of set-off’ and
‘simultaneous realization and settlement’. As the Group does not have any financial assets and financial liabilities
that qualify for offset, the application of the amendments has had no impact on the disclosure or the Group’s
consolidated financial statements.
Recently issued accounting standards to be applied in future reporting periods:
The following Standards and Interpretations have been issued but are not yet effective. These are the standards that
the Group reasonably expects will have an impact on its disclosures, financial position or performance with applied
at a future date. The Group’s assessment of the impact of these new standards, amendments to standards, and
interpretations is set out below.
AASB 9/IFRS 9 – Financial Instruments
AASB 9/IFRS 9 introduces new requirements for the classification, measurement, and derecognition of financial
assets and financial liabilities. The final version of IFRS 9 supersedes all previous versions of the standard. However,
for annual periods beginning before 1 January 2018, an entity may elect to apply those earlier versions of IFRS 9 if
the entity’s relevant date of initial application is before 1 February 2015. The effective date of this standard is for
fiscal years beginning on or after 1 January 2018. Management is currently assessing the impact of the new standard
but it is not expected to have a material impact on the Group’s consolidated financial statements.
- 71 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES continued
AASB 15/IFRS 15 – Revenue from Contracts with Customers
In May 2014, AASB 15/IFRS 15 was issued which establishes a single comprehensive model for entities to use in
accounting for revenue arising from contracts with customers. Specifically, the standard introduces a 5-step
approach to revenue recognition:
•
•
•
•
•
Step 1: Identify the contract(s) with a customer
Step 2: Identify the performance obligations in the contracts.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation.
Under AASB 15/IFRS 15, an entity recognizes revenue when (or as) a performance obligation is satisfied, i.e. when
‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer.
The effective date of this standard is for fiscal years beginning on or after 1 January 2017. Management is currently
assessing the impact of the new standard and plans to adopt the new standard on the required effective date.
.
- 72 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – BUSINESS COMBINATIONS
Acquisitions in 2014
There were no business acquisitions for the year ended 31 December 2014.
Acquisition in 2013
On 8 March 2013, the Company acquired 100% of the outstanding shares of Texon Petroleum Ltd ("Texon", whose
name was changed to Armadillo Petroleum Ltd), an Australian corporation with oil and gas assets in the Eagle Ford
formation in the United States. The Company acquired Texon to gain access to its existing production and drilling
inventory in the Eagle Ford formation. As consideration for substantially all of the net assets of Texon, the Company
issued 122.7 million ordinary shares (approximately 30.6% of the total outstanding shares immediately subsequent
to the acquisition), which had a fair value of $132.1 million on the acquisition date and net cash consideration of
$26.3 million for a total purchase price of $158.4 million. The net cash consideration includes a $141.0 million pre-
merger purchase by the Company of certain Texon oil and gas properties, offset by $114.7 million of cash acquired
at the time of the merger. The current income tax liability, included in accrued expenses, and deferred tax liability
of $33.4 million and $16.9 million, respectively, are comprised of tax liabilities assumed as at the acquisition date
and an increase in the tax liability related to the incremental acquisition date fair value of the acquired development
and production and exploration and evaluation assets as compared to Texon's historical basis.
The following table reflects the final adjusted assets acquired and the liabilities assumed at their fair value or
otherwise where specified by AASB 3/IFRS 3 – Business Combinations (in thousands):
Fair value of assets acquired:
Trade and other receivables
Other current assets
Development and production assets
Exploration and evaluation assets
Prepaid drilling and completion costs
Amount attributable to assets acquired
Fair value of liabilities assumed:
Trade and other payables
Accrued expenses
Restoration provision
Deferred tax liabilities
Amount attributable to liabilities assumed
Net assets acquired
Purchase price:
Cash and cash equivalents, net of cash acquired
Issued capital
Total consideration paid
$ 5,604
456
53,937
150,474
3,027
213,498
119
37,816
277
16,884
55,096
$ 158,402
$ 26,310
132,092
$ 158,402
The net assets recognized in the 31 December 2013 financial statements were based on a provisional assessment
of their fair value.
- 73 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – BUSINESS COMBINATIONS continued
Since the acquisition date of 8 March 2013 through 31 December 2013, the Company has earned revenue of $42.3
million and generated net income of $12.6 million. The following reflects the acquisition’s contribution to the Group
as if the merger had occurred on 1 January 2013 instead of the closing date of 8 March 2013 (in thousands, except
per share information):
Oil and natural gas revenue
Lease operating and production expenses
Depreciation and amortization expense
General and administrative expense
Finance costs
Profit before income tax
Income tax expense
Proforma profit attributable to the period 1 January to 7 March 2013
Profit attributable to owners of the Company for the year
Adjusted profit attributable to the owners of the Company for the year
Adjusted basic earnings per ordinary share
Adjusted diluted earnings per ordinary share
Year ended
31 December 2013
$ 5,163
(1,150)
(1,882)
(667)
(35)
1,429
(542)
887
15,942
$ 16,829
4.1 ₵
4.0 ₵
The Company incurred $0.2 and $0.5 million for the years ended 31 December 2014 and 2013, respectively, for
professional fees and services related to the Texon acquisition. These amounts are included in general and
administrative expense in the consolidated statements of profit or loss, and other comprehensive income and
financing activities in the consolidated statement of cash flows, respectively.
NOTE 3 – REVENUE
Year ended 31 December
Oil revenue
Natural gas revenue
Natural gas liquid (NGL) revenue
Total revenue (net of royalties and transportation costs)
NOTE 4 – LEASE OPERATING AND PRODUCTION TAX EXPENSE
Year ended 31 December
Lease operating expense
Workover expense
Production tax expense
Total lease operating and production tax expense
- 74 -
2014
US$’000
144,994
6,161
8,638
159,793
2014
US$’000
(12,466)
(1,058)
(6,965)
(20,489)
2013
US$’000
79,365
2,774
3,206
85,345
2013
US$’000
(11,378)
(743)
(6,262)
(18,383)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – GENERAL AND ADMINISTRATIVE EXPENSES
Year ended 31 December
Employee benefits expense, including salaries and wages,
net of capitalised overhead
General legal and professional fees
Corporate fees
Regulatory expenses
Share based payments expense
Rent
Other expenses
Total general and administrative expenses
2014
US$’000
(3,064)
(4,661)
(2,676)
(1,374)
(1,915)
(631)
(1,206)
(15,527)
2013
US$’000
(4,553)
(3,307)
(2,344)
(2,313)
(1,590)
(234)
(956)
(15,297)
The company capitalised overhead costs, including salaries, wages benefits and consulting fees, directly attributable
to the exploration, acquisition and development of oil and gas properties of $4.5 million and $2.9 million for the
years ended 31 December 2014 and 2013, respectively.
NOTE 6 – GAIN ON SALE OF NON-CURRENT ASSETS
Disposals in 2014
In July 2014, the Company sold its remaining Denver-Julesburg Basin assets for net proceeds of $108.8 million in
cash, which includes the reimbursement of capital expenditures incurred on 8 gross (3.1 net) non-operated
horizontal wells. The sale resulted in a pre-tax gain of $48.7 million, which is included in the gain on sale of non-
current assets in the consolidated statement of profit or loss and other comprehensive income for the year ended
31 December 2014.
In July 2014, the Company sold its remaining Bakken assets, located in the Williston Basin, for approximately $14.0
million, which included $10 million in cash and approximately $4.0 million in settlement of a net liability due to the
buyer. The sale resulted in a pre-tax gain of $1.6 million, which is included in the gain on sale of non-current assets
in the consolidated statement of profit or loss and other comprehensive income for the year ended 31 December
2014. As at 31 December 2013, the carrying costs of these assets were $11.6 million and were classified as held for
sale.
For the Denver-Julesburg Basin sales proceeds, the Company elected to apply Section 1031 “like-kind exchange”
treatment under the US tax rules, which allow deferral of the gain if the proceeds are used to acquire “like-kind
property” within six months of the closing date of the transaction. In addition, the US tax rules allow the deduction
of all intangible drilling costs (“IDCs”) in the period incurred. In January 2015, the Company deferred majority of the
taxable gain on the sale of the Denver-Julesburg Basin by acquiring qualified replacement properties.
- 75 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – GAIN ON SALE OF NON-CURRENT ASSETS continued
Disposals in 2013
In the fourth quarter of 2013, the Company sold all of its interests in the Phoenix prospect, located in the Williston
Basin, for gross proceeds of $39.8 million. It was determined that approximately $26.0 million of the Company’s
carrying costs related to its Phoenix development and production properties at the time of the disposal. The sale
resulted in a pre-tax gain of $8.2 million, which is included in the gain on sale of non-current assets in the
consolidated statement of profit or loss and other comprehensive income for the year ended 31 December 2013.
During 2014, the Company finalized adjustments to the purchase price for the Phoenix sale, which resulted in a net
reduction of $0.9 million, which is included in the gain on sale of non-current assets in the consolidated statement
of profit or loss and other comprehensive income for the year ended 31 December 2014.
The Company deferred majority of the taxable gain on the sale of the Phoenix development by acquiring qualified
replacement properties or utilizing IDCs from its development program.
NOTE 7 – INCOME TAX EXPENSE
Year ended 31 December
a) The components of income tax expense comprise:
Current tax benefit/(expense)
Deferred tax benefit/(expense)
Total income tax benefit/(expense)
b) The prima facie tax on income from ordinary activities
before income tax is reconciled to the income tax as follows:
2014
US$’000
2013
US$’000
(17)
858
841
21,398
(26,965)
(5,567)
Profit before income tax
14,480
21,509
Prima facie tax expense at the Group’s statutory
income tax rate of 30% (2013:30%)
Increase (decrease) in tax expense resulting from:
- Difference of tax rate in US controlled entities
Impact of direct accounting from US controlled entities (1)
-
Employee options
-
Excess depletion
-
- Other allowable items
-
-
Tax adjustments relating to prior years
Change in apportioned state tax rates in US controlled
entities (2)
Tax consolidation election (3)
Change in unrecognized tax losses
-
-
4,344
6,453
220
(3,044)
428
(489)
295
(1,063)
1,607
72
-
-
144
(984)
(992)
(3,058)
2,518
(1,520)
-
(205)
Total Income tax (benefit)/expense
(841)
5,567
- 76 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 – INCOME TAX EXPENSE continued
Year ended 31 December
2014
US$’000
2013
US$’000
c) Unused tax losses and temporary differences for which
no deferred tax asset has been recognised at 30%
2,685
170
d) Deferred tax charged directly to equity:
- Equity raising costs
- Currency translation adjustment
1,147
(268)
665
-
1) The Oklahoma US state tax jurisdiction computes income taxes on a direct accounting basis. A significant
portion of the 2014 impairment related to this jurisdiction resulting in a deferred tax benefit of $3,044
creating deferred tax assets, of which $2,064 were unrecognized.
2) The change in apportioned state tax rates in US controlled entities is a result of the Company disposing of
its property in Colorado (income tax rate of 4.63%) (2013: North Dakota with income tax rate of 4.53%)
through a tax deferred sale and reinvesting the property in Texas (margin tax rate of 1%). As the Texas
margin tax computation is similar in nature to an income tax computation, it is treated as an income tax for
financial reporting purposes.
3) This income tax benefit results from the election to consolidate certain Australian subsidiaries for income
tax purposes effective 1 January 2014, making previously unrecognized deferred tax assets of one of these
Australian subsidiaries available for utilization against future income of the consolidated Australian entities.
These deferred tax assets were previously unrecognized due to the lack of evidence of future taxable
income for these Australian subsidiaries on a stand-alone basis.
NOTE 8 – KEY MANAGEMENT PERSONNEL COMPENSATION
a) Names and positions held of Consolidated Group key management personnel in office at any time during
Chairman Non-executive
the financial period are:
Mr M Hannell
Mr E McCrady Managing Director and Chief Executive Officer
Director – Non-executive
Mr D Hannes
Director – Non-executive
Mr N Martin
Mr W Holcombe Director – Non-executive
Ms C Anderson Chief Financial Officer
Ms G Ford
Vice President of Exploration and Development
Based on her increased responsibilities due to the Company’s growth, Ms. Ford was deemed to be a KMP
during the 2014 fiscal year. Prior to that time, Ms. Ford was not considered to be KMP
Other than Directors and Officers of the Company listed above, there are no additional key management
personnel.
- 77 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 – KEY MANAGEMENT PERSONNEL COMPENSATION continued
b) Key Management Personnel Compensation
The total cash remuneration paid to Key Management Personnel (“KMP”) of the Group during the year is as
follows:
Year ended 31 December
Short term wages and benefits
Equity settled-options based
payments
Post-employment benefit
2014
US$
2013
US$
2,001,893
1,207,989
56,882
3,266,764
1,864,751
625,161
55,416
2,545,328
c) Options Granted as Compensation
No options were granted as compensation during each of the years ended 31 December 2014 and 2013 to
KMP from the Sundance Energy Employee Stock Option Plan. Options generally vest in five equal tranches of
20% on the grant date and each of the four subsequent anniversaries of the grant date.
d) Restricted Share Units Granted as Compensation
RSUs awarded as compensation were 1,451,917 ($1.4 million fair value) and 623,251 ($0.6 million fair value)
during the years ended 31 December 2014 and 2013, respectively, to KMP from the Sundance Energy Long
Term Incentive Plan. RSUs generally vest in four equal tranches of 25% on the grant date and each of the three
subsequent anniversaries of the grant date.
NOTE 9 – AUDITORS’ REMUNERATION
Year ended 31 December
Cash remuneration of the auditor for:
Auditing or review of the financial report
Professional services related to filing of various Forms with the
US Securities and Exchange Commission
Non-audit services related to Texon acquisition
Taxation services provided by the practice of auditor
Total remuneration of the auditor
2014
US$
2013
US$
428,888
90,941
244,754
-
68,815
742,457
430,055
76,708
47,783
645,487
- 78 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 – EARNINGS PER SHARE (EPS)
Year ended 31 December
2014
US$’000
2013
US$’000
Profit for periods used to calculate basic and diluted EPS
15,321
15,942
-Weighted average number of ordinary shares outstanding
during the period used in calculation of basic EPS
531,391,405
413,872,184
-Incremental shares related to options and restricted
share units
-Weighted average number of ordinary shares outstanding
3,208,214
2,685,150
during the period used in calculation of diluted EPS
534,599,619
416,557,334
Number
of shares
Number
of shares
NOTE 11 – CASH AND CASH EQUIVALENTS
Year ended 31 December
Cash at bank and on hand
Cash equivalents in escrow accounts
Total cash and cash equivalents
2014
US$’000
2013
US$’000
18,222
50,995
69,217
59,918
36,953
96,871
As at 31 December 2014 and 2013, the Company had approximately $51.0 million and $37.0 million, respectively, in
Section 1031 escrow accounts which are not limited in use, except that the timing of tax payments will be accelerated
if not used on qualified “like-kind property.” As such, the balances have been included in the Company’s cash and
cash equivalents in the consolidated statement of financial position and consolidated statement of cash flows as at
31 December 2014 and 2013, respectively.
- 79 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 – TRADE AND OTHER RECEIVABLES
Year ended 31 December
Oil, natural gas and NGL sales
Joint interest billing receivables
Commodity hedge contract receivables
Other
Total trade and other receivables
2014
US$’000
13,246
11,587
1,153
8
25,994
2013
US$’000
23,364
5,353
-
31
28,748
As at 31 December 2013, the Group had a receivable balance of $11.7 million, which was outside normal trading
terms (the receivable was past due but not impaired), offset by a payable balance of $16.7 million to the same debtor
company (see Note 20 for additional information). The Company’s remaining Bakken assets were sold to the debtor
company in July 2014, for approximately $14.0 million, including the settlement of the net liability due to the debtor
company.
Due to the short-term nature of trade and other receivables, their carrying amounts are assumed to approximate
fair value. No receivables were outside of normal trading terms as at 31 December 2014.
NOTE 13 – DERIVATIVE FINANCIAL INSTRUMENTS
Year ended 31 December
FINANCIAL ASSETS:
Current
Derivative financial instruments – commodity contracts
Non-current
Derivative financial instruments – commodity contracts
Derivative financial instruments – interest rate swaps
Total financial assets
FINANCIAL LIABILITIES:
Current
Derivative financial instruments – commodity contracts
Derivative financial instruments – interest rate swaps
Non-current
Derivative financial instruments – commodity contracts
Total financial liabilities
2014
US$’000
2013
US$’000
7,801
1,675
107
9,583
-
(130)
-
(130)
-
-
176
176
(188)
(147)
(31)
(366)
- 80 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 – FAIR VALUE MEASUREMENT
The following table presents financial assets and liabilities measured at fair value in the consolidated statement of
financial position in accordance with the fair value hierarchy. This hierarchy groups financial assets and liabilities
into three levels based on the significance of inputs used in measuring the fair value of the financial assets and
liabilities. The fair value hierarchy has the following levels:
Level 1:
quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2:
inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3:
inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The Level within which the financial asset or liability is classified is determined based on the lowest level of significant
input to the fair value measurement. The financial assets and liabilities measured at fair value in the statement of
financial position are grouped into the fair value hierarchy as follows:
Consolidated 31 December 2014
(US$’000)
Assets measured at fair value
Derivative commodity contracts
Interest rate swap contracts
Development and production
assets (1)
Liabilities measured at fair value
Interest rate swap contracts
Level 1
Level 2
Level 3
Total
-
-
-
9,476
107
-
-
-
455,084
9,476
107
455,084
-
(130)
-
(130)
Net fair value
-
9,453
455,084
464,537
(1) Excludes work-in-progress and restoration provision assets totaling $63.9 million.
Consolidated 31 December 2013
(US$’000)
Assets measured at fair value
Interest rate swap contract
Liabilities measured at fair value
Derivative commodity contracts
Interest rate swap contracts
Level 1
Level 2
Level 3
Total
-
176
-
176
-
-
(219)
(147)
-
-
(219)
(147)
Net fair value
-
(190)
-
(190)
During the years ended 31 December 2014 and 2013, respectively, there were no transfers between level 1 and level
2 fair value measurements, and no transfer into or out of level 3 fair value measurements.
- 81 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 – FAIR VALUE MEASUREMENT continued
Measurement of Fair Value
a) Derivatives
Derivatives entered into by the Company consist of commodity contracts and interest rate swaps. The Company
utilises present value techniques and option-pricing models for valuing its derivatives. Inputs to these valuation
techniques include published forward prices, volatilities, and credit risk considerations, including the incorporation
of published interest rates and credit spreads. All of the significant inputs are observable, either directly or indirectly;
therefore, the Company’s derivative instruments are included within the Level 2 fair value hierarchy.
b) Credit Facilities
As at 31 December 2014, the Company had $95 million and $35 million of principal debt outstanding on the Senior
Credit Facility and the Junior Credit Facility, respectively. The estimated fair value of the Senior Credit Facility
approximated its carrying amount due to the floating interest rate paid on such debt to be set for a period of three
months or less. The estimated fair value of the Junior Credit Facility was approximately $41.8 million, based on
indirect, observable inputs (Level 2) regarding interest rates available to the Company. The fair value of the Junior
Credit Facility was determined by using a discounted cash flow model using a discount rate that reflects the
Company’s assumed borrowing rate at the end of the reporting period.
c) Other Financial Instruments
The carrying amounts of cash, accounts receivable, accounts payable and accrued liabilities approximate fair value
due to their short-term nature.
NOTE 15 – OTHER CURRENT ASSETS
Year ended 31 December
Cash advances to other operators
Escrow accounts
Oil inventory on hand, at cost
Equipment inventory, at cost
Prepaid expenses
Other
Total other current assets
2014
US$’000
3,270
1,000
1,331
1,315
1,401
19
8,336
2013
US$’000
685
1,498
1,088
-
753
14
4,038
- 82 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 – DEVELOPMENT AND PRODUCTION ASSETS
Year ended 31 December
2014
US$’000
2013
US$’000
Costs carried forward in respect of areas of interest in:
Development and production assets, at cost:
Producing assets
Wells-in-progress
Development and production assets, at cost:
Accumulated depletion
Provision for impairment
Total Development and Production Expenditure
a) Movements in carrying amounts:
Development expenditure
Balance at the beginning of the period
Amounts capitalised during the period
Amounts transferred from exploration phase
Fair value of assets acquired
Allocation of working interest assets acquired
Reclassifications to assets held for sale
Impairment expense
Depletion expense
Development and production assets, net of accumulated
amortization, sold during the period
Balance at end of period
652,035
56,043
708,078
(117,613)
(71,452)
519,013
312,230
350,196
59,209
-
2,244
-
(71,212)
(85,357)
(48,297)
519,013
297,469
55,636
353,105
(40,635)
(240)
312,230
79,729
219,121
31,999
54,258
-
(10,489)
-
(36,294)
(26,094)
312,230
Borrowing costs relating to drilling of development wells that have been capitalized as part of oil and gas properties
during the year ended 31 December 2014 was $3.4 million (2013: $1.3 million). The interest capitalization rate for
both years ended 31 December 2014 and 2013 was 100%.
- 83 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 – IMPAIRMENT OF NON-CURRENT ASSETS
At 31 December 2014, the Group reassessed the carrying amount of its non-current assets for indicators of
impairment in accordance with the Group’s accounting policy. Due to the change in the oil pricing environment at
year-end, the Company determined that there was an indication of impairment for development and production
assets.
Each of the Group’s development and production asset CGUs include all of its developed producing properties,
shared infrastructure supporting its production and undeveloped acreage that the Group considers technically
feasible and commercially viable.
Estimates of recoverable amounts are based on the higher of an asset’s value-in-use or fair value less costs to sell
(level 3 fair value hierarchy), using a discounted cash flow method, and are most sensitive to the key assumptions
such as pricing, discount rates, and reserve risk factors. The Group has used the FVLCS calculation whereby future
cash flows are based on estimates of hydrocarbon reserves in addition to other relevant factors such as value
attributable to additional reserves based on production plans.
Estimates of future commodity prices are based on the Group’s best estimates of future market prices with reference
to external market analysts’ forecasts, current spot prices and forward curves. At 31 December 2014, future NYMEX
strip prices, adjusted for basis differentials, were applied in 2015 and gradually increased through 2016 to $75/bbl
in 2017 and thereafter.
The post-tax discount rate that has been applied to the above non-current assets was 8.0%. The Group also applied
further risk-adjustments appropriate for risks associated with its developed and undeveloped reserves using a
weighted average risk-adjustment rate of 6% and 17%, respectively, based on the risk associate with each reserve
category.
Recoverable amounts and resulting impairment write-downs recognized in the Consolidated Statements of Profit or
Loss and Other Comprehensive Income for the year ended 31 December 2014 are presented in the table below:
Cash-generating unit
Development and production assets:
Eagle Ford
Mississippian/Woodford
Total development and production assets
Carrying costs (1)
US$’000
Recoverable
amount
US$’000
Impairment
US$’000
400,761
125,535
526,296
389,764
65,320
455,084
10,997
60,215
71,212
(1) Carrying costs exclude work-in-progress that is not subject to impairment analysis.
The impairment charge of $71.2 million noted above is primarily the result from the lower oil price environment.
- 84 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 – EXPLORATION AND EVALUATION EXPENDITURE
Year ended 31 December
Costs carried forward in respect of areas of interest in:
Exploration and evaluation phase, at cost
Provision for impairment
Total Exploration and Evaluation Expenditure
a) Movements in carrying amounts:
Exploration and evaluation
Balance at the beginning of the period
Amounts capitalised during the period
Fair value of assets acquired
Allocation of working interest assets acquired
Exploration costs expensed (1)
Reclassifications to assets held for sale
Amounts transferred to development phase
Exploration tenements sold during the period
Balance at end of period
2014
US$’000
2013
US$’000
156,680
(1,550)
155,130
167,694
(1,550)
166,144
166,144
39,670
-
34,184
(10,934)
-
(59,209)
(14,725)
155,130
33,439
14,770
151,115
-
-
(1,104)
(31,999)
(77)
166,144
(1) The Company drilled three exploratory wells in the Anadarko Basin that did not have economically
recoverable reserves (i.e. dry wells) and as such, all associated costs were written off.
In July 2014, the Company acquired the working interest in approximately 9,200 gross (5,700 net) in Dimmit County,
Texas. The purchase price included an initial cash payment of $35.5 million and a commitment to drill four Eagle
Ford wells. The purchase price was allocated between exploration and evaluation and development and production
assets based on discounted cash flows of developed producing wells.
The ultimate recoupment of costs carried forward for exploration phase is dependent on the successful development
and commercial exploitation or sale of respective areas.
NOTE 19 – PROPERTY AND EQUIPMENT
Year ended 31 December
Property and equipment, at cost
Accumulated depreciation
Total Property and Equipment
a) Movements in carrying amounts:
Balance at the beginning of the period
Amounts capitalised during the period
Depreciation expense
Balance at end of period
- 85 -
2014
US$’000
2,570
(1,016)
1,554
1,047
967
(460)
1,554
2013
US$’000
1,603
(556)
1,047
423
886
(262)
1,047
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 – OTHER NON-CURRENT ASSETS
Year ended 31 December
Escrow accounts
Other
Total other non-current assets
NOTE 21 – TRADE AND OTHER PAYABLES AND ACCRUED EXPENSES
Year ended 31 December
Oil and natural gas property and operating related
Administrative expenses, including salaries and wages
Total trade, other payables and accrued expenses
2014
US$’000
998
-
998
2014
US$’000
117,117
2,077
119,194
2013
US$’000
2,000
19
2,019
2013
US$’000
123,938
5,146
129,084
At 31 December 2013, the Group had payable balances of $16.7 million which was outside normal payment terms,
offset by a receivable balance of $11.7 million to the same creditor company (see Note 12 for additional
information). The Company’s remaining Bakken assets were sold to this company in July 2014, for approximately
$14.0 million, including the settlement of the net liability.
NOTE 22 – CREDIT FACILITIES
Year ended 31 December
Senior Credit Facility
Junior Credit Facility
Total credit facilities
Deferred financing fees
Total credit facilities, net of deferred financing fees
Junior Credit Facility
2014
US$000
95,000
35,000
130,000
(1,195)
128,805
2013
US$000
15,000
15,000
30,000
(859)
29,141
In August 2013, Sundance Energy, Inc. (“Sundance Energy”), a wholly owned subsidiary of the Company, entered
into a second lien credit agreement with Wells Fargo Energy Capital, Inc., as the administrative agent (the “Junior
Credit Facility”), which provides for term loans to be made in a series of draws up to $100 million. The Junior Credit
Facility matures in June 2018 and is secured by a second priority lien on substantially all of the Company’s assets.
Upon entering into the Junior Credit Facility, the Company immediately borrowed $15 million pursuant to the terms
of the Junior Credit Facility and paid down the outstanding principal of the Senior Credit Facility. In May 2014, the
Company’s borrowing capacity increased to $35 million. As at 31 December 2014, the borrowing capacity under the
Junior Credit Facility remains at $35 million.
- 86 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 22 – CREDIT FACILITIES continued
The principal amount of the loans borrowed under our Junior Credit Facility is due in full on the maturity date.
Interest on the Junior Credit Facility accrues at a rate equal to the greater of (i) 8.50% or (ii) a base rate (being, at
our option, either (a) LIBOR for the applicable interest period (adjusted for Eurodollar Reserve Requirements) or (b)
the greatest of (x) the prime rate announced by Wells Fargo Bank, N.A., (y) the federal funds rate plus 0.50% and (z)
one-month adjusted LIBOR plus 1.00%), plus a margin of either 6.5% or 7.5%, based on the base rate selected.
The Company is also required under our Junior Credit Facility to maintain the following financial ratios:
•
•
•
a current ratio, consisting of consolidated current assets including undrawn borrowing capacity to
consolidated current liabilities, of not less than 1.0 to 1.0 as of the last day of any fiscal quarter;
a maximum leverage ratio, consisting of consolidated debt to adjusted consolidated EBITDAX (as defined
in the Junior Credit Facility), of not greater than 4.5 to 1.0 as of the last day of any fiscal quarter
(beginning 30 September 2013); and
an asset coverage ratio, consisting of PV10 to consolidated debt, of not less than 1.5 to 1.0, as of certain
test dates.
For the years ended 31 December 2014 and 2013, the Company capitalised $0.7 million and $0.3 million,
respectively, of financing costs related to the Junior Credit Facility, which offset the principal balance. As at 31
December 2014 there was $35.0 million outstanding under the Company’s Junior Credit Facility. As at 31 December
2014, the Company was in compliance with all restrictive financial and other covenants under the Junior Credit
Facility.
Senior Credit Facility
On 31 December 2012, Sundance Energy entered into a credit agreement with Wells Fargo Bank, N.A. (the “Senior
Credit Facility”), pursuant to which up to $300 million is available on a revolving basis. The borrowing base under
the Senior Credit Facility is determined by reference to the value of the Company’s proved reserves. The agreement
specifies a semi-annual borrowing base redetermination and the Company can request two additional
redeterminations each year. The borrowing capacity was increased from prior year to $110 million as at 31
December 2014 based on Company reserves as at 31 December 2014. As at 31 December 2014, the Company had
$15 million undrawn on the Senior Credit Facility. In conjunction with the increase in the borrowing base, the
Company has expanded the syndicate of banks under the Senior Credit Facility. With Wells Fargo as administrative
agent, Bank of America Merrill Lynch and the Bank of Nova Scotia have now joined the banking group.
Interest on borrowed funds accrue, at the Company’s option, of i) LIBOR plus a margin that ranges from 175 to 275
basis points or ii) the Base Rate, defined as a rate equal to the highest of (a) the Federal Funds Rate plus ½ of 1%, (b)
the Prime Rate, or (c) LIBOR plus a margin that ranges from 75 to 175 basis points. The applicable margin varies
depending on the amount drawn. The Company also pays a commitment that ranges from 37.5 to 50 basis points
on the undrawn balance of the borrowing base. The agreement has a five-year term and contains both negative and
affirmative covenants, including minimum current ratio and maximum leverage ratio requirements consistent with
the Junior Credit Facility’s. Certain development and production assets are pledged as collateral and the facility is
guaranteed by the Parent Company.
For the years ended 31 December 2014 and 2013, the Company capitalised nil and $0.2 million, respectively, of
financing costs related to the Senior Credit Facility, which offset the principal balance. As at 31 December 2014 there
was $95.0 million outstanding under the Company’s Senior Credit Facility. As at 31 December 2014, the Company
was in compliance with all restrictive financial and other covenants under the Senior Credit Facility.
The Company capitalised $3.4 million and $1.3 million of interest expense during the years ended 31 December
2014 and 2013, respectively.
- 87 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 23 – RESTORATION PROVISION
The restoration provision represents the best estimate of the present value of restoration costs relating to the
Company’s oil and natural gas interests, which are expected to be incurred up to 2043. Assumptions, based on the
current economic environment, have been made which management believes are a reasonable basis upon which to
estimate the future liability. The estimate of future removal costs requires management to make significant
judgments regarding removal date or well lives, the extent of restoration activities required, discount and inflation
rates. These estimates are reviewed regularly to take into account any material changes to the assumptions.
However, actual restoration costs will reflect market conditions at the relevant time. Furthermore, the timing of
restoration is likely to depend on when the fields cease to produce at economically viable rates. This in turn will
depend on future oil and natural gas prices, which are inherently uncertain.
Year ended 31 December
Balance at the beginning of the period
New provisions
Changes in estimates
Disposals
New provisions assumed from acquisition
Reclassified to assets held for sale
Unwinding of discount
Balance at end of period
NOTE 24 – DEFERRED TAX ASSETS AND LIABILITIES
Deferred tax assets and liabilities are attributable to the following:
Year ended 31 December
Net deferred tax assets:
Share issuance costs
Net operating loss carried forward
Unrecognized foreign currency gain (loss)
Total net deferred tax assets
Deferred tax liabilities:
Development and production expenditure
Derivatives
Offset by deferred tax assets with legally enforceable right of set-off:
Net operating loss carried forward
Other
Total net deferred tax liabilities
2014
US$’000
5,074
3,677
1,541
(2,314)
822
-
66
8,866
2013
US$’000
1,228
1,601
2,021
(146)
397
(109)
82
5,074
2014
US$’000
2013
US$’000
2,172
1,826
-
3,998
1,069
473
761
2,303
(106,343)
(3,351)
(114,042)
-
5,943
1,083
(102,668)
10,373
958
(102,711)
- 88 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 25 – ISSUED CAPITAL
Total ordinary shares issued and outstanding at each period end are fully paid. All shares issued are authorized.
Shares have no par value.
a) Ordinary Shares
Number of Shares
Total shares issued and outstanding at 31 December 2012
Shares issued during the year
Total shares issued and outstanding at 31 December 2013
Shares issued during the year
Total shares issued and outstanding at 31 December 2014
278,765,141
184,408,527
463,173,668
86,122,171
549,295,839
Ordinary shares participate in dividends and the proceeds on winding up of the Parent Company in proportion to
the number of shares held. At shareholders’ meetings each ordinary share is entitled to one vote when a poll is
called, otherwise each shareholder has one vote on a show of hands.
Year ended 31 December
b)
Issued Capital
Beginning of the period
Shares issued in connection with:
Merger with Texon
Private placement
Exercise of stock options
Total shares issued during the period
Cost of capital raising during the period, net of tax benefit
Closing balance at end of period
c) Options on Issue
Details of the share options outstanding as at 31 December:
2014
US$’000
2013
US$’000
237,008
58,694
-
72,178
260
72,438
(2,593)
306,853
132,092
47,398
813
180,303
(1,989)
237,008
Grant Date
02 Dec 2010
02 Mar 2011
03 Jun 2011
06 Jun 2011
06 Sep 2011
05 Dec 2011
01 Nov 2012
03 Dec 2012
01 Apr 2013
24 Sept 2013
Total share options outstanding
Expiry Date
01 Dec 2015
30 Jun 2014
15 Jan 2016
01 Sep 2015
31 Dec 2018
05 Mar 2019
01 Feb 2020
03 Mar 2020
01 Jul 2020
23 Dec 2020
Exercise Price A$
0.37
0.95
0.65
0.95
0.95
0.95
1.15
1.15
1.25
1.40
2014
No. of options
-
-
500,000
30,000
1,200,000
1,000,000
-
-
-
-
2,730,000
2013
No. of options
291,666
30,000
500,000
30,000
1,200,000
1,000,000
350,000
350,000
350,000
950,000
5,051,666
- 89 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 25 – ISSUED CAPITAL continued
d)
Restricted Share Units on Issue
Details of the restricted share units outstanding as at 31 December:
Grant Date
05 Dec 2011
15 Oct 2012
19 April 2013
28 May 2013
15 April 2014
24 April 2014
29 April 2014
30 May 2014
Total RSUs outstanding
2014
No. of RSUs
-
352,676
411,769
187,124
126,666
1,291,951
90,000
503,991
2,964,177
2013
No. of RSUs
88,500
709,817
625,304
280,686
-
-
-
-
1,704,307
e)
Capital Management
Management controls the capital of the Group in order to maintain an appropriate debt to equity ratio,
provide the shareholders with adequate returns and ensure that the Group can fund its operations and
continue as a going concern.
The Group’s debt and capital includes ordinary share capital and financial liabilities, supported by financial
assets. Other than the covenants described in Note 21, the Group has no externally imposed capital
requirements.
Management effectively manages the Group’s capital by assessing the Group’s financial risks and adjusting
its capital structure in response to changes in these risks and in the market. These responses include the
management of debt levels, distributions to shareholders and shareholder issues.
There have been no changes in the strategy adopted by management to control the capital of the Group
since the prior period. The strategy is to ensure that the Group’s gearing ratio remains minimal. As at 31
December 2014 and 2013, the Company had $128.8 million and $29.1 million of outstanding debt, net of
deferred financing fees, respectively.
- 90 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 26 – RESERVES
a) Share Option Reserve
The share option reserve records items recognised as expenses on valuation of employee and supplier share
options and restricted share units.
b) Foreign Currency Translation Reserve
The foreign currency translation reserve records exchange differences arising on translation of the Parent
Company.
NOTE 27 – CAPITAL AND OTHER EXPENDITURE COMMITMENTS
Capital commitments relating to tenements
As at 31 December 2014, all of the Company’s exploration and evaluation and development and production assets
are located in the United States of America (“US”).
The mineral leases in the exploration prospects in the US have primary terms ranging from 3 years to 5 years and
generally have no specific capital expenditure requirements. However, mineral leases that are not successfully
drilled and included within a spacing unit for a producing well within the primary term will expire at the end of the
primary term unless re-leased.
- 91 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 27 – CAPITAL AND OTHER EXPENDITURE COMMITMENTS continued
The following tables summarize the Group’s contractual commitments not provided for in the consolidated
financial statements:
As at 31 December 2014
Drilling rig commitments (1)
Operating lease commitments (3)
Employment commitments (4)
Total expenditure commitments
Total
1,460
2,363
742
4,565
Less than 1
year
1,460
430
370
2,260
1 – 5 years
-
1,933
372
2,305
More than 5
years
-
-
-
-
As at 31 December 2013
Drilling rig commitments (1)
Drilling commitments (2)
Operating lease commitments (3)
Employment commitments (4)
Total expenditure commitments
Total
5,159
2,000
1,860
104
9,123
Less than 1
year
5,159
-
200
104
1 – 5 years
-
2,000
1,354
-
More than 5
years
-
-
306
-
5,463
3,354
306
(1) As at 31 December 2014 the Company had one (2013: four) outstanding drilling rig contracts to
explore and develop the Company’s properties. The contracts generally have terms of 6 months.
Amounts represent minimum expenditure commitments should the Company elect to terminate
these contracts prior to term.
(2) On 31 December 2012, the Company entered into an agreement to acquire certain oil and natural
gas properties located in the Wattenberg Field and to drill 45 net wells by 31 December 2015 on
the acquired properties (the “Drilling Commitment”). As each qualifying well is drilled,
approximately $67 thousand is paid from the escrow account to the Company. However, for each
required net commitment well not completed by the Company during that prorated commitment
year, the Company is to pay the seller of the properties approximately $67 thousand from the
escrow account. Certain clawback provisions allow the Company to recoup amounts paid to the
sellers if the total 45 wells are drilled by 31 December 2015. The Company sold the properties in
July 2014 and should the buyer drill any qualifying wells, the obligation would be satisfied. As at
31 December 2014, the Company and the buyer had not drilled any wells and the Company does
not expect any wells to be drilled under this provision in 2015. As such, the remaining
commitment of $2.0 million was accrued in our consolidated statement of financial position and
recognised against the gain on sale of assets in the consolidated statement of profit or loss and
comprehensive income.
(3) Represents commitments for minimum lease payments in relation to non-cancellable operating
leases for office space not provided for in the consolidated financial statements.
(4) Represents commitments for the payment of salaries and other remuneration under long-term
employment and consultant contracts not provided for in the consolidated financial statements.
Details relating to the employment contracts are set out in the Company’s Remuneration Report.
- 92 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 28 – CONTINGENT ASSETS AND LIABILITIES
At the date of signing this report, the Group is not aware of any contingent assets or liabilities that should be
recognised or disclosed in accordance with AASB 137/IFRS 37 – Provisions, Contingent Liabilities and Contingent
Assets.
NOTE 29 – OPERATING SEGMENTS
The Company’s strategic focus is the exploration, development and production of large, repeatable onshore resource
plays in North America, which is the Company’s only major line of business and only major geographic area of
operations. All of the basins and/or formations in which the Company operates have common operational
characteristics, challenges and economic characteristics. As such, Management has determined, based upon the
reports reviewed and used to make strategic decisions by the Chief Operating Decision Maker (“CODM”), whom is
the Company’s Managing Director and Chief Executive Officer, that the Company has one reportable segment being
oil and natural gas exploration and production in North America.
The CODM reviews internal management reports on a monthly basis that are consistent with the information
provided in the statement of profit or loss and other comprehensive income, statement of financial position and
statement of cash flows. As a result no reconciliation is required, because the information as presented is used by
the CODM to make strategic decisions.
Geographic Information
The operations of the Group are located in only one geographic location, North America. All revenue is generated
from sales to customers located in North America.
Revenue from one major customer exceeded 10 percent of Group consolidated revenue for the year ended 31
December 2014 and accounted for 65 percent (2013: four major customers accounted for 47 percent, 15 percent,
10 percent and 10 percent) of our consolidated oil, natural gas and NGL revenues.
- 93 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 30 – CASH FLOW INFORMATION
Year ended 31 December
a) Reconciliation of cash flows from operations with income from
ordinary activities after income tax
Profit from ordinary activities after income tax
Adjustments to reconcile net profit to net operating cash flows:
Depreciation and amortisation expense
Share options expensed
Unrealised (gains) losses on derivatives
Net gain on sale of properties
Impairment of development and production assets
Unsuccessful exploration and evaluation expense
Amortisation of deferred financing fees
Add: Interest expense (disclosed in investing and financing
activities)
Recognition of DTA on items directly within equity
Other
Changes in assets and liabilities:
- (Decrease) increase in current and deferred income tax
- Decrease in other assets
- Decrease (increase) in trade and other receivables
- Increase in trade and other payables
Net cash provided by operating activities
2014
US$’000
2013
US$’000
15,321
15,942
85,584
1,915
(9,642)
(48,604)
71,212
10,934
316
383
879
126
(14,606)
28
8,679
5,562
128,087
36,225
1,590
837
(7,335)
-
-
140
-
665
(153)
5,147
2,155
(3,541)
10,974
62,646
b) Non Cash Financing and Investing Activities
- During the year ended 31 December 2014 the net gain on sale of properties for the disposition of the
Company’s remaining Williston assets included the relief of a net payable due to the buyer of $4.0 million
($17.1 million payable and $13.1 million receivable).
- During the year ended 31 December 2013 $132.1 million in shares were issued in connection with the
Texon acquisition.
- 94 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 31 – SHARE BASED PAYMENTS
Options
During the years ended 31 December 2014 and 2013, a total of nil and 2,000,000 options were granted to employees
pursuant to employment agreements and a total of 431,666 and 2,725,000 previously issued options were
exercised, respectively. There were 700,000 awarded options that the Company issued in early 2013 for which
Company employees rendered services during the six month period ended 31 December 2012.
Year ended 31 December
2014
2013
Outstanding at start of
period
Formally issued
Forfeited
Exercised
Expired
Outstanding at end of period
Exercisable at end of period
Number
of Options
5,051,666
-
(1,890,000)
(431,666)
-
2,730,000
1,930,000
Weighted
Average
Exercise Price A$
1.02
Number
of Options
5,776,666
Weighted
Average
Exercise Price A$
0.59
-
1.29
0.62
-
0.90
0.87
2,000,000
-
(2,725,000)
-
5,051,666
2,241,666
1.29
-
0.31
-
1.02
0.87
The following tables summarise the options issued and awarded and their related grant date, fair value and vesting
conditions for the year ended 31 December 2013. No options were issued during the year ended 31 December 2014.
For options outstanding as at 31 December 2014, the exercise price ranged from A$0.65 to A$0.95 and the weighted
average remaining contractual life was 3.5 years.
Options issued during the year ended 31 December 2013:
Grant Date
1 April 2013
24 September 2013
Total
Number of Options
350,000
950,000
1,300,000
Estimated Fair Value (US$’000)
$ 217
$ 475
$ 692
Vesting Conditions
20% issuance date, 20% first four anniversaries
20% issuance date, 20% first four anniversaries
Share based payments expense related to options is determined pursuant to AASB 2 - Share Based Payments (“AASB
2”) / IFRS 2 – Share Based Payments (“IFRS 2”), and is recognised pursuant to the attached vesting conditions. The
fair value of the options awarded ranged from A$0.53 to A$0.59 for the year ended 31 December 2013, which were
calculated using a Black-Sholes options pricing model. Expected volatilities are based upon the historical volatility
of the ordinary shares. Historical data is also used to estimate the probability of option exercise and potential
forfeitures.
- 95 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 31 – SHARE BASED PAYMENTS continued
The following table summarises the key assumptions used to calculate the estimated fair value awarded or granted
during the year ended 31 December 2013:
Share price:
Exercise price:
Expected volatility:
Option term:
Risk free interest rate:
2013
A$ 1.06 – A$1.10
A$1.25 – 1.40
60%
5.75 years
2.82 to 3.10%
Restricted Share Units
During the years ended 31 December 2014 and 2013, the Board of Directors awarded 2,839,626 and 1,237,994 RSUs
to certain employees. These awards were made in accordance with the long-term equity component of the
Company’s incentive compensation plan, the details of which are described in more detail in the remuneration
section of the Directors’ Report. Share based payment expense for RSUs awarded was calculated pursuant to AASB
2 / IFRS 2. The fair values of RSUs were estimated at the date they were approved by the Board of Directors (the
measurement dates) based on the Company’s stock price at the date of grant. The value of the vested portion of
these awards has been recognised within the financial statements. This information is summarised for the Group
for the years ended 31 December 2014 and 2013, respectively, below:
Outstanding at 31 December 2012
Issued
Converted to ordinary shares
Forfeited
Outstanding at 31 December 2013
Issued
Converted to ordinary shares
Forfeited
Outstanding at 31 December 2014
Number
of RSUs
2,090,893
1,237,994
(1,511,511)
(113,069)
1,704,307
2,839,626
(1,479,978)
(99,778)
2,964,177
Weighted Average
Fair Value at
Measurement Date A$
0.59
0.91
0.76
0.76
0.83
0.97
0.89
0.92
0.93
The following tables summarise the RSUs issued and their related grant date, fair value and vesting conditions:
RSUs awarded during the year ended 31 December 2014:
Grant Date
15 April 2014
5 May 2014
12 May 2014
30 May 2014
Number of RSUs
1,842,638
135,000
190,000
671,988
2,839,626
Estimated Fair Value
(US$’000)
$1,611
123
172
680
$ 2,586
Vesting Conditions
25% issuance date, 25% first three anniversaries
33% issuance date, 33% on 1 January 2015 and 2016
33% issuance date, 33% first two anniversaries
25% issuance date, 25% first three anniversaries
- 96 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 31 – SHARE BASED PAYMENTS continued
RSUs awarded during the year ended 31 December 2013:
Grant Date
19 April 2013
28 May 2013
Number of RSUs
863,746
374,248
1,237,994
Estimated Fair Value
(US$’000)
$ 789
354
$ 1,143
Vesting Conditions
25% issuance date, 25% first three anniversaries
25% issuance date, 25% first three anniversaries
Upon vesting, and after a certain administrative period, the RSUs are converted to ordinary shares of the Company.
Once converted to ordinary shares, the RSUs are no longer restricted. As the daily closing price of the Company’s
ordinary shares approximates its estimated fair value at that time, the Company used the grant date closing price to
estimate the fair value of the RSUs.
The total share based compensation expense for the years ended 31 December 2014 and 2013 was $1.9 million and
$1.6 million, respectively.
NOTE 32 – RELATED PARTY TRANSACTIONS
N Martin was previously a partner of Minter Ellison Lawyers and is now a consultant for Minter Ellison Lawyers as
well as a Director of the Company. Minter Ellison Lawyers were paid a non material amount for legal services for the
year ended 31 December 2014 and $0.2 million for legal services for the years ended 31 December 2013.
NOTE 33 – FINANCIAL RISK MANAGEMENT
a) Financial Risk Management Policies
The Group is exposed to a variety of financial market risks including interest rate, commodity prices, foreign
exchange and liquidity risk. The Group’s risk management strategy focuses on the volatility of commodity
markets and protecting cash flow in the event of declines in commodity pricing. The Group utilises derivative
financial instruments to hedge exposure to fluctuations in interest rates and commodity prices. The Group’s
financial instruments consist mainly of deposits with banks, short term investments, accounts receivable,
derivative financial instruments, finance facility, and payables. The main purpose of non-derivative financial
instruments is to raise finance for the Group operations.
i)
Treasury Risk Management
Financial risk management is carried out by Management. The Board sets financial risk management policies
and procedures by which Management are to adhere. Management identifies and evaluates all financial risks
and enters into financial risk instruments to mitigate these risk exposures in accordance with the policies and
procedures outlined by the Board.
ii)
Financial Risk Exposure and Management
Interest rate risk is managed with a mixture of fixed and floating rate cash deposits. As at 31 December 2014
and 2013 approximately nil of Group deposits are fixed. It is the policy of the Group to keep surplus cash in
interest yielding deposits.
- 97 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 33 – FINANCIAL RISK MANAGEMENT continued
The Group’s interest rate risk arises from its borrowings. Interest rate risk is the risk that the fair value of future
cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s
exposure to the risk of changes in market interest rates relates primarily to the Group’s long-term debt
obligations with floating interest rates.
During the year ended 31 December 2013, the Group entered into US dollar denominated interest rate swaps
which fix the interest rate associated with the credit facilities to protect against the floating LIBOR rates through
2017. As at 31 December 2014 the Group had interest rate swaps with a notional contract amount of $15.0
million (2013: $15.0 million).
The net fair value of interest rate swaps at 31 December 2014 was relatively immaterial, comprising long-term
assets of $0.1 million (2013: $0.2 million) and current liabilities of $0.1 million (2013: 0.1 million). These
amounts were recognised as Level 2 fair value derivatives. (See Note 14)
iii)
Commodity Price Risk Exposure and Management
The Board actively reviews oil and natural gas hedging on a monthly basis. Reports providing detailed analysis
of the Group’s hedging activity are continually monitored against Group policy. The Group sells its oil on market
using Nymex and LLS market spot rates reduced for basis differentials in the basins from which the Company
produces. Gas is sold using Henry Hub and Houston Ship Channel market spot prices. Forward contracts are
used by the Group to manage its forward commodity price risk exposure. The Group’s policy is to hedge less
than 50% of anticipated future oil and gas production for up to 24 months. The Group may hedge over 50% or
beyond 24 months with approval of the Board. The Group has not elected to utilise hedge accounting treatment
and changes in fair value are recognised in the statement of profit or loss and other comprehensive income.
Commodity Hedge Contracts outstanding as at 31 December 2014
Contract Type
Collar
Collar
Collar
Collar
Swap
Swap
Swap
Swap
Swap
Swap
Swap
Swap
Counterparty
Wells Fargo
Shell Trading US
Wells Fargo
Wells Fargo
Wells Fargo
Shell Trading US
Shell Trading US
Wells Fargo
Wells Fargo
Shell Trading US
Shell Trading US
Shell Trading US
Basis
WTI
LLS
WTI
WTI
LLS
LLS
LLS
WTI
LLS
LLS
LLS
HH
Quantity/mo
2,000 BBL
3,000 BBL
2,000 BBL
1,000 BBL
2,000 BBL
5,000 BBL
3,000 BBL
2,000 BBL
2,000 BBL
5,000 BBL
5,000 BBL
20,000 MCF
Strike Price
$75.00/$98.65
$85.00/$101.05
$80.00/$97.00
$80.00/$94.94
$91.65
$98.05
$94.10
$95.08
$97.74
$100.70
$94.10
$4.14
Term
1 Jan 15 – 31 Dec 15
1 Jan 15 – 31 Dec 15
1 Jan 15 – 31 Dec 15
1 Jan 15 – 31 Dec 15
1 Jan 15 – 31 Dec 15
1 Jan 15 – 30 Jun 15
1 Jul 15 – 31 Dec 15
1 Jan 15 – 31 Dec 15
1 Jan 15 – 31 Dec 15
1 Jan 15 – 30 Jun 15
1 Jan 16 – 31 Dec 16
1 Jan 15 – 31 Dec 15
- 98 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 33 – FINANCIAL RISK MANAGEMENT continued
b) Net Fair Value of Financial Assets and Liabilities
The net fair value of cash and cash equivalent and non-interest bearing monetary financial assets and financial
liabilities of the consolidated entity approximate their carrying value.
The net fair value of other monetary financial assets and financial liabilities is based on discounting future cash
flows by the current interest rates for assets and liabilities with similar risk profiles. Other than the Junior Credit
Facility, the balances are not materially different from those disclosed in the consolidated statement of financial
position of the Group.
c) Credit Risk
Credit risk for the Group arises from investments in cash and cash equivalents, derivative financial instruments
and deposits with banks and financial institutions, as well as credit exposures to customers including
if
outstanding receivables and committed transactions, and represents the potential financial
counterparties fail to perform as contracted. The Group trades only with recognised, creditworthy third parties.
loss
The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date to
recognise the financial assets, is the carrying amount, net of any impairment of those assets, as disclosed in the
balance sheet and notes to the financial statements. Receivable balances are monitored on an ongoing basis at
the individual customer level.
At 31 December 2014, the Group had three customers that owed the Group more than $1.0 million each and
accounted for approximately 75% of total accrued revenue receivables. There was one customer with balances
greater than $5.0 million accounting for approximately 56% of total accrued revenue receivables. For joint
interest billing receivables, if payment is not made, the Group can withhold future payments of revenue, as
such, there is minimal to no credit risk associated with these receivables.
d) Liquidity Risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The
Group’s approach to managing liquidity is to ensure that it will have sufficient liquidity to meet its liabilities as
they become due, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group
manages liquidity risk by maintaining adequate reserves and banking facilities by continuously monitoring
forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.
As at 31 December 2014, based on the current borrowing based, the Group had $15.0 million of undrawn
borrowing facilities.
- 99 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 33 – FINANCIAL RISK MANAGEMENT continued
The Company has the following commitments related to its financial liabilities (US$’000):
Year ended 31 December 2014
Total
Less than 1
year
1 – 5
years
More than
5 years
Trade and other payable
Accrued expenses
Derivative financial liabilities
Credit facilities payments, including
interest
Total
46,861
72,333
130
46,861
72,333
130
-
-
-
-
147,994
267,318
5,502
124,826
142,492
142,492
-
-
Year ended 31 December 2013
Total
Less than 1
year
1 – 5
years
More than
5 years
Trade and other payable
Accrued expenses
Derivative financial liabilities
Credit facilities payments, including
interest
Total
62,811
66,273
366
62,811
66,273
335
-
-
31
-
-
-
37,037
166,487
1,600
131,019
35,437
35,468
-
-
e) Market Risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of
changes in market prices. Market risk comprises three types of risk: commodity price risk, interest rate risk and
foreign currency risk. Financial instruments affected by market risk include loans and borrowings, deposits,
trade receivables, trade payables, accrued liabilities and derivative financial instruments.
Commodity Price Risk
The Group is exposed to the risk of fluctuations in prevailing market commodity prices on the mix of oil and gas
products it produce.
Commodity Price Risk Sensitivity Analysis
The table below summarises the impact on profit before tax for changes in commodity prices on the fair value of
derivative financial instruments. The impact on equity is the same as the impact on profit before tax as these
derivative financial instruments have not been designated as hedges and are and therefore adjusted to fair value
through profit and loss. The analysis assumes that the crude oil and natural gas price moves $10 per barrel and
$0.50 per mcf, with all other variables remaining constant, respectively.
- 100 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 33 – FINANCIAL RISK MANAGEMENT continued
Year ended 31 December
Effect on profit before tax
Increase / (Decrease)
Oil
2014
US$’000
2013
US$’000
-
improvement in US$ oil price of $10 per barrel
- decline in US$ oil price of $10 per barrel
(2,400)
3,041
(2,351)
1,477
Gas
-
improvement in US$ gas price of $0.50 per mcf
- decline in US$ gas price of $0.50 per mcf
(120)
120
(124)
180
Interest Rate Risk
Interest rate risk is the risk that the fair value of the future cash flows of a financial instrument will fluctuate
because of changes in market interest rates. The Group’s exposure to the risk of changes in market interest rates
relates primarily to the Group’s long-term debt obligations with floating interest rates.
Interest Rate Sensitivity Analysis
Based on the net debt position as at 31 December 2014 and 2013, taking into account interest rate swaps, with
all other variables remaining constant, the following table represents the effect on income as a result of changes
in the interest rate. The impact on equity is the same as the impact on profit before tax.
Year ended 31 December
Effect on profit before tax
Increase / (Decrease)
-
-
increase in interest rates + 2%
decrease in interest rates - 2%
2014
US$’000
2013
US$’000
(906)
184
(177)
-
This assumes that the change in interest rates is effective from the beginning of the financial year and the net
debt position and fixed/floating mix is constant over the year. However, interest rates and the debt profile of
the Group are unlikely to remain constant and therefore the above sensitivity analysis will be subject to change.
- 101 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 34 – PARENT COMPANY INFORMATION
Year ended 31 December
Parent Entity
Assets
Current assets
Investment in subsidiaries
Deferred tax assets
Related party note receivable
Total assets
Liabilities
Current liabilities
Total Liabilities
Total net assets
Equity
Issued capital
Share options reserve
Foreign currency translation
Retained earnings (loss)
Total equity
Financial Performance
Profit/(loss) for the year
Other comprehensive income
Total profit or loss and other comprehensive income
2014
US$’000
2013
US$’000
9,108
159,606
3,998
112,481
285,193
34
34
285,159
306,853
386
(30,539)
8,459
285,159
7,334
(10,030)
(2,696)
1,962
173,633
2,303
40,537
218,435
425
425
218,010
237,008
386
(20,509)
1,125
218,010
275
(31,307)
(31,032)
- 102 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 35 – DEED OF CROSS GUARANTEE
Pursuant to Class Order 98/1418, the wholly-owned subsidiary, Armadillo Petroleum Limited (“APL”), is relieved
from the Corporations Act 2001 requirements for preparation, audit and lodgement of its financial reports.
As a condition of the Class Order, SEAL and APL (“the Closed Group”) have entered into a Deed of Cross Guarantee
(“Deed”). The effect of the Deed is that SEAL has guaranteed to pay any deficiency in the event of the winding up of
APL under certain provision of the Corporations Act 2001. APL has also given a similar guarantee in the event that
SEAL is wound up.
Set out below is a consolidated statement of profit or loss and other comprehensive income and retained earnings
of the Closed Group:
Year ended 31 December
2014
US$’000
2013
US$’000
Profit / (loss) before income tax
7,764
(1,497)
Income tax (expense)/benefit
(324)
1,780
Profit attributable to members of SEAL
7,440
283
Total comprehensive loss attributable to members of SEAL
(2,813)
(18,924)
Retained earnings at 1 January
Retained earnings at 31 December
1,132
8,572
849
1,132
- 103 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 35 – DEED OF CROSS GUARANTEE continued
Set out below is a condensed consolidated statement of financial position of the Closed Group:
Year ended 31 December
Current assets
Cash and cash equivalents
Other current assets
Total current assets
Non-current assets
Exploration and evaluation expenditure
Related party note receivable
Deferred tax assets
Investment in subsidiaries
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Accrued expenses
Total current liabilities
Non-current liabilities
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Share option reserve
Foreign currency translation
Retained earnings
Total equity
2014
US$’000
2013
US$’000
11,506
185
11,691
1,558
2,200
3,758
45
112,481
3,998
158,047
274,571
170
40,537
2,303
171,937
214,947
286,262
218,705
988
13
1,001
176
302
478
3
3
4
4
1,004
482
285,258
218,223
306,853
386
(30,553)
8,572
285,258
237,008
386
(20,303)
1,132
218,223
- 104 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 36 – EVENTS AFTER THE BALANCE SHEET DATE
Subsequent to 31 December 2014, an additional $13.9 million was drawn-down the credit facilities, bringing total
outstanding debt to $143.9 million, with undrawn funds of $1.1 million.
In January 2015, the company acquired three leases totalling approximately 14,180 net acres in the Eagle Ford
for approximately $13.4 million.
- 105 -
Directors’ Declaration
The Directors of the Group declare that:
1
2
3
the Financial Statements and Notes as set out on pages 54 to 105 are in accordance with the Corporations Act 2001
and:
a) comply with Australian Accounting Standards and the Corporations Regulations 2001 and International
Financial Reporting Standards as disclosed in Note 1; and
b) give a true and fair view of the consolidated entity’s financial position as at 31 December 2014 and of the
performance for the financial year ended on that date;
the Chief Executive Officer and Chief Financial Officer have declared that:
a)
the financial records of the Group for the year ended have been properly maintained in accordance with section
286 of the Corporations Act 2001;
the financial statements and notes for the financial period comply with the Accounting Standards; and
the financial statements and notes give a true and fair view;
b)
c)
in the Directors’ opinion there are reasonable grounds to believe that the Group will be able to pay its debts as and
when they become due and payable.
This declaration is made in accordance with a resolution of the Board of Directors.
Michael Hannell
Chairman
Adelaide
Dated this 31st day of March 2015
- 106 -
Ernst & Young 680 George Street
Sydney NSW 2000 Australia
GPO Box 2646
Sydney NSW 2001
Tel: +61 2 9248 5555
Fax: +61 2 9248 5959
ey.com/au
Independent auditor's report to the members of Sundance Energy
Australia Limited
Report on the financial report
We have audited the accompanying financial report of Sundance Energy Australia Limited, which comprises the
consolidated statement of financial position as at 31 December 2014 the consolidated statement of comprehensive
income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year
then ended, notes comprising a summary of significant accounting policies and other explanatory information, and
the directors' declaration of the consolidated entity comprising the company Sundance Energy Australia Limited
and the entities it controlled at the year's end or from time to time during the financial year.
Directors' responsibility for the financial report
The directors of the company Sundance Energy Australia Limited are responsible for the preparation of the
financial report that gives a true and fair view in accordance with Australian Accounting Standards and the
Corporations Act 2001 and for such internal controls as the directors determine are necessary to enable the
preparation of the financial report that is free from material misstatement, whether due to fraud or error.
Auditor's responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in
accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical
requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about
whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial report. The procedures selected depend on the auditor's judgment, including the assessment of the
risks of material misstatement of the financial report, whether due to fraud or error. In making those risk
assessments, the auditor considers internal controls relevant to the entity's preparation and fair presentation of
the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the entity's internal controls. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates
made by the directors, as well as evaluating the overall presentation of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
Independence
In conducting our audit we have complied with the independence requirements of the Corporations Act 2001. We
have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is
included in the directors’ report.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
- 107 -
Opinion
In our opinion:
a.
the financial report of Sundance Energy Australia is in accordance with the Corporations Act 2001,
including:
i
ii
giving a true and fair view of the consolidated entity's financial position as at 31 December 2014 and
of its performance for the year ended on that date; and
complying with Australian Accounting Standards and the Corporations Regulations 2001; and
b.
the financial report also complies with International Financial Reporting Standards issued by the IASB
as disclosed in Note 1.
Report on the remuneration report
We have audited the Remuneration Report included in pages 28 to 43 of the directors' report for the year ended 31
December 2014. The directors of the company are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express
an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing
Standards.
Opinion
In our opinion, the Remuneration Report of Sundance Energy Australia Limited for the year ended 31 December
2014, complies with section 300A of the Corporations Act 2001.
Ernst & Young
Michael Elliott
Partner Sydney
31 March 2015
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
- 108 -
Additional Information compiled as at 12 March 2015
Shareholding
Substantial Shareholders
The names of the substantial shareholders in the Company, the number of equity securities to which each substantial
shareholder and substantial holder’s associates have a relevant interest, as disclosed in substantial holding notices
given to the Company:
Name
No of Ordinary Shares
IOOF HOLDINGS LIMITED
ACORN CAPITAL LIMITED
37,133,802
31,491,213
%_
6.76
5.73
Distribution of Equity Securities
Size of Holding
Range
1-1,000
1,001-5,000
5,001-10,000
10,001-100,000
100,001-9,999,999
Total
Total Holders
673
1,196
723
1,344
240
4,176
Units
305,667
3,651,522
5,828,311
43,133,168
496,432,559
549,351,227
% Issued Capital
0.06
0.66
1.06
7.85
90.37
100.00
Unlisted Options
-
-
-
1
3
4
Unlisted RSUs
1
12
10
20
10
53
There are 525 shareholders with less than a marketable parcel of shares.
Voting Rights
Fully paid ordinary shares
At meetings of members or classes of members:
a)
b)
Each member entitled to vote may vote in person or by proxy, attorney or representative;
on a show of hands, every person present who is a member or proxy, attorney or representative of a member
has one vote; and,
on a poll, every person present who is a member or a proxy, attorney or representative of a member has:
c)
i)
ii)
for each fully paid share held by him, or in respect of which he is appointed a proxy, attorney or
representative, one vote for the share; and,
for each partly paid share, only the fraction of one vote which the amount paid (not credited) on
the share bears to the total amounts paid and payable on the share (excluding amounts credited)
subject to any rights or restrictions attached to any shares or class or classes of shares.
Unlisted options and unvested RSUs
No voting rights.
- 109 -
Twenty largest holders of fully paid Ordinary Shares
Rank Name__ ____________
J P MORGAN NOMINEES AUSTRALIA LIMITED
1
2 NATIONAL NOMINEES LIMITED
3 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
4 CITICORP NOMINEES PTY LIMITED
5 GAFFWICK PTY LTD
6 PROVIDENT MINERALS PTE LTD
7 BNP PARIBAS NOMS PTY LTD
ZERO NOMINEES PTY LTD
8
9 WILLIAM TAYLOR NOMINEES PTY LTD
10 CITICORP NOMINEES PTY LIMITED
11 MR JAMES DAVID TAYLOR + MRS MARION AMY TAYLOR
12 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
13 GAFFWICK PTY LTD
14 MR MARCUS JAMES TAYLOR
15 CS FOURTH NOMINEES PTY LTD
16 NAVIGATOR AUSTRALIA LTD
17 MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED
18 RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED
19 BRESRIM NOMINEES PTY LTD
20 ABN AMRO CLEARING SYDNEY NOMINEES PTY LTD
Total
Units
95,979,708
79,135,550
77,105,579
43,178,917
19,500,000
18,292,076
13,478,209
13,204,678
8,919,194
8,405,435
4,830,077
4,741,930
3,500,000
3,116,367
2,818,710
2,792,184
2,747,094
2,695,500
2,541,128
2,498,771
409,481,107
% Issued Capital
17.47
14.41
14.04
7.86
3.55
3.33
2.45
2.40
1.62
1.53
0.88
0.86
0.64
0.57
0.51
0.51
0.50
0.49
0.46
0.45
74.54
Stock Exchange on which the Company’s Securities are quoted
The Company’s listed equity securities are quoted on the Australian Securities Exchange, under Ticker “SEA”.
Petroleum Exploration Licenses
As the Company is a petroleum exploration Company, below is a list of its interests in petroleum exploration licences
granted, where the licences are situated and the percentage interest held.
Exploration & Development Assets
U.S. Leases __ __
Eagle Ford
Greater Anadarko
US Grand Total
ACREAGE
Gross
31,079
66,177
97,256
Net
33,283
35,034
68,317
Prospect
Ownership %
65-95
50-100
On Market Buy-back
There is currently no on-market buy-back.
- 110 -
Sundance Energy Australia Limited
ABN 76 112 202 883
Directors
Michael D. Hannell – Chairman
Eric McCrady – Managing Director and CEO
Damien A. Hannes – Non-Executive Director
Neville W. Martin – Non-Executive Director
Weldon Holcombe – Non-Executive Director
Company Secretary
Damien Connor
Registered Office
32 Beulah Road
Norwood SA 5067
Phone: (61 8) 8363 0388
Fax: (61 8) 8132 0766
Website: www.sundanceenergy.com.au
Corporate Headquarters
Sundance Energy, Inc.
633 17th Street, Suite 1950
Denver, CO 80202 USA
Phone: (303) 543-5700
Fax: (303) 543-5701
Website: www.sundanceenergy.net
Auditors
Ernst & Young
Ernst & Young Centre
680 George Street
Sydney NSW 2000
Australian Legal Advisors
Baker & McKenzie
Level 27, AMP Centre
50 Bridge Street
Sydney, NSW 2000
Australia
Bankers
National Australia Bank Limited – Australia
Wells Fargo – United States
Share Registry
Computershare Investor Services Pty Ltd
Level 5, 115 Grenfell Street
Adelaide SA 5000
Securities Exchange Listing
Australian Securities Exchange (ASX)
ASX Code: SEA
Forward-Looking Statements
This Annual Report includes forward-looking statements.
These statements relate to Sundance’s expectations, beliefs,
intentions or strategies regarding the future. These statements
can be identified by the use of words like “anticipate”,
“believe”, “intend”, “estimate”, “expect”, “may”, “plan”,
“project”, “will”, “should”, “seek” and similar words or
expressions containing same. The forward-looking state-
ments reflect the Company’s views and assumptions with
respect to future events as of the date of this presentation
and are subject to a variety of unpredictable risks, uncertain-
ties, and other unknowns. Actual and future results and
trends could differ materially from those set forth in such
statements due to various factors, many of which are
beyond our ability to control or predict. Given these
uncertainties, no one should place undue reliance on any
forward-looking statements attributable to Sundance,
or any of its affiliates or persons acting on its behalf.
Although every effort has been made to ensure this report
sets forth a fair and accurate view, we do not undertake
any obligation to update or revise any forward-looking
statements, whether as a result of new information, future
events or otherwise.
Competent Persons Statement
This report contains information on Sundance Energy’s
reserves and resources which has been reviewed by David
Ramsden-Wood, Professional Engineer, who is licensed in
Alberta, Canada and is qualified in accordance with ASX
Listing Rule 5.11 and has consented to the inclusion of this
information in the form and context in which it appears.
DESIGN BY:
Mark Mulvany Graphic Design (Denver, CO)
PHOTOGRAPHY BY:
Michael McConnell Photography (Denver, CO)
www.sundanceenergy.net
www.sundanceener gy.com.au