victoria petroleum n.l. · 2 chairman and managing director’s report dear shareholders, it is...

Victoria Petroleum N.L.

2008Annual Report

vicpet/08-125a/oil price graph aug28_08.cdr/7-09-08/lp

AFN D J M M

60

20

35

40

55

50

30

25

45

AVER

AG

E $

US

/ BB

L

65

70

2004 2005

J F M A M J J A J F MOJ F M A M J J A S DN OJ F M A M J J A S DN OS DN

2002 2003

A M J J A S AO N D J F

082006 7

M

75

M J

80

85

90

J A S O N D J J JF M MA A S O

Source: Energy Intelligence Group

200

95

100

105

110

115

120

125

130

135

140

145

150

155

160

J J A

US$107.89

CRUDE OIL (WTI) PRICE GRAPHUS DOLLARS PER BARREL

2002-2008

$4.3 million

vicpet/08-125a/projected oil graph 2.cdr/8-09-08/lp

$7.0 million

2008

NE

T R

EV

EN

UE

TO

VP

E (

$M

ILL

ION

S)

8

6

4

2

0

8

6

4

2

0

* Net Revenue (oil sales less production costs) from existing producing oil & gas discoveries.New production from any discoveries from planned 2008 exploration program not included.

VICTORIA PETROLEUM NL

PAST & PROJECTED VPE OIL NET REVENUE*(CALENDAR YEAR @ US$100/BBL)

SEPTEMBER 2008

1

Corporate Information Contents

Page No.

Chairman and Managing Director's Report ......................................2

Petroleum Interests ..........................................................................4

Directors’ Report .............................................................................22

Auditor’s Independence Declaration ...............................................31

Corporate Governance Statement .................................................32

Balance Sheet ................................................................................36

Income Statement ..........................................................................37

Cash Flow Statement .....................................................................38

Statement of Changes in Equity .....................................................39

Notes to the Financial Statements .................................................41

Directors’ Declaration .....................................................................85

Independent Audit Report ..............................................................86

Shareholder Information .................................................................88

Oil from the Mirage Central Production Facility on its way to Moomba, SA Cooper Basin

AUSTRALIAN BUSINESSNUMBER: 50 008 942 827

DIRECTORS: D F Patten

J T Kopcheff

A Bajada

R J Pett

A N Short

B Wrixon

A Dimsey (Alternate Director)

N C Fearis (Alternate Director)

COMPANY SECRETARY: D I Rakich

REGISTERED OFFICE Level 36, Exchange Plaza

AND PRINCIPAL PLACE 2 The Esplanade

OF BUSINESS: Perth, Western Australia 6000

TELEPHONE: +61 8 9220 9800

FACSIMILE: +61 8 9220 9801

EMAIL: [email protected]

WEBSITE: www.vicpet.com.au

SHARE REGISTER: Security Transfer Registrars Pty Ltd

770 Canning Highway

Applecross, Western Australia 6153

Telephone: +61 8 9315 2333

Facsimile: +61 8 9315 2233

STOCK EXCHANGE: Australian Stock Exchange (ASX)

Code: VPE

SOLICITORS: Minter Ellison

Level 49, Central Park Building

152-158 St. George’s Terrace

Perth, Western Australia 6000

BANKERS: Westpac Banking Corporation

109 St. George’s Terrace


AUDITORS: Ernst & Young

11 Mounts Bay Road


2

Chairman and Managing Director’s Report

Dear Shareholders,

It is with pleasure that we present, on behalf of the Board, the 2008

Annual Report for Victoria Petroleum N.L.

The past year has been an exciting one for your Company with the

realisation by fellow industry participants of the value of the permit

interests that your Company has built up over the last twenty-five

years. Queensland Gas Company Limited (QGC), Australia’s largest

pure coal seam gas explorer and producer, recognised the value of

our Queensland coal seam gas permits in the Surat Basin by

investing a further $9.2 million thus increasing their shareholding in

our Company to 19.2%.

Having Australia’s largest coal seam gas player and producer as a

major shareholder in Victoria Petroleum will be of benefit to the

Company’s future growth and development of its coal seam gas

assets in the Surat Basin. While the future is exciting for the

development of your Company’s coal seam gas assets, there has

also been considerable exploration and development success over

the past twelve months in your Company’s oil interests in the

Cooper Basin.

Your Board has considered these developments over the last year

and has come to the conclusion that your Company’s future would

be greatly enhanced by a concentrated focus on our Australian

assets. Therefore, your Company is in the process of selling its US

production and exploration interests with the funds from these sales

to be utilised for exploration and development activities in Australia.

During the coming year your Company plans to be involved in the

drilling of up to twenty two wells, with ten of these wells exploring for

oil in the Cooper Basin and the other twelve wells developing

certifiable coal seam gas reserves in the Surat Basin.

OIL ASSETSOn the oil production side, success has come about through

bringing on stream the Growler Oil Field thus adding to the existing

production from our Mirage and Ventura oil fields in the South

Australian Cooper Basin. Production continues to grow at Growler

with the recent development success at Growler-3 testing at a rate

of 1,673 barrels of oil per day. Also, in May 2008, we added to our

oil field inventories in the Cooper basin with the discovery of the

Cuisinier Oil Field in south west Queensland. This was a first up

drilling success by the operator Santos Limited who has farmed into

our permit ATP 752P. Santos plans to drill up to a further five

exploration wells in this permit over the next eighteen months at no

cost to your Company.

Additional production has benefited the Company from our oil

interest in the north Perth Basin Jingemia Oil Field where Origin is

the operator. It is anticipated that further development and

enhancements in this oil field should provide continuing revenue to

the Company.

Whilst total net oil production of 57,097 barrels during the past year

has been modest at a rate of 156 barrels a day net to Victoria

Petroleum, this production has taken place against a background of

very high oil prices which resulted in a healthy gross revenue from

oil sales to your Company of $6.3 million. We anticipate greater oil

production in the coming year which should result in increased

gross revenue to the Company.

COAL SEAM GAS ASSETSCoal seam gas in Queensland is a growing industry with the entry

during the year of several major international oil and gas players –

the British Gas Group, Shell Oil Company, and Petronas, the

Malaysian state national petroleum company. Indirectly, Victoria

Petroleum is part of the British Gas Group’s move into the industry

by way of the British Gas Group’s shareholding in QGC, Victoria

Petroleum’s major shareholder.

Continuing industry interest and focus on coal seam gas in

Queensland is further evidenced by the British Gas takeover offer

for Origin Energy to secure that Company’s extensive coal seam

gas assets shared with Conoco Philips. In addition, the QGC

takeover of Sunshine Gas and on a lesser scale, but still significant

to our Company, the QGC takeover of Roma Petroleum N.L. Roma

Petroleum is a joint venture partner with your Company in one of

our Queensland coal seam gas permits as well as in our Cooper

Basin oil exploration and production permits.

The takeover of Roma Petroleum is viewed as positive by your

Board as QGC now operates two permits in the prime Surat Basin

coal seam gas northern fairway in which your Company has a

substantial interest by way of PL 171 and ATP 574P. The takeover of

Sunshine Gas is also a positive as the Sunshine Gas Lacerta Coal

Seam Gas Project is adjacent to the Don Juan Coal Seam Gas

Project in which your Company has a significant interest.

3

Chairman and Managing Director’s Report(continued)

Your Company is entering into a technical services and marketing

agreement with QGC. This will enhance our technical ability and

assist in marketing our coal seam gas assets. For a Company of our

size, this is a significant development as it aligns Victoria Petroleum

with one of the dominant players in the future Queensland LNG

export industry, QGC and its shareholder British Gas Group.

With Victoria Petroleum’s continuing coal seam gas exploration

developments the Company has the potential for certifiable gas

reserves of up to 500 petajoules and in comparison with other coal

seam gas companies listed on the ASX, your Board believes that

Victoria Petroleum is grossly undervalued by the market. With

certification planned over the next 12 months for an initial portion of

your Company’s coal seam gas resources, we believe the

investment market will come to value your Company accordingly.

THE FUTUREThe Company is well funded by having $17 million cash on hand for

the planned aggressive exploration and development program of the

coal seam gas permits in Queensland and also further exploration

and development of the significant oil potential in the South Australia

and Queensland Cooper Basin permits.

Additional revenue will come to your company from the anticipated

strong growth in net revenue from oil production in the forthcoming

year, estimated to be of the order of $7 million, and proceeds from

the sale of the USA assets.

Your Board considers that with Victoria Petroleum N.L. now

established as an Australian oil producer in the Cooper Basin and a

growing interest holder in the exciting Queensland coal seam gas

industry that shareholders can look forward to the benefits of being

an active and successful oil and gas explorer and producer.

A final word of thanks to the owners of Victoria Petroleum N.L. – our

shareholders. You can be assured that your Directors and

Management Team will continue to strive to grow the production

base of the Company through a mix of development, appraisal and

exploration drilling in your permit interests in the Cooper Basin of

South Australia and in Queensland in the coal seam gas rich Surat

Basin. The excellent chances for future exploration and development

success from the planned aggressive drilling program provides great

promise that the next twelve months will be an exciting and

potentially rewarding time for shareholders.

JOHN T KOPCHEFF DENIS F PATTEN

Managing Director Chairman

Moomba Oil & Gas Fields

North Rankin Gas Field

Tubridgi Gas Field

PETROLEUM EXPLORATION INTERESTSAUSTRALIA

SEPTEMBER 2008

NORA PROSPECT

WARHAWK PROSPECT

AIRACOBRA PROSPECT

WIRRAWAY OIL FIELD

ROOKWOOD-DONGAOIL FIELD

GROWLER OIL FIELD

vicpet/08-125a/australia.cdr/6-9-08/lp

BEE EATERPROSPECT

PEL 424

DON JUAN/MARCUS CSG PROJECTS

PL 171, ATP 574P

CUISINIER OIL FIELD

ATP 752P

4

Petroleum Interests – Australia

SOUTH AUSTRALIACOOPER/EROMANGA BASIN

PEL 87, 104, 111, 424

VICTORIA PETROLEUM N.L. INTEREST – 40%

PEL 115


Victoria Petroleum now has the largest gross acreage position of

17,460 square kilometres in the South Australia Cooper/Eromanga

Basin, with a net acreage position second only to Beach Petroleum

Ltd.

Within the overall South Australian/Queensland portion of the Cooper/

Eromanga Basin Victoria Petroleum maintains its position as a major

gross and net holder of exploration acreage with a gross holding of

42,656 square kilometres.

The 53 prospects and leads identified to date in permits PEL 104,

PEL 111 and PEL 115 provide an extensive range of drilling

opportunities over the next three years.

With some 30 wells planned to be drilled in the next 12 months by the

industry, including Victoria Petroleum, the South Australian Cooper

Basin will be a “hot spot” of drilling exploration activity.

The presence of the Mirage and Ventura Oil Fields in PEL 115, is a

good sign for further commercial exploration success in PEL 115.

The Growler and Wirraway oil discoveries as the first wells drilled by

Victoria Petroleum in PEL 104, are a particularly encouraging start for

further exploration drilling success in PEL 104 and adjacent PEL 111.

With the 50% exploration success rate for the ten exploration wells

drilled to date on Victoria Petroleum’s South Australian Cooper Basin

permits PEL 104, PEL 111 and PEL 115, plus the current industry

exploration success rate of 45% in the South Australian Cooper/

Eromanga Basin, further exploration success is anticipated for the ten

well drilling program planned over the next twelve months for the

Company permits PEL 104, PEL 111 and PEL 115, a “core area” of

oil exploration focus.

PEL 104 & PRL 15


PEL 104 containing PRL 15 covers an area of 1,068 square

kilometres and is immediately adjacent to the Tirrawarra Oil Field, the

largest oil field in the Cooper Basin and onshore Australia with

estimated recoverable reserves of 70 million barrels of oil and 340

billion cubic feet of gas. The block is also immediately adjacent to the

Fly Lake Oil & Gas Field and surrounds the Santos operated

Callabonna Jurassic oil field production licence.

PEL 104 is considered highly prospective for Jurassic and Permian oil

and gas in view of its immediate proximity to producing oil and gas

fields and prospective Permian and Jurassic section within the major

portion of the block.

Only three Permian wells have been drilled in the permit by the

previous permit holder, Santos and partners, with two wells with

interpreted by passed gas pay and the other well with oil shows.

Mapping of new and reprocessed seismic data indicate some twelve

prospects and twenty leads with Jurassic and Permian target horizons.

vicpet/08-125a/cooper eromanga tenements25_08.cdr/19-09-08/lp

Flax - Juniper Oil Field

794

794

PEL 424(VPE 40%)

PEL 88(VPE 50%)

SEPTEMBER 2008

Cuisinier Oil Field

Parsons Oil Field

2008/2009Dril l ing

(VPE 80%)

(VPE 80%)

(VPE 80%)

5

Petroleum Interests – Australia(continued)

For these prospects and leads, an unrisked cumulative maximum

(P10) recoverable oil and gas resource potential for the Birkhead/

Hutton, Tirrawarra and Patchawarra targets of up to 12 million

barrels of oil and 52 billion cubic feet of gas is interpreted, if oil and

gas are present.

First up exploration success was achieved with the Growler and

Wirraway oil discoveries in the Jurassic Birkhead sands rewarding

the faith in the oil potential of the “Jurassic Oil Fairway” in the

western part of PEL 104.

Within PRL 15, Growler-1 and Growler-2 were placed on production

in March 2008 under an Extended Production Test with an average

cumulative production rate of 200 barrels of oil per day.

Production results have been encouraging resulting in the

commencement of a very successful development drilling program

on the Growler Oil Field in August 2008 with the drilling of Growler-3

and Growler-4 and the Growler-3 well testing at a rate of 1,673

barrels of oil per day. It is anticipated that production from the

Growler Oil Field will reach 600-800 barrels of oil per day by the end

of 2008.

The Growler Oil Field as currently mapped, has the potential to

contain a P10 resource of up to 4 million barrels of recoverable oil, if

proved by subsequent development drilling.

The exploration success enjoyed in PEL 104 and seismic mapping

provides initial indications of a possible significant “Jurassic Oil

Fairway” in the western portion of PEL 104 extending into the

adjacent PEL 111.

This “Jurassic Oil Fairway” covering approximately 1,200 square

kilometres in PEL 104 and PEL 111 is interpreted from seismic data

to have the potential with further exploration success to contain a

resource of up to 100 million barrels of oil in place, if oil is present.

The exploration success rate to date on the “Jurassic Oil Fairway” in

PEL 104 stands at 100%.

To further evaluate the significant potential of the “Jurassic Oil

Fairway” in PEL 104, two Jurassic prospects Tigershark and Tigercat

are to be drilled in the fourth quarter 2008. Any oil discoveries made

on these prospects will be easily connected to the adjacent Growler

Oil Field production facilities.

Evaluation of the Permian potential of the eastern portion of PEL

104, the Tempest Block, is planned for late 2008 with the drilling of

the Fokker Prospect. This Permian well will be drilled by Odin

Energy Limited (Odin) under the terms of a farmin agreement

whereby Odin will earn a 37.5% interest in the Tempest Block,

providing Victoria Petroleum with a 25% no cost interest through the

drilling of Fokker-1. Odin has the option following the drilling of

Fokker-1 to earn a further 37.5% interest in the Tempest Block by

drilling the Tempest well, providing Victoria Petroleum with a 10%

no cost interest through the drilling of Tempest-1.

Victoria Petroleum N.L. is the Operator for PEL 104.

PEL 424(VPE 40%)

?

?

?

Jurass ic Oi l Fa irway edge

Planned 2008

AIRACOBRA

GANNET

MARAUDER

THUNDERBOLT

TEMPEST

TYPHOON

FURY

Wirraway Oil Field

Jurassic Oil Fairway

Callawonga Oil Field

v icpet /08-125a/b ig sa permi ts .cdr /8-09-08/ lp

4900 BOPD

Flax - Juniper Oil Field120 MMBOIP & 100 BCFGIP

1670 BOPD

FOKKER

WINJEEL

1.3 MMBO372 BOPD

0.2 MMBO180 BOPD

MUSTANG

THUNDERBIRD

SEPTEMBER 2008

PEL 104, PEL 111, PEL 115, PEL 94 & PEL 424COOPER BASIN

SOUTH AUSTRALIA

W ASCENDER

6


PEL 111


PEL 111 lies to the north of and adjacent to PEL 104 and covers

1,178 square kilometres. The permit surrounds the Santos operated

Charo Jurassic Oil Field production licence with its two recent

successful development wells, Charo-2 and Charo-3.

Over 50 Jurassic prospects and leads have been mapped in PEL

111. Eleven drillable prospects have been identified with an unrisked

cumulative P10 recoverable reserves of 17 million barrels of oil in

sands of the Birkhead Formation, if oil is present.

Several structurally robust prospects such as Gannet and Warhawk,

similar in style to the Growler and Wirraway Jurassic Birkhead sand

oil discoveries to the south in the adjacent Victoria Petroleum

operated permit PEL 104, are considered high priority exploration

targets.

The adjacent Birkhead sand oil discoveries at Growler-1 and

Wirraway-1 and the Charo Oil Field are considered to have

significantly upgraded the chances for exploration success in the

western part of PEL 111.

The Warhawk Prospect with a P10 resource of up to 2 million barrels

of oil, if oil is present, is to be drilled in late September 2008 with the

Gannett Prospect with a P10 resource of up to 5 million barrels of oil,

if oil is present, a candidate for drilling in the first half of 2009.

Exploration success at Warhawk-1 could be very significant as there

is a possibility, a Warhawk discovery could be part of the currently

interpreted greater Growler-Wirraway-Warhawk seismic structure,

with its interpreted potential to contain an oil in place resource of up

to 68 million barrels of oil, over an area of 40 square kilometres.

Within the eastern part of PEL 111, the Permian Catalina Prospect

is mature for drilling. The Catalina Prospect is interpreted from

seismic data to have the potential to contain up to 14 billion cubic

feet of gas, and 1 million barrels of oil, if oil and gas is present in

target Permian Patchawarra Sands. The Catalina Prospect lies six

kilometres to the north of the Santos Fly Lake-Brolga Gas Field.

It is intended to drill a further two Jurassic wells in PEL 111 in mid

2009, with subsequent drilling of the Catalina Prospect after

farmout, in keeping with the permit’s firm work commitment.


PEL 115


PEL 115 is located on the south-eastern edge of the Cooper Basin

and covers 1,105 square kilometres. The permit is “broken up” into

six separate areas and surrounds the oil and gas producing fields at

Dullingari, Toolachee, Strzelecki, Della and Kidman with cumulative

recoverable reserves of 104 million barrels of oil and 2.5 trillion

cubic feet of gas.

139 30’00"E 139 40’00"E 139 50’00"E 140 00’00"E 140 10’00"E

139 30’00"E 139 40’00"E 139 50’00"E 140 00’00"E 140 10’00"E

27 40’00"S

27 30’00"S

27 20’00"S

27 40’00"S

27 30’00"S

27 20’00"S

139 21’00"E 140 14’00"E27 50’00"S

27 10’00"S139 21’00"E 140 14’00"E

27 50’00"S

27 10’00"S

Victoria Petroleum

Mapsheet datum: "GDA94"

CENTRAL MERIDIAN 141 00’00"E

G.R.S. 1980 SPHEROID

UNIVERSAL TRANSVERSE MERCATOR PROJECTION

0 2 4 6 8 10

KILOMETRES

1:100000

139 30’00"E 139 40’00"E 139 50’00"E 140 00’00"E 140 10’00"E

139 30’00"E 139 40’00"E 139 50’00"E 140 00’00"E 140 10’00"E

27 40’00"S

27 30’00"S

27 20’00"S

27 40’00"S

27 30’00"S

27 20’00"S

139 21’00"E 140 14’00"E27 50’00"S

27 10’00"S139 21’00"E 140 14’00"E

27 50’00"S

27 10’00"S

Victoria Petroleum

Mapsheet datum: "GDA94"

CENTRAL MERIDIAN 141 00’00"E

G.R.S. 1980 SPHEROID

UNIVERSAL TRANSVERSE MERCATOR PROJECTION

0 2 4 6 8 10

KILOMETRES

1:100000

New Oil TankerHaul Road

Andree 1Andree 2

Arosa 1

Bindah 1

Brolga 1

Callabonna 1

Cardam 1

Charo 1

Cooba 1

Coongie 1

Coopers Creek 1

Correa 1

Daer 1

Darter 1

Delin 1

Ficus 1

Fly Lake 1

Gooranie 1

Grey 1

Kalladeina 1

Kanowana 1

Kudrieke 1

Kudrieke 2

Lake MacMillan 1

Lake MacMillan 2

Leleptian 1

Leleptian 2

Lujoel 1

Marpoo 1

Massy 1

Merrimelia 1

Mica 1

Mingana 1

Mitchie 1

Moolion 1Moolion 2

Moolion North 2

Moorari 1

Mudrangie 2

Narie 1Narie 2

Nulla 1

Pelican South 1

Quartpot 1

Rakoona 1

Reglet 1

Regolith 1

Spectre 1

Tirrawarra 1

Tirrawarra North 1

Tirrawarra South 1

Tirrawarra West 1

Titan 1

Toonman 1

Varanus 1

Varanus 2

Welcome Lake 1Welcome Lake East 1

Woolkina 1

Woolkina 2

Yanta 1

Yarma 1

Yarowinnie 1

Growler 1

Wirraway 1

Wirraway 2

Growler 2

Beaver 1

Warhawk 1

Liberator 1

Ascender 1

Nutmeg 1

Paranta 1

Gannet 1

Dragonfly 1

Firefly 1

Flanker 1

Harrier 1

Kittiwake 1

Marauder 1

Nighthawk 1

Seafire 1

Tempest 1

Tigercat 1

Tigershark 1

Typhoon 1

Ballaparudda 1

Bulldog 1

Stormbird 1

Fly Lake Gas& Oil Field

LiberatorProspect2.0 MMB

GannetProspect5.5 MMB

WarhawkProspect1.5 MMB

Jurassic "oil fairway"

Permian "gas & oil fairway"

PEL104/111 JURASSIC & PERMIAN PROSPECTS, COOPER BASIN, SEPTEMBER 2008L

imit

Perm

ian

Limit

Perm

ian

TirrawarraOil Field

CharoOil Field

CallabonnaOil Field

GrowlerOil Field

1673 BOPD

WirrawayOil FieldA

B

TempestProspect7.4 BCF

TyphoonProspect11.2 BCF

CatalinaProspect13.8 BCF

FokkerProspect9.5 BCF

Legend

Jurassic Prospects & Leads

Permian Prospects & Leads

PEL 111

PEL 104

PEL 104TEMPEST FARMOUT

BLOCK

PEL 111CATALINA FARMOUT

BLOCK

PEL 106

FlankerProspect11.1 BCF

MarauderProspect3.3 MMB

TigersharkProspect7.1 MMB

TigercatProspect1.1 MMB

MeteorProspect0.7 MMB

7


The permit represents one of the lowest risk areas for exploration

in the Cooper Basin. Initial studies of the available seismic data

have identified up to 31 leads and prospects with the potential to

contain commercial recoverable reserves of oil and gas, if oil and

gas are present. The proximity to infrastructure suggests that the

economic viability of any exploration success is assured.

PEL 115 contains the Mirage and Ventura Oil Field Petroleum

Production Licences (PPL), PPL 213 and PPL 214 respectively.

MIRAGE OIL FIELD – PPL 213


The Mirage Oil Field was discovered in 2004 and placed on

production in April 2005.

The Mirage Oil Field is currently producing on optimised beam

pump operation at an average rate of 80 barrels of oil per day from

Murta sands at an average depth of 1,336 metres in the Mirage-1,

3 and 4 wells.

The three well Mirage appraisal drill program has confirmed the

existence of oil saturated Murta Formation over the four wells

drilled to date. Each of the wells appear to have a common Lowest

Known Oil (LKO) which, after examination of the 3D seismic data

coincides with the current ‘spill point’ mapped for the Mirage

structure.

Review of the Mirage 3D seismic geophysical mapping and well

production test data provides an interpretation that the Murta

Formation with net pay of 6 metres from a gross oil column of 17

metres may extend over the Mirage structure.

The maximum interpreted Proved and Probable (2P) recoverable oil

reserve for the Mirage Oil Field using these assumptions now stands at

1.3 million barrels.

With the Mirage three well development program and the subsequent

fracture stimulation operation and the placement of the Mirage-3 & 4

development wells on artificial lift with beam pumps, gross oil production

for the Mirage Oil Field over the past 12 months was 49,518 barrels of

54 degree API oil at an average rate of 135 barrels of oil per day.

With the variable nature of the productive Murta sands over the area of

the Mirage Oil Field, further studies are taking place, including soil

geochemical surveys to determine the location of a possible Mirage-5

development well for drilling in 2009.

VENTURA OIL FIELD – PPL 214


Following discovery in 2004, production commenced at Ventura-1 in

September 2005. A Petroleum Production Licence (PPL), PPL 214 was

granted over the Ventura Oil Field in August 2006.

The Ventura-1 well is currently producing 20 barrels of 54 degree API

oil per day from an interpreted net pay of 2 metres over the perforated

oil column interval of 1,365 metres to 1,376 metres in the McKinlay/

Namur.

Over the past 12 months Ventura-1 has produced 7,573 barrels of oil.

The interpreted recoverable oil reserves for the Murta McKinlay/Namur

formation of the Ventura Oil Field using this information indicate a

Proved and Probable (2P) recoverable reserve of 150,000 barrels of oil.

Loading oil from the Growler Central Production Facility for the run to Moomba, PEL 104, SA Cooper Basin

8


RESERVES & PRODUCTION – MIRAGE AND VENTURA OIL FIELD

Gross Oil Production from the Mirage and Ventura Oil Field for the

year ended 30 June 2008 was 57,091 barrels at an average rate of

156 barrels oil per day.

Victoria Petroleum’s 40% interest share was 29,684 barrels of oil at an

average rate of 81 barrels of oil per day.

In these times of high oil prices, this oil production provides a good

cash flow.

Victoria Petroleum is also pleased that the Mirage and Ventura Oil

Fields have been interpreted to have a recoverable oil reserve range

potential of 1.59 million (3P), a field size on the high side of the range

of oil fields discovered in the southern part of the South Australian

Cooper Basin by other successful oil explorers and producers, Santos

Limited, Stuart Petroleum Ltd and Beach Petroleum Ltd.

PEL 115


EXPLORATION

Exploration over the past 12 months has focussed on the northern

part of PEL 115 in the Nappacoongee High area, the southern part of

PEL 115 in the Burruna – Lightning structural high area and the Sabre

Block in the western part of PEL 115.

Five prospects with an interpreted unrisked oil and gas resource

potential of up to 67 million barrels of oil and 38 billion cubic feet of

gas, in Jurassic and Permian targets, if oil and gas are present, are

ready to drill immediately as part of the Year 5 permit drilling

commitment.

PEL 115 – NORTHERN PART

Interpretation of an extensive reprocessed seismic and well control

data base in the northern part of PEL 115 generated the Mustang,

Stuka and Tomcat Jurassic oil prospects and the Delta, Hurricane,

and Meteor Permian gas prospects.

The Mustang Prospect is interpreted from seismic data to have the

potential to contain up to 0.5 million barrels of recoverable oil, if oil

is present, in the Jurassic Birkhead Sandstone formation up dip to

the oil bearing Nappacoongee-3 well on the crestal area of the

Nappacoongee High.

PEL 115 – SOUTHERN PART

In the southern part of PEL 115, interpretation of the 2D seismic

and 3D Mirage seismic data has defined the Fury and Thunderbird

prospects as candidates for drilling.

The Fury and Thunderbird structures lie to the east of the Mirage Oil

Field.

Mirage-1 Production well, PEL 115, SA Cooper Basin

9


The Fury Prospect is up dip to Lightning-1 at the Murta, Hutton and

Patchawarra levels. The Fury Prospect is interpreted to have the

cumulative potential to contain up to 27 million barrels of oil, and 23

billion cubic feet of gas, if oil and gas are present, in Jurassic and

Permian sand targets.

The Thunderbird Prospect is interpreted as a Permian stratigraphic

trap on the western flank of the Coobowie High, with the potential to

contain up to 36 million barrels of oil, if oil is present, in target

Patchawarra sands up dip from oil shows in Henley-1.

The interpretation of the 3D seismic data set suggest that the

Mirage Oil Field could be part of a larger feature covering

approximately 20 square kilometres which includes the Fury

prospect eight kilometres to the north east. Such an area has the

unrisked possibility of containing a resource of up to 23 million

barrels of oil in place, subject to the presence of suitable Murta

sand reservoir.

This area has been termed the “Greater Mirage-Lightning” structure

with initial evaluation of the oil bearing nature of the structure

provided by the drilling of the Lightning-1 and Jindivik-1 wells, which

encountered non commercial oil shows in the Murta.

Further analysis and study is required and is currently in progress as

the drilling program has shown a highly variable Murta reservoir from

good reservoir at Mirage-1 to poor reservoir at Jindivik-1.

The “Greater Mirage-Lightning” area drilling results may indicate a

considerable recoverable reserve net to Victoria Petroleum’s 100%

working interest. If the “Greater Mirage-Lightning” Murta oil field is

proven, by future drilling, then it is likely an ongoing development

program over several years will be required to fully exploit the reserves.

This Murta oil trend extends from west to east, through the Ventura-

Mirage-Lightning-Murta structures into the Voodoo-Coobowie High

area. Seismic reprocessing is currently being analysed to determine

possible future exploration drilling targets.

Following the Mirage and Ventura Oil Field discoveries, Victoria

Petroleum is confident that further oil discoveries will be made in the

southern part of the permit by the early 2009 exploration drilling

program.

PEL 424(VPE 40%)

?

?

?

Jurass ic Oi l Fa irway edge

Planned 2008

AIRACOBRA

GANNET

MARAUDER

THUNDERBOLT

TEMPEST

TYPHOON

FURY

Wirraway Oil Field

Jurassic Oil Fairway

Callawonga Oil Field

v icpet /08-125a/b ig sa permi ts .cdr /8-09-08/ lp

4900 BOPD

Flax - Juniper Oil Field120 MMBOIP & 100 BCFGIP

1670 BOPD

FOKKER

WINJEEL

1.3 MMBO372 BOPD

0.2 MMBO180 BOPD

MUSTANG

THUNDERBIRD

SEPTEMBER 2008

PEL 104, PEL 111, PEL 115, PEL 94 & PEL 424COOPER BASIN

SOUTH AUSTRALIA

W ASCENDER

10


SABRE BLOCK AREA

The Airacobra Prospect is a robust structure with the potential to

contain up to 1.5 million barrels of oil, if oil is present, in target

Jurassic sands oil productive in the adjacent Narcoonowie Oil

Jurassic Field immediately adjacent to the south.

The Winjeel Prospect, 2 kilometres south of the Baratta Permian

Field is a robust structure with the potential to contain up to 15

billion cubic feet of gas in Permian Patchawarra sands, if gas is

present.

The above five prospects in PEL 115 are considered as candidates

for immediate drilling and are currently on offer to industry for

farmout. Following farmout, it is the aim of Victoria Petroleum to

have a 25% no cost interest through the drilling of these five wells. It

is anticipated that following farmout, drilling would take place in

early 2009.

Victoria Petroleum N.L. looks forward to further exploration drilling

success in PEL 115 in early 2009.


PEL 87 & PEL 424

COOPER/EROMANGA BASIN, SOUTH AUSTRALIA


These two permits cover a total of 8,992 square kilometres and lie

to the north and west of permits PEL 104, PEL 111 and PEL 88.

The permits cover a huge area of under explored but prospective

Eromanga Basin sediments. Drilling density is low with only three

wells having been drilled, one with recorded oil shows. Data review

of the sparse seismic and well control in these permits continues

with the south eastern corner of PEL 424 possibly lying within the

“Jurassic Oil Fairway” currently being explored in the adjoining

permit to the south, PEL 111.

Victoria Petroleum N.L. is the Operator for PEL 87 and PEL 424.

PEL 88



Victoria Petroleum N.L. has a 50% interest in Petroleum Exploration

Licence PEL 88 covering an area of 3,304 square kilometres.

The oil shows observed in wells drilled within the permit, such as

Eucalyptus-1 along with the Santos James Oil Field oil flow contained

within the permit, provide encouragement for the potential for

commercial reserves of oil to be discovered in the permit in the future.

The Santos James Oil Field discovery well, James-1, reported a

combined oil flow rate of 3,210 barrels of oil per day from Triassic

Sandstones, a target in the southern part of PEL 88.

Very large structures associated with the Haddon Downs surface

anticline in the north of PEL 88 are of exploration interest, with the

potential to contain significant recoverable oil reserves, if oil is

present.

Victoria Petroleum remains confident that an oil pool will be

discovered in PEL 88 with future drilling.


PEL 94



PEL 94 covering an area of 1,801 square kilometres lies in the

southern part of the Cooper Basin adjacent to PEL 113 containing the

Harpoono Murta Oil Field.

Current exploration in the permit is focussed on the northern part of

the permit adjacent to the southern part of PEL 113 containing the

Harpoono-1 Murta Formation oil discovery by Stuart Petroleum and

Cooper Energy.

The Harpoono Oil Field lies on the northeast-southwest trending

Dunoon Horst, which straddles the border of PEL 113 and PEL 94.

Recent exploration success in the Harpoono-2 and 3 step out wells

provides encouragement for the presence of oil in the adjacent PEL 94.

The Dunlop Prospect is mapped as a Murta prospect shared by PEL

94 and PEL 113 and may possibly be drilled by the PEL 113

permitees in 2009.

Beach Petroleum Limited is the Operator for PEL 94.

QUEENSLANDATP 560P

EROMANGA BASIN, QUEENSLAND

VICTORIA PETROLEUM N.L. INTEREST – MCIVER BLOCK – 50%

This 89 square kilometre sub block of permit ATP 560P is located in

the central Eromanga Basin of southwest Queensland.

Evaluation of the future exploration potential of the Canaway Ridge

prospects in the McIver Block is in progress.

Victoria Petroleum N.L. is the Operator for the McIver Block.

ATP 560P

EROMANGA BASIN, QUEENSLAND

VICTORIA PETROLEUM N.L. INTEREST – UELEVEN BLOCK – 17%

This 105 square kilometre sub block of permit ATP 560P is located in

the central Eromanga Basin of southwest Queensland.

Further evaluation of the prospects and leads in the Ueleven Block is

planned by the Operator, Lakes Oil N.L.

11


ATP 794P

COOPER/EROMANGA BASIN, QUEENSLAND

VICTORIA PETROLEUM N.L. INTERESTS:

ATP 794P (Part 1) – 60%

ATP 794P (Part 2) comprised of:

BARCOO BLOCK – 35%

SPRINGFIELD AND REGELEIGH BLOCK – 24%

BRIGHT SPOT BLOCK – 15%

BARCOO JUNCTION BLOCK – 12%

Victoria Petroleum N.L. has varying interests in ATP 794P, in

accordance with the relevant farmouts in ATP 794P which covers an

area of 14,957 square kilometres in the southwest Queensland

portion of the Cooper/Eromanga Basin. The permit was granted for

a 12 year term from 1 November 2005.

Significant Jurassic oil potential has been interpreted to be present

in ATP 794P based on the oil shows in the numerous wells drilled in

the permit and the extensive seismic data grid.

Mapping has identified the Eight Mile Prospect on the Canaway

Ridge in ATP 794P, Part 2, Barcoo Block, as a prospect worthy of

drilling with its potential to contain up to 33 million barrels of oil, if oil

is present. Eight Mile-1 is a possible candidate for drilling in 2009.

The operator has identified shallow Winton Formation coals on the

Canaway Ridge with a potential coal seam gas resource of up to

411 BCF. A core hole is planned to be drilled in November 2008 to

test the coal seam gas potential of the up to 230 BCF interpreted as

present in the Barcoo Block.

The presence of the southwest Queensland to Mt. Isa gas pipeline

adds to the strategic exploration value of the acreage position that

Victoria Petroleum N.L. holds in this area of the Cooper/Eromanga

Basin.

This Queensland permit, along with the significant interest held by

Victoria Petroleum N.L. in the South Australian portion of the

Cooper/Eromanga Basin makes Victoria Petroleum N.L. a significant

player in the newly resurgent Cooper/Eromanga Basin exploration

activity.

Bow Energy Ltd is the Operator for ATP 794P.

ATP 736P, ATP 737P, ATP 738P



Permits ATP 736P, ATP 737P and ATP 738P covering an area of

6,533 square kilometres, were successfully applied for by Victoria

Petroleum N.L. as part of the Company’s strategy to become a

major exploration player in the Cooper/Eromanga Basin in

Queensland as well as South Australia. This strategy has been

successfully achieved.

These permits have been granted following a successful conclusion

of Right to Negotiate agreements with traditional owners. Data

review of the permits is currently in progress.

Victoria Petroleum N.L. is the Operator for these permits.

ATP 752P


VICTORIA PETROLEUM N.L. INTEREST – 15% AFTER

FARMOUT

ATP 752P, granted for a 12 year term on 1 August 2006, covers an

area of 3,512 square kilometres and is considered to be very

prospective for the discovery of oil and gas.

Permit ATP 752P, ex-Santos released acreage, is comprised of the

Barta Block in the north and Wompi Block in the south.

Victoria Petroleum N.L. and Bow Energy Ltd, have entered into a

farmin agreement with Santos Ltd and Avery Resources Ltd to

provide Victoria Petroleum with a 15% free carried interest through

a staged farmin program of seven wells and 300 square kilometres

of 3D seismic. The estimated total cost for this farmin work program

is $18.5 million.

As the first stage of this farmin, Santos Ltd and Avery Resources

Ltd drilled the Cuisinier-1 Murta oil discovery and Hudson-1 in the

Barta Block in May 2008.

Cuisinier-1 is planned to be on production in early 2009 with follow

on development drilling planned in mid 2009 after a 3D seismic

survey.

Within the Wompi Block, following 3D seismic in mid 2008, three

wells are planned to be drilled in mid 2009.

Santos Ltd is the Operator for ATP 752P.

794

794

vicpet/08-125a/QLD cooper eromanga tenements25_08.cdr/19-09-08/lp

Flax - Juniper Oil Field

(VPE 20-35%)

CANAWAYCSG PROSPECT

411 BCF

Cuisinier Oil Field2 MILL BBLS

2008/2009Dril l ing

(VPE 80%)

(VPE 80%)

(VPE 80%)

PERMITSCOOPER / EROMANGA BASIN

SW QUEENSLANDSEPTEMBER 2008

12


PL 231

BOWEN BASIN, QUEENSLAND


PL 231 covers an area of 181 square kilometres on the western

flank of the Bowen Basin in Queensland. The Reids Dome Gas

Field is situated within PL 231 and based on initial reservoir studies,

a reserve of up to 1 billion cubic feet of gas is indicated for the three

wells drilled on the Reids Dome Gas Field prior to November 1994.

The 1993 appraisal well in the Reids Dome Gas Field, drilled by

Victoria Petroleum, Aldinga North-1, flowed gas at a rate of 1.2

million cubic feet per day. Primero-1 drilled in 2006 intersected the

shallow gas field, but was, unable to test numerous oil and gas

shows encountered in the deeper horizons.

Evaluation of the shallow gas field and deeper horizons within the

permit with a view to potential commercialisation, subject to

sufficient gas reserves being proved, is in progress.

Maverick Drilling International Ltd is the Operator for PL 231.

PL 171



PL 171 covers an area of 176 square kilometres within the central

portion of the Bowen and Surat basins in Queensland.

Queensland Gas Company Limited (QGC) in 2001 drilled in the

Walloon Coal Measures of the Cherwondah Anticline, two coal

seam gas (CSG) wells, Trafalgar-1 and Lawton-1 and one core hole

Lawton-2.

Trafalgar-1 intersected 19.6 metres of coal within the four upper

seams of the Walloon Coal Measures. Testing of the well during

drilling produced gas at a rate of 20,000 cubic feet per day (570

cubic metres per day) and water production measured at 360

barrels per day. These results demonstrated that the coals of the

Walloon Coal Measures are gas saturated and have good

permeability. Gas saturation and good permeability are the essential

criteria for successful coal seam gas production.

Lawton-1 had similar results, in which a flow test of the interval 129-

378 metres produced gas at rates up to 19,400 cubic feet per day.

Drilling in the northern part of PL 171 at Paradise Downs-1 and 2 in

February 2008 further confirmed gas bearing coals below 250

metres.

Current results indicate the Walloon Coal Measures of PL 171 have

the potential to contain an inferred resource of up to 650 billion

cubic feet of recoverable coal seam gas, if gas is present.

t G

lad

too

sne

to N

ewas

tle

c

PEAT CSG FIELD

200 PJ

750 PJ

124 BCF

980 PJ

Taringa South-1

BASINS, GAS FIELDS & PIPELINES

SEPTEMBER 2008

CARLA/ALEXCOAL SEAM GAS PROJECT

WALLOON SURAT BASINCOAL SEAM GAS PROJECTS

~ GROSS (3P)2TCF

Carnarvon-1

1.1 TCF (3P)

QGC BERWYNDALESOUTH CSG FIELD

MARCUS/PINELANDS/PEEBS

vicpet/08-125a/surat5_09_08.cdr/6-09-08/lp

2008/09 Drilling Program

SANTOS ROMACSG FIELD

ATP 771P

ATP 593P

13


Interest in coal seam gas produced from PL 171 is increasing, as

seen by the recent successful takeover bid by QGC of the PL 171

operator Roma Petroleum.

QGC have advised that control of Roma Petroleum will now lead to

a concerted effort to explore PL 171 with the aim of commercialising

further coal seam gas reserves discovered as quickly as possible.

QGC further consider that PL 171 is prospective for CSG and near

the proposed pipeline to run from the Surat Basin CSG fields of

QGC to the Gladstone Queensland Curtis is LNG Project.

Deeper Permian Triassic gas is present in the Cherwondah Anticline

as seen from the gas flow of 250,000 cubic feet of gas per day from

North Cherwondah-1. Evaluation of a redrill of the target Triassic gas

sands with a high angle sidetrack and fracture stimulation to

increase gas flow rates, is in progress.

Roma Petroleum N.L. is the Operator of the PL 171 Joint Venture.

ATP 574P


VICTORIA PETROLEUM N.L. INTEREST – 30% (Walloon Coals);

30% (Base Walloons to Base Jurassic); 75% (Triassic-Permian)

ATP 574P covers an area of 231 square kilometres within the

central and southern portions of the Bowen and Surat Basins in

Queensland.

Queensland Gas Company Limited (QGC) drilled two CBM farmin

wells in 2001, Pinelands-1 and 3, which flowed gas at up to 10,600

cubic feet of gas per day, and the Pinelands-2 core hole to further

evaluate the CSG properties of the target Walloon Coal Measures.

Activity is resuming in PL 171 with up to six CSG wells planned to

be drilled in 2008 in ATP 574P, by the operator for the Walloon

Coals section, QGC. The aim of this drilling is to prove up an initial

certifiable gross recoverable CSG reserve of up to 50 billion cubic

feet by the end of 2008. The Walloon coals in the permit are

interpreted to have a potential CSG resource in place of up to 1

trillion cubic feet of gas.

Victoria Petroleum N.L. has a 30% interest in the Walloon Coals.

Within the Base Walloons to Base Jurassic section of the permit,

evaluation of the oil potential of the Jurassic focuses on a possible

work over on the Conloi-1 oil well.

Victoria Petroleum N.L. retains a 70% interest in the deeper Triassic

and Permian sequence in the permit where a major structure with

significant Permian gas potential is interpreted.

Bow Energy Ltd is the Operator of the ATP 574P Joint Venture.

vicpet/08-125a/pinelands.cdr/5-09-08/lp

SEPTEMBER 2008

14


ATP 771P VICTORIA PETROLEUM N.L. INTEREST – 45%

WALLOON COAL MEASURES; 100% SUB WALLOON COAL

MEASURES

ATP 771P situated on the western margin of the Surat/Bowen Basin

covers an area of 541 square kilometres. The permit is considered

to have coal seam gas resource potential in the Don Juan CSG

Project centred on the Carnarvon-1 CSG pilot well.

The Don Juan CSG Joint Venture is located immediately adjacent to

previously discovered CSG gas flows and 25 km northwest of

Sunshine Gas’s Lacerta CSG field. The Walloon Coal Measures, the

primary target coal seams in the area, are interpreted to be present

and gassy over the Don Juan CSG Joint Venture area at depths

between 250 to 600 metres.

The first three exploration wells of the Don Juan CSG Joint Venture

located north of the town of Roma, have been cased as future pilot

wells by operator Bow Energy with initial pump tests planned for late

2008. The first well, Taringa South-1 flowed methane gas to surface

at a rate of 370,000 cubic feet per day. Drilling of three wells in the

Don Juan CSG area recommenced in June 2008 with Carnarvon-1

flowing gas to surface with high water flow rates, indicating good

permeability.

The intention of the current core and pilot hole drilling program is to

commence a coal seam gas pilot with the goal to certify a potential

CSG resource of up to 200 BCF by early 2009.

The drilling activity in the Don Juan CSG Joint Venture, the ATP

574P JV and the PL 171 JV aims to bring to commercial production

the approximate gross resource of up to 2 TCF of CSG interpreted

as present within Victoria Petroleum’s Surat Basin permit interests, a

premier Queensland’s CSG production area.

The recent takeover of Sunshine Gas by QGC further attests to the

future value of any potential and proved CSG reserves in the Surat

Basin.


COMPARISON OF MARKET CAPITALISATION & COAL SEAM GAS 2P RESOURCE POTENTIAL FOR ACTIVE ASX LISTED

COAL SEAM GAS COMPANIES(Source - 30 June 2008 ASX Quarterly reports & O & GW)

1,000

4,000

400

300

200

100

0

1000

2000

800

600

400

200

500 PJ

65m

383m

110m

141m

306m

860m

2,305m

3,900m

185 PJ185 PJ

264 PJ

469 PJ

83 PJ 95 PJ

1,430 PJ1,430 PJ

1,932 PJ

0VPE

Market Cap (m-millions) 2P CSG Reserve (PJ) VPE Potential 2P CSG Reserve (PJ)

2P

RE

SE

RV

E P

OT

EN

TIA

L (

PJ)

MA

RK

ET

CA

P (

$ M

ILL

ION

S)

ESGMELSGL SHGMPO AOE QGC

vicpet/08-125a/market cap graph.cdr/9-09-08/lp

VPE in the CSG

sector is aligned with

QGC and has

potential net

undeveloped 2P

reserves of 500+ PJ

Is VPE significantly

undervalued relative

to its Coal Seam Gas

peers with VPE

potential 2P reserves

of 500+ PJ and

current market cap

of $65 million?

15


ATP 471P

WERIBONE BLOCK, SURAT BASIN, QUEENSLAND

VICTORIA PETROLEUM N.L. INTEREST – 20.65%

This 12 square kilometre sub-block of the greater ATP 471P located

in the Surat Basin in central Queensland contains the Yarrabend-5

gas well, which may be part of the Yarrabend Gas Field in adjacent

licences to the north.

In the event that commercial rates of gas production are observed

for Yarrabend-5, it is expected that the Yarrabend-5 would be tied

into the existing production infrastructure and gas pipeline network

1.5 kilometres to the north.

Mosaic Oil N.L. is the Operator of the Weribone Block.

ATP 593P

SURAT/BOWEN BASIN, QUEENSLAND

VICTORIA PETROLEUM N.L. INTEREST – 45% WALLOON COAL

MEASURES; 24% SUB WALLOON COAL MEASURES

ATP 593P situated on the western margin of the Surat/Bowen Basin

covers an area of 617 square kilometres. The primary oil targets in

the permit are structural traps along the Merivale High trend, which

is the southern extension of the Merivale Fault system, along which

the majority of the Denison Trough fields are located. Ten leads and

prospects have been mapped along the Merivale High trend.

Evaluation of potential drilling targets including coal seam gas

resource potential evaluation in the western portion of the permit

continued during the year.

Bow Energy Ltd is the Operator of the ATP 593P Joint Venture.

ATP 608P

SURAT BASIN, QUEENSLAND

VICTORIA PETROLEUM N.L. INTEREST, 29.688% (Rookwood

Block); 24% (Remainder)

The permit covering an area of 1,680 square kilometres is located

in the western Surat Basin adjacent to several oil fields and

includes the zero edge of the Boxvale sandstone, the primary

producing reservoir in the Rookwood Oil Field and surrounding

permit area. Several four-way dip closures are mapped and ready

for drilling.

The operator Bow Energy has entered into a farmin agreement

with Mosaic Oil N.L., whereby a seismic acquisition and

reprocessing program will result in a drilling program in late 2009.

ROOKWOOD BLOCK

Bow Energy as operator of the Rookwood Oil Field has

commissioned a reservoir and production engineering work to

determine the potential sustainable production of the Rookwood

Oil Field, including any remedial action that may be taken to

improve production flow rates.

Bow Energy plans in the future to increase field production by

optimising the beam pump on the Rookwood South-1 well and

also recomplete Rookwood North-1 as a potential oil producer.

During the year, production from the Rookwood South-1 well was

3,847 barrels of oil. All of the oil produced is currently being sold

to Inland Oil Refinery.

Taringa South-1 coal seam gas flare, Don Juan CSG Project, November 2007

16


STRATTON BLOCK

An independent geophysical and geologic review of ATP 608P

commissioned by Bow Energy has identified the Stratton North

Prospect located up dip from Stratton-1. Stratton-1 had excellent oil

shows in the Jurassic aged Basal Evergreen sandstone which

appears not to have been properly tested at the time of drilling. Bow

estimates the up dip potential to be up to 6.5 million barrels, if oil is

present.

Other prospects include the Myong Prospect, located west and

adjacent to the Rookwood Oil Field. The prospect is interpreted as a

large structural/stratigraphic trap with the potential to contain up to

26 million barrels of recoverable oil, if oil is present.

Mosaic Oil N.L. is the Operator for ATP 608P.

ATP 805P

SURAT BASIN, QUEENSLAND


ATP 805P covers an area of 500 square kilometres in the western

Surat Basin and contains the Donga Oil Field.

The operator Bow Energy is currently evaluating the oil recoveries in

the Donga Oil Field Triassic sandstone to determine the

commerciality of the field. The Riverslea Oil Field is located adjacent

to the area and the Rookwood Oil discovery is located to the

northwest in the immediately adjacent permit ATP 608P.


WESTERN AUSTRALIAEP 413 & L14

ONSHORE NORTH PERTH BASIN, WESTERN AUSTRALIA


EP 413 and L14 cover an area of 548 square kilometres and are

situated in the North Perth Basin, seven kilometres to the south of

the giant 400 billion cubic feet Dongara Gas Field.

EP 413 contains Victoria Petroleum’s onshore North Perth Basin oil

producing asset, contained within Production Licence L14, the

Jingemia Oil Field.

Victoria Petroleum N.L. considers the permit EP 413 to be very

prospective and well-placed for the presence of oil and gas, an

opinion supported by the Jingemia Oil Field within the permit, the

Arc Energy Hovea and Eremia oil and gas discoveries five

kilometres to the north east and the Roc Oil Cliff Head Oil Field, 15

kilometres to the west in the adjacent offshore permit WA-286-P.

Gross oil production for the year ended 30 June 2008 was 496,760

barrels at an average rate of 1,361 barrels of oil per day. The

Victoria Petroleum share was 24,838 barrels of oil at an average

rate of 68 barrels of oil per day.

At year end 30 June 2008, the Jingemia Oil Field had produced

since the start up of production 3.7 million barrels of oil.

Reservoir modelling of the Jingemia Oil Field production strongly

supports a proved and probable recoverable oil reserve in the range

of 4.4 to 4.8 million barrels.

EP 413FIELDS & PROSPECTS

NORTH PERTH BASINSEPTEMBER 2008

vi cpet /08- 125a/ ep 413. cdr /6- 09- 08/ lp

4.6 MILL BBLS - 1,300 BOPD

15 MILL BBLS

17


Your company considers 90% of these reserves are located within

the EP 413 Jingemia production licence L14.

Oil produced from the Jingemia Oil Field is being trucked to the BP

Kwinana oil refinery, 360 kilometres to the south.

Adjacent to the Jingemia Oil Field discovery, additional prospects

such as Drover and Moorba have been mapped in L14 and form

attractive future oil and gas exploration targets, along with prospects

and leads in the southern part EP 413.

The Jingemia oil discovery is significant to Victoria Petroleum as it

elevated Victoria Petroleum into the ranks of Australia’s oil

producers. The excellent operating margins provide an associated

quality cash flow.

Origin Energy is the operator of EP 413.

WA-254-P

OFFSHORE CARNARVON BASIN, WESTERN AUSTRALIA

VICTORIA PETROLEUM N.L. INTEREST – 9.31% (Part 2); 6.17%

(Parts 1, 3 & 4)

The permit was renewed on 12 June 2006 for a further term of five

years and comprises four graticular blocks of 324 square kilometres

in area on the Legendre Fault oil field trend in the offshore

Carnarvon Basin.

The permit contains Victoria Petroleum N.L.’s first offshore oil

discovery, Sage-1, drilled in April 1999 in the Sage Block with the

testing of 2,155 barrels of 48.8 degree API oil per day from a net

25.5 metre oil column.

Subsequent seismic reprocessing and interpretation indicates the

Sage oil discovery to have a potential recoverable oil reserve of

between 8.3 and 13.4 million barrels. The potential also remains for

a future Sage oil field development and tie-in to any nearby

development in WA-254-P Part 2 or adjacent permits, should a

significant discovery be made in those areas or with the continued

maintenance of current high oil prices.

In view of the major increase in costs of offshore drilling and Victoria

Petroleum’s refocus on onshore Australian oil and coal seam gas

exploration, development and production, Victoria Petroleum’s

interest in this permit has been offered for sale to the industry, with

funds received from any sale to be applied to onshore Australian

exploration and development drilling.

Apache Energy N.L. is the operator of the WA-254-P Joint Venture.

ROUGH

RAN

GE

TREN

D

ROLLER

Onslow

Dampier

WANDOO

WANAEANORTH RANKIN

GORGON

HARRIET

BARROW ISLAND

SALADIN

GRIFFIN

MACEDON - PYRENEES

200m

80 MMBO

60 MMBO

300 MMBO

90 MMBO

10T CF

200 MMBO

50 MMBO & 1T CF

40 MMBO

113°E

21°S

22°S

C A R N A RVO N

BASIN

We s t e r n A u s t r a l i a

SAFFRON

EP 325GERONIMO PROSPECT

150 MMBO REC RES

WA-254-P

WA-254-PSAGE OIL DEVELOPMENT

13 MILL BBLS

TUBRIDGI100 BCF

STAG45 MMBO

EP 435

8.7 BCF

REINDEER/CARIBOU400 BCF

21 BCF

EP 359(2)

EP 359(1)

LEATHERBACK2400 BOPD

SOUTH PEPPER20 MMBO

Chamois-1

Linda-1

ROUGH RANGE

CAPE RANGE EAST PROSPECT20 MILL BBLS

BEE EATER PROSPECT5 MILL BBLSEP 359(3)

EP 434

EP 434

RIVOLI GAS

RIVOLI DEEP PROSPECT19 BCF

1600 BOPD

LEGENDRE40 MMBO

VINCENT220 MMBO

ENFIELD

DUOMONTE PROSPECT44 MILL BBLS

EP433

Exmouth

0 50km

PROSPECT LOCATION MAPCARNARVON BASIN

NORTHWEST SHELFWESTERN AUSTRALIA

SEPTEMBER 2008

vicpet/08-125a/no jas2 rework3.cdr/6-09-08/LP

LOCATION MAP

LEGEND

Field Reserves - KOPSEN 1994

LEADS & PROSPECTS

OIL FIELD

GAS FIELD

OIL PIPELINE

GAS PIPELINE

PROSPECT PATERSON NORTH

35 MILL BBLS

18


EP 325

OFFSHORE CARNARVON BASIN, WESTERN AUSTRALIA


EP 325 covers an area of 1,263 square kilometres in the Exmouth

Sub-basin of the central Carnarvon Basin and contains the Rivoli

Gas Field.

The Joint Venture is proceeding with plans for the development of

the up to 19 billion cubic feet (BCF) recoverable reserve Rivoli Gas

Field, to satisfy the market that has developed for natural gas in

the Cape Range Peninsular to which EP 325, is ideally located.

The Commonwealth of Australia represented by the Department

of Defence has commissioned Strike Oil as the operator of EP

325 to undertake Front End Engineering Design (FEED) to

investigate the feasibility of supplying gas from the Rivoli Gas

Field to fuel power generation for the Defence Communication

Station located nearby.

If approved, subject to the drilling of a development well on the

offshore Rivoli Gas Field, first gas sales would be anticipated some

time in 2010, with the gas price competitive with the current price

of diesel.

Strike Oil N.L. is the Operator of the EP 325 Joint Venture.

EP 443 & EP 434

CARNARVON BASIN, WESTERN AUSTRALIA

VICTORIA PETROLEUM N.L. INTEREST – 88.8% (EP 433); 69.6%

(EP 434)

EP 433 and EP 434, previously EP 41 parts 1 and 2 respectively,

cover an area of 397 square kilometres situated onshore and

partially offshore in the Carnarvon Basin on the Cape Range

Peninsula and Exmouth Gulf. The historically significant site of the

first major oil flow in Australia, Rough Range-1, currently in

commercial production as Rough Range-1B, in the adjacent EP

432, provides evidence for the presence of oil in the area.

Victoria Petroleum retains a 10% interest in two prospects within EP

432, a 69.6% interest in EP 434 and 88.8% interest in EP 433.

Current exploration activity is focused on the offshore portion of EP

433, following up potential oil and gas bearing prospects on trend

and to the south west of the Rivoli Gas Field.

These prospects with their hydrocarbon target potentials are Rivoli

South West (20 BCF) and Champion West (11 million bbls/21 BCF),

if oil and gas are present.

Victoria Petroleum N.L. is the Operator of the EP 433 & 434 Joint

Venture.

ROUGH

RAN

GE

TREN

D

ROLLER

Onslow

GORGON

HARRIET

BARROW ISLAND

SALADIN

GRIFFIN

MACEDON - PYRENEES

0m

20

60 MMBO

300 MMBO

90 MMBO

10T CF

50 MMBO & 1T CF

40 MMBO

113°E

21°S

C A R N A RVO N

BASIN

150 MMBO REC RES

TUBRIDGI100 BCF

EP 435

21 BCFEP 359(1)

LEATHERBACK2400 BOPD

SOUTH PEPPER20 MMBO

Linda-1

CAPE RANGE EAST PROSPECT20 MILL BBLS

PROSPECTPATERSON NORTH

35 MILL BBLS

RIVOLI GAS

RIVOLI DEEP PROSPECT19 BCF

VINCENT220 MMBO

ENFIELD

EP433

0 50km

vicpet/08-125a/no jas3.cdr/6-09-08/LP

LOCATION MAP

LEGEND

Field Reserves - KOPSEN 1994

LEADS & PROSPECTS

OIL FIELD

GAS FIELD

OIL PIPELINE

GAS PIPELINE

Exmouth

ROUGH RANGE1600 BOPD

EP 359(2)

EP 359(3)EP 434

EP 434

EP 359(3)

EP 325

BEE EATER PROSPECT5 MILL BBLS

We s t e r n A u s t r a l i a

PROSPECT LOCATION MAPCARNARVON BASIN

NORTHWEST SHELF

WESTERN AUSTRALIASEPTEMBER 2008

GERONIMO PROSPECT

22°S

19

Petroleum Interests – Australia & USA(continued)

EP 359



EP 359 covers an area of 1,096 square kilometres situated in the

Carnarvon Basin predominantly onshore on the Cape Range

Peninsula and partially offshore in the Exmouth Gulf.

Exploration over the past 12 months has focussed on the Rough

Range – Bullara Fault trend containing the Rough Range Oil Field

and parallel structure features.

A significant hydrocarbon soil geochemical anomaly over the Bee

Eater Project with associated seismic structure has been identified

by Empire Oil & Gas N.L.

The Bee Eater Prospect, the next well to be drilled in EP 359 has

been interpreted by Empire Oil & Gas N.L. to have a potential

resource of up to 5 million barrels of recoverable oil, if oil is present.

Farminees are being sought to achieve a full 31.65% carried interest

for Victoria Petroleum N.L. through the drilling of the Bee Eater-1

well, planned for fourth quarter 2008.

The production of oil from the Rough Range Oil Field immediately

adjacent to EP 359 has highlighted the viability of even small fields

in this region to be economic, given the high Australian oil price.

Empire Oil & Gas N.L. is the Operator of the EP 359 Joint Venture.

EP 406



EP 406 covers an area of 4,749 square kilometres situated in the

southern part of the Carnarvon Basin over the Bernier and Dorre

Islands, the adjacent eastern area of Shark Bay and onshore area

adjacent to the town of Carnarvon.

Victoria Petroleum N.L. has an agreement with Pancontinental Oil &

Gas N.L, the previous sole permittee whereby Victoria

Petroleum N.L has been assigned a 95% interest in the permit and

operator ship for free carrying Pancontinental Oil & Gas N.L.

through the drilling of the first well in the permit.

Victoria Petroleum N.L. considers the permit is prospective for

hydrocarbons in the Birdrong Sandstone formation and underlying

Devonian sequence based on the gas shows recorded in wells

drilled onshore adjacent to the permit.

An initial stratigraphic well to test the prospectivity of the Birdrong

and Devonian formations in the permit is planned to be drilled

following renewal of the permit and receipt of the necessary

environmental and EPA government approvals and farm out.

Victoria Petroleum N.L. is the Operator of the EP 406 Joint Venture.

PEL 57

OTWAY BASIN, SOUTH AUSTRALIA


Victoria Petroleum N.L. has withdrawn from PEL 57 to focus on its

core oil and coal seam gas exploration and development areas in

the Cooper and Surat Basins.

Lakes Oil N.L. is the Operator of the PEL 57 Joint Venture.

UNITED STATES OF AMERICAThe Victoria Petroleum Board made the decision to divest by sale to

industry your Company’s US production, exploration and

development assets in order to focus on oil exploration and

development in the Cooper Basin of South Australia and CSG

development drilling in the Queensland Surat Basin.

Funds received from the sale of the US assets will be reinvested in

the Australian operations area.

OTHER ASSETSSAMSON OIL & GAS LIMITED


Victoria Petroleum N.L. has a 3.9% interest in Samson Oil & Gas

Limited, an ASX Listed Company. Samson is an active oil and gas

development and production company with its producing properties

in the Rocky Mountain region of Wyoming, Oklahoma and New

Mexico.

GREENEARTH ENERGY LIMITED


Victoria Petroleum N.L. has a 7.24% interest in Greenearth Energy

Limited (ASX code: GER), an active geothermal exploration

company. Greenearth Energy holds three promising geothermal

exploration licenses in Victoria immediately adjacent to power

generating infrastructure and the major electricity markets of

Melbourne and Geelong. Two of these geothermal exploration

licences, GEL 12 and 13 are adjacent to and containing the Trifon-2

well which has flowed steam and hot water at 90 degrees C from

the relatively shallow depth of 2,200 metres.

20


EXPLORATION AREAS

AUSTRALIA AND USA

PERMIT BASIN AREA INTEREST JOINT VENTURERS

(*Victoria Petroleum Operator) (Sq Kms) (%) (*Operator)

AUSTRALIAN PERMITS

EP 325 Offshore Carnarvon 1,263 36.1% Bow, Strike*, Black Rock

EP 359 Onshore Carnarvon 1,096 63.3% Pace*, Empire

* EP 406 ** Offshore Carnarvon 4,749 95% Pancontinental

EP 413 Onshore Perth 508 5% Origin*, Arc, Voyager, NW

Energy, Private Interests

L14 Onshore Perth 40 5% Origin*, Arc, Voyager, NW

Energy, Private Interests

* EP 433 Onshore Carnarvon 159 88.8% Pace

* EP 434 Onshore Carnarvon 238 69.6% Pace, Empire

EP 427 Perth 1,300 25% Private Interests

WA-254-P Offshore Carnarvon 243 6.17% Apache*, FAR, Sun,

(Parts 1, 3, 4) Pan Pacific, Woodside

WA-254-P Offshore Carnarvon 81 9.305% Apache*, FAR, Sun,

(Part 2) Pan Pacific, Woodside

PL 171P Surat/Bowen 176 20% Roma Petroleum*

PL 231 Bowen 181 40% Maverick*, Dome

ATP 471P Surat 12 20.65% Mosaic*, OCA

(Weribone)

* ATP 560P Eromanga 89 50% Lakes

(McIver)

ATP 560P Eromanga 105 17% Lakes*, Icon, Oilwells,

(Ueleven) Private Interests

ATP 574P Surat/Bowen 231 30% Bow Energy*, Arrow, BG Group,

(Walloon) Queensland Gas Company*

* ATP 574P Surat/Bowen 231 25% Bow Energy*, Arrow

(Jurassic)

ATP 574P Surat/Bowen 231 75% Bow Energy*

(Triassic)

ATP 593P Surat 617 45% Bow Energy*

(Walloon)


ATP 608P Surat 1,289 24% Mosaic*, Bow Energy

ATP 608P Surat 391 29.8% Mosaic*, Bow Energy

(Rookwood)

ATP 736P Cooper/Eromanga 4,827 80% Bow Energy*

ATP 737P Cooper/Eromanga 624 80% Bow Energy*

ATP 738P Cooper/Eromanga 1,082 80% Bow Energy*

ATP 752P Cooper/Eromanga 3,512 15% Santos*, Bow Energy, Bengal

21


EXPLORATION AREAS

AUSTRALIA AND USA (continued)




(Walloon)

ATP 771P Surat 541 100%

ATP 794P Cooper/Eromanga 14,957 60-12% Icon, Bow Energy*


* PEL 87 Cooper/Eromanga 2,854 40% Impress, Roma

* PEL 88 Cooper/Eromanga 3,304 10% Enterprise Energy

PEL 94 Cooper/Eromanga 1,801 10% Beach*, Magellan



* PEL 115 Cooper 1,105 100%


* PPL 213 Cooper 10 40% Impress, Roma

* PPL 214 Cooper 2 40% Impress, Roma

* PRL 15 Eromanga 13 40% Impress, Roma

TOTAL GROSS SQUARE KILOMETRES 56,271



USA PROPERTIES

Hal Field Powder River (USA) 20 75% Samson*

* Eagle San Joaquin (USA) 73 20% Lakes, Sun, FAR, Empyrean,

USA Interests

San Antonio Salinas (USA) 20 3.75% Trio*, USA Interests

Vallecitos San Benito (USA) 3 22.5% Patriot*

Flour Bluff Gulf Coast (USA) 41 16.67% Texas Crude*, Sun, Aurora, USA

Interests

Margarita Gulf Coast (USA) 10 20-37.5% Wandoo Energy*, Sun, Empyrean

* West Florence Colorado (USA) 101 41.67% Adelaide Energy, NAR, Fall River

TOTAL GROSS SQUARE KILOMETRES 268

** Awaiting Grant

22

Directors’ Report

Your directors submit their report for the year ended 30 June 2008.

DIRECTORSThe names and details of the Company’s directors in office during the financial year and until the date of this report are as follows. Directors

were in office for this entire period unless otherwise stated.

Names, qualifications, experience and special responsibilitiesDENIS F. PATTENNon-executive Chairman

Member – S.P.E.

Mr Patten has extensive experience in coal seam gas exploration, development and production and is a former founding director of

Queensland Gas Company Limited, retiring from the Board in 2007. Mr Patten has over 38 years of experience in the engineering,

manufacturing, petroleum and service industries in Australia and internationally. He has held senior executive management positions with

ASEA Australia, Petroleum Drilling Services Australia Pty Ltd, Gearhart Drilling Services, ATCO APM Drilling Pty Ltd, PT CMPS Indonesia,

CMPS&F Pty Ltd and Montgomery Watson.

Mr Patten was appointed on 27 March 2008.

During the past three years, Mr Patten has also served as a director of the following other listed company:

• Queensland Gas Company Limited

JOHN T. KOPCHEFFExecutive Director

B.Sc. (Hons) (Geology and Geophysics)

Member – S.P.E., A.A.P.G., P.E.S.A., A.I.M.M.

Mr Kopcheff is a geologist and geophysicist, and holds a Bachelor of Science (Honours) from the University of Adelaide (1970).

Mr Kopcheff has over 37 years of petroleum experience in Australia, South East Asia, USA, South America and the North Sea, both in

field geological and geophysical operations and management.

Mr Kopcheff is the founding Managing Director of Victoria Petroleum N.L.

During the past three years, Mr Kopcheff has also served as a non-executive director of the following other listed companies:

• Great Panther Resources Limited *

• Greenearth Energy Limited *

• Kestrel Energy, Inc

* denotes current directorship

ALEX BAJADANon-executive Director

B.Econ, MAICD

Mr Bajada has many years of experience in the corporate sector and has been involved in the management of public companies, fulfilling

the roles of Chairman and Managing Director. He has also been a trustee director of the WA Local Government Superannuation Plan,

which has $1.3 billion of member funds under management, for 15 years.

Mr Bajada was appointed on 27 March 2008.

During the past three years, Mr Bajada has also served as a director of the following other listed companies:

• Advance Energy Limited *

• AXG Mining Limited *

• Excalibur Mining Corporation Limited *

• Odin Energy Limited *

* denotes current directorships

23

Directors’ Report(continued)

DIRECTORS (CONTINUED)TIMOTHY L. HOOPSNon Executive Director

B.Sc. (Geological Engineering)

Member – American Association of Petroleum Geologists

Member – Rocky Mountain Association of Petroleum Geologists

Mr Hoops is a graduate of the Colorado School of Mines, with a degree in geology and geological engineering and has extensive

exploration and development experience in the USA.

Mr Hoops resigned from the Board of Directors on 27 March 2008.

During the past three years, Mr Hoops has also served as a director of the following other listed company:


ROBERT J. PETTNon-executive Director

B.A. (Hons) M.A. (Econ)

Mr Pett is a minerals economist with a wide range of experience in the mining and petroleum sector, and in the management of companies

involved in mineral and petroleum exploration and production. Mr Pett holds a Bachelor’s Degree in Arts with Honours and a Master’s

Degree in Economics (Queens University, Canada).

During the past three years, Mr Pett has also served as a director of the following other listed company:


ANTHONY N. SHORTNon-executive Director

B.Com, Grad Dip (Fin), MAICD

Mr Short has over 16 years of experience in the administration and management of listed public companies. He has extensive experience

at board level in the management and formation of public companies in the areas of gold mining, and oil and gas. He has held the position

of Chairman, CFO and Managing Director in a number of listed public companies and has also acted as corporate adviser on a number of

public company listings.

Mr Short was appointed on 27 March 2008.

During the past three years, Mr Short has also served as a director of the following other listed companies:

• Advance Energy Limited *


• Palace Resources Limited *

• Regal Resources Limited *

• Vector Resources Limited *


BERNARD WRIXONNon-executive Director

F.C.A.

Mr Wrixon is a fellow of the Institute of Chartered Accountants of England and Wales and was a partner in the international accounting firm

Ernst & Young. Since his arrival in Australia in 1983, Mr Wrixon has been closely connected to the resources sector.

Mr Wrixon has not held any other directorships during the past three years.

24


DIRECTORS (CONTINUED)ANDREW DIMSEYAlternate Director

B.Bus, CPA

Mr Dimsey has 27 years of experience in the oil and gas exploration, development and operating industries in Australia and internationally.

He has a commercial background and has held senior management positions in a number of public companies. He has significant

experience in the management and administration of public companies, mergers and acquisitions, corporate restructuring, oil and gas

infrastructure development and management, establishing and managing new oil and gas operations and oil and gas marketing.

Mr Dimsey was appointed on 14 May 2008 as an alternate director for Mr Bajada and Mr Short.

During the past three years, Mr Dimsey has also served as a director of the following other listed companies:

• Grand Gulf Energy Limited



NEIL C. FEARISAlternate Director

LLB (Hons), MAICD, F.Fin

Mr Fearis has 30 years of experience as a commercial lawyer in the UK and Australia, and is a member of several professional bodies

associated with commerce and law.

Mr Fearis was appointed on 26 March 2008 as an alternate director for Mr Kopcheff.

During the past three years, Mr Fearis has also served as a director or alternate director of the following other listed companies:

• Carnarvon Petroleum Limited *

• Kresta Holdings Limited *

• Perseus Mining Limited *

• Samson Oil & Gas Limited *


Interests in the shares and options of the company and related bodies corporate

As at the date of this report, the interests of the directors in the shares and options of Victoria Petroleum N.L. were:

Class of security D Patten J Kopcheff A Bajada A Dimsey N Fearis R Pett A Short B Wrixon

Ordinary shares, fully paid – 1,000,000 – – – 408,200 – –

Ordinary shares, issued at

$3.50 partly paid to 10 cents – 100,000 – – – 140,000 – –

Ordinary shares, issued at 60

cents partly paid to 1 cent – 1,080,000 – – – – – 200,000

Ordinary shares, issued at 40

cents partly paid to 0.1 cent – 4,200,000 – – – – – 350,000

Options 100,000 4,200,000 – – – – – 350,000

COMPANY SECRETARYDENIS RAKICH

F.C.P.A

Mr Rakich is an Accountant and Company Secretary with extensive corporate experience within the petroleum services, petroleum and

mineral production and exploration industries. Mr Rakich is responsible for the legal, financial and corporate management of Victoria

Petroleum N.L. He is a member of the Australian Society of Accountants and is currently Company Secretary for another public Company

in the resources sector.

25


DIVIDENDSNo dividends have been paid or declared by the Parent Entity since the end of the previous financial year and no dividends have been paid or

declared to the Parent Entity by any controlled entity during the year or to the date of this report. The balance of the franking account at the

end of the period was nil (2007: nil).

PRINCIPAL ACTIVITIESThe principal activities during the year of entities within the consolidated entity were oil and gas exploration and production.

There have been no significant changes in the nature of these activities during the year.

OPERATING AND FINANCIAL REVIEW

Group Overview

Production

During the year, the Company continued to receive revenue from oil and gas sales from both within Australia and the United States of America.

The Company’s share of oil and gas produced for the year was:

Australia

• The Mirage oil field in the Cooper Basin in South Australia produced 19,807 barrels of oil.

• The Ventura oil field in the Cooper Basin in South Australia produced 3,029 barrels of oil.

• The Growler oil field in the Cooper Basin in South Australia produced 6,768 barrels of oil.

• The Jingemia oil field in the onshore North Perth Basin in Western Australia produced 24,838 barrels of oil.

United States of America

• The Flour Bluff gas field in South Texas produced 69.6 million cubic feet of gas.

• The Margarita Gas Exploration Project in Texas produced 32.3 million cubic feet of gas and 1,767 barrels of oil.

• The West Florence Oil and Gas Project in Colorado produced 808 barrels of oil.

Exploration

The Company continued the implementation of its new focussed growth strategy on two key projects: the Cooper Basin Oil projects in South

Australia and Queensland, and the Queensland Coal Seam Gas projects.

In accordance with this strategy, the Company will continue to spend significant funds on exploration and development activities in Australia

and will divest its interest in the United States of America in an orderly manner. Expressions of interest have been received from industry

parties for the purchase of the oil and gas assets of Victoria Petroleum USA, Inc.

Exploration has been a focal point of the Company in recent years and management expects it to remain a core part of the Company’s

business, focussed on Australian onshore operations.

Cooper Basin

• Wirraway and Growler oil discoveries provided further confirmation of a possible significant “Jurassic oil fairway” in the western portion of

PEL 104 and PEL 111. The Western Margin Oil Project covers up to 1,200 square kilometres with potential further exploration success to

contain a resource of up to 100 million barrels of oil in place.

• Some 32 prospects and leads have been mapped in the Western Margin Oil Project with seven drillable prospects identified with a 10%

probability of possible recoverable resource of 21 million barrels of oil in the Birkhead formation. Three exploration wells are to be drilled in

2008.

• First up exploration drilling success in southwest Queensland Cooper Basin permit ATP 752P by Santos (operator) at Cuisinier-1, the first

oil exploration well of a seven well drilling and seismic exploration program. Cuisinier-1 has been cased and suspended as a future oil

producer.

Surat Basin

• The first three exploration wells of the Don Juan CSG Joint Venture have been cased as future pilot wells by Bow Energy (operator), with

initial pump test planned for Carnarvon-1 in the fourth quarter of 2008. The first well, Taringa South-1, flowed methane gas to surface at a

rate of 370,000 cubic feet per day.

• Following the success of the initial two coal seam gas core holes drilled in Petroleum Lease 171 in early 2008, a further drilling program to

assess the coal seam gas resources is planned for the fourth quarter of 2008.

• A four well drilling program is planned to commence in the fourth quarter of 2008 in ATP 574P on the Marcus, Pinelands and Peebs coal

seam gas projects by the operator, Queensland Gas Company Ltd.

26


OPERATING AND FINANCIAL REVIEW (CONTINUED)Group Overview (continued)

Development

Cooper Basin

• Development of the Growler Oil Field in PEL 104/PRL 15 continued during the year, with a further two development wells to be drilled in

the third quarter of 2008.

Operating results for the year

The net loss after tax of the Group for the financial year ended 30 June 2008 was $3,845,130 (2007: $7,108,775). Included in the Group’s loss

is an amount of $3,550,163 (2007: $5,774,692) being oil and gas exploration expenses and $974,070 (2007: $1,865,887) being impairment of

oil and gas properties. These costs have been written off in accordance with the Group’s accounting policy in relation to oil and gas exploration

costs.

Share issues during the year

During the year, the Company completed the following share issues:

• 28,000,000 ordinary shares were issued on 3 July 2007 at a price of 20 cents each.

Of this total, funds for 26,000,000 shares ($5,200,000) were received and included in equity in June 2007, and funds for the remaining

2,000,000 shares ($400,000) were received in July 2007.

• 32,500,000 ordinary shares were issued on 4 December 2007 at a price of 13 cents each to raise $4,225,000;

• 55,318 ordinary shares were issued on 21 December 2007 at a price of 25 cents each to raise $13,830;

• 25,057,360 ordinary shares were issued on 29 January 2008 at a price of 13 cents each to raise $3,257,500;

• 1,015,371 ordinary shares were issued on 8 February 2008 at a price of 13 cents each to raise $131,998;

• 41,750,000 ordinary shares were issued on 10 June 2008 at a price of 22.5 cents each to raise $9,393,750; and

• 17,758 ordinary shares were issued on 30 June 2008 at a price of 25 cents each to raise $4,440.

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRSDuring the year, Queensland Gas Company Limited (QGC) became a substantial shareholder of the Company. At balance date, QGC held

61,603,134 shares, or 19.24%, of the Company’s issued capital.

During the year, Odin Energy Limited, though its wholly owned subsidiary Glory Run Pty Ltd, became a substantial shareholder of the

Company. At balance date, Glory Run Pty Ltd held 48,916,746 shares, or 15.28%, of the Company’s issued capital.

There were no other significant changes in the state of affairs of the Group during the year not detailed elsewhere in this report.

SIGNIFICANT EVENTS AFTER THE BALANCE DATESince the end of the financial year, the directors are not aware of any other matters or circumstances not otherwise dealt with in the report or

financial statements that have significantly, or may significantly affect the operations of the Company or the Group, the results of the operations

of the Company or the Group, or the state of affairs of the Company or the Group in the subsequent financial years.

LIKELY DEVELOPMENTS AND EXPECTED RESULTSDuring the next financial year, the group will focus on continued oil production from the Jingemia, Mirage, Ventura and Growler fields and will

continue to focus on its two key projects: the Cooper Basin Oil projects in South Australia and Queensland, and the Queensland Coal Seam

Gas projects.

ENVIRONMENTAL REGULATION AND PERFORMANCEThe Group has a policy of at least complying, but in most cases exceeding its environmental performance obligations. No environmental

breaches have been notified by any Government agency during the year ended 30 June 2008.

SHARE OPTIONSUnissued shares

At the date of this report, the Group had the following options on issue:

Number Exercise Price Expiry Date

6,717,000 28 cents 30 November 2008

61,789,647 25 cents 31 January 2010

27


SHARE OPTIONS (CONTINUED)Unissued shares (continued)

On 21 August 2007, the Company issued 14,000,000 options. The issue was part of the placement of 28,000,000 ordinary fully paid shares

made to clients of member organisations of the ASX pursuant to a prospectus dated 12 June 2007. Included in the terms of the placement was

the issue of one free attaching option for every two ordinary fully paid shares issued. Approval for the issue of options was granted at a general

meeting of the Company on 15 August 2007.

Option holders do not have any right, by virtue of the option, to participate in any share issue of the Company or any related body corporate.

Shares issued as a result of the exercise of options

During the financial year, option holders have exercised options to acquire 73,076 fully paid ordinary shares in Victoria Petroleum N.L. at an

exercise price of $0.25 per share. Of this total, 55,318 options were exercised on 21 December 2007 and 17,758 options were exercised on

30 June 2008.

INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERSThe Company is in the process of renewing the directors and officers insurance policy, and has not yet incurred a premium for the current

financial year. During the prior year, the Company incurred a premium of $20,625 to insure directors and officers of the Group.

The liabilities insured include costs and expenses that may be incurred in defending civil or criminal proceedings that may be brought against

the officers in their capacity as officers of the Group.

DIRECTORS’ MEETINGSDuring the year, 10 meetings of directors were held. The number of meetings attended by each director and the number of meetings each

director was eligible to attend were as follows:

Director Number of Number of

meetings attended eligible meetings

D F Patten 4 5

J T Kopcheff 9 10

A Bajada 4 5

A Dimsey 1 4

N C Fearis 1 7

T L Hoops 6 6

R J Pett 10 10

A N Short 3 5

B Wrixon 10 10

AUDITOR INDEPENDENCEThe independence declaration received from the auditor of Victoria Petroleum N.L. is set out on page 31 and forms part of this Directors’

Report for the year ended 30 June 2008.

NON-AUDIT SERVICESThe following non-audit services were provided by the entity’s auditor, Ernst & Young. The directors are satisfied that the provision of non-audit

services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of

each type of non-audit service provided means that auditor independence was not compromised.

Ernst & Young received or are due to receive the following amounts for the provision of non-audit services:

Tax compliance services $57,028

Assurance related and due diligence services $30,000

Special audits as required by jurisdictional regulators $ 2,266 ________

$89,294 ________ ________

28


REMUNERATION REPORT (AUDITED)This Remuneration Report outlines the director and executive remuneration arrangements of the Company and the Group in accordance with

the requirements of the Corporations Act 2001 and its Regulations. For the purposes of this report, Key Management Personnel (KMP) of the

Group are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the

Company and the Group, directly or indirectly, including any director (whether executive or otherwise) of the parent company, and includes two

executives.

For the purposes of this report, the term “executive” encompasses the Company Secretary and senior executives of the Parent and the Group.

Remuneration committee

Due to the size and nature of the Company’s operations, the directors do not believe the establishment of a remuneration committee is

warranted. The Board of Directors is responsible for determining and reviewing compensation arrangements for directors and senior executives.

Contracts with the Managing Director and any other executives are determined by the independent, non-executive directors. The Board

assesses the appropriateness of the nature and amount of remuneration of directors and executives on a periodic basis by reference to

relevant employment market conditions, with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality

board and executive team.

Remuneration philosophy

The performance of the Company depends upon the quality of its directors and executives. To be successful and maximise shareholder wealth,

the Company must attract, motivate and retain highly skilled directors and executives.

Remuneration packages applicable to the executive directors, senior executives and non-executive directors are established with due regard to:

• Performance against set goals

• Ability to attract and retain qualified and experienced directors and senior executives

Remuneration structure

In accordance with best practice corporate governance, the structure of non-executive, executive and senior manager remuneration is separate

and distinct.

Non-executive director remuneration

Objective

The Board seeks to set aggregate remuneration at a level which provides the Company with the ability to attract and retain directors of the

highest calibre, whilst incurring a cost which is acceptable to shareholders.

Structure

The ASX Listing Rules specify that the aggregate remuneration of non-executive directors shall be determined from time to time by a general

meeting. An amount not exceeding the amount determined is then divided between directors as agreed. The latest determination was at a

General Meeting held on 25 June 2008 when shareholders approved an aggregate remuneration of $250,000 per annum.

The amount of aggregate remuneration sought to be approved by shareholders and the manner in which it is apportioned amongst directors is

reviewed annually.

Non-executive directors are encouraged by the Board to hold shares in the company (purchased by directors on market). It is considered good

governance for directors to have a stake in the company on whose Board they sit on.

The remuneration of non-executive directors for the years ending 30 June 2008 and 30 June 2007 is detailed in Table 1.

Executive remuneration

Objective

The Company aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities within the

company and so as to:

• reward executives for company performance against targets set by the board;

• align the interests of executives with those of shareholders;

• link reward with strategic goals and performance of the company; and

• ensure total remuneration is competitive by market standards.

This is a remuneration framework and currently the Board has not set any targets.

29


REMUNERATION REPORT (AUDITED) (CONTINUED)Remuneration incentives

Director and executive remuneration is currently not linked to either long term or short term performance conditions. The Board feels that the

expiry date and exercise price of the partly paid shares and options currently on issue to the directors and executives is sufficient to align the

goals of the directors and executives with those of the shareholders to maximise shareholder wealth, and as such, has not set any

performance conditions for the directors or the executives of the Company. The Board will continue to monitor this policy to ensure that it is

appropriate for the Company in future years.

Remuneration of Key Management Personnel

Table 1: Key Management Personnel remuneration for the years ended 30 June 2008 and 30 June 2007

Short-term Post Total Performance

Employment related

Year Salary & Other Annual Super-

Directors Fees Fees Leave annuation

$ $ $ $ $ %

Directors

Patten, DF (i) 2008 15,781 – – 1,420 17,201 –

Kopcheff, JT 2008 300,000 – 27,116 30,000 357,116 –

2007 304,038 – – 30,404 334,442 –

Bajada, A (ii) 2008 10,521 – – 947 11,468 –

Dimsey, A (iii) 2008 – – – – – –

Fearis, NC (iv) 2008 – 63,845 – – 63,845 –

Hoops, TL (v) 2008 30,000 240,156 – – 270,156 –

2007 40,000 278,452 – – 318,452 –

Pett, RJ 2008 40,000 – – 3,600 43,600 –

2007 40,000 – – 3,600 43,600 –

Short, AN (vi) 2008 10,521 – – 947 11,468 –

Wrixon, B 2008 40,000 – – 3,600 43,600 –

2007 40,000 – – 3,600 43,600 –

Sub-Total 2008 446,823 304,001 27,116 40,514 818,454 –

2007 424,038 278,452 – 37,604 740,094 –

Executives

Rakich, DI 2008 101,010 – 2,274 10,101 113,385 –

2007 100,538 – 5,423 10,054 116,015 –

Lane, CM 2008 177,422 – 6,363 17,742 201,527 –

2007 184,102 – (2,097) 18,410 200,415 –

Sub-Total 2008 278,432 – 8,637 27,843 314,912 –

2007 284,640 – 3,326 28,464 316,430 –

Total 2008 725,255 304,001 35,753 68,357 1,133,366 –

2007 708,678 278,452 3,326 66,068 1,056,524 –

(i) D F Patten was appointed as a director on 27 March 2008.

(ii) A Bajada was appointed as a director on 27 March 2008.

(iii) A Dimsey was appointed as an alternate director on 14 May 2008.

30


REMUNERATION REPORT (AUDITED) (CONTINUED)Remuneration of Key Management Personnel (continued)

(iv) N C Fearis was appointed as an alternate director on 26 March 2008.

During the year, the Group made payments of $63,845 to Minter Ellison Group, a company associated with Mr Fearis. These payments

comprised fees payable for corporate legal advice. These services were not provided by Mr Fearis as a director of Victoria Petroleum N.L.

(v) T L Hoops resigned as a director on 27 March 2008.

During the year, the Group made payments of US$218,199 (A$240,156) (2007: US$225,765/A$278,452) to Peak Resource Management,

Inc., a company owned by Mr Hoops. These payments comprised fees payable for consulting work in relation to the oil and gas properties

in the United States of America. These services were not provided by Mr Hoops as a director of Victoria Petroleum N.L.

(vi) A N Short was appointed as a director on 27 March 2008.

Amounts disclosed for compensation of directors excludes insurance premiums paid by the Group in respect of directors’ and officers’ liability

insurance contracts, as the contracts do not specify premiums paid in respect of individual directors.

Employment contracts

During the year ended 30 June 2006, the Company entered into an employment contract with Mr Kopcheff. The contract allows for

remuneration of $300,000 per annum for a period of three years, commencing 1 January 2006. Under the terms of the contract, the Company

may terminate the agreement with one months notice and provide a lump sum payment to Mr Kopcheff equal to the amount that he would have

received under the contract, should the contract have continued until the end of its term. Alternatively, the Company may terminate the

agreement immediately if Mr Kopcheff is guilty of misconduct.

The Company has not entered into any other employment contracts in the years ended 30 June 2008 and 30 June 2007.

Partly paid shares

During the year ended 30 June 2006, the Company issued partly paid shares to directors, executives and employees of Victoria Petroleum N.L.

The shares were issued as partly paid to 0.01 cent per share, with the balance of 3.99 cents per share to be paid up or forfeited by

30 November 2010.

On 12 December 2006, a consolidation of the Company’s share capital was completed, on the basis of one new share for every 10 existing

shares. As a result of the share consolidation, the partly paid shares granted as part of compensation for the year ended 30 June 2006 are

now partly paid to 0.1 cent per share, with the balance of 39.9 cents per share to be paid up or forfeited by 30 November 2010.

The Company did not issue partly paid shares or options to Key Management Personnel in the years ended 30 June 2008 and 30 June 2007.

Signed in accordance with a resolution of the directors.

Bernard Wrixon

Director

Perth, Western Australia

9 September 2008

31

Auditor’s Independence Declaration

Liability limited by a scheme approved under Professional Standards Legislation.

VT:HG:VICTORIAPET: 024

Auditor’s Independence Declaration to the Directors of Victoria Petroleum NL

In relation to our audit of the financial report of Victoria Petroleum NL for the financial year ended 30 June 2008, to the best of my

knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001

or any applicable code of professional conduct.

Ernst & Young

V W Tidy

Partner

Perth

9 September 2008

Ernst & Young Building11 Mounts Bay RoadPerth WA 6000 AustraliaGPO Box M939 Perth WA 6843Tel +61 8 9429 2222Fax +61 8 9429 2436www.ey.com/au

32

Corporate Governance Statement

The Board of Directors of Victoria Petroleum N.L. is responsible for the corporate governance of the Group. The Board guides and monitors the

business and affairs of Victoria Petroleum N.L. on behalf of the shareholders by whom they are elected and to whom they are accountable.

The Board of Directors supports the Principles of Good Corporate Governance and Best Practice Recommendations developed by the ASX

Corporate Governance Council (“Council”). The Company’s practices are largely consistent with the Council’s guidelines, however the Board

considers that the implementation of some recommendations are not appropriate given the nature and scale of the Company’s activities and

size of the Board.

The following Corporate Governance Statement should be read in conjunction with the Directors’ Report on pages 22 to 30.

Principle 1 – Lay solid foundations for management and oversight

BOARD RESPONSIBILITIESTo ensure the Board is well equipped to discharge its responsibilities, it has established guidelines for the nomination and selection of the

directors and for the operation of the Board.

Whilst not formally documented, the Board recognises and acknowledges that it acts on behalf of and is accountable to the shareholders. The

Board seeks to identify the expectations of the shareholders, as well as other regulatory and ethical expectations and obligations. In addition,

the Board is responsible for identifying areas of significant business risk and ensuring arrangements are in place to adequately manage those

risks. The Board seeks to discharge these responsibilities in a number of ways.

The responsibility for the operation and administration of the Group is delegated by the Board to the Managing Director and the executive team.

The Board ensures that this team is appropriately qualified and experienced to discharge their responsibilities and regularly reviews and

assesses the performance of the Managing Director and the executive team.

The Board is responsible for ensuring that management’s objectives and activities are aligned with the expectations and risk identified by the

Board. The Board has a number of mechanisms in place to ensure this is achieved. These mechanisms include the following:

• implementation of operating plans and budgets by management and Board monitoring of progress against budget. This includes the

establishment and monitoring of key performance indicators (both financial and non-financial) for all significant business processes; and

• procedures to allow directors, in the furtherance of their duties, to seek independent professional advice at the Company’s expense.

Principle 2 – Structure the Board to add value

COMPOSITION OF THE BOARDThe composition of the Board is determined in accordance with the following principles and guidelines:

• the Board shall comprise at least four directors and should maintain a majority of non-executive independent directors;

• the chairperson must be a non-executive independent director;

• the Board should comprise directors with an appropriate range of qualifications and experience; and

• the Board shall meet at least bi-monthly and following meeting guidelines set down to ensure all directors are made aware of, and have

available all necessary information, to participate in an informed discussion of all agenda items.

The directors in office at the date of this statement are:

Name Position

D F Patten Chairman, Independent Non-Executive Director

J T Kopcheff Managing Director

A Bajada Non-Executive Director

R J Pett Independent Non-Executive Director

A N Short Non-Executive Director

B Wrixon Independent Non-Executive Director

A Dimsey Alternate Director

N C Fearis Alternate Director

Details in relation to the Directors skills, experience and expertise relevant to the position of director are detailed in the Directors’ Report.

33

Corporate Governance Statement(continued)

Principle 2 – Structure the Board to add value (continued)

INDEPENDENCEAn independent director, in the view of the Company, is a non-executive director who is not a member of management and who is 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 judgement.

In determining the independent status of a director, the Board considers whether the director:

• is a substantial shareholder of the Company or an officer of, or otherwise associated directly with, a substantial shareholder of the

Company;

• is employed, or has previously been employed, in an executive capacity by the Company or another group member, and there has not

been a period of at least three years between ceasing such employment and serving on the Board;

• has within the last three years been a principal of a material professional adviser or a material consultant to the Company or another group

member, or an employee materially associated with the service provided;

• is a material supplier or customer of the Company or other group member, or an officer of or otherwise associated directly or indirectly with

a material supplier or customer; and

• has a material contractual relationship with the Company or another group member other than as a director.

NOMINATION COMMITTEEThe Group does not have a formally appointed nomination committee, as the directors believe the size of the Group’s operations do not warrant

the establishment of such a committee.

The Board is responsible for devising criteria for Board membership, reviewing the need for various skills and experience on the Board,

identifying specific individuals for nomination as directors and overseeing Board and executive succession planning.

PERFORMANCE REVIEW AND EVALUATIONIt is the policy of the Board to ensure that the directors and executives of the Company are equipped with the knowledge and information they

need to discharge their responsibilities effectively. The performance of all directors and executives is reviewed annually by the chairman.

Although the Company is not of a size to warrant the development of formal performance review processes, there is on-going monitoring by the

chairman and the Board. The chairman also speaks to directors on an individual basis regarding their role as a director.

Directors whose performance is unsatisfactory may be asked to retire. The Board has not formally documented the results of performance

evaluations to date.

Principle 3 – Promote ethical and responsible decision-making

CODE OF CONDUCTDue to the size and nature of the operations of the Group, it does not have a formally documented code of conduct for its directors and

executives. Despite this, the Board maintains high standards of ethical responsible decision making, recognising legitimate interests of all

stakeholders.

SHARE DEALINGS AND DISCLOSURESThe Company’s policy regarding directors, executives and employees dealing in its securities is set by the Board. The Board restricts directors,

executives and employees from acting on material information until it has been released to the market and adequate time has been given for

this to be reflected in the security price. Directors, executives and employees are required to consult the chairman, prior to dealing in securities

in the Company or other companies in which the Company has a relationship.

Dealings are not permitted at any time whilst in the possession of price sensitive information not already available to the market. In addition,

the Corporations Act 2001 prohibits the purchase or sale of securities whilst a person is in possession of inside information.

As required by the ASX Listing Rules, the Company notifies the ASX of any transaction conducted by directors in the securities of the

Company.

CONFLICTS OF INTERESTTo ensure that directors are at all times acting in the interests of the Company, directors must disclose to the Board actual or potential conflicts

of interest that may or might reasonably be thought to exist between the interest of the director and the interests of any other parties in carrying

out the activities of the Company.

34


Principle 3 – Promote ethical and responsible decision-making (continued)

CONFLICTS OF INTEREST (CONTINUED)If a director can not, or is unwilling to, remove a conflict of interest then the director must, as per the Corporations Act 2001, absent himself

from the room when Board discussion and/or voting occurs on matters about which the conflict relates (save with the approval of the remaining

directors and subject to the Corporations Act 2001.)

Principle 4 – Safeguard integrity in financial reporting

AUDIT COMMITTEEThe Group does not have a formally appointed audit committee, as the directors believe the size of the Group’s operations do not warrant the

establishment of such a committee.

It is the responsibility of the Board to ensure that an effective internal control framework exists within the Group. This includes internal controls

to deal with both the effectiveness and efficiency of significant business processes. This also includes the safeguarding of assets, the

maintenance of proper accounting records, and the reliability of financial information.

Principle 5 – Make timely and balanced disclosure

ASX LISTING RULE COMPLIANCEThe Board has designated the Company Secretary as the person responsible for ensuring the Company is in compliance with the ASX Listing

Rules.

CONTINUOUS DISCLOSURE TO ASXThe Board has designated the Company Secretary as the person responsible for overseeing and coordinating disclosure of information to the

ASX as well as communicating with the ASX. In accordance with the ASX Listing Rules, the Company immediately notifies the ASX of

information:

• concerning the Company that a reasonable person would expect to have a material effect on the price or value of the Company’s

securities; and

• that would, or would be likely to, influence persons who commonly invest in securities in deciding whether to acquire or dispose of the

Company’s securities.

Principle 6 – Respect the rights of shareholders

COMMUNICATIONSThe Board recognises its duty to ensure that its shareholders are informed of all major developments affecting the Company’s state of affairs.

Information is communicated to shareholders and the market through:

• The Annual Report, which is distributed to shareholders if they have elected to receive a printed version and otherwise available for viewing

and downloading from the Company’s website;

• The Annual General Meeting and other general meetings called to obtain shareholder approvals as appropriate;

• The Quarterly Reports and Half-Yearly Directors’ and Financial Reports which are posted on to the Company’s website; and

• Other announcements released to the ASX as required under the continuous disclosure requirements of the ASX Listing Rules and other

information that may be mailed to shareholders, which are posted on to the Company’s website.

The Company actively promotes communication with shareholders through a variety of measures, including the use of the Company’s website

and email. The Company’s reports and ASX announcements may be viewed and downloaded from its website: www.vicpet.com.au or the ASX

website: www.asx.com.au under ASX code “VPE.” The Company also maintains an email list for the distribution of the Company’s

announcements via email in a timelier manner.

Principle 7 – Recognise and manage risk

RISK ASSESSMENT AND MANAGEMENTThe Board is responsible for ensuring there are adequate policies in relation to risk management, compliance and internal control system. The

Board requires the directors and executives to design and implement the risk management and internal control system to manage the

Company, and to report to the Board.

The Group’s policies are designed to ensure strategic, operational, legal, reputation and financial risk are identified, assessed effectively and

efficiently managed and monitored to enable achievement of the Group’s business objective.

35


Principle 7 – Recognise and manage risk (continued)

RISK ASSESSMENT AND MANAGEMENT (CONTINUED)The Board has determined that the Managing Director and the Company Secretary are the appropriate persons to make the chief executive

and chief financial equivalent declarations respectively, in respect of the year ended 30 June 2008, on the risk management and internal

compliance and control systems recommended by the Council.

Considerable importance is placed on maintaining a strong control environment. There is an organisation structure with clearly drawn lines of

accountability and delegation of authority.

CORPORATE REPORTINGThe Company Secretary has made the following assertions to the Board:

• that the Group’s financial reports are complete and present a true and fair view, in all material respects, of the financial condition and

operational results of the Group and are in accordance with relevant accounting standards; and

• that the above statement is founded on a sound system of risk management and internal compliance and control, which implements the

policies adopted by the Board and that the Group’s risk management and internal compliance and control is operating efficiently and

effectively in all material respects.

Principle 8 – Remunerate fairly and responsibly

REMUNERATION COMMITTEEDue to the nature and size of the Group’s operations, the directors do not believe the establishment of a remuneration committee is warranted.

The Board is responsible for determining and reviewing compensation arrangements for the directors. In determining the appropriate

remuneration arrangements for directors, the Board considers the following guidelines:

• Non-executive directors are remunerated by way of fees, in the form of cash, non-cash benefits and superannuation contributions;

• Non-executive directors should not receive options or bonus payments; and

• Non-executive directors should not be provided with retirement benefits other than superannuation.

In prior years, the Company has issued options and partly paid shares to non-executive directors, following approval granted by members at

General Meetings. The issues of these options and shares were to provide additional remuneration to the non-executive directors.

Further detail in relation to the Company’s remuneration policies can be found in the Remuneration Report contained within the Directors’

Report.

36

Balance Sheetas at 30 June 2008

Note Consolidated Parent

2008 2007 2008 2007

$ $ $ $

ASSETS

Current Assets

Cash and cash equivalents 10 17,670,235 5,380,543 15,912,793 4,859,271

Trade and other receivables 11 2,223,172 1,613,173 165,877 58,650

Held for trading financial assets 12 1,537,401 2,861,592 111,625 922,499 __________________________________________________

Total Current Assets 21,430,808 9,855,308 16,190,295 5,840,420 __________________________________________________

Non-current Assets

Receivables 13 111,776 108,776 9,700,505 6,855,573

Available-for-sale financial assets 14 360,000 – 300,000 –

Investments in associates 15 – 206,612 – 206,612

Property, plant and equipment 16 21,401 33,224 7,291 15,647

Oil and gas properties 17 5,549,302 4,348,298 – – __________________________________________________

Total Non-current Assets 6,042,479 4,696,910 10,007,796 7,077,832 __________________________________________________

TOTAL ASSETS 27,473,287 14,552,218 26,198,091 12,918,252 __________________________________________________

LIABILITIES

Current Liabilities

Trade and other payables 18 1,174,613 1,494,429 241,165 524,177

Provisions 19 241,929 195,195 241,929 195,195 __________________________________________________

Total Current Liabilities 1,416,542 1,689,624 483,094 719,372 __________________________________________________

Non-current Liabilities

Trade and other payables 20 – – 6,989,137 5,733,114

Provisions 21 888,275 863,115 99,866 79,321 __________________________________________________

Total Non-current Liabilities 888,275 863,115 7,089,003 5,812,435 __________________________________________________

TOTAL LIABILITIES 2,304,817 2,552,739 7,572,097 6,531,807 __________________________________________________

NET ASSETS 25,168,470 11,999,479 18,625,994 6,386,445 __________________________________________________ __________________________________________________

EQUITY

Contributed equity 22 103,307,256 86,137,166 103,307,256 86,137,166

Reserves 23 158,181 314,150 1,284,416 1,177,675

Accumulated losses 24 (78,296,967) (74,451,837) (85,965,678) (80,928,396) __________________________________________________

TOTAL EQUITY 25,168,470 11,999,479 18,625,994 6,386,445 __________________________________________________ __________________________________________________

The balance sheet should be read in conjunction with the accompanying notes.

37

Income Statementfor the year ended 30 June 2008


2008 2007 2008 2007

$ $ $ $

Continuing operations

Revenue 6 (a) 8,360,694 8,111,273 920,750 928,971

Cost of sales (4,109,650) (3,496,480) – – __________________________________________________

Gross profit 4,251,044 4,614,793 920,750 928,971

Other income 6 (b) 17,364 50,845 – 48,512

Employee benefits expense 7 (a) (1,189,836) (1,163,279) (1,189,836) (1,163,279)

Oil and gas exploration expenses (3,550,163) (5,774,692) (262,005) (836,739)

Impairment of oil and gas properties 7 (b) (974,070) (1,865,887) – –

Impairment of available-for-sale financial assets (140,000) – – –

Other expenses 7 (c) (2,246,115) (2,927,167) (4,551,937) (8,495,818)

Share of loss of an associate 15 (59,100) (43,388) – – __________________________________________________

Loss before income tax from continuing operations (3,890,876) (7,108,775) (5,083,028) (9,518,353)

Income tax gain 8 45,746 – 45,746 – __________________________________________________

Loss after income tax from continuing operations (3,845,130) (7,108,775) (5,037,282) (9,518,353) __________________________________________________

Loss for the period (3,845,130) (7,108,775) (5,037,282) (9,518,353) __________________________________________________ __________________________________________________

Loss per share

(cents per shares)

Basic loss per share 9 (1.53) (3.73)

Diluted loss per share 9 (1.53) (3.73)

The income statement should be read in conjunction with the accompanying notes.

38

Cash Flow Statementfor the year ended 30 June 2008


2008 2007 2008 2007

$ $ $ $

Cash flows from operating activities

Receipts from customers 7,763,318 8,247,080 – –

Payments to suppliers and employees (6,338,035) (6,205,661) (2,562,697) (2,390,571)

Payments for exploration expenditure (4,027,133) (5,838,814) (274,980) (833,850)

Interest received 6 (a) 235,883 117,270 182,256 79,469

Fees received for technical services 713,258 798,590 711,683 798,590

Other net receipts/(payments) 17,364 (400,297) – 35,423 __________________________________________________

Net cash flows used in operating activities 25 (1,635,345) (3,281,832) (1,943,738) (2,310,939) __________________________________________________

Cash flows from investing activities

Payments for development of oil and gas properties (3,415,139) (2,363,382) – –

Purchase of available-for-sale investments (200,000) – – –

Purchase of property, plant and equipment (11,299) (22,766) (5,418) –

Proceeds from disposal of investments held for trading 1,088,496 992,926 727,507 911,926

Loans advanced to controlled entities – – (5,756,893) (4,531,302)

Proceeds advanced from controlled entities – – 1,256,024 1,985,283 __________________________________________________

Net cash flows used in investing activities (2,537,942) (1,393,222) (3,778,780) (1,634,093) __________________________________________________

Cash flows from financing activities

Proceeds from share issues 22 17,426,519 7,310,695 17,426,519 7,310,695

Payments of transaction costs of issue of shares (536,853) (27,754) (536,853) (27,754) __________________________________________________

Net cash flows from financing activities 16,889,666 7,282,941 16,889,666 7,282,941 __________________________________________________

Net increase in cash and cash equivalents 12,716,379 2,607,887 11,167,148 3,337,909

Net foreign exchange differences (426,687) (590,108) (113,626) (129,799)

Cash and cash equivalents at the beginning of period 5,380,543 3,362,764 4,859,271 1,651,161 __________________________________________________

Cash and cash equivalents at the end of the period 10 17,670,235 5,380,543 15,912,793 4,859,271 __________________________________________________ __________________________________________________

The cash flow statement should be read in conjunction with the accompanying notes.

39

Statement of Changes in Equityfor the year ended 30 June 2008

Co

nso

lidat

ed

C

on

trib

ute

d

Acc

um

ula

ted

F

ore

ign

S

har

e b

ased

N

et

Tota

l

eq

uit

y lo

sses

cu

rren

cy

pay

men

ts

un

real

ised

tr

ansl

atio

n

rese

rve

gai

n/(

loss

)

re

serv

e

rese

rve

$

$ $

$ $

$

Bal

ance

1 J

uly

200

6 78

,900

,683

(6

7,34

3,06

2)

(376

,414

) 1,

177,

675

– 12

,358

,882

Cur

renc

y tr

ansl

atio

n di

ffere

nces

–

– (4

87,1

11)

– –

(487

,111

)__

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

___

Tota

l inc

ome/

(exp

ense

) re

cogn

ised

dire

ctly

in e

quity

–

– (4

87,1

11)

– –

(487

,111

)

Loss

for

the

perio

d –

(7,1

08,7

75)

– –

– (7

,108

,775

)__

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

___

Tota

l in

com

e (e

xpen

se)

for

the

per

iod

–

(7,1

08,7

75)

(487

,111

) –

– (7

,595

,886

)

Issu

e of

sha

re c

apita

l 7,

560,

695

– –

– –

7,56

0,69

5

Sha

re is

sue

cost

s (3

24,2

12)

– –

– –

(324

,212

)__

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

___

Bal

ance

30

Jun

e 20

07

86,1

37,1

66

(74,

451,

837)

(8

63,5

25)

1,17

7,67

5 –

11,9

99,4

79__

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

___

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

_

Bal

ance

1 J

uly

200

7 86

,137

,166

(7

4,45

1,83

7)

(863

,525

) 1,

177,

675

– 11

,999

,479

Cur

renc

y tr

ansl

atio

n di

ffere

nces

–

– (2

62,7

10)

– –

(262

,710

)

Net

gai

n re

cogn

ised

on

re-m

easu

rem

ent

to fa

ir

va

lue

of a

vaila

ble

for

sale

inve

stm

ents

–

– –

– 15

2,48

7 15

2,48

7

Tax

effe

ct o

n ne

t ga

in r

ecog

nise

d on

re

-mea

sure

men

t to

fair

valu

e of

ava

ilabl

e

fo

r sa

le in

vest

men

ts

– –

– –

(45,

746)

(4

5,74

6)__

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

___

Tota

l inc

ome/

(exp

ense

) re

cogn

ised

dire

ctly

in e

quity

–

– (2

62,7

10)

– 10

6,74

1 (1

55,9

69)

Loss

for

the

perio

d –

(3,8

45,1

30)

– –

– (3

,845

,130

)__

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

___

Tota

l in

com

e (e

xpen

se)

for

the

per

iod

–

(3,8

45,1

30)

(262

,710

) –

106,

741

(4,0

01,0

99)

Issu

e of

sha

re c

apita

l 17

,426

,519

–

– –

– 17

,426

,519

Sha

re is

sue

cost

s (2

56,4

29)

– –

– –

(256

,429

)__

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

___

Bal

ance

30

Jun

e 20

08

103,

307,

256

(78,

296,

967)

(1

,126

,235

) 1,

177,

675

106,

741

25,1

68,4

70__

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

___

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

_

The

sta

tem

ent

of c

hang

es in

equ

ity s

houl

d be

rea

d in

con

junc

tion

with

the

acc

ompa

nyin

g no

tes.

40

Statement of Changes in Equityfor the year ended 30 June 2008 (continued)

Par

ent

C

on

trib

ute

d

Acc

um

ula

ted

S

har

e b

ased

N

et

Tota

l

eq

uit

y lo

sses

p

aym

ents

u

nre

alis

ed

re

serv

e g

ain

/(lo

ss)

rese

rve

$

$ $

$ $

Bal

ance

1 J

uly

200

6 78

,900

,683

(7

1,41

0,04

3)

1,17

7,67

5 –

8,66

8,31

5

Cur

renc

y tr

ansl

atio

n di

ffere

nces

–

– –

– –

__

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

Tota

l inc

ome/

(exp

ense

) re

cogn

ised

dire

ctly

in e

quity

–

– –

– –

Loss

for

the

perio

d –

(9,5

18,3

53)

– –

(9,5

18,3

53)

__

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

Tota

l in

com

e/(e

xpen

se)

for

the

per

iod

–

(9,5

18,3

53)

– –

(9,5

18,3

53)

Issu

e of

sha

re c

apita

l 7,

560,

695

– –

– 7,

560,

695

Sha

re is

sue

cost

s (3

24,2

12)

– –

– (3

24,2

12)

__

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

Bal

ance

30

Jun

e 20

07

86,1

37,1

66

(80,

928,

396)

1,

177,

675

– 6,

386,

445

__

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

__

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

Bal

ance

1 J

uly

200

7 86

,137

,166

(8

0,92

8,39

6)

1,17

7,67

5 –

6,38

6,44

5

Cur

renc

y tr

ansl

atio

n di

ffere

nces

–

– –

– –

Net

gai

n re

cogn

ised

on

re-m

easu

rem

ent

to fa

ir

va

lue

of a

vaila

ble

for

sale

inve

stm

ents

–

– –

152,

487

152,

487

Tax

effe

ct o

n ne

t ga

in r

ecog

nise

d on

re

-mea

sure

men

t to

fair

valu

e of

ava

ilabl

e

fo

r sa

le in

vest

men

ts

– –

– (4

5,74

6)

(45,

746)

__

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

Tota

l inc

ome/

(exp

ense

) re

cogn

ised

dire

ctly

in e

quity

–

– –

106,

741

106,

741

Loss

for

the

perio

d –

(5,0

37,2

82)

– –

(5,0

37,2

82)

__

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

Tota

l in

com

e/(e

xpen

se)

for

the

per

iod

–

(5,0

37,2

82)

– 10

6,74

1 (4

,930

,541

)

Issu

e of

sha

re c

apita

l 17

,426

,519

–

– –

17,4

26,5

19

Sha

re is

sue

cost

s (2

56,4

29)

– –

– (2

56,4

29)

__

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

Bal

ance

30

Jun

e 20

08

103,

307,

256

(85,

965,

678)

1,

177,

675

106,

741

18,6

25,9

94

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

__

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

__

The

sta

tem

ent

of c

hang

es in

equ

ity s

houl

d be

rea

d in

con

junc

tion

with

the

acc

ompa

nyin

g no

tes.

41

Notes to the Financial Statementsfor the year ended 30 June 2008

NOTE 1: CORPORATE INFORMATIONThe financial report of Victoria Petroleum N.L. (the Company) for the year ended 30 June 2008 was authorised for issue in accordance with a

resolution of the directors on 9 September 2008.

Victoria Petroleum N.L. (the Parent) is a company limited by shares incorporated in Australia whose shares are publicly traded on the

Australian Stock Exchange (ASX code: VPE).

The nature of the operations and principal activities of the Group are oil and gas exploration and production.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of preparation

The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the

Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards

Board. The financial report has also been prepared on a historical cost basis, except for investments held for trading and available-for-

sale investments, which have been measured at fair value.

The financial report is presented in Australian dollars.

(b) Compliance with IFRS

The financial report complies with Australian Accounting Standards as issued by the Australian Accounting Standards Board and

International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.

(c) New accounting standards and interpretations

In the current year, the Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting

Standards Board (the AASB) and the Urgent Issues Group that are relevant to its operations and effective for annual reporting periods

beginning on 1 July 2007. The adoption of these new and revised Standards and Interpretations did not have any effect on the financial

position or performance of the Group. However, the Standards have affected the disclosures in the financial report.

Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective have not been

adopted by the Group for the annual reporting period ending 30 June 2008. These are outlined in the table below:

Reference Title Summary

Application

date of

standard*

Impact on Group

financial report

Application

date for

Group*

AASB 8 and

AASB 2007-3

Operating Segments

and consequential

amendments to

other Australian

Accounting

Standards

New standard replacing AASB

114 Segment Reporting, which

adopts a management reporting

approach to segment reporting.

1 January

2009

AASB 8 is a disclosure

standard so will have no

direct impact on the

amounts included in the

Group’s financial

statements. In addition,

the amendments may

have an impact on the

Group’s segment

disclosures.

1 July

2009

AASB 123

(Revised)

and AASB

2007-6

Borrowing Costs

and consequential

amendments to

other Australian

Accounting

Standards

The amendments to AASB 123

require that all borrowing costs

associated with a qualifying asset

be capitalised.

1 January

2009

Not applicable to the

Group, therefore no

impact.

1 July

2009

42

Notes to the Financial Statementsfor the year ended 30 June 2008 (continued)


Application

date of

standard*

Impact on Group

financial report

Application

date for

Group*

AASB 101

(Revised)

and AASB

2007-8

Presentation of

Financial

Statements and

consequential

amendments to

other Australian

Accounting

Standards

Introduces a statement of

comprehensive income.

Other revisions include impacts on

the presentation of items in the

statement of changes in equity,

new presentation requirements for

restatements or reclassifications

of items in the financial

statements, changes in the

presentation requirements for

dividends and changes to the

titles of the financial statements.

1 January

2009

These amendments are

only expected to affect

the presentation of the

Group’s financial report

and will not have a direct

impact on the

measurement and

recognition of amounts

disclosed in the financial

report. The Group has

not determined at this

stage whether to present

a single statement of

comprehensive income

or two separate

statements.

1 July

2009

AASB 2008-1 Amendments to

Australian

Accounting

Standard – Share-

based Payments:

Vesting Conditions

and Cancellations

The amendments clarify the

definition of ‘vesting conditions’,

introducing the term ‘non-vesting

conditions’ for conditions other

than vesting conditions as

specifically defined and prescribe

the accounting treatment of an

award that is effectively cancelled

because a non-vesting condition

is not satisfied.

1 January

2009

The Group has share-

based payment

arrangements that may

be affected by these

amendments. However,

the Group has not yet

determined the extent of

the impact, if any.

1 July

2009


Australian

Accounting

Standards –

Puttable Financial

Instruments and

Obligations arising

on Liquidation

The amendments provide a limited

exception to the definition of a

liability so as to allow an entity

that issues puttable financial

instruments with certain specified

features, to classify those

instruments as equity rather than

financial liabilities.

1 January

2009


Group, therefore no

impact.

1 July

2009

AASB 3

(Revised)

Business

Combinations

The revised standard introduces a

number of significant changes to

the accounting for business

combinations.

1 July 2009 Not applicable to the

Group, therefore no

impact.

1 July

2009

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

43



Application

date of

standard*

Impact on Group

financial report

Application

date for

Group*

AASB 127

(Revised)

Consolidated and

Separate Financial

Statements

Under the revised standard, a

change in the ownership interest

of a subsidiary (that does not

result in loss of control) will be

accounted for as an equity

transaction.

1 July 2009 If the Group changes its

ownership interest in

existing subsidiaries in

the future, the change

will be accounted for as

an equity transaction.

This will have no impact

on goodwill, nor will it

give rise to a gain or a

loss in the Group’s

income statement.

1 July

2009


Australian

Accounting

Standards arising

from AASB 3 and

AASB 127

Amending standard issued as a

consequence of revisions to AASB

3 and AASB 127.

1 July 2009 No change to accounting

policy, therefore no

impact.

1 July

2009

Amendments

to

International

Financial

Reporting

Standards

Cost of an

Investment in a

Subsidiary, Jointly

Controlled Entity or

Associate

The main amendments of

relevance to Australian entities are

those made to IAS 27 deleting the

‘cost method’ and requiring all

dividends from a subsidiary, jointly

controlled entity or associate to be

recognised in profit or loss in an

entity’s separate financial

statements (i.e., parent company

accounts). The distinction between

pre- and post-acquisition profits is

no longer required. However, the

payment of such dividends

requires the entity to consider

whether there is an indicator of

impairment.

AASB 127 has also been

amended to effectively allow the

cost of an investment in a

subsidiary, in limited

reorganisations, to be based on

the previous carrying amount of

the subsidiary (that is, share of

equity) rather than its fair value.

1 January

2009

No change to accounting

policy, therefore no

impact.

1 July

2009


44



Application

date of

standard*

Impact on Group

financial report

Application

date for

Group*

Amendments

to

International

Financial

Reporting

Standards

Improvements to

IFRSs

The improvements project is an

annual project that provides a

mechanism for making non-

urgent, but necessary,

amendments to IFRSs. The IASB

has separated the amendments

into two parts: Part 1 deals with

changes the IASB identified

resulting in accounting changes;

Part II deals with either

terminology or editorial

amendments that the IASB

believes will have minimal impact.

1 January

2009 except

for

amendments

to IFRS 5,

which are

effective from

1 July 2009.

The Group has not yet

determined the extent of

the impact of the

amendments, if any.

1 July

2009

IFRIC 15 Agreements for the

Construction of Real

Estate

This interpretation proposes that

when the real estate developer is

providing construction services to

the buyer’s specifications, revenue

can be recorded only as

construction progresses.

Otherwise, revenue should be

recognised on completion of the

relevant real estate unit.

1 January

2009


Group, therefore no

impact.

1 July

2009

IFRIC 16 Hedges of a Net

Investment in a

Foreign Operation

This interpretation proposes that

the hedged risk in a hedge of a

net investment in a foreign

operation is the foreign currency

risk arising between the functional

currency of the net investment

and the functional currency of any

parent entity. This also applies to

foreign operations in the form of

joint ventures, associates or

branches.

1 January

2009


Group, therefore no

impact.

1 July

2009

* designates the beginning of the applicable annual reporting period unless otherwise stated.

Adoption of new accounting standard

The Group has adopted AASB 7 Financial Instruments: Disclosures and all consequential amendments which became applicable on

1 January 2007. The adoption of this standard has only affected the disclosure in these financial statements. There has been no affect

on profit and loss or the financial position of the entity.

(d) Going concern

The financial report has been prepared on a going concern basis, which contemplates the continuity of normal business activity and the

realisation of assets and liabilities in the normal course of business.


45



(e) Basis of consolidation

The consolidated financial statements comprise the financial statements of Victoria Petroleum N.L. and its subsidiaries (as outlined in

note 27) as at 30 June each year (the Group). Interests in associates are equity accounted and are not part of the consolidated Group

(see note 2 (k) below.)

Subsidiaries are all those entities over which the Group has the power to govern the financial and operating policies so as to obtain

benefits from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered

when assessing whether a group controls another entity.

The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent

accounting policies.

In preparing the consolidated financial statements, all intercompany balances and transactions, income and expenses and profit and

losses resulting from intra-group transactions have been eliminated in full.

Subsidiaries are fully consolidated from the date on which control is obtained by the Group and cease to be consolidated from the date

on which control is transferred out of the Group.

Investments in subsidiaries held by Victoria Petroleum N.L. are accounted for at the lower of cost and recoverable value in the separate

financial statements of the parent entity.

(f) Segment reporting – refer note 5

A business segment is a distinguishable component of the entity that is engaged in providing products or services which are subject to

risks and returns that are different to those of other operating business segments.

A geographical segment is a distinguishable component of the entity that is engaged in providing products or services within a particular

economic environment and is subject to risks and returns that are different than those of segments operating in other economic

environments.

(g) Foreign currency translation – refer note 23

Functional and presentation currency

Both the functional and presentation currency of Victoria Petroleum N.L. and its Australian subsidiaries is Australian dollars ($). The

United States subsidiary’s functional currency is United States dollars which is translated to presentation currency (see below).

Transactions and balances

Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the

transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the

balance sheet date.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the

date of the initial transaction. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange

rates at the date when the fair value was determined.

Translation of Group Companies functional currency to presentation currency

The results of the United States subsidiary are translated into Australian dollars as at the average exchange rate for the period. Assets

and liabilities are translated at exchange rates prevailing at balance date.

Exchange variations resulting from the translation are recognised in the foreign currency translation reserve in equity.

On consolidation, exchange differences arising from the translation of the net investment in the United States subsidiary are taken to the

foreign currency translation reserve. If the United States subsidiary were sold, the proportionate share of exchange differences would be

transferred out of equity and recognised in the income statement.

(h) Cash and cash equivalents – refer note 10

Cash and cash equivalents in the balance sheet comprise cash at bank and in hand.

For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of

outstanding bank overdrafts.

46



(i) Trade and other receivables – refer note 11

Trade receivables, which generally have 30-60 day terms, are recognised and carried at the original invoice amount less an allowance for

impairment.

Collectibility of trade receivables is reviewed on an ongoing basis. Individual debts that are known to be uncollectible are written off when

identified. An impairment provision is recognised when there is objective evidence that the Group will not be able to collect the

receivable. Financial difficulties of the debtor are considered objective evidence of impairment.

(j) Investments and other financial assets – refer notes 12, 13 and 14

Investments in controlled entities are carried at the lower of cost and recoverable amount.

Investments and financial assets in the scope of AASB 139 Financial Instruments: Recognition and Measurement are categorised as

either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, or available-for-sale

financial assets. The classification depends on the purpose for which the investments were acquired. Designation is re-evaluated at each

financial year end, but there are restrictions on reclassifying to other categories.

When financial assets are recognised initially, they are measured at fair value, plus, in the case of assets not at fair value through profit

or loss, directly attributable transaction costs.

Recognition and derecognition

All regular way purchases and sales of financial assets are recognised on the trade date (ie the date that the Group commits to

purchase or sell the asset). Regular way purchases or sales are purchases or sales of financial assets under contracts that require

delivery of the assets within the period established generally by regulation or convention in the market place. Financial assets are

derecognised when the right to receive cash flows from the financial assets have expired or been transferred.

Financial assets at fair value through the profit or loss – note 12

Financial assets classified as held for trading are included in the category ‘financial assets at fair value through profit or loss’. Financial

assets are classified as held for trading if they are acquired for the purpose of selling in the near term with the intention of making a

profit. Gains or losses on financial assets held for trading are recognised in profit or loss and the related assets are classified as current

assets in the balance sheet.

Loans and receivables – note 13

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.

Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in the profit or loss when

the loans and receivables are derecognised or impaired. These are included in current assets, except for those with maturities greater

than 12 months after the balance date, which are classified as non-current.

Available-for-sale securities – note 14

Available-for-sale investments are those non-derivative financial assets, principally equity securities, which are designated as available-

for-sale or are not classified as any of the three preceding categories. After initial recognition, available-for-sale securities are measured

at fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the

investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is recognised in profit or

loss.

Where available-for-sale securities are held in escrow, the fair value is discounted to the present value using a pre-tax discount rate that

reflects current market assessments of the time value of money and the risks specific to the asset.

The fair values of investments that are actively traded in organised financial markets are determined by reference to quoted market bid

prices at the close of business on the balance sheet date.

(k) Investments in associates – refer note 15

The Group’s investment in its associate is accounted for using the equity method of accounting in the consolidated financial statements.

Associates are entities over which the Group has significant influence and that are neither subsidiaries nor joint ventures.

The Group generally deems they have significant influence if they have over 20% of the voting rights.

Under the equity method, investments in associates are carried in the consolidated balance sheet at cost plus post-acquisition changes

in the Group’s share of the net assets of the associate. After application of the equity method, the Group determines whether it is

necessary to recognise any impairment loss with respect to the Group’s net investment in the associate.

47



(k) Investments in associates – refer note 15 (continued)

The Group’s share of its associate’s post-acquisition profits or losses is recognised in the income statement, and its share of post-

acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the

carrying amount of the investment.

When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any unsecured long-term

receivables and loans, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of

the associate.

The reporting dates of the associate and the Group are identical and the associate’s accounting policies conform to those used by the

Group for like transactions and events in similar circumstances.

Derecognition

An investment in an associate is derecognised when the Group ceases to have significant influence over an associate. The carrying

amount of the investment at the date that it ceases to be an associate is regarded as its cost on initial measurement as a financial asset.

(l) Interest in jointly controlled operations – refer note 26

The Group has interests in joint ventures that are jointly controlled operations. A joint venture is a contractual arrangement whereby two

or more parties undertake an economic activity that is subject to joint control. A jointly controlled operation involves the use of assets and

other resources of the venturers rather than the establishment of a separate entity. The Group recognises its interest in the jointly

controlled operations by recognising its interest in the assets and the liabilities of the joint ventures. The Group also recognises the

expenses that it incurs and its share of the income that it earns from the sale of goods or services by the jointly controlled operation.

(m) Property, plant and equipment – refer note 16

Property, plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment losses. Such

cost includes the cost of replacing parts that are eligible for capitalisation when the cost of replacing the parts is incurred. Similarly, when

each major inspection is performed, its cost is recognised in the carrying amount of plant and equipment as a replacement only if it is

eligible for capitalisation. All other repairs and maintenance are recognised in profit or loss as incurred.

Depreciation is calculated on a straight-line basis over the estimated useful life of the specific assets as follows:

Furniture and fittings – over 2 to 5 years

The assets’ residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each financial year end.

Derecognition

An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from

its use or disposal.

Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying

amount of the asset) is included in profit or loss in the year the asset is derecognised.

(n) Oil and gas properties – refer note 17

Oil and gas properties include capitalised project expenditure, development expenditure and costs associated with lease and well

equipment.

The Group uses the units of production methods to amortise costs carried forward in relation to its oil and gas properties. For this

approach the calculations are based on Proved and Probable (2P) reserves as determined by the Company’s reserves determination.

Impairment on the carrying value of oil and gas properties is based on Proved and Probable (2P) reserves and is assessed on a well by

well basis.

(o) Leases – refer note 30

The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an

assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement

conveys a right to use the asset.

48



(o) Leases – refer note 30 (continued)

Group as a lessee

Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are

capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease

payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant

rate of interest on the remaining balance of the liability. Finance charges are recognised as an expense in profit or loss.

Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term if there is no

reasonable certainty that the Group will obtain ownership by the end of the lease term.

Operating lease payments are recognised as an expense in the income statement on straight line basis over the lease term. Operating

lease incentives are recognised in the income statement as an integral part of the total lease expense.

(p) Impairment of non-financial assets – refer note 17

Assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be

recoverable.

The Group conducts an annual internal review of asset values, which is used as a source of information to assess for any indicators of

impairment. External factors, such as changes in expected future processes, technology and economic conditions, are also monitored to

assess for indicators of impairment. If any indication of impairment exists, an estimate of the asset’s recoverable amount is calculated.

An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. Recoverable

amount is the higher of an asset’s fair value less costs to sell and its value in use. For the purposes of assessing impairment, assets are

grouped at the lowest levels for which there are separately identifiable cash inflows that are largely independent of the cash inflows from

other assets or groups of assets (cash-generating units).

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects

current market assessments of the time value of money and the risks specific to the asset. Impairment losses relating to continuing

operations are recognised in the income statement.

An assessment is also made at each reporting date as to whether there is any indication that previously recognised impairment losses

may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised

impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the

last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That

increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss

been recognised for the asset in prior years. Such reversal is recognised in the income statement. After such a reversal, the depreciation

charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over

its remaining useful life.

(q) Trade and other payables – refer notes 18 and 20

Trade payables and other payables are carried at amortised cost. Due to their short term nature, they are not discounted. They represent

liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group

becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are

usually paid within 30 days of recognition.

(r) Provisions and employee benefits – refer notes 19 and 21

Provisions are recognised when the Group has a present obligation (legal or constructive) as result of a past event, it is probable that an

outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the

amount of the obligation.

When the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is

recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented

in the income statement net of any reimbursement.

Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation

at the balance sheet date using a discounted cash flow methodology. If the effect of the time value of money is material, provisions are

discounted using a current pre-tax rate that reflects the time value of money and the risks specific to the liability. The increase in the

provision due to the passage of time is recognised in finance costs.

49



(r) Provisions and employee benefits – refer notes 19 and 21 (continued)

Rehabilitation costs – note 21

The Group records the present value of the estimated cost of legal and constructive obligations to restore operating locations in the

period in which the obligation arises. The nature of rehabilitation activities includes the removal of facilities, abandonment of wells and

restoration of affected areas.

Typically, the obligation arises when the asset is installed at the production location. When the liability is initially recorded, the estimated

cost is capitalised by increasing the carrying amount of the related oil and gas properties. Over time, the liability is increased for the

change in the present value based on a risk adjusted pre-tax discount rate appropriate to the risks inherent in the liability. The unwinding

of the discount is recorded as an accretion charge within finance costs. The carrying amount capitalised in oil and gas properties is

amortised over the useful life of the related asset.

Costs incurred which relate to an existing condition caused by past operations, and which do not have a future economic benefit, are

expensed.

The estimated costs of rehabilitation are reviewed annually and adjusted as appropriate for changes in legislation, technology or other

circumstances.

Employee leave benefits

Wages, salaries, annual leave and sick leave – note 19

Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled

within 12 months of the reporting date are recognised in respect of employee’s services up to the reporting date. They are measured at

the amounts expected to be paid when the liabilities are settled. Expenses for non-accumulating sick leave are recognised when the

leave is taken and are measured at the rates paid or payable.

Long service leave – note 21

The liability for long service is recognised and measured as the fair value of expected future payments to be made in respect of services

provided by employees up to the reporting date using the projected unit credit method.

(s) Share-based payment transactions – refer note 23

Equity settled transactions

The Group provides benefits to employees (including Key Management Personnel) of the Group in the form of share-based payments,

whereby employees render services in exchange for shares or rights over shares (equity-settled transactions).

A formal employee share or share option scheme has not been developed.

The cost of these equity-settled transactions with employees is measured by reference to the fair value of the equity instruments at the

date at which they are granted. The fair value is determined by reference to the current share price in relation to fully paid shares and

with the use of a binomial option pricing model in relation to partly paid shares or rights to acquire shares.

In valuing equity-settled transactions, no account is taken of any vesting conditions, other than conditions linked to the price of the

shares of Victoria Petroleum N.L. (market conditions) if applicable.

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the

performance and/or services conditions are fulfilled (the vesting period), ending on the date on which the relevant employees become

fully entitled to the award (the vesting date).

The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects (a) the grant date fair

value of the award, (b) the extent to which the vesting period has expired and (c) the Group’s best estimate of the number of equity

instruments that will ultimately vest. No adjustment is made for the likelihood of market performance conditions being met as the effect of

these conditions is included in the determination of fair value at grant date. The income statement charge for a period represents the

movement in cumulative expense recognised as at the beginning and end of that period.

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is only conditional upon a market

condition.

If the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. An

additional expense is recognised for any modification that increases the total fair value of the share-based payment arrangement, or is

otherwise beneficial to the employee, as measured at the date of modification.

50



(s) Share-based payment transactions – refer note 23 (continued)

If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for

the award is recognised immediately. However, if a new award is substituted for the cancelled award and designated as a replacement

award on the date that it is granted, the cancelled and the new award are treated as if they were a modification of the original award, as

described in the previous paragraph.

The dilutive effect, if any, of the outstanding options is reflected as additional share dilution in the computation of earnings per share (see

note 9).

(t) Contributed equity – refer note 22

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity

as a deduction, net of tax, from the proceeds.

(u) Revenue recognition – refer note 6

Revenue is recognised and measured at the fair value of the consideration received or receivable to the extent it is probable that the

economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also

be met before revenue is recognised:

Sale of oil and gas

Revenue is recognised when the significant risks and rewards of ownership of the product have passed to the buyer and the amount of

revenue can be measured reliably. Risks and rewards are considered passed to the buyer at the time of delivery of the product to the

customer.

Interest income

Revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a

financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly

discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset.

Technical service fees

Revenue is recognised in the period in which it is earned.

(v) Oil and gas exploration costs

Exploration expenditure is expensed as incurred, except when such costs are expected to be recouped through the successful

development and exploitation, or sale, of an area of interest. Exploration assets acquired from a third party are capitalised, provided that

the rights to tenure of the area of interest is current and either (a) the carrying value is expected to be recouped through the successful

development and exploitation or sale of an area of interest or (b) exploitation and/or evaluation activities in the area of interest have not

at the reporting date reached a stage that permits a reasonable assessment of the existence or otherwise of economically recoverable

reserves, and active and significant operations in, or relating to, the area of interest are continuing. If capitalised exploration assets do

not meet either of these tests, they are expensed to the income statement.

(w) Income tax and other taxes – refer note 8

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to

the taxation authorities based on the current period’s taxable income. The tax rates and tax laws used to compute the amount are those

that are enacted or substantially enacted by the balance sheet date.

Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities

and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognised for all taxable temporary differences, except:

• when the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is

not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss;

or

• when the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, and

the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not

reverse in the foreseeable future.

51



(w) Income tax and other taxes – refer note 8 (continued)

Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax credits and unused tax

losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the

carry-forward of unused tax credits and unused tax losses can be utilised, except:

• when the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or

liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit

nor the taxable profit or loss; or

• when the deductible temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures,

in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in

the foreseeable future and taxable profit will be available against which the temporary difference can be utilised.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer

probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has

become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised

or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against

current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority.

Tax consolidation legislation

Victoria Petroleum N.L. and its wholly-owned Australian subsidiaries have implemented the tax consolidation legislation as of

1 July 2003.

As a consequence, individual entities within the consolidated group will recognise current and deferred tax amounts relating to their own

transactions, events and balances. Any recognised balances relating to income tax payable or receivable, or to tax losses incurred by the

individual entity will then be transferred to the head entity of the consolidated group, Victoria Petroleum N.L., by way of a contribution to

or distribution of equity as appropriate. However, as there is no income tax payable in the current year, and it is not proposed to

recognise balances in respect of losses in the current year in the individual entities, no such transfers will occur.

The entities also intend to enter into a Tax Sharing Agreement, but details of this agreement are still yet to be finalised. The absence of a

Tax Sharing Agreement is not expected to have a material impact on the consolidated assets and liabilities and results.

Other taxes

Revenues, expense and assets are recognised net of the amount of goods and services tax (GST) except:

• when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST

is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

• receivables and payables, which are stated with the amount of GST included.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the

balance sheet.

Cash flows are included in the Cash Flow Statement on a gross basis and the GST component of cash flows arising from investing and

financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows.

Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.

(x) Earnings per share – refer note 9

Basic earnings per share is calculated as net loss attributable to members of the parent, adjusted to exclude any costs of servicing

equity (other than dividends), divided by the weighted average number of ordinary shares, adjusted for any bonus element.

52



(x) Earnings per share – refer note 9 (continued)

Diluted earnings per share is calculated as net profit attributable to members of the parent, adjusted for:

• costs of servicing equity (other than dividends);

• the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as

expenses; and

• other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary

shares;

divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element.

NOTE 3: FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIESThe Group’s principal financial instruments comprise cash and cash equivalents, receivables, investments held for trading, available-for-sale

investments and payables.

The Group manages its exposure to key financial risks in accordance with the Group’s financial risk management policy. The objective of the

policy is to support the delivery of the Group’s financial targets whilst protecting future financial security.

The main risks arising from the Group’s financial instruments are interest rate risk, foreign currency risk, price risk and credit risk. The Group

uses different methods to measure and manage different types of risks to which it is exposed. These include monitoring levels of exposure to

interest rate and foreign exchange risk and assessments of market forecasts for interest rate, foreign exchange, commodity prices and others.

The Board reviews and agrees policies for managing each of these risks. Due to the size and nature of the Company’s operations, and as the

Company does not use derivative instruments or debt, the directors do not believe the establishment of a risk management committee is

warranted.

Risk exposures and responses

Interest rate risk

The Group’s exposure to market interest rates relates primarily to the Group’s cash and cash equivalents.

The Group constantly analyses its interest rate exposure. Within this analysis, consideration is given to potential renewals of existing positions

and alternative products.

At balance date, the Group had the following exposure to Australian variable interest rate risk:

Consolidated Parent

2008 2007 2008 2007

$ $ $ $

Financial assets

Cash and cash equivalents 17,057,229 5,182,866 15,912,793 4,859,271 __________________________________________________ __________________________________________________

The following sensitivity analysis is based on the interest rate risk exposures in existence at the balance sheet date. The 1% sensitivity is

based on reasonably possible changes over a financial year, using the observed range of actual historical rates for the preceding five year

period.

At 30 June 2008, if interest rates had moved, as illustrated in the table below, with all other variables held constant, post tax profit would have

been affected as follows:

Consolidated Parent

Higher/(Lower) Higher/(Lower)

Judgements of reasonably 2008 2007 2008 2007

possible movements: $ $ $ $

Post tax profit

+1.0% (100 basis points) 170,572 51,829 159,128 48,593

–1.0% (100 basis points) (170,572) (51,829) (159,128) (48,593)

53


NOTE 3: FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

Risk exposures and responses (continued)

The movements in profit are due to higher/lower interest income from cash balances. The movements in profit in 2008 are more sensitive than

in 2007 due to the higher cash balances held at balance date.

Management believe the balance date risk exposures are representative of the risk exposure inherent in the financial instruments.

Foreign currency risk

The Group’s exposure to foreign currency risk relates primarily to the wholly owned subsidiary which is based in the United States of America.

As a result of operations in the United States, the Group’s balance sheet can be affected significantly by movements in the US$/A$ exchange

rates.

The Group also has transactional currency exposures. Such exposure arises from sales or purchases by an operating entity in currencies other

than the functional currency. Approximately 74% of the Group’s sales are denominated in currencies other than the functional currency of the

operating entity making the sale.

At balance date, the Group had the following exposure to US$ foreign currency risk:

Consolidated Parent

2008 2007 2008 2007

$ $ $ $

Financial assets

Cash and cash equivalents 1,489,004 17,044 1,187,713 5,770

Trade and other receivables 774,920 799,805 – – __________________________________________________

Net exposure 2,263,924 816,849 1,187,713 5,770 __________________________________________________ __________________________________________________

The following sensitivity is based on the foreign currency risk exposures in existence at the balance sheet date. The 5% sensitivity is based on

reasonably possible changes over a financial year, using the observed range of actual historical rates for the preceding five year period.

At 30 June 2008, had the Australian dollar moved, as illustrated in the table below, with all other variables held constant, post tax profit and

equity would have been affected as follows:

Consolidated Parent




Post tax profit

AUD/USD +5% (107,774) (38,537) (56,621) (278)

AUD/USD –5% 119,189 43,391 62,441 300

The movements in profit in 2008 are more sensitive than in 2007 due to the higher level of US dollar cash held at balance date.

Management believe the balance date risk exposures are representative of the risk exposure inherent in the financial instruments.

54




Equity securities price risk

The Group’s exposure to equity securities price risk relates primarily to the investments held for trading and available-for-sale investments.

Equity securities price risk arises from investments in equity securities. The equity investments held are publicly traded on the ASX.

At balance date, the Group had the following exposure to equity securities price risk:


2008 2007 2008 2007

$ $ $ $

Financial assets

Investments held for trading 12 1,537,401 2,861,592 111,625 922,499

Available-for-sale investments 14 360,000 – 300,000 – __________________________________________________

Net exposure 1,897,401 2,861,592 411,625 922,499 __________________________________________________ __________________________________________________

The following sensitivity is based on the equity securities price risk exposures in existence at the balance sheet date. The 10% sensitivity is

based on reasonably possible changes over a financial year, using the observed range of actual historical prices over a one year period.

At 30 June 2008, had the equity securities price moved, as illustrated in the table below, with all other variables held constant, post tax profit

and equity would have been affected as follows:

Consolidated Parent




Post tax profit

Price +10% 153,740 286,159 11,163 92,250

Price –10% (153,740) (286,159) (11,163) (92,250)

Net unrealised gain/(loss) reserve

Price +10% 25,200 – 21,000 –

Price –10% (25,200) – (21,000) –

Commodity price risk

The Group’s exposure to commodity price risk relates to the market price of oil and natural gas. Currently, the Group’s exposure to this risk is

not hedged. The Board will continue to monitor this risk and seek to mitigate it, if considered necessary.

At balance date, the Group does not have any financial assets or liabilities with an exposure to commodity price risk as there is no adjustment

of the selling price after delivery.

Credit Risk

The Group’s exposure to credit risk arises from potential default of the counter party, with a maximum exposure equal to the carrying amount of

these instruments.

Credit risk arises from the financial assets of the Group, which comprise cash and cash equivalents, trade and other receivables, investments

held for trading and available-for-sale investments.

The Group does not hold any credit derivatives to offset its credit exposure.

The Group only trades with recognised, creditworthy third parties, and as such, collateral is not requested nor is it the Group’s policy to

securitise its trade and other receivables.

Receivable balances are monitored on an on-going basis, with the result that the Group’s exposure to bad debts is not significant.

55




There are no significant concentrations of credit risk within the Group.

Cash balances in excess of current requirements are held in bank accounts earning higher interest rates to minimise risk. These funds are not

restricted, and can be accessed at any time.

Liquidity Risk

The liquidity position of the Group is managed to ensure sufficient liquid funds are available to meet the Group’s financial commitments in a

timely and cost-effective manner.

It is the Group’s policy to continually review the Group’s liquidity position including cash flow forecasts to determine the forecast liquidity

position and maintain appropriate liquidity levels.

The remaining contractual maturities of the Group’s and parent entity’s financial liabilities are:

Consolidated Parent

2008 2007 2008 2007

$ $ $ $

6 months or less 1,174,613 1,494,429 241,165 524,177

Over 6 months – – 6,989,137 5,733,114 __________________________________________________

1,174,613 1,494,429 7,230,302 6,257,291 __________________________________________________ __________________________________________________

The Group funds its activities through capital raising in order to limit its liquidity risk.

NOTE 4: SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONSThe preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported

amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent

liabilities, revenue and expenses. Management bases its judgements and estimates on historical experience and on various other factors it

believes to be reasonable under the circumstances, the results of which form the basis of the carrying values of assets and liabilities that are

not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.

Management has identified the following critical accounting policies for which significant judgements, estimates and assumptions are made.

Actual results may differ from these estimates under different assumptions and conditions and may materially affect financial results or the

financial position reported in future periods.

Further details of the nature of these assumptions and conditions may be found in the relevant notes to the financial statements.

Classification of Investments

The Group has decided to classify investments in listed securities as either ‘held-for-trading’ or ‘available-for-sale’ based on the purpose for

which investments are held. Movements in fair value are recognised in profit or loss or directly in equity respectively. The fair value of listed

shares has been determined by reference to published price quotations in an active market.

Exploration and evaluation

The Group’s accounting policy for exploration and evaluation is set out in note 2 (v). The application of this policy necessarily requires

management to make certain estimates and assumptions as to future events and circumstances, in particular the assessment of whether

economic quantities of reserves have been found. Any such estimates and assumptions may change as new information becomes available. If,

after having capitalised expenditure under the Group’s policy, management concludes that the Group is unlikely to recover the expenditure by

future exploitation or sale, then the relevant capitalised amount will be written off to the income statement.

All exploration expenditure incurred in the current year was expensed to the income statement.

Share-based payment transactions

The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date

at which they are granted. The fair value is determined using a Binomial pricing model.

56


NOTE 4: SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS (CONTINUED)

Impairment of assets

In determining the recoverable amount of assets, in the absence of quoted market prices, estimations are made regarding the present value of

future cash flows using asset-specific discount rates. For oil and gas properties, expected future cash flow estimation is based on reserves,

future production profiles, commodity prices and costs.

Reserves estimates

Estimates of recoverable quantities of Proven and Probable (2P) reserves, that are used to review the carrying value of oil and gas properties,

include assumptions regarding commodity prices, exchange rates, discount rates, and production and transportation costs for future cash flows.

It also requires interpretation of complex geological and geophysical models in order to make an assessment of the size, shape, depth and

quality of reservoirs and their anticipated recoveries. The economic, geological and technical factors used to estimate reserves may change

from period to period. Changes in reserves can impact asset carrying values, the provision for restoration and the recognition of deferred tax

assets, due to changes in estimated future cash flows. Reserves are integral to the amount of depreciation, depletion and amortisation charged

to the income statement.

Reserves estimates for oil and gas properties in the United States of America are prepared by independent third parties in accordance with

guidelines prepared by the Society of Petroleum Engineers.

Units of production method of depreciation and amortisation

The Company applies the units of production method for amortisation of its oil and gas properties and assets based on hydrocarbons

produced. These calculations require the use of estimates and assumptions. Significant judgement is required in assessing the available

reserves and future production associated with the assets to be amortised under this method. Factors that must be considered in determining

reserves and resources and future production are the Company’s history of converting resources to reserves in the relevant time frames,

markets and future developments. When these factors change or become known in the future, such differences will impact pre-tax profit and

carrying values of assets. It is impracticable to quantify the effect of these changes in these estimates and assumptions in future periods.

Rehabilitation obligations

The Group estimates the future removal costs of oil and gas wells and production facilities at the time of installation of the assets. In most

instances, removal of assets occurs many years into the future. This requires judgmental assumptions regarding removal data, future

environmental legislation, the extent of reclamation articles required, the engineering methodology for estimating future cost, future removal

technologies in determining the removal cost, and a company discount rate to determine the present value of these cash flows. For more detail

regarding the policy in respect of the provision for rehabilitation, refer to note 2 (r).

NOTE 5: SEGMENT INFORMATIONGeographically, the Group operates in the United States of America and Australia. Exploration, development and production activities occur in

both segments, whilst the head office activities of the Group take place exclusively in Australia.

The Group operates in one business segment being oil and gas exploration, development and production.

Segment accounting policies are the same as the Group’s policies described in note 2 (f). During the financial year, there were no changes in

segment accounting policies that had a material effect on the segment information. Segment assets are classified in accordance with their use

within the geographic segments regardless of legal entity ownership.

The United States of America operations comprise the operations of Victoria Petroleum USA, Inc.

The following table presents revenue and loss information and certain asset and liability information regarding geographical segments for the

years ended 30 June 2008 and 30 June 2007.

57


NO

TE

5:

SE

GM

EN

T IN

FO

RM

AT

ION

(C

ON

TIN

UE

D)

A

ust

ralia

U

nit

ed S

tate

s o

f A

mer

ica

Tota

l

2008

20

07

2008

20

07

2008

20

07

$ $

$ $

$ $

Rev

enu

eO

il sa

les

5,48

6,92

8 6,

595,

587

854,

601

64,1

65

6,34

1,52

9 6,

659,

752

Gas

sal

es

– –

1,04

3,21

2 48

4,74

9 1,

043,

212

484,

749

Tech

nica

l ser

vice

fees

73

8,49

5 84

9,50

2 1,

575

– 74

0,07

0 84

9,50

2__

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

Tota

l seg

men

t re

venu

e 6,

225,

423

7,44

5,08

9 1,

899,

388

548,

914

8,12

4,81

1 7,

994,

003

Una

lloca

ted

reve

nue

235,

883

117,

270

____

____

____

____

____

____

____

____

____

__

Tota

l con

solid

ated

rev

enue

8,

360,

694

8,11

1,27

3__

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

__

Res

ult

Seg

men

t re

sults

(3

,038

,528

) (4

,424

,610

) (6

27,6

12)

(1,5

58,4

87)

(3,6

66,1

40)

(5,9

83,0

97)

Una

lloca

ted

reve

nue

and

expe

nses

(1

65,6

36)

(1,0

82,2

90)

Sha

re o

f lo

ss o

f as

soci

ate

(59,

100)

(4

3,38

8)__

____

____

____

____

____

____

____

____

____

Loss

bef

ore

inco

me

tax

(3,8

90,8

76)

(7,1

08,7

75)

Inco

me

tax

gain

45

,746

–

____

____

____

____

____

____

____

____

____

__

Net

loss

afte

r ta

x fo

r th

e ye

ar

(3,8

45,1

30)

(7,1

08,7

75)

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

Ass

ets

and

liab

iliti

esS

egm

ent

asse

ts

4,68

8,86

7 3,

719,

460

3,21

6,79

4 2,

384,

021

7,90

5,66

1 6,

103,

481

Inve

stm

ent

in a

ssoc

iate

–

206,

612

Una

lloca

ted

asse

ts

19,5

67,6

26

8,24

2,12

5__

____

____

____

____

____

____

____

____

____

Tota

l ass

ets

27,4

73,2

87

14,5

52,2

18__

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

__

Seg

men

t lia

bilit

ies

1,77

9,47

8 2,

268,

967

525,

339

283,

772

2,30

4,81

7 2,

552,

739

____

____

____

____

____

____

____

____

____

__

Tota

l lia

bilit

ies

2,30

4,81

7 2,

552,

739

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

Oth

er s

egm

ent

info

rmat

ion

Cap

ital e

xpen

ditu

re

2,65

5,74

2 1,

597,

130

764,

013

789,

018

3,41

9,75

5 2,

386,

148

Dep

reci

atio

n ex

pens

e 13

,774

16

,466

7,

500

5,18

9 21

,274

21

,655

Am

ortis

atio

n ex

pens

e 91

3,77

5 86

5,50

6 33

0,90

6 35

,049

1,

244,

681

900,

555

Impa

irm

ent

expe

nse

1,08

4,02

3 1,

343,

570

30,0

47

522,

317

1,11

4,07

0 1,

865,

887

Net

loss

/(ga

in)

reco

gnis

ed o

n

re

-mea

sure

men

t to

fair

valu

e of

in

vest

men

ts h

eld

for

trad

ing

183,

896

1,02

1,15

3 13

2,30

6 1,

772

316,

202

1,02

2,92

5

Cas

h f

low

info

rmat

ion

Net

cas

h flo

w f

rom

ope

ratin

g ac

tiviti

es

(1,4

25,7

95)

(2,3

53,4

66)

(445

,433

) (1

,045

,636

) (1

,871

,228

) (3

,399

,102

)

Net

cas

h flo

w f

rom

inve

stin

g ac

tiviti

es

(3,5

89,1

43)

(2,4

45,4

77)

1,05

1,20

1 1,

052,

255

(2,5

37,9

42)

(1,3

93,2

22)

Net

cas

h flo

w f

rom

fin

anci

ng a

ctiv

ities

16

,889

,666

7,

282,

941

– –

16,8

89,6

66

7,28

2,94

1__

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

Tota

l seg

men

t ca

sh f

low

11

,874

,728

2,

483,

998

605,

768

6,61

9 12

,480

,496

2,

490,

617

Una

lloca

ted

cash

flo

w

235,

883

117,

270

____

____

____

____

____

____

____

____

____

__

Tota

l cas

h flo

w

12,7

16,3

79

2,60

7,88

7__

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

__

58


NOTE 6: REVENUE Consolidated Parent

2008 2007 2008 2007

$ $ $ $

(a) Revenue

Oil sales 6,341,529 6,659,752 – –

Gas sales 1,043,212 484,749 – –

Interest income 235,883 117,270 182,255 79,469

Technical service fees 740,070 849,502 738,495 849,502 __________________________________________________

8,360,694 8,111,273 920,750 928,971 __________________________________________________ __________________________________________________

(b) Other income

Other 17,364 50,845 – 48,512 __________________________________________________

17,364 50,845 – 48,512 __________________________________________________ __________________________________________________

NOTE 7: EXPENSES Note Consolidated Parent

2008 2007 2008 2007

$ $ $ $

(a) Employee benefits expense

Salaries 811,301 820,400 811,301 820,400

Directors’ fees 141,563 120,000 141,563 120,000

Superannuation 105,528 88,421 105,528 88,421

Provision for annual and long service leave 67,278 16,688 67,278 16,688

Other employee benefit expenses 64,166 117,770 64,166 117,770 __________________________________________________

1,189,836 1,163,279 1,189,836 1,163,279 __________________________________________________ __________________________________________________

(b) Depreciation, amortisation and impairment

Included in cost of sales:

Amortisation of oil and gas properties 17 1,244,681 900,555 – – __________________________________________________

1,244,681 900,555 – – __________________________________________________ __________________________________________________

Not included in cost of sales:

Depreciation 16 21,274 21,655 13,774 16,466

Impairment of oil and gas properties 17 974,070 1,865,887 – –

Impairment of available-for-sale financial assets 140,000 – – – __________________________________________________

1,135,344 1,887,542 13,774 16,466 __________________________________________________ __________________________________________________

59


NOTE 7: EXPENSES (CONTINUED) Note Consolidated Parent

2008 2007 2008 2007

$ $ $ $

(c) Other expenses

Net fair value loss on investment recognised on

re-measurement to fair value through profit and loss 316,202 1,022,925 83,367 276,223

Foreign exchange losses 85,317 176,636 113,625 129,799

Depreciation expense 21,274 21,655 13,774 16,466

Provision for impairment in loans to controlled entities 13, 25 – – 2,914,959 6,729,703

Travel and accommodation 180,084 75,941 106,511 74,579

Share registry fees 141,958 143,358 141,958 143,358

Management fees 3,619 56,539 – –

Printing, postage and stationery 43,276 42,944 39,581 41,932

Operating lease expense 222,261 171,003 222,261 171,003

Consultants 335,486 315,902 19,324 4,673

Audit and taxation advice 249,416 195,527 200,328 169,630

IT support fees 39,684 36,406 39,684 36,406

Filing and listing fees 29,042 31,203 27,055 28,491

Insurance 24,529 37,517 10,995 34,496

Public relations 286,610 395,885 286,610 395,885

Subscriptions 31,630 29,369 29,869 29,226

Communication costs 51,938 40,505 47,744 40,505

Other 183,789 133,852 254,292 173,443 __________________________________________________

2,246,115 2,927,167 4,551,937 8,495,818 __________________________________________________ __________________________________________________

NOTE 8: INCOME TAXIncome tax expense

Consolidated Parent

2008 2007 2008 2007

$ $ $ $

The major components of income tax expense are:

Income statement

Current income tax:

Current income tax benefit – – – –

Adjustments in respect of current income tax of previous years – – – –

Deferred income tax:

Relating to origination & reversal of temporary differences 1,149,533 2,119,616 537,948 857,333

Deferred tax assets not brought to account as realisation is

not considered probable (1,103,787) (2,119,616) (492,202) (857,333) __________________________________________________

Income tax gain reported in the income statement 45,746 – 45,746 – __________________________________________________ __________________________________________________

Amounts charged or credited directly to equity

Consolidated Parent

2008 2007 2008 2007

$ $ $ $

Unrealised gain on available-for-sale investments (45,746) – (45,746) – __________________________________________________

Income tax expense reported in equity (45,746) – (45,746) – __________________________________________________ __________________________________________________

60


NOTE 8: INCOME TAX (CONTINUED)Numerical reconciliation between aggregate tax expense recognised in the income statement and tax expense calculated per the

statutory income tax rate

A reconciliation between tax expense and the product of accounting loss before income tax multiplied by the Group’s applicable income tax

rate is as follows:

Consolidated Parent

2008 2007 2008 2007

$ $ $ $

Accounting loss before income tax (3,890,876) (7,108,775) (5,083,028) (9,518,353) __________________________________________________ __________________________________________________

At the Group’s statutory income tax rate of 30% (2007: 30%) 1,167,263 2,132,632 1,524,908 2,855,506

Tax effect of permanent differences:

Provision for impairment in loans receivable from controlled entities – – (874,488) (2,018,911)

Tax losses from other members of the tax consolidated group – – (112,472) 20,738

Share of associates net result (17,730) (13,016) – –

Net tax benefit not recognised in the current year due to

uncertainty of recoupment (1,103,787) (2,119,616) (492,202) (857,333) __________________________________________________

Income tax gain reported in the income statement 45,746 – 45,746 – __________________________________________________ __________________________________________________

Recognised deferred tax assets and liabilities

Deferred income tax at 30 June relates to the following:

Consolidated Balance Sheet Income Statement

2008 2007 2008 2007

$ $ $ $

Deferred tax assets/(liabilities)

Held for trading financial assets 283,037 201,514 81,523 481,953

Available for sale financial assets (45,746) – (45,746) –

Property, plant and equipment 1,677 1,819 (142) (1,286)

Oil and gas properties 1,359,617 1,515,617 (156,000) 496,901

Trade and other payables 20,085 21,630 (1,545) 3,630

Provisions 339,061 317,493 21,568 92,891

Income tax losses 15,917,210 15,546,264 1,372,952 800,798

Other 156,095 139,786 16,309 51,732

Deferred tax assets not brought to account

as realisation is not regarded as probable (18,031,036) (17,744,123) (1,288,919) (1,926,619) __________________________________________________

Gross deferred income tax assets – – – – __________________________________________________ __________________________________________________

61


NOTE 8: INCOME TAX (CONTINUED)Recognised deferred tax assets and liabilities (continued)

Parent Balance Sheet Income Statement

2008 2007 2008 2007

$ $ $ $

Deferred tax assets/(liabilities)

Held for trading financial assets 19,763 7,997 11,766 221,907

Available for sale financial assets (45,746) – (45,746) –

Property, plant and equipment 571 856 (285) (2,249)

Trade and other payables 20,085 21,630 (1,545) 3,630

Provisions 102,538 82,355 20,183 11,756

Income tax losses 10,807,865 10,316,345 491,520 571,157

Other 156,095 139,786 16,309 51,132

Deferred tax assets not brought to account

as realisation is not regarded as probable (11,061,171) (10,568,969) (492,202) (857,333) __________________________________________________

Gross deferred income tax assets – – – – __________________________________________________ __________________________________________________

Tax losses

As at 30 June 2008, the Group had $36,026,218 (2007: $33,164,957) of carry-forward tax losses that are available for use in Australia. The

Group has deferred tax assets arising from these tax losses of $10,807,865 (2007: $9,949,487) that are available indefinitely for offset against

future taxable profits of the income tax consolidated group.

As at 30 June 2008, the Group also had US$14,036,099 (2007: US$13,572,982) of carry-forward tax losses that are available for use in the

USA.

Unrecognised temporary differences

As at 30 June 2008, the Group has additional deferred tax assets of $2,113,826 (2007: $2,197,859) in respect of other temporary differences.

Other than the amounts disclosed above, the benefit of these deferred tax assets is not recognised because it is not considered probable that

sufficient taxable income will be derived in future periods against which to offset these assets. In particular, the benefit of the losses will only be

obtained in future years if:

a) the Group derives future assessable income of a nature and an amount sufficient to enable the benefit from the deduction for the losses

to be realised;

b) the Group has complied and continues to comply with the conditions for deductibility imposed by law; and

c) no changes in tax legislation adversely affect the Group in realising the benefit from the deduction for the losses.

Tax consolidation

Victoria Petroleum N.L. and its wholly-owned Australian subsidiaries have implemented the tax consolidation legislation as of 1 July 2003.

As a consequence, individual entities within the consolidated group will recognise current and deferred tax amounts relating to their own

transactions, events and balances. Any recognised balances relating to income tax payable or receivable, or to tax losses incurred by the

individual entity will then be transferred to the head entity of the consolidated group, Victoria Petroleum N.L., by way of a contribution to or

distribution of equity as appropriate. However, as there is no income tax payable in the current year, and it is not proposed to recognise

balances in respect of losses in the current year in the individual entities, no such transfers will occur.

The entities also intend to enter into a Tax Sharing Agreement, but details of this agreement are still to be finalised. The absence of a Tax

Sharing Agreement is not expected to have a material impact on the consolidated assets and liabilities and results.

62


NOTE 9: EARNINGS PER SHAREBasic earnings per share amounts are calculated by dividing net profit/loss for the year attributable to ordinary equity holders of the parent by

the weighted average number of ordinary shares outstanding during the year.

The following reflects the income and share data used in the basic and diluted earnings per share computations:

2008 2007

Net loss (used in calculating basic and diluted loss per share) $3,845,130 $7,108,775

Weighted average number of ordinary shares 251,816,994 190,423,974

Loss per share – cents (1.53) (3.73)

The Group has 68,506,647 (2007: 68,579,723) options on issue which would not have a dilutive effect on basic EPS as calculated in

accordance with AASB 133.

On 3 July 2007, the company issued 28,000,000 ordinary shares. Of this total, 26,000,000 shares have been taken into account in the earnings

per share calculation for the prior year, as the cash for these shares was received prior to 30 June 2007. The remaining 2,000,000 shares have

been included in the earnings per share calculation for the current year, as the cash for these shares was received during the current year.

NOTE 10: CURRENT ASSETS – CASH AND CASH EQUIVALENTS Note Consolidated Parent

2008 2007 2008 2007

$ $ $ $

Cash at bank and in hand 16,674,975 4,966,693 15,840,782 4,711,619

Cash advanced to jointly controlled operations 26 995,260 413,850 72,011 147,652 __________________________________________________

17,670,235 5,380,543 15,912,793 4,859,271 __________________________________________________ __________________________________________________

Fair value

Cash at bank earns interest at floating rates based on daily bank deposit rates. The carrying amounts of cash and cash equivalents represent

fair value.

Foreign exchange and interest rate risk

Details regarding foreign exchange and interest rate risk are disclosed in note 3.

NOTE 11: CURRENT ASSETS – TRADE AND OTHER RECEIVABLES Note Consolidated Parent

2008 2007 2008 2007

$ $ $ $

Trade receivables (i) 1,296,444 946,048 – –

Sundry receivables (ii) 256,882 580,440 149,151 51,423

Joint venture receivables (iii) 26 239,058 86,685 16,726 7,227

Prepayments 430,788 – – – __________________________________________________

2,223,172 1,613,173 165,877 58,650 __________________________________________________ __________________________________________________

(i) These receivables relate to monies owing from oil and gas sales, and are receivable 30 days from invoice date.

(ii) These receivables are non-interest bearing, unsecured and expected to be repaid within the next 12 months.

(iii) These receivables relate to the portion of trade receivables in joint ventures which is attributable to the Group.

All balances within trade and other receivables do not contain impaired assets and are not past due. It is expected that these balances will be

received when due, and there is no history of counterparties defaulting on these receivables.

63


NOTE 11: CURRENT ASSETS – TRADE AND OTHER RECEIVABLES (CONTINUED)

Fair value and credit risk

Due to the short term nature of these receivables, their carrying value is assumed to approximate their fair value.

The maximum exposure to credit risk is the fair value of the receivables. Collateral is not held as security, nor is it the Group’s policy to transfer

receivables to special purpose entities.



NOTE 12: CURRENT ASSETS – HELD FOR TRADING FINANCIAL ASSETS

Financial assets fair value through profit and loss

Consolidated Parent

2008 2007 2008 2007

$ $ $ $

Listed shares carried at fair value 1,537,401 2,861,592 111,625 922,499 __________________________________________________ __________________________________________________

Investments held for trading consist of investments in ordinary shares, and therefore have no fixed maturity date or coupon rate.

The fair value of listed, held for trading investments has been determined directly by reference to published price quotations in an active

market. Gains or losses on investments held for trading are recognised in profit or loss. During the period, the Group recognised a net loss of

$316,202 (2007: loss of $1,022,925) on sale and re-measurement to fair value of investments held for trading.

Included in listed shares is the following material investment:

Samson Oil & Gas Limited

Samson Oil & Gas Limited (“Samson”) is an oil and gas explorer and producer, with development and production assets located in the United

States of America. Samson is listed on the Australian Stock Exchange (code “SSN”).

NOTE 13: NON-CURRENT ASSETS – RECEIVABLES Note Consolidated Parent

2008 2007 2008 2007

$ $ $ $

Sundry receivables (i) 111,776 108,776 39,750 36,750 __________________________________________________

111,776 108,776 39,750 36,750

Loans receivable from controlled entities (ii) – – 62,489,501 56,732,610

Provision for impairment (iii) – – (52,828,746) (49,913,787) __________________________________________________

27 – – 9,660,755 6,818,823

111,776 108,776 9,700,505 6,855,573 __________________________________________________ __________________________________________________

(i) These receivables are non-interest bearing, unsecured and are not expected to be repaid within the next 12 months.

(ii) These receivables are non-interest bearing, unsecured and are repayable on demand. However, these receivables are not expected to

be repaid within the next 12 months.

(iii) Loans receivable from controlled entities are considered to be impaired when the controlled entity has an excess of liabilities over assets,

primarily arising from continuous operating losses.

64


NOTE 13: NON-CURRENT ASSETS – RECEIVABLES (CONTINUED)

Movements in provisions

Movements in the provision for impairment of loans receivable from controlled entities during the financial year are set out below:

Consolidated Parent

2008 2007 2008 2007

$ $ $ $

Balance at the beginning of the year – – (49,913,787) (43,184,084)

Additional provisions recognised during the year – – (2,914,959) (6,729,703) __________________________________________________

Balance at the end of the year – – (52,828,746) (49,913,787) __________________________________________________ __________________________________________________

Fair value and credit risk

Due to the nature of these receivables, their carrying value is assumed to approximate their fair value.

The maximum exposure to credit risk is the fair value of the receivables. Collateral is not held as security, nor is it the Group’s policy to transfer

receivables to special purpose entities.



NOTE 14: NON-CURRENT ASSETS – AVAILABLE-FOR-SALE FINANCIAL ASSETS Consolidated Parent

2008 2007 2008 2007

$ $ $ $

Listed shares carried at fair value 360,000 – 300,000 – __________________________________________________ __________________________________________________

Available-for-sale investments consist of investments in ordinary shares, and therefore have no fixed maturity date or coupon rate.

The fair value of listed, available-for-sale investments has been determined directly by reference to published price quotations in an active

market. Gains or losses on available-for-sale investments are recognised in equity. Available-for-sale investments are considered to be impaired

when the fair value is below cost.

During the period, the Group recognised a net gain of $152,487 on re-measurement to fair value of available-for-sale investments. An

impairment of $140,000 has been recorded on available-for-sale investments as the fair value has reduced significantly below the cost of the

acquisition.

Included in listed shares is the following material investment:

Greenearth Energy Limited (GER)

Greenearth Energy Limited (“Greenearth”) is an Australian Geothermal energy company that aims to explore for and develop geothermal

resources in Australia, and in due course, in New Zealand and in the wider Pacific Rim. Greenearth listed on the Australian Stock Exchange

(code “GER”) on 4 February 2008.

The Greenearth shares held by the Parent are held in escrow for a period of two years from the listing date.

65


NOTE 15: NON-CURRENT ASSETS – INVESTMENTS IN ASSOCIATES

Investment details

Consolidated Parent

2008 2007 2008 2007

Listed $ $ $ $

Greenearth Energy Limited – 206,612 – 206,612 __________________________________________________

– 206,612 – 206,612 __________________________________________________ __________________________________________________

Year ended 30 June 2007

On 13 September 2006, the Group acquired 12,500,000 Greenearth Energy Limited (“Greenearth”) shares at 2 cents per share, resulting in a

33.3% ownership interest. Greenearth is a listed public company which has been formed to apply for geothermal permits in Victoria, Australia.

The Group’s proportion of voting power held in the associate is the same as its ownership interest. The Group’s investments in the associates

are accounted for in accordance with the accounting policy described in note 2(k).

The acquisition was funded by the allotment of 10,000,000 ordinary fully paid Victoria Petroleum N.L. shares, at 2.5 cents per share. These

shares were issued on 21 September 2006, resulting in Greenearth having a 0.53% ownership interest in Victoria Petroleum N.L. on that date.


On 29 October 2007, the Company’s percentage interest in Greenearth was decreased to 12.5% as a result of a new share issue. Greenearth

ceased to be an associate on this date, and the Company ceased to equity account for this investment.

At 30 June 2008, the Company held 4,833,334 (2007: 12,500,000) ordinary fully paid Greenearth shares, resulting in a 7.24% (2007: 33.3%)

ownership interest.

At 30 June 2008, Greenearth held nil (2007: 200,000) ordinary fully paid Victoria Petroleum N.L. shares.

Movements in the carrying amount of the Group’s investment in associate

Consolidated Parent

2008 2007 2008 2007

Greenearth Energy Limited $ $ $ $

Balance at the beginning of the year 206,612 – 206,612 –

Acquisition – 250,000 – 250,000

Share of losses after income tax (59,100) (43,388) – –

Impairment of investment – – (59,100) (43,388)

Transfer to available-for-sale financial assets (147,512) – (147,512) – __________________________________________________

Balance at the end of the year – 206,612 – 206,612 __________________________________________________ __________________________________________________

Share of associate’s commitments

Consolidated Parent

2008 2007 2008 2007

Greenearth Energy Limited $ $ $ $

Share of exploration commitments – 93,667 – 93,667 __________________________________________________ __________________________________________________

66


NOTE 15: NON-CURRENT ASSETS – INVESTMENTS IN ASSOCIATES (CONTINUED)

Summarised financial information

The following table illustrates summarised financial information relating to the Group’s associate:

Consolidated

2008 2007

Extract from the associate’s balance sheet: $ $

Current assets – 629,580

Non-current assets – 675,212 _______________________

– 1,304,792

Current liabilities – (684,955) _______________________

– (684,955)

Net assets – 619,837 _______________________ _______________________

Share of associate’s net assets – 206,612 _______________________ _______________________

Consolidated

2008 2007

Extract from the associate’s income statement: $ $

Revenue – 111,939

Net loss – (130,163) _______________________ _______________________

Consolidated

2008 2007

Share of the associate’s loss accounted for using the equity method: $ $

Loss before income tax (59,100) (43,388)

Income tax expense – – _______________________

Loss after income tax (59,100) (43,388) _______________________ _______________________

67


NOTE 16: NON-CURRENT ASSETS – PROPERTY, PLANT AND EQUIPMENT Note Consolidated Parent

2008 2007 2008 2007

$ $ $ $

Office equipment:

At the beginning of the financial year, net of

accumulated depreciation 33,224 32,113 15,647 32,113

Additions 9,451 22,766 5,418 –

Depreciation charge for the year 7 (b) (21,274) (21,655) (13,774) (16,466) __________________________________________________

At the end of the financial year, net of

accumulated depreciation 21,401 33,224 7,291 15,647 __________________________________________________ __________________________________________________

At the beginning of the financial year

Cost 139,047 116,281 62,779 62,779

Accumulated depreciation (105,823) (84,168) (47,132) (30,666) __________________________________________________

Net carrying amount 33,224 32,113 15,647 32,113 __________________________________________________ __________________________________________________

At the end of the financial year

Cost 148,498 139,047 68,197 62,779

Accumulated depreciation (127,097) (105,823) (60,906) (47,132) __________________________________________________

Net carrying amount 21,401 33,224 7,291 15,647 __________________________________________________ __________________________________________________

NOTE 17: NON-CURRENT ASSETS – OIL AND GAS PROPERTIES Note Consolidated Parent

2008 2007 2008 2007

$ $ $ $

Oil and gas properties:

At the beginning of the financial year, net of

accumulated amortisation and impairment 4,348,298 4,735,286 – –

Additions 3,617,677 2,514,081 – –

Amortisation charge for the year 7 (b) (1,244,681) (900,555) – –

Impairment, net of reversals 7 (b) (974,070) (1,865,887) – –

Foreign exchange adjustment (197,922) (134,627) – – __________________________________________________

At the end of the financial year, net of

accumulated amortisation and impairment 26 5,549,302 4,348,298 – – __________________________________________________ __________________________________________________

At the beginning of the financial year

Cost 14,856,473 13,356,393 – 49,564

Accumulated amortisation (5,271,847) (4,716,219) – –

Accumulated impairment, net of reversals (5,236,328) (3,904,888) – (49,564) __________________________________________________

Net carrying amount 4,348,298 4,735,286 – – __________________________________________________ __________________________________________________

At the end of the financial year

Cost 17,620,610 14,856,473 – –

Accumulated amortisation (6,286,208) (5,271,847) – –

Accumulated impairment, net of reversals (5,785,100) (5,236,328) – – __________________________________________________

Net carrying amount 5,549,302 4,348,298 – – __________________________________________________ __________________________________________________

68


NOTE 17: NON-CURRENT ASSETS – OIL AND GAS PROPERTIES (CONTINUED)Impairment of oil and gas properties

At 30 June 2008, the Group reviewed the carrying value of its oil and gas properties for impairment. The value of the oil and gas properties

was reviewed on a well by well basis and has resulted in a net impairment expense of $974,070 (2007: $1,865,887). It is the Group’s policy to

use Proved and Probable (2P) reserves to support the carrying value of its oil and gas properties.

Events and circumstances that led to the recognition or reversal of impairment losses include changes in reserves estimates, budgeted

revenue and expenses, estimated oil and gas prices and estimated foreign exchange rates.

The calculation of impairment losses was based on value-in-use and includes the following assumptions:

Oil price (US$ per barrel) 125.58

Gas price (US$ per mcf) 9.30

US$/A$ foreign exchange rate 0.96

Discount rate (% per annum) 10.00

NOTE 18: CURRENT LIABILITIES – TRADE AND OTHER PAYABLES Note Consolidated Parent

2008 2007 2008 2007

$ $ $ $

Other creditors and accruals – unsecured (i) 629,848 628,067 232,328 514,865

Joint venture payables (ii) 26 544,765 866,362 8,837 9,312 __________________________________________________

1,174,613 1,494,429 241,165 524,177 __________________________________________________ __________________________________________________

(i) Other creditors and accruals are non-interest bearing, unsecured and will be paid in the next 12 months.

(ii) These payables relate to the portion of trade payables in joint ventures which is attributable to the Group.

Fair value

Due to the short term nature of these payables, their carrying value is assumed to approximate their fair value.



NOTE 19: CURRENT LIABILITIES – PROVISIONS Consolidated Parent

2008 2007 2008 2007

$ $ $ $

Annual leave 241,929 195,195 241,929 195,195 __________________________________________________

241,929 195,195 241,929 195,195 __________________________________________________ __________________________________________________

NOTE 20: NON-CURRENT LIABILITIES – TRADE AND OTHER PAYABLES Note Consolidated Parent

2008 2007 2008 2007

$ $ $ $

Loans payable to controlled entities – unsecured (i) 27 – – 6,989,137 5,733,114 __________________________________________________

– – 6,989,137 5,733,114 __________________________________________________ __________________________________________________

(i) These payables are non-interest bearing, unsecured and are not expected to be called within the next 12 months.

69


NOTE 21: NON-CURRENT LIABILITIES – PROVISIONS Note Consolidated Parent

2008 2007 2008 2007

$ $ $ $

Rehabilitation 26 810,909 806,294 22,500 22,500

Long service leave 77,366 56,821 77,366 56,821 __________________________________________________

888,275 863,115 99,866 79,321 __________________________________________________ __________________________________________________

Movements in provisions

Movements in each class of provision during the financial year, other than provisions relating to employee benefits, are set out below:

Consolidated Parent

2008 2007 2008 2007

Rehabilitation $ $ $ $

Balance at the beginning of the year 806,294 513,342 22,500 –

Additional provision recognised during the year 4,615 292,952 – 22,500 __________________________________________________

Balance at the end of the year 810,909 806,294 22,500 22,500 __________________________________________________ __________________________________________________

Nature and timing of provisions

Rehabilitation

A provision for rehabilitation is recognised for costs such as reclamation, waste site closure and other costs associated with the restoration of

an oil or gas site. Estimates of the restoration obligations are based on anticipated technology and legal requirements and future costs. In

determining the rehabilitation provision, the entity has assumed no significant changes will occur in the relevant Federal and State legislation in

relation to restoration of such properties in the future.

Long service leave

Refer to note 2 (r) for the relevant accounting policy and a discussion of the significant estimations and assumptions applied in the

measurement of this provision.

NOTE 22: CONTRIBUTED EQUITY Consolidated Parent

2008 2007 2008 2007

$ $ $ $

320,151,033 ordinary fully paid shares including

shares to be issued (2007: 217,755,226) 103,253,881 86,083,791 103,253,881 86,083,791

270,000 ordinary partly paid shares, paid to 10 cents (i) 27,000 27,000 27,000 27,000

1,915,000 ordinary partly paid shares, paid to 1 cent (ii) 19,150 19,150 19,150 19,150

7,225,000 ordinary partly paid shares, paid to 0.1 cent (iii) 7,225 7,225 7,225 7,225 __________________________________________________

Total issued capital 103,307,256 86,137,166 103,307,256 86,137,166 __________________________________________________ __________________________________________________

(i) 2,700,000 ordinary shares were issued at 35 cents, partly paid to 1 cent. On 12 December 2006, a consolidation of the Company’s share

capital was completed, on the basis of one new share for every 10 existing shares. As a result of the share consolidation, there are now

270,000 shares which are partly paid to 10 cents, with $3.40 per share unpaid.

(ii) 19,150,000 ordinary shares were issued at 6 cents, partly paid to 0.1 cent. On 12 December 2006, a consolidation of the Company’s

share capital was completed, on the basis of one new share for every 10 existing shares. As a result of the share consolidation, there

are now 1,915,000 shares which are partly paid to 1 cent, with 59 cents per share unpaid.

(iii) 72,250,000 ordinary shares were issued at 4 cents, partly paid to 0.01 cent. On 12 December 2006, a consolidation of the Company’s

share capital was completed, on the basis of one new share for every 10 existing shares. As a result of the share consolidation, there

are now 7,225,000 shares which are partly paid to 0.1 cent, with 39.9 cents per share unpaid.

70


NOTE 22: CONTRIBUTED EQUITY (CONTINUED)Effective 1 July 1998, the Corporations legislation in place abolished the concepts of authorised capital and par value shares. Accordingly, the

Parent does not have authorised capital or par value in respect of its issued shares.

Ordinary shares have the right to receive dividends as declared and, in the event of winding up the Company, to participate in the proceeds

from the sale of all surplus assets in proportion to the number of and amounts paid up on the shares held. Ordinary shares entitle their holder

to one vote, either in person or by proxy, at a meeting of the company.

Partly paid shares have the same rights as fully paid ordinary shares, however they are only entitled to receive dividends to the extent of the

paid up amount. Voting rights associated with partly paid shares are pro rated to the extent of the paid up amount.

Ordinary shares

Movement in ordinary fully paid shares on issue

2008 2007

Number of Number of

shares $ shares $

Opening balance 217,755,226 86,083,791 1,823,104,994 78,847,308

Shares issued during the year (i) 102,395,807 17,426,519 93,615,000 2,340,375

Share consolidation during the prior year (ii) – – (1,725,046,050) –

Shares issued during the year (iii) – – 81,282 20,320

Transaction costs on share issues – (256,429) – (324,212) _____________________________________________________

Shares on issue at balance date 191,755,226 80,883,791

Shares to be issued at the balance sheet date (iv) – – 26,000,000 5,200,000 _____________________________________________________

Closing balance 320,151,033 103,253,881 217,755,226 86,083,791 _____________________________________________________ _____________________________________________________

(i) During the year, the Company completed the following share issues:

• 28,000,000 ordinary shares were issued on 3 July 2007 at a price of 20 cents each;

• 32,500,000 ordinary shares were issued on 4 December 2007 at a price of 13 cents each;

• 55,318 ordinary shares were issued on 21 December 2007 at a price of 25 cents each;

• 25,057,360 ordinary shares were issued on 29 January 2008 at a price of 13 cents each;

• 1,015,371 ordinary shares were issued on 8 February 2008 at a price of 13 cents each;

• 41,750,000 ordinary shares were issued on 10 June 2008 at a price of 22.5 cents each; and

• 17,758 ordinary shares were issued on 30 June 2008 at a price of 25 cents each.

During the prior year, the Company completed the following share issues before the share consolidation:

• 57,665,000 ordinary shares were issued on 1 September 2006 at a price of 2.5 cents each;

• 10,000,000 ordinary shares were issued on 21 September 2006 at a price of 2.5 cents each; and

• 25,950,000 ordinary shares were issued on 13 October 2006 at a price of 2.5 cents each.

(ii) On 12 December 2006, a consolidation of the Company’s share capital was completed, on the basis of one new share for every 10

existing shares.

(iii) During the prior year, the Company completed the following share issues after the share consolidation:

• 20,000 ordinary shares were issued on 13 December 2006 at a price of 25 cents each; and

• 61,282 ordinary shares were issued on 27 April 2007 at a price of 25 cents each.

(iv) On 3 July 2007, the Company completed the following share issue:

• 28,000,000 ordinary shares were issued at a price of 20 cents each.

Of this total, funds for 26,000,000 shares ($5,200,000) were received in June 2007, and funds for the remaining 2,000,000 shares

($400,000) were received in July 2007.

71


NOTE 22: CONTRIBUTED EQUITY (CONTINUED)

Partly paid shares

Movement in ordinary partly paid shares on issue

2008 2007

Number of Number of

shares $ shares $

Balance at the beginning of the year 9,410,000 53,375 94,100,000 53,375

Share consolidation during the year (i) – – (84,690,000) – _____________________________________________________

Balance at the end of the year 9,410,000 53,375 9,410,000 53,375 _____________________________________________________ _____________________________________________________

(i) On 12 December 2006, a consolidation of the Company’s share capital was completed, on the basis of one new share for every 10

existing shares.

The partly paid shares will not be subject to call by the Company on uncalled capital.

The partly paid shares will be entitled to participate in pro-rata share issues, such as bonus and rights issues, and their entitlements will be

subject to the same requirements as the other ordinary issued shares in the Company. The partly paid shares carry the same dividend

entitlements as ordinary shares to the extent of the paid up amount.

There are no performance conditions attached to these partly paid shares and thus they all vest on grant date.

Options

Movement in share options on issue

2008 2007

Number of options Number of options

Opening balance (i) 54,579,723 67,170,000

Share consolidation during the prior year (ii) – (60,453,000)

Options issued during the year (iii) 14,000,000 47,924,005

Options exercised during the year (iv) (73,076) (61,282) _____________________________________________

Closing balance 68,506,647 54,579,723 _____________________________________________ _____________________________________________

(i) 67,170,000 options were issued on 8 January 2004 and vested immediately. These options had an exercise price of 2.8 cents and an

expiry date of 30 November 2008. As a result of the share consolidation on 12 December 2006, there are now 6,717,000 options on

issue with an expiry date of 30 November 2008, which have an exercise price of 28 cents.

(ii) On 12 December 2006, a consolidation of the Company’s share capital was completed, on the basis of one new option for every 10

existing options.

(iii) During the year, the Company completed the following option issue:

• 14,000,000 options were issued on 21 August 2007 and vested immediately.

The issue was part of the placement of 28,000,000 ordinary fully paid shares made to clients of member organisations of the ASX

pursuant to a prospectus dated 12 June 2007. Included in the terms of the placement was the issue of one free attaching option for

every two ordinary fully paid shares issued. Approval for the issue of options was granted at a general meeting of the Company on

15 August 2007.

These options have an exercise price of 25 cents and an expiry date of 31 January 2010.

During the prior year, the Company completed the following option issue:

• 47,924,005 options were issued on 1 February 2007 and vested immediately.

These options have an exercise price of 25 cents and an expiry date of 31 January 2010.

72


NOTE 22: CONTRIBUTED EQUITY (CONTINUED)

Options (continued)

(iv) During the year, the following options were exercised:

• 55,318 options were exercised on 21 December 2007 at a price of 25 cents each; and

• 17,758 options were exercised on 30 June 2008 at a price of 25 cents each.

During the prior year, the following options were exercised:

• 61,282 options were exercised on 27 April 2007 at a price of 25 cents each.

Option holders do not have any right by virtue of the option to participate in any share issue of the company or any related body corporate.

Capital management

When managing capital, management’s objective is to ensure the entity continues as a going concern as well as to maintain optimal returns to

shareholders and benefits for other stakeholders.

The Group funds its activities through capital raising, and does not have any debt facilities.

The Group is not subject to any externally imposed capital requirements.

NOTE 23: RESERVES Note Consolidated Parent

2008 2007 2008 2007

$ $ $ $

Foreign currency translation reserve

Balance at the beginning of the year (863,525) (376,414) – –

Translation of foreign subsidiaries (262,710) (487,111) – – __________________________________________________

Balance at the end of the year (1,126,235) (863,525) – – __________________________________________________ __________________________________________________

Share based payments reserve

Balance at the beginning of the year 1,177,675 1,177,675 1,177,675 1,177,675 __________________________________________________

Balance at the end of the year 1,177,675 1,177,675 1,177,675 1,177,675 __________________________________________________ __________________________________________________


Balance at the beginning of the year – – – –

Net gain recognised on re-measurement to vair

value of available for sale investments 152,487 – 152,487 –

Tax effect on net gain recognised on re-measurement

to fair value of available for sale investments 8, 25 (45,746) – (45,746) – __________________________________________________

Balance at the end of the year 106,741 – 106,741 – __________________________________________________ __________________________________________________

Total reserve 158,181 314,150 1,284,416 1,177,675 __________________________________________________ __________________________________________________

Nature and purpose of reserves

Foreign currency translation reserve

This reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.

Share based payments reserve

This reserve is used to record the value of equity benefits provided to employees and directors as part of their remuneration.


This reserve is used to record movements in the fair value of available-for-sale financial assets.

73


NOTE 24: ACCUMULATED LOSSES Consolidated Parent

2008 2007 2008 2007

$ $ $ $

Accumulated losses at the beginning of the year (74,451,837) (67,343,062) (80,928,396) (71,410,043)

Net loss attributable to members of Victoria Petroleum N.L. (3,845,130) (7,108,775) (5,037,282) (9,518,353) __________________________________________________

Accumulated losses at the end of the year (78,296,967) (74,451,837) (85,965,678) (80,928,396) __________________________________________________ __________________________________________________

NOTE 25: CASH FLOW STATEMENT RECONCILIATION Note Consolidated Parent

2008 2007 2008 2007

$ $ $ $

Reconciliation of the net loss after tax to

net cash flows used in operations

Net loss (3,845,130) (7,108,775) (5,037,282) (9,518,353)

Adjustments:

Depreciation, amortisation and impairment 2,380,025 2,788,097 13,774 16,466

Loss on foreign exchange translation 85,317 176,636 113,625 129,799

Net loss recognised on re-measurement to

fair value of investments held for trading 7 (c) 316,202 1,022,925 83,367 276,223

Provision for impairment in loans to controlled entities 13 – – 2,914,959 6,729,703

Share of loss of associate 15 59,100 43,388 – –

Impairment of investment in associate 15 – – 59,100 43,388

Income tax gain 8 (45,746) – (45,746) –

Changes in assets and liabilities:

Increase in provisions 67,280 293,565 67,280 39,188

Increase/(decrease) in trade and other payables (39,394) (384,126) (2,588) 36,267

Increase in trade and other receivables (612,999) (113,542) (110,227) (63,620) __________________________________________________

Net cash flows used in operating activities (1,635,345) (3,281,832) (1,943,738) (2,310,939) __________________________________________________ __________________________________________________

74


NOTE 26: INTEREST IN JOINT VENTURE OPERATIONSThe Group has an interest in the following joint venture operations whose principal activities are oil and gas production and/or exploration.

Project Working Interest

2008 2007

% %

Australian permits

ATP 471P 20.65 20.65

ATP 560P 17.00 – 50.00 17.00 – 50.00

ATP 574P 30.00 – 75.00 30.00 – 75.00

ATP 593P 24.00 – 45.00 24.00

ATP 608P 24.00 – 29.69 24.00 – 29.69

ATP 736P 80.00 80.00

ATP 737P 80.00 80.00

ATP 738P 80.00 80.00

ATP 752P 15.00 25.00

ATP 771P 25.00 – 45.00 0.00

ATP 794P 12.00 – 60.00 12.00 – 60.00

ATP 805P 15.00 15.00

PL 171 20.00 20.00

PL 231 40.00 40.00

EP 325 36.10 36.10

EP 359 63.30 63.30

EP 406 95.00 95.00

EP 413 5.00 5.00

EP 427 25.00 25.00

EP 433 88.80 88.80

EP 434 69.60 69.60

L 14 5.00 5.00

WA 254P 6.17 – 9.31 6.17 – 9.31

WA 261P 0.00 12.50

WA 340P 0.00 20.00

PEL 57 0.00 10.00

PEL 86 0.00 40.00

PEL 87 40.00 40.00

PEL 88 50.00 10.00

PEL 89 0.00 40.00

PEL 94 15.00 15.00

PEL 104 40.00 40.00

PEL 111 40.00 40.00

PEL 115 100.00 40.00

PEL 424 40.00 0.00

PPL 213 40.00 0.00

PPL 214 40.00 0.00

PRL 15 40.00 0.00

International properties

Gouaro 27.70 27.70

Eagle 20.00 20.00

Flour Bluff 12.50 – 16.67 12.50 – 16.67

Margarita 20.00 20.00

Hal 100.00 75.00

San Antonio 3.75 – 7.33 3.75 – 7.33

Vallecitos 22.50 22.50

West Florence 41.67 25.00

75


NOTE 26: INTEREST IN JOINT VENTURE OPERATIONS (CONTINUED)The Group’s share of the joint venture operation assets and liabilities consist of:

Note Consolidated

2008 2007

$ $

Current Assets

Cash and cash equivalents 10 995,260 413,850

Trade and other receivables 11 239,058 86,685

Non-current Assets

Oil and gas properties 17 5,549,302 4,348,298 ____________________________

TOTAL ASSETS 6,783,620 4,848,833 ____________________________ ____________________________

Current Liabilities

Trade and other payables 18 544,765 866,362


Provision for rehabilitation 21 810,909 806,294 ____________________________

TOTAL LIABILITIES 1,355,674 1,672,656 ____________________________

NET ASSETS 5,427,946 3,176,177 ____________________________ ____________________________

The Group’s share of the joint venture operation revenue and expenses consists of:

Note Consolidated

2008 2007

$ $

Revenue

Oil sales 6 (a) 6,341,529 6,659,752

Gas sales 6 (a) 1,043,212 484,749 ____________________________

7,384,741 7,144,501 ____________________________ ____________________________

Expenses

Cost of sales (4,109,650) (3,496,480)

Oil and gas exploration expenses (3,550,163) (5,774,692) ____________________________

(7,659,813) (9,271,172) ____________________________ ____________________________

76


NOTE 27: RELATED PARTY DISCLOSURE

Subsidiaries

The consolidated financial statements include the financial statements of Victoria Petroleum N.L. and the subsidiaries listed in the following

table.

Name Country of Equity Interest Investment

incorporation % $

2008 2007 2008 2007

Victoria Petroleum N.L. and its controlled entities: Australia

Lansvale Oil & Gas Pty Ltd Australia 100 100 600,000 600,000

Azeeza Pty Ltd Australia 100 100 2 2

Victoria Petroleum (WA-209P) Pty Ltd Australia 100 100 2 2

Victoria Petroleum Offshore Pty Ltd Australia 100 100 2 2

Victoria Oil Pty Ltd Australia 100 100 2 2

Victoria Petroleum (Middle East) Pty Ltd Australia 100 100 2 2

Victoria Minerals Exploration Ltd

and its controlled entities: Australia 100 100 996,213 996,213

Victoria Oil Exploration (1977) Pty Ltd Australia 100 100 2 2

Victoria Diamond Exploration Pty Ltd Australia 100 100 2 2

Victoria International Petroleum N.L.

and its controlled entity: Australia 100 100 3,953,687 3,953,687

Victoria Petroleum USA, Inc United States 100 100 2 2

Remers Pty Ltd

and its controlled entity: Australia 100 100 2 2

Victoria Exploration (PNG) Pty Ltd PNG 100 100 2 2

Whitewood Nominees Pty Ltd Australia 100 100 2 2 ________________________

Total 5,549,922 5,549,922

Provision for impairment (5,549,922) (5,549,922) ________________________

– – ________________________ ________________________

Investments in controlled entities are fully impaired at 30 June 2008.

Ultimate parent

Victoria Petroleum N.L. is the ultimate parent entity of the Group.

Key Management Personnel

Details relating to Key Management Personnel, including remuneration paid, are included in note 28.

Loans

Loans were made between Victoria Petroleum N.L. and its wholly owned subsidiaries. The loans are non-interest bearing and repayable when

sufficient funds are available.

Note 2008 2007

$ $

Non-current Assets

– net receivables owing from wholly owned subsidiaries

Lansvale Oil & Gas Pty Ltd 1,566 7,529

Azeeza Pty Ltd 29,494 25,000

Victoria Petroleum (WA-209P) Pty Ltd 11,960 12,266

Victoria Oil Pty Ltd 234,977 2,175

Victoria International Petroleum N.L. and its controlled entities 5,692,900 4,907,529

Victoria Diamond Exploration Pty Ltd 14,171 14,189

Victoria Oil Exploration (1977) Pty Ltd 3,675,687 1,850,135 _______________________

Total 13 9,660,755 6,818,823 _______________________ _______________________

77


NOTE 27: RELATED PARTY DISCLOSURE (CONTINUED)

Note 2008 2007

$ $


– net payables owing to wholly owned subsidiaries

Whitewood Nominees Pty Ltd 78,696 193,697

Victoria Minerals Exploration Ltd and its controlled entities 920,646 920,646

Victoria Petroleum Offshore Pty Ltd 5,989,795 4,618,771 _______________________

Total 19 6,989,137 5,733,114 _______________________ _______________________

Transactions with related parties

There were no other transactions between Victoria Petroleum N.L. and its wholly owned subsidiaries during the year.

NOTE 28: KEY MANAGEMENT PERSONNEL

Details of Key Management Personnel

Directors

D F Patten (Non-executive Chairman) – appointed 27 March 2008

J T Kopcheff (Executive Managing Director)

A Bajada (Non-executive Director) – appointed 27 March 2008

A Dimsey (Alternate Director) – appointed 14 May 2008

N C Fearis (Alternate Director) – appointed 26 March 2008

T L Hoops (Non-executive Director) – resigned 27 March 2008

R J Pett (Non-executive Director)

A N Short (Non-executive Director) – appointed 27 March 2008

B Wrixon (Non-executive Director)

Executives

D I Rakich (Company Secretary)

C M Lane (Exploration Manager)

There were no changes to key management personnel after the reporting date and before the date the financial report was authorised for

issue.

Compensation of Key Management Personnel

Consolidated Parent

2008 2007 2008 2007

$ $ $ $

Short-term 1,065,009 990,456 824,853 712,004

Post employment 68,357 66,068 68,357 66,068 __________________________________________________

1,133,366 1,056,524 893,210 778,072 __________________________________________________ __________________________________________________

78


NOTE 28: KEY MANAGEMENT PERSONNEL (CONTINUED)

Option holdings of Key Management Personnel (Consolidated)

The numbers of options in the Company held during the financial year by each director and executive of Victoria Petroleum N.L., including their

personally related entities, are set out below.

Options held in Victoria Petroleum N.L. for the year ended 30 June 2008 (number)

Balance at Granted as Options Net Change Balance at end

beginning of period compensation exercised Other of period

1-Jul-07 30-Jun-08

Directors

Patten, DF (i) – – – – –

Kopcheff, JT 4,200,000 – – – 4,200,000

Bajada, A (ii) – – – – –

Dimsey, A (iii) – – – – –

Fearis, NC (iv) – – – – –

Hoops, TL (v) 350,000 – – – 350,000

Pett, RJ – – – – –

Short, AN (vi) – – – – –

Wrixon, B 350,000 – – – 350,000

Executives

Rakich, DI 1,175,000 – – – 1,175,000

Lane, CM 350,000 – – – 350,000___________________________________________________________________________________________________________________

Total 6,425,000 – – – 6,425,000______________________________________________________________________________________________________________________________________________________________________________________________________________________________________

(i) D F Patten was appointed on 27 March 2008

(ii) A Bajada was appointed on 27 March 2008

(iii) A Dimsey was appointed (as an Alternate Director) on 14 May 2008

(iv) N C Fearis was appointed (as an Alternate Director) on 26 March 2008

(v) T L Hoops resigned on 27 March 2008

(vi) A N Short was appointed on 27 March 2008

Options held in Victoria Petroleum N.L. for the year ended 30 June 2007 (number)



1-Jul-06 (i) 30-Jun-07

Directors

Kopcheff, JT 42,000,000 – – (37,800,000) 4,200,000

Hoops, TL 3,500,000 – – (3,150,000) 350,000

Pett, RJ – – – – –

Wrixon, B 3,500,000 – – (3,150,000) 350,000

Executives

Rakich, DI 11,750,000 – – (10,575,000) 1,175,000

Lane, CM 3,500,000 – – (3,150,000) 350,000___________________________________________________________________________________________________________________

Total 64,250,000 – – (57,825,000) 6,425,000______________________________________________________________________________________________________________________________________________________________________________________________________________________________________


existing shares.

The options were issued on 8 January 2004, vested immediately, had an exercise price of 2.8 cents and an expiry date of 30 November 2008.

As a result of the share consolidation on 12 December 2006, the options have an exercise price of 28 cents.

The options were valued at grant date at 1 cent per option using the Black-Scholes option pricing model.

79



Shareholdings of Key Management Personnel (Consolidated)

The numbers of shares in the Company held during the financial year by each director and executive of Victoria Petroleum N.L., including their

personally related entities, are set out below.

Ordinary fully paid shares held in Victoria Petroleum N.L. for the year ended 30 June 2008 (number)



1-Jul-07 30-Jun-08

Directors

Patten, DF (i) – – – – –

Kopcheff, JT (ii) – – – 1,000,000 1,000,000

Bajada, A (iii) – – – – –

Dimsey, A (iv) – – – – –

Fearis, NC (v) – – – – –

Hoops, TL (vi) – – – – –

Pett, RJ 408,200 – – – 408,200

Short, AN (vii) – – – – –

Wrixon, B – – – – –

Executives

Rakich, DI – – – – –

Lane, CM – – – – –___________________________________________________________________________________________________________________

Total 408,200 – – 1,000,000 1,408,200______________________________________________________________________________________________________________________________________________________________________________________________________________________________________


(ii) J T Kopcheff acquired 1,000,000 ordinary fully paid shares on market, on 4 February 2008

(iii) A Bajada was appointed on 27 March 2008

(iv) A Dimsey was appointed (as an Alternate Director) on 14 May 2008

(v) N C Fearis was appointed (as an Alternate Director) on 26 March 2008

(vi) T L Hoops resigned on 27 March 2008

(vii) A N Short was appointed on 27 March 2008

Ordinary fully paid shares held in Victoria Petroleum N.L. for the year ended 30 June 2007 (number)



1-Jul-06 (i) 30-Jun-07

Directors

Kopcheff, JT – – – – –

Hoops, TL – – – – –

Pett, RJ 4,082,000 – – (3,673,800) 408,200

Wrixon, B – – – – –

Executives


Lane, CM – – – – –___________________________________________________________________________________________________________________

Total 4,082,000 – – (3,673,800) 408,200______________________________________________________________________________________________________________________________________________________________________________________________________________________________________


existing shares.

80



Shareholdings of Key Management Personnel (Consolidated) (Continued)

Ordinary partly paid shares (issued at 35 cents, partly paid to 1 cent) held in Victoria Petroleum N.L. for the year ended 30 June 2008 (number)



1-Jul-07 30-Jun-08

Directors

Patten, DF (i) – – – – –

Kopcheff, JT 100,000 – – – 100,000

Bajada, A (ii) – – – – –



Hoops, TL (v) – – – – –

Pett, RJ 140,000 – – – 140,000

Short, AN (vi) – – – – –

Wrixon, B – – – – –

Executives


Lane, CM – – – – –___________________________________________________________________________________________________________________

Total 240,000 – – – 240,000______________________________________________________________________________________________________________________________________________________________________________________________________________________________________







Ordinary partly paid shares (issued at 35 cents, partly paid to 1 cent) held in Victoria Petroleum N.L. for the year ended 30 June 2007 (number)



1-Jul-06 (i) 30-Jun-07

Directors

Kopcheff, JT 1,000,000 – – (900,000) 100,000

Hoops, TL – – – – –

Pett, RJ 1,400,000 – – (1,260,000) 140,000

Wrixon, B – – – – –

Executives


Lane, CM – – – – –___________________________________________________________________________________________________________________

Total 2,400,000 – – (2,160,000) 240,000______________________________________________________________________________________________________________________________________________________________________________________________________________________________________


existing shares. As a result of the share consolidation, the shares are now partly paid to 10 cents, with $3.40 per share unpaid.

81




Ordinary partly paid shares (issued at 6 cents, partly paid to 0.1 cent) held in Victoria Petroleum N.L. for the year ended 30 June 2008

(number)



1-Jul-07 (v) 30-Jun-08

Directors

Patten, DF (i) – – – – –

Kopcheff, JT 1,080,000 – – – 1,080,000

Bajada, A (ii) – – – – –



Hoops, TL (v) 275,000 – – (275,000) –

Pett, RJ – – – – –

Short, AN (vi) – – – – –

Wrixon, B 200,000 – – – 200,000

Executives

Rakich, DI 200,000 – – – 200,000

Lane, CM 100,000 – – – 100,000___________________________________________________________________________________________________________________

Total 1,855,000 – – (275,000) 1,580,000______________________________________________________________________________________________________________________________________________________________________________________________________________________________________








(number)



1-Jul-06 (i) 30-Jun-07

Directors

Kopcheff, JT 10,800,000 – – (9,720,000) 1,080,000

Hoops, TL 2,750,000 – – (2,475,000) 275,000

Pett, RJ – – – – –

Wrixon, B 2,000,000 – – (1,800,000) 200,000

Executives

Rakich, DI 2,000,000 – – (1,800,000) 200,000

Lane, CM 1,000,000 – – (900,000) 100,000___________________________________________________________________________________________________________________

Total 18,550,000 – – (16,695,000) 1,855,000______________________________________________________________________________________________________________________________________________________________________________________________________________________________________


existing shares. As a result of the share consolidation, the shares are now partly paid to 1 cent, with 59 cents per share unpaid.

82





(number)



1-Jul-07 (v) 30-Jun-08

Directors

Patten, DF (i) – – – – –

Kopcheff, JT 4,200,000 – – – 4,200,000

Bajada, A (ii) – – – – –



Hoops, TL (v) 350,000 – – (350,000) –

Pett, RJ – – – – –

Short, AN (vi) – – – – –

Wrixon, B 350,000 – – – 350,000

Executives

Rakich, DI 1,175,000 – – – 1,175,000

Lane, CM 450,000 – – – 450,000___________________________________________________________________________________________________________________

Total 6,525,000 – – (350,000) 6,175,000______________________________________________________________________________________________________________________________________________________________________________________________________________________________________








(number)



1-Jul-06 (i) 30-Jun-07

Directors

Kopcheff, JT 42,000,000 – – (37,800,000) 4,200,000

Hoops, TL 3,500,000 – – (3,150,000) 350,000

Pett, RJ – – – – –

Wrixon, B 3,500,000 – – (3,150,000) 350,000

Executives

Rakich, DI 11,750,000 – – (10,575,000) 1,175,000

Lane, CM 4,500,000 – – (4,050,000) 450,000___________________________________________________________________________________________________________________

Total 65,250,000 – – (58,725,000) 6,525,000______________________________________________________________________________________________________________________________________________________________________________________________________________________________________


existing shares. As a result of the share consolidation, the shares are now partly paid to 0.1 cent, with 39.9 cents per share unpaid.

Loans to Key Management Personnel

No loans have been granted to key management personnel during the current or prior year.

83



Other transactions and balances with Key Management Personnel

During the year, the Group made payments of $63,845 to Minter Ellison Group, a company associated with Mr Fearis. These payments

comprised fees payable for corporate legal advice. These services were not provided by Mr Fearis as a director of Victoria Petroleum N.L.

During the year, the Group made payments of US$218,199 (A$240,156) (2007: US$225,765/A$278,452) to Peak Resource Management, Inc.,

a company owned by Mr Hoops. These payments comprised fees payable for consulting work in relation to the oil and gas properties in the

United States of America. These services were not provided by Mr Hoops as a director of Victoria Petroleum N.L.

There were no other transactions with key management personnel or their related parties during the current or prior year, other than those

mentioned above.

NOTE 29: SHARE BASED PAYMENT PLANS

Acquisition


On 13 September 2006, the Group acquired 12,500,000 Greenearth Energy Limited shares at 2 cents per share.

The acquisition was funded by the allotment of 10,000,000 ordinary fully paid Victoria Petroleum N.L. shares, at 2.5 cents per share.

These shares were issued on 21 September 2006, resulting in Greenearth Energy Limited having a 0.53% ownership interest in

Victoria Petroleum N.L. on that date.

At 30 June 2008, Greenearth held nil (2007: 200,000) ordinary fully paid Victoria Petroleum N.L. shares.

NOTE 30: COMMITMENTS

Leasing commitments

Operating lease commitments (Group as lessee)

These commitments represent payment due for lease premises under a non-cancellable operating lease.

The commitments disclosed in the current year represent payments due for leased premises under a non-cancellable five year operating lease.

The lease expires on 31 December 2012.

The lessor is Elstree Nominees Pty Ltd (“Elstree”), a Company in which Mr D I Rakich is the sole director. Elstree provides the Group with

office premises and facilities at cost.

Consolidated Parent

2008 2007 2008 2007

$ $ $ $

Minimum lease payments

– not later than one year 172,729 54,270 172,729 54,270

– later than one year and not later than five years 636,990 – 636,990 – __________________________________________________

809,719 54,270 809,719 54,270 __________________________________________________ __________________________________________________

Exploration and development commitments

Due to the nature of the Group’s operations in exploration and evaluation of areas of interest, it is not possible to forecast the nature or amount

of future expenditure, although it will be necessary to incur expenditure in order to retain present interests. In order to maintain its interests in

present permit areas, the Group must expend by 30 June 2009 approximately $9,816,000 (2008: $3,775,000). Commitments beyond one year

cannot be determined and are subject to negotiation depending on future exploration results.

84


NOTE 30: COMMITMENTS (CONTINUED)

Remuneration commitments

Amounts disclosed as remuneration commitments include commitments arising from the service contracts of directors and executives referred

to in the Remuneration Report of the Directors’ Report that are not recognised as liabilities and are not included in the compensation of Key

Management Personnel.

Consolidated Parent

2008 2007 2008 2007

$ $ $ $

– not later than one year 150,000 300,000 150,000 300,000

– later than one year and not later than five years – 150,000 – 150,000 __________________________________________________

150,000 450,000 150,000 450,000 __________________________________________________ __________________________________________________

NOTE 31: CONTINGENCIESThere are no unrecorded contingent assets or liabilities in place for the Company or Group at Balance Date (2007: nil).

The Group is aware of native title claims made in respect of areas in Queensland in which the Group has an interest and recognises that there

might be additional claims made in the future. A definitive assessment can not be made at this time of what impact the current or future claims,

if any, may have on the Group.

NOTE 32: EVENTS AFTER THE BALANCE SHEET DATESince the end of the financial year, the directors are not aware of any other matters or circumstances not otherwise dealt with in the report or

financial statements that have significantly, or may significantly affect the operations of the Company or the Group, the results of the operations

of the Company or the Group, or the state of affairs of the Company or the Group in the subsequent financial years.

NOTE 33: AUDITORS’ REMUNERATIONThe auditor of Victoria Petroleum N.L. is Ernst & Young.

Consolidated Parent

2008 2007 2008 2007

$ $ $ $

Amounts received or due and receivable by

Ernst & Young (Australia) for:

An audit or review of the financial report of the entity

and any other entity in the consolidated group 113,300 123,340 113,300 123,340

Other services in relation to the entity and any

other entity in the consolidated group:

– tax compliance 57,028 46,290 57,028 46,290

– royalty audit 2,266 4,120 – –

– other services 30,000 – 30,000 – __________________________________________________

202,594 173,750 200,328 169,630 __________________________________________________ __________________________________________________

85

Directors’ Declaration

In accordance with a resolution of the directors of Victoria Petroleum N.L., I state that:

(1) In the opinion of the directors:

(a) the financial statements, notes and additional disclosures included in the Directors’ Report designated as audited of the

Company and of the consolidated entity are in accordance with the Corporations Act 2001, including:

(i) giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2008 and of their

performance for the year ended on that date; and

(ii) complying with Accounting Standards and Corporations Regulations 2001; and

(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and

payable.

(2) This declaration has been made after receiving the declarations required to be made to the directors in accordance with section 295A

of the Corporations Act 2001 for the financial year ended 30 June 2008.

On behalf of the Board

Bernard Wrixon

Director

Perth, Western Australia

9 September 2008

86

Independent Audit Report

Independent auditor’s report to the members of Victoria Petroleum NL

Report on the Financial Report

We have audited the accompanying financial report of Victoria Petroleum NL, which comprises the balance sheet as at

30 June 2008, and the income statement, statement of changes in equity and cash flow statement for the year ended on

that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration of the

consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the

financial year.

Directors’ Responsibility for the Financial Report

The directors of the company are responsible for the preparation and fair presentation of the financial report in

accordance with the Australian Accounting Standards (including the Australian Accounting Interpretations) and the

Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the

preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or

error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the

circumstances. In Note 2, the directors also state that the financial report, comprising the financial statements and notes,

complies with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Auditor’s Responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in

accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical

requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the

financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report.

The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the

financial report, whether due to fraud or error. In making those risk assessments, we consider internal controls relevant to

the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate

in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls.

An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting

estimates made by the directors, as well as evaluating the overall presentation of the financial report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Independence

In conducting our audit we have met the independence requirements of the Corporations Act 2001. We have given to the

directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the directors’ report.

In addition to our audit of the financial report, we were engaged to undertake the services disclosed in the notes to the

financial statements. The provision of these services has not impaired our independence.

Liability limited by a scheme approved underProfessional Standards Legislation.


Ernst & Young Building11 Mounts Bay RoadPerth WA 6000 AustraliaGPO Box M939 Perth WA 6843Tel +61 8 9429 2222Fax +61 8 9429 2436www.ey.com/au

87

Independent Audit Report (continued)

Liability limited by a scheme approved underProfessional Standards Legislation.


Auditor’s Opinion

In our opinion:

1. the financial report of Victoria Petroleum NL is in accordance with the Corporations Act 2001, including:

(i) giving a true and fair view of the financial position of Victoria Petroleum NL and the consolidated entity at

30 June 2008 and of their performance for the year ended on that date; and

(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and

the Corporations Regulations 2001.

2. the financial report also complies with International Financial Reporting Standards as issued by the International

Accounting Standards Board.

Report on the Remuneration Report

We have audited the Remuneration Report included in pages 28 to 30 of the directors' report for the year ended 30 June

2008. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in

accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the

Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.

Auditor's Opinion

In our opinion the Remuneration Report of Victoria Petroleum NL for the year ended 30 June 2008, complies with section

300A of the Corporations Act 2001.

Ernst & Young

V W Tidy

Partner

Perth

9 September 2008

88

Shareholder Information

Additional information provided pursuant to Chapter 4.10 of the official listing requirements of the Australian Stock Exchange Limited and not

shown elsewhere in this report is as follows:

(a) The distribution of security holders as at 8 September 2008

Number of shares Number of shareholders

Partly Paid Partly Paid Partly Paid Fully Paid Options

to 10 cents to1 cent to 0.1 cent

1 – 1,000 – – – 2,384 4,656

1,001 – 5,000 – – – 2,911 3,122

5,001 – 10,000 – – – 1,472 705

10,001 – 100,000 3 5 7 2,680 703

100,001 + 1 4 5 312 91

Total 4 9 12 9,759 9,277

(b) Shareholders not holding a marketable parcel of fully paid shares as at 8 September 2008 was 3,820 holders.

(c) The shareholdings of the twenty largest holders of quoted ordinary fully paid shares in the capital of the company at 8 September 2008

were as follows:

Name Number Percentage

1 Glory Run Pty Ltd 45,909,795 14.34

2 Queensland Gas Company Limited 41,750,000 13.04

3 Berne No. 132 Nominees Pty Ltd 19,853,134 6.20

4 Irrewarra Investments Pty Ltd 5,864,399 1.83

5 ANZ Nominees Limited 4,559,928 1.42

6 Blackmort Nominees Pty Ltd 4,300,000 1.34

7 Citicorp Nominees Pty Ltd 2,645,534 0.83

8 Forty Traders Limited 2,150,967 0.67

9 Barchester Pty Ltd 2,000,000 0.62

10 Gascorp Australia Pty Ltd 2,000,000 0.62

11 Dyamond Developments Pty Ltd 1,517,663 0.47

12 Solaco Pty Ltd 1,500,000 0.47

13 Smith Conran James 1,280,461 0.40

14 National Nominees Limited 1,261,796 0.39

15 T J Holdings Canterbury Limited 1,241,455 0.39

16 Martinick Wolf Gerhard 1,195,900 0.37

17 J P Morgan Nominees Australia Limited 1,120,984 0.35

18 HSBC Custody Nominees Australia Limited 1,118,328 0.35

19 Steven H Dunn Investments Pty Ltd 1,083,000 0.34

20 Martinick Investments Pty Ltd 1,075,000 0.34 _____________ _________

Total 143,428,344 44.78 _____________ _________ _____________ _________

89

Shareholder Information(continued)

(d) The names of the substantial shareholders and the number of shares to which they are entitled are, pursuant to notices issued by those

entities to the Australian Stock Exchange:

Name Number Percentage

Queensland Gas Company Limited 61,603,134 19.24

Glory Run Pty Ltd 48,916,746 15.28 _____________ _________

Total 110,519,880 34.52 _____________ _________ _____________ _________

(e) Directors’ security holdings and relevant interest at 8 September 2008

Name No. of securities

Partly Paid Partly Paid Partly Paid Fully Paid Options

to 10 cents to 1 cent to 0.1 cent

D F Patten – – – – 100,000

J T Kopcheff 100,000 1,080,000 4,200,000 1,000,000 4,200,000

A Bajada – – – – –

A Dimsey – – – – –

N C Fearis – – – – –

R J Pett 140,000 – – 408,200 –

A N Short – – – – –

B Wrixon – 200,000 350,000 – 350,000

(f) Voting Rights

The holder of one fully paid share shall have one vote. The holder of one partly paid share shall have a portion of one vote, being the

proportion of the issue price paid up to the total issue price.

90

This page has been left blank intentionally

91


92


Victoria Petroleum N.L.ACN 008 942 827

Level 36, Exchange Plaza2 The Esplanade


Telephone+61 8 9220 9800

victoria petroleum n.l. · 2 chairman and managing director’s report dear shareholders, it is...

Documents