Half-year Report

29 March 2018

Mosman Oil and Gas Limited

("Mosman" or the "Company")

Half Year Report

Mosman Oil and Gas Limited (AIM: MSMN) the oil exploration, development and production company, announces its results for the six months ended 31 December 2017, which have been reviewed by the appointed auditors.

Operations Review

Strategy

Mosman's strategic objective continues to be that of identifying opportunities which will provide operating cash flow and have further development upside, in conjunction with adding value to the Company's existing exploration permits.

Three Producing Projects in USA

Interests in three onshore producing projects were acquired in 2017, demonstrating that the Company is moving forward effectively in achieving its objectives of building a production operation. These projects are:

1. Welch Permian Basin Project (Texas);

2. Arkoma Stacked Pay Project (Oklahoma); and

3. Strawn (Texas).

There has been considerable management focus on both acquiring and then enhancing the production characteristics of the three producing projects. A total of $997,302 was expended on acquisition costs and development expenditure which included workovers and largely one-off repairs that were identified to increase production and develop individual assets.

In addition, the Board evaluated other potential acquisitions opportunities that were not pursued principally because they did not meet the defined strategy. The Board continues to review additional opportunities to enhance its producing portfolio.

Sales

Revenue attributed to Mosman was $321,348.

In the three months ending 31 March 2018, Revenue attributed to Mosman was c$215,000.

The numbers for the quarter to 31 March 2018 reflect Mosman's share of approximately c2,550 barrels of oil sold less, transport and royalty costs.

From those sales revenues, Lease Operating Expenses are paid.

Existing Exploration Permits

In the short term, Mosman remains focused on its strategically important and high-impact production and development assets in the USA, whilst in parallel in Australia, it continues to make good progress on the exploration portion of its portfolio that, following rationalisation, has resulted in Mosman owning and operating two 100% owned granted permits (EP 145 & 156) and one application (EPA 155) which total 5,458 sq. km.

During the six months $284,043 was expended on advancing those assets.

General

In parallel with the successful implementation of its stated strategy to build a production portfolio that provides operational cash flow, the Board has prioritised capital expenditure while also managing field operating costs and general and administrative costs. As a result, most costs have been reduced when compared to the same period in 2017, particularly administration and corporate expenditure.

Corporate

Funding

In September, Mosman raised £600,000 by way of a placing and subscription of 50,000,000 new ordinary shares of no par value in the capital of the Company ("New Ordinary Shares") at 1.2p per share. The proceeds of the Placing were raised to accelerate the development of the US onshore oil production assets to increase production and cash flow, in addition to the potential acquisition of additional onshore production assets, for general corporate working capital purposes and for the ongoing costs associated with the review and due diligence on other acquisition opportunities being evaluated.

Gem International Resources Inc

Mosman currently owns c7.6 million shares in the TSX-V listed GEM International Resources Inc. ("GEM") (TSX-V: GI). GEM shares remain suspended due to the previous board failing to complete the required financial reporting. The newly appointed board which includes Mosman's chairman is reviewing the financial and corporate status of the company and have arranged for the required reports to be prepared and audited. That process will be concluded shortly.

It is anticipated a shareholders meeting will then be called to determine the appropriate business plan going forward.

Outlook

The second half of the year started well with the USA assets all generating cash flow due to production improvements, lower costs and higher oil prices. The strategy of acquiring oil production assets when oil prices were low is proving to be sound given recent increases in both oil production and the oil price and we look forward to building on the platform we have now established for the business.

Competent Person's Statement

The information contained in this announcement has been reviewed and approved by Andy Carroll, Technical Director for Mosman, who has over 35 years of relevant experience in the oil industry. Mr. Carroll is a member of the Society of Petroleum Engineers.

 Market Abuse Regulation (MAR) Disclosure

Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement.

Enquiries:

Updates on the Company's activities are regularly posted on its website www.mosmanoilandgas.com.

Condensed Consolidated Statement of Profit or Loss

and Other Comprehensive Income for the Half Year Ended 31 December 2017

All amounts are in Australian Dollars

The accompanying notes form part of these financial statements.

Condensed Consolidated Statement of Financial Position

As at 31 December 2017

All amounts are in Australian Dollars

The accompanying notes form part of these financial statements.

Condensed Consolidated Statement of Changes in Equity

For the Half Year Ended 31 December 2017

All amounts are in Australian Dollars

These accompanying notes form part of these financial statements  

Condensed Consolidated Statement of Cash Flows

For the Half Year Ended 31 December 2017

All amounts are in Australian Dollars

The accompanying notes from part of these financial statements

Condensed Notes to the Financial Statements

For the Half-Year Ended 31 December 2017

All amounts are Australian Dollars

1. Summary of Significant Accounting Policies

Statement of Compliance

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

Basis of preparation

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

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

Going Concern

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

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

Adoption of new or revised accounting standards and interpretations

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

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

Exploration and Evaluation Costs

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

Impairment of Exploration and Evaluation Assets

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

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

The key areas of judgement and estimation include:

· Recent exploration and evaluation results and resource estimates;

· Environmental issues that may impact on the underlying tenements;

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

Oil and gas assets

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

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

Segment Reporting

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

13 Segment Information

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

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

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

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

(iii) Segment liabilities

15 Expenditure Commitments

(a) Exploration

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

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

(b) Capital Commitments

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

16 Subsequent Events

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

Capital raise

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

Welch update

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

Arkoma option exercised

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

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

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

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

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

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

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

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

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

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

· Immediate upgrade of production facilities; and

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

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

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

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

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

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

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

17 Dividends

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

John W Barr

Executive Chairman

Dated this 29 March 2018