ELIXIR ENERGY LIMITED — Annual Report 2009

Oct 21, 2009

==> picture [79 x 55] intentionally omitted <==

==> picture [58 x 6] intentionally omitted <==

----- Start of picture text -----

ABN 51 108 230 995
----- End of picture text -----

Annual Report 09

==> picture [596 x 273] intentionally omitted <==

==> picture [596 x 254] intentionally omitted <==

CORPORATE DIRECTORY

Directors

Mr Jonathan Stewart – Executive Chairman Mr Andrew Ross – Managing Director Mr Iain Knott – Executive Director, Exploration Dr John Robertson – Non-Executive Director

Share Registry

Computershare Investor Services Pty Ltd Level 2, 45 St Georges Terrace Perth WA 6000 T: (+61) 8 9323 2000

Company Secretary Mr David Lim

Registered and Principal Administration Office

Level 20, 77 St Georges Terrace Perth 6000 Western Australia T: (+61) 8 9440 2650 F: (+61) 8 9440 2699

Bankers

National Australia Bank Limited Ground Floor, 100 St Georges Terrace Perth WA 6000

Barclays Bank plc 5 The North Colonnade Canary Wharf London E14 4BB

UK Office

8 The Courtyard Eastern Road Bracknell Berkshire RG12 2XB United Kingdom T: (+44) 1344 423 170 F: (+44) 1344 360 268

Stock Exchange Listing

Australian Securities Exchange Home Exchange: Perth, Western Australia Code: EXR

Website and Email

www.elixirpetroleum.com info@elixirpetroleum.com

Auditors – Australia

Mack & Co Level 2, 35 Havelock Street West Perth WA 6005

Auditors – UK

MacIntyre Hudson LLP New Bridge Street House 30-34 New Bridge Street London EC4V 6BJ

==> picture [595 x 114] intentionally omitted <==

CONTENTS

==> picture [239 x 143] intentionally omitted <==

Chairman’s Letter	2
Review of Operations	3
Directors’ Report	11
Independent Audit Report	25
Directors’ Declaration	29
Income Statements	30
Balance Sheets	31
Statement of Changes in Equity	32
Cash Flow Statements	34
Notes to the Financial Statements	35
Corporate Governance Statement	71
Additional ASX Information	77

CONTENTS | 1

==> picture [240 x 114] intentionally omitted <==

CHAIRMAN’S LETTER

Dear Shareholders,

As management of the company we must accept that the past year has been disappointing in several areas. The severe global economic events that occurred early in the 2009 financial year soon shifted our focus in many respects from growth initiatives to survival. I am pleased to say that with the international economy seemingly on the road to recovery, your company remains well funded relative to its size with existing producing assets and several projects with considerable upside potential.

You will be aware that our business model has involved two distinct components comprising lower technical risk assets in production in the shallow waters of the US Gulf Coast and more exploration driven prospects predominantly to date located in the North Sea. Both of these parts of our business were under pressure in the past year. In North America, damage caused to third party facilities in last year’s hurricane season restricted our ability to export hydrocarbons from one of our fields and the decline in the US economy led to significant falls in gas prices domestically. Internationally, funds available for exploration were significantly reduced and this has made implementation of farmout strategies in the North Sea extremely difficult.

In response to these circumstances we have sought to review and reduce our cost structures, to defer certain expenditure programs pending improved market conditions and where necessary, to relinquish interests in certain North Sea exploration blocks where we considered the chance of commercial success to be low.

With some improvement in US domestic gas prices recently, we have participated in workover activities at our Pompano Field and initial results are encouraging with a significant improvement in flow rates. Hopefully stronger gas prices will prevail for the balance of the year which would of course lead to much improved cash flow for Elixir.

The decision was also made to effectively exit from Block SL4 in Sierra Leone where we held a 15% interest and operatorship. Whilst we had considerable optimism for the technical potential of this block and the region, disagreements between partners over funding commitments and various other issues made an already challenging operating environment ultimately untenable.

On a more positive note, we remain well funded with approximately $8 million in cash at balance date, with cash flow being generated from our US assets, an existing oil discovery at Mulle in the North Sea and some exciting exploration prospects that we continue to market for farmout. In addition, we continue to review opportunities with the objective of participating in scenarios that have the potential to deliver attractive returns for shareholders.

We appreciate the support of our shareholders and I would like to thank them for their patience in what has been a difficult year for the company. I would also like to thank our employees, consultants and partners for their efforts over the past year.

Yours sincerely,

==> picture [97 x 45] intentionally omitted <==

Jonathan Stewart Executive Chairman

2 | CHAIRMAN’S LETTER

==> picture [595 x 114] intentionally omitted <==

REVIEW OF OPERATIONS

Development and Production Review

• High Island A 268 (EXR 30%)

Strategy

Background

Elixir is an internationally focused upstream oil and gas company with a diversified portfolio of offshore petroleum interests across the exploration, appraisal, development and production lifecycle.

High Island Block A-268 is located approximately 100km offshore Texas in Federal waters within the Gulf of Mexico in approximately 50m of water depth.

Elixir’s business strategy is to acquire interests in exploration licences with high impact potential, to work up prospects internally and to farm these out to industry to drill, typically on a promoted carry basis. Complementing this exploration strategy is the addition of lower risk oil and gas development projects with appraisal upside located in the shallow waters of the Gulf of Mexico. These projects typically demonstrate a short cycle time to production and provide cashflow for the Elixir Group.

The Board of Elixir considers it important to remain flexible in the pursuit of new business opportunities which are judged to be complementary to its existing business activities and able to deliver superior growth in shareholder value.

An update on the Group’s operations follows.

Elixir is the largest participant in the High Island joint venture with a 30% working interest. The High Island development has two deviated wells and a simple tripod platform with well test facilities. From this installation, production from the two wells is routed via a 5km pipeline to a regional processing facility at the nearby High Island 442 platform.

The first well at the High Island development was drilled in January 2007 using a new 3D seismic survey that had been correlated to six exploration wells that had been drilled in the area. The second development well was drilled in July 2007 and the field was placed on production in September 2007. Both wells at High Island encountered two commercial horizons and both are presently completed and producing from the deepest reservoir in each well.

==> picture [389 x 243] intentionally omitted <==

Fig. 1 – High Island Field schematic

REVIEW OF OPERATIONS | 3

==> picture [240 x 114] intentionally omitted <==

Hurricanes Gustav and Ike

In early September 2008, Hurricanes Gustav and Ike passed in quick succession through the Gulf of Mexico. The High Island A-268 wells were shut in as a precaution during the passage of both storm systems. Although neither hurricane caused material damage to the High Island facilities, during the passage of Hurricane Ike a ship’s anchor dragged across and severed a regional 42 inch gas export pipeline, known as the High Island Offshore System (“HIOS”). Repairs to the HIOS were not completed until the beginning of January 2009, at which point production from High Island was able to re-commence.

Well performance

With both wells still producing from their initial deeper horizon, we have observed during the reporting period a slow, natural decline in well performance as a result of depletion through production.

Well A1 produces from the 8,000 ft sand. The production history from the well indicates that a thin condensate rim exists below the primary gas cap in the reservoir. Production in the reporting period saw water and condensate rates begin to increase as the condensate rim ‘coned’ up into the well. Unfortunately, this also led to a reduction in gas volumes as the more dense liquids loaded up the well bore and surface pressure limitations prevented the operator from maintaining gas production rates. By the time the field was shut-in for Hurricane Gustav at the end of August 2008, Well A1 was producing gas at a rate of 0.4 million cubic feet per day (“mmscf/d”), 190 barrels per day (“bbls/d”) of condensate and 349 bbls/d of water.

regional processing facility in June 2009. The modifications now allow gas production from both High Island wells to access export gas compressors located on that platform. In being able to compress gas produced from Wells A1 and A2 to export line pressures, it allows the wells to be operated at a lower tubing head pressure, and thus a greater drawdown can be applied to the wells increasing production rates.

The benefits of the modifications undertaken emerged following the end of the reporting period with recent production rates from both wells improved as a result of access to compression. It is expected that the process modifications will also have the effect of increasing the production lives of the current reservoir horizons by a further six to twelve months.

Field Production

Despite a four month shut-in whilst repairs were undertaken to the HIOS, the High Island field produced during the reporting period a total of 922 mmscf of gas and 14,400 bbls of condensate. The result for 2009 brings total field production from commencement of operations to the end of the reporting period to 3,648 mmscf of gas and 85,700 bbls of condensate.

Given volatility in commodity markets, a wide range of pricing was achieved for production sold during the financial year. Gas prices ranged from US$11.20 down to US$3.17 with an average for the year of approximately $5.79/mscf. Condensate prices ranged from a high of US$134.44 in July 2008 to a low of US$31.76 in January 2009, with an average for the period of US$69.80/bbl.

Forward Plan

Following the completion of repairs to the HIOS and the recommencement of production from Well A1 in January 2009, a degree of recharge in the reservoir was observed allowing higher rates of production to be maintained.

Well A2 produces from the 6,400 ft sand and has produced approximately 94% of total field gas production during the reporting period. The well has demonstrated a consistent, natural decline in production. Excluding the period the well was shut-in whilst repairs were undertaken to the HIOS, the well achieved an average gas production rate over the reporting period of 3.65 mmscf/d.

In order to improve overall well performance, certain process modifications were made to the High Island 442

Well A1 and Well A2 at High Island penetrated shallower gas bearing horizons when first drilled. These sands have been interpreted as viable reservoirs capable of being produced through the existing well bores. Well A2 can access its upper reservoir with a simple sleeve manipulation within the existing completion at minimal cost. Well A1 will require a workover and recompletion on the shallower zone. It is expected that the recompletions on each well should lead to another 12 to 24 months of commercial production from the field. It is possible that these operations may be carried out prior to the end of the 2010 financial year.

The operator has identified two sidetrack candidates, one for each existing well as further supplementary targets to

4 | REVIEW OF OPERATIONS

==> picture [595 x 114] intentionally omitted <==

be progressed once the shallower horizons in each well have been depleted through production. There are no immediate plans to drill further wells at High Island as the remaining reserves located at the existing and alternate completion depths will maintain field production in the medium term.

Pompano – Brazos Block 446-L (EXR 25%)

Background

The Pompano field is situated in Texas State waters within the Gulf of Mexico about 11 km offshore from Matagorda County in approximately 17m water depth. The field was discovered in the mid-1960’s and between 1982 and 2003 produced 120 Bcf of gas from six wells.

In 2005, a 3D seismic data set was reprocessed by the current operator, AnaTexas Offshore Inc (“ATO”) and a number of bypassed gas locations were identified. The infrastructure used for the previous production from the field was still in place and a series of new wells were proposed which were designed to be tied back to and produce through these facilities. Elixir elected to participate in this programme and two production wells were drilled back-to-back in Q1, 2008.

The first well, ATO #1, was spudded in January 2008. The well targeted six separate sands and encountered commercial hydrocarbons in three horizons. The well was completed across all three horizons with a dual string design allowing two reservoirs to be produced concurrently.

The second well, ATO #2, was drilled in March 2008 and was successful in encountering two commercial horizons. The well was completed across both reservoirs with a dual completion design and was placed into production in May 2008.

Drilling and Development Activities

In September 2008, ATO#3 was drilled at a central point in the field targeting a number of proved horizons. Unfortunately, structural complexity at the highly faulted crest of the field led to a number of the targeted horizons not being present, or being unexpectedly water wet. One of the targeted horizons was evaluated as being marginally economic, but was not considered sufficiently so to warrant the completion cost at that point. The well has been suspended and remains a candidate for sidetrack at some point in the future. Despite the unexpected result at ATO#3, there remains a further infill drilling opportunity at Pompano as well as an exploration prospect located at the southern end of the field.

==> picture [483 x 243] intentionally omitted <==

Fig. 2 – Pompano Field schematic

REVIEW OF OPERATIONS | 5

==> picture [240 x 114] intentionally omitted <==

The participants within the Pompano Joint Venture elected to participate in the acquisition of Brazos Block 479-L (N/2 and NE/4) containing the Red Fish prospect, which was added to the portfolio in Q2, 2008. The Block is 720 acres in size and lies directly south of Pompano on the western side of the main fault bisecting the Pompano field. The Redfish lease contains drilling targets generated by the operator which have been interpreted as being relatively low risk. Further studies on the Redfish prospects were undertaken during the reporting period.

Field Production

The Pompano field maintained production during the whole of the reporting period, experiencing only two notable periods of downtime. The first period of downtime occurred in September 2008 when the field was shut-in for six days as a precaution during the passage of Hurricane Ike through the southern portion of the Gulf of Mexico. The Pompano facilities only suffered superficial damage and production was restarted as soon as onshore facilities were ready to receive hydrocarbons. In April 2009, the field was shut-in for 14 days due to the temporary failure of export compressors at a third party owned onshore processing facility used to deliver Pompano production to market.

Well ATO #1 produces from two horizons, the B sand and the shallower 6700 ft sand. ATO #1 penetrated the B sand updip from the location of a previous production well and was targeting residual attic gas volumes that had been identified from 3D seismic data. As a result of the earlier production of the same reservoir compartment, the B sand horizon had been partially pressure depleted.

During the first few months of the reporting period, an increasing water cut was observed from the B sand in well ATO #1. The water production was interpreted as originating from a normally pressured sand lying below the B sand which was being produced via annular channels in the cement around the casing between the two zones. The water cut had the effect of limiting gas production from the B sand. As the channels washed out with greater water production rates, the water carried sand into the completions which formed bridges also preventing flow. In October 2008, production from the B sand stopped due to sand bridging forming a seal across the completion.

Production from the 6700 ft sand has also suffered as a result of formation instability. Sand production caused similar sand bridges to occur within the 6700 ft sand completion, however this did not result in a complete seal.

Production has continued from the 6700ft sand, albeit at lower rates than historically seen from that zone. Production from ATO#2 has continued throughout the period with a natural depletion decline curve.

During the reporting period the Pompano field produced a total of 2,248 mmscf of gas and 1,030 barrels of condensate. Production at the beginning of the reporting period was over 12 mmscf/d, however, by the end of the period this had reduced to approximately 3 mmscf/d.

A workover of ATO #1 was undertaken in September 2009 to remove sand from both the upper and lower completions, to isolate the B sands from the deeper water bearing zone and to apply a chemical treatment to the 6700 ft sand to stabilise the reservoir sand face. The workover was successfully completed in early October 2009 with gas production re-established from the B sand and improved rates of production from the shallower 6,700 ft sand. It is hoped that the total gas production rate from well ATO#1 will be able to be increased to between 4 and 6 mmscf/d over the coming months.

Over the financial year the average price achieved for gas sales was approximately US$5.47/mscf and average condensate prices were consistent with the High Island field at approximately US$70/bbl.

Exploration and Appraisal Review

UKCS

Elixir holds three key licences in the Northern sector of the UK North Sea, which has been the core area of focus of the Company’s activities during the reporting period. The licences offer a mix of high quality exploration and appraisal projects, which we are confident will be enhanced further by drilling.

Northern North Sea

Block 211/18b, licence P1381 (EXR 56%, Operator)

Block 211/18b is a traditional licence, awarded in the 23rd UKCS Seaward Licensing Round (“Licensing Round”) and contains the large Leopard oil prospect. The technical analysis of Leopard was completed in 2007 and was subject to a successful farmout of a 30% working interest to RWE Dea UK in mid-2007. The Leopard prospect is one of the largest undrilled remaining prospects in the UK North Sea with a contingent recoverable resource estimate as described in the table below.

6 | REVIEW OF OPERATIONS

==> picture [595 x 114] intentionally omitted <==

Leopard Prospect	P90	P50	Mean	P10
(100% Project)	(MMbbls)	(MMbbls)	(MMbbls)	(MMbbls)
Upper Jurassic Magnus	174	278	296	436
Upper Jurassic Heather	22	36	39	58
Brent	20	33	35	53
Total	216	347	370	547
Elixir(56%)	121	194	207	306

Table 1: Leopard Contingent Recoverable Resource Estimate

Continuous efforts to farmout the balance of the unfunded portion of the proposed Leopard exploration well have been made during the reporting period under difficult market conditions.

In recognition of these conditions, the UK Department of Energy and Climate Change (“DECC”) granted an extension to the drill-or-drop decision date relating to the licence initially for a period of four months. This was further extended by DECC to December 2009. This means that a well is required to be spudded on Block 211/18b prior to 21 December 2009 in order to retain the licence, and if this does not occur, the licence may be required to be relinquished at that date. The Leopard prospect continues to be evaluated by interested parties and every effort is being made to attract a funding partner before year end.

Block 211/22b, licence P1067 (EXR 40%)

A dataroom exercise was undertaken in Q4, 2008 by the Mulle joint venture in which a partner was sought to assist with the cost of drilling an appraisal well on the Mulle structure. The dataroom process attracted significant interest at the time, but given worsening market conditions ultimately did not yield a partner to participate in the project.

In November 2008, the Mulle joint venture was advised that it had been successful in its application for Block 211/27d in the 25th Licensing Round. Block 211/27d contains a mapped southern extension to the Mulle field. Completion of the award of the licence occurred in February 2009 and is likely to result in an increase to the recoverable resource estimate for the project.

The joint venture is in the process of determining a work programme for 2010.

Block 211/22b was awarded in the 21st Licensing Round as a traditional licence. The block contains the Mulle oil discovery in a Brent Group reservoir, adjacent to the Causeway Field. The technical work undertaken on Mulle has revealed an attractive project which requires an appraisal well and production test to confirm commerciality prior to the development of the field.

The operator of Block 211/22b, DNO UK Limited, published in May 2008 the following contingent recoverable resource estimate for the field.

Block 211/12b, licence P1602 (EXR 100%, Operator)

Elixir was notified in November 2008 that it had been successful in its application for Block 211/12b in the 25th Licensing Round. Completion of the award of the licence occurred in February 2009. The licence has been awarded for a four year term and a drill-or-drop decision is required to be made by early 2013.

Block 211/12b contains an Upper Jurassic prospect named Tiger. The prospect is located adjacent to the 1.5

Mulle Field	P90(MMboe)	P50(MMboe)	P10(MMboe)
Oil in Place(100%)	16	57	111
Project(100%)	4	17	36
Elixir(40%)	1.6	6.8	14.4

Table 2: Mulle Contingent Resource Estimate

REVIEW OF OPERATIONS | 7

==> picture [240 x 114] intentionally omitted <==

billion barrel Magnus Field which is operated by BP Plc. The Tiger prospect is thought to share many similar geological characteristics to that of the Magnus field.

The prospect lies updip of a well drilled in 1992 which reported hydrocarbon shows. A preliminary in-place resource estimate was generated for the Tiger prospect in early 2008 which is set out in the table below.

==> picture [290 x 98] intentionally omitted <==

Tiger Prospect	P90(MMbbls)	P50(MMbbls)	P10(MMbbls)
Oil in Place(100%)	37.7	89.9	214.1

Table 3: Tiger Contingent In-Place Resource Estimate

Technical work has progressed throughout the year with a focus on de-risking the prospect and refining prospect volumetric estimates. It is planned to commence marketing the opportunity to industry in the fourth quarter of 2009.

Relinquishments

operator during 2008 and a partner meeting held in Q4 2008 determined that the licence be relinquished. The licence was formally relinquished in April 2009.

Block 13/25a, licence P1459 and 13/24d, licence P1404 (EXR 12.5% both)

Block 15/23b, licence P1212 (EXR 13.125%)

Block 15/23b was awarded in the 22nd Licensing Round. The Guinea well was drilled on the block in Q1 2007, but did not encounter any significant hydrocarbons in the primary sand objective. The remaining exploration potential on the block was evaluated during the 2008 financial year and as a result it was decided to exit the licence, which occurred in April 2009.

Blocks 13/25a and 13/24d were awarded in the 23rd Licensing Round and are operated by PetroCanada. In Q3 2009 the operator advised the joint venture that geological and reservoir modelling indicated that if a discovery were made at Fat Cat, it is likely to be a heavy oil field in a ponded structural setting, which would not in the foreseeable future be economic to develop. It is expected that the joint venture will seek to relinquish this licence in Q4 2009.

Block 21/16b, licence P1507 (EXR 40%)

Block SL-4, Offshore Sierra Leone

Block 21/16b was awarded as a promote licence in the 24th Licensing Round. The Block contains four Jurassic Fulmar Sand prospects in a cluster, named Bob Cat. The two-year licence term expired in April 2009, at which point the licence was relinquished by the joint venture.

Block 21/4b, licence P1104 (EXR 7%)

In late February 2008, Elixir acquired a 15% operated interest and an option to acquire a further 20% working interest in Block SL-4 located offshore the Republic of Sierra Leone, West Africa. Elixir agreed to contribute to the costs of a proposed work programme in respect of its 15% interest, which included a proposed 1,222 sq km 3D seismic programme.

Block 21/4b was awarded in the 21st Licensing Round and is operated by Maersk. The remaining prospectivity in the Lower Tertiary and Cretaceous was evaluated by the

A 3D seismic survey was initiated over Block SL-4 in late March 2008 and completed in mid-June 2008. As it transpired, Prontinal was not able to fund its obligations

8 | REVIEW OF OPERATIONS

==> picture [595 x 114] intentionally omitted <==

relating to the 3D acquisition or other joint venture expenses incurred by Elixir as operator on behalf of the joint venture. The failure to pay for the 3D survey and the joint venture costs resulted in Elixir placing Prontinal into default under the terms of the joint operating agreement in September 2008. Elixir then commenced a winding up action against Prontinal to seek recovery of funds owed. In an attempt to defeat this action, Prontinal instigated arbitration proceedings in the UK in early 2009 to which Elixir was joined as a party.

In early May 2009, with a view to re-focussing operations and exiting the problematic Sierra Leone situation, Elixir agreed on a sale to Prontinal of its interest in Block SL-4. The consideration received by Elixir comprised a cash payment of US$254,663 (which substantially represented project costs incurred by E(UK) on Block SL-4 to the date of sale) and the grant by Prontinal to Elixir of an overriding production royalty interest on Block SL-4, capped at US$5 million. The royalty will be payable by Prontinal (or its assigns) from the proceeds of sale of any hydrocarbons produced from Block SL-4 in the event of a discovery on the Block and the subsequent commercialisation of that discovery.

with respect to Block SL-4 or the various disputes that had arisen.

Mineral Interests

As a result of the merger with Gawler Resources in November 2007, Elixir acquired interests in five mineral exploration licences located in South Australia and two mineral exploration licences located in the Northern Territory. Recognising that mineral licences are non-core to Elixir’s oil and gas exploration and production business, efforts have been made during the reporting period to attract other industry players to assume the ongoing work and financial obligations associated with the licences. With respect to the South Australian licences, this process was not successful prior to the renewal date for those licences in November 2008 and the licences were not renewed at the end of their term.

The two remaining Northern Territory mineral exploration licences are not due for renewal until February 2010. Interests in these licences continue to be marketed to potential farminees.

Prontinal also provided the Elixir Group with an indemnity in respect of any claims or losses which may arise

Elixir’s Petroleum Interests

Gulf of Mexico
Name	Lease	Working	Interest after	Area	Grant Date
		Interest	Back-in	(km2)
High Island	High Island Block A-268	30%	24.6%*	23	1 Dec 2000
Pompano	Brazos Block 446-L,	25%	19.5%#	6	1 July2003
	SE/4 and SW/4
Redfish	Brazos Block 479-L,	25%	23.6%^	3	1 April 2008
	N/2 and NE/4

• Interest subject to back-in in favour of project promoters following cost recovery

Interest subject to back-in in favour of Operator following full cost recovery, plus 20%

^ Interest subject to back-in in favour of Operator following full cost recovery

REVIEW OF OPERATIONS | 9

==> picture [240 x 114] intentionally omitted <==

==> picture [296 x 234] intentionally omitted <==

Fig. 3 – Gulf of Mexico Lease Locations

UK North Sea
Name	Licence	Block	Interest	Area	Licensing	Licence	Grant
				(km2)	Round	Type	Date
Mulle	P1067	211/22b & 211/27b	40.0%	50	21st	Traditional	1 Oct 03
Tiger	P1602	211/12b	100.0%	50	25th	Traditional	12 Feb 09
Leopard	P1381	211/18b	56.0%	66	23rd	Traditional	22 Dec 05

==> picture [483 x 234] intentionally omitted <==

Fig.4 – Northern North Sea Licence Locations

10 | REVIEW OF OPERATIONS

==> picture [595 x 114] intentionally omitted <==

DIRECTORS’ REPORT

Your Directors present their report on the consolidated entity consisting of Elixir Petroleum Limited (“Company” or “Elixir”) and the entities it controlled during the financial year ended 30 June 2009 (“Consolidated Entity” or “Group”).

Directors

The names of the Directors of the Company in office during the financial year and at the date of this report are:

Mr Trevor Benson (resigned 30 June 2009)

Mr Iain Knott Dr John Robertson Mr Andrew Ross Mr Jonathan Stewart

Unless otherwise stated, all Directors were in office for the entire reporting period.

Principal activities

The principal activity of the Company during the financial year was oil and gas exploration and production.

Summary review of operations

Results

For the financial year ended 30 June 2009, the Consolidated Entity recorded a net loss after tax of $28,564,000 (2008: $6,414,000) after charging as expenses, amortisation costs of $8,835,000 (2008: $9,544,000), exploration and evaluation costs of $1,187,000 (2008: $2,501,000), impairment expenses of $18,386,000 (2008: Nil) and a discontinued operations loss of $1,215,452 (2008: Nil).

Corporate

During the financial year the Group’s United Kingdom and West African operations were restructured to establish more transparency in the operation of the relevant license interests. The restructure was undertaken to separate the intellectual property aspect of the business from the project interests. As part of the restructure the existing employees and nonexploration assets of Elixir Petroleum (UK) Ltd (“EP(UK)”) were transferred to a wholly owned “shared services” entity, Elixir Petroleum (Technical Services) Ltd (“EP(TS)”). The role of EP(TS) is to provide technical and administration services to other operating entities within the Group. As part of the restructure the oil and gas license interests located in the UK were transferred from EP(UK) to Elixir Petroleum (Europe) Ltd (“EP(EU)”), both wholly owned subsidiaries of Elixir at the time of the restructure.

In January 2009 the Company redeemed $3,000,000 of convertible notes held by Macquarie Bank Limited. At the date of this report the Consolidated Entity had no outstanding financing debt.

Gulf of Mexico

During the financial year the Company maintained production from four wells at two projects in the Gulf of Mexico. Operations at the High Island project were suspended from September 2008 to January 2009 due to damage caused to a regional gas export pipeline as a result of Hurricane Ike. At the Pompano project production from well ATO #1 diminished in October 2008. A remedial workover to restore production from that well commenced in September 2009. No safety incidents were reported at either project during the financial year.

DIRECTORS’ REPORT | 11

==> picture [240 x 114] intentionally omitted <==

Elixir's share of revenue from these projects for the year to 30 June 2009 was $5,556,000 (2008: $9,120,000). The lower revenues for the financial period were due largely to the extended period of shut-in at the High Island Project and the significant decline in natural gas prices achieved during the year.

North Sea

Elixir’s objective in the North Sea is to acquire interests in exploration licences which are considered to have high prospectivity, to work-up attractive prospects in a cost-effective manner and to farm these prospects out to drill. During the financial year a licence in respect of Block 211/12b was awarded to EP(EU), together with a southern extension to the Mulle field. Farmout activities continued with respect to the Leopard prospect in Block 211/22b and the Mulle project in Block 211/18b. Following a strategy review conducted in conjunction with the corporate restructuring exercise undertaken in the year, several non-core licence interests were disposed of or relinquished during the year.

Sierra Leone

On 30 April 2009, the Company completed the sale of EP(UK) to Prontinal Ltd. The only assets of EP(UK) on the completion of the sale was its interest in Block SL-4 offshore Sierra Leone and 100% of the issued share capital of a wholly owned subsidiary, Emporian Pacific Inc, which itself had no assets. As part of the sale and purchase agreement, Prontinal Ltd paid to the Company US$254,662 in cash and executed a royalty agreement with the Company with respect to the Block SL-4 license. Under the terms of the royalty agreement, the Company has been granted a 2.5% production royalty calculated by reference to any economic discovery and subsequent production within the Block SL-4 license area. The royalty is capped at a maximum cumulative value of US$5,000,000.

Significant changes in state of affairs

Other than those events noted above, there were no other significant changes in the state of affairs of the Group during the year requiring separate disclosure.

Financial position

The net assets of the consolidated group have decreased by $25,272,000 from 30 June 2008 to $14,400,000 at 30 June 2009. This is primarily as a result of the loss incurred for the year and impairment of oil and gas properties.

The group’s working capital, being current assets less current liabilities, has decreased from $8,291,000 at 30 June 2008 to $7,921,000 at 30 June 2009.

The directors believe the Group is in a strong and stable financial position to expand and grow its current operations.

12 | DIRECTORS’ REPORT

==> picture [595 x 114] intentionally omitted <==

Directors

Mr. Jonathan Stewart – Executive Chairman

Qualification – B.Com, CA

Board Committees: Member of Audit, Remuneration and Nomination Committees

Mr. Stewart was appointed a director of the Company on 12 November 2007. Mr. Stewart began his career as a Chartered Accountant and since leaving the profession has held several executive management positions working in a number of countries in several industries. Mr. Stewart has extensive experience in the international oil and gas sector.

Mr. Stewart holds a Bachelor of Commerce and is a member of the Institute of Chartered Accountants.

Other current directorships of Australian listed public companies: Aurora Oil & Gas Limited.

Former directorships (of Australian listed public companies) in last three years: Gawler Resources Ltd.

Interests in shares and options over shares in Group companies:

281,250 fully paid ordinary shares, and 2,500,000 share options in Elixir Petroleum Ltd (excludes 24,000,000 fully paid ordinary shares held by Aurora Oil & Gas Limited).

Mr Andrew Ross – Managing Director

Qualifications – LLB, B.Com, GAICD

Board Committees: Member of Audit Committee

Mr. Ross was appointed Managing Director of the Company on 12 November 2007 following the successful completion of the merger between Elixir and Gawler Resources Limited. Prior to this, Mr. Ross was Managing Director and co-founder of the privately owned oil and gas group, Cape Energy. Prior to establishing Cape Energy, Mr. Ross spent several years as a Director – Corporate Finance of a private merchant banking group based in London, where he worked on a range of M&A transactions, public listings and fundraisings for clients in the upstream oil and gas industry as well as other industry sectors.

In April 2009 Mr. Ross also acted as Company Secretary for Elixir until Mr. Lim’s appointment on 5 May 2009.

Mr. Ross is a qualified lawyer as well has holding a Bachelor of Commerce. Mr. Ross is a graduate of the Australian Institute of Company Directors and a member of the Society of Petroleum Engineers.

Other current directorships of Australian listed public companies: Nil.

Former directorships (of Australian listed public companies) in last three years: Nil.

Interests in shares and options over shares in Group companies:

35,000 fully paid ordinary shares and 2,500,000 share options in Elixir Petroleum Ltd.

DIRECTORS’ REPORT | 13

==> picture [240 x 114] intentionally omitted <==

Mr Iain Knott – Executive Director

Qualifications – BSc (Hons), MSc

Mr Knott is a Petroleum Geologist who has over 26 years of North Sea and international oil and gas experience. After graduating from Kingston University in 1983, Mr Knott was employed in a number of geological roles by Core-Lab, Paleoservices and British Gas. Since 1996 he has held senior roles in the oil and gas and investment banking industries, firstly as an Assistant Director with NatWest Markets – Wood Mackenzie, then as Technical Director responsible for Northwest Europe for Burlington Resources, and most recently as Technical Director of Ingen.

Mr. Knott holds a Bachelor of Science (Hons) and a Master of Science degree.

Other current directorships of Australian listed public companies: Nil.

Former directorships (of Australian listed public companies) in last three years: Nil.

Interests in shares and options over shares in Group companies:

2,500,000 share options in Elixir Petroleum Ltd.

Dr John Robertson – Non-Executive Director

Qualifications – BSc (Hons), PhD Board Committees: Member of Audit, Remuneration and Nomination Committees

Dr. Robertson was appointed as a Non-Executive Director in May 2005, and held the position of Non-Executive Chairman until November 2007. He has a wealth of experience in the finance and oil and gas industries. Dr. Robertson joined the corporate banking department of Schroder’s, a London merchant bank, in 1970 before working in the corporate finance section of Cannon Street Investments. Subsequently, he gained over 13 years experience in senior management positions with Ultramar, a leading international independent oil company until the early 1990s. Following this role he worked as a consultant before becoming the Director of Corporate Finance at Durlacher Ltd. From 1995 to June 2005 Dr. Robertson worked in the corporate advisory sector, where he provided capital raising and corporate advice to private and quoted companies in the United Kingdom, particularly in the oil and gas and mining sectors.

Dr. Robertson holds a Bachelor of Science (Hons) and a PhD in Engineering.

Other current directorships of Australian listed public companies: Nil.

Former directorships (of Australian listed public companies) in last three years: Bonaparte Diamond Mines NL.

Interests in shares and options over shares in Group companies: 425,000 fully paid ordinary shares and 250,000 share options in Elixir Petroleum Ltd.

14 | DIRECTORS’ REPORT

==> picture [595 x 114] intentionally omitted <==

Mr Trevor Benson – Non-Executive Director (ceased directorship 30 June 2009)

Qualifications – BSc

Board Committees: Chairman of Audit Committee (ceased 30/6/09)

Mr Benson has been involved in the financial services industry for over 19 years and has held several senior positions within the stockbroking industry, providing strategic investment advice, facilitating equity capital market transactions, and currently specialises in providing corporate finance services primarily to the oil and gas industry both in Australia and internationally. Prior to his involvement in stockbroking, Mr Benson worked in the treasury operations of several major Australian corporations.

Mr Benson holds a Bachelor of Science.

Other current directorships of Australian listed public companies: Nil.

Former directorships (of Australian listed public companies) in last three years: Gawler Resources Ltd. Sultan Corporation Ltd.

Interests in shares and options over shares in Group companies:

As a result of Mr. Benson ceasing to be a director of the Company, share options held by him expired on 30 July 2009 in accordance with the terms of the employee share option scheme under which they were granted.

Company Secretary

Mr David Lim

Qualifications – B.Bus, CPA

Mr. Lim was appointed Company Secretary on 5 May 2009. Mr. Lim has over 10 years experience in accounting and company administration within the resource sector. Prior to his appointment Mr Lim was Company Secretary and CFO of Equigold NL, previously an ASX listed Australian gold producer.

Mr Lim holds a Bachelor of Business and is a CPA. Mr. Lim is a member of CPA Australia and an affiliate member of Chartered Secretaries Australia.

Interests in shares and options over shares in Group companies: Nil.

Mr Alex Neuling (ceased 9 April 2009)

Qualifications – B.Chem. (Hons.), CA

Mr. Neuling was appointed Company Secretary on 12 November 2007 and ceased holding this position on 9 April 2009. Mr. Neuling was a non-executive director of ASX listed Eureka Energy Ltd and RTL Corporation Ltd and was also Company Secretary of Aurora Oil & Gas Ltd. Prior to these positions, Mr. Neuling worked at a major international accounting firm in both London and Perth.

Mr. Neuling holds an honours degree in Chemistry from the University of Leeds in the United Kingdom, is a member of the Institute of Chartered Accountants of England and Wales, and the Institute of Chartered Secretaries and Administrators.

DIRECTORS’ REPORT | 15

==> picture [240 x 114] intentionally omitted <==

Meetings of Directors

The following table sets out the number of meetings of the Company’s directors held during the year ended 30 June 2009, and the number of meetings attended by each director.

	Directors’ Meetings	Directors’ Meetings	Committee Meetings	Committee Meetings
	Eligible to attend	Attended	Audit	Remuneration
Mr. Trevor Benson	7	7	2	-
Mr. Iain Knott	7	6	*	*
Dr. John Robertson	7	7	2	-
Mr. Andrew Ross	7	7	2	*
Mr. Jonathan Stewart	7	7	+	-

• Not a member of the relevant committee.

• Appointed a member of the relevant committee 19 August 2009.

Share options

At the date of this report the following unlisted options have been granted over unissued capital.

Type	Number	Exercise Price	Expiry Date	Date Granted
Ambrian Options(EXRAO)	637,148	$0.600	16 May2010	16 May2005
ESOP Tranche 1(EXRAI)	1,750,000	$0.250	31 Mar 2011	26 Jun 2008*
ESOP Tranche 2(EXRAI)	3,250,000	$0.300	31 Mar 2012	26 Jun 2008*
ESOP Tranche 3(EXRAI)	2,750,000	$0.350	31 Mar 2013	26 Jun 2008*
	8,387,148

• In accordance with AASB 2, the deemed grant date disclosed above is the date of shareholder approval for the grant of these options under the Elixir Employee Share Option Plan, rather than the actual dates of Offer and Acceptance under the Plan.

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 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 the five executives in the parent company and the Group receiving the highest remuneration.

For the purposes of this report, the term “executive” encompasses the chief executive, senior executives, asset managers and secretaries of the Parent and the Group.

Details of key management personnel (including the five highest paid executives of the Company and the Group

(i) Directors

Jonathan Stewart Executive Chairman Andrew Ross Managing Director Iain Knott Executive Director, Exploration Trevor Benson Non-Executive Director (ceased 30 June 2009) John Robertson Non-Executive Director

16 | DIRECTORS’ REPORT

==> picture [595 x 114] intentionally omitted <==

(ii) Executives David Lim Company Secretary and Chief Financial Officer (commenced 28 April 2009) Alex Neuling Company Secretary and Chief Financial Officer (ceased 9 April 2009) James Stockley Asset Manager – Europe

Remuneration committee

The remuneration committee of the board of directors of the Company is responsible for determining and reviewing remuneration arrangements for the directors and executives. The remuneration committee assesses the appropriateness of the nature and amount of remuneration of 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, high performing director and executive team.

Remuneration philosophy

The performance of the Company, among other things, depends upon the quality of its management. To prosper, the Company must attract, motivate and retain highly skilled directors and executives. To this end, the charter adopted by the remuneration committee aims to align rewards with achievement of strategic objectives. The remuneration framework applied provides for a mixture of fixed and variable pay and a blend of short and long term incentives as appropriate.

Remuneration structure

In accordance with best practice corporate governance, the structure of non-executive director and executive remuneration is separate and distinct.

Non-executive directors remuneration

The maximum aggregate amount of fees that can be paid to non-executive directors is subject to approval by shareholders at a General Meeting. The Company’s policy is to remunerate non-executive directors at market rates (for comparable companies) for time, commitment and responsibilities. Fees for non-executive directors are not linked to the performance of the Company. However, to align directors’ interests with shareholders’ interests, directors are encouraged to hold shares in the Company. Non-executive directors are eligible to participate in the Elixir Share Option Plan.

Retirement benefits and allowances

No retirement benefits or allowances are paid or payable to directors of the Company (other than statutory or mandatory superannuation contributions, where applicable).

Executive remuneration

Base pay

Executives are offered a competitive level of base pay which comprises the fixed (unrisked) component of their pay and rewards. Base pay for senior executives is reviewed annually to ensure market competitiveness. There is no guaranteed base pay increases included in any senior executives’ contracts.

Short term incentives

Payment of short term incentives is dependent on the achievement of key performance milestones as determined by the remuneration committee. For the period ended 30 June 2009, these milestones required performance in relation to key strategic, non-financial measures linked to drivers of performance in future reporting periods.

Short-term bonus payments may be adjusted up or down in line with under or over achievement relative to target performance levels at the discretion of the remuneration committee. For the year ended 30 June 2009 no short term bonus payments were paid or payable to key management personnel of the Group (2008: $23,970). There have been no forfeitures of bonuses by key management personnel during the current or prior periods and no cash bonuses remained unvested at year end.

DIRECTORS’ REPORT | 17

==> picture [240 x 114] intentionally omitted <==

Long term incentive – share-based compensation

Options over shares in the Company are granted under the Elixir Employee Share Option Plan (“ESOP”) which was approved by shareholders at a general meeting on 26 June 2008. The ESOP is designed to provide long-term incentives for the Company’s directors, employees and consultants to deliver long-term shareholder returns. Under the ESOP, participants are granted options subject to vesting conditions set by the Board. The terms may be related to periods of service or achievement of certain performance standards. Participation in the ESOP is at the board’s discretion and no individual has a contractual right to participate in the ESOP or to receive any guaranteed benefits.

The terms and conditions of each grant of options affecting remuneration in the previous, this or future reporting periods are as follows:

Grant date*	Date vested	Expiry	Exercise	Value per option
	and exercisable	date	price	atgrant date
26-Jun-08	01 Jul 2008	31 Mar 2011	$0.250	$0.0965
26-Jun-08	31 Mar 2009	31 Mar 2012	$0.300	$0.1070
26-Jun-08	31 Mar 2010	31 Mar 2013	$0.350	$0.1202

• In accordance with applicable accounting standards, the deemed grant date above is the date upon which shareholders approved the grant of the relevant options, not the actual date of offer, acceptance or the record date.

Options granted under the ESOP carry no dividend or voting rights.

The ESOP rules at present contain no restriction on participants entering into transactions to remove the “at risk” aspect of the unvested equity instruments granted to them. During the year the board of directors resolved that future issues of options by the Consolidated Entity under an employee share option scheme will be structured to prevent the removal of the at risk component of the options without the approval of the board.

Details of options over ordinary shares in the Company provided as remuneration to each director and each of the key management personnel of the Consolidated Entity are set out below. When exercisable, each option is convertible into one ordinary share of the Company. Further information on the options is set out in notes 21 and 25 of the Financial Statements.

Group performance

At present, remuneration for key management personnel is not directly linked to common financial measures of the Consolidated Entity’s performance such as share price, earnings per share or dividends.

The table set out below shows various commonly used measures of performance for each financial year since the Company listed on the ASX in 2005:

		Year ended	30 June
	2006	2007	2008	2009
	$’000	$’000	$’000	$’000
Revenues and finance income	720	459	9,289	5,886
Loss after tax	3,871	3,085	6,414	27,349
	$	$	$	$
Shareprice at start ofyear	0.43	0.39	0.27	0.26
Shareprice at end ofyear	0.39	0.27	0.26	0.05
Change	(0.04)	(0.12)	(0.01)	(0.21)
Lossper share	(0.11)	(0.04)	(0.05)	(0.15)
Total Shareholder Return(i)	(0.15)	(0.16)	(0.06)	(0.36)

18 | DIRECTORS’ REPORT

==> picture [595 x 114] intentionally omitted <==

• (i) Defined as the net change in share price (opening share price less the closing share price for the year), plus the loss per share for the year.

Service agreements

Remuneration and other terms of agreement for the Executive Chairman are formalised in a consultancy agreement with Epicure Capital Pty Ltd, an associated company of Mr. Jonathan Stewart.

Material terms of the contract with Epicure Capital Pty Ltd are as follows:

• Term of agreement – indefinite.

• Consultancy fee inclusive of superannuation and taxes, but excluding GST, currently $80,000 per annum, to be reviewed annually by the board.

• Payment of a termination benefit on early termination by the Company, other than for gross misconduct, equal to three months consultancy fees.

Remuneration and other terms of employment for Mr. Iain Knott are formalised in a contract of employment, the material terms of which are as follows:

• Term of agreement – indefinite.

• Notice period or termination benefit in lieu of notice, other than for gross misconduct, on a sliding scale based on years of service, 6 months as at report date.

Remuneration and other terms of employment for Mr. James Stockley are formalised in a contract of employment, the material terms of which are as follows:

• Term of agreement – indefinite.

• Notice period or termination benefit in lieu of notice, other than for gross misconduct, on a sliding scale based on years of service, 3 months as at report date.

Remuneration and other terms of agreement with other named executives are not formalised in service agreements.

DIRECTORS’ REPORT | 19

==> picture [240 x 114] intentionally omitted <==

Remuneration of key management personnel and the five highest paid executives of the Company and Consolidated Entity

2009		Short-term benefits	Short-term benefits		Post-	Post-	Share-
					employment		based
					benefits		payment
			Non-		Super-	Retire-			Perfor-
	Cash salary	Cash	monetary		annu-	ment			mance
	and fees	bonus	benefits	Other(4)	ation	benefits	Options	Total	related
	$	$	$	$	$	$	$	$	%
Non-executive directors
Current
John Robertson	30,943	-	-	-	-	-	-	30,943		-
Former
Trevor Benson(1)	27,523	-	-	-	2,477	-	-	30,000		-
Sub-total
non-executive
directors	58,466	-	-	-	2,477	-	-	60,943
Executive directors
Current
Jonathan Stewart	80,004	-	-	-	-	-	156,708	236,712		-
Andrew Ross	186,697	-	-	(1,887)	16,803	-	217,241	418,854		-
Iain Knott	344,401	-	-	5,855	-	-	156,708	506,964		-
Sub-total
executive
directors	611,102	-	-	3,968	16,803	-	530,657	1,162,530
Other Executives
David Lim(3)	-	-	-	-	-	-	-	-
Alex Neuling(2)	-	-	-	-	-	-	-	-		-
James Stockley	266,150	-	-	(6,817)	-	-	-	259,333		-
Sub-total
other
executives	266,150	-	-	(6,817)	-	-	-	259,333		-
Total Key
Management
Personnel	935,718	-	-	(2,849)	19,280	-	530,657	1,482,806

(1) Mr. Benson ceased being a director on 30 June 2009.

(2) Mr. Neuling ceased being an executive of the Consolidated Entity on 9 April 2009.

(3) Mr. Lim commenced as an executive of the Consolidated Entity on 28 April 2009.

(4) “Other” short term benefits include current year movements in leave and termination benefits.

20 | DIRECTORS’ REPORT

==> picture [595 x 114] intentionally omitted <==

2008	Short-term benefits	Short-term benefits	Short-term benefits	Post-	Post-	Share-
				employment		based
				benefits		payment
			Non-
	Cash		mone-	Super-	Retire-			Perfor
	salary	Other	tary	annu-	ment			mance
	and fees	cash	payment	ation	benefits	Options	Total	related
	$	$	$	$	$	$	$	%
Non-executive directors
Current
Trevor Benson	13,761	-	-	1,239	-	24,125	39,125	-
John Robertson	59,926	-	-	-	-	24,125	84,051	-
Former
Kent Hunter	8,800	-	-	792	-	-	9,592	-
Sub-total
non-executive
directors	82,487	-	-	2,031	-	48,250	132,768	-
Executive directors
Current
Jonathan Stewart	40,000	-	-	-	-	74,482	114,482	-
Andrew Ross	96,789	-	-	8,711	-	2,868	108,368	-
Iain Knott	317,953	23,970	-	-	-	74,482	416,405	5.8
Former
Russell Langusch	212,543	-	-	-	-	-	212,543	-
Sub-total
executive
directors	667,285	23,970	-	8,711	-	151,832	851,798
Other Executives
Alex Neuling	-	-	-	-	-	-	-	-
James Stockley	252,663	-	-	-	-	-	252,663	-
Total Key
Management
Personnel	1,002,435	23,970	-	10,742	-	200,082	1,237,229	-

DIRECTORS’ REPORT | 21

==> picture [240 x 114] intentionally omitted <==

Compensation options: granted and vested during the year (Consolidated Entity)

No compensation options were granted during the financial reporting period ended 30 June 2009.

2008			Fair	Exercise
			Value	Price
			(Per	(Per
	Granted	Grant	**option) **	option)	Expiry	Vesting	Vested
	(number)	Date(1)	**(cents) **	(cents)	Date	Date	No.	%
Directors
Jonathan Stewart	750,000	26 Jun 08	9.65	25	31 Mar 11	1 Jul 08	750,000	-
	1,000,000	26 Jun 08	10.70	30	31 Mar 12	31 Mar 09	1,000,000	-
	750,000	26 Jun 08	12.02	35	31 Mar 13	31 Mar 10	-	-
Andrew Ross	1,250,000	26 Jun 08	10.70	30	31 Mar 12	31 Mar 09	1,250,000	-
	1,250,000	26 Jun 08	12.02	35	31 Mar 13	31 Mar 10	-	-
Iain Knott	750,000	26 Jun 08	9.65	25	31 Mar 11	1 Jul 08	750,000	-
	1,000,000	26 Jun 08	10.70	30	31 Mar 12	31 Mar 09	1,000,000	-
	750,000	26 Jun 08	12.02	35	31 Mar 13	31 Mar 10	-	-
Trevor Benson(2)	250,000	26 Jun 08	9.65	25	31 Mar 11	1 Jul 08	250,000	-
John Robertson	250,000	26 Jun 08	9.65	25	31 Mar 11	1 Jul 08	250,000	-

(1) In accordance with applicable Accounting Standards, the deemed Grant Date above is the date upon which shareholders approved the grant of the above options, not the actual date of offer, acceptance or record.

(2) As a result of Mr. Benson ceasing to be a director of the Company on 30 June 2009, the options held by Mr. Benson (250,000) lapsed on 30 July 2009 in accordance with the terms of the Elixir Share Option Plan under which they were issued.

Options granted as part of remuneration

No share options were granted during the financial reporting period ended 30 June 2009.

Dividends

No dividends have been declared, provided for or paid in respect of the financial year ended 30 June 2009.

Subsequent events

There are no events subsequent to the balance date that require disclosure.

Likely developments

Due to the nature of the Consolidated Entity’s business activities, the Directors are not able to state:

• likely developments in the entities’ operations; or

• the expected results of these operations,

as to do so would result in unreasonable prejudice to the Consolidated Entity.

Environmental regulation

The Consolidated Entity has a policy of exceeding or at least complying with its environmental performance obligations. During the financial year, the Consolidated Entity did not materially breach any particular or significant Commonwealth, State, Territory or other regulation in respect to environmental management.

Indemnification and insurance of officers and auditors

Since the end of the year, the Company has paid a premium in respect of a contract insuring the directors of the Company

22 | DIRECTORS’ REPORT

==> picture [595 x 114] intentionally omitted <==

(as named above) and the Company Secretary, Mr David Lim, against liabilities incurred as such a director or officer of the Company to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. The Company has not otherwise, during or since the financial year, indemnified or agreed to indemnify an officer or auditor of the Company or of any related body corporate against a liability incurred as such an officer or auditor.

Proceedings on behalf of company

No person has applied for leave of court to bring proceedings on behalf of the Company or intervene in any proceeding to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings.

The company was not a party to any such proceedings during the year.

Non-audit services

The Board of Directors is satisfied that the provision of non-audit services performed during the year by the entity’s auditors is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the services disclosed below did not compromise the external auditor’s independence for the following reasons:

• The nature of the services provided does not compromise the general principles relating to auditor independence in accordance with APES 110: Code of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board.

• The directors are satisfied that no non audit services were provided to the Company by its auditors during the period ended 30 June 2009.

==> picture [539 x 313] intentionally omitted <==

DIRECTORS’ REPORT | 23

==> picture [240 x 114] intentionally omitted <==

Auditor’s independence declaration

The Auditor’s independence declaration is included on page 27 of the financial report.

Rounding of amounts to the nearest thousand dollars

The Company satisfies the requirements of Class Order 98/0100 issued by the Australian Investments and Securities Commission relating to "rounding off" of amounts in the Directors' Report and the Financial Report to the nearest thousand dollars. Amounts have been rounded off in the Financial Report in accordance with that Class Order.

Signed in accordance with a resolution of the Directors made pursuant to s298 (2) of the Corporations Act 2001.

On behalf of the Directors

==> picture [97 x 45] intentionally omitted <==

JONATHAN STEWART Executive Chairman Perth, Western Australia

25 September 2009

“Elixir remains well funded relative to its size with existing producing assets and several projects with considerable upside potential.”

Elixir Petroleum Limited

24 | DIRECTORS’ REPORT

==> picture [595 x 114] intentionally omitted <==

INDEPENDENT AUDIT REPORT | 25

==> picture [240 x 114] intentionally omitted <==

26 | AUDITORS’ INDEPENDENCE DECLARATION

==> picture [595 x 114] intentionally omitted <==

INDEPENDENT AUDIT REPORT | 27

==> picture [240 x 114] intentionally omitted <==

==> picture [541 x 631] intentionally omitted <==

28 | INDEPENDENT AUDIT REPORT

==> picture [595 x 114] intentionally omitted <==

DIRECTORS’ DECLARATION

In the Directors' opinion and having regard to the matters noted in Note 1(a) to the financial statements:

• (a) The financial statements and notes set out on pages 30 to 70 and the remuneration disclosure in the Directors’ Report are in accordance with the Corporations Act 2001, including:

• i. complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and,

• ii. giving a true and fair view of the Company’s and Consolidated Entity’s financial position as at 30 June 2009 and of their performance for the financial year ended on that date; 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; and,

• (c) at the date of this declaration, there are reasonable grounds to believe that the members of the Extended Closed Group identified in note 27 will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described in note 27.

The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001.

Signed in accordance with a resolution of the directors made pursuant to s295(5) of the Corporations Act 2001.

==> picture [97 x 45] intentionally omitted <==

Jonathan Stewart Executive Chairman Perth, Western Australia 25 September 2009

DIRECTORS’ DECLARATION | 29

==> picture [240 x 114] intentionally omitted <==

INCOME STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

		Consolidated	Consolidated	Company	Company
	Note	2009	2008	2009	2008
		$'000	$'000	$'000	$'000
Revenue from continuing operations
Revenue from oil &gas sales	(4)	5,574	9,120	-	-
Other income	(5)	392	26	810	-
Total revenue		5,966	9,146	810	-
Operatingandproduction costs		(1,846)	(595)	-	-
General & administrative costs		(2,576)	(1,939)	(2,612)	(1,468)
Other costs	(7)	(611)	(730)	(697)	(126)
Total operatingexpense		(5,033)	(3,264)	(3,309)	(1,594)
EBITDAX1	(7)	933	5,882	(2,499)	(1,594)
Depreciation,depletion and amortisation expense	(6)	(8,845)	(9,555)	-	-
Exploration,evaluation & development costs expensed		(1,187)	(2,501)	18	(18)
Impairment of oil andgasproperties		(18,386)	-	-	-
Impairment of net investment in subsidiaries		-	-	(25,489)	(4,941)
EBIT2	(6)	(27,485)	(6,174)	(27,970)	(6,553)
Finance income	(4)	312	169	308	93
Finance costs	(6)	(176)	(409)	(176)	(409)
Loss before income tax		(27,349)	(6,414)	(27,838)	(6,869)
Income tax expense	(8)	-	-	-	-
Loss from continuingoperations		(27,349)	(6,414)	(27,838)	(6,869)
Loss from discontinued operations		(1,215)	-	-	-
Net loss attributable to members of the Company		(28,564)	(6,414)	(27,838)	(6,869)
Earnings / (loss) per share
Basic lossper share(centsper share)	(9)	(15.1)		(5.0)
Diluted lossper share(centsper share)	(9)	(15.1)		(5.0)

1 EBITDAX: Earnings before Interest, tax, depreciation, depletion and amortisation, Exploration & evaluation costs written off and provisions against group borrowings.

2 EBIT: Earnings before Interest and tax

The above income statements should be read in conjunction with the accompanying notes.

30 | INCOME STATEMENTS

==> picture [595 x 114] intentionally omitted <==

BALANCE SHEETS AS AT 30 JUNE 2009

		Consolidated	Consolidated	Company	Company
	Note	2009	2008	2009	2008
		$'000	$'000	$'000	$'000
Assets
Current assets
Cash and cash equivalents	(10)	8,081	10,604	5,536	6,823
Trade and other receivables	(11)	667	3,670	46	-
Total current assets		8,748	14,274	5,582	6,823
Non-current assets
Receivables from subsidiaries	(11)	-	-	-	5,621
Investment in subsidiaries	(12)	-	-	9,371	31,248
Oil &gasproperties	(13)	6,581	31,569	-	-
Otherplant and equipment	(14)	87	10	-	-
Deferred exploration and evaluation expenditure	(15)	1,295	1,286	-	-
Total non-current assets		7,963	32,865	9,371	36,869
Total assets		16,711	47,139	14,953	43,692
Liabilities
Current liabilities
Trade and otherpayables	(16)	557	2,983	283	1,020
Borrowings	(17)	-	3,000	-	3,000
Provisions	(18)	270	-	270	-
Total current liabilities		827	5,983	553	4,020
Non-current liabilities
Provisions	(18)	1,484	1,484	-	-
Total non-current liabilities		1,484	1,484	-	-
Total liabilities		2,311	7,467	553	4,020
Net Assets		14,400	39,672	14,400	39,672
Equity
Contributed equity	(19)	60,644	58,609	60,644	58,609
Reserves	(20)	2,720	1,463	2,504	1,973
Accumulated losses	(20)	(48,964)	(20,400)	(48,748)	(20,910)
Totalparent entity interest in equity		14,400	39,672	14,400	39,672

The above balance sheets should be read in conjunction with the accompanying notes.

BALANCE SHEETS | 31

==> picture [240 x 114] intentionally omitted <==

STATEMENT OF CHANGE IN EQUITY FOR THE YEAR ENDED 30 JUNE 2009

			Share		Foreign
		Option	Based	Financial	Currency	Accum-
	Share	Premium	Payment	Asset	Translation	ulated
	Capital	Reserve	Reserve	Reserve	Reserve	Losses	Total
	$’000	$’000	$’000	$’000	$’000	$’000	$’000
Consolidated
Balance as at
1 July 2007	22,500	1,690	-	1,786	(55)	(13,986)	11,935
Share option expense	-	-	200	-	-	-	200
Unrealised foreign
exchangegain/(loss)	-	-	-	-	(455)	-	(455)
Revenue/expenses
recognised directly
in equity	-	-	200	-	(455)	-	(255)
Currentperiod loss	-	-	-	-	-	(6,414)	(6,414)
Total recognised
income and expense	-	-	200	-	(455)	(6,414)	(6,669)
Issue of ordinaryshares	36,450	-	-	-	-	-	36,450
Cost of share issue	(341)	-	-	-	-	-	(341)
Issue of options	-	2,951	-	-	-	-	2,951
Exercise of options	-	(2,868)	-	-	-	-	(2,868)
Transfer to cost of
investment on gaining
control of subsidiary	-	-	-	(1,786)	-	-	(1,786)
Balance as at
30 June 2008	58,609	1,773	200	-	(510)	(20,400)	39,672
Share option expense	-	-	531	-	-	-	531
Unrealised foreign
exchangegain/(loss)	-	-	-	-	726	-	726
Revenue/expenses
recognised directly
in equity	-	-	531	-	726	-	1,257
Currentperiod loss	-	-	-	-	-	(28,564)	(28,564)
Total recognised
income and expense	-	-	531	-	726	(28,564)	(27,307)
Issue of ordinaryshares	2,125	-	-	-	-	-	2,125
Cost of share issue	(90)	-	-	-	-	-	(90)
Balance as at
30 June 2009	60,644	1,773	731	-	216	(48,964)	14,400

The above statement of change in equity should be read in conjunction with the accompanying notes.

32 | STATEMENT OF CHANGES IN EQUITY

==> picture [595 x 114] intentionally omitted <==

STATEMENT OF CHANGE IN EQUITY FOR THE YEAR ENDED 30 JUNE 2009

		Share		Foreign
	Option	Based	Financial	Currency	Accum-
Share	Premium	Payment	Asset	Translation	ulated
Capital	Reserve	Reserve	Reserve	Reserve	Losses	Total
$’000	$’000	$’000	$’000	$’000	$’000	$’000
Company
Balance as at
1 July 2007	22,500	1,690	-	1,786	(14,041)	11,935
Share option expense	-	-	200	-	-	200
Revenue/expenses
recognised directlyin equity	-	-	200	-	-	200
Currentperiod loss	-	-	-	-	(6,869)	(6,869)
Total recognised income
and expense	-	-	200	-	(6,869)	(6,669)
Issue of ordinaryshares	36,450	-	-	-	-	36,450
Cost of share issue	(341)	-	-	-	-	(341)
Issue of options	-	2,951	-	-	-	2,951
Exercise of options	-	(2,868)	-	-	-	(2,868)
Transfer to cost of investment
ongainingcontrol of subsidiary	-	-	-	(1,786)	-	(1,786)
Balance as at
30 June 2008	58,609	1,773	200	-	(20,910)	39,672
Share option expense	-	-	531	-	-	531
Revenue/expenses
recognised directlyin equity	-	-	531	-	-	531
Currentperiod loss	-	-	-	-	(27,838)	(27,838)
Total recognised income and expense	-	-	531	-	(27,838)	(27,307)
Issue of ordinaryshares	2,125	-	-	-	-	2,125
Cost of share issue	(90)	-	-	-	-	(90)
Balance as at
30 June 2009	60,644	1,773	731	-	(48,748)	14,400

The above statement of change in equity should be read in conjunction with the accompanying notes.

STATEMENT OF CHANGES IN EQUITY | 33

==> picture [240 x 114] intentionally omitted <==

CASH FLOW STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

		Consolidated	Consolidated	Company	Company
	Note	2009	2008	2009	2008
		$'000	$'000	$'000	$'000
Cash flows from operating activities
Receipts from sales		8,301	4,915	-	-
Payments to suppliers and employees		(6,646)	(3,577)	(2,071)	(999)
Net cash inflow/(outflow) from
operating activities	(23)	1,655	1,338	(2,071)	(999)
Cash flows from investing activities
Cash acquired with subsidiary		-	3,304	-	-
Proceeds from sale of equityinvestments		-	210	-	-
Proceeds from sale ofprojects		326	-	-	-
Payments for exploration,evaluation
and development		(3,015)	(6,049)	-	-
Interest received		275	169	275	93
Loans – controlled entity		-	(3,389)	3,241	(3,712)
Investment in subsidiary		-	(100)	(21)	(100)
Proceeds from sale of subsidiary		-	-	326	-
Cash flows from discontinued operations	(33)	(991)	-	-	-
Net cash inflow/(outflow) from
investing activities		(3,405)	(5,855)	3,821	(3,719)
Cash flows from financing activities
Proceeds from issues of shares		1,607	5,409	1,607	5,409
Rights issueproceeds received shares not issued		-	516	-	516
Convertible note		(3,000)	5,675	(3,000)	5,675
Underwritingcosts – convertible note		-	(134)	-	-
Interestpaid		(177)	(409)	(176)	(409)
Share issue costs		(90)	(342)	(90)	(342)
Net cash inflow/(outflow) from
financing activities		(1,660)	10,715	(1,659)	10,849
Effect of changes in exchange rates		887	-	(1,378)	-
Net increase/(decrease) in cash
and cash equivalents		(2,523)	6,198	(1,287)	6,131
Cash and cash equivalents at the beginning
of theperiod		10,604	4,406	6,823	692
Cash and cash equivalents at the end
of theperiod		8,081	10,604	5,536	6,823
The above cash flow statements should be read in	conjunction	with the	accompanying	notes.

34 | CASH FLOW STATEMENTS

==> picture [595 x 114] intentionally omitted <==

NOTES TO THE FINANCIAL STATEMENTS

1. Summary of significant accounting policies

The financial report of Elixir Petroleum Ltd and its controlled entities, for the year ended 30 June 2009, was authorised for issue in accordance with a resolution of the Board of Directors on 25 September 2009.

The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been applied consistently to all the years presented, unless otherwise stated. The financial report includes separate financial statements for Elixir Petroleum Limited as an individual entity (“Company”) and the consolidated entity comprised of Elixir Petroleum Limited and its subsidiaries (“Group” or “Consolidated Entity”). Elixir Petroleum Limited is a company limited by shares, incorporated and domiciled in Australia, and whose shares are publicly traded on the Australian Securities Exchange.

(a) Basis of preparation

This general purpose financial report has been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Interpretations and the Corporations Act 2001.

Going concern

The Financial Report has been prepared on the going concern basis, which contemplates the continuity of normal business activity and the realisation of assets and the settlement of liabilities in the normal course of business.

Compliance with International Financial Reporting Standards

Australian Accounting Standards include Australian equivalents to International Financial Reporting Standards (“AIFRS”). Compliance with AIFRS ensures that the financial report of the Group complies with International Financial Reporting Standards.

Historical cost convention

These financial statements have been prepared under the historical cost convention. Expenditure is initially recognised at cost and revalued to fair value when required to do so by the application of Australian Accounting Standards.

Critical accounting estimates

The preparation of financial statements in conformity with AIFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 2.

(b) Principles of consolidation

(i) Subsidiaries

The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Elixir Petroleum Limited as at 30 June 2009. The Company and its subsidiaries together are referred to in this financial report as the Group or the Consolidated Entity.

Subsidiaries are all those entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

NOTES TO THE FINANCIAL STATEMENTS | 35

==> picture [240 x 114] intentionally omitted <==

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group (refer to note1 (g)).

Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are eliminated unless the transaction provides evidence of the impairment of the assets transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Consolidated Entity.

Investments in subsidiaries are accounted for at cost in the separate financial statements of the Company.

(ii) Joint ventures

Jointly controlled assets

The Group’s proportionate interests in the assets, liabilities and expenses of a joint venture activity are incorporated in the financial statements under the appropriate headings. Details of joint ventures are set out in note 24.

(c) Segment reporting

A business segment is identified for a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different to those of other business segments. A geographical segment is identified when products or services are provided within a particular geographic area that is subject to risks and returns that are different from those of segments operating in other geographic areas.

(d) Foreign currency translation

(i) Functional and presentation currency

Items in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in Australian dollars, which is Consolidated Entity’s functional and presentation currency.

(ii) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions, or at an exchange rate that approximates the spot rate, as allowed by AASB 121. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when they are deferred in equity as qualifying cash flow hedges, qualifying net investment hedges or are attributable to part of the net investment in a foreign operation.

(e) Revenue recognition

(i) Sale of goods

Revenue from the sale of goods and disposal of other assets is recognised when the Consolidated Entity has transferred to the buyer the significant risks and rewards of ownership of the goods.

(ii) Other revenue

Dividend revenue is recognised on a receivable basis. Interest revenue is recognised on a time proportionate basis that takes into account the effective yield of the financial asset.

(f) Income tax

The income tax expense or benefit for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences, and to unused tax losses.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business

36 | NOTES TO THE FINANCIAL STATEMENTS

==> picture [595 x 114] intentionally omitted <==

combination that at the time of the transaction affects neither accounting or taxable income or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the reporting date and are expected to apply when the related deferred income tax assets are realised or the deferred income tax liability is settled.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax base of investments in controlled entities where the Company is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity.

(g) Business combinations

The purchase method of accounting is used to account for all business combinations, including business combinations involving entities under common control, regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given, equity instruments issued or liabilities incurred or assumed at the date of exchange plus costs directly attributable to the acquisition. Where equity instruments are issued in an acquisition, the fair value of the instruments is their published market price as at the date of exchange unless, in rare circumstances, it can be demonstrated that the published market price at the date of exchange is an unreliable indicator of fair value and that other evidence and valuation methods provide a more reliable method of fair value. Transaction costs arising on the issue of equity instruments are recognised directly in equity.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the Group’s share of the fair value of the identifiable net assets of the subsidiary acquired, the difference is recognised directly in the income statement, but only after a reassessment of the identification and measurement of the net assets acquired.

Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.

(h) Impairment of assets

Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that have been impairment are reviewed for possible reversal of the impairment at each reporting date.

NOTES TO THE FINANCIAL STATEMENTS | 37

==> picture [240 x 114] intentionally omitted <==

(i) Going concern

The Financial Report has been prepared on the going concern basis, which contemplates the continuity of normal business activity and the realisation of assets and the settlement of liabilities in the normal course of business.

(j) Cash and cash equivalents

For cash flow statement presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions and other short-term, highly liquid investments with original maturities of three months or less.

(k) Trade receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method, less provision for impairment. Trade receivables are generally due for settlement within 30 days.

(l) Investments and other financial assets

Classification

The Group classifies its financial assets in the following categories: financial assets ‘at fair value through profit or loss’, ‘held-to-maturity’ investments, ‘available-for-sale’ financial assets, and ‘loans and receivables’. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its investments at initial recognition and, in the case of assets classified as held-to-maturity, re-evaluates this designation at each reporting date.

(i) Available-for-sale financial assets

Available-for-sale financial assets, comprising principally marketable equity securities, are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the reporting date. Investments are designated as available-for-sale if they do not have fixed maturities and fixed or determinable payments and management intends to hold them for the medium to long term.

(ii) Held-to-maturity investments

Bills of exchange and debentures are recorded at amortised cost using the effective interest rate method less impairment, with revenue recognised on an effective yield basis. The effective interest rate method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period.

Recognition and de-recognition

Regular purchases and sales of financial assets are recognised on trade date this is the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value and transaction costs are expensed in the income statement. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.

When securities classified as available-for-sale are sold, the accumulated fair value adjustments recognised in equity are included in the income statement as gains and losses from sale of investment securities.

Subsequent measurement

Loans and receivables and held-to-maturity investments are carried at amortised cost less impairment using the effective interest rate method.

Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value.

Details on how the fair value of financial instruments is determined are disclosed in note 29.

38 | NOTES TO THE FINANCIAL STATEMENTS

==> picture [595 x 114] intentionally omitted <==

Impairment

The Group assesses at each balance date whether there is objective evidence that a financial asset or group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of a security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss, measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss, is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments classified as available-for-sale are not reversed through the income statement.

(m) Property, plant and equipment (other than oil & gas properties)

Property, plant and equipment is stated at cost less accumulated depreciation and impairment. Cost includes expenditure that is directly attributable to the acquisition of the item. In the event that settlement of all or part of the purchase consideration is deferred, cost is determined by discounting the amounts payable in the future to their present value as at the date of acquisition.

Depreciation is provided on property, plant and equipment, including freehold buildings but excluding land. Depreciation is calculated on a straight line basis so as to write down the net cost or other revalued amount of each asset over its expected useful life to its estimated residual value. Leasehold improvements are depreciated over the period of the lease or estimated useful life, whichever is the shorter, using the straight line method.

The estimated useful lives, residual values and depreciation method are reviewed at the end of each annual reporting period. The following estimated useful lives are used in the calculation of depreciation: Fixtures and fittings 5 years Plant and equipment 5 – 15 years

(n) Non-operator interests in oil & gas properties

Exploration & evaluation expenditure

The Consolidated Entity’s accounting policy for the cost of exploring and of evaluating discoveries is based on the “successful efforts” method.

This approach is strongly linked to the Group’s oil and gas reserves determination and reporting process and is considered to most fairly reflect the results of the Group’s exploration and evaluation activity, because only assets with demonstrable value are carried on the balance sheet.

Once a decision has been made to develop an oil or gas prospect, accumulated exploration and evaluation costs for that prospect are transferred from Deferred Exploration, Evaluation to Development Projects. Once production commences capitalised costs associated with the producing well are transferred to Oil and Gas Properties and are amortised or depreciated over the useful life of the asset.

This method allows the costs of discovery, evaluation and development of a prospect to be aggregated on the balance sheet and matched against the benefits derived from production once this commences.

Costs

Exploration and evaluation expenditure is accounted for in accordance with the area of interest method. Exploration licence acquisition costs relating to greenfields oil and gas exploration provinces are expensed as incurred while these costs incurred in relation to established or recognised oil and gas exploration provinces are initially capitalised and then amortised over the shorter term of the licence or the expected life of the project.

All other exploration and evaluation costs, including general permit activity, geological and geophysical costs and new venture activity costs are charged as expenses as incurred except where:

NOTES TO THE FINANCIAL STATEMENTS | 39

==> picture [240 x 114] intentionally omitted <==

• the expenditure relates to an area of interest that, at balance date, no assessment of the existence of economically recoverable reserves has been made; or

• where there exists an economically recoverable reserve and it is expected that the capitalised expenditure will be recouped through successful exploitation of the area of interest, or alternatively, by its sale.

Areas of interest are recognised at the field level. Subsequent to the recognition of an area of interest, all further costs relating to the area of interest are initially capitalised. Each area of interest is reviewed at least bi-annually to determine whether economic quantities of reserves exist or whether further exploration and evaluation work is required to support the continued carry forward of capitalised costs.

The costs of drilling exploration wells are initially capitalised pending the results of the well. Costs are expensed where the well does not result in the successful discovery of economically recoverable hydrocarbons. To the extent it is considered that the relevant expenditure will not be recovered, it is immediately expensed.

Transfer to development projects

Upon a decision being made to commercially develop an area of interest, accumulated expenditure for the area of interest is transferred to Oil & Gas Properties and amortised or depreciated over the useful life of the project.

Producing projects

Exploration, evaluation and development costs are initially capitalised as deferred exploration, evaluation and development expenditure and upon commencement of commercial operations are transferred to Oil & Gas Properties. Operating costs of projects in commercial production are expensed as incurred.

Prepaid drilling and completion costs

Where the Group has a non-operator interest in an oil and gas property, it may periodically be required to make a cash contribution for its share of the operator’s drilling and / or completion costs, in advance of these operations taking place.

Where these contributions relate to a prepayment for exploratory or early stage drilling activity, prior to a decision on the commerciality of a well having been made, the costs are capitalised as prepaid drilling costs within Deferred Exploration, Evaluation and Development Expenditure.

Where these contributions relate to a prepayment for well completion, these costs are capitalised as prepaid completion costs within Exploration, Evaluation and Development Expenditure.

As the operator notifies the Company as to how funds have been expended, the costs are reclassified from prepaid costs to the appropriate expenditure category.

Once a decision has been made to proceed with completion of a well, all costs are transferred from Exploration and Evaluation to Oil and Gas Properties, including any prepaid amounts.

Amortisation of producing projects

Upon commencement of production, the Consolidated Entity amortises the accumulated costs for the relevant area of interest over the life of the area according to the rate of depletion of the economically recoverable quantities of reserves. Estimates of recoverable reserve quantities include judgemental assumptions regarding commodity prices, exchange rates, discount rates, and production and transportation costs for future cash flows. It also requires interpretation of complex and difficult 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. Amortisation charged for the year to 30 June 2009 was $8,835,000 (2008: $9,544,000).

40 | NOTES TO THE FINANCIAL STATEMENTS

==> picture [595 x 114] intentionally omitted <==

Future restoration costs

The Consolidated Entity’s aim is to avoid or minimise environmental impact resulting from its operations. Work scope and cost estimates for restoration are reviewed annually and updated at least every three years.

Provision is made in the balance sheet for restoration of operating locations. The estimated costs are capitalised as part of the cost of the related project where recognition occurs upon acquisition of an interest in the operating locations. The costs are then recognised as an expense on a units of production basis during the production phase of the project.

The costs are based on the latest estimated future costs, determined on a discounted basis, which are re-assessed regularly and exclude any allowance for potential changes in technology or material changes in legislative requirements.

The Group accounts for changes in cost estimates on a prospective basis.

(o) Trade and other payables

Trade payables and other accounts payable are recognised when the Consolidated Entity becomes obliged to make future payments resulting from the purchase of goods and services.

(p) Employee benefits

Provision is made for benefits accruing to employees in respect of employee entitlements when it is probable that settlement will be required and these benefits can be measured reliably.

Provisions made in respect of employee entitlements expected to be settled within 12 months are measured at their nominal values using the remuneration rate expected to apply at the time of settlement.

Provisions made in respect of employee benefits which are not expected to be settled within 12 months are measured as the present value of the estimated future cash outflows to be made by the Consolidated Entity in respect of services provided by employees up to reporting date.

(q) Provisions

Provisions are recognised when the Consolidated Entity has a present obligation as a result of a past event, the future sacrifice of economic benefits is probable and the amount of the obligation can be reliably estimated.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that recovery will be received and the amount of the receivable can be measured reliably.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cashflows estimated to settle the present obligation, its carrying amount is the present value of those cashflows.

An onerous contract is considered to exist where the Consolidated Entity has a contract under which the unavoidable cost of meeting the contractual obligations exceed the economic benefits estimated to be received. Present obligations arising under onerous contracts are recognised as a provision to the extent that the present obligation exceeds the economic benefits estimated to be received.

Provision for restoration and rehabilitation

Provision is made in the balance sheet for restoration of operating locations. The estimated restoration and rehabilitation costs are initially recognised as part of the capitalised cost of the relevant project which gave rise to the future obligation. During the production phase of the project the capitalised restoration costs is amortised using the units of production method. Any actual costs incurred by the Consolidated Entity are allocated against the provision.

NOTES TO THE FINANCIAL STATEMENTS | 41

==> picture [240 x 114] intentionally omitted <==

The provision for restoration and rehabilitation is based on the latest estimated future costs, determined on a discounted basis, which are re-assessed regularly and exclude any allowance for potential changes in technology or material changes in legislative requirements.

(r) Contributed equity

Ordinary shares are classified as equity. Mandatorily redeemable preference shares are classified as liabilities.

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. Incremental costs directly attributable to the issue of new shares or options for the acquisition of a business are not included in the cost of the acquisition as part of the purchase consideration.

If the Company reacquires its own equity instruments, e.g. as the result of a share buy-back, those instruments are deducted from equity and the associated shares are cancelled. No gain or loss is recognised in the profit or loss and the consideration paid including any directly attributable incremental costs (net of income taxes) is recognise directly in equity.

(s) Borrowing costs

Borrowing costs are expensed in the period in which they are incurred, except to the extent which they are directly attributable to the acquisition, construction or production of an asset and it is probable that they will result in future economic benefits to the entity and the costs can be measured reliably.

(t) Good and services tax

Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except:

• where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or

• for receivables and payables which are recognised inclusive of GST.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables. Cash flows are included in the cash flow statement on a gross basis. The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified as operating cash flows.

(u) Earnings per share

(i) Basic earnings per share

Basic earnings per share is calculated by dividing the profit (loss) attributable to equity holders of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares on issue during the financial year, adjusted for bonus elements in ordinary shares issued during the year.

(ii) Diluted earnings per share

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.

(v) Share-based payments

Equity settled share based payments granted after 7 November 2002 that were unvested as of 1January 2005, are measured at fair value at the date of grant. Fair value is measured by use of the Binomial model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Consolidated Entity’s estimate of shares that will eventually vest.

42 | NOTES TO THE FINANCIAL STATEMENTS

==> picture [595 x 114] intentionally omitted <==

(w) Rounding of amounts

The Company is of a kind referred to in Class order 98/0100, issued by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the financial report. Amounts in the financial report have been rounded off in accordance with the class order to the nearest thousand dollars, or in certain cases, the nearest dollar.

(x) New accounting standards and interpretations

The following Australian Accounting Standards have been issued or amended but are not yet effective. The Consolidated Entity has decided against early adoption of these standards. A discussion of the future requirements of the amendments and their impact on the financial accounts of the Consolidated Entity follows:

AASB 3: Business Combinations, AASB 127: Consolidated and Separate Financial Statements, AASB 2008-3: Amendments to Australian Accounting Standards arising from AASB 3 and AASB 127 [AASBs 1, 2, 4, 5, 7, 101, 107, 112, 114, 116, 121, 128, 131, 132, 133, 134, 136, 137, 138 & 139 and Interpretations 9 & 107] (applicable for annual reporting periods commencing from 1 July 2009) and AASB 2008-7: Amendments to Australian Accounting Standards — Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate [AASB 1, AASB 118, AASB 121, AASB 127 & AASB 136] (applicable for annual reporting periods commencing from 1 January 2009). These standards are applicable prospectively and so will only affect relevant transactions and consolidations occurring from the date of application. In this regard, its impact on the Group will be unable to be determined. The following changes to accounting requirements are included:

• acquisition costs incurred in a business combination will no longer be recognised in goodwill but will be expensed unless the cost relates to issuing debt or equity securities;

• contingent consideration will be measured at fair value at the acquisition date and may only be provisionally accounted for during a period of 12 months after acquisition;

• a gain or loss of control will require the previous ownership interests to be remeasured to their fair value;

• there shall be no gain or loss from transactions affecting a parent’s ownership interest of a subsidiary with all transactions required to be accounted for through equity;

• dividends declared out of pre-acquisition profits will not be deducted from the cost of an investment but will be recognised as income;

• impairment of investments in subsidiaries, joint ventures and associates shall be considered when a dividend is paid by the respective investee; and

• where there is, in substance, no change to Consolidated Entities interests, parent entities inserted above existing Consolidated Entity’s shall measure the cost of its investments at the carrying amount of its share of the equity items shown in the balance sheet of the original parent at the date of reorganisation.

The Consolidated Entity will need to determine whether to maintain its present accounting policy of calculating goodwill acquired based on the parent entity’s share of net assets acquired or change its policy so goodwill recognised also reflects that of the non-controlling interest.

AASB 8: Operating Segments and AASB 2007-3: Amendments to Australian Accounting Standards arising from AASB 8 [AASB 5, AASB 6, AASB 102, AASB 107, AASB 119, AASB 127, AASB 134, AASB 136, AASB 1023 & AASB 1038] (applicable for annual reporting periods commencing from 1 January 2009). AASB 8 replaces AASB 114 and requires identification of operating segments on the basis of internal reports that are regularly reviewed by the Consolidated Entities Board for the purposes of decision making. These changes are not expected to impact on the way the Consolidated Entity reports segment results or how it calculates impairment of assets.

AASB 101: Presentation of Financial Statements, AASB 2007-8: Amendments to Australian Accounting Standards arising from AASB 101, and AASB 2007-10: Further Amendments to Australian Accounting Standards arising from AASB 101 (all applicable to annual reporting periods commencing from 1 January 2009). The revised AASB 101 and amendments

NOTES TO THE FINANCIAL STATEMENTS | 43

==> picture [240 x 114] intentionally omitted <==

supersede the previous AASB 101 and redefines the composition of financial statements including the inclusion of a statement of comprehensive income. There will be no measurement or recognition impact on the Consolidated Entity. If an entity has made a prior period adjustment or reclassification, a third balance sheet as at the beginning of the comparative period will be required.

AASB 123: Borrowing Costs and AASB 2007-6: Amendments to Australian Accounting Standards arising from AASB 123 [AASB 1, AASB 101, AASB 107, AASB 111, AASB 116 & AASB 138 and Interpretations 1 & 12] (applicable for annual reporting periods commencing from 1 January 2009). The revised AASB 123 has removed the option to expense all borrowing costs and will therefore require the capitalisation of all borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset. Management has determined that there will be no effect on the Consolidated Entity as a policy of capitalising qualifying borrowing costs has been maintained by the Consolidated Entity.

AASB 2008-1: Amendments to Australian Accounting Standard — Share-based Payments: Vesting Conditions and Cancellations [AASB 2] (applicable for annual reporting periods commencing from 1 January 2009). This amendment to AASB 2 clarifies that vesting conditions consist of service and performance conditions only. Other elements of a sharebased payment transaction should therefore be considered for the purposes of determining fair value. Cancellations are also required to be treated in the same manner whether cancelled by the entity or by another party.

AASB 2008-2: Amendments to Australian Accounting Standards — Puttable Financial Instruments and Obligations Arising on Liquidation [AASB 7, AASB 101, AASB 132 & AASB 139 & Interpretation 2] (applicable for annual reporting periods commencing from 1 January 2009). These amendments introduce an exception to the definition of a financial liability to classify as equity instruments certain puttable financial instruments and certain other financial instruments that impose an obligation to deliver a pro-rata share of net assets only upon liquidation.

AASB 2008-5: Amendments to Australian Accounting Standards arising from the Annual Improvements Project (July 2008) (AASB 2008-5) and AASB 2008-6: Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project (July 2008) (AASB 2008-6) detail numerous non-urgent but necessary changes to accounting standards arising from the IASB’s annual improvements project. No changes are expected to materially affect the Consolidated Entity.

AASB 2008-8: Amendments to Australian Accounting Standards — Eligible Hedged Items [AASB 139] (applicable for annual reporting periods commencing from 1 July 2009). This amendment clarifies how the principles that determine whether a hedged risk or portion of cash flows is eligible for designation as a hedged item should be applied in particular situations and is not expected to materially affect the Consolidated Entity as currently has not hedge instruments of the type dealt with by AASB 139.

AASB 2008-13: Amendments to Australian Accounting Standards arising from AASB Interpretation 17 — Distributions of Non-cash Assets to Owners [AASB 5 & AASB 110] (applicable for annual reporting periods commencing from 1 July 2009). This amendment requires that non-current assets held for distribution to owners be measured at the lower of carrying value and fair value less costs to distribute.

AASB Interpretation 15: Agreements for the Construction of Real Estate (applicable for annual reporting periods commencing from 1 January 2009). The Consolidated Entity doesn’t operate in the business sector to which this interpretation applies, therefore Management expect this interpretation to have no impact on the accounts of the Consolidated Entity

AASB Interpretation 16: Hedges of a Net Investment in a Foreign Operation (applicable for annual reporting periods commencing from 1 October 2008). Interpretation 16 applies to entities that hedge foreign currency risk arising from net investments in foreign operations and that want to adopt hedge accounting. The interpretation provides clarifying guidance on several issues in accounting for the hedge of a net investment in a foreign operation and is not expected to impact the

44 | NOTES TO THE FINANCIAL STATEMENTS

==> picture [595 x 114] intentionally omitted <==

Consolidated Entity.

AASB Interpretation 17: Distributions of Non-cash Assets to Owners (applicable for annual reporting periods commencing from 1 July 2009). This guidance applies prospectively only and clarifies that non-cash dividends payable should be measured at the fair value of the net assets to be distributed where the difference between the fair value and carrying value of the assets is recognised in profit or loss.

The Group does not anticipate early adoption of any of the above reporting requirements and does not expect these requirements to have any material effect on the Group’s financial statements.

2. Critical accounting estimates & judgments

In preparing this financial report the Consolidated Entity has been required to make certain estimates and assumptions concerning future occurrences. There is an inherent risk that the resulting accounting estimates will not equate exactly with actual events and results.

(a) Significant accounting judgements

In the process of applying the Consolidated Entity’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statements:

Functional currency of US-based subsidiary operations

The Group’s US based subsidiaries are at this stage financed primarily by means of A$ denominated loans and/or equity contributions. As such, the functional currency of these subsidiaries has been determined to be A$, not withstanding that they also conduct significant US$ denominated transactions.

Exploration, evaluation and development expenditure (Oil & Gas Properties)

The Group's accounting policy for exploration, evaluation and development is set out at note 1(n). 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 exist. Any such estimates and assumptions may change as new information becomes available. If, after having capitalised expenditure under our policy, management conclude that it is unlikely that capitalised expenditure will be recovered by future exploitation or sale, the relevant capitalised amount will be written off to the income statement. As at 30 June 2009 the carrying amount of Oil & Gas Properties is $6,581,000 (2008: $31,569,000).

Deferred tax assets

The Consolidated Entity has carried forward tax losses which have not been recognised as deferred tax assets as it is not considered sufficiently probable that these losses will be recouped by means of future profits taxable in the appropriate jurisdictions.

In addition, the Consolidated Entity’s interests in jointly controlled oil & gas operations are held through the Company's wholly-owned US entities (note 12 (b)). Taxation of oil & gas activities in the US allows a number of alternative treatments which are not available under Australian taxation legislation. In particular, companies may elect to:

(i) claim an immediate deduction for Intangible Drilling Costs ("IDC"); and

(ii) must use either the cost or percentage depletion method, whichever yields the largest tax deduction, when calculating applicable tax deductions in relation to the entities economic interest in it oil and gas properties.

The election to expense IDC applies to all expenditures incident to and necessary for the drilling of wells and the preparation of wells for the production of oil or gas. Once the election to expense IDC is made, the election is binding upon the taxpayer for the first taxable year for which it is effective and for all subsequent taxable years.

NOTES TO THE FINANCIAL STATEMENTS | 45

==> picture [240 x 114] intentionally omitted <==

At balance date a determination had not been made as to whether the cost or percentage depletion method would apply for the current years US income tax calculation. The directors have not recognised or disclosed a deferred tax asset or liability in respect of this potential difference in the tax base of these properties as they do not believe it is capable of being reliably estimated at balance date.

(b) Critical accounting estimates

The carrying amounts of certain assets and liabilities are often based on estimates and assumptions of future events. The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting period are:

Amortisation

Upon commencement of production, the Company amortises the accumulated costs for the relevant area of interest over the life of the area according to the rate of depletion of the economically recoverable quantities of reserves. Estimates of recoverable reserve quantities include judgemental assumptions regarding commodity prices, exchange rates, discount rates, and production and transportation costs for future cash flows. It also requires interpretation of the quality of reservoirs, and their anticipated recoveries. The economic, geological and technical factors used to estimate reserves may change from period to period. Amortisation charge for the year ended 30 June 2009 was $8,835,000 (2008: $9,544,000).

Share-based payment transactions

The Consolidated Entity measures the cost of equity-settled transactions with employees and consultants 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 model, using the assumptions detailed in note 22.

Rehabilitation obligations

The Consolidated Entity estimates its share of the future removal and remediation costs of oil and gas platforms, production facilities, wells and pipelines at the time of acquisition or installation of the assets. In most instances, removal of assets occurs many years into the future. This requires judgemental assumptions regarding removal date, future environmental legislation, the extent of remediation activities required, the engineering methodology for estimating cost, future removal technologies in determining the removal cost, and asset specific discount rates to determine the present value of these cash flows. For more detail regarding the policy in respect of provision for rehabilitation refer to note 1(q). As at 30 June 2009 rehabilitation obligations have a carrying value of $1,484,000 (2008: $1,484,000).

Impairment of assets

In the absence of readily available market prices, the recoverable amounts of assets are determined using estimates of the present value of future cashflows using asset-specific discount rates. For oil & gas properties, these estimates are based on assumptions concerning reserves, future production profiles and costs. As at 30 June 2009, the carrying value of oil & gas properties is $6,581,000 (2008: $31,569,000).

3. Segment Information

Primary reporting – geographical segments

The Consolidated Entity operates in three main geographical segments, Australia, Europe and Africa and the United States of America.

Australia

Australia is the location of the central management and control of the Company and its principal administrative base. The Company through one of its wholly owned subsidiaries, Globe Resources Pty Ltd, holds mineral exploration licences located in the Northern Territory and South Australia. During the financial year the mineral exploration licences held in South Australia were relinquished.

46 | NOTES TO THE FINANCIAL STATEMENTS

==> picture [595 x 114] intentionally omitted <==

Europe and Africa

The Consolidated Entity’s North Sea and Africa exploration activities and license interests are located in the United Kingdom (“UK”) and Sierra Leone, West Africa respectively. During the year the Consolidated Entity’s UK and African operations were conducted through the following UK registered subsidiaries, Elixir Petroleum (UK) Ltd, Elixir Petroleum (Europe) Ltd and Elixir Petroleum (Technical Services) Ltd. During the current financial year the Consolidated Entity sold Elixir Petroleum (UK) Ltd along with the Sierra Leone licence (Block SL4) held by this entity.

USA

The Group’s interest in the High Island and Pompano projects are held by a wholly-owned US subsidiary, Cottesloe Oil & Gas LLC.

2009		Europe		Unall-	Discontinued
	USA	& Africa	Australia	ocated	Operation	Total
	$'000	$'000	$'000	$'000	$'000	$'000
Sales	5,556	18	-	-	-	5,574
Other revenue	-	-	-	704	966	1,670
Expenses	(30,484)	(726)	-	(2,417)	(2,181)	(35,808)
Loss before tax	(24,928)	(708)	-	(1,713)	(1,215)	(28,564)
Tax	-	-	-	-	-	-
Loss after tax	(24,928)	(708)	-	(1,713)	(1,215)	(28,564)
Total assets	7,191	2,137	-	7,383	-	16,711
Total liabilities	(1,602)	(150)	-	(559)	-	(2,311)
Depreciation and amortisation	8,835	10	-	-	-	8,845
2008		Europe		Unall-	Discontinued
	USA	& Africa	Australia	ocated	Operation	Total
	$'000	$'000	$'000	$'000	$'000	$'000
Sales	9,120	-	-	-	-	9,120
Other revenue	-	-	-	195	-	195
Expenses	(10,686)	(2,892)	-	(2,151)	-	(15,729)
Loss before tax	(1,566)	(2,892)	-	(1,956)	-	(6,414)
Tax	-	-	-	-	-	-
Loss after tax	(1,566)	(2,892)	-	(1,956)	-	(6,414)
Total assets	36,673	2,596	-	7,870	-	47,139
Total liabilities	(2,574)	(759)	-	(4,134)	-	(7,467)
Depreciation and amortisation	9,544	11	-	-	-	9,555

NOTES TO THE FINANCIAL STATEMENTS | 47

==> picture [240 x 114] intentionally omitted <==

4. Revenue from continuing operations

	Consolidated	Consolidated	Company	Company
	2009	2008	2009	2008
	$'000	$'000	$'000	$'000
Revenue from oil &gas sales	5,574	9,120	-	-
Interest received	312	169	308	93
	5,886	9,289	308	93
5. Other income
Profit on sale of investments	-	26	183	-
Consultancyfees – controlled entities	-	-	627	-
Unrealised foreign exchangegain	392	-	-	-
	392	26	810	-
6. Expenses
Loss before income tax is arrived at after deducting the following expenses:
Amortisation of oil &gasproperties	8,835	9,544	-	-
Depreciation ofplant and equipment	10	11	-	-
Employee benefits expense(includingshare-basedpayment)	1,748	1,123	1,407	157
Borrowingcosts	176	409	176	409
Impairment of receivables from controlled entities	-	-	25,489	4,941
Exploration expenditure expensed	1,187	(2,501)	18	(18)
Impairment of oil andgasproperties	18,386	-	-	-
7. Other expenses
Share basedpayments(note 22)	608	200	605	126
Fair value adjustment on warrants	-	29	-	-
Foreign exchange loss	3	501	92	-
	611	730	697	126

48 | NOTES TO THE FINANCIAL STATEMENTS

==> picture [595 x 114] intentionally omitted <==

8. Income tax

The prima facie income tax expense on pre-tax accounting loss from operations reconciles to the income tax expense in the financial statements as follows:

	Consolidated	Consolidated	Company	Company
	2009	2008	2009	2008
	$'000	$'000	$'000	$'000
Prima facie tax benefit on loss at 30%(2008: 30%)	(8,205)	(1,925)	(8,351)	(2,061)
Add tax effect of:
Foreign/overseas tax losses not recognised	7,178	1,961	-	38
Revenue losses not recognised	633	720	629	691
Effect of lower tax rate on overseas losses	(12)	297	-	-
Share basedpayments	182	60	182	38
Provisions against Groupborrowings	-	-	7,647	1,482
Other non-allowable items	32	35	32	35
Less tax effect of:
Other deferred tax balances not recognised	192	(1,148)	(139)	(223)
Income tax expense	-	-	-	-
The applicable weighted average tax rates are as follows:	0%	0%	0%	0%
The following deferred tax balances have not been recognised
Deferred tax assets:
At 30%
Carryforward revenue losses	2,879	2,246	2,318	1,732
Carryforward foreign losses	-	123	-	95
Capital raisingcosts	115	310	109	310
Provisions and accruals	110	9	107	9
Other	-	26	-	26
	3,104	2,714	2,534	2,172
At 28% (United Kingdom)
Carryforward overseas losses	3,338	3,173	-	-

The tax benefits of the above deferred tax assets will only be obtained if:

(a) the Group derives future assessable income of a nature and amount sufficient to enable the benefits to be utilised;

(b) the Group continues to comply with the conditions for deductibility imposed by law; and

(c) no changes in income tax legislation adversely affect the company utilising the benefits

NOTES TO THE FINANCIAL STATEMENTS | 49

==> picture [240 x 114] intentionally omitted <==

8. Income Tax

	Consolidated	Consolidated	Company	Company
	2009	2008	2009	2008
	$'000	$'000	$'000	$'000
Deferred tax liabilities:
At 30%
Accrued income	10	-	10	-

The above deferred tax liabilities have not been recognised as they have given rise to carry forward tax losses for which no deferred tax assets has been recognised.

9. Earnings / (loss) per share

		Consolidated
	2009	2008
	Cents	Cents
Basic / diluted loss per share
Loss attributable to the ordinaryequityholders of the company	(15.1)	(5.0)
Loss used in calculation of basic / diluted loss per share	$'000	$'000
Loss attributable to the ordinaryequityholders of the company	(28,564)	(6,414)
Weighted average number of ordinary shares used as the
denominator in calculating basic / diluted lossper share	188,853,375	130,725,106

The options on issue (note 21) and convertible notes (note 17) represent potential ordinary shares but are not dilutive as they would decrease the loss per share. Accordingly they have been excluded from the weighted average number of ordinary shares and potential ordinary shares used in the calculation of diluted earnings per share.

10. Cash and cash equivalents

	Consolidated	Consolidated	Company	Company
	2009	2008	2009	2008
	$’000	$’000	$’000	$’000
Cash at bank and in hand	3,081	4,765	536	984
Deposits at call	5,000	5,839	5,000	5,839
	8,081	10,604	5,536	6,823

Cash at bank bears interest at market rate (floating). Short term deposits are made for varying periods of between one day and three months depending on forecast cash requirements of the Consolidated Entity and earn interest at the respective short term deposit rates.

50 | NOTES TO THE FINANCIAL STATEMENTS

==> picture [595 x 114] intentionally omitted <==

	Consolidated	Consolidated	Company	Company
	2009	2008	2009	2008
	$’000	$’000	$’000	$’000
11. Trade and other receivables
Trade receivables	428	3,122	33		-
Other receivables andprepayments	239	335	13		-
Loans to other entities	-	213	-		-
	667	3,670	46		-
Non-current assets
Receivables from subsidiaries
At cost	-	-	15,357	19,582
Less impairment write down	-	-	(15,357)	(13,961)
	-	-	-	5,621

Trade and other receivables are non-interest bearing and are normally settled on 30 days terms. Amounts receivable from group entities are non interest bearing, with no fixed terms of repayment.

12. Investment in subsidiaries

At cost	-	-	31,194	31,248
Provision for impairment	-	-	(21,823)	-
	-	-	9,371	31,248

(a) Wholly-owned Group

At balance date amounts receivable from controlled entities totaled $15,357,000 (at cost) (2008: $19,582,000).The transactions were made interest free with no fixed terms for repayment. Following recent guidance issued by the Australian Standards Board, this receivable has been included within the cost of investment in subsidiaries.

Details of interests in wholly-owned controlled entities are set out at part (b) of this note. Details of dealings with controlled entities are as follows:

Inter-company Account

Elixir Petroleum Limited provides working capital to its controlled entities. Transactions between Elixir Petroleum Limited and other controlled entities in the Consolidated Entity during the year ended 30 June 2009 consisted of:

(i) Working capital advanced by Elixir Petroleum Limited.

• (ii) Provision of services by Elixir Petroleum Limited.

• (iii) Expenses paid by Elixir Petroleum Limited on behalf of its controlled entities.

The above transactions were made interest free with no fixed terms for the repayment of amounts advanced by Elixir Petroleum Limited.

NOTES TO THE FINANCIAL STATEMENTS | 51

==> picture [240 x 114] intentionally omitted <==

(b) Investments in controlled entities

(b) Investments in controlled entities
				Parent
Name of Entity	Country	Class	Equity holding
	of incorporation	of shares	2009	2008
Elixir Petroleum(Australia)PtyLtd	Australia	Ordinary	100%	100%
Transition Resources Ltd	Australia	Ordinary	100%	100%
Globe Resources PtyLtd	Australia	Ordinary	100%	100%
Elixir Petroleum(UK)Ltd(1)	United Kingdom	Ordinary	-	100%
Elixir Petroleum(Europe)Ltd(2)	United Kingdom	Ordinary	100%	100%
Elixir Petroleum(Technical Services)Ltd(3)	United Kingdom	Ordinary	100%	-
Cottesloe Oil & Gas LLC	USA	Ordinary	100%	100%
Cottesloe Oil & Gas Inc	USA	Ordinary	100%	100%

(1) Discontinued Operations.

(2) Formerly Elixir Petroleum (RSL) Ltd.

(3) Incorporated in the current financial year.

(c) Ultimate Parent Company

Elixir Petroleum Limited, an ASX listed public company incorporated and domiciled in Australia, is the ultimate parent of the Consolidated Group.

(d) Corporate restructure

During the financial year the Consolidated Entity undertook a restructure of its UK and African exploration assets. The restructure resulted in the incorporation of a new UK registered entity, Elixir Petroleum (Technical Services) Limited. A decision was also made to sell Elixir Petroleum (UK) Limited, along with its interest in the Sierra Leone exploration licence, Block SL-4. Prior to the sale of Elixir Petroleum (UK) Limited, all assets and liabilities of the entity which were not related to the Block SL-4 licence were sold to other members of the Consolidated Entity as part of the Sale and Purchase Agreement between Elixir Petroleum Limited and Prontinal Ltd. At the date of sale, being 30 April 2009, Elixir Petroleum (UK) Ltd ceased to be a member of the Consolidated Entity as it no longer met the consolidation requirements of AASB 127 Consolidated and Separate Financial Statements . Financial information in relation to Elixir Petroleum (UK) Limited can be found in the discontinued operations information disclosed in note 33.

13. Oil and gas properties

	Consolidated	Consolidated	Company	Company
	2009	2008	2009	2008
	$’000	$’000	$’000	$’000
Producing projects
At cost	40,958	41,113	-	-
Less amortisation	(18,379)	(9,544)	-	-
Impairment adjustment	(16,119)	-	-	-
	6,460	31,569	-	-
Development projects
At cost	3,471	-	-	-
Less amortisation	-	-	-	-
Impairment adjustment	(2,266)	-	-	-
Written off	(1,084)	-	-	-
	121	-	-	-
Total	6,581	31,569	-	-

52 | NOTES TO THE FINANCIAL STATEMENTS

==> picture [595 x 114] intentionally omitted <==

A reconciliation of movements in oil & gas properties during the year is as follows:

			Prepaid
			Drilling &
	Tangible	Intangible	Completion
	Costs	Costs	Costs	Total
	$’000	$’000	$’000	$’000
At Cost
At 1 July2007	-	-	-	-
Acquired with subsidiary	1,629	31,440	-	33,069
Additions	1,384	5,176	-	6,560
At 1 July 2008	3,013	36,616	-	39,629
Additions	(9)	(158)	-	(167)
Provision for impairment	-	(16,119)	-	(16,119)
Net movement inprepaid	-	-	12	12
At 30 June 2009	3,004	20,339	12	23,355
Associated future restoration costs capitalised
At 1 July2007	-	-	-	-
Additions	-	1,484	-	1,484
At 1 July2008	-	1,484	-	1,484
Additions	-	-	-	-
At 30 June 2009	3,004	21,823	12	24,839
Accumulated amortisation
At 1 July2007	-	-	-	-
Charge for theyear	(700)	(8,844)	-	(9,544)
At 1 July2008	(700)	(8,844)	-	(9,544)
Charge for theyear	-	(8,835)	-	(8,835)
At 30 June 2009	(700)	(17,679)	-	(18,379)
At 1 July2008	2,313	29,256	-	31,569
At 30 June 2009	2,304	4,144	12	6,460
Developmentprojects
At 1 July2008	-	-	-	-
Additions	19	3,452	-	3,471
Provision for impairment	-	(2,266)	-	(2,266)
Written off	-	(1,084)	-	(1,084)
At 30 June 2009	19	102	-	121
Total oil &gasproperties	2,323	4,246	12	6,581

NOTES TO THE FINANCIAL STATEMENTS | 53

==> picture [240 x 114] intentionally omitted <==

14. Plant and equipment

	Consolidated	Consolidated	Company	Company
	2009	2008	2009	2008
	$'000	$'000	$'000	$'000
Plant and equipment
At cost	10	14	-	-
Additions	112	8	-	-
Accumulated depreciation	(34)	(11)	-	-
Foreign exchange movement	(1)	(1)	-	-
	87	10	-	-
15. Deferred exploration & evaluation expenditure
Openingbalance	1,286	1,803	-	-
Capitalised expenditure duringtheyear	439	973	-	-
Written-off duringtheyear	(376)	(1,211)	-	-
Foreign exchange movements	(54)	(279)	-	-
	1,295	1,286	-	-

The ultimate recoupment of exploration expenditure carried forward is dependent on successful development and exploitation, or alternatively sale, or the respective area of interest.

16. Trade and other payables

Tradepayables (1)	513	2,441	259	478
Shares to be issued(2)	-	518	-	518
Otherpayables (3)	44	24	23	24
	557	2,983	282	1,020

(1) Trade payables are non interest-bearing and are normally settled on 30 day terms.

(2) Shares to be issued relate to proceeds from acceptances under the Company’s 1 for 8 entitlement offer announced on 29 May 2008 which had been received as at balance date (30 June 2008).

(3) Other payables are non interest-bearing and are normally settled on 30 day terms.

17. Borrowings

17. Borrowings
	Company	& Group	Company	& Group
	2009	2008	2009	2008
	$'000	$'000	Number	Number
Convertible notes	-	3,000	-	8,571,429

On 1 February 2008 the Company issued 8,571,429 convertible notes to raise $3,000,000 before associated costs. The convertible notes had the following terms:

(i) unsecured;

(ii) conversion price of $0.35 per share;

(iii) accrued interest at 10% of face value; and

(iv) convertible at any time on or before 31 December 2008 or redeemable at face value plus interest on 31 January 2009.

The fair value of these borrowings at 30 June 2008 was equal to their carrying value of $3,000,000.

During the current financial year the convertible notes were redeemed at a cost of $3,000,000. Interest payable on the convertible notes up until the redemption date is included in finance costs on the income statement.

54 | NOTES TO THE FINANCIAL STATEMENTS

==> picture [595 x 114] intentionally omitted <==

18. Provisions

18. Provisions
	Consolidated		Company
	2009	2008	2009	2008
	$'000	$'000	$'000	$'000
Current
Provision for annual leave	49	-	49	-
Provision for termination benefits	221	-	221	-
	270	-	270	-
Non-current
Provision for restoration costs	1,484	1,484	-	-

The Consolidated Entity’s policy with regard to providing for its share of future restoration costs for jointly controlled assets is documented in note 1(q). Movements in this provision during the current and prior year are as follows:

Non-current

Non-current
Openingbalance	1,484	-	-	-
Recognised onproject acquisition or commencement	-	1,484	-	-
Closingbalance	1,484	1,484	-	-

19. Contributed equity

Share capital	No.	No.	$'000	$'000
Fully paid ordinaryshares	188,988,472	181,117,922	60,644	58,609

Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of shares held. On a show of hands every holder of ordinary shares present at a meeting or by proxy, is entitled to one vote. Upon a poll every holder is entitled to one vote per share held.

Movements in share capital during the current and prior financial year are as follows:

Description	Date	Number of	Issue Price	$'000
		shares
2008
Opening balance	01 Jul 07	72,224,791		22,500
Conversion of convertible notes	09 Nov 07	10,700,000	$0.250	2,675
Issued as consideration to acquire
Gawler(at fair value)	14 Nov 07	69,312,992	$0.365	25,299
Issued to advisor	21 Nov 07	1,000,000	$0.200	200
Exercise of options	08 Feb 08	7,880,139	$0.001	8
Transfer from optionpremium
reserve for exercised options	08 Feb 08			2,868
Placement	10 Jun 08	20,000,000	$0.270	5,400
Less: transaction costs				(341)
Balance	30 Jun 08	181,117,922		58,609
2009
Rights issue	01 Jul 08	1,950,550	$0.270	527
Placement	08 Jul 08	5,920,000	$0.270	1,598
Less: transaction costs				(90)
Closing balance	30 Jun 09	188,988,472		60,644

NOTES TO THE FINANCIAL STATEMENTS | 55

==> picture [240 x 114] intentionally omitted <==

The Consolidated Entity’s objectives when managing capital are to safeguard its ability to continue as a going concern so that it can provide returns for shareholders and benefits for other stakeholders, and maintain a capital structure appropriate to the size, stage and nature of its activities whilst reducing the cost of capital where possible.

In order to maintain or adjust the capital structure, the Company may issue new shares, adjust future dividend payments, return capital to shareholders or sell assets.

During the year the Consolidated Entity retired $3,000,000 of debt, in the form of convertible notes, through the cash settlement of the outstanding amount borrowed. At balance date the Consolidated Entity had no debt facilities in place (2008: $3,000,000). In future periods the Consolidated Entity may seek to increase gearing levels if required.

The Company and its subsidiaries are not subject to any externally imposed capital requirements.

20. Reserves and accumulated losses

	Consolidated	Consolidated	Company	Company
	2009	2008	2009	2008
	$'000	$'000	$'000	$'000
Option premium reserve
Balance 30 June	1,773	1,773	1,773	1,773
Foreign currency translation reserve
Balance 30 June	216	(510)	-	-
Share-based payment reserve
Balance 30 June	731	200	731	200
Accumulated losses
Balance 30 June	(48,964)	(20,400)	(48,748)	(20,910)

The option premium reserve is used to record any premium received upon grant of options.

The share-based payment reserve is used to record the deferred expense in relation to share based payments.

The foreign currency translation reserve is used to record exchange differences arising on consolidation of subsidiaries with different functional currencies from the Company.

The financial assets reserve is used to record changes in the fair value of available-for-sale financial assets.

With respect to the payment of dividends (if any) by the Company in subsequent financial years, no franking credits are currently available, or are likely to become available in the next 12 months. No dividends were paid or declared during the current financial year.

56 | NOTES TO THE FINANCIAL STATEMENTS

==> picture [595 x 114] intentionally omitted <==

21. Options

As at balance date, the Company and Consolidated Entity have the following classes of options on issue:

Type	2009	2008	Exercise Price	Expiry
	Number	Number	($)	date
Ambrian Options(EXRAO)	637,148	637,148	0.600	16-May-10
ESOP Tranche 1(EXRAI)	2,000,000	2,000,000	0.250	31-Mar-11
ESOP Tranche 2(EXRAI)	3,250,000	3,250,000	0.300	31-Mar-12
ESOP Tranche 3(EXRAI)	2,750,000	2,750,000	0.350	31-Mar-13
	8,637,148	8,637,148

These options are unlisted and carry no dividend or voting rights. Upon exercise, each option is convertible into one ordinary share to rank pari passu in all respects with the Company’s existing fully paid ordinary shares.

There was no movement in the number of options on issue during the current financial year.

Date	Number
At 1 July	8,637,148
Movement	-
At 30 June	8,637,148

22. Share-based payments

Employee Share Option Plan

The granting of up to 15,000,000 options under the Elixir Employee Share Option Plan (“Plan”) was approved by shareholders at a general meeting held on 26 June 2008. Under the terms of the Plan the Board may offer options to eligible persons (as determined by the Board) at such times and on such terms as the Board considers appropriate.

The fair value of options granted was calculated using the binomial option pricing model. An expense is recognised on a pro rata basis over the period from grant date to vesting date.

No options were granted during the current financial year. The weighted average fair value of options granted during the year was $0.00 per option (2008: $0.11), no options were forfeited during the year. Key inputs to the model used in the calculation were as follows (see also Directors’ Report):

2009

No options were granted during the current financial year.

		ESOP Tranche 1	ESOP Tranche 2	ESOP Tranche 3
		EXRAI	EXRAI	EXRAI
2008	Grant date*:	26-Jun-08	26-Jun-08	26-Jun-08
Expectedprice volatility		70%	70%	70%
Exerciseprice		$0.25	$0.30	$0.35
ExpiryDate		31-Mar-11	31-Mar-12	31-Mar-13
Shareprice atgrant date		$0.26	$0.26	$0.26

• In accordance with AASB2, grant date for accounting purposes has been deemed to be the date shareholders approved the grant of options under the Plan, rather than the actual dates of Offer and Acceptance under the Plan.

NOTES TO THE FINANCIAL STATEMENTS | 57

==> picture [240 x 114] intentionally omitted <==

Vesting terms for the options granted under the Plan are as follows: Tranche 1 – Not exercisable until 1 July 2008 Tranche 2 – Not exercisable until 31 March 2009 Tranche 3 – Not exercisable until 31 March 2010

23. Reconciliation of loss after income tax to net cash outflow from operating activities

	Consolidated	Consolidated	Company	Company
	2009	2008	2009	2008
	$'000	$'000	$'000	$'000
Operatingloss from continuingoperations after tax	(27,349)	(6,414)	(27,838)	(6,869)
Non-cash items
Impairment write down of investment in controlled entities	-	-	25,489	4,941
Impairment write down of oil andgasproperties	18,386	-	-	-
Depreciation,depletion & amortisation	8,835	9,555	-	-
Exploration & evaluation costs written down	1,187	1,211	-	-
Share-basedpayment	530	200	605	126
Profit on sale of subsidiary	-	-	(326)	-
Net exchange rate differences	(445)	-	92	-
Non-operating cashflows
Finance costs	176	409	176	409
Underwritingfee	-	134	-	-
Interest income	(279)	(169)	(275)	(93)
Movement in assets and liabilities
Increase /(decrease)in current liabilities	(2,261)	1,048	(219)	467
(Increase)/ decrease in current assets	2,605	(3,412)	(45)	20
Increase inprovisions	270	-	270	-
Drillingcosts netted against revenue	-	(1,224)	-	-
Net cash inflow /(outflow)from operatingactivities	1,655	1,338	(2,071)	(999)

24. Jointly controlled assets

At the balance date, the Consolidated Entity has working interests in joint operating agreements for the following projects:

Project	Blocks	Activity	Location	Working
				interest
High Island Project	268A	Oil & Gas field, productionproject	USA	30%
Pompano Project	446-L SE/4	Oil & Gas field, productionproject	USA	25%
Red Fish Prospect	479-L N/2 & NE/4	Oil & Gas,explorationproject	USA	25%
Mulle Prospect	211/22b	Oil & Gas,appraisalproject	UK	40%
Leopard Prospect	211/18b	Oil & Gas,explorationproject	UK	56%
Bobcat Prospect*	21/16b	Oil & Gas,explorationproject	UK	40%
Fat Cat Prospect	13/25	Oil & Gas,explorationproject	UK	12.5%

*Bobcat Prospect – relinquished in April 2009.

Details of capital commitments in respect of these jointly controlled assets are disclosed in note 31.

58 | NOTES TO THE FINANCIAL STATEMENTS

==> picture [595 x 114] intentionally omitted <==

25. Key management personnel disclosures

(a) The directors of Elixir Petroleum Limited during the year were:

Mr Jonathan Stewart – Executive Chairman Mr Andrew Ross – Managing Director Mr Iain Knott – Executive Director Mr Trevor Benson – Non-Executive Director (ceased 30 June 2009) Dr John Robertson – Non-Executive Director

(b) Other key management personnel

Mr David Lim – Chief Financial Officer & Company Secretary (commenced 28 April 2009) Mr Alex Neuling – Chief Financial Officer & Company Secretary (ceased 9 April 2009)

(c) Key management personnel compensation

	Consolidated	Consolidated	Company	Company
	2009	2008	2009	2008
	$'000	$'000	$'000	$'000
Short term employee benefits	933	1,026	1,198	159
Post-employment benefits	19	11	19	11
Share-basedpayments	531	200	531	101
	1,483	1,237	1,748	271

NOTES TO THE FINANCIAL STATEMENTS | 59

==> picture [240 x 114] intentionally omitted <==

(d) Equity instrument disclosures relating to Key Management Personnel

Option holdings

The number of options over ordinary shares in the Company held during the financial year by each director of Elixir Petroleum Limited and other key management personnel of the Consolidated Entity, including their personally related parties, are set out below.

parties, are set out below.
					Balance
	Balance	Granted	Exercised	Net	when	Balance
	at	as	during the	other	ceased to be	at
	1 July	compensation	year	change	a director	30 June
2009
Directors
Current
Jonathan Stewart	2,500,000	-	-	-	-	2,500,000
Andrew Ross	2,500,000	-	-	-	-	2,500,000
Iain Knott	2,500,000	-	-	-	-	2,500,000
Trevor Benson(1)	250,000	-	-	-	(250,000)	-
John Robertson	250,000	-	-	-	-	250,000
Other executives
David Lim(2)	-	-	-	-	-	-
	8,000,000	-	-	-	(250,000)	7,750,000
2008
Directors
Current
Jonathan Stewart	-	2,500,000	-	-	-	2,500,000
Andrew Ross	-	2,500,000	-	-	-	2,500,000
Iain Knott	2,000,000	2,500,000	-	(2,000,000)	-	2,500,000
Trevor Benson	-	250,000	-	-	-	250,000
John Robertson	250,000	250,000	-	(250,000)	-	250,000
Former
Russell Langusch	3,000,000	-	-	(3,000,000)	-	-
Kent Hunter	-	-	-	-	-	-
Other executives
Alex Neuling(3)	-	-	-	-	-	-
	5,250,000	8,000,000	-	(5,250,000)	-	8,000,000

(1) Mr. Benson ceased being a Director on 30 June 2009.

(2) Mr. Lim commenced as CFO on 28 April 2009 and was appointed Company Secretary on 5 May 2009.

(3) Mr. Neuling ceased as CFO and Company Secretary on 9 April 2009.

Details of options provided as remuneration and shares issued on exercise of such options, together with the terms and conditions of the options, can be found in the section of the Directors’ Report titled “Remuneration Report”.

60 | NOTES TO THE FINANCIAL STATEMENTS

==> picture [595 x 114] intentionally omitted <==

Share holdings

The numbers of shares in the Company held during the financial year by each director of Elixir Petroleum Limited and other Key Management Personnel of the Consolidated Entity, including their personally related parties, are set out below. No shares were granted as compensation during the current reporting period.

					Balance
	Balance	Initial	Exercised	Net	when	Balance
	at	held when	during the	Other	ceased to be	at
	1 July	appointed	year	change	a director	30 June
2009
Directors
Current
Jonathan Stewart(1)	281,250	-	-	-	-	281,250
Andrew Ross	35,000	-	-	-	-	35,000
Iain Knott	-	-	-	-	-	-
Trevor Benson	-	-	-	-	-	-
John Robertson	425,000	-	-	-	-	425,000
Other executives
David Lim(2)	-	-	-	-	-	-
Alex Neuling(3)	-	-	-	-	-	-
	741,250	-	-	-	-	741,250
2008
Directors
Current
Jonathan Stewart(1)	-	250,000	-	31,250	-	281,250
Andrew Ross	-	35,000	-	-	-	35,000
Iain Knott	-	-	-	-	-	-
Trevor Benson(4)	-	-	-	-	-	-
John Robertson	425,000	-	-	-	-	425,000
Former
Russell Langusch	750,000	-	-	-	(750,000)	-
Kent Hunter	375,000	-	-	-	(375,000)	-
Other executives
Alex Neuling(3)	-	-	-	-	-	-
	1,550,000	285,000	-	31,250	(1,125,000)	741,250

(1) The holding above excludes the 24,000,000 shares held by Aurora Oil & Gas Ltd (ASX:AUT). Mr. Stewart is Chairman of Aurora Oil & Gas Ltd which is not a related party under the Corporations Act.

(2) Mr. Lim commenced as CFO and Company Secretary on 5 May 2009.

(3) Mr. Neuling ceased as CFO and Company Secretary on 9 April 2009.

(4) Mr. Benson ceased being a Director on 30 June 2009.

NOTES TO THE FINANCIAL STATEMENTS | 61

==> picture [240 x 114] intentionally omitted <==

26. Related party transactions

Transactions with controlled entities are disclosed in note 12. Compensation and equity transactions with Key Management Personnel are disclosed in note 25 and in the section of the Directors’ Report titled “Remuneration Report”.

Details of other transactions with related parties during the current and prior financial year are set out below:

		Consolidated	Consolidated	Company	Company
	Note	2009	2008	2009	2008
		$'000	$'000	$'000	$'000
Payments for services	(i)	163,492	94,184	163,492	94,184

(i) During the year an amount of $163,492 (2008: $94,184) was paid on commercial terms for office accommodation (rental & outgoings), car parking & office equipment to Epicure Administration Pty Ltd, a company of which Mr. Jonathan Stewart, Chairman, is also a director and beneficial shareholder.

27. Deed of cross guarantee

Elixir Petroleum Limited and Elixir Petroleum (Australia) Pty Ltd are parties to a deed of cross guarantee under which each company guarantees the debts of the other. By entering into the deed, the wholly-owned entities have been relieved from the requirement to prepare a financial report and directors’ report under class order 98/1418 (as amended) issued by the Australian Securities and Investments Commission.

(a) Consolidated income statements and a summary of movements in consolidated retained earnings

The above companies represent a “Closed Group” for the purposes of the class order, and as there are no other parties to the Deed of Cross Guarantee that are controlled by Elixir Petroleum Limited, they also represent the “Extended Closed Group”.

Set out below is a consolidated income statement and a summary of movements in consolidated retained earnings for the year ended 30 June 2009 of the Closed Group consisting of Elixir Petroleum Limited and Elixir Petroleum (Australia) Pty Ltd.

62 | NOTES TO THE FINANCIAL STATEMENTS

==> picture [595 x 114] intentionally omitted <==

(i) Income Statement for the year ended 30 June 2009

		Closed Group
	2009		2008
	$'000		$'000
General & administrative costs	(2,628)		(1,507)
Share basedpayment expenses	(605)		(126)
Other income	810		-
EBITDAX	(2,423)		(1,633)
Exploration & evaluation costs written off	18		(11)
Provision against loans to Elixir Group companies
(outside the Closed Group/ Extended Closed Group)	(4,120)		(4,995)
EBIT	(6,525)		(6,639)
Finance income	312		102
Finance costs	(176)		(409)
Loss before income tax	(6,389)		(6,946)
Income tax expense / benefit	-		-
Net loss attributable to members of Closed Group	(6,389)		(6,946)
Movement in accumulated losses for the year end 30 June
Closed Groupaccumulated losses at 1 July	(20,987)		(14,041)
Net loss of Closed Groupfor theyear to 30 June	(6,389)		(6,946)
Closed Groupaccumulated losses as at 30 June	(27,376)		(20,987)

NOTES TO THE FINANCIAL STATEMENTS | 63

==> picture [240 x 114] intentionally omitted <==

(ii) Balance sheet as at ended 30 June 2009 Closed Group

		Closed Group
	2009		2008
	$'000		$'000
Assets
Current assets
Cash and cash equivalents	7,337		7,877
Trade and other receivables	47		-
Total current assets	7,384		7,877
Non-current assets
Receivables	6,174		12,913
Investment in subsidiaries	22,775		22,828
Total non-current assets	28,949		35,742
Total assets	36,333		43,618
Liabilities
Current liabilities
Trade and otherpayables	290		1,023
Borrowings	-		3,000
Provisions	270		-
Total liabilities	560		4,023
Net assets	35,773		39,595
Equity
Contributed equity	60,644		58,609
Reserves	2,504		1,973
Accumulated losses	(27,376)		(20,987)
Totalparent entity interest in equity	35,772		39,595

28. Remuneration of auditors

During the year the following fees were paid or payable for services provided by the auditors of the Consolidated Entity, its related practices and non-related audit firms:

	Consolidated	Consolidated	Company	Company
	2009	2008	2009	2008
	$'000	$'000	$'000	$'000
Mack & Co for:
- an audit or review of financial reports and other
audit work under the Corporations Act 2001	57,200	48,500	57,200	48,500
MacIntyre Hudson LLP for:
- an audit of UK subsidiaryaccounts	28,854	31,597	-	-
Total remuneration for audit services	86,054	80,097	57,200	48,500

64 | NOTES TO THE FINANCIAL STATEMENTS

==> picture [595 x 114] intentionally omitted <==

29. Financial risk management

The Company’s board of directors (“Board”) performs the duties of a risk management committee in identifying and evaluating sources of financial and other risks. The Board seeks to balance the potential adverse effects of financial risks on the Consolidated Entity’s financial performance and position with the “upside” potential made possible by exposure to these risks. The Board manages the risks facing the Consolidated Entity by regularly monitoring the various risks affecting the business and regularly reviewing the entities operating activities, financial performance and position both prospectively and retrospectively.

AASB 132 Financial Instruments Presentation and Disclosure requires the disclosure of information to assist users of the financial report in assessing the extent of risks related to financial instruments faced by the Consolidated Entity. These risks include financial risks such as market risks (including currency risk, fair value interest rate risk and commodity price risk), credit risk & liquidity risk. These disclosures are not, nor are they intended to be an exhaustive list of risks to which the Consolidated Entity is exposed.

(a) Market risk

(i) Commodity price risk

As a result of its operations, the Consolidated Entity is exposed to commodity price risk arising due to fluctuations in the prices of natural gas and crude oil. The demand for, and prices of, natural gas and crude oil are dependent on a variety of factors, including:

• Supply and demand;

• The level of consumer product demand;

• Weather conditions;

• The price and availability of alternative fuels;

• Actions taken by governments and international cartels; and,

• Global economic and political developments.

During the year the Board decided that it would not be beneficial for the Consolidated Entity to purchase forward contracts or other derivative financial instruments to hedge its commodity price risk. Factors which the Board considered in arriving at this position included the expense of purchasing such instruments, the low spot price of gas and the inherent difficulties associated with forecasting future production levels. The Board regularly monitors oil and gas prices and market factors that affect these prices. In future periods the Board may decide to enter into hedges to manage the Consolidated Entity’s exposure to commodity price risk if it is beneficial to do so.

(ii) Foreign exchange risk

The Company’s management is based in Australia, its shares are listed on the Australian Securities Exchange and the Consolidated Entity reports its financial performance and position in Australian dollars ($A). The Consolidated Entity maintains a UK office and, as its activities include operations in the south of the USA, it also has significant United States dollar ($US) denominated cash flows. As a result of these factors, the Consolidated Entity is exposed to foreign exchange risk arising from fluctuations in the $A / $US and $A / £GBP exchange rates.

During the year the Board decided that it would not be beneficial for the Consolidated Entity to purchase forward contracts or other derivative financial instruments to hedge its foreign exchange risk. Factors which the board considered in arriving at this position included, the expense of purchasing such instruments, the inherent difficulties associated with forecasting the timing and quantum of $US cash inflows and outflows, the natural hedge provided by $US denominated production and the Consolidated Entity’s $US cash holdings. The Board regularly monitors the Consolidated Entity’s foreign exchange requirements and its foreign exchange risk. The Board may in future periods enter into transactions to hedge its foreign exchange risk if it is beneficial to do so.

NOTES TO THE FINANCIAL STATEMENTS | 65

==> picture [240 x 114] intentionally omitted <==

The Consolidated Entity’s exposure to foreign currency risk at the reporting date was as follows:

		2009			2008
	$'000		$'000	$'000		$'000
Cash	1,635		264	2,869		232
Trade and other receivables	318		110	3,204		161
Tradepayables	(95)		(73)	(1,047)		(365)
	1,858		301	5,026		28

Group sensitivity

Based on the financial instruments held at reporting date, with all other variables assumed to be held constant, the table below sets out the notional effect on consolidated loss after tax for the year and equity at reporting date under varying hypothetical fluctuations in prevailing exchange rates:

		Consolidated
	2009		2008
	$'000		$'000
Hypothetical 10% strengthening of AU$ relative to US$ and £
Increase /(decrease)in loss after tax	266		481
Increase /(decrease)in equity	(266)		(481)
Hypothetical 10% weakening of AU$ relative to US$ and £
Increase /(decrease)in loss after tax	(325)		(588)
Increase /(decrease)in equity	325		588

(iii) Interest rate risk

As at, and during the year ended on balance date, the Consolidated Entity had no significant interest-bearing assets or liabilities other than liquid funds on deposit and convertible notes (fixed rate). As such, the Consolidated Entity’s income and operating cash flows (other than interest income from funds on deposit) are substantially independent of changes in market interest rates. The Consolidated Entity’s exposure to interest rate risk and the effective weighted average interest rate for each class of financial assets and liabilities is set out below.

		Consolidated	Consolidated	Company	Company
		2009	2008	2009	2008
		$'000	$'000	$'000	$'000
Financial Assets
Cash assets	Floatingrate*	8,081	10,604	5,536	6,823

• Weighted average effective interest rate 2.8% (2008: 6.3%).

66 | NOTES TO THE FINANCIAL STATEMENTS

==> picture [595 x 114] intentionally omitted <==

Company and Consolidated Entity sensitivity

Based on the financial instruments held at reporting date, with all other variables assumed to be held constant, the table below sets out the notional effect on consolidated loss after tax for the year and equity at reporting date under varying hypothetical changes in prevailing interest rates:

	Consolidated	Consolidated	Company	Company
	2009	2008	2009	2008
	$'000	$'000	$'000	$'000
Hypothetical 80 basis point increase
Increase /(decrease)in loss after tax	(65)	(85)	(44)	(55)
Increase /(decrease)in equity	65	85	44	55
Hypothetical 80 basis point decrease
Increase /(decrease)in loss after tax	65	85	44	55
Increase /(decrease)in equity	(65)	(85)	(44)	(55)

(b) Credit risk

The Consolidated Entity seeks to trade only with recognised, trustworthy third parties and it is the Consolidated Entity’s policy to perform credit verification procedures in relation to any customers wishing to trade on credit terms with the Consolidated Entity.

Notwithstanding the above, the Consolidated Entity is exposed to level of credit risk arising from the fact that a large proportion of its receivables and non-current oil & gas assets relate to its interests in projects operated by private companies.

The Board are of the opinion that the credit risk arising as a result of this concentration of the Consolidated Entity’s assets is more than offset by the potential benefits to be gained through continuing to build on the Consolidated Entity’s relationship with the operators of its existing projects.

The maximum exposure to credit risk at the reporting date is the carrying amount of the assets as summarised below, none of which are impaired. The Group has a number of recourse options available in the event of counterparty default, including but not limited to de facto security over jointly held assets.

	Consolidated	Consolidated	Company	Company
	2009	2008	2009	2008
	$'000	$'000	$'000	$'000
Trade and other receivables	667	3,670	46	-

(c) Liquidity risk

Prudent liquidity management involves the maintenance of sufficient cash, marketable securities, committed credit facilities and access to capital markets. It is the policy of the Board to ensure that the Consolidated Entity is able to meet its financial obligations and maintain the flexibility to pursue attractive investment opportunities through keeping committed credit lines available where possible, and ensuring that the Consolidated Group has sufficient working capital and preserving the 15% share issue limit available to the Company under the ASX Listing Rules.

Maturities of financial liabilities

Consolidated Entity – As at reporting date the Consolidated Entity had total financial liabilities of $557,289 (2008: $5,983,171), comprised of non interest-bearing trade creditors and accruals with a maturity of less than 6 months.

Company – As at reporting date the Company had total financial liabilities of $282,422 (2008: $4,019,548), comprised of non interest-bearing trade creditors and accruals with a maturity of less than 6 months.

NOTES TO THE FINANCIAL STATEMENTS | 67

==> picture [240 x 114] intentionally omitted <==

(d) Net fair value

The carrying amount of financial assets and liabilities recorded in the financial statements approximate their fair value as at 30 June 2009.

30. Subsequent events

There are no significant events that have occurred since balance date requiring separate disclosure.

31. Commitments and contingencies

The Consolidated Entity has no contingent assets or liabilities at balance date and has no firm contractual commitments for expenditure not reflected in the financial statements other than:

	Consolidated	Consolidated	Company	Company
	2009	2008	2009	2008
	$'000	$'000	$'000	$'000
Capital commitments
Within oneyear	-	1,400	-	-
Total	-	1,400	-	-
Non-cancellable operating lease commitments
Within oneyear	77	54	-	-
More than oneyear but less than fiveyears	232	79	-	-
Total	309	133	-	-

During the year a rental lease to which Elixir Petroleum (UK) Ltd (discontinued operation) was party, was assigned to Elixir Petroleum (Technical Services) Ltd. At balance date the remaining lease term was 4 years (2008: 5 years).

32. Dividends

No dividends have been proposed or paid during the year (2008: Nil).

33. Discontinued operations

During the current financial year Elixir Petroleum (UK) Limited together with its interest in exploration licence, Block SL-4, located in Sierra Leone was sold. The decision to divest this licence was made on the basis that the continued involvement with the license was not in the best interest of the Consolidated Entity. Sale of Elixir Petroleum (UK) Limited, which held the interest in Block SL-4, to Prontinal Limited was completed on 30 April 2009. Prior to the sale of Elixir Petroleum (UK) Limited to Prontinal Ltd, interests held in exploration licences other than Block SL-4, along with various assets and liabilities held by the disposal company were acquired by other members of the Consolidated Entity.

The financial performance and cash flows from the discontinued operation, Elixir Petroleum (UK) Limited, are set out below.

(i) Financial performance of discontinued operation

The financial performance information presented is for the 10 months to 30 April 2009 and the year ended 30 June 2008. This is the period when the Consolidated Entity controlled the discontinued operation.

68 | NOTES TO THE FINANCIAL STATEMENTS

	Consolidated Company 2009 2008 2009 2008 $'000 $'000 $'000 $'000 Revenue from discontinued operation Interest earned 4 67 - - Gain on sale of assets 850 - - - Gain on disposal of investment - 26 - - Unrealised foreign exchangegains 112 - - - Total Revenue 966 93 - Expenses Other expenses (930) (1,620) - - Depreciation and amortisation expense - - - - Exploration & evaluation costs written off (317) (1,273) - - Loss on disposal of subsidiary (934) - - - (2,181) (2,893) - - Loss before income tax (1,215) (2,800) - - Income tax expense - - - - Loss from discontinued operation (1,215) (2,800) - - Earnings / (loss) per share Basic lossper share(centsper share) (0.64) (2.14) Diluted lossper share(centsper share) (0.64) (2.14)

NOTES TO THE FINANCIAL STATEMENTS | 69

	Annual Report 09
	(ii) Cash flows from discontinued operation Consolidated Company 2009 2008 2009 2008 $'000 $'000 $'000 $'000 Cash flows from operating activities Payments to suppliers (1,282) (1,436) - - Net cash flows from operations (1,282) (1,436) - - Cash flows from investing activities Payment forproperty, plant and equipment (88) (8) Payment for exploration,evaluation and development (647) (980) - - Proceeds from sale of intangible assets - 255 Proceeds from sale of investments - 201 Interest received 4 67 - - Net cash outflows from investingactivities (731) (465) - - Cash flows from financing activities Loans – related entities 608 (472) - - Finance costs (1) - Net cash inflows from financingactivities 607 (472) - - Effect of exchange rates on cash 415 (207) - - Net decrease in cash and cash equivalents (991) (2,580) - - Cash and cash equivalent at beginning ofperiod 1,004 3,584 Cash and cash equivalent at end ofperiod 13 1,004 - -

70 | NOTES TO THE FINANCIAL STATEMENTS

==> picture [595 x 114] intentionally omitted <==

CORPORATE GOVERNANCE STATEMENT

The Board of Directors of Elixir Petroleum Limited is responsible for the corporate governance of the economic entity. The Board guides and monitors the business and affairs of the Company on behalf of the shareholders by whom they are elected and to whom they are accountable. The Board operates under a Charter which is available on the Company’s website.

To ensure that the Board is well equipped to discharge its responsibilities, it has adopted systems of control and accountability as the basis for the administration of corporate governance.

Corporate Governance Disclosures

The Board and management are committed to corporate governance and to the extent that they are applicable to the Company have followed the “Corporate Governance Principles and Recommedations” issued by the ASX Corporate Governance Council.

Principle 1: Lay solid foundations for management and oversight

The Board’s role is to protect and increase shareholder value and ensure that the Company is appropriately managed. It assumes responsibility for overseeing the affairs of the Group by ensuring that they are carried out in a professional and ethical manner and that business risks are effectively managed. The Board meets formally on a regular basis to conduct appropriate business. The primary responsibilities of the Board include the following:

• contribute to the development of and approving corporate strategy;

• supervising the Company’s frame work of control and accountability systems;

• appoint and remove, if necessary, the Chief Executive Officer/Managing Director (or equivalent);

• ratify the appointment and, where appropriate, the removal of the chief financial officer (or equivalent) and the company secretary;

• monitor organisational performance and the achievement of strategic goals and objectives;

• review and ratify systems of risk management and internal compliance and control, codes of conduct, legal compliance and other regulatory compliance;

• monitor senior management’s performance and implementation of strategy, and ensure appropriate resources are available;

• approve and monitor the progress of major capital expenditure, capital management, and acquisitions and divestitures;

• approve annual budgets;

• monitor the financial performance of the Company;

• approve and monitor financial and other reporting;

• monitor overall corporate governance of the Company, including conducting regular reviews of the balance of responsibilities within the Company to ensure division of functions remain appropriate to the needs of the Company;

• liaise with the Company’s external auditors and Audit Committee;

• monitor and ensure compliance with all of the Company’s legal obligations, in particular those obligations relating to environment and occupational health and safety;

• appointment of directors; and

• reporting to shareholders.

A copy of the matters reserved for the Board is available on the Company’s website.

The primary responsibilities of senior management include the following:

• support the managing director (or equivalent); and

• implement the running of general operations and financial business of the company.

A copy of the matters reserved for senior management is available on the Company’s website.

CORPORATE GOVERNANCE STATEMENT | 71

==> picture [200 x 114] intentionally omitted <==

Principle 2: Structure the Board to add value

Details of the Directors of the Company are contained in the Directors Report.

Directors of Elixir are considered to be independent when they are independent of management and free from any business or other relationship that could materially interfere with or could reasonably be perceived to materially interfere with the exercise of their unfettered and independent judgment.

In the context of Director independence “materiality” is considered from both the Company and individual Director perspective. The determination of materiality requires consideration of both quantitative and qualitative elements. An item is presumed to be quantitatively immaterial if it is equal to or less than 10% of the appropriate base amount. It is presumed to be material (unless there is qualitative evidence to the contrary) if it is greater than 10% of the appropriate base amount. Qualitative factors considered include whether a relationship is strategically important, the competitive landscape, the nature of the relationship and the contractual or other arrangements governing it and other factors that point to the actual ability of the Director in question to exercise independence in their judgements.

In accordance with the definition of independence above, and the materiality thresholds set, the following Director is considered to be independent:

Name	Position
J. Robertson	Non-Executive Director

There are procedures in place, agreed by the Board, to enable the Directors, in the execution of their respective duties and obligations, to seek independent professional advice at the Company’s expense.

The term of appointment for each Director is as follows:

Name	Appointed	Term
J. Stewart(Chair)	12/11/2007	Indefinite
I. Knott	13/01/2005	Indefinite
J. Robertson	16/05/2005	Indefinite
A. Ross	12/11/2007	Indefinite

Mr. Stewart’s employment with the Company is governed by a consultancy agreement with Epicure Capital Pty Ltd, a company of which Mr. Stewart is a director and beneficial shareholder.

Recommendations 2.2 and 2.3

As Mr. Stewart is Executive Chair, the Company does not comply with Recommendations 2.2. and 2.3 of the ASX Corporate Governance Principles and Recommendations (2nd edition).

Whilst the Company recognises the benefit of having an Independent Director as Chair, the board believes that the current composition of the board is appropriate when the current size and structure of the Company is taken into consideration. Mr. Stewart’s experience in managing companies, and experience in the oil and gas industry make him the most suitable person to chair the current board. A lead independent director has been elected by the board to assume the role of chair in situations where Mr. Stewart is unable to act as chair.

The Company has established a Nomination Committee. The role of the Nomination Committee is to identify when required, suitably qualified and experienced candidates to fill any vacant positions that may exist on the Board of Directors or in the Company’s executive management.

72 | CORPORATE GOVERNANCE STATEMENT

==> picture [595 x 114] intentionally omitted <==

• The members of the Nomination Committee at the date of this Report are: – J. Robertson

• J. Stewart

Recommendation 2.4

As Mr. Stewart is Executive Chair, the Company does not comply with Recommendation 2.4 of the ASX Corporate Governance Principles and Recommendations (2nd edition), which recommends that the Nomination Committee be comprised of a majority of independent directors, and have at least 3 members.

Due to the infrequent nature of appointments to the board and the executive management team, the board has determined that the current composition of the Nomination Committee is an adequate mechanism for the examination of the selection and appointment practices of the Company.

A copy of the Nomination Committee Charter can be found on the Company’s website.

Principle 3: Promote ethical and responsible decision-making

The Group operates under a Code of Conduct that sets out the ethical standards under which the Company operates when dealing with internal and external parties. This Code requires parties to act with integrity, fairness and honesty in all dealings and to treat other parties with dignity at all times. They are required to:

• respect law and act accordingly;

• act with honesty and integrity, respecting both the spirit and letter of the law;

• notify the appropriate executive on becoming aware of a breach of law;

• respect confidentiality and not misuse information;

• value and maintain professionalism so as to preserve the reputation of the Company;

• act ethically and strive to achieve the highest quality standard in all endeavours;

• use due care and diligence and only use the powers of office for proper purpose and in the best interest of the Company avoid conflicts of interest;

• strive to be good corporate citizens by acting responsibly on matters concerning sustainable development, health, safety, environment and community responsibilities; and

• respect each other.

A copy of the Code of Conduct can be found on the Company’s website.

It is the Group’s policy to encourage directors, employees, contractors and related parties to own shares in the Company. The Policy for Trading in Company Securities strongly reinforces the obligations of Directors and employees under the Corporations Act 2001 and the Australian Securities Exchange Listing Rules in relation to trading in Company securities. Directors and employees are required to seek written acknowledgement from the Chair of the Company before trading in securities of the Company. The Company Secretary is to maintain a register of notifications and acknowledgments given in relation to the trading in the Company’s securities.

A copy of the Company’s Policy on Directors and Senior Executives Dealing in Securities is available on the Company’s website.

Principle 4: Safeguard integrity in financial reporting

The Board has established an Audit Committee, which operates under a Charter approved by the Board. It is the Board’s responsibility to ensure that an effective internal control framework exists within the Company. This includes internal controls to deal with both the effectiveness and efficiency of significant business processes, the safeguarding of assets, the maintenance of proper accounting records, and the reliability of financial information as well as non-financial considerations such as the benchmarking of key performance indicators. The Board has delegated responsibility for

CORPORATE GOVERNANCE STATEMENT | 73

==> picture [200 x 114] intentionally omitted <==

establishing and maintaining a framework of internal control and ethical standards to the Audit Committee.

The Committee also provides the Board with additional assurance regarding the reliability of financial information for inclusion in the financial reports. The Board has established an Audit Committee comprising of three (3) directors.

The members of the Audit Committee during the year and at the date of this report are:

– T. Benson (former Chair) (resigned 30 June 2009)

– J. Stewart (Chair) (appointed 21 August 2009)

• J. Robertson

– A. Ross

Prior to the resignation of Mr. T Benson on 30 June 2009, the Audit Committee comprised of a majority of independent directors, and was chaired by Mr. Benson. As the Company falls within the exemption criteria under ASX Listing Rule 12.7, it is not required to establish an Audit Committee.

For qualifications of the Audit Committee members and details on the number of meetings of the Committee held during the year and the attendees of those meetings, refer to the Directors’ Report.

A copy of the Audit Committee Charter is available on the Company’s website.

The Company’s policy is to appoint external auditors who clearly demonstrate independence. The performance of the external auditor is reviewed annually by the Audit Committee. Mack and Co., who are the current external auditors, have a policy of rotating the audit partner at least every 5 years. The current engagement partner was appointed in 2008.

Principle 5: Make timely and balanced disclosure

The Company has a continuous disclosure policy designed to meet its compliance obligations and to ensure that all matters, which may require disclosure to the Australian Securities Exchange, are brought to the attention of directors immediately.

A summary of the Company’s Continuous Disclosure Policy is located on the Company’s website.

Principle 6: Respect the rights of shareholders

The Board ensures that shareholders are kept informed of all major developments that affect their shareholding or the Company's state of affairs through quarterly, half-yearly, annual and ad hoc market releases made through the ASX, including any presentations made by the Company. It is Company policy that all such information be maintained on the Company’s website indefinitely.

All shareholders are encouraged to attend the Annual General Meeting to meet the Chairman and Directors and to receive the most updated report on Group activities. A suitably qualified representative from the Company’s external auditor, Mack & Co., attends the Annual General Meetings of the Company and is available to answer shareholders’ questions.

The Company maintains a website at www.elixirpetroleum.com to provide shareholders with up to date information on the Company’s activities. Interested parties may subscribe to e-mail alerts posted onto the Company’s website by completing the subscription form on the website. Shareholders and other interested parties may also communicate with the Company through contact details provided on the Company’s website, including through its e-mail address info@elixirpetroleum.com.

74 | CORPORATE GOVERNANCE STATEMENT

==> picture [595 x 114] intentionally omitted <==

The Company does not web-cast shareholder meetings and does not believe that at this stage the cost-benefit of web casting is worthwhile to a Company of its size.

A copy of the Company’s Communications with Shareholder Policy can be found on the Company’s website.

Principle 7: Recognise and manage risk

The Board recognises that the identification and management of risk, including calculated risk taking, is an essential part of creating long term shareholder value.

Management reports directly to the Board on the Company’s key risks and is responsible, through the Chief Executive Officer for identifying, assessing, monitoring and managing risk.

The Audit Committee monitors the performance of the risk management and internal control systems and reports to the Board on the extent to which it believes the risks are being managed and the adequacy and comprehensiveness of risk reporting from management.

The Board must satisfy itself, on a regular basis, that risk management and internal control systems for the company have been fully developed and implemented.

The Company has identified specific risk management areas being;

• environmental risks;

• financial risks;

• operational;

• technological;

• economic cycle;

• reputation; and

• legal and compliance.

The Board believes a review of the strategic and operational risks of the Company is necessary on a regular basis and is developing policies to review and monitor the impact on the Company of:

• environmental risks;

• financial risks;

• depletion of reserves;

• OH&S issues; and

• counter party risks.

A detailed risk assessment register is currently being developed. High and very high risk issues will be reported to the Board. An executive officer will be delegated responsibility for ensuring the Company complies with its regulatory obligations. Depending on the nature of the obligation and the risk, the responsible executive officer will be the CEO, Technical Director or Company Secretary/CFO.

The CEO and CFO also provide written assurance to the Board on an annual basis that to the best of their knowledge and belief, the declaration provided by them in accordance with Section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in relation to financial reporting risks.

The assurances from the CEO and CFO can only be reasonable rather than absolute due to factors such as the need for judgement and possible weaknesses in control procedures.

As the Company did not have a formal Risk Management Policy throughout the year it did not comply with Recommendation 7.1 of the ASX Corporate Governance Principles and Recommendations (2nd edition). During this

CORPORATE GOVERNANCE STATEMENT | 75

==> picture [200 x 114] intentionally omitted <==

period the Company managed its risks through a range of policies and procedures previously implemented. These included, amongst other things, the following:

• an established Audit Committee;

• preparation and approval of an annual expenditure budget;

• financial control procedures to manage expenditure commitments and approval of payments for both capital and operating expenses;

• preparation of monthly management reports which amongst other things, compared actual expenditure to budget; and

• directors attending regular board and committee meetings.

Any material changes in the Company’s circumstances are released to the ASX and included on the Company’s website.

A statement of the Company’s Risk Management Policy is available on the Company’s website.

Principle 8: Remunerate fairly and responsibly

Remuneration Committee

It is the Company’s objective to provide maximum shareholder benefit through the retention of a high quality Board and executive team by remunerating Directors and key executives fairly and appropriately with reference to relevant employment market conditions and respective responsibilities. To assist in achieving this objective, the Remuneration Committee links the nature and amount of Executive Directors’ and Officers’ remuneration to the Company’s financial and operational performance. The expected outcomes of the remuneration structure are:

• attraction of high quality management to the Company;

• retention and motivation of key executives; and

• incentivise executives to protect and create shareholder wealth for the Company’ shareholders.

A detailed discussion of the Company’s remuneration philosophy and framework and the remuneration received by directors and executives in the current period can be found in the Remuneration Report section of the Directors’ Report.

No retirement benefits or allowances are payable to Non-Executive Directors.

The Board is responsible for determining and reviewing compensation arrangements for the Directors themselves, the Managing Director and the executive team. The Board has established a Remuneration Committee comprising two (2) Directors.

The members of the Remuneration Committee at the date of this Report are:

• J. Robertson

• J. Stewart

Details of the number of meetings of the Remuneration Committee held during the year and the attendees at those meetings can be found in the Directors’ Report.

The details of the Director’s and Executives remuneration policies are provided in the Directors’ Report under the heading “Remuneration Report”.

76 | CORPORATE GOVERNANCE STATEMENT

==> picture [595 x 114] intentionally omitted <==

ADDITIONAL ASX INFORMATION

The shareholder information set out below was applicable as at 6 October 2009.

1. Twenty largest shareholders

Ordinary shares	Number	Percentage
Aurora Oil & Gas Ltd	24,000,000	12.70%
ANZ Nominees Ltd	8,368,113	4.43%
Macquarie Bank Ltd – Metals & EnergyCapital Division	6,750,000	3.57%
CiticorpNominees PtyLtd	6,373,507	3.37%
Mr HenryJohn De Burgh	5,640,000	2.98%
J P Morgan Nominees Australia Ltd	4,487,500	2.37%
Nortrust Nominees Ltd	3,721,250	1.97%
National Nominees Ltd	3,679,149	1.95%
Argonaut Capital Ltd	3,020,000	1.60%
Ringal Investments PtyLtd	3,000,000	1.59%
HSBC CustodyNominees(Australia)Ltd	2,776,395	1.47%
Cleland Projects PtyLtd	2,500,000	1.32%
Grasmere Nominees PtyLtd	2,145,795	1.14%
SDMO Australia PtyLtd	2,000,500	1.06%
AFM Perseus Fund Ltd	1,733,000	0.92%
CraigBurton	1,600,000	0.85%
Bond Street Custodians Ltd	1,576,250	0.83%
Caroline De Mori	1,500,000	0.79%
Roswel PtyLtd	1,304,380	0.69%
Floteck Consultants Ltd	1,222,907	0.65%
Total top 20	87,398,746	46.25%
Other	101,589,725	53.75%
Total ordinary shares on issue	188,988,471	100.00%

2. Substantial shareholders

Shareholder	Number of shares	Percentage
Aurora Oil and Gas Limited	24,000,000	12.70%

3. Distribution of equity securities

	Ordinary shares	Unlisted
		options
1 – 1,000	86	-
1,001 – 5000	288	-
5,001 – 10,000	231	-
10,001 – 100,000	743	-
100,001 – and above	247	11
	1,595	11

ADDITIONAL ASX INFORMATION | 77

==> picture [240 x 114] intentionally omitted <==

4. Unquoted securities

The names of the holders holding more than 20% of each class of unlisted securities are set out below:

	Class	Number
Ambrian Partners Ltd	EXRAO	637,148
Mr Iain Knott	Tranche 1	750,000
JK & CA Stewart	Tranche 1	750,000
R11 Capital PtyLtd	Tranche 2	1,250,000
Mr Iain Knott	Tranche 2	1,000,000
JK & CA Stewart	Tranche 2	1,000,000
R11 Capital PtyLtd	Tranche 3	1,250,000
Mr Iain Knott	Tranche 3	750,000
JK & CA Stewart	Tranche 3	750,000

5. Voting rights

Refer notes 19 and 21 to the Financial Statements.

6. On-market buy back

There is currently no on-market buy back program for any of Elixir’s listed securities.

7. Company secretary, registered and principal administrative office and share registry

See Corporate Directory.

8. List of interests in mining tenements

Refer note 24 to the Financial Statements

78 | ADDITIONAL ASX INFORMATION

==> picture [595 x 114] intentionally omitted <==

THIS PAGE WAS LEFT BLANK INTENTIONALLY

| 79

==> picture [595 x 254] intentionally omitted <==

THIS PAGE WAS LEFT BLANK INTENTIONALLY

80 |

==> picture [209 x 254] intentionally omitted <==

==> picture [71 x 60] intentionally omitted <==

www.elixirpetroleum.com

==> picture [79 x 55] intentionally omitted <==

Level 20, 77 St. George's Terrace, Perth WA 6000, Australia T: +61 8 9440 2650 F: +61 8 9440 2699 www.elixirpetroleum.com.au

==> picture [596 x 273] intentionally omitted <==