Galilee Energy : September 2018 Quarterly Report & Appendix 5B 31 October 2018

September 2018 Quarterly Report & Appendix 5B

ASX/MEDIA ANNOUNCEMENT

ASX:GLL

31 October 2018

Highlights

• ❖ Higher capacity pump successfully installed and commissioned at Glenaras 12L.

• ❖ Glenaras 10L and 12L back on continuous production with gas flow back to previously reported level of 15-20 Mscfd from both wells and steadily increasing.

• ❖ Excellent water rates of approximately 3,800 BWPD (barrels of water per day) in aggregate from both wells. Water rates continuing to level off as gas production increases, with both wells now flowing back through the separator.

• ❖ Pump pulled from hole in excellent condition with no significant wearing, scaling or coal fines/solids evident.

• ❖ Direct communication between Glenaras 10L and Glenaras 12L and pressure drawdown continuing in the Glenaras 11L monitoring well.

• ❖ Production will continue to be ramped up over the coming weeks to achieve full reservoir drawdown.

• ❖ Significant progress made by Jemena on stakeholder engagements, government approvals and aerial surveys for the proposed Galilee Gas Pipeline.

• ❖ Galilee Energy Limited ("Galilee Energy" or "the Company") has a strong balance sheet with a 30 September cash position of $7.5 million.

Glenaras Gas Project (ATP 2019) - GLL 100%

The Company's flagship Glenaras Gas Project ("Project") is strategically located in western Queensland's Galilee Basin.

The Permit covers an area of approximately 4000 km2 and is 100% owned and operated by the Company (Figure 1).

The Project has one of the largest remaining uncontracted gas resources on the east coast of Australia with an independently derived and certified Contingent Resource+ within the Betts Creek coals, with a 1C of 308 PJ, a 2C of

2,508 PJ and a 3C of 5,314 PJ. The Company's primary focus is on converting these Contingent Resources to Reserves.

Figure 1 - Glenaras Gas Project

Glenaras Multi-Lateral Pilot

Following the drilling of the three lateral wells and installation of downhole ESPs and all surface facilities, production testing of Glenaras 10L and 12L continued throughout the quarter whilst Glenaras 11L has been used as a pressure observation well. In aggregate, Glenaras 10L and 12L are producing from ~1000m of net coal intersected through the horizontal section in the R3 coal seam primary target.

The Company is pleased to announce that metered gas rates, measured via orifice plate meters at each well separator, are currently around 15-20 Mscfd in aggregate with gas rates continuing to increase as fluid levels in the wells are reduced further and more coal area is drawn down below the critical desorption pressure. Water continues to be produced at excellent rates of approximately 3,800 BWPD.

This follows an upgrade of the facilities, which were originally designed for 2,000 BWPD per well, but have now been upgraded with a higher capacity pump, transformer and VSD on Glenaras 12L, enabling around 3,000 BWPD capacity.

"This has been a tremendous effort to bring both wells back on to continuous production at similar rates to those previously reported and for the fluid levels to be drawn as quickly as they have been, given the workover we have just completed." Managing Director Peter Lansom stated.

In addition, there is continued evidence of direct communication between each of the lateral wells which is enhancing pressure drawdown in the pilot area.

The pilot will be on production for an extended period to de-water and lower the pressure in the surrounding coal to achieve gas flow.

Figure 2 - Glenaras multi-lateral pilot

Figure 3 - Glenaras 11L well

Jemena MoU

Substantial progress has been made by Jemena on its pre-FEED planning for the Galilee Gas Pipeline, including approval received in July from the Queensland government for a Petroleum Survey Licence to allow for on-the-ground surveying of the pipeline investigation corridor from the Glenaras Gas Project to a tie-in to the Queensland gas transmission network north of Wallumbilla.

Jemena has received a Standard Condition Environmental Authority (EA1302) for the Galilee Gas Pipeline and undertaken aerial surveys of the proposed pipeline investigation corridors as part of their application for the Petroleum Survey License.

Jemena has undertaken key stakeholder engagements on the proposed pipeline with local landholders, local government area mayors and councils, state government departments and key industry bodies and groups.

The ecological surveys and constructability surveys which are important elements of the Environmental Impact Statement have also commenced.

Commercial

Figure 4 - Channel to market wellsite

The east coast gas thematic continues to be a powerful one for the Company. The long-term supply outlook for the east coast gas market remains uncertain. Even in a scenario where one or more of the proposed LNG import terminals in New South Wales, Victoria or South Australia proceed, the current gas supply balance is under extreme pressure. Over the mid to long term, it is highly unlikely that existing gas supply will meet total gas demand on the east coast, with resultant import parity pricing for both domestic and export gas sales.

Prices have increased over the last 10 years from as low as $3/GJ to current levels of $8/GJ to $11/GJ, with the production of new onshore gas volumes challenged by regulatory restrictions currently still in place in Victoria and New South Wales. The structurally short, east coast gas market presents an enormous opportunity for the Company's gas assets. With very few other projects in the appraisal or development stage currently capable of meeting this shortfall, the Company is well placed to capitalise on this large potential given the size of our Resource.

With coal seam gas ("CSG") production in Queensland quadrupling 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.

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 exciting opportunity continues to be nurtured at minimal cost but at the same time ensuring we maintain momentum on what is highly prospective acreage in the wealthiest country in South America where there are clear channels to market and gas is currently being imported.

USA Assets

There are no significant expenditure plans within the USA portfolio.

Financials

The cash flow for the Quarter is presented in the attached Appendix 5B report. The Company continues to maintain a very strong cash position of $7.5 million with no debt. The expenditure forecast for the next quarter is predominantly related to ongoing operations at the Glenaras Gas Project with minimal expenditure anticipated elsewhere in the portfolio.

For further information contact:

Peter Lansom

Managing Director Galilee Energy Limited [phone]

ACN:064 957 419

About Galilee

Galilee Energy is focused on creating a mid-tier exploration and production company building on its core strengths in coal seam gas appraisal and development. Its primary area of focus is Queensland where it is appraising the Galilee Basin whilst looking to add further acreage to its portfolio.

Directors	Shares on issue - 204,012,690
Chairman - Ray Shorrocks	Top 20 holders - 51.3%*
Managing Director - Peter Lansom	Directors and Management - 4.3%
Non-executive Director - Dr David King	*As at 24 September 2018
Non-executive Director - Stephen Kelemen
www.galilee-energy.com.au