for personal use only2018/10/26 · in the basin, we are hopeful of finding a partner and funding...

annualreport2018

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1 || Chairman’s letter 03

2 || The board 04

3 || Operations report 06

4 || Corporate 16

5 || Corporate directory 67

FINANCIAL REPORT

6 || Directors’ report 18

7 || Auditors’ independence declaration 29

8 || Consolidated statement of profit or loss & other comprehensive income 30

9 || Consolidated statement of financial position 31

10 || Consolidated statement of changes in equity 32

11 || Consolidated statement of cash flows 33

12 || Notes to the financial statements 34

13 || Directors’ declaration 59

14 || Auditors’ report 60

15 || Additional information 64

Contents

petrel energy limited annual report 2018

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<insert heading> || petrel energy limited annual report || 3chairman’s letter || petrel energy limited annual report 2018 || 03

Chairman’s Letter

Dear Shareholder,

On behalf of the Directors of Petrel Energy Limited, I would like to thank shareholders for their continued support throughout what has been a challenging year. Notwithstanding these challenges I feel we have made good progress in repositioning the company to begin the process of restoring shareholder value.

We intend to do through progressing projects in the Company’s portfolio outside of Uruguay, comprising a drilling programme in Spain and the further exploration in the emerging North Perth Basin in Australia, which on the back of AWE’s Waitsia discovery is becoming the focus of increasing industry and consolidation activity. In addition, we are actively looking at corporate transactions, new projects and new sources of funding with the potential to improve the value of Petrel.

While our attention has shifted from Uruguay by necessity, this decision was not taken lightly, and we remain hopeful that funding initiatives by our partner will reinvigorate the drilling programme. On the back of discovering “first oil” in Uruguay and ongoing government support, we initiated a new farmout process early this year, and while there was genuine interest, no offers were received.

As a result, Petrel agreed to swap a 13.7% interest with its partner and Operator in Uruguay for all of their remaining 34.8% interest in Spain. This transaction gives Petrel a 97.5% stake in a programme and asset being funded by others, with AIM listed Prospex Oil & Gas funding up to approximately $5.5M to increase its 2.5% interest to 49.9%. Petrel still maintains its non-funding interest in Uruguay which given recent cash injections has reduced to 41%.

We fully understand the disappointment of shareholders with the outcomes in Uruguay, but funding and drilling issues are part of our industry and highlights the critical importance of a diversified portfolio and flexibility to react to changing circumstances. To this end it is pleasing that Petrel has found a well-credentialled drilling partner for Spain and increased its interest in that project, under difficult circumstances.

Similarly, our management identified and secured a position North of the Perth Basin, which has now become an area of intense industry interest following the Waitsia discovery. Given the materiality of our asset, which covers close to 9,000km2, and on the back of existing and further exploration successes in the basin, we are hopeful of finding a partner and funding for our North Perth permit in due course.

Petrel’s Board and management are very cognisant of the erosion of recent shareholder value. In response we have not only reduced administration, staffing and overhead costs wherever possible, but also suspended executive and Board remuneration pending successful discussions on partner and or funding options.

We hope that shareholders can appreciate that there is often a disconnect between asset value and share price and that we are doing all we can to turn this around. In doing so we will leave no option off the table or consider any transaction too hard in trying to unlock what we believe is a significant unrecognised intrinsic value at both the company and portfolio level

Through this process, we hope to position the Company to benefit from improving sector activity and market sentiment.

I would like to thank Russ Porter and Andy Williams, who are retiring from the Board at the upcoming AGM. As directors, they have worked very hard and provided wise counsel under very difficult circumstances, which is greatly appreciated. We also welcome Greg Columbus to the Board, who is a highly experienced oil and gas executive and major shareholder of the Company. Greg will take over as Chairman after the upcoming AGM and will provide fresh leadership and energy to Petrel.

Finally, thanks again to shareholders for their continued support as we look forward to an improved 2019.

Yours sincerely,

Alex Sundich

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The board

the board || petrel energy limited annual report || 04

Alex has over 25 years’ experience in the financial services industry and is a Fellow of the Financial Services Institute of Australia, a Member of the Institute of Chartered Accountants in Australia and a Member of the Australian Institute of Company Directors. Alex is the Executive Director of Bridge Street Capital Partners, a Sydney-based corporate advisory and principal investment firm. From 2003 to 2008, Alex held senior management positions within the funds management industry. Prior to that, Alex was an investment banker providing advice to corporate clients on merger and acquisition transactions and debt and equity capital raisings, with a particular focus on the oil, gas and mining industries. Alex worked with Goldman Sachs and Credit Suisse First Boston during this period which included 6 years working in New York. Alex was a Non-Executive Director of Eastern Star Gas Limited until its acquisition by Santos Limited for $924 million in 2011. He is currently a Non-Executive Director of the ASX listed companies Ellex Medical Lasers Limited and Caravel Minerals Limited.

Alexander Sundich || Chairman

Greg has 15 years’ experience as Managing Director and Main Board Director for Clarke Energy Limited, being a privately-owned multinational company in the sales, engineering, installation and maintenance of power plants that utilise gas compressors and gas engines. Clarke Energy is a wholly owned company of the Kohler Group and operates in over 28 countries today. Greg joined Clarke Energy after previously holding executive General Manager role for AMEC (Plc) in ANZ for 12 years where he was principally involved in bringing UK expertise and technology from Aberdeen, to significantly impact Floating Storage and Offloading Vessels [FPSO] industry and work for Woodside in Western Australia.

Having a unique combination of graduate diploma of Electrical and Mechanical engineering, Greg then completed his MBA with University of South Australia conferring in 2003. Greg has over 30 years business experience in delivering large complex projects that has, along the course of his career, also carved out strong strategic vision and been involved in numerous M & A activity.

Gregory Columbus || Non Executive Director

David graduated with an Honours degree in Geology from the University of Sydney in 1991 and in the same year joined specialist coal seam gas (coalbed methane) company in Situ (Australia) Pty Ltd. In 1996, he formed his own unconventional energy consultancy business. David has over 20 years’ experience in the management and evaluation of all aspects of unconventional oil and gas exploration and appraisal, from initial reservoir characterisation and fairway identification through to drilling, testing and production operations. David’s most recent executive role was Managing Director of Eastern Star Gas Limited, which he and his team grew from modest beginnings to recently being the subject of a $924m takeover by Santos Limited valuing the Narrabri Project at $1.42b.

David was executive director and chief operating officer at Molopo Energy from 2001 to 2005 where he worked closely with Stephen Mitchell in developing a very successful unconventional energy company with assets in Australia, the US, Canada, China and South Africa.

David Casey || Managing Director

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the board || petrel energy limited annual report || 05

Andrew has been an equity research analyst in the top echelons of Australian capital markets for the past two decades focusing on the global energy sector, and in particular across the oil and gas markets. His formal education in geology and finance put Andrew at the vanguard of analysis of unconventional energy, which has only inhabited the listed space for the past decade. His focus on technical, commercial and financial merits of the Cooper, Surat and Gunnedah basins provided analysis and key support for project before they became widely appreciated by the wider investment community.

Andrew holds a Masters’ Degree in Applied Geology and Grad Dip (Finance) from RMIT University, and over a 30-year career Andrew has developed a strong technical and commercial background through hands-on oil industry experience as a geologist with Mobil Minerals, Woodside and Schlumberger.

Andrew Williams || Non Executive Director

Russell recently retired after serving 14 years as President and Chief Executive Officer of Gastar Exploration Inc. a publicly listed oil and gas exploration and production company. He is currently a private investor and industry consultant. Over a 30-year career, Russell has obtained a unique background with substantial exposure to the international natural resources industry and capital markets. He has a MBA from the Kenan-Flagler School of Business at the University of North Carolina at Chapel Hill. He has substantial experience in acquisition, development and divestiture of high-quality assets including the Deep Bossier and Eaglebine plays in East Texas Basin, the Powder River Basin in Wyoming and the Gunnedah Basin in New South Wales. Russell serves on the Board of Directors of Johnson Specialty Tools, a private oilfield service company and previously served as Lead Director and Audit Committee Chair for Caza Oil & Gas Inc and Audit Committee Chair for Stallion Oilfield Holdings. He is a member of the Dean's Advisory Council for the E.J. Ourso School of Business at Louisiana State University.

Russell was CEO of Gastar Exploration Inc. when it held a 35% interest in the Narrabri Gas Project operated by Mr David Casey then Managing Director of Eastern Star Gas Limited. The Narrabri Gas Project was ultimately sold to Santos Limited with Gastar and Eastern Star Gas Limited shareholders realising $320m and $924m respectively.

Russell Porter || Non Executive Director

Ian is a resources finance professional with over 20 years’ experience in project evaluation and construction, equity and debt markets, statutory reporting, treasury, taxation and corporate governance. His most recent executive role was Chief Financial Officer and Company Secretary for Eastern Star Gas Limited, recently the subject of a $924m takeover by Santos Limited. Previous executive experience includes similar posts for ASX listed companies including Hillgrove Resources Limited, Allstate Explorations N.L. and Otter Gold Mines Limited. In all these roles he worked closely with MDs, Boards, Audit and Risk Committees etc. to evaluate, finance and construct resource projects. Ian’s early career involved audit positions with Coopers & Lybrand in Sydney and Toronto. He holds a Bachelor Degree in Economics and is a member of the Australian Institute of Chartered Accountants and AUSIMM.

Ian Kirkham || Company Secretary & Chief Financial Officer

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operations report || petrel energy limited annual report || 06

operations report

Petrel’s Portfolio of Assets

Spain Cadiz

Australia WA Coolcalalaya / North Perth

CanadaAlberta

Uruguay Piedra Sola & Salto Concessions

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Spanish Operations

Targeting conventional sandstone gas reservoirs in 94,000 acres in Southern Spain Tesorillo Project, Cadiz, Spain (97.5%)

Background

On the 26 October 2012, Petrel acquired a 25% interest in Schuepbach Energy International LLC (SEI), a private US company which holds an 85% interest in two petroleum exploration licences in southern Spain. The licences, Tesorillo and Ruedalabola, cover 38,000 ha (94,000 acres).

The 1956 well Almarchal-1 was drilled by the Spanish firm Valdebro and intersected a thick section of gas pay which upon testing flowed gas to surface. The well is located 3km from the North African Maghreb gas trunkline providing ready access to high priced European gas markets.

Almarchal-1 is the discovery well of what is likely a very large by-passed gas field. Drillstem tests and log analysis confirm 48m of proven gas pay from two Miocene Aljibe Formation sandstone intervals. A further 492m of probable gas pay is interpreted from logs but unconfirmed by testing.

The well is located on a seismically delineated thrust ramp anticline with closure area exceeding 70 km2. Multi-TCF gas-in-place is indicated.

The 1957 Puerto de Ojen-1 well, located 15km to the east in Ruedalabola license, displayed similar gas shows to Almarchal-1 but could not be tested for mechanical reasons. It appears to be located on a separate large thrust feature.

Netherland Sewell and Associates (“NSAI”) have independently certified an unrisked Prospective Resource of up to 2,289 BCF* (2.3 TCF) (1,116 BCF net to Petrel) for the Tesorillo Project as outlined below.

New Partner to Fund Spain

SEI entered into a Share Purchase Agreement (“SPA”) in mid-December 2017 to sell up to a 49.9% of its wholly owned subsidiary Schuepbach Energy Espania S.L.U. (“SEE”) to AIM listed Prospex Oil and Gas Plc (“Prospex”) for up to €2,053,750. SEE owns the Tesorillo project in southern Spain.

Under the SPA, SEI can sell up to 49.9% of the ordinary shares in SEE to Prospex in three tranches. Initial consideration of €48,250 was paid at first closing. A further €280,000 is payable at second closing, subject to, amongst other conditions, the result of a trial magnetotelluric programme, by 31 December 2018.

A final consideration of €1,725,000 is payable at the final closing, subject to, amongst other conditions, the completion of a full magnetotelluric programme and the approval of an appraisal Tesorillo well for drilling within the 6-year licence period.

Sale proceeds of €2,053,750 will be used by SEI to fund its share of an agreed Tesorillo work programme (estimated at €3,823,000) which includes a trial magnetotelluric programme, followed by a full magnetotelluric programme and if successful, a well to target the Almarchal-1 discovery drilled in 1956.

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Tesorillo Prospective Resource BCF* Original Gas in Place BCF

Net to Petrel^ 100% 97.5% 50.1% 100% 97.5% 50.1%

Low Estimate (P90) 220 215 110 734 716 368

Best (Median) Estimate (P50) 830 809 416 1,661 1,619 832

High Estimate (P10) 2,289 2,232 1,147 3,270 3,188 1,638

^ Petrel's 97.5% working interest will reduce to 50.1% upon completion of the Prospex Share Purchase Agreement. Proceeds of €2.05m (100%) will be used by Petrel to fund its share of an agreed Tesorillo work programme (estimated at €3.82m) which includes a magnetotelluric programme and if successful, a well to target the Almarchal-1 discovery drilled in 1956. The estimates of net volumes provided in this statement were derived from estimates of gross volumes for each prospect determined by Mr Dan Walker, a full time employee of Netherland, Sewell and Associates Inc., Dallas, Texas, USA, on 5 May 2015, in accordance with Petroleum Resources Management System guidelines. Mr Dan Walker is a Licensed Petroleum Geologist, a qualified person as defined under the ASX Listing Rule 5.41 and has consented to the inclusion of this information in the form and context in which it appears.

* The estimated quantities of petroleum that may potentially be recovered by the application of a future development project(s) relate to undiscovered accumulations. These estimates have both an associated risk of discovery and a risk of development. Further exploration appraisal and evaluation is required to determine the existence of a significant quantity of potentially moveable hydrocarbons. Prospective Resource assessments are estimated using probabilistic methods in accordance with PRMS standards. Oil and gas Reserves and Contingent Resources cannot be estimated under SPE-PRMS Guidelines with currently available data.

# Volumes above are based on arithmetic summation and are not adjusted for risk of discovery or risk of development. Arithmetic sums of unrisked prospective resources beyond the prospect level are not reflective of volumes that can be expected to be recovered and are included in Netherland, Sewell & Associates, Inc.'s certification for convenience only. Further, prospect interdependencies, which are an important consideration for these prospects, have not been evaluated in Netherland, Sewell & Associates, Inc.'s certification. Because of the geologic risk associated with each prospect, meaningful totals beyond this level can be defined only by summing risked prospective resources. Such risk is often significant.

Spanish Operations

Interest Transfer

On 27 April 2018 shareholders of SEI agreed that all its interests in the Tessorillo Project, being shares in Tarba Energia (previously called Schuepbach Energy Espania) ("Tarba"), would be transferred to Petrel in return for Petrel transferring a 13.7% interest in SEI to SIH. As a result, Petrel's interest in the Tessorillo Project increased from 62.7% a to 97.5% and its interest in Uruguay

reduced from 62.7% to 49%. This 97.5% interest in Tarba (Tesorillo Project) will reduce to 50.1% upon completion of the Share Purchase Agreement ("SPA').

Subject to results this sees Petrel predominately funded through to drilling of one well in Spain while still retaining in excess of 50% due to its recent agreement to swap equity in its Uruguay project for Spain.

Surveying in Spain

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Western Australia Operations

North Perth Basin Project Call option over STP-EPA-0127 application Coolcalalaya Western Australia targeting conventional and unconventional (2.2 million acres)

Background

Petrel holds a call option over Western Australian exploration permit application STP-EPA-0127, in the Coolcalalaya / North Perth Basin. The Call Option Deed which is over all the shares in Palatine Energy Limited (Palatine) provides Petrel with the option to acquire all Palatine shares for $200,000 in cash or Petrel ASX listed ordinary shares with a further $100,000 of shares

payable once approvals are in place and a work programme has commenced in the North Perth Basin Permit.

The Call Option Deed signed in April 2016 is subject to progress on Native Title Agreements with 3 native title parties which were in the early stages of negotiations. With the substantive terms of the three Native Title Agreements almost finalised and about to be lodged with the National Native Title Tribunal Petrel is hopeful of the permits being granted and has elected to extend for a further year, to April 2019 for $10,000 to allow this process to be completed. Petrel will meet all reasonable costs in relation to the native title negotiations during this period.

Perth Basin Western Australia

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STP-EPA-0127 which on final grant will be 2.2m acres (8,700 square kms) will be the largest of the exploration permits in the Perth Basin. It is 130 km north of the AWE - Beach Perth Basin Waitsia play which has re-invigorated Perth Basin exploration and development, and is the largest onshore

STP-EPA-0127

North West Shelf to Perth Pipeline

Waitsia-2P Reserves recently increased to 811PJ (gross); 78% higher than AWE’s 2P Waitsia Reserves as at 30 June 2017

Waitsia-2 42m perf. avg. rate of 38.5Mmscf/d



conventional gas discovery in Australia for the last 40 years. AWE Limited recently recommended a takeover from Mitsui & Co valuing AWE at $602m based largely on its 50% interest in the Waitsia gas project in the Perth Basin.

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Main exploration targets identified in the Coolcalalaya sub-basin are:

› Conventional (Waitsia type) Permian sands - Primary Lower Permian Kingia and High Cliff Sandstone targets are equivalent to the Waitsia conventional targets.

› Permian Unconventional Carynginia shale - Upper Permian Dongarra Sandstone represents a secondary conventional/tight gas target.

› Devonian Unconventional Gneudna shale - Devonian Gneudna Fm. is absent in most of the Perth Basin but is present in the Coolcalalaya Sub-basin (STP-EPA-0127) and the Merlinleigh Sub-Basin (South Carnarvon Basin) and represents a secondary unconventional target.

› Conventional Permo-Carboniferous tilted fault blocks - Potential play in conventional tilted fault blocks, involving Permo-Carboniferous sandstones reservoirs along the western edge of the main trough, and sourced from the Devonian Gneudna Formation.

Waitsia Conventional target

The work programme commitments on North Perth Basin over 6 years include:

› Two years full review of existing well data: » outcrop geology; » geochem; » physical properties; » coring; » seismic reprocessing in years 1 and 2

› Comprehensive stratigraphic drilling to recover fresh shale samples and test hydrocarbon presence in year 3

› New 2D seismic acquisition and interpretation in year 4

› At least one (stimulated) exploration /appraisal well in year 6

Upper Permian Dongarra Sandstone represents a secondary conventional /tight gas target

Primary Lower Permian Kingia and High Cliff Sandstone targets are equivalent to Waitsia

Modified after AWE 2018

1st Unconventional target

2nd Unconventional target

COOLCALALAYA

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Uruguay Operations

Uruguay Project Targeting conventional oil/gas targets in Piedra Sola and Salto Concessions (3.5 million acres)

Background

In October 2012 Petrel acquired an interest in a large conventional petroleum project in Uruguay. The project comprises two concessions, Piedra Sola and Salto, covering 14,000 sq km (3.5 million acres) which are held under separate production sharing contracts.

Exploration activities commenced in early 2013 with the completion of a magnetotelluric (MT) electromagnetic survey acquired across the Piedra Sola and Salto concessions with results confirming the existence of a northwest-trending rift basin with Devonian and potential Permian sediments. This was followed by an initial corehole programme which confirmed the existence of an active hydrocarbon system with multiple source rocks and potentially widespread, very high permeability, conventional reservoir sands.

These very good porosity and permeability measurements for Cardozo Chico E-1 and Achar E-1 coreholes some 30km apart and the existence of free oil in different formations over much of the

Piedra Sola block provided sufficient evidence to pursue a US$5.5m seismic programme.

The 597 kilometre 2D seismic programme was successfully completed in Uruguay from July to October 2014. The programme was designed to help define potential targets in between previously drilled coreholes and to provide insight into the scope and scale of the resource.

Interpretation of the seismic data, completed in January 2015, not only revealed obvious geological structuring and identified a deeper previously unknown basin in the Salto concession but was able to confirm the presence of a Devonian source rock section across both concessions. Notably it also identified an initial 20 conventional structural targets with many at relatively shallow depths. A very encouraging outcome for future programmes was also the quality of data that could be acquired through the up to 1000m of basalt that overlies the exploration blocks in parts.

The seismic data enabled Petrel to define the “first ever” independent resource certification for Uruguay with Netherland, Sewell and Associates, Inc. (“NSAI”) certifying an unrisked gross Prospective Resource in the Salto and Piedra Sola concessions of up to 910 MMBBL oil and 3,105 BCF gas (up to 373 MMBBL oil and 1,273 BCF gas* to Petrel’s net 41% interest).

Salto & Piedra Sola Concessions*^ 41% Net to Petrel

Prospective Resource^# Original Oil & Gas In Place

Oil (MMBBL) Gas (BCF) Oil (MMBBL) Gas (BCF)

Low Estimate (P90)* 61 236 229 367

Best Estimate (P50) 166 603 578 934

High Estimate (P10)* 373 1273 1186 1939

* The estimated quantities of petroleum that may potentially be recovered by the application of a future development project(s) relate to undiscovered accumulations. These estimates have both an associated risk of discovery and a risk of development. Further exploration appraisal and evaluation is required to determine the existence of a significant quantity of potentially moveable hydrocarbons.

^ Prospective Resource assessments are estimated using probabilistic methods in accordance with PRMS standards. Oil and gas Reserves and Contingent Resources cannot be estimated under SPE-PRMS Guidelines with currently available data.

# Volumes above are based on arithmetic summation and are not adjusted for risk of discovery or risk of development. Arithmetic sums of unrisked prospective resources beyond the prospect and lead levels are not reflective of volumes that can be expected to be recovered and are therefore not included in Netherland, Sewell & Associates, Inc.'s certification. Because of the geologic risk associated with each prospect and lead, meaningful totals beyond these levels can be defined only by summing risked prospective resources. Such risk is often significant. The estimates of net volumes provided in this statement were derived from estimates of gross volumes for each prospect and lead determined by Mr Phil Hodgson, a full time employee of Netherland, Sewell and Associates Inc., Dallas, Texas, USA, on 14 May 2015, in accordance with Petroleum Resources Management System guidelines. Mr Phil Hodgson is a Licensed Petroleum Geologist in the State of Texas, a qualified person as defined under the ASX Listing Rule 5.41 and has consented to the use of the gross resource figures in this announcement.

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Following delays due to funding challenges arising from the oil price collapse, Petrel in the first instance, and then its partner and Operator was able to secure funding to undertake a 4 well drilling programme.

This programme commenced in May of 2016 but was beset by approval and startup issues primarily associated with this being the first onshore drilling campaign in Uruguay in close to 40 years.

While these problems were resolved, ultimately resulting in the first hydrocarbon discovery in Uruguay, it put increasing pressure on contingency funding. As a result, the decision of Petrel’s partner not to fund after the spudding of the second well but just prior to the intersection of a fault at the base of the basalt, meant that operations had to be suspended due to a lack of capital.

While Petrel tried to subsequently fund the programme on its own, this was unsuccessful, and an agreement was reached with the Operator for Petrel to reduce its exposure in Uruguay to 41% for a $US500K cash injection to meet local creditors and the Operators remaining 37% interest in the Tesorillo project in Spain.

2 Well Programme - Background & Objectives Drilling programme 2016-17

The Operator Schuepbach Energy International LLC (SEI) (PRL 49%) finalised the drilling contract with New Force Energy Services Inc. in December 2016 with the rig mobilised to site in May with Cerro Padilla-1 spudding in early June 2017. After the setting of surface casing and installing the BOP operational approvals were received from the relevant authorities for drilling by mid-August.

On 28 August with only 10m of basalt remaining and 3-5 days of drilling ahead before setting casing, the drill string parted and drilling was again temporality suspended. Initial fishing operations were partially successful with additional equipment ordered from the US to complete fishing operations. These delays in the field incurred rig rates at stand-down, standby or full drilling rates along with operational and general overhead leading to further funds being required.

A number of these challenges could have and should have been better managed, and it was decided to undertake an independent review of drilling operations and management processes.

Four well programme extends SE/NW across both concessions

Uruguay Operations

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This was undertaken by international experts New Tech Global Ventures (NTG), headquartered in Houston, who then went on to manage the successful fishing operation.

Soon after NTG were retained by the Operator to manage all onsite operations.

With management changes made operations recommenced and the Cerro Padilla-1 well was successfully drilled to a Total depth (TD) of 845m and became the first well onshore Uruguay to discover hydrocarbons by identifying a 2m oil saturated Permian sand. The well was successfully completed with production testing recovering a small amount of oil to surface.

Project risk is now much better understood having gone through these processes, and notwithstanding the early success in the first well, the overall objectives of the drilling programme remain largely unchanged as follows:

› confirm source rock maturity, quality and extent

› confirm conventional reservoir quality and extent - Darcy permeability (>1000md) already measured in core samples 30km apart

› confirm migration and potential trap integrity - while not the primary objective 3 of the 4 wells are also targeting structures for oil and gas trapped in either the same sequence or up-dip of oil shows and/or weeping core samples

› confirm validity of AVO anomalies identified on seismic

Corehole

Fluorescence evident in down-

dip corehole

Well #1 Cerro Padilla - 1This well was designed to confirm the reservoir potential of the Tres Islas sand and Permian source rock at shallow depth.

Well objectives:

› Drill on same fault block but up dip of Cerro Padilla E-1 corehole which encountered 3m of Tres Islas sandstone with flowing fluorescence to confirm potential oil charge

› Permian source rock quality

› Permian Tres Islas OOIP P90 = 21MMB

Results:

The well was successfully drilled to a Total Depth (TD) of 845m and encountered significant oil shows with logging confirming 2m of oil saturated sand at 793m.

Although only a modest discovery in its own right, as the first ever of hydrocarbons in Uruguay, and the first well of a 4 well programme, it represented a quantum first step in redefining the oil and potentially gas prospectivity of the Notre Basin going forward.

Uruguay Operations

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Uruguay Operations

Well #2 Cerro de Chaga - 1 well (Panizza) The Cerro de Chaga-1 well (TD 1,450m), in the Salto permit, is not only situated over a very large structure with considerable oil and gas potential across multiple zones, but also has an extensive and very thick, Devonian or older section beneath what could be a very thick sealing source rock.

Well objectives:

› Test largest regional high with 4-way dip closure

› Confirm extent, quality and maturity of Devonian source and reservoir rock

› Test quality and maturity of secondary Permian source rock - Mangrullo Shale

› Confirm existence of deeper sedimentary sequence

At present the well is currently suspended after encountering hole stability issues when a fault was intersected at the base of the basalt. While the faulted zone was successfully cemented it was decided at the time to temporarily suspend operations to allow for necessary repairs and to undertake a review of operations and strategy. Disappointingly on the back of very good progress drilling the basalt before encountering the fault, and successful recovery of oil at Cerro Padilla-1, this well remains suspended, but it does highlight the challenges of drilling in a frontier basin.

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Capital RaisingA partially underwritten non-renounceable rights issue of shares closed on 31 October 2017, made on the basis of one fully paid ordinary share in Petrel for every three shares held raised $4.57m. Eligible shareholders subscribed for 415,324,258 shares and 415,324,258 options. The offer was fully subscribed with approximately a quarter of shares taken up under a shortfall facility.

A non-renounceable rights issue of shares closed on 12 April 2018, made on the basis of two fully paid ordinary shares in Petrel for every three shares held. Eligible shareholders subscribed for a total of 61,862,755 fully paid ordinary for a total subscription amount received of $247,451.

A share placement and share purchase plan was undertaken in July-August 2018. Eligible shareholders subscribed for a total of 505,285,709 fully paid ordinary for a total subscription amount received of $1.06m.

Uruguay/Spain Reorganisation After encountering drilling and funding difficulties in December 2017 to March 2018 outlined above Petrel sought to raise $4.6m in a rights issue during March-April 2018 to continue drilling in Uruguay but was only able to raise $0.25m. As a result Petrel reorganised its Spain and Uruguay assets to dramatically reduce its project funding requirements going forward. The effect of this reorganisation transaction was to eliminate further short term investment in Petrel’s unfunded Uruguayan asset (reducing 62.7% interest to 49%) in return for all the shares in the funded Spanish asset (increasing 62.7% interest to 97.5%).

CORPORATE

Canadian Operations

Lochend Cardium Project, Alberta (40% working interest)Targeting “tight oil” in lower siltstone and sandstone in 640 acres.

Exploration activities at Petrel’s Lochend Cardium project remain on hold. Having unsuccessfully

sought expressions of interest for its interest in the Lochend Cardium joint venture in

2014/15 and given the current oil price Petrel continues to review its sale options on these assets. An impairment charge was recognised against Cardium oil assets in the 2015 financial statements writing the book value down to nil.

The Lochend 16-19-25 -3W5M well which came on line in late March 2013 yielding a 30 day initial production rate (IP30) of around 150 bopd averaged 6.5 bopd during the year.

The Spanish asset will be funded under a staged share purchase agreement with AIM listed Prospex Oil & Gas. In return for a 49.9% interest, sale proceeds of €2m will be used by Petrel to fund its share of an agreed Tesorillo work programme (estimated at €3.8m) which includes a magneto-telluric programme and the drilling a well to target the Almarchal-1 discovery drilled in 1956.

On 27 April 2018 shareholders of Schuepbach Energy International LLC (“SEI”) agreed that Petrel would transfer 13.7% of its 62.7% interest in Schuepbach International Holdings (“SIH”) in return for Petrel receiving all interests in the Tessorillo Project, being shares in Tarba Energia (previously called Schuepbach Energy Espania) (“Tarba”). As a result, Petrel’s interest in the Tessorillo Project increases from 62.7% a to 97.5% and its interest in Uruguay reduces from 62.7% to 49%.

After having to increase its interest to cover previous funding shortfalls in December 2017, Petrel’s reduced interest in its Uruguayan asset is now more in line with the level of risk and exposure acceptable in, notwithstanding the very exciting results to date, what is still a frontier basin.

SIH have exercised their option to immediately invest up to $500,000, as preferred capital convertible to repay outstanding liabilities in return for a further 8% interest in SEI. On 28 September 2018 SIH elected to convert this preferred capital to ordinary capital, Petrel now hold a 41% interest in SEI and its Uruguay assets.

SIH will have the right to exclusively fund the new Joint Venture (JV) for a further $1,500,000 which could increase its interests 9.5% to 68.5% if all contributions above had been made.

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financial report || petrel energy limited annual report || 17

financial report

6 || Directors’ report 18

7 || Auditors’ independence declaration 29

8 || Consolidated statement of profit or loss & other comprehensive income 30

9 || Consolidated statement of financial position 31

10 || Consolidated statement of changes in equity 32

11 || Consolidated statement of cash flows 33

12 || Notes to the financial statements 34

13 || Directors’ declaration 59

14 || Auditors’ report 60

15 || Additional information 64

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directors’ report || petrel energy limited annual report || 18

DIRECTORS’ REPORT

The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the ‘consolidated entity’ or ‘the Group’) consisting of Petrel Energy Limited (referred to hereafter as ‘the Company’ or ‘parent entity’) and the entities it controlled for the financial year ended 30 June 2018.

DIRECTORS

The directors in office at any time during the financial year and up to the date of this report are:

Alexander Sundich Non-executive Chairman

David Casey Managing Director and Chief Executive Officer

Russell Porter Non-executive Director

Andrew Williams Non-executive Director

PRINCIPAL ACTIVITY

The principal activity of the consolidated entity during the year was the exploration and development of oil & gas resources. It’s objective is to generate shareholder wealth. Due to funding constraints the consolidated entity changed its exploration focus from the Norte Basin project in Uruguay to the Tesorillo project in Spain and the North Perth Basin project in Western Australia.

OPERATING RESULTS

The consolidated entity’s net loss after tax from operations for the year was $29,121,568 (2017: $2,056,516). Impairment costs arising during the period were $19,138,440 (2017: Nil) and the loss as a result of de-recognition of a controlled entity was $8,184,837 (2017: Nil)

FINANCIAL POSITION

The consolidated entity’s total assets decreased to $4,628,780 (2017: $34,431,293) as a result of impairment costs and loss as a result of de-recognition of a controlled entity outlined in the operating results above. Total liabilities decreased to $1,063,011 (2017: $2,122,479) largely resulting from the Uruguayan liabilities being de-recognised and net assets decreased to $3,543,468 (2017: $32,308,814). During the year the company raised a net amount of $5,550,577 (2017: $7,554,959) from the issue of new shares.

REVIEW OF OPERATIONS

During the period the Group undertook the following activities:

Uruguay

› Schuepbach Energy International LLC (SEI) completed Cerro Padilla-1, its first well, in mid-October 2017. This well was designed to confirm the reservoir potential of the Tres Islas sand and Permian source rock at shallow depth. The well was successfully drilled to 845m and encountered significant oil shows with logging confirming 2m of oil saturated sand at 793m. The subsequent testing of sample oil represented a quantum first step in redefining the oil, and potentially gas, prospectivity of the Norte Basin, Uruguay.

› SEI then commenced the Cerro de Chaga-1 well (Panizza-1) in mid-November 2017 in the Salto permit. The well is not only situated over a very large structure with considerable oil and gas potential across multiple zones, but also has an extensive and very thick, Devonian or older section beneath what could be a very thick sealing source rock. Despite making good early progress a fault was unexpectedly encountered drilling towards the base of the basalt, which resulted in hole stability issues, and ultimately requiring this zone to be cemented and the hole suspended.

› Petrel unsuccessfully sought $4.5m from shareholders in March-April 2018 under a rights issue for further drilling of Cerro de Chaga-1 to target depth, or if the fault could not be cleared, drilling of Canada de Fea -1 well. With no funding available for Uruguay operations Petrel agreed, on 27 April, to transfer 13.7% of its 62.7% interest in SEI in return for Petrel receiving 36.37% of interests in the Tessorillo Project, being shares in Tarba Energia (previously called Schuepbach Energy Espania) (“Tarba”). As a result, Petrel’s interest in the Tessorillo Project increased from 61.13% a to 97.5% and its interest in Uruguay reduced from 62.7% to 49%.

› The other investors in SEI have invested a further $500,000, as preferred convertible capital to repay outstanding liabilities in return for a further 8% interest in SEI. SIH can elect to convert this preferred capital no later than 28 September 2018, in which case, Petrel’s interest in Uruguay reduced from 49% to 41%.F

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Spain

› On 19 December 2017 is SEI signed the Prospex Share Purchase Agreement to sell up to a 49.9% of Tarba/Tesorillo Project to AIM listed Prospex Oil and Gas Plc (“Prospex”). Sale proceeds of €2,053,750 will be used by SEI to fund its share of an agreed Tesorillo work programme (estimated at €3,823,000) which includes a trial magnetotelluric programme (MT), followed by a full magnetotelluric programme and if successful, a well to target the Almarchal-1 discovery drilled in 1956. Subject to results this sees Petrel predominately funded through to drilling of one well in Spain while still retaining in excess of 50% due to its recent agreement to swap equity in its Uruguay project for Spain. During the current period a 2.5% ownership of the Tessorillo Project, being shares in Tarba Energia (previously called Schuepbach Energy Espania) was transferred for €48,750.

Corporate

› A partially underwritten non-renounceable rights issue of shares to raise a total of $4.57m was oversubscribed at 31 October 2017. The issue was made on the basis of one share in Petrel for every three shares held at an issue price of $0.011 per share and one free listed option for every new share subscribed for exercisable at 4¢ with a 1-year expiry.

› A non-renounceable rights issue of shares was announced on 1 March 2018 and closed on 12 April 2018, made on the basis of two fully paid ordinary shares in Petrel for every three shares held. Eligible shareholders subscribed for a total of 61,862,755 fully paid ordinary for a total subscription amount received of $247,451.

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

With limited funding available in early 2018 the Group shifted its exploration focus from the Norte Basin Uruguay to Tesorillo Spain where the staged €2m proceeds from the Prospex Share Purchase Agreement will be used to fund the Group’s share of an agreed Tesorillo work programme (estimated at €3.8m).

DIVIDENDS

No dividends have been paid or declared during or since the end of the financial year.

MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR

No matter has arisen in the interval since 30 June 2018 and up to the date of this report that in the opinion of the directors have significantly affected or may significantly affect the operations of the consolidated entity, the results of those operations or the state of affairs of the consolidated entity in future financial periods other than the following.

› A placement and share purchase plan was announced on 4 July 2018 raising a total of $1,061,000 at a price of 0.21 cents per share. The placement raised a total of $735,000. The placement was arranged by Bridge Street Capital Partners Pty Ltd (a related party of Alexander Sundich) on normal commercial terms and was offered to sophisticated and professional investors. The share purchase plan which closed on 7 August 2018 raised a total of $326,000.

LIKELY DEVELOPMENT AND EXPECTED RESULTS OF OPERATIONS

The consolidated entity intends to continue its exploration, development and production activities on its Tesorillo Spain, North Perth Basin Western Australia and Norte Basin Uruguay projects. The consolidated entity is currently seeking to sell its Canadian project, which was fully written down at the year-end. The outcome of these developments is dependent on successful exploration & evaluation activities.

BUSINESS RISKS

The Group’s focus is an early stage oil and gas exploration. Any profitability in the future from the Group’s business will be dependent upon successful exploration, development, production and marketing of petroleum from the petroleum exploration licences. The following exposures to business risk may affect the Group’s ability to achieve the above prospects:

Exploration and Production

The business of exploration and project development involves a degree of risk. To prosper, the Group depends on factors that include: successful acquisition of appropriate exploration licences; successful exploration and the establishment of petroleum resources and reserves; design, construction and operation of efficient production infrastructure; managerial performance; and efficient marketing of the products. Exploration is a speculative endeavour. Exploration and development operations can be hampered by force majeure circumstances and cost overruns for unforeseen events, including unexpected variations in location and quality of the petroleum and equipment and plant malfunction.

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Funding Risk

The transfer of the Group’s exploration focus from the Norte Basin Uruguay to Tesorillo Spain where the staged future Prospex Share Purchase Agreement sale proceeds of €2m will be used to fund the Group’s share of an agreed Tesorillo work programme (estimated at €3.8m) reduces project-funding risk for the Groups key assets. However, additional capital is required for administrative costs other projects such as the North Perth Basin and there is no certainty that the Group will be able to raise additional capital, or that it will be able to do so on favourable terms.

If the Group cannot raise additional capital through the issue of additional shares, it may be forced to dispose of some or all of its interest in one or more of its assets. If the Group is required to dispose of assets in those circumstances to a third party, it is possible that such disposal will not be on favourable terms, including disposal price.

Risk of Foreign Operations

The Group operates and invests in Spain and Uruguay where there may be a number of associated risks over which it will have no or limited control. These may include economic, social, or political instability or change, nationalisation, expropriation of property without fair compensation, cancellation or modification of contract rights, hyperinflation, currency non-convertibility or instability, and changes of laws affecting foreign ownership, government participation, royalties, taxation, working conditions, foreign nationals work permits, rates of exchange, exchange control, exploration licensing, minerals export licensing, export duties, government control over product pricing, and other risks arising out of foreign governmental sovereignty over the areas in which the Group’s operations are conducted, as well as risks of loss due to civil strife, acts of war, terrorism, guerrilla activities and insurrections.

The Group’s operations may also be adversely affected by laws and policies of Australia affecting foreign trade, taxation and investment. In the event of a dispute arising in connection with its operations the Group may be subject to the exclusive jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the jurisdiction of courts in Australia or enforcing Australian judgements in foreign jurisdictions.

Environmental Impact Constraints

The Group’s operations are subject to the environmental risks inherent in the oil and gas industry. The Group’s exploration and development programmes are, in general, subject to approval by government authorities before it can undertake activities which are likely to impact the environment. Failure to obtain such approvals will prevent the Group from undertaking the desired activities.

Exploration and development of any of the Group’s properties is also dependent on meeting planning and environmental laws and guidelines.

The Group is unable to predict the effect of additional environmental laws and regulations which may be adopted in the future, including whether any such laws or regulations would materially increase the Group’s cost of doing business or affect its operations in any area. However, there can be no assurances that new environmental laws, regulations or stricter enforcement policies, once implemented, will not oblige the Group to incur significant expenses and undertake significant investments in such respect which could have a material adverse effect on the Group’s business, financial condition and results of production operations.

ENVIRONMENTAL REGULATIONS

The consolidated entity’s operations are subject to significant environmental and other regulations. The consolidated entity has a policy of engaging appropriately experienced contractors and consultants to advise on and ensure compliance with environmental regulations in respect of its exploration and production activities. There have been no breaches of environmental regulations resulting in damage to the environment in the financial period and at the date of this report.

INFORMATION ON DIRECTORS

Alexander Sundich

Alex has over 25 years’ experience in the financial services industry and is a Fellow of the Financial Services Institute of Australia, a Member of the Institute of Chartered Accountants in Australia and a Member of the Australian Institute of Company Directors. Since 2008, Alex has been an independent corporate advisor and company director. He is the Executive Director of Bridge Street Capital Partners, a corporate advisory and principal investment firm. From 2003 to 2008, Alex held senior management positions within the funds management industry. Prior to that, Alex was an investment banker providing advice to corporate clients on merger and acquisition transactions and debt and equity capital raisings, with a particular focus on the oil, gas and mining industries. Alex worked with Goldman Sachs and Credit Suisse First Boston during this period which included 6 years working in New York.

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DIRECTORS’ REPORT

Alex was a Non-Executive Director of Eastern Star Gas Limited until its acquisition by Santos Limited for $924 million in 2011. He is currently a Non-Executive Director of Ellex Medical Lasers Limited, an ASX listed medical equipment company and Chairman of Cleveland Mining Limited, an ASX listed gold company.

Special responsibilities: Non-executive Chairman, Chairman of the Audit Committee and Member of the Remuneration and Nomination Committee.

David Casey

David Casey graduated with an Honours degree in Geology from the University of Sydney in 1991 and in the same year joined specialist coal seam gas (coalbed methane) company in Situ (Australia) Pty Ltd. In 1996, he formed his own unconventional energy consultancy business. David has over 20 years' experience in the management and evaluation of all aspects of unconventional oil & gas exploration and appraisal, from initial reservoir characterisation and fairway identification through to drilling, testing and production operations. David’s most recent executive role was Managing Director of Eastern Star Gas Limited, which he and his team grew from modest beginnings to being the subject of a $924m takeover by Santos Limited valuing the Narrabri Project at $1.42b.

Russell Porter

Russell recently retired after serving 14 years as President and Chief Executive Officer of Gastar Exploration Inc. a publicly listed oil and gas exploration and production company. He is currently a private investor and industry consultant. Over a 30-year career, Russell has obtained a unique background with substantial exposure to the international natural resources industry and capital markets. He has a MBA from the Kenan-Flagler School of Business at the University of North Carolina at Chapel Hill. He has substantial experience in acquisition, development and divestiture of high-quality assets including the Deep Bossier and Eaglebine plays in East Texas Basin, the Powder River Basin in Wyoming and the Gunnedah Basin in New South Wales. Russell serves on the Board of Directors of Johnson Specialty Tools, a private oilfield service company and previously served as Lead Director and Audit Committee Chair for Caza Oil & Gas Inc and Audit Committee Chair for Stallion Oilfield Holdings. He is a member of the Dean’s Advisory Council for the E.J. Ourso School of Business at Louisiana State University.

Russell was CEO of Gastar Exploration Inc. when it held a 35% interest in the Narrabri Gas Project operated by Mr David Casey then Managing Director of Eastern Star Gas Limited. The Narrabri Gas Project was ultimately sold to Santos Limited with Gastar and Eastern Star Gas Limited shareholders realising $320m and $924m respectively.

Special responsibilities: Chairman of the Remuneration and Nomination Committee and Member of the Audit Committee.

Andrew Williams

Andrew holds a Masters’ Degree in Applied Geology and Grad Dip (Finance) from RMIT University, and over a 30-year career has developed a strong technical and commercial background in the oil industry. Early in his career Andrew gained significant hands-on oil industry experience as a geologist with Mobil Minerals, Woodside and Schlumberger working on projects across a range of Australian onshore (dominantly Cooper, Otway and Canning basins) and offshore (Carnarvon and Gippsland basins) projects.

For the past two decades Andrew has focused on the global energy sector as an equity research analyst in the top echelons of Australian capital markets as a Director of Research (Australian Energy) at Credit Suisse from 2003-2010 and most recently from 2011 to 2015 at Royal Bank of Canada. Andrew’s formal education in geology and finance put Andrew at the vanguard of analysis of unconventional energy in Australia. His focus on technical, commercial and financial merits of the Cooper, Surat and Gunnedah basins provided analysis and key support for projects before they became widely appreciated by the wider investment community.

INTEREST IN SHARES AND OPTIONS OF THE COMPANY AND RELATED BODIES CORPORATE

As at 30 June 2018, the interest of directors in the shares and options of the Company were:

DIRECTORS NUMBER OF ORDINARY SHARES NUMBER OF OPTIONS

D. Casey 70,543,797 10,576,636

R. Porter 4,339,393 1,172,727

A. Sundich 54,506,060 14,506,060

A. Williams 6,209,764 1,172,727For

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INFORMATION ON COMPANY SECRETARY

Ian Kirkham

Ian has over 20 years’ experience in project evaluation and construction, equity and debt markets, statutory reporting, treasury, taxation and corporate governance. His most recent executive role was Chief Financial Officer and Company Secretary for Eastern Star Gas Limited, the subject of a $924m takeover by Santos Limited. Previous executive experience includes similar posts for ASX listed companies including Hillgrove Resources Limited, Allstate Explorations N.L. and Otter Gold Mines Limited. In all these roles he worked closely with CEOs, Boards, Audit and Risk Committees etc. to evaluate, finance and construct resource projects. Ian’s early career involved audit positions with Coopers & Lybrand in Sydney and Toronto. He holds a Bachelor Degree in Economics and is a member of the Australian Institute of Chartered Accountants and AUSIMM.

MEETINGS OF DIRECTORS

The following table sets out the number of meetings held by the directors of the Company during the financial year ended 30 June 2018 and the number of meetings attended by each director:

DIRECTORS NO. OF MEETINGS ATTENDED NO. OF MEETINGS HELD WHILE IN OFFICE

Alexander Sundich 5 5

David Casey 5 5

Russell Porter 4 5

Andrew Williams 5 5

The Audit Committee under the Chairmanship of Alexander Sundich met twice during the financial year ended 30 June 2018.



Russell Porter 2 2

The Remuneration and Nomination Committee now under the Chairmanship of Russell Porter met twice during the financial year ended 30 June 2018.


Russell Porter 1 1


REMUNERATION REPORT (AUDITED)

The Remuneration Report, which has been audited, outlines the directors and executives remuneration arrangements for the consolidated entity and the Company, in accordance with the requirements of the Corporations Act 2001 and its Regulations.

The remuneration report is set out under the following headings:

a) Key Management Personnel

b) Remuneration Policy and Practices

c) Details of Remuneration

(a) Key Management Personnel

The key management personnel of the consolidated entity consisted of the directors of Petrel Energy Limited and the following executives:

Ian Kirkham - Company Secretary and Chief Financial Officer.For

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(b) Remuneration Policy and Practices

The objective of the consolidated entity's executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with the achievement of strategic objectives and the creation of value for shareholders. The Board of Directors ('the Board') ensures that executive reward satisfies the following key criteria for good reward governance practices:

› competitiveness and reasonableness

› acceptability and alignment with shareholders

› performance linkage/alignment of executive compensation

› transparency

The Nomination and Remuneration Committee is responsible for determining and reviewing remuneration arrangements for its directors and executives. The performance of the consolidated entity depends on the quality of its directors and executives. The remuneration philosophy is to attract, motivate and retain high performance and high quality personnel.

The Nomination and Remuneration Committee, taking advice where necessary, has structured an executive remuneration framework that is market competitive and complementary to the reward strategy of the consolidated entity.

Alignment with shareholders' interests:

› focuses on sustained growth in shareholder wealth, consisting of growth in share price, and delivering increasing return on assets as well as focusing the executive on key non-financial drivers of value such as oil and gas production, reserves, health, safety and environment

› attracts and retains high calibre executives

Alignment of program to participants' interests:

› rewards capability and experience

› reflects competitive reward for contribution to growth in shareholder wealth

› provides a clear structure for earning rewards

In accordance with best practice corporate governance, the structure of non-executive directors and executive remunerations are separate.

During the year, the consolidated entity has not engaged any remuneration consultants to review its remuneration policies.

Non-executive directors

The Board’s policy is to remunerate non-executive directors at market rates for comparable companies for time, commitment and responsibilities as well as capability and experience. The Board determines payments to the non-executive directors and reviews their remuneration annually, based on market practices.

Effective from 1 July 2015 the base fee (inclusive of the 9.5% superannuation guarantee contributions) of each non-executive for all Board activities was at the rate of $56,500 per annum. The superannuation guarantee contributions where applicable are paid to each non-executive director’s personal retirement plan.

Executives

The consolidated entity aims to reward executives with a level and mix of both fixed and variable remuneration based on their position and responsibility. The executive remuneration and reward framework has four components:

› base pay

› short-term performance incentives

› share-based payments

› other remuneration such as superannuation and long service leave

The combination of these comprises the executive's total remuneration.

Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits, are reviewed annually by the Nomination and Remuneration Committee, based on individual and overall performance of the consolidated entity and comparable market remunerations.

The short-term incentives ('STI') program is designed to align the targets of the consolidated entity with the targets of those executives in charge of meeting those targets. STI payments are granted to executives based on performance indicators including share price growth, reserve growth, production growth and net profit targets.

Share-based payments vest to executives immediately or after 12 months. Whilst the vesting period makes the share-based payments a STI, the 5 years term of the share loan supports retention of executives for that term.

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Consolidated entity performance and link to remuneration

A portion of remuneration for executive directors is directly linked to performance of the consolidated entity. Bonus payments are dependent on growth in share price, reserves, production and net profit. Refer to Additional Information at the end of this remuneration report for details of share price and net profit over the last 5 years. Refer to service agreement for details.

(c) Details of remuneration

1 JULY 2017 TO 30 JUNE 2018

SHORT TERM SALARY, FEES

& LEAVE $CONSULTANCY

PAYMENTS $TERMINATION

BENEFITS $

SHARE BASED PAYMENTS -

EQUITY SETTLED $

POST EMPLOYMENT -

SUPERANNUATION $

OTHER LONG TERM BENEFITS $ TOTAL $

Non-executive directorsA. Sundich (ii) (iii) 8,600 - - 47,083 817 - 56,500

R. Porter (i) (ii) (iii) 9,174 - - 45,163 - - 54,337

A. Williams (ii) (iii) 8,600 - - 47,083 817 - 56,500

Total 26,374 - - 139,329 1,634 - 167,337

Executive directors

D. Casey (ii) (iii) (iv) 145,892 - - 347,781 6,250 19,223 519,146

145,892 - - 347,781 6,250 19,223 519,146

Other key management

S. Mitchell - - - - - - -

I. Kirkham - 52,512 - 155,567 - - 208,079

- 52,512 - 155,567 - - 208,079

Total 172,266 52,512 - 642,677 7,884 19,223 894,562

(i) No superannuation required for US citizens.(ii) The Directors were paid $155,375 in shares issued at $0.011 each for the period July 2017 to September 2017 remuneration

in accordance with shareholder approval at the 23 November 2017 Annual General Meeting.(iii) The Directors will be paid $331,735 in shares issue at $0.0021 and $0.004 each for the period January 2018 to June 2018

remuneration in accordance with shareholder approval at the 8 August 2018 Extraordinary General Meeting.(iv) Included in remuneration is long service leave provision and the pay out of a portion of annual leave balance during the period.

1 JULY 2016 TO 30 JUNE 2017

SHORT TERM SALARY, FEES

& LEAVE $CONSULTANCY

PAYMENTS $TERMINATION

BENEFITS $

SHARE BASED PAYMENTS -

EQUITY SETTLED $

POST EMPLOYMENT -

SUPERANNUATION $

OTHER LONG TERM BENEFITS $ TOTAL $

Non-executive directorsA. Sundich (ii) 49,440 - - 2,363 4,697 - 56,500

R. Porter (i) (ii) 54,805 - - 1,468 - - 56,273

A. Williams (ii) 49,440 - - 2,363 4,697 - 56,500

Total 153,685 - - 6,194 9,394 - 169,273

Executive directors

D. Casey 435,375 - - - 30,000 - 465,375

435,375 - - - 30,000 - 465,375

Other key managementS. Mitchell - 20,625 - - - - 20,625

I. Kirkham - 225,145 - - - - 225,145

- 245,770 - - - - 245,770

Total 589,060 245,770 - 6,194 39,394 - 880,418

(i) No superannuation required for US citizens.(ii) The Directors were paid $6,194 in shares issued at $0.01 each as part of July 2017 remuneration in accordance with

shareholder approval at the 23 November 2016 Annual General Meeting.

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FIXED REMUNERATION AT RISK - STI AT RISK - LTI

2018 2017 2018 2017 2018 2017

Non-executive directors

A. Sundich 100% 100% - - - -

R. Porter 100% 100% - - - -

A. Williams 100% 100% - - - -

Executive directors

D. Casey 100% 100% - - - -

Other key management

S. Mitchell 100% 100% - - - -

I. Kirkham 100% 100% - - - -

There were no options granted over unissued shares during the financial year by the consolidated entity to key management personnel and eligible persons as part of their remuneration. Since the end of the financial year no options have been granted to employees and eligible persons as part of their remuneration.

No cash bonus payments determined on growth of share price, reserves, production and net profit have been paid for 2017 or 2018.

Service Agreements

Remuneration and other terms of employment for current key management personnel are formalised in service agreements.

There were no employment agreements for key management personnel other than the following:

D. Casey, Chief Executive Officer and Managing Director

› Term: 1 year extension of 2012 contract, commencing 1 August 2017

› TFR: of $465,375 p.a. inclusive of superannuation

› STI: annual bonus pool to a maximum of 100% of base salary based on achievement of Key Performance Indicators including share price growth above 16.9c, reserve growth, production growth and net profit targets; and 5.5m Employee Incentive Plane shares issued in 2012 at 5.5c each funded by a 5 year interest free loan

› Termination by executive: 2 months’ notice required

› Termination by Company: subject to a severance payment of 11 month’s remuneration together with payment of accrued bonuses or end of contract term

Share-based compensation

Issue of shares

Shares were issued to directors in lieu of cash fees and salary. The Directors were settled $155,375 in shares issued at $0.011 for the period July 2017 to September 2017 remuneration in accordance with shareholder approval at the 23 November 2017 Annual General Meeting.

In addition, shares were issued to the directors in lieu of fees and salary of $331,735 for the period January 2018 to June 2018 in accordance with shareholder approval at the 8 August 2018 Extraordinary General Meeting.

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Securities Holdings

At 30 June 2018, the relevant interests of the key management personnel in the securities of the Company were as follows:

Share holdings

The number of shares in the Company held during the financial year by each director and other key management personnel of Petrel Energy Limited, including their personally related parties, is set out below.

NAME

BALANCE AT START OF THE YEAR/OR

ON APPOINTMENT

PURCHASED DURING

THE YEAR

BONUS REMUNERATION

SHARESSHARES IN LIEU

OF FEES/SALARY

BALANCE AT THE END OF THE YEAR/OR ON

VACATING OFFICE

D. Casey 59,967,162 - - 10,576,635 70,543,797

R. Porter 3,166,666 - - 1,172,727 4,339,393

A. Sundich 40,000,000 13,333,333 - 1,172,727 54,506,060

A. Williams 3,777,778 1,259,259 - 1,172,727 6,209,764

I. Kirkham 21,500,000 - - 5,191,455 26,691,455

128,411,606 14,592,592 - 19,286,271 162,290,469

Options

The number of options over ordinary shares in the Company held during the financial year by each director and other key management personnel of Petrel Energy Limited, including their personally related parties, is set out below.

NAME

BALANCE AT START OF THE YEAR/OR ON

APPOINTMENT EXERCISED ISSUED LAPSED

BALANCE AT END OF THE YEAR/OR ON

VACATING OFFICEVESTED AND

EXERCISABLE

Listed

D. Casey (i) 1,500,000 - 10,576,636 (1,500,000) 10,576,636 31 October 2018

R. Porter (ii) - - 1,172,727 - 1,172,727 31 October 2018

A. Sundich (ii) (iv)

5,690,500 - 14,506,060 (5,690,500) 14,506,060 31 October 2018

A. Williams (ii) - - 1,172,727 - 1,172,727 31 October 2018

I. Kirkham (v) 62,834 - 5,191,455 - 5,254,289 31 October 2018

7,253,334 - 32,619,605 (7,190,500) 32,682,439

Unlisted

D. Casey (i) 500,000 - - (500,000) - -

R. Porter (ii) (iii) 3,000,000 - - (3,000,000) - -

A. Sundich - - - - - -

S. Mitchell - - - - - -

I. Kirkham - - - - - -

3,500,000 - - (3,500,000) - -

(i) Mr David Casey was issued 10,576,636 shares in lieu of $116,343 cash salary at $0.011 each together with 10,576,636 listed options exercisable at $0.04 each expiry on 31 October 2018 in accordance with shareholder approval at 23 November 2017 Annual General Meeting. There were 1,500,000 listed options and 500,000 unlisted options which lapsed during the year from the Rights Issue on 12 August 2016 and 5 February 2016 placement respectively.

(ii) Non-executive Directors were issued 1,172,727 shares in lieu of $12,900 cash fees each at $0.011 per share together with 1,172,727 listed options exercisable at $0.04 each expiry on 31 October 2018 in accordance with shareholder approval at 23 November 2017 Annual General Meeting.

(iii) There were 3,000,000 unlisted options which lapsed during the year in accordance with shareholder approval at 30 October 2014 Annual General Meeting.

(iv) Mr Alexander Sundich elected to participate in the Non-Renounceable Rights Issue announced by the company on the 29 September 2017 for a total of 13,333,333 shares at $0.011 each and 13,333,333 listed options exercisable at $0.04 each. There were 3,190,500 and 2,500,000 listed options that lapsed from the Renounceable Pro Rata Entitlement Offer announced on 12 August 2016 and Rights Issue Shortfall in accordance with shareholder approval at 23 November 2016 Annual General Meeting respectively.

(v) Mr Ian Kirkham was issued 5,191,455 shares in lieu of $57,106 consulting services at $0.011 each together with 5,191,455 listed options exercisable at $0.04 each expiry on 31 October 2018.

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auditors’ independence declaration || petrel energy limited annual report || 27

DIRECTORS’ REPORT

The terms and conditions of each grant of options over ordinary shares affecting remuneration of directors and other key management personnel in this financial year or future reporting years are as follows:

GRANT DATEVESTING DATE AND EXERCISABLE DATE EXPIRY DATE EXERCISE PRICE VOLATILITY

FAIR VALUE PER OPTION

AT GRANT DATE

29 July 2014 29 July 2014 30 July 2017 20 cents 67.50% 6.0 cents

29 July 2014 29 July 2014 30 July 2017 23 cents 67.50% 5.4 cents

Any options related to the employee incentive plan applicable to key management personnel that were due to lapse in the current period were extended two years via an approval by the remuneration committee.

There were no other transactions conducted between the Group and key management personnel or their related parties, apart from those disclosed above relating to equity, compensation and loans, that were conducted other than in accordance with normal employee, customer or supplier relationships on terms no more favourable than those reasonably expected under arm’s length dealings with unrelated persons

ADDITIONAL INFORMATION

The factors that affect cash bonus payments, for the last five years are summarised below:

2018 $ 2017 $ 2016 $ 2015 $ 2014 $

Reserve growth - - - - -

Profit (loss) after income tax attributable to parent

(19,815,033) (2,056,516) (1,818,718) (5,775,939) (2,895,188)

June volume-weighted average share price

0.3c 2.8c 1.5c 5.3c 16.9c

Total shareholder return (92.7)% (153.8)% (62.8)% (74.2)% 101.1%

This concludes the remuneration report, which has been audited.

Options

At the date of this report, the unissued ordinary shares of Petrel Energy Limited under option are as follows:

GRANT DATE DATE OF EXPIRY EXERCISE PRICE NUMBER OF SHARES ISSUED

Listed

05 October 2017 31 October 2018 4 cents 80,000,000

07 November 2017 31 October 2018 4 cents 420,175,662

24 November 2017 31 October 2018 4 cents 19,786,273

519,961,935

Option holders do not have any rights to participate in any issues of shares or other interests of the company or any other entity.

There have been no options granted over unissued shares or interests of any controlled entity within the Group during or since the end of the reporting period.

For details of options issued to directors and executives as remuneration, refer to the remuneration report.

During the year ended 30 June 2018, there were 657,537 ordinary shares of Petrel Energy Limited issued on exercise of 657,537 listed options and 261,658,597 options lapsed on 30 August 2017 at 4 cents each. In addition, there were 3,000,000 unlisted options at 20 cents – 23 cents each and 19,375,000 unlisted options at 5 cents, each which lapsed on 31 July 2017 and 31 January 2018 respectively. No further shares have been issued since year-end. No amounts are unpaid on any of the shares.

No person entitled to exercise the option had or has any right by virtue of the option to participate in any share issue of any other body corporate.

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notes to the financial statements || petrel energy limited annual report || 28

INDEMNIFICATION OF OFFICERS AND AUDITORS

The Group has entered into a Deed of Access, Indemnity and Insurance with each of the directors of the Group. Subject to the Corporations Act 2001, the deed provides an indemnity in respect of liability that each of the directors may incur in relation to the conduct of the business or affairs of the Group, acts or omission of the directors in relation to the business or affairs of the Group or the performance, manner of performance or failure to perform the director’s responsibilities in relation to the business or affairs of the Group, in each case in the period during which each director (respectively) holds office.

The Group has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the Group or any related entity against a liability incurred by the auditor.

During the financial year, the Group has not paid a premium in respect of a contract to insure the auditor of the Group or any related entity.

PROCEEDINGS ON BEHALF OF THE COMPANY

No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Group, or to intervene in any proceedings to which the Group is a party for the purposes of taking responsibility on behalf of the Group for all or part of those proceedings.

AUDITORS

BDO East Coast Partnership continues in office in accordance with section 327 of the Corporations Act 2001.

NON AUDIT SERVICES

The Group may decide to employ the auditors on assignments additional to their statutory audit duties where the auditors’ expertise and experience with the Group are important. There were no non audit services provided by BDO during the year.

Details of amounts paid or payable to the auditors, BDO East Coast Partnership, for the audit services provided during the year are set out below.

CONSOLIDATED

2018 $ 2017 $

Audit services

BDO – Audit and review of financial reports 54,000 45,000

Total 54,000 45,000

AUDITOR’S INDEPENDENCE DECLARATION

The Auditor’s Independence Declaration required under section 307C of the Corporations Act 2001 is set out on the following page.

This report is made in accordance with a resolution of the directors, pursuant to section 298(2) of the Corporations Act 2001.

On behalf of the directors

David Casey

Managing Director and CEOSydney, 28 September 2018

DIRECTORS’ REPORT

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auditors' independence declaration || petrel energy limited annual report || 29

AUDITORS’ INDEPENDENCE DECLARATION

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consolidated statement of profit or loss & other comprehensive income || petrel energy limited annual report || 30

CONSOLIDATED

NOTE 2018 $ 2017 $

Interest income/(expense) 29,347 (84,447)

Foreign exchange losses 10,932 (85,764)

Other income - 8,128

Gain on third party dilution of Tarba Energia 74,277 -

Total income/loss 114,556 (162,083)

Directors’ fees (162,867) (169,273)

Employee benefit expenses (483,955) (532,127)

Professional and consulting fees (663,015) (432,655)

Auditor’s remuneration 24 (54,000) (45,000)

Depreciation and amortisation (19,999) (25,276)

Lease of office (net) (55,115) (64,894)

Share registry fees (33,329) (31,134)

General insurance expenses (38,539) (24,690)

Corporate services (54,318) (39,907)

Donations (19,799) (63,605)

Travel expenses (108,534) (64,650)

Share based payment expenses (12,485) (21,616)

Exploration and evaluation expenses - (182,311)

Impairment of capitalised exploration and evaluation expenditure (Uruguay) (17,788,863) -

Impairment of capitalised exploration and evaluation expenditure (Spain) (1,349,577) -

Loss as a result of de-recognition of controlled entity 13 (8,184,837) -

Other operating expenses (206,892) (197,295)

Total expenses (29,236,124) (1,894,433)

Loss before income tax (29,121,568) (2,056,516)

Income tax expense 6 - -

Loss after tax attributable to members of Petrel Energy Limited (29,121,568) (2,056,516)

Other comprehensive income - Items that may be reclassified subsequently to profit or loss

Foreign currency translation (423,500) (634,790)

Other comprehensive (loss)/ income for the year, net of tax (423,500) (634,790)

Total comprehensive (loss)/income for the year, net of tax (29,545,068) (2,691,306)

Loss for the year is attributable to:

Non-controlling interests (9,306,535) -

Owners of Petrel Energy Limited (19,815,033) (2,056,516)

(29,121,568) (2,056,516)

Total comprehensive (loss)/income for the year is attributable to:

Non-controlling interests (9,464,500) (311,047)

Owners of Petrel Energy Limited (20,080,568) (2,380,259)

(29,545,068) (2,691,306)

Loss per share from continuing operations attributable to the ordinary equity holders of the Company:

Basic loss per share (cents per share) 26 (a) (1.30) (0.22)

Diluted loss per share (cents per share) 26 (b) (1.30) (0.22)

The above Consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME || For the year ended 30 June 2018

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consolidated statement of financial position || petrel energy limited annual report || 31

CONSOLIDATED STATEMENT OF FINANCIAL POSITION || As at 30 June 2018

CONSOLIDATED

NOTE 2018 $ 2017 $

ASSETS

Current assets

Cash and cash equivalents 7 43,565 3,578,728

Other current assets 8 64,701 112,536

Restricted cash 22(a) 109,467 1,363,459

Total current assets 217,733 5,054,723

Non-current assets

Exploration and evaluation expenditure 9 95,262 29,339,971

Plant and equipment 10 9,663 36,599

Receivable from associate 11 396,698 -

Investment in associate 12(a) 3,909,424 -

Total non-current assets 4,411,047 29,376,570

Total assets 4,628,780 34,431,293

LIABILITIES

Current liabilities

Trade and other payables 15 917,025 1,552,023

Employee benefits 16 145,986 140,616

Borrowings 17 - 429,840

Total current liabilities 1,063,011 2,122,479

Non-current liabilities

Employee benefits 16 22,301 -

Total non-current liabilities 22,301 -

Total liabilities 1,085,312 2,122,479

NET ASSETS 3,543,468 32,308,814

EQUITY

Contributed equity 18(a) 56,864,449 51,313,872

Foreign currency translation reserve - 940,491

Options reserve 19 518,525 506,040

Accumulated losses 20 (53,843,266) (35,004,984)

Equity attributable to owners of the Parent 3,539,708 17,755,419

Non-controlling interests 3,760 14,553,395

Total equity 3,543,468 32,308,814

The above Consolidated statement of financial position should be read in conjunction with the accompanying notes.

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consolidated statement of changes in equity || petrel energy limited annual report || 32

CONSOLIDATEDISSUED

CAPITAL $

FOREIGN CURRENCY

TRANSLATION RESERVE $

OPTIONS RESERVE $

ACCUMULATED LOSSES $

TOTAL $

NON-CONTROLLING

INTERESTS $TOTAL

EQUITY $

Balance at 30 June 2016 43,758,913 1,264,234 484,424 (32,948,468) 12,559,103 9,818,301 22,377,404

Net loss for the year - - - (2,056,516) (2,056,516) - (2,056,516)

Foreign currency movements - (323,743) - - (323,743) (311,047) (634,790)

Total comprehensive loss for the year

- (323,743) - (2,056,516) (2,380,259) (311,047) (2,691,306)

Transactions with owners in their capacity as owners

Share based payments - - 21,616 - 21,616 - 21,616

Issue of share capital 8,152,244 - - - 8,152,244 - 8,152,244

Transaction costs arising on share issue

(597,285) - - - (597,285) - (597,285)

Total transactions with owners in their capacity as owners

7,554,959 - 21,616 - 7,576,575 - 7,576,575

Additional contribution of equity by NCI

- - - - - 5,046,141 5,046,141

Balance at 30 June 2017 51,313,872 940,491 506,040 (35,004,984) 17,755,419 14,553,395 32,308,814

Net loss for the year - - - (19,815,033) (19,815,033) (9,306,535) (29,121,568)

Foreign currency movements - (265,535) - - (265,535) (157,965) (423,500)

Total comprehensive loss for the year

- (265,535) - (19,815,033) (20,080,568) (9,437,500) (29,545,068)

Transactions with owners in their capacity as owners

Share based payments - - 12,485 - 12,485 - 12,485

Effect of NCI dilution by parent entity

- - - 2,066,034 2,066,034 (2,066,034) -

Consideration fair value of NCI

- - - (1,089,283) (1,089,283) - (1,089,283)

Issue of share capital 6,020,504 - - - 6,020,504 - 6,020,504

Transaction costs arising on share issue

(469,927) - - - (469,927) - (469,927)

Total transactions with owners in their capacity as owners

5,550,577 - 12,485 976,751 6,539,813 (2,066,034) 4,473,779

Additional contribution of equity by NCI

- - - - - 502,564 502,564

Transactions of as a result of the loss of control transaction

- (674,956) - - (674,956) (3,521,665) (4,196,621)

Balance at 30 June 2018 56,864,449 - 518,525 (53,843,266) 3,539,708 3,760 3,543,468

The above statement of changes in equity should be read in conjunction with the accompanying notes.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY || For the year ended 30 June 2018

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consolidated statement of cash flows || petrel energy limited annual report || 33

CONSOLIDATED

NOTE 2018 $ 2017 $

Cash flows from operating activities

Payments to suppliers and employees (inclusive of goods and services tax)

(860,051) (1,845,249)

Interest received 2,944 20,444

Net cash outflow from operating activities 25 (857,107) (1,824,805)

Cash flows from investing activities

Proceeds from dispose of investment 74,277 -

Payments for plant and equipment (1,982) (2,347)

Payments for security deposits (40,183) (1,381,970)

Proceeds from release of security deposits 1,289,749 -

Payments for exploration and evaluation expenditure (9,752,288) (5,751,622)

Net cash outflow from investing activities (8,430,427) (7,135,939)

Cash Flows from financing activities

Proceeds from issue of shares (net of costs) 5,311,258 7,169,040

Additional contribution of equity by non-controlling interests 502,563 4,895,048

Derecognised cash as a result of loss of control (34,916) -

Net cash inflow from financing activities 5,778,905 12,064,088

Net decrease in cash and cash equivalents (3,508,629) 3,103,344

Cash and cash equivalents at beginning of the year 3,578,728 479,243

Net foreign exchange difference (26,534) (3,859)

Cash and cash equivalents at end of the year 7 43,565 3,578,728

The above Consolidated statement of cash flows should be read in conjunction with the accompanying notes.

CONSOLIDATED STATEMENT OF CASH FLOW || For the year ended 30 June 2018

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NOTES TO THE FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial report covers Petrel Energy Limited as a consolidated entity consisting of Petrel Energy Limited and the entities it controlled. Petrel Energy Limited is a listed public company limited by shares, incorporated and domiciled in Australia.

The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been consistently applied to all years presented, unless otherwise stated.

(a) Basis of preparation

This general purpose financial report has been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) and the Corporations Act 2001, as appropriate for-profit oriented entities. These financial statements also comply with the International Financial Reporting Standards (‘IFRS’) as issued by the International Accounting Standards Board (‘IASB’). When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year.” These financial statements have been prepared on an accruals basis.

Any new, revised or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted.

The financial statements are presented in Australian dollars, which is Petrel Energy Limited’s functional and presentation currency.

Historical cost convention

These financial statements have been prepared under the historical cost convention.

Critical accounting estimates

The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. The areas involving a high degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 3.

Parent entity information

In accordance with the Corporations Act 2001, these financial statements present the results of the consolidated entity only. Supplementary information about the parent entity is disclosed in note 27.

(b) Principles of consolidation

i) Subsidiaries

The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Petrel Energy Limited ('Company' or 'parent entity') as at 30 June 2018 and the results of all subsidiaries for the year then ended. Petrel Energy Limited and its subsidiaries together are referred to in these financial statements as the 'consolidated entity'.

Subsidiaries are all those entities over which the consolidated entity has control. Petrel Energy Limited is the principal to its subsidiaries. The consolidated entity controls an entity when the consolidated entity is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the consolidated entity. They are de-consolidated from the date that control ceases.

Intercompany transactions, balances and unrealised gains on transactions between entities in the consolidated entity are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the consolidated entity.

The acquisition of subsidiaries is accounted for using the acquisition method of accounting if the acquisition is deemed to be a business combination. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent.

The acquisition of subsidiaries that are deemed not to be carrying on a business, and do not meet the conditions of AASB 3 Business Combinations, are recognised at cost and are treated as asset acquisitions depending on the nature of the assets acquired from the subsidiaries.

Non-controlling interest in the results and equity of subsidiaries are shown separately in the statement of comprehensive income and statement of financial position of the consolidated entity. Losses incurred by the consolidated entity are attributed to the non-controlling interest in full, even if that results in a deficit balance.

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)

When the Group loses control of a subsidiary, a gain or loss is recognised in profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. All amounts previously recognised in other comprehensive income in relation to that subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or transferred to another category of equity as specified/permitted by applicable Accounting Standards). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under AASB 139: Financial Instruments: Recognition and Measurement, when applicable, the cost on initial recognition of an investment in an associate or a joint venture.

Changes in the ownership interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions and do not affect the carrying amounts of goodwill.

ii) Joint arrangements

A joint arrangement is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. The consolidated entity's interests in joint operations are accounted for using the proportionate consolidation method of accounting. The consolidated entity's recognises its interest in the assets that it controls and the liabilities that it incurs and the expenses that it incurs and its share of the income that it earns from the sale of goods or services by the joint operations, classified according to the nature of the assets, liabilities, income or expense.

The consolidated entity discontinues the use of proportionate consolidation from the date on which it ceases to have joint control over a jointly controlled operation.

(c) Foreign currency transactions

Foreign currency transactions during the year are translated to Australian currency at the rates of exchange applicable at the dates of the transactions. Amounts receivable and payable in foreign currencies at reporting date are converted at the rates of exchange current at that date. The gains and losses from translation of assets and liabilities, whether realised or unrealised, are included in profit or loss from ordinary activities as they arise.

Foreign subsidiaries

The assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into Australian dollars using the average exchange rates, which approximates the rate at the date of the transaction, for the period. All resulting foreign exchange differences are recognised in the foreign currency reserve in equity.

The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is disposed of.

(d) New Accounting Standards and Interpretations not yet mandatory or early adopted

Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the consolidated entity for the annual reporting period ended 30 June 2018. The consolidated entity's assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the consolidated entity, are set out below.

AASB 9 Financial Instruments

This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard replaces all previous versions of AASB 9 and completes the project to replace IAS 39 'Financial Instruments: Recognition and Measurement'. AASB 9 introduces new classification and measurement models for financial assets. A financial asset shall be measured at amortised cost, if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows, which arise on specified dates and solely principal and interest. All other financial instrument assets are to be classified and measured at fair value through profit or loss unless the entity makes an irrevocable election on initial recognition to present gains and losses on equity instruments (that are not held-for-trading) in other comprehensive income ('OCI'). For financial liabilities, the standard requires the portion of the change in fair value that relates to the entity's own credit risk to be presented in OCI (unless it would create an accounting mismatch). New simpler hedge accounting requirements are intended to more closely align the accounting treatment with the risk management activities of the entity. New impairment requirements will use an 'expected credit loss' ('ECL') model to recognise an allowance. Impairment will be measured under a 12-month ECL method unless the credit risk on a financial instrument has increased significantly since initial recognition in which case the lifetime ECL method is adopted. The standard introduces additional new disclosures. The consolidated entity will adopt this standard from 1 July 2018 and not expected to significantly affect the entity.

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AASB 15 Revenue from Contracts with Customers

This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard provides a single standard for revenue recognition. The core principle of the standard is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard will require: contracts (either written, verbal or implied) to be identified, together with the separate performance obligations within the contract; determine the transaction price, adjusted for the time value of money excluding credit risk; allocation of the transaction price to the separate performance obligations on a basis of relative stand-alone selling price of each distinct good or service, or estimation approach if no distinct observable prices exist; and recognition of revenue when each performance obligation is satisfied. Credit risk will be presented separately as an expense rather than adjusted to revenue. For goods, the performance obligation would be satisfied when the customer obtains control of the goods. For services, the performance obligation is satisfied when the service has been provided, typically for promises to transfer services to customers. For performance obligations satisfied over time, an entity would select an appropriate measure of progress to determine how much revenue should be recognised as the performance obligation is satisfied. Contracts with customers will be presented in an entity's statement of financial position as a contract liability, a contract asset, or a receivable, depending on the relationship between the entity's performance and the customer's payment. Sufficient quantitative and qualitative disclosure is required to enable users to understand the contracts with customers; the significant judgments made in applying the guidance to those contracts; and any assets recognised from the costs to obtain or fulfil a contract with a customer. The consolidated entity will adopt this standard from 1 July 2018 and not expected to significantly affect the entity due to no revenue deriving activities.

AASB 2014-5 Amendments to Australian Accounting Standards arising from AASB 15

This standard is applicable to annual reporting periods beginning on or after 1 January 2018. In line with the International Accounting Standards Board’s deferral of IFRS 15 from original application date beginning on or after 1 January 2017 due to consequential amendments to various other accounting standards from revenue standard. The consolidated entity will adopt this standard from 1 July 2018 and not expected to significantly affect the entity.

AASB 16 Leases

This standard is applicable to annual reporting periods beginning on or after 1 July 2019. The standard replaces the current accounting requirements applicable to leases in AASB 117: Lease and related interpretations AASB 16 introduces a single lessee accounting model that eliminates the requirement for leases to classified as operating or finance leases. The main principle of the standard that an entity will recognise a right-of-use asset and liability for all leases (excluding short-term leases with less than 12 months of tenure and leases relating to low-value assets); depreciation of right-of-use assets in line with AASB 116: Property, Plant and Equipment in profit or loss and unwinding of the liability in principal and interest components; inclusion of variable lease payments that depend on an index or a rate in the initial measurement of the lease liability using the index or rate at the commencement date; application of a practical expedient to permit a lessee to elect not to separate non-lease components and instead account for all components as a lease; and inclusion of additional disclosure requirements.

The transitional provisions of AASB 16 allow a lessee to either retrospectively apply the Standard to comparatives in line with AASB 108 or recognise the cumulative effect of retrospective application as an adjustment to opening equity on the date of initial application. The directors anticipate that the adoption of AASB 16 will not significantly impact the Group's financial statements.

(e) Going concern

These financial statements have been prepared on the going basis which contemplates the consolidated entity’s ability pay its debts as and when they become due and payable for a period of at least 12 months from the date of authorising the financial report for issue.

During the year, the company raised a net cash amount of $5,311,255 from the rights issue and share placement. In addition, there was a net cash capital contribution from non-controlling interests (Schuepbach Energy International LLC) of $502,563 to fund the drilling programme in Salto and Piedra Sola concessions in Uruguay.

The Group had cash outflows from operations of $857,107 (2017: $1,824,805). The Group recorded a net loss after tax from operations of $29,121,568 for the year ended 30 June 2018 (2017: $2,056,516). The Group’s net cash outflow from investing activities was $8,430,427 (2017: $7,135,939). The Group’s net current liabilities were $845,278 (2017: $2,932,244).

These conditions indicate the existence of a material uncertainty that may cast significant doubt over the consolidated entity’s ability to continue as a going concern over the next 12 months and therefore, the consolidated entity may be unable to realise its assets and discharge its liabilities in the normal course of business.

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The consolidated entity has prepared a cash flow forecast, which indicates that it will not have sufficient cash from operations to meet its ongoing planned expenditure. The directors are confident, based on past performance, that they will be successful in their ability to reduce discretionary expenditure or raise further funds from issue of equity or sale of non-core assets or farm-out of core tenements or merger or other corporate activity designed to fund the Group’s ongoing planned expenditure. This is evidenced by the placement and share purchase plan completed in August 2018 raising a total of $1.06 million. As such, these financial statements have been presented on a going concern basis.

Should the Group be unable to continue as a going concern it may be required to realise its assets and discharge its liabilities other than in the normal course of business and at amounts different to those stated in the financial statements. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount of liabilities that might result should the Group be unable to continue as a going concern and meet its debts as and when the fall due.

At each reporting date, the consolidated entity reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the statement of profit or loss and other comprehensive income.

2. FINANCIAL RISK MANAGEMENT

The consolidated entity’s financial instruments consist of deposits with banks, financial assets held at fair value through profit and loss, and accounts payable.

The consolidated entity does not presently have any bills, preference shares, trade receivables, or derivatives.

Foreign exchange risk

The consolidated entity’s cash/restricted cash holdings are exposed to changes in foreign exchange rates at reporting date.

CONSOLIDATED USD AUD EQUIVALENT EUR AUD EQUIVALENT

2018 9,924 13,427 32,465 51,174

2017 3,671,394 4,770,694 - -

Credit risk and Liquidity risk

The consolidated entity has no significant concentrations of credit risk.

Liquidity risk is the risk the consolidated entity will experience difficulty in meeting current financial demands. The consolidated entity manages liquidity risk through ensuring it will maintain sufficient cash holdings to meet its liabilities as and when they fall due from day to day operations along with monitoring of cash flow forecasts by management in order to anticipate future cash requirements.

LIQUIDITY RISK TABLE

NON-INTEREST

BEARING $1 YEAR OR

LESS $1 TO 5

YEARS $

MORE THAN 5

YEARS $

FLOATING INTEREST

RATE $ TOTAL $

WEIGHTED AVERAGE

INTEREST RATE

CONSOLIDATED 2018

Financial liabilities

Payables 917,025̂ 917,025̂ - - - 917,025̂ -

Borrowings - - - - - - -

917,025 917,025 - - - 917,025 -

^ Includes $410,086 outstanding directors and senior managers remuneration settled for shares per approvals at 8 August 2018 Extraordinary General Meeting.F

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LIQUIDITY RISK TABLE

NON-INTEREST

BEARING $1 YEAR OR

LESS $1 TO 5

YEARS $

MORE THAN 5

YEARS $

FLOATING INTEREST

RATE $ TOTAL $

WEIGHTED AVERAGE

INTEREST RATE

CONSOLIDATED 2017


Payables 1,552,023 1,552,023 - - - 1,552,023 -

Other financial liabilities - - - - - - -

Borrowings - 429,840 - - - 429,840 7%

1,552,023 1,981,863 - - - 1,981,863 -

Cash flow and fair value interest rate risk

The Group’s cash and restricted cash are exposed to deposit interest rate risk. This risk is managed by the use of fixed term deposits over periods ranging from 30 to 180 days.

Interest rate risk

The Group’s exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of changes in the market interest rates and the effective weighted average interest rates on those financial assets, is as follows:

CONSOLIDATED 2018

WEIGHTED AVERAGE

INTEREST RATE

FIXED INTEREST RATE MATURITY

LESS THAN 1 YEAR $

NON-INTEREST

BEARING $ TOTAL $

Financial assets

Cash and cash equivalents - 43,565 - 43,565

Other current assets - - 21,136 21,136

Receivable from associate 396,698 396,698

Restricted cash 5.97% 109,467 - 109,467

Total financial assets 549,730 21,136 570,866


Trade and other payables - - 917,025^ 917,025

Borrowings - - - -

Total financial liabilities - 917,025 917,025

^ Includes $410,086 outstanding directors and senior managers remuneration settled for shares per approvals at 8 August 2018 Extraordinary General Meeting.

2. FINANCIAL RISK MANAGEMENT (CONT.)

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CONSOLIDATED 2017

WEIGHTED AVERAGE

INTEREST RATE

FIXED INTEREST RATE MATURITY

LESS THAN 1 YEAR $

NON-INTEREST

BEARING $ TOTAL $

Financial assets

Cash and cash equivalents - 3,578,728 - 3,578,728

Other current assets - - 62,468 62,468

Restricted cash 0.42% 1,363,459 - 1,363,459

Total financial assets 4,942,187 62,468 5,004,655


Trade and other payables - - 1,552,023 1,552,023

Other financial liabilities - - - -

Borrowings 7% 429,840 - 429,840

Total financial liabilities 429,840 1,552,023 1,981,863

Financial instruments

(i) Derivative financial instruments

As at the date of this report, the consolidated entity does not have any derivative financial instruments.

(ii) Trade payables

Trade and sundry payables are expected to be paid as follows:

CONSOLIDATED

2018 $ 2017 $

Less than 6 months 917,025^ 1,552,023

^ Includes $410,086 outstanding directors and senior managers remuneration settled for shares per approvals at 8 August 2018 Extraordinary General Meeting.

(iii) Fair value measurement

The carrying amounts of cash and cash equivalents, other current assets and trade and other payables are assumed to approximate their fair values due to their short-term nature.

For borrowings, the fair values is not materially different to its carrying amounts, since the interest payable on the borrowings is close to current market rates and the borrowings are of a current nature.

Sensitivity analysis

Interest rate risk and foreign currency risk

The consolidated entity has performed sensitivity analysis relating to its exposure to interest rate risk at reporting date. This sensitivity analysis demonstrates the effect on the current year results and equity which could result from a change in these risks.

Interest rate sensitivity analysis

At 30 June 2018, the only item affected by a change in interest rate would be the cash on deposit.

CONSOLIDATED

2018 $ 2017 $

Interest rate risk sensitivity analysis change in loss before tax & equity

Increase in interest rates by 0.25% (0.25%) 383 8,947

Decrease in interest rates by 0.25% (0.25%) 383 (8,947)

The above interest rate sensitivity analysis has been performed on the assumption that all other variables remain unchanged.

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2. FINANCIAL RISK MANAGEMENT (CONT.)

Foreign currency sensitivity analysis

As indicated under Market risk, the group is primarily exposed to changes in US/AUD exchange rates. The sensitivity of profit or loss to changes in the exchange rates arises mainly from US-dollar denominated assets (i.e.; cash, exploration and evaluation assets).

IMPACT ON TOTAL ASSETSIMPACT ON OTHER

COMPONENTS OF EQUITY

2018 2017 2018 2017

US/AUD exchange rate – increase 10% (10%) - $3,398,948 - $3,214,758

US/AUD exchange rate – decrease 10% (10%) - ($3,398,948) - ($3,214,758)

EUR/AUD exchange rate – increase 10% (10%) 17,470 - - -

EUR/AUD exchange rate – decrease 10% (10%) (17,470) - - -

Capital management

Management controls the capital of the consolidated entity in order to provide the shareholders with adequate returns and ensure that the consolidated entity can fund its operations and continue as a going concern.

Due to the nature of the consolidated entity’s business, the Group’s capital is limited to ordinary share capital.

There are no externally imposed capital requirements.

Management effectively manages the consolidated entity’s capital by assessing the consolidated entity’s financial risks and adjusting its capital structure in response to changes in these risks and in the market. These responses include the distributions to shareholders and share issues.

There have been no changes in the strategy adopted by management to control the capital of the consolidated entity since commencement of operations. The consolidated entity does not presently have any borrowings.

3. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of the future events that may have a financial impact on the consolidated entity and that are believed to be reasonable under the circumstances.

Critical accounting estimates and assumptions

The consolidated entity makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. Other than the estimated impairment of assets, there are no other current estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Key estimate - Estimated impairment of assets

The Group assesses impairment at the end of each reporting period by evaluating the conditions and events specific to the Group that may be indicative of impairment triggers. Recoverable amounts of relevant assets are reassessed using assumptions of the relevance of capitalised exploration and evaluation expenditure analysing whether any indicators impairment as issued by AASB 6 - Exploration for and Evaluation of Mineral Resources.

The consolidated entity tests at each reporting period whether assets have suffered any impairment.

Impairment of in Uruguay assets and Tessorillo Project in Southern Spain:

At each reporting period, the consolidated entity reassessed the carrying amount of its oil and gas assets for indicators of impairment such as changes in future prices, future costs and reserves. During the period, an impairment charge was recorded against the Spanish & Uruguayan assets, the amounts are summarised below. Please see note 9 for detailed disclosure of the impairment charged during the period.

2018 $ 2017 $

Exploration and evaluation expenditure

Uruguayan assets 17,788,863 -

Spanish assets 1,349,577 -

19,138,440 -

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4. SEGMENT INFORMATION

The consolidated entity has identified its operating segments based on the four geographical areas in which the consolidated entity operates. In Australia its central location, responsible for overseeing the Group’s strategic direction, development, performance and capital management. In Alberta Canada the consolidated entity has a 40% working interest in the Lochend Cardium Project targeting tight oil. In Uruguay, the consolidated entity has a 49% interest in projects targeting oil and gas in the Piedra Sola and Salto concessions. In Cadiz Spain the consolidated entity has 97.5% interest in the Tesorillo and Ruedalabola gas exploration licences.

Management has identified that exploration and development of oil & gas resources as the consolidated entity’s only operating segment.

Geographical information

CONSOLIDATED 2018 AUSTRALIA $ CANADA $ URUGUAY $ SPAIN $ TOTAL $

Revenue from external customers - - - - -

Other income - - 74,277 - 74,277

Non-current assets 501,623 - 3,909,424 - 4,411,047

Impairment expense (159,645) (17,629,218) (1,349,577) (19,138,440)

Segment Profit/(loss) before income tax (10,217,050) - (17,554,941) (1,349,577) (29,121,568)

CONSOLIDATED 2017 AUSTRALIA $ CANADA $ URUGUAY $ SPAIN $ TOTAL $

Revenue from external customers - - - - -

Other income - 8,128 - - 8,128

Non-current assets 174,440 - 26,476,673 2,725,457 29,376,570

Segment Profit/(loss) before income tax (2,064,644) 8,128 - - (2,056,516)

Operating segments are presented using the ‘management approach’, where the information presented is on the same basis as the internal reports provided to Chief Operating Decision Makers (‘CODM’). The CODM is responsible for the allocation of resources to operating segments and assessing their performance.

5. EMPLOYEE BENEFIT EXPENSES

CONSOLIDATED

2018 $ 2017 $

Superannuation defined contribution plan expense 38,955 43,077

6. INCOME TAX

(a) Numerical reconciliation of income tax expense to prima facie tax payable

CONSOLIDATED

2018 $ 2017 $

Loss from continuing operations before income tax expense 29,121,568 2,056,516

Tax benefit at the Australian tax rate of 27.5%(2017: 27.5%) 8,008,431 565,542

Tax effect of non-deductable expenses (7,519,294) 157,472

Tax effect of equity raising costs debited to equity 109,505 (83,610)

Tax losses and temporary differences not bought to account (598,642) (639,404)

Income tax expense - -

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6. INCOME TAX (CONT.)

(b) Tax losses

CONSOLIDATED

2018 $ 2017 $

Unused tax losses for which no deferred tax asset has been recognised 27,142,040 24,965,160

Potential tax benefit @ 27.5%(2017: 27.5%) 7,464,061 6,685,419

The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses.

Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the Group has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity.

No amounts have been recognised for deferred tax on income losses as it is not yet probable that future taxable amounts will be available against which to utilise losses.

7. CASH AND CASH EQUIVALENTS

CONSOLIDATED

2018 $ 2017 $

Cash at bank and in hand 43,565 3,578,728

Deposits at call - -

Total cash balances 43,565 3,578,728

The deposits at call are bearing floating interest rates averaging Nil % per annum (2017: nil).

For statement of cash flows presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions and other short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

8. OTHER CURRENT ASSETSCONSOLIDATED

2018 $ 2017 $

Trade and sundry debtors 3,810 19,434

Prepayments 20,892 49,668

Interest receivable - 445

Sales taxes receivable 38,406 42,989

Other current assets 1,593 -

64,701 112,536

None of the trade and sundry debtors above are past due date (2017: nil).

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8. OTHER CURRENT ASSETS(CONT.)

Revenues, expenses and assets are recognised net of the amount of associated GST or input VAT, unless the GST or input VAT incurred is not recoverable from the taxation authority. In this case, it is recognised as part of the cost of acquisition of the asset or as part of the expense.

Receivables and payables are stated inclusive of the amount of GST or input VAT receivable or payable. The net amount of GST or input VAT recoverable from, or payable to, the taxation authority is included with other receivables or payables in the statement of financial position.

Cash flows are presented on a gross basis. The GST or input VAT components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flow.

9. EXPLORATION AND EVALUATION EXPENDITURE

CONSOLIDATED

2018 $ 2017 $

Opening balance 29,339,971 22,873,852

Additions during the year at cost 10,437,784 7,257,163

Impairment charged to Statement of Profit and Loss for the year (19,138,440) -

De-recognition of Schuepbach Energy International LLC (detailed at note 13) (20,676,661) -

Movement in foreign currency translation 132,608 (791,044)

Closing balance 95,262 29,339,971

The group recorded impairment expense totalling $19,138,440 during the financial period. These were broken down as follows:

› Uruguayan assets impairment of $17,788,863

Impairment over Uruguayan assets was recorded a result of a review of a number of impairment indicators noted during the period, these being the erosion of market capitalisation against the net assets of the entity, the fact that significant expenditure on the project was neither budgeted or planned and the potential discontinuation / suspension of Well 2 exploration activities. These indicators were triggered by drilling delays & costs exceeding budgeted expense that occurred as a result of drilling operational issues.

The nature of this asset is capitalised exploration and evaluation expenditure in relation to the Uruguayan tenement by both SEI and Petrel Energy Limited. This expenditure was capitalised in alignment with the below accounting policy incurred.

The remaining carrying amount being $20,676,661 was carried at cost prior to being de-recognised through the loss of control transaction as detailed at note 13. This carried amount was deemed appropriate as recoverable exploration and evaluation expenditure, being the expenditure incurred on the successful first well and the underlying permitting & seismic expenditure associated with the evaluation of the tenement, which has retained its underlying potential upside, only affected by drilling challenges / inefficiencies during the recent periods.

› Spanish assets impairment of $1,349,577

Impairment over Spanish assets was recorded a result of the deemed non-recoverability of the expenditure incurred with relation to the Spanish asset during a third party transaction. This asset being the Tesorillo exploration and evaluation expenditure capitalised in accordance with the below accounting policy.

This event was noted as a significant change with an adverse effect, whereby the asset was not identified as recoverable by PXOG’s financial analysis of the subsidiary. PXOG purchased a 2.5% share of Tarba Energia (formerly Schuepbach Energy Espania) during the period.

The full balance of exploration and evaluation expenditure capitalised prior to the PXOG transaction was impaired. The remaining carrying amount represents expenditure at cost incurred after the point which PXOG became a funding partner through the purchase of 2.5% of Tarba Energia (formerly Schuepbach Energy Espania). i.e. after the indicators of impairment ceased to exist.

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9. EXPLORATION AND EVALUATION EXPENDITURE (CONT.)

Exploration and evaluation expenditure

Exploration and evaluation expenditures incurred are accumulated in respect of each identifiable area of interest and are carried forward in the statement of financial position where:

(i) rights to tenure of the area and participating interest are current; and

(i) one of the following conditions is met:

› such costs are expected to be recouped through successful development and exploitation of the area of interest or alternatively, by its sale; or

› exploration and/or evaluation activities in the area of interest have not, at reporting date, yet reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves and active and significant operations in, or in relation to, the areas are continuing.

A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest.

Accumulated expenditure on areas that have been abandoned, or are considered to be of no future economic benefit is written off in the year in which such a decision is made.

Expenditure relating to pre-exploration activities (such as for new venture work) is written off to the statement of profit or loss and other comprehensive income during the period in which the expenditure is incurred. When production commences, the accumulated costs for the relevant area of interest will be amortised over the life of the area according to the rate of depletion of the economically recoverable reserves.

10. PLANT AND EQUIPMENT

CONSOLIDATEDIT & OFFICE

EQUIPMENT $FURNITURE &

FIXTURES $LEASEHOLD

IMPROVEMENT $ TOTAL $

As at 30 June 2018

Cost or fair value 120,978 100,633 168,168 389,779

Accumulated depreciation (111,211) (99,913) (159,921) (371,045)

De-recognition of Schuepbach Energy International LLC (detailed at note 13)

(8,396) (674) - (9,070)

Net book amount 1,371 46 8,247 9,664

Reconciliation of movement in plant and equipment

Opening net book amount 8,628 1,310 26,661 36,599

Additions 1,981 - - 1,981

Depreciation charge for the year (983) (602) (18,414) (19,999)

Movement in foreign currency translation 140 12 - 152

De-recognition of Schuepbach Energy International LLC (detailed at note 13)

(8,396) (674) - (9,070)

Closing net book amount 1,370 46 8,247 9,663

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10. PLANT AND EQUIPMENT (CONT.)

CONSOLIDATEDIT & OFFICE

EQUIPMENT $FURNITURE &

FIXTURES $LEASEHOLD

IMPROVEMENT $ TOTAL $

As at 30 June 2017

Cost or fair value 118,384 100,554 168,168 387,106

Accumulated depreciation (109,756) (99,244) (141,507) (350,507)

Net book amount 8,628 1,310 26,661 36,599

Reconciliation of movement in plant and equipment

Opening net book amount 16,823 2,210 45,075 64,108

Additions 2,347 - - 2,347

Depreciation charge for the year (i) (10,190) (867) (18,414) (29,471)

Movement in foreign currency translation (352) (33) - (385)

Closing net book amount 8,628 1,310 26,661 36,599

(i) $4,195 of depreciation charge incurred during the year was capitalised.

Plant and equipment is carried at cost less accumulated depreciation and impairment losses. Depreciation is calculated on a straight-line basis to write off the net cost of each item of property, plant and equipment (excluding land) over its expected useful life to the consolidated entity. Estimates of remaining useful lives are made on a regular basis for all assets, with annual reassessments for major items.

The depreciation rates used for each class of depreciable assets are:

CLASS OF FIXED ASSETS DEPRECIATION RATE

IT and office equipment 33.30%

Office furniture and fittings 20.00%

Leasehold improvements 20.00%

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount

11. RECEIVABLE FROM ASSOCIATE

CONSOLIDATED

2018 $ 2017 $

Receivable balance including accrued interest due to company share of ANCAP deposit

396,698 -

Closing balance 396,698 -

As a result of the de-recognition transaction as detailed at note 13 Petrel Energy Limited retains only their share of the deposit provided to ANCAP through associate Schuepbach Energy International LLC. This balance is now identified as a receivable from associate rather than a consolidated deposit with ANCAP held by Schuepbach Energy International LLC. The receivable balance is recorded at amortised cost and is exposed to a market rate of interest using the effective interest rate method.

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12. INVESTMENT IN ASSOCIATE

The Group holds a 49% interest in Schuepbach Energy International LLC. This decreased ownership from the comparative period was a result of the loss of control transaction, which is detailed at note 13. The principal place of business of Uruguay. The primary purpose of the associate is to facilitate exploration & evaluation. The associate is measured at fair value. The fair value recognition methodology is detailed at note 14.

(a) Share of associate entity’s financial position

2018 $ 2017 $

Current assets 79,660 -

Non-current assets 5,049,879 -

Total assets 5,129,539 -

Current liabilities 818,277 -

Non-current liabilities 401,838 -

Total liabilities 1,220,115 -

Net assets 3,909,424 -

No current period earnings / loss was noted on the associate from the period since becoming an associate to year end.

(b) Commitments and Contingent Liabilities in Respect of Associates

The Group is liable for the following contingent liabilities arising from its interests in associates if and when they arise:

Over-riding royalty interest

On the 28th of February 2018 Schuepbach Energy Uruguay SRL (a subsidiary of investment in associate, Schuepbach Energy International) signed an over-riding royalty interest with New Force Drilling Inc in return for the waived current debt position of Schuepbach Energy Uruguay SRL for invoices relating to drilling activities. This over-riding royalty interest amounts to a 2% interest in all proceeds obtained from Schuepbach Energy Uruguay SRL concessions.

Schuepbach Energy Uruguay SRL has the option to purchase back the rights for USD$2,000,000 within 12 months of this contract.

If Schuepbach Energy Uruguay SRL does not exercise its buy-back right then New Force Energy Inc will have the option at its own decision to swap the 2% over-riding royalty interest for a 1-% working interest in the concessions at the end of the 1 year buyback period.

Interests in associates

An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the entity but is not control or joint control of those policies. Investments in associates are accounted for in the consolidated financial statements by applying the equity method of accounting, whereby the investment is initially recognised at cost (including transaction costs) and adjusted thereafter for the post-acquisition change in the Group’s share of net assets of the associate. In addition, the Group’s share of the profit or loss of the associate is included in the Group’s profit or loss. The carrying amount of the investment includes, when applicable, goodwill relating to the associate. Any discount on acquisition, whereby the Group’s share of the net fair value of the associate exceeds the cost of investment, is recognised in profit or loss in the period in which the investment is acquired.

Profits and losses resulting from transactions between the Group and the associate are eliminated to the extent of the Group’s interest in the associate.

When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group discontinues recognising its share of further losses unless it has incurred legal or constructive obligations or made payments on behalf of the associate. When the associate subsequently makes profits, the Group will resume recognising its share of those profits once its share of the profits equals the share of the losses not recognised.

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13. LOSS OF CONTROL IN SUBSIDIARY

On 7 June 2018, the Group reduced its ownership in Schuepbach Energy International LLC (“SEI”) from 62.7% to 49% by cancelling 13,683 SEI shares in exchange for an increase in ownership of Tarba Energia (formerly Schuepbach Energy Espania) from 61.13% to 97.5% provided by former non-controlling shareholder Schuepbach International Holdings LLC. As a result of this transaction Petrel Energy Limited was deemed to have lost control of the subsidiary Schuepbach Energy International LLC and as result de-recognised as per the accounting policy detailed below and associated financial implications.

2018 $ 2017 $

Profit or loss of de-recognised subsidiary:

Loss attributed to subsidiary de-recognised for the period up to loss of control date

17,554,941 -

Equity adjustments:

Adjustment to retained losses per acquired non-controlling interest at fair value

(1,089,283) -

De-recognition of equity balance – non-controlling interest (3,521,665) -

De-recognition of equity balance – foreign currency translation reserve (674,956) -

Current year earnings effect as a result of loss of control:

Loss through profit or loss as a result of transaction (8,184,837) -

Retained investment in Schuepbach Energy International LLC

Fair value of associate balance (as detailed at note 12) 3,909,424 -

Loss of control

If a parent loses control of a subsidiary, the parent derecognises the assets, liabilities and reserves of the former subsidiary from the consolidated statement of financial position, recognises any investment retained in the former subsidiary at its fair value when control is lost and subsequently accounts for it and for any amounts owed by or to the former subsidiary in accordance with relevant accounting policy. In the instance noted above, this is in alignment with the investment in associates accounting policy. That fair value shall be regarded as the fair value on initial recognition of a financial asset in accordance with AASB 139 or, when appropriate, the cost on initial recognition of an investment in an associate or joint venture. Any consideration received in exchange for the loss of control is recognised at fair value. See note 14 for details of fair value measurement. The gain or loss resulting from the above transactions is recognised in the profit or loss.

14. FAIR VALUE MEASUREMENT - INTEREST IN ASSOCIATE

As a result of the loss of control of Schuepbach Energy International LLC (“SEI”) a retained associate interest measured at fair value. See note 13 for further details.

Level 2 inputs were relied upon in this valuation calculation as detailed below:

The consideration price received of EUR48,750($75,139) from third party Prospex and Gas Plc (PXOG) exchange for a 2.5% of interest in Tarba Energia (formerly Schuepbach Energy Espania) was adopted as third party input to the value of that entity. The fair value of Tarba Energia (formerly Schuepbach Energy Espania) was calculated at $ 3,005,549 established from the consideration price received from PXOG projected to 100% value.

This valuation of Tarba Energia (formerly Schuepbach Energy Espania) was then used to project the fair value of the associate Schuepbach Energy International LLC through use of the terms of the loss of control transaction whereby 13.7% of ownership in Schuepbach Energy International LLC was forfeited by Petrel energy Limited in exchange for acquiring an additional 36.37% in ownership of Tarba Energia (formerly Schuepbach Energy Espania). The resulting valuation of SEI was calculated at $ 7,978,416 with Petrel Energy Limited owning 49%, the fair value of associate was calculated at $3,909,424.

The third party PXOG consideration price of SEE was based on the location of the Tesorillo's asset prospect which contains a known gas discovery certified by Netherland Sewell and Associates (“NSAI”) in 2015 in Competent Person’s Report estimated could hold gross un-risked Prospective Resources of 830 billion cubic feet of gas (Best Estimate), with upside in excess of 2 Tcf. Comprised of two petroleum exploration licences, the Tesorillo and Ruedalabola Permits, covering 38,000ha in a proven hydrocarbon region in the Cadiz Province of southern Spain.

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14. FAIR VALUE MEASUREMENT - INTEREST IN ASSOCIATE (CONT.)

The following table shows the fair value of equity interest in SEI as at transaction date. Which was used as a reflective factor in the fair valuation process.

BUSINESS FAIR VALUE EUR AUD EQUIVALENT

Tesorillo Project in Southern Spain 1,950,000 3,005,549

The Group measured its interest in associate at fair value as a result of the requirements surrounding the loss of control transaction which occurred during the period.

Fair value measurement

Fair value is the estimated price the Group would receive from the sale of an asset or would have to pay to transfer a liability in an orderly (i.e. unforced) transaction between independent, knowledgeable and willing market participants at the measurement date.

As fair value is a market-based measure, the closest equivalent observable market pricing information is used to determine fair value. Adjustments to market values may be made having regard to the characteristics of the specific asset or liability. The fair values of assets and liabilities that are not traded in an active market are determined using one or more valuation techniques. These valuation techniques maximise, to the extent possible, the use of observable market data.

To the extent possible, market information is extracted from either the principal market for the asset or liability (i.e. the market with the greatest volume and level of activity for the asset or liability) or, in the absence of such a market, the most advantageous market available to the entity at the end of the reporting period (i.e. the market that maximises the receipts from the sale of the asset or minimises the payments made to transfer the liability, after taking into account transaction costs and transport costs).

The fair value of liabilities and the entity’s own equity instruments (excluding those related to share-based payment arrangements) may be valued, where there is no observable market price in relation to the transfer of such financial instruments, by reference to observable market information where such instruments are held as assets. Where this information is not available, other valuation techniques are adopted and, where significant, are detailed in the respective note to the financial statements.

Fair Value Measurement requires the disclosure of fair value information by level of the fair value hierarchy, which categorises fair value measurements into one of three possible levels based on the lowest level that an input that is significant to the measurement can be categorised into as follows:

LEVEL 1 LEVEL 2 LEVEL 3

Measurements based on quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.

Measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.

Measurements based on unobservable inputs for the asset or liability.

15. TRADE AND OTHER PAYABLES

CONSOLIDATED

2018 $ 2017 $

Trade payables 228,934 1,026,417

Other payables (i) 688,091 525,606

917,025 1,552,023

(i) Includes $410,086 outstanding directors and senior managers remuneration settled for shares per approvals at 8 August 2018 Extraordinary General Meeting.

These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the financial year which are unpaid. The amounts are current and unsecured and are usually paid within 30 days of recognition.

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16. EMPLOYEE BENEFITSCONSOLIDATED

2018 $ 2017 $

Current employee benefits

Provision for annual leave – opening balance 140,616 92,095

Charge to profit or loss 5,370 48,521

Provision for annual leave – closing balance 145,986 140,616

CONSOLIDATED

2018 $ 2017 $

Non-current employee benefits

Provision for long service leave – opening balance - -

Charge to profit or loss 22,301 -

Provision for long service leave – closing balance 22,301 -

This provision relates to employee annual leave and long service leave entitlements.

Short-term employee benefits

Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled within 12 months of the reporting date are recognised in current liabilities in respect of employees' services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled.

Other long-term employee benefits

The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date are recognised in non-current liabilities, provided there is an unconditional right to defer settlement of the liability. The liability is measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on corporate bonds rates with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.

Defined contribution superannuation expense

Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred.

17. BORROWINGSCONSOLIDATED

2018 $ 2017 $

Promissory Note - 429,840

Comparative information, this balance was de-recognised in the current period as a result of the loss of control transaction detailed at note 13.

Borrowings are initially recognised at the fair value of the consideration received, net of transaction costs incurred. They are subsequently measured at amortised cost using the effective interest method.

Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period.

18. CONTRIBUTED EQUITY

(a) Share capital

2018 SHARES NUMBER 2017 SHARES NUMBER 2018 $ 2017 $

Ordinary shares 1,761,382,464 1,165,315,238 56,864,449 51,313,872

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18. CONTRIBUTED EQUITY (CONT.)

Movements in share capital

DATE DETAILSNUMBER OF

SHARESISSUE PRICE $

1 July 2017 Opening balance 1,165,315,238 51,313,872

31 August 2017 Exercise of options expiring on 30 August 2017 657,537 0.04 26,301

5 October 2017 Shares issued under the share placement 80,000,000 0.011 880,000

7 November 2017 – 24 November 2017

Issue of shares under non-renounceable rights issue

420,675,662 0.011 4,627,433

24 November 2017 Shares issued to Directors in lieu of fees and salary in according with shareholder approval at 23 November 2017 Annual General Meeting

14,094,818 0.011 155,043

24 November 2017 Shares issued in payment of consulting services 5,191,455 0.011 57,106

16 April 2018 Issue of shares under non-renounceable rights issue

61,862,754 0.004 247,451

24 April 2018 Shares issued in payment of professional services

13,585,000 0.002 27,170

1,761,382,464 57,334,376

Less: Transaction costs arising on share issue (469,927)

30 June 2018 56,864,449

Movements in capital (2017)

DATE DETAILSNUMBER OF

SHARESISSUE PRICE $

1 July 2016 Opening balance 530,055,993 43,758,913

05 September 2016 – 30 November 2016

Issue of shares under rights issue 519,632,268 $0.01 5,196,323

30 November 2016 Issue of shares under share placement to a Director, Mr David Casey in accordance with shareholder approval at 23 November 2016 Annual General Meeting.

1,000,000 $0.02 20,000

30 November 2016 Shares issued to Directors in lieu of fees and salary in accordance with shareholder approval at 23 November 2016 Annual General Meeting.

2,292,708 $0.03 68,781

30 November 2016 Shares issued to Directors in lieu of fees and salary in accordance with shareholder approval at 23 November 2016 Annual General Meeting

23,012,500 $0.01 230,125

30 November 2016 Shares issued in payment of consulting services 6,301,440 $0.01 63,015

30 November 2016 Shares issued to a Director, Mr Alex Sundich for his participation in the rights issue in accordance with shareholder approval at 23 November 2016 Annual General Meeting.

5,000,000 $0.01 50,000

06 January 2017 Issue employee incentive shares 3,400,000 $0.015 51,000

06 January 2017 Employee incentive shares – Treasure shares - - (51,000)

14 February 2017 Shares issued in payment of consulting services 1,090,909 $0.022 24,000

09 May 2017 Share issued under the share placement to professional and other investors

73,529,420 $0.034 2,500,000

1,165,315,238 51,911,157

Less: Transaction costs arising on share issue (597,285)

30 June 2017 51,313,872

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Ordinary shares

Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. The fully paid ordinary shares have no par value.

Options (2018)

Listed

DATE DETAILSNUMBER

OF OPTIONSEXPIRY

DATEEXERCISE

PRICE

WEIGHTED AVERAGE EXERCISE

PRICE

1 July 2017 Opening balance 262,316,134 4 cents

30 August 2018 Exercise (657,537) 4 cents

30 August 2018 Expired (261,658,597) 4 cents

05 January 2018 Options allotted under share placement

80,000,000 31 October 2018

4 cents

7 November 2017 – 24 November 2017

Options allotted on Non-Renounceable Rights Issue

420,675,662 31 October 2018

4 cents

24 November 2017 Options allotted to Directors in lieu of salary and fees per Resolution 6 in accordance with shareholder approval at 23 November 2017 Annual General Meeting

14,094,818

24 November 2017 Options allotted in payment of consulting services

5,191,455 31 October 2018

4 cents

519,961,935 4 cents

Unlisted

DATE DETAILSNUMBER

OF OPTIONSEXPIRY

DATEEXERCISE

PRICE


PRICE

1 July 2017 Opening balance 22,375,000 7.2 cents

31 July 2017 Expired (1,500,000) 20 cents

31 July 2017 Expired (1,500,000) 23 cents

31 January 2018 Expired (19,375,000) 5 cents

- -

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Options (2017)

Listed

DATE DETAILSNUMBER

OF OPTIONSEXPIRY

DATEEXERCISE

PRICE

VESTED AND EXERCISABLE

AT END OF THE YEAR NUMBER


PRICE

1 July 2016 Opening balance

05 September 2016 to 30 November 2016

Options allotted on rights issue of one option for every 2 shares subscribed

259,816,134 30 August 2017

4 cents 259,816,134 4 cents

30 November 2016

Options allotted to a Director, Mr Alex Sundich for his participation in the rights issue in accordance with shareholder approval at 23 November 2016 Annual General Meeting of one option for every 2 shares subscribed

2,500,000 30 August 2017

4 cents 2,500,000 -

262,316,134 4 cents

Unlisted

DATE DETAILSNUMBER

OF OPTIONSEXPIRY

DATEEXERCISE

PRICE

VESTED AND EXERCISABLE

AT END OF THE YEAR NUMBER


PRICE

1 July 2016 Opening balance 21,875,000 7.3 cents

30 November 2016

Options allotted to a Director, Mr David Casey for his participation in 5 February 2016 Share Placement in accordance with shareholder approval at 23 November 2016 Annual General Meeting of one option for every 2 shares subscribed

500,000 31 January 2018

5 cents 500,000 0.1 cents

22,375,000 7.2 cents

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

(c) Dividends

There were no dividends paid or declared by the consolidated entity during the year (2017: nil).

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19. OPTIONS RESERVE

CONSOLIDATED OPTION RESERVE $

Opening balance at 1 July 2017 484,424

Share-based payment – Shares issued under EIP to staff and contractors 21,616

Expired/vested options -

Closing balance at 30 June 2017 506,040

Share-based payment – Shares issued under EIP to staff and contractors 12,485

Expired/vested options -

Closing balance at 30 June 2018 518,525

Fair value of shares issued under Employee Incentive Plan

No shares were issued under the Employee Incentive Plan were issued during the current financial period (2017: 3,400,000 at a grant date valuation of 0.71 cents per share determined by the Black-Sholes option pricing model).

When goods or services received are acquired in a share-based payment transaction, they are recognised as expenses or assets, as determined by the nature of the goods or services received, over the vesting period attached to the equity instrument acquired in the transaction. A corresponding increase is recognised in equity.

The goods or services are measured by reference to the fair value of goods or services received, or where this is not possible, indirectly, by reference to the equity instrument acquired. The fair value of the equity instrument is measured at grant date.

The parent entity offers interest free loans to employees and eligible persons (including directors) for terms of up to five years under the Employee Incentive Plan for subscription of shares, and under such loans, the parent entity holds a lien over the issued shares.

The issue of shares using the proceeds of any loan under the Employee Incentive Plan to employees and eligible parties (including directors) has been treated as an option grant.

20. ACCUMULATED LOSSES

CONSOLIDATED

2018 $ 2017 $

Opening balance 1 July 35,004,984 32,948,468

Net loss for the year 29,121,568 2,056,516

Transfer to NCI (9,306,535) -

Effect of NCI dilution by parent entity (2,066,034) -

Consideration of fair value of NCI 1,089,283

Closing balance 30 June 53,843,266 35,004,984

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21. RELATED PARTY TRANSACTIONS

(a) Directors

The following persons were directors of Petrel Energy Limited during or subsequent to the financial period:

Alexander Sundich Non-executive Chairman

David Casey Managing Director and Chief Executive Officer

Russell Porter Non-executive Director

Andrew Williams Non-executive Director

(b) Other key management personnel compensation

The following persons also had authority and responsibility for planning, directing and controlling the activities of the consolidated entity, directly or indirectly, during the financial year:

Ian Kirkham Company Secretary and Chief Financial Officer

(c) Key management personnel compensation

CONSOLIDATED

2018 $ 2017 $

Salary & fees 172,266 589,060

Consultancy payments 52,512 245,770

Share based payments 642,677 6,194

Superannuation 7,884 39,394

Long service leave 19,223 -

894,562 880,418

Detailed remuneration disclosures can be found in sections (a) to (c) of the Remuneration Report which forms part of the Directors’ Report.

(d) Other transactions with key management personnel

(i) Ian Kirkham Consulting

Ian Kirkham, a senior executive, is also the Principal of Minex CFO Services. Petrel Energy Limited has engaged Minex CFO Services to provide Company secretarial and accounting services on a part-time basis. The contract is based on normal commercial terms.

CONSOLIDATED

2018 $ 2017 $

Amounts recognised as an expense

Accounting and secretarial services 208,079 225,145

The above amount has been included in the remuneration report.

(ii) Stephen Mitchell

CONSOLIDATED

2018 $ 2017 $

Amounts recognised as an expense

SEI Chairman and Consulting services - 20,625

Stephen Mitchell is the Principal of Mawallok Pastoral Company. Petrel Energy Limited had engaged Mawallok Pastoral Company to provide Stephen Mitchell to act as Chairman of the board of Schuepbach Energy International and also as a consultant in the development of its international assets, Stephen Mitchel resigned from his position in January 2017.

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22. CONTINGENCIES

(a) Contingent liabilities/restricted cash

CONSOLIDATED

2018 $ 2017 $

Obligations under a bank corporate credit card facility with the Commonwealth Bank of Australia

30,000 30,000

Bankers’ guarantee issued as security for the performance by the Company of its obligations under a lease of office premises at Suite 303, 10 Bridge Street, Sydney

33,409 33,409

Letter of credit of US$1 million for a drilling contract with New Force Energy Services Inc., for the 4 well programme in Uruguay, which has a minimum spend requirement of $2.1m (US$1.5m) if the agreement is terminated prior to the programme's completion

- 1,300,050

Cash pledged as deposit for Spanish Ministry compliance programme 46,058 -

Total 109,467 1,363,459

The above are all secured by a charge over term deposits lodged with bankers of a like amount.

(b) Contingent assets

The consolidated entity has no contingent assets to report as at 30 June 2018 (2017: nil).

23. COMMITMENTS LEASE COMMITMENTS - OPERATING

CONSOLIDATED

2018 $ 2017 $

Commitments at reporting date but not recognised as liabilities, payable:

Within 1 year 38,636 94,815

1 year or longer, but not longer than 5 years - 32,015

Total 38,636 126,830

24. AUDITOR’S REMUNERATION

During the year the following fees were paid or payable for services provided by the auditor:

CONSOLIDATED

2018 $ 2017 $

Audit services

BDO – Audit and review of financial reports 54,000 45,000

Total 54,000 45,000

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25. CASH OUTFLOW FROM OPERATING ACTIVITIES RECONCILIATION TO LOSS AFTER INCOME TAX

CONSOLIDATED

2018 $ 2017 $

Loss for the year (29,121,568) (2,056,516)

Non-cash movement

Depreciation 19,999 25,276

Share based payment expenses 12,485 21,616

Impairment loss on exploration and evaluation expenditure (Uruguay) 19,138,440 -

Loss as a result of de-recognition of a controlled entity 8,184,837

Foreign exchange gains - 85,764

Non-cash settlement of liabilities (share issue) 239,319 -

Effect of de-recognition of working capital per loss of control 1,256,544

Movement in working capital

(Increase) in other current assets 47,835 (39,059)

Increase in trade and other payables (634,998) 138,114

Net cash outflow from operating activities (857,107) (1,824,805)

Non-cash transactions affecting investing and financing activities

(i) In November 2017, there were 14,094,818 ordinary shares issued at $0.011 each to Directors in lieu of fees and salary of $155,043 per resolution 6 in accordance with shareholder approval at 23 November 2017 Annual General Meeting.

(ii) In November 2017, there were 5,191,455 ordinary shares issued at $0.011 each in payment of $57,106 related to consulting services.

(iii) In April 2018, there were 13,585,000 ordinary shares issued at $0.002 each in payment of $27,170 related to consulting services.

26. EARNINGS PER SHARE

(a) Basic loss per share

CONSOLIDATED

2018 $ 2017 $

Loss from continuing operations attributable to the ordinary equity holders of the Company

19,815,033 2,056,516

Loss attributable to ordinary equity holders of the Company 19,815,033 2,056,516

Basic earnings per share is calculated by dividing the profit/loss attributable to equity holders of the parent entity, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year.

(b) Diluted loss per share

Options issued to shareholders and related parties are considered to be potential ordinary shares if average market price during the period is above the exercise price and have been considered in the determination of diluted earnings per share.

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account of the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.

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26. EARNINGS PER SHARE (CONT.)

(c) Reconciliation of earnings used in calculating earnings per share

CONSOLIDATED

2018 $ 2017 $

Basic earnings per share / Diluted earnings per share

Loss from continuing operations attributable to the ordinary equity holders of the Company

19,815,033 2.056,516

Loss attributable to ordinary equity holders of the Company 19,815,033 2,056,516

(d) Weighted average number of shares used as the denominator

2018 NUMBER 2017 NUMBER

Weighted average number of shares used as denominator in calculating:

Basic earnings per share 1,522,147,631 937,244,169

Diluted earnings per share 1,522,147,631 937,244,169

27. PARENT ENTITY INFORMATION

PARENT ENTITY

2018 $ 2017 $

Loss after income tax 19,264,833 1,996,732

Total comprehensive loss for the year 19,264,833 1,996,732

Statement of financial position

Total current assets 224,484 412,211

Total assets 4,260,848 17,480,609

Total current liabilities 717,380 235.370

Total liabilities 717,380 235,370

Equity

Issued capital 56,864,449 51,313,872

Option reserve 518,525 506,040

Accumulated losses (53,839,506) (34,574,673)

Total equity 3,543,468 17,245,239

Guarantees entered into by the parent entity in relation to the debts of its subsidiaries

The parent entity had no guarantees in relation to the debts of its subsidiaries as at 30 June 2018 and 30 June 2017.

Contingent liabilities

The consolidated entity had contingent liabilities as at 30 June 2018 and 30 June 2017 as detailed in Note 22(a).

Capital commitments - Property, plant and equipment

The parent entity had no capital commitments for property, plant and equipment as at 30 June 2018 and 30 June 2017.

Significant accounting policies

The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in note 1. In addition, investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity.

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28. CONTROLLED ENTITIES

The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries.

SUBSIDIARIESPLACE OF INCORPORATION

2018 INTEREST %

2017 INTEREST % PARENT

Petrel Energy (Operations) Pty Ltd Victoria, Australia 100 100 Petrel Energy Limited

Petrel Energy (Investments) Pty Ltd Victoria, Australia 100 100Petrel Energy

(Operations) Pty Ltd

Petrel Energy Texas Exploration LLC Austin Texas, USA 100 100Petrel Energy


Petrel Energy Louisiana Exploration LLC

Baton Rouge, Louisiana, USA

100 100Petrel Energy


Tarba Energia (formerly Schuepbach Energy Espania)

Cadiz, Spain 97.5 51 Petrel Energy Limited

Schuepbach Energy International LLC* Dallas Texas, USA 49 49 Petrel Energy Limited

The shares held in the subsidiaries are ordinary shares.

* Schuepbach Energy International LLC is now an associate interest as per note 12 as a result of the loss of control transaction which occurred during the period, see note 13 for further details.

29. INTERESTS IN JOINT OPERATIONS

The consolidated entity has the following participating interests in joint operations with principal activities of oil & gas exploration. The joint operations are not separate legal entities and are contractual arrangements between the participants for the sharing of exploration and development costs, and output.

INTEREST

JOINT OPERATIONS 2018 % 2017 %

Cardium, Alberta, Canada 40 40-60

30. SUBSEQUENT EVENTS

No matter has arisen in the interval since 30 June 2018 that has significantly affected or may significantly affect the operations of the consolidated entity, the results of those operations or the state of affairs of the consolidated entity in future financial periods other than the following.

› A placement and share purchase plan was announced on 4 July 2018 raising a total of $1,061,000 at a price of 0.21 cents per share. The placement raised a total of $735,000. The placement was arranged by Bridge Street Capital Partners Pty Ltd (a related party of Alexander Sundich) on normal commercial terms and was offered to sophisticated and professional investors. The share purchase plan which closed on 7 August 2018 raised a total of $326,000.

31. CORPORATE INFORMATION

The financial report of Petrel Energy Limited for the period ended 30 June 2018 was authorised for issue in accordance with a resolution of the directors on 28 September 2018.

Petrel Energy Limited is a public company limited by shares, incorporated in Australia, whose shares are publicly traded on the Australian Securities Exchange. The directors have the power to amend and re-issue the financial report.

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directors' declaration || petrel energy limited annual report || 59

In the directors' opinion:

› the attached financial statements and notes thereto comply with the Corporations Act 2001, the Australian Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements;

› the attached financial statements and notes thereto comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 1 to the financial statements;

› the attached financial statements and notes thereto give a true and fair view of the consolidated entity's financial position as at 30 June 2018 and of its performance for the financial year ended on that date; and

› there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.

The directors have been given the declarations required by section 295A of the Corporations Act 2001.

Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001.

On behalf of the directors

David Casey

Managing Director and CEOSydney, 28 September 2018

DIRECTORS’ DECLARATION

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auditors’ report || petrel energy limited annual report || 60

AUDITORS’ REPORT

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AUDITORS’ REPORT

•

•

•

•

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AUDITORS’ REPORT

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additional information || petrel energy limited annual report || 64


Additional information included in accordance with Listing Rules of ASX Limited.

1. SHAREHOLDERS

a) Distribution of shareholders as at 17 October

2018 Fully paid ordinary shares

SIZE OF HOLDING HOLDERS SHARES HELD %

1-100,000 1,144 40,606,104 1.692

100,001-500,000 649 167,235,829 6.970

500,001-1,000,000 227 177,375,117 7.392

1,000,001-10,000,000 343 960,081,806 40.013

10,000,001 and over 32 1,054,138,638 43.933

Totals 2,395 2,399,437,494 100.000

1,496 shareholders held less than a marketable parcel of shares.

b) Top twenty shareholders as at 17 October 2018

Fully paid ordinary

SHAREHOLDER

NUMBER OF ORDINARY

SHARES HELD

% OF SHARES

HELD

Discovery Investments Pty Ltd 157,644,439 6.570%

Mr David Casey 104,539,581 4.357%

Veruse Pty Limited 76,619,048 3.193%

Morgan Stanley Australia Securities (Nominee) Pty Ltd 52,616,669 2.193%

Pine Street Pty Ltd <Pine Street Super Fund A/C> 49,238,096 2.052%

Seistend Pty Ltd 47,619,048 1.985%

Discovery Investments Pty Ltd <Rascol Family Super Fund A/C> 47,299,268 1.971%

Mr Jisi Liu 47,142,857 1.965%

Equity Trustees Limited <Lowell Resources Fund A/C> 46,337,936 1.931%

Pine Street Pty Ltd <Pine Street A/C> 43,873,917 1.829%

Mr Ian Bruce Kirkham 41,480,011 1.729%

HSBC Custody Nominees (Australia) Limited 37,885,087 1.579%

Mr Robert Keith Blanden & Ms Joan Sybil Blanden 24,639,100 1.027%

Da Casey & Associates Pty Limited <David Casey Family A/C> 23,931,204 0.997%

Mr Roger Leigh Spellman 22,190,477 0.925%

Hayrow Pty Ltd <David Casey Super Fund A/C> 21,060,190 0.878%

Mr Brian Laurence Eibisch 18,848,665 0.786%

Mr David Allen Rogers 18,307,373 0.763%

Mr Menish Bains 16,500,000 0.688%

Mr Andrew James Williams 15,577,621 0.649%

Total 913,350,587 38.065%

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additional information || petrel energy limited annual report || 65


2. VOTING POWER

The Company has ordinary shares on issue:

a) at meetings of members each member entitled to vote may vote in person or by proxy or attorney or, in the case of a member which is a body corporate, by representative duly authorised;

b) on a show of hands every member entitled to vote and be present in person or by proxy or attorney or representative duly authorised shall have one (1) vote; and

c) on a poll every member entitled to vote and be present in person or by proxy or attorney or representative duly authorised shall have one (1) vote for each fully paid share of which he or she is a holder.

3. SUBSTANTIAL SHAREHOLDERS

The ordinary securities held by substantial shareholders are as follows:

NAMES NUMBER OF SHARES

Discovery Investments Pty Ltd 223,928,443

Mr David Casey 155,030,975

4. ON-MARKET BUY-BACK

There is no current on-market buy back.

5. TENEMENT LISTING

TENEMENT REFERENCE LOCATION NATURE OF INTEREST INTEREST AT 30 JUNE 2018

GROSS ACRES

Piedra Sola Norte Basin, Uruguay Via Schuepbach Energy 41% 2,525,000

Salto Norte Basin, Uruguay International LLC 41% 925,000

Tesorillo Cadiz, Spain Via Tarba Energia SRL 97.5%ˆ 68,800

Ruedalabola Cadiz, Spain 97.5%ˆ 10,200

Cardium GROSS ACRES

19-25-3W5M Cardium, Alberta, Canada Direct JV interest 40% 640

Note: Petrel does not have any interest in any farm-in or farm-out agreements.

^ Petrel's 97.5% working interest will reduce to 51.1% upon completion of the Prospex Share Purchase Agreement. Proceeds of €2.05m (100%) will be used by Petrel to fund its share of an agreed Tesorillo work programme (estimated at €3.82m) which includes a magnetotelluric programme and if successful, a well to target the Almarchal-1 discovery drilled in 1956.

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corporate directory || petrel energy limited annual report || 67

Corporate Directory

DirectorsAlexander Sundich || ChairmanDavid Casey || CEO & Managing DirectorRussell Porter || Non Executive DirectorAndrew Williams || Non Executive Director

Company SecretaryIan Kirkham

Registered OfficeLevel 6, 10 Bridge StreetSydney NSW 2000

T: +612 9254 9000 F: +612 9037 2249Email: [email protected]

Share RegistryBoardroom LimitedLevel 12, 225 George St Sydney NSW 2000

GPO Box 3993 Sydney NSW 2001T: +61 2 9290 9600 F: +61 2 9290 9655

Home Stock ExchangeASX Limited 20 Bridge Street Sydney NSW 2000

ASX Code: PRL

AuditorsBDOLevel 11, 1 Margaret StreetSydney NSW 2000

Petrel Energy LimitedACN 125 394 667

petrelenergy.com

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