Jadestone Energy Regulatory News (JSE)

Jadestone Energy Inc. 

Jadestone Energy Reports Results for the Year Ended December 31, 2019Record US$325 million Revenue and US$177 million Operating Cash Generated

April 23, 2020-Singapore: Jadestone Energy Inc. (AIM:JSE) ("Jadestone" or the "Company"), an independent oil and gas production company focused on the Asia Pacific region, reported today its consolidated audited financial statements (the "Financial Statements"), as at and for the year ended December 31, 2019.

Financial highlights

1 EBITDAX is a non-GAAP financial measure which does not have a standardised meaning prescribed by IFRS. This non-GAAP financial measure is included because management uses this information to analyse financial performance, efficiency and liquidity and it may be useful to investors on the same basis. EBITDAX is a non-GAAP measure which should not be considered an alternative to, or more meaningful than, "net earnings (loss)" as determined in accordance with IFRS, as an indicator of financial performance. EBITDAX equals net earnings (loss) plus financial expenses (income), provisions for (recovery of) income taxes, and depletion, depreciation and amortisation and exploration expense. Because non-GAAP financial measures do not have a standardised meaning prescribed by IFRS, they are unlikely to be comparable to similar measures presented by other companies and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.2 Gross debt and net debt/cash are non-GAAP measures which do not have a standardised meaning prescribed by IFRS. These measures are included because management uses this information to analyse the liquidity and financial position of the group and it may be useful to investors on the same basis. Gross debt and net debt/cash are non-GAAP measures and should not be considered an alternative to, or more meaningful than 'Net increase in cash and cash equivalents' as determined in accordance with IFRS, as an indicator of liquidity and financial performance. Gross debt is defined as long and short term interest bearing debt, and excludes derivatives. Net debt/cash is defined as cash and cash equivalents including the Montara assets' minimum working capital cash balance of US$15 million required to be maintained under the conditions of the reserve based lending facility and restricted cash of US$13.5 million under the debt service reserve account. The restricted cash excludes the US$10 million deposited in support of a bank guarantee to a key supplier of the Stag FSO. Because non-GAAP financial measures do not have a standardised meaning prescribed by IFRS, they are unlikely to be comparable to similar measures presented by other companies and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

3 Excludes a US$10.0 million deposit in support of a bank guarantee

Operational highlights

Outlook

Paul Blakeley, President and CEO commented:

"I'm very pleased to report a transformational year for Jadestone in 2019, though it may well be overshadowed by the extraordinary circumstances that the world finds itself in today. The global economy has been dealt a huge blow by the COVID-19 pandemic, with significant oil demand destruction, exacerbated by OPEC+ disarray, and a lack of storage, such that we envisage a prolonged impact on oil pricing for which we need to be prepared. So, while I would like to reinforce how the Jadestone business has moved forward with a threefold increase in revenue to US$325 million, as well as US$177 million of operating cashflow, it's also important to emphasize that we have elected to defer 80% of our capital spend this year, in order to protect the balance sheet. We recently announced the deferral of the Nam Du/U Minh gas project in Vietnam by 12 months, and yesterday we confirmed that the two infill wells which were to be drilled this year in Australia will now be pushed back to 2021.

"In 2019, our Stag and Montara producing fields delivered an average increase in uptime performance of 12% to 80% overall, and operating costs came down by 20% in the same period to US$22.85/bbl. This was a result of a number of cost reduction and efficiency initiatives, with more to come in response to the current environment. In November last year we also announced the acquisition of the Maari project in New Zealand. So, while we balance prudence at this challenging time, with deferred drilling and a resulting downward guidance of 10% to production volumes this year, this is balanced by closing the Maari acquisition which will provide a 25% production increase next year.

"2019 also benefited from a threefold increase in crude oil sales, due largely to a full year of Montara production, enhanced by half of the produced volume being sold at US$72/bbl, and with strong premiums on top. This hedging programme will continue through to September this year and will be a major positive feature in our ability to generate positive free cash even at today's depressed prices down to US$20/bbl.

"Jadestone has acted quickly in response to the challenges imposed by the COVID-19 pandemic and put in place comprehensive procedures to ensure our operations remain unaffected, and can continue safely and efficiently. We have adjusted how we work both onshore and offshore to minimise the risk of infection and to protect the wellbeing of our people. Contingency plans for safe crew transfer, local housing for self-quarantine, and isolation and evacuation procedures are all in place.

"On a positive note, I would add that we will shortly publish a full annual report, and our first sustainability report which is part of our commitment to provide more information and transparency in our business. We will set comprehensive targets towards a sustainable future, which will be measured in parallel with operational and financial objectives, and will become a part of our core business ethos. This is important because we intend to be here for the long term, with a strategy that fits the times, and we are well positioned to benefit from the current challenging environment with both organic and inorganic opportunities. We have a strong balance sheet, which has grown significantly with gross cash at US$120 million at the end of March 2020, including a US$10 million bank guarantee, with remaining debt of US$37 million.

"Finally, due to its financial strength, the Company will pay its first dividend later this year as promised, will continue to work towards closing the Maari acquisition later in the second half of the year, and will also remain opportunistic for inorganic growth should the right opportunities emerge."

Operations update

Jadestone reported its first full year of results for the Montara Assets in 2019, following completion of the acquisition in late September 2018. Montara production averaged 10,483 bbls/d for the full year 2019, compared to 7,625 bbls/d for the post acquisition period September 28, 2018 to October 31, 2018, prior to the voluntary shut-in during November and December 2018, to address an inspection and maintenance backlog.

There were a total of six Montara liftings in 2019, resulting in total sales of 3,577,204 bbls, compared to the year ended December 31, 2018 which saw just one Montara lifting for total sales of 451,291 bbls.

During 2019, Jadestone conducted its first major investments on the Montara assets, including successfully installing replacement subsea umbilical cables. The umbilical cables are an essential part of the control system providing electrical power and control signals to the subsea well-heads, thereby enhancing long-term reliability of production from the subsea wells.

In addition, the Company conducted the innovative RLWI campaign at the Montara complex, undertaking a highly engineered scope of work to restore gas-lift to subsea wells, and to access additional reservoir sands. The RLWI programme achieved its objectives, completing the work at a substantially lower cost than would have been incurred using a more conventional jack-up drilling unit.

Production from the Stag oilfield averaged 3,049 bbls/d for the full year ended December 31, 2019, compared to 2,799 bbls/d for the year ended December 31, 2018. The increase was due to the Stag 49H infill well, which was drilled in May 2019 and initially produced at approximately 1,400 bbls/d upon completion, and thereafter at a rate averaging 838 bbls/d between May 22, to December 31, 2019. The additional production was partly offset by downtime associated with cyclones in 2019, and delays to workovers during the period that the 49H infill well was being drilled.

There were four Stag liftings in 2019, resulting in total sales of 918,961 bbls, compared to the year ended December 31, 2018 which saw five liftings and total sales of 1,031,763 bbls.

In Vietnam, the Company made substantial progress toward commercialising its Nam Du and U Minh gas fields, including completion of front end engineering and design work, selecting major suppliers, signing a heads of agreement in respect of key gas sales commercial terms, and submitting a field development plan ("FDP") in respect of the development. While the Company remains committed to developing the fields, in the absence of receipt of Vietnamese Government approvals of the FDP, and in light of prevailing market conditions due to COVID-19, the Company opted to delay any further work, and anticipates no further major spending on the project in 2020.

COVID-19 operational response

Jadestone has undertaken a thorough assessment of all aspects of its operations, and the specific risks and challenges posed by the COVID-19 pandemic. As an overarching principle, the Company will comply with local and international recommendations protecting the wellbeing of its people, and in turn to minimise the impact on its operations.

The Company has adjusted its offshore work rotation to reduce travel time and is providing local accommodation for personnel to self-isolate following cross-border travel in Australia. Health and wellness screening has been enhanced for all operational personnel, including pre-duty temperature checks and staff questionnaires. Offshore work plans have been modified to defer non-essential activity wherever possible, such that manning can be kept to a minimum in order to provide crew flexibility and additional cover in the event of any infection. Isolation and evacuation procedures are in place.

To this point, the Company has not experienced any disruptions to its offshore operations due to the COVID-19 pandemic. Jadestone is in frequent discussions with the relevant Australian Government and regulatory authorities and continues to execute key projects to enhance efficiency while operating within the requirements of its safety cases. As the public health response to COVID-19 remains fluid, Jadestone has designated a pandemic manager at each location, to ensure a coordinated and principled response to evolving business requirements.

Jadestone recognises that ongoing safe operations rely on a working supply chain to ensure provision of critical equipment, consumables, and services. The Company is maintaining a rolling six-month work plan for all offshore work and believes it is carrying a sufficient local inventory of critical spares to safeguard operations. However, in light of the potential for unforeseen disruptions to the supply chain, the Company has implemented additional new measures to enhance logistics support and transportation, including closer cooperation with nearby operators.

Jadestone has also implemented a travel ban, and work-from-home routines are in place, as an extension to the Company's standard operating model which relies on a distributed workforce. In addition, the Company has enhanced its support for personnel working from home to ensure efficient online collaboration, communications, and that decision-making can continue, as seamlessly as possible.

Reserves

An independent third-party reserves evaluator, ERCE, has audited Jadestone's Montara reserves and reviewed the Stag reserves, as of December 31, 2019 in a report dated April 23, 2020. As of December 31, 2019, the Company had proved oil reserves of 25.1 mm bbls, a decrease of 0.2 mm bbls from December 31, 2018. On a 2P basis, the Company had 41.8 mm bbls of oil reserves at December 31, 2019, decreased by 1.0 mm bbls from December 31, 2018. The difference in reserves reflects the impact of oil production during the year largely offset by reserves upgrades due to strong reservoir performance, as well as including technical revisions relating to an additional future infill well being included in the Company's future production profile.

The Company's reserves value, based on after income tax values of future net revenues discounted at 10% were evaluated to be US$253 million for proved reserves, and US$549 million on a 2P basis, as of December 31, 2019.

The Company's Statement of Reserves Data and Other Oil and Gas Information for the fiscal year ended December 31, 2019 is available at www.sedar.com.

Financial update

Revenue for the year was US$325.4 million, compared to US$113.4 million in 2018. The variance of US$212.0 million was predominately due to an increase in sales volumes, to 4,496.2 mbbls in calendar 2019, compared to 1,683.1 mboes in calendar 2018.

Revenue for Q4 2019 was US$91.2 million, compared to US$45.0 million for Q4 2018, or an increase of US$46.2 million, predominately due to higher liftings in the quarter of 1,266.3 mbbls, compared to 657.2 mbbls in Q4 2018.

Full year production costs for 2019 were US$119.9 million, compared to US$90.9 million in the year ended December 31, 2018. The variance of US$29.0 million was predominately due to an increase in Montara's production costs by US$41.7 million, due to a full calendar year of ownership in 2019, compared to the period September 28, 2018 to December 31, 2018, and partly offset by a decrease in Stag's production costs of US$10.1 million, in part due to the adoption of IFRS16 relating to treatment of leases, in addition to movements in closing inventory.

On a per barrel basis, and excluding workovers, but including lease costs related to operations, this results in full year 2019 costs of US$22.85/bbl, compared to US$28.72/boe for the full year 2018.

Production costs for Q4 2019 were US$25.9 million, compared to US$50.6 million in Q4 2018, with the comparable period abnormally high partly due to repairs and maintenance incurred during the Montara shut-down between November to December 2018, leases recognised in production costs prior to the adoption of IFRS16 on January 1, 2019, and crude inventory movements.

On a per barrel basis, and excluding workovers, this results in Q4 2019 unit opex of US$20.26/bbl, compared to US$28.94/bbl in Q4 2018.

For the full year, the Company reports adjusted positive EBITDAX of US$187.5 million, compared to US$10.2 million for 2018, demonstrating how transformative 2019 was in terms of cash generation. Jadestone generated adjusted positive EBITDAX of US$59.9 million for Q4 2019, compared to an EBITDAX loss of US$1.7 million for the same quarter a year ago.

For the full year, the Company generated positive operating cash flows before movements in working capital, interest and taxes of US$176.7 million, compared to a use of US$0.3 million in the year ended December 31, 2018. In Q4 2019, the Company generated positive operating cash flow of US$58.0 million, compared to a use of cash of US$6.2 million in Q4 2018.

Full year 2019 unadjusted profit before tax was US$73.3 million, compared to a net loss before tax of US$21.5 million in 2018. Q4 2019 profit before tax was US$27.1 million, compared to a loss of US$4.9 million in the quarter ending December 31, 2018.

2019 profit after tax was US$40.5 million, compared to a loss in the prior year of US$31.0 million. Net profit after tax for Q4 2019 was US$10.4 million, compared to a loss of US$6.6 million for Q4 2018, predominately due to the shut in of Montara during November and December 2018, compared to a full quarter's results in 2019.

At year end, the Company had US$89.4 million of cash, and a further US$10.0 million of cash in support of a bank guarantee. With gross debt outstanding of US$49.1 million, this translates to a total net cash balance of US$40.31 million, and compares to total net debt of US$30.2 million at December 31, 2018.

By the end of March 2020, total outstanding interest bearing debt had fallen to US$37.3 million versus total cash of US$109.4 million, again excluding the US$10.0 million cash in support of a bank guarantee, resulting in a net cash balance of US$72.1 million.

The Company's existing capped swap provides robust support for ongoing cash generation establishing, as it does, a floor benchmark crude oil price of US$68.45/bbl for approximately one third of the Company's production through to September 30, 2020, and excluding incremental oil price premia.

1 Gross debt and net debt/cash are non-GAAP measures which do not have a standardised meaning prescribed by IFRS. These measures are included because management uses this information to analyse the liquidity and financial position of the group and it may be useful to investors on the same basis. Gross debt and net debt/cash are non-GAAP measures and should not be considered an alternative to, or more meaningful than 'Net increase in cash and cash equivalents' as determined in accordance with IFRS, as an indicator of liquidity and financial performance. Gross debt is defined as long and short term interest bearing debt, and excludes derivatives. Net debt/cash is defined as cash and cash equivalents including the Montara assets' minimum working capital cash balance of US$15 million required to be maintained under the conditions of the reserve based lending facility and restricted cash of US$13.5 million under the debt service reserve account. The restricted cash excludes the US$10 million deposited in support of a bank guarantee to a key supplier of the Stag FSO. Because non-GAAP financial measures do not have a standardised meaning prescribed by IFRS, they are unlikely to be comparable to similar measures presented by other companies and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

Selected financial information

The following table provides selected financial information of the Company, which was derived from, and should be read in conjunction with, the consolidated audited financial statements for the period ended December 31, 2019.

1 Revenue has been restated from gross to net after deducting royalties, but including the effective gain on hedging contracts 

2 Payment for oil and gas property, plant and equipment and intangible exploration assets. In 2019 excludes the RLWI/major spend elements that are reported under opex. Also excludes acquisition related capital expenditure

3 Production, sales and average realised prices are expressed on a barrels of oil equivalent basis as the underlying data includes gas production from Ogan Komering for the prevailing period based on Jadestone's 50% participating interest up until May 19, 2018

Conference call and webcast

The management team will host an investor and analyst conference call at 4:00 p.m. (Singapore), 9:00 a.m. (London), and 4:00 a.m. (Toronto) today, Thursday, April 23, 2020, including a question and answer session.

The live webcast of the presentation will be available at the below webcast link. Dial-in details are provided below. Please register approximately 15 minutes prior to the start of the call. The results for the period ended December 31, 2019 will be available on the Company's website at: www.jadestone-energy.com/investor-relations/.

Webcast link: https://produceredition.webcasts.com/starthere.jsp?ei=1304879&tp_key=4e7f200c5f Event conference title: Jadestone Energy Inc. - Fourth Quarter ResultsStart time: 4:00 p.m. (Singapore), 9:00 a.m. (London), 4:00 a.m. (Toronto)Date: Thursday, April 23, 2020Conference ID: 55792013

 Area access numbers are subject to carrier capacity and call volumes.

- Ends -

Enquiries

About Jadestone Energy Inc.

Jadestone Energy Inc. is an independent oil and gas company focused on the Asia Pacific region. It has a balanced, low risk, full cycle portfolio of development, production and exploration assets in Australia, Vietnam and the Philippines.

The Company has a 100% operated working interest in the Stag oilfield and the Montara project, both offshore Australia. Both the Stag and Montara assets include oil producing fields, with further development and exploration potential. The Company has a 100% operated working interest in two gas development blocks in Southwest Vietnam and is partnered with Total in the Philippines where it holds a 25% working interest in the SC56 exploration block. In addition, the Company has executed a sale and purchase agreement to acquire an operated 69% interest in the Maari Project, shallow water offshore New Zealand, and anticipates completing the transaction in H2 2020, upon receipt of customary approvals.

Led by an experienced management team with a track record of delivery, who were core to the successful growth of Talisman's business in Asia, the Company is pursuing an acquisition strategy focused on growth and creating value through identifying, acquiring, developing and operating assets in the Asia Pacific region.

Jadestone Energy Inc. is listed on the AIM market of the London Stock Exchange. The Company is headquartered in Singapore. For further information on Jadestone please visit www.jadestone-energy.com.

Cautionary statements

Certain statements in this press release are forward-looking statements and information (collectively "forward-looking statements"), within the meaning of the applicable Canadian securities legislation, as well as other applicable international securities laws. The forward-looking statements contained in this press release are forward-looking and not historical facts.

Some of the forward-looking statements may be identified by statements that express, or involve discussions as to expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of phrases such as "will likely result", "are expected to", "will continue", "is anticipated", "is targeting", "estimated", "intend", "plan", "guidance", "objective", "projection", "aim", "goals", "target", "schedules", and "outlook"). In particular, forward-looking statements in this press release include, but are not limited to statements regarding the Company's intent to defer its Australia infill drilling campaign into 2021, expected reductions to capital spending, 2020 average production, 2021 production growth and the timing and payment of a dividend.

Because actual results or outcomes could differ materially from those expressed in any forward-looking statements, investors should not place undue reliance on any such forward-looking statements. By their nature, forward-looking statements involve numerous assumptions, inherent risks and uncertainties, both general and specific, which contribute to the possibility that the predicted outcomes will not occur. Some of these risks, uncertainties and other factors are similar to those faced by other oil and gas companies and some are unique to Jadestone. The forward-looking information contained in this news release speaks only as of the date hereof. The Company does not assume any obligation to publicly update the information, except as may be required pursuant to applicable laws.

The technical information contained in this announcement has been prepared in accordance with the March 2007 guidelines endorsed by the Society of Petroleum Engineers, World Petroleum Congress, American Association of Petroleum Geologists and Society of Petroleum Evaluation Engineers Petroleum Resource Management System.

Henning Hoeyland of Jadestone Energy Inc., a Subsurface Manager with a Masters degree in Petroleum Engineering, who has been involved in the energy industry for more than 19 years, has read and approved the technical disclosure in this regulatory announcement.

The information contained within this announcement is considered to be inside information prior to its release, as defined in Article 7 of the Market Abuse Regulation No. 596/2014, and is disclosed in accordance with the Company's obligations under Article 17 of those Regulations. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

Glossary

2P reserves the sum of proved and probable reserves, denotes the best estimate scenario of reservesbbls barrels of oilbbls/d barrels of oil per dayboe barrels of oil equivalentboe/d barrels of oil equivalent per dayEBITDAX earnings before interest, tax, depreciation, amortisation and exploration expensesmbbl thousands of barrels of oilmboe thousands of barrels of oil equivalentmm bbls millions of barrels of oil

Jadestone Energy Inc.

CONSOLIDATED FINANCIAL STATEMENTS

for the years ended December 31, 2019 and December 31, 2018

MANAGEMENT'S REPORT

The accompanying consolidated financial statements are the responsibility of management. The consolidated financial statements were prepared by management, in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board, outlined in the notes to the consolidated financial statements.

Management maintains appropriate systems of internal controls. Policies and procedures are designed to give reasonable assurance that transactions are appropriately authorised, assets are safeguarded, and financial records properly maintained, to provide reliable information for the presentation of consolidated financial statements.

Deloitte & Touche LLP, an independent firm of chartered accountants, was appointed by the shareholders to audit the consolidated financial statements, and to provide an independent professional opinion.

The Audit Committee reviewed the consolidated financial statements with management. The Board of Directors has approved the consolidated financial statements, on the recommendation of the Audit Committee.

These financial statements were approved by the directors and authorised for issue on April 23, 2020.

INDEPENDENT AUDITOR'S REPORT TO THE SHAREHOLDERS OF

JADESTONE ENERGY INC.

Opinion

We have audited the accompanying consolidated financial statements of Jadestone Energy Inc. and its subsidiaries (the "Group"), which comprise the consolidated statements of financial position as at December 31, 2019 and 2018, and the consolidated statements of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statements of cash flows for the years ended December 31, 2019 and 2018, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Jadestone Energy Inc. as at December 31, 2019 and 2018, and its financial performance and its cash flows for the years ended December 31, 2019 and 2018, in accordance with International Financial Reporting Standards ("IFRS") as issued by International Accountant Standards Board ("IASB").

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards ("Canadian GAAS"). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current year. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Other Information

Management is responsible for the other information. The other information comprises:

• Management's Discussion and Analysis; and

• The information, other than the financial statements and our auditor's report thereon, in the Annual Report.

Our opinion on the consolidated financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

We obtained Management's Discussion and Analysis prior to the date of this auditor's report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor's report. We have nothing to report in this regard.

The information, other than the financial statements and the auditors' report thereon, in the Annual Report is expected to be made available to us after the date of this auditor's report. If, based on the work we will perform on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact to those charged with governance.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group's financial reporting process.

Auditor's Responsibility for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with Canadian GAAS, we exercise professional judgement and maintain professional skepticism throughout the audit. We also:

a) Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

b) Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control.

c) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

d) Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.

e) Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

f) Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current year and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor's report is Kanagasabai s/o Haridas.

"Deloitte & Touche LLP"

Deloitte & Touche LLP

Public Accountants and

Chartered Accountants

Singapore

April 23, 2020

Jadestone Energy Inc.

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

for the years ended December 31, 2019 and December 31, 2018

Certain 2018 comparative information has been restated, as a result of reclassifications between line items. Please refer to Note 43.

All comprehensive income is attributable to the equity holders of the parent.

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

Jadestone Energy Inc.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

for the years ended December 31, 2019 and December 31, 2018

* The comparative information has been restated for 2018 as a result of IFRS 3 adjustment to the purchase price allocation of the Montara assets acquisition, see further in Notes 7 and 43.

Certain 2018 comparative information has been restated, as a result of reclassifications between line items. Please refer to Note 43. 

* The comparative information has been restated for 2018 as a result of IFRS 3 adjustment to the purchase price allocation of the Montara assets acquisition, see further in Notes 7 and 43.

Certain 2018 comparative information has been restated, as a result of reclassifications between line items. Please refer to Note 43.

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

Jadestone Energy Inc.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the years ended December 31, 2019 and December 31, 2018

Jadestone Energy Inc.

CONSOLIDATED STATEMENT OF CASH FLOWS

for the years ended December 31, 2019 and December 31, 2018

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

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

Jadestone Energy Inc.

SIGNIFICANT ACCOUNTING POLICIES AND

EXPLANATION NOTES TO THE FINANCIAL STATEMENTS

for the years ended December 31, 2019 and December 31, 2018

1. CORPORATE INFORMATION

Jadestone Energy Inc. (the "Company" or "Jadestone") is an oil and gas company incorporated in Canada.

The Company's ordinary shares are listed on AIM, a market by the London Stock Exchange. The Company was listed on the TSX-V throughout 2019 but delisted on March 25, 2020. The Company trades under the symbol "JSE".

The financial statements are expressed in United States Dollars ("US$" or "USD").

The Company and its subsidiaries (the "Group") are engaged in production, development, exploration and appraisal activities in Australia, Vietnam and the Philippines. The Company's current producing assets are in the Carnarvon (Stag) and Vulcan basins (Montara), offshore Western Australia.

On November 18, 2019, the Group executed a sale and purchase agreement ("SPA") with Österreichische Mineralölverwaltungs Aktiengesellschaft New Zealand ("OMV New Zealand") to acquire an operated 69% controlling interest in the Maari project for a total consideration of US$50.0 million (subject to customary working capital adjustments). The transaction is subject to regulatory approvals and joint venture partners' acceptance. Following these approvals, the transaction will close and control of the Maari project will transfer to the Group. The economic benefits from January 1, 2019 until the closing date will be adjusted in the final consideration price. The Group anticipates to complete the acquisition in second half of 2020.

The Company's head office is located at 3 Anson Road, #13-01 Springleaf Tower, Singapore 079909. The registered office of the Company is 10th Floor, 595 Howe Street, Vancouver, British Columbia V6C 2T5, Canada.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PREPARATION

The financial statements have been prepared on a going concern basis and in accordance with the historical cost convention basis, except as disclosed in the accounting policies below, and are drawn up in accordance with the provisions of International Financial Reporting Standards ("IFRS") as issued by International Accounting Standards Board ("IASB").

Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability which market participants would take into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of IFRS 2 Share-based Payment, leasing transactions that are within the scope of IFRS 16 Leases, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 Inventories, or value in use in IAS 36 Impairment of Assets.

In addition, for financial reporting purposes, fair value adjustments are categorised into level 1, 2 or 3 based on the degree to which the inputs to the fair value adjustments are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

- Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at the measurement date;

- Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and

- Level 3 inputs are unobservable inputs for the asset or liability.

Adoption of new and revised standards

New and amended IFRS standards that are effective for the current year

In the current year, the Group has applied IFRS 16 Leases (as issued by the IASB in January 2016) that is effective for annual periods that begin on or after January 1, 2019.

IFRS 16 introduces new or amended requirements with respect to lease accounting. It introduces significant

changes to lessee accounting by removing the distinction between operating and finance lease and requiring the recognition of a right-of-use asset and a lease liability at commencement for all leases, except for short-term leases and leases of low value assets when such recognition exemptions are adopted. In contrast to lessee accounting, the requirements for lessor accounting have remained largely unchanged. Details of these new requirements are described in the "Leases" policy. The impact of the adoption of IFRS 16 on the Group's consolidated financial statements is described below.

The date of initial application of IFRS 16 for the Group is January 1, 2019.

The Group has applied IFRS 16 using the cumulative catch-up approach which measures asset at amount equal to liability (adjusted for accruals and prepayments). Please refer to (c) for the finance impact on the initial application of IFRS 16.

(a) Impact of the new definition of a lease

The Group has made use of the practical expedient available on transition to IFRS 16 not to reassess whether

a contract is or contains a lease. Accordingly, the definition of a lease in accordance with IAS 17 and IFRIC 4 will continue to be applied to those leases entered or changed before January 1, 2019.

The change in definition of a lease mainly relates to the concept of control. IFRS 16 determines whether a contract contains a lease on the basis of whether the customer has the right to control the use of an identified asset for a period of time in exchange for consideration. This is in contrast to the focus on 'risks and rewards' in IAS 17 and IFRIC 4.

The Group applies the definition of a lease and related guidance set out in IFRS 16 to all lease contracts entered into or changed on or after January 1, 2019 (whether it is a lessor or a lessee in the lease contract). The Group has reviewed the new definition in IFRS 16, and concluded that it will not significantly change the scope of contracts that meet the definition of a lease for the Group.

(b) Impact on lessee accounting

(i) Former operating leases

IFRS 16 changes how the Group accounts for leases previously classified as operating leases under IAS 17, which were off balance sheet.

Applying IFRS 16, for all leases (except as noted below), the Group:

- Recognises right-of-use assets and lease liabilities in the consolidated statement of financial position, initially measured at the present value of the future lease payments;

- Recognises depreciation of right-of-use assets and interest on lease liabilities in the consolidated statement of profit or loss; and

- Separates the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented within operating activities) in the consolidated statement of cash flows.

Under IFRS 16, right-of-use assets are tested for impairment in accordance with IAS 36.

For short-term leases (lease term of 12 months or less) and leases of low-value assets (which includes personal computers, small items of office furniture and telephones), the Group has opted to recognise a lease expense on a straight-line basis as permitted by IFRS 16. This expense is presented within 'other expenses' in profit or loss.

The Group has used the following practical expedients when applying the cumulative catch-up approach to leases previously classified as operating leases applying IAS 17.

- The Group has applied a single discount rate to a portfolio of leases with reasonably similar characteristics.

- The Group has elected not to recognise right-of-use assets and lease liabilities to leases for which the lease term ends within 12 months of the date of initial application.

- The Group has excluded initial direct costs from the measurement of the right-of-use asset at the date of initial application.

- The Group has used hindsight when determining the lease term when the contract contains options to extend or terminate the lease.

(c) Finance impact of initial application of IFRS 16

The weighted average lessees incremental borrowing rate applied to lease liabilities recognised in the statement of financial position on January 1, 2019 is 8.6%.

The following table shows the operating lease commitments disclosed in Note 34 applying IAS 17 at December 31, 2018, discounted using the incremental borrowing rate at the date of initial application and the lease liabilities recognised in the statement of financial position at the date of initial application.

New and revised IFRSs in issue but not yet effective

In the current year, the Group has not applied the following amendments to IFRS Standards and Interpretations issued by the IASB that are effective for an annual period that begins on or after January 1, 2020:

- Amendments to IFRS 3 Business Combinations;

- Amendments to IAS 1 and IAS 8 Definition of Material; and

- Amendments to References to the Conceptual Framework in IFRS Standards.

All amendments are effective for annual periods beginning on or after January 1, 2020 and generally require prospective application.

The Group is currently performing an assessment of the impact of these amendments and anticipates potential material impact on the financial statements of the Group in future periods as described below:

Amendments to IFRS 3 Business Combinations

The amendments clarify that while businesses usually have outputs, outputs are not required for an integrated set of activities and assets to qualify as a business. To be considered a business an acquired set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs.

Additional guidance is provided that helps to determine whether a substantive process has been acquired.

The amendments introduce an optional concentration test that permits a simplified assessment of whether an acquired set of activities and assets is not a business. Under the optional concentration test, the acquired set of activities and assets is not a business if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar assets.

The amendments are applied prospectively to all business combinations and asset acquisitions for which the

acquisition date is on or after the first annual reporting period beginning on or after January 1, 2020, with early application permitted.

Amendments to IAS 1 and IAS 8 Definition of Material

The amendments are intended to make the definition of material in IAS 1 easier to understand and are not

intended to alter the underlying concept of materiality in IFRS Standards. The concept of 'obscuring' material

information with immaterial information has been included as part of the new definition.

The threshold for materiality influencing users has been changed from 'could influence' to 'could reasonably be expected to influence'.

The definition of material in IAS 8 has been replaced by a reference to the definition of material in IAS 1. In addition, the IASB amended other Standards and the Conceptual Framework that contain a definition of material or refer to the term 'material' to ensure consistency.

The amendments are applied prospectively for annual periods beginning on or after January 1, 2020, with earlier application permitted.

Amendments to References to the Conceptual Framework in IFRS Standards

Together with the revised Conceptual Framework, which became effective upon publication on March 29, 2018, the IASB has also issued Amendments to References to the Conceptual Framework in IFRS Standards. The document contains amendments to IFRS 2, IFRS 3, IFRS 6, IFRS 14, IAS 1, IAS 8, IAS 34, IAS 37, IAS 38, IFRIC 12, IFRIC 19, IFRIC 20, IFRIC 22, and SIC-32.

Not all amendments, however, update those pronouncements with regard to references to and quotes from the framework so that they refer to the revised Conceptual Framework. Some pronouncements are only updated to indicate which version of the Framework they are referencing to (the IASC Framework adopted by the IASB in 2001, the IASB Framework of 2010, or the new revised Framework of 2018) or to indicate that definitions in the Standard have not been updated with the new definitions developed in the revised Conceptual Framework.

The amendments, where they actually are updates, are effective for annual periods beginning on or after January 1, 2020, with early application permitted.

BASIS OF CONSOLIDATION

The consolidated financial statements incorporate the financial statements of the Company and enterprises controlled by the Company and its subsidiaries. Control is achieved where the Company:

- Has power over the investee;

- Is exposed, or has rights, to variable returns from its involvement with the investee; and

- Has the ability to use its power to affect its returns.

The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Company gains control until the date when the Company ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income are attributed to the owners of the Company. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group's accounting policies.

All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

BUSINESS COMBINATIONS

Acquisitions of businesses (including joint operations which are assessed to be businesses) are accounted for using the acquisition method. The consideration for each acquisition is measured as the aggregate of the acquisition date fair values of assets given, liabilities incurred by the Company to the former owners of the acquiree, and equity interests issued by the Company in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred.

The definition of a business in accordance with IFRS 3 is an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing good or services to customers, generating investment income (such as dividends or interest) or generating other income from ordinary activities. At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that:

- Deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively;

- Liabilities or equity instruments related to share-based payment transactions of the acquiree or the replacement of an acquiree's share-based payment awards transactions with share-based payment awards transactions of the acquirer, in accordance with the method in IFRS 2 Share-based Payment at the acquisition date; and

- Assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations.

Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition-date fair value. Subsequent changes in such fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments. Measurement period adjustments are adjustments that arise from additional information obtained during the 'measurement period' (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date. The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified.

Contingent consideration that is classified as equity is not re-measured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as a liability is re-measured at subsequent reporting dates with the corresponding gain or loss being recognised in profit or loss.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see below), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as at that date.

The measurement period is the period from the date of acquisition to the date the Group obtains complete information about facts and circumstances that existed as at the acquisition date and is subject to a maximum of one year from acquisition date.

Where an interest in a production sharing contract ("PSC") is acquired by way of a corporate acquisition, the interest in the PSC is treated as an asset purchase unless the acquisition of the corporate vehicle meets the requirements to be treated as a business combination and definition of a business.

FOREIGN CURRENCY TRANSACTIONS

The Group's consolidated financial statements are presented in USD, which is the parent's functional currency and presentation currency. The functional currencies of subsidiaries are determined based on the economic environment in which they operate.

In preparing the financial statements of each individual Group entity, transactions in currencies other than the entity's functional currency are recorded at the rates of exchange prevailing on the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the end of the reporting period. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on retranslation of monetary items are included in profit or loss for the period.

Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period, except for differences arising on the retranslation of non-monetary items in respect of which gains or losses are recognised in other comprehensive income. For such non-monetary items, any exchange component of that gain or loss is also recognised in other comprehensive income.

JOINT OPERATIONS

A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.

When a Group entity undertakes its activities under joint operations, the Group as a joint operator recognises in relation to its interest in a joint operation:

- Its assets, including its share of any assets held jointly;

- Its liabilities, including its share of any liabilities incurred jointly;

- Its revenue from the sale of its share of the output arising from the joint operation; and

- Its expenses, including its share of any expenses incurred jointly.

The Group accounts for the assets, liabilities, revenue and expenses relating to its interest in a joint operation in accordance with the IFRSs applicable to the particular assets, liabilities, revenues and expenses.

When a Group entity transacts with a joint operation in which a Group entity is a joint operator (such as a sale or contribution of assets), the Group is considered to be conducting the transaction with the other parties to the joint operation, and gains and losses resulting from the transactions are recognised in the Group's consolidated financial statements only to the extent of other parties' interests in the joint operation.

When a Group entity transacts with a joint operation in which a Group entity is a joint operator (such as a purchase of assets), the Group does not recognise its share of the gains and losses until it resells those assets to a third party.

Changes to the Group's interest in PSCs usually require the approval of the appropriate regulatory authority. A change in interest is recognised when:

- Approval is considered highly likely; and

- All affected parties are effectively operating under the revised arrangement.

Where this is not the case, no change in interest is recognised and any funds received or paid are included in the statement of financial position as contractual deposits.

PRE-LICENCE AWARD COSTS

Costs incurred prior to the effective award of oil and gas licence, concessions and other exploration rights are expensed in profit or loss.

EXPLORATION AND EVALUATION COSTS

The costs of exploring for and evaluating oil and gas properties, including the costs of acquiring rights to explore, geological and geophysical studies, exploratory drilling and directly related overheads such as directly attributable employee remuneration, materials, fuel used, rig costs and payments made to contractors are capitalised and classified as intangible exploration assets ("E&E assets").

If no potentially commercial hydrocarbons are discovered, the E&E assets are written off through profit or loss as a dry hole. If extractable hydrocarbons are found and, subject to further appraisal activity (e.g. the drilling of additional wells), it is probable that they can be commercially developed, the costs continue to be carried as intangible exploration costs while sufficient/continued progress is made in assessing the commerciality of the hydrocarbons.

Costs directly associated with appraisal activity undertaken to determine the size, characteristics and commercial potential of a reservoir following the initial discovery of hydrocarbons, including the costs of appraisal wells where hydrocarbons were not found, are initially capitalised as E&E assets.

All such capitalised costs are subject to technical, commercial and management review, as well as review for indicators of impairment at the end of each reporting period. This is to confirm the continued intent to develop or otherwise extract value from the discovery. When such intent no longer exists or if there is a change in circumstances signifying an adverse change in initial judgment, the costs are written off.

When commercial reserves of hydrocarbons are determined and development is approved by management, the relevant expenditure is transferred to oil and gas properties. The technical feasibility and commercial viability of extracting a mineral resource is considered to be determinable when proved or probable reserves are determined to exist. The determination of proved or probable reserves is dependent on reserve evaluations which are subject to significant judgments and estimates.

Costs related to geological and geophysical studies that relate to blocks that have not yet been acquired, and costs related to blocks for which no commercially viable hydrocarbons are expected, are taken direct to the profit or loss and have been disclosed as expensed exploration costs.

FARM-OUTS IN THE EXPLORATION AND EVALUATION PHASE

The Group does not record any expenditure made by the farmee on its account. It also does not recognise any gain or loss on its exploration and evaluation farm-out arrangements, but re-designates any costs previously capitalised in relation to the whole interest as relating to the partial interest retained. Any cash consideration received directly from the farmee is credited against costs previously capitalised in relation to the whole interest, with any excess accounted for by the farmor as a gain on disposal.

OIL AND GAS PROPERTIES

Producing assets

The Group recognises oil and gas properties at cost less accumulated depletion, depreciation and impairment losses. Directly attributable costs incurred for the drilling of development wells and for the construction of production facilities are capitalised together with the discounted value of estimated future costs of decommissioning obligations. Workover expenses are recognised in profit or loss in the period in which they are incurred, unless it generates additional reserves or prolongs the economic life of the well, in which case it is capitalised. When components of oil and gas properties are replaced, disposed of, or no longer in use, they are derecognised.

Depletion and amortisation expense

Depletion of oil and gas properties is calculated using the units of production method for an asset or group of assets from the date in which they are available for use. The costs of those assets are depleted based on proved and probable reserves.

Costs subject to depletion include expenditures to date, together with approved estimated future expenditure to be incurred in developing proved and probable reserves. Costs of major development projects are excluded from the costs subject to depletion until they are available for use.

The impact of changes in estimated reserves is dealt with prospectively by depleting the remaining carrying value of the asset over the remaining expected future production. If reserves estimates are revised downwards, earnings could be affected by higher depletion expense, or an immediate write-down of the property's carrying value.

Asset restoration obligations

The Group estimates the future removal and restoration costs of oil production facilities, wells, pipelines and related assets at the time of installation or acquisition of the assets, and based on prevailing legal requirements and industry practice. In most instances, the removal of these assets will occur many years in the future. The estimates of future removal costs are made considering relevant legislation and industry practice and require management to make judgments regarding the removal date, the extent of restoration activities required, and future removal technologies.

Site restoration costs are capitalised within the cost of the associated assets, and the provision is stated in the statement of financial position at its total estimated present value. These costs are based on judgements and assumptions regarding removal dates, technologies, and industry practice. This estimate is evaluated on a periodic basis and any adjustment to the estimate is applied prospectively. Changes in the estimated liability resulting from revisions to estimated timing, amount of cash flows, or changes in the discount rate are recognised as a change in the asset restoration liability and related capitalised asset restoration cost within oil and gas properties.

The change in net present value of future obligations, due to the passage of time, is expensed as accretion expense within financing charges. Actual restoration obligations settled during the period reduce the decommissioning liability.

The asset restoration costs are depleted using the units of production method (see above accounting policy).

BORROWING COSTS

Finance costs of borrowing are allocated to periods over the term of the related debt at a constant rate on the carrying amount. Debt is shown on the consolidated statement of financial position, net of arrangement fees and issue costs, and amortised through to the income statement and statement of other comprehensive income as finance costs over the term of the debt.

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

All other borrowing costs are recognised in the profit or loss in the period in which they are incurred.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in profit or loss in the period in which they are incurred and this includes borrowing costs in relation to exploration activities which are capitalised in intangible exploration assets, as management is of the view that these do not meet the definition of a qualifying asset.

PLANT AND EQUIPMENT

Plant and equipment is stated at cost less accumulated depreciation and any recognised impairment loss.

Depreciation is charged so as to write off the cost of assets evenly over their estimated useful lives, on the following:

- Computer equipment: 3 years; and

- Fixtures and equipment: 3 years.

The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis.

Right-of-use assets are depreciated over the shorter period of the lease term and the useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset.

An item of plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of asset. Any gain or loss arising on the disposal or retirement of an item of plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.

IMPAIRMENT OF ASSETS

At the end of each reporting period, the Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Intangible assets with indefinite useful lives and intangible assets not yet available for use, are tested for impairment annually, and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, 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 for which estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.

INVENTORIES

Inventories are valued at the lower of cost and net realisable value. Cost is determined as follows:

- Petroleum products, comprising primarily of extracted crude oil stored in tanks, pipeline systems and aboard vessels, and natural gas, are valued using weighted average costing inclusive of depletion expense; and

- Materials, which include drilling and maintenance stocks, are valued at the weighted average cost of acquisition.

Net realisable value represents the estimated selling price less applicable selling expenses. If the carrying value exceeds net realisable value, a write-down is recognised. The write-down may be reversed in a subsequent period if the inventory is still on hand but the circumstances which caused the write-down no longer exist.

FINANCIAL INSTRUMENTS

Financial assets and financial liabilities are recognised in the Group's consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs are directly attributable to the acquisition or issue of the financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through the profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

Financial assets

All financial assets are recognised and derecognised on a trade date basis where the purchases or sales of financial assets is under a contract whose terms require delivery of assets within the time frame established by the market concerned.

All recognised financial assets are measured subsequently in their entirety at either amortised cost or fair value, depending on the classification of the financial assets.

Classification of financial assets

Debt instruments that meet the following conditions are measured subsequently at amortised cost:

- The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and

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

Debt instruments that meet the following conditions are subsequently measured at fair value through other comprehensive income ("FVTOCI"):

- the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling the financial assets; and

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

By default, all other financial assets are subsequently measured at fair value through profit or loss ("FVTPL").

Amortised cost and effective interest method

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period.

For financial assets, the effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) excluding expected credit losses, through the expected life of the debt instrument, or, where appropriate, a shorter period, to the gross carrying amount of the debt instrument on initial recognition.

The amortised cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, adjusted for any loss allowance. The gross carrying amount of a financial asset is the amortised cost of a financial asset before adjusting for any loss allowance.

Interest income is recognised using the effective interest method for debt instruments measured subsequently at amortised cost and at fair value through other comprehensive income. For financial assets other than purchased or originated credit impaired financial assets, interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset, except for financial assets that have subsequently become credit impaired. For financial assets that have subsequently become credit impaired, interest income is recognised by applying the effective interest rate to the amortised cost of the financial asset. If, in subsequent reporting periods, the credit risk on the credit impaired financial instrument improves so that the financial asset is no longer credit impaired, interest income is recognised by applying the effective interest rate to the gross carrying amount of the financial asset.

Interest income is recognised in profit or loss and is included in "other income" (Note 11) line item.

Foreign exchange gains and losses

The carrying amount of financial assets that are denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the end of each reporting period.

All financial assets measured at amortised cost that are not part of a designated hedging relationship, exchange differences are recognised in profit or loss in either "other income" (Note 11) or "other expenses" (Note 9) line item.

Impairment of financial assets

The Group's financial assets that are subject to the expected credit loss model comprise trade and other receivables. While cash and bank balances are also subject to the impairment requirements of IFRS 9 Financial Instruments, the expected credit loss allowances are not expected to be significant.

The Group's trade and other receivables are primarily with (i) counterparties to oil and gas sales and (ii) governments for recoverable amounts of value added taxes.

The concentration of credit risk relates to the main counterparty to oil and gas sales in Australia, where the sole customer has an A1 credit rating (Moody's). All trade receivables are generally settled 30 days after sale date. In the event that an invoice is issued on a provisional basis then the final reconciliation is paid within 3 days of the issuance of the final invoice, largely mitigating any credit risk.

The Group recognises lifetime expected credit loss ("ECL") for trade receivables. The expected credit losses on these financial assets are estimated based on days past due, applying expected non-recoveries for each group of receivables.

The Group measures the loss allowance for other receivables at an amount equal to 12-months ECL, as there is no significant increase in credit risk since initial recognition.

Significant increase in credit risk

In assessing whether the credit risk on a financial instrument has increased significantly since initial recognition, the Group compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition. In making this assessment, the Group considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort. Forward-looking information considered includes the future prospects of the industries in which the Group's debtors operate, based on consideration of various external sources of actual and forecast economic information that relate to the Group's core operations.

In particular, the following information is taken into account when assessing whether credit risk has increased significantly since initial recognition:

- an actual or expected significant deterioration in the financial instrument's external (if available) or internal credit rating;

- significant deterioration in external market indicators of credit risk for a particular financial instrument, e.g. a significant increase in the credit spread, the credit default swap prices for the debtor, or the length of time or the extent to which the fair value of a financial asset has been less than its amortised cost;

- existing or forecast adverse changes in business, financial or economic conditions that are expected to cause a significant decrease in the debtor's ability to meet its debt obligations;

- an actual or expected significant deterioration in the operating results of the debtor;

- significant increases in credit risk on other financial instruments of the same debtor; and

- an actual or expected significant adverse change in the regulatory, economic, or technological environment of the debtor that results in a significant decrease in the debtor's ability to meet its debt obligations.

Despite the foregoing, the Group assumes that the credit risk on a financial instrument has not increased significantly since initial recognition if the financial instrument is determined to have low credit risk at the reporting date. A financial instrument is determined to have low credit risk if i) the financial instrument has a low risk of default, ii) the borrower has a strong capacity to meet its contractual cash flow obligations in the near term and iii) adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the borrower to fulfil its contractual cash flow obligations.

The Group regularly monitors the effectiveness of the criteria used to identify whether there has been a significant increase in credit risk and revises them as appropriate to ensure that the criteria are capable of identifying significant increase in credit risk before the amount becomes past due.

Definition of default

The Group considers the following as constituting an event of default for internal credit risk management purposes as historical experience indicates that receivables that meet either of the following criteria are generally not recoverable:

- when there is a breach of financial covenants by the counterparty; or

- information developed internally or obtained from external sources indicates that the debtor is unlikely to pay its creditors, including the Group, in full (without taking into account any collaterals held by the Group).

Credit-impaired financial assets

A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. Evidence that a financial asset is credit-impaired includes observable data about the following events:

- significant financial difficulty of the issuer or the borrower;

- a breach of contract, such as a default or past due event;

- the lender(s) of the borrower, for economic or contractual reasons relating to the borrower's financial difficulty, having granted to the borrower a concession(s) that the lender(s) would not otherwise consider;

- it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or

- the disappearance of an active market for that financial asset because of financial difficulties.

Write-off policy

The Group writes off a financial asset when there is information indicating that the counterparty is in severe financial difficulty and there is no realistic prospect of recovery, e.g. when the counterparty has been placed under liquidation or has entered into bankruptcy proceedings, or in the case of trade receivables, when the amounts are over one year past due, whichever occurs sooner. Financial assets written off may still be subject to enforcement activities under the Group's recovery procedures, taking into account legal advice where appropriate. Any recoveries made are recognised in profit or loss.

Measurement and recognition of expected credit losses

The measurement of ECL is a function of the probability of default, loss given default (i.e. the magnitude of the loss if there is a default) and the exposure at default. The assessment of the probability of default and loss given default is based on historical data adjusted by forward looking information as described above.

As for the exposure at default, for financial assets, this is represented by the assets' gross carrying amount at the reporting date together with any additional amounts expected to be drawn down in the future by default date determined based on historical trend, the Group's understanding of the specific future financing needs of the debtors, and other relevant forward looking information.

For financial assets, the expected credit loss is estimated as the difference between all contractual cash flows that are due to the Group in accordance with the contract and all the cash flows that the Group expects to receive, discounted at the original effective interest rate.

If the Group has measured the loss allowance for a financial instrument at an amount equal to lifetime ECL in the previous reporting period, but determines at the current reporting date that the conditions for lifetime ECL are no longer met, the Group measures the loss allowance at an amount equal to 12-month ECL at the current reporting date, except for assets for which the simplified approach was used.

Derecognition of financial assets

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership, and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all of the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collaterialised borrowing for the proceeds received.

On derecognition of a financial asset measured at amortised cost, the difference between the asset's carrying amount and the sum of the consideration received and receivables is recognised in the profit or loss.

Financial liabilities

All financial liabilities are measured subsequently at amortised cost using the effective interest method or at FVTPL.

However, financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing involvement approach applies, are measured in accordance with the specific accounting policies set out below.

Financial liabilities at FVTPL

Financial liabilities are classified as at FVTPL when the financial liability is (i) contingent consideration of an acquirer in a business combination, (ii) held for trading or (iii) it is designated as at FVTPL.

A financial liability other than a contingent consideration of an acquirer in a business combination may be designated as at FVTPL upon initial recognition if:

- such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

- the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group's documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or

- it forms part of a contract containing one or more embedded derivatives, and IFRS 9 permits the entire combined contract to be designated as at FVTPL.

Financial liabilities at FVTPL are measured at fair value, with any gains or losses arising on changes in fair value recognised in profit or loss to the extent that they are not part of a designated hedging relationship (see hedge accounting policy). The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability and is included in either "other financial gains" (Note 13) or "finance costs" (Note 12) line item in profit or loss.

Financial liabilities measured subsequently at amortised cost

Other financial liabilities are measured subsequently at amortised cost using the effective interest method.

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the amortised cost of a financial liability.

Foreign exchange gain or loss

For financial liabilities that are denominated in a foreign currency and are measured at amortised cost at the end of each reporting period, the foreign exchange gains and losses are determined based on the amortised cost of the instruments. These foreign exchange gains and losses are recognised in the "other income"(Note 11) or "other expenses" (Note 9) line item in profit or loss for financial liabilities that are not part of a designated hedging relationship. For those which are designated as a hedging instrument for a hedge of foreign currency risk, foreign exchange gains and losses are recognised in other comprehensive income and accumulated in a separate component of equity.

Equity instruments

Equity instruments issued by the Group are recorded at the fair value of the proceeds received, net of direct issue costs, except where the accounting treatment is defined by a separate accounting standard, as in the case of share-based payments.

Convertible bonds

Convertible bonds are regarded as compound instruments, consisting of a debt host component and an equity conversion option upon maturity, which are classified separately as financial liabilities at amortised cost and financial liabilities at FVTPL respectively, in accordance with the substance of the contractual arrangement on initial recognition. The conversion option that will be settled by the exchange of a fixed amount of cash or another financial asset for a number of the Company's own equity instruments, is classified as a derivative financial liability.

On initial recognition, the fair value of the liability host component is determined using the prevailing market interest rate of similar non-convertible debts. The difference between the gross proceeds of the issue of the convertible loans and the fair value assigned to the liability host component, representing the conversion option for the holder to convert the loans into equity, is recognised separately as a derivative financial liability.

In subsequent periods, the derivative financial liability which represents the equity conversion option is measured at its fair value, and with fair value changes recognised in the profit or loss. The liability host component is carried at amortised cost using the effective interest method until the liability is extinguished on conversion or redemption.

Upon conversion, the derivative financial liability and the carrying amount of the liability host component will be transferred to share capital.

Transaction costs

Transaction costs that relate to the issue of the convertible bonds are allocated to the liability host and equity or derivative liability components in proportion to the allocation of the gross proceeds. Transaction costs relating to the equity component are charged directly to equity. Transaction costs relating to the liability component are included in the carrying amount of the liability, and amortised over the period of the convertible loan using the effective interest method.

Transaction costs incurred prior to any issue of the convertible bond are capitalised as prepayments.

Derecognition of financial liabilities

The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability decognised, and the consideration paid and payable is recognised in profit or loss.

Derivative financial instruments

The Group enters into derivative financial instruments to manage its exposure to commodity price risks.

Derivatives are initially recognised at fair value on the date the contract is entered into, and is subsequently remeasured to fair value as at each reporting date. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.

Hedge accounting

All hedges are classified as cash flow hedges, which hedges exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability, or a component of a recognised asset or liability, or a highly probable forecasted transaction.

At the inception of the hedge relationship, the Group documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument is effective in offsetting changes in fair values or cash flows of the hedged item attributable to the hedged risk, which is when the hedging relationships meet all of the following hedge effectiveness requirements:

- there is an economic relationship between the hedged item and the hedging instrument;

- the effect of credit risk does not dominate the value changes that result from that economic relationship; and

- the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item.

If a hedging relationship ceases to meet the hedge effectiveness requirement relating to the hedge ratio but the risk management objective for that designated hedging relationship remains the same, the Group adjusts the hedge ratio of the hedging relationship (i.e. rebalances the hedge) so that it meets the qualifying criteria again.

The Group designates the full change in the fair value of a forward contract (i.e. including the forward elements) as the hedging instrument for all of its hedging relationships involving forward contracts. The Group designates only the intrinsic value of option contracts as a hedged item, i.e. excluding the time value of the option. The changes in the fair value of the aligned time value of the option are recognised in other comprehensive income and accumulated in the cost of hedging reserve. If the hedged item is transaction‑related, the time value is reclassified to profit or loss when the hedged item affects profit or loss. If the hedged item is time‑period related, then the amount accumulated in the cost of hedging reserve is reclassified to profit or loss on a rational basis - the Group applies straight‑line amortisation. Those reclassified amounts are recognised in profit or loss in the same line as the hedged item. If the hedged item is a non‑financial item, then the amount accumulated in the cost of hedging reserve is removed directly from equity and included in the initial carrying amount of the recognised non‑financial item. Furthermore, if the Group expects that some or all of the loss accumulated in cost of hedging reserve will not be recovered in the future, that amount is immediately reclassified to profit or loss.

Note 36 sets out details of the fair values of the derivative instruments used for hedging purposes.

Movements in the hedging reserve in equity are detailed in Note 26.

Cash flow hedges

The effective portion of changes in the fair value of derivatives and other qualifying hedging instruments that are designated and qualify as cash flow hedges is recognised in other comprehensive income and accumulated under the heading of cash flow hedging reserve, limited to the cumulative change in fair value of the hedged item from inception of the hedge. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss in either "other financial gains" (Note 13) or "finance costs"(Note 12) line item.

Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss, in the same line as the recognised hedged item. However, when the hedged forecast transaction results in the recognition of a non‑financial asset or a non‑financial liability, the gains and losses previously recognised in other comprehensive income and accumulated in equity are removed from equity and included in the initial measurement of the cost of the non‑financial asset or non‑financial liability. This transfer does not affect other comprehensive income. Furthermore, if the Group expects that some or all of the loss accumulated in the cash flow hedging reserve will not be recovered in the future, that amount is immediately reclassified to profit or loss.

The Group discontinues hedge accounting only when the hedging relationship (or a part thereof) ceases to meet the qualifying criteria (after rebalancing, if applicable). This includes instances when the hedging instrument expires or is sold, terminated or exercised. The discontinuation is accounted for prospectively. Any gain or loss recognised in other comprehensive income and accumulated in cash flow hedge reserve at that time remains in equity and is reclassified to profit or loss when the forecast transaction occurs. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in cash flow hedge reserve is reclassified immediately to profit or loss.

EQUITY AND LISTING COSTS

Ordinary shares are classified as equity and recorded at the value of consideration received. The cost of issuing shares is shown in share capital as a deduction, net of tax, from the proceeds.

Incremental and direct attributable costs that specifically relate to the admission of the Company into AIM and the issuance of new shares are recorded in profit or loss. Remaining costs that relate jointly to both the AIM admission and the new shares issuance are allocated on a proportionate basis in accordance with IAS 32.

FAIR VALUE ESTIMATION OF FINANCIAL ASSETS AND LIABILITIES

The fair value of current financial assets and liabilities carried at amortised cost, approximate their carrying amounts, as the effect of discounting is immaterial.

SHARE-BASED PAYMENTS

Share-based incentive arrangements are provided to employees which allow them to acquire shares of the Company.

The fair value of options granted is recognised as an employee expense with a corresponding increase in equity.

Share options are valued at the date of grant using the Black-Scholes pricing model, and are charged to operating costs over the vesting period of the award. The charge is modified to take account of options granted to employees who leave the Group during the vesting period and forfeit their rights to the share options, and in the case of non-market related performance conditions, where it becomes unlikely they will vest. At the end of the reporting period, the Group revises its estimates of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the share options reserve.

Equity-settled share-based payment transactions with parties other than employees are measured at the fair value of goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date at which the entity obtains the goods or the counterparty renders the service.

LEASES

The Group has applied IFRS 16 using the cumulative catch-up approach and therefore comparative information has not been restated and is presented under IAS 17. The details of accounting policies under both IAS 17 and IFRS 16 are presented separately below.

Policies applicable from January 1, 2019

The Group as lessee

The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets (such as personal computers, small items of office furniture and telephones). For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the lessee uses its incremental borrowing rate.

Lease payments included in the measurement of the lease liability comprise fixed lease payments (including in-substance fixed payments).

The lease liability is presented as a separate line in the consolidated statement of financial position.

The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease

liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.

The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:

- The lease term has changed or there is a significant event or change in circumstances resulting in a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.

- The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used).

- A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification.

The Group did not make any such adjustments during the periods presented.

The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments

made at or before the commencement day, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses.

Whenever the Group incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognised and measured under IAS 37. To the extent that the costs relate to a right-of-use asset, the costs are included in the related right-of-use asset, unless those costs are incurred to produce inventories.

Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease.

The right-of-use assets are presented as a separate line in the consolidated statement of financial position.

The Group applies IAS 36 to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss as described in the "Impairment of Assets" policy.

As a practical expedient, IFRS 16 permits a lessee not to separate non-lease components, and instead account

for any lease and associated non-lease components as a single arrangement. The Group has not used this practical expedient. For contracts that contain a lease component and one or more additional lease or non-lease components, the Group allocates the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components.

Policies applicable prior to January 1, 2019

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Group as lessee

Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of the relevant lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.

In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.

PROVISIONS

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

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (when the effect of the time value of money is material).

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

RETIREMENT BENEFIT OBLIGATIONS

Payments to defined contribution retirement benefit plans are charged as an expense as and when employees have tendered the services entitling them to the contributions. Payments made to state-managed retirement benefit schemes, such as Malaysia's Employees Provident Fund, are dealt with as payments to defined contribution plans where the Group's obligations under the plans are equivalent to those arising in a defined contribution retirement benefit plan. The Group does not have any defined benefit plans.

REVENUE

Revenue from contracts with customers is recognised in the income statement when performance obligations are considered met, which is when control of the hydrocarbons are transferred to the customer.

Revenue from the production of oil and gas, in which the Group has an interest with other producers, is recognised based on the Group's working interest and the terms of the relevant production sharing contracts.

Production revenue (liquids revenue) is recognised when the Group gives up control of the unit of production at the delivery point agreed under the terms of the contract. This generally occurs when the product is physically transferred into a vessel, pipe or other delivery mechanism. The amount of production revenue recognised is based on the agreed transaction price and volumes delivered. In line with the aforementioned, revenue is recognised at a point in time when deliveries of the liquids are transferred to the customers.

Gas revenue is meter measured based on the hydrocarbon volumes delivered. The volumes delivered over a calendar month are invoiced based on meter readings monthly. The price is either fixed (gas) or linked to an agreed benchmark (Brent Crude) in advance and premium or discounts are set based on commercial negotiations at arms-length. This methodology is considered appropriate as it is normal business practice under such arrangements. In line with the aforementioned, revenue is recognised at a point in time when deliveries of the gas are transferred to the customers.

A receivable is recognised once transfer has occurred as this represents the point in time at which the right to consideration becomes unconditional, and only the passage of time is required before the payment is due.

ROYALTIES

Royalty arrangements that are based on production are recognised by reference to the underlying arrangement.

The Group's oil and gas operations are reflected in the profit or loss, based on the Group's working interest in such production. All government stakes, other than income taxes, and including government's share of production, are considered to be royalties. Royalties to government on production from these joint operations represent the entitlement of the respective governments to a portion of the Group's share of oil and gas and are recorded using rates in effect under the terms of contracts at the time of production and net of revenue.

INCOME TAX

Income tax expense represents the sum of the tax currently payable and deferred tax.

Current tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the statement of profit or loss and other comprehensive income, because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are not taxable or tax deductible. The Group's liability for current tax (and tax laws) is calculated using tax rates that have been enacted or substantively enacted, in countries where the Company and its subsidiaries operate, by the end of the reporting period.

Petroleum resource rent tax (PRRT)

PRRT incurred in Australia is considered for accounting purposes to be a tax based on income. Accordingly, current and deferred PRRT expense is measured and disclosed on the same basis as income tax.

Deferred tax

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available, against which deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not utilised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax assets arising from deductible temporary differences associated with such investments and interests, are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled, or the asset realised, based on the tax rates (and tax laws) that have been enacted or substantively enacted, by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Current and deferred tax for the year

Current and deferred tax are recognised as an expense or income in profit or loss, except when they relate to items credited or debited outside profit or loss (either in other comprehensive income or directly in equity), in which case the tax is also recognised outside profit or loss (either in other comprehensive income or directly in equity, respectively).

CASH AND BANK BALANCES IN THE STATEMENT OF CASH FLOWS

Cash and bank balances comprise cash in hand and at bank and other short-term deposits held by the Group with maturities of less than three months.

3. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Group's accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

The following are the critical judgements, apart from those involving estimates (see below), that management has made on the process of applying the Group's accounting policies that have the most significant effect on the amounts recognised in the financial statements.

a) Acquisitions, divestitures, farm-in arrangements and/or assignment of interests

The Group accounts for acquisitions, divestitures, and farm-in arrangements by considering if the acquired or transferred interest relates to that of an asset, or of a business as defined in IFRS 3 Business Combinations. Accordingly, the Group considers if there is the existence of business elements (e.g., inputs, processes and outputs) or a group of assets that includes inputs, outputs and processes that are capable of being managed together for providing a return to investors or other economic benefits.

The Group considers farm-in arrangements that pertain to exploration interests, with no production license, and no proved reserves, to be assets, rather than a business, and would account for such farm-ins based on the consideration paid, which would be capitalised as an intangible exploration asset and subject to impairment reviews.

Key sources of estimation uncertainty

The key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

a) Contingent consideration

The determination of the contingent liability components requires significant management judgement and assumptions. The contingent payments are based on multiple future triggering events that may or may not occur. The Group assesses these factors independently taking into account probabilities and future circumstances. Where management deems necessary, independent valuation models and advisors will be requested to determine the fair value of such commitments. All contingent payments are set out in Note 7.4.

b) Depletion of oil and gas properties

Oil and gas properties are depleted using the units of production method.

Estimates of the Group's oil and gas reserves are inherently uncertain. Proved plus probable reserves are the estimated volumes of crude oil and natural gas which geological and engineering data demonstrate that are most likely to be economically producible, from known reservoir under existing economic conditions and operating method. Changes in proved plus probable oil and gas reserves, and the associated expected development capital, will affect units of production depletion in the Group's consolidated financial statements for oil and gas properties. Proved plus oil and gas reserves are subject to revision, based on new information, such as from development drilling and production activities, or from changes in economic factors, including product prices, contract terms, evolution of technology or development plans, etc.

The carrying amount and depletion amount of oil and gas properties are disclosed in Note 17 andNote 6, respectively.

c) Taxes

The Group recognises the net future economic benefit of deferred tax assets to the extent that it is probable that the deductible temporary differences will reverse in the foreseeable future and the carry forward of unutilised tax credits and unutilised tax losses can be utilised accordingly. Assessing the recoverability of deferred income tax and PRRT assets requires the Group to make significant estimates related to expectations of future taxable income. Estimates of future taxable income are based on forecast cash flows from operations and the application of existing tax laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Group to realise the net deferred tax assets as recorded in the statement of financial position, could be impacted. The carrying amounts of the Group's deferred tax assets are disclosed in Note 21 to the financial statements.

d) Reserves estimates

The estimated reserves are management assessments, and take into consideration reviews by an independent third party, under the Group's reserves audit programme, as well as other assumptions, interpretations and assessments. These include assumptions regarding commodity prices, exchange rates, discount rates, future production and transportation costs, and interpretations of geological and geophysical models to make assessments of the quality of reservoirs and their anticipated recoveries. Changes in reported reserves can impact asset carrying values, the provision for restoration and the recognition of deferred tax assets, due to changes in expected future cash flows. Reserves are integral to the amount of depreciation, depletion and amortisation charged to the statement of profit or loss and other comprehensive income, and the calculation of inventory.

e) Impairment of assets

The Group undertakes a regular review of asset carrying values to determine whether there is any indication of impairment. For intangible exploration assets impairment assessment, the Group takes into consideration the technical feasibility and commercial viability of extracting a mineral resource and whether there is any adverse information that will affect the final investment decision. For oil and gas properties, expected future cash flow estimation is based on reserves, future production profiles, commodity prices and costs. For right-of-use assets, the Group applies IAS 36 to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss as described in the 'Impairment of Assets' policy. The carrying amounts of intangible exploration assets, oil and gas properties and right-of-use assets are disclosed in Notes 16, 17 and 19, respectively.

f) Asset restoration obligations

The Group estimates the future removal and restoration costs of oil production facilities, wells, pipelines and related assets at the time of installation of the assets and reviewed subsequently at the end of each reporting period. In most instances the removal of these assets will occur many years in the future.

The estimate of future removal costs is made considering relevant legislation and industry practice and requires management to make judgments regarding the removal date, the extent of restoration activities required and future removal technologies. The carrying amounts of the Group's asset restoration obligations is disclosed in Note 28 to the financial statements 

4. REVENUE

The Group derives its revenue from contracts with customers for the sale of oil and gas products. Revenue is presented net of royalties.

In line with the revenue accounting policies set out in Note 2, all revenue is recognised at a point in time.

Royalties in 2018 related to production entitlement in Indonesia. The Ogan Komering PSC expired onMay 20, 2018 and hence no revenue and no production royalty entitlement is recognised in the current year.

5. PRODUCTION COSTS

The cost of inventories recognised in production costs is US$92.4 million (2018: US$61.0 million). In 2018, the Group had written down crude oil amounting to US$3.4 million to its net realisable value. The write down amount was recognised in production costs. There were no inventories write-down in FY2019.

The Group has adopted IFRS 16, effective January 1, 2019. The Group has recognised depreciation of right-of-use assets in 2019, as disclosed in Note 6. The lease payments paid were offset against lease liabilities. 

The Group has applied the cumulative catch-up approach and did not restate comparatives. The lease payments included in 2018 operating costs were US$6.8 million.

The Montara assets were acquired on September 28, 2018. The production costs for 2018 include Montara's production costs of US$42.7 million from the date of acquisition until the year end, compared to a full year for 2019 of US$84.4 million.

The Ogan Komering PSC expired on February 28, 2018 and a temporary co-operation contract was entered into, continuing the terms of the PSC. A new PSC was issued on May 20, 2018 to Pertamina, at which point Jadestone no longer held an interest in the PSC. Included in the total production cost of US$90.9 million in 2018 is US$2.8 million related to Ogan Komering (Note 38).

6. DEPLETION, DEPRECIATION AND AMORTISATION ("DD&A")

The Montara assets were acquired on September 28, 2018 and were shut down to address a maintenance and inspection backlog from November 1, 2018 to January 11, 2019. The depletion charge for the oil and gas properties for the comparative period related to the production from September 28 to October 31, 2018, compared to a full year for 2019.

The Ogan Komering DD&A charge in 2018 related to the production from January 1 to May 19, 2018, after which the Group no longer held an interest in the PSC.

7. ACQUISITION OF MONTARA ASSETS

7.1 Effective date and acquisition date

In 2018, Jadestone Energy (Eagle) Ltd, a wholly owned subsidiary of the Company, closed the acquisition of the Montara Assets from PTTEP Australia, obtaining control and 100% of legal ownership.

The transaction had an economic effective date of January 1, 2018, at which point the economic benefits of owning the Montara Assets passed to the Group. The transaction closed on September 28, 2018(the Acquisition Date) at which point the Group obtained ownership and control of the Montara assets.On May 30, 2019 the regulator approved the transfer of 99% of the legal title in the license. On August 6, 2019, the transfer of operatorship was completed and on October 1, 2019, the final 1% of legal title of the license was approved and the transaction was completed.

As the Group took control of the operating decisions of the Montara assets on September 28, 2018, this is the date used for the purpose of calculating the purchase price allocation and the fair value of the assets and liabilities recorded in the statement of financial position.

7.2 Fair value of consideration transferred and purchase price allocation adjustments

On September 28, 2018, the consideration for the Montara Assets reflected a cash payment of US$133.1 million as set out below:

The crude inventory value relates to the inventory on hand at the effective date of January 1, 2018. The capital charge reflects interest on the asset purchase price of US$195.0 million calculated on a daily basis at a rate of 3% above LIBOR from (and including) the effective date to (but excluding) the date of completion. The net cash adjustment reflects the net of the interim period receipts and expenses incurred, invoiced or paid by PTTEP Australia in the period from the effective date to the date of completion.

In addition, there were deferred contingent payments payable, in addition to the upfront cash consideration set out above, depending on the outcome of a number of trigger events. The trigger events are linked to 2018 production volumes, future Dated Brent oil prices in 2019 and 2020, production from the infill well drilling scheduled for 2020 and final investment decision for developments with significant 2P reserves. The Group reviewed all the contingent payments, and at the date of acquisition recorded an amount of US$15.8 million at fair value for the following two contingent events:

- Annual average Dated Brent crude price exceeding US$80/bbl in 2019: US$20.0 million; and

- Annual average Dated Brent crude price exceeding US$80/bbl in 2020: US$10.0 million.

Management has assessed the fair value of the above contingent consideration using a Monte Carlo option simulation model, which considered inputs such as the spot Dated Brent oil price at completion date,the risk-free rate, volatility of Dated Brent oil price, and the length of time the contingent payment will apply. This implies the fair value of the contingent consideration to be US$10.8 million and US$5.0 million for the 2019 and 2020 deferred payments, respectively, totalling US$15.8 million in 2018. This reflected a discount of 46% and 50% for the respective 2019 and 2020 contingent consideration payments arising from the time value of money and the likelihood of the trigger event occurring. During the year, the Group has derecognised the 2019 deferred contingent payment as the annual average Dated Brent crude price in 2019 fell below US$80/bbl. Please refer to Note 7.4 for the full disclosure of all the other contingent payments and management's assessment therein. As at December 31, 2019, the fair value of the 2020 contingent payment has been reduced to US$0.4 million (2018: US$3.7 million) (Note 30) as a result of the declining forward curve Dated Brent crude oil price.

The voluntary shutdown that occurred at Montara from November 1, 2018 to January 11, 2019 resulted in a loss of production and revenue during the period, as well as an increase in costs due to overheads still being incurred and additional maintenance work required to rectify historic maintenance and inspection issues. As a result, on January 7, 2019, PTTEP Australia and the Group agreed that PTTEP Australia would fund cash calls capped at US$22.0 million. Management believes that the shutdown was a result of facts and circumstances that existed as at the acquisition date. As such, the US$22.0 million has been adjusted against the consideration transferred for the Montara Assets.

During the year, the Group has completed the purchase price allocation ("PPA") exercise to determine the fair values of the net assets acquired within the stipulated time period of 12 months from the acquisition date of September 28, 2018, in accordance with IFRS 3 Business Combinations. Following the transfer of operatorship on August 6, 2019, the Group was able to confirm an inventory adjustment of US$14.0 million in order to align with the Group's accounting policies. The adjusted fair values of identifiable assets and liabilities have been reflected in the consolidated statement of financial position as at December 31, 2018.

Below are the effects of the final PPA adjustments in accordance with IFRS 3: