Announcement PDF Buru Energy Limited ABN 71 130 651 437 Level 1, 418 Murray Street Perth, Western Australia 6000 PO Box 7794, Perth Cloisters Square WA 6850 Ph: 61-8 9215 1800 Fax: 61-8 9215 1899 www.buruenergy.com ASX ANNOUNCEMENT (ASX: BRU) 4 October 2010 2010 Annual Report Please find attached Buru Energy Limited’s (“Buru” or “Company”) Annual Report for the year ended 30 June 2010. The Annual Report will be distributed to shareholders today. Further information on the Company is available on the Buru website at: www.buruenergy.com For inquiries please contact: Eric Streitberg Telephone Freecall Email Yours faithfully ERIC STREITBERG Executive Director Executive Director +61 8 9215 1800 1800 337 330 ericstreitberg@buruenergy.com 2010 Annual Report For the year ended 30 June 2010 2010 Annual Report Buru Energy Limited Buru Energy Limited ABN 71 130 651 437 Contents CHAIRMAN’S REPORT 1 DIRECTORS’ REPORT 3 AUDITOR’S INDEPENDENCE DECLARATION 20 STATEMENTS OF FINANCIAL POSITION 21 STATEMENTS OF COMPREHENSIVE INCOME 22 STATEMENTS OF CHANGES IN EQUITY 23 STATEMENTS OF CASH FLOWS 24 NOTES TO THE FINANCIAL STATEMENTS 25 DIRECTORS’ DECLARATION 58 INDEPENDENT AUDIT REPORT 59 additional asx information 61 SCHEDULE OF INTERESTS 63 Corporate Directory Directors Auditors Mr Graham Riley – Chairman Mr Eric Streitberg – Executive Director The Hon Peter Jones – Non-Executive Director KPMG 235 St George’s Terrace PERTH WA 6000 Company Secretary Bankers Mr Tom Streitberg Commonwealth Bank of Australia 1230 Hay Street WEST PERTH WA 6005 Registered and Principal Office Level 1 418 Murray Street PERTH WA 6000 Telephone: +61 (08) 9215 1800 Facsimile: +61 (08) 9215 1899 Stock Exchange Australian Stock Exchange Exchange Plaza 2 The Esplanade PERTH WA 6000 Share Registry Link Market Services Limited Level 12, 680 George Street SYDNEY NSW 2000 Telephone: 1800 130 780 (Toll Free within Australia) +61 (02) 8280 7736 Facsimile: +61 (02) 9287 0303 ASX Code BRU: BRUO: Listed ordinary shares Listed options over ordinary shares (expiring 10 October 2010) Chairman’s REPORT Sundown-4 oil well, part of the Blina and Sundown oilfield complex The past year has been one of tremendous activity for Buru. The Company has appointed a new Executive Director, completed a number of transactions to rationalise and high grade its exploration portfolio, entered into a farm-in agreement with Mitsubishi Corporation worth up to $152.4m, refurbished its drilling rig and commenced an exciting drilling program which will see up to six wells drilled or tested in 2010. This is a remarkable level of activity for a company of Buru’s size and, although the results of the first two wells have been disappointing, the Company is well positioned to add significant value for shareholders in the next twelve months. During the year the Company’s original Managing Director, Mr Adrian Cook, resigned. Mr Eric Streitberg, the Company’s founding Chairman, took up the position of Executive Director with overall supervisory responsibility for the Company on 16 October 2009. The Board was strengthened by the addition during the financial year of the Hon. Peter Jones AM, who brings considerable oil and gas experience to the Board, being the founding Chairman of ARC Energy Limited and previously the Western Australian Minister for Resources Development, Mines Fuel and Energy. The Board and the Company set out to achieve three things during the year. First, to rationalise the Company’s permit holdings to ensure the Company’s exploration effort was concentrated in only the most prospective areas of the Canning Superbasin. Second, Back to Contents to identify an experienced and substantial partner to fund an aggressive, large scale exploration program in the Company’s Canning Superbasin permits. Third, to conduct an aggressive exploration campaign to test a number of different play types in the most prospective areas of the Canning Superbasin using the Company’s own drilling rig. I am pleased to report that the Company has been successful in achieving all three of these goals. The Company entered into a number of transactions during the year to reduce its overall permit holdings and the associated work commitments to the Department of Mines and Petroleum. The Company’s acreage position was approximately halved during the year as a result of this process, with the Company’s permit holdings now covering approximately 75,000 square 2010 Annual Report Buru Energy Limited  CHAIRMAN’S REPORT Night operations on the Fairway Rig at the Leander-1 well kilometres of permits. The Company remains the dominant permit holder in the Canning Superbasin, but now has a portfolio focussed on the most prospective areas of the Superbasin with farm-in and permit work commitments at a level the Company is able to comfortably accommodate. The Company recognised during the year that to undertake the sustained exploration program required to effectively explore the Canning Superbasin would require a partner with a shared vision of the potential of the Superbasin and the financial strength to implement that vision. An extensive farm-out process was undertaken leading to the announcement on 15 June 2010 that Mitsubishi Corporation had agreed to acquire up to a 50% interest in the majority of Buru’s permits in the Canning Superbasin in exchange for funding up to $152.4m of exploration and development in Buru’s permits. Attracting a partner of this stature is a tremendous validation of the Company’s belief in the Canning Superbasin. Importantly, it provides the means to conduct the Superbasin wide exploration program needed to realise the potential of the Company’s acreage. Ultimately, the Company’s future will be secured by successful exploration. In preparation for the 2010 drilling campaign the Company undertook the Bunda 3D seismic survey, the first 3D seismic survey to be conducted in the Superbasin, and the Paradise 2D seismic survey. The Company also refurbished its Fairway Rig to enable it to drill all of the wells proposed for the 2010 drilling campaign.  Buru Energy Limited 2010 Annual Report Attracting a partner of Mitsubishi’s stature is a tremendous validation of the Company’s belief in the Canning Superbasin. The Company has now commenced the 2010 drilling campaign. The first two wells, Fairwell-1 and Leander-1, failed to find commercial hydrocarbons. The Company is currently in the process of preparing the Yulleroo2 well for a fracture stimulation which, if successful, would open the Yulleroo area up as a new gas province. The Company will then drill the Paradise-1 and Nangu-1 exploration wells in addition to testing the Stokes Bay1 well. While results to date have been disappointing, the 2010 exploration program still contains plenty of potential. The 2011 exploration program is currently being developed and promises to be tremendously exciting, with the potential for very significant value creation for shareholders as we continue to unlock the potential of the Canning Superbasin. On behalf of the Board I wish to thank all of our shareholders, employees, contractors, stakeholders and the Traditional Owners of the Company’s permits for their ongoing support. Mr Graham Riley Chairman Perth 23 September 2010 Back to Contents DIRECTORS’ REPORT The Directors present their report together with the financial report of Buru Energy Limited (“Buru” or the “Company”) and of the Group, being the Company and its subsidiaries, for the financial year ending 30 June 2010, and the auditor’s report thereon. Mr Eric Streitberg was appointed Executive Director on 19 October 2009. He was the Company’s Chairman from 16 October 2008 to 31 March 2009 and a Non-executive Director from 31 March 2009 to 19 October 2009. Directors The Hon. Peter Jones – Independent Non-executive Director (Appointed 19 October 2009) The names and details of the Directors of the Company in office at any time during or since the end of the period are as follows. Mr Graham Riley – Independent Non-executive Chairman Mr Graham Riley, B.Juris, L.L.B, is a qualified legal practitioner having gained his Bachelor of Law and Bachelor of Jurisprudence Degrees. After 10 years legal practice as a partner of a commercial firm in Perth, he resigned to pursue private interests in the resources and exploration sector. Graham has been responsible for the foundation and growth of a number of petroleum and mining companies and is currently Chairman of Giralia Resources NL. He was a Non-executive Director of Adelphi Energy Limited from 2005 until 16 July 2010, a Non-executive Director of ARC Energy Limited from 1993 to 2005 and was Chairman of Red Hill Iron Limited from 2005 to 2008. Mr Graham Riley was appointed as a Non-executive Director on 22 May 2008 and Chairman on 31 March 2009. Mr Eric Streitberg – Executive Director Mr Eric Streitberg, BSc (App Geoph), has 35 years experience in petroleum geology and geophysics, oil and gas exploration and oil and gas company management. He held the position of Managing Director of ARC Energy Limited from 1997 until August 2008 during which time ARC Energy Limited was transformed from a junior oil and gas exploration company into a mid size Australian oil and gas producer. He is a Fellow of the Australian Institute of Mining and Metallurgy and the Australian Institute of Company Directors, a member of the Society of Exploration Geophysicists, Petroleum Exploration Society of Australia and the American Association of Petroleum Geologists. He is currently Chairman of the Australian Petroleum Production and Exploration Association and the Marine Parks & Reserve Authority of Western Australia. He was also a Non-executive Director of Adelphi Energy Limited from 2005 until 16 July 2010. Back to Contents The Hon. Peter Jones AM, was a member of the Western Australian Parliament from 1974 to 1986 during which time he served as the Minister for Resources Development, Mines, Fuel and Energy. He was the founding Chairman of ARC Energy Limited and Chairman of AMMTEC Limited. He previously served as the Chairman of the Australian Defence Housing Association and the Water Corporation of Western Australia. The Hon. Peter Jones was appointed as a Non-executive Director of the Company on 19 October 2009. Mr Tom Streitberg – Alternative Director Mr Tom Streitberg was appointed as Alternative Director for Mr Eric Streitberg during Mr Eric Streitberg’s absence from Australia. Mr Tom Streitberg’s appointment commenced on 5 August 2009 and ceased 26 September 2009. He is currently the Company Secretary. His qualifications and experience are provided within the Company Secretary section below. Mr Adrian Cook – Managing Director (Resigned 19 October 2009) Mr Adrian Cook resigned as Managing Director on 19 October 2009. Classic face – Windjana Gorge 2010 Annual Report Buru Energy Limited  DIRECTORS’ REPORT Company Secretary Mr Tom Streitberg Review of Operations Mr Tom Streitberg, BA, LLB, FFin, has a legal and corporate finance background, having previously worked in the Sydney offices of both a major Australian law firm and an international investment bank providing advice on mergers and acquisitions and capital raisings. From 2004 he acted as a consultant to the Australian oil and gas sector, providing corporate and commercial advice to listed companies, including Buru. He was appointed as Chief Commercial and Financial Officer of the Company on 18 November 2009 and is currently the Company’s Chief Operating Officer. Production and Development Mr Tom Streitberg was appointed to the position of Company Secretary on 21 December 2009. The Company produces oil from the Blina and Sundown oil field complex contained within production licenses L6 and L8 in the Canning Superbasin. Production from the fields is in natural decline, with average production of 83 barrels of oil per day (“bopd”) during the period. Production from the Blina and Sundown oilfield complex resulted in a gross profit of $266,000 for the period. The Company is well advanced in planning a program of workovers of the Sundown oil field which, if successful, is expected to arrest the natural decline, and result in a material increase in production. Subject to availability of suitable workover equipment it is expected that the workover program will be conducted before the end of the 2010 calendar year. Mr Adrian Di Carlo Mr Adrian Di Carlo resigned from the position of Company Secretary on 21 December 2009. Drilling operations on the Fairway Rig at the Fairwell-1 well Drilling During the period the Company completed the refurbishment of its Fairway Rig. The Fairway Rig was used for all of the Company’s drilling activities during the period and will be used for the balance of the Company’s 2010 drilling program. The nominal maximum depth capacity of the Fairway Rig subsequent to the refurbishment is 2,500 metres, sufficient to drill each of the proposed wells in the Company’s 2010 drilling program. During the period the Company completed the drilling of the Fairwell-1 oil exploration well. The well was located in production licence L8 and commenced drilling operations on 21 May 2010. The well took 33 days to reach a final depth of 1,871 metres. Although hydrocarbons shows were encountered, no commercially significant hydrocarbons were identified. The well was plugged and abandoned on 21 June 2010. Subsequent to the end of the period the Company completed the drilling of the Leander-1 oil exploration well. The well was located in production licence L8 and commenced drilling operations on 8 July 2010. Due to operational difficulties the well was sidetracked from 1,473 metres and took a total of 61 days to reach a final depth of 2,280 metres. Although hydrocarbons shows were encounted, no commercially significant hydrocarbons were identified. The well was suspended on 7 September 2010. The Leander-1 well is being considered for possible re-entry and sidetrack to test an interpreted hydrothermal dolomite anomaly some 500m to the west of the current well location during the 2011 drilling program.  Buru Energy Limited 2010 Annual Report Back to Contents DIRECTORS’ REPORT Review of Operations (Cont’d) Drilling (Cont’d) As at the date of this report the Company is preparing the Yulleroo-2 well for a fracture stimulation test program. After completing this, the Fairway Rig is expected to drill Paradise-1 and Nangu-1. Exploration During the period the Company completed the Bunda 3D seismic survey and the Paradise 2D seismic survey. The Bunda 3D seismic survey acquired approximately 223 square kilometres of 3D seismic data over the existing oil fields in the L6 and L8 production licenses and the EP 129 exploration permit. The data acquired in this survey was used to identify the Fairwell-1 and Leander-1 prospects for drilling and identify additional prospects for future exploration drilling. In addition, the data has been used to enhance the Company’s understanding of the existing oil fields and plan the workover of the Sundown field. The Paradise 2D seismic survey comprised 9 seismic lines over approximately 103 kilometres in the EP 371 and EP 428 exploration permits. The data acquired in this survey complemented 495 kilometres of 2D seismic data acquired by ARC Energy Limited in 2007 and was used to further delineate the Paradise structure ahead of the drilling of the Paradise-1 well. During the period the Company commenced a detailed evaluation of the shale gas potential of its permits. There are several widespread, mature, organic rich shales present on Buru’s permits including the Noonkanbah, Lower Anderson, Laurel, Gogo and Goldwyer Formations. This evaluation includes additional analysis of existing samples and cores and the acquisition of new cores from the Fairwell-1 well (from the Noonkanbah Formation) and Paradise-1 well (from the Anderson and Laurel Formations) wells. Acquisition of the Paradise 2D seismic survey Back to Contents 2010 Annual Report Buru Energy Limited  DIRECTORS’ REPORT Review of Operations (Cont’d) Exploration (Cont’d) Subsequent to the end of the period the Company commenced its 2010 seismic program consisting of the Yulleroo South and Pijalinga 2D seismic surveys. The Yulleroo South 2D seismic survey consists of 16 lines covering 346.6 kilometres in exploration permits EP 391 and EP 428. It is designed to firm up prospects in the Jackeroo and Ungani trends surrounding the existing Yulleroo gas discovery for potential drilling in the 2011 field season. The Pijalinga 2D seismic survey consists of 20 lines covering 408 kilometres in exploration permit EP 442 and Application Area 10/08-9. It is designed to mature multiple leads in the Acacia fairway to drillable status for potential drilling in the 2011 field season and to provide additional regional coverage. Corporate During the period the Company has undertaken an ongoing process of rationalising its permit holdings in the Canning Superbasin to ensure that the Company’s acreage covers only the most highly prospective parts of the Canning Superbasin, and that the Company’s future work commitments are appropriate and are able to be met from the Company’s existing and expected financial reserves. The success of this rationalisation process has assisted the Company in attracting a significant international joint venture partner to fund the ongoing exploration of the Canning Superbasin. As part of this rationalisation program, on 11 August 2009 the Company announced that it had entered into an agreement to acquire New Standard Limited’s (“New Standard”) interests in exploration permit EP 442, acreage release L08-3 and application area 30/07-8, each located in the southern part of the Canning Superbasin. As a result of this acquisition the Company acquired a 100% interest in these areas, subject to certain farm-out rights held by Trident Energy Limited over a portion of EP442. This acquisition provides the Company with operatorship and control over the majority of the Acacia Province in the Canning Superbasin, encompassing the highly prospective Acacia fairway play. In consideration, the Company paid New Standard $3.2 million in cash, issued New Standard 18 million new shares in the Company and transferred the Company’s 10% interest in exploration permits EP 443, EP 450, EP 451 and EP 456 to New Standard. The transaction was completed on 4 September 2009.  Buru Energy Limited 2010 Annual Report On 15 January 2010 the Company announced a series of transactions with Empire Oil Limited, Indigo Oil Pty Ltd and United Orogen Limited which collectively resulted in the Company relinquishing its 5% interest in exploration permit EP 448 and being relieved from an associated $3,000,000 farm-in commitment on that permit and gaining the right to earn an additional 70% in exploration permit EP 438 which will bring the Company’s interest in that permit to 75%. On 15 June 2010 the Company announced it had executed a farm-in agreement with Mitsubishi Corporation (“MC”). Under the farm-in: • MC has the right to earn interests in the Company’s exploration permits by carrying up to $102.4 million of the Company’s exploration costs, split between up to $62.4 million of exploration for conventional oil and gas and $40 million of exploration for unconventional resources such as shale gas and tight gas. • MC may also carry up to $50 million of the Company’s development costs for major oil and gas production infrastructure. • In exchange for providing this funding MC has the right to earn up to a 50% interest in the majority of the exploration permits held by the Company. • MC also has the right to acquire a 50% interest in Buru’s production permits in exchange for an additional cash payment at a price determined by an independent expert based on 2P reserves. Under the terms of the farm-in the Company will remain as the operator of all of its permits. However, MC will lead any LNG commercialisation efforts in the joint venture permits in the Canning Superbasin. Management Changes Buru’s Managing Director, Mr Adrian Cook, resigned with effect from 19 October 2009. Following his reelection at the Company’s 2009 Annual General Meeting, Mr Eric Streitberg was appointed as Executive Director on 19 October 2009 with overall supervisory responsibility for the Company. Back to Contents DIRECTORS’ REPORT Corporate Governance Statement This statement outlines the Company’s main corporate governance practices in place throughout the period. The Company’s corporate governance practices comply with the ASX Corporate Governance Council recommendations, unless otherwise stated. Board of Directors Role of the Board The Board’s primary purpose is to govern on behalf of all shareholders. The Board’s specific job outputs are to maintain a link between the Company’s shareholders and its operations and to create and maintain governance policies that address the broadest levels of all decisions and situations. The Board retains the responsibility for setting the Company’s strategic direction and objectives and for setting limitations on the means by which management may achieve those objectives. Limitations on management are primarily imposed by approved corporate strategy and expenditure limits. The Board delegates to management the responsibility for developing the capability to achieve Buru’s aims and objectives and employing that capability within the limitations set by the Board. The Board monitors and maintains this delegation by requiring regular reporting by management to the Board. Accountability of the Board The Board has accountability to exercise the owner representative role and to delegate a portion of its authority through management limitations, policies and holding the Chairman accountable. It also recognises in its policies, strategic direction and setting of objectives for management, its accountability to legal and ethical obligations and its broader responsibility to non-equity stakeholders and the community, including Traditional Owners. The Board currently assesses the performance of the Board, its Directors and senior executives against the Company’s strategic direction on an ongoing basis. The Board will implement a formal process of annual reviews of its performance in due course. Unity of Control The mandate to lead Buru is placed by shareholders in the hands of the entire Board. The principles endorsed by the Board are as follows: • No person within Buru, whether a Board member or a member of management, can have any authority unless the Board grants that authority. • All Board members are accountable individually and as a whole for any lapses of performance or behaviour by Buru. • The Board possesses authority only as a group. The Chairman and individual Directors have no power unless specifically given it by the Board collectively. Business Judgment Rule A Director or other officer of Buru who makes a business judgment will have met the requirements as a Director of Buru and their equivalent duties at common law and in equity, if they: • make the judgment in good faith for a proper purpose; • do not have a material personal interest in the subject matter of the judgment; • inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate; and • rationally believe that the judgment is in the best interests of Buru. The Director’s or officer’s belief that the judgment is in the best interests of Buru is a rational one unless the belief is one that no reasonable person in their position would hold. Terms of Appointment The Directors are appointed in accordance with the Company’s constitution for a three year term. The Executive Director has the terms of his employment set out in an individual contract. Any particular condition attaching to the appointment of an individual Non-executive Director beyond those in the Company’s constitution would be formalised in a separate agreement. Back to Contents 2010 Annual Report Buru Energy Limited  DIRECTORS’ REPORT Corporate Governance Statement (Cont’d) Board of Directors (Cont’d) Composition of the Board Details of the current Directors and their relevant skills, expertise, experience and term of office, are set out earlier in the Directors’ Report at page 3. The composition of the Board is determined using the following principles: • a minimum of 3 Directors, with extensive knowledge relevant to the conduct of the Company’s business; • a majority of independent Non-executive Directors; • a non-executive independent Director as Chairperson; and • subject to re-election every 3 years (except for the Executive Director). The Board assesses the independence of each Director annually in light of the interests declared by them. An independent Director is a Director who is not a member of management (a Non-executive Director) and who: • holds less than five per cent of the voting shares of the Company and is not an officer of, or otherwise associated, directly or indirectly, with a shareholder of more than five per cent of the voting shares of the Company; • has not within the last three years been employed in an executive capacity by the Company or another Group member, or been a Director after ceasing to hold any such employment; • within the last three years has not been a principal or employee of a material professional adviser or a material consultant to the Company or another Group member; • is not a material supplier or customer of the Company or another Group member, or an officer of or otherwise associated, directly or indirectly, with a material supplier or customer; • has no material contractual relationship with the Company or another Group member other than as a Director of the Company; and • is free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the Director’s ability to act in the best interests of the Company. The status of each Director as at the date of this report is as follows: Graham Riley (Chairman) Eric Streitberg Peter Jones Non-Executive Yes No Yes Independent Yes No Yes Board Meetings The Board currently holds scheduled meetings of the full Board on a monthly basis, plus any extraordinary meetings at such other times as may be necessary to address any specific significant matters that may arise. The agenda for Meetings is prepared in conjunction with the Chairman, Executive Director and the Chief Operating Officer/Company Secretary and circulated in advance. There were 12 Board Meetings held during the year. The number of Board Meetings attended by each of the Company’s Directors during the financial year was: Director Graham Riley Eric Streitberg Peter Jones Tom Streitberg Adrian Cook *  Number of Meetings Eligible to Attend 12 12 9 2* 3 Number of Meetings Attended 12 10 9 2* 3 Tom Streitberg attended 2 Board Meetings in his capacity of Alternative Director for Eric Streitberg. He attended all of the 6 Board Meetings that took place while he was in the position of Company Secretary Buru Energy Limited 2010 Annual Report Back to Contents DIRECTORS’ REPORT Corporate Governance Statement (Cont’d) Board of Directors (Cont’d) Director Education Given the size and scale of Buru, new Directors are inducted on an informal basis. They are given the opportunity to visit the Group’s external operations and meet with management to gain a better understanding of business operations. Directors are given access to continuing education opportunities as requested to update and enhance their skills and knowledge. Independent professional advice and access to company information Each Director has the right to access all relevant Company information and to speak to and have access to management. Subject to prior consultation with and approval by the Chairman, each Director may seek independent professional advice in respect of the Company and the Board’s affairs from a suitably qualified adviser at the Group’s expense. A copy of the advice received by a Director in these circumstances will, subject to the Chairman’s discretion, be made available to all other members of the Board. Nomination Committee The Board does not have a separate nomination committee. Acting in its ordinary capacity from time to time as required, the Board carries out the process of determining the need for, screening and appointing new Directors. In view of the size and resources available to the Company, it is not considered that a separate nomination committee would add any substance to this process. Remuneration Committee The Board does not have a separate remuneration committee. The Board as a whole reviews remuneration levels on an individual basis in conjunction with senior management. The size of the Company makes individual assessment more appropriate than formal remuneration policies. The Board may retain professional advisors as it requires and undertake market comparisons where necessary to assist in the assesment of remuneration. The Board is also responsible for setting all non-cash remuneration which may include, from time to time, equity incentive schemes, salary sacrifice arrangements, car parking and professional membership fees as well as salary continuance and other insurance policies. Remuneration Report - Audited Principles of compensation – Audited Remuneration is also referred to as compensation throughout this report. Key management personnel have authority and responsibility for planning, directing and controlling the activities of the Company and the Group. Key management personnel comprise the Directors and certain senior executives of the Company in accordance with s300A of the Corporations Act 2001. Compensation levels for key management personnel of the Company, and key management personnel of the Group, are competitively set to attract and retain app