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1 Rialto Energy Limited Annual Report 2012

2 /a Overview Rialto Energy is an ASX and AIM listed oil and gas explorer with offices in Perth, London and Côte d Ivoire. Business Profile Business review Governance Financial statements 01 Highlights 04 Strategy & Assets 06 Chairman s Statement 11 Overview 12 CI WA-399-P 19 Accra Block 20 Corporate Social Responsibility 27 Board of Directors 28 Corporate Governance 34 Directors Report 47 Auditor s Independence Declaration 48 Consolidated Statement of Comprehensive Income 49 Consolidated Statement of Financial Position 50 Consolidated Statement of Changes in Equity 52 Consolidated Cash Flow Statement 53 Notes to the Financial Statements 85 Directors Declaration 86 Independent Auditor s Report 87 Shareholders Information Rialto Energy Limited Annual Report Report

3 Highlights /01 /1 Rialto completed a three well appraisal programme in Block CI-202, demonstrating the Company s West African operating capabilities. Two of these wells were suspended for use in future development and have a combined delivery capability of up to 70mmscfd. Business Profile The acquisition of a full-fold 3D seismic survey over the entirety of Block CI-202. The processing of this data is nearly complete with Rialto identifying several new high-impact exploration targets which will be the subject of drilling in the coming year. The new data is also providing an increased understanding of Block CI-202 existing discoveries and previously identified exploration targets. A cash position of 74m at 30 June 2012 and no debt. During the year, Rialto secured a strategic investment by including International Finance Corporation, which is extremely active in downstream energy projects in Cote d Ivoire. The support of Rialto shareholders was demonstrated by the US87 million in funds raised for 2012 drilling activities at the beginning of 2012.

4 /02 /2 Overview The management and technical team has been built with the objective of becoming a successful international E&P operating company. Rialto currently operates Block CI-202 in Côte d Ivoire and has an interest in the Apache operated WA-399-P block in the Carnarvon Basin, offshore Australia. Rialto has made application for the acquisition of an interest in the Accra Block in Ghana subject to joint venture and government approvals. Active exploration, appraisal and development wells are planned in these permits over the next three years.

5 /03 /3 Business Profile Business Profile The West Africa Transform Margin is one of the world s most active emerging petroleum provinces Business Profile Strategy & Assets 04 Chairman s Statement 06

6 /04 Strategy Clear Objectives Two Pronged Strategy: Gazelle Commercialisation & Exploration Three well, operated appraisal programme completed Finalising Gazelle Field Commercialisation Two capable of combined gas production of up to 70 mmscf/d Conversion of Gazelle Contingent Resources to Reserves pending Petroci to back-in for an additional 11% paying interest Development concept being refined - phased approach Significant reduction in capital costs Target existing discoveries including Bubale / Hippo / Addax Exploration Targeting Discoveries & High Impact Prospects Target existing high impact prospects including the de-risked Condor gas prospect & Chouette liquids prospect Mature newly identified prospects to drill-ready status including Arius Exploration funding - near-term farm-in partner to be identified and secured early 2013

7 Assets /05 Exciting Portfolio WEST AFRICA AUSTRALIA Business Profile CI-202 Côte d Ivoire Development & Exploration Working Interest: 85%* Operator: Rialto Accra Block Ghana Exploration Working Interest: 18%** Operator: Tap Oil WA-399-P Australia Exploration Working Interest: 12% Operator: Apache Energy Acquisition of full-fold 3D seismic data set over Block CI-202 Rialto granted approval for Field Development Plan at the Gazelle Field with subsequent granting of an Exclusive Exploitation Area within the Block for a period of 25 years Binding gas sales Memorandum of Understanding (MoU) entered into with the Government of Cote d Ivoire for the delivery of much needed gas supplies for in-country electricity generation Successful drilling of three wells in Block CI-202; Rialto s first operated drilling programme Petrofac awarded Front End Engineering and Design work contract for the Gazelle Development Sapphire Driller Jack-up drilling rig secured for the Company s proposed three firm well (two option) 2013 programme in Block CI-202 Rialto granted joint venture participant approval Required Government approvals still pending New 3D seismic data shot and processed over the deepwater portion of Accra block with a number of large prospects identified Oil and gas condensate discovered in the nearby deep water Tano block, offshore Ghana Processing of the 3D seismic data completed All partners continuing into the next permit year (year five) CPR to be updated once mapping and studies are complete * Rialto has an 85% interest (95% paying interest) in Block CI-202 and 74% interest (84% paying interest) in the Gazelle EEA (Petroci holds the difference). ** subject to requisite Government approvals

8 /06 Chairman s Statement Dear Shareholder, This is my first letter to you as Chairman since assuming the role in March of this year as part of the succession planning of the Company. The last year has been a very active one for Rialto and one during which the Company has achieved a number of significant corporate and operational accomplishments and milestones. Significant corporate accomplishments include the completion of a series of capital raisings to provide funding primarily for the Company s 2012 Côte d Ivoire drilling campaign, with A67.3M raised through issuance of new shares and a Share Purchase Plan in early 2012 and the Company qualifying for, and securing, an investment of US20M by the International Finance Corporation ( IFC ), a member of the World Bank Group. I believe the partnership with IFC offers a significant opportunity to further the interests of the Republic of Côte d Ivoire and Rialto Shareholders alike. In addition to these capital raising initiatives, the Company achieved a milestone in April 2012 with admission to the Alternative Investment Market (AIM) of the London Stock Exchange. The decision to list on AIM will provide a platform for increased exposure to European investors and compliment the Company s significant Australian shareholder base. Operationally over the past year, the Company has successfully acquired 3D seismic data over Block CI-202, offshore Côte d Ivoire; been granted an Exclusive Exploitation Authorization, with a duration of 25 years, for the Gazelle Field contained within Block CI-202; and planned and executed an appraisal drilling programme at the Gazelle Field. I believe these achievements, within two years of acquiring a stake in Block CI-202, clearly demonstrate the Company s ability and determination to ambitiously pursue the resources within Block CI-202. The results of the Gazelle field appraisal drilling campaign are currently being integrated into the field models. As such the nature and timing of any development of the Gazelle Field is yet to be determined by the Company and its relevant consultants and this work is ongoing. The processing and interpretation of the recently acquired 3D seismic data is in progress, but has already enabled identification of a number of new leads and prospects in Block CI-202, including one in particular which the Company believes to be world class. These new prospects and leads are in addition to those identified using the pre-existing dataset, including three other previous discoveries that remain in need of further appraisal. Further, this new 3D data is providing the Company with a deeper understanding of the Gazelle Field. Your Board and Management The composition of the Board has changed significantly over the last year. Glenn Whiddon and Chaim Lebovits resigned from the Board in March and April respectively. I commented at the time, and would like to repeat that Glenn and Chaim made outstanding contributions during their time with Rialto and I wish them continued success in their future endeavours. Neil Hackett joined the Board at the time of Glenn Whiddon s resignation and has strengthened the Board with his Corporate Governance and Non-executive Director experience. The Board also undertook an evaluation of its composition and skill set and commenced a search for two long-term replacements for the departing Directors. This process concluded in October with the appointments of Andrew Bartlett and Gregory Stoupnitzky. Andrew brings to the Board a wealth of experience in the E&P sector in general and specifically in the area of debt finance and M&A in West Africa. Gregory has 30 years of investment banking and capital markets experience. The addition of these two gentlemen greatly enhances the Board s combined skill set and positions the Board well to take the Company forward. Recently, the Group s Managing Director, Jeff Schrull, announced his intention to resign from his role in mid-2013

9 Business Profile /07 and to return to Perth and the Board has initiated a process to identify a replacement for Jeff to lead Rialto into its new phase of growth. Jeff has been a major contributor in Rialto s first phase of development and will continue to provide his full energy and commitment to Rialto until his departure next year. I extend my great thanks for his tireless work on behalf of the Company and its shareholders. HSEC As an oil and gas operator, we take our responsibility to protect the health and safety or our employees, contractors and the environment in which we work, very seriously. I am proud to report that during the past year the Company successfully performed over one million man-hours worth of work (including the 3D seismic and appraisal drilling campaigns offshore Côte d Ivoire) without any lost time incidents or material spills, and that the Company received no warnings or penalties in relation to any HSE standards or requirements. Outlook Whilst the year has been very busy operationally and has taken the Company forward, I acknowledge that some operational and market performances have not been as positive as we had planned or would have liked. I wish to assure shareholders that the Company nevertheless remains on course to progress its various projects. We remain focused on building an oil and gas Company with a West Africa focus and with specific and separate strategies in relation to both oil and gas. I wish to take this opportunity to thank the staff of Rialto for their commitment and efforts over the last year, and to thank shareholders for their support during what I have noted above was a busy and at times challenging period. I believe the foundations are in place to build a solid Company and look forward to reporting progress in the coming period. Bruce Burrows Non-executive Chairman

10 /8 / In Review

11 /09 /9 Business Review Business Review Business Review Overview 11 CI WA-399-P 18 Accra Block 19 Corporate Social Responsibility 20

12 /10

13 Overview /11 Activities & Milestones The 2011/12 year has been an extremely busy one for Rialto. Much has been achieved in this time to further the development and growth of the Company and in particular its business in Côte d Ivoire. During the year, the following activities and milestones have been undertaken and achieved: Business Review Completion of a heavily oversubscribed a 67 million placement and share purchase plan, as well as a 20 million private placement to International Finance Corporation and its affiliated entities Acquisition of a full-fold 3D seismic data set over the entirety of Block CI-202 Receipt of Regulatory approval for a Field Development Plan at the Gazelle Field, located within Block CI-202 and subsequent granting of an Exclusive Exploitation Area giving Rialto tenure over Gazelle for a period of 25 years Entering into a binding gas sales Memorandum of Understanding with the Government of Côte d Ivoire for the delivery of much needed gas supplies for in-country electricity generation The successful drilling of three wells in Block CI-202, Rialto s first operated drilling activities The award of Front End Engineering and Design work contract for the Gazelle Development The securing of the Sapphire Driller Jack-up drilling rig for the Company s proposed three firm well 2013 programme in Block CI-202 Petroci back into the Gazelle Field EEA for an 11% paying interest

14 / In Review Legend Gazelle Cluster Gas Oil IVCO-7 IVCO-9 IVCO-4 Belier Addax Gazelle P3 IVCO-14 Gazelle-2 Gazelle-1 IVCO-21 IVCO-12 P4 IVCO-25 IVCO-24 IVCO-13 Bubale 50m IVCO-3 100m IVCO-10 IVCO-22 IVCO-15 Hippo Hippo-1 IVCO-18 Impala IVCO-2 Hippo Cluster 200m 500m 1000m CI Kilometres The existing discoveries in CI- 202 represent exciting nearterm shallow water appraisal and development opportunities Rialto Energy Limited Annual Annual Report Report

15 Côte d Ivoire Block CI-202 /13 Significant Opportunities CI-202 (Rialto 85% and Operator) Block CI-202 offshore Côte d Ivoire comprises an area of 675km 2 and contains four significant oil and gas discoveries; Gazelle, Hippo-1, Bubale, and Addax, all located in water depths of 50 to 100 metres, each of these discoveries represents significant additional appraisal opportunities. Of the 16 wells that have been drilled in CI- 202, all have encountered significant hydrocarbon shows. Business Review CI-202 Contingent Resource During September 2011, RPS Energy Services Pty Limited (RPS) completed an updated Competent Person Report (CPR) in respect of CI-202. RPS has certified a Mean Contingent Oil and Condensate Resource in CI-202 of 50 mmbbls and a Mean Contingent Gas and Associated Gas Resource of 396 Bcf for the existing discoveries of Gazelle, Bubale, Hippo and Addax. The Contingent Resource at Gazelle was penetrated as part of the 2012 drilling programme. The information ascertained through drilling at Gazelle, along with the new seismic data, will be integrated into the geological and reservoir models, with a new CPR expected in or around November CI-202 Prospective Resource RPS has certified a Mean Prospective Oil and Condensate Resource in CI-202 of 511 mmbbls and a Mean Prospective Gas and Associated Gas Resource of 1,785 Bcf, demonstrating the significant upside exploration potential that exists in CI-202. The Company expects that this Prospective Resource will be expanded in the near future through the identification and maturation of new and existing prospects arising from newly acquired 3D seismic data. CI-202 3D Seismic Acquisition In January 2011, the Company completed the acquisition of a blockwide, modern long offset full-fold 3D Seismic survey covering 891km 2. Processing of this data is nearing completion and will provide Rialto with a full suite of 3D data over the entirety of Block CI-202 for the first time. This will allow Rialto to further refine existing interpretation and to extend it to areas previously not covered by 3D seismic ensuring the mapping of the full exploration potential within Block CI-202. In addition, this data will provide Rialto with an even greater understanding of the four existing discoveries and culminate in better definition of these existing resources. Initial interpretation of this new data set in areas previously not covered by 3D seismic has identified a very attractive break in slope Turonian fans, analogous to the nearby giant Jubilee Field. These prospects are being matured as 2013 drill candidates and can be drilled and developed in water depths of about 100m using the Sapphire Driller.

16 /14 Côte d Ivoire continued Block CI-202 First Wells 2012 Drilling Programme Rialto commenced its first operated drilling programme in March 2012 with the spudding of the Gazelle-P3 well in Block CI-202, which was also sidetracked. This was immediately followed by the Gazelle-P4 well. All wells were successfully and safely completed, demonstrating Rialto s West African operating capability. Gazelle-P3 The Gazelle-P3 well was spudded on 12 March Mechanical issues with the rig resulted in delays and eventually, the well having to be side-tracked ( ST1 well ). The ST1 well penetrated the UC-1 reservoirs near the existing IVCO-14 discovery well and also appraised the Gazelle LC-2 primary gas reservoir. The well also successfully penetrated a down-dip portion of the high impact (750 Bcf) Condor prospect. The well was then side-tracked again ( ST2 well ) to further appraise and test the Upper Cenomanian (UC-1) reservoirs closer to the IVCO-14 well. The ST1 and ST2 wells were drilled to total depths of 3685mRT and 2979mRT respectively. The ST1 well and ST2 well achieved the following exploration, appraisal and development objectives: Significant reduction of the geological risk of the greater Condor prospect (750 Bcf mean prospective resource) due to the thickening of the interval up-dip to the North where reservoir quality is predicted to improve. The ST1 well drilled a portion of the Condor Prospect (LC-5) and discovered gas in a thick, low permeability reservoir. A Condor appraisal well is one of several high impact candidates earmarked for drilling in 2013, once prospect ranking is completed. Extension of the vertical extent of the gas bearing LC-2 reservoir by 200m TVD as well as establishing probable communication of the LC-2 reservoir with penetrations in the up-dip Gazelle-2 well (tested at 32.5mmscfd) and on the southern side of the fault in the IVCO-21 well. Appraising and testing the extent and quality of the UC-1 oil and gas reservoirs (UC-1A, UC-1B and UC-1C sands) downdip of the IVCO-14 well and establishing continuity of the gross sand interval between the IVCO-14 well and ST2. Obtaining necessary oil and gas samples from the UC-1 and LC-2 reservoirs to facilitate development and confirm compositions. The penetration by the ST1 well of a new, high quality Lower Cenomanian 75m gross sand interval, which provides an additional exploration target for the Block.

17 Further, drill stem testing of the ST2 well achieved maximum flow rates of 19.5mmscfd and an unstabilised rate of 760 bopd from separate sands in the UC-1 reservoir. These flow rates confirm the productivity of the UC-1 reservoir sands. At the conclusion of the ST2 well testing programme the well was suspended for future use. Business Review /15 A post ST1 well evaluation of the Condor discovery is now underway, with the selection of an optimal appraisal location for potential drilling in 2013, a priority. Gazelle-P4 The Gazelle-P4 well was spudded on 25 July 2012 and was drilled to a total depth of 3522m MDRT (2720m TVDSS). The well was delivered within the pre-drill estimated time and budget; further demonstrating Rialto s capability as an operator. The Gazelle-P4 well encountered a high quality Upper Cenomanian (UC-5) gas reservoir and was suspended as a future producer. Fluid and pressure samples obtained from the well were of a sufficient quality to provide the Company with the necessary comfort to case and suspend the well as a future gas producer, without the requirement for a flow test. The Company estimates that initial gas production from the Gazelle UC-5 reservoir would be around 40 mmscfpd, which represents a material contribution towards the overall targeted production rate for the proposed Gazelle Field gas development. The results from the Gazelle-P4 well will be assessed to complete volumetric estimates for a revised Competent Person s Report for the Gazelle Field. The data from ST1, ST2 and Gazelle-P4 wells will be used along with information being provided by the processing of the 3D seismic to better refine the Gazelle Field Development Plan. It will also be used to upgrade the exploration prospectivity of analogous reservoir targets across the CI-202 Block. CI-202: Côte d Ivoire (Rialto 85% and Operator) Both wells were successfully and safely completed, demonstrating Rialto s West African operating capability

18 /16 Côte d Ivoire continued Block CI-202 Unlocking Potential 2013 Drilling Plan Block CI-202 is located in one of the world s most active emerging petroleum provinces, the West African Transform Margin. Côte d Ivoire in particular is becoming the focus of increased interest and activity from world class oil and gas operators and recent in-country discoveries continue to demonstrate the significant oil potential which exists. Against this backdrop of activity and success, Rialto has contracted the Sapphire Driller jack-up rig and intends to drill three wells commencing in the first half of The three wells will be targeting exploration prospects that have been identified using the 3D seismic acquired in January Rialto also has two options at the end of the exploration programme, which may be exercised with a view to finishing the Gazelle Development drilling. Exploration and Appraisal Drilling With the completion of the ST1 well, ST2 well, Gazelle-P4 well, and the acquisition of the newly processed volumes of 3D data, Rialto is now assessing the full exploration potential of Block CI-202. This review is being undertaken in order to rank the growing number of exploration and appraisal targets for consideration as part of the 2013 drilling campaign. Many new prospects have been identified and will be more easily drilled using the Vantage Sapphire jack-up drilling rig. Drilling candidates include: Existing high impact exploration prospects such as* Faucon: 154mmbbls and 77 Bcf Impala (Updip and Deep): 21.3mmbbls and 42 Bcf Condor: 15mmbbls and 758 Bcf Several new and very attractive shallow water prospects, including Arius, are being matured as drill candidates. Appraisal of existing discoveries**: Bubale: 14.3mmbbls and 73 Bcf Addax: 21mmbbls and 11 Bcf Hippo: 46 Bcf Several high impact prospects identified 511 mmbbs and 1.8 Bcf* * Volumes based on gross mean prospective resources as set out in CPR ** Volumes based on gross mean contingent resources as set out in CPR

19 Business Review / Farmout Process Rialto intends to conduct a farmout process to identify partners to participate in and fund the 2013 drilling campaign. Gazelle Field Development Plan and Exclusive Exploitation Area The CI-202 Gazelle Field Development Plan ( FDP ) was approved in December Further to the approval of the FDP, Rialto was granted an Exclusive Exploitation Area ( EEA ) over the Gazelle Field. The EEA grants Rialto the right to produce hydrocarbons from Gazelle over a tenure period of 25 years. Any development at Gazelle will be the initial phase of what will be a block wide development concept. Whilst the FDP is being reviewed and refined, it is currently expected to consist of the construction of a fixed production platform, along with dedicated oil and gas lines to shore. These facilities have the design capacity to allow for further drilling and tieback of subsequent phases of satellite field developments. The close proximity of the existing discoveries and adjacent prospects will allow for tie-back to the facilities at Gazelle in a cost effective manner, and this has the potential to act as a gathering centre for other fields in the region. Front End Engineering and Design ( FEED ) work is continuing, with the Company presently reviewing and refining an initial development concept for Gazelle to allow for a phased approach which should allow for a significant reduction in capital costs. As of June 2012, there is the possibility that a third party gas pipeline will be built along the eastern coastline. Rialto is currently reviewing the proposed pipeline venture to ascertain if it can be integrated with a Gazelle Field development and enhance economics. Contemporaneous with the approval of the FDP, a gas sales Memorandum of Understanding was signed with the Government of Côte d Ivoire, securing sales for initial gas production for Rialto of up to 100mmscf/d. Whilst the final terms of a formal Gas Sales Agreement ( GSA ) have been agreed with the Government, within Côte d Ivoire the Government is finalising the implementation of a new entity which will become the buyer under the agreement. Post the grant of the EEA, and during August 2012, Rialto s Joint Venture Partner in Block CI-202, Petroci, exercised its right to increase its interest in the Gazelle Field from 15% to 26%. The election by Petroci results in it holding a 16% paying interest in the Gazelle Field EEA and leaves Rialto with a 74% interest in this area, however retaining an 85% interest in the remainder of Block CI-202. By exercising its right, Petroci will be required to reimburse Rialto for an 11% share of all historical costs associated with the Gazelle Field since the awarding of Block CI-202. Rialto estimates this payback to be in the order of US10 million. The Company views this move by Petroci as demonstrating the confidence in the Gazelle Field and validation of the work conducted by Rialto in the area to date. Hippo-Bubale Field Development Plan As part of the block wide development concept, Rialto has prepared and submitted a field development plan for the tie back of the existing satellite discoveries at Hippo and Bubale. This plan describes the production of some 112 Bcf and 13 MMstb at initial rates of 40mmscf/d and 7,000stb/d beginning in The development plan is for an unmanned wellhead platform with a full well stream tie back to the central Gazelle facilities. The Hippo- Bubale Field Development Plan was approved during October 2012.

20 /18 WA-399-P is located in the Carnarvon Basin, offshore Western Australia. The permit is currently operated by Apache Energy Limited (Apache), who farmed into the permit and assumed operatorship in Under the terms of the farm-in deal with Apache, Rialto were fully carried for all work commitments up to the end of that permit year, including full coverage of the block with a new 3D seismic survey, completed in March Apache has recently completed seismic processing of the 3D seismic data. Preliminary Interpretation of the new seismic data has been performed and detailed mapping is continuing and will be augmented with final seismic depth products and specialised seismic processing. Due to the lengthy well planning process caused by changes in Australian Commonwealth legislation, the one well commitment for permit year five has been allowed to be substituted by geotechnical studies. This will allow the selection of the best prospect and optimal well placement, fully utilising the new 3D seismic data. All partners have elected to continue into the next permit year (year five). A summary of the resource estimate contained in the September 2011 CPR is set out in the charts below. This was based on the previous seismic interpretation, but is still supported by the preliminary seismic interpretation on the most recent data. The CPR will be updated once final mapping and studies have been completed. WA-399-P - Resources - Oil WA-399-P - Resources - As. Gas MMBbls 50 Bcf Australia WA-399-P Low Mean High 0 Low Mean High WA-399-P Independent Evaluation for Gross Prospective Resource

21 /19 Ghana ACCRA Through an agreement with Challenger Minerals (CMI), a subsidiary of Transocean, to review new venture opportunities with a focus on West Africa, the Company agreed the right to acquire an 18% equity interest in the Offshore Accra Contract Area (Accra Block). This acquisition is subject to obtaining the approval of the Ghana National Petroleum Company (GNPC), the Ministry of Energy of the Republic of Ghana and the joint venture participants in the Accra Block. Joint venture participant approval has been granted and Rialto is awaiting the requisite Government approvals necessary for entry. Subject to requisite Government approvals, the Accra Block Operator, Tap Oil (Ghana) Limited and the other JV partners AFEX and CMI have decided to farm-down their equities. The farm-out process is well advanced. The current exploration commitment for the Block is a well to be drilled by September, Business Review The Accra Block covers an area of 2,000km 2 and is located to the southeast of Accra, the capital of the Republic of Ghana, in water depth ranging from less than 50 metres to greater than 2,500 metres. The Ministry of Energy has recently granted a 12 month extension to the Initial Exploration Period, with a commitment well to be drilled before end September The operator of the block, Tap Oil Limited has shot and processed new 3D seismic data over the deepwater portion of the block and from this excellent quality data has identified a number of large prospects within the pre and post rift Cretaceous section. These prospects are very similar in geological age and play type to the 1.2 billion barrel Jubilee discovery of The combined unrisked prospective resource of these prospects is greater than three billion barrels. The Operator is currently selecting a drilling candidate from these prospects with a view to drilling the commitment well in the first half of It is expected that the commitment well will likely target a large, deep-water, Jubilee lookalike trap with prospective resources in the range of 500 million barrels. Subsequent to the quarter end, Tullow Oil discovered oil and gas condensate with its Wawa-1 exploration well in the neighbouring deep water Tano block, offshore Ghana. Wawa-1 discovered 13 net metres of oil pay and 20 net metres of gas-condensate pay. The discovery continues the high rate of exploration success offshore Ghana.

22 /20 Corporate Social Responsibility Helping Communities Rialto is committed to complying with or exceeding Health, Safety, Security, Social, Environmental and Quality (HS 3 EQ) regulations, protecting the health and safety of its employees and contractors, and preserving and protecting the environment and the communities in which it operates. Rialto s HS 3 EQ policies have been developed based upon industry best practice and in consultation with respected leaders in relevant fields. Rialto expects its suppliers, contractors and partners to share the same core values and objectives. Performance Highlights A clean sheet in respect of Geotechnical, Site and 3D Seismic Surveys performed with no environmental spills, warnings or penalties imposed The completion of Environmental Impact Assessments (EIAs) for all Rialto s major work programmes Continuation of the construction of schools in Tankesse and Kokomian, Côte d Ivoire The implementation of a comprehensive Health, Social, Security, Safety and Environmental Management System to meet International Finance Corporation (IFC) Performance Standards and Environmental, Health and Safety Guidelines No material spills, warnings or penalties on the First Phase Gazelle Drilling Programme The completion of over one million man-hours without a single lost time injury (LTI) during the 200+ days of the Gazelle Drilling Programme Key Objectives for Coming Year Conduct of Environmental Social Impact Assessments (ESIAs) for both of the 2013 Drilling Campaigns, and in respect of any Gazelle Development Implementation of a five year Social Programme planned for Grand Bassam, Adiake and Tiapoum Safe and successful delivery of the 2013 drilling programme of Block CI-202, with zero recoverable LTIs.

23 /21 Business Review Overview Students at the nearly completed classroom in Tankesse Environment Concern for the environment is of utmost importance to Rialto and it is the Company s policy to avoid or reduce the potential environmental impact of its activities. Rialto is committed to monitoring its environmental performances and ensuring they are identified, recorded and remain within the legal limits. This monitoring covers a host of parameters including Cuttings Discharge, Chemical Use, Spills, Diesel Usage, Liquid Waste, Non Hazardous and Hazardous Waste. Rialto also treats the threat of spills seriously and ensures all key personnel have received training to respond to an emergency should it arise. As well as having developed a tiered response plan, Rialto is also a member of Oil Spill Response Limited, an organisation that provides support in the form of expert personnel and additional equipment in the unlikely event a major incident was to occur. Social Rialto aims at all times to conduct its business in a socially responsible, transparent and ethical manner with respect for the law.

24 / In Review Rialto Energy is committed to Corporate Social Responsibility and positively impacting on communities in which it operates Rialto Energy Limited Annual Annual Report Report

25 Corporate Social Responsibility continued /23 Building Relationships The Company aims to protect the local environment and have a positive impact in the communities and areas in which it operates by engaging with local stakeholders to inform them of the Company s operations, and to assist with improving infrastructure, education and health. Business Review During the year, Rialto has used contributions to assist with the construction of classrooms in both Tankesse and Kokomian in Côte d Ivoire. In addition to this, Rialto is now implementing programmes for Grand Bassam, Adiake and Tiapoum by assisting with restoration work of an orphanage, construction of medical centres and supply of equipment for these centres. The total proposed programme has been projected to take three to five years to complete. Security The security and safety of personnel and communities in which Rialto operates takes priority in the management of operations. Rialto has comprehensive security procedures in place to ensure the Company is able to mitigate security threats. Safety Rialto appreciates the importance of safety and our people are the most valuable resource. The Company s goal is zero injuries and fatalities across all areas of our operations. Rialto is successfully achieving a culture of safety and continues to ensure that relevant personnel are trained to perform their job safely. Pleasingly, Rialto recorded over 200 days of Gazelle Field operations with zero recordable LTIs. Whilst an exemplary result, Rialto will continue to progress the way it undertakes and implements safety to ensure this record is maintained for future operations. Health Rialto s goal is to minimise operational health issues across all areas of its operations and Rialto has implemented an occupational health programme to protect employees from hazards that may arise within the working environment. Rialto Energy is active in health promotion, aiming at preventing health risks associated with general work environment and lifestyle. Business Ethics Rialto is committed to transparency in all of our business dealings. As a part of this commitment, we promote a legitimate business environment and will not engage in any form of bribery and corruption by anyone employed by or connected to the company. Rialto recorded over 200 days of Gazelle Field operations with zero recordable LTIs Rialto has a well-developed Anti-Corruption and Anti-Bribery Policy. All staff and contractors directly employed by Rialto have participated in an Anti-Corruption and Anti-Bribery course. A Gift and Hospitality record is also maintained.

26 /24 Governance Approach to Corporate Governance

27 /25 Governance Governance Board of Directors 27 Corporate Governance 28

28 /26 Governance Approach to Corporate Governance Rialto s First Day of Dealings on AIM, April 2012

29 The Board /27 Experienced Team BRUCE BURROWS Non-executive Chairman (Director since May 2011) Member of the Nomination Committee, Audit & Risk Committee and Remuneration Committee Mr Bruce Burrows is a senior oil and gas finance executive and is presently the CFO of Seven Energy Limited, an oil and gas explorer with interests in Nigeria. Prior to his position with Seven Energy, Mr Burrows was the Finance Director and Company Secretary at JKX Oil & Gas Plc (JKX) from 1997 until He has also worked with Ernst & Young where he held positions in the Wellington (New Zealand) and London offices. He holds a BSc Honours degree from Canterbury University (New Zealand), a Diploma in Accounting from Victoria University (New Zealand) and is a member of the Institute of Chartered Accountants of New Zealand. JEFF SCHRULL Managing Director (Director since July 2010) Member of the Nomination Committee Mr Jeff Schrull is a senior executive E&P professional with over 25 years industry experience. He held the position of Corporate General Manager of Exploration for Addax Petroleum between 2006 and 2010 and during this time Jeff was successful in building the Addax exploration business throughout Africa and played a key role in the subsequent sale of Addax to Sinopec. The countries of operation included Nigeria, Cameroon, Gabon, Sao Tome and Kurdistan with activities located from the onshore to the ultra-deep off-shore. Prior to Addax, Mr Schrull spent 19 years with Chevron, with his final three years spent as Exploration and New Ventures Manager for West Africa. Mr Schrull holds a B.S. Geophysics, Majors in Math, Geology, Physics from North Eastern Louisiana University (1982) and a M.S. Geophysics from Texas A & M University (1986). CHARLES NIETO Chief Operating Officer (Director since May 2011) Member of the Nomination Committee Mr Charles Nieto has over 30 years of oil industry experience and holds a BSc and ACSM. An Engineer by background, he has worked for Schlumberger, Enterprise Oil and Shell. Charles has previously acted as Technical Vice President at Grove and Stratic Energy and has held senior technical and management positions with Shell and Enterprise Oil. He is the CEO of Rialto s Ivory Coast subsidiary and has been responsible for setting up the business there for the last 30 months. He has significant international experience including Italy, Indonesia, Cambodia, Norway, North Africa, Syria and the UK North Sea. VANCE QUERIO Non-executive Director (Director since July 2010) Member of the Audit Committee, Nomination Committee and Remuneration Committee Mr Vance Querio is a seasoned West African industry executive with over 30 years operating experience. Vance previously served as Chairman and Managing Director of the Addax Petroleum companies in Nigeria, during the years that Addax Petroleum Nigeria achieved peak production of over 110k bopd and annual expenditures in excess of US1 billion. Prior to joining Addax, Vance was an independent producer in the USA as Manager of Source Rock Energy LLC and he served as Vice President of a non-conventional gas producer in the United States. Prior to these undertakings, Vance had spent 20 years with Chevron Corporation, working primarily internationally, in various roles of increasing responsibility. NEIL HACKETT Non-executive Director (Director since March 2012) Member of the Remuneration and Audit Committees Mr Hackett holds a Bachelor of Economics from the University of Western Australia, post-graduate qualifications in Applied Finance and Investment, and is a graduate (Order of Merit) with the Australian Institute of Company Directors. Neil is an Affiliate of the Institute of Chartered Secretaries of Australia and a Fellow of the Financial Services Institute of Australia. Neil is classified as an Independent Non-executive Director of Rialto who also fulfils Rialto s requirement for a part-time Australian domiciled company secretary under the Australian Corporations Act. He is currently Non-executive Director of Australian Securities Exchange listed entities Stratos Resources Limited (ASX), TPL Corporation Limited and company secretary of Ampella Mining Ltd and Modun Resources Ltd. Neil is also on the Board of two unlisted entities, Steel Blue Pty Ltd and WestCycle Inc. Neil s previous West African experience includes company secretary at Sundance Resources Limited and work with the Australian Securities and Investments Commission. ANDREW BARTLETT Non-executive Director (Director since September 2012) Mr Andrew Bartlett has over 30 years of experience in the Oil and Gas Industry. An experienced investment banker based in London, Mr Bartlett was both the Global Head of Oil and Gas Project Finance and Global Head of Oil and Gas Merger and Acquisitions at Standard Chartered Bank until July In the period 1998 to 2001, prior to going into investment banking, Mr Bartlett helped to establish Shell Capital, a private equity/mezzanine debt group set up by Royal Dutch Shell to finance small producers in emerging markets. Prior to joining Shell Capital, Mr Bartlett worked for Royal Dutch Shell as a Petroleum Engineer and Development Manager where he gained extensive experience in developing and operating oil and gas fields. Postings included the North Sea, Netherlands, Somalia, New Zealand and Syria. He is currently a board member of Petroleum and Renewable Energy Company Limited and is a director of Bartlett Energy Advisers. Gregory Stoupnitzky Non-executive Director (Director since October 2012) Mr Gregory Stoupnitzky has over 30 years of Investment Banking and Capital Markets experience, with a long track record in the natural resources and related sectors. During this time, Gregory has held senior positions with Bear Stearns, Morgan Stanley and most recently with Renaissance Capital in London. Gregory is a founder and Managing Partner of CIS Capital LLC, which provides advice to private equity funds and small caps in valuation, disposal or merger of oil and gas and power assets. During the course of his career, he has established an impressive track record of Emerging Markets transactions in geographies across Latin America, Russia and the CIS and Sub-Saharan Africa. In the last 6 years, Gregory has been an Advisory Board Member of Pace Financial Services, a member of the Advisory Council for the Center for Energy, Marine Transportation and Public Policy at Columbia University and a Director of the US-Russia Business Council, in Washington DC. Governance

30 /28 Corporate Governance Approach to Corporate Governance Rialto Energy Limited (Company) has made it a priority to adopt systems of control and accountability as the basis for the administration of corporate governance. Some of these policies and procedures are summarised in this statement. Commensurate with the spirit of the ASX Corporate Governance Council s Corporate Governance Principles and Recommendations 2nd edition (Principles & Recommendations), the Company has followed each recommendation where the Board has considered the recommendation to be an appropriate benchmark for its corporate governance practices. Where the Company s corporate governance practices follow a recommendation, the Board has made appropriate statements reporting on the adoption of the recommendation. Where, after due consideration, the Company s corporate governance practices depart from a recommendation, the Board has offered full disclosure and reason for the adoption of its own practice, in compliance with the if not, why not regime. Further information about the Company s corporate governance practices may be found on the Company s website at under the section marked Corporate Governance. Board Roles and responsibilities of the Board and Senior Executives (Recommendations: 1.1, 1.3) The Company has established the functions reserved to the Board, and those delegated to Senior Executives and has set out these functions in its Board Charter. The Board is collectively responsible for promoting the success of the Company through its key functions of overseeing the management of the Company, providing overall corporate governance of the Company, monitoring the financial performance of the Company, engaging appropriate management commensurate with the Company s structure and objectives, involvement in the development of corporate strategy and performance objectives and reviewing, ratifying and monitoring systems of risk management and internal control, codes of conduct and legal compliance. Senior executives are responsible for supporting the Managing Director and assisting the Managing Director in implementing the running of the general operations and financial business of the Company, in accordance with the delegated authority of the Board. Senior executives are responsible for reporting all matters which fall within the Company s materiality thresholds at first instance to the Managing Director or, if the matter concerns the Managing Director, then directly to the Chair or the lead independent director, as appropriate. The Company s Board Charter is available on the Company s website at Skills, experience, expertise and period of office of each Director (Recommendation: 2.6) A profile of each Director setting out their skills, experience, expertise and period of office is set out in the Directors Report. The Board, in considering its composition, looks to achieve an appropriate mix of skills and diversity appropriate for an emerging oil and gas exploration and production company. Director independence (Recommendations: 2.1, 2.2, 2.3, 2.6) The Board currently has a majority of directors who are independent. Further, the Board believes that its composition provides the diversity of skills and experience appropriate to the Company s circumstances. In accordance with Company policy, when Board nominations are made, the independence of the candidate is given consideration. The independent directors of the Company are Bruce Burrows, Neil Hackett, Vance Querio, Andrew Bartlett and Gregory Stoupnitzky. These directors are independent as they are non-executive directors who are not members of management and who are free of any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the independent exercise of their judgment. Independence is measured having regard to the relationships listed in Box 2.1 of the Principles & Recommendations and the Company s materiality thresholds. The materiality thresholds are set out below. The Board has agreed on the following guidelines for assessing the materiality of matters, as set out in the Company s Board Charter: Balance sheet items are material if they have a value of more than 10% of pro-forma net asset. Profit and loss items are material if they will have an impact on the current year operating result of 10% or more. Items are also material if they impact on the reputation of the Company, involve a breach of legislation, are outside the ordinary course of business, they could affect the Company s rights to its assets, if accumulated they would trigger the quantitative tests, involve a contingent liability that would have a probable effect of 10% or more on balance sheet or profit and loss items, or they will have an effect on operations which is likely to result in an increase or decrease in net income or dividend distribution of more than 10%. Contracts will be considered material if they are outside the ordinary course of business, contain exceptionally onerous provisions in the opinion of the Board, impact on income or distribution in excess of the quantitative tests, there is a likelihood that either party will default, and the default may trigger any of the quantitative or qualitative tests, are essential to the activities of the Company and cannot be replaced, or cannot be replaced without an increase in cost of such a quantum, triggering any of the quantitative tests, contain or trigger change of control provisions, they are between or for the benefit of related parties, or otherwise trigger the quantitative tests.

31 /29 The non-independent directors of the Company are Jeff Schrull and Charles Nieto. During part of the reporting period, the non-independent Chair of the Board was Glenn Whiddon. The Board considered that Glenn Whiddon s interest as a substantial shareholder was consistent with that of other shareholders and his shareholding did not cause potential for real conflict between the interests of Glenn Whiddon and the majority of other shareholders of the Company (and therefore did not affect Glenn Whiddon s ability to exercise unbiased judgement). To the contrary, the Board (in the absence of Glenn Whiddon) considered that, during the course of his duties as Chairman, he demonstrated and consistently made decisions and took actions that were in the best interests of the Company and its shareholders and therefore considered him to be independent. The Managing Director is Jeff Schrull who is not Chair of the Board. Independent professional advice (Recommendation: 2.6) To assist directors with independent judgement, it is the Board s policy that if a director considers it necessary to obtain independent professional advice to properly discharge the responsibility of their office as a director then, provided the director first obtains approval for incurring such expense from the Chair, the Company will pay the reasonable expenses associated with obtaining such advice. Selection and (re)appointment of Directors (Recommendation: 2.6) In determining candidates for the Board, the Nomination Committee (or equivalent) follows a prescribed process whereby it evaluates the mix of skills, experience, expertise and diversity of the existing Board. In particular, the Nomination Committee (or equivalent) is to identify the particular skills and diversity that will best increase the Board s effectiveness. Consideration is also given to the balance of independent directors. Potential candidates are identified and, if relevant, the Nomination Committee (or equivalent) recommends an appropriate candidate for appointment to the Board. Any appointment made by the Board is subject to ratification by shareholders at the next general meeting. The Board recognises that Board renewal is critical to performance and the impact of Board tenure on succession planning. Each director other than the Managing Director, must not hold office (without re-election) past the third annual general meeting of the Company following the Director s appointment or three years following that director s last election or appointment (whichever is the longer). However, a Director appointed to fill a casual vacancy or as an addition to the Board must not hold office (without re-election) past the next annual general meeting of the Company. At each annual general meeting a minimum of one director or a third of the total number of directors must resign. A director who retires at an annual general meeting is eligible for re-election at that meeting. Re-appointment of directors is not automatic. Board committees Nomination Committee (Recommendations: 2.4, 2.6) The Board has established a Nomination Committee. Having regard to the size of the Board, it is considered appropriate that for the present all members of the Board are members of the Nominations Committee. Meetings of the Nominations Committee are held over the course of the year as required in order for the committee to fulfil its duty. The Company s Nomination Committee Charter is available on the Company s website at Audit and Risk Committee (Recommendations: 4.1, 4.2, 4.3, 4.4) The members of the Audit and Risk Committee are Bruce Burrows, Neil Hackett and Vance Querio, all of whom are independent directors of the Company. The Audit and Risk Committee is chaired by Mr Querio. During the course of the year, two meetings of the Audit and Risk Committee were conducted. The following table identifies those directors who are members of the Audit and Risk Committee and shows their attendance at committee meetings. Name No. of meetings attended Bruce Burrows 2 Glenn Whiddon 2 Vance Querio 2 Neil Hackett 0* * Note: no meetings held during Reporting Period since appointment to the Committee Details of each of the director s qualifications are set out in the Directors Report. The Company has established procedures for the selection, appointment and rotation of its external auditor. The Board is responsible for the initial appointment of the external auditor and the appointment of a new external auditor when any vacancy arises, as recommended by the Audit and Risk Committee (or its equivalent). Candidates for the position of external auditor must demonstrate complete independence from the Company through the engagement period. The Board may otherwise select an external auditor based on criteria relevant to the Company s business and circumstances. The performance of the external auditor is reviewed on an annual basis by the Audit and Risk Committee (or its equivalent) and any recommendations are made to the Board. The Company s Audit and Risk Committee Charter and the Company s Procedure for Selection, Appointment and Rotation of External Auditor are available on the Company s website at Governance The Company s Policy and Procedure for the Selection and (Re) Appointment of Directors is available on the Company s website at

32 /30 Corporate Governance continued Remuneration Committee (Recommendations: 8.1, 8.2, 8.3, 8.4) The Company has established a Remuneration Committee. The Remuneration Committee is structured in accordance with Recommendation 8.2. The members of the Remuneration Committee as at 30 June 2012 are: Mr Vance Querio (Chairman), Non-executive Director (Independent) Mr Bruce Burrows, Non-executive Director (Independent) Mr Neil Hackett, Non-executive Director (Independent) The Remuneration Committee held three meetings during the Reporting Period. The following table identifies those directors who are members of the Remuneration Committee and shows their attendance at Committee meetings: Name No. of meetings attended Bruce Burrows 3 Glenn Whiddon 1 Vance Querio 3 Neil Hackett 2 To assist the Remuneration Committee to fulfil its function as the Remuneration Committee, it has adopted a Remuneration Committee Charter. Details of remuneration, including the Company s policy on remuneration, are contained in the Remuneration Report which forms of part of the Directors Report. Non-executive directors are remunerated at a fixed fee for time, commitment and responsibilities. Further, non-executive directors may also receive security based remuneration in the form of options pursuant to the Company s Directors and Employees Option Plan. The Company views the issue of options to non-executive directors as being an appropriate mechanism due to the Company s emerging status and as a means to conserve cash. Remuneration for non-executive directors is not linked to individual performance. Pay and rewards for executive directors and senior executives consists of a base salary and performance incentives. Long term performance incentives may include options and rights to shares granted at the discretion of the Board and subject to obtaining the relevant approvals. Executives are offered a competitive level of base pay at market rates and are reviewed annually to ensure market competitiveness. There are no termination or retirement benefits for non-executive directors (other than for superannuation). The Company s Remuneration Committee Charter includes a statement of the Company s policy on prohibiting transactions in associated products which limit the risk of participating in unvested entitlements under any equity based remuneration schemes. The Company s Remuneration Committee Charter is available on the Company s website at Performance evaluation Senior Executives (Recommendations: 1.2, 1.3) It is the responsibility of the Managing Director to manage and implement performance evaluation of other senior executives and management, reporting to the Board (as both the Nomination and Remuneration Committees) at least annually. Further, and as part of the establishment and continued growth of the Company, senior executives receive regular feedback from the Managing Director as regard to their role in the Company as well as their performance. Board, its committees and individual directors (Recommendations: 2.5, 2.6) Improvement in Board processes and effectiveness is a continuing objective and the primary purpose of Board evaluation is to identify ways to improve performance. The Nominations Committee evaluates the performance of the Board as a whole. These evaluations have been carried out internally and involve applying best practice criteria to the Board s responsibilities. The evaluation also takes into consideration benchmarking of progress towards goals set out in Rialto s business plan and regular assessment of results compared with budgets and forecasts. Evaluations have considered the effectiveness of Board member interaction and the contributions made by individual Directors. At the end of each Board meeting the Board considers the effectiveness of the meeting and any suggestions for improvement are noted and acted upon. Ethical and responsible decision making Code of Conduct (Recommendations: 3.1, 3.5) The Company has established a Code of Conduct as to the practices necessary to maintain confidence in the Company s integrity, practices necessary to take into account their legal obligations and the expectations of their stakeholders and responsibility and accountability of individuals for reporting and investigating reports of unethical practices. A summary of the Company s Code of Conduct is available on the Company website at Diversity (Recommendations: 3.2, 3.3, 3.4, 3.5) The Company has established a Diversity Policy, which includes requirements for the Board to establish measurable objectives for achieving gender diversity and for the Board to assess annually both the objectives and progress in achieving them. A summary of the Company s Diversity Policy is available on the Company s website at

33 /31 The Board has not set measurable objectives for achieving gender diversity. The Company is progressing towards setting measurable objectives for achieving gender diversity in order to have meaningful targets to report upon for the coming reporting period in accordance with the timeline for reporting these matters stipulated in the ASX Corporate Governance Principles and Recommendations. The proportion of women employees in the whole organisation, women in senior executive positions and women on the Board are set out in the following table: Proportion of women Whole organisation 8 out of 25 (32%) Senior Executives 0 out of 4 (0%) Board 0 out of 6 (0%) Continuous Disclosure (Recommendations: 5.1, 5.2) The Company has established written policies and procedures designed to ensure compliance with ASX Listing Rule disclosure and accountability at a senior executive level for that compliance. The Board has established a separate Audit and Risk Committee to monitor and review the integrity of financial reporting and the Company s internal financial control systems and risk management systems. In addition, the following risk management measures have been adopted by the Board to manage the Company s material business risks: the Board has established authority limits for management which, if exceeded, will require prior Board approval; the Board has adopted a compliance procedure for the purpose of ensuring compliance with the Company s continuous disclosure obligations; the Board has adopted a corporate governance manual which contains other policies to assist the Company to establish and maintain its governance practices; regular budgeting and financial reporting; procedures/controls to manage financial exposures and operational risks; Governance A summary of the Company s Policy on Continuous Disclosure and a summary of the Company s Compliance Procedures are available on the Company s website at Shareholder Communication (Recommendations: 6.1, 6.2) The Company has designed a communications policy for promoting effective communication with shareholders and encouraging shareholder participation at general meetings. A summary of the Company s Shareholder Communication Policy is available on the Company s website at Risk Management Recommendations: 7.1, 7.2, 7.3, 7.4) The Board has adopted a Risk Management Policy, which sets out the Company s risk profile. Under the policy, the Board is responsible for approving the Company s policies on risk oversight and management and satisfying itself that management has developed and implemented a sound system of risk management and internal control. Under the policy, the Board delegates day-to-day management of risk to the Managing Director, who is responsible for identifying, assessing, monitoring and managing risks. The Managing Director is also responsible for updating the Company s material business risks to reflect any material changes, with the approval of the Board. In fulfilling the duties of risk management, the Managing Director may have unrestricted access to Company employees, contractors and records and may obtain independent expert advice on any matter they believe appropriate, with the prior approval of the Board. procedures/controls to manage environmental and occupational health and safety matters; the Company s business plan; corporate strategy guidelines and procedures to review and approve the Company strategic plans; reviewing currency hedging strategies and policy; insurance and risk management programs which are reviewed by the Board; prudential limitations procedures, which include Board approval for commitments or expenditures exceeding prescribed amounts; and Board approval to open bank accounts or incorporate any subsidiary. The Managing Director (or equivalent) and the Chief Financial Officer (or equivalent) have provided a declaration to the Board in accordance with section 295A of the Corporations Act and have assured the Board that such declaration is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risk. A summary of the Company s Risk Management Policy is available on the Company s website at

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35 /33 Financial Statements Financial Statements Directors Report 34 Auditor s Independence Declaration 47 Consolidated Statement of Comprehensive Income 48 Consolidated Statement of Financial Position 49 Consolidated Statement of Changes in Equity 50 Consolidated Cash Flow Statement 52 Notes to the Financial Statements 53 Directors Declaration 85 Independent Auditor s Report 86 Shareholders Information 87