For personal use only QUEST PETROLEUM NL AND ITS CONTROLLED ENTITIES ABN

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1 HALF YEAR FINANCIAL REPORT FOR THE PERIOD ENDED 31 DECEMBER 2011

2 CORPORATE DIRECTORY Directors Gus Simpson Non Executive Chairman Saxon Palmer Technical Director Greg Lee Non Executive Director Brett Mitchell Non Executive Director Company Secretary Jonathan Whyte Registered & Head Office Unit 17, Level Railway Road Subiaco WA 6008 Tel: (08) Fax: (08) Home Stock Exchange Australian Securities Exchange Limited Level 2 Exchange Plaza 2 The Esplanade PERTH WA 6000 ASX Code: QPN Auditors PKF Mack & Co Level 2 35 Havelock Street WEST PERTH WA 6005 Tel: (08) Fax: (08) Share Registry Computershare Investor Services Pty Ltd Level 2 Reserve Bank Building 45 St Georges Terrace PERTH WA 6000 Tel: (08) Fax: (08) Website qpnl.com.au

3 CONTENTS DIRECTORS REPORT... 1 AUDITOR S INDEPENDENCE DECLARATION... 6 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME... 7 CONSOLIDATED STATEMENT OF FINANCIAL POSITION... 8 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY... 9 CONSOLIDATED STATEMENT OF CASH FLOWS NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS DIRECTORS DECLARATION INDEPENDENT REVIEW REPORT... 20

4 DIRECTORS REPORT Your directors present their report together with the consolidated interim financial statements of Quest Petroleum NL for the half year ended 31 December DIRECTORS The following persons held office as directors of Quest Petroleum NL during the half year and until the date of this report: Gus Simpson Non Executive Chairman (Appointed 24 November 2011) Saxon Palmer Technical Director (Appointed 24 November 2011) Brett Mitchell Non Executive Director Greg Lee Non Executive Director James Malone Non Executive Chairman (Resigned 24 November 2011) Mark Freeman Non Executive Director (Resigned 24 November 2011) Unless otherwise indicated all directors were in office from the beginning of the financial period until the date of this report. REVIEW AND RESULTS OF OPERATIONS The net loss of the consolidated entity for the half year ended 31 December 2011 was $436,101 (2010: $568,615). COMPLETION OF MERRIC CAPITAL ACQUISITION Ranau PSC Awarded Quest Acquires Merric Capital On 22 November 2011 the Company announced that the Indonesian Government had formally awarded the Ranau Production Sharing Contract (PSC) to PrabuEnergy Pty Ltd (PrabuEnergy) (local operating subsidiary 80% owned by Merric Capital Pty Ltd (Merric)). The formal award of the Ranau PSC to PrabuEnergy satisfied the final condition precedent for Quest s 100% acquisition of Merric Capital. The acquisition was formally completed on 24 November through the issue of 963,300,000 ordinary shares and 296,400, cent options to the Merric vendors for the outstanding 75% of Merric securities not already held by the Company. Commencement of Ranau PSC Work Programs With the award of 100% interest and operatorship of the approximately 2,191km² Ranau PSC to PrabuEnergy completed during the period, Quest is now expediting an exploration program including approximately 200km of 2D seismic and the drilling of priority exploration wells during These work programs are already underway, with four project areas (Sub-Basins) identified and planning of the 2D seismic in the proven Jaya sub-basin to be completed in quarter 2 of 2012 with a view to refining identified drill targets for later in the year. A successful exploration program would lead to the first production of gas and/or oil under the terms of the PSC. The Company is optimistic about the exploration and production potential of the Ranau PSC as it contains extensions of proven Sub-basins of the prolific onshore South Sumatra Basin. These Sub-Basins contain several large scale structures within the Ranau PSC which were identified by gravity data during the joint study and are currently being refined into drillable prospects through the 2D seismic work program. Several of these structures have the potential to contain multi- Tcf gas fields. 1

5 Results of Joint Study In February 2012 the Company announced the results of the Ranau Joint Study, which was completed by PrabuEnergy and the Geological Department of Trisakti University, one of Indonesia s leading educational institutions focused on the the oil and gas industry. The study confirmed that the Ranau PSC contains four new and very lightly explored sub-basins that form a significant extension of the prolific South Sumatra Basin. The study also delineated four structural leads within the Jaya and Ratu sub-basins that Quest intends to further define as drill targets with 2D seismic prior to commencement of drilling later in The results from the Joint Study draw the following conclusions: - The Ranau PSC area is large (2,191 sq km) and virtually unexplored. - Gas and oil shows in surrounding wells in conjunction with observed oil seeps and evidence of a proven petroleum system in the area. Significantly, an adjacent well recorded log and pressure data confirming a 107m gross gas column within the primary Talang Akar Formation reservoir. - Existing seismic data adjacent to the Ranau PSC shows potential Direct Hydrocarbon Indicators (DHIs), providing strong support for widespread occurrences of oil and gas in this area. - These surrounding sub-basins that are the source of the oil and gas extend into the Ranau area as the Ratu and Jaya sub-basins. - The sub-basins within the Ranau PSC contain up to 3km of sediment, the same oil and gas rocks and reservoir rocks as the prolific South Sumatra Basin. In addition the study has determined that these sub-basins have sufficient thermal maturity to generate oil and gas. The residual gravity anomaly map below shows the location of the sub-basins in blue in relation to the Ranau boundary. The Gravity Study identified four potential drill targets (leads) for further evaluation via a 2D seismic program. This seismic program is designed to define Leads 2, 3 and 4 in Quest s highest priority sub-basin, Jaya. Lead 1 is the target of a future seismic program. 2

6 The Joint Study estimated unrisked prospective resources in these four leads of 55million barrels of oil or 140 billion cubic feet gas using the following methodology. TELISA GROUP (OIL) Volume (acrefeet) OOIP (MMBO) Prospective Resource (MMBO) (UNRISKED) Risked Prospective Resource (MMBO) LEAD Min Most Likely Max NTG Por (sh) Boi Min Most Likely Max RF Min Most Likely Max Pg Min Most Likely Max L L L L Total Prospective Resource TELISA GROUP (GAS) Volume (acrefeet) OGIP (BCF) Prospective Resource (BCF) (UNRISKED) Risked Prospective Resource (BCF) LEAD Min Most Likely Max NTG Por (sh) BGI Min Most Likely Max RF Min Most Likely Max Pg Min Most Likely Max L L L L Total Prospective Resource For reservoir volume calculations (acrefeet) the joint study used results of the gravity mapping together with structural analogues from seismic data taken from nearby. Other reservoir parameters such as net to gross (NTG), porosity (Por), hydrocarbon saturation (sh), expansion factors (Boi and BGi) and recovery factor were derived from nearby well data. - The Studies indicate these prospective resoures could potentially be economically produced. - Estimated well and seismic costs are likely to be low at US$1.2million and US$2.0million (for 500km of 2D) respectively. 3

7 Merric Technical Team Merric and PrabuEnergy have been led by Mr Saxon Palmer, an experienced oil and gas executive who until 2007 had been an Exploration Manager Australia/Asia and Portfolio Manager for BHP Billiton. PrabuEnergy has developed key relationships with prominent oil and gas professionals in Indonesia, in particular with Mr Mochamad Thamrin, a leading industry professional with a deep knowledge of the petroleum geology of South Sumatra. These relationships are important to implementing the existing understanding the petroleum geology of South Sumatra, acquiring assets and executing work programs in the area. These key personnel have joined the Company s to become the core part of the Indonesian management and technical project team. Background on the oil and gas industry in Indonesia and Sumatra Sumatra is the 6 th largest island in the world, and has had a successful oil and gas industry since 1885 when Indonesia s first successful oil well was drilled in North Sumatra, creating the Royal Dutch Shell group. Since then, there have been more than 400 oil and gas fields discovered containing more than 45 billion barrels of oil equivalent. Today Sumatra produces oil for consumption in domestic and international markets and gas for domestic markets in Sumatra and West Java, and to international markets in Singapore, via pipeline, and North Asia, via LNG export. The North and Central Sumatran petroleum basins are dominated by large international petroleum companies such as Chevron, Pertamina, CNOOC, ConocoPhilips and ExxonMobil. In South Sumatra the industry is dominated by Pertamina and smaller local companies. PrabuEnergy believes this creates an opportunity to create value by bringing industry leading ideas and technologies to explore for and produce oil and gas in South Sumatra. 4

8 Competent Persons Statement The information in this report that relates to Exploration Results, Gas Reserves is based on information reviewed and compiled by Mr Saxon Palmer a Director of the Company, who holds a Bachelor of Science with Honours in Geology from the Australian National University, has 25 years relevant experience and who is a member of the American Association of Petroleum Geologists. Mr Palmer has sufficient experience that is relevant to oil and gas exploration and production to qualify as a Competent Person as defined in Chapter 5 of the ASX Listing Rules. Mr Palmer consents to the inclusion in this report of this information in the form and context in which it appears. Signature Bonus and Performance Bond Quest had provided a US$1,000,000 bank guarantee via a loan arrangement with Merric in order to facilitate PrabuEnergy s bid for the grant of the Ranau PSC. Upon formal grant of the Ranau PSC, as part of the award process this guarantee was converted to the standard PSC signature bonus and paid to Migas as required under the PSC. A US$1,500,000 performance bond was subsequently put in place for the proposed Ranau work programs as a key condition for the grant of the Ranau PSC. This performance bond will be reduced in tranches upon completion of certain exploration work program activities, with the moneys refunded directly to the Company. Board Appointments and Change of Registered Office Pursuant to settlement of the transaction, Mr Gus Simpson was appointed to the Quest Board as Chairman and Mr Saxon Palmer as Technical Director, replacing Mr Jim Malone and Mr Mark Freeman. Mr Brett Mitchell and Mr Greg Lee have remained on the board as non-executive Directors of the Company. Subsequent Events There are not any matters or circumstances that have arisen since the end of the reporting date and the date of this report which significantly affects or may significantly affect the results of the operations of the Company which have not been disclosed in Company announcements. AUDITOR S INDEPENDENCE DECLARATION The Auditor s Independence Declaration under section 307C of the Corporations Act 2001 is attached for the half year ended 31 December Signed in accordance with a resolution of the Board of Directors. John (Gus) Simpson Chairman Perth, Western Australia Date: 14 March

9 AUDITOR S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001 TO THE DIRECTORS OF I declare that, to the best of my knowledge and belief, during the half year ended 31 December 2011 there has been: a) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the review; and a) no contraventions of any applicable code of professional conduct in relation to the review. PKF MACK & CO SIMON FERMANIS PARTNER 14 MARCH 2012 WEST PERTH, WESTERN AUSTRALIA 6

10 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE HALF YEAR ENDED 31 DECEMBER 2011 Dec-11 Dec-10 A$ A$ Revenue 50, ,981 Cost of sales (25,890) (63,071) Gross Profit 24,156 58,910 Interest income 30,377 31,424 Gain on fair valuing previously held investment on acquisition 684,967 - Professional services (44,404) (62,844) Property and lease expense (27,064) - Impairment expense (686,567) (233,484) Corporate costs (417,629) (250,618) Bad debt expense - (71,270) Results from operating activities (436,164) (527,882) Unrealised foreign exchange gain/(loss) 63 (40,733) Net financial expense 63 (40,733) Loss before income tax (436,101) (568,615) Income tax expense - - Loss for the period (436,101) (568,615) Other comprehensive income/(loss) (net of tax) Net change in fair value of available for sale financial assets - 136,000 Foreign currency translation differences 63,951 (614,929) Other comprehensive income/(loss) for the period (net of tax) 63,951 (478,929) Total comprehensive income/(loss) for the period (372,150) (1,047,544) Loss attributable to: Members of Quest Petroleum NL (424,563) (568,615) Non-controlling interest (11,538) - (436,101) (568,615) Total comprehensive loss attributable to: Members of Quest Petroleum NL (360,612) (1,047,544) Non-controlling interest (11,538) - (372,150) (1,047,544) Earnings/(loss) per share attributable to ordinary equity holders of the parent (cents per share) Basic and diluted loss per share (0.03) (0.06) The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes. 7

11 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2011 Dec-11 Jun-11 Note A$ A$ CURRENT ASSETS Cash and cash equivalents 431,248 1,571,377 Trade and other receivables 1,760,262 1,140,649 Assets held for sale ,622 TOTAL CURRENT ASSETS 2,191,510 3,039,648 NON-CURRENT ASSETS Trade and other receivables 26,042 25,005 Financial assets 3-620,278 Exploration and evaluation assets 4 5,873, ,369 Oil and gas properties 49,135 94,360 TOTAL NON-CURRENT ASSETS 5,949, ,012 TOTAL ASSETS 8,140,653 3,916,660 CURRENT LIABILITIES Trade and other payables 15, ,458 Deposits held 17,868 17,868 TOTAL CURRENT LIABILITIES 33, ,326 NON-CURRENT LIABILITIES Restoration provision 5 17,567 16,868 TOTAL NON-CURRENT LIABILITIES 17,567 16,868 TOTAL LIABILITIES 50, ,195 NET ASSETS 8,089,715 3,719,465 EQUITY Issued capital 6 127,634, ,781,529 Reserves 1,650, ,954 Accumulated losses (121,183,581) (120,759,018) Total parent entity interest 8,101,253 3,719,465 Non-controlling interest (11,538) - TOTAL EQUITY 8,089,715 3,719,465 The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. 8

12 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE HALF YEAR ENDED 31 DECEMBER 2011 Issued Capital Foreign Currency Translation Reserve Noncontrolling Accumulated Losses Option Reserve Total interest Total Equity A$ A$ A$ A$ A$ A$ A$ Balance at 1 July ,781,529 (120,759,018) 463, ,291 3,719,465-3,719,465 Loss for the period - (424,563) - - (424,563) (11,538) (436,101) Other comprehensive income for the period ,951 63,951-63,951 Total comprehensive income for the period - (424,563) - 63,951 (360,612) (11,538) (372,150) Transactions with owners, recorded directly in equity Shares issued during the period 3,853, ,853,200-3,853,200 Options issued during the period , , ,200 Share issue costs ,853, ,200-4,742,400-4,742,400 Balance at 31 December ,634,729 (121,183,581) 1,352, ,242 8,101,253 (11,538) 8,089,715 Issued Capital Accumulated Losses Option Reserve Foreign Currency Translation Reserve Fair Value Reserve Total Total Equity A$ A$ A$ A$ A$ A$ A$ Balance at 1 July ,876,646 (117,597,205) 463, ,260 (12,000) 3,723,364 3,723,364 Loss for the period - (568,615) (568,615) (568,615) Other comprehensive income for the period (614,929) 136,000 (478,929) (478,929) Total comprehensive income for the period - (568,615) - (614,929) 136,000 (1,047,544) (1,047,544) Transactions with owners, recorded directly in equity Shares issued during the period 4,230, ,230,186 4,230,186 Options issued during the period 332, , ,482 Share issue costs (59,344) (59,344) (59,344) 4,503, ,503,324 4,503,324 Balance at 31 December ,379,970 (118,165,820) 463, , ,000 7,179,144 7,179,144 The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. 9

13 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE HALF YEAR ENDED 31 DECEMBER 2011 Dec-11 Dec-10 Note A$ A$ CASH FLOWS FROM OPERATING ACTIVITIES Proceeds from sales 48,966 90,083 Cost of sales (12,922) (28,126) Payments to suppliers and employees (443,418) (296,081) Interest received 31,741 28,080 Net cash used in operating activities (375,633) (206,044) CASH FLOW FROM INVESTING ACTIVITIES Payments for exploration and development expenditure - (87,901) Payments for acquisition of equity investments (323,208) (310,000) Sale of prospects - 379,700 Joint venture prepayments - (884,188) Security bond deposit (1,753,857) (1,065,640) Acquisition of Merric Capital Pty Ltd 12 1,260,323 - Net cash used in investing activities (816,742) (1,968,029) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of securities - 2,518,091 Payment of share issue costs - (59,344) Net cash from/(used) in financing activities - 2,458,747 Net increase/ (decrease) in cash and cash equivalents (1,192,375) 284,674 Cash and cash equivalents at 1 July 1,571,377 1,771,993 Effects of exchange rate fluctuations on cash held 52,246 (83,703) Cash and cash equivalents at 31 December 431,248 1,972,964 The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. 10

14 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE HALF YEAR ENDED 31 DECEMBER REPORTING ENTITY Quest Petroleum NL (the Company ) is a company limited by shares, incorporated and domiciled in Australia and listed on the Australian Securities Exchange (ASX). The consolidated interim financial report of the Company for the six months ended 31 December 2011, comprise the Company and its subsidiaries (the consolidated entity ). The consolidated financial statements of the consolidated entity as at and for the year ended 30 June 2011 are available upon request from the Company s registered office at Unit 17, Level 2, 100 Railway Road, Subiaco WA 6008 or at qpnl.com.au 2. BASIS OF PREPARATION a) Statement of compliance The half year financial report is a general purpose financial report prepared in accordance with the requirements of the Corporations Act 2001 and AASB 134 Interim Financial Reporting. Compliance with AASB 134 ensures compliance with International Financial Reporting Standard IAS 34 Interim Financial Reporting. This interim financial report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the annual report for the year ended 30 June 2011 in accordance with the Corporations Act 2001 and the continuous disclosure requirements of the ASX. These consolidated interim financial statements were approved by the Board of Directors on 13 March b) Basis of preparation The consolidated financial statements have been prepared on the basis of historical cost, except for the revaluation of certain non-current assets and financial instruments. Cost is based on the fair values of the consideration given in exchange for assets. All amounts are presented in Australian dollars, unless otherwise noted. The accounting policies and methods of computation adopted in the preparation of the half-year financial report are consistent with those adopted and disclosed in the consolidated entity s 2011 annual financial report for the financial year ended 30 June 2011, except for the impact of the Standards and Interpretations described below. These accounting policies are consistent with Australian Accounting Standards and with International Financial Reporting Standards. The Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to their operations and effective for the current reporting period. There are no new and revised Standards and amendments thereof and Interpretations effective for the current reporting period that are relevant to the consolidated entity. The adoption of all the new and revised Standards and Interpretations has not resulted in any changes to the consolidated entity s accounting policies, and has no affect on the amounts reported for the current or prior periods. The new and revised Standards and Interpretations have not had a material impact and not resulted in changes to the consolidated entity s presentation of, or disclosure in, its half year financial statements. 11

15 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE HALF YEAR ENDED 31 DECEMBER 2011 (continued) c) Going Concern The half year financial statements have been prepared on the going concern basis, which contemplates continuity of normal business activities and the realisation of assets and settlement of liabilities in the normal course of business. The consolidated entity incurred a loss of $436,101 for the period ended 31 December 2011 (2010: $568,615) and negative operating cash outflows of $375,633 (2010: $206,044). The ability of the consolidated entity to continue to pay its debts as and when they fall due is dependent upon the consolidated entity successfully raising additional share capital and ultimately developing one of its mineral properties. The Directors believe it is appropriate to prepare these accounts on a going concern basis because: The Directors have an appropriate plan to raise additional funds as and when it is required. In light of the consolidated entity s current exploration projects, the Directors believe that the additional capital required can be raised in the market; and The Directors have an appropriate plan to contain certain operating and exploration expenditure if appropriate funding is unavailable. The accounts have been prepared on the basis that the consolidated entity can meet its commitments as and when they fall due and can therefore continue normal business activities, and the realisation of assets and liabilities in the ordinary course of business. d) Impairment of exploration and evaluation assets The ultimate recoupment of the value of exploration and evaluation assets is dependent on the successful development and commercial exploitation, or alternatively, sale of the exploration and evaluation assets. Impairment tests are carried out on a regular basis to identify whether the assets carrying values exceed their recoverable amounts. There is significant estimation and judgement in determining the inputs and assumptions used in determining the recoverable amounts. The key areas of judgement and estimation include: Recent exploration and evaluation results and resource estimates; Environmental issues that may impact on the underlying tenements; and Fundamental economic factors that have an impact on the operations and carrying values of assets and liabilities. e) Estimates The preparation of the interim financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amount of assets and liabilities, income and expenses. Actual results may differ from these estimates. In preparing these interim financial statements, significant judgment made by management in applying the consolidated entity s accounting policies and key sources of estimation were the same as those that were applied to the consolidated financial statements as at and for the year ended 30 June f) Operating segments From 1 July 2009, operating segments are identified and segment information disclosed on the basis of internal reports that are regularly provided to, or reviewed by, the consolidated entity s chief operating decision maker which, for the consolidated entity, is the Board of Directors. In this regard, such information is provided using different measures to those used in preparing the statement of comprehensive income and statement of financial position. Reconciliations of such management information to the statutory information contained in the interim financial report have been included where applicable. 12

16 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE HALF YEAR ENDED 31 DECEMBER 2011 (continued) 3. FINANCIAL ASSETS 31-Dec Jun-11 A$ A$ Investment in Merric Capital Pty Ltd (i) - 620, ,278 (i) Prior year balance represents Company s 25% interest in the ordinary share capital of Merric Capital Pty Ltd, following the purchase of ordinary shares and conversion of options to ordinary shares during the year. The Company completed the acquisition of the remaining 75% of Merric Capital Pty Ltd on 24 November For further details see the Directors Report and Note EXPLORATION AND DEVELOPMENT 31-Dec Jun-11 A$ A$ Exploration and evaluation expenditure - carrying value 5,873, ,369 Movement in exploration and evaluation expenditure Balance at beginning of period 137, ,553 Acquisitions (i) 5,076,935 - Exploration and evaluation expenditure capitalised 982,700 2,580,723 Exploration and evaluation expensed (ii) (353,854) (2,467,753) Effect of movement in exchange rates 30,816 (143,154) Balance at end of period 5,873, ,369 The recoverability of the carrying amount of exploration assets is dependent on the successful development and commercial exploitation or sale of the respective oil and gas leases and associated assets. Amortisation of the costs carried forward for the development phase has been expensed for Jumonville #1 & #2 based on estimated life of recoverable production. (i) (ii) On 24 November 2011 the Company completed the acquisition of Merric Capital Pty Ltd through the issue of 963,300,000 ordinary shares and 296,400, cent options to the Merric Vendors for the remaining 75% of Merric securities not already held by Quest. The write-off of exploration and evaluation expenditure has been recognised in impairment expense in the statement of comprehensive income. 5. RESTORATION PROVISION 31-Dec Jun-11 A$ A$ Balance at the beginning of the year 16,868 20,435 Change in provision due to sale of exploration assets - - Foreign currency translation movement 699 (3,567) Balance at the end of the period 17,567 16,868 A provision for restoration is recognised in relation to the exploration and production activities for costs associated with the restoration of various sites. Estimates of the restoration obligations are based on anticipated technology and legal requirements and future costs. In determining the restoration provision, the consolidated entity has assumed no significant changes will occur in the relevant Federal and State legislation in relation to restoration in the future. 13

17 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE HALF YEAR ENDED 31 DECEMBER 2011 (continued) 6. ISSUED CAPITAL 31-Dec Jun Dec Jun-11 Note No of Shares No of Shares A$ A$ Ordinary shares - fully paid (a) 2,038,858,084 1,075,558, ,052, ,199,540 Ordinary shares - partly paid to 2 cent 92,822 92,822 20,420 20,420 Ordinary shares - partly paid to 0.1 cents 582, ,963 6,413 6,413 Share issue costs (1,444,844) (1,444,844) 127,634, ,781,529 (a) Movement in ordinary shares - fully paid For the six months ended 31 December 2011 Date Number of shares Issue price A$ A$ Opening balance 01-Jul-11 1,075,558, ,199,540 Issue of shares for Merric Capital acquisition 24-Nov ,300, ,853,200 Closing balance 2,038,858, ,052,740 For the year ended 30 June 2011 Date Number of shares Issue price A$ A$ Opening balance 01-Jul ,203, ,962,320 Share issue to Pass Petroleum 08-Jul ,000, ,980,000 Exercise of listed options 01-Oct-10 7, Exercise of listed options 16-Nov Share issue new $ Dec ,076, ,250,000 Exercise of listed options 04-Feb-11 9, Exercise of listed options 02-Mar-11 26, Exercise of listed options 08-Apr , ,848 Listed options exercised during the year Closing balance 1,075,558, ,199,540 b) Options issued on acquisition of Merric Capital Pty Ltd On 24 November 2011, 296,400, cent unlisted Options with an expiry date of 30 June 2016 were issued to the Merric vendors as part of the purchase consideration. Fair value of the unlisted Options was determined by BDO Corporate Finance using information provided by Quest. The valuation was performed using a binomial option pricing model. The fair value of the Options was determined to be $0.003 each, giving the consideration a value of $889, CONTINGENT LIABILITIES AND ASSETS The Directors are not aware of any contingent liabilities or contingent assets as at 31 December The consolidated entity has previously provided a US$1,000,000 guarantee via a loan arrangement with Merric in order to facilitate Prabu Energy s formal application to bid for the Ranau PSC. When PrabuEnergy was awarded the Ranau PSC this guarantee was converted to the standard PSC signature bonus and paid to Migas in November 2011 as required under the PSC terms. 8. CAPITAL AND LEASING COMMITMENTS Quest Petroleum NL remains committed to the exploration and development of the areas of interest held under the Bullseye Project areas. Under the Joint Venture Agreement, costs of exploration and testing of these areas is incurred at the time of testing. No defined value can be placed on the capital commitments of the testing and exploration programs. 14

18 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE HALF YEAR ENDED 31 DECEMBER 2011 (continued) Quest Petroleum NL and its subsidiaries are committed to keeping its interests in the Bullseye Project areas in good standing by contributing its share of leasehold rental commitments and other related costs as required under the Joint Venture Agreement. 31-Dec Jun-11 LEASING COMMITMENTS A$ A$ Leasehold acreage costs - within one year - 2, SEGMENT REPORTING Segment Information Identification of reportable segments Management has identified its operating segments based on the internal reports that are reviewed and used by the board of directors (chief operating decision makers) in assessing performance and determining the allocation of resources. The Directors consider the principal activities are mineral exploration and are managed primarily on a project by project basis. Operating segments are therefore determined on the same basis. Reportable segments are based on aggregating operating segments where the segments are considered to have similar economic characteristics. The Group s exploration projects consist of: Oil Gas Basis of accounting for purposes of reporting by operating segments Unless stated otherwise, all amounts reported to the Board of Directors as the chief operating decision maker with respect to operating segments are determined in accordance with accounting policies that are consistent to those adopted in the annual financial statements of the consolidated entity. Segment Assets Segment assets are clearly identifiable on the basis of their nature and physical location. Segment Liabilities Liabilities are allocated to segments where there is a direct nexus between the incurrence of the liability and the operations of the segment. Segment liabilities include trade and other payables and certain direct borrowings. Unallocated items Items of revenue, expense, assets and liabilities are not allocated to operating segments if they are not considered part of the core operations of any segment. 15

19 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE HALF YEAR ENDED 31 DECEMBER 2011 (continued) (i) Segment Performance The following table present information regarding the consolidated entity s operating segments for the half-year ended 31 December 2011: Bullseye Ranau Louisiana, USA Indonesia Australia Total 31 December 2011 $ $ $ $ Revenue External Sales 50, ,046 Interest revenue: ,377 30,377 Total Segment Revenue 50,046-30,377 80,423 Expenses Cost of Sales (25,890) - - (25,890) Unallocated Professional services (44,404) Property and lease expense (27,064) Impairment expense (686,567) Corporate costs (417,629) Gain on fair valuing previously held investment on acquisition 684,967 Foreign exchange gain 63 Loss before and after income tax (436,101) 31 December 2011 Bullseye Louisiana, USA $ Ranau Indonesia $ Australia $ Total $ Segment Assets Segment operating assets 200,255 7,105,391-7,305,646 Unallocated assets Cash 318,103 Trade and other receivables 516,904 Total Assets 8,140, December 2010 As the Company only had one producing property in South Louisiana (Bullseye), no segment reporting was applicable. 16

20 10. DIVIDENDS PAID OR PROPOSED NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE HALF YEAR ENDED 31 DECEMBER 2011 (continued) There are no dividends paid or proposed for the half year on ordinary shares. 11. EVENT SUBSEQUENT TO REPORTING DATE No matters or circumstances have arisen since the end of the financial period which significantly affect or may significantly affect the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in future financial years. 12. BUSINESS COMBINATIONS The acquisition of Merric Capital Pty Ltd On 24 November 2011, the acquisition of Merric Capital Pty Ltd was formally completed through the issue of 963,300,000 ordinary shares and 296,400, cent options to the Merric vendors for the outstanding 75% of Merric securities not already held by Quest. With the award of 100% interest and operatorship of the approximately 2,191km² Ranau PSC to Merric/PrabuEnergy completed during the year, the acquisition allows Quest to expedite an exploration program including approximately 200km of 2D seismic and the drilling of priority exploration wells. Assets acquired and liabilities assumed The fair value of the identifiable assets and liabilities of Merric Capital Pty Ltd as at the date of acquisition were: Assets Fair value recognised on acquisition Cash and Cash equivalents 1,260,323 Receivables 31,482 Exploration and evaluation 5,076,935 $ 6,368,740 Liabilities Payables (45,540) (45,540) Total identifiable net assets at fair value 6,323,200 The assets and liabilities arising from the acquisition are recognised at fair value which are equal to their carrying value at acquisition date. Consideration Transferred 963,300,000 Ordinary Shares $0.004 (i) 3,853, ,400,000 Options $0.003 (ii) 889,200 Fair value of previously held equity 1,580,800 Total consideration 6,323,200 (i) The fair value of the shares is the published price of the shares of Quest at the acquisition date, which was $0.004 each. The fair value of the consideration given is therefore $3,853,

21 (ii) NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE HALF YEAR ENDED 31 DECEMBER 2011 (continued) The fair value of the unlisted Options was determined by BDO Corporate Finance using information provided by Quest. The valuation was performed using a binomial option pricing model. The terms of the Options were an exercise price of 1.5 cents and expiry date of 30 June The fair value of the Options was determined to be $0.003 each, giving the consideration a value of $889,200. Analysis of cash flows on acquisition Transaction costs of the acquisition (included in cash flows from operating activities) (20,447) Net cash acquired with the subsidiary (included in cash flows from investing activities) 1,260,323 1,239,876 NOTE 13: ASSETS HELD FOR SALE 31-Dec Jun-11 A$ A$ Leasehold improvements (i) - 327,622 (i) The consolidated entity incurred costs in relation to the fitout of its previous premises that will no longer be recouped since the change in business premises as part of the Merric acquisition. Therefore, all leasehold improvements were written off at 31 December This has been included in impairment expense in the statement of comprehensive income. 18

22 Directors of Quest Petroleum NL, declare that: DIRECTORS DECLARATION (a) The financial statements and notes of the consolidated entity are in accordance with the Corporations Act 2001, including : (1) giving a true and fair view of the financial position as at 31 December 2011 and the performance for the half year ended on that date of the consolidated entity; and (2) complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001; and (b) There are reasonable grounds to believe the company will be able to pays its debts as and when they become due and payable. This declaration is made in accordance with a resolution of the Boards of Directors: John (Gus) Simpson Chairman Perth, Western Australia Date: 14 March

23 INDEPENDENT AUDITOR S REVIEW REPORT TO THE MEMBERS OF Report on the Half-Year Financial Report We have reviewed the accompanying half-year financial report of Quest Petroleum NL (the Company) which comprises the condensed statement of financial position as at 31 December 2011, the condensed statement of comprehensive income, condensed statement of changes in equity and condensed statement of cash flows for the half-year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information and the directors declaration of the consolidated entity comprising the Company and the entities it controlled at 31 December 2011, or during the half year. Directors Responsibility for the Half-Year Financial Report The directors of the Company are responsible for the preparation of the half-year financial report that gives a true and fair view in accordance with the Australian Accounting Standards and the Corporations Act 2001 and for such internal controls as the directors determine is necessary to enable the preparation of the half-year financial report that is free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the half-year financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the consolidated entity s financial position as at 31 December 2011 and its performance for the half year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporation Regulations As the auditor of Quest Petroleum NL, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report. A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. 20

24 Independence In conducting our review, we have complied with the independence requirements of the Corporations Act In accordance with the Corporations Act 2001, we have given the directors of the company a written Auditor s Independence Declaration. Conclusion Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of Quest Petroleum NL is not in accordance with the Corporations Act 2001 including: (a) (b) giving a true and fair view of the consolidated entity s financial position as at 31 December 2011 and of its performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations Material Uncertainty Regarding Continuation as a Going Concern Without qualifying our conclusion, we draw attention to Note 2(c) in the financial report which states that the consolidated entity incurred a net loss of $436,101 during the half year ended 31 December 2011 (31 December 2010: $568,615) and had negative operating outflows of $375,633 (31 December 2010: $206,044). These conditions, along with other matters as set forth in Note 2(c), indicate the existence of a material uncertainty which may cast significant doubt about the consolidated entity s ability to continue as a going concern and therefore, the consolidated entity may be unable to realise its assets and discharge its liabilities in the normal course of business, and at the amounts stated in the financial report. PKF MACK & CO SIMON FERMANIS PARTNER 14 MARCH 2012 WEST PERTH, WESTERN AUSTRALIA 21