Microsoft Word - JPR 2015 Annual Report (Final)

ANNUAL REPORT

FOR THE YEAR ENDED 30 JUNE 2015

CORPORATE INFORMATION

Jupiter Energy Limited

ABN 65 084 918 481

Directors

Geoffrey Gander (Executive Chairman/Chief Executive Officer) Alastair Beardsall (Non-Executive Director)

Baltabek Kuandykov (Non-Executive Director) Scott Mison (Executive Director)

Company Secretary

Scott Mison

Registered Office & Principal Place of Business

Ground Floor, 10 Outram Street West Perth WA 6005

PO Box 1282

Western Australia 6872

Telephone +61 8 9322 8222

Facsimile +61 8 9322 8244

Email [email protected]

Website www.jupiterenergy.com

Solicitors Steinepreis Paganin Level 4,

16 Milligan Street

Perth WA 6000

Auditors

Ernst & Young

11 Mounts Bay Road Perth WA 6000

Bankers

National Australia Bank Ltd UB13.03, 100 St Georges Terrace Perth WA 6000

Nomad

finnCap Ltd

60 New Broad St London, EC2M 1JJ United Kingdom

Share Registry

Computershare Investor Services Pty Ltd Level 2, 45 St George's Terrace

Perth WA 6000

Telephone 1300 557 010 (only within Australia)

+61 8 9323 2000

Facsimile +61 8 9323 2033

Website www.computershare.com

Stock Exchange Listing

Jupiter Energy Limited shares are listed on the Australian Securities Exchange under the code JPR, on the AIM Market under the code JPRL and on the Kazakh Stock Exchange (KASE) under the code AU_JPRL.

Contents of Financial Report

Chairman's Letter 1

Directors' Report 2

Remuneration Report 11

Corporate Governance Statement 22

Auditor Independence Declaration 28

Consolidated Jupiter Energy Limited Financial Statements

Consolidated Statement of Comprehensive Income 30

Consolidated Statement of Financial Position 31

Consolidated Statement of Cash Flows 32

Consolidated Statement of Changes in Equity 33

Notes to the Consolidated Financial Statements 34

Directors' Declaration 72

Independent Audit Report to the members of Jupiter Energy Limited 73

ASX Additional Information 75

CHAIRMAN'S LETTER

Dear Shareholder,

I am pleased to present the 2015 Annual Report for Jupiter Energy Limited (Jupiter Energy or the Company). The past year can be best described as one of two halves.

The first six months of the year showed slow but steady progress with the development of the Block 31 licence area supported by the ongoing trial production from the J-50, 51 and 52 wells and progress towards the granting of Trial Production Licences for the J-58 and J-59 wells located on the West Zhetybai field.

Funding constraints meant that drilling on the permit was limited to Well 19, the Company's eighth well that reached target depth in February 2015 but was not fully completed and tested due to a lack of funding. That said, the Company recovered three hydrocarbon samples from the well, with each container holding 300 litres. Independent analysis of the recovered liquids showed that it was oil with a water cut of ~0.03% with the density and salt content in line with oil produced from the J-51 and J-52 wells.

The second six months saw production halted in February 2015 when the falling world oil price meant that the sales price being achieved for domestic oil in Kazakhstan fell to levels that made oil production from Block 31 uneconomic.

The Company took the opportunity during this shut down period to restructure its operations and overall monthly operating costs have been reduced by ~40% providing an annual saving in running costs of over $US2 million. In addition, the Company has reviewed its overall approach to Trial Production. Based on a cost structure that uses purchased (vs rental) topside equipment, the Company believes that with the additional oil produced from the J-58 and J-59 wells (once Trial Production Licences for these wells have been approved) it should be possible to return to selling into the domestic market on a cashflow positive basis. Ultimately the price of Kazakh domestic oil will be the key determining factor in the timing of recommencing trial production.

The Company continues to be supported by its major shareholders with interim debt funding during the year via the renewal of Convertible Notes and the issue of a new Promissory Note. The continued use of unsecured debt to fund the Company is driven by the fact that the Company has been unable to secure the required permission from the Kazakh Ministry of Energy to raise equity through the issue of new shares. Once permission is granted it is the intention of the note holders to convert their unsecured debt to equity, subject to the necessary approvals being granted, and for the provision of additional funding to come through the issue of new shares.

Looking forward, the Company plans to return to domestic oil production as soon as possible and, assuming funding is in place, focus on both exploration and appraisal drilling as well as to start the building of the requisite infrastructure to allow the Akkar East oilfield to move into its Full Field Development phase - a key step in the Company achieving the first sale of export oil.

The Board remains confident in the prospectivity of the licence area and furthermore that the two oilfields that have already been discovered on our permit area can be commercially developed into significant producers. Subject to securing additional funding, the Company will also continue to progress applications for further land extensions of the permit area, which could provide further exploration upside.

Finally, I would like to take this opportunity to thank all our employees and shareholders for their continued support over the past twelve months.

Sincerely

Geoff Gander

Chairman/CEO

DIRECTORS' REPORT

Your Directors submit their report for the year ended 30 June 2015.

DIRECTORS

The 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 responsibilities

Geoffrey Anthony Gander (52)

B.COM

Executive Chairman/CEO Appointed 27 January 2005

Mr Gander graduated from the University of Western Australia in 1984 where he completed a Bachelor of Commerce Degree.

Mr Gander was involved in the identification and purchase of the Block 31 licence in Kazakhstan and has driven the development of the business there since 2007. He is currently responsible for the overall Operational Leadership of the Company as well as Investor Relations and Group Corporate Development.

Other Current Directorships of Listed Companies

None

Former Directorships of Listed Companies in last three years

None

Alastair Beardsall (61)

Non-Executive Director Appointed 5 October 2010

Mr Beardsall has been involved in the oil industry for more than 30 years starting in 1980 with Schlumberger, the oil-field services company. From 1992 he began working for independent oil companies, with increasing responsibility for specific exploration, development and production ventures. Between 2003 and 2009, he was Executive Chairman of Emerald Energy plc; Emerald grew, from a market capitalisation of less than £8 million, until in October 2009 Emerald was acquired by Sinochem Resources UK Limited, in a transaction that valued Emerald at £532 million.

Other Current Directorships of Listed Companies

Sterling Energy Plc - (AIM) Gulfsands Petroleum Plc (AIM)

Former Directorships of Listed Companies in last three years

None

Baltabek Kuandykov (67)

Non-Executive Director Appointed 5 October 2010

Mr Kuandykov has considerable experience in the oil and gas industry in the region, having served as President of Kazakhoil (predecessor of the Kazakh State oil company KazMunaiGas). He was also seconded by the Kazakh Government to work with Chevron Overseas Petroleum on CIS projects. Mr Kuandykov also has extensive government experience in Kazakhstan, having served as Deputy Minister of Geology, Head of the Oil and Gas Directorate at the Ministry of Geology, and was Deputy Minister of Energy and Fuel Resources.

Other Current Directorships of Listed Companies

Caspian Energy Inc (TSX)

Former Directorships of Listed Companies in last three years

Chagala Group Limited (LSE)

DIRECTORS' REPORT (continued)

Scott Adrian Mison (39)

B.Bus, CA, ACSA

Executive Director Appointed 31 January 2011

Company Secretary Appointed 29 May 2007

Mr Mison holds a Bachelor of Business degree, is a Member of the Institute of Chartered Accountants in Australia and Chartered Secretaries Australia.

Mr Mison has over 16 years' experience in finance and corporate compliance within Australia, UK, Central Asia and USA.

He is currently a Director / CFO / Company Secretary of ASX listed 1-Page Limited, CFO / Company Secretary of Rift Valley Resources Ltd and IDM International Limited. Mr Mison is also a board member of Wheelchair Sports WA Inc. a not for profit organisation.

Other Current Directorships of Listed Companies:

1-Page Limited

Former Directorships of Listed Companies in last three years:

None

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

At the date of this report, the interest of the Directors in the shares of Jupiter Energy Limited were:

Director Number of

ordinary shares

G Gander 3,147,224

A Beardsall 1,250,000

B Kuandykov -

S Mison 391,238

In compliance with Corporations Law, none of the Directors' shareholdings in the Company is subject to hedging. Each Director must disclose any changes via formal ASX, AIM and KASE announcement without delay. Any changes in Directors' shareholdings are also confirmed at each Board meeting.

DIRECTORS' REPORT (continued)

CORPORATE STRUCTURE

Jupiter Energy Limited is a company limited by shares that is incorporated and domiciled in Australia. Jupiter Energy Limited has prepared a consolidated financial report incorporating the entities that it controlled during the financial year, which are outlined in note 28 of the financial statements.

PRINCIPLE ACTIVITIES

The principal activities of the consolidated entity during the course of the financial year included:

• Exploration for oil and gas in Kazakhstan: and

• Appraisal, development and production of oil and gas properties in Kazakhstan.

  
  

  EMPLOYEES

  The consolidated entity employed 21 employees as at 30 June 2015 (2014: 37 employees).

  
  

  DIVIDENDS

  No dividends in respect of the current or previous financial year have been paid, declared or recommended for payment.

  
  

  FINANCIAL REVIEW

  
  

  Operating Results

  The consolidated loss for the year after income tax was $10,982,261 (2014: $2,547,271).

  
  

  Review of Financial Condition

  
  

  At the end of the 2015 financial year, cash resources were $1,613,560 (2014: $1,285,358). These accounts have been prepared on a going concern basis, predicated on the Company's ability to raise additional cash in order to finance its proposed work programme and general and administrative costs for the next 12 months. The Board is currently progressing a number of financing options including seeking the requisite waivers for an equity raising and/or the issue of debt finance.

  
  

  Assets increased to $76,897,616 (2014: $59,218,198) and equity increased to $41,654,900 (2014: $39,830,138).

  
  

  CAPITAL RAISING / CAPITAL STRUCTURE

  
  

  The Company has on issue $US15.5m in Series B Convertible Notes made up of 12,400,000 Notes with a conversion price of $US1.25 per Note; interest on the Notes is accrued at 12% per annum and will become payable when the Notes are repaid or converted into shares. The Series B Convertible Notes were issued on 20 September 2013, have a three (3) year term and fall due for repayment (including accrued interest) on 20 September 2016 unless converted/repaid at an earlier date.

  
  

  As announced on 17 November 2014, independent shareholders approved amendments to the terms of the Series B Convertible Notes at the 2014 AGM such that in the event of a capital raising at a price lower than $US1.25 per share, the Convertible Notes may be converted at this lower price.

  
  

  On 7 October 2014 the Company announced it had received $US5m of funding from its largest shareholder, Waterford Petroleum Limited.

  
  

  The funding was by way of a Promissory Note with the following key terms:

  
  

• Amount: $US5m.

• Repayable in full on 30 June 2015 or when the Company raises a minimum of $US20m (whichever is sooner). The raising may be via equity, debt or a combination of both.

  
  

  DIRECTORS' REPORT (continued)

  
  

• Amount repayable may be set off against payment for future equity investment.

• Coupon Rate: 12% with any interest being accrued to maturity and able to be offset against payment for future equity investment.

  
  

  On 30 April 2015 the Company signed a Framework Agreement with a substantial shareholder, Waterford Petroleum Limited (Waterford), which will provide the Company with up to $US5m in additional working capital via the issuance of promissory notes. The Company continues to seek a longer term funding package that will enable the commencement of the 2015/16 drilling program.

  
  

  The Framework Agreement has certain terms and conditions, the key ones being:

  
  

• The issuance of new promissory notes repayable on 1 July 2016.

• The October 2014 $US5m Promissory Note (October 2014 Note) held by Waterford were rolled into a Series B Promissory Note along with the accrued interest outstanding on the October 2014 Note as at 30 April 2015 of $US346,849.

• The issuance of further Series B Promissory Notes will provide up to $US5m for working capital purposes which can be drawn down as required following agreement on the use of funds by Waterford.

• The Series B Promissory Note has a coupon rate of 15% per annum, and the interest will accrue and be payable at the time that the Series B Promissory Note is repaid.

• Waterford may elect to offset the value of the Series B Promissory Note and any accrued interest against participation in any future capital raising carried out by the Company prior to 30 June 2016.

• Waterford may elect to roll the value of the Series B Promissory Note and any accrued interest into any other debt funding facility that the Company may establish prior to 1 July 2016.

Summary of share options on issue

At the date of this report, there were no share options on issue.

OPERATING REVIEW

This section provides details on the operations of the past 12 months.

Ongoing trial production from the J-50, J-51 and J-52 wells took place for the first six months of the financial year. All other wells were either shut in awaiting remedial work (J-53 and J-55) or shut in awaiting approval of Trial Production Licences (J-58 and J-59). Details on all these wells are outlined below as are details of other work carried out over the course of the year.

Well Operations

J-50, J-51 and J-52 Trial Production

During the first seven months of the financial year the Company achieved revenues of ~$US3.66 million from the sale of approximately 108,500 barrels of oil at an average price of $US33.75 per barrel.

All oil sales were made into the Kazakhstan domestic market, as is required under Trial Production, and made predominantly through three local traders. All sales were made on a pre-paid basis, with oil collected by the traders from the well head.

The J-50, J-51 and J-52 wells all had Trial Production Licences (TPL) in place to 29 December 2014. Applications for the extension of the J-50, J-51 and J-52 TPL's for the period 1 January 2015 to 29 December 2016 were submitted during the first half of the financial year and TPL extensions to December 2016 for the J-51 and J-52 wells were received in December 2014.

DIRECTORS' REPORT (continued)

The application for an extension to the J-50 TPL was not approved. The underlying issue delaying the J-50 TPL renewal is the demand by the Kazakh Committee of Geology that Jupiter Energy reach agreement with its neighbour MangistauMunaiGas (MMG) over the division of reserves associated with each companies' share of the Akkar North accumulation. Jupiter Energy had been in dialogue with MMG on this issue for some time prior to the December 2014 expiry date but was not able to reach formal agreement with MMG with respect to the division of Akkar North reserves by 29 December 2014. The matter remains unresolved and as a result J-50 has been shut in since 29 December 2014. There has been no revenue from this well since that date.

Oil was produced from the J-51 and J-52 wells from 1 January 2015 to 10 February 2015 when the dramatic fall in world oil prices resulted in sales contracts being offered by local traders for domestic oil in the Kazakh market at levels that meant further production would be cashflow negative. A decision was made to shut in both wells and there has been no revenue from the J-51 and J-52 wells since February 2015.

The J-53 well requires further remedial work and the Company does not, at present, have the requisite funding for this work and as such the well has not been in production at any time during the financial period.

Overall, average daily production during the first half of the 2014/15 year when the J-50, 51 and 52 wells were all on production was ~550 barrels of oil per day (2013/14: ~680 bopd). The reduction was due to a combination of the downtime of the J-50 well during August (ESP maintenance) and the J-51 and J-52 wells in September (regulatory well testing).

West Zhetybai Field (J-55, J-58 and J-59 wells)

The Kazakh authorities require companies that believe they have discovered a new oilfield to submit a Preliminary Reserves Report for their review and approval. This report must be prepared under the approved Kazakh standards which have been developed from the Russian reserves system; the standards are based on the analysis of geological attributes.

Once Preliminary Reserves have been approved for a field, a company is then able to submit applications for various environmental and emission approvals to complete the Trial Production Licence (TPL) application process for the relevant wells on that field. Once these TPL's have been received the wells can be put on Trial Production and oil from those wells (and subsequent ones that are drilled on the same field) can be sold into the domestic market.

Jupiter Energy has drilled three wells on the West Zhetybai field (J-55, J-58 and J-59) and after being allowed to carry out a maximum of 90 days testing on each well, the wells were shut in awaiting the preparation, review and ultimate approval of the West Zhetybai Preliminary Reserves Report. The State Approval for the West Zhetybai Preliminary Reserves was received in July 2014.

In summary the West Zhetybai accumulation covers the area delineated by the J-55, J-58 and J-59 wells and reserves were evaluated for the T31, T32, T2A and T2B reservoir horizons. The State approved quantity of Oil in Place (OIP) for this area has been estimated at ~173.5 million barrels of oil (mmbbls) from all horizons with preliminary recoverable reserves (C1 + C2) estimated at ~27.0 mmbbls with the approved C1 reserves estimated at

~4.0 mmbbls and C2 reserves at ~23.0 mmbbls. The proportion of approved C1 to C1+C2 reserves indicates the need for (i) further testing of the J-55 and J-59 wells and (ii) drilling of additional appraisal wells on the field.

The approval of the Preliminary Reserves Report for West Zhetybai enabled the TPL application process to begin for the J-58 and J-59 wells and during the year this approval process continued. As at the date of this report, the Company has all the requisite approvals from the State Authorities to commence trial production from J-58 and J-59. Funding to install the topside infrastructure for these wells is now required before trial production can commence.

DIRECTORS' REPORT (continued)

The J-55 well requires remedial work before it is ready for trial production. Like the J-53 well, until funding for this work is in place, the well remains shut in.

Well 19

During the year the Company drilled one well. Well 19 is located on the Akkar East field and was drilled in an area of already proven C1 reserves between the J-51 and J-52 wells and as such was the Company's first 'production' well.

The well was drilled on time and on budget. The limited completion and testing of well 19 included perforating the well underbalanced with tubing conveyed perforating guns, monitoring fluid levels and running pressure gages. Testing of the well indicated severe skin damage which will require an acid treatment to stimulate the well and assist oil flow into the well bore. This is consistent with other wells in the area.

Further work, including an acid stimulation, will not take place until the requisite funding for the work is in place and the Company is ready to return to trial production operations.

Forward Plan for Drilling Activity

The Company is currently reviewing the funding plan for the coming twelve months. Assuming the funding is in place, it is expected that there will be a combination of exploration, appraisal and early development wells drilled.

In the North, the Company expects to drill at least two new wells; one well (J-57) on Akkar East will be drilled in an area of C2 reserves and should be the final well required before the State Authorities approve the Final Reserves Report for the Akkar East field. The obtaining of a Final Reserves Report is a critical step in moving the Akkar East field towards Full Field Development and export oil.

The second well in the North is expected to be the J-54 well. The J-54 prospect is a large structural closure mapped using 3D seismic to the north of the producing Akkar East field. The Company believes the prospect is a separate field and the prognosis is that it is structurally up dip of Akkar East.

The Company considers that the main risk associated with the J-54 well is the presence of an adequate top seal to trap oil. Assuming success, the Company believes that the reservoir quality and flow rates should be similar to that found in the Akkar East field.

In the South, the J-58 and J-59 wells are both currently suspended awaiting completion of the requisite infrastructure to begin trail production from these wells. When ready, J-58 will be put on production from the T2B horizon, and the J-59 well will be used to test the potential of the shallow Jurassic horizon before being completed for production from the T2B horizon.

Further remedial work will be carried out on J-55 to determine if commercial production can be established and this work may require separate approvals from the relevant bodies.

It is expected that, subject to the Company obtaining the requisite funding, two further appraisal wells will also be drilled on the West Zhetybai field during 2016/17.

Details on the Exploration and Production Licences

The current Exploration Licence takes the exploration period through to December 2016. An application for a further minimum 2 year extension to the Exploration Licence will be submitted to the relevant Kazakh authorities later this calendar year. The further extension of the Exploration Licence is an integral part of the plan for the successful completion of the exploration phase of the project and will provide the Company with the necessary time to make a smooth transition into the 25 year Production Licence phase of the Block 31 contract.

DIRECTORS' REPORT (continued)

Prospectivity

As outlined in the Forward Plan for Drilling Activity section of this report, the drilling of J-54 offers the potential, assuming success, for an a further upgrade of Block 31 reserves. The Company's understanding of the prospectivity of Jupiter Energy's Block 31 continues to improve and the Board is confident that further additions to the reserves are achievable.

The Company is also progressing land extension applications in the North East and South East and if these are successful there could be further exploration targets identified for drilling in 2016/2017.

Future Production

The J-51 and J-52 wells already have their respective TPL's approved until December 2016 and it is expected that wells J-58 and J-59 will be ready to go into Trial Production as soon as the requisite topside infrastructure is in place.

Well 19 needs further work, including an acid stimulation, and this work will not take place until the requisite funding is in place and the Company is ready to return to trial production operations.

Board and Staffing

An integrated operating team that has proven in-country experience as well as the capacity to operate major assets is a critical component to success in Kazakhstan. The building of such a team over the past few years has been a majority priority. Unfortunately a number of staff were made redundant as a result of the shutdown of field operations in February 2015 and others were offered part time roles at that time. Once the Company is ready to resume trial production, these positions will again be filled with past employees given priority to apply for roles.

The Board is confident that the Company will be well prepared for continued growth over the coming years.

SIGNIFICANT EVENTS POST PERIOD END

Except as otherwise set out in this report, the Directors are unaware of any significant changes in the state of affairs or principal activities of the consolidated entity that occurred during the period under review.

DIRECTORS' REPORT (continued)

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

Except as otherwise set out in this report, the Directors are unaware of any significant changes in the state of affairs or principal activities of the consolidated entity that occurred during the period under review.

LIKELY DEVELOPMENTS AND EXPECTED RESULTS

The Directors will continue to pursue oil and gas exploration and production opportunities in the Republic of Kazakhstan.

As Jupiter Energy Limited is listed on the Australian Stock Exchange, London's AIM Market (AIM) and the Kazakh Stock Exchange (KASE), it is subject to the continuous disclosure requirements of the ASX Listing Rules, the AIM Rules and the KASE Rules for Companies which require immediate disclosure to the market of information that is likely to have a material effect on the price or value of Jupiter Energy Limited's securities.

ENVIRONMENTAL REGULATION

The consolidated entity is committed to achieving the highest standards of environmental performance. Standards set by the Government of Kazakhstan are comprehensive and highly regulated. The consolidated entity strives to comply not only with all Kazakh government regulations, but also maintain worldwide industry standards.

To maintain these high standards the Company is committed to a locally developed environmental monitoring programme. This monitoring programme will continue to expand as and when new regulations are implemented and adopted in Kazakhstan.

HEALTH & SAFETY

The Company has developed a comprehensive Health and Safety policy for its operations in Kazakhstan and has the appropriate personnel in place to monitor the performance of the Company with compliance under this policy. The Company outsources many of its key drilling functions and as part of any contract entered into with third parties, a commitment to Health & Safety and a demonstrated track record of success in this area is a key performance indicator in terms of deciding on which companies will be contracted.