UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-28608
PETSEC ENERGY LTD
(Translation of registrant's name into English)
LEVEL 13, 1 ALFRED STREET, SYDNEY, NSW 2000, AUSTRALIA
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F. Form 20-F [X] Form 40-F [ ]
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes [ ] No [X]
Certain statements in this report regarding future expectations and plans
of the Company may be regarded as "forward-looking statements" within the
meaning of Section 27A of the USA Securities Act of 1933 and Section 21E of the
USA Securities Exchange Act of 1934. Although the Company believes that its
expectations and plans are based upon reasonable assumptions, it can give no
assurance that its goals will be met. Actual results may vary significantly from
those anticipated due to many factors, including oil and gas prices, operating
hazards, drilling risks, environmental risks and uncertainties in interpreting
engineering and other data relating to oil and gas reservoirs, as well as other
risks discussed in the Company's SEC filings.
Petsec Energy Ltd
and its Controlled Entities
Directors' Report and
Full Financial Report
Year Ended 31 December 2004
The Secretary
Petsec Energy Ltd
PO Box R204
Royal Exchange NSW 1225
61 (2)9247 4605
The Directors of Petsec Energy Ltd ("Petsec") present the annual financial
report of the Company for the year ended 31 December 2004
PRINCIPAL ACTIVITIES
The principal activities of the Company and its controlled entities during the
year were oil and gas exploration and production in the Gulf of Mexico, USA and
exploration in the Beibu Gulf, China.
OPERATING RESULTS
Petsec increased production by 26.7% to 5.7 billion cubic feet of gas equivalent
(Bcfe) during 2004 principally as a result of the commencement of production in
July 2004 from the Company's gas discoveries on the Vermilion 258 leases in the
Gulf of Mexico, USA, which supplemented existing production from West Cameron
343/352 leases.
Total revenue increased by 15% to $55.1 million (2003: $47.9m). Whilst average
net gas prices of US$5.77 per thousand cubic feet of gas (Mcf) over the year
were slightly higher than the previous year (2003: US$ 5.58), revenues were
adversely affected by the 12.7% average appreciation of the Australian dollar
over the US dollar during the year. Net operating profit after tax was $15.8
million (2003: $22.7m) and basic earnings per share of 13.3 cents (2003: 21.5c)
Net operating cashflows increased 12.7 % to $31.0 million (2003: $27.5m) which
together with the proceeds of the December 2003 capital raising of $11.6
million, were largely applied to fund a substantially increased acquisition,
exploration and development programme of $39.8 million (2003: $23.5m) which
included development of the Vermilion 258/244 leases and exploration onshore
Louisiana, and on Block 22/12 in the Beibu Gulf, China.
At the end of the period, Petsec held the equivalent of $12.2 million in cash
(2003: $16.8m).
DIVIDENDS
Directors do not recommend the payment of a dividend for the financial year
ended 31 December 2004. No dividends were paid during the financial year.
REVIEW OF OPERATIONS
Gulf of Mexico, USA
Petsec Energy achieved net production of 5.6 billion cubic feet (Bcf) of gas and
14,936 barrels of oil in the year from the Company's 75% working interest in the
West Cameron 343/352 leases, 83.33% net revenue interest in Vermilion 258 and
adjoining leases, and 7% overriding royalty interest in the Ship Shoal 189/191
leases.
Production of gas from the Vermilion 258 lease commenced in July 2004 from the
two discovery wells drilled in December 2003 and January 2004. Construction of
production facilities at Vermilion 258 was completed in June 2004.
Two development wells were drilled on the Vermilion 258 lease in October 2004
and were brought into production in November 2004 and January 2005 respectively.
A drilling programme of three wells commenced late in 2004 onshore Louisiana.
The first well discovered gas and is being completed for production. The second
well is drilling ahead.
Beibu Gulf, China
Petsec Energy entered a joint venture in 2002, on Block 22/12 which contained
four oil discoveries. The joint venture, in 2002 drilled the Wei 6-12-1 well
which discovered nine metres of oil pay, and completed a 3D-seismic survey over
the block. The seismic survey identified a number of prospects surrounding the
Wei 6.12.1 discovery and to the north of the 12.8.1 oil discovery. The survey
also clearly defined the extent of the 12.8.1(West) and 12.8.2 (East) oil
discoveries.
In 2004 the joint venture drilled three exploration wells, of which the 12.8.3
well was successful in appraising the 12.8.2 (East field). Pre-feasibility
studies were concluded on the 12.8 West and 12.8 East fields jointly with China
National Offshore Oil Company (CNOOC). Feasibility studies have commenced which
contemplates a joint development of the 12.8 West field with CNOOC in 2006 and
possibly the 12.8 East field in 2007.
CHANGES TO STATE OF AFFAIRS
There were no significant changes to the state of affairs of Petsec during the
year.
SIGNIFICANT EVENTS
As at the date of this report, the Directors are not aware of any other matter
or circumstance not otherwise dealt with in this report or the consolidated
financial statements, that has significantly affected, or may significantly
affect, the operations of the consolidated entity, the results of those
operations or the state of affairs of the consolidated entity in subsequent
financial years.
DIRECTORS
The names and particulars of the qualifications and experience of each director
during or since the financial year are:
TERRENCE N. FERN
Chairman and Managing Director
Member of the Audit Committee and the Nomination and Remuneration Committee
Mr. Fern has been a director since 1987 and has over 30 years of extensive
international experience in petroleum and minerals exploration, development and
financing. He holds a Bachelor of Science degree from the University of Sydney
and has followed careers in both exploration geophysics and natural resource
investment. Mr. Fern is also a director of Climax Mining Ltd.
DAVID A. MORTIMER
Non-executive Director
Chairman of the Audit Committee and the Nomination and Remuneration Committee
Mr. Mortimer was appointed to the board in 1985 and has over 35 years of
corporate finance experience and was a senior executive of TNT Limited Group
from 1973 serving as Finance Director and Chief Executive. He retired as its
Chairman in 1997. He is a director of Leighton Holdings Limited, Adsteam Marine
Limited, Virgin Blue Holdings Limited, Macquarie Infrastructure Investment
Management Ltd, Arrow Pharmaceuticals Ltd and is Deputy Chairman of Australia
Post and Chairman of Citect Corporation Limited and Crescent Capital Partners
Limited. Mr. Mortimer holds a Bachelor of Economics degree from the University
of Sydney.
PETER E. POWER
Non-executive Director
Member of the Audit Committee and the Nomination and Remuneration Committee
Dr. Power joined the board in July 1999 and has over 40 years of experience in
petroleum exploration worldwide. Dr. Power has a Bachelor of Science degree from
the University of Sydney and gained his doctorate at the University of Colorado,
USA. He has served as Chairman of the Australian Petroleum Production and
Exploration Association and President of the Australian Geoscience Council. Dr.
Power was Managing Director of Ampolex Limited from 1987 to 1996.
DIRECTORS' INTERESTS
The relevant interest of each director in the share capital of Petsec Energy
Limited as notified in accordance with section 205(G) of the Corporations Act at
the date of this report is as follows:
Options over
Director Ordinary Shares Ordinary Shares
- ----------------- --------------- ---------------
Mr. T.N. Fern 26,785,989 Nil
Mr. D.A. Mortimer 610,068 Nil
Dr. P.E. Power 225,323 Nil
MEETINGS OF DIRECTORS
The Board has a formally constituted Audit Committee and a Nomination and
Remuneration Committee, of which each director is a member. Both committees are
chaired by a non-executive Director. The number of meetings of the Board and
Committees held during the year and attendance by directors were as follows:
Remuneration &
Regular Board Additional Board Audit Committee Nomination
Meetings Meetings Meetings Committee Meetings
Total number held during the year 10 6 4 2
T.N. Fern 10 6 4 2
D.A. Mortimer 10 6 4 2
P.E. Power 10 6 4 2
EVENTS SUBSEQUENT TO BALANCE DATE
No matters or circumstances have arisen since the end of the financial year,
which significantly affect or may significantly affect the operations of the
consolidated entity.
LIKELY DEVELOPMENTS
The Company has drilled a well in the Onshore Louisiana leases which intersected
gas bearing sands and is being completed for production. A second well is
drilling ahead. Drilling at Main Pass 19 and other offshore Louisiana leases
will be undertaken during 2005. The Moonshine onshore Louisiana 3D seismic
survey is expected to be completed during 2005. In China, a feasibility study
into development of the 12-8 West oil field at Block 22/12 is expected to be
concluded by mid 2005, to be followed by a decision regarding the construction
of production facilities.
Information as to other likely developments has not been included in this report
because in the opinion of directors it would prejudice the interests of the
consolidated entity.
DIRECTORS' AND EXECUTIVES' REMUNERATION
The Nomination and Remuneration Committee reviews the remuneration packages of
executive directors and senior executives.
Executive remuneration and other terms of employment are reviewed annually by
the Committee having regard to performance against goals set at the start of the
year, relevant corporate information and where appropriate independent expert
advice.
As well as a base salary, remuneration packages include superannuation,
retirement and termination benefits, performance related bonus and fringe
benefits. Executives are also eligible to participate in equity based
compensation.
Details of the nature and amount of each major element of the remuneration of
each director of the Company and executive officer of the Company and the
consolidated entity receiving the highest remuneration are:
Other Non-Cash Other
Base Emoluments Super-annuation Bonus Benefits Benefits * Compensation Total
--------------- --------------- -------- -------- ---------- ------------ --------
DIRECTORS
Mr T.N. Fern - - - $ 16,477 - $ 460,008 $476,485
Mr D.A. Mortimer $ 50,000 $ 4,500 - - - - $ 54,500
Dr. P.E. Power $ 50,000 $ 4,500 - - - - $ 54,500
EXECUTIVES
Mr R.A. Keogh $ 218,806 - $313,786 $ 17,754 $ 24,269 - $574,615
President, Petsec Energy Inc
Mr P Kallenberger $ 219,043 - $286,065 $ 17,676 $ 22,402 - $545,186
VP, Exploration, PEI
Mr N Fakier $ 184,214 - $243,836 $ 12,528 $ 22,402 - $462,980
VP, Operations, PEI
Ms. F.A. Robertson - - - $ 1,461 - $ 139,405 $140,866
Chief Financial Officer
Mr G.H. Fulcher $ 88,598 $ 10,000 - $ 13,184 $ 2,559 - $114,341
Company Secretary
*Represents the imputed value for the year of executive options, calculated in
accordance with ASIC guidelines using a Black-Scholes valuation. These values
are then adjusted using methodology as set out in AASB 1046 to allow for
performance hurdles and vesting periods. In accordance with ASIC Guidelines
released on 28 June 2004, the valuation of an option is allocated equally over
the period from grant date to vesting date. The following key assumptions have
been adopted: risk free rate of return range of 5.05% - 5.525%, volatility of
share price range of 49.5% - 86.90%.
SHARE OPTIONS
There are on issue 3,638,000 options over ordinary shares in Petsec Energy Ltd,
all of which are employee options exercisable at prices ranging from $0.30 to
$1.25 per share expiring at various dates between 1 June 2007 and 31 July 2009
dependent on share price hurdles ranging from $0.40 to $2.75 being achieved on
the Australian Stock Exchange at the date of exercise. During the year 640,000
options were exercised, 15,000 options were cancelled and 230,000 options were
issued. Since the end of the year no employee options have been exercised.
During or since the end of the financial year, no options were issued to any
directors or to any of the five officers of the Company receiving the highest
remuneration.
Unissued shares under option
At the date of this report unissued ordinary shares of the Company under option
are:
Expiry date Exercise price Number of shares
- ---------------- -------------- ----------------
1 June 2007 $0.30 3,020,000
1 December 2007 $0.40 138,000
1 April 2008 $0.40 75,000
31 December 2007 $0.82 175,000
30 November 2008 $0.83 15,000
1 March 2009 $1.25 15,000
30 June 2009 $1.00 150,000
31 July 2009 $1.25 50,000
---------
3,638,000
=========
Shares issued on exercise of options
During or since the end of the financial year, the Company issued the following
ordinary shares as result of the exercise of options (there were no amounts
unpaid on the shares issued):
Number of shares Amount paid on each share
- ---------------- -------------------------
83,000 $0.41
7,000 $0.40
525,000 $0.30
25,000 $0.82
ENVIRONMENTAL REGULATION
The Company's oil and gas exploration and production activities are subject to
significant environmental regulation under U.S. Federal and State legislation
and laws and decrees of the People's Republic of China.
The Company is committed to achieving a high standard of environmental
performance and compliance with all lease conditions. Directors believe that
there was no breach of environmental compliance requirements relating to the
Company's activities during the year.
INDEMNIFICATION AND INSURANCE OF OFFICERS
During the year ended 31 December 2004, the Company maintained policies of
insurance in respect of directors' and officers' liability. The policies insure
persons who are directors or officers of the Company and its controlled entities
against certain costs and expenses, which may be incurred by them in defending
proceedings and against other liabilities which may arise from their positions.
The insured directors and officers are the directors, executive officers and
secretaries of the Company and the directors, executive officers and secretaries
of controlled entities.
The insurance contracts prohibit the disclosure of particulars of the premiums
and the nature of the liabilities insurance.
The Company has entered into Deeds of Indemnity and Access with directors on the
terms approved by shareholders. The agreements stipulate that the Company will
meet the full amount of any liabilities to another person that might arise from
their position (except where the liability arises out of conduct involving a
lack of good faith).
No agreements to indemnify directors, officers or auditors have been entered
into, nor have any payments in relation to indemnification been made during or
since the end of the financial year by the Company. The Company provides the
normal indemnities to directors and officers in relation to the work carried out
on behalf of or at the request of the Company.
ROUNDING OFF
The Company is a company of a kind referred to in ASIC Class Order 98/100 dated
10 July 1998 and in accordance with that Class Order, amounts in the directors'
report and this financial report have been rounded off to the nearest one
thousand dollars, unless otherwise indicated.
Signed in accordance with a resolution of the directors,
/T.N.Fern
T.N. Fern, Director
Dated: 23 February 2005
STATEMENTS OF FINANCIAL PERFORMANCE
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
FOR THE YEAR ENDED 31 DECEMBER 2004
CONSOLIDATED THE COMPANY
2004 2003 2004 2003
NOTE $'000 $'000 $'000 $'000
REVENUE FROM ORDINARY ACTIVITIES
Revenue from sale of oil & gas and royalties 54,366 46,951 - -
Other revenues from ordinary activities 763 970 1,164 722
------- ------- ------ ------
TOTAL REVENUE FROM ORDINARY ACTIVITIES 3 55,129 47,921 1,164 722
EXPENSES FROM ORDINARY ACTIVITIES
Royalties paid (9,687) (8,243) - -
Lease operating costs (2,419) (2,390) - -
Dry-hole costs, impairments and abandonments 4(a) (1,544) (164) - -
Major maintenance expense 4(a) (806) - - -
Depreciation, depletion and amortisation 4(b) (17,138) (10,062) (36) (32)
Net foreign exchange loss - - (1,832) (5,553)
Employee expenses (3,346) (3,147) (349) (414)
Borrowing costs (43) (15) - -
Net movement in provisions against investments and loans to
controlled entities 4(a) - - 34,921 -
Other expenses from ordinary activities (3,834) (2,719) (1,722) (1,793)
------- ------- ------ ------
PROFIT/(LOSS) FROM ORDINARY ACTIVITIES BEFORE RELATED INCOME TAX
BENEFIT/(EXPENSE) 4 16,312 21,181 32,146 (7,070)
Income tax benefit/(expense) relating to ordinary activities 6(a) (489) 1,533 (148) 1,533
------- ------- ------ ------
PROFIT/(LOSS) FROM ORDINARY ACTIVITIES AFTER RELATED INCOME TAX
BENEFIT/(EXPENSE) 15,823 22,714 31,998 (5,537)
NON-OWNER TRANSACTION CHANGES IN EQUITY
Net exchange difference relating to self-sustaining foreign
operations 17 (3,381) (7,970) - -
------- ------- ------ ------
TOTAL CHANGES IN EQUITY FROM NON-OWNER RELATED TRANSACTIONS
ATTRIBUTABLE TO THE MEMBERS OF THE PARENT ENTITY 12,442 14,744 31,998 (5,537)
======= ======= ====== ======
Basic earnings/(loss) per share 7 $ 0.133 $ 0.215
Diluted earnings/(loss) per share 7 $ 0.130 $ 0.211
======= =======
The statements of financial performance are to be read in conjunction with the
notes to the financial statements set out on pages 4 to 42.
7
STATEMENTS OF FINANCIAL POSITION
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
AS AT 31 DECEMBER 2004
CONSOLIDATED THE COMPANY
2004 2003 2004 2003
NOTE $'000 $'000 $'000 $'000
CURRENT ASSETS
Cash assets 8 12,227 16,770 3,280 11,349
Receivables 9 8,940 5,582 762 364
Prepayments 2,590 493 80 29
------- -------- ------- --------
TOTAL CURRENT ASSETS 23,757 22,845 4,122 11,742
------- -------- ------- --------
NON-CURRENT ASSETS
Receivables 9 - 2,334 27,922 20,054
Other financial assets 10 698 464 47,680 6,298
Property, plant and equipment 11 314 310 82 87
Exploration, development and permit expenditure 12 50,562 28,563 - -
Deferred tax assets 6(c) - 499 - 163
Other 45 - - -
------- -------- ------- --------
TOTAL NON-CURRENT ASSETS 51,619 32,170 75,684 26,602
------- -------- ------- --------
TOTAL ASSETS 75,376 55,015 79,806 38,344
======= ======== ======= ========
CURRENT LIABILITIES
Payables 13 13,279 8,984 381 347
Share subscriptions received in advance 8 - 9,761 - 9,761
Interest bearing liabilities 14 1,509 441 - -
Provisions 15 48 51 48 51
------- -------- ------- --------
TOTAL CURRENT LIABILITIES 14,836 19,237 429 10,159
------- -------- ------- --------
NON-CURRENT LIABILITIES
Payables 13 - 94 14,959 7,618
Deferred tax liabilities 6(b) - 15 - 15
Provisions 15 1,039 469 343 334
------- -------- ------- --------
TOTAL NON-CURRENT LIABILITIES 1,039 578 15,302 7,967
------- -------- ------- --------
TOTAL LIABILITIES 15,875 19,815 15,731 18,126
======= ======== ======= ========
NET ASSETS 59,501 35,200 64,075 20,218
======= ======== ======= ========
EQUITY
Contributed equity 16 155,979 144,120 155,979 144,120
Reserves 17 (5,289) (1,908) 4,705 4,705
Accumulated losses 18 (91,189) (107,012) (96,609) (128,607)
------- -------- ------- --------
TOTAL EQUITY 19 59,501 35,200 64,075 20,218
======= ======== ======= ========
The statements of financial position are to be read in conjunction with the
notes to the financial statements set out on pages 4 to 42.
8
STATEMENTS OF CASH FLOWS
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
FOR THE YEAR ENDED 31 DECEMBER 2004
CONSOLIDATED THE COMPANY
2004 2003 2004 2003
NOTE $'000 $'000 $'000 $'000
CASH FLOWS FROM OPERATING ACTIVITIES
Cash receipts in the course of operations 51,608 41,954 90 85
Cash payments in the course of operations (21,041) (14,246) (2,724) (2,579)
Interest received 423 218 368 149
Interest paid (43) (15) - -
Dividend income 19 - - -
Income taxes paid - (384) - -
------- ------- ------ ------
NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES 30(b) 30,966 27,527 (2,266) (2,345)
------- ------- ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of:
- - Property, plant and equipment 9 - 2 -
- - Investments - 1,835 - 1,835
Changes in loans from related parties - - (7,813) 1,235
Proceeds received on release of certificates
of deposit 2,881 - - -
Payments for:
- - Property, plant and equipment (145) (177) (33) (2)
- - Exploration, development and permits (39,767) (23,462) - -
- - Investments (285) (20) - -
Distribution from investments - 259 - -
Distribution from bankruptcy trustee - 126 - 95
------- ------- ------ ------
NET CASH PROVIDED BY/(USED IN) INVESTING ACTIVITIES (37,307) (21,439) (7,844) 3,163
------- ------- ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of shares 2,098 9,816 2,098 9,816
------- ------- ------ ------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,098 9,816 2,098 9,816
------- ------- ------ ------
Net (decrease)/increase in cash held (4,243) 15,904 (8,012) 10,634
Cash at the beginning of the year 16,770 2,270 11,349 882
Reclassification of certificates of deposit
from cash to current receivables - (1,206) - -
Effect of exchange rate changes on cash
held in foreign currencies (300) (198) (57) (167)
------- ------- ------ ------
CASH AT THE END OF THE YEAR 30(a) 12,227 16,770 3,280 11,349
======= ======= ====== ======
The statements of cash flows are to be read in conjunction with the notes to the
financial statements set out on pages 4 to 42.
9
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies which have been adopted in the
preparation of this financial report are:
(a) BASIS OF PREPARATION
The financial report is a general purpose financial report which has been
prepared in Australian dollars and in accordance with Australian
Accounting Standards, Urgent Issues Group Consensus Views, other
authoritative pronouncements of the Australian Accounting Standards Board
and the Corporations Act 2001.
It has been prepared on the basis of historical costs and, except where
stated, does not take into account changing money values or fair values of
non-current assets.
These accounting policies have been consistently applied by each entity in
the consolidated entity and, except where there is a change in accounting
policy as set out in Note 2, are consistent with those of the previous
year.
(b) PRINCIPLES OF CONSOLIDATION
The financial statements of the consolidated entity comprise the financial
statements of Petsec Energy Ltd (the "Company"), being the parent entity,
and its controlled entities.
Controlled entities
The financial statements of controlled entities are included in the
consolidated financial statements from the date control commenced until
the date control ceases.
Unrealised gains and losses and inter-entity balances resulting from
transactions with or between controlled entities are eliminated in full on
consolidation.
Joint ventures
The consolidated entity's interests in unincorporated joint ventures are
brought to account by including its proportionate share of joint venture
operations' assets, liabilities and expenses and the consolidated entity's
revenue from the sale of its share of output on a line-by-line basis, from
the date joint control commences to the date joint control ceases.
(c) EXPLORATION LEASES, PERMITS, TITLES, EXPLORATION, EVALUATION AND
DEVELOPMENT EXPENDITURE
Exploration leases, permits and titles relating to an area of interest are
included in the financial statements at cost, but are carried forward only
to the extent that they are expected to be recouped through successful
exploitation, or sale of the area, or where exploration and evaluation
activities have not yet reached a stage which permits a reasonable
assessment of the existence of economically recoverable reserves and
active and significant exploration operations are continuing. The values
of exploration leases, permits and titles are reviewed at balance date to
determine whether any write-down is necessary. In the event that net
undiscounted cash flow is less than the carrying value, an impairment loss
is recorded based on estimated fair value, which would consider discounted
future net cash flows.
Exploration, evaluation and development costs are accumulated in respect
of each separate area of interest.
Exploration and development costs relating to an area of interest are
carried forward where right of tenure is current and they are expected to
be recouped through sale or successful development and exploitation of the
area of interest, or where exploration and evaluation activities in the
area of interest have not yet reached a stage which permits a reasonable
assessment of the existence of economically recoverable reserves.
Development costs related to an area of interest are carried forward to
the extent that they are expected to be recouped either through the sale
or successful exploitation of the area of interest. When an area of
interest is abandoned or the directors decide that it is not commercial,
any accumulated cost in respect of that area are written off in the
financial period the decision is made.
10
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(c) EXPLORATION LEASES, PERMITS, TITLES, EXPLORATION, EVALUATION AND
DEVELOPMENT EXPENDITURE (CONTINUED)
At balance date, the amounts of exploration and development expenditure
carried forward are reviewed to determine whether any write-downs are
necessary. For an area of interest, the assessment is based on the
undiscounted pre-tax cash flow estimates for that area of interest. In the
event net undiscounted cash flow is less than the carrying value, an
impairment loss is recorded based on estimated fair value, which would
consider discounted future net cash flows.
(d) RECOVERABLE AMOUNT OF NON-CURRENT ASSETS VALUED ON A COST BASIS
The carrying amounts of non-current assets valued on the cost basis, other
than permits, exploration and evaluation expenditure carried forward (see
Note 1(c)), are reviewed to determine whether they are in excess of their
recoverable amount at reporting date. If the carrying amount of a
non-current asset exceeds the recoverable amount, the asset is written
down to the lower amount. The write-down is expensed in the reporting
period in which it occurs. Where a group of assets working together
supports the generation of cash inflows, recoverable amount is assessed in
relation to that group of assets.
In assessing recoverable amounts of non-current assets, the relevant cash
flows have not been discounted to their present value.
(e) REHABILITATION
At balance date, the liabilities, if any, with regard to rehabilitation,
including restoration and reclamation, platform removals, plant closures,
waste site closures and monitoring are reviewed and the estimated expense
provided for. The assessment is based on undiscounted estimates of future
costs under current legal requirements and technology. The estimated
expense is recognised progressively over the life of each production
facility taking into account production output and the amount of
economically recoverable reserves.
(f) EXPENDITURE AMORTISED
Accumulated lease costs, exploration, evaluation and development
expenditures on an area of interest where commercial operations have
commenced are amortised over the estimated life of the field using a
units-of-production method based on the ratio of actual production to
remaining reserves as estimated by independent petroleum engineers.
(g) DEPRECIATION
Oil and gas production facilities
Depreciation is provided on all property, plant and equipment so as to
write off the assets progressively over their estimated economic life
using a units-of-production method based on the ratio of actual production
to remaining reserves as estimated by independent petroleum engineers.
Other property, plant and equipment
Depreciation is provided on other property, plant and equipment so as to
write off the assets progressively over their estimated useful life using
the prime cost method.
The depreciation rates used in the current and prior year for each class
of asset that comprises property, plant and equipment are as follows:
2004 2003
------- -------
Furniture and fittings 13 - 20% 13 - 20%
Office equipment 27 - 33% 27 - 33%
Leasehold improvements 15 - 20% 15 - 20%
Assets are depreciated from the date of acquisition.
11
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(h) INVESTMENTS AND MARKETABLE EQUITY SECURITIES HELD FOR TRADING
Controlled entities
Investments in controlled entities are carried in the Company's financial
statements at the lower of cost and recoverable amount. Where applicable,
provisions are set aside to recognise diminution in the value of the
controlled entities (see Note 1(d)).
Joint ventures
The consolidated entity's interest in unincorporated joint ventures is
brought to account by including in the respective financial statement
classes the amount of:
- the consolidated entity's interest in each of the individual assets
employed in the joint ventures;
- the liabilities of the consolidated entity in relation to the joint
ventures; and
- the consolidated entity's interest in the revenues and expenses
incurred in relation to the joint ventures.
Other entities
Investments in other listed entities are measured at the lower of cost and
fair value, being the current quoted market prices.
Investments in other unlisted entities are carried at the lower of cost
and estimated recoverable amount.
(i) REVENUE RECOGNITION
Revenues are recognised at fair value of the consideration received.
Sale of goods
Revenues are recognised when the product is in the form in which it is to
be delivered and an actual physical quantity has been provided or
allocated to a purchaser pursuant to a contract.
Revenue from oil and gas royalties is recognised on an accrual basis in
accordance with the terms of underlying royalty agreements. Revenue from
oil and gas royalties is measured at the fair value of the consideration
receivable.
Interest revenue
Interest revenue is recognised as it accrues, taking into account the
effective yield on the financial asset.
Sale of non-current assets
The gross proceeds of non-current asset sales are included as revenue at
the date control of the asset passes to the buyer, usually when an
unconditional contract of sale is signed.
The gain or loss on disposal is calculated as the difference between the
carrying amount of the asset at the time of disposal and the net proceeds
on disposal (including incidental costs).
Any related balance in the asset revaluation reserve is transferred to the
capital profits reserve on disposal.
Other revenue
Revenue is recognised in the period in which the exchange of goods or
services occurs.
12
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(j) EMPLOYEE BENEFITS AND DIRECTOR BENEFITS
Wages, salaries and annual leave
Liabilities for employee benefits for wages, salaries and annual leave
represent present obligations resulting from employees' services provided
to reporting date, calculated at undiscounted amounts based on
remuneration wage and salary rates that the consolidated entity expects to
pay as at reporting date including related on-costs, such as workers
compensation insurance and payroll tax.
Long service leave
The provision for employee benefits to long service leave represents the
present value of the estimated future cash outflows to be made resulting
from employees' services provided to reporting date.
The provision is calculated using expected future increases in wage and
salary rates including related on-costs and expected settlement dates
based on turnover history and is discounted using the rates attaching to
national government bonds at reporting date which most closely match the
terms of maturity of the related liabilities. The unwinding of the
discount is treated as long service leave expense.
Employee incentive plans
A liability is recognised for employee incentive plans based on a
percentage of operating profits. Further information is set out in Note
27.
Employee share and option plans
Where shares or options are issued to employees, including directors, as
remuneration for past services, the difference between fair value of the
shares or options issued and the consideration received if any, from the
employee is expensed. The fair value of the shares or options issued is
recorded in contributed equity.
Other shares or options issued to employees, including directors, are
recorded in contributed equity at the fair value of consideration
received, if any.
Transaction costs associated with issuing shares and options are
recognised in equity subject to the extent of the proceeds received,
otherwise expensed. Other administrative costs are expensed.
Superannuation plan
The Company and other controlled entities contribute to several defined
contribution superannuation plans. Contributions are recognised as an
expense as they are made. Further information is set out in Notes 21(d)
and 27.
Director benefits
The Company provides for directors' retirement benefits based on the
number of years' service at the reporting date. All non-executive
directors are presently entitled to payments under the scheme which
entitles them to a benefit, on retirement, equivalent to the total
remuneration received in the past three years.
In 2003, the Remuneration Committee approved a retirement benefit, for
non-executive directors, which increases with length of service after
three years up to nine years' service. After three years' service the
retirement benefit is equivalent to one year's remuneration. The benefit
payable for service beyond three years is pro-rata with length of service
so that after nine years of service the maximum benefit equivalent to
three years' remuneration is payable.
13
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(k) TAXATION
The consolidated entity adopts the income statement liability method of
tax-effect accounting.
Income tax expense is calculated on operating profit adjusted for
permanent differences between taxable and accounting income. The tax
effect of timing differences, which arise from items being brought to
account in different periods for income tax and accounting purposes, is
carried forward in the statement of financial position as a future income
tax benefit or provision for deferred income tax.
Future income tax benefits are not brought to account unless realisation
of the asset is assured beyond reasonable doubt or if relating to tax
losses when their realisation is virtually certain.
Capital gains tax, if applicable, is provided for in establishing period
income tax expense when an asset is sold.
Tax consolidation
The Company is the head entity in the tax-consolidated group comprising
all the Australian wholly owned subsidiaries set out in Note 23. The
implementation date for the tax-consolidated group was 1 July 2002. The
head entity recognises all of the current and deferred tax assets and
liabilities of the tax-consolidated group (after elimination of
intra-group transactions).
The tax-consolidated group has entered into a tax funding agreement that
requires wholly owned subsidiaries to make contributions to the head
entity for:
- deferred tax balances recognised by the head entity on
implementation date, including the impact of any relevant reset tax
cost bases; and
- current tax assets and liabilities and deferred tax balances arising
from external transactions occurring after the implementation of tax
consolidation.
Under the tax funding agreement, the contributions are calculated on a
stand-alone basis so that the contributions are equivalent to the tax
balances generated by external transactions entered into by wholly owned
subsidiaries. The contributions are payable as set out in the agreement
and reflect the timing of the head entity's obligations to make payments
for tax liabilities to the relevant tax authorities. The assets and
liabilities arising under the tax funding agreement are recognised as
intercompany assets and liabilities with a consequential adjustment to
income tax expense/revenue.
(l) FOREIGN CURRENCY
Transactions
Foreign currency transactions are translated to Australian currency at the
rates of exchange ruling at the dates of the transactions. Amounts
receivable and payable in foreign currencies at reporting date are
translated at the rates of exchange ruling on that date. Exchange
differences relating to amounts receivable and payable in foreign
currencies are brought to account as exchange gains or losses in the
statement of financial performance in the financial year in which the
exchange rates change, except where:
- hedging specific anticipated transactions or net investments in
self-sustaining operations
- relating to amounts payable or receivable in foreign currency
forming part of a net investment in a self-sustaining foreign
operation. In this case, the exchange difference, together with any
related income tax expense/revenue, is transferred to the foreign
currency translation reserve on consolidation
- relating to the acquisition of qualifying assets (refer to Note
1(r))
Translation of controlled foreign operations
The assets and liabilities of foreign operations, being controlled
entities that are self-sustaining, are translated at the rates of exchange
ruling at reporting date. Equity items are translated at historical rates.
The statements of financial performance are translated at the average rate
for the year. Exchange differences arising on translation are taken
directly to the foreign currency translation reserve until the disposal,
or partial disposal of the operations.
The balance of the foreign currency translation reserve in relation to an
entity that is no longer controlled is transferred to retained earnings in
the year in which control ceases.
14
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(l) FOREIGN CURRENCY (CONTINUED)
Exchange rates used
The following exchange rates are the exchange rates used in translating
foreign currency transactions, balances and financial statements
(expressed in Australian dollars).
AVERAGE Average CLOSING Closing
2004 2003 2004 2003
------ ------ ------- -------
US Dollar 0.7341 0.6515 0.7784 0.7431
Exchange differences on foreign currency cash
The consolidated entity's US dollar cash deposits held in Australia are
designated as part of the consolidated entity's net investment in the US
self-sustaining foreign operation. Consequently, exchange differences, net
of applicable income tax, on these US dollar cash deposits have been
reported in the foreign currency translation reserve on consolidation.
(m) GOODS AND SERVICES TAX
Revenues, expenses and assets are recognised net of the amount of goods
and services tax (GST), except where the amount of GST incurred is not
recoverable from the Australian Tax Office ("ATO"). In these circumstances
the GST is recognised as part of the cost of acquisition of the asset or
as part of the expense. Receivables and payables are stated with the
amount of GST included.
The net amount of GST recoverable from, or payable to, the ATO is included
as a current asset or liability in the statement of financial position.
Cash flows are included in the statement of cash flows on a gross basis.
The GST component of cash flows arising from investing and financing
activities which are recoverable from or payable to the ATO are classified
as operating cash flows.
(n) DERIVATIVES
The consolidated entity is exposed to changes in interest rates, foreign
exchange rates and commodity prices from its operations.
The consolidated entity enters into derivative financial instruments to
manage a portion of its oil and gas price risks. All gains or losses on
hedge transactions are brought to account in the statement of financial
performance in the same period that the underlying production occurs.
Further details of commodity price exposures are disclosed in Note 20 of
the financial statements. Derivative financial instruments are not held
for speculative purposes.
(o) RECEIVABLES
The collectability of debts is assessed at reporting date and specific
provision is made for any doubtful debts.
Trade debtors
Trade debtors to be settled within 30 to 60 days are carried at amounts
due.
15
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(p) PROVISIONS
A provision is recognised when there is a legal, equitable or constructive
obligation as a result of a past event and it is probable that a future
sacrifice of economic benefits will be required to settle the obligation,
the timing or amount of which is uncertain.
If the effect is material, a provision (except that relating to
rehabilitation) is determined by discounting the expected future cash
flows (adjusted for expected future risks) required to settle the
obligation at a pre-tax rate that reflects current market assessments of
the time value of money and the risks specific to the liability, being
risk free rates on government bonds most closely matching the expected
future payments, except where noted below. The unwinding of the discount
is treated as part of the expense related to the particular provision.
When some or all of the economic benefits required to settle a provision
are expected to be recovered from a third party, the recovery receivable
is recognised as an asset when it is probable that the recovery will be
received and is measured on a basis consistent with the measurement of the
related provision.
In the statement of financial performance, the expense recognised in
respect of a provision is presented net of the recovery. In the statement
of financial position, the provision is recognised net of the recovery
receivable only when the entity:
- has a legally recognised right to set-off the recovery receivable
and the provision, and
- intends to settle on a net basis, or to realise the asset and settle
the provision simultaneously.
(q) EARNINGS PER SHARE
Basic earnings per share ("EPS") is calculated by dividing the net profit
attributable to members of the parent entity for the reporting period, by
the weighted average number of ordinary shares of the Company, adjusted
for any bonus issue.
Diluted EPS is calculated by dividing the basic EPS earnings, adjusted by
the after tax effect of financing costs associated with dilutive potential
ordinary shares and the effect on revenues and expenses of conversion to
ordinary shares associated with dilutive potential ordinary shares, by the
weighted average number of ordinary shares and dilutive potential ordinary
shares adjusted for any bonus issue.
(r) BORROWING COSTS
Borrowing costs include interest, amortisation of discounts or premiums
relating to borrowings, amortisation of ancillary costs incurred in
connection with arrangement of borrowings, including trade creditors and
lease finance charges.
Ancillary costs incurred in connection with the arrangement of borrowings
are capitalised and amortised over the life of the borrowings.
Borrowing costs are expensed as incurred unless they relate to qualifying
assets. Qualifying assets are assets which take more than 12 months to get
ready for their intended use or sale. In these circumstances, borrowing
costs are capitalised to the cost of the assets. Where funds are borrowed
specifically for the acquisition, construction or production of a
qualifying asset, the amount of borrowing costs capitalised is those
incurred in relation to that borrowing, net of any interest earned on
those borrowings. Where funds are borrowed generally, borrowing costs are
capitalised using a weighted average capitalisation rate.
Exploration and evaluation expenditure carried forward relating to areas
of interest which have not reached a stage permitting reliable assessment
of economic benefits are not qualifying assets.
(s) COMPARATIVES
Where necessary, comparative information has been reclassified to achieve
consistency in disclosure with current financial year amounts and other
disclosures.
16
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(t) ROUNDING OF AMOUNTS
The Company is of a kind referred to in Australian Securities and
Investments Commission Class Order 98/100 dated 10 July 1998 and in
accordance with that Class Order, amounts in the directors' report and
this financial report have been rounded off to the nearest one thousand
dollars, unless otherwise indicated.
(u) ACQUISITION OF ASSETS
All assets acquired, including property, plant and equipment and
intangibles other than goodwill, are initially recorded at their cost of
acquisition at the date of acquisition, being the fair value of the
consideration provided plus incidental costs directly attributable to the
acquisition.
When equity instruments are issued as consideration, their market price at
the date of acquisition is used as fair value, except where the notional
price at which they could be placed in the market is a better indication
of fair value. Transaction costs arising on the issue of equity
instruments are recognised directly in equity subject to the extent of
proceeds received, otherwise expensed.
Where settlement of any part of cash consideration is deferred, the
amounts payable are recorded at their present value, discounted at the
rate applicable to the consolidated entity if a similar borrowing were
obtained from an independent financier under comparable terms and
conditions. The unwinding of the discount is treated as interest expense.
The costs of assets constructed or internally generated by the
consolidated entity, other than goodwill, include the cost of materials
and direct labour. Directly attributable overheads, and other incidental
costs are also capitalised to the asset. Borrowing costs are capitalised
to qualifying assets as set out in Note 1(r).
Expenditure, including that on internally generated assets other than
research and development costs, is only recognised as an asset when the
entity controls future economic benefits as a result of the costs incurred
that are probable and can be measured reliably. Costs attributable to
feasibility and alternative approach assessments are expensed as incurred.
(v) PAYABLES
Liabilities are recognised for amounts to be paid in the future for goods
or services received. Trade payables are normally settled within 7 to 60
days.
(w) INTEREST BEARING LIABILITIES
Interest bearing liabilities are recognised at their principal amount.
Interest expense is accrued at the contracted rate.
(x) USE AND REVISION OF ACCOUNTING ESTIMATES
The preparation of the financial report requires the making of estimations
and assumptions that affect the recognised amounts of assets, liabilities,
revenues and expenses and the disclosure of contingent liabilities. The
estimates and associated assumptions are based on historical experience
and various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making the
judgements about carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which
the estimate is revised if the revision affects only that period or in the
period of the revision and future periods if the revision affects both
current and future periods.
2. CHANGES IN ACCOUNTING POLICY
There are no changes in accounting policies for the year ended 31 December
2004.
17
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
CONSOLIDATED THE COMPANY
2004 2003 2004 2003
$'000 $'000 $'000 $'000
3. REVENUE FROM ORDINARY ACTIVITIES
Revenues from sale of oil & gas and royalties 54,366 46,951 - -
------ ------ ------- -----
OTHER REVENUES
From operating activities
Net foreign exchange gain - Realised 172 129 172 129
Interest
- Related parties - - 532 250
- Other parties 423 218 368 149
From outside operating activities
Gross proceeds on sale of non-current
assets 9 - 2 -
Distribution from bankruptcy trustee - 126 - 95
Management fee income 90 99 90 99
Sundry income 69 398 - -
------ ------ ------- -----
Total other revenues 763 970 1,164 722
------ ------ ------- -----
TOTAL REVENUE FROM ORDINARY ACTIVITIES 55,129 47,921 1,164 722
====== ====== ======= =====
4. PROFIT/(LOSS) FROM ORDINARY
ACTIVITIES BEFORE INCOME TAX EXPENSE
(a)INDIVIDUAL SIGNIFICANT ITEMS INCLUDED IN
PROFIT/(LOSS) FROM ORDINARY ACTIVITIES
BEFORE INCOME TAX EXPENSE
Net movement in provisions against
investments and loans to controlled
entities (i) - - (34,921) -
Net foreign exchange loss - Unrealised - - 1,832 5,553
Dry-hole costs, impairments and abandonments 1,544 164 - -
Major maintenance expense 806 - - -
------ ------ ------- -----
(i) During the year, the Company restructured certain investments in and loans
to controlled entities to reflect the recoverable value of the net assets of the
underlying business.
18
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
CONSOLIDATED THE COMPANY
2004 2003 2004 2003
$'000 $'000 $'000 $'000
4. PROFIT/(LOSS) FROM ORDINARY ACTIVITIES BEFORE INCOME TAX EXPENSE
(CONTINUED)
(b) PROFIT/(LOSS) FROM ORDINARY ACTIVITIES BEFORE INCOME TAX EXPENSE HAS BEEN
ARRIVED AT AFTER CHARGING/(CREDITING) THE FOLLOWING ITEMS:
Depreciation of plant & equipment 128 86 36 32
Amortisation of exploration, evaluation & development
expenditure 17,010 9,976 - -
------- ------- ------- ------
TOTAL DEPRECIATION AND AMORTISATION 17,138 10,062 36 32
Net expense/(credit) from movements in provision for:
- employee benefits 30 202 30 202
- rehabilitation 561 135 - -
Borrowing costs 43 15 - -
Net loss on disposal of non-current assets:
- property, plant and equipment 7 - 2 -
======= ======= ======= ======
$ $ $ $
5. AUDITOR'S REMUNERATION
AUDIT SERVICES:
Auditors of the Company
KPMG Australia
- audit and review of financial reports 127,558 95,184 127,558 95,184
Overseas KPMG Firms:
- audit and review of financial reports 22,885 24,816 - -
OTHER SERVICES:
Auditors of the Company
KPMG Australia
- other assurance services - 500 - 500
------- ------- ------- ------
150,443 120,500 127,558 95,684
======= ======= ======= ======
19
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
CONSOLIDATED THE COMPANY
2004 2003 2004 2003
$'000 $'000 $'000 $'000
6. TAXATION
(a) INCOME TAX EXPENSE
Prima facie income tax expense/(benefit) calculated
at 30% (2003: 30%) on the profit/(loss) from ordinary activities 4,894 6,354 9,644 (2,121)
Increase/(decrease) in income tax expense due to:
Non-tax deductible (assessable) items 1 1 (10,096) 1,592
Current year tax losses of the Company not brought to
account 452 486 452 486
Recovery of tax losses of foreign subsidiary previously not
brought to account (5,347) (6,841) - -
Reversal of deferred income tax liability relating
to unrealised foreign exchange gains - (1,500) - (1,500)
Timing differences brought to account - (33) - (33)
Timing differences not brought to account 489 - 148 -
Other - - - 43
------ ------- ------- ------
Income tax expense/(benefit) attributable to operating profit 489 (1,533) 148 (1,533)
------ ------- ------- ------
Income tax expense/(benefit) attributable to operating profit is
made up of:
Future income tax benefit 504 (33) 163 (33)
Deferred income tax liability (15) (1,500) (15) (1,500)
------ ------- ------- ------
489 (1,533) 148 (1,533)
====== ======= ======= ======
(b) DEFERRED TAX LIABILITIES
Provision for deferred income tax
Provision for deferred income tax comprises the estimated
expense at the applicable rate of 30% (2003: 30%) on the
following items:
Difference in depreciation and amortisation of
property, plant and equipment for accounting
and income tax purposes - 7 - 7
Prepayments - 8 - 8
------ ------- ------- ------
- 15 - 15
------ ------- ------- ------
20
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
CONSOLIDATED THE COMPANY
2004 2003 2004 2003
$'000 $'000 $'000 $'000
6. TAXATION (CONTINUED)
(c) DEFERRED TAX ASSETS
Future income tax benefit
Future income tax benefit comprises the estimated future benefit at the
applicable rate of 30% (2003: 30%) on the following items:
Provisions and accrued employee benefits not currently deductible - 163 - 163
Sundry items - 336 - -
------ ------ ----- -----
- 499 - 163
------ ------ ----- -----
Future income tax benefit not taken to account
The potential future income tax benefit in the Company at 30% and a
controlled foreign subsidiary at 36% (being the approximate US tax rate),
arising from tax losses has not been recognised as an asset:
Tax losses carried forward 20,811 29,981 1,904 1,315
------ ------ ----- -----
The potential future income tax benefit will only be obtained if:
(i) the relevant company derives future assessable income of a nature and an
amount sufficient to enable the benefit to be realised, or the benefit can
be utilised by another company in the consolidated entity in accordance with
Division 170 of the Australian Income Tax Assessment Act and US income tax
legislation. Under US income tax legislation, from 2006 through 2021 these
tax losses will periodically expire if not utilised earlier;
(ii) the relevant company and/or the consolidated entity continues to comply
with the conditions for deductibility imposed by the law; and
(iii) no changes in tax legislation adversely affect the relevant company
and/or the consolidated entity in realising the benefit.
21
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
7. EARNINGS PER SHARE
CLASSIFICATION OF SECURITIES AS ORDINARY SHARES
The Company has only one type of security, being ordinary shares, included
in the basic earnings per share calculation.
CLASSIFICATION OF SECURITIES AS POTENTIAL ORDINARY SHARES
An additional 3,638,000 options outstanding under the Employee Option Plan
have been classified as potential ordinary shares and are included in
diluted earnings per share for ordinary shares only.
During the year 640,000 options were converted to ordinary shares.
Further details of these securities are contained in Note 16 - Contributed
Equity.
CONSOLIDATED
2004 2003
$'000 $'000
EARNINGS RECONCILIATION
Net profit 15,823 22,714
----------- -----------
Earnings used to calculate basic and diluted earnings per share 15,823 22,714
----------- -----------
WEIGHTED AVERAGE NUMBER OF SHARES USED AS THE DENOMINATOR
NUMBER FOR BASIC EARNINGS PER SHARE
Ordinary shares 118,830,016 105,736,041
NUMBER FOR DILUTED EARNINGS PER SHARE
Ordinary share number 118,830,016 105,736,041
Effect of employee options on issue 2,513,529 2,049,432
----------- -----------
121,343,545 107,785,473
----------- -----------
CONSOLIDATED THE COMPANY
2004 2003 2004 2003
$'000 $'000 $'000 $'000
8. CASH ASSETS
Cash at bank earned interest at a weighted average
interest rate of 2.1% (2003: 3.2%) * 12,227 16,770 3,280 11,349
------ ------ ----- ------
* At 31 December 2003, cash at bank included $9.8 million received in
respect of placement of 12,846,800 shares at $0.95 per share arranged
in December 2003. The offsetting amount relating to these monies
received was included in the Statement of Financial Position under
current liabilities as "share subscriptions received in advance". This
amount was subsequently transferred to share capital on the issue of
the shares on 6 January 2004.
22
9. RECEIVABLES
CURRENT
Trade debtors 8,903 4,930 - -
Other debtors 37 652 37 140
Loans to controlled entities - - 725 224
----- ----- --- ---
8,940 5,582 762 364
----- ----- --- ---
23
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
CONSOLIDATED THE COMPANY
2004 2003 2004 2003
$'000 $'000 $'000 $'000
NON-CURRENT
Other debtors - 2,334 - -
Loans to controlled entities - - 32,963 56,092
Provision against loans to controlled entities - - (5,041) (36,038)
---- ----- ---------- ----------
- 2,334 27,922 20,054
---- ----- ---------- ----------
10. OTHER FINANCIAL ASSETS
NON-CURRENT
Investment in controlled entities:
Unlisted shares at cost - - 1,194,864 1,157,406
Provision against investment - - (1,147,184) (1,151,108)
---- ----- ---------- ----------
- - 47,680 6,298
---- ----- ---------- ----------
Investment in other entities:
Listed shares at cost 60 60 - -
Provision against investment (40) (40) - -
Unlisted shares at cost 678 444 - -
---- ----- ---------- ----------
698 464 - -
---- ----- ---------- ----------
698 464 47,680 6,298
---- ----- ---------- ----------
11. PROPERTY, PLANT AND EQUIPMENT
Furniture and fittings
At cost 47 55 44 47
Accumulated depreciation (43) (46) (42) (45)
---- ----- ---------- ----------
4 9 2 2
---- ----- ---------- ----------
Office machines and equipment
At cost 518 546 197 244
Accumulated depreciation (273) (282) (136) (188)
---- ----- ---------- ----------
245 264 61 56
---- ----- ---------- ----------
Leasehold improvements
At cost 220 184 163 163
Accumulated depreciation (155) (147) (144) (134)
---- ----- ---------- ----------
65 37 19 29
---- ----- ---------- ----------
Total property, plant & equipment net book value 314 310 82 87
---- ----- ---------- ----------
24
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
CONSOLIDATED THE COMPANY
2004 2003 2004 2003
$'000 $'000 $'000 $'000
RECONCILIATIONS
Reconciliations of the carrying amounts for
each class of property, plant
and equipment are set out below:
FURNITURE AND FITTINGS
Carrying amounts at the beginning of the year 9 5 2 3
Additions 2 7 1 -
Disposals (6) - (1) -
Depreciation (1) (2) - (1)
Impact of foreign exchange on translation - (1) - -
------- ------ ----- -----
Carrying amounts at the end of year 4 9 2 2
------- ------ ----- -----
OFFICE MACHINES AND EQUIPMENT
Carrying amounts at the beginning of the year 264 194 56 75
Additions 96 170 32 2
Disposals (1) - (1) -
Depreciation (109) (71) (26) (21)
Impact of foreign exchange on translation (5) (29) - -
------- ------ ----- -----
Carrying amounts at the end of year 245 264 61 56
------- ------ ----- -----
LEASEHOLD IMPROVEMENTS
Carrying amounts at the beginning of the year 37 59 29 39
Additions 46 - - -
Disposals - (3) - -
Depreciation (18) (13) (10) (10)
Impact of foreign exchange on translation - (6) - -
------- ------ ----- -----
Carrying amounts at the end of year 65 37 19 29
------- ------ ----- -----
12. EXPLORATION, DEVELOPMENT AND PERMIT EXPENDITURE
Costs carried forward in respect of areas of interest in:
Production phase
At cost 51,130 22,390 - -
Accumulated amortisation (23,689) (8,605) - -
------- ------ ----- -----
27,441 13,785 - -
Development phase - at cost 7,048 9,795
Exploration and/or evaluation phase - at cost 16,073 4,983 - -
------- ------ ----- -----
Total exploration, evaluation and development expenditure 50,562 28,563 - -
------- ------ ----- -----
The ultimate recoupment of costs carried forward for exploration and
evaluation phase is dependent on the successful development and commercial
exploitation or sale of the respective areas.
25
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
CONSOLIDATED THE COMPANY
2004 2003 2004 2003
$'000 $'000 $'000 $'000
13. PAYABLES
CURRENT
Trade creditors 5,013 4,081 129 189
Other creditors and accruals 8,266 4,903 252 158
------ ----- ------ -----
13,279 8,984 381 347
------ ----- ------ -----
NON-CURRENT
Other creditors and accruals - 94 - -
Non-interest bearing loans from controlled entities - - 14,959 7,618
------ ----- ------ -----
- 94 14,959 7,618
------ ----- ------ -----
14. INTEREST BEARING LIABILITIES
CURRENT
Other loans - unsecured, bearing interest at 1,509 441 - -
5.15% (2003: 4.9%)
------ ----- ------ -----
1,509 441 - -
------ ----- ------ -----
15. PROVISIONS
CURRENT
Employee benefits 48 51 48 51
------ ----- ------ -----
48 51 48 51
------ ----- ------ -----
NON-CURRENT
Employee benefits 343 334 343 334
Rehabilitation 696 135 - -
------ ----- ------ -----
1,039 469 343 334
------ ----- ------ -----
Further details of employee benefits are provided in Note 27 - Employee
Benefits.
16. CONTRIBUTED EQUITY
SHARE CAPITAL
119,222,841 (2003: 105,736,041)
ordinary shares, fully paid 155,979 144,120 155,979 144,120
Holders of ordinary shares are entitled to receive dividends as declared
from time to time and are entitled to one vote per share at shareholders'
meetings.
In the event of winding up of the Company ordinary shareholders rank after
creditors and are fully entitled to any proceeds of liquidation.
26
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
CONSOLIDATED THE COMPANY
2004 2003 2004 2003
$'000 $'000 $'000 $'000
16. CONTRIBUTED EQUITY (CONTINUED)
MOVEMENTS DURING THE YEAR
Balance at the beginning of the year
105,736,041 (2003: 105,736,041) shares 144,120 144,120 144,120 144,120
Shares issued
- 12,846,800 (2003: Nil) for cash pursuant to placement 12,202 - 12,202 -
- Transaction costs arising from issue for cash pursuant to
placement (558) - (558) -
- 640,000 (2003: Nil) from the exercise of options under
the Employee Option Plan 215 - 215 -
------- ------- ------- -------
155,979 144,120 155,979 144,120
------- ------- ------- -------
17. RESERVES
Capital profits 8,101 8,101 4,705 4,705
Foreign currency translation (13,390) (10,009) - -
------- ------- ------- -------
(5,289) (1,908) 4,705 4,705
------- ------- ------- -------
MOVEMENTS DURING THE FINANCIAL YEAR
FOREIGN CURRENCY TRANSLATION RESERVE
Balance at the beginning of the year (10,009) (2,039) - -
Exchange difference on net investment in foreign operations (3,381) (7,970) - -
------- ------- ------- -------
Balance at the end of year (13,390) (10,009) - -
------- ------- ------- -------
NATURE AND PURPOSE OF RESERVES
CAPITAL PROFITS
Upon disposal of revalued assets, any related revaluation increment standing
to the credit of the asset revaluation reserve is transferred to the capital
profits reserve.
FOREIGN CURRENCY TRANSLATION
The foreign currency translation reserve records the foreign currency
differences arising from the translation of self-sustaining foreign
operations, the translation of transactions that hedge the Company's net
investment in a foreign operation or the translation of foreign currency
monetary items forming part of the net investment in a self-sustaining
operation. Refer to accounting policy 1(l).
27
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
CONSOLIDATED THE COMPANY
2004 2003 2004 2003
$'000 $'000 $'000 $'000
18. ACCUMULATED LOSSES
Accumulated losses at beginning of year (107,012) (129,726) (128,607) (123,070)
Net profit (loss) attributable to members of the parent
entity 15,823 22,714 31,998 (5,537)
-------- -------- -------- --------
Accumulated losses at the end of the year (91,189) (107,012) (96,609) (128,607)
-------- -------- -------- --------
19. TOTAL EQUITY RECONCILIATION
Total equity at beginning of year 35,200 20,456 20,218 25,755
Total changes in parent entity interest in equity
recognised in statements of financial performance 12,442 14,744 31,998 (5,537)
Transactions with owners as owners Contributions of equity 11,859 - 11,859 -
-------- -------- -------- --------
Total equity at end of year 59,501 35,200 64,075 20,218
-------- -------- -------- --------
20. FINANCING ARRANGEMENTS AND ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURES
FINANCING ARRANGEMENTS
At 31 December 2004, the consolidated entity had a US dollar liability
relating to short-term financing of insurance premiums for its US oil and
gas operations of $1,509,000 (2003: $441,000), held in the accounts of
Petsec Energy Inc. ("PEI") a wholly owned subsidiary. The interest charge on
this liability is 5.15% pa (2003: 4.9%).
CREDIT FACILITIES
Effective 20 February, 2004, PEI entered into a US$2.0 million credit
agreement with a U.S. bank for the purpose of securing letters of credit
issued by the bank and also to allow the refund of US$1.7 million of cash
collateral previously posted to secure surety bonds issued to the Minerals
Management Service. This facility was subsequently increased to US$6.0
million on 21 December 2004.
PEI incurs fees of 1-3/4% on the amount of letters of credit issued by the
bank. Any funding of a letter of credit issued by the bank will constitute a
loan under the credit agreement. Principal payments on any loans outstanding
are payable at the end of each calendar quarter in an amount determined by
the bank. Interest on any outstanding loans will accrue, at PEI's election,
at either (i) the banks prime rate plus 1/2% pa, but no less than 4-1/2% pa
or (ii) at Libor rate plus 3-1/2% pa. Upon final maturity of the credit
agreement, all loans and interest outstanding become due. The final maturity
date of the credit agreement is 31 March 2006. To date, there have been no
loans under the credit agreement.
The credit facility is secured by mortgages on PEI's interest in oil and gas
properties. The credit facility also contains financial covenants that
require PEI to:
(i) maintain its tangible net worth to be not less than 90% of the tangible
net worth at the closing date plus 50% of any advances to PEI from PEL,
and
(ii) a ratio of current assets to current liabilities of at least one to
one.
INTEREST RATE RISK EXPOSURES
At 31 December 2004, the weighted average interest rate for cash deposits
was 2.1% per annum (2003: 3.2%). Cash deposits were held primarily in US
dollars.
The other financial assets and liabilities detailed in the financial
statements (receivables excluding cash deposits, payables, short-term
financing of insurance premiums and investments) are all non-interest
bearing.
28
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
20. FINANCING ARRANGEMENTS AND FINANCIAL INSTRUMENTS DISCLOSURES (CONTINUED)
FOREIGN EXCHANGE EXPOSURES
During 2003 and 2004, operating costs were incurred in both Australian and
US dollars.
Throughout 2003 and 2004, the consolidated entity held the majority of its
liquid funds in US dollars.
Fluctuations in the Australian dollar/US dollar exchange rate have
impacted the underlying performance of the consolidated entity. The
consolidated entity's policy is not to hedge the Australian dollar/US
dollar exchange rate risk as income and expenses are predominantly
denominated in US dollars.
COMMODITY PRICE EXPOSURES
The income of the consolidated entity is affected by changes in natural
gas and crude oil prices, and various financial transactions have been
undertaken (forward contract agreements and swap contracts involving NYMEX
commodity prices for natural gas) to reduce the effect of these changes.
The consolidated entity has proved reserves of these commodities
sufficient to cover all these transactions and it only enters into such
derivatives to match underlying physical production and reserves.
At 31 December 2004, the consolidated entity had no outstanding forward
contract commitments (2003: 4,000 MMbtu/day of production for the period 1
January 2004 through to 29 February 2004 at a net realised fixed price of
US$4.87/MMbtu (million British thermal units)).
Swaps and costless collars
In a natural gas swap agreement the consolidated entity receives from the
counterparty the difference between the agreed fixed price and the NYMEX
settlement price if the latter is lower than the fixed price. If the NYMEX
settlement price is higher than the agreed fixed price, the consolidated
entity will pay the difference to the counterparty.
In a natural gas costless collar agreement, a floor price and a ceiling
price is established. The consolidated entity receives from the
counterparty the difference between the agreed floor price and the NYMEX
penultimate closing price if the latter is lower than the fixed price. If
the NYMEX penultimate closing price is higher than the agreed ceiling
price, the consolidated entity will pay the difference to the
counterparty.
At 31 December 2004, the consolidated entity had the following outstanding
natural gas hedges in place:
WEIGHTED AVERAGE
PRODUCTION PERIOD HEDGE TYPE DAILY VOLUME USD PRICE
- ------------------- --------------- ------------ ----------------
First quarter 2005 Costless collar 4,000 MMBtu 6.00/7.08 (1)
Swap 6,000 MMBtu 7.89
Second quarter 2005 Swap 4,000 MMBtu 6.61
Third quarter 2005 Swap 4,000 MMBtu 6.59
Fourth quarter 2005 Swap 4,000 MMBtu 6.87
(1) Floor/Ceiling
At 31 December, 2003, the consolidated entity had swap agreements for the
sale of 4,000 MMbtu per day of natural gas at an agreed fixed price of
US$5.16/MMbtu for the period 1 January 2004 through to 31 March 2004.
The consolidated entity estimates that the effect on the group to settle
hedge agreements on 31 December 2004 would have been a pre-tax gain of
$1.9 million (2003: Loss of $0.5 million), representing the fair value of
the contracts at that date (Refer Note 21(a)).
The termination values for swap agreements will vary with movements in
market prices until the contracts mature.
29
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
20. FINANCING ARRANGEMENTS AND FINANCIAL INSTRUMENTS DISCLOSURES (CONTINUED)
CREDIT RISK EXPOSURES
Credit risk represents the loss that would be recognised if counterparties
failed to perform as contracted.
i) Recognised financial assets:
The credit risk on financial assets of the consolidated entity which have
been recognised is the carrying amount, net of any provision for doubtful
debts.
ii) Unrecognised financial instruments:
Credit risk on derivative contracts which have not been recognised on the
statement of financial position is minimised as counterparties are
recognised financial intermediaries with acceptable credit ratings
determined by a recognised ratings agency.
FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES
The carrying values of all financial assets & liabilities are estimated to
approximate fair value because of their short maturity.
21. COMMITMENTS AND CONTINGENT LIABILITIES
(a) CONTINGENT LIABILITIES
As at 31 December 2004, the estimated maximum contingent liability of the
consolidated entity in respect of securities issued in compliance with the
conditions of various agreements and permits granted to controlled
entities pursuant to Australian governmental acts and regulations is
$135,000 (2003: $135,000).
The consolidated entity is a defendant from time to time in legal
proceedings. Where appropriate the consolidated entity takes legal advice.
The consolidated entity does not consider that the outcome of any current
proceedings is likely to have a material effect on its operations or
financial position.
The production, handling, storage, transportation and disposal of oil and
gas, by-products thereof and other substances and materials produced or
used in connection with oil and gas operations are subject to regulation
under US federal, state and local laws and regulations primarily relating
to protection of human health and environment. To date, expenditure
related to complying with these laws and for remediation of existing
environmental contamination has not been significant in relation to the
results of operations of the consolidated entity.
The Company's U.S. subsidiary, Petsec Energy Inc. ("PEI") is required to
provide bonding or security for the benefit of U.S. regulatory authorities
in relation to its obligations to pay lease rentals and royalties, the
plugging and abandonment of oil and gas wells, and the removal of related
facilities. As of 31 December 2004 the Company is contingently liable for
US$3,875,000 of surety bonds (2003: US$2,175,000) issued through a surety
company to secure those obligations to the authorities. US$2,625,000 of
these bonds (2003: US$1,725,000) have been collateralised by letters of
credit.
From time to time, PEI must also provide cash collateral to the hedging
instruments counterparty. At 31 December 2004, PEI had no such cash
collateral requirement (2003: US$381,000).
30
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
21. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
CONSOLIDATED THE COMPANY
2004 2003 2004 2003
$'000 $'000 $'000 $'000
(b) NON-CANCELLABLE OPERATING LEASE EXPENSE COMMITMENTS
Future operating lease rentals on property
not provided for in the financial statements
are payable:
Not later than 1 year 219 197 - 97
Later than 1 year but not later than 5 years 288 59 - -
------ ------ ----- -----
507 256 - 97
------ ------ ----- -----
The consolidated entity leases property under non-cancellable operating
leases expiring from one to three years. Leases generally provide the
consolidated entity with a right of renewal at which time all terms are
renegotiated.
(c) EXPLORATION AND LEASE RENTAL COMMITMENTS
At 31 December 2004, a subsidiary of the Company has leases & contracts
under which it is committed to exploration activities and lease rentals.
The amounts to be incurred are payable:
CONSOLIDATED THE COMPANY
2004 2003 2004 2003
$'000 $'000 $'000 $'000
Not later than 1 year 10,971 2,936 - -
Later than 1 year but not later than 5 years 513 297 - -
------ ----- ----- -----
11,484 3,233 - -
------ ----- ----- -----
31
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
22. DEED OF CROSS GUARANTEE
Pursuant to an ASIC Class Order 98/1418 dated 13 August 1998, relief is
granted to certain wholly owned Australian subsidiaries of the Company
from the Corporations Act requirements for preparation, audit, and
publication of financial reports and directors' reports.
It is a condition of the Class Order that the Company and each of its
subsidiaries enter into a Deed of Cross Guarantee Indemnity. The effect of
the deed is that the Company guarantees to each creditor payment in full
of any debt in the event of winding up of any of the subsidiaries under
certain provisions of the Corporations Act. If a winding-up occurs under
other provisions of the Act, the Company will only be liable in the event
that after six months any creditor has not been paid in full. The
subsidiaries have also given similar guarantees in the event that the
Company is wound up.
A consolidated statement of financial performance and consolidated
statement of financial position, comprising the Company and subsidiaries
which are a party to the Deed, after eliminating all transactions between
parties to the Deed of Cross Guarantee, as at 31 December 2004, is set out
as follows:
CONSOLIDATED
2004 2003
$'000 $'000
SUMMARISED STATEMENT OF FINANCIAL PERFORMANCE AND
ACCUMULATED LOSSES
PROFIT/(LOSS) FROM ORDINARY ACTIVITIES BEFORE
INCOME TAX 35,469 (6,928)
Income tax (expense)/benefit relating to ordinary
activities (148) 1,533
-------- --------
NET PROFIT/(LOSS) 35,321 (5,395)
Accumulated losses at beginning of year (135,327) (129,932)
-------- --------
ACCUMULATED LOSSES AT END OF YEAR (100,006) (135,327)
-------- --------
STATEMENT OF FINANCIAL POSITION
Cash assets 3,280 11,350
Receivables 762 364
Other 80 29
-------- --------
TOTAL CURRENT ASSETS 4,122 11,743
-------- --------
Receivables 22,110 14,569
Other financial assets 46,138 840
Property, plant and equipment 82 87
Deferred tax asset 0 163
-------- --------
TOTAL NON-CURRENT ASSETS 68,330 15,659
-------- --------
TOTAL ASSETS 72,452 27,402
-------- --------
Payables 381 10,108
Provisions 48 51
-------- --------
TOTAL CURRENT LIABILITIES 429 10,159
-------- --------
Payables 7,606 -
Provisions 343 334
Deferred tax liabilities - 15
-------- --------
TOTAL NON-CURRENT LIABILITIES 7,949 349
-------- --------
TOTAL LIABILITIES 8,378 10,508
-------- --------
NET ASSETS 64,074 16,894
-------- --------
32
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
22. DEED OF CROSS GUARANTEE (CONTINUED)
CONSOLIDATED
2004 2003
$'000 $'000
Contributed equity 155,979 144,120
Reserves 8,101 8,101
Accumulated losses (100,006) (135,327)
-------- --------
TOTAL EQUITY 64,074 16,894
-------- --------
23. CONTROLLED ENTITIES
PARTICULARS IN RELATION TO CONTROLLED ENTITIES
Parent entity
ORDINARY SHARE
CONSOLIDATED
ENTITY INTEREST
Petsec Energy Ltd Place of 2004 2003
Controlled Entities Note Incorporation % %
Petsec Investments Pty. Limited 1 Australia 100 100
Petroleum Securities Pty. Limited 1 Australia 100 100
Najedo Pty. Limited 1 Australia 100 100
Petroleum Securities Share Plan Pty. Limited 1 Australia 100 100
Petsec America Pty. Limited Australia 100 100
Petsec (U.S.A.) Inc. USA 100 100
Petsec Petroleum Inc. USA 100 100
Petsec Energy Inc. USA 100 100
Osglen Pty. Limited Australia 66.7 66.7
Laurel Bay Petroleum Limited 1 Australia 100 100
Ginida Pty. Limited 1 Australia 100 100
Western Medical Products Pty. Limited 1 Australia 100 100
All entities carry on business in the country where they were
incorporated.
(1) Entities which have entered into approved deeds of indemnity for the cross
guarantee of liabilities with the Company in respect of relief granted
from specified accounting and financial reporting requirements in
accordance with a Class Order issued by the Australian Securities and
Investments Commission.
33
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
24. DIRECTORS' AND EXECUTIVES' DISCLOSURES
(a) REMUNERATION OF SPECIFIED DIRECTORS AND SPECIFIED EXECUTIVES
Remuneration levels are competitively set to attract and retain
appropriately qualified and experienced directors and senior executives.
The Remuneration Committee obtains independent advice on the
appropriateness of remuneration packages, given trends in comparative
companies both locally and internationally. Remuneration packages include
a mix of fixed remuneration, performance-based remuneration, and
equity-based remuneration.
The remuneration structures have taken into account the:
- overall level of remuneration for each director and executive;
- ability of the executive to control performance; and
- incentives component of each executive's remuneration.
Directors and all employees including senior executives may receive
options issued under the Employee Option Plan ("EOP") made in accordance
with the rules of the EOP approved by shareholders at the 1994 AGM as
subsequently amended. The EOP provides for the remuneration committee to
determine the aggregate number of options to be granted for no
consideration. The committee did not approve the issue of any options to
executives or directors other than in accordance with the plan.
Non-executive directors do not receive any performance related
remuneration.
Any issue of shares or options to a director is subject to the approval of
shareholders in general meeting.
Total remuneration for all non-executive directors, last voted upon by
shareholders on 22 November 1996, is not to exceed $300,000 per annum.
Directors' base fees are presently up to $50,000 per annum. The executive
Chairman does not receive a base fee. Non-executive directors do not
receive bonuses nor are they issued options on securities. Directors' fees
cover all main board activities and membership of committees and no
incentive arrangements are in place.
Under the board's Retirement Scheme, retiring non-executive directors are
presently entitled to a benefit equivalent to the total remuneration
received in the preceding three years. The scheme does not apply to any
newly appointed directors. In 2003, the Remuneration Committee approved a
scheme which entitles non-executive directors, on a sliding scale,
benefits up to a maximum of three times the annual remuneration.
The following table provides the details of all directors of the Company
("specified directors") and the five executives of the consolidated entity
with the greatest authority ("specified executives") and the nature and
amount of the elements of their remuneration for the year ended 31
December 2004.
34
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
24. DIRECTORS AND EXECUTIVES DISCLOSURES (CONTINUED)
(a) REMUNERATION OF SPECIFIED DIRECTORS AND SPECIFIED EXECUTIVES (CONTINUED)
EQUITY
PRIMARY POST EMPLOYMENT COMPENSATION OTHER COMPONENTS
-------- -------------------------- ------------ -----------------------
SALARY & SUPERANNUATION RETIREMENT VALUE OF OTHER OTHER TOTAL
FEES BENEFITS BENEFITS OPTIONS BENEFITS COMPENSATION -------
$ $ $ $ $ $ $
-------- -------------- ---------- ------------ -------- ------------ -------
SPECIFIED DIRECTORS
EXECUTIVE
Mr T. Fern Chairman,
Managing
director 2004 - - - - 16,477 460,008 476,485
(Refer Note 1) 2003 - - - - 12,239 800,761 813,000
NON-EXECUTIVE
Mr D. Mortimer Director 2004 50,000 4,500 - - - - 54,500
2003 50,000 4,500 - - - - 54,500
Dr. P. Power Director 2004 50,000 4,500 - - - - 54,500
2003 50,000 4,500 - - - - 54,500
---- -------- -------------- ---------- ------------ -------- ---------- -------
TOTAL, ALL SPECIFIED 2004 100,000 9,000 - - 16,477 460,008 585,485
DIRECTORS 2003 100,000 9,000 - - 12,239 800,761 922,000
---- -------- -------------- ---------- ------------ -------- ---------- -------
35
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
24. DIRECTORS AND EXECUTIVES DISCLOSURES (CONTINUED)
(a) REMUNERATION OF SPECIFIED DIRECTORS AND SPECIFIED EXECUTIVES (CONTINUED)
EQUITY
POST COMPENSA
PRIMARY EMPLOYMENT -TION OTHER COMPONENTS
------------------- ---------- -------- -----------------------
SUPER-
SALARY & ANNUATION VALUE OF OTHER OTHER TOTAL
FEES BONUS BENEFITS OPTIONS BENEFITS COMPENSATION ---------
$ $ $ $ $ $ $
-------- --------- ---------- -------- -------- ------------ ---------
SPECIFIED
EXECUTIVES
Mr R. Keogh President, 2004 218,806 313,786 - 24,269 17,754 - 574,615
Petsec Energy Inc. 2003 231,087 401,065 - 43,228 19,058 - 694,438
Mr P. Kallenberger Vice President,
Exploration, 2004 219,043 286,065 - 22,402 17,676 - 545,186
Petsec Energy Inc. 2003 209,059 354,566 - 39,274 22,955 - 625,854
Mr N. Fakier Vice President,
Operations, 2004 184,214 243,836 - 22,402 12,528 - 462,980
Petsec Energy Inc. 2003 191,137 308,519 - 39,274 17,311 - 556,241
Mr G. Fulcher Company Secretary 2004 88,598 - 10,000 2,559 13,184 - 114,341
2003 86,473 - 10,000 3,748 12,239 - 112,460
Mrs F. Robertson Chief Financial
(Refer Note 2) Officer 2004 - - - - 1,461 139,405 140,866
2003 - - - - - 119,025 119,025
---- -------- --------- ---------- -------- -------- ------------ ---------
TOTAL, ALL SPECIFIED 2004 710,661 843,687 10,000 71,632 62,603 139,405 1,837,988
EXECUTIVES 2003 717,756 1,064,150 10,000 125,524 71,563 119,025 2,108,018
---- -------- --------- ---------- -------- -------- ------------ ---------
36
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
24. DIRECTORS AND EXECUTIVES DISCLOSURES (CONTINUED)
(a) REMUNERATION OF SPECIFIED DIRECTORS AND SPECIFIED EXECUTIVES (CONTINUED)
NOTES
1) Included in other compensation above is an amount of $460,008 (2003:
$800,761) which was paid or is payable to Geofin Consulting Services
Pty Ltd ("Geofin"), a company which Mr Fern is a director.
During the year, Geofin provided management services to the company
and its controlled entities. The dealings were in the ordinary
course of business and on normal terms and conditions.
2) Included in other compensation above is an amount of $139,405 (2003:
$119,025) which was paid or is payable to Geofin, a company through
which Mrs Robertson provided services.
3) Salary & fees for certain specified executives includes the movement
during the reporting period of accruals for annual leave and long
service leave.
4) Bonuses under the employee incentive plans are granted annually
based on a percentage of operating profits.
5) The fair value of options is calculated at the date of the grant
using the Black-Scholes model and allocated to each reporting period
evenly over the period from grant date to vesting date.
(b) EQUITY INSTRUMENTS
Interest in ordinary shares of the Company
At balance date, the aggregate number of ordinary shares in the Company
held directly, indirectly or beneficially by directors and executives,
including personally related entities were 28,392,260 (2003: 27,802,160)
as noted below:
Note 2004 2003
---- ---------- ----------
SPECIFIED DIRECTORS
Mr T. Fern 26,940,832 26,940,832
Mr D. Mortimer 610,068 610,068
Dr P. Power (i) 225,323 180,223
---------- ----------
27,776,223 27,731,123
---------- ----------
SPECIFIED EXECUTIVES
Mr R. Keogh - -
Mr P. Kallenberger - -
Mr N. Fakier (ii) 525,000 -
Mr G. Fulcher (iii) 91,037 71,037
Mrs F. Robertson (iv) 75,000 25,000
---------- ----------
691,037 96,037
---------- ----------
NOTES
(i) During the year, Dr Power acquired directly or indirectly 45,100 ordinary
shares in the company.
(ii) During the year, Mr Fakier exercised 525,000 options on ordinary shares at
an exercise price of $0.30.
(iii) During the year, Mr Fulcher exercised 20,000 options on ordinary shares at
an exercise price of $0.41.
(iv) During the year, Mrs Robertson acquired directly and indirectly 50,000
ordinary shares in the company.
Options
All options refer to options over ordinary shares of Petsec Energy Ltd,
which are exercisable on a one-for-one basis under the Employee Option
Plan.
37
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
24. DIRECTORS AND EXECUTIVES DISCLOSURES (CONTINUED)
(b) EQUITY INSTRUMENTS (CONTINUED)
The number of options held, directly, indirectly or beneficially, by each
specified director and specified executive, including their personally
related entities, is as follows:
2004 2003
--------- ---------
SPECIFIED EXECUTIVES
Mr R. Keogh 1,250,000 1,250,000
Mr P. Kallenberger 1,125,000 1,125,000
Mr N. Fakier 600,000 1,125,000
Mr G. Fulcher 35,000 55,000
--------- ---------
3,010,000 3,555,000
--------- ---------
(i) No options were granted to any specified executive during the year (2003:
35,000 options were granted to Mr Fulcher).
(ii) During the year, Mr Fakier and Mr Fulcher exercised 525,000 and 20,000
options, respectively (2003: Nil).
(iii) 934,000 options vested during the year (2003: 753,000). At 31 December
2004, 1,142,000 options were vested.
(c) LOANS AND OTHER TRANSACTIONS WITH SPECIFIED DIRECTORS AND SPECIFIED
EXECUTIVES
Loans
No loans were made to specified directors during the year and no such
loans were outstanding.
Other transactions with the Company or its controlled entities
A number of specified directors and specified executives, or their
personally related entities, hold positions in other entities that result
in them having control or significant influence over the financial or
operating policies of those entities.
A number of these entities transacted with the Company or its subsidiaries
in the reporting period. The terms and conditions of those transactions
were no more favourable than those available, or which might reasonably be
expected to be available, on similar transactions to unrelated entities on
an arm's length basis.
The aggregate amounts recognised during the year relating to specified
directors, specified executives and their personally-related entities,
were a total expense of $599,413 (2003: $919,786). Details of the
transactions are as follows:
2004 2003
TRANSACTION NOTE $ $
------------------- ---- ------- -------
SPECIFIED DIRECTORS
Mr T. Fern Management services (i) 460,008 800,761
SPECIFIED EXECUTIVES
Mrs F. Robertson Management services (ii) 139,405 119,025
NOTES
(i) A company associated with Mr Fern provided management services to the
consolidated entity in the ordinary course of business and on normal terms
and conditions.
(ii) Mrs Robertson provides management services to the consolidated entity in
the ordinary course of business and on normal terms and conditions.
The Company holds unlisted shares in an investment fund of which Mr
Mortimer is Chairman.
2004 2003
ASSETS AND LIABILITIES ARISING FROM THE ABOVE TRANSACTIONS $'000 $'000
----- -----
NON-CURRENT ASSETS
Investments - Unlisted shares 678 444
CURRENT LIABILITIES
Payables 25 82
38
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
CONSOLIDATED THE COMPANY
2004 2003 2004 2003
$'000 $'000 $'000 $'000
25. INTERESTS IN JOINT VENTURES
Included in the assets of the Company and the consolidated entity are the
following items which represent the Company and the consolidated entity's
interest in the assets and liabilities in joint ventures:
LEASE PERMITS AND CAPITAL EXPENDITURE
Now in production at cost
- - West Cameron 343 12,972 11,978 - -
- - West Cameron 352 10,339 10,412 - -
Less: Accumulated amortisation (18,760) (8,605) - -
------- ------ -- --
4,551 13,785
Not in production
- - Main Pass 89 194 158 - -
- - Main Pass 19 1,998 - - -
- - Block 22/12 Beibu Gulf 3,451 2,739 - -
- - Onshore Louisiana 4,095 - - -
- - St James Parish, Onshore Louisiana 3,236 - - -
------- ------ -- --
12,974 2,897
------- ------ -- --
Total lease permit and capital expenditure 17,525 16,682 - -
------- ------ -- --
THE CONTRIBUTION OF THE CONSOLIDATED ENTITY'S JOINT VENTURE INTERESTS
TO THE OPERATING PROFIT:
- - West Cameron 343 10,002 17,788 - -
- - West Cameron 352 1,522 5,572 - -
- - Block 22/12 Beibu Gulf (1,871) - - -
------- ------ -- --
9,653 23,360 - -
------- ------ -- --
Refer Note 21 for details of commitments and contingent liabilities.
The principal activity of all the joint venture operations is oil & gas
exploration and development for production. Listed below is the name of each of
the joint-venture operations and the percentage interest held in the joint
venture by the consolidated entity:
WORKING WORKING
INTEREST INTEREST
HELD HELD
JOINT VENTURE NAME 2004 2003
Main Pass 89 30.0% 30.0%
Main Pass 19 55.0% -
West Cameron 343 75.0% to 100% 75.0% to 100%
West Cameron 352 56.3% 56.3% to 75.0%
Block 22/12, Beibu Gulf 25.0% 25.0%
Onshore Louisiana 25.0% -
St James Parish, Onshore Louisiana 50.0% -
39
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
CONSOLIDATED THE COMPANY
2004 2003 2004 2003
$'000 $'000 $'000 $'000
26. DETAILS OF WHOLLY OWNED AREAS OF INTEREST NOW IN PRODUCTION
LEASE PERMITS AND CAPITAL EXPENDITURE
Now in production at cost
- Vermilion 258 (i) 27,820 9,795 - -
Less: Accumulated amortisation (4,929) - - -
------ ----- --- ---
22,891 9,795 - -
------ ----- --- ---
THE CONTRIBUTION OF THE CONSOLIDATED ENTITY'S JOINT VENTURE
INTERESTS TO THE OPERATING PROFIT:
- Vermilion 258 (i) 14,450 - - -
------ ----- --- ---
(i) Commenced production in July 2004.
27. EMPLOYEE BENEFITS
Aggregate liability for employee benefits, including on-costs
CURRENT
Other creditors and accruals 13 63 37 9 -
Employee benefits provision 15 48 51 48 51
NON-CURRENT
Employee benefits provisions 15 343 334 343 334
------ ----- --- ---
454 422 400 385
------ ----- --- ---
A liability of $300,000 for directors' retirement benefit has been included in
the non-current provision for employee benefits. Refer Note 15.
CONSOLIDATED THE COMPANY
NUMBER OF EMPLOYEES 2004 2003 2004 2003
Number of employees at year end 17 16 4 5
DIRECTORS' RETIREMENT BENEFITS
Petsec Energy Ltd provides non-executive directors first appointed before 1
April 2003 with a benefit on retirement equivalent to the total remuneration
received in the three years preceding retirement.
In 2003, the Nomination and Remuneration Committee approved a retirement benefit
for directors appointed after 1 April 2003 which is proportional to the length
of service, with a maximum benefit equivalent to the remuneration received in
the three years preceding retirement.
The Company's liability for directors' retirement benefits is included in
employee benefits, and in directors' remuneration.
40
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
27. EMPLOYEE BENEFITS (CONTINUED)
EQUITY-BASED PLANS
At its general meeting on 29 November 1994, the Company approved the
establishment of an Employee Share Plan and an Employee Option Plan. The
plans are administered by the Nomination and Remuneration Committees.
EMPLOYEE SHARE PLAN
The Employee Share Plan (and associated loan scheme) provides for the
issue of ordinary shares in the Company at the ruling market price to
employees and directors of the consolidated entity. The issue price of the
shares is financed by interest-free loans from the Company to the
employees and directors. There are presently no shares held under the
plan.
EMPLOYEE OPTION PLAN
The Employee option plan provides for employees, executives and directors
to be granted options over ordinary shares at the discretion of the
Nomination and Remuneration Committee.
Each option is convertible to one ordinary share. The exercise prices of
the options, determined in accordance with the Rules of the plan, are
based on the ruling market prices when the options are issued.
All options expire on the earlier of their expiry date or when the
holder's employment ceases. Options may not be exercised until they are
vested and thereafter exercise is conditional on satisfaction of the terms
of issue. The vesting period is usually at least six months after
granting. The plan does not represent remuneration for past services.
There are no voting or dividend rights attached to the options. There are
no voting rights attached to unissued ordinary shares. Voting and other
rights will attach to the ordinary shares which may be issued following
exercise of options. The total shares and options issued to employees over
a five- year period are not to exceed 6,987,567. As at 31 December 2004
the number of further shares or options, which could be issued within the
limit was 3,349,567 (2003: 2,909,567).
At 31 December 2004, there were the following unexercised options to
purchase the Company's ordinary shares:
Number of shares
Date of grant Expiry date under option Exercise price
- ----------------- ---------------- ---------------- ------------------------
3 June 2002 1 June 2007 3,005,000 $0.30 (employee options)
1 July 2002 1 June 2007 15,000 $0.30 (employee options)
1 April 2003 1 December 2007 138,000 $0.40 (employee options)
1 April 2003 1 April 2008 75,000 $0.40 (employee options)
25 August 2003 31 December 2007 175,000 $0.82 (employee options)
16 January 2004 30 November 2008 15,000 $0.83 (employee options)
8 March 2004 1 March 2009 15,000 $1.25 (employee options)
16 September 2004 30 June 2009 150,000 $1.00 (employee options)
31 October 2004 31 July 2009 50,000 $1.25 (employee options)
---------
3,638,000
---------
41
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
27. EMPLOYEE BENEFITS (CONTINUED)
The options become exercisable at various dates and after various share
price hurdles of the Company have been reached. During the year, the
following options to purchase ordinary shares in the Company were
exercised:
Number of shares
Date exercised Expiry date issued on exercise Exercise price
- ----------------- ---------------- ------------------ --------------
13 January 2004 16 April 2004 5,000 $0.41
13 January 2004 1 December 2007 3,000 $0.40
19 March 2004 16 April 2004 55,000 $0.41
16 April 2004 16 April 2004 23,000 $0.41
3 May 2004 1 June 2007 525,000 $0.30
14 September 2004 31 December 2007 25,000 $0.82
22 December 2004 1 December 2007 4,000 $0.40
-------
640,000
-------
Summary of options over unissued ordinary shares
Details of options over unissued ordinary shares as at the beginning and
ending of the reporting date and movements during the year are set out
below:
CONSOLIDATED
2004 2003
MOVEMENTS IN OUTSTANDING OPTIONS
Outstanding options at beginning of year 4,063,000 3,628,000
Granted 230,000 450,000
Exercised (640,000) -
Cancelled (15,000) (15,000)
--------- ---------
Outstanding options at end of year 3,638,000 4,063,000
--------- ---------
During the year, 230,000 options were granted (2003: 450,000), 640,000
options were exercised and converted to ordinary shares (2003: Nil) and
15,000 options were cancelled (2003: 15,000).
The fair value of shares issued as a result of exercising the options
during the reporting period at their issue date is the market price of
shares of the Company on the Australian Stock Exchange as at close of
trading.
The amounts recognised in the financial statements of the Company and
consolidated entity, in relation to employee share options exercised
during the financial year were:
CONSOLIDATED THE COMPANY
2004 2003 2004 2003
$000 $000 $000 $000
Issued ordinary share capital 215 - 215 -
--- -- --- --
42
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
27. EMPLOYEE BENEFITS (CONTINUED)
EQUITY-BASED PLANS (CONTINUED)
Summary of options over unissued ordinary shares (continued)
NUMBER OF
OPTIONS AT
EXERCISE DATE ON OR EXERCISE BEGINNING OPTIONS OPTIONS OPTIONS
GRANT DATE AFTER EXPIRY DATE PRICE $ OF YEAR GRANTED CANCELLED EXERCISED
- ------------------------ ------------------- ---------------- -------- ---------- ------- --------- ---------
CONSOLIDATED AND COMPANY
2004
17 April 1999 19 April 2000 16 April 2004 $0.41 83,000 (83,000)
3 June 2002 1 April 2003 1 June 2007 $0.30 3,530,000 (525,000)
1 July 2002 1 April 2003 1 June 2007 $0.30 15,000 -
23 January 2003 1 December 2003 1 December 2007 $0.40 15,000 (15,000) -
1 April 2003 1 December 2004 1 December 2007 $0.40 145,000 (7,000)
1 April 2003 1 April 2004 1 April 2008 $0.40 75,000 -
25 August 2003 25 August 2004 31 December 2007 $0.82 200,000 (25,000)
16 January 2004 30 November 2004 30 November 2008 $0.83 - 15,000 -
8 March 2004 1 March 2005 1 March 2009 $1.25 - 15,000 -
16 September 2004 17 September 2005 30 June 2009 $1.00 - 150,000
31 October 2004 30 September 2005 30 July 2009 $1.25 - 50,000
--------- ------- ------- --------
4,063,000 230,000 (15,000) (640,000)
--------- ------- ------- --------
CONSOLIDATED AND COMPANY
2003
17 April 1999 19 April 2000 16 April 2004 $0.41 83,000
3 June 2002 1 April 2003 1 June 2007 $0.30 3,530,000
1 July 2002 1 April 2003 1 June 2007 $0.30 15,000
23 January 2003 1 December 2003 1 December 2007 $0.40 - 30,000 (15,000)
1 April 2003 1 December 2004 1 December 2007 $0.40 - 145,000
1 April 2003 1 April 2004 1 April 2008 $0.40 - 75,000
25 August 2003 25 August 2004 31 December 2007 $0.82 - 200,000
--------- ------- -------
3,628,000 450,000 (15,000)
--------- ------- -------
NUMBER OF OPTIONS AT END OF FAIR VALUE
YEAR AGGREGATE ON
--------------------------- PROCEEDS DATE OPTIONS NUMBER OF FAIR VALUE EXERCISE DATE
GRANT DATE ON ISSUE VESTED RECEIVED $ EXERCISED SHARES ISSUED PER SHARE $ $
- ------------------------ --------- --------- ---------- ------------ ------------- ----------- -------------
CONSOLIDATED AND COMPANY
2004
17 April 1999 - - 34,030 13/1/04 5,000 1.29 6,450
19/3/04 55,000 1.42 78,100
16/4/04 23,000 1.62 37,260
3 June 2002 3,005,000 1,146,000 157,500 3/5/04 525,000 1.24 651,000
1 July 2002 15,000 8,000 - - - - -
23 January 2003 - - - - - - -
1 April 2003 138,000 63,000 2,800 13/1/04 3,000 1.29 3,870
22/12/04 4,000 1.18 4,720
1 April 2003 75,000 37,000 - - - - -
25 August 2003 175,000 75,000 20,500 14/9/04 25,000 1.04 26,000
16 January 2004 15,000 4,000 - - - -
8 March 2004 15,000 - - - - -
16 September 2004 150,000 - - - - -
31 October 2004 50,000 - - - - -
--------- --------- ------- ------- -------
3,638,000 1,333,000 214,830 640,000 807,400
--------- --------- ------- ------- -------
CONSOLIDATED AND COMPANY
2003
17 April 1999 83,000 83,000 - - - - -
3 June 2002 3,530,000 734,000 - - - - -
1 July 2002 15,000 4,000 - - - - -
23 January 2003 15,000 8,000 - - - - -
1 April 2003 145,000 - - - - - -
1 April 2003 75,000 - - - - - -
25 August 2003 200,000 - - - - - -
--------- --------- ------- ------- -------
4,063,000 829,000 - - -
--------- --------- ------- ------- -------
43
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
27. EMPLOYEE BENEFITS (CONTINUED)
SUPERANNUATION PLANS
The Company and certain controlled entities contribute to several defined
contribution employee superannuation plans. Employee contributions are
based on various percentages of their gross salaries. The consolidated
entity is under no legal obligation to make contributions in excess of
those specified in SIS legislation.
CONSOLIDATED THE COMPANY
2004 2003 2004 2003
$000 $000 $000 $000
Employer contributions to the plans 38 44 38 44
Employer contributions payable to the plans at reporting date 9 - 9 -
-- -- -- --
U.S. based employees are eligible to participate in a voluntary savings
plan under Section 401(k) of the US tax code ("401(k) plan").
EMPLOYEE INCENTIVE PLANS
On 23 May 2003, the consolidated entity established an incentive
compensation plan for its U.S. based employees. Under the plan, the
consolidated entity will accrue up to 6 -1/2 percent of the annual
operating profit of the U.S. operations. The bonus is paid annually in the
first quarter of the year following determination of the annual results.
During 2004, the consolidated entity recorded $1.3 million of compensation
expense under the plan (2003: $1.3 million).
44
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
28. SEGMENT REPORTING
For the years ended 31 December 2004 and 31 December 2003, the consolidated
entity operated predominantly in two geographic segments and one business
segment, namely the USA and China and in exploration for and production of
oil and gas, respectively. These operations are supported by a corporate
head office in Australia. The consolidated entity's assets are predominantly
exploration and development properties in the USA and China and cash held in
Australia.
AUSTRALIA USA CHINA CONSOLIDATED
----------------- ---------------- ------------------ ------------------
PRIMARY REPORTING 2004 2003 2004 2003 2004 2003 2004 2003
GEOGRAPHIC SEGMENTS A$'000 A$'000 A$'000 A$'000 A$'000 A$'000 A$'000 A$'000
------ ------ ------ ------ ------ ------ ------ ------
Oil & gas sales and royalties - - 54,366 46,951 - - 54,366 46,951
Other revenue 59 247 109 250 - - 168 497
Unallocated revenue - - - - - - 595 473
------ ------ ------ ------ ------ ------ ------ ------
TOTAL REVENUE * 59 247 54,475 47,201 - - 55,129 47,921
====== ====== ====== ====== ====== ====== ======
Segment result (1,510) (1,623) 19,693 22,804 (1,871) - 16,312 21,181
------ ------ ------ ------ ------ ------
Income tax (expense) benefit (489) 1,533
------ ------
PROFIT (LOSS) FROM ORDINARY ACTIVITIES AFTER
INCOME TAX 15,823 22,714
====== ====== ====== ====== ====== ====== ====== ======
Depreciation and amortisation 36 32 17,102 10,030 - - 17,138 10,062
INDIVIDUALLY SIGNIFICANT ITEMS:
Dry hole costs, impairments & abandonments - - - (164) (1,544) - (1,544) (164)
Major maintenance expense - - (806) - - - (806) -
ASSETS:
Segment assets 851 383 67,733 39,985 3,451 2,739 72,035 43,107
Unallocated assets 3,341 11,908
------ ------ ------ ------ ------ ------ ------ ------
TOTAL ASSETS 75,376 55,015
====== ======
* There are no inter-segment sales
45
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
28. SEGMENT REPORTING (CONTINUED)
AUSTRALIA USA CHINA CONSOLIDATED
--------------- --------------- -------------- ---------------
2004 2003 2004 2003 2004 2003 2004 2003
GEOGRAPHIC SEGMENTS (CONTINUED) A$'000 A$'000 A$'000 A$'000 A$'000 A$'000 A$'000 A$'000
------ ------ ------ ------ ------ ------ ------ ------
Segment liabilities 727 10,492 15,148 9,308 - - 15,875 19,800
Unallocated liabilities - 15
------ ------
TOTAL LIABILITIES 15,875 19,815
====== ======
Acquisition of non-current assets 33 2 40,299 22,925 2,464 1,674 42,796 24,601
OIL & GAS CORPORATE CONSOLIDATED
---------------- ---------------- ----------------
SECONDARY REPORTING BUSINESS 2004 2003 2004 2003 2004 2003
SEGMENTS A$'000 A$'000 A$'000 A$'000 A$'000 A$'000
------ ------ ------ ------ ------ ------
External segment revenue 54,468 47,201 238 502 54,706 47,703
Unallocated revenue 423 218
------ ------
TOTAL REVENUE 55,129 47,921
====== ======
Segment assets 59,304 33,576 16,072 20,940 75,376 54,516
Unallocated assets - 499
------ ------
TOTAL ASSETS 75,376 55,015
====== ======
Acquisition of non-current assets 42,652 24,424 144 177 42,796 24,601
46
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
29. NON DIRECTOR RELATED PARTY DISCLOSURES
CONTROLLED ENTITIES
Details of interests in controlled entities are set out in Note 23.
Details of dealings of the Company with wholly owned controlled entities
are set out below:
The aggregate amounts included in the profit from ordinary activities
before income tax expense of the Company that resulted from transactions
with wholly owned controlled entities were:
2004 2003
$'000 $'000
------- ------
Movement in provision against investments and loans to controlled entities 34,921 -
------- ------
The aggregate amounts receivable from/and payable to wholly owned
controlled entities by the Company at balance date were:
2004 2003
$'000 $'000
Receivables - non-current (1) 32,963 56,092
Less: Provision against receivables (5,041) (36,038)
------ -------
27,922 20,054
------ -------
Payables - non-current (1) 14,959 7,618
------ -------
At 31 December 2004, the Company had provided against various loans to
wholly owned Australian-controlled entities (see Note 9).
(1) Loans to/(from) wholly controlled entities include unsecured and
non-interest bearing loans which have no set maturity date. The
Company extends interest-bearing loans to its wholly owned US
subsidiary, Petsec (USA) Inc. and currently charges interest rates
of 3.36% (2003: 2.62%) on USD denominated loans and 6.96% (2003:
nil) on AUD denominated loans.
47
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
30. NOTES TO THE STATEMENTS OF CASH FLOWS
(a) RECONCILIATION OF CASH
For the purposes of the statements of cash flows, cash includes
cash-on-hand and at bank and short-term deposits at call with banks or
cash management trusts.
Cash as at the end of the financial year as shown in the statements of
cash flows is reconciled to the related items in the balance sheets as
follows:
CONSOLIDATED THE COMPANY
2004 2003 2004 2003
$'000 $'000 $'000 $'000
Cash assets 12,227 16,770 3,280 11,349
------ ------ ------ ------
(b) RECONCILIATION OF PROFIT/(LOSS) FROM
ORDINARY ACTIVITIES AFTER INCOME TAX TO NET
CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES
Profit/(loss) from ordinary activities after income tax 15,823 22,714 31,998 (5,537)
ADD/(LESS) ITEMS CLASSIFIED AS INVESTING OR FINANCING ACTIVITIES:
(Profit)/loss from sale of P,P&E (3) - - -
Distribution from bankruptcy trustee - (126) - (95)
Major maintenance expense 806 - - -
ADD/(LESS) NON-CASH ITEMS:
Reversal of deferred income tax liability relating to unrealised
foreign exchange gains - (1,047) - (1,047)
Provision for:
- employee benefits 6 155 6 155
- writedown against loans and investments in controlled entities - - (34,921) -
Write-off of exploration expenditure - dry-holes, impairments &
abandonments 1,544 164 - -
Depreciation, depletion & amortisation and reclamation 17,138 10,062 36 32
Unrealised foreign exchange losses - - 883 4,878
------ ------ ------ ------
NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES BEFORE
CHANGES IN ASSETS AND LIABILITIES 35,314 31,922 (1,998) (1,614)
(Increase)/decrease in trade, other debtors and prepayments (7,119) (6,985) (404) (244)
(Increase)/decrease in deferred tax assets 504 (417) 163 (33)
(Decrease)/increase in trade creditors and accruals 2,282 3,460 (12) (1)
(Decrease)/increase in deferred tax liabilities (15) (453) (15) (453)
------ ------ ------ ------
NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES 30,966 27,527 (2,266) (2,345)
------ ------ ------ ------
48
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2004
31. EVENTS SUBSEQUENT TO BALANCE DATE
INTERNATIONAL FINANCIAL REPORTING STANDARDS
For reporting periods beginning on or after 1 January 2005, the
consolidated entity must comply with International Financial Reporting
Standards (IFRS) as issued by the Australian Accounting Standards Board.
The financial report has been prepared in accordance with Australian
Accounting Standards and other financial reporting requirements
(Australian GAAP). The differences between Australian GAAP and Australian
equivalents to International Financial Reporting Standards (AIFRS)
identified to date as potentially having a significant effect on the
consolidated entity's financial performance and financial position are
summarised below. The summary should not be taken as an exhaustive list of
all the differences between current Australian GAAP and AIFRS. No attempt
has been made to identify all disclosure, presentation or classification
differences that would affect the manner in which transactions or events
are presented.
The consolidated entity has not quantified the effects of the differences
discussed below. Accordingly, there can be no assurances that the
financial performance and financial position as disclosed in this
financial report would not be significantly different if determined in
accordance with IFRS.
The key potential implications of the conversion to IFRS on the
consolidated entity are as follows:
- impairment of assets will be determined on a discounted basis,
with strict tests for determining whether cash-generating
operations have been impaired
- income tax will be calculated based on the "balance sheet"
approach, which will result in more deferred tax assets and
liabilities and, as tax effects follow the underlying
transaction, some tax effects will be recognised in equity
- equity-based compensation in the form of shares and options
will be recognised as expenses in the periods during which the
employee provides related services
- the consolidated entity conducts most of its transactions and
reports internally in US dollars (USD). While no decision has
yet been made, it is possible that the consolidated entity
will consider USD to be its functional currency
- financial instruments must be recognised in the statement of
financial position and all derivatives and most financial
assets must be carried at fair value
- changes in accounting policies will be recognised by restating
comparatives rather than making current year adjustments with
note disclosure of prior year effects.
- the consolidated entity will consider taking advantage of the
election of AASB 1 and reset the balance of the foreign
currency translation reserve to $Nil, adjusted against
retained earnings.
AASB 6 "Exploration for and Evaluation of Mineral Resources" permits the
area of interest method of accounting to continue for exploration and
evaluation expenditure and thus AASB 6 should provide outcomes consistent
with those under the existing standard AASB 1022 "Accounting for the
Extractive Industries" in accounting for the initial recognition of
exploration and evaluation assets. AASB 6 also requires the inclusion of
the cost of restoration and rehabilitation obligations in capitalised
exploration and evaluation expenditure at initial recognition, while the
current accounting policy recognises restoration and rehabilitation
obligations as expenses progressively on the basis of physical depletion
of each area of interest. The provisions are required to be measured as
the present value of the estimated future obligation under AASB 137
"Provisions, Contingent Liabilities and Contingent Assets", which may
potentially differ to the value recognised under the current accounting
policy.
49
PETSEC ENERGY LTD AND ITS CONTROLLED ENTITIES
DIRECTORS DECLARATION
1. In the opinion of the directors of Petsec Energy Ltd ("the company"):
(a) the financial statements and notes, set out on pages 7 to 48 are in
accordance with the Corporations Act 2001 (Cth), including:
(i) giving a true and fair view of the financial position of the company
and consolidated entity as at 31 December 2004 and of their
performance, as represented by the results of their operations and
their cash flows, for the year ended on that date; and
(ii) complying with Accounting Standards and the Corporations Regulations
2001; and
(b) there are reasonable grounds to believe that the company will be able to
pay its debts as and when they become due and payable.
2. There are reasonable grounds to believe that the company and the
subsidiaries identified in Note 22 will be able to meet any obligations or
liabilities to which they are or may become subject by virtue of the Deed
of Indemnity between the company and those subsidiaries pursuant to
Australian Securities and Investments Commission Class Order 98/1418.
Signed in accordance with a resolution of the directors:
/T.N. Fern
T.N. FERN
Director
Sydney, 23 February 2005
50
INDEPENDENT AUDIT REPORT TO MEMBERS OF PETSEC ENERGY LTD
SCOPE
The financial report and directors' responsibility
The financial report comprises the statement of financial position, statement of
financial performance, statement of cash flows, accompanying notes to the
financial statements, and the directors' declaration for both Petsec Energy Ltd
(the "Company") and Petsec Energy Group (the "Consolidated Entity"), for the
year ended 31 December 2004. The Consolidated Entity comprises both the company
and the entities it controlled during that year.
The directors of the Company are responsible for the preparation and true and
fair presentation of the financial report in accordance with the Corporations
Act 2001. This includes responsibility for the maintenance of adequate
accounting records and internal controls that are designed to prevent and detect
fraud and error, and for the accounting policies and accounting estimates
inherent in the financial report.
Audit approach
We conducted an independent audit in order to express an opinion to the members
of the Company. Our audit was conducted in accordance with Australian Auditing
Standards in order to provide reasonable assurance as to whether the financial
report is free of material misstatement. The nature of an audit is influenced by
factors such as the use of professional judgement, selective testing, the
inherent limitations of internal control, and the availability of persuasive
rather than conclusive evidence. Therefore, an audit cannot guarantee that all
material misstatements have been detected.
We performed procedures to assess whether in all material respects the financial
report presents fairly, in accordance with the Corporations Act 2001, Australian
Accounting Standards and other mandatory financial reporting requirements in
Australia, a view which is consistent with our understanding of the Company's
and the Consolidated Entity's financial position, and of their performance as
represented by the results of their operations and cash flows.
We formed our audit opinion on the basis of these procedures, which included:
o examining, on a test basis, information to provide evidence supporting
the amounts and disclosures in the financial report, and
o assessing the appropriateness of the accounting policies and
disclosures used and the reasonableness of significant accounting
estimates made by the directors.
While we considered the effectiveness of management's internal controls over
financial reporting when determining the nature and extent of our procedures,
our audit was not designed to provide assurance on internal controls.
INDEPENDENCE
In conducting our audit, we followed applicable independence requirements of
Australian professional ethical pronouncements and the Corporations Act 2001.
AUDIT OPINION
In our opinion, the financial report of Petsec Energy Ltd is in accordance with:
a) the Corporations Act 2001, including:
i. giving a true and fair view of the Company's and Consolidated
Entity's financial position as at 31 December 2004 and of
their performance for the financial year ended on that date;
and;
ii. complying with Accounting Standards in Australia and the
Corporations Regulations 2001; and
b) other mandatory financial reporting requirements in Australia.
/s/ KPMG /s/ Nicola Davis
KPMG Nicola Davis
Partner
Sydney
23 February 2005
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Petsec Energy Ltd
Date: March 7, 2005 By: Mrs Fiona A. Robertson
/F.A. Robertson
Fiona A. Robertson
Chief Financial Officer
51