2008 annual report - Carnarvon · aBn: 60 002 688 851. 2008 annual report 1 ContentS Chairman’S review 2 Chief exeCutive’S review 3 operating anD finanCiaL review 4-16 DireCtorS’

2008 annual report

ii Carnarvon petroleum ltd

Corporate dIreCtorY

Directors

PJLeonhardt(Chairman)

EPJacobson(ChiefExecutiveOfficer)

NCFearis(Non-ExecutiveDirector)

KPJudge(Non-ExecutiveDirector)

Company SeCretary

RAAnderson

auDitorS

WHKHorwathPerthAuditPartnership

BankerS

AustraliaandNewZealandBankingGroupLimited

HSBC(Thailand)

regiStereD offiCe

GroundFloor

1322HayStreet

WestPerthWA6005

Telephone: +61893212665

Facsimile: +61893218867

Email: [email protected]

Website: www.carnarvonpetroleum.com

Share regiStry

ComputershareInvestorServicesPtyLimited

Level2

45StGeorgesTerrace

Perth,WA6000Australia

InvestorEnquiries: 1300557010(withinAustralia)

InvestorEnquiries: +61394154000(outsideAustralia)

Facsimile: +61893232033

StoCk exChange LiSting

SecuritiesofCarnarvonPetroleumLimitedarelistedon

ASXLimited.

ASXCode: CVN-ordinaryshares

aBn: 60 002 688 851

2008 annual report 1

ContentS

Chairman’S review 2

Chief exeCutive’S review 3

operating anD finanCiaL review 4-16

DireCtorS’ report 17-29

inCome StatementS 30

BaLanCe SheetS 31

StatementS of ChangeS in equity 32-33

StatementS of CaSh fLowS 34

noteS to the finanCiaL StatementS 35-69

DireCtorS’ DeCLaration 70

inDepenDent auDit report 71-72

Corporate governanCe Statement 73-75

aDDitionaL SharehoLDer information 76-77

2 Carnarvon petroleum ltd

ChaIrman’S revIew

Iampleasedtoreportthatthe2008financialyearhasbeenanotherexcitingperiodofgrowthforCarnarvon.Thegroundworkundertaken

overtheprevioustwoyearstoestablishastrongplatformforgrowthhasbeentranslatedintoverysignificantoperatingachievements

bothinthefieldandfinancially.Salesrevenuejumpedfrom$3.7millionto$63millionand,togetherwithourfirstprofitaftertaxof$16.7

million,theseresultsillustratethescaleofthetransformationtakingplace.

Carnarvonisnowwellestablishedinthemid-caprankingsoftheAustralianstockmarketasawellcapitalisedoilproducerwithgrowing

production,reservesandcashflow.GrowthhasbeenunderpinnedbythestrongperformanceofourjointventureinterestinthePhetchabun

BasinfieldincentralThailand.

Wehavecontinuedtheexcellentworkingrelationshipwithourpartnerandoperator,PanOrientEnergyCorp.Thedevelopmentprogramme

andresultsachievedoverarelativelyshorttimeframehavebeenimpressiveparticularlyinsuchacompetitiveenvironmentforskilled

peopleandphysicalresourcesintheoilindustry.

WhileourprimaryThaiinterestsprovidesignificantfurthergrowthpotentialCarnarvonhasaddedtoitssmallbuthighlyskilledtechnical

teamandaugmentedourphysicalpresenceandrepresentationinBangkok.Thishasenabledustoaccelerateournewventureactivities.

InThailandwehavesuccessfullydevelopedourregionalknowledge,addedtoourexplorationacreageandbuiltrelationshipswithhighly

regardedregionaloperators.Elsewhere,inSouthEastAsiaparticularly,wehaveactivelycontinuedtoreviewopportunities.

Overthelasttwelvemonthstheoilandgasindustryhasexperiencedextremelybuoyantconditionswithrecordhighoilprices.Atthesame

timetherehasbeenasignificantshortageofexperiencedpeopleandintensecompetitionforaccesstooilandgaspropertiesinmany

casesresultingincommerciallyunrealisticprices.

Morerecentlywehaveenteredaperiodofuncertainandhighlyvolatilefinancialmarketsandcommodityprices.Oursharepricehasbeen

adverselyaffectedalongwithmanyofourpeercompanies.Whilewearemindfulofthechallengesineffectivelydeployingvaluablecash

resourcesinthisclimate,Carnarvoniswellpositionedtotakeadvantageoftheopportunitiesthatwearenowstartingtoseeemerge.

Carnarvon’ssuccessislargelydependentontheeffortsofthepeopleinvolved.Wearefortunatetohaveanexperiencedanddedicated

team.Ithankmyfellowdirectors,ChiefExecutiveOfficerTedJacobsonandallofthestafffortheiroutstandingcontribution.Iamconfident

thatwiththeCompany’sstrongpositionandtheirenthusiasmandeffortswecanlookforwardtoanotherrewardingyear.

peter LeonhardtChairman


ChIef exeCutIve’S revIew

Carnarvonhasgrownsignificantlyinthepasttwelvemonthstobecomeawellrespectedmid-tierAustralianoilexplorationandproducing

company.InrecognitionofthesuccesswehaveachievedinouronshoreThailandassets,thecompanywasawarded“ExploreroftheYear”

bytherecentGoodOilConferenceinPerth.

Carnarvon’soilproductionnowcomesfromfourfieldswithinthePhetchabunBasininwhichithasa40%interest:atWichianBuri,Na

SanunEast,NaSanunandSiThep.Atthecloseofthe2007/2008financialyear,onthebackofdrillingover20wellsinThailandthe

companyhassignificantlyincreaseditsnetaveragemonthlyproductiontoapproximately2,600bopd,bookedreservesof11.38mmblsof

oil,discoveredvaluablecontingentresourcesof31mmbblsofoil,andrealisedtangibleresultswithaconsolidatedcashbalanceof$31.4

million,includingdepositslodgedtosecureexplorationcommitments,atyearend.

FullscaledevelopmentoftheNaSanunEastOilFieldhascommencedfollowingthegrantofaproductionlicenceandenvironmental

approvals.Carnarvonisplanningforanticipated2008calendaryearendnetproductionofaround6,000bopd.Appraisalanddevelopment

drillingwillcontinuethroughouttheremainderofthisyearandintonextyearwiththenextexplorationwellsplannedtocommencein

early2009.

Significantexplorationandappraisaloilupsidehasalsobeenidentifiedthroughoutthepermits.Furtherappraisalanddevelopmentof

theWichianBuriOilFieldhascommencedandappraisaloftheSiThepOilField,BoRanggasdiscoveryandL44-Roildiscoverywillbe

undertakenin2009.

The Carnarvon team has considerable knowledge of onshore Thailand geology, and has successfully applied for and been granted

operatorshipand50%equityinexplorationconcessionL20/50.ThispermitliesimmediatelysouthofthelargeSirikitOilFieldwithinthe

PhitsanulokBasin.Carnarvoniscommittedtoacquiring2Dseismicin2009andthedrillingofatleastonewellby2010.Anaeromagnetic

surveywillcommencesoon,onceapprovalsarefinalised.

CarnarvonhasalsoappliedfortwootherconcessionsonshoreThailandaspartofanequalpartnershipwithPearlOil(Petroleum)Ltd.

The company will continue to progress new business opportunities, with a current focus in and around Thailand, concentrating on

opportunitiesthatcouldprovidefurthernear-termcashflow.

CarnarvonisalsoactivelylookingforfurtheropportunitiestoaddtoitsexistingacreageinAustralia,wheretheCompanyhasthreepermits

intheoffshoreCarnarvonBasinanda2.5%ORRIinterestinthePerthBasintightgasfieldatWarro.Ifsuccessfullydeveloped,Warrowould

leadtoapositivecashflowtoCarnarvonfrom2009or2010.

AsyourChiefExecutiveOfficer,onbehalfofallshareholders,IwouldliketothanktheBoardofDirectors,managementandstaffofCarnarvon

inhelping toachieve this transformationof thecompany, laying the foundation forcontinuedgrowth in theyears tocome.Carnarvon’s

technicalteam,withinternationalexperienceandprovenoilfindingcapabilities,providesthebasefromwhichwewillcontinuetogrow.

OnbehalfofCarnarvonIwouldliketoexpressmygratitudetoourjointventurepartners,inparticulartheveryactiveandcommittedPan

OrientEnergyCorp.,fortheirhardworkinhelpingCarnarvonachievetheseexcellentresults.

AsashareholderofthecompanyIampleasedatourpastprogress.Ibelievewehavethefundamentalsinplacetocontinuethisgrowth

andeagerlylookforwardtothenexttwelvemonthsofactivity.

ted JacobsonChiefExecutiveOfficer


operatInG and fInanCIal revIew

Company performanCe

key performance indicators

Carnarvontracksseveralkeyperformanceindicatorstoprovidearelativemeasureofthecompany’sgrowth,asshownbelow.

wells DrilledPeriod: 1July2007–30June2008

Measure: 23Wells

PeriodChange: +92%

annual net SalesPeriod: 1July2007–30June2008

Measure: 702,084bbls

PeriodChange: +1000%

25

Financial Year

Wel

ls

2003 - 2004 2004 - 2005 2005 - 2006 2006 - 2007 2007 - 2008

20

15

10

5

0

Financial Year

Net

Oil

Pro

du

ctio

n (

’000

BB

LS)

2003 - 2004 2004 - 2005 2005 - 2006 2006 - 2007 2007 - 20080

100

200

300

400

500

600

700

800


operatInG and fInanCIal revIew (Continued)

Consolidated profit after taxPeriod: 1July2007–30June2008

Measure: $16.2million

PeriodChange: N/A

Share pricePeriod: Asat30June2008

Measure: A$0.53

PeriodChange: +121%

market CapitalisationPeriod: Asat30June2008

Measure: A$361million

PeriodChange: +129%

Financial Year

Co

nso

lidat

ed P

rofi

lt a

fter

Tax

(A$

mill

ion

)

2003 - 2004 2004 - 2005 2005 - 2006 2006 - 2007 2007 - 2008-4-202468

1012141618

0.6

Date

Pric

e (A

$ /

shar

e)

2004 2005 2006 2007 2008

0.5

0.4

0.3

0.1

0.2

0

400

Date

Mar

ket

Cap

(A

$ /

mill

ion

)

2004 2005 2006 2007 2008

350

300

100

250

200

50

150

0



operationS review

“OverthecourseofthefinancialyearCarnarvonPetroleumhasincreasednetproductionfrom500bopdto3,000bopd,converted9

mmbblsof contingent resources to2P reserves, andsignificantly increasedoverall resources throughaconstantdrillingand testing

campaign.”

(1) THAILAND

Carnarvon’scornerstoneassets

aretheproducingfieldsinthe

L44/43andSW1Alicencesin

thePhetchabunBasinonshore

ThailandinwhichtheCompany

hasa40%interest.

permit map of thailand



L44/43, Sw1a & L33/43 thailand phetchabun Basin(Carnarvon petroleum 40%, pan orient energy Corp. 60% and operator)

Exploration

SuccessfulexplorationandappraisaldrillinghasledtothedelineationofthecentralandnortherncompartmentsoftheNaSanunEast

(“NSE”)oilfield,aswellasthediscoveryofanewseparateoilpoolatL44-R.

Anexplorationwell,WB-1(Deep),whichwasdrilledintothevolcanicsbeneaththeproducingWichianBurisandstonereservoir,provedthe

existenceofreservoirqualityvolcanicsbutfailedtorecovercommercialflowsofoil.Itisinterpretedthatstructuremaybepresentupdip

ofthislocationandfurtherworkisplannedtoevaluatethispotential.

ExplorationdrillinginthenorthernexplorationblockL33/43failedtointersectcommercialvolumesofhydrocarbons.Furtherexploration

isplannedtobeundertakeninthesouthernpartofthispermitclosertotheprovedpetroleumsystemexistingaroundtheWichianBuri

oilfield.

Another3to4explorationwellsareplannedfor2009,withtimingdependentprimarilyonrigavailabilityanddevelopmentwellrequirements.

ThesewellsareplannedtotargetvolcanicreservoirssouthoftheWichianBurifieldandalsosandstonereservoirsnorthoftheWichian

Burifield.

Appraisal

ThesuccessfulappraisalofNSEinlate2007ledtoindependentcertificationof2Preservesinthatfieldof20.6millionbbls(grosstojoint

venture),theapplicationforaproductionlicenseoverNSE,andimplementationofadevelopmentplanthatisdetailedbelow.

Furtherappraisaldrillingisanticipatedforlaterin2008and2009toappraisetheL44-Roildiscovery,thevolcanicreservoirpotentialat

theSiThepandWichianBuristructures,furtherdelineationofthesandstoneoilreservoiratWichianBuri,andinvestigationofapotential

oillegundertheBoRanggasdiscovery.



Development

AproductionlicenseovertheNSEoilfieldwasgrantedearlyin2008.Environmentalapprovaltodrillwasdelayedforafurthersixmonths,

inturndelayingthestartofthedevelopmentdrilling.

ThedevelopmentplanforNSEincorporates20to25developmentwellsbeingdrilledfrommid2008throughtomid2010.Thefirstof

thesewells,NSE-A1,wasdrilledandsuccessfullycompletedinmid2008withpositiveresults.

Thewellswillbedrilled froma totalof5or6wellcluster locations,witheach locationbeingdesignedandbuilt toaccommodatea

maximumoffourwells.Eachlocationwillhaveoiltreatment,storageandoffloadingcapacity.Fivelocationshavebeencompleted,with

thesixthlocationoptionaldependinguponindividualwellperformance.

Thedevelopmentplanisdesignedforplateauproductionof15,000bopdgrossfor1to2yearsbeforenaturaldecline.Thereissufficient

capacityinexistinginfrastructuretocaterfordeliveryoftheoilfromthefieldtotherefineryinBangkok.

SuccessfulappraisaloftheWichianBuriandotherdiscoveriescouldleadtofurtherdevelopmentdrillingin2009,ultimatelytargeting

4,000 bopd gross from the SW1A concession incorporating Na Sanun, Wichian Buri and Si Thep, with peak production anticipated

in2010.

Production

ExplorationandappraisalwellswithintheonshoreThailandpermitsareextensivelytested,withproducedvolumesbeingsoldatcommercial

rates.Consequently,duetothehighsuccessrateofexplorationandproductionoverthe2007/2008financialyear,productionrates

havebeensubstantiallyincreasedduringthatperiod.AverageratesforJune2008wereover2,600bopdnettoCarnarvoncomparedto

approximately500bopdinJune2007.

WiththecommencementofdevelopmentdrillinginJune2008,productionratesareanticipatedtoincreaseto6,000bopdnetbythe

endof theyear.Furtherdevelopmentdrilling in2009willensureanextendedplateaurateofaround6,000bopdnetandconsistent

dailyrates.



L20/50 thailand phitsanulok Basin(Carnarvon petroleum 50% and operator, Sun resources nL 50%)

TheL20/50concessionissituatedapproximately30kmstothesoutheastandontrendwiththelargestonshoreoilfieldinThailandat

Sirikit.PreviousdrillinghasdemonstratedthatoilhasbeengeneratedwithintheL20/50concession.

Onepreviouslydrilledwellin1982atNongBua-1intersectedsignificantoilshowswhichCarnarvonbelieveswerenotfullytested.Carnarvon

iscontinuingto investigatethepossibilityoftwinningorre-drillingthiswell,howevertheearliestdatetogainrequiredenvironmental

approvalswoulddelaythespuddinguntil2009.

Carnarvon has commenced reprocessing available seismic data within the permit, which, combined with a planned imminent high

resolutionaeromagneticsurvey,willprovidea3dimensionalviewofthesubsurface.Thiswillenabletherecordingofnewseismicinthe

mostprospectivepartoftheconcessionduring2009andthedrillingofatleastoneexplorationwellwithinthefirstthreeyearobligation

period.

L52/50 and L53/50 thailand Surat-khiensa Basin(Carnarvon petroleum 50%, pearl oil (petroleum) Limited 50% and operator)

TheCompanyhasappliedtotheDepartmentofMineralFuels(“DMF”) inThailandforconcessionrights inpetroleumexplorationand

productionfortwoareasdescribedasBlocksL52/50andL53/50(“theConcessions”)onshoreThailandwithintheSurat-KhiensaBasin.

Pearl Oil (Petroleum) Ltd (“Pearl”), an independent oil and gas company with exploration and production (“E&P”) activities focused

exclusively inSouthEastAsia,submittedthebidasoperatoronbehalfofPearlandCarnarvon,eachcompanyparticipatingata50%

equitylevel.

Thecombinedareaofthetwoblocksislarge,comprisingapproximately6,950km2.However,botharelightlyexplored,withonlytwodeep

wellsandlimitedseismicdataavailable.

TherehasbeenminimalexplorationovertheareaandlittlepublicknowledgeisavailableabouttheSurat-KhiensaBasin.Workcompleted

todateandCarnarvon’sregionalknowledgesuggeststhisisanareawithgoodpotentialforhydrocarbonexploration.

Carnarvon and Pearl were together the sole bidders for this block and anticipate the block being formally awarded in late 2008 or

early2009.



(2) auStraLia

ep 321, ep 407 australia onshore perth Basin(Carnarvon petroleum 2.5% overriding royalty - orri)

TheWarroGasFieldislocatedintheEP321andEP407permits,withintheonshorepartofthePerthBasin,WesternAustralia.Carnarvon

holdsa2.5%overridingroyaltyofnetwellheadvaluefromanyproductionwithinthepermits.Carnarvonisnotrequiredtocommittoany

expenditureindevelopment,production,appraisalandexplorationoperations.Theoperatorofthepermits,LatentPetroleum,isplanning

tobringtheWarroGasfieldintoproductionduring2009.Theoperator,whohasestimatedthefieldcontainsapproximately7Tcfofgasin

place,hasannouncedplansforthefieldtocommenceproductionataninitialrateof20mmcfgd,peakingat100mmcfgd.

onshore perth Basin – location map



wa 399 p – australia offshore north west Shelf(Carnarvon petroleum 50% and operator, rialto energy Limited 50%)

WA-399-Pwasawardedon7May2007.Thepermitcoversanareaof50km2locatedbetweenthePyreneesandMacedonoilandgas

fieldsandtheLeatherbackoilaccumulation.Theminimumguaranteedworkprogramme(Years1-3)comprisesgeotechnicalstudiesand

315km2new2Dseismicdata.

Carnarvon has completed the reprocessing of all available seismic over the permit (550km2) and is incorporating the results into a

revisedstructuralinterpretationofthepermit.Oncefinalizedthisisexpectedtodeterminetheoptimumlocationforthenew2Dseismic

programme.

ep 424 / ep 110 - australia offshore northwest Shelf(Carnarvon petroleum 35%, Strike oil Limited 40% and operator, pancontinental oil and gas Limited 25%)

AvariationtothepermittermsofEP424hasbeenrequestedfromtheDepartmentofIndustryandResources(“DOIR”)underwhichthe

drillingofonewellisnowrequiredby13April2009.Theoutcomeisawaited.

Furtherdetailedseismicanalysisof‘amplitudeversusoffset’wascarriedoutbytheoperatorovertheBaniyasProspecttorefinethenature

ofhydrocarbonsexpected.TheBaniyasProspectissituatedonthedownthrownsideoftheFlindersFault,theeasternboundingfaultof

theCarnarvonBasin.BrightseismicamplitudesonthecrestofthestructurearesimilartotheCyranoandNasutusdiscoverieselsewhere

alongthisfaulttrendwhichencounteredagascaponoilleg.BaniyasisestimatedtohavepotentialforPmeanprospectiveresourcesof

26millionbarrelsoiland56Bcfgas(34millionBarrelsofOilEquivalent).Theseprospectiveresourcesareofaspeculativenatureuntil

theprospecthasbeenevaluatedbydrilling.EP-110isoperatedinconjunctionwithEP-424andanapplicationtorenewthepermitwas

submittedtotheDOIRinJuly2006.Theoutcomeisalsoawaited.

north west Shelf permits – location map



reServe aSSeSment

Petroleum Resource Classification, Categorisation and Definitions

CarnarvoncalculatesreservesandresourcesaccordingtotheSPE/WPC/AAPG/SPEE1PetroleumResourceManagementSystem(“SPE-

PRMS”)definitionofpetroleumresources.Thisdefinitionwasfirstpublishedin1997bytheSPE,andinanefforttostandardisereserves

reportinghasbeenfurtherclarifiedbytheSPE-PRMSin2007.

PRODUCTION

RESERVES

Proved Proved&Probable

Proved,

Probable&

Possible

Commercial

CONTINGENTRESOURCES

Discovered,butnotcurrentlycommercial

PROSPECTIVERESOURCES

Explorationprospectivity

Proved and Probable (2P) Reserves

Reservesaredefinedasthosequantitiesofpetroleumwhichareanticipatedtobecommerciallyrecoveredfromknownaccumulations

fromagivendateforward.Estimationofreservesisinherentlyuncertainandtoexpressanuncertaintyrange,reservesaresubdivided

inProved,ProbableandPossiblecategories.CarnarvonreportsitsreservesasProvedplusProbablereserves,alsoabbreviatedas2P.

Carnarvon’sreservesarecalculatedusingforwardprojectionsofproductionlevels,workprogrammesandtheassociatedcapitalinvestment

andoperatingcostlevels.Fromtheseprojectionsthelastyearofeconomicproductioniscalculated,givenanassumedoilpricescenario.

Theaggregateproductionuntilthiseconomiccut-offpointconstitutesthereserves.

1 SocietyofPetroleumEngineers(SPE);WorldPetroleumCouncil(WPC);AmericanAssociationofPetroleumGeologist(AAPG)&SocietyofPetroleumEvaluationEngineers(SPEE)



Carnarvon’sreservesbasehasbeencertifiedbyanindependentreservesauditor.OverthelastfewyearsGaffney,ClineandAssociates

(“GCA”)hasperformedthisserviceinlinewithendofcalendaryearrequirementsfortheDepartmentofMineralFuels(“DMF”)inThailand.

GCAisoneofthelargestindependentreservescertifiersintheworldandthisyearGCAcertified11.38millionbarrelsofoilof2Poil

reservesnettoCarnarvonasat1January2008,whichisanincreaseofover300%comparedtoDecember2006reserves.Inparticular,

2PreservesincreasedasaresultofsuccessfulappraisaldrillingintheNSEoilfield.

NetCarnarvonReserves

Proved

1P

Proved+Probable

2P

Proved+Probable+Possible

3P

GCA31Dec2007 2.59(millionbbls) 11.38(millionbbls) 45.69(millionbbls)

TheinformationinthisReservesStatementhasbeencompiledbyPhilipHuizenga,afull-timeemployeeoftheCompany.PhilipHuizengais

qualifiedinaccordancewithASXlistingrule5.11andhasconsentedtotheformandcontextinwhichthisstatementappears.

Contingent Resources

In addition to its certified reserves,Carnarvonhas anumberof discoveredoil andgas resourceswhichdonot currently classify as

reserves.AccordingtotheSPE-PRMS,theseclassifyascontingentresources.Contingentresourcesarethosequantitiesofpetroleum

whichareestimated,onagivendate,tobepotentiallyrecoverablefromknownaccumulations,butwhicharenotcurrentlyconsidered

tobecommercially recoverable. Inaddition, a viabledevelopment strategyhas tobedeveloped toallowcontingent resources tobe

categorisedasreserves.

Carnarvonhasanestimated31millionbarrelsofcontingentoil resources.Theseresourcesarenotreservesbecausefurtherwork is

requiredtomaturethem,mostnotablyappraisaldrilling.During2007/2008around9millionbblsofcontingentresourceswereconverted

into2Preserves.ContingentresourceshavebeenreplenishedbytherecentL44-Roildiscoveryandfurtheranalysisofvolcanicsinwells

atBoRang,SiThepandNSE.

Carnarvonhasanactiveworkprogramme toconvert furthercontingent resources into reserves.However, thiswould requiredrilling

additionalappraisalwellsandpotentiallyacquiringfurther3Dseismic.Studyworkisunderwaytoidentifyadditionaldevelopmenttargets.

Appraisaldrilling inWichianBuriandNSE isscheduled for late2008and2009.Thetimingof thesewellswilldictate theamountof

resourcesthatmaybeconvertedintoreservesbeforethenextGCAreservesauditscheduledforcalendaryearend2008.



Carnarvonestimatesitscontingentresourcesinasimilarmannerasitsreserves,requiringforwardprojectionsofproductionlevelsand

workprogrammesandtheassociatedcapitalinvestmentandoperatingcostlevels.Thereisachancethatidentifiedresourceswillnot

convertintoreserves.

NetCarnarvonContingentResource

Proved+Probable2C

(millionbbls)

NSE 14

BoRang 7

SiThep 7

L44-R 3

CVN30Jun2008 31

Fortheremainderof2008Carnarvon isplanningtodrilla further8development/appraisalwellsand2or3explorationwells.The

appraisalandexplorationwellswillbetargeting18millionbblsofunriskedcontingentresourcesnet.Carnarvonestimatesthatmore

than13millionbblsofunriskedcontingentresources,plus34millionbblsofpossiblereserves,willbetargetedbyappraisaldrillingwork

programmesin2009andbeyond.

Prospective Resources

Carnarvon’scontingentresourcesarenotthesameasitsprospectiveresources.UndertheSPE-PRMSdefinitionsprospectiveresources

canalsobeclassifiedasexplorationresources.Prospectiveresourcesarethosequantitiesofpetroleumwhichareestimated,onagiven

date,tobepotentiallyrecoverablefromundiscoveredaccumulations.

Carnarvonhasanumberofexploration licences.Theseexploration licencesareevaluatedusingtechniques likegravityandmagnetic

surveys,geochemicalsurveys,seismicsurveysandbasinanalysis.Thisanalysisresultsinalonglistofleadsanddrillableprospects.Only

drillableprospectswhichhavebeenincludedondrillingschedulesarecategorisedasprospectiveresourcesbyCarnarvon.Leadsare

identifiedaspotentialhydrocarbonaccumulationsthatwillrequireadditionalstudybeforetheyarematuredtoprospectsandappearin

drillingplans.Prospectsandleadscarryexplorationriskswhichresultinthepossibilityofnotfindingcommercialhydrocarbons.These

risksareidentifiedbyCarnarvonandhelpmanagementinrankingexplorationactivities.

Explorationwellsscheduledfor2009willtargetprospectiveresourceswhichhaveyettobecalculated.



new ventureS

Organic Growth

Asanintegratedexplorationandproductioncompany,Carnarvoniscontinuouslyaimingtogrowthebusinessbyidentifyingexploration

targetsandmaturingthemintodrillableprospects,thusincreasingitsprospectiveresourcebase.Successfulexplorationdiscoveriesresult

inprospectiveresourcesmovingintocontingentresources.Successfulappraisaldrilling,incombinationwithadevelopmentstrategyand

demonstratingcommerciality,resultincontingentresourcesbeingmovedintoreserves.

Other

Carnarvonhascontinuedtoachievesignificantgrowthfromitssuccessfulexplorationanddevelopmentefforts in itsThailandassets,

L44/43andSW1A. These areas continue to be a primary focus for theCompany and they are nowdelivering significant sustained

oilproductionandrevenuesaspredicted.Cashflowfromtheseproducingfields facilitatesCarnarvon’spursuitofothernewventure

opportunitiestogrowthecompany.

Identifyingandsuccessfullynegotiating theseopportunities requiresaconcentratedeffort.Carnarvonhas recruitedaNewVentures

Managertoleadthisendeavourwhoisageologist/geophysicistwithsignificantindustryexperienceinSouthEastAsia,Australiaand

globally.Thenewventuresteamiscurrentlyimplementingastrategytoacquirequalityexplorationacreageandappraisalprojectswith

preferenceforthefollowing:

• Near-termproductionandrevenue

• Producingfieldswithpotentialupsideviainfilldrilling,near-fieldexplorationorworkovers

• Lowcost,non-operatedinterestswithcompetentpartneroperators

• Ontrendwithcommercialoildiscoveries

• Necessaryinfrastructureandmarketsinplace

• LeveragingCarnarvon’sknowledgeandexpertisetodevelophealthy,long-termrelationshipswithlargeroperators

• Organicgrowthaswellasgrowthviamergersandacquisitions

Carnarvonisprogressingatanadvancedstagewithseveralexplorationandappraisalopportunitiestodeliveronthisstrategy.Anew

explorationblockinonshoreThailand,L20/50,wasawardedtoCarnarvonintherecentbidround.Thisblocklieswithinthesameproven

basinastheSirikitandS1oilfields.BidshavealsobeenmadefortwofurtherblocksonshoreThailand.



finanCiaL Summary

TheGroup’srevenuefromcontinuingoperationsfortheyearended30June2008,beingitsshareofthePhetchabunBasinJointVenture

(“JointVenture”)inThailand,was$63,033,000(2007:$3,674,000).

The higherA$ oil revenue resulted fromhigher Joint Venture oil sales of 1,755,209bbls (2007: 147,904bbls) complemented by an

improvementintheachievedoilsalepricetoUS$82.19perbbl(2007:US$50.24),partlyoffsetbyanappreciationintheA$fromUS$0.85

toUS$0.96overthereportingperiod.Theincreaseinoilsalesisexplainedearlierinthisoperatingandfinancialreview.

TheGroup’sprofitafterincometaxfortheyearended30June2008was$16,174,000(2007:$1,542,000loss),howeveritsshareofthe

pre-tax(incomeandspecialremuneratorybenefit)cashoperatingprofitofthePhetchabunBasinJointVentureinThailandincreasedto

$52,734,000(2007:$882,000)asaresultofsignificantlyimprovedproductionandthelowvariableoperating,transportation,royaltyand

sellingcostperbarrelof$13.87(2007$48.26).

Corporate and administration costs for the year were $2,129,000 excluding share-based payments (2007: $966,000). This increase

reflectsageneralincreaseincorporatecostsaswellasstaffcostsassociatedwithexpandingtheCompany’stechnicalcapability.


dIreCtorS’ report

ThedirectorspresenttheirreporttogetherwiththefinancialreportofCarnarvonPetroleumLimited(“Company”)andoftheGroup,being

theCompany,itscontrolledentities,andtheGroup’sinterestinjointlycontrolledassets,forthefinancialyearended30June2008,and

theauditor’sreportthereon.

CarnarvonPetroleumLimitedisalistedpubliccompanyincorporatedanddomiciledinAustralia.

DireCtorS

ThenamesanddetailsoftheCompany’sdirectorsinofficeatanytimeduringorsincetheendofthefinancialyearareasfollows.Directors

wereinofficeforthisentireperiodunlessotherwisestated.

peter J Leonhardt FCA,FAICD(Life)

ChairmanAge61.Appointedasadirectoron17March2005andappointedChairmaninApril2005.

MrLeonhardtisanindependentcompanydirectorandadviserwithextensivebusiness,financialandcorporateexperience.Heis

aCharteredAccountantandaformerSeniorPartnerwithPricewaterhouseCoopersandManagingPartnerofCoopers&Lybrandin

WesternAustralia.

DuringthepastthreeyearsMrLeonhardthasservedasadirectorofthefollowinglistedcompanies:CentrepointAllianceLimited

(fromMay2002);CTILogisticsLimited(fromAugust1999);VoyagerEnergyLimited(fromMarch2001toSeptember2005);Titan

ResourcesLimited(fromJune2005toJune2006).HeisalsoadirectoroftheWesternAustralianInstituteforMedicalResearch.

MrLeonhardtisChairmanoftheAuditCommittee.

Edward (Ted) P Jacobson B.Sc(HonsGeology)

Chief Executive OfficerAge59.Appointedasadirectoron5December2005.

Mr Jacobson isapetroleumgeophysicistwith38years’experience inpetroleumexplorationprincipally in theEuropeanNorth

Sea,SouthEastAsia,SouthAmericaandAustralia.WithinAustraliahehasbeenresponsibleforinitiatinganumberofpetroleum

discoverieswithintheCooperBasin,BarrowSubBasinandTimorSea.In1986,TedestablishedtheconsultingcompanyExploration

StudyProjectsPtyLtdwhichadvisedcompaniesonnewventureopportunitiesinAustraliaandSouthEastAsiaandassistedin

capital raisingsandcorporateactivity. In1991Tedwasco-founderofDiscoveryPetroleumNLand from1996co-founder and

technicaldirectorofTapOilLtdwhichgrewtoamarketcapitalisationofover$400millionunderhistechnicalleadership.Tedretired

fromTapinSeptember2005.

DuringthepastthreeyearsMrJacobsonhasservedasdirectorofthefollowinglistedcompanies:RialtoEnergyLimited(fromJuly

2006);TapOilLtd (fromSeptember1996toSeptember2005).Mr JacobsonwasalsoadirectorofSmartRichEnergyFinance

(Holdings)Ltd(fromJanuary2007toNovember2007),listedontheHongKongStockExchange.


dIreCtorS’ report (Continued)

Neil C Fearis LL.B(Hons),MAICD,FFin

Non-Executive DirectorAge57.Appointedasadirectoron30November1999.

MrFearishasover30years’experienceasacommerciallawyerintheUKandAustralia.

DuringthepastthreeyearsMrFearishasservedasadirectorofthefollowinglistedcompanies:KrestaHoldingsLimited(from

1997);PerseusMiningLimited(from2004);LibertyResourcesLimited(from25June2007).MrFearisisalsoamemberofseveral

professionalbodiesassociatedwithcommerceandlaw.

MrFearisisamemberoftheAuditCommittee.

Kenneth P Judge B.Com,B.Juris,LL.B

Non-Executive DirectorAge53.Appointedasadirectoron1April2005.

Mr.Judgehasextensivelegalandbusinessmanagementexperiencehavingheldanumberofpubliccompanydirectorshipsandhas

beenengagedintheestablishmentorcorporaterestructureoftechnology,mining,andoilandgascompaniesinAustralia,United

Kingdom,USA,Brazil,Argentina,MexicoandthePhilippines.

Mr.JudgeisadirectorandChairmanofBrazilianDiamondsLimited(fromFebruary2001),whichislistedonboththeTorontoStock

ExchangeandtheAIMmarketoftheLondonStockExchangePlc.HeisadirectorofBlockShieldCorporationPlc(fromFebruary

2004),directorandChairmanofHidefieldGoldPlc(fromOctober2003)andadirectorofGulfsandsPetroleumPlc.(fromOctober

2006),allofwhicharelistedonAIM.

HeisalsoadirectorandChairmanofAltoVenturesLtd(fromApril2004),ColumbusGoldCorporation(fromSeptember2004),

ColumbusSilverCorporation(fromMay2007)andEmpireMiningLtd(fromJanuary2005),allofwhicharelistedontheTSXVenture

Exchange.

Company SeCretary

MrRobertAndersonwasappointedCompanySecretaryinNovember2005.MrAndersonisaCharteredAccountantwhohaspreviously

heldcompanysecretarialpositionsinbothASX-listedcompaniesandprivateentities.

DireCtorS’ meetingS

Thenumberofdirectors’meetingsandthenumberofmeetingsattendedbyeachofthedirectorsoftheCompanyduringthefinancial

yearareasfollows:

(a) (b)

PeterLeonhardt 5 5

TedJacobson 5 5

NeilFearis 5 5

KenJudge 5 5

(a) Numberofmeetingsheldduringperiodofoffice

(b) Numberofmeetingsattended



auDit Committee

Names and qualifications of Audit Committee members

The Committee is to include at least 2 members. Current members of the committee are Mr Peter Leonhardt and Mr Neil Fearis.

QualificationsofAuditCommitteemembersareprovidedintheDirectorssectionofthisdirectors’report.

Audit Committee meetings

The number of Audit Committee meetings and the number attended by each of the members during the reporting period were as

follows:

(a) (b)

PeterLeonhardt 3 3

NeilFearis 3 3

(a) Numberofmeetingsheldduringperiodofoffice

(b) Numberofmeetingsattended

remuneration Committee

InAugust2008theBoarddeterminedtheCompanywasofasizetojustifytheexistenceofaRemunerationCommitteethatnowcomprises

MrLeonhardt,MrJudgeandMrFearis.TherewerenoRemunerationCommitteemeetingsduringthereportingperiod.

TheRemunerationCommitteeisresponsiblefortheremunerationarrangementsfordirectorsandexecutivesoftheCompany.

TheRemunerationCommitteeconsidersremunerationpackagesandpoliciesapplicabletotheexecutivedirectors,seniorexecutives,and

non-executivedirectors.Itisalsoresponsibleforshareoptionschemes,theEmployeeSharePlan,incentiveperformancepackages,and

retirementandterminationentitlements.

prinCipaL aCtivitieS

Duringthecourseofthe2008financialyeartheGroup’sprincipalactivitiescontinuedtobedirectedtowardsoilandgasexploration,

developmentandproduction.

iDentifiCation of inDepenDent DireCtorS

TheindependentdirectorsareidentifiedintheCorporateGovernanceStatementsectionofthisAnnualReportassetoutonpages73to

75.



remuneration report

DuringthereportingperiodtheBoarddeterminedremunerationpoliciesandpractices,evaluatedtheperformanceofseniormanagement,

andconsideredremunerationforthoseseniormanagers.

The Remuneration Committee now assesses the appropriateness of the nature and amount of remuneration on an annual basis by

referencetoindustryandmarketconditions,andwithregardtotheCompany’sfinancialandoperationalperformance.

Totalnon-executivedirectors’feesareapprovedbyshareholdersandtheBoardisresponsiblefortheallocationofthosefeesamongstthe

individualmembersoftheBoard.

ThevalueofremunerationisdeterminedonthebasisofcosttotheCompanyandtheGroup.

Principles of compensation

Remunerationofdirectorsandexecutivesisreferredtoascompensationthroughoutthisreport.

CompensationlevelsforkeymanagementpersonneloftheCompanyandtheGrouparecompetitivelysettoattractandretainappropriately

qualifiedandexperienceddirectorsandseniorexecutives.Thedirectorsobtain,whenrequired,independentadviceontheappropriateness

ofremunerationpackages,giventrendsincomparativecompaniesbothlocallyandinternationally.

Compensationarrangementsincludeamixoffixedandperformancebasedcompensation.Acomponentofshare-basedcompensationis

awardedatthediscretionoftheBoard,subjecttoshareholderapprovalwhenrequired.

Compensationstructurestakeintoaccounttheoveralllevelofcompensationforeachdirectorandexecutive,thecapabilityandexperience

of the directors and senior executives, the executive’s ability to control the financial performanceof the relative business segment,

theGroup’sperformance(includingearningsandthegrowthinshareprice),andtheamountofanyincentiveswithineachexecutive’s

remuneration.

On1August2008theBoardadoptedapolicythatprohibitsthosethataregrantedshare-basedpaymentsaspartoftheirremuneration

fromenteringintootherarrangementsthatlimittheirexposuretolossesthatwouldresultfromsharepricedecreases.TheCompany

requiresallexecutivesanddirectorstosignannualstatementsofcompliancewiththispolicythroughouttheprecedingyear.

InconsideringtheGroup’sperformanceandbenefitsforshareholderwealth,theBoardhashadregardtothefollowingindicesinrespect

ofthecurrentfinancialyearandthepreviousfouryears.Nodividendshavebeenpaidordeclaredduringthisperiod.

30 June 2004 30 June 2005 30 June 2006 30 June 2007 30 June 2008

Shareprice $0.015 $0.018 $0.052 $0.24 $0.53

Consolidatednetprofit/(loss)from

continuingoperations($000) ($1,417) ($1,007) ($1,246) ($1,542) $16,174

ThedirectorsbelievetheincreaseinsharepricesinceJune2004reflectsanumberoffactors,includingtheappointmentofTedJacobson

asChiefExecutiveOfficer inFebruary2006.Thedevelopmentof theGroup’soilandgas interests inThailandsincehisappointment

hasresultedinasubstantialincreaseinproductionandoperationalrevenues,asevidencedbytheoperatingprofitintheperiodunder

review.



remuneration report (continued)

Principles of compensation (continued)

Fixed compensation

Fixedcompensationconsistsofbasecompensationaswellasemployercontributionstosuperannuationfunds.Basecompensationmay

besupplementedbyanelementofshare-basedcompensation.

Therewasnoshare-basedcompensationintheperiodunderreview,otherthanthatsetoutintheEmployeeSharePlansectionofthis

remunerationreport.

Non-executive directors

Totalremunerationforallnon-executivedirectors, lastvoteduponbyshareholdersataGeneralMeetinginNovember2005,isnotto

exceed$200,000perannum.

Anon-executivedirector’sbasefeeiscurrently$55,000perannum.TheChairmanreceives$90,000perannum.Non-executivedirectors

donotreceiveanyperformance-relatedremuneration.Directors’feescoverallmainBoardactivitiesandmembershipofBoardcommittees.

TheCompanydoesnothaveanytermsorschemesrelatingtoretirementbenefitsfornon-executivedirectors.

Service contracts

Thecontractduration,periodofnoticeandterminationconditionsforkeymanagementpersonnelareasfollows:

(i) TedJacobson,ChiefExecutiveOfficer,isengagedthrougharolling12monthEmploymentAgreement.TerminationbytheCompany

iswith3months’notice(orpaymentinlieuthereof)andpaymentof9monthsremuneration.TerminationbyMrJacobsoniswith3

months’notice.

(ii) RobertAnderson,CompanySecretaryandChiefFinancialOfficer,isengagedthrougharolling12monthConsultancyAgreement.

TerminationbytheCompanyiswith6months’noticeorpaymentinlieuthereof.Terminationbytheconsultantiswith3months’

notice.

(iii) Philip Huizenga, Chief Operating Officer, is engaged as an employee. Termination by the Company is with 4 weeks’ notice or

paymentinlieuthereof.TerminationbyMrHuizengaiswith4weeks’notice.

Employee Share Plan

SharesareissuedunderanEmployeeSharePlan(“ESP”),whichhasbeenapprovedbyshareholdersinAnnualGeneralMeeting(“AGM”).

ThepurposeoftheESPistoattract,retainandmotivatethosewhohavebeeninvitedtoparticipateintheESPandtherebyaligntheir

interestswiththoseofothershareholdersasameansofencouragingthemtoensurethatCompanyperformanceincreasesshareholder

wealththroughlongtermgrowth.Sharesareissuedbasedupontheassessedperformanceofeachpersonagainsttheirjobspecifications

andtherecommendationsoftheChiefExecutiveOfficer,andinthecaseofdirectors,withtheapprovalofshareholders.ThefollowingESP

shareswereissuedtodirectorsandkeymanagementpersonnel:




Employee Share Plan (continued)

2008executive officers number of issue date issue price Loan shares issued per share

RAAnderson 100,000 07/01/2008 $0.701 $70,100

PPHuizenga 100,000 07/01/2008 $0.701 $70,100

2007

Directors number of issue date issue price Loan shares issued per shareEPJacobson 6,000,000 30/04/2007 $0.09 $540,000

PJLeonhardt 3,000,000 30/04/2007 $0.09 $270,000

Theseissueswerenotsubjecttoaperformancecondition.Theissuepricewascalculatedbasedonthe5dayweightedaverageclosing

pricepriortothedateofoffer.Thepurchaseswerefundedbyinterest-freeloanswithalimitedrecoursesecurityovertheplansharesand

subjecttothedetailedrulesoftheESP.

Analysis of bonuses included in remuneration

Allcashbonusesawardedduringtheperiodandincludedinremuneration,assetoutonpage23,fullyvestedtoeachofthedirectors,

namedCompanyexecutives,andkeymanagementpersonnelduringtheperiod.

Directors’ and executive officers’ remuneration (Company and consolidated)

DetailsofthenatureandamountofeachmajorelementoftheremunerationofeachdirectoroftheCompanyandeachofthenamed

CompanyandGroupexecutivesreceivingthehighestremunerationaresetoutonthefollowingpage.

Thefairvalueofoptions,includingESPsharestreatedinprincipleasanoptionovertheCompany’sshares,iscalculatedatthedateof

grantusingtheBlack-ScholesOptionPricingModel.SharesissuedundertheESPvestimmediatelyandtheirfairvaluerecognisedasan

expenseinthecurrentperiod.ThefollowingfactorsandassumptionswereusedindeterminingthefairvalueofESPsharesatgrantdate,

beingthedateofshareholderapproval,inthecurrentandpreviousreportingperiod:

assumed fair value exercise price of shares expected risk free Dividendgrant date expiry date per option price at grant date volatility interest rate yield

2008

07/01/2008 06/01/2011 $0.31 $0.701 $0.701 55% 7.5% 0%

2007

30/04/2007 30/04/2010 $0.07 $0.09 $0.135 55% 5.5% 0%



rem

un

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rep

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$5

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2008

$5

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Equity instruments

(i) Shares

TherewerenosharesintheCompanygrantedascompensationtokeymanagementpersonnelduringthereportingperiod,otherthanthe

ESPsharestreatedinprincipleasanoptionovertheCompany’ssharesasdescribedunder(ii)below.

(ii) OptionsandESPshares

TherewerenooptionsoversharesintheCompanygrantedascompensationduringthereportingperiod.Nooptionshavebeengranted

sincetheendofthefinancialyear.

ShareissuesundertheCompany’sESParetreatedinprincipleasanoptionovertheCompany’ssharesandareincludedintheoption

tablesbelow.Theseoptionsareassumedtohavealifeof3years.

Detailsofoptions,includingESPsharestreatedinprincipleasoptions,grantedandvestedtodirectorsandexecutivesareasfollows.All

optionswereissuedfornilcashconsideration,vestimmediately,andhavebeenrecognisedasanexpenseinthecurrentperiod.

2008 number of fair value per exercise eSp shares issue option at issue price per assumedexecutive officers issued date date option expiry dateRAAnderson 100,000 07/01/2008 $0.31 $0.701 06/01/2011

PPHuizenga 100,000 07/01/2008 $0.31 $0.701 06/01/2011

2007 number of fair value per exercise eSp shares issue option at issue price per assumedDirectors issued date date option expiry date

EPJacobson 6,000,000 30/04/2007 $0.074 $0.09 29/04/2010

PJLeonhardt 3,000,000 30/04/2007 $0.074 $0.09 29/04/2010

Thefollowingshareswereissuedontheexerciseofoptionsgrantedascompensationinpriorperiods:

2008Directors number of shares amount paid per share EPJacobson 4,000,000 $0.07

PJLeonhardt 3,000,000 $0.07

KPJudge 2,000,000 $0.07

KPJudge 1,000,000 $0.10

2007Directors number of shares amount paid per share NCFearis 2,000,000 $0.07

Therearenoamountsunpaidonsharesissuedasaresultoftheexerciseofoptionsinthereportingperiod.




Equity instruments (continued)

(ii) OptionsandESPshares(continued)

Duringthereportingperiodtherewasnoforfeitureorvestingofoptionsgrantedinpreviousperiods.Attheendofthereportingperiod

therewerenounvestedoptionsonissue.

Alloptionsexpireontheexpirydatebutdonotexpireasaresultoftheterminationoftheholder’sengagementwiththeCompany.

Themovementduringthereportingperiod,byvalue,ofoptionsoverordinaryshares,includingsharesissuedundertheCompany’sESP,

foreachcompanydirectorandcompanyexecutiveandgrantedaspartofremunerationisdetailedbelow:

value of options granted exercised in forfeited in totalDirectors in year ($) year ($) year ($) value in year ($)

EPJacobson - 1,720,000 - 1,720,000

PJLeonhardt - 1,290,000 - 1,290,000

KPJudge - 1,540,000 - 1,540,000

value of options granted exercised in forfeited in totalexecutive officers in year ($) year ($) year ($) value in year ($)

PPHuizenga 30,734 - - 30,734

RAAnderson 30,734 1,141,373 - 1,172,107

ThevalueofoptionsgrantedintheyearisthefairvalueoftheoptionsatgrantdateusingtheBlack-ScholesOptionPricingModel.

ThevalueofoptionsexercisedduringtheyeariscalculatedasthemarketpriceofsharesoftheCompanyonASXLimitedasatcloseof

tradingonthedatetheoptionswereexercisedortheESPloanrepaid,afterdeductingthepricepaidtoexercisetheoptionsorrepaythe

loan.

non-auDit ServiCeS

Theauditorshavenotperformedanynon-auditservicesoverandabovetheirstatutorydutiesduringthecurrentreportingperiod.

DetailsoftheamountspaidorpayabletotheauditoroftheGroupforauditservicesprovidedduringtheyeararesetoutbelow:

audit Services Consolidated 2008 ($)

Auditors of the Company:

Auditandreviewoffinancialreports 78,428



DireCtorS’ intereStS

Atthedateofthisreport,therelevantinterestsofthedirectorsinsecuritiesoftheCompanyareasfollows:

name ordinary Shares options over ordinary Shares

PJLeonhardt 14,900,000 3,000,000EPJacobson 28,917,335 4,000,000NCFearis 6,400,000 2,000,000KPJudge 14,332,855 1,000,000

SharesissuedundertheCompany’sESPareincludedundertheheadingOrdinaryShares.

Share optionS

Options granted to directors and executives of the CompanyTherewerenooptionsoversharesintheCompanygrantedascompensationtodirectorsornamedexecutivesduringorsincetheendofthefinancialyear.

ShareissuesundertheCompany’sESParetreatedinprincipleasanoptionovertheCompany’ssharesandareincludedinthetablebelow.Theseoptionsareassumedtohavealifeof3years.

DetailsofESPsharesissuedtodirectorsandnamedexecutivesduringthereportingperiod,andtreatedasoptionsforvaluationpurposes,areasfollows.Theseshareswereissuedfornilcashconsideration,vestimmediately,andhavebeenrecognisedasanexpenseinthecurrentperiod. number of eSp exercise price assumedexecutive officers shares granted per share expiry dateRAAnderson 100,000 $0.701 06/01/2011PPHuizenga 100,000 $0.701 06/01/2011

Shares under optionThefollowingunissuedordinarysharesoftheCompanyareunderoption.TheseexcludeshareissuesmadeundertheCompany’sESP.

exercise numberexpiry Date price 1 July 2007 issued exercised expired 30 June 2008 31/03/2008 $0.07 9,000,000 - 9,000,000 - -31/03/2009 $0.10 16,000,000 - 6,000,000 - 10,000,000 25,000,000 - 15,000,000 - 10,000,000

Alloptionsexpireontheexpirydatebutdonotexpireasaresultoftheterminationoftheholder’sengagementwiththeCompany.Optionholdersdonothaveanyright,byvirtueoftheoption,tovoteortoparticipateinanyshareissueoftheCompanyoranyrelatedbodycorporate.

Noshareshavebeenissuedasaresultoftheexerciseofoptionssincetheendofthefinancialyear.Therearenoamountsunpaidonthesharesissuedasaresultoftheexerciseofoptionsinthereportingperiod.

Duringthereportingperiodtherewasnoforfeitureorvestingofoptionsgrantedinpreviousperiods.Attheendofthereportingperiod

therewerenounvestedoptionsonissue.



LikeLy DeveLopmentS

Thelikelydevelopmentsforthe2009financialyeararecontainedintheoperatingandfinancialreviewassetoutonpages4to16.The

directorsareoftheopinionthatfurther informationastothelikelydevelopmentsintheoperationsoftheGroupwouldprejudicethe

interestsoftheCompanyandtheGroupandithasaccordinglynotbeenincluded.

environmentaL reguLation anD performanCe

The Group’s oil and gas exploration and development activities are concentrated in Thailand and Western Australia. Environmental

obligationsareregulatedunderbothStateandFederalLawinWesternAustraliaandundertheDepartmentofMineralFuelsregulationsin

Thailand.Nosignificantenvironmentalbreacheshavebeennotifiedbyanygovernmentagencyduringtheyearended30June2008.

DiviDenDS

Nodividendswerepaidduringtheyearandthedirectorsdonotrecommendpaymentofadividendinrespectofthecurrentfinancial

year.

auDitor’S inDepenDenCe DeCLaration

Theauditor’sIndependenceDeclarationunderSection307CoftheCorporationsActissetoutonpage29andformspartofthedirectors’

reportforthefinancialyearended30June2008.

SignifiCant ChangeS in State of affairS

IntheopinionofthedirectorsnosignificantchangesinthestateofaffairsoftheGroupoccurredduringthecurrentfinancialyearother

thanasoutlinedintheoperatingandfinancialreviewassetoutonpages4to16.

inDemnifiCation anD inSuranCe of DireCtorS anD offiCerS

DuringtheperiodtheCompanypaidapremiumtoinsurethedirectorsandofficersoftheCompanyanditscontrolledentities.Thepolicy

prohibitsthedisclosureofthenatureoftheliabilitiescoveredandtheamountofthepremiumpaid.

proCeeDingS on BehaLf of the Company

NopersonhasappliedforleaveofCourttobringproceedingsonbehalfoftheCompanyorinterveneinanyproceedingstowhichthe

CompanyisapartyforthepurposeoftakingresponsibilityonbehalfoftheCompanyforalloranypartoftheproceedings.TheCompany

wasnotapartytoanysuchproceedingsduringtheyear.

operating anD finanCiaL review

AnoperatingandfinancialreviewoftheGroupforthefinancialyearended30June2008issetoutonpages4to16andformspartof

thisreport.



inDemnity of DireCtorS anD Company SeCretary

It is intendedthatDeedsofAccessand IndemnitywillshortlybeexecutedbytheCompanywitheachof thedirectorsandCompany

Secretary.ThedeedswillrequiretheCompanytoindemnifyeachdirectorandCompanySecretaryagainstanylegalproceedings,tothe

extentpermittedbylaw,madeagainst,suffered,paidorincurredbythedirectorsorCompanySecretarypursuantto,orarisingfromorin

anywayconnectedwiththedirectororCompanySecretarybeinganofficeroftheCompany.

eventS SuBSequent to reporting Date

Nomatterorcircumstancehasarisensince30June2008thatintheopinionofthedirectorshassignificantlyaffected,ormaysignificantly

affectinfuturefinancialyears:

(i) theGroup’soperations,or

(ii) theresultsofthoseoperations,or

(iii) theGroup’sstateofaffairs

rounDing off

TheCompanyisanentitytowhichASICClassOrder98/100dated10July1998applies.InaccordancewiththatClassOrderamountsin

thefinancialreportanddirectors’reporthavebeenroundedofftothenearestthousanddollars,unlessotherwisestated.

Signedinaccordancewitharesolutionofthedirectors.

pJ LeonhardtDirector Perth,25September2008


IndependenCe deClaratIon


InCome StatementS for the year enDeD 30 June 2008

ConSoLiDateD Company 2008 2007 2008 2007

notes $000 $000 $000 $000

Salesrevenuefromcontinuingoperations 63,033 3,674 - -

Otherincome 4 318 247 251 240

Costofsales 5 (11,346) (3,162) - -

Administrativeexpenses (1,032) (628) (1,032) (628)

Directors’fees (183) (135) (183) (135)

Employeebenefitsexpense (637) (145) (637) (145)

Travelrelatedcosts (311) (38) (311) (38)

Unrealisedforeignexchange(loss)/gain (656) 54 (1,851) (1,416)

Explorationexpenditurewrittenoff - (75) - (75)

Newventures (973) (380) (973) (380)

Share-basedpayments (119) (934) (119) (934)

Financecosts 34 (20) - (1)

profit / (loss) before income tax 48,128 (1,542) (4,855) (3,512)

Taxes

Incometaxexpense 9 16,975 - - -

Specialremuneratorybenefit 14,979 - - -

Totaltaxes 31,954 - - -

profit / (loss) from continuing operations 16,174 (1,542) (4,855) (3,512)

profit / (loss) attributable to members of the Company 16,174 (1,542) (4,855) (3,512)

Basicearnings/(loss)persharefrom

continuingoperations(centspershare) 8 2.4 (0.3)

Dilutedearnings/(loss)persharefrom

continuingoperations(centspershare) 8 2.4 (0.3)

Theaboveincomestatementsshouldbereadinconjunctionwiththeaccompanyingnotestothefinancialstatements.


BalanCe SheetSaS at 30 June 2008


notes $000 $000 $000 $000

Current assets

Cashandcashequivalents 21(b) 28,281 8,927 570 6,520

Tradeandotherreceivables 10 12,443 1,684 2,788 123

Inventories 12 1,586 1,111 - -

Otherassets 13 299 639 96 34

total current assets 42,609 12,361 3,454 6,677

non-current assets

Tradeandotherreceivables 10 - - 12,713 13,024

Property,plantandequipment 11 172 104 49 70

Explorationandevaluation 14 379 - 379 -

Oilandgasassets 15 23,124 12,129 - -

Otherinvestments 16 - - 1,483 1,483

total non-current assets 23,675 12,233 14,624 14,577

total assets 66,284 24,594 18,078 21,254

Current liabilities

Tradeandotherpayables 17 3,368 3,028 531 297

Employeebenefits 24 13 4 13 4

Provisions 18 24,152 - - -

total current liabilities 27,533 3,032 544 301

non-current liabilities

Deferredtax 19 3,738 - - -

Provisions 18 - 105 - -

total non-current liabilities 3,738 105 - -

total liabilities 31,271 3,137 544 301

net assets 35,013 21,457 17,534 20,953

equity

Issuedcapital 66,738 65,041 66,738 65,041

Reserves (6,211) (1,896) 1,226 1,487

Accumulatedlosses (25,514) (41,688) (50,430) (45,575)

total equity 35,013 21,457 17,534 20,953

Theabovebalancesheetsshouldbereadinconjunctionwiththeaccompanyingnotestothefinancialstatements.


StatementS of ChanGeS In eQuItY for the year enDeD 30 June 2008

Share-based issued accumulated translation payments group capital losses reserve reserve total $000 $000 $000 $000 $000

Balance at 1 July 2006 50,220 (40,146) (1,646) 278 8,706

Sharesissued,netoftransactioncosts 14,778 - - - 14,778

Exchangedifferencesontranslation

offoreignoperations - - (1,737) - (1,737)

Sharebasedpayments 43 - - 1,209 1,252

LossattributabletomembersofCompany - (1,542) - - (1,542)

Balance at 30 June 2007 65,041 (41,688) (3,383) 1,487 21,457

Sharesissuednetoftransactioncosts 1,226 - - - 1,226

Exchangedifferenceson

translationofforeignoperations - - (4,054) - (4,054)

Sharebasedpayments 471 - - (261) 210

ProfitattributabletomembersofCompany - 16,174 - - 16,174

Balance at 30 June 2008 66,738 (25,514) (7,437) 1,226 35,013

Theabovestatementsofchangesinequityshouldbereadinconjunctionwiththeaccompanyingnotestothefinancialstatements.


StatementS of ChanGeS In eQuItYfor the year enDeD 30 June 2008

Share-based issued accumulated payments Company capital losses reserve total $000 $000 $000 $000

Balance at 1 July 2006 50,220 (42,063) 278 8,435

Sharesissued,netoftransactioncosts 14,778 - - 14,778

Sharebasedpayments 43 - 1,209 1,252

LossattributabletomembersoftheCompany - (3,512) - (3,512)

Balance at 30 June 2007 65,041 (45,575) 1,487 20,953

Sharesissued,netoftransactioncosts 1,226 - - 1,226

Sharebasedpayments 471 - (261) 210

LossattributabletomembersoftheCompany - (4,855) - (4,855)

Balance at 30 June 2008 66,738 (50,430) 1,226 17,534

Theabovestatementsofchangesinequityshouldbereadinconjunctionwiththeaccompanyingnotestothefinancialstatements.


StatementS of CaSh flowS for the year enDeD 30 June 2008


notes $000 $000 $000 $000

Cash flows from operating activities

ReceiptsfromcustomersandGSTrecovered 56,145 2,782 275 139

Paymentstosuppliersandemployees (13,616) (3,794) (3,153) (1,345)

Incometaxpaid (3,666) - - -

Interestreceived 236 213 204 206

Interestpaid (8) (1) - (1)

net cash flows generated from / (used in) operating activities 21(a) 39,091 (800) (2,674) (1,001)

Cash flows from investing activities

Explorationanddevelopmentexpenditure (17,399) (7,188) (628) (334)

Cashheldassecurity (3,156) - (2,656) -

Acquisitionofproperty,plantandequipment (218) (87) (13) (26)

Net(advancesto)controlledentities - - (1,293) (8,830)

net cash flows (used in) investing activities (20,773) (7,275) (4,590) (9,190)

Cash flows from financing activities

Proceedsfromissueofsharecapital 1,230 15,960 1,230 15,960

Paymentofshareissuecosts (3) (881) (3) (881)

Proceedsfromrepaymentof

EmployeeSharePlanloans 90 77 90 77

net cash flows from financing activities 1,317 15,156 1,317 15,156

net increase in cash and cash equivalents 19,635 7,081 (5,947) 4,965

Cashandcashequivalentsatthebeginning

ofthefinancialyear 8,927 1,898 6,520 1,559

Effectofexchangeratefluctuationson

cashandcashequivalents (281) (52) (3) (4)

Cash and cash equivalents at the end of the financial year 21(b) 28,281 8,927 570 6,520

Theabovestatementsofcashflowsshouldbereadinconjunctionwiththeaccompanyingnotestothefinancialstatements.


noteS to the fInanCIal StatementS

1. reporting entity

The consolidated financial report of theCompany for the financial year ended 30 June 2008 comprises theCompany and itscontrolledentities(the“Group”)andtheGroup’sinterestinjointlycontrolledassets.

Thefinancialreportwasauthorisedforissuebythedirectorson25September2008.

2. Basis of preparation of the financial report

Statement of compliance

ThefinancialreportisageneralpurposefinancialreportpreparedinaccordancewithAustralianAccountingStandards(“AASBs”),includingAustralianAccountingInterpretations,otherauthoritativepronouncementsoftheAustralianAccountingStandardsBoard(“AASB”),andtheCorporationsAct2001.

Australian Accounting Standards set out accounting policies that the AASB has concluded would result in a financial reportcontaining relevant and reliable information about transactions, events and conditions to which they apply. Compliance withAustralianAccountingStandardsensuresthatthefinancialstatementsandnotesalsocomplywithInternationalFinancialReportingStandards(“IFRSs”).Materialaccountingpoliciesadoptedinthepreparationofthisfinancialreportarepresentedbelow.Theyhavebeenconsistentlyappliedunlessotherwisestated.

Basis of measurement

Thefinancialreportispreparedonahistoricalcostbasis,exceptforavailable-for-salefinancialassetsandfinancialinstrumentsatfairvaluethroughprofitandlosswhicharemeasuredatfairvalue.

Functional and presentation currency

The consolidated financial statements are stated in Australian dollars, which is the Company’s functional and presentationcurrency.

Use of estimates and judgements

The preparation of the financial report requiresmanagement tomake judgements, estimates and assumptions that affect theapplicationofaccountingpoliciesandthereportedamountsofassetsandliabilities,incomeandexpenses.Actualresultsmaydifferfromtheseestimates.

Estimatesandunderlyingassumptionsarereviewedonanongoingbasis.Revisionstoaccountingestimatesarerecognizedintheperiodinwhichtheestimateisrevisedandinanyfutureperiodsaffected.

Keyestimate–impairment

TheGroupassessesimpairmentateachreportingdatebyevaluatingconditionsspecifictothegroupthatmayleadtotheimpairmentof assets. Where an impairment trigger exists, the recoverable amount of the asset is determined. Value-in-use calculationsperformedinassessingrecoverableamountsincorporateanumberofkeyestimates.

TherewasnotconsideredtobeanyimpairmenttriggeroverthecarryingvalueoftheGroup’sinterestinthePhetchabunBasinJointVentureatthedateofthisreport.

Keyestimate–incomeandcapitalgainstaxes

Judgementisrequiredindetermininganyprovisionforincomeandcapitalgainstaxes.TheGrouprecognizesliabilitiesofanticipatedtaxbasedonestimatesoftaxesdue.Wherethefinaltaxoutcomeofthesemattersisdifferentfromtheamountsthatwereinitiallyrecognised,suchdifferenceswillimpacttheincometaxanddeferredtaxexpenses,assetsorprovisionsintheyearinwhichsuchdeterminationismade.


noteS to the fInanCIal StatementS (Continued)

2. Basis of preparation of the financial report (continued)

Use of estimates and judgements (continued)

Keyestimate–specialremuneratorybenefittaxandincometax

TheGroup’sPhetchabunBasinJointVentureissubjecttoThaiincometaxat50%andaspecialremuneratorybenefit(“SRB”)taxonprofits,atslidingscalerates(0%-75%byconcession)in2008andbeyond.

TheSRB,whichistaxdeductibleinthecalculationofThaiincometaxes,involvesahighlydetailedcalculationdoneonaconcessionby concessionbasis. Thebasis of the calculation is petroleumprofits, adjusted for capital spent, being subjected to a slidingscaleSRBratesuchthatprofitsarenottaxeduntilallcapitalhasbeenrecovered.TheslidingscalerateisprincipallydrivenbyproductionandpricingbutissubjecttootheradjustmentssuchaschangesinThailand’sconsumerpriceindex,wholesalepriceindex,cumulativemetresdrilledontheconcession,and,forcertainconcessions,changesintheexchangeratebetweentheThaiBahtandtheUSD.

TheSRBcalculationisperformedandpaidannuallyforeachconcessionatthecalculatedannualrateattheendofeachcalendaryear.Judgementisrequiredindeterminingprovisionswhicharebasedonestimatesofamountsdue.Wherethefinaloutcomeofthosemattersisdifferentfromtheamountsthatwereoriginallyrecognised,suchdifferencemayimpactthoseprovisionsintheperiodinwhichsuchadeterminationismade.

Keyestimate–functionalcurrency

ThedeterminationofthefunctionalcurrencyoftheCompany’scontrolledentitiesrequiresconsiderationofanumberoffactors.These factors includethecurrencies thatprimarily influencetheirsalesandcostsandtheeconomicenvironment inwhichtheentitiesoperate.

Keyestimates–other

Other areas of judgement are in the determination of oil reserves, rehabilitation provisions, capitalisation of exploration andevaluationcosts,determinationofareasofinterest,andtheunitsofproductionmethodofdepreciation.

3. Significant accounting policies

Theaccountingpoliciessetoutbelowhavebeenappliedconsistentlytoallperiodspresentedintheconsolidatedfinancialreport.The accounting policies have been applied consistently by all entities in the Group. Certain comparative amounts have beenreclassifiedtoconformtothecurrentyear’spresentation.

(a) Basis of consolidation

Controlled entities

TheconsolidatedfinancialreportcomprisesthefinancialstatementsoftheCompanyanditscontrolledentities.AcontrolledentityisanyentitycontrolledbytheCompanywherebytheCompanyhasthepowertocontrolthefinancialandoperatingpoliciesofanentitysoastoobtainbenefitsfromitsactivities.Allinter-companybalancesandtransactionsbetweenentitiesintheeconomicentity,includinganyunrealisedprofitsorlosses,havebeeneliminatedonconsolidation.AccountingpoliciesofcontrolledentitieshavebeenchangedwherenecessarytoensureconsistencywiththoseappliedbytheCompany.

Where controlled entities enter or leave the economic entity during the year, their operating results are included or excludedfromthedatecontrolwasobtainedoruntilthedatecontrolceased.InvestmentsincontrolledentitiesarecarriedatcostintheCompany’sfinancialstatements.

Jointly controlled assets

TheGroup'sshareoftheassets,liabilities,revenueandexpensesofjointventureassetsareincludedinthefinancialstatementsundertheappropriateheadings.



3. Significant accounting policies (continued)

(b) income tax and special remuneratory benefit

Income tax

Thechargeforcurrentincometaxexpenseisbasedontheresultfortheyearadjustedforanynon-assessableordisalloweditems.Itiscalculatedusingtaxratesthathavebeenenactedoraresubstantivelyenactedbybalancesheetdate.

Deferredtaxisaccountedforusingthebalancesheetliabilitymethodinrespectoftemporarydifferencesarisingbetweenthetaxbasesofassetsandliabilitiesandtheircarryingamountsinthefinancialstatements.Nodeferredincometaxwillberecognisedfromthe initialrecognitionofanassetor liability,excludingabusinesscombination,wherethere isnoeffectonaccountingortaxableprofitorloss.

Deferredtaxiscalculatedatthetaxratesthatareexpectedtoapplytotheperiodwhentheassetisrealisedorliabilityissettled.Deferredtaxisrecognisedintheincomestatementexceptwhereitrelatestoitemsrecogniseddirectlyinequity,inwhichcaseitisrecognisedinequity.Deferredincometaxassetsarerecognisedfordeductibletemporarydifferencesandunusedtaxlossesonlyifitisprobablethatfuturetaxableamountswillbeavailabletoutilisethosetemporarydifferencesandtaxlosses.Deferredtaxassetsandliabilitiesareoffsetwhentheyrelatetoincometaxesleviedbythesametaxationauthorityandthecompany/groupintendstosettleitscurrenttaxassetsandliabilitiesonanetbasis.

Theamountofbenefitsbroughttoaccountorwhichmayberealisedinthefuture isbasedontheassumptionthatnoadversechangewilloccurinincometaxationlegislationandtheanticipationthattheeconomicentitywillderivesufficientfutureassessableincometoenablethebenefittoberealisedandcomplywiththeconditionsofdeductibilityimposedbythelaw.Thecarryingamountofdeferredtaxassetsisreviewedateachbalancedateandonlyrecognisedtotheextentthatsufficientfutureassessableincomeisexpectedtobeobtained.

Special remuneratory benefit

TheGroup’sPhetchabunBasinJointVentureissubjecttoaspecialremuneratorybenefit(“SRB”)taxonprofits,atslidingscalerates(0%-75%byconcession)in2008andbeyond.

TheSRB,whichistaxdeductibleinthecalculationofThaiincometaxes,involvesahighlydetailedcalculationdoneonaconcessionby concessionbasis. Thebasis of the calculation is petroleumprofits, adjusted for capital spent, being subjected to a slidingscaleSRBratesuchthatprofitsarenottaxeduntilallcapitalhasbeenrecovered.TheslidingscalerateisprincipallydrivenbyproductionandpricingbutissubjecttootheradjustmentssuchaschangesinThailand’sconsumerpriceindex,wholesalepriceindex,cumulativemetresdrilledontheconcession,and,forcertainconcessions,changesintheexchangeratebetweentheThaiBahtandtheUSD.TheSRBcalculationisperformedandpaidannuallyforeachconcessionatthecalculatedannualrateattheendofeachcalendaryear.

TheSRBisconsidered,foraccountingpurposes,tobeataxonincome.

Tax consolidation

CarnarvonPetroleumLimitedand itswholly-ownedAustralianresidentcontrolledentities formedatax-consolidatedgroupwitheffectfrom1July2003andarethereforetaxedasasingleentityfromthatdate.CarnarvonPetroleumLimitedistheheadentityofthetax-consolidatedgroup.Infutureperiodsthemembersofthegroupwill,ifrequired,enterintoataxsharingagreementwherebyeachcompanyinthegroupcontributestotheincometaxpayableinproportiontotheircontributiontothenetprofitbeforetaxofthetaxconsolidatedgroup.




(c) property, plant and equipment

Recognition and measurement

Allproperty,plantandequipmentisstatedatcostlessaccumulateddepreciationandimpairmentlosses.Thecostofanitemalsoincludestheinitialestimateofthecostsofdismantlingandremovinganitemandrestoringthesiteonwhichitislocated.

Subsequentcostsareincludedintheasset'scarryingamountorrecognisedasaseparateasset,asappropriate,onlywhenitisprobablethatfutureeconomicbenefitsassociatedwiththeitemwillflowtothegroupandthecostoftheitemcanbemeasuredreliably.All other repairsandmaintenancearecharged to the incomestatementduring thefinancial period inwhich theyareincurred.

Impairment

The carrying amount of property, plant and equipment is reviewed at each balance date to determine whether there are anyobjectiveindicatorsofimpairmentthatmayindicatethecarryingvaluesmaynotberecoverableinwholeorinpart.ImpairmenttestingiscarriedoutinaccordancewithNote3(f).

Whereanassetdoesnotgeneratecashflowsthatarelargelyindependentitisassignedtoacashgeneratingunitandtherecoverableamounttestappliedtothecashgeneratingunitasawhole.

Ifthecarryingvalueoftheassetisdeterminedtobeinexcessofitsrecoverableamount,theassetorcashgeneratingunitiswrittendowntoitsrecoverableamount.

Depreciation

Depreciation on plant and equipment is calculated on a straight-line basis over expected useful life to the economic entitycommencingfromthetimetheassetisheldreadyforuse.Themajordepreciationratesusedforeachclassofdepreciableassetsare:

Plantandequipment: 20%to33% Theassets'residualvaluesandusefullivesarereviewed,andadjustedifappropriate,atleastannually.

Anasset'scarryingamountiswrittendownimmediatelytoitsrecoverableamountiftheasset'scarryingamountisgreaterthanitsestimatedrecoverableamount.

Gains and losses on disposals are determined by comparing proceedswith the carrying amount. These gains and losses areincludedintheincomestatement.

(d) oil and gas assets

Oilandgasassetsincludecoststransferredfromexplorationandevaluationoncetechnicalfeasibilityandcommercialviabilityofanareaofinterestaredemonstrable,togetherwithsubsequentcoststodeveloptheassettotheproductionphase.

Wherethedirectorsdecidethatspecificcostswillnotberecoveredfromfuturedevelopment,thosecostsarechargedtotheincomestatementduringthefinancialperiodinwhichthedecisionismade.

Depreciationofoil andgasassets iscalculatedonaunitofproductionbasissoas towriteoff thecosts inproportion to thedepletionoftheestimatedrecoverablereserves.




(e) exploration and evaluation

Explorationandevaluationexpenditureincurredisaccumulatedinrespectofeachidentifiableareaofinterest.ThesecostsareonlycarriedforwardtotheextentthattheGroup’srightsoftenuretotheareaarecurrentandthatthecostsareexpectedtoberecoupedthroughthesuccessfuldevelopmentofthearea,orwhereactivitiesintheareahavenotyetreachedastagethatpermitsreasonableassessmentoftheexistenceofeconomicallyrecoverablereserves.

Eachareaofinterestisassessedforimpairmenttodeterminetheappropriatenessofcontinuingtocarryforwardcostsinrelationtothatareaofinterest.ImpairmenttestingiscarriedoutinaccordancewithNote3(f).

Accumulatedcostsinrelationtoanabandonedareaarewrittenoffinfullagainstprofitintheyearinwhichthedecisiontoabandontheareaismade.

Oncethetechnicalfeasibilityandcommercialviabilityoftheextractionofmineralresourcesinanareaofinterestaredemonstrable,explorationandevaluationcostsattributable to thatareaof interestarefirst tested for impairmentand then reclassified fromexplorationandevaluationtooilandgasassets.

(f) recoverable amount of assets and impairment testing

Assetsthathaveanindefiniteusefullifearenotsubjecttodepreciationandaretestedannuallyforimpairmentbyestimatingtheirrecoverableamount.

Assetsthataresubjecttodepreciationarereviewedannuallytodeterminewhetherthereisanyindicationofimpairment.Wheresuchanindicatorexists,aformalassessmentofrecoverableamountisthenmade.Wherethisisinexcessofcarryingamount,theassetiswrittendowntoitsrecoverableamount.

Recoverableamountisthegreateroffairvaluelesscoststosellandvalueinuse.Valueinuseisthepresentvalueofthefuturecashflowsexpectedtobederivedfromtheassetorcashgeneratingunit.Inestimatingvalueinuse,apre-taxdiscountrateisusedwhichreflectsthecurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictotheasset.Anyresultingimpairmentlossisrecognisedimmediatelyintheincomestatement.

Forthepurposesofimpairmenttestingassetsaregroupedtogetherintothesmallestgroupofassetsthatgeneratescashinflowsfromcontinuingusethatarelargelyindependentofthecashinflowsofotherassetsorgroupsofassets.

(g) trade receivables

Tradereceivablesarestatedatfairvalueandsubsequentlymeasuredatamortisedcost,lessimpairmentlosses.ImpairmenttestingiscarriedoutinaccordancewithNote3(f).

(h) provisions

ProvisionsarerecognisedwhentheGrouphasalegalorconstructiveobligation,asaresultofpastevents,forwhichitisprobablethatanoutflowofeconomicbenefitswillresultandthatoutflowcanbereliablymeasured.Provisionsaredeterminedbydiscountingtheexpectedfuturecashflowsatapre-taxdiscountratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyand,whereappropriate,therisksspecifictotheliability.

Restoration costs

TheamountoftheprovisionforfuturerestorationandrehabilitationcostsiscapitalisedanddepreciatedinaccordancewiththepolicysetoutinNote3(c).Theunwindingoftheeffectofdiscountingontheprovisionisrecognisedasafinancecost.




(i) investments and other financial instruments

TheGroupdeterminestheclassificationofitsfinancialinstrumentsatinitialrecognitionandre-evaluatesthisdesignationateachreportingdate.

Fair value is themeasurement basis,with the exception of held-to-maturity investments and loans and receivableswhich aremeasured at amortised cost. Fair value is inclusive of transaction costs.Changes in fair value are either taken to the incomestatementortoanequityreserve(referbelow).

Fairvalueisdeterminedbasedoncurrentbidpricesforallquotedinvestments.Ifthereisnotanactivemarketforafinancialassetfairvalueismeasuredusingestablishedvaluationtechniques.

TheGroupassessesateachbalancedatewhetherthereisobjectiveevidencethatafinancialassetorgroupoffinancialassetsareimpaired.Inthecaseofequitysecuritiesclassifiedasavailable-for-sale,asignificantorprolongeddeclineinthefairvalueofasecuritybelowitscostisconsideredindeterminingwhetherthesecurityisimpaired.Ifanysuchevidenceexiststhecumulativelossisremovedfromequityandrecognisedintheincomestatement.

(i) Financial assets at fair value through profit and loss

Afinancialassetisclassifiedinthiscategoryifacquiredprincipallyforthepurposeofsellingintheshorttermorifsodesignatedbymanagement.Realisedandunrealisedgainsandlossesarisingfromchangesinthefairvalueoftheseassetsareincludedintheincomestatementintheperiodinwhichtheyarise.

(ii) Loans and receivables

Loansandreceivablesarenon-derivativefinancialassetswithfixedordeterminablepaymentsthatarenotquoted inanactivemarketandarestatedatamortisedcostusingtheeffectiveinterestratemethod,lessanyimpairmentlosses.

(iii) Held-to-maturity investments

These investmentshavefixedmaturities,and it is thegroup’s intentiontoholdthese investmentstomaturity.Held-to-maturityinvestmentsarestatedatamortisedcostusingtheeffectiveinterestratemethod.

(iv) Available-for-sale financial assets

Availableforsalefinancialassets,comprisingprincipallymarketableequitysecurities,arenon-derivativesthatareeitherdesignatedinthiscategoryornotincludedinanyoftheabovecategories.Available-for-salefinancialassetsarereflectedatfairvalue.Unrealisedgainsand lossesarising fromchanges in fair valueare takendirectly toequity in anavailable-for-sale investments revaluationreserve.Whensecuritiesclassifiedasavailable-for-salearesoldorimpaired,theaccumulatedfairvalueadjustmentsareincludedintheincomestatementasgainsandlossesfrominvestmentsecurities.

(j) Segment reporting

Abusinesssegmentisagroupofassetsandoperationsengagedinprovidingproductsorservicesthataresubjecttorisksandreturnsthataredifferenttothoseofotherbusinesssegments.

Ageographicalsegmentisengagedinprovidingproductsorserviceswithinaparticulareconomicenvironmentandissubjecttorisksandreturnsthataredifferentfromthoseofsegmentsthatareoperatinginothereconomicenvironments.




(k) foreign currency

Functional and presentation currency

Thefunctionalcurrencyofeachofthegroup’sentitiesismeasuredusingthecurrencyoftheprimaryeconomicenvironmentinwhichthatentityoperates(the“functional”currency).TheconsolidatedfinancialstatementsarepresentedinAustraliandollarswhichistheCompany’sfunctionalandpresentationcurrency.

Transactions and balances

Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of thetransaction. Foreign currency monetary assets and liabilities are translated at the exchange rate at balance sheet date.Non-monetaryitemsmeasuredathistoricalcostcontinuetobecarriedattheexchangerateatthedateofthetransaction.

Exchangedifferencesarisingonthetranslationofmonetaryitemsarerecognisedintheincomestatement,exceptwheredeferredinequityasaqualifyingcashflowornetinvestmenthedge.

Translationdifferencesarisingonnon-monetaryitems,suchasequitiesheldatfairvaluethroughprofitandloss,arereportedaspartofthefairvaluegainorloss.Translationdifferencesonnon-monetaryitems,suchasequitiesclassifiedasavailable-for-salefinancialassets,areincludedinthefairvaluereserveinequity.

Foreign operations

ThefinancialperformanceandpositionofforeignoperationswhosefunctionalcurrencyisdifferentfromtheGroup’spresentationcurrencyaretranslatedasfollows:

• assetsandliabilitiesaretranslatedatexchangeratesprevailingatbalancesheetdate • incomeandexpensesaretranslatedataverageexchangeratesfortheperiod

Exchangedifferencesarisingontranslationofforeignoperationsaretransferreddirectlytothegroup’sforeigncurrencytranslationreserveasaseparatecomponentofequity.Thesedifferencesarerecognisedintheincomestatementupondisposaloftheforeignoperation.

(l) Leases

Leasesareclassifiedattheirinceptionaseitheroperatingorfinanceleasesbasedontheeconomicsubstanceoftheagreementsoastoreflecttherisksandbenefitsincidentaltoownership.

Operating leases

Aleasewhereasignificantportionoftherisksandrewardsofownershipareretainedbythelessorareclassifiedasoperatingleases.Paymentsinrelationtooperatingleasesarechargedtotheincomestatementonastraight-linebasisovertheperiodofthelease.

(m) Share capital

Incrementalcostsdirectlyattributabletoanequitytransactionareshownasadeductionfromequity,netofanyrecognisedincometaxbenefit.

(n) inventories

Inventoriesarestatedatthelowerofcostandnetrealisablevalue.Netrealisablevalueistheestimatedsellingpriceintheordinarycourseofbusinesslessanyestimatedsellingcosts.

Costincludesthosecostsincurredinbringingeachcomponentofinventorytoitspresentlocationandcondition.




(o) employee benefits

Wages and salaries, annual leave

Provision ismade for theGroup’s liability foremployeebenefitsarising fromservices renderedbyemployees tobalancedate.Employeebenefitsthatareexpectedtobesettledwithinoneyearhavebeenmeasuredattheamountsexpectedtobepaidwhentheliabilityissettled,plusrelatedon-costs.

Share based payments – shares and share options

Thefairvalueofsharesandshareoptionsgrantedisrecognisedasanexpensewithacorrespondingincreaseinequity.Fairvalueismeasuredatgrantdateandrecognisedovertheperiodduringwhichthegranteesbecomeunconditionallyentitledtothesharesorshareoptions.

Thefairvalueofsharegrantsatgrantdateisdeterminedbythesharepriceatthattime.

The fairvalueofshareoptionsatgrantdate isdeterminedusingaBlack-Scholesoptionpricingmodel that takes intoaccounttheexerciseprice,thetermoftheoption,anyvestingandperformancecriteria,thesharepriceatgrantdate,theexpectedpricevolatilityoftheunderlyingshare,theexpecteddividendyieldandtherisk-freerateforthetermoftheoption.

Share based payments – Employee Share Plan

Sharebasedcompensationhasbeenprovided toeligiblepersonsvia theCarnarvonEmployeeSharePlan (“ESP”),financedbymeansofinterestfreelimitedrecourseloans.UnderAASB2“Share-basedPayments”,theESPsharesaredeemedtobeequitysettled,sharebasedremunerationandtreatedasanin-substancegrantofoptions.

For limitedrecourse loans issuedtoeligiblepersonsonorafter1 January2005, theGroup is requiredtorecognisewithin theincomestatementaremunerationexpensemeasuredatthefairvalueofthe“shareoption”inherentintheissuetotheeligibleperson,withacorrespondingincreasetoashare-basedpaymentsreserveinequity.Thefairvalueismeasuredatgrantdateandrecognisedwhentheeligiblepersonbecomeunconditionallyentitledtotheshares,effectivelyongrant.Aloanreceivableisnotrecognised.

Thefairvalueatgrantdateisdeterminedusingapricingmodelthatfactorsinthesharepriceatgrantdate,theexpectedpricevolatilityoftheunderlyingshare,theexpecteddividendyield,andtheriskfreeratefortheassumedtermofthe“option”.Upontheexerciseofthe“option”,thebalanceoftheshare-basedpaymentsreserverelatingtothe“option”istransferredtoissuedcapital.

(p) earnings per share

TheGrouppresentsbasicanddilutedearningspershare(“EPS”)foritsordinaryshares.

BasicEPS iscalculatedbydividing theprofitattributable toequityholdersof theCompanyby theweightednumberofsharesoutstandingduringtheperiod.

DilutedEPSisdeterminedbyadjustingtheprofitorlossattributabletoordinaryshareholdersandtheweightedaveragenumberofordinarysharesoutstandingfortheeffectsofallpotentialordinaryshares,whichcompriseshareoptionsgranted.




(q) Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, deposits held at call with banks, and other short-term highly liquidinvestments.

(r) revenue

Revenuefromthesaleofgoodsismeasuredatthefairvalueoftheconsiderationreceivedorreceivable.

Revenueisrecognisedwhenthesignificantrisksandrewardsofownershiphavebeentransferredtothebuyer,recoveryoftheconsiderationisprobable,andtheamountofrevenuecanbemeasuredreliably.Forthesaleofoilthetransferofrisksandrewardsoccursondeliveryofoiltotherefinery.

(s) goods and services tax

Revenues,expensesandassetsarerecognisednetoftheamountofgoodsandservicestax(“GST”),exceptwheretheamountofGSTincurredisnotrecoverablefromtheAustralianTaxOffice.InthesecircumstancestheGSTisrecognisedaspartofthecostofacquisitionoftheassetoraspartoftheexpense.ReceivablesandpayablesinthebalancesheetareshowninclusiveofGST.

Cashflowsarepresentedinthecashflowstatementonagrossbasis,exceptfortheGSTcomponentofinvestingandfinancingactivities,whicharedisclosedasoperatingcashflows.

(t) trade and other payables

Tradeandotherpayablesarestatedatamortisedcost.Theamountsareunsecuredandusuallypaidwithin60daysofrecognition.

(u) finance income and expenses

Interestrevenueonfundsinvestedisrecognisedasitaccrues,usingtheeffectiveinterestratemethod.

Financeexpensescompriseinterestexpenseonborrowingsandtheunwindingofthediscountonprovisions.

(v) royalties

Royaltiesaretreatedastaxationarrangementswhentheyhavethecharacteristicsofatax.Thisisconsideredtobethecasewhentheyareimposedundergovernmentauthorityandtheamountpayableiscalculatedbyreferencetorevenuederived(netofanyallowabledeductions)afteradjustmentforitemscomprisingtemporarydifferences.Forsucharrangements,currentanddeferredtaxisprovidedonthesamebasisasdescribedaboveforotherformsoftaxation.

Obligationsarisingfromroyaltyarrangementsthatdonotsatisfythesecriteriaarerecognisedascurrentprovisionsandincludedin

expenses.

(w) Comparative figures

WhenrequiredbyAccountingStandards,comparativefigureshavebeenadjustedtoconformtochangesinpresentationforthecurrentfinancialyear.




(x) new standards and interpretations not yet adopted

TheAASBhasissuedanumberofAASBsandamendmentstoAASBswhichareavailableforearlyadoption.

TheCompanyandGrouphavenotearlyadoptedanyoftheseaccountingstandardsoramendmentsastheyarenotexpectedtohaveamaterialimpactonthefinancialresultsoftheCompanyorGroup.TheymayhaveaneffectonthedisclosuresoftheCompanyandGroup,howeveradetailedassessmentofthepotentialimpacthasnotbeenundertakenatthedateofthisreport.

ThefollowingAustralianAccountingStandardshavebeenissuedoramendedandareapplicabletotheparentandconsolidatedgroupbutarenotyeteffective.Theyhavenotbeenadoptedinpreparationofthefinancialstatementsatreportingdate.

aaSB amendment Standards affected outline of amendment application Date of Standard

application Date for group

AASB2007-3AmendmentstoAustralianAccountingStandards

AASB5 NonCurrentAssetsheldforSaleandDiscontinuedOperations

AASB6 ExplorationforandEvaluationofMineralResources

AASB102 Inventories AASB107 CashFlowStatements

AASB119 EmployeeBenefits

AASB127 ConsolidatedandSeparateFinancialStatements

AASB134 InterimFinancialReporting

AASB136 ImpairmentofAssets

AASB1023 GeneralInsuranceContracts

AASB1038 LifeInsuranceContracts

ThedisclosurerequirementsofAASB114:SegmentReportinghavebeenreplacedbytheissueofAASB8:SegmentReportinginFebruary2007.Theseamendmentswillinvolvechangestosegmentreportingdisclosureswithinthefinancialreport.However,itisanticipatedthattherewillbenodirectimpactonrecognitionandmeasurementcriteriaamountsincludedinthefinancialreport.

1.1.2009 1.7.2009

AASB8OperatingSegments

AASB114 Segmentreporting Asabove 1.1.2009 1.7.2009




(x) new standards and interpretations not yet adopted (continued)

aaSB amendment Standards affected outline of amendment application Date of Standard

application Date for group


AASB1 FirstTimeadoptionofAIFRS

AASB101 PresentationofFinancialStatements

AASB107 CashFlowStatements AASB111 ConstructionContracts AASB116 Property,Plantand

Equipment AASB138 IntangibleAssets

TherevisedAASB123:BorrowingCostsissuedinJune2007hasremovedtheoptiontoexpenseallborrowingcosts.Thisamendmentwillrequirethecapitalisationofallborrowingcostsdirectlyattributabletotheacquisition,constructionorproductionofaqualifyingasset.However,therewillbenodirectimpacttotheamountsincludedinthefinancialgroupastherearecurrentlynoborrowingcosts.

1.1.2009 1.7.2009

AASB123BorrowingCosts

AASB123 BorrowingCosts Asabove 1.1.2009 1.7.2009


AASB101 PresentationofFinancialStatements

TherevisedAASB101:PresentationofFinancialStatementsissuedinSeptember2007requiresthepresentationofastatementofcomprehensiveincomeandmakeschangestothestatementofchangesinequity.

1.1.2009 1.7.2009

AASB101 AASB101 PresentationofFinancialStatements

Asabove 1.1.2009 1.7.2009




$000 $000 $000 $000

4. other income Financeincomeonbankdeposits 283 240 251 233Reversalofprovisionfornon-recoveryofEmployeeSharePlanloans - 7 - 7Other 35 - - - 318 247 251 240 5. Cost of sales Production (1,800) (1,386) - -Royaltyandexcise (4,374) (410) - -Transportation (1,920) (168) - -Depreciation-developmentcostsandproducingassets (1,605) (307) - -Selling,generalandadministration (1,647) (891) - - (11,346) (3,162) - - 6. other expenses Depreciation–otherplantandequipment (37) (28) (34) (28)Rentalpremises–operatingleases (131) (60) (66) (60)

7. auditors’ remuneration Auditservices: AuditorsoftheCompany 78 48 78 48

8. earnings per share

Thecalculationofbasicanddilutedearningspersharewasbasedonaweightedaveragenumberofsharescalculatedasfollows:

number of shares

Issuedordinarysharesat1July 657,537,134 411,787,134Effectofsharesissued 186,849 95,027,860Effectofshareoptionsexercised 6,979,452 98,630Weightedaveragenumberofordinaryshares30June(basic) 664,703,435 506,913,624Effectofshareoptionsonissue 19,163,014 22,750,685Weightedaveragenumberofordinaryshares30June(diluted) 683,866,449 529,664,309Profit/(loss)usedincalculatingbasicanddilutedearnings/(loss)persharefromcontinuingoperations $16,174,000 ($1,542,000)




$000 $000 $000 $000

9. income tax expense Numerical reconciliation between pre-tax profit / (loss) and income tax expense / (benefit): Primafacieincometaxexpense/(benefit)onpre-taxprofit/(loss)at30%(2007:30%) 14,438 (463) (1,457) (1,054) Taxeffectof: Foreignsourcedincome - (167) - - Specialremuneratorybenefit (7,552) - - - Effectofhigheroverseastaxrate 10,438 - - - Unrealizedforeignexchangegains/(losses) - (16) 554 425 Non-assessableincome - (2) - (2) Non-deductibleexpenditure 322 295 277 295 Prioryearlossesrecognised (3,064) - - - Prioryeartemporarydifferencesrecognised 1,814 - - -Currentyeartaxbenefitnotbroughttoaccount 579 353 626 336Incometaxexpenseonpretaxprofit/(loss) 16,975 - - -

Currentincometax 13,237 - - -Deferredtax 3,738 - - - 16,975 - - -

Tax Consolidation

Effective1July2003,forthepurposesofAustralian incometaxation,Carnarvonandits100%-ownedcontrolledentitiesformedataxconsolidatedgroup.TheheadentityofthetaxconsolidatedgroupisCarnarvon.

TheimpactofconsolidatingfortaxpurposesisthatCarnarvon’sAustraliancontrolledentitiesaretreatedasdivisionsofCarnarvonratherthanasseparateentitiesfortaxpurposes.Themembersofthegroupwill,ifrequired,enterintoataxsharingarrangementinordertoallocategrouptaxrelatedliabilitiestocontributingmembersonareasonablebasis.Theagreementwillprovidefortheallocationofincometaxliabilitiesbetweenentitiesshouldtheheadentitydefaultonitstaxpaymentobligations.


$000 $000 $000 $000

10. trade and other receivables Current Tradeandotherreceivables 8,995 1,534 132 123Cashheldassecurity 3,156 - 2,656 -OwingbyPhetchabunBasinJointVenturepartner 292 150 - - 12,443 1,684 2,788 123 Non-current Amountsreceivablefromcontrolledentities - - 13,406 13,717Provisionfornon-recovery - - (693) (693) - - 12,713 13,024

TheGroup’sexposuretocreditandcurrencyrisksisdisclosedinNote32.




$000 $000 $000 $000

11. property, plant and equipment Plant and equipment Cost: Balanceatbeginningoffinancialyear 89 65 - -Additions 56 27 - -Disposals (63) - - -Effectsofmovementsinforeignexchange (8) (3) - -Balanceatendoffinancialyear 74 89 - - Depreciationandimpairmentlosses: Balanceatbeginningoffinancialyear 56 29 - -Disposals (3) - - -Depreciationchargeforyear 14 27 - -Balanceatendoffinancialyear 67 56 - - Carryingamountopening 33 36 - -Carryingamountclosing 7 33 - - Fixtures and fittings Cost: Balanceatbeginningoffinancialyear 204 262 108 80Additions 121 79 13 28Transfers - (111) - -Effectsofmovementsinforeignexchange (6) (26) - -Balanceatendoffinancialyear 319 204 121 108 Depreciationandimpairmentlosses: Balanceatbeginningoffinancialyear 133 119 38 10Transfers - (22) - -Depreciationchargeforyear 58 36 34 28Balanceatendoffinancialyear 191 133 72 38 Carryingamountopening 71 143 70 70Carryingamountclosing 128 71 49 70

Land and buildings Cost: Balanceatbeginningoffinancialyear - - - -Additions 38 - - -Balanceatendoffinancialyear 38 - - - Depreciationandimpairmentlosses: Balanceatbeginningoffinancialyear - - - -Depreciationchargeforyear 1 - - -Balanceatendoffinancialyear 1 - - - Carryingamountopening - - - -Carryingamountclosing 37 - - -



ConSoLiDateD Company11. property, plant and equipment (continued) 2008 2007 2008 2007

$000 $000 $000 $000

Total Cost: Balanceatbeginningoffinancialyear 293 327 108 80Additions 215 106 13 28Transfers - (111) - -Disposals (63) - - -Effectsofmovementsinforeignexchange (14) (29) - -Balanceatendoffinancialyear 431 293 121 108 Depreciationandimpairmentlosses: Balanceatbeginningoffinancialyear 189 148 38 10Transfers - (22) - -Disposals (3) - - -Depreciationchargeforyear 73 63 34 28Balanceatendoffinancialyear 259 189 72 38 Carryingamountopening 104 179 70 70Carryingamountclosing 172 104 49 70 12. inventories Current Rawmaterialsandconsumables 1,586 1,111 - - 13. other assets Current Depositsandprepayments 299 639 96 34

14. exploration and evaluation Cost: Balanceatbeginningoffinancialyear - - - -Additions 379 - 379 -Balanceatendoffinancialyear 379 - 379 - 15. oil and gas assets Cost: Balanceatbeginningoffinancialyear 12,773 7,167 - -Additions 14,475 6,676 - -Transfers - 111 - -Effectsofmovementsinforeignexchange (1,908) (1,181) - -Balanceatendoffinancialyear 25,340 12,773 - - Depreciationandimpairmentlosses: Balanceatbeginningoffinancialyear 644 350 - -Transfers - 22 - -Depreciationchargeforyear 1,572 272 - -Balanceatendoffinancialyear 2,216 644 - -

Carryingamountopening 12,129 6,817 - -Carryingamountclosing 23,124 12,129 - -




$000 $000 $000 $000

16. other investments

Non-current Investmentsincontrolledentities–atcost - - 1,483 1,483TheGrouphasthefollowinginterestsinjointventureassets:

Joint venture Principal activities Ownership interest % Thailand

PhetchabunBasinConcession, Exploration,developmentand 40%ExplorationBlocksL44/43andL33/43 productionofhydrocarbons3/2546/60and5/2546/62Concessions

ExplorationBlockL20/50 Explorationforhydrocarbons 50%7/2551/98Concession

Western Australia EP110&424,CarnarvonBasin Explorationforhydrocarbons 35%WA-399-P,CarnarvonBasin Explorationforhydrocarbons 50%

Summaryfinancialinformationforjointventureassets,asincludedintheconsolidatedbalancesheetandincomestatement,isshownbelow:

2008 2007 $000 $000Currentassets Cashandcashequivalents 28,130 2,407 Tradeandotherreceivables 9,124 1,594 Inventories 1,586 1,111 Otherassets 738 572Totalcurrentassets 39,578 5,684Non-currentassets Property,plantandequipment 123 34 Explorationandevaluation 363 - Oilandgasassets 24,037 12,129Totalnon-currentassets 24,523 12,163Totalassets 64,101 17,847Currentliabilities Tradeandotherpayables 2,863 2,730 Provisions 24,152 -Totalcurrentliabilities 27,015 2,730Non-currentliabilities Deferredtax 3,738 - Provisions - 105Totalnon-currentliabilities 3,738 105Totalliabilities 30,753 2,836Netassets 33,348 15,011 Income 63,033 3,681Expenses (43,857) (3,125)Netprofitaftertax 19,176 556 CapitalcommitmentsandcontingentliabilitiesforthejointventuresaredisclosedinNotes22and23respectively.




$000 $000 $000 $000

17. trade and other payables

Current Tradepayables 2,352 955 308 206Non-tradepayablesandaccruedexpenses 948 2,073 155 91Owingtorelatedparties 68 - 68 - 3,368 3,028 531 297

TheGroup’sexposuretocurrencyandliquidityriskrelatedtotradeandotherpayablesisdisclosedinNote32.

CompanytradepayablesdenominatedincurrenciesotherthanitsfunctionalcurrencycompriseA$10,000denominatedinUS$(2007:A$84,000)andA$36,000denominatedinGBP(2007:A$Nil).

18. provisions Current Incometax 9,304 - - -SpecialRemuneratoryBenefit-Thailand 14,848 - - - 24,152 - - - Non-current Siterestoration: Balanceatbeginningoffinancialyear 105 68 - -Provision(reversed)/madeduringtheyear (105) 37 - -Balanceatendoffinancialyear - 105 - -

TherearenorestorationprovisionsrequiredinrespectoftheGroup’sactivities.Theunusedprovisionof$105,000atthepreviousyearendhasbeenreversedinfullduringthecurrentperiod.

19. Deferred tax

Recognised deferred tax assets and liabilities

Thenetdeferredtaxliabilityisattributabletothefollowing: Oilandgasassets(liability) 5,918 - - -Taxvalueoflosscarryforwardsrecognised(asset) (2,180) - - -Nettaxliability 3,738 - - -

Themovementinthedeferredtaxliabilityduringthereportingperiodhasallbeenrecognizedinincome.

Unrecognised deferred tax assets and liabilities

Deferredtaxassetshavenotbeenrecognizedinrespectofthefollowingitems:

Deductibletemporarydifferences 212 288 1,518 1,037Taxloses 1,631 1,070 1,631 1,054 1,843 1,358 3,149 2,091

Thedeductibletemporarydifferencesandtaxlossesdonotexpireundercurrenttaxlegislation.DeferredtaxassetshavenotbeenrecognisedinrespectoftheseitemsbecauseitisnotprobablethatfuturetaxableprofitwillbeavailableagainstwhichtheGroupcanutilisethebenefits.



20. Capital and reserves Company and consolidated 2008 2007 number of sharesIssued capitalBalanceatbeginningoffinancialyear 657,537,134 411,787,134Sharesissuedforcash - 230,000,000EmployeeSharePlanissues 387,500 13,750,000Sharesissuedonexerciseofshareoptions 15,000,000 2,000,000Balanceatendoffinancialyear 672,924,634 657,537,134

Company and consolidated 2008 2007 $000 $000Issued capitalBalanceatbeginningoffinancialyear 65,041 50,220Sharesissuedforcash - 15,820Transactioncosts (3) (1,182)EmployeeSharePlanrelatedmovements 380 43EmployeeSharePlanloansrepaid 90 -Sharesissuedonexerciseofshareoptions 1,230 140Balanceatendoffinancialyear 66,738 65,041

OrdinaryshareshavetherighttoonevotepershareatmeetingsoftheCompany,toreceivedividendsasdeclaredand,intheeventofawinding-upoftheCompany,toparticipateintheproceedsfromthesaleofallsurplusassetsinproportiontothenumberof,andamountspaidupon,sharesheld.

TheCompanydoesnothaveauthorisedcapitalorparvalueinrespectofitsissuedshares.

Translation reserve

MovementsinthetranslationreservearesetoutintheStatementinChangesinEquityonpage32.

Thetranslationreservecomprisesallforeignexchangedifferencesarisingfromthetranslationofthefinancialstatementsofforeignoperationswheretheirfunctionalcurrencyisdifferenttothepresentationcurrencyofthereportingentity.

Share based payments reserve

MovementsinthesharebasedpaymentsreservearesetoutintheStatementsofChangesinEquityonpages32and33.

Thisreserverepresentsthefairvalueatgrantofshareoptionsissued,includingthevalueofsharesissuedundertheCompany’sESP.Thisreserveisreversedagainstissuedcapitalwhensharesareissuedonexerciseoftheoptions,or,inthecaseofthesharesissuedundertheESP,theloanisrepaid.




$000 $000 $000 $000

21. reconciliation of cash flows from operating activities

(a) Cash flows from operating activities Aftertaxprofit/(loss)fortheperiod 16,174 (1,542) (4,855) (3,512)Adjustmentsfor: Equitysettledsharebasedpaymentexpense 119 934 119 934Deferredtaxexpense 3,738 - - -Reversalofprovisionforimpairmentlosses - (7) - (7)Depreciation 1,642 335 34 28Financecostsassociatedwithrehabilitationprovisions (39) 19 - -Explorationexpenditurewrittenoff - 75 - 75Foreignexchangelosses/(gains) 656 (54) 1,851 1,416Operatingprofit/(loss)beforechangesinworkingcapitalandprovisions: 22,290 (240) (2,851) (1,066) Changesinassetsandliabilities: (Increase)intradeandotherreceivables (7,789) (1,292) (9) (76)(Increase)ininventories (604) (908) - -Decrease/(increase)inotherassets 273 (683) (62) (15)Increaseintradeandotherpayables 760 2,319 239 152Increaseinprovisionsandemployeebenefits 24,161 4 9 4Netcashflowsgeneratedfrom/(usedin)operatingactivities 39,091 (800) (2,674) (1,001)

(b) Reconciliation of cash and cash equivalents Cashatbankandatcall 28,281 8,927 570 6,520 TheGroup’sexposuretointerestrateriskandasensitivityanalysisforfinancialassetsandliabilitiesaredisclosedinNote32.

Restrictedcashof$2,656,000Companyand$3,156,000consolidatedisincludedundertradeandotherreceivables(2007:$NilCompanyandconsolidated),seeNotes10and23.




$000 $000 $000 $000

22. Capital and other commitments (a) Joint venture commitments Shareofcapitalcommitmentsofjointventureassets: Withinoneyear 1,721 204 - -CapitalcommitmentsoftheGrouptojointventureassets: Withinoneyear 187 1,950 187 1,950

(b) Exploration expenditure commitments

DuetothenatureoftheGroup'soperationsinexploringandevaluatingareasofinterest,itisdifficulttoaccuratelyforecastthenatureoramountoffutureexpenditure,althoughitwillbenecessarytoincurexpenditureinordertoretaintheentity'spresentpermitinterests.Expenditurecommitmentsonexplorationpermitscanbereducedbyselectiverelinquishmentofexplorationtenure,bytherenegotiationofexpenditurecommitments,orbyfarmingoutportionsoftheentity'sequity.

Explorationexpenditurecommitmentsforecastbutnotprovidedforinthefinancialstatementsareasfollows:


$000 $000 $000 $000

Lessthanoneyear 500 568 500 132Betweenoneandfiveyears 3,000 213 3,000 213 3,500 781 3,500 345

(c) Capital expenditure commitments

Datalicencecommitments 96 107 96 107



23. Contingencies

Thedirectorsareoftheopinionthatprovisionsarenotrequiredinrespectofthesemattersasitisnotprobablethatafuturesacrificeofeconomicbenefitswillberequiredortheamountisnotcapableofreliablemeasurement.

Contingent liabilities not considered remote

UnderthetermsofanInvestmentAgreementtheGroupisrequiredtopayapercentageofsalesproceedsfromspecifiedzoneswithintheWichianBuriProductionLicencesIandIIinThailandtoGeminiOilandGasLimited,anindependentoilandnaturalgasinvestmentfund.Thepercentageis12.5%toamaximumcumulativepaymentofUS$800,000,afterwhichthepercentagefallsto7.5%.

TheGrouphasexpensedUS$371,000inthecurrentperiod(2007:US$184,000).CumulativeamountspaidandpayableatbalancedateunderthetermsofthisagreementareUS$820,000.

Contingent liabilities considered remote

a)ThePhetchabunBasinJointVentureoperation,inwhichtheGrouphasa40%interest,hasissuedbankguaranteesforanamountof40.5millionThaiBahtassecurityinlieuofbonds.TheGroup’s“tradeandotherreceivables”includeA$500,000ofrestrictedcashheldbythebankassecurityfortheseguarantees.

b)TheCompanyhasprovidedacashbondofUS$2,125,000totheDepartmentofMineralFuelsinThailandinrespectofitsobligationsforits50%interestintheL20/50concessioninThailand.ThebondissecuredbyacashdepositofA$2,656,000heldwithCompany’sAustralianbank.TheCompanyanditsjointventurepartner,whohasprovidedasimilarguaranteetotheDepartmentofMineralFuels,arenegotiatingaCrossDeedofIndemnityinrespectoftheirrespectiverightsandinterests.

c)Inaccordancewithnormalpetroleumindustrypractice,theGrouphasenteredintojointventuresandfarminagreementswithotherpartiesforthepurposeofexploringanddevelopingitspetroleumpermitinterests.Ifapartytoajointventuredefaultsanddoesnotcontributeitsshareofjointventureobligations,thentheotherjointventurersareliabletomeetthoseobligations.Inthisevent,theinterestinthepermitheldbythedefaultingpartymayberedistributedtotheremainingjointventurers.




$000 $000 $000 $000

24. employee benefits

Current: Liabilityforannualleave 13 4 13 4

Share options

Thenumberandweightedaverageexercisepriceofemployeeshareoptionsisasfollows: weighted weighted average average exercise number exercise number price of options price of options 2008 2008 2007 2007 Outstanding1July $0.09 20,000,000 $0.09 22,000,000Exercisedduringtheperiod $0.07 10,000,000 $0.07 2,000,000Outstanding30June $0.10 10,000,000 $0.09 20,000000Exercisableat30June $0.10 10,000,000 $0.09 20,000000

Alloptionsonissueat30June2008haveanexercisepriceof$0.10,expireon31March2009,andareissuedtodirectorsortheirrelatedparties.

Theweightedaveragesharepriceatthedateofexerciseforemployeeshareoptionsexercisedduringtheperiodwas$0.53(2007:$0.22)

Share based payments - Employee Share Plan

UnderthetermsoftheCarnarvonEmployeeSharePlan(“ESP”),asapprovedbyshareholders,theCompanymay,initsabsolutediscretion,makeanofferofordinaryfullypaidsharesintheCompanytoanyeligibleperson,tobefundedbyalimitedrecourseloangrantedbytheCompany.

TheissuepriceisdeterminedbythedirectorsandisnottobelessthantheweightedaveragemarketpriceoftheCompany’ssharesonthefivetradingdayspriortothedateofoffer.Eligiblepersonsreceiveaninterestfreeadvancetoacquiretheshares.

ThemovementsintheESPduringthefinancialyear,includingthoseheldbyKeyManagementPersonnel,wereasfollows: 1 July 2007 issued repaid 30 June 2008 Numberofshares 16,250,000 387,500 1,785,000 14,852,500Loan $1,573,992 $271,638 $90,277 $1,755,353Averageissuepricepershare $0.10 $0.70 $0.05 $0.12

InaccordancewithAASB2theissueofsharesundertheESPareaccountedforasaninprincipleoption.



24. employee benefits (continued)

ThefairvalueofservicesreceivedinreturnforoptionsforboththeCompanyandGroup,includingsharesissuedundertheESPandvaluedasoptions,ismeasuredbyreferencetothefairvalueofshareoptionsgrantedusingtheBlack-Scholesmodel,assetoutbelow. key key management management other other fair value of share options personnel personnel employees employeesand related assumptions 2008 2007 2008 2007 Fairvalueatmeasurementdate(cents) 30.7 7.4 30.7 5.1to6.0Sharepriceatdateofissue(cents) 70.1 13.5 70.1 12.2to14.3Exerciseprice(cents) 70.1 9.0 70.1 12.2to14.3Expectedvolatility 55% 55% 55% 55%Actual/assumedoptionlife 3years 3years 3years 3yearsExpecteddividends Nil Nil Nil NilRisk-freeinterestrate 7.5% 5.5% 7.5% 5.5%Share-basedexpenserecognised $61,468 $666,790 $57,627 $267,029

ThecurrentyearvolatilityapproximatestheCompany’shistoricvolatilityovera90dayperiodending30June2008andisintendedtoreflectthemovementoftheCompany’ssharepricevolatilitytowardsitspeersasitsoilandgasinterestsmature.

FurtherdetailsofsharesandoptionsissuedtodirectorsaresetoutinNote27,andintheRemunerationReportsetoutonpages20to25.



25. related party disclosures

Ultimate parent

CarnarvonPetroleumLimitedistheultimateparentcompany.

Wholly-owned group transactions

DuringthereportingperiodtherehavebeentransactionsbetweentheCompanyanditscontrolledentitiesandjointventures.TheCompanyprovidedaccountingandadministrativeservicestoitscontrolledentitiesandjointventuresforwhichitdidnotchargeamanagementfee.

Duringthefinancialyearended30June2008netloanstocontrolledentitiestotalled$1,293,000(2007:$9,088,000).

Thecarryingvalueofloanstocontrolledentitiesat30June2008was$12,713,000(2007:$13,024,000)afterprovisionsof$693,000(2007:$693,000).Theseloansareunsecured,non-interestbearing,andhavenofixedtermsofrepayment.

Other related party balances

At30June2008anamountof$68,548(2007:$Nil)isincludedinCompanyandconsolidatedtradeandotherpayablesforoutstandingdirectorfeesandexpenses.

26. operating leases

Leases as lessee

Non-cancellableoperatingleaserentalsarepayableasfollows:


$000 $000 $000 $000

Lessthanoneyear 170 232 71 119Betweenoneandfiveyears 12 149 - 64 182 381 71 183

Duringthereportingperiod$344,000wasrecognisedasanexpenseintheconsolidatedincomestatementinrespectofoperatingleases(2007:$240,000).

27. Segment information

SegmentinformationispresentedinrespectoftheGroup’sprimaryformat,geographicalsegments,whichisbasedontheGroup’smanagementandinternalreportingstructure.

Segmentresults,assetsandliabilitiesincludeitemsdirectlyattributabletoasegmentaswellasthosethatcanbeallocatedonareasonablebasis.Inpresentinginformationonthebasisofgeographicalsegments,segmentrevenueisbasedonthegeographicallocationofcustomers,andsegmentassetsarebasedonthegeographicallocationoftheassets.

TheGroupoperatedonebusinesssegmentduringthereportingperiod,beingoilandgasexploration,developmentandproduction.



27. Segment information (continued)

Geographical Segments australia thailand Consolidated 2008 2007 2008 2007 2008 2007 $000 $000 $000 $000 $000 $000

Revenue

Sales - - 63,033 3,674 63,033 3,674Other 251 240 67 7 318 247Totalrevenue 251 240 63,100 3,681 63,351 3,921 Segmentresult Resultfromcontinuingoperations (3,001) (2,098) 19,195 556 16,174 (1,542)Totalsegmentresult (3,001) (2,098) 19,175 556 16,174 (1,542)

Assets

Oilandgasassets - - 23,124 12,129 23,124 12,129Property,plantandequipment 49 70 123 34 172 104Other 3,454 6,677 39,534 5,684 42,988 12,361Totalsegmentassets 3,503 6,747 62,781 17,847 66,284 24,594

Liabilities Totalsegmentliabilities 544 301 30,727 2,836 31,271 3,137

Othersegmentinformation:

Capitalexpenditure 13 285 14,614 6,915 14,627 7,200Depreciation 34 28 1,608 307 1,642 335



28. key management personnel disclosures

(a) Key management personnel compensation

Keymanagementpersonnelcompensationincludedinemployeebenefitsexpense,directorsemoluments,sharebasedpaymentsandadministrationexpensesisasfollows:


$000 $000 $000 $000

Shorttermemployeebenefits 936,281 534,936 936,281 534,936Post-employmentbenefits 21,981 - 21,981 -Share-basedpayments 61,468 666,790 61,468 666,790 1,019,730 1,201,726 1,019,730 1,201,726

Informationregardingindividualdirectorsandexecutives’compensationandsomeequityinstrumentsdisclosures,aspermittedbyCorporationsRegulation2M.3.03,areprovidedintheRemunerationReportsectionofthedirectors’reportassetoutonpages20to25.

Apartfromthedetailsdisclosedinthisnote,nodirectorhasenteredintoamaterialcontractwiththeCompanyortheGroupsincetheendofthepreviousfinancialyearandtherewerenomaterialcontractsinvolvingdirectors’interestsexistingatyearend.

(b) Options and rights over equity instruments

ThemovementduringthereportingperiodinthenumberofoptionsoverordinarysharesintheCompanyheld,directly,indirectlyorbeneficially,byeachkeymanagementperson,includingtheirrelatedparties,isasfollows:

held at held atDirectors 1 July 2007 exercised 30 June 2008 PJLeonhardt 6,000,000 (3,000,000) 3,000,000EPJacobson 8,000,000 (4,000,000) 4,000,000NCFearis 2,000,000 - 2,000,000KPJudge 4,000,000 (3,000,000) 1,000,000

held at held atDirectors 1 July 2006 exercised 30 June 2007 PJLeonhardt 6,000,000 - 6,000,000EPJacobson 8,000,000 - 8,000,000NCFearis 4,000,000 (2,000,000) 2,000,000KPJudge 4,000,000 - 4,000,000

Optionsgrantedascompensationvestimmediately.Duringthefinancialyeartherewasnoforfeitureorvestingofoptionsgrantedinpreviousperiods.Therewerenooptionsonissuethatwerestilltovestattheendofthereportingperiod.



28. key management personnel disclosures (continued)

(c) Loans to key management personnel and their related parties

Detailsofloanstokeymanagementpersonnelandtheirrelatedparties,whichareallinterestfreeloanswithlimitedrecoursesecurityovertheplansharesprovidedinaccordancewiththeCompany’sEmployeeSharePlan(“ESP”),areasfollows:

Balance Balance highest balance Loaned repaid 1 July 2007 ($) 30 June 2008 ($) in period ($) in period ($) in period ($)

Directors PJLeonhardt 270,000 270,000 270,000 - -EPJacobson 540,000 540,000 540,000 - -

Executives PPHuizenga 244,000 314,100 314,100 70,100 -RAAnderson 101,242 81,065 101,242 70,100 90,277

Balance Balance highest balance Loaned repaid 1 July 2006 ($) 30 June 2007 ($) in period ($) in period ($) in period ($)

Directors PJLeonhardt - 270,000 270,000 270,000 -EPJacobson - 540,000 540,000 540,000 -NCFearis 17,000 - 17,000 - 17,000

Executive RAAnderson 101,242 101,242 101,242 - -

Detailsregardingtheaggregateofloans,allofwhichareinterestfree,madebytheGrouptokeymanagementpersonnelandtheirrelatedparties,andthenumberofindividualineachgroup,areasfollows:

opening Closing number in balance ($) balance ($) group at 30 June 2008 911,242 1,205,162 4

2007 118,242 911,242 4

MrHuizengawasonlyclassifiedasakeymanagementpersoneffective1January2008,andhisloansarethereforenotincludedinthe1July2007openingbalance.

(d) Other key management personnel transactions

Amountspayabletokeymanagementpersonnelortheirrelatedpartiesatreportingdateinrespectofoutstandingdirectorandconsultingfeesandexpensesareasfollows:


$000 $000 $000 $000

Current Tradeandotherpayables 68 - 68 -



28. key management personnel disclosures (continued)

(e) Movements in shares

ThemovementduringthereportingperiodinthenumberofordinarysharesinCarnarvonPetroleumLimitedheld,directly,indirectlyorbeneficially,byeachkeymanagementperson,includingtheirrelatedparties,isasfollows:

award under received on held at net employee Share exercise of held at 1 July 2007 acquired/(sold) plan options 30 June 2008

Directors PJLeonhardt 11,900,000 - - 3,000,000 14,900,000EPJacobson 24,313,793 300,000 - 4,000,000 28,613,793NCFearis 6,316,186 - - - 6,316,186KPJudge 15,068,596 (2,500,000) - 3,000,000 15,568,596 Executives PPHuizenga 2,000,000 - 100,000 - 2,100,000RAAnderson 4,443,490 (1,439,049) 100,000 - 3,104,441

MrHuizengabecameakeymanagementpersoneffective1January2008.

award under received on held at net employee Share exercise of held at 1 July 2006 acquired/(sold) plan options 30 June 2007

Directors PJLeonhardt 7,510,504 1,389,496 3,000,000 - 11,900,000EPJacobson 13,189,307 5,124,486 6,000,000 - 24,313,793NCFearis 5,871,400 (1,555,214) - 2,000,000 6,316,186KPJudge 14,168,596 900,000 - - 15,068,596 Executive RAAnderson 3,464,998 978,492 - - 4,443,490 SharesallottedundertheESPwerefundedbyinterest-freeloanswithalimitedrecoursesecurityovertheplansharesandsubjecttothedetailedrulesoftheESP.

InaccordancewithAASB2theissueofsharesundertheESPisaccountedforasaninprincipleoption.Thefairvalueofshareoptions,includingESPsharesissuedandvaluedasoptions,andtheirvaluationassumptionsaresetoutinNote24.

Informationregardingindividualdirectors’andexecutives’compensation,includingcompanyloansusedtofinancethepurchaseoftheESPshares,isprovidedintheRemunerationReportsectionofthedirectors’reportassetoutonpages18to23.



29. non-key management personnel disclosures

Identity of related parties

TheGrouphasarelatedpartyrelationshipwithitscontrolledentities(seeNote30),jointventureassets(seeNote16),andwithitskeymanagementpersonnel(seeNote28).

30. Consolidated entities

ownership interestname Country of incorporation 2008 2007 Company CarnarvonPetroleumLtd Controlled entities CarnarvonThailandLtd BritishVirginIslands 100% 100%LassocPtyLtd Australia 100% 100%SRLExplorationPtyLtd Australia 100% 100%

InvestmentsincontrolledentitiesaremeasuredatcostinthefinancialstatementsoftheCompany.

31. Subsequent events

Nomatterorcircumstancehasarisensince30June2008thatintheopinionofthedirectorshassignificantlyaffected,ormaysignificantlyaffectinfuturefinancialyears:

(i) theGroup’soperations;or (ii) theresultsofthoseoperations;or (iii) theGroup’sstateofaffairs



32. financial risk management

TheGroup’sactivitiesexposeittomarketrisk(includingcurrencyrisk,commoditypriceriskandinterestraterisk),creditriskandliquidityrisk.

ThisnotepresentsqualitativeandquantitativeinformationabouttheCompany’sandGroup’sexposuretoeachoftheaboverisks,theirobjectives,policiesandproceduresformanagingrisk,andthemanagementofcapital.TheBoardofDirectorshasoverallresponsibilityfortheestablishmentandoversightoftheriskmanagementframework.

TheGroup’soverallriskmanagementapproachfocusesontheunpredictabilityoffinancialmarketsandseekstominimizethepotentialadverseeffectsonthefinancialperformanceoftheGroup.TheGroupdoesnotcurrentlyusederivativefinancialinstrumentstohedgefinancialriskexposuresandthereforeitisexposedtodailymovementsintheinternationaloilprices,exchangerates,andinterestrates.TheGroupusesvariousmethodstomeasuredifferenttypesofrisktowhichitisexposed.Thesemethodsincludesensitivityanalysisinthecaseofinterestrate,foreignexchange,andcommoditypriceriskandageinganalysisforcreditrisk.

TheBoard’spolicyistomaintainastrongcapitalbasesoastomaintaininvestor,creditor,andmarketconfidenceandtosustainfuturedevelopmentofthebusiness.GiventhestageoftheGroup’sdevelopmenttherearenoformaltargetssetforreturnoncapital.TherewerenochangestotheGroup’sapproachtocapitalmanagementduringtheyear.NeithertheCompanynoranyofitscontrolledentitiesaresubjecttoexternallyimposedcapitalrequirements.

(a) Commodity price risk

CommoditypriceriskistheriskoffinanciallossresultingfrommovementsinthepriceoftheGroup’scommodityoutput,beingcrudeoil.

RevenuesundertheGroup’scontractualarrangementswithitscustomeraredenominatedinUS$,linkedtotheUS$pricesofabasketofoilproducts,andpaidinThaiBahtattheaveragemonthlyexchangerate.TheGroupdoesnotcurrentlyusederivativefinancialinstrumentstohedgecommoditypriceriskandtherefore isexposedtodailymovements in thepricesof theseoilproducts.TheCompany isnotexposedtocommoditypricerisk.Sensitivityanalysis

Anincreaseof10%intheachievedmonthlyoilsalepricewouldhaveincreasedequityandpretaxprofitandlossbytheamountsshownbelow.Thisanalysisassumesthatallothervariablesotherthanroyalties,whicharedirectlyrelatedtooilrevenues,remainconstant.Theanalysisisperformedonthesamebasisfor2007:

ConSoLiDateD Company equity profit and loss equity profit and loss

$000 $000 $000 $000

30June2008 5,867 5,867 - -30June2007 336 336 - -

Adecreaseof10%intheachievedmonthlyoilsalepricewouldhavedecreasedequityandpretaxprofitandlossbytheamountsshownbelow.Thisanalysisassumesthatallothervariablesotherthanroyalties,whicharedirectlyrelatedtooilrevenues,remainconstant.Theanalysisisperformedonthesamebasisfor2007:


$000 $000 $000 $000

30June2008 (5,867) (5,867) - -30June2007 (336) 336) - -



32. financial risk management (continued)

(b) Interest rate risk

ThesignificanceandmanagementoftheriskstotheGroupandtheCompanyisdependentonanumberoffactorsincluding:

Interestrates(currentandforward)andthecurrenciesthatareheld;Levelofcashandliquidinvestmentsandtheirterm;Maturitydatesofinvestments;Proportionofinvestmentsthatarefixedrateorfloatingrate.

TheriskismanagedbytheGroupbymaintaininganappropriatemixbetweenfixedandfloatingrateinvestments.

AtthereportingdatetheeffectiveinterestratesofvariablerateinterestbearingfinancialinstrumentsoftheCompanyandtheGroupwereasfollows.Therewerenointerest-bearingfinancialliabilities:


Carrying amount (A$000) Financialassets 28,281 8,927 570 6,520

Weighted average interest rate (%)Financialassets 0.25% 5.16% 6.14% 6.23%

Sensitivityanalysis

Anincreasein50basispointsfromtheweightedaverageyear-endinterestratesat30Junewouldhaveincreasedequityandprofitandlossbytheamountsshownbelow.Thisanalysisassumesthatallothervariablesremainconstant.Theanalysisisperformedonthesamebasisfor2007:


$000 $000 $000 $000

30June2008 141 141 3 330June2007 45 45 33 33

Adecreasein50basispointsfromtheweightedaverageyear-endinterestratesat30Junewouldhavedecreasedequityandprofitandlossbytheamountsshownbelow.Thisanalysisassumesthatallothervariablesremainconstant.Theanalysisisperformedonthesamebasisfor2007:


$000 $000 $000 $000

30June2008 (141) (141) (3) (3)30June2007 (45) (45) (33) (33)




(c) Credit risk

CreditriskreferstotheriskthatacounterpartywilldefaultonitscontractualobligationsresultinginafinanciallosstotheCompanyorGroup,andarisesprincipallyfromtheGroup’sreceivablesfromcustomersandcashdeposits.TheCompanyhasnotradereceivablesatJune2008orJune2007andhasnosignificantconcentrationofcreditrisk.

TheGroup’s trade receivablesatboth June2008and June2007arealldue fromanentity located inThailandandcontrolledby itsgovernment.ThisentityhasanappropriatecredithistorywiththeGroup.

Cashtransactionsarelimitedtofinancialinstitutionsconsideredtohaveasuitablecreditrating.

Creditriskfurtherarisesinrelationtofinancialguaranteesgiventocertainparties,refertoNote23.

Exposuretocreditriskisconsideredminimalbutismonitoredonanongoingbasis.Themaximumexposuretocreditriskisrepresentedbythecarryingamountofeachfinancialassetinthebalancesheet.

ThecarryingamountoftheGroup’sfinancialassetsrepresentsthemaximumcreditexposure.TheGroup’smaximumexposuretocreditriskatthereportingdatewas:


$000 $000 $000 $000

Carrying amount: Cashandcashequivalents 28,281 8,927 570 6,520Tradeandotherreceivables 12,443 1,684 15,501 13,147 40,724 10,611 16,071 19,667

TheagingoftheGroup’stradereceivablesatreportingdatewas:

gross impairment gross impairment

2008 2008 2007 2007

$000 $000 $000 $000

Notpastdue 9,255 - 1,001 - 9,255 - 1,001 -

Basedonhistoricdefaultrates,theGroupbelievesthatnoimpairmentallowanceisnecessaryinrespectoftradereceivables.




(d) Currency risk

Currencyriskarisesfromsales,purchases,assetsandliabilitiesthataredenominatedinacurrencyotherthanthefunctionalcurrenciesoftheentitieswithintheGroup,beingtheA$andUS$.

TheGroupoperatespredominantlyinThailandandisexposedtocurrencyriskarisingfromvariousforeigncurrencyexposures,primarilywithrespecttotheUS$andThaiBaht(“THB”).ThefunctionalcurrencyofitsThaioperationsisconsideredtobetheUS$,howeverthecashreceiptsfromthoseoperations,whichcomprise100%oftherevenuesoftheGroup,arereceivedinThaiBaht.ThemajorityoftheGroup’spayments,includingThaiSRBandincometax,arealsopayableinTHBwhicheffectivelycreatesanaturalhedge.TheCompany’sforeignexchangeriskpredominantlyresidesinitsUS$loantooneofitscontrolledentities.

The Group does not currently use derivative financial instruments to hedge foreign currency risk and therefore is exposed to dailymovements inexchange rates.However, theGroup intends tomaintain sufficient THBcashbalances tomeet its THBobligations, inparticularitsSRBandincometaxliabilities.

TheCompanyandGroup’sexposuretoforeigncurrencyriskatbalancedatewasasfollows,basedoncarryingamounts. thai Baht uSD gBp a$000 a$000 a$000Consolidated 2008 Cashandcashequivalents 27,634 114 -Tradereceivables 9,255 - -Tradepayables (1,561) (493) (36)SRBandincometaxprovisions (24,152) - -Grossbalancesheetexposure 11,176 (379) (36)

Company 2008 Tradereceivables - - -Tradepayables - (10) (36)Grossbalancesheetexposure - (10) (36)

Consolidated 2007 Cashandcashequivalents 2,181 234 -Tradereceivables 1,101 - -Tradepayables (669) (165) -Grossbalancesheetexposure 2,613 69 -

Company 2007 Tradepayables - (83) -Grossbalancesheetexposure - (83) -

Thefollowingsignificantexchangeratesappliedduringtheyear: average rate reporting date spot rateauD to: 2008 2007 2008 2007

1Thaibaht 0.036 0.036 0.031 0.0371USD 1.12 1.27 1.04 1.18




(d) Currency risk (continued)

Sensitivityanalysis

A10%strengtheningoftheAUDagainstthefollowingcurrenciesat30Junewouldhavedecreasedequityandpretaxprofitandlossbytheamountsshownbelow.Thisanalysisassumesthatallothervariables,inparticularinterestratesandtheexchangeratebetweentheThaiBahtandUSD,remainconstant.Theanalysisisperformedonthesamebasisfor2007:


$000 $000 $000 $000

30 June 2008 USD (3,439) (2,137) (1,237) (1,237)

30 June 2007 USD (1,553) (89) (1,289) (1,289)

A10%weakeningoftheAUDagainstthefollowingcurrenciesat30Junewouldhaveincreasedequityandpretaxprofitandlossbytheamountsshownbelow.Thisanalysisassumesthatallothervariables,inparticularinterestratesandtheexchangeratebetweentheThaiBahtandUSD,remainconstant.Theanalysisisperformedonthesamebasisfor2007:


$000 $000 $000 $000

30 June 2008 USD 4,203 2,612 1,515 1,515

30 June 2007 USD 1,895 108 1,573 1,573

(e) Fair values

The fair values of financial assets and financial liabilities, together with their carrying amounts shown in the balance sheet, are asfollows: Carrying Carrying amount fair value amount fair value 2008 2008 2007 2007

$000 $000 $000 $000

Consolidated Loansandreceivables 12,443 12,443 1,684 1,684Cashandcashequivalents 28,281 28,281 8,927 8,927Tradeandotherpayables (3,368) (3,368) (3,028) (3,028) 37,356 37,356 7,583 7,583

Company Loansandreceivables 15,501 15,501 13,147 13,147Investmentincontrolledentities 1,483 1,483 1,483 1,483Cashandcashequivalents 570 570 6,520 6,520Tradeandotherpayables (486) (486) (297) (297) 17,068 17,068 20,853 20,853 ThebasisfordeterminingfairvaluesisdisclosedinNote3(i).




(f) Liquidity risk

LiquidityriskistheriskthattheGroupwillnotbeabletomeetitsfinancialobligationsasandwhentheyfalldue.TheGroup’sapproachtomanagingthisriskistoensure,asfaraspossible,thatitwillalwayshavesufficientliquiditytomeetitsliabilitieswhendueunderarangeoffinancialconditions.ThenetcashflowsarisingfromitsThaiassetsareconsideredtogeneratesufficientworkingcapitaltoadequatelyaddressthisrisk.

NeithertheCompanynortheGroupcurrentlyhasanyavailablelinesofcredit.

Thefollowingarethecontractualmaturitiesoffinancialliabilities,includingestimatedinterestpaymentsandexcludingtheimpactofanynettingagreements: Carrying Contractual 6 months 6 to 12 amount cashflows or less months $000 $000 $000 $000

Consolidated 2008 Non-derivativefinancialliabilities Tradeandotherpayables 3,368 3,368 3,368 -SRBandincometaxprovisions 24,152 24,152 9,304 14,848 27,520 27,520 12,672 14,848

Company 2008 Non-derivativefinancialliabilities Tradeandotherpayables 531 531 531 - 531 531 531 -Consolidated 2007 Non-derivativefinancialliabilities Tradeandotherpayables 3,028 3,028 3,028 - 3,028 3,028 3,028 -

Company 2007 Non-derivativefinancialliabilities Tradeandotherpayables 297 297 297 - 297 297 297 -


dIreCtorS’ deClaratIon

(1) IntheopinionofthedirectorsofCarnarvonPetroleumLimited:

(a) thefinancialstatementsandnotesoftheCompanyandoftheGroupsetoutonpages30to69areinaccordancewiththeCorporationsAct2001,including:

(i) givingatrueandfairviewoftheCompany’sandGroup’sfinancialpositionasat30June2008andoftheirperformance,asrepresentedbytheresultsoftheiroperationsandtheircashflows,forthefinancialyearendedonthatdate;and

(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the

CorporationsRegulations2001;and

(b) therearereasonablegroundstobelievethattheCompanywillbeabletopayitsdebtsasandwhentheybecomedueandpayable.

(2) Thisdeclarationhasbeenmadeafterreceivingthedeclarationsrequiredtobemadetothedirectorsinaccordancewithsection

295AoftheCorporationsAct2001forthefinancialperiodending30June2008.

Signedinaccordancewitharesolutionofthedirectors.

pJ LeonhardtDirectorPerth,25September2008


audIt report


audIt report (Continued)


Corporate GovernanCe Statement

introduction

Carnarvon Petroleum Limited (“Carnarvon”) has addressed the Essential Corporate Governance Principles as published by the ASXCorporateGovernanceCouncil and has adopted theBest PracticeRecommendationswhich theBoard considers to be relevant andessentialfortheefficientmanagementoftheCompanyanditsbusinesswhilstsafeguardingshareholderassets.

ThefollowingadditionalinformationabouttheCompany'scorporategovernancepracticesissetoutontheCompany'swebsiteatwww.carnarvonpetroleum.com:

• Corporategovernancedisclosuresandexplanations;• StatementofBoardandmanagementfunctions;• CompositionoftheBoardandnewappointments;• CommitteesoftheBoard;• Summaryofcodeofconductfordirectors;• Summaryofpolicyonsecuritiestrading;• AuditCommitteeCharter;• SummaryofpolicyandproceduresforcompliancewithASXListingRuledisclosurerequirements;• Summaryofarrangementsregardingcommunicationwithandparticipationofshareholders;• SummaryofCompany'sriskmanagementpolicyandinternalcomplianceandcontrolsystem;and• Corporatecodeofconduct.

Skills, experience, expertise and term of office of each director

Aprofileofeachdirectorcontainingtheapplicableinformationissetoutinthedirectors'report.

Statement concerning availability of independent professional advice

Ifadirectorconsidersitnecessarytoobtainindependentprofessionaladvicetoproperlydischargetheresponsibilityofhis/herofficeasadirectorthen,providedthedirectorfirstobtainsapprovalforincurringsuchexpensefromthechairman,theCompanywillpaythereasonableexpensesassociatedwithobtainingsuchadvice.

number of audit Committee meetings and names of attendees

ThenumberofAuditCommitteemeetingsandnamesofattendeesissetoutinthedirectors'report.

names and qualifications of audit Committee members

ThenamesandqualificationsofAuditCommitteemembersaresetoutinthedirectors’report.


Corporate GovernanCe Statement (Continued)

explanations for departures from best practice recommendations

From1July2007to30June2008(the“ReportingPeriod”) theCompanycompliedwitheachof theEssentialCorporateGovernancePrinciples (Note1below)andthecorrespondingBestPracticeRecommendations (Note2below)aspublishedbytheASXCorporateGovernanceCouncil("ASXPrinciplesandRecommendations"),otherthaninrelationtothemattersspecifiedbelow:

PrincipleReference

RecommendationReference

NotificationofDeparture ExplanationforDeparture

2 2.1 TheBoarddidnotcompriseamajorityofindependentdirectors.TheBoardcurrentlyconsistsoftwoindependentandtwonon-independentdirectors.

MrPeterLeonhardt,theChairman,iscurrentlyactinginaparttimeexecutivecapacityasanon-independentdirectortosupporttheChiefExecutiveOfficer.MrLeonhardt’sfulfilmentofthisrolegoingforwardwillbemonitoredrelativetotheCompany’sstageofdevelopment.

2 2.2 TheChairmanisnotanindependentdirector. MrPeterLeonhardt,theChairman,iscurrentlyactinginaparttimeexecutivecapacityasanon-independentdirectortosupporttheChiefExecutiveOfficer.MrLeonhardt’sfulfilmentofthisrolegoingforwardwillbemonitoredrelativetotheCompany’sstageofdevelopment.

2 2.4 AseparateNominationCommitteehasnotbeenformed.

TheBoardconsidersthattheCompanyisnotcurrentlyofasizetojustifytheformationofaNominationCommittee.TheBoardasawholeundertakestheprocessofreviewingtheskillsbaseandexperienceofexistingdirectorstoenableidentificationorattributesrequiredinnewdirectors.WhereappropriateindependentconsultantsareengagedtoidentifypossiblenewcandidatesfortheBoard.

4 4.3 SinceFebruary2006theAuditCommitteehascomprisedtwodirectors,oneofwhomisnon-independent,operatesinaparttimeexecutivecapacity,andistheChairmanoftheBoard.ThisdoesnotmeetthecriteriainBestPracticeRecommendation4.3.

InaccordancewithListingRule12.7,theCompanyisnotrequiredtocomplywithRecommendation4.3.

9 9.2 AseparateRemunerationCommitteehasnotbeenformed.

TheBoardconsideredthattheCompanywasnotofasizeduringthereportingperiodtojustifytheformationofaRemunerationCommittee.TheBoardasawholeundertooktheroleofthiscommittee.SincetheendofthereportingperiodtheBoardhasdeterminedthattheCompanyisnowofasizetojustifytheformationofaRemunerationCommitteeandonewasformedon1August2008.

Notes(1)AcopyoftheTenEssentialCorporateGovernancePrinciplesissetoutontheCompany’swebsiteunderthesectionentitled"CorporateGovernance".(2)AcopyoftheBestPracticeRecommendationsissetoutontheCompany’swebsiteunderthesectionentitled"CorporateGovernance".


Corporate GovernanCe Statement (Continued)

existence and terms of any schemes for retirement benefits for non-executive directors

TheCompanydoesnothaveanytermsorschemesrelatingtoretirementbenefitsfornon-executivedirectors.

Company’s remuneration policies

TheCompany’sremunerationpoliciesaresetoutintheRemunerationReportonpages20to25.

TheCompanyhasseparateremunerationpoliciesforexecutiveandnon-executivedirectors.Non-executivedirectorsreceiveafixedfeeand,whenappropriate,shareoptionsorparticipationintheEmployeeShareScheme.

Executivedirectorsreceiveasalaryorfeeand,whenappropriate,shares,shareoptions,orparticipationintheEmployeeShareScheme.

identification of independent directors

TheCompany’stwoindependentdirectorsareconsideredtobeMrNeilFearisandMrKenJudge.

NeitherofthesedirectorswasconsideredtohaveamaterialrelationshipwiththeCompanyoranothergroupmemberduringtheReportingPeriodasprofessionaladvisor,consultant,supplier,customer,orthroughanyothercontractualrelationship,nordidtheyhaveanybusinessorotherrelationshipwhichcould,orcouldreasonablybeperceivedto,materiallyinterferewiththedirector’sabilitytoactinthebestinterestsoftheCompany.

TheBoardconsidersmaterialinthiscontexttobewhereanydirector-relatedbusinessrelationshiprepresentsthelesserofatleast5%oftheCompany’sorthedirector-relatedbusiness’srevenue.


addItIonal Shareholder InformatIon

AdditionalinformationrequiredbytheASXLimited(ASX)ListingRulesandnotdisclosedelsewhereinthisreportissetoutbelow.

a) Shareholdings as at 18 September 2008

Substantial shareholders TherearenosubstantialshareholdernoticeslodgedwiththeCompany.

Voting Rights ThevotingrightsattachingtoOrdinarySharesaregovernedbytheConstitution.Onashowofhandseverypersonpresentwhoisa

memberorrepresentativeofamembershallhaveonevoteandonapoll,everymemberpresentinpersonorbyproxyorbyattorneyordulyauthorisedrepresentativeshallhaveonevoteforeachshareheld.Nooptionshaveanyvotingrights.

Twenty Largest Shareholders

NameofShareholder NumberofShares %held JPMorganNomineesAustraliaLimited 39,410,946 5.85HSBCCustodyNominees(Australia)Limited 33,297,035 4.95NationalNomineesLimited 24,783,893 3.68MrEdwardPatrickJacobson 14,917,903 2.22ANZNomineesLimited<CashIncomeA/C> 12,796,128 1.90CiticorpNomineesPtyLimited 10,143,800 1.51ArneInvestmentsPtyLtd 8,916,906 1.32MrPeterJamesLeonhardt 7,700,000 1.14MacquarieBankLimited 7,199,379 1.07ArneInvestmentsPtyLtd 6,710,493 1.00PendomerInvestmentsPtyLtd<LawSettlementsFundA/C> 6,400,000 0.95AtholSteelPtyLtd 6,100,000 0.91HSBCCustodyNominees(Australia)Limited- 6,074,941 0.90MrEdwardPatrickJacobson 6,000,000 0.89MrBrettSteeleWilliamson+MsNicoleDeanneRockliff 5,838,657 0.87MrGregoryJohnMunyard+MrsMariaAnnMunyard+MissCarmenHeleneMunyard<RivieraSuperFundA/C> 5,800,000 0.86CiticorpNomineesPtyLimited<CwlthBankOffSuperA/C> 5,271,720 0.78KaymacNomineesPtyLtd<McMullanSuperFundA/C> 4,939,372 0.73MrLawrenceAddisonBrown+MrsJillBrown 4,789,272 0.71BondStreetCustodiansLimited 4,636,199 0.69

221,726,644 32.93

Distribution of equity security holders

SizeofHolding Numberof Numberof shareholders fullypaidshares

1 to 1,000 287 190,3521,001 to 5,000 1,545 4,913,3755,001 to 10,000 1,418 12,071,08310,001 to 100,000 3,360 125,789,733100,001 andover 759 530,360,091 7,369 673,324,634

Thenumberofshareholdersholdinglessthanamarketableparcelofordinarysharesis492.


addItIonal Shareholder InformatIon (Continued)

b) unlisted option holdings as at 18 September 2008

Unlisted10centoptionsexpiring31March2009Numberonissue 10,000,000Numberofholders 4Thoseholdingmorethan20%oftheclass: Numberheld

EPJacobson 4,000,000PJLeonhardt 3,000,000

c) on-market buyback

Thereisnocurrenton-marketbuyback.

d) Schedule of permits

permit BaSin/Country Joint venture equity operator partnerS %

SW1A Phetchabun/Thailand Carnarvon 40% PanOrientEnergy PanOrientEnergy 60%L33/43 Phetchabun/Thailand Carnarvon 40% PanOrientEnergy PanOrientEnergy 60%L44/43 Phetchabun/Thailand Carnarvon 40% PanOrientEnergy PanOrientEnergy 60%L20/50 Phitsanulok/Thailand Carnarvon 50% Carnarvon SunResources 50%EP321&EP407 Perth/Australia Carnarvon 2.5%ORRI LatentPetroleumWA-399-P Carnarvon/Australia Carnarvon 50% Carnarvon RialtoEnergy 50%EP110& Carnarvon/Australia Carnarvon 35% StrikeOilEP424 StrikeOil 40% Pancontinental OilandGas 25%


Thispagehasbeenleftblankintentionally





GroundFloor

1322HayStreet

WestPerthWA6005

Telephone:+61893212665

Facsimile:+61893218867

Email:[email protected]

Website:www.carnarvonpetroleum.com

Documents

2008 annual report - Carnarvon · aBn: 60 002 688 851. 2008 annual report 1 ContentS Chairman’S review 2 Chief exeCutive’S review 3 operating anD finanCiaL review 4-16 DireCtorS’