LIQUEFIED NATURAL GAS LIMITED ABN

Transcription

1 LIQUEFIED NATURAL GAS LIMITED ABN FINANCIAL REPORT FOR THE HALF - YEAR ENDED 31 DECEMBER 2010

2 LIQUEFIED NATURAL GAS LIMITED - HALF-YEAR REPORT LIQUEFIED NATURAL GAS LIMITED ABN Contents Page No. Corporate Information 1 Directors Report 2 Auditor s Independence Declaration 5 Statement of Comprehensive Income 6 Balance Sheet 7 Statement of Changes in Equity 8 Statement of Cash Flows 9 Notes to the Financial Statements 10 Directors Declaration 19 Auditor s Independent Review Report 20

3 LIQUEFIED NATURAL GAS LIMITED - HALF-YEAR REPORT Corporate Information LIQUEFIED NATURAL GAS LIMITED ABN DIRECTORS Richard Jonathan Beresford, Non-Executive Chairman Leeanne Kay Bond, Non-Executive Director Fletcher Maurice Brand, Managing Director & Chief Executive Officer Paul William Bridgwood, Director & Chief Technical Officer Norman Marshall, Director & Chief Financial Officer COMPANY SECRETARY David Michael Gardner REGISTERED OFFICE & PRINCIPAL PLACE OF BUSINESS Ground Floor, 5 Ord Street West Perth, WA, 6005 Telephone: +61 (08) Facsimile: +61 (08) LNG@LNGlimited.com.au Website: BRISBANE OFFICE Level 18, 333 Ann Street Brisbane, QLD, 4000 Telephone: +61 (07) Facsimile: +61 (07) AUDITORS Ernst & Young The Ernst & Young Building 11 Mounts Bay Road Perth, WA, 6000 SOLICITORS Wright & Cooney 1/103 Colin Street West Perth, WA, 6005 Cochrane Lishman Carson Luscombe Level 12, London House 216 St Georges Terrace Perth WA 6000 BANKERS ANZ Banking Group 77 St Georges Terrace Perth, WA, 6000 SHARE REGISTRY Advanced Share Registry Services 150 Stirling Highway Nedlands, WA, 6009 Telephone: +61 (08) ASX CODE LNG 1

4 LIQUEFIED NATURAL GAS LIMITED - HALF-YEAR REPORT DIRECTORS REPORT Your directors submit their report for the half-year ended 31 December DIRECTORS The names of the Company s directors in office during the half-year and until the date of this report are as below. Directors were in office for the entire period unless otherwise stated. Richard Jonathan Beresford Non-Executive Chairman Leeanne Kay Bond Non-Executive Director Fletcher Maurice Brand Managing Director & Chief Executive Officer Paul William Bridgwood Executive Director & Chief Technical Officer Norman Marshall Executive Director & Chief Financial Officer Phillip John Harvey Retired Non-Executive Chairman (retired on 22 November 2010) REVIEW AND RESULTS OF OPERATIONS During the half-year to 31 December 2010 the Company has been primarily focussed on progression of gas supply and strategic partner opportunities for its 100% owned 3 million tonnes per annum (mtpa) liquefied natural gas (LNG) project development at Fisherman s Landing, Port of Gladstone, Queensland, Australia (Gladstone LNG Project). Financial Results The consolidated net loss from continuing operations, after income tax, for the half-year, excluding non-controlling interest, was $5,441,814 (2009: $17,876,966), down 69% on the previous corresponding period. This was largely the result of lower administrative and project development expenses in relation to the Company s Gladstone LNG Project, while gas supply and strategic partner opportunities were progressed. Corporate There were no material corporate developments during the half-year to 31 December The Company s primary focus continued to be the progressions of gas supply and strategic partner opportunities for its Gladstone LNG Project. SIGNIFICANT EVENTS AFTER BALANCE DATE Several significant events have occurred subsequent to the end of the half-year to 31 December 2010: (a) Share Placement Term Sheet signed On 27 January 2011, a Share Placement Term Sheet (Term Sheet) was executed with China Huanqiu Contracting & Engineering Corporation (HQCEC). HQCEC is a wholly owned subsidiary of China National Petroleum Corporation (CNPC), which is China s largest producer and supplier of crude oil and natural gas. The legally binding Term Sheet includes, amongst other things, the following key terms between HQCEC and the Company: HQCEC to subscribe for 53,250,000 shares in the Company, equivalent to approximately 19.9% of the total issued shares in the Company after the placement (Placement), at a price per share which is the lesser of: - A$0.48 cents (~A$25.6 million), or - 80% of the volume weighted average market price (as such term is defined in the ASX Listing Rules) of ordinary shares in the Company on the ASX, calculated over the last five days in which sales of ordinary shares in the Company are recorded on the ASX prior to the issuance date of the Placement shares. The A$0.48 cents is a 10.6% discount to the volume weighted average market price of the Company s shares (A$0.537) for the 180 days to 27 January 2011 and a 19.3% discount to the volume weighted average market price (A$0.595) for the 5 days prior to the date of signing the Term Sheet. 2

5 LIQUEFIED NATURAL GAS LIMITED - HALF-YEAR REPORT Application of the Placement proceeds to the development of the Company s Gladstone LNG Project. Appointment of a HQCEC nominee as a Non Executive Director to the Board of the Company. Appointment of a HQCEC nominee as an Executive Director to the Board of the Company and Co Chief Executive Officer of the Company, to work with the existing Managing Director/Chief Executive Officer, Maurice Brand. Appointment of HQCEC, or an affiliate of HQCEC or CNPC, as the sole Engineering, Procurement, Construction and Commissioning (EPC) contractor for the Gladstone LNG Project, conditional on HQCEC providing a competitive EPC proposal based on the Company s wholly owned OSMR process technology. Agreement to negotiate preferential terms for HQCEC, CNPC and their affiliates to use the Company s OSMR process technology. Consideration by HQCEC and CNPC, or an affiliate of CNPC, as to their involvement in the Gladstone LNG Project, including direct investment in the project, purchase of the proposed initial 3 mtpa LNG production capacity from the project s first two LNG trains and financing of the project to promote its development. The Company s ongoing pursuit of gas supply for the Gladstone LNG Project s first two 1.5 mtpa LNG trains. The Term Sheet is, amongst other things, conditional on: HQCEC obtaining relevant approvals (on terms satisfactory to HQCEC) from the Australia Government s Foreign Investment Review Board, China s Ministry of Commerce and National Economic Reform Commission and CNPC; and The Company obtaining shareholders approval, if required. HQCEC and the Company are now advancing various definitive agreements, including a Share Subscription Agreement, based on the agreed Term Sheet. The parties are targeting completion of the Placement in the second quarter of The proposed investment by HQCEC in the Company will be a significant milestone and major step in the Company s future direction and a vote of confidence in the Company s OSMR process technology, including its low capital and operating costs, faster construction schedule, improved efficiency and lower carbon footprint than other mainstream LNG processes. In addition to the Gladstone LNG Project, HQCEC and the Company will immediately work on new project opportunities based on the Company s business model and the OSMR process technology. The Company welcomes HQCEC as the largest shareholder and looks forward to working with the HQCEC nominated Directors so that the Company can fully realise its potential. The appointment of a HQCEC nominated Executive Director and Co CEO is considered an important component of the overall transaction and will allow the Company to liaise with and access the significant global resources of HQCEC and the CNPC group. Such cooperation between HQCEC and the Company will materially assist the Company to progress its current project portfolio and target a number of new LNG project opportunities. Importantly, HQCEC and LNG LTD will now work together to deliver the Gladstone LNG Project. (b) Issue of Performance Rights On 12 January 2011, 2,250,000 Performance Rights were issued to executive and non-executive directors under the Company s Performance Rights Plan Rules. (c) Indonesian Commission Decision The Indonesian Commission for the Supervision of Business Competition (KPPU) on 5 January 2011 handed down its decision that PT. Pertamina (Persero) (Pertamina), Medco Energi Internasional Tbk (Medco), Medco E&P Tomori Sulawesi and Mitsubishi Corporation (Mitsubishi) violated Articles 22 and 23 of Law No. 5, concerning The Ban on Monopolistic and Unfair Business Competition. The violations relate to the proposed Donggi-Senoro LNG Project, in Central Sulawesi, Indonesia. LNG International Pty Ltd (LNGI, owned 100% by the Company) signed an agreement with Pertamina and Medco in early 2005 to progress the development of an LNG project in Central Sulawesi, based on gas feedstock from Pertamina and Medco (Donggi-Senoro LNG Project). As required in the agreement, LNGI, and its Indonesian partner, subsequently incorporated an Indonesian foreign investment company, PT. LNG Energi Utama (PTLNG), to own and develop the LNG project. In 2006, Mitsubishi undertook detailed due diligence of PTLNG s proposed LNG project on 3

6 LIQUEFIED NATURAL GAS LIMITED - HALF-YEAR REPORT the basis of Mitsubishi potentially becoming a partner in, and buyer of LNG from, PTLNG s LNG project. Such due diligence, under a confidentiality agreement, included access to all technical, financial, modeling, planning and development information. Despite PTLNG having significantly advanced the project and incurred considerable costs, Pertamina and Medco decided, in late 2006, to seek tenders to develop the Donggi-Senoro LNG Project. Furthermore, despite Mitsubishi s due diligence of PTLNG, Pertamina and Medco allowed Mitsubishi to submit a tender. Pertamina and Medco subsequently awarded the Donggi-Senoro LNG Project to Mitsubishi; notwithstanding PTLNG s protestations. PTLNG protested its concerns to the Government of Indonesia and after a lengthy and comprehensive investigation KPPU has determined that the tender process was in fact unfair and, in such determination, cites LNGI (PTLNG) as an affected party. The Company is now considering, with its legal counsel in Indonesia, what action PTLNG may take in an endeavour to recoup its costs and damages. At this stage no decision has been reached and KPPU s determination is not necessarily an automatic path to a financial settlement of this matter. The fines levied by KPPU are payable to the Government of Indonesia (not PTLNG) and Pertamina, Medco and Mitsubishi have exercised their right to appeal the decision to the District Court in Indonesia, and KPPU or Pertamina, Medco and Mitsubishi then have the right to appeal the District Court s decision to the Supreme Court of Indonesia.. AUDITOR S INDEPENDENCE DECLARATION The Auditor s Independence Declaration on page 5 forms part of the Directors Report for the half-year ended 31 December Signed in accordance with a resolution of the directors. R. J. Beresford F.M. Brand Chairman Managing Director Perth, Western Australia Perth, Western Australia 17 February February

7 Auditor s Independence Declaration to the Directors of Liquefied Natural Gas Limited In relation to our review of the financial report of Liquefied Natural Gas Limited for the half-year ended 31 December 2010, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct. Ernst & Young RJ Curtin Partner Perth 17 February 2011 RC:VP:LNG:026 5 Liability limited by a scheme approved under Professional Standards Legislation

8 Statement of Comprehensive Income CONSOLIDATED FOR THE HALF-YEAR ENDED 31 DECEMBER 2010 Note 2010 $ 2009 $ Continuing operations Revenue 2a 430, , , ,041 Other income 2b 109, ,534 Sales & marketing expenses (47,566) (110,614) Administration expenses (2,866,790) (3,383,165) Project development expenses (2,752,244) (15,060,173) Other expenses (319,301) - Finance costs (1,130) (1,387) Loss from continuing operations before income tax (5,446,935) (17,862,764) Income tax expense - (14,202) Loss from continuing operations after income tax (5,446,935) (17,876,966) Net loss for the period (5,446,935) (17,876,966) Other comprehensive income Foreign currency translation 62,348 15,283 Available for sale reserve (458,870) - Other comprehensive income for the period, net of tax (396,522) 15,283 Total comprehensive loss for the period (5,843,457) (17,861,683) Loss for the period is attributable to: Non-controlling interest (5,121) - Owners of the Parent (5,441,814) (17,876,966) (5,446,935) (17,876,966) Total comprehensive loss for the period is attributable to: Non-controlling interest (5,121) - Owners of the Parent (5,838,336) (17,861,683) (5,843,457) (17,861,683) Loss per share from continuing operations attributable to the ordinary equity holders of the Parent: Cents Cents basic loss per share (2.55) (9.50) diluted loss per share (2.55) (9.50) 6

9 Balance Sheet CONSOLIDATED AS AT 31 DECEMBER 2010 Note 31 December 2010 $ 30 June 2010 $ ASSETS Current assets Cash and cash equivalents 3 9,004,797 22,612,372 Other financial assets 1,790,000 1,790,000 Trade and other receivables 570, ,914 Prepayments 116,049 57,715 Total current assets 11,481,462 25,206,001 Non-current assets Available for sale financial assets 4 5,842,389 - Receivables Plant and equipment 420, ,391 Total non-current assets 6,263, ,690 TOTAL ASSETS 17,744,895 25,650,691 LIABILITIES Current liabilities Trade and other payables 722,153 2,948,714 Interest-bearing borrowings 9,049 8,544 Provisions 252, ,907 Total current liabilities 983,726 3,329,165 Non-current liabilities Interest-bearing borrowings 3,257 7,911 Provisions 176, ,909 Total non-current liabilities 179, ,820 TOTAL LIABILITIES 1,163,653 3,462,985 NET ASSETS 16,581,242 22,187,706 EQUITY Equity attributable to equity holders of the Parent: Contributed equity 96,936,191 96,936,191 Reserves 9,771,949 9,931,478 Accumulated losses (90,106,578) (84,664,764) Parent interests 16,601,562 22,202,905 Non-controlling interests (20,320) (15,199) TOTAL EQUITY 16,581,242 22,187,706 7

10 Statement of Changes in Equity FOR THE HALF YEAR ENDED 31 DECEMBER 2010 LIQUEFIED NATURAL GAS LIMITED HALF-YEAR REPORT CONSOLIDATED Ordinary shares B class redeemable preference shares Share options reserve Redeemable preference share reserve Equity reserve Foreign currency translation reserve Available for sale reserve Accumulated losses Owners of the Parent Noncontrolling interest $ $ $ $ $ $ $ $ $ $ $ At 1 July ,936,191 5,218,441 4,032, , ,744 (84,664,764) 22,202,905 (15,199) 22,187,706 Loss for the period (5,441,814) (5,441,814) (5,121) (5,446,935) Other comprehensive income 62,348 (458,870) (396,522) (396,522) Total comprehensive income/(loss) for the half year 62,348 (458,870) (5,441,814) (5,838,336) (5,121) (5,843,457) Transactions with owners in their capacity as owners Share-based payments 236, , ,993 At 31 December ,936,191 5,455,434 4,032, , ,092 (458,870) (90,106,578) 16,601,562 (20,320) 16,581,242 Total At 1 July ,378, ,904,509 4,032, ,292 66,905 (42,597,089) 14,362,740 14,362,740 Loss for the period (17,876,966) (17,876,966) (17,876,966) Foreign currency translation 15,283 15,283 15,283 Total comprehensive income/(loss) for the half year 15,283 (17,876,966) (17,861,683) (17,861,683) Transactions with owners in their capacity as owners Shares issued on share placement 29,375,000 29,375,000 29,375,000 Shares issued on share purchase plan 17,907,000 17,907,000 17,907,000 Transaction cost on shares issued (1,505,469) (1,505,469) (1,505,469) Shares issued on exercise of options 2,383,150 2,383,150 2,383,150 Share-based payments 786, , ,844 At 31 December ,537, ,691,353 4,032, ,292 82,188 (60,474,055) 45,447,582 45,447,582 8

11 Statement of Cash Flows LIQUEFIED NATURAL GAS LIMITED HALF-YEAR REPORT CONSOLIDATED FOR THE HALF-YEAR ENDED 31 DECEMBER 2010 Note $ $ Cash flows from operating activities Payments to suppliers and employees (inclusive of GST) (8,078,817) (14,661,316) Interest received 373, ,107 Receipts from customers and the Australian Tax Office 660, ,270 Net cash flows used in operating activities (7,044,186) (14,008,939) Cash flows from investing activities Purchase of available for sale financial assets (6,319,688) - Purchase of plant and equipment (20,301) (78,338) Proceeds from sale of interest in exploration licences - 1,214,702 Net cash flows (used in)/from investing activities (6,339,989) 1,136,364 Cash flows from financing activities Proceeds from issue of shares - 49,665,150 Payment for capital raising costs - (1,505,469) Repayment of finance lease liability (4,149) (3,698) Payment for finance lease interest (853) (1,303) Net cash flows (used in)/from financing activities (5,002) 48,154,680 Net (decrease)/increase in cash and cash equivalents (13,389,177) 35,282,105 Net foreign exchange differences (218,398) (95,493) Cash and cash equivalents at beginning of period 22,612,372 13,455,934 Cash and cash equivalents at end of period 3 9,004,797 48,642,546 9

12 Notes to the Financial Statements 1. BASIS OF PREPARATION AND ACCOUNTING POLICIES Basis of preparation This general purpose financial report for the half-year ended 31 December 2010 has been prepared in accordance with AASB 134 Interim Financial Reporting and the Corporations Act The half-year financial report does not include all notes of the type normally included within the annual financial report and therefore cannot be expected to provide as full an understanding of the financial performance, financial position and financing and investing activities of the Company and its subsidiaries (the Group) as the full annual financial report. It is recommended that the half-year financial report be read in conjunction with the annual report for the year ended 30 June 2010 and considered together with any public announcements made by the Company during the half-year ended 31 December 2010 in accordance with the continuous disclosure obligations of the ASX Listing Rules. The accounting policies and method of computation are the same as those adopted by the Group in the most recent annual financial report, except the new policies as disclosed below. New standards From 1 July 2010 the Group has adopted the following amending Australian Accounting Standards and Interpretations mandatory for annual periods beginning on or after 1 July 2010, including: AASB 101 Presentation of Financial Statements: The revised standard amends that the terms of a liability that could at any time result in its settlement by the issuance of equity instruments at the option of the counterparty do not affect its classification as current or non-current. The amendment has no impact. AASB 107 Statement of Cash Flows: The revised standard amends that only expenditures that result in a recognised asset can be classified as a cash flow from investing activities. The amendment has no impact. AASB 117 Leases: The revised standard removes specific guidance on classifying land as a lease so that only the general guidance remains. The amendment has no impact. AASB 132 Financial Instruments: Presentation: The revised standard amends the definition of a financial liability to classify certain rights (and certain options or warrants) as equity instruments if they satisfy certain conditions. The amendment has no impact. AASB 136 Impairment: The revised standard amends that the largest unit permitted for allocating goodwill acquired in a business combination is the operating segment defined in IFRS 8 before aggregation for reporting purposes. The amendment has no impact. Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments: The interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability are consideration paid. As a result, the financial liability is derecognised and the equity instruments issued are treated as consideration paid to extinguish that liability. The amendment has no impact. AASB Amendments to Australian Accounting Standards Arising from the Annual improvements Project [AASB 3, AASB 7, AASB 121, AASB 128, AASB 131, AASB 132 & AASB 139]. The amendments had no impact. The Group has not elected to early adopt any other new standards or amendments that are issued but not yet effective. 10

13 Notes to the Financial Statements 2. REVENUE, INCOME AND EXPENSES CONSOLIDATED 31 Dec 2010 $ 31 Dec 2009 $ (a) Revenue Interest revenue 430, , , ,041 (b) Other Income Net foreign exchange gain - 117,599 Research and development rebate 109,740 48, , ,534 (c) Expenses Share-based payment expense 236, , CASH AND CASH EQUIVALENTS CONSOLIDATED 31 Dec 2010 $ 30 Jun 2010 $ For the purpose of the half-year cash flow statement, cash and cash equivalents are comprised of the following: Cash at bank and in hand 1,412,428 2,498,909 Short-term deposits 7,592,369 20,113,463 9,004,797 22,612, AVAILABLE FOR SALE FINANCIAL ASSETS CONSOLIDATED 31 Dec 2010 $ 30 Jun 2010 $ Shares in listed entities 1 5,842,389-5,842,389-1 During the period, the Company acquired 12,604,412 shares in Metgasco Limited (ASX: MEL) and 19,283,004 shares (plus 3,195,751 options) in Oil Basins Limited (ASX: OBL), as part of the corporate strategy to have increased influence or control over potential gas resources. 5. DIVIDEND PAID AND PROPOSED There were no dividends paid or proposed during the half-year ended 31 December

14 Notes to the Financial Statements 6. SEGMENT INFORMATION Identification of reportable segments The Group has identified its operating segments based on information that is reviewed and used by the executive management team (the chief operating decision makers) in assessing performance and in determining the allocation of resources. Management identified the operating segments based on the types of the business activities or operations and/or the nature of services provided. The reportable segments are based on aggregated operating segments determined by the similarity of the types of the business activities and/or the services provided, as these are the sources of the Group s major risks and have the most effect on the rates of returns. Reportable operating segments The Group has identified the following reportable operating segments: Oil and gas project development The oil and gas project development business involves the identification and progression of opportunities for the development of LNG projects to facilitate the production and sale of LNG. This includes project development activities from pre-feasibility, detailed feasibility, gas supply and advancement of each project to financial close at which time the Company expects to obtain reimbursement of all, or part of, the development costs incurred by the Company to that date and then fund the project via a suitable mix of project debt and equity. The oil and gas project development business has been determined as both an operating segment and a reportable segment. Investment in existing oil and gas discoveries and prospective acreage The investment includes the identification, and selected investment in, existing oil and gas discoveries and prospective acreage, where the fundamentals support the potential early commercialisation of the oil and gas, including potential gas feedstock for the Company s proposed LNG projects. The investment in existing oil and gas fields has been determined as both an operating segment and a reportable segment. Technology development and licensing The technology development and licensing business is involved in the development of LNG technology, through research and development activities and the advancement, if applicable, of each developed technology to the patent application stage with the aim to derive licensing fees or royalties from the utilization of, or the sub-licensing of the LNG technology. The technology development and licensing has been determined as both an operating segment and a reportable segment. Accounting policies and inter-segment transactions The accounting policies used by the Group in reporting segments internally are the same as those contained in Note 1 to the accounts and in the prior period. 12

15 Notes to the Financial Statements 6. SEGMENT INFORMATION (Continued) The following table shows the revenue and profit or loss information for reportable segments for the half-years ended 31 December 2010 and 31 December Continuing operations Half-year ended 31 December 2010 Oil and gas project development Investment in oil and gas discoveries Technology development and licensing Revenue $ $ $ $ Inter-segment sales Total segment revenue Inter-segment elimination - Unallocated revenue 430,356 Other income 109,740 Total revenue per the statement of comprehensive income 540,096 Result Segment result (2,712,265) - (39,979) (2,752,244) Reconciliation of segment net profit/(loss) after tax to net profit/(loss) before tax Income tax expense at 30% (2009:30%) - Unallocated revenue and other income 540,096 Finance costs (1,130) Corporate charges (3,233,657) Net profit/(loss) before tax per the statement of comprehensive income (5,446,935) Segment assets for the half-year ended 31 December 2010 are as follows: Segment assets Segment operating assets 5,790, , ,598,399 Intersegment eliminations - Unallocated assets 1 11,146,496 Total assets from continuing operations per the balance sheet 17,744,895 1 Unallocated assets primarily consisted of cash and cash equivalents and other financial assets of $10,794,797. Total 13

16 Notes to the Financial Statements 6. SEGMENT INFORMATION (Continued) Half-year ended 31 December 2009 Oil and gas project development Continuing operations Investment in oil and gas discoveries Technology development and licensing Total Revenue $ $ $ $ Inter-segment sales - 124, ,206 Total segment revenue - 124, ,206 Inter-segment elimination (124,206) Unallocated revenue 526,041 Total revenue per the statement of comprehensive income 526,041 Result Segment result (16,160,429) (434,662) 48,925 (16,546,166) Reconciliation of segment net profit/(loss) after tax to net profit/(loss) before tax Income tax expense at 30% (2008:30%) 14,202 Unallocated revenue 526,041 Finance costs (1,303) Corporate charges 519,207 Unallocated expenditure (2,374,745) Net profit/(loss) before tax per the statement of comprehensive income (17,862,764) Segment assets for the half-year ended 31 December 2009 are as follows: Segment assets Segment operating assets 1,570,016 7,519,080 49,025 9,138,121 Intersegment eliminations (105,195) Unallocated assets 1 41,992,372 Total assets from continuing operations per the balance sheet 51,025,298 1 Unallocated assets primarily consisted of cash and cash equivalents of $40,284,714, investment in other financial assets of $1,000,000, receivables of $470,378, prepayment of $48,490 and plant and equipment of $188, COMMITMENTS AND CONTINGENCIES (a) Capital commitments At 31 December 2010, there were no capital commitments. (b) Operating lease Group as lessee At 31 December 2010, the future minimum lease rental commitment in relation to the non-cancellable operating leases for the office premises in Australia and for the offices in Indonesia occupied by the Group was $378,676 (2009: $206,077). 14

17 Notes to the Financial Statements 7. COMMITMENTS AND CONTINGENCIES (Continued) (c) Finance lease Group as lessee At 31 December 2010, the future minimum lease commitment in relation to a photocopier purchased in May 2008, was $13,337 (2009: $23,342). The lease expires on 22 April (d) Contingencies employment and consultancy contracts The Group has entered into employment and consultancy agreements whereby the Group has agreed to pay $851,355 (2009: $1,259,326) in the event of termination by the Group of these employment and consultancy agreements. (e) Contingencies bonus payments The Group has entered into an employment agreement with one employee, whereby the Group has agreed to pay the following to the employee subject to the achievement of certain milestones: (i) Bonus payment of $185,000, subject to the achievement of Commercial Operation Date of the Gladstone LNG Project (COD Date) by a certain date as defined in the employment agreement. (f) Contingent options The Company has granted 450,000 contingent share options over the Company s ordinary shares to an employee of its subsidiary, LNG International Pty Ltd. The issue of these options is contingent upon the achievement of COD Date in relation to the Gladstone LNG Project. The options issue date shall be the COD Date (450,000 options) and will have an exercise price as determined by Clause 6.2 (b) of the Company s Option Plan, in which case it must not be less than: (i) (ii) if there was at least one transaction in the Company s shares on the Australian Securities Exchange (ASX) during the last five trading day period, on which the shares were available for trading on the ASX, up to and including the offer date, the weighted average of the prices at which the shares were traded during that period; or if there were no transactions in the Company s shares during that five trading day period, the last price at which an offer was made to purchase the Company s shares on the ASX. The offer date for the above contingent options shall be the COD Date, in relation to the Gladstone LNG Project. (g) Guarantees The Company s subsidiary, Gladstone LNG Pty Ltd has provided a performance guarantee (issued by ANZ Bank) for the amount of A$1 million to Gladstone Port Corporation (GPC) for the rehabilitation work relating to early site works to be carried out by GPC. The guarantee is valid for one year and expires on 30 June Gladstone LNG Pty Ltd has provided a bank guarantee (issued by ANZ Bank) for the amount of A$789,263, in favour of Queensland s Department of Environment and Resource Management (DERM), which is a condition of DERM s environmental authority approval. The bank guarantee is valid until all environmental authorities are received and expires on 11 May Term deposits of A$1.79 million are held by the Company and pledged as security for the above guarantees. Other than the above, at balance date, there are no other contingent liabilities (h) Insurance claims There are no active or pending insurance claims at the date of this report. (i) Legal claim There are no legal claims outstanding against the Group at the date of this report. 15

18 Notes to the Financial Statements 8. CONTRIBUTED EQUITY Ordinary shares CONSOLIDATED Convertible redeemable preference shares Number Number Movement of shares on issue: At 1 July ,068, Issued for cash on exercise of share options 6,445,000 - Issued for cash from share purchase plan 14,325,600 - Issued for cash from share placement 23,500,000 - At 31 December ,339, Cancellation of convertible redeemable preference shares - (12) At 30 June ,339,015 - At 31 December ,339,015 - (a) Ordinary shares No ordinary shares were issued during the period. (b) Share options The Company has a share-based payment option scheme under which options to subscribe for the Company s ordinary shares have been granted to directors, employees and certain consultants. During the period, 1,245,000 employee share options were issued and 600,000 were cancelled. (c) Terms and conditions of contributed equity (i) Ordinary shares Voting rights Each ordinary share entitles its holder to one vote, either in person or by proxy, attorney or representative at a meeting of the Company. In case of an equality of votes, the Chairman of the meeting shall have a second or casting vote. Dividends Ordinary shares have the right to receive dividends as declared and in the event of winding up the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. (ii) B class redeemable preference shares There are no longer any B class redeemable preference shares on issue. 16

19 Notes to the Financial Statements 9. SIGNIFICANT EVENTS AFTER BALANCE DATE Several significant events have occurred subsequent to the end of the half-year to 31 December 2010: (a) Share Placement Term Sheet signed On 27 January 2011, a Share Placement Term Sheet (Term Sheet) was executed with China Huanqiu Contracting & Engineering Corporation (HQCEC). HQCEC is a wholly owned subsidiary of China National Petroleum Corporation (CNPC), which is China s largest producer and supplier of crude oil and natural gas. The legally binding Term Sheet includes, amongst other things, the following key terms between HQCEC and the Company: HQCEC to subscribe for 53,250,000 shares in the Company, equivalent to approximately 19.9% of the total issued shares in the Company after the placement (Placement), at a price per share which is the lesser of: - A$0.48 cents (~A$25.6 million), or - 80% of the volume weighted average market price (as such term is defined in the ASX Listing Rules) of ordinary shares in the Company on the ASX, calculated over the last five days in which sales of ordinary shares in the Company are recorded on the ASX prior to the issuance date of the Placement shares. The A$0.48 cents is a 10.6% discount to the volume weighted average market price of the Company s shares (A$0.537) for the 180 days to 27 January 2011 and a 19.3% discount to the volume weighted average market price (A$0.595) for the 5 days prior to the date of signing the Term Sheet. Application of the Placement proceeds to the development of the Company s Gladstone LNG Project. Appointment of a HQCEC nominee as a Non Executive Director to the Board of the Company. Appointment of a HQCEC nominee as an Executive Director to the Board of the Company and Co Chief Executive Officer of the Company, to work with the existing Managing Director/Chief Executive Officer, Maurice Brand. Appointment of HQCEC, or an affiliate of HQCEC or CNPC, as the sole Engineering, Procurement, Construction and Commissioning (EPC) contractor for the Gladstone LNG Project, conditional on HQCEC providing a competitive EPC proposal based on the Company s wholly owned OSMR process technology. Agreement to negotiate preferential terms for HQCEC, CNPC and their affiliates to use the Company s OSMR process technology. Consideration by HQCEC and CNPC, or an affiliate of CNPC, as to their involvement in the Gladstone LNG Project, including direct investment in the project, purchase of the proposed initial 3 mtpa LNG production capacity from the project s first two LNG trains and financing of the project to promote its development. The Company s ongoing pursuit of gas supply for the Gladstone LNG Project s first two 1.5 mtpa LNG trains. The Term Sheet is, amongst other things, conditional on: HQCEC obtaining relevant approvals (on terms satisfactory to HQCEC) from the Australia Government s Foreign Investment Review Board, China s Ministry of Commerce and National Economic Reform Commission and CNPC; and The Company obtaining shareholders approval, if required. HQCEC and the Company are now advancing various definitive agreements, including a Share Subscription Agreement, based on the agreed Term Sheet. The parties are targeting completion of the Placement in the second quarter of The proposed investment by HQCEC in the Company will be a significant milestone and major step in the Company s future direction and a vote of confidence in the Company s OSMR process technology, including its low capital and operating costs, faster construction schedule, improved efficiency and lower carbon footprint than other mainstream LNG processes. In addition to the Gladstone LNG Project, HQCEC and the Company will immediately work on new project opportunities based on the Company s business model and the OSMR process technology. The Company welcomes HQCEC as the largest shareholder and looks forward to working with the HQCEC nominated Directors so that the Company can fully realise its potential. 17

20 Notes to the Financial Statements 9. SIGNIFICANT EVENTS AFTER BALANCE DATE (Continued) The appointment of a HQCEC nominated Executive Director and Co CEO is considered an important component of the overall transaction and will allow the Company to liaise with and access the significant global resources of HQCEC and the CNPC group. Such cooperation between HQCEC and the Company will materially assist the Company to progress its current project portfolio and target a number of new LNG project opportunities. Importantly, HQCEC and LNG LTD will now work together to deliver the Gladstone LNG Project. (b) Issue of Performance Rights On 12 January 2011, 2,250,000 Performance Rights were issued to executive and non-executive directors under the Company s Performance Rights Plan Rules. (c) Indonesian Commission Decision The Indonesian Commission for the Supervision of Business Competition (KPPU) on 5 January 2011 handed down its decision that PT. Pertamina (Persero) (Pertamina), Medco Energi Internasional Tbk (Medco), Medco E&P Tomori Sulawesi and Mitsubishi Corporation (Mitsubishi) violated Articles 22 and 23 of Law No. 5, concerning The Ban on Monopolistic and Unfair Business Competition. The violations relate to the proposed Donggi-Senoro LNG Project, in Central Sulawesi, Indonesia. LNG International Pty Ltd (LNGI, owned 100% by the Company) signed an agreement with Pertamina and Medco in early 2005 to progress the development of an LNG project in Central Sulawesi, based on gas feedstock from Pertamina and Medco (Donggi-Senoro LNG Project). As required in the agreement, LNGI, and its Indonesian partner, subsequently incorporated an Indonesian foreign investment company, PT. LNG Energi Utama (PTLNG), to own and develop the LNG project. In 2006, Mitsubishi undertook detailed due diligence of PTLNG s proposed LNG project on the basis of Mitsubishi potentially becoming a partner in, and buyer of LNG from, PTLNG s LNG project. Such due diligence, under a confidentiality agreement, included access to all technical, financial, modeling, planning and development information. Despite PTLNG having significantly advanced the project and incurred considerable costs, Pertamina and Medco decided, in late 2006, to seek tenders to develop the Donggi-Senoro LNG Project. Furthermore, despite Mitsubishi s due diligence of PTLNG, Pertamina and Medco allowed Mitsubishi to submit a tender. Pertamina and Medco subsequently awarded the Donggi-Senoro LNG Project to Mitsubishi; notwithstanding PTLNG s protestations. PTLNG protested its concerns to the Government of Indonesia and after a lengthy and comprehensive investigation KPPU has determined that the tender process was in fact unfair and, in such determination, cites LNGI (PTLNG) as an affected party. The Company is now considering, with its legal counsel in Indonesia, what action PTLNG may take in an endeavour to recoup its costs and damages. At this stage no decision has been reached and KPPU s determination is not necessarily an automatic path to a financial settlement of this matter. The fines levied by KPPU are payable to the Government of Indonesia (not PTLNG) and Pertamina, Medco and Mitsubishi have exercised their right to appeal the decision to the District Court in Indonesia, and KPPU or Pertamina, Medco and Mitsubishi then have the right to appeal the District Court s decision to the Supreme Court of Indonesia. 18

21 Directors Declaration In accordance with a resolution of the directors of Liquefied Natural Gas Limited, I state that: In the opinion of the directors: (a) the financial statements, and notes of the Group are 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 2010 and of its performance for the half-year ended on that date; and (ii) complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001; and (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. On behalf of the Board R. J. Beresford Chairman Perth, Western Australia 17 February

22 To the members of Liquefied Natural Gas Limited Report on the Half-Year Financial Report We have reviewed the accompanying half-year financial report of Liquefied Natural Gas Limited, which comprises the balance sheet as at 31 December 2010, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the half-year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors declaration of the consolidated entity comprising the company and the entities it controlled at the half-year end or from time to time during the half-year. Directors Responsibility for the Half-Year Financial Report The directors of the company are responsible for the preparation of the half-year financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal controls as the directors determine are necessary to enable the preparation of the half-year financial report that is free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of Interim and Other Financial Reports Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the consolidated entity s financial position as at 31 December 2010 and its performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations As the auditor of Liquefied Natural Gas Limited and the entities it controlled during the half-year, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report. A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Independence In conducting our review, we have complied with the independence requirements of the Corporations Act We have given to the directors of the company a written Auditor s Independence Declaration, a copy of which is included in the Directors Report. RC:VP:LNG: Liability limited by a scheme approved under Professional Standards Legislation

23 Conclusion Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of Liquefied Natural Gas Limited is not in accordance with the Corporations Act 2001, including: a) giving a true and fair view of the consolidated entity s financial position as at 31 December 2010 and of its performance for the half-year ended on that date; and b) complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations Ernst & Young RJ Curtin Partner Perth 17 February 2011 RC:VP:LNG:028 21