Sundance Energy
Australia Limited
Annual Report
31 December 2017
Table of Contents
Forward-looking Statements……………..………….…...1
Abbreviations & Definitions………………….…….…….1
Chairman’s Letter……………………………...…….…...2
CEO’s Report……………………………….……….…….3
Directors’ Report………………………………...…..……5
Remuneration Report……………………………………19
Auditor’s Independence Declaration……………….…..34
Corporate Governance…………………….…….….…...35
Financial Information……………………..……………..46
Directors’ Declaration……………...…………………….92
Auditor’s Report………………………………………….93
Additional Information…….…….……………………..101
Corporate Information..………………………………..103
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 uncertainties associated with the
discovery and development of oil and natural gas reserves, cash
flows and liquidity, business and financial 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.
Competent Persons Statement
This report contains information based on reserve reports
prepared by Ryder Scott Company, L.P. for Sundance Energy
as of 31 December 2017. Such information has been reviewed
by Stephen E. Gardner, a Professional Engineer employed by
Ryder Scott who practices under State of Colorado license
number 44720. Mr. Gardner has consented to the inclusion of
this information in the form and context in which it appears.
Abbreviations & Definitions
Adjusted EBITDAX – earnings before interest, income taxes,
depreciation, depletion, amortisation and exploration expenses,
adjusted for other non-cash 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
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
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.
- 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 2017.
During 2017, we achieved significant progress toward our goal of becoming a pure-play Eagle Ford operator and
positioned the Company to execute on the transformational transaction announced earlier this month.
As compared to the prior year, we achieved increases in production, revenue, Adjusted EBITDAX and reserves. On a
barrels of oil equivalent (Boe) basis, production increased 22.4 percent to 7,471 Boe/d. Increased production coupled
with improved commodity prices resulted in revenue of $104.4 million, an increase of 56.7 percent over the prior year.
Adjusted EBITDAX for the year increased to $57.2 million as compared to $47.9 million in 2016. Adjusted EBITDAX
was impacted by higher general and administrative and lease operating expenses per Boe. The increase in general and
administrative expense was primarily attributable to non-recurring costs, such as those associated with the transaction
noted above. The planned increase in lease operating costs was primarily due to catching up on maintenance deferred in
2016.
During 2017, we brought 14 gross (13.8 net) wells into production on our Eagle Ford acreage in south Texas. Proved
reserves at yearend increased 46 percent to 47.1 Mboe and PV10 value of $423.5 million. This does not include any
impact resulting from the acquisition. The development program was funded primarily with cash generated from
operations and proceeds from the sale of the Company’s Oklahoma assets.
We continue to focus on developing and operating our properties in an environmentally responsible manner and we are
committed to ensuring the health and safety of our workforce. I am pleased to be able to report that no significant
environmental, health or safety issues occurred during the year.
In addition to the achievements noted above, during 2017 the Board, management and staff of Sundance devoted
significant efforts that resulted in the recent announcement of a transformational acquisition of additional assets in the
Eagle Ford. I thank everyone for the very significant efforts made in this respect as well as efficiently managing the
business throughout the year. The acquisition includes 21,900 net acres and 1,700 Boe/d of production (based on
December 2017) and adds 282 gross (255 net) high-quality drilling locations. Completion of the acquisition requires
Shareholder approval of issuance of a portion of the shares to fund the purchase price of $221.5 million and development
of the assets. The Directors unanimously recommend that Shareholders approve the associated resolutions at the
Extraordinary General Meeting to be held 19 April 2018.
Finally, on behalf of the other Directors and the management and staff of Sundance, I would like to thank you for your
ongoing support. We look forward to the upcoming year and the opportunity to deliver growth and increased value to
our Shareholders.
Yours sincerely,
Mike Hannell
Chairman
- 2 -
CEO’S REPORT
Dear Fellow Shareholders,
This is an exciting time in the oil patch and for our shareholders. With strong growth in the worldwide economy, oil
demand is rapidly increasing at a time when new supply is coming from unreliable sources and new technologies have
continued to under deliver on promises to materially change consumption profiles.
New production from non-OPEC, non-US shale production is set to drop materially. These large scale, long lead time
projects have continued to bring new barrels online during the downturn as they were sanctioned prior to prices
plummeting. After over 3 years of underinvestment, this component of oil supply will take years of new investment to
recover, meaning supply must be found elsewhere.
A high proportion of supply growth must therefore come from US shale and OPEC. OPEC is plagued by geopolitical
risk reducing its effective spare capacity. US shale has seen labor leave the industry during the downturn, survivors have
developed significant portions of their best acreage, and shale is plagued by high declines, requiring continuing
investment to generate consistent supply and the risk of over investment to generate supply growth.
These trends setup a strong fundamental case for stable or higher prices to incentivize new supply.
During the downturn, less than 10 percent of the companies in our US shale peer group have generated positive
shareholder returns and nearly 40 percent have sought bankruptcy protection. These poor shareholder returns, coupled
with low prices have changed the dynamics of the industry.
First, scale matters, and in particular the scale required to contract a substantially dedicated frac crew. Scale drives
lower costs because it allows for improved predictability and therefore more efficiency in operations and
logistics. These savings are manifested in reduced mobilization and demobilization costs, reduced cycle times, discounts
from bulk purchasing materials and services, and ability to de-bundle and self-source certain key materials.
Second, the days of growth at all costs are coming to an end. Debt markets are more selective as the era of cheap money
is slowly coming to an end and equity markets are pushing companies to have a clear plan to generate free cash flow.
Finally, low prices have reduced exploratory and appraisal spending with companies focusing on the development of
core assets. In the US, capital has cycled away from the Eagle Ford and towards the stacked pay potential of the
Permian.
This is causing large public companies with lower cost of capital to exit the Eagle Ford with their assets being bought by
smaller public and private companies with higher cost of capital. This is resulting in attractive full cycle economics for
those deploying capital into the acquisition and development of assets in the Eagle Ford.
Our recently announced acquisition positions us to capitalize on these trends to grow shareholder value. It improves the
quality of our remaining inventory which boosts our capital efficiency. It gives us the scale, both in balance sheet and
drilling inventory, to reduce capital costs. And, finally, it positions us to produce 21,000-22,000 Boe/d in 2019 which, at
a $56 per barrel West Texas Intermediate oil price, generates approximately US$250 million in EBITDA. This
acquisition and resulting strategic position transforms Sundance’s ability to create shareholder value.
During 2017 we, along with many of our peers in the Eagle Ford, suffered on the wrong side of some of these industry
trends. This manifested itself in Eagle Ford stocks underperforming most of the other US onshore basins. So far in 2018
that trend has begun to reverse, and as good Eagle Ford acreage is sold to companies that will develop it, the trend
should continue.
From an operational standpoint we performed well in certain areas in 2017 and not as well in others. We grew
production per 1,000 shares by 21 percent to 2.3 Boe, EBITDA per 1,000 shares by 19 percent to $45.63, and we grew
our Proved PV10 less Net Debt by 32 percent to $219.0 million. Over time these metrics should translate to increased
shareholder value.
- 3 -
On the flip side, we had challenges in controlling drilling and completion costs per well in an inflationary environment
seeing increases of 24 percent to $5.0 million per well (normalized to 6000 feet). While some of these cost increases
were driven by market forces, in retrospect we should have sought to make the strategic changes necessary to reduce
their impact sooner. We are laser focused on capturing efficiencies from the bigger development plan post-acquisition to
drive down capital costs per well and enhance the value of our entire asset base for our shareholders.
Despite significant challenges during 2017 the Sundance team has worked extremely hard during the last year to achieve
capital efficient growth and put the company in a position to close the pending acquisition. Thank you to all of the
associates and board members of Sundance for that hard work during a difficult year, we need to be focused on capturing
the significant opportunities that lie ahead.
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 2017.
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 Chartered Accountants of Australia &
New Zealand 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 2017:
Increased NYMEX Strip Pricing Case Proved reserves by 46% to 47.1 MMboe primarily through extensions,
discoveries and bolt-on lease acquisitions (exclusive of 2016 Oklahoma reserves);
Increased NYMEX proved undeveloped reserves increased 53% to 31.3 MMboe, reflecting successful co-
development tests of the upper lower Eagle Ford in McMullen County, leases additions in McMullen County
and improved productivity from wells drilled in Dimmit County in 2017;
Reserve replacement ratio (total extensions, discoveries, acquisitions and revisions divided by production) was
7.08x, which included 11.3 MMboe of acquisitions of proved reserves in-place (obtained primarily through
mineral leases);
Executed on the Company’s long-term strategy to become a pure-play Eagle Ford aggregator by disposing of its
Oklahoma assets during the year;
Revenue increased 57% to $104.4 million, compared to $66.6 million in 2016;
Production in 2017 was 7,861 Boe/d, which included 390 Boe/d of flared gas, a 21.5% increase compared to
prior year;
Brought 14 gross (13.8 net) wells into production during the year;
Development program of $115.1 million was substantially self-funded with net cash provided by operating
activities of $74.8 million, proceeds from the Oklahoma assets disposal of $15.3 million and net borrowings of
$18.2 million on the Company’s production prepayment from its oil purchaser; and
Increased EBITDAX by $9.3 million (19.5%) to $57.2 million compared to $47.9 million in 2016
There were no other material changes in the state of affairs of the Company.
- 5 -
Revenues and Production. The following table provides the components of our revenues for the year ended 31
December 2017 and 2016, as well as each year’s respective sales volumes:
Revenue (US$'000)
Oil Sales
Natural gas sales
Natural gas liquids (NGL) sales
Product revenue
Year ended 31 December
2016
2017
Change in
$
Change as
%
89,136
8,743
6,520
104,399
57,296
4,937
4,376
66,609
31,840
3,806
2,144
37,790
55.6
77.1
49.0
56.7
Net sales volumes:
Oil (Bbls)
Natural gas (Mcf)
NGL (Bbls)
Oil equivalent (Boe)
Average daily sales production (Boe/d)
Year ended 31 December
2016
2017
Change in
Volume
Change as
%
1,799,752
3,621,289
323,669
2,726,969
7,471
1,412,475
2,940,715
331,622
2,234,216
6,104
387,277
680,574
(7,953)
492,753
1,367
27.4
23.1
(2.4)
22.1
22.4
Barrel of oil equivalent (Boe) and average net daily production (Boe/d). Sales volume increased by 492,753 Boe
(22%) to 2,726,969 Boe (7,471 Boe/d) for the year ended 31 December 2017 compared to 2,234,216 Boe (6,104
Boe/d) for the prior year primarily due to the Company’s back-loaded 2016 development program and mid-year 2017
completions. All of the Company’s 2016 completions were in the second half of the year, resulting in less than a full
year of production in 2016 and a full year of production in 2017 on those wells. The Company’s 2017 development
program was not as back-loaded as its 2016 development program, resulting in a more even distribution of production
from new wells during the year.
The Eagle Ford contributed 7,257 Boe/d (97%) of total sales volume during the year ended 31 December 2017
compared to 5,389 Boe/d (88%) during the prior year. The Company disposed of its Oklahoma assets in May 2017.
Our sales volume is oil-weighted, with oil representing 66% and 63% of total sales volume for the years ended 31
December 2017 and 2016, respectively.
Oil sales. Oil sales increased by $31.8 million (56%) to $89.1 million for the year ended 31 December 2017 from
$57.3 million for the prior year. The increase in oil revenues was the result of the increase in product pricing ($16.1
million), coupled with an increase in oil production ($15.7 million). The average price we realised on the sale of our
oil increased by 22% to $49.53 per Bbl for the year ended 31 December 2017 from $40.56 per Bbl for the prior year.
Oil production volumes increased 27% to 1,799,752 Bbls for the year ended 31 December 2017 compared to
1,412,475 Bbls for the prior year.
Natural gas sales. Natural gas sales increased by $3.8 million (77%) to $8.7 million for the year ended 31 December
2017 from $4.9 million for the prior year. The increase in natural gas revenues was primarily the result of higher
product pricing ($2.7 million) with increased production volumes further contributing to the increase in revenue ($1.1
million). Natural gas production volumes increased 680,574 Mcf (23%) to 3,621,289 Mcf for the year ended 31
December 2017 compared to 2,940,715 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 increased by 44% to $2.41 per Mcf (net of
transportation and marketing) for the year ended 31 December 2017 from $1.68 per Mcf for the prior year.
- 6 -
Natural gas liquids sales (“NGL”). NGL sales increased by $2.1 million (49%) to $6.5 million for the year ended 31
December 2017 from $4.4 million for the prior year. The increase in NGL revenues was the result of better product
pricing ($2.2 million) partially offset by lower production volumes ($0.1 million). The average price we realised on
the sale of our natural gas liquids increased by 53% to $20.14 per Bbl for the year ended 31 December 2017 from
$13.20 per Bbl for the prior year. NGL production volumes decreased 7,953 Bbls (2%) to 323,669 Bbls for the year
ended 31 December 2017 compared to 331,622 Bbls for the prior year.
Selected per Boe metrics (US$)
Total oil, natural gas, NGL revenue
Lease operating expense
Production tax expense
Depreciation and amortisation expense
General and administrative expense
Year ended 31 December
Change in
Change as
2017
2016
$
%
38.28
(8.22)
(2.43)
(21.40)
(6.73)
29.81
(5.79)
(1.88)
(21.55)
(5.42)
8.47
(2.43)
(0.55)
0.15
(1.31)
28.4
42.0
29.0
(0.7)
24.2
Lease operating expenses. Our lease operating expenses (“LOE”) increased by $9.5 million (73%) to $22.4 million
for the year ended 31 December 2017 from $12.9 million in the prior year, and increased $2.43 per Boe to $8.22 per
Boe from $5.79 per Boe. The Company had minimal workover expenses of $0.75 per Boe in 2016, which increased
to $1.94 per Boe in 2017. In addition, recurring LOE increased from $5.04 per Boe in 2016 to $6.28 per Boe in 2017,
partially driven by field service cost inflation.
Production taxes. Our production taxes increased by $2.4 million (57%) to $6.6 million for the year ended 31
December 2017 from $4.2 million for the prior year but stayed relatively flat as a percent of revenue.
Depreciation and amortisation expense, including depletion. Our depreciation and amortisation expense increased
by $10.2 million (21%) to $58.4 million for the year ended 31 December 2017 from $48.1 million for the prior year
but remained relatively consistent on a per Boe basis; 2017 DD&A was $21.40 per Boe compared to $21.55 per Boe
in 2016.
General and administrative expenses. General and administrative expenses increased by $6.2 million (52%) to
$18.3 million for the year ended 31 December 2017 as compared to $12.1 million for the prior year. The increase in
general and administrative expenses is primarily due non-recurring legal costs related to litigation and professional
fees related to the proposed transaction (see Matters Subsequent to the End of the Financial Year). Cash general and
administrative expenses (which excludes non cash share-based compensation expense) per Boe increased by 42% to
$5.97 for the year ended 31 December 2017 as compared to $4.19 per Boe for the prior year.
Impairment expense. The Company recorded an impairment expense of $5.6 million for the year ended 31
December 2017 on the Company’s oil and gas assets which includes reducing the carrying value of its Dimmit County
assets by $5.4 million to the estimated fair value, less costs to sell the assets. These assets were reclassified as “Assets
Held for Sale” on the Company’s balance sheet as of 30 June 2017. 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 recorded additional impairment of its Cooper Basin
exploration and evaluation asset of $0.2 million. The Company had impairment expense of $10.2 million in the year
ended December 31, 2016.
Finance costs, net of amounts capitalised. Finance costs, net of amounts capitalised to exploration and
development, increased by $1.3 million to $13.5 million for the year ended 31 December 2017 as compared to $12.2
million in the prior year. The increase primarily relates to additional interest incurred on the Company’s production
prepayment that it entered into during 2017.
Loss on derivative financial instruments. The Company had a loss on derivative financial instruments of $2.9
million for the year ended 31 December 2017 as compared to $12.8 million loss in the prior year. The loss on
commodity hedging consisted of $1.2 million of unrealised losses on commodity derivative contracts and $1.6 million
of realised losses on commodity derivative contracts for the year ended 31 December 2017. The prior year 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.
- 7 -
Loss on sale of non-current assets. The Company recognized a $1.3 million loss on the sale of its Oklahoma assets
and $0.1 million loss on the disposal of other property and equipment during 2017. There were no gains or losses on
the sale of non-current assets recongised in 2016.
Following is a summary of the Company’s open oil and natural gas derivative contracts at 31 December 2017:
Oil Derivatives (WTI/LLS)
2018
2019
2020
Total
Gas Derivatives (HH/HSC)
Year
Year
2018
2019
2020
Total
Units (Bbls)
891,000
828,000
108,000
1,827,000
Units (Mcf)
2,106,000
1,212,000
216,000
3,534,000
$
$
$
$
$
$
$
$
Weighted Average (1)
Floor
Ceiling
50.40
50.56
47.05
50.28
$
$
$
$
56.86
53.49
52.50
55.07
Weighted Average (1)
Floor
Ceiling
2.92
2.78
2.54
2.85
$
$
$
$
3.24
3.47
2.93
3.30
(1) The Company’s outstanding derivative positions include swaps totaling 1,089,000 Bbls and 1,350,000 Mcf, which
are 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)
Current tax expense/(benefit)
Deferred tax expense
Total income tax expense/(benefit)
Combined Federal and state effective tax rate
Year ended 31 December
2017
2016
(4,688)
2,815
(1,873)
(7.71%)
1,563
142
1,705
3.91%
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. 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 2017, adjusted EBITDAX was $57.2 million, or 55% of revenue, compared to $47.9
million, or 72% of revenue, from the prior year.
- 8 -
The following table presents a reconciliation of the profit (loss) attributable to owners of Sundance to Adjusted
EBITDAX:
(In US$'000s)
Reconciliation to Adjusted EBITDAX
Loss attributed to members
Income tax (benefit)/expenses
Finance costs, net of amounts capitalised and interest received
Loss on derivative financial instruments
Settlement of derivative financial instruments
Depreciation and amortisation expense
Impairment of non-current assets
Exploration expense
Share-based compensation, value of services
Loss on sale of non-current assets
Other net income (1)
Adjusted EBITDAX
Adjusted EBITDAX Margin (as a percent of revenue)
Year ended 31 December
2017
2016
(22,436)
(1,873)
13,491
2,894
(1,670)
58,361
5,583
-
2,076
1,461
(697)
57,190
55%
(45,694)
1,705
12,219
12,761
8,672
48,147
10,203
30
2,524
-
(2,704)
47,863
72%
(1) In 2017, other net income included an escrow settlement of $1.0 million, net litigation settlements $(0.7) million and other non
cash items of $0.4 million. In 2016, other net income included 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 were focused in the Eagle Ford in 2017. Exploration and
development expenditures for the Eagle Ford during the year ended 31 December 2017 totalled $115 million. This
investment resulted in the addition of 14 gross (13.8 net) producing wells. The Company also completed
infrastructure which allows the Company to market a portion of its non-operated production in the Eagle Ford, which
has resulted in better product pricing for this production and quicker collection of receivables due to the Company. In
addition, the Company had approximately $8 million of E&E additions which increased its net acreage by
approximately 3,200 acres.
Acquisitions
There were no significant acquisitions in 2017.
Dispositions
In May 2017, the Company divested its Oklahoma assets. The Company’s Oklahoma assets accounted for 78,199 Boe
of production and revenue, net of production taxes and operating expenses, of approximately $1.4 million in 2017;
therefore the disposition will not have a material impact on the on-going operations of the Company. Subsequent to
the disposition, the Company was a pure-play Eagle Ford operator.
Reserves
The Company’s reserves at 1 January 2018 were announced in March 2018. The Company’s Total Proved Reserves
volumes increased 46% as compared to reserves at 1 January 2017 (exclusive of Oklahoma reserves).
- 9 -
The Company’s reserve estimates were calculated by Ryder Scott Company, L.P. (“Ryder Scott”) as at 1 January
2018. The reports were prepared utilizing two pricing scenarios. In the U.S. Securities and Exchange Commission
(“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. All else being equal, the second scenario utilized NYMEX strip pricing as of 31 December 2017.
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 12 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 SEC pricing evaluations are provided
below.
NYMEX Strip Pricing
Proved Developed Producing
Proved Undeveloped
Total Proved Reserves
Oil (Mbbls)
NGL (Mbbls) Gas (Mmcf)(1)
8,996
19,006
28,002
3,248
5,948
9,196
21,102
38,344
59,446
Mboe
15,761
31,345
47,106
PV10 ($'000)
226,610
196,868
423,478
SEC Pricing
Proved Developed Producing
Proved Undeveloped
Total Proved Reserves
Oil (Mbbls)
NGL (Mbbls) Gas (Mmcf)(1)
8,987
19,000
27,987
3,244
5,946
9,190
21,078
38,331
59,409
Mboe
15,744
31,335
47,079
PV10 ($'000)
207,762
173,477
381,239
(1) One barrel of oil is the energy equivalent of six Mcf of natural gas.
Financial Position
Throughout 2017, 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 2017, the Company was in compliance with all of its covenants and expects to remain
compliant for the remainder of 2018. The Company ended 2017 with cash of $5.8 million.
During 2017, the Company entered into an agreement with Vitol Inc. (“Vitol”), the Company’s oil purchaser, to
provide a revenue advance to the Company of $30 million, which is repaid through delivery of the Company’s oil
production. The Company began repaying the advance in October 2017 at a rate of $20 per gross barrel produced by
Sundance operated wells through 31 December 2017. The balance outstanding under the agreement as of 31
December 2017 was $18.2 million. The rate of repayment increased to $25 per gross barrel beginning 1 January 2018.
The Company expects to repay the outstanding balance in full in April 2018 (see Matters Subsequent to End of
Financial Year).
Cash Flow
Cash provided by operating activities for the year ended 31 December 2017 was $74.8 million, an increase of $32.1
million compared to the prior year ($42.7 million). This increase was primarily due to receipts from sales increasing
$47.8 million, to $112.5 million resulting from higher product pricing and increased production volumes, partially
offset by higher lease operating expense and general and administrative expenses. In addition, the Company increased
its operating cash flow through quicker collection of production revenue receivables and due to the timing of
payments of accounts payable and accrued expenses.
Cash used in investing activities for the year ended 31 December 2017 increased to $92.5 as compared to $80.0
million in prior year. This planned increase in capital expenditures was due to the Company’s expected higher
operating cash flow and proceeds from the sale of its Oklahoma assets.
- 10 -
Cash provided by financing activities for the year ended 31 December 2017 decreased to $6.1 million. This decrease
is a result of not having a capital raise in 2017, compared to a $64.2 million capital raise in 2016. There were no
additional draws on the Company’s credit facilities in 2017; however, the Company had net proceeds of $18.2 million
in 2017 related to the Company revenue advance from Vitol.
Matters Subsequent to the End of the Financial Year
On 9 March 2018, the Company’s wholly owned subsidiary Sundance Energy, Inc. entered into a Purchase and Sale
Agreement with Pioneer Natural Resources USA, Inc., Reliance Industries and Newpek, LLC (collectively the
“Sellers”) to acquire approximately 21,900 net acres in the Eagle Ford oil, volatile oil, and condensate windows in
McMullen, Live Oak, Atascosa and La Salle Counties, Texas for a purchase price of $221.5 million. In March 2018,
the Company paid a non-refundable $48.0 million deposit and is required to pay a second non-refundable deposit of
$25.0 million by 12 April 2018, with the balance due at the target closing date of 23 April 2018.
To finance the acquisition, the Company launched a $260.0 million capital raise comprised of a fully underwritten
Entitlement Offer of $58.0 million and a committed two-tranche placement of $202.0 million, including a $184.8
million Conditional Placement that is subject to shareholder approval at an Extraordinary General Meeting scheduled
for 19 April 2018. The Company believes it is highly probable that the eligible voting shareholders will approve the
Conditional Placement. The remaining Entitlement Offer proceeds are expected to be used to fund the second deposit,
with the balance of the capital raise used to close the acquisition and fund development of the properties. In March
2018, the Company issued 1,044.9 million ordinary shares as part of the equity raise. The Company expects an
additional 4,569.5 million ordinary shares to be issued in April 2018.
Contemporaneous with the acquisition closing, the Company expects to refinance its Credit Facilities. The Company
has signed term sheets with Morgan Stanley and Natixis to refinance its debt facilities with a $250 million syndicated
second lien term loan and a syndicated revolver with initial availability expected to be $87.5 million (with a $250.0
million face), respectively. The proceeds of the refinanced debt facilities will be used to retire the Company’s existing
Credit Facilities of $192.0 million and the remaining outstanding production prepayment, which as at the date of this
report was $11.8 million.
The acquired properties had varying interests in 132 producing wells that averaged approximately 1,700 net Boe/d of
production during the month of December 2017. The acquired properties are highly contiguous with the Company’s
existing McMullen area assets and provide significant drilling locations. The Company expects the acquisition will
give better economies of scale, which may result in lower capital and operating costs on a per well and per unit of
production basis. Pro forma for the acquisition, capital raise and refinancing, the Company expects to have a lower
debt to equity ratio and stronger liquidity to fund its 2018 and 2019 development program and meet its working capital
needs.
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.
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.
- 11 -
The Company is likely to be subject to increasing regulations and costs associated with Federal, state and local
government regulation of climate change and management of emissions of greenhouse gases. The Company
continues to monitor the strategic and operations risks associated with climate change regulation and will take actions
to minimize or mitigate the impacts on its objectives and activities.
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 2017, the Company had an Occupational Safety and Health Administration (“OSHA”) Recordable
Incident Rate (“ORIR”) of 2.32 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.
- 12 -
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 over 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 (Battersea College of Technology) and is a
Fellow 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.
- 13 -
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 and Restricted Share Units:
3,927,922 Ordinary Shares in Sundance Energy Australia Limited and 10,126,672 Restricted Share Units
(inclusive of 463,534 Restricted Share Units that were forfeited in 2018 upon the final measurement of the 2014 LTI
plan)
Special Responsibilities:
Managing Director and Chief Executive Officer of the Company
Other Directorships:
Nil
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
- 14 -
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:
695,109 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.
Brite Seeks Pty. Ltd.
Woomera Mining Limited
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 industry experience, including technology, reservoir engineering, drilling and completions, production
operations, 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
- 15 -
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.
M. Hannell
D. Hannes
N. Martin
W. Holcombe
E. McCrady
Board of Directors
Held Attended
8
8
8
8
8
8
8
8
8
8
Audit and Risk
Management Committee
Held Attended
4
4
4
—
—
4
4
4
—
—
Remuneration and
Nominations Committee
Held Attended
1
1
—
1
—
1
1
—
1
—
Reserves Committee
Held Attended
1
—
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.
- 16 -
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 2017, 33,803,361 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.
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.
- 17 -
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 2017.
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.
- 18 -
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 2017. 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 2017 and provides
remuneration information for the Company’s non-executive Directors (“NED”s), 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 2017 Remuneration and Key Changes for Fiscal Year 2018
B. Executive Summary
C. Directors and Key Management Personnel
D. Remuneration Governance
E. Remuneration Policy and Framework
o Fixed Pay and Benefits
o Short Term Incentives (“STI”)
o 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 2016 Annual General Meeting
I. Employment Contracts
J. Details of Remuneration
K. Outstanding KMP Restricted Share Units (“RSUs”)
L. Shareholdings
- 19 -
A. Key Fiscal Year 2017 Remuneration and Key Changes for Fiscal Year 2018
Remuneration
2017 Action
2018 Action
Rationale
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 rate set in April
2014.
No STI awarded to the
executive team for 2017, but
it is intended that the 2018
incentive compensation plan
will include STI on the
closing of the proposed
transaction described in Note
39 in the Notes to the
Consolidated Financial
Statements.
Annual long-term equity-
related awards further align
management with shareholder
interest.
No incentive compensation
awarded to the executive team
for 2017, but it is intended
that the 2018 incentive
compensation plan will
include LTI.
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.
Fixed Remuneration CEO’s salary restored to
No change.
$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 2016 performance.
No STI awards paid related to
2017 performance.
Equity Long-Term
Incentive (“LTI”)
Non-executive
Director
Compensation
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.
No LTI granted related to
2017 performance.
No change.
- 20 -
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.
• 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.
• 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.
• 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.
- 21 -
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 have historically targeted each
component, as well as the aggregate of the components, to be 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 2017, 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.
Managing Director
Other KMPs
19%
81%
STI
19%
LTI
62%
25%
75%
STI
19%
LTI
56%
Base Pay
Total At Risk
Base Pay
Total At Risk
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:
- 22 -
Recognition that Sundance Energy is a publicly listed Australian company, with the majority of our shareholders
being Australian;
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;
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 Base salaries (which are reviewed at the end of each fiscal year);
o Short term incentives in the form of annual cash bonuses or fully vested RSUs based on predetermined
targets recommended by the Remuneration and Nominations Committee and approved by the Board;
o 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.
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 did not make any changes to the 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
o
award is restated, and
In the discretion of the Board, a lower payment would have been made to the executive officer based
upon the restated financial results;
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 has, from time to time, used a compensation consultant to provide executive
remuneration consulting services to the Committee, including executive market analysis, peer bench marking and LTI
market advice. The Board did not use a compensation consultant in 2017.
- 23 -
Elements of Remuneration
Cash Based
Remuneration
Component
Base Salary (Fixed)
Short-Term Incentives*
(Performance Based)
Equity Bonus
Remuneration
Long-Term Incentives
(Performance Based)**
Deferred Cash
Bonus
Remuneration
Other Benefits
Long-Term Incentives
(Performance Based)
Health and Welfare
Benefit Plans (Other)
*No grants related to 2017 or 2016 fiscal years.
**No grant related to 2017 fiscal years.
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.
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. Base salaries
were restored to the rates established in April 2014.
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 relative to 2016 performance.
- 24 -
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 2017 and 2016 performance years, but the intention is for it
to be restored in 2018 on the closing of the proposed transaction described in Note 39 in the Notes to the Consolidated
Financial Statements.
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.
No LTI awards were granted to the KMP’s for 2017 performance, but the intention is for it to be restored in 2018.
- 25 -
Details of Other LTI Awards in Effect during the Year
2013, 2014 Time-based Vesting
awards
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)
Company’s total shareholder return as
compared to designated peer group
over 3-year period(2)
R-TSR Percentile Rank Payout %
90th or Above 200%
50th 100%
30th 50%
Below 30th 0%
Company’s A-TSR over 3-year
period as compared to 20-day
volume weighted average share
price (“VWAP”) at 31 December
2015 (US$0.1384625).
A-TSR Goal Payout %
1.95x 133%
1.52x 100%
1.26x 50%
Below 1.26x 0%
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
January 2018
31 December 2015 to
31 December 2018
January 2019
0-200% of Target
Target
CEO: 1,545,113 RSUs
CFO/COO: each 852,864 RSUs
0-133% of Target
Target
CEO: 4,342,331 RSUs
CFO/COO: each 2,396,858 RSUs
Award Date
2013: 30 May 2014 (CEO)
15 April 2014 (CFO, COO)
2014: 28 May 2015 (CEO)
24 June 2015 (CFO, COO)
Vest annually in three equal tranches
Grant Date
Summary of
Vesting
Conditions
Performance
Period
Date of Award
Payout (if
any)
Range of
Payout (1)
n/a
Annually, based on award vesting
Award Original Award*
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
2017
**Awards partially vested as at 31
December 2017
(1) See section “LTI awards Evaluated for Vesting at 31 December 2017” for discussion of measurement at end of reporting period.
(2) The original peer group included 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 (known now as Brookside Energy)*, Rex Energy Corp, Sanchez Energy Corp, Senex Energy Ltd*, Synergy
Resources Corp and Triangle Petroleum Corp. The LTI provided criteria for substitution in the event of merger, acquisition and/or
bankruptcy.
- 26 -
Details of Other LTI Awards in Effect during the Year (cont.)
2015 LTI – Deferred Cash
Award
2016 LTI – A-TSR
2016 LTI – Deferred Cash Award
Grant Date
Summary of
Vesting
Conditions
15 March 2016 (CFO, COO)
27 May 2016 (CEO)
Deferred cash earned
appreciation of
Sundance ordinary shares.
through
the price of
17 February 2017 (CFO, COO)
25 May 2017 (CEO)
Company’s A-TSR over 3-year period as
compared to 20-day VWAP at 31
December 2016 (US$0.1453).
Target paid out if VWAP equates
25%
over
performance period.
preferred
return
Up to 300% of target may be
earned
return
between 25% and 75% (will be
pro-rated).
preferred
for
Performance
Period
Tranche 1: 31 December 2015- 31
December 2017
Tranche 2: 31 December 2015- 31
December 2018
A-TSR Goal Payout %
1.95x 150%
1.52x 100%
1.26x 50%
Below 1.26x 0%
No proration applied.
31 December 2016 to
31 December 2019
Date of Award
Payout (if any)
Tranche 1: January 2018
Tranche 2: January 2019
January 2020
Range of
Payout (1)
Each Tranche:
CEO: $0 - $901,875
COO/CFO: $0 - $497,811
0-150% of Target
Target
CEO: 3,724,191 RSUs
CFO/COO: each 2,055,661 RSUs
17 February 2017
cash
Deferred
through
appreciation of the price of Sundance
ordinary shares.
earned
Target paid out if VWAP equates
15%
over
performance period.
preferred
return
Up to 300% of target may be earned
for preferred return between 25% and
75% (will be pro-rated).
Tranche 1: 31 December 2016- 31
December 2017
Tranche 2: 31 December 2016- 31
December 2018
Tranche 3: 31 December 2016- 31
December 2019
Tranche 1: January 2018
Tranche 2: January 2019
Tranche 3: January 2020
Each Tranche:
CEO: $0 - $541,125
COO/CFO: $0 - $298,689
(1) See section”LTI awards evaluated for Vesting at 31 December 2017” for discussion of measurement at end of reporting period.
- 27 -
LTI Awards Evaluated for Vesting at 31 December 2017
The 2014 LTI – R-TSR plan was measured for vesting as at 31 December 2017. The Company’s total shareholder return
for the period 31 December 2014 to 31 December 2017 ranked in the 38th percentile amongst the peers noted in the notes
to the table above. As a result, 70% of the R-TSR shares granted to each of the KMP vested in January 2018. The
remaining shares were forfeited.
The first tranches of the 2015 – LTI Deferred Cash Award and the 2016 – LTI Deferred Cash Award were measured for
vesting as at 31 December 2017. The preferred return on the Company’s ordinary shares for the performance period was
less than 8%; therefore no deferred cash awards vested. The deferred cash award forfeited by the CEO was $300,625 and
$180,375 for the 2015 – LTI Deferred Cash Award and 2016 – LTI Deferred Cash Award, respectively. The CFO and
COO each forfeited $165,937 and $99,563 for the 2015 – LTI Deferred Cash Award and 2016 – LTI Deferred Cash
Award, respectively.
This reflects the alignment of the Company’s LTI program with the interests and long-term returns of shareholders.
Retirement and Other Benefits
Executive management participates in the same benefit plans and on the same basis as other employees. Those plans
include health, dental and vision insurance (for which a premium contribution is required by the participant) and a
401(k) retirement plan under which the Company makes an annual contribution equal to 3 percent of the participant’s
eligible compensation.
Post-Termination and Change In Control Benefits
The Chief Executive Officer’s employment contract provides for payment of his base salary through the end of the
contract term in the event he is terminated as a result of a change in control event. Additionally, in the event of a
corporate take-over or change in control (as defined in the LTI Plan), our Board, in its sole discretion, may cause all
unvested RSUs to vest and be satisfied by the issuance of one share per RSU or provide for the cancellation of
outstanding RSUs and make a cash payment equal to the then-fair market value of the RSUs.
F. Company Performance and Shareholder Wealth
The following table shows the Company’s performance during the years ended 31 December 2017, 2016, 2015, 2014
and 2013 in respect to several key financial indicators (in US thousands, except where otherwise stated). No STI
incentives were awarded for the previous or current year.
Year ended December 31,
2015
92,191
25,473
7,267
(263,835)
64,781
(0.48)
Nil
0.17
2016
66,609
29,490
6,104
(45,694)
47,863
(0.05)
Nil
0.22
2014
159,793
25,981
6,147
15,321
126,373
0.03
Nil
0.52
2013
85,345
20,747
2,956
15,942
52,594
0.04
Nil
1.00
Metric
Revenue (US$'000)
Proved Reserves (MBOE)(1)
Production (BOEPD)
Net profit (loss) after tax (US$'000)
EBITDAX (US$'000)
Earnings (loss) per share (2)
Dividends or other returns on capital
Period end share price ($A)
(1) Prepared using SEC pricing.
(2) Basic and diluted
2017
104,399
47,079
7,471
(22,435)
57,190
(0.02)
Nil
0.07
- 28 -
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. No changes were made to this policy in 2017.
A review of NEDs’ fees performed by Meridian was last commissioned by the Remuneration and Nominations
Committee in September 2015. At that time, the 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 Board has not increased
the base fees since 2015, nor has the Board engaged Meridian to review NED compensation since that time.
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
2017, total fees paid to NEDs was A$596,248.
The Directors’ fees for the 2017 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 (1)
132,500
100,000
29,500
20,250
17,500
11,000
8,250
(1) 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.
H. Voting and Comments made at the Company’s Year Ended 31 December 2016 Annual General Meeting
The Company received more than 99% of ‘yes’ votes on its remuneration report for the financial year ended 31
December 2016. The Committee values feedback from the shareholders and engages in conversations with key
shareholders and their advisors on a regular basis.
- 29 -
I. Employment Contracts
During 2017, the Company had an employment contract in place 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.
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 Company currently does not have employment agreements in place with any other Directors or KMPs.
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 2017. 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 2017.
b
2017
Voluntary
Termination
Early
Retirement
Normal
Retirement Disability
Death
Involuntary
Termination
(for cause)
Involuntary
Termination
(without
cause)
Change in
Control (3)
`
Cash severance
RSUs (1)(2)
Health benefits
Total
$
$
— $
—
—
— $
— $
—
—
— $
— $ 152,055 $
—
—
— $ 160,251 $
—
8,196
— $
—
—
— $
— $ 370,000 $ 370,000
—
—
—
—
19,944
19,944
— $ 389,944 $ 389,944
(1) In the event of retirement, disability or death, the awards granted as part of the LTI plans may be prorated at the
end of the performance cycle based on actual performance achievement at the discretion of the Board.
(2) 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.
(3) 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).
- 30 -
J. Details of Remuneration
The table below details Director and KMP remuneration paid in accordance with Accounting Standards for fiscal years
ended 31 December 2017 and 2016.
Fixed Based Remuneration
Share-
Based
Payments
Cash Salary
and Fees
Non-
monetary
Benefits (1)
Post-
employment
Benefits
Superannuation
RSU
Performance Based
STI-
Bonus
LTI - Share
Based (2)
LTI -
Deferred Cash
Based (3)
Total
$ 369,288 $ 22,344 $ 8,100 $
121,681
99,397
84,363
127,429
—
—
—
—
—
—
—
—
$ 802,158 $ 22,344 $ 8,100 $
— $
11,560
9,443
8,015
—
29,018 $
$ 700,508 $ (56,357)$ 1,043,883
— $
133,241
— —
108,840
— —
92,378
— —
— —
127,429
— $ — $ 700,508 $ (56,357)$ 1,505,771
—
—
—
—
—
—
—
—
—
294,433
294,433
15,623
14,983
$ 588,866 $ 30,606 $ 16,200 $
$ 1,391,024 $ 52,950 $ 24,300 $
8,100
8,100
—
—
— $
29,018 $
710,213
429,940 (37,883)
—
—
709,765
430,132 (37,883)
— $ — $ 860,072 $ (75,766)$ 1,419,978
— $ — $ 1,560,580 $ (132,123)$ 2,925,749
Fixed Based Remuneration
Share-
Based
Payments
Performance Based
Cash Salary
and Fees
Non-
monetary
Benefits (1)
Post-
employment
Benefits
Superannuation
STI-
Bonus
LTI - Share
Based (2)
RSU
LTI -
Deferred
Cash Based
(3)
Total
$ 335,846 $ 21,144 $ 7,950 $
105,121
85,869
72,882
116,721
—
—
—
—
—
—
—
—
$ 716,439 $ 21,144 $ 7,950 $
— $
9,987
8,158
6,924
—
25,069 $
— $ — $ 837,888 $ 62,032 $ 1,264,860
115,108
— —
94,027
— —
79,806
— —
— —
116,721
— $ — $ 837,888 $ 62,032 $ 1,670,522
—
—
—
—
—
—
—
—
267,769
267,769
14,471
10,253
$ 535,538 $ 24,724 $ 15,900 $
$ 1,251,977 $ 45,868 $ 23,850 $
7,950
7,950
802,320
—
5,492 —
— 13,392 —
806,999
— $ 18,884 $ — $ 932,197 $ 82,076 $ 1,609,319
25,069 $ 18,884 $ — $ 1,770,085 $ 144,108 $ 3,279,841
465,600 41,038
466,597 41,038
2017
Directors
E. McCrady
M. Hannell
D. Hannes
N. Martin
W. Holcombe
Key
Management
Personnel
C. Anderson
G. Ford
Total
2016
Directors
E. McCrady
M. Hannell
D. Hannes
N. Martin
W. Holcombe
Key
Management
Personnel
C. Anderson
G. Ford
Total
(1) Non-monetary benefits includes car parking and payment of healthcare premiums.
- 31 -
(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 realise should the RSUs vest.
(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 fair value of the deferred cash awarded to KMP decreased in 2017 as compared to 2016,
and therefore is presented as negative income in the 2017 remuneration table. The amount included in remuneration
is not related to or indicative of the benefit (if any) the individuals may ultimately realise should the deferred cash
vest.
K. Outstanding KMP Restricted Share Units
Number of Restricted Shares Units held by Key Management Personnel
Key Management Personnel
Balance
31.12.2016
Issued as
compensation
Forfeited
RSUs
RSUs
converted in
to ordinary
shares
Balance
31.12.2017
Market Value
of Unvested
RSUs
31.12.2017 (1)
E. McCrady (2)
C. Anderson
G. Ford
Total
7,085,516
3,914,662
3,916,916
14,917,094
3,724,191
2,055,661
2,055,661
7,835,513
—
—
—
—
(683,035)
(380,653)
(382,907)
(1,446,595)
584,877
10,126,672 $
322,838
5,589,670
5,589,670
322,838
21,306,012 $ 1,230,553
(1) Market value based on the Company’s closing share price on 31 December 2017 or USD $0.058 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 25 May 2017.
L . Shareholdings
Number of Shares held by Key Management Personnel
Key Management Personnel
Balance
31.12.2016
RSUs converted
to ordinary
shares
Value realised
upon RSU vesting
(1)
Net Other
Changes (2)
Balance
31.12.2017
M. Hannell
D. Hannes
N. Martin
W. Holcombe
E. McCrady
C. Anderson
G. Ford
Total
1,148,500
6,247,716
695,109
746,700
4,083,134
1,267,452
1,061,800
15,250,411
—
—
—
—
683,035
380,653
382,907
1,446,595
$
$
—
—
—
—
34,237
19,080
19,193
72,510
—
—
—
—
(838,247)
(145,629)
(148,771)
(1,132,647)
1,148,500
6,247,716
695,109
746,700
3,927,922
1,502,476
1,295,936
15,564,359
(1) The RSU plan allows for an administrative period between the vesting date and the issuance of ordinary shares. Amounts
(2)
above 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. Net Other Changes for E McCrady includes the sale of shares to settle the tax liability related to
shares issued in 2016 and 2017.
- 32 -
Auditor’s Independence Declaration
The auditor’s independence declaration for the year ended 31 December 2017 has been received and can be found on
page 34 of this report.
Signed in accordance with a resolution of the Board of Directors.
Michael Hannell
Chairman
Adelaide
Dated this 29th day of March 2018
- 33 -
Deloitte Touche Tohmatsu
A.B.N. 74 490 121 060
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
DX 10307SSE
Tel: +61 (0) 2 9322 7000
Fax: +61 (0) 2 9322 7001
www.deloitte.com.au
The Board of Directors
Sundance Energy Australia Limited
Ground Floor
28 Greenhill Road
Wayville, South Australia, 5034
29 March 2018
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 2017, 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
Chartered Accountants
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
- 34 -
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 2017. 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 29 March 2018 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;
Monitoring senior executives’ performance and implementation of the Company’s strategy;
Approving and monitoring the business plan, budget and corporate policies;
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.
- 35 -
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 2017, 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 2017 beginning on page 19.
Currently the Company does not have employment contracts in place with its other senior executives, but the Board
believes the spirit of the principle has been met through other means. The Company’s offer of employment letter to
each of the senior executives explains the executive’s remunerations and terms of employment. In addition, the MD
communicates regularly with the senior executives to ensure each understands his/her role and responsibilities. The
senior executives have all signed the Code of Conduct and Ethics, as noted in Principle 3.
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, MD 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.
- 36 -
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 2017
Board (1)
Senior Management (2)
Professional/Technical
Support and Field
Total
Males Females Total
5
5
35
11
56
5
2
23
10
40
—
3
12
1
16
Percent
Male
100%
40%
66%
91%
71%
Percent
Female
—
60%
34%
9%
29%
(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.
- 37 -
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 anticipates that the next
performance review will occur following the completion of the Company’s proposed acquisition of Eagle Ford
assets and related equity raise (described in Note 39 in the Notes to the Consolidated Financial Statements).
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.
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 Board anticipates
that the next performance review will occur following the completion of the Company’s proposed acquisition of
Eagle Ford assets and related equity raise (described in Note 39 in the Notes to the Consolidated Financial
Statements). 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;
Ensuring procedures exist for evaluation of the performance of the Board, its Committees and Directors;
Induction and educational procedures for new Board appointees and key executives;
and,
The appointment and re-election of Directors.
The current membership of the Remuneration and Nominations Committee is set out on page 17 of the Directors’
Report. Details of the number of Committee meetings held during 2017, and attendance by Committee members, is
set out on page 16 of the Directors’ Report.
The charter for the Remuneration and Nomination Committee is available on the Company website at
http://www.sundanceenergy.com.au/governance.cfm.
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 fulfil its responsibilities or have ready access to such
skills which are not available.
- 38 -
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
Infrastructure
Resources including oil & gas/minerals
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
Experience in a global organisation
Experience with
international assets, business
partners, cultures and communities
Risk
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
In addition, director disclosures and considerations is a standing items on its Board meeting agendas. The Board
has determined that each of its Non-executive Directors are independent, and were independent during the year
ended 31 December 2017.
- 39 -
The composition of the Board at the date of this report and the length of service of each Director as at 31 December
2017 is as follows:
M D Hannell
E McCrady
N Martin
D Hannes
Chairman, Independent Non-Executive Director
11 years, 9 months
Managing Director and Chief Executive Officer
6 years, 10 months
Independent Non-Executive Director
6 years*
W Holcombe
Independent Non-Executive Director
Independent Non-Executive Director
8 years, 5 months
5 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 2017, 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 and Role of Management document maintained on the Company’s website at
http://www.sundanceenergy.com.au/governance.cfm.
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.
- 40 -
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 and Risk Management Committee’s charter is available on the Company’s website at
http://www.sundanceenergy.com.au/governance.cfm.
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 13 of the Director’s Report.
Details of the number of Committee meetings held during 2017, 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 17 of the Directors’ Report. Details of the
number of committee meetings held during 2017, and attendance by Committee members, is set out on page 16 of
the Directors’ Report.
The Reserves Committee Charter is available on the Company’s website at
http://www.sundanceenergy.com.au/governance.cfm.
- 41 -
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.
The Company encourages its shareholders to attend its annual general meeting to allow them the opportunity to
discuss and question its Board and management.
- 42 -
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 17 of the Directors’ Report. Details of the number of
committee meetings held during 2017, and attendance by Committee members, is set out on page 16 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.
- 43 -
The Company has risk exposures related to potential environmental spills or contamination with associated cleanup
costs, regulatory compliance and the safety of work practices.
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 in the Notes 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 2017, and attendance by Committee members, is set out
on page 16 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 MD and senior management.
The Remuneration Report at pages 19-33 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):
- 44 -
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.
- 45 -
FINANCIAL INFORMATION
- 46 -
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
(LOSS)
For the year ended 31 December
Note
2017
US$’000
2016
US$’000
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 capitalised
Loss on sale of non-current assets
Loss on derivative financial instruments
Other income, net
Loss before income tax
Income tax benefit (expense)
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 earnings
Diluted earnings
6
17, 20
19
4 $ 104,399 $ 66,609
(12,937)
5
(4,200)
(12,110)
(48,147)
(10,203)
(30)
(12,219)
—
(12,761)
2,009
(43,989)
(1,705)
(45,694)
(22,416)
(6,613)
(18,345)
(58,361)
(5,583)
—
(13,491)
(1,461)
(2,894)
457
(24,308)
1,873
(22,435)
7
8
3
(532)
708
708
(532)
$ (21,727) $ (46,226)
11
11
(cents)
(1.8)
(1.8)
(cents)
(5.2)
(5.2)
The accompanying notes are an integral part of these consolidated financial statements
- 47 -
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
For the year ended 31 December
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Derivative financial instruments
Income tax receivable
Other current assets
Assets held for sale
TOTAL CURRENT ASSETS
NON-CURRENT ASSETS
Development and production assets
Exploration and evaluation expenditure
Property and equipment
Income tax receivable, non-current
Derivative financial instruments
Deferred tax assets
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
CURRENT LIABILITIES
Trade and other payables
Accrued expenses
Production prepayment
Derivative financial instruments
Provisions, current
Liabilities related to assets held for sale
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Credit facilities, net of deferred financing fees
Restoration provision
Other provisions, non-current
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
Note
2017
US$’000
2016
US$’000
$
12
13
16
14
17
18
20
7
13
26
$
21 $
21
22
13
23
14
5,761 $
3,966
383
40
3,472
61,064
74,686
17,463
9,786
—
5,204
4,078
18,309
54,840
338,796
34,979
1,246
4,688
223
—
379,932
454,618 $
338,709
34,366
1,211
—
279
2,683
377,248
432,088
9,051 $
39,051
18,194
5,618
1,158
1,064
74,136
3,579
19,995
—
4,579
2,726
941
31,820
24
25
23
13
$
$
189,310
7,567
2,158
3,728
368
203,131
277,267 $
177,351 $
188,249
7,072
3,299
3,215
610
202,445
234,265
197,823
27
28
28
$
372,764
16,250
(1,134)
(210,529)
177,351 $
373,585
14,174
(1,842)
(188,094)
197,823
The accompanying notes are an integral part of these consolidated financial statements
- 48 -
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Foreign
Share-
Based
Currency
Issued
Capital
US$’000
Payments Translation Accumulated
Reserve
Reserve
US$’000 US$’000
Deficit
US$’000
Total
US$’000
Balance at 31 December 2015
Loss attributable to owners of the Company
Other comprehensive loss for the year
Total comprehensive loss
Shares issued in connection with private placement
(Note 27)
Cost of capital, net of tax (Note 26)
Share based compensation value of services (Note 33)
Balance at 31 December 2016
Loss attributable to owners of the Company
Other comprehensive loss for the year
Total comprehensive loss
Derecognition of deferred tax asset (Note 7)
Share based compensation value of services (Note 33)
308,429 11,650
—
—
—
—
—
—
(1,310) (142,400)
—
(532)
(532)
176,369
(45,694) (45,694)
(532)
(45,694) (46,226)
—
67,499
(2,343)
—
—
2,524
—
—
67,499
(2,343)
2,524
—
—
$ 373,585 $ 14,174 $ (1,842) $ (188,094) $
—
—
—
(821)
—
—
—
—
—
2,076
—
708
708
—
—
(22,435)
—
(22,435)
—
—
197,823
(22,435)
708
(21,727)
(821)
2,076
Balance at 31 December 2017
372,764
16,250
(1,134)
(210,529)
177,351
The accompanying notes are an integral part of these consolidated financial statements
- 49 -
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended 31 December
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from sales
Payments to suppliers and employees
Settlements of restoration provision
Payments for (receipts from) commodity derivative settlements, net
Income taxes received, net
Other operating activities
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 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 capitalised portion
Payments for foreign currency derivatives
Proceeds from borrowings
Repayments from borrowings
NET CASH PROVIDED BY FINANCING ACTIVITIES
Net increase (decrease) in cash held
Cash and cash equivalents at beginning of year
Effect of exchange rates on cash
CASH AND CASH EQUIVALENTS AT END OF YEAR
Note
2017
US$’000
2016
US$’000
32
2
3
22, 24
22, 24
112,534
(40,000)
(132)
(1,428)
3,999
(197)
74,776
64,749
(32,634)
(110)
10,630
25
—
42,660
(101,043)
(8,351)
—
15,348
(657)
2,200
(92,503)
(64,130)
(2,852)
(23,506)
7,141
(295)
3,651
(79,991)
—
—
(12,381)
—
47,199
(28,755)
6,063
67,499
(3,330)
(11,753)
(390)
—
(250)
51,776
(11,664)
14,445
17,463
(38)
5,761
3,468
(450)
17,463
The accompanying notes are an integral part of these consolidated financial statements
- 50 -
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 2017
was authorised for issuance in accordance with a resolution of the Board of Directors on 29 March 2018. Refer to
Note 36 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 2017 and 2016,
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 2017 and 2016,
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 and deferred income tax expense.
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.
- 51 -
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.
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 capitalised, information becomes available suggesting that the
recovery of the expenditure is unlikely, for example a dry hole, the relevant capitalised 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.
- 52 -
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 (d) 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
Property and Equipment
Asset Depreciation
Rate Basis of Depreciation
5 – 33 % Straight Line
The Group uses the units-of-production method to amortise costs carried forward in relation to its development
and production assets. For this approach, the calculation is based upon economically recoverable reserves 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.
d) 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 (“CGU”) 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.
- 53 -
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.
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 2017 or 2016.
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.
e) 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.
- 54 -
Lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis over
the life of the lease term.
f) Financial Instruments
Recognition and Initial Measurement
Financial instruments, incorporating financial assets and financial liabilities, are recognised when the entity
becomes a party to the contractual provisions of the instrument. Trade date accounting is adopted for financial assets that
are delivered within timeframes established by marketplace convention.
Financial instruments are initially measured at fair value plus transactions costs where the instrument is not
classified at fair value through profit or loss. Transaction costs related to instruments classified at fair value through
profit or loss are expensed to profit or loss immediately. Financial instruments are classified and measured as set out
below.
Derivative Financial Instruments
The Group uses derivative financial instruments to economically hedge its exposure to changes in commodity
prices arising in the normal course of business. The principal derivatives that may be used are commodity crude oil 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, which do not qualify as “own-use”, 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.
The Company has designated one oil marketing contract that meets the definition of a derivative as own-use,
which under IFRS is not accounted for as a derivative. As a result, the revenues associated with such contract are
recognized during the period when volumes are physically delivered.
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.
- 55 -
g) Foreign Currency Transactions and Balances
Functional and Presentation Currency
Both the functional currency and the presentation currency of the Group is US dollars. Some subsidiaries have
Australian dollar functional currencies which are translated to the presentation currency. All operations of the Group are
incurred at subsidiaries where the functional currency is the US dollar as 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.
h) 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.
- 56 -
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-based RSUs is determined based on the price of the Company’s
ordinary shares on the date of grant and the 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 simulation 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 and 2017, the Group granted deferred cash compensation awards to certain employees, which may be
earned through appreciation in the volume weighted average price of the Company’s ordinary shares over periods of one
to three years. The awards may ultimately be settled in cash or fully vested RSUs at the discretion of the Board. The
Group recognizes general and administrative expense for the deferred cash compensation to the extent to which the
employees have rendered services, 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.
i) Provisions
Provisions are recognised when the group has a legal or constructive obligation, as a result of past events, for
which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. As of 31
December 2017, the Company had recognized a provisions related to a third-party refracturing agreement ($3.3 million).
j) 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.
k) 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 2017.
All revenue is stated net of royalties and transportation costs.
- 57 -
l) Borrowing Costs
Borrowing costs, including interest, directly attributable to the acquisition, construction or production of assets
that necessarily take a substantial period of time to prepare for their intended use or sale are added to the cost of those
assets until such time as the assets are substantially ready for their intended use or sale. Borrowings are recognised
initially at fair value, net of transaction costs incurred. Subsequent to initial recognition, borrowings are stated as
amortised cost with any difference between cost and redemption being recognised in the consolidated statement of profit
or loss and other comprehensive income over the period of the borrowings on an effective interest basis. The Company
capitalised eligible borrowing costs of $1.4 million and $1.1 million for the years ended 31 December 2017 and 2016,
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.
m) Goods and Services Tax
Expenses and assets are recognised net of the amount of Goods and Service Tax (“GST”), except where the
amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised
as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the
statement of financial position are shown inclusive of GST.
Cash flows are presented in the consolidated statement of cash flows on a gross basis except for the GST
component of investing and financing activities, which are disclosed as operating cash flows.
n) Business Combinations
A business combination is a transaction in which an acquirer obtains control of one or more businesses. The
acquisition method of accounting is used to account for all business combinations regardless of whether equity
instruments or other assets are acquired. The acquisition method is only applied to a business combination when control
over the business is obtained. Subsequent changes in interests in a business where control already exists are accounted
for as transactions between owners. The cost of the business combination is measured at fair value of the assets given,
shares issued and liabilities incurred or assumed at the date of acquisition. Costs directly attributable to the business
combination are expensed as incurred, except those directly and incrementally attributable to equity issuance.
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.
o) Assets Held for Sale
The Company classifies property as held for sale when management commits to a plan to sell the property, the
plan has appropriate approvals, the sale of the property is 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 2017, based upon the Company’s intent and anticipated ability to sell an interest in these properties, the
Company had classified its Dimmit County, Texas properties as held for sale. As at 31 December 2016 the Company had
its Mississippian/Woodward properties classified as held for sale.
- 58 -
p) Critical Accounting Estimates and Judgements
The Directors evaluate estimates and judgements incorporated into the financial report based on historical
knowledge and best available current information. Estimates assume a reasonable expectation of future events and are
based on current trends and economic data obtained both externally and within the Group. Revisions to accounting
estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the
period of the revision and future periods if the revision affects both current and future periods.
Management has made the following judgements, which have the most significant effect on the amounts
recognised in the consolidated financial statements.
Estimates of Reserve Quantities
The estimated quantities of hydrocarbon reserves reported by the Group are integral to the calculation of
amortisation (depletion) and to assessments of possible impairment of assets. Estimated reserve quantities are based
upon interpretations of geological and geophysical models and assessment of the technical feasibility and commercial
viability of producing the reserves. The Company engaged an independent petroleum engineering firm, Ryder Scott
Company to prepare its reserve estimates which conform to SEC guidelines. 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.
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 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.
- 59 -
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.
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 (h). 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 appreciation
through 2017, 2018 and 2019. The Company must also estimate expected volatility of the Company’s ordinary share
price when valuing these awards.
q) 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, unless otherwise indicated.
r) Parent Entity Financial Information
The financial information for the parent entity, SEAL (“Parent Company”), also the ultimate parent, discussed
in Note 36, 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.
- 60 -
s) 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.
t) 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.
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. The
Company adopted the standard on 1 January 2018 and it is not expected to have a material impact on the Group’s
consolidated financial statements.
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 standard is required to be adopted using either the full retrospective approach, with all the prior periods presented
adjusted, or the modified retrospective approach, with a cumulative adjustment to retained earnings on the opening
balance sheet. The new revenue recognition standard is effective for the Company on 1 January 2018, and was adopted
on that date using the modified retrospective method. The Company has substantially completed the assessment of its
contracts with customers and is in the process of implementing the changes to its financial statements, accounting
policies and internal controls as a result of the adoption of this standard.
Based upon the analysis performed to date on its contracts with customers, the Company does not expect the
adoption of IFRS 15 to have a material effect on net income, cash flows, or the timing of revenue recognition. In
addition, the Company is continuing to assess the additional disclosures that will be required upon implementation of the
standard.
- 61 -
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 statement of financial position, 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 or loss.
The effective date of this standard is for fiscal years beginning on or after 1 January 2019. As of 31
December 2017, the Company had approximately $2.5 million of contractual obligations related to its non-cancelable
leases, 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 effective 1 January 2019.
NOTE 2 — BUSINESS COMBINATIONS
Acquisitions in 2017
The Company did not complete any business combinations in 2017.
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.
- 62 -
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 for the year ended 31 December 2016 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.
NOTE 3 — DISPOSALS OF NON CURRENT ASSETS
Disposals in 2017
In May 2017, the Company completed the sale of its interest in its Oklahoma oil and gas properties and certain
other related assets and liabilities for a cash purchase price of $18.5 million, before closing adjustments. The sale was
effective 1 August 2016 and resulted in a pre‐tax loss of $1.3 million. As part of the sale, the purchaser also assumed the
Company’s restoration obligations associated with the properties of $0.9 million. The Oklahoma properties generated
revenue, net of production taxes and operating expenses, of $1.4 million in 2017 prior to completion of the sale.
Disposals in 2016
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 $7.1 million for the acreage. No gain or loss was recognized in consolidated
statement of profit and loss and other comprehensive income related to the sale.
NOTE 4 — REVENUE
Year ended 31 December
Oil revenue
Natural gas revenue
Natural gas liquid ("NGL") revenue
Total revenue
2017
2016
US$’000 US$’000
57,296
4,937
4,376
89,136
8,743
6,520
104,399
66,609
- 63 -
NOTE 5 — LEASE OPERATING EXPENSES
Year ended 31 December
Lease operating expense
Workover expense
Total lease operating expense
NOTE 6 — GENERAL AND ADMINISTRATIVE EXPENSES
Year ended 31 December
Employee benefits expense, including salaries and wages, net of
capitalised overhead
Share-based payments expense (1)
Legal and other professional fees
Corporate fees
Rent
Regulatory expenses
Transaction related costs
Other expenses
Total general and administrative expenses
2017
2016
US$’000 US$’000
(17,127) (11,259)
(1,678)
(22,416) (12,937)
(5,289)
2017
2016
US$’000 US$’000
(4,088)
(1,868)
(6,330)
(1,937)
(632)
(314)
(2,118)
(1,058)
(3,260)
(2,748)
(2,085)
(1,762)
(669)
(279)
(323)
(984)
(18,345) (12,110)
(1) Share-based payment expense includes expense associated with restricted share units and deferred cash awards. See
Note 33.
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 $2.7 million and $2.1 million and
for the years ended 31 December 2017 and 2016, respectively.
NOTE 7 — INCOME TAX EXPENSE
The Company assesses unrecognized deferred tax assets at the end of each reporting period. During the year
ended 31 December 2017, it became probable that the Company would not have sufficient future taxable profit in the
Australian jurisdiction to continue to recognize its deferred tax assets. Consequently, the Company has derecognized
these assets during the period. The net impact of derecognizing these items resulted in income tax expense of $7.1
million with income tax expense of $0.2 million charged directly to equity.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as
the Tax Cut and Jobs Act of 2017 (“TCJA”). The passage of this legislation resulted in the change in the U.S. statutory
rate from 35% to 21% beginning in January of 2018, the elimination of the corporate alternative minimum tax (“AMT”),
the acceleration of depreciation for US tax purposes, limitations on deductibility of interest expense, the elimination of
net operating loss carrybacks, and limitations on the use of future losses. In accordance with IAS 12 - Income Taxes, the
impact of a change in tax law is recorded in the period of enactment or substantial enactment. Consequently, the
Company has recorded a decrease to its deferred tax assets of $18.8 million with a corresponding net adjustment to its
unrecognized tax assets for the year ended December 31, 2017. In addition to the elimination of the AMT, the TCJA
allows for the refund of existing AMT credits beginning in tax years 2018 and continuing through tax year 2021.
Consequently, the Company has reclassified its AMT credit of $4.7 million from an unrecognized tax asset to income
tax receivable- noncurrent on the consolidated balance sheet, which will be claimed 50% on the Company’s tax filing for
2018, 25% on the filing for 2019, 12.5% on the filing for 2020, and 12.5% on the filing for 2021. This results in a
current tax benefit of $4.7 million.
- 64 -
The Company believes the effects of the change in tax law incorporated herein are substantially complete, but
may be adjusted in future periods if additional information is obtained or further clarification or guidance is issued by
regulatory authorities regarding this application of the law. As a result of other changes introduced by the TCJA,
starting with compensation paid in 2018, Section 162(m) will limit us from deducting compensation, including
performance-based compensation, in excess of $1 million paid to anyone who, starting in 2018, serves as the Chief
Executive Officer or Chief Financial Officer, or who is among the three most highly compensated executive officers for
any fiscal year. The only exception to this rule is for compensation that is paid pursuant to a binding contract in effect
on November 2, 2017 that would have otherwise been deductible under the prior Section 162(m) rules. Accordingly,
any compensation paid in the future pursuant to new compensation arrangements entered into after November 2, 2017,
even if performance-based, will count towards the $1 million fiscal year deduction limit if paid to a covered executive.
Additional information that may affect our income tax accounts and disclosures would include further clarification and
guidance on how the Internal Revenue Service will implement tax reform, including guidance with respect to 100%
bonus depreciation on self-constructed assets, further clarification and guidance on how state taxing authorities will
implement tax reform and the related effect on our state income tax returns, completion of our 2017 tax return filings,
and the potential for additional guidance from the IASB related to tax reform.
The following is a summary of 2017 and 2016 income tax expense:
Year ended 31 December
a) The components of income tax expense comprise:
Current tax expense (benefit)
Deferred tax expense
Total income tax expense (benefit)
2017
US$’000
2016
US$’00
(4,688)
2,815
(1,873)
1,563
142
1,705
b) The prima facie tax on loss from ordinary activities before income tax is reconciled to the
income tax as follows:
Loss before income tax
(24,308)
(43,989)
Prima facie tax expense at the Group’s statutory income tax rate of 30%
(7,293)
(13,197)
Increase (decrease) in tax expense resulting from:
- Change in US Federal tax rate
- Difference of tax rate in US controlled entities
- Impact of direct accounting from US controlled entities (1)
- Share-based compensation
- Other allowable items
- Refundable AMT Credits
- Change in unrecognized tax assets
- Change in unrecognized tax assets due to Tax Reform
Total income tax expense (benefit)
18,821
(53)
(8)
781
(83)
(4,688)
9,471
(18,821)
(1,873)
—
(2,161)
(98)
539
314
—
16,308
—
1,705
c) Unused tax losses and temporary differences for which no deferred tax asset has been
recognised at 30%
36,672
46,022
d) Deferred tax charged directly to equity:
- Equity raising costs
- Currency translation adjustment
821
(952)
(986)
73
(1)
The Oklahoma US state tax jurisdiction computes income taxes on a direct accounting basis.
- 65 -
Subsequent to 31 December 2017, the Company consolidated its two U.S. tax entities and will report as a single
taxpayer in the U.S.
NOTE 8 — OTHER INCOME, NET
Year ended 31 December
Litigation settlements, net (1)
Insurance proceeds (2)
Escrow settlement from prior period property disposition (3)
Restructuring expenses (4)
Loss on foreign currency derivative
Other
Total other income, net
2017
US$’000
(748)
—
1,000
(56)
—
261
457
2016
US$’000
1,200
2,375
—
(856)
(390)
(320)
2,009
(1) Litigation settlements, net recorded during the year ended 31 December 2017 includes the net impact of multiple
favorable and unfavorable legal settlements, including an accrual for $1.0 million related to the Company’s 2013
sale of its non-operated North Dakota properties. In August 2015, the Buyer filed a lawsuit against the Company
seeking payment for costs not included by the Buyer in the final post-closing settlement. In August 2017, a jury
ruled in favor of the Buyer. The Company is currently appealing the decision, but has established a liability for such
damages.
During 2016, 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 or loss).
(2) During 2016, the Company received insurance proceeds of $2.4 million related to a well control incident in 2014.
(3) During 2017, the Company received a cash payout of $1.0 million from an escrow holding drilling commitment-
related funds related to properties sold by the Company in 2014. There had previously been uncertainty as to
whether the drilling commitments would be met and to whom the funds would be paid to, and was therefore
unrecognized in 2014.
(4) 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
for the year ended 31 December 2016 included $0.4 million in employee severance costs and $0.5 million in office
lease-related costs for certain office space that is expected to be no longer used as a result of office space
consolidation. The office-lease-related costs represent the Company’s future obligations under the operating leases,
net of anticipated sublease income. See also Note 23.
- 66 -
NOTE 9 — KEY MANAGEMENT PERSONNEL COMPENSATION
a)
Directors and Key Management Personnel Compensation
The total remuneration paid to Directors and Key Management Personnel (“KMP”) of the Group during
the year is as follows:
Year ended 31 December
Short term wages and benefits
Share-based payments (equity or cash settled) (1)
Post-employment benefit
2017
US$
2016
US$
1,443,974 1,297,845
1,428,457 2,024,803
48,919
2,925,749 3,371,567
53,318
(1)
The 2014 short-term incentive 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.
b) Restricted Share Units Granted as Compensation
RSUs awarded as compensation were 7,835,513 ($0.5 million fair value) and 9,906,997 ($1.2 million fair
value) during the years ended 31 December 2017 and 2016, respectively, to KMP. The vesting provisions of the RSUs in
effect during 2017 and 2016 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 (“ATSR”) or total shareholder return (“TSR”) as
compared to its peer group. The details of the ATSR and TSR RSUs are described in more detail in the Remuneration
Report.
c) Deferred Cash Awards as Compensation
Deferred cash awards vest based on the appreciation of the Company’s ordinary share volume weighted average
price measured over a one to three year period. The liability and expense associated with such awards is measured at the
end of each reporting period. Deferred cash awarded as compensation to KMP was $1,138,503 and $1,264,998 during
the years ended 31 December 2017 and 2016, of which $379,501 and $632,499 was forfeited as the performance metrics
associated with these awards were not achieved as at 31 December 2017. The deferred cash award is described in more
detail in the Remuneration Report.
NOTE 10 — AUDITORS’ REMUNERATION
Year ended 31 December
Amounts paid or payable to the auditor for:
Auditing or review of the financial report (1)
Total remuneration of the auditor
2017
US$
2016
US$
485,000
485,000
461,360
461,360
(1) The 2016 amount includes $361,360 paid to the Company’s former auditor, Ernst & Young, who provided audit
services for the year ended 31 December 2015.
- 67 -
NOTE 11 — EARNINGS (LOSS) PER SHARE (EPS)
Year ended 31 December
Loss for periods used to calculate basic and diluted EPS
2017
US$’000
(22,435)
2016
US$’000
(45,694)
Number
of shares
Number
of shares
a) -Weighted average number of ordinary shares outstanding during the period used
in calculation of basic EPS(1)
b) -Incremental shares related to options and restricted share units(2)
c) -Weighted average number of ordinary shares outstanding during the period used
in calculation of diluted EPS
1,251,338,659 870,582,898
—
—
1,251,338,659 870,582,898
(1) Calculation excludes approximately 1.5 million ordinary shares held in escrow as at 31 December 2017 and 2016.
The shares were issued as part of the New Standard Energy (“NSE”) acquisition in 2015 and are expected to be
returned to the Company in satisfaction of certain working capital adjustments.
(2) Incremental shares related to restricted share units were excluded from 31 December 2017 and 2016 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.
Subsequent to 31 December 2017, the Company issued 1,044,901,944 additional ordinary shares in connection
with its $260 million equity-raise, described in Note 39. The Company expects to issue an additional 4,569.5 million
ordinary shares in April 2018.
NOTE 12 — TRADE AND OTHER RECEIVABLES
Year ended 31 December
Oil, natural gas and NGL sales
Joint interest billing receivables
Commodity hedge contract receivables
Other
Total trade and other receivables
2017
US$’000
2016
US$’000
2,604
930
—
432
3,966
8,201
1,545
37
3
9,786
Due to the short-term nature of trade and other receivables, their carrying amounts are assumed to approximate
fair value. No material receivables were outside of normal trading terms as at 31 December 2017 and 2016.
- 68 -
NOTE 13 — DERIVATIVE FINANCIAL INSTRUMENTS
Year ended 31 December
FINANCIAL ASSETS:
Current
Derivative financial instruments — commodity contracts
Non-current
Derivative financial instruments — commodity contracts
Total financial assets
FINANCIAL LIABILITIES:
Current
Derivative financial instruments — commodity contracts
Non-current
Derivative financial instruments — commodity contracts
Total financial liabilities
NOTE 14 — ASSETS HELD FOR SALE
2017
US$’000
2016
US$’000
383
223
606
5,618
3,728
9,346
—
279
279
4,579
3,215
7,794
The consolidated statement of financial position includes assets and liabilities as held for sale, comprised of the
following:
Year ended 31 December
Eagle Ford - Dimmit County oil and gas assets
Mississippian/Woodford oil and gas assets
Total assets held for sale
Restoration provision associated with held for sale developed assets
Total liabilities related to assets held for sale
2017
US$’000
2016
US$’000
61,064
—
61,064
—
18,309
18,309
1,064
1,064
941
941
In June 2017, the Company committed to a plan to sell its assets located in Dimmit County, Texas. The assets
to be sold include developed and production assets and exploration and evaluation expenditures. Sale of the Dimmit
assets will provide additional capital for further development of the Company’s core McMullen and Atascosa County
assets. The Company wrote-down the value of the Dimmit held for sale asset group as at 31 December 2017. See Note
19 for additional information.
As at 31 December 2017, certain of the Company’s assets held for sale were included in the borrowing base
value under the Company’s Credit Agreement. Upon the sale of these assets, the lender may elect to reduce the then
effective borrowing base by an amount equal to the value attributed to those assets if the value of the remaining assets
does not meet the prescribed asset coverage thresholds. There are many variables that affect the lender’s determination
of borrowing base value at any point in time and therefore it is difficult for the Company to estimate the borrowing base
value at an undetermined point in the future so the amount that would be required to be repaid, if any, is uncertain.
The Company’s Mississippian/Woodford assets were classified as held for sale as at 31 December 2016. The
Company completed the sale of these assets in May 2017. Upon the completion of the sale of the
Mississippian/Woodford assets, the Company’s lender reaffirmed the Company’s borrowing base. See Note 3 for
additional information.
- 69 -
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 2017
(US$’000)
Assets measured at fair value
Derivative commodity contracts
Liabilities measured at fair value
Derivative commodity contracts
Net fair value
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
—
606
—
606
—
—
(9,346)
(8,740)
—
—
(9,346)
(8,740)
Level 1
Level 2
Level 3
Total
—
279
—
279
—
—
(7,794)
(7,515)
—
—
(7,794)
(7,515)
During the years ended 31 December 2017 and 2016 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). 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.
- 70 -
b) Credit Facilities
As at 31 December 2017, 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 $119
million, based on indirect, observable inputs (Level 2) regarding interest rates available to the Company. The fair value
of the Term Loan was determined by using a discounted cash flow model using a discount rate that reflects the
Company’s assumed borrowing rate at the end of the reporting period. The Company’s Revolving Facility has a
recorded value that approximates its fair value as its variable interest rate is tied to current market rates and the
applicable margins of 2%-3% approximate market rates.
c) Other Financial Instruments
The carrying amounts of cash, accounts receivable, accounts payable and accrued liabilities and the production
prepayment approximate fair value due to their short-term nature.
NOTE 16 — OTHER CURRENT ASSETS
Year ended 31 December
Oil inventory on hand, lesser of cost or net realizable value
Equipment inventory, lesser of cost or net realizable value
Prepaid expenses
Other
Total other current assets
NOTE 17 — DEVELOPMENT AND PRODUCTION ASSETS
Year ended 31 December
Costs carried forward in respect of areas of interest in:
Development and production assets, at cost:
Producing assets
Wells-in-progress
Undeveloped assets
-Development and production assets, at cost:
Accumulated depletion
Accumulated impairment
Total development and production expenditure
Less amount classified as asset held for sale (1)
Total Development and Production Expenditure, net of assets held for sale
a) Movements in carrying amounts:
Development expenditure
Balance at the beginning of the period
Amounts capitalised during the period
Fair value of assets acquired
Revision to restoration provision
Depletion expense
Impairment expense
Development and production assets sold during the period
Reclassifications from assets held for sale (2)
Reclassifications to assets held for sale (1)
Balance at end of period
- 71 -
2017
US$’000
908
1,479
915
170
3,472
2016
US$’000
517
1,721
1,205
635
4,078
2017
US$’000
2016
US$’000
778,735
954
31,580
811,269
(277,098)
(136,643)
397,528
(58,732)
338,796
838,792
4,997
30,119
873,908
(258,613)
(258,277)
357,018
(18,309)
338,709
338,709
115,120
—
1,550
(57,851)
—
—
—
(58,732)
338,796
250,922
57,893
23,873
3,238
(47,490)
(3,409)
(5,030)
77,021
(18,309)
338,709
(1) In 2017, the Company committed to a plan to sell its interests in Dimmit County, Texas. Balance reflects amount
transferred to assets held for sale before impairment (see Note 19).
(2) In 2016, the Company abandoned a plan to sell 25% of its Eagle Ford assets due to a change in its corporate strategy
as a result of a capital raise.
Borrowing costs relating to drilling of development wells that have been capitalised as part of oil and gas
properties during the years ended 31 December 2017 and 2016 were $1.4 million and $1.1 million, respectively. The
interest amounts capitalised as a percent of the total interest incurred for years ended 31 December 2017 and 2016 were
10.2% and 6.7%, respectively.
NOTE 18 — EXPLORATION AND EVALUATION EXPENDITURE
Year ended 31 December
Costs carried forward in respect of areas of interest in:
Exploration and evaluation phase, at cost
Provision for impairment
Total exploration and evaluation expenditures
Less amount classified as asset held for sale (1)
Total Exploration and Evaluation Expenditure, net of assets held for sale
a) Movements in carrying amounts:
Exploration and evaluation
Balance at the beginning of the period
Amounts capitalised during the period
Exploration costs expensed
Exploration tenements sold during the period
Impairment expense
Reclassifications from assets held for sale (2)
Reclassifications to assets held for sale (1)
Balance at end of period
2017
US$’000
2016
US$’000
185,819
(143,093)
42,726
(7,747)
34,979
176,550
(142,184)
34,366
—
34,366
34,366
8,528
—
—
(168)
—
(7,747)
34,979
26,323
4,429
(30)
(2,096)
(7,871)
13,611
—
34,366
(1) In 2017, the Company committed to a plan to sell its interests in Dimmit County, Texas. Balance reflects
amount transferred to assets held for sale before impairment (see Note 19).
(2) In 2016, the Company abandoned a plan to sell 25% of its Eagle Ford assets due to a change in its corporate
strategy as a result of a capital raise.
The ultimate recoupment of costs carried forward for exploration phase is dependent on the successful
development and commercial exploitation or sale of respective areas.
NOTE 19 — IMPAIRMENT OF ASSETS
Year-End 2017
Non-current oil and gas assets
At 31 December 2017, the Group reassessed its non-current Eagle Ford assets for indicators of impairment or
whether there was any indication that an impairment loss may no longer exist or may have decreased in accordance with
the Group’s accounting policy. As at 31 December 2017, the Company’s market capitalisation was lower than the net
book value of the Company’s net assets, which is deemed to be an indicator of impairment as described by IAS 36. As a
result, the Company believes that under the prescribed accounting guidance there was indication that an impairment may
exist related to its development and production assets and performed an impairment analysis. There was no indication of
impairment or reversal of impairment related to its evaluation and expenditure assets.
- 72 -
The Company estimated the VIU of the development and production assets using the income approach (Level 3
on fair value hierarchy) based on the estimated discounted future cash flows from the assets. The model took into
account management’s best estimate for pricing and discount rates, as described below. In addition, the Company
considered comparable market transactions to corroborate the estimated fair values.
Future commodity price assumptions 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 2017 VIU calculation were as follows:
2018
2019
2020
2021
2022
2023 and
thereafter
$
60.00
$
62.50 $
65.00 $
67.50 $
70.00 $
75.00
The pre-tax discount rates that have been applied to the development and production assets were 9.0% and 20.0%
for proved developed producing and proved undeveloped properties, respectively.
Management’s estimate of the recoverable amount using the VIU model as at 31 December 2017 exceeded the
carrying cost of development and production and therefore no impairment was required.
Dimmit County Assets Held For Sale
In accordance with IFRS 5, assets held for sale are to be measured at the lower of FVLCS or the carrying value
of the assets. To estimate FVLCS of the Dimmit County held for sale group at 31 December 2017, the Group utilized the
income approach (Level 3 on fair value hierarchy) based on the estimated discounted future cash flows from the producing
property and related exploration and evaluation assets. The model took into account management’s best estimate for
pricing (described above) and discount rates, as described below. The Company is marketing the assets using internal
personnel and therefore the cost of disposal is not expected to be material.
The post-tax discount rates that have been applied to the Dimmit County held for sale asset group were 9.0% and
20.0% for proved developed producing and proved undeveloped properties, respectively. Management’s estimate of post-
tax discount rates may be adjusted in the future based on the impact of TCJA, however it is too early for the Company to
assess the impact on market participant behavior and assumptions because the enactment occurred near year-end and there
have been limited comparable transactions subsequent to enactment. Based on recent comparable market transactions, the
Company assigned no value to probable and possible reserves, consistent with the approach management believes a market
participant would utlise.
In addition, the Company corroborated the results of its discounted cash flow model with a market approach
valuation which took into account market multiples derived from comparable market transactions of similar assets.
The Company’s estimated that the FVLCS as at 31 December 2017 was $61 million, which resulted in
impairment expense of $5.4 million.
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.
- 73 -
Mississippian/Woodward assets
The Company actively marketed its Mississippian/Woodward assets in the second half of 2016. Based on the
value of third-party bids and the execution of a purchase of sale agreement subsequent 31 December 2016, 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 was equal to the difference
between the carrying value and the estimated sale proceeds as at 31 December 2016, less selling costs. The Company
recognized an additional loss on the sale of $1.3 million in 2017.
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. The Company continued to incur and impair capital
costs related to the Cooper Basin in 2017, totaling $0.2 million.
Recoverable amounts and resulting impairment expense recognized in conjunction with the Company’s
impairment analysis as at 31 December 2017 and 2016 are presented in the table below.
31 December 2017
Cash-generating unit
Carrying costs
US$’000
Recoverable
amount
US$’000
Impairment (1)
US$’000
Assets held for sale - Dimmit County
66,479
61,064
5,415
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
1,183
6,688
7,871
—
—
—
21,693
21,693
18,309
18,309
1,183
6,688
7,871
3,384
3,384
(1) Total impairment expense for the year ended 31 December 2017 also included $0.2 million related to additional
costs incurred at the Cooper Basin, which was fully impaired in 2016.
(2) Total impairment expense for the year ended 31 December 2016 was $11.3 million, which was net of an adjustment
to 2015 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 $10.2 million.
Any further adverse changes in any of the key assumptions may result in future impairments.
- 74 -
NOTE 20 — PROPERTY AND EQUIPMENT
Year ended 31 December
Property and equipment, at cost
Accumulated depreciation
Total Property and Equipment
a) Movements in carrying amounts:
Balance at the beginning of the period
Amounts capitalised during the period
Amounts disposed of during the period
Depreciation expense
Balance at end of period
NOTE 21 — TRADE AND OTHER PAYABLES AND ACCRUED EXPENSES
Year ended 31 December
Oil and natural gas property and operating related
Administrative expenses, including salaries and wages
Accrued interest payable
Commodity derivative contract payables
Total trade, other payables and accrued expenses
NOTE 22 — PRODUCTION PREPAYMENT
2017
US$’000
3,628
(2,382)
1,246
2016
US$’000
3,146
(1,935)
1,211
1,211
659
(122)
(502)
1,246
1,382
355
(151)
(375)
1,211
2017
US$’000
40,001
4,494
3,057
550
48,102
2016
US$’000
18,588
2,225
2,761
—
23,574
On 31 July 2017, the Company entered into an agreement with Vitol Inc. (“Vitol”), the Company’s oil
purchaser, to provide a revenue advance to the Company of $30 million to be repaid through delivery of the Company’s
oil production through full repayment of the $30 million. The advance bears interest at rate of 10% per annum.
The Company began repaying the advance in October 2017 at a rate of $20 per gross barrel produced by
Sundance operated wells through 31 December 2017. The rate of repayment increased to $25 per gross barrel beginning
1 January 2018 through full repayment. Under the agreement, the Company’s oil production continues to be sold at the
prevailing contract rates, with the Company retaining any differential between market and the aforementioned per barrel
repayment amount. If the Company has not fully repaid the liability by 31 March 2018, the repayment rate will increase
to $40 per gross barrel produced. The Company expects the repay the liability in full in April 2018 upon completion of
the acquisition, equity raise and debt refinancing, described in more detail in Note 39. This agreement provided near-
term liquidity to the Company to complete its 2017 development plan. As at 31 December 2017, the balance outstanding
under the agreement was $18.2 million.
- 75 -
NOTE 23 — OTHER PROVISIONS
Year ended 31 December
Balance at the beginning of the period (1)
New provisions
Changes in estimates
Settlements
Unwinding of discount
Reclassification from provisions to accrued liabilities
Balance at end of period (1)
2017
US$’000
6,025
—
(747)
(1,932)
73
(103)
3,316
2016
US$’000
—
6,025
—
—
—
—
6,025
(1) As at 31 December 2017 and 2016, $1.2 million and $2.8 were classified as current, respectively.
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, expiring in 2021. The estimate of the
payout amount requires judgements regarding future production, pricing, operating costs and discount rates.
Also during 2016, the Company recognized a provision related to certain office space that was to no longer be
used as a result of office space consolidation. The office‐lease‐related costs represented the Company's estimate of future
obligations under the operating leases, net of anticipated sublease income. The Company entered into an agreement to
sublease the office space in 2017 and at 31 December 2017, the liability was no longer considered a provision. The
remaining liability was reclassified into accrued expenses on the consolidated statement of financial position.
NOTE 24 — CREDIT FACILITIES
Revolving Facility
Term Loan
Total Credit Facilities
Deferred financing fees, net of accumulated amortisation
Total credit facilities, net of deferred financing fees
2017
US$000
67,000
125,000
192,000
(2,690)
189,310
2016
US$000
66,750
125,000
191,750
(3,501)
188,249
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 Credit Agreement is secured by
certain of the Company’s oil and gas properties. 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 2017.
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.
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%.
- 76 -
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
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 2017, the Company was in compliance with all restrictive financial and other covenants
under the Credit Agreement.
The Company expects to refinance its Credit Facilities in April 2018 upon completion of its acquisition and
equity raise described in more detail in Note 39.
NOTE 25 — 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 2047. Assumptions, based on the
current economic environment, have been made which management believes are a reasonable basis upon which to
estimate the future liability. The estimate of future removal costs requires management to make significant judgments
regarding removal date or well lives, the extent of restoration activities required, discount and inflation rates. These
estimates are reviewed regularly to take into account any material changes to the assumptions. However, actual
restoration costs will reflect market conditions at the relevant time. Furthermore, the timing of restoration is likely to
depend on when the fields cease to produce at economically viable rates. This in turn will depend on future oil and
natural gas prices, which are inherently uncertain.
Year ended 31 December
Balance at the beginning of the period
New provisions
Changes in estimates
Disposals and settlements
New provisions assumed from acquisition
Unwinding of discount
Reclassification from liabilities related to assets held for sale
Reclassification to liabilities related to assets held for sale
Balance at end of period
2017
US$’000
7,072
938
663
(256)
—
214
—
(1,064)
7,567
2016
US$’000
3,088
305
2,956
(114)
894
140
744
(941)
7,072
- 77 -
NOTE 26 — DEFERRED TAX ASSETS AND LIABILITIES
Deferred tax assets and liabilities are attributable to the following:
Year ended 31 December
Net deferred tax assets:
Share issuance costs
Net operating loss carried forward
Accrued interest
Derivatives
Development and production expenditure
Other
Total net deferred tax assets
Deferred tax liabilities:
Development and production expenditure
Offset by deferred tax assets with legally enforceable right of set-off:
Net operating loss carried forward
Credits
Accrued interest
Total net deferred tax liabilities
NOTE 27 — ISSUED CAPITAL
2017
US$’000
2016
US$’000
—
—
—
1,884
—
111
1,995
1,534
2,636
(2,756)
—
1,269
2,683
(25,971)
(10,654)
23,976
—
—
(1,995)
7,218
—
3,436
—
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 2015
Shares issued during the year (1)
Total shares issued and outstanding at 31 December 2016
Shares issued during the year
Total shares issued and outstanding at 31 December 2017
Number of Shares
559,103,562
690,248,055
1,249,351,617
3,897,911
1,253,249,528
(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.
Subsequent to 31 December 2017, the Company issued 1,0444,901,944 additional ordinary shares in connection
with its $260 million equity raise, described in Note 39. The Company expects to issue an additional 4,569.5 million
ordinary shares in April 2018.
- 78 -
Ordinary shares participate in dividends and the proceeds on winding up of the Parent Company in proportion
to the number of shares held. At shareholders’ meetings each ordinary share is entitled to one vote when a poll is called,
otherwise each shareholder has one vote on a show of hands.
Year ended 31 December
b) Issued Capital
Beginning of the period
Shares issued in connection with:
Share consideration paid in business combination
Shares issued in conjunction with private placement (1)
Total shares issued during the period
Cost of capital raising during the period, net of tax benefit
Derecognition of deferred tax asset (see note 7)
2017
2016
US$’000 US$’000
373,585
308,429
—
—
—
—
(821)
—
67,499
67,499
(2,343)
—
Closing balance at end of period
372,764
373,585
(1) In 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.
c) Restricted Share Units on Issue
Details of the restricted share units issued or issuable as at 31 December:
Grant Date
15 April 2014
30 May 2014
28 May 2015
28 May 2015 (1)
24 June 2015
24 June 2015 (1)
1 August 2015
15 March 2016 (2)
27 May 2016 (2)
29 June 2016 (2)
15 August 2016 (2)
15 August 2016
3 January 2017
17 February 2017 (2)
25 May 2017 (2)
23 October 2017 (2)
23 October 2017
29 December 2017
Total RSUs outstanding
2017
2016
No. of RSUs No. of RSUs
393,311
—
167,997
—
1,030,075
515,037
1,545,113
1,545,113
2,382,229
1,122,571
2,267,879
2,267,879
214,000
107,000
6,824,950
6,824,951
4,342,331
4,342,331
3,614,316
1,633,763
800,000
—
200,000
—
—
187,500
—
6,627,667
—
3,724,191
—
745,000
—
1,500,000
—
2,660,358
33,803,361 23,782,201
(1) RSU’s vest based on 3-year TSR as compared to a designated peer group. Subsequent to 31 December 2017, the 3-
year TSR was measured and 1,081,579 and 1,587,516 shares were vested and 463,534 and 680,363 shares were
forfeited related to the 28 May 2015 and 24 June 2015 grants, respectively.
(2) ATSR RSUs vest based on 3-year total shareholder return. These are described in more detail in the Remuneration
Report on page 26.
- 79 -
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 24, 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 2017 and 2016, the Company had $192
million outstanding debt.
NOTE 28 — 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 29 — CAPITAL AND OTHER EXPENDITURE COMMITMENTS
Capital commitments relating to tenements
As at 31 December 2017, all of the Company’s core exploration and evaluation and development and
production assets are located in 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.
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$6.2 million (US$4.8 million) had been incurred as at 31 December 2017.
- 80 -
The following tables summarize the Group’s contractual commitments not provided for in the consolidated
statements of financial position:
As at 31 December 2017
Cooper Basin capital commitments (1)
Operating lease commitments (2)
Employment commitments (3)
Total expenditure commitments
As at 31 December 2016
Cooper Basin capital commitments (1)
Drilling rig commitments (4)
Operating lease commitments (2)
Employment commitments (3)
Total expenditure commitments
Total
US$’000
3,490
2,446
370
6,306
Less than
1 year
1,745
1,050
370
3,165
1 — 5 years
1,745
1,396
—
3,141
More than
5 years
—
—
—
—
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
1,686
—
2,267
370
4,323
More than
5 years
—
—
503
—
503
(1) The Company has a commitment to fund capital expenditures at the Cooper Basin of up to approximately A$10.6
million through 2019, of which A$6.2 million and A$5.9 million had been paid or accrued to date as at 31
December 31, 2017 and 2016, respectively. The remaining commitment amounts in table are shown in USD
translated at year-end. Timing of commitment may vary.
(2) Represents commitments for minimum lease payments in relation to non-cancellable operating leases for office
space, net of sublease rental income, compressor equipment and the Company’s amine treatment facility not
provided for in the consolidated financial statements.
(3) 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.
(4) 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.
NOTE 30 — CONTINGENT ASSETS AND LIABILITIES
The Company is involved in various legal proceedings in the ordinary course of business. 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 these 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, 2017. 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.
- 81 -
NOTE 31 — 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. For the years ended 31
December 2017 and 2016, all statement of profit or loss and other comprehensive income activity was attributed to its
reportable segment with the exception of $0.2 million and $6.7 million of pre-tax impairment expense, which related to
the impairment of its Cooper Basin assets in Australia, respectively.
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 2017 and 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 2017 and accounted for 50 and 34 percent, respectively (2016: two major customers accounted for 69 and 12
percent, respectively) of our consolidated oil, natural gas and NGL revenues.
NOTE 32 — 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 losses on derivatives
Net loss on sale of non-current assets
Impairment of development and production assets
Unsuccessful exploration and evaluation expense
Add: Interest expense and financing costs (disclosed in investing and financing
activities)
Recognition (derecognition) of deferred tax assets on items directly within equity
Less: Gain from escrow settlement, insurance proceeds and litigation settlements
(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
- Decrease (increase) in other current assets
- Decrease in trade and other receivables
- Increase (decrease) in trade and other payables
- Decrease in tax receivable
Net cash provided by operating activities
2017
US$’000
2016
US$’000
(22,435)
(45,694)
58,361
2,076
1,224
1,461
5,583
—
12,676
(821)
(2,200)
—
541
2,888
72
5,241
9,633
476
74,776
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
- 82 -
b) Supplemental cash flow information
The Company had non-cash additions to oil and natural gas properties of $27,726 and $13,161 included in
current liabilities at 31 December 2017 and 2016, respectively.
NOTE 33 — SHARE-BASED PAYMENTS
The Company recognized share-based compensation expense of $1.9 million and $2.7 million for the years
ended 31 December 2017 and 2016, respectively, comprised of RSUs (equity-settled) and deferred cash awards (cash-
settled).
Restricted Share Units
During the years ended 31 December 2017 and 2016, the Board of Directors awarded 15,757,216 and
16,992,192 RSUs, respectively, to certain employees (of which 3,724,191 and 5,113,281, 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 totaled $2.1 million and $2.5 million for the years ended 31 December 2017 and 2016, respectively. This
information is summarised for the Group for the years ended 31 December 2017 and 2016 below:
Outstanding at 31 December 2015
Issued or Issuable (1)
Converted to ordinary shares
Forfeited
Outstanding at 31 December 2016
Issued or Issuable
Converted to ordinary shares
Forfeited
Outstanding at 31 December 2017
Weighted Average Fair
Value at Measurement
Number
of RSUs
12,434,338
18,267,192
(5,501,538)
(1,417,792)
23,782,200
15,757,216
(3,897,911)
(1,838,144)
33,803,361
Date A$
0.55
0.18
0.54
0.59
0.34
0.09
0.43
0.15
0.22
(1) Includes 1,275,000 of RSUs formally issued on the ASX in 2016 in conjunction with a 2015 option conversion.
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 2017:
Grant Date
Number of RSUs
Fair Value at
Measurement Date
(Per RSU in US$)
Vesting Conditions
3 January 2017
9 January 2017
2 February 2017
25 May 2017
23 October 2017
23 October 2017
29
December 2017
250,000 $
250,000 $
6,627,667 $
3,724,191 $
745,000 $
1,500,000 $
2,660,358 $
15,757,216
0.22 25% after 90 days; then 25% on 3 January 2018, 2019 and 2020
0.24 25% after 90 days; then 25% on 9 January 2018, 2019 and 2020
0.12 0 % - 150% based on 3 year ATSR
0.05 0 % - 150% based on 3 year ATSR
0.03 0 % - 150% based on 3 year ATSR
0.05 25% after 90 days; then 25% on 23 October 2018, 2019 and 2020
0.07 33 % on 31 January 2018, 2019 and 2020
- 83 -
RSUs awarded during the year ended 31 December 2016:
Grant Date
15 March 2016
27 May 2016
27 May 2016
29 June 2016
15 August 2016
15 August 2016
Number of RSUs
Fair Value at
Measurement Date
(Per RSU in US$)
Vesting Conditions
6,824,950 $
4,342,331 $
770,950 $
3,853,961 $
400,000 $
800,000 $
16,992,192
0.15 0 % - 133% based on 3 year ATSR
0.10 0 % - 133% based on 3 year ATSR
0.12 100 % vested immediately
0.08 33 % on 1 January 2017, 2018 and 2019
0.11 50 % on 13 November 2016 and 50% on 11 February 2017
0.11 0 % - 133% based on 3 year ATSR
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 2017
and 2016 the weighted average price of the RSUs at the date of conversion was A$0.19 and A$0.11 per share,
respectively.
At 31 December 2017, the weighted average remaining contractual life of the RSUs was 1.4 years.
Deferred Cash Awards
During the years ended 31 December 2017 and 2016, the Board of Directors awarded $2.0 million and $2.1
million of deferred cash awards to certain employees. Under the deferred cash plan, awards may vest between
0%-300%, earned through appreciation in the price of Sundance’s ordinary shares over a one to three year period. 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 Company recorded income of $(0.2) million and expense of $0.2
million for the years ended 31 December 2017 and 2016, respectively. The estimated weighted average fair value of
each one dollar unit of deferred cash awards as at 31 December 2017 was $0.03, resulting in a total liability of $16
thousands.
Outstanding at 31 December 2015
Granted
Vested and paid in cash
Forfeited
Outstanding at 31 December 2016
Granted
Vested and paid in cash
Forfeited
Outstanding at 31 December 2017
Amount
of Deferred
Cash Awards
—
2,079,879
—
(31,681)
2,048,198
1,998,675
—
(1,744,228)
2,302,645
NOTE 34— RELATED PARTY TRANSACTIONS
There were no material related party transactions for the years ended 31 December 2017 and 2016.
- 84 -
NOTE 35 — 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 commodity prices, and at times,
interest rates and foreign currency transactions. 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.
- 85 -
A summary of the Company’s outstanding derivative positions as at 31 December 2017 is below:
Oil Derivatives (WTI/LLS)
Weighted Average (1)
Year
Units (Bbls)
Floor
Ceiling
2018
2019
2020
Total
891,000 $
828,000 $
108,000 $
1,827,000 $
50.40 $
50.56 $
47.05 $
50.28 $
56.86
53.49
52.50
55.07
Gas Derivatives (HH/HSC)
Weighted Average (1)
Year
Units (Mcf)
Floor
Ceiling
2018
2019
2020
Total
2,106,000 $
1,212,000 $
216,000 $
3,534,000 $
2.92 $
2.78 $
2.54 $
2.85 $
3.24
3.47
2.93
3.30
(2) The Company’s outstanding derivative positions include swaps totaling 1,089,000 Bbls and 1,350,000 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.
At 31 December 2017, the Group had three customers that owed the Group approximately $1.0 million, $0.8
million and $0.6 million which accounted for approximately 39%, 29% and 22% of total accrued revenue receivables,
respectively. In the event that the customer to the Company’s largest outstanding receivable defaults, the Company
could draw upon a letter of credit in place for the Company’s benefit. For joint interest billing receivables, if payment is
not made, the Group can withhold future payments of revenue, as such, there is minimal to no credit risk associated with
these receivables.
- 86 -
d) Liquidity Risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The
Group’s approach to managing liquidity is to ensure that it will have sufficient liquidity to meet its liabilities as they
become due, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group manages
liquidity risk by maintaining adequate reserves and banking facilities by continuously monitoring forecast and actual
cash flows, and by matching the maturity profiles of financial assets and liabilities. Financial liabilities are at contractual
value, except for provisions, which are estimated at each period end.
The Company has the following commitments related to its financial liabilities (US$’000):
Total
Year ended 31 December 2017
9,051
Trade and other payables
39,051
Accrued expenses
18,194
Production prepayment
Provisions
3,316
Credit facilities payments, including interest (1) 225,933
295,545
Total
More than
Less than
1 year
9,051
39,051
18,194
1,158
13,674
81,128
1 — 5 years
—
—
—
2,158
212,259
214,417
5 years
—
—
—
—
—
—
Year ended 31 December 2016
Trade and other payables
Accrued expenses
Provisions
Total
3,579
19,995
6,025
Less than
1 year
3,579
19,995
2,726
1 — 5 years
—
—
3,299
More than
5 years
—
—
—
Credit facilities payments, including interest (1)
235,441
12,606
222,835
Total
265,040
38,906
226,134
—
—
(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.
Commodity Price Risk
The Group is exposed to the risk of fluctuations in prevailing market commodity prices on the mix of oil,
natural gas and NGL products it produces.
- 87 -
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 $0.50 per mcf,
with all other variables remaining constant, respectively.
Year ended 31 December
Effect on profit before tax
Increase / (Decrease)
Oil
- improvement in US$ 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 $0.50 per mcf
Interest Rate Risk
2017
2016
US$’000 US$’000
(14,287) (12,813)
16,233
15,961
(1,254)
1,504
(1,423)
1,306
Interest rate risk is the risk that the fair value of the future cash flows of a financial instrument will fluctuate
because of changes in market interest rates. The Group’s exposure to the risk of changes in market interest rates relates
primarily to the Group’s long-term debt obligations with floating interest rates.
Interest Rate Sensitivity Analysis
Based on the net debt position as at 31 December 2017 and 2016 with all other variables remaining constant,
the following table represents the effect on income as a result of changes in the interest rate. The impact on equity is the
same as the impact on profit (loss) before income tax.
Year ended 31 December
Effect on profit before tax Increase / (Decrease)
- increase in interest rates + 2%
- decrease in interest rates - 2%
2017
US$’000
2016
US$’000
(3,663)
1,177
(3,357)
396
This assumes that the change in interest rates is effective from the beginning of the financial year and the net
debt position and fixed/floating mix is constant over the year. However, interest rates and the debt profile of the Group
are unlikely to remain constant and therefore the above sensitivity amounts are subject to change.
NOTE 36 — SUBSIDIARIES
The Company’s significant subsidiaries as at 31 December 2017 are as follows:
Name of Entity
Sundance Energy Inc.
Sundance Energy Oklahoma, LLC
SEA Eagle Ford, LLC
Armadillo Eagle Ford Holdings, Inc.(1)
Armadillo E&P, Inc.
NSE PEL570 LTD
Place of
Incorporation
Colorado
Delaware
Texas
Delaware
Delaware
Australia
Percentage Owned
100
100
100
100
100
100
(1) Entity was dissolved subsequent to 31 December 2017.
- 88 -
NOTE 37 — PARENT COMPANY INFORMATION
The Company has prepared Parent Company only financial statements under the cost method of accounting for
statutory purposes in Australia. The Parent Company financial information has been prepared on the same basis, using
the same accounting policies as the consolidated financial statements.
a) Cost Basis
As at 31 December
Parent Entity
Assets
Current assets
Investment in subsidiaries
Deferred tax assets
Related party note receivable
Total assets
Liabilities
Current liabilities
Total liabilities
Total net assets
Equity
Issued capital
Share-based payments reserve
Foreign currency translation reserve
Accumulated deficit
Total equity
Year ended 31 December
Financial Performance
Loss for the period before equity in income of subsidiaries
Other comprehensive income (loss)
Total loss and other comprehensive income
2017
US$’000
2016
US$’000
651
65,471
—
112,481
178,603
11,103
61,946
2,683
122,174
197,906
1,252
1,252
177,351
83
83
197,823
372,764
386
(34,321)
(161,478)
177,351
373,585
386
(52,948)
(123,200)
197,823
2017
2016
US$’000 US$’000
(38,278) (33,009)
(4,733)
(19,651) (37,742)
18,627
NOTE 38 — DEED OF CROSS GUARANTEE
The Australian Securities Investments Commission Class Order 98/1418 is designed to provide relief to wholly-
owned entities from preparing and lodging audited financial reports in Australia. As a condition of the Class Order,
SEAL and Armadillo Petroleum Limited (“APL”) and collectively (“the Closed Group”) have entered into a Deed of
Cross Guarantee (“Deed”). The effect of the Deed is that SEAL has guaranteed to pay any deficiency in the event of the
winding up of APL under certain provision of the Corporations Act 2001. APL has also given a similar guarantee in the
event that SEAL is wound up.
- 89 -
Set out below is a consolidated statement of profit or loss and other comprehensive income and retained
earnings of the Closed Group:
Year ended 31 December
Loss before income tax
Income tax expense
2017
US$’000
(35,608)
(2,814)
2016
US$’000
(38,383)
(1,316)
Loss attributable to members of SEAL
Total comprehensive loss attributable to members of SEAL
(38,422)
(20,169)
(39,699)
(44,440)
Accumulated deficit at 1 January
Accumulated deficit at 31 December
(131,979)
(92,284)
(170,401) (131,979)
Set out below is a condensed consolidated statement of financial position of the Closed Group:
2017
US$’000
2016
US$’000
86
564
650
10,756
346
11,102
44
112,481
—
59,512
172,037
40
122,174
2,683
56,090
180,987
172,687
192,089
10
4,621
4,631
13
3,031
3,044
4,631
3,044
168,056
189,045
372,764
386
(34,693)
(170,401)
168,056
373,585
386
(52,947)
(131,979)
189,045
Year ended 31 December
Current assets
Cash and cash equivalents
Other current assets
Total current assets
Non-current assets
Exploration and evaluation expenditure
Related party note receivable
Deferred tax assets
Investment in subsidiaries
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Accrued expenses
Total current liabilities
Total liabilities
Net assets
Equity
Issued capital
Share-based payments reserve
Foreign currency translation reserve
Accumulated deficit
Total equity
- 90 -
NOTE 39 — EVENTS AFTER THE BALANCE SHEET DATE
On 9 March 2018, the Company’s wholly owned subsidiary Sundance Energy, Inc. entered into a Purchase and
Sale Agreement with Pioneer Natural Resources USA, Inc., Reliance Industries and Newpek, LLC (collectively the
“Sellers”) to acquire approximately 21,900 net acres in the Eagle Ford oil, volatile oil, and condensate windows in
McMullen, Live Oak, Atascosa and La Salle counties, Texas for a cash purchase price of $221.5 million. In March, the
Company paid a non-refundable $48.0 million deposit and is required to pay a second non-refundable deposit of $25.0
million by 12 April 2018, with the remaining $148.5 million due at the target closing date of 23 April 2018.
To finance the acquisition, the Company launched a $260.0 million capital raise comprised of a fully
underwritten Entitlement Offer of $58.0 million and a committed two-tranche placement of $202.0 million, including a
$184.8 million Conditional Placement that is subject to shareholder approval at an Extraordinary General Meeting
scheduled for 19 April 2018. As at the date of approval of these financial statements, the Company is confident that the
required shareholder approval will be obtained and that the proposed capital raise will be successfully completed to
enable the acquisition to close. The remaining Entitlement Offer proceeds are expected to be used to fund the second
deposit, with the balance of the capital raise used to close the acquisition.
Contemporaneous with the acquisition closing, the Company expects to refinance its Credit Facilities. The
Company has signed term sheets with Morgan Stanley and Natixis to refinance its debt facilities with a $250 million
syndicated second lien term loan and a syndicated revolver with initial availability expected to be $87.5 million (with a
$250.0 million face), respectively. The proceeds of the refinanced debt facilities will be used to retire the Company’s
existing Credit Facilities of $192.0 million and the remaining outstanding production prepayment, which as at the date of
this report, had an outstanding balance of $11.8 million. As at the date of approval of these financial statements, the
Company is confident that the proposed refinance will be successfully completed contemporaneously with the closure of
the acquisition.
- 91 -
Directors’ Declaration
The Directors of the Group declare that:
1
2
3
the Financial Statements and Notes as set out on pages 46-91 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 29st day of March 2018
- 92 -
Deloitte Touche Tohmatsu
A.B.N. 74 490 121 060
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 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 2017, 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.
In our opinion, the accompanying financial report of the Group, is in accordance with the Corporations Act
2001, including:
(i)
giving a true and fair view of the Group’s financial position as at 31 December 2017 and of its
financial performance for the year then ended; and
(ii)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. 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
- 93 -
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.
7
Key Audit Matter
How the scope of our audit responded to the
Key Audit Matter
Equity raising - Eagle Ford basin acquisition
As disclosed in Note 39, on 15 March 2018, the
Company announced its intention to acquire a
number of producing and non-producing Oil and
Gas properties located in the Eagle Ford basin for
a total consideration of US$221.5 million. The
acquisition will be financed by an equity raising of
US$260.0 million.
Our audit procedures included, but were not limited
to:
•
challenging management’s cash flow forecast,
evidencing that the Group will have sufficient
liquidity to meet its liabilities and obligations as
they fall due,
The requirement of the Company to obtain
shareholder approval at the Extraordinary General
Meeting (“EGM”) on 19 April 2018 in order for the
equity raising and the contemporaneous
refinancing of its credit facilities to proceed gives
rise to some uncertainty as to whether the
acquisition of the assets can be completed. The
equity raising and the contemporaneous
refinancing of credit facilities will provide sufficient
funding to complete the acquisition and provide
additional liquidity to the Group.
Management’s cash flow forecasts have been
prepared on the assumption that the equity
raising, the contemporaneous refinancing of credit
facilities and the acquisition will complete in
accordance with the timeframes included in the
announcement of 15 March 2018.
•
•
the
reading
transaction
• understanding the nature of the funds to be
received as part of the equity raising and the
contemporaneous refinancing of credit facilities
by
investor
presentation and supporting agreements,
assessing the value of equity raised prior to the
date of this report pursuant to the initial
placement,
assessing the value of equity to be raised
pursuant to the fully underwritten accelerated
non-renounceable entitlement offer (“ANREO”)
that is in progress at the date of this report,
assessing the value of equity that has been
committed to be raised, subject to shareholder
approval being obtained at the EGM on 19 April
2018,
testing commitments of
investors received prior to approval of the
financial statements
the conditional
placement on a sample basis,
assessing the likelihood of shareholder approval
being obtained for the conditional placement at
the EGM on 19 April 2018, including:
including
for
•
•
o understanding the economic incentives
voting
disincentives
of
and
shareholders, and
•
o assessing management’s assertion that
there exists at the date of this report
sufficient evidence that the ordinary
resolution at the EGM will be carried,
reviewing the signed term sheets relating to
the refinancing of credit facilities and
assessing the Company’s ability to refinance
its credit facilities in accordance with its
expectations.
We also assessed the appropriateness of the
disclosures in Note 39 to the financial statements.
- 94 -
Key Audit Matter
How the scope of our audit responded to the
Key Audit Matter
Classification and carrying value of assets held for
sale
Dimmit County development and production and
exploration and evaluation net assets of $60.0
million have been classified as assets held for sale
as disclosed in Note 14.
Pursuant to the Company’s debt agreement with
Morgan Stanley, the Company is required to
maintain 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. The inclusion of the
Dimmit County assets as current assets held for
sale is integral to the ability of the Company to
remain in compliance with this debt covenant.
The classification of assets held for sale requires
management to exercise significant judgement
including whether:
•
•
the assets are available for immediate sale
in their present condition,
the sale has been determined to be highly
probable,
•
the Entity is committed to the sale, and
• no events or circumstances were identified
that may extend the period to complete the
sale beyond one year.
Our audit procedures included, but were not limited
to:
•
•
•
•
•
classification
obtaining an understanding of key controls
associated with
and
the
measurement of Dimmit County assets as
assets held for sale;
assessing management’s classification of the
Dimmit County assets as being held for sale as
required by the relevant accounting standards,
evaluating management’s methodologies and
their documented basis for key assumptions
used in the determination of fair value less costs
to sell;
engaging our valuation experts to assess and
challenge:
o
the key oil and gas price assumptions
by benchmarking to external industry
market data,
the
by
rate
benchmarking against rates observable
in the market, and
discount
applied
o
o external industry market comparable
data for similar asset sales in the same
basin,
testing on a sample basis the mathematical
accuracy of the cash flow models.
The measurement of assets held for sale requires
management to exercise significant judgement
including:
•
•
•
oil and gas reserve volumes,
oil and gas price assumptions, and
discount rate applied.
We also assessed the appropriateness of the
disclosures in Note 14 to the financial statements.
- 95 -
Key Audit Matter
How the scope of our audit responded to the
Key Audit Matter
Consideration of
impairment
exploration and evaluation assets
indicators
for
As at 31 December 2017 the carrying value of
exploration and evaluation assets amounts to
$35.0 million as disclosed in Note 18.
Our audit procedures included, but were not limited
to:
The assessment of the carrying value of exploration
and evaluation assets requires management to
exercise significant judgement including:
•
•
•
•
licence renewal or
the Group’s intention to proceed with a
future work programme for a licence,
the right of tenure,
the
likelihood of
extension,
the success of exploration and appraisal
including
activities completed to date
drilling
geophysical
and
analysis, and
the
facts and circumstances
indicate that the exploration and evaluation
assets should be tested for impairment.
geological,
• whether
•
•
•
•
•
obtaining an understanding of key controls
associated with the identification of indicators
of impairment for exploration and evaluation
assets,
assessing whether the rights to tenure for each
area of interest remained current at balance
date,
attending meetings with key operational and
finance personnel to obtain an understanding
for each area of interest of the exploration and
appraisal activity undertaken during the year
and the results of that activity,
obtaining and challenging management’s cash
flow
ongoing
evidencing
exploration and appraisal activity, including the
future intention for each area of interest, by
reference to the allocation of future budgeted
expenditure, and
assessing the Group’s analysis for assessing
impairment indicators of the exploration and
evaluation assets.
forecast
the
We also assessed the appropriateness of the
disclosures in Note 18 to the financial statements.
- 96 -
Key Audit Matter
How the scope of our audit responded to the
Key Audit Matter
Carrying amount of development and production
assets
As at 31 December 2017 the carrying value of
development and production assets amounts to
$338.8 million as disclosed in Note 17.
Our audit procedures included, but were not limited
to:
the carrying value of
The assessment of
development and production assets requires
management to exercise significant judgement in
indicators of
identifying
if
applicable
the consequent determination of
recoverable amount. Significant judgements and
estimates include:
impairment and
•
•
•
•
identification of cash generating units,
oil and gas reserve volumes,
oil and gas price assumptions, and
discount rate applied.
•
•
•
•
•
•
•
•
for
including
reasonableness,
obtaining an understanding of key controls
associated with the identification of indicators
of impairment and preparation of the valuation
models used to assess the recoverable amount,
assessing the identification of cash generating
units
the
allocation of development and production
assets and the associated allocation of cash
flows
for the purposes of assessing the
recoverable amount of the cash generating
units,
critically
management’s
methodologies and their documented basis for
key assumptions used in the valuation models,
engaging our valuation experts to assess and
challenge:
o
evaluating
the key oil and gas price assumptions
applied by benchmarking to external
industry market data, and
by
rate
the
benchmarking against rates observable
in the market.
discount
applied
o
reserve
process
reports obtained
evaluating estimates of future cash flows for
reasonableness in light of future price and cost
assumptions,
challenging management’s
for
developing its oil and gas reserves estimates by
reading
from
management’s external reservoir engineer,
testing on a sample basis the mathematical
accuracy of the cash flow models, and
assessing management’s consideration of the
sensitivity in key assumptions that either
individually or collectively would be required for
development and production assets to be
impaired, and considered the likelihood of such
a movement in those key assumptions arising.
We also assessed the appropriateness of the
disclosures in Note 17 to the financial statements.
- 97 -
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 2017, 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.
Responsibilities of the Directors 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 Australian Accounting 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 Australian Auditing Standards 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 Australian Auditing Standards, 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.
- 98 -
• 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 included in pages 19 to 33 of the Directors’ Report for the year
ended 31 December 2017.
In our opinion, the Remuneration Report of Sundance Energy Australia Limited for the year ended 31
December 2017, has been prepared in accordance with section 300A of the Corporations Act 2001.
- 99 -
Responsibilities
The directors of the Company have presented the Remuneration Report which has been prepared in
accordance with the requirements of section 300A of the Corporations Act 2001. Our responsibility is to
express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian
Auditing Standards.
DELOITTE TOUCHE TOHMATSU
Jason Thorne
Partner
Chartered Accountants
Sydney, 29 March 2018
- 100 -
Additional Information compiled as at 14 March 2018*
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
GAFFWICK PTY LTD
JAMES TAYLOR
ADVISORY RESEARCH, INC.
No. of Ordinary Shares
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
Units
604
881
655
1,776
820
4,736
227,691
2,688,220
5,313,405
75,177,999
1,169,842,213
1,253,249,528
% Issued
Capital
0.02
0.21
0.42
6.00
93.35
100.00
Unlisted
RSUs
‐
3
7
36
25
71
There are 1,667 shareholders with less than a marketable parcel of shares.
Voting Rights
Fully paid ordinary shares
At meetings of members or classes of members:
a)
b)
Each member entitled to vote may vote in person or by proxy, attorney or representative;
on a show of hands, every person present who is a member or proxy, attorney or representative of a member
has one vote; and,
on a poll, every person present who is a member or a proxy, attorney or representative of a member has:
c)
i)
ii)
for each fully paid share held by him, or in respect of which he is appointed a proxy, attorney
or representative, one vote for the share; and,
for each partly paid share, only the fraction of one vote which the amount paid (not credited)
on the share bears to the total amounts paid and payable on the share (excluding amounts
credited) subject to any rights or restrictions attached to any shares or class or classes of shares.
Unvested RSUs
No voting rights.
- 101 -
Additional Information continued
Twenty largest holders of fully paid Ordinary Shares (as reported by the Share Registrar)
Rank Name
ILWELLA PTY LTD
1 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
2
J P MORGAN NOMINEES AUSTRALIA LIMITED
3 CITICORP NOMINEES PTY LIMITED
4 WILLIAM TAYLOR NOMINEES PTY LTD
5 UBS NOMINEES PTY LTD
6 FINANCIAL MARKET INFRASTRUCTURE FUND PTY
7
8 PROVIDENT MINERALS PTE LTD
9 MR JAMES DAVID TAYLOR
10 NATIONAL NOMINEES LIMITED
11 MR JAMES TAYLOR + MS MARION TAYLOR
13 HEMDIN PTY LIMITED
14 BAINPRO NOMINEES PTY LIMITED
15 MR BILL ELIOPOULOS
16 BNP PARIBAS NOMINEES PTY LTD