CITATION RESOURCES LTD Citation Resources Ltd
Ground Floor | 1 Havelock Street | WEST PERTH WA 6005 Phone: 08 9488 5220 | Fax: 08 9324 2400
www.citation.com.au info@citation.com.au
Mr Brett Mitchell
Non-Executive Director
Mr Peter Landau
Non-Executive Director
Mr Anthony Eastman - Appointed on 20 March 2015
Non-Executive Director
Mr Michael Curnow - Resigned on 20 March 2015
Non-Executive Director
Directors have been in office since the start of the financial year to the date of this report unless otherwise stated.
Mr Anthony Eastman - Appointed co-Company Secretary 22 August 2014
Mr Henry Roberts - Appointed co-Company Secretary 22 August 2014 / resigned 30 June 2015
Ms Sara Kelly - Appointed on 7 February 2014 / Resigned 22 August 2014
Bankwest
108 St Georges Terrace, Perth, WA 6000
Computershare Investor Services Pty Ltd Level 11, 172 St Georges Tce
Perth, WA, Australia
Grant Thornton Audit Pty Ltd
Level 1, 10 Kings Park Road, West Perth WA 6005
www.citation.com.au
CTR, CTRO
Highlights for 2015
Heads of Agreement signed to acquire 40% of tyre recycling/energy recovery business Pearl Global Pty Ltd (Pearl) - with the option to eventually move to 100%
Pearl holds the worldwide licensing rights to its unique technology to convert used tyres via a proprietary heating process into clean fuels, scrap steel, carbon black and syngas
Global market opportunity - converting major environmental liabilities (tyre dumps) into energy, industrial and petroleum products
Acquisition completed for ~20% working interests in two onshore Texas oil and gas assets, the North Chapman Ranch (18.2%) and East Texas Cotton Valley (21.75%) projects
The Russell-Bevly #2 (RB #2) well at the North Chapman Ranch Project was successfully drilled to its total depth of 13,672ft
Two material gas and condensate shows recorded and logged in the main reservoir target zone - Howell Hight ('HH') sandstone reservoir
Texas Acquisition
During the year, the Company entered into an agreement to acquire the North Chapman Ranch ('NCR') and East Texas Cotton Valley ('ETCV') project interests from Range Resources Limited in late December, through the acquisition of Range Australia Resources (US) Limited ('RARL'), which holds the interests in the two Texas Oil Projects.
The consideration for the acquisition of both assets includes A$500,000 in cash, 200m ordinary fully paid shares in Citation (pre consolidation), forgiveness of a A$189,000 working capital loan owed to Citation by Range and the assumption of Range's remaining finance carried obligations on the Atzam and Tortugas Oil Projects in Guatemala. The finance carry obligation shared by Citation and Range to date is repaid as a priority from project cashflows pursuant to the existing funding agreement.
The Company completed the acquisition of RARL, assisted by two financing packages being:
A short term bridging facility with Maximilian Capital LLC for USD$800,000, with Maxmilian holding the shares in RARL effectively on trust for up to 12 months, until the bullet repayment of US$1,200,000 is made upon which the security is released and the Company will receive 100% of the issued shares in RARL;
An unsecured convertible note facility of A$235,000 to fund the balance of the AFE payment to the operator ahead of spudding the Russel Bevly #2 appraisal well.
During the year the Russel Bevly #2 well was successfully drilled to a total depth of 13,672ft, and encountered 2 significant gas shows in the priority Howell Hight reservoir section. The Operator subsequently issued a completion notice to all project partners and ran completion casing into the hole down to the final casing point at 13,607ft. The completion casing has been set and production testing on the prospective sections is expected to commence in October/November 2015.
The Russell Bevly #2 is an infill appraisal well located between the successful Smith #1 and Russell Bevly # 1 wells that previously achieved combined production rates of 9.3 MMCf & 800 bbl of oil per day following successful well stimulation1.
The North Chapman Ranch Project (Citation holds rights to 18.2% WI2) is located in Nueces County, Texas, comprising approximately 1,680 acres.
Following the commercial discovery of the Smith #1 well in December 2009, a multi well program was initiated that saw 4 appraisal / development wells drilled across the license area, with the latest well, the Albrecht #2 well, being drilled during the 2013/14 year, to determine the south-eastern extension of the Howell Hight ('HH') sandstone reservoirs. Whilst the well encountered the HH at the predicted depth, it did not flow at a commercial rate after completion.
As reported in the Range Resources Limited 2011 Annual Report
The working interest with respect to NCR has a back in right from outside parties of up to 2.25%.
Following the Albrecht #2 well, the Operator (Western Gulf) completed a detailed technical review on the location of future wells, which has led to the recommendation that future development efforts should focus on the more proven area in the North that surrounds the successful Smith #1 and Russel Bevly #1 wells.
As a result the Operator proposed the Russell-Bevly #2 well ('RB #2'), to target 40 acres of proven reservoir and to optimise infill well spacing following volumetric analysis on the current wells. RB #2 is the first infill well on this 40 acre spacing between the successful Smith #1 and Russel Bevly #1 wells.
This well is the first well in which the Company will participate in the NCR project, and is the first well in the project's updated development focus, with a target spudding date of May 2015. If results mirror that of the Smith #1 and Russel Bevly #1 wells (which had combined production of 9.3 MMcf and 800 bbl of oil per day following successful well stimulation3), then it is likely that a multi-well development program would be justified.
The East Texas Cotton Valley Project (Citation holds rights to 21.75% WI) is located in Red River County, Texas, comprising approximately 1,570 gross acres and has one marginally successful horizontal well, the Ross 3H. This well encountered water influx however it still produced, with additional work being performed to determine the scope of water encroachment from the nearby field.
Figure 1: County Map of the State of Texas
Atzam Oil Project- Guatemala
The Atzam 4 production continued during the year, however detailed well production data is currently unavailable. The Atzam 5 appraisal well testing program remains suspended, and will remain so until a new financing farm in partner is secured to fund the recommencement of testing. A majority of the prospective sections remain untested which include all the prospective zones from the C13 to C17 carbonates sections inclusive. The C17 carbonate is the producing section in the Atzam #4 well.
As previously reported, the Company has been holding detailed discussions with all the project partners to facilitate a farm out arrangement to ensure the Project is fully funded for all future funding obligations by a new farm in partner.
As reported in the Range Resources Limited 2011 Annual Report
Investment in Pearl Global
During the year, Citation executed a Heads of Agreement with Pearl Global Pty Ltd ('Pearl') pursuant to which the Company has the right to earn and acquire an initial 40% shareholding interest in Pearl ('HoA'). Subsequent to year end, the Company held a General Meeting of Shareholders where approval from the Shareholders was granted for the investment and related matters, and is advanced in the drafting of the formal Share Purchase Agreement and related capital raising following this recent shareholder approval for the transaction.
Pearl is a private unlisted Australian company which holds the exclusive worldwide licensing rights to a unique tyre recovery process ('TRR Project') which converts waste rubber into clean fuels, scrap steel and carbon black in an environmentally safe and productive manner. The TRR Project proprietary technology is self powered using syngas generated from the energy conversion process and has a very low comparative capital and operating expenditure to other conversion technologies.
The TRR Project (also known as the 'Erasmus Process') is a process by which end of life vehicle tyres are converted into commercial by products with near zero emissions by virtue of a unique heating system which manages certain key elements within the thermal desorption process - the keys to the Pearl Process.
At present in Australia and a number of major countries worldwide, approximately 15% of used tyres are recycled, 20% are exported and 65% are disposed of in landfill. Used tyres are now banned from landfill in selected states in Australia (and certain other countries) and are classed as hazardous waste, meaning their handling and disposal is heavily restricted. Disposal costs are significant which has encouraged significant illegal dumping, and as such, regulators have established clean up targets for used tyres.
The TRR Project successfully removes the main obstacles that block sustainable waste conversion of rubber by keeping emissions well under the world's strictest environmental standards (EU 6), targeting directly the waste source thus reducing the cost of transport, and reclaiming and reusing the valuable materials that makes rubber sustainable and economically attractive.
The business model of the TRR Project is to reuse discarded resources and sell derivatives to customers, thereby opening multiple revenue channels by the sale of by products including fuels, electricity (through the utilisation of gases produced), carbon black and steel. As such, the TRR Project converts waste streams into commercially viable resources and reduces the environmental impact of used rubber by eradicating emissions and reducing landfill volumes. Manufacturing input costs for the TRR Project are negligible given discarded waste is the raw material used in the process. In addition, in various jurisdictions their may be the ability for the operations to attract further revenue through carbon credits.
The TRR Project involves shredding used tyres to ensure higher yields of derivatives. The TRR Project's modular design and comparatively low capital expenditure (US$1.5m per plant) provides for rapid site mobilisation. The rubber to be recycled enters a unique endothermic thermal desorption unit where the tyres are broken down into their constituent parts and collected for resale to relevant offtakers. The key products generated through the process are high calorific fuels, carbon black and scrap steel. The plants are effectively a renewable energy conversion process which are self generating through the power utilisation of gases produced. The units only use a small amount of the syngas produced, with the excess syngas available to be sold for power generation requirements which is a significant material commercial benefit in places like Africa.
Pearl is in advanced discussions with several key jurisdictions overseas as well as industries for the supply of used tyres and also for the sale of offtake products from the TRR Project.
Board and Management Changes
In August 2014, Ms Sara Kelly resigned as Company Secretary with Mr Anthony Eastman and Mr Henry Roberts both being appointed Joint Company Secretary with Mr Roberts resigning on 30 June 2015. In March 2015, Mr Michael Curnow resigned as Non-Executive Director with Mr Anthony Eastman being appointed to the Board of Directors as a Non-Executive Director.
The Directors present their report of Citation Resources Ltd for the year ended 30 June 2015.
The consolidated entities referred to hereafter as the Company consist of Citation Resources Ltd and the entities controlled during and at the end of the period.
Principal Activities
The principal activity of the Company is the exploration and development of oil and gas blocks in Guatemala and Texas in conjunction with evaluating other complementary oil and gas opportunities.
Company Information
Citation Resources Ltd is a Company limited by shares, which is incorporated and domiciled in Australia.
Significant Changes in the State of Affairs
Other than the activities referred to in the above Operations Report, as at the date of this report, no transaction or event of a material and unusual nature has been finalised which is likely, in the opinion of the Directors, to significantly affect the operations of the Company, the results of the operations, or the state of affairs of the Company in future financial years.
The Board will continue to review potential areas of activity that may create additional value to the Company. The Board will keep shareholders informed of any significant developments.
Financial Result
The consolidated loss of the Group for the year ended, 30 June 2015, amounted to $20,162,255 (2014: loss
$8,028,406).
Dividends
No dividends have been paid or declared and no dividends have been recommended by the Directors.
Proceedings on behalf of the Company
No proceedings have been brought or intervened in or on behalf of the Company with leave of the Court under S237 of the Corporations Act 2001.
Environmental Regulation and Performance
Exploration and development activities in Australia are subject to State and Federal laws, principally the Environmental Protection Act and associated regulations in each State of operation. The Company has a policy of complying with its environmental performance obligations, and during the reporting period, there have been no significant known breach of statutory conditions or obligations.
Future Developments, Prospects and Business Strategies
To further improve the economic entity's profit and maximise shareholders wealth, the Company is committed to further evaluating its current oil and gas properties, especially in light of the upcoming completion testing on the Texas properties. In addition, the Company is looking at the imminent completion of the acquisition of the initial 40% interest in Pearl Global Pty Ltd and eventually moving to the possible 100% acquisition.
Likely Developments
Other than information disclosed elsewhere in this annual report, information on likely developments in the operations of the economic entity and the expected results of those operations in future financial years has not been included in this directors' report because the directors believe, on reasonable grounds, that to include such information would be likely to result in unreasonable prejudice to the economic entity.
Directors
The following persons were Directors of Citation Resources Ltd during the financial year:
Brett Mitchell Appointed 24 November 2011 as Non-Executive Director; appointed as Executive Director 17 February 2012; Non-Executive Director from 1 January 2015
Peter Landau Appointed 7 February 2014
Anthony Eastman Appointed 20 March 2015
Michael Curnow Appointed 4 April 2012 / Resigned 20 March 2015
Mr Brett Mitchell - Non-Executive Director
Mr Mitchell is a corporate finance executive with over 20 years of experience in the finance and resources industries. He has been involved in the founding, financing and management of both private and publicly-listed resource companies and holds executive and non-executive directorship roles. Mr Mitchell is a partner in Verona Capital, a private minerals focused venture capital and project generation business.
Mr Mitchell holds a Bachelor of Economics from the University of Western Australia. During the three year period to the end of the financial year, Mr Mitchell has been a Director of other listed companies as follows:
Transerv Energy Ltd - resigned 19 August 2013;
Wildhorse Energy Ltd - resigned 29 August 2014;
Tamaska Oil and Gas Ltd - resigned 1 February 2015;
Digital CC Limited; and
Erin Resources Ltd.
He is also a member of the Australian Institute of Company Directors (AICD).
Mr Peter Landau - Non-Executive Director
Mr Landau is the founding director of Okap Ventures Pty Ltd and ICBC Capital Pty Ltd., internationally focused project management, corporate advisory and venture capital firms based in Western Australia and London. Mr Landau is a corporate lawyer and corporate advisor and has over 15 years' experience in providing general corporate, capital raising, transaction and strategic advice to numerous ASX listed and unlisted companies. Mr Landau has project managed a significant number of oil and gas and mining exploration and development transactions around the world including capital raising, M & A, joint ventures and finance structures.
During the three year period to the end of the financial year, Mr Landau has been a Director of:
Continental Coal Ltd;
Black Mountain Resources Ltd;
AusAmerican Mining Ltd;
Nkwe Platinum Ltd - resigned 1 October 2014;
Range Resources Ltd - resigned 13 June 2014;
Paynes Find Gold Ltd - resigned 4 October 2013; and
Eclipse Metals Ltd - resigned 7 October 2013
Mr Anthony Eastman - Non-executive Director
Mr Eastman is a Chartered Accountant with a number of years' experience in financial management and corporate advisory services. He has previously worked with Ernst & Young and CalEnergy Gas Ltd, a subsidiary of the Berkshire Hathaway Group of Companies in both Australia and the United Kingdom.
During the three year period to the end of the financial year, Mr Eastman has been a Director of:
- Range Resources Ltd - resigned 13 June 2014;
Mr Michael Curnow - Non-Executive Director - resigned 20 March 2015
Mr Curnow brings extensive experience in the resources sector in gold, platinum and mineral sands exploration to the Company. He has been involved in the ownership and management of a wide range of businesses in South Africa and Australia. He was a founding director of Gallery Gold Ltd and AGR Ltd. Mr Curnow is also founding Director of Adamus Ltd (Mongolia), Gallery Gold Ltd (Botswana), and Adamus Ltd (Ghana), with all three currently in production.
During the three year period to the end of the financial year, Mr Curnow has been a Director of other listed companies as follows:
African Energy Resources Ltd - resigned 31 March 2014;
Energy Ventures Ltd; and
Namibian Copper Ltd
Company Secretary InformationMr Anthony Eastman - appointed co-Company Secretary 22 August 2014
Mr Eastman is a Chartered Accountant with a number of years' experience in financial management and corporate advisory services. He has previously worked with Ernst & Young and CalEnergy Gas Ltd, a subsidiary of the Berkshire Hathaway Group of Companies in both Australia and the United Kingdom. Mr Eastman was previously an Executive Director and Company Secretary with ASX and AIM listed company Range Resources Limited.
Mr Henry Roberts - appointed co-Company Secretary 22 August 2014 / resigned 30 June 2015
Mr Roberts is and Accountant having graduated from the University of Western Australia with a Bachelor of Commerce and is the CFO for a number of public and private companies. Mr Roberts is currently completing his Australian Institute of Chartered Accountancy qualifications.
Ms Sara Kelly - Appointed on 7 February 2014 / resigned 22 August 2014
Ms Kelly is an experienced Company Secretary and Corporate Lawyer with over 8 years' experience. Sara has comprehensive knowledge of and experience in administering regulatory frameworks and processes in a listed company environment and practised as a corporate lawyer specialising in acquisitions, takeovers, capital raisings and listing of companies on ASX and AIM. Ms Kelly has acted as the company secretary of a number of ASX listed companies.
Indemnification of Directors and Officers
Throughout the reporting period the Company has maintained Directors' and Officer's insurance for the purpose of covering losses which Directors and Officers may become legally obligated to pay. The Company's insurers have prohibited disclosure of the amount of the premium payable and the level of indemnification under insurance contract.
In accordance with the Constitution, except as may be prohibited by the Corporations Act 2001 every Officer of the Company shall be indemnified out of the property of the Company against any liability incurred by him in his capacity as Officer or agent of the Company or any related corporation in respect of any act or omission whatsoever and howsoever occurring or in defending any proceedings, whether civil or criminal.
Meetings of Directors
During the period, 5 meetings of Directors were held. Attendances were as follows:
Director
Number of meetings held while a
director
Number of meetings attended while a
director
Brett Mitchell 5 5
Michael Curnow 3 3
Peter Landau 5 5
Anthony Eastman 2 2
Given the size and nature of the Company's activities, the Board does not belie there are any marked efficiencies or enhancements that would be achieved by the creation of separate Nomination, Remuneration and Audit Committees composition of the board, the board as a whole addressed matters.
Directors' InterestsUnissued Shares Under Option
Unissued ordinary shares of the Company under option at the date of this report are:
Date options granted
Expiry date
Exercise price of shares
($)
Number under option
6 September 2012 15 December 2015 $4.00 170,000
Total 170,000
These options were issued following approval from the shareholders received by the Company on 6 September 2012 to Mr Brett Mitchell and Mr Michael Curnow. These options do not entitle the holder to participate in any share issue of the Company.
Shares issued during or since the end of the year as a result of exercise
During or since the end of the financial year, the Company issued ordinary shares as a result of the exercise of options as follows (there were no amounts unpaid on the shares issued):
Date options granted
Issue price of shares
($)
Number of shares issued
N/A N/A Nil
Remuneration Report (Audited)The goals of the Company's remuneration policy are to:
Ensure that reward for performance is competitive and that employees are committed and motivated;
Align executive compensation with achievement of strategic objectives and the creation of value for shareholders; and
Comply with relevant legislation and general market remuneration practices.
Executive Directors
Executive Directors are entitled to receive a Base Fee. Remuneration for Executive Directors is benchmarked against a comparable pool of companies and is determined by the Board. As the Company is still in the exploration and development stage and is not making profits, there is no relationship between executive director remuneration and Company performance.
Non-Executive Directors
Non-Executive Directors are entitled to receive a Base Fee. Remuneration for Non-Executive Directors is benchmarked against a comparable pool of companies and reviewed on an annual basis. Remuneration is determined by the Board and takes into consideration the need to obtain suitably qualified independent Directors.
Remuneration of Non-Executive Directors is approved by the Board and set in aggregate with the maximum amount approved by the shareholders.
The Key Management Personnel of the Company include the Executive and Non-Executive Directors, and the Company Secretary. The Company does not consider other executives to be Key Management Personnel.
The Key Management Personnel of the Company during the financial year are:
Brett Mitchell, Non-Executive Director - appointed 24 November 2011
Peter Landau, Non-Executive Director - appointed 7 February 2014
Michael Curnow, Non-Executive Director - appointed 4 April 2012 / resigned 20 March 2015
Anthony Eastman, Non-Executive Director - appointed 20 March 2015
Voting and comments made at the Company's last Annual General Meeting
The Company received 94.9% of 'yes' votes on its Remuneration Report for the financial year ending 30 June 2014. The Company received no specific feedback on its Remuneration Report at the Annual General Meeting.
Consequences of performance on shareholder wealth
In considering the Group's performance and benefits for shareholder wealth, the Board have regard to the following indices in respect of the current financial year and the previous four (4) financial years:
Item | 2015 | 2014 | 2013 | 2012 | 2011 |
EPS (cents) | (0.91) | (0.61) | (0.15) | (0.70) | (3.97) |
Dividends (cents) | N/A | N/A | N/A | N/A | N/A |
Net profit / loss ($) | 20,162,255 | 8,028,406 | 517,003 | 1,595,661 | 6,646,318 |
Share price (at 30 June) | $0.09 * | $0.009 | $0.017 | $0.015 | $0.044 |
* Noting a 100:1 share consolidation occurring in May 2015
Details of Remuneration
2015
Short Term
Employee Benefits Post-Employment (Cash Salary and Benefits
Fees) (Superannuation)
Termination
Benefits (Superannuation Benefits)
Share Based
Payment Options Benefits
Total
Directors Brett Mitchell 1 | 108,000 | - - - 108,000 |
Peter Landau | 36,000 | - - - 36,000 |
Anthony Eastman 2 | 9,000 | - - - 9,000 |
Michael Curnow 3 | 27,000 | - - - 27,000 |
Total | 180,000 | - - - 180,000 |
1 Effective 1 January 2015, Mr Mitchell reverted to a Non-Executive salary of $36,000 per annum
2 Appointed 20 March 2015
3 Resigned 20 March 2015
2014
Short Term Post-Employment Employee Benefits Benefits (Cash Salary and (Superannuation)
Fees)
Termination
Benefits (Superannuation Benefits)
Share Based
Payment Options Benefits
Total
Directors Brett Mitchell | 189,000 | - - - 189,000 |
Michael Curnow | 36,000 | - - - 36,000 |
Sophie Raven1 | 55,688 | - - - 55,688 |
Peter Landau2 | 14,250 | - - - 14,250 |
Total | 294,938 | - - - 294,938 |
1 Resigned 7 February 2014
2 Appointed 7 February 2014
No portion of remuneration was performance based in the reporting period.
Equity Instrument Disclosures Relating to Key Management Personnel
Aggregate numbers of shares of the Group held directly, indirectly or beneficially by Directors of the Group during the financial year are set out below:
Ordinary Shares
Director
Held at 1 July
2014
Issued
Other
changes
Sold
Consolidation
4
Held at the date
of this report
Brett Mitchell Michael Curnow 1 | - 500,000 | - - - - | - - - (495,000) | - 5,000 |
Peter Landau | 9,250,000 | - - | - (9,157,500) | 92,500 |
Anthony Eastman 23 | - | - 3,900,000 | - (3,861,000) | 39,000 |
Total | 9,750,000 | - 3,900,000 | - (13,513,500) | 136,500 |
1 Resigned 20 March 2015
2 Appointed 20 March 2015
3 Mr Eastman held these shares before his appointment to the board
4 As approved by shareholders on 1 May 2015, the Company completed a 1:100 share consolidation, effective on 21 May 2015
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