Cue Energy Resources Limited Directors' report 30 June 2023 8 Business Risks The Consolidated Entity is subject to risks that are specific to the Consolidated Entity and its business activities, as well as general risks. Exposure to oil and gas prices The Consolidated Entity is exposed to global commodity price variability for oil products produced in Indonesia, New Zealand and Australia which are sold on a US dollar Brent crude benchmark price basis. The majority of the Consolidated Entity ’s gas production is sold on fixed price contracts and is exposed to changes in the gas price on renewal or signing of new contracts. Gas sold in Australia on the short term market is exposed to daily variations in price. In addition to normal market operations, gas prices for Australian sales are subject to risk of government intervention, including under the Competition and Consumer Amendment (Gas Market) Bill 2022. Oil and Gas prices can be volatile. A decline in the price of oil and gas may have a material adverse effect on Consolidated Entity’s financial performance. The valuation of oil and gas assets is affected by expectations of future oil and gas prices. An extended or substantial decline in oil and/or gas prices or demand, or an expectation of such a decline, may reduce the expected cash flows and/or quantity of reserves and resources classified in relation to the associated oil and gas assets, which may lead to a reduction in the valuation of these assets. Foreign exchange risk The Consolidated Entity is exposed to foreign currency risk on cash and cash equivalents, oil sales recoverable value of oil and gas assets and capital commitments that are denominated in foreign currencies. The Consolidated Entity ’s financial report is presented in Australian Dollars and the functional currency for its operations in New Zealand and Indonesia is the United States Dollar (USD). The majority of the Consolidated Entity ’s costs are incurred in currencies other than Australian Dollars and revenue mainly received in USD. Accordingly, it is subject to fluctuations in the rates of currency exchange between these currencies, the primary impact of which is reflected in other comprehensive income. The Consolidated Entity currently does not utilise hedging or other derivate instruments. The Consolidated Entity’s foreign exchange risk exposures are mitigated through natural hedging of cost and revenue currencies, where appropriate. Ability to access funding Exploration, development, and production can involve significant capital expenditure. If cash flows decrease or the Consolidated Entity is not able to access necessary funding, this may result in postponement or reduction of capital expenditures, relinquishment of rights in assets or otherwise may have an adverse effect on the Consolidated Entity’s operations and financial performance. The Consolidated Entity’s ability to raise additional funds would be subject to, among other things, factors beyond the control of the Consolidated Entity and its Directors, including cyclical factors affecting the economy, investment climate for the energy sector and share markets generally. If for any reason the Consolidated Entity was unable to raise future funds, its ability to realise its strategy would be significantly affected. Joint Operations The Consolidated Entity participates in its business activities through minority interest in joint operations operated by other companies, governed by operating agreements. Under these agreements, the Consolidated Entity does not control the approval of work programmes and budgets and other project partners may participate in activities without the Consolidated Entity's approval. The Consolidated Entity may also be required to participate in activities which it did not approve, have its interests diluted or not gain the benefit of an activity. Project agreements can be subject to differences in interpretation and implementation with Operator responsibility for day to day operations. As a result, the Consolidated Entity may be exposed to operational and financial obligations outside of its control. The Mahato PSC and subsequent Indonesian Government regulations contain terms which may require the dilution of the existing partners in the joint operations for no consideration, including the Consolidated Entity’s, interests by up to 10% after production has commenced. 30 Cue Energy Resources Limited Annual Report 2023
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