PILOT ENERGY LIMITED

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PILOT ENERGY LIMITED ABN 86 115 229 984 and Controlled Entities

Annual Financial Report For the Year Ended 30 September 2019

A.B.N 86 115 229 984

For the Year Ended 30 September 2019

	Page
Financial Statements
Corporate Directory	1
Chairman's Report	2
Review of Operations	3
Directors' Report	9
Auditor's Independence Declaration	21
Consolidated Statement of Profit or Loss and Other Comprehensive Income	22
Consolidated Statement of Financial Position	23
Consolidated Statement of Changes in Equity	24
Consolidated Statement of Cash Flows	25
Notes to the Consolidated Financial Statements	26
Directors' Declaration	51
Independent Audit Report	52
Additional Information for Listed Public Companies	56

Pilot Energy Limited

A.B.N 86 115 229 984

Corporate Directory 30 September 2019

Directors

Mr Michael Lonergan Dr Walker Li Dr Guoping Bai

Company Secretary

Lisa Dadswell

Registered and Principal Office

Level 12, Grosvenor Place 225 George Street, SYDNEY NSW 2000

Website: www.pilotenergy.com.au Email: [email protected] Telephone: +61 2 8016 2819 Facsimile: +61 2 9279 0664

Postal Address

Level 12, Grosvenor Place 225 George Street, SYDNEY NSW 2000

Auditors

MNSA Pty Ltd Level 1, 283 George Street SYDNEY NSW 2000

Bankers

National Australia Bank Limited Bankstown Central S/C North Terrace BANKSTOWN NSW 2200

Share Registry

Boardroom Pty Limited Level 12, 225 George Street SYDNEY NSW 2000

ASX Code

Shares: PGY

Legal Form of Entity Public Company

Country of Incorporation and Domicile

Australia

Pilot Energy Limited

A.B.N 86 115 229 984

Chairman’s Report

30 September 2019

Dear Shareholder,

The last year has seen prevailing market conditions continue to be challenging amidst concerns about slowing global growth and its impact on demand. As such, oil prices remained subdued through 2019 and are expected to remain this way into 2020, in turn reinforcing the industry’s current cautious approach to investment. On the other hand, a positive outlook for commodities over the 2019-28 period is expected to lift gas demand in Western Australia, as new gas-consuming mining and minerals processing projects commence. Pilot has therefore continued to focus on the technical assessment of its existing tenements to underpin near term exploration efforts whilst also looking for other low-cost opportunities to enhance their asset base.

Land access and the ongoing fracking moratorium which was announced in late 2017 remain significant issues which have hindered activity in Pilot’s onshore Perth Basin permits. Despite significant efforts to progress the field exploration activities, some landholders have prevented access to key areas of the permits. Pilot has successfully sought and received suspension/extensions from the regulatory authorities to retain permit tenure pending resolution of the issues.

With the increasing difficulties with land access, Pilot has continued to focus its efforts on the WA-481-P tenement in the shallow offshore Perth Basin. The West Erregulla gas discovery in the onshore portion of the Perth Basin during the year should serve to further invigorate interest in Pilot’s assets, in particular WA481-P which demonstrates similar stratigraphy and petroleum system elements to West Erregulla and Waitsia gas discoveries as well as the Cliff Head and Xanadu oil fields

Tung Leung Wong and Dr Xingjin Wang resigned from their positions as Executive Directors in February 2019 and in June 2019 Mr Wilson Xue resigned from his position of Non-Executive Director and Chairman. The Board thanks Mr. Wong, Dr. Wang and Mr Xue for their valuable contributions to the Company during their tenure.

In June 2019, Dr Guoping Bai was appointed as a Non-Executive Director of the Company. Dr. Bai’s career background in geoscience and energy resources and his research interests including integrated basin analysis, play and prospect evaluation, and reservoir geology provide Pilot with a strong technical presence on the Board.

It was announced in July 2019 that Mr Robert Gard would step down as the Chief Executive Officer of Pilot Energy to pursue other business interests. The Board thanks Mr Gard for his valuable contribution to the Company during his tenure as CEO.

Alan Teimoori was appointed as acting CEO until a permanent replacement can be found.

I would like to thank my company directors Mr. Mike Lonergan, Mr. Walker Li and Dr. Guoping Bai for their hard work during the year.

Lastly, I would like to acknowledge and thank our shareholders for their ongoing support and patience as we continue to high grade our asset base and build the value of our portfolio.

Yours faithfully,

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For and on behalf of the Board

Alan Teimoori Acting CEO

Pilot Energy Limited

A.B.N 86 115 229 984

Review of Operations

30 September 2019

Highlights

Completed comprehensive reprocessing of WA-481-P seismic data, contributing to ongoing internal resource assessment of WA-481-P
Planning activities to allow the drilling of the Wye Knot-1 exploration well in EP437 continued
WA-503-P Joint Venture sale process revisited and awaiting approval from Regulator

Overview

Pilot Energy Limited is listed on the Australian Securities Exchange (ASX: PGY). The Company has one operational segment, being the exploration, evaluation and development of oil and gas interests. The Company’s assets are currently focused on four exploration permits located onshore and offshore West Australia.

Company Goals and Strategy

The Board’s vision for Pilot Energy is for the Company to become a leading exploration and production company.

Pilot Energy Ltd is an emerging junior oil and gas exploration company that is implementing a low-cost, counter-cyclical strategy to develop a portfolio of high quality oil and gas exploration assets. The Company has material working interests in the WA-481-P, WA-503-P and EP416/480 exploration permits, located offshore and onshore Western Australia, in addition to a minor working interest in the onshore EP437 permit. Pilot Energy’s strategy is minimisation of project entry cost and work commitments, while allowing sufficient time to add value through desktop studies prior to seeking farmin partners to fund seismic and/or drilling.

In pursuit of that goal, the Company’s strategy has been to rationalise the existing portfolio to re-focus on lower risk, low commitment opportunities with the potential to deliver near-term oil and gas production.

With the increasing difficulties with land access, Pilot has focused its efforts on the WA-481-P tenement in the shallow offshore Perth Basin.

During the year Pilot progressed efforts to find farmin partners to participate in exploration activities across the Company’s portfolio. Although unsuccessful, Pilot will continue to seek farminees in what is considered to be a challenging market. However, the West Erregulla gas discovery in the onshore portion of the Perth Basin during the year should serve to further invigorate interest in Pilot’s assets

Pilot Energy Limited

A.B.N 86 115 229 984

Review of Operations

30 September 2019

The Financial Year

Prevailing market conditions have continued to be challenging amidst concerns about slowing global growth and its impact on demand. As such, oil prices remained subdued through 2019 and are expected to remain this way into 2020. This in turn reinforced the industry’s current cautious approach to investment. On the other hand, a positive outlook for commodities over the 2019-28 period is expected to lift gas demand in Western Australia, as new gas-consuming mining and minerals processing projects commence. Pilot has therefore continued to focus on the technical assessment of its existing tenements to underpin near term exploration efforts whilst also looking for other low-cost opportunities to enhance their asset base.

In April 2019 Pilot Energy Limited announced that it has issued a convertible note to West Energy Pty Ltd. The principle terms of the Convertible Note are:

• Election: The Company may elect to repay the Convertible Note in either cash or by way of the issue of fully paid ordinary shares.

• Shareholder approval: Conversion to shares is subject to shareholder approval.

• Maturity Date: 12 months from the Issue Date.

• Face Value: $300,000 • Interest: 3% per annum • Conversion Price: is to be calculated based on the five-day VWAP on the five (5) trading days prior to the Conversion Date.

At the end of the financial year ending 30 September 2019, the following securities were on issue:

79,470,642 fully paid ordinary shares
2,600,000 unlisted options exercisable at $0.20 by 31 December 2019.

Pilot Energy Limited

A.B.N 86 115 229 984

Review of Operations

30 September 2019

Permit overview: WA-481-P (Operator, 60%)

The WA-481-P exploration permit was acquired in 2016, with $65.5million of associated Petroleum Resource Rent Tax (PRRT) credits being transferred with the permit title (60% retained by Pilot) and is the primary focus of Pilot’s portfolio.

Due to delays in completion of the Year 5 seismic reprocessing work program, primarily due to problems securing the seismic data, the JV submitted an application to the Regulator in March 2019 to suspend and extend the permit work program to enable the JV to complete the year 6 work program and prepare the necessary work plans and applications for permit renewal. On 6 June 2019 the Joint Authority approved a 7 month suspension of the Year 5 work program conditions to 19 March 2019 as well as a 6 month suspension/extension of Year 6 to 19 February 2020

Interpretation and mapping of the 2D and 3D seismic reprocessing continued. This work will allow more accurate quantification of the assessed resources and independent resource assessment and certification. Further de-risking of identified prospects and leads is being pursued via the Year 6 work program of seismic inversion and fluid modelling work, anticipated for completion in 4Q 2019, allowing the Joint Venture to decide on the next phase of exploration activity and prepare for Permit renewal in Q1 2020.

WA-481-P is located adjacent to existing oil and gas infrastructure, within shallow waters to the west of numerous oil and gas fields, including the offshore Cliff Head and Xanadu oil fields, the onshore Waitsia and Dongara gas fields and the West Erregulla gas discovery. The 17,475 km[2] permit covers a major portion of the offshore extension of the north Perth Basin. The primary petroleum plays are for oil and/or gas within the late Permian Dongara Sandstone, the Irwin River Coal Measures (IRCM) and the early Permian Kingia and High Cliff Sandstones. Both oil and gas are proven within the permit, with the Frankland gas and the Dunsborough oil discoveries representing contingent resources of up to 59 Bcf gas and 9.8 MMbbls oil, respectively.

The permit is extensively covered by 2D and 3D seismic data, which confirms the presence of thirteen structural prospects in four distinct areas. Individual prospects offer potential for up to 78 MMbbls of oil, and three of the areas are substantially de-risked by prior discoveries on-block at Cliff Head, Dunsborough and Frankland.

Additional information regarding the prospectivity of WA-481-P is included in a Permit Datasheet attached to the 31 August 2018 announcement.

Pilot Energy Limited

A.B.N 86 115 229 984

Review of Operations

30 September 2019

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Permit overview: EP416 & EP480 Exploration Permits (Operator, 60%)

Early in 2018, Pilot Energy attempted to commence a geochemical survey over the Leschenault conventional gas prospect, however difficulty with land access prevented this activity over key areas of the prospect.

A 24-month suspension and extension granted on 6 July 2018 for both permits to allow for resolution of the land access issues has allowed Pilot to commence an evaluation of other less intrusive exploration methods which will allow the JV to progress exploration in the permits. The possibility of drilling the Leschenault prospect without further de-risking is also under consideration.

Leschenault is a “three-way dip” feature that relies on closure to the west by a bounding fault. The well-defined structure has two structural culminations, either of which is a potential drilling location for a vertical well to test the two conventional reservoir targets, being the Permian Sue Sandstone and the Triassic Lesueur Sandstone.

The main geological risk associated with Leschenault is one of cross-fault seal, i.e. whether the western bounding fault has sealing capacity to retain hydrocarbon gas migrating in to the structure.

As announced on 7 November 2016, RISC completed an independent assessment of prospective resources for the two main reservoir target intervals at Leschenault, confirming the potential for very significant volumes of gas, as follows:

Reservoir	Gross (100%) Bcf	Gross (100%) Bcf

	Low	Best	High


Lesueur Sandstone	150	435	970
Sue Sandstone	120	290	625
Total	270	725	1,595

Pilot Energy Limited

A.B.N 86 115 229 984

Review of Operations

30 September 2019

Permit overview: EP437 Exploration Permit (13.058%)

Activities to clear a path to allow the drilling of the Wye Knot-1 exploration well in EP437 (Operator: Key Petroleum) continued with the land owner access agreement executed. A ‘Baseline’ flora and vegetation survey was subsequently conducted at the site, with final reports pending. Requirements for approval to conduct petroleum related activities have been submitted to the Regulator, with operations expected to

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commence after the permit anniversary on 27 November 2019. As such, the JV is considering an application to DMIRS to have the permit works suspended and extended by 12 months to allow the operator time to secure access to the drilling location. The preferred drilling location for Wye Knot-1 has not changed and the Operator is in advanced discussions with oilfield providers including drilling services to commence drilling

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

Wye�Knot
Mt�
Horner�
oilfield
Dongara�Gas�
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Waitsia Gas�
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The Wye Knot Prospect exploration well is positioned at a step out distance sufficient to investigate the potential for an oil leg below the gas pay encountered in Wye-1 in the Triassic Bookara and Arranoo Sands. The well is also planned to test deeper Permian sequences, which were not fully intersected at Wye-1.

The Operator’s assessment of the prospective resources targeted by Wye Knot-1 is as follows:

Reservoir	Gross (100%) MMbbls	Gross (100%) MMbbls	Net to Pilot (13%) MMbbls	Net to Pilot (13%) MMbbls

	Low	Best High	Low Best	High


Triassic (Bookara & Arranoo)	0.2	1.4 6.1	0.03 0.18	0.79

An oil discovery at Wye Knot-1 could be commercialised rapidly, and at low cost. Pilot Energy estimates the Net Present Value of a commercial discovery at between US$15 and US$20 per barrel, at current oil prices and depending on the size of the discovered resource. Importantly, success at Wye Knot-1 will de-risk other prospects within EP437, including Parce, Becos, Updip Wattle Grove, and Ganay.

The Operator has also advised that material conventional oil exploration potential is now complimented by the Production Licence adjacent to the east. This includes prospects updip to Waitsia/Senecio/Dongara oil and gas development areas within the same Permian sequences that contain the Waitsia Gas Field.

Historical surface geochemical data has been integrated into the regional North Perth Basin model which shows a baseline anomaly over Mt Horner Oil Field. Similar anomalies have been observed over the Wye Knot, Parce, and Becos prospects.

Pilot Energy Limited

A.B.N 86 115 229 984

Review of Operations

30 September 2019

Permit overview: WA-503-P Exploration Permit (Operator, 80%)

On 27 July 2018 Pilot Energy announced that it had entered into a binding agreement for the sale of its interest in the Permit to Black Swan. Completion of the transaction was subject to the satisfaction of certain conditions precedent, including approval of the transaction by the National Offshore Petroleum Titles Administrator (NOPTA). NOPTA has not approved the transfer of the interest to Black Swan. Consequently, on 18 December 2018, Black Swan advised Pilot Energy that it was terminating the sale agreement. Since then, Pilot has continued to work with Black Swan as joint venture partners in the Permit..

In April 2019 the JV lodged an application for suspension and extension of the Permit to allow additional time to satisfy the minimum work program obligation for the Permit year. NOPTA granted a 16 month suspension of the Permit Year 1-3 work program commitment and corresponding 16 month extension of the permit term.

The JV submitted another application to the Regulator for transfer of the WA503P title to Black Swan in May 2019. At the end of the reporting period, the JV was awaiting a ruling on the proposed transaction.

Under the terms of the agreement, Pilot Energy will receive a share of any net profit interest derived from the Permit in return for Black Swan becoming Operator and covering all costs associated with activities and management of the Permit. Pilot Energy will withdraw from the title after completion of the transaction and Black Swan will assume all risks and liabilities in respect of the Permit.

The agreement with Black Swan is consistent with Pilot Energy’s strategy of minimizing project costs. It enables the company to reduce its risk exposure and expenditure on the Permit to essentially zero while retaining a portion of the profits which may result from Black Swan’s exploration efforts should they be successful.

Block WA-503-P is located offshore Western Australia within the Dampier Sub-basin, inboard of the giant Northwest Shelf complex and on trend with numerous oil and gas discoveries; including the Legendre and Hurricane fields. The shallow water depth across the block (maximum 70 metres) allows for drilling by lower cost “jack up” drilling rigs.

The primary exploration focus of WA-503-P is Lower Cretaceous to Upper Jurassic sandstone reservoirs within the oil rich Legendre Trend, situated along the eastern flank of the Lewis Trough. The decommissioned Legendre field is situated some 20 km to the northeast of the block and produced over 40 MMbbl of oil from excellent quality sandstone reservoirs.

Competent Person Statement

This announcement contains information on conventional petroleum resources which is based on and fairly represents information and supporting documentation reviewed by Dr Xingjin Wang, a Petroleum Engineer with over 30 years experience, a Master’s Degree in Petroleum Engineering from the University of New South Wales and a PhD in applied Geology from the University of New South Wales. Dr Wang is an active member of the SPE and PESA, and qualified in accordance with ASX listing rule 5.1. Dr Wang has consented to the inclusion of this information in the form and context to which it appears.

A.B.N 86 115 229 984

Pilot Energy Limited

Directors' Report

30 September 2019

The directors present their report, together with the financial statements of the Group, being Pilot Energy Limited (the Company) and its controlled entities, for the financial year ended 30 September 2019.

1. Directors

The names, qualifications, experience and special responsibilities of each person who has been a director during the year and to the date of this report are:

Name and independence Experience, qualifications, special responsibilities and other status directorships

Michael Lonergan Non-executive Director

Appointed:8 December 2017

Appointed positions:

Non-executive Director on 8 December 2017

Michael is a Petroleum Geophysicist with over 32 years of domestic and international oil and gas experience. He has held senior technical and project management roles during his career, having worked for Delhi Petroleum, Oil Company of Australia, Origin Energy, Rohöl-Aufsuchungs Aktiengesellschaft, Mosaic Oil, AGL and Pangaea Resources.

Directors holdings as at date of report

Nil ordinary shares

Walker Li

Non-executive Director

Appointed:20 September 2018

Appointed positions:

Non-executive Director on 20 September 2018

Dr Li has more than 12 years of overseas work experience and is currently Chief Representative of the China Resource Fund in Indonesia. He is a senior-level executive with extensive experience in administration, management and operations. He was previously a Joint-Venture Oilfield Project Manager of CNOOC Oil Base-Oilfield Technology Services Co. and is Project Supervisor of PT Kamundan Energy and PT Wiriagar Energy at Mirach Energy Limited (SGX Listed Code: C68). Dr. Li is a graduate of Huazhong University of Science & Technology, China in Materials Physics and Chemistry and obtained a Ph.D in 2008.

Directors holdings as at date of report 15,894,128 ordinary shares[(1)]

Guoping Bai

Non-executive Director

Appointed:20 September 2018

Appointed positions:

Non-executive Director on 14 June 2019

Dr. Bai earned degrees in geology from East-China Petroleum Institute (B.Sc. Hons I, 1984) and Sydney University, Australia (Ph.D, 1992). After completing his Ph.D, he did two years postdoctoral research at CSIRO Division of Petroleum Resources, Australia. Subsequently, he worked as a research assistant professor at Energy & Geoscience Institute at the University of Utah for five years. In 1999, he joined the faculty of College of Geosciences at China University of Petroleum (Beijing) and is currently a professor. He has published three monographs and over 30 peer-reviewed papers in Chinese and international journals. He has won a Second Class State Science and Technology Advancement Award and a First Class Beijing Municipality Science and Technology Advancement Award. His research interests include integrated basin analysis, play and prospect evaluation, and reservoir geology.

Directors holdings as at date of report

Nil ordinary shares

Pilot Energy Limited

A.B.N 86 115 229 984

Directors' Report

30 September 2019 Name and independence status

Experience, qualifications, special responsibilities and other directorships

Wilson Xue

Non-executive Chairman

Appointed: 27 June 2016

Appointed positions:

Non-executive Director on 27 June 2016 Non-executive chairman on 2 December 2016 Resignation on 14 June 2019

Mr Xue is an entrepreneur and businessman with over 27 years of senior management experience. He has an impressive record of establishing and growing businesses across a breadth of industries. In addition to Mr Xue’s business acumen, his extensive international contacts will benefit the Company as it implements its growth strategy.

Directors holdings as at date of report

7,407,600 ordinary shares[ (2) ] 400,000 options expiring 31 December 2019[(2)]

Benson Wong Executive Director Chief Financial Officer

Mr Wong is a management finance specialist with over 16 years’ senior managerial experience and over seven years’ experience in director roles. In these roles he has held overall finance, administrative and human resources responsibilities.

Appointed: 28 April 2016

Appointed positions:

Executive Director on 29 April 2016 Chief Financial Officer on 28 April 2016 Chief Executive Officer 12 September 2017 to 31 March 2018 Resignation on 7 February 2019

Mr Wong holds a Masters Degree in Commerce from the University of New South Wales, and is an Associate Member of CPA Australia.

Directors holdings as at date of report

4,061,392 ordinary shares[(3) ] 400,000 options expiring 31 December 2019[(4) ]

Xingjin Wang

Executive Director Chief Technical Officer

Appointed: 9 August 2017

Appointed positions:

Executive Director on 9 August 2017 Chief Technical Officer on 12 September 2017 Resignation on 7 February 2019

Xingjin is a petroleum engineer with more than 27 years of international experience in petroleum exploration and production. He has extensive experience in the petroleum basins of Australia, and previously held senior management positions with Arrow Energy. More recently, Xingjin has provided consulting services to a number of companies in the areas of asset evaluation and petroleum engineering. He holds a PhD in Applied Geology from the University of New South Wales.

Directors holdings as at date of report

740,520 ordinary shares[(5)] 400,000 options expiring 31 December 2019[(5) ]

(1) held in related entity, Walkerindo Nusatama Mandiri, PT
(2) held in related entity, Billion Power Capital Limited
(3) 3,703,740 of these shares are held in related entity, Sunpex International Pty Ltd
(4) held in related entity, Sunpex International Limited
(5) held in related entity, Austar Nominees Pty Ltd

A.B.N 86 115 229 984

Pilot Energy Limited

Directors' Report

30 September 2019

2. Chief Executive Officer

Alan Teimoori was appointed as acting Chief Executive Officer of the Company on 31 July 2019 upon resignation of Mr Robert Gard

Alan is a petroleum engineer with over 20 years of experience in the Oil & Gas industry. He has extensive experience in exploration and production both offshore and onshore and in unconventional assets within the major basins of Australia. Alan has worked in various roles during his career at Sydney Gas, QGC and Santos. Recently, among other roles, Alan has provided consulting services as technical manager and as joint venture manager at Orient Energy. Alan holds a PhD in Petroleum Engineering from the University of New South Wales.

3. Company Secretary

Lisa Dadswell has been the company secretary since 1 September 2017. Lisa Dadswell is a Chartered Secretary recognised by the Institute of Chartered Secretaries and Administrators with over 17 years of corporate governance experience.

4. Director’s Meetings

During the financial year, 5 meetings of directors (including committees of directors) were held. Attendances by each director during the year were as follows:

Wilson Xue (resigned 14/06/2019) Benson Wong (resigned 07/02/2019) Michael Lonergan Xingjin Wang (resigned 07/02/2019) Walker Li Guoping Bai (appointed 14/06/2019)	Full meetings of directors	Full meetings of directors
	Number of meetings attended	Number of meetings held whilst a director
	4 2 5 3 2 -	5 3 5 3 5 -

The audit, finance, remuneration, nomination, risk management and environmental functions are handled by the full board of the Company.

5. Principal Activities

The principal activity of the Group during the course of the financial year was oil and gas exploration.

The Group is currently engaged in the acquisition, exploration and development of various petroleum exploration projects, targeting conventional oil and gas resources.

There were no significant changes in the nature of the Group's principal activities during the financial year.

6. Operating Results and Financial Review

Operating and financial review

Information on the operations and financial position of the Group and its strategies and prospects is set out in the Review of Operations at the beginning of this Annual Report.

The consolidated loss of the Group amounted to $661,640 (2018: loss of $1,162,778).

Pilot Energy Limited

A.B.N 86 115 229 984

Directors' Report

30 September 2019

7. Significant Changes in State of Affairs

In the opinion of the directors, there were no matters that significantly affected the state of affairs of the Group during the financial year, other than those matters referred to in the overview above.

8. Dividends

The Directors recommend that no dividend be provided for the year ended 30 September 2019 (2018: Nil).

9. Events After the Reporting Date

As announced on 3[rd] December 2019, together with Key Petroleum Limited (ASX: KEY), the Group has entered into a binding Letter of Intent with Red Emperor Resources NL (ASX/AIM:RMP) in order to receive funding for the completion of an existing work programme to be undertaken within the final year of the current permit term, up to $150,000.

On completion of the work programme, and a favourable renewal decision from NOPTA, Red Emperor will have the exclusive option to acquire a 70% interest in, and the right to operate (subject to any requisite regulatory approval(s)), WA481-P, in return for paying the JV partners collectively $500,000.

10. Environmental Issues

The Group is subject to significant environmental regulation in relation to its exploration activities. It aims to ensure that the highest standard of environmental care is achieved, and that it complies with all relevant environmental legislation. The Directors are not aware of any breaches during the period covered by this report.

11. Indemnification and Insurance of Officers and Auditors

During the financial year, the Company paid an insurance premium of $15,946 (2018: $14,150) to insure the directors and key management of the Group.

The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of the Group, and any other payments arising from liabilities incurred by the officers in connection with such proceedings. This does not include such liabilities that arise from conduct involving a wilful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the Group. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities.

The Group has agreed to indemnify each of the directors and the company secretary of the Company and its controlled entity, against all liabilities to another person (other than the Company or a related body corporate) that may arise from their position as directors and company secretary of the company and its controlled entities, except where the liability arises out of conduct involving a lack of good faith. The agreement stipulates that the Company will meet the full amount of any such liabilities, including costs and expenses.

No agreements have been entered into to indemnify the Group’s auditors against any claims by third parties arising from their report on the Annual Financial Statements.

12. Likely Developments and Expected Results

The Group will continue to pursue its strategy to further develop its exploration portfolio.

A.B.N 86 115 229 984

Pilot Energy Limited

Directors' Report

30 September 2019

13. Share Options

Unissued shares under options

At the date of this report, the unissued ordinary shares of Pilot Energy Limited under option are as follows: Date of Expiry Exercise Price Number under Option 31 December 2019 $0.20 2,600,000 All unissued shares are ordinary shares of the Company.

These options do not entitle the holder to participate in any share issue of the Company.

Further details in relation to the share-based payments to directors are included in the Remuneration Report.

Shares issued on exercise of options

During or since the end of the financial year, no shares were issued as a result of the exercise of options.

Options Expired

During the year ended 30 September 2019, 900,000 options expired (2018: nil expired).

14. Proceedings on behalf of the Group

No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Group, or to intervene in any proceedings to which the Group is a party, for the purpose of taking responsibility on behalf of the Group for all or part of those proceedings.

15. Remuneration Report - Audited

The Directors are pleased to present your Company’s 2019 Remuneration Report prepared in accordance with the Corporations Act 2001 . The Report sets out the detailed remuneration information for Pilot Energy’s Non-executive Directors, Executive directors and other Key Management Personnel (KMP) of the Group. The remuneration disclosures in this Report cover the following persons:

	Position	Date Appointed	Date Resigned
Alan Teimoori	Acting Chief Executive Officer	31 July 2019
Michael Lonergan	Non-executive Director	8 December 2017
Walker Li	Non-executive Director	20 September 2018
Guoping Bai	Non-Executive Director	14 June 2019
Robert Gard	Chief Executive Officer	1 April 2018	31 July 2019
Wilson Xue	Non-executive Chairman	27 June 2016	14 June 2019
Benson Wong	Executive Director	28 April 2016	7 February 2019
Xingjin Wang	Executive Director / Chief Technical Officer	9 August 2017	7 February 2019

The Report contains the following sections:

(a) Remuneration governance

(b) Executive remuneration strategy and framework (c) Board and management changes (d) Service contracts

(e) Non-executive director remuneration

(f) Key management personnel remuneration

(g) Other KMP disclosures

A.B.N 86 115 229 984

Pilot Energy Limited

Directors' Report

30 September 2019

15. Remuneration Report – Audited (continued)

(a) Remuneration Governance

The remuneration of directors and key management is the responsibility of the Remuneration and Nomination Committees.

(b) Executive remuneration strategy and framework

Remuneration is referred to as compensation in this report.

Compensation levels for key management personnel of the Group are set to attract, retain and motivate appropriately qualified and experienced Directors and Executives. As the Group’s principal activities during the year were new ventures and exploration / evaluation, measurement of remuneration policies against financial performance is not considered relevant. The measurement of remuneration policies considered a range of factors including budget performance, delivery of results and timely completion of development programmes.

The objective of the Group's reward framework is to ensure that remuneration policies and structures are fair and competitive. The Board ensures that remuneration satisfies the following criteria for reward:

competitiveness and reasonableness;
transparency;
attracts and retains high calibre executives; and
rewards capability and experience

Executive remuneration mix

The remuneration of the Managing Director and other KMP was structured as a mix of fixed remuneration and variable “at risk” remuneration through short-term and long-term incentive components.

Fixed compensation

Fixed compensation consists of base compensation plus employer contributions to superannuation funds (unless otherwise stated). Compensation levels are reviewed annually by the Board through a process that considers individual and overall performance of the Group and compares compensation to ensure it is comparable and competitive within the market in which the Group operates.

Fixed compensation is not “at risk” but is appropriately benchmarked and set with reference to role, responsibilities, skills and experience.

Performance-linked compensation

Performance-linked compensation consists of both short-term and longer-term remuneration. Performance-linked remuneration is not based on specific financial indicators such as earnings or dividends as the Group is at the exploration and development stage. Vesting of long term incentives is based on the market conditions, which is considered an appropriate measure of the outcome of overall performance. There is no separate profit-share plan.

Short-term incentive

Short term incentives (STI) reward employees for their individual achievements and contributions to business success and organisation outcomes during the financial year. STI’s are a variable reward and are not guaranteed.

Each year, the Board considers the appropriate targets and Key Performance Indicators (KPI’s) to link the STI and the level of payout if targets are met. This includes capping the maximum payout under the STI scheme and determining the minimum levels of performance to trigger payment of the STI’s. Depending upon the level of management, KPI’s include the following:

competitiveness and reasonableness;
transparency;
attracts and retains high calibre executives; and
rewards capability and experience

The Managing Director has a target STI opportunity depending on achieving various corporate objectives.

Pilot Energy Limited

A.B.N 86 115 229 984

Directors' Report

30 September 2019

15. Remuneration Report – Audited (continued)

(b) Executive remuneration strategy and framework (continued)

Long-term incentive

Long-term incentives (LTI) are comprised of share options and performance rights (PR), which are granted from time to time to encourage sustained performance in the realisation of strategic outcomes and growth in shareholder value. Options and rights are granted for no consideration and do not carry voting rights or dividend entitlements.

The Company adopted an Employee Share Options Scheme (ESOS) effective 23 February 2010. Under the ESOS, the Company may grant options to Company eligible employees to acquire securities to a maximum of 10% of the Company’s total issued ordinary shares at the date of the grant. The fair value of share options granted is estimated using the Black Scholes Option Pricing model.

(i) Performance Rights

There were no new performance rights granted during the reporting period.

(ii) New options

There were no new options granted during the reporting period.

(iii) Vested options

There were no options that vested during the reporting period.

(iv) Expired options or forfeited

On 30 June 2019, 900,000 options expired.

Consequences of performance on shareholder wealth

The overall level of key management personnel compensation takes into account the performance of the Group over a number of years, however as the Company is not a petroleum producer, does not specifically relate to financial performance.

Financial performance in respect of the current financial year and the previous four financial years is detailed below:

Shareholder returns	2019	2018	2017	2016	2015
					Restated
Net (loss) / profit attributable to equity holders ($)	(661,640)	(1,162,778)	(1,368,008)	(1,864,313)	5,498,312
Basic (loss) / earnings per share (cents)	(0.83)	(1.83)	(2.29)	(0.09)	0.74
Share price at year end	0.031	0.021	0.05	0.20	0.10
Market capitalisation ($)	2,463,590	1,589,413	2,988,096	5,877,634	158,547,683
Net tangible assets / (liabilities) (NTA) ($)	(641,838)	(249,622)	705,756	1,254,228	(277,943)
NTA Backing (cents)	(0.008)	(0.004)	0.011	0.043	(0.018)

During the financial years noted above, there were no dividends paid or other returns of capital made by the Group to shareholders. The Group’s financial performance is impacted by a number of factors.

As the Group is still in the exploration phase of its operations, and as such does not generate revenue, the share price and thus the Company’s market capitalisation is the only indicator of the Group’s overall performance.

A.B.N 86 115 229 984

Pilot Energy Limited

Directors' Report

30 September 2019

15. Remuneration Report – Audited (continued)

(c) Board and management changes

On 7 February 2019, Mr Benson Wong resigned from all positions held in the Company

On 7 February 2019, Dr Xingjin Wang resigned from all positions held in the Company

On 14 June 2019, Dr Guoping Bai was appointed as a Non-executive Director of the Company.

On 14 June 2019, Mr Wilson Xue resigned as Non-Executive chairman of the Company

On 31 July 2019, Dr Alan Teimoori was appointed as acting Chief Executive Officer of the Company.

(d) Service contracts

On appointment to the Board, all non-executive directors enter into a consultancy agreement with the Group in the form of a contract of appointment. The contract summarises the Board’s policies and terms, including compensation, relevant to the officer or director.

Executive remuneration and other terms of employment are formalised in service agreements. The service agreements outline the components of compensation paid to key management personnel (KMPs) but do not prescribe how compensation levels are modified year by year. Compensation levels are reviewed each year to take into account cost of living changes, any change in the scope of the role performance by KMPs and any changes required to meet the principles of the compensation policy.

The major provisions of the agreements relating to remuneration are set out below:

		Employee	Employer		Termination
Name	Term of agreement	notice period	notice period	Base salary	Benefit **
Mr Benson Wong	Ongoing from September 2017	3 months	6 months	$180,000 *	6 months’ base salary
Dr Xingjin Wang	Ongoing from September 2017	3 months	6 months	$153,600 *	6 months’ base salary

The base salary figures of Mr Benson Wong and Mr Xingjin Wang do not include superannuation.

** Termination benefits are payable upon early termination by the Group, other than for gross misconduct. For both Mr Benson Wong and Mr Xingjin Wang, this would be equal to base salary for the notice period.

In addition to their base salary, each executive director is paid a standard director’s fee of $40,000 per annum inclusive of superannuation.

(e) Non-executive director remuneration

Fees and payments to non-executive directors reflect the demands which are made on, and the responsibilities of, the directors. Non-executive directors’ fees and payments are reviewed by the Remuneration and Nomination Committee.

The current base fees were last reviewed with effect from 1 May 2015. The fees approved by the Board are inclusive of the statutory superannuation amount.

Non-executive directors’ fees are determined within an aggregate directors’ fee pool limit, which is periodically recommended for approval by shareholders. The maximum currently stands at $340,000 per annum and was approved by shareholders at the Annual General Meeting on 27 February 2015.

In addition to their base fees, non-executive directors may also receive payment for consultancy services at the lesser of $200 per hour or $1,500 per day plus any reimbursable expenses.

The Chairman’s fees are determined independently to the fees paid to the non-executive directors, based on comparative roles in the external market.

Pilot Energy Limited

A.B.N 86 115 229 984

Directors' Report

30 September 2019

15. Remuneration Report – Audited (continued)

(f) Key Management Personnel Remuneration

Name		Short-term employee benefits	Short-term employee benefits	Short-term employee benefits	Post- employment benefits	Share based payments	Share based payments
		Salary and fees (A)	Short term incentive bonus (B)	Non-monetary benefits (C)	Superannuation	Rights D)	Options (D)	Total	Fixed Remuneration %	Performance based Remuneration %
Executive directors Benson Wong (resigned 07/02/2019) Xingjin Wang (resigned 07/02/2019) Sub-total executive directors’ remuneration	2019 2018 2019 2018	27,937 216,530 12,938 190,130	- - - -	- - - -	1,229 3,470 1,229 3,470	- - - -	- - - -	29,166 220,000 14,167 193,600	100% 100% 100% 100%	- - - -
	2019 2018	40,875 406,660	- -	- -	2,458 6,940	- -	- -	43,333 413,600	100% 100%	-
Non-executive directors Michael Lonergan Wilson Xue (resigned 14/06/2019) Walker Li Guoping Bai (appointed 16/06/2019) Sub-total non-executive directors’ remuneration	2019 2018 2019 2018 2019 2018 2019 2018	46,155 119,126 27,397 36,530 - - - -	- - - - - - - -	- - - - - - - -	3,470 2,868 2,603 3,470 - - - -	- - - - - - - -	- - - - - - - -	49,625 121,994 30,000 40,000 - - - -	100% 100% 100% 100% - - - -	- - - - - - - -
	2019 2018	73,552 155,656	- -	- -	6,073 6,338	- -	- -	79,625 161,994	100% 100%
Total directors’ remuneration	2019 2018	114,427 562,316	- -	- -	8,531 13,278	- -	- -	122,958 575,594	100% 100%

Pilot Energy Limited

A.B.N 86 115 229 984

Directors' Report

30 September 2019

15. Remuneration Report – Audited (continued)

(f) Key Management Personnel Remuneration (continued)

Name		Short-term employee benefit	Short-term employee benefit	Short-term employee benefit	Post- employment benefits	Share based payments	Share based payments
		Salary and fees (A)	Short term incentive bonus (B)	Non-monetary benefits (C)	Superannuation/ Termination Payments*	Rights (D)	Options (D)	Total	Fixed Remuneration %	Performance based remuneration %
Chief Executive Officer Alan Teimoori (Appointed 31/07/2019) (Acting CEO) Robert Gard (Resigned 31/07/2019) Sub-total Chief Executive Officer Remuneration	2019 2018 2019 2018	49,577 53,700 82,628 50,943	- - - -	- - - -	- - - -	- - - -	- - - -	49,577 53,700 82,628 50,943	100% 100% 100% 100%	- - - -
	2019 2018	132,205 104,643	- -	- -	- -	- -	- -	132,205 104,643	100% 100%
Total key management remuneration	2019 2018	246,632 666,959	- -	- -	8,531 13,278	- -	- -	255,163 680,237	100% 100%

Pilot Energy Limited

A.B.N 86 115 229 984

Directors' Report

30 September 2019

15. Remuneration Report – Audited (continued)

(g) Other KMP disclosures (continued) KMP option holdings

During the reporting period, no shares were issued on the exercise of options previously granted as compensation.

						Vested and
						Exercisable
	Held at			Held at	Vested	at 30
	1 October	Options	Options	30 September	during	September
	2018	cancelled	expired	2019	the year	2019
Executive directors
Benson Wong(1)	400,000	-	-	400,000	-	400,000
Xingjin Wang(2)	400,000	-	-	400,000	-	400,000
Non-executive
directors
Wilson Xue(3)	400,000	-	-	400,000	-	400,000

KMP shareholdings

*KMP shareholdings*
	Held at	Held on		Held at
	1 October	Appointment or	Acquired /	30 September
	2018	(resignation)	Purchases	2019
Executive directors
Benson Wong(1)(2)	4,061,392	-	-	4,061,392
Xingjin Wang(1)	740,520	-	-	740,520
Non-executive directors
Michael Lonergan	-	-	-	-
Wilson Xue(3)	7,407,600	-	-	7,407,600
Walker Li	-	-	15,894,128	15,894,128
Guoping Bai(4)
Chief Executive Officer
Robert Gard(5)	-	-	-	-
Alan Teimoori (acting CEO)(6)	-	-	-	-

(1) resigned 7 February 2019

(2) 3,703,740 of these shares are held in related entity, Sunpex International Pty Ltd

(3) resigned 14 June 2019

(4) appointed 14 June 2019

(5) resigned 31 July 2019

(6) appointed 31 July 2019

THIS IS THE END OF THE REMUNERATION REPORT – AUDITED.

A.B.N 86 115 229 984

Pilot Energy Limited

Directors' Report

30 September 2019

16. Lead Auditor’s Independence Declaration

A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 can be found on page 21 of the financial report. .

This report is made in accordance with a resolution of the Directors.

17. Corporate Governance Statement

The company’s corporate governance practices and policies have been made publicly available on the company’s website at http://www.pilotenergy.com.au/corporate-governance

==> picture [164 x 71] intentionally omitted <==

Michael Lonergan Non-Executive Director

Dated at Sydney, New South Wales this 13[th] December 2019.

Pilot Energy Limited

A.B.N 86 115 229 984

Consolidated Statement of Profit or Loss and Other Comprehensive Income

For the Year Ended 30 September 2019

Note Revenue from continuing operations 5 R & D tax refund 4 Administrative expenses Personnel expenses Professional fees Exploration expenses Finance expenses 6 Other expenses Loss before income tax Income tax expense 7 Loss from continuing operations Loss from discontinued operations Loss for the year Total comprehensive loss for the year (Loss) / earnings per share (cents per share) From continuing operations Basic and diluted 18	2019 $ 2018 $ 321,545 400,642 - 74,603 (71,562) (199,191) (294,333) (671,436) (172,094) (270,796) (430,399) (495,816) (3,787) - (11,010) (784)
	(661,640) (1,162,778) - -
	(661,640) (1,162,778) - -
	(661,640) (1,162,778)
	(661,640) (1,162,778)
	(0.83) (1.83)

The accompanying notes form part of these financial statements.

Pilot Energy Limited

A.B.N 86 115 229 984

Consolidated Statement of Financial Position

As at 30 September 2019

Note ASSETS CURRENT ASSETS Cash and cash equivalents 9 Trade and other receivables 10 TOTAL CURRENT ASSETS NON-CURRENT ASSETS Trade and other receivables 10 TOTAL NON-CURRENT ASSETS TOTAL ASSETS LIABILITIES CURRENT LIABILITIES Trade and other payables 11 Employee benefits 12 Other liabilities 13 Unearned revenue 14 Financial liabilities 15 TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES TOTAL LIABILITIES NET DEFICIENCY EQUITY Issued capital 16 Reserves 17 Accumulated losses TOTAL EQUITY	2019 $ 2018 $ 88,829 601,549 1 20,740
	88,830 622,289
	29,093 85,758
	29,093 85,758
	117,923 708,047
	13,541 129,371 2,653 10,734 439,780 704,964 - 320,000 303,787 -
	759,761 1,165,069

	759,761 1,165,069
	(641,838) (457,022)
	44,149,754 43,672,930 189,000 215,725 (44,980,592) (44,345,677)
	(641,838) (457,022)

The accompanying notes form part of these financial statements.

Pilot Energy Limited

A.B.N 86 115 229 984

Consolidated Statement of Changes in Equity

For the Year Ended 30 September 2019

2019 Balance at 1 October 2018 Loss attributable to members of the parent entity Transactions with owners in their capacity as owners Shares issued during the year Transfer to accumulated losses on lapse of options Balance at 30 September 2019 2018 Balance at 1 October 2017 Loss attributable to members of the parent entity Transactions with owners in their capacity as owners Transfers to accumulated losses Share based payment transactions Balance at 30 September 2018	Ordinary Shares $ Accumulated Losses $ Foreign Currency Translation Reserve $ Share-based Payments Reserve $ Total $
	43,672,930 (44,345,677) - 215,725 (457,022) - (661,640) - - (661,640) 476,824 - - - 476,824 - 26,725 - (26,725) -
	44,149,754 (44,980,592) - 189,000 (641,838)
	43,672,930 (42,362,221) (820,678) 215,725 705,756 - (1,162,778) - - (1,162,778) - (820,678) 820,678 - - - - - - -
	43,672,930 (44,345,677) - 215,725 (457,022)

The accompanying notes form part of these financial statements.

Pilot Energy Limited

A.B.N 86 115 229 984

Consolidated Statement of Cash Flows

For the Year Ended 30 September 2019

Note CASH FLOWS FROM OPERATING ACTIVITIES: Receipts from customers Payments to suppliers and employees Payments for exploration, evaluation and development Interest received Interest paid R&D Tax Incentive Net cash used in operating activities 27 CASH FLOWS FROM INVESTING ACTIVITIES: Net cash provided by/(used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issue of shares and options Proceeds from borrowings Net cash provided by financing activities Net (decrease) in cash and cash equivalents held Effect of exchange rate fluctuations on cash held Cash and cash equivalents at beginning of year Cash and cash equivalents at end of financial year 9	2019 $ 2018 $ - 720,000 (279,135) (841,668) (535,512) (469,678) 1,544 642 - - - 74,603
	(813,103) (516,101)

	- -
	- 476,824 300,000 -
	300,000 476,824
	(513,103) (39,277) 383 5,203 601,549 635,623
	88,829 601,549

The accompanying notes form part of these financial statements.

A.B.N 86 115 229 984

Pilot Energy Limited

Notes to the Financial Statements

For the Year Ended 30 September 2019

The financial report covers Pilot Energy Limited and its controlled entities ('the Group'). Pilot Energy Limited is a for-profit Company limited by shares, incorporated and domiciled in Australia.

Each of the entities within the Group prepares their financial statements based on the currency of the primary economic environment in which the entity operates (functional currency). The consolidated financial statements are presented in Australian dollars which is the parent entity’s functional and presentation currency.

The financial report was authorised for issue by the Directors on 13[th] December 2019.

Comparatives are consistent with prior years, unless otherwise stated.

1 Basis of Preparation

The financial statements are general purpose financial statements that have been prepared in accordance with the Australian Accounting Standards and the Corporations Act 2001.

These financial statements comply with International Financial Reporting Standards as issued by the International Accounting Standards Board.

2 Summary of Significant Accounting Policies

(a) Basis for consolidation

The consolidated financial statements include the financial position and performance of controlled entities from the date on which control is obtained until the date that control is lost.

Intragroup assets, liabilities, equity, income, expenses and cashflows relating to transactions between entities in the consolidated entity have been eliminated in full for the purpose of these financial statements.

Appropriate adjustments have been made to a controlled entity’s financial position, performance and cash flows where the accounting policies used by that entity were different from those adopted by the consolidated entity. All controlled entities have a June financial year end.

Subsidiaries

Subsidiaries are all entities (including structured entities) over which the parent has control. Control is established when the parent is exposed to or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the relevant activities of the entity.

Associates

Interests in associates, where the investor has significant influence over the investee, are accounted for using the equity method in accordance with AASB 128 Investments in Associates and Joint Ventures . Under this method, the investment is initially recognised as cost and the carrying amount is increased or decreased to recognise the investor’s share of the profit or loss and other comprehensive income of the investee after the date of acquisition.

Pilot Energy Limited

A.B.N 86 115 229 984

Notes to the Financial Statements

For the Year Ended 30 September 2019

2 Summary of Significant Accounting Policies (continued)

(b) Exploration & evaluation expenditure

Exploration and evaluation expenditure comprises costs that are directly attributable to:

researching and analysing existing exploration data
conducting geological studies, exploratory drilling and sampling
examining and testing extraction and treatment methods; and/or
compiling pre-feasibility and feasibility studies.

Exploration expenditure relates to the initial search for deposits with economic potential. Evaluation expenditure relates to a detailed assessment of deposits or other projects that have been identified as having economic potential. It is the policy of the Group to expense all exploration and evaluation expenditure as it is incurred.

This treatment is compliant with AASB 6 Exploration for Evaluation of Minerals Resources , which permits a choice of accounting policy.

(c) Leases

Lease payments for operating leases, where substantially all of the risks and benefits remain with the lessor, are charged as expenses on a straight-line basis over the life of the lease term.

Lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis over the life of the lease term.

(d) Goods and services tax (GST)

Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the Australian Taxation Office (ATO).

Receivables and payable are stated inclusive of GST.

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

(e) Employee Benefits

Provision is made for the Group's liability for employee benefits arising from services rendered by employees to the end of the reporting period. Employee benefits that are expected to be wholly settled within one year have been measured at the amounts expected to be paid when the liability is settled.

Employee benefits expected to be settled more than one year after the end of the reporting period have been measured at the present value of the estimated future cash outflows to be made for those benefits. In determining the liability, consideration is given to employee wage increases and the probability that the employee may satisfy vesting requirements. Cashflows are discounted using market yields on high quality corporate bond rates incorporating bonds rated AAA or AA by credit agencies, with terms to maturity that match the expected timing of cashflows. Changes in the measurement of the liability are recognised in profit or loss.

Pilot Energy Limited

A.B.N 86 115 229 984

Notes to the Financial Statements

For the Year Ended 30 September 2019

2 Summary of Significant Accounting Policies (continued)

(e) Employee Benefits (continued)

Defined contribution schemes

Obligations for contributions to defined contribution superannuation plans are recognised as an employee benefit expense in profit or loss in the periods in which services are provided by employees.

(f) Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to owners of the company by the weighted average number of ordinary shares outstanding during the year.

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

(g) Foreign currency transactions and balances

Transaction and balances

Foreign currency transactions are recorded at the spot rate on the date of the transaction.

At the end of the reporting period:

Foreign currency monetary items are translated using the closing rate;
Non-monetary items that are measured at historical cost are translated using the exchange rate at the date of the transaction; and
Non-monetary items that are measured at fair value are translated using the rate at the date when fair value was determined.

Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition or in prior reporting periods are recognised through profit or loss, except where they relate to an item of other comprehensive income or whether they are deferred in equity as qualifying hedges.

Pilot Energy Limited

A.B.N 86 115 229 984

Notes to the Financial Statements

For the Year Ended 30 September 2019

2 Summary of Significant Accounting Policies (continued)

(h) New Accounting Standards now in effect

AASB 15: Revenue from Contracts with Customers

This Standard replaces the previous accounting requirements applicable to revenue with a single, principlesbased model. Apart from a limited number of exceptions, including leases, the new revenue model in AASB 15 applies to all contracts with customers as well as non-monetary exchanges between entities in the same line of business to facilitate sales to customers and potential customers.

The core principle of the Standard is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or services. To achieve this objective, AASB 15 provides the following:

identify the contract(s) with a customer;
identify the performance obligations in the contract(s);
determine the transaction price;
allocate the transaction price to the performance obligations in the contract(s); and
recognise revenue when (or as) the performance obligations are satisfied.

Following the implementation of AASB 15: Revenue from contracts with Customers there has been no material impact on the financial statements.

(i) New Accounting Standards applicable to future accounting periods

Accounting Standards issued by the AASB that are not yet mandatorily applicable to the Group, together with an assessment of the potential impact of such pronouncements on the Group when adopted in future periods, are discussed below:

AASB 16: Leases (applicable to annual reporting periods beginning on or after 1 January 2019).

When effective, this Standard will replace the current accounting requirements applicable to leases in AASB 117: Leases and related Interpretations . AASB 16 introduces a single lessee accounting model that eliminates the requirement for leases to be classified as operating or finance leases.

The main changes introduced by the new Standard are as follows:

recognition of a right-of-use asset and liability for all leases (excluding short-term leases with less than 12
months of tenure and leases relating to low-value assets);
depreciation of right-of-use assets in line with AASB 116 : Property, Plant and Equipment in profit or loss
and unwinding of the liability in principal and interest components;
inclusion of variable lease payments that depend on an index or a rate in the initial measurement of the
lease liability using the index or rate at the commencement date;
application of a practical expedient to permit a lessee to elect not to separate non-lease components and
instead account for all components as a lease; and
inclusion of additional disclosure requirements.

The transitional provisions of AASB 16 allow a lessee to either retrospectively apply the Standard to comparatives in line with AASB 108 or recognise the cumulative effect of retrospective application as an adjustment to opening equity on the date of initial application.

The directors anticipate that the adoption of AASB 16 will not have an impact on the Group's financial statements.

Pilot Energy Limited

A.B.N 86 115 229 984

Notes to the Financial Statements

For the Year Ended 30 September 2019

3 Critical Accounting Estimates and Judgements

In preparing these consolidated financial statements, management has made judgements, estimates and assumptions that affect the application of the Group’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively.

Information about judgements made in applying accounting policies that have the most significant effects on the amounts recognised in the consolidated financial statements and information about assumptions and estimation uncertainties that have a significant risk of resulting in material adjustment are included below.

Going Concern

The directors have prepared the financial report on a going concern basis, which contemplates the realisation of assets and payment of liabilities in the normal course of business. The Group has a working capital deficit of $670,931 and net cash outflows for the 30 September 2019 financial year of $ 513,103 (2018: outflow $39,277). The Group incurred a loss for the year of $661,640 and has net operating cash outflows for the year of $813,103.

These conditions indicate a material uncertainty that may cast a significant doubt about the Group’s ability to continue as a going concern and it may be unable to realise its assets and discharge its liabilities in the normal course of business.

The directors are aware that the Group’s ability to continue as a going concern, and to fund its exploration and evaluation activities is dependent on the Group securing further working capital sourced from one or more of the following alternatives:

Capital market raising such as:

Private placement
Entitlements issue
Share purchase plan

Borrowings from related or third parties.

Farming out assets to recoup past costs and reduce expenditure obligations.

The Directors have reviewed the Groups’ financial position and forecast cash flows and reasonably expect that the Group will be able to raise additional funds to meet future costs. The directors are therefore of the opinion that the use of going concern basis is appropriate in the circumstances.

Should the Group not be able to continue as a going concern, it may be required to realise its assets and discharge its liabilities other than in the ordinary course of business, and at amounts that differ from those stated in the financial statements and that the financial report does not include any adjustments relating to the recoverability and classification of recorded asset amounts or liabilities that might be necessary should the Group not continue as a going concern.

Share-based payments

The fair value of share options is measured using the binomial options pricing model. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on an evaluation of the company’s historic volatility, particularly over the historic period commensurate with the expected term) and weighted average expected life of the instruments (based on historical experience), expected dividends (if any) and the risk-free interest rate (based on government bonds). Service and non-market conditions are not taken into account in determining fair value.

Pilot Energy Limited

A.B.N 86 115 229 984

Notes to the Financial Statements

For the Year Ended 30 September 2019

4 Research and Development Expenditure

The Group undertakes expenditure or activities that are categorised as 'eligible expenditure' under the Research & Development Tax Concession which dependent upon certain criteria may be subject to a tax offset. Under AASB 120, where a tax offset has been received or receivable in cash, the Group accounts for the tax offset as follows:

Where a grant is received or receivable in relation to research and development costs which have been capitalised, the tax offset shall be deducted from the carrying amount of the asset;
Where a grant is received or receivable in relation to research and development costs which have been charged to the profit and loss account during this or the prior financial year, the tax offset shall be credited to the profit and loss account.

R&D Tax Incentive 2018 Grant Total R&D Incentive	2019 $ 2018 $
	- 74,603
	- 74,603

5 Revenue and Other Income

Accounting Policy

Other income is recognised when the amount can be reliably measured and the right to receive the income is passed to the Group.

Revenue from continuing operations

Administrative services Interest received Total Revenue*	2019 $ 2018 $
	320,000 400,000 1,545 642
	321,545 400,642

*During the 2018 financial year, the Group entered into a service agreement resulting in the upfront payment of $720,000. The balance of $320,000 as detailed in note 14 to the financial statements was earned during the 2019 financial year.

6 Net Finance Costs

Accounting Policy

Net finance costs comprise income on funds invested and interest expense on borrowings. Interest income and interest expense on short term borrowings is recognised as it accrues in profit or loss, using the effective interest method.

The result for the year was derived after charging / (crediting) the following items:

Finance Costs Financial liabilities measured at amortised cost: - Interest paid Total finance costs	2019 $ 2018 $ 3,787 -
	3,787 -

A.B.N 86 115 229 984

Pilot Energy Limited

Notes to the Financial Statements For the Year Ended 30 September 2019

7 Income Tax Expense

Accounting Policy

Income tax expense comprises current and deferred tax. Current tax assets and liabilities are measured at the amount expected to be recovered from, or paid to, the taxation authorities. Current tax is based on tax rates enacted or substantively enacted at the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying value of assets and liabilities in the financial statements and the corresponding tax base used for calculating taxable profits. Deferred tax balances are disclosed net to the extent that they relate to taxes levied by the same authority and the Group has the right of set-off.

Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probably that taxable profits will be available against which deductible temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the assets to be recovered. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on substantively enacted rates at the balance sheet date. Income taxes relating to items recognised directly in equity are recognised in equity and not in the income statement.

(a) Amounts recognised in profit or loss:

Current tax benefit Current period Deferred tax benefit Origination and reversal of temporary differences Total income tax benefit (b) Reconciliation of effective tax rate: Loss for the period Applicable Group domestic income tax rate Loss excluding income tax Add: Tax effect of: - Income tax using the Group's domestic tax rate of 27.5% (2018: 27.5%) - non-deductible expenses - Tax losses carried forward and other timing differences not brought to account Income tax expense	2019 $ 2018 $ - - - - - -
	2019 $ 2018 $ (661,640) (1,162,778) 27.50% 27.50%
	(661,640) (1,162,778) (181,951) (319,764) (726) (8,478) 182,677 328,242
	- -

Pilot Energy Limited

A.B.N 86 115 229 984

Notes to the Financial Statements

For the Year Ended 30 September 2019

7 Income Tax Expense (continued)

(b) Reconciliation of effective tax rate (continued)

All unused tax losses were incurred by Australian entities.

Potential future income tax benefits up to $8,409,236 (2018: $8,278,941) attributed to tax losses have not been brought to account.

The benefit of these tax losses will only be obtained if:

i) future assessable income is derived of a nature and of an amount sufficient to enable the benefit to be realised;

ii) the conditions for the deductibility imposed by tax legalisation continue to be complied with; iii) no changes in tax legislation adversely affect the Group in realising the benefit; and iv) satisfaction of either the continuity of ownership or the same business.

(c) Unrecognised deferred tax assets and liabilities:

Deferred tax assets and liabilities have not been recognised in respect of the following items:

Deferred tax liabilities (DTLs) Prepaid expenditure Set-off against DTAs Deferred tax assets (DTAs) Share issue costs Exploration expenditure Carry forward tax losses Other DTAs not brought to account	2019 $ 2018 $ - - - -
	- -
	28,509 28,508 74,395 74,395 8,304,140 8,174,172 2,192 1,866
	8,409,236 8,278,941

There were no unregistered deferred tax liabilities.

The Group does not recognise deferred tax.

Pilot Energy Limited

A.B.N 86 115 229 984

Notes to the Financial Statements

For the Year Ended 30 September 2019

8 Operating Segments

Information about reportable segments

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

The Group currently operates in one operating segment being oil and gas exploration and evaluation.

Reportable segments disclosed are based on aggregating tenements where the evaluation and exploration interests are considered to form a single project. This is indicated by:

having the same ownership structure;
exploration being focused on the same petroleum resource or type of petroleum resource; and
exploration programs targeting the tenements as a group, indicated by the use of the same exploration team, shared geological data and knowledge across the tenements.

Unless otherwise stated, all amounts reported to the Board of Directors as the chief decision maker with respect to operating tenements, are determined in accordance with AASB 8 Operating Segments.

Information provided to the Board of Directors is consistent with information presented in the Consolidated Profit & Loss and Consolidated Statement of Financial Position on pages 22 and 23 respectively.

9 Cash and Cash Equivalents

Accounting Policy

Cash and cash equivalents comprise cash balances and call deposits with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value and are used by the Group in the management of its short-term commitments.

Cash at bank and in hand	2019 $ 2018 $ 88,829 601,549
	88,829 601,549

10 Trade and Other Receivables

Accounting Policy

Trade receivables are recognised initially at the value of the invoice sent to the counter-party and subsequently at the amounts considered recoverable (amortised cost). Where there is evidence that the receivable is not recoverable, it is impaired with a corresponding charge to the consolidated statement of profit or loss.

Current GST Total current trade and other receivables	2019 $ 2018 $ 1 20,740
	1 20,740

Pilot Energy Limited

A.B.N 86 115 229 984

Notes to the Financial Statements

For the Year Ended 30 September 2019

10 Trade and Other Receivables (continued)

Non-Current Deposits Total non-current trade and other receivables	29,093 85,758 29,093 85,758

The carrying value of trade receivables is considered a reasonable approximation of fair value due to the short-term nature of the balances.

The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable in the financial statements.

11 Trade and Other Payables

Accounting Policy

Trade payables represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid at the end of the month following date of recognition.

Current Trade payables	2019 $ 2018 $ 13,541 129,371 13,541 129,371

Trade and other payables are unsecured, non-interest bearing and are normally settled within 30 days. The carrying value of trade and other payables is considered a reasonable approximation of fair value due to the short-term nature of the balances.

12 Employee Benefits

Current liabilities Provision for employee benefits	2019 $ 2018 $ 2,653 10,734
	2,653 10,734

13 Other Liabilities

Other liabilities Accrued director’s fees Deposit for unissued shares	2019 $ 2018 $ 439,780 228,140 - 476,824
	439,780 704,964

A.B.N 86 115 229 984

Pilot Energy Limited

Notes to the Financial Statements

For the Year Ended 30 September 2019

14 Unearned Revenue

Accounting Policy

Unearned revenue is the liability for services to be rendered. The amount deferred is that which will cover the expected future servicing costs. Deferred income is recognised in profit or loss evenly over the period of the service agreement.

Unearned revenue Southernpec (Australia) Pty Ltd – Back Office Support Southernpec (Australia) Pty Ltd – Duly Authorised Agent	2019 $ 2018 $ - 240,000 - 80,000
	- 320,000

15 Financial Liabilities Convertible notes at face value Accrued interest	2019 $ 2018 $ 300,000 - 3,787 -
	303,787 -

16 Issued Capital

Accounting Policy

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects.

		2019	2018
		$	$
Ordinary shares		43,672,930	43,672,930
Placement of fully paid ordinary shares at 0.3 cents each		476,824	-
Total		44,149,754	43,672,930
(a)	Ordinary shares
		2019	2018
		No.	No.
At the	beginning of the reporting period	63,576,514	63,576,514
Placement of fully paid ordinary shares at 0.3 cents each		15,894,128	-
At the	end of the reporting period	79,470,642	63,576,514

The holders of ordinary shares are entitled to participate in dividends and the proceeds on winding up of the Company. On a show of hands at meetings of the Company, each holder of ordinary shares has one vote in person or by proxy, and upon a poll each share is entitled to one vote. The Company does not have authorised capital or par value in respect of its shares.

Pilot Energy Limited

A.B.N 86 115 229 984

Notes to the Financial Statements

For the Year Ended 30 September 2019

16 Issued Capital (continued)

(b) Capital Management

The key objectives of the Company when managing capital is to safeguard its ability to continue as a going concern and maintain optimal benefits to stakeholders. The Company defines capital as its equity and net debt.

There has been no change to capital risk management policies during the year.

The Company manages its capital structure and makes funding decisions based on the prevailing economic environment and has a number of tools available to manage capital risk. These include maintaining a diversified debt portfolio, the ability to adjust the size and timing of dividends paid to shareholders and the issue of new shares.

The Board monitors a range of financial metrics including return on capital employed and gearing ratios. A key objective of the Company's capital risk management is to maintain compliance with the covenants attached to the Company's debts. Throughout the year, the Company has complied with these covenants.

17 Reserves

(a) Reserves Share-based Payments Reserve Total	2019 $ 2018 $ 189,000 215,725
	189,000 215,725

(b) Share-based Payments Reserve

Equity-settled share option programme

The Company adopted an Employee Share Options Scheme (ESOS) effective 23 February 2010. Under the ESOS, the Company may grant options and rights to Company eligible employees to acquire securities to a maximum of 10% of the Company’s total issued ordinary shares at the date of the grant. The fair value of share options granted is estimated using the Black-Scholes option pricing model.

The options and rights vest on a time scale as specified in the ESOS and is granted for no consideration. Options and rights granted under the plan carry no dividend or voting rights. When exercisable, each option is converted into one ordinary share. The maximum term of an option is 5 years from grant date and are settled in cash.

Options may not be transferred other than to an associate of the holder.

A.B.N 86 115 229 984

Pilot Energy Limited

Notes to the Financial Statements

For the Year Ended 30 September 2019

17 Reserves (continued)

(b) Share-based Payments Reserve (continued)

Accounting Policy

The share option programme allows Group employees to receive rights to acquire shares of the Company. The grant date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and nonmarket vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that do not meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.

Where the fair value of an employee share option has been recognised as a share-based payment and the option lapses on expiry, the total amount of the share-based payment expense is transferred from the share-based payment reserve to accumulated losses.

The share-based payment expense included within the consolidated statement of comprehensive profit or loss can be broken down as follows:

(a) Expensed in personnel expenses (director remuneration) Options issued to directors (b) Expensed in professional fees Options issued to advisors Total	2019 $ 2018 $ - - - -
	- -

No new options have been issued during the year.

Pilot Energy Limited

A.B.N 86 115 229 984

Notes to the Financial Statements

For the Year Ended 30 September 2019

17 Reserves (continued)

(b) Share-based Payments Reserve (continued)

Options (continued)

At 30 September 2019, a summary of the Company options issued and not exercised are as follows:

Grant Date Vesting Date Expiry Date Exercise price (cents) 06 August 2015 7 August 201530 June 2019 0.10 17 November 2015 18 November 201530 June 2019 0.10 23 June 2016 23 June 201731 December 2019 0.20 23 June 2016 23 June 201831 December 2019 0.20	Balance at the start of the year Granted during the year Forfeited or exercised during the year Balance at the end of the year Vested and exercisable at the end of the year 500,000 - (500,000) - - 400,000 - (400,000) - - 1,200,000 - - 1,200,000 1,200,000 1,400,000 - - 1,400,000 1,400,000
	3,500,000 - (900,000) 2,600,000 2,600,000

During the year ended 30 September 2019, 900,000 options expired, and no options were modified (2018: no options expired, no options modified).

A.B.N 86 115 229 984

Pilot Energy Limited

Notes to the Financial Statements

For the Year Ended 30 September 2019

17 Reserves (continued)

(b) Share-based Payments Reserve (continued)

Options (continued)

At 30 September 2018, a summary of the Company options issued and not exercised are as follows:

Grant Date Vesting Date Expiry Date Exercise price (cents) 06 August 2015 7 August 201530 June 2019 0.10 17 November 2015 18 November 201530 June 2019 0.10 23 June 2016 23 June 201731 December 2019 0.20 23 June 2016 23 June 201831 December 2019 0.20	Balance at the start of the year Granted during the year Forfeited or exercised during the year Balance at the end of the year Vested and exercisable at the end of the year 500,000 - - 500,000 500,000 400,000 - - 400,000 400,000 1,200,000 - - 1,200,000 1,200,000 1,400,000 - - 1,400,000 1,400,000
	3,500,000 - - 3,500,000 3,500,000

During the year ended 30 September 2018, no options expired, and no options were modified (2017: 32,500,000 options expired, no options modified).

Pilot Energy Limited

A.B.N 86 115 229 984

Notes to the Financial Statements

For the Year Ended 30 September 2019

17 Reserves (continued)

(b) Share-based Payments Reserve (continued)

Performance Rights

2019

No performance rights were on issue as at 30 September 2019.

2018

No performance rights were on issue as at 30 September 2018.

18 Loss per Share

The loss and weighted average number of ordinary shares used in the calculation of basic loss per share are as follows:

As the Group is in a loss position, there is no diluted EPS calculated.

(a) Reconciliation of earnings to profit or loss from continuing operations

	2019	2018
	$	$
Loss from continuing operations	(661,640)	(1,162,778)
(b) Earnings used to calculate overall earnings per share
Loss used to calculate overall loss per share	(661,640)	(1,162,778)
(c) Weighted average number of ordinary shares outstanding during the year used in calculating basic EPS

	2019	2018
	No.	No.
Weighted average number of ordinary shares outstanding during the year used in
calculating basic loss per share	79,427,096	63,576,514

19 Capital and Other Commitments

Exploration expenditure commitments

In order to maintain current rights of tenure to exploration tenements, the Group is required to perform minimum exploration work to meet the requirements specified by the State Government. These obligations are subject to negotiation when application for a petroleum exploration lease is made and at other times. These commitments are not provided for in the financial report and are payable as follows:

Not later than one year Between one and five years	2019 2018 $ $ 297,785 330,000 20,168,955 7,210,000
	20,446,740 7,540,000

A.B.N 86 115 229 984

Pilot Energy Limited

Notes to the Financial Statements

For the Year Ended 30 September 2019

20 Financial Risk Management

Accounting Policy

Classification of financial instruments

The financial assets and liabilities of the Group are classified into the following financial statement captions in the statement of financial position in accordance with AASB 139 Financial Instruments:

Loans and receivables – separately disclosed as cash and cash equivalents and trade and other receivables;
Financial liabilities measured at amortised cost’ – separately disclosed as borrowings and trade and other payables

Judgement is required when determining the appropriate classification of the Group’s financial instruments. Details on the accounting policies for measurement of the above instruments are set out in the relevant note.

Recognition and de-recognition of financial assets and liabilities

The Group recognises a financial asset or liability when it becomes a party to the contract. Financial instruments are no longer recognised in the statement of financial position when contractual cash flows expire or when the Group no longer retains control of substantially all the risks and rewards under the instrument.

The Group is exposed to a variety of financial risks through its use of financial instruments.

The Group‘s overall risk management plan seeks to minimise potential adverse effects due to the unpredictability of financial markets. The most significant financial risks to which the Group is exposed to are described below:

Specific risks

Liquidity risk
Credit risk
Market risk - currency risk, interest rate risk and price risk

The principal categories of financial instrument used by the Group are:

Trade receivables
Cash at bank
Trade and other payables

Objectives, policies and processes

The Board of Directors have overall responsibility for the establishment of the Group’s financial risk management framework. This includes the development of policies covering specific areas such as foreign exchange risk, interest rate risk, credit risk and the use of derivatives.

Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities.

The day-to-day risk management is carried out by the Group’s finance function under policies and objectives which have been approved by the Board of Directors. The Chief Financial Officer has been delegated the authority for designing and implementing processes which follow the objectives and policies. This includes monitoring the levels of exposure to interest rate and foreign exchange rate risk and assessment of market forecasts for interest rate and foreign exchange movements.

The Board of Directors receives monthly reports which provide details of the effectiveness of the processes and policies in place.

Mitigation strategies for specific risks faced are described on the following pages:

Pilot Energy Limited

A.B.N 86 115 229 984

Notes to the Financial Statements

For the Year Ended 30 September 2019

20 Financial Risk Management (continued)

Liquidity Risk

Liquidity risk arises from the Group’s management of working capital and the finance charges and principal repayments on its debt instruments. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due.

The Group’s policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities as and when they fall due. The Group maintains cash and marketable securities to meet its liquidity requirements for up to 30-day periods. Funding for long-term liquidity needs is additionally secured by an adequate amount of committed credit facilities and the ability to sell long-term financial assets.

The Group manages its liquidity needs by carefully monitoring scheduled debt servicing payments for long-term financial liabilities as well as cash-outflows due in day-to-day business.

Liquidity needs are monitored in various time bands, on a day-to-day and week-to-week basis, as well as on the basis of a rolling 30-day projection. Long-term liquidity needs for a 180-day and a 360-day period are identified monthly.

At the reporting date, these reports indicate that the Group expected to have sufficient liquid resources to meet its obligations under all reasonably expected circumstances and will not need to draw down any of the financing facilities.

Financial guarantee liabilities are treated as payable on demand since the Group has no control over the timing of any potential settlement of the liabilities.

The timing of cash flows presented in the table to settle financial liabilities reflects the earliest contractual settlement dates and does not reflect management's expectations that banking facilities will be rolled forward. The amounts disclosed in the table are the undiscounted contracted cash flows and therefore the balances in the table may not equal the balances in the statement of financial position due to the effect of discounting.

The Group‘s liabilities have contractual maturities which are summarised below excluding the impact of netting arrangements:

Non-derivative financial
liabilities
Trade and other payables
Unearned revenue
Other liabilities
Financial liabilities
Salary and superannuation
accrual
Total

Carrying amount
Contractual cash flows
12 months or less
2019
$
2018
$
2019
$
2018
$
2019
$
2018
$
13,541
129,371
13,541
129,371
13,541
129,371
-
320,000
-
320,000
-
320,000
439,780
704,964
439,780
704,964
439,780
704,964
303,787
-
303,787
-
303,787
-

2,653
10,734
2,653
10,734
2,653
10,734
759,761
1,165,069
759,761
1,165,069
759,761
1,165,069

The balances above will not always agree to the financial statements as the contractual cash flows above are undiscounted. The carrying amount is the balance as recognised in the statement of financial position.

A.B.N 86 115 229 984

Pilot Energy Limited

Notes to the Financial Statements

For the Year Ended 30 September 2019

20 Financial Risk Management (continued)

Credit Risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Group.

Credit risk arises from cash and cash equivalents, and deposits with banks and financial institutions.

Management considers that all the financial assets that are not impaired for each of the reporting dates under review are of good credit quality, including those that are past due.

The credit risk for liquid funds and other short-term financial assets is considered negligible, since the counterparties are reputable banks with high quality external credit ratings.

The Group has no significant concentration of credit risk with respect to any single counterparty or group of counterparties .

On a geographical basis, the Group has significant credit risk exposures in Australia given the substantial operations in those regions.

The balances of receivables that remain within initial trade terms are considered to be of high credit quality.

The Group does not hold any financial assets with terms that have been renegotiated, but which would otherwise be past due or impaired.

The other classes of receivables do not contain impaired assets.

There are no balances within trade receivables that contain assets that are not impaired and are past due. It is expected that these balances will be received when due.

Pilot Energy Limited

A.B.N 86 115 229 984

Notes to the Financial Statements For the Year Ended 30 September 2019

20 Financial Risk Management (continued)

Market Risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices.

Foreign exchange risk

Exposure to foreign exchange risk may result in the fair value or future cash flows of a financial instrument fluctuating due to movement in foreign exchange rates of currencies in which the Group holds financial instruments which are other than the AUD functional currency of the Group.

Exposures to currency exchange rates arise from the Group's overseas sales and purchases, which are primarily denominated in US Dollars.

To mitigate the Group's exposure to foreign currency risk, non-Australian Dollar cash flows are monitored, and a USD bank account is maintained.

Generally, the Group‘s risk management procedures distinguish short-term foreign currency cash flows (due within 6 months) from longer-term cash flows. Where the amounts to be paid and received in a specific currency are expected to largely offset one another, no further hedging activity is undertaken.

In order to monitor the effectiveness of this policy, the Board receives a monthly report showing the settlement date of transactions denominated in non-Australian Dollar currencies and expected cash reserves in that currency.

Foreign currency denominated financial assets and liabilities, translated into Australian Dollars at the closing rate, are as follows:

2019 Nominal amounts Financial assets 2018 Nominal amounts Financial assets	USD $ 3,242
	56,094

Pilot Energy Limited

A.B.N 86 115 229 984

Notes to the Financial Statements

For the Year Ended 30 September 2019

20 Financial Risk Management (continued)

Market Risk (continued)

Foreign exchange risk (continued)

The following table illustrates the sensitivity of the net result for the year and equity in regards to the Group‘s financial assets and financial liabilities and the US Dollar – Australian Dollar exchange rate. There have been no changes in the assumptions calculating this sensitivity from prior years.

It assumes a +/- 10% change of the Australian Dollar / US Dollar exchange rate for the year ended 30 September 2019 (30 September 2018: 10%). This percentage has been determined based on the average market volatility in exchange rates in the previous 12 months. A positive number indicates an increase in profit or loss where the Australian dollar strengthens against the respective currency.

The year-end rate is 1 USD: 1.4813 AUD.

If the Australian Dollar had strengthened and weakened against the USD by 10% (30 September 2018: 10%) then this would have had the following impact:

			2018
	+10%	-10%	+10%	-10%
USD
Net results	(324.24)	1,080.28	(5,609)	13,802

Exposures to foreign exchange rates vary during the year depending on the volume of overseas transactions. Nonetheless, the analysis above is considered to be representative of the Group's exposure to foreign currency risk.

A.B.N 86 115 229 984

Pilot Energy Limited

Notes to the Financial Statements

For the Year Ended 30 September 2019

21 Fair Value Measurement

A number of The Group's accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurable date. Fair value for measurement and / or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of AASB 2, leasing transactions that are within the scope of AASB 117, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in AASB 2 or value in use in AASB 136.

Fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurable date;
Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and
Level 3 inputs are unobservable inputs for the asset or liability

Cash and cash equivalents, trade and other receivables, trade creditors, other creditors, accruals and employee entitlements have been excluded from the above analysis as their fair values are equal to the carrying values.

22 Key Management Personnel Remuneration

Accounting Policy

Short-term employee benefits

Short-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

Other long-term employee benefits

The Group’s net obligation in respect of long-term employee benefits is the amount of the future benefit that employees have earned in return for their services in the current and prior periods. That benefit is discounted to determine its present value. Re-measurements are recognised in profit or loss in the period in which they arise.

Share-based payments

The policy relating to share-based payments is set out in note 17(b).

Key management personnel remuneration included within employee expenses for the year is shown below:

Short-term employee benefits Post-employment benefits	2019 $ 2018 $ 246,632 666,959 8,531 13,278
	255,163 680,237

Pilot Energy Limited

A.B.N 86 115 229 984

Notes to the Financial Statements

For the Year Ended 30 September 2019

23 Auditor’s Remuneration

MNSA *Audit and other assurance services* Audit and review of financial reports Total remuneration for audit and other assurance services Total remuneration of MNSA	2019 2018 $ $ 26,063 26,000
	26,063 26,000
	26,063 26,000

24 Subsidiaries

The subsidiary’s listed below are parties to a deed of cross guarantee under which each company guarantees the debts of the others. Under ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 there is no requirement for these subsidiaries to prepare or lodge a financial report and directors’ report.

The subsidiaries subject to the deed are:

Name of	Principal	Place of	Financial year	Proportion of ownership	Proportion of ownership
subsidiary	activity	incorporation	end	interest and voting power
		and operation			held by the Group
				2019	2018
				%	%
Rampart Energy	Dormant	Australia	30 September	100	100
(USA) Pty Ltd
Rampart Alaska	Dormant	USA	31 December	100	100
LLC
Spring River	Dormant	USA	31 December	100	100
Resources

These companies represent a closed group for the purposes of the class order.

25 Contingencies

In the opinion of the Directors, the Company did not have any contingencies at 30 September 2019 (30 September 2018: None).

26 Related Parties

(a) The Group's main related parties are as follows:

Key management personnel can be found in the remuneration report on page 13.

Other related parties include close family members of key management personnel and entities that are controlled or significantly influenced by those key management personnel or their close family members.

A.B.N 86 115 229 984

Pilot Energy Limited

Notes to the Financial Statements

For the Year Ended 30 September 2019

26 Related Parties (continued)

(b) Transactions with related parties:

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

The following transactions occurred with related parties:

On 2 October 2018, 15,894,128 shares issued at $0.03 per share to Walkerindo Nusatama Mandiri. PT. Dr Walker Li is a director of the company.

27 Cash Flow Information

Reconciliation of result for the year to cashflows from operating activities

Reconciliation of net loss to net cash provided by operating activities:

Loss for the year
Cash flows excluded from profit attributable to operating activities
Non-cash flows in profit:
- accrued interest
- net profit in foreign exchange translation
Changes in assets and liabilities:
- decrease in trade and other receivables
- increase/(decrease) in trade and other payables
- (decrease)/increase in unearned revenue
- (decrease)/increase in employee benefits
Cash flows from operations

2019
$
2018
$
(661,640)
(1,162,778)
3,787
-
(383)
(5,203)
77,404
42,401
95,810
300,418
(320,000)
320,000
(8,081)
(10,939)

(813,103)
(516,101)

28 Events Occurring After the Reporting Date

A.B.N 86 115 229 984

Pilot Energy Limited

Notes to the Financial Statements For the Year Ended 30 September 2019

29 Parent Entity

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

The financial information for the parent entity, Pilot Energy Limited has been prepared on the same basis as the consolidated financial statements except as disclosed below.

Investments in subsidiaries, associates and joint ventures

Investments in subsidiaries, associates and joint venture entities are accounted for at cost in the financial statements of the parent entity. Dividends received from associates are recognised in the parent entity profit or loss, rather than being deducted from the carrying amount of these investments.

Statement of Financial Position Assets Current assets Non-current assets Total Assets Liabilities Current liabilities Total Liabilities Equity Issued capital Reserves Accumulated losses Total Equity Statement of Profit or Loss and Other Comprehensive Income Total loss for the year Total comprehensive loss	2019 $ 2018 $ 88,830 622,289 29,093 85,758
	117,923 708,047
	759,761 1,165,069
	759,761 1,165,069
	44,149,754 43,672,930 189,000 215,725 (44,980,592) (44,345,677)
	(641,838) (457,022)
	(661,640) (1,162,778)
	(661,640) (1,162,778)

Guarantees

The parent entity has entered into a Deed of Cross-Guarantee with the effect that the Company guarantees debts in respect of its subsidiaries.

Further details of the Deed of Cross-Guarantee and the entity subject to the deed are disclosed in note 24.

Contingent liabilities

The parent entity did not have any contingent liabilities as at 30 September 2019 or (2018: Nil).

Contractual commitments

The parent entity did not have any commitments as at 30 September 2019 or (2018: Nil).

Pilot Energy Limited

A.B.N 86 115 229 984

Directors' Declaration

The directors of the Company declare that:

the financial statements and notes for the year ended 30 September 2019 are in accordance with the Corporations Act 2001 and:
a. comply with Accounting Standards, which, as stated in basis of preparation Note 1 to the financial statements, constitutes explicit and unreserved compliance with International Financial Reporting Standards (IFRS); and
b. give a true and fair view of the financial position and performance of the consolidated group;
the Chief Executive Officer and Chief Finance Officer have given the declarations required by Section 295A that:
a. the financial records of the Company for the financial year have been properly maintained in accordance with section 286 of the Corporations Act 2001 ;
b. the financial statements and notes for the financial year comply with the Accounting Standards; and
c. the financial statements and notes for the financial year give a true and fair view.
in the directors' opinion, and having regard to note 3 in the financial statements, and in specific continuing to secure future working capital sourced from private placements, borrowings and farm out there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

This declaration is made in accordance with a resolution of the Board of Directors.

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Michael Lonergan Non-Executive Director

Dated at Sydney, New South Wales this 13[th] December 2019

Pilot Energy Limited

Additional Information for Listed Public Companies

30 September 2019

The shareholder information set out below was applicable as at 22 November 2019

Distribution of ordinary shares

Range 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total	Total holders Ordinary shares % of issued capital 173 25,937 0.03 73 244,989 0.31 138 1,086,410 1.37 276 9,746,242 12.26 76 68,367,064 86.03
	736 79,470,642 100.00

There were 502 holders of less than marketable parcel of ordinary shares.

Substantial shareholders

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

Shareholders	Number of Shares
Walkerindo Nustama Mandiri	15,894,128
GS Energy Pty Ltd	14,814,940
Billion Power Capital Investment Pty Ltd	7,407,600
Giant Rainbow Investments Limited	5,464,750
Sunpex International Pty Ltd & Benson Wong	4,061,392

Voting rights

Ordinary shares

On a show of hands, every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote.

Options and rights

No voting rights.

Options

Grant Date	Number	Number of holders	Expiry date	Exercise price
23 June 2016	2,600,000	7	31 December 2019		0.2

There are 2,600,000 options issued to 7 holders under the Pilot Energy long-term option plan to take up ordinary shares.

Pilot Energy Limited

Additional Information for Listed Public Companies

30 September 2019 Twenty Largest Shareholders

	Ordinary	Shares
Shareholders	Number Held	% of issued shares
Walkerindo Nustama Mandiri	15,894,128	20.00
GS Energy Pty Ltd	14,814,940	18.64
Billion Power Capital Investment Limited	7,407,600	9.32
Giant Rainbow Investments Limited	5,465,740	6.88
Sunpex International Pty Ltd & Benson Wong	4,061,392	5.11
Mr Thomas Ensmann	1,980,000	2.49
Sergent Holdings Pty Ltd	1,200,237	1.51
Mr Shadi Sayadi	921,556	1.16
BNP Paribas Nominees Pty Ltd	895,325	1.13
HSBC Custody Nominees (Australia) Limited	664,685	0.84
Melinda Louise Patton Pty Ltd	650,000	0.82
Teltoo Pty Ltd	630,940	0.79
Jathro Pty Ltd	600,000	0.75
Mr Paul David McKee	600,000	0.75
Austar Nominees Pty Ltd	518,920	0.65
Andreas Trading Pty Ltd	500,000	0.63
Stone Cold Industries Pty Ltd	403,291	0.51
Mr Terence John Telford	400,008	0.50
Mr Peter Hadleigh Reid	400,000	0.50
Mr Tiong Sing Tang	400,000	0.50

Permits Listing

Permit Location	Permit Numbers	Status	Percentage Interest %
South Perth Basin	EP 416	Granted	60
South Perth Basin	EP 480	Granted	60
North Perth Basin	EP 437	Granted	13.058
Offshore WA	WA 481-P	Granted	60
Offshore WA	WA 503-P	Granted	80

AI assistant

PILOT ENERGY LIMITED — Annual Report 2019

65558_rns_2019-12-12_2321f988-bf51-4901-b0df-fb8c2378633d.pdf

Pilot Energy Limited

Contents

For the Year Ended 30 September 2019

Pilot Energy Limited

A.B.N 86 115 229 984

Corporate Directory 30 September 2019

Directors

Company Secretary

Registered and Principal Office

Postal Address

Auditors

Bankers

Share Registry

ASX Code

Country of Incorporation and Domicile

Pilot Energy Limited

A.B.N 86 115 229 984

Chairman’s Report

30 September 2019

Dear Shareholder,

Review of Operations

30 September 2019

Highlights

Overview

Company Goals and Strategy

Review of Operations

30 September 2019

The Financial Year

Pilot Energy Limited

A.B.N 86 115 229 984

Review of Operations

30 September 2019

Permit overview: WA-481-P (Operator, 60%)

Review of Operations

30 September 2019

Permit overview: EP416 & EP480 Exploration Permits (Operator, 60%)

Review of Operations

30 September 2019

Permit overview: EP437 Exploration Permit (13.058%)

Review of Operations

30 September 2019

Permit overview: WA-503-P Exploration Permit (Operator, 80%)

Competent Person Statement

Pilot Energy Limited

Directors' Report

30 September 2019

1. Directors

Name and independence Experience, qualifications, special responsibilities and other status directorships

Directors holdings as at date of report

Walker Li

Guoping Bai

Directors holdings as at date of report

Pilot Energy Limited

A.B.N 86 115 229 984

Directors' Report

30 September 2019 Name and independence status

Experience, qualifications, special responsibilities and other directorships

Wilson Xue

Appointed positions:

Directors holdings as at date of report

Directors holdings as at date of report

Xingjin Wang

Appointed positions:

Directors holdings as at date of report

Pilot Energy Limited

Directors' Report

30 September 2019

2. Chief Executive Officer

3. Company Secretary

4. Director’s Meetings

5. Principal Activities

6. Operating Results and Financial Review

Operating and financial review

A.B.N 86 115 229 984

Directors' Report

30 September 2019

7. Significant Changes in State of Affairs

PILOT ENERGY LIMITED Annual Report 2019