Unaudited 2020 Annual Report - Financial Report

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The above Consolidated Statement of Profit or Loss and Other Comprehensive Income is to be read in conjunction with the accompanying notes.

The above Consolidated Statement of Financial Position is to be read in conjunction with the accompanying notes.

(1) Capital raising costs include cash payments and the fair value of options granted to the underwriter.

The above Consolidated Statement of Changes in Equity is to be read in conjunction with the accompanying notes.

The above Consolidated Statement of Cash Flows is to be read in conjunction with the accompanying notes.

NOTE 1 - REPORTING ENTITY

Oilex Ltd (the Company) is a for-profit entity domiciled in Australia. These consolidated financial statements comprise the Company and its subsidiaries (collectively the Group and individually Group Entities). Oilex Ltd is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange (ASX) and on the Alternative Investment Market (AIM) of the London Stock Exchange. The Group is primarily involved in the exploration, evaluation, development and production of hydrocarbons.

Parent Entity Information

In accordance with the Corporations Act 2001, these financial statements present the results of the consolidated entity only. Supplementary information about the parent entity is disclosed in note 25.

NOTE 2 - BASIS OF PREPARATION

(a) Statement of Compliance

The consolidated financial statements are general purpose financial statements which have been prepared in accordance with Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The consolidated financial statements comply with International Financial Reporting Standards (IFRS) adopted by the International Accounting Standards Board (IASB).

The consolidated financial statements were authorised for issue by the Board of Directors on [xx October 2020].

(b) Basis of Measurement

The consolidated financial statements have been prepared on the historical cost basis except for share-based payment arrangements measured at fair value and the foreign currency translation reserve. 

A number of the Group's accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for some measurement and/or disclosure purposes and where applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

(c) Going Concern Basis

The Directors believe it is appropriate to prepare the consolidated financial statements on a going concern basis, which contemplates continuity of normal business activities and the realisation of assets and settlement of liabilities in the ordinary course of business.

The Group has incurred a loss of $4,492,638 (2019: $3,118,121) and had cash outflows from operating activities of $2,837,661 (2019: $2,962,563). As at 30 June 2020, the Group's current liabilities exceeded current assets by $2,283,902 (2019: $111,707) and the Group has cash and cash equivalents of $173,816 (2019: $357,970).

On 17 July 2020, the Company announced that it had issued the second tranche of 55,555,555 shares at £0.0009 (A$0.001792) pursuant to the equity raise announcements on 15 March 2020 and 23 April 2020.

On 27 July 2020, the Company entered into an amendment agreement to vary the terms of its Series C loan funding facility of £125,000 entered into on 3 February 2020. Pursuant to the amendment, the loan repayment date was extended from 1 August 2020 to 31 October 2020. In addition, the Company will issue 113,636,364 new options to the lender at an exercise price of £0.0011 (A$0.00197) and expiry date of 29 January 2021, which is subject to shareholder approval on or before 30 November 2020. All other loan terms and conditions remain the same; and are extended to 31 October 2020.

On 31 July 2020, the Company announced that it had arranged an equity capital raising to secure funding of £0.25m (A$0.5m) through the placing of 312,500,000 new shares at £0.0008 (A$0.00144) per share. All shares were subsequently issued on 10 August 2020.

NOTE 2 - BASIS OF PREPARATION (CONTINUED)

(c) Going Concern Basis (Continued)

The Group also requires further funding within the next twelve months in order to repay the Series C & D loans (amount drawn at 30 June 2020: £310,000), meet planned expenditures for its projects and ongoing administrative expenses and to progress the Cambay drilling programme, and for any new business opportunities that the Group may pursue.

The Directors believe that the Group will be able to secure sufficient funding to meet the requirements to continue as a going concern, due to its history of previous capital raisings, acknowledging that the structure and timing of any capital raising is dependent upon investor support, prevailing capital markets, shareholder participation, oil and gas prices and the outcome of planned exploration and evaluation activities, which creates uncertainty. In addition, the sale process towards securing a new joint venture partner for the Cambay Production Sharing Contract (PSC) continues to progress despite the delays being experienced by all parties due to the impact of Covid-19 in India.

The Directors consider the going concern basis of preparation to be appropriate based on its forecast cash flows for the next twelve months and that the Group will be in a position to continue to meet its minimum administrative, evaluation and development expenditures and commitments for at least twelve months from the date of this report.

If further funds are not able to be raised or realised, then it may be necessary for the Group to sell or farmout its exploration and development assets and to reduce discretionary administrative expenditure.

The ability of the Group to achieve its forecast cash flows, particularly the raising of additional funds, represents a material uncertainty that may cast significant doubt about whether the Group can continue as a going concern, in which case it may not be able to realise its assets and extinguish its liabilities in the normal course of business and at the stated amounts in the financial statements.

(d) Currency and Foreign Currency Transactions

These consolidated financial statements are presented in Australian dollars, which is the Company's functional currency. The functional currency of the Company's subsidiaries is United States or Australian dollars.

Transactions in foreign currencies are translated into the respective functional currencies of Group entities at exchange rates at the dates of the transactions.

Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the foreign exchange rate at the reporting date.

Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated into the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Foreign currency differences are generally recognised in profit or loss.

(e) Basis of Consideration

These consolidated financial statements comprise the Company and its subsidiaries (collectively the Group and individually Group Entities).

i) Subsidiaries

Subsidiaries are entities controlled by the Group. The list of controlled entities is contained in note 19. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

ii) Joint Arrangements - Joint Operations

The interests of the Group in unincorporated joint operations and jointly controlled assets are recorded in note 19.

iii) Transactions Eliminated on Consolidation

Intragroup balances and transactions, and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements.

NOTE 2 - BASIS OF PREPARATION (CONTINUED)

(f) Key Estimates, Judgements and Assumptions

In preparing these consolidated financial statements, management continually evaluate judgements, estimates and assumptions that affect the application of the Group's accounting policies and the reported amounts of assets, liabilities, income and expenses. All judgements, estimates and assumptions made are believed to be reasonable based on the most current set of circumstances. Actual results may differ from these judgements, estimates and assumptions. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively.

A key assumption underlying the preparation of the financial statements is that the entity will continue as a going concern. An entity is a going concern when it is considered to be able to pay its debts as and when they fall due, and to continue in operation, without any intention or necessity to liquidate or otherwise wind up its operations.

Judgement has been required in assessing whether the entity is a going concern as set out in note 2(c).

In the process of applying the Group's accounting policies, management have made judgements, assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year as follows:

Income Tax - refer note 6

Exploration and Evaluation Assets - refer note 8

Development Assets - refer note 9

Provisions - refer note 11

Trade and other receivables - refer note 13

Coronavirus (COVID-19) pandemic

Judgement has been exercised in considering the impacts that the Coronavirus (COVID-19) pandemic has had, or may have, on the consolidated entity based on known information. This consideration extends to the nature of the products and services offered, customers, supply chain, staffing and geographic regions in which the consolidated entity operates.

The impact of the Coronavirus (COVID-19) up to 30 June 2020 has been financially negative for the consolidated entity. This is largely due to its general impact in India where significant delays have been experienced with the sale process being conducted by GSPC for its 55% interest in the Cambay Production Sharing Contract (PSC). As a result, Indian operations have continued to be maintained on a 'care and maintenance' basis for a longer period than originally anticipated.

Other than this mater and those addressed in specific notes, there does not currently appear to be either any other significant impact upon the financial statements or any significant uncertainties with respect to events or conditions which may impact the consolidated entity unfavourably as at the reporting date or subsequently as a result of the Coronavirus (COVID-19) pandemic.

(g) Rounding of Amounts

The Company is a company of the kind referred to in ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191 and therefore the amounts contained in this report and in the financial report have been rounded to the nearest dollar, unless otherwise stated.

(h) Accounting Policies

Significant accounting policies that are relevant to the understanding of the consolidated financial statements have been provided throughout the notes to the financial statements. Accounting policies that are determined to be non-significant have not been included in the consolidated financial statements.

The accounting policies disclosed have been applied consistently to all periods presented in these consolidated financial statements and have been applied consistently by Group entities, except for the following changes in accounting policies.

Changes in significant accounting policies

a) Leases

The Group has initially adopted AASB 16 Leases from 1 July 2019. A number of other new standards are effective from 1 July 2019 but they do not have a material effect on the Group's financial statements.

AASB 16 introduced a single, on-balance sheet accounting model for leases. As a result, the Group, as a lessee, is required to recognise use-of-right assets representing its right to use the underlying assets and lease liabilities representing its obligation to make lease payments.

NOTE 2 - BASIS OF PREPARATION (CONTINUED)

The Group has applied AASB 16 using the modified retrospective approach, under which the cumulative effect of initial application is recognised in retained earnings at 1 July 2019. Accordingly, the comparative information presented for 2018 has not been restated. - i.e. it is presented, as previously reported, under AASB 117 and related interpretations. The details of the changes in accounting policies are disclosed below.

Definition of a lease

Previously, the Group determined at contract inception whether an arrangement was or contained a lease under AASB Interpretation 4 Determining Whether an Arrangement contains a Lease. The Group now assesses whether a contract is, or contains, a lease if the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration.

At inception or on reassessment of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease and non-lease component on the basis of their stand-alone prices. However, for leases of properties in which it is a lessee, the Group has elected not to separate non-lease components and will instead account for the lease and non-lease components as a single lease component.

As a lessee

Accounting policy (applied from 1 July 2019)

As a lessee, the Group previously classified leases as operating or finance leases based on its assessment of whether the lease transferred substantially all of the risks and rewards of ownership. Under AASB 16, the Group recognises right-of-use assets and lease liabilities for most leases - i.e. these leases are on the balance sheet.

However, the Group has elected not to recognise right-of-use assets and lease liabilities for some leases of low-value assets and short-term leases (lease term of 12 months or less). The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the term lease.

The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, and subsequently at cost less any accumulated depreciation and impairment losses; and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate.

The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payment made. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a purchase or extension option is certainly reasonable certain to be exercised or a termination option is reasonably certain not to be exercised.

The Group shall apply judgement to determine the lease term for some lease contracts in which it is a lessee that include renewal options. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease liabilities and right-of-use assets recognised.

Transition

The Group has applied the exemption not to recognise right-of-use assets and liabilities for leases with less than 12 months of lease term when applying AASB 16 to leases previously classified as operating leases under AASB 117.

As a result of initially applying AASB 16 as at 1 July 2019, there has been $nil impact to the balance sheet including retained earnings, and the current loss for the financial period ending 30 June 2020.

b) Initial application of IFRIC Uncertainty over Income Tax Treatments

The Group has adopted IFRIC 23 with an initial application date of 1 July 2019.

The IFRIC outlines what to do when there is uncertainty over income tax treatments. The Group will determine if the uncertain tax position needs to be assessed on an entity-by-entity-basis or as a group. Furthermore, an assessment will be done on the probability that the ATO (or relevant tax authority) will accept the treatment of the uncertain tax event and determine its accounting tax position.

In the event that it is not probable that the relevant tax authority will accept the treatment, the Group will determine the effect of the uncertain tax event and the accounting tax position using either the expected value method or the most likely amount.

NOTE 2 - BASIS OF PREPARATION (CONTINUED)

(i) Standards issued but not yet effective

A number of new standards are effective for annual periods beginning after 1 January 2020 and earlier application is permitted; however, the Group has not early adopted the new or amended standards in preparing these consolidated financial statements.

The following amended standards and interpretations are not expected to have a significant impact on the Group's consolidated financial statements.

- Amendments to References to Conceptual Framework in IFRS Standards.

- Definition of a Business (Amendments to AASB 3).

- Definition of Material (Amendments to AASB 1 and AASB 8).

NOTE 3 - RESTATEMENT OF COMPARATIVES - error in financial statements

An adjustment has been made to opening retained earnings at 1 July 2018 with respect to an accounting error made with initial recognition and subsequent adjustments to the Provision for Rehabilitation related to Development Assets (Note 9). In accordance with AASB 116 -Property, Plant and Equipment the correct accounting treatment for the costs to restore a mine site is to recognise a Rehabilitation Development Asset to the extent that the development relates to future production activities. In prior years the rehabilitation costs and respective adjustments have been incorrectly charged to the profit and loss. The adjustment has been made as follows:

This section focuses on the results and performance of the Group.

NOTE 4 - OPERATING SEGMENTS

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components. The Group has identified its operating segments based upon the internal management reports that are reviewed and used by the executive management team in assessing performance and that are used to allocate the Group's resources. The operating segments identified by management are based on the geographical location of the business. Each segment has responsible officers that are accountable to the Managing Director (the Group's chief operating decision maker). The operating results of all operating segments are regularly reviewed by the Group's Managing Director to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available. Segment results that are reported to the Managing Director include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

The Group's executive management team evaluates the financial performance of the Group and its segments principally with reference to revenues, production costs, expenditure on exploration evaluation and development costs.

The Group undertakes the exploration, development and production of hydrocarbons and its revenue is from the sale of oil and gas. Information reported to the Group's chief operating decision maker is on a geographical basis.

Financing requirements, finance income and expenses are managed at a Group level.

Corporate items include administration costs comprising personnel costs, head office occupancy costs and investor and registry costs. It may also include expenses incurred by non-operating segments, such as new ventures and those undergoing relinquishment. Assets and liabilities not allocated to operating segments and disclosed are corporate, and mostly comprise cash, plant and equipment, receivables as well as accruals for head office liabilities.

Major Customer

The Group's most significant customers are Enertech Fuel Solutions Pvt Limited with gas sales representing 0% of the Group's total revenues (2019: 39%) and Indian Oil Corporation Limited, in its capacity as nominee of the Government of India, with oil sales representing 0% of the Group's total revenues (2019: 61%).

No revenues were recognised during the financial period as oil and gas operations were maintained on a 'care and maintenance' basis.

Revenue

The Group recognises revenue as follows:

a) Revenue from Contracts with Customers

Revenue is recognised at an amount that reflects the consideration to which the Group is expected to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the Group: identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised.

NOTE 4 - OPERATING SEGMENTS (Continued)

b) Interest

Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset.

c) Other Revenue

Other revenue is recognised when it is received or when the right to receive payment is established.

Expenses

Impairment - refer notes 8 and 9

Doubtful debts - refer note 13

Depreciation - refer note 17

Amortisation - refer note 9

Employee benefits - refer note 11

Leases - refer note 27

Goods and Services Tax ('GST') and other similar Taxes

Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense.

Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position.

Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows.

Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority.

NOTE 4 - OPERATING SEGMENTS (Continued)

There were no significant inter-segment transactions during the year.

(1) Joint Petroleum Development Area.

(2) Corporate represents a reconciliation of reportable segment revenues, profit or loss, assets and liabilities to the consolidated figure.

note 5 - revenue and expenses

Loss from ordinary activities before tax has been determined after the following revenues and expenses:

(1) Assistance packages provided by the Federal and State government to provide assistance to businesses and employers in response to the negative impacts of Covid-19 upon the Australian and Western Australia economies.

Accounting Policy - Revenue

The Group's Revenue policy is outlined in note 4. 

NOTE 6 - INCOME TAX EXPENSE

Numerical reconciliation between tax expense and pre-tax accounting loss:

Tax Assets and Liabilities

During the year ended 30 June 2020, $[XX] of tax losses were recognised and were offset against the current tax liability resulting in nil tax assets and liabilities.

The deductible temporary differences and tax losses do not expire under current tax legislation.

The deferred tax asset not brought to account for the 2020 financial year will only be realised if:

· It is probable that future assessable income will be derived of a nature and of an amount sufficient to enable the benefit to be realised;

· The conditions for deductibility imposed by the tax legislation continue to be complied with; and

· The companies are able to meet the continuity of ownership and/or continuity of business tests.

The foreign component of the deferred tax asset not brought to account for the 2020 financial year will only be realised if the Group derives future assessable income of a nature and of an amount sufficient to enable the benefit to be realised and the Group continues to comply with the deductibility conditions imposed by the Income Tax Act 1961 (India) and there is no change in income tax legislation adversely affecting the utilisation of the benefits.

Change in Corporate Tax Rate

There has been a legislated change in the corporate tax rate that will apply to future income tax years. The impact of this reduction in the corporate tax rate has been reflected in the unrecognised tax positions and the prima facie income tax reconciliation above. 

NOTE 6 - INCOME TAX EXPENSE (continued)

Tax Consolidation

In accordance with tax consolidation legislation the Company, as the head entity of the Australian tax-consolidated group, has assumed the deferred tax assets initially recognised by wholly owned members of the tax-consolidated group with effect from 1 July 2004. Total tax losses of the Australian tax-consolidated group, available for offset against future taxable income are $4,929,653 (2019: $5,480,637).

Accounting Policy

Income tax expense comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity, or in other comprehensive income.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for differences relating to investments in subsidiaries to the extent that they probably will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Key Estimates and Assumptions

The application of the Group's accounting policy for recognition of tax losses requires management to make certain estimates and assumptions as to future events and circumstances, including the assessment of whether economic quantities of resources have been found, or alternatively, that the sale of the respective areas of interest will be achieved. Any such estimates and assumptions may change as new information becomes available. A deferred tax asset is only recognised for unused losses if it is probable that future taxable profits will be available to utilise those losses.

In determining the amount of current and deferred tax the Group considers the impact of uncertain tax positions and whether additional taxes and interest may be due. The Group believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience. This assessment relies on estimates and assumptions and may involve a series of judgements about future events. New information may become available that causes the Group to change its judgement regarding the adequacy of existing tax liabilities, such changes to tax liabilities will impact tax expense in the period that such a determination is made.

NOTE 7 - LOSS PER SHARE

(a) Basic Loss Per Share

(b) Diluted Loss Per Share

The Company's potential ordinary shares, being its options granted, are not considered dilutive as the conversion of these instruments would result in a decrease in the net loss per share.

Accounting Policy

Basic earnings per share is calculated by dividing net profit or loss attributable to ordinary shareholders of the parent entity by the weighted average number of ordinary shares outstanding during the year, adjusted for any bonus element.

Diluted earnings per share is determined by adjusting the profit attributable to ordinary shareholders and weighted average number of shares outstanding for the dilutive effect of potential ordinary shares, which may comprise outstanding options, warrants and their equivalents.

This section provides information on the assets employed to develop value for shareholders and the liabilities incurred as a result.

NOTE 8 - EXPLORATION AND EVALUATION

As at 30 June 2020, the balance of exploration and evaluation assets relates to the Cambay Field, which is currently at evaluation stage, and there was no impairment of this asset (2019: Nil).

The Cambay Field has minimal production that is sold to a third party.

Further development of the Cambay field is presently on hold pending the completion of the sale process being conducted by GSPC for its 55% PI in the Cambay PSC. This sale process, however, has been subject to significant delays due to the impact of Covid-19 in India.

Accounting Policy

Accounting for exploration and evaluation expenditure is assessed separately for each area of interest. Exploration and evaluation expenditure in respect of each area of interest is accounted for under the successful efforts method. An area of interest is an individual geological area which is considered to constitute a favourable environment for the presence of hydrocarbon resources or has been proven to contain such resources.

Expenditure incurred prior to securing legal rights to explore an area is expensed. Exploration licence acquisition costs relating to established oil and gas exploration areas are capitalised.

The costs of drilling exploration wells are initially capitalised pending the results of the well. Costs are expensed where the well does not result in a successful discovery.

All other exploration and evaluation expenditure, including general administration costs, geological and geophysical costs and new venture expenditure is expensed as incurred, except where:

· The expenditure relates to an exploration discovery for which, at reporting date, an assessment of the existence or otherwise of economically recoverable reserves is not yet complete; or

· The expenditure relates to an area of interest under which it is expected that the expenditure will be recouped through successful development and exploitation, or by sale.

When an oil or gas field has been approved for commercial development, the accumulated exploration and evaluation costs are first tested for impairment and then reclassified as development assets.

Impairment of Exploration and Evaluation Expenditure

The carrying value of exploration and evaluation assets are assessed at each reporting date if any of the following indicators of impairment exist:

· The exploration licence term in the specific area of interest has expired during the reporting period or will expire in the near future and it is not anticipated that this will be renewed;

· Expenditure on further exploration and evaluation of specific areas is not budgeted or planned;

· Exploration for and evaluation of oil and gas assets in the specific area has not lead to the discovery of potentially commercial reserves; or

· Sufficient data exists to indicate that the carrying amount of the asset is unlikely to be recovered in full, either by development or sale.

Key Estimates and Assumptions

The application of the Group's accounting policy for exploration and evaluation expenditure necessarily requires management to make certain estimates and assumptions as to future events and circumstances, particularly the assessment of whether economic quantities of resources have been found, or alternatively, that the sale of the respective areas of interest will be achieved. Critical to this assessment are estimates and assumptions as to contingent and prospective resources, the timing of expected cash flows, exchange rates, commodity prices and future capital requirements. These estimates and assumptions may change as new information becomes available. If, after having capitalised expenditure under this policy, it is determined that the expenditure is unlikely to be recovered by future exploitation or sale, then the relevant capitalised amount will be written off to the consolidated statement of profit or loss and other comprehensive income.

NOTE 9 - DEVELOPMENT ASSETS

Cambay Field Development Assets

Development assets are reviewed at each reporting date to determine whether there is any indication of impairment or reversal of impairment. Indicators of impairment can include changes in: market conditions, future oil and gas prices and future costs, extension of the Cambay Production Sharing Contract and the status of the disputes arising from the issue of the event of default notice to GSPC. No indicators of impairment were identified in the 2020 or 2019 financial years.

There was no impairment on the Cambay Field development assets during the year ended 30 June 2020 (2019: Nil).

Accounting Policy

Development expenditure includes past exploration and evaluation costs, pre-production development costs, development drilling, development studies and other subsurface expenditure pertaining to that area of interest. Costs related to surface plant and equipment and any associated land and buildings are accounted for as property, plant and equipment.

The definition of an area of interest for development expenditure is narrowed from the exploration permit for exploration and evaluation expenditure to the individual geological area where the presence of an oil or natural gas field exists, and in most cases will comprise an individual oil or gas field.

Amortisation is not charged on costs carried forward in respect of areas of interest in the development phase until production commences. When production commences, carried forward development costs are amortised on a units of production basis over the life of economically recoverable reserves.

Restoration costs expected to be incurred are provided for as part of development mine assets that give rise to the need for restoration.

NOTE 9 - DEVELOPMENT ASSETS (CONTINUED)

Impairment of Development Assets

The carrying value of development assets are assessed on a cash generating unit (CGU) basis at each reporting date to determine whether there is any indication of impairment or reversal of impairment. Indicators of impairment can include changes in market conditions, future oil and gas prices and future costs. Where an indicator of impairment exists, the assets recoverable amount is estimated.

An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. A CGU is the smallest identifiable asset group that generates cash flows that are largely independent from other assets and groups. The CGU is the Cambay Field, India. Impairment losses are recognised in profit or loss.

The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell (FVLCS). As a market price is not available, FVLCS is determined by using a discounted cash flow approach. In assessing FVLCS, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Valuation principals that apply when determining FVLCS are that future events that would affect expected cash flows are included in the calculation of FVLCS.

Impairment losses are reversed when there is an indication that the loss has decreased or no longer exists and there has been a change in the estimate used to determine the recoverable amount. Such estimates include beneficial changes in reserves and future costs, or material increases in selling prices. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of amortisation, if no impairment loss had been recognised.

Key Estimates and Assumptions

Significant judgements and assumptions are required by management in estimating the present value of future cash flows particularly in the assessment of long life development assets. It should be noted that discounted cash flow calculations are subject to variability in key assumptions including, but not limited to, the expected life of the relevant area of interest, long-term oil and gas prices, currency exchange rates, pre-tax discount rates, number of future wells, production profiles and operating costs.

An adverse change in one or more of the assumptions used to estimate FVLCS could result in an adjustment to the development asset's recoverable amount.

Development costs are amortised on a units of production basis over the life of economically recoverable reserves, so as to write off costs in proportion to the depletion of the estimated reserves. The estimation of reserves requires interpretation of geological and geophysical data. The geological and economic factors which form the basis of reserve estimates may change over reporting periods. There are a number of uncertainties in estimating resources and reserves, and these estimates and assumptions may change as new information becomes available.

NOTE 10 - INVENTORIES

Inventories have been reduced by $995,225 (2019: $161,354) as a result of write-down to net realisable value, which includes a $166,916 write-down to Bhandut JV inventories which have been reclassified to Assets held for sale (note 19).

Accounting Policy

Inventories comprising materials and consumables and petroleum products are measured at the lower of cost and net realisable value, on a 'weighted average' basis. Costs comprises direct materials and delivery costs, direct labour, import duties and other taxes, an appropriate portion of variable and fixed overhead expenditure based on normal operating capacity. Given that oil activities have not achieved commercial levels of production, oil on hand is recognised at net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

NOTE 11 - PROVISIONS

Accounting Policy

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and when a reliable estimate can be made of the amount of the obligation.

Provisions are made for site rehabilitation of an oil and gas field on an incremental basis during the life of the field (which includes the field plant closure phase). Provisions include reclamation, plant closure, waste site closure and monitoring activities. These costs have been determined on the basis of current costs, current legal requirements and current technology. At each reporting date the rehabilitation provision is re-measured to reflect any changes in the timing or amounts of the costs to be incurred. Any such changes are dealt with on a prospective basis.

NOTE 11 - PROVISIONS (continued)

Short-term employee benefits for wages, salaries and fringe benefits are measured on an undiscounted basis and expensed as the related service is provided. A liability is recognised based on remuneration wage and salary rates that the Group expects to pay as at the reporting date as a result of past service provided by the employee, if the obligation can be measured reliably.

The Group's net obligation in respect of long-term service benefits is the amount of future benefit that employees have earned in return for their service up to the reporting date. The obligation is calculated using expected future increases in wage and salary rates including related on-costs and expected settlement dates; and is discounted using the high quality corporate bond rate at reporting date which have maturity dates approximating to the terms of the Group's obligations.

Key Estimates and Assumptions

In relation to rehabilitation provisions the Group estimates the future removal costs of onshore oil and gas production facilities, wells and pipeline at the time of installation of the assets. In most instances, removal of assets occurs many years into the future. This requires judgemental assumptions regarding removal date, future environmental legislation, the extent of reclamation activities required, the engineering methodology for estimating cost, future removal technologies in determining the removal cost, and discount rates to determine the present value of these cash flows.

NOTE 12 - CASH AND CASH EQUIVALENTS

The Group's exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in note 23.

Accounting Policy

Cash and cash equivalents comprise bank balances, call deposits, cash in transit and short-term deposits with an original maturity of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments.

Reconciliation of Cash Flows from Operating Activities

NOTE 13 - TRADE AND OTHER RECEIVABLES

Joint venture receivables include the Group's share of outstanding cash calls and recharges owing from the joint venture partners, as well as other minor receivables.

The Group considers that there is evidence of impairment if any of the following indicators are present; financial difficulties of the debtor, probability that the debtor will dispute amounts owing and default or delinquency in payment (more than one year old). Whilst the Group has been in ongoing discussions with its joint venture partner Gujarat State Petroleum Corporation (GSPC), for repayment of disputed and other amounts owing, in line with identified impairment indicators, an assessment has been made of the recoverable balance as at 30 June 2020. Each receivable has been assessed individually for recovery, and those deemed to have a low chance of recovery have been fully provided for in the current year. Accordingly, the Indian cash calls receivable have been fully provided for.

The Group is in continuing discussions with GSPC in order to resolve the outstanding issues and recover the outstanding amounts.

The carrying value of trade and other receivables approximates its fair value due to the assessment of recoverability.

Details of the Group's credit risk are disclosed in note 23(b).

NOTE 13 - TRADE AND OTHER RECEIVABLES (CONTINUED)

Trade and other receivables, which includes receivables, loans and deposits, are initially recognised when they are originated. All other financial assets are initially recognised when the Group becomes a party to the contractual provisions of the instrument.

All trade and other receivables do not include a significant financing component and are therefore initially measured at the transaction price.

On initial recognition, trade and other receivables are classified as measured as at amortised cost. Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets.

A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:

- It is held within a business model whose objective is to hold assets to collect contractual cash flows; and

- Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

For the purpose of this assessment, 'principal' is defined as the fair value of the financial asset on initial recognition. 'Interest' is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular amount of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs).

The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire , or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

Impairment of Receivables

The Group recognises loss allowances for 'expected credit loss' (ECL's) on financial assets measured at amortised cost. Loss allowances for trade and other receivables are always measured at an amount equal to lifetime ECL's.

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECL's, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group's historical experience and informed credit assessment and including forward-looking information.

The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due.

The Group considers a financial asset to be in default when the financial asset is more than 90 days due past.

Lifetime ECL's are the ECL's that result from all possible default events over the expected life of a financial instrument.

Measurement of ECL's

ECL's are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive. ECL's are discounted at the effective interest rate of the financial asset.

Expected credit loss assessment

The Group uses its allowance schedule to measure the ECLs of trade and other receivables. The allowance schedule is based on actual credit loss experience over the past years. The ECL computed is purely derived from historical data which management is of the view that the historical conditions are representative of the conditions prevailing at the reporting date.

Write-off

The gross carrying amount of a financial asset is written off when the Group has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof.

NOTE 14 - TRADE AND OTHER PAYABLES

The Company's assessment in note 12, of the recoverability of outstanding cash call amounts owing from its joint venture partner (GSPC) has resulted in an additional impairment and consequently the Company is of the opinion that the Cambay Joint Venture will be unable to meet its third party liabilities, without financial support from the Company as Operator, due to non-payment of outstanding cash calls by the Joint Venture partner. As a result, the Group has accrued an additional $156,946 at 30 June 2020 (2019: $76,116) to cover Cambay and Bhandut Joint Venture third party liabilities.

The carrying value of trade and other payables is considered to approximate its fair value due to the short nature of these financial liabilities.

Accounting Policy

Trade and other payables are recorded at the value of the invoices received and subsequently measured at amortised cost and are non-interest bearing. The liabilities are for goods and services provided before year end, that are unpaid and arise when the Group has an obligation to make future payments in respect of these goods and services. The amounts are unsecured. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

NOTE 15 - BORROWINGS

Terms and repayment schedule

At 30 June 2020, the terms and conditions of outstanding loans are as follows:

At balance date, options had been issued to the lenders in connection to the above loans, as follows:

a) Series B: 115,723,273 share options @ £0.0011 exercisable on or before the loan maturity date of 31 July 2020;

b) Series C: 59,523,810 share options @ £0.0021 exercisable on or before the loan maturity date of 1 August 2020; and

c) Series D: 107,142,857 share options @ £0.0021 exercisable on or before 1 August 2020, and 204,545,455 share options @£0.0011 exercisable on or before the loan maturity date of 30 June 2021.

In determining the fair value of the liability component of these borrowing arrangements, it has been estimated that the effective interest rate of similar borrowings without a share option component is 18%. The fair value of the share options equity component of these borrowing arrangements has been recognised in the Loans Options Reserve as the loans have been treated as a convertible note. That is, the borrowing arrangement falls within the definition of a compound financial instrument and as such as been classified as both a financial liability and equity.

The 115,723,273 share options @ £0.0011 exercisable on or before 31 July 2020, attached to the above-mentioned Series B loans, were not exercised and have lapsed.

The 59,523,810 share options @ £0.0021 exercisable on or before 1 August 2020, attached to the above-mentioned Series C loans, were not exercised and have lapsed.

The 107,142,857 share options @ £0.0021 exercisable on or before 1 August 2020, attached to the above-mentioned Series D loans, were not exercised and have lapsed.

On 23 July 2019, the Company entered into an amendment agreement to vary the terms of its Series C loan funding facility of £125,000 entered into on 3 February 2020. Pursuant to the amendment, the loan repayment date has been extended from 1 August 2020 to 31 October 2020. In addition, the Company will issue 113,636,364 new options to the lenders at an exercise price of £0.0011 and expiry date of 29 January 2021, which is subject to shareholder approval on or before 30 November 2020. All other loan terms and conditions remain the same; and are extended to 31 October 2020.

On [xx] September 2020, the Company entered into an amendment agreement to vary the terms of its Series C loan funding facility of £125,000 entered into on 3 February 2020, and as amended on 27 July 2020. Pursuant to the amendment, the loan repayment date was extended from 31 October 2020 to 1 February 2021. All other loan terms and conditions remain the same; and are extended to 1 February 2021.

On 24 August 2020, the Series B A$250,000 loan was fully repaid, together with interest payable.

The loans are subject to the following key undertakings without prior approval by the lenders:

· Not to dispose of assets having an aggregate value of more than $1 million;

· Not to incur any financial indebtedness more than $50,000; and

· Not to incur any aggregate payment or outgoing exceeding $1m (except for employee benefit expenses).

NOTE 15 - BORROWINGS (CONTINUED)

Accounting Policy

General

All borrowings are initially recognised when the Group becomes a party to the contractual provisions of the lending instrument. All borrowings are initially recognised at fair value less transaction costs. Borrowings are subsequently carried at amortised cost.

The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expire. The Group also derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognised at fair value.

On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognised in profit or loss.

Series A, B, C and D Loans

The liability component of loans is initially recognised at the fair value of a similar liability that does not have an equity conversion option. The equity component is initially recognised at the difference between the fair value of the loan as a whole and the fair value of the liability component. Subsequent to initial recognition, the liability component of the loan is measured at amortised cost using the effective interest method. The equity component of a loan is not remeasured. Interest related to the financial liability is recognised in profit or loss.

NOTE 16 - EXPENDITURE COMMITMENTS

In order to maintain rights of tenure to exploration permits, the Group is required to perform exploration work to meet the minimum expenditure requirements specified by various state and national governments. These obligations are subject to renegotiation when application for an exploration permit is made and at other times. These obligations are not provided for in the financial report. The expenditure commitments are currently estimated to be $nil (2019: $nil).

There are no minimum exploration work commitments in the Cambay and Bhandut Production Sharing Contracts.

There are no minimum exploration work commitments in the Cooper-Eromanga Basins as the two Petroleum Exploration Licences and the 27 Petroleum Retention Licences in the Basins are currently in suspension status with the Department for Energy and Mining, South Australia.

When obligations expire, are re-negotiated or cease to be contractually or practically enforceable, they are no longer considered to be a commitment.

Further expenditure commitments for subsequent permit periods are contingent upon future exploration results. These cannot be estimated and are subject to renegotiation upon expiry of the existing exploration leases.

The Group had no capital commitments as at 30 June 2020 (2019: Nil). 

NOTE 17 - PROPERTY, PLANT AND EQUIPMENT

Accounting Policy

Property, plant and equipment is measured at cost less accumulated depreciation and any accumulated impairment losses. The cost of self-constructed assets includes the cost of materials, direct labour, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located and an appropriate proportion of overheads.

Gains and losses on disposal are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised net in the consolidated statement of profit or loss and other comprehensive income.

Depreciation is calculated using the reducing balance or straight line method over the estimated useful life of the assets, with the exception of software which is depreciated at prime cost. The estimated useful lives in the current and comparative periods are as follows:

· Motor vehicles 4 to 7 years

· Plant and equipment 2 to 7 years

· Office furniture 2 to 10 years

Depreciation methods, useful lives and residual values are reviewed and adjusted if appropriate, at each financial year end.

Impairment of Property, Plant and Equipment

The carrying value of assets are assessed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the assets recoverable amount is estimated.

This section addresses the Group's capital structure, the Group structure and related party transactions, as well as including information on how the Group manages various financial risks.

NOTE 18 - ISSUED CAPITAL AND RESERVES

The reconciliation of the movement in capital, reserves and accumulated losses for the consolidated entity can be found in the consolidated statement of changes in equity.

(a) Issued Capital

Refer notes following for additional information and Note 23 for details of unlisted options.

The issue of shares in lieu of non-executive director income were approved by shareholders at the Annual General Meeting (AGM) held on 29 November 2018 for the period from 1 November 2018 to 31 October 2019; and the AGM held on 27 November 2019 for the period from 1 November 2019 to 1 October 2020. The shares shall be issued at a price based upon the 10-Day VWAP up to the applicable quarter end for the period.

In accordance with the ASX waiver granted on 22 October 2019, the Company advises that the number of remuneration shares that were issued to directors totalled nil for the year ended 30 June 2020, which was equivalent to 0% of the Company's issued capital as at 30 June 2020.

The Non-Executive directors were entitled to the issue of 10,399,814 remuneration shares during the financial year ended 30 June 2020. These remuneration shares will be issued in the next financial year.

Additional information of the issue of ordinary shares and unlisted options:

1) Pursuant to an announcement on 7 August 2019 relating to an agreement with Holloman Energy Corporation to acquire an interest in petroleum exploration licences (PEL's 112 & 114) in the Cooper-Eromanga Basins in South Australia, the Company issued, in accordance with the agreement:

- 24,250,150 new ordinary shares on 7 August 2019 at a deemed price of $0.003; and

- 16,166,767 new ordinary shares on 14 October 2019 at the above-mentioned deemed price.

2) Pursuant to an equity raise announcement on 31 July 2019, relating to the placement of 257,329,999 new ordinary shares at an issue price of £0.0013 (A$0.002330), the Company issued the shares on 13 August 2019.

3) Pursuant to an announcement on 14 August 2019 relating to an agreement with Perseville Investing Inc and Terra Nova Energy (Australia) Pty Ltd to acquire additional interests in petroleum exploration licenses (PEL's 112 & 114), the Company issued, in accordance with the agreement:

- 9,166,333 new ordinary shares on 14 August 2019 at a deemed price of $0.003; and

- 13,290,646 new ordinary shares on 14 October 2019 at the above-mentioned deemed price.

4) Pursuant to an equity raise announcement on 30 September 2019, relating to the placement of 315,789,474 new ordinary shares at an issue price of £0.0019 (A$0.003480):

- 118,421,053 shares were issued on 14 October 2019; and

- 197,368,421 shares were issued on 21 October 2019.

-

5) Pursuant to an equity raise announcement on 30 October 2019, relating to the placement of 78,947,368 new ordinary shares at a price of £0.0019 (A$0.00356), all 78,947,368 shares were issued on 5 November 2019. 

NOTE 18 - ISSUED CAPITAL AND RESERVES (CONTINUED)

6) Pursuant to the Company's announcement on 31 December 2019 relating to the exercise/underwriting of 124,060,150 options convertible at $0.00266 each, 124,060,150 shares were issued on 3 January 2020.

7) Pursuant to equity raise announcements on 15 March 2020 and 23 April 2020, relating to the placement of 277,777,778 new ordinary shares at an issue price of £0.0009 (A$0.001792), the first tranche of 222,222,222 shares were issued on 15 May 2020.

Other receivables (refer Note 12) include an amount of $90,449 receivable in connection to the second tranche of 55,555,555 shares which have been recognised at balance date given that a contractual right to receive settlement exists. This amount was received in July 2020.

The Company does not have authorised capital or par value in respect of its issued shares. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company.

Accounting Policy

Ordinary shares are classified as equity. Transaction costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects.

Subsequent Event

On 17 July 2020, the Company announced that it had issued the second tranche of 55,555,555 shares at £0.0009 (A$0.001792) pursuant to the equity raise announcements on 15 March 2020 and 23 April 2020.

(b) Reserves