Entek Energy Limited

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CODE : ETE.AX
ISIN : AU000000ETE7
AUSTRALIA
AU$ 0.008
08/08 11:00 -
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AUSTRALIA (ETE.AX)Other OTC (ETKEF)
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2016 Annual Report

ANNUAL REPORT

2016

CORPORATE DIRECTORY

DIRECTORS:

Graham Douglas Riley

Non-Executive Chairman

Kimberly S Parsons

Executive Director / CEO

Alexander Forcke

Non-Executive Director

COMPANY SECRETARY:

Nerida Lee Schmidt

ABN:

43 108 403 425

REGISTERED OFFICE:

Ground Floor 338 Hay Street

Subiaco, Western Australia 6008

Tel: +61 (8) 9213 4388

Fax:+61 (8) 9213 4399

Email: [email protected] Website: www.entekenergy.com.au

AUDITORS:

STANTONS INTERNATIONAL

Level 2, 1 Walker Avenue West Perth WA 6005 Tel: +61 (8) 9481 3188

Fax:+61 (8) 9321 1204

SHARE REGISTRY:

COMPUTERSHARE INVESTOR SERVICES PTY LTD

Level 11, 172 St Georges Terrace Perth, Western Australia 6000

GPO Box D182

Perth, Western Australia 6840

Tel: 1300 850 505 (Within Australia)

+61 3 9415 4000 (Outside Australia)

Fax:+61 3 9473 2500 (Within Australia)

LEGAL ADVISORS:

GILBERT & TOBIN

1202 Hay Street

West Perth, Western Australia 6005

NORTON ROSE FULBRIGHT

1200 17th Street, Suite 1000 Denver, Colorado 80202-5835, USA

BANKERS:

BANK OF WESTERN AUSTRALIA LIMITED

1215 Hay Street

West Perth, Western Australia 6005

BANK OF AMERICA MERRILL LYNCH / BANK OF AMERICA, NA

555 California Street, Suite 1140 San Francisco, California 94104, USA

WELLS FARGO BANK, NA

1740 Broadway

Denver, Colorado 80274, USA

This annual financial report covers both Entek Energy Limited as an individual entity and the Consolidated Entity comprising Entek Energy Limited and its subsidiaries. The Group's presentation currency is Australian Dollars ($). The functional currency of Entek Energy Limited is Australian Dollars ($) and the functional currency of all other subsidiaries of Entek Energy Limited is United States Dollars (US$). A description of the Group's operations and of its principal activities is included in the review of operations and activities in the Directors' Report. The Directors' Report is not part of the annual financial report.

2 ENTEK ENERGY LTD | ANNUAL REPORT 2016

CONTENTS

CHAIRMAN'S REPORT ��������������������������������������������������������������������������4 OPERATIONS REPORT �������������������������������������������������������������������������6 DIRECTORS' REPORT �������������������������������������������������������������������������13 DIRECTORS' DECLARATION �������������������������������������������������������������26

STATEMENT OF PROFIT OR LOSS AND

OTHER COMPREHENSIVE INCOME ������������������������������������������������28 STATEMENT OF FINANCIAL POSITION ������������������������������������������29 STATEMENT OF CASH FLOWS ���������������������������������������������������������30 STATEMENT OF CHANGES IN EQUITY�������������������������������������������� 31 NOTES TO THE FINANCIAL STATEMENTS �������������������������������������32 AUDIT REPORT ����������������������������������������������������������������������������������� 60 AUDIT INDEPENDENCE DECLARATION �����������������������������������������62 ADDITIONAL INFORMATION ������������������������������������������������������������63

ENTEK ENERGY LTD | ANNUAL REPORT 2016 3

CHAIRMAN'S REPORT

Dear Shareholders,

As I indicated to you in our last Annual Report, the key objective of the 2015 drilling programme was to validate the geological model of the Niobrara Shale in the Battle Mountain Joint Venture, based on the 3D seismic previously shot by the Operator, and to recommence testing the potential of the Focus Ranch Unit following success in defending continued legal challenges by local surface owners.

Entek was fully carried through the three exploration wells at Battle Mountain, all of which were essentially unsuccessful for the reasons set out in the Operations Report from our CEO as part of this Annual Report.

Whilst subsequent analysis and workshopping of those disappointing exploration results certainly revealed operational improvements and changes that should be adopted by the Operator in future drilling campaigns, the intervening collapse in crude oil prices has seriously affected the economic viability of most exploration plays, particularly in the unconventional shale sector.

This has resulted in the massive write-downs we have seen by major petroleum companies with unconventional assets. It has also critically restricted the potential flow of much needed capital for small and junior explorers, resulting in many filings for bankruptcy protection in this sector across the United States.

In these circumstances, and given that any Niobrara wells drilled on our acreage in this environment are not likely to be economic or profitable, the Company is unlikely to participate in any proposed exploration during the current drilling season, without some unexpected and compelling reason to the contrary. These coming decisions will be made progressively as requisite notices are received on a well by well basis.

The Board has also made some very difficult decisions in asset and portfolio rationalisation, including staff and overhead reductions, with our new CEO and Denver office staff agreeing to terminate their employment contracts and continue working for the Company on a consultative 'as needs' basis. The Board continues to monitor all required expenditures closely.

The original decision of the previous Entek Board to pursue the Niobrara play was made at a time of high oil prices and general market enthusiasm for the sector, and, as an early mover, Entek managed to secure a large acreage position for such a small company. The project has been diligently pursued, but market conditions have deteriorated and are now vastly different to those prevailing at the time the asset was acquired. However, our obligations and responsibilities continue, and it is important for shareholders to understand the strict regulatory and legal regime which controls all our

U.S. operations, requiring continued and future compliance as we seek to rationalise these assets.

4 ENTEK ENERGY LTD | ANNUAL REPORT 2016