Armour Energy Limited
Annual Report 2021

Plain-text annual report

Annual Report For the year ended 30 June 2021 1 Competent Persons Statement Technical Statement – Hydrocarbon Reserves The independently verified ‘Armour Energy Hydrocarbon Reserves, 30 June 2021’ report details a high degree of confidence in the commercial producibility of Permian and Triassic aged reservoirs previously discovered and produced in operated granted petroleum licenses 511 and 227 using, recent Armour drilled and hydraulically stimulated wells, 2D-3D seismic, historic and modern well data, reservoir pressure data, electric logs and rock properties from chip and core samples, gas composition analysis, hydraulic stimulation results, analysis of historical well production, decline curve analysis, offset field production data and prior production data from wells before the Kincora Gas Plant was shut-in by the previous operator, Origin Energy. The reported Reserves are used in connection with estimates of commercially recoverable quantities of petroleum only and in the most specific category that reflects an objective degree of uncertainty in the estimated quantities of recoverable petroleum. The petroleum reserves are reported net of fuel and net to Armour to the APA Group metered sales connection to the Roma to Brisbane Pipeline (Run 2) at Wallumbilla and the report discloses the portion of petroleum Reserves that will be consumed as fuel in production and lease plant operations. Armour will be using calibrated metering and gas chromatographs at the Kincora Gas Plant as a reference point for the purpose of measuring and assessing the estimated petroleum Reserves from the produced gas. The economic assumptions used to calculate the estimates of petroleum Reserves are commercially sensitive to the Armour operated Kincora Project. The methodology used to determine the economic assumptions are based upon strategic objectives that include, but not limited to, new drills, hydraulic stimulation, workovers, recompletes and surface facility modifications to ramp up to and maintain a commercial production profile for 15 years. The sanctioned development model includes a starting and ending monthly schedule of working/net interest capital expenditure to develop and maintain the petroleum Reserves, operational expenditure to develop and produce the petroleum Reserves, fixed petroleum Reserve prices under-contract and escalated petroleum Reserve futures based upon Wallumbilla Hub prices, tax/royalty sensitivities, revenue from gross and net petroleum production yields and cash flow from petroleum production yields and summation of discounted cash flows. The petroleum Reserves are located on granted petroleum licences with approved environmental authorities and financial assurances. Armour has a social licence to operate and relevant surface access agreements are in- place. Armour is the owner and operator of the Kincora Project and PPL3 sales gas pipeline which connects the Kincora Gas Plant to the Wallumbilla gas hub via the connection agreement with APA. Armour holds granted Petroleum Licenses over the reported estimates of petroleum Reserves, associated gathering and field compressors. The basis for confirming the commercial producibility and booking of the estimated petroleum Reserves is supported by actual historic production and sales and/or formation tests. The analytical procedures used to estimate the petroleum reserves were decline-curve analysis to 50 thousand cubic-feet-day, historic production data and relevant subsurface data including, formation tests, 2D-3D seismic surveys, well logs and core analysis that indicate significant extractable petroleum. The proposed extraction method of the estimated petroleum Reserves will be through approved conventional drilling and, where applicable, hydraulic stimulation techniques to accelerate production, commingle the productive zones and extract volumes from tight gas zones. Wellbores will be cased and cemented with a -pressure wellhead completion. Petroleum will be recovered through 2-3/8” production tubing and gathered to field compression sites for delivery to the Kincora Gas Plant. Wellbores will be designed to protect aquifers and deviated drilling may be used to lessen the overall impact to surface owners, environmental receptors, strategic cropping and to consolidate surface infrastructure. Processing at the Kincora Gas Plant will be required to separate the extracted hydrocarbons into dry gas, liquid petroleum gas, oil, and condensate and to remove any impurities prior to sales. Technical Statement – Oil & Gas Reserves Armour Energy engaged the services Mr Teof Rodriguez, Director of TR&A, to provide independent expert review of reports on the operated Oil & Gas Reserves associated within the Company’s Surat Basin acreage position. Mr. Rodriguez completed and documented his review at 30 June 2021. ‐ Consents The reserves information in this ASX release is based on, and fairly represents, data and supporting documentation prepared by, or under the supervision, of Mr Teof Rodrigues. Mr Rodrigues’ primary discipline is Reservoir Engineering and during his 40 year period in the Industry has had the opportunity to work in multidisciplined teams to appreciate the importance of understanding the process involved in moving the hydrocarbons from the reservoir to the reference sales point. As the Chief Reservoir Engineer for 6 years he had the Corporate Reserves Team reporting to him. In addition, he had the responsibility of endorsing all the Major Projects and the key Reserves and Resource estimates of the Company. He is a Director of TR&A and an experienced petroleum Reserves and resources estimator with 40 years relevant experience. He has adhered to the ASX Listing Rules Guidance Note 32. His qualifications and experience meet the requirements to act as a Competent Person to report petroleum reserves under PRMS (2018). The Resources information in this ASX announcement was issued with the prior written consent of Mr Rodrigues in the form and context in which it appears. ‐ The reserves review was carried out in accordance with the SPE Reserves Auditing Standards and the SPE PRMS guidelines under the supervision of Mr. Michael Laurent, Chief Operating Officer, Armour Energy Limited. Mr Laurent’s qualifications include being a professionally registered engineer in both Australia and Canada, has over 20 years of diverse oil and gas industry experience and has successfully held various senior managerial and GM positions. His career spans a number of sectors and includes expertise in reservoir, drilling, facilities, production and operations with particular emphasis on resource and business development. Experience is underpinned with strong strategic, commercial and technical acumen in both conventional and unconventional reservoirs. Prior to joining Armour Energy, Michael successfully leadership held a variety of domestic and appointments. Most recently he worked for Santos where he was responsible for managing Cooper Basins oil and gas appraisal/development wells and field optimisation inception through to approval and implementation. Mr Laurent has sufficient experience that is relevant to Armour’s reserves and resources to qualify as a Reserves and Resources Evaluator as defined in the ASX Listing Rules. Mr Laurent has consented to the inclusion in this report of the matters based on his information in the form and context in which it appears. initiatives from international technical SPE-PRMS Society of Petroleum Engineer’s Petroleum Resource Management System Petroleum resources are the estimated quantities of hydrocarbons naturally ‐ occurring on or within the Earth’s crust. Resource assessments estimate total quantities in known and yet be discovered accumulations, resources evaluations are focused on those quantities that can potentially be recovered and marketed by commercial projects. A petroleum resources management system provides a consistent approach to estimating petroleum quantities, evaluating development projects, and presenting results within a comprehensive classification framework. PRMS provides guidelines for the evaluation and reporting of petroleum reserves and resources (June 2018). to ‐ ‐ Under PRMS “Reserves” are those quantities of petroleum which are anticipated to be commercially recovered from known accumulations from a given date forward. All reserve estimates involve some degree of uncertainty. The uncertainty depends chiefly on the amount of reliable geologic and engineering data available at the time of the estimate and the interpretation of these data. The relative degree of uncertainty may be conveyed by placing reserves into one of two principal classifications, either proved or unproved. Unproved reserves are less certain to be recovered than proved reserves and may be further sub classified as probable and possible reserves to denote progressively increasing uncertainty in their recoverability. ‐ “Contingent Resources” are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations, but the applied project(s) are not yet considered mature enough for commercial development due to one or more contingencies. Contingent Resources may include, for example, projects for which there are currently no viable markets, is dependent on technology under or where commercial development, or where evaluation of the accumulation is insufficient to clearly assess commerciality. Contingent Resources are further categorised in accordance with the level of certainty associated with the estimates and may be sub classified based on project maturity and/or characterised by their economic status. recovery ‐ 2 Contents Page Our Business ........................................................................................................................................................................... 5 Chairman’s Report ............................................................................................................................................................... 6 Operating and Financial Review ...................................................................................................................................... 8 Sustainability Report .......................................................................................................................................................... 25 Managing Risk .................................................................................................................................................................... 35 Board of Directors .............................................................................................................................................................. 38 Leadership Team ................................................................................................................................................................ 40 Directors’ Report ................................................................................................................................................................ 42 Remuneration Report (audited) ..................................................................................................................................... 47 Auditor’s Independence Declaration ........................................................................................................................... 60 Financial Statements ......................................................................................................................................................... 61 Consolidated Statement of Profit or Loss and Other Comprehensive Income ..................................................... 62 Consolidated Statement of Financial Position ............................................................................................................. 63 Consolidated Statement of Cashflows .......................................................................................................................... 64 Consolidated Statement of Changes in Equity ........................................................................................................... 65 Notes to the Financial Statements.................................................................................................................................. 66 Independent Auditor’s Report ...................................................................................................................................... 112 Corporate Directory ........................................................................................................................................................ 121 3 Primed for growth & focused on delivery 4 Our Business Our Purpose To create a financially strong, healthy, and sustainable business that delivers value to shareholders. Our Vision To become one of Eastern Australia’s prominent Oil & Gas explorers and producers, and participate in energy transition. Our Values We work as one team with a common purpose. We act with integrity in everything we do. We show respect to our team, stakeholders and the environment. We have an owners mindset. We are committed and look for innovative solutions. 5 Chairman’s Report Dear Shareholders Whilst the last 18 months have presented Armour Energy with a range of challenges, I remain confident in the Company’s future prospects. In Amour’s latest Investor Presentation, the Company has outlined eight priorities which are focused on delivering growth and positioning Armour for a strong future. By delivering on these priorities, Armour is fully focussed on delivering value for shareholders and will enable the Company to significantly strengthen its balance sheet. Over the 2021 financial year, the Company reduced debt considerably by $18.7 million or 32%. This was achieved by fulfilling scheduled amortisation payments as well as accelerated principal amortisation payments following successful asset transactions. In early 2021 the Company completed an agreement with Santos to sell Armour’s remaining interest in several South Nicholson Basin permits. With the completion of this additional transaction, the Company has received approximately $33 million in cash proceeds in relation to the South Nicholson Basin Project, whilst retaining 100% ownership and operatorship of the significant ATP(A) 1107 interest. Notwithstanding some of the operational and work program challenges faced by the Company during the year, the company is focused on demonstrating value to shareholders in its core operating areas, the Surat and Cooper Basins, whilst extracting value from its Northern Basin assets. In late 2020, the Company undertook a three well hydraulic stimulation work program with a frac service company contractor conducting the stimulation. The work program was expected to significantly uplift production at our Kincora plant in the Surat Basin however disappointingly the gel in the frac failed to breakdown resulting in a low-side outcome for the program. These areas continue to be attractive candidates for production stimulation and Armour has recently partnered with a private entity to re-stimulate one of these wells in October 2021 (Warroon #1). At the same time, Armour continues to pursue full remediation of the work program from the service company contractor. To assist with funding for future exploration programs and to help accelerate the repayment of the Amour debt position, the Company is actively progressing further asset transactions. In March 2021 Armour announced the proposed demerger and separate ASX listing of Armour’s Northern Basin Oil & Gas Business into McArthur Oil & Gas. Through the proposed demerger, Armour will unlock the value of the Northern Basin Business whilst also removing the debt burden on the Company. This will enable Armour to focus on building on the untapped exploration potential of both the Cooper and Surat Basins. Significant progress has already been made on the McArthur transaction with a strong new proposed Board and Management team with a wealth of experience across the resources industry assembled. A range of regulatory and restructuring steps have been completed including the transfer of the permits into the new entity. In addition, Armour undertook the airborne survey on behalf of McArthur in advance of the proposed demerger and IPO. In March 2021 and September 2021, Armour announced $11.5 million and $8.2 million capital raises via private placements to institutional and sophisticated investors. The Company has received very strong support through these raises. 6 Over the next 12 months, Armour’s focus will be on:  Completing the proposed demerger and IPO of the Northern Basin Business into McArthur Oil & Gas.  Increasing its production at Kincora (Surat) through partnering to fund production enhancement work programs.  Reducing the operating cost base across the business and improving profitability.  Progressing exploration activity in the newly acquired Cooper-Eromanga Basins acreage as well as the existing Surat Basin acreage with a view of high-grading the leads and prospects portfolio. The market for gas on the East Costs continues to be strong. Spot gas prices at Wallumbilla have recovered from the impacts of Covid-19 in 2020 and Armour remains confident that prices will continue to provide a strong market demand and prices for our products. This year, for the first time, Armour’s Annual Report specifically includes a Sustainability Report. The Company recognises the importance and increasing level of investor and regulatory expectation in relation to Environment, Social and Governance issues, including in relation to climate change. The Company will continue to make further progress in these areas in future periods. I want to thank the Company’s shareholders and external stakeholders for their continued support and patience during this period. We are very focused on transforming Armour Energy into a prominent oil and gas exploration and production company, with a commitment to delivering for our shareholders. Yours sincerely Nicholas Mather Chairman 7 Operating and Financial Review 8 Executive Summary Armour Energy Limited (Armour or the Company) and its controlled entities (the Group) is a Brisbane based ASX listed company focused on the exploration, development and production of gas and associated liquids resources. The Company’s work programs aim to increase liquid rich gas production and revenues while focussing on becoming one of Eastern Australia’s prominent onshore Oil and Gas explorers and producers. Figure 1 – Summary of Armour’s assets and locations Key Points  Armour significantly reduced its debt under the Secured Amortising Notes by $17.4 million, with $11.4 million accelerated amortisation from asset transactions.  Armour further reduced its debt under the Tribeca Facility by $1.4 million due to the Queensland Department of Environment and Science decreasing their estimated rehabilitation cost for the Surat Basin Project and the sale of ATP 1087.  Completed the sale of Armour’s remaining 30% interest in various South Nicholson Basin Permits to Santos. As consideration, Armour received approximately $12.2 million in cash plus retained 100% ownership of Authority to Prospect Application (ATP (A)) 1107.  Completed the acquisition of Oilex Limited’s Cooper Basin exploration tenements – Petroleum Exploration Licences (PELs) 112, 444 and Petroleum Exploration Licences Application (PELA) 677, and 27 Petroleum Retention Licences (PRLs) in the South Australian Cooper-Eromanga Basins (Northern Fairway PRLs) - covering over 5,200 km2. This makes the Company the operator and holder of the 3rd largest exploration acreage in the South Australian Cooper Basin after Santos Limited and Beach Energy Limited.  As part of the annual impairment review, $13.5 million was recognised as an impairment across oil and gas assets, exploration and evaluation assets and financial assets. 9 Strategy To support Armour’s growth strategy, it has been focussing on the below eight priorities for the 2021 calendar year: Focus Outcome 1 2 3 4 5 6 7 8 Unlocking value for shareholders through demerger and IPO of Northern Basin Assets Materially reduce debt and renegotiate terms Extract value through commercialisation of under-utilised, operationally ready assets Reduce the operating cost base across the business and improve profitability Generate positive free cash flow to cover all operating and corporate costs and capital for new investment Build the Surat and Cooper exploration pipeline by the end of 2021 High grading of portfolio – Consolidate, unitise and rationalise across the portfolio Demonstrate tangible improvement in HSE performance and culture across the business Focussing on these priorities will enable Armour to unlock value for shareholders. Operating Review Surat Basin Assets Kincora Gas Project Overview The Company delivers gas to the Eastern Australian market from its Kincora Gas Project. Kincora achieved 95% operational time for the third full year of operation (FY2020: 91%) and an average production of approximately 6.2 TJ/day (FY2020: 7.9 TJ/day) of sales gas plus associated liquids. Average Production per day* FY2021 FY2020 Change Gas (TJ) LPG (T) Oil/Condensate (BBL) 6.2 10.2 121.7 7.9 13.9 152.1 (21.5%) (26.6%) (20.0%) Table 1 – Kincora average production * Volumes normalised to exclude shutdowns in respective years that reduced production from the Kincora Gas Plant Kincora also produced an average of approximately 122 barrels (FY2020: 152 barrels) of oil and condensate per day, and approximately 10 tonnes (FY2020: 13 tonnes) per day of Liquid Petroleum Gas (LPG). Oil and condensate are sold ex-Kincora and transported to local Queensland refineries. LPG is sold at the Kincora Gas Plant and on-sold mostly in Queensland, New South Wales, and South Australia, providing energy for transport, heating, and agricultural enterprises. Armour, like many other companies, continues to be affected by COVID-19. The Company continues to manage its costs and seeks to maximise its revenue. 10 Kincora Gas Reserves Update Armour performed a review of its oil and gas reserves position. The work was conducted by Armour Energy’s qualified technical team of Geoscientists and Engineers and completed in accordance with the definition and guidelines of the 2018 Petroleum Resources Management System (PRMS, 2018) approved by the SPE/AAPG/WPC/SPEE. The workflow was independently reviewed and certified by Teof Rodrigues from Teof Rodrigues & Associates for financial year 2021 (30 June 2021). See Table 2. The data from the 2020 Work Program and other technical workflows continues to support the reserves position. Armour remains encouraged by potential found in a significant new pay zone across existing well stock. Identifying these bypassed pay zones were only possible due to the advancements in logging technology allowing for the identification of mineralogically complex sandstones with hydrocarbon saturation suitable for hydraulic stimulation. Highlights from the 30 June 2021 Certified Reserves Report:  2P oil reserves numbers lowered primarily from produced FY2021 volumes  2P gas reserves numbers lowered only from produced FY 2021 volumes  Material long term potential continues to be demonstrated across the wider Kincora Project  Reserves independently verified Kincora Gas Project Gas (Bscf) Sales Gas (PJ) LPG (k Tonnes) Condensate (k Bbl) Oil (k Bbl) 1P 38.6 43.9 91 436 229 2P 129.4 147.1 304 1462 1205 3P 287.1 326.5 674 3245 2624 Table 2 – Combined Armour Energy Reserves Notes to Table 2        Petroleum reserves are classified according to SPE-PRMS. Petroleum reserves are stated on risked net basis with historical production removed Petroleum reserves have no deduction applied for gas used to run the process plant estimated at 5 to 10% Petroleum reserves can be sold on behalf of any minority interest holder BSCF = billion cubic feet, PJ = petajoules, bbls = barrels, gas conversion 1.137 PJ/BCF 1P = Total Proved; 2P = Total Proved + Probable; 3P = Total Proved + Probable + Possible. LPG Yield 2,065 tonnes/petajoules, Condensate Yield 9,938 barrels/petajoules Figures 2 and 3 – Gas and oil reserve comparison charts 11 The data from the 2020 Work Program has greatly contributed to the review of reserves. Armour remains encouraged by potential found in a significant new pay zone across existing well stock. Identifying these bypassed pay zones were only possible due to the advancements in logging technology allowing for the identification of mineralogically complex sandstones with hydrocarbon saturation suitable for hydraulic stimulation. Figure 4 – Kincora Plant Kincora Production Enhancement Activities Armour’s 2020 Work Program included executing a three well hydraulic stimulation campaign and a number of production enhancements projects. See figures 5, 6 and 7. On 10 September 2020, Armour commenced the Surat 2020 Work Program on its 100% owned and operated Kincora Gas Project. A three well stimulation campaign was executed over a 3-month period (Horseshoe #4, Horseshoe #2 and Warroon #1), which built on the 2019 stimulation success of the Myall Creek #5A well. In addition, identification of bypassed pay zones was made possible due to advancements in logging technology allowing for the identification of mineralogically complex sandstones with hydrocarbon saturation suitable for hydraulic stimulation. Figure 5 – Carbean #01 Logging 12 All wells in the 2020 Work Programme were expected to produce and flow gas into Armour’s Surat Basin Gas Gathering System to the Kincora Gas Processing Plant and contribute an estimated uplift of 3 TJ/day plus associated liquids. The 2020 three well stimulation campaign (Horseshoe #2, Horseshoe #4 and Warroon #1) ultimately delivered low side production volumes. As announced on 18 March 2021, the gel in the fracs failed to breakdown following the proppant placement in respect of the three wells, impacting matrix flow and causing the low-side outcomes. The Company has issued a dispute notice to the contractor with regards to the services provided in respect of the wells. Armour pursued the resolution from the frac service company contractor regarding execution of the recent 3-well frac programme and resulting production outcomes. Armour undertook a detailed independent technical evaluation of the causes for the fracture stimulation programme outcomes and to secure an agreement from the fracture stimulation contractor to undertake rectification works on all three wells to try to achieve the pre-stimulation projected production rates. The Company has not yet been able to secure a satisfactory resolution from the fracture stimulation contractor for rectification of the 3 wells involved in the 2020 fracture stimulation work programme. The Company will continue to pursue all necessary avenues to secure rectification for these 2020 fracture stimulation work programme results. Figure 6 – Armour Surat Basin Assets Further to the three well stimulation campaign, Armour has successfully installed artificial lifts on a number of existing wells to enhance production. The installation of a reciprocating sucker rod pump in the Myall Creek #3 well bore, as an example, has allowed the well to continue flowing to the gathering network below the critical rate required to lift liquids. This allows gas to flow to the surface uninhibited by liquids in the tubing and reliably pumps liquids for sale. See figure 7. These low risk and low capital activities improve overall well and field performance. The artificial lifts and plunger lift systems, delivered as part of the 2020/2021 work program, responded in-line with expectations, providing production adds and assisting with reducing operational costs and allowing remote optimisation. 13 Figure 7 – Myall Creek #3 Linear Rod Pump Surat Basin Exploration During the year the Company put a significant amount of focus on developing a multi-year exploration programme portfolio based on building a deep portfolio of exploration leads and drill-ready prospects in both the Cooper and Surat Basins. In mid-June, the Company provided an early view on the development of this emerging exploration leads and prospects portfolio at the Petroleum Exploration Society of Australia (PESA) Deal Day part of the Australian Petroleum Production & Exploration Association (APPEA) Conference held in Perth. Armour’s presentation at the PESA Deal Day emphasised the Company’s focus on delivering value for shareholders by demonstrating the value of its high-quality assets in its core areas of interest – the Surat and Cooper Basins. Through advanced 3D seismic interpretation techniques, the Company has identified potential significant undrilled virgin gas bearing reservoir sand channels northeast of the main Myall Creek Field with 3D seismic attribute signatures analogous to the best producing wells in the Myall Creek Gas Field. In addition, new technical workflows in the vicinity of the Myall Creek and Riverside gas fields, along with advanced wireline logging and petrophysical re-evaluation, indicates significant bypassed pay in the Permian and Triassic reservoirs within existing wellbores. Further, evaluation of the existing sparse 2D seismic outside the existing Myall Creek 3D area, shows promising new drill exploration opportunities. To unlock new discovery potential, work has commenced on a feasibility study for acquiring new 3D seismic. Northern Basin Business McArthur Basin and South Nicholson Basin At the start of the financial year, Armour held a commanding position in the McArthur Basin (100%) and the South Nicholson Basin, in joint venture with Santos QNT (30% Armour & operator, 70% Santos QNT). 14 Transactions with Santos QNT In July 2020, Armour and Santos QNT (a 100% subsidiary of Santos Limited) amended the South Nicholson Basin Farmin Agreement, delivering work programme benefits and to accelerate and crystalize contingent permit transfer payments. Armour received an immediate cash payment of $6.0 million from Santos, replacing future contingent permit payments. In December 2020, Armour reached a further agreement with Santos QNT, selling the remaining 30% interest in the South Nicholson Basin Exploration Project for $12.2 million. As part of this agreement, Armour retains a material exposure to the South Nicholson Basin play by securing operatorship and full control of ATP(A) 1107, covering 7,906 km2. Over both transactions, Armour received a total of $33.2 million from Santos QNT and has retained 100% interest in ATP(A) 1107, which is contiguous with ATP 1087, the permit which Santos QNT will be focusing its exploration efforts. Retention Licence Applications In February 2021, the company submitted applications for Retention Licenses for Glyde, Cow Lagoon and Lamont Pass conventional gas discoveries. Armour is the first operator in the McArthur Basin to lodge applications for Retention Licences and only the second operator since 1990 to submit retention Licences in the Northern Territory. These licenses will allow the discoveries within these areas to progress towards commercial development and the award of petroleum licences. Once granted, the Retention Licences will put Armour (and now McArthur Oil and Gas, see below) in a good position to take advantage of the current gas shortage and the Northern Territory’s and Federal Government’s “Gas Led Recovery” objectives, by providing local gas to local businesses and communities. Demerger and Listing of Northern Basin Business As announced in March 2021, Armour proposes to demerge its Northern Basin Business, which comprises 13 permits and covers approximately 97,000 km2, to McArthur Oil & Gas Limited (McArthur). Through an IPO, McArthur Oil & Gas will seek to raise circa $65 million to fund both the consideration for the Northern Basin Business from Armour together with McArthur’s future work program. Figure 8 – Location Map of granted Permits and Application Blocks that form the Northern Basin Business 15 The Northern Basin Business consists of:  Conventional targets – Significant Resources, Proven Plays, Existing Discoveries & Multi-Target Portfolio. Armour’s interests in the McArthur Basin contains extensive acreage holdings covering multiple conventional gas and liquids rich prospects and plays. Armour has reported conventional gas discoveries in Cow Lagoon-1, Glyde-1, Glyde-ST1 and oil discoveries at Lamont Pass-3. The Glyde-1 discovery well flowed 3.3 MMscfd of sales-quality gas from the Coxco Hydrothermal Dolomite of the McArthur Formation in Armour’s 100% owned and operated EP 171. Glyde-1 has been confirmed as a conventional gas discovery and Contingent Resources of up to 53 BCF 3C Contingent Resources have been booked (see tables below). Based on these initial exploration successes, the Company has filed applications for Retention Licenses covering the Greater Glyde Gas Discovery as the first step towards progressing the Glyde Gas Discovery to commercial development.  Unconventional targets – Multi-TCF Resource & Multiple Shale Plays – Barney Creek, Wollogorang & McDermott. In addition to the proven conventional hydrocarbon systems established through the 5-well exploration drilling programme, the Company’s position in the McArthur Basin also contains a potential World-class unconventional shale gas petroleum system with multiple target shales in the Barney Creek and Wollogorang and McDermott Shales of the Tawallah Group. The Barney Creek Formation is considered to be one of the most prospective unconventional Shale Gas plays in the southern McArthur Basin. The Barney Creek Formation is regionally extensive and thick (commonly over 150m) with significant TOC concentration and an oil-prone organic matter type. The Barney Creek Formation is oil mature at the surface and has been established to be wet-gas mature from 350m to 2400m and dry-gas mature where it is over 2400m deep. The Shale Gas play has a finely interbedded nature with high dolomitic and silt components providing favourable conditions for large volumes of gas to be held in pore spaces. It is expected that these rocks are likely to be well suited to large scale fracture stimulation. Armour’s initial exploration success in the McArthur Basin has also established the Wollogorang and McDermott Shales of the Tawallah Formation as newly identified prospective shale source rock unconventional resource exploration targets. Through work commissioned by the Company, the CSIRO has confirmed the oil and gas generative potential in both the Wollogorang and McDermott Shales of the Tawallah Formation. See Corporate Activities for further details of the proposed demerger. Resource Update During the 2021, Armour commissioned Netherland, Sewell & Associates, Inc. (NSAI) to update the independent resource estimate for Armour’s McArthur Basin assets, which form a significant part of the Northern Basin Business. The estimate was undertaken using the 2018 updated Petroleum Resources Management System and confirms a Prospective Resource Best Estimate of approximately 33 TCF from the Conventional and Unconventional structures in the McArthur Basin. The resource update has also confirmed 53 BCF (3C) Conventional Contingent Gas Resource associated with Glyde-ST1 and the retention licence application area. 16 Unrisked Gross (100%) Contingent Sales Gas Resource (BCF) Unrisked Gross (100%) Prospective Conventional Sales Gas Resource (BCF) Unrisked Gross (100%) Prospective Unconventional Sales Gas Resource (BCF) Estimate Estimate Low (1C) - Best (2C) 6 High (3C) 53 Low (1C) 191 Best (2C) 4,624 High (3C) 54,813 Low (1C) 5,203 Total Estimate Best (2C) High (3C) 28,126 126,303 Unrisked Gross (100%) Contingent Gas Resource (BCF) Low estimate (1C) Best estimate (2C) High estimate (3C) Mean Total (EP 171) - 6 53 7 Tables 3 and 4 – Updated resource estimate from Netherland, Sewell & Associates, Inc. Northern Territory Exploration In June 2021, Armour commenced a 20,000 km2 airborne geophysical survey, which is the largest airborne survey of its type to be undertaken in the Northern Territory. The purpose of the survey is to provide clear areas of exploration interest and to de-risk, rank and high-grade existing and new identified leads and prospects. The survey will cover all or substantial portions of five (5) exploration permits (EPs 171, 174, 176, 190 and 191) and one (1) exploration application area (EP(A) 193) which cover the Batten Trough and Fault Zone and a conventional oil and gas fairway encompassing the Coxco Dolomite and McArthur and Tawallah Group prospects and structural closures. See Figure 9 for the map of the survey area. Figure 9 – Map of the area covered by the Airborne Geophysical Survey 17 Armour engaged geophysical technology company, Pinemont Technologies Australia Pty Ltd (Pinemont) to undertake the airborne geophysical survey using their patented passive airborne survey technology (AEM- PTP). The technology underpinning the AEM-PTP system measures a geophysical response associated with variability in elements of the earth’s electromagnetic field interacting with REDOX cells. REDOX cells can form in association with the upward fluid flow of migrating hydrocarbons and/or micro-seepage from hydrocarbon accumulations. The application of airborne technology has significant advantages as a data acquisition method including its non-invasive nature and the ability to collect data over large areas in both a timely and cost-effective manner. Once processed and interpreted, the data collected will help to mitigate risk associated with potential hydrocarbon migration pathways and hydrocarbon reservoir charge. Cooper Basin Assets Figure 10 – aircraft that performed the survey Cooper Basin Overview Armour completed the purchase of South Australian Cooper Basin Assets from Oilex in October 2020. This Cooper Basin acreage makes Armour the holder of the 3rd largest net acreage position in the South Australian portion of the Basin with existing 3D seismic coverage. The acquisition of Oilex’s assets comprised a consideration of $0.9 million in Armour shares. The assets include a 100% interest in Petroleum Exploration Licence (“PEL”) 112 and PEL 144 (covering 1,086 km2 and 1,166 km2 respectively). In addition, Armour has also acquired a 100% interest in 27 Petroleum Retention Licences (“PRL’s”) covering a total 2,445km2 (including 792km2 of 3D Seismic) by assuming the obligations of Oilex under existing arrangements between Oilex and Senex Energy Ltd. These 27 PRL’s were acquired for $27 together with the assumption of existing abandonment liabilities and the replacement of a security deposit for $0.4 million with the South Australian Government. Under the transaction, Senex retained a 20% back in right at cost, subject to certain conditions, following the drilling of a well. Cooper Basin Exploration During the year the Company put a significant amount of focus on developing a multi-year exploration programme portfolio based on building a deep portfolio of exploration leads and drill-ready prospects in both the Cooper and Surat Basins. 18 In mid-June, the Company provided an early view on the development of this emerging exploration leads and prospects portfolio at the Petroleum Exploration Society of Australia (PESA) Deal Day part of the Australian Petroleum Production & Exploration Association (APPEA) Conference held in Perth. Armour’s presentation at the PESA Deal Day emphasised the Company’s focus on delivering value for shareholders by demonstrating the value of its high-quality assets in its core areas of interest – the Surat and Cooper Basins. The focal points of these exploration efforts have been on areas with existing 3D seismic coverage and are focussed on extending the Western Flank Oil Fairway in South Australia in the Company’s 100% owned and operated exploration permits PEL 444 and PEL 112. Along the Western Flank extension, both the southern and northern extents were modelled with positive correlation and prediction. Workflows will continue with the extensive seismic database, but limited 3D coverage, to identify structural and stratigraphic potential. In the Company’s PESA Deal Day presentation, a number of significant 3D-seismic controlled exploration leads and prospects were presented. Armour will perform its own data and analysis, as well as re-evaluating the existing technical data with the aim to identify stratigraphic trends and development opportunities in this historically successful oil rich Western and Northern Flanks of the Cooper Basin. Figure 11 – Location map of the Cooper Eromanga assets 19 Uganda Assets Uganda Oil Project Overview The Ugandan Oil Project is located at the southern end of Lake Albert within the Albertine Graben which has recorded discoveries of 6.5 billion barrels of oil. The Company was awarded the Kanywataba exploration licence in September 2017 with DGR Global, a major shareholder in Armour, holding a beneficial interest of 83.18% and the Company 16.82%. In 2019, the exploration licence was renewed for a further two-year term and further renewed as a condition of the force majeure until 28 May 2023. Uganda Exploration The Company has identified multiple developed (untested) on-trend structural traps (3-way and 4-way dip closures) and multiple untested stratigraphic traps. The Company’s internal assessment of the Kanywataba block is a Resource Best Estimate Risked 57-193 mmbls recoverable which compares to the Unrisked Prospective Oil Resource Estimate (mmbls) of 145-217mmbls. Figure 12 – Location map of the Uganda assets Corporate Activities Capital Raising Over the financial year, Armour completed two capital raises. In September 2020 Armour advised the previously announced capital raise had closed and due to significant demand from third-party investors in relation to the Company’s fund raising, the Board was able to upsize the conditional placement component to a total of approximately $7 million, resulting in a combined total of approximately $15 million capital raise. For every two new shares issued under the program, the holder received one attaching option exercisable at $0.05 and expiring on 29 February 2024. These options are listed on the ASX with the ticker code AJQOA. In March 2021, Armour announcement the successful completion of an $11.5 million equity raise. For every four new shares issued under the Placement, the holder received one attaching option exercisable at $0.05 and expiring 29 February 2024. These options are listed on the ASX with the ticker code AJQOA. 20 Secured Amortising Notes Facility In 2019 Armour raised $55 million of funds through the issues of secured and amortising notes (Notes). The Notes have a repayment schedule through until 29 March 2024. Through finalising transactions with Santos QNT Pty Ltd on the South Nicholson Basin and with Australia Pacific LNG on the Murrungama block, Armour accelerated $11.4 million in principal amortisation payments on the Securing Amortising Notes during the 2021 financial year. In March 2021 Armour received approval from Noteholders for amendments to the Conditions of the Secured Amortising Notes. The approved amendments include: 1. New Note principal amortisation schedule to reflect the $11.4 million reduction in aggregate outstanding principal value of the Notes by way of unscheduled amortisation payments already made by Armour 2. Amendments to Financial Undertakings, including the Debt Service Cover Ratio, the Leverage Ratio and the cash balances Armour must maintain 3. Amendments to increase a certain limit on incurring Financial Indebtedness 4. The creation of a new Interest Reserve Account which requires Armour to maintain a certain balance 5. Amendments to the early redemption of Notes provisions 6. Amendments to the payment timeframes for the unscheduled amortisation payments 7. Consent from the Noteholders to extend the due date for the environmental bonding finance facility These amendments provide Armour the runway required to execute the proposed McArthur Oil & Gas demerger and IPO. In turn, upon success of the demerger and IPO, Armour intends to use the consideration received to retire some or all its outstanding debt. Building the Executive Leadership Team Following the appointment of Brad Lingo as CEO in June 2020, Armour has continued to build the strength of the Executive Leadership Team. In July 2020, Michael Laurent was promoted to the role of Chief Operating Officer. Toni Hawkins joined Armour as the Chief Financial Officer in December 2020 and Mark Greenwood as Chief Commercial Officer in June 2021. The new Executive Leadership Team is focused on strengthening and growing the Armour business. 21 Financial Review Results for the financial year 2021 2020 Change Sales Revenue Average Realised Sales Price EBITDA (Non-IFRS measure) Exploration Expenditure Non-Cash Impairment Statutory NPAT Operating Cashflow Development Spend Cash Balance Debt (excl. transaction costs) Earnings Per Share - Basic Earnings Per Share - Diluted $'000 $AUD $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 c.p.s c.p.s 17,502 5.90 (3,621) (5,217) (12,353) (11,594) (7,062) (11,123) 2,358 (39,110) (1.0) (0.7) 21,104 5.20 1,671 (2,270) (720) (9,571) (2,856) (21,322) 3,246 (57,909) (1.7) (1.7) (3,602) 0.70 (5,292) (2,947) (11,633) (2,023) (4,206) 10,199 (888) 18,799 0.7 1.0 Table 5 – Summary of financial results Change % (17%) 13% (317%) (130%) (1616%) (21%) (147%) 48% (27%) 32% 43% 61% Sales Revenue Year-on-year sales were 17% lower due to low-side production outcomes. This was slightly offset with recovering realised prices. Development Expenditure Armour’s Development Expenditure of $11.1 million primarily represents the 2020 Work Program in the Surat Basin. Non-cash impairment As part of Armour’s annual impairment review, there was a total of $12.4 million identified to be written-off. The impairment related to Surat Basin’s ATP 2028 and various historic oil & gas assets. Debt In 2021, Armour significantly reduced its total debt by 32%. The Secured Amortised Notes reduced by $17.4 million, to $33.7 million, including $11.4 million of accelerated payments as a result of asset transactions. With an original face value of $55 million, Armour has now reduced the Notes by nearly 40%. The Tribeca Facility held by the Company also contributed to the reduction of total debt by $1.3 million. A reassessment of the financial assurances held by the Queensland Government for the Surat Basin reduced it by $1.1 million. There was a further $0.2 million returned due to the sale of ATP 1087. 22 Financial performance and cash flows Revenue from contracts with customers Cost of goods sold Gross profit Net gain on sale of assets Other income and expenses Finance income Finance expenses Impairments Income tax expense Consolidated 30-Jun-21 $'000 17,502 (22,151) (4,649) 15,857 (4,201) 70 (6,316) (12,353) - 30-Jun-20 $'000 21,104 (19,484) 1,620 - (2,930) 128 (7,193) (720) (476) Loss after income tax expense (11,592) (9,571) Table 6 – Financial Performance The reduction in revenue from contracts with customers is largely due to low-side outcomes from the 2020 work program in the Surat Basin. This was slightly offset by recovering commodity prices (Oil and Gas). Earnings before interest, tax, depreciation and amortisation (EBITDA) – Non-IFRS measure Loss before income tax and net finance expenses Add/(Less): Interest Received Depreciation and Amortisation Non-cash impairment Gain on Disposal of PPE EBITDA (non- IFRS measure) Table 7 – EBITDA Consolidated 30-Jun-21 $'000 (5,278) (70) 5,232 12,353 (15,857) (3,620) 30-Jun-20 $'000 (1,902) (127) 3,008 720 (28) 1,671 The upside in EBITDA reflects Armour’s commitment to unlocking value for shareholders by selling its non-core assets and focussing on its primary operations. Cash flow Net cash at the beginning of the year Net cash from operating activities Net cash from investing activities Net cash from financing activities Consolidated 30-Jun-21 $’000 3,245 (7,062) 4,773 1,401 30-Jun-20 $’000 9,225 (3,048) (6,825) 3,893 Net cash at the end of the year 2,358 3,245 Table 8 – Summary of cashflows 23 In the year ended 30 June 2021, total net cash outflow was $0.9 million. The net cash outflow from operating activities was $7.1 million with $18.9 million of revenue positively contributing from operations. The net cash inflow from investing activities were $4.8 million mainly attributable to the funds received from:   The sale of Armour’s 10% interest in the Murrungama block to APLNG The proceeds from the farm-in agreement and subsequent sale of Armour’s interests in a number of South Nicholson Basin oil and gas exploration permits to Santos  Offset by $16.9 million in capital spend on oil and gas assets, additional financial assurances and exploration and evaluation assets These funds were used to support Armour’s operations and costs relating to the development and exploration activities in the Kincora project and Northern Territory Assets. Over the financial year, Armour completed two capital raises. The first raise closed in September 2020 and due to significant demand from third-party investors resulted in a combined total of approximately $15 million capital raise. In March 2021, Armour announced the successful completion of a second capital raise for $11.5 million. 24 . Sustainability Report 25 Acknowledgement Armour acknowledges the Traditional Owners of the land in which we operate. The Turrbal and Jagera people in Brisbane, the Mandandanji people where our Surat operations are, the Yandruwandha/Yawarrawarrka and Dieri people in the Cooper Basin and the Wannyi people and Gangalidda & Garawa people in Northern Queensland as well as a number of Traditional Owners Groups under the Northern Land Council in the Northern Territory. Performance in 2021 358 Days Since Last Safety Incident 11 TFIFR 0 Recordable Environmental Incidents 0 Covid-19 Cases Like all industries & companies in Australia, Armour has endured a challenging and constantly evolving business environment in 2021 as a result of Covid-19. Armour successfully implemented changes that were measured and consistent with government guidelines to ensure that the business continued to operate safely and responsibly whilst protecting and respecting the communities where we operate. Reduced staff working hours and working from home arrangements provided the business with the required flexibility to continue operations which ensured continued investment into the regional areas. Health and Safety The safety of our employees, contractors, and the communities where we operate drives Armour’s focus to continually improve our Safety Management System based on review of our safety performance and the effectiveness of controls that we implement. For the 2021 financial year, regrettably the Kincora Gas Project recorded 1 recordable incident, which when converted to a base of one-million man hours, resulted in a TRIFR (Total Reportable Incident Frequency Rate) of 11. As at 30 June 2021, Armour had achieved 358 days without recordable incidents and in early July 2021, Armour achieved a TRIFR of 0 with a focus for FY22 on the “Beyond 0” program. Inspections of our operating sites by Resource Safety & Health Queensland (RSHQ) has not identified any regulatory noncompliance and Armour continues to work with the regulators to meet obligations with no formal notices or penalties being received. 26 Armour continues to operate responsibly and in compliance with government guidance in relation to Covid- 19. Armour is committed to ensuring that our operations do not put our employees, our contractors, and the communities where we operate at risk. Simple measures such as working from home, restricting site travel to essential users whilst implementing social distancing and good hygiene practice within our offices has resulted in minimal impact to daily operations and no reported covid cases for employees. Armour is proud to report that the majority (>80%) of our Surat Operations team has been vaccinated with employees ‘rolling up their sleeves’ to do their part in the Surat Community. Driving in remote areas presents a significant risk to Armour employees and in November 2020 Armour opened the Surat office as the new base of our Surat operations. This has reduced the need to travel to the Kincora terminal with field based operations managed from Surat and has resulted in a 50% decrease in the total Kms travelled each month by Armour staff. Successful recruitment from the regional areas has also reduced travel time for employees. The 2020 work program that comprised the hydraulic stimulation of the 3 wells was delivered with 0 recordable injuries and 0 reportable environmental incidents. Armour is proud of our contractors and their delivered safety performance and will continue to engage contractors that have a demonstrated good safety track record. The Armour Safety Culture Survey was an opportunity for Armour to engage with our workforce and determine areas for continuous safety improvement. The results identified that safety leadership, safety consistency and relationships as being the biggest influencers on safety performance with work continuing to improve in this area. Industry Collaboration Armour as a member of the Safer Together industry working group committed to creating the leadership and collaboration needed to build a strong and consistent safety culture. As part of the community we share industry lessons learnt and improve quickly by implementing learnings. Environment Armours operations are subject to environmental regulation under federal and state legislation. For the year ended 30 June 2021, Armour Energy reported outstanding environmental performance with zero recordable environmental incidents reported. The Group has focused on the continued development and improvement of the Armour Environmental Management System to ensure that Armour continues to meet all environmental obligations. Armour has been successful in securing a reduction of $1.2 million in its Financial Assurance through the new Estimated Rehabilitation Cost (ERC) framework. The Kincora Gas Project is an established oil and gas field that is spread across numerous PLs in the Surat region of Queensland. Armour took over the project in 2016 and is committed to the practical decommissioning and remediation of nonoperational assets. The Riverslea Pond Soil & Water Assessment was completed and represents part of the first phase of the Kincora decommissioning and rehabilitation plan. The study has identified practical options for the remediation of the site with Armour now focusing on further studies in 2022. Waste recycling is not currently available at Roma or throughout the Surat area, however, Armour has been able to recycle 4 tonnes of steel and 9,500 litres of waste oil. Future recycling of carboard and ‘containers for cash’ should reduce the volume of waste to landfill with Armour preparing to set waste reduction targets for the future. As a responsible Operator, Armour continues to deliver work programs with minimum impact to the environment. Minimum disturbance controls such as use of existing access tracks, use of existing leases and rapid reinstatement ensures that disturbance is avoided or temporary and reduces future rehabilitation. 27 Armour is aware of the risk that poor weed hygiene practices pose to farmers in our operating areas. Armour ensures the highest level of weed hygiene control and adopts suitable practices in consultation with landholders. All contractors that visit any Armour site are required to adopt the same practices. Armour has trained all staff that conduct work on landholders properties in vehicle weed hygiene. Climate Change Disclosure Climate change is one of the most significant challenges facing the world today and as a member of the energy industry, Armour recognises the important role it has to play. The world is transitioning to a low-carbon future, and climate change is an important political, social, environmental, and commercial issue. The Company recognises the increasing level of investor and regulatory expectation that the particular risks faced by the Company – and its stance generally on climate change issues – will be addressed in its Annual Report. Armour is well positioned to contribute to a lower-carbon future through the production and supply of natural gas. Natural gas is widely recognised for its part in reducing global emissions. This stems from the fact that emissions from the combustion of natural gas per unit of energy produced are approximately 40% lower than coal. Furthermore, natural gas can significantly improve air quality in urban centres due to its comparative negligible particulate and Sulphur Oxide emissions, together with low Nitrogen Oxide emissions. Natural gas is also an advantageous fuel for baseload and supplemental power generation supporting the increasing renewables sector, as gas-fired generation can be triggered from zero to full production in minutes and is 40% less carbon-intensive than coal-fired generation. Whilst gas is a complimentary, transitional fuel supporting intermittent renewable energy generation, it is also important to note that natural gas is also used as a feedstock for many other applications including heating in foundry’s and furnaces, plastics and petrochemicals, fertilisers and food manufacturing for which there are limited other viable alternatives. Armour is currently responsible for <0.01% of the natural gas produced and sold in, and exported from, Queensland. However, the Company is committed to contributing to a lower-carbon future through the sale of its natural gas products (as above) as well as the reduction of its own carbon footprint. Armour can confirm that for the period 2020- 2021, it met the corporate group thresholds prescribed by the National Greenhouse Gas Reporting (NGER) Act with reporting to be completed in October 2021. The vast majority of the Company’s gas-related infrastructure components (gas plant, gas pipelines, well- heads, compressors, and associated field equipment) are essentially “legacy assets” acquired from Origin Energy as part of the overall acquisition of the Kincora Gas Project near Roma in Queensland, which was completed in 2016. Based on the operation and maintenance of these assets during its period of ownership, Armour has established the following initiatives to reduce emissions and environmental impact:  Reduction of “fugitive emissions” via leak management and preventative maintenance programs.  Optimisation of staff movements and logistics to reduce road traffic and distance travelled in our operations and projects has led to a 50% reduction in the total kms travelled each month.  Execution of the Kincora Stack Emission Monitoring Program to provide baseline air emission data for assessment against EPP Air regulatory emission framework. Results show that emissions are below the EPP Air Quality Objectives. The responsible and progressive remediation of petroleum facilities that have reached the end of their lives to enable the return of land to the landholder in a condition which complies with all relevant environmental and regulatory requirements.   New well site facility installations will include electrically driven instrumentation powered by local solar panel arrays. Furthermore, Armour minimises its impact on land and waterways in relation to development and exploration activities by undertaking the following: 28  Assessment of regional and local aquifers to characterise the geochemistry of formation water prior to and during initial stages of exploration and development, including hydraulic stimulation, activities.  Ongoing baseline monitoring of groundwater quality to detect any changes during and after the cessation of exploration and development lifecycles.  Assessment and survey of local ecological communities within and around our development, exploration and production tenements, and the implementation of innovative approaches to negate and reduce footprint and minimise vegetation clearing. Staying educated on improved and innovative environmental technologies that could have the greatest potential for reducing overall energy consumption during the exploration and development lifecycles.  During the year, Armour commenced studies on the potential use of depleted gas fields for carbon capture and storage (CCS). CCS is a process which aims to safely capture carbon dioxide (CO2) and permanently store deep underground in geological formations. CCS is seen as playing an important role in reducing carbon emissions and transition to cleaner energy. Armour funded a pre-feasibility study with consulting company, RISC Advisory, to evaluate the technical feasibility of using the Newstead field for carbon capture and storage. The study determined that Newstead and other depleted fields within Armour’s acreage are good candidates for carbon capture and storage and are at a scale which could underpin a Blue Hydrogen project. In parallel, Armour has made an Expression of Interest to the Queensland government to release certain acreage for licensing under the Queensland Geosequestration Act. Notwithstanding the favourable landscape for the ongoing production and sale of natural gas as outlined above, Armour anticipates that its activities may be subject to increasing regulation and costs associated with climate change, and/or the management of carbon emissions. The Company is committed to understanding and managing the current and emerging regulatory, reputational, and market-related risks of climate change to its operations. The Financial Stability Board created the Task Force on Climate-related Financial Disclosures (TCFD) to improve and increase reporting of climate-related financial information. The TCFD has developed a set of voluntary recommendations for companies to disclose information about how they oversee and manage climate related risks and opportunities. Armour recognises the importance of transparency to our stakeholders and the Board is considering the adoption of the TCFD Recommendations as a framework for guiding our climate-related risk management and disclosures in future reporting periods. Armour’s strategic approach is to minimise our emissions and to participate in the energy transition whilst building a resilient business. The Company’s Executive Team and Audit and Risk Management Committee will continue to review the potential impacts of climate change on the organisation and will be responsible for delivering Armour’s climate change priorities. In the 2022 financial year our climate change priorities are: Undertake a gap analysis against the TCFD recommendations and identify an implementation action plan. Review the Company’s governance policies and processes to ensure climate change is appropriately addressed. Review management responsibilities and accountabilities for climate change. Undertake a detailed review of the Company’s risk assessment in relation to climate change. 29 The Company is also conscious that other social consensus-based issues connected with climate change and environmental stewardship may impact its operations and cost structures into the future. These are dynamic issues which will need to be monitored and considered in the context of the Company’s decisions regarding the use of its capital, the nature and longevity of certain assets and operations, the safety and security of its workforce, and the interests of its broader stakeholders and the communities in which it operates. At this stage, there have been no direct impacts on Armour’s operations or assets connected to these issues, other than the historic gas and hydraulic fracturing moratoriums imposed by the Victorian and Northern Territory Governments. No financial impacts have been recorded in the current period by Armour in relation to these initiatives as:   The Company’s project equity interests in the state of Victoria are currently carried at a nil value, having been written down in an earlier period; and The Government of the Northern Territory has now lifted its moratorium and granting the Company an extension of time for it to complete its exploration activities, together with reductions in its financial commitments related thereto. The Board does not current consider the Company to be subject to a material financial impact as a consequence of the various categories of climate change risk and as a result, no adjustments are included in the financial statements. Future commodity prices are based on the Group’s estimate of future market price with reference to various external forecasts. These price forecasts consider the potential impact of climate change as one of the many factors that can affect long term price estimates. Armour recognises the key physical and transitional risks from climate change that may impact the Company into the future. 1. Physical risks include one off significant disruptions such as extreme weather events as well as more graduate changes in the environment in which we operate. Armour’s operational activities are at risk of severe interruption by extreme weather events such as bushfires or floods. 2. Transitional risks are risks associated with the global move towards a low carbon economy. The Company could be at risk through reduced demand for oil and gas products, increased regulation or higher stakeholder expectations impacting the Company’s reputation. The impacts to the Company of the above risks could include reduced revenue, increased costs, higher cost of capital or inability to access capital or insurance. The risks are covered in more detail in the Managing Risk section of this report. 30 People 46 Direct employees 20% Female workforce 50% Site based employees from the Region As a small operation, people are at the core of our business. Armour directly employs 46 people with 20% female. We have a diverse workforce with our team coming from a breath of backgrounds, from as close as New Zealand and PNG to as far as the UK. Over a quarter of our workforce were originally from outside of Australia. Of our site based team, approximately 50% are employed from within the Darling Downs and Western Queensland region and 26% from the local area. During 2021, with contribution and engagement from across the business, Armour has established new corporate values. Our values set out the way in which Armour will operate, guide how we make decisions and are important to setting the culture in our organisation. Armour has introduced a new online learning system. Initially this system is focused on our core induction, safety and compliance training. It will allow us to better deliver, track and reporting on the learning and development of our employees. 31 Community Armour operates in the Surat region of Queensland and strives to be an active and supportive member of the community. A strong presence in the Surat community is a key focus and the opening of the Armour Surat office in November 2020 demonstrates a commitment to the town of Surat. Having a local office sees more local engagement and investment by the Armour team. Wherever possible, Armour buys goods and services from businesses in local communities. We continue to foster positive relationships with other key stakeholders such as landowners, governments and community groups. Supporting Local Businesses Armour aims to engage with local businesses and contractors that can support our operations. Strong partnerships with local contractors are crucial to Armour’s operations in the Surat. For our project activities, wherever possible we source local materials such as gravel and construction water from our local landholders and local businesses. Flowers Earthmoving has been an ongoing supporter and contractor to Armour. This family business provides earthmoving for both our well and pipeline project activities. Roma-based Ricketts Mechanical Services and Gavco Instrumentation Services and Repairs provide contractor services to Armour. These contractors provide specialist skills and work closely with the Armour operational team. They use local people for their team. Materials and parts supplies are also sourced from vendors based in the Surat and Roma area, supporting local employment. Businesses such as Taylors Parts, Banks Bolts and Fasteners are key suppliers to Armour. Additionally, Surat Tyre Service is our primary tyre supplier, Bayly Motors provides vehicle servicing, the Wagon Wheel General Store provides our supplies and Surat Ag provides our chemicals for land management. All these businesses are family owned and employ local people. 32 Construction and operations employees of Armour enjoy meals and accommodation at the family-run New Royal Hotel Motel and Balonne’s Royal Bistro. Proprietors Don and Karen Thom extend a warm welcome to the Armour team with hearty meals, daily lunch packs and friendly service. Don is also one of our Senior Plant Operators at the Kincora Plant. Armour appreciates the support it has received from local businesses to work through the challenging impacts of Covid-19 to the business. Community Armour are proud to support the local community of Surat where our people live and work. Thriving community organisations are the life blood in rural and regional areas, fostering a strong community spirit. In 2021, Armour sponsored the Surat Ladies Bowling Club Annual Pink and Blue Bowls Day. This community event was enjoyed by a wide cross section of the local community and raised funds for a cancer charity. A number of the Armour team took part in the bowls day and surprised us with some hidden talents. The Queensland Police Legacy Scheme shares the Queensland Government and Queensland Police Service priorities of giving all our children a great start and keeping our communities and children safe. In producing the Child Safety Handbook, Queensland Police Legacy demonstrate their commitment to these priorities and make us mindful that all children are vulnerable, and we all share in the responsibility of keeping them safe. Armour continues to provide sponsorship to ensure that children in the Surat & St. George area receive the handbook and continue to have access to a resource to turn to in times of need, and support so that they can cope with the challenges they may face. 33 Armour was the sponsor of the ‘Monochrome” category for the In Focus Annual Photography competition at the Surat on Balonne Gallery. The Surat on Balonne Gallery is housed in the Cobb & Co Changing Station complex and focuses on the development and promotion of local and regional artists. This annual event provides budding photographers the opportunity to showcase their talents. Landholders and Traditional Owners Armour maintains its operational acreage across a large number of private landholders in the Surat area. Seamlessly interfacing with cattle and cropping routines is the result of open communication and relationships built on mutual trust and respect. Development and exploration schedules are developed in consultation with landholders to minimise local impacts to their business. In the Northern Territory, Armour undertook multiple engagements with all 38 Pastoral Leaseholders over our acreage in preparation for the largest private airborne survey in the Northern Territory which commenced in late June 2021. Armour respects the Traditional Owners in the areas in which we operate. Armour has continued positive ongoing engagement with the Northern Land Council in the Northern Territory with plans for future stakeholder engagement with the Traditional Owners. In June 2021, Armour representatives attended a Gangalidda and Garawa Native Title Aboriginal Corporation (GGNTAC) community meeting in Burketown. Following the positive engagement at this meeting, Armour was advised that the GGNTAC has agreed to proceeding with the granting of the ATP(A) 1107 permit. Industry Engagement Armour engages and collaborates extensively across the Oil & Gas industry. This includes through the Queensland Resources Council, Safer Together and the Northern Territory Energy Club. Jobs, Royalties and Taxes Armour directly employed 46 people at 30 June 2021 as well as a number of contractors. Armour contributed $1.2 million in royalties and $0.6 million in payroll tax to the Queensland Government. 34 Managing Risk Armour is an explorer, developer and producer of gas and associated liquids. The Group operates in a volatile pricing market. Factors specific to Armour or those which impact the market more broadly, may individually or in combination, impact the financial and operating performance of Armour. These events may be beyond the control of the Board or management of Armour Energy. The material risks for Armour are outlined below. This summary is not an exhaustive list of all risks that may affect Armour, nor have they been listed in any particular order of materiality. Operational Risks Production Risks Armour has a single production operation and is therefore reliant on continued performance of operations at the Kincora Gas project. Any issues that curtail operations at the Kincora facility could materially impact revenue flows. There are numerous operating risks which may result in a reduction in performance that decreases Armour’s ability to produce gas to meet customer contracts. The risks include, but are not limited to, factors such as weather conditions, machinery failure, critical infrastructure failure or natural disasters. To prevent or minimize production losses from such things as, machinery or infrastructure failures, Armour has in place maintenance programs and operational procedures. These mitigants are implemented by competent on-site operators and engineering support. Geological Risks Resource and Reserve estimates are prepared by external experts in accordance with the JORC code for reporting. The estimates are inherently subjective in some respects therefore there is risk that the interpretation of data may not align with the future experienced conditions in the field. Due care is taken with each estimation. Armour prepares its reserves and resources estimates in accordance with the 2018 update to the Petroleum Resources Management System sponsored by the Society of Petroleum Engineers, World Petroleum Council, American Association of Petroleum Geologists and Society of Petroleum Evaluation Engineers (SPE-PRMS). To support and validate the Company’s gas and oil reserves position, an external qualified auditor is engaged annually to provide an independent expert review. Exploration and Development Risk Armour’s production growth is dependent on its ability to explore, develop and deliver new resources and reserves. Oil and gas exploration is a speculative endeavour and carries a degree of risk associated with failure to find commercially viable hydrocarbons. Armour utilises prospect evaluation and ranking to analyse existing acreage for exploration and development opportunities. Each project is assessed on its merits before investment decisions are taken. Armour also seeks partnering and farm-in opportunities to manage the risk. Safety, Environmental and Sustainability Risks Safety Risk Safety remains of critical importance in the planning, organisation and execution of Armour’s exploration and operational activities. Oil and gas operations pose a risk of harm to employees, contractors or the community in which Armour operates. Armour is committed to providing and maintaining a working environment in which its employees and contractors are not exposed to hazards that will jeopardise an employee’s health and safety, or the health and safety of others associated with our business. Armour has in place detailed and proactive safety and health management plans which are reviewed regularly. Armour also participates in the Safer Together industry working group committed to creating the leadership and collaboration needed to build a strong and consistent safety culture. 35 Climate Change Climate change risk, in the form of either physical or transitional risk, is a global issue impacting all businesses. Physical risks through extreme weather events such as bushfires or floods may cause significant disruption to Armour’s operations. The potential impact of this type of event includes damage to infrastructure, loss of production and delay or cost increases to project delivery. Armour has in place response plans to minimise any impact from such events as well as a comprehensive insurance program. Climate change and the transition to a lower carbon emissions economy may lead to an increase in regulation and expectations. An increased focus by governments, regulators and broader stakeholders in relation to climate change and expectations of companies may impact Armour’s longer-term growth through increased regulation and cost. The International Energy Agency (IEA) has noted that banks, insurance companies and other operators are exiting coal. Gas plays an important role in coal-to-gas switching and as a firming energy for renewables in reducing overall carbon emissions, however, in the longer- term sentiment towards gas may change which may impact access to and cost of capital and insurance. Environmental Risk Armour’s operational activities pose a risk of harm to the environment and community through an environmental incident or non-compliance. Armour’s operations and projects are subject to State and Federal laws, and regulation regarding environmental hazards. These laws and regulations set various standards regulating certain aspects of health and environmental quality, provide for penalties and other liabilities for the violation of such standards and establish, in certain circumstances, obligations to remediate current and former facilities and locations where operations are or were conducted. The ability to secure and undertake exploration and operational activities within prospective areas is also reliant upon satisfactory resolution of native title and management of overlapping tenure. To address these risks, Armour develops strong, long-term effective relationships with landholders, with a focus on developing mutually acceptable access arrangements as well as appropriate legal and technical advice to ensure it manages its compliance obligations appropriately. Armour minimises these risks by conducting its activities in an environmentally responsible manner, in accordance with applicable laws and regulations and where possible, by carrying appropriate insurance coverage. In addition, Armour engages experienced consultants and other technical advisors to provide expert advice where necessary. Pandemic Risk A pandemic outbreak of a communicable disease such as COVID-19 has the potential to affect personnel, production and delivery of projects. The Company responded to Covid-19 through its health and safety management plans to manage this risk including ongoing monitoring and response to government directions and advice. This enables Armour to take active steps to manage risks to the Company’s staff and stakeholders and to mitigate risks to its operations and communities where Armour operates. Strategic and Financial Risks Regulatory Risks Changes in government, policy or legislation may result in material adverse impact on Armour’s operations and financial position. Retrospective or unexpected regulatory changes may impact the viability of projects. Companies in the oil and gas industry may also be required to pay direct and indirect taxes, royalties and other imposts in addition to normal company taxes. Armour’s financial position may be affected by changes in government taxation and royalty policies or in the interpretation or application of such policies. 36 Armour monitors regulatory developments and seeks opportunities to engage with governments and regulators as well as industry bodies. Commodity Price Risk The prices Armour receives for the oil and gas produced is subject to the volatility of commodity prices and is a key driver for the business’s financial performance. Armour is not of a size to have influence on gas or other petroleum product prices and is therefore a price-taker in general terms. This is particularly the case in relation to the Queensland gas spot market, and for oil, condensate, and LPG sales. Armour has in place some fixed- price AUD gas sales, as well as contracts and contracted agreements for some other products. Sovereign Risk Armour has limited influence over the direction and development of government policy. Successive changes to the Australian energy and resources policies, including taxation and innovation policies, have impacted Australia’s global competitiveness and reduced the attractiveness of Australian fossil-fuel projects to foreign investors. Armour’s view is that whilst there is currently a negative perception of fossil fuels, gas and LPG being less carbon intensive than alternate energy sources (such as thermal coal) will continue to play a significant role as both a domestic and export commodity. Access to Funding Armour’s ability to fund operations and future growth is impacted by its ability to access funding. At 30 June 2021, Armour remained funded with cash reserves expected to be sufficient to meet the business’s operating costs. Armour’s ability to effectively continue as an oil and gas producing business is dependent upon several factors, including the success of the Kincora Gas Plant, successful exploration and subsequent exploitation of Armour’s tenements. Should these avenues be delayed or fail to materialise, Armour has a proven ability to successfully raise additional funding through debt, equity or farm out/sell down to allow Armour to continue as a going concern and meet its debts as and when they fall due. Recent examples of the ability to raise funding via equity was the successful completion of the $11.5 million private placement in March 2021 and the $8.2 million private placement announced on 27 September 2021. 37 Board of Directors Nicholas Mather (appointed 18 December 2009) Stephen Bizzell (appointed 9 March 2012) Executive Chairman BSc (Hons, Geol), MAusIMM Non- Executive Director BCom, MAICD, SA Fin Nicholas Mather has been involved in the junior resource sector at all levels for 34 years during which time he has been instrumental in the creation of resource companies with aggregate market caps at takeover and currently of approximately $6.8Bn. Nick is currently a Non- Executive Director of SolGold plc, Aus Tin Mining, New Peak Metals and Lakes Blue Energy NL. Nick is Managing Director and co-founder of DGR Global Limited (ASX) and was co-founder and served as an Executive Director of Arrow Energy NL until 2004. Nick was also the founder and Chairman of Waratah Coal, a co-founder and Non-Executive Director of Bow Energy Limited until its recent takeover by Arrow Energy Pty Ltd. Nick is Executive Chairman and a member of the Remuneration Committee. Current directorships/other interests DGR Global Limited NewPeak Metal Limited Aus Tin Mining Limited Lakes Blue Energy NL SolGold plc (LSE and TSX) Former directorships (last 3 years) IronRidge Resources Limited (AIM) (resigned 28 June 2021) is Stephen Bizzell the Chairman of boutique corporate advisory and funds management group Bizzell Capital Partners Pty Ltd. He is currently Chairman of MAAS Group Holdings Ltd and Laneway Resources Ltd, and Director of Strike Energy Ltd and Renascor Resources Ltd. Stephen was previously an Executive Director of Arrow Energy Ltd, co-founder and Non-Executive Director of Bow Energy Limited and formerly Non-Executive Director of Queensland Treasury Corporation, Stanmore Coal Ltd, Diversa Ltd, Apollo Gas Ltd, UIL Energy Ltd and Dart Energy Ltd. He qualified as a Chartered Accountant and has considerable experience in the fields of corporate restructuring, debt and equity financing, and mergers and acquisitions and has over 25 years’ corporate finance and public company management experience. Stephen is a member of the Audit & Risk Committee, Remuneration Committee and the Health, Safety and Environment Committee. Current directorships/other interests MAAS Group Holdings Limited Renascor Resources Limited Laneway Resources Limited Strike Energy Limited Challenger Energy Group Plc Former directorships (last 3 years) UIL Energy Limited (resigned 27 December 2018) Stanmore Coal Limited (resigned 15 May 2020) Interests in shares: 9,019,912 Interest in options: 7,978,634 Interests in shares: 19,287,066 Interest in options: 48,969,324 38 Roland Sleeman (appointed 11 October 2011) Eytan Uliel (appointed 20 November 2017) Independent Non-Executive Director Independent Non-Executive Director B.Eng. (Mech), MBA BA, LLB for roles those including Roland Sleeman has over 40 years energy industry experience, including in oil and gas production and processing, electricity generation and gas ranging from transmission. He has had negotiation and management of major energy contracts, the 1980’s establishment of the NWS gas project, management of the Goldfields Gas Pipeline and Chief Commercial Officer for Eastern Star Gas where, with Japanese partners, a modular LNG project was well advanced prior to takeover by Santos. More recently, Roland has provided expert advice to the Australian Energy Regulator in assessment of regulatory submissions, assisted the NT Power and Water Commission with gas and pipeline contract management, and was and independent member of the Western Australian Rule Change Panel (which oversaw Rules for operation of Western Australian electricity and gas markets). He is a Director and Chief Executive Officer of Lakes Blue Energy NL. Roland is the Chair of Remuneration Committee, Chair of the Health, Safety and Environment Committee and a member of the Audit and Risk Committee. Current directorships/other interests Lakes Blue Energy NL Former directorships (last 3 years) None Interests in shares: 59,999 Interest in options: NIL Eytan Uliel is a finance executive with extensive oil and gas industry experience. He has served as Commercial Director of Bahamas Petroleum plc, a UK-listed company with conventional oil exploration acreage offshore The Bahamas. Eytan was Chief Financial Officer and Chief Commercial Officer of Dart Energy Limited, Chief Commercial Officer of its predecessor company, Arrow International Ltd, Asian Regional Head of the Corporate & Structured Finance Group at Babcock & Brown. Eytan was also with Carnegie, Wylie & Company as Managing Director. Eytan commenced his career as a corporate lawyer, with leading Australian law-firm Freehills. He has also previously served as Chairman and Chair of the Audit Committee of Easycall International Ltd (dual ASX / SGX listed), Director and Chair of the Audit committees of Strike Energy Limited (ASX listed) and Jasper Investments Ltd (SGX listed), an alternate director of Thakral Corporation Limited (SGX listed), a director of CH4 Gas Ltd (ASX listed until merged with Arrow Energy Ltd), and an alternate director of Neverfail Springwater Ltd (ASX listed). Eytan was previously a director and member of the audit committee of Lonely Planet Publications Pty Ltd, and a director of various Arrow / Dart entities across Asia and Europe. Eytan is Chair of the Audit and Risk Committee. Current directorships/other interests None Former directorships (last 3 years) None Has no interest in Armour Energy shares or options. 39 Leadership Team Bradley Lingo Michael Laurent Toni Hawkins Chief Executive Officer Chief Operating Officer Chief Financial Officer B.Arts (Honors), JD B.Eng (Mech) B.Bus, CA, GAICD Brad Lingo has had a distinguished career spanning over 30 years in a diverse range of oil and gas leadership roles, including business development, ventures, mergers and acquisitions and corporate finance. Brad has been actively involved in oil and gas exploration, development and production activities in the Cooper Basin since 1993. new Prior to his Brad has received recognition as an oil and gas industry leader winning the S&P/ASX200 Energy Best CEO of the Year award in 2014 the annual SMH/East Coles in awards. role at Drillsearch, he was Head of Oil & Gas for the Commonwealth Bank of Australia. Brad started his career in the Cooper Basin as VP and Head of Business Development for Tenneco Energy and following the acquisition of Tenneco by El Paso Corporation, he was a co founder of Epic Energy which became one of Australia’s leading developer, owner and operator of natural gas infrastructure. ‐ in development. Michael Laurent is a professional engineer with over 20 years of diverse oil & gas industry experience, having successfully held various senior managerial and GM positions. His career spans a number of sectors and includes expertise reservoir, drilling, facilities, production and particular operations with resource and emphasis on business His experience is underpinned with strong strategic, commercial and in both technical acumen conventional and reservoirs. unconventional Career accomplishments include a track record of accepting P&L responsibility ensuring and operational budgets are met. Prior to joining Armour, Michael held a variety of domestic international technical leadership roles. Most recently he worked for Santos where he was responsible for managing Cooper Basins oil and gas appraisal/development wells and field optimisation initiatives from to approval and implementation. objectives inception through and and roles in ASX to various Toni Hawkins has over 20 years’ experience in a range of senior finance listed companies, and brings a depth of energy and resources industry experience to her role as CFO for Armour Energy. Toni began her before career at Qantas senior progressing finance roles at Coca-Cola Amatil and Origin Energy, and prior to joining Armour held the role of General Manager, Finance and Business Services at Senex Energy. Toni is experienced in building positive stakeholder leading high relationships and performing that have transformational delivered strong business change and Toni holds a performance. Bachelor Business of (Management & Accounting) from the Queensland University of Technology and is a graduate of of the Institute Company Directors. She is a the Chartered member of Accountants Australia and New Zealand and Finance Executives Institute. Australian teams the 40 Mark Greenwood Chief Commercial Officer B.Eng (Chem) Karl Schlobohm Company Secretary B.Comm, B.Econ, MTax, CA, FGIA Mark Greenwood joined Armour Energy in 2021 from Santos Limited where he spent the last seven years in senior roles joint venture spanning commercial, management, gas & liquids marketing, strategy and business development. Mark has held various positions within the industry including as a top-rated Energy analyst at Citigroup and JP Morgan. Mark of Chemical holds a Engineering the University of Adelaide. Bachelor from matters. Schlobohm Karl is a Chartered Accountant with 25 years experience across a wide range of industries and businesses. Karl joined DGR Global in 2009 and has acted as CFO and / or Company Secretary for all of the listed entities sponsored by DGR Global in that time. He has expertise in Company Secretarial Corporate matters, Governance, Financial Accounting, Corporate Finance and Corporate holds Taxation Undergraduate Degrees in Commerce and Economics, together with a Masters Degree in Taxation. He is a member of the Australian Institute of Company Directors and the Institute of Chartered Accountants in Australia. Karl has previously held positions as Company Secretary and / or Non-Executive listed Linc Energy Director of ASX Limited, Agenix Limited, Discovery Metals Limited and Global Seafood Limited. He has also acted as CFO for Discovery Metals Limited and Meridian Minerals Limited. Karl 41 Directors’ Report 42 The Directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the 'Group') consisting of Armour Energy Limited (referred to hereafter as the 'Company' or 'parent entity') and the entities it controlled at the end of, or during, the year-ended 30 June 2021. Principal activities and significant changes in the state of affairs The Group’s principal activities are focused on oil and gas exploration, development and production of gas and associated liquids resources. The Group’s work programs aim to increase liquid rich gas production and revenues while focussing on becoming one of Eastern Australia’s most prominent onshore Oil and Gas explorers and producers. In October 2020, Armour Energy Limited acquired CoEra Limited 1 from Oilex Ltd. CoEra Limited is the holding company of Cordillo Energy Pty Ltd and Holloman Petroleum Pty Ltd. Cordillo Energy Pty Ltd holds 27 Petroleum Retention Licences (PRLs) and 1 Petroleum Exploration Licence under Application (PELA) covering 2,990 km2 and Holloman Petroleum Pty Ltd holds two Petroleum Exploration Licences (PELs) covering 2,252 km2 of the Cooper Eromanga area. There were no other significant changes in the state of the affairs of the Company during the financial year that have not been detailed elsewhere in this report. A detailed operating and financial review is provided on pages 8 to 24 of this report and forms part of the Directors’ report. Material risks to the Company are discussed on pages 35 to 37. Directors The Directors of Armour during the whole of the financial year and up to the date of this report are: Nicholas Mather Stephen Bizzell Roland Sleeman Eytan Uliel Executive Chairman Non-executive director Independent non-executive director Independent non-executive director Their qualifications, experience and special responsibilities are included on pages 38 and 39. Company Secretary Mr Karl Schlobohm is Armour’s Company Secretary. Details of Mr Schlobohm’s qualifications and experience are set out on page 41. Meetings of Directors The number of meetings of the Company's Board of Directors ('the Board') and of each Board committee held during financial year 2021, and the number of meetings attended by each Director were: Board Audit and Risk Management Committee Held Attended Held Attended Nicholas Mather Stephen Bizzell Roland Sleeman Eytan Uliel 11 11 11 11 11 11 11 11 3 3 3 3 3 3 Held: represents the number of meetings held during the time the Director held office or was a member of the relevant committee. 1 Later converted to a proprietary company 43 Corporate Structure Armour Energy Limited is a company limited by shares that is incorporated and domiciled in Australia. It was converted to a public company on 14 January 2011 and subsequently became an ASX-listed company on 26 April 2012. Dividends There were no dividends paid, recommended, or declared during the current or previous financial year or since the end of the year. Future likely developments, prospects, and business strategies There are no further developments of which the Directors are aware of that is not detailed elsewhere in this report which the Directors believe comment on, or disclosure of, would prejudice the interests of Armour. Options on Issue At the date of this report, the unissued ordinary shares of Armour Energy Limited under option are as follows: Grant Date 31-Jul-18 1-Oct-19 17-Dec-19 23-Jun-20 30-Jun-20 12-Aug-20 24-Aug-20 17-Sep-20 1-Oct-20 1-Oct-20 19-Oct-20 19-Oct-20 22-Dec-20 24-Mar-21 8-Jul-21 Date of Expiry 31-Jul-21 30-Sep-23 30-Sep-23 29-Feb-24 29-Feb-24 29-Feb-24 29-Feb-24 29-Feb-24 29-Feb-24 29-Feb-24 29-Feb-24 29-Feb-24 29-Feb-24 29-Feb-24 29-Feb-24 Exercise Price $0.16 $0.08 $0.08 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 Number under option 41,000,000 40,000,000 8,000,000 31,166,497 7,018,341 9,424,831 16,894,150 35,929,524 85,138,026 59,025,859 63,791,938 24,019,471 66,778,341 62,494,099 66,355,466 617,036,543 Indemnity and Insurance of Directors and Officers The Company has indemnified the directors and executives of the Company for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the Company paid a premium in respect of a contract to ensure the directors and executives of the Company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. Indemnity and Insurance of Auditor The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the Company or any related entity against a liability incurred by the auditor. 44 During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the Company or any related entity. Events after the Reporting Date Other than the below subsequent events, no other matter or circumstance has arisen since 30 June 2021 that has significantly affected, or may significantly affect Armour's operations, the results of those operations, or Armour's state of affairs in future financial years.  As announced on 23 September 2021, Armour will re-stimulate the Warroon #1 well in partnership with a private entity. The Warroon #1 Rewan sandstone was originally stimulated in November 2020 however failed due to a frac gel issue which is the subject of a dispute notice with the contractor who performed the stimulation. The Rewan sandstone remains an attractive candidate for production stimulation.  As announced on 27 September 2021, Armour completed a $8,200,000 placement. The raise comprised of a $6,600,000 placement of shares and a $1,600,000 conditional placement (subject to approval at the Annual General Meeting). For every three new shares issued under the placement and conditional placement, the holder will also receive one attaching option exercisable at $0.05 and expiring 29 February 2024. These options are listed on the ASX with the ticker code AJQOA.  Armour have agreed with Tribeca to extend their facility with Armour to 31 December 2021.  The Northern Basin Business demerger and IPO is progressing with a pre-IPO raise by way of Redeemable Exchangeable Notes underway. The Redeemable Exchangeable Notes are unsecured and fully subordinated to the Secured Amortising Notes and Tribeca Facility, and subject to shareholder approval will convert to McArthur Oil & Gas Limited shares upon IPO. This pre-IPO raise will allow McArthur Oil and Gas to commence early planned works. Environmental Regulation Armour is subject to significant environmental regulation in relation to its operations. Armour has conducted an extensive review of the environmental status of the Surat Basin processing plant and associated exploration and production fields, used for the production of Oil, Gas, LPG and Condensate, and has estimated the potential costs for future restoration and abandonment to be $5.6 million following a reduction of $1.2 million during the year. Armour has complied with the conditions of its various Environmental Licences to Operate under the Environmental Protection Act 1994, through the implementation of its Health, Safety and Environmental Management System (HSEMS) and assurance processes. Health & Safety During the financial year, the Kincora Gas Project recorded 1 recordable incident. In early July 2021, Armour achieved a TRIFR of zero. Armour Energy has not received any formal notices or penalties from regulatory authorities during the period with inspections of our operating sites by Resources Safety & Health Queensland (RSHQ) during the period determining no regulatory non-compliance. Armour continues to work with the regulators to meet obligations and improve on our management systems. Climate Change Armour recognises that the world is transitioning to a low-carbon future, and that climate change is an important political, social, environmental, and commercial issue. In addition, the Company recognises the increasing level of investor and regulatory expectation that the particular risks faced by the Company – and its stance generally on climate change issues. Refer to the Sustainability Report for more information. Proceedings on behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. 45 Non-Audit Services The Company’s auditor, BDO, undertook some non-audit services during the year. Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in Note 39 to the financial statements. The non-audit services totalling $2,475 relates to other advisory services provided. The Directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on the auditor's behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are of the opinion that the services as disclosed in Note 39 to the financial statements do not compromise the external auditor's independence requirements of the Corporations Act 2001 for the following reasons:  all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and  none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor's own work, acting in a management or decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards. Officers of the Company who are Former Partners of BDO There are no officers of the Company who are former partners of BDO. 46 Remuneration Report (audited) The remuneration report details the key management personnel remuneration arrangements for Armour, in accordance with the requirements of the Corporations Act 2001 and its Regulations. This information has been audited as required by section 308(3C) of the Corporations Act 2001. The remuneration report is set out under the following main headings:  Principles used to determine the nature and amount of remuneration  Details of remuneration  Service agreements  Share-based compensation  Group performance and link to remuneration  Other transactions with key management personnel The remuneration report details the remuneration arrangements for Key Management Personnel ("KMP") who are defined as those persons who have authority and responsibility for planning, directing and controlling the activities of Armour, directly or indirectly, including any Director (whether executive or otherwise) of Armour, including the executive team. The following persons are considered Key Management Personnel for Armour. Details of date of service is included where service was for all or part of the FY21 year: Name Directors Nicholas Mather Roland Sleeman Eytan Uliel Stephen Bizzell Executive KMP Bradley Lingo Michael Laurent Toni Hawkins Mark Greenwood Karl Schlobohm Former Executive KMP Richard Aden Position Period of Service Executive Chairman Became KMP 1 July 2011 Independent Non-Executive Director Independent Non-Executive Director Non-Executive Director Became KMP 17 October 2011 Became KMP 20 November 2017 Became KMP 8 March 2012 Chief Executive Officer Chief Operating Officer Chief Financial Officer Chief Commercial Officer Company Secretary Became KMP 12 June 2020 Became KMP 1 July 20202 Became KMP 1 December 2020 Became KMP 1 June 2021 Became KMP 19 August 2011 Chief Financial Officer Ceased KMP 7 August 2020 Other than the above, there were no changes to KMP after the reporting date and before the date the financial report was authorised for issue. 2 previously General Manager - Development (3 June 2019 to 30 June 2020) 47 Principles used to determine the nature and amount of remuneration Armour's remuneration policy is designed to attract, motivate, and retain Executives and Non-Executive Directors by identifying and rewarding high performers and recognising the contribution of each person to the continued growth and success of Armour. The Board of Directors ('the Board') ensures that executive reward satisfies the following key criteria for good reward governance practices:  competitiveness and reasonableness;  acceptability to shareholders;  alignment of executive compensation; and  transparency. The Remuneration Committee is responsible for providing recommendations to the Board of Directors on the remuneration arrangements for its directors and executives. The performance of Armour depends on the quality of its directors and executives. The Board assesses the appropriateness of the nature and amount of remuneration of such officers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit. Such officers are given the opportunity to receive their base remuneration in a variety of forms including cash and fringe benefits. It is intended that the manner of payments chosen will be optimal for the recipient without creating undue cost for Armour. Further details on the remuneration of Directors and Executives are set out in this Remuneration Report. Armour aims to reward the Executives with a level and mix of remuneration commensurate with their position and responsibilities within Armour. The Board’s policy is to align Director and Executive objectives with shareholder and business objectives by providing a fixed remuneration component. The reward framework is designed to align executive reward to shareholders' interests. The Board have considered that it should seek to enhance shareholders' interests by: link reward with the strategic goals and performance of Armour; focusing on sustained growth in shareholder wealth and achievement of these strategic goals; and    ensuring total remuneration is competitive by market standards. Additionally, the reward framework should seek to enhance executives' interests by: rewarding capability and experience; reflecting competitive reward for contribution to growth in shareholder wealth; and    providing a clear structure for earning rewards. In accordance with best practice corporate governance, the structure of non-executive director and executive director remuneration is separate. Non-executive Directors’ Remuneration The board seeks to set aggregate remuneration at a level which provides Armour with the ability to attract and retain directors of the highest calibre, whilst incurring a cost which is acceptable to shareholders. Armour’s specific policy for determining the nature and amount of remuneration of non-executive directors is as outlined below. 48 The Company's constitution and ASX listing rules require the aggregate non-executive directors' remuneration be determined periodically by a general meeting. The most recent determination was at the Annual General Meeting held on 9 November 2011 where the shareholders approved a maximum annual aggregate remuneration of $500,000. Fees and payments to non-executive directors reflect the demands and responsibilities of their role. Non- executive directors' fees and payments are reviewed periodically by the Remuneration Committee. The Remuneration Committee may, from time to time, receive advice from independent remuneration consultants to ensure non-executive directors' fees and payments are appropriate and in line with the market. The chairman's fees are determined independently to the fees of other non-executive directors based on comparative roles in the external market. The chairman is not present at any discussions relating to the determination of his own remuneration. If a non-executive director performs extra services, which in the opinion of the directors are outside the scope of the ordinary duties of the director, Armour may remunerate that director by payment of a fixed sum determined by the directors in addition to or instead of the remuneration referred to above. However, no payment can be made if the effect would be to exceed the maximum aggregate amount payable to non- executive directors. A non-executive director is entitled to be paid travelling and other expenses properly incurred by them in attending director's or general meetings of Armour or otherwise in connection with the business of Armour. All directors can qualify for participation in the Employee Share Option Plan, subject to the approval of shareholders. The rights, responsibilities and remuneration terms for each non-executive director are set out in a letter of appointment, pursuant to which:  Directors are granted the rights to access Group information, and the right to seek independent professional advice  Directors are provided with a Deed of Access and Indemnity  Directors are provided with coverage under Armour's directors and officers insurance policy  Directors are made aware of Armour's Corporate Governance policies and procedures  Directors are ordinarily entitled to remuneration of $50,000 per annum, plus reasonable expenses for travel and accommodation, however, as of May 2020 there was a 20% reduction to lower Corporate costs There are no fixed terms or notice periods, with the exception of the Chairman  The remuneration of non-executive directors for the year ended 30 June 2021 is detailed on page 52 of this remuneration report. Executive remuneration Armour aims to reward executives based on their position and responsibility, with a level and mix of remuneration which has both fixed and variable components and is commensurate with their position and responsibilities within Armour and to:  link reward with the strategic goals and performance of Armour;  align the interests of the executives with those of shareholders; and  ensure total remuneration is competitive by market standards. 49 The remuneration of the executives is recommended by the Remuneration Committee and determined by the Board. The remuneration will comprise a fixed remuneration component and may include offering specific short and long-term incentives, in the form of:  base pay and non-monetary benefits;  short-term performance incentives;  share-based payments; and  other remuneration such as superannuation and long service leave. The combination of these comprises the executive's total remuneration. The remuneration of executive directors and other KMP for the year ended 30 June 2021 is detailed on pages 52-53 of this Remuneration report. Service agreements It is the board’s policy that employment agreements are entered into with all executives and employees. Remuneration and other terms of employment for key management personnel are formalised in service agreements. The termination provisions applicable are set out below. Name Position Duration of service Notice Period Nicholas Mather Bradley Lingo Michael Laurent Toni Hawkins Mark Greenwood Chief Commercial Officer Karl Schlobohm Executive Chairman Chief Executive Officer Chief Operating Officer Chief Financial Officer Company Secretary Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing By Executive 12 months 6 months 3 months 3 months 3 months 3 months By Company 12 months 6 months 3 months 3 months 3 months 3 months Bonus payments and incentive criteria satisfaction are at the discretion of the Remuneration committee. Salaried executives are entitled to their statutory entitlements of accrued annual leave and long service leave together with any superannuation on termination. No directors or key management personnel have entitlement to termination payments in the event of removal for misconduct. Chief Executive Officer Incentive Plan Mr Lingo is entitled to a bonus, to be assessed annually by the Board, based on the following weighted KPI’s and up to a maximum of $100,000. No KPI’s 1 The Board approving a debt or equity refinancing of the FIIG Notes. 2 The Company achieving a stabilised flow rate of in excess of 14TJ’s per day from the Kincora Gas Project. The Board approving the entering into of a farm-out or other commercial agreement in respect of the NT Assets. 3 TOTAL Contributed percentage 50% 25% 25% 100% 50 In addition to the bonus payment, Mr Lingo is entitled to the below Performance Shares: No Performance Criteria 1 2 3 On the first Commercial Discovery in the Co-Era Assets being determined in accordance with recognised standards in the oil and gas industry and announced by the Company. The VWAP for Shares trading on ASX for 20 consecutive days is not less than 500% over the closing price for Shares on the last trading day before the Commencement Date. The Board approving the entering into of a farm- out or other commercial agreement in respect of the NT Assets. 4 The Board approving a refinancing of the FIIG Notes. 5 The Company achieving a stabilised flow rate of in excess of 14TJ’s per day from the Kincora Gas Project. 6 On the first Commercial Discovery on any Licences other than. (a) The Kincora Gas Project; and (b) The CoEra Assets. Number of shares 900,000 1,800,000 1,350,000 1,350,000 900,000 900,000 Voting and comments made at the Company's 2020 Annual General Meeting ('AGM') At the 2020 AGM, 97.9% of the eligible votes received supported the adoption of the remuneration report for the year ended 30 June 2020. The Company did not receive any specific feedback at the AGM regarding its remuneration practices. 51 Details of remuneration Amounts of remuneration The table below for the remuneration of KMP of Armour is prepared in accordance with the Australian Accounting Standards and Corporations Act 2001. Directors: N Mather S Bizzell R Sleeman E Uliel Year 2021 2020 2021 2020 2021 2020 2021 2020 Cash salary and fees $ 168,000 203,000 40,000 48,333 40,000 48,333 40,000 48,333 Current other Key Management Personnel: K Schlobohm B Lingo M Laurent* T Hawkins** M Greenwood*** Total Current KMP 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 40,000 50,000 276,708 13,800 339,361 279,635 150,292 20,032 1,114,393 691,434 Short-term benefits Post-employment benefits Share-based payments Cash bonus Non- monetary Superannuation Shares $ - - - - - - - - - - - - - - - - - - $ - - - - - - - - - - 24,069 817 47,074 20,650 15,581 N/A 4,809 N/A 91,533 21,467 $ - - - - - - - - - - 24,309 1,288 22,156 20,772 13,059 2,695 62,219 22,060 $ - - - - - - - - - - 92,102 5,382 60,950 - 35,094 58,333 246,479 5,382 Total $ 168,000 203,000 40,000 48,333 40,000 48,333 40,000 48,333 40,000 50,000 417,188 21,287 469,541 321,057 214,026 85,869 1,514,624 740,343 52 Previous other Key Management Personnel: Year Cash salary and fees R Aden** Total KMP 2021 2020 2021 2020 41,497 322,825 1,155,890 1,014,259 Short-term benefits Post-employment benefits Share-based payments Cash bonus Non- monetary Superannuation Shares Total 2,012 - 2,012 26,775 91,533 48,242 2,908 21,175 65,127 43,235 - 246,479 5,382 44,405 372,787 1,559,029 1,113,130 * Mr Laurent was employed from 26 March 2019 as Subsurface Manager but was subsequently promoted to GM Development effective 19 July 2019 and then promoted again to the COO effective 1 July 2020. ** Mr Aden was employed as CFO from 23 July 2019 to 07 August 2020. Mrs Hawkins commenced as CFO on 1 December 2020. *** Mr Greenwood commenced as Chief Commercial Officer on 1 June 2021. 53 Armour has an incentive scheme which rewards employees for contributing to the overall performance of Armour. The underlying objective of the incentive arrangements is to:  Ensure employees understand Armour's business drivers, objectives, and performance;   Strengthen the involvement and focus of employees in achieving the business' objectives; and Improve teamwork, communication, and interaction among employees. Under the incentive scheme, Armour may at its discretion, on an annual basis, pay a bonus to permanent employees who are employed by Armour on the final day of the relevant financial year (that is, 30 June). The maximum amount of bonus that will be paid to each employee in any year is set out in the employee's contract of employment. The actual amount of bonus paid to each individual employee will be dependent on:   For 70% of the potential maximum award, the individual employee's performance relative to pre-agreed key performance indicators ('KPIs'); and For 30% of the potential maximum award, the overall corporate performance compared to predetermined corporate performance targets but subject to satisfactory personal performance. There were no bonuses awarded in financial year 2021. For the year ended 30 June 2021 $287,615 of other employment benefits were taken as ordinary shares in lieu of cash (2020: $72,916). The number of shares awarded was determined with reference to the share value based on a 10-day volume weighted average price (VWAP) at the time of qualification for the share allotment. Options granted as part of remuneration for the year ended 30 June 2021 Under the Company's employee share option plan (ESOP), which was approved by shareholders at the 2016 AGM, share options may be issued to directors and executives as part of their remuneration. The options are not issued based on performance criteria but are issued to the majority of directors and executives of Armour to align comparative shareholder return and reward for directors and executives. During the year ended 30 June 2021, there were no options granted as remuneration to Key Management Personnel (2020: NIL). There are no options on issue over unissued ordinary shares in Armour Energy Ltd on 30 June 2021 to Key Management Personnel. Performance Shares There were no performance shares granted, vested or forfeited during the year. KMP Expected vesting date Grant date Grant number Value per PS at grant date Balance on 30 June 2021 B Lingo B Lingo B Lingo B Lingo B Lingo B Lingo 30/06/2022 12/06/2025 30/11/2021 31/12/2021 31/12/2021 30/06/2023 12/06/2020 12/06/2020 12/06/2020 12/06/2020 12/06/2020 12/06/2020 900,000 1,800,000 1,350,000 1,350,000 900,000 900,000 7,200,000 $0.03 $0.02 $0.03 $0.03 $0.03 $0.03 900,000 1,800,000 1,350,000 1,350,000 900,000 900,000 7,200,000 54 With the exception of tranche 2, value per performance share at grant date is calculated using the share price at the date of issue. Tranche 2 contains market-based performance conditions and the value per performance share at grant date is calculated using a Monte Carlo simulation model, which takes into account factors such as the market based vesting condition, the share price at the date of issue and volatility of the underlying share price and the time to maturity of the performance share. Shares issued on exercise of remuneration options There were no options exercised during the year that were previously granted as remuneration (2020: NIL). Shareholdings The details of all ordinary shares in Armour Energy Ltd as of 30 June 2021 held by Key Management Personnel is set out below: Key Management Personnel Balance at 1-Jul-20 Granted as/ in lieu of compensation Net changes Balance at Other 30-Jun-21 Directors N Mather S Bizzell R Sleeman Executive KMP K Schlobohm M Laurent T Hawkins R Aden 4,830,364 2,212,066 58,333 391,049 500,000 - 595,462 8,587,274 - - - 258,953 2,650,000 516,031 - 3,723,384 1,339,548 11,075,000 1,666 - - - (595,462) 1,157,718 6,169,912 13,287,066 59,999 650,002 3,150,000 516,031 - 13,468,376 Note: "Net change other" above includes the balance of shares held on appointment / resignation, shares issued in lieu of authorised bonuses, and shares acquired or sold for cash on similar terms and conditions to other shareholders. All other directors and key management personnel did not hold any shares in the Company at the start, during or at the end of the year. There were no shares held nominally as of 30 June 2021 (2020: NIL). Option holdings The details of all option holdings in Armour Energy Ltd as of 30 June 2021 held by Key Management Personnel is set out below: Directors/ Key management personnel Directors N Mather S Bizzell Executive KMP K Schlobohm M Laurent Balance at 1-Jul-20 Net Change other Balance at 30-Jun-21 Total vested Total Vested and exercisable 591,197 6,276,505 6,275,937 26,929,819 6,867,134 33,206,324 6,867,134 33,206,324 6,867,134 33,206,324 900,000 250,000 (770,524) - 129,476 250,000 129,476 250,000 129,476 250,000 8,017,702 32,435,232 40,452,934 40,452,934 40,452,934 "Net Change Other" above includes the balance of options held on appointment / resignation, options acquired or sold for cash on similar terms and conditions to other shareholders, and options that have expired unexercised. 55 All other directors and key management personnel did not hold any options in the Company at the start, during or at the end of the year. There were no options held nominally on 30 June 2021 (2020: NIL). Performance share holdings The details of all performance shareholdings in Armour Energy Ltd as of 30 June 2021 held by Key Management Personnel is set out below. The performance shares carry no dividend or voting rights. See page 51 above for conditions that must be satisfied for the performance shares to vest. When exercisable, each performance share is convertible into one ordinary share of Armour Energy Limited. If an executive ceases employment before the shares vest, the shares will be forfeited. Directors/ Key management personnel B Lingo Balance at Balance at 1-Jul-20 30-Jun-21 Total vested 7,200,000 7,200,000 7,200,000 7,200,000 1,350,000 1,350,000 Total Vested and exercisable 1,350,000 Total unvested and un- exercisable 5,850,000 1,350,000 5,850,000 Group performance and link to remuneration During the financial year, Armour has generated losses as its principal activity was the discovery and production of oil and gas assets, as well as exploration for economically viable reserves of both conventional and unconventional natural oil and gas. Armour Energy Limited listed on the ASX on 26 April 2012. The closing share price as of 30 June 2021 was 2.6 cents per share. The earnings of Armour for the five years to 30 June 2021 are summarised below: Sales revenue Loss after income tax 2021 $’000 17,502 (11,594) 2020 $’000 21,104 (9,571) 2019 $’000 27,819 (11,684) 2018 $’000 14,749 (12,198) 2017 $’000 573 (11,475) Armour was in the exploration and development stage up until the 2018 financial year and as such, the link between remuneration, Group performance and shareholder wealth was tenuous. Share prices are subject to the influence of oil and gas prices and market sentiment toward the sector, and as such increases or decreases may occur quite independent of Executive performance or remuneration. Armour is currently in the production and development stage, therefore the link between Group performance and shareholder wealth should be more strongly linked in future years. The factors that are considered to affect total shareholders return ('TSR') are summarised below: $ cents Share price at financial year end (cents) 2021 2.6 2020 2.0 2019 6.7 2018 9.0 2017 7.0 56 Other transactions with key management personnel and their related parties Company debt instruments held by key management personnel There were no convertible notes held by key management personnel on 30 June 2021. The early redemption of all existing Convertible Notes on issue on 29 March 2019 was repaid through a refinancing transaction involving the issue of the $55 million new Secured Amortising Notes, some of which were subscribed for by key management personnel, as set out below. Notes held at the start of the year Number Received as part of remuneration Number Additions Disposals / other Number Number Notes held at the end of the year Number Corporate bond holdings Stephen Bizzell Corporate bond payments Stephen Bizzell 100 - - - 100 Interest Principal $ $ 7,166 31,696 Additions / Disposals Total paid during 2021 $ - $ 38,862 No other directors and key management personnel held any debt instruments in the Company at the start, during or at the end of the year. Bizzell Capital Partners Pty Ltd Mr Stephen Bizzell (a Director), is the Chairman of boutique corporate advisory and funds management group Bizzell Capital Partners Pty Ltd. Armour entered into an agreement with Bizzell Capital Partners Pty Ltd as Lead Manager for the capital raising program detailed in ASX announcements on 27 July 2020 and 18 March 2021. In December 2020, Armour Energy completed a $15,000,000 million capital raising and in March 2021 Armour completed a $11,500,000 capital raising. Bizzell Capital Partners jointly lead both the capital raisings and was paid capital raising fees totalling $468,505 (net of GST) on arm’s length terms (FY2020: 240,000). As at 30 June 2021, Bizzell Capital Partners held 33,206,324 options, nil convertible notes, and 100 corporate bonds (2020: 6 million unquoted options, nil convertible notes, and 100 corporate bonds). The corporate bonds were purchased on the same terms and conditions as all other bondholders. 57 Samuel Holdings Pty Ltd Samuel Holdings Pty Ltd is an entity controlled by Mr Nicholas Mather (Executive Chairman) who is the sole director. The Entitlement Offer ending in December 2020 was partly sub-underwritten by Samuel Holdings Pty Ltd (As trustee). Samuels Holdings Pty Ltd received a fee of five (5) percent of the sub-underwritten amount from Bizzell Capital Partners. In addition, Armour issued four (4) Underwriter Options for every $1 of the sub-underwritten amount. Other than the above, there were no other transactions with Key Management Personnel for the year ended 30 June 2021. This concludes the Remuneration report, which has been audited. 58 Auditor’s Independence Declaration A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out immediately after this Directors' report. Corporate Governance In recognising the need for the highest standards of corporate behaviour and accountability, the Directors of Armour support and have adhered to the ASX corporate governance principles, where appropriate for the Company. Armour’s corporate governance statement has been released as a separate document and is located on our website at www.armourenergy.com.au/corporategovernance. This Directors' report is made in accordance with a resolution of Directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the Directors Nicholas Mather Executive Chairman 30 September 2021 59 Tel: +61 7 3237 5999 Fax: +61 7 3221 9227 www.bdo.com.au Level 10, 12 Creek St Brisbane QLD 4000 GPO Box 457 Brisbane QLD 4001 Australia DECLARATION OF INDEPENDENCE BY R M SWABY TO THE DIRECTORS OF ARMOUR ENERGY LIMITED As lead auditor of Armour Energy Limited for the year ended 30 June 2021, I declare that, to the best of my knowledge and belief, there have been: 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 2. No contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Armour Energy Limited and the entities it controlled during the year. R M Swaby Director BDO Audit Pty Ltd Brisbane, 30 September 2021 BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. 60 Financial Statements For the year ended 30 June 2021 61 Consolidated Statement of Profit or Loss and Other Comprehensive Income Revenue Revenue from contracts with customers Cost of goods sold Gross profit Net gain on sale of assets Other income Interest revenue Expenses Exploration expenditure impairment Finance costs General and administrative expenses Oil and gas expenditure impairment Share-based payments Loss before income tax expense Income tax expense Loss after income tax expense for the year attributable to the owners of Armour Energy Limited Other comprehensive income Consolidated 30 June 2021 30 June 2020 Note $’000 $’000 7 8 7 7 7 16 9 8 17 8 10 17,502 (22,151) 21,104 (19,484) (4,649) 1,620 15,857 601 70 (853) (6,316) (4,338) (11,500) (464) (11,592) - (11,592) - 490 128 (720) (7,192) (3,348) - (73) (9,095) (476) (9,571) Items that will not be reclassified subsequently to profit or loss Change in fair value of financial assets at fair value through other comprehensive income 18 (637) (1,487) Income tax on items that may be reclassified to profit or loss - 446 Other comprehensive income for the year, net of tax (637) (1,041) Total comprehensive loss for the year attributable to the owners of Armour Energy Limited (12,229) (10,612) Cents Cents Basic loss per share Diluted loss per share 11 11 (1.0) (1.0) (1.7) (1.7) 62 These consolidated financial statements should be read in conjunction with the accompanying notes. Consolidated Statement of Financial Position Consolidated 30 June 2021 30 June 2020 Assets Current assets Cash and cash equivalents Trade and other receivables Inventories Other current assets Assets held for sale Total current assets Non-current assets Intangibles Exploration and evaluation assets Oil and gas assets Other financial assets Right-of-use assets Property, plant and equipment Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Lease liabilities Employee benefits Borrowings Deferred consideration Total current liabilities Non-current liabilities Borrowings Lease liabilities Employee benefits Provision for restoration and abandonment Total non-current liabilities Total liabilities Net assets Equity Issued Capital Reserves Accumulated Losses Total equity Note 12 14 15 16 17 18 19 20 21 22 23 24 21 22 25 26 27 $’000 2,358 2,104 2,097 876 7,435 - 7,435 230 32,013 52,763 10,778 1,361 36 97,181 104,616 9,056 369 497 13,620 - 23,542 23,877 964 32 6,688 31,561 55,103 49,513 133,771 1,917 (86,175) 49,513 $’000 3,246 2,016 2,588 869 8,719 44 8,763 225 35,209 58,333 9,197 216 35 103,215 111,978 6,606 190 401 11,714 1,000 19,911 43,123 33 49 6,688 49,893 69,804 42,174 114,311 2,446 (74,583) 42,174 63 These consolidated financial statements should be read in conjunction with the accompanying notes. Consolidated Statement of Cashflows Consolidated 30-Jun-21 30-Jun-20 Note $’000 $’000 Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Interest paid on lease liability Other Interest paid Government grants Net cash used in operating activities 13 Cash flows from investing activities Refund/(payments) for security deposits Payments for property, plant, and equipment Payments for oil and gas assets Payments for intangible assets Grant funds received in relation to oil and gas assets Proceeds from sale of exploration assets Payments for acquisition of exploration and evaluation assets Net cash from investing activities Cash flows from financing activities Proceeds from issue of shares Payment of principal portion of lease liability Repayment of borrowings Transaction costs on the issue of shares and notes Net cash from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the reporting period 18,901 (21,995) 34 (65) (4,461) 524 (7,062) (1,414) (30) (11,436) - - 21,664 (4,011) 4,773 21,025 (262) (18,800) (562) 1,401 (888) 3,246 24,101 (17,488) 123 (22) (6,572) 283 (2,856) (193) - (22,005) (225) 2,596 15,500 (2,497) (6,824) 8,434 (192) (3,850) (691) 3,701 (5,979) 9,225 Cash and cash equivalents at the end of the reporting period 12 2,358 3,246 These consolidated financial statements should be read in conjunction with the accompanying notes. 64 Consolidated Statement of Changes in Equity Issued capital Reserves Consolidated Balance at 1 July 2020 Loss after income tax expense Other comprehensive income, net of tax Total comprehensive income Transactions with owners in their capacity as owners: Shares issued during the year As a result of an asset acquisition Share issue costs Share-based payments Balance at 30 June 2021 Consolidated Balance at 1 July 2019 Loss after income tax expense Other comprehensive income, net of tax Total comprehensive income Transactions with owners in their capacity as owners: Shares issued during the year Share issue costs Recognition of deferred tax assets relating to share issue costs Share-based payments Balance at 30 June 2020 $’000 114,311 - - - 19,460 907 (1,194) 287 133,771 Issued capital $’000 106,539 - - - 8,339 (708) 74 67 $’000 2,446 - (637) (637) - - - 108 1,917 Reserves $’000 3,268 - (1,041) (1,041) - 213 - 6 Accumulated losses $’000 (74,583) (11,592) - (11,592) - - - - (86,175) Total equity $’000 42,174 (11,592) (637) (12,229) 19,460 907 (1,194) 395 49,513 Accumulated Total equity losses $’000 (65,012) (9,571) - (9,571) - - - - $’000 44,795 (9,571) (1,041) (10,612) 8,339 (495) 74 73 42,174 65 These consolidated financial statements should be read in conjunction with the accompanying notes. 114,311 2,446 (74,583) Notes to the Financial Statements Note 1. General information Armour Energy Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is Level 27, 111 Eagle Street, Brisbane QLD 4000. The financial statements cover Armour Energy Limited as a Group consisting of Armour Energy Limited and the entities it controlled at the end of, or during, the reporting period. The financial statements are presented in Australian dollars, which is Armour Energy Limited's functional and presentation currency. The Group is principally engaged in the exploration, development and production of oil and gas resources in Australia. The financial statements were authorised for issue, in accordance with a resolution of Directors, on 30 September 2021. The Directors have the power to amend and reissue the financial statements. Note 2. Statement of Compliance The Group’s Financial Statements as at and for the year ended 30 June 2021: Is a general-purpose financial report. Is prepared on a going concern basis (discussed further in Note 4). 1. 2. 3. Has been prepared in accordance with the Corporations Act 2001. 4. Has been prepared in accordance with accounting standards and interpretations in this report, which encompass the: a. Australian Accounting Standards (“AASBs”) and other authoritative pronouncements of the b. Australian Accounting Standards Board; and International Financial Reporting Standards and Interpretations (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). 6. 5. Has been prepared under the historical cost convention, except for, the revaluation of financial assets at fair value through other comprehensive income. The methods used to measure fair values are discussed further in Note 28. Is presented in Australian Dollars (“AUD”), which is both the Company’s and the Group’s presentation currency. All values are rounded to the nearest thousand ($’000) except when indicated otherwise. The company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to 'rounding-off' of amounts in the financial statements. Includes significant accounting policies in the notes to the Financial Statements that summarise the recognition and measurement basis used and are relevant to the understanding of the Financial Statements. 7. 8. Presents reclassified comparative information where required for consistency with the current year’s presentation. 9. Adopts all new and amended standards and interpretations issued by the relevant bodies (listed above), that are mandatory for application beginning on or after 1 July 2020. None had a significant impact on the Financial Statements. 10. Has not early adopted any standards and interpretations that have been issued or amended but are not yet effective. 66 Note 3. Significant accounting policies The principal accounting policies adopted in the preparation of the financial statements are set out either in the respective notes or below. These policies have been consistently applied to all the years presented, unless otherwise stated. In accordance with the Corporations Act 2001, these financial statements present the results of the Group only. Supplementary information about the parent entity is disclosed in Note 32. Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Armour Energy Limited ('Company' or 'parent entity') as at 30 June 2021 and the results of all subsidiaries for the year then ended. Armour Energy Limited and its subsidiaries together are referred to in these financial statements as the 'Group'. Subsidiaries are all those entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and can affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. Intercompany transactions, balances, and unrealised gains on transactions between entities in the Group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in the Group's normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. A liability is classified as current when: it is either expected to be settled in the Group's normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current. Accounting policy for Goods and Services Tax ('GST') and other similar taxes Revenues, expenses, and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position. 67 Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority. Non-current assets or disposal groups classified as held for sale Non-current assets and assets of disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continued use. They are measured at the lower of their carrying amount and fair value less costs of disposal. For non-current assets or assets of disposal groups to be classified as held for sale, they must be available for immediate sale in their present condition and their sale must be highly probable. An impairment loss is recognised for any initial or subsequent write down of the non-current assets and assets of disposal groups to fair value less costs of disposal. A gain is recognised for any subsequent increases in fair value less costs of disposal of a non-current assets and assets of disposal groups, but not in excess of any cumulative impairment loss previously recognised. Non-current assets are not depreciated or amortised while they are classified as held for sale. Interest and other expenses attributable to the liabilities of assets held for sale continue to be recognised. Impairment of non-financial assets Non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. At each reporting date, Management reviews the carrying values of its assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use is compared to the assets carrying value. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit. Grants Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received, and the company will comply with all attached conditions. Government grants relating to costs are deferred and recognised in profit or loss over the period necessary to match them with the costs that they are intended to compensate. Note 4. Going concern The financial statements have been prepared on a going concern basis which contemplates the continuity of normal business activities and the realisation of assets and discharge of liabilities in the ordinary course of business. The Group has achieved relatively stable production during the year ended 30 June 2021, resulting in $17,502,000 of revenue. The group is forecasting to increase revenue over the coming 12 months by executing a number of commercial arrangements to deliver work programs designed to exploit the Group's existing flowing wells. For the year ended 30 June 2021, the Group generated a consolidated net loss before tax of $11,592,000 and incurred operating cash outflows of $7,062,000. As at 30 June 2021, the Group had cash and cash equivalents of $2,358,000, net current liability of $16,107,000 and net assets of $49,513,000. 68 Whilst there is confidence in the performance of the Kincora Gas Plant and optimism for the future ramp up of production from the Kincora Gas Project, at the date of signing these accounts the above conditions give rise to a material uncertainty which may cast significant doubt over the Group’s ability to continue as a going concern. Cost Reductions Armour is continuing to reduce costs across the business. Armour is seeking to reduce to the full extent possible all overheads including contractors, administration costs and office rent. Armour is also aiming to reduce operating expenditure at its Kincora Gas Project, while maintaining its ability to reliably maintain production in a safe and environmentally compliant manner. Capital Raising 2021 The capital program completed March 2021 raised $11,500,000 through a private placement. Shareholder approval was necessary for the settlement of some of the placement amounts, which was received at an EGM held on 11 June 2021. The equity raised through the placement enabled the Company to focus on the demerger of the Northern Basin business. These funds were also used for general working capital purposes and to provide some flexibility in treasury management. Subsequent to year end and as announced on 27 September 2021, Armour completed a further capital raise of $8,200,000 through private placement. The raise comprised of $6,600,000 of new shares and $1,600,000 of conditional placement (subject to approval at the Annual General Meeting). Development Expenditure Armour has had strong interest from parties to farm into its Surat and Cooper Basin assets. This would allow Armour to focus on the following work programs:  Surat Basin Production Enhancement – a well stimulation program, the first of which will commence in early October 2021  Cooper Basin Exploration – Accelerating the Cooper Basin exploration program aimed at high grading the existing 2D/3D seismic controlled leads and prospects portfolio to generate 3 to 5 high-quality drill ready 3D controlled prospects Notwithstanding the above, the Directors consider it appropriate to prepare the financial statements on a going concern basis after having regard to the above and the following matters: 1. The Company is in the process of demerging its Northern Basin business to a new company McArthur Oil & Gas. 2. The Company is in the process of raising pre-IPO funds through convertible notes in McArthur. 3. The cash generating ability of the Kincora Project is anticipated to increase as the Group moves ahead with farmouts to undertake work programs and increase production. 4. The Group has the ability to manage capital and liquidity by taking some or all of the following actions: a. Raising additional capital or securing other forms of financing, as and when necessary, to meet the levels of expenditure required to meet the Group's working capital requirements. b. Reducing its level of capital expenditure through farm-outs and/or joint ventures. c. Managing its working capital expenditure. d. Applying for eligible Research and Development tax refund receipts, and other Government incentives; and e. Disposing of non-core assets. 69 5. Increasing cashflow earnings – increasing production through delivering work programs; achieving cost- saving target; pursuing higher gas and other products sales prices through proactive business development and negotiations. 6. Proposed refinancing of maturing debt facilities. As stated above, there are a number of progressed actions Armour can consider. Should the Group be unable to continue as a going concern, it may be required to realise its assets and liabilities other than in the ordinary course of business, and at amounts that differ from those stated in the financial statements. The financial statements do not include any adjustment relating to the recoverability and reclassification of the recorded assets amounts, or to the amount and classification of liabilities that might be required should the Group not be able to achieve the matters set out above and thus be able to continue as a going concern. Note 5. Use of estimates and judgements The Group has identified a number of critical accounting policies under which significant judgements, estimates and assumptions are made. Actual results may differ from these estimates under different assumptions and conditions. This may materially affect financial results and the carrying amount of assets and liabilities to be reported in the next and future periods. These estimates and underlying assumptions are reviewed on an ongoing basis. Additional information relating to these critical accounting policies is embedded within the following notes: Note 16 17 25 Exploration and evaluation assets Oil and Gas assets Provision for restoration and abandonment There are no other critical accounting judgements, estimates and assumptions that are likely to affect the current or future financial years. Note 6. Operating segments Identification of reportable operating segments The Group has identified its operating segment based on the internal reports that are reviewed and used by the Board (chief operating decision makers "CODM") in assessing performance and determining the allocation of resources. The Group is managed primarily on a geographic basis, which is the location of the respective areas of interest (tenements) in Queensland, Northern Territory, South Australia and Victoria, Australia. Operating segments are determined on the basis of financial information reported to the Board. For the year ended 30 June 2021, Management identified the Group as having two main reporting segments, being Exploration, Evaluation and Appraisal activities (EEA), and the Production and Development of petroleum products (oil, gas, LPG and condensate) in the Surat Basin, Queensland (Surat), and will report on these segments accordingly. The Corporate and other segment represents administration and other overheads that are not allocated to the operating segments. 70 The chief operating decisions maker (CODM) reviews EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation) monthly. The accounting policies adopted for internal reporting to the CODM are consistent with those adopted in the financial statements. Types of products and services The principal products and services of each of these operating segments are as follows: EEA The Group does not produce any products or services from this operating segment; it involves expenditure to explore and evaluate potential future economic reserves and resources. Surat The Group produces petroleum products from its Kincora operating plant in the Surat Basin, which includes a mix of Gas, LPG, Oil and Condensate and sells these to LNG and Domestic customers. Intersegment transactions An internally determined cost base is set for all intersegment services provided. All such transactions are eliminated on consolidation of the Group's financial statements. Intersegment receivables, payables, and loans Intersegment loans are initially recognised at the consideration received. Intersegment loans receivable and loans payable that earn or incur non-market interest are not adjusted to fair value based on market interest rates. Intersegment loans are eliminated on consolidation. Intersegment Assets Segment assets are clearly identifiable based on their nature and physical location. Intersegment Liabilities Liabilities are allocated to segments where there is a direct nexus between the liability and the operations of the segment. Borrowings and tax liabilities are generally considered to relate to the whole Group and are not allocated. Segment liabilities include trade and other payables and certain provisions. Major customers During the year ended 30 June 2021 approximately 52% (2020: 58%) of the Group's external revenue was derived from sales to one Australian based customer. Unallocated items The following items of income, expenses, assets, and liabilities are not allocated to operating segments as they are not considered core to the operation of any segment:  Corporate head office costs and salaries of non-site-based staff.  Proceeds from capital raisings 71 Operating segment information Revenue Revenue from contracts with customers Total segment revenue EBITDA Depreciation and amortisation Impairment of assets Gain on disposal of assets Interest revenue Finance costs Loss before income tax expense Income tax expense Loss after income tax expense Assets Segment assets Unallocated assets Total assets Liabilities Segment liabilities Unallocated liabilities Total liabilities EEA 2021 $'000 - - - - (853) 15,857 - - 15,004 2020 $'000 - - 192 - (720) - - - (528) Surat 2021 $'000 17,502 17,502 869 (6,397) (11,500) - 69 (723) (17,682) 2020 $'000 21,104 21,104 2,379 (2,950) - 28 - (1,942) (2,485) 33,802 35,209 67,230 73,692 - - 19,022 18,447 Corporate 2021 $'000 2020 $'000 Total 2021 $'000 - - (4,513) (482) - - 1 (3,920) (8,914) - - - - (901) (58) - - 127 (5,250) (6,082) - - 17,502 17,502 (3,644) (6,879) (12,353) 15,857 70 (4,643) (11,592) - (11,592) 101,032 3,584 104,616 19,022 36,081 55,103 2020 $'000 21,104 21,104 1,670 (3,008) (720) 28 127 (7,192) (9,095) (476) (9,571) 108,901 3,076 111,977 18,447 51,357 69,804 Net gain on sale of assets includes the sale of Armour’s interest in Murrungama, the South Nicholson Basin and 100% owned subsidiary Ripple Resources Pty Ltd. See Note 7 for further details. 72 Accounting policy for operating segments An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the entity’s chief operating decision makers ("CODM") to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available. This may include start-up operations which are yet to earn revenues. Operating segments are presented using the 'management approach', where the information presented is on the same basis as the internal reports provided to the CODM. Operating segments that meet the quantitative criteria as prescribed by AASB 8 Operating Segments are reported separately. However, an operating segment that does not meet the quantitative criteria is still reported separately where information about the segment would be useful to users of the financial statements. Note 7. Revenue Revenue from contracts with customers The Group generated revenue from the sale of petroleum products that have similar performance obligations and are goods that are transferred at a point in time. Revenue from contracts with customers Gas LPG Oil and Condensate Consolidated 30 June 2021 $'000 30 June 2020 $'000 12,623 1,785 3,094 17,502 15,386 2,068 3,650 21,104 The Group satisfies its performance obligation at the point in time when control of oil and gas products has transferred to the customer. Specifically:   for oil and LPG sales, this is when the products are collected by the truck at the production site; and for gas sales, this is at the point of the custody transfer meter at Run 2 of the Roma to Brisbane Pipeline (RBP). Revenue on sale of goods is variable depending on physical production amounts. Payment is due by the customer within 30 days from the end of the invoiced month. Other Income Net gain on sale of assets Government grants Interest Received Other Consolidated 30 June 2021 $'000 15,857 601 70 - 30 June 2020 $'000 - 455 127 36 16,528 618 73 Murrungama Gas Project Armour entered into a Sale and Purchase Agreement with APLNG for Armour’s 10% interest for a total of $4,000,000. An initial deposit of $500,000 was received in June 2020 and the remaining $3,500,000 was received in August 2020. Armour held minimal cost on the balance sheet for this project. South Nicholson Basin Assets The original farm-in agreement between the Armour and Santo QNT Pty Ltd was amended to accelerate payments relating to the permit transfer process. This resulted in an immediate cash payment of $6,000,000 in August 2020. In December 2020, the Group sold the remaining 30% interest in a portion of the South Nicholson Basin interests to Santos. As consideration, Armour received an initial cash payment of $3,000,000 in December 2020 and the balance of $9,164,000 in February 2021. Under this agreement Santos acquired 100% ownership of ATP 1087. Santos also will acquire the application permit areas in Queensland ATP(A) 1192 and 1193 and the Northern Territory tenement EP(A) 172 and 177. Armour retained full ownership and operatorship of ATP(A) 1107. Ripple Resources Ripple Resources Pty Ltd was sold to Auburn Resources Limited (Auburn). In consideration, Armour received 5,600,000 fully paid ordinary Auburn shares valued at $700,000. Following completion, Armour will hold approximately 12.5% of Auburn’s issued share capital. Government Grants The Group was eligible for certain government support in response to the COVID-19 pandemic such as JobKeeper and cash boosts from the Australian Taxation Office. Accounting policy for revenue The Group recognises revenue as follows: Revenue from contracts with customers Revenue is recognised at an amount that reflects the consideration to which the Group is expected to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the Group: identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised. Interest Interest revenue is recognised as interest accrues using the effective interest rate method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. 74 Note 8. Expenses Loss before income tax includes the following specific expenses: Cost of goods sold Operating expenses Employee expenses Oil and gas properties depreciation Total cost of goods sold General and administrative expenses Employee expenses not included in operating expenses Management fee Consultancy and legal costs Insurance not included in Cost of goods sold Director fees Depreciation and amortisation Office equipment Amortisation of intangibles Other expenses Total general and administrative expenses Share-based payments Total superannuation expense (included in costs of goods sold and general and administrative expenses) Consolidated 30 June 2021 $'000 30 June 2020 $'000 13,197 3,761 5,193 12,583 4,158 2,743 22,151 19,484 1,639 456 656 272 277 14 24 1,000 4,338 464 805 1,137 456 938 359 350 16 42 50 3,348 73 770 Employee benefits expenses The Group’s accounting policy for liabilities associated with employee benefits are set out in Note 22 and the share-based payments policy in Note 35. Note 9. Finance costs Interest expense Financing fees Amortisation of debt facilities and associated issue costs Unwinding of provision for contingent consideration Consolidated 30 June 2021 $'000 3,918 725 1,673 - 30 June 2020 $'000 4,769 864 1,478 81 6,316 7,192 75 Note 10. Income tax (a) Component of income tax expense (benefit) Income tax expense is made up of: Deferred tax Aggregate income tax expense Income tax charged in equity is made up of: Deferred tax Aggregate income tax charged in equity The prima facie tax on loss before income tax is reconciled to the income tax expense as follows: Loss before income tax expense Tax at the statutory tax rate of 30% Tax effect amounts which are not deductible in calculating taxable income: Share-based payments Expenses not deductible for tax purposes Current year tax losses not recognised Prior year over (under) Consolidated 30 June 2021 30 June 2020 $'000 $'000 - - - - 476 476 30 30 (11,594) (9,095) (3,478) (2,729) 113 (3,365) 2,173 1,192 22 - (2,707) 3,788 (605) Income tax expense - 476 76 (b) Reconciliation of net deferred tax Deferred tax asset Carried forward tax losses Accruals/provisions Property, Plant & Equipment (Armour) Capital raising costs through P&L Capital raising costs in equity Provision for rehabilitation (Surat Basin) Available for sale financial assets Amortisation of Convertible Notes Amortisation of Tribeca Facility Lease Liabilities Unrealised FX Loss Holloman Exploration License (Reset CB) Holloman Tax Cost base (transaction costs) Deferred tax asset Deferred tax liability Opening balance 1-Jul-20 $'000 Net charged to income $'000 Net charged to OCI $'000 Net charged to equity $'000 Closing Balance 30-Jun-21 $'000 2,944 322 13 72 121 1,379 1,228 1,362 563 58 - - - (2,251) (23) (2) (23) (61) 628 - - 280 342 8 108 8 - - - - - - 209 - - - - - - - - - - 100 - - - - - - - - 693 299 11 49 160 2,007 1,437 1,362 843 400 8 108 8 8,062 (986) 209 100 7,385 Exploration & Evaluation assets (8,649) Oil & Gas assets Unrealised FX Gain Leased Assets Prepayments Accrued Income 654 - (67) - - 187 860 - (344) (12) (14) Deferred tax liability (8,062) 677 - - - - - - - - - - - - - - (8,462) 1,514 - (411) (12) (14) (7,385) Net deferred tax Deferred tax assets not recognised Unused tax losses Capital raising costs in equity Available for sale financial assets (Lakes Oil shares) - (309) 209 100 - 53,318 7,243 - - - - - - 697 - 60,560 333 - 333 697 Potential tax benefit at 30% 15,995 2,173 209 100 18,477 77 Opening balance Net charged to income Net charged to other comprehensi ve income Net charged to equity Closing Balance $'000 $'000 $'000 30-Jun-20 $'000 Deferred tax asset Carried forward tax losses Accruals/provisions Property, Plant & Equipment (Armour) Capital raising costs through P&L Capital raising costs in equity Provision for rehabilitation (Surat Basin) Available for sale financial assets Amortisation of Convertible Notes Amortisation of Tribeca Facility Lease Liabilities 1-Jul-19 $'000 8,505 206 13 109 88 1,379 782 1,362 265 - (5,561) 116 - (37) (41) - - - 298 8 Deferred tax assets 12,709 (5,217) Deferred tax liability Exploration & Evaluation assets (13,030) Oil & Gas assets Other 322 - 4,381 332 27 Deferred tax liability (12,708) 4,740 - - - - - - 446 - - - 446 - - - - - - - - 74 - - - - 50 2,944 322 13 72 121 1,379 1,228 1,362 563 58 124 8,062 - - (94) (8,649) 654 (67) (94) (8,062) Net deferred tax 1 (477) 446 30 - Deferred tax assets not recognised Unused tax losses 39,832 13,486 Potential tax benefit at 30% 11,950 4,045 - - - - - - 53,318 15,995 In order to recoup carried forward losses in future periods, either the Continuity of Ownership Test (COT) or Same Business Test (SBT) must be passed. The majority of losses are carried forward as at 30 June 2021 under COT. Deferred tax assets which have not been recognised as an asset, will only be obtained if: 1. The Group derives future assessable income of a nature and of an amount sufficient to enable the losses to be realised; 2. The Group continues to comply with the conditions for deductibility imposed by the law; and 3. No changes in tax legislation adversely affect the Group in realising the losses. 78 Deferred tax assets In determining the recoverability of the recognised deferred tax assets, management has assessed that it will be utilised through eligible expenditure under the research and development grant. To the extent that the Group does not have sufficient eligible expenditure the ability to utilise the net deferred tax assets could be impacted. Accounting policy for income tax The income tax expense or benefit for the period is the tax payable on that period's taxable income based on the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for:  When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or  When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled, and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. Armour Energy Limited (the 'head entity') and its wholly owned Australian subsidiaries have formed an income tax consolidated group under the tax consolidation regime. The head entity and each subsidiary in the tax consolidated group continue to account for their own current and deferred tax amounts. The tax consolidated group has applied the 'separate taxpayer within group' approach in determining the appropriate amount of taxes to allocate to members of the tax consolidated group. In addition to its own current and deferred tax amounts, the head entity also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from each subsidiary in the tax consolidated group. 79 Note 11. Earnings per share Loss after income tax attributable to the owners of the parent entity Weighted average number of shares used in (thousands) Basic earnings - - Diluted earnings Earnings per share (cents) attributable to the ordinary equity holders of the parent entity Basic loss per share Diluted loss per share Consolidated 30 June 2021 30 June 2020 $'000 $'000 (11,592) (9,571) 1,201,060 1,201,060 573,421 573,421 (1.0) (1.0) (1.7) (1.7) Options and rights are not considered dilutive as they are currently out of the money. Accounting policy for earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of Armour Energy Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after-income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. Note 12. Current assets – Cash and cash equivalents Cash at bank and in hand Other cash and cash equivalents Consolidated 30 June 2021 $'000 2,311 47 30 June 2020 $'000 3,243 3 2,358 3,246 Other cash and cash equivalents include bank accounts held by the Group as operator in joint operations in tenements. Accounting policy for cash and cash equivalents Cash and cash equivalents include cash on hand, deposits held at call with financial institutions, other short- term, highly liquid investments with maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. 80 Note 13. Cash flow information (a) Reconciliation of loss after income tax to net cash used in operating activities Loss after income tax expense for the year Adjustments for: Depreciation and amortisation Net gain on sale of assets Share-based payments Impairment of exploration and evaluation expenditure Impairment of oil and gas expenditure Interest expense on borrowing facilities Amortisation of borrowing facilities and issue costs Unwinding of the discount on deferred consideration Inventory adjustment Change in operating assets and liabilities: (Increase) / decrease in other current assets Increase / (decrease) in trade and other payables (Increase) / decrease in trade and other receivables (Increase) / decrease in deferred tax assets (Increase) / decrease in inventories Consolidated 30-Jun-21 $’000 (11,594) 30-Jun-20 $’000 (9,571) 5,231 (15,857) 464 853 11,500 (1,937) 1,673 - (114) (7) 2,323 (88) - 491 3,008 (28) 73 720 - (1,203) 1,705 81 (220) (345) 2,558 517 476 (627) Net cash used in operating activities (7,062) (2,856) Equity settled share-based payment transactions are disclosed in Note 35. Apart from in Note 35, there are no other non-cash financing and investing activities to disclose. (b) Reconciliation of liabilities arising from financing activities Consolidated Balance at 1 July 2019 Net cash used in financing activities Amortisation Balance at 30 June 2020 Borrowed Amounts Net cash used in financing activities Amortisation Tribeca Loan Corporate Bonds $’000 4,649 - 1,015 5,664 - (1,367) 932 $’000 52,766 (3,850) 256 49,172 - (17,433) 469 Balance at 30 June 2021 5,229 32,208 Other Borrowed funds $’000 - - - - 60 - - 60 Total $’000 57,415 (3,850) 1,271 54,836 60 (18,800) 1,401 37,497 81 Note 14. Current assets – Trade and other receivables Trade receivables Cash calls from JV parties Cash call receivable - Lakes Blue Energy NL Other receivables Consolidated 30 June 2021 $'000 2,099 - - 30 June 2020 $'000 1,734 98 61 2,099 5 2,104 1,893 123 2,016 Key judgement - Allowance for expected credit losses The Group has not recognised any expense in profit or loss in respect of the expected credit losses for the year ended 30 June 2021 (30 June 2020: NIL). Based on the historical recovery of receivables, the small number of customers and customer payment obligations per gas sales agreements, the historical loss rates are adjusted for current and forward-looking information on economic factors affecting the Group’s customers, including the COVID-19 pandemic. As such the company considers that the estimated expected credit loss is not material for the Group. Accounting policy for trade and other receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for expected credit losses. Trade receivables are generally due for settlement within 30 days. Due to the short-term nature of these receivables, their carrying value is assumed to approximate fair value. The maximum exposure to credit risk is the carrying value of receivables. Collateral is not held as security, and the receivables are not exposed to foreign exchange risk. The Group has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue. Other receivables are recognised at amortised cost, less any allowance for expected credit losses. As at 30 June 2021, included in trade receivables is one significant debtor accounting for approximately 57% (2020: 57%) of the total trade receivables. 82  Note 15. Current assets – Inventories Gas Oil and Condensate LPG Materials & Consumables Consolidated 30 June 2021 $'000 30 June 2020 $'000 198 46 6 1,847 2,097 315 44 6 2,223 2,588 Accounting policy for inventories Oil and Gas inventory is measured at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. The cost of Oil and Gas inventory includes direct materials, direct labour, transportation costs and variable and fixed overhead costs related to production activities. Consumable inventory on hand is stated at the lower of cost and net realisable value. Net realisable value is the estimated recoverable price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. The cost of consumable inventory comprises purchase and delivery costs, net of rebates and discounts received or receivable. Note 16. Non-current assets - Exploration and evaluation assets Exploration and evaluation assets Less: Accumulated impairment Movements in the provision for impairment amounts Balance at the beginning of the year Provisions raised Consolidated 30 June 2021 $'000 30 June 2020 $'000 40,377 (8,364) 42,720 (7,511) 32,013 35,209 Consolidated 30 June 2021 $'000 30 June 2020 $'000 (7,511) (853) (6,790) (721) (8,364) (7,511) 83 Movements in carrying amounts Balance at the beginning of the year Additions Additions acquired with CoEra Pty Ltd¹ Government grants relating to Exploration and Evaluation assets Farm-in agreement proceeds² Disposals2,3 Provision for impairment Consolidated 30 June 2021 $'000 30 June 2020 $'000 35,209 4,153 1,064 - - (7,560) (853) 49,276 2,270 - (617) (15,000) - (720) 32,013 35,209 1Cooper Basin Assets Armour acquired 100% of the issued capital of CoEra Limited, an Australian company previously a fully owned subsidiary of Oilex Limited. CoEra’s assets include a substantial footprint of exploration licences on the oil rich Western and Northern Flanks of the Cooper Basin. The Basin is one of Australia’s most prolific producing oil and gas province, which historically has a high exploration success rate and low-cost development pathways. Armour issued 24,500,000 shares ($906,000) as consideration for the purchase. In accordance with AASB 3, this transaction has been treated as an asset acquisition. The following table shows the assets acquired and the purchase consideration at acquisition date. Consideration paid for Cooper Basin Assets Exploration Expenditure Consideration Paid in Issued Shares for CoEra Limited Payment to reimburse Oilex of licence fees and applications Exercising the option to purchase the remaining 20% interest in the PELs Payment to reimburse Senex of historical costs Consideration Paid in Cash for CoEra Limited Total Exploration assets acquired Financial assurances Security deposits (Paid in shares) Payment to reimburse Terra Nova for the Financial Assurance held with South Australia’s DEM (Paid in Cash) Total Financial assurances acquired Total consideration paid in issued shares Total consideration paid in cash Fair Value $’000 827 827 127 60 50 237 1,064 79 21 100 906 258 Subsequent to the purchase of CoEra Limited and its subsidiaries, Armour applied to have CoEra Limited converted to a proprietary company. 84 2 Ripple Resources Ripple Resources Pty Ltd was sold to Auburn Resources Limited (Auburn). In consideration, Armour received 5,600,000 fully paid ordinary Auburn shares worth $700,000. Following completion, Armour will hold approximately 12.5% of Auburn’s issued share capital. 3South Nicholson Basin In FY 2020, a farm-in agreement was executed between Armour and Santos QNT Limited (Santos) for 70% of Armour’s South Nicholson Basin tenements, ATP1087, ATP1107, ATP1192 and ATP1193 (applications), and the Northern Territory tenements EP172 and EP177, both of which are also in the application phase. An initial $15,000,000 was received as part of the farm-in agreement. In early FY 2021, the Company entered into an agreement with Santos to amend the South Nicholson Basin farm-in agreement, resulting in an immediate cash payment of $6,000,000 as an acceleration of future contingent permit transfer payments. Armour entered into another agreement with Santos to sell its remaining 30% legal and beneficial interest in ATP 1087, ATP(A)1192, ATP(A)1193, EP(A)172 and EP(A)177, and retain 100% of ATP 1107, for an additional $12,164,000. The disposal represents the sale of the net cost remaining of these abovementioned assets (Ripple Resources and South Nicholson Basin) after considering the R&D Exploration Grant received from the government in relation to ATP 1087 and the $15,000,000 cash payment received for the original Farm-in Agreement made during the 2020 financial year. Accounting policy for exploration and evaluation assets Exploration and evaluation expenditure incurred is accumulated in respect of each identifiable area of interest. Such expenditures comprise net direct costs and an appropriate portion of related overhead expenditure but do not include overheads or administration expenditure not having a specific nexus with a particular area of interest. These costs are only carried forward to the extent that they are expected to be recouped through the successful development of the area or where activities in the area have not yet reached a stage which permits reasonable assessment of the existence of economically recoverable reserves and active or significant operations in relation to the area are continuing. A regular review has been undertaken on each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. A provision is raised against exploration and evaluation expenditure where the Directors are of the opinion that the carried forward net cost may not be recoverable or the right of tenure in the area lapses. The increase in the provision is charged against the results for the year. Accumulated costs in relation to an abandoned area are written off in full against profit in the year in which the decision to abandon the area is made. When production commences, the accumulated costs for the relevant area of interest are transferred to oil and gas assets and amortised over the life of the area according to the rate of depletion of the economically recoverable reserves. Provision for Impairment of Exploration and Evaluation assets In FY 2020 an impairment of $721,000 related to the Group’s interest in Ripple Resources was recognised. In FY 2021 Ripple Resources was sold to Auburn Resources Limited. In accordance with the Group’s accounting policy, the Exploration and Evaluation assets were tested for indicators of impairment at 30 June 2021. The Group determined that there was a trigger present for Surat Basin ATP 2028 as the appeal made to the government in relation to its determination of the Potential Commercial Area (PCA) application was withdrawn. Therefore, it was determined that it was appropriate for an impairment to be recognised in relation to Surat Basin ATP 2028 as the carrying value of the Group's interest exceeded what is expected to be its recoverable amount. As such, an impairment provision of $853,000 was recorded during the year ended 30 June 2021. 85 Key judgements - carrying value of exploration and evaluation assets The Group performs regular reviews on each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. These reviews are based on detailed surveys and analysis of drilling results performed to balance date. The Directors have assessed that for the exploration and evaluation assets recognised at 30 June 2021, the facts and circumstances suggest that the carrying amount of an asset may exceed its recoverable amount. In considering this the Directors have had regard to the facts and circumstances that indicate a need for impairment as noted in Accounting Standard AASB 6 “Exploration for and Evaluation of Mineral Resources”. Accounting policy for farm-in arrangements Armour does not record any expenditure made by the farmee in its account. It also does not recognise any gain or loss on its exploration and evaluation farm-in arrangements but reallocates the costs previously capitalised in relation to the whole interest as relating to the interests held. 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 Armour as a gain on disposal. Note 17. Non-current assets - Oil and gas assets Oil & gas assets - at cost Less: Accumulated amortisation Less: Provision for impairment Less: R&D grants relating to Oil & gas assets Less: GAP grants relating to Oil & gas assets Movements in carrying amounts Balance at the beginning of the year Additions Depreciation charge Provision for impairment Government Grants relating to Oil and Gas Assets Consolidated 30 June 2021 $'000 85,517 (10,809) (11,500) 63,208 (4,389) (6,056) (10,445) 52,763 30 June 2020 $'000 74,394 (5,616) - 68,778 (4,389) (6,056) (10,445) 58,333 Consolidated 30 June 2021 $'000 30 June 2020 $'000 58,333 11,123 (5,193) (11,500) - 52,763 42,344 21,322 (2,743) - (2,590) 58,333 Accounting policy for oil and gas assets Capitalised oil and gas assets are development costs and expenditures incurred to develop new wells; to define further moveable hydrocarbons in existing tenement areas; to expand the capacity of the project and to maintain production. Development costs also includes costs transferred from the exploration and evaluation phase once production commences in the area of interest. 86 Amortisation of oil and gas assets is computed by the units of production basis over the estimated proved and probable (2P) reserves. Proved and probable reserves reflect estimated quantities of economically recoverable reserves which can be recovered in the future from known mineral deposits. These reserves are amortised from the date on which production commences. The amortisation is calculated from recoverable proven and probable reserves and a predetermined percentage of the recoverable measured, indicated, and inferred resource. This percentage is reviewed annually. Restoration costs expected to be incurred are provided for as part of development phase that give rise to the need for restoration. These costs are amortised along with other capitalised oil and gas expenditures as described above. Provision for impairment of oil and gas assets Recognition and measurement The Group assesses impairment of oil and gas assets at each reporting date by evaluating conditions specific to the Group that may lead to impairment of assets. Where an impairment trigger exists, the recoverable amount of the asset is determined. Where applicable, value-in-use calculations performed in assessing recoverable amounts incorporate a number of key estimates. Calculating the Group’s recoverable amount The recoverable amount is the higher of an asset’s: a) fair value less cost of disposal b) its value in use Oil & Gas assets are assessed on a cash generating unit (CGU) basis. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Management has determined Surat’s fields to be the Group’s CGU with shared management and personnel and operating as one cash operating unit. Individual assets within a CGU can become impaired if its future use changes or if the benefits from ongoing use is expected to be less than the carrying value of the individual asset. Valuation method As part of the Group’s impairment assessment management consider the future demand for its products, impact of any changes in economic, regulatory or legal environment and other indicators such as market capitalisation and reserve updates. The value in use is calculated using expected future cash flows from continuing use of the CGU, including the anticipated capital expenditure to achieve this and its ultimate disposal. The cashflows are discounted to their present value using a post-tax discount rate reflecting the current market assessment of time value of money and the risks specific to the asset or CGU. The future cash flows are most sensitive to estimates of future commodity prices, foreign exchange rates and discount rates. Future commodity prices are based on the Group’s current best estimate of expected market prices with reference to current spot rates, forward curves and external market analysis. Foreign exchange rates are based on external market forward indexes from a few of the big four banks estimates. 87 The discount rate applied of 10% to the future cash flows are based on the weighted average cost of capital, adjusted for the Group’s known risks. The following represents inputs to the future cash flows: Commodity & Fx Assumptions FY 2022 FY 2023 FY 2024 Longer-term Oil $USD/bbl Contracted Gas $AUD/GJ Spot Market Gas $AUD/GJ LPG $USD/T USD/AUD fx rate 61.98 6.26 6.84 488.47 1.25 61.39 6.38 7.23 431.80 1.25 68.98 6.51 7.96 530.60 1.33 Increased by inflation each year after 1.33 The assessment of the value in use and the decline in production performance in some of Surat Basin production wells indicated the recoverable amount of the Group’s Surat Basin CGU could require an impairment for the year ended 30 June 2021. Upon further assessment there were a number of assets held as part of the oil and gas assets with historical costs dating pre-July 2018. As these specific assets are not currently producing and with the changing market, it is not expected that these historical costs will be recovered. As such, the Group has recorded an impairment of $11,499,000 relating to oil and gas assets. In the event that future circumstances change from these assumptions, the recoverable amounts of the CGU could change materially and result in further impairment losses or the reversal of impairment losses. Key judgement - government grants The Group was a successful applicant under the Federal Government Gas Acceleration Program (GAP), which is designed to provide businesses with funding grants to accelerate the responsible development of onshore natural gas for domestic gas consumers. AASB 120 - Accounting for Government Grants and Disclosure of Government Assistance defines grants related to assets as government grants whose primary condition is that an entity qualifying for them should purchase, construct, or otherwise acquire long-term assets. Subsidiary conditions may also be attached restricting the type or location of the assets or the periods during which they are to be acquired or held. In accordance with AASB 120, Management has determined that it is appropriate to deduct any grant monies received from the carrying amount of the asset, which is accounted for as an exploration and evaluation asset where it meets the relevant recognition criteria. Note 18. Non-current assets - Other financial assets Financial assets at fair value through other comprehensive income Less: cumulative fair value movement Financial assurances Security deposits Consolidated 30 June 2021 $'000 30 June 2020 $'000 5,402 (4,252) 1,150 5,613 4,015 4,702 (3,615) 1,087 6,779 1,331 10,778 9,197 88 As part of the purchase of the Cooper Basin Assets, an additional $540,000 of financial assurances were accounted for consisting of $100,000 relating to the PELs in Holloman Petroleum Pty Ltd and $440,000 entered into by Armour on behalf Cordillo Energy Pty Ltd for the 27 Northern Fairway PRLs. The increased Security Deposit also represents the changes to the Secured Amortising Notes requirements, a new Interest Reserve Account, in the name of the Note Trustee, was created to hold a deposit equal to three times the amount of interest that would be payable on the immediately following interest payment date. As at 30 June 2021, this deposit was $2,339,000. As a result of the sale of ATP 1087, the deposit of $221,000 held for its rehabilitation was returned to the group. Financial assurances and security deposits are cash backed bank guarantees. Movements in financial assets at fair value through Other Comprehensive Income Opening balance at 1 July Additions Fair Value adjustments through Other Comprehensive Income Consolidated 30 June 2021 $'000 30 June 2020 $'000 1,087 700 (637) 2,125 450 (1,488) 1,150 1,087 Financial assets at fair value through other comprehensive income comprise: • Ordinary shares in LKO, which were fully impaired during the year due to uncertainty of its relisting • LKO convertible notes, which are secured by all of LKO’s assets. LKOs existing tenements are current and all in good standing The additions during the year for the shares received in Auburn Resources NL for the sale of Ripple Resources Pty Ltd • Accounting policy for other financial assets. For equity securities that are not held for trading, the Group has made an irrevocable election at initial recognition to recognise changes in fair value through other comprehensive income rather than profit or loss. At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Financial assets with embedded derivatives are considered in their entirety when determining whether cash flows are solely payment of principal and interest. Refer to Note 28 for detail of the Group's fair value accounting policy. Security deposits and financial assurances are measured at amortised cost. 89 Note 19. Non-current assets - right-of-use assets Motor vehicles - right-of-use Less: Accumulated depreciation Consolidated 30 June 2021 $'000 30 June 2020 $'000 2,055 (694) 1,361 626 (410) 216 Accounting policy for right-of-use assets A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset. Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the Group expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of use assets are subject to impairment in line with AASB138 Impairment of Assets or adjusted for any remeasurement of lease liabilities. The Group has elected not to recognise a right-of-use asset and corresponding lease liability for short-term leases with terms of 12 months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss as incurred. Note 20. Current liabilities - Trade and other payables Trade payables Deposits Held Accrued expenses Other payables GST payable Unearned Income Other tax liabilities Trade payables Consolidated 30 June 2021 $'000 30 June 2020 $'000 3,820 2,075 1,938 1,009 124 59 31 9,056 3,548 - 2,250 601 183 - 24 6,606 Deposits held are funds received from investors as part of the March 2021 private placement. The shares were issued subsequent to year-end on 8 July 2021. Refer to Note 29 for further information on financial risk management. 90 Accounting policy for trade and other payables These amounts represent financial liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid. Financial liabilities are carried at amortised cost and are initially measured at fair value including transaction costs. They are subsequently measured at amortised cost using the effective interest rate method. Details on how the fair value of financial instruments is determined are disclosed in Note 28. Trade payables are non-interest bearing and are generally on 30-60 days terms. Due to their short-term nature trade and other payables are not discounted. Note 21. Current and non-current liabilities - lease liabilities Current Lease liability Non-Current Lease liability Consolidated 30 June 2021 $'000 30 June 2020 $'000 369 964 1,333 190 33 223 Refer to note 29 for further information on financial risk management. Accounting policy for lease liabilities A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the present value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Lease payments comprise of fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected to be paid under residual value guarantees, exercise price of a purchase option when the exercise of the option is reasonably certain to occur, and any anticipated termination penalties. The variable lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred. Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following: future lease payments arising from a change in an index or an interest rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an adjustment is made to the corresponding right-of use asset, or to profit or loss if the carrying amount of the right-of-use asset is fully written down. Note 22. Current and non-current liabilities - Employee benefits Current Employee Benefits Non-Current Employee Benefits Consolidated 30 June 2021 $'000 30 June 2020 $'000 497 32 529 401 49 450 91 Accounting policy for employee benefits Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled. Expenses for non-accumulating sick leave are recognised when the leave is taken and measured at the rates paid or payable Long-term employee benefits The liability for long service leave not expected to be settled within 12 months of the reporting date are recognised in non-current liabilities, provided there is an unconditional right to defer settlement of the liability. The liability is measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wages and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on Australian corporate bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows. Note 23. Current liabilities – Borrowings Tribeca Loan Facility Secured Amortising Notes Secured Amortising Notes - issue costs Other facilities Consolidated 30 June 2021 $'000 5,229 8,800 (469) 60 13,620 30 June 2020 $'000 5,664 6,050 - - 11,714 The Group complied with all relevant covenant requirements of the Tribeca loan facility and Secured Amortising Notes during the year ended 30 June 2021. Facility terms and security disclosures Tribeca loan facility On 26 July 2018, Armour Energy Limited and its subsidiary, Armour Energy (Surat Basin) Pty Ltd (Armour Surat) entered into a credit facility agreement (Tribeca Facility Agreement) with Equity Trustees Limited (in its capacity as the trustee of the Tribeca Global Natural Resources Credit Fund) and Tribeca Global Natural Resources Credit Master Fund (together Tribeca) for the provision of an environmental bonding finance facility. The Facility is secured by a guarantee from the Company, in seven bank accounts controlled by Westpac Banking Corporation (the Credit Accounts) in the name of Armour Surat, and a second ranking featherweight security interest over all the present and after-acquired property of Armour Surat. The Tribeca Facility has a 9% per annum coupon rate payable by Armour Surat quarterly in arrears on amounts drawn with the maturity date now extended to 31 December 2021. In addition, the Company granted 41,000,000 unlisted options to Tribeca to subscribe for ordinary shares (Options) with an exercise price of A$0.166. 92 Movement in carrying amounts Face value of loan facility Issue costs of loan facility Other equity securities - value of conversion rights, net of issue costs Repayments during the year at NPV Amortisation of conversion rights Amortisation of issue costs Note 24. Non-current liabilities – Borrowings Total secured liabilities Secured Amortised Notes Secured Amortised Notes - issue costs Consolidated 30 June 2021 $'000 30 June 2020 $'000 6,759 (137) (2,893) (1,261) 2,739 22 5,229 6,759 (137) (2,893) - 1,886 49 5,664 Consolidated 30 June 2021 $'000 30 June 2020 $'000 24,917 (1,040) 45,100 (1,977) 23,877 43,123 Refer to Note 29 for further information on financial risk management. Total current and non-current Secured Amortising Notes Face value of Secured Amortising Notes Issue costs of Secured Amortising Notes Amortisation of Secured Amortising Notes costs Consolidated 30 June 2021 $'000 30 June 2020 $'000 33,717 (2,351) 842 32,208 51,150 (2,351) 373 49,172 Facility terms and security disclosures Secured Amortising Notes In FY 2019, Armour Energy Limited announced a $55 million Secured Amortising Notes facility, refinancing all outstanding convertible notes on issue and providing additional funding for exploration and general working capital. The main terms of the Secured Amortising Notes are as follows:  Issue date of 29 March 2019, with 55,000 new $1,000 Notes issued raising a total of $55,000,000, before costs.  Notes will amortise by 52% from 29 March 2021 until and including the day immediately prior to the  Maturity Date. The notes are secured over all of the assets of the Group (other than its shares in Armour Energy International Pty Ltd).  Coupon rate attached is 8.75% per annum, payable quarterly in arrears. 93  The Maturity Date for the notes is five years from issue date. Accounting policy for borrowings Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. Note 25. Non-current liabilities - Provision for restoration and abandonment Consolidated 30 June 2021 $'000 6,688 30 June 2020 $'000 6,688 Restoration and abandonment Key judgement - provision for rehabilitation The Group's restoration and abandonment obligations for the Surat Basin processing plant and associated exploration and production fields is treated as a non-current liability in accordance with AASB 137 - Provisions, Contingent Liabilities and Contingent Assets. The restoration and abandonment liability are valued by the Financial Provisioning Scheme in accordance with legislative requirements as required. For the provision recognised at 30 June 2021, the facts and circumstances do not suggest that the carrying amount of the provision has changed. Accounting policy for restoration provisions Provisions are recognised when the Group has a present (legal or constructive) obligation as a result of a past event. It is probable the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the reporting date. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision resulting from the passage of time is recognised in finance costs. Provisions for rehabilitation and abandonment of Oil and Gas assets are measured at the cost of legal and constructive obligations to restore operating locations in the period in which the obligation arises. The nature of rehabilitation activities includes the removal of facilities, abandonment of wells and restoration of affected areas. Typically, the obligation arises when the asset is installed at the production location. A provision has been recognised for the costs to be incurred for the restoration and abandonment of the Surat Basin processing plant and associated exploration and production fields, used for the production of oil, gas, LPG and condensate. It is anticipated that the sites will require restoration in approximately 20 years. 94 Note 26. Equity - Issued capital Issued and paid up capital Consolidated 30-Jun-21 30-Jun-20 30-Jun-21 30-Jun-20 Shares Shares $'000 $'000 Ordinary shares - fully paid 1,529,816,120 779,247,711 Share issue costs Recognition of deferred tax asset relating to share issue costs - - - - 141,876 (10,194) 121,222 (9,000) 2,089 2,089 1,529,816,120 779,247,711 133,771 114,311 Movements in ordinary share capital Details Balance Shares issued for cash (Entitlement Offer) Shares issued under employment contracts Shares issued for cash (Entitlement Offer) Shares issued for cash (Entitlement Offer) Share issue costs Recognition of deferred tax assets relating to share issue costs Balance Shares issued for cash (Entitlement Offer) Shares issued for cash (Entitlement Offer) Shares issued for cash (Entitlement Offer) Shares issued for cash (Placement) Shares issued for cash (Placement) Shares issued under services contracts Date Shares # 1-Jul-19 509,437,570 30-Sep-19 80,000,000 5-Nov-19 1,164,384 23-Jun-20 165,273,600 30-Jun-20 23,372,157 30-Jun-20 779,247,711 18,849,710 12-Aug-20 24-Aug-20 33,788,306 17-Sep-20 67,859,048 18-Sep-20 29,893,030 23-Sep-20 146,158,694 29-Sep-20 2,173,913 Shares issued under Share and Purchase Agreement 15-Oct-20 24,500,000 Shares issued for cash (Placement) Shares issued under employment contracts Shares issued under employment contracts Shares issued for cash (Entitlement Offer) Shares issued under employment contracts Shares issued under employment contracts Shares issued for cash (Placement) Shares issued under employment contracts Shares issued under employment contracts Share issue costs Balance 16-Oct-20 56,374,176 19-Oct-20 2,650,000 20-Nov-20 1,019,623 23-Dec-20 112,800,818 8-Jan-21 8-Jan-21 360,000 88,011 24-Mar-21 249,976,294 1-Apr-21 360,000 1-Apr-21 3,716,786 Issue price $0.05 $0.06 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.04 $0.02 $0.02 $0.02 $0.02 $0.02 $0.06 $0.04 $0.02 $0.03 Value $'000 106,539 4,000 68 3,801 538 (709) 74 114,311 434 777 1,561 688 3,362 50 907 1,297 61 33 2,594 7 5 8,749 7 123 (1,195) 30-Jun-21 1,529,816,120 133,771 95 Ordinary shares Ordinary shares participate in dividends and the proceeds on winding up of Armour Energy Ltd. At shareholder meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on show of hands. Options The following share options were on issue at reporting date. Grant Date 31/07/2018 01/10/20191 17/12/20191 23/06/20202 30/06/20202 12/08/20202 24/08/20202 17/09/20202,3 01/10/20202 19/10/20202 22/12/20202 24/03/20214 Balance Expiry Date Number # 31/07/2021 41,000,000 30/09/2023 40,000,000 30/09/2023 8,000,000 29/02/2024 31,166,497 29/02/2024 29/02/2024 7,018,341 9,424,831 29/02/2024 16,894,150 29/02/2024 35,929,524 29/02/2024 144,163,885 29/02/2024 87,811,409 29/02/2024 66,778,341 29/02/2024 62,494,099 550,681,077 Exercise price $ $0.16 $0.08 $0.08 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 vested % 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 1 In September 2019, the Company closed a private placement raising gross proceeds of $4 million via an allocation of 80 million shares at a price of 5 cents each. Investors also received one unlisted option exercisable at 8 cents (through to 30 September 2023) for every two shares subscribed, resulting in 40,000,000 unlisted options being issued. This private placement was managed by Bizzell Capital Partners Pty Ltd (BCP). As part of the capital raising fee for their services, BCP was entitled to 8,000,000 options exercisable at 8 cents (through to September 2023). 2 In June 2020, the company announced a further capital raising program, which ended in December 2020. There was an attaching option for every two New Shares issued under the Entitlement Offer and / or Placement available to both institutional and retail eligible shareholders. There was a total of 397,186,978 options issued exercisable at 5 cents and expiring 29 February 2024 as part of this program. 3 In addition to the placements, there was 2,000,000 unlisted options issued as a share-based payment on 17 September 2020. 4 The private placement in March 2021 included an attaching option for every four new shares issued. This issuance was of the existing listed series (ASX: AJQOA) which are exercisable at 5 cents and expiring 29 February 2024. In total, there were 423,496,239 options issued in financial year 2021, exercisable at 5 cents and expiring 29 February 2024. Capital risk management The Group's objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital. 96 Capital is regarded as total equity, as recognised in the statement of financial position, plus net debt. Net debt is calculated as total borrowings less cash and cash equivalents. In order to maintain or adjust the capital structure, the Group may adjust the number of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group would look to raise capital when an opportunity to invest in a business or company was seen as value adding relative to the current Company's share price at the time of the investment. The Group is not actively pursuing additional investments in the short term as it continues to integrate and grow its existing businesses in order to maximise synergies. The Group is subject to certain financing arrangements covenants and meeting these is given priority in all capital risk management decisions. There have been no events of default on the financing arrangements during the financial year. Accounting policy for issued capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. Note 27. Equity - Reserves Financial assets at fair value through other comprehensive income reserve Share-based payments option reserve Performance shares reserve Tribeca Loan Option Reserve Consolidated 30 June 2021 $'000 30 June 2020 $'000 (5,977) 4,903 98 2,893 1,917 (5,340) 4,887 6 2,893 2,446 Financial assets at fair value through other comprehensive income reserve The reserve is used to recognise increments and decrements in the fair value of financial assets at fair value through other comprehensive income. Share-based payments reserve The reserve is used to recognise the value of equity benefits provided to employees and Directors as part of their remuneration, and other parties as part of their compensation for services. 97 Movements in reserves Movements in each class of reserve during the current and previous financial year are set out below: Financial assets at fair value through OCI $'000 (4,299) (1,487) 446 - Balance at 1 July 2019 Revaluation - gross Deferred tax Share-based payments $'000 4,674 - - 213 Share-based payments option reserve Performance shares reserve Balance at 30 June 2020 (5,340) 4,887 Revaluation - gross Share-based payments (637) - - 16 Balance at 30 June 2021 (5,977) 4,903 Equity conversion right - Tribeca Loan $'000 2,893 - - - Total $'000 3,268 (1,487) 446 219 2,893 2,446 - - (637) 108 2,893 1,917 $'000 - - - 6 6 - 92 98 Note 28. Fair value measurement Fair value hierarchy The following tables detail the Group's assets and liabilities, measured, or disclosed at fair value, using a three- level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly Level 3: Unobservable inputs for the asset or liability Financial assets (liabilities) at fair value through other comprehensive income Year 2021 2020 Consolidated Level 1 $'000 Level 2 $'000 Level 3 $'000 Total $'000 - - - - 1,150 1,150 1,087 1,087 Assets and liabilities held for sale are measured at fair value on a non-recurring basis. The fair values of all financial assets and liabilities approximate their carrying amounts principally due to their short-term nature or the fact that they are measured and recognised at fair value. As part of the annual review of Lakes Blue Energy’s investment it was determined that it was appropriate for an impairment to be recognised due to the uncertainty of Lakes Blue Energy’s relisting. As such, the investment in shares was fully written off during the year ended 30 June 2021. The convertible notes are secured by the assets of Lakes Blue Energy and deemed to be recoverable. 98 The financial asset held at 30 June 2021 are shares held in Auburn Resources NL. These shares were received for the sale of Ripple Resources Pty Ltd. The level 3 inputs used in determining the fair value of the Auburn Resources NL investment is based on seed capital raising programs held in August and September 2021. This program issued shares with an issue price of 12.5 cents per share. Accounting policy for fair value measurement When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs, and minimising the use of unobservable inputs. Assets and liabilities measured at fair value are classified into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed at each reporting date and transfers between levels are determined based on a reassessment of the lowest level of input that is significant to the fair value measurement. For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either not available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data. Note 29. Financial risk management General Objectives, Policies and Processes The Group's principal financial instruments consists of deposits with banks, receivables, other financial assets, payables, borrowings, and secured amortising notes. There have been no substantive changes in the Group’s exposure to financial instrument risks, its objectives, policies, and processes for managing those risks or the methods used to measure them from previous years unless otherwise stated in this note. The Board has overall responsibility for the determination of the Group’s risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for operating processes that ensure the effective implementation of the objectives and policies to the Group’s finance function. The overall objective of the Board is to set polices that seek to reduce risk as far as possible without unduly affecting the Group’s competitiveness and flexibility. These policies include identification and analysis of the risk exposure of the Group and appropriate procedures, controls, and risk limits. Finance identifies, evaluates and manages financial risks within the Group's operating units. Finance reports to the Board on a monthly basis. Further details regarding these policies are set out below. 99 Market risk Market risk arises from the use of interest bearing, tradable and foreign currency financial instruments and investments in listed securities. It is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in interest rates (interest rate risk), foreign exchange rates (currency risk) or other market factors (other price risk). The Group is exposed to market risk on investments in equity securities, and these investments are measured at fair value based on quoted market rates. Management considers market risk on this class of assets to be minor given the low value of the assets, and stability of long-term market rates. Price risk The Group has short-term and longer-term commercial contracts for the sale of its oil and gas products, some of which contain pricing which is adjusted annually for the Consumer Price Index (CPI) and some of which are set with reference to the variable Australian domestic gas price. To manage these exposures, forward Australian domestic price forecasts are monitored regularly and reported to the board. Commodity price risk The Group is exposed to the risk of fluctuations in prevailing market commodity prices on the gas and associated liquid products it produces. The Group is not of a size to have influence on gas or other petroleum product prices and is therefore a price-taker in general terms. The Group manages this risk by continuously monitoring actual and forecast commodity prices and analysing the impact these changes will have on profitability and cashflow. Interest rate risk Interest rate risk arises principally from cash and cash equivalents. The Company's secured amortising notes has a fixed coupon rate, and thus no variable interest rate exposures. The objective of interest rate risk management is to manage and control interest rate risk exposures within acceptable parameters while optimising the return. For further details on interest rate risk refer to the tables below. As at the reporting date, the Group had no variable rate borrowings outstanding. Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has a strict code of credit, including obtaining agency credit information, confirming references, and setting appropriate credit limits. The Group obtains guarantees where appropriate to mitigate credit risk. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. The Group does not hold any collateral. Credit risk is reviewed regularly by the Board. It arises from exposure to receivables as well as through deposits with financial institutions. The Group's cash at bank and financial assurances are held with Australian financial institutions to mitigate credit risk, being Macquarie Bank (local currency short term rating A-2) and Westpac (local currency short term rating A-1+). Refer to Note 14 for credit risk exposure of trade and other receivables. 100 Liquidity risk Liquidity risk management requires the Group to maintain sufficient liquid assets (mainly cash and cash equivalents) and available borrowing facilities to be able to pay debts as and when they become due and payable. The Group manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. Liquidity risk is the risk that the Group may encounter difficulties raising funds to meet financial obligations as they fall due. The objective of managing liquidity risk is to ensure, as far as possible, that the Group will always have sufficient liquidity to meets its liabilities when they fall due, under both normal and stressed conditions. Liquidity risk is reviewed regularly by the Board. For further details on liquidity risk refer to the tables below. Financing arrangements The Group had no access to undrawn borrowing facilities at the end of the reporting period (2020: nil). Remaining contractual maturities The following tables detail the Group's remaining contractual maturity for its financial instrument liabilities. The tables have been prepared based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the statement of financial position. Weighted average interest rate 1 year or less Between 1 and 2 years Between 2 and 5 years Remaining contractual maturities Year % $'000 $'000 $'000 $'000 Non-derivatives Non-interest bearing Trade payables Deferred consideration 2021 2020 2021 2020 Interest-bearing - fixed rate 2021 Tribeca facility Secured Amortising Notes Capital lease 2020 2021 2020 2021 - - - - 9.00% 9.00% 8.75% 8.75% 16.30% 9,056 6,606 - 1,000 5,516 608 11,462 10,363 - - - - - - 6,803 12,299 25,209 - - - - - - - - 15,236 27,970 - - 2020 16.30% 2021 Lease liability 33 1,695 189 Interest payable on the Secured Amortising Notes is quarterly in arrears. The Secured Amortising Notes mature on 29 March 2024. The Group manages liquidity risk by monitoring forecast cash flows and liquidity ratios such as working capital. 33 391 156 1,009 - 295 33 8.88% 6.30% 2020 9,056 6,606 - 1,000 5,516 7,411 38,997 63,542 - 101 The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed. Note 30. Interests in subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in Note 3: Name Principal place of business / Country of incorporation Ownership interest 30-June-2021 30-June-2020 % % Armour Energy (Victoria) Pty Ltd Victoria / Australia Armour Energy (Surat Basin) Pty Ltd Queensland / Australia Armour Energy (Queensland) Pty Ltd Queensland / Australia Ripple Resources Pty Ltd Queensland / Australia McArthur Oil and Gas Limited Queensland / Australia McArthur NT Pty Ltd CoEra Pty Ltd Cordillo Energy Pty Ltd Queensland / Australia South Australia/ Australia South Australia/ Australia Holloman Petroleum Pty Ltd South Australia/ Australia 100.00% 100.00% 100.00% - 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% - - - - - Note 31. Interests in joint operations Information relating to joint operations that are material to the Group are set out below: Name Principal place of business / Country of incorporation Ownership interest 30-June-2021 30-June-2020 PL 1084 (Sykes Block) Queensland, Australia ATP119P South - Waldegrave Queensland, Australia ATP119P South - Snake Creek East Queensland, Australia ATP 212P - PL 30 ATP212P - PL512, PPL22 Weribone Pooling Area PCA157 Bainbilla Block ATP 754P ATP 1087 PEP 169 PEP 166 Kanywataba Block Queensland, Australia Queensland, Australia Queensland, Australia Queensland, Australia Queensland, Australia Queensland, Australia Victoria, Australia Victoria, Australia Uganda % - 46.25% 25.00% 90.00% 84.00% 50.64% 24.75% 50.00% - 51.00% 25.00% 16.82% % 10.00% 46.25% 25.00% 90.00% 84.00% 50.64% 24.75% 50.00% 30.00% 51.00% 25.00% 16.82% Accounting policy for 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. The Group entered into joint arrangement with various parties for interest in exploration tenements as disclosed above. Exploration expenditures incurred in relation to these joint operations have been capitalised in accordance with AASB 6 Exploration for and Evaluation of Mineral Resources. 102 Note 32. Parent entity information Set out below is the supplementary information about the parent entity. Statement of profit or loss and other comprehensive income Profit/ (Loss) after income tax Parent 30-June-2021 $'000 30-June-2020 $'000 (8,638) (12,147) Other Comprehensive income for the year, net of tax Total Comprehensive income (637) (9,275) (1,041) (13,188) Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Equity Issued capital Financial assets at fair value through other comprehensive income reserve Share-based payments option reserve Performance shares reserve Tribeca Loan Option Reserve Accumulated losses Total equity Parent 30-June-2021 $'000 30-June-2020 $'000 941 792 85,897 90,565 12,491 2,135 36,385 51,345 133,771 114,311 (5,975) (5,338) 4,903 98 2,893 4,887 5 2,893 (86,176) (77,538) 49,512 39,220 103 Guarantees entered into by the parent entity in relation to the debts of its subsidiaries As at 30 June 2021, the parent entity is a guarantor for its subsidiary Armour Energy (Surat Basin) Pty Ltd for debts relating to the Tribeca loan facility. Contingent liabilities The parent entity had no contingent liabilities as at 30 June 2021 and 30 June 2020. Capital commitments - Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment as at 30 June 2021 and 30 June 2020. Note 33. Related party transactions Parent entity Armour Energy Limited is the parent entity of the Group and listed on the ASX on 26 April 2012. Subsidiaries Interests in subsidiaries are set out in Note 30. Joint Operations Interests in joint ventures are set out in Note 31. Key management personnel Disclosures relating to key management personnel are set out in Note 34 and the remuneration report included in the Directors' report. Transactions with related parties The following transactions occurred with related parties during the reporting period: Payment for goods and services: Payment for services from entity with significant influence - DGR Global Ltd1 Payment for services from other related party - Bizzell Capital Partners2 Consolidated 30 June 2021 30 June 2020 $ $ 456,000 468,505 456,000 336,039 1 The Group has a commercial arrangement with DGR Global Ltd (a major shareholder) for the provision of various services, whereby DGR Global provides resources and services including the provision of its administration staff, its premises (for the purposes of conducting the Group's business operation), use of existing office furniture, equipment and certain stationery, together with general telephone, reception and other office facilities ("Services"). In consideration for the provision of the Services, the Group pays DGR Global a monthly management fee of $38,000 (2020: $38,000). For the year ended 30 June 2021 $456,000 (2020: $456,000) was paid or payable to DGR Global for the provision of the Services. The total amount outstanding at year end was $243,424 (2020: $167,200). As at 30 June 2021 DGR Global held 4,550 secured amortising notes totalling $4,550,000 (2020: 8,750). The notes were purchased on the same terms and conditions as other noteholders. 2 Armour entered into an agreement with Bizzell Capital Partners Pty Ltd as Lead Manager for the capital raising programs. In December 2020, Armour Energy completed a $15 million capital raise program. Bizzell Capital Partners was joint lead manager of the private placement and was paid a capital raising fee totalling $241,960 (net of GST) on arm’s length terms. 104 In March 2021, Armour Energy completed an $11.5 million capital raise program. Bizzell Capital Partners was joint lead manager of the private placement and was paid a capital raising fee totalling $226,545 (net of GST) on arm’s length terms. As at 30 June 2021, Bizzell Capital Partners held 6 million unquoted options, 26,392,319 Quoted options and 100 secured amortising notes (2020: 6 million unquoted options and 100 secured amortising notes). The notes were purchased on the same terms and conditions as all other bondholders. Company debt instruments held by key management personnel The number of convertible notes in the Company held during the financial year by each director and other members of key management personnel of the Group, including their personally related parties, is set out below: Secured amortising notes holdings Stephen Bizzell Notes held at the start of the year Number Additions Disposals/ Other Number Number Notes held at the end of the year Number 100 - - 100 No other directors and key management personnel held any debt instruments in the Company at the start, during or at the end of the year. Note 34. Key management personnel disclosures Compensation The aggregate compensation made to Directors and other members of key management personnel of the Group is set out below: Short-term employee benefits Post-employment benefits Share-based payments Short-term non-monetary benefits Consolidated 30 June 2021 $ 1,155,890 65,127 246,479 30 June 20201 $ 1,741,662 73,720 72,916 91,533 48,242 1,559,029 1,936,540 1 Note 30 June 2020 does not reconcile to the Remuneration Report as various key management personnel who were not employed during the 2021 financial year have not been included. Refer to the Remuneration Report on pages 47 to 58. 105 Note 35. Share-based payments Types of share-based payments Employee Share Option Plan (ESOP) Share options are granted to employees. The employee share option is designed to align participants' interests with those of shareholders by increasing the value of the Armour Energy Ltd.'s shares. When a participant ceases employment prior to the vesting of their share options, the share options are forfeited after 90 days unless cessation of employment is due to termination for cause, whereupon they are forfeited immediately or death. The Group prohibits KMP's from entering into arrangements to protect the value of unvested ESOP awards. The contractual life of each option granted is generally three years. There are no cash settlement alternatives. Each option can be exercised from vesting date to expiry date for one share with the exercise price payable in cash. Summary of share-based payment plans The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share-based payment share options granted during the year under the employee share option plan. Outstanding at the beginning of the year Issued during the year Expired during the year 2021 WAEP $0.33 $0.05 $0.33 2021 Number 6,750,000 2,000,000 (6,750,000) 2020 WAEP 2020 Number $0.30 17,375,000 $0.28 (10,625,000) - Outstanding and exercisable at the end of the year $0.05 2,000,000 $0.33 6,750,000 There were no options issued to employees and Directors under the Armour Energy Employee Share Option Plan during 2021 (2020: NIL). The options issued during the year are part of an independent contractor agreement. The options outstanding as at 30 June 2021 have a weighted average remaining contractual life of 2.67 years and exercise price of $0.05. On 17 September 2020, the company issued 2,000,000 options as part of an independent contractor agreement. The fair value of these options at grant date was $0.0080. This value was calculated using a Black Scholes option pricing model applying the following inputs: Number of options Exercise price Share price on grant date Grant date Expiry date Volatility Dividend yield Risk-free interest rate Weighted average fair value at grant date 2,000,000 $0.050 $0.021 17/09/2020 29/02/2024 84.811% - 0.24% $0.0080 106 Other option issues The following table illustrates the number of, and movements in, other options issued for commercial consideration during the year. The other options outstanding as at 30 June 2021 have a weighted average remaining contractual life of 0.22 years and exercise price of $0.07. 2021 WAEP 30 June 2021 2020 WAEP 30 June 2020 Consolidated Balance at the start of the year1 Granted during the year2 Expired during the year Number 49,000,000 $0.15 - - Exercisable at the end of the year $0.15 49,000,000 The opening balance of options were issued in two tranches: $0.17 $0.08 $0.27 $0.15 Number 43,000,000 8,000,000 (2,000,000) 49,000,000 1 On 31 July 2018, the Company issued 41,000,000 options to Tribeca Global Resources Credit Master Fund (Tribeca) at an exercise price of $0.166 per ordinary share (adjusted to $0.161 per ordinary share following the 2018 entitlement issue). The options were issued as part of the agreement for Tribeca to provide a $6.8 million environmental bonding funding facility (see the financial liabilities note for further details). These options expired on 31 July 2021. 2 Bizzell Capital Partners managed the private placement that closed on 23 September 2019 and was entitled to receive an allotment of 8,000,000 unlisted options exercisable at 8 cents through to 30 September 2023. Of the 8 million, 2 million were subsequently transferred to an unrelated sub-underwriter. Performance rights shares The following table illustrates the number of, and movements in, performance shares issued for during the year. Consolidated 30 June 2021 $ 30 June 2020 $ Balance at the start of the year 7,200,000 - Granted during the year Expired during the year - - 7,200,000 7,200,000 - 7,200,000 There was $92,000 included in share-based payments to recognise the value of the performance shares for the year ended 30 June 2021. Share-based payment expense Equity settled share-based payments For the year ended 30 June 2021 $287,000 of employment benefits were taken as ordinary shares in lieu of cash (2020: $68,000). Option expense There was a $16,000 option expense recognised in the statement of profit or loss for the year ended 30 June 2021 (2020: NIL). 107 Performance shares expense There was a $92,000 option expense recognised in the statement of profit or loss for the year ended 30 June 2021 (2020: $5,000). The balance of the share-based payment expense relate to shares not yet issued at 30 June 2021. Share issue costs There were approximately 14.3m ordinary shares issued ($284,000) in lieu of cash for invoices related to the management of the capital raises performed during the year. Other share-based payment transactions The Group issued $906,000 in Armour shares for the purchase of the Cooper Basin entities. See Note 16 for further details. The Group received $700,000 in Auburn Resources shares as consideration for the sale of Ripple Resources. Accounting policy for share-based payments Equity-settled and cash-settled share-based compensation benefits are provided to employees. Equity-settled transactions are awards of shares, or options over shares, that are provided to employees or supplier in exchange for the rendering of services. Cash-settled transactions are awards of cash for the exchange of services, where the amount of cash is determined by reference to the share price. The cost of equity-settled transactions is measured at fair value on grant date. Fair value is independently determined using the Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option, together with non- vesting conditions that do not determine whether the Group receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions. The cost of equity-settled transactions is recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. Note 36. Commitments Exploration Expenditure Commitments Committed at the reporting date but not recognised as liabilities, payable: Within one year One to five years More than five years Consolidated 30 June 2021 30 June 2020 $’000 $’000 14,952 114,722 2,127 131,801 13,451 33,038 - 46,489 108 Capital Commitments The Group has certain obligations to expend minimum amounts on exploration in tenement areas. These obligations may be varied from time to time and are expected to be fulfilled in the normal course of operations of the Group. The commitments are to keep tenements in good standing, work programs should meet certain minimum expenditure requirements. If the minimum expenditure requirements are not met, the Group has the option to negotiate new terms or relinquish the tenements. The Group also has the ability to meet expenditure requirements by joint venture or farm-in agreements. Of the $129,674,000 minimum required in the coming six years, $49,030,000 are commitments for the McArthur Basin tenements. These permits are in the process of being demerged through a new company McArthur Oil & Gas. Note 37. Contingent liabilities Exploration Liabilities Under the Company's native title agreement over EP 171 and EP 176, the Company is required to pay the greater of either $10,000 or 3% of exploration costs on each anniversary date. Under the Company's native title agreement over EP 174, EP 190, EP 191 and EP 192, the Company is required to pay the greater of either $5,000 or 3% of exploration costs on each anniversary date. Armour are currently disputing the determination of the Queensland Government in relation to ATP 2028 and ATP 2029. Armour took action against the State’s Land Court for five parcels of land. Armour has withdrawn from Surat Basin’s ATP 2028 but remains confident in relation ATP 2029. Management remains confident that the appeal will be successful and for both parties to pay for their own costs incurred. As such it is improbable that any outflow of economic resources will be required to settle any obligation and therefore no contingent liability has been recognised. Other than the above, the Group had no other contingent assets or liabilities at 30 June 2021. Note 38. Events after the reporting period Other than the below subsequent events, no other matter or circumstance has arisen since 30 June 2021 that has significantly affected, or may significantly affect Armour's operations, the results of those operations, or Armour's state of affairs in future financial years.  As announced on 23 September 2021, Armour will re-stimulate the Warroon #1 well in partnership with a private entity. The Warroon #1 Rewan sandstone was originally stimulated in November 2020 however failed due to a frac gel issue which is the subject of a dispute notice with the contractor who performed the stimulation. The Rewan sandstone remains an attractive candidate for production stimulation.  As announced on 27 September 2021, Armour completed a $8,200,000 placement. The raise comprised of a $6,600,000 placement of shares and a $1,600,000 conditional placement (subject to approval at the Annual General Meeting). For every three new shares issued under the placement and conditional placement, the holder will also receive one attaching option exercisable at $0.05 and expiring 29 February 2024. These options are listed on the ASX with the ticker code AJQOA.  Armour have agreed with Tribeca to extend their facility with Armour to 31 December 2021.  The Northern Basin Business demerger and IPO is progressing with a pre-IPO raise by way of Redeemable Exchangeable Notes underway. The Redeemable Exchangeable Notes are unsecured and fully subordinated to the Secured Amortising Notes and Tribeca Facility, and subject to shareholder approval will convert to McArthur Oil & Gas Limited shares upon IPO. This pre-IPO raise will allow McArthur Oil and Gas to commence early planned works. 109 Note 39. Remuneration of auditors During the financial year the following fees were paid or payable for services provided by BDO Audit Pty Ltd and related entities. Consolidated 30 June 2021 $ 30 June 2020 $ Audit services - BDO Audit Pty Ltd Audit or review of the financial statements 93,141 88,642 Other services - BDO Audit Pty Ltd and related entities Grant funding audit Other non-audit services* Total Non-Audit Services - 2,475 2,475 6,700 24,905 31,605 Total 95,616 120,247 *The non-audit services included the advice on the redemption of the convertible notes and whistleblowing services. Note 40. Accounting Policies New and Revised Accounting Standards and Interpretations Adoption of new and revised accounting standards The accounting policies adopted are consistent with those of the previous financial year except for changes arising from the adoption of the following new accounting pronouncements which came into effect in the current reporting period:  AASB 2020-1 - Classification Of Liabilities As Current Or Non-Current  AASB 2018-6 - Definition Of A Business  Annual Improvements to IFRS Standards 2018–2020  Interpretation 23 Uncertainty over Income Tax Treatments These pronouncements did not have any impact on the amounts recognised in prior periods and are not expected to have a significant effect on the current or future periods. 110 Armour Energy Limited Directors’ Declaration 30 June 2021 The Directors' of the Group declare that: a) the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; b) the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in Note 2 to the financial statements; c) the attached financial statements and notes give a true and fair view of the Group's financial position as at 30 June 2021 and of its performance for the financial year ended on that date; and d) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. The Directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of Directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the Directors Nicholas Mather Executive Chairman 30 September 2021 111 Tel: +61 7 3237 5999 Fax: +61 7 3221 9227 www.bdo.com.au Level 10, 12 Creek St Brisbane QLD 4000 GPO Box 457 Brisbane QLD 4001 Australia INDEPENDENT AUDITOR'S REPORT To the members of Armour Energy Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Armour Energy Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2021, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial report, including a summary of significant accounting policies and the directors’ declaration. In our opinion the accompanying financial report of the Group, is in accordance with the Corporations Act 2001, including: (i) Giving a true and fair view of the Group’s financial position as at 30 June 2021 and of its financial performance for the year ended on that date; and (ii) Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. 112 Material uncertainty related to going concern We draw attention to Note 4 in the financial report which describes the events and/or conditions which give rise to the existence of a material uncertainty that may cast significant doubt about the group’s ability to continue as a going concern and therefore the group may be unable to realise its assets and discharge its liabilities in the normal course of business. Our opinion is not modified in respect of this matter. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Material uncertainty related to going concern section, we have determined the matters described below to be the key audit matters to be communicated in our report. Carrying value of oil and gas assets Key audit matter How the matter was addressed in our audit Refer to Note 17 in the financial report. Our procedures included but were not limited to: The Group has significant oil and gas assets, which represent a major portion of total assets. Due to the quantum of this asset and the subjectivity involved in assessing the asset for impairment – especially as a result of the downturn in the oil and gas industry during the period due to COVID-19 - we have determined this is a key audit matter.       Evaluating management’s assessment if any impairment indicators in accordance with AASB 136 Impairment of Assets have been identified across the Group’s oil and gas projects. Comparing oil and gas price assumptions against third-party forecasts and relevant market data to determine whether the Group’s forecasts were within the range. Reviewing contracts and agreements with the Group’s external customers to understand the existing level of contracted oil and gas sales. Reviewing the Group’s reserve estimation against reports provided by external experts Performing sensitivity analysis on key assumptions used by the Group to assess the impact on forecasted cash flows. Selecting a sample of capitalised expenditure additions and agreeing to supporting documentation, as well as ensuring they qualify for recognition as assets under AASB 116 Property, Plant and Equipment. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. 113 Carrying value of exploration and evaluation assets Key audit matter How the matter was addressed in our audit Refer to Note 16 in the financial report. The carrying value of the Group’s exploration and evaluation asset is impacted by the Group’s ability, and intention, to continue to explore. During the year, the Group continued to focus on its Northern Australia gas exploration projects. The carrying value of the exploration and evaluation assets was a key audit mater due to the significance of the total balance in the statement of financial position and the level of procedures undertaken to evaluate managements application of the requirements of AASB 6 Exploration for the Evaluation of Mineral Resources in light of any indicators of impairment that may be present. Our procedures included, but were not limited to the following:    Obtaining evidence that the Group has valid rights to explore in the areas represented by the capitalised exploration and evaluation expenditure by obtaining supporting documentation such as license agreements and also considering whether the Group maintains the tenements in good standing Making enquiries of management with respect to the status of ongoing exploration programs in the respective areas of interest and assessing the Group’s cash flow budget for the level of budgeted spend on exploration projects and held discussions with management of the Group as to their intentions and strategy. Enquiring of management, reviewing ASX announcements and reviewing directors' minutes to ensure that the Group had not decided to discontinue activities in any applicable areas of interest and to assess whether there are any other facts or circumstances that existed to indicate impairment testing was required. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. 114 Other information The directors are responsible for the other information. The other information comprises the information in the Annual report for the year ended 30 June 2021, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is 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 the Australian Auditing Standards 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 this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf This description forms part of our auditor’s report. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. 115 Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 47 to 58 of the directors’ report for the year ended 30 June 2021. In our opinion, the Remuneration Report of Armour Energy Limited, for the year ended 30 June 2021, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. BDO Audit Pty Ltd R M Swaby Director Brisbane, 30 September 2021 BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. 116 Shareholder information Additional information required by the Australian Securities Exchange Ltd and not shown elsewhere in this report is as follows. The information is current as at 13 September 2021. % 35.2% 13.8% 34.1% 8.8% 4.8% 3.3% 100.0% 22.7% % 86.4% 9.1% 4.6% -% -% -% Distribution Schedules AJQ – Armour Energy Limited fully paid ordinary shares Range 100,001 and Over 50,001 to 100,000 10,001 to 50,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Total Unmarketable Parcels Securities % No. of holders 1,594,025,685 97.3% 22,168,522 19,412,152 1,508,301 335,620 11,166 1,637,461,446 3,402,043 1.4% 1.2% 0.1% -% -% 100.0% 0.2% 731 286 709 183 99 69 2,077 471 Unlisted options exercisable at $0.0782 expiring 30 September 2023 Range 100,001 and Over 50,001 to 100,000 10,001 to 50,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Total Securities % No. of holders 47,585,000 335,000 80,000 - - - 99.1% 0.7% 0.2% -% -% -% 38 4 2 - - - 48,000,000 100.0% 44 100.0% Unlisted options exercisable at $0.05 expiring 29 February 2024 Range 100,001 and Over 50,001 to 100,000 10,001 to 50,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Total Securities % No. of holders 2,000,000 100% - - - - - -% -% -% -% -% 2,000,000 100% 1 - - - - - 1 % 100% -% -% -% -% -% 100% 117 AJQOA – quoted options exercisable at $0.05 expiring 29 February 2024 Range 100,001 and Over 50,001 to 100,000 10,001 to 50,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Total Unmarketable Parcels Securities % No. of holders 521,588,935 99.2% 190 2,897,256 1,248,803 168,836 124,571 8,142 0.6% 0.2% 0.0% -% -% 526,036,543 1,708,420 100.0% 0.3% 37 41 22 43 12 345 121 % 55.1% 10.7% 11.9% 6.4% 12.5% 3.5% 100.0% 35.1% Substantial holders The Company is aware of the following substantial holdings: Name DGR Global Limited (per notice received 9 July 2021) David Rooke (per notice received 16 October 2020) Tenstar Trading Limited (per notice received 23 September 2020) Mr Paul Cozzi (per notice received 23 July 2021) Ordinary Shares – Number Held 313,171,246 66,127,375 65,759,455 97,154,036 Issued Capital % 19.4% 11.2% 6.1% 6.0% 118 Twenty largest holders of each quoted class (as at 13 September 2021) Ordinary Shares (AJQ) Name DGR GLOBAL LIMITED ROOKHARP CAPITAL PTY LIMITED CITICORP NOMINEES PTY LIMITED MR PAUL COZZI J P MORGAN NOMINEES AUSTRALIA PTY LIMITED ASLAN EQUITIES PTY LTD CHOICE INVESTMENTS DUBBO PTY LTD MR GRAEME ANDREW BEARDSLEY & OAKLEY MORAN TRUSTEE CPY LTD PMK PROPERTIES PTY LTD OILEX LTD MR TONY ADAMS MR SIMON WILLIAM TRITTON PINEMONT TECHNOLOGIES AUSTRALIA PTY LTD MR PETER MAROUN KAHWAJI RAPLON PTY LTD UBS NOMINEES PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED STATION CAPITAL PTY LTD DR DENNIS RICHARD LOWE & MRS YVONNE LOWE HAYES INVESTMENTS CO PTY LTD Total of Twenty Largest Holders Total Shares Held Number held 313,171,246 121,279,122 116,892,409 101,143,214 56,928,723 56,560,290 32,720,702 22,000,000 19,000,000 17,030,847 17,000,000 15,012,608 14,080,216 14,000,000 13,208,381 12,420,696 11,167,379 10,807,453 9,673,913 9,000,000 983,097,199 Issued capital % 19.1% 7.4% 7.1% 6.2% 3.5% 3.5% 2.0% 1.3% 1.2% 1.0% 1.0% 0.9% 0.9% 0.9% 0.8% 0.8% 0.7% 0.7% 0.6% 0.5% 60% 1,637,461,446 100% 119 Listed options (AJQOA) Name DGR GLOBAL LIMITED BIZZELL CAPITAL PARTNERS PTY LTD ANTIBELLA PTY LTD ROOKHARP CAPITAL PTY LIMITED JLO ENTERPRISES PTY LTD MR TONY ADAMS CITICORP NOMINEES PTY LIMITED J P MORGAN NOMINEES AUSTRALIA PTY LIMITED CS THIRD NOMINEES PTY LIMITED MR GRAEME ANDREW BEARDSLEY & OAKLEY MORAN TRUSTEE CPY LTD DR DENNIS RICHARD LOWE HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2 TENSTAR TRADING LIMITED SAMUEL HOLDINGS PTY LTD CHOICE INVESTMENTS DUBBO PTY LTD DR DENNIS RICHARD LOWE & MRS YVONNE LOWE BAM OPPORTUNITIES FUND PTY LTD MR PAUL COZZI UBS NOMINEES PTY LTD JETAN PTY LIMITED Total of Twenty Largest Holders Total Listed Options Held Voting Rights All ordinary shares carry one vote per share without restriction. Restricted securities There are no restrictions over any security holdings as at 13 September 2021. Number held Issued Options % 105,526,146 20.1% 42,155,319 26,821,840 22,751,704 20,793,514 19,000,000 18,622,516 14,496,170 11,726,565 10,000,000 9,832,773 8,671,229 8,194,931 7,538,602 7,142,857 7,037,838 6,771,739 6,676,398 6,533,753 5,776,398 366,070,292 526,036,543 8.0% 5.1% 4.3% 4.0% 3.6% 3.5% 2.8% 2.2% 1.9% 1.9% 1.6% 1.6% 1.4% 1.4% 1.3% 1.3% 1.3% 1.2% 1.1% 70% 100% 120 Corporate Directory Directors Nicholas Mather Stephen Bizzell Roland Sleeman Eytan Uliel Executive Chairman Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Company Secretary Karl Schlobohm Registered Office / Principal Place of Business Postal / Contact Address Level 27 111 Eagle Street BRISBANE QLD 4000 GPO Box 5261 BRISBANE QLD 4001 Telephone +61 7 3303 0620 Email info@armourenergy.com.au Share Registry Auditor Solicitors Link Market Services Limited Level 21 10 Eagle Street BRISBANE QLD 4000 BDO Audit Pty Ltd Level 10 12 Creek Street BRISBANE QLD 4000 Hopgood Ganim Lawyers Level 21 Waterfront Place 1 Eagle Street BRISBANE QLD 4000 Stock exchange listing ASX code: AJQ Website www.armourenergy.com.au Corporate Governance Statement Armour Energy Limited's latest Corporate Governance Statement can be found on our website at https://www.armourenergy.com.au/corporategovernance 121 118 

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