More annual reports from Armour Energy Limited:
2023 ReportAnnual Report For the year ended 30 June 2022 1 Competent Persons Statement Technical Statement – Hydrocarbon Reserves The independently verified ‘Armour Energy Hydrocarbon Reserves, 30 June 2022’ 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 2022. 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‐to‐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). 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 ..................................................................................................................................... 7 Sustainability Report ..................................................................................................................................................... 22 Managing Risk ............................................................................................................................................................... 30 Board of Directors ......................................................................................................................................................... 33 Leadership Team .......................................................................................................................................................... 34 Former Directors ........................................................................................................................................................... 35 Directors’ Report ........................................................................................................................................................... 36 Remuneration Report (audited) ..................................................................................................................................... 41 Auditor’s Independence Declaration ............................................................................................................................. 52 Financial Statements ..................................................................................................................................................... 54 Consolidated Statement of Profit or Loss and Other Comprehensive Income ............................................................. 55 Consolidated Statement of Financial Position ............................................................................................................... 56 Consolidated Statement of Cashflows .......................................................................................................................... 57 Consolidated Statement of Changes in Equity .............................................................................................................. 58 Notes to the Financial Statements ................................................................................................................................ 59 Directors’ Declaration .................................................................................................................................................. 101 Independent Auditor’s Report...................................................................................................................................... 102 Shareholder information .............................................................................................................................................. 106 Corporate Directory ..................................................................................................................................................... 110 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, As Executive Chairman of Armour Energy I am acutely aware that the year to 30 June 2022 has brought its fair share of frustration and disappointment to our hopes and aspirations for the Company as reflected in a distressed share price performance. However, I am very pleased to report that progress is now being made to move the business forward. Whilst a range of challenges were experienced during the last financial year, I remain confident in the Company’s future prospects with the continued support of DGR Global Ltd. A number of positive achievements were delivered over the 2022 financial year, these include that the Company continued to focus on reducing debt with the Senior Secure Debt being reduced by $8,800,000 or 26% and the Tribeca Facility reduced by $386,173 or 7%, that preparations were progressed for the drilling of the Enterprise North 1 well in the Otway Basin and that the Warroon #1 well was successfully fracture stimulated. 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, Victoria and Cooper Basins, whilst extracting value from its Northern Basin assets. To assist with funding for future exploration programs and to help accelerate the repayment of the Amour debt position, the Company is continuing to actively progress further asset transactions. In May 2022 Armour agreed binding terms with PZE Limited for an emissions reduction partnership and a divestment of working interests in the Waldegrave JV and Snake Creek East JV. The proposed demerger and separate ASX listing of Armour’s Northern Basin Oil & Gas Business into McArthur Oil & Gas has not progressed as swiftly as initially anticipated. Further revisions to the proposed demerger structure are being considered to ensure that acceptable commercial and taxation outcomes would be achieved following further recent feedback from the Australian Taxation Office that income tax demerger relief is unlikely to be available in relation to the proposed McArthur demerger and IPO transaction. Over the next 12 months, Armour will continue to focus on: The drilling of the Enterprise North 1 well in the Otway Basin. • • Executing the seriatim of planned Surat “in-well-bore” opportunities and partner with industry partners to • increase gas production. Securing a Surat gas sales contract which will ensure that the realised gas price is significantly higher than the current contract price. • Completing the proposed demerger and IPO of the Northern Basin Business into McArthur Oil & Gas or divestment of the assets. • Reducing the operating costs across the business, managing cashflow and improving profitability. • Reducing the Company’s debt burden restructuring the balance sheet. • 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 Coast continues to be strong. Spot gas prices at Wallumbilla have exceeded expectations over the last months, Armour remains confident that prices will continue to provide a strong market demand and prices for our products. Armour believes it’s substantial asset base is poised for near-and long-term growth. The company’s strong acreage positions in the Cooper Basin in South Australia, the Otway Basin in Victoria, the McArthur Basin in the Northern Territory and its production assets in the Surat Basin in Queensland provide it with strategic diversity. Maturing these assets will help support the demands of the East Coast Australian Gas markets. In conclusion, I would like to express my gratitude to the Company’s shareholders and external stakeholders for their continued support and patience during this period. We are very focused and determined, 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 6 Operating and Financial Review 7 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 continued to reduce its debt under the Secured Amortising Notes by $8.8 million. ▪ Armour established an equity-based settlement mechanism to reduce its debt under the Tribeca Facility. ▪ Armour agreed binding terms with PZE Limited for an emissions reduction partnership and a divestment of working interests in the Waldegrave JV and Snake Creek East JV. ▪ Warroon#1 re-stimulation work program, 100% funded by partners, was delivered thereby reducing unit production costs. ▪ Myall Creek #2 workover, 100% funded by partners, was delivered. ▪ Corporate initiatives progressed to provide funding and to realise value from Armour’s project portfolio. ▪ CEO Christian Lange appointment progressed during the financial year. ▪ As part of the annual impairment review, $1.0 million was recognised as an impairment across oil and gas assets, and exploration and evaluation assets. 8 Strategy To support Armour’s growth strategy, it has continued to focus on the below priorities for the 2022 calendar year: Focus Outcome 1 2 3 4 5 6 7 8 Unlocking value for shareholders 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 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 96% operational time for the fourth full year of operation (FY2021: 95%) and an average production of approximately 4.9 TJ/day (FY2021: 6.2 TJ/day) of sales gas plus associated liquids. Average Production per day* FY2022 FY2021 Change Gas (TJ) LPG (T) Oil/Condensate (BBL) 4.9 7.8 102.7 6.2 10.2 121.7 (20%) (24%) (16%) 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 103 barrels (FY2021: 122 barrels) of oil and condensate per day, and approximately 8 tonnes (FY2021: 10 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, continued to be affected by COVID-19 during the financial year. The Company continued to manage its cost base while maintaining operations in these challenging times. 9 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 2022 (30 June 2022). See Table 2. The data from previous Work Programs 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 2022 Certified Reserves Report: ▪ 2P oil reserves numbers lowered primarily from produced FY2022 volumes. ▪ 2P gas reserves numbers lowered only from produced FY 2022 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) Notes to Table 2 1P 35 39.8 82 396 204 2P 128 145.8 301.1 1449 1200 3P 286 325.2 671.5 3232 2610 Table 2 – Combined Armour Energy Reserves ▪ ▪ ▪ ▪ ▪ ▪ ▪ 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 10 Armour remains encouraged by the potential of new pay zones across existing well stock and is looking to exploit them in the upcoming work program. 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 remains focussed on Surat Basin production enhancement work streams. Targeted increased gas production both from in well bore production enhancement programs (including the near-term in-well-bore program outlined below) and proposed new production wells is expected to reduce unit production costs materially. Armour is also investigating opportunities for production facility sharing and rationalisation in its Surat operating area to further reduce production costs. The Warroon #1 well was successfully fracture stimulated in January 2022. Since then, the well has been steadily recovering frac fluids via the gathering network. The well has now recovered the equivalent total volume of the injected stimulation fluids and gas rates have increased each month since the activity was executed, achieving a high of close to 600 MSCF/D. Currently rates have stabilised around 550 MSCF/D with condensate production at 14 BBLS/D. An intermitter unit is being employed to cycle the well up to 4 times per day to promote liquids recovery. And while this is a positive result, the well is currently being assessed for further optimisation opportunities to improve production. This may include a coil tubing conveyed velocity string or a plunger lift system. Myall Creek #2 continues to flow gas to sales via the Myall Creek compressor station. The Tinowon C has previously been confirmed as a potentially suitable fracture stimulation target. Additional reservoir and petrophysical work is progressing, with data collected, to consider the viability of other intervals for stimulation, namely the Back Alley, Bandana and Basal Rewan formations. Both a single and multi-stage facture stimulation project are under consideration. The intent is to complete the technical analysis shortly and, if the further fracture stimulation(s) are considered viable, undertake a stimulation program in late Q3-2022/early Q4 pending equipment availability. With the support of our funding partner, Armour will continue to be 100% free carried through the next phase of activity. Armour has developed a seriatim of “in-well-bore” opportunities planned to be executed over the second half of 2022 in its Queensland Surat assets. The programme is designed to target a range of initiatives to arrest premature decline, restore production and access bypassed pay zones. The programme includes the installation of automated intermitter units, connection of an existing stranded well bore, installation of well head oil pumping facilities, and recompletions including a well clean out, sucker rod pump install and recompletions targeting behind pipe bypassed pay. The culmination of this work programme is targeting a combined (initial production rate) uplift of 1.5 MMSCF/D and 10 BBLS/D of crude oil. Works are scheduled to commence from July 2022. 11 Figure 5 – Carbean #01 Logging Figure 6 – Armour Surat Basin Assets 12 Figure 7 – Myall Creek #3 Linear Rod Pump Surat Basin Exploration During the reporting period Armour continued to focus on developing a multi-year exploration programme based on building a deep portfolio of exploration leads and drill-ready prospects. The exploration strategy is underpinned by extracting further value in existing areas with existing 3D coverage including Myall Creek Gas Field area as well as progressively acquiring new 3D seismic across priority areas defined by comprehensive remapping of legacy 2D seismic data across the Surat PL’s. New 3D seismic data will provide a superior understanding of the structural and stratigraphic complexities of the target areas, compared to the existing legacy 2D seismic, by utilising world class nodal technology, thereby unlocking the significant remaining prospectivity of the areas and providing numerous low-risk, highly economic drill ready prospects targeting both gas and oil. Proximity to Armour’s infrastructure will provide rapid monetisation of discovered hydrocarbons. Throughout the Reporting Period Armour progressed planning activities for 3D seismic acquisition in 2022 to de-risk drilling opportunities in the PL22, PL53, PL89, PL227, PL511 and ATP-2032P asset areas . The planning included an initial feasibility study followed by detailed design work, stakeholder engagement and work tendering. These plans have been accelerated following a farm-in arrangement with Gas2Grid (refer Commercial Section). The total 3D seismic area to be acquired will be approximately 400 km2, larger than any 3D Seismic survey ever completed in the Surat Basin and represents the first seismic acquisition in the project area in 25 years. Geophysical attribute analysis of the Myall Creek 3D seismic identified an anomaly north east of the Myall Creek field which has been one of the most prolific fields within Armour’s Surat acreage. Armour was sufficiently encouraged to proceed with testing feasibility of detailed inversion processing of the Myall Creek 3D seismic dataset, with the key objective to delineate reservoir facies distribution within the Tinowon Formation across the area. Results of the feasibility work are currently being analysed with a view to proceeding to production inversion processing of the full 3D seismic volume in Q1 2022 calendar year. Interpretation of the inversion dataset is anticipated to lead to identifying further drilling opportunities across the Myall Creek area for potential drilling in Q3/Q4 2022 calendar year. In addition, advanced wireline logging and petrophysical re-evaluation of the Myall Creek and Riverside gas fields indicates significant bypassed pay in the Permian and Triassic reservoirs within existing wellbores in these fields. Structurally high locations within the greater Riverside field identified on 3D seismic also provide attractive appraisal/development opportunities. Technical workflows have been maturing these opportunities, with follow-up drill and fracture stimulation operations planned for 2022. 13 Victoria Assets Preparations are progressing for the drilling of the Enterprise North 1 well in the Otway Basin following the lifting of the drilling moratorium in Victoria. The Enterprise North prospect is in Victorian tenement, PEP 169 (Armour 51% interest and operator) and is on trend with the Enterprise 1 discovery (Beach Energy) and Minerva gas field (Cooper Energy). New transition seismic interpretation has identified the Enterprise North prospect as an analogue of the Enterprise Gas field recently discovered by Beach Energy in the adjacent tenement to PEP169. The Enterprise 1 discovery well flowed on test at 61 million scfd and 2P gas reserves of 161PJ have been assessed (Beach Energy Ltd - ASX release 15 February 2021). The Enterprise North 1 prospect is well located relative to gas pipeline, processing and storage infrastructure with two nearby gas processing plants with current excess capacity providing a potential near-term processing option to expedite commercialisation of a discovery. Northern Basin Business McArthur Basin Armour holds a commanding position in the McArthur Basin. Figure 8 – Location Map of granted Permits and Application Blocks that form the Northern Basin Business 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 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. 14 ▪ 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. 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. 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. 15 Northern Territory Exploration Between late June and late July Armour completed the acquisition of a 20,000 km2 airborne geophysical survey, which was the largest airborne survey of its type to be undertaken in the Northern Territory. The survey was aimed at detecting anomalies in areas of upward fluid flow of migrating hydrocarbons above fluid pathways and/or hydrocarbon accumulations. The survey was designed to provide information over existing prospects and leads, and a regional context upon which to plan future follow up exploration work The survey covered all or substantial portions of six (6) exploration permits (EPs 171, 174, 176, 190, 191 and 192) These permits cover the highly prospective Batten Fault Zone and several oil and gas play fairways, including the proven Coxco Dolomite Play (Glyde gas discovery), which encompass 193 conventional prospects and leads within McArthur and Tawallah Group reservoirs identified by previous exploration work. See Figure 9 for the map of the survey area. Figure 9 – Map and cross section over the area covered by the Airborne Geophysical Survey 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 flow of petroliferous and metalliferous fluids as well as, micro-seepage from hydrocarbon accumulations. The survey was conducted out of the Town of Borroloola and was completed ahead of schedule and within budget. Importantly, the survey was both non-invasive and had a very low environmental impact, and all landholders within the coverage area had been notified of the airborne programme. The data acquired during the survey is high quality and is being incorporated into the regional evaluation of the area. 16 Cooper Basin Assets Figure 10 – Pre-dawn preparations Boroloola Airport Cooper Basin Overview Armour holds 30 licences in the South Australian portion of the Cooper Basin. This makes Armour the 3rd largest net acreage holder in is area. Many of the licences contain legacy 3D seismic data coverage. Armour currently holds 100% interest in all licences. Petroleum Exploration Licence (“PEL”) 112 and PEL 144 cover 1,086 km2 and 1,166 km2 respectively and newly awarded PEL 677 covers 545 km2. 27 Petroleum Retention Licences (“PRL’s”) cover a total 2,445 km2. In these PRLs Senex Energy (now a part of K-A Energy 1 Pty Ltd, the subsidiary nominated by POSCO INTERNATIONAL corporation in a recent scheme of arrangement) retains 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 undertook technical desk studies utilising the company’s knowledge of the both the Cooper basin and the Surat Basin which have many geological similarities. 3D seismic Quantitative Interpretation work was carried out along with the application of Artificial Intelligence evaluation of the 3D data. This work incorporated a variety of data sets as well as Armour’s basin experience. The focus of the exploration efforts has been on areas with existing 3D seismic coverage aimed at demonstrating the extension of the Western Flank Oil Fairway in South Australia across the Company’s portfolio of acreage. The work aims to identify stratigraphic and subtle trends and traps which are known to produce oil on the successful oil rich Western Flank of the Cooper Basin. Advanced planning has been undertaken for the acquisition of an AEM-PTP passive electromagnetic survey to locate geophysical responses related to the upward flow of migrating proliferous and/or metalliferous fluids along with micro-seepage from hydrocarbon accumulations. This is a risk reduction exercise and a low-cost way to rapidly cover large areas in a reconnaissance survey. 17 Figure 11 – Location map of the Cooper Eromanga assets 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. NSAI have independently estimated a Mean Unrisked recoverable prospective resource estimate of 219 mmbls. This prospective resource estimate will be updated following the 2D seismic program and surface geochemistry study in 2022. Over 160 line kilometre of new 2D seismic has been acquired and processed to improve prospect definition pre 2023 drilling. Armour Energy Uganda is planning for its first exploration well which is proposed to be the deepest well ever drilled in the Albertine Graben at approximately 4000m vertical depth. 18 Figure 12 – Location map of the Uganda assets Corporate Activities Capital Raising A capital raising on 27 September 2021 comprised the following components: • $5.7 million of New Shares with attaching AJQOA $0.05 options expiring on 29 February 2024. • $2.4 million of Conditional Placement with attaching AJQOA $0.05 options expiring on 29 February 2024 that were subject to shareholder approval, which was granted on 25 November 2021 with the options issued on 23 December 2021. 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. In April 2022 Armour received approval from Noteholders for amendments to the Conditions of the Secured Amortising Notes. The approved amendments include: In short, the approved amendments include the following: 1. Waiver of any breach of certain Financial Undertakings including the Debt Service Cover Ratio and the Leverage Ratio that may have arisen prior to the date on which the Circulating Resolution is passed; 2. Amendments to Financial Undertakings, including the Debt Service Cover Ratio and the Leverage Ratio Armour must maintain; 3. Amendments to increase a certain limit on incurring Financial Indebtedness; 4. Consent from Noteholders to extend the due date for the environmental bonding finance facility. Executive Leadership Team Christian Lange was appointed to CEO and commenced his role on 25 July 2022. Mr Lange is a highly experienced executive within both the Australian and International resources industries, having spent over 30 years in executive and operational roles globally. Christian was an executive at leading global oil and gas field services provider, Schlumberger where he spent 18 years in executive and operational management in 19 Australia/NZ, the Middle East, the United Kingdom, Venezuela and the USA. Christian was also previously the Managing Director and CEO of ASX listed Neptune Marine Services, a company that he developed from a single technology start up, to a company employing over 700 people and operating in major offshore provinces. Recently, Christian was the Founder and Managing Director of Griffin Energy Solutions, a specialist well engineering and project management company. Christian holds an MBA from the Curtin Graduate School of Business and is a member of the Society for Petroleum Engineers (SPE). Mr Geoff Walker was appointed as Chief Financial Officer and joint Company Secretary of the Company. Mr Walker is a chartered accountant and member of the Australian Institute of Company Directors. He has 30 plus years of financial and commercial experience including previous Chief Financial Officer roles with ASX listed Eagers Automotive Limited, Range International Limited and Kina Petroleum Limited. Mr Walker brings extensive experience formulating and executing strategic initiatives while managing change and growth. Mr Walker is also currently CFO and Company Secretary for DGR Global Ltd, Armour’s largest shareholder and through this role he has a good working knowledge of Armour’s business and strategic objectives Financial Review Results for the financial year 2022 2021 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 17,985 6.40 (2,210) (2,742) (1,004) (11,006) (2,888) (2,271) 3,255 (35,717) (0.6) (0.6) 17,502 5.90 (3,621) (5,217) (12,353) (11,592) (7,062) (11,123) 2,358 (39,110) (1.0) (1.0) 483 0.50 1,326 2,475 10,589 1,800 5,219 10,286 898 2,157 0.4 0.3 Sales Revenue Table 5 – Summary of financial results Year-on-year sales were 3% higher due to higher average prices received during the year. Development Expenditure Change % 3% 8% (37%) 47% 91% 16% 74% 92% 38% 6% 40% 43% Armour’s Development Expenditure of $0.8 million primarily represents the 2021/22 Work Program (2020/21: $11.1m) in the Surat Basin. Non-cash impairment As part of Armour’s annual impairment review, there was a total of $1.0 million (2020/21: $12.4m) identified to be written-off. The impairment relates to various oil & gas assets including the relinquished ATP1107 and certain costs historically capitalised to the Northern Basin assets. Debt In 2022 Armour continued to reduce its total debt. The Secured Amortised Notes reduced by $8.8 million, to $24.9 million. With an original face value of $55 million, Armour has now reduced the Notes by over 50% and is scheduled to make the final principal repayment in March 2024. Repayment of the Tribeca Facility held by the Company was also progressed by establishing an equity-based settlement mechanism. McArthur NT Pty Ltd, a subsidiary of Armour, issued Redeemable Exchangeable Notes to the value of $5.9m during the year at an issue price of $1 and a coupon rate of 15%. 20 Financial performance and cash flows Revenue from contracts with customers Cost of goods sold Gross profit/(loss) Net (loss)/gain on sale of assets Other income and expenses Finance income Finance expenses Impairments Income tax benefit Consolidated 30-Jun-22 $'000 17,985 (16,641) 1,344 (35) (6,288) 9 (5,206) (1,004) 174 30-Jun-21 $'000 17,502 (22,151) (4,649) 15,857 (4,201) 70 (6,316) (12,353) - Loss after income tax expense (11,006) (11,592) Table 6 – Financial Performance 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 (Loss)/gain on disposal of PPE Consolidated 30-Jun-22 $'000 (5,863) (9) 2,623 1,004 35 30-Jun-21 $'000 (5,278) (70) 5,231 12,353 (15,857) EBITDA (non- IFRS measure) (2,210) (3,621) Table 7 – EBITDA 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 (used in) operating activities Net cash (used in)/from investing activities Net cash from financing activities Consolidated 30-Jun-22 $’000 2,358 (2,888) (3,595) 7,380 30-Jun-21c $’000 3,246 (7,062) 4,773 1,401 Net cash at the end of the year 3,255 2,358 Table 8 – Summary of cashflows In the year ended 30 June 2022, total net cash inflow was $897,000 million. The net cash outflow from operating activities was $2,888,000 million with $20,528,000 million of revenue positively contributing from operations. 21 . Sustainability Report 22 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 2022 713 Days Since Last Safety Incident 0 TFIFR 0 Recordable Environmental Incidents 1,131 Days since last reportable environmental incident Armour continues to align itself successfully with the government guidance in regard to the ongoing management of Covid –19. We have special regard to the remote and small communities where we operate and will continue to put our employees, contractors and the communities first. Health and Safety The safety of our employees, contractors, and the communities where we operate continues to be Armour priority. We are constantly investing and enabling improvement in HSE and pride ourselves on our considered and practical approach. For the 2022 financial year, Armour reported zero recordable incidents and has achieved well in excess of 1,000 days recordable incident free with the company TRIFR at 0. A Our ‘Beyond 0’ HSE action plan has focused on driving safety behaviours to ensure Armour workers operate with a low risk tolerance and that safety performance demonstrate that Armour is a credible safety organisation 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. 23 Environment Armours operations are subject to environmental regulation under federal and state legislation. For the year ended 30 June 2022, Armour Energy reported outstanding environmental performance with zero recordable environmental incidents reported with 1,131 days reportable incident free. 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. 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. 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 can confirm that for the period 2021- 2022, it met the corporate group thresholds prescribed by the National Greenhouse Gas Reporting (NGER) Act with reporting to be completed in October 2022. 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. 24 ▪ 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. ▪ 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: ▪ 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. ▪ Armour has 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. 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. 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. 25 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. 26 People 37 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 37 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. 27 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. Local businesses such as 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. 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. 28 Community Armour is 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 2022, Armour donated to 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. 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. 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 37 people at 30 June 2022 as well as a number of independent contractors. Armour contributed $1.6 million (2021:$1.2m) in royalties and $0.4 million (2021:$0.6m) in payroll tax to the Queensland Government. 29 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. 30 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. 31 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 2022, Armour remained funded with the ability to raise cash reserves 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 $8.2 million private placement announced on 27 September 2021 and $5.9m raised by McArthur NT Pty Ltd via Redeemable Exchangeable Notes during the last 12 months. 32 Board of Directors Nicholas Mather (appointed 18 December 2009) Executive Chairman BSc (Hons, Geol), MAusIMM Stephen Bizzell (appointed 9 March 2012) Eytan Uliel (appointed 20 November 2017) Non- Executive Director BCom, MAICD, SA Fin Independent Non-Executive Director BA, LLB currently takeover 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 of and 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 takeover by Arrow Energy Pty Ltd. Nick is Executive Chairman and a member of the Remuneration Committee. Current directorships/other interests DGR Global Limited (26/10/2001 – current) NewPeak Metal Limited (22/01/2003 – current) Aus Tin Mining Limited (21/10/2010 – current) Lakes Blue Energy NL (07/02/2012 – current) SolGold plc (LSE and TSX) (11/05/2005 – current) Former directorships (last 3 years) Atlantic Lithium Ltd (A11) (formerly Iron Ridge Resources Limited) (05/09/2007 - 28 June 2021) Interests in shares: 9,019,912 Interest in options: 7,978,634 of Queensland Stephen Bizzell is 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 Treasury Corporation, Stanmore Coal Ltd, Diversa Ltd, Apollo Gas Ltd, UIL Energy Ltd and Dart Energy Ltd. He qualified as a Chartered considerable has Accountant experience fields of corporate restructuring, debt and equity financing, and mergers and acquisitions and has over 25 years’ corporate finance and public experience. company management Stephen is a member of the Audit & Risk Management Committee, Remuneration Committee and the Health, Safety and Environment Committee. and the in Current directorships/other interests MAAS Group Holdings Limited (21/10/2020 – current) Renascor Resources Limited (Appointed 01/09/2010 – current) Laneway Resources Limited (28/06/1996 – current) Strike Energy Limited (31/12/2018 – current) Challenger Energy Group Plc (01/06/2021– current) Former directorships (last 3 years) UIL Energy Limited (01/08/2014 -27/12/2018) Stanmore Coal Limited (05/10/2009 - 15/05/2020) Interests in shares: 19,287,066 Interest in options: 48,969,324 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 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. leading Australian Eytan is Chair of the Audit and Risk Management Committee. Current directorships/other interests None Former directorships (last 3 years) None Has no interest in Armour Energy shares or options. 33 Leadership Team Christian Lange Michael Laurent Geoff Walker Chief Executive Officer Chief Operating Officer B.Eng (Mech) is a Lange Christian highly experienced executive within both the Australian and International resources industries, having spent in executive and over 30 years operational roles globally. Christian was an executive at leading global oil and gasfield services provider, Schlumberger where he spent 18 years in executive and operational management in Australia/NZ, the Middle East, the United Kingdom, Venezuela, and the USA. Christian was also previously the Managing listed Director and CEO of ASX Neptune Marine a company that he developed from a single technology start up, to a 700 company employing over in major people and operating offshore Recently, Christian was the Founder and Managing Director of Griffin Energy Solutions, a specialist well engineering and project management company. Christian holds an MBA from the Curtin Graduate School of Business and is a member of the Society for Petroleum Engineers (SPE). provinces. Services, in gas and both oil & emphasis conventional Michael Laurent is a professional engineer with over 20 years of industry diverse experience, having successfully held various senior managerial and GM positions. His career spans a number of sectors and includes reservoir, drilling, expertise facilities, production and operations with particular on resource business is development. His experience underpinned with strong strategic, commercial and technical acumen in and unconventional reservoirs. Career accomplishments include a track record P&L of responsibility ensuring operational objectives and budgets are met. Prior to joining Armour, Michael held a variety of domestic and technical leadership roles. Most recently he worked for Santos where he was responsible for managing Cooper Basins gas appraisal/development wells and from field optimisation inception through to approval and implementation. accepting and international initiatives and oil Chief Financial Officer & Joint Company Secretary B.Bus, CA, GAICD and Geoff Walker is a chartered accountant and member of the Australian Institute of Company Directors. He has 30 plus years of financial commercial experience including previous Chief Financial Officer roles with ASX listed Eagers Automotive Limited, Range International Limited and Kina Petroleum Limited. Mr Walker brings extensive experience formulating and executing strategic initiatives while managing change and growth. Mr Walker is also currently CFO and Company Secretary for DGR Global Ltd, Armour’s largest shareholder and through this role he already has a good working knowledge of Armour’s business and strategic objectives. 34 Former Directors Roland Sleeman (11 October 2011 – 31 March 2022) Independent Non-Executive Director B.Eng. (Mech), MBA Roland Sleeman has over 40 years energy industry experience, including in oil and gas production and processing, electricity generation and gas transmission. He has had roles ranging from negotiation and management of major energy contracts, including those for 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 was the Chair of Remuneration Committee, Chair of the Health, Safety and Environment Committee and was also 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: NIL Interest in options: NIL 35 Directors’ Report 36 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 2022. 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. There were no 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 7 to 21 of this report and forms part of the Directors’ report. Material risks to the Company are discussed on pages 30 to 32. 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 Eytan Uliel Executive Chairman Non-executive director Independent non-executive director Their qualifications, experience and special responsibilities are included on page 33. Company Secretary Geoff Walker perform Armour’s Company Secretary duties. A Boardroom Pty Limited appointee, Ms Natalie Climo, performed Company Secretarial duties over a six-month period during the financial year while the Company transitioned to a new sole Company Secretary. Details of Mr Walker’s qualifications and experience are set out on page 34. 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 2022, 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 14 14 11 14 14 14 10 13 2 2 2 2 2 2 Held: represents the number of meetings held during the time the Director held office or was a member of the relevant committee. No Remuneration Committee meetings were held during the 2022 financial year. 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. 37 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 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 29-Sep-21 23-Dec-21 2-May-22 2-May-22 Total Date of Expiry 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 29-Feb-24 29-Feb-24 29-Feb-24 29-Feb-24 Exercise Price $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 $0.05 $0.05 $0.05 $0.05 Number under option 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 73,397,439 64,530,769 12,083,333 48,333,334 774,381,418 No option holder has any right under the options to participate in any other share issue of the company or any other entity. 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. 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. 38 Events after the Reporting Date Other than the below subsequent events, no other matter or circumstance has arisen since 30 June 2022 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. ▪ Other Financial Assets - On 28 March 2022 Armour entered into a number of agreements to dispose of the Company’s Lakes Blue Energy NL (LKO) shareholding comprising 2,125,000,000 Ordinary shares under escrow until 2 August 2022 at 0.06c each. The disposal was subject to LKO agreement, and the escrow being retained by buyers. ▪ The legal ownership transfer of the disposed shares from Armour Energy to the respective purchasers occurred following 30 June 2022. A change in the fair value of these equity investments was adjusted through other comprehensive income and the revalued book value is $1,275,000.The Other Financial Assets current assets held for sale are classified in the Corporate reportable segment. ▪ Mr Christian Lange was appointed as Chief Executive Officer of the Company on 25 July 2022. ▪ Armour entered into a funding agreement with Armour’s largest shareholder, DGR Global Ltd, for the provision of a $4.5M facility to be drawn over three months. This funding is provided by way of a placement of redeemable exchangeable notes to be issued by Armour’s subsidiary, McArthur NT Pty Ltd, at an issue price per note of $1.00 and otherwise on the terms and conditions set out in the Redeemable Exchangeable Note Trust Deed. 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 $6,688,000. 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 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. 39 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 40 to the financial statements. The non-audit services totalling $17,970 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 40 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. 40 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 and service agreements. ▪ ▪ Group performance and link to remuneration. ▪ Other transactions with key management personnel and their related parties. Share-based compensation. 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 2022 financial year: Name Directors Nicholas Mather Stephen Bizzell Eytan Uliel Executive KMP Christian Lange Michael Laurent Geoff Walker Former Director Roland Sleeman Former Executive KMP Toni Hawkins Karl Schlobohm Bradley Lingo Mark Greenwood Craig Gouws* * became KMP 20 December 2021 Position Period of Service Executive Chairman Became KMP 1 July 2011 Non-Executive Director Independent Non-Executive Director Became KMP 8 March 2012 Became KMP 20 November 2017 Chief Executive Officer Chief Operating Officer Chief Financial Officer Became KMP 25 July 2022 Became KMP 1 July 2020 Became KMP 25 May 2022 Independent Non-Executive Director Ceased KMP 31 March 2022 Chief Financial Officer Company Secretary Chief Executive Officer Chief Commercial Officer Chief Financial Officer Ceased KMP 31 December 2021 Ceased KMP 31 January 2022 Ceased KMP 4 April 2022 Ceased KMP 3 June 2022 Ceased KMP 3 June 2022 Michael Laurent resigned as COO of the Company on 30 August 2022, with a three-month notice period, to pursue other opportunities. 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. 41 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. Details of remuneration and service agreements 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. 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 42 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 $40,000 per annum, plus reasonable expenses for travel and accommodation, 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 2022 is detailed on page 46 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. 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. 43 The combination of these comprises the executive's total remuneration. The remuneration of executive directors and other KMP for the year ended 30 June 2022 is detailed on pages 46-47 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 Christian Lange Michael Laurent Geoff Walker Executive Chairman Chief Executive Officer Chief Operating Officer Chief Financial Officer Ongoing Ongoing Ongoing Ongoing By Executive 12 months 3 months 3 months 3 months By Company 12 months 3 months 3 months 3 months Apart from the CEO, who has his own incentive plan (see below) 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 was entitled to a base salary of $299,000 inclusive of superannuation, 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 A stabilised flow rate of in excess of 14TJ’s per day from the Kincora Gas Project. 3 The Board approving a farm-out or commercial agreement in respect of the NT Assets. TOTAL In addition to the bonus payment, Mr Lingo was entitled to the below Performance Shares: No Performance Criteria 1 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 2 the closing price for Shares on the last trading day before the Commencement Date. The Board approving a farm- out or commercial agreement in respect of the NT Assets. 3 4 The Board approving a refinancing of the FIIG Notes. 5 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. Contributed percentage 50% 25% 25% 100% Number of shares 900,000 1,800,000 1,350,000 1,350,000 900,000 900,000 (a) The Kincora Gas Project; and (b) The CoEra Assets. As the performance criteria was not met during the year, no performance shares were issues to Mr Lingo during the financial year. 44 Mr Lange is entitled to base remuneration of $480,000 inclusive of superannuation plus a bonus of up to 100% of base salary per annum, measured and weighted against progress towards and achievement of agreed KPI’s. No KPI’s Contributed Percentage 1 2 3 4 5 6 7 8 9 Negotiate a new gas sales agreement with $8M upfront payment and renegotiate the current APLNG contract. Negotiate $160M farm-out of NT projects which maintains a minimum 30% equity for AJQ. Negotiate a deal with AGL on Silver Springs Facility to substantially reduce AJQ Surat OPEX. Be instrumental in raising a minimum of $3M through an issue of AJQ notes to Bizzell Capital Partners clients. Raise a minimum of $5M through an issue of AJQ shares at an appropriate time. Deliver a $15M Surat Basin Farm-out deal on 5 wells and 400sqkm of 3d seismic. Successfully renegotiate Tribeca debt facility into Armour Notes. Successfully renegotiate FIIG bonds into Armour Notes. Lead completion of the in-well-bore remediation work and maintain well productivity safely and within budget. 10 Overall lifting production to at least 10Tj’s per day and making new discoveries of at least * * * * * * * * * * 30Pj’s. *Mr Lange’s KPI contribution percentages are yet to be agreed. In addition to the bonus payment, Mr Lange is entitled to a Long-Term Incentive Plan: The receipt of 40 million options as follows, with initial tranche vesting after 1 year’s employment with AJQ, satisfactory progress towards and achievement of KPI’s and once the 30-day VWAP exceeds $0.025, $0.05 and $0.10 respectively: • 13 million with an exercise price of $0.009 • 13 million with an exercise price of $0.025 • 14 million with an exercise price of $0.05 Voting and comments made at the Company's 2021 Annual General Meeting ('AGM') At the 2022 AGM, 77.29% (2021: 97.9%) of the eligible votes received supported the adoption of the remuneration report for the year ended 30 June 2021. The Company did not receive any specific feedback at the AGM regarding its remuneration practices. 45 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. Short-term benefits Post-employment benefits Share-based payments Year Cash salary and fees $ Cash bonus $ Non- monetary $ Superannuation Shares Directors: N Mather S Bizzell E Uliel 2022 2021 2022 2021 2022 2021 168,000 168,000 40,000 40,000 40,000 40,000 Current other Key Management Personnel: M Laurent G Walker* Total Current KMP 2022 2021 2022 2021 2022 2021 336,061 339,361 15,375 599,436 587,361 - - - - - - - - - - - - - - - - - $ - - - - - - 68,108 47,074 - N/A 68,108 47,074 23,568 22,156 2,050 25,618 22,156 $ - - - - - - 60,950 60,950 5,125 66,075 60,950 Total $ Relating to performance % 168,000 168,000 40,000 40,000 40,000 40,000 488,687 469,541 22,550 759,237 717,541 - - - - - - - - - - - 46 Previous Directors: R Sleeman** Year 2022 2021 Cash salary and fees $ 30,000 40,000 Previous other Key Management Personnel: K Schlobohm*** B Lingo*** M Greenwood# T Hawkins C Gouws* R Arden* Total Current KMP 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 23,871 40,000 173,048 276,708 272,733 20,000 153,942 150,292 112,138 - 41,497 1,365,168 1,155,890 Short-term benefits Cash bonus $ - - - - - - - - - - - - - - - Non- monetary $ - - - - 38,395 24,069 - 4,809 - 15,581 - N/A - - 106,503 91,533 Post-employment benefits Share-based payments Superannuation Shares $ - - - - 15,289 24,309 23,568 2,695 11,784 13,059 11,880 - 2,908 88,139 65,127 $ - - - - 7,299 92,102 90,121 58,333 30,095 35,094 27,832 - - 155,347 246,479 Total $ 30,000 40,000 23,871 40,000 234,031 417,188 386,422 85,869 195,821 214,026 151,850 - 44,405 1,781,232 1,559,029 Relating to performance % - - - - 3.1 - - - - - - - - 3.1 - * Mr Walker was employed as CFO from 25 May 2022. Mr Gouws was employed as CFO from 20 December 2021 to 3 June 2022. Mrs Hawkins was employed as CFO from 1 December 2020 to 31 December 2021. Mr Aden was employed as CFO from 23 July 2019 to 07 August 2020 ** Mr Sleeman resigned as director on 31 March 2022. *** Mr Schlobohn resigned as Company Secretary on 31 January 2022. **** Mr Lingo resigned as Chief Executive Officer on 4 April 2022. # Mr Greenwood was employed as Chief Commercial Officer from 1 June 2021 to 3 June 2022. 47 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 and is set at a maximum 50% of base annual salary. Apart from the CEO, 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 2022. Share-based compensation For the year ended 30 June 2022 $920,476 of other employment benefits were taken as ordinary shares in lieu of cash (2021: $287,615). 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 2022 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 2022, there were no options granted as remuneration to Key Management Personnel (2021: NIL). There are no options on issue over unissued ordinary shares in Armour Energy Ltd on 30 June 2022 to Key Management Personnel. Performance Shares There were no performance shares granted or vested during the year. With Mr Lingo’s resignation his performance shares that remained unvested (5,850,000) were forfeited. 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 (2021: NIL). 48 Shareholdings The details of all ordinary shares in Armour Energy Ltd as of 30 June 2022 held by Key Management Personnel is set out below: Key Management Personnel Directors N Mather S Bizzell Executive KMP M Laurent Former KMP R Sleeman K Schlobohm T Hawkins Mark Greenwood Craig Gouws Balance at 1-Jul-21 Number 6,169,912 13,287,066 Granted as/ in lieu of compensation Number - - Net changes Balance at Other 30-Jun-22 Number 2,850,000 6,000,000 Number 9,019,912 19,287,066 3,150,000 2,455,375 - 5,605,375 59,999 650,002 516,031 - - - 664,498 1,309,068 5,070,947 1,045,000 23,833,010 10,544,888 (59,999) (1,314,500) (1,825,099) (5,070,947) (1,045,000) (465,545) - - - - - 33,912,353 Note: "Net change other" above includes the balance of shares held on appointment / resignation, 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 other shares held nominally as of 30 June 2022 (2021: NIL). Option holdings The details of all option holdings in Armour Energy Ltd as of 30 June 2022 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-21 Net Change other Balance at 30-Jun-22 Total vested Total Vested and exercisable Number Number Number Number Number 6,867,134 33,206,324 1,111,500 26,998,108 7,978,634 60,204,432 7,978,634 60,204,432 7,978,634 60,204,432 129,476 250,000 (129,476) - - 250,000 - 250,000 - 250,000 40,452,934 27,980,132 68,433,066 68,433,066 68,433,066 "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. 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. 49 Performance rights shares The following table illustrates the number of, and movements in, performance shares issued for during the year. Key management personnel Balance at 1-Jul-21 Net Change other Number Number B Lingo 7,2000,000 (5,850,000) Balance at 30-Jun-22 Number 1,350,000 Total vested Number 1,350,000 Options There were no other options held nominally on 30 June 2022 (2021: NIL). 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 2022 was 0.6 cents per share. The earnings of Armour for the five years to 30 June 2022 are summarised below: Sales revenue Loss after income tax 2022 $’000 17,985 (11,006) 2021 $’000 17,502 (11,592) 2020 $’000 21,104 (9,571) 2019 $’000 27,819 (11,684) 2018 $’000 14,749 (12,198) 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) 2022 0.6 2021 2.6 2020 2.0 2019 6.7 2018 9.0 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 2022. 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. 50 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 100 - - - - 425,000 - - 100 425,000 Interest Principal $ $ 7,166 31,696 Additions / Disposals Total paid during 2022 $ - $ 38,862 Corporate bond holdings Stephen Bizzell MOG Notes Stephen Bizzell Corporate bond payments Stephen Bizzell 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 and related entities 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 September 2021. Armour Energy & McArthur Oil & Gas completed capital raising during the year with Bizzell Capital Partners jointly lead capital raisings and was paid, along with related entities management, capital raising fees and other fees totalling $503,927 (FY2021: $468,505) on arm’s length terms. As at 30 June 2022, Bizzell Capital Partners and related entities controlled by Mr Stephen Bizzell held 19,287,066 shares (2021: 13,287,066), 60,204,432 options (2021: 33,206,324) of which 6,000,000 were unquoted options (2021: 6,000,000), 425,000 convertible MOG notes, and 100 corporate bonds (2021:100). The corporate bonds were purchased on the same terms and conditions as all other bondholders. Samuel Holdings Pty Ltd and related entities Samuel Holdings Pty Ltd is an entity controlled by Mr Nicholas Mather (Executive Chairman) who is the sole director. As at 30 June 2022, Samuel Holdings Pty Ltd and related entities controlled by Mr Nicholas Mather held 9,019,912 shares (2021: 6,169,912) and 7,978,634 options (2021: 6,867,134) in the Armour Group. Other than the above, there were no other transactions with Key Management Personnel for the year ended 30 June 2022. This concludes the Remuneration report, which has been audited. 51 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 2022 52 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 2022, 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 2022 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. 53 Financial Statements For the year ended 30 June 2022 These consolidated financial statements should be read in conjunction with the accompanying notes 54 Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2022 Consolidated 30 June 2022 30 June 2021 $’000 $’000 Note Revenue Revenue from contracts with customers Cost of goods sold Gross profit Net (loss)/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 benefit Loss after income tax expense for the year attributable to the owners of Armour Energy Limited Other comprehensive income 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 Income tax items that will not be reclassified to profit or loss Other comprehensive income for the year, net of tax Total comprehensive loss for the year attributable to the owners of Armour Energy Limited Basic loss per share Diluted loss per share 7 8 7 7 7 17 9 8 18 8 10 19 10 11 11 17 985 (16,641) 17,502 (22,151) 1,344 (4,649) (35) 404 9 (489) (5,206) (5,974) (515) (718) 15,857 601 70 (853) (6,316) (4,338) (11,500) (464) (11,180) (11,592) 174 - (11,006) (11,592) 1,275 (174) 1,101 (637) (637) (9,905) (12,229) Cents Cents (0.6) (0.6) (1.0) (1.0) These consolidated financial statements should be read in conjunction with the accompanying notes 55 Consolidated Statement of Financial Position As at 30 June 2022 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 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 25 22 23 26 27 28 Consolidated 30 June 2022 30 June 2021 $’000 3,255 1,544 2,535 1,348 8,682 3,262 11,944 355 34,266 50,536 9,614 1,108 214 96,093 $’000 2,358 2,104 2,097 876 7,435 - 7,435 230 32,013 52,763 10,778 1,361 36 97,181 108,037 104,616 12,184 274 454 21,821 34,733 13,896 851 49 6,688 21,484 56,217 51,820 145,983 125 (94,288) 51,820 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 56 These consolidated financial statements should be read in conjunction with the accompanying notes Consolidated Statement of Cashflows For the year ended 30 June 2022 Consolidated 30-Jun-22 30-Jun-21 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 Deposits received for investment sales 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 Proceed from issue of notes Proceeds from funding partners Payment of principal portion of lease liability Repayment of borrowings Transaction costs on the issue of shares and notes Net cash from financing activities 13 13 13 Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the reporting period 20,528 (20,281) 3 (43) (3,095) - (2,888) 706 (96) (2,504) 1,275 - (2,976) (3,595) 9,256 6,180 1,405 (323) (8,800) (338) 7,380 897 2,358 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 Cash and cash equivalents at the end of the reporting period 12 3,255 2,358 These consolidated financial statements should be read in conjunction with the accompanying notes 57 Consolidated Statement of Changes in Equity For the year ended 30 June 2022 Issued capital Reserves Consolidated Balance at 1 July 2021 Loss after income tax expense Other comprehensive income, net of tax Total comprehensive income Transactions with owners in their capacity as owners: Transfers to reserves Shares issued during the year Share issue costs Share-based payments Balance at 30 June 2022 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 Share issue costs Recognition of deferred tax assets relating to share issue costs Share-based payments Balance at 30 June 2021 $’000 133,771 - - - - 11,014 (545) 1,743 145,983 Issued capital $’000 114,311 - - - 19,460 907 (1,194) 287 133,771 These consolidated financial statements should be read in conjunction with the accompanying notes Accumulated losses $’000 (86,175) (11,006) - (11,006) $’000 1,917 - 1,101 1,101 (2,893) 2,893 - - - - - 125 (94,288) Total equity $’000 49,513 (11,006) 1,101 (9,905) - 11,014 (545) 1,743 51,820 Accumulated Total equity Reserves $’000 2,446 - (637) (637) - - - 108 1,917 losses $’000 (74,583) (11,592) - (11,592) - - - - (86,175) $’000 42,174 (11,592) (637) (12,229) 19,460 907 (1,194) 395 49,513 58 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 2022. 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 2022: 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 2021. 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. 59 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 33. 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 2022 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. 60 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, except for financial assets which are specifically exempt from this requirement. 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 Group 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. For the year ended 30 June 2022, the Group generated a consolidated net loss before tax of $11,180,000 and incurred operating cash outflows of $2,888,000. As at 30 June 2022, the Group had cash and cash equivalents of $3,255,000, net current liabilities of $22,789,000 and net assets of $51,820,000. On 22 September 2022, the Tribeca Facility (refer note 24) expired under the existing terms of the agreement. The Directors are in advanced negotiations to extend this facility further but as at the date of this financial report a formal renewal has not been executed and is subject to documentation and various conditions. The Group has achieved relatively stable production during the year ended 30 June 2022, resulting in $17,985,000 of revenue. The group is forecasting to increase revenue over the coming 12 months by executing 61 a number of commercial arrangements to deliver work programs designed to exploit the Group's existing flowing wells. 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. 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 cash generating ability of the Kincora Project is anticipated to increase as the Group moves ahead with our in-well bore program which will increase production from existing infrastructure while also pursuing farmouts to undertake work programs and increase production. 2. The Directors are in advanced negotiations to extend the Tribeca facility. In the event this is not finalised and the Company is unable to proceed to an executed extension of the facility suitable to both parties, a related company, DGR Global Limited, has provided a formal letter of financial support for the provision of funding sufficient to settle the remaining balance of the Tribeca facility of $4,500,000. This funding may come in various forms including a debt facility. 3. 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, and d. Disposing of non-core assets. 4. 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. 5. Proposed refinancing of maturing debt facilities. 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 4 17 18 26 Going Concern Exploration and evaluation assets Oil and Gas assets Provision for restoration and abandonment 62 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 2022, 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. 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. 63 Major customers During the year ended 30 June 2022 approximately 56% (2021: 52%) 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. 64 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 Corporate 2022 $'000 2021 $'000 Total 2022 $'000 EEA 2022 $'000 - - - - (489) - - - (489) 2021 $'000 - - - - (853) 15,857 - - 15,004 Surat 2022 $'000 17,985 17,985 3,872 (2,484) (515) (19) 2 (1,556) (615) 2021 $'000 17,502 17,502 869 (6,397) (11,500) - 69 (723) (17,682) - - (6,194) (139) - (15) 7 (3,650) (8,689) - - (4,513) (482) - - 1 (3,920) (8,914) 34,089 33,574 67,615 66,856 5,189 3,043 - - 21,301 19,022 34,917 36,081 17,985 17,985 (2,322) (2,623) (1,004) (34) 9 (5,206) (11,180) 174 (11,006) 106,893 1,143 108,036 56,217 - 56,217 2021 $'000 17,502 17,502 (3,644) (6,879) (12,353) 15,857 70 (4,643) (11,592) - (11,592) 103,473 1,143 104,616 36,081 - 55,103 65 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 and other income 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 2022 $'000 30 June 2021 $'000 11,005 2,472 4,508 17,985 12,623 1,785 3,094 17,502 The Group satisfies its performance obligation at a 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 (loss)/ gain on sale of assets Government grants Interest Received Other* * Inventory sales ($284k) and gain on note conversion ($120k) Consolidated 30 June 2022 $'000 (35) - 9 404 30 June 2021 $'000 15,857 601 70 - 378 16,528 66 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. 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 cost of goods sold 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 2022 $'000 30 June 2021 $'000 9,584 4,573 2,484 13,197 3,761 5,193 16,641 22,151 2,275 456 1,956 193 278 17 122 677 5,974 718 600 1,639 456 656 272 277 14 24 1,000 4,338 464 805 Employee benefits expenses The Group’s accounting policy for liabilities associated with employee benefits are set out in Note 23 and the share-based payments policy in Note 36. 67 Note 9. Finance costs Interest expense Financing fees Amortisation of debt facilities and associated issue costs Note 10. Income tax (a) Component of income tax expense (benefit) Income tax benefit 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 Consolidated 30 June 2022 $'000 3,059 960 1,187 30 June 2021 $'000 3,918 725 1,673 5,206 6,316 Consolidated 30 June 2022 30 June 2021 $'000 $'000 (174) - 174 - - - - - 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 Other timing differences Current year tax losses not recognised Prior year over (under) (11,180) (11,592) (3,354) (3,478) 252 4 (61) (3,159) 2,985 - 113 - - (3,365) 2,173 1,192 Income tax benefit (174) - 68 (b) Reconciliation of net deferred tax Opening balance Net charged to income Net charged to OCI Net charged to equity 1-Jul-21 $'000 $'000 $'000 $'000 Closing Balance 30-Jun-22 $'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 Unrealised FX Loss Holloman Exploration License (Reset CB) Holloman Tax Cost base (transaction costs) 693 299 11 49 160 2,007 1,437 1,362 843 400 8 108 8 2,492 (147) - (2) (61) - - - - - - - (198) (174) - 257 (62) (8) (17) - - - - - - - Deferred tax asset 7,385 2,254 (174) Deferred tax liability Exploration & Evaluation assets Oil & Gas assets Leased Assets Prepayments Accrued Income (8,462) 1,514 (411) (12) (14) 353 (2,535) 76 12 14 Deferred tax liability (7,385) (2,080) - - - - - - Net deferred tax - 174 (174) Deferred tax assets not recognised Unused tax losses Capital raising costs in equity Available for sale financial assets 56,543 333 697 57,573 9,952 (203) - 9,749 - - (697) (697) Potential tax benefit at 30% 17,272 2,924 (209) - - - - - - - - - - - - - - - - - - - - - - - - - - 3,185 152 11 47 99 2,007 1,065 1,362 1,100 338 - 91 8 9,465 (8,109) (1,021) (335) - - (9,465) - 66,485 130 - 66,625 19,987 69 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) Opening balance Net charged to income Net charged to OCI Net charged to equity 1-Jul-20 $'000 2,944 322 13 72 121 1,379 1,228 1,362 563 58 - - - $'000 $'000 $'000 (2,251) (23) (2) (23) (61) 628 - - 280 342 8 108 8 - - - - - - 209 - - - - - - - - - - 100 - - - - - - - - Closing Balance 30-Jun-21 $'000 693 299 11 49 160 2,007 1,437 1,362 843 400 8 108 8 Deferred tax assets 8,062 (986) 209 100 7,385 Deferred tax liability 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 - (309) 209 100 - Deferred tax assets not recognised Unused tax losses Capital raising costs in equity Financial assets at fair value through OCI 53,318 7,243 - - - - Potential tax benefit at 30% 15,995 2,173 - - 697 - 209 - 333 - - 100 60,560 333 697 18,477 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 2022 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. 70 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. 71 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 2022 30 June 2021 $'000 $'000 (11,006) (11,592) 1,873,540 1,873,540 1,201,060 1,201,060 (0.6) (0.6) (1.0) (1.0) Options and rights are not considered dilutive as the Group has made a loss and they are considered anti- dilutive. 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 2022 $'000 2,944 311 30 June 2021 $'000 2,311 47 3,255 2,358 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 original 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. 72 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 Inventory adjustment Change in operating assets and liabilities: Increase in other current assets Increase decrease in trade and other payables (Increase) / decrease in trade and other receivables (Increase) / decrease in inventories Consolidated 30-Jun-22 $’000 (11,006) 30-Jun-21 $’000 (11,592) 2,623 35 718 489 515 187 892 (76) (472) 3,084 561 (438) 5,231 (15,858) 464 853 11,500 (1,937) 1,673 (115) (7) 2,323 (88) 491 Net cash used in operating activities (2,888) (7,062) Equity settled share-based payment transactions are disclosed in Note 36. Apart from in Note 36, there are no other non-cash financing and investing activities to disclose. (b) Reconciliation of liabilities arising from financing activities Balance at 1 July 2020 Borrowed Amounts Tribeca Loan Corporate Bonds $’000 5,664 - $’000 49,172 - Net cash used (in)/ for financing activities (1,367) (17,433) Amortisation 932 469 Balance at 30 June 2021 Net cash used in financing activities Amortisation 5,229 - (40) 32,208 (8,800) 469 Consolidated Redeemable Exchangeable Notes $’000 Other Borrowed funds $’000 Total $’000 55,059 60 223 60 1,110 (17,690) - 1,401 1,393 38,830 203 (2,417) - 429 - - - - - 6,180 Balance at 30 June 2022 5,189 23,877 6,180 1596 36,842 73 Note 14. Current assets – Trade and other receivables Trade receivables Other receivables Consolidated 30 June 2022 $'000 1,439 105 30 June 2021 $'000 2,099 5 1,544 2,104 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 2022 (30 June 2021: 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 2022, included in trade receivables is one significant debtor accounting for approximately 52% (2021: 57%) of the total trade receivables. Note 15. Current assets – Inventories Gas Oil and Condensate LPG Materials & Consumables Consolidated 30 June 2022 $'000 30 June 2021 $'000 126 84 4 2,321 2,535 198 46 6 1,847 2,097 74 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. The assignment of cost to inventory items is done by utilising the first in first out (FIFO) formula, meaning inventory on hand at the end of the periods are assigned the cost of items most recently purchased. Note 16. Current assets - Assets held for sale Oil and gas assets Other Financial Assets Oil and Gas Assets Consolidated 30 June 2022 $'000 30 June 2021 $'000 1,987 1,275 3,262 - - - On 31 May 2022 PZE and Armour agreed that PZE will acquire Armour’s interest in the Waldegrave (PL28, PL69, PL89, PL320W, PL12W) and Snake Creek East (PL11 and PL11W) Projects for consideration valued at $1,986,717, with the majority due in a milestone payment within 6 months of the transaction date. Armour has 46.25% interest in the Waldegrave Project and a 25% interest in the Snake Creek East Project. The transaction is subject to the satisfaction of various conditions including consents and approvals including: • • • • A Tolling Agreement to be agreed. Ministerial approval of the interest transfer. Conclusion of Due Diligence investigations. Execution of Buyer and Seller Parent guarantees. The opening carrying value of the tenements was $2,495,386 with a revaluation loss of $508,669 recognised in the current period on entering into the sale contract with PZE with the revalued book value being $1,986,717. The Oil and Gas current assets held for sale are classified in the Surat reportable segment. Other Financial Assets On 28 March 2022 Armour entered into a number of agreements to dispose of the Company’s Lakes Blue Energy NL (LKO) shareholding comprising 2,125,000,000 Ordinary shares under escrow until 2 August 2022 at 0.06c each. The disposal was subject to LKO agreement, and the escrow being retained by buyers. The legal ownership transfer of the disposed shares from Armour Energy to the respective purchasers occurred following 30 June 2022. In the prior financial year shares in LKO were revalued to nil due to a trading suspension issued by the ASX. Subsequently Armour entered a sale contract to sell the shares for $1,275,000. As a result, a change in the fair value of these equity investments was adjusted through other comprehensive income. 75 Note 17. 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 Movements in carrying amounts Balance at the beginning of the year Additions Additions acquired with CoEra Pty Ltd¹ Disposals2,3 Provision for impairment Consolidated 30 June 2022 $'000 30 June 2021 $'000 43,119 (8,853) 40,377 (8,364) 34,266 32,013 Consolidated 30 June 2022 $'000 30 June 2021 $'000 (8,364) (489) (7,511) (853) (8,853) (8,364) Consolidated 30 June 2022 $'000 30 June 2021 $'000 32,013 2,742 - - (489) 35,209 4,153 1,064 (7,560) (853) 34,266 32,013 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. 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 holds 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. 76 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 accordance with the Group’s accounting policy, the Exploration and Evaluation assets were tested for indicators of impairment at 30 June 2022. The Group determined that there was a trigger present for ATP 1107 and some costs attributed to the NT Assets. As such, an impairment provision of $489,000 was recorded during the year ended 30 June 2022. 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 2022, 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. 77 Note 18. 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 Transfers to assets held for sale Provision for impairment Consolidated 30 June 2022 $'000 85,892 (12,896) (12,015) 60,981 (4,389) (6,056) (10,445) 50,536 30 June 2021 $'000 85,517 (10,809) (11,500) 63,208 (4,389) (6,056) (10,445) 52,763 Consolidated 30 June 2022 $'000 30 June 2021 $'000 52,763 2,271 (2,087) (1,896) (515) 50,536 58,333 11,123 (5,193) - (11,500) 52,763 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. 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. 78 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 2022. 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 benefit 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 assumption is made that undeveloped wells will be funded and developed before 2037. The future cash flows are most sensitive to estimates of future commodity prices, foreign exchange rates (to the extent that they influence commodity prices) and discount rates. The assets will become impaired with a decrease in the oil and gas prices to the extent of 55% of the assumed prices. Future commodity prices are based on the Group’s current best prudent 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. 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 2023 FY 2024 Oil $USD/bbl Contracted Gas $AUD/GJ Spot Market Gas $AUD/GJ LPG $USD/T USD/AUD fx rate 75 6.45 12.00 500 1.43 75 6.84 12.00 500 1.43 FY 2025 and beyond 86 6.51 12.00 402 1.33 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. 79 Apart from the sale of the Waldegrave (PL28, PL69, PL89, PL320W, PL12W) and Snake Creek East (PL11 and PL11W where the carrying value of the assets was impaired to the value attributed to the assets in the sale contract no other assets were impaired. As such, the Group has recorded an impairment of $515,000 relating to oil and gas assets. Note 19. 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 2022 $'000 30 June 2021 $'000 700 - 700 5,613 3,301 5,402 (4,252) 1,150 5,613 4,015 9,614 10,778 Financial assurances include cash held in term deposit accounts with the Westpac bank and security deposits includes amounts held with various state government agencies and security deposits held for leasing and borrowing requirements. Borrowing requirements include Secured Amortising Notes which require three times the amount of interest that would be payable on the immediately following interest payment date to be held in a separate account. As at 30 June 2022, this deposit was $1,636,250 (2021: $2,339,000). 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/ (disposals & transfers) Fair Value adjustments through Other Comprehensive Income Consolidated 30 June 2022 $'000 30 June 2021 $'000 1,150 (1,725) 1,275 1,087 700 (637) 700 1,150 Financial assets at fair value through other comprehensive income comprise: • Ordinary shares and convertible notes in LKO, which were transferred to assets available for sale, refer • to note 16. The value of the investments in Auburn Resources NL (which were received in consideration for the sale of Ripple Resources Pty Ltd in the 2021 financial year) was derived by the expected net realisable value of the assets of the company. 80 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 29 for detail of the Group's fair value accounting policy. Security deposits and financial assurances are measured at amortised cost. Note 20. Non-current assets - Right-of-use assets Motor vehicles - right-of-use Less: Accumulated depreciation Consolidated 30 June 2022 $'000 30 June 2021 $'000 2,169 (1,061) 2,055 (694) 1,108 1,361 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 21. 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 2022 $'000 30 June 2021 $'000 7,192 1,551 1,404 1,938 58 - 42 12,184 3,820 2,075 1,938 1,009 124 59 31 9,056 81 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 29. 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 22. Current and non-current liabilities - Lease liabilities Current Lease liability Non-Current Lease liability Consolidated 30 June 2022 $'000 30 June 2021 $'000 274 851 369 964 1,125 1,333 Refer to note 30 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 23. Current and non-current liabilities - Employee benefits Current Employee Benefits Non-Current Employee Benefits Consolidated 30 June 2022 $'000 30 June 2021 $'000 454 49 503 497 32 529 82 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 24. Current liabilities – Borrowings Tribeca Loan Facility Secured Amortising Notes Secured Amortising Notes - issue costs Redeemable Exchangeable Notes Other facilities Consolidated 30 June 2022 $'000 30 June 2021 $'000 5,189 10,450 (469) 6,177 476 5,229 8,800 (469) - 60 21,821 13,620 The Group was non-compliant with respect to a Tribeca facility covenant as at 31 December 2021. The Tribeca facility agreement amendments executed on 29 December 2021 include the removal of this financial requirement once the amendments become effective following fulfillment of the Condition’s Precedent, including approval by the Company’s shareholders. 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. In consideration of Tribeca entering into an Amendment Agreement, Armour issued Tribeca a total of 48,333,334 listed options with ASX code AJQOA which are exercisable at $0.05 and expire on 29 February 2024. On 29 December 2021 Armour entered into an agreement to issue 145,000,000 Shares and 24,166,666 listed Options to Talbragar River Holdings Pty Ltd and 145,000,000 Shares and 24,166,667 listed Options to PECAL Pty Ltd to be sold with the proceeds to be remitted to Armour less an administrative fee. The net proceeds will be solely applied to paydown the Tribeca facility balance outstanding. As at 30 June 2022, 45,000,000 shares had been sold under this arrangement and proceeds of $186,173 received and used to pay down the balance on the Tribeca facility. 83 Redeemable exchangeable notes The redeemable exchangeable notes are a part of the steps taken to raise capital for the demerger and IPO of the McArthur Basin Assets. These notes, which mature 31 October 2022, are unsecured and fully subordinated to the Secured Amortising Notes and Tribeca Facility. Interest is incurred at 15% per annum, with the interest being payable on exchange, maturity, or redemption. MOG and Armour intend to obtain all necessary approvals and consents to allow for the exchange of the MOG Notes being subscribed for by DGR and the existing MOG Notes already on issue (together with any accrued and unpaid interest) into Armour Convertible Notes. 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 Net repayments at NPV Amortisation of conversion rights Amortisation of issue costs Note 25. Non-current liabilities – Borrowings Total secured liabilities Secured Amortised Notes Secured Amortised Notes - issue costs 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 2022 $'000 30 June 2021 $'000 6,759 (137) (2,893) (1,118) 2,576 3 5,189 6,759 (137) (2,893) (1,261) 2,739 22 5,229 Consolidated 30 June 2022 $'000 30 June 2021 $'000 14,467 (571) 13,896 24,917 (1,040) 23,877 Consolidated 30 June 2022 $'000 30 June 2021 $'000 24,917 (2,351) 1,311 23,877 33,717 (2,351) 842 32,208 84 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 $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. ▪ The Maturity Date for the notes is five years from issue date. In April 2022 Armour received approval from Noteholders for amendments to the Conditions of the Secured Amortising Notes. The approved amendments include: ▪ Amendments to Financial Undertakings, including the Debt Service Cover Ratio, the Leverage Ratio and the cash balances Armour must maintain. ▪ Amendments to increase a certain limit on incurring Financial Indebtedness. ▪ Consent from the Noteholders to extend the due date for the environmental bonding finance facility. Repayments of $8.8 million were made during the financial year. Refer to Note 30 for further information on financial risk management. 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 26. Non-current liabilities - Provision for restoration and abandonment Restoration and abandonment Key judgement - provision for rehabilitation Consolidated 30 June 2022 $'000 6,688 30 June 2021 $'000 6,688 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 2022, the facts and circumstances do not suggest that the carrying amount of the provision has materially changed. 85 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. Note 27. Equity - Issued capital Issued and paid-up capital Ordinary shares - fully paid Share issue costs Recognition of deferred tax asset relating to share issue costs Movements in ordinary share capital Details 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 Consolidated 30-Jun-22 30-Jun-21 30-Jun-22 30-Jun-21 Shares Shares 2,039,451,327 1,529,816,120 - - - - $'000 154,633 (10,739) $'000 141,876 (10,194) 2,089 2,089 2,039,451,327 1,529,816,120 145,983 133,771 Date Shares # 30-Jun-20 12-Aug-20 779,247,711 18,849,710 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 30-Jun-21 1,529,816,120 Issue price $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 $'000 114,311 434 777 1,561 688 3,362 50 907 1,297 61 33 2,594 7 5 8,749 7 123 (1,195) 133,771 86 Details Share issues for supplier payment Placement Employee issued shares* Employee issued shares* Share issues for supplier payment Share issues for supplier payment Placement Employee issued shares* Share issues for supplier payment Share issues for supplier payment Placement Share issues for supplier payment Employee issued shares* Share issues for supplier payment Employee issued shares* Share issues for supplier payment Share issued for Tribeca debt repayment** Share issue costs Balance Date Shares 7-Jul-21 5,344,617 9-Jul-21 80,407,143 9-Aug-21 12,124,630 9-Aug-21 360,000 9-Aug-21 7,484,481 12-Aug-21 1,924,455 29-Sep-21 220,192,320 6-Oct-21 8,793,109 8-Nov-21 3,939,519 8-Nov-21 1,260,417 23-Dec-21 95,192,307 23-Dec-21 1,016,053 17-Jan-22 9,723,263 17-Jan-22 2,090,000 14-Apr-22 9,936,018 14-Apr-22 4,846,875 2-May-22 45,000,000 30-Jun-22 2,039,451,327 Issue price $0.03 $0.04 $0.03 $0.02 $0.03 $0.03 $0.03 $0.03 $0.03 $0.02 $0.03 $0.02 $0.02 $0.02 $0.02 $0.02 $0.00 Value 143 2,814 303 7 187 60 5,725 237 98 30 2,475 19 194 42 159 78 186 (545) 145,983 * Certain staff members have agreed to accept shares in lieu of cash salaries ** Refer to note 24 for details of this arrangement 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 01/10/2019 17/12/2019 23/06/2020 30/06/2020 12/08/2020 24/08/2020 17/09/2020 01/10/2020 19/10/2020 22/12/2020 24/03/2021 9/07/20211 29/09/20212 24/12/20213 2/05/20224 2/05/20225 Balance Expiry Date Number # 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 29/02/2024 66,355,466 29/02/2024 73,397,439 29/02/2024 64,530,769 29/02/2024 12,083,333 29/02/2024 48,333,334 774,381,418 Exercise price $ $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 $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% 100.00% 100.00% 100.00% 100.00% 87 1 In July 2021, 20,101,786 options were issued for nil consideration as free attaching securities to 80,407,143 Placement Shares of the same date. The remaining 46,253,680 options were issued as partial consideration to various parties for the management of the Company's capital raising program. 2 In September 2021, 73,397,439 options were issued for nil consideration as free attaching securities to 220,192,320 Placement Shares of the same date. 3 In December 2021, 31,730,769 options were issued for nil consideration as free attaching securities to 95,192,307 Placement Shares, the remaining 32,800,000 options were issued as partial consideration to various parties for the management of the Company's capital raising program. 4 In May 2022, 12,083,333 options were issued to Talbragar River Holdings Pty Ltd as a component of the arrangements to settle the Tribeca Facility. 5 In May 2022, 48,333,334 options were issued to Tribeca as a component of the arrangements to settle the Tribeca Facility and in consideration of Tribeca entering into an Amendment Agreement. In total, there were 264,700,341 (2021: 423,496,239) options issued in financial year 2022, 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. 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. The fair value of the shares issued to settle outstanding debts to suppliers is based on the market value of the shares at the date of issue. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. Note 28. Equity - Reserves Financial assets at fair value through other comprehensive income reserve Share-based payments option reserve Performance shares reserve Tribeca Loan Option Reserve* *Options expired during the financial year Consolidated 30 June 2022 $'000 30 June 2021 $'000 (4,876) 4,903 98 - 125 (5,977) 4,903 98 2,893 1,917 88 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: Options and Performance shares 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. Tribeca Loan Option Reserve The reserve is used to recognise the value of equity benefits provided to Tribeca as part of the Tribeca bonding facility arrangements. These options have expired during the year and no longer form part of the equity reserve. 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 (5,340) (637) - Balance at 1 July 2020 Revaluation - gross Share-based payments $'000 4,887 - 16 Share-based payments option reserve Performance shares reserve Balance at 30 June 2021 (5,977) 4,903 Revaluation - gross Transfers on expiry of options 1,101 - - - Balance at 30 June 2022 (4,876) 4,903 Note 29. Fair value measurement Equity conversion right - Tribeca Loan $'000 2,893 - - Total $'000 2,446 (637) 108 2,893 1,917 - (2,893) 1,101 - - 125 $'000 6 - 92 98 - - 98 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 2022 2021 Consolidated Level 1 $'000 Level 2 $'000 Level 3 $'000 Total $'000 - - - - 700 700 1,150 1,150 89 Assets and liabilities held for sale are measured at fair value. 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. The financial asset held at 30 June 2022 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, September and November 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 30. 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. 90 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 one the expected net realisable value of the assets of the company. Management considers market risk on this class of assets to be minor given the low value of the assets, and stability of the assets underlying the investments. 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. 91 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 (2021: 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. Year Non-derivatives Non-interest bearing Trade payables 2022 2021 Interest-bearing - fixed rate 2022 Tribeca facility Secured Amortising Notes Exchangeable Notes Lease liability 2021 2022 2021 2022 2021 2022 2021 Weighted average interest rate % 1 year or less Between 1 and 2 years Between 2 and 5 years $'000 $'000 $'000 Remaining contractual maturities $'000 - - 9.00% 9.00% 8.75% 8.75% 15.00% -% 8.88% 8.88% 12,185 9,056 5,189 5,516 12,299 11,462 6,177 - 382 391 - - - - 15,236 12,299 - - 295 295 - - - - - 15,236 - - 715 1,009 12,185 9,056 5,189 5,516 27,535 38,997 6,177 - 1,391 1,695 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. The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed. 92 Note 31. 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-2022 % 30-June-2021 % Armour Energy (Victoria) Pty Ltd Victoria / Australia Armour Energy (Surat Basin) Pty Ltd Queensland / Australia Armour Energy (Queensland) 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% 100.00% 100.00% 100.00% 100.00% Note 32. 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 30-June-2022 30-June-2021 Ownership interest 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 PEP 169 PEP 166 Kanywataba Block Queensland, Australia Queensland, Australia Queensland, Australia Queensland, Australia Queensland, Australia Victoria, Australia Victoria, Australia Uganda * ATP 119P was subject to sale contract with PZE (Surat) Pty Ltd refer to Note 16 % % 46.25% 25.00% 90.00% 84.00% 50.64% 24.75% 50.00% 51.00% 25.00% 16.82% 46.25% 25.00% 90.00% 84.00% 50.64% 24.75% 50.00% 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. 93 Note 33. 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-2022 30-June-2021 $'000 $'000 (7,426) (8,638) Other Comprehensive income for the year, net of tax Total Comprehensive income 1,101 (6,325) (637) (9,275) 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-2022 30-June-2021 $'000 $'000 870 941 89,992 85,897 19,430 12,491 38,760 36,385 145,983 133,771 (4,876) (5,977) 4,903 98 - 4,903 98 2,893 (94,876) (86,176) 51,232 47,137 Guarantees entered into by the parent entity in relation to the debts of its subsidiaries As at 30 June 2022, 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 2022 and 30 June 2021. Capital commitments - Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment as at 30 June 2022 and 30 June 2021. 94 Note 34. 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 31. Joint Operations Interests in joint ventures are set out in Note 32. Key management personnel Disclosures relating to key management personnel are set out in Note 35 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 2022 30 June 2021 $ $ 456,000 503,927 456,000 468,505 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 (2021: $38,000). For the year ended 30 June 2022 $456,000 (2021: $456,000) was paid or payable to DGR Global for the provision of the Services. The total amount outstanding at year end was $797,918 (2021: $243,424). As at 30 June 2022 DGR Global held 4,550 secured amortising notes totalling $4,550,000 (2021: 4,550). 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. Armour Energy & McArthur Oil & Gas completed capital raising during the year with Bizzell Capital Partners jointly lead capital raisings and was paid, along with related entities management, capital raising fees and other fees totalling $503,927 (FY2021: $468,505) on arm’s length terms. As at 30 June 2022, Bizzell Capital Partners and related entities controlled by Mr Stephen Bizzell held 6 million unquoted options, 54,016,932 quoted options, 425,000 MOG notes and 100 Senior Secured Amortising notes (2021: 6 million unquoted options, 26,392,319 quoted options and 100 Senior Secured Amortising notes). The notes were purchased on the same terms and conditions as all other bondholders. 95 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 No. Additions Disposals/ Other No. No. Notes held at the end of the year No. 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 35. 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 Refer to the Remuneration Report on pages 41 to 51. Consolidated 30 June 2022 $ 30 June 20211 $ 1,365,168 88,139 214,123 106,503 1,773,933 1,155,890 65,127 246,479 91,533 1,559,029 Note 36. 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. 96 Outstanding at the beginning of the year Issued during the year Expired during the year 2022 WAEP $0.05 2022 Number 2,000,000 - - 2021 WAEP $0.33 $0.05 $0.33 2021 Number 6,750,000 2,000,000 (6,750,000) Outstanding/ exercisable at the end of the year $0.05 2,000,000 $0.05 2,000,000 There were no options issued to employees and Directors under the Armour Energy Employee Share Option Plan during 2022 (2021: NIL). The options issued during the year are part of an independent contractor agreement. The options outstanding as at 30 June 2022 expire 29/2/2024 and have an exercise price of $0.05 (share price on grant date $0.021). Other option issues The following table illustrates the number of, and movements in, other options issued for commercial consideration during the year. Balance at the start of the year Granted during the year2,3 Expired during the year1 Exercisable at the end of the year Consolidated 2022 WAEP 30 June 2022 2021 WAEP 30 June 2021 $0.150 $0.050 $0.161 $0.054 Number 49,000,000 48,333,334 (41,000,000) $0.15 Number 49,000,000 - - 56,333,334 $0.15 49,000,000 The opening balance of options were issued in two tranches: 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 24 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. 3 In consideration of Tribeca entering into an Amendment Agreement, Armour issued Tribeca a total of 48,333,334 listed options with ASX code AJQOA which are exercisable at $0.05 and expire on 29 February 2024. Performance rights shares The following table illustrates the number of, and movements in, performance shares issued for during the year. Balance at the start of the year Granted during the year Expired during the year* *Non vested portion of Mr Lingo’s performance shares forfeited on resignation Consolidated 30 June 2022 Number 30 June 2021 Number 7,200,000 7,200,000 - (5,850,000) 1,350,000 - - 7,200,000 97 Share-based payment expense Option expense There was no option expense recognised in the statement of profit or loss for the year ended 30 June 2022 (2021: $16,000). Performance shares expense There was no option expense recognised in the statement of profit or loss for the year ended 30 June 2022 (2021: $92,000). The balance of the share-based payment expense relates to shares not yet issued at 30 June 2022. Share issue costs There were approximately 441m (2021:14.3m) ordinary shares issued $11,014,000 (2021: $284,000) in lieu of cash for invoices related to the management of the capital raises performed during the year. Other transactions settled in shares For the year ended 30 June 2022 $920,000 of employment benefits were taken as ordinary shares in lieu of cash (2021: $287,000). Value of share issued to creditors for various services delivered during the year totalled $638,000. There were approximately 48m options issued with an exercise price of $0.05 as part of the negotiations to extend the Tribeca loan facility during the year. 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. 98 Note 37 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 2022 30 June 2021 $’000 $’000 25,034 112,043 3,627 140,704 14,952 14,722 2,127 131,801 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. Note 38. 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 is currently disputing the determination of the Queensland Government in relation to ATP 2029. Armour initially took action in the State’s Land Court for five parcels of land and subsequently withdrew from Surat Basin’s ATP 2028 dispute 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 2022. 99 Note 39. Events after the reporting period Other than the below subsequent events, no other matter or circumstance has arisen since 30 June 2022 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. • Other Financial Assets - On 28 March 2022 Armour entered into a number of agreements to dispose of the Company’s Lakes Blue Energy NL (LKO) shareholding comprising 2,125,000,000 Ordinary shares under escrow until 2 August 2022 at 0.06c each. The disposal was subject to LKO agreement, and the escrow being retained by buyers. The legal ownership transfer of the disposed shares from Armour Energy to the respective purchasers occurred following 30 June 2022. A change in the fair value of these equity investments was adjusted through other comprehensive income and the revalued book value is $1,275,000.The Other Financial Assets current assets held for sale are classified in the Corporate reportable segment. • Mr Christian Lange was appointed as Chief Executive Officer of the Company on 25 July 2022. • Armour entered into a funding agreement with Armour’s largest shareholder, DGR Global Ltd, for the provision of a $4.5M facility to be drawn over three months. This funding is provided by way of a placement of redeemable exchangeable notes to be issued by Armour’s subsidiary, McArthur NT Pty Ltd, at an issue price per note of $1.00 and otherwise on the terms and conditions set out in the Redeemable Exchangeable Note Trust Deed. Note 40. 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. Audit services - BDO Audit Pty Ltd Audit or review of the financial statements Consolidated 30 June 2022 $ 30 June 2021 $ 119,252 93,141 Other services - BDO Audit Pty Ltd and related entities Other non-audit services* 17,970 2,475 Total 137,222 95,616 *The non-audit services included the advice on solvency and whistleblowing services. Note 41. Accounting Policies New and Revised Accounting Standards and Interpretations Adoption of new and revised accounting standards Armour has applied the required amendments to Standards and Interpretations that are relevant to its operations and effective for the current reporting period for the first time for the financial year commencing 1 July 2021. These did not have any material impact on the disclosures or on the amounts recognised in Armours consolidated financial statements. 100 Armour Energy Limited Directors’ Declaration 30 June 2022 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 2022 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 2022 101 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 2022, 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 Armour Energy Limited, 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 2022 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. 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. 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. 102 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 & Gas assets Key audit matter How the matter was addressed in our audit Refer to Note 18 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 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. 103 Carrying value of Exploration and Evaluation 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 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 matter 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. • 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; and 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. • Other information The directors are responsible for the other information. The other information comprises the information in the Group’s annual report for the year ended 30 June 2022, but does not include the financial report and the 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. 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. 104 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. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included pages 41 to 51 of the directors’ report for the year ended 30 June 2022. In our opinion, the Remuneration Report of Armour Energy Limited, for the year ended 30 June 2022, 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 2022 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. 105 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 6 September 2022. % 40.3% 14.1% 30.2% 7.4% 4.4% 3.6% 100.0% 54.0% % 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 2,214,431,685 98.1% 24,072,422 18,266,831 1,336,314 330,068 13,556 2,258,450,876 31,997,475 1.1% 0.8% 0.1% -% -% 100.0% 1.4% 878 307 659 162 96 78 2,180 1,177 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% 106 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 744,229,803 99.4% 211 2,755,362 1,269,454 168,836 116,486 8,143 0.4% 0.2% 0.0% -% -% 526,036,543 3,271,367 100.0% 0.4% 36 42 22 41 13 345 143 % 57.8% 9.9% 11.5% 6.0% 11.2% 3.6% 100.0% 39.2% 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) Mr Paul Cozzi (per notice received 23 July 2021) Aslan Equities Pty Ltd Citicorp Nominees Pty Ltd Ordinary Shares – Number Held 374,709,708 66,127,375 161,500,000 134,953,356 121,617,659 Issued Capital % 16.6% 11.2% 7.2% 6.0% 5.4% 107 Twenty largest holders of each quoted class (as at 6 September 2022) Ordinary Shares (AJQ) Name DGR GLOBAL LIMITED MR PAUL COZZI ASLAN EQUITIES PTY LTD CITICORP NOMINEES PTY LIMITED ROOKHARP CAPITAL PTY LIMITED TALBRAGAR RIVER HOLDINGS PTY CHOICE INVESTMENTS DUBBO PTY CANCELER PTY LTD MR PAUL AINSWORTH PECAL PTY LTD MR PETER MAROUN KAHWAJI CPS CONTROL SYSTEMS PTY PINEMONT TECHNOLOGIES MR NEVILLE AYROUTH HEALTH CARE MEDICAL AND DENTAL MR MICHAEL ROBERT LAURENT MR SIMON WILLIAM TRITTON PANORAMIC ROAD PTY LTD BU & WANG PROPERTY NOMINEES MR NIKHILKUMAR KANTILAL SHAH Total of Twenty Largest Holders Total Shares Held Number held 374,709,708 161,500,000 134,953,356 121,617,659 105,000,000 63,367,933 51,951,472 39,000,000 39,000,000 25,000,000 19,100,000 19,025,382 18,019,735 16,003,338 15,750,000 15,746,333 15,012,608 13,500,000 13,461,823 12,892,230 1,274,611,577 Issued capital % 16.6% 7.2% 6.0% 5.4% 4.6% 2.8% 2.3% 1.7% 1.7% 1.1% 0.8% 0.8% 0.8% 0.7% 0.7% 0.7% 0.7% 0.6% 0.6% 0.6% 56% 2,258,450,876 100% 108 Listed options (AJQOA) Name DGR GLOBAL LIMITED J P MORGAN NOMINEES AUSTRALIA BIZZELL CAPITAL PARTNERS PTY MR PAUL COZZI ANTIBELLA PTY LTD ROOKHARP CAPITAL PTY LIMITED BERENES NOMINEES PTY LTD CITICORP NOMINEES PTY LIMITED CANCELER PTY LTD CHOICE INVESTMENTS DUBBO PTY PECAL PTY LTD MR TONY ADAMS MERRILL LYNCH (AUSTRALIA) MR PAUL AINSWORTH MR PAUL DOMINIC HILLMAN DR DENNIS RICHARD LOWE TALBRAGAR RIVER HOLDINGS PTY MR MICHAEL ALAN TAYLOR TENSTAR TRADING LIMITED DR DENNIS RICHARD LOWE & Total of Twenty Largest Holders Total Listed Options Held Number held Issued Options % 132,438,967 18% 62,829,504 53,390,427 40,186,654 33,066,007 32,367,088 20,250,000 18,622,516 15,000,000 13,553,113 12,083,333 12,000,000 10,869,565 10,000,000 10,000,000 9,832,773 9,051,281 8,500,000 8,194,931 7,704,505 8% 7% 5% 4% 4% 3% 2% 2% 2% 2% 2% 1% 1% 1% 1% 1% 1% 1% 1% 519,940,664 748,548,084 69% 100% 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 2022. 109 Corporate Directory Directors Nicholas Mather Stephen Bizzell Eytan Uliel Executive Chairman Non-Executive Director Independent Non-Executive Director Company Secretary Geoff Walker 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 110 111
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