Preliminary Results

Kea Petroleum plc

("Kea" or the "Group")

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MAY 2013

Kea Petroleum plc (AIM: KEA), the oil and gas exploration company focused on New Zealand, is pleased to announce its Preliminary Results for the year ended 31 May 2013.

Highlights

· Active year after which the company is increasingly comfortable with the earlier estimate of 1-3 million barrels of oil for the Puka field - the upper limit of 7-10 million barrels remains achievable on a P50 basis

· Analysis shows that Puka 1 and 2 were drilled on the westernmost edge of the Puka site - critical next step is drilling to confirm the better sands in the main channel

· Gresham Partners appointed to direct a strategic review to define the best approach to ensure further drilling at Puka

· Exciting potential from the Mercury licence - ongoing 3D seismic evaluation is encouraging

· Overheads reduced in drive to match income from oil production

· Revenue of £829,000 in the year to 31 May 2013 (2012: £37,000) with net loss of £8.41 million (2012: net loss of £3.64 million), after write off of exploration costs of £7.2 million (2012: £1.3million)

Kea's Chairman, Ian Gowrie-Smith, said:

"The company is indeed fortunate that it has the Puka discovery although that discovery hasn't come without cost. Transforming our exploration site into a production station is time consuming and expensive. The extra time and money involved in the whole process of taking two different Puka discoveries into production has somewhat diminished the choices going forward. However, there are choices and which of those the company takes will be determined as part of the strategic review. My view is that there is sufficient worth in Puka and Mercury to enable growth and generate further value in the company."

This release has been approved by non-executive director Peter Mikkelsen FGS, AAPG, who has consented to the inclusion of the technical information in this release in the form and context in which it appears.

For further information please contact:

Notes to Editors:

Kea Petroleum is an AIM listed oil and gas company with interests in three petroleum exploration permits in the Taranaki Basin of New Zealand. Kea listed on the London AIM market in February 2010.

CHAIRMAN'S STATEMENT

Kea has had an active year on which to report. In the expanded Operational review, there is a detailed account of the various drilling, testing, seismic acquisition and production projects, together with mandatory licence relinquishments. On 3rd September 2013 the company issued an update to shareholders, which included the announcement of a strategic review. This process is ongoing and Directors will provide further information to shareholders on this as appropriate.

3D Seismic interpretation of Puka

We are increasingly comfortable that the company's previous estimate of 1-3 million barrels of oil for the Puka field will be confirmed and that the upper limit of 7-10 million barrels of oil still remains achievable on a P50 basis. This analysis is continuing.

Further drilling activity

The critical next step for the development of the Puka field is the drilling of more wells. It is with this focus that the company has been concentrating its efforts through the strategic review process being directed by Gresham Partners.

Analysis of the 3D on Puka has confirmed that Puka 1 and 2 were drilled on the westernmost edge of the Puka channel. Analysis of the data indicates that this channel can be reached from the current Puka site and drilling to confirm the expected better sands in the main channel is our first priority.

Finances

The economics of oil production from the current Puka site make the drilling of more wells an absolute necessity. The sunk costs have already been incurred and these include road access and establishing the production facility, which has the capacity to handle up to six producing wells. Likewise the operating costs remain reasonably static whether we have two or six producing wells, with the exception of power generation to drive artificial lift, if needed.

The company has also taken steps to reduce its overall overheads so as to match income from oil production.

Mauku

It was extremely disappointing that Mauku failed to intersect hydrocarbons. Pre-drilling analysis was very challenging but our team's predictions proved to be very accurate. Unfortunately, the one question that can't be answered until drilling takes place is whether a prospect is charged with hydrocarbons, and it wasn't.

Mercury

The big sleeper for potential value to Kea is our 100% ownership of this licence. Analysis of the recent 3D seismic is continuing and early interpretations are encouraging. The company expects to complete its evaluation of the Mercury prospect early in the New Year and offer it out for farmout in the first quarter of next year. 

Outlook

The company is indeed fortunate that it has the Puka discovery although that discovery hasn't come without cost. Transforming our exploration site into a production station is time consuming and expensive. The extra time and money involved in the whole process of taking two different Puka discoveries into production has somewhat diminished the choices going forward. However, there are choices and which of those the company takes will be determined as part of the strategic review.

Creating maximum upside potential in this business is risky, but with the high risk comes high reward. Unfortunately the big throws of the dice - Beluga, Tuatara and Mauku - weren't successful. My view is that there is sufficient worth in Puka and Mercury to enable growth and generate further value in the company.

Ian Gowrie-Smith

Chairman

31 October 2013

OPERATIONAL REVIEW

Over the past year Kea has undertaken a very active exploration program with extensive seismic and drilling activities on the Company's New Zealand Exploration Permits. In addition to drilling and seismic, Kea has also undertaken extensive testing at Puka. The Puka 1 and 2 discoveries represent a significant milestone for Kea as the company transitions from being purely exploration focussed to being a business based on both exploration and production. Kea has also commenced an ongoing strategic review, which has so far resulted in the relinquishment of PEP51155 and renewal of PEP51153.

The major activities for the year were:

· drilling of Mauku 1

· production testing of Puka 1, confirming a commercial pool in the Upper Mount Messenger formation

· acquisition, processing and initial interpretation of the 50km2 Puka 3D Seismic Survey

· drilling of Puka 2

· acquisition and processing of the 100km2 Mercury offshore 3D Seismic Survey

· production testing of Puka 2, confirming a new commercial pool in the Lower Mount Messenger Formation

· installation of test facilities at Puka to allow for longer term co-mingled test flow

· acquisition, processing and interpretation of the 58km Uruti 2D Seismic Survey over the Hickman Lead

· reprocessing 450km of existing 2D seismic in PEP 51155 and PEP 51153

· relinquishment of PEP 51155 following interpretation of seismic and review of prospectivity

· installation of artificial lift at Puka 2.

These activities are discussed in more detail below by licence area.

PEP51153

PEP51153 is located onshore in Taranaki, New Zealand and contains the recent Puka discoveries and the suspended Douglas well. This block reached the end of its initial five year term on 22nd September 2013 and was renewed for a further five year term following the compulsory 50% relinquishment. In 2012 two wells were drilled in the permit, Douglas 1 and Puka 1. Promising shows in fractured limestone of the Tikorangi Formation were tested at Douglas 1. However, due to the penetration of much larger water filled fractures lower in the well the test results were not conclusive. Douglas 1 was suspended and chemical grouting materials have been sourced to allow the upper fractures to be isolated and tested at a later date.

Puka 1 was first flow tested in August 2012 with analysis of the initial flow and downhole data confirming that the discovery is of commercial size. Following the initial flow tests Puka 1 was shut in during the drilling of Puka 2 and the acquisition of the Puka 3D seismic survey.

Puka 2 was spudded prior to commencement of the 3D seismic survey using a small drilling rig (Drillforce Rig 1) and the well was suspended at surface casing point. Puka 2, located on the same surface pad as Puka 1, had a bottom hole location selected to test what appeared to be the southerly extension of the lower Mount Messenger Sands intersected in Douglas 1 and Wingrove 2, interpreted on the 2D seismic line linking Douglas and Puka.

The Puka 3D Seismic Survey was recorded in December 2012 using a Z-Nodal wireless acquisition system. This system and the acquisition parameters selected for the survey were designed to maximise the data quality over the Mount Messenger target horizon. The advantage of the wireless acquisition system, apart from minimising the impact to the landholders, was the ability to have over 4,000 live channels thereby increasing data density and quality. The survey was completed on time and under budget and management wish to thank the local community for their assistance with the survey.

Following the acquisition of the Puka 3D survey the main hole section of Puka 2 was drilled with Drillforce Rig 6, a Gefco Speedstar rig with a capacity of 200,000Lbs. The well was successfully drilled to a total depth of 1905m (MD), 1545m (TVD) with the bottom hole located as planned 895m North of the Puka surface location. At total depth a full suite of wireline logs were run including Shear Sonic (DSI), Formation Imaging Log (FMI) and Pressure data (MDT), which confirmed the presence of oil pay in the prognosed lower Mount Messenger "Mako" sands. Puka 2 was subsequently cased and completed prior to testing.

Puka 2 testing commenced in late March 2013 with an initial flush production rate of 790 Barrels of Oil Per Day (BOPD). This rate reduced over time to less than 200 BOPD. Due to the large difference between Puka 1 and Puka 2 surface production pressure, artificial lift has been installed on Puka 2 to ensure that both wells flow in co-mingled production test, which is currently underway. Over 18,000 Barrels of Oil and 175 Million Cubic Feet of Gas (MMCF) have been produced on test to date from Puka 1 and Puka 2. Stable production rates have yet to be established from the two wells, with ongoing testing to determine optimum rates.

Production facilities have been installed gradually during testing at Puka as the flow characteristics of the wells have been determined. Wherever possible, equipment originally installed at Wingrove has been reused to reduce capital cost. To date the 3-phase separator, tanks and hydraulic power unit for the artificial lift in Puka 2 have been successfully installed at the Puka site. The diesel powered generator sets originally installed on the location are also in the process of being replaced by gas fired generators in order to reduce operating costs. The temporary test equipment is expected to be entirely replaced with permanent production equipment by the end of 2013. Discussions are continuing with interested parties with a view to utilising produced gas to generate electricity onsite for sale into the grid.

PEP 51155

PEP51155 is located immediately north of PEP51153 also onshore Taranaki, New Zealand. This block was relinquished at the expiry of the initial five year term following a review of the prospectivity of the block and comparing it with other opportunities within Kea's current exploration and appraisal portfolio.

During the past year significant work was undertaken on the block and especially the three main focus areas: the Hickman lead to the NE of the block, Angus (a shallow Mt Messenger prospect similar to Puka) in the south of the block and Beluga Deep (the prospective section located below the Total Depth of the Beluga well) also in the south of the permit.

In order to assess the prospectivity of the previously identified Hickman lead it was necessary to acquire more seismic over the area. However as Hickman straddled the eastern block boundary it was necessary to obtain an extension to the block to cover the Hickman lead. Following extensive negotiation with the government regulator this extension was granted on 11 February 2013. This extension allowed for the Uruti 2D seismic survey to be planned and recorded over Hickman, however due to the timing of the extension acquisition was delayed until April-May 2013 which was very late in the shooting season, especially given the very rough terrain of the Uruti area. Once the data was processed it was interpreted utilising additional information obtained at Mauku. It quickly became evident that, in spite of the high quality of the seismic data, the Hickman lead was not as large or as simple as previously thought and that significant additional seismic would be required to progress the lead to a drill ready target if indeed one existed at the location.

Immediately following the interpretation of the Uruti seismic a review of the prospectivity of PEP 51155 was conducted. It became evident that the remaining prospects, including Angus, which was being drilled in part as a compulsory work program item to retain the licence area, and Beluga deep were not sufficiently prospective to warrant the required work program to retain the block and therefore the block was relinquished.

PEP381204

Consents for the Mauku 1 well were finally obtained in late 2012 and the well was drilled in early 2013. In spite of encountering more reservoir section as prognosed up dip of the Opito 1 well and proving the existence of an intact seal above the reservoir section the well failed to intersect economic hydrocarbons and the well was plugged and suspended. The well was 50% funded by Methanex under the existing Methanex alliance agreement and post drilling analysis is continuing in association with Methanex, however it is highly unlikely that the well will be re-entered and planning is underway to complete the abandonment of the well and the surrendering of the remaining consents.

After initial delays caused by consent issues, Mauku 1 was further delayed by a rig change to a larger capacity rig which increased the cost of the well. However Mauku 1 was completed within the maximum allowable under the Methanex funding agreement.

PEP52333

Following previous delays the 100km2 Mercury 3D marine seismic survey was recorded in the block in April 2013. The initial processing has been completed and preliminary interpretation indicates that the data is of high quality over the target area. Further interpretation of the seismic will continue throughout the remainder of the year with a view to farmout a percentage of the permit prior to drilling commitment next year.

Financial Review

The Group's loss for the year was £9,351,000, of which £7,197,000 comprised the write-offs of the Mauku-1 well and the exploration permit PEP51155. This represents an increase of £6,315,000 over the previous losses. Cash balances as at 31 May 2013 were £2,788,000. Net administrative expense for the year increased by £497,000. This was largely due to a decrease in the reallocation of expenses to capitalised exploration and evaluation activities and an increase in salaries for the period.

During the year the company capitalised an additional £15,000,000 of exploration and evaluation expenditure. The company also reallocated an amount of £6,980,000 to Production and development assets (note 7B). All these costs were associated with the Greater Puka field which the Board believes has reached a stage of both the technical and economic feasibility in order to allow for reclassification. The decision to reclassify the assets was based on discussion at the end of the financial year and as a result the reclassification was made on 31 May 2013. Revenue for the period increased by £792,000 to £829,000 as a result of sales of hydrocarbons associated with the testing of Puka 1 and Puka 2.

The significant increase in expenditure during the period was as a result of increased activity by Kea in advancing the work programs on the permits held. The drilling of two exploration wells, the installation of production facilities at Puka and the acquisition of both onshore and offshore seismic, along with increased operating costs saw cash outflows increase over the year.

Additionally the company issued shares on three separate occasions during the period. Firstly in November 2012 a total of 87,500,000 shares were issued at 8p per ordinary share. In January 2013 a further 15,000,000 shares were issued to two employee trusts that were set up for the benefit of UK employees and overseas employees. These shares were issued at 10.38p and were funded by a loan from the company. In May 2013 an additional 43,214,282 shares were issued at 7p per share with every 2 shares acquiring a warrant entitling subscription at 10p per share by May 2015. Subscribers to the original warrants offered on listing exercised a further 42,373,125 warrants at 8p each during the period. In total the company raised, net of expenses, £14,581,000.

The exchange movement for the year showed a gain of £943,000 arising primarily on the company's NZD balances and assets. The year end exchange rate of NZ$1.8744/£ was significantly lower than the rate at the start of the year (NZ$2.0511/£), averaging around NZ$1.9126/£ through the year.

In common with other junior exploration companies, the Group is reliant on raising further funds periodically through equity finance, including share options and warrants, or possibly debt facilities to achieve its long term objectives. The directors have prepared operating forecasts which assume a minimum level of expenditure to conform with the requirements of the Group's licences for the next 12 months. These forecasts included significant projected revenue from the Puka discovery that is currently being tested for commercial production that would, along with existing cash balances, fund the ongoing programs.

The company is in the process of agreeing a bank facility in order to allow better management of cashflows from the sale of hydrocarbons. The Directors consider the process to be sufficiently progressed that they currently expect the facility to be signed and that it is appropriate for the financial statements to be prepared on a going concern basis.

Health, Safety and the Environment ("HSE")

Kea is a safety conscious and environmentally responsible company that is committed to providing a safe place of work and to operating in a manner that ensures that the highest standards of safety and environmental protection are maintained. Kea values the safety of its staff, contractors and the wider community in which it operates.

As standard practice, the company:

• strives for best practice in HSE performance

• complies with and where possible exceeds legislative requirements

• identifies, assesses and manages environmental health and safety hazards, risks and impacts

• promotes continuous improvement practices within all aspects of the business

• minimises work place exposure to hazards

Social Licence to Operate

Kea believes that continuous improvement in the areas of environment, community and stakeholder relationships and safety is fundamental to ongoing sustainability, success and to maintaining the company's social licence to operate.

The company is looking to build its reputation as a responsible organisation with a social licence to operate by:

• being a part of the community not apart from it

• working closely with neighbours and co-occupiers of the land and respecting their land use requirements and accommodating them as far as possible

• respecting the culture and traditions of all members of the local communities

• providing public information about environmental, community, health and safety aspects of the business.

Kea is striving to foster lasting and tangible relationship with the local communities and stakeholder groups where it works, and is aware that in addition to regulatory operating approvals, the company also requires a social licence to operate, and that acceptance has to be earned. Kea is committed to working in an effective and collaborative manner with local communities that co-exist with its operations. To achieve this Kea will continue to:

• establish and maintain positive and meaningful communication with all affected parties,

• consult with the people whose land may be affected by its activities,

• work collaboratively with other land users and affected parties to minimise the negative impacts of the company's operations and maximise the benefits to the community.

Kea has strict anti-bribery procedures and policies in place and strives to ensure that its employees and contractors are aware of and observe these at all times in carrying out the company's business.

Richard Parkes

Managing Director

31 October 2013

KEA PETROLEUM PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

The loss for the year and total comprehensive loss for the year are 100% attributable to equity

shareholders of the parent undertaking.

KEA PETROLEUM PLC

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

The financial statements were approved by the Board of Directors on 31 October 2013

P. Wright

Director

The accompanying accounting policies and notes form an integral part of these financial statements.

KEA PETROLEUM PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

The accompanying accounting policies and notes form an integral part of these financial statements.

KEA PETROLEUM PLC

CONSOLIDATED STATEMENT OF cashflows

The accompanying accounting policies and notes form an integral part of these financial statements.

KEA PETROLEUM plc

NOTES TO THE FINANCIAL STATEMENTS

BASIS OF PREPARATION AND ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

The Group financial statements consolidate those of the Company and of its subsidiary undertakings; the Group financial statements have been prepared in accordance with IFRS and International Financial Reporting Interpretations Committee (IFRIC) interpretations as adopted by the European Union at 31 May2013. The accounting policies and presentation followed in the preparation of these final results have been consistently applied to all periods in these financial statements.

Audit Information

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006. The consolidated statement of financial position at 31 May 2013 and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated cash flow statement and associated notes for the year then ended have been extracted from the Group's statutory financial statements for the year ended 31 May 2013 upon which the auditor's opinion is unqualified, except for an emphasis of matter paragraph regarding going concern which is further explained below, and does not include any statement under Section 498 (2) or (3) of the Companies Act 2006.

Going concern

The Group has incurred a loss of £9,351,000 for the year ended 31 May 2013. In common with other junior exploration companies, the Group is reliant on raising further funds periodically through equity finance, including share options and warrants, or possibly debt facilities to achieve its long term objectives.

The Group is in the process of agreeing a bank facility in order to provide working capital and allow better management of cashflows from the sale of hydrocarbons. The facility has not yet been signed. Based on obtaining the bank facility, the directors have prepared operating forecasts which assume a minimum level of expenditure to conform with the requirements of the Group's exploration licences for the next 12 months. These forecasts included significant projected revenue from the Puka wells, currently being tested for commercial production, that would, along with existing cash balances, fund the ongoing programs. These wells have been in production since early September 2013. The Group's cashflow forecasts and projections include certain assumptions in relation to the level of future production and consequent revenues, which can vary due to possible fluctuations in both the oil price and foreign exchange rates. These forecasts demonstrate that the Group has adequate resources to continue in operational existence for the foreseeable future, well within the pending bank facility.

The directors have concluded that the combination of these circumstances represents a material uncertainty that casts significant doubt upon the group's ability to continue as a going concern. Nevertheless after making enquiries, and considering the uncertainties described above, the directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis in preparing the annual report and accounts.

1. Revenue and segmental reporting

In the opinion of the Directors the Group's single operating segment is the exploration for hydrocarbons, comprising oil and gas. An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses and whose results are regularly reviewed by the Board of Directors. The Board of Directors reviews operating results by reference to the core principle of geographic location. The Group currently has oil and gas exploration in one market, New Zealand, and it has a head office and associated corporate expenses in the UK.

Revenue of £829,000 (2012:£38,000) has been earned through the sale of oil to Shell Todd Oil Services Limited, in New Zealand, during the period.

The following table provides a breakdown of the Group's capital expenditure based on the area of

operation:

The following table provides a breakdown of the Groups total segment non current assets based on

the area of operation:

2. Loss before taxation

3. Employee numbers and costs

Included in the figure of £616,000 are costs of £230,000 (2012: £50,000) relating to time spent by the CEO and other employees that have been capitalised against specific projects.

The total directors' emoluments for the year were £750,000 (2012:£366,000). In addition directors' total pension

contributions for the year were £12,000 (2012: £22,000). The emoluments of the highest paid director were £303,000 (2012: £121,000).

4. Finance income

5. Taxation

There is no income tax expense due to losses incurred in the year. The tax assessed for the year differs from the standard rate of corporation tax as applied in the respective trading domains where the Group operates.

The group has tax losses unrecognised carried forward in the UK of £800,000 (2012: £421,000) and New Zealand of £10,843,000 (2012: £4,796,000). The movement in relation to New Zealand includes the prior year adjustment in relation to the unrecognised tax losses and the impact of movement in foreign exchange rates.

The Group has a deferred tax asset of £3,220,000 (2012: £1,444,000) which is unrecognised. Deferred tax assets are recognised for all deductible differences, carry forward on unused tax credits and unused tax losses, to the extent that the likelihood of sufficient future taxable profits being generated within the Group does not yet meet the definition of "probable".

6. Loss per share

The diluted loss per share does not differ from the basic loss per share as the exercise of share options would have the effect of reducing the loss per share and is therefore not dilutive. The weighted average number of shares used in calculating the basic earnings per share has been adjusted to remove the shares in issue held by the Employee Benefit Trusts.

7. Oil and gas exploration assets

The write-off/impairment of unsuccessful expenditure relates to a full provision against all expenditure previously capitalised in relation to the Mauku-1 well (permit PEP382104) and permit PEP51155. Planning is underway to complete the abandonment of the Mauku-1 well and the surrendering of remaining consents. After a review of the data, permit PEP51155 was relinquished as the prospects did not warrant the required work program to retain the permit.

B. Tangible Development & Production Assets Capitalised

All of the Group's operating expenses and other assets and liabilities are derived from the exploration and evaluation of hydrocarbon resources, unless stated otherwise in these financial statements.

8. Property, plant and equipment

9. Cash and cash equivalents

10. Trade and other receivables

11. Trade and other payables

12. Share capital

The market price of the ordinary shares at 31 May 2013 was 5.625p and the range during the year was 5.375p to 11.0p.

Of the warrants issued at 31 May 2013, 423,731 were held by members of the concert party or by related parties.

13. Other reserves

In October 2009, the Company acquired the entire issued share capital of the recently incorporated KPHL by way of a share for share exchange with the then shareholders of KPHL. The difference between the nominal value of the shares issued by Kea Petroleum to the shareholders of KPHL and the nominal value of the shares of KPHL taken in exchange has been credited to a merger reserve on consolidation.

In May of this year the Company issued one warrant for every two shares issued as part of an equity fund raise. The shares were issued at a 9.8% premium to market price and a reclassification was made from Share Premium to Warrants Reserve to represent fair value for the warrants issued.

14. Share based payments

The Group has an unapproved share option plan for the benefit of employees, as well as the Joint share ownership plan ("JSOP") and the Overseas employee share benefit trust ("OESBT"). Details of the number of share options and the weighted average exercise price (WAEP) outstanding during the period are as follows:

The fair value of options granted has been arrived at using a Binomial model. The assumptions inherent in the use of this model are as follows:

§ The option life is assumed to be at the end of the allowed period.

§ There are no vesting conditions.

§ No variables change during the life of the option (e.g. dividend yield).

§ Expected volatility was determined by calculating the weighted average share price movement of 4 comparable companies. Expected life was based on the contractual life of the options, adjusted, based on management's best estimate, for the effects of exercise restrictions and behavioural considerations.

OESBT / JSOP Model

For the purposes of the JSOP, the Company has established a new employee benefit trust (the "JSOP Share Trust") which has subscribed for 7,000,000 new shares in the Company at a price of 10.38 pence per share, being the closing mid-market price on 27 February 2013, which has been funded by a loan from the Company. All dividend and voting rights in the shares held by the JSOP Share Trust have been waived.

For the purposes of the OESBT, the Company has established a new employee benefit trust which has subscribed for 8,000,000 new shares in the Company at a price of 10.38p per share, being the closing mid-market price on 27 February 2013, which has been funded by a loan from the Company.

The Group recognised total expenses of £619,125 (2012:£1,069,514) related to equity-settled share based payment transactions during the year. A corresponding credit has been made to the share option reserve. Further details of share based payments are set out in the Remuneration Report.

15. Financial instruments and risk management

Risk management

The Group manages its capital to ensure that entities within the Group will be able to continue as a going concern whilst maximising the return to stakeholders through the effective management of liquid resources raised through share issues. The principal risks faced by the Group resulting from financial instruments are liquidity risk, foreign currency risk and, to a certain extent, interest rate risk. The directors review and agree policies for managing each of these risks and they are summarised below.

Capital risk management

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other members. The Group will also seek to minimise the cost of capital and attempt to optimise the capital structure. Currently no dividends are paid to shareholders and capital for further development of the Group's products is achieved by share issues and by the exercise of outstanding warrants (note 12). Warrants are issued, at times, as part of the equity fund raisings as an incentive for investors to take part in a capital issue.

The current share price is under 2.5p and the Directors are not sure what level of share price would support the exercise of warrants either at 5p or at 10p. The Group does not carry significant debt.

Categories of financial instrument

There is no material difference between the fair values and the book values of these financial instruments. All financial liabilities are due within one year.

Foreign currency risk

The cash balances carried within the Group comprise the following foreign currency holdings:

The Group operates within the UK and New Zealand. All transactions are denominated in Sterling, NZ Dollars or US dollars. As such the Company is exposed to transaction foreign exchange risk. The mix of currencies and terms of trade are such that the directors believe that the Company's exposure is minimal and consequently they do not specifically seek to hedge that exposure. Funds are periodically transferred overseas to meet local costs when required.

The table below demonstrates the sensitivity of the Group's consolidated loss before tax to reasonably possible changes in the value of the US dollar and the NZ Dollar with respect to Sterling, all other variables held constant. The sensitivity analysis includes only the US dollar and NZ Dollar because the effect of other currencies is not significant. The sensitivities reflect only those changes in consolidated loss before tax that arise from translation of the value of US dollar and NZ dollars denominated financial assets and liabilities.

Interest rate risk

The Group finances its operations through equity fundraising and therefore does not carry significant borrowings. Interest rate risk is therefore considered to be immaterial. The Group's cash balances and short term deposits are held at floating interest rates based on LIBOR and are reviewed to ensure maximum benefit is obtained from these resources. Risk is additionally reduced by ensuring two or more banks are used for deposits.

Liquidity risk

The Group is dependent on equity fundraising through private placing which the directors regard as the most cost effective method of fundraising. The directors monitor cash flow on a daily basis and at monthly board meetings in the context of their expectations for the business to ensure sufficient liquidity is available to meet foreseeable needs.

Credit risks

The Group does not have any perceived credit risks on its trade and other receivables.

16. Capital commitments

As at 31 May 2013 the Group had no capital expenditure commitments. The terms of the petroleum exploration permits which the Group holds require it to carry out certain exploration activities within specified time frames. The actual costs of these activities are dependent on a number of factors including the scope of the work and whether farm out or similar arrangements are entered into with other parties. Estimated commitments for the minimum exploration work program obligations are as follows:

Within 1 year

· PEP 51153 Technical Studies - £100,000

· PEP 381204 Seismic reprocessing - £100,000

· PEP 52333 Detail an offshore well location - £261,000

17. Subsidiary companies consolidated in these accounts and associates

* Kea Petroleum (Australia) Pty Ltd ceased operations in Australia prior to 31 May 2012 and has been wound up.

** Kea Petroleum Limited was formerly known as Kea Oil and Gas (Kahili) Limited.

18. Operating lease commitments

At the balance sheet date, non-cancellable outstanding operating lease rentals are payable as follows:

The UK lease is on the property at 5-8 The Sanctuary in London and rental and service charge are payable in advance on a quarterly basis. The lease expires in July 2016, with the option of a break clause in July 2014. The NZ leases are on properties in Wellington and New Plymouth. The Wellington lease expires in Jan 2016, with the option of a break in Jan 2014. The New Plymouth lease expires in Feb 2019, with the option of a break in Feb 2015.

19. Related party transactions

During the period Ventutec Limited, a company in which DJ Lees is a director, charged an amount of £5,035 (2012: £684) for web based services. The balance outstanding at year end was nil.

20. Events after the balance sheet date

In June 2013 Non-Executive Director John Dennehy resigned to pursue other interests.

In August 2013 licence area PEP 51155 was surrendered.

In August 2013 after artificial lift was installed on Puka-2 co-mingled testing of both wells started with sales totalling US$905k by 30 September 2013.

In October 2013 a 5 year extension to licence area PEP 51153 was granted after a compulsory 50% relinquishment of licence area.