EMERALD RESOURCES NL — Interim / Quarterly Report 2007

Mar 11, 2007

Emerald Oil & Gas NL (previously Matrix Oil NL)
ABN: 72 009 795 046

Interim Financial Report 31 December 2006

Contents Page

CORPORATE INFORMATION
DIRECTORS' REPORT
AUDITOR'S INDEPENDENCE DECLARATION
INCOME STATEMENT
BALANCE SHEET
STATEMENT OF CHANGES IN EQUITY
CASH FLOW STATEMENT
NOTES TO THE FINANCIAL STATEMENTS
DIRECTORS' DECLARATION
INDEPENDENT REVIEW REPORT TO THE MEMBERS

This financial report covers the consolidated entity consisting of Emerald Oil & Gas NL and its subsidiaries. The financial report is presented in the Australian currency.

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 Level₂ 16 Altona Street 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 3, which does not form part of this financial report.

The company has the power to amend and reissue the financial report.

Corporate Information

Directors:

Jeremy Shervington Chairman

John Hannaford Executive Director - Finance

Robert Berven Executive Director - Technical

John Hannaford Company Secretary

Registered & Principal Office:

Level 2, 16 Altona Street WEST PERTH WA 6005 Telephone: + 618 9482 0510 Facsimile: + 618 9482 0505

Postal Address:

P.O. Box 902 WEST PERTH WA 6872

Auditors:

Ernst & Young 11 Mounts Bay Road PERTH WA 6000

Solicitors - Perth:

Jeremy Shervington 52 Ord Street WEST PERTH WA 6005

Home Stock Exchange:

Australian Stock Exchange Limited Exchange Plaza 2 The Esplanade PERTH WA 6000 ASX Code - EMR

Share Registry:

Security Transfer Registrars PO Box 535 APPLECROSS WA 6953 Telephone (within Australia) (08) 9315 2333

Directors' Report

Your Directors have pleasure in submitting their report on the consolidated entity for the "aroup": being the company and its controlled entities, for the half-year ended 31 December 2006.

DIRECTORS

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

Jeremy D Shervington	Non Executive Chairman
Robert Berven	Executive Director - Technical
John Hannaford BCom	Executive Director - Finance, Company Secretary

Directors have been in office since the start of the financial vear 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. During the six months to December Emerald participated in the J Brekhus #1-14 well. Minor oil shows were encountered but all were water wet. The operator elected to defer the second well pending acquisition of 3-D seismic data over the prospect area. A 3-D seismic survey covering approximately 8-10 square miles commenced in mid October, 2006 and is nearing completion. Once these data have been interpreted, it is anticipated that the next well will be drilled in April 2007.

During and since the end of the December quarter Emerald has consolidated its South Texas focus with new project interests committed in the Glamour Girl, Steamboat and North West Alice projects.

RESULTS

The net loss of the Group for the half-year ended 31 December 2006 after income tax amounted to \$658,632.

OPERATING AND FINANCIAL REVIEW

Subsequent to 31 December 2006 the company has completed the small share parcel sale arrangements resulting in a much reduced share register from 6.513 down to 1.492 shareholders, being a much more cost efficient and manageable register for a company of this size. The company will remit cheques to each of the 5,021 shareholders who partook in the scheme once the orderly sale of the 712,000 shares has been completed in February / March 2007.

The net loss for the period after tax was \$658,632.

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 Group and company and likely results of those operations would in the opinion of the Directors, be likely to result in unreasonable prejudice to the group.

Directors' Report

AUDITORS INDEPENDENCE DECLARATION

The auditors independence declaration as required under section 307C of the Corporations Act 2001 for the half year ended 31 December 2006 has been received and can be found on page 4.

AUDITOR

On 8 November 2006 PricewaterhouseCoopers resigned as auditors of the Group. Ernst & Young were appointed as auditors on this date and continue to be appointed as at the date of this report.

Signed in accordance with a resolution of the Directors.

_a A

J. Hannaford Executive Director - Finance

Perth 6 March 2007

EIFRNSTRYCH ING

# The Ernst & Yearng Building 11 Mounts Bay Road Perth WA 6000 Australia

■ 「时」 61 8 9429 2222 Fax 61 8 9429 2436

CPO 868 84939 Posth 1964, 6843

Auditor's Independence Declaration to the Directors of Emerald Oil and Gas NL

In relation to our review of the financial report of Emerald Oil and Gas NL for the half-year ended 31 December 2006, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct.

Supply Supply

Ernst & Young

Hafy Half

V W Tidy Partner Perth 6 March 2007

CONDENSED INCOME STATEMENT FOR THE HALF-YEAR ENDED 31 DECEMBER 2006

	Notes	Consolidated 2006	Consolidated 2005
		\$	\$
Revenue from operations		69,396	386
Financial administration, insurance and compliance costs Consulting and contracting expenses General administration expenses Impairment of exploration and evaluation costs	6	(113, 540) (240, 102) (112, 959) (261, 427)	(40, 653) (54, 339) (15,742)
Loss before income tax expense		(658, 632)	(110, 348)
Income tax expense
Loss for the period		(658, 632)	(110, 348)
Basic earnings (loss) per share
- cents per share Diluted earnings (loss) per share		(1.444)	(1.299)
- cents per share		(1.444)	(1.299)

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

CONDENSED BALANCE SHEET AS AT 31 DECEMBER 2006

	Notes	Consolidated 31 December 2006 \$	Consolidated 30 June 2006 \$
ASSETS
Current assets Cash and cash equivalents	5.
Trade and Other Receivables		2,729,161 130,673	3,939,778 86,032
Total current assets		2,859,834	4,025,810
Non-current assets Exploration and evaluation costs	6	850,435	840,022
Total non-current assets		850,435	840,022
TOTAL ASSETS		3,710,269	4,865,832
LIABILITIES
Current liabilities Trade and Other Payables		270,922	777,486
Total current liabilities		270,922	777,486
TOTAL LIABILITIES		270,922	777,486
NET ASSETS		3,439,347	4,088,346
EQUITY Contributed Equity	7	4,373,539	4,371,030
Reserves		236,324	229,200
Accumulated losses		(1, 170, 516)	(511, 884)
TOTAL EQUITY		3,439,347	4,088,346

The above Balance Sheet should be read in conjunction with the accompanying notes.

CONDENSED STATEMENT OF CHANGES IN EQUITY FOR THE HALF-YEAR ENDED 31 DECEMBER 2006

2006 (CONSOLIDATED)
	Contributed Equity	Business Combination Reserve	Options Reserve	Accumulated losses	Minority Interest	Total
	\$	\$	\$	\$	\$	\$
Total equity at 1 July 2006 as previously reported	746,253	1,399,037	229,200	(627, 862)	2,225,740	3,972,368
Correction of errors (Note 11)	3,624,777	(1,399,037)		115,978	(2,225,740)	115,978
Total equity at 1 July 2006 (restated)	4,371,030		229,200	(511, 884)		4,088,346
Loss for the period				(658, 632)		(658, 632)
Options excercised Options issued during the	2,509					2,509
period			7,124			7,124
Total equity at 31 December 2006	4,373,539		236,324	(1, 170, 516)		3,439,347

2005 (CONSOLIDATED)

	Contributed Equity	Accumulated losses	Total
	\$	\$	\$
Total equity at 1 July 2005	3	(14.048)	(14, 045)
Contributions of equity, net of transaction costs	746,250	-	746,250
Loss for the period		(110, 348)	(110, 348)
Total equity at 31 December 2005	746,253	(124, 396)	621,857

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

CONDENSED CASH FLOW STATEMENT FOR THE HALF-YEAR ENDED 31 DECEMBER 2006

Cash flows from operating activities	Notes	2006 \$	Consolidated Consolidated 2005 \$
Receipts from customers Interest received Payments to suppliers and employees		69,396 (803, 672)	386 (95,053)
Net cash (used in) operating activities		(734,276)	(94,667)
Cash flows from investing activities Exploration expenditure Net cash (used in) Investing		(213, 850)
activities		(213,850)
Cash flows from financing activities Proceeds from borrowings Proceeds from issues of shares Proceeds from exercise of options Capital raising costs		2,509 (265,000)	24,115 746,250
Net cash flows provided by/(used in) financing activities		(262,491)	770,365
Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the		(1,210,617)	675,698
beginning of the period		3,939,778	1,702
Cash and cash equivalents at the end of the period	5	2,729,161	677,400

The above Cash Flow Statement should be read in conjunction with the accompanying notes.

Notes to the Financial Statements For the half-year ended 31 December 2006

NOTE 1 - REPORTING ENTITY

Emerald Oil & Gas NL (the "Company") is a company domiciled in Australia. The consolidated interim financial report of the Company as at and for the six months ended 31 December 2006 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 2006 is available upon request from the Company's registered office at Level 2, 16 Altona Street, West Perth, WA 6005.

NOTE 2 - BASIS OF PREPARATION

The consolidated interim financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards 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 interim 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 consolidated entity as at and for the year ended 30 June 2006.

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 2006 in accordance with the continuous disclosure obligations arising under the Corporations Act 2001.

This consolidated interim financial report was approved by the Board of Directors on 6 March 2007.

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES

The accounting policies applied by the consolidated entity in this consolidated interim 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 2006, except as disclosed below.

$(a)$ Changes in accounting policies

Reference	nha	Summary	Application DAGOI Slandard	Unp.et on Choue accounting policies	Application naz
AASB 2004-3	Amendments to Australian Accountina Standard (AASB 1. AASB 101. AASB 1241	Amendments to presentation and disclosure of financial statements following the release of AASB 119.	For annual reporting periods beginning on or after 1 January 2006	These requirements are consistent with the Group's existing accounting policies or relate to transactions that the Group has not entered into and therefore there has been no impact.	1 January 2006

Notes to the Financial Statements For the half-year ended 31 December 2006

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES

(a) Changes in accounting policies (continued)

			Application	Impact on என்
Reference	nito	Summery	Date of Standard	accounting policies	Application Dale
AASB 2005-1	Amendments to Australian Accounting Standard	Amendment to AASB 139 to allow the foreign currency risk of a highly probable intra- group forecast transaction to qualify as the hedged item in certain circumstances.	For annual reporting periods beginning on or after 1 January 2006	A highly probable forecast intragroup transaction denominated in a currency other than the entity's functional currency, can be designated as a hedged item in the consolidated accounts, with the resulting gain or loss from the hedge recognised in the consolidated result. For the half year ended 31 December 2006, there has been no financial impact.	1 January 2006
AASB 2005-3	Amendments to Australian Accounting Standards [AASB 119]	Amendment to AASB 119 to include the forecast of taxes in making actuarial assumptions in relation to defined benefit superannuation plans.	For annual reporting periods ending on or after 1 January 2006.	These requirements are consistent with the Group's existing accounting policies or relate to transactions that the Group has not entered into and therefore there has been no impact.	1 January 2006
AASB 2005-4	Amendments to Australian Accounting Standards [AASB 139, AASB 132, AASB 1, AASB 1023 & AASB 1038]	Amendments relate to the restriction on designating financial instruments at fair value through profit and loss.	For annual reporting periods beginning on or after 1 January 2006	No change in accounting policy required as the items that are designated at fair value through profit or loss are classified as held for trading and as such is not impacted by the restriction.	1 January 2006
AASB 2005-5	Amendments to Australian Accounting Standards [AASB 1 & AASB 1391	Consequential amendments made to AASB 1 due to the issue of UIG Interpretations 4 Determining whether an Arrangement contains a Lease. Consequential amendments made to AASB 139 due to the issue of UIG Interpretations 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds.	For annual reporting periods beginning on or after 1 January 2006	These requirements are consistent with the Group's existing accounting policies or relate to transactions that the Group has not entered into and therefore there has been no impact.	1 January 2006

Notes to the Financial Statements For the half-year ended 31 December 2006

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES

Changes in accounting policies (continued) $(a)$

	nito		Application Dakan Standard	tin pace (on $\rm GCDD$ accounting	Application
Reference AASB 2005-6	Amendments to Australian Accounting Standards [AASB 3]	Summerry The definition of 'contribution by owners' is removed and the IFRS 3 scope exclusion for business combinations involving entities or businesses under common control is adopted.	For annual reporting periods beginning on or after 1 January 2006	policies These requirements are consistent with the Group's existing accounting policies or relate to transactions that the Group has not entered into and therefore there has been no impact.	Dara 1 January 2006
AASB 2005-9	Amendments to Australian Accounting Standards [AASB $4$ , AASB 1023, AASB 139 & AASB 132]	The amendments to all four standards provide quidance as to which standard applies to financial guarantee contracts under certain circumstances.	For annual reporting periods beginning on or after 1 January 2006	All financial guarantees given from the parent to its subsidiaries will be required to be accounted for under AASBs 132 & 139 (as they were not previously accounted for as insurance contracts). The financial impact of this change in policy has not yet been determined.	1 January 2006
AASB 2006-1	Amendments to Australian Accounting Standards [AASB 121]	The amendment clarifies the requirements relating to an entity's investment in foreign operations and assists the financial reporting of entities with investments in operations that have a different functional currency.	For annual reporting periods ending on or after 31 December 2006	These requirements are consistent with the Group's existing accounting policies or relate to transactions that the Group has not entered into and therefore there has been no impact.	1 January 2006
AASB 2006-3	Amendments to Australian Accounting Standards [AASB 1045]	Date amendments to local government standard.	For annual reporting periods ending on or after 31 December 2006	No impact as standard not applicable to the Group.	1 January 2006
AASB 119 (revised)	Employee Benefits (revised December 2004)	Amendments incorporate the 'corridor approach' and 'direct-to-retained earnings' approach in accounting for defined benefit plans. Other changes for multi- employer defined benefit group plans and disclosure requirements	For annual reporting periods beginning on or after 1 January 2006.	No impact as standard not applicable to the Group.	1 January 2006

Notes to the Financial Statements For the half-year ended 31 December 2006

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES

Changes in accounting policies (continued) $(a)$

Reference	nito	Summary	Application Daketon Standard	thipset (on Group accounting policies	Application Dako
Interpretation 4	Determining whether an Arrangement contains a Lease	Specifies criteria for determining whether an arrangement is, or contains, a lease.	For annual reporting periods beginning on or after 1 January 2006	These requirements are consistent with the Group's existing accounting policies or relate to transactions that the Group has not entered into and therefore there has been no impact.	1 January 2006
Interpretation 5	Rights to Interests arising from Decommissionin g, Restoration and Environmental Rehabilitation Funds	Addresses the accounting for rights to interests arising from decommissioning, restoration and rehabilitation funds and for additional contributions to such a fund.	For annual reporting periods beginning on or after 1 January 2006.	These requirements are consistent with the Group's existing accounting policies or relate to transactions that the Group has not entered into and therefore there has been no impact.	1 January 2006
Interpretation 6	Liabilities arising from Participating in a Specific Market - Waste Electrical and Electronic Equipment	Clarifies when a liability arises under the European Union's Directive on Waste Electrical and Electronic Equipment in relation to the cost of waste management for the decommissioning of electrical and electronic equipment that had been sold to private households up to 13 August 2005 (termed 'historical household equipment').	For annual reporting periods beginning on or after 1 December 2005.	These requirements are consistent with the Group's existing accounting policies or relate to transactions that the Group has not entered into and therefore there has been no impact.	1 December 2005
Interpretation 7	Applying the Restatement Approach under AASB 129 Financial Reporting in Hyperinflationar y Economies	Provides guidance on how to apply the requirements of AASB 129 Financial Reporting in Hyperinflationary Economies in a reporting period in which an entity identifies the existence of hyperinflation in the economy of its functional currency, when that economy was not hyperinflationary in the prior period, and the entity therefore restates its financial statements in accordance with AASB 129.	For annual reporting periods beginning on or after 1 March 2006.	These requirements are consistent with the Group's existing accounting policies or relate to transactions that the Group has not entered into and therefore there has been no impact.	1 March 2006

Notes to the Financial Statements For the half-year ended 31 December 2006

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES

Changes in accounting policies (continued) $(a)$

Referente	ntic	Summary	Application DATE OF Standard	Impact on CITOLITY accounture policies	Application ena
Interpretation 8	Scope of AASB 2	Requires transactions in which share-based payments are made and the entity cannot specifically identify some or all of the goods or services received to be measured by reference to the fair value of the share-based payments at grant date.	For annual reporting periods beginning on or after 1 May 2006.	These requirements are consistent with the Group's existing accounting policies and therefore there has been no impact.	1 May 2006
Interpretation 9	Reassessment of Embedded Derivatives	Clarifies when an entity should assess whether an embedded derivative is to be separated from the host contract and accounted for as a derivative if certain conditions are met.	For annual reporting periods beginning on or after 1 June 2006	These requirements are consistent with the Group's existing accounting policies or relate to transactions that the Group has not entered into and therefore there has been no impact.	1 June 2006

NOTE 4 - INCOME TAX

Emerald Oil & Gas NL has tax losses arising in Australia which are available indefinitely 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 group.

Notes to the Financial Statements For the half-year ended 31 December 2006

NOTE 5 - CASH AND CASH EQUIVALENTS For the purposes of the cash flow statement, cash and cash equivalents are comprised of the following:		31 December 2006 \$	31 December 2005 \$
Cash - unrestricted Cash - restricted	(a)	2,190,756 538,405 2,729,161	677,400 677,400
(a) Cash is held in trust by the Company's US solicitors in relation to proposed exploration and evaluation expenditure.
NOTE 6 - EXPLORATION AND EVALUATION EXPENDITURE
		31 December 2006 \$	30 June 2006 \$
Costs carried forward in respect of: Exploration and evaluation expenditure, at cost		850,435	840,022
Reconciliation: A reconciliation of the carrying amounts of exploration and evaluation expenditure is set out below:
Carrying amount at beginning of period Additions Impairment losses	(a)	840,022 271,840 (261, 427)

(a) During the period, the directors have decided to cease exploration activities on the Sharon North project. In addition, drilling on the Pandura Kathleen Marie #2 well has been delayed until further notice. As such, the carrying value of the exploration expenditure to date on these projects has been reduced to zero.

Carrying amount at end of period

850,435

Notes to the Financial Statements For the half-year ended 31 December 2006

NOTE 7 - CONTRIBUTED EQUITY	Number of Shares	\$
2006
(a) Issued and Paid Up Capital
Fully paid ordinary shares	45,612,549	4,373,539
	45,612,549	4,373,539
(b) Movements in fully paid shares on issue
Opening balance	45,600,000	4,371,030
Exercise of options during period	12,549	2,509
Total fully paid shares on issue	45,612,549	4,373,539

NOTE 8- SEGMENT REPORTING

Business Segment - primary reporting segment

The consolidated entity operates solely in the exploration and development of properties for the development of oil and gas within Australia and the USA.

2006

-----
	USA	Australia	Eliminations	Consolidated
Geographical segment
Segment Revenues	$\ddot{\phantom{1}}$	69,396	$\overline{\phantom{a}}$	69.396
Segment loss	348.350).	(310.282)	$\overline{\phantom{a}}$	(658,632)
2005

Geographical segment	USA	Australia	Eliminations l	Consolidated
Segment Revenues	$\overline{\phantom{a}}$	386	$\overline{\phantom{a}}$	386
Segment loss	$\overline{\phantom{a}}$	110.348	$\overline{\phantom{a}}$	(110.348)

Notes to the Financial Statements For the half-year ended 31 December 2006

NOTE 9 - SHARE BASED PAYMENTS

Expenses arising from share-based payment transactions

Total expenses arising from share-based payment transactions recognised during the period were as follows:

	Consolidated 2006 S
Options issued to other parties	.124
	,124

These options are detailed below:

Date		Exercise	Number of
Granted	Expiry Date	Price	options issued
11/10/06	31/12/09	\$0.25	325,000
			325,000

During the year, options were exercised to take up 12.549 ordinary shares. As at the year end the company had a total of 33,736,638 unissued ordinary shares on which options are outstanding.

Fair value of options granted

The fair value at grant date is determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the nontradeable nature of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option.

			The table below summarises the model inputs for options granted during the year:
--	--	--	----------------------------------------------------------------------------------	--	--	--	--	--	--	--	--	--

Model Inputs	Options
1. Options are granted for no consideration:	325,000
2. Exercise price (cents):	25
3. Valuation date:	11 October 2006
4. Expiry date:	31 December 2009
5. Underlying security spot price at grant date (cents):	9.2
6. Expected price volatility of the company's shares:	75%
7. Expected dividend yield:	0%I
8. Risk-free interest rate	6.25%
9. The expected price volatility is based on the historic
volatility of an average of comparable companies.	75%

Notes to the Financial Statements For the half-year ended 31 December 2006

NOTE 10 - COMMITMENTS AND CONTINGENCIES

Capital commitments

Consolidated 31 December 2006 \$ At 31 December 2006 the Group has commitments principally relating to the drilling and development of its oil and gas properties as follows: Within one year 2,326,876

NOTE 11 - CORRECTIONS OF ERRORS

The acquisition of Emerald Gas Ltd on 26 June 2006 was accounted for as a reverse acquisition in the financial year ended 30 June 2006. As the transaction involved an equity exchange that resulted in all owners of Emerald Gas Ltd having an interest in the results and net assets of the consolidated entity and the substance of the transaction is that Emerald Gas Ltd acquired a 100% interest in Emerald Oil & Gas NL a minority interest should not have been recognised at the date of combination. Furthermore, the Business Combination Reserve recognised at the date of combination is in the nature of contributed eauitv.

During the reconciliation of creditors at 31 December 2006, it was revealed that trade creditors and accruals as at 30 June 2006 were overstated by \$115,978.

The comparative information has been restated to correct these errors. The effect of the restatement on the balance sheet at 30 June 2006 is as follows:-

Increase in contributed equity	3,624,777
Decrease in business combination reserve	(1,399,037)
Decrease in minority interest	(2,225,740)
Net increase in equity as of 30 June 2006
Decrease in trade payable	115,978
Increase in net assets as of 30 June 2006	115.978

The correction of the errors referred to above had no impact on the income statement for the comparative interim period, being the half-year ended 31 December 2005, nor on the basic and diluted earnings per share disclosures for the period then ended.

Notes to the Financial Statements For the half-year ended 31 December 2006

NOTE 12 - CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The preparation of financial statements in conformity with AIFRS requires the use of certain critical accounting estimates and judgements. It also requires management to exercise its judgement in the process of applying the Group's accounting policies.

In preparing this consolidated interim financial report, the significant judgements made by management in applying the consolidated entity's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial report as at and for the year ended 30 June 2006.

NOTE 13 - POST BALANCE SHEET EVENTS

On 22 February 2007, Emerald Oil & Gas announced that drilling of the Pandura Kathleen Marie #2 well would be delayed until further notice. The well, which was previously planned for February / March 2007 has been delayed pending resolution of lease renewal / extension issues with the lease owners, and completion of Daytona Energy's current capital raísing.

In light of the above, the Board resolved to write off all exploration expenditure to date in relation to this area of interest of \$203.437.

In the directors' opinion:

a) the financial statements and notes set out on pages 5 to 18 are in accordance with the Corporations Act 2001, including:

• complying with Accounting Standards, the Corporations Regulations 2001 and i. 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 31 December 2006 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 directors.

On behalf of the board

σŔ

J. Hannaford Executive Director - Finance Perth 6 March 2007

EIFRAGTRYCHING

# The Ernst & Yearne Building 11 Minarits Bay Road Penth WA 6020 Australia

■ Tel 61 8 4429 3222 Fire 1 R3 of G&7G D&3R

CONTRACTOR Pedh 1954 6843

To the members of Emerald Oil & Gas NL

Report on the Half-Year Condensed Financial Report

We have reviewed the accompanying half-year financial report of Emerald Oil and Gas NL and the entities it controlled during the half-year which comprises the condensed balance sheet as at 31 December 2006 and the condensed income statement, condensed statement of changes in equity and condensed cash flow statement for the half-year ended on that date, other selected explanatory notes and the directors' declaration

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 an Interim Financial Report 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 2006 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 and other mandatory financial reporting requirements in Australia. As the auditor of Emerald Oil and Gas NL and the entities it controlled during the half-year 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. We have given to the directors of the company a written Auditor's Independence Declaration, a copy of which is included in the Directors' Report.

ENERVITA YOU AND

Basis for Qualified Conclusion

The financial report of Emerald Oil and Gas NL was not reviewed or audited prior to 30 June 2006. It has not been practicable for us to carry out normal review procedures relating to the condensed statements of income, cash flows, changes in equity and associated disclosures for the period of six months ended 31 December 2005, which are shown for the purposes of comparison.

Oualified conclusion

Based on our review, which is not an audit, with the exception of existence of the limitation on the scope of our work as described in the basis for qualified conclusion paragraph, and the effect on the financial report of such adjustments, if any, as might have been determined to be necessary had the limitation not existed, we have not become aware of any other matter that makes us believe that the interim financial report of Emerald Oil and Gas NL and the entities it controlled during the half-year is not in accordance with:

the Corporations Act 2001, including: $(a)$

• (i) giving a true and fair view of the consolidated entity's financial position as at 31 December 2006 and of its performance for the half-year ended on that date; and
• (ii) complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001; and
• $(b)$ other mandatory financial reporting requirements in Australia.

Sample Sample

Ernst & Young

V W Tidy Partner Perth 6 March 2007