Potential risks to Cue Energy Resources from climate change are assessed under the following headings: – Policy and Legal, – Physical (acute and chronic), – Financial and Market, – Social/Political/Regulatory, and – Technological. All these risks have potential financial and operational implications due to lost profitability and increased delays. Financial and market risks, and social/political risks also present opportunities associated with more rapid uptake of natural gas as a lower-carbon replacement for coal. Risk types and controls are specifically discussed below at 4.3. 4.2. Calculating climate risks in asset models Physical risks associated with climate are assessed in engineering planning. For forward price risk associated with production, the company uses impairment testing based on forward market prices and contracts. New Zealand For our New Zealand Maari asset, Cue uses the New Zealand ETS market pricing for carbon emissions. The Company purchases NZUs annually. (NZUs are New Zealand emissions units, reflecting a tonne of carbon emitted. One unit must be surrendered to the government each year for each tonne of carbon emitted.) The expected price of NZUs is modelled in Maari performance forecasts and impairment testing. NZU prices have been volatile, future prices are modelled with an expectation of government policy toward the carbon market. Government policy is not expected to allow the carbon price to fall further, while intervention in the market in 2023 suggested an implicit policy price cap exists at around NZD$80/t. For physical risks to the Maari production site, the Company carries insurance and equipment is engineered to standards in excess of expected weather activity. Australia There is currently no mandated carbon pricing mechanism in Australia for Cue emissions. For investment into the Amadeus basin assets, Cue’s advisers used a range of sensitivities to test the economics of the investment based on market prices in other comparable international regimes. For physical risks to Amadeus Basin interests, the Company has comprehensive insurance cover. The risks associated with climate are assessed in engineering planning. For forward price risk associated with production, the Company uses impairment testing based on forward market prices and contracts. The Company uses an internal price to test economics of investments based on market prices in other comparable international regimes. Expectations of forward prices reflect the market consensus about the likelihood and level of future carbon charges and market demand. Potential increased carbon pricing or reduced prices are part of the Company’s sensitivity testing. Carbon prices have generally conformed to forward curves in the reporting period, while oil and gas commodity prices have been higher due to concerns about energy security and actual shortages of gas. As a result, the financial risks associated with climate change are assessed to be limited or positive (upside) as of the date of this report. Indonesia Emissions from the company’s interest in the Sampang and Mahato PSCs are considered in performance forecasts and impairment testing. Indonesia has enacted laws that plan to implement a carbon tax but the implementation has been postponed for most industries. A carbon cost mechanism allows coal power plants to buy emissions credits from plants with lower emissions and renewables. The Company monitors the economic effects of climate-related policy and climate conditions on the value and operation of its assets. Due to uncertainty about future carbon pricing mechanisms and the rapidly changing policy positions in some countries where the Company operates and investigates new projects, carbon price testing is undertaken using the most available information and estimates at the time. Taskforce on Climate–Related Financial Disclosures (TCFD) Statement continued 24 Cue Energy Resources Limited Annual Report 2023
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