annual 2017 report
petrel energy limited annual report 2017
Contents 1 chairman s letter 04 2 the board 06 3 operations report 08 4 corporate 16 5 corporate directory 61 FINANCIAL REPORT 6 directors report 18 7 auditors independence declaration 28 8 consolidated statement of profit or loss & other comprehensive income 29 9 consolidated statement of financial position 30 10 consolidated statement of changes in equity 31 11 consolidated statement of cash flows 32 12 notes to the financial statements 33 13 directors declaration 53 14 auditors report 54 15 additional information 58 <insert heading> petrel energy petrel limited energy annual limited report annual 2017 report 3
Chairman s Letter Dear Shareholder, During the year Petrel has followed its stated strategy of taking oil and gas projects from pure exploration to production in order to provide value uplift for shareholders. Petrel does this by identifying assets with significant potential, proving a scientific hypothesis and undertaking sufficient work to demonstrate commercial viability. We aim to realise our investment by either selling to or bringing in a larger specialised partner who is sufficiently resourced to capture the full potential of the asset. Consistent with this strategy, we are currently working on an exciting four-well drilling programme designed to unlock the significant geological potential within Petrel s acreage in Uruguay. This programme encountered significant unforeseen operating challenges and complexities during the 2017 financial year. As a result, the programme is significantly behind schedule and over budget. This has been extremely frustrating for the Board and management of Petrel and, of course, for our Shareholders. Going forward, we must do better. To this end we have undertaken a review of all drilling and onsite operations, including with independent consultants, to determine the necessary operational and management changes to effectively complete the programme. The aim is to avoid, as best as we can, repeating the mistakes of the past. More of the same is unacceptable. Continuation of our drilling programme in Uruguay has necessitated the raising of additional capital through an underwritten Entitlements Offer outlined in the recent Prospectus. The Board believes that completing the programme in Uruguay is fundamentally in the best interests of the Company on the basis that: we have a drill rig in-country with the risks of conducting operations in Uruguay now significantly reduced as we are no longer reliant on equipment being purchased, shipping and customs or additional approval processes; we have learnt how to drill unexpectedly very hard basalt and what drill bits work best under certain conditions; we have a rejuvenated drilling contractor with new onsite drilling experts, New Tech Global Ventures (NTG), who have now been retained by the Operator to manage all onsite operations; and in the opinion of the Board, the prize remains great, as indicated by the Company s independently certified oil and gas resources in Uruguay. This takes on increasing significance when viewed in the context of the Company s previous systematic process of engagement with major oil and gas industry counterparties. While the counterparty engagement process did not yield a large industry partner at the time due to falling oil prices, it did result in a comprehensive technical dialogue in relation to the Petrel s Uruguay acreage. Completing this programme will enable the Company to address many of the residual technical issues arising from this process. The primary objectives of the drilling programme are still to confirm source and reservoir rock quality and extent across both permits. Excellent world class Darcy permeability (1000+md) has been measured in coreholes in the south east of the Piedra Sola permit. Importantly, while not the primary objective, we are also fortunate that 3 of the 4 wells being drilled are targeting structures identified by seismic with potential for oil and gas trapped in either the same sequence or up-dip of oil shows and/or oil weeping from core samples, while the fourth is targeting a very material AVO gas anomaly. As a consequence, even completing the current well and subsequent planned wells have the potential to address some key technical issues, and provide an opportunity for early exploration success. As shareholders would be aware, oil and gas exploration is an exciting business but comes with significant risks and challenges. Whilst our best efforts will be put towards improving the operational performance going forward, there can be no assurances that the current drilling programme will produce positive results. The Board and management of Petrel sincerely appreciate the ongoing support and participation of all shareholders and we look forward to communicating with you as events unfold in the current financial year. Yours sincerely, Alex Sundich chairman s letter petrel energy limited annual report 04
chairman s letter petrel energy limited annual report 05 Uruguay
The board Alexander Sundich Chairman Alex is an Executive Director of Palladion Partners, a corporate advisory and principal investments firm. He has over 30 years experience in the financial services industry and is a Fellow of the Financial Services Institute of Australia, a Member of the Institute of Chartered Accountants in Australia and a Member of the Australian Institute of Company Directors. Alex was a Non- Executive Director of Eastern Star Gas Limited. From 2003-2008, Alex held senior management positions within the funds management industry. Prior to that, Alex was an investment banker providing advice to corporate clients on merger and acquisition transactions and debt and equity capital raisings, with a particular focus on the oil, gas and mining industries. Alex worked with Goldman Sachs and Credit Suisse First Boston during this period which included six years working in New York. Alex is also a Non-Executive Director of Ellex Medical Lasers Limited, an ASX listed manufacturer of medical equipment, and Chairman of Cleveland Mining Limited, an ASX listed gold company. David Casey Managing Director David graduated with an Honours degree in Geology from the University of Sydney in 1991 and in the same year joined specialist coal seam gas (coalbed methane) company in Situ (Australia) Pty Ltd. In 1996, he formed his own unconventional energy consultancy business. David has over 20 years experience in the management and evaluation of all aspects of unconventional oil and gas exploration and appraisal, from initial reservoir characterisation and fairway identification through to drilling, testing and production operations. David s most recent executive role was Managing Director of Eastern Star Gas Limited, which he and his team grew from modest beginnings to recently being the subject of a $924m takeover by Santos Limited valuing the Narrabri Project at $1.42b. David was executive director and chief operating officer at Molopo Energy from 2001 to 2005 where he worked closely with Stephen Mitchell in developing a very successful unconventional energy company with assets in Australia, the US, Canada, China and South Africa. the board petrel energy limited annual report 06
Andrew Williams Non Executive Director Andrew has been an equity research analyst in the top echelons of Australian capital markets for the past two decades focusing on the global energy sector, and in particular across the oil and gas markets. His formal education in geology and finance put Andrew at the vanguard of analysis of unconventional energy, which has only inhabited the listed space for the past decade. His focus on technical, commercial and financial merits of the Cooper, Surat and Gunnedah basins provided analysis and key support for project before they became widely appreciated by the wider investment community. Andrew holds a Masters Degree in Applied Geology and Grad Dip (Finance) from RMIT University, and over a 30-year career Andrew has developed a strong technical and commercial background through hands-on oil industry experience as a geologist with Mobil Minerals, Woodside and Schlumberger. Russell Porter Non Executive Director Mr. Porter currently serves as President, Chief Executive Officer and Director of Gastar Exploration Inc., an oil and gas exploration and production company with operations and assets focused in the STACK play of north central Oklahoma. Over a 30-year career, Mr. Porter has obtained a unique background with substantial exposure to the domestic and international natural resources industry and capital markets. He serves as Compensation Committee Chair for ASX-listed Petrel Energy, Ltd. and has previously served has an independent director for Caza Oil & Gas Inc. and Stallion Oilfield Holdings. He is a member of the Dean s Advisory Council for the E.J. Ourso School of Business at Louisiana State University. Mr. Porter earned a B.S. in Petroleum Land Management from Louisiana State University and a MBA from the Kenan-Flagler School of Business at the University of North Carolina at Chapel Hill. Ian Kirkham Company Secretary & Chief Financial Officer Ian is a resources finance professional with over 20 years experience in project evaluation and construction, equity and debt markets, statutory reporting, treasury, taxation and corporate governance. His most recent executive role was Chief Financial Officer and Company Secretary for Eastern Star Gas Limited, recently the subject of a $924m takeover by Santos Limited. Previous executive experience includes similar posts for ASX listed companies including Hillgrove Resources Limited, Allstate Explorations N.L. and Otter Gold Mines Limited. In all these roles he worked closely with MDs, Boards, Audit and Risk Committees etc. to evaluate, finance and construct resource projects. Ian s early career involved audit positions with Coopers & Lybrand in Sydney and Toronto. He holds a Bachelor Degree in Economics and is a member of the Australian Institute of Chartered Accountants and AUSIMM. the board petrel energy limited annual report 07
operations report Petrel s Portfolio of Assets Uruguay Piedra Sola & Salto Concessions Spain Cadiz Canada Alberta operations report petrel energy limited annual report 08
Uruguay Operations Piedra Sola and Salto Concessions, Norte Basin, Uruguay In October 2012 Petrel acquired an interest in a large conventional and unconventional petroleum project in Uruguay. The project comprises two concessions, Piedra Sola and Salto, covering 14,000 sq km (3.5 million acres) which are held under separate production sharing contracts. Exploration activities commenced in early 2013 with the completion of a magnetotelluric (MT) electromagnetic survey acquired across the Piedra Sola and Salto concessions with results confirming the existence of a northwesttrending rift basin with Devonian and potential Permian sediments. This was followed by an initial corehole programme which confirmed the existence of an active hydrocarbon system with multiple source rocks and potentially widespread, very high permeability, conventional reservoir sands. These very good porosity and permeability measurements for Cardozo Chico E-1 and Achar E-1 coreholes some 30km apart and the existence of free oil in different formations over much of the Piedra Sola block provided sufficient evidence to pursue a US$5.5m seismic programme. The 597 kilometre 2D seismic programme was successfully completed in Uruguay from July to October 2014. The programme was designed to help define potential targets in between previously drilled coreholes and to provide insight into the scope and scale of the resource. Interpretation of the seismic data, completed in January 2015, not only revealed obvious geological structuring and identified a deeper previously unknown basin in the Salto concession but was able to confirm the presence of a Devonian source rock section across both concessions. Notably it also identified an initial 20 conventional structural targets with many at relatively shallow depths. A very encouraging outcome for future programmes was also the quality of data that could be acquired through the up to 1000m of basalt that overlies the exploration blocks in parts. The seismic data enabled Petrel to define the first ever independent resource certification for Uruguay with Netherland, Sewell and Associates, Inc. ( NSAI ) certifying an unrisked gross Prospective Resource in the Salto and Piedra Sola concessions of up to 910 MMBBL oil and 3,105 BCF gas (up to 464 MMBBL oil and 1,583 BCF gas* to Petrel s net 51% interest). Salto & Piedra Sola Concessions *^ 51% Net to Petrel Prospective Resource^# Original Oil & Gas In Place Oil (MMBBL) Gas (BCF) Oil (MMBBL) Gas (BCF) Low Estimate (P90)* 75 293 285 456 Best Estimate (P50) 206 751 719 1161 High Estimate (P10)* 464 1583 1475 2412 * The estimated quantities of petroleum that may potentially be recovered by the application of a future development project(s) relate to undiscovered accumulations. These estimates have both an associated risk of discovery and a risk of development. Further exploration appraisal and evaluation is required to determine the existence of a significant quantity of potentially moveable hydrocarbons. ^Prospective Resource assessments are estimated using probabilistic methods in accordance with PRMS standards. Oil and gas Reserves and Contingent Resources cannot be estimated under SPE-PRMS Guidelines with currently available data. # Volumes above are based on arithmetic summation and are not adjusted for risk of discovery or risk of development. Arithmetic sums of unrisked prospective resources beyond the prospect and lead levels are not reflective of volumes that can be expected to be recovered and are therefore not included in Netherland, Sewell & Associates, Inc.'s certification. Because of the geologic risk associated with each prospect and lead, meaningful totals beyond these levels can be defined only by summing risked prospective resources. Such risk is often significant. The estimates of net volumes provided in this statement were derived from estimates of gross volumes for each prospect and lead determined by Mr Phil Hodgson, a full time employee of Netherland, Sewell and Associates Inc., Dallas, Texas, USA, on 14 May 2015, in accordance with Petroleum Resources Management System guidelines. Mr Phil Hodgson is a Licensed Petroleum Geologist in the State of Texas, a qualified person as defined under the ASX Listing Rule 5.41 and has consented to the use of the gross resource figures in this announcement. operations report petrel energy limited annual report 09
Uruguay Operations 4 Well Programme - Background & Objectives Drilling programme 2016-17 The four well Drilling Programme commenced in December 2016 utilising the $5.3m raised in September 2016, and was expected to complete by May 2017. The rig fit out faced delays and did not depart Houston until mid-march and arrived on site in mid-may. A further $2.5m was raised in May to cover drilling cost and potential overruns prior to the first well, Cerro Padilla-1 spudding on 5 June. Drilling operations were temporarily suspended to analyse difficult drilling conditions with equipment ordered to expedite drilling. Drilling recommenced on 4 July. By 25 July the rig had drilled to ~100 metres and set surface casing with the BOP installed and successfully tested. While up to a week had been planned for operational approvals with the crew on standby, this ultimately took until 11 August. On 28 August with only 10m of basalt remaining and 3-5 days of drilling remaining before setting casing, the drill string parted and drilling was again temporality suspended. Initial fishing operations were partially successful with additional equipment ordered from the US to complete fishing operations. These delays in the field incurred rig rates at stand-down, standby or full drilling rates along with operational and general overhead leading to a further funds being required in October 2017. Currently a capital raising to raise up to $5.5m is underway with $3.5m locked in through a placement and underwriting. A number of these challenges could have, and should have been better managed by the project Operator, and it was decided to undertake an independent review of drilling operations and management processes. This was undertaken by international experts New Tech Global Ventures (NTG), headquartered in Houston, who then went on to manage the successful fishing operation. Soon after NTG were retained by the Operator to manage all onsite operations. Four well programme extends SE/NW across both concessions operations report petrel energy limited annual report 10
Uruguay Operations With funding and management changes made operations recommenced and the Cerro Padilla-1 well was successfully drilled to a Total depth (TD) of 845m and became the first well onshore Uruguay to discover hydrocarbons by identifying a 2m oil saturated Permian sand. Project risk is now much better understood having gone through these processes, and notwithstanding the early success in the first well, the overall objectives of the drilling programme remain largely unchanged as follows: confirm source rock maturity, quality and extent - resource upside confirm conventional reservoir quality and extent - Darcy permeability (>1000md) already measured in core samples 30km apart confirm migration and potential trap integrity - while not the primary objective 3 of the 4 wells are also targeting structures for oil and gas trapped in either the same sequence or up-dip of oil shows and/or weeping core samples confirm validity of AVO anomalies identified on seismic In summary and subject to results, the initial objective is to drill four wells as cost effectively as possible and cover as much of the concession area as possible while targeting multiple and different objectives within and across each well. Well #1 Cerro Padilla - 1 This well was designed to confirm the reservoir potential of the Tres Islas sand and Permian source rock at shallow depth. Well objectives: Drill on same fault block but up dip of Cerro Padilla E-1 corehole which encountered 3m of Tres Islas sandstone with flowing fluorescence to confirm potential oil charge Permian source rock quality Permian Tres Islas OOIP P90 = 21MMB Results: The well was successfully drilled to a Total Depth (TD) of 845m and encountered significant oil shows with logging confirming 2m of oil saturated sand at 793m. Although only a modest discovery in its own right, as the first ever of hydrocarbons in Uruguay, and the first well of a 4 well programme, it represented a quantum first step in redefining the oil and potentially gas prospectivity of the Notre Basin going forward. Corehole Fluorescence evident in downdip corehole operations report petrel energy limited annual report 11
Uruguay Operations Well #2 Cerro de Chaga-1 well (Panizza) This well will test a very large regional structure with multiple source rock and reservoir targets. It importantly presents a shallow opportunity to test the very thick (300 metres) Devonian Cordobes shale sequence. Well objectives: Test largest regional high with 4-way dip closure Confirm extent, quality and maturity of Devonian source and reservoir rock Test quality and maturity of secondary Permian source rock - Mangrullo Shale Devonian OGIP P90 = 796BCF & OOIP P90 = 996MMB operations report petrel energy limited annual report 12
Uruguay Operations Well #3 Canada de Fea-1 (shallow AVO) This well will test a shallow AVO prospect which has been identified by several seismic lines. AVO s significantly de-risk exploration and can become a very successful exploration tool when calibrated for local geology. Well objectives: Test shallow AVO prospect identified by several seismic lines Confirm and refine thermal maturity model Establish potential of additional targets NSAI certified P50 prospective resource of 240bcf AVO is favourably: coincident with sandstone unit Beneath potential shale/seal Between potential sealing faults operations report petrel energy limited annual report 13
Uruguay Operations Well #4 Cuchilla de Pampa-1 (Achar) This well is a very low cost opportunity to confirm oil migration and test/calibrate the magnetotelluric data set. Well objectives: Cordobes shale quality and development Testing oil migration in highly (+1000md) permeable sands up dip of Achar E-1 corehole Devonian OOIP P90 = 460MMB Testing up dip oil migration to potential trap Darcy Permeability in Cardozo Chico and Achar Coreholes Darcy Permeability in Cardozo Chico and Achar Coreholes Corehole Achar E-1; Oil leaching from Devonian sandstones just below Cordobes Shale operations report petrel energy limited annual report 14
Spanish Operations Targeting conventional sandstone gas reservoirs in 94,000 acres in Southern Spain Tesorillo Project, Cadiz, Spain (51%) Background On the 26 October 2012, Petrel acquired a 25% interest in Schuepbach Energy International LLC (SEI), a private US company which holds an 85% interest in two petroleum exploration licences in southern Spain. The licences, Tesorillo and Ruedalabola, cover 38,000 ha (94,000 acres). The 1956 well Almarchal-1 was drilled by the Spanish firm Valdebro and intersected a thick section of gas pay which upon testing flowed gas to surface. The well is located 3km from the North African Maghreb gas trunkline providing ready access to high priced European gas markets. Almarchal-1 is the discovery well of what is likely a very large by-passed gas field. Drillstem tests and log analysis confirm 48m of proven gas pay from two Miocene Aljibe Formation sandstone intervals. A further 492m of probable gas pay is interpreted from logs but unconfirmed by testing. The well is located on a seismically delineated thrust ramp anticline with closure area exceeding 70 km2. Multi-TCF gas-in-place is indicated. The 1957 Puerto de Ojen-1 well, located 15km to the east in Ruedalabola license, displayed similar gas shows to Almarchal-1 but could not be tested for mechanical reasons. It appears to be located on a separate large thrust feature. Netherland Sewell and Associates ( NSAI ) have independently certified an unrisked Prospective Resource of up to 2,289 BCF* (2.3 TCF) (1,116 BCF net to Petrel) for the Tesorillo Project as outlined below. In 2014-15 a farm out process was reasonably successful in identifying potential interested partners but was ultimately held captive to continual and unsupported delays to the permitting process. With documentation for approval to drill Tesorillo-1 submitted over 4 years ago, only now with recent government changes, is there some clarity around the approvals process. This has allowed for rejuvenated farm out discussions which could bear fruit by the end of the year. Tesorillo *^ 51% Net to Petrel Prospective Resource^ BCF Original Gas in Place^ BCF Low Estimate (P90) 112 374 Best (Median) Estimate (P50) 414 828 High Estimate (P10) 1,116 1,595 * The estimated quantities of petroleum that may potentially be recovered by the application of a future development project(s) relate to undiscovered accumulations. These estimates have both an associated risk of discovery and a risk of development. Further exploration appraisal and evaluation is required to determine the existence of a significant quantity of potentially moveable hydrocarbons. ^Prospective Resource assessments are estimated using probabilistic methods in accordance with PRMS standards. Oil and gas Reserves and Contingent Resources cannot be estimated under SPE-PRMS Guidelines with currently available data. # Volumes above are based on arithmetic summation and are not adjusted for risk of discovery or risk of development. Arithmetic sums of unrisked prospective resources beyond the prospect level are not reflective of volumes that can be expected to be recovered and are included in Netherland, Sewell & Associates, Inc.'s certification for convenience only. Further, prospect interdependencies, which are an important consideration for these prospects, have not been evaluated in Netherland, Sewell & Associates, Inc.'s certification. Because of the geologic risk associated with each prospect, meaningful totals beyond this level can be defined only by summing risked prospective resources. Such risk is often significant. The estimates of net volumes provided in this statement were derived from estimates of gross volumes for each prospect determined by Mr Dan Walker, a full time employee of Netherland, Sewell and Associates Inc., Dallas, Texas, USA, on 5 May 2015, in accordance with Petroleum Resources Management System guidelines. Mr Dan Walker is a Licensed Petroleum Geologist, a qualified person as defined under the ASX Listing Rule 5.41 and has consented to the use of the gross resource figures in this announcement. operations report petrel energy limited annual report 15
Canadian Operations Lochend Cardium Project, Alberta (40% working interest) Targeting tight oil in lower siltstone and sandstone in 1,792 acres. Exploration activities at Petrel s Lochend Cardium project remain on hold. Having unsuccessfully sought expressions of interest for its interest in the Lochend Cardium joint venture in 2014/15 and given the current oil price Petrel continues to review its sale options on these assets. An impairment charge was recognised against Cardium oil assets in the 2015 financial statements writing the book value down to nil. The Lochend 16-19-25-3W5M well which came on line in late March 2013 yielding a 30 day initial production rate (IP30) of around 150 bopd averaged 8 bopd during the year. Alberta, Canada CORPORATE Capital Raising In September 2016 a rights issue was underwritten by Patersons Securities Limited and raised $3.0 million. The company then placed 98% of its shortfall raising a further $2.3 million in 3 further tranches by 30 November 2016. In May 2017 a placement raised $2.5m. In September-October 2017 a placement and rights issue was undertaken to raise up to $5.4m. A minimum of $3.49m will be achieved through a successful $880,000 placement and a $2.61m underwriting by Patersons Securities Limited. Further details are provided in the following Financial Report for the year ended 30 June 2017 and the current Rights Issue Prospectus available on the Company s website. operations report petrel energy limited annual report 16
financial report 6 directors report 18 7 auditors independence declaration 28 8 consolidated statement of profit or loss & other comprehensive income 29 9 consolidated statement of financial position 30 10 consolidated statement of changes in equity 31 11 consolidated statement of cash flows 32 12 notes to the financial statements 33 13 directors declaration 53 14 auditors report 54 15 additional information 58 financial report petrel energy limited annual report 17
DIRECTORS REPORT The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the consolidated entity or the Group ) consisting of Petrel Energy Limited (referred to hereafter as the Company or parent entity ) and the entities it controlled for the financial year ended 30 June 2017. DIRECTORS The directors in office at any time during the financial year and up to the date of this report are: Alexander Sundich David Casey Russell Porter Andrew Williams Non-executive Chairman Managing Director and Chief Executive Officer Non-executive Director Non-executive Director PRINCIPAL ACTIVITY The principal activity of the consolidated entity during the year was the exploration and development of oil & gas resources to generate shareholder wealth. OPERATING RESULTS The consolidated entity s net loss after tax from operations for the year was $2,056,516 (2016: $1,818,718). There were no impairment costs having arisen during the period (2016: $13,518) or exploration expenditure written off for the year or prior year. FINANCIAL POSITION The consolidated entity s total assets increased to $34,431,293 (2016: $23,696,311) and total liabilities increased to $2,122,479 (2016: $1,318,907) as a result net asset increased by 44% to $32,308,814 (2016: $22,377,404) compared to previous year primarily related to the capitalisation of exploration and evaluation expenditure from drilling activities on Norte Basin Project. During the year the company raised a net amount of $7,554,959 from the issue of new shares. DIVIDENDS No dividends have been paid or declared during or since the end of the financial year. SIGNIFICANT CHANGES TO THE STATE OF AFFAIRS The state of affairs of the Company was not affected by any significant changes during the financial year other than the following: a) In July 2016 planning for the 4 well programme in Salto and Piedra Sola concessions was finalised after interpretation of seismic data and the refinement of the geological model was completed. b) In September 2016 Petrel raised $3.0 million from a partially underwritten renounceable rights issue of shares. A further $2,266,000 was placed in 3 tranches by November 2016. c) In December 2016 the drilling contract with New Force Energy Services Inc. was signed for the 4 well programme. d) Final fit out and inspections of the new rig were undertaken during January and February 2017 with the rig shipped in March. e) In May 2017 Petrel raised $2.5 million from the placement of ordinary shares issued at 3.4c each. f) In May 2017 the rig was mobilised to site and Cerro Padilla-1 spudded in June 2017 with final environment approvals received in July. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR No matter has arisen in the interval since 30 June 2017 and up to the date of this report that in the opinion of the directors have significantly affected or may significantly affect the operations of the consolidated entity, the results of those operations or the state of affairs of the consolidated entity in future financial periods other than the following. a) After slow progress was made drilling the basalt at surface in Cerro Padilla-1 drilling operations were temporality suspended with 10m of basalt remaining after experiencing some unexpected delays with retrieval of a parted drill string. When operations recommence they will focus on retrieval of the drill string and completion of the wells. directors report petrel energy limited annual report 18
DIRECTORS REPORT b) On 28 September 2017 an $880,000 placement was completed consisting of 80m shares at 1.1c per share and 80m facilitation options (which are subject to shareholder approval) exercisable at 4 expiring 31 October 2018. c) On 28 September 2017 Petrel commenced a partially underwritten Non-Renounceable Entitlement Offer to raise up to $4.6 million. The Rights Issue at 1.1c per share is on a 1:3 basis and has an attached 1:1 option exercisable at 4 expiring 31 October 2018. LIKELY DEVELOPMENT AND EXPECTED RESULTS OF OPERATIONS The consolidated entity intends to continue its exploration, development and production activities on its Uruguayan and Spanish based projects. The consolidated entity is currently seeking to sell its Canadian project. ENVIRONMENTAL REGULATIONS The consolidated entity s operations are subject to significant environmental and other regulations. The consolidated entity has a policy of engaging appropriately experienced contractors and consultants to advise on and ensure compliance with environmental regulations in respect of its exploration and production activities. There have been no reports of breaches of environmental regulations in the financial period and at the date of this report. INFORMATION ON DIRECTORS Alexander Sundich Alex has over 25 years experience in the financial services industry and is a Fellow of the Financial Services Institute of Australia, a Member of the Institute of Chartered Accountants in Australia and a Member of the Australian Institute of Company Directors. Since 2008, Alex has been an independent corporate advisor and company director. He is the Executive Director of Bridge Street Capital Partners, a corporate advisory and principal investment firm. From 2003 to 2008, Alex held senior management positions within the funds management industry. Prior to that, Alex was an investment banker providing advice to corporate clients on merger and acquisition transactions and debt and equity capital raisings, with a particular focus on the oil, gas and mining industries. Alex worked with Goldman Sachs and Credit Suisse First Boston during this period which included 6 years working in New York. Alex was a Non-Executive Director of Eastern Star Gas Limited until its acquisition by Santos Limited for $924 million in 2011. He is currently a Non-Executive Director of Ellex Medical Lasers Limited, an ASX listed medical equipment company and Chairman of Cleveland Mining Limited, an ASX listed gold company. Alex was formerly an Executive Director of Burleson Energy Limited an ASX listed oil and gas company from 8 October 2013 to 27 October 2015. Special responsibilities: Non-executive Chairman, Chairman of the Audit Committee and Member of the Remuneration and Nomination Committee. David Casey David Casey graduated with an Honours degree in Geology from the University of Sydney in 1991 and in the same year joined specialist coal seam gas (coalbed methane) company in Situ (Australia) Pty Ltd. In 1996, he formed his own unconventional energy consultancy business. David has over 20 years' experience in the management and evaluation of all aspects of unconventional oil & gas exploration and appraisal, from initial reservoir characterisation and fairway identification through to drilling, testing and production operations. David s most recent executive role was Managing Director of Eastern Star Gas Limited, which he and his team grew from modest beginnings to being the subject of a $924m takeover by Santos Limited valuing the Narrabri Project at $1.42b. Russell Porter Russell currently serves as President and Chief Executive Officer of Gastar Exploration Inc. a NYSE MKT-listed oil and gas exploration and production company. Over a 30-year career, Russell has obtained a unique background with substantial exposure to the international natural resources industry and capital markets. He has a MBA from the Kenan-Flagler School of Business at the University of North Carolina at Chapel Hill. He has substantial experience in acquisition, development and divestiture of high-quality assets including the Deep Bossier and Eaglebine plays in East Texas Basin, the Powder River Basin in Wyoming and the Gunnedah Basin in New South Wales. Russell serves as an independent Director and Audit Committee Chair for Johnson Specialty Tools. He is a member of the Dean s Advisory Council for the E.J. Ourso School of Business at Louisiana State University. Russell was CEO of Gastar Exploration Inc. when it held a 35% interest in the Narrabri Gas Project operated by Mr David Casey then Managing Director of Eastern Star Gas Limited. The Narrabri Gas Project was ultimately sold to Santos Limited with Gastar and Eastern Star Gas Limited shareholders realising $320m and $924m respectively. Special responsibilities: Chairman of the Remuneration and Nomination Committee and Member of the Audit Committee. directors report petrel energy limited annual report 19
DIRECTORS REPORT Andrew Williams Andrew holds a Masters Degree in Applied Geology and Grad Dip (Finance) from RMIT University, and over a 30-year career has developed a strong technical and commercial background in the oil industry. Early in his career Andrew gained significant hands-on oil industry experience as a geologist with Mobil Minerals, Woodside and Schlumberger working on projects across a range of Australian onshore (dominantly Cooper, Otway and Canning basins) and offshore (Carnarvon and Gippsland basins) projects. For the past two decades Andrew has focused on the global energy sector as an equity research analyst in the top echelons of Australian capital markets as a Director of Research (Australian Energy) at Credit Suisse from 2003-2010 and most recently from 2011 to 2015 at Royal Bank of Canada. Andrew s formal education in geology and finance put Andrew at the vanguard of analysis of unconventional energy in Australia. His focus on technical, commercial and financial merits of the Cooper, Surat and Gunnedah basins provided analysis and key support for projects before they became widely appreciated by the wider investment community. Interest in shares and options of the Company and related bodies corporate As at 30 June 2017, the interest of directors in the shares and options of the Company were: DIRECTORS NUMBER OF ORDINARY SHARES NUMBER OF OPTIONS D. Casey 59,967,162 2,000,000 R. Porter 3,166,666 3,000,000 A. Sundich 40,000,000 5,690,500 A. Williams 3,777,778 - INFORMATION ON COMPANY SECRETARY Ian Kirkham Ian has over 20 years experience in project evaluation and construction, equity and debt markets, statutory reporting, treasury, taxation and corporate governance. His most recent executive role was Chief Financial Officer and Company Secretary for Eastern Star Gas Limited, the subject of a $924m takeover by Santos Limited. Previous executive experience includes similar posts for ASX listed companies including Hillgrove Resources Limited, Allstate Explorations N.L. and Otter Gold Mines Limited. In all these roles he worked closely with CEOs, Boards, Audit and Risk Committees etc. to evaluate, finance and construct resource projects. Ian s early career involved audit positions with Coopers & Lybrand in Sydney and Toronto. He holds a Bachelor Degree in Economics and is a member of the Australian Institute of Chartered Accountants and AUSIMM. MEETINGS OF DIRECTORS The following table sets out the number of meetings held by the directors of the Company during the financial year ended 30 June 2017 and the number of meetings attended by each director: DIRECTORS NO. OF MEETINGS ATTENDED NO. OF MEETINGS HELD WHILE IN OFFICE Alexander Sundich 8 8 David Casey 8 8 Russell Porter 8 8 Andrew Williams 8 8 The Audit Committee under the Chairmanship of Alexander Sundich met twice during the financial year ended 30 June 2017. DIRECTORS NO. OF MEETINGS ATTENDED NO. OF MEETINGS HELD WHILE IN OFFICE Alexander Sundich 2 2 Russell Porter 2 2 The Remuneration and Nomination Committee now under the Chairmanship of Russell Porter met twice during the financial year ended 30 June 2017. DIRECTORS NO. OF MEETINGS ATTENDED NO. OF MEETINGS HELD WHILE IN OFFICE Russell Porter 1 1 Alexander Sundich 1 1 directors report petrel energy limited annual report 20
DIRECTORS REPORT REMUNERATION REPORT (AUDITED) The Remuneration Report, which has been audited, outlines the directors and executives remuneration arrangements for the consolidated entity and the Company, in accordance with the requirements of the Corporations Act 2001 and its Regulations. The remuneration report is set out under the following headings: a) Key Management Personnel b) Remuneration Policy and Practices c) Details of Remuneration (a) Key Management Personnel The key management personnel of the consolidated entity consisted of the directors of Petrel Energy Limited and the following executives: Stephen Mitchell Consultant and Chairman of 51% owned subsidiary Schuepbach Energy International LLC. Stephen Mitchell retired from the role on 31 January 2017 Ian Kirkham Company Secretary and Chief Financial Officer. (b) Remuneration Policy and Practices The objective of the consolidated entity's executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with the achievement of strategic objectives and the creation of value for shareholders. The Board of Directors ('the Board') ensures that executive reward satisfies the following key criteria for good reward governance practices: competitiveness and reasonableness acceptability and alignment with shareholders performance linkage / alignment of executive compensation transparency The Nomination and Remuneration Committee is responsible for determining and reviewing remuneration arrangements for its directors and executives. The performance of the consolidated entity depends on the quality of its directors and executives. The remuneration philosophy is to attract, motivate and retain high performance and high quality personnel. The Nomination and Remuneration Committee, taking advice where necessary, has structured an executive remuneration framework that is market competitive and complementary to the reward strategy of the consolidated entity. Alignment with shareholders' interests: focuses on sustained growth in shareholder wealth, consisting of growth in share price, and delivering increasing return on assets as well as focusing the executive on key non-financial drivers of value such as oil and gas production, reserves, health, safety and environment attracts and retains high calibre executives Alignment of program to participants' interests: rewards capability and experience reflects competitive reward for contribution to growth in shareholder wealth provides a clear structure for earning rewards In accordance with best practice corporate governance, the structure of non-executive directors and executive remunerations are separate. During the year, the consolidated entity has not engaged any remuneration consultants to review its remuneration policies. NON-EXECUTIVE DIRECTORS The Board s policy is to remunerate non-executive directors at market rates for comparable companies for time, commitment and responsibilities as well as capability and experience. The Board determines payments to the non-executive directors and reviews their remuneration annually, based on market practices. directors report petrel energy limited annual report 21
DIRECTORS REPORT Effective from 1 July 2015 the base fee (inclusive of the 9.5% superannuation guarantee contributions) of each non-executive for all Board activities was at the rate of $56,500 per annum. The superannuation guarantee contributions where applicable are paid to each non-executive director s personal retirement plan. EXECUTIVES The consolidated entity aims to reward executives with a level and mix of both fixed and variable remuneration based on their position and responsibility. The executive remuneration and reward framework has four components: base pay short-term performance incentives share-based payments other remuneration such as superannuation and long service leave The combination of these comprises the executive's total remuneration. Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits, are reviewed annually by the Nomination and Remuneration Committee, based on individual and overall performance of the consolidated entity and comparable market remunerations. The short-term incentives ('STI') program is designed to align the targets of the consolidated entity with the targets of those executives in charge of meeting those targets. STI payments are granted to executives based on performance indicators including share price growth, reserve growth, production growth and net profit targets. Share-based payments vest to executives immediately or after 12 months. Whilst the vesting period makes the share-based payments a STI, the 5 years term of the share loan supports retention of executives for that term. Consolidated entity performance and link to remuneration A portion of remuneration for executive directors is directly linked to performance of the consolidated entity. Bonus payments are dependent on growth in share price, reserves, production and net profit. Refer to Additional Information at the end of this remuneration report for details of share price and net profit over the last 5 years. 1 JULY 2016 TO 30 JUNE 2017 SHORT TERM SALARY, FEES & LEAVE $ BONUS PAYMENTS $ CONSULTANCY PAYMENTS $ TERMINATION BENEFITS $ SHARE BASED PAYMENTS - EQUITY SETTLED $ POST EMPLOYMENT - SUPERANNUATION $ TOTAL $ Non-executive directors A. Sundich (ii) 49,440 - - - 2,363 4,697 56,500 R. Porter (i) (ii) 54,805 - - - 1,468-56,273 A. Williams (ii) 49,440 - - - 2,363 4,697 56,500 Total 153,685 - - - 6,194 9,394 169,273 Executive directors D. Casey 435,375 - - - - 30,000 465,375 435,375 - - - - 30,000 465,375 Other key management S. Mitchell (i) - - 20,625 - - - 20,625 I. Kirkham (i) - - 225,145 - - - 225,145 - - 245,770 - - - 245,770 Total 589,060-245,770-6,194 39,394 880,418 (i) No superannuation required for US citizens. (ii) The Directors were paid $6,194 in shares issued at $0.01 each as part of July 2017 remuneration in accordance with shareholder approval on 23 November 2016 AGM. directors report petrel energy limited annual report 22
DIRECTORS REPORT 1 JULY 2015 TO 30 JUNE 2016 SHORT TERM SALARY, FEES & LEAVE $ BONUS CONSULTANCY TERMINATION PAYMENTS $ PAYMENTS $ BENEFITS $ SHARE BASED PAYMENTS - EQUITY SETTLED $ POST EMPLOYMENT - SUPERANNUATION $ TOTAL $ Non-executive directors A. Sundich (ii) 51,598 - - - - 4,902 56,500 R. Porter (ii)(iii) 59,296 - - - - - 59,296 A. Williams (i)(ii) 48,712 - - - - 4,628 53,340 Total 159,606 - - - - 9,530 169,136 Executive directors D. Casey (ii) 435,375 - - - - 30,000 465,375 435,375 - - - - 30,000 465,375 Other key management S. Mitchell (iii) - - 123,750 - - - 123,750 I. Kirkham (ii)(iii) - - 208,078-20,217 (iii) - 228,295 - - 331,828-20,217-352,045 Total 594,981-331,828-20,217 39,530 986,556 (i) Appointed 22 July 2015 (ii) For the eight-month period to 31 July 2016 executives were paid two months cash salary and directors were paid one month s cash fees. This has allowed Petrel to continue to operate up until the underwritten rights issue undertaken during August 2016. At 30 June 2016 the unpaid remuneration payable to Directors and executives is $88,998 for 2015 liabilities and $293,130 for 2016 liabilities. Subject to Shareholder approval, it is proposed that these liabilities be settled with the issue of Shares issued at $0.03 for the 2015 Liabilities, and Shares issued at $0.01 for the 2016 Liabilities. (iii) No superannuation in according to contractual agreement. Non-executive directors FIXED REMUNERATION AT RISK - STI AT RISK - LTI 2017 2016 2017 2016 2017 2016 A. Sundich 100% 100% - - - - R. Porter 100% 100% - - - - A. Williams 100% 100% - - - - Executive directors D. Casey 100% 100% - - - - Other key management S. Mitchell 100% 100% - - - - I. Kirkham 100% 100% - - - - There were no options granted over unissued shares during the financial year by the consolidated entity to key management personnel and eligible persons as part of their remuneration. Since the end of the financial year no options have been granted to employees and eligible persons as part of their remuneration. No cash bonus payments determined on growth of share price, reserves, production and net profit have been paid for 2016 or 2017. directors report petrel energy limited annual report 23
DIRECTORS REPORT SERVICE AGREEMENTS Remuneration and other terms of employment for current key management personnel are formalised in service agreements. There are no employment agreements for key management personnel other than the following: D. Casey, Chief Executive Officer and Managing Director Term: 1 year extension of 2012 contract, commencing 1 August 2017 TFR: of $465,375 p.a. inclusive of superannuation STI: annual bonus pool to a maximum of 100% of base salary based on achievement of Key Performance Indicators including share price growth above 16.9c, reserve growth, production growth and net profit targets; and 5.5m Employee Incentive Plane shares issued in 2012 at 5.5c each funded by a 5 year interest free loan Termination by executive: 2 months notice required Termination by Company: subject to a severance payment of 11 month s remuneration together with payment of accrued bonuses or end of contract term Share-based compensation Issue of shares Shares were issued to directors in lieu of cash fees and salary. The Directors were settled $6,194 in shares issued at $0.01 each as part of July 2017 remuneration in accordance with shareholder approval on 23 November 2016 AGM. Securities Holdings At 30 June 2017, the relevant interests of the key management personnel in the securities of the Company were as follows: Share holdings The number of shares in the Company held during the financial year by each director and other key management personnel of Petrel Energy Limited, including their personally related parties, is set out below. NAME BALANCE AT START OF THE YEAR/OR ON APPOINTMENT PURCHASED DURING THE YEAR BONUS REMUNERATION SHARES SHARES IN LIEU OF FEES/SALARY BALANCE AT THE END OF THE YEAR/OR ON VACATING OFFICE D. Casey 39,161,954 4,000,000-16,805,208 59,967,162 R. Porter - - - 3,166,666 3,166,666 A. Sundich 25,299,126 12,034,207-2,666,667 40,000,000 A. Williams 1,111,111 - - 2,666,667 3,777,778 S. Mitchell (i) 32,652,128 - - - 32,652,128 I. Kirkham 13,858,892 1,339,668-6,301,440 21,500,000 112,083,211 17,373,875-31,606,648 161,063,734 (i) Resigned 31 January 2017. directors report petrel energy limited annual report 24
DIRECTORS REPORT Options The number of options over ordinary shares in the Company held during the financial year by each director and other key management personnel of Petrel Energy Limited, including their personally related parties, is set out below. NAME BALANCE AT START OF THE YEAR/OR ON APPOINTMENT EXERCISED ISSUED SOLD BALANCE AT END OF THE YEAR/OR ON VACATING OFFICE VESTED AND EXERCISABLE Listed D. Casey - - 1,500,000-1,500,000 30 August 2017 R. Porter - - - - - - A. Sundich - - 5,690,500 5,690,500 30 August 2017 S. Mitchell - - - - - - I. Kirkham - - 62,834-62,834 30 August 2017 - - 7,725,334-7,725,334 Unlisted D. Casey (i) - - 500,000-500,000 31 January 2018 R. Porter 3,000,000 - - - 3,000,000 30 July 2017 A. Sundich - - - - - - S. Mitchell - - - - - - I. Kirkham - - - - - - 3,000,000-500,000-3,500,000 (i) Mr David Casey elected to participate in the 5 February 2016 placement for a total of 1,000,000 shares and 500,000 unlisted options at $0.02 per share. The issue of securities was the subject of shareholder approval at the 23 November 2016 Annual General Meeting. The terms and conditions of each grant of options over ordinary shares affecting remuneration of directors and other key management personnel in this financial year or future reporting years are as follows: GRANT DATE VESTING DATE AND EXERCISABLE DATE EXPIRY DATE EXERCISE PRICE VOLATILITY FAIR VALUE PER OPTION AT GRANT DATE 29 July 2014 29 July 2014 30 July 2017 20 cents 67.50% 6.0 cents 29 July 2014 29 July 2014 30 July 2017 23 cents 67.50% 5.4 cents ADDITIONAL INFORMATION The factors that affect cash bonus payments, for the last five years are summarised below: 2017 $ 2016 $ 2015 $ 2014 $ 2013 $ Reserve growth - - - - - Profit (loss) after income tax (2,056,516) (1,818,718) (5,775,939) (2,895,188) (6,932,773) June volume-weighted average share price 2.8c 1.5c 5.3c 16.9c 9.1c Total shareholder return 153.8% (62.8)% (74.2)% 101.1% 93.3% directors report petrel energy limited annual report 25
DIRECTORS REPORT Options At the date of this report, the unissued ordinary shares of Petrel Energy Limited under option are as follows: GRANT DATE DATE OF EXPIRY EXERCISE PRICE NUMBER OF SHARES ISSUED Listed 05 September 2016 to 30 November 2016 30 August 2017 4 cents 262,316,134 262,316,134 Unlisted 29 September 2014 30 July 2017 20 cents 1,500,000 29 September 2014 30 July 2017 23 cents 1,500,000 11 February 2016 31 January 2018 5 cents 15,125,000 11 March 2016 31 January 2018 5 cents 3,750,000 30 November 2016 31 January 2018 5 cents 500,000 22,375,000 Option holders do not have any rights to participate in any issues of shares or other interests of the company or any other entity. There have been no options granted over unissued shares or interests of any controlled entity within the Group during or since the end of the reporting period. For details of options issued to directors and executives as remuneration, refer to the remuneration report. During the year ended 30 June 2017, the following ordinary shares of Petrel Energy Limited were issued on the exercise of options granted. No further shares have been issued since year-end. No amounts are unpaid on any of the shares. GRANT DATE EXERCISE PRICE NUMBER UNDER OPTION Employee Option Plan 6 January 2017 1.5 cents 3,400,000 3,400,000 No person entitled to exercise the option had or has any right by virtue of the option to participate in any share issue of any other body corporate. This concludes the remuneration report, which has been audited. INDEMNIFICATION OF OFFICERS AND AUDITORS The Group has entered into a Deed of Access, Indemnity and Insurance with each of the directors of the Group. Subject to the Corporations Act 2001, the deed provides an indemnity in respect of liability that each of the directors may incur in relation to the conduct of the business or affairs of the Group, acts or omission of the directors in relation to the business or affairs of the Group or the performance, manner of performance or failure to perform the director s responsibilities in relation to the business or affairs of the Group, in each case in the period during which each director (respectively) holds office. The Group has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the Group or any related entity against a liability incurred by the auditor. During the financial year, the Group has not paid a premium in respect of a contract to insure the auditor of the Group or any related entity. PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Group, or to intervene in any proceedings to which the Group is a party for the purposes of taking responsibility on behalf of the Group for all or part of those proceedings. directors report petrel energy limited annual report 26
DIRECTORS REPORT AUDITORS BDO East Coast Partnership continues in office in accordance with section 327 of the Corporations Act 2001. NON AUDIT SERVICES The Group may decide to employ the auditors on assignments additional to their statutory audit duties where the auditors expertise and experience with the Group are important. There were no non audit services provided by BDO during the year. Details of amounts paid or payable to the auditors, BDO East Coast Partnership, for the audit services provided during the year are set out below. CONSOLIDATED 2017 $ 2016 $ Audit services BDO Audit and review of financial reports 45,000 41,500 Total 45,000 41,500 AUDITOR S INDEPENDENCE DECLARATION The Auditor s Independence Declaration required under section 307C of the Corporations Act 2001 is set out on the following page. This report is made in accordance with a resolution of the directors, pursuant to section 298(2) of the Corporations Act 2001. On behalf of the directors David Casey Managing Director and CEO Sydney, 29 September 2017 auditors independence declaration petrel energy limited annual report 27
AUDITORS INDEPENDENCE DECLARATION auditors' independence declaration petrel energy limited annual report 28
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the year ended 30 June 2017 CONSOLIDATED NOTE 2017 $ 2016 $ Sales revenue - 90,641 Cost of sales - (103,997) Gross profit/(loss) - (13,356) Interest (expense)/income (84,447) 29,570 Foreign exchange (loss)/gains (85,764) 20,311 Other income 4 8,128 22,370 Total (loss)/income (162,083) 58,895 Directors fees (169,273) (169,136) Employee benefit expenses (532,127) (582,360) Professional and consulting fees (432,655) (526,671) Auditor s remuneration 20 (45,000) (41,500) Depreciation and amortisation (25,276) (18,498) Lease of office (net) (64,894) (108,445) Repair and maintenance - (38,951) Share registry fees (31,134) (35,466) General insurance expenses (24,690) (56,399) Corporate services (39,907) (27,438) Donations (63,605) - Travel expenses (64,650) (95,997) Share based payment expenses (21,616) (4,251) Exploration and evaluation expenses (182,311) - Impairment loss on Erath gas assets 3 - (13,518) Other operating expenses (197,295) (158,983) Total expenses (1,894,433) (1,877,613) Loss before income tax (2,056,516) (1,818,718) Income tax expense 6 - - Loss after tax attributable to members of Petrel Energy Limited (2,056,516) (1,818,718) Other comprehensive income - Items that may be reclassified subsequently to profit or loss Foreign currency translation (634,790) 2,478,890 Other comprehensive (loss)/ income for the year, net of tax (634,790) 2,478,890 Total comprehensive (loss)/income for the year, net of tax (2,691,306) 660,172 Loss for the year is attributable to: Non-controlling interests - - Owners of Petrel Energy Limited (2,056,516) (1,818,718) (2,056,516) (1,818,718) Total comprehensive (loss)/income for the year is attributable to: Non-controlling interests (311,047) 1,214,656 Owners of Petrel Energy Limited (2,380,259) (554,484) (2,691,306) 660,172 Loss per share from continuing operations attributable to the ordinary equity holders of the Company: Basic loss per share (cents per share) 22 (0.22) (0.36) Diluted loss per share (cents per share) 22 (0.22) (0.36) The above Consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. consolidated statement of profit or loss & other comprehensive income petrel energy limited annual report 29
CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2017 CONSOLIDATED NOTE 2017 $ 2016 $ ASSETS Current assets Cash and cash equivalents 7 3,578,728 479,243 Other current assets 8 112,536 279,108 Restricted cash 18(a) 1,363,459 - Total current assets 5,054,723 758,351 Non-current assets Exploration and evaluation expenditure 9 29,339,971 22,873,852 Plant and equipment 10 36,599 64,108 Total non-current assets 29,376,570 22,937,960 Total assets 34,431,293 23,696,311 LIABILITIES Current liabilities Trade and other payables 11 1,552,023 806,202 Employee benefits 12 140,616 92,095 Borrowings 13 429,840 420,610 Total current liabilities 2,122,479 1,318,907 Total liabilities 2,122,479 1,318,907 NET ASSETS 32,308,814 22,377,404 EQUITY Contributed equity 14 51,313,872 43,758,913 Foreign currency translation reserve 940,491 1,264,234 Options reserve 15 506,040 484,424 Accumulated losses 16 (35,004,984) (32,948,468) Equity attributable to owners of the Parent 17,755,419 12,559,103 Non-controlling interests 14,553,395 9,818,301 Total equity 32,308,814 22,377,404 The above Consolidated statement of financial position should be read in conjunction with the accompanying notes. consolidated statement of financial position petrel energy limited annual report 30
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2017 CONSOLIDATED ISSUED CAPITAL $ FOREIGN CURRENCY TRANSLATION RESERVE $ OPTIONS ACCUMULATED RESERVE $ LOSSES $ TOTAL $ NON- CONTROLLING INTERESTS $ TOTAL EQUITY $ Balance at 30 June 2015 41,810,125-790,062 (31,439,639) 11,160,548 7,076,781 18,237,329 Net loss for the year - - - (1,818,718) (1,818,718) - (1,818,718) Foreign currency movements - 1,264,234 - - 1,264,234 1,214,656 2,478,890 Total comprehensive loss for the year - 1,264,234 - (1,818,718) (554,484) 1,214,656 660,172 Transactions with owners in their capacity as owners Expired/vested options - - (309,889) 309,889 - - - Share based payments - - 4,251-4,251-4,251 Issue of share capital 2,025,217 - - - 2,025,217-2,025,217 Transaction costs arising on share issue Total transactions with owners in their capacity as owners Additional contribution of equity by NCI (76,429) - - - (76,429) - (76,429) 1,948,788 - (305,638) 309,889 1,953,039-1,953,039 - - - - - 1,526,864 1,526,864 Balance at 30 June 2016 43,758,913 1,264,234 484,424 (32,948,468) 12,559,103 9,818,301 22,377,404 Net loss for the year - - - (2,056,516) (2,056,516) - (2,056,516) Foreign currency movements - (323,743) - - (323,743) (311,047) (634,790) Total comprehensive loss for the year - (323,743) - (2,056,516) (2,380,259) (311,047) (2,691,306) Transactions with owners in their capacity as owners Share based payments - - 21,616-21,616-21,616 Issue of share capital 8,152,244 - - - 8,152,244-8,152,244 Transaction costs arising on share issue Total transactions with owners in their capacity as owners Additional contribution of equity by NCI (597,285) - - - (597,285) - (597,285) 7,554,959-21,616-7,576,575-7,576,575 - - - - - 5,046,141 5,046,141 Balance at 30 June 2017 51,313,872 940,491 506,040 (35,004,984) 17,755,419 14,553,395 32,308,814 The above statement of changes in equity should be read in conjunction with the accompanying notes. consolidated statement of changes in equity petrel energy limited annual report 31
CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 30 June 2017 CONSOLIDATED NOTE 2017 $ 2016 $ Cash flows from operating activities Receipts from oil and gas operations - 17,589 Payments to suppliers and employees (inclusive of goods and services tax) (1,845,249) (1,439,976) Interest received 20,444 11,604 Net cash outflow from operating activities 21 (1,824,805) (1,410,783) Cash flows from investing activities Payments for plant and equipment (2,347) (5,533) Proceeds from disposal of oil and gas assets - 22,370 Payments for security deposits (1,381,970) (33,410) Proceeds from release of security deposits - 280,256 Payments for exploration and evaluation expenditure (5,751,622) (2,575,013) Net cash outflow from investing activities (7,135,939) (2,311,330) Cash Flows from financing activities Proceeds from issue of shares (net of costs) 7,169,040 1,928,571 Additional contribution of equity by non-controlling interests 4,895,048 1,284,789 Repayment of borrowings - (140,000) Net cash inflow from financing activities 12,064,088 3,073,360 Net decrease in cash and cash equivalents 3,103,344 (648,753) Cash and cash equivalents at beginning of the year 479,243 1,107,683 Net foreign exchange difference (3,859) 20,313 Cash and cash equivalents at end of the year 7 3,578,728 479,243 The above Consolidated statement of cash flows should be read in conjunction with the accompanying notes. consolidated statement of cash flows petrel energy limited annual report 32
NOTES TO THE FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial report covers Petrel Energy Limited as a consolidated entity consisting of Petrel Energy Limited and the entities it controlled. Petrel Energy Limited is a listed public company limited by shares, incorporated and domiciled in Australia. The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. (a) Basis of preparation This general purpose financial report has been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ( AASB ) and the Corporations Act 2001, as appropriate for-profit oriented entities. These financial statements also comply with the International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ). When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. Any new, revised or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. The financial statements are presented in Australian dollars, which is Petrel Energy Limited s functional and presentation currency. Historical cost convention These financial statements have been prepared under the historical cost convention. Critical accounting estimates The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company s accounting policies. The areas involving a high degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 3. Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the consolidated entity only. Supplementary information about the parent entity is disclosed in note 23. (b) Principles of consolidation i) Subsidiaries The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Petrel Energy Limited ('Company' or 'parent entity') as at 30 June 2017 and the results of all subsidiaries for the year then ended. Petrel Energy Limited and its subsidiaries together are referred to in these financial statements as the 'consolidated entity'. Subsidiaries are all those entities over which the consolidated entity has control. Petrel Energy Limited is the principal to its subsidiaries. The consolidated entity controls an entity when the consolidated entity is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the consolidated entity. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the consolidated entity are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the consolidated entity. The acquisition of subsidiaries is accounted for using the acquisition method of accounting if the acquisition is deemed to be a business combination. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. The acquisition of subsidiaries that are deemed not to be carrying on a business, and do not meet the conditions of AASB 3 Business Combinations, are recognised at cost and are treated as asset acquisitions depending on the nature of the assets acquired from the subsidiaries. Non-controlling interest in the results and equity of subsidiaries are shown separately in the statement of comprehensive income and statement of financial position of the consolidated entity. Losses incurred by the consolidated entity are attributed to the non-controlling interest in full, even if that results in a deficit balance. notes to the financial statements petrel energy limited annual report 33
NOTES TO THE FINANCIAL STATEMENTS Where the consolidated entity loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. Schuepbach Energy International LLC is a material non-controlling shareholder with 49% ownership of Schuepbach Energy International LLC. The consolidated entity recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. ii) Joint arrangements A joint arrangement is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. The consolidated entity's interests in joint operations are accounted for using the proportionate consolidation method of accounting. The consolidated entity's recognises its interest in the assets that it controls and the liabilities that it incurs and the expenses that it incurs and its share of the income that it earns from the sale of goods or services by the joint operations, classified according to the nature of the assets, liabilities, income or expense. The consolidated entity discontinues the use of proportionate consolidation from the date on which it ceases to have joint control over a jointly controlled operation. (c) Foreign currency transactions Foreign currency transactions during the year are translated to Australian currency at the rates of exchange applicable at the dates of the transactions. Amounts receivable and payable in foreign currencies at reporting date are converted at the rates of exchange current at that date. The gains and losses from translation of assets and liabilities, whether realised or unrealised, are included in profit or loss from ordinary activities as they arise. Foreign subsidiaries The assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into Australian dollars using the average exchange rates, which approximates the rate at the date of the transaction, for the period. All resulting foreign exchange differences are recognised in the foreign currency reserve in equity. The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is disposed of. (d) Revenue recognition Net interest expense / revenue Revenue or expense is recognised as interest accrued using the effective interest method. Sale of oil & gas The consolidated entity s revenue is derived primarily from the sale of oil and gas. Sales revenue is recognised on the basis of the consolidated entity s interest in a producing field, when the physical product and associated risks and rewards of ownership pass to the purchaser, which is generally the time of ship or truck loading, or on the product entering the pipeline. All revenue is stated net of the amount of Goods and Services Tax (GST). (e) New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the consolidated entity for the annual reporting period ended 30 June 2017. The consolidated entity's assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the consolidated entity, are set out below. AASB 9 Financial Instruments This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard replaces all previous versions of AASB 9 and completes the project to replace IAS 39 'Financial Instruments: Recognition and Measurement'. AASB 9 introduces new classification and measurement models for financial assets. A financial asset shall be measured at amortised cost, if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows, which arise on specified dates and solely principal and interest. All other financial instrument assets are to be classified and measured at fair value through profit or loss unless the entity makes an irrevocable election on initial recognition to present gains and losses on equity instruments (that are not held-for-trading) in other comprehensive income ('OCI'). For financial liabilities, the standard requires the portion of the change in fair value that relates to the entity's own credit risk to be presented in OCI (unless it would create an accounting mismatch). New simpler hedge accounting requirements are intended to more closely align the accounting treatment with the risk management activities of the entity. New impairment requirements will use an 'expected credit loss' ('ECL') model to recognise an allowance. Impairment will be measured under a 12-month ECL method unless the credit risk on a financial notes to the financial statements petrel energy limited annual report 34
NOTES TO THE FINANCIAL STATEMENTS instrument has increased significantly since initial recognition in which case the lifetime ECL method is adopted. The standard introduces additional new disclosures. The consolidated entity will adopt this standard from 1 July 2018 and not expected to significantly affect the entity. AASB 15 Revenue from Contracts with Customers This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard provides a single standard for revenue recognition. The core principle of the standard is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard will require: contracts (either written, verbal or implied) to be identified, together with the separate performance obligations within the contract; determine the transaction price, adjusted for the time value of money excluding credit risk; allocation of the transaction price to the separate performance obligations on a basis of relative stand-alone selling price of each distinct good or service, or estimation approach if no distinct observable prices exist; and recognition of revenue when each performance obligation is satisfied. Credit risk will be presented separately as an expense rather than adjusted to revenue. For goods, the performance obligation would be satisfied when the customer obtains control of the goods. For services, the performance obligation is satisfied when the service has been provided, typically for promises to transfer services to customers. For performance obligations satisfied over time, an entity would select an appropriate measure of progress to determine how much revenue should be recognised as the performance obligation is satisfied. Contracts with customers will be presented in an entity's statement of financial position as a contract liability, a contract asset, or a receivable, depending on the relationship between the entity's performance and the customer's payment. Sufficient quantitative and qualitative disclosure is required to enable users to understand the contracts with customers; the significant judgments made in applying the guidance to those contracts; and any assets recognised from the costs to obtain or fulfil a contract with a customer. The consolidated entity will adopt this standard from 1 July 2018 and not expected to significantly affect the entity. AASB 2014-5 Amendments to Australian Accounting Standards arising from AASB 15 This standard is applicable to annual reporting periods beginning on or after 1 January 2018. In line with the International Accounting Standards Board s deferral of IFRS 15 from original application date beginning on or after 1 January 2017 due to consequential amendments to various other accounting standards from revenue standard. The consolidated entity will adopt this standard from 1 July 2018 and not expected to significantly affect the entity. AASB 16 Leases This standard is applicable to annual reporting periods beginning on or after 1 July 2019. The standard replaces the current accounting requirements applicable to leases in AASB 117: Lease and related interpretations AASB 16 introduces a single lessee accounting model that eliminates the requirement for leases to classified as operating or finance leases. The main principle of the standard that an entity will recognise a right-of-use asset and liability for all leases (excluding short-term leases with less than 12 months of tenure and leases relating to low-value assets); depreciation of right-of-use assets in line with AASB 116: Property, Plant and Equipment in profit or loss and unwinding of the liability in principal and interest components; inclusion of variable lease payments that depend on an index or a rate in the initial measurement of the lease liability using the index or rate at the commencement date; application of a practical expedient to permit a lessee to elect not to separate non-lease components and instead account for all components as a lease; and inclusion of additional disclosure requirements. The transitional provisions of AASB 16 allow a lessee to either retrospectively apply the Standard to comparatives in line with AASB 108 or recognise the cumulative effect of retrospective application as an adjustment to opening equity on the date of initial application. The directors anticipate that the adoption of AASB 16 will not significantly impact the Group's financial statements. (f) Going Concern These financial statements have been prepared on the going basis which contemplates the consolidated entity s ability pay its debts as and when they become due and payable for a period of at least 12 months from the date of authorising the financial report for issue. During the year, the company raised a net cash amount of $7,169,040 from the rights issue and share placement. In addition, there was a net cash capital contribution from non-controlling interests (Schuepbach Energy International LLC) of $4,895,048 to fund for the drilling programme in Salto and Piedra Sola concessions in Uruguay. The Group had a cash outflows from operations of $1,824,805 (2016: $1,410,783). The Group recorded a net loss after tax from operations of $2,056,516 for the year ended 30 June 2017 (2016: $ 1,818,718). The Group s net cash outflow from investing activities was $7,135,939 (2016: $2,311,330). The Group s net current assets were $2,932,244 (2016: negative $560,556). notes to the financial statements petrel energy limited annual report 35
NOTES TO THE FINANCIAL STATEMENTS These conditions indicate the existence of a material uncertainty that may cast significant doubt over the consolidated entity s ability to continue as a going concern over the next 12 months and therefore, the consolidated entity may be unable to realise its assets and discharge its liabilities in the normal course of business. The consolidated entity has prepared a cash flow forecast which indicates that it will not have sufficient cash from operations to meet its ongoing planned expenditure. The directors are confident, based on past performance, that they will be successful in their ability to reduce discretionary expenditure or raise further funds from issue of equity or sale of non-core assets or farm-out of core tenements or other corporate activity designed to fund the Group s ongoing planned expenditure. This is evidenced by the rights issue currently in the market which is underwritten for $3 million. As such, these financial statements have been presented on a going concern basis. Should the Group be unable to continue as a going concern it may be required to realise its assets and discharge its liabilities other than in the normal course of business and at amounts different to those stated in the financial statements. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount of liabilities that might result should the Group be unable to continue as a going concern and meet its debts as and when the fall due. At each reporting date, the consolidated entity reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset s fair value less costs to sell and value in use, is compared to the asset s carrying value. Any excess of the asset s carrying value over its recoverable amount is expensed to the statement of profit or loss and other comprehensive income. 2. FINANCIAL RISK MANAGEMENT The consolidated entity s financial instruments consist of deposits with banks, financial assets held at fair value through profit and loss, and accounts payable. The consolidated entity does not presently have any bills, preference shares, trade receivables, or derivatives. Foreign exchange risk The consolidated entity is exposed to changes in foreign exchange rates. At reporting date there is an exposure to USD 3,671,394 equivalent to AUD 4,770,694 (2016: USD 172,315 equivalent to AUD 229,253). Credit risk and Liquidity risk The consolidated entity has no significant concentrations of credit risk. Liquidity risk is the risk the consolidated entity will experience difficulty in meeting current financial demands. The consolidated entity manages liquidity risk through ensuring it will maintain sufficient cash holdings to meet its liabilities as and when they fall due from day to day operations along with monitoring of cash flow forecasts by management in order to anticipate future cash requirements. LIQUIDITY RISK TABLE NON- INTEREST BEARING $ 1 YEAR OR LESS $ 1 TO 5 YEARS $ MORE THAN 5 YEARS $ FLOATING INTEREST RATE $ TOTAL$ WEIGHTED AVERAGE INTEREST RATE CONSOLIDATED 2017 Financial liabilities Payables 1,552,023 1,552,023 - - - 1,552,023 - Borrowings - 429,840 - - - 429,840 7% 1,552,023 1,981,863 - - - 1,981,863-2016 Financial liabilities Payables 806,202 806,202 - - - 806,202 - Borrowings - 420,610 - - - 420,610 7% 806,202 1,226,812 - - - 1,226,812 - notes to the financial statements petrel energy limited annual report 36
NOTES TO THE FINANCIAL STATEMENTS Cash flow and fair value interest rate risk The Company s cash and restricted cash are exposed to deposit interest rate risk. This risk is managed by the use of fixed term deposits over periods ranging from 30 to 180 days. Interest rate risk The Company s exposure to interest rate risk, which is the risk that a financial instrument s value will fluctuate as a result of changes in the market interest rates and the effective weighted average interest rates on those financial assets, is as follows: CONSOLIDATED 2017 WEIGHTED AVERAGE INTEREST RATE FIXED INTEREST RATE MATURITY LESS THAN 1 YEAR $ NON- INTEREST BEARING $ TOTAL $ Financial assets Cash and cash equivalents - 3,578,728-3,578,728 Other current assets - - 62,468 62,468 Restricted cash 0.42% 1,363,459-1,363,459 Total financial assets 4,942,187 62,468 5,004,655 Financial liabilities Trade and other payables - - 1,552,023 1,552,023 Borrowings 7% 429,840-429,840 Total financial liabilities 429,840 1,552,023 1,981,863 CONSOLIDATED 2016 AVERAGE INTEREST RATE FIXED INTEREST RATE MATURITY LESS THAN 1 YEAR $ NON- INTEREST BEARING $ TOTAL $ Financial assets Cash and cash equivalents 0.42% 479,243-479,243 Other current assets - - 238,218 238,218 Total financial assets 479,243 238,218 717,461 Financial liabilities Trade and other payables - - 806,202 806,202 Borrowings 7% 420,610-420,610 Total financial liabilities 420,610 806,202 1,226,812 Financial instruments (i) Derivative financial instruments As at the date of this report, the consolidated entity does not have any derivative financial instruments. (ii) Trade payables Trade and sundry payables are expected to be paid as follows: CONSOLIDATED 2017 $ 2016 $ Less than 6 months 1,552,023 806,202 (iii) Fair value measurement The carrying amounts of cash and cash equivalents, other current assets and trade and other payables are assumed to approximate their fair values due to their short-term nature. notes to the financial statements petrel energy limited annual report 37
NOTES TO THE FINANCIAL STATEMENTS For borrowings, the fair values is not materially different to its carrying amounts, since the interest payable on the borrowings is close to current market rates and the borrowings are of a current nature. Sensitivity analysis Interest rate risk and foreign currency risk The consolidated entity has performed sensitivity analysis relating to its exposure to interest rate risk at reporting date. This sensitivity analysis demonstrates the effect on the current year results and equity which could result from a change in these risks. Interest rate sensitivity analysis At 30 June 2017, the only item affected by a change in interest rate would be the cash on deposit. CONSOLIDATED 2017 $ 2016 $ Interest rate risk sensitivity analysis change in loss before tax & equity Increase in interest rates by 0.25% (0.25%) 8,947 1,198 Decrease in interest rates by 0.25% (0.25%) (8,947) (1,198) The above interest rate sensitivity analysis has been performed on the assumption that all other variables remain unchanged. Foreign currency sensitivity analysis As indicated under Market risk, the group is primarily exposed to changes in US/AUD exchange rates. The sensitivity of profit or loss to changes in the exchange rates arises mainly from US-dollar denominated assets (i.e.; cash, exploration and evaluation assets). IMPACT ON TOTAL ASSETS IMPACT ON OTHER COMPONENTS OF EQUITY 2017 2016 2017 2016 US/AUD exchange rate increase 10% (10%) $3,398,948 $2,330,657 $3,214,758 $2,250,675 US/AUD exchange rate decrease 10% (10%) ($3,398,948) ($2,330,657) ($3,214,758) ($2,250,675) Assets and other equity have not been significantly sensitive to movements in the Australian and US exchange rate as a result of US dollar decreased by 3.45% (2016: increased by 3.42%). Capital management Management controls the capital of the consolidated entity in order to provide the shareholders with adequate returns and ensure that the consolidated entity can fund its operations and continue as a going concern. Due to the nature of the consolidated entity s business, the Company s capital is limited to ordinary share capital. There are no externally imposed capital requirements. Management effectively manages the consolidated entity s capital by assessing the consolidated entity s financial risks and adjusting its capital structure in response to changes in these risks and in the market. These responses include the distributions to shareholders and share issues. There have been no changes in the strategy adopted by management to control the capital of the consolidated entity since commencement of operations. The consolidated entity does not presently have any borrowings. 3. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of the future events that may have a financial impact on the consolidated entity and that notes to the financial statements petrel energy limited annual report 38
NOTES TO THE FINANCIAL STATEMENTS are believed to be reasonable under the circumstances. Critical accounting estimates and assumptions The consolidated entity makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. Other than the estimated impairment of assets, there are no other current estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. Estimated impairment of assets The consolidated entity tests at each reporting period whether assets have suffered any impairment. Impairment of Cardium oil and Blackhawk gas assets: At each reporting period the consolidated entity reassessed the carrying amount of its oil and gas assets for indicators of impairment such as changes in future prices, future costs and reserves. As a result, the recoverable amounts for Cardium oil assets, Erath gas assets and Blackhawk gas assets were formally reassessed, resulting in an impairment and the losses were recognised in: 2017 $ 2016 $ ERATH ERATH Exploration and evaluation expenditure - 13,518-13,518 There was no impairment required on exploration and evaluation expenditure for the reporting period (2016: $13,518). 4. SEGMENT INFORMATION The consolidated entity has identified its operating segments based on the five geographical areas in which the consolidated entity operates. In Australia its central location, responsible for overseeing the company strategic direction, development, performance and capital management. Until mid-2015 the consolidated entity had two shale gas joint ventures with the Cumming Company, Inc in the Erath County in the United States of America. In Alberta Canada the consolidated entity has a 40% - 60% working interest in the Lochend Cardium Project targeting tight oil. In Uruguay, the consolidated entity has a 51% interest in projects targeting oil and gas in the Piedra Sola and Salto concessions. In Cadiz Spain the consolidated entity has 51% interest in the Tesorillo and Ruedalabola gas exploration licences. Management has identified that exploration and development of oil & gas resources as the consolidated entity s only operating segment. Geographical information UNITED STATES CONSOLIDATED 2017 AUSTRALIA $ OF AMERICA $ CANADA $ URUGUAY $ SPAIN $ TOTAL $ Revenue from external customers - - - - - Other income - - 8,128 - - 8,128 Non-current assets 174,440 - - 26,476,673-29,376,570 Segment Profit/(loss) before income tax (2,064,644) - 8,128-2,725,457 (2,056,516) notes to the financial statements petrel energy limited annual report 39
NOTES TO THE FINANCIAL STATEMENTS CONSOLIDATED 2016 AUSTRALIA $ UNITED STATES OF AMERICA $ CANADA $ URUGUAY $ - TOTAL $ Revenue from external customers - (11,481) (1,875) - - (13,356) Non-current assets 52,956 - - 20,060,968 2,824,036 22,937,960 Segment loss before income tax (1,791,843) (25,000) (1,875) - - (1,818,718) Operating segments are presented using the management approach, where the information presented is on the same basis as the internal reports provided to Chief Operating Decision Makers ( CODM ). The CODM is responsible for the allocation of resources to operating segments and assessing their performance. 5. EMPLOYEE BENEFIT EXPENSES CONSOLIDATED 2017 $ 2016 $ Superannuation defined contribution plan expense 43,077 44,415 6. INCOME TAX (a) Numerical reconciliation of income tax expense to prima facie tax payable CONSOLIDATED 2017 $ 2016 $ Loss from continuing operations before income tax expense 2,056,516 1,818,718 Tax benefit at the Australian tax rate of 27.5%(2016: 28.5%) 565,542 518,335 Tax effect of non-deductable expenses 157,472 (4,738) Tax effect of equity raising costs debited to equity (83,610) 52,605 Tax losses and temporary differences not bought to account (639,404) (566,202) Income tax expense - - (b) Tax losses CONSOLIDATED 2017 $ 2016 $ Unused tax losses for which no deferred tax asset has been recognised 24,965,160 23,279,868 Potential tax benefit @ 27.5%(2016: 28.5%) 6,685,419 6,634,762 The income tax expense or revenue for the period is the tax payable on the current period s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets notes to the financial statements petrel energy limited annual report 40
NOTES TO THE FINANCIAL STATEMENTS and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the Company has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. No amounts have been recognised for deferred tax on income losses as it is not yet probable that future taxable amounts will be available against which to utilise losses. 7. CASH AND CASH EQUIVALENTS CONSOLIDATED 2017 $ 2016 $ Cash at bank and in hand 3,578,728 304,630 Deposits at call - 174,613 Total cash balances 3,578,728 479,243 The deposits at call are bearing floating interest rates averaging Nil % per annum (2016: 0.42%). For statement of cash flows presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions and other short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. 8. OTHER CURRENT ASSETS CONSOLIDATED 2017 $ 2016 $ Trade and sundry debtors 19,434 223,287 Prepayments 49,668 40,492 Interest receivable 445 398 GST receivable 42,989 14,931 112,536 279,108 None of the trade and sundry debtors above are past due date (2016: nil). Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flow. 9. EXPLORATION AND EVALUATION EXPENDITURE CONSOLIDATED 2017 $ 2016 $ Opening balance 22,873,852 20,289,640 Additions during the year at cost 7,257,163 2,260,723 Movement in foreign currency translation (791,044) 323,489 Closing balance 29,339,971 22,873,852 notes to the financial statements petrel energy limited annual report 41
NOTES TO THE FINANCIAL STATEMENTS Exploration and evaluation expenditures incurred are accumulated in respect of each identifiable area of interest and are carried forward in the statement of financial position where: (i) rights to tenure of the area and participating interest are current; and (ii) one of the following conditions is met: such costs are expected to be recouped through successful development and exploitation of the area of interest or alternatively, by its sale; or exploration and/or evaluation activities in the area of interest have not, at reporting date, yet reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves and active and significant operations in, or in relation to, the areas are continuing. A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. Accumulated expenditure on areas that have been abandoned, or are considered to be of no future economic benefit is written off in the year in which such a decision is made. Expenditure relating to pre-exploration activities (such as for new venture work) is written off to the statement of profit or loss and other comprehensive income during the period in which the expenditure is incurred. When production commences, the accumulated costs for the relevant area of interest will be amortised over the life of the area according to the rate of depletion of the economically recoverable reserves. 10. PLANT AND EQUIPMENT CONSOLIDATED As at 30 June 2017 IT & OFFICE EQUIPMENT $ FURNITURE & FIXTURES $ LEASEHOLD IMPROVEMENT $ TOTAL $ Cost or fair value 118,384 100,554 168,168 387,106 Accumulated depreciation (109,756) (99,244) (141,507) (350,507) Net book amount 8,628 1,310 26,661 36,599 Reconciliation of movement in plant & equipment Opening net book amount 16,823 2,210 45,075 64,108 Additions 2,347 - - 2,347 Depreciation charge for the year (i) (10,190) (867) (18,414) (29,471) Movement in foreign currency translation (352) (33) - (385) Closing net book amount 8,628 1,310 26,661 36,599 CONSOLIDATED As at 30 June 2016 IT & OFFICE EQUIPMENT $ FURNITURE & FIXTURES $ LEASEHOLD IMPROVEMENT $ TOTAL $ Cost or fair value 117,246 100,721 168,168 386,135 Accumulated depreciation (100,423) (98,511) (123,093) (322,027) Net book amount 16,823 2,210 45,075 64,108 Reconciliation of movement in plant & equipment Opening net book amount 23,655 2,783-26,438 Additions - - 55,800 55,800 Depreciation charge for the year (7,168) (605) (10,725) (18,498) Movement in foreign currency translation 336 32-368 Closing net book amount 16,823 2,210 45,075 64,108 (i) $4,195 of depreciation charge incurred during the year was capitalised. notes to the financial statements petrel energy limited annual report 42
NOTES TO THE FINANCIAL STATEMENTS Plant and equipment is carried at cost less accumulated depreciation and impairment losses. Depreciation is calculated on a straight line basis to write off the net cost of each item of property, plant and equipment (excluding land) over its expected useful life to the consolidated entity. Estimates of remaining useful lives are made on a regular basis for all assets, with annual reassessments for major items. The depreciation rates used for each class of depreciable assets are: CLASS OF FIXED ASSETS DEPRECIATION RATE IT and office equipment 33.30% Office furniture and fittings 20.00% Leasehold improvements 20.00% The assets residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount. 11. TRADE AND OTHER PAYABLES CONSOLIDATED 2017 $ 2016 $ Trade payables 1,026,417 41,133 Other payables 525,606 765,069 1,552,023 806,202 These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the financial year which are unpaid. The amounts are current and unsecured and are usually paid within 30 days of recognition. 12. EMPLOYEE BENEFITS CONSOLIDATED 2017 $ 2016 $ Provision for employee benefits opening balance 92,095 52,446 Charge to profit or loss 48,521 39,649 Provision for employee benefits closing balance 140,616 92,095 This provision relates solely to employee annual leave entitlements. Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled within 12 months of the reporting date are recognised in current liabilities in respect of employees' services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Other long-term employee benefits The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date are recognised in non-current liabilities, provided there is an unconditional right to defer settlement of the liability. The liability is measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on corporate bonds rates with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Defined contribution superannuation expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. notes to the financial statements petrel energy limited annual report 43
NOTES TO THE FINANCIAL STATEMENTS 13. BORROWINGS CONSOLIDATED 2017 $ 2016 $ Promissory Note 429,840 420,610 Schuepbach Energy International LLC (SEI) has borrowed funds from its shareholders, in proportion to their shareholdings, in the form of an unsecured promissory note. These funds have been applied to a security deposit arrangement for Schuepbach Energy Uruguay SRL for its Salto and Piedra Sola concessions. The Petrel portion of the promissory note has been eliminated and the amounts owing to other SEI shareholders are recorded as borrowings. Borrowings are initially recognised at the fair value of the consideration received, net of transaction costs incurred. They are subsequently measured at amortised cost using the effective interest method. Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. 14. CONTRIBUTED EQUITY (a) Share capital 2017 SHARES NUMBER 2016 SHARES NUMBER 2017 $ 2016 $ Ordinary shares 1,165,315,238 530,055,993 51,313,872 43,758,913 Movements in share capital DATE DETAILS NUMBER OF SHARES ISSUE PRICE $ 1 July 2016 Opening balance 530,055,993 43,758,913 05 September 2016 30 November 2016 Issue of shares under rights issue 519,632,268 $0.01 5,196,323 30 November 2016 30 November 2016 30 November 2016 Issue of shares under share placement to a Director, Mr David Casey in accordance with shareholder approval at 23 November 2016 AGM Shares issued to Directors in lieu of fees and salary in accordance with shareholder approval at 23 November 2016 AGM Shares issued to Directors in lieu of fees and salary in accordance with shareholder approval at 23 November 2016 AGM 1,000,000 $0.02 20,000 2,292,708 $0.03 68,781 23,012,500 $0.01 230,125 30 November 2016 Shares issued in payment of consulting services 6,301,440 $0.01 63,015 30 November 2016 Shares issued to a Director, Mr Alex Sundich for his participation in the rights issue in accordance with shareholder approval at 23 November 2016 AGM. 5,000,000 $0.01 50,000 06 January 2017 Issue employee incentive shares 3,400,000 $0.015 51,000 06 January 2017 Employee incentive shares Treasure shares - - (51,000) 14 February 2017 Shares issued in payment of consulting services 1,090,909 $0.022 24,000 09 May 2017 Share issued under the share placement to professional and other investors 73,529,420 $0.034 2,500,000 1,165,315,238 51,911,157 Less: Transaction costs arising on share issue (597,285) 30 June 2017 51,313,872 notes to the financial statements petrel energy limited annual report 44
NOTES TO THE FINANCIAL STATEMENTS Movements in capital (2016) DATE DETAILS NUMBER OF SHARES ISSUE PRICE $ 1 July 2016 Opening balance 462,854,328 41,810,125 31 July 2015 Issue of shares under share placement 18,888,893 $0.045 850,000 11 September 2015 Issue of shares under share purchase plan 5,555,542 $0.045 250,000 10 November 2015 Issue of shares under share placement to Directors in accordance with shareholder approval at 9 November 2015 AGM. 3,333,333 $0.045 150,000 11 February 2016 11 March 2016 Shares issued under share placement to sophisticated and professional investors Shares issued under share placement to sophisticated and professional investors 30,250,000 $0.02 605,000 7,500,000 $0.02 150,000 14 March 2016 Shares issued in payment of consulting services 673,897 $0.03 20,217 15 April 2016 Issue employee incentive shares 1,000,000 $0.025 25,000 15 April 2016 Employee incentive shares Treasure shares - (25,000) 530,055,993 43,835,342 Less: Transaction costs arising on share issue (76,429) 30 June 2016 43,758,913 Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. The fully paid ordinary shares have no par value Options Listed DATE DETAILS NUMBER OF OPTIONS EXPIRY DATE EXERCISE PRICE VESTED AND EXERCISABLE AT END OF THE YEAR NUMBER WEIGHTED AVERAGE EXERCISE PRICE 1 July 2016 Opening balance 05 September 2016 to 30 November 2016 30 November 2016 Allot of options on rights issue of one option for every 2 shares subscribed Allot of options to a Director, Mr Alex Sundich for his participation in the rights issue in accordance with shareholder approval at 23 November 2016 AGM of one option for every 2 shares subscribed 259,816,134 2,500,000 30 August 2017 30 August 2017 4 cents 259,816,134 4 cents 4 cents 2,500,000-262,316,134 4 cents notes to the financial statements petrel energy limited annual report 45
NOTES TO THE FINANCIAL STATEMENTS Unlisted DATE DETAILS NUMBER OF OPTIONS EXPIRY DATE EXERCISE PRICE VESTED AND EXERCISABLE AT END OF THE YEAR NUMBER WEIGHTED AVERAGE EXERCISE PRICE 1 July 2016 Opening balance 21,875,000 7.3 cents 30 November 2016 Allot of options to a Director, Mr David Casey for his participation in 5 February 2016 Share Placement in accordance with shareholder approval at 23 November 2016 AGM of one option for every 2 shares subscribed 500,000 31 January 2018 5 cents 500,000 0.1 cents 22,375,000 7.2 cents Options (2016) DATE DETAILS NUMBER OF OPTIONS EXPIRY DATE EXERCISE PRICE VESTED AND EXERCISABLE AT END OF THE YEAR NUMBER WEIGHTED AVERAGE EXERCISE PRICE 1 July 2015 Opening balance 3,000,000 21.5 cents 11 February 2016 Allot of options to sophisticated & professional investor of one option for every 2 shares subscribed 15,125,000 31 January 2018 5 cents 15,125,000 5 cents 11 March 2016 Allot of options to sophisticated & professional investor of one option for every 2 shares subscribed 3,750,000 31 January 2018 5 cents 3,750,000 5 cents 21,875,000 7.3 cents Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. (b) Dividends There were no dividends paid or declared by the consolidated entity during the year (2016: nil). 15. OPTIONS RESERVE CONSOLIDATED OPTION RESERVE $ Opening balance at 1 July 2015 790,062 Share-based payment Shares issued under EIP to contractors 4,251 Expired/vested options (309,889) Closing balance at 30 June 2016 484,424 Share-based payment Shares issued under EIP to staff and contractors 21,616 Expired/vested options - Closing balance at 30 June 2017 506,040 notes to the financial statements petrel energy limited annual report 46
NOTES TO THE FINANCIAL STATEMENTS Fair value of shares issued under Employee Incentive Plan The assessed fair value at grant date of shares issued under the Employee Incentive Plan during the year ended 30 June 2017 was 0.71 cents per share (30 June 2016 1.44 cents per share). The fair value at grant date is determined using a Black-Scholes option pricing model that takes into account the issue price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option. The model inputs for shares issued under the Employee Incentive Plan during the year ended 30 June 2017 included: (a) exercise price: 1.5 cents (2016 2.5 cents) (b) grant dates: 06 January 2017 (2016 14 March 2016) (c) expiry dates: 05 January 2022 (2016 13 March 2021) (c) term: 5 years, vesting between immediately to 1 year. (d) spot price at grant date: 1.3 cents (2016 2.5 cents) (e) expected price volatility of the company's shares: 67.5% (2016 67.5%) (f) expected dividend yield: 0% (2016 0%) (g) risk-free interest rate: 2.25% (2016 2.25%) The expected price volatility is based on the historic volatility When goods or services received are acquired in a share-based payment transaction, they are recognised as expenses or assets, as determined by the nature of the goods or services received, over the vesting period attached to the equity instrument acquired in the transaction. A corresponding increase is recognised in equity. The goods or services are measured by reference to the fair value of goods or services received, or where this is not possible, indirectly, by reference to the equity instrument acquired. The fair value of the equity instrument is measured at grant date. The parent entity offers interest free loans to employees and eligible persons (including directors) for terms of up to five years under the Employee Incentive Plan for subscription of shares, and under such loans, the parent entity holds a lien over the issued shares. The issue of shares using the proceeds of any loan under the Employee Incentive Plan to employees and eligible parties (including directors) has been treated as an option grant. CONSOLIDATED 2017 $ 2016 $ Opening balance 1 July 32,948,468 31,439,639 Expired/vested options - (309,889) Net loss for the year 2,056,516 1,818,718 Closing balance 30 June 35,004,984 32,948,468 17. RELATED PARTY TRANSACTIONS (a) Directors The following persons were directors of Petrel Energy Limited during or subsequent to the financial period: Alexander Sundich David Casey Russell Porter Andrew Williams Non-executive Chairman Managing Director and Chief Executive Officer Non-executive Director Non-executive Director notes to the financial statements petrel energy limited annual report 47
NOTES TO THE FINANCIAL STATEMENTS (b) Other key management personnel compensation The following persons also had authority and responsibility for planning, directing and controlling the activities of the consolidated entity, directly or indirectly, during the financial year: Stephen Mitchell (resigned on 31 January 2017) Corporate Adviser and Chairman of 51% owned subsidiary Schuepbach Energy International LLC. Ian Kirkham Company Secretary and Chief Financial Officer (c) Key management personnel compensation CONSOLIDATED 2017 $ 2016 $ Salary & fees 589,060 594,981 Consultancy payments 245,770 331,828 Share based payments 6,194 20,217 Superannuation 39,394 39,530 880,418 986,556 Detailed remuneration disclosures can be found in sections (a) to (c) of the Remuneration Report which forms part of the Directors Report. (d) Other transactions with key management personnel (i) Stephen Mitchell Stephen Mitchell is the Principal of Mawallok Pastoral Company. Petrel Energy Limited had engaged Mawallok Pastoral Company to provide Stephen Mitchell to act as a Chairman of the board of Schuepbach Energy International (51% owned by Petrel) and also as a consultant in the development of its international assets. Stephen Mitchell has resigned from his position on 31 January 2017. Amounts recognised as an expense CONSOLIDATED 2017 $ 2016 $ SEI Chairman and Consulting services 20,625 123,750 (ii) Ian Kirkham Consulting Ian Kirkham, a senior executive, is also the Principal of Minex CFO Services. Petrel Energy Limited has engaged Minex CFO Services to provide Company secretarial and accounting services on a part-time basis. The contract is based on normal commercial terms. CONSOLIDATED 2017 $ 2016 $ Amounts recognised as an expense Accounting and secretarial services 225,145 228,295 The above amount has been included in the remuneration report. notes to the financial statements petrel energy limited annual report 48
NOTES TO THE FINANCIAL STATEMENTS 18. CONTINGENCIES (a) Contingent liabilities/restricted cash CONSOLIDATED 2017 $ 2016 $ Obligations under a bank corporate credit card facility with the Commonwealth Bank of Australia 30,000 30,000 Bankers guarantee issued as security for the performance by the Company of its obligations under a lease of office premises at Suite 303, 33,409 33,409 10 Bridge Street, Sydney Letter of credit of US$1 million for a drilling contract with New Force Energy Services Inc., for the 4 well programme in Uruguay, which has a minimum spend requirement of $2.1m (US$1.5m) if the agreement is terminated prior 1,300,050 - to the programme's completion Total 1,363,459 63,409 The above are all secured by a charge over term deposits lodged with bankers of a like amount. (b) Contingent assets The consolidated entity has no contingent assets to report as at 30 June 2017 (2016: nil). 19. COMMITMENTS Lease commitments - operating CONSOLIDATED 2017 $ 2016 $ Commitments at reporting date but not recognised as liabilities, payable: Within 1 year 94,815 91,168 1 year or longer, but not longer than 5 years 32,015 126,830 Total 126,830 217,998 In connection with the drilling operations undertaken by the entity, the group is liable for demobilisation costs at the conclusion of drilling activities. Management have assessed the potential costs of this activity at $707,982 (USD$ 544,580). 20. AUDITOR S REMUNERATION During the year the following fees were paid or payable for services provided by the auditor: CONSOLIDATED 2017 $ 2016 $ Audit services BDO Audit and review of financial reports 45,000 41,500 Total 45,000 41,500 notes to the financial statements petrel energy limited annual report 49
NOTES TO THE FINANCIAL STATEMENTS 21. RECONCILIATION OF LOSS AFTER INCOME TAX TO NET CASH INFLOW FROM OPERATING ACTIVITIES CONSOLIDATED 2017 $ 2016 $ Loss for the year (2,056,516) (1,818,718) Non-cash movement Depreciation 25,276 18,498 Shares issued to consultant - 20,217 Impairment loss on Erath assets - 13,518 Impairment loss on Blackhawk assets - - Impairment loss on Cardium assets - - Share based payment expenses 21,616 4,251 Foreign exchange gains 85,764 (20,311) Movement in working capital (Increase) in other current assets (39,059) (19,447) Increase in trade and other payables 138,114 391,209 Net cash outflow from operating activities (1,824,805) (1,410,783) Non-cash transactions affecting investing and financing activities (i) In December 2016, Schuepabach Energy International LLC issued 650 share units to Schuepbach International Holdings for equivalent amount of AUD448,632 (USD325,000) in lieu of salary to Martin Schuepbach. (ii) In November 2016, there were 2,292,708 ordinary shares issued at $0.03 each to Directors in lieu of fees and salary of $68,781 in accordance with shareholder approval at 23 November 2016 AGM. (iii) In November 2016, there were 23,012,500 ordinary shares issued at $0.01 each to Directors in lieu of fees and salary of $230,125 in accordance with shareholder approval at 23 November 2016 AGM. (iv) In November 2016, there were 6,301,440 ordinary shares issued at $0.01 each in payment of $63,015 related to consulting services. (v) In February 2017, there were 1,090,909 ordinary shares issued at $0.22 each in payment of $24,000 related to consulting services. 22. EARNINGS PER SHARE Loss from continuing operations attributable to the ordinary equity holders of the Company CONSOLIDATED 2017 $ 2016 $ 2,056,516 1,818,718 Loss attributable to ordinary equity holders of the Company 2,056,516 1,818,718 Basic earnings per share is calculated by dividing the profit/loss attributable to equity holders of the parent entity, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year. (b) Diluted loss per share Options issued to shareholders and related parties are considered to be potential ordinary shares if average market price during the period is above the exercise price and have been considered in the determination of diluted earnings per share. notes to the financial statements petrel energy limited annual report 50
NOTES TO THE FINANCIAL STATEMENTS Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account of the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. (c) Reconciliation of earnings used in calculating earnings per share Basic earnings per share / Diluted earnings per share Loss from continuing operations attributable to the ordinary equity holders of the Company CONSOLIDATED 2017 $ 2016 $ 2.056,516 1,818,718 Loss attributable to ordinary equity holders of the Company 2.056,516 1,818,718 (d) Weighted average number of shares used as the denominator 2017 NUMBER 2016 NUMBER Weighted average number of shares used as denominator in calculating: Basic earnings per share 937,244,169 500,757,335 Diluted earnings per share 937,244,169 500,757,335 23. PARENT ENTITY INFORMATION PARENT ENTITY 2017 $ 2016 $ Loss after income tax 1,996,732 1,793,718 Total comprehensive loss for the year 1,996,732 1,793,718 Statement of financial position Total current assets 412,211 886,870 Total assets 17,480,609 12,148,571 Total current liabilities 235.370 483,175 Total liabilities 235,370 483,175 Equity Issued capital 51,313,872 43,758,913 Option reserve 506,040 484,424 Accumulated losses (34,574,673) (32,577,941) Total equity 17,245,239 11,665,396 Guarantees entered into by the parent entity in relation to the debts of its subsidiaries The parent entity had no guarantees in relation to the debts of its subsidiaries as at 30 June 2017 and 30 June 2016. Contingent liabilities The consolidated entity had contingent liabilities as at 30 June 2017 and 30 June 2016 as detailed in Note 18(a). Capital commitments - Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment as at 30 June 2017 and 30 June 2016. Significant accounting policies The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in note 1. In addition, investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity. notes to the financial statements petrel energy limited annual report 51
NOTES TO THE FINANCIAL STATEMENTS 24. INTERESTS IN SUBSIDIARIES The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries. SUBSIDIARIES PLACE OF INCORPORATION 2017 INTEREST % 2016 INTEREST % PARENT Petrel Energy (Operations) Pty Ltd Victoria, Australia 100 100 Petrel Energy Limited Petrel Energy (Investments) Pty Ltd Victoria, Australia 100 100 Petrel Energy Texas Exploration LLC Austin Texas, USA 100 100 Petrel Energy Louisiana Exploration LLC Baton Rouge, Louisiana, USA 100 100 Petrel Energy (Operations) Pty Ltd Petrel Energy (Operations) Pty Ltd Petrel Energy (Operations) Pty Ltd Schuepbach Energy International LLC Dallas Texas, USA 51 51 Petrel Energy Limited The shares held in the subsidiaries are ordinary shares. 25. INTERESTS IN JOINT OPERATIONS The consolidated entity has the following participating interests in joint operations with principal activities of oil & gas exploration. The joint operations are not separate legal entities and are contractual arrangements between the participants for the sharing of exploration and development costs, and output. INTEREST JOINT OPERATIONS 2017 $ 2016 $ Cardium, Alberta, Canada 40-60 40-60 Tesorillo Cadiz, Spain (held via 51% interest in Schuepbach Energy International LLC.) Ruedalabola Cadiz, Spain (held via 51% interest in Schuepbach Energy International LLC.) 51 51 51 51 26. SUBSEQUENT EVENTS No matter has arisen in the interval since 30 June 2017 that has significantly affected or may significantly affect the operations of the consolidated entity, the results of those operations or the state of affairs of the consolidated entity in future financial periods other than the following. a) After slow progress was made drilling the basalt at surface in Cerro Padilla-1 drilling operations were temporality suspended with 10m of basalt remaining after experiencing some unexpected delays with retrieval of a parted drill string. When operations recommence they will focus on retrieval of the drill string and completion of the wells. b) On 28 September 2017 an $880,000 placement was completed consisting of 80m shares at 1.1c per share and 80m facilitation options (which are subject to shareholder approval) exercisable at 4 expiring 31 October 2018. c) On 28 September 2017 Petrel commenced a partially underwritten Non-Renounceable Entitlement Offer to raise up to $4.6 million. The Rights Issue at 1.1c per share is on a 1:3 basis and has an attached 1:1 option exercisable at 4 expiring 31 October 2018. 27. CORPORATE INFORMATION The financial report of Petrel Energy Limited for the period ended 30 June 2017 was authorised for issue in accordance with a resolution of the directors on 29 September 2017. Petrel Energy Limited is a public company limited by shares, incorporated in Australia, whose shares are publicly traded on the Australian Securities Exchange. The directors have the power to amend and re-issue the financial report. notes to the financial statements petrel energy limited annual report 52
DIRECTORS DECLARATION In the directors' opinion: the attached financial statements and notes thereto comply with the Corporations Act 2001, the Australian Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; the attached financial statements and notes thereto comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 1 to the financial statements; the attached financial statements and notes thereto give a true and fair view of the consolidated entity's financial position as at 30 June 2017 and of its performance for the financial year ended on that date; and there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. The directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the directors David Casey Managing Director and CEO Sydney, 29 September 2017 directors' declaration petrel energy limited annual report 53
AUDITORS REPORT auditors report petrel energy limited annual report 54
AUDITORS REPORT auditors report petrel energy limited annual report 55
AUDITORS REPORT auditors report petrel energy limited annual report 56
AUDITORS REPORT auditors report petrel energy limited annual report 57
ADDITIONAL INFORMATION Additional information included in accordance with Listing Rules of ASX Limited. 1. SHAREHOLDERS a) Distribution of shareholders as at 11 October 2017 Fully paid ordinary shares SIZE OF HOLDING HOLDERS SHARES HELD % 1-1,000 54 5,165-1,001-5,000 102 348,274 0.028 5,001-10,000 189 1,698,903 0.136 10,001-100,000 806 35,616,207 2.859 100,001 and over 847 1,208,304,225 96.977 Totals 1998 1,245,972,774 100.000 834 shareholders held less than a marketable parcel of shares. b) Top twenty shareholders as at 11 October 2017 Fully paid ordinary SHAREHOLDER NUMBER OF ORDINARY SHARES HELD % OF SHARES HELD Linwierik Super Pty Ltd <Linton Super Fund A/C> 49,599,329 3.981% Cameron Richard Pty Ltd <LPS Pl No 5 Exec B/Plan A/C> 46,025,665 3.694% Discovery Investments Pty Ltd <The Columbus Family A/C> 40,100,000 3.218% National Nominees Limited 38,104,912 3.058% Veruse Pty Ltd 29,000,000 2.327% HSBC Custody Nominees (Australia) Limited 28,498,331 2.287% Pine Street Pty Ltd <Pine Street A/C> 25,000,000 2.006% D Casey & Associates Pty Limited <David Casey Family A/C> 23,931,204 1.921% Mr RK Blanden & Ms JS Blanden <RK & JS Blanden S/F A/C> 22,448,741 1.802% Equity Trustees Limited <Lowell Resources Fund A/C> 20,467,737 1.643% Mr David Casey 16,805,207 1.349% Morgan Stanley Aust. Securities (Nominee) Pty Limited 16,381,000 1.315% Smithley Super Pty Ltd <Smith Super Fund A/C> 15,221,973 1.222% Pine Street Pty Ltd <Pine Street Super Fund A/C> 15,000,000 1.204% Discovery Investments Pty Ltd 14,710,275 1.181% Hayrow Pty Ltd <David Casey Super Fund A/C> 13,730,750 1.102% HSBC Custody Nominees (Australia) Limited - A/C 2 13,126,463 1.054% J P Morgan Nominees Australia Limited 11,149,496 0.895% Mr Roger Leigh Spellman 9,500,000 0.762% Ms Yan Jin 8,900,000 0.714% Total 457,701,083 36.734% additional information petrel energy limited annual report 58
ADDITIONAL INFORMATION 2. VOTING POWER The Company has ordinary shares on issue: a) at meetings of members each member entitled to vote may vote in person or by proxy or attorney or, in the case of a member which is a body corporate, by representative duly authorised; b) on a show of hands every member entitled to vote and be present in person or by proxy or attorney or representative duly authorised shall have one (1) vote; and c) on a poll every member entitled to vote and be present in person or by proxy or attorney or representative duly authorised shall have one (1) vote for each fully paid share of which he or she is a holder. 3. SUBSTANTIAL SHAREHOLDERS The ordinary securities held by substantial shareholders are as follows: NAMES NUMBER OF SHARES Discovery Investments Pty Ltd 60,284,726 Mr David Casey 59,967,161 4. ON-MARKET BUY-BACK There is no current on-market buy back. 5. TENEMENT LISTING TENEMENT REFERENCE LOCATION NATURE OF INTEREST INTEREST AT 30 JUNE 2017 GROSS ACRES Piedra Sola Norte Basin, Uruguay Held via 51% 51% 2,525,000 Salto Norte Basin, Uruguay interest in 51% 925,000 Tesorillo Cadiz, Spain Schuepbach Energy 51% 68,800 Ruedalabola Cadiz, Spain International LLC 51% 10,200 Cardium GROSS ACRES SNE27-24-3W5M Cardium, Alberta, Canada Direct JV interest 40% 480 30-24-3W5M Cardium, Alberta, Canada Direct JV interest 40% 639 S31-24-3W5M Cardium, Alberta, Canada Direct JV interest 40% 320 SW32-24-3W5M Cardium, Alberta, Canada Direct JV interest 40% 160 33-24-3W5M Cardium, Alberta, Canada Direct JV interest 40% 640 N36-24-4W5M Cardium, Alberta, Canada Direct JV interest 40% 320 19-25-3W5M Cardium, Alberta, Canada Direct JV interest 40% 640 32-25-4W5M Cardium, Alberta, Canada Direct JV interest 40% 640 6-26-4W5M Cardium, Alberta, Canada Direct JV interest 40% 640 4479 Note: Petrel does not have any interest in any farm-in or farm-out agreements. additional information petrel energy limited annual report 59
petrel energy limited annual report 60
Corporate Directory Directors Alexander Sundich Chairman David Casey CEO & Managing Director Russell Porter Non Executive Director Andrew Williams Non Executive Director Company Secretary Ian Kirkham Registered Office Level 6, 10 Bridge Street Sydney NSW 2000 T: +612 9254 9000 F: +612 9037 2249 Email: office@petrelenergy.com Share Registry Boardroom Limited Level 12, 225 George St Sydney NSW 2000 GPO Box 3993 Sydney NSW 2001 T: +61 2 9290 9600 F: +61 2 9290 9655 Home Stock Exchange ASX Limited 20 Bridge Street Sydney NSW 2000 ASX Code: PRL Auditors BDO Level 11, 1 Margaret Street Sydney NSW 2000 Petrel Energy Limited ACN 125 394 667 100% PCW Recycled Printed on Eco Star Uncoated 100% Recycled petrelenergy.com designed & produced by 121 Creative Circular Quay www.121creative.com.au corporate directory petrel energy limited annual report 61
annual 2017 report