Please find attached the 2013 Annual Financial Report for Comet Ridge Limited.

Transcription

1 Comet Ridge Limited ABN GPO Box 798 Brisbane Qld 4001 Phone : Fax: Info@cometridge.com.au Our Ref: Your Ref: Stephen Rodgers 19 September 2013 Company Announcements Officer Australian Securities Exchange 20 Bridge Street Sydney NSW 2000 By Electronic Lodgment Dear Shannon. RE: COMET RIDGE LIMITED - ANNUAL FINANCIAL REPORT 2013 Please find attached the 2013 Annual Financial Report for Comet Ridge Limited. The printed version is expected to be released mid-october Yours Faithfully Comet Ridge Limited STEPHEN RODGERS Company Secretary

2 Comet Ridge Limited Annual Financial Report 30 June 2013

3 Corporate Directory Directors James McKay Non-executive Chairman Tor McCaul Managing Director Gillian Swaby Non-executive Director Jeffery Schneider Non-executive Director Christopher Pieters Executive Director Anthony Gilby Non-executive Director Stephen Rodgers Company Secretary Registered Office Level Elizabeth Street Brisbane Queensland 4000 Telephone: Facsimile: Website: info@cometridge.com.au Media Relations Three Plus 15 Cordelia Street South Brisbane Queensland 4101 Telephone: Facsimile: Share Registry Computershare Registry Services Pty Ltd 117 Victoria Street West End Queensland 4101 Telephone: Facsimile: Securities Exchange Listing Australian Securities Exchange Ltd Home Exchange: Brisbane ASX Code: COI Auditors Pitcher Partners Chartered Accountants Level 30, Central Plaza One 345 Queen Street Brisbane Queensland 4000 Telephone: Lawyers Porter Davies Lawyers Level 5/ 46 Edward Street Brisbane Queensland 4000 Telephone: Facsimile: Website:

4 Contents Chairman s Letter 1 Managing Director s Report 2 Overview of Activities 3 Corporate Governance Statement 8 Directors Report 17 Remuneration Report 22 Auditor's Independence Declaration 29 Statement of Profit or Loss and Other Comprehensive Income 30 Statement of Financial Position 31 Statement of Changes in Equity 32 Statement of Cash Flows 33 Notes to the Financial Statements 34 Directors' Declaration 72 Independent Auditor's Report 73 Additional Shareholder Information 75

5 Chairman s Letter Dear Shareholders, Comet Ridge has had an active year in progressing it coal seam gas assets. This has centred on the Mahalo project in the Bowen Basin, which has seen the installation of two pilot projects in preparation for production testing. The Company also completed a pre-pilot drilling programme in the Galilee Basin that highlighted the strong potential of this emerging basin. The portfolio was strengthened during the year with Comet increasing its interest in the Galilee Basin as well as completing the purchase of additional interests in the Gunnedah Basin. The progression to establishing gas reserves has been somewhat slower than we expected due to technical issues at the Mahalo project and restrictions on drilling in the Gunnedah. However, our Queensland based projects are gaining momentum with the Company targeting to have reserves certified at Mahalo early A recent visit to Chinchilla and Roma showed overwhelming strong support for the coal seam gas industry, which is not surprising given the dramatic increase in economic activity and the wealth of the area as a result of coal seam gas development. Comet has maintained its commitment to community consultation in all areas where the Company has an active operational role. In particular, your board and I have been very pleased with the way the Galilee Basin local councils, development groups and the landowners in our tenement areas, have engaged with the coal seam gas industry. NSW is rapidly approaching a gas shortage and it is difficult to understand their Government s lack of support for the industry, especially in light of the considerable success, free of significant problems, north of the border. One would think that as the gas shortage draws nearer, the NSW Government must remove unworkable roadblocks to the development of the industry with urgency. Geologically we believe our NSW licenses show significant promise and the Company has identified a number of leads, some of which have similarities to the highly prospective Pilliga trough. The first shipment of LNG from Gladstone next year will be a significant milestone for the industry, exposing domestic producers to international markets and creating a step change in eastern Australian gas demand. Comet Ridge continues to believe that having deliverable gas reserves feeding into this market will prove lucrative and remains the Company s key priority. I believe that Comet Ridge has a very exciting future as the Company moves towards the establishment of gas reserves. Reaching such a milestone puts Comet in a strong position that will be supported by the developing gas market. I would like to express my thanks to the Board, management and staff very ably led by our Managing Director, Tor McCaul, for their efforts throughout the year. Progressing projects in the current operational environment has at times been difficult and the commitment Comet s team has shown over the year puts the Company in a strong position to realise its potential. I look forward to the upcoming year and sincerely thank our loyal shareholders for their continued support. Yours faithfully James McKay Chairman 1

6 Managing Director s Report It has been another busy year for the team at Comet Ridge Limited, with most of our technical focus directed towards our Queensland assets. In Queensland, we have participated in the drilling of 14 wells over the past year, operating (being directly responsible for the drilling of) three of these. The Mahalo Block in the southern Bowen basin, about 240km west of Gladstone in central Queensland, has seen the majority of our drilling activity, with 11 wells drilled since July Comet Ridge is the biggest equity holder in this block with 35% equity, with APLNG (30%), Santos (30%) and Stanwell Corporation (5%), the other participants. APLNG has managed most of the work in the field in the past year on behalf of the Joint Venture. The wells drilled included two pilots schemes (the Mahalo field pilot and Mira field pilot) of four wells each, plus three stepout core holes to further appraise the block. The pilot schemes also required the construction of additional facilities, which included separators and flowlines for gas and water, power generation, water tanks and gas flare facilities. The pilot wells were drilled in two phases over the past year and the Joint Venture was very pleased with the drilling results achieved. Comet Ridge had been keen to see the first pilot scheme on-line and pumping water by late 2012 but unfortunately this wasn t achieved until April Gas production was recorded from two wells however not at sufficiently high rate to be considered commercial and the Joint Venture is currently designing and planning stimulation on two wells, which we expect to occur in October this year. The second pilot (Mira) came on line in June this year and has demonstrated much better productivity. We expect to pump water consistently from the Mira pilot for at least a few months before being able to quantify gas rates. Looking forward our plan is to continue to have both pilots on-line and pumping water in the Mahalo Block, leading into the end of this calendar year, with continued dewatering leading to higher gas rates as we head into the early part of 2014, with the plan to achieve a reserves booking. Unallocated gas reserves are becoming increasingly more difficult to find and subsequently we believe Mahalo holds significant value potential for the Company. In ATP 744P in the Gunn Project Area, in the Galilee Basin, we hold 100% equity. The Gunn 2 well was drilled as the start of a three well programme in October 2012 and we ultimately completed this well (ran a downhole pump and tubing into the well) and put the well on an extended production test (EPT) earlier this year. This well flowed at a rate of 400 bwpd (barrels of water per day) confirming the productivity of coal in this area and providing valuable information to aid in the design of future appraisal. The Galilee basin holds the largest upside potential for the Company at this point, with 1870 PJ of 3C contingent resource, and we believe the commercial options around Galilee Basin gas could be a combination of (1) power/gas for coal mines in the east of the basin, (2) supply for LNG manufacture in Gladstone or (3) domestic/industrial gas supply - or a combination of some or all of those options. We followed the Gunn 2 well with two more wells a little further to the east in the ATP 1015P farm-in area. These wells confirmed the presence of coals over a wide area to the east of the Gunn Project Area and earned the Company 20% equity in the farm-in area. In his letter, our Chairman has highlighted our concern about the lack of physical exploration and appraisal progress that has been possible for the industry in New South Wales to this point. This has made a tightening eastern Australia gas market even tighter and in our view, increased the price pressure on gas customers. NSW imports 95% of its natural gas needs and has over one million retail gas customers who rely on natural gas daily to cook their dinner and heat their water and homes. During the year, we completed the transaction that was announced during 2012 to purchase more equity in two of our blocks in north-central NSW in the Gunnedah Basin, PEL 427 and PEL 428, and also entered a new and very prospective block just to the east of these, PEL 6. Comet Ridge is now the conventional oil and gas Operator of these blocks whilst Santos is the CSG Operator. We look forward to working with Santos, to successfully explore and appraise these blocks. To date, our contingent resource base (3C) in these blocks exceeds 470 PJ net to Comet Ridge. Notwithstanding the inability of the industry to actively explore in NSW over the past couple of years, we believe that the significant progress made by the industry in Queensland, and the economic revitalisation of many parts of rural Queensland through gas developments, will ultimately show the NSW Government that it needs to encourage gas exploration and development in that state. Natural gas has been safely and efficiently produced in Queensland, to supply homes and businesses, for the past 45 years. Natural gas from coal seams has been safely and efficiently produced in Queensland for almost the past 20 years, and now accounts for almost 100% of Queensland s gas production. There is a growing feeling in Australia, that a small minority of anti-fossil fuel extremists have strived to control the public agenda and the industry is now working much harder to get real information and facts out about the industry to balance these extreme and unsubstantiated claims. Indeed, part of this information flow is revolves around how dependent our economy and our lives are on natural gas as a reliable source of clean energy. Subsequently, the Company remains hopeful that exploration and appraisal of our extensive NSW acreage position of 18,000 km 2 will be able to move forward in the short to medium term and we will ultimately be able to play our part in the gas supply story in NSW. In terms of the gas market in Queensland and NSW, almost daily in the media we are reminded that the buying side of the market is feeling very exposed and in a strange new position, where gas volumes are no longer easy to find nor do Australian domestic gas prices remain amongst the cheapest in the world. Significant upward pressure on prices has already occurred and we expect the market to remain very tight over the next couple of years, as the Gladstone LNG schemes commence export in 2014 and 2015 and a range of domestic gas contracts expire with those customers looking to find extensions to these contracts. The focus for our Company is quite simple. Over the past several years, through both exploration of our acreage position and low-cost acquisition in basins where we have some knowledge, we have built a very large contingent and prospective resource base, which is in excess of 5000 PJ net to Comet Ridge. Our plan is to continue to appraise our acreage in an efficient and technically focussed manner, such that we can commence the conversion of our large resource base to reserves at a time when the market for gas in eastern Australia is tightening significantly. 2

7 Overview of Activities Comet Ridge Limited (Comet Ridge or the Company) has an active exploration and appraisal work programme for coal seam gas resources and reserves in eastern Australia. The Company also has CSG interests in New Zealand and oil and also gas interests in the United States through Comet Ridge Resources LLC (CRR), a US company based in Denver, Colorado. Comet Ridge has had an active financial year to June 2013, with a drilling programme and Extended Production Test (EPT) in the Galilee Basin and the installation of two pilot projects in the Mahalo block in ATP 337P, executed by its joint venture partner APLNG (the Origin, Conoco, Sinopec company). During the year, Comet Ridge increased its interest in the Galilee Basin with the completion of the first phase of a Farm-In into the Lake Galilee farm-in area as well as completing the purchase of northern NSW assets from Petrel Energy, increasing Comet Ridge s interest in the Gunnedah Basin. Activities in Australia Comet Ridge has interests in four coal seam gas assets in the Bowen and Galilee Basins in Queensland, and three in the Gunnedah Basin in New South Wales. Comet Ridge Permits Basin State CSG Interest Area (km 2 ) ATP 743P Galilee QLD 100% 4,214 ATP 744P Galilee QLD 100% 6,615 ATP 1015P Lake Galilee farm-in area Galilee QLD 20% 825 ATP 337P Mahalo Bowen QLD 35% 910 PEL 6 Gunnedah NSW 22.5% 5,162 PEL 427 Gunnedah NSW 50% 7,010 PEL 428 Gunnedah NSW 60% 6,018 The past 12 months have been an extremely active period for Comet Ridge with significant field activity as the Company focused on consolidating its acreage position in the Galilee and Gunnedah Basins and following this with exploration and appraisal work programmes in the Galilee Basin and Mahalo Block in the Bowen Basin. In June 2012 Comet Ridge announced that it had executed an agreement to acquire Petrel Energy s interests in the Gunnedah Basin. After all necessary approvals, this transaction was completed in April Soon after this agreement was executed, in July 2012 Comet Ridge entered into a farm-in agreement with Queensland Energy Resources (QER) Pty Ltd to enter ATP 1015P in the Galilee Basin. Both these strategic acquisitions have strengthened Comet Ridge s asset portfolio in these areas, where the Company already held material interests. Activities in Queensland Considerable technical progress was made across both Queensland Basins during the year. A three well Galilee Basin exploration and appraisal programme commenced in September 2012, which included an Extended Production Test on one of the wells, Gunn 2. In July 2012, Comet Ridge commenced a 12-well drilling programme at ATP 337 Mahalo, including two pilot projects. Included in the programme were two four-spot pilots at Mahalo and Mira and an additional four step out core holes. Only one of the core holes is yet to be drilled. The additional equity obtained in PEL 427 and PEL 428, and the entry into PEL 6 in NSW, increases Comet Ridge s net resource position and is detailed in the table below: Resources (PJ) (net to Comet Ridge) Interest 1C 2C 3C Prospective Resources Gunn Project Area (ATP 744P) 100% , ATP 337P Mahalo 35% PEL 427 & PEL % & 40% ,101 Total (Australia) ,731 2,698 The current work programme is focused on maturing Contingent Resources into Certified Reserves in the Mahalo Block during the coming year. ATP 337P Mahalo Project Comet Ridge s ATP 337P Mahalo asset is located in the Denison Trough area of Queensland s Bowen Basin near Rolleston, and covers an area of 910 km 2. Comet Ridge has a 35% interest in ATP 337P Mahalo with a clear focus on maximising 2P Reserves in the block. In July 2012, the Joint Venture commenced work on the first four-well pilot scheme with the drilling of the Mahalo 3, 4, 5 and 6 wells, north of Rolleston. Drilling was completed at the end of July. Each of the wells intersected approximately seven metres of net coal in the main Castor- Pollux seam as anticipated. This area of the block has shown good continuity and thickness of coal with very good to excellent permeability across the main reservoir section observed just after drilling. Following drilling of the four Mahalo field pilot wells in mid-2012, the Joint Venture commenced drilling of the second pilot at Mira in December. Each of the wells intersected approximately eight and a half to nine metres of net coal. Like the Mahalo field, 13 km to the northwest, Mira continued to demonstrate excellent coal productivity. Completion operations were then undertaken, with both the Mahalo and Mira pilot wells set up for production with tubing and pumps installed. 3

8 Overview of Activities (continued) ATP 337P Mahalo Project (continued) These pilot programmes are a key component in the Joint Venture plan to book gas reserves across a large part of the Mahalo project area. Having two independent pilot schemes operating concurrently significantly increases the likelihood of achieving a commercial gas rate for establishing reserves, and also allows the Joint Venture to gather valuable data on optimal well completion design for field development. Drilling operations then stepped-out from the pilot area at Mira and coreholes were drilled southeast, south and southwest of the Mahalo and Mira pilot areas at the Scrubber Gully 2, Turkey s Nest 1 and Humboldt Creek 2 wells. Scrubber Gully 2 was a 5.2 km step-out from Mira and intersected 7.2 metres of net coal whilst Turkey s Nest 1 was drilled 5 km southwest of the Mahalo pilot intersecting 9.6 metres of net coal. Humboldt Creek 2 was drilled in the southern part of the block, intersecting 9.4 metres of net coal. In the final quarter of the reporting year, the Mahalo and Mira pilots were commissioned. Preliminary analysis of data from the Mahalo Field pilot scheme confirms that productivities seen in the pumping wells are lower than that measured when the wells were drilled in 2012, with remedial work involving a work-over rig required to restore the productivity of these wells. This work is scheduled for October At the Mira pilot, the initial water rates observed were in line with the high productivity seen when the wells were drilled in January this year. A scheduled well shut-in for pressure build-up surveys at the Mira Field has confirmed the generally high productivities seen during testing when the wells were initially drilled. The wells are back on line to continue de-watering of the coal seams. A work-over to restore the bottomhole assembly on the Mira 3 well was successfully carried out in September ATP 337P Mahalo is well placed with respect to existing infrastructure, with a pipeline connection to Gladstone available just to the west of the block. The Mahalo block holds significant value potential for Comet Ridge Limited, given the proximity of the Mahalo block to infrastructure, the shallow nature of the coals and the rapidly increasing demand for natural gas in Queensland. Galilee Basin Permits: Comet Ridge has a 100% interest in two very large and adjacent permits on the eastern flank of Queensland s Galilee Basin, ATP 743P and ATP 744P. The area remains only lightly explored to date. After the end of the financial year, one third of ATP 743P was relinquished as part of the normal tenure management process with the Queensland Department of Natural Resources and Mines (DNRM). This relinquishment was effective 3 September ATP 1015P Farm-in In July 2012, Comet Ridge announced that it had signed a three-stage farm-in agreement with Queensland Energy Resources Pty Limited (QER) to earn up to 75% of a farm-in area, located in the south east of permit ATP 1015P, adjacent to the Company s 100% held Gunn Project Area in ATP 744P. The farm-in area consists of two separate blocks totaling approximately 825 km 2. These areas represent 21% of QER s total permit area in ATP 1015P. QER will retain a 100% interest in the remaining area of ATP 1015P, while Comet Ridge has become Operator of the farm-in area. This transaction creates a continuous acreage position across a key area in the Galilee Basin, expanding the Gunn Project Area to the east and allowing it to be appraised as a single project. On completion of each stage of the farm-in, Comet Ridge has the option to proceed with the subsequent stage. Having completed the Stage 1 work programme, Comet Ridge announced in March 2013 that the Company had elected to proceed to Stage 2 of the Farm-in by drilling a further three wells in the Farm-in area. Galilee Basin Drilling Campaign Comet Ridge commenced a three-well exploration and appraisal drilling programme in the Galilee Basin in October 2012 with the first well in the Company s 100% held ATP 744P and the following two wells in the farm-in area, part of ATP 1015P. The first well, Gunn 2, reached a total depth of 1,050 metres and intersected 16.2 metres of net coal in the Betts Creek Beds. Wireline conveyed testing tools were used to flow test four separate coal intervals in the Betts Creek Beds, including two coal intervals in the base of the section that had not been previously tested in the Gunn Project Area. All four coal intervals demonstrated good to excellent productivity. The Schmitt 1 well, located in the farm-in area, 17km further to the southeast, was fully cored through the Betts Creek Beds to determine key coal properties and reached a depth of 1,005 metres, intersecting 22 metres of net coal. Cernan 1, the final well in the programme, was located 13km further east of Schmitt 1 and intersected 20.6 metres of net coal. These wells have confirmed the extension of the Gunn Project Area to the east into the farm-in area. Analysis of the data indicates that the Gunn Project Area and Farm-in area coals contain recoverable gas, over an estimated area of approximately 1,865 km 2. The Schmitt 1 and Cernan 1 wells earned Comet Ridge a 20 % equity interest in the farm-in area. Gunn 2 Well Extended Production Test In parallel with the drilling programme, the Gunn 2 well was completed for production in November 2012, with tubing and a downhole pump installed to enable water to be produced. During December 2012, surface facilities including water storage tanks, flowlines, metering facilities and power generation were installed on site and in early January 2013, these facilities were commissioned for operation. The objective of the EPT was to provide information to test the completion methodology for a full pilot scheme and to obtain good quality water samples from the Betts Creek coal. 4

9 Overview of Activities (continued) Gunn 2 Well Extended Production Test (continued) The well was perforated over a four metre interval from to metres which is bounded above and below by impermeable mudstone. The EPT was designed in this manner to ensure water would only be produced from the Betts Creek reservoir coal. By excluding water from other zones in the well, surface water handling requirements could be optimised and dewatering time could also be minimised. The pump and other equipment performed as designed with no mechanical or electrical issues throughout the test. The water rate was progressively increased over a period of a few weeks, with the well reaching a stabilised production rate of approximately 400 bwpd (barrels of water per day) which is the limit of the pumping system under the current configuration. Analysis of the pressure data showed that the four metre coal interval, which was the subject of the test, has even greater flow capacity. Formation water samples from the coal were taken at regular intervals for very detailed laboratory analysis. The progress of the EPT has been extremely pleasing, with this well an important milestone for the Company in the Galilee Basin. This is the first test for the Company on a completed well, where the well has been set up for long term production. Another very important outcome from the EPT is that the simple completion style of the well (case, cement and perforate) has proved to be extremely effective in both connecting the wellbore to the fractures in the coal and also in isolating the coal from sandstones. This simple design can subsequently be applied to a pilot scheme to access selected coals. The Company is now evaluating different methods of water treatment. This trial will aid in forming the basis of design for a pilot scheme in the Gunn Project Area with the intention of achieving independently certified gas reserves, which would be available for power generation, LNG manufacture or domestic gas markets. New South Wales Projects In 2012, Comet Ridge announced that it had signed an Asset Sale Agreement to acquire an interest in PEL 6, and further interests in PEL 427 and PEL 428 in the Gunnedah Basin in northern New South Wales for $750,000. This transaction was completed during April 2013 and further consolidates Comet Ridge s position in the northern Gunnedah Basin given our expectation that ultimately significant volumes of natural gas are likely to be produced from the Gunnedah Basin for the NSW domestic market further south, based around Sydney and Newcastle. These three contiguous licences are located immediately north and west of Santos Narrabri CSG Project in the Bohena Trough, and cover a total area of approximately 18,000 km 2. Comet Ridge currently holds between 22.5% and 60% CSG interest across these licences and between 97.5% and 100% conventional oil and gas equity (CSG and conventional equity are held independently in these blocks). Comet Ridge is the conventional interest operator. Santos operates the CSG interest. Comet Ridge has been working with Santos to renew its Gunnedah Basin permits and plan the work programme for 2013 and beyond. To date, PEL 427 has been extended for a period of three years and extensions are currently being processed for PEL 428 and PEL 6. The Company has identified a number of Permian-aged troughs throughout its acreage position and believes that several of these may contain large volumes of recoverable gas, which is evidenced in the Bohena Trough just to the south of PEL 427, which holds significant 2P and 3P gas reserves for Santos. These permits are strategically located as this area has the potential to mature into a major CSG producing province, with gas to flow south to meet an important part of NSW s gas needs. Activities in New Zealand At the beginning of the year, Comet Ridge held a 100% interest in three petroleum permits in New Zealand, each with known coal resources and CSG potential. PMP and PEP are located on the west coast of the South Island, and contain the gassy Greymouth Coal Fields. PEP is located adjacent to the Huntly coal mines in the North Waikato region on the North Island. As detailed in last year s Annual Report, Comet Ridge had made application to NZ Petroleum and Minerals (NZP&M) to vary the work programme commitments on all three of the Comet Ridge 100% held blocks. The extensive technical work conducted over the previous two years by Comet Ridge (based around aerial magnetic and gravity surveying) which included extensive geological and geophysical analysis, had identified the parts of these three blocks that were most prospective for gas. For the North Waikato exploration block (PEP 50280), an appropriate work programme could not be agreed with NZP&M and subsequently Comet Ridge elected to surrender the block in March For the west coast blocks, a suitable work programme for PEP was agreed with the permit being renewed for a further three years. As part of the three year extension, approximately three-quarters of the block area was relinquished and the Company has retained the key area of the block where Contingent Resources have been previously booked. PMP 50100, also on the West Coast of the South Island, has been renewed for a term of 20 years after agreement on the work programme with New Zealand Petroleum and Minerals. A strategic review of Comet Ridge s New Zealand portfolio is planned in the coming months. 5

10 Overview of Activities (continued) Activities in the United States Comet Ridge Resources LLC (CRR), based in Denver, has continued the exploration and evaluation of its large acreage position in the Rockies including structural mapping, 3D seismic processing and interpretation, and drilling. As of July 2013, in SE Colorado CRR has drilled three wells; two have been completed and are undergoing initial testing. A fourth well is currently drilling. An existing old well was re-entered and converted into a water disposal well and water handling facilities have been built and commissioned. During the year, CRR issued three cash calls to Comet Ridge Limited. Given the strong focus that Comet Ridge Limited has on booking gas reserves for the eastern Australian market, the Company elected not to pay these US cash calls and consequently its interest in CRR has been reduced from 17.2% to 12.1%. Early in the reporting year, CRR (through its subsidiary Pine Ridge Oil and Gas, LLC) completed the sale of the Florence oil field for US$12.25 million. In the Pacific Northwest, the Yeti 1 well at Grays Harbor was drilled to a total depth of 1381 metres in September 2012 and was plugged and abandoned following logging. Health, Safety and Environment Comet Ridge recognises the importance of effective HSE systems and has engaged the services of HSE professionals for specific safety and environmental advice. No recordable health, safety or environmental (HSE) incidents were reported in the period 1 July 2012 through to 30 June Total Recordable Injury Frequency Rate (TRIFR) and Lost Time Injury Frequency Rate (LTIFR) remain at zero. No recordable environmental incidents occurred during this period. A full review of the existing Safety Management Plan and Company HSE Policies has been undertaken with upgrades implemented as required. Safe Operating Procedures processes have also been developed, consistent with the Queensland Petroleum & Gas (Production & Safety) Legislation and good oilfield practice. These procedures are specific to Comet Ridge s operating parameters and all processes have been aligned according to AS 4801 Safety Management System specifically suited to coal seam gas production. A full upgrade of the Comet Ridge Induction programme has been undertaken. It is envisaged that the new system will ultimately be accessed via the web so that personnel and contractors have global 24/7 access to facilitate efficiency for remote operations. A formal Environmental Management Plan has also been developed in the reporting period. This plan captures all the required management plans associated with the environmental conditions set out in the Environmental Authorities issued by the Queensland Government. The plan is consistent with good gasfield practice and will also be used to manage generic conditions associated with all Comet Ridge tenements. Training is now underway for Comet Ridge personnel and appropriate contractors associated with key components of the safety and environmental systems to ensure consistency of approach. Training is assessed and records are maintained within the HSE IT system. Training will be ongoing as the Company matures to incorporate effective application of specific procedures. Community Comet Ridge respects the communities in which it operates. The Company strongly believes that co-existence and co-operation between landowners and exploration companies can be achieved while protecting the environment and landowners livelihoods. Comet Ridge believes that Queensland has actively demonstrated that this co-existence and co-operation is possible for the past four decades. The company also wants to ensure the long term sustainability of our projects which in turn will generate very positive economic benefits for local communities. Comet Ridge appreciates and values the consultation and negotiation process with landowners and acknowledges that the Company is a visitor in its exploration permit areas. The Company has met with over many landowners and have successfully negotiated more than 15 landowner agreements to date. Comet Ridge is committed to building strong relationships based on respect, honesty and trust with all stakeholders including regulators, governments, joint venture partners, landowners and local communities. The Company has developed many excellent stakeholder relationships over the past few years, particularly in the Galilee Basin. The Company s involvement as a founding member of the Galilee Basin Operators Forum (GBOF) has broadened its exposure to the key stakeholders in the Galilee Basin communities and strengthened its relationships there. The forum, an informal group of coal seam gas exploration companies with petroleum exploration tenements in the Galilee Basin, was formed three years ago, initially to jointly fund a baseline water assessment for the basin. This first hydrogeological assessment report for the Galilee Basin was delivered to the local community and a range of government organisations early in 2013 and is available for download on the GBOF website ( Further detailed isotope studies, to help to identify which water zones are currently being produced by many agricultural bores in the basin, are being funded by GBOF and are structured as research projects in co-operation with the Queensland University of Technology. Increasingly, Comet Ridge is engaging with stakeholders such as RAPAD (Central West Remote Area Planning and Development Board, MITEZ (Mt Isa to Townsville Economic Zone), AgForce, the Queensland Gas Commission and the wider community. 6

11 Overview of Activities (continued) Community (continued) As part of its commitment to keep the community informed, the Company held an open day in the Galilee Basin during November 2012, where local pastoralists and families were invited to visit and inspect the drilling rig and drilling operations, and have any questions answered by a range of Comet Ridge technical staff and consulting geologists and specialists. The open day was well attended and is a valuable part of the Company and the local community understanding each other s businesses. During June 2013, the Company participated in and presented at a community water forum in Barcaldine in central western Queensland that was also attended by other GBOF companies, the Queensland Gas Commission, Agforce and a number of senior representatives from the Queensland Government and Queensland Water Commission. Comet Ridge is also committed to keeping communities and stakeholders informed of current and proposed CSG activities through direct interaction and through our website. Cultural Heritage The Directors and management of the Company recognise and respect the cultural and spiritual significance of the land to the indigenous peoples of Australia and is committed to working closely with interested community groups and individuals to identify significant sites and any impact our exploration activities may have on them. In order to assist the Company to meet its cultural heritage obligations, Comet Ridge has adopted a Cultural Heritage Policy. The policy requires Comet Ridge to; Conduct operations giving due consideration to and application of relevant Cultural Heritage legislation. Ensure that all employees, contractors and management are aware of their obligation to never disturb or remove items of cultural significance; and Ensure that all employees, contractors and management are aware of their obligation to immediately stop the job and report discoveries of items of cultural significance to senior Comet Ridge Management. In addition, all employees, contractors and management are obliged to; Give due consideration to cultural heritage issues and their significance in the wider community. Immediately stop the job and report any discoveries of items of cultural significance, (e.g. skeletal remains, stone artefact scatters, stone tools, shell middens, scarred trees, stone arrangements and rock art). Conduct operations with regard to areas of cultural significance. and Endeavour to recognise and promote opportunities in its activities for Indigenous people for maintenance of their culture and traditions and economic independence by providing training, employment and investment opportunities where opportunities arise. Comet Ridge is committed to the ongoing monitoring of the implementation of this policy and any amendments if required. 7

12 Corporate Governance Statement Introduction The Board and management of Comet Ridge Limited (Comet Ridge or the Company) are committed to the creation of shareholder value and meeting the expectations of stakeholders for sound corporate governance. During 2012/13, the Company s corporate governance practices and policies have accorded with those outlined in the ASX Corporate Governance Council s Principles and Recommendations (2nd Edition) (ASX Guidelines), (except as outlined below). Even where there is a deviation from the recommendations the Company continues to review and update its policies and practices in order that these keep abreast of the growth of the Company, the broadening of its activities, current legislation and good practice. The ASX Corporate Governance Council s (The Council) recommendations are not prescriptive but rather they are guidelines. If certain recommendations are not appropriate for the Company given its circumstances, it may elect not to adopt that particular practice in limited circumstances. Where the Company s Corporate Governance practices do not correlate with the practices recommended by the Council, the Company does not consider that the practices are appropriate due to the either size of the Board or the management team or due to the current activities and operations being carried on by and within the Company. Further details of all the recommendations can be found on the ASX Corporate Governance Council s website at: Additional information about the Company's corporate governance policies and practices including copies of the policies and charters listed below is set out on the Company's website at where copies of the Company s Charters and Policies can be accessed. Principle 1 Lay solid foundations for management and oversight 1.1 Lay Solid Foundations for Management and Oversight The Board guides and monitors the activities of Comet Ridge on behalf of shareholders, whom they are ultimately accountable to being subject to mandatory board rotations. The Board is responsible for setting corporate direction, defining policies, and monitoring the business of the Company, to ensure it is conducted appropriately and in the best interests of shareholders. To ensure that the Board is well equipped to discharge its responsibilities, it has adopted a formal charter for the operation of the Board. The charter defines the functions reserved to the Board and those delegated to management to facilitate accountability to Comet Ridge and its shareholders. The Board has established three standing committees the Audit Committee, Risk Committee and the Remuneration Committee. The composition, structure, purpose and responsibilities of those Committees are described below. The Board may also delegate specific functions to ad-hoc committees from time to time on an as needs basis. At the time of joining Comet Ridge, Directors and Senior Executives are provided with letters of appointment, together with key Company documents and information setting out their term of office, duties, rights and responsibilities, and entitlements on termination. (ASX Recommendation 1.1) The Board delegates specific responsibilities to various Board Sub-Committees. The Board has established the following standing committees: An Audit Committee, which is responsible for overseeing the external and internal auditing functions of the Company s activities; A Risk Committee, which comprises representatives of the Board and staff to advise and assist the Board in assessing risk factors associated with the operation of the Company; and A Remuneration Committee, which is responsible for making recommendations to the Board on remuneration packages for executives. 1.2 Process for Evaluating the Performance of Key Executives Improvement in Board processes and effectiveness is a continuing objective and the purpose of the annual Board evaluation is to identify ways to improve performance. The Chairman is responsible for conducting an annual review of the Board s performance. An evaluation of the performance of the Board was completed last year and one is scheduled for later this year. The Board assesses annually or as necessary the performance of the Managing Director benchmarking his performance against the role description in the employment contract and general industry standards expected of a Managing Director carrying on that role. The Managing Director assesses, annually or as necessary, the performance of all key executives. Both qualitative and quantitative measures will be used consistent with performance targets set annually by the Managing Director in consultation with those executives. The Managing Director reports to the Remuneration Committee on their performance and who in turn will then consider any changes to remuneration and the establishment of new performance targets. (ASX Recommendation 1.2) 8

13 Corporate Governance Statement (continued) Principle 2 Structure the Board to Add Value 2.1 Composition and Operation of the Board The names of the Directors of the Company in office at the date of this report and their qualifications are set out in the section of the Annual Report headed Directors Report. Under the Constitution, the maximum number of Directors is nine (9). Further, the Constitution mandates that there be a minimum of three Directors, at least two of whom must reside in Australia. One third of the Directors retire annually on rotation in accordance with the Constitution, who are free to seek re-election by shareholders. The composition of the Board is determined so as to provide the Company with a broad base of industry, business, technical, administrative, financial and corporate skills and experience considered necessary to achieve the strategic objectives of the Company. Independence When evaluating candidates, the Board has regard to the potential for conflicts of interest, whether actual or perceived, and the extent or materiality of these in the ongoing assessment of Director Independence. In this respect the Board has regard to the definition of "independence" in the ASX Guidelines. An independent Director, in the view of the Board, is a Non-executive Director who is not a member of management and who is free of any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the independent exercise of their judgement. In determining the independent status of a Director, the Board, in accordance with the ASX Guidelines, considers whether the Director: a) is a substantial shareholder of the Company or an officer of, or otherwise associated directly with, a substantial shareholder of the Company; b) within the last three years has been employed or has previously been employed in an executive capacity by the Company or another Group member; c) within the last three years has been a principal of a material professional adviser or a material consultant to the Company or another Group member, or an employee materially associated with the service provided; d) is a material supplier or customer of the Company or other Group member, or an officer of or otherwise associated directly or indirectly with a material supplier or customer; and e) has a material contractual relationship with the Company or another Group member other than as a Director of the Company. The Board considers that, fundamentally, the independence of Directors is based on their capacity to put the best interests of the Company and its shareholders ahead of all other interests, so that Directors are capable of exercising objective independent judgment. The Board is of the view that the existence of one or more of the relationships in the definition will necessarily result in the relevant Director not being classified as independent, particularly given the criteria outlined above, and that the Company will seek to implement additional safeguards to ensure independence. An overall review of these considerations is conducted by the Board to determine whether individual Directors are independent. Additional policies and practices, such as Directors not being present during discussions or decision making on matters in which they have or could be seen to potentially have a material conflict of interest, as well as Directors being excluded from taking part in the appointment of third party service providers where the Director has an interest, provide further separation and safeguards to independence. The Board has considered materiality thresholds in relation to independence, but has determined not to establish fixed thresholds, believing that, if taken in isolation and out of context, these can be misleading and inconclusive. The criteria used to assess independence are reviewed from time to time. The results of this review are set out in the following table:- Board Composition Director Board membership Date of appointment James McKay Non-executive Chairman 16-Apr-09 Tor McCaul Managing Director 16-Apr-09 Gillian Swaby Independent Non-executive Director 09-Jan-04 Jeff Schneider Independent Non-executive Director 28-Aug-03 Chris Pieters Executive Director 16-Apr-09 Anthony Gilby Non-executive Director 06-Oct-09 The Board considers that its current structure is appropriate to efficiently and independently carry out its functions, given the size of the Company and level of its current activities. 9

14 Corporate Governance Statement (continued) Principle 2 Structure the Board to Add Value (continued) 2.1 Composition and Operation of the Board (continued) Identification of Independent Directors Since reverting to the role of Non-executive Chairman in April 2009 Mr Schneider has not held any position which would fall within any of the relationships defined in the Council s Independence Criteria that would affect his independent status. Although in the past he did not strictly satisfy the criteria as published by the ASX Corporate Governance Council ("Independence Criteria"); he did however, fulfil the other Independence Criteria. The Board of Comet Ridge (in the absence of Mr Schneider) considers that given the effluxion of time since Mr Schneider carried out the role of executive chairman, resigned from the board of Strike Energy Limited and as that company no longer holds any interest in the Company, he now satisfies the criteria to be considered independent. Ms Swaby through her consultancy company, Strategic Consultants Pty Ltd, provided up until 16 April 2009 company secretarial services. In this capacity, Ms Swaby fulfilled a quasi-executive role. Since that time neither Ms Swaby nor an entity which she is related has provided the Company with similar services. Given that a period of more than three (3) years have now elapsed since Ms Swaby provided those services and she meets all of the other Independence Criteria, the Board, in the absence of Ms Swaby, considers that Ms Swaby now satisfies the criteria to be considered independent. Mr Pieters was appointed by the Company in June 2013 as Commercial Director for an initial term of four months. It is expected that his engagement will be concluded by the end of September Mr Pieters has provided his services to the Company in a capacity as a consultant. As announced at the time of his appointment, a tightening of the gas market in eastern Australia provided the Company with a range of commercial opportunities, and the Company believed that the appointment of Mr Pieters to assist with exploring these opportunities especially given his knowledge of the Company, represented the best value for money and ensured that the role was filled by a candidate who could hit the ground running. Mr Pieters is not a substantial shareholder of the Company and meets all of the other Independence Criteria. Having regard issues of materiality, the Board, in the absence of Mr Pieters, considers that Mr Pieters brief consultancy period does not impede his ability to act in the best interests of the Company. Therefore the Board considers Mr Pieters to be independent. The Board is made up of six Directors, half of which are considered independent. (ASX Recommendation 2.1). The Non-executive Directors understand the benefits of conferring regularly without management present, and do so. The Board is also committed to ensuring that all Directors, whether independent or not, bring an independent judgment to bear on Board decisions. To facilitate this, the Board has agreed on a procedure for Directors to have access, in appropriate circumstances, to independent professional advice at the Company s expense. If a Director considers it necessary to obtain independent professional advice to properly discharge the responsibility of his/her office as a Director then, provided the Director first obtains approval for incurring such expense from the Chairman, the Company will pay the reasonable expenses associated with obtaining such advice. No Director availed him or herself of this entitlement during the year. 2.2 The Chairperson should be an Independent Director The Chairperson (Mr McKay) if applying the Independence Criteria is not considered, to be independent, due to his family group of companies being a substantial shareholder of the Company. However the Board considers that Mr McKay is the most appropriate person for the role due to his commercial experience in such a capacity and that the interests of the Company and its shareholders are being more than adequately met by the current appointee. (ASX Recommendation 2.2) 2.3 The Roles of Chairperson and Chief Executive Officer should not be shared by the same person The roles of the Chairperson and the Managing Director were not shared at any time during the year under review. The role of the Chairman was fulfilled by Mr McKay, while the role of the Managing Director has been filled by Mr McCaul for the whole of the period. The roles of the Chairperson and the Managing Director are set out in the Board Charter. (ASX Recommendation 2.3) Board Should Establish a Nomination Committee The full Board carries out the functions of a Nomination Committee in respect of the selection and appointment process for Directors. While there is no formal Nomination Committee as required by ASX Recommendation 2.4 the full Board deals with those matters and issues arising that would usually fall to a Nomination Committee. The Board has in place processes which raise the issues that would otherwise be considered by a Nomination Committee. The Board considers that no efficiencies or other benefits would be gained by establishing a separate Nomination Committee at this time due to the size of the Company and its current activities. (ASX Recommendation 2.4) 10