Galilee Energy : Consolidated Financial Statements for year ended 30 June 2020 25 September 2020

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2020

Galilee Energy Limited

ABN 11 064 957 419

and controlled entities

Galilee Energy Limited

Contents

Page

number

Directors' report	1
Remuneration report	6
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	18
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 2020. 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 31/03/2018
Peter Lansom	Appointed Director 24/09/2013, Managing Director since 31/10/2013
Ray Shorrocks	Appointed Director 02/12/2013, Non-executive Chairman since 31/03/2018
Stephen Kelemen	Appointed Director 31/03/2018, Non-executive Director since 31/03/2018
Gordon Grieve	Appointed Director 06/09/2019, Non-executive Director since 06/09/2019

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 and further details are contained within the Managing Director's Report provided earlier in the 2020 Annual Report and in the Review of Operations below.

3. 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. Notwithstanding the short term increased availability of gas and lower spot gas prices, analysis by the Australian Energy Market Operator (AEMO) is consistent with that of the Company, validating our strategy which predicts a tightening of the eastern Australian gas market from around 2022 onwards. This timing accords well with the Company's significant uncontracted resource base and the likely cost competitiveness of its assets in comparison with alternative gas supply sources.

4. Results from operations

The net loss for the year from continuing operations was $17 million (2019: $11 million).

The loss for the year primarily reflects expenditure on Glenaras Gas Project operations, undertaking remediation activity in ATP 2019 and the Kumbarilla drilling programme totalling $14 million (2019: $8 million).

5. Dividends

No dividends have been declared, provided for or paid in respect of the financial year ended 30 June 2020 (2019: Nil).

6. 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 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 2,508 PJ and a 3C of 5,314 PJ, as a result of the extensive historical exploration activity within the permit.

The Glenaras multi-well pilot has continued to perform solidly through the year and was enhanced with the drilling of the Glenaras 17A monitoring well which has provided significant new positive information on the reservoir characteristics and vertical connectivity within the Betts Creek coal sequence. Importantly, data obtained from Glenaras 17A indicates that the Betts Creek coal sequence is isolated from the significant aquifer systems, namely the overlying Hutton sandstone and Great Artesian Basin.

Figure 1.

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Galilee Energy Limited

Directors' Report (continued)

6. Review of operations (continued)

Despite the considerable disruption on global markets due to the uncertainty surrounding the COVID-19 pandemic, the Galilee Board and management teams have considerable experience in the sector and have successfully worked through such market volatility and uncertainty and through prudent management we are in a position to focus on the delivery of our growth plans due to the strong financial position of the Company. The Company proactively adapted its operating procedures both in head office and field operations in accordance with the Federal requirements associated with the COVID-19 pandemic. The safety of our staff and all contractors was paramount with the revised operating procedures and there was no disruption to the drilling programmes or field operations.

The Board acknowledge that these events are serious matters but the Board does not believe the COVID-19 pandemic will impact at all on the ability of the Company to prosecute its strategy nor on its ability to continue as a going concern and we remain focussed on our clear strategy of becoming a significant supplier of gas into the east coast markets. With our robust balance sheet, high-quality,low-cost nature of our assets and a disciplined approach to capital allocation, we are well positioned to withstand the current market volatility.

Galilee has a high quality portfolio of acreage across three different basins in Queensland with one of the largest contingent gas resource bases on the east coast. In addition, all acreage is held at 100% working interest and these assets offer both conventional and unconventional targets with a clear pathway to market.

Galilee has no direct exposure to global oil prices and our diversified gas acreage in Queensland provides opportunities to meet the forecast supply-demand gap that exists on the east coast of Australia from around 2022 due to the continuing uncertainty regarding indigenous gas supply. The infrastructure partnership Galilee has with Jemena underpins our Glenaras Gas Project development plans.

Significant work has progressed on Glenaras Gas Project water management during the year, including the development of a management plan to utilise produced water for irrigation purposes. Work was successfully completed on remediation of the legacy Rodney Creek and Glenaras vertical pilot wells during the financial year.

The Company manages risk in accordance with its risk management policy to ensure that the risks associated with oil and gas exploration activities are identified, measured and mitigated to the lowest practicable level. Risk assessments are conducted on a regular basis by the management team and are reported through to the Risk Committee. The Board and delegated Risk Management Committee are responsible for overseeing the risk management framework. Policies and procedures are continually developed, reviewed and enhanced as appropriate to manage the current and changing risks of the business.

The Kumbarilla exploration programme in ATP 2043 was completed safely and within budget. The three wells, Kumbarilla Central 1, 2 and 3, were drilled through the complete Walloon Subgroup section and acquired valuable data that will now be used to further evaluate the permit's coal seam gas potential. Reprocessing of over 675km of existing 2D seismic data within ATP 2043 is approaching completion and has provided significantly improved, high-quality imaging of the subsurface structural and stratigraphic architecture.

Galilee was confirmed as preferred tenderer of ATP 2050, the Springsure Project, with 100% equity. This 1,425km2 permit in the northern Denison Trough has multiple coal seam gas and conventional gas play types with considerable resource potential immediately adjacent to the northern Denison Trough gas fields. Initial exploration work at the Springsure Project is progressing well, with the reprocessing of over 700km of existing 2D seismic.

As at the end of the financial year, Galilee was focussing on the performance and the newly acquired subsurface data at the Glenaras Gas Project, including initiating an external reservoir simulation study by Schlumberger to analyse the current production and pressure performance of the Glenaras pilot to optimise future drilling and development options.

7. Matters subsequent to the end of financial year

The sum of $4 million was received on 13 July 2020 with respect to an R&D tax offset claim. Neither this matter or any other matters or circumstances will significantly affect the operations of the Company, the results of those operations or the state of affairs of the Company in future financial years.

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