EMERALD RESOURCES NL — Interim / Quarterly Report 2010

Mar 15, 2010

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Interim Financial Report for the half year ended 31 December 2009

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EMERALD OIL & GAS NL ABN: 72 009 795 046

Contents Page

CORPORATE INFORMATION . .………………………………………………………………………. 1 DIRECTORS’ REPORT ........................................................................................... 2 AUDITOR'S INDEPENDENCE DECLARATION ........................................................ 11 CONDENSED STATEMENT OF COMPREHENSIVE INCOME ..................................... 12 CONDENSED STATEMENT OF FINANCIAL POSITION ........................................... 13 CONDENSED STATEMENT OF CHANGES IN EQUITY ............................................. 14 CONDENSED STATEMENT OF CASH FLOWS ......................................................... 15 NOTES TO THE FINANCIAL STATEMENTS ..………………………………………………….. 16 DIRECTORS' DECLARATION ............ …..………………………………………………...…... 25 INDEPENDENT AUDITOR’S REVIEW REPORT……..…..…………………………….......... 26

This half year financial report covers the Consolidated Entity consisting of Emerald Oil & Gas NL and its subsidiaries. The financial report is presented in Australian dollars.

Emerald Oil & Gas NL is a company limited by shares, incorporated and domiciled in Australia. It’s registered office and principal place of business is:

Emerald Oil & Gas NL Suite 2 12 Parliament Place West Perth WA 6005

A description of the nature of the Consolidated Entity’s operations and its principal activities is included in the review of operations and activities in the Directors’ report on pages 2 to 10.

EMERALD OIL & GAS NL ABN: 72 009 795 046

Corporate Information

Directors:

Jeremy Shervington Chairman

Mike Krzus Managing Director

John Hannaford Non Executive Director

Robert Berven Non Executive Director

Morgan Barron Company Secretary

Registered & Principal Office:

Suite 2, 12 Parliament Place WEST PERTH WA 6005 Telephone: + 618 9482 0510 Facsimile: + 618 9482 0505

Postal Address:

P.O. Box 902 WEST PERTH WA 6872

Auditors:

HLB Mann Judd Level 4, 130 Stirling Street PERTH WA 6000

Solicitors - Perth:

Jeremy Shervington 52 Ord Street WEST PERTH WA 6005

Home Stock Exchange:

Australian Securities Exchange Limited Exchange Plaza 2 The Esplanade PERTH WA 6000 ASX Code – EMR

Share Registry: Security Transfer Registrars Pty Ltd PO Box 535 APPLECROSS WA 6953 Telephone (within Australia) (08) 9315 2333

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EMERALD OIL & GAS NL ABN: 72 009 795 046

Directors’ Report

Your Directors have pleasure in submitting their report on the Group; being the Company and its controlled entities, for the half-year ended 31 December 2009.

DIRECTORS

The names and details of Directors in office at any time during the period are:

Jeremy Shervington Non Executive Chairman Mike Krzus Managing Director (appointed 13 August 2009) Robert Berven Non Executive Director John Hannaford Non Executive Director

Directors have been in office since the start of the financial year to the date of this report unless otherwise stated.

PRINCIPAL ACTIVITIES

The principal activities of Emerald Oil & Gas NL for the period were the exploration and evaluation of oil and gas resources in the USA and Australia. There were no changes to the principal activities during the period.

RESULTS

The net loss of the Group for the half-year ended 31 December 2009 after income tax amounted to $1,828,266 (2008: $1,406,500).

OPERATING AND FINANCIAL REVIEW

USA Projects

Appalachian Gas, Kentucky

OVERVIEW

Limited progress has been made on Emerald's P&J Resources (“P&J”) operated 8 well recompletion program in Magoffin County, Kentucky. Well operations have been completed on 7 of the 8 wells with mixed results and discussions are ongoing with P&J to determine actions required to complete the program and bring the wells to production.

During the Q4 2009 Emerald initiated a plan to selectively target high productivity wells and acreage in Magoffin County. A new company, Kentucky Energy Partners LLC (KEP) was formed with a local operator/engineering consultant, Slone Energy LLC, to selectively take direct interests in leases and wells and rapidly bring new gas projects into production. Emerald holds a 75% equity interest in the new company. KEP projects will be progressed in parallel with the P&J operated 8 well recompletion program.

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EMERALD OIL & GAS NL ABN: 72 009 795 046

Directors’ Report

Status as at the date of this report:

• Technical review underway to evaluate results of the P&J 8 well re-completion program and determine future actions required to deliver production. Unsuccessfully recompleted wells will be replaced under the agreements with P&J.

• Kentucky Energy Partners LLC concurrently progressing 4 gas projects with initial production in February 2010.

• Working with gas buyers and third parties in Magoffin County to optimise and expand area gas gathering/processing system.

LOCATION

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Emerald's Appalachian gas interests are located in Magoffin County, Kentucky.

OPERATIONS

P&J Gas Well Recompletion Program

(Emerald earning 80% WI; Operator P&J Resources)

Improved weather in September, after heavy rainfall through most of the summer, permitted P&J to complete well operations on 7 of the 8 wells in the gas well recompletion program. The 7 wells are currently in various stages of well clean up (to produce back nitrogen used in the hydraulic fracturing operations) and connection to the gathering system.

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EMERALD OIL & GAS NL ABN: 72 009 795 046

Directors’ Report

Three of the wells produced intermittently at flow rates less than 100 Mcfd during the reporting period. However, all of these wells are believed to be performing below their production potential. Production increases are expected after technical issues are addressed.

Recompletion operations on a further 3 wells were unsuccessful and these will be replaced with new wells at no cost to Emerald under the terms of the agreements with P&J.

One well remains to be assessed and a final well is awaiting operations to remove or bypass an open hole bridge plug preventing access to the reservoir.

Operator performance to date has been disappointing. However, Emerald remains actively engaged with P&J to work through issues and deliver well outcomes under the terms of the agreements.

Kentucky Energy Partners LLC

(75% Equity Interest)

Despite results to date with the P&J 8 Well Recompletion Program, Emerald continues to have confidence in the gas production potential of the area, based on technical studies performed during 2009.

In November 2009, Emerald formed a new company, Kentucky Energy Partners LLC (KEP), with Slone Production LLC (Slone), a competent local gas field operator and engineering consultant. KEP was created specifically to identify and acquire leases and wells targeting high productivity areas for gas projects which can be brought to production quickly.

The Appalachian basin is characterised by thousands of low productivity, shallow gas wells, typically capable of less than 100Mcfd. However, in the Magoffin County area of Eastern Kentucky, there exist localised areas of relatively high productivity gas wells capable of rates ranging from several hundred Mcfd to over 1 MMcfd. These areas typically cover a few hundred acres, where certain geological characteristics are present. Emerald conducted extensive subsurface studies during 2009, identifying a number of these areas.

Emerald holds a 75% interest in the new company, with Slone owning the remaining 25%. Under the agreed arrangements Emerald will contribute 100% of the capital funding and provide sub-surface and petroleum engineering direction. Slone provides facilities engineering, manages project implementation and production operations and provides in-country management of KEP's business.

KEP's current holdings include 16 gas wells, 2 oil wells and approximately 1400 acres of leases in 4 separate gas projects. The 4 gas projects are being progressed concurrently, with first gas sales achieved in February 2010 from 2 wells in the 22 Mile project.

Initial production rates from these wells were small due to water influx from exposed shallow sand intervals in the existing open hole completions. Well workovers to install production tubing are planned in March and these are expected to significantly increase production rates.

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EMERALD OIL & GAS NL ABN: 72 009 795 046

Directors’ Report

A program to assess the gas wells to determine their condition and production potential is ongoing. In parallel with the well assessment program, production facilities are being installed and pipeline rights of way are being secured to connect the wells to gas sales points as soon as practical.

Area Gas Infrastructure Initiative

Emerald is working with gas buyers and other parties in the surrounding area to commission an existing 8 inch gathering line linking Emerald's (50% owned) Amine plant with a Columbia gas tie-in point in Martin, Kentucky. When operational, this gas gathering/production system is expected to provide approximately 9 MMcfd of pipeline capacity to a sales point presenting more favourable gas sales terms and 5 MMcfd of sour gas processing capacity.

Appalachian Drilling Plans

Emerald's current objective is to rapidly build its Appalachian production base and revenue stream through "existing well" projects at a fraction of the cost of drilling new wells. Potential future drilling will be guided by results from the "existing well" activities and will be focussed in areas with demonstrated high productivity.

This constitutes a strategy shift from Emerald's original 2008 Appalachian gas entry strategy in the then high gas price environment (circa $US10/Mcf), which was based on proving large gas reserves through drilling. Any further drilling will now focus on quick-payback wells, to provide gas production revenue.

North West Alice, Jim Wells County, Texas (Emerald 14% Working Interest; Operator: Noble Energy Inc.)

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EMERALD OIL & GAS NL ABN: 72 009 795 046

Directors’ Report

In 2009, the Operator, Noble Energy, completed processing and interpretation of the 3D seismic data covering the large, 100 Bcf anticlinal structure discovered by the RJ Hunter #1 well in March 2007. Based on the 3D seismic, Noble identified 3 new drilling locations within the Area of Mutual Interest (AMI) and acquired additional leases both inside and outside the AMI area to consolidate the position of the Joint Venture.

Noble recently advised Joint Venture Partners of a company decision to exit its interests in this area of Texas to concentrate its efforts in other areas. Emerald and other NW Alice JV partners are currently negotiating to acquire Noble's interests in the approximately 1400 acres of additional and remaining leases. Emerald is targeting a 50% WI from these dealings. The remaining NW Alice interest holders intend to recommence drilling operations as soon as practical once the leases have been acquired. The 3D dataset is currently being re-interpreted to identify optimal drilling locations.

During the last half of 2009, Emerald acquired leases with oil and gas rights over 178 acres surrounding the RJ Hunter#1 discovery well. Emerald holds these leases at 100% Working Interest. Emerald plans to expand its contiguous 100% WI acreage position, re-drill and complete the RJ Hunter #1 well as a gas/condensate producer and follow up with further drilling locations on Emerald acreage. The Company plans to farm down to approximately 50% WI and with a carry to help fund the twinning of the RJ Hunter well, notionally in Q4 2010.

Emerald’s strategy for NW Alice for 2010 includes potentially two high value wells in which Emerald will have a circa 50% interest, subject to the outcome of negotiations with Noble and farmout activities, being:

• RJ Hunter twin well, to drill the structure previously discovered by the RJ Hunter well in 2007;

• New well in the northern part of the acreage to test the structure defined by 3D.

• Emerald believes both of these wells have the potential for significant “game changing” results for the Group.

NOXXE LLC – Texas USA

On March 11, 2010, Emerald announced it had secured an option to acquire a 31.5% foundation equity interest in a newly formed company, NOXXE LLC, which holds interests in producing oil and gas leases in Harris and Galveston counties, Texas USA. NOXXE LLC was formed specifically to acquire and develop oil and gas assets purchased from the bankruptcy of Daystar Oil & Gas Corp.

NOXXE assets include proved reserves of approximately 1.1MMbbl oil and 0.3Bcf gas in 3 separate fields. Current activity is focussed on returning the fields to production after a period of neglect by the previous owner. Production at the time of this report is approximately 100 BOPD from 4 wells.

NOXXE plans to immediately re-work 6 more existing wells. Further planned activity involves various well recompletions, well deepenings and a 20 well sidetrack program to access 980,000 bbl proved undeveloped reserves. Additional upside exists with at

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EMERALD OIL & GAS NL ABN: 72 009 795 046

Directors’ Report

least 1 Wilcox gas drilling location and other potential targets which may evolve from as yet uninterpreted 3D seismic.

New Projects – USA

The Company continues to review and assess new oil and gas exploration project opportunities in the USA which have been sourced through current partners and other industry participants. In particular, Emerald is targeting low to medium risk exploration prospects with 3D seismic coverage and significant reserves upside from potential follow-up drilling, if successful.

Australian Projects

EP104/R1, Canning Basin WA (Emerald 12.75% Working Interest; Operator: Arc Energy Ltd)

The Stokes Bay well was drilled in October, 2007 in the EP 104/R1 Permits located in the Canning Basin, near the town of Derby, Western Australia. The well was suspended after large volumes of drilling mud were lost in what is believed to be a cavernous reef system in the Nullara Formation. Since then, two attempts were made by the Operator, Buru Energy Limited, to induce flow in the well and to obtain a gas sample to demonstrate commerciality. Both attempts failed to achieve these objectives due to operational difficulties. However wellhead pressures of around 1200 psi and gas accumulation in the well bore re-occurred after each attempt.

The Operator, Buru Energy has commenced technical planning for well operations to be conducted during the dry season in 2010 to determine if the Stokes Bay well is a potentially commercial gas discovery.

In December, Buru Energy submitted an application on behalf of the Joint Venture to renew the R1 Retention lease surrounding Stokes Bay #1 for another five years.

Subsequent to the end of the reporting period, Buru applied to relinquish 4 of the 9 graticular blocks which comprise EP104, retaining the 5 most prospective blocks.

Production Licence Application L98-1, Canning Basin WA (Emerald 12.75% Working Interest; Operator: Buru Energy Ltd)

Emerald and its Joint Venture Partners accepted the Production Licence offered by the WA Department of Mines and Petroleum over an area including the West Kora oil discovery.

EPA 4/05-6 Canning Basin, WA

(Emerald 100% Working Interest and operator)

After a comprehensive technical review of identified leads and prospects along the Pinnacle Reef trend using all available technical data, Emerald decided to withdraw its Application for exploration permit application area EPA 4/05-6.

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EMERALD OIL & GAS NL ABN: 72 009 795 046

Directors’ Report

The technical review indicated the best exploration prospectivity along the Pinnacle fault trend lay in its offshore extension into Emerald's offshore permit areas. Prospectivity of the onshore portion of the trend was judged insufficient to justify the exploration program proposed in the 2006 exploration program supporting the original Application. Emerald will now focus its efforts on the prospective offshore portion of the Pinnacle reef trend.

EP463 & TP24 (Lacepede Islands) and WA-419-P (Offshore) Canning Basin WA (Emerald 100% Working interest, Operator)

Supported by insights from the recent technical review, Emerald continues to progress exploration studies to characterise leads and prospects in its strategic holdings along the structurally significant Pinnacle Fault zone in its projection offshore. The Pinnacle Fault is a key structural element between the Fitzroy SubBasin and the Lennard Shelf. It is believed to be the conduit for oil and gas migration from the Fitzroy Sub-Basin into structural and stratigraphical traps on the adjacent Lennard Shelf to the north.

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EMERALD OIL & GAS NL ABN: 72 009 795 046

Directors’ Report

Emerald’s current tenement holdings in the Canning Basin are:

Exploration Permit/Retention Licence/Applications Emerald Net Working Interest	Permit Size (approx sq km)
Retention Lease R1 12.75% EP104 (R5) 12.75% Application L98-1 (option) 12.75% EP463 100% TP24 100% WA-419-P 100% Total	290 330 200 200 400 8,000
	9,420

Corporate

At 31 December 2009 the Consolidated Entity had $1.62 million cash on hand.

The net loss for the period after tax was $1,828,266 (2008:$1,406,500).

EVENTS SUBSEQUENT TO BALANCE DATE

Subsequent to the end of the period, the Company withdrew its application for EPA4/05-6 in the Canning Basin. This resulted in an impairment expense of $40,885 in January 2010.

On 11 March 2010, the Company announced it had executed an MOU securing an option to acquire a 31.5% interest in a Texas Company “NOXXE LLC” with producing onshore oil and gas assets. NOXXE's assets include net proved reserves of approximately 1.1MMbbl oil and 0.3Bcf gas.

Emerald's total equity contribution will be $US1,000,000, consisting of $US750,000 in cash and the remaining $US250,000 in Emerald ordinary fully paid shares. Emerald has paid refundable cash deposits totalling $US400,000, $US200,000 of which was paid during the reporting period.

Aside from the matters above, no other matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the Company or Consolidated Entity, the results of those operations or the state of affairs of the Company and Consolidated Entity in subsequent financial years.

LIKELY DEVELOPMENTS

There are no likely developments in the operations of the Company that were not finalised at the date of this report. Further information as to likely developments in the operations of the Consolidated Entity and Company and likely results of those operations would in the opinion of the Directors, be likely to result in unreasonable prejudice to the Consolidated Entity.

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EMERALD OIL & GAS NL ABN: 72 009 795 046

Directors’ Report

AUDITOR’S INDEPENDENCE DECLARATION

The auditor’s independence declaration as required under section 307C of the Corporations Act 2001 for the half year ended 31 December 2009 has been received and is set out on page 11.

AUDITOR

HLB Mann Judd were appointed on 26 November 2009 and remain in office as at the date of this report.

Signed in accordance with a resolution of the Directors.

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M. Krzus Managing Director

Perth

15 March 2010

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AUDITOR’S INDEPENDENCE DECLARATION

As lead auditor for the review of the financial report of Emerald Oil and Gas NL for the half-year ended 31 December 2009, I declare that to the best of my knowledge and belief, there have been no contraventions of:

• a) the auditor independence requirements of the Corporations Act 2001 in relation to the review; and

• b) any applicable code of professional conduct in relation to the review.

This declaration is in respect of Emerald Oil and Gas NL and the entities it controlled during the period.

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Perth, Western Australia 15 March 2010

L DI GIALLONARDO Partner, HLB Mann Judd

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HLB Mann Judd (WA Partnership) ABN 22 193 232 714

Level 4 130 Stirling Street Perth 6000 PO Box 8124 Perth BC 6849 Western Australia. Telephone +61 (08) 9227 7500. Fax +61 (08) 9227 7533. Email: hlb@hlbwa.com.au. Website: http://www.hlb.com.au Liability limited by a scheme approved under Professional Standards Legislation

HLB Mann Judd (WA Partnership) is a member of

International, a world-wide organisation of accounting firms and business advisers

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EMERALD OIL & GAS NL ACN: 72 009 795 046

CONDENSED STATEMENT OF COMPREHENSIVE INCOME FOR THE HALF-YEAR ENDED 31 DECEMBER 2009

Note Gas revenues Cost of Sales Gross loss Other revenue Financial administration, insurance and compliance costs Consulting and contracting expenses Depreciation and depletion expense Share based payments General administration expenses Impairment of exploration and evaluation costs 7 Loss before income tax expense Income tax benefit Loss for the period Other comprehensive income Exchange differences on translation of foreign operations Total other comprehensive income Total comprehensive loss for the period Total comprehensive loss for the period is attributable to: Owners of the parent Non controlling interest Basic loss per share - cents per share Diluted loss per share - cents per share	Consolidated 2009 $ Consolidated 2008 $ 21,781 - (21,941) -
	(160) - 33,194 164,124 (195,086) (213,032) (365,349) (228,340) (17,942) - (63,151) - (146,177) (206,005) (1,421,180) (923,247)
	(2,175,851) (1,406,500) 347,585 -
	(1,828,266) (1,406,500)
	2,862 -
	2,862 -
	(1,825,404) (1,406,500)
	(1,823,293) (1,406,500) (2,111) -
	(1,825,404) (1,406,500)
	(1.581) (1.218) (1.581) (1.218)

The above Condensed Statement of Comprehensive Income should be read in conjunction with the accompanying notes.

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EMERALD OIL & GAS NL ACN: 72 009 795 046

CONDENSED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2009

		Consolidated	Consolidated
		31 December	30 June
	Notes	2009	2009
		$	$
ASSETS
Current assets
Cash and cash equivalents	5	1,629,145	2,439,140
Trade and other receivables	6	242,307	139,313
Total current assets		1,871,452	2,578,453
Non-current assets
Plant and equipment		181,813	165,700
Exploration and evaluation assets	7	3,427,126	5,053,839
Oil and gas assets	8	459,120	-
Total non-current assets		4,068,059	5,219,539
TOTAL ASSETS		5,939,511	7,797,992
LIABILITIES
Current liabilities
Trade and other payables		98,799	195,136
Total current liabilities		98,799	195,136
TOTAL LIABILITIES		98,799	195,136
NET ASSETS		5,840,712	7,602,856
EQUITY
Issued Capital	10	14,991,022	14,991,022
Reserves		486,437	420,424
Accumulated losses		(9,634,745)	(7,808,590)
Total equity attributable to owners of the
parent		5,842,714	7,602,856
Non controlling interest		(2,002)	-
TOTAL EQUITY		5,840,712	7,602,856

The above Condensed Statement of Financial Position should be read in conjunction with the accompanying notes.

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EMERALD OIL & GAS NL ACN: 72 009 795 046

CONDENSED STATEMENT OF CHANGES IN EQUITY FOR THE HALF-YEAR ENDED 31 DECEMBER 2009

2009 (CONSOLIDATED)

Issued Capital $ Options Reserve $ Foreign Exchange Translation Reserve $ Accumulated losses $ Total equity at 1 July 2009 14,991,022 420,424 - (7,808,590) Net loss - - - (1,826,155) Exchange difference on translation of foreign operations - - 2,862 - Total comprehensive loss for the period - - 2,862 (1,826,155) Transaction with owners in their capacity as owners: Share based payments - 63,151 - - Non controlling interest contribution to formation of subsidiary - - - - Total equity at 31 December 2009 14,991,022 483,575 2,862 (9,634,745) 2008 (CONSOLIDATED) Issued Capital $ Options Reserve $ Total equity at 1 July 2008 15,001,822 374,644 Total comprehensive loss for the period - - Options issued during the period, net of costs (10,800) 10,800 Total equity at 31 December 2008 14,991,022 385,444	Issued Capital $ Options Reserve $ Foreign Exchange Translation Reserve $ Accumulated losses $ 14,991,022 420,424 - (7,808,590) - - - (1,826,155) - - 2,862 -	Issued Capital $ Options Reserve $ Foreign Exchange Translation Reserve $ Accumulated losses $ 14,991,022 420,424 - (7,808,590) - - - (1,826,155) - - 2,862 -	Total $ Non controlling interest $ Total Equity $ 7,602,856 - 7,602,856 (1,826,155) (2,111) (1,828,266) 2,862 - 2,862
	- - 2,862 (1,826,155)		(1,823,293) (2,111) (1,825,404)
	- 63,151 - - - - - -		63,151 - 63,151 - 109 109
	14,991,022 483,575 2,862 (9,634,745)		5,842,714 (2,002) 5,840,712
		Issued Capital $ Options Reserve $ 15,001,822 374,644 - -	Accumulated losses $ Total $ (5,653,954) 9,722,512 (1,406,500) (1,406,500) - - (7,060,454) 8,316,012
		(10,800) 10,800
		14,991,022 385,444

The above Condensed Statement of Changes in Equity should be read in conjunction with the accompanying notes.

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EMERALD OIL & GAS NL ACN: 72 009 795 046

CONDENSED STATEMENT OF CASH FLOWS

FOR THE HALF-YEAR ENDED 31 DECEMBER 2009

Notes Cash flows from operating activities Receipts from customers Interest received Tax rebates received Payments to suppliers and employees Net cash (used in) operating activities Cash flows from investing activities Reimbursement of exploration expenditure Exploration expenditure Payments for property, plant & equipment Deposit/(refund) on property, plant & equipment Deposit on oil and gas assets Net cash (used in) investing activities Cash flows from financing activities Capital raising costs Net cash flows provided by/(used in) financing activities Net (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the period Effect of foreign exchange on cash balances Cash and cash equivalents at the end of the period 5	Consolidated 2009 $ Consolidated 2008 $ 19,419 - 33,052 132,869 347,585 - (817,758) (521,938)
	(417,702) (389,069)
	- 1,298,113 (269,954) (1,230,903) (17,688) - 115,009 (115,009) (218,609) -
	(391,242) (47,799)
	- -
	- -
	(808,944) (436,868) 2,439,140 5,407,348 (1,051) -
	1,629,145 4,970,480

The above Condensed Statement of Cash Flows should be read in conjunction with the accompanying notes.

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EMERALD OIL & GAS NL ACN: 72 009 795 046

Notes to the Financial Statements FOR THE HALF-YEAR ENDED 31 DECEMBER 2009

NOTE 1 – REPORTING ENTITY

Emerald Oil & Gas NL (the “Company”) is a company domiciled in Australia. The consolidated half-year financial report of the Company as at and for the six months ended 31 December 2009 comprises the Company and its subsidiaries (together referred to as the “Consolidated Entity”).

The consolidated annual financial report of the Consolidated Entity as at and for the year ended 30 June 2009 is available upon request from www.asx.com.au or from the Company’s registered office at Suite 2, 12 Parliament Place, West Perth, WA 6005.

NOTE 2 – BASIS OF PREPARATION

The consolidated half-year financial report is a general purpose condensed financial report which has been prepared in accordance with Australian Accounting Standard AASB 134 Interim Financial Reports and the Corporations Act 2001. The half-year report has been prepared on a historical cost basis. For the purpose of preparing the half-year financial report, the half-year has been treated as a discrete reporting period.

The consolidated half-year financial report does not include all of the information required for a full annual financial report, and should be read in conjunction with the consolidated annual financial report of the Group as at and for the year ended 30 June 2009.

It is also recommended that the half-year financial report be considered together with any public announcements made by Emerald Oil & Gas NL and its controlled entities during the half-year ended 31 December 2009 in accordance with the continuous disclosure obligations arising under the ASX Listing Rules.

This consolidated half-year financial report was approved by the Board on 15 March 2010.

NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES

The accounting policies applied by the Consolidated Entity in this consolidated half-year financial report are the same as those applied by the Consolidated Entity in its consolidated financial report as at and for the year ended 30 June 2009, except as disclosed below.

(a) Oil and gas properties

During the period the Group recorded initial production revenue from 2 of its Appalachian wells and adopted the following accounting policies in relation to oil and gas properties:

Development expenditure is recognised at cost less accumulated depletion and any impairment losses. Where commercial production in an area of interest has commenced, the associated costs together with any forecast capital expenditure necessary to develop proved and probable reserves are amortised over the estimated economic life of the field on a units-of-production basis. Changes in factors such as estimates of proved and probable reserves that affect unit-of-production calculations are dealt with on a prospective basis.

Although an area of interest has entered the development and production phase, exploration activities within the same area of interest may continue. Such costs, although of an exploration nature, are classified as expenditure on development phase properties and are amortised along with carried forward costs and current financial year development expenditure. Areas of interest are recognised at the cash generating unit level, being the smallest grouping of assets generating independent cash flows which usually is represented by an individual oil or gas well.

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EMERALD OIL & GAS NL ACN: 72 009 795 046

Notes to the Financial Statements FOR THE HALF-YEAR ENDED 31 DECEMBER 2009

NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(b) Changes in accounting policies

The Group has also reviewed all new Standards and Interpretations that have been issued but are not yet effective for the half year ended 31 December 2009. As a result of this review the Directors have determined that there is no impact, material or otherwise of the new and revised standards and Interpretations on its business and therefore no change is necessary.

From 1 July 2009 the Consolidated Entity has adopted the following Standards and Interpretations, mandatory for annual periods beginning on or after 1 July 2009. The affected policies and standards are:

AASB 127 Principles of Consolidation

AASB 127 (revised) required the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. This is different to the Group’s previous accounting policy where transactions with minority interests were treated as transactions with parties external to the group.

The standard also specifies the accounting when control is lost. Any remaining interest in the entity must be remeasured to fair value and a gain or loss is recognizes in profit or loss. This is consistent with the entity’s previous accounting policy if significant influence is not retained.

The Group will in future allocate losses to the non-controlling interest in its subsidiaries even if the accumulated losses should exceed the non-controlling interest in the subsidiary’s equity. Under the previous policy, excess losses were allocated to the parent entity.

Lastly, dividends received from investments in subsidiaries, jointly controlled entities or associates after 1 July 2009 are recognised as revenue even if they are paid out of preacquisition profits. However, the investment may need to be tested for impairment as a result of the dividend payment. Under the entity’s previous policy, these dividends would have been deducted from the cost of the investment.

The changes were implemented prospectively from 1 July 2009. The impact on the current period is a reduction in the net comprehensive loss attributable to parent entity of $2,111 as a result of the allocation of losses to non-controlling interests that resulted in a deficit balance. There have also been no transactions whereby an interest in an entity is retained after the loss of control of that entity, no transactions with non-controlling interests and no dividends paid out of pre-acquisition profits.

AASB 8 Operating Segments

The Consolidated Entity has applied AASB 8 Operating Segments from 1 July 2009. AASB 8 requires a ‘management approach’ under which segment information is presented on the same basis as that used for internal reporting purposes.

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EMERALD OIL & GAS NL ACN: 72 009 795 046

Notes to the Financial Statements

FOR THE HALF-YEAR ENDED 31 DECEMBER 2009

NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Operating segments are now reported in a manner that is consistent with the internal reporting provided to the chief operating decision maker. The Chief operating decision maker has been identified as the Managing Director in conjunction with the Board of Emerald Oil & Gas NL.

Adoption of these standards and interpretations did not have any effect on the financial position or performance of the Consolidated Entity.

The Consolidated Entity has not elected to early adopt any new standards or amendments.

AASB 3 Business Combinations

All payments to purchase a business are now recorded at fair value at the acquisition date, with contingent payments included at their respective fair values. Under the Group’s previous policy, contingent payments were only recognised when the payments were probable and could be measured reliably and were accounted for as an adjustment to the cost of the acquisition.

Acquisition-related costs are expensed as incurred. Previously, they were recognised as part of the cost of acquisition and therefore included in goodwill.

Non-controlling interests in an acquiree are now recognised either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. This decision is made on an acquisition-by-acquisition basis. Under the previous policy, the non-controlling interest was always recognised at its share of the acquiree’s net assets.

If the Group recognises acquired deferred tax assets after the initial recognition accounting there will no longer be any adjustment to goodwill. As a consequence, the recognition of the deferred tax asset will increase the Group’s net profit after tax.

There has been no impact on the current period results as the Group did not acquire any subsidiaries during the period.

(c) Significant accounting judgements and key estimates

The preparation of interim financial reports requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expense. Actual results may differ from these estimates.

Except as described below, in preparing this interim report, the significant judgements made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial report for the year ended 30 June 2009.

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EMERALD OIL & GAS NL ACN: 72 009 795 046

Notes to the Financial Statements

FOR THE HALF-YEAR ENDED 31 DECEMBER 2009

NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

In the half-year ended 31 December 2009, management reassessed its estimates in respect of:

Carrying value of exploration expenditure

The Group performed a detailed review of its exploration tenements at period end to determine whether the related expenditure should continued to be capitalised under AASB 6 or written off to profit or loss. As a result of this review, management has determined that $1,421,180 be written off during the current period.

NOTE 4 – INCOME TAX

Emerald Oil & Gas NL has tax losses arising in Australia which are available to offset against future profits of the Company providing the tests for deductibility against future profits are met.

These losses have not been recognised in the financial statements, except insofar they offset deferred tax liabilities of the consolidated entity, and there is currently insufficient probability that they will reverse in the foreseeable future.

NOTE 5 – CASH AND CASH EQUIVALENTS For the purposes of the cash flow statement, cash and cash equivalents are comprised of the following: Cash – unrestricted	Consolidated 31 December 2009 $ 30 June 2009 $ 1,629,145 2,439,140 1,629,145 2,439,140	Consolidated 31 December 2009 $ 30 June 2009 $ 1,629,145 2,439,140 1,629,145 2,439,140
		2,439,140

NOTE 6 – TRADE AND OTHER RECEIVABLES Other receivables Refundable deposit	Consolidated 31 December 2009 $ 30 June 2009 $ 23,698 24,304 218,609 115,009 242,307 139,313	Consolidated 31 December 2009 $ 30 June 2009 $ 23,698 24,304 218,609 115,009 242,307 139,313
		139,313

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EMERALD OIL & GAS NL ACN: 72 009 795 046

Notes to the Financial Statements FOR THE HALF-YEAR ENDED 31 DECEMBER 2009

NOTE 7 – EXPLORATION AND EVALUATION EXPENDITURE

Consolidated

EXPENDITURE
Costs carried forward in respect of: Exploration and evaluation expenditure, at cost Reconciliation: A reconciliation of the carrying amounts of exploration and evaluation expenditure is set out below: Carrying amount at beginning of period Additions Transfer to oil and gas assets Impairment losses Reversal of previous impairment Reimbursement of exploration expenditure Carrying amount at end of period	31 December 2009 $ 3,427,126 6 months to 31 December 2009 $ 5,053,839 268,927 (474,460) (1,421,180) - - 3,427,126	30 June 2009 $ 5,053,839
		Year to 30 June 2009 $ 4,394,937 2,784,213 - (1,338,782) 511,584 (1,298,113)
		5,053,839

The impairment loss for 2009 relates to the Groups West Virginia projects.

The recoupment of costs carried forward in relation to areas of interest in the exploration and evaluation phases is dependent upon the successful development and commercial exploitation or sale of the respective areas.

NOTE 8 – OIL AND GAS ASSETS Costs carried forward in respect of: Oil and gas assets, at cost Reconciliation: A reconciliation of the carrying amounts of oil and gas assets is set out below: Carrying amount at beginning of period Additions Transfer from exploration and evaluation assets Depreciation and depletion expense Carrying amount at end of period	Consolidated 31 December 2009 $ 30 June 2009 $ 459,120 - 6 months to 31 December 2009 $ Year to 30 June 2009 $ - - 1,028 - 474,460 - (16,368) - 459,120 -	Consolidated 31 December 2009 $ 30 June 2009 $ 459,120 - 6 months to 31 December 2009 $ Year to 30 June 2009 $ - - 1,028 - 474,460 - (16,368) - 459,120 -
		Year to 30 June 2009 $ - - - -
		-

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EMERALD OIL & GAS NL ACN: 72 009 795 046

Notes to the Financial Statements FOR THE HALF-YEAR ENDED 31 DECEMBER 2009

NOTE 9 – CONTROLLED ENTITIES

The Company has the following Subsidiaries:

			Percentage held	Percentage held
	Country of	Class of
Name of Subsidiary	Incorporation	Shares	2009	2008
Emerald Gas USA LLC	USA	Ordinary	100%	100%
Emerald Gas Pty Ltd	Australia	Ordinary	100%	100%
Emerald Gas USA Holdings Inc	USA	Ordinary	100%	-
Emerald Gas Development USA LLC	USA	Ordinary	100%	-
Emerald Gas Kentucky Processing LLC*	USA	Ordinary	100%	-
Emerald Gas West Virginia Processing LLC*	USA	Ordinary	100%	-
Emerald Gas Development West Virginia LLC*	USA	Ordinary	100%	-
Emerald Gas Kentucky Ventures LLC*	USA	Ordinary	100%	-
Kentucky Energy Partners LLC*	USA	Ordinary	75%	-

• Entity incorporated/formed during the half year.

NOTE 10 – ISSUED CAPITAL

There was no movement in the ordinary share capital of the Company during the period.

NOTE 11 – RELATED PARTY TRANSACTIONS

(a) Parent and ultimate controlling party

The Parent Entity and ultimate controlling party is Emerald Oil & Gas NL.

During the period the Group established the following new entities:

• Emerald Gas Kentucky Processing LLC

• Emerald Gas Development West Virginia LLC

• Emerald Gas West Virginia Processing LLC

• Kentucky Energy Partners LLC

(b) Other related party transactions

Ventnor Capital Pty Ltd, a company of which Mr John Hannaford is a director, was paid rent and company secretarial fees in relation to the administration of the Consolidated Entity. Ventnor Capital Pty Ltd also provided the services of a finance director to the Consolidated Entity during the period. A summary of the total fees paid to Ventnor Capital Pty Ltd during the period is as follows:

Rent and office administration Company secretarial fees Financial administration Finance Director fees Total	2009 2008 $ $ 48,000 48,000 42,000 44,000 6,306 15,000 15,000 100,000
	111,306 207,000

The total amount of fees due to Ventnor Capital as at 31 December 2009 was $16,516 (2008: $33,017).

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EMERALD OIL & GAS NL ACN: 72 009 795 046

Notes to the Financial Statements

FOR THE HALF-YEAR ENDED 31 DECEMBER 2009

NOTE 11 – RELATED PARTY TRANSACTIONS (CONTINUED)

Riverview Corporation Pty Ltd, a company of which Mr John Hannaford is a director, was paid advisory fees on commercial terms for the half year ended 31 December 2009 totalling $1,000 (2008: $nil).

(c) Terms and Conditions

Loans between entities in the wholly owned Consolidated Entity are interest bearing, are unsecured and are payable at call.

Transactions with related parties are made on normal commercial terms and conditions and at market rates. Outstanding balances are unsecured and are repayable in cash.

NOTE 12– SEGMENT REPORTING

Description of segments

The Group’s reportable operating segments are as follows:

1. Appalachian projects

2. Texas projects

3. All other segments – which includes the Canning Basin activities and corporate and administration activities

The Group’s operating segments have been determined with reference to the information used by the chief operating decision maker to make decisions regarding the Group’s operations and the allocation of the Group’s working capital. The Managing Director, in conjunction with the Board has been determined as the chief operating decision maker.

The segments disclosed in the table below have been identified as operating segments that meet any of the following thresholds:

• Segment revenue greater than 10% of combined revenue (internal and external operating segments); and

• Segment profit or loss greater than 10% of combined profit of profitable operating segments or profit or loss greater than 10% of combined loss of loss making operating segments; and

• Segment assets greater than 10% of combined assets of all operating segments.

Segment information

The following tables present the revenue and profit information regarding the segment information provided to the Board of Directors for the half year periods ended 31 December 2008 and 31 December 2009.

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EMERALD OIL & GAS NL ACN: 72 009 795 046

Notes to the Financial Statements FOR THE HALF-YEAR ENDED 31 DECEMBER 2009

NOTE 12– SEGMENT REPORTING (CONTINUED)

2009	2009	2009	2009	2009
Geographical segment	USA		Australia
Operating Segment	Appalachian $	Texas $	All other segments $	Consolidated $
Segment Revenues Segment result	21,781 (1,551,641)	143 (77,925)	380,636 (198,700)	402,560 (1,828,266)
Segment assets	3,149,731	1,133,248	1,656,532	5,939,511
Segment liabilities	(20,234)	(5,130)	(73,435)	(98,799)
Included in segment result
Interest revenue	-	-	33,052	33,052
Impairment	1,421,180	-	-	1,421,180
Depreciation	(16,368)	-	(1,574)	(17,942)
Share based payments	-		(63,151)	(63,151)
Acquisition of plant & equipment, exploration & evaluation and other non current assets	(188,758)	(44,711)	(42,808)	(276,277)

The Consolidated Entity operates solely in the exploration and development of properties for the development of oil and gas within Australia and the USA. All other segments as defined above operate in one geographical segment being Australia.

2008
Geographical segment	USA		Australia
Operating segment	Appalachian $	Texas $	All Other Segments $	Consolidated $
Segment Revenues	-	-	164,124	164,124
Segment result	(463,834)	488,512	(1,431,178)	(1,406,500)
Included in segment result
Interest revenue	-	-	164,124	164,124
Impairment	(253,015)	(18,457)	(1,163,359)	(1,434,831)
Impairment reversals	-	511,584	-	511,584
Acquisition of plant & equipment, exploration & evaluation and other non current assets	1,150,152	128,903	66,857	1,345,912
30 June 2009
Segment assets	4,368,191	875,964	2,553,836	7,797,991
Segment liabilities	-	-	(195,136)	(195,136)

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EMERALD OIL & GAS NL ACN: 72 009 795 046

Notes to the Financial Statements

FOR THE HALF-YEAR ENDED 31 DECEMBER 2009

NOTE 13 – COMMITMENTS

Capital commitments

At 31 December 2009 the Consolidated Entity has commitments principally relating to the drilling and development of its oil and gas properties as follows: Within one year	Consolidated 31 December 2009 $ 72,000

NOTE 14 – POST BALANCE DATE EVENTS

Subsequent to the end of the period, the Company withdrew its application for EPA4/05-6 in the Canning Basin. This resulted in an impairment expense of $40,885 in January 2010.

On 11 March 2010, the Company announced it had executed an MOU securing an option to acquire a 31.5% interest in a Texas Company “NOXXE LLC” with producing onshore oil and gas assets. NOXXE's assets include net proved reserves of approximately 1.1MMbbl oil and 0.3Bcf gas.

Emerald's total equity contribution will be $US1,000,000, consisting of $US750,000 in cash and the remaining $US250,000 in Emerald ordinary fully paid shares. Emerald has paid refundable cash deposits totalling $US400,000, $US200,000 of which was paid during the reporting period.

Aside from the matters above, no other matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the Company or Consolidated Entity, the results of those operations or the state of affairs of the Company and Consolidated Entity in subsequent financial years.

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EMERALD OIL & GAS NL ACN: 72 009 795 046

Directors’ Declaration

In the Directors’ opinion:

• a) the financial statements and notes set out on pages 12 to 24:

• i. comply with Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001; and

• ii. give a true and fair view of the Company’s and Consolidated Entity's financial position as at 31 December 2009 and of its performance, as represented by the results of their operations, changes in equity and their cash flows, 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.

This declaration is made in accordance with a resolution of the Board of Directors, made pursuant to s.303(5) of the Corporations Act 2001.

On behalf of the board,

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M. Krzus Managing Director Perth 15 March 2010

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EMERALD OIL AND GAS NL

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INDEPENDENT AUDITOR’S REVIEW REPORT

To the members of

Report on the Half-Year Financial Report

We have reviewed the accompanying half-year financial report, which comprises the condensed statement of financial position as at 31 December 2009, the condensed statement of comprehensive income, condensed statement of changes in equity, condensed statement of cash flows and notes to the financial statements for the half-year ended on that date, and the directors’ declaration, of Emerald Oil and Gas NL and the entities it controlled during the half-year ended 31 December 2009 (“consolidated entity”).

Directors’ Responsibility for the Half-Year Financial Report

The directors of the company are responsible for the preparation and fair presentation of the half-year financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001 . This responsibility includes designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of the half-year financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditor’s Responsibility

Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of Interim and Other Financial Reports Performed by the Independent Auditor of the Entity , in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the financial report is not in accordance with the Corporations Act 2001 , including giving a true and fair view of the consolidated entity’s financial position as at 31 December 2009 and its performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001. As the auditor of Emerald Oil and Gas NL, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report.

A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Independence

In conducting our review, we have complied with the independence requirements of the Corporations Act 2001.

Level 4 130 Stirling Street Perth 6000 PO Box 8124 Perth BC 6849 Western Australia. Telephone +61 (08) 9227 7500. Fax +61 (08) 9227 7533. Email: hlb@hlbwa.com.au. Website: http://www.hlb.com.au

Liability limited by a scheme approved under Professional Standards Legislation

HLB Mann Judd (WA Partnership) ABN 22 193 232 714

HLB Mann Judd (WA Partnership) is a member of International, a world-wide organisation of accounting firms and business advisers

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Independent Auditor’s Review Report

Conclusion

Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half year financial report of Emerald Oil and Gas NL is not in accordance with the Corporations Act 2001 , including:

• (a) giving a true and fair view of the consolidated entity’s financial position as at 31 December 2009 and of its performance for the half-year ended on that date; and

• (b) complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001 .

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HLB MANN JUDD Chartered Accountants

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Perth, Western Australia 15 March 2010

L DI GIALLONARDO Partner

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