Galilee Energy : Consolidated Financial Statements for the Half-Year ended December 31, 2018 1 March 2019

CONSOLIDATED FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 2018

Galilee Energy Limited

ABN 11 064 957 419 and controlled entities

Galilee Energy Limited
Contents
Page
number
Directors' report	1
Auditor's independence declaration	3
Consolidated statement of profit or loss and other comprehensive income	4
Consolidated statement of financial position	5
Consolidated statement of changes in equity	6
Consolidated statement of cash flows	7
Notes to the half-year financial statements	8
Directors' declaration	16
Independent auditor's review report	17

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 2018.

Directors

The directors of Galilee in office during the half-year and up to the date of this report were: Ray Shorrocks - Non-executive Chairman since 31/3/18 Appointed Director 02/12/13

Dr David King - Non-executive Appointed Director 24/09/2013

Peter Lansom - Managing Director since 31/10/2013 Appointed Director 24/09/2013

Stephen Kelemen - Non-executive Appointed Director 31/3/18

Principal Activities

Galilee Energy Limited (Galilee) is a Brisbane based energy company with a portfolio spanning Australia, Chile and North America.

The principal activity of the consolidated entity is oil and gas exploration and production. The foundation asset of the Company is the development of coal seam gas in the Galilee Basin near Longreach in Queensland. In addition, the Company has oil and gas projects in the USA and South America.

Results from operations

The loss for the half-year ended 31 December 2018 was $2,026,112 (31 December 2017: $1,212,687). The material components of the loss relate to exploration expenditure on the Glenaras pilot operations amounting to $747,724 net after the receipt of $1,099,618 insurance recovery of "lost in hole" costs incurred in the prior financial year.

Review of Operations

1. Glenaras Gas Project (ATP 2019) - GLL 100%

The Company's primary focus remains the flagship Glenaras Gas Project ("Project") in the highly prospective ATP2019 permit ("Permit") strategically located in western Queensland's Galilee Basin. The Permit covers an area of approximately 4000 km2 and is 100% owned and operated by Galilee Energy Limited.

The Project contains a significant, independently derived and certified coal seam gas Contingent Resource within the Betts Creek coals as follows:

Glenaras Gas Project (ATP 2019)

Contingent Resource Estimates (PJ)

Category

Resource Estimate (PJ)

The Contingent Resource estimation was undertaken by MHA Petroleum Consultants LLC (MHA) in September 2015. The Project has one of the largest volumes of remaining uncontracted gas resources on the east

1C 308

coast of Australia.

2C 2,508

3C 5,314

5,314

In October 2017 Galilee announced it had signed a binding agreement with Jemena to work together towards agreed development milestones that will fast-track plans to deliver Galilee Energy gas to the east coast market. Jemena are progressing works and have established a project team who are preparing to award surveying, environmental and cultural heritage work and pipeline development with the aim of delivering gas to Barcaldine by 2020.

1C

2C

3C

Multi-Lateral Pilot

The Glenaras pilot wells continue to perform strongly, consistent with draining within a high quality, bounded coal seam with no evidence of material contribution from adjacent sandstones.

Metered gas rates, measured via orifice plate meters at each well separator, have remained relatively stable whilst water continues to be produced at excellent rates of approximately 3,000 BWPD (barrels of water per day) in aggregate and still declining gradually.

Evidence of pressure communication between each of the lateral wells suggests the pilot is accessing a significant drainage area which augurs well for economic gas recovery once the coal seam depressurises below the critical desorption pressure.

Directors' report (continued)

Review of Operations (continued)

A 3-D representation of the three wells is provided as Figure 1 below:

Figure 1: 3-D representation

Lavaca County - Texas Gulf Coast

Galilee holds a large lease position in JV with other parties over the Lower Wilcox play in Lavaca County, Texas. No exploration activities were undertaken in the half year.

Kansas Shallow Oil & Gas (farming in to earn up to 75%WI)

Galilee has a 345,000-acre Area of Mutual Interest in Meade County, Kansas. Galilee completed a 3D seismic survey over a portion of this acreage in early 2015. Since that time Galilee has refined the prospects identified by the survey and has identified a number of drillable prospects. Galilee is the Operator for the JV. There is no planned activity for this asset at this stage.

Chile

The Company continues to progress the next phase of the exploration contract application (CEOP) over an area of almost 6,000 sq.km in the Southern Magallanes Basin. This opportunity continues to be nurtured at minimal cost.

Auditor's independence declaration

The auditor's independence declaration is included on Page 3 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, 28 February 2019

Auditor's Independence Declaration

Tel: [phone] Fax: [phone]

Level 10, 12 Creek St Brisbane QLD 4000

www.bdo.com.au

GPO Box 457 Brisbane QLD 4001 Australia

DECLARATION OF INDEPENDENCE BY T J KENDALL TO THE DIRECTORS OF GALILEE ENERGY LIMITED

As lead auditor of Galilee Energy Limited for the half-year ended 31 December 2018, I declare that, to the best of my knowledge and belief, there have been:

• 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the review; and

• 2. No contraventions of any applicable code of professional conduct in relation to the review.

This declaration is in respect of Galilee Energy Limited and the entities it controlled during the period.

T J Kendall

Director

BDO Audit Pty Ltd

Brisbane, 28 February 2019

BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under ProfessionalStandards Legislation, other than for the acts or omissions of financial services licensees.