MEC RESOURCES LIMITED - Annual Report 2017

TECHNOLOGY | RESOURCES | TAX CONCESSIONS

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INTELLIGENT INVESTMENT 2017 A N N U A L R E P O R T

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Directors

H Goh Non-Executive Chairman K O Yap Non-Executive Director D Ambrosini Executive Director

H Yu Non-Executive Director (appointed 24 November 2016) D Moore Non-Executive Director (appointed 10 April 2017)

D L Breeze Executive Director (terminated 23 November 2016)

Registered Office

Suite 2, Level 3 1111 Hay Street West Perth WA 6005

Principal Business Address

Suite 2, Level 3 1111 Hay Street West Perth WA 6005

Telephone: (08) 9245 6187 Facsimile: (08) 9200 6193 Website: www.mecresources.com.au Email: [email protected]

Auditor

HLB Mann Judd Level 4 130 Stirling Street PERTH WA 6000

Share Registry

Advanced Share Registry Ltd 110 Stirling Highway NEDLANDS WA 6009

Australian Securities Exchange Listing

Australian Securities Exchange Limited (Home Exchange: PERTH, Western Australia) ASX Code: MMR

Australian Business Number

44 113 900 020

	Chairman’s Report Company Focus and Developments Directors’ Report Auditor’s Independence Declaration Corporate Governance Statement Consolidated Statement of Proft or Loss and Other	1 3 10 25 26
	Comprehensive Income	27
	Consolidated Statement of
	Financial Position	28
	Consolidated Statement of
	Changes in Equity	29
	Consolidated Statement of Cash Flows	30
	Notes to the Consolidated
	Financial Statements	31
	Directors’ Declaration	63
	Independent Auditor’s Report	64
	Additional Securities Exchange
	Information	68

TECHNOLOGY | RESOURCES | TAX CONCESSIONS

CHAIRMAN’S REPORT

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Dear Shareholder

Welcome to MEC Resources Limited’s 2017 consolidated Annual Report.

First and most importantly, I must thank all of our shareholders for their continued support of the Company during what can only be described as a challenging and tumultuous year.

In November 2016, the Company terminated the contract with its managing director, Mr David Breeze. The Board felt that change was necessary to secure the Company’s future. This need was further exacerbated by oil prices falling from a high of above USD100 to a low of below USD40. This downturn called for tough cost reductions and a new skillset of subsurface experience and commitment to delivering results. Mr Breeze had lost the confidence of the Board that he could take your company forward.

Since this termination, the Company has incurred significantly more costs in response to the former managing director and his associates causing the company to hold two extraordinary general meetings, defend the recent rights issue with the Takeovers Panel and costs being incurred to recover Company property from these parties. However, a decision was made by the Company in July to temporarily suspend legal actions to determine if the disputes could be resolved in an informal setting with a view to saving the Company significant legal costs.

Regardless, your Board has been tirelessly working to move the Company forward with a refreshed management focusing on furthering the development of its assets. Another objective was to simplify the Company’s relationships with Grandbridge Ltd and

BPH Energy Ltd. Intercompany loans and crossholdings can create complexity and may turn away potential investors who prefer to invest in a simple and clean structure. It absolutely is against the interest of our shareholders and hampers progress of your Company.

The Board has supported MEC investee company Advent Energy Ltd in engaging Mr Matthew Battrick to review the assets and to commence fund raising and finding investment partners. Mr Battrick is a proven oil and gas veteran having of high-performing, multi-disciplinary teams on both Australia and internationally. He has demonstrable success in resetting strategic direction at Board level and in delivering five-fold growth in shareholder value. In addition, he has worked successfully with or joint ventured with major and super major oil companies as well as ASX 100 companies.

In April 2017, we were pleased to announce the appointment of Mr Darryl Moore to the Board of MEC Resources. Mr Moore, an experienced company director, is a professional drilling engineer and 1993 honours graduate from the University of New South Wales. He has performed drilling engineering services for major oil and gas companies including Shell, Chevron, Phillips, ENI and Woodside on international projects. These have been undertaken in the Middle East, Australia’s North West Shelf, and south-east Asia.

Mr Moore also provided drilling engineering services to Advent Energy in 2010 including the design of an exploration well targeting the Baleen prospect. We strongly believe his skills will enhance potential for exploration success in the future considering his intimate knowledge of the Baleen prospect, which is currently the subject of the planned 2D seismic survey.

PEP 11 – Offshore Sydney Basin

Our investee Advent Energy, through wholly owned subsidiary Asset Energy Pty Ltd, along with joint venture partner Bounty Oil and Gas NL, presently have an obligation to perform a 200 line km 2D seismic survey in PEP11. Advent Energy has engaged Minev Services Pty Ltd and other specialist service providers to support achieving (in the first instance) the 2D seismic work commitment in PEP11 and this is expected to occur later in 2017/early 2018 following approval from NOPSEMA. This survey may contribute to the potential future drilling activities in PEP11.

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CHAIRMAN’S REPORT

PEP 11 – Offshore Sydney Basin (continued)

As per previous announcements, recent strategic review of the PEP11 asset demonstrated that the existing 2D dataset did not provide sufficient data to de-risk the existing structural targets to encourage suitable investment partners to contribute to the future drilling of key structural targets in PEP11. Therefore, an expedited quality 3D survey was strongly recommended to contribute to achieving the potential future drilling in an optimal timeframe considering the critical shortage of gas in the Australian east coast.

Minev Services will also contribute to this planning of the proposed 3D seismic program. We are very enthusiastic in supporting an expedited 3D seismic survey to ensure the key targets in PEP11 are sufficiently de-risked to be ‘drill-ready’ at the earliest opportunity.

EP 386 – Onshore Bonaparte Basin

Extension of the EP386 permit was received in February and Advent Energy engaged Geoteknic to begin work on a plan to prove up this asset. Geoteknic is an Australian reservoir engineering and technical analysis company, specialising in well test design and field well testing services. We anticipate that the data from these proposed well interventions can provide new support for the commercial potential of the discovered hydrocarbon accumulations, and that a field development plan can be developed upon positive results.

Pooled Development Fund

MEC was also pleased to be able to announce that the Venture Capital Board of Innovation and Science Australia has granted a further two year exemption to the Company under Section 25 of the Pooled Development Funds Act 1992 (Cth) (Act).

On 24 March 2017 the Company lodged a request for a further extension of the current exemption which was due to expire on 5 August 2017. This request for a further two year exemption was granted and will be valid until 5 August 2019.

The exemption provides MEC with the freedom to invest a further $1.5M into Advent Energy in excess of the 30% cap during the exemption period. This may assist Advent Energy in performing the planned 2D seismic survey within PEP11, offshore Sydney Basin, and the proposed well intervention program in EP386 and RL1 in the onshore Bonaparte Basin.

The Company’s investment in Advent Energy is currently less than 30% of shareholder funds and the Company has not yet utilised the exemption.

As mentioned previously, this brutal business environment caused by very weak oil prices and a drying up of funding in our industry makes our job and effort even more demanding and challenging. The Company has witnessed many potential farm-in partners and investors holding back on their activities and reducing costs to conserve cash. The Board will do its utmost to encourage partnership and funding to further develop its assets. We understand the challenges facing not only your Company but everyone in this industry. However, we will work relentlessly towards this goal. I ask you for your understanding of the reality facing us.

We once again thank you for your continued support and putting your trust into the Board to lead your Company to a brighter future. Good governance and transparency is part of our board priority and I encourage you as shareholders to drop us a line or talk to us if you have any question or suggestions. We will work hard to deliver results and look towards returning value to you, the shareholders.

Yours faithfully

A Pooled Development Fund (PDF), of which MEC Resources Ltd is one of six ASX listed PDFs, may only invest 30% of its shareholder funds in any particular investee. Innovation and venture capital programmes delivered by AusIndustry under the Act are administered by the Venture Capital Board of Innovation and Science Australia (formerly Innovation Australia).

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Mr Hock Goh Chairman

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COMPANY FOCUS AND DEVELOPMENTS

MEC Resources’ investment capital is targeted for new and emerging companies in which investments have the potential to yield significant returns in energy and mineral resources.

The Company is registered by the Australian Federal Government as a Pooled Development Fund (“PDF”) enabling most MEC shareholders to receive tax free capital gains on their shares and tax free dividends.

MEC’s current major investment lies in Advent Energy Ltd, an unlisted oil and gas exploration and development company with onshore and offshore exploration and near term development assets around Australia. As at 30 June 2017, MEC Resources held 44.29% of Advent Energy Ltd and was the parent entity of the consolidated group for reporting purposes.

MEC’s investment focus:

ADVENT ENERGY

Western Australia / Northern Territory – Onshore Bonaparte Basin

MEC Resources’ investee Advent Energy Ltd (“Advent”), through wholly owned subsidiary Onshore Energy Pty Ltd, holds 100% of each of EP 386 and RL 1 in the onshore Bonaparte Basin in northern Australia. The Bonaparte Basin is a highly prospective petroliferous basin, with significant reserves of oil and gas. Most of the basin is located offshore, covering 250,000 square kilometres, compared to just over 20,000 square kilometres onshore. The Bonaparte Basin is currently Australia’s third most prolific offshore hydrocarbon-producing basin (after the Northern Carnarvon and Gippsland basins) having produced 4,513 petajoules (PJ) of liquid hydrocarbons and 1,780 PJ of natural gas to July 2015 (source: www.ga.gov.au/aera).

Please refer to the Cautionary Statement and Competent Persons Statement at the end of this section of the report for further information regarding the assessment of Prospective and Contingent Resources.

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Location of EP386 and RL1 including the Weaber, Waggon Creek and Vienta gas fields, and other prospects and leads.

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COMPANY FOCUS AND DEVELOPMENTS

Western Australia / Northern Territory – Onshore Bonaparte Basin (continued)

Advent holds Exploration Permit EP 386 (2,568 square kilometres in area) which is the sole petroleum permit in the Western Australian section of the onshore Bonaparte Basin. Since 1960 nine wells have been drilled within the present extent of EP 386, with six of those wells flowing gas to surface at various rates, and oil shows and/or fluorescence also reported in many wells. Advent holds a 100% Working Interest (“100% WI”).

Waggon Creek-1, drilled in 1995, provided strong evidence of a significant sweet gas-charged stratigraphic trap with fair to good quality sandstone reservoir within the upper Milligans Formation. Drilling of Vienta-1 in 1998 demonstrated numerous gas shows within Enga Sandstone units, with dry gas flowed to surface and visual porosity described in the cuttings. Both Waggon Creek-1 and Vienta-1 were cased and suspended for future production.

Production testing of the Waggon Creek-1 well has demonstrated flows of over 1 million standard cubic feet of natural gas per day (MMscf/d), and a gas column over a 217 metre gross interval. Production testing of the Vienta-1 well has demonstrated flows of over 2 MMscf/d. Gas flow at Waggon Creek-1 was from zones less than 1000m below surface.

Within EP386, recoverable Prospective Resource estimates range from 53.3 Bcf (Low) to 1,326.3 Bcf (High) of natural gas in conventional reservoirs, with a Best Estimate of 355.9 Bcf of gas (Advent 100%.WI). These estimates were prepared deterministically as defined under the Society of Petroleum Engineers Petroleum Resource Management System (SPE PRMS) guidelines.

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Production testing at Waggon Creek-1.

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The current work commitments for EP386 include an exploration well and 2D seismic data acquisition. In addition, a well intervention plan has been provided to the Western Australian Department of Mines, Industry, Regulation and Safety for discussion.

In the NT, Advent holds Retention Licence RL-1 (166 square kilometres in area), which covers the Weaber Gas Field, originally discovered in 1985.

Advent has previously advised that the 2C Contingent Resources* for the Weaber Gas Field in RL1 are 11.5 billion cubic feet (Bcf) of natural gas following an independent audit by RISC. Significant upside 3C Contingent Resources of 45.8 Bcf have also been assessed independently by RISC.

The results are summarised below:

Weaber Field	1C	2C	3C
Contingent Resources (Bcf)	0.25	11.5	45.8

Contingent Resources, as defined under the Society of Petroleum Engineers Petroleum Resource Management System (SPE PRMS) guidelines, using a probabilistic assessment.

The current rapid development of the Kununurra region in northern Western Australia/Northern Territory, including the Ord River Irrigation Area and its future potential expansion, the township of Kununurra, and numerous regional resource projects provides an exceptional opportunity for Advent to potentially develop its nearby gas resources. Flow rates observed from testing of the discovery wells within EP386 and the appraisal wells in RL1 demonstrate potentially commercial flow rates from a natural pressure depletion drive of the reservoirs encountered. Scope for enhanced and sustained flow rates from the existing cased and suspended wells within EP386 and RL1 is intended to be evaluated via a well intervention program, commencing at the earliest opportunity.

Market studies have identified a significant market demand of power generation capacity across the Kimberley region that could potentially be supplied by Advent Energy’s conventional gas projects in EP386 and RL1.

The Seafarms Group is progressing with the potential development of Project Sea Dragon, a proposed world scale aquaculture operation adjacent to Advent’s EP386 and RL1 gas resources spanning the border of northern Western Australia and Northern Territory. As advised to the ASX on 30 August 2017, Seafarms Group has achieved all environmental approvals necessary for commencement of operations, and an indigenous land use agreement with relevant traditional owners has been finalised. It is planned that major construction will commence during the 2018 dry season. A Letter Of Intent was signed by Advent Energy with the proponents of Project Sea Dragon in 2013 for the potential supply of energy to the aquaculture operation.

Planning works have commenced for the construction of an all-weather highway on Northern Territory’s Keep River Road which links the Moonamang Rd developed in Western Australia servicing the Ord Irrigation Area Phase 2 towards the Northern Territory border. The Keep River Road runs through Advent Energy’s RL1 permit and brings the highway to within 4.5km of the Weaber gas wells in the Northern Territory. Its planned upgrade would provide much needed stimulus to the region north and east of Kununurra in Western Australia. Potential projects to benefit include the planned Project Sea Dragon aquaculture development, the expanded Ord River irrigation scheme, and the potential development of the Weaber Gas Field in RL1.

Potential commercialisation of Advent Energy’s gas fields may be via the virtual pipeline methodology, whereby gas produced at the wellhead is liquefied (or compressed) and trucked to end users as liquefied natural gas (LNG) or compressed natural gas (CNG). This method allows multiple customers to be “connected” to the one gas field, without the need for construction of permanent gas pipelines.

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COMPANY FOCUS AND DEVELOPMENTS

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Conceptual virtual pipeline system of (micro) LNG storage and trucking of LNG to end consumers (image courtesy of BHGE).

In addition, Advent Energy signed a LOI with Northern Minerals in March 2016 for the potential supply of energy to their proposed heavy rare earth elements project, southeast of Halls Creek in Western Australia.

Advent is in an exceptional position to potentially satisfy this growing regional demand where it remains the operator and 100% owner of key petroleum permits in the vicinity of this region.

PEP 11 Oil and Gas Permit

Advent, through wholly owned subsidiary Asset Energy Pty Ltd, holds 85% of Petroleum Exploration Permit PEP 11 – an exploration permit prospective for natural gas located in the Offshore Sydney Basin. Joint Venture partner Bounty Oil & Gas NL holds the remaining 15%.

PEP 11 is a significant offshore exploration area with large scale structuring and potentially multi-Trillion cubic feet (Tcf) gas charged Permo-Triassic reservoirs. Mapped prospects and leads within the Offshore Sydney Basin are generally located less than 50km from the Sydney-Wollongong-Newcastle greater metropolitan area. This area has a population of approximately 5,000,000 people.

Heightening the prospectivity and critical positioning of PEP11, the Australian Energy Market Operator (AEMO) has warned that the developed gas reserves in eastern and south-eastern Australia can only meet forecast demand until 2019. The supply of gas into NSW has historically been from gas fields in the Bass Strait and Cooper Basin in South Australia. These gas reserves are declining. As demonstrated by a recent presentation by the Economics Consulting Service, Australian east coast industrial gas prices have reached $8 per GJ in NSW.

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From Economics Consulting Service presentation to the South East Asia Australia Offshore & Onshore Conference (SEAAOC) 2017.

Wide ranging implications of AEMO’s forecast gas shortage include the inability to maintain a stable and efficient electricity supply to retail, commercial and industrial electricity consumers, an anticipated rise in natural gas prices and significant pricing and supply constraints that can affect the manufacturing industries and productivity on the Australian east coast. A forecast shortage in domestic demand has been demonstrated by AEMO for periods between 2018 – 2024, and again from approximately 2029. AEMO have also indicated an expectation that gas will become increasingly expensive for gas purchasers.

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NSW electricity and gas price projections to 2020 (source: AEMO media statement 9 March 2017 (https://www. aemo.com.au/Media-Centre/Media-Statement---Gas-development-required-to-meet-future-energy-demand))

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COMPANY FOCUS AND DEVELOPMENTS

PEP 11 Oil and Gas Permit (continued)

The total P50 Prospective Resource calculated for the PEP11 prospect inventory is 5.7 Tcf with a net 5 Tcf to Advent Energy (85%WI). The two largest prospects in the inventory are Fish and Baleen. The Fish prospect is assessed to contain a P50 prospective resource of 2.1 Tcf with Advent’s 85%WI share equal to 1.785 Tcf. The Baleen prospect is assessed to contain a P50 prospective resource of 0.475 Tcf with Advent Energy’s net share equal to 0.404Tcf (85%WI). Therefore, Advent’s working interest share of the two largest prospects is 2.189 Tcf. Please refer to the Cautionary Statement and Competent Persons Statement at the end of this section of the report for further information regarding the assessment of Prospective and Contingent Resources.

The prospectivity of this proven petroleum basin has been enhanced by the confirmation of the presence of apparent ongoing hydrocarbon seeps. Sub-bottom profile data, swath bathymetry, seismic and echosounder data collected by Geoscience Australia along the continental slope / permit margin has demonstrated active erosional features in conjunction with geophysical indications of gas escape.

Advent has previously interpreted significant seismically indicated gas features. Key indicators of hydrocarbon accumulation features have been interpreted following review of the 2004 seismic data (reprocessed in 2010). The seismic features include apparent Hydrocarbon Related Diagenetic Zones (HRDZ), Amplitude Versus Offset (AVO) anomalies and potential flat spots.

Advent has demonstrated considerable gas generation and migration within PEP11, with the mapped prospects and leads highly prospective for the discovery of gas.

Advent Energy is pushing ahead with a focused seismic campaign around a key potential drilling prospect in PEP11, in the offshore Sydney Basin.

A high resolution 2D seismic survey covering approximately 200 line km will be performed to assist in the drilling of the Baleen target approximately 30 km south east of Newcastle, New South Wales. A drilling target on the Baleen prospect with total depth of approximately 2150 metres has been identified in a review of previous seismic data. Intersecting 2D lines suggest an extrapolated 6000 acre (24.3 km[2] ) seismic amplitude anomaly area at that drilling target. The report on this drilling target noted previous 2D seismic data showed that the Permian aged section of the Bowen Basin has producing conventional gas fields at a similar time and depth to PEP11 at the Triassic/Permian age boundary.

An Environment Plan was lodged with the National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA) on 4 July 2017 and must be approved prior to commencement of the survey.

Future plans include acquisition of broadband 3D seismic data to better refine existing prospects and identify further prospectivity in the offshore Sydney Basin to potentially generate even more future drilling targets.

Drilling of prioritised prospects with a view to supply in the east coast gas market will be undertaken at the earliest opportunity.

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Cautionary Statement:

Prospective Resources are the term given to the estimated hydrocarbon volumes (petroleum) that may potentially be produced in the event that they are discovered by the drilling of an exploration well. Prospective Resources may potentially be recovered by the application of a future development project and may relate to undiscovered resource accumulations. These estimates have both an associated risk of discovery and an inherent risk of development. Further exploration and appraisal drilling will be required to determine the existence of a commercially recoverable quantity of petroleum (oil and/or gas).

Contingent Resources are estimates of potentially recoverable quantities of petroleum from known (drilled) accumulations where a number of wells have identified and tested an assessable volume. The assessed volumes are categorized as contingent resources because the project is considered not mature enough to define a commercially viable development due to one or more contingencies.

MEC investee, Advent Energy uses probabilistic methodologies to the estimation of petroleum resource volumes at the field and/or prospect level. The estimates of prospective and contingent resources included in this report have been prepared in accordance with the definitions and guidelines set forth in the SPE-PRMS. All petroleum estimates are aggregated by arithmetic summation unless otherwise stated.

There are numerous uncertainties inherent in estimating reserves and resources, as well as in projecting future development capital expenditure, production costs and cash flows. Geoscientific resource assessment must be recognised as a subjective process of estimating subsurface accumulations that cannot be measured exactly.

Competent Persons Statement:

The resource estimates outlined in this report were reviewed by Mr Matthew Battrick, Advent Energy’s technical adviser, who has over 35 years’ experience in petroleum exploration, development and production. Mr Battrick holds a Bachelor Degree in Geology and is a member of the American Association of Petroleum Geologists (AAPG). Mr Battrick is a qualified person (QRRE) in accordance with the ASX Listing Rules and has consented to the form and context in which this statement is presented.

Other Investments

As of 30 June 2017, MEC Resources Ltd held 14,366,095 shares in BPH Energy Ltd (ASX: BPH), formerly BioPharmica Ltd. As a consequence of investment in BPH, the Company also holds 23,303,379 shares in Molecular Discovery Systems Ltd, an unlisted biotechnology entity.

NOTE: In accordance with ASX listing requirements, the geological information supplied in this report has been based on information provided by geologists who have had in excess of five years experience in their field of activity.

Asset Energy Pty Ltd is a wholly owned subsidiary of Advent Energy Ltd and is the Operator for PEP11 under the joint operating agreement with Bounty Oil and Gas NL.

MEC is an exploration investment company and relies on the resource and ore reserve statements compiled by the companies in which it invests. All Resource and Reserve Statements have been previously published by the companies concerned. Summary data has been used. Unless otherwise stated all resource and reserve reporting complies with the relevant standards. Resources quoted in this report equal 100% of the resource and do not represent MEC’s investees’ equity share unless stated.

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DIRECTORS’ REPORT

The directors of MEC Resources Ltd (“MEC” or the “Company”) present their report on the Company for the financial year ended 30 June 2017.

Directors

The names of directors in office at any time during or since the end of the year are:

H Goh

K O Yap

D Ambrosini

H Yu (appointed 24 November 2016)

D Moore (appointed 10 April 2017)

D L Breeze (terminated 23 November 2016)

Company Secretary

Ms Deborah Ambrosini continues in her role of Company Secretary. She also holds the position of Chief Financial Officer of the company and has over 20 years’ experience in corporate accounting roles.

Principal Activities

MEC is registered as a Pooled Development Fund under the Pooled Development Fund Act (1992) . It has been formed to invest into companies that are targeting potentially large energy and mineral resources.

MEC will provide carefully selected companies in the energy and mineral exploration sectors with development and exploration funding. MEC intends to identify investment opportunities with a number of specific characteristics including: large targets; a stage of development that permits a strategic investor or IPO within several years; strong and experienced management team and a definitive competitive advantage.

MEC’s current major investment lies in unlisted Australian oil and gas exploration company, Advent Energy Ltd.

Advent Energy Ltd - Oil and Gas

MEC has a controlling interest in the unlisted energy explorer Advent Energy Ltd (“Advent”) of 44.29%.

Advent has assembled a range of hydrocarbon permits which contain near term production opportunities with pre-existing infrastructure and exploration upside.

Advent’s assets include EP386 and RL1 (100%) in the onshore Bonaparte Basin in the north of Western Australia and Northern Territory and PEP11 (85%) in the offshore Sydney Basin.

A conventional 2C Contingent Resource of 11.5 Bcf (1C is 0.3 Bcf and 3C is 45.8 Bcf) for the Weaber Gas Field (RL1) has been assessed by an independent third party as a component of Advent’s drive to commercialise its 100% owned onshore Bonaparte Basin assets. Included in these assets in EP386 conventional recoverable resource estimates range from 53.3 Bcf (Low) to 1,326.3 Bcf (High) of Prospective Resources, with a Best Estimate of 355.9 Bcf of gas. The rapid development of the Kununurra region in northern Western Australia, including the Ord Irrigation Expansion Project and numerous resource projects, provides an exceptional opportunity for Advent to potentially develop its nearby gas resources for the benefit of the region along with Advent and its shareholders.

The Sydney Basin is a proven petroleum basin with excellent potential for the discovery of gas and oil. Advent has demonstrated an active hydrocarbon system with seeps reported in the offshore area and sampling has

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indicated the presence of thermogenic hydrocarbon gas. This is considered to occur in basins actively generating hydrocarbons and/or that contain excellent migration pathways. Previous drilling has shown that the early Permian geological sequence is mature for hydrocarbons.

Undiscovered gross prospective recoverable gas resources for structural targets within the PEP11 offshore permit have been estimated at 5.7 Tcf (at the Best Estimate level). A Low Estimate of 0.3 Tcf and High Estimate of 67.8 Tcf has been assessed by Pangean Resources in 2010. PEP 11 lies adjacent to the most populous region of Australia and the major industrial hub and port of Newcastle.

Cautionary Statement:

Competent Persons Statement:

Operating Results

The loss attributable to the owners of the Consolidated Group after tax for the year was $900,893 (2016: Loss $1,034,477).

Dividends

The Directors recommend that no dividend be paid in respect of the current period and no dividends have been paid or declared since the commencement of the period.

Financial Position

The net assets of the Consolidated Group have decreased by $382,366 to $28,464,454 at 30 June 2017.

MEC Resources 2017 ANNUAL REPORT

DIRECTORS’ REPORT

Significant Changes In State Of Affairs

MEC Resources Ltd

On 24 November 2016 MEC Resources announced that it had terminated the consultancy agreement with immediate effect between the Company, Trandcorp Pty Ltd (Trandcorp and Mr David Breeze (Trandcorp’s Nominee) under which Mr David Breeze was appointed as Managing Director of the Company.
On 24 November 2016, the Company appointed Mr Heng Yu as a Director of the Company. Mr Heng Yu is a qualified Geologist with over 30 years experience working for a number of multi national organisations including Schlumberger, Baker Hughes, PetroChina and MEC Resources in Senior roles.
On 20 December 2016 MEC Resources announced that it had received notices under sections 203D(2) and 249D of the Corporations Act 2001 (Cth) on behalf of Grandbridge Limited, Trandcorp Pty Ltd, Trandcorp Pty Ltd and Mr David Breeze, who collectively hold over 5% of the votes that may be cast at a general meeting of the Company. The notices sought to convene a further meeting to remove all of the existing Directors of the Company and appoint three new Directors recommended by the convening parties. On 3 January 2017, the Company advised that the resolutions to remove the existing Directors were invalid and they would not be put forward at the up and coming meeting to be held on 16 February 2017. The meeting was held on 16 February 2017 with the majority of approximately 57% of the shareholders voting against the appointment of the three new proposed Directors. A further meeting was held on 9 March 2017 to consider the removal of the existing Directors. An overwhelming majority representing approximately 85% of voting shareholders voted against the removal of the existing Board at this meeting.
On 2 February 2017, the Company issued a legal proceeding out of the Supreme Court of Western Australia against Trandcorp Pty Ltd (“Trandcorp”) and former Managing Director, Mr Breeze, in order to protect its interests and its confidential information. In this proceeding, the Company asserts that it is not in possession of all Company property and data under the control of Trandcorp and Mr Breeze despite contractual obligations requiring the return of this material following the termination of Trandcorp’s engagement as consultant and the cessation of Mr Breeze’s appointment as Managing Director of the Company in late November 2016.

The Company seeks, among other things, orders for the return of Company property and data and damages for breach of the consultancy agreement.

Mr Breeze and his associated party have filed and served a defence and counterclaim in the proceedings. The Company denies the counterclaim.

On 14 March 2017, MEC announced a Non-Renounceable Entitlements Issue (“Entitlements Issue”).

Via the Entitlements Issue Shareholders subscribed for 20,506,448 Entitlement Shares and 2,282,146 Shortfall Shares at an issue price of 2.8 cents per share. At close of the offer the total funds received from the issue were $638,080.63. A further 300,000 shortfall shares were issued on 30 June 2017.

On 10 April 2017, MEC appointed Mr Darryl Moore to the Board of MEC Resources Ltd. Mr Moore, an experienced company director, is a professional drilling engineer and 1993 honours graduate from the University of New South Wales. He has performed drilling engineering services for major oil and gas companies including Shell, Chevron, Phillips, ENI and Woodside on international projects. These have been undertaken in the Middle East, Australia’s North West Shelf, and south-east Asia.

Mr Moore also provided drilling engineering services to Advent Energy in 2010 including the design of an exploration well targeting the Baleen prospect.

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Advent Energy Ltd

Advent Energy secured the services of consultant Mr Matthew Battrick to lead the strategic review of the assets of Advent. Mr Battrick is a proven oil and gas finder as a leader of high-performing, multi-disciplinary teams. He has demonstrable success in resetting strategic direction at Board level and in delivering five-fold growth in shareholder value. In addition, he has worked successfully with or joint ventured with major and super major oil companies as well as ASX 100 companies.
On 27 February 2017, Advent advised that it had received conditional regulatory approval for suspension of the permit work commitments and extension of the term of EP386 in the onshore Bonaparte Basin, Western Australia. The approval from the Western Australian Department of Mines & Petroleum (“DMP”, now Department of Mines, Industry, Regulation and Safety (“DMIRS”)) allows the current EP386 work commitments to be completed by 31 March 2018, subject to regulatory approval and suitable funding.
In March 2017, Advent engaged the services of Geoteknic Pty Ltd to provide support to deliver the proposed well intervention program within EP386 in the onshore Bonaparte Basin, Western Australia. Geoteknic Pty Ltd is an Australian reservoir engineering and technical analysis company, specialising in well test design & analysis, field well testing services, reservoir simulation and production & cased hole log analysis.
In March 2017, Advent engaged the services of Minev Services Pty Ltd to provide support to deliver the proposed 2D seismic program within PEP11 in the offshore Sydney Basin, adjacent to Newcastle-Sydney offshore New South Wales. Minev Services Pty Ltd is an Australian seismic processing and acquisition supervision entity.
Advent appointed SLR Consulting to conduct an independent assessment of marine noise generated by the planned 2D seismic survey to consider potential impacts on marine fauna in the area of the 2D seismic survey. Results of this assessment were included in the Environment Plan submitted (4 July 2017) to the National Offshore Petroleum Safety and Environmental Management Authority (“NOPSEMA”) for their approval to undertake the planned seismic survey in PEP11.
A meeting of representatives of Advent with relevant stakeholders was held in Newcastle, NSW to ensure Advent met its obligations under the Offshore Petroleum and Greenhouse Gas Storage (Environment) Regulations 2009. They were held to consider potential impacts of Advent’s planned seismic operations on relevant stakeholders and other users of that marine environment.
In June 2017, Advent appointed Mr Greg Channon and Ms Diana Hoff to its Board. Mr Channon is a geologist with over 30 years of global oil and gas experience in a wide variety of technical and leadership roles. He is currently the Executive Chairman of RL Energy, and a Non-Executive Director of Samson Oil and Gas.

Ms Hoff is a petroleum engineer with 30 years of international and Australian upstream oil and gas experience in technical and executive roles from drilling foreman to engineer, manager, general manager, vice president and CEO.

MEC Resources 2017 ANNUAL REPORT 13

DIRECTORS’ REPORT

After Balance Date Events

On 4 July 2017, MEC issued a statutory demand to BPH Energy Ltd (“BPH”) for payment of monies arising from a default by BPH of an outstanding loan recorded in a written agreement between the Company and BPH. The loan became due and payable on 24 December 2016 and is currently accruing interest at a default interest rate of 20.97% per annum. On 21 July 2017, the Company withdrew its Statutory Demand against BPH Energy Ltd in an attempt to achieve global resolution of legal disputes between the Company, BPH Energy Ltd and Grandbridge Ltd.

Furthermore, the claims between each of BPH Energy Ltd, Grandbridge Ltd and MEC have been temporarily suspended or withdrawn to determine if the disputes can be resolved in an informal setting with a view to saving the Company significant legal cost. The withdrawal of the Statutory Demand by MEC should not in any way be construed as MEC resiling from the amounts it alleges are owed to it. It should be viewed as an attempt by the Board to resolve its disputes in the most commercial way possible so that the Company can focus on its core business.

On 4 July 2017 Advent Energy submitted an Environment Plan (“EP”) to the National Offshore Petroleum Safety and Environment Management Authority (“NOPSEMA”) for the planned 2D high resolution seismic survey in PEP11, offshore Sydney Basin.

The EP, submitted by Asset Energy Pty Ltd (wholly owned subsidiary of investee company Advent), is the critical documentation necessary to be submitted to NOPSEMA to allow the seismic survey to proceed in PEP11. Response was received by NOPSEMA on 3 August 2017 requesting modification and resubmission of the EP. In consultation with NOPSEMA, the revised EP will be submitted by 15 October 2017.

Future Developments

The Company will continue to develop its investee portfolio projects including PEP 11, RL1 and EP 386 and will evaluate and consider investment in a range of energy/resource projects.

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Information on Directors

H Goh Non-Executive Chairman – Age 62

Shares held in MEC – 7,628,397 Shares held in Advent – 3,000,000 Listed Options held – nil Unlisted Options held MEC – nil

Hock was formerly President of Network and Infrastructure Solutions, a division of Schlumberger Ltd, based in London with revenue in excess of US$1.5 billion. He had global responsibility of Schlumberger’s outsourcing services, security, business continuity and networked related business units.

Prior to that, Hock was President of Schlumberger Asia based in Beijing, China where he managed their Asian operations consisting of a broad range of services including oil field services, IT outsourcing, financial software and smartcards.

In his 25 year career with Schlumberger, Hock held several other field and management responsibilities in the oil and gas industry spanning more than ten countries in Asia, the Middle East and Europe. Hock started as an oil field service engineer in Indonesia in 1980 before moving to Australia where he worked on the rigs in Roma, Queensland, Bass Strait in Victoria and the Northwest Shelf, offshore Western Australia.

After retiring from Schlumberger, Hock was a partner with Baird Asia Capital Partners, the U.S. based buyout fund of Baird Private Equity, providing change-of-control and growth capital to middle-market companies.

Hock who currently resides full time in Sydney serves on the boards of Santos Limited, Stora Enso Ojy, AB SKF and Versuvius PLC. He received his B Eng (Hons) in Mechanical Engineering from Monash University, Australia in 1980. He also completed an Advanced Management Program at INSEAD/ France in 2004.

In the past three years he has also been a director of BPH Energy Ltd. He is no longer a member of this company.

K O Yap Non-Executive Director – Age 55

Shares held MEC – 7,273,035 Listed options – nil Unlisted Options held in MEC – nil

K.O Yap has over 16 years experience in investment banking. He has recently helped establish Hexa Asset Management in Hong Kong. Prior to this, K.O was Head of Corporate Finance at Daiwa Securities (H.K.) Ltd., Executive Director at Alta Financial Group and founder of Eton Advisory Services.

His career took him from general audit, computer audit and corporate advisory with Ernst & Young in London to investment banking with Barclays de Zoete Wedd Asia Ltd. and then Daiwa Securities (H.K.) Ltd.

His extensive experience covers all aspects of corporate finance, advisory, M&A and capital raisings throughout Asia. These include privatisation, listing and public offerings from the PRC (Northeast Electric, H-Share), Malaysia (Petronas Gas) and Thailand (PTTEP); equity-linked issues from HK (Emperor International) and Thailand (Bangkok Land) and debt issues including a samurai bond for Wharf (H.K.).

K.O also has extensive experience in mergers and acquisitions (and related restructurings) with transactional experience in Thailand, Indonesia, Malaysia, Hong Kong and China.

K.O is a graduate from the London School of Economics, in 1984 and is also a fellow of the Institute of Chartered Accountants in England and Wales.

MEC Resources 2017 ANNUAL REPORT 15

DIRECTORS’ REPORT

Information on Directors (continued)

D Ambrosini Executive Director and Company Secretary – Age 43

Shares held – nil Listed options – nil Unlisted Options held in MEC – nil Unlisted Options held in Advent – nil

Deborah is a fellow of Chartered Accountants Australia and New Zealand with over 20 years’ experience in accounting and business development spanning the biotechnology, mining, IT communications and financial services sectors. She has extensive experience both nationally and internationally in financial and business planning, compliance and taxation.

She was a state finalist in the 2009 Telstra Business Woman Awards and was a recipient of the highly regarded 40 under 40 award held by the WA Business News.

In the past three year Deborah was a Director of BPH Energy Ltd and Grandbridge Ltd. She is no longer a member of these companies.

H Yu Non-Executive Director and Company Secretary – Age 55 (appointed 24 November 2016)

Shares held – 45,000 Listed options – nil Unlisted Options held in MEC – nil Unlisted Options held in Advent – nil

Mr Yu has over 25 years experience in the Oil and Gas Industry and has held senior positions for a number of highly regarded companies in China.

Mr Yu is a Senior Geologist and brings with him advanced skills in Geology Fundamentals, Modelling, Reserves Calculation, correlation and analysis. His strengths lie in Borehole image processing and interpretation, multiwell correlation and interpretation, as well as integrated reservoir analysis.

Mr Yu has been involved in and contributed to a number of professional publications for projects in China. Mr Yu holds a Bachelor Degree in Geology from the Southwest Petroleum Institute in China.

D Moore Non-Executive Director– Age 47 (appointed 10 April 2017)

Shares held – 666,667 Listed options – nil Unlisted Options held in MEC – nil Unlisted Options held in Advent – nil

Mr Moore, an experienced company director, is a professional Drilling Engineer and 1993 honours graduate from the University of New South Wales. He has performed drilling engineering services for major oil and gas companies including Shell, Chevron, Phillips, ENI and Woodside on international projects. These have been undertaken in the Middle East, Australia’s North West Shelf, and south-east Asia.

Mr Moore also provided drilling engineering services to Advent Energy in 2010 including the design of an exploration well targeting the Baleen prospect. It is expected that Mr Moore’s skills will enhance potential for exploration success in the future considering his intimate knowledge of the Baleen prospect, which is currently the subject of the planned 2D seismic survey.

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Remuneration Report (Audited)

This report details the nature and amount of remuneration for key management personnel of MEC Resources Ltd. The remuneration report details the remuneration arrangements for KMP who are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Group, directly or indirectly, including any Director (whether executive or otherwise) of the Group.

This information provided in this remuneration report has been audited as a required by Section 308(3C) of the Corporations Act 2001 .

The Directors and other key management personnel of the Group during or since the end of the financial year were:

H Goh – Non-Executive Chairman

K O Yap - Non-Executive Director

D Ambrosini – Executive Director and Company Secretary

H Yu – Non-Executive Director (appointed 24 November 2016)

D Moore – Non-Executive Director (appointed 10 April 2017)

G Channon – Non-Executive Director of Advent (appointed 6 June 2017)

D Hoff – Non-Executive Director of Advent (appointed 7 June 2017)

E H Tan – Non-Executive Director of Advent (resigned 6 June 2017)

D L Breeze - Executive Director (terminated 23 November 2016)

All the parties have held their current position for the whole of the financial year and since the end of the financial year unless otherwise stated.

Remuneration Policy

The remuneration policy of MEC Resources Ltd has been designed to align director and executive objectives with shareholder and business objectives by providing a fixed remuneration component and offering specific long-term incentives as determined by the Board and/or shareholders. The remuneration report, as contained in the 2016 financial accounts was adopted at the Company’s 2016 annual general meeting. Remuneration for both Executive and Non-Executive directors has not increased since company inception. Although remuneration is reviewed annually against local market levels, the Board believes this course of action to be appropriate.

All Directors have agreed to reduce their Director fees to a nominal amount of $1 per year at this time. Director fees had previously been accrued at agreed rates.

The Board’s policy for determining the nature and amount of remuneration for Board members and senior executives of the Company is as follows:

The remuneration policy, setting the terms and conditions for the executive directors and other senior executives, was approved by the Board.

All executives, unless otherwise agreed receive a base salary (which is based on factors such as length of service and experience), superannuation, fringe benefits and options.
The Board reviews executive packages annually by reference to the Company’s performance, executive performance and comparable information from industry sectors and other listed companies in similar industries.

MEC Resources 2017 ANNUAL REPORT 17

DIRECTORS’ REPORT

Remuneration Policy (Continued)

Remuneration philosophy

The performance of the Company depends upon the quality of the Directors and executives. The philosophy of the Company in determining remuneration levels is to:

set competitive remuneration packages to attract and retain high calibre employees;
link executive rewards to shareholder value creation; and
establish appropriate, demanding performance hurdles for variable executive remuneration

The performance of executives is measured against criteria agreed with each executive and is based predominantly on the forecast growth of the Company’s profits and shareholders’ value. The Board may, however, exercise its discretion in relation to approving incentives, bonuses and options. Any changes must be justified by reference to measurable performance criteria. The policy is designed to attract the highest calibre of executives and reward them for performance that results in long-term growth in shareholder wealth.

Executives are also entitled to participate in the employee share and option arrangements.

Where agreed the executives receive a superannuation guarantee contribution required by the government, which is currently 9.50%, and do not receive any other retirement benefits.

Shares given to directors and executives are valued as the difference between the market price of those shares and the amount paid by the director or executive. Options are valued using an appropriate methodology.

The Board policy is to remunerate non-executive directors at market rates for comparable companies for time, commitment and responsibilities. Payments to non-executive directors are based on market practice, duties and accountability. Independent external advice may be sought when required on payments to non-executive directors. The maximum aggregate amount of fees that can be paid to non-executive directors is subject to approval by shareholders at the Annual General Meeting. Fees for non-executive directors are not linked to the performance of the Company. However, to align directors’ interests with shareholder interests, the directors are encouraged to hold shares in the Company and are able to participate in the employee option plan.

A policy on Directors hedging their equity has not been implemented by the Consolidated Group.

Compensation Practices

The Board’s policy for determining the nature and amount of compensation of key management for the Group is as follows:

The compensation structure for key management personnel is based on a number of factors, including length of service, particular experience of the individual concerned, and overall performance of the Company. The contracts for service between the Company and key management personnel are on a continuing basis, the terms of which are not expected to change in the immediate future. Upon retirement, key management personnel are paid employee benefit entitlements accrued to date of retirement. Key management personnel are paid one months of salary in the event of redundancy and options not exercised before or on the date of termination will lapse after one month.

The Board determines the proportion of fixed and variable compensation for each key management personnel.

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Employment contracts of directors

The employment conditions of the chief financial officer and company secretary are formalised in a consulting contract. The contract is for a maximum payment of 3 days per week at a rate of $750 per day. Remuneration is not received for additional hours worked. The employment contract stipulates a one month resignation period. In the instance of serious misconduct, the company can terminate employment at any time. Any options not exercised before or on the date of termination will lapse after one month.

The remaining directors are consultants to MEC Resources Ltd and each party can terminate their services by written notice.

Details of Remuneration for the year ended 30 June 2017

The remuneration for each director of the consolidated entity receiving the highest remuneration during the year was as follows:

2017

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

Key Management Short-term Post-employment
Person Benefits Benefits
Cash, Salary Bonus Non-cash Other Superannuation
and Fees benefit
----- End of picture text -----

H Goh	33,328	-	-	-	-
K O Yap	8,332	-	-	-	-
D Ambrosini	79,934	-	-	-	-
H Yu	-	-	-	-	-
D Moore	-	-	-	-	-
E H Tan	8,332	-	-	-	-
G Channon	-	-	-	-	-
D Hoff	-	-	-	-	-
D Breeze	38,333	-	-	-	-

2017 (continued)

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

Key Management Long-term Share-based Total Performance Compensation
Person Benefits payment Related relating to options
Other Shares Options $ % %
----- End of picture text -----

H Goh	-	-	-	33,328	-	-
K O Yap	-	-	-	8,332	-	-
D Ambrosini	-	-	-	79,934	-	-
H Yu	-	-	-	-	-	-
D Moore	-	-	-	-	-	-
E H Tan	-	-	-	8,332	-	-
G Channon	-	-	-	-	-	-
D Hoff	-	-	-	-	-	-
D Breeze	-	-	-	38,333	-	-

MEC Resources 2017 ANNUAL REPORT 19

DIRECTORS’ REPORT

Details of Remuneration for the year ended 30 June 2017 (continued) 2016

Key Management Person H Goh	Cash, Salary and Fees 100,000	Short-term Benefts Bonus Non-cash beneft - -	Short-term Benefts Bonus Non-cash beneft - -	Other -	Post-employment Benefts Superannuation -
D L Breeze	115,000	-	-	-	-
K O Yap	25,000	-	-	-	-
D Ambrosini	50,000	-	-	-	-
E H Tan	25,000	-	-	-	-

2016 (continued)

Key Management Person H Goh	Long-term Benefts Other -	Share-based payment Shares Options - -	Total $ 100,000	Performance Related % -	Compensation relating to options % -
D L Breeze	-	- -	115,000	-	-
K O Yap	-	- -	25,000	-	-
D Ambrosini	-	- -	50,000	-	-
E H Tan	-	- -	25,000	-	-

Interest in the shares and options of the Company and related bodies corporate

The following relevant interests in shares and options of the Company or a related body corporate were held by Directors as at the date of this report.

Shareholdings - MEC Resources

Number of Shares Held by Key Management Personnel 2017

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

Balance Received as Options Net Change Balance
1.7.2016 Compensation Exercised Other 30.6.2017
----- End of picture text -----*

H Goh	5,085,498	-	-	2,542,799	7,628,397
K O Yap	4,039,350	-	-	2,424,345	7,273,035
D Ambrosini	-	-	-	-	-
H Yu	30,000	-	-	15,000	45,000
D Moore	666,667	-	-	-	666,667
G Channon	-	-	-	-	-
D Hoff	-	-	-	-	-
E H Tan	-	-	-	-	-

*During the year Mr Goh Hock, Mr KO Yap and Mr Heng Yu participated in the Company Non- Renounceable Entitlement Issue and took up their full entitlements.

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Shareholdings - Advent Energy

Number of Shares Held by Key Management Personnel 2017

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

Balance Received as Options Net Change Balance
1.7.2016 Compensation Exercised Other 30.6.2017
----- End of picture text -----

H Goh	3,000,000	-	-	-	3,000,000
K O Yap	-	-	-	-	-
D Ambrosini	-	-	-	-	-
H Yu	-	-	-	-	-
D Moore	-	-	-	-	-
G Channon	-	-	-	-	-
D Hoff	-	-	-	-	-
E H Tan	2,000,000	-	-	-	2,000,000

The value of options lapsed during the year was nil. There were nil options exercised during the year.

The Company has an agreement with Ms Deborah Ambrosini on normal commercial terms procuring CFO and Company secretarial services of Ms Ambrosini for three days week. Additional service days are unpaid. The agreement is at the rate of $117,000 per annum, commencing from January 2017. This is included in Ms Ambrosini’s total remuneration above.

Board payments may be made up to a level of $250,000 per annum. Payments for Director fees are to be made up to $25,000 per annum per director and $50,000 per annum for the Chairman. Remuneration to the directors of Advent is included in the tables above. Directors of MEC Resources and Advent Energy have agreed to reduce their Director fees to the nominal amount of $1 at this time. Director fees had previously been accrued at an agreed rate.

There were no grants of share based payment compensation to directors and senior management during the year.

Company performance, shareholder wealth, and director and executive remuneration

The following table shows the gross revenue and the operating result for the last five years for the listed entity, as well as the share price at the end of the respective financial years. Analysis of the actual figures shows a decrease in the operating loss in the current year from the actual loss in the prior year. The Company is pleased to report that despite significant additional costs being incurred as a result of the former managing director and his associates causing the Company to hold two extraordinary general meetings and additional legal costs being incurred to recover Company property from these parties, the expenditure of the Company and its subsidiaries has decreased on a year to date basis compared with the previous financial year. The Board is of the opinion that the decreased loss is in line with expectations as efforts continue to cut the costs of the Company while navigating very difficult market conditions.

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2013 2014 2015 2016 2017
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Revenue	164,590	58,933	28,524	23,984	61,061
Net Proft/Loss	(3,263,080)	(1,916,524)	(2,903,730)	(1,300,678)	(1,030,674)
Shareprice at Year end	$0.038	$0.037	$0.019	$0.029	$0.03
Lossper share	($1.31)	($0.87)	($0.01)	($0.06)	($0.05)

End of remuneration report.

MEC Resources 2017 ANNUAL REPORT 21

DIRECTORS’ REPORT

Meetings of Directors

During the financial year, one meeting of directors (including committees of directors) was held. The Board meets much more regularly by telephone to make day-to-day decisions with respect to the business of the Company. Attendances by each director during the year were:

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

Directors’ Meetings
Number eligible to attend Number attended
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H Goh	1	1
D L Breeze	-	-
K O Yap	1	1
D Ambrosini	1	1
H Yu	1	1
D Moore	1	1

Indemnifying Officers or Auditors

During or since the end of the financial year the company has given an indemnity or entered an agreement to indemnify, or paid or agreed to pay insurance premiums as follows:

The company has paid premiums to insure each of the following directors against liabilities for costs and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in the capacity of director of the company, other than conduct involving a wilful breach of duty in relation to the company. The amount of the premium was $25,520.

D Ambrosini
H Goh
K O Yap
D Moore
H Yu
G Channon
D Hoff

The company has not indemnified the current or former auditor of the company.

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Options

At the date of this report, the unissued ordinary shares of MEC Resources Ltd under unlisted options are as follows:

MEC Resources Ltd

Grant Date	Date of Expiry	Exercise Price	Number Under Option
01/07/2013	30/06/2018	$0.10	950,000
02/04/2016	31/03/2020	$0.06	2,400,000

During the year ended 30 June 2017, nil ordinary shares of MEC Resources Ltd were issued on the exercise of options granted under the MEC Resources Ltd Incentive Option Scheme (2016: nil). No amounts are unpaid on any of the shares.

No person entitled to exercise the option had or has any right by virtue of the option to participate in any share issue of any other body corporate.

Proceedings on Behalf of Company

On 2 February 2017, the Company issued a legal proceeding out of the Supreme Court of Western Australia against Trandcorp Pty Ltd (“Trandcorp”) and former Managing Director, Mr Breeze, in order to protect its interests and its confidential information. In this proceeding, the Company asserts that it is not in possession of all Company property and data under the control of Trandcorp and Mr Breeze despite contractual obligations requiring the return of this material following the termination of Trandcorp’s engagement as consultant and the cessation of Mr Breeze’s appointment as Managing Director of the Company in late November 2016.

The Company seeks, among other things, orders for the return of Company property and data and damages for breach of the consultancy agreement.

Mr Breeze and his associated party have filed and served a defence and counterclaim in the proceedings. The Company denies the counterclaim.

Environmental Issues

On 4 July 2017, an Environmental Plan (EP) was prepared for submission to the National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA) to assist in acquisition of 200 line km of 2D seismic data in PEP11 by title holder Asset Energy Pty Ltd. The EP included considerable stakeholder engagement and consultation, including a stakeholder engagement session held in Newcastle on 25 May 2017. Noise propagation modelling was undertaken by SLR Consulting to understand the potential impacts of the seismic airgun source intended to be used in the planned survey. The modelling demonstrated that the noise source was of considerably low impact relative to other seismic survey environment plans considered by NOPSEMA. Combined with the short duration (~4 days) and confined location of the survey, the directors are optimistic that the relatively low impact survey may gain approval from NOPSEMA in a reasonable timeframe. Response was received from NOPSEMA on 3 August 2017 requesting modification and resubmission of the EP. In consultation with NOPSEMA, a revised EP will be submitted to NOPSEMA by 15 October 2017.

MEC Resources 2017 ANNUAL REPORT 23

DIRECTORS’ REPORT

Non-audit Services

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

all non-audit services are reviewed and approved by the Board prior to commencement to ensure they do not adversely affect the integrity and objectivity of the auditor; and
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.

No fees for non-audit services were paid/payable to the external auditors during the year ended 30 June 2017 (2016: Nil).

Auditor’s Independence Declaration

The lead auditor’s independence declaration for the year ended 30 June 2017 has been received and can be found on page 25.

The directors’ report is signed in accordance with a resolution of directors made pursuant to S298(2) of the Corporations Act 2001 .

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Goh Hock Chairman

Dated this 30th Day of August 2017

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AUDITOR’S INDEPENDENCE DECLARATION

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As lead auditor for the audit of the consolidated financial report of MEC Resources Ltd for the year ended 30 June 2017, I declare that, to the best of my knowledge and belief, there have been no contraventions of:

a) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
b) any applicable code of professional conduct in relation to the audit.

This declaration is in relation to the MEC Resources Ltd and the entities it controlled during the period.

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Perth, Western Australia 30 August 2017

B G McVeigh Partner

HLB Mann Judd (WA Partnership) ABN 22 193 232 714 Level 4 130 Stirling Street Perth WA 6000 | PO Box 8124 Perth BC 6849 | Telephone +61 (08) 9227 7500. Fax +61 (08) 9227 7533 Email: [email protected] | Website: www.hlb.com.au Liability limited by a scheme approved under Professional Standards Legislation

HLB Mann Judd (WA Partnership) is a member of International, a worldwide organisation of accounting firms and business advisers.

MEC Resources 2017 ANNUAL REPORT

CORPORATE GOVERNANCE STATEMENT

The Board of Directors of MEC Resources Limited (“MEC or “the company”) is responsible for the corporate governance of the economic entity. The Board guides and monitors the business and affairs of the company on behalf of the shareholders by whom they are elected and to whom they are accountable.

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

A copy of the Company’s Corporate Governance Statement can be found on the Company’s website at www.mecresources.com.au

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CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

for the year ended 30 June 2017

for the year ended 30 June 2017
Note Revenue 2 Other gains and losses 2 Other Income 2 Administration expenses Consulting and legal expenses 3 Depreciation and amortisation expense Employee expenses 3 Insurance expenses Interest expenses Data centre administration Service Fees Travelling expenses Other expenses Operating loss before income tax Income tax expense 8 Operating loss for the year Other Comprehensive Income Items that will never be reclassifed to proft or loss Items that are or may be reclassifed to proft or loss Total Comprehensive loss for the period Loss attributable to non-controlling interest Loss attributable to owners of the company Total Comprehensive loss attributable to non-controlling interest Total Comprehensive loss attributable to the owners of the company Earnings Per Share – Basic and diluted earnings per share (cents per share) 6	Consolidated 2017 $ 2016 $
	61,061 23,984 - - (6,080) 37,498 (73,075) (252,750) (420,990) (131,348) (893) (1,170) (299,565) (487,587) (32,545) (31,418) (3,024) (3,901) - (34) (129,050) (309,720) (31,845) (33,278) (94,668) (110,954)
	(1,030,674) (1,300,678) - -
	(1,030,674) (1,300,678) - - - -
	(1,030,674) (1,300,678)
	(129,781) (266,201)
	(900,893) (1,034,477)
	(129,781) (266,201)
	(900,893) (1,034,477)
	(0.44) (0.56)

The accompanying notes form part of these financial statements.

MEC Resources 2017 ANNUAL REPORT 27

CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at 30 June 2017

Note Current Assets Cash and cash equivalents 7 Trade and other receivables 9 Financial assets 13 Other current assets 10 Total Current Assets Non-Current Assets Intangible assets 11 Evaluation and exploration expenditure 12 Financial assets 13 Property, plant & equipment 14 Total Non-Current Assets Total Assets Current Liabilities Trade and other payables 15 Provisions 16 Financial liabilities 17 Total Current Liabilities Non-Current Liabilities Provisions 16 Total Non-Current Liabilities Total Liabilities Net Assets Equity Issued capital 18 Option Reserve 19 Accumulated losses Total Equity Attributable to Owners Non-controlling Interest Total Equity	Consolidated 2017 $ 2016 $
	600,601 877,018 126,644 118,322 385,646 44,867 26,777 30,138
	1,139,668 1,070,345
	22,674 22,674 29,050,947 29,022,046 113,008 453,415 1,295 1,782
	29,187,924 29,499,917
	30,327,592 30,570,262
	936,510 793,795 85,727 91,190 813,422 810,973
	1,835,659 1,695,958
	27,479 27,484
	27,479 27,484
	1,863,138 1,723,442

	28,464,454 28,846,820
	26,812,441 26,165,961 15,847,037 15,845,209 (26,775,213) (25,874,320)
	15,884,265 16,136,850 12,580,189 12,709,970
	28,464,454 28,846,820

The accompanying notes form part of these financial statements.

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CONSOLIDATED STATEMENT OF

CHANGES IN EQUITY for the year ended 30 June 2017

	Ordinary Share Capital $ Accumu- lated losses $ Option Reserve $ Contri- bution Reserve $ Total attributable to owners $ Non- controlling Interest $ Total Equity $
Balance at 1 July 2015 Loss attributable to members of the consolidated entity Other comprehensive income Total comprehensive income Transactions with owner in their capacity as owners Shares issued during the period (note 18) Reclassifcation of NCI to contribution reserve (note 19) Options issued during the fnancial period Balance at 30 June 2016 Balance at 1 July 2016 Loss attributable to members of the consolidated entity Other comprehensive income Total comprehensive income Transactions with owner in their capacity as owners Shares issued during the period (note 18) Options issued during the fnancial period Balance at 30 June 2017	25,529,466 (24,839,843) 522,672 - 1,212,295 28,292,390 29,504,685 - (1,034,477) - - (1,034,477) (266,201) (1,300,678) - - - - -
	- (1,034,477) - - (1,034,477) (266,201) (1,300,678) s 636,495 - - - 636,495 - 636,495 - - - 15,316,219 15,316,219 (15,316,219) - - - 6,318 - 6,318 - 6,318
	26,165,961 (25,874,320) 528,990 15,316,219 16,136,850 12,709,970 28,846,820
	26,165,961 (25,874,320) 528,990 15,316,219 16,136,850 12,709,970 28,846,820 - (900,893) - - (900,893) (129,781) (1,030,674) - - - - -
	- (900,893) - - (900,893) (129,781) (1,030,674) s 646,480 - - - 646,480 - 646,480 - - 1,828 - 1,828 - 1.828
	26,812,441 (25,874,320) 530,818 15,316,219 15,884,265 12,580,189 28,464,454

The accompanying notes form part of these financial statements.

MEC Resources 2017 ANNUAL REPORT 29

CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 30 June 2017

Note Cash Flows From Operating Activities Payments to suppliers and employees Interest received Net cash used in operating activities 20 Cash Flows From Investing Activities Amounts loaned to other entities Payments for property plant and equipment Payment for deferred expenditure – (net of reimbursements) Net cash (used in)/provided by investing activities Cash Flows From Financing Activities Proceeds from Share Issue Net cash provided by fnancing activities Net increase (decrease) in Cash Held Cash At the Beginning Of The Financial Year Cash At The End Of The Financial Year 7	Consolidated 2017 $ 2016 $
	(899,264) (881,080) 5,674 13,447
	(893,590) (867,633)
	- (160,000) (406) - (28,901) 62,585
	(29,307) (97,415)
	646,480 576,495
	646,480 576,495
	(276,417) (388,553) 877,018 1,265,571
	600,601 877,018

The accompanying notes form part of these financial statements.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2017

1. Statement of Significant Accounting Policies

Corporate Information

The financial report includes the consolidated financial statements and the notes of MEC Resources Ltd and its controlled entities (‘Consolidated Group’ or ‘Group’).

MEC Resources Ltd is a public listed company on the ASX, which is incorporated and domiciled in Australia. The financial report was authorised for issue on 30 August 2017 by the Board of Directors.

Basis of Preparation

The financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board (“AASB”) and the Corporations Act 2001 . MEC Resources Ltd is a for-profit entity for the purpose of preparing the financial statements.

Australian Accounting Standards set out accounting policies that the AASB has concluded would result in a financial report containing relevant and reliable information about transactions, events and conditions to which they apply. Material accounting policies adopted in the preparation of this financial report are presented below. They have been consistently applied unless otherwise stated.

The financial report has been prepared on an accruals basis and is based on historical costs, modified, where stated below.

Compliance with IFRS

The consolidated financial statements of MEC Resources Ltd comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

Financial Position

The Consolidated Group has incurred losses for the year ended 30 June 2017 of $1,030,674 (2016: $1,300,678) and has a net cash outflow from operating activities of $893,590 (2016: $867,633).

The Consolidated Group has a working capital deficit of $1,022,687 (Note 18b) as at 30 June 2017 (2016: $609,428) which includes cash assets of $600,601 as at 30 June 2017 (2016: $877,018), trade receivables of $126,644 (2016: $118,322), trade creditors and other payables of $936,515 and (2016: $793,795) and financial liabilities of $813,422 (2016: $810,973)

Included in trade creditors and payables are director fee accruals of $711,332 (2016: $669,477). The directors have reviewed their expenditure and commitments for the Consolidated Group and have implemented methods of costs reduction. The directors as a part of their cash monitoring, have voluntarily suspended cash payments for their director’s fees prior to and as at the date of this report to conserve cash resources of the Company. In the event of termination of their services fees will become immediately payable, including any outstanding fees owed at 30 June 2017. In November 2016, the Directors of MEC Resources and Advent Energy agreed to reduce their Director fees to the nominal amount of $1 to further assist the Company. Director fees had previously been accrued at an agreed rate.

The Group’s subsidiary Advent Energy Ltd, has commitments for its exploration permits of $20,522,500 over the next 12 months under the terms of its application licence in order to maintain tenure. Advent is continually seeking and reviewing potential sources of both equity and debt funding. Advent completed a strategic review of its core assets and is now embarking on a fresh marketing campaign to attract new investors and/or joint venture partners. Management has confidence that a suitable outcome will be achieved however there is no certainty at this stage that this will result in further funding being made available.

MEC Resources 2017 ANNUAL REPORT 31

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2017

1. Statement of Significant Accounting Policies (continued)

Financial Position (continued)

The directors have prepared cash flow forecasts that indicate that the Consolidated Group will have sufficient cash flows to meet its non-exploration commitments and a portion of exploration commitments for a period of at least 12 months from the date of this report.

Included in financial assets is a loan receivable from BPH Energy Ltd for the amount of $340,779 which includes interest to 30 June 2017. The loan became due and payable on 24 December 2016 and is currently accruing interest at a default interest rate of 20.97% per annum. On 21 July 2017, the Company withdrew its Statutory Demand against BPH Energy Ltd in an attempt to achieve global resolution of legal disputes between the Company, BPH Energy Ltd and Grandbridge Ltd.

Based on the cash flow forecast, the directors not calling their outstanding fees and suspending cash payments as outlined above and the monitoring of operational costs, the directors are satisfied that, the going concern basis of preparation is appropriate. Notwithstanding this there exists a historical liability and the Company disputes the liability for these amounts. There is no formal agreement between Grandbridge Limited, BPH Energy Ltd and the Company in respect of these amounts. Should there be an unfavourable resolution this may cast doubt on the Group’s ability to continue as a going concern. The financial report has been prepared on a going concern basis, which assumes continuity of normal business activities and the settlement of liabilities in the ordinary course of business. For further disclosure regarding these amounts please refer to Note 17.

For further disclosure concerning the exploration permits and expenditure commitments of the Group and for the uncertainty regarding the ability of the Group to realise the associated capitalised exploration expenditure please refer to Note 12.

Accounting Policies

(a) Principles of Consolidation

A controlled entity is any entity which MEC Resources Ltd is exposed or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. A list of controlled entities is contained in Note 25 to the financial statements. All controlled entities have a June financial year-end. As at reporting date, the assets and liabilities of all controlled entities have been incorporated into the consolidated financial statements as well as their results for the year then ended.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate.

All inter-company balances and transactions between entities in the Consolidated Group, including any unrealised profits or losses, have been eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistencies with those policies applied by the parent entity.

Where controlled entities have entered or left the Consolidated Group during the year, their operating results have been included/excluded from the date control was obtained or until the date control ceased.

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Non-controlling interests in the results and equity of subsidiaries are shown separately in the statement of profit or loss and other comprehensive income, statement of changes in equity and statement of financial position respectively.

Changes in the Group’s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the company.

When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests.

Amounts previously recognised in other comprehensive income in relation to the subsidiary are accounted for (i.e. reclassified to profit or loss or transferred directly to retained earnings) in the same manner as would be required if the relevant assets or liabilities were disposed of. The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under AASB 139 Financial Instruments: Recognition and Measurement or, when applicable, the cost on initial recognition of an investment in an associate or jointly controlled entity.

(b) Business Combinations

Business combinations occur where control over another business is obtained and results in the consolidation of its assets and liabilities. All business combinations, including those involving entities under common control, are accounted for by applying the purchase method.

The purchase method requires an acquirer of the business to be identified and for the cost of the acquisition and fair values of identifiable assets, liabilities and contingent liabilities to be determined as at acquisition date, being the date that control is obtained. Cost is determined as the aggregate of fair values of assets given, equity issued and liabilities assumed in exchange for. Any deferred consideration payable is discounted to present value using the entity’s incremental borrowing rate. Acquisition-related costs are recognised in profit or loss as incurred.

Goodwill is recognised initially at the excess of cost over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If the fair value of the acquirer’s interest is greater than cost, the surplus is immediately recognised in profit or loss.

(c) Income Tax

The charge for current income tax expense is based on the profit for the year adjusted for any nonassessable or disallowed items. It is calculated using the tax rates that have been enacted or are substantially enacted by the balance sheet date. Deferred tax is accounted for in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. 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 is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is recognised in the statement of profit or loss and other comprehensive income except where it relates to items that may be recognised directly to equity, in which case the deferred tax is adjusted directly against equity.

MEC Resources 2017 ANNUAL REPORT 33

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2017

1. Statement of Significant Accounting Policies (continued)

(c) Income Tax (continued)

Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available against which deductible temporary differences or unused tax losses and tax credits can be utilised.

The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the Group will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law.

d) Property, plant and equipment

Each class of property, plant and equipment is carried at cost or fair value less, where applicable, any accumulated depreciation and impairment losses.

Plant and equipment

Plant and equipment are measured on the cost less accumulated depreciation and any impairment losses.

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.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of profit or loss and other comprehensive income during the financial period in which they are incurred.

Depreciation

The depreciable amount of all fixed assets including building and capitalised lease assets, but excluding freehold land, is depreciated on a straight-line basis over their useful lives to the consolidated Group commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements.

Class of Fixed Asset Depreciation Rate Plant and equipment 15.00 - 33.33%

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each statement of financial position date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s 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 statement of profit or loss and other comprehensive income. When revalued assets are sold, amounts included in the revaluation reserve relating to that asset are transferred to retained earnings.

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(e) Exploration 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 where right of tenure of the area of interest is current and 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. 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. Accumulated costs in relation to an abandoned area are written off in full against profit in the year in which the decision to abandon the area is made.

Once the technical feasibility and commercial viability of the extraction of mineral resources in an area of interest are demonstrable, exploration and evaluation assets attributable to that area of interest are first tested for impairment and then reclassified from Intangible assets to mining property and development assets within property, plant and equipment. Should exploration be successful and result in a project, 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 plant, equipment and building structures, waste removal, and rehabilitation of the site in accordance with clauses of the mining permits. Such costs have been determined using estimates of future costs, current legal requirements and technology.

Any changes in the estimates for the costs are accounted on a prospective basis. In determining the costs of site restoration, there is uncertainty regarding the nature and extent of the restoration due to community expectations and future legislation. Accordingly the costs have been determined on the basis that the restoration will be completed within one year of abandoning the site.

(f) Financial Instruments

Recognition and Initial Measurement

Financial instruments, incorporating financial assets and financial liabilities, are recognised when the Company 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 where the instrument is not classified as at fair value through profit or loss. Transaction costs related to instruments classified as at fair value through profit or loss are expensed to profit and loss immediately. 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 Company is 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 and loss.

MEC Resources 2017 ANNUAL REPORT 35

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS for the year ended 30 June 2017

1. Statement of Significant Accounting Policies (continued)

(f) Financial Instruments (continued)

Classification and Subsequent Measurement

(i) Financial assets at fair value through profit or loss

Financial assets are classified at fair value through profit and loss when they are held for trading for the purpose of short term profit taking, where they are derivatives not held for hedging purposes, or designated as such to avoid an accounting mismatch or to enable performance evaluation where a group of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Realised and unrealised gains and losses arising from changes in fair value are included in the profit and loss in the period in which they arise.

(ii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are initially recognised at fair value plus any directly attributable transaction costs and are subsequently measured at amortised cost using the effective interest rate method.

(iii) Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are either designated as such or that are not classified in any of the other categories.

The Group also has investments in unlisted shares that are not traded in an active market but that are also classified as available for sale financial assets and stated at fair value (because the directors consider that fair value can be reliably measured). Gains and losses arising from changes in fair value are recognised in other comprehensive income and accumulated in the investments revaluation reserve, with the exception of impairment losses, interest calculated using the effective interest method, and foreign exchange gains and losses on monetary assets, which are recognised in profit or loss.

(iv) Financial Liabilities

Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost using the effective interest rate method.

Fair value

Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm’s length transactions, reference to similar instruments and option pricing models.

Impairment

At each reporting date, the Group assesses whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale financial instruments, a significant or prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. Impairment losses are recognised in the statement of profit or loss and other comprehensive income.

Assets carried at amortised cost

For loans and receivables, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in profit or loss. If a loan or heldto-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Group may measure impairment on the basis of an instrument’s fair value using an observable market price.

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If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in profit or loss.

Assets classified as available-for-sale

If there is objective evidence of impairment for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in profit or loss.

Impairment losses on equity instruments that were recognised in profit or loss are not reversed through profit or loss in a subsequent period.

If the fair value of a debt instrument classified as available-for-sale increases in a subsequent period and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through profit or loss.

(g) Derivatives

Derivatives are initially recognised at fair value at the date the derivative contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognised in the statement of profit or loss and other comprehensive income immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in the statement of profit or loss and other comprehensive income depends on the nature of the hedge relationship.

A derivative with a positive fair value is recognised as a financial asset; a derivative with a negative fair value is recognised as a financial liability. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities.

(h) Impairment of Assets

The Group reviews non-financial assets, other than deferred tax assets, at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill, and intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated each year at the same time.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit” or “CGU”). An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the units, and then to reduce the carrying amounts of the other assets in the unit (group of units) on a pro rata basis.

MEC Resources 2017 ANNUAL REPORT 37

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2017

1. Statement of Significant Accounting Policies (continued)

(h) Impairment of Assets

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

(i) Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments, and bank overdrafts. Bank overdrafts are shown within short-term borrowings in current liabilities on the statement of financial position.

(j) Revenue

Revenue from the sale of goods is recognised upon the delivery of goods to customers.

Interest revenue is recognised when it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably. Interest revenue is accrued on a timely basis, by reference to the principal outstanding and at the effective interest rate applicable.

Dividend revenue is recognised when the right to receive a dividend has been established. Dividends received from associates and joint venture entities are accounted for in accordance with the equity method of accounting.

Revenue from the rendering of a service is recognised by reference to the stage of completion of the contract. All revenue is stated net of the amount of goods and services tax (GST).

(k) 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 statement of financial position are shown inclusive of GST.

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

(l) Trade and other payables

Liabilities are recognised for amounts to be paid in the future for goods or services received, whether or not billed to the Consolidated Group. The amounts are unsecured and are usually paid within 30 days. The carrying amounts of trade and other payables are assumed to be the same as their fair values due to their short-term nature. Trade and other payables are presented as current liabilities unless payment is not due within 12 months after the reporting period. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method.

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(m) Share based payments

Share based compensation benefits are provided to employees via the Company’s Employee Option plan.

The fair value of options granted under the Company’s Employee Option Plan is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognized over the period during which the employees become unconditionally entitled to the options.

The fair value at grant date is independently determined using an appropriate option pricing model that takes into account the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the share price at grant date and expected volatility of the underlying share, the expected dividend yield and risk free interest rate for the term of the option.

The fair value of the options granted excludes the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At each balance sheet date, the Company revises its estimate of the number of options that are expected to vest. The employee benefit expense recognised each period takes into account the most recent estimate. Upon the exercise of options, the balance of the share-based payments reserve relating to those options is transferred to share capital.

(n) Earnings per share

Basic earnings per share (EPS) is calculated as net profit/loss attributable to members, adjusted to exclude costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares, adjusted for any bonus element.

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares, and the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares.

(o) Foreign Currency

The individual financial statements of each group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each group entity are expressed in Australian dollars (‘$’), which is the functional currency of the company and the presentation currency for the consolidated financial statements. In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences are recognised in profit or loss in the period in which they arise.

MEC Resources 2017 ANNUAL REPORT 39

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2017

1. Statement of Significant Accounting Policies (continued)

(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) Employee Benefits

Provision is made for the company’s liability for employee benefits arising from services rendered by employees to statement of financial position. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. Employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits using a corporate bond rate.

(r) Critical Accounting Estimates and Judgements

The directors evaluate estimates and judgments 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.

Key Judgments – Impairment of capitalised and carried forward exploration expenditure

Exploration and evaluation costs are carried forward where right of tenure of the area of interest is current. These costs are carried forward in respect of an area that has not at statement of financial position date reached a stage that permits reasonable assessment of the existence of economically recoverable reserves, refer to the accounting policy stated in note 1(e). Refer to Note 12 for further discussion on the commitments of the exploration permits held by the Group.

(s) Application of New and Revised Accounting Standards

Standards and Interpretations applicable to 30 June 2017

In the year ended 30 June 2017, the Directors have reviewed all of the new and revised Standards and Interpretations issued by the AASB that are relevant to the Company and effective for the current annual reporting period. As a result of this review, the Directors have determined that there is no material impact of the new and revised Standards and Interpretations on the Company and, therefore, no material change is necessary to Group accounting policies.

Standards and Interpretations in issue not yet adopted

The Directors have also reviewed all Standards and Interpretations in issue not yet adopted for the year ended 30 June 2017. As a result of this review the Directors have determined that there is no material impact of the Standards and Interpretations in issue not yet adopted on the Company and, therefore, no change is necessary to Group accounting policies.

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2. Revenue Interest Revenue Interest revenue: other entities Total revenue Other Income and gains and losses Net gain/loss on the sale of assets Net gain/loss on fnancial assets designated as fair value through proft and loss Other income – R&D tax rebate 3. Loss For The Year Expenses Employee Expenses Salary Superannuation expense Other payroll expenses Consulting and Legal Consulting fees Legal fees	Consolidated 2017 $ 2016 $
	5,674 13,454 55,387 10,530
	61,061 23,984
	- - (57,465) -
	- - 51,385 37,498
	(6,080) 37,498
	279,134 458,149 18,620 18,946 1,811 10,492
	299,565 487,587
	181,996 127,113 238,994 4,235
	420,990 131,348

Significant additional legal costs were incurred in the period of December – June 2017 by the Company in response to the former managing director and his associates causing the company to hold two extraordinary general meetings, defend the recent rights issue with the Takeovers Panel and costs being incurred to recover Company property from these parties. A decision was made by the Company in July to temporarily suspend claims to determine if the disputes can be resolved in an informal setting with a view to saving the Company significant legal costs.

MEC Resources 2017 ANNUAL REPORT 41

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS for the year ended 30 June 2017

4. Auditors’ Remuneration Remuneration of the auditor of the parent entity for: HLB Mann Judd Nexia Perth Audit Services Remuneration of other auditors of subsidiaries for: - auditing or reviewing the fnancial report of subsidiaries HLB Mann Judd Nexia Perth Audit Services 5. Key Management Personnel Compensation (a) Names and positions held of economic and parent entity key management personnel in offce at any time during the fnancial year are:	Consolidated 2017 $ 2016 $
	24,500 16,000 - 10,491 5,500 5,000 - -
	30,000 31,491

4.
Auditors’ Remuneration
Remuneration of the auditor of the parent entity for:
HLB Mann Judd
Nexia Perth Audit Services
Remuneration of other auditors of subsidiaries for:
- auditing or reviewing the fnancial report of
subsidiaries
HLB Mann Judd
Nexia Perth Audit Services
5.
Key Management Personnel Compensation
(a)
Names and positions held of economic and parent entity key management
personnel in offce at any time during the fnancial year are:

Consolidated
2017
$ 2016
$

24,500
16,000
-
10,491
5,500
5,000
-
-

30,000
31,491

Key Management Personnel

H Goh – Non-Executive Chairman

K O Yap – Non-Executive Director

D Ambrosini – Executive Director

H Yu – Non-Executive Director (Appointed 24 November 2016)

D Moore – Non-Executive Director (Appointed 10 April 2017)

E H Tan – Non-Executive Director of Advent (resigned 6 June 2017)

G Channon – Non-Executive Director of Advent (Appointed 6 June 2017)

D Hoff – Non-Executive Director of Advent (Appointed 7 June 2017)

D Breeze – Managing Director – (terminated 23 November 2017)

Short term employee benefts Share based payments	Consolidated 2017 $ 2016 $
	168,259 315,000 - -
	168,259 315,000

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Included in trade creditors and payables are director fee accruals of $711,332 (30 June 2016: $669,477).

	Amount Owing
Director	30 June 2017
Goh Hock	301,821
K O Yap	49,185
Deborah Ambrosini	111,135
H Yu	-
D Moore	-
G Channon	-
D Hoff	-
Previous Directors	227,018
Balance owing	711,332

In November 2016, the consultancy agreement between the Company, Trandcorp Pty Ltd and Mr David Breeze under which Mr Breeze was appointed Managing Director of the Company was terminated. Directors of MEC Resources and Advent Energy have agreed to reduce their Director fees to the nominal amount of $1 during the transition phase. Director fees had previously been accrued at an agreed rate. Further Ms Deborah Ambrosini has offset an amount of her consulting fees against the prior year accruals to assist the Company in reducing its liabilities.

Key management personnel remuneration is disclosed in the remuneration report included in the directors report.

6. Earnings per share (a) Reconciliation of Earnings to Proft or Loss Net loss attributable to members of the parent Earnings used to calculate basic and diluted EPS (b) Weighted average number of ordinary shares outstanding during the year used in calculating basic and diluted EPS Loss per share (cents per share) The Company’s potential ordinary shares, being its options granted, are not considered dilutive as the conversion of these options will result in a decreased net loss per share. 7. Cash and cash equivalents Cash at bank and in hand Reconciliation of cash Cash at the end of the fnancial year as shown in the statement of cash fows is reconciled to items in the statement of fnancial position as follows: Cash and cash equivalents	Consolidated 2017 $ 2016 $
	(900,893) (1,034,477)
	(900,893) (1,034,477)
	186,766,240 184,403,862 (0.44) (0.56) 600,601 877,018
	600,601 877,018

MEC Resources 2017 ANNUAL REPORT 43

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS for the year ended 30 June 2017

8. Income Tax Expense (a) The components of tax expense comprise: Current tax Deferred tax The expense for the year can be reconciled to accounting loss as follows: Loss from continuing operations Prima facie tax payable on proft from ordinary activities before income tax at 30% (2015: 30%) Non deductible expenses Difference in tax rates of parent which is taxed at 25% (due to pooled development fund status) Unused tax losses not recognised as deferred tax assets Weighted average rate of tax (b) The following deferred tax balances at 30% (2016: 30%) have not been recognised Deferred Tax Assets: Temporary differences Carry forward revenue losses (c) Unrecognised deferred liabilities Exploration Expenditure	Consolidated 2017 $ 2016 $
	- - - - (1,030,674) (1,300,678)
	(390,202) (390,206) 71,698 1,271 27,816 40,691 209,688 348,244 - -
	-% -% 169,484 166,738 16,150,019 15,912,070 8,721,995 8,713,416

The above Deferred Tax Liabilities have not been recognised as they have been offset against to the carry forward revenue losses for which the Deferred Tax Asset has not been recognised.

The tax benefits of the above Deferred Tax Assets will only be obtained if:

(i) company derives future assessable income in a nature and of an amount sufficient to enable the benefits to be utilised;

(ii) the company continues to comply with the conditions for deductibility imposed by law; and

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

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9. Trade and other receivables Current Trade receivables Net GST receivables Other receivables Ageing of past due but not impaired 60-90 days 90-120 days 120 days and over Total 10. Other Assets Current Prepaid expenses 11. Intangibles Intangibles – Contacts database 12. Capitalised Exploration Costs Exploration expenditure capitalised Exploration and evaluation phases Reconciliation of movement during the year Opening balance at 1 July Capitalised expenditure – EP325 Capitalised expenditure – PEP11 Capitalised expenditure – EP386 Balance at 30 June	Consolidated 2017 $ 2016 $
	105,006 105,006 21,638 13,316 - -
	126,644 118,322
	- - - - 105,006 105,006
	105,006 105,006
	26,777 30,138
	26,777 30,138
	22,674 22,674
	22,674 22,674
	29,050,947 29,022,046
	29,050,947 29,022,046
	29,022,046 29,024,515 - - 10,000 (2,469) 18,901 -
	29,050,947 29,022,046

MEC Resources 2017 ANNUAL REPORT 45

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2017

12. Capitalised Exploration Costs (continued)

Recoverability of the carrying amount of exploration assets is dependent on the successful exploration and sale of natural gas. Capitalised costs amounting to $28,901 (2016: $nil) have been included in cash flows from investing activities in the statement of cash flows. Receipts for the sale of capitalised items of $nil (2016: $62,585) have been included in cash flows from investing activities in the statement of cash flows.

As at the date of these accounts, the Consolidated Group has current commitments for its exploration permits of $20,522,500 over the next 12 months. It is expected that this will change significantly upon conclusion of the 2D seismic survey in PEP11, as, once the PEP11 Year 2&3 commitments are achieved, it is open to Advent’s wholly owned subsidiary Asset Energy Pty Ltd to apply for variation to the PEP11 Year 4 and 5 work program which currently includes an exploration well in Year 4 and 500 km[2] 3D seismic in Year 5. To assist in meeting these commitments, the Group is continually seeking and reviewing potential sources of funding including farm-in and equity. The Company also believes that a number of the permit commitments for EP386 have already been met, totalling some $300,000 of indicative work commitments. Confirmation is being sought from the Western Australian Department of Mines, Industry, Regulation and Safety regarding this position.

Advent is currently in discussions with a number of parties on the terms of investment and management has confidence that a suitable outcome will be achieved. However, there is no certainty at this stage that those discussions will result in further funding being made available.

In relation to the Group’s exploration commitments (which include Asset Energy Pty Ltd completing 200km of 2D seismic and geotechnical studies within the PEP 11 area by 12 August 2016), Advent’s wholly owned subsidiary, Asset Energy Pty Ltd, lodged an application in respect of PEP11 with the National Offshore Petroleum Titles Administrator (“NOPTA”) prior to 30 June 2016 to, suspend the years 2 and 3 work commitments and request a subsequent extension of the PEP11 permit term. This application is still pending, however Asset Energy Pty Ltd has lodged an Environment Plan with the National Offshore Petroleum Safety and Environment Management Authority (NOPSEMA) in pursuit of the 200km 2D seismic work commitment.

Asset Energy Pty Ltd has invested over $25 million in the PEP11 title in recent history, and, along with its JV partner Bounty Oil and Gas NL, is committed to continuing to explore for and ultimately exploit any petroleum accumulations which may be identified in this title area.

In addition to the 2D seismic commitment in PEP11, Advent has commitments to drill an exploration well and perform a seismic survey by the end of March 2018 for EP 386. These 2 commitments comprise the significant balance of $2.5M and is included commitments shown above. It is anticipated that appropriate application will be made to the DMIRS in due course to allow Advent to complete these works in a suitable timeframe.

The application to vary a condition of the PEP11 title and suspend the years 2 and 3 work commitments was prepared following discussions with NOPTA, however a decision has not been received by the Company from NOPTA.

The above conditions indicate the uncertainty that may affect the ability of the Group to realise the carrying value of the exploration assets in the ordinary course of business.

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13. Financial Assets Current Loan receivable Total Loans receivable Loan to Grandbridge Limited (a) Loan to BPH Energy Ltd (b) Loan to BPH Energy Ltd (b) Fair Value through Proft and Loss Financial Assets Investment in BPH Energy Limited Available for sale fnancial assets Investment in Molecular Discovery Systems Ltd	Consolidated 2017 $ 2016 $
	385,646 44,867
	385,646 44,867
	44,867 44,867 340,779 - - 282,942 43,097 100,562 69,911 69,911
	113,008 453,415

(a) There is no formal agreement between Grandbridge Limited and the Company in respect of these amounts. Furthermore, and in an effort to set-off the Company’s claim against BPH Energy Ltd, Grandbridge Limited has recently purported to assign the receivable of this purported loan to BPH Energy Limited. The Company disputes the assignment of the purported debt.

(b) On 22 October 2014 MEC entered into a convertible loan agreement with BPH Energy Ltd for a maximum $200,000. Interest is charged monthly at a rate of 8.97% per annum. The funds were to be used for working capital. The loan agreement is convertible at the election of MEC. The issue price on conversion will be the higher of $0.04 cents per share and the average closing price of the Borrower Shares on the ASX over the 5 trading days immediately prior to the date of conversion. On 18 February 2016, the loan was extended to a maximum amount of $324,000. The loan became due and payable on 24 December 2016 and is currently accruing interest at a default interest rate of 20.97% per annum. On 21 July 2017, the Company withdrew its Statutory Demand against BPH Energy Ltd in an attempt to achieve global resolution of legal disputes between the Company, BPH Energy Ltd and Grandbridge Ltd.

MEC Resources 2017 ANNUAL REPORT 47

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2017

14. Property, Plant and Equipment Plant and Equipment: At cost Accumulated depreciation Total Property, Plant and Equipment Movements in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the current fnancial year. Consolidated Entity: Balance at the beginning of the year Additions Depreciation expense Carrying amount at the end of the year 15. Trade and other payables Trade payables Sundry payables and accrued expenses 16. Provisions Current Employee entitlements: Opening balance at 1 July Increase/Decrease in provision Balance at 30 June Share sale agreement Opening balance at 1 July Increase in provision Balance at 30 June Total Current Provisions	Consolidated 2017 $ 2016 $
	21,539 21,133 (20,244) (19,351)
	1,295 1,782
	1,782 2,952 406 - (893) (1,170)
	1,295 1,782
	121,497 82,488 815,013 711,307
	936,510 793,795
	9,347 5,173 (5,463) 4,174
	3,884 9,347 81,843 81,843 - -
	81,843 81,843
	85,727 91,190

Provision for Employee Entitlements

A provision has been recognised for employee entitlements relating to annual leave and long service leave. The measurement and recognition criteria relating to employee benefits has been included in Note 1 to this report.

Provision for Share Sale Agreement

A provision has been recognised for the payment of fees to relevant parties upon the successful listing of Advent Energy Ltd.

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Non-Current Employee entitlements: Opening balance at 1 July Increase/(Decrease) in provision Balance at 30 June Financial Liabilities Loans payable- Current Liabilities (a) Loan from BPH Energy Limited Loan from Grandbridge Limited Loans from other entities	Consolidated 2017 $ 2016 $
	27,484 18,750 (5) 8,734
	27,479 27,484
	41,935 39,486 770,129 770,129 1,358 1,358
	813,422 810,973

17. Financial Liabilities

The Company disputes the liability for these amounts. There is no formal agreement between Grandbridge Limited, BPH Energy Ltd and the Company in respect of these amounts. Furthermore, and in an effort to set-off the Company’s claim against BPH Energy Ltd, Grandbridge Limited has recently purported to assign the benefit of this purported loan to BPH Energy Limited. The Company disputes the entitlement of Grandbridge Limited or BPH Energy Limited to these amounts or to any assignment of the purported debt.

18. Issued Capital

Issued Capital
223,123,227 (2016: 200,034,633) fully paid ordinary shares Less: Capital raising costs Issued Capital The company does not have an authorised capital and issued shares have no par value. Ordinary Shares At the beginning of reporting period Shares issued during the year on conversion of options At reporting date	2017 2016	27,842,590 27,196,110 (1,030,149) (1,030,149)
		26,812,441 26,165,961
		2017 2016
	$ $ 26,165,961 25,529,466 646,480 636,495	No No 200,034,633 182,832,049 23,088,594 17,202,584
	26,812,441 26,165,961	223,123,227 200,034,633

On 14 March 2017 MEC announced a Non-Renounceable Entitlements Issue (“Entitlements Issue”). The Entitlements Issue Shareholders subscribed for 20,506,448 Entitlement Shares and 2,282,146 Shortfall Shares at an issue price of 2.8 cents per share. The total funds received from the issue were $638,080.63. A further 300,000 Shortfall Shares were issued on the 30 June 2017.

Fully Paid Ordinary Share Capital

Fully paid ordinary shares carry one vote per share and carry the right to dividends.

MEC Resources 2017 ANNUAL REPORT 49

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2017

18. Issued Capital (continued)

(a) Options

There were 3,350,000 unlisted employee options on issue at the end of the year:

Total number	Exercise price	Expiry date
MEC Resources
950,000	$0.10	30 June 2018
2,400,000	$0.06	31 March 2020
3,350,000

The market price of the company’s ordinary shares at 30 June 2017 was 3.0 cents.

The holders of options do not have the right, by virtue of the option, to participate in any share issue or interest issue of any other body corporate or registered scheme.

(b) Capital risk management

The Group’s and the parent entity’s objectives when managing capital are to safeguard their ability to continue as a going concern, so that they may continue to provide returns for shareholders and benefits for other stakeholders.

The focus of the Group’s capital risk management is the current working capital position against the requirements of the Group to meet corporate overheads and exploration commitments. The Group’s strategy is to ensure appropriate liquidity is maintained to meet anticipated operating requirements, with a view to initiating appropriate capital raisings as required. The working capital position of the Group and the parent entity at 30 June 2017 and 30 June 2016 are as follows:

Cash and cash equivalents Trade and other receivables Trade Payables and fnancial liabilities Working capital position	Consolidated 2017 $ 2016 $
	600,601 877,018 126,644 118,322 (1,749,932) (1,604,768)
	(1,022,687) (609,428)

Refer to Note 1 for working capital and financial position note.

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19. Reserves Options Reserve (a) Contributions Reserve (b) (a) The option reserve records items recognised as expenses in respect of the granting of Director and Employee share options. (b) The purpose of the contribution reserve is to refect the effect on equity of changes in ownership of the outside equity interest. Option Reserve Reconciliation of movement Opening balance Options charged during the year Closing balance Contribution Reserve Reconciliation of movement Opening balance Reclassifcation of NCI to Contribution reserve Closing balance The Group has reclassifed outside equity interest to a contribution reserve to refect the relative interest of the outside equity interest in the equity of the controlled entities. 20. Cash Flow Information (a) Reconciliation of Cash Flow from Operations with Proft after income tax Operating loss after income tax Non-cash fows in proft: Depreciation Revaluation on investments Share based payments Administration recharges Changes in net assets and liabilities, net of effects of purchase and disposal of subsidiaries (Increase)/decrease in trade and term receivables (Increase)/decrease in other assets Increase/(decrease) in trade payables and accruals Increase/(decrease) in provisions Net cash fow from operating activities	Consolidated 2017 $ 2016 $
	530,818 528,990 15,316,219 15,316,219
	528,990 522,672 1,828 6,318
	530,818 528,990
	15,316,219 - - 15,316,219
	15,316,219 15,316,219
	(1,030,674) (1,300,678) 893 1,170 57,465 - 1,832 66,318 - 104,911 (8,321) (3,863) (52,036) 2,880 142,719 248,721 (5,468) 12,908
	(893,590) (867,633)

MEC Resources 2017 ANNUAL REPORT 51

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2017

21. Financial Risk Management

(a) Financial Risk Management

The Group’s financial instruments consist mainly of deposits with banks, short-term investments, investments held for trading, accounts receivable and payable, and loans to and from related parties. The main purpose of non-derivative financial instruments is to raise finance for group operations policies.

i. Financial Risk Exposures and Management

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

Interest rate risk

Interest rate risk is managed with a mixture of fixed and floating rate debt.

Liquidity risk

The Group manages liquidity risk by monitoring forecast cash flows.

Credit risk

The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date to recognised financial assets, is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements.

Credit risk for derivative financial instruments arises from the potential failure by counter-parties to the contract to meet their obligations.

Equity Price Risk

The Group is exposed to equity price risks arising from equity investments. The performance of equity investments are reviewed biannually to market. The Group holds a diversified portfolio with investments in biotech and oil & gas exploration to manage this risk.

Equity Price Sensitivity Analysis

The sensitivity analyses below have been determined based on the exposure to equity price risks at the end of the reporting period.

If equity prices had been 5% higher/lower:

Net loss for the year ended 30 June 2017 would decrease/increase $2,155 (2016: increase/decrease by $5,028) as a result of the changes in fair value of financial assets through the profit and loss; and
The Group’s sensitivity to equity prices has not changed significantly from the prior year.

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(b) Financial Instruments

i. Interest rate risk

The Group’s exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of changes in market interest rates and the effective weighted average interest rates on classes of financial assets and financial liabilities, is as follows:

2017 Effective Average Interest Rate Payable %	Floating Interest Rate $ Fixed Interest Rate $ Non- Interest Bearing $ Total $
Financial Assets Cash and cash equivalents 1.50% Trade and other receivables - Financial Assets -current - Financial Assets- non-current 20.79% Financial Liabilities Trade and sundry Payables - Financial liabilities - 2016 Effective Average Interest Rate Payable %	600,601 - - 600,601 - - 126,644 126,644 - 340,779 44,867 385,646 - - 113,008 113,008
	600,601 340,779 284,519 885,120
	- - 936,515 936,515 - - 813,422 813,422
	- - 1,749,937 1,749,937
	Floating Interest Rate $ Fixed Interest Rate $ Non- Interest Bearing $ Total $
Financial Assets Cash and cash equivalents 1.79% Trade and other receivables - Financial Assets -current - Financial Assets- non-current 8.97% Financial Liabilities Trade and sundry Payables - Financial liabilities -	877,018 - - 877,018 - - 118,322 118,322 - - 44,867 44,867 - 282,897 170,518 453,415
	877,018 282,897 333,707 1,493,622
	- - 793,795 793,795 - - 810,973 810,973
	- - 1,604,768 1,604,768

MEC Resources 2017 ANNUAL REPORT 53

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2017

21. Financial Risk Management (continued)

(b) Financial Instruments (continued)
ii. Fair Values

The fair values of:

Term receivables are determined by discounting the cash flows, at the market interest rates of similar securities, to their present value.
Listed investments have been valued at the quoted market bid price at balance date. For unlisted investments where there is no organised financial market, the net fair value has been based on a reasonable estimation based on valuation techniques that are not based on observable market data.
Other loans and amounts due are determined by discounting the cash flows, at market interest rates of similar borrowings to their present value.
Other assets and liabilities approximate their carrying value.

No financial assets and financial liabilities are readily traded on organised markets in standardised form other than listed investments.

Aggregate fair values and carrying amounts of financial assets and financial liabilities at balance date:

Aggregate fair values and carrying amounts of financial assets and financial liabilities at

Aggregate fair values and carrying amounts of fnancial assets and fnancial liabilities at
balance date: Financial Assets Financial assets at fair value through proft or loss Available for sale fnancial assets Loans and receivables Financial Liabilities Other loans and amounts due Other liabilities	Consolidated 2017 2016 Carrying Amount Fair Value Carrying Amount Fair Value
	43,097 43,097 100,562 100,562 69,911 69,911 69,911 69,911 512,290 512,290 446,131 446,131
	625,298 625,298 616,604 616,604
	813,422 813,422 810,973 810,973 936,515 936,515 793,795 793,795
	1,749,937 1,749,937 1,604,768 1,604,768

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iii. Sensitivity Analysis

Interest Rate Risk

The Group has performed sensitivity analysis relating to its exposure to interest rate risk at balance date. This sensitivity analysis demonstrates the effect on the current year results and equity which could result from a change in these risks.

Interest Rate Sensitivity Analysis

The effect on profit and equity as a result of changes in the interest rate, with all other variables remaining constant would be as follows:

constant would be as follows:
Change in proft – Increase in interest rate by 1% – Decrease in interest rate by 0.5%	Consolidated Group 2017 2016
	4,000 13,400 (2,000) (6,700)

iv. Liquidity risk

The Group manages liquidity risk by maintaining adequate reserves and banking facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.

Liquidity is the risk that the company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset.

The following are the contractual maturities at the end of the reporting period of financial liabilities.

30 June 2017	Contractual cash fows Carrying amount Total 2 months or less 2-12 months 1-2 years 2-5 years More than 5 years
Financial liabilities Trade and other payables Unsecured loans 30 June 2016	936,515 (936,515) - (936,515) - - - 813,422 (813,422) - (813,422) - - -
	1,749,937 (1,749,937) - (1,749,937) - - -
	Contractual cash fows Carrying amount Total 2 months or less 2-12 months 1-2 years 2-5 years More than 5 years
Financial liabilities Trade and other payables Unsecured loans	793,795 (793,795) - (793,795) - - - 810,973 (810,973) - (810,973) - - -
	1,604,768 (1,604,768) - (1,604,768) - - -

MEC Resources 2017 ANNUAL REPORT 55

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2017

21. Financial Risk Management (continued)

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.

Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

30 June 2017 Financial assets at FVTPL – Investments in listed entities Available for sale fnancial assets – Investments in unlisted entities Total 30 June 2016 Financial assets at FVTPL – Investments in listed entities Available for sale fnancial assets – Investments in unlisted entities Total	Level 1 Level 2 Level 3 Total
	43,097 - - 43,097 - - 69,911 69,911
	43,097 - 69,911 113,008
	Level 1 Level 2 Level 3 Total
	100,562 - - 100,562 - - 69,911 69,911
	100,562 - 69,911 170,473

Reconciliation of Level 1 fair value measurements of financial assets:

Reconciliation of Level 1 fair value measurements of fnancial assets:
Opening balance Add: Purchases Total gains or loss in the proft and loss Proceeds from sale of listed investments Closing balance	2017 2016 Investments in listed entities (Level 1) Investments in listed entities (Level 1)
	43,097 100,562 - - - - - -
	43,097 100,562

The Consolidated Group sold its investment in Central Petroleum Ltd in the prior period.

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Reconciliation of Level 3 fair value measurements of financial assets:

Reconciliation of Level 3 fair value measurements of fnancial assets:
Opening balance Add: Purchases Total gains or loss in the proft and loss Closing balance	2017 2016 Available for sale (Level 3) Available for sale (Level 3)
	69,911 69,911 - - - -
	69,911 69,911

The company received through an in specie distribution an investment in Molecular Discovery Systems Ltd in January 2010. The investment in Molecular Discovery Systems Ltd was an arm’s length transaction.

The fair value of the Group’s investment in MDSystems as at 30 June 2017 has been arrived at on the basis of a valuation performed at 30 June 2015 by an independent expert valuer to the company and reassessed by management at 30 June 2017. The valuer holds the appropriate qualifications and recent experience in the valuation of investments of this nature. The fair value was determined using the relative valuation methodology. The approach considers the value of broadly comparable listed entities which are at a similar stage of biotechnology product life cycle to MDSystems. The valuation supported the carrying value of MEC’s AFS investment in the company. .

22. Operating Segment

Identification of reportable segments

The Group has identified its operating segments based on the internal reports that are reviewed and used by the Board and their management team (the chief operating decision makers) in assessing performance and in determining the allocation of resources.

The operating segments are identified by management based on their investment in exploration companies. Financial information of these investments is reported to the Board and their management team on at least a monthly basis. Currently, management’s focus is on the exploration program of Advent Energy project’s PEP 11, RL1 and EP 386, which is disclosed in Note 12.

The Group operates predominantly in one industry, namely investments in energy and mineral resources. These activities are predominantly in Australia.

Accounting policies and inter-segment transactions

The accounting policies used by the Group in reporting segments are the same as those contained in note 1 to the accounts and in the prior period.

MEC Resources 2017 ANNUAL REPORT 57

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2017

23. Events after the Balance Sheet Date

On 21 July 2017, the Company withdrew its Statutory Demand against BPH Energy Ltd in an attempt to achieve global resolution of legal disputes between the Company, BPH Energy Ltd and Grandbridge Ltd.

24. Related Party Transactions

(a) Directors’ Remuneration

Details of directors’ remuneration and retirement benefits are disclosed in the remuneration report in the Directors report and note 5.

(b) Directors’ Equity Holdings Ordinary Shares Held as at the date of this report by directors and their director-related entities in: MEC Resources Ltd Advent Energy Ltd	Parent 2017 2016 $ $
	15,613,099 24,722,836 7,000,000 7,000,000

(c) Related entities

A loan facility exists between Advent and its parent entity MEC, $3,600,000 (2016: $3,600,000). The loan is secured by a charge over all of the assets and rights of Advent Energy including but not limited to, all real and personal property, choses in action, goodwill and called but unpaid nominal and premium capital. The loan is due and payable on the earlier of a successful capital raising or the date that MEC issues a notice for repayment. On 20 July 2017 MEC Resources signed a variation to their secured loan agreement with Advent Energy Ltd which varied the agreement to incorporate a fixed repayment date 12 months from the date of this report or until Advent’s financial position improved. In any event the extension is to be refreshed and approved by MEC Resources after a 12-month period.

(d) Directors

The company has an agreement with Deborah Ambrosini and $63,268 (2016: $nil) was paid during the year.

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25. Controlled Entities and Non-Controlling Interests

(a) Controlled Entities

Controlled Entities
Name of Entity	Principal Activity	Country of	Ownership Interest
		Incorporation	%
Parent Entity			2017 2016
MEC Resources Limited	Investment	Australia
Subsidiaries of MEC Resources Ltd
Advent Energy Limited	Oil and Gas	Australia	44.29 44.29
	exploration and
	development
Asset Energy Pty Ltd	Oil and Gas	Australia	44.29 44.29
	exploration and
	development
Onshore Energy Pty Ltd	Oil and Gas	Australia	44.29 44.29
	exploration and
	development

MEC owns 44.29% equity interest in Advent and its subsidiaries and consequentially does not control more than half of the voting power of those shares. However, two members of the Board of MEC are on the Board of Advent and therefore has the ability to partake in decisions to add and remove directors of Advent. MEC directors abstain from Board decisions in Advent where a conflict exists and the two independent Directors have the decision-making power. MEC has control over the financial and operating policies of Advent. Therefore, Advent is controlled by the Group and is consolidated in these financial statements.

(b) Non-Controlling Interests

Ownership interests and voting rights in Advent Energy and its subsidiaries, held by non-controlling interests make up 55.71%.

Summarised financial information of Advent Energy and its subsidiaries is as follows:

2017	Current Assets Non- Current Assets Current Liabilities Non- Current Liabilities Revenues Loss for the Year Total Compre- hensive Loss for the Year
Advent Energy Ltd Asset Energy Pty Ltd Onshore Energy Pty Ltd	2,235,966 27,658,714 1,806,184 3,600,000 294 (209,432) (209,432)
	2,235,966 27,658,714 1,806,184 3,600,000 294 (209,432) (209,432)
	1,247 768,404 1,772,811 - - (831) (831)
	1,247 768,404 1,772,811 - - (831) (831)
	227 884,800 563,101 - - (25,274) (25,274)
	227 884,800 563,101 - - (25,274) (25,274)

MEC Resources 2017 ANNUAL REPORT 59

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS for the year ended 30 June 2017

25. Controlled Entities and Non-Controlling Interests (continued)

2016	Current Assets Non- Current Assets Current Liabilities Non- Current Liabilities Revenues Loss for the Year Total Compre- hensive Loss for the Year
Advent Energy Ltd Asset Energy Pty Ltd Onshore Energy Pty Ltd	2,240,548 27,640,660 1,583,267 3,600,000 1,708 (392,057) (392,057)
	2,240,548 27,640,660 1,583,267 3,600,000 1,708 (392,057) (392,057)
	1,878 758,404 1,762,611 - - (21,357) (21,357)
	1,878 758,404 1,762,611 - - (21,357) (21,357)
	1,184 884,800 538,784 - - (69,713) (69,713)
	1,184 884,800 538,784 - - (69,713) (69,713)

26. Share-Based Payments

The following share-based payment arrangements existed at 30 June 2017:

There were 3,350,000 unlisted employee options on issue at the end of the year:

Number	Exercise price	Expiry date	Issue Date	Fair Value at
				grant date
MEC Resources
950,000	$0.10	30 June 2018	1 July 2013	$0.1000
2,400,000	$0.06	30 March 2020	2 April 2015	$0.0032
3,350,000

At balance date, nil MEC share options have been exercised (2016: nil).

All options granted to key management personnel are ordinary shares in MEC Resources Ltd or its subsidiary Advent Energy Ltd, which confer a right of one ordinary share for every option held.

During the year, nil options (2016: nil) were issued under the company’s employee share option plan.

Outstanding at the beginning of the year Granted Exercised Expired / Cancelled Outstanding at year-end Exercisable at year-end	MEC Resources Ltd 2017 2016 Number of Options Weighted Average Exercise Price $ Number of Options Weighted Average Exercise Price $
	3,350,000 $0.071 5,425,000 $0.549 - - - - - - - - - - (2,075,000) $0.776
	3,350,000 $0.071 3,350,000 $0.071
	2,550,000 $0.075 1,433,333 $0.078

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Outstanding at the beginning of the year Granted Exercised Expired / Cancelled Outstanding at year-end Exercisable at year-end	Advent Energy Limited 2017 2016 Number of Options Weighted Average Exercise Price $ Number of Options Weighted Average Exercise Price $
	- - 2,500,000 $2.00 - - - - - - - - - - (2,500,000) $2.00
	- - - -
	- - - -

27. Contingent Liabilities

The Company seeks, among other things, orders for the return of Company property and data and damages for breach of the consultancy agreement.

Mr Breeze and his associated party have filed and served a defence and counterclaim in the proceedings. The Company denies the counterclaim

28. Commitments

Capital Commitments

In order to maintain an interest in the exploration tenements in which the Group is involved, the Group is committed to meet the conditions under which the tenements were granted.

Capital expenditure forecasted for at the reporting date but not recognised as liabilities as follows:

Work Program Commitments – Exploration permits Payable: Within one year Greater than one year less than fve years Total	Consolidated 2017 $ 2016 $
	20,520,500 4,797,500 - 15,722,500
	20,520,500 20,520,500

MEC Resources 2017 ANNUAL REPORT 61

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2017

28. Commitments (continued)

In relation to the Group’s exploration commitments (which include Advent Energy’s wholly owned subsidiary Asset Energy Pty Ltd completing 200km of 2D seismic and geotechnical studies within the PEP 11 area by 12 August 2016), Advent’s wholly owned subsidiary, Asset Energy Pty Ltd, lodged an application in respect of Petroleum Exploration Permit 11 (“PEP11”) with the National Offshore Petroleum Titles Administrator (“NOPTA”) prior to 30 June 2016 to suspend the years 2 and 3 work commitments and request a subsequent extension of the PEP11 permit term. This application is still pending, however Asset Energy Pty Ltd has lodged an Environment Plan with the National Offshore Petroleum Safety and Environment Management Authority (NOPSEMA) in pursuit of the 200km 2D seismic work commitment.

The application to suspend the years 2 and 3 work commitments for PEP 11 was prepared following discussions with NOPTA, however a decision has not been received by the Company from NOPTA.

29. Parent Entity Disclosures Financial Position Assets Current assets Non-current assets Total asset Liabilities Current liabilities Non-current liabilities Total liabilities Equity Issued Capital Retained earnings Reserves Option Reserve Total equity Financial Performance Loss for the year Other comprehensive income Total comprehensive income	Consolidated 2017 $ 2016 $
	5,476,064 1,615,345 3,460,800 7,400,797
	8,936,864 9,016,142
	667,431 599,860 27,479 27,484
	694,910 627,344
	26,812,441 26,165,961 (19,038,113) (18,242,961) 467,626 465,798
	8,241,954 8,388,798
	(795,147) (817,553) - -
	(795,147) (817,553)

62 MEC Resources 2017 ANNUAL REPORT

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DIRECTORS’ DECLARATION

The directors of the company declare that:

the financial statements and notes, as set out on pages 27 to 62, are in accordance with the Corporations Act 2001 and:
(a) comply with Accounting Standards and the Corporations Regulations 2001 ; and
(b) give a true and fair view of the financial position as at 30 June 2017 and of the performance for the year ended on that date of the consolidated entity;
the Financial Statements and Notes comply with International Accounting Standards as disclosed in Note 1;
the directors have been given the declarations required by S295A of the Corporations Act 2001.
in the directors’ opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.

Signed in accordance with a resolution of the directors made pursuant to S295(5) of the Corporations Act 2001 .

Director

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Goh Hock Chairman

Dated this 30th Day of August 2017

MEC Resources 2017 ANNUAL REPORT 63

INDEPENDENT AUDITOR’S REPORT

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To the Members of MEC Resources Ltd

REPORT ON THE AUDIT OF THE FINANCIAL REPORT

Opinion

We have audited the financial report of MEC Resources Ltd (“the Company”) and its controlled entities (“the Group”), which comprises the consolidated balance sheet as at 30 June 2017, the consolidated statement of profit or loss and other 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 30 June 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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Material uncertainty regarding carrying value of exploration expenditure

We draw attention to Note 12 to the financial statements which describes the uncertainty around the basis of continuing to recognise the carrying value of exploration and evaluation assets. Our opinion is not modified in respect of this matter.

Material uncertainty regarding going concern

Without modifying our opinion we draw attention to Note 1 to the financial report which sets out the uncertainty around Group’s ability to continue as a going concern and therefore, whether the Group will be unable to realise its assets and discharge its liabilities in the normal course of business.

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

Level 4 130 Stirling Street Perth WA 6000 | PO Box 8124 Perth BC 6849 | Telephone +61 (08) 9227 7500. Fax +61 (08) 9227 7533 Email: [email protected] | Website: www.hlb.com.au Liability limited by a scheme approved under Professional Standards Legislation

HLB Mann Judd (WA Partnership) is a member of International, a worldwide organisation of accounting firms and business advisers.

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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. In addition to the matter described in the Material Uncertainty Related to Going Concern section, we have determined the matters described below to be the key audit matters to be communicated in our report.

Key audit matter How our audit addressed the key audit matter

Recoverability of capitalised exploration and expenditure Note 12 to the financial report

In accordance with AASB 6 Exploration for and Evaluation of Mineral Resources, the Company capitalises all exploration and evaluation expenditure, including acquisition costs and subsequently applies the cost model after recognition.

Our audit focussed on the Company’s assessment of the carrying amount of the capitalised exploration and evaluation asset, as this is one of the most significant assets of the Company. We planned our work to address the audit risk that the capitalised expenditure might no longer meets the recognition criteria of the standard. In addition, we considered it necessary to assess whether facts and circumstances existed to suggest that the carrying amount of an exploration and evaluation asset may exceed its recoverable amount.

Our procedures included but were not limited to:

We considered the Director’s assessment of potential indicators of impairment;
We obtained evidence that the Group has current rights to tenure of its area of interest or for areas currently expired an understanding of the likelihood for renewal;
We examined the exploration budget for 2018 and discussed with management the nature of planned ongoing activities;
We enquired with management, reviewed ASX announcements and minutes of Directors’ meetings to ensure that the Group had not decided to discontinue exploration and evaluation at its area of interest: and
We examined and assessed the disclosures made in the financial report made in relation to the material uncertainties regarding recoverability

Information other than the financial report and auditor’s report thereon

The directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2017, but does not include the financial report and our auditor’s report thereon.

Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

MEC Resources 2017 ANNUAL REPORT 65

INDEPENDENT AUDITOR’S REPORT

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 have 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 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.

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.

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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.

REPORT ON THE REMUNERATION REPORT

Opinion on the remuneration report

We have audited the Remuneration Report included in pages 17 to 21 of the directors’ report for the year ended 30 June 2017.

In our opinion, the Remuneration Report of MEC Resources Ltd for the year ended 30 June 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.

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HLB Mann Judd Chartered Accountants

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B G McVeigh Partner

Perth, Western Australia 30 August 2017

MEC Resources 2017 ANNUAL REPORT 67

ADDITIONAL SECURITIES EXCHANGE INFORMATION

Additional information required by Australian Securities Exchange Limited and not shown elsewhere in this report as follows. The information is made up to 15 August 2017.

1. Distribution of Shareholders

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

Range of Holding Shareholders Number Ordinary %
Shares
----- End of picture text -----

Range of Holding	Shareholders Number Ordinary Shares %
1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over	475 195,957 0.09 431 1,294,089 0.58 437 3,857,062 1.73 1107 40,491,473 18.12 324 177,584,646 79.48
	2,774 223,423,227 100.00

2. (a) Distribution of Unlisted Optionholders

Range of Holding	Optionholders	Number of Options	%
MEC Resources
100,001 and over	4	3,350,000	100.00

3. Voting Rights - Shares

All ordinary shares issued by MEC Resources Ltd carry one vote per share without restriction.

4. Voting Rights - Options

The holders of employee options do not have the right to vote.

5. Restricted Securities

Restricted Securities
Shares- Number of Shares free of escrow Total Shares	223,423,227
	223,423,227

Options

Options
Number of Employee options not subject to Escrow (Not Listed) Total Options	3,350,000
	3,350,000

68 MEC Resources 2017 ANNUAL REPORT

TECHNOLOGY | RESOURCES | TAX CONCESSIONS

6. Tenements and Interests Held

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

Permit Details Interest Held Entity
----- End of picture text -----

Petroleum Exploration Permit 386	100%	Advent Energy
Petroleum Exploration Permit 11	85%	Advent Energy
Retention Licence 1	100%	Advent Energy

7. Twenty Largest Shareholders (as at 15 August 2017)

The names of the twenty largest shareholders of the ordinary shares of the company are:

Name

Number of ordinary
fully paid shares
% held of issued
ordinary capital

Healy Robert Anthony
HSBC Custody Nom (Aust) Ltd
Citicorp Nominees
Grandbridge Ltd
Breeze David
Trandcorp Pty Ltd
Protax Nominees
Semerdziev Ianaki
Trandcorp Pty Ltd
Gunthorpe Andrew John
Bujo Pty Ltd
Ware Colin Victor
Barter Ross Coventry
Davenport Roger Julian and Davenport Frances
Ming Ding Gui
Cubitt Vaughan Jeremy
Viney Christopher Walton and Julie Elizabeth
Lam Terry Luong and Chan Pui Sze
(Terry and Patsy Super Fund Ac)
Birch Lawrence Milton and Birch Jean Frances
Pereira Badura

11,868,108
9,144,772
8,460,331
9,747,362
6,722,081
6,227,238
3,000,000
2,879,831
2,648,669
2,598,021
2,405,405
2,300,000
2,259,982
2,008,619
2,000,000
2,000,000
1,735,246
1,700,000
1,520,992
1,518,549
5.31
4.09
3.79
3.40
3.01
2.79
1.34
1.29
1.18
1.16
1.08
1.03
1.01
0.90
0.90
0.90
0.78
0.76
0.68
0.68

82,745,206
36.08

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MEC Resources Limited ABN 44 113 900 020

Suite 2, Level 3 1111 Hay Street West Perth WA 6005 Telephone: (08) 9245 6187 Facsimile: (08) 9200 6193 Email: [email protected]

www.mecresources.com.au

Photographs and images used throughout this report do not depict assets of the company unless expressly indicated otherwise.

AI assistant

MEC RESOURCES LIMITED — Annual Report 2017

65353_rns_2017-09-24_782dbc57-1142-4140-b285-651b4696ff1e.pdf

Directors

Registered Office

Principal Business Address

Auditor

Share Registry

Australian Securities Exchange Listing

Australian Business Number

CONTENTS

CHAIRMAN’S REPORT

Dear Shareholder

PEP 11 – Offshore Sydney Basin

CHAIRMAN’S REPORT

PEP 11 – Offshore Sydney Basin (continued)

EP 386 – Onshore Bonaparte Basin

Pooled Development Fund

COMPANY FOCUS AND DEVELOPMENTS

MEC’s investment focus:

ADVENT ENERGY

Western Australia / Northern Territory – Onshore Bonaparte Basin

COMPANY FOCUS AND DEVELOPMENTS

Western Australia / Northern Territory – Onshore Bonaparte Basin (continued)

COMPANY FOCUS AND DEVELOPMENTS

PEP 11 Oil and Gas Permit

COMPANY FOCUS AND DEVELOPMENTS

PEP 11 Oil and Gas Permit (continued)

Cautionary Statement:

Competent Persons Statement:

Other Investments

DIRECTORS’ REPORT

Directors

Company Secretary

Principal Activities

Advent Energy Ltd - Oil and Gas

Cautionary Statement:

Competent Persons Statement:

Operating Results

Dividends

Financial Position

DIRECTORS’ REPORT

Significant Changes In State Of Affairs

Advent Energy Ltd

DIRECTORS’ REPORT

After Balance Date Events

Future Developments

Information on Directors

DIRECTORS’ REPORT

Information on Directors (continued)

Remuneration Report (Audited)

Remuneration Policy

All Directors have agreed to reduce their Director fees to a nominal amount of $1 per year at this time. Director fees had previously been accrued at agreed rates.

DIRECTORS’ REPORT

Remuneration Policy (Continued)

Remuneration philosophy

Compensation Practices

Employment contracts of directors

Details of Remuneration for the year ended 30 June 2017

2017

2017 (continued)

DIRECTORS’ REPORT

2016 (continued)

Interest in the shares and options of the Company and related bodies corporate

Shareholdings - MEC Resources

Shareholdings - Advent Energy

Company performance, shareholder wealth, and director and executive remuneration

DIRECTORS’ REPORT

Meetings of Directors

Indemnifying Officers or Auditors

Options

MEC Resources Ltd

Proceedings on Behalf of Company

Environmental Issues

DIRECTORS’ REPORT

Non-audit Services

Auditor’s Independence Declaration

AUDITOR’S INDEPENDENCE DECLARATION

CORPORATE GOVERNANCE STATEMENT

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

MEC RESOURCES LIMITED Annual Report 2017