ODYSSEY GOLD LTD - Annual Report 2012

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A N N U A L F I N A N C I A L R E P O R T

3 0 J U N E 2 0 1 2

ABN 73 116 151 636

CORPORATE DIRECTORY

DIRECTORS:

DIRECTORS: Mr Ian Middlemas – Chairman Mr Mark Pearce Mr David Cruse COMPANY SECRETARY: Mr Mark Pearce REGISTERED AND PRINCIPAL OFFICE: Level 9, BGC Centre 28 The Esplanade Perth WA 6000 Tel: +61 8 9322 6322 Fax: +61 8 9322 6558 SHARE REGISTER: Computershare Investor Services Pty Ltd Level 2 45 St Georges Terrace Perth WA 6000 Tel: 1300 557 010 Int: +61 8 9323 2000 Fax: +61 8 9323 2033 STOCK EXCHANGE LISTING: Australian Securities Exchange Home Branch – Perth 2 The Esplanade Perth WA 6000 ASX CODE: ODY – Fully paid ordinary shares ODYO - $0.05 Listed options SOLICITORS: Hardy Bowen Lawyers AUDITORS: Deloitte Touche Tohmatsu

CONTENTS
	Page
Directors' Report	1
Auditor's Independence Declaration	13
Statement of Comprehensive Income	14
Statement of Financial Position	15
Statement of Cash Flows	16
Statement of Changes in Equity	17
Notes to and forming Part of the Financial Statements	18
Directors' Declaration	54
Independent Auditor’s Report	55

DIRECTORS' REPORT

30 June 2012

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The Directors of Odyssey Energy Limited present their report on the consolidated entity consisting of Odyssey Energy Limited (“the Company” or “Odyssey” or “Parent Entity”) and the entities it controlled at the end of, or during, the year ended 30 June 2012 (“Consolidated Entity” or “Group”).

DIRECTORS

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

Mr Ian Middlemas Mr Mark Pearce Mr David Cruse

Unless otherwise disclosed, Directors held their office from 1 July 2011 until the date of this report.

CURRENT DIRECTORS AND OFFICERS

Ian Middlemas

Chairman Qualifications – B.Com, CA

Mr Middlemas is a Chartered Accountant, a member of the Financial Services Institute of Australasia and holds a Bachelor of Commerce degree. He worked for a large international Chartered Accounting firm before joining the Normandy Mining Group where he was a senior group executive for approximately 10 years. He has had extensive corporate and management experience, and is currently a director with a number of publicly listed companies in the resources sector.

Mr Middlemas was appointed a Director of the Company on 14 September 2009. During the three year period to the end – of the financial year, Mr Middlemas has held directorships in Berkeley Resources Limited (April 2012 present), Prairie – – Downs Metals Limited (August 2011 present), Papillon Resources Limited (May 2011 present), Pacific Ore Limited – – (April 2010 present), Wildhorse Energy Limited (January 2010 present), Equatorial Resources Limited (November 2009 – present), WCP Resources Limited (September 2009 – present), Sovereign Metals Limited (July 2006 – present), Sierra Mining Limited (January 2006 – present), Global Petroleum Limited (April 2007 – December 2011), Coalspur – – Mines Limited (March 2007 October 2011), Mantra Resources Limited (September 2005 June 2011), Aguia Resources Limited (September 2008 – August 2010), Pacific Energy Limited (June 2006 – August 2010), Indo Mines Limited (December 2006 – June 2010) and Neon Energy Limited (November 1995 – June 2010).

Mark Pearce

Non-Executive Director and Company Secretary Qualifications – B.Bus, CA, FCIS, F Fin

Mr Pearce is a Chartered Accountant and is currently a director of several listed companies that operate in the resources sector. He has had considerable experience in the formation and development of listed resource companies and has worked for several large international Chartered Accounting firms. Mr Pearce is also a Fellow of the Institute of Chartered Secretaries and a Fellow of the Financial Services Institute of Australasia.

Mr Pearce was appointed a Director and Company Secretary of the Company on 14 September 2009. During the three year period to the end of the financial year, Mr Pearce has held directorships in Prairie Downs Metals Limited (August 2011 – present), Pacific Ore Limited (April 2010 – present), Equatorial Resources Limited (November 2009 – present), – – WCP Resources Limited (September 2009 present), Sovereign Metals Limited (July 2006 present), Coalspur Mines Limited (March 2007 – October 2011), Aguia Resources Limited (September 2008 – October 2010) and Mantra Resources Limited (September 2005 – February 2010).

Odyssey Energy Limited

ANNUAL FINANCIAL REPORT 2012

DIRECTORS' REPORT

(Continued)

CURRENT DIRECTORS AND OFFICERS (Continued)

David Cruse

Non-Executive Director Qualifications – B.Pharm

Mr Cruse has had a long career in commerce and finance. He was a stockbroker for over 20 years, where he held senior management positions and directorships in the stockbroking industry, with particular focus on capital markets. Recently, Mr Cruse has been involved in the identification and commercialisation of a number of resource (including oil and gas) projects.

Mr Cruse was appointed a director of Odyssey Energy Limited on 3 October 2008. During the three year period to the end of the financial year, Mr Cruse has held directorships in CGA Mining Limited (November 2009 – present) and Sierra Mining Limited (January 2006 – March 2010).

PRINCIPAL ACTIVITIES

The principal activities of the Consolidated Entity during the financial year consisted of oil and gas exploration, appraisal and development activities. There has been no change in the nature of those activities.

EMPLOYEES

	2012	2011
The number of full time equivalent people employed by the
Consolidated Entity at balance date	-	-

DIVIDENDS

No dividends have been declared, provided for or paid in respect of the year ended 30 June 2012 (2011: nil).

EARNINGS PER SHARE

	2012	2011
	Cents	Cents
Basic loss per share	(0.19)	(0.25)
Diluted loss per share	(0.19)	(0.25)

CORPORATE STRUCTURE

Odyssey Energy Limited is a company limited by shares that is incorporated and domiciled in Australia. The Company has prepared a consolidated financial report including the entities it incorporated and controlled during the financial year.

CONSOLIDATED RESULTS

	2012	2011
	$	$
Loss of the Consolidated Entity before income tax expense	(808,955)	(609,638)
Income tax expense	-	-
Net loss for the year	(808,955)	(609,638)

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Review of Results

The consolidated loss for the 2012 financial year was $808,955 (2011: $609,638) and included the following material expense:

An expense for the impairment in the value of the investment in Marion Energy of $440,000 (2011: $247,500).

REVIEW OF OPERATIONS

The Company has continued to focus on identifying new business opportunities in the energy sector, and examined a number of oil and gas and other energy projects during the year.

Activities on the Company’s McClain County Project are currently being limited to desktop reviews of geological information and monitoring activities and results of nearby projects, due to a prolonged reduction in US gas prices.

Odyssey acquired a 50% working interest in this project in mid 2008 which is located in Oklahoma and comprises 1,626 gross acres, and targeting gas and associated oil in the Woodford Shale at between 6,000 and 8,000 feet.

The Company continues to hold 27.5 million shares in Marion Energy Limited which it received following the sale of its subsidiary OEL Operating (USA) to Marion Energy Limited.

Marion Energy did not lodge its 30 June 2011 Annual Financial Statements by 30 September 2011 and accordingly its securities were suspended from trading on the ASX with effect from 3 October 2011. The Company fully impaired its investment in Marion Energy during the year.

Corporate and Financial Position

The Company had cash reserves of $2.0 million at 30 June 2012, placing the Company in a good position to conduct its current activities and to pursue new business development opportunities.

Business Strategies and Prospects

The Company currently has the following business strategies and prospects over the medium to long term:

continuing to examine other new business development opportunities in the energy sector, both locally and overseas; and
seek to maximise the value of the Group's current oil and gas assets, located in Oklahoma, USA.

Odyssey Energy Limited

ANNUAL FINANCIAL REPORT 2012

DIRECTORS' REPORT

(Continued)

REVIEW OF OPERATIONS (Continued)

Operations

In mid 2008 Odyssey acquired a 50% working interest in a new project area in Oklahoma comprising 1,626 gross acres, and targeting gas and associated oil in the Woodford Shale at between 6,000 and 8,000 feet.

Operators in adjacent counties have been focusing on developing this Shale as a liquids-rich gas play at depths from approximately 10,000 to 15,000+ feet.

– While drilling has now extended to Grady County immediately west of McClain, the evaluation is currently focused on considerably greater depths than the prospective section in the Company’s acreage; which is likely to be oil rather than gas prone.

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McClain County Oil & Gas Project, South-Central Oklahoma

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SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

There were no significant changes in the state of affairs of the Group during the year other than the following:
The Company continues to hold 27,500,000 fully paid ordinary shares in Marion Energy Limited (“Marion”), which is listed on the ASX under the code MAE. During the financial year, the remaining carrying value of this investment of $440,000 was expensed as impairment.

SIGNIFICANT POST BALANCE DATE EVENTS

As at the date of this report there are no matters or circumstances, which have arisen since 30 June 2012 that have significantly affected or may significantly affect:

the operations, in financial years subsequent to 30 June 2012, of the Consolidated Entity;
the results of those operations, in financial years subsequent to 30 June 2012, of the Consolidated Entity; or
the state of affairs, in financial years subsequent to 30 June 2012, of the Consolidated Entity.

ENVIRONMENTAL REGULATION AND PERFORMANCE

The Consolidated Entity's operations are subject to various environmental laws and regulations under the relevant government's legislation, including Oklahoma, USA. Full compliance with these laws and regulations is regarded as a minimum standard for all operations to achieve.

Instances of environmental non-compliance by an operation are identified either by external compliance audits or inspections by relevant government authorities. There have been no significant known breaches by the Consolidated Entity during the financial year.

LIKELY DEVELOPMENTS AND EXPECTED RESULTS

The Group will seek to progress exploration, appraisal and field development activities on its remaining oil and gas projects. The Company will also continue to examine new opportunities in the energy sector.

These activities are inherently risky and there can be no certainty that the Group will be able to successfully achieve the objectives. In the opinion of the Directors, any further disclosure of information regarding likely developments in the operations of the Group and the expected results of these operations in subsequent financial years may prejudice the interests of the Company and accordingly further information has not been disclosed.

Odyssey Energy Limited

ANNUAL FINANCIAL REPORT 2012

DIRECTORS' REPORT

(Continued)

INFORMATION ON DIRECTORS' INTERESTS IN SECURITIES OF ODYSSEY

The following table sets out each Director's relevant interest in shares and listed options of the Company as at the date of this report:

	Interest in Securities	Interest in Securities
	at the date of this Report
	Shares1	$0.05 Listed Options2
Ian Middlemas	23,100,000	10,100,000
David Cruse	8,113,528	3,869,013
Mark Pearce	9,024,000	4,004,000

Notes:

1 ”Shares” means fully paid ordinary shares in the capital of the Company.
2 “$0.05 Listed Options” means an option to subscribe for 1 ordinary Share in the capital of the Company at an exercise price of $0.05 on or before 31 December 2014. These $0.05 Listed Options were subscribed for by the Directors and not issued in connection with their employment.

SHARE OPTIONS

At the date of this report the following options have been issued over unissued capital:

185,489,080 $0.05 listed options expiring 31 December 2014.

Since 30 June 2012, no shares have been issued as a result of the exercise of options.

MEETINGS OF DIRECTORS

The following table sets out the number of meetings of the Company's directors held during the year ended 30 June 2012, and the number of meetings attended by each director.

Current Directors	Board Meetings	Board Meetings
	Number Eligible to Attend	Number Attended
Ian Middlemas	3	2
David Cruse	3	3
Mark Pearce	3	3

The Board currently does not have any committees, however this will be reviewed should the size and nature of the Company’s activities change.

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REMUNERATION REPORT - AUDITED

This Remuneration Report, which forms part of the Directors' Report, sets out information about the remuneration of Key Management Personnel (“KMP”) of the Group.

Details of Key Management Personnel

The KMP of the Group during or since the end of the financial year were as follows:

Non-Executive Directors

Mr Ian Middlemas Non-Executive Chairman Mr David Cruse Non-Executive Director Mr Mark Pearce Non-Executive Director and Company Secretary

Unless otherwise disclosed, the KMP held their position from 1 July until the date of this report.

Remuneration Policy

The remuneration policy for the Group's KMP (including the Managing Director) has been developed by the Board taking into account:

the size of the Group;
the size of the management team for the Group;
the nature and stage of development of the Group's current operations; and
market conditions and comparable salary levels for companies of a similar size and operating in similar sectors.

In addition to considering the above general factors, the Board has also placed emphasis on the following specific issues in determining the remuneration policy for KMP:

the Company is currently focused on identifying new business projects, and undertaking exploration, appraisal and development activities;
risks associated with small cap resource companies whilst acquiring, exploring and developing projects; and
other than profit which may be generated from asset sales, the Company does not expect to be undertaking profitable operations until sometime after the successful commercialisation, production and sales of gas from one or more of its current projects, or the acquisition of a profitable project.

Remuneration Policy for Executives

The Group's remuneration policy is to provide a fixed remuneration component and a performance based component (including options, see below). The Board believes that this remuneration policy is appropriate given the considerations discussed in the section above and is appropriate in aligning KMP objectives with shareholder and business objectives.

Fixed Remuneration

Fixed remuneration consists of base salaries, as well as employer contributions to superannuation funds and other noncash benefits.

Fixed remuneration is reviewed annually by the Board. The process consists of a review of company and individual performance, relevant comparative remuneration externally and internally and, where appropriate, external advice on policies and practices.

Odyssey Energy Limited

ANNUAL FINANCIAL REPORT 2012

DIRECTORS' REPORT

(Continued)

REMUNERATION REPORT – AUDITED (Continued)

Remuneration Policy for Executives (Continued)

Performance Based Remuneration – Short Term Incentive

Executives may be entitled to an annual cash bonus upon achieving various key performance indicators (“KPI’s”), as set by the Board. The Board has focused the Consolidated Entity’s efforts on finding and completing new business opportunities. The Board considers that the prospects of the Consolidated Entity and resulting impact on shareholder wealth are largely linked to the success of this approach, rather than by referring to current or prior year earnings.

Accordingly, the Board may pay a bonus to executive KMP’s based on the success in generating suitable new business opportunities. A further bonus may also be paid upon the successful completion of a new business acquisition. No bonuses were paid during the current financial year.

Performance Based Remuneration – Long Term Incentive

The Board may issue incentive options to some executives as a key component of the incentive portion of their remuneration, in order to attract and retain the services of the executives and to provide an incentive linked to the performance of the Consolidated Entity. The Board considers that for each executive who may receive options in the future, their experience in the resources industry will greatly assist the Consolidated Entity in progressing its projects to the next stage of development and the identification of new projects. As such, the Board believes that the number of incentive options to be granted to executives will be commensurate to their value to the Consolidated Entity.

The Board has a policy of granting incentive options to executives with exercise prices at and/or above market share price (at the time of agreement). As such, incentive options granted to executives will generally only be of benefit if the executives perform to the level whereby the value of the Consolidated Entity increases sufficiently to warrant exercising the incentive options granted.

Other than service-based vesting conditions, there are not expected to be additional performance criteria on the incentive options granted to executives, as given the speculative nature of the Consolidated Entity’s activities and the small management team responsible for its running, it is considered the performance of the executives and the performance and value of the Consolidated Entity are closely related.

The Company’s Securities Trading Policy prohibits KMP’s from entering into arrangements to limit their exposure to Incentive Options granted as part of their remuneration package.

Remuneration Policy for Non-Executive Directors

The Board policy is to remunerate Non-Executive Directors at market rates for comparable companies for time, commitment and responsibilities. Given the current size, nature and risks of the Company, incentive options have been used to attract and retain Non-Executive Directors. The Board determines payments to the Non-Executive Directors and reviews their remuneration annually, based on market practice, duties and accountability. Independent external advice is sought when required.

The maximum aggregate amount of fees that can be paid to Non-Executive Directors is subject to approval by shareholders at a General Meeting. Total directors' fees paid to all non-executive directors is not to exceed $150,000 per annum. Director's fees paid to Non-Executive Directors accrue on a daily basis. Fees for Non-Executive Directors are not linked to the performance of the economic entity. However, to align Directors' interests with shareholder interests, the Directors are encouraged to hold shares in the Company and Non-Executive Directors may in limited circumstances receive incentive options in order to secure their services.

Fees for the Chairman are presently $36,000 (2011: $36,000). From 1 July 2011 fees for Non-Executive Directors (other than the Chairman) are $20,000 per annum (2011: $15,000). These fees cover main board activities only. Non-Executive Directors may receive additional remuneration for other services provided to the Company, including but not limited to, membership of committees.

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Relationship between Remuneration of KMP and Shareholder Wealth

During the Company’s project identification, acquisition, exploration and development phases of its business, the Board anticipates that the Company will retain earnings (if any) and other cash resources for the exploration and development of its resource projects. Accordingly the Company does not currently have a policy with respect to the payment of dividends and returns of capital. Therefore there was no relationship between the Board’s policy for determining, the nature and amount of remuneration of KMP and dividends paid and returns of capital by the Company during the current and previous four financial years.

The Board did not determine the nature and amount of remuneration of the KMP by reference to changes in the price at which shares in the Company traded between the beginning and end of the current and the previous four financial years. Discretionary annual cash bonuses, when applicable, will be based on achieving various non financial key performance indicators to be determined by the Board. However, as noted above, KMP’s may receive Incentive Options in the future which generally will only be of value should the value of the Company’s shares increase sufficiently to warrant exercising the Incentive Options.

Relationship between Remuneration of KMP and Earnings

As discussed above, the Company is currently undertaking new project acquisition, exploration and development activities, and does not expect to be undertaking profitable operations (other than by way of material asset sales, none of which is currently planned) until sometime after the successful commercialisation, production and sales of commodities from one or more of its projects. Accordingly the Board does not consider earnings during the current and previous four financial years when determining the nature and amount of remuneration of KMP.

General

In addition to a focus on operating activities, the Board is also focused on finding and completing new business and other corporate opportunities. The Board considers that the prospects of the Company and resulting impact on shareholder wealth will be enhanced by this approach. Accordingly, a bonus may be made upon the successful completion of a new business or corporate transaction. No bonuses were paid or are payable in respect to the current financial year.

Where required, Key Management Personnel receive superannuation contributions, currently equal to 9% of their salary, and do not receive any other retirement benefit. From time to time, some individuals have chosen to sacrifice part of their salary to increase payments towards superannuation.

All remuneration paid to Key Management Personnel is valued at cost to the company and expensed. Incentive options are valued using the Binomial option valuation methodology. The value of these incentive options is expensed over the vesting period.

Odyssey Energy Limited

ANNUAL FINANCIAL REPORT 2012

DIRECTORS' REPORT

(Continued)

REMUNERATION REPORT – AUDITED (Continued)

Remuneration of Key Management Personnel

Details of the nature and amount of each element of the remuneration of each director of the Company for the year ended 30 June 2012 are as follows (other than directors, there were no other key management personnel employed by the Group during the 2012 or 2011 financial years):

	Short-term	Short-term		Post-	Post-		Share	Total	Performance
				employment			based		Related
							Payments
	Salary &	Other 1		Super-			Value of
	Fees			annuation			Unlisted
				benefits			Options
2012
Directors	$	$		$			$	$	%
Mr Ian Middlemas
(Chairman)	36,000		-		3,240		-	39,240		-
Mr David Cruse
(Non-Executive Director)	20,000		-		1,800		-	21,800		-
Mr Mark Pearce
(Non-Executive Director)	20,000		-		1,800		-	21,800		-
Total Remuneration –
Directors	76,000		-		6,840		-	82,840		-
	Short-term			Post-			Share	Total	Performance
				employment			based		Related
							Payments
	Salary &	Other 1		Super-			Value of
	Fees			annuation			Unlisted
				benefits			Options
2011
Directors	$	$		$			$	$	%
Mr Ian Middlemas
(Chairman)	36,000		-		3,240		-	39,240		-
Mr David Cruse
(Non-Executive Director)	15,000		-			-	-	15,000		-
Mr Mark Pearce
(Non-Executive Director)	15,000		-		1,012		-	16,012		-
Total Remuneration –
Directors	66,000		-		4,252		-	70,252		-

Notes:

1 During the year, no remuneration was paid in the form of a long-term incentive bonus, non-monetary benefit, prescribed benefit or other benefit to key management personnel.

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REMUNERATION REPORT – AUDITED (Continued)

Options Granted to Key Management Personnel

Details of options granted to each Key Management Personnel of the Company or Group during the financial year are as follows:

2012

No options were granted as part of their remuneration to key management personnel during the 2012 financial year.

2011

No options were granted as part of their remuneration to key management personnel during the 2011 financial year.

There were no options granted, exercised or that lapsed for any Key Management Personnel of the Company or Group during the financial year.

Employment Contracts with Key Management Personnel

No employment contracts have been entered into with any directors or executives of the Company.

Mr Pearce is a Director and beneficial shareholder of Apollo Group Pty Ltd, which provided a fully serviced office, administration services (including company secretarial) and other services for a monthly retainer of $17,500 for the year ended 30 June 2012 (2011: $15,000). This arrangement is able to be terminated by one month's notice by either party.

End of the audited Remuneration Report.

INSURANCE OF OFFICERS AND AUDITORS

The Constitution of the Company requires the Company, to the extent permitted by law, to indemnify any person who is or has been a director or officer of the Company or Group for any liability caused as such a director or officer and any legal costs incurred by a director or officer in defending an action for any liability caused as such a director or officer.

During or since the end of the financial year, no amounts have been paid by the Company or Group in relation to the above indemnities.

During or since the end of the financial year, the Company or Group has not paid, or agreed to pay, a premium in respect of a contract insuring against a liability incurred by a person who is or has been a director, officer or auditor of the Company or Group.

NON-AUDIT SERVICES

There were no non-audit services provided by the auditor (or by another person or firm on the auditor's behalf) during the financial year.

Odyssey Energy Limited

ANNUAL FINANCIAL REPORT 2012

DIRECTORS' REPORT

(Continued)

AUDITOR'S INDEPENDENCE DECLARATION

The auditor's independence declaration is on page 13 of the Annual Financial Report and forms part of this report.

This report is made in accordance with a resolution of the directors made pursuant to section 298(2) of the Corporations Act 2001.

For and on behalf of the Directors

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MARK PEARCE Director

Perth, 25 September 2012

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Deloitte Touche Tohmatsu ABN 74 490 121 060

Woodside Plaza Level 14 240 St Georges Terrace Perth WA 6000 GPO Box A46 Perth WA 6837 Australia

Tel: +61 (0) 8 9365 7000 Fax: +61 (0)8 9365 7001 www.deloitte.com.au

The Board of Directors Odyssey Energy Limited Level 9, 28 The Esplanade PERTH WA 6000

25 September 2012

Dear Board Members

Odyssey Energy Limited

In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Odyssey Energy Limited.

As lead audit partner for the audit of the financial statements of Odyssey Energy Limited for the financial year ended 30 June 2012, I declare that to the best of my knowledge and belief, there have been no contraventions of:

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

Yours sincerely

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DELOITTE TOUCHE TOHMATSU

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David Newman Partner Chartered Accountants

Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30 JUNE 2012

	Notes	2012	2011
		$	$
Continuing operations
Revenue	2(a)	107,777	61,524
Other income	2(b)	-	87,950
Administration costs		(367,490)	(318,889)
Business development costs		(83,312)	(10,445)
Exploration costs		(25,930)	-
Finance costs	3(a)	-	(175,411)
Impairment losses	3(d)	(440,000)	(247,500)
Loss on extinguishment of financial liability	3(e)	-	(6,867)
Loss before income tax expense		(808,955)	(609,638)
Income tax expense	4	-	-
Loss for the year		(808,955)	(609,638)
Loss attributable to members of Odyssey Energy
Limited		(808,955)	(609,638)
Other comprehensive income
Exchange differences on translation of foreign operations		-	-
Other comprehensive income for the year, net of tax		-	-
Total comprehensive loss for the year		(808,955)	(609,638)
Total comprehensive loss attributable to members of
Odyssey Energy Limited		(808,955)	(609,638)
Loss per share
Basic loss per share from continuing operations	18	(0.19)	(0.25)
(cents per share)
Diluted loss per share from continuing operations	18	(0.19)	(0.25)
(cents per share)

The accompanying notes form part of these financial statements.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AT 30 JUNE 2012

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	Notes	2012	2011
		$	$
Current Assets
Cash and cash equivalents	19(b)	2,007,367	2,353,959
Trade and other receivables	5	14,143	31,327
Total Current Assets		2,021,510	2,385,286
Non-current Assets
Property, plant and equipment	6	982	1,228
Available-for-sale financial assets	7	-	440,000
Total Non-current Assets		982	441,228
TOTAL ASSETS		2,022,492	2,826,514
Current Liabilities
Trade and other payables	9	44,472	39,539
Total Current Liabilities		44,472	39,539
TOTAL LIABILITIES		44,472	39,539
NET ASSETS		1,978,020	2,786,975
EQUITY
Contributed equity	10(a)	25,875,382	25,875,382
Reserves	11(a)	94,859	94,859
Accumulated losses		(23,992,221)	(23,183,266)
TOTAL EQUITY		1,978,020	2,786,975

The accompanying notes form part of these financial statements.

Odyssey Energy Limited

ANNUAL FINANCIAL REPORT 2012

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 JUNE 2012

	Notes	2012	2011
		$	$
Cash flows from operating activities
Interest received		108,877	60,424
Payments to suppliers and employees		(512,697)	(854,494)
Refunds of GST received		57,228	50,418
Interest paid		-	(371,179)
Net cash outflow from operating activities	19(a)	(346,592)	(1,114,831)
Cash flows from investing activities
Other investing activities		-	-
Net cash outflow from investing activities		-	-
Cash flows from financing activities
Proceeds from borrowings		-	100,000
Repayment of borrowings		-	(1,815,000)
Proceeds from issue of shares		-	5,379,413
Transaction costs from issue of shares		-	(218,219)
Net cash inflow from financing activities		-	3,446,194
Net increase/(decrease) in cash and cash equivalents held		(346,592)	2,331,363
Cash and cash equivalents at the beginning of financial year		2,353,959	22,596
Cash and cash equivalents at the end of the financial year	19(b)	2,007,367	2,353,959

The accompanying notes form part of these financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2012

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	Issued	Currency	Option		Accumulated	Total equity
	Capital	Translation	Premium		Losses
		Reserve	Reserve
	$	$	$		$	$
Balance at 1 July 2010	18,323,288	94,859		-	(22,573,628)	(4,155,481)
Net loss for the year	-	-		-	(609,638)	(609,638)
Total comprehensive income for
the year attributable to members of
Odyssey Energy Limited	-	-		-	(609,638)	(609,638)
Transactions with equity holders in
their capacity as equity holders:
Issue of shares	7,770,313	-		-	-	7,770,313
Share issue costs	(218,219)	-		-	-	(218,219)
As at 30 June 2011	25,875,382	94,859		-	(23,183,266)	2,786,975
Net loss for the year	-	-		-	(808,955)	(808,955)
Total comprehensive income for
the year attributable to members of
Odyssey Energy Limited	-	-		-	(808,955)	(808,955)
As at 30 June 2012	25,875,382	94,859		-	(23,992,221)	1,978,020

The accompanying notes form part of these financial statements.

Odyssey Energy Limited

ANNUAL FINANCIAL REPORT 2012

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012

1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies adopted in preparing the financial report of the Company, Odyssey Energy Limited and its consolidated entities (“Consolidated Entity” or “Group”) for the year ended 30 June 2012 are stated to assist in a general understanding of the financial report.

Odyssey Energy Limited is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange.

The financial report of the Company for the year ended 30 June 2012 was authorised for issue in accordance with a resolution of the Directors on 25 September 2012.

(a) Basis of Preparation

The financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards (“AASBs”) and interpretations adopted by the Australian Accounting Standards Board (“AASB”) and the Corporations Act 2001. The financial statements comprise the consolidated financial statements of the Group. For the purposes of preparing the consolidated statements, the Company is a profit entity.

The financial report has also been prepared on a historical cost basis, except for other financial assets at fair value through profit or loss and available-for-sale investments, which have been measured at fair value.

The financial report is presented in Australian dollars.

(b) Statement of Compliance

The financial report complies with Australian Accounting Standards. Compliance with Australian Accounting Standards ensures the consolidated financial report also complies with International Financial Reporting Standards (IFRS).

In the current year, the Group has adopted all of the new and revised Standards and Interpretations issued by the AASB that are relevant to its operations and effective for the current annual reporting period. These new accounting standards have not had any significant impact on the Group’s financial report. Further details of these new accounting standards are set out in the individual accounting policy notes set out below.

Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective have not been adopted by the Group for the annual reporting period ended 30 June 2012. These are outlined in the table below:

Reference	Title	Summary	Application date of standard	Impact on Group financial report	Application date for Group
2010-8	Amendments to Australian Accounting Standards – Deferred Tax: Recovery of Underlying Assets [AASB 112]	These amendments address the determination of deferred tax on investment property measured at fair value and introduce a rebuttable presumption that deferred tax on investment property measured at fair value should be determined on the basis that the carrying amount will be recoverable through sale. The amendments also incorporate SIC-21 Income Taxes – Recovery of Revalued Non- _Depreciable Assets_into AASB 112.	1 Jan 2012	These amendments are not expected to have any significant impact on the Group’s financial report	1 July 2012

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Reference	Title	Summary	Application date of standard	Impact on Group financial report	Application date for Group
AASB 2011-9	Amendments to Australian Accounting Standards – Presentation of Other Comprehensive Income [AASB 1, 5, 7, 101, 112, 120, 121, 132, 133, 134, 1039 & 1049]	This Standard requires entities to group items presented in other comprehensive income on the basis of whether they might be reclassified subsequently to profit or loss and those that will not.	1 July 2012	These amendments are not expected to have any significant impact on the Group’s financial report	1July2012
AASB 9	Financial Instruments	AASB 9 includes requirements for the classification and measurement of financial assets. It was further amended by AASB 2010-7 to reflect amendments to the accounting for financial liabilities. These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of AASB 139. The main changes are described below. (a) Financial assets that are debt instruments will be classified based on (1) the objective of the entity’s business model for managing the financial assets; (2) the characteristics of the contractual cash flows. (b) Allows an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument. (c) Financial assets can be designated and measured at fair value through profit or loss at initial recognition if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities, or recognising the gains and losses on them, on different bases. (d) Where the fair value option is used for financial liabilities the change in fair value is to be accounted for as follows: ► The change attributable to changes in credit risk are presented in other comprehensive income (OCI) ► The remaining change is presented in profit or loss If this approach creates or enlarges an accounting mismatch in the profit or loss, the effect of the changes in credit risk are also presented in profit or loss. Consequential amendments were also made to other standards as a result of AASB 9, introduced by AASB 2009-11 and superseded by AASB 2010-7 and 2010-10.	1 January 2013	These amendments are not expected to have any significant impact on the Group’s financial report	1 July 2013

Odyssey Energy Limited

ANNUAL FINANCIAL REPORT 2012

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 (Continued)

Reference	Title	Summary	Application date of standard	Impact on Group financial report	Application date for Group
AASB 10	Consolidated Financial Statements	AASB 10 establishes a new control model that applies to all entities. It replaces parts of AASB 127 Consolidated and Separate Financial Statements dealing with the accounting for consolidated financial statements and UIG-112 Consolidation – Special Purpose Entities. The new control model broadens the situations when an entity is considered to be controlled by another entity and includes new guidance for applying the model to specific situations, including when acting as a manager may give control, the impact of potential voting rights and when holding less than a majority voting rights may give control. Consequential amendments were also made to other standards via AASB 2011-7.	1 January 2013	These amendments are not expected to have any significant impact on the Group’s financial report	1 July 2013
AASB 11	Joint Arrangements	AASB 11 replaces AASB 131 Interests in Joint Ventures and UIG-113 Jointly- controlled Entities – Non-monetary Contributions by Ventures. AASB 11 uses the principle of control in AASB 10 to define joint control, and therefore the determination of whether joint control exists may change. In addition it removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, accounting for a joint arrangement is dependent on the nature of the rights and obligations arising from the arrangement. Joint operations that give the venturers a right to the underlying assets and obligations themselves is accounted for by recognising the share of those assets and obligations. Joint ventures that give the venturers a right to the net assets is accounted for using the equity method. Consequential amendments were also made to other standards via AASB 2011-7 and amendments to AASB 128.	1 January 2013	These amendments are not expected to have any significant impact on the Group’s financial report	1 July 2013
AASB 12	Disclosure of Interests in Other Entities	AASB 12 includes all disclosures relating to an entity’s interests in subsidiaries, joint arrangements, associates and structures entities. New disclosures have been introduced about the judgments made by management to determine whether control exists, and to require summarised information about joint arrangements, associates and structured entities and subsidiaries with non-controlling interests.	1 January 2013	These amendments are not expected to have any significant impact on the Group’s financial report	1 July 2013
AASB 13	Fair Value Measurement	AASB 13 establishes a single source of guidance for determining the fair value of assets and liabilities. AASB 13 does not change when an entity is required to use fair value, but rather, provides guidance on how to determine fair value when fair value is required or permitted. Application of this definition may result in different fair values being determined for the relevant assets. AASB 13 also expands the disclosure requirements for all assets or liabilities carried at fair value. This includes information about the assumptions made and the qualitative impact of those assumptions on the fair value determined. Consequential amendments were also made to other standards via AASB 2011-8.	1 January 2013	These amendments are not expected to have any significant impact on the Group’s financial report	1 July 2013

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Reference	Title	Summary	Application date of standard	Impact on Group financial report	Application date for Group
AASB 119	Employee Benefits	The main change introduced by this standard is to revise the accounting for defined benefit plans. The amendment removes the options for accounting for the liability, and requires that the liabilities arising from such plans is recognized in full with actuarial gains and losses being recognized in other comprehensive income. It also revised the method of calculating the return on plan assets. The revised standard changes the definition of short-term employee benefits. The distinction between short-term and other long-term employee benefits is now based on whether the benefits are expected to be settled wholly within 12 months after the reporting date. Consequential amendments were also made to other standards via AASB 2011-10.	1 January 2013	These amendments are not expected to have any significant impact on the Group’s financial report	1 July 2013
Interpretation 20	Stripping Costs in the Production Phase of a Surface Mine	This interpretation applies to stripping costs incurred during the production phase of a surface mine. Production stripping costs are to be capitalised as part of an asset, if an entity can demonstrate that it is probable future economic benefits will be realised, the costs can be reliably measured and the entity can identify the component of an ore body for which access has been improved. This asset is to be called the “stripping activity asset”. The stripping activity asset shall be depreciated or amortised on a systematic basis, over the expected useful life of the identified component of the ore body that becomes more accessible as a result of the stripping activity. The units of production method shall be applied unless another method is more appropriate. Consequential amendments were also made to other standards via AASB 2011-12.	1 January 2013	These amendments are not expected to have any significant impact on the Group’s financial report	1 July 2013
Annual Improvements 2009–2011 Cycle	Annual Improvements to IFRSs 2009–2011 Cycle	This standard sets out amendments to International Financial Reporting Standards (IFRSs) and the related bases for conclusions and guidance made during the International Accounting Standards Board’s Annual Improvements process. These amendments have not yet been adopted by the AASB. The following items are addressed by this standard: IFRS 1 First-time Adoption of International Financial Reporting Standards •Repeated application of IFRS 1 •Borrowing costs IAS 1 Presentation of Financial Statements •Clarification of the requirements for comparative information IAS 16 Property, Plant and Equipment •Classification of servicing equipment IAS 32 Financial Instruments: Presentation •Tax effect of distribution to holders of equity instruments IAS 34 Interim Financial Reporting •Interim financial reporting and segment information for total assets and liabilities	1 January 2013	These amendments are not expected to have any significant impact on the Group’s financial report	1 July 2013

Odyssey Energy Limited

ANNUAL FINANCIAL REPORT 2012

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 (Continued)

Reference	Title	Summary	Application date of standard	Impact on Group financial report	Application date for Group
AASB 2011-4	Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements [AASB 124]	This Amendment deletes from AASB 124 individual key management personnel disclosure requirements for disclosing entities that are not companies.	1 July 2013	These amendments are not expected to have any significant impact on the Group’s financial report	1 July 2013
AASB 1053	Application of Tiers of Australian Accounting Standards	This Standard establishes a differential financial reporting framework consisting of two Tiers of reporting requirements for preparing general purpose financial statements: (a) Tier 1: Australian Accounting Standards (b) Tier 2: Australian Accounting Standards – Reduced Disclosure Requirements Tier 2 comprises the recognition, measurement and presentation requirements of Tier 1 and substantially reduced disclosures corresponding to those requirements. The following entities apply Tier 1 requirements in preparing general purpose financial statements: (a) For-profit entities in the private sector that have public accountability (as defined in this Standard) (b) The Australian Government and State, Territory and Local Governments The following entities apply either Tier 2 or Tier 1 requirements in preparing general purpose financial statements: (a) For-profit private sector entities that do not have public accountability (b) All not-for-profit private sector entities (c) Public sector entities other than the Australian Government and State, Territory and Local Governments. Consequential amendments to other standards to implement the regime were introduced by AASB 2010-2, 2011-2, 2011-6, 2011-11 and 2012-1.	1 July 2013	These amendments are not expected to have any significant impact on the Group’s financial report	1 July 2013

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1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(c) Principles of Consolidation

The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Odyssey Energy Limited (“Company” or “Parent Entity”) as at 30 June 2012 and the results of all subsidiaries for the year then ended. Odyssey Energy Limited and its subsidiaries together are referred to as the Consolidated Entity or Group.

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

The financial statements of the subsidiaries are prepared for the same reporting year as the Parent Entity, using consistent accounting policies. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

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

Intercompany transactions and balances, income and expenses and profits and losses between Group companies, are eliminated.

Investments in subsidiaries are accounted for at cost less impairment in the individual financial statements of the Company.

(d) Operating Segments

An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity), whose operating results are regularly reviewed by the entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available. This includes start up operations which are yet to earn revenues. Management will also consider other factors in determining operating segments such as the existence of a line manager and the level of segment information presented to the board of directors.

Operating segments have been identified based on the information provided to the chief operating decision makers – being the executive management team.

The group aggregates two or more operating segments when they have similar economic characteristics, and the segments are similar in each of the following respects:

Nature of the products and services,
Nature of the production processes,
Type or class of customer for the products and services,
Methods used to distribute the products or provide the services, and if applicable,
Nature of the regulatory environment.

Operating segments that meet the quantitative criteria as prescribed by AASB 8 are reported separately. However, an operating segment that does not meet the quantitative criteria is still reported separately where information about the segment would be useful to users of the financial statements.

Information about other business activities and operating segments that are below the quantitative criteria are combined and disclosed in a separate category for “all other segments”.

Odyssey Energy Limited

ANNUAL FINANCIAL REPORT 2012

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 (Continued)

(e) Foreign Currency Translation

Both the functional and presentation currency of the Parent Entity at 30 June 2012 was Australian Dollars.

The following table sets out the functional currency of the company controlled by the Parent Entity during the year:

Company Name	Functional Currency
OEL E&P (USA), Inc	United States Dollars

Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency.

Transactions in foreign currencies are initially recorded in the functional currency at the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date.

All exchange differences in the consolidated financial report are taken to the profit and loss statement with the exception of differences in foreign currency borrowings that provide a hedge against a net investment in a foreign entity. These are taken directly to equity until the disposal of the net investment, at which time they are recognised in the profit and loss statement. Tax charges and tax credits attributable to exchange differences on those borrowings are also recognised in equity.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rate at the date when the fair value was determined.

Where the functional currency of a subsidiary of the Parent Entity is not Australian Dollars the assets and liabilities of the subsidiary at reporting date are translated into the presentation currency of the Parent Entity at the rate of exchange ruling at the reporting date and the profit and loss statements are translated by applying the monthly average exchange rate.

Any exchange differences arising on this retranslation are taken directly to other comprehensive income.

On disposal of a foreign entity, the deferred cumulative amount recognised in equity and relating to that particular foreign operation is recognised in profit and loss.

(f) Revenue Recognition

Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable. The following specific recognition criteria must also be met before revenue is recognised:

(i) Sale of Goods

Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and can be measured reliably. Risks and rewards are considered passed to the buyer at the time of delivery of the goods to the customer.

(ii) Interest

Interest revenue is recognised as the interest accrues (using the effective interest method, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument) to the net carrying value amount of the financial asset.

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1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(g) Income Tax

The income tax expense for the year is the tax payable on the current year's taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses.

Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose on goodwill or in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss.

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

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

The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

Unrecognised deferred income tax assets are reassessed at each balance date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

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

Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against tax liabilities and the deferred tax liabilities relate to the same taxable entity and the same taxation authority.

The Parent Entity and its wholly owned Australian controlled entities (if any) have not implemented the tax consolidation legislation.

(h) Business Combinations

Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is measured at the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred.

Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition-date fair value. Subsequent changes in such fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments (see below). All other subsequent changes in the fair value of contingent consideration classified as an asset or liability are accounted for in accordance with relevant Standards. Changes in the fair value of contingent consideration classified as equity are not recognised.

Where a business combination is achieved in stages, the Group’s previously held interests in the acquired entity are remeasured to fair value at the acquisition date (i.e. the date the Group attains control) and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss, where such treatment would be appropriate if that interest were disposed of.

Odyssey Energy Limited

ANNUAL FINANCIAL REPORT 2012

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012 (Continued)

h) Business Combinations (Continued)

The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under AASB 3(2008) are recognised at their fair value at the acquisition date, except that:

deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with AASB 112 Income Taxes and AASB 119 Employee Benefits respectively ;
liabilities or equity instruments related to the replacement by the Group of an acquiree’s share based payment awards are measured in accordance with AASB 2 Share-based Payment ; and
assets (or disposal groups) that are classified as held for sale in accordance with AASB 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see below), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date.

The measurement period is the period from the date of acquisition to the date the Group obtains complete information about facts and circumstances that existed as of the acquisition date – and is subject to a maximum of one year.

(i) Impairment of Assets

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset's recoverable amount. An asset's recoverable amount is the higher of its fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets and the asset's value in use cannot be estimated to be close to its fair value. In such cases the asset is tested for impairment as part of the cash-generating unit to which it belongs. When the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset or cash-generating unit is considered impaired and is written down to its recoverable amount.

In assessing the 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. Impairment losses relating to continuing operations are recognised in those expense categories consistent with the function of the impaired asset.

An assessment is also made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss. After such a reversal the depreciation charge is adjusted in future years to allocate the asset's revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

(j) Cash and Cash Equivalents

“Cash and cash equivalents” includes cash on hand, deposits held at call with financial institutions and other short-term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined.

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1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(k) Trade and Other Receivables

Trade receivables are initially recognised at fair value and subsequently carried at amortised cost less an allowance for any uncollectible amounts. Trade receivables are due for settlement no more than 30 days from the date of recognition. An allowance for doubtful debts is made when there is objective evidence that the Group will not be able to collect the debts. Bad debts are written off when identified.

Impairment

If there is objective evidence that an impairment loss on trade and other receivables carried at amortised cost has been incurred, 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 (i.e. the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through use of an allowance account. The amount of the loss is recognised in profit or loss.

(l) Financial Assets

Financial assets in the scope of AASB 139 Financial Instruments: Recognition and Measurement are classified as either loans and receivables, or available-for-sale investments, as appropriate. When financial assets are recognised initially they are measured at fair value, plus, directly attributable transaction costs. The Group determines the classification of its financial assets after initial recognition and, when allowed and appropriate, re-evaluates this designation at each financial year-end.

Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.

Available-for-sale financial assets

Available-for-sale financial assets, comprising principally marketable equity securities, are non-derivatives that are either designated in this category or not classified in any other category. They are included in non-current assets unless management intends to dispose of the investment within twelve months of the reporting date.

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

Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Unrealised gains and losses arising from changes in the fair value of non-monetary securities classified as available-for-sale are recognised in equity in the investments available-for-sale reserve. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments previously reported in equity are included in the profit and loss statement as gains and losses. Reversals of previous impairments of available-for-sale assets are not recognised through profit and loss.

Subsequent to initial recognition, investments in subsidiaries are measured at cost less impairment. Subsequent to initial recognition, investments in associates are accounted for under the equity method in the consolidated financial statements and the cost method in the company financial statements.

Odyssey Energy Limited

ANNUAL FINANCIAL REPORT 2012

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 (Continued)

(m) Fair Value Estimation

The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes.

The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and trading and available-for-sale securities) is based on quoted market prices at the reporting date. The quoted market price used for financial assets held by the Group is the current bid price; the appropriate quoted market price for financial liabilities is the current ask price.

The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance date. Quoted market prices or dealer quotes for similar instruments are used for long-term debt instruments held. Other techniques, such as discounted cash flows, are used to determine fair value for the remaining financial instruments.

The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.

(n) Property, Plant and Equipment

Plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

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 profit and loss statement during the financial period in which they are incurred.

Plant and equipment are depreciated or amortised on a reducing balance or straight line basis at rates based upon their expected useful lives as follows:

			Life
Plant and equipment	2	-	15 years

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date.

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

(o) Trade and Other Payables

Trade and other payables are recognised initially at fair value and subsequently at amortised cost and represent liabilities for the goods and services provided to the Group prior to the end of the financial period that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within 30 days.

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1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(p) Employee Leave Benefits

Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within twelve months of the reporting date are recognised in provisions in respect of employees' services up to the reporting date, and are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and measured at the rates paid or payable.

The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.

Contributions to the defined contribution superannuation fund are recognised as an expense as they become payable. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available.

(q) Contributed Equity

Ordinary shares are classified as equity. Issued and paid up capital is recognised at the fair value of the consideration received by the Company.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

(r) Dividends

Provision is made for the amount of any dividend declared on or before the end of the year but not distributed at balance date.

(s) Earnings per Share (EPS)

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

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

(t) Exploration and Evaluation Expenditure

Expenditure on exploration and evaluation is accounted for in accordance with the 'area of interest' method and with AASB 6 Exploration for and Evaluation of Mineral Resources , which is the Australian equivalent of IFRS 6.

Exploration licence acquisition costs are capitalised and subject to impairment testing every six months. All exploration and evaluation costs, including general permit activity, geological and geophysical costs and new venture activity costs are expensed as incurred except where:

the expenditure relates to an exploration discovery that, at balance date, has not been recognised as an area of interest, as assessment of the existence or otherwise of economically recoverable reserves is not yet complete; or
an area of interest is recognised, and it is expected that the expenditure will be recouped through successful exploitation of the area of interest, or alternatively, by its sale.

Odyssey Energy Limited

ANNUAL FINANCIAL REPORT 2012

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 (Continued)

(t) Exploration and Evaluation Expenditure (Continued)

The costs of drilling exploration wells are initially capitalised pending the results of the well. Costs are expensed where the well does not result in the successful discovery of economically recoverable hydrocarbons and the recognition of an area of interest. Areas of interest are recognised at the field level.

Each potential or recognised area of interest is reviewed every six months to determine whether economic quantities of reserves have been found or whether further exploration and evaluation work is underway or planned to support the continued carry forward of capitalised costs.

Data licenses acquired are carried initially at cost and are amortised on a straight line basis over the number of wells in the drilling program to which the acquisition related. Where a determination is made that there is no further value to be extracted from the data licenses then any unamortised balance is written off.

Once management has determined the existence of economically recoverable reserves for an area of interest, deferred costs are reclassified from exploration and evaluation expenditure to oil and gas properties on the statement of financial position.

The recoverability of the carrying amount of the exploration and evaluation assets is dependent on successful development and commercial exploitation, or alternatively, sale of the respective areas of interest.

(u) Oil and Gas Properties

Oil and gas properties are carried at cost and include acquisition costs, drilling, completion, operating costs and transferred exploration and evaluation expenditure.

Oil and gas properties are amortised using a units-of-production method, based on the ratio of actual production to remaining proved and probable reserves (2P) as estimated by independent petroleum engineers.

The recoverability of the carrying amount of the oil and gas property is dependent on successful development and commercial exploitation, or alternatively, sale of the respective areas of interest.

(v) Goods and Services Tax

Revenues, expenses and assets are recognised net of the amount of GST except:

when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and
receivables and payables are stated with the amount of GST included.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position.

Cash flows are included in the Statement of Cash Flows on a gross basis and the GST components of cash flows arising from investing and financing activities, which are recoverable from, or payable to, the taxation authority are classified as operating cash flows.

Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.

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1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(w) Share Based Payments

Equity settled transactions

The Group provides benefits to Directors, employees, consultants and other advisors of the Group in the form of sharebased payments, whereby the Directors, employees, consultants and other advisors render services in exchange for shares or rights over shares (equity-settled transactions). The Group may also extinguish liabilities by issuing equity instruments.

The cost of these equity-settled transactions is measured by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by an external valuer using a binomial model.

In accordance with Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments equity instruments issued in payment of a debt are measured at the fair value of equity instrument issued. Any difference between the carrying amount of the financial liability and the fair value of the equity instruments is recorded as a gain or loss in the statement of financial performance.

In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the market price of the shares of the Company if applicable.

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant recipient becomes fully entitled to the award (the vesting period).

The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects (i) the extent to which the vesting period has expired and (ii) the Group's best estimate of the number of equity instruments that will ultimately vest. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date.

The profit and loss statement charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period.

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is only conditional upon a market condition.

If the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any modification that increases the total fair value of the sharebased payment arrangement, or is otherwise beneficial to the recipient, as measured at the date of modification.

If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph.

The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings per share.

(x) Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

When the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the profit and loss statement net of any reimbursement.

Odyssey Energy Limited

ANNUAL FINANCIAL REPORT 2012

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 (Continued)

(y) Convertible Notes

Convertible notes that can be converted to share capital at the option of the holder, where the number of shares issued does not vary with changes in their fair value, are accounted for as compound financial instruments. Transaction costs that relate to the issue of a compound financial instrument are allocated to the liability and equity components in proportion to the allocation of proceeds. The equity component of the convertible notes is calculated as the excess of the issue proceeds over the present value of the future interest and principal payments, discounted at the market rate of interest applicable to similar liabilities that do not have a conversion option. The interest expense recognised in the profit and loss statement is calculated using the effective interest method.

(z) Non-current Assets held for Sale and Discontinued Operations

Immediately before classification as held for sale, the measurement of the assets (and all assets and liabilities in a disposal group) is brought up-to-date in accordance with applicable accounting standards. Then, on initial classification as held for sale, non-current assets and disposal groups are recognised at the lower of carrying amount and fair value less costs to sell.

Impairment losses on initial classification as held for sale are included in profit or loss. The same applies to gains and losses on subsequent remeasurement.

A discontinued operation is a component of the Company's business that represents a separate major line of business or geographical area of operations or is a subsidiary acquired exclusively with a view to resale.

Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. A disposal group that is to be abandoned may also qualify.

(aa) Borrowings

Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the profit and loss statement over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities, which are not an incremental cost relating to the actual draw-down of the facility, are recognised as prepayments and amortised on a straight-line basis over the term of the facility.

Borrowings are removed from the statement of financial position when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in other income or other expenses.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.

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1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(ab) Critical Accounting Estimates, Assumptions and Judgements

In applying the Group's accounting policies, management continually evaluates judgements, estimates and assumptions based on experience and other factors, including expectations of future events that may have an impact on the Group. All judgements, estimates and assumptions made are believed to be reasonable based on the most current set of circumstances available to management. Actual results may differ from the judgements, estimates and assumptions. Significant judgements, estimates and assumptions made by management in the preparation of these financial statements are outlined below.

(i) Critical accounting estimates and assumptions

(A) Impairment of assets

In determining the recoverable amount of assets, in the absence of quoted market prices, estimations are made regarding the present value of future cash flows.

In relation to the Company’s investment in Marion Energy Limited, which is classified as an available for sale financial asset, Marion Energy did not lodge its 30 June 2011 Annual Financial Statements by 30 September 2011 and accordingly its securities were suspended from trading on the ASX with effect from 3 October 2011. Marion Energy announced on 14 October 2011 that they were working with consultants to examine a number of options for the restructure of the company and its financial position. A subsequent announcement on 26 April 2012 advised that a 3 point turnaround plan had been formulated to pursue appropriate restructuring and capital management initiatives of the company. However as at 30 June 2012, the 30 June 2011 Financial Statements still have not been lodged with the ASX and the company’s securities remain suspended.

As a result, during the year an amount of $440,000 (2011: $247,500) has been recognised as an impairment expense in the statement of comprehensive income.

(B) Reserve estimates

Estimates of recoverable quantities of proven and probable reserves reported include judgemental assumptions regarding commodity prices, exchange rates, discount rates and production and transportation costs for future cash flows. It also requires interpretation of complex and difficult geological and geophysical models in order to make an assessment of the size, shape, depth and quality of reservoirs, and their anticipated recoveries. The economic, geological and technical factors used to estimate reserves may change from period to period. Changes in reported reserves can impact asset carrying values, the provision for restoration and the recognition of deferred tax assets, due to changes in expected future cash flows. Reserves are integral to the amount of depreciation, depletion and amortisation charged to the profit and loss statement and the calculation of inventory.

(ii) Critical judgements in applying the Group's accounting policies

(C) Exploration and evaluation

The group's accounting policy for exploration and evaluation assets is set out at Note 1(t). The application of this policy requires management to make certain estimates and assumptions as to future events and circumstances, in particular, the assessment of whether economic quantities of reserves have been found. Any such estimates and assumptions may change as new information becomes available. If, after having capitalised expenditure under the policy, the Group concludes that it is unlikely to recover the expenditure by future exploitation or sale, then the relevant capitalised amount will be written off to the profit and loss statement. All exploration and evaluation expenditure has been impaired in prior years because of the substantial decline in the gas price in the USA impacting on the projects viability.

Odyssey Energy Limited

ANNUAL FINANCIAL REPORT 2012

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 (Continued)

	2012 2011
	$ $
	107,777 61,524
2. REVENUE AND OTHER INCOME
(a) Revenue
Interest revenue
	- 87,950
(b) Other Income
Net foreign exchange gain
	- 133,356 - 42,055
3. EXPENSES
(a) Finance Costs
Interest expense on convertible notes
Interest expense on borrowings
	- 175,411
(b) Employee Expenses	82,840 70,252
Directors’ remuneration
	246 307
(c) Depreciation and Amortisation Expense
Depreciation of plant and equipment
	440,000 247,500
(d) Impairment of Assets
Impairment of available for sale assets (note 7)
	- 334,133 - (341,000)
(e) Extinguishment of Financial Liability
The company issued 5,500,000 shares to a creditor to extinguish the liability payable as follows:
Amount Payable to Creditor
Shares issued at issue price of $0.062 per share
Loss on extinguishment of financial liability	- 6,867

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4. INCOME TAX

(a) Recognised in the statement of comprehensive income

	2012	2011
	$	$
Current income tax
Current income tax benefit	(89,412)	(145,391)
Adjustments in respect of current income tax of previous years	136,706	(641)
Deferred income tax
Origination and reversal of temporary differences	(132,813)	(34,200)
Deferred tax assets not brought to account	85,519	180,232
	-	-

(b) Reconciliation Between Tax Expense and Accounting Loss Before Income Tax

Accounting loss before income tax	(808,955)	(609,638)
At the domestic income tax rate of 30% (2011: 30%)	(242,686)	(182,891)
Expenditure not allowable for income tax purposes	20,461	3,300
Adjustments in respect of current income tax of previous years	136,706	(641)
Deferred tax assets not brought to account	85,519	180,232
Income tax expense attributable to profit/(loss)	-	-

(c) Reconciliation Between Tax Expense and Accounting Loss Before Income Tax

	2012		2011
	%		%
Effective Tax Rate		0		0

Odyssey Energy Limited

ANNUAL FINANCIAL REPORT 2012

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 (Continued)

4. INCOME TAX (Continued)

(d) Deferred Income Tax

Deferred income tax at balance date relates to the following:

	2012	2011
	$	$
Deferred Tax Liabilities
Exploration and evaluation assets	-	-
Accrued interest	-	-
Deferred tax assets used to offset deferred tax liabilities	-	-
	-	-
Deferred Tax Assets
Available-for-sale financial assets	7,326,000	7,194,000
Exploration and evaluation assets	122,869	122,869
Accrued expenditure	8,235	8,876
Tax losses available to offset against future taxable income	831,571	877,411
Deferred tax assets used to offset deferred tax liabilities	-	-
Deferred tax assets not brought to account	(8,288,675)	(8,203,156)
	-	-

The benefit of deferred tax assets not brought to account will only be brought to account if:

future assessable income is derived of a nature and of an amount sufficient to enable the benefit to be realised;
the conditions for deductibility imposed by tax legislation continue to be complied with; and
no changes in tax legislation adversely affect the Company in realising the benefit.

(e) Tax Consolidation

There are currently no entities eligible for consolidation for tax purposes. The Board will review this position should this change.

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	Notes	2012	2011
		$	$
5. CURRENT ASSETS – TRADE AND OTHER RECEIVABLES
Accrued interest		-	1,100
Other debtors		418	-
GST receivable		13,725	30,227
Total trade and other receivables		14,143	31,327
6. NON-CURRENT ASSETS – PROPERTY, PLANT &
EQUIPMENT
(a) Office Furniture and Equipment
Cost		3,564	3,564
Accumulated depreciation		(2,582)	(2,336)
Net carrying amount		982	1,228
(b) Reconciliation
Carrying amount at beginning of the year, net of accumulated depreciation		1,228	1,535
Depreciation charge for the year		(246)	(307)
Carrying amount at end of year, net of accumulated depreciation and
impairment		982	1,228
7. NON-CURRENT ASSETS - AVAILABLE-FOR-SALE
FINANCIAL ASSETS
Shares in listed company – Fair value at time of acquisition	(a)	17,531,250	17,531,250
Less impairment in value since acquisition		(17,531,250)	(17,091,250)
Fair value at reporting date		-	440,000

(a) The Company holds 27,500,000 fully paid ordinary shares in Marion Energy Limited, which is listed on the ASX under the code MAE.

Marion Energy did not lodge its 30 June 2011 Annual Financial Statements by 30 September 2011 and accordingly its securities were suspended from trading on the ASX with effect from 3 October 2011. As at 30 June 2012, the 30 June 2011 Financial Statements still have not been lodged with the ASX and the company’s securities remain suspended.

As a result, during the year an amount of $440,000 (2011: $247,500) has been recognised as an impairment expense in the statement of comprehensive income.

Odyssey Energy Limited

ANNUAL FINANCIAL REPORT 2012

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 (Continued)

	2012		2011
	$		$
8. NON-CURRENT ASSETS – EXPLORATION AND
EXPENDITURE
The Group had oil and gas exploration costs carried forward in respect of
the following areas of interest:
Areas of interest
McClain County Prospect		-		-
		-		-
Reconciliation
Balance at the beginning of year		-		-
Balance at end of year		-		-

The recoverability of the carrying amount of the exploration and evaluation assets is dependent on the successful development and commercial exploitation, or alternatively the sale, of the respective areas of interest.

		2012	2011
		$	$
9.	CURRENT LIABILITIES – TRADE AND OTHER
	PAYABLES
Accounts payable(a)		12,022	9,952
Accrued expenses		32,450	29,587
Total	trade and other payables	44,472	39,539

(a) Terms & Conditions

Trade creditors are non interest bearing and are normally settled on 30 day terms.

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		2012	2011
		$	$
10.	CONTRIBUTED EQUITY
(a)	Issued and paid up capital
436,707,977 (2011 : 436,707,977) fully paid ordinary shares		25,875,382	25,875,382

Effective 1 July 1998, the corporations legislation in place abolished the concepts of authorised capital and par value shares. Accordingly, the Parent Entity does not have authorised capital nor par value in respect of its issued shares.

(b) Movements in Ordinary Share Capital for Years Ended 30 June 2012 and 30 June 2011 were as follows:

Date	Details	Number of	Issue Price	$
		Shares
1 July 2010	Opening Balance	59,904,791		18,323,288
03 Dec 2010	Share placement	125,000,000	$0.02	2,500,000
03 Dec 2010	Conversion of Convertible Notes into	102,494,993	$0.02	2,049,900
	equity
16 Feb 2011	Entitlements Issue	143,699,870	$0.02	2,873,997
09 Mar 2011	Exercise of Listed Options	104,573	$0.05	5,229
28 April 2011	Issue of shares in lieu of payment to	5,500,000	$0.062	341,000
	creditor (refer Note 3(e))
27 May 2011	Exercise of Listed Options	3,750	$0.05	187
	Share issue costs			(218,219)
30 June 2011	Closing Balance	436,707,977		25,875,382

30 June 2012	Closing Balance	436,707,977		25,875,382

Odyssey Energy Limited

ANNUAL FINANCIAL REPORT 2012

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 (Continued)

10. CONTRIBUTED EQUITY (Continued)

(c) Terms and Conditions of Ordinary Shares

(i) General

The ordinary shares (“Shares”) are ordinary shares and rank equally in all respects with all ordinary shares in the Company.

The rights attaching to the Shares arise from a combination of the Company's Constitution, statute and general law. Copies of the Company's Constitution are available for inspection during business hours at its registered office.

(ii) Reports and Notices

Shareholders are entitled to receive all notices, reports, accounts and other documents required to be furnished to shareholders under the Company's Constitution, the Corporations Act and the Listing Rules.

(iii) Voting

Subject to any rights or restrictions at the time being attached to any class or classes of shares, at a general meeting of the Company on a show of hands, every ordinary Shareholder present in person, or by proxy, attorney or representative (in the case of a company) has one vote and upon a poll, every Shareholder present in person, or by proxy, attorney or representative (in the case of a company) has one vote for any Share held by the Shareholder.

A poll may be demanded by the Chairperson of the meeting, any 5 Shareholders entitled to vote in person or by proxy, attorney or representative or by any one or more Shareholders holding not less than 5% of the total voting rights of all Shareholders having the right to vote.

(iv) Variation of Shares and Rights Attaching to Shares

Shares may be converted or cancelled with member approval and the Company's share capital may be reduced in accordance with the requirements of the Corporations Act.

Class rights attaching to a particular class of shares may be varied or cancelled with the consent in writing of holders of 75% of the shares in that class or by a special resolution of the holders of shares in that class.

(v) Unmarketable Parcels

The Company may procure the disposal of Shares where the member holds less than a marketable parcel of Shares within the meaning of the Listing Rules (being a parcel of shares with a market value of less than $500). To invoke this procedure, the Directors must first give notice to the relevant member holding less than a marketable parcel of Shares, who may then elect not to have his or her Shares sold by notifying the Directors.

(vi) Changes to the Constitution

The Company's Constitution can only be amended by a special resolution passed by at least three quarters of the members present and voting at a general meeting of the Company. At least 28 days written notice specifying the intention to propose the resolution as a special resolution must be given.

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		2012	2011
		$	$
11.	RESERVES
(a)	Reserves
Foreign currency translation reserve (Note 11 (d) & (e))		94,859	94,859

(b) Movements in Options for Years ended 30 June 2012 and 30 June 2011 were as follows:

Date	Details	Number of
		$0.05 Listed
		Options
1 July 2010	Opening Balance	-	-
22 Dec 2010	Issue of Options1	20,257,500	-
16 Feb 2011	Issue of Options1	165,339,903	-
09 Mar 2011	Exercise of Options	(104,573)	-
27 May 2011	Exercise of Options	(3,750)	-
30 June 2011	Closing Balance	185,489,080	-

30 June 2012	Closing Balance	185,489,080	-

Notes:

1 Free attaching options issued on basis of 1 option for every 2 shares subscribed for per the prospectus dated 14 December 2010.

(c) Terms and Conditions of Listed Options

The Listed Options are granted based upon the following terms and conditions:

each Listed Option entitles the holder to subscribe for one Share upon exercise of each Listed Option;
the exercise price of each Listed Option is $0.05;
each Listed Option has an expiry date of 31 December 2014;
the Listed Options are exercisable at any time prior to the Expiry Date;
Shares issued on exercise of the Listed Options rank equally with the then shares of the Company;
application will be made by the Company to ASX for official quotation of the Shares issued upon the exercise of the Listed Options;
if there is any reconstruction of the issued share capital of the Company, the rights of the Optionholders may be varied to comply with the ASX Listing Rules which apply to the reconstruction at the time of the reconstruction;
application for quotation of the Listed Options will be made by the Company; and
the Listed Options are transferable.

Odyssey Energy Limited

ANNUAL FINANCIAL REPORT 2012

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 (Continued)

11. RESERVES (Continued)

(d) Movements in the Foreign Currency Translation Reserve for Years ended 30 June 2012 and 30 June 2011 were as follows:

	2012	2011
	$	$
Balance at the beginning of year	94,859	94,859
Foreign currency translation – continuing operations	-	-
Balance at end of year	94,859	94,859

(e) Nature and Purpose of Reserves

(i) Foreign Currency Translation Reserve

The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.

12. FRANKING ACCOUNT

In respect to the payment of dividends (if any) by the Company in subsequent financial years, no franking credits are currently available, or are likely to become available in the next 12 months.

13. KEY MANAGEMENT PERSONNEL DISCLOSURES

(a) Details of Key Management Personnel

The Key Management Personnel of the Group during or since the end of the financial year were as follows:

Non-Executive Directors

Mr Ian Middlemas Non-Executive Chairman Mr David Cruse Non-Executive Director Mr Mark Pearce Non-Executive Director and Company Secretary

Unless otherwise disclosed, the KMP held their position from 1 July until the date of this report.

(b) Key Management Personnel Compensation

Company and Consolidated	2012	2011
	$	$
Short-term employee benefits	76,000	66,000
Post-employment benefits	6,840	4,252
Total compensation	82,840	70,252

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(c) Option holdings of Key Management Personnel

							Vested and
		Granted as				Held at	exercisable
	Held at 1 July 2011	Remuner- ation		Options Exercised	Purchases	30 June 2012	at 30 June 2012
2012	(#)	(#)		(#)	(#)	(#)	(#)
Ian Middlemas	10,100,000		-	-	-	10,100,000	10,100,000
David Cruse	3,869,013		-	-	-	3,869,013	3,869,013
Mark Pearce	4,004,000		-	-	-	4,004,000	4,004,000
	17,973,013		-	-	-	17,973,013	17,973,013
							Vested and
		Granted as				Held at	exercisable
	Held at 1 July 2010	Remuner- ation		Options Exercised	Purchases1	30 June 2011	at 30 June 2011
2011	(#)	(#)		(#)	(#)	(#)	(#)
Ian Middlemas	-		-	-	10,100,000	10,100,000	10,100,000
David Cruse	-		-	-	3,869,013	3,869,013	3,869,013
Mark Pearce	-		-	-	4,004,000	4,004,000	4,004,000
	-		-	-	17,973,013	17,973,013	17,973,013

Notes:

1 These $0.05 Listed Options were subscribed for by the Directors on terms no more favourable than to other unrelated parties.

Odyssey Energy Limited

ANNUAL FINANCIAL REPORT 2012

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 (Continued)

13. KEY MANAGEMENT PERSONNEL DISCLOSURES (Continued)

(d) Shareholdings of Key Management Personnel

		Granted		Sales		Purchases	Net Change
							Other		Held at
	Held at								30 June 2012
2012	1July 2011	(#)		(#)		(#)	(#)		(#)
Ian Middlemas	23,100,000		-		-	-		-	23,100,000
David Cruse 2	8,113,528		-		-	-		-	8,113,528
Mark Pearce	9,024,000		-		-	-		-	9,024,000
	40,237,528		-		-	-		-	40,237,528
		Granted		Sales		Purchases1	Net Change
							Other		Held at
	Held at								30 June 2011
2011	1 July 2010	(#)		(#)		(#)	(#)		(#)
Ian Middlemas	2,900,000		-		-	20,200,000		-	23,100,000
David Cruse	453,000		-		-	5,158,028	2,502,500	2	8,113,528
Mark Pearce	1,016,000		-		-	8,008,000		-	9,024,000
	4,369,000		-		-	33,366,028	2,502,500		40,237,528

Note:

1 These Shares were subscribed for by the Directors on terms no more favourable than to other unrelated parties. 2 These Shares were issued through the conversion of unsecured convertible notes following shareholder approval on terms no more favourable than to other unrelated parties.

(e) Loans to Key Management Personnel

There were no loans made to any key management personnel during the year ended 30 June 2012 (2011: Nil).

(f) Other Transactions

Apollo Group Pty Ltd, a company of which Mr Mark Pearce is a Director and beneficial shareholder, was paid $210,000 (2011: $180,000) for the provision of serviced office facilities and administration services. The amount is based on a monthly retainer due and payable in advance and is able to be terminated by either party with one month's notice. This item has been recognised as an expense in the profit and loss statement. The balance payable to Apollo Group Pty Ltd included in the statement of financial position at 30 June 2012 is $nil (2011: $nil).

14. CONTROLLED ENTITIES

All controlled entities are included in the consolidated financial statements. The parent entity does not guarantee to pay the deficiency of its controlled entities in the event of a winding up of any controlled entity. The financial year-end of the controlled entities is the same as that of the parent entity.

Name of Controlled Entity	Place of	% of Shares	% of Shares
	Incorporation	held 2012	held 2011
OEL E&P (USA), Inc(a)	USA	100	100

The abovenamed investment in controlled entity has a carrying value at balance date of nil. (a) Incorporated on 24 June 2008.

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15. RELATED PARTIES

Transactions with Related Parties in the Consolidated Group

The consolidated group consists of Odyssey Energy Limited (the ultimate parent entity in the wholly owned group) and its controlled entities (see Note 14).

Odyssey Energy Limited entered into the following transactions during the year with related parties in the wholly owned group:

(i) Entity Name

OEL E&P (USA), Inc
(ii) Terms and Conditions:
The loans to controlled entities were undertaken on commercial terms and conditions, except that:
there is no fixed time for repayment of loans between the parties; and
no interest is payable on the loans.
Remuneration of Key Management Personnel is disclosed in Note 13(b) and the Remuneration Report section of the Directors’ Report.
Equity holdings of Key Management Personnel are disclosed in Notes 13(c) and 13(d).

		2012	2011
		$	$
16.	REMUNERATION OF AUDITORS
Amounts received or due and receivable by Deloitte Touche Tohmatsu for
an audit or review of the financial report of the Company		20,500	19,880
Total	Auditor's Remuneration	20,500	19,880

17. SEGMENT INFORMATION

The Consolidated Entity operates in one segment, being the resources sector in the United States of America. This is the basis on which internal reports are provided to the Directors for assessing performance and determining the allocation of resources within the Consolidated Entity.

Odyssey Energy Limited

ANNUAL FINANCIAL REPORT 2012

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 (Continued)

		2012	2011
		cents	cents
18.	EARNINGS PER SHARE
(a)	Basic Profit/(Loss) per Share
From	continuing operations	(0.19)	(0.25)
Total	basic profit/(loss) per share	(0.19)	(0.25)
(b)	Diluted Profit/(Loss) per Share
From	continuing operations	(0.19)	(0.25)
Total	diluted profit/(loss) per share	(0.19)	(0.25)

The following reflects the income and share data used in the calculations of basic and diluted earnings per share:

	Consolidated	Consolidated
	2012	2011
	$	$
Net loss used in calculating basic and diluted earnings per share	(808,955)	(609,638)

	Number of	Number of
	Shares	Shares
	2012	2011
Weighted average number of ordinary shares and potential ordinary shares used in calculating basic earnings per share	436,707,977	248,393,411
Effect of dilutive securities(see below)	-	-
Adjusted weighted average number of ordinary shares and potential ordinary shares used in calculating basic and diluted earnings per share	436,707,977	248,393,411

(c) Non-dilutive Securities

As at balance date, 185,489,080 listed options (which represent 185,489,080 potential ordinary shares) were not dilutive as they would decrease the loss per share.

(d) Conversions, Calls, Subscriptions or Issues after 30 June 2012

Nil.

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	2012	2011
	$	$
19. STATEMENT OF CASH FLOWS
(a) Reconciliation of Net Loss After Income Tax Expense to Net
Cash Outflow from Operating Activities
Net loss after income tax expense	(808,955)	(609,638)
Adjustment for non-cash income and expense items
Impairment of investments available for sale	440,000	247,500
Loss on extinguishment of financial liability	-	6,867
Depreciation	246	307
Movement in foreign exchange (gain)/loss related to translation of liability	-	(87,950)
Changes in assets and liabilities
Change in receivables	17,184	8,200
Change inpayables	4,933	(680,117)
Net cash outflow from operating activities	(346,592)	(1,114,831)

(b) Reconciliation of Cash Assets

	2012	2011
	$	$
Cash at bank and on hand	2,007,367	2,353,959

(c) Credit Standby Arrangements

At balance date, the Company had no used or unused financing facilities.

(d) Non-cash financing and investing activities

During the current year, there were no non-cash investing and financing activities which are not reflected in the consolidated statement of cash flows:

During the 2011 year, the Company entered into the following non-cash investing and financing activities which are not reflected in the consolidated statement of cash flows:

Conversion of convertible notes with a face value of approximately $2.05 million into 102,494,993 shares together with 51,247,498 options. The options are exercisable at $0.05 on or before 31 December 2014.
Issue of 5,500,000 shares in lieu of payment to a creditor (refer note 3(e)).

Odyssey Energy Limited

ANNUAL FINANCIAL REPORT 2012

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 (Continued)

		2012	2011
	Notes	$	$
20. PARENT ENTITY DISCLOSURES
(a) Financial Position
Assets
Current Assets		2,021,510	2,385,286
Non-Current Assets		982	441,228
Total Assets		2,022,492	2,826,514
Liabilities
Current Liabilities		44,472	39,539
Total Liabilities		44,472	39,539
Equity
Contributed equity		25,875,382	25,875,382
Accumulated losses		(23,897,362)	(23,088,407)
Total Equity		1,978,020	2,786,975
(b) Financial Performance
Loss for the year		(808,955)	(609,638)
Total comprehensive income		(808,955)	(609,638)

(c) Commitments and Contingencies

The Parent entity has no commitments for expenditure nor any contingent assets or liabilities at balance date.

21. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

(a) Overview

The Group's principal financial instruments comprise available for sale financial assets, receivables, payables, cash and short-term deposits. The main risks arising from the Group's financial instruments are interest rate risk, equity price risk, foreign currency risk, credit risk and liquidity risk.

This note presents information about the Group's exposure to each of the above risks, its objectives, policies and processes for measuring and managing risk, and the management of capital. Other than as disclosed, there have been no significant changes since the previous financial year to the exposure or management of these risks. Further quantitative disclosures are included throughout this financial report.

The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. Given the nature and size of the business, no formal risk management committees have been established, however responsibility for control and risk management is delegated to the appropriate level of management with the chief executive officer and chief financial officer (or their equivalent) having ultimate responsibility to the Board for the risk management and control framework.

Risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company's activities.

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(a) Overview (Continued)

Arrangements put in place by the Board to monitor risk management include monthly reporting to the Board in respect of the operations and financial position of the Company and Group. The Board also reviews risks that relate to operations and financial instruments as required, but at least every six months.

Given the uncertainty as to the timing and amount of cash inflows and outflows, the Company has not implemented any additional strategies to mitigate the financial risks and no hedging has been put in place. As the Company's operations change, the Directors will review this policy periodically going forward.

The Company's policy is that no trading in financial instruments shall be undertaken for the purposes of making speculative gains.

The Company currently does not engage in any hedging or derivative transactions to manage market risk.

Due to the changes in the global economy there has been a significant decline in the value of available for sale financial assets.

(b) Credit Risk

Credit risk is the risk of financial loss to the Company or Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. This arises principally from cash and cash equivalents, and trade and other receivables.

There are no significant concentrations of credit risk within the Consolidated Entity. The carrying amount of the Consolidated Entity's financial assets represents the maximum credit risk exposure, as represented below:

	Notes	2012	2011
		$	$
Cash and cash equivalents	19(b)	2,007,367	2,353,959
Trade and other receivables	5	14,143	31,327
		2,021,510	2,385,286

The Consolidated Entity does not have any significant customers and accordingly does not have any significant exposure to bad or doubtful debts.

Trade and other receivables comprise trade receivables, interest accrued and GST refunds due. Where possible the Consolidated Entity trades only with recognised, creditworthy third parties. It is the Consolidated Entity's policy that, where possible, customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the Consolidated Entity's exposure to bad debts is not significant. At 30 June 2012, none (2011: none) of the Consolidated Entity's receivables are past due.

With respect to credit risk arising from cash and cash equivalents, the Consolidated Entity's exposure to credit risk arises from default of the counter party, with a maximum exposure equal to the carrying amount of these instruments.

(c) Liquidity Risk

Liquidity risk is the risk that the Company and Group will not be able to meet its financial obligations as they fall due. The Board's approach to managing liquidity is to ensure, as far as possible, that the Company will always have sufficient liquidity to meet its liabilities when due. This is monitored by the preparation of monthly cash flow reports, and regular forecasts as required but at least every six months.

Odyssey Energy Limited

ANNUAL FINANCIAL REPORT 2012

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 (Continued)

21. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)

(c) Liquidity Risk (Continued)

The contractual maturities of financial liabilities, including estimated interest payments, are provided below. There are no netting arrangements in respect of financial liabilities.

	Carrying	Contractual	6 months or	6-12 months	1-2 years		2-5 years
	Amount	cash flows	less	$
	$	$	$		$		$
2012 – Group
Trade and other payables	44,472	(44,472)	(44,472)	-		-	-
2011 – Group
Trade and other payables	39,539	(39,539)	(39,539)	-		-	-

(d) Currency Risk

(i) Exposure to currency risk

The Company and the Group are exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of the Company and its controlled entity. The functional currency of the Company is Australian Dollars (AUD) and of its controlled entity is United States Dollars (USD).

As the Company's loan to its controlled entity is denominated in AUD the Company has not been exposed to currency risk in respect to this balance. Foreign currency gains/losses recorded by the subsidiary are taken to foreign currency reserve.

Foreign currency risk also arises on translation of the net assets of the controlled entity into AUD for consolidation purposes. The foreign currency gains or losses arising from this risk are recorded through the foreign currency translation reserve.

As a result of activities overseas, the Group's statement of financial position can be affected by movements in exchange rates.

The Group also has transactional currency exposures. Such exposure arises from sales or purchases denominated in foreign currencies. The Group currently does not engage in any hedging or derivative transactions to manage foreign currency risk.

(ii) Sensitivity analysis for currency risk

There would be no impact on profit or loss arising from changes in the currency risk variables relating to the Group's activities overseas as all changes in value are taken to a reserve.

There would be no impact on consolidated equity balances in the current or prior year arising from changes in foreign currency rates, as there have been no significant foreign currency transactions.

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(e) Interest Rate Risk

The Group's exposure to the risk of changes in market interest rates relates primarily to the cash and short-term deposits with a floating interest rate.

These financial assets with variable rates expose the Group to cash flow interest rate risk. All other financial assets and liabilities, in the form of receivables and payables, are non-interest bearing.

(i) Exposure to interest rate risk

At the reporting date, the interest rate profile of the Group's interest-bearing financial instruments was:

		2012	2011
		$	$
Interest-bearing financial instruments
Cash at bank and on hand	(A)	2,007,367	2,353,959
		2,007,367	2,353,959

(A) The weighted average interest rate of the Company cash balances was 4.49% (2011: 5.15%) and for total consolidated cash balances this rate was 4.49% (2011: 5.15%).

The Group currently does not engage in any hedging or derivative transactions to manage interest rate risk.

(ii) Cash flow sensitivity analysis for variable rate instruments

A sensitivity of 20% has been selected as this is considered reasonable given the current level of both short term and long term interest rates. A 20% movement in interest rates at the reporting date would have increased (decreased) equity and profit and loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same basis for 2011.

	Profit or loss	Profit or loss	Equity	Equity
	20%	20%	20%	20%
	increase	decrease	increase	decrease
2012
Group
Cash and cash equivalents	18,034	(18,034)	18,034	(18,034)
2011
Group
Cash and cash equivalents	24,231	(24,231)	24,231	(24,231)

Odyssey Energy Limited

ANNUAL FINANCIAL REPORT 2012

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 (Continued)

21. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)

(f) Commodity Price Risk

The Group is exposed to commodity price risk. These commodity prices can be volatile and are influenced by factors beyond the Group's control. As the Group is currently engaged in exploration and business development activities, no sales of commodities are forecast for the next 12 months, and accordingly, no hedging or derivative transactions have been used to manage commodity price risk.

(g) Equity Price Risk

(i) Exposure to equity price risk

The Company is exposed to equity price risk arising from its equity investment in Marion Energy Limited (Marion). The equity investment is currently held for strategic rather than trading purposes. The Company does not actively trade these investments and no hedging or derivative transactions have been used to manage equity price risk. The Company's investment is classified as available-for-sale and is carried at fair value.

The Company holds 27.5 million shares in Marion which are listed on the ASX (under the code of MAE). Marion did not lodge its 30 June 2011 Annual Financial Statements by 30 September 2011 and accordingly its securities were suspended from trading on the ASX with effect from 3 October 2011. As at 30 June 2012, the 30 June 2011 Financial Statements still have not been lodged with the ASX and the company’s securities remain suspended.

As a result, during the year an amount of $440,000 (2011: $247,500) has been recognised as an impairment expense in the statement of comprehensive income.

With respect to equity price risk arising from the Company's equity investments, the maximum exposure is equal to the carrying amount of the Company's equity investments.

A deferred tax asset has not been recognised in respect of this investment (refer Note 4).

(ii) Sensitivity analysis for equity price risk

The sensitivity analysis below has been determined based on the exposure to equity price risks at the reporting date, which has been determined on a consistent basis with the prior year.

At reporting date, if the value of the investment had been $440,000 (100% of opening carrying value) higher (2011: 100%):

net loss for the year ended 30 June 2012 would have been reduced by $440,000 (2011: $440,000) as although the equity investments are classified as available for sale and no investments were disposed of the directors have treated the movement in value as being an impairment; and
equity reserves would have been $440,000 higher (2011: $440,000 higher) for the Company as a result of the changes in fair value of available for sale investments.

This investment has been fully provided for as at 30 June 2012 and accordingly the investment value cannot be further reduced.

At 30 June 2011, if the value of the investment had been $440,000 lower:

net loss for the year ended 30 June 2011 would have been increased by $440,000, as although the equity investments are classified as available for sale and no investments were disposed of the directors have treated the movement in value as being an impairment; and
equity reserves would have been $440,000 lower for the Company as a result of the changes in fair value of available for sale investments.

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21. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)

(h) Fair Value

The net fair value of financial assets and financial liabilities approximate their carrying value. The methods for estimating fair values are outlined in the relevant notes to the Financial Statements. In the current and in the comparative period, the securities were measured at fair value by direct reference to quoted market prices, in an active market.

(i) Capital Management

The Board's policy is to maintain a suitable capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Given the stage of development of the Company, the Board's objective is to minimise debt going forward and to raise funds as required through the issue of new shares. However, the Board will undertake short term borrowings to provide temporary funding where appropriate. The Company is currently examining new business opportunities where acquisition/working capital requirements of a new project may involve additional funding in some format (which may include debt, where appropriate).

There were no changes in the Company's approach to capital management during the year. The Company is not subject to externally imposed capital requirements.

22. COMMITMENTS AND CONTINGENCIES

(a) Commitments

The Group has no commitments for expenditure. However, it should be noted that the Group intends to conduct exploration and appraisal activities on its oil and gas leases.

(b) Contingencies

At balance date the Group has no contingent assets or liabilities.

23. SHARE BASED PAYMENTS

(a) Recognised Share-Based Payment Expense

From time to time, the Group provides incentive options to officers, employees, consultants and other key advisors as part of remuneration and incentive arrangements. The number of options granted, and the terms of the options granted are determined by the Board. Shareholder approval is sought where required. During the 2011 year the only share based payment transaction was for the extinguishment of a creditor (refer to Note 3(e)). No share based payments have been made during the year ended 30 June 2012.

24. SUBSEQUENT EVENTS

As at the date of this report there are no matters or circumstances which have arisen since 30 June 2012 that have significantly affected or may significantly affect:

the operations, in financial years subsequent to 30 June 2012, of the Company or Consolidated Entity;
the results of those operations, in financials years subsequent to 30 June 2012, of the Company or Consolidated Entity; or
the state of affairs, in financial years subsequent to 30 June 2012, of the Company or Consolidated Entity.

Odyssey Energy Limited

ANNUAL FINANCIAL REPORT 2012

DIRECTORS' DECLARATION

In accordance with a resolution of the directors of Odyssey Energy Limited:

In the opinion of the directors:
(a) the attached financial statements, notes and the additional disclosures included in the directors' report designated as audited, are in accordance with the Corporations Act 2001, including:
- (i) section 296 (compliance with accounting standards and Corporations Regulations 2001); and
- (ii) section 297 (gives a true and fair view of the financial position as at 30 June 2012 and of the performance for the year ended on that date of the Group); and
(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.
The attached financial statements are in compliance with International Financial Reporting Standards, as stated in note 1 to the financial statements.
The Directors have been given a declaration required by section 295A of the Corporations Act 2001 for the financial year ended 30 June 2012.

On behalf of the Board

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MARK PEARCE Director

Perth, 25 September 2012

Deloitte Touche Tohmatsu ABN 74 490 121 060

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Woodside Plaza Level 14 240 St Georges Terrace Perth WA 6000 GPO Box A46 Perth WA 6837 Australia

Tel: +61 8 9365 7000 Fax: +61 (8) 9365 7001 www.deloitte.com.au

Independent Auditor’s Report to the members of Odyssey Energy Limited

Report on the Financial Report

We have audited the accompanying financial report of Odyssey Energy Limited, which comprises the statement of financial position as at 30 June 2012 the statement of comprehensive income, the statement of cash flows and the statement of changes in equity for the year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity, comprising the company and the entities it controlled at the year’s end or from time to time during the financial year as set out on pages 14 to 54.

Directors’ Responsibility 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 Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements , that the consolidated financial statements comply with International Financial Reporting Standards.

Auditor’s Responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control, relevant to the company’s preparation of the financial report that gives a true and fair view, 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 company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

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

Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited

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Auditor’s Independence Declaration

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001 . We confirm that the independence declaration required by the Corporations Act 2001 , which has been given to the directors of Odyssey Energy Limited, would be in the same terms if given to the directors as at the time of this auditor’s report.

Opinion

In our opinion:

(a) the financial report of Odyssey Energy Limited is in accordance with the Corporations Act 2001 , including:
(i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2012 and of its performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001 ; and
(b) the consolidated financial statements also comply with International Financial Reporting Standards as disclosed in Note 1.

Report on the Remuneration Report

We have audited the Remuneration Report included in pages 7 to 11 of the directors’ report for the year ended 30 June 2012. 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.

Opinion

In our opinion the Remuneration Report of Odyssey Energy Limited for the year ended 30 June 2012, complies with section 300A of the Corporations Act 2001 .

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DELOITTE TOUCHE TOHMATSU

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David Newman

Partner Chartered Accountants Perth, 25 September 2012

AI assistant

ODYSSEY GOLD LTD — Annual Report 2012

65484_rns_2012-09-25_a4d39ae7-ddd9-4d58-86ae-cd55bd190179.pdf

A N N U A L F I N A N C I A L R E P O R T

CORPORATE DIRECTORY

DIRECTORS:

CONTENTS

DIRECTORS' REPORT

DIRECTORS

CURRENT DIRECTORS AND OFFICERS

Ian Middlemas

Mark Pearce

Non-Executive Director and Company Secretary Qualifications – B.Bus, CA, FCIS, F Fin

DIRECTORS' REPORT

CURRENT DIRECTORS AND OFFICERS (Continued)

David Cruse

Non-Executive Director Qualifications – B.Pharm

PRINCIPAL ACTIVITIES

EMPLOYEES

DIVIDENDS

EARNINGS PER SHARE

CORPORATE STRUCTURE

CONSOLIDATED RESULTS

Review of Results

REVIEW OF OPERATIONS

Corporate and Financial Position

Business Strategies and Prospects

DIRECTORS' REPORT

REVIEW OF OPERATIONS (Continued)

Operations

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

SIGNIFICANT POST BALANCE DATE EVENTS

ENVIRONMENTAL REGULATION AND PERFORMANCE

LIKELY DEVELOPMENTS AND EXPECTED RESULTS

DIRECTORS' REPORT

INFORMATION ON DIRECTORS' INTERESTS IN SECURITIES OF ODYSSEY

Notes:

SHARE OPTIONS

MEETINGS OF DIRECTORS

REMUNERATION REPORT - AUDITED

Details of Key Management Personnel

Non-Executive Directors

Remuneration Policy

Remuneration Policy for Executives

Fixed Remuneration

DIRECTORS' REPORT

REMUNERATION REPORT – AUDITED (Continued)

Remuneration Policy for Executives (Continued)

Performance Based Remuneration – Short Term Incentive

Performance Based Remuneration – Long Term Incentive

Remuneration Policy for Non-Executive Directors

Relationship between Remuneration of KMP and Shareholder Wealth

Relationship between Remuneration of KMP and Earnings

General

DIRECTORS' REPORT

REMUNERATION REPORT – AUDITED (Continued)

Remuneration of Key Management Personnel

Notes:

REMUNERATION REPORT – AUDITED (Continued)

Options Granted to Key Management Personnel

2012

2011

Employment Contracts with Key Management Personnel

End of the audited Remuneration Report.

INSURANCE OF OFFICERS AND AUDITORS

NON-AUDIT SERVICES

DIRECTORS' REPORT

AUDITOR'S INDEPENDENCE DECLARATION

Odyssey Energy Limited

DELOITTE TOUCHE TOHMATSU

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF CASH FLOWS

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Preparation

(b) Statement of Compliance

1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(c) Principles of Consolidation

ODYSSEY GOLD LTD Annual Report 2012