VOLTAIC STRATEGIC RESOURCES LTD — Annual Report 2012

Feb 27, 2013

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A.B.N. 66 138 145 114

Preliminary Final Report for the year ended 31 December 2012

RESULTS FOR ANNOUNCEMENT TO THE MARKET

		%’age Change	US$	US$
			2012	2011
Revenue from ordinary activities	Up 	108%	$16,037,233	$7,704,018
Profit from ordinary activities after tax attributable to members	Up 	246%	$2,817,362	$814,672
Net profit after tax for the period attributable to members	Up 	246%	$2,817,362	$814,672
Earnings per share	Up 	192%	1.93 cents	0.66 cents
Diluted earnings per share	Up 	211%	1.68 cents	0.54 cents
Net tangible assets per share	Up 	23%	16.0 cents	13.0 cents
Earnings before interest, income tax, depreciation and amortisation	Up 	132%	$6,911,244	$2,981,917

Directors have not proposed a dividend and no dividend has been paid since incorporation

This report is based on accounts which have not yet been audited or reviewed.

The functional and presentation currency of Incremental Oil and Gas Ltd is United States dollars (US$). Any reference to dollars or currency in this report will be a reference to US$ unless stated otherwise.

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Incremental Oil and Gas Ltd Preliminary Final Report (Appendix 4E) for the year ended 31 December 2012

COMMENTARY ON RESULTS

This consolidated financial report of Incremental Oil and Gas Limited (“Incremental” or “the Company”) covers the twelve months of operations for the year ended 31 December 2012.

The results for the 2012 financial year are significantly improved from the prior year, primarily due to the acquisition of the Florence Oilfield in May. The results include a full year of production from Incremental’s Californian oilfields, Sheep Springs and Round Mountain.

	Change	2012	2011
Revenue from oil and gas sales (US$ million)	+106%	$15.835	$7.704
Interest expense (US$ million)		($0.235)	($0.325)
Interest income (US$ million)		$0.015	$0.046
Depreciation/Amortisation (US$ million)		($2.104)	($1.062)
Tax (US$ million)		($1.770)	($0.639)
Net Tangible Assets (US$ million)	+41%	$24.856	$17.625

Revenue increased as a result of production from the Florence Oilfield (which was acquired in May 2012) accounted for 51% of sales income for 2012. The average price per barrel decreased because oil produced from Florence is sold at WTI prices which has traded at an average $17/barrel less than California realised prices during the period.

Field operating costs have decreased to $14/bbl (2011 - $20/bbl). Economies of scale at the Florence Oilfield along with savings made in the California operations have resulted in the lower costs. Further savings measures are being implemented in California.

The Company secured a loan of US$6M from RMB Australia and raised a further US$4.4M of equity to acquire the Florence Oilfield. The RMB facility is repayable in 2013 and is therefore classified as current debt. Interest on this loan has been charged at an average rate of 6.41%.

The Company’s cash position has improved with strong inflows during the year from oil sales. Positive operating cash flow of $4.841M resulted from investments made during the year in the Florence and Round Mountain Oilfields.

Expansion of oil production assets during 2012 has increased net tangible assets (NTA) to $0.16 per share (2011 - $0.13 per share).

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Incremental Oil and Gas Ltd Preliminary Final Report (Appendix 4E) for the year ended 31 December 2012

OPERATING REVIEW

The acquisition of the Florence Oilfield in the southern part of the DJ Basin was the primary focus of the Company during 2012. The Florence property was acquired with 21 existing wells which produce from the Pierre Shale. The large lease position (21,000 net acres) offers the opportunity to exploit the deeper Niobrara zone which has been highly sought after in other parts of the DJ Basin.

Incremental continued to develop its California assets with two new successful wells drilled in the Round Mountain Oilfield in 2012. Production continued from the Sheep Springs Oilfield and drilling of the first well commenced at the West Mountain lease in Ventura.

	Change	2012	2011
Production (barrels – excl equivalent gas)	+138%	178,696	71,651
Average sale price per barrel (US$)	-19%	$88	$105
Average cost of production per barrel (US$)	-30%	$14	$20

Since acquisition of the Florence Oilfield, daily oil production rate peaked in excess of 700 barrels for 2012. The average production in 2012 from all of the Company’s oilfields since May when the Florence Oilfield was acquired, has been above 600 barrels of oil per day.

The expansion of operations in Colorado has resulted in a number of highly skilled executives joining the company and a new office was established in Denver to complement the existing California headquarters and service the Florence Oilfield. Planning for the development of the fornew Colorado leases was carried out in 2012 with multiple drilling campaigns targeted in 2013.

Incremental has strengthened its balance sheet during the year and will continue to develop its capabilities as it expands its business through organic growth and acquisition of new projects. Its focus will continue to be cash flow positive, profitable, producing oilfields in North America. The company has a good mix of assets that provide strong cash flow as well as offer significant development potential in the future.

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Incremental Oil and Gas Ltd Preliminary Final Report (Appendix 4E) for the year ended 31 December 2012

Consolidated statement of comprehensive income (for the year ended 31 December)

Income from ordinary activities 2a Other Income 2a Royalties Depreciation 2b Amortisation 2b Exploration Lease operating expenses General administration and other costs 2c Employee benefits expense Interest paid 2d Foreign exchange differences Profit before income tax Income tax expense Profit for the period Profit for the period attributable to members of the entity Other comprehensive income Total comprehensive income Basic earnings per share attributable to ordinary equity holders of the entity (cents) 3 Diluted earnings per share attributable to ordinary equity holders of the entity (cents) 3 Number of shares on issue at year end 12	2012 US$ 16,037,233 34,927 16,072,160 (2,674,078) (209,340) (1,894,464) (186,544) (2,454,866) (2,320,495) (1,592,912) (234,548) 82,849 4,587,762 (1,770,400) 2,817,362 2,817,362 - 2,817,362 1.93 1.68 155,743,680	2011 US$
		7,704,018 46,476
		7,750,494 (1,157,910) (68,402) (993,442) (64,081) (1,472,946) (1,343,095) (730,545) (324,799) (142,074)
		1,453,200 (638,528)
		814,672
		814,672
		-
		814,672
		0.66 0.54 135,643,680

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Incremental Oil and Gas Ltd Preliminary Final Report (Appendix 4E) for the year ended 31 December 2012

Consolidated statement of financial position (as at 31 December)

Note Current assets Cash and cash equivalents 4 Receivables 5 Inventories 6 Total current assets Non-current assets Other financial assets Oil properties 7 Exploration assets Plant and equipment 8 Total non-current assets Total assets Current liabilities Trade and other payables 9 Borrowings 10 Provisions 11 Total current liabilities Non-current liabilities Provisions 11 Deferred tax liabilities Total non-current liabilities Total liabilities Net assets Equity Issued capital 12 Reserves 14 Accumulated profit/(loss) Total equity	2012 US$ 3,970,247 1,305,468 431,013 5,706,728 195,000 27,764,750 760,898 1,765,530 30,486,178 36,192,906 1,730,532 6,000,000 75,950 7,806,482 620,202 2,910,056 3,530,258 11,336,740 24,856,166 22,318,820 35,769 2,501,577 24,856,166	2011 US$
		1,456,780 704,372 91,046
		2,252,198
		100,000 15,747,741 739,700 472,588
		17,060,029
		19,312,227
		516,805 - 30,769
		547,574
		- 1,139,658
		1,139,658
		1,687,232
		17,624,995
		17,905,010 35,769 (315,784)
		17,624,995

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Incremental Oil and Gas Ltd Preliminary Final Report (Appendix 4E) for the year ended 31 December 2012

Consolidated statement of cash flows (for the year ended 31 December)

Note Cash flows from operating activities Receipts from customers Royalty Payments Payments to suppliers and employees Interest received Realized foreign currency differences Interest paid Net cash provided by operating activities 15 Cash flows from investing activities Proceeds from sale and form-down of oil properties Purchase of new oil properties Payments for development of oil properties Payments for security bonds Payments for property, plant and equipment Payments for exploration Net cash used in investing activities Cash flows from financing activities Proceeds from issues of equity securities Cost of share issue Proceeds of borrowings Net cash provided by financing activities Net increase/(decrease) in cash and cash equivalents Exchange differences on cash balances held Cash and cash equivalents at the start of the year/period Cash and cash equivalents at the end of the year/period	2012 US$ 13,414,451 (2,676,992) (5,777,531) 16,951 57,258 (192,894) 4,841,243 243,000 (9,914,409) (2,452,052) (95,000) (60,765) (487,951) (12,767,177) 4,650,452 (236,642) 6,000,000 10,413,810 2,487,876 25,591 1,456,780 3,970,247	2011 US$
		7,540,508 (1,157,910) (3,567,674) 44,394 - (646,693)
		2,212,625
		- - (5,499,243) - (30,841) (406,286)
		(5,936,370)
		32,927 (31,373) -
		1,554
		(3,722,191) 64,550 5,114,421
		1,456,780

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Incremental Oil and Gas Ltd Preliminary Final Report (Appendix 4E) for the year ended 31 December 2012

Consolidated statement of	Consolidated statement of	Consolidated statement of	changes	in equity
	(for the year ended 31 December)
	Issued	Accumulated	Other
	capital	profits/(losses)	reserves	Total equity
	US$	US$	US$	US$
At 31 December 2011	17,905,010	(315,785)	35,769	17,624,994
Profit attributable to members of the
entity	-	2,817,362	-	2,817,362
Total income/expense for the year	-	2,817,362	-	2,817,362
Exercise of options	20,552	-	-	20,552
Placement of shares	4,629,900	-	-	4,629,900
Cost of issue of share capital	(236,642)	-	-	(236,642)
At 31 December 2012	22,318,820	2,501,577	35,769	24,856,166

At 31 December 2010 Profit attributable to members of the entity Total income/expense for the year Exercise of options Cost of issue of share capital Conversion of convertible notes At 31 December 2011	Issued capital Accumulated profits/(losses) Other reserves Total equity US$ US$ US$ US$
	12,604,832 (1,130,457) 35,769 11,510,144 - 814,672 - 814,672
	814,672 814,672 32,927 - - 32,927 (31,373) - - (31,373) 5,298,624 - - 5,298,624
	17,905,010 (315,785) 35,769 17,624,994

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Incremental Oil and Gas Ltd Preliminary Final Report (Appendix 4E) for the year ended 31 December 2012

Condensed notes to the financial statements

1. Summary of significant accounting policies

a. Basis of preparation

The report is based on accounts that are in the process of being audited.

The report does not include all of the notes normally included in an annual financial report. Accordingly this report is to be read in conjunction with the financial report for the year ended 31 December 2011 and any public announcements made by Incremental during the reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001.

The financial report is presented in United States dollars (US$) unless otherwise stated .

b. Statement of Compliance

The financial report complies with Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the financial report, comprising the financial statements and notes thereto, complies with International Financial Reporting Standards (IFRS).

The Company has adopted all new and revised Australian Accounting Standards and interpretations issued by the Australian Accounting Standards Board (AASB) which are mandatory to apply to the current year.

c. Principals of consolidation

The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Incremental Oil and Gas Ltd as at 31 December 2012 and the results of all subsidiaries for the year then ended. Incremental and its subsidiaries together are referred to as the Group. Subsidiaries are all those entities (including special purpose entities) over which the Group has power to govern the financial and operating policies, so as to obtain benefits from its activities, generally accompanying a shareholding of more than one-half of the voting rights. The existence and potential effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.

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

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. There are deconsolidated from the date that control ceases. Intercompany transactions and balances, income and expenses and profit and losses between Group companies, are eliminated.

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Incremental Oil and Gas Ltd Preliminary Final Report (Appendix 4E) for the year ended 31 December 2012

2. Revenue, other income and expenses a) Sales revenue Oil and Gas Sales Royalties Interest Income Other revenue b) Depreciation and amortisation included in the statement of comprehensive income Amortisation – oil and gas properties Depreciation – oil and gas properties Depreciation – other plant & equipment c) Net gain/(loss) on sale of oil properties and exploration assets Guijarral Hills – sold West Mountain – farm-down d) Finance costs Interest on bank loans/convertible loans Other Interest Charges Financing charges 3. Earnings per share Earnings used in calculating basic earnings per share Weighted average number of ordinary shares used in calculating basic earnings per share Effect of dilutive securities: Share Options Adjusted weighted average number of ordinary shares used in calculating diluted earnings per share 4. Cash and cash equivalents Cash at bank and on hand	2012 US$ 15,835,389 201,844 16,037,233 14,869. 19,151 16,071,253 (1,894,464) (199,602) (2,094,066) (9,738) (2,103,804) (182,434) (10,583) (193,017) 192,277 42,271 541,730 776,278 2,817,362 Number of Shares 145,893,133 21,518,815 167,411,948 3,970,247	2011 US$ 7,704,018 -
		7,704,018 46,476 -
		7,750,494
		(993,442) (68,402)
		(1,061,844) -
		(1,061,844)
		- -
		-
		324,799 - -
		324,799
		814,672
		Number of Shares 122,417,139 28,751,724
		151,168,863
		1,456,780

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Incremental Oil and Gas Ltd Preliminary Final Report (Appendix 4E) for the year ended 31 December 2012

5. Trade and other receivables Oil and gas sales debtors Other receivables 6. Inventories Oil and gas inventory at cost of production Field inventory 7. Oil properties Cost of acquisition and enhancements Accumulated amortisation 8. Fixed assets Cost Depreciation 9. Trade and other payables Trade payables and accruals 10. Borrowings Current : Bank Loan (Secured)	2012 US$ 1,262,594 42,874 1,305,468 152,142 278,871 431,013 31,290,159 (3,525,409) 27,764,750 2,104,991 (339,461) 1,765,530 1,730,532 6,000,000	2011 US$ 704,372 -
		704,372
		91,046 -
		91,046
		17,378,686 (1,630,945)
		15,747,741
		602,709 (130,121)
		472,588
		516,805
		-

The bank loan is provided by RMB Australia Holdings Ltd as a US Dollar denominated acquisition and working capital cash term loan facility for the purpose of acquiring the Florence Oilfield, Repayment of the loan will be by way of four equal quarterly instalments in 2013. The loan is secured by:

• Fixed and floating charge over the assets of the Borrower;

• Guarantees from the Borrower and each of the Guarantors

• Mortgage over the oil producing tenements in California (only)

• Share pledge over the shares in the subsidiary holding the Florence tenements held by the Borrower

• Fixed and floating charge over the assets of the subsidiary holding the Florence tenements

Interest is paid quarterly at rates of between 6.36% and 6.46%

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Incremental Oil and Gas Ltd Preliminary Final Report (Appendix 4E) for the year ended 31 December 2012

11. Provisions CURRENT - Employee leave provision NON CURRENT - Asset retirement obligation 12. Issued capital At 1 January New shares issued - placement Exercise of options Conversion of convertible loan notes At 31 December At 1 January New shares issued – placement (net of capita; raising costs) Exercise of options Conversion of convertible loan notes (net of costs) At 31 December 13. Options The company has on issue 92,500,000 options exercisable at 20 cents per option on or before 1 November 2014 14. Reserves Share option reserve	2012 US$ 75,950 620,202 Number of shares 135,643,680 20,000,000 100,000 - 155,743,680 US$ 17,905,010 4,393,258 20,552 - 22,318,820 35,769	2011 US$ 30,769
		-
		Number of shares 110,477,010 - 166,670 25,000,000
		135,643,680
		US$ 12,604,832 - 32,927 5,267,251
		17,905,010
		35,769

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Incremental Oil and Gas Ltd Preliminary Final Report (Appendix 4E) for the year ended 31 December 2012

15. Reconciliation of net profit after tax to net cash flows from operations Profit per accounts Adjustments for Tax expense Leave provision Amortisation Depreciation Decrease/(Increase) in current receivables Decrease/(Increase) in inventories (Decrease)/Increase in current payables Loss on disposal of oil properties and exploration assets Non cash transactions Exchange differences Cash used in operating activities 16. Segment information Year ended 31 December 2012 Australia United States US$ US$ Revenue Income 3,309,279 16,056,414 Total segment revenue 3,309,279 16,056,414 Segment Profit/(Loss) before tax 647,149 3,940,613 Income tax expense (194,144) (1,576,256) Segment loss after income tax expense 453,005 2,364,357 Assets Segment assets 1,154,459 35,014,719 Liabilities Segment liabilities (6,384,065) (4,928,949) Other Depreciation and amortisation 1,554 2,102,250		2012 US$ 2,817,362 1,770,400 45,181 1,894,464 209,340 (577,368) (339,967) 1,189,996 193,017 (2,335,591) (25,591) 4,841,243 Adjustments US$ (3,293,533) (3,293,533) - - - - - -	2011 US$ 814,672 638,528 5,309 993,442 68,402 (165,592) (46,525) (237,685) - - 142,074
			2,212,625
			Consolidated US$ 16,072,160
			16,072,160
			4,587,762 (1,770,400)
			2,817,362
			36,169,178 (11,313,014) 2,103,804

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Incremental Oil and Gas Ltd Preliminary Final Report (Appendix 4E) for the year ended 31 December 2012

16. Segment information (Cont) Year ended 31 December 2011 Australia US$ Revenue Income 1,626,744 Total segment revenue 1,626,744 Segment Profit/(Loss) before tax (143,120) Income tax expense - Segment loss after income tax expense (143,120) Assets Segment assets 1,288,801 Liabilities Segment liabilities 91,742 Other Depreciation and amortisation 5,856	United States US$ 7,700,209 7,700,209 1,596,320 (638,528) 957,792 18,023,424 1,595,490 1,055,988	Adjustments US$ (1,576,459) (1,576,459) - - - - -	Consolidated US$ 7,750,494
			7,750,494
			1,453,200 (638,528)
			814,672
			19,312,225 1,687,232 1,061,844

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