VOLTAIC STRATEGIC RESOURCES LTD — Annual Report 2015

Feb 28, 2016

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A.B.N. 66 138 145 114

Preliminary Final Report (Appendix 4E) for the year ended 31 December 2015

RESULTS FOR ANNOUNCEMENT TO THE MARKET

	%’age Change	US$	US$
		2015	2014
Revenue from ordinary activities	27%	$4,707,061	$6,466,932
Net Income from ordinary
activities after tax attributable to		($2,075,366)	($8,347,969)
members
Net Income after tax for the period attributable to members		($2,075,366)	($8,347,969)
Earnings per share		(1.28) cents	(5.27) cents
Diluted earnings per share		(1.28) cents	(5.27) cents
Net tangible assets per share	38%	2.1 cents	3.4 cents

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. Oilfield asset values in the financial statements are subject to review by external competent persons and could result in impairment if the estimates are below net book value.

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 2015

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 2015.

Incremental has decreased its net loss after tax for the financial year ending 31 December 2015 compared to the prior year. A summary of operating results is as follows:

	2015	2014
	US$M	US$M
Gross volume of oil/gas/NGL sold	161,478 boe	74,644 boe
Gross revenue from oil and gas sales Royalty Payments Production Expenses	$4.707 ($0.821) ($1.734)	$6.467 ($1.108) ($1.033)
Operating Profit Gross Profit margin Other income Overhead Expenses	$2.152 46% $0.031 ($2,056)	$4.326 67% $0.008 ($2.011)
EBITDA Interest expense & Finance costs Depreciation/Amortisation Tax (expense)/benefit Impairment	$0.127 ($0.248) ($1.954) $ - $ -	$2.323 ($0.378) ($2.399) ($0.369) ($7.525)
Net Profit/(Loss) After Tax	($2.075)	($8.348)

Production increased during the year as a result of the purchase of the Silvertip Field which contributed 97,324 boe of production (60% of total) in the six months from July to December.

Revenue was impacted by a low average oil and gas prices. WTI oil prices have been in decline since Q4-14. The average well-head oil price received in 2015 was US$42/bbl (2014 – US$88/bbl). Incremental receives CIG Rocky Mountain prices for its natural gas that is sold from the Silvertip Field. The average wellhead price in 2015 was $2.59/Mcf. Incremental was fully exposed to the market price of oil and gas with no hedging in place.

Cash provided from operating activities for the year was $0.698M (2014 - $1.584M). An amount of $0.662M of cash was invested in field development at Silvertip and $0.321M was allocated from cash reserves for bonding on the field to the Wyoming State and Federal Authorities. Other than the debt drawn down for the purchase and development of Silvertip($6.66M), there was a reduction in debt of $0.882M in 2015 (2014 - $0.512M).

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Incremental Oil and Gas Ltd Preliminary Final Report (Appendix 4E) for the year ended 31 December 2015

REVIEW OF OPERATIONS

SILVERTIP, WYOMING:

Incremental acquired the Silvertip oil and gas field on 30 June 2015 which comprises of 5,250 net acres in the Bighorn Basin, Wyoming. Incremental operates the field and has a 100% working interest and a net revenue interest of approximately 82.5%.

The Silvertip Field was acquired after an extensive search for an asset that met the Company’s criteria for development potential and profitability. This field produces oil and high BTU gas which is sold as natural gas and natural gas liquids (NGL’s).

Hydrocarbons are produced from a number of formations in the multi stacked reservoir geology that exists in the Bighorn Basin.

The field contains in excess of 100 wells, the majority of which are less than ten years old. Along with the above mentioned gas processing plant, the field was acquired with oil and NGL storage facilities, a field gas pipeline network which connects to two inter-state distribution pipelines, a significant inventory of well equipment, tubulars and workshop and office building facilities.

Since the Silvertip Field was acquired, 27 workovers have been completed to bring shutin wells back into production and optimize the efficiency of well performance. This program increased production by 50% from the time that the asset was acquired.

Two well recompletions[1] were undertaken to determine the productivity of different formations to the original well target. These were successful and have contributed to increasing the proven developed producing 1P reserves by 75%. There remains other behind pipe opportunities that can be exploited in the field and this will form the basis of the Company’s development program for 2016.

SHEEP SPRINGS and ROUND MOUNTAIN:

The Sheep Springs Oilfield, bought by Incremental in January 2010, continued to perform well during 2015, with only minimal production decline, mainly due to the gradual depletion of reservoir pressure in the field. This field continues to provide good cash flow for the Company.

The decline rate of the Round Mountain Field has been more consistent and gradual in 2015 and with low cost operating costs, it continues to be profitable.

FLORENCE:

The rate of decline in production at Florence has remained low in 2015 as was expected from the Pierre Shale production and is now less than the decline rate in conventional oilfields.

The main producing formation in the Florence Field is the Pierre Shale. Incremental believes that the deeper Niobrara formation does contain hydrocarbons, particularly gas, but that the exploitation of this resource would be sub-economic at current prices.

1 After the initial completion of a well, the action and techniques of re-entering the well and repeating or repairing the original completion to restore the well’s productivity

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Incremental Oil and Gas Ltd Preliminary Final Report (Appendix 4E) for the year ended 31 December 2015

OTHER PROJECTS:

Incremental has invested considerable resources over the last two years in reviewing numerous producing assets in the USA. The company was successful in purchasing the Silvertip Field at a competitive price in 2015. The substantial drop in oil and gas prices is expected to create further acquisition opportunities for the Company.

SUMMARY:

The milestones achieved by the Company during the year were:

• Acquisition of the Silvertip Field in WY which has substantially increased the overall group production;

• Successfully completed two gas recompletions which contributed to a 75% increase in producing reserves in the field;

• Undertook 27 well workovers to bring shut-in wells back on line and improve the efficiency of others which resulted in an increase in production of 50%;

• Lowering of operating and overhead costs.

Incremental will continue to focus on acquisition opportunities in North America. The Company has an ongoing commitment to creating value through workovers, recompletions and development of the fields that it owns and operates.

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Incremental Oil and Gas Ltd Preliminary Final Report (Appendix 4E) for the year ended 31 December 2015

Consolidated statement of	Consolidated statement of	profit and loss and other	profit and loss and other
		comprehensive income
	(for the year ended 31 December)
		2015	2014
		US$	US$
Oil and gas sales	2a	4,707,061	6,466,932
Direct cost of sales -
Royalty costs		(821,050)	(1,107,780)
Production and exploration expenses		(1,734,124)	(1,033,383)
Amortisation and depreciation	2b	(1,934,599)	(2,373,245)
Gross profit from operations		217,288	1,952,524
Other operating revenue	2a	30,976	8,292
Administrative expenses		(1,333,587)	(1,225,478)
Other operating expenses		(742,466)	(811,007)
Interest and finance costs	2d	(247,577)	(378,475)
Impairment of assets	2e	-	(7,524,896)
Profit / (Loss) before income tax		(2,075,366)	(7,979,040)
Income tax (expense) / benefit		-	(368,929)
Profit / (Loss) after tax		(2,075,366)	(8,347,969)
Profit / (Loss) for the period attributable to members
of the entity		(2,075,366)	(8,347,969)
Other comprehensive income:
Items that will not be reclassified to profit and loss		-	-
Items that may be reclassified to profit or loss		-	-
Other comprehensive income / (loss) for the
period, net of tax		-	-
Total comprehensive income / (loss) for the period
attributable to members of the entity		(2,075,366)	(8,347,969)
Basic (loss) /earnings per share attributable to
ordinary equity holders of the entity (cents)	3	(1.28)	(5.27)
Diluted (loss) /earnings per share attributable	to
ordinary equity holders of the entity (cents)	3	(1.28)	(5.27)

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Incremental Oil and Gas Ltd Preliminary Final Report (Appendix 4E) for the year ended 31 December 2015

Consolidated statement of financial position (as at 31 December)

Note Current assets Cash and cash equivalents 4 Trade and other receivables 5 Inventories 6 Total current assets Non-current assets Other receivables Other financial assets Oil properties 7 Plant and equipment 8 Total non-current assets Total assets Current liabilities Trade and other payables 9 Borrowings 10 Taxes payable Provisions 11 Total current liabilities Non-current liabilities Trade and other payables 9 Borrowings 10 Provisions 11 Total non-current liabilities Total liabilities Net assets Equity Issued capital 12 Share reserved for employee share plan 12 Reserves 14 Accumulated losses Total equity	2015 US$ 445,419 431,197 98,283 974,899 321,604 626 14,768,911 4,222,319 19,313,459 20,288,358 862,947 950,000 126,265 89,105 2,028,317 56,494 7,291,193 7,397,883 14,745,570 16,773,887 3,514,471 22,717,388 (27,699) 349,661 (19,524,879) 3,514,471	2014 US$
		1,361,814 275,097 439,326
		2,076,237
		- 10,626 6,622,315 1,019,175
		7,652,116
		9,728,353
		443,364 727,084 126,273 45,852
		1,342,573
		134,410 1,709,826 1,104,749
		2,948,985
		4,291,558
		5,436,795
		22,620,836 (84,189) 349,661 (17,449,513)
		5,436,795

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Incremental Oil and Gas Ltd Preliminary Final Report (Appendix 4E) for the year ended 31 December 2015

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

Note Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Interest paid State tax paid Net cash provided by operating activities Cash flows from investing activities Acquisition of Silvertip, net of cash acquired Oil property development expenditure Refunds/(payments) for performance bonds Proceeds from sale of assets Payments for purchases of property, plant and equipment Net cash used in investing activities Cash flows from financing activities Proceeds from issues of equity securities Cost of share issue Proceeds/ (repayment) of borrowings Net cash provided by/(used in) financing activities Cash and cash equivalents at the start of the year/period Net increase/(decrease) in cash and cash equivalents Exchange differences on cash balances held Cash and cash equivalents at the end of the year/period	2015 US$ 4,366,861 (3,217,668) 963 (210,403) (241,625) 698,128 (6,295,587) (662,563) (321,604) 6,000 (105,910) (7,379,664) - (5,276) 5,775,271 5,769,995 1,361,814 (911,541) (4,854) 445,419	2014 US$
		6,960,797 (4,284,768) 436 (134,517) (958,337)
		1,583,611
		- (104,466) - - (135,505)
		(239,971)
		- - (512,437)
		(512,437)
		541,110 831,203 (10,499)
		1,361,814

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Incremental Oil and Gas Ltd Preliminary Final Report (Appendix 4E) for the year ended 31 December 2015

Consolidated statement of changes in equity (for the year ended 31 December)

At 31 December 2014 Loss attributable to members of the Group Other comprehensive income Total comprehensive income/(loss) for the period Issue of employee shares Issue of options Share based payment expense Cost of issue of share capital At 31 December 2015	Issued capital Shares reserved for employee share plan Accumulated profits/ (losses) Share option reserve Total equity US$ US$ US$ US$ US$
	22,620,836 (84,189) (17,449,513) 349,661 5,436,795 - - (2,075,366) - (2,075,366) - - - - -
	- - (2,075,366) - (2,075,366) 101,828 (101,828) - - - - - - - - 158,318 - - 158,318 (5,276) - - - (5,276)
	22,717,388 (27,699) (19,524,879) 349,661 3,514,471

At 31 December 2013 Loss attributable to members of the Group Other comprehensive income Total comprehensive income/(loss) for the period Issue of employee shares Issue of options Share based payment expense At 31 December 2014	Issued capital Shares reserved for employee share plan Accumulated profits/ (losses) Share option reserve Total equity US$ US$ US$ US$ US$
	22,430,823 (65,636) (9,101,544) 334,666 13,598,309 - - (8,347,969) - (8,347,969) - - - - -
	- - (8,347,969) - (8,347,969) 190,013 (190,013) - - - - - - 14,995 14,995 - 171,460 - - 171,460
	22,620,836 (84,189) (17,449,513) 349,661 5,436,795

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Incremental Oil and Gas Ltd Preliminary Final Report (Appendix 4E) for the year ended 31 December 2015

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 2014, the Interim Financial Report for the half year ended 30 June 2015 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 (“Incremental”) as at 31 December 2015 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 2015

2. Revenue, other income and expenses a) Sales revenue Oil and gas Royalties Oil and gas sales Other revenue Interest Income Other revenue Total other revenue b) Depreciation and amortisation included in the statement of profit or loss 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 Equipment sale d) Finance costs Interest on bank loans Other Interest Charges Financing charges e) Impairment of assets Impairment of oil and gas properties -Florence -Sheep Springs and Round Mountain Impairment of property , plant and equipment	2015 US$ 4,686,693 20,368 4,707,061 963 30,013 30,976 (1,675,113) (259,486) (1,934,599) (19,963) (1,954,562) (12,772) (210,313) - (37,264) (247,577) - - - -	2014 US$ 6,404,490 62,442
		6,466,932
		436 7,856
		8,292
		(2,173,897) (199,348)
		(2,373,245) (25,963)
		(2,399,208)
		(4,184)
		(134,517) (4,779) (239,179)
		(378,475)
		(852,054) (6,171,417) (501,425)
		(7,524,896)

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Incremental Oil and Gas Ltd Preliminary Final Report (Appendix 4E) for the year ended 31 December 2015

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 Note – Cash of $321,604 is held on term deposit as security for performance bonds and is classified as non-current other receivables in the balance sheet. 5. Trade and other receivables Current - Oil and gas sales debtors Other receivables 6. Inventories Oil and gas inventory at cost of production Field inventory 7. Oil properties Cost of acquisition and enhancements Writedown Impairment Accumulated amortisation 8. Fixed assets Cost Depreciation and impairment	2015 US$ (2,075,366) Number of Shares 162,061,078 - 162,061,078 2015 US$ 445,419 377,331 53,866 431,197 98,283 - 98,283 46,038,459 (11,779,901) (10,498,297) (8,991,350) 14,768,911 5,247,533 (1,025,214) 4,222,319	2014 US$ (8,347,969)
		Number of Shares 158,306,505 -
		158,306,505
		2014 US$ 1,361,814
		271,131 3,966
		275,097
		162,073 277,253
		439,326
		36,216,750 (11,779,901) (10,498,297) (7,316,237)
		6,622,315
		2,290,461 (1,271,286)
		1,019,175

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Incremental Oil and Gas Ltd Preliminary Final Report (Appendix 4E) for the year ended 31 December 2015

9. Trade and other payables CURRENT - Trade payables and accruals NON CURRENT - Trade payables and accruals 10. Borrowings CURRENT - Bank Loan (Secured) NON-CURRENT - Bank Loan (Secured)	2015 US$ 862,947 56,494 950,000 7,291,193	2014 US$ 443,364
		134,410
		727,084
		1,709,826

The secured bank loans are provided by ANB Bank as a US Dollar denominated term loan facility. A loan of $3 million (balance at Dec 2015 - $1,724,444) was provided in May 2014 for the purpose of repaying a loan facility from RMB Australia Holdings Ltd. A new loan facility was made available and drawn on for the purpose of acquiring the Silvertip Field in June 2015 (Dec-15 - $6,533,643). The loans are made up of two term loans and a line of credit as follows:

Term Loan 1 -

• Security - mortgages over the Company’s producing oilfields in California and Colorado

• Interest - paid monthly at a rate of 0.50% above the Prime Rate (2015 – 3.75%)

• Term – four years from May 2014

• Principal repayments – monthly equal instalments ($62,500)

• Initial face value of loan - $3.0 million (Balance Dec-15 - $1,724,447)

Term Loan 2 -

• Security - mortgages over the Company’s gas processing plant and spare well equipment

• Interest - paid monthly at a rate of 0.50% above the Prime Rate (2015 – 3.75%)

• Term – five years from July 2015

• Principal repayments – monthly equal instalments ($16,667)

• Initial face value of loan - $1.0 million (Balance Dec-15 - $896,483)

Line of Credit -

• Security - mortgages over the Company’s producing oilfields in Wyoming

• Interest - paid monthly at a rate of 0.50% above the Prime Rate (2015 – 3.75%)

• Term – two years from July 2015

• Principal repayments – interest only repayments on a monthly basis. Principal due to be repaid on or before maturity. Any part of the principal that is repaid before the maturity date may be redrawn up until the maturity date of the loan.

• Initial loan facility limit - $7.0 million (facility limit Dec-15 - $6,408,141)

• Loan balance Dec-15 - $5,657,160

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Incremental Oil and Gas Ltd Preliminary Final Report (Appendix 4E) for the year ended 31 December 2015

10. Borrowings (Cont)

Financial covenants for above loan facilities -

• Modified Current Ratio shall not be less than 1:1 Modified Current Ration means, as of the end of any Fiscal Quarter ending after the Closing Date, the ratio of: (a) the sum of Borrower's current assets (including as a current asset any and all unused availability under the Revolving Loan, but excluding assets resulting from any mark-tomarket of unliquidated hedge contracts); to (b) the sum of Borrower's current liabilities (excluding the current portion of long term Debt with the exception of principal that is due within ninety (90) days and liabilities resulting from any mark-to-market of unliquidated hedge contracts), all determined on a consolidated basis pursuant to the most recent financial statements delivered by Borrower to Lender. Oil in inventory, not reported on the most recent financial statement, will be added to the current assets at market price.)

11. Provisions CURRENT - Employee leave provision NON CURRENT - Asset retirement obligation 12. Issued capital At 1 January New shares issued - placement New shares issued- employee shares Exercise of options At 31 December At 1 January New shares issued – placement (net of capital raising costs) New shares issued – employee shares At 31 December Shares reserved for employee share plan 13. Options The company has on issue 5,000,000 options exercisable at A$0.1485 per option on or before 27 July 2018 The company has on issue 400,000 options exercisable at A$0.07 per option on or before 26 May 2017 14. Reserves Share option reserve	2015 US$ 89,105 7,397,883 Number of shares 160,336,680 - 3,347,900 - 163,684,580 2015 US$ 22,620,836 - 96,552 22,717,388 (27,699) 349,661	2014 US$ 45,852
		1,104,749
		Number of shares 156,242,680 - 4,094,000 -
		160,336,680
		2014 US$ 22,430,823 - 190,013
		22,620,836
		(84,189)
		349,661

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