Investor Presentaiton
2
82
Armour Energy and controlled entities
armourenergy.com.au
Financial report continued
Notes to the consolidated financial statements continued
NOTE 17. NON-CURRENT ASSETS - EXPLORATION AND EVALUATION
ASSETS CONTINUED
In December 2019, a farmin agreement was executed between Armour and Santos QNT Limited (Santos) for Armour's South
Nicholson Basin tenements. Key points below:
An initial cash payment of $15 million, for the transfer of a 70% interest and operatorship of ATP1087 to Santos.
Under the farmin agreement, Santos has the right to earn a 70% interest in Armour's North Queensland tenements, being
ATP1087 (granted), and ATP1107, ATP1192 and ATP1193 (applications), and the Northern Territory tenements EP172 and EP177,
both of which are also in the application phase;
Subsequent to year-end, the Company entered into an agreement with Santos to amend the South Nicholson Basin farmin
agreement, resulting in an immediate cash payment of $6 million, received in August 2020, as an acceleration of future
contingent permit transfer payments.
Subject to the satisfaction or waiver of certain conditions, Santos will free carry 100% of Armour's share of expenditure for the
various work programs for all of the farmin permits up to a Total Capped Amount of $64.9 million (inclusive of the A$12.5 million
work program associated with ATP1087). However, Santos may exercise its withdrawal rights which will reduce the total capped
amount.
KEY JUDGEMENTS - CARRYING VALUE OF EXPLORATION AND EVALUATION ASSETS
The Group performs regular reviews on each area of interest to determine the appropriateness of continuing to carry forward costs
in relation to that area of interest. These reviews are based on detailed surveys and analysis of drilling results performed to balance
date.
The directors have assessed that for the exploration and evaluation assets recognised at 30 June 2020, the facts and circumstances
do not suggest that the carrying amount of an asset may exceed its recoverable amount. In considering this the Directors have had
regard to the facts and circumstances that indicate a need for impairment as noted in Accounting Standard AASB 6 "Exploration
for and Evaluation of Mineral Resources".
ACCOUNTING POLICY FOR EXPLORATION AND EVALUATION ASSETS
Exploration and evaluation expenditure incurred is accumulated in respect of each identifiable area of interest. Such expenditures
comprise net direct costs and an appropriate portion of related overhead expenditure but do not include overheads or
administration expenditure not having a specific nexus with a particular area of interest. These costs are only carried forward to the
extent that they are expected to be recouped through the successful development of the area or where activities in the area have
not yet reached a stage which permits reasonable assessment of the existence of economically recoverable reserves and active or
significant operations in relation to the area are continuing.
personallise.only,
ACCOUNTING POLICY FOR FARMIN ARRANGEMENTS
Armour does not record any expenditure made by the farmee in its account. It also does not recognise any gain or loss on its
exploration and evaluation farmin arrangements but reallocates the costs previously capitalised in relation to the whole interest
as relating to the interests held. Any cash consideration received directly from the farmee is credited against costs previously
capitalised in relation to the whole interest with any excess accounted for by Armour as a gain on disposal.
PROVISION FOR IMPAIRMENT OF EXPLORATION AND EVALUATION ASSETS
On 30 August 2016, the Victorian Government announced a permanent ban on the exploration and development of all onshore
ā unconventional gas in Victoria, including hydraulic fracturing and coal seam gas.
The Government also plans to legislate an extension of the current moratorium on the exploration and development of conventional
onshore gas until 30 June 2020, with hydraulic fracturing to remain banned. During this time, the Government will undertake
extensive scientific, technical, and environmental studies on the risks, benefits and impacts of onshore gas.
A regular review has been undertaken on each area of interest to determine the appropriateness of continuing to carry forward
costs in relation to that area of interest.
A provision is raised against exploration and evaluation expenditure where the Directors are of the opinion that the carried forward
net cost may not be recoverable or the right of tenure in the area lapses. The increase in the provision is charged against the
results for the year. Accumulated costs in relation to an abandoned area are written off in full against profit in the year in which the
decision to abandon the area is made.
When production commences, the accumulated costs for the relevant area of interest are transferred to oil and gas assets and
amortised over the life of the area according to the rate of depletion of the economically recoverable reserves.
Following this announcement, the Group carried out an impairment review of the Victorian exploration and evaluation assets, and
as a result, an impairment loss was recognised in the profit or loss in the year ended 30 June 2016 and was then fully impaired in
the year ended 30 June 2019.
As part of the annual review of the Ripple Resources interest, it was determined that it was appropriate for an impairment to be
recognised in relation to the Exploration and Evaluation assets as the carrying amount of the Group's interest exceeded what is
expected to be its recoverable amount. As such, an impairment of $720,491 was written off during the year ended 30 June 2020.
83View entire presentation