vpe financial report 2008 - senex energy...2008/06/30 · • advance energy limited * • odin...

VICTORIA PETROLEUM N.L.

ABN 50 008 942 827

ANNUAL FINANCIAL REPORT

for the year ended 30 June 2008

VICTORIA PETROLEUM N.L. TABLE OF CONTENTS

Corporate Information 1

Directors’ Report 2

Auditor’s Independence Declaration 16

Corporate Governance Statement 17

Balance Sheet 22

Income Statement 23

Cash Flow Statement 24

Statement of Changes in Equity 25

Notes to the Financial Statements 27

Directors’ Declaration 86

Independent Audit Report 87

VICTORIA PETROLEUM N.L. CORPORATE INFORMATION

1

AUSTRALIAN BUSINESS NUMBER: 50 008 942 827 DIRECTORS: D F Patten J T Kopcheff A Bajada R J Pett A N Short B Wrixon A Dimsey (Alternate Director) N C Fearis (Alternate Director) COMPANY SECRETARY: D I Rakich REGISTERED OFFICE AND Level 36, Exchange Plaza PRINCIPAL PLACE OF BUSINESS: 2 The Esplanade Perth, Western Australia 6000 TELEPHONE: +61 8 9220 9800 FACSIMILE: +61 8 9220 9801 EMAIL: [email protected] WEBSITE: www.vicpet.com.au SHARE REGISTER: Security Transfer Registrars Pty Ltd 770 Canning Highway Applecross, Western Australia 6153 Telephone: +61 8 9315 2333 Facsimile: +61 8 9315 2233 STOCK EXCHANGE: Australian Stock Exchange (ASX) Code: VPE SOLICITORS: Minter Ellison Level 49, Central Park Building 152-158 St. George’s Terrace Perth, Western Australia 6000 BANKERS: Westpac Banking Corporation 109 St. George’s Terrace Perth, Western Australia 6000 AUDITORS: Ernst & Young 11 Mounts Bay Road Perth, Western Australia 6000

VICTORIA PETROLEUM N.L. DIRECTORS’ REPORT

2

Your directors submit their report for the year ended 30 June 2008. DIRECTORS The names and details of the Company’s directors in office during the financial year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated. Names, qualifications, experience and special responsibilities DENIS F. PATTEN Non-executive Chairman Member – S.P.E. Mr Patten has extensive experience in coal seam gas exploration, development and production and is a former founding director of Queensland Gas Company Limited, retiring from the Board in 2007. Mr Patten has over 38 years of experience in the engineering, manufacturing, petroleum and service industries in Australia and internationally. He has held senior executive management positions with ASEA Australia, Petroleum Drilling Services Australia Pty Ltd, Gearhart Drilling Services, ATCO APM Drilling Pty Ltd, PT CMPS Indonesia, CMPS&F Pty Ltd and Montgomery Watson. Mr Patten was appointed on 27 March 2008. During the past three years, Mr Patten has also served as a director of the following other listed companies: • Queensland Gas Company Limited JOHN T. KOPCHEFF Executive Director B.Sc. (Hons) (Geology and Geophysics) Member – S.P.E., A.A.P.G., P.E.S.A., A.I.M.M. Mr Kopcheff is a geologist and geophysicist, and holds a Bachelor of Science (Honours) from the University of Adelaide (1970). Mr Kopcheff has over 37 years of petroleum experience in Australia, South East Asia, USA, South America and the North Sea, both in field geological and geophysical operations and management. Mr Kopcheff is the founding Managing Director of Victoria Petroleum N.L. During the past three years, Mr Kopcheff has also served as a non-executive director of the following other listed companies: • Great Panther Resources Limited * • Greenearth Energy Limited * • Kestrel Energy, Inc * denotes current directorship


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DIRECTORS (CONTINUED) ALEX BAJADA Non-executive Director B.Econ, MAICD Mr Bajada has many years of experience in the corporate sector and has been involved in the management of public companies, fulfilling the roles of Chairman and Managing Director. He has also been a trustee director of the WA Local Government Superannuation Plan, which has $1.3 billion of member funds under management, for 15 years. Mr Bajada was appointed on 27 March 2008. During the past three years, Mr Bajada has also served as a director of the following other listed companies: • Advance Energy Limited * • AXG Mining Limited * • Excalibur Mining Corporation Limited * • Odin Energy Limited * * denotes current directorships TIMOTHY L. HOOPS Non Executive Director B.Sc. (Geological Engineering) Member – American Association of Petroleum Geologists Member – Rocky Mountain Association of Petroleum Geologists Mr Hoops is a graduate of the Colorado School of Mines, with a degree in geology and geological engineering and has extensive exploration and development experience in the USA. Mr Hoops resigned from the Board of Directors on 27 March 2008. During the past three years, Mr Hoops has also served as a director of the following other listed company: • Kestrel Energy, Inc ROBERT J. PETT Non-executive Director B.A. (Hons) M.A. (Econ) Mr Pett is a minerals economist with a wide range of experience in the mining and petroleum sector, and in the management of companies involved in mineral and petroleum exploration and production. Mr Pett holds a Bachelor's Degree in Arts with Honours and a Master's Degree in Economics (Queens University, Canada). During the past three years, Mr Pett has also served as a director of the following other listed company: • Kestrel Energy, Inc


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DIRECTORS (CONTINUED) ANTHONY N. SHORT Non-executive Director B.Com, Grad Dip (Fin), MAICD Mr Short has over 16 years of experience in the administration and management of listed public companies. He has extensive experience at board level in the management and formation of public companies in the areas of gold mining, and oil and gas. He has held the position of Chairman, CFO and Managing Director in a number of listed public companies and has also acted as corporate adviser on a number of public company listings. Mr Short was appointed on 27 March 2008. During the past three years, Mr Short has also served as a director of the following other listed companies: • Advance Energy Limited * • Odin Energy Limited * • Palace Resources Limited * • Regal Resources Limited * • Vector Resources Limited * * denotes current directorships BERNARD WRIXON Non-executive Director F.C.A. Mr Wrixon is a fellow of the Institute of Chartered Accountants of England and Wales and was a partner in the international accounting firm Ernst & Young. Since his arrival in Australia in 1983, Mr Wrixon has been closely connected to the resources sector. Mr Wrixon has not held any other directorships during the past three years. ANDREW DIMSEY Alternate Director B.Bus, CPA Mr Dimsey has 27 years of experience in the oil and gas exploration, development and operating industries in Australia and internationally. He has a commercial background and has held senior management positions in a number of public companies. He has significant experience in the management and administration of public companies, mergers and acquisitions, corporate restructuring, oil and gas infrastructure development and management, establishing and managing new oil and gas operations and oil and gas marketing. Mr Dimsey was appointed on 14 May 2008 as an alternate director for Mr Bajada and Mr Short. During the past three years, Mr Dimsey has also served as a director of the following other listed companies: • Grand Gulf Energy Limited • Odin Energy Limited * * denotes current directorships


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DIRECTORS (CONTINUED) NEIL C. FEARIS Alternate Director LLB (Hons), MAICD, F.Fin Mr Fearis has 30 years of experience as a commercial lawyer in the UK and Australia, and is a member of several professional bodies associated with commerce and law. Mr Fearis was appointed on 26 March 2008 as an alternate director for Mr Kopcheff. During the past three years, Mr Fearis has also served as a director or alternate director of the following other listed companies:

• Carnarvon Petroleum Limited * • Kresta Holdings Limited * • Perseus Mining Limited * • Samson Oil & Gas Limited * * denotes current directorships


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DIRECTORS (CONTINUED) Interests in the shares and options of the company and related bodies corporate As at the date of this report, the interests of the directors in the shares and options of Victoria Petroleum N.L. were:

Class of security

D Patten

J Kopcheff

A Bajada

A Dimsey

N Fearis

R Pett

A Short

B Wrixon

Ordinary shares, fully paid

-

1,000,000

-

-

-

408,200

-

-

Ordinary shares, issued at $3.50 partly paid to 10 cents

-

100,000

-

-

-

140,000

-

- Ordinary shares, issued at 60 cents partly paid to 1 cent

-

1,080,000

-

-

-

-

-

200,000 Ordinary shares, issued at 40 cents partly paid to 0.1 cent

-

4,200,000

-

-

-

-

-

350,000

Options 100,000 4,200,000 - - - - - 350,000

COMPANY SECRETARY DENIS RAKICH F.C.P.A Mr Rakich is an Accountant and Company Secretary with extensive corporate experience within the petroleum services, petroleum and mineral production and exploration industries. Mr Rakich is responsible for the legal, financial and corporate management of Victoria Petroleum N.L. He is a member of the Australian Society of Accountants and is currently Company Secretary for another public Company in the resources sector. DIVIDENDS No dividends have been paid or declared by the Parent Entity since the end of the previous financial year and no dividends have been paid or declared to the Parent Entity by any controlled entity during the year or to the date of this report. The balance of the franking account at the end of the period was nil (2007: nil). PRINCIPAL ACTIVITIES The principal activities during the year of entities within the consolidated entity were oil and gas exploration and production. There have been no significant changes in the nature of these activities during the year.


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OPERATING AND FINANCIAL REVIEW Group Overview Production During the year, the Company continued to receive revenue from oil and gas sales from both within Australia and the United States of America. The Company’s share of oil and gas produced for the year was: Australia • The Mirage oil field in the Cooper Basin in South Australia produced 19,807 barrels of oil. • The Ventura oil field in the Cooper Basin in South Australia produced 3,029 barrels of oil. • The Growler oil field in the Cooper Basin in South Australia produced 6,768 barrels of oil. • The Jingemia oil field in the onshore North Perth Basin in Western Australia produced 24,838 barrels

of oil. United States of America • The Flour Bluff gas field in South Texas produced 69.6 million cubic feet of gas. • The Margarita Gas Exploration Project in Texas produced 32.3 million cubic feet of gas and 1,767

barrels of oil. • The West Florence Oil and Gas Project in Colorado produced 808 barrels of oil. Exploration The Company continued the implementation of its new focussed growth strategy on two key projects: the Cooper Basin Oil projects in South Australia and Queensland, and the Queensland Coal Seam Gas projects. In accordance with this strategy, the Company will continue to spend significant funds on exploration and development activities in Australia and will divest its interest in the United States of America in an orderly manner. Expressions of interest have been received from industry parties for the purchase of the oil and gas assets of Victoria Petroleum USA, Inc. Exploration has been a focal point of the Company in recent years and management expects it to remain a core part of the Company’s business, focussed on Australian onshore operations. Cooper Basin • Wirraway and Growler oil discoveries provided further confirmation of a possible significant “Jurassic

oil fairway” in the western portion of PEL 104 and PEL 111. The Western Margin Oil Project covers up to 1,200 square kilometres with potential further exploration success to contain a resource of up to 100 million barrels of oil in place.

• Some 32 prospects and leads have been mapped in the Western Margin Oil Project with seven drillable prospects identified with a 10% probability of possible recoverable resource of 21 million barrels of oil in the Birkhead formation. Three exploration wells are to be drilled in 2008.

• First up exploration drilling success in southwest Queensland Cooper Basin permit ATP 752P by Santos (operator) at Cuisinier-1, the first oil exploration well of a seven well drilling and seismic exploration program. Cuisinier-1 has been cased and suspended as a future oil producer.

Surat Basin • The first three exploration wells of the Don Juan CSG Joint Venture have been cased as future pilot

wells by Bow Energy (operator), with initial pump test planned for Carnarvon-1 in the fourth quarter of 2008. The first well, Taringa South-1, flowed methane gas to surface at a rate of 370,000 cubic feet per day.

• Following the success of the initial two coal seam gas core holes drilled in Petroleum Lease 171 in early 2008, a further drilling program to assess the coal seam gas resources is planned for the fourth quarter of 2008.

• A four well drilling program is planned to commence in the fourth quarter of 2008 in ATP 574P on the Marcus, Pinelands and Peebs coal seam gas projects by the operator, Queensland Gas Company Ltd.


8

OPERATING AND FINANCIAL REVIEW (CONTINUED) Group Overview (continued) Development Cooper Basin • Development of the Growler Oil Field in PEL 104/PRL 15 continued during the year, with a further

two development wells to be drilled in the third quarter of 2008. Operating results for the year The net loss after tax of the Group for the financial year ended 30 June 2008 was $3,845,130 (2007: $7,108,775). Included in the Group’s loss is an amount of $3,550,163 (2007: $5,774,692) being oil and gas exploration expenses and $974,070 (2007: $1,865,887) being impairment of oil and gas properties. These costs have been written off in accordance with the Group’s accounting policy in relation to oil and gas exploration costs. Share issues during the year During the year, the Company completed the following share issues: • 28,000,000 ordinary shares were issued on 3 July 2007 at a price of 20 cents each.

Of this total, funds for 26,000,000 shares ($5,200,000) were received and included in equity in June 2007, and funds for the remaining 2,000,000 shares ($400,000) were received in July 2007.

• 32,500,000 ordinary shares were issued on 4 December 2007 at a price of 13 cents each to raise $4,225,000;

• 55,318 ordinary shares were issued on 21 December 2007 at a price of 25 cents each to raise $13,830; • 25,057,360 ordinary shares were issued on 29 January 2008 at a price of 13 cents each to raise

$3,257,500; • 1,015,371 ordinary shares were issued on 8 February 2008 at a price of 13 cents each to raise

$131,998; • 41,750,000 ordinary shares were issued on 10 June 2008 at a price of 22.5 cents each to raise

$9,393,750; and • 17,758 ordinary shares were issued on 30 June 2008 at a price of 25 cents each to raise $4,440. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS During the year, Queensland Gas Company Limited (QGC) became a substantial shareholder of the Company. At balance date, QGC held 61,603,134 shares, or 19.24%, of the Company’s issued capital. During the year, Odin Energy Limited, though its wholly owned subsidiary Glory Run Pty Ltd, became a substantial shareholder of the Company. At balance date, Glory Run Pty Ltd held 48,916,746 shares, or 15.28%, of the Company’s issued capital. There were no other significant changes in the state of affairs of the Group during the year not detailed elsewhere in this report. SIGNIFICANT EVENTS AFTER THE BALANCE DATE Since the end of the financial year, the directors are not aware of any other matters or circumstances not otherwise dealt with in the report or financial statements that have significantly, or may significantly affect the operations of the Company or the Group, the results of the operations of the Company or the Group, or the state of affairs of the Company or the Group in the subsequent financial years.


9

LIKELY DEVELOPMENTS AND EXPECTED RESULTS During the next financial year, the group will focus on continued oil production from the Jingemia, Mirage, Ventura and Growler fields and will continue to focus on its two key projects: the Cooper Basin Oil projects in South Australia and Queensland, and the Queensland Coal Seam Gas projects. ENVIRONMENTAL REGULATION AND PERFORMANCE The Group has a policy of at least complying, but in most cases exceeding its environmental performance obligations. No environmental breaches have been notified by any Government agency during the year ended 30 June 2008. SHARE OPTIONS Unissued shares At the date of this report, the Group had the following options on issue:

Number Exercise Price Expiry Date 6,717,000 28 cents 30 November 2008 61,789,647 25 cents 31 January 2010

On 21 August 2007, the Company issued 14,000,000 options. The issue was part of the placement of 28,000,000 ordinary fully paid shares made to clients of member organisations of the ASX pursuant to a prospectus dated 12 June 2007. Included in the terms of the placement was the issue of one free attaching option for every two ordinary fully paid shares issued. Approval for the issue of options was granted at a general meeting of the Company on 15 August 2007. Option holders do not have any right, by virtue of the option, to participate in any share issue of the Company or any related body corporate. Shares issued as a result of the exercise of options During the financial year, option holders have exercised options to acquire 73,076 fully paid ordinary shares in Victoria Petroleum N.L. at an exercise price of $0.25 per share. Of this total, 55,318 options were exercised on 21 December 2007 and 17,758 options were exercised on 30 June 2008. INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS The Company is in the process of renewing the directors and officers insurance policy, and has not yet incurred a premium for the current financial year. During the prior year, the Company incurred a premium of $20,625 to insure directors and officers of the Group. The liabilities insured include costs and expenses that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of the Group.


10

DIRECTORS' MEETINGS During the year, 10 meetings of directors were held. The number of meetings attended by each director and the number of meetings each director was eligible to attend were as follows: Director Number of meetings attended Number of eligible meetings D F Patten 4 5 J T Kopcheff 9 10 A Bajada 4 5 A Dimsey 1 4 N C Fearis 1 7 T L Hoops 6 6 R J Pett 10 10 A N Short 3 5 B Wrixon 10 10 AUDITOR INDEPENDENCE The independence declaration received from the auditor of Victoria Petroleum N.L. is set out on page 16 and forms part of this Directors’ Report for the year ended 30 June 2008. NON-AUDIT SERVICES The following non-audit services were provided by the entity’s auditor, Ernst & Young. The directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised. Ernst & Young received or are due to receive the following amounts for the provision of non-audit services: Tax compliance services $57,028 Assurance related and due diligence services $30,000 Special audits as required by jurisdictional regulators $ 2,266 $89,294


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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 two executives. For the purposes of this report, the term “executive” encompasses the Company Secretary and senior executives of the Parent and the Group. Remuneration committee Due to the size and nature of the Company’s operations, the directors do not believe the establishment of a remuneration committee is warranted. The Board of Directors is responsible for determining and reviewing compensation arrangements for directors and senior executives. Contracts with the Managing Director and any other executives are determined by the independent, non-executive directors. The Board assesses the appropriateness of the nature and amount of remuneration of directors and 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 board and executive team. Remuneration philosophy The performance of the Company depends upon the quality of its directors and executives. To be successful and maximise shareholder wealth, the Company must attract, motivate and retain highly skilled directors and executives. Remuneration packages applicable to the executive directors, senior executives and non-executive directors are established with due regard to: • Performance against set goals • Ability to attract and retain qualified and experienced directors and senior executives Remuneration structure In accordance with best practice corporate governance, the structure of non-executive, executive and senior manager remuneration is separate and distinct. Non-executive director remuneration Objective The Board seeks to set aggregate remuneration at a level which provides the Company with the ability to attract and retain directors of the highest calibre, whilst incurring a cost which is acceptable to shareholders. Structure The ASX Listing Rules specify that the aggregate remuneration of non-executive directors shall be determined from time to time by a general meeting. An amount not exceeding the amount determined is then divided between directors as agreed. The latest determination was at a General Meeting held on 25 June 2008 when shareholders approved an aggregate remuneration of $250,000 per annum. The amount of aggregate remuneration sought to be approved by shareholders and the manner in which it is apportioned amongst directors is reviewed annually. Non-executive directors are encouraged by the Board to hold shares in the company (purchased by directors on market). It is considered good governance for directors to have a stake in the company on whose Board they sit on. The remuneration of non-executive directors for the years ending 30 June 2008 and 30 June 2007 is detailed in Table 1.


12

REMUNERATION REPORT (AUDITED) (CONTINUED) Executive remuneration Objective The Company aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities within the company and so as to: • reward executives for company performance against targets set by the board; • align the interests of executives with those of shareholders; • link reward with strategic goals and performance of the company; and • ensure total remuneration is competitive by market standards. This is a remuneration framework and currently the Board has not set any targets. Remuneration incentives Director and executive remuneration is currently not linked to either long term or short term performance conditions. The Board feels that the expiry date and exercise price of the partly paid shares and options currently on issue to the directors and executives is sufficient to align the goals of the directors and executives with those of the shareholders to maximise shareholder wealth, and as such, has not set any performance conditions for the directors or the executives of the Company. The Board will continue to monitor this policy to ensure that it is appropriate for the Company in future years. Remuneration of Key Management Personnel Table 1: Key Management Personnel remuneration for the years ended 30 June 2008 and 30 June 2007

Short-term Post Employ-

ment

Total Performance related

Year Salary & Directors

Fees $

Other Fees

$

Annual Leave

$

Super-annuation

$

$

% Directors Patten, DF (i) 2008 15,781 - - 1,420 17,201 - Kopcheff, JT 2008 300,000 - 27,116 30,000 357,116 - 2007 304,038 - - 30,404 334,442 - Bajada, A (ii) 2008 10,521 - - 947 11,468 - Dimsey, A (iii) 2008 - - - - - - Fearis, NC (iv) 2008 - 63,845 - - 63,845 - Hoops, TL (v) 2008 30,000 240,156 - - 270,156 - 2007 40,000 278,452 - - 318,452 - Pett, RJ 2008 40,000 - - 3,600 43,600 - 2007 40,000 - - 3,600 43,600 - Short, AN (vi) 2008 10,521 - - 947 11,468 - Wrixon, B 2008 40,000 - - 3,600 43,600 - 2007 40,000 - - 3,600 43,600 - Sub-Total 2008 446,823 304,001 27,116 40,514 818,454 - 2007 424,038 278,452 - 37,604 740,094 -


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REMUNERATION REPORT (AUDITED) (CONTINUED) Remuneration of Key Management Personnel (Continued)

Short-term Post Employ-

ment

Total Performance related

Year Salary & Directors

Fees $

Other Fees

$

Annual Leave

$

Super-annuation

$

$

% Executives Rakich, DI 2008 101,010 - 2,274 10,101 113,385 - 2007 100,538 - 5,423 10,054 116,015 - Lane, CM 2008 177,422 - 6,363 17,742 201,527 - 2007 184,102 - (2,097) 18,410 200,415 - Sub-Total 2008 278,432 - 8,637 27,843 314,912 - 2007 284,640 - 3,326 28,464 316,430 - Total 2008 725,255 304,001 35,753 68,357 1,133,366 - 2007 708,678 278,452 3,326 66,068 1,056,524 -

(i) D F Patten was appointed as a director on 27 March 2008. (ii) A Bajada was appointed as a director on 27 March 2008. (iii) A Dimsey was appointed as an alternate director on 14 May 2008. (iv) N C Fearis was appointed as an alternate director on 26 March 2008.

During the year, the Group made payments of $63,845 to Minter Ellison Group, a company associated with Mr Fearis. These payments comprised fees payable for corporate legal advice. These services were not provided by Mr Fearis as a director of Victoria Petroleum N.L.

(v) T L Hoops resigned as a director on 27 March 2008. During the year, the Group made payments of US$218,199 (A$240,156) (2007: US$225,765/A$278,452) to Peak Resource Management, Inc., a company owned by Mr Hoops. These payments comprised fees payable for consulting work in relation to the oil and gas properties in the United States of America. These services were not provided by Mr Hoops as a director of Victoria Petroleum N.L.

(vi) A N Short was appointed as a director on 27 March 2008. Amounts disclosed for compensation of directors excludes insurance premiums paid by the Group in respect of directors’ and officers’ liability insurance contracts, as the contracts do not specify premiums paid in respect of individual directors.


14

REMUNERATION REPORT (AUDITED) (CONTINUED) Employment contracts During the year ended 30 June 2006, the Company entered into an employment contract with Mr Kopcheff. The contract allows for remuneration of $300,000 per annum for a period of three years, commencing 1 January 2006. Under the terms of the contract, the Company may terminate the agreement with one months notice and provide a lump sum payment to Mr Kopcheff equal to the amount that he would have received under the contract, should the contract have continued until the end of its term. Alternatively, the Company may terminate the agreement immediately if Mr Kopcheff is guilty of misconduct. The Company has not entered into any other employment contracts in the years ended 30 June 2008 and 30 June 2007. Partly paid shares During the year ended 30 June 2006, the Company issued partly paid shares to directors, executives and employees of Victoria Petroleum N.L. The shares were issued as partly paid to 0.01 cent per share, with the balance of 3.99 cents per share to be paid up or forfeited by 30 November 2010. On 12 December 2006, a consolidation of the Company’s share capital was completed, on the basis of one new share for every 10 existing shares. As a result of the share consolidation, the partly paid shares granted as part of compensation for the year ended 30 June 2006 are now partly paid to 0.1 cent per share, with the balance of 39.9 cents per share to be paid up or forfeited by 30 November 2010. The Company did not issue partly paid shares or options to Key Management Personnel in the years ended 30 June 2008 and 30 June 2007.


15

Signed in accordance with a resolution of the directors.

Bernard Wrixon Director Perth, Western Australia 9 September 2008

VICTORIA PETROLEUM N.L. AUDITOR’S INDEPENDENCE DECLARATION

16

VICTORIA PETROLEUM N.L. CORPORATE GOVERNANCE STATEMENT

17

The Board of Directors of Victoria Petroleum N.L. is responsible for the corporate governance of the Group. The Board guides and monitors the business and affairs of Victoria Petroleum N.L. on behalf of the shareholders by whom they are elected and to whom they are accountable. The Board of Directors supports the Principles of Good Corporate Governance and Best Practice Recommendations developed by the ASX Corporate Governance Council (“Council”). The Company’s practices are largely consistent with the Council’s guidelines, however the Board considers that the implementation of some recommendations are not appropriate given the nature and scale of the Company’s activities and size of the Board. The following Corporate Governance Statement should be read in conjunction with the Directors’ Report on pages 2 to 15. Principle 1 – Lay solid foundations for management and oversight BOARD RESPONSIBILITIES To ensure the Board is well equipped to discharge its responsibilities, it has established guidelines for the nomination and selection of the directors and for the operation of the Board. Whilst not formally documented, the Board recognises and acknowledges that it acts on behalf of and is accountable to the shareholders. The Board seeks to identify the expectations of the shareholders, as well as other regulatory and ethical expectations and obligations. In addition, the Board is responsible for identifying areas of significant business risk and ensuring arrangements are in place to adequately manage those risks. The Board seeks to discharge these responsibilities in a number of ways. The responsibility for the operation and administration of the Group is delegated by the Board to the Managing Director and the executive team. The Board ensures that this team is appropriately qualified and experienced to discharge their responsibilities and regularly reviews and assesses the performance of the Managing Director and the executive team. The Board is responsible for ensuring that management’s objectives and activities are aligned with the expectations and risk identified by the Board. The Board has a number of mechanisms in place to ensure this is achieved. These mechanisms include the following: • implementation of operating plans and budgets by management and Board monitoring of progress

against budget. This includes the establishment and monitoring of key performance indicators (both financial and non-financial) for all significant business processes; and

• procedures to allow directors, in the furtherance of their duties, to seek independent professional advice at the Company’s expense.


18

Principle 2 – Structure the Board to add value COMPOSITION OF THE BOARD The composition of the Board is determined in accordance with the following principles and guidelines: • the Board shall comprise at least four directors and should maintain a majority of non-executive

independent directors; • the chairperson must be a non-executive independent director; • the Board should comprise directors with an appropriate range of qualifications and experience; and • the Board shall meet at least bi-monthly and following meeting guidelines set down to ensure all

directors are made aware of, and have available all necessary information, to participate in an informed discussion of all agenda items.

The directors in office at the date of this statement are: Name Position D F Patten Chairman, Independent Non-Executive Director J T Kopcheff Managing Director A Bajada Non-Executive Director R J Pett Independent Non-Executive Director A N Short Non-Executive Director B Wrixon Independent Non-Executive Director A Dimsey Alternate Director N C Fearis Alternate Director Details in relation to the Directors skills, experience and expertise relevant to the position of director are detailed in the Directors’ Report. INDEPENDENCE An independent director, in the view of the Company, is a non-executive director who is not a member of management and who is free of any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the independent exercise of their judgement. In determining the independent status of a director, the Board considers whether the director: • is a substantial shareholder of the Company or an officer of, or otherwise associated directly with, a

substantial shareholder of the Company; • is employed, or has previously been employed, in an executive capacity by the Company or another

group member, and there has not been a period of at least three years between ceasing such employment and serving on the Board;

• has within the last three years been a principal of a material professional adviser or a material consultant to the Company or another group member, or an employee materially associated with the service provided;

• is a material supplier or customer of the Company or other group member, or an officer of or otherwise associated directly or indirectly with a material supplier or customer; and

• has a material contractual relationship with the Company or another group member other than as a director.

NOMINATION COMMITTEE The Group does not have a formally appointed nomination committee, as the directors believe the size of the Group’s operations do not warrant the establishment of such a committee. The Board is responsible for devising criteria for Board membership, reviewing the need for various skills and experience on the Board, identifying specific individuals for nomination as directors and overseeing Board and executive succession planning.


19

Principle 2 – Structure the Board to add value (continued) PERFORMANCE REVIEW AND EVALUATION It is the policy of the Board to ensure that the directors and executives of the Company are equipped with the knowledge and information they need to discharge their responsibilities effectively. The performance of all directors and executives is reviewed annually by the chairman. Although the Company is not of a size to warrant the development of formal performance review processes, there is on-going monitoring by the chairman and the Board. The chairman also speaks to directors on an individual basis regarding their role as a director. Directors whose performance is unsatisfactory may be asked to retire. The Board has not formally documented the results of performance evaluations to date. Principle 3 – Promote ethical and responsible decision-making CODE OF CONDUCT Due to the size and nature of the operations of the Group, it does not have a formally documented code of conduct for its directors and executives. Despite this, the Board maintains high standards of ethical responsible decision making, recognising legitimate interests of all stakeholders. SHARE DEALINGS AND DISCLOSURES The Company’s policy regarding directors, executives and employees dealing in its securities is set by the Board. The Board restricts directors, executives and employees from acting on material information until it has been released to the market and adequate time has been given for this to be reflected in the security price. Directors, executives and employees are required to consult the chairman, prior to dealing in securities in the Company or other companies in which the Company has a relationship. Dealings are not permitted at any time whilst in the possession of price sensitive information not already available to the market. In addition, the Corporations Act 2001 prohibits the purchase or sale of securities whilst a person is in possession of inside information. As required by the ASX Listing Rules, the Company notifies the ASX of any transaction conducted by directors in the securities of the Company. CONFLICTS OF INTEREST To ensure that directors are at all times acting in the interests of the Company, directors must disclose to the Board actual or potential conflicts of interest that may or might reasonably be thought to exist between the interest of the director and the interests of any other parties in carrying out the activities of the Company. If a director can not, or is unwilling to, remove a conflict of interest then the director must, as per the Corporations Act 2001, absent himself from the room when Board discussion and/or voting occurs on matters about which the conflict relates (save with the approval of the remaining directors and subject to the Corporations Act 2001.)


20

Principle 4 – Safeguard integrity in financial reporting AUDIT COMMITTEE The Group does not have a formally appointed audit committee, as the directors believe the size of the Group’s operations do not warrant the establishment of such a committee. It is the responsibility of the Board to ensure that an effective internal control framework exists within the Group. This includes internal controls to deal with both the effectiveness and efficiency of significant business processes. This also includes the safeguarding of assets, the maintenance of proper accounting records, and the reliability of financial information. Principle 5 – Make timely and balanced disclosure ASX LISTING RULE COMPLIANCE The Board has designated the Company Secretary as the person responsible for ensuring the Company is in compliance with the ASX Listing Rules. CONTINUOUS DISCLOSURE TO ASX The Board has designated the Company Secretary as the person responsible for overseeing and coordinating disclosure of information to the ASX as well as communicating with the ASX. In accordance with the ASX Listing Rules, the Company immediately notifies the ASX of information: • concerning the Company that a reasonable person would expect to have a material effect on the price

or value of the Company’s securities; and • that would, or would be likely to, influence persons who commonly invest in securities in deciding

whether to acquire or dispose of the Company’s securities. Principle 6 – Respect the rights of shareholders COMMUNICATIONS The Board recognises its duty to ensure that its shareholders are informed of all major developments affecting the Company’s state of affairs. Information is communicated to shareholders and the market through: • The Annual Report, which is distributed to shareholders if they have elected to receive a printed

version and otherwise available for viewing and downloading from the Company’s website; • The Annual General Meeting and other general meetings called to obtain shareholder approvals as

appropriate; • The Quarterly Reports and Half-Yearly Directors’ and Financial Reports which are posted on to the

Company’s website; and • Other announcements released to the ASX as required under the continuous disclosure requirements of

the ASX Listing Rules and other information that may be mailed to shareholders, which are posted on to the Company’s website.

The Company actively promotes communication with shareholders through a variety of measures, including the use of the Company’s website and email. The Company’s reports and ASX announcements may be viewed and downloaded from its website: www.vicpet.com.au or the ASX website: www.asx.com.au under ASX code “VPE.” The Company also maintains an email list for the distribution of the Company’s announcements via email in a timelier manner.


21

Principle 7 – Recognise and manage risk RISK ASSESSMENT AND MANAGEMENT The Board is responsible for ensuring there are adequate policies in relation to risk management, compliance and internal control system. The Board requires the directors and executives to design and implement the risk management and internal control system to manage the Company, and to report to the Board. The Group’s policies are designed to ensure strategic, operational, legal, reputation and financial risk are identified, assessed effectively and efficiently managed and monitored to enable achievement of the Group’s business objective. The Board has determined that the Managing Director and the Company Secretary are the appropriate persons to make the chief executive and chief financial equivalent declarations respectively, in respect of the year ended 30 June 2008, on the risk management and internal compliance and control systems recommended by the Council. Considerable importance is placed on maintaining a strong control environment. There is an organisation structure with clearly drawn lines of accountability and delegation of authority. CORPORATE REPORTING The Company Secretary has made the following assertions to the Board: • that the Group’s financial reports are complete and present a true and fair view, in all material

respects, of the financial condition and operational results of the Group and are in accordance with relevant accounting standards; and

• that the above statement is founded on a sound system of risk management and internal compliance and control, which implements the policies adopted by the Board and that the Group’s risk management and internal compliance and control is operating efficiently and effectively in all material respects.

Principle 8 – Remunerate fairly and responsibly REMUNERATION COMMITTEE Due to the nature and size of the Group’s operations, the directors do not believe the establishment of a remuneration committee is warranted. The Board is responsible for determining and reviewing compensation arrangements for the directors. In determining the appropriate remuneration arrangements for directors, the Board considers the following guidelines: • Non-executive directors are remunerated by way of fees, in the form of cash, non-cash benefits and

superannuation contributions; • Non-executive directors should not receive options or bonus payments; and • Non-executive directors should not be provided with retirement benefits other than superannuation. In prior years, the Company has issued options and partly paid shares to non-executive directors, following approval granted by members at General Meetings. The issues of these options and shares were to provide additional remuneration to the non-executive directors. Further detail in relation to the Company’s remuneration policies can be found in the Remuneration Report contained within the Directors’ Report.

VICTORIA PETROLEUM N.L. BALANCE SHEET

AS AT 30 JUNE 2008

The balance sheet should be read in conjunction with the accompanying notes 22

Note Consolidated Parent 2008 2007 2008 2007 $ $ $ $ ASSETS Current Assets Cash and cash equivalents 10 17,670,235 5,380,543 15,912,793 4,859,271Trade and other receivables 11 2,223,172 1,613,173 165,877 58,650Held for trading financial assets 12 1,537,401 2,861,592 111,625 922,499Total Current Assets 21,430,808 9,855,308 16,190,295 5,840,420 Non-current Assets Receivables 13 111,776 108,776 9,700,505 6,855,573Available-for-sale financial assets 14 360,000 - 300,000 -Investments in associates 15 - 206,612 - 206,612Property, plant and equipment 16 21,401 33,224 7,291 15,647Oil and gas properties 17 5,549,302 4,348,298 - -Total Non-current Assets 6,042,479 4,696,910 10,007,796 7,077,832TOTAL ASSETS 27,473,287 14,552,218 26,198,091 12,918,252 LIABILITIES Current Liabilities Trade and other payables 18 1,174,613 1,494,429 241,165 524,177Provisions 19 241,929 195,195 241,929 195,195Total Current Liabilities 1,416,542 1,689,624 483,094 719,372 Non-current Liabilities Trade and other payables 20 - - 6,989,137 5,733,114Provisions 21 888,275 863,115 99,866 79,321Total Non-current Liabilities 888,275 863,115 7,089,003 5,812,435TOTAL LIABILITIES 2,304,817 2,552,739 7,572,097 6,531,807NET ASSETS 25,168,470 11,999,479 18,625,994 6,386,445 EQUITY Contributed equity 22 103,307,256 86,137,166 103,307,256 86,137,166Reserves 23 158,181 314,150 1,284,416 1,177,675Accumulated losses 24 (78,296,967) (74,451,837) (85,965,678) (80,928,396)TOTAL EQUITY 25,168,470 11,999,479 18,625,994 6,386,445

VICTORIA PETROLEUM N.L. INCOME STATEMENT

FOR THE YEAR ENDED 30 JUNE 2008

The income statement should be read in conjunction with the accompanying notes 23

Note Consolidated Parent 2008 2007 2008 2007 $ $ $ $ Continuing operations Revenue 6 (a) 8,360,694 8,111,273 920,750 928,971Cost of sales (4,109,650) (3,496,480) - -Gross profit 4,251,044 4,614,793 920,750 928,971Other income 6 (b) 17,364 50,845 - 48,512 Employee benefits expense 7 (a) (1,189,836) (1,163,279) (1,189,836) (1,163,279)Oil and gas exploration expenses (3,550,163) (5,774,692) (262,005) (836,739)Impairment of oil and gas properties

7 (b) (974,070) (1,865,887) - -

Impairment of available-for-sale financial assets

(140,000) - - -

Other expenses 7 (c) (2,246,115) (2,927,167) (4,551,937) (8,495,818)Share of loss of an associate 15 (59,100) (43,388) - -Loss before income tax from continuing operations

(3,890,876) (7,108,775) (5,083,028) (9,518,353)

Income tax gain 8 45,746 - 45,746 -Loss after income tax from continuing operations

(3,845,130) (7,108,775) (5,037,282) (9,518,353)

Loss for the period (3,845,130) (7,108,775) (5,037,282) (9,518,353) Loss per share (cents per shares)

Basic loss per share 9 (1.53) (3.73) Diluted loss per share 9 (1.53) (3.73)

VICTORIA PETROLEUM N.L. CASH FLOW STATEMENT


The cash flow statement should be read in conjunction with the accompanying notes 24

Note Consolidated Parent 2008

$ 2007

$ 2008

$ 2007

$ Cash flows from operating activities

Receipts from customers 7,763,318 8,247,080 - -Payments to suppliers and employees

(6,338,035) (6,205,661) (2,562,697) (2,390,571)

Payments for exploration expenditure

(4,027,133) (5,838,814) (274,980) (833,850)

Interest received 6 (a) 235,883 117,270 182,256 79,469Fees received for technical services

713,258 798,590 711,683 798,590

Other net receipts/(payments) 17,364 (400,297) - 35,423Net cash flows used in operating activities

25 (1,635,345) (3,281,832) (1,943,738) (2,310,939)

Cash flows from investing activities

Payments for development of oil and gas properties

(3,415,139) (2,363,382) - -

Purchase of available-for-sale investments

(200,000) - - -

Purchase of property, plant and equipment

(11,299) (22,766) (5,418) -

Proceeds from disposal of investments held for trading

1,088,496 992,926 727,507 911,926

Loans advanced to controlled entities

- - (5,756,893) (4,531,302)

Proceeds advanced from controlled entities

- - 1,256,024 1,985,283

Net cash flows used in investing activities

(2,537,942) (1,393,222) (3,778,780) (1,634,093)

Cash flows from financing activities

Proceeds from share issues 22 17,426,519 7,310,695 17,426,519 7,310,695Payments of transaction costs of issue of shares

(536,853) (27,754) (536,853) (27,754)

Net cash flows from financing activities

16,889,666 7,282,941 16,889,666 7,282,941

Net increase in cash and cash equivalents

12,716,379 2,607,887 11,167,148 3,337,909

Net foreign exchange differences (426,687) (590,108) (113,626) (129,799)Cash and cash equivalents at the beginning of period

5,380,543 3,362,764 4,859,271 1,651,161

Cash and cash equivalents at the end of the period

10 17,670,235 5,380,543 15,912,793 4,859,271

VICTORIA PETROLEUM N.L. STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2008

The statement of changes in equity should be read in conjunction with the accompanying notes 25

Consolidated

Contributed equity

Accumulated losses

Foreign currency translation

reserve

Share based payments

reserve

Net unrealised gain/(loss)

reserve

Total

$ $ $ $ $ $ Balance 1 July 2006 78,900,683 (67,343,062) (376,414) 1,177,675 - 12,358,882 Currency translation differences - - (487,111) - - (487,111) Total income/(expense) recognised directly in equity - - (487,111) -

- (487,111)

Loss for the period - (7,108,775) - - - (7,108,775) Total income (expense) for the period - (7,108,775) (487,111) - - (7,595,886) Issue of share capital 7,560,695 - - - - 7,560,695 Share issue costs (324,212) - - - - (324,212) Balance 30 June 2007 86,137,166 (74,451,837) (863,525) 1,177,675 - 11,999,479 Balance 1 July 2007 86,137,166 (74,451,837) (863,525) 1,177,675 - 11,999,479 Currency translation differences - - (262,710) - - (262,710) Net gain recognised on re-measurement to fair value of available for sale investments - - - - 152,487 152,487 Tax effect on net gain recognised on re-measurement to fair value of available for sale investments - - - - (45,746) (45,746) Total income/(expense) recognised directly in equity - - (262,710) - 106,741 (155,969) Loss for the period - (3,845,130) - - - (3,845,130) Total income (expense) for the period - (3,845,130) (262,710) - 106,741 (4,001,099) Issue of share capital 17,426,519 - - - - 17,426,519 Share issue costs (256,429) - - - - (256,429) Balance 30 June 2008 103,307,256 (78,296,967) (1,126,235) 1,177,675 106,741 25,168,470

VICTORIA PETROLEUM N.L. STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2008

The statement of changes in equity should be read in conjunction with the accompanying notes 26

Parent

Contributed equity

Accumulated losses

Share based payments

reserve

Net unrealised gain/(loss)

reserve

Total

$ $ $ $ $

Balance 1 July 2006 78,900,683 (71,410,043) 1,177,675 - 8,668,315 Currency translation differences - - - - - Total income/(expense) recognised directly in equity - - -

- -

Loss for the period - (9,518,353) - - (9,518,353) Total income/(expense) for the period - (9,518,353) - - (9,518,353) Issue of share capital 7,560,695 - - - 7,560,695 Share issue costs (324,212) - - - (324,212) Balance 30 June 2007 86,137,166 (80,928,396) 1,177,675 - 6,386,445 Balance 1 July 2007 86,137,166 (80,928,396) 1,177,675 - 6,386,445 Currency translation differences - - - - - Net gain recognised on re-measurement to fair value of available for sale investments - - - 152,487 152,487 Tax effect on net gain recognised on re-measurement to fair value of available for sale investments - - - (45,746) (45,746) Total income/(expense) recognised directly in equity - - - 106,741 106,741 Loss for the period - (5,037,282) - - (5,037,282) Total income/(expense) for the period - (5,037,282) - 106,741 (4,930,541) Issue of share capital 17,426,519 - - - 17,426,519 Share issue costs (256,429) - - - (256,429) Balance 30 June 2008 103,307,256 (85,965,678) 1,177,675 106,741 18,625,994

VICTORIA PETROLEUM N.L. NOTES TO THE FINANCIAL STATEMENTS


27

NOTE 1: CORPORATE INFORMATION The financial report of Victoria Petroleum N.L. (the Company) for the year ended 30 June 2008 was authorised for issue in accordance with a resolution of the directors on 9 September 2008. Victoria Petroleum N.L. (the Parent) is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Stock Exchange (ASX code: VPE). The nature of the operations and principal activities of the Group are oil and gas exploration and production. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of preparation The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The financial report has also been prepared on a historical cost basis, except for investments held for trading and available-for-sale investments, which have been measured at fair value. The financial report is presented in Australian dollars. (b) Compliance with IFRS The financial report complies with Australian Accounting Standards as issued by the Australian Accounting Standards Board and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. (c) New accounting standards and interpretations In the current year, the Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) and the Urgent Issues Group that are relevant to its operations and effective for annual reporting periods beginning on 1 July 2007. The adoption of these new and revised Standards and Interpretations did not have any effect on the financial position or performance of the Group. However, the Standards have affected the disclosures in the financial report. Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective have not been adopted by the Group for the annual reporting period ending 30 June 2008. These are outlined in the table below:



NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

28

Reference Title Summary Application date of standard*

Impact on Group financial report

Application date for Group*

AASB 8 and AASB 2007-3

Operating Segments and consequential amendments to other Australian Accounting Standards

New standard replacing AASB 114 Segment Reporting, which adopts a management reporting approach to segment reporting.

1 January 2009 AASB 8 is a disclosure standard so will have no direct impact on the amounts included in the Group's financial statements. In addition, the amendments may have an impact on the Group’s segment disclosures.

1 July 2009

AASB 123 (Revised) and AASB 2007-6

Borrowing Costs and consequential amendments to other Australian Accounting Standards

The amendments to AASB 123 require that all borrowing costs associated with a qualifying asset be capitalised.

1 January 2009 Not applicable to the Group, therefore no impact.

1 July 2009

AASB 101 (Revised) and AASB 2007-8

Presentation of Financial Statements and consequential amendments to other Australian Accounting Standards

Introduces a statement of comprehensive income. Other revisions include impacts on the presentation of items in the statement of changes in equity, new presentation requirements for restatements or reclassifications of items in the financial statements, changes in the presentation requirements for dividends and changes to the titles of the financial statements.

1 January 2009 These amendments are only expected to affect the presentation of the Group’s financial report and will not have a direct impact on the measurement and recognition of amounts disclosed in the financial report. The Group has not determined at this stage whether to present a single statement of comprehensive income or two separate statements.

1 July 2009

AASB 2008-1

Amendments to Australian Accounting Standard – Share-based Payments: Vesting Conditions and Cancellations

The amendments clarify the definition of 'vesting conditions', introducing the term 'non-vesting conditions' for conditions other than vesting conditions as specifically defined and prescribe the accounting treatment of an award that is effectively cancelled because a non-vesting condition is not satisfied.

1 January 2009 The Group has share-based payment arrangements that may be affected by these amendments. However, the Group has not yet determined the extent of the impact, if any.

1 July 2009

AASB 2008-2

Amendments to Australian Accounting Standards – Puttable Financial Instruments and Obligations arising on Liquidation

The amendments provide a limited exception to the definition of a liability so as to allow an entity that issues puttable financial instruments with certain specified features, to classify those instruments as equity rather than financial liabilities.


1 July 2009

AASB 3 (Revised)

Business Combinations The revised standard introduces a number of significant changes to the accounting for business combinations.

1 July 2009 Not applicable to the Group, therefore no impact.

1 July 2009




29




AASB 127 (Revised)

Consolidated and Separate Financial Statements

Under the revised standard, a change in the ownership interest of a subsidiary (that does not result in loss of control) will be accounted for as an equity transaction.

1 July 2009 If the Group changes its ownership interest in existing subsidiaries in the future, the change will be accounted for as an equity transaction. This will have no impact on goodwill, nor will it give rise to a gain or a loss in the Group’s income statement.

1 July 2009

AASB 2008-3

Amendments to Australian Accounting Standards arising from AASB 3 and AASB 127

Amending standard issued as a consequence of revisions to AASB 3 and AASB 127.

1 July 2009 No change to accounting policy, therefore no impact.

1 July 2009

Amendments to International Financial Reporting Standards

Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate

The main amendments of relevance to Australian entities are those made to IAS 27 deleting the ‘cost method’ and requiring all dividends from a subsidiary, jointly controlled entity or associate to be recognised in profit or loss in an entity's separate financial statements (i.e., parent company accounts). The distinction between pre- and post-acquisition profits is no longer required. However, the payment of such dividends requires the entity to consider whether there is an indicator of impairment. AASB 127 has also been amended to effectively allow the cost of an investment in a subsidiary, in limited reorganisations, to be based on the previous carrying amount of the subsidiary (that is, share of equity) rather than its fair value.

1 January 2009 No change to accounting policy, therefore no impact.

1 July 2009

Amendments to International Financial Reporting Standards

Improvements to IFRSs

The improvements project is an annual project that provides a mechanism for making non-urgent, but necessary, amendments to IFRSs. The IASB has separated the amendments into two parts: Part 1 deals with changes the IASB identified resulting in accounting changes; Part II deals with either terminology or editorial amendments that the IASB believes will have minimal impact.

1 January 2009 except for amendments to IFRS 5, which are effective from 1 July 2009.

The Group has not yet determined the extent of the impact of the amendments, if any.

1 July 2009

IFRIC 15 Agreements for the Construction of Real Estate

This interpretation proposes that when the real estate developer is providing construction services to the buyer's specifications, revenue can be recorded only as construction progresses. Otherwise, revenue should be recognised on completion of the relevant real estate unit.


1 July 2009




30




IFRIC 16 Hedges of a Net Investment in a Foreign Operation

This interpretation proposes that the hedged risk in a hedge of a net investment in a foreign operation is the foreign currency risk arising between the functional currency of the net investment and the functional currency of any parent entity. This also applies to foreign operations in the form of joint ventures, associates or branches.


1 July 2009

* designates the beginning of the applicable annual reporting period unless otherwise stated. Adoption of new accounting standard The Group has adopted AASB 7 Financial Instruments: Disclosures and all consequential amendments which became applicable on 1 January 2007. The adoption of this standard has only affected the disclosure in these financial statements. There has been no affect on profit and loss or the financial position of the entity. (d) Going concern The financial report has been prepared on a going concern basis, which contemplates the continuity of normal business activity and the realisation of assets and liabilities in the normal course of business. (e) Basis of consolidation The consolidated financial statements comprise the financial statements of Victoria Petroleum N.L. and its subsidiaries (as outlined in note 27) as at 30 June each year (the Group). Interests in associates are equity accounted and are not part of the consolidated Group (see note 2 (k) below.) Subsidiaries are all those entities over which the Group has the power to govern the financial and operating policies so as to obtain benefits from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether a group controls another entity. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. In preparing the consolidated financial statements, all intercompany balances and transactions, income and expenses and profit and losses resulting from intra-group transactions have been eliminated in full. Subsidiaries are fully consolidated from the date on which control is obtained by the Group and cease to be consolidated from the date on which control is transferred out of the Group. Investments in subsidiaries held by Victoria Petroleum N.L. are accounted for at the lower of cost and recoverable value in the separate financial statements of the parent entity. (f) Segment reporting – refer note 5 A business segment is a distinguishable component of the entity that is engaged in providing products or services which are subject to risks and returns that are different to those of other operating business segments. A geographical segment is a distinguishable component of the entity that is engaged in providing products or services within a particular economic environment and is subject to risks and returns that are different than those of segments operating in other economic environments.




31

(g) Foreign currency translation – refer note 23 Functional and presentation currency Both the functional and presentation currency of Victoria Petroleum N.L. and its Australian subsidiaries is Australian dollars ($). The United States subsidiary’s functional currency is United States dollars which is translated to presentation currency (see below). Transactions and balances Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation of Group Companies functional currency to presentation currency The results of the United States subsidiary are translated into Australian dollars as at the average exchange rate for the period. Assets and liabilities are translated at exchange rates prevailing at balance date. Exchange variations resulting from the translation are recognised in the foreign currency translation reserve in equity. On consolidation, exchange differences arising from the translation of the net investment in the United States subsidiary are taken to the foreign currency translation reserve. If the United States subsidiary were sold, the proportionate share of exchange differences would be transferred out of equity and recognised in the income statement. (h) Cash and cash equivalents – refer note 10 Cash and cash equivalents in the balance sheet comprise cash at bank and in hand. For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. (i) Trade and other receivables – refer note 11 Trade receivables, which generally have 30-60 day terms, are recognised and carried at the original invoice amount less an allowance for impairment. Collectibility of trade receivables is reviewed on an ongoing basis. Individual debts that are known to be uncollectible are written off when identified. An impairment provision is recognised when there is objective evidence that the Group will not be able to collect the receivable. Financial difficulties of the debtor are considered objective evidence of impairment.




32

(j) Investments and other financial assets – refer notes 12, 13 and 14 Investments in controlled entities are carried at the lower of cost and recoverable amount. Investments and financial assets in the scope of AASB 139 Financial Instruments: Recognition and Measurement are categorised as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, or available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Designation is re-evaluated at each financial year end, but there are restrictions on reclassifying to other categories. When financial assets are recognised initially, they are measured at fair value, plus, in the case of assets not at fair value through profit or loss, directly attributable transaction costs. Recognition and derecognition All regular way purchases and sales of financial assets are recognised on the trade date (ie the date that the Group commits to purchase or sell the asset). Regular way purchases or sales are purchases or sales of financial assets under contracts that require delivery of the assets within the period established generally by regulation or convention in the market place. Financial assets are derecognised when the right to receive cash flows from the financial assets have expired or been transferred. Financial assets at fair value through the profit or loss – note 12 Financial assets classified as held for trading are included in the category ‘financial assets at fair value through profit or loss’. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term with the intention of making a profit. Gains or losses on financial assets held for trading are recognised in profit or loss and the related assets are classified as current assets in the balance sheet. Loans and receivables – note 13 Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in the profit or loss when the loans and receivables are derecognised or impaired. These are included in current assets, except for those with maturities greater than 12 months after the balance date, which are classified as non-current. Available-for-sale securities – note 14 Available-for-sale investments are those non-derivative financial assets, principally equity securities, which are designated as available-for-sale or are not classified as any of the three preceding categories. After initial recognition, available-for-sale securities are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is recognised in profit or loss. Where available-for-sale securities are held in escrow, the fair value is discounted to the present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. The fair values of investments that are actively traded in organised financial markets are determined by reference to quoted market bid prices at the close of business on the balance sheet date.




33

(k) Investments in associates – refer note 15 The Group’s investment in its associate is accounted for using the equity method of accounting in the consolidated financial statements. Associates are entities over which the Group has significant influence and that are neither subsidiaries nor joint ventures. The Group generally deems they have significant influence if they have over 20% of the voting rights. Under the equity method, investments in associates are carried in the consolidated balance sheet at cost plus post-acquisition changes in the Group’s share of the net assets of the associate. After application of the equity method, the Group determines whether it is necessary to recognise any impairment loss with respect to the Group’s net investment in the associate. The Group’s share of its associate’s post-acquisition profits or losses is recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any unsecured long-term receivables and loans, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. The reporting dates of the associate and the Group are identical and the associate’s accounting policies conform to those used by the Group for like transactions and events in similar circumstances. Derecognition An investment in an associate is derecognised when the Group ceases to have significant influence over an associate. The carrying amount of the investment at the date that it ceases to be an associate is regarded as its cost on initial measurement as a financial asset. (l) Interest in jointly controlled operations – refer note 26 The Group has interests in joint ventures that are jointly controlled operations. A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. A jointly controlled operation involves the use of assets and other resources of the venturers rather than the establishment of a separate entity. The Group recognises its interest in the jointly controlled operations by recognising its interest in the assets and the liabilities of the joint ventures. The Group also recognises the expenses that it incurs and its share of the income that it earns from the sale of goods or services by the jointly controlled operation.




34

(m) Property, plant and equipment – refer note 16 Property, plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment losses. Such cost includes the cost of replacing parts that are eligible for capitalisation when the cost of replacing the parts is incurred. Similarly, when each major inspection is performed, its cost is recognised in the carrying amount of plant and equipment as a replacement only if it is eligible for capitalisation. All other repairs and maintenance are recognised in profit or loss as incurred. Depreciation is calculated on a straight-line basis over the estimated useful life of the specific assets as follows: Furniture and fittings – over 2 to 5 years The assets’ residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each financial year end. Derecognition An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the year the asset is derecognised. (n) Oil and gas properties – refer note 17 Oil and gas properties include capitalised project expenditure, development expenditure and costs associated with lease and well equipment. The Group uses the units of production methods to amortise costs carried forward in relation to its oil and gas properties. For this approach the calculations are based on Proved and Probable (2P) reserves as determined by the Company’s reserves determination. Impairment on the carrying value of oil and gas properties is based on Proved and Probable (2P) reserves and is assessed on a well by well basis. (o) Leases – refer note 30 The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. Group as a lessee Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised as an expense in profit or loss. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term. Operating lease payments are recognised as an expense in the income statement on straight line basis over the lease term. Operating lease incentives are recognised in the income statement as an integral part of the total lease expense.




35

(p) Impairment of non-financial assets – refer note 17 Assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Group conducts an annual internal review of asset values, which is used as a source of information to assess for any indicators of impairment. External factors, such as changes in expected future processes, technology and economic conditions, are also monitored to assess for indicators of impairment. If any indication of impairment exists, an estimate of the asset’s recoverable amount is calculated. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows that are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses relating to continuing operations are recognised in the income statement. An assessment is also made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the income statement. After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. (q) Trade and other payables – refer notes 18 and 20 Trade payables and other payables are carried at amortised cost. Due to their short term nature, they are not discounted. They represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within 30 days of recognition.




36

(r) Provisions and employee benefits – refer notes 19 and 21 Provisions are recognised when the Group has a present obligation (legal or constructive) as result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the balance sheet date using a discounted cash flow methodology. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised in finance costs. Rehabilitation costs – note 21 The Group records the present value of the estimated cost of legal and constructive obligations to restore operating locations in the period in which the obligation arises. The nature of rehabilitation activities includes the removal of facilities, abandonment of wells and restoration of affected areas. Typically, the obligation arises when the asset is installed at the production location. When the liability is initially recorded, the estimated cost is capitalised by increasing the carrying amount of the related oil and gas properties. Over time, the liability is increased for the change in the present value based on a risk adjusted pre-tax discount rate appropriate to the risks inherent in the liability. The unwinding of the discount is recorded as an accretion charge within finance costs. The carrying amount capitalised in oil and gas properties is amortised over the useful life of the related asset. Costs incurred which relate to an existing condition caused by past operations, and which do not have a future economic benefit, are expensed. The estimated costs of rehabilitation are reviewed annually and adjusted as appropriate for changes in legislation, technology or other circumstances. Employee leave benefits Wages, salaries, annual leave and sick leave – note 19 Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in respect of employee’s services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Expenses for non-accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable. Long service leave – note 21 The liability for long service is recognised and measured as the fair value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method.




37

(s) Share-based payment transactions – refer note 23 Equity settled transactions The Group provides benefits to employees (including Key Management Personnel) of the Group in the form of share-based payments, whereby employees render services in exchange for shares or rights over shares (equity-settled transactions). A formal employee share or share option scheme has not been developed. The cost of these equity-settled transactions with employees is measured by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by reference to the current share price in relation to fully paid shares and with the use of a binomial option pricing model in relation to partly paid shares or rights to acquire shares. In valuing equity-settled transactions, no account is taken of any vesting conditions, other than conditions linked to the price of the shares of Victoria Petroleum N.L. (market conditions) if applicable. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or services conditions are fulfilled (the vesting period), ending on the date on which the relevant employees become fully entitled to the award (the vesting date). The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects (a) the grant date fair value of the award, (b) the extent to which the vesting period has expired and (c) the Group’s best estimate of the number of equity instruments that will ultimately vest. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. The income statement charge for a period represents the movement in cumulative expense recognised as at the beginning and end of that period. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is only conditional upon a market condition. If the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. An additional expense is recognised for any modification that increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee, as measured at the date of modification. If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and the new award are treated as if they were a modification of the original award, as described in the previous paragraph. The dilutive effect, if any, of the outstanding options is reflected as additional share dilution in the computation of earnings per share (see note 9). (t) Contributed equity – refer note 22 Ordinary shares are classified as equity. 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.




38

(u) Revenue recognition – refer note 6 Revenue is recognised and measured at the fair value of the consideration received or receivable to the extent it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: Sale of oil and gas Revenue is recognised when the significant risks and rewards of ownership of the product have passed to the buyer and the amount of revenue can be measured reliably. Risks and rewards are considered passed to the buyer at the time of delivery of the product to the customer. Interest income Revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Technical service fees Revenue is recognised in the period in which it is earned. (v) Oil and gas exploration costs Exploration expenditure is expensed as incurred, except when such costs are expected to be recouped through the successful development and exploitation, or sale, of an area of interest. Exploration assets acquired from a third party are capitalised, provided that the rights to tenure of the area of interest is current and either (a) the carrying value is expected to be recouped through the successful development and exploitation or sale of an area of interest or (b) exploitation and/or evaluation activities in the area of interest have not at the reporting date reached a stage that permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in, or relating to, the area of interest are continuing. If capitalised exploration assets do not meet either of these tests, they are expensed to the income statement. (w) Income tax and other taxes – refer note 8 Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the current period’s taxable income. The tax rates and tax laws used to compute the amount are those that are enacted or substantially enacted by the balance sheet date. Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences, except: • when the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability

in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or

• when the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.




39

(w) Income tax and other taxes (continued) Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilised, except: • when the deferred income tax asset relating to the deductible temporary difference arises from the initial

recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor the taxable profit or loss; or

• when the deductible temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority. Tax consolidation legislation Victoria Petroleum N.L. and its wholly-owned Australian subsidiaries have implemented the tax consolidation legislation as of 1 July 2003. As a consequence, individual entities within the consolidated group will recognise current and deferred tax amounts relating to their own transactions, events and balances. Any recognised balances relating to income tax payable or receivable, or to tax losses incurred by the individual entity will then be transferred to the head entity of the consolidated group, Victoria Petroleum N.L., by way of a contribution to or distribution of equity as appropriate. However, as there is no income tax payable in the current year, and it is not proposed to recognise balances in respect of losses in the current year in the individual entities, no such transfers will occur. The entities also intend to enter into a Tax Sharing Agreement, but details of this agreement are still yet to be finalised. The absence of a Tax Sharing Agreement is not expected to have a material impact on the consolidated assets and liabilities and results.




40

(w) Income tax and other taxes (continued) Other taxes Revenues, expense and assets are recognised net of the amount of goods and services tax (GST) except: • when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in

which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

• receivables and payables, which are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet. Cash flows are included in the Cash Flow Statement on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. (x) Earnings per share – refer note 9 Basic earnings per share is calculated as net loss attributable to members of the parent, adjusted to exclude any costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted earnings per share is calculated as net profit attributable to members of the parent, adjusted for: • costs of servicing equity (other than dividends); • the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been

recognised as expenses; and • other non-discretionary changes in revenues or expenses during the period that would result from the

dilution of potential ordinary shares; divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. NOTE 3: FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group’s principal financial instruments comprise cash and cash equivalents, receivables, investments held for trading, available-for-sale investments and payables. The Group manages its exposure to key financial risks in accordance with the Group’s financial risk management policy. The objective of the policy is to support the delivery of the Group’s financial targets whilst protecting future financial security. The main risks arising from the Group’s financial instruments are interest rate risk, foreign currency risk, price risk and credit risk. The Group uses different methods to measure and manage different types of risks to which it is exposed. These include monitoring levels of exposure to interest rate and foreign exchange risk and assessments of market forecasts for interest rate, foreign exchange, commodity prices and others. The Board reviews and agrees policies for managing each of these risks. Due to the size and nature of the Company’s operations, and as the Company does not use derivative instruments or debt, the directors do not believe the establishment of a risk management committee is warranted.



41

NOTE 3: FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Risk exposures and responses Interest rate risk The Group’s exposure to market interest rates relates primarily to the Group’s cash and cash equivalents. The Group constantly analyses its interest rate exposure. Within this analysis, consideration is given to potential renewals of existing positions and alternative products. At balance date, the Group had the following exposure to Australian variable interest rate risk: Consolidated Parent 2008

$ 2007

$ 2008

$ 2007

$ Financial assets Cash and cash equivalents 17,057,229 5,182,866 15,912,793 4,859,271 The following sensitivity analysis is based on the interest rate risk exposures in existence at the balance sheet date. The 1% sensitivity is based on reasonably possible changes over a financial year, using the observed range of actual historical rates for the preceding five year period. At 30 June 2008, if interest rates had moved, as illustrated in the table below, with all other variables held constant, post tax profit would have been affected as follows: Consolidated Parent Higher/(Lower) Higher/(Lower) Judgements of reasonably possible movements:

2008 $

2007 $

2008 $

2007 $

Post tax profit +1.0% (100 basis points) 170,572 51,829 159,128 48,593–1.0% (100 basis points) (170,572) (51,829) (159,128) (48,593) The movements in profit are due to higher/lower interest income from cash balances. The movements in profit in 2008 are more sensitive than in 2007 due to the higher cash balances held at balance date. Management believe the balance date risk exposures are representative of the risk exposure inherent in the financial instruments.



42

NOTE 3: FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Risk exposures and responses (continued) Foreign currency risk The Group’s exposure to foreign currency risk relates primarily to the wholly owned subsidiary which is based in the United States of America. As a result of operations in the United States, the Group’s balance sheet can be affected significantly by movements in the US$/A$ exchange rates. The Group also has transactional currency exposures. Such exposure arises from sales or purchases by an operating entity in currencies other than the functional currency. Approximately 74% of the Group’s sales are denominated in currencies other than the functional currency of the operating entity making the sale. At balance date, the Group had the following exposure to US$ foreign currency risk: Consolidated Parent 2008

$ 2007

$ 2008

$ 2007

$ Financial assets Cash and cash equivalents 1,489,004 17,044 1,187,713 5,770Trade and other receivables 774,920 799,805 - -Net exposure 2,263,924 816,849 1,187,713 5,770 The following sensitivity is based on the foreign currency risk exposures in existence at the balance sheet date. The 5% sensitivity is based on reasonably possible changes over a financial year, using the observed range of actual historical rates for the preceding five year period. At 30 June 2008, had the Australian dollar moved, as illustrated in the table below, with all other variables held constant, post tax profit and equity would have been affected as follows: Consolidated Parent Higher/(Lower) Higher/(Lower) Judgements of reasonably possible movements:

2008 $

2007 $

2008 $

2007 $

Post tax profit AUD/USD +5% (107,774) (38,537) (56,621) (278)AUD/USD –5% 119,189 43,391 62,441 300 The movements in profit in 2008 are more sensitive than in 2007 due to the higher level of US dollar cash held at balance date. Management believe the balance date risk exposures are representative of the risk exposure inherent in the financial instruments.



43

NOTE 3: FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Risk exposures and responses (continued) Equity securities price risk The Group’s exposure to equity securities price risk relates primarily to the investments held for trading and available-for-sale investments. Equity securities price risk arises from investments in equity securities. The equity investments held are publicly traded on the ASX. At balance date, the Group had the following exposure to equity securities price risk: Note Consolidated Parent 2008

$ 2007

$ 2008

$ 2007

$ Financial assets Investments held for trading 12 1,537,401 2,861,592 111,625 922,499Available-for-sale investments 14 360,000 - 300,000 -Net exposure 1,897,401 2,861,592 411,625 922,499 The following sensitivity is based on the equity securities price risk exposures in existence at the balance sheet date. The 10% sensitivity is based on reasonably possible changes over a financial year, using the observed range of actual historical prices over a one year period. At 30 June 2008, had the equity securities price moved, as illustrated in the table below, with all other variables held constant, post tax profit and equity would have been affected as follows: Consolidated Parent Higher/(Lower) Higher/(Lower) Judgements of reasonably possible movements:

2008 $

2007 $

2008 $

2007 $

Post tax profit Price +10% 153,740 286,159 11,163 92,250Price –10% (153,740) (286,159) (11,163) (92,250) Net unrealised gain/(loss) reserve Price +10% 25,200 - 21,000 -Price –10% (25,200) - (21,000) -



44

NOTE 3: FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Risk exposures and responses (continued) Commodity price risk The Group’s exposure to commodity price risk relates to the market price of oil and natural gas. Currently, the Group’s exposure to this risk is not hedged. The Board will continue to monitor this risk and seek to mitigate it, if considered necessary. At balance date, the Group does not have any financial assets or liabilities with an exposure to commodity price risk as there is no adjustment of the selling price after delivery. Credit Risk The Group’s exposure to credit risk arises from potential default of the counter party, with a maximum exposure equal to the carrying amount of these instruments. Credit risk arises from the financial assets of the Group, which comprise cash and cash equivalents, trade and other receivables, investments held for trading and available-for-sale investments. The Group does not hold any credit derivatives to offset its credit exposure. The Group only trades with recognised, creditworthy third parties, and as such, collateral is not requested nor is it the Group’s policy to securitise its trade and other receivables. Receivable balances are monitored on an on-going basis, with the result that the Group’s exposure to bad debts is not significant. There are no significant concentrations of credit risk within the Group. Cash balances in excess of current requirements are held in bank accounts earning higher interest rates to minimise risk. These funds are not restricted, and can be accessed at any time. Liquidity Risk The liquidity position of the Group is managed to ensure sufficient liquid funds are available to meet the Group’s financial commitments in a timely and cost-effective manner. It is the Group’s policy to continually review the Group’s liquidity position including cash flow forecasts to determine the forecast liquidity position and maintain appropriate liquidity levels. The remaining contractual maturities of the Group’s and parent entity’s financial liabilities are: Consolidated Parent 2008

$ 2007

$ 2008

$ 2007

$ 6 months or less 1,174,613 1,494,429 241,165 524,177Over 6 months - - 6,989,137 5,733,114 1,174,613 1,494,429 7,230,302 6,257,291 The Group funds its activities through capital raising in order to limit its liquidity risk.



45

NOTE 4: SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements and estimates on historical experience and on various other factors it believes to be reasonable under the circumstances, the results of which form the basis of the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. Management has identified the following critical accounting policies for which significant judgements, estimates and assumptions are made. Actual results may differ from these estimates under different assumptions and conditions and may materially affect financial results or the financial position reported in future periods. Further details of the nature of these assumptions and conditions may be found in the relevant notes to the financial statements. Classification of Investments The Group has decided to classify investments in listed securities as either ‘held-for-trading’ or ‘available-for-sale’ based on the purpose for which investments are held. Movements in fair value are recognised in profit or loss or directly in equity respectively. The fair value of listed shares has been determined by reference to published price quotations in an active market. Exploration and evaluation The Group’s accounting policy for exploration and evaluation is set out in Note 2 (v). The 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 the Group’s policy, management concludes that the Group is unlikely to recover the expenditure by future exploitation or sale, then the relevant capitalised amount will be written off to the income statement. All exploration expenditure incurred in the current year was expensed to the income statement. Share-based payment transactions The Group measures the cost of equity-settled transactions with employees 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 pricing model. Impairment of assets In determining the recoverable amount of assets, in the absence of quoted market prices, estimations are made regarding the present value of future cash flows using asset-specific discount rates. For oil and gas properties, expected future cash flow estimation is based on reserves, future production profiles, commodity prices and costs.



46

NOTE 4: SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS (CONTINUED) Reserves estimates Estimates of recoverable quantities of Proven and Probable (2P) reserves, that are used to review the carrying value of oil and gas properties, include assumptions regarding commodity prices, exchange rates, discount rates, and production and transportation costs for future cash flows. It also requires interpretation of complex 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. Changes in reserves can impact asset carrying values, the provision for restoration and the recognition of deferred tax assets, due to changes in estimated future cash flows. Reserves are integral to the amount of depreciation, depletion and amortisation charged to the income statement. Reserves estimates for oil and gas properties in the United States of America are prepared by independent third parties in accordance with guidelines prepared by the Society of Petroleum Engineers. Units of production method of depreciation and amortisation The Company applies the units of production method for amortisation of its oil and gas properties and assets based on hydrocarbons produced. These calculations require the use of estimates and assumptions. Significant judgement is required in assessing the available reserves and future production associated with the assets to be amortised under this method. Factors that must be considered in determining reserves and resources and future production are the Company’s history of converting resources to reserves in the relevant time frames, markets and future developments. When these factors change or become known in the future, such differences will impact pre-tax profit and carrying values of assets. It is impracticable to quantify the effect of these changes in these estimates and assumptions in future periods. Rehabilitation obligations The Group estimates the future removal costs of oil and gas wells and production facilities at the time of installation of the assets. In most instances, removal of assets occurs many years into the future. This requires judgmental assumptions regarding removal data, future environmental legislation, the extent of reclamation articles required, the engineering methodology for estimating future cost, future removal technologies in determining the removal cost, and a company discount rate to determine the present value of these cash flows. For more detail regarding the policy in respect of the provision for rehabilitation, refer to note 2 (r). NOTE 5: SEGMENT INFORMATION Geographically, the Group operates in the United States of America and Australia. Exploration, development and production activities occur in both segments, whilst the head office activities of the Group take place exclusively in Australia. The Group operates in one business segment being oil and gas exploration, development and production.

Segment accounting policies are the same as the Group’s policies described in note 2 (f). During the financial year, there were no changes in segment accounting policies that had a material effect on the segment information. Segment assets are classified in accordance with their use within the geographic segments regardless of legal entity ownership.

The United States of America operations comprise the operations of Victoria Petroleum USA, Inc. The following table presents revenue and loss information and certain asset and liability information regarding geographical segments for the years ended 30 June 2008 and 30 June 2007.



47

NOTE 5: SEGMENT INFORMATION (CONTINUED) Australia United States of America Total 2008

$ 2007

$ 2008

$ 2007

$ 2008

$ 2007

$ Revenue Oil sales 5,486,928 6,595,587 854,601 64,165 6,341,529 6,659,752 Gas sales - - 1,043,212 484,749 1,043,212 484,749 Technical service fees 738,495 849,502 1,575 - 740,070 849,502 Total segment revenue 6,225,423 7,445,089 1,899,388 548,914 8,124,811 7,994,003 Unallocated revenue 235,883 117,270 Total consolidated revenue 8,360,694 8,111,273 Result Segment results (3,038,528) (4,424,610) (627,612) (1,558,487) (3,666,140) (5,983,097) Unallocated revenue and expenses (165,636) (1,082,290) Share of loss of associate (59,100) (43,388) Loss before income tax (3,890,876) (7,108,775) Income tax gain 45,746 - Net loss after tax for the year (3,845,130) (7,108,775) Assets and liabilities Segment assets 4,688,867 3,719,460 3,216,794 2,384,021 7,905,661 6,103,481 Investment in associate - 206,612 Unallocated assets 19,567,626 8,242,125 Total assets 27,473,287 14,552,218 Segment liabilities 1,779,478 2,268,967 525,339 283,772 2,304,817 2,552,739 Total liabilities 2,304,817 2,552,739



48

NOTE 5: SEGMENT INFORMATION (CONTINUED) Australia United States of America Total 2008

$ 2007

$ 2008

$ 2007

$ 2008

$ 2007

$ Other segment information Capital expenditure 2,655,742 1,597,130 764,013 789,018 3,419,755 2,386,148 Depreciation expense 13,774 16,466 7,500 5,189 21,274 21,655 Amortisation expense 913,775 865,506 330,906 35,049 1,244,681 900,555 Impairment expense 1,084,023 1,343,570 30,047 522,317 1,114,070 1,865,887 Net loss/(gain) recognised on re-measurement to fair value of investments held for trading

183,896

1,021,153

132,306

1,772

316,202

1,022,925 Cash flow information Net cash flow from operating activities (1,425,795) (2,353,466) (445,433) (1,045,636) (1,871,228) (3,399,102) Net cash flow from investing activities (3,589,143) (2,445,477) 1,051,201 1,052,255 (2,537,942) (1,393,222) Net cash flow from financing activities 16,889,666 7,282,941 - - 16,889,666 7,282,941 Total segment cash flow 11,874,728 2,483,998 605,768 6,619 12,480,496 2,490,617 Unallocated cash flow 235,883 117,270 Total cash flow 12,716,379 2,607,887



49

NOTE 6: REVENUE Note Consolidated Parent 2008

$ 2007

$ 2008

$ 2007

$ (a) Revenue

Oil sales 6,341,529 6,659,752 - -Gas sales 1,043,212 484,749 - -Interest income 235,883 117,270 182,255 79,469Technical service fees 740,070 849,502 738,495 849,502 8,360,694 8,111,273 920,750 928,971

(b) Other income Other 17,364 50,845 - 48,512 17,364 50,845 - 48,512



50

NOTE 7: EXPENSES

Note Consolidated Parent 2008

$ 2007

$ 2008

$ 2007

$ (a) Employee benefits expense

Salaries 811,301 820,400 811,301 820,400Directors’ fees 141,563 120,000 141,563 120,000Superannuation 105,528 88,421 105,528 88,421Provision for annual and long service leave

67,278

16,688

67,278

16,688

Other employee benefit expenses

64,166

117,770

64,166

117,770

1,189,836 1,163,279 1,189,836 1,163,279

(b) Depreciation, amortisation and impairment

Included in cost of sales: Amortisation of oil and gas properties

17

1,244,681

900,555

-

-

1,244,681 900,555 - -Not included in cost of sales: Depreciation 16 21,274 21,655 13,774 16,466Impairment of oil and gas properties

17

974,070

1,865,887

-

-

Impairment of available-for-sale financial assets

140,000

-

-

-

1,135,344 1,887,542 13,774 16,466 (c) Other expenses

Net fair value loss on investment recognised on re-measurement to fair value through profit and loss

316,202 1,022,925 83,367 276,223Foreign exchange losses 85,317 176,636 113,625 129,799Depreciation expense 21,274 21,655 13,774 16,466Provision for impairment in loans to controlled entities

13, 25 - - 2,914,959 6,729,703

Travel and accommodation 180,084 75,941 106,511 74,579Share registry fees 141,958 143,358 141,958 143,358Management fees 3,619 56,539 - -Printing, postage and stationery

43,276

42,944

39,581

41,932

Operating lease expense 222,261 171,003 222,261 171,003Consultants 335,486 315,902 19,324 4,673Audit and taxation advice 249,416 195,527 200,328 169,630IT support fees 39,684 36,406 39,684 36,406Filing and listing fees 29,042 31,203 27,055 28,491Insurance 24,529 37,517 10,995 34,496Public relations 286,610 395,885 286,610 395,885Subscriptions 31,630 29,369 29,869 29,226Communication costs 51,938 40,505 47,744 40,505Other 183,789 133,852 254,292 173,443

2,246,115 2,927,167 4,551,937 8,495,818



51

NOTE 8: INCOME TAX Income tax expense

Consolidated Parent 2008

$ 2007

$ 2008

$ 2007

$ The major components of income tax expense are:

Income statement Current income tax: Current income tax benefit - - - -Adjustments in respect of current income tax of previous years

-

-

-

-

Deferred income tax: Relating to origination & reversal of temporary differences 1,149,533 2,119,616 537,948 857,333Deferred tax assets not brought to account as realisation is not considered probable (1,103,787) (2,119,616) (492,202) (857,333)Income tax gain reported in the income statement

45,746

-

45,746

-

Amounts charged or credited directly to equity

Consolidated Parent 2008

$ 2007

$ 2008

$ 2007

$ Unrealised gain on available-for-sale investments (45,746) - (45,746) -

Income tax expense reported in equity (45,746) - (45,746) -



52

NOTE 8: INCOME TAX (CONTINUED) Numerical reconciliation between aggregate tax expense recognised in the income statement and tax expense calculated per the statutory income tax rate A reconciliation between tax expense and the product of accounting loss before income tax multiplied by the Group’s applicable income tax rate is as follows: Consolidated Parent 2008

$ 2007

$ 2008

$ 2007

$ Accounting loss before income tax (3,890,876) (7,108,775) (5,083,028) (9,518,353) At the Group’s statutory income tax rate of 30% (2007: 30%)

1,167,263 2,132,632 1,524,908 2,855,506

Tax effect of permanent differences: Provision for impairment in loans receivable from controlled entities

- - (874,488) (2,018,911)

Tax losses from other members of the tax consolidated group

- - (112,472) 20,738

Share of associates net result (17,730) (13,016) - -Net tax benefit not recognised in the current year due to uncertainty of recoupment

(1,103,787) (2,119,616) (492,202) (857,333)Income tax gain reported in the income statement

45,746 - 45,746 -



53

NOTE 8: INCOME TAX (CONTINUED) Recognised deferred tax assets and liabilities Deferred income tax at 30 June relates to the following: Consolidated Balance Sheet Income Statement 2008

$ 2007

$ 2008

$ 2007

$ Deferred tax assets/(liabilities) Held for trading financial assets 283,037 201,514 81,523 481,953Available for sale financial assets (45,746) - (45,746) -Property, plant and equipment 1,677 1,819 (142) (1,286)Oil and gas properties 1,359,617 1,515,617 (156,000) 496,901Trade and other payables 20,085 21,630 (1,545) 3,630Provisions 339,061 317,493 21,568 92,891Income tax losses 15,917,210 15,546,264 1,372,952 800,798Other 156,095 139,786 16,309 51,732Deferred tax assets not brought to account as realisation is not regarded as probable

(18,031,036) (17,744,123) (1,288,919) (1,926,619)Gross deferred income tax assets - - - - Parent Balance Sheet Income Statement 2008

$ 2007

$ 2008

$ 2007

$ Deferred tax assets/(liabilities) Held for trading financial assets 19,763 7,997 11,766 221,907Available for sale financial assets (45,746) - (45,746) -Property, plant and equipment 571 856 (285) (2,249)Trade and other payables 20,085 21,630 (1,545) 3,630Provisions 102,538 82,355 20,183 11,756Income tax losses 10,807,865 10,316,345 491,520 571,157Other 156,095 139,786 16,309 51,132Deferred tax assets not brought to account as realisation is not regarded as probable

(11,061,171) (10,568,969) (492,202) (857,333)Gross deferred income tax assets - - - -



54

NOTE 8: INCOME TAX (CONTINUED) Tax losses As at 30 June 2008, the Group had $36,026,218 (2007: $33,164,957) of carry-forward tax losses that are available for use in Australia. The Group has deferred tax assets arising from these tax losses of $10,807,865 (2007: $9,949,487) that are available indefinitely for offset against future taxable profits of the income tax consolidated group. As at 30 June 2008, the Group also had US$14,036,099 (2007: US$13,572,982) of carry-forward tax losses that are available for use in the USA. Unrecognised temporary differences As at 30 June 2008, the Group has additional deferred tax assets of $2,113,826 (2007: $2,197,859) in respect of other temporary differences. Other than the amounts disclosed above, the benefit of these deferred tax assets is not recognised because it is not considered probable that sufficient taxable income will be derived in future periods against which to offset these assets. In particular, the benefit of the losses will only be obtained in future years if: a) the Group derives future assessable income of a nature and an amount sufficient to enable the benefit

from the deduction for the losses to be realised; b) the Group has complied and continues to comply with the conditions for deductibility imposed by law;

and c) no changes in tax legislation adversely affect the Group in realising the benefit from the deduction for

the losses. Tax consolidation Victoria Petroleum N.L. and its wholly-owned Australian subsidiaries have implemented the tax consolidation legislation as of 1 July 2003. As a consequence, individual entities within the consolidated group will recognise current and deferred tax amounts relating to their own transactions, events and balances. Any recognised balances relating to income tax payable or receivable, or to tax losses incurred by the individual entity will then be transferred to the head entity of the consolidated group, Victoria Petroleum N.L., by way of a contribution to or distribution of equity as appropriate. However, as there is no income tax payable in the current year, and it is not proposed to recognise balances in respect of losses in the current year in the individual entities, no such transfers will occur. The entities also intend to enter into a Tax Sharing Agreement, but details of this agreement are still to be finalised. The absence of a Tax Sharing Agreement is not expected to have a material impact on the consolidated assets and liabilities and results.



55

NOTE 9: EARNINGS PER SHARE Basic earnings per share amounts are calculated by dividing net profit/loss for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. The following reflects the income and share data used in the basic and diluted earnings per share computations: 2008 2007 Net loss (used in calculating basic and diluted loss per share) $3,845,130 $7,108,775 Weighted average number of ordinary shares 251,816,994 190,423,974 Loss per share – cents (1.53) (3.73) The Group has 68,506,647 (2007: 68,579,723) options on issue which would not have a dilutive effect on basic EPS as calculated in accordance with AASB 133. On 3 July 2007, the company issued 28,000,000 ordinary shares. Of this total, 26,000,000 shares have been taken into account in the earnings per share calculation for the prior year, as the cash for these shares was received prior to 30 June 2007. The remaining 2,000,000 shares have been included in the earnings per share calculation for the current year, as the cash for these shares was received during the current year. NOTE 10: CURRENT ASSETS – CASH AND CASH EQUIVALENTS Note Consolidated Parent 2008

$ 2007

$ 2008

$ 2007

$ Cash at bank and in hand 16,674,975 4,966,693 15,840,782 4,711,619Cash advanced to jointly controlled operations

26

995,260

413,850

72,011

147,652

17,670,235 5,380,543 15,912,793 4,859,271 Fair value Cash at bank earns interest at floating rates based on daily bank deposit rates. The carrying amounts of cash and cash equivalents represent fair value. Foreign exchange and interest rate risk Details regarding foreign exchange and interest rate risk are disclosed in note 3.



56

NOTE 11: CURRENT ASSETS – TRADE AND OTHER RECEIVABLES Note Consolidated Parent 2008

$ 2007

$ 2008

$ 2007

$ Trade receivables (i) 1,296,444 946,048 - -Sundry receivables (ii) 256,882 580,440 149,151 51,423Joint venture receivables (iii) 26 239,058 86,685 16,726 7,227Prepayments 430,788 - - - 2,223,172 1,613,173 165,877 58,650 (i) These receivables relate to monies owing from oil and gas sales, and are receivable 30 days from

invoice date. (ii) These receivables are non-interest bearing, unsecured and expected to be repaid within the next 12 months. (iii) These receivables relate to the portion of trade receivables in joint ventures which is attributable to

the Group. All balances within trade and other receivables do not contain impaired assets and are not past due. It is expected that these balances will be received when due, and there is no history of counterparties defaulting on these receivables. Fair value and credit risk Due to the short term nature of these receivables, their carrying value is assumed to approximate their fair value. The maximum exposure to credit risk is the fair value of the receivables. Collateral is not held as security, nor is it the Group’s policy to transfer receivables to special purpose entities. Foreign exchange and interest rate risk Details regarding foreign exchange and interest rate risk are disclosed in note 3.



57

NOTE 12: CURRENT ASSETS – HELD FOR TRADING FINANCIAL ASSETS Financial assets fair value through profit and loss Consolidated Parent 2008

$ 2007

$ 2008

$ 2007

$ Listed shares carried at fair value 1,537,401 2,861,592 111,625 922,499 Investments held for trading consist of investments in ordinary shares, and therefore have no fixed maturity date or coupon rate. The fair value of listed, held for trading investments has been determined directly by reference to published price quotations in an active market. Gains or losses on investments held for trading are recognised in profit or loss. During the period, the Group recognised a net loss of $316,202 (2007: loss of $1,022,925) on sale and re-measurement to fair value of investments held for trading. Included in listed shares is the following material investment: Samson Oil & Gas Limited Samson Oil & Gas Limited (“Samson”) is an oil and gas explorer and producer, with development and production assets located in the United States of America. Samson is listed on the Australian Stock Exchange (code “SSN”).



58

NOTE 13: NON-CURRENT ASSETS – RECEIVABLES Note Consolidated Parent 2008

$ 2007

$ 2008

$ 2007

$ Sundry receivables (i) 111,776 108,776 39,750 36,750 111,776 108,776 39,750 36,750 Loans receivable from controlled entities (ii)

-

- 62,489,501 56,732,610

Provision for impairment (iii) - - (52,828,746) (49,913,787) 27 - - 9,660,755 6,818,823 111,776 108,776 9,700,505 6,855,573 (i) These receivables are non-interest bearing, unsecured and are not expected to be repaid within the

next 12 months. (ii) These receivables are non-interest bearing, unsecured and are repayable on demand. However, these

receivables are not expected to be repaid within the next 12 months. (iii) Loans receivable from controlled entities are considered to be impaired when the controlled entity

has an excess of liabilities over assets, primarily arising from continuous operating losses. Movements in provisions Movements in the provision for impairment of loans receivable from controlled entities during the financial year are set out below: Consolidated Parent 2008

$ 2007

$ 2008

$ 2007

$ Balance at the beginning of the year - - (49,913,787) (43,184,084)Additional provisions recognised during the year

-

-

(2,914,959)

(6,729,703)

Balance at the end of the year - - (52,828,746) (49,913,787) Fair value and credit risk Due to the nature of these receivables, their carrying value is assumed to approximate their fair value. The maximum exposure to credit risk is the fair value of the receivables. Collateral is not held as security, nor is it the Group’s policy to transfer receivables to special purpose entities. Foreign exchange and interest rate risk Details regarding foreign exchange and interest rate risk are disclosed in note 3.



59

NOTE 14: NON-CURRENT ASSETS – AVAILABLE-FOR-SALE FINANCIAL ASSETS Consolidated Parent 2008

$ 2007

$ 2008

$ 2007

$ Listed shares carried at fair value 360,000 - 300,000 - Available-for-sale investments consist of investments in ordinary shares, and therefore have no fixed maturity date or coupon rate. The fair value of listed, available-for-sale investments has been determined directly by reference to published price quotations in an active market. Gains or losses on available-for-sale investments are recognised in equity. Available-for-sale investments are considered to be impaired when the fair value is below cost. During the period, the Group recognised a net gain of $152,487 on re-measurement to fair value of available-for-sale investments. An impairment of $140,000 has been recorded on available-for-sale investments as the fair value has reduced significantly below the cost of the acquisition. Included in listed shares is the following material investment: Greenearth Energy Limited (GER) Greenearth Energy Limited (“Greenearth”) is an Australian Geothermal energy company that aims to explore for and develop geothermal resources in Australia, and in due course, in New Zealand and in the wider Pacific Rim. Greenearth listed on the Australian Stock Exchange (code “GER”) on 4 February 2008. The Greenearth shares held by the Parent are held in escrow for a period of two years from the listing date.



60

NOTE 15: NON-CURRENT ASSETS – INVESTMENTS IN ASSOCIATES Investment details Consolidated Parent Listed 2008

$ 2007

$ 2008

$ 2007

$ Greenearth Energy Limited - 206,612 - 206,612 - 206,612 - 206,612 Year ended 30 June 2007 On 13 September 2006, the Group acquired 12,500,000 Greenearth Energy Limited (“Greenearth”) shares at 2 cents per share, resulting in a 33.3% ownership interest. Greenearth is a listed public company which has been formed to apply for geothermal permits in Victoria, Australia. The Group’s proportion of voting power held in the associate is the same as its ownership interest. The Group’s investments in the associates are accounted for in accordance with the accounting policy described in note 2(k). The acquisition was funded by the allotment of 10,000,000 ordinary fully paid Victoria Petroleum N.L. shares, at 2.5 cents per share. These shares were issued on 21 September 2006, resulting in Greenearth having a 0.53% ownership interest in Victoria Petroleum N.L. on that date. Year ended 30 June 2008 On 29 October 2007, the Company’s percentage interest in Greenearth was decreased to 12.5% as a result of a new share issue. Greenearth ceased to be an associate on this date, and the Company ceased to equity account for this investment. At 30 June 2008, the Company held 4,833,334 (2007: 12,500,000) ordinary fully paid Greenearth shares, resulting in a 7.24% (2007: 33.3%) ownership interest. At 30 June 2008, Greenearth held nil (2007: 200,000) ordinary fully paid Victoria Petroleum N.L. shares. Movements in the carrying amount of the Group’s investment in associate Consolidated Parent Greenearth Energy Limited 2008

$ 2007

$ 2008

$ 2007

$ Balance at the beginning of the year 206,612 - 206,612 -Acquisition - 250,000 - 250,000Share of losses after income tax (59,100) (43,388) - -Impairment of investment - - (59,100) (43,388)Transfer to available-for-sale financial assets

(147,512)

-

(147,512)

-

Balance at the end of the year - 206,612 - 206,612 Share of associate’s commitments Consolidated Parent Greenearth Energy Limited 2008

$ 2007

$ 2008

$ 2007

$ Share of exploration commitments - 93,667 - 93,667



61

NOTE 15: NON-CURRENT ASSETS – INVESTMENTS IN ASSOCIATES (CONTINUED) Summarised financial information The following table illustrates summarised financial information relating to the Group’s associate: Consolidated Extract from the associate’s balance sheet:

2008 $

2007 $

Current assets - 629,580Non-current assets - 675,212 - 1,304,792 Current liabilities - (684,955) - (684,955) Net assets - 619,837 Share of associate’s net assets - 206,612 Consolidated Extract from the associate’s income statement:

2008 $

2007 $

Revenue - 111,939Net loss - (130,163) Consolidated Share of the associate’s loss accounted for using the equity method:

2008 $

2007 $

Loss before income tax (59,100) (43,388)Income tax expense - -Loss after income tax (59,100) (43,388)



62

NOTE 16: NON-CURRENT ASSETS – PROPERTY, PLANT AND EQUIPMENT Note Consolidated Parent 2008

$ 2007

$ 2008

$ 2007

$ Office equipment: At the beginning of the financial year, net of accumulated depreciation

33,224

32,113

15,647

32,113

Additions 9,451 22,766 5,418 -Depreciation charge for the year 7 (b) (21,274) (21,655) (13,774) (16,466)At the end of the financial year, net of accumulated depreciation

21,401

33,224

7,291

15,647

At the beginning of the financial year Cost 139,047 116,281 62,779 62,779Accumulated depreciation (105,823) (84,168) (47,132) (30,666)Net carrying amount 33,224 32,113 15,647 32,113 At the end of the financial year Cost 148,498 139,047 68,197 62,779Accumulated depreciation (127,097) (105,823) (60,906) (47,132)Net carrying amount 21,401 33,224 7,291 15,647



63

NOTE 17: NON-CURRENT ASSETS – OIL AND GAS PROPERTIES Note Consolidated Parent 2008

$ 2007

$ 2008

$ 2007

$ Oil and gas properties: At the beginning of the financial year, net of accumulated amortisation and impairment

4,348,298

4,735,286

-

-Additions 3,617,677 2,514,081 - -Amortisation charge for the year 7 (b) (1,244,681) (900,555) - -Impairment, net of reversals 7 (b) (974,070) (1,865,887) - -Foreign exchange adjustment (197,922) (134,627) - -At the end of the financial year, net of accumulated amortisation and impairment

26

5,549,302

4,348,298

-

- At the beginning of the financial year Cost 14,856,473 13,356,393 - 49,564Accumulated amortisation (5,271,847) (4,716,219) - -Accumulated impairment, net of reversals

(5,236,328)

(3,904,888)

-

(49,564)

Net carrying amount 4,348,298 4,735,286 - - At the end of the financial year Cost 17,620,610 14,856,473 - -Accumulated amortisation (6,286,208) (5,271,847) - -Accumulated impairment, net of reversals

(5,785,100)

(5,236,328)

-

-

Net carrying amount 5,549,302 4,348,298 - - Impairment of oil and gas properties At 30 June 2008, the Group reviewed the carrying value of its oil and gas properties for impairment. The value of the oil and gas properties was reviewed on a well by well basis and has resulted in a net impairment expense of $974,070 (2007: $1,865,887). It is the Group’s policy to use Proved and Probable (2P) reserves to support the carrying value of its oil and gas properties. Events and circumstances that led to the recognition or reversal of impairment losses include changes in reserves estimates, budgeted revenue and expenses, estimated oil and gas prices and estimated foreign exchange rates. The calculation of impairment losses was based on value-in-use and includes the following assumptions: Oil price (US$ per barrel) 125.58Gas price (US$ per mcf) 9.30US$/A$ foreign exchange rate 0.96Discount rate (% per annum) 10.00



64

NOTE 18: CURRENT LIABILITIES – TRADE AND OTHER PAYABLES Note Consolidated Parent 2008

$ 2007

$ 2008

$ 2007

$ Other creditors and accruals – unsecured (i)

629,848

628,067

232,328

514,865

Joint venture payables (ii) 26 544,765 866,362 8,837 9,312 1,174,613 1,494,429 241,165 524,177 (i) Other creditors and accruals are non-interest bearing, unsecured and will be paid in the next 12

months. (ii) These payables relate to the portion of trade payables in joint ventures which is attributable to the

Group. Fair value Due to the short term nature of these payables, their carrying value is assumed to approximate their fair value. Foreign exchange and interest rate risk Details regarding foreign exchange and interest rate risk are disclosed in note 3. NOTE 19: CURRENT LIABILITIES – PROVISIONS Consolidated Parent 2008

$ 2007

$ 2008

$ 2007

$ Annual leave 241,929 195,195 241,929 195,195 241,929 195,195 241,929 195,195 NOTE 20: NON-CURRENT LIABILITIES – TRADE AND OTHER PAYABLES Note Consolidated Parent 2008

$ 2007

$ 2008

$ 2007

$ Loans payable to controlled entities – unsecured (i)

27

-

-

6,989,137

5,733,114

- - 6,989,137 5,733,114 (i) These payables are non-interest bearing, unsecured and are not expected to be called within the next

12 months.



65

NOTE 21: NON-CURRENT LIABILITIES – PROVISIONS Note Consolidated Parent 2008

$ 2007

$ 2008

$ 2007

$ Rehabilitation 26 810,909 806,294 22,500 22,500Long service leave 77,366 56,821 77,366 56,821

888,275 863,115 99,866 79,321 Movements in provisions Movements in each class of provision during the financial year, other than provisions relating to employee benefits, are set out below: Consolidated Parent Rehabilitation 2008

$ 2007

$ 2008

$ 2007

$ Balance at the beginning of the year 806,294 513,342 22,500 -Additional provision recognised during the year

4,615

292,952

-

22,500

Balance at the end of the year 810,909 806,294 22,500 22,500 Nature and timing of provisions Rehabilitation A provision for rehabilitation is recognised for costs such as reclamation, waste site closure and other costs associated with the restoration of an oil or gas site. Estimates of the restoration obligations are based on anticipated technology and legal requirements and future costs. In determining the rehabilitation provision, the entity has assumed no significant changes will occur in the relevant Federal and State legislation in relation to restoration of such properties in the future. Long service leave Refer to note 2 (r) for the relevant accounting policy and a discussion of the significant estimations and assumptions applied in the measurement of this provision.



66

NOTE 22: CONTRIBUTED EQUITY Consolidated Parent 2008

$ 2007

$ 2008

$ 2007

$ 320,151,033 ordinary fully paid shares including shares to be issued (2007: 217,755,226)

103,253,881

86,083,791

103,253,881

86,083,791270,000 ordinary partly paid shares, paid to 10 cents (i)

27,000

27,000

27,000

27,000

1,915,000 ordinary partly paid shares, paid to 1 cent (ii)

19,150

19,150

19,150

19,150

7,225,000 ordinary partly paid shares, paid to 0.1 cent (iii)

7,225

7,225

7,225

7,225

Total issued capital 103,307,256 86,137,166 103,307,256 86,137,166 (i) 2,700,000 ordinary shares were issued at 35 cents, partly paid to 1 cent. On 12 December 2006, a

consolidation of the Company’s share capital was completed, on the basis of one new share for every 10 existing shares. As a result of the share consolidation, there are now 270,000 shares which are partly paid to 10 cents, with $3.40 per share unpaid.

(ii) 19,150,000 ordinary shares were issued at 6 cents, partly paid to 0.1 cent. On 12 December 2006, a

consolidation of the Company’s share capital was completed, on the basis of one new share for every 10 existing shares. As a result of the share consolidation, there are now 1,915,000 shares which are partly paid to 1 cent, with 59 cents per share unpaid.

(iii) 72,250,000 ordinary shares were issued at 4 cents, partly paid to 0.01 cent. On 12 December 2006, a

consolidation of the Company’s share capital was completed, on the basis of one new share for every 10 existing shares. As a result of the share consolidation, there are now 7,225,000 shares which are partly paid to 0.1 cent, with 39.9 cents per share unpaid.

Effective 1 July 1998, the Corporations legislation in place abolished the concepts of authorised capital and par value shares. Accordingly, the Parent does not have authorised capital or par value in respect of its issued shares. Ordinary shares have the right to receive dividends as declared and, in the event of winding up the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on the shares held. Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the company. Partly paid shares have the same rights as fully paid ordinary shares, however they are only entitled to receive dividends to the extent of the paid up amount. Voting rights associated with partly paid shares are pro rated to the extent of the paid up amount.



67

NOTE 22: CONTRIBUTED EQUITY (CONTINUED) Ordinary shares Movement in ordinary fully paid shares on issue 2008 2007 Number of

shares $ Number of

shares $

Opening balance 217,755,226 86,083,791 1,823,104,994 78,847,308Shares issued during the year (i) 102,395,807 17,426,519 93,615,000 2,340,375Share consolidation during the prior year (ii)

-

-

(1,725,046,050)

-

Shares issued during the year (iii) - - 81,282 20,320Transaction costs on share issues - (256,429) - (324,212)Shares on issue at balance date 191,755,226 80,883,791Shares to be issued at the balance sheet date (iv)

-

-

26,000,000

5,200,000

Closing balance 320,151,033 103,253,881 217,755,226 86,083,791 (i) During the year, the Company completed the following share issues:

• 28,000,000 ordinary shares were issued on 3 July 2007 at a price of 20 cents each. • 32,500,000 ordinary shares were issued on 4 December 2007 at a price of 13 cents each; • 55,318 ordinary shares were issued on 21 December 2007 at a price of 25 cents each; • 25,057,360 ordinary shares were issued on 29 January 2008 at a price of 13 cents each; • 1,015,371 ordinary shares were issued on 8 February 2008 at a price of 13 cents each; • 41,750,000 ordinary shares were issued on 10 June 2008 at a price of 22.5 cents each; and • 17,758 ordinary shares were issued on 30 June 2008 at a price of 25 cents each.

During the prior year, the Company completed the following share issues before the share consolidation: • 57,665,000 ordinary shares were issued on 1 September 2006 at a price of 2.5 cents each; • 10,000,000 ordinary shares were issued on 21 September 2006 at a price of 2.5 cents each;

and • 25,950,000 ordinary shares were issued on 13 October 2006 at a price of 2.5 cents each.

(ii) On 12 December 2006, a consolidation of the Company’s share capital was completed, on the basis of one new share for every 10 existing shares.

(iii) During the prior year, the Company completed the following share issues after the share

consolidation: • 20,000 ordinary shares were issued on 13 December 2006 at a price of 25 cents each; and • 61,282 ordinary shares were issued on 27 April 2007 at a price of 25 cents each.

(iv) On 3 July 2007, the Company completed the following share issue:

• 28,000,000 ordinary shares were issued at a price of 20 cents each. Of this total, funds for 26,000,000 shares ($5,200,000) were received in June 2007, and funds for the remaining 2,000,000 shares ($400,000) were received in July 2007.



68

NOTE 22: CONTRIBUTED EQUITY (CONTINUED) Partly paid shares Movement in ordinary partly paid shares on issue 2008 2007 Number of

shares $ Number of

shares $

Balance at the beginning of the year 9,410,000 53,375 94,100,000 53,375Share consolidation during the year (i) - - (84,690,000) -Balance at the end of the year 9,410,000 53,375 9,410,000 53,375 (i) On 12 December 2006, a consolidation of the Company’s share capital was completed, on the basis

of one new share for every 10 existing shares. The partly paid shares will not be subject to call by the Company on uncalled capital. The partly paid shares will be entitled to participate in pro-rata share issues, such as bonus and rights issues, and their entitlements will be subject to the same requirements as the other ordinary issued shares in the Company. The partly paid shares carry the same dividend entitlements as ordinary shares to the extent of the paid up amount. There are no performance conditions attached to these partly paid shares and thus they all vest on grant date.



69

NOTE 22: CONTRIBUTED EQUITY (CONTINUED) Options Movement in share options on issue 2008 2007 Number of

options Number of

options Opening balance (i) 54,579,723 67,170,000Share consolidation during the prior year (ii)

-

(60,453,000)

Options issued during the year (iii) 14,000,000 47,924,005Options exercised during the year (iv) (73,076) (61,282)Closing balance 68,506,647 54,579,723 (i) 67,170,000 options were issued on 8 January 2004 and vested immediately. These options had an

exercise price of 2.8 cents and an expiry date of 30 November 2008. As a result of the share consolidation on 12 December 2006, there are now 6,717,000 options on issue with an expiry date of 30 November 2008, which have an exercise price of 28 cents.

(ii) On 12 December 2006, a consolidation of the Company’s share capital was completed, on the basis of

one new option for every 10 existing options. (iii) During the year, the Company completed the following option issue:

• 14,000,000 options were issued on 21 August 2007 and vested immediately.

The issue was part of the placement of 28,000,000 ordinary fully paid shares made to clients of member organisations of the ASX pursuant to a prospectus dated 12 June 2007. Included in the terms of the placement was the issue of one free attaching option for every two ordinary fully paid shares issued. Approval for the issue of options was granted at a general meeting of the Company on 15 August 2007.

These options have an exercise price of 25 cents and an expiry date of 31 January 2010.

During the prior year, the Company completed the following option issue: • 47,924,005 options were issued on 1 February 2007 and vested immediately.

These options have an exercise price of 25 cents and an expiry date of 31 January 2010.

(iv) During the year, the following options were exercised:

• 55,318 options were exercised on 21 December 2007 at a price of 25 cents each; and • 17,758 options were exercised on 30 June 2008 at a price of 25 cents each.

During the prior year, the following options were exercised:

• 61,282 options were exercised on 27 April 2007 at a price of 25 cents each. Option holders do not have any right by virtue of the option to participate in any share issue of the company or any related body corporate.



70

NOTE 22: CONTRIBUTED EQUITY (CONTINUED) Capital management When managing capital, management’s objective is to ensure the entity continues as a going concern as well as to maintain optimal returns to shareholders and benefits for other stakeholders. The Group funds its activities through capital raising, and does not have any debt facilities. The Group is not subject to any externally imposed capital requirements. NOTE 23: RESERVES Note Consolidated Parent 2008

$ 2007

$ 2008

$ 2007

$ Foreign currency translation reserve

Balance at the beginning of the year (863,525) (376,414) - -Translation of foreign subsidiaries (262,710) (487,111) - -Balance at the end of the year (1,126,235) (863,525) - - Share based payments reserve Balance at the beginning of the year 1,177,675 1,177,675 1,177,675 1,177,675Balance at the end of the year 1,177,675 1,177,675 1,177,675 1,177,675 Net unrealised gain/(loss) reserve Balance at the beginning of the year - - - -Net gain recognised on re-measurement to vair value of available for sale investments

152,487

-

152,487

-Tax effect on net gain recognised on re-measurement to fair value of available for sale investments

8, 25

(45,746)

-

(45,746)

-Balance at the end of the year 106,741 - 106,741 - Total reserve

158,181

314,150

1,284,416

1,177,675

Nature and purpose of reserves Foreign currency translation reserve This reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries. Share based payments reserve This reserve is used to record the value of equity benefits provided to employees and directors as part of their remuneration. Net unrealised gain/(loss) reserve This reserve is used to record movements in the fair value of available-for-sale financial assets.



71

NOTE 24: ACCUMULATED LOSSES Consolidated Parent 2008

$ 2007

$ 2008

$ 2007

$ Accumulated losses at the beginning of the year

(74,451,837) (67,343,062) (80,928,396) (71,410,043)

Net loss attributable to members of Victoria Petroleum N.L.

(3,845,130) (7,108,775) (5,037,282) (9,518,353)

Accumulated losses at the end of the year

(78,296,967) (74,451,837) (85,965,678) (80,928,396)

NOTE 25: CASH FLOW STATEMENT RECONCILIATION Consolidated Parent Note 2008

$ 2007

$ 2008

$ 2007

$ Reconciliation of the net loss after tax to net cash flows used in operations

Net loss (3,845,130) (7,108,775) (5,037,282) (9,518,353) Adjustments: Depreciation, amortisation and impairment

2,380,025

2,788,097

13,774

16,466

Loss on foreign exchange translation 85,317 176,636 113,625 129,799Net loss recognised on re-measurement to fair value of investments held for trading

7 (c)

316,202

1,022,925

83,367

276,223Provision for impairment in loans to controlled entities

13

-

-

2,914,959

6,729,703

Share of loss of associate 15 59,100 43,388 - -Impairment of investment in associate

15

-

-

59,100

43,388

Income tax gain 8 (45,746) - (45,746) - Changes in assets and liabilities: Increase in provisions 67,280 293,565 67,280 39,188Increase/(decrease) in trade and other payables

(39,394)

(384,126)

(2,588)

36,267

Increase in trade and other receivables

(612,999)

(113,542)

(110,227)

(63,620)

Net cash flows used in operating activities

(1,635,345)

(3,281,832)

(1,943,738)

(2,310,939)



72

NOTE 26: INTEREST IN JOINT VENTURE OPERATIONS The Group has an interest in the following joint venture operations whose principal activities are oil and gas production and/or exploration. Project Working Interest 2008

% 2007

% Australian permits ATP 471P 20.65 20.65 ATP 560P 17.00 – 50.00 17.00 – 50.00 ATP 574P 30.00 – 75.00 30.00 – 75.00 ATP 593P 24.00 – 45.00 24.00 ATP 608P 24.00 – 29.69 24.00 – 29.69 ATP 736P 80.00 80.00 ATP 737P 80.00 80.00 ATP 738P 80.00 80.00 ATP 752P 15.00 25.00 ATP 771P 25.00 – 45.00 0.00 ATP 794P 12.00 – 60.00 12.00 – 60.00 ATP 805P 15.00 15.00 PL 171 20.00 20.00 PL 231 40.00 40.00 EP 325 36.10 36.10 EP 359 63.30 63.30 EP 406 95.00 95.00 EP 413 5.00 5.00 EP 427 25.00 25.00 EP 433 88.80 88.80 EP 434 69.60 69.60 L 14 5.00 5.00 WA 254P 6.17 – 9.31 6.17 – 9.31 WA 261P 0.00 12.50 WA 340P 0.00 20.00 PEL 57 0.00 10.00 PEL 86 0.00 40.00 PEL 87 40.00 40.00 PEL 88 50.00 10.00 PEL 89 0.00 40.00 PEL 94 15.00 15.00 PEL 104 40.00 40.00 PEL 111 40.00 40.00 PEL 115 100.00 40.00 PEL 424 40.00 0.00 PPL 213 40.00 0.00 PPL 214 40.00 0.00 PRL 15 40.00 0.00



73

NOTE 26: INTEREST IN JOINT VENTURE OPERATIONS (CONTINUED) Project Working Interest 2008

% 2007

% International properties Gouaro 27.70 27.70 Eagle 20.00 20.00 Flour Bluff 12.50 – 16.67 12.50 – 16.67 Margarita 20.00 20.00 Hal 100.00 75.00 San Antonio 3.75 – 7.33 3.75 – 7.33 Vallecitos 22.50 22.50 West Florence 41.67 25.00 The Group’s share of the joint venture operation assets and liabilities consist of:

Note

Consolidated 2008

$

Consolidated 2007

$ Current Assets Cash and cash equivalents 10 995,260 413,850Trade and other receivables 11 239,058 86,685 Non-current Assets Oil and gas properties 17 5,549,302 4,348,298TOTAL ASSETS 6,783,620 4,848,833 Current Liabilities Trade and other payables 18 544,765 866,362 Non-current Liabilities Provision for rehabilitation 21 810,909 806,294TOTAL LIABILITIES 1,355,674 1,672,656NET ASSETS 5,427,946 3,176,177 The Group’s share of the joint venture operation revenue and expenses consists of:

Note

Consolidated 2008

$

Consolidated 2007

$ Revenue Oil sales 6 (a) 6,341,529 6,659,752Gas sales 6 (a) 1,043,212 484,749 7,384,741 7,144,501 Expenses Cost of sales (4,109,650) (3,496,480)Oil and gas exploration expenses (3,550,163) (5,774,692) (7,659,813) (9,271,172)



74

NOTE 27: RELATED PARTY DISCLOSURE Subsidiaries The consolidated financial statements include the financial statements of Victoria Petroleum N.L. and the subsidiaries listed in the following table. Name Country of

incorporation Equity Interest

% Investment

$ 2008 2007 2008 2007 Victoria Petroleum N.L. and its controlled entities:

Australia

Lansvale Oil & Gas Pty Ltd Australia 100 100 600,000 600,000Azeeza Pty Ltd Australia 100 100 2 2Victoria Petroleum (WA-209P) Pty Ltd Australia 100 100 2 2Victoria Petroleum Offshore Pty Ltd Australia 100 100 2 2Victoria Oil Pty Ltd Australia 100 100 2 2Victoria Petroleum (Middle East) Pty Ltd Australia 100 100 2 2Victoria Minerals Exploration Ltd and its controlled entities:

Australia 100 100 996,213 996,213

Victoria Oil Exploration (1977) Pty Ltd Australia 100 100 2 2Victoria Diamond Exploration Pty Ltd Australia 100 100 2 2

Victoria International Petroleum N.L. and its controlled entity:

Australia 100 100 3,953,687 3,953,687

Victoria Petroleum USA, Inc United States 100 100 2 2Remers Pty Ltd (a) and its controlled entity:

Australia 100 100 2 2

Victoria Exploration (PNG) Pty Ltd PNG 100 100 2 2Whitewood Nominees Pty Ltd Australia 100 100 2 2Total 5,549,922 5,549,922Provision for impairment (5,549,922) (5,549,922) - - Investments in controlled entities are fully impaired at 30 June 2008. Ultimate parent Victoria Petroleum N.L. is the ultimate parent entity of the Group. Key Management Personnel Details relating to Key Management Personnel, including remuneration paid, are included in note 28.



75

NOTE 27: RELATED PARTY DISCLOSURE (CONTINUED) Loans Loans were made between Victoria Petroleum N.L. and its wholly owned subsidiaries. The loans are non-interest bearing and repayable when sufficient funds are available. Note 2008 2007 $ $ Non-current Assets – net receivables owing from wholly owned subsidiaries

Lansvale Oil & Gas Pty Ltd 1,566 7,529Azeeza Pty Ltd 29,494 25,000Victoria Petroleum (WA-209P) Pty Ltd 11,960 12,266Victoria Oil Pty Ltd 234,977 2,175Victoria International Petroleum N.L. and its controlled entities 5,692,900 4,907,529Victoria Diamond Exploration Pty Ltd 14,171 14,189Victoria Oil Exploration (1977) Pty Ltd 3,675,687 1,850,135Total 13 9,660,755 6,818,823 Non-current Liabilities – net payables owing to wholly owned subsidiaries

Whitewood Nominees Pty Ltd 78,696 193,697Victoria Minerals Exploration Ltd and its controlled entities 920,646 920,646Victoria Petroleum Offshore Pty Ltd 5,989,795 4,618,771Total 19 6,989,137 5,733,114 Transactions with related parties There were no other transactions between Victoria Petroleum N.L. and its wholly owned subsidiaries during the year.



76

NOTE 28: KEY MANAGEMENT PERSONNEL Details of Key Management Personnel Directors

D F Patten (Non-executive Chairman) – appointed 27 March 2008 J T Kopcheff (Executive Managing Director) A Bajada (Non-executive Director) – appointed 27 March 2008 A Dimsey (Alternate Director) – appointed 14 May 2008 N C Fearis (Alternate Director) – appointed 26 March 2008 T L Hoops (Non-executive Director) – resigned 27 March 2008 R J Pett (Non-executive Director) A N Short (Non-executive Director) – appointed 27 March 2008 B Wrixon (Non-executive Director) Executives D I Rakich (Company Secretary) C M Lane (Exploration Manager) There were no changes to key management personnel after the reporting date and before the date the financial report was authorised for issue. Compensation of Key Management Personnel Consolidated Parent 2008

$ 2007

$ 2008

$ 2007

$ Short-term 1,065,009 990,456 824,853 712,004Post employment 68,357 66,068 68,357 66,068 1,133,366 1,056,524 893,210 778,072



77

NOTE 28: KEY MANAGEMENT PERSONNEL (CONTINUED) Option holdings of Key Management Personnel (Consolidated) The numbers of options in the Company held during the financial year by each director and executive of Victoria Petroleum N.L., including their personally related entities, are set out below. Options held in Victoria Petroleum N.L. for the year ended 30 June 2008 (number)

Balance at beginning of

period 1-Jul-07

Granted as compensation

Options exercised

Net Change Other

Balance at end of period

30-Jun-08 Directors Patten, DF (i) - - - - - Kopcheff, JT 4,200,000 - - - 4,200,000 Bajada, A (ii) - - - - - Dimsey, A (iii) - - - - - Fearis, NC (iv) - - - - - Hoops, TL (v) 350,000 - - - 350,000 Pett, RJ - - - - - Short, AN (vi) - - - - - Wrixon, B 350,000 - - - 350,000

Executives Rakich, DI 1,175,000 - - - 1,175,000 Lane, CM 350,000 - - - 350,000 Total 6,425,000 - - - 6,425,000

(i) D F Patten was appointed on 27 March 2008 (ii) A Bajada was appointed on 27 March 2008 (iii) A Dimsey was appointed (as an Alternate Director) on 14 May 2008 (iv) N C Fearis was appointed (as an Alternate Director) on 26 March 2008 (v) T L Hoops resigned on 27 March 2008 (vi) A N Short was appointed on 27 March 2008 Options held in Victoria Petroleum N.L. for the year ended 30 June 2007 (number)


period 1-Jul-06


Options exercised

Net Change Other

(i)


30-Jun-07 Directors Kopcheff, JT 42,000,000 - - (37,800,000) 4,200,000 Hoops, TL 3,500,000 - - (3,150,000) 350,000 Pett, RJ - - - - - Wrixon, B 3,500,000 - - (3,150,000) 350,000

Executives Rakich, DI 11,750,000 - - (10,575,000) 1,175,000 Lane, CM 3,500,000 - - (3,150,000) 350,000 Total 64,250,000 - - (57,825,000) 6,425,000

(i) On 12 December 2006, a consolidation of the Company’s share capital was completed, on the basis of

one new share for every 10 existing shares.



78

NOTE 28: KEY MANAGEMENT PERSONNEL (CONTINUED) Option holdings of Key Management Personnel (Consolidated) (Continued) The options were issued on 8 January 2004, vested immediately, had an exercise price of 2.8 cents and an expiry date of 30 November 2008. As a result of the share consolidation on 12 December 2006, the options have an exercise price of 28 cents. The options were valued at grant date at 1 cent per option using the Black-Scholes option pricing model. Shareholdings of Key Management Personnel (Consolidated) The numbers of shares in the Company held during the financial year by each director and executive of Victoria Petroleum N.L., including their personally related entities, are set out below. Ordinary fully paid shares held in Victoria Petroleum N.L. for the year ended 30 June 2008 (number)


period 1-Jul-07


Options exercised

Net Change Other


30-Jun-08 Directors Patten, DF (i) - - - - - Kopcheff, JT (ii) - - - 1,000,000 1,000,000 Bajada, A (iii) - - - - - Dimsey, A (iv) - - - - - Fearis, NC (v) - - - - - Hoops, TL (vi) - - - - - Pett, RJ 408,200 - - - 408,200 Short, AN (vii) - - - - - Wrixon, B - - - - -

Executives Rakich, DI - - - - - Lane, CM - - - - - Total 408,200 - - - 1,408,200

(i) D F Patten was appointed on 27 March 2008 (ii) J T Kopcheff acquired 1,000,000 ordinary fully paid shares on market, on 4 February 2008 (iii) A Bajada was appointed on 27 March 2008 (iv) A Dimsey was appointed (as an Alternate Director) on 14 May 2008 (v) N C Fearis was appointed (as an Alternate Director) on 26 March 2008 (vi) T L Hoops resigned on 27 March 2008 (vii) A N Short was appointed on 27 March 2008



79

NOTE 28: KEY MANAGEMENT PERSONNEL (CONTINUED) Shareholdings of Key Management Personnel (Consolidated) (Continued) Ordinary fully paid shares held in Victoria Petroleum N.L. for the year ended 30 June 2007 (number)


period 1-Jul-06


Options exercised

Net Change Other

(i)


30-Jun-07 Directors Kopcheff, JT - - - - - Hoops, TL - - - - - Pett, RJ 4,082,000 - - (3,673,800) 408,200 Wrixon, B - - - - -

Executives Rakich, DI - - - - - Lane, CM - - - - - Total 4,082,000 - - (3,673,800) 408,200


one new share for every 10 existing shares. Ordinary partly paid shares (issued at 35 cents, partly paid to 1 cent) held in Victoria Petroleum N.L. for the year ended 30 June 2008 (number)


period 1-Jul-07


Options exercised

Net Change Other


30-Jun-08 Directors Patten, DF (i) - - - - - Kopcheff, JT 100,000 - - - 100,000 Bajada, A (ii) - - - - - Dimsey, A (iii) - - - - - Fearis, NC (iv) - - - - - Hoops, TL (v) - - - - - Pett, RJ 140,000 - - - 140,000 Short, AN (vi) - - - - - Wrixon, B - - - - -

Executives Rakich, DI - - - - - Lane, CM - - - - - Total 240,000 - - - 240,000

(i) D F Patten was appointed on 27 March 2008 (ii) A Bajada was appointed on 27 March 2008 (iii) A Dimsey was appointed (as an Alternate Director) on 14 May 2008 (iv) N C Fearis was appointed (as an Alternate Director) on 26 March 2008 (v) T L Hoops resigned on 27 March 2008 (vi) A N Short was appointed on 27 March 2008



80

NOTE 28: KEY MANAGEMENT PERSONNEL (CONTINUED) Shareholdings of Key Management Personnel (Consolidated) (Continued) Ordinary partly paid shares (issued at 35 cents, partly paid to 1 cent) held in Victoria Petroleum N.L. for the year ended 30 June 2007 (number)


period 1-Jul-06


Options exercised

Net Change Other

(i)


30-Jun-07 Directors Kopcheff, JT 1,000,000 - - (900,000) 100,000 Hoops, TL - - - - - Pett, RJ 1,400,000 - - (1,260,000) 140,000 Wrixon, B - - - - -

Executives Rakich, DI - - - - - Lane, CM - - - - - Total 2,400,000 - - (2,160,000) 240,000


one new share for every 10 existing shares. As a result of the share consolidation, the shares are now partly paid to 10 cents, with $3.40 per share unpaid.

Ordinary partly paid shares (issued at 6 cents, partly paid to 0.1 cent) held in Victoria Petroleum N.L. for the year ended 30 June 2008 (number)


period 1-Jul-07


Options exercised

Net Change Other

(v)


30-Jun-08 Directors Patten, DF (i) - - - - - Kopcheff, JT 1,080,000 - - - 1,080,000 Bajada, A (ii) - - - - - Dimsey, A (iii) - - - - - Fearis, NC (iv) - - - - - Hoops, TL (v) 275,000 - - (275,000) - Pett, RJ - - - - - Short, AN (vi) - - - - - Wrixon, B 200,000 - - - 200,000

Executives Rakich, DI 200,000 - - - 200,000 Lane, CM 100,000 - - - 100,000 Total 1,855,000 - - (275,000) 1,580,000




81

NOTE 28: KEY MANAGEMENT PERSONNEL (CONTINUED) Shareholdings of Key Management Personnel (Consolidated) (Continued) Ordinary partly paid shares (issued at 6 cents, partly paid to 0.1 cent) held in Victoria Petroleum N.L. for the year ended 30 June 2007 (number)


period 1-Jul-06


Options exercised

Net Change Other

(i)



Executives Rakich, DI 2,000,000 - - (1,800,000) 200,000 Lane, CM 1,000,000 - - (900,000) 100,000 Total 18,550,000 - - (16,695,000) 1,855,000


one new share for every 10 existing shares. As a result of the share consolidation, the shares are now partly paid to 1 cent, with 59 cents per share unpaid.

Ordinary partly paid shares (issued at 4 cents, partly paid to 0.01 cent) held in Victoria Petroleum N.L. for the year ended 30 June 2008 (number)


period 1-Jul-07


Options exercised

Net Change Other

(v)


30-Jun-08 Directors Patten, DF (i) - - - - - Kopcheff, JT 4,200,000 - - - 4,200,000 Bajada, A (ii) - - - - - Dimsey, A (iii) - - - - - Fearis, NC (iv) - - - - - Hoops, TL (v) 350,000 - - (350,000) - Pett, RJ - - - - - Short, AN (vi) - - - - - Wrixon, B 350,000 - - - 350,000

Executives Rakich, DI 1,175,000 - - - 1,175,000 Lane, CM 450,000 - - - 450,000 Total 6,525,000 - - (350,000) 6,175,000




82

NOTE 28: KEY MANAGEMENT PERSONNEL (CONTINUED) Shareholdings of Key Management Personnel (Consolidated) (Continued) Ordinary partly paid shares (issued at 4 cents, partly paid to 0.01 cent) held in Victoria Petroleum N.L. for the year ended 30 June 2007 (number)


period 1-Jul-06


Options exercised

Net Change Other

(i)



Executives Rakich, DI 11,750,000 - - (10,575,000) 1,175,000 Lane, CM 4,500,000 - - (4,050,000) 450,000 Total 65,250,000 - - (58,725,000) 6,525,000


one new share for every 10 existing shares. As a result of the share consolidation, the shares are now partly paid to 0.1 cent, with 39.9 cents per share unpaid.

Loans to Key Management Personnel No loans have been granted to key management personnel during the current or prior year. Other transactions and balances with Key Management Personnel During the year, the Group made payments of $63,845 to Minter Ellison Group, a company associated with Mr Fearis. These payments comprised fees payable for corporate legal advice. These services were not provided by Mr Fearis as a director of Victoria Petroleum N.L. During the year, the Group made payments of US$218,199 (A$240,156) (2007: US$225,765/A$278,452) to Peak Resource Management, Inc., a company owned by Mr Hoops. These payments comprised fees payable for consulting work in relation to the oil and gas properties in the United States of America. These services were not provided by Mr Hoops as a director of Victoria Petroleum N.L. There were no other transactions with key management personnel or their related parties during the current or prior year, other than those mentioned above.



83

NOTE 29: SHARE BASED PAYMENT PLANS Acquisition Year ended 30 June 2007 On 13 September 2006, the Group acquired 12,500,000 Greenearth Energy Limited shares at 2 cents per share. The acquisition was funded by the allotment of 10,000,000 ordinary fully paid Victoria Petroleum N.L. shares, at 2.5 cents per share. These shares were issued on 21 September 2006, resulting in Greenearth Energy Limited having a 0.53% ownership interest in Victoria Petroleum N.L. on that date. At 30 June 2008, Greenearth held nil (2007: 200,000) ordinary fully paid Victoria Petroleum N.L. shares.



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NOTE 30: COMMITMENTS Leasing commitments Operating lease commitments (Group as lessee) These commitments represent payment due for lease premises under a non-cancellable operating lease. The commitments disclosed in the current year represent payments due for leased premises under a non-cancellable five year operating lease. The lease expires on 31 December 2012.

The lessor is Elstree Nominees Pty Ltd (“Elstree”), a Company in which Mr D I Rakich is the sole director. Elstree provides the Group with office premises and facilities at cost. Note Consolidated Parent

2008 $

2007 $

2008 $

2007 $

Minimum lease payments - not later than one year 172,729 54,270 172,729 54,270- later than one year and not later than five years

636,990

-

636,990

-

809,719 54,270 809,719 54,270 Exploration and development commitments Due to the nature of the Group’s operations in exploration and evaluation of areas of interest, it is not possible to forecast the nature or amount of future expenditure, although it will be necessary to incur expenditure in order to retain present interests. In order to maintain its interests in present permit areas, the Group must expend by 30 June 2009 approximately $9,816,000 (2008: $3,775,000). Commitments beyond one year cannot be determined and are subject to negotiation depending on future exploration results. Remuneration commitments Amounts disclosed as remuneration commitments include commitments arising from the service contracts of directors and executives referred to in the Remuneration Report of the Directors’ Report that are not recognised as liabilities and are not included in the compensation of Key Management Personnel. Consolidated Parent

2008 $

2007 $

2008 $

2007 $

- not later than one year 150,000 300,000 150,000 300,000- later than one year and not later than five years

-

150,000

-

150,000

150,000 450,000 150,000 450,000 NOTE 31: CONTINGENCIES There are no unrecorded contingent assets or liabilities in place for the Company or Group at Balance Date (2007: nil). The Group is aware of native title claims made in respect of areas in Queensland in which the Group has an interest and recognises that there might be additional claims made in the future. A definitive assessment can not be made at this time of what impact the current or future claims, if any, may have on the Group.



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NOTE 32: EVENTS AFTER THE BALANCE SHEET DATE Since the end of the financial year, the directors are not aware of any other matters or circumstances not otherwise dealt with in the report or financial statements that have significantly, or may significantly affect the operations of the Company or the Group, the results of the operations of the Company or the Group, or the state of affairs of the Company or the Group in the subsequent financial years. NOTE 33: AUDITORS’ REMUNERATION The auditor of Victoria Petroleum N.L. is Ernst & Young. Consolidated Parent 2008

$ 2007

$ 2008

$ 2007

$ Amounts received or due and receivable by Ernst & Young (Australia) for:

An audit or review of the financial report of the entity and any other entity in the consolidated group

113,300

123,340

113,300

123,340Other services in relation to the entity and any other entity in the consolidated group:

- tax compliance 57,028 46,290 57,028 46,290- royalty audit 2,266 4,120 - -- other services 30,000 - 30,000 - 202,594 173,750 200,328 169,630

VICTORIA PETROLEUM N.L. DIRECTORS’ DECLARATION

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In accordance with a resolution of the directors of Victoria Petroleum N.L., I state that: (1) In the opinion of the directors:

(a) the financial statements, notes and additional disclosures included in the Directors’ Report designated as audited of the Company and of the consolidated entity are 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 (ii) complying with Accounting Standards and Corporations Regulations 2001; and

(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and

when they become due and payable. (2) This declaration has been made after receiving the declarations required to be made to the directors in

accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2008.

On behalf of the Board

Bernard Wrixon Director Perth, Western Australia 9 September 2008

VICTORIA PETROLEUM N.L. INDEPENDENT AUDIT REPORT

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VICTORIA PETROLEUM N.L. INDEPENDENT AUDIT REPORT

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vpe financial report 2008 - senex energy...2008/06/30 · • advance energy limited * • odin...

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