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1 (ABN ) FINANCIAL REPORT FOR THE HALF-YEAR ENDED 30 JUNE

2 FINANCIAL REPORT FOR THE HALF-YEAR ENDED 30 JUNE 2011 Contents Directors report 3 Auditor s independence declaration 6 Independent Auditor s review report 7 Directors declaration 9 Condensed consolidated statement of comprehensive income 10 Condensed consolidated statement of financial position 11 Condensed consolidated statement of changes in equity 12 Condensed consolidated cash flow statement 13 Notes to the condensed consolidated financial statements 14 2

3 Directors Report The directors of FAR Limited submit herewith the Financial Report of FAR Limited and its subsidiaries ( the Consolidated Entity ) for the half-year ended 30 June In order to comply with the provisions of the Corporations Act 2001, the directors report as follows: The directors of the Company in office during or since the end of the period are: Mr M J Evans Mr A E Brindal Mr C L Cavness All directors held office during and since the end of the period unless otherwise stated. REVIEW OF OPERATIONS The loss of the Consolidated Entity for the half-year after income tax was $6,331,531 (half-year ended 30 June 2010: $791,974). During the half-year the principal activities of the Consolidated Entity continued to be the exploration for and production of oil and gas and the acquisition and sale of oil and gas exploration and production interests. A summary of the Consolidated Entity s operations during the period is provided below. A more detailed review of exploration activity is included in quarterly activity reports and other releases lodged with the Australian Securities Exchange. CASH POSITION As at 30 June 2011 the Consolidated Entity had a cash balance of $32,280,730. AGC FAR has an 8.8% beneficial interest in the AGC Profond Production Sharing Contract offshore Senegal and Guinea Bissau. The Kora-1 frontier exploration well, operated by Ophir Energy plc (Ophir), spudded in June 2011 using the semisubmersible rig Maersk Deliverer. Kora-1 was targeting a salt-cored, dip-closed anticlinal prospect supported by a combination of 3D seismic, CSEM and oil seepage studies. Kora-1 was located approximately 280km SSW of Dakar in 2,600m of water. Subsequent to the period end, the well was drilled to a total depth of m subsea and was plugged and abandoned as an unsuccessful well. The primary (Albian) and secondary (Coniacian and Barremian) reservoir intervals were penetrated close to their anticipated depths, but the well encountered a predominantly claystone and thinly bedded limestone sequence rather than the prognosed sandstone reservoir facies. A fuller analysis of the logging data will be required before the wider implications for the prospectivity of the Casamance Sub Basin of the MSGBC Basin can be determined. Whilst valuable information will be gained from the Kora well it should be noted that it was located in a different sub basin of the larger MSGBC basin to FAR s Senegal PSCs notwithstanding their modelling on similar concepts. Post Kora, there remain several prospects within the AGC Profond PSC which covers a substantial area. Future work will be directed at integrating the Kora results to better understand this remaining potential. The PSC is currently in the first renewal period, which has been extended to 19 September

4 Directors Report (continued) Senegal FAR is Operator of three offshore Blocks and holds a 90 percent beneficial interest, with the balance being held by Petrosen (Senegal s National Oil Company). The Company has given notice under the terms of the Production Sharing Contract (PSC) to the Minister for Energy for the Republic of Senegal of its intention to enter the next exploration phase (second renewal period) which commenced on 23 November FAR's renewal under the PSC is subject to Ministerial approval and requires a Presidential Decree. The request is supported by Petrosen, the National Oil Company of Senegal. Recent changes within various Ministries, including that of Energy, have resulted in delays in the processing of Decrees concerning both offshore and onshore PSCs within Senegal. In early April 2011, a delegation from FAR held further meetings with Petrosen. The delegation was warmly received and assurances were again provided that the issuance of a Decree concerning FAR s PSC would be made in due course. The PSC terms currently specify the requirement to drill a well within two years of entering the renewal period backed by a surety of US$5 million that is forfeitable in the event of non-performance. Under an Agreement reached as part of FAR s participation in the AGC Profond PSC, Ophir has the ability to acquire a 25 percent interest in the Senegal blocks within 60 days of drilling the Kora Prospect and, in the event Ophir exercises its option, it will be appointed Operator. The Option expires on 30 September 2011, unless otherwise extended by mutual consent. At the date of this report no notice has been received from Ophir. The Agreement with Ophir has been approved by the AGC Joint Authority and Petrosen. During the period FAR continued farmout discussions with a number of potential farmin partners with the objective of securing a commitment to drill an exploration well. FAR has provided data packages to several large international exploration and production companies including companies with existing operations and/or production in West Africa s deep water play. Detailed technical reviews are ongoing. FAR is seeking cost recovery and a free carry through the drilling of one exploratory well. Guinea Bissau FAR has a 15% beneficial interest in three Licences offshore Guinea Bissau. The Licences include the Sinapa oil discovery, which is estimated to have a mean STOOIP of 178 million barrels, and several large untested prospects which have been defined by 2D seismic. The Licences are currently in Phase 1 of the exploration term, which has been extended for two years to 25 November A further optional four year Phase 2 exploration period has a work commitment that includes a single exploration well. During the period processing and interpretation of the 3D seismic data acquired in 2010 continued with the objective of identifying preferred targets for the drilling of up to two wells in The timing and extent of any drilling is subject to the results of this work which is expected to be completed during the second half of The substantial data acquisition program consisted of some 1,200km2 of high resolution ARKeX Gravity Gradiometry data and some 1,640km2 of 3D seismic PGS Geostreamer data. This data was acquired by Svenska on behalf of co-venturers FAR and Petroguin in order to better define a number of leads, prospects and discoveries at various stratigraphic intervals on the Licenses. Initial results of the surveys are encouraging with both Gravity Gradiometry data and Geostreamer seismic data being detailed and noise free. 4

5 Directors Report (continued) North America Sales revenues from oil and gas sales were $399,356 for the half-year compared to $557,835 in the previous corresponding six monthly period. This decrease was due to a combination of a decrease in production and the stronger Australian dollar in the current period, offset slightly by higher commodity prices. No exploration activity was undertaken in North America in the current period. Australia No exploration activity was undertaken in Australia in the current period. AUDITOR S INDEPENDENCE DECLARATION In order to comply with Section 306 (2) of the Corporations Act 2001, the directors report includes the auditor s independence declaration on page 6 of the half year financial report. Signed in accordance with a resolution of the directors made pursuant to Section 306(3) of the Corporations Act On behalf of the Directors Mr M J Evans Director Perth, 5 September

6 Deloitte Touche Tohmatsu ABN Woodside Plaza Level St Georges Terrace Perth WA 6000 GPO Box A46 Perth WA 6837 Australia The Board of Directors FAR Limited Suite 2, Level Rokeby Road Subiaco, Perth WA 6005 DX: 206 Tel: +61 (0) Fax: +61 (8) September 2011 Dear Board Members FAR Limited In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of FAR Limited. As lead audit partner for the review of the financial statements of FAR Limited for the half- year ended 30 June 2011, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the review; and (ii) any applicable code of professional conduct in relation to the review. Yours sincerely DELOITTE TOUCHE TOHMATSU Neil Smith Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited 6

7 Deloitte Touche Tohmatsu ABN Woodside Plaza Level St Georges Terrace Perth WA 6000 GPO Box A46 Perth WA 6837 Australia Independent Auditor s Review Report to the members of FAR Limited DX: 206 Tel: +61 (0) Fax: +61 (8) We have reviewed the accompanying half-year financial report of FAR Limited, which comprises the condensed statement of financial position as at 30 June 2011, and the condensed statement of comprehensive income, the condensed cash flow statement and the condensed statement of changes in equity for the half-year ended on that date, selected explanatory notes and, the directors declaration of the consolidated entity comprising the company and the entities it controlled at the end of the half-year or from time to time during the half-year as set out on pages 9 to 18. 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 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 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 30 June 2011 and its performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations As the auditor of FAR Limited, 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. Auditor s Independence Declaration In conducting our review, we have complied with the independence requirements of the Corporations Act We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of FAR Limited, would be in the same terms if given to the directors as at the time of this auditor s review report. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited 7

8 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 FAR Limited is not in accordance with the Corporations Act 2001, including: (a) giving a true and fair view of the consolidated entity s financial position as at 30 June 2011 and of its performance for the half-year ended on that date; and (b) complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations DELOITTE TOUCHE TOHMATSU Neil Smith Partner Chartered Accountants Perth, 5 September

9 Directors Declaration The directors declare that: (a) in the directors opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and (b) in the directors opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position and performance of the Consolidated Entity. Signed in accordance with a resolution of the directors made pursuant to s.303(5) of the Corporations Act On behalf of the Directors Mr M J Evans Director Perth, 5 September

10 Condensed Consolidated Statement of Comprehensive Income For the half-year ended 30 June 2011 Half-year ended 30 June 30 June Note $ $ Revenue Other income Direct operating costs ( ) ( ) Depreciation and amortisation expense ( ) ( ) Exploration cost written off ( ) - Abandonment expense - (5 110) Finance costs ( ) ( ) Administration expenses ( ) ( ) Employee benefits expense ( ) ( ) Consulting expense ( ) ( ) Foreign exchange loss ( ) - Other expenses ( ) ( ) Loss before income tax ( ) ( ) Income tax expense - - Loss for the period attributable to members of FAR Limited ( ) ( ) Other comprehensive income Exchange differences arising on translation of foreign operations (50 237) Total comprehensive income for the period attributable to members of FAR Limited ( ) ( ) Earnings per share: Cents Cents Basic loss per share (0.51) (0.12) Diluted loss per share (0.51) (0.12) Notes to the condensed consolidated financial statements are included on pages 14 to

11 Condensed Consolidated Statement of Financial Position As at 30 June June 31 December Note $ $ ASSETS Current assets Cash and cash equivalents Trade and other receivables Other Total current assets Non-current assets Other financial assets Property, plant and equipment Oil and gas properties Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Borrowings Provisions Total current liabilities Non-current liabilities Borrowings Other financial liabilities Total non-current liabilities Total liabilities Net assets EQUITY Issued capital Reserves Accumulated losses ( ) ( ) Total equity Notes to the condensed consolidated financial statements are included on pages 14 to

12 Condensed Consolidated Statement of Changes in Equity For the half-year ended 30 June 2011 Share capital Option Reserve Equity component on convertible notes Reserves Foreign currency translation reserve Total Reserves Accumulated Losses Total Attributable to equity holders of the parent $ $ $ $ $ $ $ Balance at 1 January ( ) ( ) Loss for the period ( ) ( ) Exchange differences arising on translation of foreign operations Total comprehensive income for the period ( ) ( ) Share based payments Balance at 30 June ( ) ( ) Balance at 1 January ( ) ( ) Loss for the period ( ) ( ) Exchange differences arising on translation of foreign operations (50 237) (50 237) - (50 237) Total comprehensive income for the period (50 237) (50 237) ( ) ( ) Issue of shares Transfer from equity component on convertible notes reserve (2 589) - (2 589) - - Share based payments Balance at 30 June ( ) ( ) Notes to the condensed consolidated financial statements are included on pages 14 to

13 Condensed Consolidated Cash Flow Statement For the half-year ended 30 June 2011 Half-year ended 30 June 30 June $ $ Cash flows from operating activities Receipts from customers Payments to suppliers and employees ( ) ( ) Interest and other costs of finance paid ( ) ( ) Net cash used in operating activities ( ) ( ) Cash flows from investing activities Interest received Payments for oil and gas properties ( ) ( ) Payments for property, plant and equipment (78 004) (7 889) Net cash (used in)/from investing activities ( ) ( ) Cash flows from financing activities Proceeds from issues of equity securities - - Payment for share issue costs - - Proceeds from borrowings - - Repayment of borrowings - - Net cash (used in)/provided by financing activities - - Net (decrease)/increase in cash and cash equivalents ( ) ( ) Cash and cash equivalents at the beginning of the half-year Effects of exchange rate changes on cash and cash equivalents held in foreign currency ( ) Cash and cash equivalents at end of half-year Notes to the condensed consolidated financial statements are included on pages 14 to

14 Notes to the Financial Statements For the half-year ended 30 June Significant Accounting Policies Statement of compliance The half-year financial report is a general purpose financial report prepared in accordance with the Corporations Act 2001 and Accounting Standard AASB 134 Interim Financial Reporting. Compliance with AASB 134 ensures compliance with International Financial Reporting Standard IAS 34 Interim Financial Reporting. The half-year financial report does not include notes of the type normally included in an annual financial report and shall be read in conjunction with the most recent annual financial report. Basis of preparation The condensed consolidated financial statements have been prepared on the basis of historical cost except, where applicable, for the revaluation of certain non-current assets and financial instruments. 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 company s 2010 annual financial report for the year ended 31 December 2010, unless otherwise described herein. Adoption of new and revised Accounting Standards In the current period, the Consolidated Entity has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to its operations and effective for annual reporting periods beginning on or after 1 January The adoption of these new and revised Standards and Interpretations has not resulted in any changes to the Consolidated Entity s accounting policies or in the amounts reported in the current or prior financial years. 2. Segment Information AASB 8 requires operating segments to be identified on the basis of internal reports about components of the Consolidated Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance. The identification of the Consolidated Entity s reporting segments remains consistent with prior periods, with management allocating resources to segments on a geographical basis with the inclusion of a corporate segment which captures all head office and administrative income, expenses and assets. Information regarding these segments is presented below. The accounting policies of the reportable segments are the same as those of the Consolidated Entity. The following is an analysis of the Consolidated Entity s assets and liabilities by reportable operating segment: Assets Liabilities 30 June 31 December 30 June 31 December $ $ $ $ AGC Australia Canada Guinea Bissau Senegal USA Corporate Total assets

15 Notes to the Financial Statements For the half-year ended 30 June Segment Information (cont.) The following is an analysis of the Consolidated Entity s revenue and results by reportable operating segment for the periods under review: Revenue Segment Profit/(Loss) 30 June 30 June 30 June 30 June $ $ $ $ AGC - - ( ) - Australia - - ( ) - Canada Senegal Guinea Bissau USA (94 628) ( ) Corporate ( ) ( ) Consolidated segment revenue and profit/(loss) before tax for the period ( ) ( ) Income tax expense - - Consolidated segment revenue and profit/(loss) after tax for the period ( ) ( ) The revenue reported above represents revenue generated from external customers. There were no intersegment sales during the period. 3. Revenue Half-year ended 30 June 30 June $ $ Oil & gas sales revenue Interest revenue Other revenue Other income Half-year ended 30 June 30 June $ $ Foreign exchange gain

16 Notes to the Financial Statements For the half-year ended 30 June Trade and other receivables 30 June 31 December $ $ Current: Trade receivables Interest receivable Other receivables Less: allowance for doubtful debts ( ) ( ) Included in other receivables is an amount of US$3million due in respect of the sale of the Consolidated Entity s interest in the Beibu Gulf Block Joint Venture (through the disposal of a wholly owned subsidiary). The amount is payable on satisfaction of certain conditions as stipulated in the sale and purchase agreement. Based on the most recent information available from the operator of the Joint Venture, the directors expect receipt of the funds within 12 months of balance date. Other receivables include amounts totalling $495,246 (2010: $495,246) which were past due at balance date. These amounts have been provided against in full. 6. Oil and Gas Properties Exploration and evaluation costs are accumulated in respect of each area of interest or geographical segment in accordance with AASB 6 Exploration For and Evaluation of Mineral Resources. Costs are capitalised as an exploration and evaluation asset provided exploration titles are current and at least one of the following conditions are satisfied: the exploration and evaluation expenditures are expected to be recouped through development and exploitation of the area of interest or by future sale; or exploration and evaluation activities in the area of interest have not at the reporting date reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in, or in relation to, the area of interest are continuing Included in oil and gas properties are capitalised exploration costs of $14.5million in respect of the exploration licences over the Sangomar Offshore, Rufisque Offshore and Sangomar Deep Offshore Blocks in Senegal. During September 2010, the Company gave notice under the terms of the Production Sharing Contract (PSC) to the Minister for Energy for the Republic of Senegal of its intention to enter the second renewal period of the licences which commenced on 23 November FAR s renewal under the PSC is subject to Ministerial approval and requires a Presidential Decree. At the date of this report a formal response to FAR s renewal application remains outstanding however assurances have been provided to FAR by the Minister that the Presidential Decree will be issued in due course. In accordance with the accounting policy above, the Company s ability to continue to carry capitalised exploration costs in respect of the Senegal licences is dependent on the exploration titles being current. During the prior year a Heads of Agreement was signed with Ophir Energy plc giving them the ability to acquire a 25 percent interest in the Senegal blocks within 60 days of drilling the Kora Prospect in the AGD Profond block offshore Senegal and Guinea Bissau (refer below for further details). In the event Ophir exercises its option, it will be appointed Operator. The Option expires on 30 September 2011, unless otherwise extended by mutual consent. At the date of this report no notice has been received from Ophir During the period the AGC Profond Joint Venture, in which FAR has an 8.8% beneficial interest, commenced the drilling of the Kora-1 exploration well offshore West Africa. Drilling was in progress at 30 June Subsequent to the period end, the drilling was completed and the well was plugged and abandoned as an unsuccessful exploration well. In accordance with FAR s accounting policies the costs, including accrued expenditure, incurred at 30 June 2011 of $4.5million have been written off in the current period. Costs incurred subsequent to 30 June 2011 will be expensed in the second half of the year and are currently expected to be approximately $4.3million. 16

17 Notes to the Financial Statements For the half-year ended 30 June Borrowings 30 June 31 December $ $ Current: Unsecured loans convertible notes Non-Current: Unsecured loans convertible notes ,638,033 15% convertible notes were issued in February 2009 at an issue price of $0.45 per note. Each note carries a coupon rate of 15 percent payable quarterly in arrears and is convertible into 10 ordinary shares on or before 31 January 2012 by payment of 4.5 cents per share. The convertible notes are quoted on the ASX. Unconverted notes mature at 45 cents on 31 January The financial liability component has been calculated by discounting the face value of the convertible notes together with the interest payable thereon over the maturity period, followed by an allocation of the debt issue costs between the debt and equity components on a pro-rata basis. The discount rate used is 17.5%, representing the directors estimate of the interest rate applicable to a debt instrument issued under similar terms with a similar maturity period. The unwinding of the discount is charged to the income statement as an accretion expense within finance costs. The convertible notes holders have the right to convert the notes to equity at any point prior to 31 January Any unconverted notes will not be repaid until 31 January At balance date 6,506,419 (2010: 6,602,589) notes remained unconverted. 8. Issue of equity securities During the period 961,700 ordinary shares were issued on the conversion of convertible notes, with a principal value of $37,459. Additionally as a result of the conversion $2,589 was transferred from reserves to issued capital.. On 21 April 2011, the Company issued 4,000,000 unlisted options exercisable at 20 cents on or before 9 March 2012 to consultants in lieu of advisory fees. The options package has been valued at $88,000 using the Black Scholes model and the financial effect has been recognised in Consulting Expense in the Statement of Comprehensive Income in the current period. On 21 April 2011, the Company issued 1,500,000 unlisted incentive options exercisable at 18 cents on or before 30 April 2014 to employees. The options packages have been valued at $90,000 in total using the Black Scholes model and the financial effect has been recognised in Employee Benefits Expense in the Statement of Comprehensive Income in the current period. 9. Contingencies and commitments At 30 June 2001, the drilling of the Kora-1 exploration well in the AGC Profond licence was in progress. Subsequent to the period end the drilling has been completed and cash calls totalling approximately $5.9million have been paid or are expected to be paid by FAR in respect of the Kora well. Approximately $1.9million of this amount related to work performed during the current period and was accrued at reporting date and is included in the exploration expense for the period. The remaining amount will be expensed in the second half of the year. During the period, FAR was advised by the operator of the Sinapa and Esperanca blocks in Guniea Bissau that the Joint Venture partners have a contingent withholding tax liability which would become payable in the event of the Joint Venture entering the development phase of the licences. At 30 June 2011 FAR s estimated share of the contingent liability is approximately $0.5million. Other than the above, there have been no other changes to the contingent assets and contingent liabilities reported in the annual financial report for the year ended 31 December

18 Notes to the Financial Statements For the half-year ended 30 June Subsequent events As disclosed in note 6, subsequent to the period end the drilling of the Kora-1 exploration well was completed and was plugged and abandoned as an unsuccessful well. Costs of approximately $4.5million incurred to 30 June 2011 in respect of the well were expensed during the period. Subsequent to the year end the SL328#9 production well in Lake Long, Louisiana suffered an underground blow out which necessitated the premature plugging and abandoning of the well. At 30 June 2011 $356,337 was included in Oil & Gas Properties and $55,161 in Property, Plant and Equipment in respect of the well. These amounts will be written off in the second half of the year. Other than as stated in this note, the Directors are not aware of any other matters or circumstances at the date of this report, other than those referred to in this report, that have significantly affected or may significantly affect the operations, the results of the operations or the state of affairs of the Consolidated Entity in subsequent financial years. 18