RED EMPEROR RESOURCES NL - Annual Financial Report

Greg Bandy +61 8 9212 0102

Grant Thornton UK LLP

Philip Secrett/Jen Clarke/Jamie Barklem +44 20 7383 5100

Directors’ Report

The Directors present their report for Red Emperor Resources NL (“Red Emperor”, or “the Company”) and its subsidiaries (“the Group”) for the year ended 30 June 2015.

Directors

The persons who were directors of Red Emperor during the year are:

RESULTS OF OPERATIONS

The Company’s net loss after taxation attributable to the members of Red Emperor for the year to 30 June 2015 was $19,723,800 (2014: $10,231,803).

DIVIDENDS

No dividend was paid or declared by the Company during the year and up to the date of this report.

CORPORATE STRUCTURE

Red Emperor Resources NL is a company limited by shares, which is incorporated and domiciled in Australia.

NATURE OF OPERATIONS AND PRINCIPAL ACTIVITIES

The principal activity of the Company during the financial year was oil and gas exploration.

AUDIT OPINION

The Company's auditors, BDO Audit (WA) Ltd, have issued their opinion on the Group's financial statements for the year ended 30 June 2015. The audit was conducted in accordance with Australian Auditing Standards.

At 30 June 2014, the auditors were unable to obtain sufficient appropriate audit evidence to support the carrying value of the Company's Investment in Associate of $6,298,175 because management were unable to obtain access to the financial information of the Associate. The audit opinion on the financial report for the year ended 30 June 2014 was modified accordingly. Consequently, as a result of the possible effect of the auditors modified opinion in the prior year, the auditors were unable to determine whether any adjustments to the amount of the impairment resulting from the reclassification of the Investment in Associate to a Non-current Asset Held for Sale were necessary and therefore the auditors have issued a qualified opinion for the year ended 30 June 2015.

REVIEW OF OPERATIONS

PHILIPPINES (SC55)

On 2 March 2015 Red Emperor signed a Farmin Agreement with Otto Energy Philippines Inc. (a wholly owned subsidiary of Otto Energy Ltd (ASX: OEL “Otto”) to farm in to the offshore Philippines Block, Service Contract 55 (“SC55”).

SC55 is located in the southwest Palawan Basin, covers an area of 9,880km² and was awarded to Otto Energy Investments Ltd (formerly NorAsian Energy Ltd) in 2005.  It is a deep-water block in the middle of a proven regional oil and gas fairway that extends from the productive offshore Borneo region in the southwest to the offshore Philippine production assets northwest of Palawan.  SC55 contains a number of distinct exploration play types including the Hawkeye turbidite clastic prospect and the material Cinco carbonate gas/condensate prospect, as well as a number of follow-up leads. The permit provides a material opportunity and a series of possible drill targets in an exploration campaign that will be undertaken during the remaining term of the service contract.

Otto entered into a Letter of Intent with Maersk to secure the Maersk Venturer ultra-deepwater drillship to drill the Hawkeye-1 exploration well in March 2015 with a rig contract subsequently executed in May.

In August 2015 the Company advised that the Hawkeye-1 exploration well was drilled to the planned total depth of 2,920m with the top reservoir intersected at 2,710m. The well proved the existence of hydrocarbons in SC55, however the hydrocarbon size discovered was at the low end of expectations and not likely to be economic to develop.  Hawkeye-1 was plugged and abandoned with results from the well to be analysed with respect to other prospects, including Cinco, in the license that potentially share the same charge source.

The drilling program was executed smoothly, ahead of schedule and significantly under budget.

PUNTLAND

In June, Red Emperor’s Joint Venture ("JV") partner and operator, Africa Energy Corp. (previously Horn Petroleum Corp.) (together "Africa Energy" or the "Operator"), gave notice to the Puntland State of Somalia advising of its intention to withdraw from the January 2007 Production Sharing Agreements (“PSAs”) which cover the Nugaal and Dharoor Blocks.

In its notice to the Puntland Petroleum and Minerals Agency, Africa Energy cited the uncertainty of the current political climate in Somalia, especially in respect of the disagreement between the Federal Government of Somalia and the regional government of Puntland, over the legitimacy of the PSAs and potential territorial claims on the Nugaal Block as the principal reasons for its decisions.

Whilst Red Emperor is disappointed with this outcome, the Company acknowledges the political uncertainties that have existed within the country, the state and the region over the past 3 years, preventing the Joint Venture from conducting the activities required under the terms of the PSAs. Red Emperor supports the Operator in its decision to withdraw from the PSAs.

GEORGIA

During the year, the Georgian Ministry of Energy formally notified Strait Oil & Gas Limited ("Strait") that the Production Sharing Contract (PSC) over Block VIb had been terminated. The Ministry cited the non-performance of obligations, specifically the requirement to drill a well in accordance with the stipulated procedure. Red Emperor notes that this obligation has been acknowledged by its JV partner, Range Resources Limited (ASX: RRS, AIM: RRL, “Range”), both internally within JV correspondence as well as publicly.

Red Emperor believes it fulfilled its obligations with respect to Block VIb, specifically cash contributions towards the second well of a two well program, as per its Shareholder and Subscription Agreements (the "Agreements"). The Company continues to reserve any and all legal rights under the Agreements.        

This outcome does not, in any way, affect the validity of Block VIa, which remains the subject of interest from various third party participants seeking to either acquire or farmin to the block. Negotiations have yet to progress to a level that warrants disclosure, however the Company looks forward to updating the market in due course

CORPORATE

On 23 October 2014 the Company announced the appointment of Nathan Rayner to the Board of Directors following the resignation of Stephen Brockhurst.

On 16 February 2015 the Company announced that it had sold its direct equity investment in Highfield Resources Limited (ASX: HFR) in accordance with its treasury management strategy. The shares were sold at a price of $0.80 per share, which netted the Company $798,279 after brokerage, a 66% return on its $480,000 investment.

The Company placed 66,558,555 shares in March 2015 at A$0.032 per share (£0.016) to raise approximately A$2.13m (£1.06m) from sophisticated investors both in Australia and the UK. The funds raised from the placement would be used to fund the drilling activities in the Philippines.

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

There have been no significant changes in the state of affairs of the Group during the financial year, other than as set out in this report.

SIGNIFICANT EVENTS AFTER THE REPORTING DATE

In July 2015 the Company, through its London broker, Brandon Hill Capital, and its Australian broker, 708 Capital, placed 65,750,000 new ordinary shares at 4 pence (A$0.08) per share to raise £2.63 million (A$5.26 million) before expenses. Proceeds from the raise and existing cash resources would be used to fund the drilling activities in the Philippines.

Greg Bandy

Managing Director - Perth, Western Australia,

11 September 2015

Consolidated Statement of Profit or Loss and Other Comprehensive Income

for the year ended 30 June 2015

Consolidated Statement of Financial Position

as at 30 June 2015

Consolidated Statement of Cash Flows

for the year ended 30 June 2015