Blue Energy : Financial Report for the Half-Year Ended 31 December 2021

LEVEL 10, 26 WHARF

STREET,

BRISBANE QLD 4000.

T 07 3270 8814

F 07 3270 8899

INTERIM FINANCIAL REPORT

For the half-year ended 31 December 2021

e [e-mail]

abn 14 054 800 378

w www.blueenergy.com.au

I N T E R I M F I N A N C I A L R E P O R T

For the half-year ended 31 December 2021

CONTENTS

DIRECTORS' REPORT	1
AUDITOR'S INDEPENDENCE DECLARATION	6
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME	7
CONSOLIDATED STATEMENT OF FINANCIAL POSITION	8
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY	9
CONSOLIDATED STATEMENT OF CASH FLOWS	10
NOTES TO THE FINANCIAL STATEMENTS	11
DIRECTORS' DECLARATION	14
INDEPENDENT AUDITOR'S REVIEW REPORT	15

Blue Energy Limited ABN 14 054 800 378

D I R E C T O R S' R E P O R T

For the half-year ended 31 December 2021

The Directors of Blue Energy Limited ( "the Company") and its controlled entities ("the Group" or "Blue") submit herewith their report on the consolidated financial statements of the Company for the half-year ended 31 December 2021.

DIRECTORS

The names of the Directors who held office during or since the end of the half-year and to the date of this report:

John Ellice-Flint (Chairman)	(Appointed 5 April 2012)
Rodney Cameron (Deputy Chairman)	(Appointed 15	November 2011)
John Phillips	(Appointed 28	June 2010)
Mark Hayward	(Appointed 16	February 2020)

REVIEW OF OPERATIONS

Blue is subject to continuous disclosure rules, and as such, anything materially affecting Blue and its exploration assets in the preceding 6-month period has been disclosed to the market.

Reserve and Resource Position

There has been no material change to the Group's Reserve or Resource position in the last 6 month period to 31 December 2021. Blue's Bowen Basin 2P and 3P Reserves are estimated (by the independent consultancy Netherland, Sewell and Associates, Inc of Dallas Texas (NSAI)) to be 71 PJ and 298 PJ respectively. Blue's current 3C Contingent Resource estimate is 4,179 PJ of technically recoverable gas, whilst the 1C and 2C Contingent Resource estimates are 158 PJ and 1,166 PJ, respectively. The Gas Reserves remain confined to ATP814P in the North Bowen Basin, whilst the Contingent Resources are established by NSAI in Blue's ATP814P, ATP813P and ATP854P tenements. The Reserve and Resource estimate by NSAI current as at 31 December 2021 with no variations from prior year is tabled below (Table 1).

These reserves are not yet developed, and there has been no production of gas by the Group to deplete the reserves. All reserves and resources stated in the table are in respect of unconventional gas (Coal Seam Gas) and are undeveloped reserves and net to Blue.

These reserves remain undeveloped due to local market conditions and limited pipeline infrastructure within the North Bowen Basin region. It is the Group's intention to develop these reserves by facilitating appropriate commercial transactions to enable the provision of appropriate infrastructure. To this end Blue has entered into a nonbinding Heads of Agreement (HoA) to supply 100 PJ of gas over 10 years to EnergyAustralia and a similar agreement for 300 PJ of gas supply over 10 years to Origin Energy with both contract delivery points at Wallumbilla. In addition to these two agreements, Blue has also executed a Memorandum of Understanding with Queensland Pacific Metals to supply up to 112 PJ of gas over 15 years to their proposed nickel refinery in Townsville. Blue continues to negotiate with other gas users to build the contracted volume and facilitate development of its North Bowen Basin gas resources. The reserves being ear-marked in this agreement are proximate to existing production but require appropriate infrastructure and commercial arrangements to be put in place for them to be brought to market.

The Group's entire reserve and resource position is independently reviewed and certified by NSAI, an independent reserve certifier, and reported by the Group directly should there be a change, as required under ASX Listing Rules for continuous disclosure. The Group continues to work with NSAI on providing any updates on the reserve and resources position.

Table 1: Reserve and Resource Inventory as at 31 December 2021

Permit	Block	Assessment	Announcement	Methodology	Certifier	1P	1C	2P	2C (PJ)	3P	3C (PJ)
		Date	Date			(PJ)	(PJ)	(PJ)		(PJ)
ATP854P		30/06/2012	19/03/2013	SPE/PRMS	NSAI	0	22	0	47	0	101
ATP813P		29/10/2014	30/10/2014	SPE/PRMS	NSAI	0	0	0	61	0	830
ATP814P	Sapphire	5/12/2015	8/12/2015	SPE/PRMS	NSAI	0	66	59	108	216	186
ATP814P	Central	5/12/2015	8/12/2015	SPE/PRMS	NSAI	0	50	12	99	75	306
ATP814P	Monslatt	5/12/2015	8/12/2015	SPE/PRMS	NSAI	0	0	0	619	0	2,054
ATP814P	Lancewood	5/12/2015	8/12/2015	SPE/PRMS	NSAI	0	5	0	23	1	435
ATP814P	Hillalong	6/02/2020	7/02/2020	SPE/PRMS	NSAI	0	0	0	182	0	237
ATP814P	South	30/06/2013	29/07/2013	SPE/PRMS	NSAI	0	15	0	27	6	30
Total (PJ)						0	158	71	1,166	298	4,179
Total MMBOE						0	27	12	191.9	51.2	718.5

All numbers are net to Blue

Blue Energy Limited ABN 14 054 800 378

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D I R E C T O R S' R E P O R T

For the half-year ended 31 December 2021

Subsequent to the end of the half-year, and as described in more detail under the Subsequent Events heading in this Directors' Report, on 25 January 2022 Blue announced a significant increase in the Reserve and Resource Inventory for ATP854P.

Competent Person Statement

The estimates of reserves and contingent resources have been provided by Mr John Hattner of Netherland, Sewell and Associates Inc (NSAI). Mr Hattner is a full-time employee of NSAI, has over 30 years of industry experience and 20 years of experience in reserve estimation, is a licensed geologist, and has consented to the use of the information presented herein. The estimates in the report by Mr Hattner have been prepared in accordance with the definitions and guidelines set forth in the 2018 Petroleum and Resource Management System (PRMS) approved by the Society of Petroleum Engineers (SPE), utilising a deterministic methodology.

Bowen Basin

ATP814P (Blue 100% and Operator)

The Federal Governments' National COVID Construction Commission has recommended that as part of the Prime Minister's gas lead recovery targeting new and reliable gas supply for east coast manufacturers, the north Bowen Basin (in addition to the Beetaloo and Galilee Basins) is prioritised for infrastructure to fast track new gas supply into the east coast grid. ATP 814P is within the North Bowen Basin and would benefit from Federal government support for accelerated gas infrastructure connection to the east coast gas grid.

This high-grading of government support for the basin assists Blue in its commercialising activities to establish foundation domestic east coast gas offtakers, as well as local Townsville customers. Accordingly, Blue has successfully executed the first of several planned long-term gas supply agreements with major offtakers. Blue and EnergyAustralia have signed a non-binding Heads of Agreement for the supply of 100 PJ of gas over 10 years. In addition, Blue executed a similar non-binding Heads of Agreement with Origin Energy for 300 PJ of gas supply over 10 years. The gas for both of these agreements is to be delivered to the Wallumbilla hub.

The permit consists of 7 separate blocks, with the Sapphire Block holding the majority of the 2P and 3P reserves. This Block is in very close proximity to the current production from the Moranbah Gas Project Joint Venture.

Blue's 100% ATP814P currently has 71 PJ of 2P reserves, 298 PJ of 3P reserves and 3,248 PJ of Contingent Resources (as independently estimated by Netherland, Sewell and Associates Inc (NSAI).

With respect to the local Townsville market, and as previously advised, Blue has executed two non binding Memorandums of Understanding (MoU) as follows:

1. MoU with North Queensland Gas Pipelines Pty Ltd to work together to establish new gas offtakers in the Townsville market.
2. MoU with Queensland Pacific Metals (QPM) to work to execute a binding Gas Sales Agreement for the delivery of gas from Blue's ATP814 tenement to QPM for their proposed Townsville Nickel processing facility.

As part of addressing commerciality of a portion of the Company's Bowen Basin gas resource, Blue is also investigating the viability of gas fired electricity generation in ATP814P and in particular the Hillalong and Monslatt Blocks, located near the towns of Glenden and Nebo respectively. Both these blocks are within 10 kilometres of the major 275Kv transmission line linking Gladstone and Townsville.

In pursuit of commercialisation of all the gas held in Blue's ATP814P blocks, the Company is in ongoing discussions with several other large east coast gas users, who are interested in securing long term gas supply.

The 3 separate Production Licence Applications (PLA's) lodged previously are still under consideration by the Regulator, whilst 3 Potential Commercial Area Applications have been awarded by the Regulator.

The Company has lodged the requisite environmental survey work for the upgrade to the Environmental Authorities (EA's) for the three Production Licence (PL) applications in ATP 814P. The upgraded EAs are required as part of the approval process and grant of the PLs and covers the initial development program for the PL areas. During the period, Blue successfully raised $9,534 thousand (net of fees) to advance appraisal of the Sapphire, Central and Lancewood PL applications The object of the drilling campaign is to build reserve 2P reserves (conversion of 3C to 2P) and establish the productivity of the coal targets in the asset.

In preparation, Blue has gone to the market seeking quotes for contract drilling, directional drilling, cementing, wireline survey, and completion services; surface testing package supply; and general drilling and completion equipment. The 2022 drilling program has been formulated in conjunction with NSAI to provide a reserve build component (converting Contingent Reserves to 2P reserves) and a productivity test to refine the development plan for the supply of gas into Blue's offtake agreements in Wallumbilla to Origin Energy and EnergyAustralia. These agreements are for the 10 year supply of up to 400 PJ of gas over 10 years. These agreements will also underpin the viability of the North Bowen Basin

Blue Energy Limited ABN 14 054 800 378

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D I R E C T O R S' R E P O R T

For the half-year ended 31 December 2021

Gas pipeline which, as indicated by the recent Queensland/Federal Government study is a key piece of gas infrastructure to cement the North Bowen Basin in prime position to be the east coast's new gas supply source.

Surat Basin, Queensland

ATP854P (Blue 100% and Operator)

On 25 January 2022, Blue announced an approximate 300% upgrade of the recoverable gas resources in ATP 854P from NSAI. The upgrade is in net recoverable gas resource across the 1C, 2C and 3C Contingent Resource categories, and represents an increase in the permit's total Contingent Resource base from 101 PJ to 398 PJ of 3C. Both 1C and 2C Contingent Resource categories also increased over 300% (refer Table 2).

ATP 854P is located near the heart of the CSG-LNG gas supply precinct. Gas pipeline infrastructure (PPL 30 and PL 118), linking Wallumbilla to Gladstone, runs through the permit. The ATP 854P gas resources thus have clear near-term potential for economic development using this infrastructure. ATP 854P is now a substantial gas resource which can augment Blue's Bowen Basin gas supply agreements with Origin Energy and EnergyAustralia, both in timing and volume. As previously reported, Blue has lodged PCAs over the permit, which now contain 398 PJ+ of Contingent Resources (in the latest review and estimation by NSAI). Blue continues to work with the Queensland Government to secure grant of these PCAs. Work was conducted and completed late in the reporting period on a plug and abandonment program of several legacy wells in the permit, drilled previously by Blue. The work was completed safely and under budget.

Table 2: Changes in gas resources for ATP854 effective 22 January 2022

1C (PJ)

1P (PJ)

2C (PJ)

2P (PJ)

3C (PJ)

3P (PJ)

New

Old

New

Old

New

Old

New

Old

New

Old

New

Old

ATP854P

90

22

-

-

194

47

-

-

398

101

-

-

Surat Basin

Qld

% change

+309%

+313%

+294%

Galilee Basin

ATP813P Blue (100% and Operator)

ATP813P is located to the north of the Aramac township in central west Queensland. Blue's exploration work on the permit to date has resulted in 830 PJ of Contingent Resource being estimated by independent reserve specialist NSAI.

Blue lodged 9 separate Potential Commercial Area Applications in 2017, and as at 31 December 2021, these were still being considered by the Queensland Government for grant.

Greater McArthur Basin, Northern Territory

EP199A, 200, 205, 206A, 207, 208A, 209A, 210A, 211A (Blue farming in and Operator)

Following the lifting on the moratorium on gas exploration activities, the Northern Territory (NT) Government has introduced many new amendments to the Petroleum, Water and Environment Acts as a result of the 135 Pepper Inquiry recommendations deemed necessary to regulate the industry to ensure it operated safely. These regulatory amendments have lengthened the approval process for all oil and gas exploration activities in the Territory. These longer approval timeframes continue to have impacts on approval of field activity in the already seasonally restricted exploration season in the NT.

Blue's granted permits had been under suspension (at Blue's request) as a result of the Post Pepper regulatory uncertainty. With the outbreak of COVID 19 in the Territory and the imposition of travel and access restrictions to remote communities, the required access to remote communities by government bodies for consultation and cultural heritage clearance of proposed seismic survey activities was severely impacted. Accordingly, Blue has only recently been granted approval for its seismic activities to be conducted. Blue is still required to obtain social and community licence for this survey work. Accordingly, and given the restricted exploration season, Blue applied for and has been granted a further suspension or work commitments until February 2023. The permit timeframes have also been extended by 12 months.

Blue has also resumed engagement with the Central and Northern Land councils to undertake on country meetings with traditional owner groups for the areas currently under application.

Cooper Basin

ATP 656, 657, 658, & 660 Cooper Basin Queensland (Blue 100% - and Operator)

The Cooper Basin area, in particular the Cooper Creek Riverine system, has been subject to sustained environmental restrictions and legislative uncertainty. Environmental activism continues in an attempt to limit exploration and production activities from occurring in the Cooper Basin. As previously advised Blue entered into an agreement with an Australian energy company, whereby Blue would be reimbursed for its post-grant nominal back costs. This agreement is subject to, and conditional upon approval by the Queensland Government and the grant of 9 Production Licences (PL's) applied for

Blue Energy Limited ABN 14 054 800 378

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