ABN 38 112 566 499

2016 ANNUAL REPORT

ELK PETROLEUM LTD

CONTENTS

ANNUAL REPORT 2016 01

DIRECTORS' REPORT

The Directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the 'Group') consisting of Elk Petroleum Ltd (referred to hereafter as the 'Company' or 'parent entity') and the entities it controlled at the end of, or during, the year ended 30 June 2016.

DIRECTORS

The following persons were Directors of Elk Petroleum Ltd during the whole of the financial year and up to the date of this report, unless otherwise stated:

Neale Taylor (Chairman)

Bradley Lingo (Managing Director) (appointed 1 August 2015) Russell Krause

Matthew Healy Tim Hargreaves

PRINCIPAL ACTIVITIES

The Company specialises in developing enhanced oil recovery ("EOR") projects. During the year the principal activities of the Company consisted of the development of a CO2 EOR project at the Grieve oil field in Wyoming, USA, continuation of operations at the Singleton Unit in Nebraska in anticipation of future implementation of an EOR project in the Singleton Unit and the acquisition of the Singleton South oil field in Nebraska focusing on development of potential by-passed oil pool on the southern flank of the Singleton Unit. The Grieve CO2 EOR project is operated by Denbury Onshore LLC and current operations are focused on development of facilities and on CO2 and water injection to re- pressure the Grieve field prior to commencing first oil production.

REVIEW OF OPERATIONS

The loss for the Group after providing for income tax amounted to $7,168,313 (30 June 2015: $3,645,970). The loss reflects the Company's increased corporate activities over the year as set out in the financial review (section f ) below.

Operations review

During the 2015-2016 financial year, the Company has continued development and assessment of four main projects.

1. Grieve Field, Elk 49% (from 35% as at 30 June 2016), and Denbury Operator 51% (from 65% as at 30 June 2016)

   As reported in last year's annual report Elk having dismissed the lawsuit with Denbury started the new year in extensive mutually agreed good faith negotiations with our Joint Venture Partner. Considerable efforts during the year resulted in negotiations being completed and simultaneous agreements signed early in the new financial year (August 5th 2016), closing both the Joint Venture restructure with Denbury, Elk moving from

   a 35% to a 49% interest and the associated implementation of senior debt financing with Benefit Street Partners. Benefit Street Partners having provided Elk with a US$58 million senior debt loan facility to be used in connection with the Grieve Project JV restructuring and project funding.

   This restructure of the Grieve Joint Venture delivered a 51% increase in Elk net 2P Reserves to 5.3 MMbbls during FY 2015-16.

   To maintain project delivery schedules during negotiations on the development of the Grieve CO2 EOR Project, for first oil, during the financial year prior to completing the Joint Venture restructure, Elk already funded US$2 million as part of its US$55 million total commitment to the Grieve JV Project. Elk's remaining contribution commitments will be made over the next 18 months. First production from the Grieve enhanced oil recovery project is targeted for the last quarter of 2017. Subsequent progress payments will comprise of both debt and equity contributions and will continue under a fixed price turnkey contract between Elk and Denbury, with a milestone payments process overseen and verified

   by an independent third party engineer. The remaining major engineering works to be completed on Grieve being the oil processing and CO2 recompression facilities works.

   The CO2 enhanced oil recovery redevelopment plan for the Grieve Project is based on restoring the field's original pre-production reservoir pressure of approximately 3,000-3,100 PSI before commencing oil production. This eliminates the need to install artificial lift pumping (Beam Pumps or 'Nodding Donkeys') to produce oil to surface, thereby reducing production well capital and operating expenditure.

   Under the proposed development plan, all of the CO2 produced is recycled and injected back into the field to recover more of the remaining oil. Ultimately at the end of Grieve field life the CO2 can be left in the fully depleted oil reservoirs or potentially reused on other CO2 EOR candidate fields in the region, as the transmission infrastructure will already be in place.

   Injection of CO2 and water has been undertaken on the Grieve Field since mid-2015 and field repressurisation is on schedule. As a result, a milestone has been achieved in the Field with field pressure increasing above minimum miscible pressure of 2256 PSI (minimum miscible pressure being the point when CO2 becomes miscible in oil) and downhole surveys in April 2016 indicated a downhole pressure of 2504 PSI. At minimum miscible pressure CO2 begins to dissolve into the oil in the reservoir causing the oil to swell and reducing its viscosity. As the pressure further increases through the continued injection of CO2, this enables the CO2 to displace the remaining oil from the rock pores in the reservoir, pushing it towards production wells in the field. Reaching minimum miscible pressure is a key milestone in any successful miscible CO2 enhanced oil recovery project. The Company believes that based on the current repressurisation and CO2 injection plan, Grieve Project production is possible in Q4 2017. With Denbury supplying and covering the full cost of CO2 required to reach facility start-up and projected point of positive operating cash flow.

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   DIRECTORS' REPORT

   ELK PETROLEUM LTD

2. Grieve Pipeline 100% Elk owned and operated.

   Elk holds a 100% interest in the crude oil pipeline running from the Grieve oil field through its subsidiary Grieve Pipeline, LLC. The Grieve oil pipeline is a 32-mile-long (8-inch diameter) steel pipeline that extends from the Grieve CO2 EOR project to a receiving station located on the Spectra Energy oil storage facility in Casper, Wyoming, our point of oil sale. Casper is a regional export hub with onward oil export links via pipeline, rail head and road.

   Early in the financial year Elk received a draft proposed Asset Purchase Agreement from a potential pipeline buyer. After careful consideration it was decided not to proceed with a sale. The pipeline was determined to be strategically important asset in two regards. First, the pipeline is seen by Elk as a material piece of infrastructure to the development of the Grieve Project and its restructure as well as providing security for the

   implementation of senior debt financing with Benefit Street Partners for the Grieve CO2 EOR project. Subsequent to end of year this significance was borne out when Denbury entered into an oil transportation agreement with Elk to use the pipeline to transport to the market point of

   sale in Casper. For Grieve Oil Export Pipeline transportation access the Grieve Unit will be charged US$3/bbl (escalated) on 100% of production payable to Elk Grieve Oil Pipeline, LLC. Second, with the start-up of the Grieve CO2 EOR project it was recognised that the Grieve Pipeline could also provide additional oil transport services to third parties generating additional income for the Company.

   During the year Elk Grieve Oil Pipeline, LLC undertook a detailed condition survey and subsequent to year end pipeline remediation work is currently underway, in order to be ready for first oil export in Q4 2017. Capital expenditure over the 2016-17 financial year will be $2.25 million and covers pipeline repairs, cathodic protection, design and long lead items ordering along with installation and commissioning of equipment at Grieve and Spectra facilities.

3. Singleton South Field 100% Elk owned and operated.

During the year Elk announced the acquisition of a 100% operated working interest in certain relatively low cost, low risk oil property's from a wholly-owned subsidiary of Oklahoma based Devon Energy Inc. The properties are immediately south and contiguous to Elk's Singleton Oil Field Enhanced Oil Recovery (EOR) Project in Banner County, Nebraska. Located in the north-eastern portion of the prolific Denver-Julesburg Basin (the 'DJ Basin'). The property was acquired for an entire consideration of US$100,000. Elk estimates that Devon's total investment in the acquired properties to be in excess of US$10 million.

The properties consist of:

• All of Devon's oil and gas leasehold interests in Banner County, Nebraska covering 9,738 gross acres (5,987 net acres);

• Two oil exploration wells - one vertical well, Opis 1P and one horizontal well, Opis 1H - both of which have been completed as oil producers; and

• All of the oil production, processing facilities, storage and oil truck load-out equipment.

The properties are essentially new with the leases first being acquired in 2012 and the Opis 1P well drilled and completed in early 2013 and the Opis 1H well drilled and completed in late 2013 with production facilities constructed shortly thereafter.

In undertaking the pre-development technical review of the Singleton EOR Project, the Company had identified that in the southern portion of the Singleton Oil Field some of the oil production was being contributed from a better developed lower Muddy Formation interval J3 sand.

This was later confirmed by Elk prior to purchase during detailed technical due diligence of the Devon Oil Properties, and analysis of drilling results from the Opis 1P and Opis 1H exploration wells. The shallow depth and relatively thick section of J3 sand present in the Opis 1P and Opis 1H wells contained oil pay. Devon's primary objective in drilling these 2 wells were the deeper (and after production testing) high water cut

non-commercial Mississippi Limestone oil play. The J3 oil sands were not tested and are now behind casing in these 2 suspended wells. With the added bonus of newly installed oil production facilities at the Opis 1H production well we have the flexibility to support the Singleton Unit EOR Project or renter the Opis 1P well and production test the J3 oil sand.

Elk estimates that the Devon Oil Properties contain approximately 3C contingent oil resources of 2.5 MMbbls and 78 Mbbls of 2P oil reserves net to Elk. The acquisition represents a 25-35% increase in the Company's current 3C contingent oil resources.

Subsequent to year end your Board has approved a budget of US $195k to start the production appraisal stage utilisiing the Devon Opis-1P well by re-entering this well and completing the J3 sand to test its oil production potential over a long term oil production test. In addition, water injection will be restarted in the Singleton Unit at the W3 water injection well.

The Company believes that if appraisal production testing at the Opis 1P and Opis 1H wells can be established, the J3 sand oil pool contained in the acreage extending from the southern portion of the Singleton Oil Field southern boundary of Banner County may be able to be developed in CY 2017.