Galilee Energy : Glenaras Gas Pilot – Operations Update 23 September 2021

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2021

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	13
Consolidated statement of profit or loss and other comprehensive income	14
Consolidated statement of financial position	15
Consolidated statement of changes in equity	16
Consolidated statement of cash flows	17
Notes to the financial statements	19
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 2021. 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, Managing Director since 18/06/2021
Peter Lansom	Appointed Director 24/09/2013, Retired as Director & Managing Director 18/06/2021
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
Greg Columbus	Appointed Director 17/09/2020, Non-executive Director since 17/09/2020

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 this 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. Outlook for new gas supply into the east coast market is bleak, with gas supply shortfalls forecast from 2023 by ACCC and AEMO, this timing accords well with the Company's significant uncontracted resource base and the cost competitiveness of our assets in comparison with alternative gas supply sources.

4. Results from operations

The net loss for the year from continuing operations was $18.5 million (2020: $17 million).

The loss for the year primarily reflects expenditure on drilling and pump enhancements at the Glenaras multi well pilot (Pilot), Glenaras Pilot operating costs and water management projects totalling $18 million (2020: $14 million).

5. Dividends

No dividends have been declared, provided for, or paid in respect of the financial year ended 30 June 2021 (2020: Nil).

6. Review of operations
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.
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, as a
result of the extensive historical exploration activity within the permit.
Significant activity was undertaken on the ATP 2019 permit during the year.
Following on from the results of the Glenaras 17A observation well and the
Schlumberger reservoir simulation study, an additional five vertical wells were	Figure 1.

Page | 1

Galilee Energy Limited

Directors' Report (continued)

6. Review of operations (continued)

drilled safely, on time and within budget. The objective of these additional wells was to accelerate the dewatering and consequent reservoir pressure drawdown, with the objective of bringing forward the onset of commercial gas production.

During the latter part of the reporting period we reached a significant milestone with direct measurements confirming the central area of the pilot is below critical desorption pressure, and producing increasing gas, along with progressive pressure depletion in the outer vertical wells.

The pressure depletion in the outer wells, including a well 8 kms from the central pilot area, evidences excellent lateral connectivity in the coal seams across a large area of the permit. This augurs well for full field project economics as well as providing context for the additional amount of time taken thus far to reduce the pressure in the pilot area.

The accelerated dewatering required a consequential increase in water handling capacity, and to this end the Company now has three irrigation systems fully operational, with the fourth cut of sorghum under irrigation at the first pivot area.

Galilee has further secured the entirety of the company's extensive Contingent Resource in ATP 2019 with the concurrent award of two new Potential Commercial Areas (PCAs). PCAs 314 and 315 have been awarded for 15 years and 10 years respectively. The award of these two PCAs is a key step towards commercialisation of the Glenaras Gas Project as it is a

clear acknowledgement by the Queensland Government of the highly material certified Contingent Resource, providing Galilee with the required time to mature these resources to Reserves and produce gas to market.

In other areas in the Company's portfolio, evaluation of several conventional gas leads in ATP 2050 is ongoing. Any new discovery would be strategically located for access to gas markets and existing associated gathering and processing infrastructure. Exploration work is also progressing across the ATP 2043 Kumbarilla project, and has identified several prospective, conventional oil and gas leads, along with increased definition of the Walloon Subgroup coal seam gas play. These opportunities will continue to be matured towards potential exploration drilling.

Late in the reporting period, long serving Managing Director Peter Lansom retired as Managing Director and a Director of the Company, although the company retains access to his extensive subsurface engineering experience and expertise. The role of Managing Director has been filled on an interim basis by current non-executive Director and former Chairman Dr David King.

In addition, Mr David Woodley and Mr Jason Whitcombe were appointed to the permanent senior staff positions of Chief Operating Officer and Operations Manager respectively. Both David and Jason have been embedded in key roles within the Company since the first quarter of 2021, and have extensive experience working on large scale commercial coal seam gas developments with other major Queensland CSG operators, which contributed greatly to the recent successful implementation of the pump enhancement programme.

The changes implemented are the culmination of a strategic review undertaken by a designated Board committee and bolster the existing experienced leadership and highly qualified technical and commercial management. These changes cover all aspects of project development and Reserves growth and position the Company well as it transitions to commercialisation of its natural gas assets. In anticipation of this transition, and as part of this review process, the Company is well advanced on developing its comprehensive, fit-for-purpose ESG statement.

Despite the considerable disruption on global markets due to the uncertainty surrounding the COVID-19 pandemic, the Galilee Board and management teams have successfully worked through the volatility and uncertainty and positioned Galilee to deliver on its growth plans and have maintained a strong financial position. The Company proactively adapted its operating procedures both in head office and field operations in accordance with the government requirements associated with the COVID-19 pandemic. The safety of our staff and all contractors is paramount and with the revised operating procedures there has been no disruption thus far to the drilling programmes or field operations.

Galilee's diversified gas acreage in Queensland has the potential to meet the forecast supply-demand gap that exists on the east coast of Australia from around 2022.. The infrastructure partnership Galilee has with Jemena underpins our Glenaras Gas Project development plans, which has been bolstered following the signing of Heads of Agreements for the sale of gas to both Alinta Energy and Sunshot Energy in the past 12 months.

Page | 2

Galilee Energy Limited

Directors' Report (continued)

6. Review of operations (continued)

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.

The Company manages both operational and corporate 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 across the Companies' business 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 operational and corporate risks of the business.

7. 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.

8. 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. The Company is not aware of any breaches in environmental regulations in relation to its interests in the USA and South America.

9. Shares under option

During the year 8,000,000 share options were issued to directors as part of their remuneration.

Additionally, during the year 2,500,000 share options were granted to employees and contractors.

			Exercise			No. of
No. of Options	Grant	Fair Value	Price	Expiry	Vesting	Options
Granted	Date	(cents)	(cents)	Date	Date	Exercisable
8,000,000	1-Dec-20	27.5	150.0	1-Dec-23	1-Dec-20	8,000,000
2,500,000	18-Feb-21	33.5	150.0	1-Dec-23	18-Feb-21	2,500,000
10,500,000						10,500,000

10. Shares issued on the exercise of options

No options have been exercised during the year ended 30 June 2021 and up to the date of this report.

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.

Page | 3