Sundance Energy
Australia Limited
Annual Report
31 December 2016
for other non-cash
Abbreviations & Definitions
Adjusted EBITDAX – earnings before interest, income taxes,
depreciation, depletion, amortisation and exploration
expenses, adjusted
items of
income/expense
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)
EBITDAX Margin – Adjusted EBITDAX as a percentage of oil
and natural gas revenue
MBOE - a thousand 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
PV10 - discounted cash flows of the Company’s reserves
using a 10% discount factor
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 and transportation.
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.
Table of Contents
Forward-looking Statements…………………………………….…..1
Abbreviations & Definitions……………………………….………….1
Chairman’s Letter……………………………….………………………...2
CEO’s Report……………………………….…………..……………………3
Directors’ Report………………………………………………….….……5
Auditor’s Independence Declaration…………………………...31
Corporate Governance…………………………………………………32
Financial Information…………………………………………………..43
Directors’ Declaration………………………………………………….96
Auditor’s Report………………………………………………………….97
Additional Information……………………………………………...103
Corporate Information……………………………………………...105
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 statements 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, uncertainties, 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. These include, but are not limited to, risks or
the discovery and
uncertainties associated with
development of oil and natural gas reserves, cash flows and
liquidity, business and
strategy, budget,
projections and operating results, oil and natural gas prices,
amount, nature and timing of capital expenditures,
including future development costs, availability and terms
of capital and general economic and business conditions.
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.
financial
Competent Persons Statement
This report contains information on Sundance Energy’s
reserves which has been reviewed by Stephen E. Gardner,
Professional Engineer, who is licensed in Colorado and
Texas 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.
- 1 -
CHAIRMAN’S LETTER
Dear Fellow Shareholders,
I am pleased to present Sundance Energy Australia Limited’s Annual Report for the year ended 31 December 2016. This last
year presented unique challenges for the industry and for Sundance. In February 2016, the price of crude oil plunged to its
lowest point in over a decade. During the year, more than 60 US-based oil and gas companies filed for bankruptcy. In the face
of these challenges, Sundance proactively managed its assets, its balance sheet and its cost structure. Maintaining strong
discipline during this prolonged downturn has positioned Sundance to be able to capitalize on the opportunities that will be
presented in the subsequent upcycle.
A successful equity raise of nearly A$90 million in mid-2016 allowed us to accelerate development on our Eagle Ford acreage.
We brought 19 gross (11.0 net) wells on production during the year and increased proved reserves to 33.8 Mmboe, a year-
over-year increase of 29%.
Throughout 2016, we focused on cost reductions across all aspects of the organization. Those efforts resulted in a reduction
in lease operating expenses from $6.96 per barrel in 2015 to $5.79 per barrel in 2016. General and administrative expense
declined from $6.48 per barrel in 2015 to $5.42 per barrel in 2016. These per barrel decreases were achieved despite a 16%
year-over-year decline in our average daily production rate that occurred due to a scaled-down development program over
the last two years.
In general we were pleased with the early stage production profiles of new wells brought on line and of the initial results with
our re-fracking program. Nevertheless our production performance in the fourth quarter was less than predicted principally
due to some unforeseen timing issues and operational decisions, as well as some unplanned downtime related to surface and
downhole equipment in the field. We are very much focused on addressing the latter with a range of organizational and
engineering improvements having already been implemented during early 2017. These, together with our front-end loaded
drilling and completions program, are predicted to result in meeting forecast production levels.
We completed two acquisitions in our McMullen County area within the Eagle Ford that added 5,180 net acres and 10.6 net
producing wells for $23.1 million. In late 2016, we divested of an acreage block containing 2,709 net acres located in Atascosa
County for $7.1 million. This acreage was undeveloped and outside the Company’s core project development area. As of
yearend, our Eagle Ford position had grown to 42,700 net acres with over 400 gross undrilled locations.
As a result of the equity raise, we were able to execute our development program and these acquisitions without acquiring
any additional debt and end the year with $17.5 million of cash. Subsequent to yearend, we announced that we had entered
into an agreement to sell our assets located in the Anadarko Basin of Oklahoma for $18.5 million. This will enable us to focus
all of our operational activity in our valuable Eagle Ford acreage in South Texas. The sale is expected to close by May 2017.
The Company continues to place a high priority on safety and on conducting our operations in an environmentally responsible
manner. This focus extends not only to employees but to contractors and vendors who work with the Company. This will
continue to be a priority as we execute our strategy in 2017 and beyond.
It is during challenging times that the support of all of the Company’s stakeholders is even more critical. The accomplishments
and progress we were able to achieve over the last year would not have been possible without the significant contributions
from my fellow members of the Board of Directors, the management team and the staff. Those efforts, coupled with the
continued support of our shareholders, were instrumental in positioning the Company for continued growth and value
creation.
On behalf of the Board and Company, I would like to thank everyone for their support. The Board and Management are very
much focused on creating additional value for shareholders, and we believe that the Company is well positioned to take
advantage of improving conditions in the industry and of the emerging opportunities.
Yours sincerely,
Mike Hannell
Chairman
- 2 -
CEO’S REPORT
Dear Fellow Shareholders,
The past two and a half years of depressed oil prices have challenged our industry, and company, in unprecedented fashion. The
significant drop in price and lack of sustained recovery have led nearly 200 oil and gas related companies to file for bankruptcy
protection, hundreds of thousands to lose jobs, and caused billions of dollars of value destruction.
While carnage in the industry has been painful, there are a number of reasons to be optimistic. First, after several years of a
painful price war from OPEC, recent cartel supply cuts appear to be providing some relief. Secondly, reduced investment in long
dated projects over the past couple of years will ultimately result in slowed growth and there remains little spare capacity to
quickly responsd to demand increases.
On the demand side, growth remains highly correlated to economic output and at current rates we are adding about 1 million
barrels per day to global demand. With few viable large scale alternatives, demand is poised to exceed 100 million barrels per
day in the foreseeable future. With growing demand and limited spare capacity, higher oil prices will be necessary to support
supply from more expensive sources.
Onshore in the United States the resiliency of the industry in the face of this depression has been impressive. Development costs
have dropped by 40-50%, new development in the Permian Basin has begun to delineate a major new source of supply, and
completion technologies have continued to advance allowing better recoveries. These factors coupled with recent stability in
crude prices have supported economic development and production growth.
The industry in the US is now approaching an inflection point where activity levels are driving service costs higher thus reducing
operator returns. Increasing service costs coupled with the recent slight pull back in prices means supply growth in the US should
ultimately be limited by basic economics. As always, the industry is a fascinating study in marginal cost.
Navigating these economic waters has proven challenging. We have done some things well and had several decisions adversely
impacted by macro-economic factors along the way. We entered this downturn with a clean balance sheet and some hedging to
protect cash flows. We aggressively cut capital and operating commitments at the early stage of (and throughout) the cycle and
have no material, burdensome long term service or marketing contracts.
Our strategy is (and has been) to grow our asset base in the Eagle Ford during the cycle and we've successfully added over 20,000
net high quality acres, primarily in the volatile oil window. We funded these acquisitions primarily with debt. Had we anticipated
the depth and breadth of this price cycle, we likely would have issued equity to fund these transactions to preserve balance sheet
liquidity.
Secondly, we entered the downturn with a reasonable hedge position to protect the Company’s cash flows and balance sheet.
Had we anticipated two and a half years of low prices, we would have increased that position in late 2014 providing additional
cash flow to grow shareholder value. Subsequently, we have adopted a more aggressive, market average approach to our hedging
strategy and intend to use an appropriate mix of equity (through joint ventures or issuance of ordinary shares) and debt to fund
accretive acquisitions in the future.
In May of 2016 we had an opportunity to grow our reserve and production base and raised equity that funded an accretive
acquisition and provided capital to allow completion of 10.5 net Eagle Ford wells. This transaction and the associated investments
allowed us to generate strong per share growth for our shareholders. We increased:
1) Production per hundred debt adjusted shares to 0.13 boe in Q4 2016, a 37% increase;
2) Proved PV10 per hundred debt adjusted shares to $15 at year-end 2016, a 21% increase; and
3) Annualized EBITDA per hundred debt adjusted shares to $2.68 in Q4 2016, a 35% increase.
- 3 -
Despite strong per share growth in the second half of 2016, in the fourth quarter of 2016 production was below our expectations
and we did not effectively communicate the drivers of this production miss. It was caused by four factors:
1) A technical decision to choke back three new wells in Dimmit County, Texas and five refrack wells in McMullen County,
Texas. These decisions reduced production by approximately 1,000 boepd by deferring and reducing the wells’ peak
production rates. While this decision impacted short-term production, we anticipate the deferred volumes and then
some will be recovered over the wells productive life;
2) The Woodward well, originally forecasted to begin production in late September 2016, was delayed due to re-
negotiation of farm-in terms on the lease adding over $30 million to the value of the asset through a reduction in royalty
rates, reduction in drilling commitments, and elimination of a deferred purchase price. This well production tested in
late Q1 of 2017, on a 12/64ths choke, at 335 barrels of oil and 3.3 mmcf of wet gas or approximately 885 boe/d;
3) We installed over 30 new rod pumps in the second half of 2016 and the majority of those wells under-performed our
expectations costing approximately 1,000 boe/d. As of the writing of this report we are approximately 60-70% through
diagnosing and resolving these issues and anticipate the remainder of these to be completed in the second quarter of
2017; and
4) We changed our gas marketing elections to maximize revenue on 3.6 net new non-operated wells in McMullen County
and on our Dimmit County project reducing production by approximately 500 boepd.
As these short-term production challenges are ultimately resolved in the second quarter of 2017, we anticipate adding significant
value for our shareholders through execution of our strategy. As we will have limited production from new wells in the first half
of 2017, we anticipate production declines from the fourth quarter of 2016 until new wells start producing in earnest in the late
second quarter of 2017. Once growth begins, we anticipate achieving approximately 20% full year production growth and building
production rates into the 9,000-10,000 boe/d range.
High quality Eagle Ford acreage is becoming scarce, increasing the value of our holdings despite low prices. We expect to drive
shareholder value by continuing to grow our acreage footprint through accretive transactions and our development program.
We measure the success of this strategy through share price growth and per share growth in production, EBITDA, reserves and
net asset value which we believe are highly correlated to long-term shareholder returns.
Through our development program, we will be developing a second target in the lower Eagle Ford in McMullen County that we
believe adds at least 60 gross locations to our remaining inventory, extending that inventory to approximately 157 gross locations
providing visibility into growth for over 10 years.
Also in McMullen County, with the successful completion and production testing of the Woodward well under the Choke Canyon
reservoir in the first quarter, we have begun to commercialize an asset that entailed complex permitting and land negotiations
but includes at least 30 and potentially 60 highly economic Eagle Ford locations.
In Dimmit County, we have two wells planned which continue our technical process to improve recoveries. We have also
identified substantial cost savings available when we are ultimately able to shift to pad development of this asset. Between
increasing recoverable reserves and reducing costs, we are excited for our ability to unlock shareholder value on this asset.
Finally, I would like to thank all of the stakeholders in the Company including our hard working associates, board members,
advisors, attorneys and shareholders. While the past several years have been challenging, the Company is poised to create
substantial shareholder value through execution of its strategy in 2017 and beyond.
Yours Sincerely,
Eric McCrady
Managing Director/ Chief Executive Officer
- 4 -
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 2016.
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
H Weldon Holcombe
Neville W Martin
Eric P McCrady
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 2016:
Increased our position through two acquisitions in our core Eagle Ford area for approximately $23.1 million. These
acquisitions included 10.6 net producing wells and 5,180 net acres;
Increased our net acreage position in the Eagle Ford to 42,700 net acres, which includes over 400 gross undrilled
locations;
Brought on 19 gross (11.0 net) wells during the year;
Completed a successful equity raise of A$89 million, which facilitated accelerated development and the acquisition of
additional wells and acreage as described above;
Production in 2016 was 6,469 Boe/d, which included 365 Boe/d of flared gas, a 16% decrease compared to prior year.
The production decrease resulted from the significant reduction in development during the recent period of commodity
price volatility;
Increased our EBITDAX as a percentage of revenue from 70% in 2015 to 72% in 2016, despite a year-over-year reduction
in realised commodity prices of over 14%. This was primarily achieved by lowering lease operating expense from
$6.96/Boe in 2015 to $5.78/Boe and cash general and administrative expense from $4.93/BOE to $4.19 Boe;
Divested of a non-core acreage position for $7.1 million and ended the year with $17.5 million in cash;
Proved oil and gas reserves at yearend were 33.8 mmboe, a 29% increase from the prior yearend; and
Launched a Nasdaq listed ADR program in September 2016 (Nasdaq: SNDE).
There were no other material changes in the state of affairs of the Company.
- 5 -
Revenues and Production. The following table provides the components of our revenues for the year ended 31 December
2016 and 2015, as well as each year’s respective sales volumes:
Year ended 31 December
2016
2015
Change in
$
Change as
%
Revenue (US$‘000)
Oil sales ................................................................................
Natural gas sales ..................................................................
Natural gas liquids (NGL) sales .............................................
Product revenue ..................................................................
57,296
4,937
4,376
66,609
82,949
(25,653)
4,720
4,522
217
(146)
92,191
(25,582)
(30.9)
4.6
(3.2)
(27.7)
Year ended 31 December
Change in
2016
2015
Volume
Change as
%
Net sales volumes:
Oil (Bbls) ...............................................................................
1,412,475
1,828,955
(416,480)
Natural gas (Mcf) .................................................................
2,940,715
2,580,682
360,033
NGL (Bbls) ............................................................................
331,622
393,211
(61,589)
Oil equivalent (Boe) .............................................................
2,234,216
2,652,280
(418,064)
Average daily sales production (Boe/d) ..............................
6,104
7,267
(1,163)
(22.8)
14.0
(15.7)
(15.8)
(16.0)
Barrel of oil equivalent (Boe) and average net daily production (Boe/d). Sales volume decreased by 418,064 Boe (16%) to
2,234,216 Boe (6,104 Boe/d) for the year ended 31 December 2016 compared to 2,652,280 Boe (7,267 Boe/d) for the prior
year primarily due to the Company’s back-loaded 2014 development program. All of the Company’s 2016 completions were
in the second half of the year, resulting in less than a full year of production on those wells.
The Eagle Ford contributed 5,389 Boe/d (88%) of total sales volume during the year ended 31 December 2016 compared to
6,167 Boe/d (85%) during the prior year. Mississippian/Woodford contributed 715 Boe/d (12%) of total sales volume during
the year ended 31 December 2016 compared to 1,100 Boe/d (15%) during the prior year. Our sales volume is oil-weighted,
with oil representing 63% and 69% of total sales volume for the year ended 31 December 2016 and 2015, respectively.
Oil sales. Oil sales decreased by $25.7 million (31%) to $57.3 million for the year ended 31 December 2016 from $82.9 million
for the prior year. The decrease in oil revenues was the result of the decrease in product pricing ($6.8 million), with an
additional decrease due to oil production ($18.9 million). The average price we realised on the sale of our oil decreased by
11% to $40.56 per Bbl for the year ended 31 December 2016 from $45.35 per Bbl for the prior year. Oil production volumes
decreased 22.8% to 1,412,475 Bbls for the year ended 31 December 2016 compared to 1,828,955 Bbls for the prior year.
Natural gas sales. Natural gas sales increased by $0.2 million (5%) to $4.9 million for the year ended 31 December 2016 from
$4.7 million for the prior year. The increase in natural gas revenues was primarily the result of increased production volumes
($0.7 million), offset by lower product pricing ($0.4 million). Natural gas production volumes increased 360,033 Mcf (14%) to
2,940,715 Mcf for the year ended 31 December 2016 compared to 2,580,682 Mcf for the prior year due to slightly higher gas-
oil ratios on wells completed during the year. The average price we realised on the sale of our natural gas decreased by 8% to
$1.68 per Mcf (net of transportation and marketing) for the year ended 31 December 2016 from $1.83 per Mcf for the prior
year.
Natural gas liquids sales (NGL). NGL sales decreased by $0.1 million (3%) to $4.4 million for the year ended 31 December 2016
from $4.5 million for the prior year. The decrease in NGL revenues was primarily the result of decreased production volumes
($0.7 million), offset by better product pricing ($0.6 million). The average price we realised on the sale of our natural gas liquids
increased by 15% to $13.20 per Bbl for the year ended 31 December 2016 from $11.50 per Bbl for the prior year. NGL
production volumes decreased 61,589 Bbls (16%) to 331,622 Bbls for the year ended 31 December 2016 compared to 393,211
Bbls for the prior year.
- 6 -
Year ended 31 December
Selected per Boe metrics (US$)
2016
2015
Total oil, natural gas and NGL revenue ...................................
Lease operating expense .........................................................
Production tax expense ...........................................................
Depreciation and amortisation expense .................................
General and administrative expense .......................................
29.81
(5.79)
(1. 88)
(21.55)
(5.42)
34.76
(6.96)
(2.28)
(35.66)
(6.48)
Change in
$
Change as
%
(4.95)
(14.2)
1.17
0.40
14.11
1.06
16.8
17.5
39.6
16.3
Lease operating expenses. Our lease operating expenses (LOE) decreased by $5.5 million (30%) to $12.9 million for the year
ended 31 December 2016 from $18.5 million in the prior year, and decreased $1.17 per Boe to $5.79 per Boe from $6.96 per
Boe. During 2016, the Company was able to negotiate discounts and improved pricing with a significant number of LOE
vendors, which resulted in lower LOE.
Production taxes. Our production taxes decreased by $1.8 million (31%) to $4.2 million for the year ended 31 December 2016
from $6.0 million for the prior year but stayed relatively flat as a percent of revenue. The decrease in production tax expense
is consistent with the decrease in revenue.
Depreciation and amortisation expense, including depletion. Our depreciation and amortisation expense decreased by
$46.4 million (49%) to $48.1 million for the year ended 31 December 2016 from $94.6 million for the prior year and decreased
$14.11 per Boe to $21.55 per Boe from $35.66 per Boe. The decrease is a result of decreased production levels and a lower
depletable asset base due to prior-year’s impairment.
General and administrative expenses. General and administrative expenses decreased by $5.1 million (29.5%) to $12.1 million
for the year ended 31 December 2016 as compared to $17.2 million for the prior year. The decrease in general and
administrative expenses is primarily due to G&A cost saving initiatives implemented by the Company in 2016, including a
restructuring that resulted in the lay-off of approximately 30% of the Company’s employees in January 2016. Cash general and
administrative expenses (which excludes non cash share-based compensation expense) per Boe decreased by 15.0% to $4.19
for the year ended 31 December 2016 as compared to $4.93 per Boe for the prior year.
Impairment expense. The Company recorded impairment expense of $10.2 million for the year ended 31 December 2016 on
the Company’s oil and gas assets which includes reducing the carrying value of its Greater Anadarko Basin assets by $4.6 to
the expected proceeds from the sale of those assets. These assets were reclassified as “Assets Held for Sale” on the Company’s
balance sheet as of 30 June 2016. Under the applicable IFRS accounting rules, recording of amortisation expense ceases at the
time the assets are reclassified, which resulted in impairment expense as the assets depleted over time. Impairment expense
also included the write-down of its Cooper Basin exploration and evaluation asset ($6.7 million) and a partially offsetting
adjustment to prior year impairment expense related to a vendor discount received on 2015 capital expenditures subsequent
to the issuance of the 2015 annual report ($1.1 million). The Company had impairment expense of $321.9 million in the year
ended December 31, 2015.
Exploration expense. The Company did not incur any material exploration expenses for the year ended 31 December 2016.
The Company incurred exploration expense of $7.9 million in 2015 related to two unsuccessful exploratory wells.
Finance costs. Finance costs, net of amounts capitalised to exploration and development, increased by $2.8 million to $12.2
million for the year ended 31 December 2016 as compared to $9.4 million in the prior year. The increase primarily relates to
additional interest incurred on a larger average outstanding debt balance throughout 2016.
(Loss) Gain on derivative financial instruments. The Company had a loss on derivative financial instruments of $12.8 million
for the year ended 31 December 2016 as compared to $15.3 million gain in the prior year. The loss on commodity hedging
consisted of $21.4 million of unrealised losses on commodity derivative contracts, offset by $8.7 million of realised gains on
commodity derivative contracts for the year ended 31 December 2016. The prior year gain on commodity hedging consisted
of $12.4 million and $2.9 million of realised and unrealised gains on commodity derivative contracts, respectively.
- 7 -
Following is a summary of the Company’s open oil and natural gas derivative contracts at 31 December 2016:
Contract
Year
Oil Contracts (Weighted Average)(1)
Natural Gas Contracts (Weighted Average) (1)
Units (Bbl)
Floor
Ceiling
Units (Mmbtu)
Floor
Ceiling
2017
2018
2019
Total
$ 3.21
$58.78
$ 3.36
$58.92
$ 3.78
$54.31
$ 3.37
$58.10
(1) The Company’s outstanding derivative positions include swaps totaling 1,182,000 Bbls and 1,830,000 Mcf, which are
930,000
612,000
300,000
1,842,000
1,680,000
1,290,000
720,000
3,690,000
$ 2.86
$ 2.95
$ 2.95
$ 2.91
$49.12
$49.88
$52.51
$49.87
included in both the weighted average floor and ceiling value.
Income taxes. The components of our provision for income taxes are as follows:
(In US$‘000s)
Year ended 31 December
2016
2015
Current tax expense/(benefit) .....................................................................
Deferred tax expense/(benefit) ...................................................................
Total income tax expense/(benefit) .............................................................
1,563
142
1,705
(6,191)
(100,947)
(107,138)
Combined Federal and state effective tax rate ............................................
(3.91%)
28.9%
Our combined Federal and state effective tax rates differ from the Group’s statutory tax rate of 30% primarily due to an increase
in unrecognised tax losses, offset by US federal and state tax rates. The effective tax rate in 2015 was higher due to its deferred
tax liabilities, which were fully utilised in the period. See Note 7 in the Notes to the Consolidated Financial Statements of this
report for further information regarding our income taxes.
Adjusted EBITDAX. The Company uses both IFRS and certain non‐IFRS measures to assess its performance. Management
believes these non‐IFRS measures provide useful supplemental information to investors in order that they may evaluate the
Company’s financial performance using the same measures as management. Management believes that, as a result, the
investor is afforded greater transparency in assessing the financial performance of the Company. These non‐IFRS financial
measures should not be considered as a substitute for, nor superior to, measures of financial performance prepared in
accordance with IFRS.
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, restructuring
charges, gains and losses on commodity hedging, net of settlements of commodity hedging and certain other non-cash or non-
recurring income/expense items.
For the year ended 31 December 2016, adjusted EBITDAX was $47.9 million, or 72% of revenue, compared to $64.8 million, or
70% of revenue, from the prior year.
- 8 -
The following table presents a reconciliation of the profit (loss) attributable to owners of Sundance to Adjusted EBITDAX:
(In US$‘000s)
Year ended 31 December
2016
2015
IFRS Loss Reconciliation to Adjusted EBITDAX:
Loss attributable to owners of Sundance ....................................................
Income tax expense/(benefit) ......................................................................
Finance costs, net of amounts capitalised and interest received ................
Loss on debt extinguishment .......................................................................
Loss (gain) on derivative financial instruments ............................................
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 ..............................................................
Other income, net (1) ..................................................................................
Adjusted EBITDAX .......................................................................................
Adjusted EBITDAX Margin (as percent of revenue) ......................................
(45,694)
1,705
12,219
-
12,761
8,672
48,147
10,203
30
2,524
-
(2,704)
47,863
72%
(263,835)
(107,138)
9,418
1,451
(15,256)
12,404
94,584
321,918
7,925
4,100
(790)
-
64,781
70%
(1)
Includes nonrecurring proceeds from an insurance settlement of $2.4 million and a litigation settlement of $1.2 million,
offset by restructuring charges of $(0.8) million and other $(0.1) million.
Exploration and Development
The Company’s exploration and development activities in 2016 were focused in the Eagle Ford and the Mississippian/Woodford
Formations. Exploration and development expenditures for the Eagle Ford and Mississippian/Woodford Formations during the
year ended 31 December 2016 totalled $58.8 million, which included $35.7 million of drilling and development expenditure,
$4.3 million on facilities and infrastructure, $9.1 million related to pumping unit installs, $6.0 million related to the refrac
program and $3.7 million of exploration and evaluation expenditures. This investment resulted in the addition of 19 gross
(11.0 net) producing wells, of which 8 gross (7.4 net) are Sundance-operated.
Acquisitions
In July and December 2016, the Company completed two acquisitions, both of which included properties primarily operated
by Sundance in our core Eagle Ford area for $23.1 million. These acquisitions included 10.6 producing wells and 5,180 net
acres.
Dispositions
In December 2016, the Company divested 3,336 gross (2,709 net) acres located in Atascosa County, Texas for cash proceeds
of $7.1 million. The Eagle Ford acreage was undeveloped and was outside the Company’s core development area. In March
2017, the Company executed a purchase and sale agreement to sell all of its Greater Anadarko Basin assets for $18.5 million
(subject to customary closing adjustments). The sale is expected to close by May 2017.
Reserves
The Company’s reserves at 31 December 2016 were announced in February 2017. The Company’s Total Proved Reserves
volumes increased 29% as compared to reserves at 31 December 2015.
- 9 -
The Company’s reserve estimates were calculated by Ryder Scott Company, L.P. (Ryder Scott) as at 31 December 2016. The
reports were prepared in accordance with U.S. Securities and Exchange Commission (SEC) guidelines utilizing two pricing
scenarios. In the SEC report, pricing is based on the average of the first-day-of-the-month prices for the trailing twelve-months,
held constant over the life of the reserves. This pricing is prescribed by the SEC and is required to be used in reports filed with
the SEC. In the second pricing scenario, NYMEX strip pricing as of 31 December 2016 was used. PV10 value (shown in the first
table below) is calculated using NYMEX strip pricing as of 31 December 2016.
The reserve estimates are based on, and fairly represent, information, supporting documentation prepared by, or under
supervision of, Mr. Stephen E. Gardner. Mr. Gardner is a Licensed Professional Engineer in the States of Colorado and Texas
(Colorado No. 44720) with over 11 years of practical experience in estimation and evaluation of petroleum reserves.
Mr. Gardner 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. Gardner consents to the inclusion in this report
of the information and context in which it appears.
Summary reserve information presented in Ryder Scott’s NYMEX strip and pricing evaluations are provided below.
NYMEX Strip Pricing
Oil (Mbbls)
NGL (Mbbls)
Gas (Mmcf) (1) Mboe
PV10 ($ '000)
Proved Developed Producing
Proved Undeveloped
Total Proved Reserves
7,842
12,805
20,647
2,464
3,610
6,074
18,029
24,264
42,293
13,311
20,459
33,770
213,258
126,738
339,996
SEC Pricing
Oil (Mbbls)
NGL (Mbbls)
Gas (Mmcf) (1) Mboe
Proved Developed Producing
Proved Undeveloped
Total Proved Reserves
7,440
11,001
18,441
2,269
2,825
5,094
16,704
19,026
35,730
12,493
16,997
29,490
(1) One barrel of oil is the energy equivalent of six Mcf of natural gas.
Financial Position
Throughout 2016, the Company maintained its borrowings of $192 million ($125 million term loan and $67 million outstanding
on the reserve based revolver). The Company was fully drawn on its term loan and reserve based revolver. As at 31 December
2016, the Company was in compliance with all of its covenants and is expecting to remain compliant for the remainder of 2017.
The Company ended 2016 with cash of $17.5 million.
Cashflow
Cash provided by operating activities for the year ended 31 December 2016 was $42.7 million, a decrease of $21.8 million
compared to the prior year ($64.5 million). This decrease was primarily due to receipts from sales decreasing $34.7 million, to
$64.7 million and pay down of 2015 accounts payables and accrued expense balances. See Review of Operations for more
information.
Cash used in investing activities for the year ended 31 December 2016 decreased significantly to $80.0 million (including $12
million of payments related to 2015 development) as compared to $180.8 million in prior year. This decrease is due to the
Company’s down-cycle development plan to drill and complete within operating cash flow, with the exception of some
accelerated development subsequent to the capital raise in the second half of 2016.
- 10 -
Cash provided by financing activities for the year ended 31 December 2016 increased to $51.8 million. This increase is a result
of the $64.2 million capital raise, offset by borrowing costs paid of $11.8 million. There were no additional draws on the
Company’s credit facilities compared to last year’s $62.0 million net draw and no equity raised in 2015.
Matters Subsequent to the End of the Financial Year
In March 2017, the Company executed a purchase and sale agreement to sell all of its Greater Anadarko Basin assets for $18.5
million (subject to customary closing adjustments). The sale is expected to close by May 2017.
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 Eagle Ford Shale position through direct leasing from mineral owners, acquisitions of producing
properties and non-producing assets and development of those assets.
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 material 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 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.
Three of the Group’s SWDs did not meet new regulations enacted in 2015, but have been plugged-back to assure we are
injecting into the proper zone, and now are in full compliance.
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
2016, the Company had an Occupational Safety and Health Administration (“OSHA”) company plus contractor Recordable
Incident Rate (“ORIR”) of 2.62 per 200,000 man hours.
The Company maintains a comprehensive safety program that includes 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.
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
confirmation 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.
Market Volatility
Continued depressed commodity prices have significantly reduced the revenue and profitability of oil and gas companies,
including Sundance. Although we are unable to control fluctuations in commodity prices, we have been and will continue to
focus on cost reductions and improving efficiency throughout our operations.
Dividends
No dividends were declared or paid during the financial year. No recommendation for payment of dividends has been made.
- 11 -
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 wide experience in the oil and gas industry, spanning some 50 years, 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 has previously held a number of board appointments the most recent being the chairman of Rees
Operations Pty Ltd (doing business as Milford Industries Pty Ltd), an Australian automotive components and transportation
container manufacturer and supplier; and 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 Mechanical Engineering (with Honours) from the University of London and is a Fellow of the Institution of
Engineers Australia.
Interest in Shares:
1,148,500 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:
Hannell Pty Ltd.
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:
4,083,134 Ordinary Shares in Sundance Energy Australia Limited and 7,085,516 Restricted Share Units
Special Responsibilities:
Managing Director and Chief Executive Officer of the Company
Other Directorships:
Nil
- 12 -
Damien Ashley Hannes
Director, BBs
Experience
Damien has been a Director since August 2009. Mr. Hannes has over 25 years of finance, operations, sales and management
experience. He has most recently 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, Damien was a director for Fay Richwhite Australia, a New Zealand
merchant bank. Prior to his tenure with Fay Richwhite, Damien 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. He holds a Bachelor of Business
degree from the NSW University of Technology in Australia and subsequently completed the Institute of Chartered Accounts
Professional Year before being seconded into the commercial sector.
Interest in Shares:
6,247,716 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 Australia Gold Corporation Ltd
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:
696,109 Ordinary Shares in Sundance Energy Australia Limited
Special Responsibilities:
-Member of the Audit and Risk Management Committee
-Member of the Reserves Committee
Other Directorships:
Woomera Exploration Limited
Pawnee Energy Limited
Numedico Technologies Pty. Ltd.
Anglo Russian Energy Pty. Ltd.
Newklar Asset Management Pty. Ltd.
Houmar Nominees Pty. Ltd.
Stansbury Petroleum Investments Pty. Ltd.
- 13 -
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:
746,700 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
12
12
12
12
12
12
12
12
12
12
2
-
2
2
-
2
-
2
2
-
3
-
3
-
3
3
-
3
-
3
Reserves
Committee
Held
1
Attended
1
-
-
1
1
-
-
1
1
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.
- 14 -
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 wilful 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
The Company has not indemnified its auditors.
Unlisted Options
At the date of this report, no options were outstanding.
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 2016, 23,782,201 unlisted restricted share units remain unvested and will be evaluated for vesting over the
next three years. Upon vesting, RSUs will be converted to ordinary shares.
- 15 -
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.
•
There were not any non-audit services incurred related to services performed by the external auditors during the year ended
31 December 2016.
Rounding of Amounts
The Company is an entity to which ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191 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.
- 16 -
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 year ended 31 December 2016. 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 incentive remuneration activities for the year ended 31 December 2016 and provides remuneration
information for the Company’s non-executive Directors (NEDs), Managing Director and other key management personnel (KMP)
of the consolidated entity.
All amounts are in USD unless explicitly stated otherwise.
Table of Content
A. Key Fiscal Year 2016 Remuneration and Key Changes for Fiscal Year 2017
B. Executive Summary
C. Directors and Key Management Personnel (KMP)
D. Remuneration Governance
E. Remuneration Policy and Framework
o
o
o
Fixed Pay and Benefits
Short Term Incentives (STI)
Long Term Incentives (LTI)
F. Company Performance and Shareholder Wealth
G. Non-executive Director Remuneration Policy
H. Voting and Comments Made at Company’s Year Ended 31 December 2015 Annual General Meeting
I.
J. Details of Remuneration
K. Outstanding KMP Options and Restricted Share Units (RSUs)
L.
Employment Contracts
Shareholdings
- 17 -
A.
Key Fiscal Year 2016 Remuneration and Key Changes for Fiscal Year 2017
Remuneration
2016 Action
2017 Action
Rationale
Fixed Remuneration CEO’s salary reduced from
$370,000 (fiscal 2015) to
$333,000 per year.
The CFO and COO’s salaries
were reduced from
$295,000 (fiscal 2015) to
$265,500.
CEO’s salary restored to
$370,000 per year.
The CFO and COO’s salaries
restored to $295,000.
Cash Short-Term
Incentive (“STI”)
No STI awards paid related
to 2015 performance.
No STI awards paid related to
2016 performance.
Equity Long-Term
Incentive (“LTI”)
Non-executive
Director
Compensation
LTI incentives granted to
KMPs (earned for 2015 and
granted in 2016) comprised
of:
- 50% of award value
granted in RSUs with vesting
tied to Absolute Total
Shareholder Return over a
three-year period
-50% of award value
granted as deferred cash
compensation which will be
paid out only if specified
share price targets are
achieved during 2017 and
2018.
Chairman’s base
compensation reduced from
A$132,500 to A$119,250.
Non-executive Director base
compensation reduced from
A$100,000 to A$90,000.
Committee fees were also
reduced 10%.
LTI incentives granted to
KMPs (earned for 2016 and
granted in 2017) comprised
of:
- 50% of award value granted
in RSUs with vesting tied to
Absolute Total Shareholder
Return over a three-year
period
-50% of award value granted
as deferred cash
compensation which will be
paid out only if specified
share price targets are
achieved during 2017, 2018
and 2019.
Chairman’s base
compensation restored to
A$132,500.
Non-executive Director base
compensation restored to
A$100,000.
Committee fees were also
restored to prior levels.
In January 2016, the CEO,
CFO and COO voluntarily
agreed to reduce their base
salaries to help the Company
reduce expenses and
improve its cash flow during
a time of low commodity
prices.
In January 2017, salaries
were restored to the fiscal
2015 rates.
STI program suspended to
reduce expenses during a
time of relatively low
commodity prices.
Annual long-term equity
awards further align
management with
shareholder interest.
Splitting the LTI award in
2016 and 2017 between
ATSR RSUs and deferred cash
allows the executives to
participate in future share
price appreciation while
limiting shareholder dilution.
In January 2016, the NEDs
voluntarily resolved to
reduce their 2016
compensation by 10% to help
the Company reduce
expenses and improve its
cash flow during a time of
low commodity prices.
In January 2017, fees were
restored to fiscal 2015 levels.
- 18 -
COMPENSATION (cont’d)
B. Executive Summary
What We Do:
What We Don’t Do:
• Pay for Performance – STI awards are based on
historical Company and individual performance and
vesting of LTI awards is aligned with share appreciation.
• 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.
• Utilize a Quantitative Process for STI Performance
Bonuses – The Remuneration and Nominations
Committee establishes Company performance measures
and goals at the beginning of the performance year that
are assigned individual weightings.
• Require Share Ownership by Executive Officers –
Board-adopted guidelines establish robust minimum
share ownership levels for our executive officers to
ensure appropriate alignment with shareholders.
• 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.
• Pay STI Bonus in Period of Low Commodity Prices –
The Company looks to preserve cash resources during
periods of low commodity prices.
Provide Excessive Severance and/or Change in Control
Provisions – 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.
• Allow Speculation on Our Company’s Ordinary Shares
– Company policy prohibits our executives from engaging
in short-term or speculative transactions involving our
ordinary shares. This policy prohibits trading in our shares
on a short-term basis, engaging in short sales, buying and
selling puts and calls, and discourages the practice of
purchasing the Company’s shares on margin.
• Permit Abusive Perquisites Practices - Perquisites
made available to our executives are strictly 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 attracting and retaining high-caliber 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. We have also progressively adapted
the design of the program to recognize the business environment in which we operate, emerging practices in the US oil and gas
industry, and balancing the interests of shareholders.
Sundance shares and American Depository Receipts (ADRs) are traded on the Australian Securities Exchange (“ASX”) and the
NASDAQ respectively, 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 are
competitive with our peers in the U.S. marketplace while also meeting ASX listing requirements.
- 19 -
The objectives of our remuneration 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 remuneration program consist of base salary and the opportunity to receive long-
term equity incentive awards and an annual performance cash bonus. We generally target each component, as well as the
aggregate of the components, at between approximately the 25th and 50th percentile of market remuneration comparable within
a group of similarly-sized ASX and U.S. publicly listed oil and gas exploration and production companies. Individual remuneration
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 (Chief Operating Officer)
D. Remuneration Governance
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 potential 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 to better align executive remuneration with shareholder returns. For the year
ended 31 December 2016, the targeted "at risk" remuneration relating to performance variability with cash bonuses and LTI
represents approximately 81% for the Managing Director and approximately 75% for all other KMP’s, as illustrated in the tables
below.
Basic Principles
While our shares are traded on the ASX, all of our management team and operations are located in the United States. As such,
we have adopted the following considerations for managing executive remuneration:
Recognition that Sundance Energy is a publicly listed Australian company, with primarily 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’s approved strategy;
- 20 -
19%81%Managing DirectorBase PayTotal At RiskLTI62%STI19%25%75%Other KMPsBase PayTotal At RiskSTI19%LTI56%
The remuneration must achieve the appropriate balance between shareholders’ interests and management motivation
and retention;
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 remuneration is to include three basic elements:
o
o
Base salaries (which are reviewed at the end of each fiscal year);
Short term incentives in the form of annual cash bonuses or fully vested restricted shares units (RSUs) based on
predetermined targets recommended by the Remuneration and Nominations Committee and approved by the
Board;
Long term incentives in the form of equity and/or deferred cash compensation based on predetermined targets
recommended by the Remuneration and Nominations Committee and approved by the Board.
o
The STI includes 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.
Share Ownership Guidelines
Ownership of our shares by our executives aligns their interests with the interests of our shareholders. Accordingly, the Board
of Directors maintains share ownership guidelines for certain key management personnel. An executive’s failure to meet the
share ownership guidelines may influence an executive’s future mix of cash and non-cash compensation awarded by the
Committee. The Remuneration and Nominations Committee intends to review these guidelines in 2017.
Executives are not permitted to invest in derivatives involving Company shares.
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
o
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;
Should it subsequently be found that the information or assumptions originally used to calculate the incentive awards
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.
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 2016 fiscal year. Meridian was retained to provide executive remuneration consulting services
to the Committee, including executive market analysis, peer bench marking and LTI market advice. Amounts paid to Meridian
for these services during fiscal year 2016 was $40,910. Meridian did not provide any other services to the Company during these
periods.
In order to ensure that any remuneration recommendations made by Meridian were free from undue influence by management,
the Remuneration and Nominations Committee directly engaged Meridian and any advice, work or recommendations made by
Meridian were provided directly to the committee chairman. The Board is satisfied that Meridian remains free from undue
influence by management.
- 21 -
Elements of Remuneration
Cash Bonus
Remuneration
Equity Bonus
Remuneration
Component
Base Salary (Fixed)
Short-Term
Incentives**
(Performance Based)
Long-Term Incentives
(Performance Based)
Deferred Cash
Bonus
Remuneration
Long-Term Incentives
(Performance Based)
Description
Competitive pay to attract and retain talented executives.
Annual incentive plan designed to provide executives with an
opportunity to earn an annual cash or fully vested RSU incentive based
on individual and Company financial and operational performance.
Restricted share awards intended to motivate and to promote the
retention of management with outcomes reflecting Company
performance over the three-year vesting period. Equity awards further
align the interests of our executives with those of our shareholders.
Deferred cash awards intended to motivate and to promote the
retention of management with outcomes reflecting Company
performance over a one to three-year period. Deferred cash awards
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.
Other Benefits
Health and Welfare
Benefit Plans (Other)
**Not granted in 2016 or 2017 related to 2015 or 2016 fiscal years.
Base Salary
Base salaries for executives recognize their qualifications, experience and responsibilities as well as their unique value and
historical and expected contributions to the Company. 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.
In January 2016, the MD, CFO and COO voluntarily agreed to a 10% decrease in their base salaries to help the Company reduce
expenses and improve its cash flow during this time of relatively low commodity prices. The reductions in base salaries were
effective 23 January 2016 through 31 December 2016. Base salaries were restored to their 2015 levels on 1 January 2017.
Incentive Remuneration
Our incentive remuneration program is designed to incentivize and 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 the Company
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 bonus of cash and/or equity in addition to the base salary
levels. The STI annual bonus is established to reward short-term performance towards the Company’s goal of increasing
shareholder value. The equity and deferred cash components of the LTI annual bonuses are 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 the 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, if any, are normally paid in cash, but may be paid by means of awarding fully vested RSUs. Bonuses under
the LTI are generally awarded with RSUs, but at the Board’s discretion may include other features such as the deferred cash
awards that were made in 2017 and 2016 relative to 2016 and 2015 performance.
- 22 -
The bonus pool is determined by an assessment of the overall management team and Company performance achievement
relative to financial metrics, and is calculated based on a percentage of each employee’s annual base salary. 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 grant of RSUs to the Managing Director (as a
Director) is subject to shareholder approval at the Annual General Meeting (AGM), in accordance with the ASX Listing Rules.
Short Term Incentives
The Board determined there would be no STI payout for the 2016 and 2015 performance years, as a result of the sustained
depressed commodity price environment.
Long-Term Incentives
The Company has an LTI Plan which provides for the issuance of Sundance Energy Australia Limited RSUs only to our U.S.
employees (the "RSU Plan").
The LTI Plan is administered by the 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/or management review of both the Company 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 the Board. We may amend, suspend or terminate the LTI Plan or
any portion thereof at any time. Certain amendments to the LTI Plan may require approval of the holders of the RSUs who will
be affected by the amendment
LTI Award in 2017
For the 2016 fiscal year, the LTI bonus targets for the MD and other KMPs ranged from 225% to 325% of base salary. LTI
incentives granted to KMPs were comprised of:
- 50% of award value granted in RSUs, which vest based upon the appreciation of Sundance ordinary share price over a
three-year period; and
- 50% of award value granted as three tranches of deferred cash, earned through appreciation in the price of
Sundance’s ordinary shares during 2017, 2018 and 2019. At the Board’s discretion, upon vesting the deferred cash
award may be paid wholly or partially in fully vested RSUs.
- 23 -
The LTI grant in 2017 was as follows:
LTI
Target
(% of
Salary)
325%
2016 Base
Salary
$333,000
Grant
Date
17/2/2017 $1,082,250
LTI Value
# of RSUs
granted
for 2016 (in
2017) (1)(2)
3,724,191 (3)
Grant
Date Fair
Value of
RSU
Award (4)
$334,728
Deferred
Cash
Tranche
1 Target
$180,375
Deferred
Cash
Tranche
2 Target
$180,375
Deferred
Cash
Tranche
3 Target
$180,375
Grant
Date Fair
Value of
Deferred
Cash
Award(4)
$104,618
$265,500
225%
17/2/2017
$ 597,375
2,055,661
$184,762
$99,563
$99,563
$99,562
$57,746
$265,500
$99,563
The number of LTI RSUs granted to the MD and KMP’s for 2016 (in 2017) was determined as:
$ 597,375
17/2/2017
2,055,661
$184,762
225%
$99,563
$99,562
$57,746
Name
E.
McCrady
C.
Anderson
G. Ford
(1)
Base Salary * LTI Target % * 50%
Volume weighted average share price for the last 20 trading days in 2016(*)
(*) Calculated to be US$0.1453
(2)
Represents number of target shares. Each KMP may earn up to 150% of the target shares (up to 11,753,270 shares as a
group) if performance targets are met or exceeded.
(3) Mr. McCrady’s shares are subject to shareholder approval at the AGM. Accordingly, the grant date value of the award is
an estimate as at 17 February 2017. The actual grant date fair value will be determined on the date of shareholder
approval.
The grant date fair value was calculated using a Monte Carlo simulation model. The grant date fair value is not related
to or indicative of the benefit (if any) the individuals may ultimately realize should the award vest.
(4)
Absolute Total Shareholder Return
Absolute total shareholder return (A-TSR) is calculated by the change in the Company’s ordinary share price plus dividends paid,
if any, over the specified time period. The number of shares that can be earned under the A-TSR component of the award,
ranges from 0% to 150% of the target share grant, based on A-TSR calculated at the end of the three-year assessment period
according to the following multiples:
Absolute TSR Goal
25% preferred return
15% preferred return
8% preferred return
< 8% preferred return
Payout % of
Target
150%
100%
50%
0%
No proration will be applied to the above thresholds
Deferred Cash
The deferred cash awards are only earned if the target share prices shown below are achieved. If the full year VWAP share price
for each respective year is less than the target share price for the 50% payout level, no award will be earned. If the full VWAP
share price is between the target share prices shown, the payout percentage will be prorated. The maximum payout will be
300% of the base award for the year if the target share price meets or exceeds the 300% level as shown below.
Payout Percentage
50%
100%
150%
300%
Target Share Price (Annual VWAP)
2017
$ 0.2182
$ 0.2323
$ 0.2525
$ 0.5050
2018
$ 0.2356
$ 0.2671
$ 0.3156
$ 0.6313
2019
$ 0.2525
$ 0.3072
$ 0.3945
$ 0.7891
- 24 -
The range of potential deferred cash awards payable for the 2016 fiscal year for each tranche is as follows:
Eric McCrady $0 - $541,125
Cathy Anderson $0 - $298,688
Grace Ford $0 - $298,688
Details of Other LTI Awards in Effect during the Year
SY 2012, 2013, 2014 Time-based
Vesting awards
Grant Date
Summary of
Vesting Conditions
Award Date
SY2012: 28 May 2013 (CEO)
19 April 2013 (CFO, COO)
2013: 30 May 2014 (CEO)
15 April 2014 (CFO, COO)
2014: 28 May 2015 (CEO)
24 June 2015 (CFO, COO)
Vest annually in three or four
(2012 award only) equal tranches
2014 LTI – Relative Total
Shareholder Return (“R-TSR”)
2015 LTI – A-TSR
28 May 2015 (CEO)
24 June 2015 (CFO, COO)
15 March 2016 (CFO, COO)
27 May 2016 (CEO)
2015 LTI – Deferred Cash
Award
15 March 2016 (CFO, COO)
27 May 2016 (CEO)
Company’s total shareholder return
as compared to designated peer
group over 3-year period(1)
Company’s A-TSR over 3-year
period as compared to 20-day
VWAP at 31 December 2015
(US$0.1384625).
Deferred cash earned through
appreciation of the price of
Sundance ordinary shares.
R-TSR Percentile Rank Payout %
90th or Above 200%
50th 100%
30th 50%
Below 30th 0%
A-TSR Goal Payout %
1.95x 133%
1.52x 100%
1.26x 50%
Below 1.26x 0%
Target paid out
if VWAP
equates 25% preferred return
over performance period.
Up to 300% of target may be
earned for preferred return
between 25% and75% (will be
pro-rated).
Payout as a percent of target will be
on a pro-rata basis.
No proration applied.
If TSR is negative, but percentile
rank is above 75 percentile, payout
is capped at the target.
31 December 2014 to
31 December 2017
31 December 2015 to
31 December 2018
Performance
Period
n/a
Date of Award
Payout (if any)
Range of Payout
Annually, based on award vesting
31 January 2018
31 January 2019
0-200% of Target
Target
CEO: 1,545,113 RSUs
CF0/COO: each 852,864 RSUs
0-200% of Target
Target
CEO: 4,342,331 RSUs
CF0/COO: each 2,396,858 RSUs
Award Original Award*
SY2012*: 374,248 (CEO)
249,003 (CFO)
251,311 (COO)
2013**: 671,988 (CEO)
385,456 (CFO)
394,473 COO)
2014**: 1,545,113 (CEO)
852,864 each (CFO,
COO)
* Award fully vested at 31
December 2016
**Awards partially vested as at
31 December 2016
Tranche 1: 31 December
2015- 31 December 2017
Tranche 2: 31 December
2015- 31 December 2018
Tranche 1: January 2018
Tranche 2: January 2019
Each Tranche:
CEO: $0 - $901,875
C00/CFO: $0 - $497,811
(1) Peer group includes the following Australian (designated by *) and US headquartered companies: 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 Ltd, 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 and Triangle Petroleum Corp. The LTI provides criteria for substitution in the event of merger,
acquisition and/or bankruptcy. The final determination of the peer group will be made at the end of the measurement period.
- 25 -
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 Chief Executive Officer’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 LTI Plan), our Board, in its sole discretion, may cause all unvested RSUs to vest and be
satisfied by the issuance of one share per RSU or provide for the cancellation of outstanding RSUs and make a cash payment
equal to the then-fair market value of the RSUs.
F. Company Performance and Shareholder Wealth
The following table shows the Company’s performance during the years ended 31 December 2016, 2015, 2014, 2013 and the
six month period ended 31 December 2012 in respect to several key financial indicators (in US thousands, except where
otherwise stated). No STI incentives were awarded for the previous or current year performance.
Metric
Revenue
Proved Reserves (MBOE)(2)
Production (BOEPD)
Net profit (loss) after tax (3)
EBITDAX
Earnings (loss) per share(3)(4)
Dividends or other returns
on capital
Period end share price
31
December
2016
66,609
29,490
6,104
(45,694)
47,863
(0.05)
Nil
A$0.22
31 December
2015
31 December
2014
31 December
2013
31 December
2012(1)
30 June
2012
92,191
25,473
7,267
(263,835)
64,781
(0.48)
Nil
A$0.17
159,793
25,981
6,147
15,321
126,373
0.03
Nil
A$0.52
85,345
20,747
2,956
15,942
52,594
0.04
Nil
A$1.00
17,724
8,572
1,298
76,210
9,223
0.27
29,787
10,155
1,163
6,012
17,093
.02
Nil
A$0.77
Nil
A$0.56
(1) Six month period ended (all other periods shown are for full year periods)
(2) Prepared using SEC pricing.
(3) Figures for the year ended 31 December 2015 have been restated. See Financial Statements Note 7.
(4) Basic and diluted
G. Remuneration of Non-Executive Directors
The non-executive Directors (NEDs) 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 is currently 9.50%. In accordance with ASX corporate governance principles,
NEDs do not receive any other retirement benefits or any performance-related incentive payments by means of cash or equity.
However, some NEDs have chosen to contribute part of their salary to superannuation for individual tax planning purposes.
In order to align Directors' interests with shareholder interests, the Company has a policy whereby the NEDs are required to
hold a certain amount of our ordinary shares over a period of time. This policy will be reviewed in 2017.
A review of NEDs’ fees performed by Meridian was last commissioned by the Remuneration and Nominations Committee in
September 2015. This review illustrated that the remuneration per NED is below the 25th percentile of the US peer group and
above the 75th percentile of the Australian peer group. The review was conducted before the NEDs resolved to apply a 10%
reduction in total fees commencing at the beginning of 2016. Effective 1 January 2017, the NED fees were reinstated to 2015
levels.
- 26 -
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 fees paid to NEDs is currently limited to A$950,000 per annum which was approved
by shareholders at the Annual General Meeting in 2013. For the year ended 31 December 2016, total fees paid to NEDs was
A$546,111.
The Directors’ fees for the 2016 fiscal year were:
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$119,250
A$90,000
A$26,550
A$18,225
A$15,750
A$9,900
A$7,425
(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.)
Mr. Holcombe’s fees are paid in US dollars. Effective January 2017, the NED fees were restored to 100% (2015 base rates).
H. Voting and Comments made at the Company’s Year Ended 31 December 2015 Annual General Meeting
The Company received more than 99% of ‘yes’ votes on its remuneration report for the financial year ended 31 December 2015.
The Committee values feedback from the shareholders and engages in conversations with key shareholders and their advisors
on a regular basis.
I.
Employment Contracts
During 2016, the Company entered into a new employment contract with its Chief Executive Officer. The details of Mr.
McCrady’s contract are as follows:
Three year term commencing 1 January 2016 with base remuneration of $370,000 per year which is reviewed annually
by the Remuneration and Nominations Committee. He is eligible to participate in the incentive compensation
program. The CEO is entitled to the specified remuneration and benefits through the term of the agreement.
The Company may terminate the CEO’s employment at any time for good cause (for example, material breach of
contract, gross negligence) without notice or the CEO may give 90 days’ notice to terminate the employment contract,
both of which result in the CEO receiving pay through the period of services performed. If the Company terminates
the CEO for any reason other than good cause, he is entitled to the specified remuneration and benefits through the
term of the agreement.
In the instance of a change in control of the Company at the instigation of the Board of Directors, if the CEO’s title and
duties are substantially reduced then the CEO, within two months of such reduction in status, may provide two weeks
written notice to the Company as being terminated by the Company for other than good cause and he will receive his
base salary through the end of the contract term.
The Remuneration and Nomination Committee expects to finalize employment agreements with the other KMPs during 2017.
- 27 -
Potential payments Upon Termination of Employment or Change of Control
The following tables show the estimated potential payments and benefits that would be received by the CEO or his estate (in
the event of death) if termination of employment was the result of various circumstances discussed within his employment
contract and assumes that any termination was effective as at 31 December 2016. The actual amounts to be paid can only be
determined at the time of the CEO’s actual termination. The other KMP’s were not entitled to any termination benefits as at 31
December 2016.
Executive Benefits
and Payments
Upon Termination
Cash Severance
RSUs (1) (2)
Health Benefits
Total
Voluntary
Termination
$ -
-
-
$ -
Early
Retirement
$ -
-
-
$ -
Normal
Retirement
$ -
-
-
$ -
Disability
$152,055
-
7,703
$159,758
Death
$ -
-
-
$ -
Involuntary
Termination
(for cause)
$
-
-
-
$ -
Involuntary
Termination
(without
cause)
$ 740,000
-
37,488
$ 777,488
Change in
Control (3)
$ 740,000
-
37,488
$ 777,488
(1)
(2)
(3)
In the event of retirement, disability or death, the awards granted as part of the 2014 LTI and 2015 LTI would be
prorated at the end of the performance cycle based on actual performance achievement.
In the event of a change in control of the Company, the Board, in its absolute discretion, may elect to vest any and all
outstanding awards under the 2014 LTI, or cancel the RSUs and provide a cash payment equal to the fair market value
of the RSUs immediately prior to the closing of the change in control transaction. For awards granted under the 2015
and 2016 LTI, the Board must vest the outstanding award if the acquiring company does not convert or make-up the
award.
In the event of a change in control, if the CEO’s responsibilities are reduced, he may elect to terminate the contract
and receive the same treatment as involuntary termination (without cause).
J. Details of Remuneration
The table below details Director and KMP remuneration paid in accordance with Accounting Standards for fiscal years ended 31
December 2016 and 2015.
2016
Director
E McCrady
M Hannell
D Hannes
N Martin
W Holcombe
Fixed Based Remuneration
Cash Salary and
Fees
Non-monetary
Benefits (1)
Post-employment
Benefits
$ 7,950
$ 21,144
-
-
-
-
-
-
-
-
Superannuation
$ -
9,987
8,158
6,924
-
$ 335,846
105,121
85,869
72,882
116,721
$ 716,439
Share Based
Payments
RSU
$ -
-
-
-
-
Performance Based
LTI – Share
Based (2)
LTI –
Deferred
Cash (3)
STI- Bonus
$ - $ 837,888 $ 62,032 $ 1,264,860
Total
-
-
-
-
-
-
-
-
-
-
-
-
115,108
94,027
79,806
116,721
$62,032 $ 1,670,522
$ 21,144
$ 7,950
$ 25,069 $ - $ -
$ 837,888
Key Management Personnel
C Anderson
G Ford
$ 267,769
267,769
$ 535,538
$ 1,251,977
$ 14,471
10,253
$ 24,724
$ 45,868
$ 7,950
7,950
$ 15,900
$ 23,850
$ -
-
$ -
$ 25,069 $ 18,884
$ 5,492
13,392
$ 18,884
$ -
-
$ -
$ -
0,629\\\
$ 465,600
466,597
41,038
41,038
$ 932,197 $ 82,076 $ 1,609,319
$ 802,320
806,999
$ 1,770,085
$ 144,108 $ 3,279,844
3,418,699
3,381,775
5
(1) Non-monetary benefits includes car parking and payment of healthcare premiums.
(2) The fair value of the services received in return for the LTI share based awards is based on the allocable portion of
aggregate fair value expense recognized under AASB 2 for the year. The fair value of the services received in return for
the time-based RSUs was determined by multiplying the number of shares granted by the closing price of the shares on
the grant date. The fair value of the A-TSR and R-TSR shares has determined using a Monte Carlo simulation model, as
further discussed in Note 1 to the Financial Report. The amount included in remuneration is not related to or indicative
of the benefit (if any) the individuals may ultimately realize should the RSUs vest.
- 28 -
(3) The fair value of the services received in return for the LTI deferred cash awards is based on the allocable portion of
aggregate fair value expense recognized under AASB 2 for the year. The fair value of the deferred cash awards has been
determined using a Monte Carlo simulation model and is remeasured at the end of each reporting period until the award
is settled. The amount included in remuneration is not related to or indicative of the benefit (if any) the individuals may
ultimately realize should the deferred cash vest.
2015
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
$ 7,950
$ 21,307
-
-
-
-
-
-
-
-
Superannuation Options (2)
$ -
-
-
-
-
$ -
11,228
9,172
7,784
-
$ 384,231
118,189
96,544
81,942
128,500
$ 809,406
RSU (3)
STI- Bonus
LTI – Share
Based (4)
Total
- $ - $ 849,856 $ 1,263,344
-
-
-
-
-
-
-
-
-
-
-
-
129,417
105,716
89,726
128,500
$ 849,856 $ 1,716,703
$ 21,307
$ 7,950
$ 28,184 $ -
$ - $ -
-
Key Management Personnel
C Anderson
G Ford
$ 306,346
306,346
612,692
$ 1,422,098
$ 15,063
8,325
23,388
$ 44,695
$ 7,950
7,950
15,900
$ 23,850
$ 14,087 $96,149 $ - $ 393,438 $ 833,033
$ -
-
-
37,598
112,835
51,685 208,984
$ 28,184 $ 51,685 $ 208,984 $ -
-
-
580,629\\\
395,908
789,346 1,701,995
868,962
$ 1,639,202 $ 3,418,698
3,418,699
3,381,775
5
(1) Non-monetary benefits include car parking and payment of healthcare premiums.
(2) Fair value of services received in return for the options granted is measured using the Black-Scholes Option Pricing
Model and represents the portion of the grant date fair value expense of the option during the year. Options were
granted to the CFO and COO in December 2011 and September 2011, respectively.
(3) Fair value of services received in return for the conversion of options to RSUs during 2015.
(4) The fair value of the services received in return for the LTI share based awards is based on the allocable portion of
aggregate fair value expense recognized under AASB 2 for the year. The fair value of the services received in return for
the time-based RSUs was determined by multiplying the number of shares granted by the closing price of the shares
on the grant date. The amount included in remuneration is not related to or indicative of the benefit (if any) the
individuals may ultimately realize should the RSUs vest.
K. Outstanding KMP Options and Restricted Share Units
Number of Restricted Shares Units held by Key Management Personnel
Key
Management
Personnel
E McCrady (2)
C Anderson
G Ford
Total
Balance
31.12.2015
3,620,228
2,496,670
2,595,756
8,712,654
Issued as
Compensation
5,113,281
2,396,858
2,396,858
9,906,997
Forfeited
RSUs
-
-
-
-
RSUs
converted to
ordinary
shares
(1,647,993)
(978,866)
(1,075,698)
(3,702,557)
Market Value
of Unvested
RSUs
31.12.2016 (1)
$ 1,121,894
619,833
620,190
$ 2,361,917
Balance at
31.12.2016
7,085,516
3,914,662
3,916,916
14,917,094
(1) Market value based on the Company’s closing share price on 31 December 2016 or USD $0.158 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 AGM held on 27 May 2016.
- 29 -
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
31.12.2015
1,148,500
5,901,561
502,800
596,700
2,435,141
674, 091
782,528
12,041,321
Exercised
Share
Options
-
-
-
-
-
-
Value
Realised
Upon
Option
Exercise
$ -
-
-
-
-
-
-
$ -
RSUs
converted
to ordinary
shares
-
-
-
-
1,647,993
978,866
1,075,698
3,702,557
Value
Realised
Upon RSU
Vesting
(1)
$ -
-
-
-
144,884
74,986
86,169
$306,039
Net Other
Changes
(2)
-
346,155
192,309
150,000
-
(385,505)
(796,426)
(493,467)
Balance
31.12.2016
1,148,500
6,247,716
695,109
746,700
4,083,134
1,267,452
1,061,800
15,250,411
(1) The RSU plan allows for an administrative period between the vesting date and the issuance of ordinary shares. Amounts above
(2)
reflect the value received at issuance.
Includes market purchases and sales of shares to cover tax withholding liability related to shares issued on option exercises and
vesting of RSUs.
Auditor’s Independence Declaration
The auditor’s independence declaration for the year ended 31 December 2016 has been received and can be found on page
31 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 2017
- 30 -
Deloitte Touche Tohmatsu
ABN 74 490 121 060
Grosvenor Place
225 George Street
Sydney, NSW, 2000
Australia
Phone: +61 2 9322 7000
www.deloitte.com.au
The Board of Directors
Sundance Energy Australia Limited
Ground Floor
28 Greenhill Road
Wayville
South Australia 5034
31 March 2017
Dear Board Members,
Sundance Energy Australia Limited
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following
declaration of independence to the directors of Sundance Energy Australia Limited.
As lead audit partner for the audit of the financial statements of Sundance Energy Australia Limited for the
financial year ended 31 December 2016, I declare that to the best of my knowledge and belief, there have
been no contraventions of:
(i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
(ii) any applicable code of professional conduct in relation to the audit.
Yours sincerely
DELOITTE TOUCHE TOHMATSU
Jason Thorne
Partner
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
- 31 -
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 3rd Edition of Corporate Governance Principles and Recommendations.
This is the Corporate Governance Statement for Sundance for fiscal year 2016. Sundance’s Board has carefully reviewed the
Corporate Governance Principles and Recommendations. The Board considers that the Company’s corporate governance
practices follow the ASX Corporate Governance Principles unless otherwise stated in this Corporate Governance Statement. In a
few instances, the Company has adopted hybrid methodologies of compliance, which the Board has deemed appropriate for its
size, structure and situation. 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.
This Corporate Governance statement is accurate and is up to date as at 30 March 2017 and was approved by the Board on that
date.
Principle 1: Lay Solid Foundations for Management and Oversight
The respective roles and responsibilities of the Board and management, including those matters expressly reserved to the Board,
are set out in the Board Charter, which is available on the Company’s website at www.sundanceenergy.com.au/governance.cfm.
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 the Company’s vision, mission, values and ethical standards as reflected in the Code of Conduct;
Delegating an appropriate level of authority to management and approving 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”) to manage the day-to-day operations and
administration of the Company. In carrying out this delegation, the MD, supported by the senior executive management team,
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.
- 32 -
Responsibilities of the senior executive management team include:
Implement the corporate strategy set by the Board;
Achieve the performance targets set by the Board;
Develop, implement and manage risk 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 perform 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 Information in Relation to Board Candidates
Currently, no formal description of the procedure for the selection and appointment of new Directors or the re-election of
incumbent Directors exists due to the size of the Company and its Board. It is considered that this process is effectively managed
by the Board. However, the Remuneration and Nomination Committee is responsible for ensuring that appropriate checks are
performed for any person that is appointed as a Director, or before a person is put forward to shareholders as a candidate for
election as a Director.
The Company ensures that all material information in its possession relevant to a shareholder’s decision whether to elect or re-
elect a director, including the information referred to in Recommendation 1.2, is provided to shareholders in the Company’s
Notice of Annual General Meeting.
1.3 Written Agreements with Directors and Senior Executives
The Company has signed letters of appointment in place with each non-executive Director. The letters of appointment, cover
topics including the term of appointment, remuneration, disclosure requirements and indemnity and insurance arrangements.
The Company has a written employment contract in place with the MD throughout 2016, which expires 2 January 2019. The
MD’s employment contract sets forth a description of job duties and responsibilities, reporting lines, remuneration, and
termination rights and payment entitlements and are described in detail in the Company’s remuneration report for the year
ended 31 December 2016 beginning on page 17. The Company is in the process of entering into written employment contracts
with its other Key Management Personnel (“KMPs”). The Company has agreed to the significant terms of the written
employment contracts with its other Key Management Personnel and is in the process of finalizing the administrative
arrangements.
1.4 Company Secretary
The Company Secretary is Damien Connor. The responsibilities of the Company Secretary include:
Providing assistance to the Chairman in the development of the agenda in a timely and effective manner;
In liaison with the Chairman, coordinating, organizing and attending meetings of the Board and shareholders, and
ensuring that the correct procedures are followed;
Assisting in the drafting and the maintaining of the agendas and minutes of the Board, Committees and Company
meetings;
Working with the Chairman, Managing Director and Chief Financial Officer to ensure that governance practices meet
all ASX requirements, including all financial and other regular reporting requirements.
The Company Secretary 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.
- 33 -
1.5 Diversity
Sundance is committed to a workplace culture that promotes the engagement of well qualified, diverse and motivated people
across all levels to assist Sundance to meet its business objectives. Sundance employs people on the basis of the needs of the
business, their skills, qualifications, abilities and past track record of their achievements. Within this framework, Sundance
believes it is important to maintain a diverse, empowered and inclusive workforce in order to gain valuable input from people of
different gender, race, religion, marital status, disability or national origin. The Company’s Diversity Policy is available on the
Company’s website at with http://www.sundanceenergy.com.au/governance.cfm.
Key principles of this policy are:
Recruiting on the basis of skills, qualifications, abilities and track record;
Encouraging participation of its people in professional development to benefit both the Company and the individual;
Encouraging personal development to benefit both the Company and the individual;
Aiming to be an employer of choice and to provide a family friendly work environment; and
Promoting diversity through awareness.
The Directors are of the view that the Company has already achieved a broad diversity of people across its operations in
accordance with the company’s Diversity Policy. Given the size of the Company and the business environment in which it
operates, the directors believe that it is not appropriate at this stage to set measurable diversity objectives. The Board, at least
annually, reviews with management the effectiveness of the Diversity Policy, including gender diversity, and whether any changes
need to be implemented.
Historically, the oil and gas industry in the US is a male dominated work force. Nevertheless, the Board believes that there exists
a well-balanced proportion of women and men employed throughout the Company, including senior management and
professional/technical positions, as illustrated by the following table:
As at 31 December 2016
Males
Females
Total
Percent
Male
Board (1)
Senior Management (2)
Professional/Technicals
Support and Field
Total
5
-
5
100%
1
18
3
4
25%
75%
13
31
58%
42%
14
4
18
78%
22%
38
20
58
66%
34%
Percent
Female
-
(1) The Board does not currently have female representation, and believes that the existing range of skills and experience
of the Directors is well suited to provide the necessary governance and expertise to meet the Company’s current business
objectives. Should a requirement arise to appoint a new Director, the Board will review the availability of female
candidates within the policy of appointing on skills and merit and applying the Diversity Policy.
(2) The Company defines “Senior Management” as employees who directly report to the MD and have the the authority
and responsibility for planning, directing and controlling major activities of the Company and/or its subsidiaries.
1.6 Process for Evaluating Board Performance
The Chairman has the responsibility for reviewing the performance of the Board and Committees with the Directors on a periodic
basis, but not less than once per year. The criteria for the review includes an evaluation of the range of skills and expertise that
are in place for the Company to meet its current business objectives, and a review of any new requirements as the Company
evolves and develops. The assessment is supplemented by input from the Remuneration and Nominations Committee
deliberations.
The Chairman has the responsibility for coordinating the review of the individual non-executive Directors performance on a
periodic basis, but not less than once per year. This review is carried out on a one-on-one basis, with feedback provided from
the Chairman to each Director, and also from each Director to the Chairman. The last of such reviews occurred in February 2017
regarding 2016 performance.
The Board will continue to consider the need to use an external facilitator to conduct its performance reviews; to date the Board
has not felt that the additional formality was necessary given the Board size and structure.
- 34 -
1.7 Process for Evaluating Managing Director and Senior Management Performance
The Company’s Chairman, with non-executive Director input, is responsible for providing feedback to the MD on his performance
assessed against the responsibilities discussed above. The MD, with Chairman and non-executive Directors input, is responsible
for providing feedback to senior management and assessing their performance against the responsibilities discussed in Item 1.1.
An annual performance evaluation of the MD and senior management was completed in connection with the Company’s
incentive compensation program in February 2017, regarding 2016 performance. The MD also has periodic one-on-one
discussions with each senior executive throughout the year.
Principle 2: Structure the Board to Add Value
2.1 Remuneration and Nomination Committee
The Company has established the Remuneration and Nominations Committee, which must consist of at least three Directors, all
of whom must be independent.
The responsibilities of the Committee include recommendations to the Board about:
Remuneration practices and levels of MD, non-executive Directors and senior management;
The necessary and desirable competencies of Directors;
Board succession plans;
Induction and educational procedures for new Board appointees and key executives;
Ensuring procedures exist for evaluation of the performance of the Board, its Committees and Directors; and,
The appointment and re-election of Directors.
The current membership of the Remuneration and Nominations Committee is set out on page 15 of the Directors’ Report. Details
of the number of Committee meetings held during 2016, and attendance by Committee members, is set out on page 14 of the
Directors’ Report.
The charter
http://www.sundanceenergy.com.au/governance.cfm.
the Remuneration and Nomination Committee
for
is available on
the Company website at
2.2 Board Skills Matrix
The Board is committed to achieving a membership that, collectively, has the appropriate level of personal qualities, skills,
experience, and time commitment to properly fulfill its responsibilities or have ready access to such skills which are not available.
- 35 -
The composition of skills and experience of the Board (out of 5 Directors) is shown in the table below: The Board’s skill matrix
indicates the mix of skills, experience and expertise that are considered necessary at Board level for optimal performance of the
Board.
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
4
2
2
5
2
3
The Directors review the composition and skill sets of the Board on a regular basis, and consider that the current composition,
size and skills of the Board to be appropriate.
2.3 Director Independence
The Board assesses the independence of its directors at least annually, using criteria established in its charter and by the
Corporate Governance Principles and Recommendations of the Australian Securities Exchange Limited (“ASX”) and the U.S.
Securities and Exchange Commission (“SEC”). Under this criteria, Sundance defines an independent director as a non-executive
director 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. In determining independence, the Board considers
whether the director:
Is employed, or has previously been employed in an executive capacity by Sundance in the past three years;
Has a family member which was employed by the Company in an executive capacity or accepted any material
compensation from the Company in any 12-month period during the past three years; and
Is, or has been in the last three years, in a material business relationship (such as a supplier, customer, or external
auditor) with Sundance, or an officer of, or otherwise associated with someone of such relationship
The Board has determined that each of its Non-executive Directors are independent, and were independent during the year
ended 31 December 2016.
- 36 -
The composition of the Board at the date of this report and the length of service of each Director as at 31 December 2016 is as
follows:
M D Hannell
E McCrady
N Martin
D Hannes
Chairman, Independent Non-Executive Director
10 years, 9 months
Managing Director and Chief Executive Officer
5 years, 10 months
Independent Non-Executive Director
5 years*
W Holcombe
Independent Non-Executive Director
Independent Non-Executive Director
7 years, 5 months
4 years, 1 month
*In addition, Mr. Martin served as an alternate to the Board for 10 months prior to his appointment as a non-executive Director.
The Board has assessed the capacity of Mr. Hannell who has served more than ten years as a Director to exercise an independent
judgment on issues brought before the Board and to act in the best interests of the company and its shareholders. The Board is
satisfied that this requirement has been fully met.
2.4 Board Composition
As noted above in relation to Recommendation 2.3, at all times during the year ended 31 December 2016, the majority of the
Board was comprised of independent Directors.
2.5 Independence of Board Chairman
Sundance maintains a bright line division of responsibility between the Chairman and the MD as clearly specified in the Board
Charter
at
http://www.sundanceenergy.com.au/governance.cfm.
document maintained
of Management
Company’s
website
Role
and
the
on
2.6 Director Induction and Professional Development
The Board ensures that new Directors are effectively inducted in a manner they believe is practicable for the size of the Company
and financial resources available. Through meetings with executives and other current Directors, new Directors are sufficiently
informed of the Company’s financial, strategic, operational and risk management position; the culture and values of the
Company; and the role of the Board’s Committees.
Directors are regularly updated on information about the Company and recent developments in the industry to enhance their
skills and knowledge. In addition, the Directors have diverse experience, previous Board and/or senior management experience
and are involved in a variety of outside business and professional activities that add to their knowledge and professional
competency.
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, senior management and
employees 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
on the Company’s website at http://www.sundanceenergy.com.au/governance.cfm.
The Company requires all new employees to sign a formal acknowledgement of the Code of Conduct and Ethics as part of its on-
boarding process.
- 37 -
Principle 4: Safeguard Integrity in Corporate Reporting
4.1 Audit and Risk Management Committee
The Company’s Audit and Risk Management Committee must be comprised of at least three Directors, all of whom must be
independent. Currently, D Hannes (chairman), M D Hannell, and N Martin serve on the Committee. The Committee meets at
least twice per year and the external auditor, MD and Chief Financial Officer are invited to attend the meetings, as the discretion
of the Committee.
The responsibilities of the Audit and Risk Management Committee is to assist the Board in fulfilling its corporate governance and
oversight responsibility by monitoring and reviewing:
the Company’s accounting and financial reporting processes and the integrity of its financial statements;
the audits of the Company’s financial statements and the appointment, compensation, qualifications, independence,
objectivity and performance of the Company’s internal and independent auditors;
the Company’s compliance with legal and regulatory requirements; and
the performance of the Company’s internal audit function and internal control over financial reporting.
The Audit and Risk Management Committee also makes recommendations to the Board in fulfilling its responsibilities relating
to risk management and compliance practices of the Company.
The Audit
http://www.sundanceenergy.com.au/governance.cfm.
and Risk Management Committee’s
charter
is
available on
the Company’s website
at
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 and an understanding of
corporate governance. The qualifications of each Audit and Risk Management Committee member can be found in the Director
biographies beginning on page 12 of the Director’s Report.
Details of the number of Committee meetings held during 2016, and attendance by Committee members, is set out on page 14
of the Directors’ Report.
In addition, the Board has established a Reserves Committee to assist the Board in monitoring:
The integrity of the Company’s oil, natural gas, and natural gas liquid reserves reporting (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 current membership of the Reserves Committee is set out on page 15 of the Directors’ Report. Details of the number of
committee meetings held during 2016, and attendance by Committee members, is set out on page 14 of the Directors’ Report.
The
is
http://www.sundanceenergy.com.au/governance.cfm.
Committee
Reserves
Charter
available
on
the
Company’s
website
at
- 38 -
4.2 Statement from the Chief Executive Officer and the Chief Financial Officer
Prior to giving their Director’s declaration in respect of the half-year and annual financial statements, the Board receives a
declaration from the Chief Executive Officer and the Chief Financial Officer in accordance with section 295A of the Corporations
Act 2001 that, in their opinion, the financial records of the Company have been properly maintained and that the financial
statements comply with the appropriate accounting standards and give a true and fair view of the financial position and
performance of the Company, and that the opinion has been formed on the basis of a sound system of risk management and
internal control which is operating effectively.
4.3 Auditor Attendance at the Annual General Meeting
The Board requires the external auditor to attend the Company’s Annual General Meeting and be available to answer questions
from shareholders about the conduct of the audit and the preparation and content of the audit 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 the Company’s share price, is immediately made available to shareholders and the public as a release to the ASX.
The 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 on the
Company’s website at http://www.sundanceenergy.com.au/governance.cfm.
Principle 6: Respect the Rights of Shareholders
6.1 Information on the Company’s Website
The Company provides information about itself and its corporate governance practices to its shareholders via the Company’s
website, http://www.sundanceenergy.com.au/
6.2 Investor Relations Program
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 the Company’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 concurrently released to the ASX and posted on the Company’s website.
6.3 Encouraging Shareholder Participation at the Annual General Meeting
The Company does not currently webcast its investor relations activities or the Annual General Meeting, however, the
presentation is posted to the Company’s website at www.sundanceenergy.com.au/presentations.cfm.
The Company encourages its shareholders to attend its annual general meeting to allow them the opportunity to discuss and
question its Board and management.
- 39 -
6.4 Electronic Communications
The Company gives shareholders the option to receive communications from, and to send communications to, the Company
electronically. The Company also periodically sends communications to those shareholders who have provided an email address.
The Company encourages shareholders to sign up for email alerts at www.sundanceenergy.com.au/alerts.cfm. In addition, there
is an email link on the Company’s website for shareholders to communicate with the Company electronically.
Principle 7: Recognise and Manage Risk
7.1 Risk Management Committee
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 Board.
The Audit and Risk Management Committee consists of three Independent Directors. The current membership of the Audit and
Risk Management Committee is set out on page 15 of the Directors’ Report. Details of the number of committee meetings held
during 2016, and attendance by Committee members, is set out on page 14 of the Directors’ Report.
7.2 Risk Management Framework
Sundance recognises that the effective identification, evaluation, monitoring and management of risk is central to the ongoing
success of the Company. The Company has established a Risk Management Policy, which provides the framework for oversight
and management of its business risks. The Risk Management Policy ensures 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 Board requires senior management to design and implement the risk management and internal control system to manage
the Company, and to report its effectiveness to the Board. By the nature of the upstream oil and gas business, the topic of risk
management is intrinsically covered during each Board meeting.
7.3 Internal Audit
The Company does not currently have a formal internal audit program in place. Given the Company’s current size and structure,
the Board has determined that the finance department, under the supervision of the Chief Financial Officer and direction of the
Audit and Risk Management Committee, can sufficiently manage the Company’s financial risks. The Company has adopted a
formal internal control framework, Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of Treadway Commission (COSO), under which, the Company reviews, on an annual basis, the design and operating
effectiveness of its internal controls over key financial processes, the safeguarding of assets, the maintenance of proper
accounting records, and the reliability of financial information.
7.4 Economic, Environmental and Social Sustainability Risks
The Company undertakes oil and gas exploration, development and production activities and as such, faces risks inherent to its
business, including economic, environmental and social sustainability risks, which may materially impact the Company’s ability
to create or preserve value for shareholders over the short, medium or long term.
The Company has risk exposures related to potential environmental spills or contamination with associated cleanup costs,
regulatory compliance and the safety of work practices.
- 40 -
Health, safety and environmental responsibilities are top priorities of the Company. The Company believes sustainable and
responsible business practices are an important long-term driver of performance and shareholder value and is committed to
transparency, fair dealing, responsible treatment of employees and partners and positive interaction with the community in
which it operates. The Company mitigates the risk of catastrophic operational failures using appropriate insurance, with coverage
for third party liability, well control, day-to-day office and business insurance, and operator’s extra expense. The Company
protects its employees and contractors through the application of its health and safety program. Senior management provides
an update on its health, safety and environment programs to the Board on a monthly basis.
Details regarding material economic risks applicable to the Company and its business, including mitigating factors and the actions
being taken by the Company to seek to manage its exposure to those risks, are set out in the Director’s Report and Note 34 to
the financial statements.
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 management on an individual basis. Advice is sought from an independent consultant
based in the U.S.
When nominations matters are discussed, M D Hannell hands over the chairmanship to one of the other Committee members
in order to separate his Board and Chairman role.
Details of the number of Committee meetings held during 2016, and attendance by Committee members, is set out on page 14
of the Directors’ Report.
The Remuneration and Nominations Committee Charter is available on the Company’s website at
http://www.sundanceenergy.com.au/governance.cfm.
8.2 Remuneration of Non-executive Directors, Executive Directors and Senior Management
The remuneration of non-executive Directors is structured separately from that of the Managing Director and senior
management. The Remuneration Report at pages 17-30 of this Annual Report sets out details of the Company’s policies and
practices for remunerating Directors (MD and non-executive) and KMP.
8.3 Use of Derivatives and Similar Transactions
Sundance has a Securities Trading Policy that regulates dealing in its securities by Directors, Senior Management and all other
employees (including companies and persons closely related to such persons). The Policy prohibits Directors and employees
from acting on inside information that is not 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 also:
Outlines when personnel may and may not deal in shares of the Company,
Outlines procedures for obtaining prior clearance in exceptional circumstances for trading that would otherwise be
contrary to the Securities Trading Policy
Provides procedures to reduce the risk of inside trading; and
Prohibits personnel from engaging in in short-term or speculative transactions involving the Company’s shares over
those shares and any other financial products of the Company traded on the ASX (Company Securities):
- 41 -
Recommendation 8.3 of the ASX Corporate Governance Principles provides that a listed entity which has an equity-based
remuneration scheme should have a policy on whether participants are permitted to enter into transactions (whether through
the use of derivatives or otherwise) which limit the economic risk of participating in the scheme. Although the Company’s
Security Trading Policy does not explicitly meet the requirements of recommendation 8.3, the Board is satisfied that the
Company meets the requirements of recommendation 8.3 through company policy which prohibits Directors and Senior
Management from trading in Company shares on a short-term basis, engaging in short sales, buying and selling puts and calls,
and discourages the practice of purchasing the Company’s shares on margin.
The Securities Trading Policy is available on the Company’s website at http://www.sundanceenergy.com.au/governance.cfm.
- 42 -
Financial Information
- 43 -
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
For the year ended 31 December
Oil and natural gas revenue
Lease operating expenses
Production taxes
General and administrative expense
Depreciation and amortisation expense
Impairment expense
Exploration expense
Finance costs, net of amounts capitalized
Loss on debt extinguishment
Gain on sale of non-current assets
Gain (loss) on derivative financial instruments
Other income (expense), net
Loss before income tax
Income tax (expense)/benefit
Loss attributable to owners of the Company
Other comprehensive loss
Items that may be reclassified subsequently to
profit or loss:
Exchange differences arising on translation
of foreign operations (no income tax effect)
Other comprehensive loss
Total comprehensive loss
attributable to owners of the Company
Loss per share
Basic
Diluted
Note
4
5
6
17, 20
19
8
7
2016
US$’000
66,609
(12,937)
(4,200)
(12,110)
(48,147)
(10,203)
(30)
(12,219)
-
-
(12,761)
2,009
2015
US$’000
(Restated – see
Note 7)
92,191
(18,455)
(6,043)
(17,176)
(94,584)
(321,918)
(7,925)
(9,418)
(1,451)
790
15,256
(2,240)
(43,989)
(370,973)
(1,705)
107,138
(45,694)
(263,835)
(532)
(532)
(478)
(478)
(46,226)
(264,313)
11
11
(cents)
(5.2)
(5.2)
(cents)
(47.7)
(47.7)
The accompanying notes are an integral part of these consolidated financial statements
- 44 -
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Note
2016
US$’000
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
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
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
CURRENT LIABILITIES
Trade and other payables
Accrued expenses
Derivative financial instruments
Provisions, current
Liabilities held for sale
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Credit facilities, net of deferred financing fees
Restoration provision
Other provisions, non-current
Deferred tax liabilities
Derivative financial instruments
Other non-current liabilities
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
EQUITY
Issued capital
Share based payments reserve
Foreign currency translation reserve
Accumulated deficit
TOTAL EQUITY
2015
US$’000
(Restated – see
Note 7)
$ 3,468
11,508
9,967
5,616
4,154
90,632
125,345
250,922
26,323
1,382
3,950
1,913
284,490
$ 17,463
9,786
-
5,204
4,078
18,309
54,840
338,709
34,366
1,211
279
2,683
377,248
$ 432,088
$ 409,835
$ 3,579
19,995
4,579
2,726
941
31,820
188,249
7,072
3,299
-
3,215
610
202,445
$ 21,588
19,883
-
-
744
42,215
187,743
3,088
-
-
-
420
191,251
$ 234,265
$ 233,466
$ 197,823
$ 176,369
373,585
14,174
(1,842)
(188,094)
$ 197,823
308,429
11,650
(1,310)
(142,400)
$ 176,369
12
13
16
14
17
18
20
13
25
21
21
13
22
14
23
24
22
25
13
26
27
27
The accompanying notes are an integral part of these consolidated financial statements
- 45 -
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Issued
Capital
US$’000
Share
Based
Payments
Reserve
US$’000
Foreign
Currency
Translation
Reserve
US$’000
Retained
Earnings
(Accumulated
Deficit)
US$’000
Total
US$’000
Balance at 31 December 2014
306,853
7,550
(832)
121,435
435,006
Loss attributable to owners of the Company
(Restated)
-
-
-
(263,835)
(263,835)
Other comprehensive loss for the year
-
-
(478)
-
(478)
Total comprehensive loss
(Restated- See Note 7)
Shares issued in connection with business
-
-
(478)
(263,835)
(264,313)
combinations (Note 2)
1,576
-
-
-
1,576
Stock compensation value of services
Balance at 31 December 2015
-
4,100
-
-
4,100
(Restated – see Note 7)
308,429
11,650
(1,310)
(142,400)
176,369
Loss attributable to owners of the Company
-
-
-
(45,694)
(45,694)
Other comprehensive loss for the year
-
-
(532)
-
(532)
Total comprehensive loss
-
Shares issued in connection with
private placement (Note 26)
Cost of capital, net of tax (Note 26)
Stock compensation value of services
67,499
(2,343)
-
-
-
(532)
(45,694)
(46,226)
-
-
-
-
67,499
(2,343)
-
2,524
-
-
2,524
Balance at 31 December 2016
373,585
14,174
(1,842)
(188,094)
197,823
The accompanying notes are an integral part of these consolidated financial statements
- 46 -
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December
Note
30
2
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from sales
Payments to suppliers and employees
Settlements of restoration provision
Interest received
Receipts from commodity derivatives, net
Premium payments for commodity derivatives
Income taxes received, net
NET CASH PROVIDED BY OPERATING ACTIVITIES
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
Payments for acquisition related costs
Payments for property and equipment
Other investing activities
NET CASH USED IN INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of shares
Payments for costs of capital raisings
Borrowing costs paid, net of capitalized portion
Deferred financing fees capitalized
Payments for foreign currency derivatives
Proceeds from borrowings
Repayments from borrowings
NET CASH PROVIDED BY FINANCING ACTIVITIES
2016
US$’000
64,749
(32,634)
(110)
-
10,630
-
25
42,660
(64,130)
(2,852)
(23,506)
7,141
-
(295)
3,651
(79,991)
67,499
(3,330)
(11,753)
-
(390)
-
(250)
51,776
2015
US$’000
99,423
(49,639)
(71)
107
11,736
(690)
3,603
64,469
(144,316)
(20,339)
(15,023)
41
(578)
(371)
(185)
(180,771)
-
-
(6,889)
(4,708)
-
207,000
(145,000)
50,403
Net increase (decrease) in cash held
14,445
(65,899)
Cash and cash equivalents at beginning of year
Effect of exchange rates on cash
CASH AND CASH EQUIVALENTS AT END OF YEAR
3,468
(450)
17,463
69,217
150
3,468
The accompanying notes are an integral part of these consolidated financial statements
- 47 -
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 2016 was
authorised for issuance in accordance with a resolution of the Board of Directors on 30 March 2017. Refer to Note
35 for listing of the Company’s significant subsidiaries.
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 the revaluation of certain non-
current assets and financial instruments, as explained in the accounting policies below. 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
The consolidated financial statements incorporate the assets and liabilities as at December 31 2016 and 2015, and
the results for the years then ended, of Sundance Energy Australia Limited (“SEAL”) and the entities it controls. 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. As at 31 December 2016 and
2015, all of its controlled entities were wholly-owned.
All inter-group balances and transactions between entities in the Group, including any recognised profits or losses,
are eliminated on consolidation.
a) Income Tax
The income tax expense for the period comprises current income tax expense/(benefit) and deferred income tax
expense/(benefit).
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.
- 48 -
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 implemented the
income tax consolidation regime, with Sundance Energy Australia Limited being the head company of the
consolidated group. Under this regime the group entities are taxed as a single taxpayer.
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.
- 49 -
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 to
determine whether any impairment indicators exist. 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 consolidated statement of profit or loss and other comprehensive income. The
estimate of the recoverable amount is made consistent with the methods described under Impairment in (c) below.
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. 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
- 50 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES continued
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 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.
Impairment
The carrying amount of development and production assets and property and equipment 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.
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. 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. An impairment loss is recognized in the consolidated statement of
profit and loss whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount.
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.
The recoverable amount of an asset is the greater of its fair value less costs to sell (“FVLCS”) or 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. 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.
Estimates of future commodity prices are based on the Group’s best estimates of future market prices with reference
to bank price surveys, external market analysts’ forecasts, and forward curves.
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.
Under a FVLCS calculation, 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 net acre held.
- 51 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES continued
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.
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 2016 or
2015.
If an entire CGU is disposed, 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. If a disposition is less than an entire
CGU and the property had been previously subjected to amortization or impairment at the CGU level, and there
would be no significant impact to the Company’s depletion rate, no gain or loss is recognized and the proceeds of
the sale are treated as a cost reduction to the Company’s net book value of the CGU in which the assets were
previously included.
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.
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.
- 52 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES continued
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 or
natural gas price swap, option and costless collar contracts. 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 initially recognised at fair value and remeasured at each reporting period. 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 acquired principally for the purpose
of selling in the near-term. 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.
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.
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.
- 53 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES continued
f) 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 its core oil and gas properties are located
in the United States.
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.
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;
revenues and expenses are translated to USD using the exchange rate at the date of
transaction; and
retained profits and issued 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.
- 54 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES continued
g) Employee Benefits
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.
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.
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 generally based on goals established by the Remuneration and Nominations
Committee and approved by the Board. The fair value of time-lapse RSUs is determined based on the price of
Company ordinary shares on the date of grant and expense is recognized over the vesting period. Certain of its RSUs
vest based on the achievement of metrics related to the Company’s 3-year absolute shareholder return or total
shareholder return as compared to its peer group, as defined. The Company uses a Monte Carlo valuation model to
determine the fair value of such RSUs and the expense is recognized over the vesting period. The Monte Carlo model
is based on random projections of stock price paths and must be repeated numerous times to achieve a probabilistic
assessment. The expected volatility used in the model is based on the historical volatility commensurate with the
length of the performance period of the award. The risk-free rate used in the model is based on Australian Treasury
bond relevant to the term of the RSU award.
Deferred Cash Compensation
In 2016, the Group granted deferred cash compensation awards to certain employees, which may be earned through
appreciation in the weighted average price of Sundance’s ordinary shares from the last 20 days of 2015 as compared
to the last 20 days of 2017 and 2018. The Group recognizes general and administrative expense for the deferred
cash compensation to the extent to which the employees have rendered service, with a corresponding liability
included within other noncurrent liabilities on the consolidated statement of financial position. The fair value of the
deferred cash awards are estimated initially and at the end of each reporting period until settled, using a Monte
Carlo model that takes into consideration the terms and conditions of the award. The expected volatility used in the
model is based on the historical volatility commensurate with the length of the performance period of the award.
The risk-free rate used in the model is based on U.S. Treasury bond relevant to the term of the award. The awards
may ultimately be settled in cash or fully vested RSUs at the discretion of the Board.
h) 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. As of 31
December 2016, the Company had recognized provisions related to a third-party refracturing agreement ($6.0
million) and office space consolidation ($0.3 million).
i) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, deposits held at call with banks, and other short-term highly liquid
investments with original maturities of three months or less
- 55 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES continued
j) Revenue
Revenue from the sale of oil and natural gas is recognised upon the delivery of product to the purchaser and title
transfers to the purchaser. The Company uses the sales method of accounting for natural gas imbalances in those
circumstances where it has under-produced or over-produced its ownership percentage in a property. Under this
method, a receivable or payable is recognized only to the extent an imbalance cannot be recouped from the reserves
in the underlying properties. The Company had not recognized an imbalance on the consolidated statement of
financial position as at 31 December 2016.
All revenue is stated net of royalties, transportation costs and the amount of goods and services tax (“GST”).
k) 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 of $1.1 million and $1.6 million for the years ended 31 December
2016 and 2015, respectively. All other borrowing costs are recognised in the consolidated statement of profit or loss
and other comprehensive income in the period in which they are incurred.
l) 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.
m) 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.
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 gain on
bargain purchase. Adjustments to the purchase price and excess on consideration transferred may be made up to
one year from the acquisition date.
- 56 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES continued
n) 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 highly 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. As at 31 December 2016, based upon the Company’s intent and anticipated ability to sell an interest
in these properties, the Company had classified its Mississippian/Woodward properties as held for sale. As at 31
December 2015 the Company had 25% of its Eagle Ford assets and 100% of its Cooper Basin assets classified as held
for sale.
o) 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. The Company engaged an independent petroleum engineering firm,
Ryder Scott Company to prepare its reserve estimates which conform to guidelines prepared by the Society of
Petroleum Engineers. Ryder Scott also prepared 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
and production data are generated during the course of operations.
- 57 -
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. Additionally,
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 Depletion
Development and production assets are depleted using the units of production method over economically
recoverable reserves. This results in a depletion or amortisation charge proportional to the depletion of the
anticipated remaining production from the area of interest.
- 58 -
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. 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 depletion 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.
Share-based Compensation
The Group’s policy for share-based compensation is discussed in Note 1 (g). The application of this policy requires
management to make certain estimates and assumptions as to future events and circumstances. Certain of the
Company’s restricted share units vest based on the Company’s ordinary share price appreciation over a 3-year period
in absolute terms or as compared to a defined peer group. Share-based compensation related to these awards use
estimates for the expected volatility of the Company’s ordinary share price and of its peer’s ordinary share price
(total shareholder return shares). The Company’s deferred cash awards also vest upon the Company’s ordinary
share price appreciate through 2017, 2018 and 2019. The Company must also estimate expected volatility of the
Company’s ordinary share price when valuing these awards.
p) Rounding of Amounts
In accordance with the Australian Securities and Investment Commission (“ASIC”) Corporations (Rounding in
Financial/Directors' Reports) Instrument 2016/191, amounts in the financial statements have been rounded to the
nearest thousand.
q) 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.
r) Earnings (loss) Per Share
The group presents basic and diluted earnings (loss) per share for its ordinary shares. Basic earnings (loss) 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 (loss) 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.
s) New and Revised Accounting Standards
The Group has adopted all of the new and revised Standards and Interpretations issued by IFRS/AASB that are
relevant to its operations and effective for the current annual reporting period. The adoption of these new and
revised Australian Accounting Standards and Interpretations has had no significant impact on the Group’s accounting
policies or the amounts reported during the financial year.
- 59 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES continued
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 when 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, and the relevant amending standards
AASB 9/IFRS 9, approved in December 2015, introduces new requirements for the classification, measurement, and
derecognition of financial instruments, including new general hedge accounting requirements. The effective date
of this standard is for fiscal years beginning on or after 1 January 2018, with early adoption permitted. 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 when it adopts the standard 1 January 2018.
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:
Identify the contract(s) with a customer
Identify the performance obligations in the contracts.
1.
2.
3. Determine the transaction price.
4. Allocate the transaction price to the performance obligations in the contract.
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 2018. Although the Company is
still in the process of assessing its contracts with customers and evaluating the effect of adopting these standards,
as well as the transition method to be applied, the adoption is not expected to have a significant impact on the
Company’s consolidated financial statements other than additional disclosures. The Company plans to adopt the
standard on 1 January 2018.
AASB 16/IFRS 16 – Leases
In January 2016, AASB 16/IFRS 16 was issued which provides a comprehensive model for the identification of lease
arrangements and their treatment in the financial statements for both lessees and lessors. AASB 16/IFRS 16 changes
the current accounting for leases to eliminate the operating/finance lease designation and require entities to
recognize most leases on the balance sheet, initially recorded at the fair value of unavoidable lease payments. The
entity will then recognize depreciation of the lease assets and interest on the statement of profit and loss.
The effective date of this standard is for fiscal years beginning on or after 1 January 2019. As of 31 December 2016,
the Company had approximately $5.2 million of contractual obligations related to its non-cancelable leases and
drilling rig contracts, and it will evaluate those contracts as well as other existing arrangements to determine if they
qualify for lease accounting under AASB 16/IFRS 16. The Company plans to adopt the standard on the 1 January
2019.
- 60 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – BUSINESS COMBINATIONS
Acquisitions in 2016
Acquisition #1
On 29 July 2016, the Company completed its acquisition of 5,050 net acres targeting the Eagle Ford in McMullen
County, Texas, for a cash purchase price of $15.9 million. The assets acquired included approximately 26 gross
(9.1 net) producing wells, which were primarily Sundance‐operated prior to the acquisition. The Company
acquired the assets to execute on its strategy of growing its Eagle Ford position.
The following table reflects the fair value of the assets acquired and the liabilities assumed as at the date of
acquisition (in thousands):
Fair value of assets acquired:
Development and production assets
Fair value of liabilities assumed:
Restoration provision
Net assets acquired
Purchase price:
Cash consideration
Total consideration paid
$ 16,628
(747)
$ 15,881
$ 15,881
$ 15,881
Revenues of $2.4 million and net income of $0.4 million (excluding the impact of income taxes) were generated from
the acquired properties from 29 July 2016 through 31 December 2016. The Company did not incur any material
acquisition costs related to the transaction.
Acquisition #2
On 19 December 2016, the Company completed its acquisition of additional working interest in 23 gross (1.5 net)
producing wells and 130 acres in McMullen County for cash consideration of $7.2 million. 12 gross (1.0 net) of
the acquired wells are Sundance operated. The Company acquired the assets to execute on its strategy of growing
its Eagle Ford position.
- 61 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – BUSINESS COMBINATIONS continued
The following table reflects the fair value of the assets acquired and the liabilities as at the date of acquisition (in
thousands):
Fair value of assets acquired:
Development and production assets
Fair value of liabilities assumed:
Restoration provision
Net assets acquired
Purchase price:
Cash consideration
Total consideration paid
7,348
(118)
$ 7,230
$ 7,230
$ 7,230
Subsequent to the acquisition on 19 December 2016, revenue and net income generated from the properties for
the remainder of 2016 were not material. The Company did not incur any material acquisition costs related to the
transaction.
If both Eagle Ford acquisitions had been completed as of 1 January 2016, the Company’s pro forma revenue and loss
before income taxes would have been increased and reduced by $5.3 million and $1.2 million to $72.0 million and
$(42.8) million, respectively. This pro forma financial information does not purport to represent what the actual
results of operations would have been had the transactions been completed as of the date assumed, nor is this
information necessarily indicative of future consolidated results of operations.
Acquisitions in 2015
In August 2015, the Company completed its acquisition of New Standard Energy Ltd’s (“NSE”) U.S. (Eagle Ford) and
Cooper Basin (Australia PEL570) assets for an aggregate purchase price of $16.4 million. The Eagle Ford assets
acquired included approximately 5,500 net acres in Atascosa County, 7 gross producing wells and 2 wells that had
been drilled, but not yet completed (one of which was subsequently completed by the Company). The Cooper Basin
asset acquired included a 17.5% working interest in the Petroleum Exploration License (PEL) 570 concession, with
drilling commitments of up to approximately AUD$10.6 million.
Consideration paid for the assets included payment of $15.0 million to repay NSE’s outstanding debt and the
issuance of 6 million fully paid ordinary Company shares, offset by acquired cash of $0.2 million. Approximately 1.5
million of the 6 million Company shares were held in escrow and are expected to be returned to the Company in
2017 in satisfaction of certain unresolved working capital adjustments and were not valued as part of consideration
paid.
- 62 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – ACREAGE DIVESTITURE
In December 2016, the Company divested an acreage block containing 3,336 gross (2,709 net) acres located in
Atascosa County, Texas. The Eagle Ford acreage was undeveloped and outside the Company’s core development
project area. Sundance received cash proceeds of $7.1 million for the acreage. No gain or loss was recognized in
consolidated statement of profit and loss and other comprehensive income related to the sale.
NOTE 4 – REVENUE
Year ended 31 December
Oil revenue
Natural gas revenue
Natural gas liquid (NGL) revenue
Total revenue
NOTE 5 – LEASE OPERATING EXPENSES
Year ended 31 December
Lease operating expense
Workover expense
Total lease operating expense
2016
US$’000
57,296
4,937
4,376
66,609
2016
US$’000
(11,259)
(1,678)
(12,937)
2015
US$’000
82,949
4,720
4,522
92,191
2015
US$’000
(16,667)
(1,788)
(18,455)
- 63 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – GENERAL AND ADMINISTRATIVE EXPENSES
Year ended 31 December
Employee benefits expense, including salaries and wages,
net of capitalised overhead
Share based payments expense (1)
Legal and other professional fees
Corporate fees
Rent
Regulatory expenses
Transaction related costs
Other expenses
Total general and administrative expenses
2016
US$’000
2015
US$’000
(3,260)
(2,748)
(2,085)
(1,762)
(669)
(279)
(323)
(984)
(12,110)
(4,849)
(4,100)
(3,347)
(1,986)
(993)
(203)
(540)
(1,158)
(17,176)
(1) Share based payment expense includes expense associated with restricted share units and
deferred cash awards. See Note 32.
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 $2.1 million and $3.0 million for the
years ended 31 December 2016 and 2015, respectively.
NOTE 7 – INCOME TAX EXPENSE
The Company identified an error in its 31 December 2015 income tax accounting, which resulted in a $6.3 million
overstatement of its deferred tax liabilities and a $0.4 million overstatement of income tax receivable as at 31
December 2015 and a $6.0 million understatement of its income tax benefit for the year then ended. No period
prior to the year ended 31 December 2015 was affected. The 2015 prior period error related to the push down
allocation of the Company’s consolidated impairment to the Company’s separate subsidiaries. As a result of this
error, the Company’s consolidated deferred income tax liabilities, income tax receivable and income tax benefit were
misstated. As the adjustment was the direct result of the 2015 impairment charge, the Company believes that the
correction should be retrospectively restated for more meaningful and comparative financial information.
- 64 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 – INCOME TAX EXPENSE continued
The effect of this correction is shown in the table below. There was no impact to the consolidated statement of cash
flows.
Condensed Consolidated Statement of
Financial Position (As at 31 December 2015)
Income tax receivable
Total current assets
Deferred tax liabilities
Total non-current liabilities
Net assets
Accumulated deficit
Total equity
Condensed Consolidated Statement of
Financial Statement of Loss and
Other Comprehensive Loss
(Year ended 31 December 2015)
Income tax benefit
Loss attributable to owners of the Company
Total comprehensive loss
Basic and diluted loss per share (cents)
As Stated in
2015
Annual Report
US$’000
5,997
125,726
6,341
197,592
170,409
(148,360)
170,409
As Stated in
2015
Annual Report
101,178
(269,795)
(270,273)
(48.8)
Correction
US$’000
2015 Restated
US$’000
(381)
(381)
(6,341)
(6,341)
5,960
5,960
5,960
5,616
125,345
Nil
191,251
176,369
(142,400)
176,369
Correction
2015 Restated
5,960
5,960
5,960
1.1
107,138
(263,835)
(264,313)
(47.7)
- 65 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 – INCOME TAX EXPENSE continued
The following is a summary of 2016 and 2015 income tax expense (benefit):
Year ended 31 December
a) The components of income tax expense comprise:
Current tax expense/(benefit)
Deferred tax expense/ (benefit)
Total income tax expense/ (benefit)
b) The prima facie tax on income (loss) from ordinary activities
before income tax is reconciled to the income tax as follows:
2016
US$’000
2015
US$’000
(Restated)
1,563
142
1,705
(6,191)
(100,947)
(107,138)
Loss before income tax
(43,989)
(370,973)
Prima facie tax expense (benefit) at the Group’s statutory
income tax rate of 30%
(13,197)
(111,292)
Increase (decrease) in tax expense resulting from:
Impact of direct accounting from US controlled entities (1)
Share based compensation
- Difference of tax rate in US controlled entities
-
-
- Other allowable items
-
Change in apportioned state tax rates in
US controlled entities (2)
Current year tax losses not recognised
-
(2,161)
(98)
539
314
-
16,308
(20,447)
(3,165)
747
77
(84)
27,026
Total Income tax expense (benefit)
1,705
(107,138)
c) Unused tax losses and temporary differences for which no
deferred tax asset has been recognised at 30%
46,022
29,714
d) Deferred tax charged directly to equity:
-
-
Equity raising costs
Currency translation adjustment
(986)
73
-
(362)
1) The Oklahoma US state tax jurisdiction computes income taxes on a direct accounting basis. In 2015, a
significant portion of the impairments related to this jurisdiction resulting in a deferred tax benefit of $3,165
creating deferred tax assets, all of which were unrecognized.
2) As the Texas margin tax computation is similar in nature to an income tax computation, it is treated as an
income tax for financial reporting purposes.
- 66 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 – OTHER INCOME (EXPENSE), NET
Year ended 31 December
Insurance proceeds
Litigation settlement
Restructuring expenses
Loss on foreign currency derivative
Write-off of unrecoverable cash call
Write-down of inventory to lower of cost or market
Other
Total other income (expense), net
2016
US$’000
2,375
1,200
(856)
(390)
-
-
(320)
2,009
2015
US$’000
-
-
-
-
(1,621)
(319)
(300)
(2,240)
During 2016 the Company received insurance proceeds of $2.4 million related to a well control incident in 2014. In
addition the Company was awarded a cash settlement of $1.2 million from litigation against a third party contractor
for damages to a well that occurred in 2014. As part of the litigation settlement, the Company was also awarded $0.6
million for reimbursement of legal costs incurred (recorded to general and administrative expenses on the
consolidated statement of profit and loss).
In January 2016, the Company restructured its corporate organization and reduced its headcount by approximately
30% in order to reduce its cash operating costs in response to the lower oil price environment. Restructuring costs
included $0.4 million in employee severance costs and $0.5 million in office lease‐related costs for certain office space
that is expected to be no longer used as a result of office space consolidation. The office‐lease‐related costs represent
the Company's future obligations under the operating leases, net of anticipated sublease income. See also Note 22.
NOTE 9 – KEY MANAGEMENT PERSONNEL COMPENSATION
a) Directors and Key Management Personnel Compensation
The total remuneration paid to Directors and Key Management Personnel (“KMP”) of the Group during the
year is as follows:
Year ended 31 December
Short term wages and benefits
Share based payments (equity or cash
settled) (1)
Post-employment benefit
2016
US$
1,297,847
2,024,802
48,918
3,371,567
2015
US$
1,466,793
2,271,404
52,034
3,790,231
(1) The 2014 short-term incentive bonus (“STI”) granted to KMP, excluding the Managing Director, was
granted by the Board of Directors in 2015 and paid out in the form of RSU’s with immediate vesting. The
associated expense is included in 2015 share-based payments in the table above. The 2014 STI to the
Managing Director was approved by shareholders in 2016 and paid out in the form of RSUs with
immediate vesting. The associated expense is included in 2016 share based payments in the table above.
- 67 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 – KEY MANAGEMENT PERSONNEL COMPENSATION continued
b) Options Granted as Compensation
No options were granted as compensation during each of the years ended 31 December 2016 and 2015 to
KMP from the Sundance Energy Employee Stock Option Plan. During 2015, the previous option holders were
notified that all of the Company’s options would be converted to RSUs, which included 2.2 million options
held by KMP, that were converted into 1.0 million RSUs ($0.2 million of incremental fair value).
c) Restricted Share Units Granted as Compensation
RSUs awarded as compensation were 9,906,997 ($1.2 million fair value) and 7,426,596 ($3.8 million fair value)
during the years ended 31 December 2016 and 2015, respectively, to KMP. The vesting provisions of the RSUs
vary and may vest immediately, based upon the passage of time or based on achievement of metrics related
to the Company’s 3-year absolute total shareholder return (ATSR) or total shareholder return (TSR) as
compared to its peer group. The details of the plan and ATSR and TSR RSUs are described in more detail in
the Remuneration Report of the Directors’ Report of the Company’s Annual Report for the year ended 31
December 2016.
d) Deferred Cash Awards as Compensation
Deferred cash awarded as compensation to KMP was $1,546,250 ($0.5 million fair value as at 31 December
2016) during the year ended 31 December 2016. Deferred cash vests based on the appreciation of the
Company’s ordinary shares measured at the end of 2017, 2018 and 2019. The deferred cash award is
described in more detail in Remuneration Report of the Directors’ Report of the Company’s Annual Report
for the year ended 31 December 2016. There was no deferred cash awarded in 2015.
NOTE 10 – AUDITORS’ REMUNERATION
Year ended 31 December
Cash remuneration of the auditor for:
2016
US$
2015
US$
-
-
-
-
Auditing or review of the financial report (1)
Professional services related to filing of various Forms with the
US Securities and Exchange Commission
Taxation services provided by the practice of auditor
Total remuneration of the auditor
(1) The 2016 amount includes $361,360 paid to the Company’s former auditor, Ernst & Young, who provided
audit services for the year ended 31 December 2015. The Company paid $100,000 in 2016 to Deloitte
Touche Tohmatsu Limited as its auditor for the year ended 31 December 2016.
-`
461,360
13,000
61,535
537,485
462,950
461,360
-
- 68 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 – EARNINGS (LOSS) PER SHARE (EPS)
Year ended 31 December
2016
US$’000
2015
US$’000
Loss for periods used to calculate basic and diluted EPS
(45,694)
(263,835)
a)
b)
c)
-Weighted average number of ordinary shares outstanding
during the period used in calculation of basic EPS(1)
870,582,898
552,847,289
-Incremental shares related to options and restricted share
units(2)
-Weighted average number of ordinary shares outstanding
-
-
during the period used in calculation of diluted EPS
870,582,898
552,847,289
Number
of shares
Number
of shares
(1) Calculation excludes approximately 1.5 million ordinary shares held in escrow as at 31 December 2016. The shares
were issued as part of the NSE acquisition in 2015 and are expected to be returned to the Company in satisfaction
of certain working capital adjustments during 2017
(2) Incremental shares related to restricted share units were excluded from 31 December 2016 and 2015 weighted
average number of ordinary shares outstanding during the period used in calculation of diluted EPS as the
outstanding shares would be anti-dilutive to the loss per share calculation for the period then ended.
NOTE 12 – TRADE AND OTHER RECEIVABLES
Year ended 31 December
Oil, natural gas and NGL sales
Joint interest billing receivables
Commodity hedge contract receivables
Other
Total trade and other receivables
2016
US$’000
8,201
1,545
37
3
9,786
2015
US$’000
5,684
4,108
1,653
63
11,508
Due to the short-term nature of trade and other receivables, their carrying amounts are assumed to approximate
fair value. No receivables were outside of normal trading terms as at 31 December 2016 and 2015.
- 69 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 – DERIVATIVE FINANCIAL INSTRUMENTS
Year ended 31 December
FINANCIAL ASSETS:
Current
Derivative financial instruments – commodity contracts
Non-current
Derivative financial instruments – commodity contracts
Total financial assets
FINANCIAL LIABILITIES:
Current
Derivative financial instruments – commodity contracts
Non-current
Derivative financial instruments – commodity contracts
Total financial liabilities
NOTE 14 – ASSETS HELD FOR SALE
2016
US$’000
2015
US$’000
-
279
279
4,579
3,215
7,794
9,967
3,950
13,917
-
-
-
The consolidated statement of financial position includes assets and liabilities as held for sale, comprised of the
following:
Year ended 31 December
Mississippian/Woodford
Development and production assets
Eagle Ford
Development and production assets (25%)
Exploration and evaluation expenditure (25%)
Cooper Basin
Exploration and evaluation expenditure
Total assets held for sale
Restoration provision for Mississippian/Woodford
developed assets
Restoration provision for Eagle Ford developed
assets (25%)
Total liabilities held for sale
2016
US$’000
2015
US$’000
18,309
-
-
-
-
18,309
941
-
941
77,021
8,377
5,234
90,632
-
744
744
In June 2016, the Company’s management committed to a plan to sell its Mississippian/Woodford assets. The
Company entered into a purchase and sale agreement on 1 March 2017 to sell the assets for $18.5 million, subject
to post-closing adjustments for net cash flow attributable to the assets from 1 August 2016 through the closing
date. The Company expects the transaction to close by May 2017.
- 70 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 – ASSETS HELD FOR SALE continued
The Company had previously intended to sell a 25% non‐operated interest in its Eagle Ford assets. However, the
Company changed its strategy in June 2016 as a result of its 3 - t r a n c h e private placement, initiated in the
second quarter of 2016 (and closed over the second and third quarters 2016). These Eagle Ford assets were
reclassified and are presented as development and production assets and exploration and evaluation
expenditures as at 31 December 2016.
The Company’s Cooper Basin assets no longer met the definition as held for sale as at 31 December 2016.
However, the Company still intends to dispose of the assets, as they fall outside the Company’s strategic focus.
NOTE 15 – 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 2016
(US$’000)
Assets measured at fair value
Derivative commodity contracts
Liabilities measured at fair value
Derivative commodity contracts
Net fair value
Level 1
Level 2
Level 3
Total
-
279
-
279
-
-
7,794
7,515
-
-
7,794
7,515
- 71 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 – FAIR VALUE MEASUREMENT continued
Consolidated 31 December 2015
(US$’000)
Assets measured at fair value
Derivative commodity contracts
Investment in equity instruments at
fair value though profit and loss
“FVTPL”
Level 1
Level 2
Level 3
Total
-
13,917
-
13,917
89
-
-
89
Net fair value
89
13,917
-
14,006
During the years ended 31 December 2016 and 2015, 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.
Measurement of Fair Value
a) Derivatives
The Company’s derivative instruments consist of commodity contracts (primarily swaps and collars) and a foreign
currency contract. 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) Investment in Equity Securities - FVTPL
The Company purchased 122 million shares of Elixer Petroleum (ASX: EXR) in conjunction with its purchase of NSE
in 2015. The fair value of the securities was determined using ASX trade data, which is directly observable by the
Company, and was included with the Level 1 fair value hierarchy as at 31 December 2015. The Company sold its
investment in Elixer Petroleum for $0.1 million in 2016.
c) Credit Facilities
As at 31 December 2016, the Company had $125 million and $67 million of principal debt outstanding on its Term
Loan and Revolving Facility, respectively. The estimated fair value of the Term Loan was approximately $123 million,
based on indirect, observable inputs (Level 2) regarding interest rates available to the Company. The fair value of
the Term Loan 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. The Company’s Revolving Facility has a
recorded value that approximates its fair value as its variable interest rate is tied to current market rates and the
applicable margins of 2%-3% represent market rates.
e) Other Financial Instruments
The carrying amounts of cash, accounts receivable, accounts payable and accrued liabilities approximate fair value
due to their short-term nature.
- 72 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 – OTHER CURRENT ASSETS
Year ended 31 December
Investment in equity instruments - FVTPL
Cash advances to other operators
Oil inventory on hand, lesser of cost or net realizable value
Equipment inventory, lesser of cost or net realizable value
Prepaid expenses
Other
Total other current assets
NOTE 17 – DEVELOPMENT AND PRODUCTION ASSETS
Year ended 31 December
Costs carried forward in respect of areas of interest in:
Development and production assets, at cost:
Producing assets
Wells-in-progress
Undeveloped assets
-Development and production assets, at cost:
Accumulated depletion
Accumulated impairment
Total development and production expenditure
Less amount classified as asset held for sale
Total Development and Production Expenditure, net of assets
held for sale
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
Exploratory dry hole costs previously included
in wells-in progress
Revision to restoration provision
Depletion expense
Impairment expense
Development and production assets
sold during the period
Reclassifications from assets held for sale
Reclassifications to assets held for sale
Balance at end of period
- 73 -
2016
US$’000
-
27
517
1,721
1,807
6
4,078
2015
US$’000
89
27
632
783
2,578
45
4,154
2016
US$’000
2015
US$’000
838,792
4,997
30,119
873,908
(258,613)
(258,277)
357,018
(18,309)
338,709
250,922
57,893
-
23,873
-
3,238
(47,490)
(3,409)
(5,030)
77,021
(18,309)
338,709
694,111
38,210
62,781
795,102
(211,123)
(256,036)
327,943
(77,021)
250,922
519,013
76,831
4,898
13,170
(2,416)
(5,715)
(93,429)
(184,408)
-
-
(77,021)
250,922
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 – DEVELOPMENT AND PRODUCTION ASSETS continued
Borrowing costs relating to drilling of development wells that have been capitalized as part of oil and gas properties
during the years ended 31 December 2016 and 2015 were $1.1 million and $1.6 million, respectively. The interest
amounts capitalized as a percent of the total bank interest incurred for years ended 31 December 2016 and 2015
were 6.7% and 14.1%, respectively.
NOTE 18 – EXPLORATION AND EVALUATION EXPENDITURE
Year ended 31 December
Costs carried forward in respect of areas of interest in:
Exploration and evaluation phase, at cost
Provision for impairment
Total exploration and evaluation expenditures
Less amount classified as asset held for sale
Total Exploration and Evaluation Expenditure, net of assets held
for sale
a) Movements in carrying amounts:
Exploration and evaluation
Balance at the beginning of the period
Amounts capitalised during the period
Fair value of assets acquired (1)
Exploration costs expensed (2)
Amounts transferred to development phase
Exploration tenements sold during the period
Impairment expense
Reclassifications from assets held for sale (3)
Reclassifications from to assets held for sale (3)
Balance at end of period
2016
US$’000
2015
US$’000
176,550
(142,184)
34,366
-
34,366
178,693
(138,759)
39,934
(13,611)
26,323
26,323
4,429
-
(30)
-
(2,096)
(7,871)
13,611
-
34,366
155,130
22,508
4,586
(183)
(4,898)
-
(137,209)
(13,611)
26,323
(1) In 2015, the Company acquired a 17.5% WI in the PEL570 concession in the Cooper Basin during 2015 as
part of its acquisition of NSE.
(2) In 2015, the Company expensed costs associated with two exploratory wells located in the Eagle Ford that
did not have economically recoverable reserves (i.e. dry hole wells).
(3) In 2016, the Company committed to a plan to sell its interest in its Mississippian/Woodward assets. In 2015,
the Company had committed to a plan to sell its interest in the Cooper Basin and 25% of its Eagle Ford
assets. However, the Company changed its strategy in June 2016 as a result of its capital raise, and as
of 31 December 2016, no longer intended to sell its interest in Eagle Ford assets.
The ultimate recoupment of costs carried forward for exploration phase is dependent on the successful development
and commercial exploitation or sale of respective areas.
- 74 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 – IMPAIRMENT OF NON-CURRENT ASSETS
Year-End 2016
At 31 December 2016, the Group reassessed the carrying amount of its non‐current assets for indicators of
impairment or whether there is any indication that an impairment loss may no longer exist or may have decreased
in accordance with the Group’s accounting policy. The Company determined there was no indication of impairment
or impairment reversal for its Eagle Ford assets. The Company determined that there was an indication of
impairment for its Mississippian/Woodward and Cooper Basin 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.
Mississippian/Woodward assets
Beginning in June 2016, the Company actively marketed its Mississippian/Woodward assets. Based on the value of
third-party bids and the execution of a purchase of sale agreement subsequent to year-end, the Company
determined that there was an indication of impairment of both its exploration and evaluation assets and
development and production assets. The Company recorded an impairment expense of $4.6 million, which is equal
to the difference between the carrying value and the estimated sale proceeds, less selling costs.
Cooper Basin
The Company has not received operational information indicating that the recovery of the Company’s carrying costs
in the Cooper Basin is likely. As such, the Company wrote the asset down to nil and recorded an impairment expense
of $6.7 million during the year ended 31 December 2016.
Year-End 2015
At 31 December 2015, the Group determined that due to the decline in the oil pricing environment, that there was
an indication of impairment for all of its exploration and evaluation expenditures and its development and
production assets.
Estimates of recoverable amounts are based on the higher of an asset’s value-in-use or fair value less costs to sell
(level 3 fair value hierarchy), using a discounted cash flow method, and are most sensitive to the key assumptions
such as pricing, discount rates, and reserve risk factors. For its development and production assets, the Group has
used the FVLCS calculation whereby future cash flows are based on estimates of hydrocarbon reserves in addition
to other relevant factors such as value attributable to additional reserves based on production plans. For its
exploration and evaluation expenditures, the Group has used the FVLCS calculation determined by the probability
weighted combination of a discounted cash flow method and market transactions for comparable undeveloped
acreage.
Estimates of future commodity prices are based on the Group’s best estimates of future market prices with reference
to bank price surveys, external market analysts’ forecasts, and forward curves. Future prices ($/bbl) used for the 31
December 2015 FVLCS calculation were as follows:
2016
2017
2018
$40.00
$50.00
$60.00
2019 and
thereafter
$70.00
- 75 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 – IMPAIRMENT OF NON-CURRENT ASSETS continued
As at 31 December 2015, the post-tax discount rate that has been applied to the above non-current assets were
9.0% and 10.0% for proved developed producing and proved undeveloped properties, respectively. As at 31
December 2015, the Group also applied further risk-adjustments appropriate for risks associated with its proved
undeveloped reserves using a risk-adjustment rate of 20% based on the risk associated with the undeveloped reserve
category.
Recoverable amounts and resulting impairment expense recognized in conjunction with the Company’s impairment
analysis as at 31 December 2016 and 2015 are presented in the table below.
31 December 2016
Cash-generating unit (2)
Exploration and evaluation expenditures:
Mississippian/Woodford
Cooper Basin
Total exploration and evaluation
Development and production assets:
Mississippian/Woodford
Total development and production assets
31 December 2015
Cash-generating unit (3)
Exploration and evaluation expenditures:
Eagle Ford
Mississippian/Woodford
Cooper Basin
Total exploration and evaluation
Development and production assets:
Eagle Ford
Mississippian/Woodford
Total development and production assets
Carrying costs
US$’000
Recoverable
amount (1)
US$’000
Impairment
US$’000
1,183
6,688
7,871
21,693
21,693
-
-
-
18,309
18,309
1,183
6,688
7,871
3,384
3,384
Carrying costs
US$’000
Recoverable
amount (1)
US$’000
Impairment
US$’000
151,171
5,164
7,436
163,771
431,796
77,940
509,736
33,511
1,190
5,234
39,935
308,083
19,859
327,942
(117,660)
(3,974)
(2,202)
(123,836)
(123,713)
(58,081)
(181,794)
(1) Before reclassification of assets held for sale.
(2) The total impairment expense for the year ended 31 December 2016 was $11.3 million, which was net of an
adjustment to prior year impairment expense of $1.1 million related to a vendor discount for well completion services
obtained subsequent to the filing of the Company’s 2015 Annual Report. Total impairment expense was $10.2 million.
(3) The 31 December 2015 table reflects the year-end impairment analysis. The Company also recorded impairment
expense related to its Mississippian/Woodford development and production assets of $2.6 million and its
exploration and evaluation assets of $13.4 million during the first half of the year ended 31 December 2015.
Any further adverse changes in any of the key assumptions may result in future impairments.
- 76 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 – PROPERTY AND EQUIPMENT
Year ended 31 December
Property and equipment, at cost
Accumulated depreciation
Total Property and Equipment
a) Movements in carrying amounts:
Balance at the beginning of the period
Amounts capitalized during the period
Amounts disposed of during the period
Depreciation expense
Balance at end of period
NOTE 21 – TRADE AND OTHER PAYABLES AND ACCRUED EXPENSES
Year ended 31 December
Oil and natural gas property and operating related
Administrative expenses, including salaries and wages
Accrued interest payable
Total trade, other payables and accrued expenses
NOTE 22 – OTHER PROVISIONS
Year ended 31 December
Current
Restructuring – office space consolidation
Third-party refracture
Provisions, current
Long-term
Restructuring – office space consolidation
Third-party refracture
Other provisions, non-current
Total other provisions
2016
US$’000
3,146
(1,935)
1,211
1,382
355
(151)
(375)
1,211
2016
US$’000
18,588
2,225
2,761
23,574
2015
US$’000
2,942
(1,560)
1,382
1,554
372
-
(544)
1,382
2015
US$’000
37,167
1,253
3,051
41,471
2016
US$’000
2015
US$’000
154
2,572
2,726
91
3,208
3,299
6,025
-
-
-
-
-
-
-
- 77 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 22 – OTHER PROVISIONS continued
During 2016, the Company entered into an agreement with Schlumberger Limited (“Schlumberger”) to re‐fracture
five Eagle Ford wells. Under the terms of the agreement, Schlumberger will be paid for the services, plus a premium
(if applicable), from the incremental production generated by the re‐fractured wells above the forecasted base
production prior to the re‐fracture work. The term of the agreement is five years. The estimate of the payout amount
requires judgements regarding production, pricing, future operating costs and discount rates.
During 2016, the Company also recognized a provision related to certain office space that will no longer be used as
a result of office space consolidation. The office‐lease‐related costs represents the Company's estimate of future
obligations under the operating leases, net of anticipated sublease income. The Company’s office lease is in place
through 2019.
NOTE 23 – CREDIT FACILITIES
Revolving Facility
Term Loan
Total Credit Facilities
Deferred financing fees, net of accumulated amortisation
Total credit facilities, net of deferred financing fees
2016
US$000
66,750
_125,000
191,750
(3,501)
188,249
2015
US$000
67,000
_125,000
192,000
(4,257)
187,743
On May 14, 2015, Sundance Energy Australia Limited and Sundance Energy, Inc. entered into a Credit Agreement
(the “Credit Agreement”) with Morgan Stanley Energy Capital, Inc., as administrative agent (“Agent”) and the
lenders from time to time party thereto, which provides for a $300 million senior secured revolving credit facility
(the “Revolving Facility”) and a term loan of $125 million (the “Term Loan”). The Revolving Facility is subject to a
borrowing base, which is redetermined at least semi‐annually. The borrowing base was reaffirmed at $67 million in
the fourth quarter of 2016. The Revolving Facility has a five year term (matures in May 2020) and the Term Loan has
a 5 ½ year term (matures in November 2020). If upon any downward adjustment of the borrowing base, the
outstanding borrowings are in excess of the revised borrowing base, the Company may have to repay its indebtedness
in excess of the borrowing base immediately, or in five monthly installments.
The Company had a $0.3 million letter of credit outstanding on its Revolving Facility and therefore had no borrowing
availability as at 31 December 2016.
Interest on the Revolving Facility accrues at a rate equal to LIBOR, plus a margin ranging from 2% to 3% depending
on the level of funds borrowed. Interest on the Term Loan accrues at a rate equal to the greater of (i) LIBOR, plus
7% or (ii) 8%.
The Company is required under our Credit Agreement to maintain the following financial ratios:
a minimum 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 Revolving Facility Debt to adjusted consolidated
EBITDAX (as defined in the Credit Facility), of not greater than 4.0 to 1.0 as of the last day of any fiscal
quarter;
a minimum interest coverage ratio, consisting of EBITDAX to Consolidated Interest Expense (as defined in
the Credit Facility), of not less than 2.0 to 1.0 as of the last day of any fiscal quarter; and
- 78 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 23 – CREDIT FACILITIES continued
An asset coverage ratio, consisting of PV9% to Total Debt (as defined in the Credit Facility), of not less than
1.50 to 1.0.
As at 31 December 2016, the Company was in compliance with all restrictive financial and other covenants under
the Credit Agreement.
NOTE 24 – RESTORATION PROVISION
The restoration provision represents the Company’s best estimate of the present value of restoration costs relating
to its oil and natural gas interests, which are expected to be incurred through 2046. 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 (1)
Disposals
Settlements
New provisions assumed from acquisition
Unwinding of discount
Reclassification from liabilities held for sale
Reclassification to liabilities held for sale
Balance at end of period
2016
US$’000
3,088
305
2,956
(28)
(86)
894
140
744
(941)
7,072
2015
US$’000
8,866
560
(5,661)
-
(290)
334
23
-
(744)
3,088
(1) The change in estimates for the year ended 31 December 2016 was primarily related to additional surface
reclamation costs included in the Company’s estimate.
- 79 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 25 – DEFERRED TAX ASSETS AND LIABILITIES
Deferred tax assets and liabilities are attributable to the following:
Year ended 31 December
Net deferred tax assets:
Share issuance costs
Net operating loss carried forward
Accrued interest
Development and production expenditure
Other
Total net deferred tax assets
Deferred tax liabilities:
Development and production expenditure
Derivatives
Other
Offset by deferred tax assets with legally enforceable right of set-off:
Net operating loss carried forward
Credits
Accrued interest
Total net deferred tax liabilities
NOTE 26 – ISSUED CAPITAL
2016
US$’000
1,534
2,636
(2,756)
1,269
-
2,683
(10,654)
-
-
7,218
-
3,436
-
2015
US$’000
(Restated)
1,342
3,659
(2,847)
(241)
-
1,913
1,509
(4,371)
(32)
-
150
2,744
-
Total ordinary shares issued and outstanding at each period end are fully paid. All shares issued are authorized.
Shares have no par value.
a) Ordinary Shares
Total shares issued and outstanding at 31 December 2014
Shares issued during the year (1)
Total shares issued and outstanding at 31 December 2015
Shares issued during the year
Total shares issued and outstanding at 31 December 2016
Number of Shares
549,295,839
9,807,723
559,103,562
690,248,054
1,249,351,617
(1)
Includes 1.5 million shares held in escrow related to the Company’s acquisition of NSE. The shares are
expected to be returned to the Company in satisfaction of certain unresolved due diligence defects
during 2017.
- 80 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 26 – ISSUED CAPITAL continued
Ordinary shares participate in dividends and the proceeds on winding up of the Parent Company in proportion to the
number of shares held. At shareholders’ meetings each ordinary share is entitled to one vote when a poll is called,
otherwise each shareholder has one vote on a show of hands.
Year ended 31 December
b)
Issued Capital
Beginning of the period
Shares issued in connection with:
Share consideration paid in business combination
Shares issued in conjunction with private placement (1)
Total shares issued during the period
Cost of capital raising during the period, net of tax benefit
Closing balance at end of period
2016
US$’000
2015
US$’000
308,429
306,853
-
67,499
67,499
(2,343)
373,585
1,576
-
1,576
-
308,429
(1) Throughout the second and third quarters of 2016, the Company completed a 3-tranche private placement
of 685 million ordinary shares to professional and sophisticated investors for net proceeds of $64.2 million.
The Company also recognized a tax benefit on the cost of capital of $1.0 million. Proceeds were used to
accelerate development in the Eagle Ford and to finance its 2016 Eagle Ford acquisitions.
c)
Restricted Share Units on Issue
Details of the restricted share units issued or issuable as at 31 December:
Grant Date
15 Oct 2012
19 April 2013
28 May 2013
15 April 2014
5 May 2014
12 May 2014
30 May 2014
27 April 2015
28 May 2015
28 May 2015 (1)
24 June 2015
24 June 2015(1)
17 July 2015
1 August 2015
15 March 2016(2)
27 May 2016(2)
29 June 2016(3)
15 August 2016(2)
15 August 2016
Total RSUs outstanding
2015
No. of RSUs
352,676
204,914
93,562
658,080
45,000
63,332
503,991
28,874
1,545,113
1,545,113
4,267,002
2,815,681
1,275,000
321,000
-
-
-
-
-
13,719,338
2016
No. of RSUs
-
-
-
393,311
-
-
167,997
-
1,030,075
1,545,113
2,382,229
2,267,879
-
214,000
6,824,950
4,342,331
3,614,316
800,000
200,000
23,782,201
- 81 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 26 – ISSUED CAPITAL continued
(1) RSU’s vest based on 3-year total shareholder return (“TSR”) as compared to the 20-day volume
weighted average price (“VWAP”) at 31 December 2014.
(2) ATSR RSUs vest based on 3-year total shareholder return as compared to the 20-day VWAP at
31 December 2015. These are described in more detail in the Remuneration Report on page 24.
(3) Shares will be formally issued on the ASX subsequent to 31 December 2016.
d)
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 23, 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 any significant increases to the Group’s debt or equity
through additional draws or raises have minimal impact to its gearing ratio. As at 31 December 2016 and
2015, the Company had $192 million outstanding debt.
NOTE 27 – RESERVES
a) Share Based Payments Reserve
The share based payments reserve records items recognised as expenses on valuation of employee 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 28 – CAPITAL AND OTHER EXPENDITURE COMMITMENTS
Capital commitments relating to tenements
As at 31 December 2016, all of the Company’s core exploration and evaluation and development and production
assets are located in the Oklahoma and Texas. The Company has an interest in a non-core exploration and evaluation
license located in Australia.
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.
- 82 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 28 – CAPITAL AND OTHER EXPENDITURE COMMITMENTS continued
The Company is committed to fund exploratory drilling in the Cooper Basin (Australia) of up to approximately A$10.6
million through 2019, of which A$5.9 million (US$4.3 million) had been incurred as at 31 December 2016.
The following tables summarize the Group’s contractual commitments not provided for in the consolidated
financial statements:
As at 31 December 2016
Cooper Basin capital commitments (1)
Drilling rig commitments (2)
Operating lease commitments (3)
Employment commitments (3)
Total expenditure commitments
Total
US$’000
3,373
1,085
4,123
740
9,321
Less than 1
year
1,687
1,085
1,353
370
4,495
1 – 5 years
More than 5
years
1,686
-
2,267
370
4,323
-
-
503
-
503
As at 31 December 2015
Cooper Basin capital commitments (1)
Operating lease commitments (3)
Employment commitments (4)
Total expenditure commitments
Total
US$’000
5,098
5,892
372
11,362
Less than 1
year
2,549
1,372
372
1 – 5 years
2,549
4,520
-
More than 5
years
-
-
-
4,293
7,069
-
(1) The Company has capital commitments to fund exploratory drilling in the Cooper Basin (Australia) of up to
approximately A$10.6 million through 2019 (commitment amounts in table shown in USD translated at year-
end. Timing of commitment may vary based on drilling activity by the operator.
(2) As at 31 December 2016 the Company had one drilling rig contracted to drill seven wells during 2017. The
amount represents minimum expenditure commitments should the Company elect to terminate this
contract prior to term.
(3) Represents commitments for minimum lease payments in relation to non-cancellable operating leases for
office space, compressor equipment and the Company’s amine treatment facility 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.
Subsequent to 31 December 2016, the Company contracted two additional drilling rigs with minimum expenditure
commitments of $0.6 million during 2017.
- 83 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 29 – CONTINGENT ASSETS AND LIABILITIES
In August 2015, the Company received notice from the buyer of its non‐operated Phoenix properties sold in
December 2013 that they filed a lawsuit against the Company. The claim of $0.9 million relates to costs not
included by the buyer on the final post‐closing settlement, for which it seeks reimbursement from the Company.
The Company does not believe the case has merit and continues to vigorously defend itself against the lawsuit.
The Company recognizes a contingent liability when it is probable that a loss has been incurred and the amount of
the loss can be reasonably estimated. While the outcome of these lawsuits and claims cannot be predicted with
certainty, it is the opinion of the Company’s management that as of the date of this report, it is not probable that
the aforementioned claims and litigation involving the Company will have a material adverse impact on the
Company. Accordingly, no material amounts for loss contingencies associated with litigation, claims or assessments
have been accrued at December 31, 2016 or 2015. At the date of signing this report, the Group is not aware of any
other contingent assets or liabilities that should be recognized or disclosed in accordance with AASB 137/IAS 37 –
Provisions, Contingent Liabilities and Contingent Assets.
NOTE 30 – OPERATING SEGMENTS
The Company’s strategic focus is the exploration, development and production of large, repeatable onshore resource
plays in North America. All of the basins and/or formations in which the Company operates in North America 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. As at 31 December 2016,
all statement of profit or loss and other comprehensive income activity was attributed to its reportable segment
with the exception of $6.7 million of pre-tax impairment expense, which related to the impairment of its Cooper
Basin assets in Australia.
Geographic Information
The operations of the Group are located in two geographic locations, North America and Australia. The Company’s
Australian assets (Cooper Basin) were acquired in 2015 from NSE and the Company intends to sell these assets as
they fall outside the Company’s strategic focus. All revenue is generated from sales to customers located in North
America. As at 31 December 2016, the carrying value of the assets held in Australia was nil.
Revenue from two major customers exceeded 10 percent of Group consolidated revenue for the year ended 31
December 2016 and accounted for 69 and 12 percent, respectively (2015: three major customers accounted for 30,
29 and 22 percent, respectively) of our consolidated oil, natural gas and NGL revenues. In addition, 12% of the
Company’s revenue is paid from a single third party oil and gas operator at a non-operated oil and gas property.
- 84 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 31 – CASH FLOW INFORMATION
Year ended 31 December
a) Reconciliation of cash flows from operations with income from
ordinary activities after income tax
Loss from ordinary activities after income tax
Adjustments to reconcile net profit to net operating cash flows:
Depreciation and amortisation expense
Share based compensation
Unrealised (gains) losses on derivatives
Net gain on sale of properties
Decrease in fair value of equity securities at FVTPL
Impairment of development and production assets
Unsuccessful exploration and evaluation expense
Loss on debt extinguishment
Add: Interest expense and financing costs(disclosed in investing
and financing activities)
Recognition of DTA on items directly within equity
Less: Gain from insurance proceeds and
litigation settlement (disclosed in investing activities)
Less: Loss on foreign currency derivative
(disclosed in financing activities)
Other
Changes in assets and liabilities:
- (Decrease) increase in current and deferred income tax
- (Increase) decrease in other current assets
- Decrease increase in trade and other receivables
- Decrease in trade and other payables
- Decrease (increase) in tax receivable
- Decrease in non-current liability
Net cash provided by operating activities
2016
US$’000
2015
US$’000
(45,694)
(263,835)
48,147
2,524
21,433
-
-
10,203
30
-
12,219
986
(3,603)
390
21
(826)
(511)
2,009
(5,080)
412
-
42,660
94,584
4,100
(3,444)
(790)
90
321,918
-
1,151
9,418
-
-
-
2,240
(100,853)
2,742
7,007
(2,177)
(6,903)
(1,430)
64,469
b) Non Cash Financing and Investing Activities
- During the year ended 31 December 2015, the net gain on sale of properties primarily related to an
ad valorem tax true-up related to properties sold in 2014.
- The Company had additions to oil and natural gas properties of $13,161 and $22,559 included in
current liabilities at 31 December 2016 and 2015, respectively.
NOTE 32 – SHARE BASED PAYMENTS
The Company recognized share based compensation expense for the years ended 31 December 2016 and 2015 of
$2.7 million and $4.1 million, respectively, comprised of RSUs (equity-settled) and deferred cash awards (cash-
settled).
- 85 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 32 – SHARE BASED PAYMENTS continued
Restricted Share Units
During the years ended 31 December 2016 and 2015, the Board of Directors awarded 16,992,192 and 13,322,262
RSUs, respectively, to certain employees (of which 5,113,281 and 3,090,000, respectively, granted to the Company’s
Managing Director were approved by shareholders). 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 Report of the Directors’ Report. The fair value calculation methodology is described in Note 1.
RSU expense totalled $2.5 million and $4.1 million for the years ended 31 December 2016 and 2015, respectively.
This information is summarised for the Group for the years ended 31 December 2016 and 2015, respectively, below:
Outstanding at 31 December 2014
Issued or Issuable
Converted to ordinary shares
Forfeited
Outstanding at 31 December 2015
Issued or Issuable (1)(2)
Converted to ordinary shares
Forfeited
Outstanding at 31 December 2016
Number
of RSUs
2,964,177
13,322,262
(3,805,789)
(46,312)
12,434,338
18,267,192
(5,501,538)
(1,417,792)
23,782,201
Weighted Average
Fair Value at
Measurement Date A$
0.93
0.53
0.63
0.93
0.55
0.18
0.54
0.59
0.34
(1) Includes 1,275,000 of RSUs formally issued on the ASX in 2016 in conjunction with a 2015 option
conversion.
(2) Includes 3,853,961 of RSUs that will be formally issued on the ASX subsequent to 31 December 2016.
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 2016:
Grant Date
Number of RSUs
Fair Value at
Measurement Date
(Per RSU in US$)
Vesting Conditions
15 March 2016
27 May 2016
27 May 2016
29 June 2016
15 August 2016
15 August 2016
6,824,950
4,342,331
770,950
3,853,961
400,000
800,000
16,992,192
$0.15
$0.10
$0.12
$0.08
0% ‐ 133% based on 3 year ATSR
0% ‐ 133% based on 3 year ATSR
100% vested immediately
33% on 1 January 2017, 2018 and 2019
$0.11
$0.11
50% on 13 November 2016 and 50% on 11 February 2017
0% ‐ 133% based on 3 year ATSR
- 86 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 32 – SHARE BASED PAYMENTS continued
RSUs awarded during the year ended 31 December 2015:
Grant Date
Number of RSUs
27 April 2015
28 May 2015
28 May 2015
24 June 2015
24 June 2015
24 June 2015
1 September 2015
28,874
1,545,113
1,545,113
4,267,002
2,815,681
2,809,479
321,000
13,332,262
Fair Value at
Measurement Date
(Per RSU in US$)
$0.52
$0.45
$0.67
$0.40
$0.57
$0.40
$0.25
Vesting Conditions
25% on 27 April 2016, 2017, 2018 and 2019
33% on 31 January 2016, 2017 and 2018
0% - 200% based on 3 year total shareholder return as
compared to peers
33% on 31 January 2016, 2017 and 2018
0% - 200% based on 3 year total shareholder return as
compared to peers
100% vested upon issuance
33% on 31 January 2016, 2017 and 2018
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. For the years ended 31 December 2016 and
2015, the weighted average price of the RSUs at the date of conversion was A$0.11 and A$0.52 per share,
respectively.
At 31 December 2016, the weighted average remaining contractual life of the RSUs was 1.7 years.
Deferred Cash Awards
During the year ended 31 December 2016, the Board of Directors awarded $2,079,879 deferred cash awards to
certain employees (of which $601,250 were granted to the Company’s Managing Director approved by
shareholders). Under the deferred cash plan, awards may vest between 0%-300%, earned through appreciation in
the price of Sundance’s ordinary shares during 2017 and 2018 (50% of award will be evaluated for vesting at each
period end). The details of the award is described in more detail in the Remuneration Report of the Directors’ Report
and the fair value calculation methodology is described in Note 1. The estimated fair value of each one dollar unit of
deferred cash awards as at 31 December 2016 was $0.38 and $0.28 for awards vesting at the end of 2017 and 2018,
respectively, resulting in a total liability $0.2 million.
Grants Subsequent to Year End
Subsequent to 31 December 2016, the Board granted 10,351,858 RSUs that vest between 0% and 150% based on
Company’s three year absolute total shareholder return and $1,504,125 of base deferred cash awards which vest 0-
300% based on the Company’s stock price appreciation in 2017, 2018 and 2019.
NOTE 33 – RELATED PARTY TRANSACTIONS
There were no material related party transactions for the years ended 31 December 2016 and 2015.
- 87 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 34 – 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 has historically used
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, accounts receivable, derivative financial
instruments, credit facility, and payables. The main purpose of non-derivative financial instruments is to
providing funding 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
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.
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 West Texas Intermediary (WTI) and Louisiana Light Sweet (LLS) market spot
rates reduced for basis differentials in the basins from which the Company produces. Gas is sold using
Henry Hub (HH) and Houston Ship Channel (HSC) 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 at least 50%
of its proved developed reserves through 2019 and for a rolling 36 month period thereafter, as required by
its Credit Agreement. 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.
- 88 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 34 – FINANCIAL RISK MANAGEMENT continued
A summary of the Company’s outstanding hedge positions as at 31 December 2016 is below:
Oil Derivatives (WTI/LLS) Weighted Average (1)
Ceiling
$58.78
$58.92
$54.31
$58.10
Units (Bbls)
930,000
612,000
300,000
1,842,000
Floor
$49.12
$49.88
$52.51
$49.87
Year
2017
2018
2019
Total
Gas Derivatives (HH/HSC) Weighted Average (1)
Ceiling
$ 3.21
$ 3.36
Units (Mcf)
1,680,000
1,290,000
Floor
$ 2.86
$ 2.95
Year
2017
2018
2019
Total
720,000
3,690,000
$ 2.95
$ 2.91
$ 3.78
$ 3.37
(1) The Company’s outstanding derivative positions include swaps totaling 1,182,000 Bbls and 1,830,000 Mcf, which are
included in both the weighted average floor and ceiling value.
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 Term Loan,
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 and joint-interest
partners including outstanding receivables and committed transactions, and represents the potential financial
loss if counterparties fail to perform as contracted. The Group trades only with recognised, creditworthy third
parties.
The maximum exposure to credit risk, excluding the value of any collateral or other security, 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.
- 89 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 34 – FINANCIAL RISK MANAGEMENT continued
At 31 December 2016, the Group had one customer that owed the Group approximately $1.5 million and
accounted for approximately 21% of total accrued revenue receivables. To partially mitigate our credit risk, the
customer has a letter of credit in place for our benefit. In the event that the customer defaults, the Company
could draw upon the letter of credit. In addition, the Group had one joint-interest partner that owed the Group
approximately $4.0 million of revenue from a non-operated property. In 2017, the Company expects to begin
marketing the production from this property itself; which will reduce its credit risk exposure from this party.
For joint interest billing receivables, if payment is not made, the Group can withhold future payments of
revenue, as such, there is minimal to no credit risk associated with these receivables.
d) Liquidity Risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The
Group’s approach to managing liquidity is to ensure that it will have sufficient liquidity to meet its liabilities as
they become due, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group
manages liquidity risk by maintaining adequate reserves and banking facilities by continuously monitoring
forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities. Financial
liabilities are at contractual value, except for provisions, which are estimated at each period end.
The Company has the following commitments related to its financial liabilities (US$’000):
Year ended 31 December 2016
Total
Less than 1
year
1 – 5
years
More than
5 years
Trade and other payable
Accrued expenses
Provisions
Credit facilities payments, including
interest (1)
Total
3,579
19,995
6,025
235,441
265,040
3,579
19,995
2,726
-
-
3,299
-
-
-
12,606
38,906
222,835
226,134
-
-
Year ended 31 December 2015
Total
Less than 1
year
1 – 5
years
More than
5 years
Trade and other payable
Accrued expenses
Credit facilities payments, including
interest (1)
Total
21,588
19,883
21,588
19,883
-
-
247,259
288,730
12,420
53,891
234,839
234,839
-
-
-
-
(1) Assumes credit facilities are held to maturity.
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.
- 90 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 34 – FINANCIAL RISK MANAGEMENT continued
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
$0.50 per mcf, with all other variables remaining constant, respectively.
Year ended 31 December
Effect on profit before tax
Increase / (Decrease)
Oil
2016
US$’000
2015
US$’000
-
improvement in US$ oil price of $10 per barrel
- decline in US$ oil price of $10 per barrel
Gas
-
improvement in US$ gas price of $0.50 per mcf
- decline in US$ gas price of $0.50 per mcf
(12,813)
16,233
(1,423)
1,306
(22,731)
22,731
(2,325)
2,325
Interest Rate Risk
Interest rate risk is the risk that the fair value of the future cash flows of a financial instrument will fluctuate
because of changes in market interest rates. The Group’s exposure to the risk of changes in market interest rates
relates primarily to the Group’s long-term debt obligations with floating interest rates.
Interest Rate Sensitivity Analysis
Based on the net debt position as at 31 December 2016 and 2015 with all other variables remaining constant,
the following table represents the effect on income as a result of changes in the interest rate. The impact on
equity is the same as the impact on profit before tax.
Year ended 31 December
Effect on profit before tax
Increase / (Decrease)
-
-
increase in interest rates + 2%
decrease in interest rates - 2%
2016
US$’000
2015
US$’000
(3,357)
396
(1,140)
112
This assumes that the change in interest rates is effective from the beginning of the financial year and the net
debt position and fixed/floating mix is constant over the year. However, interest rates and the debt profile of
the Group are unlikely to remain constant and therefore the above sensitivity analysis will be subject to change.
- 91 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 35 – SUBSIDIARIES
The Company’s significant subsidiaries are as follows:
Name of Entity
Sundance Energy Inc.
Sundance Energy Oklahoma, LLC
SEA Eagle Ford, LLC
Armadillo Eagle Ford Holdings, Inc.
Armadillo E&P, Inc.
NSE PEL570 LTD
Place of Incorporation
Percentage
Owned
Colorado
Delaware
Texas
Delaware
Delaware
Australia
100
100
100
100
100
100
NOTE 36 – PARENT COMPANY INFORMATION
2016
US$’000
2015
US$’000
11,103
61,946
2,683
122,174
197,906
83
-
83
197,823
373,585
386
(52,948)
(123,200)
197,823
18,131
37,937
1,913
112,481
170,463
53
-
53
170,409
308,429
386
(48,214)
(90,192)
170,409
(33,009)
(4,733)
(37,742)
(98,651)
(17,675)
(116,326)
Year ended 31 December
Parent Entity
Assets
Current assets
Investment in subsidiaries
Deferred tax assets
Related party note receivable
Total assets
Liabilities
Current liabilities
Non-current liabilities
Total Liabilities
Total net assets
Equity
Issued capital
Share based payments reserve
Foreign currency translation
Retained earnings (loss)
Total equity
Financial Performance
Profit/(loss) for the year
Other comprehensive loss
Total loss and other comprehensive income
- 92 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 37 – DEED OF CROSS GUARANTEE
Pursuant to Class Order 98/1418, the wholly-owned subsidiary, Armadillo Petroleum Limited (“APL”), is relieved
from the Corporations Act 2001 requirements for preparation, audit and lodgment of its financial reports.
As a condition of the Class Order, SEAL and APL (“the Closed Group”) have entered into a Deed of Cross Guarantee
(“Deed”). The effect of the Deed is that SEAL has guaranteed to pay any deficiency in the event of the winding up of
APL under certain provision of the Corporations Act 2001. APL has also given a similar guarantee in the event that
SEAL is wound up.
Set out below is a consolidated statement of profit or loss and other comprehensive income and retained earnings
of the Closed Group:
Year ended 31 December
Loss before income tax
Income tax expense
2016
US$’000
2015
US$’000
(38,383)
(99,132)
(1,316)
(1,723)
Loss attributable to members of SEAL
(39,699)
(100,855)
Total comprehensive loss attributable to members of SEAL
(44,440)
(118,526)
(Accumulated deficit)/retained earnings at 1 January
Accumulated deficit at 31 December
(92,284)
(131,979)
8,572
(92,284)
- 93 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 37 – DEED OF CROSS GUARANTEE continued
Set out below is a condensed consolidated statement of financial position of the Closed Group:
2016
US$’000
2015
US$’000
10,756
-
346
-
11,102
40
122,174
2,683
56,090
180,987
245
3,426
10,001
5,234
18,906
40
112,481
1,913
36,543
150,977
192,089
169,883
13
3,031
3,044
-
-
31
1,542
1,573
3
3
3,044
1,576
189,045
168,307
373,585
386
(52,947)
(131,979)
189,045
308,429
386
(48,224)
(92,284)
168,307
Year ended 31 December
Current assets
Cash and cash equivalents
Trade and other receivables
Other current assets
Assets held for sale
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 based payments reserve
Foreign currency translation
Retained earnings (accumulated deficit)
Total equity
- 94 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 38 – EVENTS AFTER THE BALANCE SHEET DATE
On 1 March 2017, the Company entered into a binding sale and purchase agreement to divest of its assets located
in the Anadarko Basin of Oklahoma for cash of $18.5 million. The assets being sold include all of the Oklahoma wells
and acreage owned by the Company. The transaction is subject to several common closing conditions such as
confirmatory due diligence but is not subject to any financing contingencies. The Company expects the transaction
to close by May 2017.
- 95 -
Directors’ Declaration
The Directors of the Group declare that:
1
2
3
the Financial Statements and Notes as set out on pages 43 to 95 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 2016 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 2017
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Deloitte Touche Tohmatsu
A.C.N. 74 490 121 060
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1217 Australia
DX 10307SSE
Tel: +61 (0) 2 9322 7000
Fax: +61 (0) 2 9322 7001
www.deloitte.com.au
Independent Auditor’s Report
to the members of Sundance Energy Australia
Limited
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of Sundance Energy Australia Limited (the Company) and its
subsidiaries (the Group), which comprises the consolidated statement of financial position as at 31
December 2016, the consolidated statement of profit or loss and other comprehensive income, the
consolidated statement of cash flows and the consolidated statement of changes in equity for the year
then ended, and notes to the financial statements, including a summary of significant accounting
policies, and the directors’ declaration as set out on pages 43 to 96.
In our opinion the accompanying financial report of the Group, is in accordance with the Corporations
Act 2001, including:
(i)
(ii)
giving a true and fair view of the Group’s financial position as at 31 December 2016 and of its
financial performance for the year then ended; and
complying with International Financial Reporting Standards and the Corporations Regulations
2001.
Basis for Opinion
We conducted our audit in accordance with International Standards of Auditing. Our responsibilities
under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting
Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the
Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other
ethical responsibilities in accordance with the Code.
We confirm that the independence declaration required by the Corporations Act 2001, which has been
given to the directors of the Company, would be in the same terms if given to the directors as at the
time of this auditor’s report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
- 97 -
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial statements for the current period. These matters were addressed in the context
of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Key Audit Matter
How the scope of our audit responded to the
Key Audit Matter
for
Accounting
Evaluation Assets
Exploration
and
As at 31 December 2016 the carrying value
of Exploration and Evaluation assets is $34.4
million (2015 $26.3 million) as disclosed in
Note 18. This includes exploration and
evaluation expenditure capitalised in the
current year of $4.4 million as disclosed in
Note 18.
exercise
to
including
The assessment of the carrying value of
Exploration and Evaluation assets requires
management
significant
in respect of the
judgement
Company’s intention to proceed with a future
work programme for a licence, the right of
tenure, and where relevant, the likelihood of
licence renewal or extension and the success
of exploration and appraisal activities
including drilling and geological and
geophysical analysis.
Further, judgment is applied in determining
the treatment of exploration expenditure in
accordance with AASB 6 Exploration for and
Evaluation of Mineral Resources.
In
particular:
whether
the
capitalisation are satisfied;
conditions
for
which elements of exploration and
evaluation expenditures qualify for
recognition; and
whether facts and circumstances
indicate that the Exploration and
Evaluation assets should be tested
for impairment.
Our audit procedures included but were not limited
to:
Testing the design of key controls management
have in place over capitalisation of exploration
expenditure and to
indicators of
impairment for Exploration and Evaluation
assets,
identify
Assessing whether the rights to tenure of the
area of interest remained current at balance
date,
Attending meetings with key operational and
finance personnel to obtain an understanding
for each material formation of the exploration
and appraisal activity undertaken during the
year and the results of that activity,
Obtaining management’s forecast evidencing
the ongoing exploration and appraisal activity,
including the future intention for each material
formation, by reference to the allocation of
future budgeted expenditure,
Evaluating the Group’s analysis for assessing
impairment indicators of the exploration and
evaluation assets, and
Testing on a sample basis, evaluation
expenditure capitalised during the year for
appropriateness of capitalisation.
We also assessed the appropriateness of the related
disclosures in Note 18 to the financial statements.
- 98 -
Key Audit Matter
How the scope of our audit responded to the
Key Audit Matter
Accounting
Production Assets
for Development
and
As at 31 December 2016 the carrying value
of Development and Production assets is
$338.7 million (2015 $250.9 million) as
disclosed
includes
in Note 17. This
development and production expenditure
capitalised in the current year of $57.9
million as disclosed in Note 17.
The assessment of the carrying value of
Development and Production assets requires
significant
to
management
judgement
indicators of
identifying
impairment for the purpose of determining
whether the recoverable amount of the
assets needs to be estimated.
exercise
in
Further, judgment is applied in determining
the treatment of exploration expenditure in
accordance with AASB 116 Property, Plant
and Equipment. In particular:
Our audit procedures included but were not limited
to:
Testing the design of key controls management
have in place to determine capitalisation of
development and production expenditure and
analyse and identify indicators of impairment for
Producing and Development assets,
Engaging our valuation specialist to challenge
and benchmark management’s oil and gas price
assumptions
to
determine whether they indicate that there has
been a significant change with an adverse effect
on the Group,
external data,
against
Reading new reserve reports obtained by the
Group during the year in conjunction with our
to determine
internal
whether they indicate there has been a
significant change with an adverse effect on the
Group,
reservoir engineer,
whether
the
capitalisation are satisfied;
conditions
for
which elements of development and
production expenditures qualify for
recognition; and
whether facts and circumstances
indicate that the Development and
Production assets should be tested
for impairment.
Restatement of Prior Year Income Tax
resulted
The Group identified an error in its 31
December 2015 income tax accounting,
$6.3 million
in
which
overstatement of its deferred tax liabilities, a
$0.4 million overstatement of income tax
receivable and a $6.0 million understatement
of its income tax benefit.
a
The 2015 prior period error related to the
push down allocation of
the Group’s
consolidated impairment to the Group’s
separate subsidiaries. As a result of this
error, the Group’s consolidated deferred
income tax liabilities, income tax receivable
and income tax benefit were misstated as
disclosed in Note 7.
Challenging management’s
process
for
developing its oil and gas reserves estimates,
and
Testing on a sample basis, development and
production expenditure capitalised during the
year for appropriateness of capitalisation.
We also assessed the appropriateness of the
related disclosures in Note 17 to the financial
statements.
Our audit procedures included but were not limited
to:
Evaluating management’s assessment and
recognition of the restatement associated with
its 31 December 2015 income tax accounting,
Engaging our internal tax specialists to perform
an analysis of the prior period error including the
the Group’s
appropriate
consolidated
separate
to
subsidiaries,
impairment
allocation
of
Assessing tax returns and tax reconciliations for
compliance with local tax laws, and
Reconciling opening tax carrying values against
tax returns lodged with tax authorities.
We also assessed the appropriateness of the related
disclosures in Note 7 to the financial statements.
- 99 -
Other Information
The directors are responsible for the other information. The other information comprises the information
included in the Group’s annual report for the year ended 31 December 2016, but does not include the
financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and we do not express any form
of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based
on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Directors’ Responsibilities for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a true
and fair view in accordance with International Financial Reporting Standards and the Corporations Act
2001 and for such internal control as the directors determine is necessary to enable the preparation of
the financial report that gives a true and fair view and is free from material misstatement, whether due
to fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or has no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report
that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with the International Standards of Auditing will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of this financial statements.
As part of an audit in accordance with the International Standards of Auditing, we exercise professional
judgement and maintain professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financial statements, whether due
to fraud or error, design and perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
Obtain an understanding of internal control relevant to the audit 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 Group’s internal control.
- 100 -
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to
events or conditions that may cast significant doubt on the Group’s ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required to draw attention in
our auditor’s report to the related disclosures in the financial statements or, if such disclosures
are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained
up to the date of our auditor’s report. However, future events or conditions may cause the Group
to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including
the disclosures, and whether the financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities
or business activities within the Group to express an opinion on the financial report. We are
responsible for the direction, supervision and performance of the Group’s audit. We remain
solely responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing of
the audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the directors, we determine those matters that were of most
significance in the audit of the financial statements of the current period and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such communication.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report of Sundance Energy Australia Limited included in pages 17
to 30 of the directors’ report for the year ended 31 December 2016.
In our opinion, the Remuneration Report of Sundance Energy Australia Limited for the year ended 31
December 2016, has been prepared in accordance with section 300A of the Corporations Act 2001.
- 101 -
Responsibilities
The directors of the Company have voluntarily presented the Remuneration Report which has been
prepared in accordance with the requirements of section 300A of the Corporations Act 2001.
DELOITTE TOUCHE TOHMATSU
Jason Thorne
Partner
Chartered Accountants
Sydney, 31 March 2017
- 102 -
Additional Information compiled as at 15 March 2017
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
GAFFWICK PTY LTD
JAMES TAYLOR
ADVISORY RESEARCH, INC.
140,769,646
64,804,045
56,024,156
%_
11.93
5.19
10.02
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
630
1,031
648
1,485
Units
243,813
3,141,949
5,215,104
57,956,319
594 1,182,794,432
1,249,351,617
4,388
% Issued Capital
0.02
0.25
0.42
4.64
94.67
100.00
Unlisted RSUs
2
11
7
54
31
105
There are 883 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:
i)
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.
c)
ii)
Unvested RSUs
No voting rights.
- 103 -
Additional Information continued
Twenty largest holders of fully paid Ordinary Shares
Rank Name s
J P MORGAN NOMINEES AUSTRALIA LIMITED
1 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
2 GAFFWICK PTY LTD
3
4 NATIONAL NOMINEES LIMITED
5 CITICORP NOMINEES PTY LIMITED
6 WILLIAM TAYLOR NOMINEES PTY LTD
7
8 UBS NOMINEES PTY LTD
9 GAFFWICK PTY LTD
ILWELLA PTY LTD
FINANCIAL MARKET INFRASTRUCTURE FUND PTY LTD
10 BNP PARIBAS NOMS PTY LTD
11 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA
12 PROVIDENT MINERALS PTE LTD
13
14 MR JAMES DAVID TAYLOR
15 CITICORP NOMINEES PTY LIMITED
16 GROUP INVESTMENT AUSTRALIA PTY LTD
17 MR JAMES DAVID TAYLOR + MRS MARION AMY TAYLOR
18 BNP PARIBAS NOMINEES PTY LTD
19 HEMDIN PTY LIMITED
20 VISTRA GENEVA SA
MANAGEMENT S/F A/C>
Total
% Issued Capital
Units
334,984,595
112,269,646
69,574,929
62,421,145
57,624,409
34,771,954
30,304,308
30,000,000
28,500,000
27,280,764
25,882,425
18,292,076
17,759,391
14,081,614
13,771,747
13,081,834
12,163,155
11,756,465
10,300,000
10,000,000
934,820,457
409,481,107
26.82
8.99
5.57
5.00
4.61
2.78
2.43
2.40
2.28
2.18
2.07
1.46
1.42
1.13
1.10
1.05
0.97
0.94
0.82
0.80
74.82
Stock Exchanges on which the Company’s Securities are quoted
The Company’s listed equity securities are quoted on the Australian Securities Exchange and the Nasdaq, under
Tickers “SEA” and “SNDE”, respectively.
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 __ __
Gross
Net
ACREAGE
Eagle Ford
Greater Anadarko
US Grand Total
Australian Lease
50,630
29,761
80,391
42,776
18,508
61,284
Prospect
Ownership
%
65-100
50-100
Petroleum Lease License 570
17.5
On Market Buy-back
There is currently no on-market buy-back.
- 104 -
Corporate Information
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
28 Greenhill Road
Wayville SA 5034
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
Deloitte Touche Tohmatsu
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1217 Australia
Australian Legal Advisors
Baker & McKenzie
Level 27, AMP Centre
50 Bridge Street
Sydney, NSW 2000
Australia
Bankers
National Australia Bank Limited - Australia
Bank of America Merrill Lynch - United States
Share Registry
Computershare Investor Services Pty Ltd
Level 5, 115 Grenfell Street
Adelaide SA 5000
Securities Exchange Listings
Australian Securities Exchange (ASX)
ASX Code: SEA
NASDAQ: SNDE
- 105 -