drillsearch delivers record net profit after tax of $45.1 million ...2013/08/29 · 26 november...
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Drillsearch Energy Limited ABN 73 006 474 844
Telephone +61 2 9249 9600 Facsimile +61 2 9249 9630 [email protected]
www.drillsearch.com.au Level 16, 55 Clarence Street
Sydney NSW 2000
29 August 2013 FY 2013 Full Year Results Drillsearch in the black – Record net profit of $45.1 million Drillsearch Energy Limited (ASX: DLS) is pleased to announce its results for the 2013 financial year including a net profit after tax of $45.1 million; a significant increase on the 2012 financial year result of $10.0 million. The record financial performance was on the back of the Company’s highest ever total production and sales revenues, which are attributed to the ramp up in oil production from the Western Flank Oil Fairway and the resumption of wet gas production from the Western Cooper Wet Gas project. Drillsearch Managing Director, Brad Lingo said, “We are very proud to announce a second consecutive year of profitability for the Company as we continue to pursue our focused strategy and become a significant Cooper Basin oil and gas producer”. “Our ongoing strategic focus of increasing Reserves, production and cash flow has been the key to our positive growth across the Company, with record levels of production and sales revenues achieved during the year, as well as a 157% increase in 2P Reserves, as announced earlier this month”. “The excellent operational and financial results for the 2013 Financial year have established a strong platform from which Drillsearch will continue to grow in the coming year and beyond, evidenced by the almost doubling of our 2014 production guidance to 2.3–2.5 mmboe”. “We are well placed to add to the major achievements of the 2013 Financial year and reinforce our strong position as a high-growth Cooper Basin oil and gas explorer and producer.” FY 2013 RESULTS BRIEFING WEBCAST Managing Director, Brad Lingo and Chief Financial Officer, Ian Bucknell will host a results teleconference briefing that will take place at 11am (AEST) today. The briefing will also be streamed live on our website, through our BRR Media page which can be found with the following link http://www.drillsearch.com.au/page/brr-media
• Drillsearch delivers record net profit after tax of $45.1 million
• Sales revenue up 356% to $102.2 million
• Earnings up 147% to 11.1 cents per share
• Total production up 173% to 1.1 mmboe
• 2P Reserves up by 157% to 28.5 mmboe
• FY 2014 production guidance of 2.3–2.5 mmboe
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Teleconference dial-in details: All participants will be asked for their full name, company and passcode when joining the call. Pass code: 3033182 Australia: 1800 801 825 or +61 2 8524 5042 Hong Kong: 800 905 927 Malaysia: 1800 816 107 Singapore: 800 616 3222 UK: 0800 015 9725 US: 1855 298 3404 Yours faithfully, Brad Lingo Managing Director [email protected] Or visit the website www.drillsearch.com.au and register for email alerts Media enquiries to: Rebecca Lawson, Mercury Consulting, P: +61 2 8256 3332 E: [email protected] About Drillsearch Energy Limited (ASX: DLS), which listed on ASX in 1987, explores and develops conventional and unconventional oil and gas projects. Drillsearch has a strategic spread of petroleum exploration and production acreage in Australia’s most prolific onshore oil and gas province, the Cooper-Eromanga Basins in South Australia and Queensland. The company’s focus is on ‘brownfields’ exploration where geological risk is reduced and there is access to existing infrastructure, ensuring that any discoveries can be brought into production. Competent Person Statement Any reference to Reserves and Contingent Resources in this release follows guidelines set forth by the Society of Petroleum Engineers – Petroleum Resource Management System (SPE - PRMS). Information on the Reserves and Resources in this ASX Announcement have been compiled by Mr David Evans, Chief Technical Officer of Drillsearch Energy Limited, who is a qualified person as defined under ASX Listing Rule 5.11 and has given his consent as of the date of this ASX Announcement to the inclusion of these statements and the information in the form and the context in which it appears in this ASX Announcement. The Reserves and Contingent Resources used in this ASX Announcement were taken by Mr Evans from Independent Audited Reserve and Contingent Resource reports dated 30 June 2013 and prepared by DeGolyer and MacNaughton under the supervision of R. Michael Shuck, Senior Vice President and RISC under the supervision of Mr Geoffrey J Barker, Partner, both being qualified persons as defined in the ASX Listing Rule 5.11. RISC RISC is an independent advisory firm who works in partnership with companies to support their interests in the oil and gas industry. RISC offers the highest level of technical, commercial and strategic advice to clients around the world. RISC services include the preparation of independent reports for listed companies in accordance with regulatory requirements. RISC is independent with respect to Drillsearch in accordance with the Valmin Code, ASX listing rules and ASIC requirements." Information on the Reserves and Resources in this release relating to the PEL91, PRL14, 17, 18 and PEL101 assets is based on an independent review and audit conducted by RISC Operations Pty Ltd (RISC) and fairly represents the information and supporting documentation reviewed. The review and audit was carried out in accordance with the SPE Reserves Auditing Standards and the SPE-PRMS guidelines under the supervision of Mr. Geoffrey J Barker, a Partner of RISC, a leading independent petroleum advisory firm. Mr. Barker is a member of the SPE and his qualifications include a Master of Engineering Science (Petroleum Engineering) from Sydney University and more than 30 years of relevant experience. Mr. Barker meets the requirements of qualified petroleum reserve and resource evaluator and consents to the inclusion of this information in this report. DeGolyer and MacNaughton The information contained in our report entitled “Report as of December 31, 2012 on Reserves and Contingent Resources of Certain Fields in the PEL 106A, 106B, and 107 Permits of the Cooper Basin with interests owned by Drillsearch Energy Limited” has been prepared under the supervision of R. Michael Shuck, Senior Vice President of DeGolyer and MacNaughton. Mr. Shuck holds a Bachelor of Science degree in Chemical Engineering from the University of Houston, has in excess of 35 years of relevant experience in the estimation of reserves and contingent resources, is a member of the Society of Petroleum Engineers, and is a Registered Professional Engineer in the State of Texas. Mr. Shuck is a qualified person as defined in the ASX Listing Rule 5.11.
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FULL YEAR REPORT
Drillsearch Energy LimitedABN 73 006 474 844
For the year ended 30 June 2013 including Appendix 4E, Directors’ Report and Annual Financial Report
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DRILLSEARCH ENERGY LIMITED
Contents
Contents
Appendix 4E 1
Directors’ report 2
Remuneration report 14
Auditor’s independence declaration 27
Independent auditor’s report 28
Directors’ declaration 30
Consolidated statement of comprehensive income 31
Consolidated statement of financial position 32
Consolidated statements of changes in equity 33
Consolidated statements of cash flows 34
Notes to the financial statements 35
Additional stock exchange information 71
Schedule of tenements 73
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DRILLSEARCH ENERGY LIMITED
Appendix 4E
Key information
$000
Revenues from ordinary activities Increased 356% to 102,227
Profit from continuing operations after tax attributable to
members Increased 352% to 45,057
Net Profit for the period attributable to members Increased 352% to 45,057
Dividends
It is not proposed to pay any dividends.
Net Tangible Assets
Current
period
Previous
period
67.0 42.1
11.1 4.5
Details of entities over which control has been gained during the year
$000
Acer Energy Limited 1-Nov-12 (7,104)
There were no dividend or distribution reinvestment plans in operation.
Material interest in entities which are not controlled entities
There are no material interests in entities which are not controlled entities.
Competent Person Statement
Appendix 4E
Period ending 30 June 2013
Previous corresponding period: 30 June 2012
RESULTS FOR ANNOUNCEMENT TO THE MARKET
Preliminary final report
Mr. Evans has sufficient experience that is relevant to the Company's Reserves and Resources to qualify as a Competent Person as defined
in the 2012 Edition of the Australasian Code for Reporting of Exploration results, Mineral Resources and Ore Reserves. Mr. Evans consents
to the inclusion in the report of the matters based on his information in the form and context in which it appears.
(10,705)
Name
Details of any dividend or distribution reinvestment plans in operation and the last date for the receipt of an election notice for the
participation in any dividends or distribution reinvestment plan.
$000
The information on this page should be read in conjunction with the Directors’ Report and the full year financial statements for the
period. The Appendix 4E is unaudited.
Date of gain of control Impact on
entity’s profit
from date of
acquisition
Estimated impact
on entity's profit
for the full year1
There were no distributions or dividends payable or paid during the period.
(1) If the acquisition had occurred on 1 July 2012, management estimates that the contribution from Acer Energy for the year to 30 June
2013 would have been revenue of $0.5 million and a loss before tax of $10.7 million.
Details of individual and total dividends or distributions and dividends or distribution payments
Basic earnings per share (cents)
The information in this report that relates to Reserves and Resources is based on information complied by Mr. David Evans, Chief Technical
Officer of Drillsearch. Mr. Evans is a Competent Person and a Fellow of the Geological Society London. Mr. Evans is a full-time employee of
the company.
Net tangible asset backing per ordinary security (cents)
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DRILLSEARCH ENERGY LIMITED
Directors' Report
Directors’ Report
Information about the directors
The names and particulars of the directors of the Company during or since the end of the financial year are:
Name Particulars
Mr J.D. McKerlie
Mr B.W. Lingo
Mr P. J. Bainbridge
Mr B.K. Choo
Mrs F.A. Robertson
Mr H.R.B. Wecker
Directorships of other listed companies
Name Company Period of directorship
Mr J.D. McKerlie Circumpacific Energy Corporation 26 November 2009 to 25 November 2010
Acer Energy Limited1 8 November 2012 to 14 January 2013
Onthehouse Holdings Limited 1 January 2011 to 26 September 2012
Mr B.W. Lingo Circumpacific Energy Corporation 26 November 2009 to 25 November 2010
Acer Energy Limited1 8 November 2012 to 14 January 2013
Mr P. J. Bainbridge Nil Nil
Mr B.K. Choo Republic Gold Limited 28 May 2008 to 20 August 2010
Mr H.R.B. Wecker Acer Energy Limited1 8 November 2012 to 14 January 2013
Mrs F.A. Robertson Nil Nil
(1) Acer Energy Limited ('Acer Energy' or 'Acer') was delisted on 14 January 2013.
Managing Director, joined the Board in May 2009 in a non-executive capacity. Appointed
Managing Director 15 June 2009. Bachelor of the Arts (Honors) and Phi Beta Kappa, Miami
University and Juris Doctorate, Southern Methodist University. B.W Lingo is a member of the
Technical Committee and a member of AAPG, AIPN, PESA and QUPEX.
The Directors of Drillsearch Energy Limited (‘Drillsearch’ or the ‘Company’) submit herewith the annual report of the
Company for the financial year ended 30 June 2013. In order to comply with the provisions of the Corporations Act
2001, the Directors' Report as follows:
Chairman, Chartered Accountant, joined the Board in 2008 in a non-executive capacity.
Appointed Chairman 11 June 2009. Bachelor of Economics, Diploma Financial Management,
University of New England, Fellow Institute of Chartered Accountants. FAICD. He is the
Chairman of the Remuneration and Nomination Committee and a member of the Audit and
Risk Committee and the Technical Committee.
Non-executive Director. Appointed 2 March 2009. Dato' Choo is a Malaysian national with
extensive business interests in Malaysia through his role as Group Managing Director of
Masmeyer Holdings Sdn Bhd.
Non-executive Director. Appointed 6 October 2009. Master of Arts (Geology), Oxford
University UK, FAICD, MAusIMM. Mrs Robertson is also a Non-executive Director of One Asia
Resources Limited. Mrs F.A. Robertson is the Chairman of the Audit and Risk Committee and a
member of the Remuneration and Nomination Committee.
Non-executive Director. Appointed 6 October 2009. Bachelor of Science (Met and Geol)
Queensland University. Mr. Wecker served as the Managing Director of Innamincka Petroleum
Limited from 6 November 2003 to 30 March 2009. Mr H.R.B Wecker is Chairman of the
Technical Committee and a member of the Remuneration and Nomination Committee and
Audit and Risk Committee.
Directorships of other listed companies held by directors in the 3 years immediately before the end of the financial year
are as follows:
Non-executive Director. Appointed 22 July 2013. Bachelor of Science (Mechanical Engineering)
Manchester University, United Kingdom. Mr Bainbridge is also currently a non-executive
Director of the PNG Sustainable Development Program. Mr P. J. Bainbridge is a member of the
Remuneration and Nomination Committee and the Technical Committee.
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DRILLSEARCH ENERGY LIMITED
Directors' Report
Directors’ Report (continued)
Directors’ shareholdings
Directors’ shareholdings
Directors
Mr J.D. McKerlie
Mr B.W. Lingo
Mr P. J. Bainbridge
Mr B.K. Choo
Mrs F.A. Robertson
Mr H.R.B. Wecker
Remuneration of key management personnel
Share options granted to key management personnel
During and since the end of the financial year no share options were issued.
Performance rights granted to key management personnel
Performance Rights
Directors
Mr J.D. McKerlie
Mr B.W. Lingo2
Mr P. J. Bainbridge
Mr B.K. Choo
Mrs F.A. Robertson
Mr H.R.B. Wecker
Mr I.W.Bucknell
Mr D. Evans
Mr P. Fox
Mr J.S. Whaley
(1) Represents both the STI and LTI performance rights which have been awarded but not yet granted subsequent to year end.
(2) Subject to Shareholder approval at the upcoming annual general meeting to be held in November 2013.
Company Secretary
The following table sets out each Director’s relevant interest in shares, options in shares and performance rights of the
Company or a related body corporate as at the date of this report.
1,308,265 2,324,338 50,787
121,375 2,774,338 550,194
Fully paid
ordinary shares
Number
Share
options
Number
Performance
rights
-
25,393 25,393
- -
Information about the remuneration of key management personnel is set out in the Remuneration Report of this
Directors’ Report, on pages 14 to 26.
During and since the end of the financial year an aggregate of 1,306,919 performance rights were granted to the
following key management personnel of the Company as part of their remuneration. A further 1,698,550 performance
rights were awarded subsequent to year end but are not yet granted.
50,787 50,787
37,950 1,362,169 25,393
492,950 962,169
824,394
-
-
25,393
Issued during the year Number at the end
of the year
Number Number
- -
Number
-
7,874,918 1,362,169 25,393
550,194 550,194
182,833 182,833
223,463 223,463
223,463 223,463
25,393 25,393
25,393 25,393
To be issued sub.
to year end1
Number
- - 200,930
-
-
-
362,343
310,883
1,698,550
Ms J. Moore held the position of Company Secretary of Drillsearch Energy Limited at the end of the financial year. She
joined Drillsearch Energy Limited in November 2009 as Assistant Company Secretary and was appointed Company
Secretary on 17 November 2010. She holds a Juris Doctor from the University of Toronto and has completed the
Chartered Secretaries Australia’s Graduate Diploma in Applied Corporate Governance.
Mr I.W. Bucknell, Certified Practising Accountant, held the position of Company Secretary for the period 1 July 2010 to
17 November 2010 and was re-appointed as a second Company Secretary on 25 July 2011. He joined Drillsearch Energy
Limited in August 2008 and previously held the Company Secretary position at Great Artesian Oil and Gas Limited.
1,306,919 1,306,919
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Directors' Report
Directors’ Report (continued)
Principal activities
No significant change in the nature of these activities occurred during the financial year.
Financial Summary
2013 Key performance highlights
Revenue
EBITDAX - Reported1
EBITDAX - excluding Acer transaction costs2
Reported NPAT
Operating Cash Flow
Net (Debt) / Cash
Capex4
Capital Management
EBITDAX - excluding Acer and impact of
convertible notes3
3 EBITDAX has been further adjusted for the changes in valuation of the convertible notes of $9.3 million.
356%
The consolidated entity’s principal activities in the course of the financial year were oil and gas exploration,
development and production. The Company divides these activities into three business streams: Oil; Wet Gas; and
Unconventional.
2 EBITDAX has been adjusted for the one-off transaction costs of $6.2 million relating to the Acer Energy Limited
acquisition.
136.3 40.4 237%
1 EBITDAX stands for earnings before interest, taxes, depreciation, amortisation and exploration expenses. It is
calculated from profit/(loss) before tax, adjusted for finance cost/(income), interest revenue, amortisation expense,
depreciation expense, exploration and evaluation cost expense and impairment of oil and gas assets.
102.2 22.4
Change
%
10.0 352%
32.9 7.6 331%
39.1 7.6 412%
n/m45.7 (104.3)
92%10.0 19.2
Drillsearch delivered record financial performance in 2013, underpinned by the continued transition of the Company
from an explorer to a meaningful oil and gas producer. The Company’s balance sheet is also well positioned to support
future growth.
Drillsearch’s strong financial position has been maintained with cash and cash balances at year-end of $36.1 million
(2012: $45.6 million) and total liquidity of $86.1 million including a three year $50.0 million working capital facility with
the Commonwealth Bank of Australia which was announced on 1 July 2013.
48.4 7.6 534%
30-Jun-2013 30-Jun-2012
$m $m
The Company invested a record $143.4 million in our business activities in 2013, up 240% on the prior year, as well as
net $121.4 million on acquisitions including Acer Energy. The 2013 capital expenditure was comprised of $35.1 million in
development spend, $101.2 million in exploration spend and $7.1 million in other capital expenditures. The increased
weighting to development expenditure over the past years, reflects the exploration and commercialisation success of
the Company. It is expected that further increases in weighting to development expenditures will occur in 2014.
With the ramp up in production of Western Flank Oil Fairway Project and the signing of a new, firm Gas Sales
Agreement (GSA) in the Western Wet Gas Project, the Company recorded its highest ever annual sales revenue of
$102.2 million (2012: $22.4 million). These sales delivered record financial performance in 2013 with a reported Net
Profit after Tax for financial year 2013 of $45.1 million (2012: net profit $10.0 million).
EBITDAX for financial year 2013 was $32.9 million (2012: $7.8 million), whilst basic earnings per share (from continuing
operations) amounted to 11.1 cents compared to 4.5 cents per share in the prior year.
4 Capex represents the evaluation and exploration and oil and gas asset expenditure incurred during the year.
45.1
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Directors' Report
Directors’ Report (continued)
Financial Summary (continued)
Capital Management (continued)
Review of operations
Corporate Strategy
Our vision is to become a leading Australian mid-tier oil and gas exploration and production company.
To achieve this vision we will:
2013 in review
On the corporate front financial year 2013 has been an extremely busy time. The Company has:
2014 – The year ahead
A summary of consolidated revenues and results of significant segments is set out in Note 6 of the financial report.
Working capital has increased during the year by $8.6 million to $46.6 million (2012: $38.0 million) due to a net increase
of $17.0 million in trade receivables and payables at year end offset by the movement in cash. Cash and bank balances
at year end decreased to $36.1 million (2012: $45.6 million). The increase in trade receivables reflects the significant
ramp up in production as a result of the commissioning of the Bauer-to-Lycium Oil Export Pipeline in May and increased
oil sales in the closing month of the period. This was offset by an increase in trade payables due to the high degree of
capital activity occurring over the close of the period.
• Pursue attractive opportunities to expand our acreage position either through the acquisition of assets directly or
through mergers throughout Central Australia complementary to the Company’s existing Cooper Basin holdings.
• Successfully completed two $50 million equity raisings;
• Completed an all-cash takeover offer of Acer Energy significantly expanding the Company’s position in the
Western Flank Oil Fairway and delivering a new growth project now identified as the Northern Wet Gas Project;
• Put in place a $100 million acquisition bridge facility with the Commonwealth Bank of Australia ('CBA');
• Develop and commercialise the Company’s significant unconventional gas potential resource; and
• Explore and develop the Company’s Cooper Basin acreage for conventional oil and gas;
The net assets of the consolidated group have increased by $143.6 million from 30 June 2012 to $256.1 million (2012:
$142.0 million). This increase is mainly the result of the acquisition of Acer Energy and capitalised exploration and
development expenditure. This was offset by US$125 million convertible notes which were issued by the Company (on 3
May 2013 and 13 May 2013). The convertible notes carry a fixed coupon of 6.00% per annum, paid semi-annually, for a
term of approximately five years and are convertible into Drillsearch shares at a conversion price of US$1.66 per share.
This represents a conversion premium of approximately 35% above $1.19, being the closing price of the Shares on the
ASX on 26 April 2013.
Cash flows generated from operating activities amounted to $19.2 million, a 92% increase compared to the prior year
(2012: $10.0 million). Drillsearch also raised a further $100 million through the issue of equity shares which was utilised
to fund the Company’s significant 2013 financial year investment activities.
• Executed a US$125 million convertible note to help refinance the acquisition bridge;
• Established a long term $50 million working capital facility; and
• Subsequent to year end announced a series of binding transactions with Santos Limited ('Santos') to accelerate
Western Cooper Wet Gas commercialisation and expanding Drillsearch’s Cooper Basin Oil Reserves and production.
We believe that we have a strong balance sheet and liquidity capable of supporting organic opportunities within our
portfolio. We will continue to look to deliver on our vision.
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Directors' Report
Directors’ Report (continued)
Review of operations (continued)
Oil Business
Strategy
We do this by:
2013 in review
The overall focus of the Oil Business is to rapidly grow conventional oil reserves, production and cash flow generated
within this business. This focus is based on the exploration, development and production of conventional oil in proven
fairways within Central Australia.
The financial year has seen continued success for the Western Flank Oil Fairway Project where the Company has
substantial permit holdings in PEL 91 and PEL 182. This success can be measured by the Company’s delivery of strong
growth in 2P Oil Reserves and oil production from the Western Flank Oil Fairway. These increases were driven by
extensive appraisal/development and exploration drilling programs in the PEL 91 permit with seven successful
appraisal/development wells in the Bauer Oil Field and four new oil discoveries in PEL 91. Drilling programme success
rates continued to be high in the financial year with 100% success in appraisal/development drilling and 80% success in
exploration drilling.
Of the seven appraisal/development wells drilled in PEL 91 during the financial year, all were cased and suspended as
future oil producers in the Bauer Oil Field. Currently eight wells, Bauer-1 to Bauer-8, are connected and producing into
the Bauer Central Oil Production Facility. Four Bauer development wells - Bauer 9 to 11 and Bauer North-1 - have been
completed and are awaiting connection to the Bauer Central Oil Production Facility. Throughout the financial year,
production from the Chiton and Hanson oil fields was trucked directly to Moomba.
Of the five exploration wells drilled in the Western Flank Oil Fairway PEL 91 permit area, four wells - Pennington-1,
Kalladeina-2, Sceale-1 and Congony-1 - are new oil discoveries and each was cased and suspended as a future
production well. Smoky-1, an exploration well in PEL 91, was plugged and abandoned after encountering water in the
primary and secondary targets. All wells were drilled on 3D seismic and continue to highlight the benefits of utilising 3D
seismic acquisition to help unlock the potential of this play.
The Oil Business is comprised of three main project areas, the Western Flank Oil Fairway Project (PELs 91 and 182), the
Eastern Margin Oil Fairway Project (Tintaburra Block Joint Venture ('JV') and ATP 783P) and the Inland-Cook Oil Fairway
Project (ATPs 539P, 549P, 920P and 924P). In the Western Flank Oil Fairway Project, PEL 91 is held in joint venture
between the Company (60%) and Beach Energy Limited ('Beach Energy')(40% and operator) and PEL 182 is held in joint
venture between the Company (40%) and Senex Energy Limited (52. 5% and operator).
In the Eastern Margin Oil Fairway Project, the Tintaburra Block JV is held in joint venture between the Company (11%)
and Santos (89% and operator). In the Tintaburra Block JV the Company announced on 4 July 2013 that it had entered
into a binding agreement with Santos to increase its interest in the JV to 40% through acquiring an additional 29%
working interest in the JV for $38 million.
• Holding acreage positions in those fairways and building off of our existing positions to look to secure additional
acreage;
• Systematically exploring in proven fairways through the application of advanced 3D seismic and other
technologies;
• Fast tracking the development of discoveries through fit for purpose development solutions and once scale is
achieved committing to centralised production and transportation infrastructure to deliver secure, low cost
production on a long-term basis.
During the year the Company as part of the PEL 91 JV also completed the 485km2 Caseolus 3D seismic survey. The data
set is currently being processed. This 3D seismic data set together with those previously acquired by the PEL 91 JV now
means that 59% of the block has been covered in 3D seismic providing an extensive seriatim of 3D defined prospects
and leads.
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Directors' Report
Directors’ Report (continued)
Review of operations (continued)
Oil Business (continued)
2013 in review (continued)
Oil Reserves and production
2014 – The year ahead
Wet Gas Business
Strategy
In the Eastern Margin Oil Fairway Project the Company is focusing on further field development and exploration
activities. These include:
Work program activities also continued in other permits. In the Eastern Margin Oil Fairway Project, the Company as part
of the Tintaburra Block JV, drilled four wells during the financial year - one exploration well, two appraisal wells and one
development well. Two wells were cased and suspended as future oil producers with the other two plugged and
abandoned. In the Inland-Cook Oil Fairway Project , the Company acquired the 600km2 Kaden 3D seismic survey
covering the southern portion of ATP 539P and the northern portion of the adjacent ATP 549P permit. Based on the
Kaden 3D, the Company drilled two permit commitment wells in ATP 539P (Triclops-1 and Tibor- 1). Minor oil shows
were encountered in poor quality reservoir in the Tibor-1 well. Both exploration wells were plugged and abandoned.
• Completion of the previously announced acquisition of an additional 29% interest in the Tintaburra Block JV from
Santos;
In the Western Flank Oil Fairway Project, following the success of 2013, the Company is embarking on further appraisal,
development and exploration activities. These include the:
• Drilling of seven exploration wells and seven appraisal/development wells in the PEL 91 Permit;
The overall focus of the Wet Gas Business is to rapidly grow conventional wet gas Reserves, production and cash flow
within this Business. This focus is based on the exploration, development and production of conventional wet gas in
proven fairways within Central Australia.
• Development of existing new oil discoveries in the Western Flank Oil Fairway in the PEL 91 Permit;
• Acquisition, processing and interpretation of additional 3D seismic in the PEL 182 Permit.
• Upgrade and expansion of the Bauer Central Oil Production Facility to maintain current production levels and to
accommodate increased production from the Bauer Oil Field; and
• Development drilling and the reinstatement of long-term inactive production wells with a focus on maintaining
and increasing oil production in the Tintaburra Block JV;
• Upgrading, expansion and refurbishment of production facilities in the Tintaburra Block; and
• Securing joint venture partners in the Eastern Margin Oil Fairway Project ATP 783 Permit area and commencing a
focused 3D seismic acquisition program across the northern area of the permit in the vicinity of the Chandos and
Chandos South oil exploration wells which successfully drill stem tested oil in earlier exploration programs.
On 15 August 2013, Drillsearch announced its 30 June 2013 Reserves. They included a 145% increase in the 2P Reserves
for the combined PEL 91 Oil Fields in the Western Flank Oil Fairway increasing to 7.6 mmboe (net) (30 June 2012 – net
3.1 mmboe). 2P Reserves in the Eastern Margin Oil Fairway decreased by 0.05 mmboe as a result of production in the
period.
For most of the financial year oil production from the Bauer, Hanson and Chiton oil fields was constrained to available
trucking capacity. Construction of the Bauer-to-Lycium Oil Export Pipeline commenced in December 2012 and the
pipeline was commissioned to increase overall oil production and ensure production reliability. Completion of this
pipeline has helped to significantly remove the earlier transportation constraints on production from the Bauer Oil Field
and dramatically increase oil export capacity. Commercial operation commenced in May 2013 and the pipeline is
currently operating at its nameplate capacity of 10,000 bbls per day (gross). Chiton and Hanson oil field production
continues to be exported to Moomba by truck with additional production volumes from the Bauer oil field, in excess of
pipeline capacity, also being exported by truck.
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Directors' Report
Directors’ Report (continued)
Review of operations (continued)
Wet Gas Business (continued)
Strategy (continued)
We do this by:
• Utilising our corporate capability to appraise, develop and commercialise Wet Gas; and
2013 in review
During the year, the PEL 106B JV successfully conducted extended production testing (EPT’s) of the Coolawang and
Haslam Wet Gas discoveries in PEL 106B and the Southend Wet Gas discovery in PEL 107. All three wells were part of
the successful Western Wet Gas Fairway Project exploration program undertaken during the 2012 financial year.
During the financial year, the Company pursued an active exploration drilling and seismic acquisition program in the
100% owned and operated areas within the Western Wet Gas Project. The Company drilled three exploration wells in
PEL 106A (Wamberal-1, Moruya-1 and Narrabeen-1). The Wamberal-1 exploration well was plugged and abandoned
after failing to intersect commercial quantities of wet gas in conventional or tight gas sands. Moruya-1 was cased and
suspended for further evaluation as a new wet gas discovery after intersecting gas and liquids saturated tight sands.
Narrabeen-1 was also cased and suspended for future appraisal and development as a new wet gas discovery after
intersecting gas and liquids saturated in conventional and tight sands. In PEL 106A and PEL 513 work programs
continued with Santos acquiring the 385km2 Andree Leleptian 3D seismic survey and in PEL 513 Drillsearch acquired the
320km2 Munathiri 3D seismic survey.
In January 2013, the Company successfully completed the compulsory acquisition of Acer Energy which subsequently
became a wholly-owned subsidiary of Drillsearch. One of the primary drivers of the acquisition was the prospectivity of
Acer’s Wet Gas assets, including the existing wet gas discoveries in PEL 101, PEL 103 and PRLs 14, 17 and 18. The
acquisition of these permit areas, formed the basis for the Company establishing the Northern Wet Gas Project. Acer
commenced the drilling of the Cypress-1 wet gas exploration well in December 2012 in PEL 103. Upon gaining control of
Acer, the Company took over supervision of the Cypress drilling program and suspended drilling of the well due to
downhole issues.
In the Northern Wet Gas Project area, as part of focusing on accelerating development and exploration in the PEL 101
permit, the Company also undertook the 478km2 Coolabah 3D seismic program covering the majority of the PEL 101
permit area and the Ginko, Crocus and Crocus South Wet Gas discoveries as well as ten wet gas exploration leads and
prospects previously identified in PEL 101.
The PEL 106B JV also drilled four wet gas exploration wells in the period. Coorabie-1 was cased and suspended for
future technical studies to assess the potential for unconventional gas. The Rosetta-1, Destress-1 and Euler-1
exploration wells all encountered gas in tight sands and associated with deep coal seams but failed to encounter
significant gas quantities in conventional reservoir quality sands. All of these wells were plugged and abandoned.
• Holding acreage positions in those fairways and building off of our existing positions to look to secure additional
acreage;
• Systematically exploring in proven fairways through the application of advanced 3D seismic and other
technologies;
• Developing key joint venture and customer relationships that secure long-term gas commercialisation pathways.
The Wet Gas Business is comprised of two main project areas, the Western Wet Gas Project (PELs 106A, 106B, 107 &
513) and the Northern Wet Gas Project (PELs 101, 103 and PRLs 14, 17 and 18). In the Western Wet Gas Project, the PEL
106B and PEL 107 permit area are held in JV between the Company (PEL 106B- 50% / PEL 107- 60%) and Beach Energy
(PEL 106B-50% / PEL 107- 40% and operator). The PEL 106B JV also contains the Middleton Gas Project. During the
financial year the PEL 106A and 513 permit areas of the Western Wet Gas Project were held 100% by the Company. On
4 July 2013 the Company announced that it had entered into a binding agreement with Santos to joint venture this
acreage (Drillsearch 40%, Santos 60% and operator) in order to accelerate the exploration potential and
commercialisation of existing discoveries in these permits. In the Northern Wet Gas Project, the Company operates and
holds the PEL 103 and PRLs 14, 17 and 18 on a 100% basis and operates and holds an 80% interest in the PEL 101
permit.
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Directors' Report
Directors’ Report (continued)
Review of operations (continued)
Wet Gas Business (continued)
Wet Gas Reserves and Production
2014 – The year ahead
Unconventional Business
Strategy
Subsequent to the year end, Drillsearch announced on 4 July 2013 that it had entered into a series of binding
transactions with Santos Limited to accelerate Western Cooper Wet Gas development and commercialisation. Santos
will acquire a 60% interest and operatorship for the PEL 106A and PEL 513 permit areas of the Western Cooper Wet Gas
project (PEL 106A and PEL 513) through committing to fund a work program valued by Drillsearch at $100-120 million.
These include:
• PEL 106A – funding a $75 million firm work program of exploration, appraisal and field development works; and
On 15 August 2013, Drillsearch announced its 30 June 2013 Reserves. They included a 170% increase in the combined 2P
Reserves for the Wet Gas Business increasing to 20.3 mmboe (net) (30 June 2012 – net 7.5 mmboe). This increase has
been driven by Reserves additions in the Middleton and Brownlow Wet Gas Fields based on continuing field production
results and by the conversion of 2C Resources to 2P Reserves for the wet gas discoveries in PEL 106A. The independent
Reserve audit as of 30 June 2013, upgraded all of the wet gas discoveries in PEL 106A to Reserves from their previous
classification as Contingent Resources based on the Company securing new gas sale arrangements with the South
Australian Cooper Basin JV ('SACBJV') and Santos accepting the commerciality of these discoveries.
The Middleton Gas Project in PEL 106B was in continuous production from early January 2012 until 1 October 2012
when the field was shut-in. This was due to constraints as a result of ongoing gathering system pipeline expansion works
by the SACBJV associated with the development of the Greater Tindilpie Gas Field Complex.
• Processing and interpretation of 3D seismic.
• PEL 513 – funding a firm work program valued by Drillsearch at $45 million covering all of the outstanding firm
permit work commitments including acquiring 100km2 3D seismic, and drilling six firm commitment exploration
wells.
Production re-commenced from the field on 17 March 2013 when a new three-year firm Gas Sales Agreement (GSA)
with the SACBJV was signed. The GSA provides for the sale of 10 BCF of raw gas on a firm basis for a three-year term
with a Maximum Daily Quantity (MDQ) up to 35 mmscfd of raw gas. Under the GSA the Joint Venture sells untreated
raw gas consisting of condensate, LPG and sales gas, and is paid for each component. Condensate and LPG pricing is
linked to international product pricing, less specific transport and processing charges. Gas sales are priced on a
confidential fixed price basis, reflecting transport and processing costs of the SACBJV in producing sales gas quality for
onward sale. The additional gas sales underpin the expansion of the Western Cooper Wet Gas Project to increase overall
production capacity via the completion and connection of the Canunda Wet Gas Field (completed in June 2013).
• Completing, testing and commencing production from wet existing gas discoveries in the PEL 106A permit area of
the Western Wet Gas Project;
• Expansion of the Western Wet Gas Project through the development and commencement of production from the
Coolawang wet gas discovery by connecting it to the Middleton Gas Plant;
• Reinstatement of production in the Northern Wet Gas Project from the Flax Field and commencing the
development of the Yarrow wet gas discovery through connection to the Flax Production Plant; and
• Drilling of exploration, appraisal and development wells across both the Western and Northern Wet Gas Project
areas;
The overall focus of the Unconventional Business is to prove within the Company’s existing conventional acreage
positions the presence, prevalence and producibility of unconventional oil and gas resources of known hydrocarbons
within Central Australia. Our approach is the systematic exploration and appraisal of known hydrocarbons in our
existing acreage with a view to establishing the presence of substantial Contingent Resources and ultimately that these
resources can be produced on a commercially sustainable basis.
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Directors' Report
Directors’ Report (continued)
Review of operations (continued)
Unconventional Business (continued)
Strategy (continued)
We do this by:
2013 in review
2014 – The year ahead
Active Portfolio management
Drillsearch and its JV partners are embarking on further appraisal, development and exploration activities. These
include:
In the Wet Gas Business, the Company formed a new JV with Santos to accelerate the exploration and development of
the Western Wet Gas Project through farming down a portion of the Western Wet Gas Project area (PEL 106A and PEL
513) and entering into a long-term gas sale agreement providing for sale of production from the project area through
2025.
The ATP 940P JV has agreed on well locations for the first four exploration wells to be drilled. Site preparations are well
underway for the multi-well drilling program expected to start during the December 2013 quarter.
• Developing and executing work programs targeted at proving the presence, magnitude and producibility of these
resources; and
The Central Cooper Unconventional Resource Project is focused on the ATP 940P permit which is located within the
Nappamerri Trough Shale Gas Fairway in Southwest Queensland. Drillsearch has formed a JV with QGC Pty Limited (BG
Group) to explore, appraise and develop these unconventional resources within ATP 940P. The Company holds a 40%
interest in the Project and is operator and the remaining 60% interest is held by QGC. The ATP 940P block is located
immediately adjacent to Beach Energy and Chevron’s unconventional resource project in PEL 218 and ATP 855P where
their drilling exploration and appraisal testing programs are currently underway.
• Drilling, coring, testing and completing unconventional exploration wells in the Central Unconventional Fairway to
define both shale gas and tight basin centred gas resources;
• Processing and interpretation of the Winnie 3D seismic survey;
• Determine if the Company should also establish a new unconventional project within the Northern Cooper Wet
Gas Project in the PEL 101 permit.
• Re-entry and stimulation of tight sands and deep coals in the Western Cooper Unconventional Project area; and
The Unconventional Business is comprised of two main project areas, the Central Cooper Unconventional Resource
Project (ATP 940P and ATP 932P) and the Western Unconventional Resource Project (PEL 106A and PEL 513). The
potential for additional unconventional resources have also been identified in association with the Northern Cooper
Wet Gas Project principally within the PEL 101 permit area but the Company has not yet formally established a separate
project based on this identified unconventional resource potential.
• Specifically targeting identified shale, tight gas and basin centred gas as well as liquids rich Unconventional
resource plays;
• Securing appropriate JV Partners that deliver commercialisation pathways, access to technology and technical
expertise and capital necessary to fully explore, appraise and develop these resources.
During the year, the Company’s focus in the Unconventional Business was in the Central Cooper Unconventional
Resource Project. As a first step in this project, the Company conducted the 1,050km2 Winnie 3D seismic survey across
the western half of ATP 940P. The primary objective of the Winnie 3D seismic survey is to delineate the Nappamerri
Trough REM (Roseneath - Epsilon - Murteree) Shale and deeper tight gas play fairway. The survey is also targeting early
identification of shale and tight gas sweet spots within the Nappamerri Trough Unconventional Play Fairway.
Drillsearch has continued to actively manage its asset portfolio through financial year 2013. An on-market acquisition of
Acer Energy was completed in January 2013 which provided additional Cooper Basin acreage complementing the Oil,
Wet Gas and Unconventional Businesses. Shortly after the year end, Drillsearch announced a series of transactions with
Santos that significantly advance both the Wet Gas and Oil businesses.
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Directors' Report
Directors’ Report (continued)
Active Portfolio management
Outlook
The key objectives for the Company with regard to the finance and capital management in 2014 are to ensure that:
• growth programs of each of the Company’s businesses are appropriately and fully funded;
• capital management is optimized supporting this growth - both organic and transactional; and
• disciplined cost management is applied and delivered to this growth.
Changes in state of affairs
There was no significant change in the state of affairs of the consolidated entity during the financial year.
Subsequent events
Subsequent to balance date the following material events have occurred:
• On 15 August 2013, Drillsearch announced a 157% increase in reported 2P Reserves as at 30 June 2013.
Environmental regulations
Dividends
During the year no dividends were paid. No dividend is proposed for the current year (2012: nil).
• On 1 August 2013, the Company entered into oil price options for a portion of its audited 12 month 1P production
profile. The Company will manage its position on options on an ongoing basis. See note 29 for further information
on the Company’s financial risk management objectives, strategy and the options currently undertaken.
The parent entity is subject to significant environmental regulation in respect of its operated and non-operated joint
venture interests in petroleum exploration, development and production. Its oil production interests in the state of
Queensland are operated by Santos, who is required to comply with all relevant environmental legislation. The
Company's oil and the Western Wet Gas Project production interests in the state of South Australia are operated by
Beach Energy, who is required to comply with all relevant environmental legislation. The Northern Wet Gas Project
production and exploration interests in South Australia are operated by the Company and the Company’s Queensland
exploration interests are largely operated by the Company. In connection with these activities, the Company complies
with all relevant environmental legislation.
• On 1 July 2013 the Company announced that it had secured a $50 million credit facility with the Commonwealth
Bank of Australia subject to the satisfaction of the usual conditions precedent. These conditions precedent have now
been met although the facility remains undrawn to date.
In the Oil Business, the Company expanded its existing equity position, reserves and oil production in the Eastern
Margin Oil Fairway of the Cooper Basin through the acquisition of an additional working interest in the Tintaburra Block
JV and sold its minority interest in the PEL 100 oil exploration permit which was a non-core asset acquired as part of the
Acer takeover.
• On 22 July 2013, the Company announced the appointment of Philip Bainbridge as a new Non-executive Director.
Capital investment expenditure for financial year 2014 is expected to be $90-$110 million, which is broadly in-line with
guidance previously provided to the market. Of this 50-60% is expected to be spent on development activities and 40-
50% invested in exploration work programs.
• On 4 July 2013 the Company announced that it had entered into a series of binding agreements with Santos.
Under this transaction, Santos will earn a 60% interest and Operatorship in PEL 106A and PEL 513 by funding future
work programs and providing further field development assistance to export production from these permits.
Additionally, the Company has entered into a long-term GSA covering production from PEL 106A and PEL 513
through 2025. Drillsearch will also acquire from Santos a further 29% interest in the Tintaburra Block JV Oil Project,
increasing its holding from 11% to 40% for $38 million and Santos will acquire the Company's interest in PEL 100 of
25.8% for $15 million. Overall, transaction completion is expected to take place by the end of September 2013.
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Directors' Report
Directors’ Report (continued)
Shares under option or issued on exercise of options
Details of unissued shares or interests under option as at the date of this report are:
Class
Issuing Entity of shares
Drillsearch Energy Limited Ordinary
Drillsearch Energy Limited Ordinary
Drillsearch Energy Limited Ordinary
Drillsearch Energy Limited Ordinary
Drillsearch Energy Limited Ordinary
Drillsearch Energy Limited Ordinary
Drillsearch Energy Limited Ordinary
Drillsearch Energy Limited Ordinary
Class
Issuing Entity of shares
Drillsearch Energy Limited Ordinary $nil
Shares which may be issued on exercise of performance rights
Details of shares or interests which may be issued on exercise of performance rights as at the date of this report are:
Class
Issuing Entity of shares
Drillsearch Energy Limited Ordinary
Drillsearch Energy Limited Ordinary
Class
Issuing Entity of shares
Drillsearch Energy Limited nil nil $nil $nil
Indemnification of officers and auditors
Number of
performance rights paid for shares unpaid on shares
1,541,172
The holders of these performance rights do not have the right, by virtue of the performance right, to participate in any
share issue or interest issue of the company or of any other body corporate or registered scheme.
Number of
shares under Amount Amount
shares under Peformance
performance rights period end date
253,934 30 June 2013
1,287,238 30 June 2015
$0.376 10 November 2013
Expiry
date of options
1,200,000
1,000,000 $0.853 15 March 2015
500,000 $0.701 3 January 2016
3,200,000 $0.700 30 November 2013
1,000,000 $0.600 30 September 2014
Number of
shares under option
Exercise price
of option
13,913,139
1,199,597 $0.596 20 June 2018
2,627,956 $0.596 25 July 2018
The Company has not otherwise, during or since the end of the financial year, except to the extent permitted by law,
indemnified or agreed to indemnify an officer or auditor of the Company or of any related body corporate against a
liability incurred as such an officer or auditor.
During the financial year, the Company paid a premium in respect of a contract insuring the directors of the Company
(as named above), the Company Secretary, Ms J. Moore, and all executive officers of the Company and of any related
body corporate against a liability incurred as such a director, secretary or executive officer to the extent permitted by
the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount
of the premium.
The holders of these options do not have the right, by virtue of the option, to participate in any share issue or interest
issue of the company or of any other body corporate or registered scheme.
Number of
shares under option
Amount
paid for shares
Amount
unpaid on shares
3,185,586 $0.596 23 November 2018
Details of shares or interests issued during and since the end of the financial year as a result of exercise of options are:
Details of shares or interests issued during and since the end of the financial year as a result of exercise of performance
rights are:
2,500,000 $1,509,600
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Directors' Report
Directors’ Report (continued)
Directors’ meetings
Directors Held Attended Held Attended Held Attended Held Attended
Mr J.D. McKerlie 22 22 5 5 8 8 6 6
Mr B.W. Lingo 22 22 n/a n/a n/a n/a 6 6
Mr B.K. Choo 22 19 n/a n/a n/a n/a n/a n/a
Mrs F.A. Robertson 22 21 5 5 8 8 n/a n/a
Mr H.R.B. Wecker 22 22 5 5 8 8 6 6
Legal matters
Non-audit services
Rounding off of amounts
Auditor’s independence declaration
The auditor’s independence declaration is included on page 27 of the annual financial report.
The Company is a company of the 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 the financial statements are rounded off to the nearest
thousand dollars, unless otherwise indicated.
The following table sets out the number of Directors’ meetings (including meetings of committees of directors) held
during the financial year and the number of meetings attended by each Director (whilst they were a Director or
committee member). During the financial year, twenty-two board meetings, five remuneration and nomination
committee meetings, eight audit and risk committee meetings and six technical committee meetings were held.
Details of amounts paid or payable to the auditor for non-audit services provided during the year by the auditor are
outlined in Note 33 to the financial statements.
The Directors are satisfied that the provision of non-audit services, during the year, by the auditor (or by another person
or firm on the auditor’s behalf) is compatible with the general standard of independence for auditors imposed by the
Corporations Act 2001.
The Directors are of the opinion that the services as disclosed in Note 33 to the financial statements do not compromise
the external auditor’s independence, based on advice received from the Audit Committee, for the following reasons;
• all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and
objectivity of the auditor; and
Board of Directors Remuneration &
Nomination
committee
Audit & risk
committee
Technical
committee
During the year, the Company was not involved in any legal proceedings of a material nature against Drillsearch or its
subsidiaries of which the Directors are aware.
• none of the services undermine the general principles relating to auditor independence as set out in Code of
Conduct APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional & Ethical
Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision-
making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and
rewards.
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Remuneration Report
Remuneration Report
This Remuneration Report covers the following areas:
1. People covered by this report (KMP)
2. Remuneration, corporate strategy and Company performance
3. Remuneration governance
4. Remuneration policy
a) Fixed pay
b) Short term incentives (STI)
c) Long term incentives (LTI)
d) Outstanding KMP options and performance rights
e) Employee Share Plan (ESP)
f) External advisors
5. Remuneration levels paid to KMP
a) Remuneration details
b) Key terms of employment contracts
6. Non-executive Directors remuneration arrangements
7. Diversity
8. Changes in remuneration policy for 2014.
1. People covered by this report (KMP)
• Mr J.D. McKerlie (Chairman)
• Mr B.W. Lingo (Managing Director)
• Mr P. J. Bainbridge (Non- Executive Director) - appointed 22 July 2013
• Mr B.K. Choo (Non- Executive Director)
• Mrs F.A. Robertson (Non- Executive Director)
• Mr H.R.B. Wecker (Non- Executive Director)
• Mr I.W. Bucknell (Chief Financial Officer)
• Mr D. Evans (Chief Technical Officer)
• Mr P. Fox (Chief Commercial Officer) - appointed 1 July 2013
• Mr J.S. Whaley (Chief Operating Officer)
2. Remuneration, corporate strategy and Company performance
This Remuneration Report, which forms part of the Directors’ Report, sets out information about the remuneration of
Drillsearch Energy Limited’s key management personnel (KMP) for the financial year ended 30 June 2013. It outlines the
remuneration arrangements of the Company in accordance with section 300A of the Corporations Act 2001 (‘Act’) and
its regulations. The information has been audited as required by section 308(3C) of the Act.
The following were key management personnel of the consolidated entity during or since the end of the financial year:
Except as noted, the named persons held their position for the whole of the financial year and remain in position at the
time of this report.
The Company has experienced substantial growth over the last five years during which time the number of employees
has grown from less than ten to approximately 80, with approved hires to bring headcount to 100 people in the near
future. A substantial effort has gone into the recruitment of this talent, and a commensurate effort has also gone into
developing the necessary people management systems to ensure the productivity and development of the Drillsearch
team. The Board has also looked at longer term retention strategies by ensuring the Company is an employer of choice.
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Remuneration Report
Remuneration Report (continued)
2. Remuneration, corporate strategy and Company performance (continued)
30 June
2009
30 June
2010
30 June
2011
30 June
2012
30 June
2013
Remuneration strategy
Fixed pay - Cash Yes Yes Yes Yes Yes
Salaries Range (percentile) 40th 45th 45th 50th 50th
STI and LTI - Base component only - Yes Yes Yes -
STI and LTI - Base and stretch components - - - - Yes
Payment - Options (vested) Yes - - - -
Payment - Options (hurdles) - Yes Yes Yes -
Payment - Performance rights - - - - Yes
The decisions taken about Remuneration Policy were based on the strategic requirements of the Company at the time.
Five years ago we had extensive exploration permits but insufficient qualified people to develop these opportunities.
Even though we were only a junior explorer, we had to attract people who wished to step up to the challenge and were
committed to work in a rapidly changing and demanding environment and grow the Company. The challenge of
attracting good people when there is a war for talent should not be underestimated.
Our corporate strategy was to collect and interpret seismic data, undertake exploration and development drilling,
increase production, commercialise our discoveries and enter into joint ventures that created long term shareholder
value. These were the necessary work-steps to transform and grow the Company. This was the work that needed to be
done and we needed people with the talent and expertise to do it.
The Remuneration Policy adopted each year along our growth path was designed to attract the right people and to set
the appropriate hurdles for the work that needed to be done.
As the Company matured, the Remuneration Policy has undergone significant changes with new practices being
adopted that were pertinent to our stage of growth and supported our strategy. Furthermore, in some instances, prior
remuneration elements were discontinued and shifted to a legacy environment to be worked out over time. There
remain very few legacy items from earlier remuneration decisions and these are highlighted later in this report under
the outstanding options and performance rights section.
In the last financial year, our long term strategy has delivered commercial success and the “essence of Drillsearch” has
moved from being principally an explorer to being both an explorer and producer. The Board has continued to adopt
Remuneration Policies that are relevant for the stage of the business. We consulted widely with shareholders, fund
managers, proxy advisors and remuneration consultants earlier this year and have adopted a robust and appropriate
approach to remuneration with a clear nexus to our performance. Our experience is that there is not a commonly
agreed view on “remuneration best practice” amongst the people we consulted. We have however adopted the core
principles identified, whilst continuing to have regard for the specific needs of the company, our circumstances and the
context of our development and growth.
To assist in the understanding of how our Remuneration Policy has changed as the Company has grown over the last five
years, the table below sets out summary information about financial and non-financial performance metrics for the five
years to 30 June 2013 and the Remuneration Policy in place at the time. These include the principal metrics to be used
in measuring the performance of KMP for financial year 30 June 2014.
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Remuneration Report
Remuneration Report (continued)
2. Remuneration, corporate strategy and Company performance (continued)
30 June
2009
30 June
2010
30 June
2011
30 June
2012
30 June
2013
Key Performance Metrics
Revenue $000 15,628 9,236 15,579 22,409 102,227
EBITDAX $000 1,800 (6,400) (1,116) 7,623 32,927
Net profit/(loss) after tax $000 (9,486) (24,758) (5,634) 9,979 45,057
Basic earnings per share cps (5.9)cps (12.7)cps (2.7)cps 4.5cps 11.1cps
Production boe 192,961 158,880 123,034 389,877 1,065,740
Reserves mmboe 1.44 1.28 8.49 11.09 28.46
Headcount # 7 15 20 38 74
Capital expenditure $m 4.7 8.9 17.7 37.3 143.4
3. Remuneration governance
4. Remuneration policy
The Remuneration and Nomination committee has responsibility and oversight for making recommendations to the
Board on the Company’s human resource (HR) strategy including remuneration for directors and employees. The
committee has been actively involved with management in adopting a comprehensive HR management system that
ensures the Company manages effectively and efficiently the people charged with the responsibility to execute our
strategy. Our focus is not necessarily to pay as little as possible but rather to get the best return from our people over
the long-term.
In the course of the ongoing development and assessment of our HR Remuneration Policy the committee used the
services of several independent remuneration advisors to review our underlying policy and to benchmark levels of
remuneration being paid to employees.
The Remuneration Policy is to set fixed salary at market median levels i.e. 50th percentile for comparable roles and
experience. STI and LTI payments then provide an opportunity to earn at the 75th percentile. As the hurdles for STI and
LTI align with corporate objectives and shareholder interests, the benefit of STI and LTI only occurs when employees
have delivered performance that has contributed toward the creation of shareholder value. The ESP is to create a
meaningful reward to members of the team who may not be directly involved in activities that drive overall results. For
many employees this is a $1,000 tax free allocation of shares.
The composition of an employee’s remuneration is dependent on their seniority in the organisation. The table below
demonstrates that the more senior an employee, the greater the “opportunity to earn” through STI and LTI awards.
Furthermore senior employees get a greater proportion of their STI award paid in Performance Rights as against cash.
Only senior grades have the opportunity to earn LTI. All LTIs are paid in Performance Rights.
Performance Rights are calculated by a 60 day VWAP running up to each 30 June. This structure reinforces the
Company’s strategic objectives of attracting and rewarding employees who believe in the vision of the Company and are
prepared to be remunerated in a manner that is aligned with shareholders. The more senior the employee, the greater
the emphasis placed on their alignment with shareholders through the Remuneration Policy.
The Remuneration Policy comprises four levels of remuneration entitlement i.e. fixed pay, short term incentives (STI),
long term incentives (LTI) and an employee share plan (ESP).
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Remuneration Report
Remuneration Report (continued)
4. Remuneration policy (continued)
Level Base Pay STI % LTI Share Grant
Board Cash / PR No No No
MD Cash 60% or as determined Cash and PR 80% PR No
Executive Cash 60% Cash and PR 60% PR $1,000 in Shares
Management Cash Yes Cash Yes PR $1,000 in Shares
Professional Cash Yes Cash No $1,000 in Shares
Support Cash Yes Cash No $1,000 in Shares
These four elements are defined in more detail below:
a) Fixed pay
b) Short term incentives (STI)
Fixed Pay consists of base salary (which is calculated on a total cost basis and includes any related fringe benefits tax), as
well as employer contributions to superannuation funds.
Fixed remuneration levels are based on appropriate independent industry benchmark information, taking into account
an individual’s responsibilities, performance, qualifications and experience. The benchmark used in relation to the year
ended 30 June 2013 was the National Rewards Group Inc (NRG) hydro carbon sector remuneration survey. Where there
was not an appropriate job match, alternative relevant benchmark data was used.
Last year, when the directors fees were determined, the Board elected to “salary sacrifice” and take part of their fee by
way of Performance Rights. The Performance Rights in relation to FY12 were granted during FY13 and will shortly vest.
The following table illustrates how the Remuneration Policy worked for financial year 30 June, 2013. KMP includes
Board, MD and Executive levels. Management, Professional and Support level are not required to be disclosed but have
been included to help illustrate the inclusive nature of the Remuneration Policy.
Every employee has the opportunity to lift their earnings through performance based STI payments. STI is awarded at
the end of each financial year based on the performance for that year. STI is based on a percentage of Fixed Pay (STI%).
The level of STI varies across the various staff levels, with senior levels having higher STI%. STI is paid using a
combination of cash and Performance Rights for senior employees. Management Professionals and Support staff are
paid their STI in cash only. The more senior the employee, the greater is the proportion of STI paid in Performance
STI’s are based on KPIs set at the beginning of the financial year. KPIs are divided into two categories: i.e. Group KPIs
(which relate to the Company’s business plan and budget) and Individual KPIs (which reflect specific individual
responsibilities). For the MD and Executives, Group KPIs carry a 60% weighting and Individual KPIs 40% in the overall STI
calculation. This weighting switches around for Managerial, Professional and Support staff where Individual KPIs carry
60% and Group KPIs represents 40% of the STI calculation. The philosophy is that the Executives are more able to
influence company-wide outcomes, whereas the rest of the team have less influence on this but must be accountable
for the individual targets they have been set.
Group KPIs are assessed against targets where 50% of the KPI is payable if target is met, scaling to 100% if the stretch
target is achieved. Group KPIs are set by the Board each year and progress to KPIs is reported to each Board meeting.
The scoring of Group KPIs is “sanitized for reasonableness and equity” by the Board at the end of each financial year.
The same Group payout percentage is applied to every employee.
The Group KPIs (as part of the STI) for the financial year 30 June, 2013 are outlined in the following table, along with the
assessment of actual performance.
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4. Remuneration policy (continued)
b) Short term incentives (STI) (continued)
Description Weight Score
25% 15%
35% 35%
Increase Production
25% 0%
Increase EBITDAX1
15% 0%
100% 50%
Reserves stretch target was substantially exceeded (actual was +8 mmboe and stretch target was +5 mmboe)
Production base target was close to being achieved (actual was +2,914 BOEPD and base was +3,370 BOEPD)
EBITDAX base target was close to being achieved (actual was +$63.1m and base was +$65.3m)
KPI Assessment Payment Awarded
Exceeds Expectations > 80% of Individual KPI
Meets Expectations 66% to 80% of Individual KPI
Met Some Expectations 41% - 65% of Individual KPI
Expectations Not Meet < 40% (performance review required)
c) Long term incentives (LTI)
One learning from the 2013 year is the need to broaden Group KPIs so that matters that are not under the control of
management, even though they are critical to the Company’s success, are supplemented by KPIs of how management
has performed in areas it can influence. This is referred to in the later section on changes to Remuneration Policy for
2014.
Individual KPIs are based on each employee’s personal role and responsibility. Individual KPIs are set by senior
management for their teams and approved by the MD. Individual KPIs for Executives are set by the MD and approved by
the Board. The MD’s KPIs are set by the Board. All employees are appraised against their Individual KPIs annually.
Executive appraisals are reviewed by the Board. The MD’s appraisal is conducted by the Chair and reviewed by the
Board. Payment for Individual KPIs are awarded as per the following table:
Senior employees (at Management level and above) participate in a LTI scheme which is based on pre-determined KPIs
set by the Board each year. LTIs are granted at the start of the measurement period and vest according to the
performance against hurdles for that period. Our LTI scheme works on the following basis:
Base
1EBITDAX stands for earnings before interest, taxes, depreciation, amortisation and exploration expenses. It is calculated from profit/(loss) before
tax, adjusted for finance cost/(income), interest revenue, amortisation expense, depreciation expense, exploration and evaluation cost expense
and impairment of oil and gas assets
Year-on-year increase in net production
Increase in cash flow from operating activities
< 250% APPEA TRIFR
onshore field
operations
+ 3.0mmboe
+ $65.3m
Eligible employees (i.e. those at the required level who are employed on 1 July each year) are granted Performance
Rights under the LTI.
+ 5.0mmboe
+ 4,000 BOEPD
+ $77.5m
HSE Performance
Total Recordable Injury Frequency Rate (TRIFR) per man hour under
our prevailing influence
Increase Reserves
Year-on-year increase of 2P reserves (net of production) and adjusted
for acquisition, divestment and/or farm-outs.
+ 3,370 BOEPD
Stretch
< 100% APPEA TRIFR
onshore field
operations
The Board reviewed performance against Group KPIs this year and determined to make an overall payment of 55%, an
increase on the 50% actual result achieved. The reasons for this were:
Management worked hard to overcome a production interruption in a non-operated asset that restricted
production and hence EBITDAX. As the non-operator, the Company has very limited control over production
outcomes.
The vesting of these Performance Rights is entirely based on performance from the time of grant i.e. LTIs are
forward looking and there is no granting of Performance Rights based on historical performance.
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Remuneration Report (continued)
4. Remuneration policy (continued)
c) Long term incentives (LTI) (continued)
Absolute share price appreciation over three years (75% weighting)
Below $2.50 0%
$2.50 50%
$3.00 75%
Above $3.50 100%
Between $2.50 and $3.00 Pro rata between 50% and 100%
Between $3.00 and $3.50 Pro rata between 75% and 100%
Relative to peer Total Share Returns over three years (25% weighting)
Percentile Proportion of Performance Rights Exercisable
Below 50th 0%
50th 50%
Between 51st and 100th Pro rata between 50% and 100%
100th 100%
d) Outstanding KMP options and performance rights
Outstanding KMP options and performance rights
Mr J.D. McKerlie
Mr B.W. Lingo
Mr P. J. Bainbridge
Mr B.K. Choo
Mrs F.A. Robertson
Mr H.R.B. Wecker
Mr I.W. Bucknell
Mr D. Evans
Mr P. Fox
Mr J.S. Whaley
nil
1,306,919
Share Performance
options vested options not vested rights not vested
Number Number
1,200,000 1,574,338
nil nil nil
800,000 562,169
400,000 562,169
223,463
1,000,000 539,683 223,463
6,400,000 5,855,819
1,124,338
Share
800,000 562,169
nil 391,270
1,000,000 539,683
nil nil
Number
25,393
25,393
25,393
182,833
50,787
550,194
1,200,000
Performance Criteria: Drillsearch Energy Limited Total shareholder Return
compared to ASX Energy Peer Group
When the LTI was determined for the financial year to 30 June 2013 (i.e. in June 2012), the Company consulted widely
with shareholders and received strong feedback that absolute share price appreciation was a significant expectation and
that alignment between management and shareholders would be achieved if this was the metric used for LTIs. The
Remuneration Policy in this area has changed for the 2014 year. This is referred to in the later section on changes to
Remuneration Policy for 2014.
At the date of this report the KMPs held the following options and performance rights. The table indicates which have
not yet vested.
• Each year performance hurdles are reviewed. For the financial year 30 June 2013 these were:
Performance Criteria: Drillsearch Energy Limited Share Price Growth
measured using a 60 VWAP as at 30 June 2015
Proportion of Performance Rights ExercisableShare Price Hurdle
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Remuneration Report (continued)
4. Remuneration policy (continued)
d) Outstanding KMP options and performance rights (continued)
The following table shows all Performance Rights granted during the 2013 financial year.
Mr J.D. McKerlie nil nil nil 12.6%
Mr B.W. Lingo nil nil nil 13.0%
Mr P. J. Bainbridge nil nil nil nil
Mr B.K. Choo nil nil nil 15.8%
Mrs F.A. Robertson nil nil nil 13.0%
Mr H.R.B. Wecker nil nil nil 12.3%
Mr I.W. Bucknell nil nil nil 4.9%
Mr D. Evans nil nil nil 5.2%
Mr P. Fox nil nil nil nil
Mr J.S. Whaley nil nil nil 6.1%
e) Employee Share Plan (ESP)
f) External advisors
5. Remuneration levels paid to KMP
a) Remuneration details
182,833
18/12/2012 223,463
No options were issued during the current financial year to the KMP (2012: 4,656,222).
During the course of the year the Board engaged with a number of human resource consultancy, advisory and corporate
governance firms and attended various conferences, seminars and meetings for ASX 200 companies, or those
organisations working closely with them. This provided valuable insights into market conditions and best practice. The
Remuneration Committee shared this information on a regular basis and believes it is fully aware of market and industry
remuneration conditions and trends.
nil nil
1,306,919
21/11/2012 25,393
21/11/2012
18/12/2012 223,463
21/11/2012 25,393
Grant
date
No.
granted
% of grant
vested
% of grant
forfeited
The Company utilised the services of external advisor, Arden Consulting, in determining its remuneration levels for the
financial year ended 2013. Consideration payable for these services was $7,260. The Board is satisfied that the
remuneration consultant, as selected independently by the Remuneration Committee, was free from undue influence
from KMP. The MD and Executive were not directly in contact with the remuneration consultant throughout the
provision of the services and the process was overseen by the Chairman at all times.
nil nil
21/11/2012 50,787
Each employee other than the MD receives an award of $1000 in Company shares. For background, this was introduced
to replace the LTI which was previously paid to every employee. For many people the LTI was considered of no value
(yet it had a cost to the Company) so it was replaced with the more tangible benefit.
% of 2013
remuneration
25,393
18/12/2012
21/11/2012 550,194
No. vestedPerformance rights issued
during the year
The following two tables outline the remuneration paid or awarded to KMP. The first is a “plain English” view of what
was paid in cash or granted by way of a form of security. The second is the statutory disclosure in accordance with AASB
2 'Share-based Payment' which adopts the accounting treatment required. This second table takes into account the
timing of the grant and vesting of securities and applies a probability of their worth.
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Remuneration Report (continued)
5. Remuneration levels paid to KMP (continued)
a) Remuneration details (continued)
Remuneration paid - a “plain English” view:
KMP Remuneration
Cash Non-Cash Non-Cash Non-Cash Cash Non-Cash Non-Cash Non-Cash
$ $ $ $ $ $ No. No. No.
Non-executive Directors
Mr J.D. McKerlie 2013 180,000 10,048 - 60,000 250,048 - - - -
2012 110,000 9,543 - - 119,543 - - - 1,124,338
Mr B.K. Choo 2013 60,000 - - 30,000 90,000 - - - -
2012 50,000 - - - 50,000 - - - 562,169
Mrs F.A. Robertson 2013 90,000 - - 30,000 120,000 - - - -
2012 57,500 - - - 57,500 - - - 562,169
Mr H.R.B. Wecker 2013 100,000 - - 30,000 130,000 - - - -
2012 60,000 - - - 60,000 - - - 562,169
Executive officers
Mr B.W. Lingo 2013 725,000 - - - 725,000 246,225 229,046 423,226 -
2012 500,000 - - - 500,000 150,000 126,968 - 1,574,338
Mr I.W. Bucknell 2013 360,000 1,000 32,073 393,073 70,200 65,302 182,833 -
2012 290,000 - - - 290,000 69,600 - - 391,270
Mr D. Evans 2013 440,000 1,000 - - 441,000 85,520 74,902 223,463 -
2012 400,000 - - - 400,000 96,000 - - 539,683
Mr J.S. Whaley 2013 440,000 1,000 - - 441,000 - - 223,463 -
2012 400,000 - - - 400,000 96,000 - - 539,683
-
Total 2013 2,395,000 13,048 32,073 150,000 2,590,121 401,945 369,250 1,052,985 -
2012 1,867,500 9,543 - - 1,877,043 411,600 126,968 - 5,855,819
(3) The Chairman's remuneration was increased to $200,000 comprising of $140,000 and $60,000 in performance rights (plus Committee fees in
cash) with Non-executive Director's remuneration increased to $90,000 comprising $60,000 in cash and $30,000 in performance rights (plus
Committee fees in cash). The only performance condition was the Director remain with the Company until 30 June 2013.
(4) The STI performance rights in the case Mr B.W. Lingo for 2012 were approved at the 21 November 2012 Annual General Meeting (AGM) . The
performance rights for Mr B.W. Lingo for 30 June 2013 are subject to shareholder approval.The performance rights have a twelve month
performance period. The performance hurdle is that in the case of the executives that they be be employed by the Company on 30 June the
following year.
(5) The LTI performance rights for Mr B.W. Lingo was approved at the 21 November 2012 AGM. The vesting of the performance rights are
conditional of the executive officers being employed by the Company on 30 June 2015 and the relative share performance and the absolute share
performance conditions being met.
(6) The options included in LTI relate to options granted as at 20 June 2011, 25 July 2011 and 23 November 2011. The options have a three year
vesting period and need to satisfy two performance hurdles; and absolute share price performance and a relative share price performance hurdle
to a group of peer companies.
Salaries &
fees
(including
Super)
(2) Long service leave is accrued and not taken.
(1) Other comprises of car parking fringe benefit for Mr J.D. McKerlie (2012 and 2013) and the $1000 Grant of Shares for all executive officers
excluding Mr B.W. Lingo.
LTI Options
granted (6)
Other (1) Long
Service (2)
Perf.
Rights (3)
STI Cash
Bonus
STI Perf.
Rights (4)
LTI Perf.
Rights(5)
LTI
Total Fixed
Pay
Fixed Pay STI
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5. Remuneration levels paid to KMP (continued)
a) Remuneration details (continued)
Remuneration paid according to Accounting Standards:
KMP Remuneration Total
Fixed Fixed Variable Fixed Variable Variable Variable Variable
Cash Non-Cash Cash Cash Non-Cash Non-Cash Non-Cash Non-Cash
$ $ $ $ $ $ $ $ $
Non-executive Directors
Mr J.D. McKerlie 2013 171,330 10,048 - 8,670 44,690 118,737 - - 353,475
2012 100,917 9,543 - 9,083 - 81,770 - - 201,313
Mr B.K. Choo 2013 55,046 - - 4,954 22,345 59,369 - - 141,714
2012 45,872 - - 4,128 - 40,885 - - 90,885
Mrs F.A. Robertson 2013 82,569 - - 7,431 22,345 59,369 - - 171,714
2012 52,752 - - 4,748 - 40,885 - - 98,385
Mr H.R.B. Wecker 2013 91,743 - - 8,257 22,345 59,369 - - 181,714
2012 55,046 - - 4,954 - 40,885 - - 100,885
Executive officers
Mr B.W. Lingo 2013 700,000 - 246,225 25,000 111,732 172,313 58,726 - 1,313,996
2012 470,000 - 150,000 30,000 - 114,063 - - 764,063
Mr I.W. Bucknell 2013 338,109 846 70,200 21,891 - 28,973 25,368 32,073 517,460
2012 266,992 - 69,600 23,008 - 27,068 - - 386,668
Mr D. Evans 2013 423,530 846 85,520 16,470 - 39,964 31,007 - 597,337
2012 384,225 - 96,000 15,775 - 37,336 - - 533,336
Mr J.S. Whaley 2013 415,000 846 - 25,000 - 39,964 31,007 - 511,817
2012 371,285 - 96,000 28,715 - 37,336 - - 533,336
Total 2013 2,277,327 12,586 401,945 117,673 223,457 578,058 146,108 32,073 3,789,227
2012 1,747,089 9,543 411,600 120,411 - 420,228 - - 2,708,871
(2) The cash component of the STI has been accrued as payable in the financial year. The expense for the Performance Right will be accounted for
in the following year.
Salaries &
feesOther
(1) STI Cash
Bonus(2)
Long
Service(6)
(5) The LTI performance rights for Mr B.W. Lingo were approved at the 21 November 2012 AGM. The vesting of the performance rights are
conditional of the executive officers being employed by the Company on 30 June 2015 and the relative share performance and the absolute share
performance conditions being met.
(6) Long service leave is accrued and not taken.
(3) The Chairman's remuneration was increased to $200,000 comprising of $140,000 plus Committee fees and $60,000in performance rights (plus
Committee fees in cash) with Non-executive Director's remuneration increased to $90,000 comprising $60,000 in cash and $30,000 in performance
rights (plus Committee fees in cash). The only performance condition was the Director remain with the Company until 30 June 2013.
(4) The options included here relate to options granted as at 20 June 2011, 25 July 2011 and 23 November 2011. The options have a three year
vesting period and need to satisfy two performance hurdles; an absolute share price performance hurdle and a relative share price performance
hurdle to a group of peer companies. They have not vested and are valued using the Monte Carlo method of valuation.
(1) Other comprises of car parking fringe benefit for Mr J.D. McKerlie (2012 and 2013) and the $1000 Grant of Shares for all executive officers
excluding Mr B.W. Lingo.
Super-
annuation
STI Perf.
Rights(3)
LTI
Options(4)
LTI Perf.
rights(5)
Short-term Long-term
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5. Remuneration levels paid to KMP (continued)
b) Key terms of employment contracts
Mr B.W. Lingo – Managing Director
Mr D. Evans – Chief Technical Officer
Mr I.W. Bucknell – Chief Financial Officer
Mr P. Fox – Chief Commercial Officer
Mr Fox provides services as a permanent employee of Drillsearch. The fixed remuneration inclusive of superannuation
for the year ended 30 June 2014 is $360,000. Mr Fox’s remuneration level is subject to annual review with reference to
remuneration levels from comparable companies. Remuneration is determined by the Board with reference to these
benchmarks. Mr Fox is eligible to receive up to 60% of his fixed remuneration by way of short term incentive and up to
60% of his fixed remuneration as Performance Rights by way of long term incentives.
The Company can terminate the contract on the grounds of serious misconduct and non-performance. The Chief
Commercial Officer can resign by giving three months’ notice. The Company can terminate the contract by giving three
months’ notice. In the event of a redundancy following a change of control then a twelve months’ notice period applies.
Mr Evans provides services as a permanent employee of Drillsearch. The fixed remuneration inclusive of superannuation
for the year ended 30 June 2014 is $515,000. Mr D. Evan’s remuneration level is subject to annual review with reference
to remuneration levels from comparable companies. Remuneration is determined by the Board with reference to these
benchmarks. Mr D. Evans is eligible to receive up to 60% of his fixed remuneration by way of short term incentive and
up to 60% of his fixed remuneration as Performance Rights by way of long term incentives.
The Company can terminate the contract on the grounds of serious misconduct and non-performance. The Chief
Technical Officer can resign by giving three months’ notice. The Company can terminate the contract by giving six
months’ notice. In the event of a redundancy following a change of control then a twelve months’ notice period applies.
Mr Bucknell provides services as a permanent employee of Drillsearch. The fixed remuneration inclusive of
superannuation for the year ended 30 June 2014 is $440,000. Mr Bucknell’s remuneration level is subject to annual
review with reference to remuneration levels from comparable companies. Remuneration is determined by the Board
with reference to these benchmarks. Mr I.W. Bucknell is eligible to receive up to 60% of his fixed remuneration by way
of short term incentive and up to 60% of his fixed remuneration as Performance Rights by way of long term incentives.
The Company can terminate the contract on the grounds of serious misconduct and non-performance. The Chief
Financial Officer can resign by giving three months’ notice. The Company can terminate the contract by giving six
months’ notice. In the event of a redundancy following a change of control then a twelve months’ notice period applies.
The Company constantly updates and adopts best practice in terms of employment contracts and policies. A number of
“initial term” executive employment contracts expired during the year and the board has replaced these with
“permanent performance” contracts.
Mr Lingo provides services as a permanent employee of Drillsearch. The fixed remuneration inclusive of superannuation
for the year ended 30 June 2014 is $800,000. Mr Lingo’s remuneration level is subject to annual review with reference
to remuneration levels from a pool of comparable companies. Remuneration is determined by the Board with reference
to these benchmarks. Mr Lingo is eligible to receive up to 60% (or more at the discretion of the Board) of his fixed
remuneration by way of short term incentive and up to 80% of his fixed remuneration as Performance Rights by way of
long term incentives.
The Company can terminate the contract on the grounds of serious misconduct and non-performance. The Managing
Director can resign by giving six months’ notice. The Company can terminate the contract by giving six months’ notice. In
the event of a redundancy following a change of control then a twelve months’ notice period applies.
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Remuneration Report (continued)
5. Remuneration levels paid to KMP (continued)
b) Key terms of employment contracts (continued)
Mr J.S. Whaley – Chief Operating Officer
6. Non-executive Directors remuneration arrangements
Mr Whaley's base remuneration inclusive of superannuation for the year ended 30 June 2014 under the contract is
$460,000. Mr Whaley’s remuneration level is subject to annual review with reference to remuneration levels from a
pool of comparable companies. Remuneration is determined by the Board with reference to these benchmarks. Mr
Whaley is eligible to receive up to 60% of his fixed remuneration by way of short term incentive and up to 60% of his
fixed remuneration as Performance Rights by way of long term incentives.
Remuneration Policy for Non-executive Directors has also changed over the last five years as the Company has
transformed from a small undercapitalized junior explorer to an established exploration and production company that is
in the ASX 200 Index. To attract directors as part of the Board renewal process which occurred in 2009, the Company
offered a stipend level of fees plus options at a premium to the then share price.
The Company can terminate the contract on the grounds of serious misconduct and non-performance. Mr Whaley is
migrating to the new standard Executive Services Agreement which is in place for the rest of the Executive team. Under
his expiring contract he can resign by giving two months’ notice. The Company can terminate the contract by giving six
months’ notice.
For the 30 June 2014 financial year the Board has adopted a cash only remuneration model. Whilst the directors
generally are shareholders in the Company, and have always felt aligned with and acted in the best interest of
shareholders, the Remuneration Committee is cognisant of the current view that as an ASX 200 Company the market
expects directors to be remunerated in cash and not have any securities as part of their remuneration package.
The work rate for Directors has been very high. The Board has been small and last year there were a total of 41 formal
board and committee meetings. As two Non-executive Directors sit on all Board committees and one Non-executive
Director sites on two Board committees, those particular Directors attended the vast majority of all these meetings. The
overseas Director does not sit on the committees but makes the trip from Malaysia several times a year to physically
attend meetings, and otherwise diligently attends by phone and conferencing facilities.
There was a real difficulty getting directors with the integrity, experience, expertise and an appetite for several years of
hard work to join the Board at this time. The Company had experienced board disruption, a hostile takeover and was
desperately in need of steady hands on the tiller. As the Company was capital constrained, the return for effort and
reputational risk was weighted more towards options than cash. These options had no real value at the time but should
the Company be successful, and the shareholders enjoy capital growth, the options would come into the money and
provide a reward to Directors. There remains a legacy of options granted at that time still in place today but the use of
options for Directors was discontinued two years ago.
For the 30 June 2013 financial year Directors received Performance Rights with service continuity being the performance
hurdle for vesting. These Performance Rights were "salary sacrificed" to distance the Board from performance hurdles of
management.
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Remuneration Report (continued)
6. Non-executive Directors remuneration arrangements (continued)
The last financial year was also particularly onerous as the Company:
Successfully completed two capital raises of $50m
Undertook a successful takeover bid for Acer Energy Limited
Put in place a US$100m acquisition bridge with the Commonwealth Bank of Australia
Executed a US$125m Convertible Bond
Established a long term $50m working capital facility
In early July, announced a series of binding farm in, sale and purchase transactions with Santos Limited
In early July expanded the Board by the appointment of Mr Philip Bainbridge
Fees and committees
The Directors' fees for the 30 June 2014 financial year are:
Chair of the Board
Member of the Board
Chair of a Committee
Member of the Committee
7. Diversity
The Company embraces diversity from the Board level right throughout the organisation. The five Directors at 30 June
2013 comprise one from off shore (Malaysia) and one female member. Employee numbers are not at a sufficient size to
report on the impact of gender diversity on remuneration. However due to Drillsearch’s commitment to diversity, the
company has established a Diversity Policy and will develop measurable objectives as a proactive approach towards
diversity in 2014.
Over the past twelve months the headcount has increased by 60% and currently comprises fourteen different
nationalities with females making up 33% of the workforce.
The base fee for Non-executive Directors is benchmarked against a pool of comparable companies and reviewed on an
annual basis. In the last financial year there was consultation on director remuneration with two "big 4" accounting
firms, an international recruitment consultant specialising in director appointments and a well respected Board
consultancy assisting the Board with Board evaluation and performance. Directors' fees are reviewed by the Board with
reference to these sources of information and data, and the Board takes into consideration the need to obtain and
retain appropriately qualified independent directors given the time commitment, number of board meetings and
workload.
The Board believes that Directors need to be remunerated fairly and that the execution of the corporate strategy is
dependent upon having the right people in place across all positions, including the Board. For the 2014 financial year it
has been agreed that Directors will receive cash fees only as their remuneration.
The aggregate pool of base remuneration approved by shareholders on 27 November 2012 was $700,000. With the
expansion of the Board, and the shift to cash only fees the pool will need to be expanded and approval will be sought at
the next AGM to lift the pool.
$340,000
$130,000
$30,000
$15,000
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Remuneration Report (continued)
8. Changes in remuneration policy for 2014.
TRIFR per million man hour under our prevailing safety influence
Net production targets and reserves replacement
Efforts to meet targets
EBITDAX targets
Cost management targets - Capital and operating activities
Reserves growth
Relative Total Share Return (‘TSR’)
On behalf of the Directors
J.D. McKerlie
Chairman
The decision that going forward there will be no further award of performance rights to Non-executive Directors. It
was also agreed that the Chair would be limited to one other public company directorship given the work load
required by the Company.
qualitative measure of management's effort to manage guidance targets (much of which is dependent on the
• The following STI Group KPIs have set for the 2014 financial year. The major changes relate to the inclusion of a
performance of JV partners) and a measurement of the effectiveness of remaining within budget on capital and
operating expenditures:
This Directors’ Report is signed in accordance with a resolution of Directors made pursuant to s.298(2) of the
Corporations Act 2001.
As part of an extensive review of remuneration policy, industry benchmarking, taxation and employment law advice the
Board has made some changes to the Remuneration Policy for the 2014 financial year. These include:
• The following LTIs have been agreed for the 2014 financial year. The changes are the inclusion of reserves growth
(i.e. replacement of reserves over production), and dropping absolute share price as a hurdle:
Sydney, 29 August 2013
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Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
Deloitte Touche TohmatsuA.B.N. 74 490 121 060
Grosvenor Place225 George StreetSydney NSW 2000PO Box N250 Grosvenor PlaceSydney NSW 1220 Australia
DX 10307SSETel: +61 (0) 2 9322 7000Fax: +61 (0) 2 9322 7001www.deloitte.com.au
29 August 2013
Dear Board Members,
Drillsearch Energy Limited
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide thefollowing declaration of independence to the directors of Drillsearch Energy Limited.
As lead audit partner for the audit of the financial statements of Drillsearch Energy Limited forthe financial year ended 30 June 2013, I declare that to the best of my knowledge and belief,there have been no contraventions of:
(i) the auditor independence requirements of the Corporations Act 2001 in relation tothe audit; and
(ii) any applicable code of professional conduct in relation to the audit.
Yours sincerely
DELOITTE TOUCHE TOHMATSU
Jason ThornePartnerChartered Accountants
The Board of DirectorsDrillsearch Energy LimitedLevel 16, 55 Clarence StreetSYDNEY NSW 2000
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Liability limited by a scheme approved under Professional Standards Legislation.Member of Deloitte Touche Tohmatsu Limited
Independent Auditor’s Reportto the members of Drillsearch Energy Limited
We have audited the accompanying financial report of Drillsearch Energy Limited, which comprisesthe consolidated statement of financial position as at 30 June 2013, the consolidated statement ofcomprehensive income, the consolidated statement of cash flows and the consolidated statement ofchanges in equity for the year ended on that date, notes comprising a summary of significantaccounting policies and other explanatory information, and the directors’ declaration of theconsolidated entity, comprising the company and the entities it controlled at the year’s end or fromtime to time during the financial year as set out on pages 30 to 70.
Directors’ Responsibility for the Financial Report
The directors of the company are responsible for the preparation of the financial report that gives atrue and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001and for such internal control as the directors determine is necessary to enable the preparation of thefinancial report that gives a true and fair view and is free from material misstatement, whether due tofraud or error. In Note 3, the directors also state, in accordance with Accounting Standard AASB 101Presentation of Financial Statements , that the consolidated financial statements comply withInternational Financial Reporting Standards.
Auditor’s Responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conductedour audit in accordance with Australian Auditing Standards. Those standards require that we complywith relevant ethical requirements relating to audit engagements and plan and perform the audit toobtain reasonable assurance whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosuresin the financial report. The procedures selected depend on the auditor’s judgement, including theassessment of the risks of material misstatement of the financial report, whether due to fraud or error.In making those risk assessments, the auditor considers internal control, relevant to the company’spreparation of the financial report that gives a true and fair view, in order to design audit proceduresthat are appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the company’s internal control. An audit also includes evaluating the appropriatenessof accounting policies used and the reasonableness of accounting estimates made by the directors, aswell as evaluating the overall presentation of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis forour audit opinion.
Deloitte Touche TohmatsuA.B.N. 74 490 121 060
Grosvenor Place225 George StreetSydney NSW 2000PO Box N250 Grosvenor PlaceSydney NSW 1220 Australia
DX 10307SSETel: +61 (0) 2 9322 7000Fax: +61 (0) 2 9322 7001www.deloitte.com.au
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Auditor’s Independence Declaration
In conducting our audit, we have complied with the independence requirements of the CorporationsAct 2001. We confirm that the independence declaration required by the Corporations Act 2001 ,which has been given to the directors of Drillsearch Energy Limited, would be in the same terms ifgiven to the directors as at the time of this auditor’s report.
Opinion
In our opinion:
(a) the financial report of Drillsearch Energy Limited is in accordance with the Corporations Act2001, including:
(i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2013and of its performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001 .
(b) the consolidated financial statements also comply with International Financial ReportingStandards as disclosed in Note 3.
Report on the Remuneration Report
We have audited the Remuneration Report included in pages 14 to 26 of the directors’ report for theyear ended 30 June 2013. The directors of the company are responsible for the preparation andpresentation of the Remuneration Report in accordance with section 300A of the Corporations Act2001. Our responsibility is to express an opinion on the Remuneration Report, based on our auditconducted in accordance with Australian Auditing Standards.
Opinion
In our opinion the Remuneration Report of Drillsearch Energy Limited for the year ended 30 June2013, complies with section 300A of the Corporations Act 2001 .
DELOITTE TOUCHE TOHMATSU
Jason ThornePartnerChartered AccountantsSydney, 29 August 2013
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Directors' Decaration
Directors’ declaration
The directors declare that:
On behalf of the Directors
J.D. McKerlie
Chairman
Sydney, 29 August 2013
(a) in the directors’ opinion, there are reasonable grounds to believe that the company will be
able to pay its debts as and when they become due and payable;
(b) in the directors’ opinion, the attached financial statements and notes thereto are in
accordance with the Corporations Act 2001, including compliance with accounting standards and
giving a true and fair view of the financial position and performance of the company and the
consolidated entity;
(c) in the directors’ opinion, the attached financial statements are in compliance with
International Financial Reporting Standards, as stated in note 3 to the financial statements; and
(d) the directors have been given the declarations required by s.295A of the Corporations Act
2001.
Signed in accordance with a resolution of the directors made pursuant to s.295(5) of the Corporations
Act 2001.
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Consolidated statement of profit or loss and other comprehensive income
for the year ended 30 June 2013
30-Jun-13 30-Jun-12
Notes $000 $000
Revenue 6 102,227 22,409
Cost of sales 9 (43,334) (14,330)
Gross profit 58,893 8,079
Other gains and losses 7 2,474 2,843
Exploration and evaluation costs expensed 5 (2,203) (221)
Impairment of oil and gas assets 16 - (148)
Finance costs 8 (6,112) (349)
Corporate activity costs in relation to acquisition of Acer (6,200) -
Change in fair value of convertible notes 21 (9,306) -
Other expenses 10 (19,770) (6,722)
Profit before tax 17,776 3,482
Income tax benefit 11 (a) 27,281 6,497
Profit for the year 45,057 9,979
PROFIT FOR THE YEAR 45,057 9,979
Exchange differences arising on translation of foreign operations (481) (171)
Other comprehensive income for the year, net of income tax (481) (171)
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 44,576 9,808
Earnings per share
Basic (cents per share) 13 11.1 4.5
Diluted (cents per share) 11.0 4.3
Notes to the financial statements are included on pages 35 to 70.
Year ended
Consolidated statement of profit or loss and other comprehensive income
Other comprehensive income, net of income tax which will be recycled
to the profit or loss
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Consolidated statement of financial position
at 30 June 2013
30-Jun-13 30-Jun-12
Notes $000 $000
Current assets
Cash and bank balances 28 36,061 45,611
Trade and other receivables 14 51,302 3,695
Inventories 1,744 751
Other assets 1,083 335
90,190 50,392
Assets classified as held for sale 12 199 21,638
Total current assets 90,389 72,030
Non-current assets
Exploration and evaluation assets 15 217,890 23,131
Oil and gas assets 16 108,586 54,773
Property, plant and equipment 17 3,719 963
Deferred tax assets 11 (c) 63,223 11,334
Other assets 1,370 1,286
Total non-current assets 394,788 91,487
Total assets 485,177 163,517
Current liabilities
Trade and other payables 18 42,509 12,047
Borrowings 20 10,000 -
Provisions 19 1,581 867
54,090 12,914
Liabilities directly associated with assets classified
as held for sale 12 - 6,092
Total current liabilities 54,090 19,006
Non-current liabilities
Convertible notes 21 130,391 -
Provisions 19 14,101 2,519
Total non-current liabilities 144,492 2,519
Total liabilities 198,582 21,525
NET ASSETS 286,595 141,992
Equity
Issued capital 22 280,411 180,838
Reserves 23 7,267 7,294
Retained earnings (1,083) (46,140)
Equity attributable to owners of the parent 286,595 141,992
TOTAL EQUITY 286,595 141,992
Notes to the financial statements are included on pages 35 to 70.
Consolidated statement of financial position
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Consolidated statement of changes in equity
Consolidated statement of changes in equity
for the year ended 30 June 2013
Share capital Equity-settled
benefits reserve
Foreign currency
translation
reserve
General reserve Retained
earnings
Total
$000 $000 $000 $000 $000 $000
Balance at 1 July 2011 158,767 4,515 645- 3,440 56,119- 109,958
Profit for the year - - - - 9,979 9,979
Exchange differences arising on translation of foreign
operations - - (171) - - (171)
Total comprehensive income for the year - - (171) - 9,979 9,808
Recognition of share-based payments - 683 - - - 683
Shares issued during the year 20,999 (528) - - - 20,471
Transaction costs of share issue (30) - - - - (30)
Income tax relating to transactions with owners 1,102 - - - - 1,102
Balance at 30 June 2012 180,838 4,670 (816) 3,440 (46,140) 141,992
Balance at 1 July 2012 180,838 4,670 (816) 3,440 (46,140) 141,992
Profit for the year - - - - 45,057 45,057
Exchange differences arising on translation of foreign
operations - - (481) - - (481)
Total comprehensive income for the year - - (481) - 45,057 44,576
Recognition of share-based payments - 1,071 - - - 1,071
Shares issued during the year 102,543 (617) - - - 101,926
Transaction costs of share issue (3,695) - - - - (3,695)
Income tax relating to transactions with owners 725 - - - - 725
Balance at 30 June 2013 280,411 5,124 (1,297) 3,440 (1,083) 286,595
Notes to the financial statements are included on pages 35 to 70.
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Consolidated statement of cash flows
for the year ended 30 June 2013
30-Jun-13 30-Jun-12
Notes $000 $000
Cash flows from operating activities
Receipts from customers 54,283 21,693
Payments to suppliers and employees (32,883) (11,518)
Cash generated from operations 21,400 10,175
Interest paid (3,419) (134)
Income tax refund / (paid) 1,258 -
Net cash generated by operating activities 28 (b) 19,239 10,041
Cash flows from investing activities
Interest received 2,473 2,276
Payments for exploration & evaluation assets (101,666) (30,179)
Payments for property, plant and equipment oil and gas assets (36,901) (6,678)
Payments for property, plant and equipment other assets (2,133) (613)
Proceeds from sale of exploration and evaluation assets 7 - 148
Payments for business acquisition (119,063) -
Net cash used in investing activities (257,290) (35,046)
Cash flows from financing activities
Net proceeds from issues of equity shares 99,047 20,441
Net proceeds from borrowings 129,054
Net cash generated by financing activities 228,101 20,441
Net decrease in cash and cash equivalents (9,950) (4,564)
Cash and cash equivalents at the beginning of the year 45,695 50,259
Effects of exchange rate changes on the balance
of cash held in foreign currencies 316 -
Cash and cash equivalents at the end of the year 28 (a) 36,061 45,695
Notes to the financial statements are included on pages 35 to 70.
Year ended
Consolidated statement of cash flows
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Notes to the financial statements
Registered office Principal place of business
16th Floor 16th Floor
55 Clarence Street 55 Clarence Street
SYDNEY NSW 2000 SYDNEY NSW 2000
Tel: (02) 9249 9600
1. General information
Standards affecting presentation and disclosure
2. Application of new and revised Accounting Standards
Drillsearch Energy Limited’s registered office and its principal place of business are as follows:
Drillsearch Energy Limited (the Company) is a public company listed on the Australian Securities Exchange (trading
under the symbol ‘DLS’), incorporated and operating in Australia.
The Company's principal activities are the exploration, development and production of oil and gas interests.
The following new and revised Standards and Interpretations have been adopted in the current year and have
affected the amounts reported in these financial statements. Details of other Standards and Interpretations adopted
in these financial statements but that have had no effect on the amounts reported are set out in section 2.2.
Tel: (02) 9249 9600
2.1 Standards and Interpretations affecting amounts in the current period (and/or prior periods)
The amendment (part of AASB 2011-9 'Amendments to Australian Accounting
Standards- Presentation of Items of Other Comprehensive Income' introduce
new terminology for the statement of comprehensive income and income
statement. Under the amendments to AASB 101, the statement of
comprehensive income is renamed as a statement of profit or loss and other
comprehensive income and the income statement is renamed as a statement
of profit or loss. The amendments to AASB 101 retain the option to present
the profit or loss and other comprehensive income in either a single statement
or in two separate but consecutive statements. However, the amendments to
AASB 101 require items of other comprehensive income to be grouped into
two categories in the other comprehensive income section: (a) items that will
not be reclassified subsequently to profit or loss and (b) items that may be
reclassified subsequently to profit or loss when specific conditions are met.
Income tax on items of other comprehensive income is required to be
allocated on the same basis- the amendments do not change the option to
present items of other comprehensive income either before or net of tax. The
amendments have been applied retrospectively, and hence the presentation
of items of other comprehensive income has been modified to reflect the
changes. Other than the above mentioned presentation changes, the
application of the amendments to AASB 101 does not result in any impact on
profit or loss, other comprehensive income and total comprehensive income.
Amendments to AASB 101
'Presentation of Financial
Statements'
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Notes to the financial statements
Standards affecting presentation and disclosure (continued)
Standards and interpretations affecting the reported results or financial position
There are no new and revised Standards and Interpretations adopted in these financial statements affecting the
reporting results or financial position.
2. Application of new and revised Accounting Standards (continued)
2.1 Standards and Interpretations affecting amounts in the current period (and/or prior periods) (continued)
At the date of authorisation of the financial statements, the Standards and Interpretations listed below were in issue
but not yet effective:
Effective for
annual reporting
periods beginning
on or after
Expected to be initially
applied in the financial
year ending
Standard/Interpretation
There are no new and revised Standards and Interpretations adopted in the financial year with no effect on financial
statements.
2.2 Standards and Interpretations adopted with no effect on financial statements
2.3 Standards and Interpretations in issue not yet adopted
Amendments to AASB 101
'Presentation of Financial
Statements'
The amendments (part of AASB 2012-5 'Further Amendments to Australian
Accounting Standards arising from Annual Improvements 2009-2011 Cycle')
requires an entity that changes accounting policies retrospectively, or makes a
retrospective restatement or classification to present a statement of financial
position as at the beginning of the preceding period (third statement of
financial position), when the retrospective application, restatement or
reclassification has the material effect on the information in the third
statement of financial position. The related notes to the third statement of
financial position are not required to be disclosed.
30 June 2014
AASB 9 Financial Instruments, AASB 2009-11 Amendments to Australian
Accounting Standards arising from AASB 9, AASB 2010-7 Amendments to
Australian Accounting Standards arising from AASB 9 (December 2010)
1 January 2015 30 June 2016
AASB 10 Consolidated Financial Statements 1 January 2013
AASB 11 Joint Arrangements 1 January 2013 30 June 2014
AASB 12 Disclosure of Interests in Other Entities 1 January 2013 30 June 2014
AASB 2011-11 Amendments to AASB 119 (September 2011) arising from
Reduced Disclosure Requirements
1 January 2013 30 June 2014
AASB 127 Separate Financial Statements (2011) 1 January 2013 30 June 2014
AASB 128 Investments in Associates and Joint Ventures (2011) 1 January 2013 30 June 2014
AASB 13 Fair Value Measurement and related AASB 2011-8 Amendments
to Australian Accounting Standards arising from AASB 13
1 January 2013 30 June 2014
AASB 119 Employee Benefits (2011) and AASB 2011-10 Amendments to
Australian Accounting Standards arising from AASB 119 (2011)
1 January 2013 30 June 2014
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Notes to the financial statements
AASB 2012-3 Amendments to Australian Accounting Standards –
Offsetting Financial Assets and Financial Liabilities
1 January 2013 30 June 2014
Expected to be initially
applied in the financial
year ending
AASB 2011-7 Amendments to Australian Accounting Standards arising
from the Consolidation and Joint Arrangements standards
1 January 2013 30 June 2014
AASB 2012-2 Amendments to Australian Accounting Standards –
Disclosures – Offsetting Financial Assets and Financial Liabilities
1 January 2013 30 June 2014
1 July 2013 30 June 2014
AASB 2011-4 Amendments to Australian Accounting Standards to
Remove Individual Key Management Personnel Disclosure Requirements
1 July 2013 30 June 2014
2. Application of new and revised Accounting Standards (continued)
Effective for
annual reporting
periods beginning
on or after
AASB 2011-2 Amendments to Australian Accounting Standards arising
from the Trans-Tasman Convergence Project – Reduced Disclosure
Requirements
1 July 2013 30 June 2014
AASB 1053 Application of Tiers of Australian Accounting Standards and
AASB 2010-2 Amendments to Australian Accounting Standards arising
from Reduced Disclosure Requirements
1 July 2013 30 June 2014
2.3 Standards and Interpretations in issue not yet adopted (continued)
Standard/Interpretation
The financial statements comprise the consolidated financial statements of the Group (being Drillsearch Energy
Limited and all its subsidiaries). For the purposes of preparing the consolidated financial statements, the Company is
a for-profit entity.
The potential impact of the initial application of the above Standards has not yet been determined.
3. Significant accounting policies
Statement of compliance
These financial statements are general purpose financial statements which have been prepared in accordance with
the Corporations Act 2001, Australian Accounting Standards and Interpretations, and comply with other
requirements of the law.
AASB 2011-6 Amendments to Australian Accounting Standards –
Extending Relief from Consolidation, the Equity Method and
Proportionate Consolidation – Reduced Disclosure Requirements
AASB 2011-9 Amendments to Australian Accounting Standards –
Presentation of Items of Other Comprehensive Income [AASB 1, 5, 7,
101, 112, 120, 121, 132, 133, 134, 1039 & 1049]
1 January 2013 30 June 2014
AASB 2012-11 Amendments to Australian Accounting Standards –
Reduced Disclosure Requirements and Other Amendments
1 January 2013 30 June 2014
AASB 2013-4 Amendments to Australian Accounting Standards -
Novation of Derivatives and Continuation of Hedge Accounting
1 January 2014 30 June 2015
AASB 2013-3 Amendments to AASB 136 - Recoverable Amount
Disclosures for Non-Financial Assets
1 January 2014 30 June 2015
AASB 2012-7 Amendments to Australian Accounting Standards arising
from Reduced Disclosure Requirements
1 January 2013 30 June 2014
AASB 2012-5 Amendments to Australian Accounting Standards arising
from Annual Improvements 2009–2011 Cycle
1 January 2013 30 June 2014
AASB 2012-6 Amendments to Australian Accounting Standards –
Mandatory Effective Date of AASB 9 and Transition Disclosures
1 January 2015 30 June 2016
AASB 2012-5 Amendments to Australian Accounting Standards arising
from Annual Improvements 2009–2011 Cycle
1 January 2013 30 June 2014
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Notes to the financial statements
(a) Going concern basis
(c) Business combinations
(b) Basis of consolidation
3. Significant accounting policies (continued)
Statement of compliance (continued)
The consolidated financial statements incorporate the financial statements of Drillsearch and its subsidiaries as
defined in note 26, all of which are wholly owned. All intra-group transactions, balances, income and expenses are
eliminated in full on consolidation.
For the year ended 30 June 2013, the Group made a net profit after tax of $45.1 million (2011: loss $10.0 million).
This increase in net profit was largely driven by the rise in oil and gas revenue and balances relating to the
recognition of future tax benefits expected to arise on recoupment of tax losses in the future and PRRT offset by the
change in fair value of the convertible bond.
The financial statements were authorised for issue by the Directors on 29 August 2013.
Accounting Standards include Australian Accounting Standards. Compliance with Australian Accounting Standards
ensures that the financial statements and notes of the company and the Group comply with International Financial
Reporting Standards (‘IFRS’).
The Group has prepared the financial report on a going concern basis, which contemplates the continuity of normal
business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business.
The consolidated financial statements have been prepared on the basis of historical cost, except for the revaluation
of certain non-current assets and financial instruments, as explained in the accounting policies below. Cost is
generally based on the fair values of the consideration given in exchange for assets. All amounts are presented in
Australian dollars, unless otherwise noted.
The Company is a company of the kind referred to in ASIC Class Order 98/100, dated 10 July 1998, and in accordance
with that Class Order amounts in the financial statements are rounded off to the nearest thousand dollars, unless
otherwise indicated.
Basis of preparation
The following significant accounting policies have been adopted in the preparation and presentation of the financial
reports:
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a
business combination is measured at fair value which is calculated as the sum of the acquisition-date fair values of
assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the
equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are
recognised in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value
at the acquisition date, except that:
• deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are
recognised and measured in accordance with AASB 112 ‘Income Taxes’ and AASB 119 ‘Employee Benefits'
respectively; and
• liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based
payment arrangements of the Group entered into to replace share-based payment arrangements of the
acquiree are measured in accordance with AASB 2 ‘Share-based Payment’ at the acquisition date.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies
into line with those used by other members of the Group.
Income and expense of subsidiaries acquired or disposed of during the year are included in the consolidated
statement of profit or loss and comprehensive income from the effective date of acquisition and up to the effective
date of disposal, as appropriate. Total comprehensive income of subsidiaries is attributed to the owners of the
Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit
balance.
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Notes to the financial statements
(d) Interests in joint ventures
(e) Foreign currency
(f) Goods and services tax
• for receivables and payables which are recognised inclusive of GST.
• where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the
cost of acquisition of an asset or as part of an item of expense; or
The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or
payables.
Cash flows are included in the cash flow statement on a gross basis. The GST component of cash flows arising from
investing and financing activities which is recoverable from, or payable to, the taxation authority is classified within
operating cash flows.
Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except:
Joint venture arrangements that involve the establishment of a separate entity in which each venturer has an
interest are referred to as jointly controlled entities.
The individual financial statements of each group entity are presented in the currency of the primary economic
environment in which the entity operates (its functional currency). For the purpose of the consolidated financial
statements, the results and financial position of each entity are expressed in Australian dollars (‘$’), which is the
functional currency of the Company and the presentation currency for the consolidated financial statements.
In preparing the financial statements of each individual entity, transactions in currencies other than the entity’s
functional currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the
transactions.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign
operations are expressed in Australian dollars using exchange rates prevailing at the end of the reporting period.
Income and expense items are translated at the average exchange rates for the period, unless exchange rates
fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are
used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity
(attributed to non-controlling interests as appropriate).
A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity
that is subject to joint control (i.e. when the strategic financial and operating policy decisions relating to the activities
of the joint venture require the a specified level of consent from the parties sharing control).
When a group entity undertakes its activities under joint venture arrangements directly, the Group’s share of jointly
controlled assets and any liabilities incurred jointly with other venturers are recognised in the financial statements of
the relevant entity and classified according to their nature. Liabilities and expenses incurred directly in respect of
interests in jointly controlled assets are accounted for on an accrual basis. Income from the sale or use of the
Group’s share of the output of jointly controlled assets, and its share of joint venture expenses, are recognised when
it is probable that the economic benefits associated with the transactions will flow to/from the Group and their
amount can be measured reliably.
The Group’s interests in assets where the Group does not have joint control are accounted for in accordance with
the substance of the Group’s interest. Where such arrangements give rise to an undivided interest in the individual
assets and liabilities of the joint venture, the Group recognises its undivided interest in each asset and liability and
classifies and presents those items according to their nature.
3. Significant accounting policies (continued)
Basis of preparation (continued)
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Notes to the financial statements
(g) Revenue
(i) Taxation
3. Significant accounting policies (continued)
Revenue is recognised in profit or loss when the significant risks and rewards of ownership have been transferred
to the buyer. Revenue is recognised and measured at the fair value of the consideration received or receivable,
net of goods and services tax, to the extent it is probable that the economic benefits will flow to the Group and
the revenue can be reliably measured.
Sales revenue
Sales revenue is recognised on the basis of the Group’s interest in a producing field (“entitlements” method),
when the physical product and associated risks and rewards of ownership pass to the purchaser, which is
generally at the time of ship or truck loading, or on the product entering the pipeline.
Interest income
Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to
the Group and the amount of revenue can be measured reliably. Interest income is accrued on a time basis, by
reference to the principal outstanding and at the effective interest rate applicable.
Equity-settled share-based payments with employees and others providing similar services are measured at the
fair value of the equity instrument at the grant date. Fair value is measured by use of the binomial or Monte Carlo
model. The expected life used in the model has been adjusted, based on management’s best estimate, for the
effects of non-transferability, exercise restrictions, and behavioural considerations. Further details on how the
fair value of equity-settled share-based transactions has been determined can be found in note 30.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-
line basis over the vesting period, based on the Group’s estimate of equity instruments that will eventually vest,
with a corresponding increase in equity.
At the end of each reporting date, the Group revises its estimate of the number of equity instruments expected
to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss over the
remaining vesting period, with corresponding adjustment to the equity settled employee benefits reserve.
Income tax expense represents the sum of the tax currently payable and deferred tax.
Deferred tax
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the
financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax
liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally
recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be
available against which those deductible temporary differences can be utilised. Such deferred tax assets and
liabilities are not recognised if the temporary difference arises from goodwill or initial recognition (other than in a
business combination) of other assets and liabilities in a transaction that affects neither the taxable nor the
accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences associated with investments in
subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal
of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable
future. Deferred tax assets arising from deductible temporary differences associated with such investments and
interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against
which to utilise the benefits of the temporary differences and expected to reverse in the foreseeable future.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in
the consolidated statement of profit or loss and comprehensive income because of items of income or expense
that are taxable or deductible in other years and items that are never taxable or deductible. The Group’s liability
for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the
reporting period.
(h) Share based payments transactions of the Company
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Notes to the financial statements
(i) Taxation (continued)
Deferred tax (continued)
Tax consolidation
The company and all its wholly-owned Australian resident entities are part of a tax-consolidated group under
Australian taxation law. Drillsearch Energy Limited is the head entity in the tax-consolidated group. Tax
expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the
members of the tax-consolidated group are recognised in the separate financial statements of the members of
the tax-consolidated group using the ‘separate taxpayer within group’ approach by reference to the carrying
amounts in the separate financial statements of each entity and the tax values applying under tax consolidation.
Current tax liabilities and assets and deferred tax assets arising from unused tax losses and relevant tax credits of
the members of the tax-consolidated group are recognised by the Company (as head entity in the tax-
consolidated group).
Current and deferred tax for the year
Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in
other comprehensive income or directly in equity, in which case the current and deferred tax are also recognised
in other comprehensive income or directly in equity, respectively. Where current tax or deferred tax arises from
the initial accounting for a business combination, the tax effect is included in the accounting for the business
combination.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which
the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or
substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets
reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the
reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets
against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the
Group intends to settle its current tax assets and liabilities on a net basis.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the
extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset
to be recovered.
3. Significant accounting policies (continued)
Due to the existence of a tax funding arrangement between the entities in the tax-consolidated group, amounts
are recognised as payable to or receivable by the Company and each member of the group in relation to the tax
contribution amounts paid or payable between the parent entity and the other members of the tax-consolidated
group in accordance with the arrangement.
Further information about the tax funding arrangement is detailed in note 11. Where the tax contribution
amount recognised by each member of the tax-consolidated group for a particular period is different to the
aggregate of the current tax liability or asset and any deferred tax asset arising from unused tax losses and tax
credits in respect of that period, the difference is recognised as a contribution from (or distribution to) equity
participants.
Drillsearch together with other Operators in the Cooper Basin applied to the Minister of Resources and Energy for
a combination certificate to treat a list of petroleum licences as a single project for PRRT purposes. The
application was approved on 20 June 2013.
Petroleum Resource Rent Tax (PRRT)
PRRT is recognised as an income tax under AASB 112 'Income Taxes'. From 1 July 2012, the existing PRRT regime
was extended to all Australian petroleum production sourced from projects located onshore and in territorial
waters. On transition to the extended PPRT regime, a starting tax base is available to be deducted against the
relevant project profits, giving rise to a potential deferred tax asset. The recoverability of the Group's deferred tax
assets are discussed above. The introduction of the extended PRRT has the potential to significantly impact the
assumptions used to determine future cash flows generated from the continuing use of the Group’s assets. As the
legislation is now enacted, the Group has incorporated its current assessment of the potential impact on deferred
tax accounting.
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Notes to the financial statements
(j) Cash and cash equivalents
(k) Financial instruments
(l) Inventories
The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire,
or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to
another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and
continues to control the transferred asset, the Group recognises its retained interest in the asset and an
associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of
ownership of a transferred financial asset, the Group continues to recognise the financial asset and also
recognises a collateralised borrowing for the proceeds received.
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged,
cancelled or expire. The difference between the carrying amount of the financial liability derecognised and the
consideration payable is recognised in profit or loss.
Inventories are stated at the lower of cost and net realisable value. Costs, including an appropriate portion of
fixed and variable overhead expenses, are assigned to inventories by the method most appropriate to each
particular class of inventory, with all categories being valued on a first in first out basis. The net realisable value
represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to
make the sale.
Transaction costs that are directly attributable to a financial asset or liability measured at fair value through profit
or loss are taken directly to the income statement. All other financial assets and liabilities are shown net of
transaction costs.
Cash comprises cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments
that are readily convertible to known amounts of cash, which are subject to an insignificant risk of changes in
value and have a maturity of three months or less at the date of acquisition.
Financial assets are classified into the following specified categories: financial assets ‘at fair value through profit
or loss’ (FVTPL), ‘held-to-maturity’ investments, ‘available-for-sale’ (AFS) financial assets and ‘loans and
receivables’. The classification depends on the nature and purpose of the financial assets and is determined at
the time of initial recognition. All regular purchases or sales of financial assets are recognised and derecognised
on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require
delivery of assets within the time frame established by regulation or convention in the marketplace.
Subsequent to initial recognition, investments in subsidiaries are measured at cost in the company financial
statements.
3. Significant accounting policies (continued)
Financial instruments are measured at fair value on initial recognition of the instrument and are classified into
one of the following five categories: fair value through profit or loss, loans and receivables, held to maturity
investments, available for sale financial assets and financial liabilities at amortized cost.
Subsequent measurement of financial instruments is based on their initial classification. Fair value through profit
or loss financial instruments are measured at fair value and changes in fair value are recognized in the statement
of comprehensive income. Available for sale financial instruments are measured at fair value with changes in fair
value recorded in other comprehensive income until the instrument is derecognized or impaired. The remaining
categories of financial instruments are recognized at amortized cost using the effective interest rate method.
Cash and bank balances are classified as fair value through profit and loss. Accounts receivable are classified as
loans and receivables which are measured at amortized cost. Accounts payable and accrued liabilities, borrowings
and convertible notes are classified as financial liabilities at amortized cost.
Borrowings and convertible notes are classified as current liabilities unless the Company has an unconditional
right to defer settlement of the liability for at least 12 months after the reporting date.
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Notes to the financial statements
(m) Non-current assets held for sale
(o) Provisions
Each class of plant and equipment is carried at cost less, where applicable, any accumulated depreciation and
impairment losses.
Depreciation is recognised so as to write off the cost or valuation of assets (other than freehold land and
properties under construction) less their residual values over their useful lives, using the straight-line method.
The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting
period, with the effect of any changes in estimate accounted for on a prospective basis.
Leasehold improvements are amortised over the shorter of either the unexpired period of the lease or the
estimated useful lives of the improvements. The straight line method is used. Assets are depreciated or
amortised from the date of acquisition.
The depreciation rates used for each class of depreciable assets are:
Class of Fixed Asset Depreciation Rate
Property Plant and Equipment 5-33%
Provision for decommissioning
A provision for decommissioning is recognised when there is a present obligation as a result of exploration,
development and production activities undertaken, it is probable that an outflow of economic benefits will be
required to settle the obligation, and the amount of the provision can be measured reliably. The estimated future
obligations include the costs of removing facilities, abandoning wells and restoring the affected areas.
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past
event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made
of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present
obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation.
(n) Property, plant and equipment
Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their previous
carrying amount and fair value less costs to sell.
The provision for future decommissioning costs is the best estimate of the present value of the expenditure
required to settle the decommissioning obligation at the reporting date. Future decommissioning costs are
reviewed annually and any changes in the estimate are reflected in the present value of the decommissioning
provision at each reporting date.
The initial estimate of the decommissioning and rehabilitation provision relating to exploration, development and
production facilities is capitalised into the cost of the related asset and amortised on the same basis as the
related asset, unless the present obligation arises from the production of inventory in the period, in which case
the amount is included in the cost of production for the period. Changes in the estimate of the provision for
decommissioning are treated in the same manner, except that the unwinding of the effect of discounting on the
provision is recognised as a finance cost rather than being capitalised into the cost of the related asset.
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered
principally through a sale transaction rather than through continuing use. This condition is regarded as met only
when the sale is highly probable and the non-current asset (or disposal group) is available for immediate sale in
its present condition. Management must be committed to the sale, which should be expected to qualify for
recognition as a completed sale within one year from the date of classification.
3. Significant accounting policies (continued)
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Notes to the financial statements
(p) Exploration and evaluation
area of interest are continuing.
(q) Oil and gas assets
(r) Impairment
reached a stage which permits a reasonable assessment of the existence or otherwise of
economically recoverable reserves, and active and significant operations in, or in relation to, the
• at least one of the following conditions is also met:
The carrying amounts of the Group's assets are reviewed at the end of each reporting date to determine whether
there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated.
(i) the exploration and evaluation expenditures are expected to be recouped through successful
development and exploration of the area of interest, or alternatively, by its sale; or
Development expenditure is recognised at cost less accumulated amortisation and any impairment losses. Where
commercial production in an area of interest has commenced, the associated costs together with any forecast
future capital expenditure necessary to develop proved and probable reserves are amortised over the estimated
economic life of the field on a units-of-production basis.
Changes in factors such as estimates of proved and probable reserves that affect unit-of-production calculations
are dealt with on a prospective basis.
(ii) exploration and evaluation activities in the area of interest have not, at the reporting date,
Exploration and evaluation expenditures in relation to each separate area of interest are recognised as an
exploration and evaluation asset in the year in which they are incurred where the following conditions are
satisfied:
• the rights to tenure of the area of interest are current; and
The Group follows the full cost method of accounting for oil and gas assets whereby all costs, less any incentives
related to the acquisition, exploration and development of oil and gas reserves are capitalised. These costs
include land acquisition costs, geological and geophysical expenses, the costs of drilling both productive and non-
productive wells, non-producing lease rentals and directly related general and administrative expenses. Proceeds
received from the disposal of properties are normally credited against accumulated costs.
With respect to oil and gas assets, depletion of oil and gas assets and amortisation of production facilities and
equipment are calculated using the unit-of-production method based on estimated proven oil and gas reserves.
For the purposes of the depletion calculation, proven oil and gas reserves before royalties are converted to a
common unit of measure.
The estimated costs for developing proved undeveloped reserves, future decommissioning and abandonments,
net of estimated salvage values, are provided for on the unit of production method included in the provision for
depletion and amortisation.
An impairment loss is recognised whenever the carrying amount of an asset or its cash generating unit exceeds its
recoverable amount. Impairment losses are recognised in profit or loss, unless an asset has previously been re-
valued through equity, in which case the impairment loss is recognised as a reversal to the extent of the previous
revaluation with any excess recognised through profit or loss.
Exploration and evaluation assets are initially measured at cost and include acquisition of rights to explore,
studies, exploratory drilling, trenching and sampling and associated activities and an allocation of depreciation
and amortisation of assets used in exploration and evaluation activities. General and administrative costs are only
included in the measurement of exploration and evaluation costs where they are related directly to operational
activities in a particular area of interest.
3. Significant accounting policies (continued)
The recoverable amount of other assets is the greater of their fair value less costs to sell and value in use. In
assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value of money and the risks specific to the
assets. For an asset that does not generate largely independent cash inflows, the recoverable amount is
determined for the cash generating unit to which the asset belongs.
The recoverable amount of the Groups investments in held to maturity securities and receivables carried at
amortised cost is calculated as the present value of estimated future cash flows, discounted at the original
effective rate (i.e. the effective interest rate computed at initial recognition of these financial assets). Receivables
with a short duration are not discounted.
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Notes to the financial statements
(s) Borrowing costs
Key sources of estimation uncertainty
These assessments require assumptions to be made regarding future development and production costs,
commodity prices, exchange rates and fiscal regimes. The estimate of reserves may change from period to period
as the economic assumptions used to estimate the reserves can change from period to period, and as additional
geological data is generated during the course of operations.
Provision for decommissioning
The Group estimates the future removal and decommissioning costs of oil and gas production facilities, wells,
pipelines and related assets at the time of installation of the assets. In most instances the removal of these assets
will occur many years in the future. The estimate of future removal costs therefore requires management to
make adjustments regarding the removal date, future environmental legislation, the extent of decommissioning
activities and future removal technologies.
3. Significant accounting policies (continued)
The Group capitalises borrowing costs that are directly attributable to the acquisition, construction or production
of a qualifying asset as part of the cost of that asset. The Group recognises other borrowing costs as an expenses
in the period in which it incurs them.
In the application of the Group’s accounting policies, which are described in note 3, the Directors are required to
make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not
readily apparent from other sources. The estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
4. Critical accounting judgements and key sources of estimation uncertainty
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.
Exploration and evaluation assets
The Group’s policy for exploration and evaluation is discussed in note 3(p). The application of this policy requires
management to make certain estimates and assumptions as to future events and circumstances. Any such
estimates and assumptions may change as new information becomes available. If, after having capitalised
exploration and evaluation expenditure, management concludes that the capitalised expenditure is unlikely to be
recovered by future sale or exploitation, then the relevant capitalised amount will be written off through profit or
loss.
Estimate of reserve quantities
The estimated quantities of proven and probable hydrocarbon reserves reported by the Group are integral to the
calculation of amortisation (depletion) and depreciation expense and to assessments of possible impairment of
assets. Estimated reserve quantities are based upon interpretations of geological and geophysical models and
assessment of the technical feasibility and commercial viability of producing the reserves. Management prepare
reserve estimates which conform to guidelines prepared by the Society of Petroleum Engineers Australia. These
estimates are then verified by independent technical experts.
Impairment of oil and gas assets
The Group assesses whether oil and gas assets are impaired on a semi-annual basis. This requires an estimation of
the recoverable amount of the cash generating unit to which each asset belongs. The recoverable amount is
assessed on the basis of the expected net cash flows that will be received from the asset’s employment and or
subsequent disposal. The expected net cash flows are discounted to their present values in determining the
recoverable amount.
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Notes to the financial statements
Key sources of estimation uncertainty (continued)
Information reported to the Chief Operating Decision Maker (CODM), being the Managing Director, for the
purposes of resource allocation and assessment of performance is more specifically focused on the category of
business units. The Group’s reportable segments under AASB 8 Operating Segments are therefore as follows:
Wet Gas Projects
Wet gas is natural gas that contains significant amounts of liquid hydrocarbons - condensate (a very light oil) and
LPG's. Drillsearch has existing wet gas discoveries and currently has three wet gas fields in production. The
Company also holds significant wet gas exploration upside with the potential development of these discoveries
significantly contributing to revenue generation over the long-term.
Critical judgements in applying accounting policies
Current and Deferred Tax
The Group’s policy for income tax is discussed in note 3(i). The application of this policy requires management to
make estimates and judgements as to the quantum of the temporary differences arising between accounting and
tax treatment. Deferred tax assets are only recognised to the extent that it is probable that there will sufficient
taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse
in the foreseeable future. These assessments require assumptions to be made regarding the Group’s future
taxable position and are performed on an annual basis.
Petroleum Resource Rent Tax (PRRT)
The Group’s policy for income tax is discussed in note 3(i). The application of this policy requires management to
complete a valuation of the projects the Group holds an interest in which fall within the remit of the PRRT
regime, to determine the applicable treatment and any resultant tax liability or deferred tax asset estimate
(discussed above). Under PRRT, the Group has the option to elect differing methodologies when determining the
project valuation and this has the potential to materially affect the outcome of the estimate. The assessments
also require assumptions to be made regarding an asset’s future development costs, production forecasts and
costs, commodity prices, exchange rates and fiscal regimes. These assumptions are applied consistently with
those in other areas of critical judgements and key estimates.
The following are the critical judgements that management has made in the process of applying the Group’s
accounting policies and that have the most significant effect on the amounts recognised in the financial
statements:
Financial liabilities
The Group's policy for financial liabilities is discussed in note 3(k). The application of this policy requires
management to make a number of critical judgements regarding the valuation of the financial liabilities held by
the Company.
4. Critical accounting judgements and key sources of estimation uncertainty (continued)
Convertible note valuation
The Group's policy for convertible note valuation is discussed in note 3(k). The application of this policy requires
management to make a number of critical judgements regarding the valuation of the convertible notes held by
the Company including the financial liability classification of the instrument.
5. Segment information
Oil Projects
Drillsearch is exploring and developing low-risk, shallow oil projects in the prolific Western Flank Oil Fairway,
targeting numerous, high-return oil exploration projects to drive short-term growth. Drillsearch has existing oil
production which provides ongoing cash flow. This cash flow helps fund the Company's growth projects.
• Divestment assets
• New Ventures
• Oil Projects
• Wet gas Projects
• Unconventional Projects
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Notes to the financial statements
Segment revenue and results
30-Jun-13 30-Jun-12 30-Jun-13 30-Jun-12
$000 $000 $000 $000
Oil Projects 91,279 1,866 52,066 244
Wet Gas Projects 10,948 12,656 5,454 6,978
Unconventional Projects - - 269 111
Divestment assets - 7,887 191 972
New Ventures - - - (659)
Total from segments 102,227 22,409 57,980 7,646
Other gains - 2,450
Central administration costs and Directors salaries (20,564) (5,639)
Corporate activity costs - Acer (i) (6,200) (626)
Corporate activity costs - other (3,613) -
Change in fair value of convertible notes (9,306) -
Finance costs (521) (349)
Profit before tax 17,776 3,482
Information about major customers
The accounting policies of the reportable segments are the same as the Group's accounting policies described in
note 3. Segment profit represents the profit earned by each segment without allocation of central administration
costs and Directors' salaries, investment revenue and finance costs, income tax expense, and gains or losses on
discontinued operations. This is the measure reported to the chief operating decision makers for the purpose of
resource allocation and assessment of segment performance.
Included in revenues arising from direct sales of oil and gas of $102.2 million (2012: $22.4 million) are revenues of
approximately $73.6 million (2012: $18.5 million) which arose from sales to the Group's largest customer. The
revenue from the Group's second largest customer was approximately $20.5 million (2012: $2.6 million). No
other single customer contributed 10% or more to the Group's revenue for both 2013 and 2012.
Segment revenue Segment profit
Divestment and New Venture assets
Divestment assets comprises assets held for sale. New Ventures comprise business development projects.
5. Segment information (continued)
(i) Included in the corporate activity costs is the cost relating to acquisition of Acer Energy Limited of $3.7m
incurred by Drillsearch and $2.5m relating to costs incurred by Acer Energy in its takeover defence.
Segment revenue reported above represents revenue generated from external customers. There were no
intersegment sales during the period (2012: nil).
Unconventional Projects
Drillsearch has identified significant unconventional resources while undertaking the Wet Gas Project exploration
program. The unconventional resource lays in the deeper coal seams, shales and tight gas sands throughout the
Cooper-Eromanga Basin. The Company is focusing its unconventional exploration activities on two key project
areas; the Central Cooper Basin - Nappamerri Trough Shale Gas Fairway, and in the Southern and Western
Cooper Basin Unconventional Gas Fairway. The prospective unconventional resource zones in each of these
project areas have the potential to contribute significantly to Drillsearch's long-term growth potential.
The following is an analysis of the Group’s revenue and results from continuing operations by reportable business
unit:
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Notes to the financial statements
Segment assets 30-Jun-13 30-Jun-12
$000 $000
Oil Projects 209,712 38,497
Wet Gas Projects 187,648 37,357
Unconventional Projects 6,622 2,742
Divestment assets 199 21,638
New Ventures - 963
404,181 101,197
Unallocated 80,996 62,320
Consolidated total assets 485,177 163,517
Segment liabilities
Oil Projects 12,366 952
Wet Gas Projects 2,638 2,017
Unconventional Projects -
Divestment assets - -
New Ventures - -
15,004 2,969
Unallocated 183,578 18,556
Consolidated total liabilities 198,582 21,525
Other segment information
30-Jun-13 30-Jun-12 30-Jun-13 30-Jun-12
$000 $000 $000 $000
Oil Projects 7,749 934 92,561 22,003
Wet Gas Projects 1,619 1,747 124,589 16,309
Unconventional Projects - - 5,709 920
Divestment assets - 3,112 - 1,164
New Ventures - - - -
Corporate 1,423 295 80,442 687
10,791 6,088 303,301 41,083
30-Jun-13 30-Jun-12 30-Jun-13 30-Jun-12
$000 $000 $000 $000
Oil Projects - 100 - -
Wet Gas Projects - - - 187
Divestment assets - 48 2,203 -
New Ventures - - - 34
- 148 2,203 221
The Group operates in only one geographic segment being Australia.
Impairment losses Exploration write off
5. Segment information (continued)
Amortisation and
depreciation
Additions to non-current
assets
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Notes to the financial statements
6. Revenue
30-Jun-13 30-Jun-12
$000 $000
Revenue from the sale of oil and gas 102,227 22,409
See note 5 for an analysis of segment revenue.
7. Other gains and losses
Interest revenue
Bank deposits 2,474 2,450
Other gains
- 148
Other - 245
2,474 2,843
8. Finance costs
Interest on bank overdrafts and loans (5,591) (134)
Total interest expense (5,591) (134)
Unwinding of discount on provisions (521) (215)
(6,112) (349)
9. Cost of sales
Changes in inventories 779 167
Direct operating expense 31,042 8,075
Amortisation and depletion expense 10,090 5,793
Depreciation expense 1,423 295
43,334 14,330
10. Other expenses
Share based payments expense 581 204
Corporate activity costs 3,613 626
General legal and professional costs 449 644
Foreign exchange gains (435) (423)
Employee benefits expense (i) 17,413 7,919
Recharges and recoveries (ii) (10,959) (5,171)
Other expenses 9,108 2,923
19,770 6,722
The following is an analysis of the Group's revenue for the year from continuing operations, excluding other income
(see note 7).
The weighted average capitalisation rate on funds borrowed is generally 11.0% per annum (2012: 11.0% per annum).
Gain on disposal of property, plant and equipment
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Notes to the financial statements
10. Other expenses (continued)
(i) Employee benefits expense 30-Jun-13 30-Jun-12
$000 $000
Superannuation contributions plans 793 355
Equity settled share-based payments 522 479
Other employee benefits 16,098 7,085
17,413 7,919
(ii) Recharge and recoveries
11. Income taxes
11 (a) Income tax recognised in profit or loss
Current tax
In respect of research and development refund (1,406) -
In respect of prior years 148 -
(1,258) -
Deferred tax
In respect of the current year 4,750 (3,576)
In respect of prior years (160) -
Deferred tax benefit on PRRT recognised in the current year (30,613) (2,921)
(26,023) (6,497)
Total income tax benefit recognised in the current year (27,281) (6,497)
The income tax benefit for the year can be reconciled to the accounting profit as follows:
Profit before tax 17,776 3,482
Prima facie Income tax expense at 30% (2012: 30%) (5,333) (1,045)
(378) (486)
Effect of Deferred PRRT benefit (net of income tax for PRRT) 30,613 2,921
Effect of research and development refund received 1,406 -
1,121 5,107
27,429 6,497
(148) -
Income tax benefit recognised in profit or loss 27,281 6,497
The Group has a policy to allocate a portion of employee benefit expense together with an uplift component to cover
other office expenses to oil, gas, exploration and evaluation assets based on employee time committed to various
projects.
The tax rate used for the 2013 and 2012 reconciliations above is the corporate tax rate of 30% payable by Australian
entities on taxable profits under Australian tax law.
The Group applies tax effect accounting to PRRT for its operations. Applying tax effect accounting principles to PRRT
causes the tax effect of the difference between the PRRT tax base and the accounting base of these assets to be
recognised as a deferred tax asset on the balance sheet and an income tax benefit in the income statement. The PRRT
tax base represents the remaining deductible project costs of the relevant projects. The accounting base represents the
written down net balance sheet value of the project which is amortised over the life of reserves. The application of tax
effect accounting to PRRT may impact the reported income tax benefit / expense whether or not a liability to pay PRRT
has accrued through the deferred tax balances.
Effect of expenses that are not deductible in determining taxable profit
Effect of previously unrecognised tax losses and deductible temporary
differences now recognised as deferred tax assets / (liabilities)
Adjustments recognised in the current year in relation to the current tax of
prior years
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Notes to the financial statements
11. Income taxes (continued)
11 (b) Income tax recognised directly in equity
30-Jun-13 30-Jun-12
$000 $000
Deferred tax
Arising on transactions with owners:
Share issue costs deductible over 5 years 725 1,102
Total income tax benefit recognised directly in equity 725 1,102
11 (c) Deferred tax balances
$000 $000 $000 $000 $000
2013
Temporary differences
Deferred revenue (850) (5,364) - - (6,214)
Oil and gas assets (i) (13,440) 33,072 - - 19,632
Exploration and evaluation assets (7,851) (52,586) - 1,704 (58,733)
Provisions - 2,111 - - 2,111
Doubtful debts 238 - - - 238
Unclaimed share issue costs 1,102 503 725 601 2,931
Unrealised foreign exchange gains and losses 71 4,134 - - 4,205
Other 93 523 - - 616
Net deferred tax assets/(liabilities) (20,637) (17,607) 725 2,305 (35,214)
Unused tax losses and credits 28,236 43,630 - 26,571 98,437
Net deferred tax assets 7,599 26,023 725 28,876 63,223
$000 $000 $000 $000 $000
2012
Temporary differences
Deferred revenue (23) (827) - - (850)
Oil and gas assets (i) (9,613) (3,827) - - (13,440)
Exploration and evaluation assets (6,479) (1,372) - - (7,851)
Provisions 1 (1) - - -
Doubtful debts 223 15 - - 238
Unclaimed share issue costs - - 1,102 - 1,102
Unrealised foreign exchange gains and losses 213 (142) - - 71
Other 113 (20) - - 93
Net deferred tax assets/(liabilities) (15,565) (6,174) 1,102 - (20,637)
-
Unused tax losses and credits 15,565 12,671 - - 28,236
Net deferred tax assets - 6,497 1,102 - 7,599
(i) PRRT deferred tax asset balance of $33.5m (2012: $2.9m) is included.
Other Closing
balance
Opening
balance
Recognised
in profit or
loss
Recognised
directly in
equity
Other Closing
balance
The income tax effect above includes current and initial recognition of prior year share issue cost and capital raising
expenses.
Opening
balance
Recognised
directly in
equity
Recognised
in profit or
loss
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Notes to the financial statements
11. Income taxes (continued)
11 (c) Deferred tax balances (continued)
Deferred tax balances are presented in the statement of financial position as follows:
30-Jun-13 30-Jun-12
$000 $000
Deferred tax assets 63,223 11,334
Deferred tax liabilities associated with assets held for sale - (3,735)
63,223 7,599
11 (d) Unrecognised deferred tax assets
The following deferred tax assets have not been brought to account as assets:
Tax losses - Revenue - -
Tax losses - Capital 1,280 -
1,280 -
Tax consolidation
12. Asset classified as held for sale
Assets
Cash and bank balances - 84
Trade and other receivables - 334
Exploration and evaluation assets 199 2,488
Oil and gas assets - 17,924
Inventory - 808
Other assets - -
Total assets 199 21,638
Due to the existence of a tax funding arrangement between the entities in the tax-consolidated group, amounts are
recognised as payable to or receivable by the company and each member of the group in relation to the tax
contribution amounts paid or payable between the parent entity and the other members of the tax-consolidated group
in accordance with the arrangement.
The company and its wholly-owned Australian resident entities have formed a tax-consolidated group with effect from
1 July 2003 and are therefore taxed as a single entity from that date. The head entity within the tax-consolidated group
is Drillsearch Energy Limited. The members of the tax-consolidated group are identified in note 26. Tax
expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of
the tax-consolidated group are recognised in the separate financial statements of the members of the tax-consolidated
group using the ‘separate taxpayer within group’ approach by reference to the carrying amounts in the separate
financial statements of each entity and the tax values applying under tax consolidation. Current tax liabilities and assets
and deferred tax assets arising from unused tax losses and relevant tax credits of the members of the tax-consolidated
group are recognised by the company (as head entity in the tax-consolidated group).
The Group recognised deferred tax assets on current and prior year losses as increasing production is forecast to render
it profitable for future taxation purposes in future years. It also recognised temporary differences arising from the
extension of the PRRT regime to onshore operations.
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Notes to the financial statements
12. Asset classified as held for sale (continued) 30-Jun-13 30-Jun-12
$000 $000
Liabilities
Trade and other payables - 214
Provisions - 2,143
Deferred tax liabilities - 3,735
Total liabilities - 6,092
Net assets 199 15,546
13. Earnings per share 30-Jun-13 30-Jun-12
Cents per
share
Cents per
share
11.1 4.5
11.0 4.3
Reconciliations of earnings used in calculating earnings per share
30-Jun-13 30-Jun-12
$000 $000
45,057 9,979
45,057 9,979
Interest on convertible notes (anti-dilutive) - -
Fair value change on convertible notes (anti-dilutive) - -
Tax effect of adjusting items (anti-dilutive) - -
45,057 9,979
30-Jun-1230-Jun-13
no. of shares no. of shares
404,873,238 223,888,100
Earnings used in the calculation of total basic and diluted
earning per share (EPS)
Basic earnings per share from continuing operations
Basic earnings per share
Diluted earnings per share
Diluted earnings per share from continuing operations
Profit attributable to the ordinary equity holders of the Company used in
calculating basic earnings per share
Profit attributable to the ordinary equity holders of the Company used in
calculating basic earnings per share
Weighted average number of ordinary shares for the purposes
of basic earnings per share
Weighted average number of ordinary shares to be issued for
no consideration in respect of employee options and
performance rights
Weighted average number of ordinary shares to be issued in
respect of convertible notes (anti-dilutive)
Weighted average number of ordinary shares for the purposes
of diluted earnings per share
5,974,661 6,193,594
- -
410,847,899 230,081,694
During the year, Drillsearch continued to review its permit holdings. Drillsearch owns 11% of the Santos operated
Tintaburra Joint Venture (Santos Ltd 89%) which consists of a number of Production Licences (PLs) and the exploration
licence ATP 299P. The Company started a divestment process for the Tintaburra asset in which a number of binding bids
were received from interested parties. However, on review of synergies existing with the Company's other Cooper Basin
assets it was decided not to accept either of the received bids on the sale of the Tintaburra Block. The Tintaburra asset
contributed $2.5m to the current financial year end gross margin. Drillsearch no longer plans to divest of its interest in
ATP 299P. Drillsearch continues to pursue the divestment of ATP 783P and Gippsland Basin Permits.
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Notes to the financial statements
14. Trade and other receivables 30-Jun-13 30-Jun-12
$000 $000
Trade receivables 52,075 4,155
Allowance for doubtful debts (795) (795)
51,280 3,360
Other receivables 22 335
22 335
51,302 3,695
Ageing of past due but not impaired
60 - 90 days - -
90 - 120 days - 6
120+ days - 31
Total - 37
Average age (days) - 100
Movement in allowance for doubtful debts
Balance at the beginning of the year (795) (746)
Reclassified as asset held for sale - -
Impairment losses recognised on receivables - (49)
Impairment losses reversed - -
Balance at the end of the year (795) (795)
Age of impaired trade receivables
60 - 90 days - -
90 - 120 days - -
120+ days (795) (795)
Total (795) (795)
In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade
receivable from the date credit was initially granted up to the end of the reporting period. The concentration of credit
risk is limited due to the fact that the customer base is unrelated and includes large corporations.
The impairment recognised represents the difference between the carrying amount of these trade receivables and the
value of the expected liquidation proceeds.
The average credit period on sales of goods is 45 days. The Group will generally recognise an allowance for doubtful
debts for receivables over 120 days because historical experience has been that receivables that are past due beyond
120 days are not recoverable.
The increase in trade receivables is a result of the rise in oil and gas revenues. The balance outstanding at 30 June 2013
is primarily in relation to oil sales and liftings made in the final month of the period, the majority of which was received
subsequent to year end. The trade receivables were outstanding for an average period of less than 7 days as at 30 June
2013.
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Notes to the financial statements
15. Exploration and evaluation assets Note 30-Jun-13 30-Jun-12
$000 $000
Opening balance 23,131 18,769
Acquisitions (i) 95,596 -
Expenditure incurred during the period 111,278 30,385
Expenditure expensed during the period - (221)
Changes in decommissioning obligations - 122
Reclassified to oil and gas assets 16 (12,115) (25,468)
Reclassified as asset held for sale 12 - (199)
Reclassified to inventory - (257)
Balance carried forward 217,890 23,131
16. Oil and gas assets
Opening balance 54,773 41,792
Reclassified from asset held for sale 12 17,924 -
Expenditure incurred during the period 24,999 10,011
Depletion and amortisation expense (i) 9 (10,090) (5,793)
Impairment charges - (148)
Changes in decommissioning obligations 19 8,865 1,367
Reclassified from exploration & evaluation assets 15 12,115 25,468
Reclassified as asset held for sale 12 - (17,924)
Balance carried forward 108,586 54,773
(i) Accumulated amortisation
Opening balance 18,876 13,727
Current period amortisation expense 9,368 5,149
Balance carried forward 28,244 18,876
17. Property , plant and equipment
Opening balance 963 571
Acquisitions 2,046 -
Expenditure incurred during the year 2,133 687
Depreciation expense 9 (1,423) (295)
Balance carried forward 3,719 963
18. Trade and other payables
Trade payables (i) 38,480 7,655
Goods and services tax payable 372 130
Other dues and taxes 1,445 1,673
Amounts owing to Joint Ventures 2,212 2,589
42,509 12,047
(i) During the period Drillsearch acquired Acer Energy Limited. The fair value of its exploration assets were
assessed at $93.2 million. In December 2012 an additional 2.4% interest in the PEL 182 joint venture was
acquired for $2.4 million.
(i) The average credit period on purchases of goods and services is 30 days. The Group seeks to ensure that all
payables are paid within the credit timeframe.
The balance outstanding at 30 June 2013 is primarily in relation to the Company's exploration and drilling
activities which were ongoing over the period end. The increase in trade payables is reflective of the overall
increase in capital activities. The majority of the balance was paid subsequent to year end.
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Notes to the financial statements
19. Provisions 30-Jun-13 30-Jun-12
Note $000 $000
Current 616 417
Employee benefits (i) 965 450
Decommissioning costs (ii) 1,581 867
Non-Current
Employee benefits (i) 62 -
Decommissioning costs (iii) 14,039 2,519
14,101 2,519
(ii) Decommissioning costs- current
Opening balance 450 450
Additional provisions recognised 515 -
Balance carried forward 965 450
(iii) Decommissioning costs- non-current
Opening balance 2,519 3,400
8,225 1,488
Payments made (9) -
Unwinding of discount 8 521 215
Reclassified from / (to) asset held for sale 12 2,143 (2,143)
Revision of decommissioning obligations 640 (441)
Balance carried forward 14,039 2,519
20. Borrowings
Current Secured – at amortised cost
Loans from other entities (i) 10,000 -
10,000 -
Non-Current Unsecured – at amortised cost
Convertible notes 21 130,391 -
130,391 -
140,391 -
(i) Flexible rate loan with the Commonwealth Bank of Australia ('CBA') with remaining maturity period not
exceeding 12 months (30 June 2012: nil). The weighted average effective interest rate on the loans is 6.4% per
annum (30 June 2012: nil).
On 30 June 2013 the Company signed binding agreements with the CBA for a $50 million Senior Secured
Revolving Borrowing Base Facility. The facility was made available subsequent to the year end on satisfaction
of usual conditions precedent.
(i) The provision represents annual leave and long service leave accrued for employees.
The provision for decommissioning costs represents the present value of the Directors’ best estimate of the
future sacrifice of economic benefits that will be required to remove the facilities and restore the affected
areas at the Group’s operation sites.
The decommissioning of the oil and gas properties is expected to be undertaken between 1 to 25 years from
the date of this report.
Additional provisions recognised relating to acquisitions and
discoveries
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Notes to the financial statements
21. Convertible notes
30-Jun-13 30-Jun-12
$000 $000
Change in valuation of convertible note 4,380 -
Change in respect of foreign exchange differences (13,686) -
(9,306) -
22. Issued capital
427,753,371 fully paid ordinary shares (2012: 337,449,196) 280,411 180,838
280,411 180,838
Fully paid ordinary shares carry one vote per share and carry the right to dividends.
30-Jun-13 30-Jun-12
Fully paid ordinary shares No. No.
Balance at beginning of financial year 337,449,196 304,176,742
Issue of shares during the year 90,304,175 33,272,454
Balance at end of financial year 427,753,371 337,449,196
Share options granted under the employee share option plan
Changes to the then Corporations Law abolished the authorised capital and par value concept in relation to
share capital from 1 July 1998. Therefore, the company does not have a limited amount of authorised capital
and issued shares do not have a par value.
US$125 million convertible notes were issued by the Company on 3 May 2013 and 13 May 2013. These are
due to expire September 2018. The convertible notes carry a fixed coupon of 6.00% per annun, paid semi-
annually, for a term of approximately five years and are convertible into Drillsearch shares at an initial
conversion price of US$1.66 per share, representing a conversion premium of approximately 35% above
A$1.19, being the closing price of the Shares on the ASX on 26 April 2013.
During the year ended 30 June 2013, Drillsearch Energy Limited issued 90,304,175 ordinary shares. There
were no other movements in the ordinary share capital.
As at 30 June 2013, directors, executives and employees have options over 13,971,331 ordinary shares, in
aggregate, with all of those options expiring between November 2013 and November 2018. As at 30 June
2012, directors, executives and senior employees had options over 16,545,987 ordinary shares.
Share options granted under the employee share option plan carry no rights to dividends and no voting rights.
Further details of the employee option plans are contained in note 30 to the financial statements.
The net proceeds received from the issue of the convertible notes have been recognised as a financial liability.
The liability component is measured at Fair Value Through Profit and Loss (FVTPL). The interest expense for
the year is calculated by accruing the fixed coupon rate of 6% for the two month period since the convertible
notes were issued. No interest was paid in the period since the issue. The difference between the carrying
amount of the liability component at the date of issue $A121,084,902 and the amount reported in the
statement of financial position at 30 June 2013 A$130,390,836 represents the impact of the fair value
adjustment and foreign currency translation (see below and note 29).
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Notes to the financial statements
23. Reserves (net of income tax)
30-Jun-13 30-Jun-12
$000 $000
General 3,440 3,440
Equity-settled employee benefits 5,124 4,670
Foreign currency translation (1,297) (816)
7,267 7,294
23.1 General reserve
Balance at beginning of the year 3,440 3,440
Balance at the end of the year 3,440 3,440
23.2 Equity settled employee benefits reserve
Balance at beginning of the year 4,670 4,515
Arising on share-based payments 454 155
Balance at the end of the year 5,124 4,670
23.3 Foreign currency translation reserve
Balance at beginning of the year (816) (645)
(481) (171)
Balance at the end of the year (1,297) (816)
24. Commitments for capital and operating expenditure
Oil and gas properties
Not longer than 1 year 106,200 57,147
Longer than 1 year and not longer than 5 years 82,200 148,575
188,400 205,722
Operating lease commitments (office rental)
Not longer than 1 year 823 530
Longer than 1 year and not longer than 5 years 971 795
1,793 1,325
Commitments comprise of approved expenditures, permit commitments and operator approved budgets.
The general reserve is used from time to time to transfer profits from retained earnings for appropriate
purpose. There is no policy of regular transfer. As the general reserve is created by a transfer from one
component to equity to another and is not an item of other comprehensive income, items included in the
general reserve will not be reclassified subsequently to profit or loss.
The above equity settled benefits reserve relates to share options granted by the Company to its employees
under its employee share option plan. Items included in equity-settled employees benefits reserve will not be
reclassified subsequently to profit or loss. Further information about share based payments to employees is
set out in note 30.
(i) The exchange differences arising on translation of foreign operations may ultimately be recycled to the
profit or loss.
Exchange differences arising on translating the foreign operations (i)
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Notes to the financial statements
25. Contingent liabilities
26. Subsidiaries
Details of the Group's subsidiaries at the end of the reporting period are as follows:
2013 2012
Name of venture % %
Great Artesian Oil and Gas Pty Limited (i) Australia 100% 100%
Clean Gas Pty Limited (i) Australia 100% 100%
Drillsearch Gas Pty Limited (i) Australia 100% 100%
Circumpacific Energy (Australia) Pty Limited (i) Australia 100% 100%
Drillsearch (539) Pty Limited (i) Australia 100% 100%
Drillsearch (513) Pty Limited (i) Australia 100% 100%
Drillsearch (549) Pty Limited (i) Australia 100% 100%
Drillsearch (657) Pty Limited (i) Australia 100% -
Drillsearch (783) Pty Limited (i) Australia 100% -
Drillsearch (920) Pty Limited (i) Australia 100% 100%
Drillsearch (924) Pty Limited (i) Australia 100% 100%
Drillsearch SWQ Gas Pty Limited (i) Australia 100% 100%
Drillsearch (Field Ops) Pty Limited (i) Australia 100% 100%
Drillsearch (Central) Pty Limited (i) Australia 100% -
Acer Energy Pty Limited (i) Australia 100% -
Drillsearch Finance Pty Limited (i) Australia 100% -
Drillsearch Energy (Canada) Incorporated Canada 100% 100%
Kun Yick International Limited Hong Kong 100% 100%
Drillsearch Energy (PNG) Limited PNG 100% 100%
Drillsearch Energy Limited is the head entity within the tax consolidated group.
(i) These companies are members of the tax-consolidated group.
27. Business Combination
There is no litigation of a material nature against Drillsearch or its subsidiaries of which the Directors are
aware.
Drillsearch Group announced on 4 October 2012 an unconditional off-market cash offer of 25.5 cents per
share for all of the issued and outstanding shares of Acer Energy it did not own. On 25 October 2012 the offer
price was increased to 28.5 cents per share. The Drillsearch Group gained majority control of Acer Energy on 1
November 2012 and increased its relevant interest in Acer Energy to 91.01% as at 19 November 2012 when
the offer closed. Drillsearch Group further increased its relevant interest in Acer Energy to 94.70% as at 10
December 2012 when trading in Acer Energy shares on Australian stock exchange was suspended
permanently. The Drillsearch Group obtained 100% ownership of Acer Energy on 11 January 2013 following
the compulsory acquisition of all remaining shares. The acquisition has been accounted for as at 1 November
2012 as if the Drillsearch Group held 100% with an accrual made for the remaining payment for shares made
on 31 January 2013 of $7.0 million.
Ownership interest
Country of
Incorporation
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Notes to the financial statements
27. Business Combination (continued)
The acquisition had the following effect on the consolidated entity:
Net cash flow on acquisition: 1-Nov-12
$000
Purchase consideration 131,531
Fair value of net assets acquired 131,531
Goodwill on acquisition -
Purchase consideration 131,531
Cashflow on acquisition
Net cash acquired with the subsidiary 12,468
Cash paid (131,531)
Net cashflow on acquisition (119,063)
Assets and liabilities held at acquisition date:
$000 $000
Current assets 13,063 13,063
Non current assets (i) 36,233 124,020
Current liabilities (462) (462)
Non current liabilities (6,270) (5,090)
Net assets 42,564 131,531
Initial accounting for acquisition:
(i) Included in the non-current assets are the deferred tax assets of $26.5 million relating to carried forward
losses and temporary differences of $2.3m.
Book value
acquired
Fair value of
net assets
The initial accounting for the acquisition of Acer Energy has only been provisionally determined at the end of
the reporting period. For tax purposes, the tax values of Acer Energy assets are required to be reset based on
market values of the assets. At the date of finalisation of these consolidated financial statements, the
necessary market valuations and other calculations had not been finalised and they have therefore only been
provisionally determined based on the directors' best estimate of the likely tax values.
In the full year to 30 June 2013, Acer Energy contributed nil to group revenues and $7.1 million in losses to
consolidated loss before tax. If the acquisition had occurred on 1 July 2012, management estimates that the
contribution from Acer Energy for the twelve months to 30 June 2013 would have been revenue of $0.5
million and a loss before tax of $10.7 million.
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Notes to the financial statements
28. Cash and cash equivalents
(a) Reconciliation of cash and cash equivalents
Note 30-Jun-13 30-Jun-12
$000 $000
Cash and bank balances 36,061 45,611
Cash and bank balances included in an asset held for sale 12 - 84
36,061 45,695
(b) Reconciliation of profit for the year to net cash flows from operating activities:
Net profit after income tax 45,057 9,979
Depreciation 1,423 295
Amortisation 10,090 5,793
Exploration and evaluation costs 2,203 221
Impairment of oil and gas assets - 148
Proceeds from sale of exploration & evaluation assets - (148)
Changes in decommissioning obligations (4,525) 1,262
Investment revenue recognised in profit and loss (2,474) (2,450)
Finance cost recognised in profit and loss 2,172 134
Fair value gain on convertible notes 9,306 -
Foreign exchange gains - (171)
Share based payments 1,071 683
Increase in receivables (46,682) (3,010)
Increase in creditors 29,422 3,690
Decrease/(Increase) in inventories (181) 166
Increase in other operating assets (748) -
Increase/(Decrease) in taxation balances (26,895) (6,497)
Other - (54)
Net cash inflow from operating activities 19,239 10,041
(c) Equity facility
For the purposes of the statement of cash flows, cash and cash equivalents includes cash on hand and in banks
and investments in money market instruments, net of outstanding bank overdrafts. Cash and cash equivalents at
the end of the reporting period as shown in the statement of cash flows can be reconciled to the related items in
the statement of financial position as follows:
Surplus cash balances are invested with AA and above rated Australian domiciled banks as per the Company’s
treasury policy.
The Company holds a $15 million facility with US-based Investment Fund YA Global Master SPV Limited (YA
Global). Under the terms of the facility, the Company may, at its discretion, issue shares that are listed on the ASX
to YA Global at any time over the next 60 months for up to a total value of A$15 million. The Company may draw
down up to A$300,000 in any period of 10 trading days. Shares issued to YA Global will be priced at 100% of the
lowest volume weighted average price (VWAP) of the Company shares traded on each of the 10 trading days
which follow an advance notice by the Company. A commission of 3% will be payable at the time of issue.
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Notes to the financial statements
29. Financial Instruments
29.1 Capital management
29.1.1 Gearing ratio
The gearing ratio at end of the reporting period was as follows:
30-Jun-13 30-Jun-12
$000 $000
Debt (i) 140,391 -
(36,061) (45,695)
Net debt 104,330 (45,695)
Equity (iii) 286,595 141,992
Total 390,925 96,297
Net debt to equity / gearing ratio 26.7% 0.0%
(ii) Including cash and balances in assets held for sale as described in note 12.
29.2 Categories of financial instruments
Financial assets
36,061 45,695
51,302 4,029
87,363 49,724
Financial liabilities
Fair value through profit or loss (FVTPL) 130,391 -
Other amortised cost 48,480 7,655
Financial guarantee contracts - -
178,871 7,655
29.3 Financial risk management objectives
The Group’s Audit and Risk committee reviews the capital structure of the Group on an on-going basis. As part of
this review, the Committee considers the cost of capital and the risks associated with each class of capital.
(i) Debt is defined as long-term and short-term borrowings (excluding derivatives and financial guarantee
contracts), as described in notes 20 and 29.
(iii) Equity includes all capital and reserves of the Group that as described in note 22 and 23.
The Group’s Treasury function provides services to the business, co-ordinates access to domestic and
international financial markets, monitors and manages the financial risks relating to the operations of the Group
through internal risk reports which analyse exposures by degree and magnitude of risks. These risks include
market risk (including currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk and cash
flow interest rate risk.
Cash and bank balances (ii)
Cash and bank balances (including cash and balances in assets held for sale)
Loans and receivables (including trade receivables balance in assets held for sale)
The Group does not currently use derivative financial instruments to hedge risk exposures. The use of financial
derivatives is governed by the Group’s policies approved by the Board of Directors, which provide written
principles on foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-
derivative financial instruments, and the investment of excess liquidity. Compliance with policies and exposure
limits is reviewed by management on a continuous basis. The Group does not enter into or trade financial
instruments, including derivative financial instruments, for speculative purposes.
The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns
while maximising the return to stakeholders through the optimisation of debt and equity.
The capital structure of the Group consists of net debt (borrowings as detailed in notes 20 and 29 offset by cash
and bank balances) and equity of the Group (comprising issued capital, reserves, retained earnings and non-
controlling interests as detailed in notes 22 and 23).
The Group is not subject to any externally imposed capital requirements from the convertible note.
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Notes to the financial statements
29. Financial Instruments (continued)
29.3 Financial risk management objectives (continued)
29.4 Market risk
Option type Tenor Price Volume
Put (Bought) - Uncommitted obligation 1-12 Months ICE Brent $USD90/bbl 770kbbl
Call (Sold) - Committed obligation 1-12 Months ICE Brent $USD120/bbl 770kbbl
29.5 Foreign currency risk management
30-Jun-13 30-Jun-12 30-Jun-13 30-Jun-12
$000 $000 $000 $000
Convertible notes (USD currency) 120,938 - - -
Trade Payables (USD currency) 2,205 - - -
Trade Receivables (USD currency) - - 7,481 1,211
Total 123,143 - 7,481 1,211
29.5.1 Foreign currency sensitivity analysis
• With the issuance of a US dollar convertible note debt instrument, the Group now has an increased
exposure to foreign exchange risk.
The Group is mainly exposed to US dollar currency. This exposure is created through the denomination of the
Group's US dollar revenues and the US dollar convertible note issued in the current financial period. Issuance of
the convertible note in a currency to match the predominant revenue stream from the Group's reserve base
forms part of the overall strategy on managing foreign currency exchange risk. The Group continues to review its
strategy and management of foreign exchange risk.
Volumes are based on the 31 December 2012 1P Production Profile provided by independent reserve auditors RISC Operations Pty Limited
The options above provide a collar underpinning 770kbbls of 2013 / 2014 financial year production. The Group’s
current oil price hedging strategy is to maintain downside price protection on up to 50% of the next 12 months’
forecast production from 1P oil reserves. The position is reviewed on an ongoing basis (at minimum quarterly)
and the Group currently expects to maintain a similar level in future to address its exposure to commodity price
risk. See note 29.5 for foreign currency risk management.
Liabilities
The Treasury function regularly updates the Group’s Audit and Risk Committee, an independent body that
monitors risks and policies implemented to mitigate risk exposures.
The Group’s activities expose it to financial risks of changes in commodity prices (Note 29.4), foreign currency
exchange rates (note 29.5) and interest rates (note 29.6).
Assets
The Group undertakes transactions denominated in foreign currencies; consequently, exposures to exchange rate
fluctuations arise. Exchange rate exposures are managed within approved policy parameters utilising short term
forward foreign exchange contracts.
The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities at
the end of the reporting period are as follows:
The Group assesses its exposure to market risk on an ongoing basis, actively managing this as appropriate. Key
changes noted in the current financial year are:
The Group has managed its exposure to commodity price by entering into the following options subsequent to
the financial year end (01 August 2013):
• With the significant rise in oil production and weighting towards US dollar based revenues, the Group now
has an increased exposure to both commodity price and foreign exchange risk; and
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Notes to the financial statements
29. Financial Instruments (continued)
29.5 Foreign currency risk management (continued)
29.5.1 Foreign currency sensitivity analysis (continued)
30-Jun-13 30-Jun-12
$000 $000
Profit or loss 11,337 244
29.6 Interest rate risk management
29.6.1 Interest rate sensitivity analysis
The above is based upon the Company's US dollar balances carried on the balance sheet as at 30 June 2013 and
2012 only. This is mainly attributable to the exposure on the USD currency convertible notes outstanding at the
end of the reporting period. The Group’s sensitivity to foreign currency has increased during the current year due
to the issue of these notes.
The Group’s exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk
management section of this note.
USD
The Group is exposed to interest rate risk because it borrows funds at floating interest rates.
The following table details the Group’s sensitivity to a 10% increase and decrease in the Australian dollar against
the relevant foreign currencies. 10% is the sensitivity rate used when reporting foreign currency risk internally to
key management personnel and represents management’s assessment of the reasonably possible change in
foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated
monetary items and adjusts their translation at the year end for a 10% change in foreign currency rates. The
sensitivity analysis includes external loans as well as loans to foreign operations within the Group where the
denomination of the loan is in a currency other than the functional currency of the lender or the borrower. A
positive number below indicates an increase in profit or equity where the Australian dollar strengthens 10%
against the relevant currency. For a 10% weakening of the Australian dollar against the relevant currency, there
would be a comparable impact on the profit or equity as a result of unrealised foreign exchange differences, and
the balances below would be negative.
The Group is exposed to interest rate sensitivity for the first time this year following the assumption of debt
commencing in November 2012.
If interest rates had been 100 basis points higher/lower and all other variables were held constant, the Group’s
profit for the year ended 30 June 2013 would decrease/increase by $0.9 million (2012: decrease/increase nil).
This is mainly attributable to the Group’s exposure to interest rates on its variable rate borrowings.
The sensitivity analyses below have been determined based on the exposure to interest rates for both derivatives
and non-derivative instruments at the end of the reporting period. For floating rate liabilities, the analysis is
prepared assuming the amount of the liability outstanding at the end of the reporting period was outstanding for
the whole year. A 100 basis point increase or decrease is used when reporting interest rate risk internally to key
management personnel and represents management’s assessment of the reasonably possible change in interest
rates.
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Notes to the financial statements
29. Financial Instruments (continued)
29.7 Liquidity risk management
The liquidity table at the end of the reporting period is as follows:
30-Jun-13 30-Jun-12
$000 $000
Debt (i) 140,391 -
Working Capital (ii) 46,598 38,010
Net debt 186,989 38,010
Equity (ii) 286,595 141,992
Net debt to equity ratio 473,584 180,002
29.8 Credit Risk
29.9 Fair value of financial instruments
29.9.2 Fair value measurements recognised in the consolidated statement of financial position
Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has established an
appropriate liquidity risk management framework for the management of the Group’s short, medium and long-
term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate
reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash
flows, and by matching the maturity profiles of financial assets and liabilities.
The fair values of financial assets and financial liabilities are determined as follows:
29.9.1 Valuation techniques and assumptions applied for the purposes of measuring fair value
The Group has adopted a policy of only dealing with creditworthy counterparties and only transacts with financial
institutions that are rated the equivalent of AA and above. The Group’s exposure and the credit ratings of its
counterparties are continuously monitored and transactions concluded are spread amongst approved
counterparties. Trade receivables consist of a limited number of customers, all of which are large creditworthy
organisations.
(i) Debt is defined as long-term and short-term borrowings (excluding derivatives and financial guarantee
contracts), as described in notes 20 and 29.
(iii) Equity includes all capital and reserves of the Group that as described in note 22 and 23.
(ii) Working capital is calculated as the current assets less current liabilities and excludes balances relating to
assets held for sale, other assets and provisions as well current borrowings already included in debt.
long-term debt
• There were no significant differences between the carrying value of financial instruments and their
estimated fair values as at 30 June 2013.
The following table provides an analysis of financial instruments that are measured subsequent to initial
recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.
• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for
identical assets or liabilities;
• Level 2 fair value measurements are those derived from inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived
from prices); and
• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the
asset or liability that are not based on observable market data (unobservable inputs); and
• The fair values of financial assets and financial liabilities with standard terms and conditions and traded on
active liquid markets are determined with reference to quoted market prices (includes listed convertible
notes). Foreign currency forward contracts are measured using quoted forward exchange rates and yield
curves derived from quoted interest rates matching maturities of the contracts; and
• The fair values of other financial assets and financial liabilities (excluding derivative instruments) are
determined in accordance with generally accepted pricing models based on discounted cash flow analysis.
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Notes to the financial statements
29. Financial Instruments (continued)
29.9 Fair value of financial instruments (continued)
29.9.2 Fair value measurements recognised in the consolidated statement of financial position (continued)
30-Jun-13 Level 1 Level 2 Level 3 Total
Financial liabilities at FVTPL $000 $000 $000 $000
Convertible notes 130,391 - - 130,391
30. Share-based payments
30.1 Employee share option plan
(10) Issued 11 November 2009 1,200,000 0.376 15/06/2009 10/11/2013 0.152
(11) Issued 1 December 2009 1,200,000 0.700 6/10/2009 30/11/2013 0.330
(12) Issued 1 December 2009 2,000,000 0.700 4/12/2009 30/11/2013 0.516
(13) Issued 1 December 2009 1,000,000 0.600 1/10/2009 30/09/2014 0.402
(15) Issued 16 March 2010 1,000,000 0.853 16/03/2010 15/03/2015 0.385
(19) Issued 9 March 2011 500,000 0.701 9/03/2011 3/01/2016 0.434
(21) Issued 20 June 2011 1,199,597 0.596 20/06/2011 20/06/2018 0.225
(22) Issued 25 July 2011 2,627,956 0.596 25/07/2011 25/07/2018 0.222
(25) Issued 23 November 2011 3,185,586 0.596 23/11/2011 23/11/2018 0.222
(26) Issued 9 December 2011 58,192 0.596 9/12/2011 9/12/2018 0.222
13,971,331
Series 10 to 13, 15 and 19 vests at date of grant.
Series 20 vests 20 June 2014 if performance hurdles are met.
Series 22 vests 23 November 2014 if performance hurdles are met.
Series 25 vests 23 November 2014 if performance hurdles are met.
Series 26 vests 9 December 2014 if performance hurdles are met.
The total share-based payment expense for the year was $1.1 million (2012: $0.7 million).
The Company had 16,545,987 options on issue at the start of the financial year. These represent the options issued
to Directors, Executives and senior employees of the Company. Drillsearch issued nil options during the year, whilst
2,500,000 options were exercised and each share option converts into one ordinary share of Drillsearch Energy
Limited on exercise. No amounts are paid or payable by the recipient on receipt of the option. The options carry
neither rights to dividends nor voting rights. Options may be exercised at any time from the date of vesting to the
date of their expiry. The options granted have various expiry periods between three and seven years of their issue,
or 90 days of the resignation in case of the Director or Executive vested options.
Drillsearch issued 1,541,172 performance rights to Directors, Executives and senior employees of the company
during the financial year. The performance rights carry neither rights to dividends nor voting rights. The
performance rights may be exercised at any time from the date of vesting to the date of their expiry. 253,934
performance rights are due to vest in September 2013, the remainder in 2015 subject to certain performance
hurdles being met.
The following share-based payment arrangements were in existence during the current and comparative reporting
periods:
Options series Number of
options
Exercise
Price
Grant date Expiry date Grant date
fair value
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Notes to the financial statements
30. Share-based payments (continued)
30.1 Employee share option plan (continued)
The following reconciles the outstanding share options on issue at the beginning and end of the year:
Balance at the beginning of the year 16,545,987 0.635 11,749,597 0.628
Granted during the year - - 6,736,164 0.619
Exercised during the year (2,500,000) 0.612 (1,650,000) 0.524
Forfeited during the year (74,656) 0.596 (289,774) 0.620
Balance at the end of the year 13,971,331 0.601 16,545,987 0.635
Outstanding at the end of the year 13,971,331 0.601 16,545,987 0.635
(1) Issued 21 November 2012 253,934 Ordinary 21/11/2012 30/06/2013 0.800
(2) Issued 18 December 2012 1,287,238 Ordinary 18/12/2012 30/06/2015 0.416
31. Key management personnel compensation
The directors and other members of key management personnel of the Group during the year were:
• Mr J.D. McKerlie (Chairman)
• Mr B.W. Lingo (Managing Director)
• Mr B.K. Choo (Non- Executive Director)
• Mrs F.A. Robertson (Non- Executive Director)
• Mr H.R.B. Wecker (Non- Executive Director)
• Mr I.W. Bucknell (Chief Financial Officer)
• Mr D. Evans (Chief Technical Officer)
• Mr J.S. Whaley (Chief Operating Officer)
The aggregate compensation made to key management personnel of the Group is set out below:
30-Jun-13 30-Jun-12
$ $
Short-term employee benefits 2,691,858 2,168,232
Post-employment benefits 117,673 120,411
Other long-term benefits 32,073 -
Termination benefits - -
Options and performance rights 947,623 420,228
Balance at end of financial year 3,789,227 2,708,871
The following performance rights were in existence during the current and comparative reporting periods:
Performance rights series Number of
performance rights
Class of
Shares
Grant date Perf. period
end date
Grant date
fair value
30-Jun-1230-Jun-13
The share options outstanding at the end of the financial year had a weighted average exercise price of $0.601
(2012: $0.635), and an average remaining contractual life of 744 days (2012: 1,185 days).
No of
options
Weighted
average price
exercise
No of
options
Weighted
average price
exercise
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Notes to the financial statements
32. Related party transactions
(a) Equity interests in related parties
Equity interests in subsidiaries
(b) Transactions with key management personnel
Key management personnel compensation
Share options and performance rights of Drillsearch Energy Limited:
Outstanding KMP options and performance rights
Mr J.D. McKerlie
Mr B.W. Lingo
Mr B.K. Choo
Mrs F.A. Robertson
Mr H.R.B. Wecker
Mr I.W. Bucknell
Mr D. Evans
Mr J.S. Whaley
Performance rights issued during the year:
Mr J.D. McKerlie 21/11/2012 50,787 nil nil 12.6%
Mr B.W. Lingo 21/11/2012 550,194 nil nil 13.0%
Mr B.K. Choo 21/11/2012 25,393 nil nil 15.8%
Mrs F.A. Robertson 21/11/2012 25,393 nil nil 13.0%
Mr H.R.B. Wecker 21/11/2012 25,393 nil nil 12.3%
Mr I.W. Bucknell 18/12/2012 182,833 nil nil 4.9%
Mr D. Evans 18/12/2012 223,463 nil nil 5.2%
Mr J.S. Whaley 18/12/2012 223,463 nil nil 6.1%
1,306,919
800,000 25,393
nil 182,833
The immediate parent and ultimate controlling party respectively of the Group is Drillsearch Energy Limited.
Balances and transactions between the Company and its subsidiaries, which are related parties of the Company,
have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group
and other related parties are disclosed below.
Share
options
Performance
rights
Number Number
1,200,000 50,787
1,306,919 6,400,000
1,000,000 223,463
No. granted % of grant
vested
% of grant
forfeited
% of compen
-sation
1,000,000 223,463
Details of the percentage of ordinary shares held in subsidiaries are disclosed in note 26 to the financial statements.
Details of key management personnel compensation are disclosed in note 31 to the financial statements.
No amounts remain unpaid on the options exercised since the financial year. Further details of the share options
granted during the 2013 and 2012 financial years are contained in note 30 to the financial statements.
1,200,000 550,194
800,000 25,393
400,000 25,393
Grant date
KMP
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Notes to the financial statements
32. Related party transactions (continued)
(b) Transactions with key management personnel (continued)
There were no related party balances outstanding at 30 June 2013.
33. Remuneration of Auditors
30-Jun-13 30-Jun-12
$000 $000
Auditors of parent entity
Audit or review of the financial report 169,650 149,434
Due diligence and accounting advice separate to audit services 114,112 -
283,762 149,434
Network firm of the parent entity auditor
Tax advisory services 143,885 34,637
143,885 34,637
427,647 184,071
The auditor of Drillsearch Energy Limited is Deloitte Touche Tohmatsu.
34. Subsequent events
35. Parent entity disclosures
Transactions between Drillsearch Energy Limited and its related parties
During the financial year, the following transactions occurred between the Company and its other related parties:
• Drillsearch Energy Limited recognised tax payable in respect of the tax liabilities of its wholly owned Australian
subsidiaries. Payments to/from the company are made in accordance with the terms of the tax funding
arrangement.
Transactions and balances between the company and its subsidiaries were eliminated in the preparation of
consolidated financial statements of the Group.
• On 1 July 2013 the Company announced that it had secured a $50 million credit facility with the Commonwealth
Bank of Australia subject to the satisfaction of the usual conditions precedent. These conditions precedent have
now been met although the facility remains undrawn to date.
• On 4 July 2013 the Company announced that it had entered into a series of binding agreements with Santos
Limited. Under this transaction, Santos will earn a 60% interest and Operatorship in PEL 106A and PEL 513 by
funding future work programs and providing further field development assistance to export production from these
permits. Additionally, the Company has entered into a long-term GSA covering production from PEL 106A and PEL
513 through 2025. Drillsearch will also acquire from Santos a further 29% interest in the Tintaburra Block Joint
venture Oil project, increasing its holding from 11% to 40% for $38 million and Santos will acquire the Company's
interest in PEL 100 of 25.8% for $15 million. Overall, transaction completion is expected to take place by the end of
September 2013.
The accounting policies of the parent entity, which have been applied in determining the financial information
shown below, are the same as those applied in the consolidated financial statements. Refer to note 3 for a summary
of the significant accounting policies relating to the Group.
• On 22 July 2013, the Company announced the appointment of Philip Bainbridge as a new Non-executive Director.
• On 1 August 2013, the Company entered into oil price options for a portion of its audited 12 month 1P production
profile. The Company will manage its position on options on an ongoing basis. See note 29 for further information
• On 15 August 2013, Drillsearch announced a 157% increase in reported 2P Reserves as at 30 June 2013.
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Notes to the financial statements
35. Parent entity disclosures (continued)
35.1 Financial performance
30-Jun-13 30-Jun-12
$000 $000
Profit/(loss) for the year (16,159) 3,312
Other comprehensive income - -
Total comprehensive income/(loss) for the year (16,159) 3,312
35.2 Financial position
Assets
Current assets 173,195 89,510
Non-current assets 62,068 46,868
Assets classified as held for sale - 19,349
Total assets 235,263 155,727
Liabilities
Current liabilities 3,889 5,252
Non-current liabilities 2,845 -
Assets classified as held for sale - 6,092
Total liabilities 6,734 11,344
Equity
Issued Capital 280,411 180,838
Reserves 4,803 4,071
Retained earnings (56,685) (40,526)
Total equity 228,529 144,383
35.3 Commitments for capital and operating expenditure
Oil and gas properties
Not longer than 1 years 2,300 780
Longer than 1 year and not longer than 5 years - 27,010
2,300 27,790
Operating lease commitments
Not longer than 1 years 568 530
Longer than 1 year and not longer than 5 years 289 795
857 1,325
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Additional stock exchange information
Additional stock exchange information as at 28 August 2013
Number of holders of equity securities
Ordinary share capital
427,753,371 fully paid ordinary shares are held by 5,025 individual shareholders.
Distribution of holders of equity securities
1-1,000 991 520,464 0%
1,001-5000 1,700 4,660,016 1%
5,001-10,000 860 6,536,365 2%
10,001-100,000 1,281 36,476,797 9%
100,001 and over 193 379,559,729 89%
193 427,753,371 100%
Holding less than a marketable parcel 320 12,303 0%
Convertible notes
Options
13,913,139 options are held by 18 individual option holders. Options do not carry a right to vote.
Performance rights
All issued ordinary shares carry one vote per share; however, partly paid shares do not carry the rights to dividends.
Total holders Fully paid
ordinary
% of Issued
Capital
1,250 6% full paid convertible notes are held by individual noteholders. Convertible notes do not carry a right to
vote.
1,541,172 perfomance rights are approved and held by 15 individual performance rights holders. Performance rights
do not carry a right to vote.
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Additional stock exchange information
Additional stock exchange information as at 28 August 2013 (continued)
Twenty largest holders of quoted equity securities
Ordinary Shareholders Percentage
QGC Pty Limited 8.47
Antares Equities 4.22
Beach Energy 3.85
Credit Suisse 3.60
Acorn Capital 3.39
Karara Capital 3.21
Fairview Equity Partners 2.73
Kosmos Asset Mgt 2.38
Mr Yew Meng Chay 1.98
State Street Global Advisors 1.90
Mr Beng Kai Choo 1.84
HSBC Private Bank 1.53
AMP Capital Investors 1.51
Independent Asset Mgt 1.41
Vinva Investment Mgt 1.37
Mr Barnaby Ainsworth 1.30
Wellington Mgt Company 1.28
Colonial First State - Core Australian Equities 1.26
Mr Roger TK Hock 1.24
Vanguard Investments Australia 1.11
48.47
Company Secretary
Jean Moore
Ian Bucknell
Registered office
Level 16
55 Clarence Street
Sydney NSW 2000
PH: 02 9249 9600
Principal administration office
Level 16
55 Clarence Street
Sydney NSW 2000
PH: 02 9249 9600
Share registry
Computershare
Fully paid ordinary shares
7,874,918
Number
36,216,094
18,045,820
16,459,915
15,383,928
14,507,098
13,717,888
11,698,756
10,190,305
8,490,754
8,116,688
5,389,532
5,283,825
4,739,846
212,057,431
6,533,088
6,475,737
6,041,361
5,867,781
5,554,970
5,469,127
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Additional stock exchange information
Additional stock exchange information as at 28 August 2013 (continued)
List of interests in Oil and gas tenements:
2013
%
2012
%
Oil
ATP 299P & PL's - Tintaburra (Eromanga)1
Santos Limited Production 11% 11%
ATP 539P (Eromanga) Great Artesian Oil & Gas Ltd2
Exploration 100% 100%
ATP 549P - Cypress Block (Eromanga) Australian Gasfields Limited Exploration 40% 40%
ATP 549P - West Block (Eromanga)3
Great Artesian Oil & Gas Ltd2
Exploration 67% 67%
ATP 920P (Eromanga) Canadian Coyote Energy Ltd4
Exploration 100% 100%
ATP 924P (Eromanga) Canadian Coyote Energy Ltd4
Exploration 100% 100%
ATP 956P (Eromanga)5
Canadian Coyote Energy Ltd4
Exploration 100% 100%
ATP 959P (Eromanga)5
Canadian Coyote Energy Ltd4
Exploration 100% 100%
PEL 91 (Cooper) Beach Energy Limited Exploration 60% 60%
PEL 182 (Cooper) Senex Energy Limited11
Exploration 40% 0%
PPL 212 (Cooper) Beach Energy Limited Production 60% 60%
Wet Gas
ATP 932P (Eromanga) Canadian Coyote Energy Ltd4
Exploration 100% 100%
PEL 91 (Cooper) Beach Energy Limited Exploration 60% 60%
PEL 101 (Cooper) Acer Energy Ltd2/11
Exploration 80% 0%
PEL 103 (Cooper) Acer Energy Ltd2/11
Exploration 100% 0%
PEL 103A (Cooper) Acer Energy Ltd2/11
Exploration 75% 0%
PRL 14 (Cooper) Acer Energy Ltd2/11
Exploration 100% 0%
PRL 17 (Cooper) Acer Energy Ltd2/11
Exploration 100% 0%
PRL 18 (Cooper) Acer Energy Ltd2/11
Exploration 100% 0%
PEL 106A (Cooper)7
Great Artesian Oil & Gas Ltd2
Exploration 100% 100%
PEL 106B (Cooper) Beach Energy Limited Exploration 50% 50%
PEL 107 (Cooper) Beach Energy Limited Exploration 60% 60%
PEL 513 (Cooper)7
Drillsearch (513) Pty Limited2
Exploration 100% 100%
PPL 239 Middleton & Brownlow (Cooper) Beach Energy Limited Production 50% 50%
PRLA 26 Udacha (Cooper) Beach Energy Limited Production 75% 75%
Unconventional
ATP 932P (Eromanga) Canadian Coyote Energy Ltd4
Exploration 100% 100%
ATP 940P (Eromanga) Circumpacific Energy (Australia) Pty Limited2
Exploration 40% 100%
PEL 106A (Cooper)7
Great Artesian Oil & Gas Ltd2
Exploration 100% 100%
PEL 106B (Cooper) Beach Energy Limited Exploration 50% 50%
PEL 107 (Cooper) Beach Energy Limited Exploration 60% 60%
PEL 513 (Cooper)7
Drillsearch (513) Pty Limited2
Exploration 100% 100%
Divestment
ATP 657P (Eromanga)5
Great Artesian Oil & Gas Ltd2
Exploration 100% 100%
ATP 783P - Chandos Block (Eromanga) Drillsearch Energy Limited Exploration 100% 100%
ATP 917P (Eromanga)8
Canadian Coyote Energy Ltd4
Exploration 100% 100%
ATP 927P (Eromanga)5/8
Drillsearch Energy Limited Exploration 100% 100%
PEL 100 (Cooper)6
Senex Energy Limited11
Exploration 26% 0%
PL 5 - Pickanjinnie (Surat) Santos Limited Production 75% 75%
VIC/P63 (Gippsland)9
Great Artesian Oil & Gas Ltd2
Exploration 0% 0%
VIC/P64 (Gippsland)9
Great Artesian Oil & Gas Ltd2
Exploration 0% 0%
T/46P (Gippsland)9
Great Artesian Oil & Gas Ltd2
Exploration 0% 0%
T/18P (Bass) Origin Energy Exploration 5% 0%
PEL 422 (Darling)10
Acer Energy Ltd2/11
Exploration 100% 0%
PEL 424 (Darling)10
Acer Energy Ltd2/11
Exploration 100% 0%
PEL 471 (Darling)10
Acer Energy Ltd2/11
Exploration 100% 0%
PELA 139 (Barka)5/10
Acer Energy Ltd2/11
Exploration 100% 0%
PELA 140 (Barka)5/10
Acer Energy Ltd2/11
Exploration 100% 0%
PELA 141 (Murray)5/10
Acer Energy Ltd2/11
Exploration 100% 0%
PELA 142 (Murray)5/10
Acer Energy Ltd2/11
Exploration 100% 0%
PELA 143 (Barka)5/10
Acer Energy Ltd2/11
Exploration 100% 0%
Talbot Lake (Canada) Drillsearch Energy (Canada) Inc.2
Production 100% 100%
Talbot Lake (Canada) Energy Venture Inc. Production 25% 25%
Notes:
1. Drillsearch announced on 4 July 2013 that it had acquired an additional 29% interest in the Tintaburra Block takings its interest to 40%.
2. Subsidiary of Drillsearch Energy Limited.
3. Drillsearch announced on 4 July 2013 that it had farmed out a 33.3% interest in ATP 549P-W to Santos Limited reducing its interest in the permit to 33.3%.
4. Canadian Coyote Energy Ltd (formally Circumpacific Energy Corporation) has signed agreements to transfer ownership and operatorship of these permits to Drillsearch and its subsidiaries upon grant.
5. Permits subject to grant.
6. Drillsearch announced on 4 July 2013 that it had sold its interest in PEL 100 to Santos Limited for A$15 million.
7. Drillsearch announced on 4 July 2013 that it had farmed out a 60% interest in this permit along with operatorship to Santos Limited reducing its interest in the permit to 40%.
8. Drillsearch signed a sales agreement to divest 100% of these Cooper Basin permits to Real Energy Corporation Limited on 8 May 2012.
9. Drillsearch reached and agreement with Larus in July 2013 to terminate all outstanding obligations in relation to the Gippsland permits.
10. Withdrawal of title renewals for PEL 422, 424 and 471 and all PELA's was approved effective 14 August 2013. Drillsearch has no outstanding interest in these permits.
11. Acer Energy Limited was acquired by Drillsearch in financial year 2013, as such all permits are shown with a 0% ownership interest as at 30 June 2012
Name of joint venture Operator Principal activity
Ownership interest
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