HYDROCARBON DYNAMICS LIMITED - Annual Report 2017

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INDAGO ENERGY LIMITED

(ABN 75 117 387 354)

AND

CONTROLLED ENTITIES

ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2017

Chairman’s Letter ……………………................................................................................	3
Project and Operations Report…………………..............................................................	4
Corporate Governance Statement…………………….......................................................	12
Director’s Report ……………………..............................................................................	13
Auditor’s Independence Declaration……………………....................................................	21
Consolidated Statement of Profit or Loss and Other Comprehensive Income……..……	22
Consolidated Statement of Financial Position………………............................................	23
Consolidated Statement of Changes in Equity………………...........................................	24
Consolidated Statement of Cash Flows………………......................................................	25
Notes to the Financial Statements………………..............................................................	26
Director’s Declaration………………..................................;………...................................	49
Independent Auditor’s Report………………....................................................................	50
Shareholder Information……………….............................................................................	55
Corporate Directory………………....................................................................................	57

Chairman’s Letter

Dear Shareholder,

As foreshadowed in Indago’s 2016 Annual Report, in April 2017 Indago Energy completed the acquisition of Hydrocarbon Dynamics (“HCD”) and associated Intellectual Property. In doing so the Company has acquired a truly unique technology that can be applied to improve oil flow and recovery rates across both the upstream and mid-stream sectors of the oil industry.

The product has proved its effectiveness in a large-scale commercial oil field and pipeline in Malaysia and in several field trials.

The key products, HCD Multiflow[TM] and HCD TankClean are based on the application of a small, specially engineered carbon-based organic molecule in liquid form that can reduce oil’s pour point and viscosity while increasing API gravity. In pipelines this can greatly decrease costs associated with transporting oil, while in oil wells confronted with viscosity problems it can potentially increase production and recovery rates while decreasing operating costs. In oil storage facilities it has the potential to recover oil from sludge cheaply and efficiently.

Indago’s strategy to develop and commercialise this technology has two key elements. The first is to develop a marketing and sales presence in key regions and to promote our products to potential end users. The second component of the strategy is to identify oil projects for direct investment where we believe our technology can be used to generate oil production, reserves and cash-flow.

Post the HCD acquisition Indago has put in place a US sales presence in Texas and California to complement its production and research facilities in Arizona. Indago has also opened an office in Calgary to service the Canadian oil sector.

In order to manage costs while promoting Indago’s products Indago has entered into marketing and distribution agreements with new partners in China, the Middle East and parts of South America. These agreements are commission based and allow aggressive marketing at little to no cash costs to Indago.

During the year Indago reviewed many oil projects for direct investment and made its first in Kentucky as announced to the ASX in December 2017. Subsequently an independent resource certification for Indago’s area was received that noted oil in place of 42.8mm bbls and a 2C resource of 3.7mm bbls (see ASX announcement dated March 6[th] 2018). The first of several test wells is planned for the first half of 2018.

The financial results for the 12 months to December 31, 2017 include a loss of $3,538,88 which includes an impairment of $930,186 on the Newkirk asset in Oklahoma.

During the 9 months of 2017 in which Indago owned HCD, the team worked tirelessly in identifying and meeting with potential end users of HCD products, testing oil samples from dozens of fields and establishing several field trials with the potential for many more. This essential work is relentless and will continue with vigor throughout 2018.

I’d like to observe that the sales cycle for Indago’s products is lengthy as producers seek to ensure the product is suitable before full field or pipeline applications can be made. This long lead time has not curbed the enthusiasm of the directors and management for the product and its potential for wealth growth for shareholders.

Over the course of 2018, shareholders can expect to see results from field trials with large oil companies, the commencement of meaningful product sales, results from our first project in Kentucky and a direct investment in one or more additional projects.

Yours faithfully,

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Stephen Mitchell Chairman

PROJECT AND OPERATIONS REPORT

Acquisition of HCD Multi-Flow

Indago acquired the Hong Kong based HCDI Holdings and associated Intellectual Property on April 3[rd] 2017 and as a result, Indago now owns an exceptional new oil technology – HCD Multi-Flow®– that can be applied to improve oil flowrates by re-liquefaction of naturally occurring paraffin and asphaltenes that are deposited on the walls of oil well tubulars and oil pipelines, and can also be used to recover saleable oil from sludge in storage facilities. The product had proved its effectiveness in large-scale commercial oil wells and pipelines in Malaysia and on a smaller scale in North America prior to Indago’s acquisition.

Properties and Applications of Multi-Flow

HCD Multi-Flow® is a liquid additive that contains small, specially engineered carbon-based molecules that can disaggregate & reliquefy the large agglomerations of waxes and asphaltenes naturally occurring in waxy and heavy crude oils. Multi-Flow works by the process of molecular disaggregation which involves inserting small, carbon-based molecules within the long chain paraffin, asphaltene and heavy oil hydrocarbons, and interfering with the London dispersion forces of attraction that cause these heavy molecular-weight agglomerations. Because it is effective in dosage concentrations of hundreds to thousands of parts per million [ppm], Multi-Flow has commercial applications across a very broad range of oil industry challenges that are commonplace in the production, handling, transport, and storage of asphaltenic, heavy or paraffinic crude oil.

In addition to its capacity for reliquefying heavy molecular-weight agglomerations, Multi-Flow is hydrophobic (repels water) and oleophilic (attracts oil), which enables it to break the oil and water emulsions that are typically associated with asphaltenic crudes and that are widely responsible for reducing crude oil quality and sale price. Multi-Flow can also reduce crude oil specific gravity (conversely increase API gravity) which in turn can reduce crude oil viscosity. Finally, because it is carbon-based, Multi-Flow is organic and non-toxic and provides an environmentally friendly solution to the myriad problems confronting the oil industry.

Identify crudes and applications where benefits of Multi-Flow are maximised

Indago expended considerable effort during the year researching crude oil plays and their associated properties around the world to identify where Multi-Flow could have greatest applicability. Major heavy, asphaltenic and paraffinic crude oil plays occur in North America, the Middle East, South America, India and China (Figure 1). On the basis of the distribution of crude oil types, Indago developed a sales strategy whereby it concentrated its financial and human resources on identifying specific opportunities in North America and sought to enter into sales, marketing and distribution arrangements with suitably qualified partners in the other key parts of the world where heavy, asphaltenic and paraffinic crudes abound.

Indago has recorded its first sales of HCD products (Multi-Flow and Tank Clean) since the merger with HCD. The modest sales largely represented sales to new HCD distributors for anticipated forthcoming trials.

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Figure 1

North American Initiatives

Upstream

Indago concentrated significant effort on the identification and assessment of several oil accumulations, particularly in North America, where HCD technologies present an opportunity for the Company to develop its own production and reserves. Criteria for such projects include a small capital outlay, a modest work obligation and a substantial upside. As a result of this work, Indago high-graded the large heavy oil deposit in the Illinois basin in western Kentucky (Western Kentucky Tar Sand Play), and purchased from Mineral Rights owners over an area of approximately 1,700 acres the rights to assess and develop the heavy oil in place (Figure 2). The primary target under Indago’s lease holding is the Upper Mississippian Big Clifty Sandstone, although the Tar Sand Play includes other reservoirs such as the Upper Mississippian Hardinsburg and Tar Springs Sandstones and Lower Pennsylvanian Kyrock and Bee Spring Sandstone Members of the Caseyville Formation. The play is large and publications on the Kentucky Geological Survey website suggest that it could contain more than 3 billion barrels of Contingent Resources, of which, the Big Clifty Sandstone contributes a little more than 2 billion barrels.

Previous operators have drilled dozens of wells in the vicinity of Indago’s lease holdings including approximately 13 wells within the leased acreage. The information from these wells has demonstrated that the Big Clifty Sandstone is an oil saturated reservoir approximately 12-20 metres [40-65’] thick at a depth range of between 125-215 metres [410-705’]. Based on previous published results of more than 2,000 core samples from this region on the Kentucky Geological Survey website, the target zone has reported reservoir properties including average porosities of 15.5%, average permeability of 192 millidarcies, oil saturation from 32-45% and an oil gravity of 10 API.

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Figure 2

Indago commissioned US-based petroleum engineering firm Netherland Sewell and Associates (NSAI) to review these historical results and all available well logs for assessment including volumetric analysis to verify published information, and to undertake a resource certification of Indago’s lease holdings. NSAI estimated that there is on the order of 42 million barrels of Original-Oil-In-Place and further estimated that the recoverable net Contingent Resources were 1.873 MMBO (1C), 3.745 MMBO (2C) and 7.49 MMBO (3C) (Figure 3).

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Figure 3

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Indago has designed an appraisal well, the Weldon Young No. 1 well, and located it in the middle of a thick depocenter of the Big Clifty Sandstone (Figure 2). This well test is designed to determine if Multi-Flow will be able to maintain the oil in a liquid state from the reservoir to the well head and thus enable the oil to be pumped using conventional equipment. The well is an inexpensive trial with a large potential upside on the acreage already leased by Indago, and a much greater potential upside play-wide.

Marketing – North America

Indago has actively marketed its HCD product range in north America including US-based opportunities in the Uinta basin of Utah where production of waxy, high pour point crudes (Wasatch Yellow and Lower Green River Black wax; Figure 4) is suitable for application of HCD Multi-Flow, and Indago is working with three of the largest oil producers in the basin. Down-hole field trials with two of these producers commenced recently and are ongoing. HCD Multi-Flow is being fed down the annulus in 4 producing wells to enhance mixing and contact time of the Multi-Flow and the waxy crudes.

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Figure 4

Indago also identified several heavy oil fields in West Texas, Southwest Texas, California and Oklahoma and is negotiating with independent producers to test Multi-Flow in wells, gathering pipeline networks and storage facilities. One such test in Southwest Texas involves dosing Multi-Flow by well head injection and is designed to flow through the gathering system to storage tanks and reduce Basic Sediment and Water (BS&W) levels in the crude oil to improve crude quality. Multi-Flow has been progressively reducing the BS&W and the final results will be available in the near future.

Indago has undertaken testing in very heavy crude oil (~5-6[o] API gravity) in California with the objective of reducing or replacing expensive diluents and reducing heat costs in transportation and handling. Independent laboratory results have been promising, and Indago is now negotiating field trials, also in gathering pipeline networks and storage facilities with two independent California Heavy Oil producers.

Canada

Indago identified the conventional heavy oil plays of the Upper and Lower Manville Geological Formation, the Athabasca Oil Sands of Alberta (Figure 5), and the paraffinic crudes of the Cardium and Viking Formations of Alberta and Saskatchewan as oil accumulations that could benefit from the application of HCD Multi-Flow. Indago has engaged large upstream companies in each of these major plays, has received numerous crude oil samples for independent laboratory testing, and is currently negotiating field trials with three of the upstream companies. Additionally, one field trial with a mid-size Canadian Independent is currently underway where the objective is to uplift, by a few degrees, the API gravity of the heavy crude to pipeline specification for substantial savings on transportation costs. The Multi-Flow has uplifted API gravity of the crude, the final amount by which will be determined in upcoming Laboratory analysis. If Multi-Flow achieves the benchmark API uplift, it will be deployed across the entire field.

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Figure 5

Multi-Flow was bench top tested with the Mature Fines Tailings from the Oil Sands Mining Industry. Some bitumen from these tests was extracted from the tailings within minutes, and samples have been sent to Corelabs for independent analysis to determine the percentage of bitumen extracted. If the percentage of bitumen extraction proves sufficient, then Multi-Flow will potentially have application to the cleanup of the very large and environmentally sensitive tailings ponds problem.

Middle East Initiatives

In the Middle East, Indago awarded Gulf Crude Dynamics (GCD) a distribution agreement in August that will allow GCD to market Multi-Flow and Tank Clean in the Middle East on an exclusive basis. The contract was awarded with firm milestones for GCD to reach in order to maintain distribution rights. GCD also has the right to establish a blending facility in the Middle East for HCD products and long-term exclusive marketing rights in the region upon payment to Indago of US$20 million. It is anticipated that GCD will need to establish successful sales and raise significant capital to exercise this option. Advanced discussions occurred during the 4[th] quarter to apply HCD products down-hole in a very substantial heavy oilfield in Middle East as well as to participate in tank cleaning operations on a trial basis in Abu Dhabi.

China Initiatives

Indago entered into a distribution agreement with Chinese energy services company, Qinghua Energy Company in November to market and distribute HCD products to three of China’s largest oil producers. Indago executives have visited several large oil and gas producers in China to discuss opportunities in pipeline and enhanced oil recovery downhole applications. Indago research indicated that Chinese fields such Liaohe, Dagang, Xinjiang and Henan produce heavy asphaltenic and waxy crudes that would benefit from the application of Multi-Flow (Figure 6). High pour point crudes produced from the Bohai Sea fields are also candidates for treatment with Multi-Flow.

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Figure 6

Qinghua has received crude oil samples from the candidate fields, and positive bench top tests with Multi-Flow additive have been achieved. The next phase for Quinghua is to verify the bench top testing with independent laboratory analyses and then negotiate field testing with the Chinese oil companies.

Storage tank cleaning is also a major Xinghua objective and two of the major Chinese oil producers have provided crude oil and sewage sludge samples for testing with HCD products. The tanks are large and represent lucrative opportunities if follow up testing is successful.

South America

Indago entered into a sales and marketing agreement with NovaTech LLC in September to promote sales to over a dozen significant heavy oil producers in several Central and South American countries including Colombia, Ecuador and Peru, and the Caribbean nations where heavy oils are stored and refined. In Colombia for example, numerous heavy oil fields in the Middle Magdalena Valley (Figure 7) are shut-in because of low crude oil price and high trucking costs, but if API gravity of the crude could be uplifted to pipeline specification allowing pipeline transport these fields could return to commercial production.

Indago has identified several opportunities in South America for the sale of its key products Multi-Flow and Tank Clean. During August the HCD Multi-Flow’s inventor visited Brazil to oversee trials of Multi-Flow for a large oil producer, along with several other meetings with potential clients.

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Figure 7

Tank Clean Initiatives

Tank cleaning was an application where Hydrocarbon Dynamics had international success prior to the Indago acquisition, and has remained a prime market initiative for Indago. A distributor agreement was signed in February 2018 with Non Entry Systems Limited (NESL) out of the UK. NESL designs and manufactures the Tank Sweep equipment that enables tank cleaning services with a non-man entry, providing the industry with superior Health and Safety capability. NESL has an expansive international client list including most of the major international oil companies. The distributor agreement allows Indago access to NESL’s client list, and NESL will promote Tank Clean and Tank Sweep as an innovative, integrated tank cleaning solution.

Indago executives have met with half a dozen or more NESL clients in North America, UK, Europe and Africa, and undertaken successful bench top tests of sludge samples from their respective operations. The next step is independent laboratory testing and verification of the efficacy of HCD’s products on the various tank sludge samples and then negotiating the tank clean jobs.

Newkirk Project, Kay County Oklahoma (100% WI 81.25% NRI)

No field work was conducted at Newkirk during the year. After the lease expires and modest re-leasing, Indago’s net acreage position reduced from a net position of 3,715 net acres to 3,149 net acres.

Oil and Gas Tenements

Project	Location	Interest acquired or disposed (net to Indago)	Total acres owned (net to Indago)	Working Interest held as at 31 December 2017
Newkirk	Kay and Noble Counties, Oklahoma	-	3,149 acres	100%
Kentucky	Illinois, Kentucky	1,450 acres	1,450 acres	100%

CORPORATE GOVERNANCE STATEMENT

The Board of Directors of Indago Energy Limited is responsible for establishing the corporate governance framework of the Group having regard to the ASX Corporate Governance Council (CGC) published guidelines as well as its corporate governance principles and recommendations. 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 Company’s corporate governance statement for 2017 is located on the Company’s website at www.indagoenergy.com.au – About Indago – Corporate Governance.

DIRECTORS’ REPORT

In accordance with a resolution of directors, the directors present their report together with the Financial Report of Indago Energy Limited (Indago) and its wholly owned subsidiaries (together referred to as the ‘Group’) for the financial year ended 31 December 2017 and the Independent Audit Report thereon. In order to comply with the provisions of the Corporations Act 2001, the directors report as follows:

1. Directors

The directors of Indago at any time during or since the end of the financial year were:

(a) Stephen Mitchell – Executive Chairman

Executive Director (Appointed 12 January 2016, Executive Chairman since 4 February 2016)

Mr Mitchell has a Masters Degree in International Economics and Foreign Policy from John Hopkins University in Washington DC. following which he spent 10 years as a natural resources specialist at investment banks and advisory firms in the US and Australia. From 1999-2011 Stephen was the Managing Director of Molopo Energy Ltd, an ASX-listed oil and gas Company that held assets in Australia, Canada, USA, China, India and South Africa. Under his stewardship, Molopo generated a 10 fold increase in shareholder value and expanded its market capitalisation from less than $1 million into an ASX 200 company.

Stephen was a founder and Chairman of Petrel Energy until retiring from the board in January 2015. Stephen is a partner of Mitchell Peterson Capital Partners, a Melbourne based corporate advisory firm. He is a director of several private companies including Lowell Resources Funds Management Pty Ltd.

He also holds, or has held, directorships in the following ASX listed company:

Petrel Energy Limited (Executive Chairman, appointed 17 January 2012; retired 31 January 2015).

(b) Donald Beard

Independent Non-Executive Director (Appointed 12 January 2016)

Mr Beard is a petroleum geologist and one of Australia’s most successful energy company executives. He has over 46 years experience in both the domestic and international oil and gas businesses, with 38 of those years holding senior management or Board positions. He has a First Class Honours Degree in Geology and Mineralogy and commenced his career at Union Oil Company of California, later becoming a VP of Exploration for the Diamond Shamrock Corporation. He then returned to Australia to become CEO and Managing Director of ASX listed Peko Oil (taken over by Santos), then was the Managing Director of Cultus Petroleum from 1990 – 1999 and more recently was Chairman of Molopo Energy from 2001-2011. At each of these ASX listed companies he was responsible for generating substantial shareholder value.

With the exception of Indago, Mr Beard has not served as a director of any Australian listed entity in the last three years. He is the founder and a current Director of the private entity Aldena Pty Ltd.

(c) Ray Shorrocks

Independent Non-Executive Director (Appointed 12 January 2016)

Mr Shorrocks has more than 21 years' experience in corporate finance and has advised a diverse range of mining and resource companies during his career at Patersons Securities Limited, one of Australia's largest full service stockbroking and financial services firms. He has been instrumental in managing and structuring equity capital raisings as well as having advised extensively in the area of mergers and acquisitions.

He also holds, or has held, directorships in the following ASX listed companies:

Draig Resources Limited (Appointed 24 December 2015)
Estrella Resources Limited (Appointed 1 July 2015)
Galilee Energy Limited (Appointed 2 December 2013)

(d) Allan Ritchie – Non- executive Director

Non-executive Director (Appointed 6 April 2017, Executive Director from 6 April 2017 to 30 September 2017)

Allan has served as a director of several private and public listed companies and is a principal of his own firm where he focuses on asset acquisitions and off-take arrangements in the energy, resources and infrastructure space. Allan is an investment banking professional with a career spanning 30 years of origination and structuring. He held senior positions at Westpac, ANZ Bank, HSBC and BNP Paribas in London, New York and Asia Pacific. He engages with the chief executives of major corporations and state owned enterprises spanning the global resources, energy and infrastructure sectors. He was previously voted number one in the BRW Magazine poll of Financial Markets, bankers in Australia.

Allan graduated from the University of Technology Sydney with a Bachelor of Business and has a post graduate Diploma in Applied Finance from FINSIA.

(e) Nick Castellano – Executive Director

Executive Director (Appointed 6 April 2017)

Nick is a Hydrocarbon Dynamics (HCD) founder and is the inventor of the HCD Multi-Flow technology. Nick spent a decade in the nuclear power program of the United States Navy, ultimately becoming the leading chief of the reactor laboratory division of the nuclear powered aircraft carrier the Dwight D. Eisenhower, where he assumed responsibilities for chemistries in the reactor plants. After leaving, Nick developed cutting edge chemistry and patented processes in the industrial water and oil industries. In the industrial water industry Nick founded an industrial water treatment company with clients such as Pepsi Cola, Coca Cola and United Dairymen. In the oil industry Nick focused on oil well chemistry, developing and founding the technology of HCD.

He completed his MA PHD at Canterbury University. Nick is passionate and committed to providing ongoing input into expanding the application of HCD's technology.

2. Company Secretary

Ms Julie Edwards holds a Bachelor of Commerce degree, is a member of CPA Australia and holds a Public Practice Certificate. Ms Edwards is a director and manager of Lowell Accounting Services and also provides company secretarial services for a number of other ASX listed companies and unlisted companies.

3. Principal Activities

The principal activities of the Group during the year under review were evaluating, exploring and developing oil and gas prospects and technologies in North America and internationally and the sale of new clean oil technology products.

4. Review of Operations and Financial Results

A review of, and information about, the Group’s operations, including the results of those operations and changes in its state of affairs during the year together with the information about the financial position of the Group is specified in the 2017 Financial Report.

Total Comprehensive Income for the Group for the period was a loss of $3,538,388 (2016: loss of $1,145,520). Total Comprehensive Loss includes a loss of $90,551 (2015: gain of $99,911) arising on translation of foreign operations.

On 6 April 2017, Indago completed the acquisition of HCDI Holdings Ltd, and associated technologies including a new clean oil technology and business that allows for the swift, clean and cost effective treatment of heavy, asphaltenic and paraffinic oils.

‐ The key product, HCD MultiflowTM is a small, specially engineered carbon based organic molecule that can disaggregate the large, naturally occurring agglomerations of waxes and asphaltenes in heavy or paraffinic oil.

Indago has paid the vendors 30 million ordinary shares and 33.2 million options (exercisable at $0.25c for two years) and will issue additional shares if certain revenue and EBITDA hurdles are met. Indago paid cash for Intellectual property and also pays a monthly royalty of 5% of net sales (subject to a minimum of US$20,000/ month) to Director Mr Nicholas Castellano up to a cumulative total of US$19.5 million.

5. Events Subsequent to Reporting Date

In the opinion of the directors, there has not arisen in the interval between the end of the financial year and the date of the report any matter or circumstance that has significantly affected, or may significantly affect the Group’s operations, results or the state of affairs in future financial years.

6. Likely Developments

The Group intends to continue its principle activities of acquiring, disposing, exploring and developing oil and gas prospects and related technologies and to continue to sell and market its HCD products.

7. Environmental Regulations and Performance

The Group has various permits and licenses to operate in the United States of America. There have been no significant known breaches of the Group’s licence or permit conditions. Furthermore, no government agency has notified the Group of any environmental breaches during the period ended 31 December 2017.

8. Dividends

No dividend was paid, recommended for payment or declared during the year under review.

9. Options and Rights

Unissued Shares Under Option

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Vested and
Vested
Date of Held at Held at 31 exercisable
Granted Expired during the
Issue 1 Jan 2017 Dec 2017 as at
year
31 Dec 2017
Director
1.6.2016 5,000,000 - - 5,000,000 5,000,000 5,000,000
Options [2]
HCD
Acquisition 6.4.2017 - 33,200,000 - - 33,200,000 -
Options [1]
Management
Incentive 18.5.2017 - 1,750,000 - - 1,750,000 -
Options [2]
Incentive 22.9.2017 - 750,000 - - 750,000 -
Options [2]
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Refer to Note 28.
Refer to Note 18(b) and 25

Performance Milestones

On 6 April 2017 Performance Milestone Rights were issued to HCD vendors as part of the HCD purchase consideration.

	Date of Issue	Held at 1 Jan 2017	Granted	Expired	Vested during the year	Held at 31 Dec 2017	Vested and exercisable as at 31 December 2017
Performance Milestone3 (Tranche1)	6.4.2017	-	30,000,000	-	-	30,000,000	-
Performance Milestone3 (Tranche2)	6.4.2017	-	50,000,000	-	-	50,000,000	-

Refer to Note 28.

10. Directors’ Meetings

The number of meetings of the Board and of each Board Committee held during the year (while each Director was a Director or committee member) and the number of meetings attended by each director are set out below:

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Remuneration&
Board Of Directors Audit Committee (#)
Nomination Committee
HELD ATTENDED HELD ATTENDED HELD ATTENDED
Stephen Mitchell 13 13 - - - -
Donald Beard 13 13 5 5 4 4
Ray Shorrocks 13 13 5 5 4 4
Allan Ritchie 9 8 4 4 - -
Nicholas Castellano 9 8 - - 3 2
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11. Directors’ Interests

Particulars of directors’ interests in securities as at 31 December 2017 are as follows:

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$0.10 $0.25
Performance Performance
Ordinary Unlisted options Unlisted options
Director shares shares
Shares Expiry Expiry
(Tranche 1) (Tranche 2)
1 April 2019 1 March 2020
Stephen Mitchell 8,153,001 2,000,000 - - -
Ray Shorrocks 2,258,233 1,500,000 - - -
Don Beard 451,214 1,500,000 - - -
Allan Ritchie 2,495,250 - 1,342,628 1,871,437 3,119,062
Nicholas Castellano 5,571,281 - 3,853,527 5,371,281 8,952,135
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Other than as stated above in relation Director Options approved during the year, there are no contracts to which a director is a party or under which a director is entitled to a benefit that confer a right for the director to call for shares in Indago.

12. Remuneration Report

The directors of Indago present the Remuneration Report prepared in accordance with Section 300A of the Corporations Act, Accounting Standard AASB 124 Related Party Disclosures and Principle 8 of the ASX Corporate Governance Principles and Recommendations.

The information provided in this Remuneration Report has been audited as required by section 308(3C) of the Corporations Act. This remuneration report forms part of the Directors’ Report.

Summary of Key Contract Terms

The key terms of remuneration in respect of key personnel as at 31 December 2017 are set out below:

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Total
Name / Position Contract Terms Per Annum Remuneration
Per Annum
Executive Director $320,000 plus super
(contract expires 1 April 2018 after which
agreement continues with no fixed term).
Short-term incentive terms: Where the
Stephen Mitchell VWAP exceeds the VWAP in June of the
Yes $353,939
Executive Chairman preceding year by between 40% and 100%,
the bonus increases between 25% and
100% of the yearly salary, depending on the
VWAP percentage increase achieved.
No termination notice or benefit terms.
Non-executive Director $30,000.
Donald Beard Board Committee Chairman $12,000.
No $120,000
Non-Executive Director Board Committee member $6,000.
Consulting fees $72,000.
Non-executive Director $30,000.
Ray Shorrocks
No Board Committee Chairman $12,000. $48,000
Non-Executive Director
Board Committee member $6,000.
Allan Ritchie
Non-Executive Director Non-executive Director $36,000.
Yes $90,000
(Executive from 6 April 2017 to Executive Director/Contractor $54,000.
29 September 2017)
Executive Director US$180,000
Nicholas Castellano
Yes (Contract expires 6 April 2020). US$180,000
Executive Director
No termination notice or benefit terms.
Douglas Hamilton
Yes Business Development Manager $300,000 $300,000
Business Development Manager
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Remuneration Policies and Practices

The Remuneration and Nomination Committee and the Board regularly review the remuneration policies and practices of the Group to ensure that it remunerates fairly and responsibly. The remuneration policy of the Board is designed to ensure that the level and composition of remuneration is competitive, reasonable and appropriate for the results delivered and to attract and maintain talented and motivated directors and employees.

Non-Executive Director Remuneration

The Non-Executive Directors are remunerated as described below.

Fees

Non-executive director fees are determined within an aggregate directors’ fee pool limit, which will be periodically approved by shareholders at a general meeting. The current limit is $300,000. During the year ended 31 December 2017 $129,000 (2016: $186,667) of the fee pool was used.

Retirement Benefits

Non-executive directors do not receive retirement benefits.

Superannuation

Where applicable, the Group pays Australian resident non-executive directors the statutory superannuation guarantee contribution.

Executive Remuneration

The Group’s Executive Remuneration may consist of several components:

Total Remuneration (TR) = Fixed Remuneration (FR) + Short Term Incentive (STI) + Long Term Incentive (LTI)
STI and LTI are the ‘at risk’ portions of remuneration.
STI may be paid in cash or shares and reflects the achievement of a number of short term goals established on an annual basis.
LTI may be delivered in an equity award(s) which is granted upon the satisfaction of performance conditions/key performance drivers which underpin long term sustainable growth for the Group.
The Board may also determine to pay a bonus in cash or shares in circumstances of outstanding performance not otherwise appropriately rewarded.
The Remuneration Committee will review the delivery and structure of at risk remuneration from time to time and report to the Board. Such a review may include, but not be limited to, changing the proportion of Total Remuneration which is at risk, the payment of Short Term and Long Term Incentives and the proportion of the at risk remuneration between Short Term and Long Term Incentive.

Total Reward Mix

The amount of TR at risk is generally expressed as a proportion of FR and is related to the agreement on remuneration struck between the Group and the executive, the Group’s expectations of executive performance and the executive’s position in the Group. The proportion of FR will generally not change on a year to year basis but may be reviewed and modified by the Board.

The mix of STI and LTI offered to executives will depend on their position in the Group. Generally LTI will only be available to the senior executive team; STI may be made available to employees below the senior executive team.

Fixed Remuneration

FR (including the superannuation levy payable as employer contribution (where applicable)) is set with reference to market data, reflecting the scope of the role and the performance of the person in the role.

At-Risk Remuneration

Clear and focused performance targets for management are critical to the success of the Group. Nevertheless, the financial position and performance of the Group in any year is paramount to the board’s decision whether or not to offer either or both of the at-risk components of the TR in any given year.

Relationship between Policy and the Group’s Performance

Having regard to the prevailing financial position and performance of the Group at the appropriate time, the Board believes that remuneration arrangements for employees should typically incorporate an “at-risk” component which is performance related and rewards employees for the achievement of goals which contribute to shareholder wealth. Such arrangements should both incentivise and reward employees for out-performance and are designed to put a portion of executive remuneration “at-risk” and provide reasonable levels of incentives to key executives to encourage and reward performance that adds value to the Group for all Shareholders.

Specifically, the value to Shareholders will be readily measurable only if targets that align to the Group’s strategy are met. The Board believes that multiple tests set with specific regard to the key drivers of the Group at the time, if achieved, will aid the creation of shareholder value.

Anti-Hedging Policy – Personnel

The Group’s personnel are not permitted to enter into transactions with securities (or any derivative thereof) which limit the economic risk of any unvested entitlements awarded under the Group’s equity-based remuneration scheme. As part of the Group’s due diligence undertaken at the time of half-year and full-year results, the Group’s equity plan participants are required to confirm that they have not entered into any such prohibited transactions.

Continuous Improvement

The Group will continually review all elements of its remuneration philosophy to ensure that they are appropriate from the perspectives of governance, disclosure, reward and market conditions.

During the year the remuneration committee did not engage the services of a remuneration consultant.

REMUNERATION SUMMARY

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EQUITY
POST
SHORT TERM BENEFIT BASED
LONG EMPLOYMENT
PAYMENTS PERFOR-
TERM
TOTAL MANCE
YEAR CASH, RELATED BENEFIT SUPER- RELATED
SALARY PARTY
BONUS ANNUATION OPTIONS
& FEES FEES [2]
$ $ $ $ $ $ $ %
NON-EXECUTIVE DIRECTORS
Donald Beard 2017 43,836 72,000 - - 4,164 31,574 151,574 21
2016 42,618 69,000 - - 4,049 36,838 152,505 24
- -
Ray Shorrocks 2017 - 48,000 - 31,574 79,574 40
2016 - 68,000 - - - 36,838 104,838 35
Allan Ritchie 2017 - 67,500 [1] - - - - 67,500 -
2016 - - - - - - - -
EXECUTIVES
Stephen Mitchell 2017 312,501 6,000 80,000 847 25,541 42,099 466,988 9
2016 138,509 35,000 - - 13,158 49,118 235,785 21
Nicholas
2017 - 176,256 - - - - 176,256 -
Castellano [3]
2016 - - - - - - - -
OTHER KEY MANAGEMENT
Douglas 2017 - 298,180 - - - 40,833 332,013 12
Hamilton
2016 - - - - - - - -
TOTAL 2017 356,337 660,936 80,000 847 29,705 146,080 1,273,905
TOTAL 2016 181,127 172,000 - - 17,207 122,794 493,128
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Allan Ritchie was an executive Director from 6 April 2017 to 29 September 2017. 2. Remuneration paid via Director related entities. Refer to Note 24.
Refer to Note 9 for related party receivable.

Particulars of directors’ interests in securities as at 31 December 2017 are as follows:

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$0.10 $0.25 $0.14
Performance Performance
Key Management Ordinary Unlisted options Unlisted options Unlisted options shares shares
Personnel Shares Expiry Expiry Expiry
1 April 2019 1 March 2020 1 March 2020 (Tranche 1) (Tranche 2)
Stephen Mitchell 8,153,001 2,000,000 - - - -
Ray Shorrocks 2,258,233 1,500,000 - - - -
Don Beard 451,214 1,500,000 - - - -
Allan Ritchie 2,495,250 - 1,342,628 - 1,871,437 3,119,062
Nicholas Castellano 5,571,281 - 3,853,527 - 5,371,281 8,952,135
Douglas Hamilton 500,000 - - 1,750,000 - -
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End of Audited Remuneration Report.

13. Indemnification and Insurance of Officers and Auditors

Directors, executives and the company secretaries are indemnified by the Group against any liability incurred in their capacity as an officer of the Group or a related body corporate to the maximum extent permitted by law. The Group has not paid any premiums in respect of any contract insuring the directors of the Group against a liability for legal costs.

The Group has not paid any premiums in respect of any contract insuring its auditor against a liability incurred in that role as an auditor of the Group. In respect of non-audit services, Pitcher Partners have the benefit of an indemnity to the extent they reasonably rely on information provided by the Group which is false, misleading or incomplete. No amount has been paid under this indemnity during the financial year ending 31 December 2017 or to the date of this Report.

14. Non-Audit Services

Details of the amounts paid to the auditor of the Group for audit and non-audit services provided during the year are set out in Note 6 to the financial statements. The directors are satisfied that:

(a) the non-audit services provided during the financial year by Pitcher Partners as the external auditor were compatible with the general standard of independence for auditors imposed by the Corporations Act; and
(b) any non-audit services provided during the financial year by Pitcher Partners as the external auditor did not compromise the auditor independence requirements of the Corporations Act for the following reasons: i. Pitcher Partners services have not involved partners or staff acting in a managerial or decision making capacity within the Group or in the processing or originating of transactions; and
ii. the nature of the services provided do 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 auditor’s independence declaration under section 307C of the Corporations Act set out in the Financial Report forms a part of the Annual Financial Report for the year ended 31 December 2017.

15. Proceedings on behalf of the Group

During the year under review and in the interval between the end of the financial year and the date of the report, the Group has made no application for leave under section 237 of the Corporations Act.

16. Corporate Governance

The directors aspire to maintain the highest possible standards of Corporate Governance. The Group’s Corporate Governance Statement is contained in the Financial Report.

This report is signed in accordance with a resolution of the directors.

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Stephen Mitchell Chairman Melbourne, Victoria 28 March 2018

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PRIVATE AND CONFIDENTIAL

The Directors Indago Energy Limited Level 6, 412 Collins Street Melbourne VIC 3000

Auditor’s Independence Declaration

As lead auditor for the audit of Indago Energy Limited for the year ended 31 December 2017, I declare that, to the best of my knowledge and belief, there have been:

(i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and
(ii) no contraventions of APES 110 Code of Ethics for Professional Accountants.

This declaration is in respect of Indago Energy Limited and the entities it controlled during the period.

PITCHER PARTNERS

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N BATTERS Partner

Brisbane, Queensland 28 March 2018

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Indago Energy Limited ABN 75 117 387 354 and Controlled Entities

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2017

Note Revenue 3 Other income 3 Gain / (loss) on sale of assets Accounting and audit fees Depreciation and impairment expense 13, 14 Royalties 24 Director and employee related expenses Professional consulting fees Travel and accommodation expenses Administration expenses Business acquisition cost 28 Finance expenses Profit / (loss) before income tax Income tax expense 4 Profit / (loss) for the year from continuing operations Profit / (loss) attributable to discontinued operations 3 Profit / (loss) for the year Other comprehensive income Items that may be reclassified to profit or loss: Net gain foreign currency translation reserve Income tax related to components of other comprehensive income Total comprehensive income / (loss) for the year Profit / (loss) from continuing operations attributable to ordinary equity owners of the company Profit / (loss) for the year attributable to ordinary equity owners of the company Total comprehensive income / (loss) attributable to ordinary equity owners of the company Basic loss per share from continuing operations (cents) 7 Diluted loss per share from continuing operations (cents) 7 Basic earnings per share from discontinued operations (cents) 7 Diluted earnings per share from discontinued operations (cents) 7	Consolidated Group 2017 $ 2016 $ 96,182 50,408 229,117 342 (5,581) 31,225 (191,240) (136,495) (933,388) - (166,544) - (941,882) (356,282) (768,399) (291,766) (272,119) (25,781) (393,330) (542,364) (98,165) - (2,488) (2,694)
	(3,447,837) (1,273,407) - -
	(3,447,837) (1,273,407) - 27,976
	(3,447,837) (1,245,431) - - (90,551) 99,911 - -
	(3,538,388) (1,145,520)
	(3,447,837) (1,273,407) (3,447,837) (1,245,431) (3,538,388) (1,145,520) (2.5) (1.26) (2.5) (1.26) - 0.03 - 0.02

The accompanying notes form part of these statements 22

Indago Energy Limited ABN 75 117 387 354 and Controlled Entities

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2017

Note ASSETS CURRENT ASSETS Cash and cash equivalents 8 Trade and other receivables 9 Other current assets Inventory 29 Loans 10 TOTAL CURRENT ASSETS NON-CURRENT ASSETS Working Interest 13 Plant and Equipment 14 Intangible Assets 15 TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables 16 Provisions 17 TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Provisions 17 TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Issued capital 18 Reserves 19 Accumulated losses TOTAL EQUITY	Consolidated Group 2017 $ 2016 $ 2,947,442 3,652,067 127,987 57,944 60,619 25,435 658,807 - - 552,800
	3,794,855 4,288,246
	549,335 1,474,813 4,352 - 3,956,019 -
	4,509,706 1,474,813
	8,304,561 5,763,059
	246,039 292,733 14,296 -
	260,335 292,733
	847 -
	847 -
	261,182 292,733
	8,043,379 5,470,326
	57,805,330 51,848,970 (543,809) (608,339) (49,218,142) (45,770,305) 8,043,379 5,470,326

The accompanying notes form part of these statements

Indago Energy Limited ABN 75 117 387 354 and Controlled Entities

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR YEAR ENDED 31 DECEMBER 2017

Note Consolidated Group Balance at 1 January 2016 Total Comprehensive Profit / (Loss) for the year ending 31 December 2016 Transactions with owners in the capacity as owners: Options issued during the year Options expired during the year Balance at 31 December 2016 Total Comprehensive Profit / (Loss) for the year ending 31 December 2017 Transactions with owners in the capacity as owners: Shares issued during the year Share capital raising cost Options issued during the year Balance at 31 December 2017	Issued Capital $ Accumulated Losses $ Foreign Currency Translation Reserve $ Options Reserve $ Total $ 51,848,970 (44,905,176) (831,044) 380,302 6,493,052 - (1,245,431) 99,911 - (1,145,520) - - - 122,794 122,794 - 380,302 - (380,302) -
	51,848,970 (45,770,305) (731,133) 122,794 5,470,326
	- (3,447,837) (90,551) - (3,538,388) 6,200,556 - - - 6,200,556 (244,196) - - - (244,196) - - - 155,081 155,081
	57,805,330 (49,218,142) (821,684) 277,875 8,043,379

The accompanying notes form part of these statements

Indago Energy Limited ABN 75 117 387 354 and Controlled Entities

CONSOLIDATED STATEMENT OF CASH FLOWS FOR YEAR ENDED 31 DECEMBER 2017

Note CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Interest received Interest paid Net cash provided by / (used in) operating activities 22(a) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from discontinued operations Loans to other entities Payment for property, plant and equipment Payment for working interest Payment for intangible assets Net cash provided by / (used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES Repayment of loan by director Repayment of borrowings Proceeds from issue of shares Share issue costs Net cash acquired in acquisition Net cash provided by / (used in) financing activities Net increase / (decrease) in cash held Cash at beginning of financial year Effect of exchange rate movement Cash at end of financial year 8	Consolidated Group 2017 $ 2016 $ 256,605 143,754 (2,713,543) (2,140,976) 18,675 48,012 (2,488) (2,694)
	(2,440,751) (1,951,904)
	- 3,127,104 - (552,800) (4,846) - (95,892) (114,804) (673,120) -
	(773,858) 2,459,500
	12,032 200,000 (231,680) - 3,050,558 - (244,197) - 4,432 -
	2,591,145 200,000
	(623,464) 707,596 3,652,067 2,849,466 (81,161) 95,005
	2,947,442 3,652,067

The accompanying notes form part of these statements

Indago Energy Limited ABN 75 117 387 354 and Controlled Entities Notes to the Financial Statements for the Year Ended 31 December 2017

NOTE 1 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

The financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards, and Interpretations, issued by the Australian Accounting Standards Board and the Corporations Act 2001 .

This financial report covers the consolidated financial statements and notes of Indago Energy Limited and controlled entities (‘Consolidated Group’ or ‘Group’). Indago Energy Limited is a listed public company, incorporated and domiciled in Australia. The Group is a for-profit entity for the purpose of preparing the financial statements.

The Group’s registered office is: Level 6, 412 Collins Street, Melbourne VIC 3000.

The financial report of the Group also complies with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

None of the new standards and amendments to standards that are mandatory for first time for the financial year beginning 1 January 2017 affected any of the amounts recognised in the current period or any prior period.

Material accounting policies adopted in the preparation of this financial report are presented below. They have been consistently applied unless otherwise stated.

Going concern

The financial statements have been prepared on a going concern basis which contemplates continuity of normal business activities and the realisation of assets and settlement of liabilities in the ordinary course of business.

During the year ended 31 December 2017, the Group incurred a loss of $3,538,388 and had a cash outflow from operating activities of $2,669,868. At 31 December 2017 the Group held cash of $2,947,422 and had net assets of $8,043,379. During the year ended 31 December 2017, the Group met its working capital requirements as a result of receipt from customers and capital raising.

The Group continually monitors its cash flow requirements to ensure that it has sufficient funds to meet its contractual commitments and adjusts its spending, particularly with respect to discretionary exploration activity and corporate overhead, accordingly.

In order for the Group to enact its strategy to develop its Working Interest assets, commercialise its HCD product and fund its operations is dependent upon the effectiveness of ongoing liquidity management activities.

No adjustments have been made to the financial report relating to the recoverability and classification of the carrying amount of assets or the amount and classification of liabilities that might be necessary should the Group not continue as a going concern. Accordingly, the financial report has been prepared on a going concern basis.

Should the Group be unsuccessful with the initiatives detailed above then, the Group may in the future not be able to continue as a going concern and may therefore be required to realise assets and extinguish liabilities other than in the ordinary course of business with the amount realised being different from those shown in the financial statement.

Accounting Policies

(a) Principles of Consolidation

Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Where controlled entities have entered or left the Group during the year, the financial performance of those entities are included only for the period of the year that they were controlled. A list of controlled entities is contained in Note 11 to the financial statements.

All inter-group balances and transactions between entities in the consolidated Group, including any unrealised profits or losses, have been eliminated on consolidation. Accounting policies of subsidiaries are consistent with those adopted by the parent entity.

Joint Arrangements

Under AASB 11 Joint Arrangements investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations each investor has rather than the legal structure of the joint arrangement.

A jointly controlled entity is a corporation, partnership or other entity in which each participant holds an interest. A jointly controlled entity operates in the same way as other entities, controlling the assets of the joint venture, earning its own income and incurring its own liabilities and expenses.

The Group recognises its proportionate interest in the assets, liabilities, revenues and expenses of joint operations within each applicable line item of the financial statements. Details of the Group’s joint operations are set out in Note 12.

Indago Energy Limited ABN 75 117 387 354 and Controlled Entities Notes to the Financial Statements for the Year Ended 31 December 2017

(b) Income Tax

The income tax expense (revenue) for the year comprises current income tax expense (income) and deferred tax expense (income).

Current income tax expense charged to the profit or loss is the tax payable on taxable income calculated using applicable income tax rates enacted, or substantially enacted, as at reporting date. Current tax liabilities (assets) are therefore measured at the amounts expected to be paid to (recovered from) the relevant taxation authority. Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well unused tax losses.

Current and deferred income tax expense (income) is charged or credited directly to equity instead of the profit or loss when the tax relates to items that are credited or charged directly to equity.

Deferred tax assets and liabilities are ascertained based on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets also result where amounts have been fully expensed but future tax deductions are available. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss.

Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates enacted or substantively enacted at reporting date. Their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability.

Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised.

Current tax assets and liabilities are offset where a legally enforceable right of offset exists and it is intended net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where a legally enforceable right of setoff exists, the deferred tax assets and liabilities related to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities, where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liabilities will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled.

(c)

Inventories

Inventories are measured at the lower of cost and net realisable value. The cost of manufactured products includes direct materials, direct labour and an appropriate proportion of variable and fixed overheads. Overheads are applied on the basis of normal operating capacity. Costs are assigned on the basis of weighted average costs.

(d) Property, Plant and Equipment

Each class of property, plant and equipment is carried at cost less accumulated depreciation and impairment losses.

Plant and equipment

Plant and equipment are measured on the cost basis. The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset’s employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts.

Depreciation

The depreciable amount of all fixed assets is depreciated on a straight-line basis over the asset’s useful life to the Group commencing from the time the asset is held ready for use.

The depreciation rates used for each class of depreciable assets are:

Class of Fixed Asset Depreciation Rate Plant and Equipment 20 - 25%

Indago Energy Limited ABN 75 117 387 354 and Controlled Entities

Notes to the Financial Statements for the Year Ended 31 December 2017

The residual values and useful lives of assets are reviewed, and adjusted if appropriate, at each balance sheet date. The carrying amount of an asset is written down immediately to its recoverable amount if the assets’ carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the income statement.

(e) Exploration, Evaluation and Development Expenditure

Exploration, evaluation and development expenditure incurred is accumulated in respect of each identifiable area of interest. These costs are only carried forward to the extent that they are expected to be recouped through the successful development of the area or where activities in the area have not yet reached a stage that permits reasonable assessment of the existence of economically recoverable reserves.

Accumulated costs in relation to an abandoned area are written off in full within the Statement of Comprehensive Income in the year in which the decision to abandon the area is made.

Each area of interest is limited to a size related to a known or probable petroleum resource. Currently the Group operates in State of Oklahoma and Kentucky where areas of interest are generally defined by lease boundaries. When production commences, the accumulated costs for the relevant area of interest are amortised over the life of the area according to the rate of depletion of the economically recoverable reserves.

A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest.

Costs of site restoration are provided over the life of the facility from when exploration commences and are included in the costs of that stage. Site restoration costs include the dismantling and removal of mining equipment and facilities, waste removal, and rehabilitation of the site in accordance with clauses of the petroleum permits.

(f) Financial Instruments

Recognition and Initial Measurement

Financial instruments, incorporating financial assets and financial liabilities, are recognised when the entity becomes a party to the contractual provisions of the instrument. Trade date accounting is adopted for financial assets that are delivered within timeframes established by marketplace convention.

Financial instruments are initially measured at fair value plus transactions costs. Financial instruments are classified and measured as set out below.

Derecognition

Financial assets are derecognised where the contractual rights to receipt of cash flows expires or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognised where the related obligations are either discharged, cancelled or expire. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss.

Classification and Subsequent Measurement

i. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost using the effective interest rate method. They are included in current assets except for those with maturities greater than 12 months after the reporting period which are classified as non-current assets.
ii. Financial Liabilities
Financial liabilities include trade payables, other creditors and accruals, loans and other amounts due, are subsequently measured at amortised cost using the effective interest rate method. Financial liabilities are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months reporting date.

Indago Energy Limited ABN 75 117 387 354 and Controlled Entities

Notes to the Financial Statements for the Year Ended 31 December 2017

(g) Impairment of Assets

At each reporting date, the Group reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the carrying value of the asset. Any excess of the carrying value of the asset over its recoverable amount is expensed to the income statement.

Impairment testing is performed annually for goodwill and intangible assets with indefinite lives.

Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

(h) Foreign Currency Transactions and Balances

Functional and presentation currency

The functional currency of each of the Group’s entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the parent entity’s functional and presentation currency.

Transaction and balances

Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Nonmonetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined.

Exchange differences arising on the translation of monetary items are recognised in the income statement, except where deferred in equity as a qualifying cash flow or net investment hedge.

Exchange differences arising on the translation of non-monetary items are recognised directly in equity to the extent that the gain or loss is directly recognised in equity, otherwise the exchange difference is recognised in the income statement.

Group companies

The financial results and position of foreign operations whose functional currency is different from the Group’s presentation currency are translated as follows:

assets and liabilities are translated at year-end exchange rates prevailing at that reporting date;
income and expenses are translated at average exchange rates for the period; and
retained earnings are translated at the exchange rates prevailing at the date of the transaction.

Exchange differences arising on translation of foreign operations are shown in the Statement of Comprehensive Income and disclosed in the Group’s foreign currency translation reserve in the Statement of Financial Position.

(i) Employee Benefits

Short term obligations

Liabilities for salary and wages, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liability for annual leave and accumulating sick leave is recognised in the provision for employee benefits.

Long term obligations

Liabilities for long service leave and annual leave which is not expected to be settled within 12 months after the end of the period in which the employees render the related service is recognised in the provision for employee benefits and measured as the present value of estimated future cash outflows to be made for those benefits. The obligations are presented as current liabilities if there is not an unconditional right to defer settlement for at least 12 months after the reporting date, regardless of when the actual settlement is expected to occur.

Indago Energy Limited ABN 75 117 387 354 and Controlled Entities Notes to the Financial Statements for the Year Ended 31 December 2017

Defined contribution superannuation plan

The consolidated entity makes superannuation contributions (currently 9.50% of the employee’s average ordinary salary) to the employee’s defined contribution superannuation plan of choice in respect of employee services rendered during the year. These superannuation contributions are recognised as an expense in the same period when the related employee services are received. The Group’s obligation with respect to employee’s defined contributions entitlements is limited to its obligation for any unpaid superannuation guarantee contributions at the end of the reporting period. All obligations for unpaid superannuation guarantee contributions are measured at the (undiscounted) amounts expected to be paid when the obligation is settled and are presented as current liabilities in the statement of financial position.

Equity-settled compensation

The Group operates equity-settled share-based payment employee share and option schemes. The fair value of the equity to which employees become entitled is measured at grant date and recognised as an expense over the vesting period, with a corresponding increase to an equity account. The fair value of shares is ascertained as the market bid price. The fair value of options is ascertained using a Black–Scholes pricing model which incorporates all market vesting conditions. The number of shares and options expected to vest is reviewed and adjusted at each reporting date such that the amount recognised for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest.

(j) Provisions

Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured.

(k) Business Combinations

A business combination is a transaction in which an acquirer obtains control of one or more businesses and results in the consolidation of the assets and liabilities acquired. Business combinations are accounted for by applying the acquisition method.

The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree. Deferred consideration payable is measured at its acquisition-date fair value. Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value. At each reporting date subsequent to the acquisition, contingent consideration payable is measured at its fair value with any changes in the fair value recognised in profit or loss unless the contingent consideration is classified as equity, in which case the contingent consideration is carried at its acquisition-date fair value.

Goodwill is recognised initially at the excess of: (a) the aggregate of the consideration transferred, the fair value of the non-controlling interest, and the acquisition date fair value of the acquirer’s previously held equity interest (in case of step acquisition); over (b) the net fair value of the identifiable assets acquired and liabilities assumed. If the net fair value of the acquirer's interest in the identifiable assets acquired and liabilities assumed is greater than the aggregate of the consideration transferred, the fair value of the non-controlling interest, and the acquisition date fair value of the acquirer’s previously held equity interest, the difference is immediately recognised as a gain in profit or loss.

Acquisition related costs are expensed as incurred.

(l) Intangibles

Goodwill

Goodwill represents the future economic benefits arising from other assets acquired in a business combination that are not individually identifiable or separately recognised. Goodwill is not amortised but is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired. Goodwill is carried at cost less any accumulated impairment losses.

Intangible assets

Indefinite useful life intangible assets are not amortised but are tested annually for impairment.

Indago Energy Limited ABN 75 117 387 354 and Controlled Entities Notes to the Financial Statements for the Year Ended 31 December 2017

(m) Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts.

(n) Revenue and Other Income

Revenue is measured at the fair value of the consideration received or receivable. Amounts received are net of returns, trade allowances, rebates and amounts collected on behalf of third parties.

The Group uses the sales method to account for sales of crude oil and natural gas revenues. Under this method, revenues are recognised based on volumes of oil and gas sold to purchasers. The Group recognises revenue when it can be reliably measured and it is probable that future economic benefits will flow to the entity.

Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets.

All revenue is stated net of the amount of goods and services tax (GST).

(o) Goods and Services Tax (GST)

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense.

Receivables and payables in the balance sheet are shown inclusive of GST.

Cash flows are presented in the cash flow statement on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows.

(p) Comparative Figures

When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year.

(q) EPS

(i) Basic earnings per share

Basic earnings per share is determined by dividing the profit attributable to equity holders of the Group, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the year, adjusted for bonus elements in ordinary shares issued during the year.

(ii) Diluted earnings per share

Diluted earnings per share adjusts the amounts used in determination of basic earnings per share to take in to 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.

(r) Segment Reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker who is responsible for allocating resources and assessing performance of the operating segments has been identified as the Board of Directors.

Segment revenues and expenses are those directly attributable to the segments. Segment assets include all assets used by a segment and consist principally of cash, receivables, inventory, intangibles and plant and equipment, net of accumulated depreciation and amortisation. While most such assets can be directly attributed to individual segments, the carrying amount of certain assets used jointly by two or more segments is allocated to the segments on a reasonable basis. Segment liabilities consist principally of payables, employee benefits and accrued expenses. Segment assets and liabilities do not include deferred income taxes.

Indago Energy Limited ABN 75 117 387 354 and Controlled Entities

Notes to the Financial Statements for the Year Ended 31 December 2017

(s) Trade Receivables

All trade and other debtors are recognised at fair value. Collectability is reviewed on an ongoing basis. A provision for doubtful debts is made where there is objective evidence that the Group will not be able to collect all amounts due according to the original terms. The amount of the provision is the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the effective interest rate. The amount of any provision is recognised in the income statement. Trade receivables are due for settlement no more than 30-60 days from the date of recognition.

(t) Trade Payables

These amounts represent liabilities for goods and services provided to the entity prior to the end of the financial year and which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Trade payables are included in current liabilities except for those with maturities greater than 12 months after the reporting period which are classified as non-current liabilities.

(u) Contributed Equity

Ordinary shares are classified as equity. 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 acquisition as part of the purchase consideration.

Critical Accounting Estimates and Assumptions

The directors evaluate estimates and assumptions incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the Group.

Impairment

The Group assesses impairment at each reporting date by evaluating conditions specific to the Group that may lead to impairment of assets. Where an impairment trigger exists, the recoverable amount of the asset is determined. Value-inuse and fair value less cost to sell calculations performed in assessing recoverable amounts incorporate a number of key estimates.

Exploration expenditure for each area of interest is carried forward as an asset based on the provisions in AASB 6 Exploration for and Evaluation of Mineral Resources . Exploration expenditure which fails to meet at least one of the conditions outlined in AASB 6 is written off. Expenditure is not carried forward in respect of any area of interest unless the Group’s rights of tenure to that area of interest are current. The ultimate recoupment of exploration and evaluation expenditure is dependent on successful development and commercial exploitation, or alternatively, sale of the respective area.

Indago Energy Limited ABN 75 117 387 354 and Controlled Entities

Notes to the Financial Statements for the Year Ended 31 December 2017

NOTE 2 NEW ACCOUNTING STANDARDS AND INTERPRETATIONS

Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2017 reporting period. The Group’s assessment of the impact of these new standards and interpretations is set out below.

AASB 9 Financial Instruments (effective 1 January 2018)

AASB 9 Financial Instruments addresses the classification, measurement and derecognition of financial assets and financial liabilities. Since December 2013, it also sets out new rules for hedge accounting. The standard is not applicable until 1 January 2018 but is available for early adoption. There will be no impact on the Group’s accounting for financial liabilities, as the new requirements only affect the accounting for financial liabilities that are designated at fair value through profit or loss and the Group does not have any such liabilities. The Group does not have any hedging arrangements.

AASB 15 Revenue from Contracts with Customers (effective 1 January 2018)

The AASB has issued a new standard for the recognition of revenue. This will replace AASB 118 which covers contracts for goods and services and AASB 111 which covers construction contracts. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer with the notion of control replacing the existing notion of risks and rewards. An analysis has been performed and revenue will continue to be recognised when risk and rewards transfer.

AASB 16: Leases (effective 1 January 2019)

When effective, this Standard will replace the current accounting requirements applicable to leases in AASB 117: Leases and related Interpretations. AASB 16 introduces a single lessee accounting model that eliminates the requirement for leases to be classified as operating or finance leases. The directors anticipate that the adoption of AASB 16 will not have a material impact the Group's financial statements.

AASB 2014-10: Amendments to Australian Accounting Standards – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (effective 1 January 2018)

This Standard amends AASB 10: Consolidated Financial Statements with regards to a parent losing control over a subsidiary that is not a “business” as defined in AASB 3 to an associate or joint venture.

The transitional provisions require that the Standard should be applied prospectively to sales or contributions of subsidiaries to associates or joint ventures occurring on or after 1 January 2018. The directors do not anticipate that the adoption of AASB 2014-10 will have an impact on the Group’s financial statements.

Indago Energy Limited ABN 75 117 387 354 and Controlled Entities Notes to the Financial Statements for the Year Ended 31 December 2017

NOTE 3: REVENUE, EXPENDITURE AND DISCONTINUED OPERATIONS

The following revenue items are relevant in explaining the financial performance for the year: Revenue Interest Other Income Total Revenue continuing operations Oil and Gas revenue – discontinued operations Total Revenue for the year DISCONTINUED OPERATIONS	Consolidated Group 2017 2016 $ $ 74,581 - 21,601 50,408 229,117 342
	325,299 50,750
	- 10,513
	325,299 61,263

Four Rivers/Capitola

During the year ended 31 December 2015, the Capitola and Four Rivers projects were held for sale. In February 2016, the Four Rivers Project assets were sold with an effective date of 1 January 2016 for A$160,320 (US$120,000), an amount equal to the carrying value of the asset (post impairment) as at 31 December 2015.

The Capitola project assets, with a carrying value at the date of sale of A$2,939,200 (US$2.2 million), was sold for A$2,936,661 (US$2.1 million) on 2 March 2016.

Financial information relating to the discontinuing operations for these projects is set out below:

Revenue Production expenses Gain on asset sales Profit / (Loss) attributable to discontinued operations Income tax expense Profit / (Loss) after income tax Net cash inflow / (outflow) from operations Net cash inflow / (outflow) from investing Net increase / (decrease) in cash Consideration received Carrying amount of net assets sold	Consolidated Group 2017 2016 $ $ - 10,513 - 13,709 - 3,754
	- 27,976
	- -
	- 27,976
	- 18,819 - 3,127,104
	- 3,145,923
	- 3,127,104 - (3,123,350) - 3,754

Indago Energy Limited ABN 75 117 387 354 and Controlled Entities Notes to the Financial Statements for the Year Ended 31 December 2017

NOTE 4 INCOME TAX EXPENSE

a. The prima facie tax on loss from ordinary activities before income tax is reconciled to the income tax as follows: Prima facie tax payable on profit from ordinary activities before income tax at 30% (2016: 30%) — Consolidated group Add: — Non-allowable items — Share options expensed during year Less: — Tax deductible equity raising costs — Other deductible amounts Current year tax losses not recognised Income tax expense The applicable weighted average effective tax rates are as follows: b. Net deferred tax assets not brought to account: Unused tax losses for which no deferred tax asset has been recognised Potential tax benefit @ 30% NOTE 5 KEY MANAGEMENT PERSONNEL COMPENSATION Components of Key Management Personnel Compensation Short-term benefits Long-term benefits Post-employment benefits Equity based payments - options		Consolidated Group 2017 $ 2016 $ (1,034,351) (373,629) (35,043) (27,897) (46,524) 36,838 56,219 (42,481) 3,231 162,314
		(1,056,468) (244,855) 1,056,468 244,855
		- -
		0% 0% 27,120,194 26,757,651 8,136,058 8,027,295 Consolidated Group 2017 2016 $ $ 1,097,273 353,127 847 - 29,705 17,207 146,080 122,794 1,196,405 493,128

Detailed remuneration disclosures are provided in the Remuneration Report section of the Directors’ Report.

Indago Energy Limited ABN 75 117 387 354 and Controlled Entities Notes to the Financial Statements for the Year Ended 31 December 2017

NOTE 6 AUDITORS’ REMUNERATION Remuneration of the auditor of the Group for: Pitcher Partners — auditing and reviewing the financial reports PriceWaterhouseCoopers — auditing and reviewing the financial reports There were no non-audit services during the financial year (2016: Nil) NOTE 7 EARNINGS PER SHARE a. Reconciliation of earnings to profit or loss Loss for the year from continuing operations Earnings used to calculate basic EPS Profit/(loss) for the year from discontinued operations Earnings used to calculate basic EPS b. Weighted average number of ordinary shares outstanding during the year used in calculating basic EPS Weighted average number of options outstanding Weighted average number of ordinary shares outstanding during the year used in calculating dilutive EPS	Consolidated Group 2017 $ 2016 $ 50,000 - 50,000 - - 58,697 - 58,697 Consolidated Group 2017 $ 2016 $ (3,447,837) (1,273,407)
	(3,447,837) (1,273,407) - 27,976
	- 27,976
	No. No. 137,952,273 100,738,040 30,867,260 30,246,777
	168,819,533 130,984,817

2016 figures have been adjusted for ten for one share consolidation on 23 May 2016 as explained in note 18.

Indago Energy Limited ABN 75 117 387 354 and Controlled Entities Notes to the Financial Statements for the Year Ended 31 December 2017

NOTE 8 CASH AND CASH EQUIVALENTS

NOTE 8 CASH AND CASH EQUIVALENTS
Cash at bank and in hand Short-term bank deposits	Consolidated Group 2017 $ 2016 $ 1,447,442 2,152,067 1,500,000 1,500,000
	2,947,442 3,652,067

The effective interest rate on short-term bank deposits was 2.32% (2016: 1.27%).

NOTE 9 TRADE AND OTHER RECEIVABLES

NOTE 9 TRADE AND OTHER RECEIVABLES
CURRENT Trade and other receivables: - Trade receivables - GST receivable - Operating bond/deposits - Interest receivable - Related party receivable - Other	Consolidated Group 2017 $ 2016 $ 47,093 - 22,851 28,771 24,799 26,769 5,332 2,404 27,034 - 878 -
	127,987 57,944

Related party receivable relates to an amount owed by director Nicholas Castellano and is repayable from July 2017 in instalments of $2,000 per month, non interest bearing. This receivable relates to advances paid to Nicholas Castellano to produce the inventory for Hydrocarbon Dynamics. As not all the funds were used the balance is repayable to the Group.

NOTE 10 LOANS

Loan to HCDI Holdings Ltd	Consolidated Group 2017 $ 2016 $ - 552,800 - 552,800

Prior to acquiring HCDI Holdings Ltd (‘HCDI’), the Group agreed to finance approximately US$300,000 worth of product for HCDI (prior to completion of the proposed transaction) to sell to existing customers to enable HCDI to finance product orders and US$100,000 in working capital.

Indago Energy Limited ABN 75 117 387 354 and Controlled Entities Notes to the Financial Statements for the Year Ended 31 December 2017

NOTE 11 CONTROLLED ENTITIES

NOTE 11 CONTROLLED ENTITIES
	Country of	Ownership	Interest (%)*
	Incorporation
		2017	2016
Subsidiaries of Indago Energy Limited:
HCD Brazil Pty Ltd	Australia	100%	-
Hydrocarbon Dynamics Australia Pty Ltd	Australia	100%	-
HCD Canada Ltd	Canada	100%	-
HCDI Holdings Ltd	Hong Kong	100%	-
Hydrocarbon Dynamics Ltd	Hong Kong	100%	-
HCD offshore	Malaysia	100%	-
HCD Blending LLC	USA	100%	-
Indago Oil and Gas Inc	USA	100%	100%
Pryme Energy LLC (Closed February 2018)	USA	100%	100%
Trident Minerals LLC (Closed February 2018)	USA	100%	100%
Pryme Royalty Holdings LLC	USA	100%	100%
Pryme Mineral Holdings LLC	USA	100%	100%
Pryme Oil and Gas LLC	USA	100%	100%
TOC LLC	USA	100%	100%
Trimissco LLC	USA	100%	100%

* Percentage of voting power is in proportion to ownership

NOTE 12 INTERESTS IN JOINT ARRANGEMENTS

Set out below are the jointly controlled arrangements of the Group as at 31 December 2017 for the purpose of oil and gas exploration and production. The arrangements are classified as a joint operations, under the relevant join operating agreements, the Group has a direct right to it’s proportionate share of the jointly held assets, liabilities, revenues and expenses as described in note 1(b).

The principal place of business and the Group’s proportionate working interest in the assets, liabilities, revenues and expenses of the Group’s joint operations held under the applicable joint operating agreements are recognised within each applicable line item of the financial statements. The percentage working interest in particular wells varies across projects as indicated.

Name of Project	Place of Business	Working	Interest (%)
		2017	2016
Newkirk	US	100%	100%

The Group acquired its working interest in the Newkirk project under an agreement entered into effective 1 July 2015. Refer to Note 13 for further disclosure on working interest assets held.

Indago Energy Limited ABN 75 117 387 354 and Controlled Entities Notes to the Financial Statements for the Year Ended 31 December 2017

NOTE 13 WORKING INTEREST

Note Exploration Expenditure Capitalised: - Exploration and evaluation phases - Foreign currency adjustment - Less impairment Newkirk - Add Newkirk project Total Working Interest	Consolidated Group 2017 $ 2016 $ 1,474,813 1,380,625 (100,600) - (930,186) - 95,892 94,188 549,335 1,474,813

Effective 1 July 2015 the Group acquired an interest in the Newkirk project from ASX-listed Xped Limited (ASX:XPE). Initial consideration for the acreage acquired comprised of 100 million fully paid shares (prior to the 1:10 share consolidation) and A$250,000 cash. In addition, further conditional consideration of A$175,000 will be payable in respect of each of the first two wells in the event that gross 1P reserves from each well is certified, within 6 months, after the commencement of production from the second well to be equal to or greater than 31 thousand barrels of oil and 200 cubic feet of natural gas (MMcf).

NOTE 14 PLANT AND EQUIPMENT

Plant and Equipment – at cost Accumulated depreciation Balance at beginning of year Additions Disposal Depreciation Balance at end of the year	Consolidated Group 2017 $ 2016 $ 22,916 - (18,562) -
	4,352 -
	- - 25,626 - (18,070) - (3,204) -
	4,352 -

NOTE 15 INTANGIBLE ASSETS

Goodwill Patent Intellectual Property	Consolidated Group 2017 $ 2016 $ 3,282,899 - 9,902 - 663,218 - 3,956,019 -

Refer to the Business Combination Note 28.

Indago Energy Limited ABN 75 117 387 354 and Controlled Entities Notes to the Financial Statements for the Year Ended 31 December 2017

NOTE 16 TRADE AND OTHER PAYABLES

NOTE 16 TRADE AND OTHER PAYABLES
Trade Payables Accruals Other payables NOTE 17 PROVISIONS Current Employee benefits Non-current Employee Benefits NOTE 18 ISSUED CAPITAL 174,318,106 (2016: 100,738,214) fully paid ordinary shares Capital raising costs a. Ordinary shares At the beginning of reporting year Shares issued during the year - HCD Acquisition shares (i) - Entitlement offer (ii) - Consolidation on 10 for 1 basis on 23 May 2016 At reporting date		Consolidated Group 2017 $ 2016 $ 41,995 281,963 88,000 10,770 116,044 - 246,039 292,733

		14,296 -

		847 -
		Consolidated Group 2017 $ 2016 $ 61,376,397 55,175,841 (3,571,067) (3,326,871)
		(57,805,330) 51,848,970
		No. of Shares No. of Shares 100,738,214 1,007,380,397 30,000,000 - 43,579,892 - - (916,642,183) 174,318,106 100,738,214

Ordinary shares participate in dividends and the proceeds on winding up of the parent entity in proportion to the number of shares held. At the shareholders’ meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands. Ordinary shares have no par value and Indago does not have a limited amount of authorised capital.

(i) 30,000,000 shares issued on 6 April 2017 as part of the consideration for 100% of the issued shares in Hydocarbon Dynamics. 21,265,731 of these shares are subject to voluntary escrow for a 12 month period.

(ii) 16,408,597 shares issued to eligible shareholders and 27,171,295 shares issued to the underwriter an issue price of 7 cents as per the entitlement offer announced 31 July 2017.

Indago Energy Limited ABN 75 117 387 354 and Controlled Entities Notes to the Financial Statements for the Year Ended 31 December 2017

NOTE 18 ISSUED CAPITAL (continued)

b. Options

Listed Options At the beginning of the year - Consolidation on 10 for 1 basis on 23 May 2016 - Expiry of options on 26 July 2016 Unlisted Options At the beginning of the year - HCD Acquisition options (i) - Management incentive options (ii) - Incentive options (iii) - Director options (iv)	Consolidated Group No. of Options 2017 No. of Options 2016 481,025,026 - (432,922,523) - (48,102,503) - - 5,000,000 - 33,200,000 - 1,750,000 - 750,000 - - 5,000,000 40,700,000 5,000,000

(i) 33,200,000 options issued on 6 April 2017 as part of the consideration for 100% of the issued shares in Hydocarbon Dynamics, exercisable at 25 cents expiring 5 April 2019.

(ii) 1,750,000 options issued to Business Development Manager on 16 May 2017, exercisable at 14 cents, vesting on 1 March 2018 and expiring 1 March 2020.

(iii) 750,000 options issued to board advisor on 22 September 2017, exercisable at 14 cents, vesting on 22 September 2018 and expiring 1 March 2020.

(iv) 10 cent options granted to Directors on 1 June 2016, expiring 1 April 2019.

Capital risk management

The Group's objectives when managing capital are to safeguard their ability to fund operations and continue as a going concern and to maintain an optimal capital structure to reduce the cost of capital.

The Group’s capital comprises equity as described in the statement of financial position. There are no externally imposed capital requirements. Management monitors the group’s capital by assessing financial risks and adjusting its capital structure in response to changes to these risks in the market. Responses to these changes include management of share issues.

Indago Energy Limited ABN 75 117 387 354 and Controlled Entities Notes to the Financial Statements for the Year Ended 31 December 2017

NOTE 19 RESERVES

a. Foreign currency translation reserve

The foreign currency translation reserve records exchange differences arising on translation of a foreign controlled subsidiary.

b. Option reserve

The option reserve recognises the value of options issued as described in Note 18 (b) which have not been exercised.

Foreign currency translation reserve Option reserve	Consolidated Group 2017 2016 $ $ (821,684) (731,133) 277,875 122,794 (543,809) (608,339)

NOTE 20 CONTINGENT LIABILITIES AND CONTINGENT ASSETS

There are no contingent liabilities or contingent assets as at 31 December 2017 (2016: Nil).

NOTE 21 SEGMENT REPORTING

Operating Segments — Geographical Segments

The Group comprises the following three operating segments defined geographically and by project

operations comprising the exploration, development and production of oil and gas projects in the US;
operations comprising clean oil technology and business in Worldwide; and
administrative operations undertaken in Australia to support the exploration, development and production of oil and gas projects worldwide and clean oil technology which includes the recharging of such costs via management fees.

2017 Income Interest Other income Gain / (loss) on sale of assets Expenditure Director and employee expenses Other Profit/(Loss) for the period Assets as at 31 December 2017 Liabilities as at 31 December 2017	Australia USA Worldwide Eliminations Total $ $ $ $ $ 21,601 - - - 21,601 - 229,117 74,581 - 303,698 - (5,581) - - (5,581) (645,993) - (295,889) - (941,882) (808,911) (4,420,939) (1,116,313) 3,520,490 (2,825,673)
	(1,433,303) (4,197,403) (1,337,621) 3,520,490 (3,447,837)
	10,851,346 603,613 1,471,259 (4,621,657) 8,304,561 221,886 46,511,526 2,941,780 (49,414,010) 261,182

Indago Energy Limited ABN 75 117 387 354 and Controlled Entities Notes to the Financial Statements for the Year Ended 31 December 2017

NOTE 21 SEGMENT REPORTING (CONTINUED)

2016 Income Interest Other Expenditure Director and employee expenses Other Segment result Profit/(Loss) attributable to discontinued operations Profit/(Loss) for the period Assets as at 31 December 2016 Liabilities as at 31 December 2016	Australia USA Eliminations Total $ $ $ $ 49,743 665 - 50,408 342 - - 342 (356,282) - - (356,282) (758,784) 335,242 (544,333) (967,875) (1,064,981) 335,907 (544,333) (1,273,407) - 27,976 - 27,976 (1,064,981) (363,883) (544,444) (1,245,431)
	6,088,613 1,494,672 (1,820,226) 5,763,059 137,295 46,605,926 (46,450,488) 292,733

NOTE 22 CASH FLOW INFORMATION

a.
Reconciliation of Cash Flow from Operations with Profit/(Loss) after
Income Tax
Profit/(Loss) after income tax
Non-cash flows in profit
Depreciation, depletion and amortisation
(Gain)/Loss on sale of assets
Employee share options
Foreign exchange (Gain)/Loss - Parent
Director share options
Impairment & project costs expensed
Changes in assets and liabilities
(Increase)/decrease in trade and term receivables
(Increase)/decrease in inventories
(Increase)/decrease in other assets
(Increase)/decrease in accrued interest
Increase/(decrease) in trade payables and accruals
Cashflow from (used in) operations

Consolidated Group
2017
$
2016
$
(3,447,837)
(1,245,431)
3,204
-
5,582
(34,979)
49,833
-
81,654
68,223
105,248
122,794
930,186
(13,465)
(33,030)
(6,431)
(33,516)
-
(28,876)
12,441
(2,927)
(2,405)
(70,272)
(852,651)

(2,440,751)
(1,951,904)

b. Credit Standby Arrangements with Banks

There are no credit or standby arrangements with financiers as at 31 December 2017 (2016: Nil).

NOTE 23 EVENTS AFTER BALANCE SHEET DATE

There has not arisen in the interval between the end of the financial year and the date of the report any matter or circumstance that has significantly affected, or may significantly affect the Group’s operations, results or the state of affairs in future financial years.

Indago Energy Limited ABN 75 117 387 354 and Controlled Entities Notes to the Financial Statements for the Year Ended 31 December 2017

NOTE 24 RELATED PARTY TRANSACTIONS

NOTE 24 RELATED PARTY TRANSACTIONS
	Consolidated	Group
	2017	2016
	$	$
Transactions with related parties:
Key Management Personnel	583,436	172,000
Value of options issued to Key Management Personnel	146,080	122,794

During the year, the Group paid consulting fees of $72,000 to Aldena a business associated with Donald Beard. Consulting fees of $48,000 were paid to Spring Street Holdings Pty Ltd a company associated with Ray Shorrocks and consulting fees of $6,000 to MP Capital Pty Ltd a company associated with Stephen Mitchell. $67,500 was paid to True Success a company associated with Allan Ritchie and $176,256 to NC2 an entity associated with Nicholas Castellano. $291,180 was paid to Douglas Hamilton and Yurpal Australia Pty Ltd, a company associated with Douglas Hamilton. These amounts are included in the total remuneration paid to Directors as per the Remuneration Summary in the Directors’ Report.

In addition to the above amounts a royalty fee of $166,544 was paid to NC2 an entity associated with Nicholas Castellano, $20,782 of which related to January 2018. $120,808 was paid to Lowell Accounting Services for Accounting and secretarial services and rent, an entity of which Stephen Mitchell is a Director.

Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated.

NOTE 25 SHARE BASED PAYMENTS

Set out below is a summary of options granted as share-based payments for services provided and incentives for directors and staff.

	Date of Issue	Expiry date	Exercise Price	Balance as at 31 December 2016	Lapsed during the year	Balance as at 31 December 2017	Vested and exercisable as at 31 Dec 2017
Director Options	1.6.2016	1.4.2019	$0.10	5,000,000	-	5,000,000	5,000,000
Management Incentive Options	18.5.2017	1.3.2020	$0.14	1,750,000	-	1,750,000	-
Incentive Options	22.9.2017	1.3.2020	$0.14	750,000	-	750,000	-

There is no formal employee share option plan. The number of options issued, the strike price of options issued and all other relevant terms have been set having regard to the persons position in the Group and level of experience. Such options vest according to the terms that are agreed at the time of grant between Indago and the employee. However, options normally vest either immediately upon grant or progressively within 12 months. Upon termination by either Indago or by the employee, all vested options remain the property of the employee, with no change to the life of the option. Upon termination by either Indago or the employee, all unvested options normally lapse.

Indago Energy Limited ABN 75 117 387 354 and Controlled Entities Notes to the Financial Statements for the Year Ended 31 December 2017

NOTE 26 FINANCIAL RISK MANAGEMENT

a. Financial Risk Management Policies

The Group’s financial instruments consist mainly of deposits with banks, short-term investments, accounts receivable and payable, loans to and from subsidiaries and leases.

i. Treasury Risk Management

Senior executives of the Group regularly analyse financial risk exposure and evaluate treasury management strategies in the context of the most recent economic conditions and forecasts. The executive’s overall risk management strategy seeks to assist the Group in meeting its financial targets, whilst minimising potential adverse effects on financial performance.

ii. Financial Risk Exposures and Management

The main risks the Group is exposed to through its financial instruments are interest rate risk, foreign currency risk, liquidity risk, credit risk and price risk.

Interest Rate Risk

The Group has no exposure to interest rate risk as the Group has no debt.

Foreign Currency Risk

The Group is exposed to fluctuations in foreign currencies arising from the sale and purchase of goods and services in currencies other than the Group’s presentation currency. The Group considers there to be immaterial risk exposure from these transactions. The Group is also exposed to fluctuations in foreign currencies arising from the loans advanced by the Australian based parent entity (denominated in AUD) to its United States based subsidiaries. Foreign currency gains/losses are recorded by the subsidiaries and eliminated on consolidation via the foreign currency translation reserve.

Liquidity Risk

The Group manages liquidity risk by monitoring forecast cash flows and ensuring that adequate funds from capital raising are maintained for future expenditure on working interest.

Credit Risk

The maximum exposure to credit risk is the carrying amount of receivables, net of any provisions for impairment of those assets, as disclosed in the balance sheet and notes to the financial statements. Receivables are held with predominantly un-rated entities.

Credit risk is managed on a Group basis. It arises from exposures to customers as well as through deposits with financial institutions.

The Group manages credit risk by actively assessing the rating quality and liquidity of counter parties including:

only utilising banks and financial institutions with an ‘A’ rating;
all potential customers are rated for credit worthiness taking into account their size, market position and financial standing; and

The Group does not have any material credit risk exposure to any single receivable or Group of receivables under arrangements entered into by the Group.

Indago Energy Limited ABN 75 117 387 354 and Controlled Entities Notes to the Financial Statements for the Year Ended 31 December 2017

NOTE 26 FINANCIAL RISK MANAGEMENT (CONTINUED)

b. Financial Instruments composition and maturity analysis

The tables below reflect the undiscounted contractual settlement terms for financial instruments of a fixed period and maturity, as well as management’s expectations of the settlement period for all other financial instruments. As such amounts may not reconcile to the balance sheet.

Average Interest Rate 2017 CONSOLIDATED Financial Assets: Cash and cash equivalents 1.73% Receivables - Financial Liabilities: Trade and sundry payables - Total Average Interest Rate 2016 CONSOLIDATED Financial Assets: Cash and cash equivalents 1.27% Receivables - Financial Liabilities: Trade and sundry payables - Total	Non Interest Bearing Variable Interest Rate $ Less than 90 Days $ Total $ 2,217,600 729,842 2,947,442 - 188,606 188,606 - (261,182) (261,182)
	2,217,600 658,266 2,874,866
	Non Interest Bearing Variable Interest Rate $ Less than 90 Days $ Total $ 3,251,275 400,792 3,652,067 - 83,379 83,379 - (292,733) (292,733)
	3,251,275 191,438 3,442,713

c. Fair Values

The Group considers that the carrying amount of receivables, trade and sundry payables recorded in the financial statements approximates their fair values due to their short term nature.

Indago Energy Limited ABN 75 117 387 354 and Controlled Entities Notes to the Financial Statements for the Year Ended 31 December 2017

NOTE 27 PARENT INFORMATION

The following information has been extracted from the books and records of the parent, Indago Energy Limited, and has been prepared in accordance with Accounting Standards.

STATEMENT OF COMPREHENSIVE INCOME

Total Profit/(Loss) Total Comprehensive Income STATEMENT OF FINANCIAL POSITION ASSETS Current Assets Non-Current Assets TOTAL ASSETS LIABILITIES Current Liabilities TOTAL LIABILITIES EQUITY Issued capital Reserves Accumulated losses TOTAL EQUITY		Parent Entity 2017 $ 2016 $ (1,433,303) (1,064,982)
		(1,433,303) (1,064,982)
		2017 $ 2016 $ 2,946,792 3,715,587 7,904,554 2,373,026
		10,851,346 6,088,613
		221,886 137,295
		221,886 137,295
		57,805,334 51,848,970 277,875 122,794 (47,453,749) (46,020,446) 10,629,460 5,951,318

NOTE 28 BUSINESS COMBINATION

On 6 April 2017, Indago acquired 100% of the issued shares in Hydocarbon Dynamics (“HDC”) a new clean oil techno that allows for the swift, clean and cost effective treatment of heavy, asphaltenic and paraffinic oils for consideration ordinary shares and 33.2 million options (exercisable at $0.25 for two years) and will issue additional shares if certain EBITDA hurdles are met. Indago paid cash for the intellectual property and also pays a monthly royalty of 5% o Director Mr Nicholas Castellano up to a cumulative total of US$19.5 million. The royalty is US$20,000/month minimu targets have been achieved (pending achievement of sales targets payments are US$16,000/month).

Indago Energy Limited ABN 75 117 387 354 and Controlled Entities

Notes to the Financial Statements for the Year Ended 31 December 2017

NOTE 28 BUSINESS COMBINATION (CONTINUED)

Details of the purchase consideration, the net assets acquired and goodwill are as follows:

Purchase consideration

(a) 30 million ordinary shares (of which 21,265,731 are subject to voluntary escrow for a 12 month period);
(b) 33.2 million options exercisable at 25 cents each with a 2 year expiry;
(c) 30 million Performance Milestone Tranche 1 Rights, based on HCD EBITDA performance benchmarks for the 12 month period ending 31 March 2018 being satisfied;
(d) 50 million Performance Milestone Tranche 2 Rights, based on HCD EBITDA performance benchmarks for the 12 month period ending 31 March 2019 being satisfied, and
(e) 20 million potential Conditional Shares to be issued by Indago to the vendors of the HCD business. The additional shares were to be issued if HCD achieved revenue of several hundred thousand dollars’ worth of product on certain minimum terms and conditions. These revenues were not achieved within the requisite time period, and accordingly the conditional shares were not be issued.

Purchase consideration transferred

Issue of equity Cash payment Total purchase consideration Assets: Cash and cash equivalents Trade and other receivables Inventory Other current assets Intellectual property Plant and equipment Total assets Liabilities: Trade and other payables Borrowings to related parties Total liabilities Total identifiable net assets at fair value Goodwill arising on acquisition Purchase Consideration transferred Net cash inflow or outflow arising from acquisition Cash Paid Cash acquired Net Cash inflow	$ 3,150,000 663,218 3,813,218 4,432 41,227 625,291 6,308 663,218 8,292 1,348,768 (132,134) (686,315)
	(818,449)
	530,319 3,282,899 3,813,218 $ (663,218) 4,432 (658,786)

Issue of equity
Cash payment
Total purchase consideration
Assets:
Cash and cash equivalents
Trade and other receivables
Inventory
Other current assets
Intellectual property
Plant and equipment
Total assets
Liabilities:
Trade and other payables
Borrowings to related parties
Total liabilities
Total identifiable net assets at fair value
Goodwill arising on acquisition
Purchase Consideration transferred
Net cash inflow or outflow arising from acquisition
Cash Paid
Cash acquired
Net Cash inflow

$
3,150,000
663,218
3,813,218
4,432
41,227
625,291
6,308
663,218
8,292
1,348,768
(132,134)
(686,315)

(818,449)

530,319
3,282,899
3,813,218
$
(663,218)
4,432
(658,786)

The acquired business contributed revenues of $74,581 and a net loss of $1,337,621 to the Group for the period from 1 April 2017 to 31 December 2017. Acquisition related costs of $98,165 that were not directly attributable to the issue of shares are included in business acquisition costs in profit or loss and in operating cash flows in the statement of cash flows.

Indago Energy Limited ABN 75 117 387 354 and Controlled Entities Notes to the Financial Statements for the Year Ended 31 December 2017

DIRECTORS’ DECLARATION

In the opinion of the Directors of Indago Energy Limited (Indago):
(a) the Financial Statements and Notes as set out on pages 24 to 46 are in accordance with the Corporations Act 2001, including:
- i. complying with Accounting Standards and Corporations Regulations 2001 and other mandatory professional reporting requirements; and
- ii. giving a true and fair view of the consolidated entity’s financial position as at 31 December 2017 and of its performance as represented by the results of its operations and its cash flows for the year ended on that date; and
(b) the remuneration disclosures that are included on pages 15 to 17 of the Remuneration Report in the Directors’ Report comply with Australian Accounting Standard AASB 124 Related Party Disclosures; and
(c) there are reasonable grounds to believe that Indago will be able to pay its debts as and when they become due and payable.
This declaration has been made after receiving the declarations required to be made to the directors in accordance with section 295A of the Corporations Act 2001 for the financial period ending 31 December 2017.

Signed in accordance with a Resolution of the Directors:

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Stephen Mitchell Chairman Melbourne, Victoria. 28 March 2018

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Independent Auditor’s Report to the Members of Indago Energy Limited and its controlled entities

Report on the Audit of the Financial Report

Opinion

We have audited the financial report of Indago Energy Limited “the Company” and its controlled entities “the Group”, which comprises the consolidated statement of financial position as at 31 December 2017, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration.

In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including:

(a) giving a true and fair view of the Group’s financial position as at 31 December 2017 and of its financial performance for the year then ended; and
(b) complying with Australian Accounting Standards and the Corporations Regulations 2001.

Basis for Opinion

We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants “the Code” that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.

We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

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Key audit matter

How our audit addressed the matter

Acquisition of HCDI Holdings Limited

Refer to Note 28: Business Combination

During the year the Group acquired HCDI Holdings Limited (‘HCD’) for gross purchase consideration of $3,813,218, This was considered a significant purchase for the Group.

AASB 3 Business Combination determines the acquisition accounting which requires management’s judgement to be exercised in determining the fair value of the acquired assets and liabilities, in particular determining the allocation of purchase consideration to goodwill and separately identifiable intangible assets such as intellectual property.

At 31 December 2017 the Group’s consolidated statement of financial position includes goodwill ($3,282,899) and intellectual property ($663,218).

Our procedures included, amongst others:

Reviewing the sale and purchase agreement to understand key terms and conditions;
Agreeing the purchase consideration to supporting documentation and evaluating the assumptions used by management in determining purchase consideration based on agreed performance conditions;
Agreeing the fair value of the acquired assets and liabilities to the purchase agreement;
Recalculating the goodwill arising on acquisition; and
Assessing the adequacy of the Group’s disclosures in respect of business combinations.

Working Interest - Impairment

Refer to Note 13: Working Interest

The Group is involved in exploration and evaluation activities with the aim of identifying, evaluating and subsequently developing new sources of oil and gas. The Group holds exploration and evaluation tenements in Oklahoma (the Newkirk project) and Kentucky (the Illinois project).

Working Interest assets totalling $549,335 as disclosed in Note 13 represent a significant balance recorded in the consolidated statement of financial position.

AASB 6 Exploration for and Evaluation of Mineral Resources require the exploration and evaluation asset to be assessed for impairment when facts and circumstances suggest that the carrying amount may exceed its recoverable amount.

Management performed an impairment assessment at 31 December 2017 that require management to make key assumptions in determining whether impairment indicators exist, including:

Our procedures included, amongst others:

Testing a sample of additions to the Working Interest asset for the year ending 31 December 2017;
Assessing the adequacy of the Group’s disclosures;
Testing the compliance with the lease terms of each tenement; and
Evaluating management’s methodologies and the basis for key assumptions utilised in the impairment valuation model, including:
- Number of wells;
- Oil price;
- Discount rate; and,
- Capital expenditure estimates.
Number of wells;
Oil price;
Discount rate; and,
Capital expenditure estimates.

An impairment expense of $930,186 was recognised during the year.

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Key audit matter Refer to Note 15: Intangible assets

Goodwill & Intellectual Property - Impairment

During the year the Group acquired HCDI Holdings Limited (‘HCD’) resulting in the recognition of two intangible assets being goodwill and intellectual property with the carrying value recognised in the Group’s consolidated statement of financial position as at 31 December 2017 of $3,282,899 and $663,218 respectively.

As these balances constitute 47% of the total assets of the consolidated group and the use of key estimates and judgments in assessment of any potential impairment, that this is a key area of audit focus.

How our audit addressed the matter

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Our procedures included, amongst others:

We assessed management’s determination of the Group’s CGUs based on our understanding of the Group’s business and internal reporting;
We compared managements cash flow forecasts to the board approved forecast;
We assessed the assumptions and methodology used for the impairment assessment; and
We checked the mathematical accuracy of the cash flow forecast and agreed the relevant data to the latest forecasts.

Responsibilities of the Directors for the Financial Report

The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error.

In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Auditor’s Responsibilities for the Audit of the Financial Report

Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report.

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As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

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Report on the Remuneration Report

Opinion on the Remuneration Report

We have audited the Remuneration Report included on pages 15 to 17 of the directors’ report for the year ended 31 December 2017. In our opinion, the Remuneration Report of Indago Energy Limited, for the year ended 31 December 2017, complies with section 300A of the Corporations Act 2001.

Responsibilities

The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.

PITCHER PARTNERS

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N BATTERS

Partner Brisbane, Queensland 28 March 2018

SHAREHOLDER INFORMATION

Additional information required by the Australian Securities Exchange Ltd Listing Rules and not disclosed elsewhere in this report is as follows. The information is current as at 26 March 2018.

1. Substantial shareholders

The number of securities held by substantial shareholders and their associates are set out below:

Fully paid Ordinary Shares

Name	Number	%
SterlingMcGregor Super PtyLtd	13,698,524	7.86
Equity Trustees Limited ACF Lowell Resources Fund	10,223,141	5.86
GXB PtyLtd/G&J Super Fund PtyLtd	10,000,000	5.74

2. Number of security holders and securities on issue

Indago has issued the following equity securities:

174,318,106 fully paid ordinary shares held by 1,511 shareholders; 5,000,000 $0.10 unlisted Director Options held by 3 option holders 2,500,000 $0.14 unlisted Incentive Options held by 2 option holders 33,200,000 $.25 unlisted HCD Acquisition Options held by 116 option holders

3. Voting rights

Ordinary shares

The voting rights attached to ordinary shares are that on a show of hands, every member present, in person or proxy, has one vote and upon a poll, each share shall have one vote.

Unlisted Options

The holders of Unlisted Options do not have any voting rights on the Options held by them.

4. Distribution of security holders

Quoted securities

Fully paid ordinary shares

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

Category Fully paid ordinary shares
Holders Shares %
1 - 1,000 436 214,257 0.12
1,001 - 5,000 350 921,179 0.53
5,001 - 10,000 136 1,029,889 0.59
10,001 - 100,000 376 14,875,592 8.53
100,001 and over 213 157,277,189 90.23
Total 1,511 174,318,106 100.00
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Unquoted securities

Options

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Category Unlisted Options
Holders Options %
1 - 1,000 1 920 0.00
1,001 - 5,000 8 16,897 0.04
5,001 - 10,000 15 113,299 0.28
10,001 - 100,000 44 1,707,376 4.20
100,001 and over 53 38,861,508 95.48
Total 121 40,700,000 100.00
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5. Unmarketable parcel of shares

The number of security investors holding less than a marketable parcel of securities is 800 with a combined total of 1,210,446 securities.

6. Twenty largest shareholders of quoted equity securities

Fully paid ordinary shares

Details of the 20 largest shareholders by registered shareholding are:

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No. of
Name %
shares
1 Stirling Mcgregor Super Pty Ltd 13,698,524 7.86
2 Equity Trustees Limited 10,223,141 5.86
3 Wheelbarrow Investments Pty Ltd 6,576,667 3.77
4 Titus Energy Limited 5,571,281 3.2
5 Buderim Panorama Pty Ltd 5,285,990 3.03
6 G & J Super Fund Pty Ltd 5,000,000 2.87
7 GXB Pty Ltd 5,000,000 2.87
8 Mr Amin Talib Khan 4,788,141 2.75
9 Guy Hawksley 3,381,682 1.94
10 Stephen Mitchell 3,365,368 1.93
11 Mr John Charles Holmes Clark & Mrs Rebecca Katrina Clark 2,723,883 1.56
12 Mr S Mitchell & Mrs S Mitchell 2,620,966 1.5
13 HSBC Custody Nominees (Australia) Limited 2,537,177 1.23
14 Citicorp Nominees Pty Limited 2,532,677 1.45
15 RAAR Capital Group Pty Ltd 2,435,250 1.4
16 Salcan Pty Ltd 2,354,660 1.35
17 Morgan Stanley Aust. Securities (Nominees) Pty Ltd 2,348,366 1.35
18 National Nominees Limited 2,335,000 1.34
19 National Nominees Limited 2,296,314 1.32
20 Mawallok Pastoral Company Pty Ltd 2,166,667 1.24
Total for Top 20 87,241,754 49.82
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56

CORPORATE DIRECTORY

Registered and Principal Office

Indago Energy Limited Level 6, 412 Collins Street Melbourne VIC 3000

Phone: +61 3 9642 2899 Fax: +61 3 9642 5177

Website: www.indagoenergy.com

Share Registry Automic Level 3, 50 Holt Street Surrey Hills NSW 2010

Phone: 1300 288 664 Fax: +61 2 9698 5414

Auditors

Pitcher Partners Level 38, Central Plaza, 345 Queen Street Brisbane QLD 4000

Stock Exchanges Australian Securities Exchange Limited (ASX) Code: INK International OTC Pink (United States) Code: POGLY

Australian Company Number 117 387 354

Australian Business Number 75 117 387 354

57

AI assistant

HYDROCARBON DYNAMICS LIMITED — Annual Report 2017

65041_rns_2018-04-25_9d83b2c7-ea74-48d0-8834-cefaed244e69.pdf

INDAGO ENERGY LIMITED

AND

CONTROLLED ENTITIES

TABLE OF CONTENTS

Chairman’s Letter

PROJECT AND OPERATIONS REPORT

Acquisition of HCD Multi-Flow

Properties and Applications of Multi-Flow

North American Initiatives

Upstream

Marketing – North America

Canada

Middle East Initiatives

China Initiatives

South America

Oil and Gas Tenements

CORPORATE GOVERNANCE STATEMENT

DIRECTORS’ REPORT

1. Directors

(a) Stephen Mitchell – Executive Chairman

(b) Donald Beard

(c) Ray Shorrocks

(d) Allan Ritchie – Non- executive Director

(e) Nick Castellano – Executive Director

2. Company Secretary

3. Principal Activities

4. Review of Operations and Financial Results

5. Events Subsequent to Reporting Date

6. Likely Developments

7. Environmental Regulations and Performance

8. Dividends

9. Options and Rights

Unissued Shares Under Option

Performance Milestones

10. Directors’ Meetings

11. Directors’ Interests

12. Remuneration Report

Summary of Key Contract Terms

Remuneration Policies and Practices

Non-Executive Director Remuneration

Fees

Retirement Benefits

Superannuation

Executive Remuneration

Total Reward Mix

Fixed Remuneration

At-Risk Remuneration

Relationship between Policy and the Group’s Performance

Anti-Hedging Policy – Personnel

Continuous Improvement

REMUNERATION SUMMARY

13. Indemnification and Insurance of Officers and Auditors

14. Non-Audit Services

15. Proceedings on behalf of the Group

16. Corporate Governance

PRIVATE AND CONFIDENTIAL

Auditor’s Independence Declaration

PITCHER PARTNERS

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2017

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR YEAR ENDED 31 DECEMBER 2017

CONSOLIDATED STATEMENT OF CASH FLOWS FOR YEAR ENDED 31 DECEMBER 2017

NOTE 1 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

Going concern

Accounting Policies

(a) Principles of Consolidation

Joint Arrangements

(b) Income Tax

(c)

Inventories

(d) Property, Plant and Equipment

Plant and equipment

Depreciation

Notes to the Financial Statements for the Year Ended 31 December 2017

(e) Exploration, Evaluation and Development Expenditure

(f) Financial Instruments

Recognition and Initial Measurement

Derecognition

HYDROCARBON DYNAMICS LIMITED Annual Report 2017