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ELIXIR ENERGY LIMITED — Annual Report 2008
Oct 21, 2008
64893_rns_2008-10-21_b2bc5f3d-939d-44e3-a881-4aa22568ec61.pdf
Annual Report
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and controlled entities
annual report 2008
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SHARE REGISTRY
Mr Jonathan Stewart – Executive Chairman Mr Andrew Ross – Managing Director Mr Iain Knott – Executive Director, Exploration Mr Trevor Benson – Non-Executive Director Mr John Robertson – Non-Executive Director
Computershare Investor Services Pty Ltd Level 2, 45 St Georges Terrace Perth WA 6000 Telephone: (+61) 8 9323 2000
Computershare Investor Services plc The Pavillions Bridgwater Road Bristol BS99 7NH
COMPANY SECRETARY
BANKERS
National Australia Bank Limited Ground Floor, 50 St Georges Terrace Perth WA 6000
Perth Western Australia 6000 (+61) 8 9440 2650 (+61) 8 9440 2699
Barclays Bank plc 5 The North Colonnade Canary Wharf London E14 4BB
STOCK EXCHANGE LISTING
8 The Courtyard, Eastern Road, Bracknell, Berkshire RG12 2XB, United Kingdom (+44) 1344 423 170 (+44) 1344 360 268
Australian Securities Exchange Home Exchange: Perth, Western Australia Code: EXR
AIM Market, London Stock Exchange Code: ELP
WEBSITE AND EMAIL
www.elixirpetroleum.com [email protected]
30-34 New Bridge Street
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annual report 2008
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2008 HIGHLIGHTS
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Successful completion of merger with Gawler Resources
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Maiden production from High Island and Pompano projects
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Certified reserves achieved for Pompano Project
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EBITDAX result of $5.88 million
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Participation in licensing rounds in the Gulf of Mexico and UK Continental Shelf
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Increased geographic diversification of portfolio
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CONTENTS
| Chairman’s Letter 3 Review of Operations 4 |
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|---|---|
| Directors’ Report 13 Auditor’s Independence Declaration 25 Independent Audit Report 26 Directors’ Declaration 28 Consolidated Income Statement 29 Consolidated Balance Sheet 30 Consolidated Statement of Changes in Equity 31 Consolidated Cash Flow Statement 32 Notes to the Financial Statements 33 Additional Stock Exchange Information 76 |
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CONTENTS
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CHAIRMAN’S LETTER
Dear Shareholder
Over the past twelve months Elixir has made considerable progress towards its objective of establishing itself as a broadly based, balanced exploration and production company. You will see from our more detailed Review of Operations following that we have been active across our international portfolio. Importantly, production has been established in the United States leading to a maiden operating profit before amortisation and exploration write offs of $5.88 million.
Elixir’s business model comprises two distinct categories within which we seek to operate. In the shallow waters of the US Gulf Coast we are involved in lower technical risk opportunities, generally with a short cycle time to drilling and production. We are regularly reviewing opportunities generated by local US companies. We have successfully applied our investment criteria to two projects to date, both of which are now on production.
In the North Sea, and more recently in West Africa, we are more exploration driven and are a generator of prospects which we then seek to take to industry for testing. One of our North Sea prospects has now matured to appraisal stage and we are currently talking to industry about appraisal and development options for it. We hope to repeat this with other prospects within our exploration portfolio.
We are currently engaged in drilling at the Pompano Field offshore Texas where we are looking to add to our production base via the targeting of proven undeveloped reserves. We have several follow up targets in this project including some significant exploration upside within the block, success in which would lead to significant additional production and growth in booked reserves.
Elixir remains adequately funded for the various activities planned. We continue to use our equity to undertake evaluation and initial development of our projects or, in the case of more exploration oriented opportunities, seek to attract farminees to fund exploration activity. Once sufficient confidence in the proven reserve base and the plan for development at an individual project has been established, we will consider alternative means to finance additional development.
Overall I am pleased with our progress, although we are disappointed with the translation of this into market value. Clearly our fundraising efforts towards the end of the financial year were opportune from a company perspective, given the general state of markets since that time, but we recognise that participating investors are disappointed with the result to date. We do however, remain very optimistic about the future of our company and believe we continue to establish value for the future. Drilling success from our current program at Pompano will generate additional cashflow and enable us to consider additional opportunities. We also expect to be drilling on at least two of our North Sea projects in 2009.
Our decision to acquire a 15% interest (with an option to acquire an additional 20%) in, and operatorship of, Block SL4 in Sierra Leone has become a mixed blessing. We remain very optimistic about the potential for this area to generate commercial hydrocarbon discoveries and were delighted at the short timeframe to acquire 3D seismic over the Block. More recently however, the failure of our joint venture partner to meet their commitment to pay for the seismic acquisition has made it necessary for us to place them in default. We are currently involved in discussions with our legal advisors, the defaulting party and the seismic company to find a resolution to this matter.
We appreciate the support provided to date by our shareholders and the efforts of our financial advisors and brokers. At the time of writing, financial, share and commodity markets are extremely volatile and difficult to predict. I expect the coming months and year ahead to be challenging, but also a period of opportunity for your company. The successful implementation of our business plan together with some success through the drill bit will create value irrespective of markets.
On behalf of the Board of Elixir I would like to thank shareholders for their support and trust and our employees, consultants and partners for their efforts.
Yours sincerely,
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Jonathan Stewart Executive Chairman October 2008
CHAIRMAN’S LETTER
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REVIEW OF OPERATIONS
STRATEGY
Elixir was established in 2004 as a North Sea focused explorer. The Company has successfully pursued this business model by acquiring licences, typically through the regular licensing rounds offered in the UK, developing attractive prospects and farming these prospects out to industry on a promoted carry basis. The exploration prospects pursued by Elixir within the North Sea are typically of a type that if they were to be hydrocarbon bearing, would create major value for the Company.
Whilst continuing to pursue this high impact exploration model, the Board determined in 2007 to broaden the activities of the Company through the addition of lower risk appraisal and development opportunities. This expansion of focus resulted in the identification of Gawler Resources as a potential merger candidate for the Company. A Merger Implementation Agreement was agreed with Gawler Resources in March 2007 and the merger of the two companies by way of court approved Schemes of Arrangement was completed in November 2007.
With the completion of the merger, Elixir has become an international oil and gas explorer and producer with a pan-Atlantic focus. The addition of new business streams, operations and personnel has resulted in the 2008 financial year being a period of significant transformation for the Company. We are confident that with greater geographic diversification and the pursuit of a more balanced portfolio of opportunities, Elixir now has the platform in place from which to deliver superior growth and returns to its shareholders.
In 1995 a 3D seismic survey was shot over the region and the data reprocessed in 2004. The 3D data set allowed an amplitude based delineation to be undertaken of the areal extent of each of the reservoirs that had been penetrated by the prior wells, as well as identifying new drilling targets.
Drilling and Development Activities
In January 2007, a new well (“A-1”) was drilled which encountered two commercial pay horizons. Gawler Resources, which merged with Elixir late in 2007, participated in A-1 with a working interest of 30%. With the success of A-1, the High Island Joint Venture (“JV”) resolved to drill a further production well (“A-2”) and to install the necessary infrastructure to produce the field.
A second phase of activity commenced in late July 2007 with the drilling of A-2. The well encountered two commercial reservoir sands, and both wells A-1 and A-2 were then completed for production over the deeper of the two reservoir zones in each well. Well A-2 was also completed over the shallower reservoir zone encountered in the well bore.
An unmanned production platform was installed over the completed wells in late August 2007 and a 5 kilometre pipeline was laid from the platform to a nearby regional processing and export hub.
Field Production
Production commenced at the High Island field on 12 September 2007. Initial production rates achieved from the field were in the order of 17 million standard cubic feet of gas per day (“MMscf/d”) and 200 barrels of condensate per day (“bocd”). By the end of the 2008 financial year, the field had produced a total of approximately 2.73 Bcf of gas and 75,750 bbls of condensate (100%).
DEVELOPMENT AND PRODUCTION REVIEW
High Island A-268 (EXR 30%)
Background
High Island Block A-268 is located approximately 100km offshore Texas in Federal waters within the Gulf of Mexico, in a water depth of approximately 50m.
During the 1980’s, prior operators drilled six exploration wells in the block based on a 2D seismic data interpretation. The wells all encountered gas bearing sands at one of two different reservoir horizons, but the sand bodies were interpreted as being discontinuous as the 2D seismic data was not of sufficient quality to accurately resolve the areal extent of the accumulations. As a result, the field was not moved to development at that time and the lease was relinquished by the owners.
During the first three months of production, rates were maintained and gentle decline trends were established. Commencing in January 2008, higher levels of condensate and water started to be observed in A-1. Pre-drill reservoir scenarios had included a case with a thin layer of condensate below the gas accumulation, and we now interpret this to be the most likely explanation for the production performance of A-1. Whilst this led to higher levels of condensate as the rim was produced (up to a peak of approximately 550 bocd), it did reduce the ability of the well to produce gas from the lowest perforated interval, and therefore resulted in a significant reduction in produced gas volumes from the well. A new equilibrium has been reached with relatively stable production being achieved.
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Production from the field prior to shut in for hurricanes in September 2008 was approximately 4.2 MMscf/day and 200 bocd.
Hurricanes Gustav and Ike
Following the end of the reporting period, Hurricanes Gustav and Ike passed through the Gulf of Mexico. The passage of each of these hurricanes required as a safety precaution the shutting-in of wells A-1 and A-2. Although the High island wells and facilities incurred no material damage, the High Island Offshore System pipeline (“HIOS”) through which High island production is ultimately exported to shore, suffered some minor damage preventing the transport of gas and condensate to shore.
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Installation of HI-A268 production platform
At the writing of this report wells A-1 and A-2 remained shut-in, although it is expected the HIOS will be repaired imminently allowing the High island wells to re-commence production in mid to late November 2008.
Forward Plan
The operator is currently investigating a variety of alternatives to increase gas production at High Island, particularly in respect of A-1. This may involve efforts designed to reduce the tubing head pressure of the well to allow a greater drawdown to be applied and the use of compression located on the HI-442 platform.
Following the depletion of the deeper horizons in A-1 and A- 2 through production, it is anticipated that the shallower zones in each of the wells will be produced. The operator has also advised that in addition to these, as yet unproduced, shallower horizons, there is the potential to sidetrack each well to offset locations which may host additional reserves. The original 3D interpretation also identified three deeper exploration targets which would require new step out wells if they were to be pursued.
There are no immediate plans to drill further wells at High island as the remaining reserves located at the existing and alternate completion depths will maintain field production for the medium term.
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Schematic of the High Island Field Layout
REVIEW OF OPERATIONS
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Pompano - Brazos Block 446-L (EXR 25%)
Background
The Pompano field is located approximately 11 kilometres offshore Texas in State waters within the Gulf of Mexico in a water depth of approximately 17 metres. The field was originally discovered in the mid-1960’s, but was not placed into production until 1982. The field produced intermittently from as many as six wells up to 2003 when the field was closed-in and the leases relinquished by the previous operator. At the time the field was closed-in in 2003, it had produced approximately 120 Bcf of gas.
A 3D seismic survey was undertaken over the field in 1993, however this data was not used by the former field owners in planning the drilling of development wells in the field. The 3D data set was reprocessed by a company related to the present operator, AnaTexas Offshore Inc. (“ATO”), in 2005. A total of six new well locations were identified by ATO from the 3D seismic data set. Each well targets a combination of updip reserves from previously producing wells, undrilled fault block compartments and deeper exploration potential in unpenetrated sand accumulations. The deeper exploration sands were not resolvable on the earlier 2D seismic dataset, but can now be identified on the 3D seismic data. These sands are known to be prolific producers in adjacent blocks.
Gawler Resources acquired an interest in the Pompano field in August 2007. The farm in also included a right held by the joint venture partners to acquire substantial existing field infrastructure.
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Drilling operations at well ATO#2, Pompano Project
A third development well at Pompano, ATO#3, spudded following the end of the reporting period on 22 September 2008. It is anticipated the well will take approximately 4 weeks to reach total depth. ATO#3 is targeting undrilled and updip fault block compartments immediately adjacent to the successful ATO#2 well. ATO#3 will be directionally drilled into a total of four primary and two secondary target sands. It is expected that the primary sands will contain proven undeveloped reserves in the same horizons encountered by ATO#2.
Drilling and Development Activities
Field Production
The first well, ATO #1, was drilled in January 2008 in the northern portion of the block and targeted a series of sands containing updip proven undeveloped reserves (“PUD”) from old producing wells. The well was drilled directionally through six sands, with three sands proving productive when subsequently logged and tested. The well was completed across the 6700 sand, the A sand and the B sand, and put on production on 9 March 2008, 56 days following spud.
The second well, ATO#2, was more centrally located in the field and was again a deviated well targeting a number of sands. The well was drilled in March 2008 and encountered a previously depleted hydrocarbon bearing sand known as the B sand and the primary target, the E sand, which was at original reservoir pressure. Unfortunately, the deeper exploration sands at this location which were a secondary target were shown to be either poorly developed or water wet. These sands will be targeted by a future well at what is expected to be a more optimal, up-dip location. Well ATO#2 took 65 days from spud to achieve first gas production on 1 May 2008.
The Pompano sands produce by way of a depletion drive mechanism. There is little aquifer strength, and so limited pressure support is available from the underlain water, although water break through is possible. This production mechanism leads to a non-linear decline in the anticipated production profile from the sands, with a greater initial decline in production experienced early in the producing life of a well before the production rates flatten out.
ATO#1 has faced some difficulties in maintaining production rates. The initial production rate from the well was approximately 6 MMscf/d, but this had dropped to approximately 3 MMscf/d by the end of September 2008. When examining the reasons behind this occurrence, it has been noted that the shallow 6,700 horizon in ATO#1 has produced some sand to surface, which has led to the erosion of production chokes and the requirement to clean out separators on the platform.
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The sand may also be responsible for a drop in surface pressure and production, which has been faster than predicted. It is believed that the sand could form bridges within the completion which act as barriers to flow. The joint venture has agreed to a wireline operation to investigate, and if necessary, to attempt to remove any sand deposited within the completion.
The deeper B sand in ATO#1, which is partially depleted from previous production by an old well, appears to be in communication with the deeper B2 sand, which is normally pressured and is water wet. This has led to a high water cut on this production string in the ATO#1 well, which has had the effect of limiting gas production from the B sand.
Production from ATO #2 has been more predictable, with the two sands having followed an obvious decline trend during the first five months of production. The key variable is the prolific E sand, which produces over 50% of the total field’s output. The initial production rate in May 2008 from this well was 8.9 MMscf/d, and at the end of the reporting period it had declined to 7.9 MMscf/d, which is in line with expectations.
Future Plans
Following the drilling of ATO #3, the joint venture is considering a further well to be drilled at the southern end of the Pompano field that will target a significant portion of the perceived exploration upside available in the field. It is expected that this well will be drilled during Q1 2009.
Together with the other Pompano joint venture partners, Elixir participated in an offshore Lease Round in early April 2008. The joint venture was successful in respect of Brazos Block 479-L (N/2 and NE/4), which contains the Red Fish prospect. The Block is some 720 acres in size and lies directly south of Pompano on the western side of the main fault bisecting the Pompano field.
The joint venture has purchased additional 3D seismic data over the prospect and the operator is currently undertaking further interpretation activities. It is expected that the Red Fish prospect will contribute additional low risk drilling targets in the future.
Reserves
In June 2008, Elixir reported that reserves from wells ATO#1 and ATO#2 had been independently assessed to Society of Petroleum Engineers guidelines, yielding the table below:
| 1P - PROVEN | 1P - PROVEN | 2P - | PROBABLE | 3P - | POSSIBLE | |
|---|---|---|---|---|---|---|
| Gas (Bcf) | Oil (Bbls) | Gas (Bcf) | Oil (Bbls) | Gas (Bcf) | Oil (Bbls) | |
| Project (100% WI) | 12.6 | 34,732 | 17.1 | 48,207 | 23.8 | 74,617 |
| Elixir (18.0875% NRI) | 2.3 | 6,282 | 3.1 | 8,719 | 4.3 | 13,496 |
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Schematic of Pompano Field Layout
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EXPLORATION AND APPRAISAL REVIEW
Elixir remains confident that the full cost of the proposed exploration well will be farmed out in the coming months. As such, preliminary preparations have begun to plan for the well in 2009, including a study to establish whether a shallow seismic survey is necessary at the well location. The final well location is also being discussed with partners.
UKCS
Elixir retains four licences in the Central North Sea and two licences in the Northern North Sea. The Northern North Sea is seen as a core area and has been the focus of much of the Company’s activity during 2008. The portfolio offers a mix of high quality exploration and appraisal projects, which we are confident will be enhanced further by drilling.
Block 211/22b, licence P1067 (EXR 40%)
Block 211/22b was awarded in the 21st Licensing Round as a traditional licence. The block contains the Mulle oil discovery in a Brent Group reservoir, adjacent to the Causeway Field. The technical work on Mulle was completed in 2007 and revealed an attractive project which requires an appraisal well and production test to confirm commerciality prior to the development of the field.
Northern North Sea
Block 211/18b, licence P1381 (EXR 56%, Operator)
Block 211/18b is a traditional licence, awarded in the 23rd Licensing Round and contains the large Leopard prospect. The technical analysis of Leopard was completed in 2007 and was subject to a successful farmout of a 30% working interest to RWE Dea UK in mid-2007. Continuous efforts to farmout the balance of the unfunded portion of the proposed Leopard exploration well have been made during the reporting period. Elixir has received indications of interest from parties to participate in the 2009 exploration well, and at the date of writing, the project remains under review by four companies.
The operator of Block 211/22b, DNO UK Limited, published in May 2008 a gross reserves estimate for the field of 17 MMbo recoverable, on-block in a most likely case, with an upside case of 36 MMbo. An appraisal drilling programme has been agreed with our partners, who are currently marketing this project in an online dataroom with the intention of farming down before the end of 2008. The objective of the partners is to gain a full carry on the cost of up to two appraisal wells and a well test, both planned for drilling in 2009.
Mulle has generated significant industry interest and we are confident that a third party will enter the licence. In 2008, an independent screening study was commissioned by Elixir to evaluate the viability of various field development scenarios. Causeway is one of several export route options for Mulle, with it having been reported recently that the Field Development Plan for Causeway will be submitted to UK authorities in late 2008.
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Northern North Sea
Licence Locations
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REVIEW OF OPERATIONS
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annual report 2008
Central North Sea
Block 21/16b, licence P1507 (EXR 40%)
Block 15/13b, licence P1212 (EXR 13.125%)
Block 15/13b was awarded in the 22nd Licensing Round. The Guinea well was drilled on the block in Q1 2007, but did not encounter any significant hydrocarbons in the primary sand objective. The remaining exploration potential on block was evaluated during the 2008 financial year and partners are to review the future plans for this licence in Q4 2008. The drilling of the Guinea well enabled the conversion of the licence to a traditional licence and the Guinea well was fully carried at no cost to Elixir.
This promote licence was awarded in the delayed 24th Licensing Round to Elixir, DNO UK Ltd and Sosina Exploration Ltd and contains four Jurassic Fulmar Sand prospects in a cluster, named Bob Cat. There is also an additional stratigraphic/structural prospect referred to as T1. Having completed the necessary technical work, the block partners began a marketing programme in June 2008, using an online virtual dataroom with a view to bringing in a farmin partner to carry the cost of an exploration well in 2009 or 2010. Several companies have expressed interest and have reviewed Bob Cat, but no formal offers to participate have so far been received. The two-year licence term expires in April 2009.
Block 21/4b, licence P1104 (EXR 7%)
Block 13/25a, licence P1459 and 13/24d, licence P1404 (EXR 12.5% both)
This traditional licence was awarded in the 21st licensing round and is operated by Maersk. The remaining prospectivity in the Lower Tertiary and Cretaceous was evaluated by the operator during 2008 and a partner meeting is planned for Q4 2008, at which the way forward and options will be reviewed.
Block 13/25 is a Promote License, was awarded in the 23rd Licensing Round. During the latter part of 2007, discussions were held between the Block 13/25 partners, PetroCanada (the operator of adjacent Block 13/24d) and the UK licensing authority with the objective of merging the two licences. PetroCanada had identified that the prospect appearing on Block 13/25, named Fat Cat, extended onto their adjacent Block. The proposed merger was formally approved by the UK authority during Q2 2008 and Elixir’s licence equity was equalised across the two merged partblocks at 12.5% each, but under the terms of licence P1404, with a contingent well obligation.
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A high spec 2D seismic dataset was acquired over the prospect in 2007 and subsequent technical work was at the time of writing due to be reviewed in late Q3 2008. The shallow Fat Cat prospect could be drilled in 2H 2009. The only well drilled in the area suggests that the prospect may contain heavy oil. It is Elixir’s intention in the short term to maintain its options in considering the way forward on the licence.
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Central North Sea Licence Locations
REVIEW OF OPERATIONS
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25th Seaward Licensing Round, 2008
In Q2 2008, Elixir participated in the 25th UKCS Seaward Licencing Round applying for three licences, all located in the Northern North Sea, continuing the focus on prospectivity in this established core area. Notification on the award of licences is not expected until the end of 2008.
Sierra Leone revived petroleum exploration activities by announcing its first offshore bid round in April 2002, for which approximately 5,700 line kilometres of 2D seismic data was acquired off the southern coast of the country. The data acquired from the 2D survey, together with the results from the two offshore exploration wells described above were reprocessed and offered by the Government of Sierra Leone for licensing by oil and gas companies.
Licence Relinquishments
Subsequent to the completion of the merger with Gawler Resources in late 2007, Elixir rationalised part of its portfolio and stepped up its marketing efforts in order to progress its drilling programme.
Two licences located in the Southern Gas Basin in which Elixir held interests, being blocks 43/7 and 44/27b, were judged to contain limited prospectivity and to be non-core and were therefore relinquished at the end of 2007. Block 211/8b, containing the Panther prospect, was also relinquished so as to focus on larger assets.
As part of the combination of Blocks 13/25 and 13/24d, the northern part of Block 13/25 was agreed to be relinquished. The partners considered that the prospectivity in the north of Block 13/25 had in any event diminished a result of recent competitor drilling activity off-block and that the remaining focus should be on the Fat Cat prospect which lies in the southern part of Blocks 13/25 and across 13/24d.
Block SL-4, Offshore Sierra Leone
Background
In the mid-1980’s two shallow water offshore wells were drilled in Sierra Leone by international oil and gas companies. Both wells contained oil shows, but with emerging political instability which was to last through all of the 1990’s, no petroleum exploration activities occurred in Sierra Leone from the late-1980’s until 2002.
The offshore area of Sierra Leone was divided into seven blocks each between 3,500 km[2] and 5,500 km[2] in area, so as to include both shelf and deep water plays. The offshore region of Sierra Leone is underexplored on the continental shelf and unexplored in deepwater. Oil industry participants in the six other awarded exploration blocks include Repsol YPF, Woodside Petroleum Ltd and Anadarko Petroleum Corp.
After a number of years of political instability, democratic elections were first held in 2003 and again in late 2007, with a new government being elected to office in late 2007. The 2007 election proceeded under the supervision of international observers and was generally regarded as being a free and fair election with limited associated civil unrest. The petroleum exploration and production sector in Sierra Leone is regulated by the Petroleum Exploration and Production Act 2001.
Block SL-4
Block SL-4 covers an area of 4,429 km2 over the continental shelf, slope, and Sierra Leone Basin floor. Geological studies, well data, and 2D seismic data acquired offshore Sierra Leone has established the presence of the essential petroleum system factors, being multiple oil prone source beds, abundant reservoir quality sandstones, adequate seals and varied and abundant trap types of size. The nonexclusive 2D seismic data set acquired over Block SL-4 in 2003 has been used to identify a large number of significant leads and a variety of play types located within the Block. Of the two wells drilled offshore Sierra Leone, one lies within Block SL-4.
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Farm-in
The Petroleum Agreement over Block SL-4 was originally executed between The Government of Sierra Leone and 8 Investments Inc. in August 2003. In late February 2008, Elixir acquired a 15% operated interest and an option to acquire a further 20% in Block SL-4. The consideration payable in relation to the acquisition of the 15% interest was to pay 15% of the future costs relating to the interest, which included a proposed 1,222km[2] 3D seismic programme. The timing for payment of any costs associated with the interest was however agreed to be deferred to a point being six months following the commencement of the acquisition of the 3D seismic survey. The option to acquire an additional 20% in the project was agreed on similar terms, however Elixir is able to satisfy the Option exercise amount through the issue of fully paid ordinary shares in the Company at the then market price.
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Location of licences offshore Sierra Leone
3D Survey
Mineral Interests
A 3D seismic survey was initiated in late March 2008. The programme was completed on time and on budget in midJune 2008 with the acquisition of 1,222km[2] of new data over Block SL-4. The data is currently being processed to produce a pre-stack time migrated (PSTM) volume. Completion of the processed dataset is anticipated in Q4 2008. Interpretation of the 3D volume is anticipated to take approximately a further 3 months. The 3D seismic data set will be used to further refine leads identified from the 2D data set. On completion of interpretation of the 3D data set, Elixir will initiate farm out activities to attract industry partners to the Block with a view to drilling an exploration well on the Block.
Partner Default
On 26 September 2008, Elixir announced that it had issued a notice of default to Prontinal Limited, its joint venture partner in Block SL-4. The notice of default related to the failure on the part of Prontinal to meet outstanding payments with respect to the 3D seismic acquisition project concluded over the licence. At the time of writing, the default in payment was still outstanding.
As a result of Prontinal’s default, a letter of demand was received by a subsidiary of Elixir from the seismic contractor in relation to the unpaid amount of approximately US$9 million. Elixir has sought clarification from the seismic contractor in relation to the alleged debt and the letter of demand and legal advice in relation to its position.
Elixir is endeavouring to work with Prontinal and the seismic contractor to seek the timely resolution of these issues.
As a result of the merger with Gawler Resources, Elixir holds interests in five mineral exploration licences located in South Australia and two mineral exploration licences in the Northern Territory.
As part of the merger arrangements, Elixir undertook on a best endeavours basis to facilitate a new ASX listing of the mineral licences. If such a listing was achieved, the former shareholders of Gawler Resources were to receive shares in the newly listed entity pro rata to their shareholding interest in Gawler held prior to the merger completion.
The Board has sought advice and assistance from its financial advisers and other market participants and it was determined that equity market conditions experienced during 2008 would not support an IPO of the mineral licences. This conclusion has been confirmed by the significant decline in new offerings in the first half of 2008 in comparison to prior years. The small number of IPO’s that proceeded, have faced extremely difficult market conditions with almost all new listings trading at significant discounts to the issue price resulting in significant capital destruction for investors.
Recognising that the mineral licences are non-core to Elixir’s oil and gas exploration and production business, efforts have been made to attract other industry players to assume the ongoing work and financial obligations associated with the licences. This process has not been successful to date. It is not Elixir’s intention to devote further management time and resource to these licences and consequently, it is envisaged that the licences will not be renewed at the end of their current terms.
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ELIXIR’S PETROLEUM INTERESTS
Gulf of Mexico
| NAME | LEASE | WORKING | INTEREST | AREA (KM2) | GRANT |
|---|---|---|---|---|---|
| INTEREST | AFTER | DATE | |||
| BACK-IN | |||||
| High Island | High Island Block A-268 | 30% | 24.6%* | 23 | 01 Dec 2000 |
| Pompano | Brazos Block 446-L, SE/4 and SW/4 | 25% | 19.5%# | 6 | 01 July 2003 |
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- Interest subject to back-in in favour of project promoters following cost recovery
- Interest subject to back-in in favour of Operator following full cost recovery, plus 20%
UK North Sea
| NAME | LICENCE | BLOCK | INTEREST | AREA | LICENSING | LICENCE | GRANT |
|---|---|---|---|---|---|---|---|
| (KM2) | ROUND | TYPE | DATE | ||||
| Mulle | P1067 | 211/22b | 40.0% | 50 | 21st | Traditional | 01 Oct 03 |
| P1104 | 21/4b | 7.0% | 150 | 21st | Traditional | 01 Oct 03 | |
| P1212 | 15/13b | 13.1% | 108 | 22nd | Traditional | 01 Dec 04 | |
| Leopard | P1381 | 211/18b | 56.0% | 66 | 23rd | Traditional | 22 Dec 05 |
| Fat Cat | P1459 | 13/24d | 12.5% | 84 | 24th | Traditional | 01 Apr 07 |
| P1404 | 13/25a | 12.5% | 138 | 23rd | Promote | 22 Dec 05 | |
| Bob Cat | P1507 | 21/16b | 40.0% | 186 | 24th | Promote | 01 Feb 07 |
| Sierra Leone | |||||||
| NAME | INTEREST | AREA (KM2) | EXPIRY | ||||
| Block SL-4 | 15% | 4,429 | 12 Aug | 2009 |
ELIXIR’S MINERAL INTERESTS
Northern Territory
| Northern Territory | ||||
|---|---|---|---|---|
| NAME | LICENCE | INTEREST | AREA (KM2) | GRANT DATE |
| Amadeus Project | EL 25260 | 100% | 239 | 08 Feb 2007 |
| Ngalia Project | EL 25261 | 100% | 820 | 08 Feb 2007 |
| South Australia | ||||
| NAME | LICENCE | INTEREST | AREA (KM2) | GRANT DATE |
| Pine Row Project | EL 3648 | 100% | 75 | 10 Nov 2006 |
| Pimba Project | EL 3670 | 100% | 1,024 | 01 Dec 2006 |
| Lake Hanson Project | EL 3669 | 100% | 1,057 | 01 Dec 2006 |
| Parakylia Project | EL 3668 | 100% | 893 | 01 Dec 2006 |
| Augusta Project | EL 3667 | 100% | 735 | 01 Dec 2006 |
REVIEW OF OPERATIONS
12
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annual report 2008
DIRECTORS’ REPORT
Your Directors present their report on the consolidated entity consisting of Elixir Petroleum Limited (“the Company” or “Elixir”) and the entities it controlled during the financial year ended 30 June 2008 (“Consolidated Entity” or “Group”).
DIRECTORS
The names of the Directors of Elixir Petroleum Limited in office during the financial year and until the date of this report are:
Mr Trevor Benson (appointed 12 November 2007) Mr Iain Knott
Corporate
The merger by Schemes of Arrangement between Elixir and Gawler Resources Ltd was implemented in November 2007 following Federal Court approval. There were also a number of changes to Elixir’s board during the year, both as a part of the merger implementation process and subsequent organisational changes. Jonathan Stewart, Trevor Benson and Andrew Ross joined the Board while Russell Langusch and Kent Hunter resigned. Jonathan Stewart was appointed Chairman following Dr Robertson’s decision to step down and following Mr Langusch’s resignation, Andrew Ross was appointed as the Company’s Managing Director. Dr Robertson remains a non-executive director of the Company and the Board wishes to thank Russell Langusch and Kent Hunter for their past contributions to the Company.
Dr John Robertson
Mr Andrew Ross (appointed 12 November 2007)
Mr Jonathan Stewart (appointed 12 November 2007) Mr Russell Langusch (resigned 29 November 2007) Mr Kent Hunter (resigned 12 November 2007)
Unless otherwise stated, all Directors were in office for the whole of the financial year.
PRINCIPAL ACTIVITIES
The principal activity of the Company during the financial year was oil and gas exploration, development and production. Prior to the Company’s merger by Schemes of Arrangement with Gawler Resources Ltd during the year, the Company’s principal activity was oil & gas exploration.
SUMMARY REVIEW OF OPERATIONS
Results
For the financial year ended 30 June 2008 the Group recorded a net loss of $6,414,000 (2007: $3,084,813), after deducting amortisation costs of $9,544,000 (2007: nil) and exploration and evaluation costs written off of $2,501,000 (2007: $1,352,000).
10.7 million unsecured convertible notes were issued in July 2007, raising $2.7 million. These were subsequently converted into 10.7 million new fully paid ordinary shares in November 2007, approximately 11 months prior to their scheduled expiry. A further issue of 8.6 million convertible notes took place in February 2008, raising $3 million.
In addition to the convertible notes, the Company announced a combined placement and entitlement issue in May 2008. A total of $7.5 million (before associated costs) was raised by the subsequent issue of 27.9 million new fully paid ordinary shares, $5.9 million of which had been received by 30 June 2008.
Gulf of Mexico
During the last financial year four wells were completed and brought onto production by the respective operators of the High Island and Pompano projects. At High Island (30% working interest) production commenced in September 2007 from the two wells drilled. At Pompano (25% working interest), the first two wells were spudded in January and February 2008 respectively, with production subsequently commencing from both these wells in March and April respectively.
Elixir’s share of revenue from these projects for the year to 30 June 2008 was in excess of $9.1million and a third well at Pompano is expected to spud during the current quarter.
DIRECTORS’ REPORT
13
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North Sea
Elixir has continued to make progress with its North Sea portfolio. Elixir’s objective is to acquire interests in licences which are considered to have high prospectivity, to work-up attractive prospects in a cost-effective manner and to farm these prospects out to drill. Prospects being matured at present by Elixir are of a potential size such that a successful discovery on any one of them would have a significant impact on the valuation of the Group.
Former directorships (of Australian Listed Public Companies) in last three years
Gawler Resources Ltd.
Interests in Shares and Options over Shares in Group Companies
281,250 Fully Paid Ordinary Shares in Elixir (excludes 24,000,000 Fully Paid Ordinary Shares held by Aurora Oil & Gas Limited) and 2,500,000 Options in Elixir
Africa
As announced to the market in March 2008, Elixir has secured an interest of up to 35% in Block SL-4 offshore Sierra Leone. Elixir, as operator and on behalf of the joint venture, procured the services of a leading seismic acquisition contractor to undertake a 3D seismic survey designed to better define and mature the large number of significant leads and play types identified from 2D seismic data acquired over Block SL-4 in 2003. Data acquisition on Block SL-4 was completed in June 2008 and processing of the 3D data set is currently underway.
SIGNIFICANT CHANGES IN STATE OF AFFAIRS
There were no significant changes in the state of affairs of the Group during the year other than as noted above.
DIRECTORS - CURRENT
Mr Jonathan Stewart – Chairman Qualification – B.Com, CA
Special responsibilities: Member of remuneration and nomination committees
Mr Andrew Ross – Managing Director
Qualifications – LLB, B.Com, GAICD
Special responsibilities: Member of audit committee
Mr Ross was appointed Managing Director of Elixir on 12 November 2007 following the completion of the merger by Schemes of Arrangement of Elixir and ASX listed, Gawler Resources Limited. Prior to this, Mr Ross was Managing Director and co-founder of the privately owned oil and gas group, Cape Energy. Under his leadership, Cape’s focus was on the acquisition and development of discovered reserve opportunities in the Asia Pacific region. Prior to establishing Cape, Mr Ross spent several years as a Director - Corporate Finance of a private merchant banking group based in London where he worked on a range of M&A transactions, public listings and fundraisings for clients in the upstream oil and gas industry as well as other industry segments. Mr Ross also worked for a period of time as in-house legal counsel at AIM listed oil and gas company, Sibir Energy Plc.
Other current directorship of Australian Listed Public Companies
None.
Mr Stewart was appointed a director of the Company on 12 November 2007. He is a qualified chartered accountant. Since leaving the profession he has held executive management positions in a number of industries including extensive international oil & gas experience.
Other current directorship of Australian Listed Public Companies
Aurora Oil & Gas Limited.
Former directorships (of Australian Listed Public Companies) in last three years
None.
Interests in Shares and Options over Shares in Group Companies
35,000 Fully Paid Ordinary Shares and 2,500,000 Options in Elixir.
DIRECTORS’ REPORT
14
annual report 2008
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Mr Iain Knott – Executive Director Qualifications – BSc (Hons) MSc
Special responsibilities: None
Mr Knott is a Petroleum Geologist who has over 24 years’ North Sea and international oil & gas experience. After graduating from Kingston University in 1983, Mr Knott was employed in a number of geological roles by Core-Lab, Paleoservices and British Gas. Since 1996 he has held senior roles in the oil and gas and investment banking industries, firstly as an Assistant Director with NatWest Markets – Wood Mackenzie, then as Technical Director responsible for Northwest Europe for Burlington Resources, and most recently as Technical Director of Ingen.
Other current directorship of Australian Listed Public Companies
None.
Former directorships (of Australian Listed Public Companies) in last three years
None.
Interests in Shares and Options over Shares in Group Companies
2,500,000 Options in Elixir
Mr Trevor Benson – Non-Executive Director Qualifications – BSc
Special responsibilities: Chairman of audit committee
Mr Benson has been involved in the financial services industry for over 18 years. Currently he holds the position of Executive Director, Western Australia for Tolhurst Limited, an Australian stockbroking firm. Mr Benson has held many senior positions within the stockbroking industry, provide strategic investment advice, facilitated equity capital market transactions, and currently specialises in providing corporate finance services primarily to the oil and gas industry both in Australia and internationally. Prior to his involvement in stockbroking, Mr Benson worked in the treasury operations of major Australian corporations. Mr Benson holds a Bachelor of Science degree from the University of Western Australia.
Other current directorship of Australian Listed Public Companies
Sultan Corporation Ltd.
Former directorships (of Australian Listed Public Companies) in last three years
Gawler Resources Ltd
Interests in Shares and Options over Shares in Group Companies
250,000 Options in Elixir
Dr John Robertson – Non-Executive Director Qualifications – BSc (Hons), PhD
Special responsibilities: Member of audit, remuneration and nomination committees
Dr Robertson was appointed as a Non-Executive Chairman coincident with the Company’s AIM admission in May 2005. He has a wealth of experience in the finance and oil and gas industries. Dr Robertson joined the corporate banking department of Schroders in 1970 and then worked in corporate finance at Cannon Street Investments. Subsequently, he gained over 13 years experience in senior management positions with Ultramar, a leading UK independent oil company until the early 1990s. Following this role he acted as a consultant before becoming a Director of Corporate Finance at Durlacher Ltd. From 1995 to June 2005 Dr Robertson was a Director of Nabarro Wells, the London-based independent corporate finance advisory firm, where he provided capital raising and corporate advice to private and quoted companies, particularly in the oil and gas and mining sectors
Other current directorship of Australian Listed Public Companies
Bonaparte Diamond Mines NL – appointed in September 2007
Former directorships (of Australian Listed Public Companies) in last three years
None.
Interests in Shares and Options over Shares in Group Companies
425,000 Fully Paid Ordinary Shares and 250,000 Options in Elixir
DIRECTORS’ REPORT
15
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DIRECTORS - FORMER
COMPANY SECRETARY
Mr Russell Langusch – Former Managing Director
Mr Alex Neuling
Qualifications – BSc, ACA (ICAEW), ACIS
Mr Langusch is a Petroleum Engineer who has accumulated over 30 years experience in the upstream oil & gas and finance sectors. This period includes five years direct working experience in the UK North Sea based in Aberdeen. From 1975 Russell spent 13 years with Schlumberger and Esso in a variety of roles including Field Engineer, Field Service Manager, Marketing Manager, Log Analyst and Senior Reservoir Engineer. He was then employed by a number of international investment banks as an oil & gas analyst. In 2001 he established his own consulting business providing services to many domestic and international clients before joining Elixir as founding Managing Director in May 2004.
Mr Kent Hunter – Former Non-Executive Director and Company Secretary
Interests in Shares and Options - none
Mr Neuling was appointed Company Secretary on 12 November 2007. Mr Neuling is currently a non-executive Director of ASX Listed Eureka Energy Ltd and RTL Corporation Ltd and is also Company Secretary of Aurora Oil & Gas Ltd. Prior to his current positions, he worked at a major international accounting firm in London (1998-2002) and in Perth (2002-2004). He holds an honours degree in Chemistry from the University of Leeds in the United Kingdom, is a member of the Institute of Chartered Accountants of England and Wales, and the Institute of Chartered Secretaries and Administrators.
Prior to Mr Neuling’s appointment, the Company Secretary was Kent Hunter (details above).
Mr Hunter is a Chartered Accountant with over 15 years’ corporate and company secretarial experience. He has been involved in the listing of 20 junior gold, uranium and base metal exploration companies on ASX in the past five years with capital raisings exceeding $90 million.
MEETING OF DIRECTORS
The following table sets out the number of meeting of the Company’s directors held during the year ended 30 June 2008, and the number of meetings attended by each director.
| Directors’ | Meetings | Committee | Meetings | |
|---|---|---|---|---|
| Eligible to attend | Attended | Audit | Remuneration | |
| Mr Trevor Benson | 4 | 3 | 1 | 1 |
| Mr Iain Knott | 5 | 4 | n/a* | n/a* |
| Mr John Robertson | 5 | 4 | 1 | 1 |
| Mr Andrew Ross | 4 | 3 | 1 | n/a* |
| Mr Jonathan Stewart | 4 | 4 | n/a* | 1 |
| Mr Russell Langusch | 1 | 1 | n/a* | n/a* |
| Mr Kent Hunter | 1 | 1 | n/a* | n/a* |
- Not a member of the relevant committee.
DIRECTORS’ REPORT
16
annual report 2008
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Share options
At the date of this report the following unlisted options have been granted over unissued capital.
| Type | Number | Exercise Price | Expiry Date | Date Granted |
|---|---|---|---|---|
| Ambrian Options (EXRAO) | 637,148 | $0.600 | 16-May-10 | 16 May 2005 |
| ESOP Tranche 1(EXRAI) | 2,000,000 | $0.250 | 31-Mar-11 | 26 June 2008* |
| ESOP Tranche 2(EXRAI) | 3,250,000 | $0.300 | 31-Mar-12 | 26 June 2008* |
| ESOP Tranche 3(EXRAI) | 2,750,000 | $0.350 | 31-Mar-13 | 26 June 2008* |
| TOTAL | 8,637,148 |
*In accordance with applicable Accounting Standards, the deemed grant date disclosed above is the date of shareholder approval for the grant of these options under the Elixir Employee Share Option Plan, rather than the actual dates of Offer and Acceptance under the Plan.
REMUNERATION REPORT – AUDITED
This remuneration report outlines the director and executive remuneration arrangements of the Company and the Group in accordance with the requirements of the Corporations Act 2001 and its Regulations. For the purposes of this report, key management personnel (KMP) of the Group are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, including any director (whether executive or otherwise) of the parent company, and includes the five executives in the Parent and the Group receiving the highest remuneration.
For the purposes of this report, the term ‘executive’ encompasses the chief executive, senior executives, asset managers and secretaries of the Parent and the Group.
DETAILS OF KEY MANAGEMENT PERSONNEL (INCLUDING THE FIVE HIGHEST PAID EXECUTIVES OF THE COMPANY AND THE GROUP)
(i) Directors
Jonathan Stewart Andrew Ross
Chairman (Executive) Managing Director (appointed as Director 12 November 2007, Managing Director from 29 November 2007) Executive Director Non-Executive Director Non-Executive Director
Iain Knott Trevor Benson John Robertson Russell Langusch
Former Managing Director (resigned 29 November 2007) Former Non-Executive Director (resigned 12 November 2007)
Kent Hunter
(ii) Executives
Alex Neuling James Stockley
Company Secretary and Chief Financial Officer Asset Manager, Europe
DIRECTORS’ REPORT
17
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REMUNERATION COMMITTEE
Executives
The Remuneration Committee of the board of directors of the Company is responsible for determining and reviewing remuneration arrangements for the directors and executives. The remuneration committee assesses the appropriateness of the nature and amount of remuneration of executives on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality, high performing director and executive team.
Base pay
Executives are offered a competitive level of base pay which comprises the fixed (unrisked) component of their pay and rewards. Base pay for senior executives is reviewed annually to ensure market competitiveness. There are no guaranteed base pay increases included in any senior executives’ contracts.
Short-term incentives
REMUNERATION PHILOSOPHY
The performance of the Company depends upon the quality of its directors and executives. To prosper, the Company must attract, motivate and retain highly skilled directors and executives. To this end, the charter adopted by the remuneration committee aims to align rewards with achievement of strategic objectives. The remuneration framework applied provides for a mixture of fixed and variable pay and a blend of short and long term incentives as appropriate.
REMUNERATION STRUCTURE
In accordance with best practice corporate governance, the structure of non-executive director and executive remuneration is separate and distinct.
Payment of short-term incentives is dependent on the achievement of key performance milestones as determined by the remuneration committee. For the period ended 30 June 2008, these milestones required performance in relation to key strategic, non-financial measures linked to drivers of performance in future reporting periods.
Short-term bonus payments may be adjusted up or down in line with under or over achievement relative to target performance levels at the discretion of the remuneration committee. For the year ended 30 June 2008 the total of short term bonus payments calculated as paid or payable to Key Management Personnel was $23,970 and this amount has been paid. There have been no forfeitures of bonuses by key management personnel during the current or prior periods and no cash bonuses remained unvested at year-end.
Non-executive directors
The maximum aggregate amount of fees that can be paid to non-executive directors is subject to approval by shareholders at General Meeting. The Company’s policy is to remunerate non-executive directors at market rates (for comparable companies) for time, commitment and responsibilities. Fees for non-executive directors are not linked to the performance of the Company, however to align directors’ interests with shareholders’ interests, directors are encouraged to hold shares in the Company, and subject to approval by shareholders, are permitted to participate in the Employee Share Option Plan.
LONG-TERM INCENTIVES - SHARE-BASED COMPENSATION
Options over shares in Elixir are granted under the Employee Share Option Plan (“Plan”) which was approved by shareholders at a general meeting on 26 June 2008. The Plan is designed to provide long-term incentives for Elixir’s directors, employees and consultants to deliver long-term shareholder returns. Under the Plan, participants are granted options subject to vesting conditions set by the Board, which may be related to periods of service or certain performance standards being met. Participation in the Plan is at the Board’s discretion and no individual has a contractual right to participate in the Plan or to receive any guaranteed benefits.
RETIREMENT BENEFITS AND ALLOWANCES
No retirement benefits or allowances are paid or payable to directors of the Company (other than statutory or mandatory superannuation contributions, where applicable).
DIRECTORS’ REPORT
18
annual report 2008
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The terms and condition of each grant of options affecting remuneration in the previous, this, or future reporting periods, are as follows:
| Grant date* | Date vested and exercisable | Expiry date | Exercise price | Value per option at grant date |
|---|---|---|---|---|
| 26-Jun-08 | 01-Jul-08 | 31-Mar-11 | $0.250 | $0.0965 |
| 26-Jun-08 | 31-Mar-09 | 31-Mar-12 | $0.300 | $0.1070 |
| 26-Jun-08 | 31-Mar-10 | 31-Mar-13 | $0.350 | $0.1202 |
*In accordance with applicable Accounting Standards, the deemed Grant Date above is the date upon which shareholders approved the grant of the above options , not the actual date of offer, acceptance or record.
Options granted under the Plan carry no dividend or voting rights.
The Plan rules at present contain no restriction on participants entering into transactions to remove the “at risk” aspect of the unvested equity instruments granted to them. The Remuneration Committee intends to review its current procedures in relation to such transactions over the coming year.
Details of options over ordinary shares in the Company provided as remuneration to each Director and each of the key management personnel of the parent entity and the Group are set out below. When exercisable, each option is convertible into one ordinary share of the Company. Further information on the options is set out in notes 24 and 27 to the Financial Statements.
GROUP PERFORMANCE
At present, KMP remuneration is not directly linked to common financial measures of group performance such as share price, earnings per share or dividends. The table set out below shows various commonly used measures of performance for each financial year since the Company listed on ASX in 2004:
| Year ended 30 June | Year ended 30 June | |||
|---|---|---|---|---|
| 2005 | 2006 | 2007 | 2008 | |
| $’000 | $’000 | $’000 | $’000 | |
| Revenues and finance income | 188 | 720 | 459 | 9,289 |
| Loss after tax | 3,871 | 3,986 | 3,085 | 6,414 |
| $ | $ | $ | $ | |
| Share price at start of year | 0.25 | 0.43 | 0.39 | 0.27 |
| Share price at end of year | 0.43 | 0.39 | 0.27 | 0.26 |
| Change | 0.18 | -0.04 | -0.12 | -0.01 |
| Loss per share | -0.10 | -0.11 | -0.04 | -0.05 |
| Total Shareholder Return (TSR) (i) | 0.08 | -0.15 | -0.16 | -0.06 |
(i) Defined as the net change in share price (defined as the opening share price less the closing share price for the year), plus the loss per share for the year.
DIRECTORS’ REPORT
19
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SERVICE AGREEMENTS
Remuneration and other terms of agreement for the Executive Chairman are formalised in a consultancy agreement with Epicure Capital Pty Ltd, an associated company of Mr Stewart.
Material terms of the contract with Epicure Capital Pty Ltd are as follows:
-
Term of agreement – indefinite
-
Consultancy fee inclusive of superannuation and taxes, but excluding GST, of $80,000 per annum, to be reviewed annually by the board
-
Payment of termination benefit on early termination by the Company, other than for gross misconduct, equal to three months consultancy fees
Remuneration and other terms of employment for Mr Iain Knott are formalised in a contract of employment, the material terms of which are as follows:
-
Term of agreement – indefinite
-
Notice period or termination benefit in lieu of notice, other than for gross misconduct, on a sliding scale based on years of service, 3 months as at report date
Remuneration and other terms of employment for Mr James Stockley are formalised in a contract of employment, the material terms of which are as follows:
-
Term of agreement – indefinite
-
Notice period or termination benefit in lieu of notice, other than for gross misconduct, on a sliding scale based on years of service, 3 months as at report date
Remuneration and other terms of agreement with other named executives are not formalised in service agreements.
DIRECTORS’ REPORT
20
annual report 2008
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REMUNERATION OF KEY MANAGEMENT PERSONNEL AND THE FIVE HIGHEST PAID EXECUTIVES OF THE COMPANY AND GROUP
| 2008 | Short-term benefits | Short-term benefits | Short-term benefits | Short-term benefits | Post-employment | Post-employment | Share-based | ||
|---|---|---|---|---|---|---|---|---|---|
| benefits | payment | ||||||||
| Cash salary | Cash | Non- | Super- | Retirement Options | Total | Perform | |||
| and fees | bonus | monetary | annuation | benefits | ance- | ||||
| benefits | related | ||||||||
| $ | $ | $ | $ | $ | $ | $ | % | ||
| Non-executive directors | |||||||||
| Current | |||||||||
| Trevor Benson | 13,761 | - | - | 1,239 | - | 24,125 | 39,125 | - | |
| John Robertson | 59,926 | - | - | - | - | 24,125 | 84,051 | - | |
| Former | |||||||||
| Kent Hunter | 8,800 | - | - | 792 | - | - | 9,592 | - | |
| Sub-total | |||||||||
| non-executive directors | 82,487 | - | - | 2,031 | - | 48,250 | 132,768 | ||
| Executive directors | |||||||||
| Current | |||||||||
| Jonathan Stewart | 40,000 | - | - | - | - | 74,482 | 114,482 | - | |
| Andrew Ross | 96,789 | - | - | 8,711 | - | 2,868 | 108,368 | - | |
| Iain Knott | 317,953 | 23,970 | - | - | - | 74,482 | 416,405 | 5.8 | |
| Former | |||||||||
| Russell Langusch | 212,543 | - | - | - | - | - | 212,543 | - | |
| Sub-total | |||||||||
| executive directors | 667,285 | 23,970 | - | 8,711 | - | 151,832 | 851,798 | ||
| Other executives | |||||||||
| Alex Neuling | - | - | - | - | - | - | - | - | |
| James Stockley | 252,663 | - | - | - | - | - | 252,663 | - | |
| Total Key | |||||||||
| Management Personnel | 1,002,435 | 23,970 | - | 10,742 | - | 200,082 | 1,237,229 | ||
| 2007 | |||||||||
| Non-executive directors | |||||||||
| John Robertson | 73,787 | - | - | - | - | - | 73,787 | - | |
| Kent Hunter | 24,000 | - | - | 2,160 | - | - | 26,160 | - | |
| Sub-total | |||||||||
| non-executive directors | 97,787 | - | - | 2,160 | - | - | 99,947 | ||
| Executive directors | |||||||||
| Russell Langusch | 355,099 | - | - | - | - | - | 355,099 | - | |
| Angus MacAskill | 97,646 | - | - | - | - | - | 97,646 | - | |
| Iain Knott | 339,891 | - | - | - | - | - | 339,891 | - | |
| Sub-total | |||||||||
| executive directors | 792,636 | - | - | - | - | - | 792,636 | ||
| Total Key | |||||||||
| Management Personnel | 890,423 | - | - | 2,160 | - | - | 892,583 |
DIRECTORS’ REPORT
21
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COMPENSATION OPTIONS: GRANTED AND VESTED DURING THE YEAR (CONSOLIDATED)
| 2008 | Granted | Grant | Fair Value | Exercise | Expiry | Vesting | Vested | ||
|---|---|---|---|---|---|---|---|---|---|
| (number) | Date* | (Per Option) | Price | Date | Date | No | % | ||
| (cents) | (Per Option) | ||||||||
| Directors | (cents) | ||||||||
| Jonathan Stewart | 750,000 | 26 Jun 08 | 9.65 | 25 | 31 Mar 11 | 1 Jul 08 | - | - | |
| 1,000,000 | 26 Jun 08 | 10.70 | 30 | 31 Mar 12 | 31 Mar 09 | - | - | ||
| 750,000 | 26 Jun 08 | 12.02 | 35 | 31 Mar 13 | 31 Mar 10 | - | - | ||
| Andrew Ross | 1,250,000 | 26 Jun 08 | 10.70 | 30 | 31 Mar 12 | 31 Mar 09 | - | - | |
| 1,250,000 | 26 Jun 08 | 12.02 | 35 | 31 Mar 13 | 31 Mar 10 | - | - | ||
| Iain Knott | 750,000 | 26 Jun 08 | 9.65 | 25 | 31 Mar 11 | 1 Jul 08 | - | - | |
| 1,000,000 | 26 Jun 08 | 10.70 | 30 | 31 Mar 12 | 31 Mar 09 | - | - | ||
| 750,000 | 26 Jun 08 | 12.02 | 35 | 31 Mar 13 | 31 Mar 10 | - | - | ||
| Trevor Benson | 250,000 | 26 Jun 08 | 9.65 | 25 | 31 Mar 11 | 1 Jul 08 | - | - | |
| John Robertson | 250,000 | 26 Jun 08 | 9.65 | 25 | 31 Mar 11 | 1 Jul 08 | - | - |
*In accordance with applicable Accounting Standards, the deemed Grant Date above is the date upon which shareholders approved the grant of the above options, not the actual date of offer, acceptance or record.
No compensation options were granted or vested during 2007.
OPTIONS GRANTED AS PART OF REMUNERATION
| Value of Options | ||||
|---|---|---|---|---|
| Granted during | Exercised | Lapsed | Remuneration consisting | |
| the year | during the year | during the year | of options for the year | |
| $ | $ | $ | % | |
| Jonathan Stewart | 74,482 | - | - | 65.1% |
| Andrew Ross | 2,868 | - | - | 2.6% |
| Iain Knott | 74,482 | - | - | 17.9% |
| Trevor Benson | 24,125 | - | - | 61.7% |
| John Robertson | 24,125 | - | - | 28.7% |
DIRECTORS’ REPORT
22
annual report 2008
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SHARES ISSUED ON EXERCISE OF COMPENSATION OPTIONS
No compensation options were exercised during the year to 30 June 2008. Issues of shares upon exercise of compensation options during the year to 30 June 2007 were as follows:
| 2007 | Shares issued | Paid per share | Unpaid per share |
|---|---|---|---|
| Former directors | No. | $ | $ |
| Russell Langusch | 250,000 | 0.20 | - |
| Kent Hunter | 125,000 | 0.20 | - |
DIVIDENDS
Block SL-4 Offshore Sierra Leone
No dividends have been declared, provided for or paid in respect of the financial year ended 30 June 2008.
SUBSEQUENT EVENTS
Completion of Entitlement Issue and Placement of Shortfall Shares
On 2 July 2008 the Company announced that acceptances under its 1 for 8 entitlement offer announced on 29 May 2008 (“Rights Issue”) had closed, that valid acceptances for 1,950,550 shares had been received and these shares were subsequently allotted and issued. The Company further advised that agreements whereby the Rights Issue was fully underwritten had been terminated by the underwriters following movements in the ASX Small Ordinaries Index, which had fallen by more than the trigger amount of 10%. A further 5,920,000 shares out of the Rights Issue Shortfall were subsequently placed by the Directors to raise a further $1,598,400 before costs.
On 26 September 2008 the Company announced that it had issued a notice of default to Prontinal Limited, its joint venture partner in Block SL-4. The notice of default relates to the failure on the part of Prontinal to meet outstanding payments with respect to the 3D seismic acquisition project which was recently concluded over the licence. As a result of Prontinal’s default, a letter of demand has been received by a subsidiary of Elixir from the seismic contractor in relation to the unpaid amount of approximately US$9 million. This matter is disclosed in further detail in note 1 (a) and note 33 to the Financial Statements,
Other than as noted above, no other matter or circumstance has arisen since 30 June 2008 that has significantly affected, or may significantly affect:
(a) the Group’s operations in future financial years, or (b) the results of those operations in future financial years, or (c) the Group’s state of affairs in future financial years.
LIKELY DEVELOPMENTS
Commencement of Drilling Operations at Well-3 at Pompano
Due to the nature of the Consolidated Entity’s business activities, the Directors are not able to state:
- likely developments in the entities’ operations; or
On 22 September 2008 the Company announced that a rig had arrived on site and was preparing to drill the third development well at Pompano. The well has subsequently been spudded.
-
the expected results of these operations,
-
as to do so would result in unreasonable prejudice to the Consolidated Entity.
DIRECTORS’ REPORT
23
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ENVIRONMENTAL REGULATION
NON-AUDIT SERVICES
The Consolidated Entity has a policy of exceeding or at least complying with its environmental performance obligations.
During the financial year, the Consolidated Entity did not materially breach any particular or significant Commonwealth, State, Territory or other regulation in respect to environmental management.
The Board of Directors is satisfied that the provision of nonaudit services performed during the year by the entity’s auditor’s is compatible with the general standard of independence for auditor’s imposed by the Corporations Act 2001 . The directors are satisfied that the services disclosed below did not compromise the external auditor’s independence for the following reasons:
INDEMNIFICATION AND INSURANCE OF OFFICERS AND AUDITOR’S
Since the end of the year, the Company has paid a premium in respect of a contract insuring the directors of the Company (as named above) and the Company Secretary, Mr Alexander Neuling, against liabilities 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 Company has not otherwise, during or since the financial year, 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.
-
The nature of the services provided do not compromise the general principles relating to auditor’s independence as set out in the Institute of Chartered Accountants in Australia and CPA Australia’s Professional Statement F1: Professional Independence.
-
The directors are satisfied that no non audit services were provided to the Company by its auditor’s during the period ended 30 June 2008.
AUDITOR’S INDEPENDENCE DECLARATION
The Auditor’s independence declaration is included on page 27 of the financial report.
ROUNDING OF AMOUNTS TO THE NEAREST THOUSAND DOLLARS
PROCEEDINGS ON BEHALF OF COMPANY
No person has applied for leave of court to bring proceedings on behalf of the Company or intervene in any proceeding to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings.
The company was not a party to any such proceedings during the year.
The Company satisfies the requirements of Class Order 98/0100 issued by the Australian Investments and Securities Commission relating to “rounding off” of amounts in the Directors’ Report and the Financial Report to the nearest thousand dollars. Amounts have been rounded off in the Directors’ Report and Financial Report in accordance with that Class Order.
Signed in accordance with a resolution of the Directors made pursuant to s.298 (2) of the Corporations Act 2001 .
On behalf of the Directors
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JONATHAN STEWART Chairman Perth, Western Australia 30 September 2008
DIRECTORS’ REPORT
24
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annual report 2008
AUDITOR’S INDEPENDENCE DECLARATION
I declare that to the best of my knowledge and belief, during the year ended 30 June 2008 there have been:
(i) No contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and
(ii) No contraventions of any applicable code of professional conduct in relation to the audit.
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Mack & Co Chartered Accountants 2nd Floor, 35 Havelock Street West Perth WA 6005
N A Calder, Partner
Date: 30 September 2008
AUDITOR’S INDEPENDENCE DECLARATION
25
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INDEPENDENT AUDIT REPORT TO MEMBERS OF ELIXIR PETROLEUM LIMITED
REPORT ON THE FINANCIAL REPORT
We have audited the accompanying financial report of Elixir Petroleum Limited and the consolidated entity, which comprises the balance sheet as at 30 June 2008, and the income statement, statement of changes in equity and cash flow statement for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year.
DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL REPORT
The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001 . This responsibility includes establishing and maintaining internal control relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101: Presentation of Financial Statements, that compliance with the Australian equivalents to International Financial Reporting Standards (IFRS) ensures that the financial report, comprising the financial statements and notes, complies with IFRS.
AUDITOR’S RESPONSIBILITY
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgment, including the assessment 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 entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report and the remuneration disclosures in the directors’ report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
INDEPENDENCE
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001 . We confirm that the independence declaration required by the Corporations Act 2001 , provided to the directors of Elixir Petroleum Limited would be the same terms if provided to the directors as at the date of this director’s report.
INDEPENDENT AUDIT REPORT
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annual report 2008
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AUDITOR’S OPINION
In our opinion:
-
(a) the financial report of Elixir Petroleum Limited and its consolidated entities is in accordance with the Corporations Act 2001 , including:
-
(i) giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2008 and of their performance for the year ended on that date; and
-
(i) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001;
-
(b) the financial report also complies with International financial Reporting Standards as disclosed in Note 1; and
INHERENT UNCERTAINTY REGARDING CONTINUATION AS A GOING CONCERN
Without qualification of the opinion expressed above, attention is drawn to the following matter. As a result of the matters described in Note 1(a) and Note 33 to the financial report, there is significant uncertainty as to whether Elixir Petroleum Limited and the entities it controlled will be able to continue as going concerns and therefore whether they will be able to pay their debts as and when they fall due and realise their assets and extinguish their liabilities in the normal course of business and at the amounts stated in the financial report. The financial report does not include any adjustments relating to the recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities that might be necessary should the company or the consolidated entity not continue as going concerns.
REPORT ON THE REMUNERATION REPORT
We have audited the Remuneration Report included in the directors’ report under the heading “Remuneration Report – Audited” for the year ended 30 June 2008.
The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001 . Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.
Audit Opinion
In our opinion the remuneration report of Elixir Petroleum Limited for the year ended 30 June 2008 complies with section 300A of the Corporations Act 2001 .
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Mack & Co Chartered Accountants 2nd Floor, 35 Havelock Street West Perth WA 6005
N A Calder, Partner
30 September 2008
INDEPENDENT AUDIT REPORT
27
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DIRECTORS’ DECLARATION
In the Directors’ opinion and having regard to the matters noted in Note 1(a) to the financial statements:
-
(a) The financial statements and notes set out on pages 31 to 79 and the remuneration disclosure in the Directors’ Report are in accordance with the Corporations Act 2001 , including:
-
(i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and,
-
(ii) giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2008 and of their performance for the financial year ended on that date; and,
-
(b) there are reasonable grounds to believe that the Company will be able to pay its debts as when they become due and payable; and,
-
(c) at the date of this declaration, there are reasonable grounds to believe that the members of the Extended Closed Group identified in note 29 will be able to meet any obligations or liabilities to which the are, or may become, subject by virtue of the deed of cross guarantee described in note 29.
The directors have been given the declarations by the chief executive officer and chief financial officer required by section 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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Jonathan Stewart
Chairman
Perth, Western Australia 30 September 2008
DIRECTORS’ DECLARATION
28
annual report 2008
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CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2008
| Consolidated | Consolidated | Parent | |||
|---|---|---|---|---|---|
| Note | 2008 | 2007 | 2008 | 2007 | |
| $’000 | $’000 | $’000 | $’000 | ||
| Revenue from oil & gas sales | (4) | 9,120 | - | - | - |
| Other income | (5) | 26 | 303 | - | - |
| Operating and production costs | (595) | - | - | - | |
| General & administrative costs | (1,939) | (2,381) | (1,468) | (806) | |
| Other expenses | (730) | (87) | (126) | - | |
| EBITDAX1 | (7) | 5,882 | (2,165) | (1,594) | (806) |
| Depreciation, depletion and amortisation expense | (9,555) | (20) | - | - | |
| Exploration & evaluation costs written off | (2,501) | (1,352) | (18) | - | |
| Provision against group borrowings | - | - | (4,941) | (2,803) | |
| EBIT2 | (6) | (6,174) | (3,537) | (6,553) | (3,609) |
| Finance income | 169 | 459 | 93 | 173 | |
| Finance costs | (409) | (7) | (409) | (1) | |
| Loss before income tax | (6,414) | (3,085) | (6,869) | (3,437) | |
| Income tax expense / benefit | (8) | - | - | - | - |
| Net loss attributable to members of Company | (6,414) | (3,085) | (6,869) | (3,437) | |
| Earnings / (loss) per share | |||||
| Basic loss per share (cents per share) | (9) | (5.0) | (4.3) | ||
| Diluted loss per share (cents per share) | (9) | (5.0) | (4.3) |
1 EBITDAX: Earnings Before Interest, Tax, Depreciation, depletion and amortisation, Exploration & evaluation costs written off and provisions against group borrowings.
2 EBIT: Earnings before Interest and Tax
The above income statement should be read in conjunction with the accompanying notes.
CONSOLIDATED INCOME STATEMENT
29
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CONSOLIDATED BALANCE SHEET AS AT 30 JUNE 2008
| Consolidated | Consolidated | Parent | Parent | ||
|---|---|---|---|---|---|
| Note | 2008 | 2007 | 2008 | 2007 | |
| $’000 | $’000 | $’000 | $’000 | ||
| Assets | |||||
| Current assets | |||||
| Cash and cash equivalents | (11) | 10,604 | 4,406 | 6,823 | 692 |
| Trade and other receivables | (12) | 3,670 | 1,398 | - | 1,252 |
| Other financial assets | (13) | - | 221 | - | - |
| Total current assets | 14,274 | 6,025 | 6,823 | 1,944 | |
| Non-current assets | |||||
| Receivables from subsidiaries | - | - | 5,621 | 5,621 | |
| Investment in subsidiaries | (14) | - | - | 31,247 | - |
| Oil & Gas properties | (15) | 31,569 | - | - | - |
| Other financial assets | (13) | - | 4,408 | - | 4,408 |
| Other plant and equipment | (17) | 10 | 14 | - | - |
| Deferred exploration, evaluation | |||||
| and development expenditure | (16) | 1,286 | 1,803 | - | - |
| Total non-current assets | 32,865 | 6,225 | 36,869 | 10,029 | |
| Total assets | 47,139 | 12,250 | 43,692 | 11,973 | |
| Liabilities | |||||
| Current liabilities | |||||
| Trade and other payables | (18) | (2,983) | (314) | (1,020) | (38) |
| Borrowings | (19) | (3,000) | - | (3,000) | - |
| Total current liabilities | (5,983) | (314) | (4,020) | (38) | |
| Non-current liabilities | |||||
| Provisions | (20) | (1,484) | - | - | - |
| Total non-current liabilities | (1,484) | - | - | - | |
| Total liabilities | (7,467) | (314) | (4,020) | (38) | |
| Net assets | 39,672 | 11,935 | 39,672 | 11,935 | |
| Equity | |||||
| Contributed equity | (21) | 58,609 | 22,500 | 58,609 | 22,500 |
| Reserves | (22) | 1,463 | 3,421 | 1,973 | 3,476 |
| Accumulated losses | (22) | (20,400) | (13,986) | (20,910) | (14,041) |
| Total parent entity interest in equity | 39,672 | 11,935 | 39,672 | 11,935 |
The above balance sheet should be read in conjunction with the accompanying notes.
CONSOLIDATED BALANCE SHEET
30
annual report 2008
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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2008
| Consolidated | Consolidated | Parent | Parent | ||
|---|---|---|---|---|---|
| Note | 2008 | 2007 | 2008 | 2007 | |
| $’000 | $’000 | $’000 | $’000 | ||
| Share capital | |||||
| At the beginning of period | 22,500 | 22,120 | 22,500 | 22,120 | |
| Share issues | 36,450 | 400 | 36,450 | 400 | |
| Costs of issue | (341) | (20) | (341) | (20) | |
| At the end of the period | (21) | 58,609 | 22,500 | 58,609 | 22,500 |
| Option premium reserve | |||||
| At the beginning of period | 1,690 | 1,690 | 1,690 | 1,690 | |
| Options granted | 3,151 | - | 3,151 | - | |
| Options exercised | (2,868) | - | (2,868) | - | |
| At the end of the period | (22) | 1,973 | 1,690 | 1,973 | 1,690 |
| Accumulated losses | |||||
| At the beginning of period | (13,986) | (10,901) | (14,041) | (10,604) | |
| Loss for the year | (6,414) | (3,085) | (6,869) | (3,437) | |
| At the end of the period | (22) | (20,400) | (13,986) | (20,910) | (14,041) |
| Financial asset reserve | |||||
| At the beginning of period | 1,786 | (232) | 1,786 | - | |
| Revaluation of financial assets | 1,786 | - | 1,786 | ||
| Transfer to retained earning | - | - | - | - | |
| Transfer to cost of investment upon | |||||
| gaining control of subsidiary | (1,786) | 232 | (1,786) | - | |
| At the end of the period | (22) | - | 1,786 | - | 1,786 |
| Foreign currency translation reserve | |||||
| At the beginning of period | (55) | 529 | - | - | |
| Recognised during the period | (455) | (584) | - | - | |
| At the end of the period | (22) | (510) | (55) | - | - |
| Total equity | |||||
| At the beginning of the period | 11,935 | 13,206 | 11,935 | 13,206 | |
| At the end of the period | 39,672 | 11,935 | 39,672 | 11,935 |
The above statement of changes in equity should be read in conjunction with the accompanying notes.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
31
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CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2008
| Consolidated | Consolidated | Parent | |||
|---|---|---|---|---|---|
| Note | 2008 | 2007 | 2008 | 2007 | |
| $’000 | $’000 | $’000 | $’000 | ||
| Cash flows from operating activities | |||||
| Receipts from sales | 4,915 | - | - | - | |
| Payments to suppliers and employees | (3,577) | (2,430) | (999) | (784) | |
| Other income | - | - | - | - | |
| Net cash inflow/(outflow) from operating activities | (25) | 1,338 | (2,430) | (999) | (784) |
| Cash flows from investing activities | |||||
| Cash acquired with subsidiary | 3,304 | - | - | - | |
| Payments for plant and equipment | - | (2) | - | - | |
| Payments for investments | - | (2,622) | - | (2,622) | |
| Proceeds from sale of equity investments | 210 | 590 | - | - | |
| Loans to other entities | - | (1,232) | - | (1,232) | |
| Payments for exploration, evaluation and development | (6,049) | (1,798) | - | - | |
| Interest received | 169 | 455 | 93 | 175 | |
| Payments to controlled entity | (3,389) | - | (3,712) | 1,465 | |
| Investment in subsidiary | (100) | - | (100) | - | |
| Net cash outflow from investing activities | (5,855) | (4,609) | (3,719) | (2,214) | |
| Cash flows from financing activities | |||||
| Proceeds from issues of shares | 5,409 | 400 | 5,409 | 400 | |
| Rights issue proceeds received shares not issued | 516 | - | 516 | - | |
| Convertible note | 5,675 | - | 5,675 | - | |
| Underwriting costs - convertible note | (134) | - | - | - | |
| Interest paid | (409) | (7) | (409) | (1) | |
| Share issue costs | (342) | (20) | (342) | (20) | |
| Net cash inflow from financing activities | 10,715 | 373 | 10,849 | 379 | |
| Net increase (decrease) in cash and cash equivalents | 6,198 | (6,666) | 6,131 | (2,619) | |
| Cash and cash equivalents at the beginning of the period | 4,406 | 11,072 | 692 | 3,311 | |
| Cash and cash equivalents at the end of the period | 10,604 | 4,406 | 6,823 | 692 |
The above cash flow statement should be read in conjunction with the accompanying notes.
CONSOLIDATED CASH FLOW STATEMENT
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annual report 2008
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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2008
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been applied consistently to all the years presented, unless otherwise stated. The financial report includes separate financial statements for Elixir Petroleum Limited as an individual entity (“Company”, “Elixir” or “Parent Entity”) and the consolidated entity comprised by Elixir Petroleum Limited and its subsidiaries (“Group” or “Consolidated Entity”). Elixir is a company limited by shares, incorporated and domiciled in Australia, and whose shares are publicly traded on the Australian Securities Exchange and London AIM market.
a) Basis of preparation
This general purpose financial report has been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Interpretations and the Corporations Act 2001 .
Going Concern
The Financial Report has been prepared on the going concern basis, which contemplates the continuity of normal business activity and the realisation of assets and the settlement of liabilities in the normal course of business.
Note 33 to the Financial Statements discloses circumstances relating to a potential claim by a seismic contractor in relation to Elixir Petroleum UK Limited (“Elixir UK”)’s operatorship of the SL-4 Joint Venture offshore Sierra Leone. Elixir UK has issued a notice of default to Prontinal Limited (“Prontinal”), its joint venture partner in Block SL-4. The notice of default relates to the failure on the part of Prontinal to meet outstanding payments with respect to the seismic acquisition project. The agreements between Elixir UK and Prontinal require Prontinal to meet the costs of the seismic acquisition project. As a result of Prontinal’s default, letters of demand have been received by the Joint Venture participants from the seismic contactor in relation to the unpaid amount. The unpaid amount is alleged by the seismic contractor to be in the region of US$9,000,000. Elixir is seeking clarification in relation to the letter of demand and is also seeking legal advice on its position with respect to the alleged debt.
Elixir understands that Prontinal is in negotiations with third party funding sources to secure the necessary funds to meet its outstanding obligations and future foreseeable commitments with respect to Block SL-4. Elixir is endeavouring to work with Prontinal to seek the timely resolution of these issues and has been advised that arrangements to resolve these matters are advanced.
In the event that Prontinal meets its obligations, Elixir UK will be required to reimburse its working interest share of the amount paid.
NOTES TO THE FINANCIAL STATEMENTS
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Should Prontinal ultimately be unable to meet its obligations and remedy the default with regard to Block SL-4, ownership of the equity in the licence held by Prontinal would, at Elixir UK ‘s election, revert to it and Elixir UK would have a claim for damages against Prontinal. The Directors consider that any claim that may be made by the seismic contractor against Elixir UK in respect of the unpaid amount is without merit. Notwithstanding this, there is a risk that Elixir UK could be found to be liable for some or all of the unpaid amount which may prejudice Elixir’s ability to continue as a going concern.
Should Elixir UK become liable, Elixir may be unable to continue as a going concern, it may be required to realise its assets and extinguish its liabilities other than in the normal course of business and at amounts different from those stated in the Financial Report. The Financial Report does not include any adjustments relating to the recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities that may be necessary should Elixir be unable to continue as a going concern.
Having regard to these factors, the Financial Report has nonetheless been prepared on a going concern basis which the Directors consider to be appropriate based upon the reasonable expectation that in the event:
-
Prontinal is unable to meet its obligations in respect of the unpaid amount; and,
-
Elixir UK is found to be liable for some or all of the unpaid amount; and,
-
Elixir UK is unable to meet its share of any liability from existing funds,
the Group will be able to realise additional funds by farming out equity or otherwise disposing of its equity interest in Block SL-4 or other assets and / or raising additional funds through debt and / or equity raisings as required.
Compliance with International Financial Reporting Standards
Australian Accounting Standards include Australian equivalents to International Financial Reporting Standards (AIFRS), Compliance with AIFRS ensures that the financial report of Elixir, Limited complies with International Financial Reporting Standards (IFRS).
Historical cost convention
These financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets, financial assets and liabilities (including derivative instruments) at fair value through profit or loss, certain classes of property, plant and equipment and investment property.
Critical accounting estimates
The preparation of financial statements in conformity with AIFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 2.
b) Principles of consolidation
(i) Subsidiaries
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Elixir Petroleum Limited (“Elixir”, “Company” or “Parent Entity”) as at 30 June 2008 and the results of all subsidiaries for the year then ended. The Company and its subsidiaries together are referred to in this financial report as the Group or the Consolidated Entity.
NOTES TO THE FINANCIAL STATEMENTS
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Subsidiaries are all those entities (including special purpose entities) over which the group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group (refer to note1 (g)).
Intercompany transactions, balances and unrealised gains on transaction between Group companies are eliminated. Unrealised losses are eliminated unless the transaction provides evidence of the impairment of the assets transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
Investments in subsidiaries are accounted for at cost in the individual financial statements of the Company.
(ii) Joint ventures
Jointly controlled assets
The Group’s proportionate interests in the assets, liabilities and expenses of a joint venture activity have been incorporated in the financial statements under the appropriate headings. Details of the joint venture are set out in note 26.
c) Segment reporting
A business segment is identified for a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different to those of other business segments. A geographical segment is identified when products or services are provided within a particular economic environment that is subject to risks and returns that are different from those of segments operating in other economic environments.
d) Foreign currency translation
(i) Functional and presentation currency
Items in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“The functional currency”). The consolidated financial statements are present in Australian dollars, which is Elixir’s functional and presentation currency.
(ii) Transactions and balances
Foreign currency transactions are translated unto the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when they are deferred in equity as qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the net investment in a foreign operation.
NOTES TO THE FINANCIAL STATEMENTS
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e) Revenue recognition
(i) Sale of goods
Revenue from the sale of goods and disposal of other assets is recognised when the Consolidated Entity has transferred to the buyer the significant risks and rewards of ownership of the goods.
(ii) Other
Dividend revenue is recognised on a receivable basis. Interest revenue is recognised on a time proportionate basis that takes into account the effective yield on the financial asset.
f) Income tax
The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the reporting date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.
Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the Parent Entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.
Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity.
g) Business Combinations
The purchase method of accounting is used to account for all business combinations, including business combinations involving entities under common control, regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given, equity instruments issued or liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Where equity instruments are issued in an acquisition, the fair value of the instruments is their published market price as at the date of exchange unless, in rare circumstances, it can be demonstrated that the published market price at the date of exchange is an unreliable indicator of fair value and that other evidence and valuation methods provide a more reliable method of fair value. Transaction costs arising on the issue of equity instruments are recognised directly in equity.
DIRECTORS’ REPORT
36
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annual report 2008
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the Group’s share of the fair value of the identifiable net assets of the subsidiary acquired, the difference is recognised directly in the income statement, but only after a reassessment of the identification and measurement of the net assets acquired.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.
h) Impairment of assets
Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.
i) Cash and cash equivalents
For cash flow statement presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions and other short-term, highly liquid investments with original maturities of three months or less.
j) Trade receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method, less provision for impairment. Trade receivables are generally due for settlement within 30 days.
k) Investments and other financial assets
Classification
The Group classifies its financial assets in the following categories: financial assets ‘at fair value through profit or loss’, ‘heldto-maturity’ investments, ‘available-for-sale’ financial assets, and ‘loans and receivables’. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its investments at initial recognition and, in the case of assets classified as held-to-maturity, re-evaluates this designation at each reporting date.
(i) Available-for-sale financial assets
Available-for-sale financial assets, comprising principally marketable equity securities, are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the reporting date. Investments are designated as available-for-sale if they do not have fixed maturities and fixed or determinable payments and management intends to hold them for the medium to long term.
DIRECTORS’ REPORT
37
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(ii) Held-to-maturity investments
Bills of exchange and debentures are recorded at amortised cost using the effective interest method less impairment, with revenue recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period.
Recognition and derecognition
Regular purchases and sales of financial assets are recognised on trade date – the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value and transaction costs are expensed in the income statement. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.
When securities classified as available-for-sale are sold, the accumulated fair value adjustments recognised in equity are included in the income statement as gains and losses from investment securities.
Subsequent measurement
Loans and receivables and held-to-maturity investments are carried at amortised cost less impairment using the effective interest method.
Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value.
Details on how the fair value of financial instruments is determined are disclosed in note 31.
Impairment
The Group assesses at each balance date whether there is objective evidence that a financial asset or group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of a security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments classified as available-for-sale are not reversed through the income statement.
l) Property, plant and equipment (other than Oil & Gas Properties)
Plant and equipment and fixtures & fittings are stated at cost less accumulated depreciation and impairment. Cost includes expenditure that is directly attributable to the acquisition of the item. In the event that settlement of all or part of the purchase consideration is deferred, cost is determined by discounting the amounts payable in the future to their present value as at the date of acquisition.
Depreciation is provided on property, plant and equipment, including freehold buildings, but excluding land. Depreciation is calculated on a straight line basis so as to write off the net cost or other revalued amount of each asset over its expected useful life to its estimated residual value. Leasehold improvements are depreciated over the period of the lease or estimated useful life, whichever is the shorter, using the straight line method.
NOTES TO THE FINANCIAL STATEMENTS
38
annual report 2008
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The estimated useful lives, residual values and depreciation method is reviewed at the end of each annual reporting period. The following estimated useful lives are used in the calculation of depreciation:
Fixtures and fittings 5 years Plant and equipment 5 - 15 years
m) Non-operator interests in Oil & Gas properties
Exploration & evaluation expenditure
Elixir’s accounting policy for the cost of exploring and of evaluating discoveries is based on the “successful efforts” approach. This approach is strongly linked to the Company’s oil and gas reserves determination and reporting process and is considered to most fairly reflect the results of the Company’s exploration and evaluation activity because only assets with demonstrable value are carried on the balance sheet.
Once a decision has been made to develop an oil or gas prospect, accumulated exploration and evaluation costs for that prospect are transferred from “undeveloped” (Oil & Gas Properties - Exploration and Evaluation) to “under development” (Oil & Gas Properties – Development Projects). Once production commences, costs are transferred to Oil & Gas Properties – Producing Projects and amortisation commences.
This method allows the costs of discovery, evaluation and development of a prospect to be aggregated on the balance sheet and matched against the benefits derived from production once this commences.
Costs
Exploration and evaluation expenditure is accounted for in accordance with the area of interest method. Exploration licence acquisition costs relating to greenfields oil and gas exploration provinces are expensed as incurred while these costs incurred in relation to established or recognised oil and gas exploration provinces are initially capitalised and then amortised over the shorter term of the licence or the expected life of the project.
All other exploration and evaluation costs, including general permit activity, geological and geophysical costs and new venture activity costs are charged as expenses as incurred except where:
-
The expenditure related to an exploration discovery that, at balance date, has not been recognised as an area of interest as assessment of the existence or otherwise of economically recoverable reserves is not yet complete; or
-
An area of interest is recognised, and it is expected that the expenditure will be recouped through successful exploitation of the area of interest, or alternatively, by its sale.
Each potential or recognised area of interest is reviewed at least bi-annually to determine whether economic quantities of reserves have been found or whether further exploration and evaluation work is underway or planned to support the continued carry forward of capitalised costs.
The costs of drilling exploration wells are initially capitalised pending the results of the well. Costs are expensed where the well does not result in the successful discovery of economically recoverable hydrocarbons and the recognition of an area of interest. Areas of interest are recognised at the field level. Subsequent to the recognition of an area of interest, all further costs relating to the area of interest are capitalised.
To the extent it is considered that the relevant expenditure will not be recovered, it is written off.
NOTES TO THE FINANCIAL STATEMENTS
39
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Transfer to Development Projects
Upon a decision being made to commercially develop an area of interest, accumulated expenditure for the area of interest is transferred to Oil & Gas Properties as Transferred Exploration and Evaluation – Development Projects.
Producing Projects
Exploration, evaluation and development costs are initially capitalised against Exploration & Evaluation and / or Development Projects and are transferred to Producing Projects upon commencement of commercial operations. Operating costs of projects in commercial production are expensed as incurred.
Prepaid drilling and completion costs
Where the Company has a non-operator interest in an oil or gas property, it may periodically be required to make a cash contribution for its share of the operator’s drilling and / or completion costs, in advance of these operations taking place.
Where these contributions relate to a prepayment for exploratory or early stage drilling activity, prior to a decision on the commerciality of a well having been made, the costs are capitalised as prepaid drilling costs within Exploration and Evaluation Projects.
Where these contributions relate to a prepayment for well completion, these costs are capitalised as prepaid completion costs within Exploration and Evaluation or Development Projects depending on whether a decision has already been made as to the commercial viability of the well.
As the operator notifies the Company as to how funds have been expended, the costs are reclassified from prepaid costs to Oil & Gas Properties - Interests in Land & Buildings, Plant & Equipment or Intangible costs as appropriate.
Once a decision has been made to proceed with completion of a well, all costs are transferred to Development Projects, including any prepaid amounts.
Amortisation of producing projects
Upon commencement of production, Elixir amortises the accumulated costs for the relevant area of interest over the life of the area according to the estimated rate of depletion of the economically recoverable quantities of reserves. Estimates of recoverable reserve quantities include judgemental assumptions regarding commodity prices, exchange rates, discount rates, and production and transportation costs for future cash flows. It also requires interpretation of complex and difficult geological and geophysical models in order to make an assessment of the size, shape, depth and quality of reservoirs, and their anticipated recoveries. The economic, geological and technical factors used to estimate reserves may change from period to period. Amortisation charged for the year to 30 June 2008 was $9,544,000 (2007: nil).
Future restoration costs
Elixir’s aim is to avoid or minimise environmental impact resulting from its operations where possible.
Work scope and cost estimates for restoration are reviewed annually and updated at least every three years.
Provision is made in the balance sheet for restoration of operating locations. The estimated costs are capitalised as part of the cost of the related project where recognition occurs upon acquisition of an interest in the operating locations. The costs are then recognised as an expense on a Units of Production (UOP) basis over time as the assets are amortised.
NOTES TO THE FINANCIAL STATEMENTS
40
annual report 2008
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The costs are based on the latest estimated future costs, determined on a discounted basis, which are re-assessed regularly and exclude any allowance for potential changes in technology or material changes in legislative requirements.
The Group accounts for changes in cost estimates on a prospective basis.
n) Trade and other payables
Trade payables and other accounts payable are recognised when the Consolidated Entity becomes obliged to make future payments resulting from the purchase of goods and services.
o) Employee benefits
Provision is made for benefits accruing to employees in respect of wages and salaries, annual leave, long service leave and sick leave when it is probable that settlement will be required and these benefits can be measured reliably.
Provisions made in respect of employee benefits expected to be settled within 12 months are measured at their nominal values using the remuneration rate expected to apply at the time of settlement.
Provisions made in respect of employee benefits which are not expected to be settled within 12 months are measured as the present value of the estimated future cash outflows to be made by the consolidated entity in respect of services provided by employees up to reporting date.
Defined contribution superannuation plans
Contributions to defined contribution superannuation plans are expensed when incurred.
p) Provisions
Provisions are recognised when the Consolidated Entity has a present obligation, the future sacrifice of economic benefits is probable, and the amount of the provision can be measured reliably.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is probable that recovery will be received and the amount of the receivable can be measured reliably.
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. Where a provision is measured using the cashflows estimated to settle the present obligation, its carrying amount is the present value of those cashflows.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that recovery will be received and the amount of the receivable can be measured reliably.
An onerous contract is considered to exist where the Consolidated Entity has a contract under which the unavoidable cost of meeting the contractual obligations exceed the economic benefits estimated to be received. Present obligations arising under onerous contracts are recognised as a provision to the extent that the present obligation exceeds the economic benefits estimated to be received.
NOTES TO THE FINANCIAL STATEMENTS
41
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q) Contributed equity
Ordinary shares are classified as equity. Mandatorily redeemable preference shares are classified as liabilities.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options for the acquisition of a business are not included in the cost of the acquisition as part of the purchase consideration.
If the Company reacquires its own equity instruments, eg as the result of a share buy-back, those instruments are deducted from equity and the associated shares are cancelled. No gain or loss is recognised in the profit or loss and the consideration paid including any directly attributable incremental costs (net of income taxes) is recognise directly in equity.
r) Borrowing costs
Borrowing costs are expensed in the period in which they are incurred, except to the extent which they are directly attributable to the acquisition, construction or production of an asset when it is probable that they will result in future economic benefits to the entity and the costs can be measured reliably.
s) Good and services tax
Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except:
-
where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or
-
for receivables and payables which are recognised inclusive of GST.
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 as operating cash flows
t) Earnings per share
(i) Basic earnings per share
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year.
(ii) Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.
NOTES TO THE FINANCIAL STATEMENTS
42
annual report 2008
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u) Share-based payments
Equity-settled share-based payments granted after 7 November 2002 that were unvested as of 1 January 2005, are measured at fair value at the date of grant. Fair value is measured by use of the Binomial 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.
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 Consolidated Entity’s estimate of shares that will eventually vest.
v) Rounding of amounts
The Company is of a kind referred to in Class Order 98/0100, issued by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the financial report. Amounts in the financial report have been rounded off in accordance with the Class Order to the nearest thousand dollars, or in certain cases, the nearest dollar.
w) New accounting standards and interpretations
The following Australian Accounting Standards have been issued or amended but are not yet effective. They have not been adopted in the preparation of the financial statements for the year ended 30 June 2008.
| Reference | Title | Summary | Application | Impact on Group | Application |
|---|---|---|---|---|---|
| date of | financial report | date of | |||
| standard | group | ||||
| AASB | Amendments to Australian | Amending standard issued as | 1 January | AASB 8 is a disclosure standard | 1 July 2009 |
| 2007-3 | Accounting Standards arising | a consequence of AASB 8 | 2009 | so will have no direct impact on | |
| from AASB 8 [AASB 5, AASB | Operating Segments | the amounts included in the | |||
| 6, AASB 102, AASB 107, | Group’s financial statements. | ||||
| AASB 119, AASB 127, AASB | However the new standard may | ||||
| 134, AASB 136, AASB 1023 | have an impact on the segment | ||||
| & AASB 1038] | disclosures included in the | ||||
| Group’s financial report. | |||||
| AASB 8 | Operating Segments | This new standard will replace | 1 January | Refer to AASB 2007-3 above. | 1 July 2009 |
| AASB 114 Segment Reporting | 2009 | ||||
| and adopts a management | |||||
| approach to segment reporting. | |||||
| AASB | Amendments to Australian | Amending standard issued as | 1 January | As the Group does not | 1 July 2009 |
| 2007-6 | Accounting Standards arising | a consequence of AASB 123 | 2009 | have in place any qualifying | |
| from AASB 123 [AASB 1, | (revised) Borrowing Costs. | borrowing facilities, the impact | |||
| AASB 101, AASB 107, AASB | of the revised standard is not | ||||
| 111, AASB 116 & AASB 138 | known at this stage. | ||||
| and Interpretations 1 & 12] |
NOTES TO THE FINANCIAL STATEMENTS
43
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| Reference | Title | Summary | Application | Impact on Group | Application |
|---|---|---|---|---|---|
| date of | financial report | date of | |||
| standard | group | ||||
| AASB 123 | Borrowing Costs | AASB 123 previously |
1 January | These amendments to AASB | 1 July 2009 |
| permitted entities to choose | 2009 | 123 require that all borrowing | |||
| between expensing all |
costs associated with a | ||||
| borrowing costs and |
qualifying asset be capitalised. | ||||
| capitalizing those that were | The Group has no borrowing | ||||
| attributable to the acquisition, | costs associated with |
||||
| construction or production of a | qualifying assets and as such | ||||
| qualifying asset. The revised | the amendments are not | ||||
| version of AASB 23 requires | expected to have any impact | ||||
| borrowing costs to be |
on the Group’s financial report. | ||||
| capitalized if they are directly | |||||
| attributable to the acquisition, | |||||
| construction or production of a | |||||
| qualifying asset. | |||||
| AASB | Amendments to Australian | The amendments clarify the | 1 January | The Group has share-based | 1 July 2009 |
| 2008-1 | Accounting Standard – Share- | definition of ‘vesting |
2009 | payment arrangements that | |
| based Payments: Vesting | conditions’, introducing the | may be affected by these | |||
| Conditions and Cancellations | term ‘non-vesting conditions’ | amendments. However, the | |||
| for conditions other than | Group has not yet determined | ||||
| vesting conditions as |
the extent of the impact, if any. | ||||
| specifically defined and |
|||||
| prescribe the accounting |
|||||
| treatment of an award that is | |||||
| effectively cancelled because | |||||
| a non-vesting condition is not | |||||
| satisfied. | |||||
| AASB 3 | Business combinations | The revised standard |
1 July 2009 | The Group may enter into | 1 July 2009 |
| (revised) | introduces a number of |
some business combinations | |||
| changes to the accounting for | during the next financial year | ||||
| business combinations | and may therefore consider | ||||
| early adopting the revised | |||||
| standard. The Group has not | |||||
| yet assessed the impact of | |||||
| early adoption, including |
|||||
| which accounting policy to | |||||
| adopt. | |||||
| AASB | Amendments to Australian | Amending standard issued as | 1 July 2009 | Refer to AASB 3 (revised) and | 1 July 2009 |
| 2008-3 | Accounting Standards arising | a consequence of revisions to | AASB 127 (revised) above. | ||
| from AASB 3 and AASB 127 | AASB 3 and AASB 127. |
NOTES TO THE FINANCIAL STATEMENTS
44
annual report 2008
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2 CRITICAL ACCOUNTING ESTIMATES & JUDGEMENTS
In preparing this Financial Report the Group has been required to make certain estimates and assumptions concerning future occurrences. There is an inherent risk that the resulting accounting estimates will not equate exactly with actual events and results.
a) Significant accounting judgements
In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statements:
Functional currency of US-based subsidiary operations
The Group’s US based subsidiaries are at this stage financed primarily by means of A$ denominated loans and/or equity contributions. As such, the functional currency of these subsidiaries has been determined to be A$, not withstanding that they also conduct significant US$ denominated transactions.
Exploration, evaluation and development expenditure (Oil & Gas properties)
The Group’s accounting policy for exploration, evaluation and development is set out at Note 1 (m). Application of this policy necessarily requires management to make certain estimates and assumptions as to future events and circumstances, in particular, the assessment of whether economic quantities of reserves have been found. Any such estimates and assumptions may change as new information becomes available. If, after having capitalised expenditure under our policy, we conclude that we are unlikely to recover the expenditure by future exploitation or sale, then the relevant capitalised amount will be written off to the Income Statement. As at 30 June 2008 the carrying amount of Oil & Gas Properties is $31,569,000 (2007: Nil).
Deferred tax assets
The Group has carried forward tax losses which have not been recognised as deferred tax assets as it is not considered sufficiently probable that these losses will be recouped by means of future profits taxable in the appropriate jurisdictions.
In addition, the Group’s interests in jointly controlled oil & gas operations are held through the Company’s wholly-owned US subsidiary entities (refer Note 14 (b)). Taxation of oil & gas activities in the US allows a number of alternative treatments which are not available under Australian Taxation Legislation. In particular, companies may elect to:
-
(i) claim an immediate deduction for Intangible Drilling Costs (“IDC”); and / or,
-
(ii) elect to apply the “Percentage Depletion” method of depreciation to Oil & Gas Properties.
The Percentage Depletion method permits certain taxpayers with economic interests in oil and gas operation to deduct a specified percentage (15%) of the gross income from these operations instead of cost depletion. An election as to whether to apply Percentage Depletion or Cost Depletion is made each year on a well-by-well basis and accordingly, application of the method can result in an effective tax base for the oil & gas operations which is significantly in excess of their actual cost. The directors have not recognised or disclosed a deferred tax asset in respect of this potential increase in the tax base of these assets as they do not believe it is capable of being reliably estimated at this stage.
NOTES TO THE FINANCIAL STATEMENTS
45
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Claiming an immediate deduction for IDC for the year ended 30 June 2008 would result in an accelerated deduction of the tax base of the Group’s jointly controlled oil and gas operations. This accelerated deduction would result in recognition of a deferred tax liability and an offsetting deferred tax asset in relation to the losses claimed. There would be no effect on either gross or net assets, or on the income statement for the year. As at the date of this report, the directors have not yet finalised which alternatives will be adopted by the Group’s US subsidiary entities for the year ended 30 June 2008 and accordingly have not recognised or disclosed a deferred tax asset or liability in respect of immediate IDC deductions which may be claimed in the future.
b) Critical accounting estimates
The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting period are:
Amortisation
Upon commencement of production, Elixir amortises the accumulated costs for the relevant area of interest over the life of the area according to the estimated rated of depletion of the economically recoverable quantities of reserves. Estimates of recoverable reserve quantities include judgemental assumptions regarding commodity prices, exchange rates, discount rates, and production and transportation costs for future cash flows. It also requires interpretation of quality of reservoirs, and their anticipated recoveries. The economic, geological and technical factors used to estimate reserves may change from period to period. Amortisation charge for the year ended 30 June 2008 was $9,544,000 (June 2007: nil).
Share-based payment transactions
The Group measures the cost of equity-settled transactions with employees and consultants by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined using a Binomial model, using the assumptions detailed in note 24.
Rehabilitation obligations
The Group estimates its share of the future removal and remediation costs of oil and gas platforms, production facilities, wells and pipelines at the time of acquisition or installation of the assets. In most instances, removal of assets occurs many years into the future. This requires judgemental assumptions regarding removal date, future environmental legislation, the extent of remediation activities required, the engineering methodology for estimating cost, future removal technologies in determining the removal cost, and asset specific discount rates to determine the present value of these cash flows. For more detail regarding the policy in respect of provision for rehabilitation refer to Note 1(m). As at 30 June 2008 rehabilitation obligations have a carrying value of $1,484,000 (2007: Nil).
Impairment of assets
In the absence of readily available market prices, the recoverable amounts of assets are determined using estimations of the present value of future cashflows using asset-specific discount rates. For Oil & Gas Properties, these estimates are based on assumptions concerning reserves, future production profiles and costs. As at 30 June 2008, the carrying value of Oil & Gas Properties is $31,569,000 (2007: Nil).
NOTES TO THE FINANCIAL STATEMENTS
46
annual report 2008
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3 SEGMENT INFORMATION
Primary reporting – Geographical Segments
Elixir operates in three main geographical segments, Australia, Europe and Africa, and the USA.
Australia
Australia is the location of the central management and control of the Company and its principal administrative base.
Europe and Africa
The Group’s North Sea and African exploration activities and license interests are located in the United Kingdom. The Group’s European operations are conducted through a locally registered subsidiary, Elixir Petroleum (UK) Limited.
USA
The Group’s interest in the High Island and Pompano projects are held by a wholly-owned US subsidiary, Cottesloe Oil & Gas, LLC.
| 2008 | USA | Europe | Unallocated | Total |
|---|---|---|---|---|
| & Africa | ||||
| $’000 | $’000 | $’000 | $’000 | |
| Sales | 9,120 | - | - | 9,120 |
| Other revenue | - | - | 195 | 195 |
| Expenses | (10,686) | (2,892) | (2,151) | (15,729) |
| Loss before tax | (1,566) | (2,892) | (1,956) | (6,414) |
| Tax | - | - | - | - |
| Loss after tax | (1,566) | (2,892) | (1,956) | (6,414) |
| Total assets | 36,673 | 2,596 | 7,870 | 47,139 |
| Total liabilities | (2,574) | (759) | (4,134) | (7,467) |
| Acquisitions of plant and equipment, exploration and evaluation, | ||||
| and other non-current assets | 41,112 | 973 | - | 42,085 |
| Depreciation & amortisation | 9,544 | 11 | - | 9,555 |
| Other non-cash expenses/(income) | - | 1,211 | 29 | 1,240 |
NOTES TO THE FINANCIAL STATEMENTS
47
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3 SEGMENT INFORMATION (CONT’D)
| 2007 | USA | Europe | Unallocated | Total |
|---|---|---|---|---|
| & Africa | ||||
| $’000 | $’000 | $’000 | $’000 | |
| Sales | - | 517 | 173 | 690 |
| Other revenue | - | 88 | - | 88 |
| Expenses | - | (3,056) | (807) | (3,863) |
| Loss before tax | - | (2,451) | (634) | (3,085) |
| Tax | - | - | - | - |
| Loss after tax | - | (2,451) | (634) | (3,085) |
| Total assets | - | 5,897 | 6,353 | 12,250 |
| Total liabilities | - | (276) | (38) | (314) |
| Acquisitions of plant and equipment, exploration and evaluation, | ||||
| and other non-current assets | - | 1,214 | - | 1,214 |
| Depreciation and amortisation | - | 20 | - | 20 |
| Other non-cash expenses/(income) | - | (88) | - | (88) |
4 REVENUE FROM CONTINUING OPERATIONS
| Consolidated | Consolidated | Parent | ||
|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | |
| $’000 | $’000 | $’000 | $’000 | |
| Revenue from oil & gas sales | 9,120 | - | - | - |
| Interest received | 169 | 459 | 93 | 173 |
| 9,289 | 459 | 93 | 173 | |
| 5 OTHER INCOME | ||||
| Profit on sale of investments | 26 | 231 | - | - |
| Foreign exchange gain | - | 72 | - | - |
| Interest received | 26 | 303 | - | - |
NOTES TO THE FINANCIAL STATEMENTS
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6 EXPENSES
| Consolidated | Consolidated | Parent | ||
|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | |
| $’000 | $’000 | $’000 | $’000 | |
| Loss before income tax is arrived at after deducting the following | expenses: | |||
| Amortisation of oil & gas properties | 9,544 | - | - | - |
| Depreciation of plant and equipment | 11 | 20 | - | - |
| Employee benefits expense (including share-based payment) | 1,123 | 892 | 157 | 26 |
| Borrowing costs | 409 | 7 | 409 | 1 |
| Impairment of receivables from Controlled entities | - | - | 4,941 | 2,803 |
7 OTHER EXPENSES
| Share based payments (Note 24) | 200 | - | 126 | - |
|---|---|---|---|---|
| Fair Value adjustment on warrants | 29 | 87 | - | - |
| Foreign exchange loss | 501 | - | - | - |
| Total other expenses | 730 | 87 | 126 | - |
NOTES TO THE FINANCIAL STATEMENTS
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8 INCOME TAX
The prima facie income tax expense on pre-tax accounting profit from operations reconciles to the income tax expense in the financial statements as follows:
| Consolidated | Consolidated | Parent | ||
|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | |
| $’000 | $’000 | $’000 | $’000 | |
| Prima facie tax benefit on loss at 30% (2007: 30%) | (1,925) | (925) | (2,061) | (1,031) |
| Add tax effect of: | ||||
| Foreign / overseas tax losses not recognised | 1,961 | 496 | 38 | 30 |
| Revenue losses not recognised | 720 | 350 | 691 | 350 |
| Effect of lower tax rate on overseas losses | 297 | 270 | - | - |
| Share based payments | 60 | - | 38 | - |
| Provisions against Group borrowings | - | - | 1,482 | 841 |
| Other non-allowable items | 35 | 12 | 35 | 12 |
| Less tax effect of: | ||||
| Other deferred tax balances not recognised | (1,148) | (203) | (223) | (202) |
| Income tax expense | - | - | - | - |
| The applicable weighted average tax rates are as follows: | 0% | 0% | 0% | 0% |
| The following deferred tax balances have not been recognised | ||||
| Deferred Tax Assets | ||||
| At 30% | ||||
| Carry forward revenue losses | 2,246 | 1,041 | 1,732 | 1,041 |
| Carry forward foreign losses | 123 | 57 | 95 | 57 |
| Capital raising costs | 310 | 435 | 310 | 435 |
| Property, plant and equipment | - | - | - | - |
| Provisions and accruals | 9 | 6 | 9 | 6 |
| Other | 26 | - | 26 | - |
| 2,714 | 1,539 | 2,172 | 1,539 | |
| At 19% (United Kingdom) | ||||
| Carry forward overseas losses | 2,153 | 1,641 | - | - |
The tax benefits of the above deferred tax assets will only be obtained of:
(a) the Group derives future assessable income of a nature and amount sufficient to enable the benefits to be utilised;
(b) the Group continues to comply with the conditions for deductibility impoased by law; and,
(c) no changes in income tax legislation adversely affect the Group’s ability to utilise the benefits.
NOTES TO THE FINANCIAL STATEMENTS
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| Consolidated | Consolidated | Parent | ||
|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | |
| $’000 | $’000 | $’000 | $’000 | |
| Deferred tax liabilities | ||||
| At 30% | - | 791 | - | 791 |
The above deferred tax liabilities have not been recognised as they have given rise to the carry forward revenue losses for which no associated deferred tax asset has been recognised.
9 EARNINGS/ (LOSS) PER SHARE
| Consolidated | Consolidated | |
|---|---|---|
| 2008 | 2007 | |
| Basic / diluted loss per share | Cents | Cents |
| Loss attributable to the ordinary equity holders of the company | (5.0) | (4.3) |
| Loss used in calculation of basic / diluted loss per share | $’000 | $’000 |
| Loss | (6,414) | (3,085) |
| Weighted average number of ordinary shares used as the denominator | ||
| in calculating basic / diluted loss per share | 130,725,106 | 71,248,764 |
The options on issue (Note 23) and convertible notes (Note 19) represent potential ordinary shares but are not dilutive as they would decrease the loss per share. Accordingly they have been excluded from the weighted average number of ordinary shares and potential ordinary shares used in the calculation of diluted earnings per share.
NOTES TO THE FINANCIAL STATEMENTS
51
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10 BUSINESS COMBINATIONS
On 25 October 2007, Federal Court approval of the merger between Elixir and Gawler Resources Ltd (“Gawler”) was obtained and the merger became effective on 26 October 2007, pending the issue of the scheme consideration. Scheme consideration, being shares and options in Elixir, was issued to Gawler securities holders on 13 November 2007. In accordance with the requirement of AASB 3 – Business Combinations, the merger has been accounted for as an acquisition by Elixir.
Details of the purchase consideration and the fair value of assets and liabilities acquires are set out below:
(i) Purchase consideration
| Number | Fair Value per security | Fair value | ||
|---|---|---|---|---|
| $ | $’000 | |||
| Consideration | ||||
| Shares issued | 69,312,992 | 0.365 | 25,299 | |
| Options issued | 8,107,611 | 0.364 | 2,951 | |
| Plus Gawler shares and options already held, at cost: Shares | 12,487,500 | 0.2 | 2,498 | |
| Options | 12,487,500 | 0.01 | 125 | |
| Other costs of combination | ||||
| Advisor shares | 1,000,000 | 0.2 | 200 | |
| Advisory fees | 100 | |||
| Total costs of combination | 31,173 |
- (ii) Assets and liabilities acquired
| Acquiree’s carrying | Fair value | |
|---|---|---|
| amount | ||
| $’000 | $’000 | |
| Cash | 3,304 | 3,304 |
| Exploration and evaluation expenditure | 20,467 | 33,069 |
| Other assets | 101 | 101 |
| Trade creditors | (893) | (893) |
| Loan payables | (4,408) | (4,408) |
| Deferred tax liability | (3,098) | - |
| Net assets | 15,473 | 31,173 |
The acquired business contributed revenues of $9,120,000 and net losses of $1,687,000 to the Group for the year to 30 June 2008. If the acquisition had taken place at the beginning of the year, consolidated losses would have been increased by $1,111,000 to $7,525,000 and consolidated revenues would have been $235,000 higher. Net cash obtained on acquisition amounted to $3,304,000.
NOTES TO THE FINANCIAL STATEMENTS
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11 CASH AND CASH EQUIVALENTS
| Consolidated | Consolidated | Parent | ||
|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | |
| $’000 | $’000 | $’000 | $’000 | |
| Cash at bank and in hand | 4,765 | 428 | 984 | 53 |
| Deposits at call | 5,839 | 3,978 | 5,839 | 639 |
| Total cash and cash equivalents | 10,604 | 4,406 | 6,823 | 692 |
Cash at bank bears interest at market rate (floating). Short term deposits are made for varying periods of between one day and three months depending on forecast cash requirements of the Group and earn interest at the respective short term deposit rates.
12 TRADE AND OTHER RECEIVABLES
| Current | ||||
|---|---|---|---|---|
| Trade receivables | 3,122 | - | - | - |
| Other receivables and prepayments | 335 | 166 | - | 20 |
| Loans to other entities | 213 | 1,232 | - | 1,232 |
| Total current receivables | 3,670 | 1,398 | - | 1,252 |
| Non-current | ||||
| Receivables from subsidiaries | - | - | - | - |
| At cost | - | - | 19,582 | 14,641 |
| Less impairment writedown | - | - | (13,961) | (9,020) |
| - | - | 5,621 | 5,621 |
Trade and other receivables are non interest-bearing and are normally settled on 60 days terms. Amounts receivable from group entities are non interest bearing, with no fixed terms of repayment.
Of the amounts disclosed above, receivables of $213,000 are past due, but are not considered impaired. The amount relates to cash calls owed by joint venture partners in the Block SL-4 joint venture. The Company is pursuing repayment of this amount, which is not considered impaired as the Company has a number of potential contractual remedies to enforce repayment.
NOTES TO THE FINANCIAL STATEMENTS
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13 OTHER FINANCIAL ASSETS (CLASSIFIED AS AVAILABLE-FOR-SALE)
| Consolidated | Consolidated | Parent | ||
|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | |
| $’000 | $’000 | $’000 | $’000 | |
| Current | ||||
| Warrants in listed corporation at fair value | - | 221 | - | - |
| Non-current | ||||
| Shares in listed corporation at fair value | - | 4,408 | - | 4,408 |
14 INVESTMENTS IN SUBSIDIARIES
At cost - - 31,247 -
a) Wholly-owned Group
At balance date amounts receivable from controlled entities totalled $19,582,000 (at cost) (2007: $14,641,000). The transactions were made interest free with no fixed terms for repayment. Following recent guidance issued by the Australian Standards Board, this receivable has been included within the cost of investment in subsidiaries.
Details of interests in wholly-owned controlled entities are set out at part (b) of this note. Details of dealings with controlled entities are as follows:
Inter-company Account
Elixir Petroleum Limited provides working capital to its controlled entities. Transactions between Elixir Petroleum Limited and other controlled entities in the wholly owned Group during the year ended 30 June 2008 consisted of:
(i) Working capital advanced by Elixir Petroleum Limited
(ii) Provision of services by Elixir Petroleum Limited
(iii) Expenses paid by Elixir Petroleum Limited on behalf of its controlled entities.
The above transactions were made interest free with no fixed terms for the repayment of principal on the working capital advanced by Elixir Petroleum Limited.
NOTES TO THE FINANCIAL STATEMENTS
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b) Investments in Controlled Entities
| Name of Entity | Country of | Class | Parent Equity | holding |
|---|---|---|---|---|
| incorporation | of shares | |||
| 2008 | 2007 | |||
| Elixir Petroleum (Australia) Pty Ltd | ||||
| (formerly Gawler Resources Ltd) | Australia | Ordinary | 100% | 19.9% |
| Transition Resources Ltd (1) | Australia | Ordinary | 100% | - |
| Globe Resources Pty Ltd (1) | Australia | Ordinary | 100% | - |
| Elixir Petroleum (UK )Ltd | United Kingdom | Ordinary | 100% | 100% |
| Elixir Petroleum (RSL)Ltd (2) | United Kingdom | Ordinary | 100% | - |
| Cottesloe Oil & Gas, LLC (1) | USA | Ordinary | 100% | - |
| Cottesloe Oil & Gas, Inc (1) | USA | Ordinary | 100% | - |
(1) These companies were acquired as part of the Gawler acquisition detailed in note 10.
(2) This is a newly incorporated company.
c) Ultimate Parent Company
Elixir Petroleum Limited, a listed public company incorporated and domiciled in Australia is the parent entity, ultimate Australian parent and ultimate controlling party of the Group.
15 OIL & GAS PROPERTIES
| Consolidated | Consolidated | Parent | ||
|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | |
| $’000 | $’000 | $’000 | $’000 | |
| At cost | 41,113 | - | - | - |
| Less amortisation | (9,544) | - | - | - |
| 31,569 | - | - | - |
NOTES TO THE FINANCIAL STATEMENTS
55
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15 OIL & GAS PROPERTIES (CONT’D)
A reconciliation of movements in Oil & Gas Properties during the year is as follows:
| Tangible | Intangible | Total | |
|---|---|---|---|
| Costs | Costs | ||
| $’000 | $’000 | $’000 | |
| Producing Projects | |||
| At Cost | |||
| At 1 July 2007 | - | - | - |
| Acquired with subsidiary | 1,629 | 31,440 | 33,069 |
| Additions | 1,384 | 5,176 | 6,560 |
| Net movement in prepaid | - | - | - |
| Associated future restoration costs capitalised | |||
| At 1 July 2007 | - | - | - |
| Additions | - | 1,484 | 1,484 |
| At 30 June 2008 | 3,013 | 38,100 | 41,113 |
| Accumulated amortisation | |||
| At 1 July 2007 | - | - | - |
| Charge for the year | (700) | (8,844) | (9,544) |
| At 30 June 2008 | (700) | (8,844) | (9,544) |
| Net Book Value | |||
| At 1 July 2007 | - | - | - |
| At 30 June 2008 | 2,313 | 29,256 | 31,569 |
16 DEFERRED EXPLORATION & EVALUATION EXPENDITURE
| Consolidated | Consolidated | Parent | ||
|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | |
| $’000 | $’000 | $’000 | $’000 | |
| Opening balance | 1,803 | 1,942 | - | - |
| Capitalised expenditure during the year | 973 | 1,212 | - | - |
| Written-off during the year | (1,211) | (1,351) | - | - |
| Foreign exchange movements | (279) | - | - | - |
| 1,286 | 1,803 | - | - |
The ultimate recoupment of exploration expenditure carried forward is dependent on successful development and exploitation, or alternatively sale, or the respective area of interest.
NOTES TO THE FINANCIAL STATEMENTS
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17 PLANT AND EQUIPMENT
| Consolidated | Consolidated | Parent | ||
|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | |
| $’000 | $’000 | $’000 | $’000 | |
| Plant and equipment | ||||
| At cost | 14 | 61 | - | - |
| Additions | 8 | - | - | - |
| Accumulated depreciation | (11) | (47) | - | - |
| Foreign exchange movement | (1) | - | - | - |
| 10 | 14 | - | - |
18 CURRENT LIABILITIES – TRADE AND OTHER PAYABLES
| Trade payables (i) | 2,441 | 207 | 478 | 17 |
|---|---|---|---|---|
| Shares to be issued (ii) | 518 | - | 518 | - |
| Other payables (iii) | 24 | 107 | 24 | 21 |
| 2,983 | 314 | 1,020 | 38 |
(i) Trade payables are non interest-bearing and are normally settled on 45 day terms.
(ii) Shares to be issued relate to proceeds from acceptances under the Company’s 1 for 8 entitlement offer announced on 29 May 2008 which had been received as at balance date.
(iii) Other payables are non interest-bearing and are normally settled on 45 day terms.
19 BORROWINGS
| Parent | & Group | Parent | & Group | |
|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | |
| $’000 | $’000 | Number | Number | |
| Convertible notes | 3,000 | - | 8,571,429 | - |
On 1 February 2008 the Company issued 8,571,429 convertible notes to raise $3,000,000 before associated costs. The notes are unsecured, have a conversion price of $0.35 per share, accrue interest at 10% on face value and are convertible at any time on or before 31 December 2008 or are redeemable at face value plus interest on 31 January 2009. The fair value of these borrowings is equal to their carrying value of $3,000,000.
NOTES TO THE FINANCIAL STATEMENTS
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20 PROVISIONS
| Consolidated | Consolidated | Parent | Parent | ||
|---|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | ||
| $’000 | $’000 | $’000 | $’000 | ||
| Provision for decommissioning costs | 1,484 | - | - | - | |
| The Group’s policies with regard to providing for its share of future restoration costs for jointly | controlled assets | is | |||
| documented in note 1(m). Movements in this provision during the current and prior year are | as follows: | ||||
| Opening balance | - | - | - | - | |
| Recognised on project acquisition or commencement | 1,484 | - | - | - | |
| Closing balance | 1,484 | - | - | - | |
| 21 CONTRIBUTED EQUITY | |||||
| Share capital | |||||
| Fully paid ordinary shares | 181,117,922 72,224,791 | 58,609 | 22,500 |
Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of shares held. On a show of hands every holder of ordinary shares present at a meeting or by proxy, is entitled to one vote. Upon a poll every holder is entitled to one vote per share held.
Movements in share capital during the current and prior financial year are as follows:
| Date | Number of shares | Issue Price | $’000 | |
|---|---|---|---|---|
| Opening balance | 01 Jul 06 | 70,224,791 | 22,120 | |
| Exercise of options | 07 Jul 06 | 750,000 | 0.200 | 150 |
| Exercise of options | 05 Dec 06 | 250,000 | 0.200 | 50 |
| Exercise of options | 17 Jan 07 | 250,000 | 0.200 | 50 |
| Exercise of options | 11 May 07 | 250,000 | 0.200 | 50 |
| Exercise of options | 30 Jun 07 | 500,000 | 0.200 | 100 |
| Less: transaction costs | (20) | |||
| Balance | 30 Jun 07 | 72,224,791 | 22,500 | |
| Conversion of convertible notes | 09 Nov 07 | 10,700,000 | 0.250 | 2,675 |
| Issued as consideration | ||||
| to acquire Gawler (at Fair Value) | 14 Nov 07 | 69,312,992 | 0.365 | 25,299 |
| Issued to advisors | 21 Nov 07 | 1,000,000 | 0.200 | 200 |
| Exercise of options | 08 Feb 08 | 7,880,139 | 0.001 | 8 |
| Transfer from option premium reserve | ||||
| upon exercise of options | 08 Feb 08 | 2,868 | ||
| Placement | 10 Jun 08 | 20,000,000 | 0.270 | 5,400 |
| Less: transaction costs | (341) | |||
| Closing balance | 30 Jun 08 | 181,117,922 | 58,609 |
NOTES TO THE FINANCIAL STATEMENTS
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The Group’s and the parent entity’s objectives when managing capital are to safeguard their ability to continue as going concerns, so that they can provide returns for shareholders and benefits for other stakeholders and maintain a capital structure appropriate to the size, stage and nature of their activities whilst reducing the cost of capital where possible.
In order to maintain or adjust the capital structure, the Group may issue new shares, adjust future dividend payments, return capital to shareholders or sell assets.
The Group currently has external debt in the form of convertible notes (currently $3,000,000; 2007: nil), and may seek to increase gearing levels in the future as it increases its reserve base.
22 RESERVES AND ACCUMULATED LOSSES
| Consolidated | Consolidated | Parent | Parent | |
|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | |
| $’000 | $’000 | $’000 | $’000 | |
| Option premium reserve | ||||
| Balance 1 July | 1,690 | 1,690 | 1,690 | 1,690 |
| Options granted during the year | 3,151 | - | 3,151 | - |
| Options exercised during the year | (2,868) | - | (2,868) | - |
| Balance 30 June | 1,973 | 1,690 | 1,973 | 1,690 |
| Foreign currency translation reserve | ||||
| Balance 1 July | (55) | 529 | - | - |
| Net foreign exchange gain/(loss) on consolidation | (455) | (584) | - | - |
| Balance 30 June | (510) | (55) | - | - |
| Financial assets reserve | ||||
| Balance 1 July | 1,786 | (232) | 1,786 | - |
| Transfer to cost of investment upon acquisition | ||||
| of Gawler Resources Ltd | (1,786) | - | (1,786) | - |
| Transfer to retained earnings on disposal of asset | - | 232 | - | - |
| Revaluation to market value of listed shares held | - | 1,786 | - | 1,786 |
| Balance 30 June | - | 1,786 | - | 1,786 |
| Accumulated losses | ||||
| Balance 1 July | (13,986) | (10,901) | (14,041) | (10,604) |
| Net loss for the year | (6,414) | (3,085) | (6,869) | (3,437) |
| Balance 30 June | 20,400 | (13,986) | (20,910) | (14,041) |
The option premium reserve is used to record the fair value of share-based payments as well as any premium received upon grant of options.
The foreign currency translation reserve is used to record exchange differences arising on consolidation of subsidiaries with different functional currencies from the Parent Company.
The financial assets reserve is used to record changes in the fair value of available-for-sale financial assets.
With respect to the payment of dividends (if any) by Elixir Petroleum Limited in subsequent financial years, no franking credits are currently available, or are likely to become available in the next 12 months.
NOTES TO THE FINANCIAL STATEMENTS
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23 OPTIONS
As at balance date, the Company and Consolidated Entity has the following classes of options on issue:
| Type | 2008 | 2007 | Exercise Price | Expiry |
|---|---|---|---|---|
| Number | Number | ($) | ||
| Ambrian Options (EXRAO) | 637,148 | 637,148 | 0.600 | 16-May-10 |
| ESOP Tranche 1 (EXRAI) | 2,000,000 | - | 0.250 | 31-Mar-11 |
| ESOP Tranche 2 (EXRAI) | 3,250,000 | - | 0.300 | 31-Mar-12 |
| ESOP Tranche 3 (EXRAI) | 2,750,000 | - | 0.350 | 31-Mar-13 |
| Granby Performance (EXRAM) | - | 4,625,000 | 0.500 | 31-Dec-07 |
| Hunter Farmout (EXRAS) | - | 500,000 | 1.000 | 31-Dec-07 |
| Hunter Discovery (EXRAZ) | - | 10,000,000 | 0.740 | 31-Dec-07 |
| Director Incentive (EXRAY) | - | 2,500,000 | 0.900 | 5-Oct-07 |
| Director Incentive (EXRAY) | - | 1,000,000 | 0.900 | 31-Dec-07 |
| Director Incentive (EXRAY) | - | 2,500,000 | 1.300 | 5-Oct-07 |
| Director Incentive (EXRAY) | - | 1,000,000 | 1.300 | 31-Dec-07 |
| Director Incentive (EXRAY) | - | 250,000 | 1.000 | 31-Dec-07 |
| Placement Options (EXRAY) | - | 1,000,000 | 0.500 | 31-Dec-07 |
| RFC Options (EXRAQ) | - | 500,000 | 0.900 | 16-May-08 |
| 8,637,148 | 24,512,148 |
The options are not listed and carry no dividend or voting rights. Upon exercise, each option is convertible into one ordinary share to rank pari passu in all respects with the Company’s existing fully paid ordinary shares.
NOTES TO THE FINANCIAL STATEMENTS
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annual report 2008
Movements in the number of options on issue during the year are as follows:
| Date | Number | |
|---|---|---|
| At 1 July | 24,512,148 | |
| Granted during the year | ||
| Gawler consideration options (EXRAK) | 14-Nov-07 | 8,107,611 |
| ESOP Tranche 1 (EXRAI) | 26-Jun-08 | 2,000,000 |
| ESOP Tranche 2 (EXRAI) | 26-Jun-08 | 3,250,000 |
| ESOP Tranche 3 (EXRAI) | 26-Jun-08 | 2,750,000 |
| Exercised during the year | ||
| Gawler consideration options (EXRAK) | 8-Feb-08 | (7,880,139) |
| Expired during the year | ||
| Granby Performance (EXRAM) | 31-Dec-07 | (4,625,000) |
| Hunter Farmout (EXRAS) | 31-Dec-07 | (500,000) |
| Hunter Discovery (EXRAZ) | 31-Dec-07 | (10,000,000) |
| Director Incentive (EXRAY) | 5-Oct-07 | (2,500,000) |
| Director Incentive (EXRAY) | 31-Dec-07 | (1,000,000) |
| Director Incentive (EXRAY) | 5-Oct-07 | (2,500,000) |
| Director Incentive (EXRAY) | 31-Dec-07 | (1,000,000) |
| Director Incentive (EXRAY) | 31-Dec-07 | (250,000) |
| Placement Options (EXRAY) | 31-Dec-07 | (1,000,000) |
| RFC Options (EXRAQ) | 16-May-08 | (500,000) |
| Gawler consideration options (EXRAK) | 5-Feb-08 | (227,472) |
| At 30 June | 8,637,148 |
NOTES TO THE FINANCIAL STATEMENTS
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24 SHARE-BASED PAYMENT
Employee Share Option Plan
The grant of up to 15,000,000 options under the Elixir Employee Share Option Plan (“Plan”) was approved by shareholders at a general meeting held on 26 June 2008. Under the terms of the Plan the Board may offer options to eligible persons (as determined by the Board) at such times and on such times as the Board considers appropriate.
The fair value of options granted (see note above) during the year was calculated using the binomial option pricing model. Expense has been apportioned pro-rata to reporting periods when vesting periods apply.
The weighted average fair value of options granted during the year was $0.11 per option (2007: n/a), no options were forfeited during the year. Key inputs to the model used in the calculation were as follows (see also Directors’ Report).
| ESOP | ESOP | ESOP | ||
|---|---|---|---|---|
| Tranche 1 | Tranche 2 | Tranche 3 | ||
| EXRAI | EXRAI | EXRAI | ||
| 2008 | Grant date*: | 26-Jun-08 | 26-Jun-08 | 26-Jun-08 |
| Expected price volatility | 70% | 70% | 70% | |
| Exercise price | $0.25 | $0.30 | $0.35 | |
| Expiry Date | 31-Mar-11 | 31-Mar-12 | 31-Mar-13 | |
| Share price at grant date | $0.26 | $0.26 | $0.26 |
*In accordance with AASB2, Grant Date for accounting purposes has been deemed to be the date shareholders approved the grants of options under the Plan, rather than the actual dates of Offer and Acceptance under the Plan.
Vesting terms for the options granted under the Plan were as follows:
Tranche 1 - Not exercisable until 1 July 2008 Tranche 2 - Not exercisable until 31 March 2009 Tranche 3 - Not exercisable until 31 March 2010
NOTES TO THE FINANCIAL STATEMENTS
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25 RECONCILIATION OF LOSS AFTER INCOME TAX TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES
| Consolidated | Consolidated | Parent | ||
|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | |
| $’000 | $’000 | $’000 | $’000 | |
| Operating loss after tax | (6,414) | (3,085) | (6,869) | (3,437) |
| Non-cash items | ||||
| Impairment written down of investment in controlled entities | - | - | 4,941 | 2,803 |
| Depreciation, depletion & amortisation | 9,555 | 20 | - | - |
| Exploration & evaluation costs written down | 1,211 | 1,352 | - | - |
| Share-based payment | 200 | - | 126 | - |
| Unrealised foreign exchange (gains)/losses | - | 72 | - | - |
| Non-operating cashflows | ||||
| Finance costs | 409 | 7 | 409 | 1 |
| Underwriting fee | 134 | - | - | - |
| Fair value of share warrants | - | 88 | - | - |
| Interest income | (169) | (455) | (93) | (175) |
| Gains on sale of shares | - | (230) | - | - |
| Movement | ||||
| Increase / (decrease) in current liabilities | 1,048 | (303) | 467 | (1) |
| (Increase) / decrease in current assets | (3,412) | 104 | 20 | 25 |
| Drilling costs netted against revenue | (1,224) | - | - | - |
| Net cash inflow (outflow) from operating activities | 1,338 | (2,430) | (999) | (784) |
26 JOINTLY CONTROLLED ASSETS
At the balance date, the Group has working interests in joint operating agreements for the following projects:
| Project | Blocks | Activity | Location | Working |
|---|---|---|---|---|
| interest | ||||
| High Island Project | 268A | Oil & Gas field, production project | USA | 30% |
| Pompano Project | 446-L SE/4 | Oil & Gas field, production project | USA | 25% |
| Red Fish Prospect | 479-L N/2 & NE/4 | Oil & Gas, exploration project | USA | 25% |
| Block SL-4 | SL-4 | Oil & Gas, exploration project | Sierra Leone | 15% |
| Mulle Prospect | 211/22b | Oil & Gas, appraisal project | UK | 40% |
| Leopard Prospect | 211/18b | Oil & Gas, exploration project | UK | 56% |
| Bobcat Prospect | 21/16b | Oil & Gas, exploration project | UK | 40% |
| Fat Cat Prospect | 13/25 | Oil & Gas, exploration project | UK | 12.5% |
Details of capital commitments in respect of these jointly controlled assets are disclosed in note 33.
NOTES TO THE FINANCIAL STATEMENTS
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27 KEY MANAGEMENT PERSONNEL DISCLOSURES
a) The directors of Elixir Petroleum Limited during the year were:
2008
Mr Jonathan Stewart - Chairman (Appointed 12 November 2007)
Mr Andrew Ross - Managing Director (Appointed 12 November 2007)
Mr Iain Knott - Executive Director
Mr Trevor Benson - Non-Executive Director (Appointed 12 November 2007)
Mr John Robertson - Non-Executive Director
Mr Russell Langusch - Managing Director (Resigned 29 November 2007)
Mr Kent Hunter - Non-Executive Director (Resigned 12 November 2007)
2007
Mr John Robertson - Non-Executive Chairman
Mr Russell Langusch - Managing Director
Mr Iain Knott - Executive Director
Mr Kent Hunter - Non-Executive Director
Mr Angus MacAskill - Executive Director (Resigned 1 September 2006)
b) Other key management personnel
Mr Alex Neuling – Chief Financial Officer & Company Secretary
c) Key management personnel compensation
| Consolidated | Consolidated | Parent | ||
|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | |
| $’000 | $’000 | $’000 | $’000 | |
| Short term employee benefits | 1,026 | 890 | 159 | 24 |
| Post-employment benefits | 11 | 2 | 11 | 2 |
| Share-based payments | 200 | - | 101 | - |
| 1,237 | 892 | 271 | 26 |
NOTES TO THE FINANCIAL STATEMENTS
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d) Equity instrument disclosures relating to Key Management Personnel
Option holdings
The number of options over ordinary shares in the Company held during the financial year by each director of Elixir Petroleum Limited and other Key Management Personnel of the Group, including their personally related parties, are set out below.
| Balance at | Granted as Exercised during | Granted as Exercised during | Net other | Balance at | Vested and | |
|---|---|---|---|---|---|---|
| 1 July | compensation | the year | change | 30 June | exercisable | |
| at 30 June | ||||||
| 2008 | ||||||
| Directors | ||||||
| Current | ||||||
| Jonathan Stewart | - | 2,500,000 | - | - | 2,500,000 | - |
| Andrew Ross | - | 2,500,000 | - | - | 2,500,000 | - |
| Iain Knott | 2,000,000 | 2,500,000 | - | (2,000,000) | 2,500,000 | - |
| Trevor Benson | - | 250,000 | - | - | 250,000 | - |
| John Robertson | 250,000 | 250,000 | - | (250,000) | 250,000 | - |
| Former | ||||||
| Russell Langusch* | 3,000,000 | - | - | (3,000,000) | - | - |
| Kent Hunter** | - | - | - | - | - | - |
| Other executives | ||||||
| Alex Neuling | - | - | - | - | - | - |
| Total | 5,250,000 | 8,000,000 | - | (5,250,000) | 8,000,000 | - |
| 2007 | ||||||
| Directors | ||||||
| Current | ||||||
| Russell Langusch | 3,500,000 | - | (500,000) | - | 3,000,000 | 3,000,000 |
| Kent Hunter | 125,000 | - | (125,000) | - | - | - |
| Iain Knott | 2,000,000 | - | - | - | 2,000,000 | 2,000,000 |
| John Robertson | 250,000 | - | - | - | 250,000 | 250,000 |
| Former | ||||||
| Angus MacAskill*** | 2,000,000 | - | - | (2,000,000) | - | - |
| 7,875,000 | - | (625,000) | (2,000,000) | 5,250,000 | 5,250,000 |
- Mr Langusch resigned as a director on 29 November 2007
** Mr Hunter resigned as a director on 12 November 2007
*** Mr MacAskill resigned as a director on 1 September 2006
Details of options provided as remuneration and shares issued on exercise of such options, together with the terms and conditions of the options, can be found in the section of the Directors’ Report headed “Remuneration Report”.
NOTES TO THE FINANCIAL STATEMENTS
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27 KEY MANAGEMENT PERSONNEL DISCLOSURES (CONT’D)
Share holdings
The numbers of shares in the Company held during the financial year by each director of Elixir Petroleum Limited and other Key Management Personnel of the Group, including their personally related parties, are set out below. There were no shares granted during the reporting period as compensation.
| Balance at | Initial held Exercised during |
Initial held Exercised during |
Net other | Balance when | Balance | ||
|---|---|---|---|---|---|---|---|
| 1 July | when appointed | the year | change | ceased to | at 30 June | ||
| be director | |||||||
| 2008 | |||||||
| Directors | |||||||
| Current | |||||||
| Jonathan Stewart* | - | 250,000 | - | - | - | 250,000 | |
| Andrew Ross | - | 35,000 | - | - | - | 35,000 | |
| Iain Knott | - | - | - | - | - | - | |
| Trevor Benson | - | - | - | - | - | - | |
| John Robertson | 400,000 | - | - | - | - | 400,000 | |
| Former | |||||||
| Russell Langusch** | 750,000 | - | - | - | 750,000 | - | |
| Kent Hunter*** | 375,000 | - | - | 375,000 | - | ||
| Other executives | |||||||
| Alex Neuling | - | - | - | - | - | - | |
| 1,525,000 | 285,000 | - | - | 1,125,000 | 685,000 | ||
| 2007 | |||||||
| Directors | |||||||
| Current | |||||||
| Russell Langusch | 250,000 | - | 500,000 | - | - | 750,000 | |
| Kent Hunter | 250,000 | - | 125,000 | - | - | 375,000 | |
| Iain Knott | - | - | - | - | - | - | |
| John Robertson | 400,000 | - | - | - | - | 400,000 | |
| Former | |||||||
| Angus MacAskill**** | - | - | - | - | - | - | |
| 900,000 | - | 625,000 | - | - | 1,525,000 |
-
The holding above excludes the 24,000,000 shares held by Aurora Oil & Gas Ltd (ASX:AUT). Mr Stewart is chairman of Aurora Oil & Gas Ltd, but this entity is not a related party under the Corporations Act.
-
** Mr Langusch resigned as a director on 29 November 2007
-
*** Mr Hunter resigned as a director on 12 November 2007
-
**** Mr MacAskill resigned as a director on 1 September 2006
NOTES TO THE FINANCIAL STATEMENTS
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28 RELATED PARTY TRANSACTIONS
Transactions with controlled entities are disclosed in note 14. Compensation and equity transaction with Key Management Personnel are disclosed in note 27 and in the section of the Directors’ Report headed “Remuneration Report”.
Details of other transactions with related parties during the current and prior financial year are set out below:
| Consolidated | Consolidated | Parent | |||||
|---|---|---|---|---|---|---|---|
| Note | 2008 | 2007 | 2008 | 2007 | |||
| $ | $ | $ | $ | ||||
| Payments for services | (i) | 94,184 | - | 94,184 | - | ||
| 94,184 | - | 94,184 | - |
(i) During the year an amount of $94,184 was paid on commercial terms for office accommodation (rental & outgoings), car parking & office equipment to Epicure Administration Pty Ltd, a company of which Mr Jonathan Stewart, Chairman, is also a director and beneficial shareholder (2007: Nil).
29 DEED OF CROSS GUARANTEE
Elixir Petroleum Limited and Elixir Petroleum (Australia) Ltd (formerly Gawler Resources Ltd) are parties to a deed of cross guarantee under which each company guarantees the debts of the others. By entering into the deed, the wholly-owned entities have been relieved from the requirement to prepare a financial report and directors’ report underclass Order 98/1418 (as amended) issued by the Australian Securities and Investments Commission.
a) Consolidated income statements and a summary of movements in consolidated retained earnings
The above companies represent a “Closed Group” for the purposes of the Class Order, and as there are no other parties to the Deed of Cross Guarantee that are controlled by Elixir Petroleum Limited, they also represent the “Extended Closed Group”.
NOTES TO THE FINANCIAL STATEMENTS
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29 DEED OF CROSS GUARANTEE (CONT’D)
Set out below is a consolidated income statement and a summary of movements in consolidated retained earnings for the year ended 30 June 2008 of the Closed Group consisting of Elixir Petroleum Limited and Elixir Petroleum (Australia) Ltd (formerly Gawler Resources Ltd).
Income Statement for the year ended 30 June
| Closed Group | |
|---|---|
| 2008 | |
| $’000 | |
| General & administrative Costs | (1,507) |
| Share based payment expenses | (126) |
| EBITDAX | (1,633) |
| Exploration & evaluation costs written off | (11) |
| Provision against loans to Elixir Group companies (outside the Closed | |
| Group / Extended Closed Group) | (4,995) |
| EBIT | (6,639) |
| Finance income | 102 |
| Finance costs | (409) |
| Loss before income tax | (6,946) |
| Income tax expense / benefit | - |
| Net loss attributable to members of Closed Group | (6,946) |
| Movement in accumulated losses for the year end 30 June | |
| Elixir Petroleum Ltd accumulated losses at 1 July 2007 | (14,041) |
| Net loss of Closed Group for the year to 30 June 2007 | (6,946) |
| Closed Group accumulated losses as at 30 June 2008 | (20,987) |
NOTES TO THE FINANCIAL STATEMENTS
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| Balance Sheet as at 30 June | |
|---|---|
| Closed Group | |
| 2008 | |
| $’000 | |
| Assets | |
| Current assets | |
| Cash and cash equivalents | 7,877 |
| Trade and other receivables | - |
| Other financial assets | - |
| Total current assets | 7,877 |
| Non-current assets | |
| Receivables | 12,913 |
| Investment in subsidiaries | 22,828 |
| Total non-current assets | 35,742 |
| Total assets | 43,618 |
| Liabilities | |
| Current liabilities | |
| Trade and other payables | 1,023 |
| Borrowings | 3,000 |
| Total liabilities | 4,023 |
| Net assets | 39,595 |
| Equity | |
| Contributed equity | 58,609 |
| Reserves | 1,973 |
| Accumulated losses | (20,987) |
| Total parent entity interest in equity | 39,595 |
NOTES TO THE FINANCIAL STATEMENTS
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30 REMUNERATION OF AUDITOR’S
During the year the following fees were paid or payable for services provided by the auditor of the Parent Entity, its related practices and non-related audit firms:
| Consolidated | Consolidated | Parent | Parent | |
|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | |
| $ | $ | $ | $ | |
| Mack & Co for: | ||||
| - an audit or review of financial reports and other | ||||
| audit work under the_Corporations Act 2001_ | 48,500 | 25,500 | 48,500 | 25,500 |
| MacIntyre Hudson LLP for: | ||||
| - an audit of UK subsidiary accounts | 31,597 | 42,427 | - | - |
| Total remuneration for audit services | 80,097 | 67,927 | 48,500 | 25,500 |
31 FINANCIAL RISK MANAGEMENT
Elixir’s board of directors (Board) performs the duties of a risk management committee in identifying and evaluating sources of financial and other risks. The Board seeks to balance the potential adverse effects of financial risks on Elixir’s financial performance and position with the “upside” potential made possible by exposure to these risks and by taking into account the costs and expected benefits of the various methods available to manage them.
AASB 132 Financial Instruments Presentation and Disclosure requires the disclosure of information to assist users of the financial report in assessing the extent of risks related to financial instruments faced by the Group. These risks include financial risks such as market risks (including currency risk, fair value interest rate risk and commodity price risk), credit risk & liquidity risk. These disclosures are not nor are they intended to be an exhaustive list of risks to which Elixir is exposed.
a) Market risk
(i) Commodity price risk
As a result of its operations the Group is exposed to commodity price risk arising due to fluctuations in the prices of natural gas and crude oil. The demand for, and prices of, natural gas and crude oil are dependent on a variety of factors, including:
-
Supply and demand;
-
The level of consumer product demand;
-
Weather conditions;
-
The price and availability of alternative fuels;
-
Actions taken by governments and international cartels; and,
-
Global economic and political developments.
NOTES TO THE FINANCIAL STATEMENTS
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As at balance date, the board has formed the view that it would not be beneficial for the Group to purchase forward contracts or other derivative financial instruments to hedge this commodity price risk. Factors which the board considered in arriving at this position included the expense of purchasing such instruments and the inherent difficulties associated with forecasting future production levels while the Group is primarily at the development stage of realising the value of its oil & gas assets. As development of these assets progresses and it becomes possible to forecast future production levels with a greater degree of certainty, the board may reconsider its position with regard to hedging against commodity price risk in the future.
(ii) Foreign exchange risk
Elixir’s principal office is based in Australia, its shares are listed on the Australian Stock Exchange and London AIM market and the Consolidated Entity reports its financial performance and position in Australian dollars (A$). The Group maintains a UK office and, as its activities are focussed in the oil & gas exploration, development and production sector, it also has significant United States dollar (US$) denominated cashflows. As a result of these factors, the Group is exposed to foreign exchange risk arising from fluctuations in the AU$ / US$ and AU$ / £ exchange rates.
As at balance date, the board has formed the view that it would not be beneficial for the Group to purchase forward contracts or other derivative financial instruments to hedge this foreign exchange risk. Factors which the board considered in arriving at this position included: The expense of purchasing such instruments; the inherent difficulties associated with forecasting the timing and quantum of US$ cash inflows and outflows at a time when the Consolidated Entity is primarily at the development stage of realising the value of its oil & gas assets and the possibility that these assets may be project–financed in US$ once development has progressed sufficiently. The board may reconsider its position with regard to hedging against foreign exchange risk in the future as the Group’s activities evolve and / or in response to industry or macro-economic factors.
The Group’s exposure to foreign currency risk at the reporting date was as follows:
| 2008 | 2007 | |||
|---|---|---|---|---|
| US$’000 | £’000 | US$’000 | £’000 | |
| Cash | 2,869 | 232 | 1,011 | 1,068 |
| Trade Receivables and Other Receivables | 3,204 | 161 | - | 83 |
| Trade Payables | (1,047) | (365) | - | (139) |
Group sensitivity
Based on the financial instruments held at reporting date, with all other variables assumed to be held constant, the table below sets out the notional effect on consolidated loss after tax for the year and equity at reporting date under varying hypothetical fluctuations in prevailing exchange rates:
| Consolidated | Consolidated | |
|---|---|---|
| 2008 | 2007 | |
| $’000 | $’000 | |
| Hypothetical 10% strengthening of AU$ relative to US$ and £ | ||
| Increase / (decrease) in loss after tax | 481 | 325 |
| Hypothetical 10% weakening of AU$ relative to US$ and £ | ||
| Increase / (decrease) in loss after tax | (588) | (398) |
NOTES TO THE FINANCIAL STATEMENTS
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31 FINANCIAL RISK MANAGEMENT (CONT’D)
(iii) Interest rate risk
As at and during the year ended on balance date the Group had no significant interest-bearing assets or liabilities other than liquid funds on deposit and convertible notes (fixed rate). As such, the Group’s income and operating cash flows (other than interest income from funds on deposit) are substantially independent of changes in market interest rates. The Group’s exposure to interest rate risk and the effective weighted average interest rate for each class of financial assets and liabilities is set out below.
| Consolidated | Consolidated | Parent | ||
|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | |
| $’000 | $’000 | $’000 | $’000 | |
| Financial Assets | ||||
| Cash assets Floating rate* | 10,604 | 4,406 | 6,823 | 692 |
Weighted average effective interest rate 6.3% (2007: 4.9%).
Group and Parent Company sensitivity
Based on the financial instruments held at reporting date, with all other variables assumed to be held constant, the table below sets out the notional effect on consolidated loss after tax for the year and equity at reporting date under varying hypothetical changes in prevailing interest rates:
| Hypothetical 80 basis point increase | ||||
|---|---|---|---|---|
| Increase / (decrease) in loss after tax | (85) | (35) | (55) | (6) |
| Hypothetical 80 basis point decrease | ||||
| Increase / (decrease) in loss after tax | 85 | 35 | 55 | 6 |
b) Credit risk
The Group seeks to trade only with recognised, trustworthy third parties and it is the Group’s policy to perform credit verification procedures in relation to any customers wishing to trade on credit terms with the Group.
Notwithstanding the above, the Group is exposed to level of credit risk arising from the fact that a large proportion of its receivables and non-current oil & gas assets relate to its interests in projects operated by private companies.
The Board are of the opinion that the credit risk arising as a result of this concentration of the Group’s assets is more than offset by the potential benefits to be gained through continuing to build on the Group’s relationship with the operators of its existing projects.
Other than as disclosed in Note 1(a) and Note 33 in relation to SL-4 Joint Venture, the maximum exposure to credit risk at the reporting date is the carrying amount of the assets as summarised below, none of which are impaired or past due. The Group has a number of recourse options available in the event of counterparty default, including but not limited to de facto security over jointly held assets.
NOTES TO THE FINANCIAL STATEMENTS
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annual report 2008
| Consolidated | Consolidated | Parent | ||
|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | |
| $’000 | $’000 | $’000 | $’000 | |
| Trade receivables | 3,670 | 1,397 | - | 1,252 |
| Total | 3,670 | 1,397 | - | 1,252 |
c) Liquidity risk
Prudent liquidity management involves the maintenance of sufficient cash, marketable securities, committed credit facilities and access to capital markets. It is the policy of the board to ensure that the Group is able to meet its financial obligations and maintain the flexibility to pursue attractive investment opportunities through keeping committed credit lines available where possible, ensuring the Group has sufficient working capital and preserving the 15% share issue limit available to the Company under the ASX Listing Rules.
Maturities of financial liabilities
Group - As at reporting date the Group had total financial liabilities of $5,983,171 (2007: $314,307), comprised of convertible notes maturing on 31 December 2008 (refer to note 19), non interest-bearing trade creditors and accruals with a maturity of less than 6 months.
Parent Company - As at reporting date the Parent Company had total financial liabilities of $4,019,548 (2007: $38,037), comprised of convertible notes, non interest-bearing trade creditors and accruals with a maturity of less than 6 months.
d) Net fair value
The carrying amount of financial assets and liabilities recorded in the financial statements approximate their fair value as at 30 June 2008.
32 SUBSEQUENT EVENTS
Completion of Entitlement Issue and Placement of Shortfall Shares
On 2 July 2008 the Company announced that acceptances under its 1 for 8 entitlement offer announced on 29 May 2008 (“Rights Issue”) had closed, that valid acceptances for 1,950,550 shares had been received and these shares were subsequently allotted and issued. The Company further advised that agreements whereby the Rights Issue was fully underwritten had been terminated by the underwriters following movements in the ASX Small Ordinaries Index, which had fallen by more than the trigger amount of 10%. A further 5,920,000 shares out of the Rights Issue Shortfall were subsequently placed by the Directors to raise a further $1,598,400 before costs.
Commencement of Drilling Operations at Well-3 at Pompano
On 22 September 2008 the Company announced that a rig had arrived on site and was preparing to drill the third development well at Pompano. The well has subsequently been spudded.
NOTES TO THE FINANCIAL STATEMENTS
73
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32 SUBSEQUENT EVENTS (CONT’D)
Block SL-4 Offshore Sierra Leone
On 26 September 2008 the Company announced that it had issued a notice of default to Prontinal Limited, its joint venture partner in Block SL-4. The notice of default relates to the failure on the part of Prontinal to meet outstanding payments with respect to the 3D seismic acquisition project which was recently concluded over the licence. As a result of Prontinal’s default, a letter of demand has been received by a subsidiary of Elixir from the seismic contractor in relation to the unpaid amount of approximately US$9 million. This matter is disclosed in further detail in note 1 (a) and note 33 to the Financial Statements,
33 COMMITMENTS & CONTINGENCIES
The Consolidated Entity has no contingent assets or liabilities at balance date and has no firm contractual commitments for expenditure not reflected in the financial statements other than:
| Consolidated | Consolidated | Parent | ||
|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | |
| $’000 | $’000 | $’000 | $’000 | |
| Capital commitments | ||||
| Within one year | 1,400 | - | - | - |
| Total | 1,400 | - | - | - |
| Non-cancellable operating lease commitments | ||||
| Within one year | 54 | 63 | - | - |
| More than one year but less than five years | 79 | - | - | - |
| Total | 133 | 63 | - | - |
The Company’s UK subsidiary Elixir Petroleum (UK) Limited (“Elixir UK”) has entered into a five year lease on new business premises. The lease allowed for a three month rent-free period, the benefit of which is spread over the term of the lease.
Block SL-4
As disclosed also in Note 1(a), Elixir UK has issued a notice of default to Prontinal Limited (“Prontinal”), its joint venture partner in Block SL-4 offshore Sierra Leone. The notice of default relates to the failure on the part of Prontinal to meet outstanding payments with respect to the seismic acquisition project. The agreements between Elixir UK and Prontinal require Prontinal to meet the costs of the seismic acquisition project. As a result of Prontinal’s default, letters of demand have been received by the Joint Venture participants from the seismic contactor in relation to the unpaid amount. The unpaid amount is alleged by the seismic contractor to be in the region of US$9,000,000. Elixir is seeking clarification in relation to the letter of demand and is also seeking legal advice on its position with respect to the alleged debt.
Elixir understands that Prontinal is in negotiations with third party funding sources to secure the necessary funds to meet its outstanding obligations and future foreseeable commitments with respect to Block SL-4. Elixir is endeavouring to work with Prontinal to seek the timely resolution of these issues and has been advised that arrangements to resolve these matters are advanced.
In the event that Prontinal meets its obligations, Elixir UK will be required to reimburse its working interest share of the amount paid. An estimate of this amount is included within the amount disclosed as “capital commitments due within one year” in the table above.
NOTES TO THE FINANCIAL STATEMENTS
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Should Prontinal ultimately be unable to meet its obligations and remedy the default with regard to Block SL-4, ownership of the equity in the licence held by Prontinal would, at Elixir UK ‘s election, revert to it and Elixir UK would have a claim for damages against Prontinal.
The Directors consider that any claim that may be made by the seismic contractor against Elixir UK in respect of the unpaid amount is without merit. Notwithstanding this, there is a risk that Elixir UK could be found to be liable for some or all of the unpaid amount.
34 DISCONTINUED OPERATIONS
No operations were discontinued during the current financial year.
35 DIVIDENDS
No dividends have been proposed or paid during the year (2007: Nil).
NOTES TO THE FINANCIAL STATEMENTS
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CORPORATE GOVERNANCE STATEMENT
INTRODUCTION
Elixir Petroleum Limited (“Company”) has adopted systems of control and accountability as the basis for the administration of corporate governance. Some of these policies and procedures are summarised below.
The following additional information about the Company’s corporate governance practices is set out on the Company’s website at www.elixirpetroleum.com:
-
Corporate governance disclosures and explanations;
-
Statement of Board and Management Functions;
-
Nomination Committee Charter;
-
policy and procedure for selection and appointment of new directors;
-
summary of code of conduct for directors and key executives;
-
summary of policy on securities trading;
-
Audit Committee Charter;
-
policy and procedure for selection of external auditor and rotation of audit engagement partners;
-
summary of policy and procedure for compliance with continuous disclosure requirements;
-
summary of arrangements regarding communication with and participation of shareholders;
-
summary of Company’s risk management policy and internal compliance and control system;
-
process for performance evaluation of the Board, Board committees, individual directors and key executives;
-
Remuneration Committee Charter; and
-
Corporate Code of Conduct.
EXPLANATIONS FOR DEPARTURES FROM BEST PRACTICE RECOMMENDATIONS
During the Reporting Period the Company has complied with each of the Ten Essential Corporate Governance Principles[1] and the corresponding Best Practice Recommendations[2] as published by the ASX Corporate Governance Council (“ASX Principles and Recommendations”), other than in relation to the matters specified in the following table:
1 A copy of the Ten Essential Corporate Governance Principles are set out on the Company’s website under the Section entitled “Corporate Governance”.
2 A copy of the Best Practice Recommendations are set out on the Company’s website under the section entitled “Corporate Governance”.
ADDITIONAL STOCK EXCHANGE INFORMATION
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annual report 2008
| Principle Ref | Recommendation | Notification of Departure | Explanation for Departure |
|---|---|---|---|
| Ref | |||
| 2 | 2.1 | The Board comprises two independent | The Board considers that its current |
| directors and three directors who do | composition is adequate for the Company’s | ||
| not meet the test of independence in | current size and operations and includes an | ||
| box 2.1 of ASX Corporate Governance | appropriate mix of skills and expertise | ||
| Council’s Principles of Good Corporate | relevant to the Company’s investments. | ||
| Governance (“Independence Test”). | |||
| 2 | 2.2 | The Chairman does not satisfy the | Notwithstanding that Mr Stewart does not |
| Independence Test | satisfy all aspects of the Independence | ||
| Test, the Board considers that its current | |||
| structure is appropriate for the Company’s | |||
| size and operations. Mr Stewart has | |||
| played a key role in re-directing and re- | |||
| balancing the Company’s portfolio and | |||
| has extensive experience of the Oil & Gas | |||
| Industry. | |||
| In situations where it would be |
|||
| inappropriate for Mr Stewart to act as | |||
| chairman (for example, when there is a | |||
| conflict of interest), the Board has | |||
| appointed Dr Robertson as the lead | |||
| independent director. | |||
| 2 | 2.4 | A separate nomination committee has | Given the Board comprised only four |
| not been formed. | members prior to the merger with Gawler, it | ||
| was decided that no efficiencies would be | |||
| achieved by establishing a separate | |||
| nomination committee the responsibilities | |||
| of the nomination committee were |
|||
| performed by the full board. Subsequent | |||
| to the merger, the remuneration committee | |||
| are responsible for carrying out these | |||
| responsibilities. Each member excludes | |||
| himself from matters in which he has a | |||
| material person interest and otherwise | |||
| ensures compliance with all aspects of the | |||
| Corporations Act in relation to related party | |||
| transactions. |
ADDITIONAL STOCK EXCHANGE INFORMATION
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Skills, experience, expertise and term of office of each director
A profile of each director containing the applicable information is set out in the Directors’ Report.
Identification of independent directors
The two independent directors of the Company are Dr John Robertson and Mr Trevor Benson, both of whom are nonexecutive directors.
Statement concerning availability of independent professional advice
If a director considers it necessary to obtain independent professional advice to properly discharge the responsibility of his/her office as a director then, provided the director first obtains approval for incurring such expense from the chairperson, the Company will pay the reasonable expenses associated with obtaining such advice.
Names of nomination committee members and their attendance at committee meetings
Prior to the merger with Gawler, the full Board carried out the functions of a Nomination Committee in accordance with the Nomination Committee Charter. Subsequent to the merger, these responsibilities are carried out by the Remuneration Committee. Details of the meetings held and attended at which the board addressed Remuneration Committee business are disclosed in the Directors’ Report.
Names and qualifications of audit committee members
The Audit Committee carries out its functions in accordance with the Audit Committee Charter.
The relevant financial expertise and industry experience of each of the Audit Committee members is set out in the Directors’ Report.
Number of audit committee meetings and names of attendees
Details of the Audit Committee meetings held and attended are disclosed in the Directors’ Report.
Confirmation whether performance evaluation of the board and its members have taken place and how conducted
The Company has a policy of performing an evaluation of the Board and its members on an annual basis. It is not currently anticipated that an independent facilitator will be involved in the process.
Company’s remuneration policies
Details of the Company’s remuneration policies are disclosed in the Remuneration Report within the Directors’ Report.
Names of remuneration committee members and their attendance at committee meetings.
The names, qualifications and experience of Remuneration Committee members, together with details of meetings held and attended during the year are disclosed in the Directors’ Report.
Existence and terms of any schemes for retirement benefits for non-executive directors
The Company does not have any terms or schemes relating to retirement benefits for non-executive directors.
ADDITIONAL STOCK EXCHANGE INFORMATION
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annual report 2008
The shareholder information set out below was applicable as at 30 September 2008.
1 TWENTY LARGEST SHAREHOLDERS
| ORDINARY SHARES | NUMBER | PERCENTAGE |
|---|---|---|
| Aurora Oil & Gas Limited | 24,000,000 | 12.70% |
| Macquarie Bank Limited Metals & Energy Capital Division | 6,750,000 | 3.57% |
| Mr Henry John De Burgh | 5,000,000 | 2.65% |
| ANZ Nominees Limited | 4,400,523 | 2.33% |
| Nortrust Nominees Limited | 3,721,250 | 1.97% |
| Chase Nominees Limited | 3,705,000 | 1.96% |
| Argonaut Capital Limited | 3,020,000 | 1.60% |
| Citicorp Nominees Pty Limited | 2,890,318 | 1.53% |
| AFM Perseus Fund Limited | 2,500,000 | 1.32% |
| Ringal Iinvestments Pty Ltd | 2,400,000 | 1.27% |
| SDMO Australia Pty Ltd | 2,000,500 | 1.06% |
| HSBC Global Custody Nominee (UK) Limited | 1,969,200 | 1.04% |
| National Nominees Limited | 1,882,947 | 1.00% |
| Merrill Lynch (Australia) Nominees Pty Limited | 1,606,919 | 0.85% |
| Craig Burton | 1,600,000 | 0.85% |
| Bond Street Custodians Limited | 1,576,250 | 0.83% |
| Weighbridge Limited | 1,546,595 | 0.82% |
| Vidacos Nominees Limited | 1,535,000 | 0.81% |
| Grasmere Nominees Pty Ltd | 1,510,000 | 0.80% |
| Caroline De Mori | 1,500,000 | 0.79% |
| Total top 20 | 75,114,502 | 39.75% |
| Other | 113,873,972 | 60.25% |
| Total ordinary shares on issue | 188,988,474 | 100.00% |
2 SUBSTANTIAL SHAREHOLDERS
There are currently no shareholders that have advised the Company that they are substantial shareholders as defined by the Corporations Act 2001 .
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3 DISTRIBUTION OF EQUITY SECURITIES
ORDINARY SHARES UNLISTED OPTIONS
| 1 - 1,000 | 57 | - |
|---|---|---|
| 1,001 - 5000 | 255 | - |
| 5,001 - 10,000 | 236 | - |
| 10,001 - 100,000 | 815 | - |
| 100,001 - and above | 266 | 6 |
| 1,629 | 6 |
4 UNQUOTED SECURITIES
The names of the holders holding more than 20% of each class of unlisted securities are set out below:
NUMBER
| R11 Capital Pty Ltd | 2,500,000 |
|---|---|
| JK & CA Stewart | 2,500,000 |
| Mr Iain Knott | 2,500,000 |
5 VOTING RIGHTS
See Notes 21 and 23 to the Financial Statements.
6 ON-MARKET BUY BACK
There is currently no on-market buy back program for any of Elixir’s listed securities.
7 COMPANY SECRETARY, REGISTERED AND PRINCIPAL ADMINISTRATIVE OFFICE AND SHARE REGISTRY
See Corporate Directory.
ADDITIONAL STOCK EXCHANGE INFORMATION
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ABN 51 108 230 995
PERTH OFFICE
Level 20, 77 St Georges Terrace, Perth Western Australia 6000 Telephone: (+61) 8 9440 2650 Facsimile:
(+61) 8 9440 2650 (+61) 8 9440 2699
UK OFFICE
8, The Courtyard, Eastern Road, Bracknell, Berkshire RG12 2XB, United Kingdom Telephone: (+44) 1344 423 170 Facsimile: (+44) 1344 360 268
(+44) 1344 423 170 (+44) 1344 360 268
www.elixirpetroleum.com [email protected]
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www.elixirpetroleum.com
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