Carnarvon Petroleum : CVN Annual Report 2019

EXPLORATION BY INNOVATION

2019 ANNUAL REPORT

Carnarvon Petroleum Limited

ABN 60 002 688 851

ANNUAL REPORT 2019

CORPORATE DIRECTORY

Directors

PJ Leonhardt

Chairman

AC Cook

Managing Director

WA Foster

Non-Executive Director & Lead Independent Director

P Moore

Non-Executive Director

G Ryan

Non-Executive Director

Company Secretary

T Naude

Auditors

Ernst & Young

Bankers

Australia and New Zealand Banking Group Limited

Commonwealth Bank of Australia

National Australia Bank Limited

HSBC

Registered Office

2nd Floor

76 Kings Park Road West Perth WA 6005

Telephone:	[phone]
Facsimile:	[phone]
Email:	[e-mail]
Website:	carnarvon.com.au

Corporate Governance statement: carnarvon.com.au/about-us/corporate-governance/

Share Registry

Link Market Services Limited

Level 12

250 St Georges Terrace

Perth, WA 6000 Australia

Investor Enquiries: 1300 554 474

(within Australia)

Investor Enquiries: [phone]

	(outside Australia)
Facsimile:	[phone]

Stock Exchange Listing

Carnarvon Petroleum Limited's shares are quoted on the Australian Securities Exchange.

ASX Code

CVN - ordinary shares

CONTENTS

Chairman's Review................................................................................................................................................	2
Managing Director's Review ................................................................................................................................	4
Overview of Operations.........................................................................................................................................	6
Operating and Financial Review ....................................................................................................................	8-21
Directors' Report ...........................................................................................................................................	22-37
Auditor's Independence Declaration.................................................................................................................	38
Corporate Governance Statement.....................................................................................................................	39
Consolidated Income Statement .......................................................................................................................	40
Consolidated Statement of Other Comprehensive Income............................................................................	41
Consolidated Statement of Financial Position .................................................................................................	42
Consolidated Statement of Changes in Equity ................................................................................................	43
Consolidated Statement of Cash Flows ...........................................................................................................	44
Notes to the Financial Statements ..............................................................................................................	45-82
Directors' Declaration .........................................................................................................................................	83
Independent Audit Report.............................................................................................................................	84-87
Additional Shareholder Information.............................................................................................................	88-89

2019 REPORT ANNUAL

1

ANNUAL REPORT 2019

The appeal for Carnarvon and its shareholders is the strong base that can be provided by the generation of long-term steady cash flows from both liquids and gas production.

2

CHAIRMAN'S

REVIEW

During the reporting period Carnarvon Petroleum Limited ("Carnarvon" or "Company") consistently pursued its strategy of exploring for large deposits of oil and gas on the North West Shelf ("NWS") of Australia.

2019 REPORT ANNUAL

Not only has this strategy yielded a number of exciting exploration projects for the Company, but I'm also pleased to report that substantial progress was achieved with the Dorado project during the year. Dorado has been independently assessed as containing a substantial quantity of both liquids (oil and condensate) and gas (free and associated with the oil). I eagerly anticipate the next 18 months or so, where I look forward to seeing the Dorado liquids resource firm into a development project for Carnarvon and our partner, Santos. This would be a crowning achievement for both organisations and would importantly transition Carnarvon into a production company. Uniquely, it may also generate the opportunity for Carnarvon to reinvest a portion of the cash flows from the liquids production into the development of the Dorado and Roc gas fields. The appeal for Carnarvon and its shareholders is the strong base that can be provided by the generation of long-term steady cash flows from both liquids and gas production.

During the reporting period, Carnarvon also advanced its 100% held Buffalo project. The Company's efforts are primarily focused on the redevelopment of a former oil field in an area of the permit that will shortly transition to Timor- Leste jurisdiction. Our team have been working constructively with the Timor-Leste authorities since the intent to change the Maritime Boundary Treaty was announced in March 2018. We are looking forward to working with the community and Government of Timor-Leste over the coming years as we seek to generate tangible benefits for Carnarvon shareholders and the people of Timor-Leste.

In February and July 2019, we completed two successful capital raisings at 33 and 39 cents per share respectively. I'd like to take this opportunity to welcome new shareholders to the Company and to also thank our existing shareholders for their ongoing support. As a result, Carnarvon's balance sheet has been significantly strengthened to provide appropriate capacity for our planned work programs.

The capital from these raisings, together with our existing cash, will be used most particularly to advance the Dorado project. Work is underway to advance the Buffalo project through the introduction of a new partner to the project. As these projects

progress, we look forward to their value potential becoming clearer and we expect materially accretive to our current position.

I feel it's important to recognize the value that has been generated from Carnarvon's relatively small team of less than 20 people. In this regard I thank Adrian Cook and the Carnarvon team for continuing to bring their skills to bear with great energy and enthusiasm and for delivering outstanding results from what has been a long period of personal investment into the execution of our strategy.

This year the Board recognised that the Carnarvon team achieved a number of significant milestones. As such, the Board granted both a cash bonus and employee shares as part of Carnarvon's short and long-term incentive plans. Employee share issues are tied to reaching strategic objectives and Carnarvon's share price growth in relation to a group of its peers during each year. The Board feels this both motivates employees to achieve strategic goals and aligns staff rewards with growth in shareholder value. Further details can be found in the Remuneration Report section of the Annual Report.

As the Company's business matures and in particular, as it progresses towards production operations, the Board will expand its corporate practices to meet the changing circumstances. The Board is cognizant of the need to achieve an appropriate balance, over time, in relation to matters such as diversity, the environment, social license and corporate governance.

In closing, I believe my fellow directors bring an excellent balance of experience and skills to our deliberations and I thank them for their counsel and support during a period of intense activity. We look forward to the year ahead with great enthusiasm as we progress multiple projects through different phases of maturity.

Peter Leonhardt

Chairman

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