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CONSOLIDATED FINANCIAL STATEMENTS

FOR THE HALF-YEAR ENDED 31 DECEMBER 2021

Galilee Energy Limited

ABN 11 064 957 419 and controlled entities

Galilee Energy Limited

Contents

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Directors' report

Auditor's independence declaration

Consolidated statement of profit or loss and other comprehensive income

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Consolidated statement of financial position

Consolidated statement of changes in equity

Consolidated statement of cash flows

Notes to the half-year financial statements

Directors' declaration

Independent auditor's review report

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Galilee Energy Limited

Directors' report

In accordance with a resolution of the Board, the directors present their report on the consolidated entity ("Galilee" or "Company") consisting of Galilee Energy Limited and the entities it controlled at the end of or during the half-year ended 31 December 2021.

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Directors

The directors of Galilee in office during the half-year and up to the date of this report were:

Ray Shorrocks - Appointed 02/12/2013, Non-executive Chairman since 31/03/2018

Dr David King - Appointed 24/09/2013, Non-executive Director since 24/09/2013, resigned on 30 Nov 2021 David Casey - Appointed 1 Dec 2021, Managing Director since 01/12/2021

Stephen Kelemen - Appointed 31/03/2018, Non-executive Director since 31/03/2018

Gordon Grieve - Appointed 06/09/2019, Non-executive Director since 06/09/2019

Greg Columbus - Appointed 17/09/2020, Non-executive Director since 17/09/2020

Principal activities

Galilee Energy is a Brisbane based energy company with a high-quality portfolio of assets focused onshore Australia. The principal activity of the consolidated entity is oil and gas exploration and production. The foundation asset of the Company is the Glenaras Gas Project located in the Galilee Basin near Longreach in Queensland.

Strategy

The Company's strategy is to build a balanced portfolio of high quality, conventional and unconventional oil and gas assets. The primary focus is on commercialising the Glenaras Gas Project with an emphasis on the structurally short supplied eastern Australia gas market. Gas supply shortfalls into the east coast gas market are forecast from 2023 by both the Australian Competition and Consumer Commission (ACCC) and Australian Energy Market Operator (AEMO). This timing accords well with the Company's significant uncontracted resource base and the cost competitiveness of its assets in comparison with alternative gas supply sources.

Results from operations

The net loss before income tax for the half-year ended 31 December 2021 was $8.1 million (31 December 2020: $11.5 million). The loss for the half-year primarily reflects the expenditure on exploration and evaluation of $8.3 million, which was comprised of the Glenaras pilot pump enhancement programme, Glenaras water management projects and the Glenaras pilot operating activities, in addition to staff costs and overheads.

Review of operations

The Company's flagship Glenaras Gas Project lies within the highly prospective ATP 2019 permit in Queensland's Galilee Basin. The permit covers an area of approximately 3,200 km2 and is 100% owned and operated by Galilee Energy (Figure 1).

The project contains a significant coal seam gas Contingent Resource position in the Betts Creek and Aramac coals with a

1C of 308 PJ, a 2C of 2,508 PJ and a 3C of 5,314 PJ, because of the extensive historical exploration activity within the permit.

During the half, field operations have been concentrated on continued testing and refining of the optimised pilot configuration, with operations being directed specifically to an expansion of the pressure sink necessary to drive increased flows of desorbed gas. Progress was slower than expected due to difficulties encountered in maintaining all pumps on-line and at peak efficiencies which resulted in the requirement for a workover programme on the appropriate wells.

The workover programme, which was carried out safely and successfully over two separate campaigns in the half, installed appropriately sized new pumps in the G10L, G17, G20, and G23 wells, incorporating modifications to improve the handling of gas production, leaving the central G14L well as a valuable observation well. These pumps were brought back online, with water production gradually restored to a peak rate of 19,300 barrels of water per day (BWPD) in mid-December 2021. The reduction in water rates is

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Galilee Energy Limited

Directors' Report (continued)

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associated with a reduction in reservoir pressure and the onset of modest gas desorption, although this does not necessarily translate to simultaneous increased gas production which is often delayed, particularly in low rank coals. The challenge going forward which is being addressed as a matter of urgency will be to expedite this process in the most cost- effective manner.

During the half, three irrigation areas were successfully utilised and four different forage fodder species were tested for suitability and yield (see photos below). The water handling capacity of the irrigation schemes together with the on-site water storage and reverse osmosis plant exceeds 20,000 BWPD.The performance of the cropping trials is a clear demonstration that the produced water is of sufficient quality to grow a range of commercial crops. This has potential for value creation beyond the existing gas business and represents the first step of an integrated process for Galilee as it looks to leverage off its unique position to manage and monetise its emissions strategy.

Galilee has two additional exploration tenements, ATP 2050 (Springsure Project) in the Denison Trough region of the Bowen Basin and ATP 2043 (Kumbarilla Project) in the Surat Basin.

The Springsure Project in ATP 2050 hosts both conventional and coal seam gas prospectivity, both of which have been proven commercial in the adjacent northern Denison conventional gas fields and the Mahalo project. Evaluation of multiple opportunities for both play types is ongoing with the intention of maturing high integrity locations for exploration drilling. ATP 2050 is strategically located in close proximity to present day conventional gas facilities and future planned coal seam gas facilities, which places potential new discoveries in a strong position for rapid development and supply to the east coast gas markets.

Exploration work continues at the Kumbarilla Project in ATP 2043, progressing the understanding of both the conventional oil and gas prospectivity and coal seam gas prospectivity of the permit. High-grading of future drilling locations remains the primary objective through integration of the reprocessed 675km of 2D seismic with the existing regional well control, the Kumbarilla Central 1, 2 & 3 exploration wells and the adjacent PL 1009 pilot production data gained from the data exchange with Shell.

During the half, the Board of Galilee Energy announced the appointment of Mr David Casey as Managing Director, effective 1 December 2021 to lead the Company into the next phase of its commercial development. Mr Casey is an internationally recognised expert in coal seam gas exploration and developments with extensive experience as manager and technical expert/advisor in projects across Australia and Asia. He has previously served in senior executive roles in several ASX listed companies, most notably in Eastern Star Gas Limited, where, as Managing Director he was instrumental in the establishment of 2+TCF reserves at the Narrabri Gunnedah Basin CSG Project prior to that company's sale to Santos for a total in excess of A$1Bn. Following Mr Casey's appointment, Dr King has stepped down as Managing Director and retired from the Board after eight years' service to the Company as Chairman, non-executive Director and interim Managing Director, effective from 1 December 2021.

The federal government has recently announced a gas-led recovery with the aim of unlocking gas supply, investment in new pipelines and fast-tracking interconnectors between the States. The Prime Minister specifically identified the Galilee Basin, amongst others, to be prioritised with a designated strategic plan, in addition to expanding the Wallumbilla site to develop an Australian gas hub. The stated aim is for gas to supplant coal as the transition fuel until renewable energy is sufficiently reliable, in turn providing a boost to the economic recovery post COVID-19 as well as increased jobs in the manufacturing sector. The Government is seeking to support the east coast gas market and to create a more competitive and transparent Australian gas hub by unlocking domestic gas supply, delivering an efficient pipeline and transportation market and empowering gas customers.

The Board has also commenced a programme to formalise its commitment to embedding best practice environmental, social and governance ("ESG") principles into its strategy and core business operations. These principles underpin the Company's ability to create and sustain long-term value in a rapidly changing world, and to manage the risks and opportunities associated with these changes.

Notwithstanding the COVID-19 related logistic challenges in the movement of both personnel and equipment, and a consequential heavy reliance on "virtual" interactions, the Company's operations have not been significantly disrupted during the half.

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Galilee Energy Limited

Directors' Report (continued)

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Matters subsequent to the end of half-year.

In February 2022, the Company successfully completed a share placement to institutional and sophisticated investors raising $11.8 million before costs to fund its ongoing activities in the Galilee Basin.

The Company has also offered eligible shareholders the opportunity to participate in a Share Purchase Plan targeting to raise up to $3 million on the same terms as the placement.

Except as disclosed, there has not arisen in the interval between the end of the half-year and the date of this report any item, transaction, or event of a material and unusual nature likely, in the opinion of the directors, to affect significantly the operations of the Group, the results of those operations or the state-of-affairs of the Group in subsequent financial periods.

Auditor's independence declaration

The auditor's independence declaration is included on Page 4 of the Directors' Report for the half-year.

Signed in accordance with a resolution made pursuant to s306(3) of the Corporations Act 2001. On behalf of the Directors

Raymond Shorrocks

Chairman

Brisbane, 9 March 2022

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Galilee Energy Limited published this content on 09 March 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 09 March 2022 04:20:09 UTC.