Condensed Notes to the Financial Statements

For the Half-Year Ended 31 December 2017

All amounts are Australian Dollars

 

1. Summary of Significant Accounting Policies

 

Statement of Compliance

 

The half-year financial report is a general purpose financial report prepared in accordance with the Corporations Act 2001 and AASB 134 'Interim Financial Reporting'. Compliance with AASB 134 ensures compliance with International Financial Reporting Standard IAS34 'Interim Financial Reporting'. The half-year report does not include notes of the type normally included in an annual financial report and should be read in conjunction with the most recent annual financial report.

 

Basis of preparation

 

The condensed consolidated financial statements have been prepared on the basis of historical cost, except for the revaluation of certain non-current assets and financial instruments. Cost is based on the fair values of the consideration given in exchange for assets. All amounts presented in Australian dollars, unless otherwise noted.

 

The accounting policies and methods of computation adopted in the preparation of the half-year financial report are consistent with those adopted and disclosed in the Group's 2017 annual financial report for the financial year ended 30 June 2017, except for the impact of the Standards and Interpretations described below. These accounting policies are consistent with Australian Accounting Standards and with International Financial Reporting Standards.

 

Going Concern

The Group recognises that its ability to continue as a going concern to meet its debts when they fall due is dependent on the Group raising funds as required to pay its debts as and when they fall due. The directors have reviewed the business outlook and are of the opinion that the use of the going concern basis of accounting is appropriate as they believe the Group will achieve this.

 

However, the conditions outlined above create uncertainty that may cast significant doubt as to whether the Group will continue as a going concern and, therefore whether the Group will realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in these financial statements. This financial report does not include any adjustments relating to the recoverability and classification of recorded asset amounts nor to the amounts and classification of liabilities that may be necessary should the Group be unable to continue as a going concern.

 

Adoption of new or revised accounting standards and interpretations

 

The Group has adopted all of the new and revised standards and interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to their operations and effective for the current half-year. The Group has not early adopted any accounting standards or interpretations.

 

The adoption of all new and revised standards and interpretations has not resulted in any changes to the Group's accounting policies and has no effect on the amounts reported for the current or prior half-years.

 

Exploration and Evaluation Costs

 

Exploration and evaluation expenditure incurred is accumulated in respect of each identifiable area of interest. These costs are carried forward in respect of an area for which the rights to tenure are current and that has not at reporting date reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in, or relating to, the area of interest are continuing.

 

 

Impairment of Exploration and Evaluation Assets

 

The ultimate recoupment of the value of exploration and evaluation assets, is dependent on the successful development and commercial exploitation, or alternatively, sale, of the exploration and evaluation assets.

 

Impairment tests are carried out when there are indicators of impairment in order to identify whether the asset carrying values exceed their recoverable amounts. There is significant estimation and judgement in determining the inputs and assumptions used in determining the recoverable amounts.

 

The key areas of judgement and estimation include:

 

·      Recent exploration and evaluation results and resource estimates;

·      Environmental issues that may impact on the underlying tenements;

·      Fundamental economic factors that have an impact on the operations and carrying values of assets and liabilities.

 

Oil and gas assets

 

The cost of oil and gas producing assets and capitalised expenditure on oil and gas assets under development are accounted for separately and are stated at cost less accumulated amortisation and impairment losses. Costs include expenditure that is directly attributable to the acquisition or construction of the item as well as past exploration and evaluation costs.

 

When an oil and gas asset commences production, costs carried forward are amortised on a units of production basis over the life of the economically recoverable reserves. Changes in factors such as estimates of economically recoverable reserves that affect amortisation calculations do not give rise to prior financial period adjustments and are dealt with on a prospective basis.

 

Segment Reporting

 

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance.

 

	Consolidated 6 months to 31 December 2017	Consolidated      6 months to 31 December 2016
	$	$
2.    Cost of sales
Cost of sales	38,168	-
Lease operating expenses	120,123	-
Oil and gas assets amortisation charge	6,535	-
	164,826	-

 

3.    Corporate costs
Accounting, Company Secretary and Audit fees	100,252	71,362
Consulting fees	277,592	332,864
Legal and compliance fees	28,275	33,632
	406,119	437,858

 

4.    Costs associated with abandoned acquisitions
Costs Incurred	9,815	138,733
	9,815	138,733

 

 

5.    Other comprehensive loss
Fair value loss on AFS shares	190,309			67,221
Foreign currency loss/(gain)	10,415			(59,397)
	200,724			7,824
	Consolidated Balance as at 31 December 2017	Consolidated      Balance as at 30 June 2017
	$		$
6.    Other financial assets
Shares in a listed entity	97,979			288,288
	97,979			288,288

 

 

7.    Trade and other receivables
Deposits	195,816		198,851
GST receivable	40,950		44,197
Cash calls receivable	133,569		-
Other receivables	36,848		151,557
	407,183		394,605

 

8.    Other assets
Prepayments	27,098		23,985
Accrued income	-		11,705
		27,098	35,690

 

9.    Oil and gas assets
Costs brought forward	749,620
Acquisition of oil and gas assets	611,422
Capitalised equipment workovers	392,949
Amortisation	(6,535)
Carrying value at the end of the period	1,747,456
10.    Capitalised oil and gas expenditure	$
Costs brought forward	4,073,115
Exploration costs incurred during the period	79,177
FX movement	(1,373)
Carrying value at the end of the period	4,150,919
	Consolidated Balance as at 31 December 2017	Consolidated      Balance as at 30 June 2017
11.    Trade and other payables
Trade creditors	423,239	279,582
Unearned revenue	-	11,867
Other creditors and accruals	125,222	62,320
	548,461	353,769

 

 

12.    Contributed Equity
Ordinary Shares
Total shares at 31 Dec 17  295,282,151 (30 June 2017: 249,448,818) ordinary shares fully paid		26,226,848	25,286,313
a) Shares movements during the half-year		Value of shares $	No. of shares
Balance at 30 June 2017		25,286,313	249,448,818
	Shares issued	1,013,376	45,833,333
	Cost of issued shares	(72,841)	-
Balance at 31 December 2017		26,226,848	295,282,151
b) Reserves		$
Balance at the beginning of the period		1,058,126
Fair value (loss)/gain on available-for-sale shares		(190,309)
Foreign currency translation reserve loss		(10,415)
Options issued during the period		40,567
Options expired in the period		(646,987)
Options reserve at the end of the period		250,982
c) Options movements during the half-year
		No. of options Balance as at 31 December 2017
Balance at the beginning of period		7,859,372
Expired options		(3,800,000)
Incentive options issued to KMPs		7,500,000
Options issued to other holders		2,500,000
Total		14,059,372

 

 

Of the 14,059,372 options on issue as at 31 December 2017, the following are held by directors of the Company:
J W Barr	4,000,000
A Carroll	4,000,000
J Young	1,500,000
Option details

 

Number of options	Exercise date	Exercise price
3,200,000	13 January 2019	$0.15
859,372	20 March 2019	£0.08
10,000,000	18 December 2020	£0.02
14,059,372

 

 

13        Segment Information

 

The Group has identified its operating segments based on the internal reports that are reviewed and used by the board to make decisions about resources to be allocated to the segments and assess their performance.

 

Operating segments are identified by the board based on the Oil and Gas projects in Australia the United States and New Zealand. Discrete financial information about each project is reported to the board on a regular basis.

 

The reportable segments are based on aggregated operating segments determined by the similarity of the economic characteristics, the nature of the activities and the regulatory environment in which those segments operate.

 

The Group has three reportable segments based on the geographical areas of the mineral resource and exploration activities in Australia, the United States and New Zealand. Unallocated results, assets and liabilities represent corporate amounts that are not core to the reportable segments.

 

 

 

 

(i)       Segment performance			New Zealand $	United States $	Australia $	Total $
Half-Year Ended 31 December 2017
Revenue
Oil and Gas Project Related Revenue			-	302,113	19,235	321,348
Interest revenue			-	-	709	709
Gain on foreign exchange			-	-	1,529	1,529
Other income			4,775	32	-	4,807
Segment revenue			4,775	302,145	21,473	328,393
Segment Result
-     Corporate costs			-	(1,187)	(404,932)	(406,119)
-     Administrative costs			(4,905)	-	(62,290)	(67,195)
-     Cost of sales			-	(38,169)	-	(38,169)
-     Lease operating expenses			-	(126,657)	-	(126,657)
-     Share of net joint operation loss			-	(6,428)	-	(6,428)
Segment net profit/(loss) before tax			(130)	129,704	(445,749)	(316,175)
Reconciliation of segment result to net loss before tax
Amounts not included in segment result but reviewed by the Board
-		Exploration expenses incurred, not capitalised	(52,163)	-	-	(52,163)
-		Evaluation and due diligence	-	(9,819)	(144,258)	(154,077)
-		Projects abandoned	(9,815)	-	-	(9,815)
-		Pre-acquisition costs	-	-	(44,775)	(44,775)
Unallocated items
-	Employee benefits					(107,875)
-	Share-based payments					(40,567)
-	Depreciation					(5,599)
Net Loss before tax from continuing operations						(731,046)

 

 

(i)       Segment performance (continued)
		New Zealand $	United States $	Australia $	Total $
Half-Year Ended 31 December 2016
Revenue
Interest revenue		-	-	1,629	1,629
Other income		2,108	-	-	2,108
Segment revenue		2,108	-	1,629	3,737
Segment Result
-     Corporate costs		(23,850)	-	(474,008)	(497,858)
-     Administrative costs		(25,211)	-	(47,700)	(72,911)
-     Foreign exchange gain/(loss)		-	-	(77,671)	(77,671)
Segment net profit/(loss) before tax		(46,953)	-	(597,750)	(644,703)
Reconciliation of segment result to net loss before tax
Amounts not included in segment result but reviewed by the Board
-      Projects abandoned		(2,126)	-	(136,607)	(138,733)
Unallocated items
-	Employee benefits				(35,158)
-	Occupancy				(22,712)
-	Finance				(7,092)
Net loss before tax from continuing operations					(848,398)

 

(ii)       Segment assets
As at 31 December 2017		New Zealand $	United States $	Australia $	Total $
Segment assets as at 1 July 2017		392,510	953,669	6,072,294	7,418,473
Segment asset (decreases)/increases for the period
-	Capitalised exploration and evaluation	(338,973)	-	(1,921,375)	(2,260,348)
-	Capitalised oil and gas assets	-	(953,669)	-	(953,669)
-	Impairment of exploration and evaluation assets	(1,374)	-	-	(1,374)
-	FX movement exploration and evaluation assets	(52,163)	-	-	(52,163)
-	Other assets	355,401	1,900,857	1,250,864	3,507,122
Total assets from continuing operations		355,401	1,900,857	5,401,783	7,658,041

 

 

 

 

 

(iii)       Segment liabilities

 

As at 31 December 2017	New Zealand $	United States $	Australia $	Total $
Segment liabilities as at 1 July 2017	162,478	69,679	279,777	511,934
Segment liability increases/(decreases) for the period	(21,417)	284,365	(72,712)	190,236
	141,061	354,044	207,065	702,170
Reconciliation of segment liabilities to total liabilities:
Other liabilities	-	-	-	-
Total liabilities from continuing operations	141,061	354,044	207,065	702,170

 

 

14               Producing assets   The Group currently has 3 producing assets, which the Board monitors as a separate item to the geographical and operating segments. The Arkoma, Strawn and Welch are Oil and Gas producing assets in the United States. It should be noted that the Strawn Project is a 50% joint operation with Blackstone Oil and Gas and as a result the amounts below are only the apportionment of the Mosman ownership right. Project performance, assets and liabilities and acquisition costs are all monitored by the line items below.

 

(i)       Project performance
	Arkoma $	Strawn $	Welch $	Total $
Half-Year Ended 31 December 2017
Revenue
Oil and gas project related revenue	2,965	75,003	224,145	302,113
Other income	32	-	-	32
Segment revenue	2,997	75,003	224,145	302,145
Project-related expenses
-     Cost of sales	-	11,596	26,573	38,169
-     Lease operating expenses	-	57,667	81,710	139,377
Project cost of sales	-	69,263	108,283	177,546
Project gross profit
Gross profit	2,997	5,740	115,862	124,599
Overhead costs
-     Employee benefits	-	12,836	-	12,836
Project net profit/(loss) before tax	2,997	(7,096)	115,862	111,763

 

 

(ii)       Project assets
Project assets as at 1 July 2017	-	204,119	-	204,119
Project assets for the year
-     Cash	2,107	1,420	44,119	47,646
-     Cash calls receivable	-	66,785	533	67,318
-     Loans receivable	8,963	-	181,478	190,441
-     Inventory	-	26,221	142,994	169,215
-     Bonds receivable	-	32,340	-	32,340
	11,070	126,766	369,124	506,960
Unallocated assets
-     Other assets				1,282
Total project assets				508,242

 

(iii)       Project liabilities
Project liabilities as at 1 July 2017	-	83,217	-	83,217
Project liabilities for the year
-     Accounts payable	-	43,747	215,642	259,389
-     Accrued expenses	-	-	16,064	16,064
-     Loans payable	8,077	31,142	21,693	60,912
	8,077	74,889	253,399	336,365
Unallocated liabilities
-     Other liabilities				-
Total project liabilities				336,365

 

 

15                    Expenditure Commitments

 

(a)       Exploration

 

            The Company has certain obligations to perform minimum exploration work on Oil and Gas tenements held.  These obligations may vary over time, depending on the Company's exploration programs and priorities.  At 31 December 2017, total exploration expenditure commitments for the next 12 months are as follows:

 

Entity	Tenement	$
Petroleum Creek Limited	PEP 38526	-
Trident Energy Limited	EP 145	200,000
Oilco Pty Ltd	EPA 155	-
Oilco Pty Ltd	EP 156	-
		200,000

 

These obligations are subject to variations by farm-out arrangements, sale of the relevant tenements or seeking expenditure exemption for previous year's expenditure. The Company has the option to elect to not carry out the minimum work program commitments pertaining to a specific permit, in which case the Company will relinquish its interest in the relevant permit.

 

 

 

(b)       Capital Commitments

 

The Company had no capital commitments at 31 December 2017 (2016 - $Nil).

 

 

 

16        Subsequent Events

 

Material transactions arising since 31 December 2017 which will significantly affect the operations of the Company, the results of those operations, or the state affairs of the Company in subsequent financial periods are as follows:

 

Capital raise

In February 2018, the Company announced a capital raising which provided £500,000 in proceeds by placing 45,454,545 new ordinary shares at 1.1p per share. Included in the capital raise, a total of 750,000 warrants over shares were granted to SP Angel in connection with capital raise.

 

Welch update

 

A Pre-Feasibility Study (PFS) was commissioned by Mosman to determine the economic value of horizontal well drilling in the Welch Permian Basin project. The study provided positive anticipated flow rates of 60-120 bopd per well. Additionally, a Reserves Report has been commissioned and is due to be delivered in April 2018.

 

Arkoma option exercised

 

In February 2018, Mosman exercised the Amended First Option for Arkoma as it is an attractive oil acquisition with demonstrated production and medium term development, and fundamentally the Amended First Option meet Mosman's strategic objectives to acquire production with development upside.

 

To support the additional investment, Mosman has received a draft report from Moyes and Co ("Moyes") which has indicated that the project (gross 100%) includes the following:

·      The Project has a range of up to 2.5 million boe of recoverable oil and gas, including:

o  346,000 boe 2P (Proved and Probable Reserves);

o  610,000 boe 2C (Contingent Resources); and

·      a 2P Reserves NPV10 of US$4.3 million as of 1 February 2018.

 

The immediate plan at Arkoma is the upgrade of production facilities including large volume Electric Submersible Pumps and associated infrastructure. Anticipated gross production rates with the upgraded production facilities are expected to be in the range 80 to 120 bopd.

 

The key advantages of the exercise of this option are as follows:

·      The Amended First Option percentage has been increased from 20% to 30%;

·      Reduced  option exercise cost from US$875,000 to US$450,000;

·      Immediate upgrade of production facilities; and

·      The vendor has agreed to work with Mosman (and Blackstone) to explore and develop the adjacent area where it has rights to an existing 56 square mile 3D seismic survey with multiple exploration prospects.

 

Mosman has also executed an agreement with Blackstone ("Blackstone Agreement") to fund half of the cost of exercise of the Amended First Option and US$ 425,000 production facilities upgrade in return for half (15%) of the additional 30% interest in Arkoma. Blackstone will also contribute to the cost of Mosman's technical work in evaluating the asset to the amount of US$50,000.

 

 

Mosman considers the exercise of the Amended First Option and Blackstone Agreement (together the "Transaction") to be a material step to building a strong joint venture with Inland as Operator, together with Mosman and Blackstone as partners.

 

Mosman's initial interest of 10% in Arkoma has been increased to 12% in compensation for the cash paid for recent test work. The Transaction further increases Mosman's interest in the Project to 27%.

 

The three partners in the Project have agreed an immediate plan that is expected to generate production and cash flow while, in the longer term, plans are being considered for the next stage of the Project's development. The immediate plan at Arkoma is the upgrade of production facilities including large volume Electric Submersible Pumps and associated infrastructure. The cost of approximately US$425,000 will be equally shared by Mosman and Blackstone.

 

Anticipated gross production rates with the upgraded production facilities are expected to be in the range 80 to 120 bopd.

 

In March 2018 Mosman executed an amended second option to increase its interest in the Inland assets from the current 27% to 33.3% for a cost of USD 231,022 on or before 31 July 2018.

 

17        Dividends

 

No dividends have been paid or proposed during the half year ended 31 December 2017.

 

 

John W Barr

Executive Chairman

 

Dated this 29 March 2018