2015 ANNUAL RESULTS

FRONTERA RESOURCES CORPORATION

Houston, Texas, U.S.A. - 30 June 2016

 FRONTERA RESOURCES RELEASES 2015 ANNUAL RESULTS

Frontera Resources Corporation (AIM: FRR), an independent oil and gas exploration and production company ("Frontera" or the "Company"), today releases its audited final results for the year ended 31 December 2015.

2015 Annual Results: Highlights

- Revenues from crude oil and gas sales for 2015 totaled $3.7 million.

- Net loss of $20.5 million, or $0.007 per share on a fully diluted basis. Of this total, approximately $5 million is reflected in one-time charges associated with recorded impairment and inventory related accounting due to significant decrease of crude oil prices.

Update

Since the Company's announcement on 16 May 2016, ongoing technical study of results from workover, drilling, and stimulation completion programs associated with its ongoing Oil Window and Gas Window operations at its South Kakheti Gas Complex and Shallow Fields Production Unit have provided the basis for design and implementation of an accelerated and more technically advanced work program over the remainder of this year and next year. The Company expects that this planned program will result in increased revenue from exploration related pilot production programs for oil and gas.

As announced in the Circular issued on 10 June 2016, the resolutions of which were duly passed at the General Meeting held on 28 June 2016, the Company will progress its planned work programs by undertaking the following:

(1) Completing service agreements with two strategic service providers in Georgia ("Service Providers") whereby the Company will procure an aggregate US$4,000,000 worth of oil field services in support of its planned 2016 and 2017 Work Programs from the Service Providers in exchange for the issuance of new Ordinary Shares in the Company issued to the Service Providers. The number of shares to be issued will be determined based on an average of the daily volume weighted average prices of the shares traded during the 15 consecutive trading days beginning on 28 June 2016. To date, the Service Providers have become strategic alliance members of the Company's on-going operations. In this context, the Service Providers provide key oil field services that permit the Company to advance its work in the most cost efficient manner possible in contrast to mobilizing similar services from outside of Georgia and/or building associated in-house capabilities. The Service Providers will provide: i) supporting equipment and labor, including up to four drilling and workover rigs; ii) transportation services for handling/moving produced oil and associated liquids within field processing operations; iii) maintenance services for oil and gas transportation infrastructure and access roads; and iv) maintenance services and operational support of Company owned oil field equipment.

(2) The Company has entered into financing agreements with YA II PN, Ltd., formerly known as YA Global Master SPV Ltd. ("Yorkville"), dated 28 June 2011, 27 January 2012 and 31 December 2013 (as amended from time to time), that provide for a standby equity distribution agreement and related convertible debt financing for up to approximately US$31 million (£21 million) of available equity/debt investment. The Company will work with Yorkville to make approximately US$14 million available over the next six months. The Company will use these funds to:

(i) purchase approximately US$4 million of additional oil field equipment to expand the Company's current fleet in order to undertake larger well-stimulation completions in the planned Work Programs. This will include acquisition of frac/pumping units; a frac blender and other associated equipment, and; a workover/drilling rig.

(ii) provide approximately US$10 million of working capital in support of the Work Programs as well as costs associated with this transaction.

In addition to the above programs, the Company is in the process of addressing financing associated with outstanding debt that will this year mature related to convertible note holders and executive management loans to the company. As plans are finalized, updates will be provided in due course.

Greater Black Sea Strategy: During July of 2015, Frontera and Naftogaz initiated cooperation to work together in upstream exploration and production projects in Ukraine, as well as to study the possibility to bring liquefied natural gas to Ukraine from Frontera's ongoing work in Georgia.

Joint work has advanced and has now further evolved the upstream focus of this cooperation. Frontera has continued to progress studies related to the evaluation of upstream exploration and production projects in Ukraine and, with the addition of a new Memorandum of Understanding ("MOU") that was signed in February of this year with Ukraine's public joint stock company UkrGasVydobuvannya ("UGV"). Efforts are ongoing to acquire specific license areas. The MOU that was signed earlier this year served to create a more detailed framework of technical and commercial cooperation between Frontera and UGV in order to move towards implementation of joint work in specifically targeted upstream exploration and production projects in Ukraine.

Steve C. Nicandros, Chairman and Chief Executive Officer commented:

"During 2015 and during the first half of 2016, Frontera has continued to invest in a focused manner in our exploration work programs in Georgia that are designed to unlock the value associated with the significant oil and gas potential that our historical investments have identified. Amidst a depressed commodity price environment for the oil and gas sector, we nevertheless remain diligent to capitalize on the ongoing technical progress that our investments continue to highlight.

At the same time, political challenges in Georgia's domestic gas market continue to delay related investment due to the Ministry of Energy's discouragement of ongoing exploration of domestic natural gas resources in favor of preserving existing gas import monopolies. As efforts are ongoing to address the Ministry's opposition to this work, we are hopeful that it will ultimately see the benefit of allowing for a free and competitive market for U.S. and foreign investment in its domestic natural gas sector that today does not exist.

Overall, we look forward to progressing our work programs in Georgia and the Greater Black Sea region as we believe the company remains uniquely positioned to achieve near and long term growth from its efforts in Eastern Europe."

Enquiries:

Frontera Resources CorporationJesse Jefferies(713) 585-3216[email protected]

Nominated Adviser:Cairn Financial Advisers LLP61 Cheapside, London EC2V 6AXJo Turner / Liam Murray+44 (0) 20 7148 7900

BrokerCornhill Capital LimitedNick Bealer+44 (0) 207 710 9610

Financial PR:BuchananBen Romney/Hannah Brandstaetter+44 (0) 20 7466 5000[email protected]

Notes to Editors:

About Frontera Resources Corporation

Frontera Resources Corporation is an independent Houston, Texas, U.S.A.-based international oil and gas exploration and production company whose strategy is to identify opportunities and operate in emerging markets in Eastern Europe around the Black Sea. Frontera Resources Corporation shares are traded on the London Stock Exchange, AIM Market - Symbol: FRR. For more information, please visit www.fronteraresources.com.

1. Information on Resource Estimates: The independent contingent and prospective resources estimates contained in this announcement were determined by the independent consulting firm of Netherland, Sewell & Associates (NSA) in accordance with the definitions and guidelines set forth in the 2007 Petroleum Resources Management System (PRMS) adopted by the Society of Petroleum Engineers (SPE). Internal resources estimates were determined by the Company. Gerard Bono, Frontera's Vice President and Chief Reservoir Engineer, who is a member of the SPE, is the qualified person who reviewed and approved both independent and internal estimates in this announcement.

2. This release may contain certain forward-looking statements, including, without limitation, expectations, beliefs, plans and objectives regarding the transactions, work programs and other matters discussed in this release. Exploration for oil is a speculative business that involves a high degree of risk. Among the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are: risks inherent in oil and gas production operations; availability and performance of needed equipment and personnel; the Company's ability to raise capital to fund its exploration and development programs; seismic data; evaluation of logs, cores and other data from wells drilled; inherent uncertainty in estimation of oil and gas resources; fluctuations in oil and gas prices; weather conditions; general economic conditions; the political situation in Georgia and relations with neighboring countries; and other factors listed in Frontera's financial reports, which are available at www.fronteraresources.com. There is no assurance that Frontera's expectations will be realized, and actual results may differ materially from those expressed in the forward-looking statements.

3. Glossary of Terms: BCF - means Billion Cubic Feet of gas. TCF - means Trillion Cubic Feet of gas. Mcf - means Thousand Cubic Feet of gas. OOIP - means Original Oil in Place. Bopd - means Barrels of Oil Per Day.

The accompanying notes are an integral part of these consolidated financial statements.

Frontera Resources Corporation and Subsidiaries

Notes to Consolidated Financial Statements

1. Nature of Operations

Frontera Resources Corporation, a Houston, Texas based Cayman Islands corporation, and its subsidiaries (collectively "Frontera" or the "Company") are engaged in the development of oil and gas projects in emerging marketplaces. Frontera was founded in 1996 and is headquartered in Houston, Texas. The Company emphasizes development of reserves in known hydrocarbon-bearing basins, and is attracted to projects that have significant exploration upside. Since 2002, the Company has focused substantially all of its efforts on the exploration and development of oilfields within the Republic of Georgia ("Georgia").

In June 1997, the Company entered into a 25-year production sharing agreement with the Ministry of Fuel and Energy of Georgia and State Company Georgian Oil ("Georgian Oil"), which gives the Company the exclusive right to explore, develop and produce crude oil in a 5500 square kilometer area in eastern Georgia known as Block 12, hereafter referred to as the "Block 12 PSA". The Block 12 PSA can be extended if commercial production remains viable upon its expiration in June 2022.

Under the terms of the Block 12 PSA, the Company is entitled to conduct exploration and production activities and is entitled to recover its cumulative costs and expenses from the crude oil produced from Block 12. Following recovery of cumulative costs and expenses from Block 12 production, the remaining crude oil sales, referred to as "Profit Oil", are allocated between Georgian Oil and Frontera in the proportion of 51% and 49%, respectively.

Under the terms of the Block 12 PSA, Frontera is exempt from all taxes imposed by the government of Georgia, and any taxes imposed on the Company are paid by Georgian Oil on behalf of the Company from Georgian Oil's 51% share of Profit Oil. Taxes are defined by the Block 12 PSA to mean all levies, duties, payments, fees, taxes or contributions payable to or imposed by any government agency, subdivision, municipal or local authorities within the government of Georgia.

Frontera's future revenues depend on operating results from its operations in the Republic of Georgia. The success of Frontera's operations is subject to various contingencies beyond management control. These contingencies include general and regional economic and political conditions, prices for crude oil, competition and changes in regulation. Frontera is subject to various additional political and economic uncertainties in Georgia which could include restrictions on transfer of funds, import and export duties, quotas and embargoes, domestic and international customs and tariffs, and changing taxation policies, foreign exchange restrictions, political conditions and regulations.

On August 2, 2011, the Company completed a merger with and into a new Cayman Islands exempted company ("Frontera Cayman"), with Frontera Cayman being the surviving entity (the "Merger"). By operation of the Merger, all assets, liabilities, properties, corporate acts, plans, policies, contracts, approvals and authorizations of each of the Company and Frontera Cayman and their respective shareholders, boards of directors, committees elected or appointed thereby, officers and agents, which were effective immediately before the Merger, were vested in, assumed by or taken, as applicable, for all purposes as the acts, plans, policies, contracts, approvals and authorizations of Frontera Cayman and are effective and binding on Frontera Cayman in the same manner as they were with respect to the Company or Frontera Cayman, as the case may be, before the Merger.

Frontera Resources Corporation and Subsidiaries

Notes to Consolidated Financial Statements

Simultaneously with the Merger, Frontera Cayman completed a private equity fundraising pursuant to which Frontera Cayman received aggregate gross proceeds (before deduction of placing agent commissions, corporate finance fees and offering expenses) of approximately £6.8 million ($11.0 million), through (i) the issue of 115,678,351 new Frontera Cayman ordinary shares ("Frontera Cayman Shares") under a Placing Agreement with Strand Hanson Limited (as nominated advisor), and Arbuthnot Securities Limited and Old Park Lane Capital plc as Placing Agents, and (ii) subscription agreements with an affiliate of one of the Company's directors and a member of senior management for the purchase of 53,959,053 new Frontera Cayman Shares (the "Equity Fundraising"). Frontera Cayman also entered into a Standby Equity Distribution Agreement with YA Global Master SPV, Ltd. ("YAGM"), pursuant to which YAGM has agreed (subject to certain conditions) to make available over a 36-month period, a facility of up to £21.6 million ($35.0 million) in consideration for the issue of Frontera Cayman Shares. This agreement was extended in April 2015 through December 31, 2018.

Frontera Cayman simultaneously exchanged $121.6 million aggregate amount of the Company's 10% convertible notes payable plus accrued interest, for (i) 1,593,853,570 Frontera Cayman Shares, and (ii) $18.2 million aggregate principal amount of new 10% convertible notes due 2016 issued by Frontera Resources Holdings, LLC, a Delaware limited liability company and a wholly-owned subsidiary of Frontera Cayman. These convertible notes payable were exchanged for shares of common stock at a price lower than the conversion price at inception of the notes. The difference in the value of the original conversion price to the actual conversion price was recorded in 2011 as inducement expense in the statement of comprehensive loss of approximately $99.4 million. Frontera Cayman also exchanged $9.2 million principal amount plus accrued interest of its related party notes payable for 141,515,879 newly issued Frontera Cayman Shares pursuant to note exchange agreements.

By operation of the Merger, each share of common stock of the Company has been converted into and represents the right to receive either (i) one Frontera Cayman Share (the "Stock Consideration") or (ii) £0.04 ($US0.065) (the "Cash Consideration"). As a result, all stockholders of the Company received the Stock Consideration, except for US stockholders who were not "accredited investors" as defined in Rule 501 under the US Securities Act of 1933, who received the Cash Consideration.

2. Liquidity and Capital Resources

The following selected financial measurements reflect the Company's financial position and capital resources as of December 31, 2015 and 2014:

Frontera Resources Corporation and Subsidiaries

Notes to Consolidated Financial Statements

The Company has incurred net losses and negative cash flows from operations in most fiscal periods since inception. Management plans to continue to reduce costs and continue to raise additional financing in order to continue to facilitate the Company's 2016 operating plan. Additionally the Company has approximately $38.3 million of debt as of December 31, 2015 that is scheduled to mature in fiscal 2016.

Throughout 2015 and 2014, there has been volatility and disruption in the global commodity, capital and credit markets. While these market conditions persist, the Company's ability to access the capital and credit markets may be adversely affected. Notwithstanding management's plan to manage costs and raise additional financing, the Company's viability is dependent upon producing oil and gas in sufficient quantities and marketing such oil and gas at sufficient prices to provide positive operating cash flow to the Company. Commencement of production from its Mtsarekhavi gas field in second quarter of 2014, participation of farm-in partner in Taribani, together with periodic access to the SEDA facility (see discussion in Note 5) could provide positive cash flows for the seeable future. The Company is also in the process of addressing the outstanding debt which mature in fiscal 2016 with their current debt holders.

The Company is responsible for providing funding for the development of Block 12 in Georgia and will require additional funding in order to obtain certain levels of production and generate sufficient cash flows to meet future capital and operating spending requirements. This is dependent upon, among other factors, achieving significant increases in production, production of oil and gas at costs that provide acceptable margins, reasonable levels of taxation from local authorities, and the ability to market the oil and gas produced at or near world prices.

Management's plan for addressing the above uncertainties is partially based on forward looking events which have yet to occur, including the commencement of additional production, refinancing of debt maturing in 2016 and ability to access capital markets and, accordingly, there is no assurance that those events will transpire or succeed as initially contemplated.

3. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Frontera Resources Corporation and its wholly owned subsidiaries. All intercompany transactions and accounts have been eliminated in consolidation.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent asset and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Frontera Resources Corporation and Subsidiaries

Notes to Consolidated Financial Statements

Estimates of oil and natural gas reserves and their values, future production rates and future costs and expenses are inherently uncertain for numerous reasons, including many factors beyond the Company's control. Reservoir engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact manner. The accuracy of any reserve estimate is a function of the quality of data available and of engineering and geological interpretation and judgment. In addition, estimates of reserves may be revised based on actual production, results of subsequent exploitation and development activities, prevailing commodity prices, operating costs and other factors. These revisions may be material and could materially affect the Company's future depletion, depreciation and amortization expenses.

The Company's revenue, profitability, and future growth are substantially dependent upon the prevailing and future prices for oil and natural gas, which are dependent upon numerous factors beyond its control such as economic, regulatory developments and competition from other energy sources. The energy markets have historically been volatile and there can be no assurance that oil and natural gas prices will not be subject to wide fluctuations in the future. A substantial or extended decline in oil and natural gas prices could have a material adverse effect on the Company's financial position, results of operations, cash flows and quantities of oil and natural gas reserves that may be economically produced.

Cash and Cash Equivalents

Cash and cash equivalents include all cash balances, money market accounts and certificates of deposit, all of which have original maturities of three months or less.

Derivative Stock Warrant Liabilities

In accordance with authoritative guidance issued by the Financial Accounting Standards Board ("FASB") relating to financial instruments indexed to an entity's own stock, the Company has classified its common stock warrants as liabilities. The fair value of these liabilities is re-measured at the end of every reporting period with the change in fair value recorded in the statement of operations. The liabilities will continue to be adjusted for changes in fair value until the earlier event of the exercise date or the cancellation of the warrants at the end of their respective terms.

Fair Value Measurements

Frontera's financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, and convertible notes payable. The fair value of cash, accounts receivable and accounts payable are estimated to approximate the carrying value due to the liquid nature of these instruments. The fair value of the notes payable was determined based upon discount rates which approximate variable interest rates for borrowings of a similar nature.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements. The statement requires fair value measurements be classified and disclosed in one of the following categories:

Frontera Resources Corporation and Subsidiaries

Notes to Consolidated Financial Statements

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Measured based on prices or valuation models that required inputs that are both significant to the fair value measurement and less observable for objective sources (i.e., supported by little or no market activity).

The Company classifies financial assets and liabilities based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

The Company estimates the fair value of its common stock warrants using the black-scholes model. The Company classified the derivative stock warrant liabilities as level 2 due to the fact that the warrants are not traded in an active market, but have observable inputs.

Inventory

Inventory consists primarily of materials to be used in the Company's foreign oilfield operations and crude oil held in stock tanks. Inventory is valued using the first-in, first-out method and is stated at the lower of cost or market. Inventory consists of the following:

Property and Equipment

Property and equipment are stated at cost. Expenditures for major renewals and betterments, which extend the original estimated economic useful lives of applicable assets, are capitalized. Expenditures for normal repairs and maintenance are charged to expense as incurred. The costs and related accumulated depreciation of assets sold or retired are removed from the accounts, and any gain or loss thereon is reflected in operations. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets, ranging from three to seven years. Leasehold improvements are depreciated the shorter of over the life of the lease or five years.

Frontera Resources Corporation and Subsidiaries

Notes to Consolidated Financial Statements

Oil and Gas Properties

The Company follows the full cost method of accounting for oil and gas properties. Accordingly, all costs associated with acquisition, exploration and development of oil and gas reserves, including directly related overhead costs, are capitalized.

All capitalized costs of oil and gas properties, including the estimated future costs to develop proved reserves, are depleted on the unit-of-production method using estimates of proved reserves. Investments in unproved properties and major development projects are not depleted until proved reserves associated with the projects can be determined or until impairment occurs. In addition, the capitalized costs are subject to a "ceiling test," which limits such costs to the aggregate of the future net revenues from proved reserves, based on current economic and operating conditions, discounted at a 10% interest rate, plus the lower of cost or fair market value of unproved properties. A ceiling test calculation is performed at each year-end. For the year ended December 31, 2015 and 2014, the ceiling test calculation used a first day of month trailing 12-month natural gas and oil average, as adjusted for basis or location differentials using a 12-month average, and held constant over the life of the reserves. The future cash outflows associated with future development or abandonment of wells are included in the computation of the discounted present value of future net revenues for purposes of the ceiling test calculation. For the year ended December 31, 2015, the Company recorded an impairment of $4.1 million to the carrying value of the oil & natural gas properties in Georgia. The lower ceiling value resulted primarily from significant decreases in the trailing 12 month average prices for oil & natural gas, which significantly reduced proved reserves. For year ended December 31, 2014, the Company recorded no impairment related to its fields in Georgia.

Sales or other dispositions of oil and gas properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in earnings.

Costs Excluded

The costs associated with unproved properties, initially excluded from the amortization base, relate to unproved leasehold acreage, wells and production facilities in progress and wells pending determination of the existence of proved reserves, together with capitalized interest costs for these projects. Unproved leasehold costs are transferred to the amortization base with the costs of drilling the related well once a determination of the existence of proved reserves has been made or upon

Frontera Resources Corporation and Subsidiaries

Notes to Consolidated Financial Statements

impairment of a lease. Costs of seismic data are allocated to various unproved leaseholds and transferred to the amortization base with the associated leasehold costs on a specific project basis.

Costs associated with wells in progress and completed wells that have yet to be evaluated are transferred to the amortization base once a determination is made whether or not proved reserves can be assigned to the property. Costs of dry wells are transferred to the amortization base immediately upon determination that the well is unsuccessful.

There were no costs associated with unproved properties related to continuing exploration at December 31, 2015 and 2014 due to changes in the Company's development strategy and management's plans to reduce capital spending in certain oil and gas properties.

Income Taxes

The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statements and the tax bases of assets and liabilities using enacted rates in effect for the years in which the differences are expected to reverse. Valuation allowances are established, when appropriate, to reduce deferred tax assets to the amount expected to be realized.

The Company accounts for uncertain tax positions by reporting a liability for tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. The Company recognizes interest and penalties, if any, related to tax benefits in income tax expense.

Revenue Recognition

Oil and natural gas revenues are recorded when title passes to the customer, net of royalties, discounts and allowances, as applicable. Oil and natural gas sold is not significantly different from the Company's share of production.

Allowance for Doubtful Accounts

The Company has established an allowance for doubtful accounts that is based on the Company's review of the collectability of the receivables in light of historical experience, the nature and volume of the receivables and other subjective factors. Accounts receivable are charged against the allowance when they are deemed uncollectible. The allowance for doubtful accounts balance was $0 at December 31, 2015 and 2014.

Foreign Currency Transactions

The financial statements of the foreign subsidiaries are prepared in United States dollars, and the majority of transactions are denominated in United States dollars. Gains and losses on foreign currency transactions are the result of changes in the exchange rate between the time a foreign currency-denominated invoice is recorded and when it is ultimately paid and are included in operations.

Concentrations of Credit Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. The Company maintains its cash in bank deposits with various major financial institutions. These accounts, at times, may exceed federally insured limits. Deposits in the United States are guaranteed by the Federal Deposit Insurance Corporation up to

Frontera Resources Corporation and Subsidiaries

Notes to Consolidated Financial Statements

$250,000. The Company monitors the financial condition of the financial institutions and does not anticipate any losses on such accounts.

For the years ended December 31, 2015 and 2014, 100% of the Company's crude oil sales were to one and two unrelated customers, respectively

Loss Per Share

Basic and diluted loss per share amounts is calculated based on the weighted average number of common stock outstanding during the year. Diluted loss per share is calculated using the weighted average number of shares of common stock outstanding during the year, including the dilutive effect of stock options, warrants and convertible notes. Basic and diluted loss per share for the years ended December 31, 2015 and 2014 are the same since the effect of all common stock equivalents would be antidilutive to the Company's net loss per share.

Stock-Based Compensation

The Company accounts for all share-based payments to employees, including grants of employee stock options, in the financial statements based on their grant-date fair values using a Black-Scholes fair valuation model. The Company estimated forfeiture rates for the year based on its historical experience of approximately 3%. At December 31, 2015 and 2014, 0 and 0 million stock options were unvested, respectively.

The Black-Scholes model incorporates assumptions to value stock-based awards. The risk-free rate of interest is the related U.S. Treasury yield curve for periods within the expected term of the option at the time of grant. The dividend yield on our common stock is assumed to be zero as we have historically not paid dividends and have no current plans to do so in the future. The expected volatility of 2.35 is based on historical volatility of the Company's common stock.

Due to the Company's net operating loss position; there are no anticipated windfall tax benefits upon exercise of options.

4. Accrued Liabilities

Accrued liabilities consist of the following:

Frontera Resources Corporation and Subsidiaries

Notes to Consolidated Financial Statements

5. Debt

Debt consists of the following:

Related Party Notes Payable

On January 11, 2011 a revolving credit facility ("Credit Facility") was put in place by and between the Company, Steve C. Nicandros, a Director of the Company, and Zaza Mamulaishvili, then a member of Company's senior management team and now a Director of the Company (together, the "Lenders") in the amount of $2,000,000. The $2,000,000 borrowing limit pursuant to the Credit Facility was removed on October 30, 2012. Accordingly, during 2015 and 2014, the Company entered into a series of further notes payable governed by this Credit Facility with the Lenders in the aggregate amounts of $2.7 million and $2.1 million, respectively. These notes have one-term, bear interest of 15%, may be converted, at the discretion of the Lenders, into common stock of the Company at a market-based price, and are classified within Related Party Notes Payable on the Consolidated Balance Sheet. The notes that remained outstanding at the expiry of their original term, have been extended for another year. As of December 31, 2015, the fair value of the related party notes was approximately $10.9 million.

The further drawdowns under the Credit Facility as noted above, may constitute related party transactions pursuant to the AIM Rules for Companies as the Lenders are directors or applicable employees of the Company, as the case may be.

Convertible Notes Payable

During May 2007, the Company raised approximately $67.0 million through a private placement of convertible unsecured notes due May 2012. The notes were issued at par and bear interest at 10% per annum, payable quarterly in arrears in cash or in kind at the Company's discretion. The notes are convertible into shares of common stock at a conversion price of $1.67 per share. The notes will be automatically converted into common stock at the conversion price if the stock price exceeds two times the conversion price for at least 20 consecutive trading days. On August 2, 2011, 85.1% of the 2012 Notes were converted into the common stock and another 14.6% were exchanged for the 2016 Notes.

Frontera Resources Corporation and Subsidiaries

Notes to Consolidated Financial Statements

On July 3, 2008, the Company raised $23.5 million through a private placement of convertible unsecured notes due July 2013. The notes were issued at par and bear interest at 10% per annum, payable quarterly in arrears in cash or in kind at the Company's discretion. The notes are convertible into common stock at a conversion price of $1.71 per share. On August 2, 2011, 84.0% of the 2013 Notes were converted into the common stock and another 16.0% were exchanged for the 2016 Notes.

On August 2, 2011, note holders exchanged $18,220,312 of 2012 and 2013 Notes into new notes issued under the 2016 Note Purchase Agreement due August 2016 (the "2016 Notes"). The 2016 Notes accrue interest at the rate of 10% per annum, mature five years from the date of issuance and are convertible into Frontera Cayman Shares, at the option of the holder, at a conversion rate of $0.25 per share. As of December 31, 2015, the fair value of the convertible notes payable was approximately $25.7 million.

During 2015 and 2014, the Company elected to pay the quarterly interest payments in kind on the convertible notes and issued approximately $2.7 million and $2.4 million, respectively, in additional convertible notes in accordance with terms of the note purchase agreement.

Other Notes Payable

On June 28, 2011 the Company entered into a standby equity distribution agreement (the "SEDA") with YA II PN, Ltd. (formerly as YA Global Master SPV Ltd.), an investment fund managed by Yorkville Advisors LLC providing for up to approximately £21.6 million (US$35 million) of additional equity investment, through the issue of the new shares in the Company. As of December 31, 2015 approximately £18.3 million (USD $26.9 million) of commitment amount was still available for drawdown. This agreement was extended in April 2015 through December 31, 2018.

The Company drew down from their SEDA-backed loan agreements with YA II PN, Ltd. (formerly as YA Global Master SPV Ltd.). Under these drawdowns, $4.6 million and $4.1 million were remaining outstanding as of December 31, 2015 and 2014, respectively. As of December 31, 2015, the fair value of the other notes payable was approximately $4.1 million.

Future principal maturities as of December 31, 2015 for long-term debt obligations are as follows:

Frontera Resources Corporation and Subsidiaries

Notes to Consolidated Financial Statements

6. Income Taxes

The Company has incurred losses since inception and, therefore, has not been required to pay federal income taxes. As of December 31, 2015, the Company has generated net operating loss ("NOL") carryforwards of approximately $153.7 million that may be available to reduce future income taxes. Several factors may limit the Company's ability to utilize these carryforwards, including a lack of future taxable income, a change of Company ownership (as defined by federal income tax regulations) or the expiration of the utilization period allowed by federal income tax regulations. The federal loss carryforwards begin to expire in 2017 through 2035.

During 2015 and 2014, the valuation allowance increased $4.6 million and $3.6 million, respectively, primarily due to the Company's losses. The effective tax rate for 2015 and 2014 differs from the statutory tax rate due primarily to the valuation allowance. The components of the Company's deferred tax assets at December 31, 2015 and 2014, are as follows:

Deferred tax assets are reduced by a valuation allowance when a determination is made that it is more likely than not that some or all of the deferred assets will not be realized based on the weight of all available evidence. The Company determined it was appropriate to record a full valuation allowance against its net deferred tax asset.

Profits derived from oil and gas operating activities are subject to a profits tax on taxable income as defined by Georgian law. However, under the terms of the Block 12 PSA, Georgian Oil is responsible for paying the Company's profit tax liabilities with respect to income derived from these activities. Although the Company has incurred operating losses in Georgia, no adjustment with respect to deferred tax assets or a potentially related valuation allowance has been made, as any future benefit related to these operating losses would serve to reduce Georgian Oil's liability.

The Company has determined that no uncertain tax positions exist where the Company would be required to make additional tax payments. As a result, the Company has not recorded any additional liabilities for any unrecognized tax benefits as of December 31, 2015. The Company and its subsidiaries file income tax returns in the US federal jurisdiction. The Company's accounting policy is to recognize penalties and interest related to unrecognized tax benefits as income tax expense. The Company does not have an accrued liability for the payment of penalties and interest at December 31, 2015 or 2014, respectively. The Company is subject to routine audits by taxing

Frontera Resources Corporation and Subsidiaries

Notes to Consolidated Financial Statements

jurisdictions. In general, the statute of limitations for the federal jurisdiction is three years. In some cases, net operating losses can extend the time for which a taxing authority may make adjustments. The Company's earliest tax year with a net operating loss is 1997.

7. Commitments and Contingencies

Operating Leases

The Company has non-cancelable operating leases for office facilities and lodging. Approximate future minimum annual rental commitments under these operating leases are as follows:

Rental expense for the years ended December 31, 2015 and 2014 was approximately $448,000 and $434,000, respectively.

ARAR Arbitration

On January 9, 2008, Frontera Eastern Georgia Limited ("FEGL") served a notice of arbitration and claim on ARAR, Inc., for breach of contract under drilling services contract dated May 2, 2007. On December 16, 2008, FEGL entered into a settlement agreement with ARAR Inc, ARAR Petrol ve Gas Arama Uretim Paz A.S., and Mr. Fatih Alpay (collectively, "Defendants"), which was confirmed by the arbitration panel and pursuant to which Defendants were required to make a series of payments to FEGL through December 2009 in the aggregate amount of $1.25 million. In August 2009, the Defendants defaulted on monthly payments and remained in default on payments due August - December 2009. FEGL applied to the arbitration panel for entry of an agreed award pursuant to the settlement agreement and, on April 16, 2010, the arbitration panel entered a final, binding award in favor of FEGL against Defendants in the amount of $1.43 million ("Final Award"). Following series of subsequent court hearings in the US courts, on July 16, 2012, the US Court of Appeals for the Fifth Circuit confirmed the Final Award granting FEGL total amount of $1,552,707, which included total amount of the Final Award and FEGL's attorney's fees and expenses.

In order to enforce the Final Award against Defendants' assets located in in Turkey, in July 2010 FEGL filed an enforcement action in the 4th Commercial Court in Ankara, Turkey. The 4th Commercial Court conducted a series of hearings on the enforcement action, and by its order dated November 23, 2012, rejected FEGL's request for enforcement. FEGL filed its appeal of the court order with the appeals court in Ankara on June 7, 2013. On June 20, 2014, the appeals court granted Frontera's appeal, overturned the 4th Commercial Court's decision and remanded the case back to the 4th Commercial Court to adopt a new decision in line with the appeals court's instructions. On December 20, 2015, the 4th Commercial Court adopted new decision granting enforcement of the Final Award. The Defendants appealed the decision and the case is currently pending at the appellate court.

Frontera Resources Corporation and Subsidiaries

Notes to Consolidated Financial Statements

Georgian Tax Refund

From the inception of operations in Georgia Company has incurred certain tax expenses which per the terms of the Production Sharing Agreement signed with Georgian government are subject of reimbursement from the state. The Company has notified appropriate authorities and is in the process of collecting a tax refund from the Georgian government. As of December 31, 2015 the amount of refund due to the Company was $5.2 million.

The Company has not recognized a receivable as of December 31, 2015 or 2014 for these ongoing proceedings.

8. Stockholders' Equity

Common Stock

As of December 31, 2015, the Company is authorized to issue 4,350,000,000 shares of common stock, par value $.00004 per share. As of December 31, 2015 and 2014, the Company had 3,324,292,823 and 2,820,845,197 shares of common stock issued and outstanding, respectively. At December 31, 2015 and 2014, additional shares in the amount of 9,420,023 and 10,303,714, respectively, of common stock were reserved for the exercise of existing options and warrants.

2000 Nonqualified Stock Option and Stock Award Plan

In 2000, the Company's Board of Directors approved the 2000 Nonqualified Stock Option and Stock Award Plan (the "Stock Award Plan"), pursuant to which options may be granted to purchase up to 15% of the Company's common stock authorized to be issued by the Company, reduced by the total number of shares of stock subject to stock options and stock awards that have been granted under the Stock Award Plan and the Frontera Resources Corporation 1998 Employee Stock Incentive Plan. The Board of Directors has appointed Frontera's chief executive officer as administrator (the "Administrator") of the Stock Award Plan. In this capacity, the Administrator determines which employees will receive options, the number of shares covered by any option agreement, and the exercise price and other terms of each such option. The Board of Directors is responsible for administering the Stock Award Plan as it relates to options granted to the chief executive officer.

Under the terms of the Stock Award Plan, any issued options expire ten years after the date of grant or upon earlier of termination of employment or affiliation relationship between the grantee and the Company. Options granted vest over periods ranging from immediate vesting to vesting in equal increments over three years from the date of grant.

Frontera Resources Corporation and Subsidiaries

Notes to Consolidated Financial Statements

A summary of the Company's stock option activity and related information is as follows:

The following table summarizes information about stock options outstanding at December 31, 2015:

Frontera Resources Corporation and Subsidiaries

Notes to Consolidated Financial Statements

Stock option information related to the nonvested options for the year ended December 31, 2015, was as follows:

No options were granted in 2015 or 2014.

9. Directors' Remuneration and Related Party Transactions

No remuneration was received by each director in his capacity as director of the Company during the 2015 financial year.

In conjunction with an ongoing consulting agreement, a director of the Company received consulting fees for the years ended December 31, 2015 and 2014 of $252,083 and $275,000, respectively.

Additionally, as previously discussed in Note 5, the Company entered into a series of Notes Payable with two of the Company's officers. During 2014, $2.1 million in principal was borrowed. During 2015, the Company borrowed an additional $2.7 million in principal.

Frontera Resources Corporation and Subsidiaries

Notes to Consolidated Financial Statements

10. Subsequent Events

On February 1, 2016, the Company raised $1.1 million through a draw down on the Standby Equity Distribution Agreement ("SEDA") with YA II PN, Ltd. (formerly as YA Global Master SPV Ltd.). and issue of 155,453,075 new ordinary shares of $0.00004 each in the Company. The proceeds have been used to advance work programs of the Company and to reduce the corporate debt. In addition, the Company has issued 31,602,132 new ordinary shares in the Company in settlement of approximately $226,000 fees due to certain unrelated third parties for services provided to the Company.

On February 25, 2016, the Company has issued 100,000,000 new ordinary shares in the Company in settlement of approximately $736,000 fees due to certain unrelated third parties for oil field services provided to the Company, including workover, drilling, logging and transportation services.

In March 2016, the Company raised $1.1 million through a draw down on the Standby Equity Distribution Agreement ("SEDA") with YA II PN, Ltd. (formerly as YA Global Master SPV Ltd.). and issue of 165,015,665 new ordinary shares of $0.00004 each in the Company. The proceeds have been used to advance work programs of the Company and for general working capital purposes.

On April 7, 2016, the Company has issued 120,000,000 new ordinary shares in the Company have been issued to certain strategic service providers of the Company for procurement of approximately $750,000 of oil field services to be provided to the Company in its ongoing operations including workover, drilling, logging, completion and transportation services.

On May 16, 2016, the Company announced that it has issued 180,000,000 new ordinary shares in the Company to two strategic service providers for procurement of approximately $780,000 of oil field services related to operations within the South Kakheti Gas Complex as well as its Shallow Fields Production Unit.

On June 15, 2016, the Company raised $767,000 through a draw down on the Standby Equity Distribution Agreement ("SEDA") with YA II PN, Ltd. (formerly as YA Global Master SPV Ltd.). and issue of 205,346,311 new ordinary shares of $0.00004 each in the Company. The proceeds have been used to advance work programs of the Company and to reduce the corporate debt.

On June 28, 2016, the Company's authorized share capital was increased to 8,850,000,000 shares.

Events occurring after December 31, 2015 were evaluated through June 29, 2016, the date this report was available to be issued, to ensure that any subsequent events meeting the criteria for recognition or disclosure were included.