2009 ANNUAL REPORT
2009 ANNUAL REPORT
ii Carnarvon Petroleum ltd
CorPorate dIreCtorY
Directors
PJLeonhardt(Chairman)
EPJacobson(ChiefExecutiveOfficer)
NCFearis(Non-ExecutiveDirector)
KPJudge(Non-ExecutiveDirector)
companysecretary
RAAnderson
auDitors
WHKHorwathPerthAuditPartnership
Bankers AustraliaandNewZealandBankingGroupLimited
HSBC(Thailand)
registereDoffice
GroundFloor
1322HayStreet
WestPerthWA6005
Telephone: +61893212665
Facsimile: +61893218867
Email: [email protected]
Website: www.carnarvonpetroleum.com
shareregistry
ComputershareInvestorServicesPtyLimited
Level2
45StGeorgesTerrace
Perth,WA6000Australia
InvestorEnquiries: 1300557010(withinAustralia)
InvestorEnquiries: +61394154000(outsideAustralia)
Facsimile:+61893232033
stockexchangeListing
SecuritiesofCarnarvonPetroleumLimitedarelisted
onASXLimited
ASXCode:CVN-ordinaryshares
aBn60002688851
2009 annual rePort 1
ContentS
chairman’sreview 2
chiefexecutive’sreview 3-4
operatinganDfinanciaLreview 5-17
Directors’report 18-28
incomestatements 29
BaLancesheets 30
statementsofchangesinequity 31-32
statementsofcashfLows 33
notestothefinanciaLstatements 34-68
Directors’DecLaration 69
inDepenDentauDitreport 70-71
corporategovernancestatement 72-74
aDDitionaLsharehoLDerinformation 75-76
2 Carnarvon Petroleum ltd
CHaIrman’S revIeW
The2008/09financialyearwasaperiodofsevereturbulenceineconomicconditionsandIamdelightedtoreportthatCarnarvonhas
beensuccessful indelivering furthersignificantgrowth inoperationalandfinancialperformance. Importantly,wehavebuiltastrong
foundationforfuturedevelopmentandyourCompanyisnowverywellpositionedtopursuetheemergingopportunities.
Financialandoperatinghighlightsinclude:
• Salesrevenuegrewby59%to$100.8million.Duetoloweroilpricesthisdidnotmatchthe93%growthinoilsalesto1.35
millionbbls
• Profitaftertaxincreasedby133%to$36.4million
• Explorationanddevelopmentexpendituremorethandoubledto$35.5millionwhichwasfundedfromoperatingcashflows
• Provedandprobablereservesincreasedby46%to16.6millionbblsreflectingthesuccessfulexplorationanddevelopment
workprogramme
• Marketcapitalisationincreasedby54%to$556millionatyearendandCarnarvonwasincludedintheS&P/ASX200Indexfor
thefirsttime
Theseexcellentresultshavebeenachievedagainstabackgroundofacollapseintheoilpricefromrecordlevels,significantfluctuations
intheA$exchangerate,anduncertainmarketconditions.
OverthelasttwoyearsnumerousinvestmentopportunitieshavebeenconsideredbytheBoardandmanagementteam.Wehavebeen
mindfuloftherisk-rewardbalance,particularlyduringaperiodofenthusiasticvaluations,andhavetakenacautiousapproachtoexploration
commitments.AsaresultwebelieveCarnarvonnowhasthecapacitytopursuetheopportunitiesavailableatanopportunetimeinthe
businesscycle.
OurexistingPhetchabunBasinjointventureinterestscontinuetoprovideextensivescopeforfutureexplorationanddevelopment.Atthe
sametime,wehavegrownourregionalknowledgeandresourcesandaddedtoourThaiinterests.OutsideofThailandournewventures
teamisseeingmanyopportunities,andcurrentworkinprogressshouldflowthroughtotheannouncementofanumberofexcitingnew
interests.
AtanoperationallevelourThaiJointVenturepartnerPanOrientEnergyCorphasagaindeliveredexcellentresultsinthefieldnotwithstanding
the complexities and challenges of exploration and drilling in fractured volcanic reservoirs. The contributions of Pan Orient’s Chief
ExecutiveOfficer,JeffChisholm,andhisteamaregreatlyappreciated.Ourstrongworkingrelationshipwiththemisanimportantelement
ofoursuccess.
TocontinueCarnarvon’ssuccessfulgrowthweareconsciousoftheneedtoworkcloselywithallstakeholders includingjointventure
partners,suppliers,ourcorporateadvisersandshareholders.Iwouldliketothankallthosewhohavesupportedusduringtheyear.
Carnarvon’speoplehaveagainmadeoutstandingcontributionsandthehighcalibreofourrelativelysmallteamisakeytoourfuture
growth.OnbehalfoftheCarnarvonBoardIcongratulateourChiefExecutiveOfficerTedJacobsonandallofthestaff.Wealllookforward
toanotherexcitingyearin2010andbeyond.
peterLeonhardtChairman
2009 annual rePort 3
CHIef exeCutIve’S revIeW
TheCompany’skeyperformanceindicatorspreparedinthisreportshowthatthe2008/2009reportingperiodhasbeenoneofsignificant
growthatalllevels.
ThisgrowthisthedirectresultofthediscoveryofoilwithinhighlyfracturedvolcanicreservoirsintheL44/43licencewithinonshore
ThailandwhereCarnarvonhasa40%interest.Whenwelookattheproductiongraphitappearsthatthisrapidgrowthhashappened
overaperiodofonlytwoyears.Butthisdoesn’tdojusticetotheextensivepreparatoryworkcarriedoutbythejointventureinThailand,
commencinginlate2005,withtherecordingof3Dseismicanddrillingofeightexplorationwellspriortothediscoveryofcommercialoil
infracturedvolcanicsinthePOE-9well.
Wearefortunatetohaveahighlycompetentandexperiencedoperator,PanOrientEnergyCorp,wholedourjointventuretothissuccess,
demonstratingtheimportanceofperforminggoodtechnicalworkandbeingopenmindedtonewideasandconcepts.
Whilstwearegratefulforthisnewdiscovery,thesefracturedreservoirsareunlikethehomogeneousreservoirsmorenormallydeveloped
foroilproductionelsewhereandpresentnumerousdifficulties.Thefracturesystemswithinthesevolcanicreservoirsarecomplexwith
adjacentwellsperformingquitedifferentlydependingonthenumber, intensity,distributionandsizeofthefractures intersected.This
makesfordifficultiesinpredictingflowratesandultimaterecoveriesforwellsdrilledacrossthefield.Duringthereportingperiod25wells
weredrilledwithasuccessof17wellsresultingincommercialproductionorextensivetesting.Thisisanexcellentresultconsideringthe
uncertaintiesposedbythesereservoirs.
Whilstdrillingthroughthesezonesthewellsoftenexperience“lostcirculation”withalldrillingfluidsbeinglostintothereservoirwithno
returnsarrivingbacktothesurface.Thismakesfordifficultdrillingandattimesresultsinwellstakinglongertodrillthanexpected.
TheL44/43licencehasproduced5.5mmbblstodatefromfracturedvolcanicreservoirs.NetreservestoCarnarvonestimatedbyour
ReservesAuditorat31December2008are16.6mmbbls.Thejointventurehastwodrillingrigsonlongtermcontractdrillingcontinuously.
Whilstitisimportanttodrillmanymoredevelopmentwellstogrowproduction,newdiscoveriessuchasBoRangandL44-Whavemeant
thatthedrillingprogrammehashadtobechangedfrequentlyatshortnoticetoappraisethesenewdiscoveriestoprovidetheinformation
requiredtoapplyforadevelopmentlicence.Whilstwehavefoundmorecommercialoilintheseotherstructures,thishasbeenatthe
expenseofnotbeingabletodrillasmanyproductionwellsaswewouldhaveliked.
4 Carnarvon Petroleum ltd
CHIef exeCutIve’S revIeW (Continued)
It is becomingclear that theL44/43 licencecovers thatpart of thePhetchabunBasin that is generatingconsiderablequantitiesof
oil,trappedinnumerousstructures.Althoughthetestingofoilflowsathighratesinfracturedvolcanicreservoirshasledustodrilling
thesereservoirsexclusively,manyothertypesofprospectsoccuronthelicenceandneedtobeaddressedintime,particularlywithin
sandstonesdepositedwithintheseancientlakesystemssuchasattheWichianBurioilfieldinthenorthofthelicence.
Carnarvon also has a 40% interest in the L33/43 licence immediately to the north. Although we have drilled several unsuccessful
explorationwellshere,thediscoveryofagoodoilflowrateintheL44-WwellonastructurethatstraddlestheborderbetweenL44/43
andL33/43isencouragingthattheoilpotentialmaycontinuetothenorthintothislicence.Severalexplorationwellswillberequiredto
evaluatethistrend.
TheCompanyiskeentosearchforothersuchoilybasinsnotonlyinonshoreThailandbutelsewhereinSEAsia.In2008,Carnarvonwas
awardeda50%interestinpermitL20/50tothewestofL44/43.ThislicenceislocatedwithinthePhitsanulokBasinsouthofthelargest
oilfieldonshoreThailandatSirikit.HereCarnarvon,asoperator,hascommencedtherecordingandprocessingof550kmsof2Dseismic.
ThepreliminaryresultsfromthissurveyareencouragingandtheCompanyplanstodrilluptofourwellshereinearly2010.
FurthermoreCarnarvon,togetherwithPearlEnergyLtd,hasapplicationspendingwiththeThaiGovernmentforthegrantingoftwopermits
southofBangkokatL52/50andL53/50andisevaluatingotheronshoreopportunitiesintheSEAsianarea.
WithinAustralia,Carnarvonhastakena100%interestinalargepermitoffshoreWesternAustralia,withaHeadsofAgreementsignedto
exchange50%ofthispermitfor50%ofthreeadjacentpermits.Thesepermitscontainseverallargestructureswheretwopreviousdrilled
wells,Phoenix-1and2,intersectedseveralhundredmetresofgaswithinlowporositysandstonereservoirs.Thecompanyplanstorecord
3DseismicoverthePhoenixstructureslatethisyear.Theearliestthatappraisaldrillingcanbeundertakenislatein2010andCarnarvon
willattempttogetawelldrilledassoonaspossible.
Thiscertainlyhasbeenabusyyear.Aside fromall theactivity inThailand, theCompanyhasworkedhardtobuildanassetportfolio
thatwilldelivernearandmediumtermgrowth,diversifiedthroughseveralcountriesandindifferentgeologicalprovinces.Thenewand
interestingpermitadditionsIhavedescribedarejustthebeginning.OverthecomingmonthsIhopetobeabletoannounceseveralother
interestingopportunitieswehavebeennegotiating inotherhydrocarbon richareas,whichwill provideevenmoreexcitement toour
drillingprogramme.Withsuccess,alloftheseopportunitiesarecapableofgrowingourcompanysubstantially.Theoilproductionfrom
ourThailandoperationswillenableCarnarvontoexploreanddevelopthesenewopportunitiesusingfundsgeneratedfromtheCompany’s
cashflow,maintainingourstrongfinancialpositionwithoutdebt.
Wehavebeencareful inselectingthosenewopportunitieswherejointventurepartnersarelikemindedtoCarnarvon.TheCarnarvon
managementconsidersgoodrelationshipsanimportantingredientforsuccess.Thuswehavebeencarefultoselectthoseopportunities
thataresituatedinareaswithwelldemonstratedhydrocarbongeneratingsystemsandwherethejointventureisactiveincarryingout
goodtechnicalwork,encouragingthedrillingofwells.OursuccessinthePanOrientoperatedpermitsinThailandistestamenttothis
philosophy.
NoneofthiscouldhappenwithoutthesmallandhighlyloyalteamwehaveatCarnarvonandIsincerelythankthestaffandotherBoard
membersfortheirsupportandhardwork.
tedJacobsonChiefExecutiveOfficer
2009 annual rePort 5
oPeratInG and fInanCIal revIeW
companyperformanceCarnarvontracksseveralkeyperformanceindicatorstoprovidearelativemeasureofthecompany’sgrowth,asshownbelow.
WellsDrilled
Period: 1July2008–30June2009
Measure: 25wells
PeriodChange: +9%
NetSales
Period: 1July2008–30June2009
Measure: 1,353,421bbls
PeriodChange: +93%
ProvedandProbableReserves
Period: Asat31December2008
Measure: 16.6millionbbls
PeriodChange: +46%
25
Financial Year
Wel
ls
2004 - 2005 2005 - 2006 2006 - 2007 2007 - 2008
20
15
10
5
02008 - 2009
Financial Year
Net
Oil
Sale
s (’
000
bb
ls)
2004 - 2005 2005 - 2006 2006 - 2007 2007 - 2008 2008 - 20090
200
400
600
800
1000
1200
1400
1600
Date
2P R
eser
ves
(MM
bb
ls)
2005 2006 2007 20080
2
4
6
8
10
12
14
16
18
2009
6 Carnarvon Petroleum ltd
oPeratInG and fInanCIal revIeW (Continued)
ConsolidatedProfitAfterTax
Period: 1July2008–30June2009
Measure: A$36.4million
PeriodChange: +133%
SharePrice
Period: Asat30June2009
Measure: A$0.815
PeriodChange: +54%
MarketCapitalisation
Period: Asat30June2009
Measure: A$556million
PeriodChange: +54%
Financial Year
Co
nso
lidat
ed P
rofi
lt
(A$
mill
ion
)
2004 - 2005 2005 - 2006 2006 - 2007 2007 - 2008 2008 - 2009-10
-505
101520
2530354045
0.6
0.7
0.8
0.9
Date
Pric
e (A
$ /
shar
e)
2005 2006 2007 2008 2009
0.5
0.4
0.3
0.1
0.2
0
600
400
500
Date
Mar
ket
Cap
(A
$ /
mill
ion
)
2005 2006 2007 2008 2009
100
300
200
0
2009 annual rePort 7
oPeratInG and fInanCIal revIeW (Continued)
operatingreview
Summary
Carnarvonparticipatedinthedrillingof25wellswithintheSW1Agroupofpermitsresultingin17commercialproduction/testingwells.
Successfuldrillingandtestingalsoresultedinanincreasein2Preservesto16.6millionbbls.
Annualproductionincreasedsignificantly,compensatingforvaryingbutdecreasingoilprices,resultinginconsolidatedprofitaftertax
morethandoublingfromtheprioryear.
InCarnarvon’soperatedL20/50explorationconcession,a500km2Dseismicacquisitionprogramwasinitiated.
SubsequenttoyearendCarnarvonwasawardedanewpermitoffshoreWestAustraliaintheRoebuckbasinontheNorthWestShelf.A
HeadsofAgreementhasbeensignedwithathirdpartytoswap50%ofCarnarvon’spermitfor50%ofthreenewadjacentpermits,subject
toratificationbygovernmentauthorities.
Permits
Permit Basin Equity JointVenturePartner(s)
PartnerInterest
IndicativeProgram
Notes
Thailand
SW1A Phetchabun 40% PanOrientEnergy* 60% Production,Appraisal
Uptotwowellsplanned.
L33/43 Phetchabun 40% PanOrientEnergy* 60% Appraisal,Exploration
Uptotwowellsplanned.
L44/43 Phetchabun 40% PanOrientEnergy* 60% Production,Appraisal,Exploration
Upto20wellsplanned.
L20/50 Phitsanulok 50% SunResources 50% SeismicAcquisition,Exploration
500Km2Dseismicacquisition;Onetofourwellsinplanning
Australia
WA-435-P Roebuck 100.00% Studies Reprocessing
EP321 Perth 2.50%of38.25%(i) Appraisal
EP407 Perth 2.50%of42.5%(i) Appraisal
WA399P Carnarvon 50% RialtoEnergy 50% SeismicAcquisition,Exploration
315Km2DSeismicacquisition.
EP110/EP424
Carnarvon 35% StrikeOil*PancontinentalOilandGas
25%30%
Exploration Activefarmout.
Note: (*)DenotesoperatorwhereCarnarvonisnon-operatorpartner
(i) Carnarvonhasanoverridingroyaltyinterestintheseassets
8 Carnarvon Petroleum ltd
oPeratInG and fInanCIal revIeW (Continued)
Thailand
Carnarvon’s principal assets are the
producing fields in the L44/43 and
SW1AlicencesinthePhetchabunBasin
onshoreThailand.
L44/43, SW1A & L33/43 Thailand
Phetchabun Basin (“SW1A”)
(Carnarvon Petroleum 40%, Pan Orient
60% operator)
A total of 25 wells were drilled in the
SW1Apermitsresultingin17commercial
oilproduction/testingwells,delineation
of one new oil field, and several new
oil pools. The remaining eight wells
all contained promising oil shows and
severalhavesidetrackpotential.
Aproductionlicenseandenvironmental
approval were granted over the Na
SanunEast(“NSE”)oilfieldallowingfield
developmentdrillingtocommence.
Exploration drilling in the northern
exploration block L33/43 failed to
intersect commercial volumes of
hydrocarbons. However, the L44-W oil
discovery,inthenortheasterncornerof
L44/43,isinterpretedtospilloverinto
thesouthernendofL33/43.Appraisal
drilling of the L44-W oil discovery is
anticipatedinbothconcessionsoverthe
next12months.
PermitmapofThailand
2009 annual rePort 9
oPeratInG and fInanCIal revIeW (Continued)
Atotalofsixteendevelopment/appraisalwellshavebeendrilledintotheNSEstructure,withseveralotheroilpoolsdiscoveredabove
andbelowthemainproducingvolcanicreservoir.Itisevidentfromthevarieddrillingresultsthatthedevelopmentofoilreservesfrom
the fractured volcanic reservoirs atNa Sanun East and adjacent oil fields requires comprehensive understanding due to the severe
heterogeneityinthistypeofreservoir.
The geological setting of these
volcanicoilreservoirsisverycomplex,
featuringrapidchangesoflithofacies
and thicknesses, distributions of
fractures and pores/vugs, and
different oil well productivities with
neighbouringwells.
The most likely exploitation plan
for NSE incorporates 20 to 25
developmentwellsbeingdrilledfrom
mid2008throughtomid2010.
Thewellswill bedrilled froma total
of7to10wellclusterlocations,with
each location being designed and
built to accommodate a maximum
of fourwells.Each locationwillhave
oil treatment,storageandoffloading
capacity.
Theproductionprofileisdesignedfor
plateau production of 15,000 bopd
for 1-2 years before natural decline.
There is sufficient capacity in the
existingtruckingoperationinfrastructuretocaterfordeliveryoftheoilfromthefieldtotherefineryinBangkok.
Whileasignificantnumberofwellshavebeendrilled,andacomprehensive3Dgeologicalmodelhasbeencompleted,acomprehensive
developmentplanisstillinthecourseofdevelopmentbythejointventure.
LocationofoilfieldsandprospectswithinL44/43&L33/43ThailandPhetchabunBasin
10 Carnarvon Petroleum ltd
oPeratInG and fInanCIal revIeW (Continued)
L20/50 Thailand Phitsanulok Basin
(Carnarvon Petroleum 50% Operator, Sun Resources 50%)
Carnarvon,andpartnerSunResources,weregrantedtheL20/50explorationconcessioninJanuaryof2007.TheL20/50concessionis
situatedapproximately30kmstothesoutheastandontrendwiththelargestonshoreoilfieldinThailandatSirikit.Thepermitisaround
60kmtothewestofCarnarvon’s40%ownedPetchabunBasinproducingassets.Theconcessioncoversaround4,000km2andislightly
explored.Around1,000kmof1980’svintage2Dseismicdataisavailableinpaperformatandsixwellshavebeendrilledintheblock(three
shallowataround500mandthreedeeper).
One previously drilled well in 1982 at Nong Bua-1
intersectedoilshowswhichCarnarvonbelieveswere
notfullytested.Carnarvoniscontinuingtoinvestigate
thepossibilityoftwinningorre-drillingthiswell.
Carnarvonhasalsodigitizedandreprocessedthebulk
oftheavailable2Dseismicdataandtheinterpretation
of that dataset showed the potential for a large
numberofstructuresofsignificantpotentialsize.
500kmofnew2Dseismicisbeingacquiredandis
dueforcompletioninSeptemberof2009.
Reprocessed1980’svintage2Dseismic
lineindicatespotentialstructuring
The processing and interpretation of the new data, incorporating the
reprocesseddata,willbefasttrackedtoallowforadecisiononthelocation
andnumberofexplorationwellstobedrilledin2010.
Geologicalanalysisofseismicandpreviousdrillingdatahasconcludedthat
anumberofplaytypesareapparent,includingSirikitstylefans,WichianBuri
stylesandstones,andNaSanunstylevolcanics.
2009 annual rePort 11
oPeratInG and fInanCIal revIeW (Continued)
L52/50 and L53/50 Thailand Surat-Khiensa Basin
(Carnarvon Petroleum 50%, Pearl Oil 50% operator)
TheCompanyhasappliedtotheDepartmentofMineralFuels(“DMF”) inThailandforconcessionrights inpetroleumexplorationand
productionfortwoareasdescribedasBlocksL52/50andL53/50(“theConcessions”)onshoreThailandwithintheSurat-KhiensaBasin.
PearlOil(Petroleum)Ltd(“Pearl”),anindependent
oil and gas company with exploration and
production (E&P) activities focused exclusively
in South East Asia, submitted the bid as
operatoronbehalfofPearlandCarnarvon,each
company participating at a 50% equity level.
Thecombinedareaof the twoblocks is large,
comprising approximately 6,950km2, however
both are lightly explored with only two deep
wellsandlimitedseismicdataavailable.
There has been minimal exploration over the
area and little public knowledge is available
about the Surat-Khiensa Basin, however work
completed to date and Carnarvon’s regional
knowledge suggests this is an areawith good
potentialforhydrocarbonexploration.
Carnarvon and Pearl were together the sole
bidders for this block and the Company
anticipatesawardinlate2009.
Australia
WA-435-P Australia Offshore Northwest Shelf
(Carnarvon Petroleum 100% Operator)
Subsequenttobeingawarded100%ofexplorationpermitWA-435-P,Carnarvonenteredintoaheadsofagreementwithprivateexploration
companyFinderExploration(“Finder”)toswap50%ofCarnarvon’sWA-435-Pfor50%ofthethreenewadjacentFinderpermitsWA-436-P,
WA-437-PandWA-438-P,subjecttoratificationbythegovernmentauthorities.Finderwillassumeoperatorshipofallfourpermits.
The fourpermitsaresituated in thenorth-westernpartof theBedoutSub-basinwithin thegreaterRoebuckBasin,offshoreWestern
Australia.Theblockslieinanunder-exploredareathathasreceivedlittlerecentattention,betweentheprolificCarnarvonBasinhydrocarbon
provincetothesouthwestandtheBrowseBasintothenortheast.ThetownofPortHedlandliesapproximately150kmtothesouthofthe
permitsandBroomelies250kmtothenortheast.Waterdepthsrangefrom35to265metresandthepermitscoveraverylargeareaof
morethan21,000km2(268graticularblocks).
BasinlocationswithinApplicationPermitsL52/50andL53/50
12 Carnarvon Petroleum ltd
oPeratInG and fInanCIal revIeW (Continued)
Onlysixwellshavebeendrilledinthepermitstodate.Thetwowells,Phoenix-1andPhoenix-2,drilled
onthe largePhoenixstructure inWA-435-Pboth intersectedextensivegascolumnswithin lower-
porosity,mid-Triassic reservoirs. In particular, Phoenix-1 recorded110metres of net gas-bearing
section;however,furtherworkisrequiredtodeterminewhetherthegasdiscoveryatPhoenixcould
flowatcommercialrates.A larger,untestedstructure inWA-435-P liesdirectlyontrendwiththe
Phoenixstructure,5to15kmtothesouthwest.FurthertothesoutheastinWA-437-Pliesyetanother
large, untested structure. Regional geology suggests that reservoir quality improves southward
towardtheseprospects,butthismodelwillneedtobeconfirmedbydrilling.TheseTriassicstructures
havesignificantpotentialoftheorderofseveralTcf’sofrecoverablegas,ifexplorationandappraisal
drillingaresuccessful.
Otherviableplaysarerecognisedintheseblocksincludingpossibleoilexplorationpotentialatthe
shallowerCretaceous-aged levels.CarnarvonandFinder intend tocarryoutnumerousstudies to
evaluatethispotential.
TheGovernmentapprovedworkprogrammeforthesepermits,fortheinitialfirmthree-yearterm,
comprises seismic reprocessing, the recording of an aeromagnetic survey and technical studies,
whichwillincludeacompleteanalysisofthegasintersectionsinthePhoenix-1andPhoenix-2wells.
Thesecondthree-yeartermisplannedtoconsistofseismicacquisitionandthedrillingofatleastone
wellineachpermit.Theresultsoftheinitialtechnicalstudieswillbeusedtomodify/acceleratethis
secondperiodworkprogrammeasappropriate.
Carnarvon’sproposednewpermits,offshoreWesternAustralia.
2009 annual rePort 13
oPeratInG and fInanCIal revIeW (Continued)
WA-399 P – Australia Offshore Northwest Shelf
(Carnarvon Petroleum 50% Operator, Rialto Energy 50%)
WA-399-Pwasawardedon7May2007.Thepermitcoversanareaof50km2locatedbetweenthePyreneesandMacedonoilandgas
fieldsandtheLeatherbackoilaccumulation.Carnarvonhascompletedthereprocessingofallavailableseismicoverthepermit(550
km2).Thecurrentworkprogrammerequiresacquisitionof315kmofnew2DseismicandCarnarvonisreviewingvesselavailability
andprices.
EP 424 / EP 110 - Australia Offshore Northwest Shelf
(Carnarvon Petroleum 35%, Strike Oil 40% operator, Pancontinental 25%)
AvariationtothepermittermsofEP424hasbeengrantedfromtheDepartmentofIndustryandResourcestoaltertherequirement
forthedrillingofonewellby13April2011.
Furtherdetailedseismicanalysisof‘amplitudeversusoffset’wascarriedoutbytheoperatorovertheBaniyasProspecttorefinethe
natureofhydrocarbonsexpected.TheBaniyasProspectissituatedonthedownthrownsideoftheFlindersFaultandbrightseismic
amplitudesonthecrestaresimilartotheCyranoandNasutusdiscoverieselsewherealongtrendwhichencounteredagascapon
anoilleg.BaniyasisestimatedtohavepotentialforPmeanprospectiveresourcesof26millionbarrelsoiland56Bcfgas(34million
BarrelsofOilEquivalent).Theseprospectiveresourcesareofaspeculativenatureuntiltheprospecthasbeenevaluatedbydrilling.
Thejointventureisactivelyfarmingoutthedrillingofawellintothisprospect.
NorthWestShelfpermits–locationmap
14 Carnarvon Petroleum ltd
oPeratInG and fInanCIal revIeW (Continued)
reserveassesment
Petroleum Resource Classification, Categorisation and Definitions
CarnarvoncalculatesreservesandresourcesaccordingtotheSPE/WPC/AAPG/SPEE1PetroleumResourceManagementSystem(“SPE-
PRMS”)definitionofpetroleumresources.Thisdefinitionwasfirstpublishedin1997bytheSPE,andinanefforttostandardisereserves
reporting,hasbeenfurtherclarifiedbytheSPE-PRMSin2007.CarnarvonreportsreservesinlinewithASXListingRules.
PRODUCTION
RESERVES
Proved Proved&Probable
Proved,
Probable&
Possible
Commercial
CONTINGENTRESOURCES
Discovered,butnotcurrentlycommercial
PROSPECTIVERESOURCES
Explorationprospectivity
Proved and Probable (2P) Reserves Thailand Carnarvon’sreservesbasehasbeencertifiedbyanindependentreservesauditor.OverthelastfewyearsGaffney,ClineandAssociates
(“GCA”),oneofthelargestindependentreservescertifiersintheworld,hasperformedthisserviceinlinewithendofcalendaryear
requirementsfortheDepartmentofMineralFuels(“DMF”)inThailand.GCAcertified16.6millionbarrelsofoilof2Poilreservesnetto
Carnarvonasat31December2008,whichisanincreaseof46%percentcomparedto31December2007reserves.
NetCarnarvonReserves
Proved
1P
Proved+Probable
2P
Proved+Probable+Possible
3P
GCA31Dec2008 3.72(millionbbls) 16.62(millionbbls) 36.85(millionbbls)
Thisreport isbasedoninformationwhichhasbeencompiledbytheCompany’sChiefOperatingOfficer,MrPhilipHuizenga,whoisa
full-timeemployeeoftheCompany.MrHuizengaisqualifiedinaccordancewithASXListingRule5.11andhasconsentedtotheformand
contextinwhichthisstatementappears.
1 SocietyofPetroleumEngineers (SPE);WorldPetroleumCouncil (WPC);AmericanAssociationofPetroleumGeologist (AAPG)&SocietyofPetroleumEvaluation
Engineers(SPEE)
2009 annual rePort 15
oPeratInG and fInanCIal revIeW (Continued)
Contingent Resources Thailand
In addition to its certified reserves,Carnarvonhas anumberof discoveredoil andgas resourceswhich currently donot classify as
reserves.
NetCarnarvonContingentResource
2C(millionbbls)
NSE-F1 2.5
NSENorthA 5.0
NSE-I1 2.2
BoRangA 3.7
BoRangB 9.7
L44-W 3.6
SiThep(Deep) 5.8
L44-R 2.6
Carnarvon30June2009 35.1
Carnarvonhasanestimated35million
barrels of contingent oil resources.
These resources are not reserves,
because further work is required to
mature them, most notably appraisal
drillingandwell testing.During2008
around2.5millionbblsof contingent
resources were matured into 2P
reserves. Contingent resources have
beenreplenishedbytherecentL44-W,
NSE-I1andNSE-F1oildiscoveries.
Mapshowinglocationofcontingent
resources
16 Carnarvon Petroleum ltd
oPeratInG and fInanCIal revIeW (Continued)
Prospective Resources
UndertheSPE-PRMSdefinitionsprospectiveresourcescanalsobeclassifiedasexplorationresources.
Carnarvonhasagrowingnumberof exploration licences. Theseexploration licencesareevaluatedusing techniques likegravity and
magnetic surveys, geochemical surveys, seismic surveys andbasin analysis. This analysis results in a long list of leads anddrillable
prospects.Onlydrillableprospects,whichhavebeenincludedondrillingschedules,arecategorisedasprospectiveresourcesbyCarnarvon.
Leadsareidentifiedaspotentialhydrocarbonaccumulationsthatwillrequireadditionalstudybeforetheyarematuredtoprospectsand
appearindrillingplans.Itisimportanttorealisethatprospectsandleadscarryexplorationrisks,whichresultinachanceofnotfinding
commercialhydrocarbons.TheserisksareidentifiedbyCarnarvonandhelpmanagementinrankingexplorationactivities.
Atthetimeofwritingthisreport,Carnarvonhasaseriatimofleadsinanumberofexplorationblocks,mostnotablyL20/50,L33/43and
L44/43inThailand,butisstillintheprocessofundertakingadditionalworktoprogressthoseleadstodrillableprospects.Notwithstanding,
anumberofexplorationwellsarescheduledforthelatterpartof2009andfor2010.
growthanDnewventures
Carnarvonhascontinuedtoachievesignificantgrowthfromitssuccessfulexplorationanddevelopmentefforts in itsThailandassets,
L44/43andSW1A.TheseareascontinuetobeaprimaryfocusfortheCompanyandtheyarenowdeliveringsignificantsustainedoil
productionandrevenues.CashflowfromtheseproducingfieldsfacilitatesCarnarvon’spursuitofothernewventureopportunitiestogrow
thecompany.
ThroughtheyearCarnarvonhasaddedfournewexplorationpermitsoffshoreNorthWestShelfAustraliaandisactivelypursuingseveral
otherneartermdrillingopportunities.
Thenewventuresteamhasimplementedastrategytoacquirequalityexplorationacreageandappraisalprojectswithpreferenceforthe
following:
• lowcost,non-operatedinterestswithcompetentpartneroperators
• ontrendwithcommercialoildiscoveries
• necessaryinfrastructureandmarketsinplace
• leveragingCarnarvon’sknowledgeandexpertisetodevelophealthy,long-termrelationshipswithlargeroperators
• organicgrowthaswellasgrowthviamergersandacquisitions
Carnarvonisatanadvancedstageofprogressingseveraladditionalexplorationandappraisalopportunitiestodeliveronthisstrategy
overthenextfewmonths.
2009 annual rePort 17
oPeratInG and fInanCIal revIeW (Continued)
financiaLsummary
TheGroup’srevenuefromcontinuingoperationsfortheyearended30June2009,beingitsshareofthePhetchabunBasinJointVenture
(“JointVenture”)inThailand,was$100,758,000(2008:$63,033,000).
ThehigherA$oil revenue resulted fromCarnarvon’s shareofhigher JointVentureoil salesof1,353,421bbls (2008:702,084bbls),
howeverthiswasoffsetbyareducedoilsalepriceofUS$56.92perbbl(2008:US$82.19).TheweakeningintheA$/US$exchangerate
fromUS$0.96toUS$0.80overthereportingperiodalsohadapositiveimpactonA$revenue.
TheGroup’sprofitafterincometaxfortheyearended30June2009was$36,423,000(2008:$15,651,000profit).Itsshareofthepre
tax(incomeandspecialremuneratorybenefit)cashoperatingprofitoftheJointVentureincreasedto$83,194,000(2008:$52,734,000)
asaresultofimprovedproductionandthelowvariableoperating,transportation,royaltyandsellingcostofperbarrelof$12.95(2008:
$13.87).Depreciationcostperbarrelincreasedto$7.43(2008:$3.78);estimatedfuturecostsofmaintainingexistingproductionhave
beenincluded,effective1July2008,inthedepreciablecostbase.
New venture costs of $963,000 (2008: $973,000) are indicative of the Company’s continued effort to diversify its project base.
Corporateandadministrationcostsfortheyearof$2,909,000(2008:$2,129,000),excludingshare-basedpayments,reflectageneral
increase in corporate costs, including larger office premises, together with staff costs devoted towards expanding the Company’s
technicalcapability.
18 Carnarvon Petroleum ltd
dIreCtorS’ rePort
ThedirectorspresenttheirreporttogetherwiththefinancialreportofCarnarvonPetroleumLimited(“Company”)andoftheGroup,beingtheCompany,itscontrolledentities,andtheGroup’sinterestinjointlycontrolledassets,forthefinancialyearended30June2009,andtheauditor’sreportthereon.
CarnarvonPetroleumLimitedisalistedpubliccompanyincorporatedanddomiciledinAustralia.
Directors
ThenamesanddetailsoftheCompany’sdirectorsinofficeatanytimeduringorsincetheendofthefinancialyearareasfollows.Directorswereinofficeforthisentireperiodunlessotherwisestated.
Peter J LeonhardtChairman
FCA,FAICD(Life)Appointedasadirectoron17March2005andappointedChairmaninApril2005.
Mr Leonhardt is an independent companydirector andadviserwith extensivebusiness, financial and corporate experience.He is aCharteredAccountantandaformerSeniorPartnerwithPricewaterhouseCoopersandManagingPartnerofCoopers&LybrandinWesternAustralia.
DuringthepastthreeyearsMrLeonhardthasservedasadirectorofthefollowinglistedcompanies:CTILogisticsLimited(fromAugust1999);CentrepointAllianceLimited(fromMay2002toJune2009).HeisalsoadirectoroftheWesternAustralianInstituteforMedicalResearch.
MrLeonhardtisamemberoftheAuditCommitteeandtheRemunerationCommittee.
Edward (Ted) P JacobsonChief Executive Officer
B.Sc(HonsGeology)Appointedasadirectoron5December2005.
MrJacobsonisapetroleumgeophysicistwith38years’experienceinpetroleumexplorationprincipallyintheEuropeanNorthSea,SouthEastAsia,SouthAmericaandAustralia.WithinAustraliahehasbeenresponsibleforinitiatinganumberofpetroleumdiscoverieswithintheCooperBasin,BarrowSubBasinandTimorSea.In1986,TedestablishedtheconsultingcompanyExplorationStudyProjectsPtyLtdwhichadvisedcompaniesonnewventureopportunitiesinAustraliaandSouthEastAsiaandassistedincapitalraisingsandcorporateactivity.In1991Tedwasco-founderofDiscoveryPetroleumNLandfrom1996co-founderandtechnicaldirectorofTapOilLtdwhichgrewtoamarketcapitalisationofover$400millionunderhistechnicalleadership.TedretiredfromTapinSeptember2005.
DuringthepastthreeyearsMrJacobsonhasservedasdirectorofthefollowinglistedcompanies:RialtoEnergyLimited(fromJuly2006).MrJacobsonwasalsoadirectorofSmartRichEnergyFinance(Holdings)Ltd(fromJanuary2007toNovember2007),listedontheHongKongStockExchange.
Neil C FearisNon-Executive Director
LL.B(Hons),MAICD,FFinAppointedasadirectoron30November1999.
MrFearishasover32years’experienceasacommerciallawyerintheUKandAustralia.
DuringthepastthreeyearsMrFearishasservedasadirectorofthefollowinglistedcompanies:KrestaHoldingsLimited(from1997);PerseusMiningLimited(from2004);LibertyResourcesLimited(fromJune2007toNovember2008).MrFearisisalsoamemberofseveralprofessionalbodiesassociatedwithcommerceandlaw.
MrFearisisChairmanoftheAuditCommitteeandChairmanoftheRemunerationCommittee.
2009 annual rePort 19
dIreCtorS’ rePort (Continued)
Directors(continueD)
Kenneth P JudgeNon-Executive Director
B.Com,B.Juris,LL.BAppointedasadirectoron1April2005.
Mr.Judgehasextensivelegalandbusinessmanagementexperiencehavingheldanumberofpubliccompanydirectorshipsandhasbeenengagedintheestablishmentorcorporaterestructureoftechnology,mining,andoilandgascompaniesinAustralia,UnitedKingdom,USA,Brazil,Argentina,MexicoandthePhilippines.
Mr. Judge isadirectorandChairmanofBrazilianDiamondsLimited (fromFebruary2001),which is listedonboth theTorontoStockExchangeandtheAIMmarketoftheLondonStockExchangePlc.HeisalsoChairmanofHidefieldGoldPlc(fromOctober2003)andadirectorofGulfsandsPetroleumPlc.(fromOctober2006),bothofwhicharelistedonAIM.HeisalsoadirectorandChairmanofAltoVenturesLtd(fromApril2004)whichislistedontheTSXVentureExchange.
MrJudgeisamemberoftheAuditCommitteeandtheRemunerationCommittee.
companysecretary
MrRobertAndersonwasappointedCompanySecretaryinNovember2005.MrAndersonisaCharteredAccountantwhohaspreviouslyheldcompanysecretarialpositionsinbothASX-listedcompaniesandprivateentities.
Directors’meetings
Thenumberofdirectors’meetingsheldandattendedbyeachofthedirectorsduringthereportingperiodwasasfollows:
(a) (b)PeterLeonhardt 6 6TedJacobson 6 6 NeilFearis 6 6KenJudge 6 6 (a) Numberofmeetingsheldduringperiodofoffice (b) Numberofmeetingsattended
auDitcommittee
Names and qualifications of Audit Committee members
TheCommitteeistoincludeatleast3membersfrom1July2009.CurrentmembersofthecommitteeareNeilFearis(Chairman),PeterLeonhardt,andKenJudge.MrJudgewasappointedamemberon1July2009.QualificationsofAuditCommitteemembersareprovidedintheDirectorssectionofthisdirectors’report.
Audit Committee meetings
ThenumberofAuditCommitteemeetingsheldandattendedbythemembersduringthereportingperiodwasasfollows:
(a) (b) PeterLeonhardt 3 3NeilFearis 3 3
(a) Numberofmeetingsheldduringperiodofoffice (b) Numberofmeetingsattended
20 Carnarvon Petroleum ltd
dIreCtorS’ rePort (Continued)
remunerationcommittee
InAugust2008theBoarddeterminedtheCompanywasofasizetojustifytheexistenceofaRemunerationCommitteethatnowcomprisesNeilFearis(Chairman),PeterLeonhardt,andKenJudge.
Remuneration Committee meetings
ThenumberofRemunerationCommitteemeetingsandthenumberattendedbyeachofthemembersduringthereportingperiodwereasfollows: (a) (b) PeterLeonhardt 2 2NeilFearis 2 2KenJudge 2 2 (a)Numberofmeetingsheldduringperiodofoffice (b)Numberofmeetingsattended
The Remuneration Committee is responsible for the remuneration arrangements for directors and executives of the Company. TheRemunerationCommitteeconsidersremunerationpackagesandpoliciesapplicable to theexecutivedirectors,seniorexecutives,andnon-executivedirectors.Itisalsoresponsibleforshareoptionschemes,theEmployeeSharePlan,incentiveperformancepackages,andretirementandterminationentitlements.remunerationreport
UntilAugust2008theBoarddeterminedremunerationpoliciesandpractices,evaluatedtheperformanceofseniormanagement,andconsideredremunerationforthoseseniormanagers.
The Remuneration Committee now assesses the appropriateness of the nature and amount of remuneration on an annual basis byreferencetoindustryandmarketconditions,andwithregardtotheCompany’sfinancialandoperationalperformance.
Totalnon-executivedirectors’feesareapprovedbyshareholdersandtheBoardisresponsiblefortheallocationofthosefeesamongsttheindividualmembersoftheBoard.
ThevalueofremunerationisdeterminedonthebasisofcosttotheCompanyandtheGroup.
Principles of compensation
Remunerationofdirectorsandexecutivesisreferredtoascompensationthroughoutthisreport.
CompensationlevelsforkeymanagementpersonneloftheCompanyandtheGrouparecompetitivelysettoattractandretainappropriatelyqualifiedandexperienceddirectorsandseniorexecutives.Thedirectorsobtain,whenrequired,independentadviceontheappropriatenessofremunerationpackages,giventrendsincomparativecompaniesbothlocallyandinternationally.
CompensationarrangementsrecognisetherelativelysmallsizeofthestaffandstageofdevelopmentoftheCompanyandincludeamixoffixedandperformancebasedcompensation.Acomponentofshare-basedcompensationmaybeawardedatthediscretionoftheBoard,subjecttoshareholderapprovalwhenrequired.
Compensationstructurestakeintoaccounttheoveralllevelofcompensationforeachdirectorandexecutive,thecapabilityandexperienceof the directors and senior executives, the executive’s ability to control the financial performanceof the relative business segment,theGroup’sperformance(includingearningsandthegrowthinshareprice),andtheamountofanyincentiveswithineachexecutive’sremuneration.
On1August2008theBoardadoptedapolicythatprohibitsthosethatareissuedshare-basedpaymentsaspartoftheirremunerationfromenteringintootherarrangementsthatlimittheirexposuretolossesthatwouldresultfromsharepricedecreases.TheCompanyrequiresallexecutivesanddirectorstosignannualstatementsofcompliancewiththispolicythroughouttheprecedingyear.
2009 annual rePort 21
dIreCtorS’ rePort (Continued)
remunerationreport(continueD)
Principles of compensation (continued)
InconsideringtheGroup’sperformanceandbenefitsforshareholderwealth,theBoardhashadregardtothefollowingindicesinrespectofthecurrentfinancialyearandthepreviousfouryears.Nodividendshavebeenpaidordeclaredduringthisperiod.
30June2005 30June2006 30June2007 30June2008 30June2009 Shareprice $0.018 $0.052 $0.24 $0.53 $0.815
Consolidatednetprofit/(loss)fromcontinuingoperations($000) ($1,007) ($1,246) ($1,542) $15,651 $36,423 ThedirectorsbelievetheincreaseinsharepricesinceJune2005reflectsanumberoffactors,includingtheappointmentofTedJacobsonasChiefExecutiveOfficerinFebruary2006.ThedevelopmentoftheGroup’soilandgasinterestsinThailandsincehisappointmenthasresultedinasubstantialincreaseinproductionandoperationalrevenues,asevidencedbytheoperatingprofitinthecurrentandpriorreportingperiod.
Fixed compensation
Fixedcompensationconsistsofbasecompensationaswellasemployercontributionstosuperannuationfunds.Basecompensationmaybesupplementedbyanelementofshare-basedcompensation.
Therewasnoshare-basedcompensationinthecurrentorpriorreportingperiods,otherthanthatsetoutintheEmployeeSharePlansectionofthisremunerationreport.
Non-executive directors
Totalremunerationforallnon-executivedirectors, lastvoteduponbyshareholdersataGeneralMeetinginNovember2008,isnottoexceed$300,000perannum.
Anon-executivedirector’sbasefeeiscurrently$60,500perannum.TheChairmanreceives$103,500perannum.Non-executivedirectorsdonotreceiveanyperformance-relatedremuneration.Directors’feescoverallmainBoardactivitiesandmembershipofBoardcommittees.TheCompanydoesnothaveanytermsorschemesrelatingtoretirementbenefitsfornon-executivedirectors.
Service contracts
Thecontractduration,periodofnoticeandterminationconditionsforkeymanagementpersonnelareasfollows:
(i) TedJacobson,ChiefExecutiveOfficer,isengagedthrougharolling12monthEmploymentAgreement.TerminationbytheCompanyiswith3months’notice(orpaymentinlieuthereof)andpaymentof9monthsremuneration.TerminationbyMrJacobsoniswith3months’notice.
(ii) RobertAnderson,CompanySecretaryandChiefFinancialOfficer,isengagedthrougharolling12monthConsultancyAgreement.TerminationbytheCompanyiswith6months’noticeorpaymentinlieuthereof.Terminationbytheconsultantiswith3months’notice.
(iii) PhilipHuizenga,ChiefOperatingOfficer,isengagedasanemployee.TerminationbytheCompanyiswith4weeks’noticeorpaymentinlieuthereof.TerminationbyMrHuizengaiswith4weeks’notice.
22 Carnarvon Petroleum ltd
dIreCtorS’ rePort (Continued)
remunerationreport(continueD)
Employee Share Plan
SharesareissuedunderanEmployeeSharePlan(“ESP”),whichhasbeenapprovedbyshareholdersinAnnualGeneralMeeting(“AGM”).
ThepurposeoftheESPistoattract,retainandmotivatethosewhohavebeeninvitedtoparticipateintheESPandtherebyaligntheirinterestswiththoseofothershareholdersasameansofencouragingthemtoensurethatCompanyperformanceincreasesshareholderwealththroughlongtermgrowth.SharesareissuedbasedupontheassessedperformanceofeachpersonagainsttheirjobspecificationsandtherecommendationsoftheChiefExecutiveOfficer,andinthecaseofdirectors,withtheapprovalofshareholders.TherewerenoESPsharesissuedtodirectorsandkeymanagementpersonnelduringthereportingperiod.
2008 numberof issueprice executiveofficers sharesissued issuedate pershare LoanRAAnderson 100,000 07/01/2008 $0.701 $70,100PPHuizenga 100,000 07/01/2008 $0.701 $70,100
Theseissueswerenotsubjecttoaperformanceconditionbutweremadehavingregardtomarketadviceontherelevantbasepackages.Theissuepricewascalculatedbasedonthe5dayweightedaverageclosingpricepriortothedateofoffer.Thepurchaseswerefundedbyinterest-freeloanswithalimitedrecoursesecurityovertheplansharesandsubjecttothedetailedrulesoftheESP.
Analysis of bonuses included in remuneration
Allcashbonusesawardedduringtheperiodandincludedinremuneration,assetoutonpage23,fullyvestedtoeachofthedirectors,namedCompanyexecutives,andkeymanagementpersonnelduringtheperiod.
Directors’ and executive officers’ remuneration (Company and consolidated)
DetailsofthenatureandamountofeachmajorelementoftheremunerationofeachdirectoroftheCompanyandeachofthenamedCompanyandGroupexecutivesreceivingthehighestremunerationaresetoutonthefollowingpage.
Thefairvalueofoptions,includingESPsharestreatedinprincipleasanoptionovertheCompany’sshares,iscalculatedatthedateofgrantusingtheBlack-ScholesOptionPricingModel.SharesissuedundertheESPvestimmediatelyandtheirfairvalueisrecognisedasanexpenseinthecurrentperiod.ThefollowingfactorsandassumptionswereusedindeterminingthefairvalueofESPsharesatgrantdateinthecurrentandpriorreportingperiod:
2008 assumed fairvalue exercise priceofshares expected riskfree Dividendgrantdate expirydate peroption price atgrantdate volatility interestrate yield
07/01/2008 06/01/2011 $0.31 $0.701 $0.701 55% 7.5% 0%
2009 annual rePort 23
dIreCtorS’ rePort (Continued)re
mu
ner
atio
nr
epo
rt(c
on
tin
ueD
)
Dire
ctor
s’ a
nd e
xecu
tive
offic
ers’
rem
uner
atio
n, C
ompa
ny a
nd c
onso
lidat
ed (c
ontin
ued)
sh
ort
term
po
ste
mpl
oym
ent
shar
e-ba
sed
paym
ents
prop
orti
ono
fva
lue
of
sh
ort
term
re
mun
erat
ion
opti
ons
sa
lary
and
ca
sh
supe
rann
uati
on
pe
rfor
man
ce
asa
%o
f
fees
($)
bonu
s($)
co
ntri
buti
ons
($)
shar
es($
)o
ptio
ns($
)to
tal(
$)
rela
ted
%
rem
uner
atio
nN
ame
Dir
ecto
rs
N
on-E
xecu
tive
Mr
PJL
eonh
ardt
(Cha
irman
)
20
09
$96,
750
--
--
$96,
750
--
2008
$8
2,50
0-
--
-$8
2,50
0-
-M
rN
CF
earis
20
09
$57,
750
--
--
$57,
750
--
2008
$5
0,00
0-
--
-$5
0,00
0-
-M
rKP
Judg
e
20
09
$57,
750
--
--
$57,
750
--
2008
$5
0,00
0-
--
-$5
0,00
0-
- ex
ecu
tiv
e
Mr
EPJa
cobs
on
(Chi
efE
xecu
tive
Offi
cer)
2009
$3
45,1
83
$35,
000
$31,
066
--
$411
,249
8.
5%
-20
08
$315
,367
$5
0,00
0$9
,633
-
-$3
75,0
00
13.3
%
-M
rR
AAn
ders
on
(CFO
/C
ompa
nyS
ecre
tary
)
2009
$2
36,2
50
$22,
500
--
-$2
58,7
50
8.7%
-
2008
$2
25,0
00
$26,
214
--
$30,
734
$281
,948
9.
3%
10.9
%
Mr
Phili
pH
uize
nga
(Chi
efO
pera
ting
Offi
cer)
2009
$2
76,1
20
$29,
910
$37,
931
--
$343
,961
8.
7%
-20
08(f
rom
1Ja
nuar
y20
08)
$137
,200
-
$12,
348
-$3
0,73
4$1
80,2
82
-17
.0%
Tota
lcom
pens
atio
n:k
ey
man
agem
entp
erso
nnel
(C
ompa
nya
ndc
onso
lidat
ed)
20
09
$1,0
69,8
03
$87,
410
$68,
997
--
$1,2
26,2
10
2008
$8
60,0
67
$76,
214
$21,
981
-$6
1,46
8$1
,019
,730
D
irect
ors’
fees
are
pai
dor
pay
able
toth
edi
rect
oro
ra
dire
ctor
-rel
ated
ent
ity.
24 Carnarvon Petroleum ltd
dIreCtorS’ rePort (Continued)
remunerationreport(continueD)
Equity instruments
(i) Shares
TherewerenosharesintheCompanyissuedascompensationtokeymanagementpersonnelduringthereportingperiod,otherthantheESPsharestreatedinprincipleasanoptionovertheCompany’ssharesasdescribedunder(ii)below.
(ii) OptionsandESPshares
TherewerenooptionsoversharesorESPshares in theCompany issuedascompensationtokeymanagementpersonnelduringthereportingperiod.Nooptionshavebeenissuedsincetheendofthefinancialyear.
ShareissuesundertheCompany’sESParetreatedinprincipleasanoptionovertheCompany’ssharesandareincludedintheoptiontablesbelow.Theseoptionsareassumedtohavealifeof3years.
Detailsofoptions,includingESPsharestreatedinprincipleasoptions,issuedandvestedtodirectorsandexecutivesareasfollows.Alloptionswereissuedfornilcashconsideration,vestimmediately,andhavebeenrecognisedasanexpenseinthecurrentperiod.
2008 numberof fairvalueper exercise espshares issue optionatissue priceper assumedexecutiveofficers issued date date option expirydate
RAAnderson 100,000 07/01/2008 $0.31 $0.701 06/01/2011PPHuizenga 100,000 07/01/2008 $0.31 $0.701 06/01/2011Thefollowingshareswereissuedontheexerciseofoptionsissuedascompensationinpriorperiods.TheseoptionswereissuedtoDirectorsin2006atatimetheCompanyhadnofull-timeemployees,verylimitedcashresources,andrecognisedtheunusualcontributionoftheDirectors.
2009Directors numberofshares amountpaidpershare
EPJacobson 4,000,000 $0.10 PJLeonhardt 3,000,000 $0.10 NCFearis 2,000,000 $0.10 KPJudge 1,000,000 $0.10
2008Directors numberofshares amountpaidpershare EPJacobson 4,000,000 $0.07 PJLeonhardt 3,000,000 $0.07 KPJudge 2,000,000 $0.07 KPJudge 1,000,000 $0.10
Therearenoamountsunpaidonsharesissuedasaresultoftheexerciseofoptions.Duringthereportingperiodtherewasnoforfeitureorvestingofoptionsissuedinpreviousperiods.Attheendofthereportingperiodtherewerenounvestedoptionsonissue.Alloptionsexpireontheexpirydatebutdonotexpireasaresultoftheterminationoftheholder’sengagementwiththeCompany.
2009 annual rePort 25
dIreCtorS’ rePort (Continued)
remunerationreport(continueD)
Equity instruments (continued)
(ii) OptionsandESPshares(continued)
Themovementduringthereportingperiod,byvalue,ofoptionsoverordinaryshares,includingsharesissuedundertheCompany’sESP,foreachcompanydirectorandcompanyexecutiveandissuedaspartofremunerationisdetailedbelow.TheseshouldbereadinthecontextofthecommentsaboveaboutthestatusoftheCompanyin2006atthetimetheoptionswereissued.
valueofoptions issued exercisedin forfeitedin totalDirectors inyear($) year($) year($) valueinyear($)
EPJacobson - 1,160,000 - 1,160,000PJLeonhardt - 870,000 - 870,000KPJudge - 290,000 - 290,000NCFearis - 580,000 - 580,000 valueofoptions issued exercisedin forfeitedin totalexecutiveofficers inyear($) year($) year($) valueinyear($)
PPHuizenga - 359,000 - 359,000
ThevalueofoptionsissuedintheyearisthefairvalueoftheoptionsatgrantdateusingtheBlack-ScholesOptionPricingModel.
ThevalueofoptionsexercisedduringtheyeariscalculatedasthemarketpriceofsharesoftheCompanyonASXLimitedasatcloseoftradingonthedatetheoptionswereexercisedortheESPloanrepaid,afterdeductingthepricepaidtoexercisetheoptionsorrepaytheloan.
non-auDitservices
Theauditorshavenotperformedanynon-auditservicesoverandabovetheirstatutorydutiesduringthecurrentreportingperiod.
DetailsoftheamountspaidorpayabletotheauditoroftheGroupforauditservicesprovidedduringtheyeararesetoutbelow:
auditservices consolidated2009($)
Auditors of the Company: Auditandreviewoffinancialreports 108,000Directors’interests
Atthedateofthisreport,therelevantinterestsofthedirectorsinsecuritiesoftheCompanyareasfollows:
name ordinaryshares optionsoverordinaryshares
PJLeonhardt 17,000,000 -EPJacobson 30,917,335 -NCFearis 8,400,000 -KPJudge 10,932,855 -
SharesissuedundertheCompany’sESPareincludedundertheheadingOrdinaryShares.
26 Carnarvon Petroleum ltd
dIreCtorS’ rePort (Continued)
shareoptions
Options issued to directors and executives of the Company
TherewerenooptionsoversharesorESPsharesintheCompanyissuedascompensationtodirectorsornamedexecutivesduringorsincetheendofthefinancialyear.
Shares under option
ThefollowingunissuedordinarysharesoftheCompanywereunderoption.TheseexcludeshareissuesmadeundertheCompany’sESP.
exercise numberexpiryDate price 1July2008 issued exercised expired 30June2009 31/03/2009 $0.10 10,000,000 - 10,000,000 - - 10,000,000 - 10,000,000 - -Alloptionsexpireontheexpirydatebutdonotexpireasaresultoftheterminationoftheholder’sengagementwiththeCompany.Optionholdersdonothaveanyright,byvirtueoftheoption,tovoteortoparticipateinanyshareissueoftheCompanyoranyrelatedbodycorporate.Noshareshavebeenissuedasaresultoftheexerciseofoptionssincetheendofthefinancialyear.Therearenoamountsunpaidon theshares issuedasa resultof theexerciseofoptions in the reportingperiod.During the reportingperiod therewasnoforfeitureorvestingofoptionsissuedinpreviousperiods.Attheendofthereportingperiodtherewerenounvestedoptionsonissue.
LikeLyDeveLopmentsThelikelydevelopmentsforthe2010financialyeararecontainedintheoperatingandfinancialreviewassetoutonpages5to17.Thedirectorsareoftheopinionthatfurther informationastothelikelydevelopmentsintheoperationsoftheGroupwouldprejudicetheinterestsoftheCompanyandtheGroupandithasaccordinglynotbeenincluded.
environmentaLreguLationanDperformance
The Group’s oil and gas exploration and development activities are concentrated in Thailand and Western Australia. EnvironmentalobligationsareregulatedunderbothStateandFederalLawinWesternAustraliaandundertheDepartmentofMineralFuelsregulationsinThailand.Nosignificantenvironmentalbreacheshavebeennotifiedbyanygovernmentagencyduringtheyearended30June2009.
DiviDenDs
Nodividendswerepaidduringtheyearandthedirectorsdonotrecommendpaymentofadividendinrespectofthecurrentfinancialyear.
auDitor’sinDepenDenceDecLaration
Theauditor’sIndependenceDeclarationunderSection307CoftheCorporationsActissetoutonpage28andformspartofthedirectors’reportforthefinancialyearended30June2009.
principaLactivities
Duringthecourseofthe2009financialyeartheGroup’sprincipalactivitiescontinuedtobedirectedtowardsoilandgasexploration,developmentandproduction.iDentificationofinDepenDentDirectors
TheindependentdirectorsareidentifiedintheCorporateGovernanceStatementsectionofthisAnnualReportassetoutonpages72to74.
2009 annual rePort 27
dIreCtorS’ rePort (Continued)
significantchangesinstateofaffairs
IntheopinionofthedirectorsnosignificantchangesinthestateofaffairsoftheGroupoccurredduringthecurrentfinancialyearotherthanasoutlinedintheoperatingandfinancialreviewassetoutonpages5to17.
inDemnificationanDinsuranceofDirectorsanDofficers
DuringtheperiodtheCompanypaidapremiumtoinsurethedirectorsandofficersoftheCompanyanditscontrolledentities.Thepolicyprohibitsthedisclosureofthenatureoftheliabilitiescoveredandtheamountofthepremiumpaid.
proceeDingsonBehaLfofthecompany
NopersonhasappliedforleaveofCourttobringproceedingsonbehalfoftheCompanyorinterveneinanyproceedingstowhichtheCompanyisapartyforthepurposeoftakingresponsibilityonbehalfoftheCompanyforalloranypartoftheproceedings.TheCompanywasnotapartytoanysuchproceedingsduringtheyear.
operatinganDfinanciaLreview
AnoperatingandfinancialreviewoftheGroupforthefinancialyearended30June2009issetoutonpages5to17andformspartofthisreport.
inDemnityofDirectorsanDcompanysecretary
DeedsofAccessandIndemnityhavebeenexecutedbytheCompanywitheachofthedirectorsandCompanySecretary.ThedeedsrequiretheCompanytoindemnifyeachdirectorandCompanySecretaryagainstanylegalproceedings,totheextentpermittedbylaw,madeagainst,suffered,paidorincurredbythedirectorsorCompanySecretarypursuantto,orarisingfromorinanywayconnectedwiththedirectororCompanySecretarybeinganofficeroftheCompany.
eventssuBsequenttoreportingDate
On28July2009theCompanyannouncedthat itsapplicationto theAustralianGovernment toacquire100%ofanewoffshoreWestAustralianpermitcoveringapplicationblockWA-435-Phadbeensuccessful.Theapplicationblockissituatedinthenorth-westernpartoftheBedoutSub-basinwithinthegreaterRoebuckBasin.InthesamebiddingroundFinderExploration(“Finder”)wasalsosuccessfulinbeingawarded100%ofthreepermitssurroundingWA-435-P.Subjecttoratificationbythegovernmentauthorities,CarnarvonandFinderhaveenteredintoaheadsofagreementtoswap50%ofCarnarvon’sWA-435-Pfor50%ofthethreenewFinderpermitsWA-436-P,WA-437-PandWA-438-P.Finderwillassumeoperatorshipofallfourpermits.
Noothermatterorcircumstancehasarisensince30June2009thatintheopinionofthedirectorshassignificantlyaffected,ormaysignificantlyaffectinfuturefinancialyears:
(i) theGroup’soperations,or(ii) theresultsofthoseoperations,or(iii) theGroup’sstateofaffairs
rounDingoff
TheCompanyisanentitytowhichASICClassOrder98/100dated10July1998applies.InaccordancewiththatClassOrderamountsinthefinancialreportanddirectors’reporthavebeenroundedofftothenearestthousanddollars,unlessotherwisestated.
Signedinaccordancewitharesolutionofthedirectors.
pJLeonhardtDirector Perth,28August2009
28 Carnarvon Petroleum ltd
audItor’S IndePendenCe deClaratIon
2009 annual rePort 29
InCome StatementSfortheyearenDeD30June2009
consoLiDateD company 2009 2008 2009 2008 notes $000 $000 $000 $000 (restated)
salesrevenuefromcontinuingoperations 100,758 63,033 - -
Otherincome 4 896 318 214 251
Costofsales 5 (27,847) (12,392) - -
Administrativeexpenses (1,445) (1,032) (1,445) (1,032)
Directors’fees (212) (183) (212) (183)
Employeebenefitsexpense (829) (637) (829) (637)
Travelrelatedcosts (424) (311) (424) (311)
Unrealisedforeignexchangegain/(loss) 2,305 (656) 2,759 (1,851)
Newventures (963) (973) (963) (973)
Share-basedpayments (122) (119) (122) (119)
Financecosts (1) 34 (1) -
profitbeforeincometax 72,116 47,082 (1,023) (4,855)
Taxes
Incometaxexpense 9 22,132 16,452 - -
Specialremuneratorybenefit 13,561 14,979 - -
Totaltaxes 35,693 31,431 - -
profit/(loss)fromcontinuingoperations 36,423 15,651 (1,023) (4,855)
profit/(loss)attributabletomembersofthecompany 36,423 15,651 (1,023) (4,855)
Basicearningspersharefromcontinuing
operations(centspershare) 8 5.4 2.4
Dilutedearningspersharefromcontinuing
operations(centspershare) 8 5.4 2.3
The above income statements should be read in conjunction with the accompanying notes to the financial statements.
30 Carnarvon Petroleum ltd
BalanCe SHeetSasat30June2009
consoLiDateD company 2009 2008 2009 2008 notes $000 $000 $000 $000 (restated)
currentassets
Cashandcashequivalents 21(b) 31,099 28,281 3,380 570
Tradeandotherreceivables 10 11,904 12,443 2,730 2,788
Inventories 12 3,865 1,586 - -
Otherassets 13 677 299 415 96
totalcurrentassets 47,545 42,609 6,525 3,454
non-currentassets
Tradeandotherreceivables 10 - - 10,273 12,713
Property,plantandequipment 11 353 172 115 49
Explorationandevaluation 14 1,219 379 438 379
Oilandgasassets 15 49,701 22,078 - -
Otherinvestments 16 - - 1,483 1,483
totalnon-currentassets 51,273 22,629 12,309 14,624
totalassets 98,818 65,238 18,834 18,078
currentliabilities
Tradeandotherpayables 17 6,901 3,368 1,017 531
Employeebenefits 24 49 13 49 13
Incometaxprovision 3,521 9,304 - -
Provisions 18 3,122 14,848 - -
totalcurrentliabilities 13,593 27,533 1,066 544
non-currentliabilities
Deferredtax 19 8,964 3,215 - -
totalnon-currentliabilities 8,964 3,215 - -
totalliabilities 22,557 30,748 1,066 544
netassets 76,261 34,490 17,768 17,534
equity
Issuedcapital 68,090 66,738 68,090 66,738
Reserves (2,215) (6,211) 1,131 1,226
Retainedprofits/(accumulatedlosses) 10,386 (26,037) (51,453) (50,430)
totalequity 76,261 34,490 17,768 17,534
The above balance sheets should be read in conjunction with the accompanying notes to the financial statements.
2009 annual rePort 31
StatementS of CHanGeS In eQuItY fortheyearenDeD30June2009
retained profits/ share-based issued (accumulated translation paymentsgroup capital losses) reserve reserve total $000 $000 $000 $000 $000 (restated)
Balanceat1July2007 65,041 (41,688) (3,383) 1,487 21,457
Sharesissuednetoftransactioncosts 1,226 - - - 1,226
Exchangedifferencesontranslationof
foreignoperations - - (4,054) - (4,054)
Sharebasedpayments 471 - - (261) 210
Profitattributabletomembers
ofCompany - 15,651 - - 15,651
Balanceat30June2008 66,738 (26,037) (7,437) 1,226 34,490
Sharesissuednetoftransactioncosts 996 - - - 996
Exchangedifferencesontranslationof
foreignoperations - - 2,839 - 2,839
Exchangedifferencesonchangein
functionalcurrency - - 1,252 - 1,252
Sharebasedpayments 356 - - (95) 261
Profitattributabletomembers
ofCompany - 36,423 - - 36,423
Balanceat30June2009 68,090 10,386 (3,346) 1,131 76,261
The above statements of changes in equity should be read in conjunction with the accompanying notes to the financial statements.
32 Carnarvon Petroleum ltd
StatementS of CHanGeS In eQuItY fortheyearenDeD30June2009
share-based issued accumulated payments company capital losses reserve total $000 $000 $000 $000
Balanceat1July2007 65,041 (45,575) 1,487 20,953
Sharesissuednetoftransactioncosts 1,226 - - 1,226
Sharebasedpayments 471 - (261) 210
LossattributabletomembersoftheCompany - (4,855) - (4,855)
Balanceat30June2008 66,738 (50,430) 1,226 17,534
Sharesissuednetoftransactioncosts 996 - - 996
Sharebasedpayments 356 - (95) 261
LossattributabletomembersoftheCompany - (1,023) - (1,023)
Balanceat30June2009 68,090 (51,453) 1,131 17,768
The above statements of changes in equity should be read in conjunction with the accompanying notes to the financial statements.
2009 annual rePort 33
StatementS of CaSH floWSfortheyearenDeD30June2009
consoLiDateD company 2009 2008 2009 2008 notes $000 $000 $000 $000
cashflowsfromoperatingactivities
ReceiptsfromcustomersandGSTrecovered 114,038 56,145 221 275
Paymentstosuppliersandemployees (34,238) (13,616) (3,832) (3,153)
Incometaxandspecialremuneratorybenefitpaid (48,177) (3,666) - -
Interestreceived 973 236 291 204
Interestpaid - (8) - -
netcashflowsgeneratedfrom/(usedin)operatingactivities 21(a) 32,596 39,091 (3,320) (2,674)
cashflowsfrominvestingactivities
Explorationanddevelopmentexpenditure (35,550) (17,399) (346) (628)
Jointventurecashassignedtosubsidiary - - (341) -
Cashheldassecurity (429) (3,156) (581) (2,656)
Acquisitionofproperty,plantandequipment (300) (218) (139) (13)
Netrepaymentsfrom/(advancesto)
controlledentities - - 6,366 (1,293)
netcashflows(usedin)/frominvestingactivities (36,279) (20,773) 4,959 (4,590)
cashflowsfromfinancingactivities
Proceedsfromissueofsharecapital 1,000 1,230 1,000 1,230
Paymentofshareissuecosts (4) (3) (4) (3)
ProceedsfromrepaymentofEmployee
SharePlanloans 140 90 140 90
netcashflowsfromfinancingactivities 1,136 1,317 1,136 1,317
net(decrease)/increaseincashandcashequivalents (2,547) 19,635 2,775 (5,947)
cashandcashequivalentsatthebeginningofthefinancialyear 28,281 8,927 570 6,520
Effectofexchangeratefluctuationsoncashand
cashequivalents 5,365 (281) 35 (3)
cashandcashequivalentsattheendofthefinancialyear 21(b) 31,099 28,281 3,380 570
The above statements of cash flows should be read in conjunction with the accompanying notes to the financial statements.
34 Carnarvon Petroleum ltd
noteS to tHe fInanCIal StatementS
1. reportingentity
TheconsolidatedfinancialreportoftheCompanyforthefinancialyearended30June2009comprisestheCompanyanditscontrolledentities(the“Group”)andtheGroup’sinterestinjointlycontrolledassets.
Thefinancialreportwasauthorisedforissuebythedirectorson28August2009.
2. Basisofpreparationofthefinancialreport
Statement of compliance
ThefinancialreportisageneralpurposefinancialreportpreparedinaccordancewithAustralianAccountingStandards(“AASBs”),includingAustralianAccountingInterpretations,otherauthoritativepronouncementsoftheAustralianAccountingStandardsBoard(“AASB”),andtheCorporationsAct2001.
AustralianAccountingStandardssetoutaccountingpoliciesthattheAASBhasconcludedwouldresultinafinancialreportcontainingrelevant and reliable information about transactions, events and conditions to which they apply. Compliance with AustralianAccountingStandardsensuresthatthefinancialstatementsandnotesalsocomplywithInternationalFinancialReportingStandards(“IFRSs”).Material accountingpoliciesadopted in thepreparationof thisfinancial report arepresentedbelow.Theyhavebeenconsistentlyappliedunlessotherwisestated.
Basis of measurement
Thefinancialreportispreparedonahistoricalcostbasis,exceptforavailable-for-salefinancialassetsandfinancialinstrumentsatfairvaluethroughprofitandlosswhicharemeasuredatfairvalue.
Functional and presentation currency
The consolidated financial statements are presented in Australian dollars,which is theCompany’s functional and presentationcurrency.
Use of estimates and judgements
The preparation of the financial report requires management to make judgements, estimates and assumptions that affect theapplicationofaccountingpoliciesandthereportedamountsofassetsandliabilities,incomeandexpenses.Actualresultsmaydifferfromtheseestimates.
Estimatesandunderlyingassumptionsarereviewedonanongoingbasis.Revisionstoaccountingestimatesarerecognizedintheperiodinwhichtheestimateisrevisedandinanyfutureperiodsaffected.
Keyestimate–impairment
TheGroupassessesimpairmentateachreportingdatebyevaluatingconditionsspecifictothegroupthatmayleadtotheimpairmentofassets.Whereanimpairmenttriggerexists,therecoverableamountoftheassetisdetermined.Value-in-usecalculationsperformedinassessingrecoverableamountsincorporateanumberofkeyestimates.
TherewasnotconsideredtobeanyimpairmenttriggeroverthecarryingvalueoftheGroup’sinterestinexplorationandevaluationoroilandgasassetsatthedateofthisreport.
Keyestimate–incomeandcapitalgainstaxes
Judgementisrequiredindetermininganyprovisionforincomeandcapitalgainstaxes.TheGrouprecognizesliabilitiesofanticipatedtaxbasedonestimatesoftaxesdue.Wherethefinaltaxoutcomeofthesemattersisdifferentfromtheamountsthatwereinitiallyrecognised,suchdifferenceswillimpacttheincometaxanddeferredtaxexpenses,assetsorprovisionsintheyearinwhichsuchdeterminationismade.
2009 annual rePort 35
noteS to tHe fInanCIal StatementS (Continued)
2. Basisofpreparationofthefinancialreport(continued)
Use of estimates and judgements (continued)
Keyestimate–specialremuneratorybenefittaxandincometax
TheGroup’sPhetchabunBasinJointVentureissubjecttoThaiincometaxat50%andaspecialremuneratorybenefit(“SRB”)taxonprofits,atslidingscalerates(0%-75%byconcession).
TheSRB,whichistaxdeductibleinthecalculationofThaiincometaxes,involvesahighlydetailedcalculationdoneonaconcessionbyconcessionbasis.Thebasisofthecalculationispetroleumprofits,adjustedforcapitalspent,beingsubjectedtoaslidingscaleSRBratesuchthatprofitsarenottaxeduntilallcapitalhasbeenrecovered.TheslidingscalerateisprincipallydrivenbyproductionandpricingbutissubjecttootheradjustmentssuchaschangesinThailand’sconsumerpriceindex,wholesalepriceindex,cumulativemetresdrilledontheconcession,and,forcertainconcessions,changesintheexchangeratebetweentheThaiBahtandtheUSD.
TheSRBcalculationisperformedandpaidannuallyforeachconcessionatthecalculatedannualrateattheendofeachcalendaryear.Judgementisrequiredindeterminingprovisionswhicharebasedonestimatesofamountsdue.Wherethefinaloutcomeofthosematters isdifferentfromtheamountsthatwereoriginallyrecognised,suchdifferencemayimpactthoseprovisionsintheperiodinwhichsuchadeterminationismade.
Keyestimate–functionalcurrency
ThedeterminationofthefunctionalcurrencyoftheCompany’scontrolledentitiesrequiresconsiderationofanumberoffactors.These factors include thecurrencies thatprimarily influence their salesandcostsand theeconomicenvironment inwhich theentitiesoperate.
Keyestimates–other
Otherareasofjudgementareinthedeterminationofoilreserves,rehabilitationprovisions,capitalisationofexplorationandevaluationcosts,determinationofareasofinterest,andtheunitsofproductionmethodofdepreciation.
3. significantaccountingpolicies
Theaccountingpoliciessetoutbelowhavebeenappliedconsistentlytoallperiodspresentedintheconsolidatedfinancialreport.TheaccountingpolicieshavebeenappliedconsistentlybyallentitiesintheGroup.Certaincomparativeamountshavebeenreclassifiedtoconformtothecurrentyear’spresentation.
(a)Basisofconsolidation
Controlled entities
TheconsolidatedfinancialreportcomprisesthefinancialstatementsoftheCompanyanditscontrolledentities.AcontrolledentityisanyentitycontrolledbytheCompanywherebytheCompanyhasthepowertocontrolthefinancialandoperatingpoliciesofanentitysoastoobtainbenefitsfromitsactivities.All inter-companybalancesandtransactionsbetweenentities intheeconomicentity,includinganyunrealisedprofitsorlosses,havebeeneliminatedonconsolidation.AccountingpoliciesofcontrolledentitieshavebeenchangedwherenecessarytoensureconsistencywiththoseappliedbytheCompany.
Wherecontrolledentitiesenterorleavetheeconomicentityduringtheyear,theiroperatingresultsareincludedorexcludedfromthedatecontrolwasobtainedoruntilthedatecontrolceased.InvestmentsincontrolledentitiesarecarriedatcostintheCompany’sfinancialstatements.
Jointly controlled assets
TheGroup’sshareoftheassets,liabilities,revenueandexpensesofjointventureassetsareincludedinthefinancialstatementsundertheappropriateheadings.
36 Carnarvon Petroleum ltd
noteS to tHe fInanCIal StatementS (Continued)
3. significantaccountingpolicies(continued)
(b)incometaxandspecialremuneratorybenefit
Income tax
Thechargeforcurrentincometaxexpenseisbasedontheresultfortheyearadjustedforanynon-assessableordisalloweditems.Itiscalculatedusingtaxratesthathavebeenenactedoraresubstantivelyenactedbybalancesheetdate.
Deferredtaxisaccountedforusingthebalancesheetliabilitymethodinrespectoftemporarydifferencesarisingbetweenthetaxbasesofassetsandliabilitiesandtheircarryingamountsinthefinancialstatements.Nodeferredincometaxwillberecognisedfromtheinitialrecognitionofanassetorliability,excludingabusinesscombination,wherethereisnoeffectonaccountingortaxableprofitorloss.
Deferredtaxiscalculatedatthetaxratesthatareexpectedtoapplytotheperiodwhentheassetisrealisedorliabilityissettled.Deferredtaxisrecognisedintheincomestatementexceptwhereitrelatestoitemsrecogniseddirectlyinequity,inwhichcaseitisrecognisedinequity.Deferredincometaxassetsarerecognisedfordeductibletemporarydifferencesandunusedtaxlossesonlyifitisprobablethatfuturetaxableamountswillbeavailabletoutilisethosetemporarydifferencesandtaxlosses.Deferredtaxassetsandliabilitiesareoffsetwhentheyrelatetoincometaxesleviedbythesametaxationauthorityandthecompany/groupintendstosettleitscurrenttaxassetsandliabilitiesonanetbasis.
Theamountofbenefitsbroughttoaccountorwhichmayberealisedinthefutureisbasedontheassumptionthatnoadversechangewilloccurinincometaxationlegislationandtheanticipationthattheeconomicentitywillderivesufficientfutureassessableincometoenablethebenefittoberealisedandcomplywiththeconditionsofdeductibility imposedbythelaw.Thecarryingamountofdeferredtaxassetsisreviewedateachbalancedateandonlyrecognisedtotheextentthatsufficientfutureassessableincomeisexpectedtobeobtained.
Special remuneratory benefit
TheGroup’sPhetchabunBasinJointVentureissubjecttoaspecialremuneratorybenefit(“SRB”)taxonprofits,atslidingscalerates(0%-75%byconcession).
TheSRB,whichistaxdeductibleinthecalculationofThaiincometaxes,involvesahighlydetailedcalculationdoneonaconcessionby concession basis. The basis of the calculation is petroleum profits, adjusted for capital spent, being subjected to a slidingscaleSRBratesuchthatprofitsarenottaxeduntilallcapitalhasbeenrecovered.Theslidingscalerate isprincipallydrivenbyproductionandpricingbutissubjecttootheradjustmentssuchaschangesinThailand’sconsumerpriceindex,wholesalepriceindex,cumulativemetresdrilledontheconcession,and,forcertainconcessions,changesintheexchangeratebetweentheThaiBahtandtheUSD.TheSRBcalculationisperformedandpaidannuallyforeachconcessionatthecalculatedannualrateattheendofeachcalendaryear.
TheSRBisconsidered,foraccountingpurposes,tobeataxonincome.
Tax consolidation
CarnarvonPetroleumLimitedand itswholly-ownedAustralian residentcontrolledentities formeda tax-consolidatedgroupwitheffectfrom1July2003andarethereforetaxedasasingleentityfromthatdate.CarnarvonPetroleumLimitedistheheadentityofthetax-consolidatedgroup.Infutureperiodsthemembersofthegroupwill,ifrequired,enterintoataxsharingagreementwherebyeachcompanyinthegroupcontributestotheincometaxpayableinproportiontotheircontributiontothenetprofitbeforetaxofthetaxconsolidatedgroup.
2009 annual rePort 37
noteS to tHe fInanCIal StatementS (Continued)
3. significantaccountingpolicies(continued)
(c)property,plantandequipment
Recognition and measurement
Allproperty,plantandequipmentisstatedatcostlessaccumulateddepreciationandimpairmentlosses.Thecostofanitemalsoincludestheinitialestimateofthecostsofdismantlingandremovinganitemandrestoringthesiteonwhichitislocated.
Subsequentcostsareincludedintheasset’scarryingamountorrecognisedasaseparateasset,asappropriate,onlywhenitisprobablethatfutureeconomicbenefitsassociatedwiththeitemwillflowtothegroupandthecostoftheitemcanbemeasuredreliably. All other repairs andmaintenance are charged to the income statement during the financial period inwhich they areincurred.
Impairment
Thecarryingamountofproperty,plantandequipmentisreviewedateachbalancedatetodeterminewhetherthereareanyobjectiveindicatorsofimpairmentthatmayindicatethecarryingvaluesmaynotberecoverableinwholeorinpart.ImpairmenttestingiscarriedoutinaccordancewithNote3(f).
Whereanassetdoesnotgeneratecashflowsthatarelargelyindependentitisassignedtoacashgeneratingunitandtherecoverableamounttestappliedtothecashgeneratingunitasawhole.
Ifthecarryingvalueoftheassetisdeterminedtobeinexcessofitsrecoverableamount,theassetorcashgeneratingunitiswrittendowntoitsrecoverableamount.
Depreciation
Depreciationonpropertyplantandequipmentiscalculatedonastraight-linebasisoverexpectedusefullifetotheeconomicentitycommencingfromthetimetheassetisheldreadyforuse.Themajordepreciationratesusedforallclassesofdepreciableassetsare:
Property,plantandequipment: 10%to33%
Theassets’residualvaluesandusefullivesarereviewed,andadjustedifappropriate,atleastannually.
Anasset’scarryingamountiswrittendownimmediatelytoitsrecoverableamountiftheasset’scarryingamountisgreaterthanitsestimatedrecoverableamount.
Gainsandlossesondisposalsaredeterminedbycomparingproceedswiththecarryingamount.Thesegainsandlossesareincludedintheincomestatement.
(d)oilandgasassets
Oilandgasassetsincludecoststransferredfromexplorationandevaluationoncetechnicalfeasibilityandcommercialviabilityofanareaofinterestaredemonstrable,togetherwithsubsequentcoststodeveloptheassettotheproductionphase.
Wherethedirectorsdecidethatspecificcostswillnotberecoveredfromfuturedevelopment,thosecostsarechargedtotheincomestatementduringthefinancialperiodinwhichthedecisionismade.
Depreciationofoilandgasassetsiscalculatedonaunitofproductionbasissoastowriteoffcosts,includinganelementoffuturecosts, in proportion to the depletion of the estimated recoverable reserves.Refer toNote (y) for further details on changes inaccountingpolicy.
38 Carnarvon Petroleum ltd
noteS to tHe fInanCIal StatementS (Continued)
3. significantaccountingpolicies(continued)
(e)explorationandevaluation
Explorationandevaluationexpenditureincurredisaccumulatedinrespectofeachidentifiableareaofinterest.ThesecostsareonlycarriedforwardtotheextentthattheGroup’srightsoftenuretotheareaarecurrentandthatthecostsareexpectedtoberecoupedthroughthesuccessfuldevelopmentofthearea,orwhereactivitiesintheareahavenotyetreachedastagethatpermitsreasonableassessmentoftheexistenceofeconomicallyrecoverablereserves.
Eachareaofinterestisassessedforimpairmenttodeterminetheappropriatenessofcontinuingtocarryforwardcostsinrelationtothatareaofinterest.ImpairmenttestingiscarriedoutinaccordancewithNote3(f).
Accumulatedcostsinrelationtoanabandonedareaarewrittenoffinfullagainstprofitintheyearinwhichthedecisiontoabandontheareaismade.
Oncethetechnicalfeasibilityandcommercialviabilityoftheextractionofmineralresourcesinanareaofinterestaredemonstrable,exploration and evaluation costs attributable to that area of interest are first tested for impairment and then reclassified fromexplorationandevaluationtooilandgasassets.
(f)recoverableamountofassetsandimpairmenttesting
Assetsthathaveanindefiniteusefullifearenotsubjecttodepreciationandaretestedannuallyforimpairmentbyestimatingtheirrecoverableamount.
Assetsthataresubjecttodepreciationarereviewedannuallytodeterminewhetherthereisanyindicationofimpairment.Wheresuchanindicatorexists,aformalassessmentofrecoverableamountisthenmade.Wherethisislessthancarryingamount,theassetiswrittendowntoitsrecoverableamount.
Recoverableamountisthegreateroffairvaluelesscoststosellandvalueinuse.Valueinuseisthepresentvalueofthefuturecashflowsexpectedtobederivedfromtheassetorcashgeneratingunit.Inestimatingvalueinuse,apre-taxdiscountrateisusedwhichreflectsthecurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictotheasset.Anyresultingimpairmentlossisrecognisedimmediatelyintheincomestatement.
Forthepurposesofimpairmenttestingassetsaregroupedtogetherintothesmallestgroupofassetsthatgeneratescashinflowsfromcontinuingusethatarelargelyindependentofthecashinflowsofotherassetsorgroupsofassets.
(g)tradereceivables
Tradereceivablesarestatedatfairvalueandsubsequentlymeasuredatamortisedcost,lessimpairmentlosses.ImpairmenttestingiscarriedoutinaccordancewithNote3(f).
(h)provisions
ProvisionsarerecognisedwhentheGrouphasalegalorconstructiveobligation,asaresultofpastevents,forwhichitisprobablethatanoutflowofeconomicbenefitswillresultandthatoutflowcanbereliablymeasured.Provisionsaredeterminedbydiscountingtheexpectedfuturecashflowsatapre-taxdiscountratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyand,whereappropriate,therisksspecifictotheliability.
Restoration costs
AnyprovisionforfuturerestorationandrehabilitationcostsiscapitalisedanddepreciatedinaccordancewiththepolicysetoutinNote3(c).Theunwindingoftheeffectofdiscountingontheprovisionisrecognisedasafinancecost.
2009 annual rePort 39
noteS to tHe fInanCIal StatementS (Continued)
3. significantaccountingpolicies(continued)
(i)investmentsandotherfinancialinstruments
TheGroupdeterminestheclassificationofitsfinancialinstrumentsatinitialrecognitionandre-evaluatesthisdesignationateachreportingdate.
Fairvalueisthemeasurementbasis,withtheexceptionofheld-to-maturityinvestmentsandloansandreceivableswhicharemeasuredatamortisedcost.Fairvalueisinclusiveoftransactioncosts.Changesinfairvalueareeithertakentotheincomestatementortoanequityreserve(referbelow).Amortisedcostistheamountmeasuredatinitialrecognition,lessprincipalrepayments,adjustedforthedifference,ifany,betweeninitialmeasurementandthematurityamountcalculatedusingtheeffectiveinterestmethod,lessanyreductionforimpairment.Theeffectiveinterestmethodistheratethatdiscountsfutureexpectedcashflowsthroughtheexpectedlifeofthefinancialinstrumenttoitsnetcarryingamount.Revisionstoexpectedcashflowswillrequireanadjustmenttothecarryingvaluewithaconsequentialrecognitionofanincomeorexpenseinprofitandloss.
Fairvalueisdeterminedbasedoncurrentbidpricesforallquotedinvestments.Ifthereisnotanactivemarketforafinancialassetfairvalueismeasuredusingestablishedvaluationtechniques.
TheGroupassessesateachbalancedatewhetherthere isobjectiveevidencethatafinancialassetorgroupoffinancialassetsareimpaired.Inthecaseofequitysecuritiesclassifiedasavailable-for-sale,asignificantorprolongeddeclineinthefairvalueofasecuritybelowitscostisconsideredindeterminingwhetherthesecurityisimpaired.Ifanysuchevidenceexiststhecumulativelossisremovedfromequityandrecognisedintheincomestatement.
(i) Financial assets at fair value through profit and loss
Afinancialassetisclassifiedinthiscategoryifacquiredprincipallyforthepurposeofsellingintheshorttermorifsodesignatedbymanagement.Realisedandunrealisedgainsandlossesarisingfromchangesinthefairvalueoftheseassetsareincludedintheincomestatementintheperiodinwhichtheyarise.
(ii) Loans and receivables
Loansand receivablesarenon-derivativefinancialassetswithfixedordeterminablepayments thatarenotquoted inanactivemarketandarestatedatamortisedcostusingtheeffectiveinterestratemethod,lessanyimpairmentlosses.
(iii) Held-to-maturity investments
These investmentshavefixedmaturities,and it is thegroup’s intention tohold these investments tomaturity.Held-to-maturityinvestmentsarestatedatamortisedcostusingtheeffectiveinterestratemethod.
(iv) Available-for-sale financial assets
Availableforsalefinancialassets,comprisingprincipallymarketableequitysecurities,arenon-derivativesthatareeitherdesignatedinthiscategoryornotincludedinanyoftheabovecategories.Available-for-salefinancialassetsarereflectedatfairvalue.Unrealisedgains and losses arising from changes in fair value are taken directly to equity in an available-for-sale investments revaluationreserve.Whensecuritiesclassifiedasavailable-for-salearesoldorimpaired,theaccumulatedfairvalueadjustmentsareincludedintheincomestatementasgainsandlossesfrominvestmentsecurities.
(j)segmentreporting
Abusinesssegmentisagroupofassetsandoperationsengagedinprovidingproductsorservicesthataresubjecttorisksandreturnsthataredifferenttothoseofotherbusinesssegments.
Ageographicalsegmentisengagedinprovidingproductsorserviceswithinaparticulareconomicenvironmentandissubjecttorisksandreturnsthataredifferentfromthoseofsegmentsthatareoperatinginothereconomicenvironments.
40 Carnarvon Petroleum ltd
noteS to tHe fInanCIal StatementS (Continued)
3. significantaccountingpolicies(continued)
(k)foreigncurrency
Functional and presentation currency
Thefunctionalcurrencyofeachofthegroup’sentitiesismeasuredusingthecurrencyoftheprimaryeconomicenvironmentinwhichthatentityoperates(the“functional”currency).TheconsolidatedfinancialstatementsarepresentedinAustraliandollarswhichistheCompany’sfunctionalandpresentationcurrency.
Transactions and balances
Foreigncurrencytransactionsaretranslatedintofunctionalcurrencyusingtheexchangeratesprevailingatthedateofthetransaction.Foreigncurrencymonetaryassetsandliabilitiesaretranslatedattheexchangerateatbalancesheetdate.Non-monetary itemsmeasuredathistoricalcostcontinuetobecarriedattheexchangerateatthedateofthetransaction.
Exchangedifferencesarisingonthetranslationofmonetaryitemsarerecognisedintheincomestatement,exceptwheredeferredinequityasaqualifyingcashflowornetinvestmenthedge.
Translationdifferencesarisingonnon-monetaryitems,suchasequitiesheldatfairvaluethroughprofitandloss,arereportedaspartofthefairvaluegainorloss.Translationdifferencesonnon-monetaryitems,suchasequitiesclassifiedasavailable-for-salefinancialassets,areincludedinthefairvaluereserveinequity.
Foreign operations
ThefinancialperformanceandpositionofforeignoperationswhosefunctionalcurrencyisdifferentfromtheGroup’spresentationcurrencyaretranslatedasfollows:
• assetsandliabilitiesaretranslatedatexchangeratesprevailingatbalancesheetdate• incomeandexpensesaretranslatedataverageexchangeratesfortheperiod
Exchangedifferencesarisingontranslationofforeignoperationsaretransferreddirectlytothegroup’sforeigncurrencytranslationreserveasaseparatecomponentofequity.Thesedifferencesarerecognisedintheincomestatementupondisposaloftheforeignoperation.
(l)Leases
Leasesareclassifiedattheirinceptionaseitheroperatingorfinanceleasesbasedontheeconomicsubstanceoftheagreementsoastoreflecttherisksandbenefitsincidentaltoownership.
Operating leases
Aleasewhereasignificantportionoftherisksandrewardsofownershipareretainedbythelessorareclassifiedasoperatingleases.Paymentsinrelationtooperatingleasesarechargedtotheincomestatementonastraight-linebasisovertheperiodofthelease.
(m)sharecapital
Incrementalcostsdirectlyattributabletoanequitytransactionareshownasadeductionfromequity,netofanyrecognisedincometaxbenefit.
(n)inventories
Inventoriesarestatedatthelowerofcostandnetrealisablevalue.Netrealisablevalueistheestimatedsellingpriceintheordinarycourseofbusinesslessanyestimatedsellingcosts.
Costincludesthosecostsincurredinbringingeachcomponentofinventorytoitspresentlocationandcondition.
2009 annual rePort 41
noteS to tHe fInanCIal StatementS (Continued)
3. significantaccountingpolicies(continued)
(o)employeebenefits
Wages and salaries, annual leave
Provision ismade for theGroup’s liability for employeebenefits arising from services rendered by employees to balancedate.Employeebenefitsthatareexpectedtobesettledwithinoneyearhavebeenmeasuredattheamountsexpectedtobepaidwhentheliabilityissettled,plusrelatedon-costs.
Share based payments – shares and share options
Thefairvalueofsharesandshareoptionsissuedisrecognisedasanexpensewithacorrespondingincreaseinequity.Fairvalueismeasuredatgrantdateandrecognisedovertheperiodduringwhichthegranteesbecomeunconditionallyentitledtothesharesorshareoptions.
Thefairvalueofsharegrantsatgrantdateisdeterminedbythesharepriceatthattime.
ThefairvalueofshareoptionsatgrantdateisdeterminedusingaBlack-Scholesoptionpricingmodelthattakesintoaccounttheexerciseprice,thetermoftheoption,anyvestingandperformancecriteria,thesharepriceatgrantdate,theexpectedpricevolatilityoftheunderlyingshare,theexpecteddividendyieldandtherisk-freerateforthetermoftheoption.
Share based payments – Employee Share Plan
SharebasedcompensationhasbeenprovidedtoeligiblepersonsviatheCarnarvonEmployeeSharePlan(“ESP”),financedbymeansofinterestfreelimitedrecourseloans.UnderAASB2“Share-basedPayments”,theESPsharesaredeemedtobeequitysettled,sharebasedremunerationandtreatedasanin-substancegrantofoptions.
Forlimitedrecourseloansissuedtoeligiblepersonsonorafter1January2005,theGroupisrequiredtorecognisewithintheincomestatementaremunerationexpensemeasuredatthefairvalueofthe“shareoption”inherentintheissuetotheeligibleperson,withacorrespondingincreasetoashare-basedpaymentsreserveinequity.Thefairvalueismeasuredatgrantdateandrecognisedwhentheeligiblepersonbecomesunconditionallyentitledtotheshares,effectivelyongrant.Aloanreceivableisnotrecognised.
Thefairvalueatgrantdateisdeterminedusingapricingmodelthatfactorsinthesharepriceatgrantdate,theexpectedpricevolatilityoftheunderlyingshare,theexpecteddividendyield,andtheriskfreeratefortheassumedtermofthe“option”.Upontheexerciseofthe“option”,thebalanceoftheshare-basedpaymentsreserverelatingtothe“option”istransferredtoissuedcapital.
(p)earningspershare
TheGrouppresentsbasicanddilutedearningspershare(“EPS”)foritsordinaryshares.
BasicEPS is calculatedbydividing theprofit attributable to equityholdersof theCompanyby theweightednumberof sharesoutstandingduringtheperiod.
DilutedEPSisdeterminedbyadjustingtheprofitorlossattributabletoordinaryshareholdersandtheweightedaveragenumberofordinarysharesoutstandingfortheeffectsofallpotentialordinaryshares,whichcompriseshareoptionsissued.
42 Carnarvon Petroleum ltd
noteS to tHe fInanCIal StatementS (Continued)
3. significantaccountingpolicies(continued)
(q)cashandcashequivalents
Cash and cash equivalents comprise cash on hand, deposits held at call with banks, and other short-term highly liquidinvestments.
(r)revenue
Revenuefromthesaleofgoodsismeasuredatthefairvalueoftheconsiderationreceivedorreceivable.
Revenue is recognisedwhenthesignificant risksandrewardsofownershiphavebeentransferredto thebuyer, recoveryof theconsiderationisprobable,andtheamountofrevenuecanbemeasuredreliably.Forthesaleofoilthetransferofrisksandrewardsoccursondeliveryofoiltotherefinery.
(s)goodsandservicestax
Revenues,expensesandassetsarerecognisednetoftheamountofgoodsandservicestax(“GST”),exceptwheretheamountofGSTincurredisnotrecoverablefromtheAustralianTaxOffice.InthesecircumstancestheGSTisrecognisedaspartofthecostofacquisitionoftheassetoraspartoftheexpense.ReceivablesandpayablesinthebalancesheetareshowninclusiveofGST.
Cashflowsarepresentedinthecashflowstatementonagrossbasis,exceptfortheGSTcomponentofinvestingandfinancingactivities,whicharedisclosedasoperatingcashflows.
(t)tradeandotherpayables
Tradeandotherpayablesarestatedatamortisedcost.Theamountsareunsecuredandusuallypaidwithin60daysofrecognition.
(u)financeincomeandexpenses
Interestrevenueonfundsinvestedisrecognisedasitaccrues,usingtheeffectiveinterestratemethod.
Financeexpensescompriseinterestexpenseonborrowingsandtheunwindingofthediscountonprovisions.
(v)royalties
Royaltiesaretreatedastaxationarrangementswhentheyhavethecharacteristicsofatax.Thisisconsideredtobethecasewhentheyareimposedundergovernmentauthorityandtheamountpayableiscalculatedbyreferencetorevenuederived(netofanyallowabledeductions)afteradjustmentforitemscomprisingtemporarydifferences.Forsucharrangements,currentanddeferredtaxisprovidedonthesamebasisasdescribedaboveforotherformsoftaxation.
Obligationsarisingfromroyaltyarrangementsthatdonotsatisfythesecriteriaarerecognisedascurrentprovisionsandincludedinexpenses.
(w)comparativefigures
WhenrequiredbyAccountingStandards,comparativefigureshavebeenadjustedtoconformtochanges inpresentationforthecurrentfinancialyear.
2009 annual rePort 43
noteS to tHe fInanCIal StatementS (Continued)
3. significantaccountingpolicies(continued)
(x)newstandardsandinterpretationsnotyetadopted
Certainnewaccountingstandardsand interpretationshavebeenpublished thatarenotmandatory for30 June2009 reportingperiods.Theconsolidatedentity’sandtheparententity’sassessmentoftheimpactofthesenewstandardsandinterpretationsissetoutbelow.
(i) AASB 8 Operating Segments and AASB 2007-3 Amendments to Australian Accounting Standardsarising from AASB 8 (effective from 1 January 2009).
AASB8willresultinasignificantchangeintheapproachtosegmentreporting,asitrequiresadoptionofa‘managementapproach’toreportingonfinancialperformance.Theinformationbeingreportedwillbebasedonwhatthekeydecisionmakersuseinternallyforevaluatingsegmentperformanceanddecidinghowtoallocateresourcestooperatingsegments.TheconsolidatedentitywilladoptAASB8from1July2009.Itmayresultinanincreaseinthenumberofreportablesegmentspresented.Inaddition,thesegmentswillbereportedinamannerthatismoreconsistentwiththeinternalreportingprovidedtothechiefoperatingdecision-maker.
(ii) Revised AASB 123 Borrowing Costs and AASB 2007-6 Amendments to Australian AccountingStandards arising from AASB 123 (effective from 1 January 2009)
TherevisedAASB123hasremovedtheoptiontoexpenseallborrowingcostsand,whenadopted,willrequirethecapitalisationofallborrowingcostsdirectlyattributabletotheacquisition,constructionorproductionofaqualifyingasset.Therewillbenoimpactonthefinancialreportoftheconsolidatedentity.
(iii) Revised AASB 101 Presentation of Financial Statements and AASB 2007-8 Amendments toAustralian Accounting Standards arising from AASB 101 (effective from 1 January 2009)
TheSeptember2007revisedAASB101requiresthepresentationofastatementofcomprehensiveincomeandmakeschangestothestatementofchangesinequity,butwillnotaffectanyoftheamountsrecognisedinthefinancialstatements.Ifanentityhasmadeapriorperiodadjustmentorhasreclassifieditemsinthefinancialstatements,itwillneedtodiscloseathirdbalancesheet(statementoffinancialposition),thisonebeingasatthebeginningofthecomparativeperiod.Theconsolidatedentitywillapplytherevisedstandardfrom1July2009.
(iv) AASB 2008-1 Amendments to Australian Accounting Standard – Share-based Payments: VestingConditions and Cancellations (effective from 1 January 2009)
AASB2008-1clarifiesthatvestingconditionsareserviceconditionsandperformanceconditionsonlyandthatotherfeaturesofashare-basedpaymentarenotvestingconditions.Italsospecifiesthatallcancellations,whetherbytheentityorbyotherparties,shouldreceivethesameaccountingtreatment.Theconsolidatedentitywillapplytherevisedstandardfrom1July2009,butitisnotexpectedtoaffecttheaccountingfortheconsolidatedentity’sshare-basedpayments.
(v) Revised AASB 3 Business Combinations, AASB 127 Consolidated and Separate FinancialStatements and AASB 2008-3 Amendments to Australian Accounting Standards arising from AASB 3 and AASB 127 (effective 1 July 2009)
TherevisedAASB3continuestoapplytheacquisitionmethodtobusinesscombinations,butwithsomesignificantchanges.Forexample,allpaymentstopurchaseabusinessaretoberecordedatfairvalueattheacquisitiondate,withcontingentpaymentsclassifiedasdebtsubsequentlyremeasuredthroughtheincomestatement.Thereisachoiceonanacquisition-by-acquisitionbasistomeasurethenon-controllinginterestintheacquireeeitheratfairvalueoratthenon-controllinginterest’sproportionateshareoftheacquiree’snetassets.Allacquisition-relatedcostsmustbeexpensed.
The revisedAASB127 requires theeffectsof all transactionswithnon-controlling interests tobe recorded inequity if there isnochangeincontrolandthesetransactionswillnolongerresultingoodwillorgainsandlosses.Thestandardalsospecifiestheaccountingwhencontrolislost.Anyremaininginterestintheentityisremeasuredtofairvalue,andagainorlossisrecognisedinprofitorloss.Theconsolidatedentitywillapplytherevisedstandardsprospectivelytoallbusinesscombinationsandtransactionswithnon-controllinginterestsfrom1July2009.
44 Carnarvon Petroleum ltd
noteS to tHe fInanCIal StatementS (Continued)
3. significantaccountingpolicies(continued)
(x)newstandardsandinterpretationsnotyetadopted(continued)
(vi) AASB 2008-6 Further Amendments to Australian Accounting Standards arising from the AnnualImprovements Project (effective 1 July 2009)
TheamendmentstoAASB5DiscontinuedOperationsandAASB1First-TimeAdoptionofAustralian-Equivalentsto InternationalFinancialReportingStandardsarepartoftheIASB’sannualimprovementsprojectpublishedinMay2008.Theyclarifythatallofasubsidiary’sassetsandliabilitiesareclassifiedasheldforsaleifapartialdisposalsaleplanresultsinlossofcontrol.Relevantdisclosuresshouldbemadeforthissubsidiaryifthedefinitionofadiscontinuedoperationismet.Theconsolidatedentitywillapplytheamendmentsprospectivelytoallpartialdisposalsofsubsidiariesfrom1July2009.
(vii) AASB 2008-7 Amendments to Australian Accounting Standards - Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate (effective 1 July 2009)
InJuly2008,theAASBapprovedamendmentstoAASB1First-timeAdoptionofInternationalFinancialReportingStandardsandAASB127ConsolidatedandSeparateFinancialStatements.Theconsolidatedentitywillapplytherevisedrulesprospectivelyfrom1July2009.Afterthatdate,alldividendsreceivedfrominvestmentsinsubsidiaries,jointlycontrolledentitiesorassociateswillberecognisedasrevenue,eveniftheyarepaidoutofpre-acquisitionprofits,buttheinvestmentsmayneedtobetestedforimpairmentasaresultofthedividendpayment.Furthermore,whenanewintermediateparententityiscreatedininternalreorganisationsitwillmeasureitsinvestmentinsubsidiariesatthecarryingamountsofthenetassetsofthesubsidiaryratherthanthesubsidiary’sfairvalue.
(viii) AASB 2008-8 Amendment to IAS 39 Financial Instruments: Recognition and Measurement (effective 1 July 2009)
AASB 2008-8 amends AASB 139 Financial Instruments: Recognition and Measurement and must be applied retrospectively inaccordancewithAASB108AccountingPolicies,ChangesinAccountingEstimatesandErrors.Theamendmentmakestwosignificantchanges.Itprohibitsdesignatinginflationasahedgeablecomponentofafixedratedebt.Italsoprohibitsincludingtimevalueintheone-sidedhedgedriskwhendesignatingoptionsashedges.Theconsolidatedentitywillapplytheamendedstandardfrom1July2009.Itisnotexpectedtohaveanimpactontheconsolidatedentity’sfinancialstatements.
2009 annual rePort 45
noteS to tHe fInanCIal StatementS (Continued)
3. significantaccountingpolicies(continued)
(y)changeinaccountingpolicy
Theconsolidatedentitychangeditsaccountingpolicyrelatingtothedepreciationofoilandgasassetsforthefinancialyearending30June2009.
Depreciation is now calculated using a unit of production method which amortises capitalised costs carried forward plus theestimatedfuturefielddevelopmentcostsforprovedandprobable(“2P”)reservesoverthelifeofthe2Preserves.Previouslyonlycapitalisedcostswereincludedinthedepreciationcalculation.Thischangehasbeenimplementedasthedirectorsareoftheopinionthatacostbasethatreflectsthefuturecostsofmaintainingcurrentproductionprovidesmorerelevant informationandamoreaccuratecarryingvalueofoilandgasassetsatbalancedate.
Totalcostssubjecttodepletionincluded$62.5millionofestimatedfuturedevelopmentcoststodepletetheprovedandprobablereserves.Sinceanapproveddevelopmentplanhasnotyetbeensanctionedbythejointventure,futurecostshavebeenestimatedbyCarnarvonmanagementbasedonhistoricaldepletionratesofaround500,000bblsperwellandestimatedcostsfordrillingandcompletionofUS$1.5millionperwell.Itisanticipatedthatanapproveddevelopmentplanwillsupersedetheseestimates.
Theaggregateeffectofthechangeinaccountingpolicyontheannualfinancialstatementsisasfollows:
2009 2009 2009 2008 2008 2008 previously adjusted restated previously adjusted restated stated stated $000 $000 $000 $000 $000 $000
Consolidated Incomestatement Costofsales 23,080 4,767 27,847 11,346 1,046 12,392Profitbeforeincometax 76,883 (4,767) 72,116 48,128 (1,046) 47,082Profitafterincometax 38,807 (2,384) 36,423 16,174 (523) 15,651 Balancesheet Oilandgasassets 55,514 (5,813) 49,701 23,124 (1,046) 22,078Deferredtaxliability 11,871 (2,907) 8,964 3,738 (523) 3,215Openingretainedearnings (25,514) (523) (26,037) (41,688) - (41,688) cents cents cents cents cents cents
Basicearningspershare 5.7 (0.3) 5.4 2.4 - 2.4Dilutedearningspershare 5.7 (0.3) 5.4 2.4 (0.1) 2.3 TherewerenoadjustmentstotheCompanyincomestatementorbalancesheetfiguresin2008or2009.
46 Carnarvon Petroleum ltd
noteS to tHe fInanCIal StatementS (Continued)
consoLiDateD company 2009 2008 2009 2008 $000 $000 $000 $000
4. otherincome
Financeincomeonbankdeposits 896 283 214 251 Otherincome - 35 - - 896 318 214 251
5. costofsales
Productionexpenses (3,892) (1,800) - - Royaltyandexcise (7,331) (4,374) - - Transportation (3,827) (1,920) - - Depreciation-developmentcostsand producingassets (10,057) (2,651) - - Selling,generalandadministration (2,740) (1,647) - - (27,847) (12,392) - -
6. otherexpenses
Depreciation–property,plantandequipment (162) (73) (57) (34) Rentalpremises–operatingleases (234) (131) (184) (66)
7. auditors’remuneration
Auditservices: AuditorsoftheCompany 108 78 108 78
8. earningspershare
Thecalculationofbasicanddilutedearningspersharewasbasedonaweightedaveragenumberofsharescalculatedasfollows: 2009 2008 numberofshares
Issuedordinarysharesat1July 672,924,634 657,537,134Effectofsharesissued 583,699 186,849Effectofshareoptionsexercised 2,493,151 6,979,452Weightedaveragenumberofordinaryshares30June(basic) 676,001,484 664,703,435Effectofshareoptionsonissue - 19,163,014Weightedaveragenumberofordinaryshares30June(diluted) 676,001,484 683,866,449
Profitusedincalculatingbasicanddilutedearningspersharefromcontinuingoperations $36,423,000 $15,651,000
2009 annual rePort 47
noteS to tHe fInanCIal StatementS (Continued)
consoLiDateD company 2009 2008 2009 2008 $000 $000 $000 $000
9. incometaxexpense
Numerical reconciliation between pre-tax profit / (loss) and income tax expense / (benefit):
Primafacieincometaxexpense/(benefit)onpre-taxprofit/(loss)at30%(2008:30%) 21,634 14,124 (307) (1,457)
Taxeffectof: Specialremuneratorybenefit (6,781) (7,552) - - Effectofhigheroverseastaxrate 12,988 10,229 - - Foreignexchange(gains)/losses (3,220) - (836) 554 Non-deductibleexpenditure 350 322 350 277 Prioryearlossesrecognised (198) (3,064) - - Prioryeartemporarydifferencesrecognised (3,434) 1,814 - -Currentyeartaxbenefitnotbroughttoaccount 793 579 793 626Incometaxexpenseonpre-taxprofit 22,132 16,452 - -
Currentincometax 16,383 13,237 - -Deferredtax 5,749 3,215 - - 22,132 16,452 - -
Tax Consolidation
Effective1July2003,forthepurposesofAustralianincometaxation,Carnarvonandits100%-ownedcontrolledentitiesformedataxconsolidatedgroup.TheheadentityofthetaxconsolidatedgroupisCarnarvon.
TheimpactofconsolidatingfortaxpurposesisthatCarnarvon’sAustraliancontrolledentitiesaretreatedasdivisionsofCarnarvonratherthanasseparateentitiesfortaxpurposes.Themembersofthegroupwill,ifrequired,enterintoataxsharingarrangementinordertoallocategrouptaxrelatedliabilitiestocontributingmembersonareasonablebasis.Theagreementwillprovidefortheallocationofincometaxliabilitiesbetweenentitiesshouldtheheadentitydefaultonitstaxpaymentobligations.
consoLiDateD company 2009 2008 2009 2008 $000 $000 $000 $000
10. tradeandotherreceivables
Current Tradeandotherreceivables 8,318 9,287 90 132Cashheldassecurity 3,586 3,156 2,640 2,656 11,904 12,443 2,730 2,788
Non-current Amountsreceivablefromcontrolledentities - - 10,966 13,406Provisionfornon-recovery - - (693) (693) - - 10,273 12,713
TheGroup’sexposuretocreditandcurrencyrisksisdisclosedinNote32.
48 Carnarvon Petroleum ltd
noteS to tHe fInanCIal StatementS (Continued)
consoLiDateD company 2009 2008 2009 2008 $000 $000 $000 $000
11. property,plantandequipment
Plant and equipment Cost: Balanceatbeginningoffinancialyear 74 89 - -Additions - 56 - -Transfers (43) - - -Disposals - (63) - -Effectsofmovementsinforeignexchange 11 (8) - -Balanceatendoffinancialyear 42 74 - -
Depreciationandimpairmentlosses: Balanceatbeginningoffinancialyear 67 56 - -Disposals - (3) - -Transfers (43) - - -Depreciationchargeforyear 8 14 - -Balanceatendoffinancialyear 32 67 - -
Carryingamountopening 7 33 - -Carryingamountclosing 10 7 - -
Fixtures and fittingsCost: Balanceatbeginningoffinancialyear 319 204 121 108Additions 271 121 139 13Transfers 43 - - -Disposals (58) - (58) -Effectsofmovementsinforeignexchange 51 (6) - -Balanceatendoffinancialyear 626 319 202 121
Depreciationandimpairmentlosses: Balanceatbeginningoffinancialyear 191 133 72 38Disposals (41) - (42) -Transfers 43 - - -Depreciationchargeforyear 141 58 57 34Balanceatendoffinancialyear 334 191 87 72
Carryingamountopening 128 71 49 70Carryingamountclosing 292 128 115 49
Land and buildingsCost: Balanceatbeginningoffinancialyear 38 - - -Additions 21 38 - -Effectsofmovementsinforeignexchange 6 - - -Balanceatendoffinancialyear 65 38 - -
Depreciationandimpairmentlosses: Balanceatbeginningoffinancialyear 1 - - -Depreciationchargeforyear 13 1 - -Balanceatendoffinancialyear 14 1 - -
Carryingamountopening 37 - - -Carryingamountclosing 51 37 - -
2009 annual rePort 49
noteS to tHe fInanCIal StatementS (Continued)
consoLiDateD company 2009 2008 2009 2008 $000 $000 $000 $000
11. property,plantandequipment(continued)
TotalCost: Balanceatbeginningoffinancialyear 431 293 121 108Additions 292 215 139 13Disposals (58) (63) (58) -Effectsofmovementsinforeignexchange 68 (14) - -Balanceatendoffinancialyear 733 431 202 121
Depreciationandimpairmentlosses: Balanceatbeginningoffinancialyear 259 189 72 38Disposals (41) (3) (42) -Depreciationchargeforyear 162 73 57 34Balanceatendoffinancialyear 380 259 87 72
Carryingamountopening 172 104 49 70Carryingamountclosing 353 172 115 49
12. inventories
Current Rawmaterialsandconsumables 3,865 1,586 - -
13. otherassets
Current Depositsandprepayments 677 299 415 96
14. explorationandevaluation
Cost: Balanceatbeginningoffinancialyear 379 - 379 -Additions 915 379 134 379Assignmentofjointventuretosubsidiary (75) - (75) -Balanceatendoffinancialyear 1,219 379 438 379
15. oilandgasassets
Cost: Balanceatbeginningoffinancialyear 25,340 12,773 - -Additions 31,233 14,475 - -Effectsofmovementsinforeignexchange 6,341 (1,908) - -Balanceatendoffinancialyear 62,914 25,340 - -
Depreciationandimpairmentlosses: Balanceatbeginningoffinancialyear 3,262 644 - -Depreciationchargeforyear 9,951 2,618 - -Balanceatendoffinancialyear 13,213 3,262 - -
Carryingamountopening 22,078 12,129 - -Carryingamountclosing 49,701 22,078 - -
FordetailsofthechangeinoilandgasassetsdepreciationpolicyrefertoNote3(y).
50 Carnarvon Petroleum ltd
noteS to tHe fInanCIal StatementS (Continued)
consoLiDateD company 2009 2008 2009 2008 $000 $000 $000 $000
16. otherinvestments
Non-current Investmentsincontrolledentities–atcost - - 1,483 1,483TheGrouphasthefollowinginterestsinjointventureassets:
Joint venture Principal activities Ownership interest %
Thailand
PhetchabunBasinConcession,Exploration Exploration,developmentand 40%BlocksL44/43andL33/43 productionofhydrocarbons3/2546/60and5/2546/62Concessions
ExplorationBlockL20/50 Explorationforhydrocarbons 50%7/2551/98Concession
Western Australia
EP110&424,CarnarvonBasin Explorationforhydrocarbons 35%WA-399-P,CarnarvonBasin Explorationforhydrocarbons 50%
Summaryfinancialinformationforjointventureassets,asincludedintheconsolidatedbalancesheetandincomestatement,isshownbelow: 2009 2008 $000 $000Currentassets Cashandcashequivalents 27,758 28,130 Tradeandotherreceivables 9,176 9,124 Inventories 3,865 1,586 Otherassets 384 738Totalcurrentassets 41,183 39,578Non-currentassets Property,plantandequipment 238 123 Explorationandevaluation 1,189 363 Oilandgasassets 50,401 22,991Totalnon-currentassets 51,828 23,477Totalassets 93,011 63,055Currentliabilities Tradeandotherpayables 5,889 2,863 Provisions 6,643 24,152Totalcurrentliabilities 12,532 27,015Non-currentliabilities Deferredtax 8,964 3,215Totalnon-currentliabilities 8,964 3,215Totalliabilities 21,496 30,230Netassets 71,515 32,825
Income 100,758 63,033 Expenses (63,313) (44,380)Netprofitaftertax 37,445 18,653
CapitalcommitmentsandcontingentliabilitiesforthejointventuresaredisclosedinNotes22and23respectively.
2009 annual rePort 51
noteS to tHe fInanCIal StatementS (Continued)
consoLiDateD company 2009 2008 2009 2008 $000 $000 $000 $000
17. tradeandotherpayables
Current Tradepayables 2,686 2,352 368 308Non-tradepayablesandaccruedexpenses 4,163 948 597 155Owingtorelatedparties 52 68 52 68 6,901 3,368 1,017 531
TheGroup’sexposuretocurrencyandliquidityriskrelatedtotradeandotherpayablesisdisclosedinNote32.
18. provisions
Current SpecialRemuneratoryBenefit-Thailand 3,122 14,848 - - 3,122 14,848 - -
Non-current Siterestoration: Balanceatbeginningoffinancialyear - 105 - -Provision(reversed)duringtheyear - (105) - -Balanceatendoffinancialyear - - - -
TherearenorestorationprovisionsrequiredinrespectoftheGroup’sactivities.
19. Deferredtax
Recognised deferred tax assets and liabilities
Thenetdeferredtaxliabilityisattributabletothefollowing: Oilandgasassets 11,232 5,395 - -Taxvalueoflossescarryforward (2,268) (2,180) - -Nettaxliability 8,964 3,215 - -
Themovementinthedeferredtaxliabilityduringthereportingperiodhasallbeenrecognisedinincome.
Unrecognised deferred tax assets and liabilities
Deferredtaxassetshavenotbeenrecognisedinrespectofthefollowingitems:
Deductibletemporarydifferences 159 212 459 1,518Taxlosses 2,571 1,631 2,571 1,631 2,730 1,843 3,030 3,149
Thedeductibletemporarydifferencesandtaxlossesdonotexpireundercurrenttaxlegislation.DeferredtaxassetshavenotbeenrecognisedinrespectoftheseitemsbecauseitisnotprobablethatfuturetaxableprofitwillbeavailableagainstwhichtheGroupcanutilisethebenefits.
52 Carnarvon Petroleum ltd
noteS to tHe fInanCIal StatementS (Continued)
20. capitalandreserves
consoLiDateD&company 2009 2008 numberofshares
Issued capital Balanceatbeginningoffinancialyear 672,924,634 657,537,134EmployeeSharePlanissues 750,000 387,500Sharesissuedonexerciseofshareoptions 10,000,000 15,000,000Balanceatendoffinancialyear 683,674,634 672,924,634
consoLiDateD&company 2009 2008 $000 $000
Issued capital Balanceatbeginningoffinancialyear 66,738 65,041EmployeeSharePlanrelatedmovements 216 380EmployeeSharePlanloansrepaid 140 90Sharesissuedonexerciseofshareoptions 1,000 1,230Shareissuetransactioncosts (4) (3)Balanceatendoffinancialyear 68,090 66,738
OrdinaryshareshavetherighttoonevotepershareatmeetingsoftheCompany,toreceivedividendsasdeclaredand,intheeventofawinding-upoftheCompany,toparticipateintheproceedsfromthesaleofallsurplusassetsinproportiontothenumberof,andamountspaidupon,sharesheld.
Translation reserve
MovementsinthetranslationreservearesetoutintheStatementinChangesinEquityonpage31.
Thetranslationreservecomprisesallforeignexchangedifferencesarisingfromthetranslationofthefinancialstatementsofforeignoperationswheretheirfunctionalcurrencyisdifferenttothepresentationcurrencyofthereportingentity.
Share based payments reserve
MovementsinthesharebasedpaymentsreservearesetoutintheStatementsofChangesinEquityonpages31and32.
Thisreserverepresentsthefairvalueatgrantofshareoptionsissued,includingthevalueofsharesissuedundertheCompany’sESP.Thisreserveisreversedagainstissuedcapitalwhensharesareissuedonexerciseoftheoptions,or,inthecaseofthesharesissuedundertheESP,theloanisrepaid.
2009 annual rePort 53
noteS to tHe fInanCIal StatementS (Continued)
consoLiDateD company 2009 2008 2009 2008 $000 $000 $000 $000
21. reconciliationofcashflowsfromoperatingactivities
(a) Cash flows from operating activities
Aftertaxprofit/(loss)fortheperiod 36,423 15,651 (1,023) (4,855)Adjustmentsfor: Equitysettledsharebasedpaymentexpense 122 119 122 119Deferredtaxexpense 5,749 3,215 - -Depreciation 10,114 2,688 57 34Financecostsforrehabilitationprovisions - (39) - -Lossondisposalofproperty,plantandequipment 16 - 16 -Foreignexchange(gains)/losses (2,305) 656 (2,787) 1,851Operatingprofitbeforechangesinworkingcapitalandprovisions: 50,119 22,290 (3,615) (2,851)
Changesinassetsandliabilities: Decrease/(increase)intradeandotherreceivables 2,682 (7,789) 74 (9)(Increase)ininventories (1,972) (604) - -(Increase)/decreaseinotherassets (185) 273 (319) (62)Increaseintradeandotherpayables 150 760 504 239(Decrease)/increaseinprovisionsandemployeebenefits (18,198) 24,161 36 9Netcashflowsgeneratedfrom/(usedin)operatingactivities 32,596 39,091 (3,320) (2,674)
(b) Reconciliation of cash and cash equivalents
Cashatbankandatcall 31,099 28,281 3,380 570
TheGroup’sexposuretointerestrateriskandasensitivityanalysisforfinancialassetsandliabilitiesisdisclosedinNote32.
Restrictedcashof$2,640,000Companyand$3,586,000consolidatedisincludedundertradeandotherreceivables(2008:$2,656,000Companyand$3,156,000consolidated),seeNotes10and23.
54 Carnarvon Petroleum ltd
noteS to tHe fInanCIal StatementS (Continued)
consoLiDateD company 2009 2008 2009 2008 $000 $000 $000 $000
22. capitalandothercommitments (a) Joint venture commitments
Shareofcapitalcommitmentsofjointventureassets: Withinoneyear 1,189 1,721 - -CapitalcommitmentsoftheGrouptojointventureassets: Withinoneyear 2,264 187 2,264 187
(b) Exploration expenditure commitments
DuetothenatureoftheGroup’soperationsinexploringandevaluatingareasofinterest,itisdifficulttoaccuratelyforecastthenatureoramountoffutureexpenditure,althoughitwillbenecessarytoincurexpenditureinordertoretaintheentity’spresentpermitinterests.Expenditurecommitmentsonexplorationpermitscanbereducedbyselectiverelinquishmentofexplorationtenure,bytherenegotiationofexpenditurecommitments,orbyfarmingoutportionsoftheentity’sequity.
Explorationexpenditurecommitmentsforecastbutnotprovidedforinthefinancialstatementsareasfollows:
consoLiDateD company 2009 2008 2009 2008 $000 $000 $000 $000
Lessthanoneyear 4,100 500 4,100 500Betweenoneandfiveyears 1,700 3,000 1,700 3,000 5,800 3,500 5,800 3,500
(c) Capital expenditure commitments
Datalicencecommitments 126 96 126 96
23. contingencies
Thedirectorsareoftheopinionthatprovisionsarenotrequiredinrespectofthesemattersasitisnotprobablethatafuturesacrificeofeconomicbenefitswillberequiredortheamountisnotcapableofreliablemeasurement.
Contingent liabilities not considered remote
a)UnderthetermsofanInvestmentAgreementtheGroupisrequiredtopayapercentageofsalesproceedsfromspecifiedzoneswithintheWichianBuriProductionLicencesIandIIinThailandtoGeminiOilandGasLimited,anindependentoilandnaturalgasinvestmentfund.Thecurrentpercentageis7.5%.
TheGrouphasexpensedUS$85,000inthecurrentperiod(2008:US$371,000).CumulativeamountspaidandpayableatbalancedateunderthetermsofthisagreementareUS$905,000.
2009 annual rePort 55
noteS to tHe fInanCIal StatementS (Continued)
23. contingencies(continued)
Contingent liabilities considered remote
a)ThePhetchabunBasinJointVentureoperation,inwhichtheGrouphasa40%interest,hasissuedbankguaranteesforanamountof40millionThaiBahtassecurityinlieuofbonds.
TheL20/50Jointventure,inwhichtheGrouphasa50%interest,hasissuedbankguaranteesforanamountof20millionThaiBahtassecurityinlieuofbonds.
TheCompanyhasprovidedacashbondofUS$2,125,000totheDepartmentofMineralFuelsinThailandinrespectofitsobligationsfor its 50% interest in the L20/50 concession in Thailand. The bond is secured by a cash deposit of US$2,125,000 held withCompany’sAustralianbank.TheCompanyanditsjointventurepartner,whohasprovidedasimilarguaranteetotheDepartmentofMineralFuels,havesignedaCrossDeedofIndemnityinrespectoftheirrespectiverightsandinterests.
Therestrictedcashheldbythebanksassecurityfortheseguaranteestotaling$3,586,000(2008:$3,156,000)isclassifiedunder“tradeandotherreceivables”.
b)Inaccordancewithnormalpetroleumindustrypractice,theGrouphasenteredintojointventuresandfarminagreementswithotherpartiesforthepurposeofexploringanddevelopingitspetroleumpermitinterests.Ifapartytoajointventuredefaultsanddoesnotcontributeitsshareofjointventureobligations,thentheotherjointventurersareliabletomeetthoseobligations.Inthisevent,theinterestinthepermitheldbythedefaultingpartymayberedistributedtotheremainingjointventurers.
consoLiDateD company 2009 2008 2009 2008 $000 $000 $000 $000
24. employeebenefits
Current: Liabilityforannualleave 49 13 49 13
Share options
Thenumberandweightedaverageexercisepriceofemployeeshareoptionsisasfollows:
weighted weighted average average exercise numberof exercise numberof price options price options 2009 2009 2008 2008
Outstanding1July $0.10 10,000,000 $0.09 20,000,000Exercisedduringtheperiod $0.10 10,000,000 $0.07 10,000,000Outstanding30June - - $0.10 10,000,000Exercisableat30June - - $0.10 10,000,000
Alloptionsonissueat30June2008hadanexercisepriceof$0.10,expiredon31March2009,andwereissuedtodirectorsortheirrelatedparties.
Theweightedaveragesharepriceatthedateofexerciseforemployeeshareoptionsexercisedduringtheperiodwas$0.36(2008:$0.53)
56 Carnarvon Petroleum ltd
noteS to tHe fInanCIal StatementS (Continued)
24. employeebenefits(continued)
Share based payments - Employee Share Plan
UnderthetermsoftheCarnarvonEmployeeSharePlan(“ESP”),asapprovedbyshareholders,theCompanymay,initsabsolutediscretion,makeanofferofordinaryfullypaidsharesintheCompanytoanyeligibleperson,tobefundedbyalimitedrecourseloangrantedbytheCompany.
TheissuepriceisdeterminedbythedirectorsandisnottobelessthantheweightedaveragemarketpriceoftheCompany’ssharesonthefivetradingdayspriortothedateofoffer.Eligiblepersonsreceiveaninterestfreeadvancetoacquiretheshares.
ThemovementsintheESPduringthefinancialyear,includingthoseheldbyKeyManagementPersonnel,wereasfollows:
1July2008 issued repaid 30June2009
Numberofshares 14,852,500 750,000 895,000 14,707,500Loan $1,755,353 $285,750 $139,895 $1,901,208Averageloanpershare $0.12 $0.38 $0.16 $0.13
InaccordancewithAASB2theissueofsharesundertheESPareaccountedforasaninprincipleoption.
ThefairvalueofservicesreceivedinreturnforoptionsforboththeCompanyandGroup,includingsharesissuedundertheESPandvaluedasoptions,ismeasuredbyreferencetothefairvalueofshareoptionsissuedusingtheBlack-Scholesmodel,assetoutbelow.
key key management management other otherfairvalueofshareoptionsand personnel personnel employees employeesrelatedassumptions 2009 2008 2009 2008
Fairvalueatmeasurementdate(cents) - 30.7 11.2to20.8 30.7Sharepriceatdateofissue(cents) - 70.1 26.1to48.5 70.1Exerciseprice(cents) - 70.1 26.1to48.5 70.1Expectedvolatility - 55% 60% 55%Actual/assumedoptionlife - 3years 3years 3yearsExpecteddividends - Nil Nil NilRisk-freeinterestrate - 7.5% 3.5% 7.5%Share-basedexpenserecognised - $61,468 $122,208 $57,627
ThecurrentyearvolatilityisintendedtoreflectthemovementoftheCompany’ssharepricevolatilitytowardsitspeersasitsoilandgasinterestsmature.
FurtherdetailsofsharesandoptionsissuedtodirectorsaresetoutinNote28,andintheRemunerationReportsetoutonpages20to25.
2009 annual rePort 57
noteS to tHe fInanCIal StatementS (Continued)
25. relatedpartydisclosures
Ultimate parent
CarnarvonPetroleumLimitedistheultimateparentcompany.
Wholly-owned group transactions
DuringthereportingperiodtherehavebeentransactionsbetweentheCompanyanditscontrolledentitiesandjointventures.TheCompanyprovidedaccountingandadministrativeservicestoitscontrolledentitiesforwhichitdidnotchargeamanagementfee.
During thefinancial yearended30 June2009net repayments fromcontrolledentities totalled$6,366,000 (2008:net loans tocontrolledentities$1,293,000).
Thecarryingvalueofloanstocontrolledentitiesat30June2009was$10,273,000(2008:$12,713,000)afterprovisionsof$693,000(2008:$693,000).Theseloansareunsecured,non-interestbearing,andhavenofixedtermsofrepayment.
Other related party balances
At30June2009anamountof$52,070(2008:$68,548)is includedinCompanyandconsolidatedtradeandotherpayablesforoutstandingdirectorfeesandexpenses.
26. operatingleases
Leases as lessee
Non-cancellableoperatingleaserentalsarepayableasfollows:
consoLiDateD company 2009 2008 2009 2008 $000 $000 $000 $000
Lessthanoneyear 231 170 163 71Betweenoneandfiveyears 271 12 - - 502 182 163 71
Duringthereportingperiod$371,000wasrecognisedasanexpenseintheconsolidatedincomestatementinrespectofoperatingleases(2008:$344,000).
58 Carnarvon Petroleum ltd
noteS to tHe fInanCIal StatementS (Continued)
27. segmentinformation
SegmentinformationispresentedinrespectoftheGroup’sprimaryformat,geographicalsegments,whichisbasedontheGroup’smanagementandinternalreportingstructure.
Segmentresults,assetsandliabilitiesincludeitemsdirectlyattributabletoasegmentaswellasthosethatcanbeallocatedonareasonablebasis.Inpresentinginformationonthebasisofgeographicalsegments,segmentrevenueisbasedonthegeographicallocationofcustomers,andsegmentassetsarebasedonthegeographicallocationoftheassets.
TheGroupoperatedonebusinesssegmentduringthereportingperiod,beingoilandgasexploration,developmentandproduction.
Geographical Segments (A$000)
australia thailand consolidated 2009 2008 2009 2008 2009 2008 $000 $000 $000 $000 $000 $000
Revenue Sales - - 100,758 63,033 100,758 63,033Other 214 251 682 67 896 318Totalrevenue 214 251 101,440 63,100 101,654 63,351 Segmentresult
Resultfromcontinuingoperations (1,023) (3,001) 37,446 18,652 36,423 15,651Totalsegmentresult (1,023) (3,001) 37,446 18,652 36,423 15,651 Assets Oilandgasassets - - 49,701 22,078 49,701 22,078Property,plantandequipment 115 49 238 123 353 172Other 6,963 3,833 41,801 39,155 48,764 42,988Totalsegmentassets 7,078 3,882 91,740 61,356 98,818 65,238
Liabilities Totalsegmentliabilities 1,066 544 21,491 30,204 22,557 30,478 Othersegmentinformation: Capitalexpenditure 139 13 31,400 14,614 31,539 14,627Depreciation 57 34 10,057 2,657 10,114 2,691
2009 annual rePort 59
noteS to tHe fInanCIal StatementS (Continued)
28. keymanagementpersonneldisclosures
(a) Key management personnel compensation
Keymanagementpersonnelcompensationincludedinemployeebenefitsexpense,directorsemoluments,sharebasedpaymentsandadministrationexpensesisasfollows:
consoLiDateD company 2009($) 2008($) 2009($) 2008($)
Shorttermemployeebenefits 1,157,213 936,281 1,157,213 936,281Post-employmentbenefits 68,997 21,981 68,997 21,981Share-basedpayments - 61,468 - 61,468 1,226,210 1,019,730 1,226,210 1,019,730
Informationregardingindividualdirectorsandexecutives’compensationandsomeequityinstrumentsdisclosures,aspermittedbyCorporationsRegulation2M.3.03,areprovidedintheRemunerationReportsectionofthedirectors’reportassetoutonpages20to25.
Apartfromthedetailsdisclosedinthisnote,nodirectorhasenteredintoamaterialcontractwiththeCompanyortheGroupsincetheendofthepreviousfinancialyearandtherewerenomaterialcontractsinvolvingdirectors’interestsexistingatyearend.
(b) Options and rights over equity instruments
ThemovementduringthereportingperiodinthenumberofoptionsoverordinarysharesintheCompanyheld,directly,indirectlyorbeneficially,byeachkeymanagementperson,includingtheirrelatedparties,isasfollows:
heldat heldatDirectors 1July2008 exercised 30June2009
PJLeonhardt 3,000,000 (3,000,000) -EPJacobson 4,000,000 (4,000,000) -NCFearis 2,000,000 (2,000,000) -KPJudge 1,000,000 (1,000,000) -
heldat heldatDirectors 1July2007 exercised 30June2008
PJLeonhardt 6,000,000 (3,000,000) 3,000,000EPJacobson 8,000,000 (4,000,000) 4,000,000NCFearis 2,000,000 - 2,000,000KPJudge 4,000,000 (3,000,000) 1,000,000
Optionsissuedascompensationvestimmediately.Duringthefinancialyeartherewasnoforfeitureorvestingofoptionsissuedinpreviousperiods.Therewerenooptionsonissuethatwerestilltovestattheendofthereportingperiod.
60 Carnarvon Petroleum ltd
noteS to tHe fInanCIal StatementS (Continued)
28. keymanagementpersonneldisclosures(continued)
(c) Loans to key management personnel and their related parties
Details of loans to keymanagementpersonnel and their relatedparties,whichare all interest free loanswith limited recoursesecurityovertheplansharesprovidedinaccordancewiththeCompany’sEmployeeSharePlan(“ESP”),aresetoutbelow.Theloanstodirectorsweremadein2006inlieuofnormalremunerationatatimetheCompanyhadnofulltimeemployeesandlimitedcashresources.
Balance Balance highestbalance Loaned repaid 1July2008($) 30June2009($) inperiod($) inperiod($) inperiod($)
Directors PJLeonhardt 270,000 270,000 270,000 - -EPJacobson 540,000 540,000 540,000 - -
Executives PPHuizenga 314,100 253,100 314,100 - 61,000RAAnderson 81,065 81,065 81,065 - -
Balance Balance highestbalance Loaned repaid 1July2007($) 30June2008($) inperiod($) inperiod($) inperiod($)
Directors PJLeonhardt 270,000 270,000 270,000 - -EPJacobson 540,000 540,000 540,000 - -
Executives PPHuizenga 244,000 314,100 314,100 70,100 -RAAnderson 101,242 81,065 101,242 70,100 90,277
Detailsregardingtheaggregateofloans,allofwhichareinterestfree,madebytheGrouptokeymanagementpersonnelandtheirrelatedparties,andthenumberofindividualsineachgroup,areasfollows:
opening closing numberin balance($) balance($) groupat30June
2009 1,205,165 1,144,165 42008 911,242 1,205,165 4
MrHuizengawasonlyclassifiedasakeymanagementpersoneffective1January2008,andhisloansarethereforenotincludedinthe1July2007openingbalance.
(d) Other key management personnel transactions
Amountspayabletokeymanagementpersonnelortheirrelatedpartiesatreportingdate inrespectofoutstandingdirectorandconsultingfeesandexpensesareasfollows:
consoLiDateD company 2009 2008 2009 2008
$000 $000 $000 $000Current Tradeandotherpayables 212 68 212 68
2009 annual rePort 61
noteS to tHe fInanCIal StatementS (Continued)
28. keymanagementpersonneldisclosures(continued)
(e) Movements in shares
ThemovementduringthereportingperiodinthenumberofordinarysharesinCarnarvonPetroleumLimitedheld,directly,indirectlyorbeneficially,byeachkeymanagementperson,includingtheirrelatedparties,isasfollows:
awardunder receivedon heldat net employeeshare exerciseof heldat 1July2008 acquired/(sold) plan options 30June2009
DirectorsPJLeonhardt 14,900,000 (900,000) - 3,000,000 17,000,000EPJacobson 28,613,793 (1,696,458) - 4,000,000 30,917,335NCFearis 6,316,186 83,814 - 2,000,000 8,400,000KPJudge 15,568,596 (5,635,741) - 1,000,000 10,932,855
Executives PPHuizenga 2,100,000 (500,000) - - 1,600,000RAAnderson 3,104,441 (1,619,441) - - 1,485,000
awardunder receivedon heldat net employeeshare exerciseof heldat 1July2007 acquired/(sold) plan options 30June2008
DirectorsPJLeonhardt 11,900,000 - - 3,000,000 14,900,000EPJacobson 24,313,793 300,000 - 4,000,000 28,613,793NCFearis 6,316,186 - - - 6,316,186KPJudge 15,068,596 (2,500,000) - 3,000,000 15,568,596
Executives PPHuizenga 2,000,000 - 100,000 - 2,100,000RAAnderson 4,443,490 (1,439,049) 100,000 - 3,104,441
SharesallottedundertheESPwerefundedbyinterest-freeloanswithalimitedrecoursesecurityovertheplansharesandsubjecttothedetailedrulesoftheESP.
InaccordancewithAASB2theissueofsharesundertheESPisaccountedforasaninprincipleoption.Thefairvalueofshareoptions,includingESPsharesissuedandvaluedasoptions,andtheirvaluationassumptionsaresetoutinNote24.
Informationregardingindividualdirectors’andexecutives’compensation,includingcompanyloansusedtofinancethepurchaseoftheESPshares,isprovidedintheRemunerationReportsectionofthedirectors’reportassetoutonpages20to25.
62 Carnarvon Petroleum ltd
noteS to tHe fInanCIal StatementS (Continued)
29. non-keymanagementpersonneldisclosures
Identity of related parties
TheGrouphasarelatedpartyrelationshipwithitscontrolledentities(seeNote30),jointventureassets(seeNote16),andwithitskeymanagementpersonnel(seeNote28).
30. consolidatedentities ownership interest
name countryofincorporation 2009 2008
Company CarnarvonPetroleumLtd
Controlled entities CarnarvonThailandLtd BritishVirginIslands 100% 100%LassocPtyLtd Australia 100% 100%SRLExplorationPtyLtd Australia 100% 100%
InvestmentsincontrolledentitiesaremeasuredatcostinthefinancialstatementsoftheCompany.
31. subsequentevents
On28July2009theCompanyannouncedthatitsapplicationtotheAustralianGovernmenttoacquire100%ofanewoffshoreWestAustralianpermitcoveringapplicationblockWA-435-Phadbeensuccessful.Theapplicationblockissituatedinthenorth-westernpartoftheBedoutSub-basinwithinthegreaterRoebuckBasin.InthesamebiddingroundFinderExploration(“Finder”)wasalsosuccessfulinbeingawarded100%ofthreepermitssurroundingWA-435-P.Subjecttoratificationbythegovernmentauthorities,CarnarvonandFinderhaveenteredintoaheadsofagreementtoswap50%ofCarnarvon’sWA-435-Pfor50%ofthethreenewFinderpermitsWA-436-P,WA-437-PandWA-438-P.Finderwillassumeoperatorshipofallfourpermits.
Noothermatterorcircumstancehasarisensince30June2009thatintheopinionofthedirectorshassignificantlyaffected,ormaysignificantlyaffectinfuturefinancialyears:
(i) theGroup’soperations;or(ii) theresultsofthoseoperations;or(iii) theGroup’sstateofaffairs
2009 annual rePort 63
noteS to tHe fInanCIal StatementS (Continued)
32. financialriskmanagement
TheGroup’sactivitiesexposeittomarketrisk(includingcurrencyrisk,commoditypriceriskandinterestraterisk),creditriskandliquidityrisk.
ThisnotepresentsqualitativeandquantitativeinformationabouttheCompany’sandGroup’sexposuretoeachoftheaboverisks,theirobjectives,policiesandprocedures formanaging risk,and themanagementofcapital. TheBoardofDirectorshasoverallresponsibilityfortheestablishmentandoversightoftheriskmanagementframework.
TheGroup’s overall riskmanagement approach focuseson the unpredictability of financialmarkets and seeks tominimize thepotentialadverseeffectsonthefinancialperformanceoftheGroup.TheGroupdoesnotcurrentlyusederivativefinancialinstrumentstohedgefinancialriskexposuresandthereforeitisexposedtodailymovementsintheinternationaloilprices,exchangerates,andinterestrates.TheGroupusesvariousmethodstomeasuredifferenttypesofrisktowhichitisexposed.Thesemethodsincludesensitivityanalysisinthecaseofinterestrate,foreignexchange,andcommoditypriceriskandageinganalysisforcreditrisk.
TheBoard’spolicyistomaintainastrongcapitalbasesoastomaintaininvestor,creditor,andmarketconfidenceandtosustainfuturedevelopmentof thebusiness.Given the stageof theGroup’sdevelopment there areno formal targets set for returnoncapital.TherewerenochangestotheGroup’sapproachtocapitalmanagementduringtheyear.NeithertheCompanynoranyofitscontrolledentitiesaresubjecttoexternallyimposedcapitalrequirements.
(a) Commodity price risk
CommoditypriceriskistheriskoffinanciallossresultingfrommovementsinthepriceoftheGroup’scommodityoutput,beingcrudeoil.
RevenuesundertheGroup’scontractualarrangementswithitscustomeraredenominatedinUS$, linkedtotheUS$pricesofabasketofoilproducts,andpaidinThaiBahtattheaveragemonthlyexchangerate.TheGroupdoesnotcurrentlyusederivativefinancialinstrumentstohedgecommoditypriceriskandthereforeisexposedtodailymovementsinthepricesoftheseoilproducts.TheCompanyisnotexposedtocommoditypricerisk.Sensitivity analysisAnincreaseof10%intheachievedmonthlyoilsalepricewouldhaveincreasedequityandpre-taxprofitandlossbytheamountsshownbelow.Thisanalysisassumesthatallothervariablesotherthanroyalties,whicharedirectlyrelatedtooilrevenues,remainconstant.Theanalysisisperformedonthesamebasisfor2008:
consoLiDateD company equity profitandloss equity profitandloss $000 $000 $000 $000
30June2009 9,344 9,344 - -30June2008 5,867 5,867 - -
Adecreaseof10%intheachievedmonthlyoilsalepricewouldhavedecreasedequityandpre-taxprofitandlossbytheamountsshownbelow.Thisanalysisassumesthatallothervariablesotherthanroyalties,whicharedirectlyrelatedtooilrevenues,remainconstant.Theanalysisisperformedonthesamebasisfor2008:
consoLiDateD company equity profitandloss equity profitandloss $000 $000 $000 $000
30June2009 (9,344) (9,344) - -30June2008 (5,867) (5,867) - -
64 Carnarvon Petroleum ltd
noteS to tHe fInanCIal StatementS (Continued)
32.financialriskmanagement(continued)
(b) Interest rate risk
ThesignificanceandmanagementoftheriskstotheGroupandtheCompanyisdependentonanumberoffactorsincluding:
• Interestrates(currentandforward)andthecurrenciesthatareheld;• Levelofcashandliquidinvestmentsandtheirterm;• Maturitydatesofinvestments;• Proportionofinvestmentsthatarefixedrateorfloatingrate.
TheGroupmanagestheriskbymaintaininganappropriatemixbetweenfixedandfloatingrateinvestments.
AtthereportingdatetheeffectiveinterestratesofvariablerateinterestbearingfinancialinstrumentsoftheCompanyandtheGroupwereasfollows.Therewerenointerest-bearingfinancialliabilities:
consoLiDateD company 2009 2008 2009 2008
Carrying amount (A$000) Financialassets 31,099 28,281 3,380 570
Weighted average interest rate (%)Financialassets 0.4% 0.25% 2.95% 6.14%
Sensitivity analysisAnincreasein50basispointsfromtheweightedaverageyear-endinterestratesat30Junewouldhaveincreasedequityandprofitandlossbytheamountsshownbelow.Thisanalysisassumesthatallothervariablesremainconstant.Theanalysisisperformedonthesamebasisfor2008:
consoLiDateD company equity profitandloss equity profitandloss $000 $000 $000 $000
30June2009 140 140 17 1730June2008 141 141 3 3
Adecreasein50basispointsfromtheweightedaverageyear-endinterestratesat30Junewouldhavedecreasedequityandprofitandlossbytheamountsshownbelow.Thisanalysisassumesthatallothervariablesremainconstant.Theanalysisisperformedonthesamebasisfor2008:
consoLiDateD company equity profitandloss equity profitandloss $000 $000 $000 $000
30June2009 (47) (47) (17) (17)30June2008 (141) (141) (3) (3)
2009 annual rePort 65
noteS to tHe fInanCIal StatementS (Continued)
32. financialriskmanagement(continued)
(c) Credit risk
Credit risk refers to the risk that a counter party will default on its contractual obligations resulting in a financial loss to theCompanyorGroup,andarisesprincipallyfromtheGroup’sreceivablesfromcustomersandcashdeposits.TheCompanyhasnotradereceivablesatJune2009orJune2008andhasnosignificantconcentrationofcreditrisk.
TheGroup’stradereceivablesatbothJune2009andJune2008areallduefromanentitylocatedinThailandandcontrolledbyitsgovernment.ThisentityhasanappropriatecredithistorywiththeGroup.Therewerenoreceivablesat30June2009or30June2008thatwerepastdue.
Cashtransactionsarelimitedtofinancialinstitutionsconsideredtohaveasuitablecreditrating.
Creditriskfurtherarisesinrelationtofinancialguaranteesgiventocertainparties,refertoNote23.
Exposure to credit risk is considered minimal but is monitored on an ongoing basis. The maximum exposure to credit risk isrepresentedbythecarryingamountofeachfinancialassetinthebalancesheet.
ThecarryingamountoftheGroup’sfinancialassetsrepresentsthemaximumcreditexposure.TheGroup’smaximumexposuretocreditriskatthereportingdatewas:
consoLiDateD company 2009 2008 2009 2008
$000 $000 $000 $000
Carrying amount: Cashandcashequivalents 31,099 28,281 3,380 570Tradeandotherreceivables 11,904 12,443 13,003 15,501 43,003 40,724 16,383 16,071
TheagingoftheGroup’stradereceivablesatreportingdatewas:
gross impairment gross impairment 2009 2009 2008 2008
$000 $000 $000 $000 Notpastdue 7,218 - 9,255 - 7,218 - 9,255 -
Basedonhistoricdefaultrates,theGroupbelievesthatnoimpairmentallowanceisnecessaryinrespectoftradereceivables.
66 Carnarvon Petroleum ltd
noteS to tHe fInanCIal StatementS (Continued)
32. financialriskmanagement(continued)
(d) Currency risk
Currency risk arises from sales, purchases, assets and liabilities that are denominated in a currency other than the functionalcurrenciesoftheentitieswithintheGroup,beingtheA$,THBandUS$.
TheGroupoperatespredominantly inThailandand isexposedtocurrencyriskarising fromvarious foreigncurrencyexposures,mainlywithrespecttotheUS$andThaiBaht(THB).ThefunctionalcurrencyofitsThaioperationschangedfromUS$toTHBfrom1January2009,primarilybecausethetrendinthesourcecurrencyofthemajorityofitscostsfromUS$toTHBwasnotconsideredtemporary.TheeffectofthischangewastoincreaseProperty,PlantandEquipmentandtheTranslationReserveby$1,252,000.
CashreceiptsfromtheThaioperations,whichcomprise100%oftheGrouprevenues,arereceivedinThaiBaht.ThemajorityoftheGroup’spayments,includingThaiSRBandincometax,arealsopayableinTHBwhicheffectivelycreatesanaturalhedge.TheCompany’sforeignexchangeriskpredominantlyresidesinitsUS$loantooneofitscontrolledentities.
TheGroupdoesnotcurrentlyusederivativefinancialinstrumentstohedgeforeigncurrencyriskandthereforeisexposedtodailymovementsinexchangerates.However,theGroupintendstomaintainsufficientTHBcashbalancestomeetitsTHBobligations,inparticularitsSRBandincometaxliabilities.
TheCompanyandGroup’sexposuretoforeigncurrencyriskatbalancedatewasasfollows,basedoncarryingamounts. thB usD gBp a$000 a$000 a$000Consolidated 2009 Cashandcashequivalents 27,405 48 -Tradeandotherreceivables 8,208 - -Tradepayablesandaccruals (5,304) (754) -SRBandincometaxprovisions (6,643) - -Grossbalancesheetexposure 23,666 (706) -
Company 2009 Cashandcashequivalents - 14 -Tradeandotherreceivables - 10,760 -Tradepayablesandaccruals - (11) -Grossbalancesheetexposure - 10,763 -
Consolidated 2008 Cashandcashequivalents 27,634 114 -Tradeandotherreceivables 9,255 - -Tradepayablesandaccruals (1,561) (493) (36)SRBandincometaxprovisions (24,152) - -Grossbalancesheetexposure 11,176 (379) (36)
Company 2008 Tradeandotherreceivables - 13,625 -Tradepayablesandaccruals - (10) (36)Grossbalancesheetexposure - 13,615 (36)
Thefollowingsignificantexchangeratesappliedduringtheyear:
averagerate reportingdatespotrateauDto: 2009 2008 2009 2008
1Thaibaht 0.040 0.036 0.037 0.0311USD 1.36 1.12 1.24 1.04
2009 annual rePort 67
noteS to tHe fInanCIal StatementS (Continued)
32. financialriskmanagement(continued)
(d) Currency risk (continued)
Sensitivity analysis
A10%strengtheningoftheAUDagainsttheUS$forthe6monthsto31December2008andagainsttheTHBforthe6monthsto30June2009,reflectingthechangeinfunctionalcurrencyofthePhetchabunBasinJointVenturefrom1January2009,andagainsttheTHBasat30June2009,wouldhavedecreasedequityandpre-taxprofitandlossbytheamountsshownbelow.Thisanalysisassumesthatallothervariables,inparticularinterestratesandtheexchangeratebetweentheThaiBahtandUSD,remainconstant:
consoLiDateD company equity profitandloss equity profitandloss $000 $000 $000 $000
30June2009 THBandUS$ (7,752) (5,077) (1,232) (1,232)30June2008 USD (3,439) (2,137) (1,237) (1,237)
A10%weakeningoftheAUDagainsttheUS$forthe6monthsto31December2008andagainsttheTHBforthe6monthsto30June2009,reflectingthechangeinfunctionalcurrencyofthePhetchabunBasinJointVenturefrom1January2009,andagainsttheTHBasat30June2009,wouldhaveincreasedequityandpre-taxprofitandlossbytheamountsshownbelow.Thisanalysisassumesthatallothervariables,inparticularinterestratesandtheexchangeratebetweentheThaiBahtandUSD,remainconstant:
consoLiDateD company equity profitandloss equity profitandloss $000 $000 $000 $000
30June2009 THBandUSD 9,412 6,206 1,232 1,23230June 2008 USD 4,203 2,612 1,515 1,515
(e) Fair values
Thefairvaluesoffinancialassetsandfinancialliabilities,togetherwiththeircarryingamountsshowninthebalancesheet,areasfollows:
carrying carrying amount fairvalue amount fairvalue 2009 2009 2008 2008 $000 $000 $000 $000
Consolidated Loansandreceivables 11,904 11,904 12,443 12,443Cashandcashequivalents 31,099 31,099 28,281 28,281Tradeandotherpayables (6,901) (6,901) (3,368) (3,368) 36,102 36,102 37,356 37,356
Company Loansandreceivables 13,003 13,003 15,501 15,501Investmentincontrolledentities 1,483 1,483 1,483 1,483Cashandcashequivalents 3,380 3,380 570 570Tradeandotherpayables (1,017) (1,017) (531) (531) 16,849 16,849 17,023 17,023
ThebasisfordeterminingfairvaluesisdisclosedinNote3(i).
68 Carnarvon Petroleum ltd
noteS to tHe fInanCIal StatementS (Continued)
32. financialriskmanagement(continued)
(f) Liquidity risk
Liquidityrisk is theriskthat theGroupwillnotbeabletomeet itsfinancialobligationsasandwhenthey falldue.TheGroup’sapproachtomanagingthisriskistoensure,asfaraspossible,thatitwillalwayshavesufficientliquiditytomeetitsliabilitieswhendueunder a rangeof financial conditions. Thenet cashflowsarising from its Thai assets are considered to generate sufficientworkingcapitaltoadequatelyaddressthisrisk.
NeithertheCompanynortheGroupcurrentlyhasanyavailablelinesofcredit.
Thefollowingarethecontractualmaturitiesoffinancialliabilities,includingestimatedinterestpaymentsandexcludingtheimpactofanynettingagreements:
carrying contractual 6months 6to12 amount cashflows orless months $000 $000 $000 $000
Consolidated2009
Non-derivative financial liabilities Tradeandotherpayables 6,901 6,901 6,901 -SRBandincometaxprovisions 6,643 6,643 3,521 3,122 13,544 13,544 10,422 3,122
Company2009 Non-derivative financial liabilities Tradeandotherpayables 1,017 1,017 1,017 - 1,017 1,017 1,017 -
Consolidated2008
Non-derivative financial liabilities Tradeandotherpayables 3,368 3,368 3,368 -SRBandincometaxprovisions 24,152 24,152 9,304 14,848 27,520 27,520 12,672 14,848
Company2008
Non-derivative financial liabilities Tradeandotherpayables 531 531 531 - 531 531 531 -
2009 annual rePort 69
dIreCtorS’ deClaratIon
(1) IntheopinionofthedirectorsofCarnarvonPetroleumLimited:
(a) thefinancialstatementsandnotesoftheCompanyandoftheGroupsetoutonpages29to68areinaccordancewiththeCorporationsAct2001,including:
(i) givingatrueandfairviewoftheCompany’sandGroup’sfinancialpositionasat30June2009andoftheirperformance,asrepresentedbytheresultsoftheiroperationsandtheircashflows,forthefinancialyearendedonthatdate;and
(ii) complyingwithAustralianAccountingStandards(includingtheAustralianAccountingInterpretations)andtheCorporationsRegulations2001;and
(b) therearereasonablegroundstobelievethattheCompanywillbeabletopayitsdebtsasandwhentheybecomedueandpayable.
(2) Thisdeclarationhasbeenmadeafterreceivingthedeclarationsrequiredtobemadetothedirectorsinaccordancewithsection
295AoftheCorporationsAct2001forthefinancialperiodending30June2009.
Signedinaccordancewitharesolutionofthedirectors.
pJLeonhardtDirectorPerth,28August2009
70 Carnarvon Petroleum ltd
audIt rePort
2009 annual rePort 71
audIt rePort (Continued)
72 Carnarvon Petroleum ltd
CorPorate GovernanCe Statement
introDuction
TheCompany’sdirectorsarefullycognisantoftheCorporateGovernancePrinciplesandBestPracticeRecommendationspublishedbytheASXCorporateGovernanceCouncil(“CGC”)andhaveadoptedthoserecommendationswheretheyareappropriatetotheCompany’scircumstances.
However,anumberofthoseprinciplesandrecommendationsaredirectedtowardslistedcompaniesconsiderablylargerthanCarnarvon,whosecircumstancesand requirementsaccordinglydiffermarkedly from theCompany’s. Forexample, thenatureof theCompany’soperationsanditslowdirectemployeecountmeanthatanumberoftheboardcommitteesandothergovernancestructuresrecommendedbytheCGCarenotonlyunnecessaryinCarnarvon’scase,buttheeffortandexpenserequiredtoestablishandmaintainthemwould,inthedirectors’view,beanunjustifieddiversionofshareholders’funds.
Carnarvon’sdirectorsareawarethataccordingtooneschoolofthoughtlistedcompanieswillberatedbytheinvestmentcommunityaccordingtotheircompliancewiththeCGC’sBestPracticeRecommendations.However,inthedirectors’viewthatapproachisnotsoundlybased,particularlywhereunquestioningcompliancewiththerecommendationswouldproducemarginalornobenefittoshareholders.
IndischargingitsfunctionsCarnarvon’sboardofdirectorsreceivescompetentlegalandotherprofessionaladvice.Basedonthatadvicetheboardissatisfiedthat,notwithstandingnon-compliancewiththeBestPracticeRecommendations(totheextentnotedbelow),theCompany’s governance structures are appropriate for its circumstances and the board acts at all times in the best interests of theCompanyanditsshareholders.
ThefollowingadditionalinformationabouttheCompany’scorporategovernancepracticesissetoutontheCompany’swebsiteatwww.carnarvonpetroleum.com:
• Corporategovernancedisclosuresandexplanations;• StatementofBoardandmanagementfunctions;• CompositionoftheBoardandnewappointments;• CommitteesoftheBoard;• Summaryofcodeofconductfordirectors;• Summaryofpolicyonsecuritiestrading;• AuditCommitteeCharter;• SummaryofpolicyandproceduresforcompliancewithASXListingRuledisclosurerequirements;• Summaryofarrangementsregardingcommunicationwithandparticipationofshareholders;• SummaryofCompany’sriskmanagementpolicy;and• Corporatecodeofconduct.
skills,experience,expertiseandtermofofficeofeachdirector
Aprofileofeachdirectorcontainingtheapplicableinformationissetoutinthedirectors’report.
statementconcerningavailabilityofindependentprofessionaladvice
Ifadirectorconsidersitnecessarytoobtainindependentprofessionaladvicetoproperlydischargetheresponsibilityofhis/herofficeasadirectorthen,providedthedirectorfirstobtainsapprovalforincurringsuchexpensefromthechairman,theCompanywillpaythereasonableexpensesassociatedwithobtainingsuchadvice.
2009 annual rePort 73
CorPorate GovernanCe Statement (Continued)
explanationsfordeparturesfrombestpracticerecommendations
From1 July2008 to30 June2009 (theReportingPeriod ) theCompanycompliedwitheachof theEssentialCorporateGovernancePrinciples (Note1below)andthecorrespondingBestPracticeRecommendations (Note2below)aspublishedbytheASXCorporateGovernanceCouncil(“ASXPrinciplesandRecommendations”),otherthaninrelationtothemattersspecifiedbelow:
principlereference
recommendationreference
notificationofDeparture explanationforDeparture
2 2.4 AseparateNominationCommitteehasnotbeenformed.
TheBoardconsidersthattheCompanyisnotcurrentlyofasizetojustifytheformationofaNominationCommittee.TheBoardasawholeundertakestheprocessofreviewingtheskillsbaseandexperienceofexistingdirectorstoenableidentificationorattributesrequiredinnewdirectors.WhereappropriateindependentconsultantsareengagedtoidentifypossiblenewcandidatesfortheBoard.
4 4.2 TheAuditCommitteecomprisedtwoindependentdirectors.Anadditionalindependentdirectorwasappointedon1July2009.
InaccordancewithListingRule12.7,theCompanywasnotrequiredtocomplywithRecommendation4.2priortoadmissiontotheASXtop300.
8 8.1 ARemunerationCommitteewasappointedon1August2008.
PriortoitsformationtheBoardconsideredthattheCompanywasnotofasizetojustifytheformationofaRemunerationCommittee.TheBoardasawholeundertooktheroleofthiscommitteepriortoitsformation.
Notes(1)AcopyoftheTenEssentialCorporateGovernancePrinciplesissetoutontheCompany’swebsiteunderthesectionentitled“CorporateGovernance”.(2) A copy of the Best Practice Recommendations is set out on the Company’s website under the section entitled “CorporateGovernance”.
74 Carnarvon Petroleum ltd
CorPorate GovernanCe Statement (Continued)
existenceandtermsofanyschemesforretirementbenefitsfornon-executivedirectors
TheCompanydoesnothaveanytermsorschemesrelatingtoretirementbenefitsfornon-executivedirectors.
company’sremunerationpolicies
TheCompany‘sremunerationpoliciesaresetoutintheRemunerationReportonpages20to25.
TheCompanyhasseparateremunerationpoliciesforexecutiveandnon-executivedirectors.Non-executivedirectorsreceiveafixedfeeand,whenappropriate,shareoptionsorparticipationintheEmployeeShareScheme.
Executivedirectorsreceiveasalaryorfeeand,whenappropriate,shares,shareoptions,orparticipationintheEmployeeShareScheme.
materialbusinessrisks
ManagementhasreportedtotheBoardastotheeffectivenessoftheCompany’smanagementofitsmaterialbusinessrisks.
performanceevaluationoftheBoard,itscommitteesandseniorexecutives
TheBoardreviewsandevaluatestheperformanceoftheBoardanditscommittees,whichinvolvesconsiderationofalltheBoard‘skeyareasofresponsibility.
Aperformanceevaluationofseniorexecutiveswasundertakenduringtheyear,inthecaseoftheChiefExecutivebytheBoard,andinallothercasesbytheChiefExecutiveOfficerandtheChairman.
identificationofindependentdirectors
TheCompany’sindependentdirectorsareconsideredtobePeterLeonhardt,NeilFearis,andKenJudge.
NoneofthesedirectorswasconsideredtohaveamaterialrelationshipwiththeCompanyoranothergroupmemberduringtheReportingPeriodasprofessionaladvisor,consultant,supplier,customer,orthroughanyothercontractualrelationship,nordidtheyhaveanybusinessorotherrelationshipwhichcould,orcouldreasonablybeperceivedto,materiallyinterferewiththedirector’sabilitytoactinthebestinterestsoftheCompany.
TheBoardconsidersmaterialinthiscontexttobewhereanydirector-relatedbusinessrelationshiprepresentsthelesserofatleast5%oftheCompany’sorthedirector-relatedbusiness‘srevenue.
numberofauditcommitteemeetingsandnamesofattendees
ThenumberofAuditCommitteemeetingsandnamesofattendeesissetoutinthedirectors’report.
namesandqualificationsofauditcommitteemembers
ThenamesandqualificationsofAuditCommitteemembersaresetoutinthedirectorsreport.
2009 annual rePort 75
addItIonal SHareHolder InformatIon
AdditionalinformationrequiredbytheASXLimited(“ASX”)ListingRulesandnotdisclosedelsewhereinthisreportissetoutbelow.
a) shareholdingsasat26august2009
Substantial shareholders
ThefollowingsubstantialshareholdernoticesarelodgedwiththeCompany:
NameofShareholder NumberofShares %held
BarclaysGlobalInvestorsAustraliaLimited 36,107,227 5.28
Voting Rights
ThevotingrightsattachingtoOrdinarySharesaregovernedbytheConstitution.Onashowofhandseverypersonpresentwhoisamemberorrepresentativeofamembershallhaveonevoteandonapoll,everymemberpresentinpersonorbyproxyorbyattorneyordulyauthorisedrepresentativeshallhaveonevoteforeachshareheld.Nooptionshaveanyvotingrights.
Twenty Largest Shareholders
nameofshareholder numberofshares %held
HSBCCustodyNominees(Australia)Limited 59,302,913 8.67NationalNomineesLimited 56,695,602 8.29JPMorganNomineesAustraliaLimited 53,743,584 7.86ANZNomineesLimited<CashIncomeA/C> 18,024,980 2.64MrEdwardPatrickJacobson 12,917,903 1.89CiticorpNomineesPtyLimited 11,143,997 1.63PendomerInvestmentsPtyLtd<LawSettlementsFundA/C> 8,400,000 1.23CogentNomineesPtyLimited 8,132,673 1.19JacobsonGeophysicalServicesPtyLtd 8,000,000 1.17MrPeterJamesLeonhardt 7,700,000 1.13ArneInvestmentsPtyLtd 6,710,493 0.98CogentNomineesPtyLimited<SMPAccounts> 6,354,899 0.93MrGregoryJohnMunyard+MrsMariaAnnMunyard+MissCarmenHeleneMunyard<RivieraSuperFundA/C> 6,164,000 0.90GeolynPtyLtd 6,000,000 0.88MrEdwardPatrickJacobson 6,000,000 0.88QueenslandInvestmentCorporation 4,105,911 0.60UBSNomineesPtyLtd 4,105,900 0.60AustralianRewardInvestmentAlliance 4,028,214 0.59AtholSteelPtyLtd 4,000,000 0.59ArneInvestmentsPtyLtd 3,991,906 0.58 295,522,975 43.23
Distribution of equity security holders
numberof numberof sizeofholding shareholders fullypaidshares
1 to 1,000 520 360,3381,001 to 5,000 2,273 7,175,1575,001 to 10,000 1,854 15,712,03410,001 to 100,000 3,576 124,650,381100,001 andover 618 535,776,724 8,841 683,674,634
Thenumberofshareholdersholdinglessthanamarketableparcelofordinarysharesis896.
76 Carnarvon Petroleum ltd
addItIonal SHareHolder InformatIon (Continued)
b) optionholdingsasat26august2009
Therewerenoshareoptionsonissue.
c) on-marketbuyback
Thereisnocurrenton-marketbuyback.
d) scheduleofpermits
Jointventure equitypermit Basin/country partners % operator
SW1A Phetchabun/Thailand Carnarvon 40% PanOrientEnergy PanOrientEnergy 60% L33/43 Phetchabun/Thailand Carnarvon 40% PanOrientEnergy PanOrientEnergy 60% L44/43 Phetchabun/Thailand Carnarvon 40% PanOrientEnergy PanOrientEnergy 60% L20/50 Phitsanulok/Thailand Carnarvon 50% Carnarvon SunResources 50% EP321&EP407 Perth/Australia Carnarvon 2.5%ORRI LatentPetroleumWA-399-P Carnarvon/Australia Carnarvon 50% Carnarvon RialtoEnergy 50%EP110& Carnarvon/Australia Carnarvon 35% StrikeOilEP424 StrikeOil 40% PancontinentalOil andGas 25% WA-345-P Roebuck/ Carnarvon 100% Carnarvon Australia
GroundFloor
1322HayStreet
WestPerthWA6005
Telephone:+61893212665
Facsimile:+61893218867
Email:[email protected]
Website:www.carnarvonpetroleum.com
GroundFloor
1322HayStreet
WestPerthWA6005
Telephone:+61893212665
Facsimile:+61893218867
Email:[email protected]
Website:www.carnarvonpetroleum.com