Petsec Energy : Annual Report to shareholders

A

onlyN

N

O

useU

N

C

personalE

M

E

N

T

For

PETSEC ENERGY LTD

ACN 000 602 700

24th February 2022

Company Announcements

Australian Securities Exchange Limited

Level 4, 20 Bridge Street

SYDNEY NSW 2000

AUSTRALIA

Dear Sir/Madam,

Re: Appendix 4E and 2021 Annual Report

In accordance with ASX Listing Rules 4.3, 4.5 and 4.7, please find attached for immediate release the following documents:

1. Appendix 4E; and
2. 2021 Annual Report

This announcement is authorised for market release by the Board of Directors of the Company.

For further information, please contact:

Paul Gahdmar

Chief Financial Officer & Company Secretary

Petsec Energy Ltd

Tel: [phone]

Fax: [phone]

Petsec Energy Ltd is an independent oil and gas exploration and production company listed on the Australian Stock Exchange. The Company holds interests in two onshore blocks in the Republic of Yemen.

Level 7, Macquarie Business Centre, 167 Macquarie Street, Sydney NSW 2000, Australia

PO Box R204, Royal Exchange NSW 1225, Australia

Telephone [phone] Facsimile (61 2) 9251 2410 Company information is available on: petsec.com.au

On 29 December 2021, the Jordan Appeals Court delivered its final verdict in relation to the Company's US$1.68 million share of the LoC funds, declaring the call on the Block 7 counterparty LoCs was illegal and requiring Arab Bank to transfer the monies back to the Company's QNB bank account and awarding compensation for legal fees and expenses incurred by the Company.

The Arab Bank had 30 days to appeal the decision in the Supreme Court, which it did on 25 January 2022. The Company will defend this appeal to the Supreme Court and will seek further damages.

Extension and variation of the terms of the Convertible Note Facility ("Facility"): The terms of the Facility were renegotiated with the Noteholders effective 31 December 2020 and settled on 18 January 2021, with the key variations including an extension of the redemption date for a three-yearperiod from 23 January 2021 to 23 January 2024, and a reduction of the interest rate from 15% to 10% per annum.

At 31 December 2021, the Group held total cash deposits of US$434,000 (including US$47,000 of restricted deposits).

PETSEC ENERGY LTD

1

Petsec Energy Ltd

December 2021 Appendix 4E & 2021 Annual Report

Petsec Energy Ltd

Results for announcement to market

For the twelve months ended 31 December 2021

Key data - Twelve months ended 31 December 2021 compared to the twelve months ended 31 December 2020

only		Twelve Months to	Twelve Months to	% Increase/
	31 December 2021	31 December 2020	(Decrease)
	Key Operating/Financial Data
	Net production (MMcfe 1)	-	111	(100%)
	N t revenues after royalties (US$m)	-	0.2	(100%)
	N t profit/(loss) after tax (US$m)	(3.0)	1.3	n/a
	Add: Depreciation, depletion, amortisation & reclamation expense (US$m)	-	0.1	(100%)
	Add: Dry hole, impairment and abandonment expense (US$m)	-	3.7	(100%)
	Add: Net financial expense (US$m)	2.4	3.6	(33%)
	Less: Gain on disposal of assets and subsidiaries	-	(9.4)	n/a
	Less: Income tax benefit	-	(0.2)	n/a
useEBITDAX (US$m) 2	(0.6)	(0.9)	n/a
	Other Financial Data
	Acquisition, exploration and development expenditure (US$m)	-	-	-
	USD/AUD average exchange rate	0.7490	0.6943	8%
1	MMcfe = million cubic feet of gas equivalent (conversion ratio: one barrel of oil equals six thousand cubic feet of gas).
2	Earnings before interest (financial income and expense), income tax, depreciation, depletion, and amortisation and exploration (including dry hole and impairment expense). EBITDAX is a
		non-IFRS number and is unaudited.
	Key Points
		Net loss after tax of US$3.0 million for the twelve months to 31 December 2021 after the recognition of net financial expense of US$2.4 million.
		The Company reduced its share capital and accumulated losses by US$196 million in accordance with Section 258F of the Corporations Act
		2001, representing historical realised losses associated with the Company's discontinued operations in the USA, Canada and China.
		The capital reduction is a technical adjustment which has no impact on the Company's assets, net assets, financial results, cashflow or the
		number of shares on issue.
		YEMEN: Damis (Block S-1)Production Licence: Preparations continue for the restart of oil production from the An Nagyah Oilfield.
personal	In July 2021, the Block S-1 Joint Venture ("JV") submitted its 2021 Work Program and Budget ("WP&B") and restart plan to the Ministry of Oil
and Minerals ("MoM") in July 2021 for approval, together with payment of the 2021 MoM bonuses for the sum of US$450,000. Plans were to
produce initially up to 5,000 bopd from some four wells with the oil trucked to the Block 4 pipeline and thence to Bir Ali for export and sale, then
for the produced oil to flow through the Block 5 to Block 4 pipeline when it is commissioned, so as to increase production.
In late December 2021, the JV held an Operating Committee Meeting ("OCM") and Technical Committee Meeting ("TCM") at which a revised
restart plan and the 2022 WP&B was discussed and approved. The revised plans are to initially produce 1,000 bopd via a single well tied into a
single well separator and tanks during the recommissioning process of the CPF. Production rates will be increased initially to 5,000 bopd once
		major equipment has been recommissioned, thence to 10,000 bopd.
		The Operator, Octavia Energy (Block S-1), Inc., is seeking Hadi Government support and clearance from the Oil Ministry in Aden, to
		recommence field operations and restart production. The Operator is ready to occupy the site and, when cleared to do so by the Yemen Oil
		Ministry and the security situation has improved, could reopen the camp within a month of approval and have the An Nagyah Oilfield commence
		production within two months of opening the camp.
		YEMEN: Al Barqa, Block 7 Exploration Licence: The Company proceeded with legal action against Arab Bank in Amman, Jordan to recover
For	the US$2.73 million in counterparty LoC funds claimed and transferred to Arab Bank on the basis of the illegal claim by the Houthi to Arab Bank,
by Qatar National Bank (QNB) acting for the Company and Commonwealth Bank of Australia (CBA) acting for Mitsui.
On 17 February 2021, the Court of First Instance in Jordan determined that the Houthi claim against the Block 7 Letter of Credit ("LoC") was

illegal and counterparty LoC funds received by Arab Bank could not be transferred to the Houthi.





Petsec Energy Ltd

December 2021 Appendix 4E & 2021 Annual Report

Commentary on results

General

The Appendix 4E results and the accompanying consolidated final financial statements are prepared in accordance with Australian Accounting Standards (AASBs) and International Financial Reporting Standards (IFRS) and are presented in United States dollars.

Current period: Twelve months ended 31 December 2021; Previous corresponding period: Twelve months ended 31 December 2020.

Key Operating/Financial Data

only	 No production or oil and gas revenues were generated during the current period following the sale of the Group's U.S. oil and
gas interests with effect from 1 July 2020. In the previous corresponding period, the Group achieved net production of 111
	MMcfe (99 MMcf of gas and 1,984 barrels of oil/condensate) and oil and gas revenues of US$0.2 million.
	 The Group recorded negative earnings before interest, income tax, depreciation, depletion and amortisation, and exploration
	expense ("EBITDAX") of US$0.6 million for the current period (previous corresponding period: negative EBITDAX of US$0.9
	million).
	 The Group reported a net loss after tax of US$3.0 million for the current period (previous corresponding period: net profit after tax
use	of US$1.3 million) after the recognition of net financial expense of US$2.4 million.
Net financial expense of US$2.4 million (previous corresponding period: US$3.6 million) comprised expenditure incurred in
connection with the Convertible Note Facility ("Facility"), including Facility fees, interest expense and movements in the fair value
of the financial derivative component of the Facility. The net effect of which was offset to some extent by the write-back of a prior
period over accrual of the Facility fees incurred in relation to the 40 million shares issued to Sing Rim Pte Ltd in accordance with
the terms of the 28 June 2019 Facility Variation Agreement.

Other Financial Data

• No acquisition, exploration and development expenditures were incurred during the current period (previous corresponding period: nil).

Dividend

personalPetsec Energy Ltd does not propose the payment of a dividend in respect of the twelve months ended 31 December 2021.

Net Tangible Asset Backing

The Group's net tangible asset backing per ordinary security for the current period was negative US$0.05 (previous corresponding period: egative US$0.05).

For

PETSEC ENERGY LTD

2

Annual Report

For the year ended 31 December 2021

only
			Contents			Page
			Corporate Objective and Strategy	4
			Company Profile and History			4
			2021 Year in Review			5
			Chairman's Report			8
			Directors' Report			12
			Lead Auditor's Independence Declaration	32
			Financial Report for the Year Ended 31 December 2021	33
			Directors' Declaration			70
			Independent Auditor's Report	71
useExploration and Production Interests	76
personal	Shareholder Information			77
5 Year Comparative Data Summary	78
Glossary			79
			Corporate Directory			80
				Petsec Energy Ltd
				ABN 92 000 602 700
				The Company is listed on the Australian Stock Exchange (symbol: PSA) and its corporate office is located at Level 7, Macquarie
				Business Centre, 167 Macquarie Street Sydney, NSW 2000 Australia.
				The Company holds interests in two onshore blocks in the Republic of Yemen, 80 kilometres apart in the Marib Basin - Damis
				Block S-1, Production Licence and Al Barqa, Block 7 Exploration Licence.
				Annual General Meeting
				To be held at: 11 a.m. (AEST) on Friday, 6 May 2022, at Boardroom Pty Limited, Level 12, 225 George Street Sydney, NSW
				Australia.
				Capital Structure
				At 24 February 2022
For		Australia
	Exchange		ASX
	Ticker		PSA
	Shares on issue		488.6 million
	Share price		A$0.021
				Market capitalisation		A$10.3 million

PETSEC ENERGY LTD

3

Annual Report

For the year ended 31 December 2021

onlyCorporate Objective and Strategy

Petsec Energy's corporate objective is to increase shareholder value by increasing the net asset value of the Company through successful oil and gas exploration, development, and production, thereby building Petsec Energy into a significant mid-tier oil and gas exploration and production company, respected in the industry for its technical skills, timely and cost effective delivery of projects, and the integrity with which it conducts its business.

The Company's strategy to meet the above objective is to maximise the value of its current reserves onshore in the Republic of Yemen and to pursue opportunities to acquire other oil and gas reserves as they become available.

Prior to 2014, the strategic and geographical focus of the Company was predominately in Louisiana, USA. This focus shifted in

2014 to include oil reserve acquisitions in the Middle East & North African (MENA) region, specifically in Yemen:

use	•	During a period of low oil prices and difficult political climate which prohibits much larger companies from operating,
	and where our network of contacts and relationships could advance projects.
•	With near-term production capacity, which hold the potential to substantially increase the value of the Company.

Yemen, located on the Arabian Plate, contains geology comparable to that of Saudi Arabia, comprising the equivalent Petroleum Systems to those of Saudi Arabia. Yemen is under explored and under developed holding the potential for the discovery of large oilfields.

personalIn April 2020, as a consequence of the effects of the COVID-19 pandemic, the Company reviewed its business plan, and determined to substantially reduce its operating costs, to close its USA and Canadian businesses, due to the substantially reduced oil and natural gas prices and the demand on capital for reinvestment in the USA oil and gas assets, and focus solely on the monetisation of its oil interests in Yemen, the Damis Block S-1 Production Licence which required modest capital investment to generate substantial cashflow and Al Barqa, Block 7 Exploration Permit which held substantial discovered oil resources awaiting development.

Company Profile and History

Petsec Energy Ltd is an independent oil and gas exploration and production company listed on the Australian Stock Exchange (symbol: PSA).

The Company was established on 7 December 1967 and its registered Australian Company Number is: 000 602 700.

Historically, the Company through its wholly owned subsidiary companies Petsec Energy Inc. and Petsec Exploration and Production LLC had operations in the shallow waters of the Gulf of Mexico and onshore Louisiana, USA. The Company had been active in the USA since 1989 and had explored and produced offshore in the Gulf of Mexico and onshore in Louisiana, and Texas. The Company has drilled over 100 wells in the USA and had a high success rate of 74% resulting in the discovery of over 30 oil and gas fields, total reserves of 450 billion cubic feet of natural gas equivalent ("Bcfe"), and production of 217 Bcfe.

The Company sold its U.S. oil and gas interests in October 2020, and dissolved its U.S. subsidiaries.

ForFrom 2002 to 2011, the Company was active in the Beibu Gulf, China, participating in the drilling of 7 exploration wells resulting in three oil fields being discovered. The Company sold its interest in these fields in 2011.

The Company currently holds interests onshore in the Republic of Yemen through its wholly owned subsidiary companies West Yemen Oil (Block S-1), Inc., Oil Search (ROY) Limited, and Petsec Energy Yemen Limited.

In 2014, the Company determined that it wished to pursue both an exploration and an oil reserves acquisitions strategy. Following a strategic review, the Company identified the MENA region as a growth area for the Company where licences with producing oil reserves or near development reserves, with associated high exploration potential, can be acquired at lower prices than those in the USA.

In 2014, a 35% non-operated working interest in a large licence (Block 7 - 5,000 square kilometres) area was acquired in Yemen. Two wells drilled on the Block by Oil Search Ltd in 2010 and 2011 discovered the Al Meashar Oilfield, with undeveloped target resources of 11 to 110 million barrels ("MMbbl") of oil. The block also has eight prospects and leads identified with 2D and 3D seismic, the larger four prospects range between 174 and 439 MMbbl of oil potential. In 2018, the Company acquired a further 40% working interest in the block, securing the Block 7 operatorship and increasing its total holdings in Block 7 to a 75% working interest.

PETSEC ENERGY LTD

4