Galilee Energy : Consolidated Financial Statements Year Ended 30 June 2019 13 September 2019

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

Galilee Energy Limited

ABN 11 064 957 419

and controlled entities

Galilee Energy Limited

Contents

Page

number

Directors' report	1
Remuneration report	5
Auditor's independence declaration	12
Consolidated statement of profit or loss and other comprehensive income	13
Consolidated statement of financial position	14
Consolidated statement of changes in equity	15
Consolidated statement of cash flows	16
Notes to the financial statements	17
Directors' declaration	46
Independent auditors report	47

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 year ended 30 June 2019. The financial statements have been reviewed and approved by the directors based on the recommendation of the Audit Committee.

1. Directors

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

Dr David King	Appointed Director 24/09/2013, Non-executive Director since 31/03/18
Peter Lansom	Appointed Director 24/09/2013, Managing Director since 31/10/2013
Ray Shorrocks	Appointed Director 02/12/13, Non-executive Chairman since 31/03/18
Stephen Kelemen	Appointed Director 31/03/2018, Non-executive Director since 31/03/18
Gordon Grieve	Appointed Director 06/09/2019, Non-executive Director since 06/09/19

2. Principal activities

Galilee Energy Limited (Galilee) is a Brisbane based energy company with a portfolio of assets primarily focussed 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.

3. Strategy

The Company's strategy is to build a balanced portfolio of short and long term assets in the conventional and unconventional hydrocarbon sector while continuing to focus on commercialising the Glenaras Gas Project.

4. Results from operations

The loss for the year was $11.450 million (2018: loss of $10.316 million).

The loss for the year reflects the exploration and evaluation expenditure incurred on the Galilee Basin permit of $7.754 million in addition to staff costs and overheads attributable to progressing the Glenaras Gas Project (2018 $10.600 million).

5. Dividends

No dividends were paid to members during the financial year. Since the end of the financial year, the directors have not recommended the payment of any dividend.

6. Review of operations

Figure 1.

Glenaras Gas Project (ATP 2019) - GLL 100%

The Company's flagship Glenaras Gas Project lies within the highly prospective ATP2019 permit in Queensland's Galilee Basin. The permit covers an area of approximately 4000 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 2508 PJ and a 3C of 5314 PJ, as a result of the extensive historical exploration activity within the permit.

Significant activity was undertaken on the ATP2019 permit during the year with the successful completion of the enhanced Glenaras multi-lateral pilot which included the drilling of the Glenaras 14L, 15L and 16L wells. The lateral pilot (see Figure 2) is now on continuous production with all five wells flowing water at excellent rates. The pilot will be on production for an extended period to de-water and lower the pressure in the surrounding coal to achieve a commercial gas flow.

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Galilee Energy Limited

Directors' Report (continued)

6. Review of operations (continued)

Glenaras Gas Project (ATP 2019) - GLL 100% (continued)

Figure 2.

Excellent progress has been made by Jemena on stakeholder engagements, government approvals and aerial surveys for the proposed Galilee gas pipeline which would deliver gas produced by Galilee to the east coast market. Jemena has passed significant milestone for the Galilee Gas Pipeline route connecting the Glenaras Gas Project to the east coast gas market with the formal lodgement of the Voluntary Environmental Impact Statement Application and EPBC Act referral with the relevant authorities.

Galilee has a deep commitment to working with community stakeholders in the areas within which we operate. Galilee operates on the basis of mutual respect and co-existence with all of its stakeholders as the key pillar of its community relations with government, landowners and the broader community.

Galilee's strategy is to become a material supplier of gas to the eastern Australian gas market and the east coast gas thematic continues to be a powerful one for the Company. The east coast gas market is structurally short of gas and additional supply is required to meet the market over the intermediate to long term, providing opportunity to Galilee. Over the mid to long term it is highly unlikely that existing gas supply will be sufficient to meet total gas demand on the east coast, resulting in the potential for import parity pricing for both domestic and export gas sales. With coal seam gas ("CSG") production in Queensland increasing significantly over the past few years in response to LNG exports, this is a clear demonstration of the world class quality of Australian CSG and underpins the Company's focus on CSG.

Galilee has expanded its portfolio of gas assets and diversified its position after having been officially granted operatorship and 100% working interest in the exploration permit ATP 2043 in the overlapping Surat and Bowen Basins, effective 1st August 2019 for a term of 6 years. The acreage was made available for tender as part of the Queensland Government's recent release of new petroleum resource areas, designed to stimulate oil and gas exploration in Queensland and provide sustainable benefits to local communities and the broader Queensland economy. ATP 2043 is a 384km2, high quality exploration tenure with dual prospectivity within both the world-class Walloon Subgroup CSG fairway and the oil and gas prone eastern flank of the Taroom Trough in the Bowen Basin. This is a continuation of the Company's strategy of maintaining high quality acreage at 100% working interest, with the added advantage of exposure to both conventional and unconventional targets in a different, high quality Basin, proximate to existing infrastructure and with clear channels to market.

Galilee successfully completed two targeted, private placements to sophisticated and institutional investors raising approximately $18.7 million. The company continues to maintain a strong cash position with no debt.

US Assets

There was no activity for the period and no significant expenditure plans within the US portfolio.

Chile

There was no activity for the period and no significant expenditure plans for Chile.

Corporate

On 8 March 2019, the Company relocated to level 6, 167 Eagle Street, Brisbane.

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Galilee Energy Limited

Directors' Report (continued)

7. Significant changes in state of affairs

During the year, the Company successfully completed two share placements raising $18.7 million to fund its ongoing exploration activities in the Galilee Basin. There were no other significant changes in the Company's activities.

8. Matters subsequent to the end of financial year

No matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the Company, the results of those operations or the state of affairs of the Company in future financial years.

9. Environmental regulation

The Company conducts its operations in compliance with the Queensland Petroleum and Gas (Production and Safety) Act 2004. Environmental considerations are reviewed with and approved by the Queensland Department of Environment and Science under the Environmental Protection Act 1994. The Company has not recorded any breaches of any of its environmental licence conditions nor has it been notified of any material environmental breaches by any government agency during the year. In line with our increased activity, Queensland regulators conducted environmental inspections and audits and no improvement or infringement notices were issued. The Company is not aware of any breaches in environmental regulations in relation to its interests in the USA and South America.

10. Options

During the year 35,821,667 share options were issued to investors who participated in the two share placements. Further information is included in Note 16, Share Based Payments.

11. Directors and officer's insurance

The Company has agreed to indemnify the directors, officers and secretaries of the Company and its subsidiaries against all liabilities to another person (other than the Company or a related body corporate) that may arise from their position as a director or officer of the Company, except where the liability arises out of conduct involving a lack of good faith. The agreement stipulates that the Company will meet the full amount of any such liabilities, including costs and expenses.

During the financial year, the Company paid premiums for directors' and officers' liability insurance. The contract prohibits disclosure of the details of the nature of the liabilities covered or the premium paid.

The Company has not indemnified its auditors, BDO Audit Pty Ltd.

12. Proceedings on behalf of the Company

No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purposes of taking responsibility on behalf of the Company for all or any part of those proceedings.

13. Meetings of directors

The number of meetings of the Company's board of directors and of the audit committee during the year ended 30 June 2019, and the numbers of meetings attended by each director were:

		Meetings of	Meetings of Audit	Meetings of Risk	Remuneration
	Name		Directors	Committee	Committee	Committee
		A		B	A	B	A	B	A	B
Dr David King	7		7	2	2	1	1	1	1
Peter Lansom	7		7	*	*	*	*	*	*
Ray Shorrocks	7		7	*	*	*	*	1	1
Stephen Kelemen	7		7	2	2	1	1	1	1

A = Number of meetings eligible to attend B = Number of meetings attended

* = Not member of committee

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