UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 20-F

(Mark One)

x
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR
 
o
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended ___________________________________________________
 
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR
 
o
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Date of event requiring this shell company report _______________

For the transition period from __________________________ to __________________________

Commission file number _______________________________________________________________

SAMSON OIL & GAS LIMITED
(Exact name of Registrant as specified in its chart)
 
Not applicable
(Translation of Registrant’s name into English)
 
Australia
(Jurisdiction of incorporation or organization)
 
Level 36, Exchange Plaza
2 The Esplanade
Perth, Western Australia 6000
(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act.
 
Title of each class
 
Name of exchange on which registered
American Depositary Shares, each representing 20 Ordinary Shares, no part value each, and evidenced by an American Depositary Receipt
 
American Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act. None
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.   192,198,833 Ordinary Shares outstanding as at June 15, 2007

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
o Yes    x No
 
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
o Yes    o No
 
Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of then Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
o Yes    x No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o
Accelerated filer o
Non-accelerated filer x

Indicate by check mark which financial statement item the registrant has elected to follow.
 
o Item 17     x Item 18
 
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes    o No
 
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
o Yes     o No


SAMSON OIL & GAS LIMITED

FORM 20-FR REGISTRATION STATEMENT

TABLE OF CONTENTS

     
Page
Identity of Directors, Senior Management and Advisers
 
5
Item 2.
Offer Statistics and Expected Timetable
 
6
Item 3.
Key Information
 
6
Item 4.
Information on the Company
 
17
Item 5.
Operating and Financial Review and Prospects
 
30
Item 6.
Directors, Senior Management and Employees
 
39
Item 7.
Major Shareholders and Related Party Transactions
 
45
Item 8.
Financial Information
 
47
Item 9.
The Offer and Listing
 
47
Item 10.
Additional Information
 
49
Item 11.
Quantitative and Qualitative Disclosures About Market Risk
 
65
     
 
PART II
   
     
 
Item 12.
Defaults, Dividend Arrearages and Delinquencies
 
73
Item 13.
Material Modifications to the Rights of Security Holders and Use of Proceeds
 
73
Item 14.
Controls and Procedures
 
73
Item 15.
[Reserved]
 
73
       
PART III
   
       
Item 17.
Financial Statements
 
74
Item 18.
Financial Statements
 
74
Item 19.
Exhibits
 
74


GLOSSARY OF TERMS

Bbl.   Barrel (of oil or natural gas liquids).
 
Bcf . Billion cubic feet (of natural gas).
 
Developed acres.   The number of acres that are allocated or held by producing wells or wells capable of production.
 
Development well . A well drilled within the proved area of an oil or gas reservoir to the depth of a stratigraphic horizon known to be productive.
 
Exploratory well.   A well drilled to find and produce oil or gas in an unproved area, to find a new reservoir in a field previously found to be productive of oil or gas in another reservoir, or to extend a known reservoir.
 
Gross acres or gross wells.   The total acres or wells, as the case may be, in which a working interest is owned.
 
Liquids.   Oil, condensate, and natural gas liquids.
 
Mcf.   Thousand cubic feet (of natural gas).
 
Mcfe.   Thousand cubic feet equivalent.
 
MMBtu.   One million British Thermal Units, a common energy measurement.
 
MMcf.   Million cubic feet.
 
MMcfe.   Million cubic feet equivalent.
 
Nymex.   New York Mercantile Exchange.
 
Porosity. The percentage of empty space within a rock. Only high porosity reservoir rocks, like sandstone, bear oil and gas.
 
Present value.   When used with respect to oil and gas reserves, present value means the estimated future gross revenue to be generated from the production of net proved reserves, net of estimated production and future development and abandonment costs, using prices and costs in effect at the determination date, without giving effect to non-property related expenses such as general and administrative expenses, debt service, accretion, and future income tax expense or to depreciation, depletion, and amortization, discounted using monthly end-of-period discounting at a nominal discount rate of 10% per annum.
 
Productive wells.   Producing wells and wells that are capable of production, including injection wells, salt water disposal wells, service wells, and wells that are shut-in.
 
Proved developed reserves.   Estimated proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods.
 
Proved reserves.   Estimated quantities of crude oil, natural gas, and natural gas liquids which, upon analysis of geologic and engineering data, appear with reasonable certainty to be recoverable in the future from known oil and gas reservoirs under existing economic and operating conditions.
 
i
 
Proved undeveloped reserves.   Estimated proved reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required.
 
Shale gas . Conventional natural gas that is produced from reservoirs predominantly composed of shale with lesser amounts of other fine grained rocks rather than from more conventional sandstone or limestone reservoirs.
 
Throughput:   The volume of natural gas transported or passing through a pipeline, plant, terminal or other facility in an economically meaningful period of time.
 
Undeveloped acreage.   Acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil or natural gas, regardless of whether such acreage contains estimated proved reserves.
 
Working interest.   An operating interest that gives the owner the right to drill, produce, and conduct operating activities on the property and a share of production.
 
ii

FORWARD LOOKING STATEMENTS
 
This Registration Statement contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934. These statements include but are not limited to management’s comments regarding business strategy, exploration and development drilling prospects and activities at our Jonah Field, Amber Field, Green Canyon Field, North Stockyard and South Goose Lake properties, oil and gas pipeline availability and capacity, natural gas and oil reserves and production, our ability to and methods by which we may raise additional capital, production and future operating results.
 
In this Registration Statement, the use of words such as “anticipate,” “continue,” “ estimate,” “expect,” “likely,” “may,” “will,” “project,” “should,” “believe” and similar expressions are intended to identify uncertainties. While we believe that the expectations reflected in those forward-looking statements are reasonable, we cannot assure you that these expectations will prove to be correct. Our actual results could differ materially from those anticipated in these forward-looking statements. The differences between actual results and those predicted by the forward looking statements could be material. These differences may be attributed to t he factors described herein under the heading "Risk Factors" starting on page 8   of this Registration Statement, or other factors not listed there. including, without limitation, the following:
 
 
·
deviations in and volatility of the market prices of both crude oil and natural gas;
 
 
·
the timing, effects and success of our acquisitions, dispositions and exploration and development activities;
 
 
·
uncertainties in the estimation of proved reserves and in the projection of future rates of production;
 
 
·
timing, amount, and marketability of production;
 
 
·
third party curtailment, processing plant or pipeline capacity constraints beyond our control;
 
 
·
our ability to find, acquire, market, develop and produce new properties;
 
 
·
effectiveness of management strategies and decisions;
 
 
·
the strength and financial resources of our competitors;
 
 
·
climatic conditions;
 
 
·
changes in the legal and/or regulatory environment and/or changes in accounting standards policies and practices or related interpretations by auditors or regulatory entities; and
 
 
·
unanticipated recovery or production problems, including cratering, explosions, fires and uncontrollable flows of oil, gas or well fluids.
 
Many of these factors are beyond our ability to control or predict. Neither these factors nor those included in the “Risk Factors” section of this Registration Statement are not to represent a complete list of the factors that may affect us.
 
3
 
FINANCIAL AND EXCHANGE RATE DATA
 
We publish our consolidated financial statements in Australian dollars. In this Registration Statement, unless otherwise specified, all dollar amounts are expressed in Australian dollars, and references to “dollars,” “$” or “A$” are to Australian dollars. All references to “US$” are to United States dollars.
 
The following table sets forth certain exchange rates based on the noon buying rate of The City of New York for cable transfers in Australian dollars as certified for customs purposes by the Federal Reserve Bank of New York, the noon buying rate. These rates are set forth as United States dollars per AUD$1.00. On June 19, 2007, the noon buying rate was US$0.8460   per A$1.00.
 
Year Ended
 
Average(1)
 
High
 
Low
 
Period
End
 
June 30, 2006
   
0.748
   
0.777
   
0.706
   
0.742
 
June 30, 2005
   
0.753
   
0.797
   
0.688
   
0.762
 
June 30, 2004
   
0.713
   
0.798
   
0.639
   
0.695
 
June 30, 2003
   
0.584
   
0.671
   
0.528
   
0.673
 
June 30, 2002
   
0.526
   
0.575
   
0.484
   
0.563
 
 
(1)
The average of the exchange rates on the last day of each month during the applicable period.
 
The following table sets forth certain exchange rates based on the noon buying rate of The City of New York for cable transfers in Australian dollars as certified for customs purposes by the Federal Reserve Bank of New York, the noon buying rate. These rates are set forth as United States dollars per AUD$1.00.
 
Month Ended
 
Average(1)
 
High
 
Low
 
Period
End
 
May 31, 2007
   
0.826
   
0.835
   
0.820
   
0.821
 
April 30, 2007
   
0.827
   
0.837
   
0.813
   
0.832
 
March 31, 2007
   
0.793
   
0.810
   
0.772
   
0.810
 
February 28, 2007
   
0.783
   
0.793
   
0.772
   
0.789
 
January 31, 2007
   
0.783
   
0.796
   
0.772
   
0.774
 
December 31, 2006
   
0.786
   
0.791
   
0.779
   
0.788
 
 
4
 
 
Item 1.   Identity of Directors, Senior Management and Advisers
 
A.   Directors and senior management.
 
The names, positions and business addresses of our directors are as follows:
 
Name *
 
Title/Function
 
Business Address
Terence Barr
 
Managing Director
 
1726 Cole Blvd, Suite 210,
Lakewood, Colorado 80401
United States of America
         
Malcolm Burne
 
Non-Executive Director
 
2nd Floor, Manfield House
1 Southampton Street
London WC2R OLR
United Kingdom
         
David Cairns
 
Non-Executive Director
 
Level 4, BCG Centre
28 The Esplanade
Perth WA 6000
Australia
         
Neil MacLachlan
 
Non-Executive Director
 
8 Angel Court
London EC2R 7HP
United Kingdom
         
Victor Rudenno
 
Non-Executive Director
 
Level 2, Johnson's Building
225 George Street
Sydney, NSW 2000
Australia
         
Neil Fearis
 
Alternate Director
 
Level 49, Central Park
152-158 St Georges Terrace
Perth WA 6000
Australia

Our senior managers are as follows:

Name
 
Title/Function
 
Location
         
Terence Barr
 
Managing Director, President,
Chief Executive Officer
 
United States
         
Robyn Lamont
 
Chief Financial Officer
 
United States
         
Jeffrey Rhodes
 
Vice President, Engineering
 
United States
         
Denis Rakich
 
Company Secretary
 
Australia
         
The business address of our Australian office is Level 36, 2 The Esplanade, Perth Western Australia 6000 and the business address of our United States office is 1726 Cole Blvd, Suite 210, Lakewood, Colorado 80401.
 
5
 
B.   Advisers .
 
Our transfer agent and registrar of our Ordinary Shares is Security Transfer Registrars Pty Ltd., 770 Canning Highway, Applecross, Western Australia 6953.
 
Our United States legal advisors are Davis Graham & Stubbs LLP, 1550 Seventeenth Street, Suite 500, Denver, Colorado USA 80202.
 
Our Australian legal advisors are Minter Ellison, 152 St. Georges Terrace, Perth, Western Australia 6000.
 
C.   Auditors .
 
Our auditors are Ernst & Young, an independent registered public accounting firm, located at 11 Mounts Bay Road, Perth, Western Australia, 6000.
 
Item 2.   Offer Statistics and Expected Timetable
 
A.   Offer statistics.
 
Not applicable.
 
B.   Method and expected timetable.
 
Not applicable.
 
Item 3.   Key Information
 
A.   Selected financial data.
 
The selected financial data presented below is for the six months ended December 31, 2006 and 2005 and the years ended June 30, 2006 and 2005. The information for the six months ended December 31, 2006 and 2005 and for the years ended June 30, 2006 and 2005 is derived from our unaudited consolidated financial statements and audited consolidated financial statements, respectively, and notes thereto included in this Registration Statement.

Operating results for the six months ended December 31, 2006 are not necessarily indicative of the results that may be expected for the entire year ending June 30, 2007. The data should be read in conjunction with the consolidated financial statements included elsewhere in this registration statement.
 
The unaudited consolidated financials include all adjustments, consisting of normal recurring accruals, which the Company considers necessary for a fair presentation of the financial position and results of the operations for these periods.
 
Information prepared in accordance with Australian equivalents to
International Financial Reporting Standards.
 
   
Six months ended December 31, 2006
(unaudited)
A$
 
Six months ended December 31, 2005
(unaudited)
A$
 
Year ended
June 30, 2006
A$
 
Year ended
June 30, 2005
A$
 
Total Revenue  
   
6,447,055
   
1,887,332
   
5,785,210
   
1,266,975
 
(Loss)/Profit Attributable to members at the parent
   
(6,733,113
)
 
(1,717,692
)
 
(25,432,173
)
 
(791,233
)  
(Loss)/earnings per Share (cents) - Basic
   
(3.50
)
 
(2.12
)
 
(24.43
)
 
(1.82
)
(Loss)/earnings per Share (cents) - Diluted
   
(3.50
)
 
(2.12
)
 
(24.43
)
 
(1.82
)
Total Assets
   
62,909,664
   
41,792,655
   
77,861,552
   
29,904,614
 
Net Assets
   
37,269,029
   
39,996,740
   
47,985,306
   
28,314,145
 
Long Term Debt
   
22,549,423
   
-
   
24,509,728
   
521,866
 
Contributed Equity
   
69,347,606
   
39,921,696
   
69,366,304
   
25,223,584
 
Number of Shares
   
192,198,833
   
114,387,796
   
190,559,111
   
70,694,221
 
Dividends
   
-
   
-
   
-
   
-
 
 
6
 
Additional Information
 
During the year ended June 30, 2005, we acquired a controlling interest in Kestrel Energy Inc, a corporation organized under the laws of the State of Colorado (“Kestrel”). The results of that year include the results of this operation for the five months that it was controlled by the Company, being February - June 2005.  As part of our change in business strategy following the acquisition of Kestrel, from a primary focus on investment in resources companies to active oil and gas exploration, production, development in the United States, we monetized a significant portion of our investment portfolio, which also contributed to profit recorded for 2005. In May 2006, the Company acquired a non-operated working interest in certain production assets in the Jonah and Look Out Wash Fields in Wyoming from Stanley Energy Inc. This acquisition has contributed in part to the increase in revenue for the Company during the half year ended December 31, 2006.
 
Information prepared in accordance with US GAAP
 
The Company prepares its consolidated financial statements in accordance with Australian equivalents to International Financial Reporting Standards (“AIFRS”), which differ in certain significant respects from U.S. GAAP. A description of the significant differences and reconciliations of net (loss)/profit and shareholders’ equity for the periods and as of the dates therein indicated are set forth in Note 33 to the Company’s consolidated financial statements included herein.
 
This table also includes information relating to Kestrel Energy Inc., a predecessor to the Company. Control of Kestrel was gained in February 2005, and its results have been included in the Company’s results from February 1, 2005.
 
   
Six months ended December 31, 2006
(unaudited)
A$
 
Six months ended December 31, 2005
(unaudited)
A$
 
Year ended
June 30,
2006
A$
 
Year ended June 30
2005
A$
 
  Predecessor Information Kestrel Energy (from July 1, 2004 to January 31, 2005)
A$
 
Total Revenue
   
6,447,055
   
1,887,332
   
5,785,210
   
1,266,975
     
1,829,572
 
(Loss)/Profit Attributable to members at the parent
   
(2,492,837
)
 
(1,717,692
)
 
(10,747,720
)
 
(1,784,475
)
   
487,368
 
(Loss)/earnings per Share (cents) - Basic
   
(1.30
)
 
(2.12
)
 
(10.23
)
 
(4.12
)
   
4.8
 
(Loss)/earnings per Share (cents) - Diluted
   
(1.30
)
 
(2.12
)
 
(10.23
)
 
(4.12
)
   
4.8
 
Total Assets
   
78,918,366
   
34,714,310
   
89,231,886
   
23,200,850
     
(i)
 
Net Assets
   
53,277,731
   
32,918,395
   
59,665,641
   
21,610,381
     
(i)
 
Long Term Debt
   
22,549,423
   
-
   
24,509,728
   
521,866
     
(i)
 
Contributed Equity
   
69,347,606
   
39,921,696
   
69,366,304
   
25,223,584
     
(i)
 
Number of Shares
   
192,198,833
   
114,387,796
   
190,559,111
   
70,694,221
     
10,233,500
 
Dividends
   
-
   
-
   
-
   
-
     
-
 

(i) Audited financial information for Kestrel, included elsewhere in the Registration Statement is limited to an Income Statement and Statement of Cashflows for the period from July 1, 2004 to January 31, 2005 as the financial position of Kestrel Energy Inc is included in the Company’s June 30, 2005 Balance Sheet.
 
7
 
B.   Capitalization and indebtedness.
 
The following table sets forth our capitalization and indebtedness at May 31, 2007 in Australian Dollars and is qualified by reference to, and should be read in conjunction with, our consolidated financial statements and related notes.
 
   
As of
May 31, 2007
A$
 
   
unaudited
 
Indebtedness
     
Secured interest bearing liabilities  
   
24,402,147
 
Total Indebtedness
   
24,402,147
 
         
Shareholders’ equity
       
Share capital  
   
69,273,258
 
Reserves  
   
167,729
 
Accumulated Losses  
   
(32,276,966
)
Net shareholders’ equity
   
37,164,021
 

C.   Reasons for the offer and use of proceeds.
 
Not applicable.
 
D.   Risk factors.
 
An investment in our securities involves a high degree of risk. You should carefully read and consider the risks described below before deciding to invest in our securities. The occurrence of any of the following risks could materially harm our business, financial condition, results of operations or cash flows. In any such case, the trading price of our securities could decline, and you could lose all or part of your investment. When determining whether to invest in our securities, you should also refer to the other information contained in this Registration Statement on Form 20-F, including our consolidated financial statements and the related notes.
 
Risks Related To Our Business and Industry.
 
Oil and natural gas prices are volatile, and a decrease could adversely affect our revenues, cash flows and profitability.
 
Our revenues, profitability and future rate of growth depend substantially upon the market prices of oil and natural gas, which fluctuate widely. Sustained declines in oil and gas prices may adversely affect our financial condition, liquidity and results of operations. Factors that can cause market prices of oil and natural gas to fluctuate include:
 
·
market uncertainty;
     
·
the level of consumer product demand;
     
·
weather conditions;
     
·
U.S. and foreign governmental regulations;
     
·
the price and availability of alternative fuels;
     
·
political and economic conditions in oil producing countries, particularly those in the Middle East, including actions by the Organization of Petroleum Exporting Countries;
     
·
the foreign supply of oil and natural gas; and
     
·
the price of oil and gas imports, consumer preferences and overall U.S. and foreign economic conditions.
 
8
 
We are not able to predict future oil and gas prices. At various times, excess domestic and imported supplies have depressed oil and gas prices. Lower prices may reduce the amount of oil and natural gas that we can produce economically and may also require us to write down the carrying value of our oil and gas properties. Additionally, the location of our producing wells may limit our ability to take advantage of spikes in regional demand and resulting increases in price.
 
Lower oil and natural gas prices may not only decrease our revenues, but also may reduce the amount of oil and natural gas that we can produce economically. This may result in our having to make substantial downward adjustments to our estimated proved reserves. If this occurs, or if our estimates of development costs increase, our production data factors change or our exploration results do not meet expectations, accounting rules may require us to write down the carrying value of our oil and natural gas properties to fair value, as a non-cash charge to earnings. Australian accounting standards require us to assess impairment of capitalized costs of proved oil and gas properties by comparing net capitalized costs to estimated discounted future net cash flows on a field-by-field basis, using estimated production based upon prices at which management reasonably estimates such products to be sold. If net capitalized costs exceed discounted future net cash flows, the measurement of impairment is based on estimated fair value, which would consider future discounted cash flows. We may incur impairment charges in the future, which charges could have a material adverse effect on our results of operations.
 
Reserve estimates are imprecise and subject to revision.
 
Estimates of oil and natural gas reserves are projections based on available geologic, geophysical, production and engineering data. There are uncertainties inherent in the manner of producing and the interpretation of this data as well as in the projection of future rates of production and the timing of development expenditures. Estimates of economically recoverable oil and natural gas reserves and future net cash flows necessarily depend upon a number of factors including:
 
·
the quality and quantity of available data;
     
·
the interpretation of that data;
     
·
the accuracy of various mandated economic assumptions; and
     
·
the judgment of the engineers preparing the estimate.

Actual future production, natural gas and oil prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable natural gas and oil reserves will probably vary from our estimates. Any significant variance could materially affect the quantities and present value of our reserves. In addition, we may in the future adjust our estimates of proved reserves to reflect production history, results of exploration and development and prevailing gas and oil prices. Our reserves may also be susceptible to drainage by operators on adjacent properties.
 
Investors should not construe the present value of future net cash flows as the current market value of the estimated oil and natural gas reserves attributable to our properties. The estimated discounted future net cash flows from proved reserves are based on prices and costs as of the date of the estimate, in accordance with applicable regulations, whereas actual future prices and costs may be materially higher or lower. Factors that will affect actual future net cash flows include:
 
·
the amount and timing of actual production;
     
·
the price for which that oil and gas production can be sold;
     
·
supply and demand for oil and natural gas;
     
·
curtailments or increases in consumption by natural gas and oil purchasers; and
     
·
changes in government regulations or taxation.
 
9
 
As a result of these and other factors, we will be required to periodically reassess the amount of our reserves, which may require us to recognize a ceiling write-down of our oil and gas properties.
 
We depend on successful exploration, development and acquisitions to maintain reserves and revenue in the future.
 
In general, the volume of production from natural gas and oil properties declines as reserves are depleted, with the rate of decline depending on reservoir characteristics. Our reserves will decline significantly as they are produced unless we acquire properties with proved reserves or conduct successful development and exploration drilling activities. Our future oil and natural gas production is highly dependent upon our level of success in finding or acquiring additional reserves that are economically feasible and developing existing proved reserves.
 
To the extent that cash flow from operations is reduced and external sources of capital become limited or unavailable, our ability to make the necessary capital investment to maintain or expand our asset base of natural gas and oil reserves would be impaired.
 
A substantial part of our producing properties are located in the Rocky Mountains, making us vulnerable to risks associated with operating in one major geographic area.
 
Our operations are currently focused on the Rocky Mountain region, which means our producing properties and new drilling opportunities are geographically concentrated in that area. As a result, success of our operations and our profitability may be disproportionately exposed to the impact of delays or interruptions of production from existing or planned new wells by significant governmental regulation, transportation capacity constraints, curtailment of production, interruption of transportation, or fluctuations in prices of oil and natural gas produced from the wells in the region.
 
The exploration, development and operation of oil and gas properties involve substantial risks that may result in a total loss of investment.
 
The business of exploring for and, to a lesser extent, developing and operating oil and gas properties involves a high degree of business and financial risk, and thus a substantial risk of investment loss that even a combination of experience, knowledge and careful evaluation may not be able to overcome. Oil and gas drilling and production activities may be shortened, delayed or canceled as a result of a variety of factors, many of which are beyond our control. These factors include:
 
·
unexpected drilling conditions;
     
·
pressure or irregularities in formations;
     
·
equipment failures or accidents;
     
·
adverse changes in prices;
     
·
weather conditions;
     
·
shortages in experienced labor; and
     
·
shortages or delays in the delivery of equipment.

The cost to develop our proved reserves as of September 1, 2006 is estimated to be approximately US$11,420,608. We may drill wells that are unproductive or, although productive, do not produce oil and/or natural gas in economic quantities. Acquisition and completion decisions generally are based on subjective judgments and assumptions that are speculative. It is impossible to predict with certainty the production potential of a particular property or well. Furthermore, a successful completion of a well does not ensure a profitable return on the investment. A variety of geological, operational, or market-related factors, including, but not limited to, unusual or unexpected geological formations, pressures, equipment failures or accidents, fires, explosions, blowouts, cratering, pollution and other environmental risks, shortages or delays in the viability of drilling rigs and the delivery of equipment, loss of circulation of drilling fluids or other conditions may substantially delay or prevent completion of any well or otherwise prevent a property or well from being profitable. A productive well may become uneconomic in the event water or other deleterious substances are encountered which impair or prevent the production of oil and/or natural gas from the well. In addition, production from any well may be unmarketable if it is contaminated with water or other deleterious substances.
 
10
 
Our industry experiences numerous operating hazards that could result in substantial losses.
 
The exploration, development and operation of oil and gas properties involve a variety of operating risks including the risk of fire, explosions, blowouts, cratering, pipe failure, abnormally pressured formations, natural disasters, acts of terrorism or vandalism, and environmental hazards, including oil spills, gas leaks, pipeline ruptures or discharges of toxic gases. These industry-operating risks can result in injury or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, clean-up responsibilities, regulatory investigation and penalties, and suspension of operations, any of which could result in substantial losses.
 
We maintain insurance against some, but not all, of the risks described above. Such insurance may not be adequate to cover losses or liabilities. Also, we cannot predict the continued availability of insurance at premium levels that justify its purchase. The terrorist attacks on September 11, 2001 and certain potential natural disasters may change our ability to obtain adequate insurance coverage. The occurrence of a significant event that is not fully insured or indemnified against could materially and adversely affect our financial condition and operations.
 
Competition in the oil and natural gas industry is intense, which may adversely affect our ability to succeed.
 
The oil and natural gas industry is intensely competitive, and we compete with other companies that are significantly larger and have greater resources. Many of these companies not only explore for and produce oil and natural gas, but also carry on refining operations and market petroleum and other products on a regional, national or worldwide basis. These companies may be able to pay more for productive oil and natural gas properties and exploratory prospects or define, evaluate, bid for and purchase a greater number of properties and prospects than our financial or human resources permit. In addition, these companies may have a greater ability to continue exploration activities during periods of low oil and natural gas market prices. Our larger competitors may be able to absorb the burden of present and future federal, state, local and other laws and regulations more easily than we can. Our ability to acquire additional properties and to discover reserves in the future will be dependent upon our ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment.
 
The marketability of our production depends mostly upon the availability, proximity and capacity of gas gathering systems, pipelines and processing facilities, which are owned by third parties.
 
The marketability of our production depends upon the availability, operation and capacity of gas gathering systems, pipelines and processing facilities, which are owned by third parties. The unavailability or lack of capacity of these systems and facilities could result in the shut-in of producing wells or the delay or discontinuance of development plans for properties. United States federal, state and foreign regulation of oil and gas production and transportation, tax and energy policies, damage to or destruction of pipelines, general economic conditions and changes in supply and demand could adversely affect our ability to produce and market oil and natural gas. If market factors changed dramatically, the financial impact on us could be substantial.
 
11
 
We are subject to complex federal, state, local and other laws and regulations that could adversely affect the cost, manner or feasibility of doing business.
 
Our exploration, development, and production operations are regulated extensively at the federal, state and local levels. Environmental and other governmental laws and regulations have increased the costs to plan, design, drill, install, operate and abandon oil and natural gas wells. Under these laws and regulations, we could also be liable for personal injuries, property damage and other damages. Failure to comply with these laws and regulations may result in the suspension or termination of operations and subject us to administrative, civil and criminal penalties. Moreover, public interest in environmental protection has increased in recent years, and environmental organizations have opposed, with some success, certain drilling projects.
 
The environmental laws and regulations to which we are subject may:
 
·
require applying for and receiving a permit before drilling commences;
     
·
restrict the types, quantities and concentration of substances that can be released into the environment in connection with drilling and production activities;
     
·
limit or prohibit drilling activities on certain lands lying within wilderness, wetlands, and other protected areas; and
     
·
impose substantial liabilities for pollution resulting from our operations.

Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent or costly waste handling, storage, transport, disposal or cleanup requirements could require us to make significant expenditures to maintain compliance, and may otherwise have a material adverse effect on our earnings, results of operations, competitive position or financial condition. Over the years, we have owned or leased numerous properties for oil and gas activities upon which petroleum hydrocarbons or other materials may have been released by us or by predecessor property owners or lessees who were not under our control. Under applicable environmental laws and regulations, including CERCLA, RCRA and analogous state laws, we could be held strictly liable for the removal or remediation of previously released materials or property contamination at such locations regardless of whether we were responsible for the release of or if our operations were standard in the industry at the time they were performed.
 
We depend on key personnel.
 
The loss of key members of our management team, or difficulty attracting and retaining experienced technical personnel, could reduce our competitiveness and prospects for future success. Our success depends on the continued services of our executive officers and a limited number of other senior management and technical personnel. Loss of the services of any of these people could have a material adverse effect on our operations. Our exploratory drilling success and the success of other activities integral to our operations will depend, in part, on our ability to attract and retain experienced explorationists, engineers and other professionals. Competition for experienced these and other professionals is extremely intense. If we cannot retain our technical personnel or attract additional experienced technical personnel, our ability to compete could be harmed.
 
12
 
Risks Related to Our Ordinary Shares.
 
The price of our Ordinary Shares may be volatile.
 
There is currently no market in the United States for our Ordinary Shares, and there can be no assurance that any market will develop. In the event that a U.S. market for our Ordinary Shares does develop, the market price of our shares, like that of the shares of many other natural resource companies, will likely be volatile. Results of exploration activities, the price of oil and natural gas, future operating results, market conditions for natural resource shares in general, and other factors beyond our control, could have a significant, adverse impact on the market price of our Ordinary Shares.
 
We do not expect to pay dividends in the foreseeable future. As a result, holders of our Ordinary Shares must rely on appreciation for any return on their investment.
 
We do not anticipate paying cash dividends on our Ordinary Shares in the foreseeable future. Accordingly, holders of our Ordinary Shares will have to rely on capital appreciation, if any, to earn a return on their investment in our Ordinary Shares. Furthermore, we are subject to contractual restrictions on, the payment of dividends under the terms of our US$21 million credit facility with Macquarie Bank Limited.
 
You may have difficulty in effecting service of legal process and enforcing judgments against us and our management.
 
We are a public company limited by shares, registered and operating under the Australian Corporations Act 2001. Substantially all of our directors named in this Registration Statement reside outside the U.S. Substantially all or a substantial portion of the assets of those persons are located outside the U.S. As a result, it may not be possible to effect service on such persons in the U.S. or to enforce, in foreign courts, judgments against such persons obtained in U.S. courts and predicated on the civil liability provisions of the federal securities laws of the U.S. There is doubt as to the enforceability in the Commonwealth of Australia, in original actions or in actions for enforcement of judgments of U.S. courts, of civil liabilities predicated solely upon federal or state securities laws of the U.S., especially in the case of enforcement of judgments of U.S. courts where the defendant has not been properly served in Australia.
 
As a foreign private issuer, we are not required to provide you with the same information as an issuer of securities organized in the United States, therefore, you may not be afforded the same protections or information you would have if you invested in a United States public corporation.
 
Because we qualify as a foreign private issuer under the Securities Exchange Act of 1934, as amended, commonly referred to as the Exchange Act, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. public companies, including (i) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current reports on Form 8-K; (ii) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; and (iii) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time.
 
In accordance with the rules of Australian Stock Exchange and Corporations Act 2001, we disclose annual and semi-annual results. Our results are presented in accordance with Australian International Financial Reporting Standards. With respect to our financial reporting requirements in Australia, our annual financial statements are audited, and our semi-annual financial statements undergo a review by our independent auditors. This information, which may have an effect on the stock price of our Ordinary Shares on the Australian Stock Exchange, will also be disclosed immediately in the public media and to the Australian Stock Exchange. Other relevant information pertaining to us will also be disclosed as required by the regulations of the Australian Stock Exchange and information dissemination requirements for listed companies. We will provide our semi-annual results and other material information that we make public in Australia in the U.S. under the cover of SEC Form 6-K. Nevertheless, you may not be afforded the same protections or information, which would be made available to you, were you investing in a United States public corporation because the Form 10-Q and Form 8-K requirements are not applicable to us. We will, however, be required to file an annual report on Form 20-F within six months of the end of each fiscal year.
 
13
 
Risks Related to the ADRs.
 
Currency fluctuations may adversely affect the price of the ADSs relative to the price of our Ordinary Shares.
 
The price of our Ordinary Shares is quoted in Australian dollars and the price of our ADSs is quoted in U.S. dollars. Movements in the Australian dollar/U.S. dollar exchange rate may adversely affect the U.S. dollar price of our ADSs and the U.S. dollar equivalent of the price of our Ordinary Shares. In the last two years, the Australian dollar has as a general trend appreciated against the U.S. dollar. Any continuation of this trend may positively affect the U.S. dollar price of our ADSs and the U.S. dollar equivalent of the price of our Ordinary Shares, even if the price of our Ordinary Shares in Australian dollars increases or remains unchanged. However, this trend may not continue and may be reversed. If the Australian dollar weakens against the U.S. dollar, the U.S. dollar price of the ADSs could decline, even if the price of our Ordinary Shares in Australian dollars increases or remains unchanged. If dividends are payable, we will likely calculate and pay any cash dividends in Australian dollars and, as a result, exchange rate movements will affect the U.S. dollar amount of any dividends holders of our ADSs will receive from the depositary (as defined below in “Item 12. Description of Securities Other Than Equity Securities - D. American Depositary Shares”). As previously noted, in the last two years, the Australian dollar has as a general trend appreciated against the U.S. dollar. Any continuation of this trend may positively affect the U.S. dollar value of our dividends. However, this trend may not continue and may be reversed. A reversal of this trend may result in a decrease in the U.S. dollar value of our dividends.
 
We may become a passive foreign investment company, or a PFIC, for U.S. federal income tax purposes, which could result in negative tax consequences to the holders of our Ordinary Shares or ADSs.
 
Potential investors in our Ordinary Shares or ADSs should consider that we could be considered to be a “passive foreign investment company” (“PFIC”) for U.S. federal income tax purposes. Although we believe that we will not be a PFIC for 2007 and do not expect to become a PFIC in the foreseeable future, the tests for determining PFIC status depend upon a number of factors. Some of these factors are beyond our control, and we cannot assure you that we will not be a PFIC.
 
If we are a PFIC for any year, any holder of our Ordinary Shares or ADSs who is a U.S. Holder (as that term is defined under the heading “Item 10. Additional Information - E. Taxation - U.S. Taxation.”) and whose holding period for those Ordinary Shares or ADSs includes any portion of a year in which we are a PFIC generally will be subject to a special adverse tax regime imposed on “excess distributions” of a PFIC, whether or not we are a PFIC in the year an excess distribution is made or received. Excess distributions include certain distributions received on shares in a PFIC in a taxable year. Gain recognized by a U.S. Holder on a sale or other transfer of Ordinary Shares or ADSs (including certain transfers that would otherwise be tax free) will also generally be taxed as an excess distribution. Excess distributions are generally taxed at ordinary income rates and are subject to a nondeductible interest charge. Additional adverse rules may apply.
 
14
 
In certain cases, elections may be made to mitigate the adverse tax rules that apply to PFICs (the so-called “mark-to-market" and “qualifying electing fund” elections), but these elections may or may not be available, may accelerate the recognition of taxable income, and may result in the recognition of ordinary income. Additional adverse rules will apply to U.S. Holders of our Ordinary Shares or ADSs for any year in which we are a PFIC and own or dispose of shares in another corporation that is itself a PFIC.
 
For a further discussion of the U.S. federal income tax consequences of investing in a PFIC, see the discussion below under the heading “Item 10. Additional Information - E. Taxation - U.S. Taxation.”
 
We have never paid a dividend and we do not intend to pay dividends in the foreseeable future which means that holders of ADSs may not receive any return on their investment from dividends.
 
To date, we have not declared or paid any cash dividends on our Ordinary Shares and currently intend to retain any future earnings for funding growth. We do not anticipate paying any dividends in the foreseeable future. Dividends may only be paid out of our profits. Payment of cash dividends, if any, in the future will be at the discretion of our board of directors or, if our directors do not exercise their power to issue dividends, our shareholders in a general meeting may. See “Item 10. Additional Information - B. Constitution - Dividends.” Our holders of shares and ADSs may not receive any return on their investment from dividends.
 
Our ADR holders are not shareholders and do not have shareholder rights.
 
The Bank of New York, as depositary, executes and delivers our American Depositary Receipts, or ADRs, on our behalf. Each ADR is a certificate evidencing a specific number of American Depositary Shares, also referred to as ADSs. Our ADR holders will not be treated as shareholders and do not have the rights of shareholders. The depositary will be the holder of the shares underlying our ADRs. Holders of our ADRs will have ADR holder rights. A deposit agreement among us, the depositary and our ADR holders, and the beneficial owners of ADRs, sets out ADR holder rights as well as the rights and obligations of the depositary. New York law governs the deposit agreement and the ADRs. For a description of ADR holder rights, see “Item 12. Description of Securities Other Than Equity Securities - D. American Depositary Shares.” Our shareholders have shareholder rights. Australian law and our constitution governs shareholder rights. For a description of our shareholders’ rights, see “Item 10. Additional Information - A. Description of Share Capital” and “Item 10. Additional Information - B. Constitution.”
 
Our ADR holders do not have the same voting rights as our shareholders. Shareholders are entitled to our notices of general meetings and to attend and vote at our general meetings of shareholders. At a general meeting, every shareholder present (in person or by proxy, attorney or representative) and entitled to vote has one vote on a show of hands. Every shareholder present (in person or by proxy, attorney or representative) and entitled to vote has one vote per fully paid Ordinary Share on a poll. This is subject to any other rights or restrictions that may be attached to any shares. Our ADR holders may instruct the depositary to vote the Ordinary Shares underlying their ADRs, but only if we ask the depositary to ask for their instructions. If we do not ask the depository to ask for the instructions, our ADR holders are not entitled to receive our notices of general meeting or to instruct the depositary how to vote. Our ADR holders will not be entitled to attend and vote at a general meeting unless they withdraw the Ordinary Shares. Moreover, our ADR holders may not know about the meeting enough in advance to withdraw the shares. If we do ask for our ADR holders’ instructions, the depositary will notify our ADR holders of the upcoming vote and arrange to deliver our voting materials and form of notice to them. The depositary will try, as far as practical, subject to Australian law and the provisions of the depositary agreement, to vote the shares as our ADR holders instruct. The depositary will not vote or attempt to exercise the right to vote other than in accordance with the instructions of the ADR holders. We cannot assure our ADR holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their shares. In addition, there may be other circumstances in which our ADR holders may not be able to exercise voting rights. See the risk factor “Our holders of ADRs may not be able to exercise voting rights and there may be nothing they can do if their shares are not voted as they requested” in this “Item 3. Key Information - D. Risk Factors.”
 
15
 
Our ADR holders do not have the same rights to receive dividends or other distributions as our shareholders. Subject to any special rights or restrictions attached to a share, the directors may determine that a dividend will be payable on a share and fix the amount, the time for payment and the method for payment (although we have never declared or paid any cash dividends on our ordinary stock and we do not anticipate paying any cash dividends in the foreseeable future). Dividends may be paid on shares of one class but not another and at different rates for different classes. Dividends and other distributions payable to our shareholders with respect to our Ordinary Shares generally will be payable directly to them. Any dividends or distributions payable with respect to Ordinary Shares will be paid to the depositary, which has agreed to pay to our ADR holders the cash dividends or other distributions it or the custodian receives on shares or other deposited securities, after deducting its fees and expenses. Our ADR holders will receive these distributions in proportion to the number of shares their ADSs represent. In addition, there may be certain circumstances in which the depositary may not pay to our ADR holders amounts distributed by us as a dividend or distribution. See the risk factor “There are circumstances where it may be unlawful or impractical to make distributions to the holders of our ADRs” in this “Item 3. Key Information - D. Risk Factors.”
 
Our holders of ADRs may not be able to exercise voting rights and there may be nothing they can do if their shares are not voted as they requested.
 
Our ADR holders may instruct the depositary to vote the Ordinary Shares underlying their ADRs, but only if we ask the depositary to ask for their instructions. We may not be required to instruct the depository to ask for the voting instructions of our ADR holders and we may not do so voluntarily. If we do not ask for the voting instructions of our ADR holders, our ADR holders will not be able to exercise their right to vote unless they withdraw their Ordinary Shares. However, our ADR holders may not know about the meeting enough in advance to withdraw the Ordinary Shares or they may be unable to withdraw their Ordinary Shares at that time because of temporary delays in the withdrawal of shares that may arise from time to time (for example, if the holder owes fees, taxes or similar charges, or if it is necessary to prohibit the withdrawal of shares in order to comply with any laws or governmental regulations). Furthermore, although the depositary will not vote or attempt to exercise the right to vote other than in accordance with the instructions of the ADR holders, if we do ask for instructions on how the ADRs wish to vote, we cannot assure our ADR holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that there is a risk that our ADR holders may not be able to exercise voting rights and there may be nothing they can do if their shares are not voted as they requested.
 
There are circumstances where it may be unlawful or impractical to make distributions to the holders of our ADRs.
 
The deposit agreement with the depositary allows the depositary to distribute the foreign currency only to those ADR holders to whom it is possible to do so. If a distribution is payable by us in Australian dollars, the depositary will hold the foreign currency it cannot convert for the account of the ADR holders who have not been paid. It will not invest the foreign currency and it will not be liable for any interest. If the exchange rates fluctuate during a time when the depositary cannot convert the foreign currency, our ADR holders may lose some of the value of the distribution.
 
16
 
The depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any ADR holders. This means that our ADR holders may not receive the distributions we make on our shares or any value for them if it is illegal or impractical for us to make them available to them.
 
Item 4.   Information on the Company
 
A.   History and development of the Company.
 
Samson Oil & Gas Limited (“Samson” or the “Company”) is a company limited by shares, incorporated under the laws of Australia. Our registered office is located at Level 36, Exchange Plaza, 2 The Esplanade, Perth, Western Australia 6000 and our telephone number at that office is 618-9220-9830. Our principal office in the United States is located at 1726 Cole Blvd, Suite 210, Lakewood, Colorado 80401 and our telephone number at that office is 303-295-0344. Our web site is http://www.samsonoilandgas.com.
 
The Company was initially listed on the Australian Stock Exchange on April 17, 1980 using the name “Samson Exploration NL”. On January 12, 2005 it changed its name to Samson Oil and Gas NL. On February 10, 2006, it changed its name again to Samson Oil and Gas Limited.
 
Acquisition of Kestrel Energy Inc.
 
In early 2005, Samson entered the United States oil and gas market by the acquisition of a control position in Kestrel Energy Inc., a Colorado corporation (“Kestrel”), and increased its holdings from 78.8% of Kestrel’s outstanding shares at June 30, 2005 to 93.7% at June 30, 2006. Kestrel’s assets were composed of approximately 20,000 acres in the Green River Basin in Wyoming, including projects in the Baxter Shale, Greens Canyon, Stage Coach East, Browns Ranch and Firehole Canyon. On July 14, 2006, Kestrel filed a Plan of Merger with the Secretary of State in Colorado, which filing had the effect of cancelling all remaining Kestrel shares and granting to its shareholders the right to receive US$142 per share (based on 125% of the average market price for Kestrel shares traded prior to the share consolidation). Following the cancellation of these shares, Kestrel became a 100% owned subsidiary of Samson. Kestrel was subsequently merged with and into Samson's other wholly-owned subsidiary, Samson Oil and Gas USA, Inc., a Colorado corporation, effective March 5, 2007.
 
The Kestrel acquisition signaled a change in our business strategy, whereupon we moved from holding investments in resources companies to active oil and gas exploration, production and development in the United States.
 
The acquisition of Kestrel Energy Inc, was deemed to be the acquisition of a predecessor company. Audited financial information for the predecessor company can be found in Note 33 of our consolidated audited financial statements included herein.
 
Other Significant Property Acquisitions
 
On May 29, 2006, Samson Oil and Gas USA, Inc., a 100% owned subsidiary of Samson, completed the acquisition of two producing assets located in the Green River Basin in Wyoming. The assets comprise a 21% equity interest in the 250 acre crestal portion of the Jonah Field and 16.6% of the gross acreage for 12,500 acres in the Look Out Wash Field.
 
17
 
The acquisition was funded through a convertible loan facility agreement with Macquarie Bank Limited for US$21 million and share placements totaling 72,433,636 shares at a price of A$0.42 each to raise A$30.4 million before costs. The placements provided funding for the balance of the acquisition cost as well as to provide additional development capital.
 
The following unaudited pro forma income statement for the year ended June 30, 2006 is based on our historical consolidated US GAAP financial statements for the year ended June 30, 2006 and the historical US GAAP statements of revenues and direct operating expenses of the Jonah and Look Out Wash operations’ for the period from July 1, 2005 to May 29, 2006, each included in this Registration Statement on Form 20-F, and adjusted to give effect to the May 29, 2006, acquisition of two producing assets in Jonah Field and Look Out Wash Field discussed in the preceding paragraph. The unaudited pro forma income statement gives effect to acquisition as if it had occurred at July 1, 2005. There can be no assurance that these statements are indicative of the Company's future financial performance.
 
US GAAP Pro Forma Income Statement

   
Samson Oil and Gas Limited (including US GAAP reconciling items
June 2006
 
Jonah and Look Out Wash Period from July 1, 2005 to May 29, 2006 (iv)
 
Pro Forma Adjustments
 
Year ended June 30, 2006 (iv)
 
Pro Forma
Combined
 
Year ended June 30, 2006
 
Continuing Operations
 
A$
 
A$
 
A$
 
A$
 
Revenue
                         
Sale of oil and gas
   
5,484,575
   
9,444,342
   
-
   
14,928,917
 
                                   
Total Revenue
   
5,484,575
   
9,444,342
   
-
   
14,928,917
 
                                     
Cost of Sales (i)
   
(5,864,916
)
 
(1,449,222
)
 
(1,989,132
)
 
(9,302,270
)
                           
Gross Profit
   
(380,341
)
 
7,995,120
 
 
(1,989,132
)
 
5,626,647
 
                           
Other Income
   
3,132,805
   
-
   
-
   
3,132,805
 
                           
                           
Exploration and evaluation expense
   
(5,244,288
)
 
-
         
(5,244,288
)
General and administrative expenses
   
(5,448,884
)
 
-
         
(5,448,884
)
Impairment expense
   
(2,400,762
)
 
-
         
(2,400,762
)
Finance costs (ii)
   
(599,614
)
 
-
   
(3,858,144
)
 
(4,457,758
)
                                       
(Loss)/Profit before income tax
   
(10,941,084
)
 
7,995,120
   
(5,846,037
)
 
(8,792,240
)
                           
Income tax expense (iii)
   
-
   
-
   
-
   
-
 
                           
(Loss)/Profit after tax from continuing operations
   
(10,941,084
)
 
7,995,120
   
(5,846,037
)
 
(8,792,240
)
                           
Loss/(Profit) attributable to minority interest
   
193,363
   
-
   
-
   
193,363
 
                                   
(Loss)/Profit attributable to members of the parent
   
(10,747,721
)
 
7,995,120
   
(5,846,037
)
 
(8,598,877
)
                           
Pro Forma Loss Per Share
                           
Loss attributable to members of the parent entity
         
8,598,877
 
           
Weighted average number of pro forma shares (v)
         
169,187,880
             
Basic loss per share - cents per share
         
(5.08
)
           
 
(i)
This adjustment is to charge depletion expense on the producing wells for the period from July 1, 2005 to May 29, 2006 and has been calculated using the units of production method based on hydrocarbons produced.
 
18
 
(ii)
Because the acquisition was partially funded with debt, this pro forma adjustment is to account for interest charged for the period from July 1, 2005 to May 29, 2006. The Company has used its effective interest rate of 21% for the purposes of this calculation.
 
 
The debt funding was provided by Macquarie Bank Limited. Please refer to Item 10. Additional Information - C. Material Contracts for additional information in relation to the terms and conditions of the credit facility.
 
(iii)
The Company has not recognized any income tax benefit because it has full valuation allowance.
 
(iv)
The Jonah and Look Out Wash; information and the Pro Forma Adjustments were denominated in USD’s and have been translated to AUD’s based on the average exchange rate for the period from July 1, 2005 to May 29, 2006 at 0.7483 (USD : AUD)
 
(v)
This acquisition was partly funded through the issue of equity securities. The weighted average number of pro forma shares has been adjusted to reflect the balance should those shares associated with this equity raising been issued on July 1, 2005.
 
Pro Forma Information regarding Proved Oil and Gas Reserves
 
The following information is presented in accordance with Statement of Financial Accounting Standards No. 69, “Disclosures about Oil and Gas Producing Activities” (“SFAS No. 69”) and was prepared by the Company. All reserves are located within the continental United States. This unaudited pro forma information regarding proved oil and gas reserves for the year ended June 30, 2005 gives effect to the acquisition as if it had occurred at July 1, 2005. There can be no assurance that the following information will be indicative of the Company’s future financial performance.

Estimated Proved Oil and Gas Reserves
 
Proved reserves are those quantities of hydrocarbons which, by analysis of geological and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under current economic conditions, operating methods and government regulations. Proved reserves can be categorized as developed or undeveloped.

Developed Reserves
 
Developed reserves are expected to be recovered from existing wells including reserves behind pipe. Improved recovery reserves are considered developed only after the necessary equipment has been installed, or when the costs to do so are relatively minor.

Undeveloped Reserves
 
Undeveloped reserves are expected to be recovered from new wells on undrilled acreage, from deepening existing wells to a different reservoir or where a relatively large expenditure is required to recomplete an existing well or install production or transportation facilities for primary or improved recovery projects.
 
19
Standardized Measure of Discounted Future Net Cash flows
 
Following is a Pro Forma Summary of proved hydrocarbon reserves:

   
For the period July 1, 2006 through:
 
 
 
Samson Historical
June 30, 2006 (i)
 
Acquisition of Jonah and Look Out Wash Operations
11 months ending May 29, 2006
 
Pro Forma
Combined
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2006
 
   
Oil - mBBLS
 
Gas - mmcf
 
Total - mmcfe
 
Oil - mBBLS
 
Gas - mmcf
 
Total - mmcfe
 
Oil - mBBLS
 
Gas - mmcfe
 
Total - mmcfe
 
Beginning of year
   
357
   
6,892
   
9,034
   
38
   
7,158
   
7,383
   
395
   
14,050
   
16,417
 
Revisions of previous quantity estimates
   
(63
)
 
(3,912
)
 
(4,290
)
 
-
   
765
   
765
   
(63
)
 
(3,147
)
 
(3,525
)
Extensions, discoveries and improved recovery
   
-
   
-
   
-
   
10
   
2,078
   
2,136
   
10
   
2,078
   
2,136
 
Production
   
(19
)
 
(426
)
 
(538
)
 
(6
)
 
(854
)
 
(885
)
 
(25
)
 
(1,280
)
 
(1,423
)
End of year
   
275
   
2,554
   
4,206
   
42
   
9,147
   
9,399
   
317
   
11,701
   
13,605
 
__________________
(i)   This represents the reserves of the Company, excluding the impact of the acquisition of Jonah and Look Out Wash Operations.

The principal sources of changes in the standardized measure of discounted future net cash flows during the period ended June 30, 2005 are as follows:

   
For the period July 1, 2006 through:
 
   
Samson
Historical
June 30, 2006 (i)
 
Acquisition of Jonah and Look Out Wash Operations
11 months ending
May 29, 2006
 
Pro Forma
Combined
June 30, 2006
 
   
USD
 
USD
 
USD
 
Beginning of period
   
18,955
   
18,252
   
37,207
 
Sales of oil and gas produced during the period, net of production costs
   
(3,013
)
 
(6,011
)
 
(9,024
)
Net changes in prices and production costs
   
773
   
(2,738
)
 
(1,965
)
Changes in estimates of future development costs
   
3,135
   
-
   
3,135
 
Extensions, discoveries and improved recovery
   
-
   
4,489
   
4,489
 
Revisions of previous quantity estimates and other
   
(11,185
)
 
1,607
   
(9,578
)
Accretion of discount
   
2,045
   
1,825
   
3,870
 
Other
   
(1,101
)
 
613
   
(488
)
 
                   
End of period
   
9,609
   
18,037
   
27,646
 
__________________
(i)   This represents the reserves of the Company, excluding the impact of the acquisition of Jonah and Look Out Wash Operations.

Merger of wholly owned subsidiaries
 
On March 5, 2007, Kestrel Energy, Inc. was merged with and into Samson Oil & Gas USA, Inc.
 
B.   Business overview.
 
Nature of Operations. Our principal business is the exploration and development of oil and natural gas properties in the United States, primarily focused on the Rocky Mountain region. We intend to continue to pursue the acquisition of oil and gas properties and pursue strategic opportunities in our industry.
 
20
 
Principal Markets. As of June 30, 2006, we operate in one reportable segment, the exploration for and development of oil and natural gas and in one geographic area, the Rocky Mountain region of the United States. Set forth below are our assets, revenues and net loss for the prior two years for this region.
 
   
Identifiable Assets (Liabilities)
A$
 
Revenues
(Net Losses)
A$
 
2006
 
$
$
25,190,808
(28,082,676
 
)
$
$
5,487,050
(22,518,467
 
)
2005
 
$
$
5,553,784
(1,368,603
 
)
$
$
1,122,722
(322,342
 
)

Competition. The oil and natural gas industry is intensely competitive, and we compete with other companies that are significantly larger and have greater resources. Many of these companies not only explore for and produce oil and natural gas, but also carry on refining operations and market petroleum and other products on a regional, national or worldwide basis. These companies may be able to pay more for productive oil and natural gas properties and exploratory prospects or define, evaluate, bid for and purchase a greater number of properties and prospects than our financial or human resources permit. W e do not hold a significant competitive position in the oil and gas industry.
 
Seasonality. Oil and gas exploration and production in the Rocky Mountain region may be adversely affected by seasonal weather conditions.
 
Marketing Channels. Oil and natural gas produced on our properties is sold by the operator of the field, therefore, no long term delivery contracts are in place.
 
Material Effects of Governmental Regulation. The exploration and production of oil and gas is subject to material and significant regulation by the United States federal, state and local governments that require us to conduct field operations and extraction activities in accordance with numerous environmental and other regulations. Examples of types of governmental laws and regulations that may have a material effect on our business include:
 
 
·
permitting requirements for exploration and drilling activities;
 
 
·
restrictions on substances that can be released during drilling and production;
 
 
·
limitations or prohibitions on drilling in certain areas;
     
 
·
requirements to mitigate and remediate the environmental effects of drilling and production.
 
C.   Organizational structure.
 
We are a company limited by shares incorporated in Australia. We have one wholly-owned subsidiary, Samson Oil & Gas USA, Inc., which is incorporated under the laws of the State of Colorado. Kestrel Energy Inc. was a wholly owned subsidiary of the Company until March 5, 2007, at which time it was merged with and into Samson Oil & Gas USA, Inc.
 
21
 
D.   Property, plant and equipment.
 
Jonah Field, Wyoming
 
Samson 21% Working Interest
 
The Jonah Field is located in the northern part of the Green River Basin. It is one of the largest discoveries in recent decades in the continental United States, having produced in excess of 1.5 trillion cubic feet of gas since commencing production in 1992. Development of this field has resulted from the application of advanced fracture stimulation techniques. The field has undergone several iterations of development with some sections of the field currently being developed on a 10 acre well spacing. The current well spacing is approximately 20 acres.
 
The field produces from a series of stacked reservoirs within the Mesaverde and Lance formations. The field is wedge shaped and trapped between two faults.
 
The current development in the acquired section is approximately 20 acres. In late 2006, approval was granted for developing the field on 10 acre spacing, which would result in a further 5 or 6 development wells being drilled in the acquired section. Two additional development wells are being planned by the operator and are expected to be drilled in the September/October 2007.
 
A compressor upgrade was installed in the Jonah Field in March 2007, which consisted of increasing the horsepower from 1200 to 1800 HP and enlarging the throughput capacity. This upgrade resulted in an initial increase in the gross production rate from the field of 2.2 mmcfpd from 4.8 mmcfpd to 7.0 mmcfpd. The compression upgrade was necessary because of the additional development wells that have been brought on stream in the adjacent part of the field, which has seen an accelerated infill development. These development wells are not in the same portion of the Jonah Field in which Samson has an interest. The compression upgrade has resulted in lowering the inlet pressure to between 50 to 100 psi from a previous range of between 250 to 300 psi.
 
Look Out Wash Field, Wyoming
 
Samson 18.2% Working Interest
 
The Look Out Wash Field is located in the Washakie Basin, which is part of the Greater Green River Basin, and is currently producing from 20 wells on Samson’s acreage
 
This field produces principally from the Almond Bar, which is a stratigraphically bound trap. Several formations above and below this main target are gas productive including:
 
·    The Almond Fluvial formation, an interbedded sand shale and coal bed sequence, has until recently has been considered a secondary target. This formation is now being included in completions and has added incremental flow rate and reserves on the Almond Bar which is the primary target in the field.
 
·     The Lewis Shale formation is the seal to the Almond Bar and regularly returns very large gas shows while being drilled. With the emergence of shale gas plays in the United States, this formation will be a candidate for future evaluation.
 
·     The Lance formation is produced within the field and as it sits above the primary zone within the Almond is behind pipe. The formation is gas saturated and will be exploited in the existing wells when the primary completed intervals are depleted.
 
22
 
·     The Ericson formation is intersected below the primary target and has been drilled only once in the field but has returned both gas shows and flows in the immediate area. The formation is not normally drilled in the current development phase but the existing wells have been engineered such that they can be extended into this formation/section/unit in the future.
 
The gas in Lookout Wash is gathered by Western Gas Resources, a third party gas gathering company, on behalf of the operator and the joint venture parties. In September 2006, Western Gas Resources installed additional compression in the field to reduce line pressure in the field from 650 psi to 235 psi. Production in the field initially increased by 26% from 7.8 mmcfd (gross) to 9.7 mmcfd (gross). According to the operator, additional reductions in field line pressure are anticipated by the end of 2007.
 
Amber Field SE, Oklahoma
 
Samson 37.5% and 32.5% Working Interest
 
The SE Amber Gas Field in Grady County, Oklahoma, which was discovered in 1970, covers an area of approximately 6,000 acres. The field has been in continuous production and development since its discovery and has produced in excess of 73 billion cubic feet (BCF) of gas. Samson has an interest in 1,280 acres with 14 wells producing 3,624 mcf daily (790 mcfd net to Samson) in January 2007. These are long-lived reserves with the original 1970 well showing a 55-year production life. Two development wells drilled in 2005 had initial production of 1.3 and 1.6 mmcf per day respectively with each expected to produce approximately 2 Bcf per well of their life.
 
The results to date from drilling in the Amber Field have been encouraging and have exceeded expectations. The results have substantiated the technical view that the field was not being drained by the existing well development and therefore has proven that the large development program associated with the field can be maintained. The results also support management’s assessment that the in-fill development program that is underway for the Amber Field represents a relatively low risk investment that will generate additional cash flow for Samson. Three additional well locations are possible on Samson’s acreage.
 
State GC Oil Field, New Mexico
 
Samson 27.0% Working Interest
 
The State GC oil field, located in Lea County, New Mexico, was discovered in 1980 and covers approximately 600 acres. The field currently has one well that has produced 460,000 barrels (bbls) of oil and 0.7 BCF of gas. Samson has a 27% working interest in this field. One drilling location within the field has been defined and the operator has proposed to drill this well in the third quarter 2007, at a location determined through the use of 3D seismic amplitude, which has been proven to be accurate in determining the incident of porous zones with the Lower Leonard oil productive zone.
 
State GC Gas Field, New Mexico
 
Samson 100.0% Working Interest
 
Samson has acquired a non-exclusive 3D seismic grid previously shot by a geophysical contractor covering the nine sections (640 acres each) adjacent to the State GC well, which is currently producing at around 60 BOPD from the Lower Leonard formation. This 3D seismic grid has been reprocessed and interpreted using attribute analysis. As a result of this mapping, two Morrow formation locations have been delineated in Section 24 west and Section 13 East. Samson holds 100% of both these sections and therefore will be offering farmouts to the industry to finance the drilling of these very attractive locations. The Morrow formation was originally a secondary target in this area but the remapping and subsurface modeling has suggested that the Morrow formation, which has produced gas recoveries of between 3 and 5 Bcf per well in the adjacent sections, will be the primary target.
 
23
 
Our priority at this property is the west Section 24 well and a drilling rig is being sourced such that this well can be drilled in the second half of 2007.
 
North Stockyard Project, North Dakota
 
Samson 34.5% Working Interest
 
Samson has an interest in 3,303 acres adjacent to the North Stockyard Oil Field, which is located in the Williston Basin in North Dakota.
 
The prospect has the ability to deliver 5 locations with each well being drilled as a horizontal intersection, which is common in the adjacent fields. The 5 horizontals wells have potential to recover 5.4 million barrels of oil, of which Samson would have a net revenue interest of 1.7 million barrels. Each well in the program will be dependent on the successful completion of the initial and subsequent wells.
 
The Harstad #1-15H well has been completed and surface facilities have been constructed. The well is currently producing at rates of between 70 and 100 barrels of oil per day. An acid fracture stimulation is expected. Experience in this field suggests that such stimulation would increase the oil rate to between 200 to 300 barrels of oil per day as the stimulation connects the poorer quality reservoir to the well bore.
 
Following this stimulation, because the well reached its total depth in oil and gas shows at the toe of the horizontal section, two additional locations in the field have been identified that are expected to be drilled during the remainder of 2007 or early 2008.
 
South Goose Lake Prospect - Williston Basin, Montana, USA
 
Samson 25% Working Interest
 
Samson has a 25% working interest in a prospect area of 2,480 acres. We presently expect that a well will be drilled in July or August of 2007 to evaluate the Red River and Duperow reservoirs. The Duperow Formation is the primary target. The project has been developed on the basis of a tested oil recovery and a 3D seismic grid. This data, along with substantial well control, has established an amplitude anomaly that is consistent with oil recovery and well control. While this opportunity is considered exploratory, management nevertheless believes it to be relatively low risk due to the 3D seismic and a close well control.
 
The Duprow target is expected to be intersected at around 8,700 feet, with a 15 foot thick zone of porosity compared to the 1 foot of pay that was developed in an adjacent well. management believes that the prospect has the following potentially recoverable volumes:
 
   
Minimum recoverable Bbls
 
Maximum recoverable Bbls
 
Nisku
   
200,000
   
1,000,000
 
Duperow
   
500,000
   
2,000,000
 
Red River
   
1,000,000
   
2,500,000
 
Total
   
1,700,000
   
5,500,000
 
 
24
 
Hawk Springs Project, Wyoming
 
Samson 50% Working Interest
 
The Company entered into a joint venture to acquire acreage in the Hawk Springs project area, located in the Denver-Julesburg Basin in Wyoming. The venture holds approximately 144,000 acres and covers two prospective formations.
 
The Niobrara formation, a fractured chalk reservoir, is the primary target for the project. There has been significant production from this formation in the Silo Field, which is approximately 30 miles to the south of the Hawk Springs area. The Silo Field, which is projected to recover around 10 mmstb of oil was discovered in 1982 but it was not until 1992, when horizontal drilling was applied to the field, that significant recoveries were made. Wells drilled using this technique have averaged a recovery of 230,000 bbls of oil compared with average recoveries of around 25,000 bbls for vertical wells.
 
During 2006, the initial well in the Hawk Springs Project, London Flats #1, was drilled as the first evaluation of the Niobrara. During the drilling of this well good mud log shows were recorded. However, upon completion of fracture stimulation, marginal fluid rates (of around 8 barrels of oil per day) were encountered and the well is in the process of being sold.
 
Management believes that the key to establishing an economic flow rate is therefore to determine the location of a fracture set within the extensive land holding that has been acquired. The approach that is being taken is to purchase the extensive 2D seismic data set that exists in the area, map this data and determine the regionally structural picture such that further seismic, possibly 3D, can be acquired to determine the location of a fracture set.
 
The Codell Sandstone formation is also productive in the Denver-Julesburg Basin. For, example, 30 mmstb of oil and 320 BCF of gas from that formation in the Wattenberg Field.
 
The Hawk Springs field is stratigraphically trapped. Similar geologic circumstances are present within the southwestern part of the project area where an isolated thick sequence of Codell Sandstone has been mapped using existing well control and therefore has the potential to generate a trap. While vintage exploration wells have penetrated this sequence and returned significant oil and gas shows, no commercial flow was established. However it has been the case that the early drilling and completion of the Wattenberg Field in the Codell was not successful and it was only in the very late 1990’s that fracture stimulation technology enabled it to be exploited commercially. We believe that this trap has the potential to recover between 95 and 140 mmboe.
 
Samson 78% Working Interest
 
Greens Canyon Field, Wyoming
 
Samson 100% Working Interest
 
Two wells were drilled in this project area in 2000 to evaluate the Frontier/Muddy Dakota reservoirs. Mechanical difficulty with both of these wells has meant that the Muddy Formation has never been completed satisfactorily, despite very encouraging initial flow rates.
 
25
 
In 2006, an existing well bore was used to drill a highly deviated under balanced test of the Baxter Shale in the Greens Canyon Field. Hole stability problems did not allow the under balance drilling technique to be utilized and the well failed to recover commercial quantities of hydrocarbons. However, the drilling has provided additional information suggesting that the future programs should be aimed at fracture stimulating the Baxter Shale.
 
Also in 2006, a fracture stimulation of one of the Baxter zones was undertaken in the 29-2 well. This stimulation resulted in an incremental flow rate of around 60 to 100 MCFPD. This rate, while modest, was in line with expectations because the treatment was over a 305-foot interval, compared to a total section thickness of 3,500 feet. In management’s view, the flow indicates that the Baxter Shale is capable of flowing at rates similar to those being achieved in the Vermillion area to the southeast of Samson project area.
 
To evaluate these reservoirs further, the drilling of the Sue Federal 32-2 well is planned in the second half of 2007. This well will target all four reservoirs in this field. The Frontier, Muddy, Dakota and Baxter Shale in the vermillion area will all be evaluated with this well. There has recently been a significant increase in the indicative productive capacity of the Baxter Shale, with a recent Questar well reported to flow at an initial rate of 9 mmcfpd from that formation.
 
Firehole Canyon and Browns Ranch Project, Wyoming
 
Samson 100% Working Interest
 
Existing seismic data has been acquired in the Browns Ranch area to determine the precise position of the fault that controls the up-dip termination of a trap at the Frontier and Muddy levels. Given the cost of drilling to these levels, it is currently envisaged that the most cost effective way to investigate the Greens Canyon, Firehole Canyon and Browns Ranch prospects is to drill the Browns Ranch area, since this represents the shallowest position of these prospective sections. Reprocessing of this data is yet to be completed, which will be followed by mapping.
 
The Browns Ranch Project consists of 1,900 acres on trend with the 175 Bcf South Baxter Field in the Green River Basin, Wyoming. The feasibility of this project was enhanced by the drilling of SBU#22 on adjacent acreage, not owned by the Company, two miles to the northeast ,which had initial production of 5mmcfpd. The SBU #22 well has produced 1.9 Bcf over the last 46 months and has been successfully offset by two other wells. A well drilled by Davis Oil in the 1970’s confirmed the presence in Samson’s prospect area of a similar quality sand as found in the SBU #22 well. 10 potential locations exist on the acreage with potential for an estimated 17 bcf of gas net to Samson.
 
The Firehole Canyon Prospect consists of 12,000 acres in the Green River Basin area of Wyoming. This project was developed as a result of several years of extensive geologic mapping and research. The prospect has good reservoir development in both the Muddy and Frontier formations, as indicated in a well that had shows of gas in both the target formations. This well was drilled in the early 1960’s when gas prices of 25 cents per mcf made field development uneconomic. The potential target formations are between 10,000 and 13,000 feet. 31 potential drill locations have been mapped with potential for an estimated 53 Bcf of gas net to Samson’s interest.
 
Flaming Gorge Project - Wyoming
 
Samson 100% Working Interest
 
The Flaming Gorge Project consists of 6,400 acres located in the southwestern part of the Green River Basin in Wyoming.
 
26
 
A well three miles to the southwest of Samson’s acreage, the Lone Star 1X, flowed at calculated rates exceeding 1mmcfpd without stimulation. Samson believes that the proximity of this well to the Flaming Gorge acreage indicates that the Baxter Shale section should be gas productive within the Flaming Gorge acreage. Samson’s acreage is also just 20 miles west of the area which is being vigorously developed in the Baxter Shale by third parties.
 
Stage Coach East Project, Wyoming
 
Samson 100% Working Interest
 
The Stage Coach East Project consists of one lease over 1,200 acres to the southeast of the Stage Coach Draw Gas Field in the Green River Basin in Wyoming. The Stage Coach Draw Field has produced 23 BCF of gas and 316,000 barrels of condensate from the Almond Formation. The acreage acquired is adjacent to the Stratos Federal #1 well. Because that well was partially funded by the U.S. Department of Energy, there is considerable data available concerning the well. The Stratos Federal #1 was drilled to test deeper formations but intersected 20 feet of gas shows, good permeability and excellent porosity was measured by wire line logs in the Almond Formation. Recent mapping of this project area has determined both the trapping mechanism of the field and the prospect area and has determined that the prospect has the ability to deliver a recoverable contingent reserve of 58 Bcf.
 
The proposed drill location on the acquired acreage is only 500 meters east of the Stratos Federal #1 and is scheduled to be drilled in 2007.
 
Oil and Gas Reserves
 
Information Regarding Proved Oil and Gas Reserves - SEC Compliant Reserves
 
The information set forth below regarding the Company’s oil and gas reserves was prepared by Jeffrey Rhodes, Vice President - Engineering, of Samson. All reserves are located within the continental United States.
 
Estimated Proved Reserves
 
Proved reserves are those quantities of hydrocarbons which, by analysis of geological and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under current economic conditions, operating methods and government regulations. Proved reserves can be categorized as developed or undeveloped.
 
   
Year ended June 30, 2006
 
For the five months from
February 1, 2005 to June 30, 2005
 
   
Oil
MBBL’s
 
Gas
MMCF
 
Total
MMCFE
 
Oil - MBBL’S
 
Gas- MMCF
 
Total
MMCFE
 
Beginning of year
   
357
   
6,892
   
9,034
   
-
   
-
   
-
 
Revisions of previous quantity estimates
   
(63
)
 
(3,912
)
 
(4,290
)
 
(2
)
 
953
   
941
 
Purchase of reserves in place
   
42
   
9,148
   
9,400
   
366
   
4600
   
6,767
 
Extensions, discoveries and improved recovery
   
-
   
-
   
-
   
-
   
1,432
   
1,432
 
Sale of reserves in place
   
-
   
-
   
-
   
-
   
-
   
-
 
Production
   
(19
)
 
(426
)
 
(540
)
 
(7
)
 
(94
)
 
(136
)
End of year
   
318
   
11,699
   
13,604
   
357
   
6,892
   
9,034
 
                                       
Proved Developed Producing Reserves
   
309
   
9,280
   
11,134
   
269
   
2,328
   
3,942
 

27
 
Developed Reserves
 
Developed reserves are expected to be recovered from existing wells including reserves behind pipe. Improved recovery reserves are considered developed only after the necessary equipment has been installed, or when the costs to do so are relatively minor.
 
Undeveloped Reserves
 
Undeveloped reserves are expected to be recovered from new wells on undrilled acreage, from deepening existing wells to a different reservoir or where a relatively large expenditure is required to recomplete an existing well or install production or transportation facilities for primary or improved recovery projects.
 
Standardized Measure of Discounted Future Net Cash flows
 
Future hydrocarbon sales and production and development costs have been estimated using prices and cost in effect at the end of the periods indicated. The weighted average period-end prices used for the Company for June 30, 2006 and June 30, 2005 were US$5.43 and US$6.30 per mcf, respectively. The weighted average period-end prices used for the Company for June 30, 2006 and June 30, 2005 were US$62.31 and US$47.52 per BOE, respectively. Future cash flows were reduced by estimated future development, abandonment and production costs based on period-end costs. No deductions were made for general overhead, depletion, depreciation and amortization or any indirect costs. All cash flows are discounted at 10%.
 
Changes in demand for hydrocarbons, inflation and other factors make such estimates inherently imprecise and subject to substantial revisions. This table should not be construed to be an estimate of current market value of the proved reserves attributable to the Company.
 
The estimated standardized measure of discounted future net cash flows relating to proved reserves at June 30, 2006 and June 2005 is shown below:
 
   
As at:
 
   
June 30, 2006
USD
 
June 30, 2005
USD
 
Future cash inflows
   
84,273
   
58,459
 
Future production costs
   
(24,380
)
 
(15,734
)
Future development costs
   
(3,430
)
 
(4,850
)
               
Future net cashflows
   
56,463
   
37,875
 
10 % discount
   
(28,817
)
 
(18,920
)
               
Standardised measure of discounted future net cash flows relating to proved reserves
   
27,646
   
18,955
 

The principal sources of changes in the standardized measure of discounted future net cash flows during the period ended June 30, 2006 and June 30, 2005 are as follows:
 
   
As at:
 
   
June 30, 2006
USD
 
June 30, 2005
USD
 
Beginning of year
   
18,955
   
-
 
Sales of oil and gas produced during the period, net of production costs
   
(3,013
)
 
(532
)
Net changes in prices and production costs
   
773
   
2,007
 
Changes in estimates of future development costs
   
3,135
   
(2,000
)
Extensions, discoveries and improved recovery
   
-
   
2,100
 
Revisions of previous quantity estimates and other
   
(11,185
)
 
2,479
 
Sale of reserves in place
   
-
   
-
 
Purchase of reserves in place
   
18,037
   
14,396
 
Accretion of discount
   
2,045
   
600
 
Other
   
(1,101
)
 
(95
)
End of year
   
27,646
   
18,955
 
 
28
 
Additional Oil and Gas Disclosures
 
As at December 31, 2006
 
Gross productive oil wells
   
139
 
Net productive oil wells
   
13
 
Gross productive gas wells
   
85
 
Net productive gas wells
   
19
 
Gross Developed Acres
   
22,150
 
Net Developed Acres
   
2,428
 
Gross Undeveloped Acres
   
267,500
 
Net Undeveloped Acres
    164,367  
         
All of the Company’s acreage positions are located in the continental United States, with the majority located in Wyoming.

The Company has extensive leases with a voriety of remaining lease terms.
 
Drilling Activity
 
   
For the year ended June 30, 2006
 
For the year ended June 30, 2005
 
Net productive exploratory wells drilled in period
   
Nil
   
Nil
 
Net exploratory wells drilled in period
   
2.55
   
Nil
 
Net producing development wells drilled in period
   
1.42
   
0.68
 
Net dry development wells drilled in period
   
Nil
   
Nil
 

Capitalized Costs
 
Certain exploration costs have been capitalized during the current or prior period to deferred exploration expenditure. This exploration expenditure relates to projects for which a determination as to the likelihood of the Company receiving future economic benefits has not yet been made. Refer to Note 10 Deferred Exploration Expenditure “F-28” for further information in relation to costs capitalized during the year.
 
Oil and Gas Revenue Information
 
The average sale price we achieved during the years ended June 30, 2005 and June 30, 2006 for oil was US$39.96 and US$48.96 per barrel, respectively. Our average sales price per barrel increased in the six months ended December 31, 2006 to US$54.15.
 
The average sale price we achieved during the years ended June 30, 2005 and June 30, 2006 for gas was US$5.41 and US$6.85 per mcf respectively. Our average sales price per mcf decreased in the half year ended December 31, 2006 to US$5.44.

The average production costs (including lease operating expenses, production taxes and handling expenses) per mcfe was US$2.08 for the year ended June 30, 2005 and US$2.15 for the year ended June 30, 2006. The average production cost per mcfe was US$2.18 for the half year ended December 31, 2006.
 
29
 
Supplemental Information Regarding Oil and Gas Reserves — ASX Compliant Reserves
 
The data on hydrocarbon reserves (as that term is defined by the listing rules of the Australian Stock Exchange) set out in the summary table below is based on the independent engineering evaluation of MHA Petroleum Consultants, Inc. of the estimated proved and probable oil and natural gas reserves pertaining to our properties as of September 1, 2006. These reserves were reported on the Company’s 2006 Annual Report, which was published in compliance with the listing rules of the Australian Stock Exchange.
 
   
Oil bbls
 
Gas MMcf
 
MMcfe
 
NPV 10 A$ million
 
Proved
   
485,211
   
20,313
   
23,224
   
71.989
 
Probable
   
13,600
   
18,410
   
18,492
   
39.575
 
Total
   
498,811
   
38,723
   
41,716
   
111.564
 
 
(1)
The estimate has used the Nymex forward curve as at September 1, 2006, with oil and gas differentials applied to the forward price to reflect differences in oil and gas quality, contractual agreements and regional price variations.
 
(2)
The estimate does not recognize the installation of compression at the Look Out Wash Field, which at the time of the estimate was producing into a line pressure of 700 psi, and which has subsequently been reduced to 200 psi. This pressure reduction is expected to result in an improved production performance from the field. Since its acquisition, this field has produced below its expected rate largely because of this higher line pressure. It is expected that future reserves estimates will be reflected positively when the full impact of the installed compression is measured in production performance.
 
(3)
The estimate has shifted a significant previously defined proven undeveloped reserve at Greens Canyon into a probable category. This is due to the lack of drilling activity to enable the development of the Frontier and Muddy Formations. Samson will however be developing this resource with a change of planning based on the positive results being observed in a competitor’s acreage. The change in strategy will involve drilling and then fracture stimulating the Frontier, Muddy and Baxter Formations. This technique was pioneered in the Pinedale Anticline and is now in general application in the Green River Basin. The technique will be trialed in the near future in Greens Canyon #1 well where the Baxter Formation will be stimulated as a forerunner to drilling two planned wells to access the Baxter and the deeper Frontier and Muddy sections.
 
(4)
The hydrocarbon reserves data set out in the summary table above includes the following reserve estimate for the acquisitions made in May 2006, which Samson acquired for US$36.2 million (A$48.3 million).
 
   
Oil bbls
 
Gas MMcf
 
MMcfe
 
NPV 10 A$ million
 
Proved
   
108,548
   
15,996
   
16,647
   
48.903
 
Probable
   
13,600
   
1,263
   
1,345
   
0.195
 
Total
   
122,148
   
17,259
   
17,992
   
49.098
 
 
(1)   The estimate has reduced the reserves acquired largely due to the production performance of the Look Out Wash Field which has been lower than expected and which will be partly rectified by the operation of the installed compression. This estimate raised the acquisition cost to US$ 2.17 per mcfe which is below the average acquisition price observed in 2005 for Rockies gas properties of US$2.50 per mcfe.
 
Item 4A.   Unresolved Staff Comments
 
Not applicable.
 
Item 5.   Operating and Financial Review and Prospects
 
The following discussion and analysis should be read in conjunction with the Selected Financial Data presented in Item 3 of this Registration Statement and the accompanying financial statements and related notes included in this filing. The following discussion contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. Actual results may differ materially from those anticipated in such forward looking statements See "Item 3. Key Information - D. Risk Factors” and the section entitled “Forward-Looking Statements.".
 
30
 
A.   Critical Accounting Policies
 
We believe the following are our critical accounting policies that affect our more significant judgments and estimates used in the preparation of our financial statements.
 
Exploration and Evaluation Expenditure
 
The Company accounts for exploration and evaluation expenditure using the successful efforts method. The application of this policy necessarily requires management to make certain estimates and assumptions as to future events and circumstances, in particular the assessment of whether economic quantities of reserves have been found. Any such estimates and assumptions may change as new information becomes available. If, after having capitalized expenditure under our policy, we conclude that we are unlikely to recover the expenditure by future exploitation or sale, then the relevant capitalized amount will be written off to the Income Statement.
 
Reserves Estimates

The Company's estimates of proved reserves are based on the quantities of oil and gas that geological and engineering data demonstrate, with reasonable certainty, to be recoverable in future years from known reservoirs under existing economic and operating conditions. The accuracy of any reserve estimate is a function of the quality of available data, engineering and geological interpretation, and judgment. For example, the Company must estimate the amount and timing of future operating costs, production, and property taxes, development costs, and workover costs, all of which may in fact vary considerably from actual results. In addition, as prices and cost levels change from year to year, the estimate of proved reserves also changes. Any significant variance in these assumptions could materially affect the estimated quantity and value of the Company’s reserves. Despite the inherent imprecision in these engineering estimates, our reserves are used throughtout our financial statements. For example, the Company uses the units-of-production method to amortize its oil and gas properties, therefore the quantity of reserves could significantly impact our DD&A expense. The value of the Company’s reserves also impacts any impairment expense recognized by the Company.

All reserve estimates are prepared in accordance with guidelines prepared by the Society of Petroleum Engineers.

Depreciation, Depletion and Amortization for Oil and Gas Properties
 
The quantities of estimated proved oil and gas reserves are a significant component of our calculation of depletion expense and revisions in such estimates may alter the rate of future expense. Holding all other factors constant, if reserves were revised upward or downward, earnings would increase or decrease respectively.
 
Depreciation, depletion and amortization of the cost of proved oil and gas properties is calculated using the unit-of-production method. The reserve base used to calculate depletion, depreciation or amortization is the sum of proved developed reserves and proved undeveloped reserves for leasehold acquisition costs and the cost to acquire proved properties. With respect to lease and well equipment costs, which include development costs and successful exploration drilling costs, the reserve base includes only proved developed reserves. Estimated future dismantlement, restoration and abandonment costs, net of salvage values, are taken into account. Certain other assets are depreciated on a straight-line basis.
 
Amortization rates are updated twice a year to reflect: 1) the addition of capital costs, 2) reserve revisions (upwards or downwards) and additions, 3) property acquisitions and/or property dispositions, and 4) impairments.
 
Impairments
 
Oil and gas lease acquisition and development costs are capitalized when incurred. When circumstances indicate that a producing asset may be impaired, the Company compares expected discounted future cash flows at a producing field level to the unamortized capitalized cost of the asset. If the future discounted cash flows, based on the Company's estimate of future crude oil and natural gas prices, operating costs, anticipated production from proved reserves and other relevant data, are lower than the unamortized capitalized cost, the capitalized cost is reduced to fair value, Fair value is calculated by discounting the future cash flows at an appropriate risk-adjusted discount rate.
 
Asset Retirement Obligation
 
The Company has obligations to remove tangible equipment and restore locations at the end of the oil and gas production operations. Estimating the future restoration and removal costs, or asset retirement obligations, is difficult and requires management to make estimates and judgments, because most of the obligations are many years in the future, and contracts and regulations often have vague descriptions of what constitutes removal. Asset removal technologies and costs are constantly changing, as are regulatory, political, environmental, safety, and public relations considerations.

Inherent in the calculation of the present value of our asset retirement obligations (“ARO”) are numerous assumptions and judgments, including the ultimate settlement amounts, inflation factors, credit adjusted discount rates, timing of settlement, and changes in the legal, regulatory, environmental, and political environments. To the extent future revisions to these assumptions impact the present value of the existing ARO liability, a corresponding adjustment is made to the oil and gas property balance. Increases in the discounted ARO liability resulting from the passage of time are reflected as accretion expense in the Income Statement.
 
31
 
Share Based Payments
 
The Company measures the cost of equity settled transactions by reference to the fair value of the equity instruments at the date they are granted. W here the fair value of the equity instrument can not be readily determined in reference to the market price of the Company’s ordinary shares, the fair value is determined using a binomial option pricing model. The use of the binomial option pricing model requires the Company to make estimates in regard to certain inputs required by the model, in particular in regard to the time to expiry of the option and the volatility of the Company’s share price. The Company reviews inputs to this model each time a valuation is performed with reference to inputs used in the past and recent developments.
 
Embedded Derivative
 
The convertible note is split into two components: a debt component and a component representing the embedded derivatives in the convertible note. The debt component represents the Company’s liability for future interest coupon payments and the redemption amount. The embedded derivative represents the value of the option that note holders have to convert into ordinary shares in the Company. Similar to the valuation of Share Based Payments, the valuation at the Company’s embedded derivative requires the Company to make certain assumptions about the inputs to valuation models, in particular in regard to the remaining term of the derivative and the volatility of the Company’s underlying share price. Movements in the fair value of the embedded derivative are recognized in our Income Statement, and therefore the valuation has the potential to significantly impact our results.
 
The debt component of the convertible note is measured at amortized cost and therefore increases as the present value of the interest coupon payments and redemption amount increases, with a corresponding charge to finance cost. The debt component decreases by the cash interest coupon payments made. The embedded derivative is measured at fair value at each balance date, and the change in fair value is recognized in the income statement.

Recent Accounting Pronouncements

Please refer to Note 2 for information in regard to recent accounting pronouncements under AIFRS.

Please refer to Note 33 for information pertaining to recent US GAAP accounting pronouncements.
 
B.   Results of Operation.
 
This review of our results of operations, accounted for using Australian equivalents to International Financial Reporting Standards (“AIFRS”), should be read in conjunction with our audited financial statements for the years ended June 30, 2006 and June 30, 2005 and the unaudited financial statements for the half year ended December 31, 2006 and 2005. Unless stated otherwise all “$” values refer to Australian Dollars. For further information regarding Kestrel Energy, Inc., which is deemed to be a predecessor entity, please see Note 33 of our consolidated financial statements included elsewhere in this registration statement.
 
The result for the financial year ended June 30, 2006 after provision for income tax was a net loss before minority interests of $25,685,590, compared to a net loss before minority interests of $790,205 for the year ended June 30, 2005. The loss for fiscal year 2006 can be attributed primarily to impairment losses and increased expenses for exploration, share based payments, general and administrative expenses and interest expenses, each of which is detailed below. These losses and expenses were only partially affected by significant increases in revenue from the sales of oil and gas.
 
The result for the half year ended December 31, 2006, after provision for income tax, was a net loss before minority interests of $6,733,113 compared to a net loss before minority interests of $1,726,073 for the half year ended December 31, 2005. The loss for half year ended December 31, 2006 can be primarily attributed to impairment expense at $6,213,863.
 
32
 
Fiscal Year Comparison
 
   
Year ended:
         
Item
 
June 30, 2006
A$
 
June 30, 2005
A$
 
Variance
 
% change
 
Impairment
   
17,816,540
   
-
   
17,816,540
   
100
%
Exploration
   
5,244,288
   
360,544
   
4,883,744
   
1350
%
General and Administration
   
5,448,884
   
1,679,516
   
3,769,368
   
224
%
Interest Expense
   
599,613
   
75,339
   
524,274
   
695
%
Oil and Gas Revenues
   
5,484,575
   
1,128,898
   
4,355,677
   
385
%
 
Half Year Comparison
 
   
Half Year ended:
         
Item
 
December 31, 2006
A$
 
December 31, 2005
A$
 
Variance
 
% change
 
Impairment
   
6,213,863
   
-
   
6,213,863
   
100
%
Exploration
   
713,067
   
302,055
   
411,012
   
136
%
General and Administration
   
2,082,344
   
1,726,296
   
356,048
   
20
%
Interest Expense
   
1,393,780
   
-
   
1,398,780
   
100
%
Oil and Gas Revenues
   
6,326,261
   
1,803,269
   
4,522,992
   
250
%
 
Impairment
 
Included in the loss for fiscal year 2006 is $6,226,352 in impairment losses relating to our producing oil and gas properties, primarily due to the disappointment of expectations at the Jonah and Look Out Wash Fields and $10,773,574 relating to non-producing oil and gas properties, compared to no impairment recorded for fiscal year 2005. The impairment incurred in relation to non-producing properties, is, in part, due to the failure of Greens Canyon #2 well which did not reach its intended target.
 
Included in the loss for the half year ended December 31, 2006 is a $6,213,863 impairment relating to our producing oil and gas properties. By contrast, there were no impairment losses recognized for the half year period ended December 2005. Impairment losses recorded in the half year ended December 2006 were determined based on the Company’s proved and probable reserves at December 31, 2006. During these six months, a significant deterioration had occurred in the prevailing gas price. This decrease had a detrimental effect on the value of Samson’s reserves. The gas volumes associated with these reserves have since increased, after allowing for depletion throughout the past six months, though the future gas pricing used to value the reserves is lower than it was at June 2006. In most fields, the increased production has led to additional reserves which have minimized the impact of the deterioration in the gas price in regard to the PV10 of the reserves. This was not the case, however, for the Jonah field in Wyoming, because, as noted above, recent drilling activity in adjacent leases had caused inlet pressure for the Samson wells dto increase, which in turn had decreased the productivity from these wells. A compression facility was installed in April 2007, which has had the effect of increasing production in this field.
 
When applying US GAAP to the operations of the Company, impairment expense for the year ended June 30, 2006 and the half year ended December 31, 2006 is significantly reduced to, $2,400,761 and $614,306 respectively. While there is no underlying change in the status of the oil and gas properties, different valuation methods allowed under AIFRS and US GAAP result in lower impairment under US GAAP. Please refer to Note 33 to the Financial Statements, Reconciliation to U.S. GAAP, on page F-54 for further details and explanation of this difference.
 
33
 
Further information relating to the reserves of the Company and the movements from year to year can be found in "Item 4. Information on the Company - D. Property, plants and equipment."
 
Exploration Expenditures
 
A significant portion of the loss recorded for the year ended June 30, 2006 is exploration expenditure expensed of $5,244,288, compared to $360,544 for 2005. Exploration expense was significantly higher in 2006 than in 2005 due to the aggressive implementation of our strategy to increase our reserves for the entire 12 months of 2006. These expenditures have been expensed in accordance with our accounting policy to expense all exploration expenditure until such time as it is expected that the future economic benefit will flow from the expenditure. In 2006, significant exploration expenditure was expensed in relation to the London Flats, Greens Canyon 27-3 and Hawk Springs projects.
 
Included in the loss for the half year ended December 31, 2006 is exploration expenditure of $713,067, compared to $302,055 in the half year ended December 31, 2005, again reflecting our strategy to aggressively increase reserves. The expenditure in the current period primarily relates to dry hole costs incurred in drilling performed at Hawk Springs.
 
There is no difference in the recognition or measurement of exploration expenditures under AIFRS and US GAAP.
 
General and Administrations Expense
 
General and administration expense increased significantly from the year ended June 30, 2005 to the year ended June 30, 2006 from $1,679,516 to $5,448,884. Of the increase, $1,769,450 was related to the value of options granted to directors and executives during the year ended June 30, 2006. These options were valued using the binomial option pricing method. No options were issued during the half year ended December 31, 2006.
 
Under US GAAP, $1,091,950 in share based payments was required to be recognized in the Income Statement in the fiscal year 2005. This expense relates to options issued to employees, directors and others in December 2004.
 
General and administration expenses also increased during the year due to the growth of Company following its acquisitions in 2006 and its business combination in 2005
 
34
 
Assurance, accounting and taxation expense also increased from $148,228 in the year ended June 30, 2005 to $395,861 in the year ended June 30, 2006.
 
General and administration expense did not increase significantly from $1,726,296 for the half year ended December 31, 2005 to $2,082,344 in the half year ended December 2006.
 
Interest Expense
 
Interest expense increased from $75,339 for the year ended June 30, 2005 to $599,613 for the year ended June 30, 2006 due to the increase in the debt carried by the Company. In May 2006, we entered in to a convertible loan facility with Macquarie Bank Limited to provide part of the funding required for the acquisition of two production assets in Wyoming. See “Item 10. Additional Information - C. Material Contracts.” The interest expense recorded in the year ended June 30, 2006 includes $355,923 of accretion expense relating to the embedded derivative associated with this facility.
 
Interest expense increased from nil for the half year ended December 31, 2005 to $1,393,780 for the half year ended December 31, 2006. This expense is primarily comprised of interest paid to Macquarie Bank Limited as part of the above mentioned convertible loan facility of $1,260,709 and accretion expense relating to the embedded derivative associated with this facility of $133,071.
 
Oil and gas revenues
 
Oil and gas revenues increased significantly from the year ended June 30, 2005 to the year ended June 30, 2006, from $1,128,898 to $5,484,575. Of the increase, $644,175 is oil and gas revenues relating to our acquisition of additional properties in May 2006. The remaining increase in revenues relates to additional production from wells acquired through the acquisition of Kestrel Energy in February 2005. Oil and gas revenues for the half year ended December 31, 2006 were $6,326,261 compared to $1,803,269 for the half year ended December 2005. The revenue recognized in the half year ended December 31, 2006 includes six months of revenue from all production assets acquired by the Company in the past two years.
 
The prevailing commodity prices will continue to have a significant impact on the revenue recognized by the Company in regard to its oil and gas sales. Approximately 85% of our production is gas, and therefore we face a greater exposure to the fluctuations of the price of natural gas. In September 2006 and February 2007 we entered into fixed forward swap contracts with Macquarie Bank Limited in an effort to minimize the impact of fluctuating gas prices on our revenues.

These hedges do not meet the requirements for hedge accounting under AIFRS, thus the movement in the fair value of the hedge is recognized in the income statement. During the six months ended December 31, 2006, the Company recognized an expense of $52,468 in relation to its hedge.
 
Fair value of embedded derivative
 
In the year ended June 30, 2006 we recorded other income in relation to the movement in fair value of an embedded derivative of $2,480,084 (nil in prior periods) related to our US$21,000,000 credit facility with Macquarie Bank Limited. See “Item 10. Additional Information - C. Material Contracts.” The facility allows for the issuance of up to 20,000,000 options to Macquarie., The exercise price for 9,000,000 options has not yet been set and is dependent on the future market price of the Company’s ordinary shares. The exercise price of the remaining 11,000,000 options has been set at 53.8 cents per share in accordance with the facility agreement.
 
In the half year ended December 31, 2006 we recorded other income in relation to the movement in the fair value of embedded derivative of $83,264, (nil in the prior comparative period).
 
35
 
In accordance with current accounting standards, we valued the embedded derivative component of this facility at its inception date and are required to revalue it as of each reporting date. Changes in this value are recorded in the Income Statement for the relevant period.
 
C.   Liquidity and capital resources.
 
Our primary sources of liquidity since moving into the exploration, development and production of oil and gas have been equity sales, sale of investments held for trading, net cash provided by operating activities and a convertible note facility.
 
Our primary use of capital has been for the acquisition, development, and exploration of oil and natural gas properties. As we continue to grow, we are continually monitoring the capital resources available to us to meet our future financial obligations, planned capital expenditure activities and liquidity. Our future success in growing proved reserves and production will be highly dependent on capital resources available to us and our success in finding or acquiring additional reserves.
 
The Company’s anticipated expenditures for exploration and development for the year ending June 30, 2008 is between $2.5 million to $5.0 million. Some of the factors that will impact the level of capital expenditures in the future include crude oil and natural gas prices, the volatility in these prices, the cost and availability of equipment, the plans of the operators of the wells and availability of capital. Some development will be funded through the Company’s current cash reserves, however additional capital will be required to develop the Company’s reserves further. The Company feels it can raise the necessary capital, either through debt or equity, as and when it is required.
 
Financing Activities
 
In the year ended June 30, 2005 we issued:
 
 
·
1,750,000 shares upon the conversion of the same number of options and received $350,000
     
 
·
15,000,000 shares at 35 cents each to institutional investors to raise $5,250,000

Cash transactions costs associated with these capital raisings was $289,741
 
In the year ended June 30, 2006 we issued:
 
 
·
33,312 shares upon the conversion of the same number of options and received $8,328;
     
 
·
92,433,636 shares at 42 cents each to retail and institutional shareholders to raise $38,822,127; and
     
 
·
9,618,750 shares at 40 cents each to existing shareholders to raise $3,847,500.

Transactions costs associated with these capital raisings were $2,109,248, including $648,992 in share based payments relating to options granted to Macquarie Securities USA Inc as part consideration for brokerage services provided.
 
We have not raised any additional capital since June 30, 2006.
 
Capital Expenditures
 
In the year ended June 30, 2005 we spent $20,203,553 on additions to oil and gas properties, including plant and equipment. This includes non-cash expenditure of $18,862,805 in relation to the acquisition of Kestrel Energy Inc.
 
36
 
In the year ended June 30, 2006 our capital expenditures relating to oil and gas properties, including plant and equipment was $59,448,212. This includes $48,347,632 used for the acquisition of producing oil and gas properties in the Jonah and Look Out Wash fields in Wyoming.
 
As at the date of this filing, the Company has expected capital expenditures in the next twelve months of approximately US$2,500,000. This capital budget consists of capital for exploration and development programs and represents the largest planned use of cash available from operating activities and current reserves. The amount and timing of these capital expenditures is largely discretionary and within our control. If oil and gas prices decline to levels below levels acceptable to us, we could chose to defer a portion of this expenditure.
 
We intend to raise further capital, more than likely through a combination of the sale of debt and equity, to allow the Company to further grow through additional acquisitions and the development of current reserves. We believe we have the ability to raise additional capital in a short period of time should the need for additional development capital be required, however there can be no assurance that operations and other capital resources will provide sufficient cash to maintain planned levels of capital expenditures.
 
Convertible Loan Agreement
 
In May 2006, we drew down on a US$21,000,000 funding facility provided by Macquarie Bank Limited. See “Item 10. Additional Information - C. Material Contracts.” We repaid US$1,000,000 of this loan at June 30, 2006. Despite this repayment the facility remains fully draw down and no further funds are available. As part of the terms of this facility, Macquarie holds a mortgage over all assets of the Company and as a result, we must obtain permission from Macquarie to dispose of any properties or to acquire any properties if additional debt will be involved.
 
The Consolidated Entity is required to maintain a certain Proved Developed Producing Reserve to outstanding debt ratio:

In relation to the assets (the Stanley Properties) acquired in direct relation to this facility, the discounted cashflow relating to Proved Developed Producing Reserve to outstanding debt ratio must be no less than 0.9:1.

In relation to the discounted cash flow relating to all consolidated entity Proved Developed Producing Reserve to outstanding debt, the ratio must be no less than 1:1.
 
Other covenants:
 
The Company is required to maintain a current ratio greater than 1:1.
 
The Company is required to maintain Aged Debts (over 90 days outstanding) of the Group of less than US$1,000,000.
 
Debt covenants are measured at the end of June, March, September and December.  The Company is in compliance with these covenants.
 
D.   Research and development, patents and licenses, etc.
 
Not applicable.
 
E.   Trend information.
 
The prices for crude oil and natural gas have been volatile over the last few years. Management anticipates this volatility to continue. Dramatic downward swings in the world prices for crude oil and natural gas could adversely affect the economic viability of the Company’s prospects.
 
The Australian/U.S. currency exchange rate also influences revenue recognized by the Company, as the sales price for oil and gas produced by the Company is priced in U.S dollars. The recent increased strength of the Australian dollar has had a negative impact on the Company’s oil and gas production revenue. This decrease in revenue is offset in part by a decrease in expenditures recognized by the Company, due to the majority of the Company’s expenditures also being priced in U.S Dollars. The Company’s significant debt is also denominated in US dollars. Due to this natural hedge, the Company’s exposure movements in the exchange rate between the Australian and US dollars is minimal.
 
Unlike crude oil prices, which are significantly influenced by global geopolitics, North American natural gas prices are primarily determined by the interaction of consumer and industrial demand and available supply.
 
The Company sells a significant portion of its gas at Colorado Interstate Gas (“CIG”) pricing. Historically, this price has traded at a differential to Nymex gas. In recent years, this differential has grown significantly due to pipeline constraints in the area, with prices as low as $2.17 per mcf recorded. The construction of the Rocky Express Pipeline is expected to remove some of the pipeline constraints and reduce the basis differential between CIG and Nymex.
 
37
 
In order to protect the Company from the uncertainty associated with gas prices, we have entered into a fixed forward swap contract with Macquarie Bank Limited on September 19, 2006 with respect to natural gas indexed at CIG for US$6.03 per MMBTU. The volumes associated with this hedge are as follows:
 
November 2006 to March 2007
   
35,000 MMBTU
 
April 2007 to December 2008
   
25,000 MMBTU
 
January 2008 to October 2009
   
20,000 MMBTU
 

On February 20, 2007, the Company entered into a fixed forward swap agreement with Macquarie Bank Limited with respect to natural gas indexed at CIG for US$6.15 per MMBTU for 25,000 MMBTU per month from March 2007 to September 2009.

F.   Off-balance sheet arrangements.
 
Not applicable.
 
G.   Tabular disclosure of contractual obligations.
 
   
Payments due by period
(as at June 30, 2006 - Australian Dollars)
 
   
Total
 
Less than 1 year
 
1-3
years
 
3-5
years
 
More than 5 years
 
Contractual Obligations
                     
Long-Term Debt Obligations (1)
   
33,881,037
   
2,402,510
   
4,085,020
   
27,393,507
   
-
 
Operating Lease Obligations
   
354,768
   
175,801
   
178,967
   
-
   
-
 
Total (2)
   
27,748,275
   
175,801
   
178,967
   
27,393,507
   
-
 
 
(1)
The long term debt refers to funding provided by Macquarie Bank Limited and includes interest payable. The loan is denominated in USD and has been translated to AUD at the spot rate on balance date of USD:AUD 0.7301. See “Item 10. Additional Information - C. Material Contracts.”
 
(2)
This table does not include the liability for dismantlement, abandonment and restoration costs of oil and gas properties. In accordance with AIFRS, we recorded a separate liability for the fair value of this asset retirement obligation. See Note 14 of the notes to and forming part of the financials statements for the year ended June 30, 2006. These liabilities are not expected to be extinguished in the foreseeable future.
 
38
 
Item 6.   Directors, Senior Management and Employees
 
A.   Directors and senior management.
 
Name
 
Title
 
Age
 
Date of First Election
Terence Barr
 
Managing Director
 
58
 
January 25, 2005
Malcolm Burne
 
Non-Executive Director
 
63
 
April 29, 1998
David Cairns
 
Non-Executive Director
 
59
 
February 14, 1994
Neil MacLachlan
 
Non-Executive Director
 
65
 
June 18, 1998
Victor Rudenno
 
Non-Executive Director
 
56
 
April 11, 2007
Neil Fearis
 
Alternate Director
 
56
 
November 28, 2005
Robyn Lamont
 
Chief Financial Officer
 
29
 
May 1, 2006
Jeffrey Rhodes
 
Vice President, Engineering
 
47
 
May 1, 2006
Denis Rakich
 
Company Secretary
 
54
 
June 18, 1998
             
Terence Barr. Mr. Barr was appointed managing director of the Company on January 25, 2005. Mr. Barr is a petroleum geologist with over 30 years’ experience, including 11 years with Santos. In recent years, Mr. Barr has specialized in tight gas exploration, drilling and completion and is considered an expert in this field. Prior to joining Samson, Mr. Barr was employed as Managing Director by Ausam Resources from 1999 to 2003 and as the owner of Barco Exploration from 2003 to 2005.
 
Malcolm Alec Burne. Mr. Malcolm Burne was appointed a director of the Company on April 29, 1998. Since 1996, Mr. Burne has been Executive Chairman of Golden Prospect Plc, a UK listed Company which invests in the global natural resource sector. Mr. Burne has controlled and managed fund management, venture capital and investment banking companies in Australia, Hong Kong and North America. He has been a director of more than 20 public companies, many of them in mineral resources and gold exploration, as well as being executive chairman of Australian Bullion Company (Pty) Limited from 1983 to 1986, then one of Australia’s leading gold dealers and member of the Sydney Futures Exchange. He currently advises mining companies with interests in Canada, Australia and West Africa. During the past three years, Mr. Burne has also served as a director of the following other ASX listed companies:
 
 
·
Central Asia Gold Limited
     
 
·
Reliance Mining Limited
     
 
·
Golden Prospect Plc*
     
 
·
Great Panther Resources Limited*
     
 
·
Jubilee Platinum Plc*
     
 
·
Mano River Resources Inc*
     
 
·
Lipoxen Plc
     
 
·
Go Industry Plc

*denotes current directorships

Neil Thacker MacLachlan. Mr. Neil MacLachlan was appointed a director of the Company on June 18, 1998. He has over 27 years investment banking experience in Europe, South East Asia and Australia. Mr. MacLachlan was a former director of Wardley Holdings Ltd and Wardley Australia Ltd from 1979 to 1986 and of James Capel & Co. Limited from 1986 to 1990. All three companies were investment banking subsidiaries of The Hongkong and Shanghai Banking Corporation (HSBC Holdings Ltd). He was deputy managing director of Svenska Handelsbanken’s UK investment banking division from 1990 until 1993 and from 1993 until 1997 he was employed by Barrick Gold Corporation as Executive Vice President, Asia. Mr. MacLachlan was also a non executive Director of Golden Prospect Plc from 1997 to 2004. Currently. Mr. MacLachlan is an Executive Director of Ambrian Partners Limited, a UK based investment bank specializing in the natural resources sector and which is a member of the London Stock Exchange.
 
39
 
During the past three years Mr. MacLachlan has also served as a director of the following other listed companies:
 
 
·
Golden Prospect Plc
     
 
·
Titan Resources Ltd
     
 
·
Kestrel Energy Inc
     
 
·
Geoinformatics Exploration Inc
     
 
·
Eurogold Ltd*
     
 
·
Cambridge Mineral Resources Ltd*
     
 
·
Extract Resources Ltd*

*denotes current directorships

David Thorwald Cairns B.Sc.(Geol.), M.Sc.(Env.Sc.), M.Aus.I.M.M. Mr. Cairns was appointed a director of the Company on February 14, 1994. For over five years, he has been working as a consultant to resource companies, undertaking feasibility studies and project assessments of gold mining opportunities in West Africa.   He is a geologist with extensive experience in exploration and mining of gold and base metals in Australia, Zimbabwe and South Africa with international and Australian mining groups. He has been involved in the exploration, resource evaluation and project development of numerous projects in Australia and elsewhere.
 
Mr. Cairns has not held any other directorships in the past three years.
 
Victor Rudenno. Dr. Rudenno was appointed a director of the Company on April 11, 2007. In 1984, Dr. Rudenno moved to the stock broking industry as a mining analyst working for firms such as James Capel, DBSM and Prudential Bache. In 1995, he moved to the corporate side of investment banking and worked for a number of leading firms including Macintosh Corporate, Deutsche Bank, Hartley Poynton and CIBC.  
 
In 2000, Dr. Rudenno co-founded Equity Capital Markets Ltd an investment bank specialising in corporate advice and capital raisings which merged with Interfinancial in 2005 where he is currently an Executive Director and Head of Resources.  He is a Senior Fellow of the Financial Services Institute of Australasia (Finsia) and a Member of the Australasian Institute of Mining and Metallurgy. Dr. Rudenno holds a Bachelor of Mining Engineering degree, a Master of Commerce degree and a Doctor of Philosophy for his thesis on Mining Economics. During his academic career he lectured both at the University of New South Wales and the University of Sydney predominantly on mining economics, geostatistics, operations research and minerals processing.
 
Neil Christian Fearis LL.B (Hons), MAICD, F Fin. Mr. Fearis was appointed as an alternate director for Mr. Malcom Burne on November 28, 2005. He has 30 years' experience as a commercial lawyer in the UK and Australia and is a member of several professional bodies associated with commerce and law. From 1999 to 2005 Mr. Fearis was a principal of the Western Australian law firm, Fearis Salter Power Shervington. Since July 1 2005 he has acted as an independent legal consultant and currently consults to Minter Ellison Lawyers.
 
40
 
During the past three years Mr. Fearis has also served as a director of the following companies:
 
 
·
Kresta Holdings Limited *
     
 
·
Perseus Mining Limited *
     
 
·
Carnarvon Petroleum Limited *

*denotes current directorships

Robyn Lamont. Ms. Lamont has served as the Company’s Chief Financial Officer since May 1, 2006, prior to which she served as Financial Controller since 2001. Ms Lamont graduated from the University of Western Australia in 1999 with a Bachelor of Commerce, majoring in Accounting and Finance. She worked for Arthur Andersen in Perth, Western Australia, for three years and qualified as a Chartered Accountant through the Institute of Chartered Accountants in Australia in 2001.
 
Jeffrey Rhodes. Mr. Rhodes has served as the Company’s Vice President - Engineering, since May 1, 2006. From 2001 to 2003 he was the Manager of Planning with Ensign Oil and Gas following which, he served as Vice President of Acquisitions at Meritage Energy Partners from 2003 to 2006.
 
Denis Ivan Rakich F.C.P.A. Mr. Rakich is an accountant and has been employed as the Company’s Secretary since June 18, 1998. He has extensive corporate experience within the petroleum services, petroleum and mineral production and exploration industries. He is a member of the Australian Society of Accountants.
 
B.   Compensation.
 
The following table sets forth certain information with respect to the compensation of those individuals who served as our executive officers and directors during the year ended June 30, 2006. As of June 30, 2006, we had four executive officers, including a President and Chief Executive Officer, a Vice President - Engineering, a Chief Financial Officer and a Secretary. As of June 30, 2006, we had four directors.
 
41
 
Summary Compensation
(Australian dollars)  
 
       
Annual Compensation
 
Long Term Compensation
     
Name and Principal Position
 
Year
 
Salary
(A$)
 
Bonus
(A$)
 
Restricted
Security
Awards
(A$)
 
Awards
Securities
Underlying
Options (#)
 
All Other
Compensation
(A$)
 
                           
Terence Barr
   
2006
   
280,000
   
-
   
-
   
4,000,000
   
-
 
Managing Director, President, Chief Executive Officer
                                     
                                       
Robyn Lamont
   
2006
   
24,019
   
-
   
-
   
-
   
-
 
Chief Financial Officer (2)
                                     
                                       
Timothy Hoops
   
2006
   
106,652
   
-
   
-
   
-
   
-
 
Operations Manager (3)
                                     
                                       
Jeffrey Rhodes
   
2006
   
45,860
   
-
   
-
   
2,000,000
   
-
 
Vice President - Engineering (4)
                                     
                                       
Denis Rakich
   
2006
   
92,058
   
-
   
-
   
500,000
   
-
 
Secretary
                                     
                                       
Malcolm Burne
   
2006
   
30,000
   
-
   
-
   
500,000
   
-
 
Director
                                     
                                       
Neil MacLachlan
   
2006
   
30,000
   
-
   
-
   
500,000
   
-
 
Director
                                     
                                       
David Cairns
   
2006
   
30,000
   
-
   
-
   
500,000
   
-
 
Director
                                     
                                       
Neil Fearis
   
2006
   
-
   
-
   
-
   
-
   
-
 
Alternate Director
                                     
                                       
Victor Rudenno
   
2006
   
-
   
-
   
-
   
-
   
-
 
Director (5)
                                     
 
(1)
Options were granted to the directors and some executive officers in accordance with an Extraordinary General Meeting of Shareholders held on May 22, 2006.
 
(2)
Ms. Lamont was appointed Chief Financial Officer on May 1, 2006.
 
(3)
Mr. Hoops resigned during the year, effective June 1, 2006.
 
(4)
Mr. Rhodes was appointed May 1, 2006.
 
(5)
Dr. Rudenno was appointed April 11, 2007. Dr. Rudenno has not received any compensation from the Company to date.
 
42
 
Share Option Grants
 
The following table contains further information concerning the share option grants made to our executive officers and directors during the fiscal year ended June 30, 2006.
 
Option Grants in the Last Fiscal Year

           
Individual Grants
 
Name
 
Number of Securities Underlying Options Granted (#) (1)
 
Percent of Total Options Granted to Employees in Fiscal Year
 
Exercise or Base Price
(cents/Sh)
 
Expiration Date
 
           
 
 
 
 
Terence Barr
   
4,000,000
   
50
%
 
45.0
   
05/31/11
 
Jeffrey Rhodes
   
2,000,000
   
25
%
 
45.0
   
05/31/11
 
Denis Rakich
   
500,000
   
6.25
%
 
45.0
   
05/31/11
 
Malcolme Burne
   
500,000
   
6.25
%
 
45.0
   
05/31/11
 
Neil MacLachlan
   
500,000
   
6.25
%
 
45.0
   
05/31/11
 
David Cairns
   
500,000
   
6.25
%
 
45.0
   
05/31/11
 
Victor Rudenno
   
-
   
-
   
-
   
-
 
Neil Fearis
   
-
   
-
   
-
   
-
 
 
(1)
There are no performance conditions attached to these options and thus they all vest on grant date and all such options can be exercised immediately.
 
Option Exercises and Holdings
 
The following table sets forth information with respect to our executive officers and directors concerning options exercised during the last fiscal year and the number of securities underlying unexercised options as of June 30, 2006.
 
Option Exercises During 2006

           
Number of Securities
Underlying Unexercised
Options At Fiscal Year-End (#)
 
Name
 
Shares Acquired on Exercise (#)
 
Value Realized ($)
 
Exercisable
 
Unexercisable
 
           
 
 
 
 
Terence Barr
   
-
   
-
   
8,000,000
   
-
 
Jeffrey Rhodes
   
-
   
-
   
2,000,000
   
-
 
Timothy Hoops
   
-
   
-
   
2,000,000
   
-
 
Denis Rakich
   
-
   
-
   
1,000,000
   
-
 
Malcolm Burne
   
-
   
-
   
1,000,000
   
-
 
Neil MacLachlan
   
-
   
-
   
1,000,000
   
-
 
David Cairns
   
-
   
-
   
1,000,000
   
-
 
Robyn Lamont
   
-
   
-
   
100,000
   
-
 
Victor Rudenno
   
-
   
-
   
-
   
-
 
Neil Fearis
   
-
   
-
   
-
   
-
 
 
Bonus/Profit-Sharing
 
Directors and executive remuneration is not linked to either long term or short term incentives. The Board feels that the expiry date and exercise price of the options issued to the directors and executives in the current and prior years are sufficient to align the goals of the directors and executives with those of the shareholders to maximize shareholder wealth.
 
C.   Board practices.
 
All directors hold office until the next meeting of the shareholders of the Company unless they resign or are removed in accordance with the Company’s Articles. The members of senior management are appointed to serve at the discretion of the Board of Directors. The Board of Directors schedule regular meetings over the course of the year. Currently, the Board is composed of a majority of independent directors.
 
43
 
The responsibilities of the Board include:
 
 
·
contributing to, developing and approving the corporate strategy;
     
 
·
reviewing and approving business plans, the annual budget and financial plans, including available resources and major capital expenditure initiatives;
     
 
·
ensuring there are effective management processes in place and approving major corporate initiatives;
     
 
·
ensuring that the significant risks facing the group, including those associated with its legal compliance obligations, have been identified and that appropriate and adequate control, monitoring, accountability and reporting mechanisms are in place; and
     
 
·
reporting to shareholders.

The Board is also responsible for ensuring there are adequate policies in relation to risk management, compliance and internal control systems. The Company’s policies are designed to ensure strategic, operational, legal, reputation and financial risks are identified, assessed, effectively and efficiently managed and monitored to enable achievement of the Company’s business objectives.
 
Audit Committee
 
We have established an Audit Committee of the Board, which is composed entirely of independent directors, including Mr. Neil MacLachlan, Mr. David Cairns and Dr. Victor Rudenno. Our audit committee operates pursuant to a formal written charter, a copy of which is attached as an exhibit to this Registration Statement. This committee oversees, reviews, acts on and reports to our board of directors on various auditing and accounting matters, selects our independent accountants, and oversees the scope of our annual audits, fees to be paid to the independent accountants, the performance of our independent accountants and our accounting practices. In addition, the audit committee oversees our compliance programs relating to legal   and regulatory requirements.
 
Remuneration Committee
 
Due to the size and nature of the Company’s operations, the Board does not believe the establishment of a remuneration committee is warranted. The Board of Directors is responsible for determining and reviewing compensation arrangements for directors and senior executives. The Board assesses the appropriateness of the nature and amount of remuneration of directors and executives on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality Board and executive team. All compensation decisions regarding our principal executive officer, Terence M. Barr, are made by a majority of independent directors.
 
D.   Employees.
 
For the fiscal year ended June 30, 2006, we had eight employees. Two employees are located in Perth, Western Australia and are involved in facilitating the administration of the Company. The remaining six employees are located in Denver, Colorado. Three of these employees are involved in the administration of the Company while the remaining three employees are primarily engaged in project-related activities. None of our current employees belong to a labor union, nor have   we been subject to any strikes or other labor disturbances that have interfered with our operations .
 
44
 
E.   Share ownership.
 
The following table sets forth beneficial ownership of our common shares by officers and directors as of June 18, 2007.
 
Name of Beneficial Owner
 
Number of Shares Beneficially Owned (1)
 
Number of Options Owned
 
Total Number of Shares Beneficially Owned
 
Percentage of Outstanding
 
Terence Barr
   
109,000
   
8,000,000
   
8,109,000
   
*
 
Robyn Lamont
   
-
   
100,000
   
100,000
   
*
 
Jeffrey Rhodes
   
-
   
2,000,000
   
2,000,000
   
*
 
Denis Rakich
   
-
   
1,000,000
   
1,000,000
   
*
 
Malcolm Burne
   
500,000
   
1,000,000
   
1,000,000
   
*
 
David Cairns
   
512,500
   
1,000,000
   
1,000,000
   
*
 
Neil MacLachlan
   
1,812,500
   
1,000,000
   
1,000,000
   
*
 
Victor Rudenno
   
-
   
-
   
-
   
*
 
Neil Fearis
   
-
   
-
   
-
   
*
 
 
* Less than 1%.

(1)
“Beneficial ownership” is defined in the regulations promulgated by the SEC as having or sharing, directly or indirectly, (1) voting power, which includes the power to vote, or to direct the voting of, shares of the common stock of an issuer, or (2) investment power, which includes the power to dispose, or to direct the disposition of, shares of the common stock of an issuer. The definition of beneficial ownership includes shares underlying options or warrants to purchase common stock, or other securities convertible into common stock, that currently are exercisable or convertible or that will become exercisable or convertible within 60 days. Unless otherwise indicated, the beneficial owner has sole voting and investment power.
 
Item 7.   Major Shareholders and Related Party Transactions
 
A.   Major shareholders.
 
At June 15, 2007, there were 192,263,833 of our Ordinary Shares issued and outstanding. The table below sets forth, as of June 18, 2007, persons known to be beneficial owners of five percent (5%) or more of our Ordinary Shares.
 
Name of Shareholder
 
Number of Shares Beneficially Owned (1)
 
Percentage of Outstanding
 
Harbinger Capital (2)
   
36,359,328
   
18.92
%
Persistency Capital (3)
   
24,026,679
   
12.49
%
Golden Prospect PLC (4)
   
15,836,891
   
8.23
%
Victoria Petroleum N.L. (5)
   
10,272,992
   
5.34
%
 
(1)
“Beneficial ownership” is defined in the regulations promulgated by the SEC as having or sharing, directly or indirectly, (1) voting power, which includes the power to vote, or to direct the voting of, shares of the common stock of an issuer, or (2) investment power, which includes the power to dispose, or to direct the disposition of, shares of the common stock of an issuer. The definition of beneficial ownership includes shares underlying options or warrants to purchase common stock, or other securities convertible into common stock, that currently are exercisable or convertible or that will become exercisable or convertible within 60 days. Unless otherwise indicated, the beneficial owner has sole voting and investment power.
 
45
 
(2)
The address of Harbinger Capital Partners Master Fund is: 1 Riverchase Parkway, South Birmingham, Alabama 35244, United States of America. In May 2006 Harbinger purchased 15,500,000 Ordinary Shares in a capital raise undertaken by the Company to fund the purchase of the Jonah and Lookout Wash Fields.
 
(3)
The address of Persistency Capital is: P.O Box 39, Ugland House, South Church Street, Georgetown, Cayman Islands. In May 2006 Persistency Capital purchased 15,500,000 Ordinary Shares in a capital raise undertaken by the Company to fund the purchase of the Jonah and Lookout Wash Fields.
 
(4)
The address of Golden Prospect Plc is: 2 nd Floor Mansfield House, 1 Southampton Street St, London WC2R OLR, United Kingdom.
 
(5)
The address of Victoria Petroleum NL is: Level 36, Exchange Plaza, 2 The Esplanade, Perth Western Australia 6000, Australia.
 
The voting rights of our major shareholders do not differ from the voting rights of holders of our shares who are not major shareholders.
 
To the best of our knowledge, the Company is not directly or indirectly owned or controlled by another corporation, by any foreign government or by any other natural or legal person.
 
There are no arrangements known to us, the operation of which may at a subsequent date result in a change in the control of our Company.
 
B.   Related party transactions.
 
Other than as disclosed below, to the best of our knowledge, there have been no material transactions since June 30, 2005 to which we were or are a party and in which any of our directors or officers, any relative or spouse of any director or officer, or any individual owning, directly or indirectly, an interest in our voting securities giving it significant influence over us, has or will have a direct or indirect material interest nor were any of our directors or officers, any relatives or spouses of such directors or officers, or any individuals owning, directly or indirectly, an interest in our voting power that gives them significant influence over us, indebted to us during this period.
 
During the year, the Australian law firm Jeremy Shervington, with whom Neil Fearis is associated, was paid $71,665 for the provision of services by Neil Fearis. These services were charged on normal commercial terms.
 
On December 1, 2005, we entered into a Consultancy Agreement with Arndt Energy Limited for the provision of Terence Barr’s services. The agreement allows for an annual salary of $280,000 for a period of three years, commencing on January 1, 2006. The Company may terminate the agreement with one months notice and provide a lump sum payment to Arndt Energy equal to the amount that would have been paid under the contract should the contract have continued until the end of its term.
 
On January 1, 2007, we entered into a Consulting Services Agreement with Jeffrey Rhodes, pursuant to which we engaged Mr. Rhodes to serve as Vice President - Engineering of our wholly owned subsidiary, Samson Oil & Gas USA, Inc. (“Samson USA”). The agreement has an initial term of three years and allows for a monthly consulting fee of US$18,750. Samson USA may terminate the agreement at any time provided that, upon termination or in the event of a Change of Control (as defined in the agreement), a lump sum payment is made to Mr. Rhodes equal to 48 months consulting fees. Additionally, Mr. Rhodes in entitled to receive an overriding royalty interest equal to 2% of any working interest on oil wells or leases acquired by Samson USA during the term of the agreement.
 
46
 
C.   Interests of experts and counsel.
 
Not applicable.
 
Item 8.   Financial Information
 
A.   Consolidated Statements and Other Financial Information.
 
Financial Statements Filed as a Part of this Registration Statement
 
This Registration Statement contains unaudited consolidated financial statements for the six months ended December 31, 2006 and December 31, 2005 and audited consolidated financial statements for the fiscal years ended June 30, 2006 and June 30, 2005, all of which are stated in Australian dollars and prepared in accordance with the Australian equivalents to International Financial Reporting Standards.
 
The audited consolidated financial statements for the fiscal years ended June 30, 2006 and June 30, 2005 and the unaudited consolidated financials statements for the six months ended December 31, 2006 and December 31, 2005 also include a summary of the significant adjustments required to the net (loss)/earnings and to total equity for the periods if the accounts were prepared under US GAAP.
 
This Registration Statement also includes an audited statement of revenues and direct operating expenses for the Look Out Wash and Jonah properties for the year ended June 30, 2005 and the period from July 1, 2005 to May 29, 2006.
 
Legal Proceedings
 
None.
 
Dividend Distributions
 
To date, we have not paid any cash dividends on our Ordinary Shares and have no present intention of paying dividends. Our current policy is to retain earnings, if any, for use in operations and in business development.
 
B.   Significant Changes.
 
The directors are not aware of any matters or circumstances not otherwise dealt with in this Registration Statement that have significantly, or may significantly affect the operations of the Company, the results of those operations or the state of affairs of the Company in the subsequent financial years.
 
Item 9.   The Offer and Listing.
 
A.   Offer and listing details.
 
Price History of the Ordinary Shares.   Our Ordinary Shares were listed on the Australian Stock Exchange Ltd. (the “ASX”) beginning on April 17, 1980. As of June 15, 2007, 192,198,833 Ordinary Shares were outstanding, and we had approximately 2,325 shareholders of record. The following table sets forth, for the periods indicated, the highest and lowest market quotations for the Ordinary Shares reported on the Daily Official List of the ASX. On June 21, 2007, the closing price of our Ordinary Shares on the ASX was A$0.21.
 
47
 
Annual High and Low Market Price for the Five Most Recent Fiscal Years on the ASX
 
Fiscal Year Ended
 
High
 
Low
June 30, 2006
 
A$
0.53
 
A$
0.28
June 30, 2005
 
A$
0.45
 
A$
0.12
June 30, 2004
 
A$
0.25
 
A$
0.07
June 30, 2003
 
A$
0.11
 
A$
0.04
June 30, 2002
 
A$
0.14
 
A$
0.08

Quarterly High and Low Market Price for the Two Most Recent Fiscal Years and Any Subsequent Period on the ASX
 
Quarter Ended
 
High
 
Low
March 31, 2007
 
A$
0.31
 
A$
0.22
December 31, 2006
 
A$
0.33
 
A$
0.27
September 30, 2006
 
A$
0.38
 
A$
0.27
June 30, 2006
 
A$
0.46
 
A$
0.30
March 31, 2006
 
A$
0.49
 
A$
0.34
December 31, 2005
 
A$
0.53
 
A$
0.22
September 30, 2005
 
A$
0.52
 
A$
0.28
June 30, 2005
 
A$
0.39
 
A$
0.29
March 31, 2005
 
A$
0.45
 
A$
0.27
December 31, 2004
 
A$
0.40
 
A$
0.13
September 30, 2004
 
A$
0.14
 
A$
0.12

Monthly High and Low Market Price for the Most Recent Six Months on the ASX
 
Month Ended
 
High
 
Low
May 31, 2007
 
A$
0.24
 
A$
0.19
April 30, 2007
 
A$
0.23
 
A$
0.19
March 31, 2007
 
A$
0.28
 
A$
0.22
February 28, 2007
 
A$
0.32
 
A$
0.26
January 31, 2007
 
A$
0.32
 
A$
0.26
December 31, 2006
 
A$
0.33
 
A$
0.33
November 30, 2006
 
A$
0.29
 
A$
0.22
October 31, 2006
 
A$
0.30
 
A$
0.25
September 30, 2006
 
A$
0.33
 
A$
0.27
 
Description of the Ordinary Shares. At June 30, 2006, our outstanding share capital consisted of 192,198,833 Ordinary Shares, no par value per share. Upon effectiveness of this Registration Statement, our Ordinary Shares will be registered under Section 12 of the Securities Exchange Act of 1934 and we will file semi-annual reports with the Securities and Exchange Commission on Form 6-K and an Annual Report on Form 20-F.
 
B.   Plan of distribution.
 
Not applicable.
 
48
 
C.   Markets.  
 
Our Ordinary Shares are listed on the Australian Stock Exchange, trading under the symbol “SSN.” We have submitted an application to have the ADRs listed on the American Stock Exchange.
 
D.   Selling shareholders.
 
Not applicable.
 
E.   Dilution.
 
Not applicable.
 
F.   Expenses of the issue.
 
Not applicable.
 
Item 10.   Additional Information.
 
A.   Share capital.
 
Not applicable.
 
B.   Memorandum and articles of association.
 
We are a public company limited by shares registered by the Australian Securities and Investments Commission or ASIC. We were registered on April 17, 1980 and our Australian Company Number is 009 069 005. Subject to the Australian Stock Exchange (“ASX”) Listing Rules and the Corporations Act of Australia (“Corporations Act”), the rights that attach to our shares are detailed in our constitution. Our current constitution was adopted on November 29, 2005. Under Australian law, a company has the legal capacity and powers of an individual both inside and outside Australia.
 
The material provisions of our constitution are summarized below. This summary is not intended to be complete, or to constitute a definitive statement of the rights and liabilities of our stockholders and is qualified in its entirety by reference to the constitution which is available as an exhibit to this Registration Statement.
 
The Corporations Act prohibits directors of companies listed on the Australian Stock Exchange from voting on matters in which they have a material personal interest, requires disclosure of such interest to stockholders, and requires stockholders’ approval of any provision of related party benefits.
 
Directors’ Compensation
 
Our directors are paid remuneration for their services as directors. The aggregate amount of remuneration payable to the directors is approved in a general meeting of stockholders. The aggregate, fixed sum for directors’ remuneration is to be divided among the directors in such proportion as the directors themselves agree, and in accordance with our constitution. The fixed sum remuneration for directors shall not be by way of a commission on or percentage of the turnover of our Company or (except in the case of a director who is the managing director or other executive director) its profits.
 
In the event of a proposal to increase the remuneration of the directors for their ordinary services the notice calling the meeting at which such increase is to be proposed shall state the amount of the proposed increase and the maximum sum that may be paid.
 
49
 
Pursuant to our constitution any director who devotes special attention to our business or who otherwise performs services which in the opinion of our board of directors are outside the scope of the ordinary duties of a director, or who at the request of the board of directors engages in any journey related to our business, shall be paid extra fixed remuneration or salary either in addition to or in substitution for his share in the remuneration above provided.
 
In addition to other remuneration provided in our constitution, all directors are entitled to be paid by us for reasonable travel accommodation and other expenses incurred by the directors in attending Company meetings, board meetings, committee meetings or while engaged on our business.
 
Additionally in accordance with our constitution, a director may be paid a retirement benefit as determined by the board of directors in accordance with the Corporations Act and the Australian Stock Exchange Listing Rules.
 
Borrowing Powers Exercisable by Directors
 
Pursuant to our constitution, the management and control of our business affairs are vested in our board of directors.
 
The board has the powers to raise or borrow any sums of money and to secure the payment or repayment of such monies and any other obligation or liability in the manner and on the terms it thinks fit, whether upon the security of any mortgage or by issue of debentures or debenture stock charged upon all or any of our property including its goodwill undertaking and uncalled capital for the time being or upon bills of exchange promissory notes or other obligations or otherwise.
 
Retirement of directors
 
Pursuant to our constitution, one third of directors other than the director who is the managing director, must retire from office at every annual general meeting. If the number of directors is not a multiple of three then the number nearest to but not less than one third must retire from office. The directors who retire in this manner are required to be the directors or director longest in office since last being elected. A director, other than the director who is a managing director, must retire from office at the conclusion of the third annual general meeting after which the director was elected.
 
There are no requirements in our constitution regarding the retirement of directors at any particular age. The Corporations Act, however, requires that directors retire at the conclusion of the first annual general meeting after a director reaches age 72. A person who has reached age 72 may by special resolution of our stockholders be appointed or re-appointed as a director, provided the notice of meeting and the resolution appointing such director states such director’s age.
 
Rights and Restrictions on Classes of Shares
 
Subject to the Corporations Act and the Australian Stock Exchange Listing Rules rights attaching to our shares are detailed in our constitution. Our constitution provides that, any of our shares shall be Ordinary Shares and may be issued with preferred, deferred or other special rights, whether in relation to dividends, voting, return of share capital, payment of calls or otherwise as the board of directors may from time to time determine, and either at a premium or at par (subject to the provisions of the Corporations Act 2001) at a discount (subject to certain conditions set forth in our constitution). Subject to the prior approval at a general meeting and notwithstanding anything contained in our constitution, the board may allot, grant options over any shares to any person or company if such allotment would have the effect of transferring a controlling interest provided that this prohibition shall not apply in any case either where such allotment is pursuant to an offer of shares to the holders of Ordinary Shares as nearly as practicable in proportion to their respective shareholding or where such person or company is already registered as the holder of a majority of the issued shares prior to such allotments. Currently our outstanding share capital consists of only one class of Ordinary Shares.
 
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Dividend Rights
 
The board may from time to time determine to pay dividends to stockholders as appear to the board to be justified by our profits. All dividends must be paid in accordance with the timetable set out in the Listing Rules. All unclaimed dividends may be invested or otherwise made use of by the board for our benefit until claimed or otherwise disposed of in accordance with our constitution.
 
Voting Rights
 
Under our constitution, each stockholder has one vote determined by a show of hands at a meeting of the stockholders. On a poll vote each stockholder shall have one vote for each fully paid share and a fractional vote for each share which is not fully paid, such fraction being equivalent to the proportion of the amount which has been paid to such date on that share. Under Australian law, stockholders are not permitted to approve corporate matters by written consent. Our constitution does not provide for cumulative voting.
 
Right to Share in our Profits
 
Pursuant to our constitution, our stockholders are entitled to participate in our profits only by payment of dividends.
 
The board may from time to time determine to pay dividends to the stockholders, however no dividend is payable except out of our profits. A declaration by the board as to the amount of our profits is conclusive.
 
Rights to Share in the Surplus in the Event of Liquidation
 
Our constitution provides, subject to the sanction of a special resolution, that the liquidator may divide amongst the members in-kind the whole or any part of the assets, and he may determine how the division shall be carried out as between the members or different classes of members.
 
Redemption Provisions
 
There are no redemption provisions in our constitution in relation to Ordinary Shares. Under our constitution and subject to the Corporations Act, any preference shares may be issued on the terms that they are or may at our option, be liable to be redeemed.
 
Sinking Fund Provisions
 
There are no sinking fund provisions in our constitution in relation to Ordinary Shares.
 
Liability for Further Capital Calls
 
According to our constitution, and subject to compliance with the requirements of the Corporations Act 2001, the board may make any calls from time to time upon stockholders in respect to all monies unpaid on shares, whether on account of the nominal value of the shares or by way of premium, and not by the terms of issue of those shares made payable at fixed times. Each stockholder is liable to pay the amount of each call in the manner, at the time, and at the place specified by the board. Calls may be made payable by installment.
 
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Provisions Discriminating Against Holders of a Substantial Number of Shares
 
There are no provisions under our constitution discriminating against any existing or prospective holders of a substantial number of our shares.
 
Variation of Share Rights
 
Our constitution provides that if at any time the capital is divided into different classes of shares, the rights attaching to any class of shares, may (unless otherwise provided by the terms of issue of the shares of that class), whether or not we are being wound up, be varied with the sanction of a special resolution passed at a separate meeting of the holders of the shares of such class. The provisions of our constitution relating to general meetings shall apply to every such meeting, except that the necessary quorum shall be members present holding or representing three quarters of the nominal amount of the issued shares of the class and that any member present holding shares of the class may demand a poll.
 
General Meetings of Stockholders
 
General meetings of stockholders may be called by the board of directors whenever it deems fit, provided that a general meeting to be called the annual general meeting must be held at least once every calendar year and held in accordance with the Corporations Act 2001. Except as permitted under the Corporations Act, stockholders may not convene a meeting. Under the Corporations Act, stockholders with at least 5% of the votes which may be cast at a general meeting may call and arrange to hold a general meeting. The Corporations Act requires the directors to call and arrange to hold a general meeting on the request of stockholders with at least 5% of the votes that may be cast at a general meeting or at least 100 stockholders who are entitled to vote at the general meeting. Twenty-eight days’ notice of the proposed meeting of our stockholders is required under the Corporations Act.
 
Foreign Ownership Regulation
 
There are no limitations on the rights to own securities imposed by our constitution. However, acquisitions and proposed acquisitions of shares in Australian companies may be subject to review and approval by the Australian Federal Treasurer under the Foreign Acquisitions and Takeovers Act of 1974. Generally this act applies to acquisitions or proposed acquisitions:
 
 
·
by a foreign person, as defined in the Foreign Acquisitions and Takeovers Act, or associated foreign persons which would result in such persons having an interest in 15% or more of the issued shares of, or control of 15% or more of the voting power in, an Australian company, and
     
 
·
by non associated foreign person which would result such foreign person having an interest in 40% or more of the issued shares of, or control of 40% or more of the voting power in, an Australian company.

The Australian Federal Treasurer may prevent a proposed acquisition in the above categories or impose conditions on such acquisition if the Treasurer is satisfied that the acquisition would be contrary to the national interest, or if it resulted in that foreign person, either alone or together with other non-associated or associated foreign persons, controlling the Company and that such control is contrary to the national interest.
 
Ownership Threshold
 
There are no provisions in our constitution, which require a stockholder to disclose ownership above a certain threshold. The Corporations Act, however, requires a substantial stockholder to notify us and the Australian Stock Exchange once a 5% interest in our shares is obtained. Further, once a stockholder owns a 5% interest in us, such stockholder must notify us and the Australian Stock Exchange of any increase or decrease of 1% or more in its holding in our shares.
 
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Conditions for Change of Capital
 
There are no conditions imposed by our constitution relating to changes in our capital which are more stringent than are required by the Corporations Act.
 
Stock Issues and Takeover Attempts
 
We are governed by the Corporations Act which provides stockholders with broad protection in relation to takeovers, including:
 
 
·
that the acquisition of control over voting shares takes place in a efficient, competitive and informed market;
     
 
·
that stockholders have enough information to assess the merits of a proposal; and
     
 
·
that stockholders all have a reasonable and equal opportunity to participate in any benefits accruing to the stockholders through any proposal under which a person would acquire a substantial interest.

Further, subject to limited exceptions provided in the Australian Stock Exchange Listing Rules, we must not issue or agree to issue shares, without the approval of holders of our Ordinary Shares, for three months after we are told in writing that a person is making or proposes to make, a takeover for our shares.
 
The exceptions to the listing rule are as follows:
 
 
·
an issuance or agreement to issue which we have notified the Australian Stock Exchange of before we are told a person is making or proposes to make a takeover for our shares;
     
 
·
an issuance to our ordinary stockholders on a pro-rata basis;
     
 
·
an issuance made due to an exercise of rights of conversion already in existence;
     
 
·
an issuance by us as consideration for an off-market takeover bid made by us where we are required to comply with the provisions of the Corporations Act;
     
 
·
an issuance under a dividend stock distribution plan that is in operation before we are told a person is making or proposes to make a takeover for our shares;
     
 
·
if there is an agreement to issue shares and such agreement is conditional on ordinary stockholders approving the issuance before the issuance is made.

Access to and Inspection of Documents
 
Inspection of our records is governed by the Corporation Act. Any person has the right to inspect our Company registers on payment of a fee. Stockholders are not required to pay a fee for inspection. Any person may obtain copies of a register or any part of the register upon payment of a fee as prescribed by us. Further, we must ensure that the minute books for the meetings of our stockholders are open for inspection to our stockholders free of charge. Other corporate records including minutes of directors meetings, financial records and other documents are not open for inspections by stockholders, However, a stockholder may apply to a court to make an order for inspection of our books, if the applicant stockholder is acting in good faith and the inspection is make for a proper purpose.
 
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CHESS  
 
We participate in the Clearing House Electronic Sub-Register System, known as CHESS, which is maintained by the CHESS Securities Clearing House pursuant to the Australian Stock Exchange Listing Rules and the Securities Clearing House Business Rules. CHESS is an electronic transfer and settlement system, with no requirement for paper transfer documents. Accordingly, the legal registered record of holding balances for our CHESS-approved shares are recorded on either of the electronic CHESS sub-register or the electronic issuer sponsored sub-register, which together form the complete Company register. We do not issue share certificates to stockholders. Instead, we provide stockholders with a holding statement (similar to a bank account statement) that sets out the number of Ordinary Shares registered in each stockholder’s name. This statement also advises stockholders of their holder identification number or stockholder reference number and relevant particulars. If a shareholding changes during any month, stockholders will receive a statement after the end of that month. Stockholders may also request statements at any other time (subject to payment of a small administration fee).
 
C.   Ma terial contracts.
 
Syndicated Convertible Loan Facility Agreement . On May 26, 2006, our wholly-owned subsidiary, Samson Oil and Gas USA, Inc. (“Samson USA”) entered into a convertible loan agreement (the “Loan Facility”) with Macquarie Bank Limited, pursuant to which Samson USA agreed to incur and secure senior convertible loans in an aggregate principal amount of $21 million (the “Loans”) for the purpose of financing the purchase of the Jonah and Lookout Wash Fields. The Loans are secured by substantially all of the assets of the Company and its subsidiaries, including Samson USA, and are guaranteed by the Company. This loan consists of two tranches:
 
Tranche A
Interest rate: 9.25%
Maturity date: May 31, 2011

This loan has a face value of US$11,000,000. In addition, 11,000,000 options were granted to Macquarie Bank Limited as part of the loan agreement. These options are convertible at Macquarie Bank Limited’s discretion anytime until the maturity date of the loan. This portion of the debt would not be required to be repaid in the event that Macquarie Bank Limited chose to convert the debt to equity. The exercise price of the options is 53.8 cents per share, being the volume weighted average share price of the Company for the 90 trading days prior to May 30, 2006.
 
Tranche B
Interest rate: 9.7%
Maturity date: May 31, 2008

This tranche may be repaid at any time at the Company’s option before May 31, 2009, however there is no requirement for the Company to repay the loan prior to May 31, 2009. This tranche of the loan was originally drawn down for US$10,000,000. On June 30, 2006, the Company repaid US$1,000,000.
 
This loan is recorded at the spot rate applicable at balance date, being AUD/USD 0.7301.
 
10,000,000 options were also granted to Macquarie Bank Limited as part of the loan agreement. These options can be exercised at Macquarie Bank Limited’s discretion between May 31, 2009 and May 31 2011. This portion of the debt would not be required to be repaid in the event that Macquarie Bank Limited chose to convert the debt to equity. The exercise price of these options is 120% of the volume weighted average trading price of Samson’s share price for the 90 trading days prior to May 31, 2009, and is subject to adjustment in accordance with customary market practice.
 
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Purchase and Sale Agreement (Stanley Energy, Inc.). On March 14, 2006, Samson USA entered into a Purchase and Sale Agreement with Stanley Energy, Inc. and Stanley Energy W., Inc. (together the “Seller”), pursuant to which Samson USA agreed to purchase and the Seller agreed to sell certain interests and assets and property related to the Jonah and Lookout Wash Fields for an aggregate purchase price of US$36,300,000. The transaction closed on May 29, 2006.
 
Hedging Arrangements. On September 19, 2006, the Company entered into a fixed forward swap agreement with Macquarie Bank Limited with respect to natural gas indexed at CIG for US$6.03 per MMBTU. The volumes associated with this hedge are as follows:
 
November 2006 to March 2007
   
35,000 MMBTU
 
April 2007 to December 2008
   
25,000 MMBTU
 
January 2008 to October 2009
   
20,000 MMBTU
 

On February 20, 2007, the Company entered into a fixed forward swap agreement with Macquarie Bank Limited with respect to natural gas indexed at CIG for US$6.15 per MMBTU for 25,000 MMBTU per month from March 2007 to September 2009.
 
D.   Exchange controls.
 
Under existing Australian legislation, the Reserve Bank of Australia does not inhibit the import and export of funds, and, generally, no permission is required to be given to Samson for the movement of funds in and out of Australia. However, payments to or from (or relating to) Iraq, its agencies or nationals, the government or a public authority of Libya, or certain Libyan undertakings, the authorities in the Federal Republic of Yugoslavia (Serbia and Montenegro) or their agencies, the Taliban (also referred to as the Islamic Emirate of Afghanistan), or the National Union for the Total Independence of Angola (also known as UNITA), its senior officials or the adult members of their immediate families, may not be made without the specific approval of the Reserve Bank of Australia.
 
At the present time, remittances of any dividends, interest or other payment by Samson to non-resident holders of Samson’s securities in the U.S. are not, subject to the above, restricted by exchange controls or other limitations.
 
Takeovers Act
 
There are no limitations, either under the laws of Australia or under our Constitution, to the right of non-residents to hold or vote our Ordinary Shares other than the Commonwealth Foreign Acquisitions and Takeovers Act 1975 (the “Takeovers Act”). The Takeovers Act may affect the right of non-Australian residents, including U.S. residents, to hold Ordinary Shares but does not affect the right to vote, or any other rights associated with, any Ordinary Shares held in compliance with its provisions.
 
Acquisitions of shares in Australian companies by foreign interests are subject to review and approval by the Treasurer of the Commonwealth of Australia under the Takeovers Act. The Takeovers Act applies to any acquisition of outstanding shares of an Australian company that exceeds, or results in a foreign person or persons controlling the voting power of more than a certain percentage of those shares. The thresholds are 15% where the shares are acquired by a foreign person, or group of associated foreign persons, or 40% in aggregate in the case of foreign persons who are not associated. Any proposed acquisition that would result in an individual foreign person (with associates) holding more than 15% must be notified to the Treasurer in advance of the acquisition. As of the date of this Registration Statement, approximately 20% of the fully paid outstanding Ordinary Shares in the Company were held by shareholders whose registered addresses were located outside Australia. In addition to the Takeovers Act, there are statutory limitations in Australia on foreign ownership of certain businesses, such as banks and airlines, not relevant to Samson. However, there are no other statutory or regulatory provisions of Australian law or Australian Stock Exchange requirements that restrict foreign ownership or control of Samson.
 
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Corporations Act 2001
 
As applied to Samson, the Corporations Act 2001 (the “Corporations Act 2001”) prohibits any legal person (including a corporation) from acquiring a relevant interest in Ordinary Shares if after the acquisition that person or any other person’s voting power in the Company increases from 20% or below to more than 20%, or from a starting point that is above 20% and below 90%.
 
This prohibition is subject to a number of specific exceptions set out in section 611 of the Corporations Act 2001 which must be strictly complied with to be applicable.
 
In general terms, a person is considered to have a “relevant interest” in a share in Samson if that person is the holder of that share, has the power to exercise, or control the exercise of, a right to vote attached to that share, or has the power to dispose of, or to control the exercise of a power to dispose of that share.
 
It does not matter how remote the relevant interest is or how it arises. The concepts of “power” and “control” are given wide and extended meanings in this context in order to deem certain persons to hold a relevant interest. For example each person who has voting power above 20% in a company or a managed investment scheme which in turn holds shares in Samson is deemed to have a relevant interest in those shares. Certain situations (set out in section 609 of the Corporations Act 2001), which would otherwise constitute the holding of a relevant interest, are excluded from the definition.
 
A person’s voting power in Samson is that percentage of the total votes attached to Ordinary Shares in which that person and its associates (as defined in the Corporations Act 2001) holds a relevant interest.
 
E.   Taxation.
 
The taxation discussion set forth below describes the material Australian income tax and US federal income tax consequences of ownership of our Ordinary Shares or ADSs by a US Holder (as defined below). This discussion is based on the Australian and US tax laws currently in force at the date of this Registration Statement. The comments do not take into account or anticipate any changes in law (by legislation or judicial decision) or any changes in administrative practice or interpretation by the relevant authorities. If there is a change, including a change having a retrospective effect, the comments would have to be considered in light of the changes. This discussion does not address any tax consequences arising under the laws of any state or local jurisdiction, nor of any foreign jurisdictions other than Australia and the United States.
 
These comments are not exhaustive of all income tax consequences that could apply in all circumstances of any given Shareholder or ADS holder. We recommend that prospective purchasers or holders of our Ordinary Shares or ADSs consult their own tax advisors regarding the Australian and US federal, state and local tax, and other tax consequences of, purchasing, holding, owning, disposing of or otherwise transferring our Ordinary Shares and ADSs in their particular circumstances. Neither the Company nor any officers accept liability or responsibility with respect of such consequences. Further, special additional rules may apply to particular Shareholders, such as insurance companies, superannuation funds and financial institutions.
 
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Australian Taxation
 
The following discussion of the Australian taxation implications is based on the provisions of the Income Tax Assessment Act 1936, the Income Tax Assessment Act 1997, International Tax Agreements Act 1953 (IntTAA) which includes the United States Convention as amended by the United States Protocol (USDTA), public taxation rulings and available case law current as at the date of this Registration Statement on Form 20−F (all of which are collectively referred to in this section as “Australian Taxation Laws”). The Australian Taxation Laws and their interpretation are subject to change at any time.
 
General Principle of Taxation in Australia
 
This discussion only deals with two items of income that may arise from an investment in the shares or ADSs in us, namely:
 
·
any capital gain made on a sale of the shares or ADSs; and
 
·
any dividends which may be paid by the Company with respect to those shares (or ADSs). Please note that we have not paid any dividends to date and do not expect to pay any in the near to medium term.
 
The discussion is relevant only to shareholders or ADS holders that are not residents of Australia for tax purposes, and are residents of the US for the purposes of the USDTA (“US Equity Holders”).
 
Capital Gains on Sale of Shares or ADSs
 
Under Australian law, income tax is typically not payable on the gain made on the disposal of Ordinary Shares or ADSs by US Equity Holders unless the profit is of income in nature and sourced in Australia or the sale is subject to tax on any net capital gains, in each case as broadly summarized below.
 
When the Profit on Sale is Income in Nature
 
Where a US Equity Holder:
 
·
holds its Ordinary Shares or ADSs as trading stock or otherwise on revenue account;
 
·
carries on a business in Australia through a permanent establishment or fixed base; and
 
·
holds the Ordinary Shares or ADSs as part of that business,
 
any profit on the sale of the Ordinary Shares or ADS’s (as the case may be) would be required to be included in the assessable income of the relevant US Equity Holders and taxed accordingly.
 
When the Sale is Subject to Capital Gains Tax
 
A US Equity Holder will be required to include in its assessable income in Australia any “net capital gains” that it makes on “indirect Australian real property interests” (“IARPI”). Broadly, IARPI will exist where:
 
 
·
the U.S Equity Holder and its associates have a 10% or more direct participation interest in us and owned the shareholding at the time of disposal or throughout a 12 month period beginning no earlier than 24 months before the sale of the shareholding, and ending no later than the date of sale of the shareholding; and

 
·
at the time of the sale of the shareholding more than 50% of the market value of our assets are attributable to Australian real property (broadly Australian land and interest in Australian land).
 
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Therefore, unless a US Equity Holder and its associates holds a direct participation interest of at least 10% it will not make a taxable capital gain or capital loss for Australian tax purposes with respect to the sale of shares or ADSs, irrespective of the percentage of our assets that constitute Australian real property. Therefore there will be no tax payable on any gain on the sale of the shares or ADSs.
 
Where a US Equity Holder, with its associates holds;
 
 
·
a direct participation interest of at least 10%; and

 
·
at the time of sale less than 50% of the market value of our assets are attributable to Australian real property,

that US Equity Holder will not be subject to Australian tax on any gain or loss with respect to the sale of shares or ADSs.
 
Where a US Equity Holder, with its associates holds;
 
 
·
a direct participation interest of at least 10%; and

 
·
at the time of sale more than 50% of the market value of our assets are attributable to Australian real property,

that US Equity Holder will be required to calculate its net capital gains for the relevant income year taking into account the capital gain or capital loss made on the sale of the shares or ADSs. The net capital gain is then included in the US Holder’s assessable income in Australia and will be taxed accordingly.
 
A summary of a method for calculating net capital gains is to:
 
 
·
deduct from the capital gains all capital losses;

 
·
deduct from the capital gain all past unapplied net capital losses; and

 
·
reduce the remaining capital gain by any applicable capital gains discount. Natural persons and some trusts are entitled to a 50% capital gains discount in circumstances where the shares or ADSs have been sold after being held for in excess of a 12 month period. The 50% capital gains discount is not available to companies.

Dividends
 
Dividends paid by Samson to US Equity Holders are only subject to the withholding tax provisions of the Australian Taxation Laws.
 
Australia has an imputation system which allows a company which distributes profits to its members to pass on to its members a credit for the tax already paid by the company to its members. This is known as a franking credit. The amount of the franking credit attached to the dividend is at the discretion of the paying company, but cannot exceed the balance of the company’s franking account (broadly the net of any income tax paid less franking credits attached to previous dividends). To the extent that the dividend is franked, the dividend is not subject to withholding tax when paid to US Equity Holders. This means that a fully franked dividend is not subject to any withholding tax.
 
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Any part of a dividend paid to you which is not franked is subject to dividend withholding tax in Australia. The withholding tax rates under the USDTA are as follows:
 
 
·
generally 15% of the gross amount of the dividend, however;

 
·
this is reduced to 5% of the gross amount of the dividend if the US Equity Holder who is beneficially entitled to the dividend is a company which holds at least 10% of the voting power in the company, and

 
·
this is reduced to nil if the US Equity Holder who is beneficially entitled to the dividends is a company who has held shares (or ADSs) which hold a voting power of at least 80% for at least a 12 month period (subject to certain other conditions).

In the case of a US Equity Holder carrying on business in Australia through a permanent establishment or performing independent personal services through a fixed base in Australia with which the holding of shares (or ADSs) is effectively connected, no withholding tax will apply, instead the dividends form part of the normal assessable income subject to tax in Australia under the USDTA.
 
A dividend which is unfranked is also exempt from withholding tax to the extent that it consists of certain income from foreign sources (for example dividends from foreign companies in which the shareholder owns at least a 10% interest). It may be possible to pay such dividends to US Equity Holders without the imposition of withholding tax under the Australian “Conduit Foreign Income” rules. Essentially conduit foreign income is foreign income received by a non-Australian resident (you) via an Australian corporate tax entity (us).
 
In the event we paid a dividend we would provide Equity Holders with notices detailing the extent to which a dividend is franked or unfranked, or represents conduit foreign income, and the deduction, if any, of withholding tax. If a dividend paid is subject to withholding tax, or would be so but for being franked, no further Australian tax is payable on the dividend.
 
There are also additional exemptions depending on the nature of the shareholder which are designed to ensure that an entity that is otherwise exempt from tax is not subject to withholding tax, e.g., charitable institutions.
 
U.S. Taxation
 
This section describes the material U.S. federal income tax consequences to a U.S. Holder of owning our Ordinary Shares or ADSs. This discussion is based upon the Internal Revenue Code of 1986 as amended (the “Code”), regulations of the U.S. Treasury Department, and court and administrative rulings and decisions in effect and available on the date of this Registration Statement, any of which may change, possibly retroactively. Such a change could affect the continuing validity of this discussion.
 
For purposes of this section headed “U.S. Taxation,” the term “U.S. Holder” means a beneficial owner of Ordinary Shares or ADSs who for U.S. federal income tax purposes is:
 
 
·
a citizen or individual who is a resident of the United States for U.S. federal income tax purposes;
 
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·
a corporation, or an entity treated as a corporation, created or organized in or under the laws of the United States or any state or political subdivision thereof;

 
·
a trust that (i) is subject to (a) the primary supervision of a court within the United States and (b) the authority of one or more United States persons to control all substantial decisions or (ii) has a valid election in effect under applicable Treasury regulations to be treated as a United States person; or,

 
·
an estate that is subject to U.S. federal income tax on its income regardless of its source.

If a partnership (including for this purpose any entity treated as a partnership for U.S. federal income tax purposes) holds our Ordinary Shares or ADSs, the U.S. federal income tax treatment of a partner generally will depend on the status of such partner and the activities of the partnership. If you are a partner in a partnership holding our Ordinary Shares or ADSs, you should consult your tax advisor(s).
 
This discussion assumes that you are a U.S. Holder and hold your Ordinary Shares or ADSs as capital assets within the meaning of the Code. This discussion does not address all aspects of U.S. federal income taxation that may be relevant to you in light of your particular circumstances or that may be applicable to you if you are subject to special treatment under the U.S. federal income tax laws, including if you are:
 
 
·
a financial institution;

 
·
a tax-exempt organization;

 
·
an S-corporation or other pass-through entity;

 
·
an insurance company;

 
·
a mutual fund;

 
·
a dealer in stocks and securities, or foreign currencies;

 
·
a trader in securities who elects the mark-to-market method of accounting for your securities;

 
·
a holder of our Ordinary Shares or ADSs subject to the alternative minimum tax provisions of the Code;

 
·
a holder of our Ordinary Shares or ADSs who received our Ordinary Shares or ADSs through the exercise of employee stock options, otherwise as compensation, or through a tax-qualified retirement plan;

 
·
a holder who is a person that has a functional currency other than the U.S. dollar, certain expatriates, or not a U.S. Holder;

 
·
a holder of options granted under any benefit plan;
 
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·
a holder of our Ordinary Shares or ADSs who holds our Ordinary Shares or ADSs as part of a hedge, straddle or constructive sale or conversion transaction; or,
 
 
·
a holder of our Ordinary Shares or ADSs who owns, or is treated as owning under certain attribution rules, 5% or more of the aggregate amount of our Ordinary Shares or ADSs.
 
This section is based in part upon the representations of the depositary and the assumption that each obligation in the deposit agreement and any related agreement will be performed in accordance with its terms.
 
In general, and taking into account the earlier assumptions, for U.S. federal income tax purposes a holder of ADSs will be treated as the owner of the Ordinary Shares represented by those ADSs. Exchanges of Ordinary Shares for ADSs, and of ADSs for Ordinary Shares, generally will not be subject to U.S. federal income tax.
 
Sale of Ordinary Shares and ADSs
 
Subject to the passive foreign investment company rules discussed below, a U.S. Holder that sells or otherwise disposes of Ordinary Shares or ADSs will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference between (i) the U.S. dollar value of the amount realized on the sale or disposition and (ii) the tax basis, determined in U.S. dollars, of those Ordinary Shares or ADSs. Capital gain of a non-corporate U.S. Holder that is recognized in a tax year beginning before January 1, 2011 will generally be taxed at a maximum rate of 15% if the holder has a holding period greater than 12 months. The gain or loss on the sale or other disposition of our Ordinary Shares or ADSs by a U.S. Holder will generally be income or loss from sources within the United States for purposes of computing the foreign tax credit limitation.
 
Dividends
 
We do not expect to pay dividends in the foreseeable future. However, subject to the passive foreign investment company rules discussed below, a U.S. Holder must include in gross income the gross amount of any dividend paid by the Company out of its current or accumulated earnings and profits (as determined for U.S. federal income tax purposes). The holder must include any Australian tax withheld from the dividend payment in this gross amount even though the holder does not in fact receive it. The dividend is taxable to the holder when the holder (in the case of Ordinary Shares) or the depositary (in the case of ADSs) receives the dividend, actually or constructively.
 
Except as described below, dividends paid to a non-corporate U.S. Holder of our Ordinary Shares or ADSs before January 1, 2011 would be “qualifying dividends” to such holder. Qualifying dividends are taxed at the rates applicable to long-term capital gains (generally at a maximum rate of 15%). However, dividends will not be qualifying dividends (and will be taxed at ordinary income rates) if (i) the holder fails to hold the Ordinary Shares or ADSs for at least 61 days during the 120 day period beginning 60 days before the ex-dividend date; or (ii) the IRS determines that the USDTA is not a comprehensive income tax treaty that entitles our dividends to qualifying dividend treatment and our Ordinary Shares or ADSs are no longer readily tradeable on an established securities market in the United States.
 
In the case of a corporate U.S. Holder, dividends on Ordinary Shares and ADSs are taxed as ordinary income and will not generally be eligible for the dividends received deduction generally allowed to U.S. corporations for dividends received from other U.S. corporations.
 
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Distributions in excess of current and accumulated earnings and profits (as determined for U.S. federal income tax purposes) will be treated as a non-taxable return of capital to the extent of the holder’s basis in the Ordinary Shares or ADSs and thereafter as capital gain.
 
Subject to certain limitations, Australian tax withheld in accordance with the USDTA and paid over to Australia will be creditable against the taxpayer’s U.S. federal income tax liability. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are taxed at the capital gains rate. To the extent a refund of the tax withheld is available to a U.S. Holder under Australian law or under the Australian treaty, the amount of tax withheld that is refundable will not be eligible for credit against the holder’s U.S. federal income tax liability.
 
Dividends will be income from sources outside the U.S. and will generally will be “passive income” for purposes of computing the foreign tax credit allowable to a U.S. Holder.
 
Passive Foreign Investment Company Status
 
Although we believe that we will not be a PFIC for 2007 and do not expect to become a PFIC in the foreseeable future, the tests for determining PFIC status depend upon a number of factors. Some of these factors are beyond our control, and we cannot assure you that we will not be or have not been a PFIC.
 
A non-U.S. corporation will be classified as a PFIC in any taxable year in which, after taking into account the income and assets of certain subsidiaries, either (i) at least 75% of its gross income is passive income, or (ii) at least 50% of the average value of its assets is attributable to assets that produce or are held for the production of passive income. Whether or not we will be classified as a PFIC in any taxable year is a factual determination and will depend upon our assets, the market value of our Ordinary Shares, and our activities in each year and is therefore subject to change.
 
If we are a classified as a PFIC for any taxable year, the so-called “interest charge regime” of Code Section 1291 will apply to any U.S. Holder of Ordinary Shares or ADSs that does not make a mark-to-market or qualifying electing fund election, as described below. Under the interest charge regime, (i) any gain the U.S. Holder realizes on the sale or other disposition of the Ordinary Shares or ADSs (possibly including a gift, exchange in a corporate reorganization, or grant as security for a loan) and any “excess distribution” that we make to such holder (generally, any distributions to such holder in respect of the Ordinary Shares or ADSs during a single taxable year that are greater than 125% of the average annual distributions received by such holder in the three preceding years or, if shorter, such holder’s holding period for the Ordinary Shares or ADSs), will be treated as ordinary income that was earned ratably over each day in such holder’s holding period for the Ordinary Shares or ADSs; (ii) the portion of such gain or distribution that is allocable to prior taxable years will, with certain exceptions, be subject to tax at the highest rate applicable to ordinary income for the relevant taxable years, regardless of the tax rate otherwise applicable to such holder; and (iii) the interest charge generally applicable to underpayments of tax will be imposed with respect of the tax attributable to each such year.
 
If we are classified as a PFIC for any taxable year and our Ordinary Shares or ADSs are treated as “marketable securities” under applicable U.S. Treasury Regulations, a U.S. Holder may avoid the interest charge regime by making a valid “mark-to-market” election with respect to the Ordinary Shares or ADSs. If a valid mark-to-market election is made, the electing U.S. Holder generally (i) will be required to recognize as ordinary income an amount equal to the difference, if any, between the fair market value of the Ordinary Shares or ADSs and the holder’s adjusted tax basis in such Ordinary Shares or ADSs at the close of each taxable year, and (ii) if the U.S. Holder’s adjusted tax basis in the Ordinary Shares or ADSs exceeds their fair market value, will be allowed to deduct the excess as an ordinary loss to the extent of the net amount of income previously included as a result of the mark-to-market election. A U.S. Holder’s basis in its Ordinary Shares or ADSs will be adjusted to reflect the amounts included or deducted with respect to the mark-to-market election, and any gain or loss on the disposition of Ordinary Shares or ADSs will generally be ordinary income, or, to the extent of previously included mark-to-market inclusions, ordinary loss. Each U.S. Holder must make their own mark-to-market election. Once made, the election cannot be revoked without the consent of the Internal Revenue Service unless the Ordinary Shares or ADSs cease to be marketable securities. Under applicable U.S. Treasury Regulations, marketable securities includes stock of a PFIC that is “regularly traded” on a qualified exchange or other market. Because our Ordinary Shares are traded on the Australian Stock Exchange and our ADSs will be traded on the Nasdaq National Market if and when listed thereon, we expect the Ordinary Shares and ADSs to be treated as “regularly traded,” and a U.S. Holder should be able to make a mark-to-market election. However, no assurance that our Ordinary Shares or ADSs will be marketable securities can be given.
 
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The interest charge regime would not apply to any U.S. Holder who is eligible for and timely makes a valid “qualifying electing fund” (“QEF”) election, in which case such holder would be required to include in income on a current basis such holder’s pro rata share of our ordinary income and net capital gains. However, a QEF election is valid only if we provide certain annual information to our shareholders. We have not decided at this time whether we will provide such annual information and thus it is possible that U.S. Holders will not be able to make a valid QEF election with respect to our Ordinary Shares and ADSs.
 
Special rules apply with respect to the calculation of the amount of the foreign tax credit with respect to excess distributions by a PFIC. In general, these rules allocate creditable foreign taxes over the U.S. Holder’s holding period for Ordinary Shares or ADSs and otherwise coordinate the foreign tax credit limitation rules with the PFIC rules.
 
In addition to the special PFIC tax regime, dividends paid on shares of a PFIC are not eligible for the reduced rate of taxation of dividends received by non-corporate U.S. Holders on shares of qualifying corporations for purposes of the Jobs and Growth Tax Relief Reconciliation Act of 2003. Instead, dividends paid on shares of a PFIC are taxed at the higher rates applicable to items of ordinary income. If we are a PFIC for any taxable year, U.S. Holders who acquire Ordinary Shares or ADSs from decedents could be denied the step-up in the tax basis for such Ordinary Shares or ADSs that would have been available if were not a PFIC.
 
If we are a PFIC in a taxable year and own shares in another PFIC (a “lower-tier PFIC”), a U.S. Holder also will be subject to the interest charge regime with respect to its indirect ownership of the lower-tier PFIC. The mark-to-market election would not be available for any indirect ownership of a lower-tier PFIC. A QEF election can be made for a lower-tier PFIC, but only if we provide the U.S. Holder with the financial information necessary to make such an election.
 
U.S. Holders who own Ordinary Shares or ADSs during any year in which we are a PFIC must file IRS Form 8621 with their U.S. federal income tax return for each year in which such holder owns Ordinary Shares or ADSs, even if we subsequently would not be considered a PFIC.
 
U.S. Information Reporting and Backup Withholding
 
Dividend payments with respect to Ordinary Shares or ADSs and proceeds from the sale, exchange, redemption, or other disposition of Ordinary Shares or ADSs may be subject to information reporting to the IRS and U.S. backup withholding. Certain exempt recipients, including corporations, are not subject to these information reporting requirements. Backup withholding will not apply to a holder who furnishes a correct taxpayer identification number or certificate of foreign status and who makes any other required certification. U.S. persons who are required to establish their exempt status generally must provide to us or our depositary an IRS Form W-9 (Request for Taxpayer Identification Number and Certification).
 
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Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a holder’s U.S. federal income tax liability, and a holder may obtain a refund of any excess amounts withheld by filing the appropriate claim for refund with the IRS and furnishing any required information.
 
F.   Dividends and Paying Agents
 
The Bank of New York, as depositary, executes and delivers American Depositary Receipts, or ADRs, on behalf of Samson. Each ADR is a certificate evidencing a specific number of American Depositary Shares, also referred to as ADSs. Each ADS represents 20 Ordinary Shares (or a right to receive 20 Ordinary Shares). The depositary has agreed to pay to the holders of our ADSs the cash dividends or other distributions it or the custodian receives on shares or other deposited securities, after deducting its fees and expenses. Each holder of our ADSs will receive these distributions in proportion to the number of Ordinary Shares represented by such holder’s ADSs.
 
G.   Statement by experts.
 
The consolidated financial statements of Samson Oil & Gas Limited as of June 30, 2006 and 2005 and for each of the two years then ended, appearing in this Registration Statement have been audited by Ernst & Young, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm experts in accounting and auditing.
 
The statement of combined revenues and direct operating expenses of certain oil and gas properties of Stanley Energy Inc. for the period from July 1, 2005 through May 29, 2006 and for the year ended June 30, 2005 appearing in this Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
 
Jeffrey Rhodes, our Vice President — Engineering,   has consented to the inclusion in this Registration Statement of his engineering report of our oil and gas reserves as at the years ended June 30, 2005 and June 30, 2006.
 
MHA Petroleum Consultants, Inc. has consented to the inclusion in this Registration Statement of its independent engineering report of our proved and probable reserves as at September 1, 2006.
 
H.   Documents on display.
 
We have filed this Registration Statement on Form 20−F with the SEC, under the Securities and Exchange Act of 1934, as amended, with respect to our Ordinary Shares. You may read and copy all or any portion of this Registration Statement or other information in the SEC’s public reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549. You can also request copies of these documents upon payment of a duplicating fee, by writing the SEC. Please call the SEC at 1−800−SEC−0330 for further information on the operation of the public reference rooms. The SEC maintains a web site ( http://www.sec.gov ) that contains all of our filings with the SEC. The documents concerning us may also be viewed at our offices in Lakewood, Colorado during normal business hours.
 
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I.   Subsidiary Information.
 
Not applicable.
 
Item 11.   Quantitative and Qualitative Disclosures About Market Risk.
 
Market risk represents the risk of loss that may impact our financial position, results of operations, or cash flows due to adverse changes in financial market prices, including interest rate risk, foreign currency exchange rate risk, commodity price risk, and other relevant market or price risks.
 
Commodities Price Risk. Our financial condition, results of operations and capital resources are highly dependent upon the prevailing market prices of oil and natural gas. These commodity prices are subject to wide fluctuations and market uncertainties due to a variety of factors that are beyond our control. Factors influencing oil and natural gas prices include the level of global demand for crude oil, the foreign supply of oil and natural gas, the establishment of and compliance with production quotas by oil exporting countries, weather conditions which determine the demand for natural gas, the price and availability of alternative fuels and overall economic conditions. It is impossible to predict future oil and natural gas prices with any degree of certainty. Sustained weakness in oil and natural gas prices may adversely affect our financial condition and results of operations, and may also reduce the amount of oil and natural gas reserves that we can produce economically. Any reduction in our oil and natural gas reserves, including reductions due to price fluctuations, can have an adverse affect on our ability to obtain capital for our development activities.
 
In order to protect the Company from the uncertainty associated with gas prices, we have entered into a fixed forward swap with contract with Macquarie Bank Limited on September 19, 2006 with respect to natural gas indexed at CIG for US$6.03 per MMBTU. The volumes associated with this hedge are as follows:
 
November 2006 to March 2007
   
35,000 MMBTU
 
April 2007 to December 2008
   
25,000 MMBTU
 
January 2008 to October 2009
   
20,000 MMBTU
 

On February 20, 2007, the Company entered into a fixed forward swap agreement with Macquarie Bank Limited with response to natural gas indexed at CIG for US$6.15 per MMBTU for 25,000 MMBTU per month from March 2007 to September 2009.
 
Interest Rate Risk. We have minimal interest rate risk as our long-term indebtedness have a fixed rate interest rate.
 
Foreign Currency Risk. We have one controlled subsidiary based in the United States. The functional currency of this subsidiary is US$. As a result of this significant investment in operations in the United States, our financial condition can be affected significantly by movements in the US$/A$ exchange rates. We have managed some of this risk by borrowing funds to finance a portion of this investment in US$. The majority of our material revenue and expenses are also incurred in US$, thereby creating a natural hedge for the Company and minimizing our foreign current risk
 
Item 12.   Description of Securities Other than Equity Securities.
 
American Depositary Receipts
 
The Bank of New York, as depositary, will execute and deliver the American Depositary Receipts, or ADRs. Each ADR is a certificate evidencing a specific number of American Depositary Shares, also referred to as ADSs. Each ADS will represent 20 Ordinary Shares (or a right to receive 20 Ordinary Shares) deposited with Bank of New York, each as the custodian for the depositary. Each ADS will also represent any other securities, cash or other property which may be held by the depositary. The depositary’s office at which the ADRs will be administered is located at 101 Barclay Street, New York, New York 10286.
 
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Our ADSs may be held either directly (by having an ADR registered in the holder’s name) or indirectly through a broker or other financial institution. If our ADSs are held directly, the holder of the ADS is an ADR holder. This description assumes our ADSs are held directly. If our ADSs are held indirectly, the indirect holder must rely on the procedures of his, her or its broker or other financial institution to assert the rights of ADR holders described in this section and should consult with his, her or its broker or financial institution to find out what those procedures are.
 
Holders of our ADRs will have ADR holder rights. A deposit agreement among us, the depositary and our ADR holders, and the beneficial owners of ADRs, sets out ADR holder rights as well as the rights and obligations of the depositary. New York law governs the deposit agreement and the ADRs. We will not treat our ADR holders as one of our shareholders and our ADR holders will not have shareholder rights. Australian law governs shareholder rights. (For a description of our shareholders’ rights. See “Item 10. Additional Information - A. Description of Share Capital” and “Item 10. Additional Information - B. Constitution.” The depositary will be the holder of the shares underlying our ADSs.
 
The following is a summary of the material provisions of the deposit agreement. For more complete information, our ADR holders should read the entire deposit agreement and the form of ADR.
 
Dividends and Other Distributions
 
How will our ADR holders receive dividends and other distributions on the Ordinary Shares?
 
The depositary has agreed to pay to our ADR holders the cash dividends or other distributions it or the custodian receives on shares or other deposited securities, after deducting its fees and expenses. Our ADR holders will receive these distributions in proportion to the number of shares their ADSs represent.
 
Cash . The depositary will convert any cash dividend or other cash distribution we pay on the shares into U.S. dollars, if it can do so on a reasonable basis and can transfer the U.S. dollars to the United States. If that is not possible or if any government approval is needed and can not be obtained, the deposit agreement allows the depositary to distribute the foreign currency only to those ADR holders to whom it is possible to do so. It will hold the foreign currency it cannot convert for the account of the ADR holders who have not been paid. It will not invest the foreign currency and it will not be liable for any interest. If the exchange rates fluctuate during a time when the depositary cannot convert the foreign currency, our ADR holders may lose some of the value of the distribution.
 
Before making a distribution, the depositary will deduct any withholding taxes that must be paid. See “Item 10. Additional Information - E. Taxation.” It will distribute only whole U.S. dollars and cents and will round fractional cents to the nearest whole cent.
 
Shares . The depositary may distribute additional ADSs representing any shares we distribute as a dividend or free distribution in proportion to the number of ADRs representing the underlying shares. The depositary will only distribute whole ADSs. It will sell shares which would require it to deliver a fractional ADS and distribute the net proceeds in the same way as it does with cash. If the depositary does not distribute additional ADSs, the outstanding ADSs will also represent the new shares. Before making a distribution, the depositary will deduct any withholding taxes and fees that must be paid.
 
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Rights to purchase additional shares . If we offer holders of our securities any rights to subscribe for additional shares or any other rights, the depositary may make these rights available to our ADR holders. If the depositary decides it is not legal and practical to make the rights available but that it is practical to sell the rights, the depositary will use reasonable efforts to sell the rights and distribute the proceeds in the same way as it does with cash. The depositary will allow rights that are not distributed or sold to lapse. In that case, our ADR holders will receive no value for them.
 
The depositary will not offer the rights unless both the rights and the securities to which the rights relate are exempt from registration under the Securities Act or are registered under the Securities Act. If the depositary makes rights available to our ADR holders, it will exercise the rights and purchase the shares at the request of and on each ADR holder’s behalf if our ADR holders pay it the exercise price and any other charges the rights require our ADR holders to pay. The depositary will then deposit the shares and deliver ADSs to our ADR holders.
 
U.S. securities laws may restrict transfers and cancellation of the ADSs represented by shares purchased upon exercise of rights. For example, our ADR holders may not be able to trade these ADSs freely in the United States. In this case, the depositary may deliver restricted depositary shares that have the same terms as the ADRs described in this section except for changes needed to put the necessary restrictions in place.
 
Other Distributions . The depositary will send to our ADR holders anything else we distribute on deposited securities by any means it thinks is legal, fair and practical. If it cannot make the distribution in that way, the depositary has a choice. It may decide to sell what we distributed and distribute the net proceeds, in the same way as it does with cash. Or, it may decide to hold what we distributed, in which case ADSs will also represent the newly distributed property. However, the depositary is not required to distribute any securities (other than ADSs) to our ADR holders unless it receives satisfactory evidence from us that it is legal to make that distribution.
 
The depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any ADR holders. We have no obligation to register ADSs, shares, rights or other securities under the Securities Act. We also have no obligation to take any other action to permit the distribution of ADRs, shares, rights or anything else to ADR holders. This means that our ADR holders may not receive the distributions we make on our shares or any value for them if it is illegal or impractical for us to make them available to them .
 
Deposit, Withdrawal and Cancellation
 
How are ADSs issued?
 
The depositary will deliver ADSs if our ADR holders or their brokers deposit Ordinary Shares or evidence of rights to receive Ordinary Shares with the custodian. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will register the appropriate number of ADSs in the names our ADR holders request and will deliver the ADRs at its office to the persons our ADR holders request.
 
How do ADR holders cancel an ADR and obtain shares?
 
Our ADR holders may turn in their ADRs at the depositary’s office in order to withdraw the securities represented by the ADR. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will deliver the Ordinary Shares and any other deposited securities underlying the ADR to the ADR holder or a person he, she or it designates at the office of the custodian. Or, at the ADR holder’s request, risk and expense, the depositary will deliver the deposited securities at its office, if feasible.
 
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Voting Rights
 
How do our ADR holders vote?
 
Our ADR holders may instruct the depositary to vote the Ordinary Shares underlying their ADRs, but only if we ask the depositary to ask for their instructions. Otherwise, our ADR holders will not be able to exercise their right to vote unless they withdraw the Ordinary Shares . However, our ADR holders may not know about the meeting enough in advance to withdraw the shares.
 
If we ask for our ADR holders’ instructions, the depositary will notify our ADR holders of the upcoming vote and arrange to deliver our voting materials and form of notice to them. The materials will (1) describe the matters to be voted on and contain such information as is contained in the notice from us, (2) include a statement that the ADR holders on a specified record date will be entitled to direct the depositary to vote the shares or other deposited securities underlying the ADSs, subject to applicable law and our Constitution, and (3) explain how our ADR holders may instruct the depositary to vote the shares or other deposited securities underlying their ADSs as they direct. For instructions to be valid, the depositary must receive them on or before the date specified. The depositary will try, as far as practical, subject to Australian law and the provisions of the depositary agreement and the depositary’s operating documents, to vote or to have its agents vote the shares or other deposited securities as our ADR holders instruct. The depositary shall not vote or attempt to exercise the right to vote other than in accordance with the instructions of the ADR holders. We cannot assure our ADR holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that our ADR holders may not be able to exercise their right to vote and there may be nothing they can do if their shares are not voted as they requested.
 
Fees and Expenses
 
Persons depositing shares or
ADR holders must pay:
 
For:
     
US$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)
 
·   Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property
     
US$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)
 
·   Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates
     
US$0.02 (or less) per ADS
 
·   Any cash distribution to our ADR holders
     
A fee equivalent to the fee that would be payable if securities distributed to our ADR holders had been shares and the shares had been deposited for issuance of ADSs
 
·   Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADR holders
     
US$0.02 (or less) per ADS per calendar year (if the depositary has not collected any cash distribution fee during that year)
 
·   Depositary services
     
Registration or transfer fees
 
·   Transfer and registration of shares on our share register to or from the name of the depositary or its agent when our ADR holders deposit or withdraw shares
     
Expenses of the depositary in converting foreign currency to U.S. dollars
 
·   Whenever the depositary or the custodian receives foreign currency, by way of dividends or other distributions or the net proceeds from the sale of securities, property or rights, and if at the time of the receipt thereof the foreign currency so received can in the judgment of the depositary be converted on a reasonable basis into U.S. dollars and the resulting U.S. dollars transferred to the United States
 
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Persons depositing shares or
ADR holders must pay:
 
For:
     
Expenses of the depositary
 
·   Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement)
     
Taxes and other governmental charges the depositary or the custodian have to pay on any ADR or share underlying an ADR, for example, stock transfer taxes, stamp duty or withholding taxes
   
     
Any charges incurred by the depositary or its agents for servicing the deposited securities
   

If we:
 
Then:
     
·   Reclassify, split up or consolidate any of the deposited securities
 
The cash, shares or other securities received by the depositary will become deposited securities. Each ADS will automatically represent its equal share of the new deposited securities.
     
·   Distribute securities on the shares that are not distributed to our ADR holders
 
·   Recapitalize, reorganize, merge, liquidate, sell all or substantially all of our assets, or take any similar action
 
The depositary may, and will if we ask it to, distribute some or all of the cash, shares or other securities it received. It may also deliver new ADRs or ask our ADR holders to surrender their outstanding ADRs in exchange for new ADRs identifying the new deposited securities.
 
Payment of Taxes
 
The ADR holder is required to pay all taxes and other governmental charges that may be payable in respect of any their ADSs, or the shares or other securities underlying their ADSs. The depositary may refuse to effect a transfer of any ADRs or refuse to effect the withdrawal of any securities underlying the ADRs while any such taxes and charges are outstanding. The depositary may deduct the amount of any taxes owed from any payments to our ADR holders. It may also sell deposited securities, by public or private sale, to pay any taxes owed. Our ADR holders will remain liable if the proceeds of the sale are not enough to pay the taxes. If the depositary sells deposited securities, it will, if appropriate, reduce the number of ADSs to reflect the sale and pay to our ADR holders any proceeds, or send to our ADR holders any property, remaining after it has paid the taxes.
 
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Reclassifications, Recapitalizations and Mergers
 
Amendment and Termination
 
How may the deposit agreement be amended?
 
We may agree with the depositary to amend the deposit agreement and the ADRs without the consent of our ADR holders for any reason which we deem desirable. If an amendment adds or increases fees or charges, except for taxes and other governmental charges or expenses of the depositary for registration fees, facsimile costs, delivery charges or similar items, or prejudices a substantial right of ADR holders, it will not become effective for outstanding ADRs until 30 days after the depositary notifies ADR holders of the amendment. At the time an amendment becomes effective, our ADR holders are considered, by continuing to hold their ADRs, to agree to the amendment and to be bound by the ADRs and the deposit agreement as amended . In no event will an amendment impair the right of ADR holders to surrender and withdraw the underlying securities, except in order to comply with the applicable law.
 
How may the deposit agreement be terminated?
 
The depositary will terminate the deposit agreement if we ask it to do so by notifying our ADR holders at least 60 days before termination. The depositary may also terminate the deposit agreement if the depositary has notified us that it would like to resign and by notifying our ADR holders at least 30 days before termination.
 
After termination, the depositary and its agents will do the following under the deposit agreement but nothing else: collect distributions on the deposited securities, sell rights and other property, and deliver shares and other deposited securities upon cancellation of ADRs. At any time after the expiration of four months from the date of termination, the depositary may sell any remaining deposited securities by public or private sale. After that, the depositary will hold the money it received on the sale, as well as any other cash it is holding under the deposit agreement for the pro rata benefit of the ADR holders that have not surrendered their ADRs. It will not invest the money and has no liability for interest. The depositary’s only obligations after the sale of the deposited securities will be to account for the money and other cash. After termination our only obligations will be to indemnify the depositary and to pay fees and expenses of the depositary that we agreed to pay.
 
Limitations on Obligations and Liability
 
Limits on our Obligations and the Obligations of the Depositary; Limits on Liability to Holders of ADRs
 
The deposit agreement expressly limits our obligations and the obligations of the depositary. It also limits our liability and the liability of the depositary. We and the depositary:
 
 
·
are only obligated to take the actions specifically set forth in the deposit agreement without negligence or bad faith;
 
 
·
are not liable if either of us is prevented or delayed by law or circumstances beyond our control from performing our obligations under the deposit agreement;
 
 
·
are not liable if either of us exercises discretion permitted under the deposit agreement;
 
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·
have no obligation to become involved in a lawsuit or other proceeding related to the ADRs or the deposit agreement on behalf any of our ADR holders or on behalf of any other party;
 
 
·
are not liable for any action or non action in reliance on the advice of or information from legal counsel, accountants, any person presenting shares for deposit, any ADR holders or any other person believed in good faith to be competent to give such information;
 
 
·
are not liable for any acts or omissions made by a successor depositary; and
 
 
·
are not responsible for a failure to carry out any instructions for the depositary to vote the ADSs.
 
In the deposit agreement, we agree to indemnify the depositary for acting as depositary, except for losses caused by the depositary’s own negligence or bad faith, and the depositary agrees to indemnify us for losses resulting from its negligence or bad faith.
 
Requirements for Depositary Actions
 
Before the depositary will deliver or register a transfer of an ADR, make a distribution on an ADR, or permit withdrawal of Ordinary Shares, the depositary may require:
 
 
·
payment of stock transfer or other taxes or other governmental charges and transfer or registration fees charged by third parties for the transfer of any Ordinary Shares or other deposited securities;
 
 
·
satisfactory proof of the identity and genuineness of any signature or other information it deems necessary;
 
 
·
delivery of the certificates that we may specify to the depositary to assure compliance with the Securities Act; and
 
 
·
compliance with laws and regulations, from time to time, consistent with the deposit agreement, including presentation of transfer documents.
 
The depositary may refuse to deliver ADRs or register transfers of ADRs generally when the transfer books of the depositary or our transfer books are closed or at any time if the depositary or we think it advisable to do so.
 
Right of our ADR holders to Receive the Ordinary Shares Underlying their ADRs
 
Our ADR holders have the right to cancel their ADRs and withdraw the underlying shares at any time except:
 
 
·
When temporary delays arise because: (i) the depositary has closed its transfer books or we have closed our transfer books; (ii) the transfer of shares is blocked to permit voting at a shareholders’ meeting; or (iii) we are paying a dividend on our shares.
 
 
·
When ADR holders seeking to withdraw Ordinary Shares owe money to pay fees, taxes and similar charges.
 
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·
When it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADRs or to the withdrawal of Ordinary Shares or other deposited securities.
 
This right of withdrawal may not be limited by any other provision of the deposit agreement.
 
Pre−release of ADRs
 
The deposit agreement permits the depositary to deliver ADRs before deposit of the underlying Ordinary Shares. This is called a pre−release of the ADR. The depositary may also deliver shares upon cancellation of pre−released ADRs (even if the ADRs are cancelled before the pre−release transaction has been closed out). A pre−release is closed out as soon as the underlying shares are delivered to the depositary. The depositary may receive ADRs instead of shares to close out a pre−release. The depositary may pre−release ADRs only under the following conditions: (1) before or at the time of the pre−release, the person to whom the pre−release is being made represents to the depositary in writing that it or its customer owns the shares or ADRs to be deposited; (2) the pre−release is fully collateralized with cash or other collateral that the depositary considers appropriate; and (3) the depositary must be able to close out the pre−release on not more than five business days’ notice. In addition, the depositary will limit the number of ADSs that may be outstanding at any time as a result of pre−release, although the depositary may disregard the limit from time to time, if it thinks it is appropriate to do so.

Direct Registration System
 
In the deposit agreement, all parties to the deposit agreement acknowledge that the DRS and Profile Modification System, or Profile, will apply to uncertificated ADSs upon acceptance thereof to DRS by the DTC. DRS is the system administered by DTC pursuant to which the depositary may register the ownership of uncertificated ADSs, which ownership shall be evidenced by periodic statements issued by the depositary to the ADS holders entitled thereto. Profile is a required feature of DRS which allows a DTC participant, claiming to act on behalf of an ADS holder, to direct the depositary to register a transfer of those ADSs to DTC or its nominee and to deliver those ADSs to the DTC account of that DTC participant without receipt by the depositary of prior authorization from the ADS holder to register such transfer.
 
In connection with and in accordance with the arrangements and procedures relating to DRS/Profile, the parties to the deposit agreement understand that the depositary will not verify, determine or otherwise ascertain that the DTC participant which is claiming to be acting on behalf of an ADS holder in requesting registration of transfer and delivery described in the paragraph above has the actual authority to act on behalf of the ADS holder (notwithstanding any requirements under the Uniform Commercial Code). In the deposit agreement, the parties agree that the depositary’s reliance on and compliance with instructions received by the depositary through the DRS/Profile System and in accordance with the deposit agreement, shall not constitute negligence or bad faith on the part of the Depositary.
 
 
72
 
PART II
 
Item 12.   Defaults, Dividend Arrearages and Delinquencies.
 
Not applicable.
 
Item 13.   Material Modifications to the Rights of Security Holders and Use of Proceeds.
 
Not applicable.
 
Item 14.   Controls and Procedures.
 
Not applicable.
 
Item 15.   [Reserved]
 
Item 16A.   Audit committee financial expert.
 
Not applicable.
 
Item 16B.   Code of Ethics.
 
Not applicable.
 
Item 16C.   Principal Accountant Fees and Services.
 
Not applicable.
 
Item 16D.   Exemptions from the Listing Standards for Audit Committees.
 
Not applicable.
 
Item 16E.   Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
 
Not applicable.
 
73
 
PART III
 
Item 17.   Financial Statements
 
Not applicable.
 
Item 18.   Financial Statements
 
The Financial Statements of the Company and the relevant Report of Independent Registered Public Accounting Firm and Report of Independent Auditors are included on pages F-1 through F-93 of this Form 20−F.
 
The following Financial Statements have been included:

Page
 
Samson Oil & Gas Limited
     
F-1
 
Report of Independent Registered Public Accounting Firm- Ernst & Young
F-2
 
Consolidated Income Statement for the years ended June 30, 2006 and 2005
F-3
 
Consolidated Balance Sheet at June 30, 2006 and 2005
F-4
 
Consolidated Cash Flow Statement for years ended June 30, 2006 and 2005
F-5
 
Consolidated Statement of Changes in Equity for the years ended June 30, 2006 and 2005
F-6
 
Notes to the Consolidated Financial Statements
     
F-70
 
Condensed Income Statement for the half years ended December 31, 2006 and 2005
F-71
 
Condensed Balance Sheet for the half years ended December 31, 2006 and 2005
F-72
 
Condensed Cash Flow Statement for the half years ended December 31, 2006 and 2005
F-73
 
Condensed Statement of Changes in Equity for the half years ended December 31, 2006 and 2005
F-74
 
Notes to the Interim Consolidated Financial Statements
     
F-88
 
Report of Independent Auditors - Ernts & Young LLP
F-89
 
Statements of Revenues and Direct Operating Expenses for the period from July 1, 2005 to May 29, 2006 and for the twelve months ended June 30, 2005.
F-89
 
Notes to the Financial Statements
 
Item 19.   Exhibits.
 
Exhibit No.
 
Description of Exhibit
1
 
Constitution of Samson Oil & Gas Limited.
     
4.1
 
Syndicated Convertible Loan Facility Agreement dated May 26, 2006 between Macquarie Bank Limited and Samson Oil & Gas USA, Inc., and Samson Oil & Gas Limited.
     
4.2
 
Security Trust Deed dated May 2006 between Macquarie Bank Limited, Samson Oil & Gas USA, Inc., and Samson Oil & Gas Limited
     
4.3
 
Purchase and Sale Agreement dated March 6, 2006 between Samson Oil & Gas USA Inc., Stanley Energy Inc., and Stanley Energy W., Inc.
     
4.4
 
Settlement Agreement dated October 17, 2006 between Kestrel Energy, Inc. and Dissenting Shareholders
     
8
 
List of Subsidiaries
     
 
74
 
Exhibit No.
 
Description of Exhibit
     
15.1
 
Consent of Ernst & Young LLP.
     
15.2
 
Consent of Ernst & Young.
     
15.3
 
Consent of Jeffrey Rhodes.
     
15.4
 
Consent of MHA Petroleum Consultants, Inc.

75

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Registration Statement on its behalf.
     
   
SAMSON OIL & GAS LIMITED
 
  		 
     
/s/ Terence M. Barr
 
Name:   Terence M. Barr
Title:   Managing Director, Chief Executive Officer and President
 
Date:   July 4, 2007

76

EXHIBIT INDEX
 
Exhibit No.
 
Description of Exhibit
     
1
 
Constitution of Samson Oil & Gas Limited.
     
4.1
 
Syndicated Convertible Loan Facility Agreement dated May 26, 2006 between Macquarie Bank Limited and Samson Oil & Gas USA, Inc., and Samson Oil & Gas Limited.
     
4.2
 
Security Trust Deed dated May 2006 between Macquarie Bank Limited, Samson Oil & Gas USA, Inc., and Samson Oil & Gas Limited
     
4.3
 
Purchase and Sale Agreement dated March 6, 2006 between Samson Oil & Gas USA Inc., Stanley Energy Inc., and Stanley Energy W., Inc.
     
4.4
 
Settlement Agreement dated October 17, 2006 between Kestrel Energy, Inc. and Dissenting Shareholders
     
8
 
List of Subsidiaries
     
15.1
 
Consent of Ernst & Young LLP.
     
15.2
 
Consent of Ernst & Young.
     
15.3
 
Consent of Jeffrey Rhodes.
     
15.4
 
Consent of MHA Petroleum Consultants, Inc.

77
 
 
INDEPENDENT AUDIT REPORT
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  

To the Board of Directors and Shareholders of Samson Oil & Gas Limited
 
We have audited the accompanying consolidated balance sheets of Samson Oil & Gas Limited and its controlled entities (the Company) as of June 30, 2006 and 2005, and the related consolidated statements of income, changes in equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Samson Oil & Gas Limited and its controlled entities as of June 30, 2006 and 2005 and the consolidated results of their operations and their cash flows for the years then ended in conformity with Australian Accounting Standards.  

Australian Accounting Standards vary in certain significant respects from U.S. generally accepted accounting principles. Information relating to the nature and effect of such differences is presented in Note 33 to the consolidated financial statements.  
 

Ernst & Young
Perth, Australia

June 29, 2007
F-1

CONSOLIDATED INCOME STATEMENT
 
       
Consolidated Entity
Year ended:
 
Continuing Operations
 
Note
 
June 2006
 
June 2005
 
       
$
 
$
 
Revenue
             
Sale of oil and gas
   
3 (a
)
 
5,484,575
   
1,128,898
 
Finance income
   
3 (a
)
 
300,635
   
138,077
 
Total Revenue
         
5,785,210
   
1,266,975
 
                     
Cost of Sales
         
(5,193,645
)
 
(732,313
)
                           
Gross Profit
         
591,565
   
534,662
 
                     
Other Income
   
3 (a
)
 
2,832,170
   
790,532
 
                     
                     
Exploration and evaluation expense
         
(5,244,288
)
 
(360,544
)
General and administrative expenses
   
3 (b
)
 
(5,448,884
)
 
(1,679,516
)
Impairment expense
   
3 (e
)
 
(17,816,540
)
 
-
 
Finance costs
   
3 (c
)
 
(599,613
)
 
(75,339
)
                            
(Loss)/Profit before income tax
         
(25,685,590
)
 
(790,205
)
                     
Income tax expense
   
4
   
-
   
-
 
                              
(Loss)/Profit after tax from continuing operations
         
(25,685,590
)
 
(790,205
)  
                     
Loss/(Profit) attributable to minority interest
   
18
   
253,417
   
(1,028
)
                                
(Loss)/Profit attributable to members of the parent
         
(25,432,173
)
 
(791,233
)
                     
Basic (loss)/ earnings per share - cents
   
25
   
(24.43
)
 
(1.82
)  
Diluted (loss)/earnings per share - cents
   
25
   
(24.43
)
 
(1.82
)

The consolidated income statement should be read in conjunction with the accompanying notes
 
F-2
 
CONSOLIDATED BALANCE SHEET

       
Consolidated Entity
 
   
Note
 
June 2006
 
June 2005
 
       
$
 
$
 
Current assets
             
Cash and cash equivalents
   
6
   
15,628,126
   
6,708,181
 
Trade and other receivables
   
7
   
1,799,639
   
628,326
 
Assets held for trading
   
8
   
353,000
   
2,712,431
 
Prepayments
         
413,592
   
356,523
 
Total current assets
         
18,194,357
   
10,405,461
 
                     
Non-current assets
                   
Restricted funds
   
11
   
89,449
   
116,634
 
Property, plant and equipment
   
9
   
2,260,368
   
155,423
 
Deferred exploration expenditure
   
10
   
3,704,065
   
317,531
 
Oil and gas properties
   
12
   
53,613,313
   
18,909,565
 
Total non-current assets
         
59,667,195
   
19,499,153
 
Total assets
         
77,861,552
   
29,904,614
 
                     
Current liabilities
                   
Trade and other payables
   
13
   
3,885,813
   
797,055
 
Provisions
   
14
   
73,619
   
21,215
 
Total current liabilities
         
3,959,432
   
818,270
 
                     
Non-current liabilities
                   
Interest Bearing Liabilities
   
15
   
24,509,728
   
521,866
 
Provisions
   
14
   
1,407,086
   
250,333
 
Total non-current liabilities
         
25,916,814
   
772,199
 
Total Liabilities
         
29,876,246
   
1,590,469
 
                              
Net assets
         
47,985,306
   
28,314,145
 
                     
Equity
                   
Parent entity interest
                   
Contributed equity
   
16
   
69,366,304
   
25,223,584
 
Accumulated losses
   
17
   
(26,356,374
)
 
(1,146,201
)
Reserves
   
16
   
4,975,376
   
165,620
 
Parent interests
         
47,985,306
   
24,243,003
 
Minority interests
   
18
   
-
   
4,071,142
 
Total equity
         
47,985,306
   
28,314,145
 

The consolidated balance sheet should be read in conjunction with the accompanying notes.

F-3

CONSOLIDATED CASH FLOW STATEMENT

       
Consolidated Entity
 
   
Note
 
June 2006
 
June 2005
 
     
$
 
$
 
Cash flows from operating activities
             
Receipts from customers
         
4,609,517
   
1,114,805
 
Payments to suppliers & employees
         
(4,823,955
)
 
(1,971,766
)
Interest received
         
273,661
   
138,077
 
Interest paid
         
(263,690
)
 
(75,339
)
Proceeds from sale of listed shares
         
2,546,078
   
2,093,044
 
Net cash flows from operating activities
   
22 (b
)
 
2,341,611
 
 
1,298,821
 
                     
Cash flows from investing activities
                   
Dividends received
         
-
   
25,000
 
Purchase of listed shares
         
-
   
(554,000
)
Net cash effect of acquisition of controlled entity
         
-
   
362,684
 
Payments for plant & equipment
         
(3,166,620
)
 
(53,257
)
Payments for oil and gas properties
         
(46,603,929
)
 
(903,895
)
Payments for exploration, evaluation   and development
         
(11,203,208
)
 
(254,133
)
Monies advanced for drilling bonds held
         
-
   
(201,142
)
Net cash flows (used in)/ from investing activities
         
(60,973,757
)
 
(1,578,743
)
                     
Cash flows from financing activities
                   
Proceeds from issue of share capital
         
42,637,182
   
5,600,000
 
Payments for acquisition of minority interest
         
-
   
-
 
Repayment of loan advanced
         
(1,908,431
)
 
(70,912
)
Proceeds from payment of loan advanced
         
-
   
65,000
 
Proceeds from borrowings
         
27,754,900
   
-
 
Payments for borrowing costs
         
(465,106
)
 
-
 
Payments for costs associated with capital raising
         
(875,950
)
 
(289,741
)
Net cash flows from financing activities
         
67,142,595
   
5,304,347
 
                     
Net increase/(decrease) in cash held
         
8,510,449
   
5,024,425
 
Net foreign exchange differences
         
409,496
   
20,031
 
Cash and cash equivalents at the beginning of the period
         
6,708,181
   
1,663,725
 
Cash and cash equivalents at the end of the period
   
22 (a
)
 
15,628,126
   
6,708,181
 

The consolidated cash flow statement should be read in conjunction with the accompanying notes.

F-4
 
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY  
 
   
Attributable to equity holders of the parent
 
 
 
 
 
CONSOLIDATED ENTITY
 
Issued Capital
 
Accumulated Losses
 
Foreign Currency Translation Reserve
 
Discount on Minority Interest
 
Share Based Payments
 
Total
 
Minority Interests
 
Total Equity
 
   
$
 
$
 
$
     
$
 
$
 
$
 
At July 1, 2004
   
10,694,331
   
(3,189,541
)
 
-
   
-
   
-
   
7,504,790
   
-
   
7,504,790
 
Adoption of AASB 3    
-
 
2,834,573
   
-
   
-
   
-
   
2,834,573
   
-
   
2,834,573
 
Currency translation differences
   
-
   
-
   
188,079
   
(22,459
)
 
-
   
165,620
   
-
   
165,620
 
Loss for the period
   
-
   
(791,233
)
 
-
   
-
   
-
   
(791,233
)
 
1,028
   
(790,205
)
Total income/(expense) for the period
   
-
   
2,043,340
   
188,079
   
(22,459
)
 
-
   
2,208,960
   
1,028
   
2,209,988
 
                                                   
Recognition of minority interests
                                       
4,070,114
   
4,070,114
 
Conversion of options
   
350,000
   
-
   
-
   
-
   
-
   
350,000
   
-
   
350,000
 
Issue of share capital
   
14,179,253
   
-
   
-
   
-
   
-
   
14,179,253
   
-
   
14,179,253
 
                                                                            
At June 30, 2005
   
25,223,584
   
(1,146,201
)
 
188,079
   
(22,459
)
 
-
   
24,243,003
   
4,071,142
   
28,314,145
 
As at July 1, 2005
   
25,223,584
   
(1,146,201
)
 
188,079
   
(22,459
)
       
24,243,003
   
4,071,142
   
28,314,145
 
Adoption of AASB 132 and AASB 139
   
-
   
222,000
   
-
   
-
   
-
   
222,000
   
-
   
222,000
 
Currency translation differences
   
-
   
-
   
2,172,205
   
-
   
-
   
2,172,205
   
29,504
   
2,201,709
 
Loss for the period
   
-
   
(25,432,173
)
 
-
   
-
   
-
   
(25,432,173
)
 
(253,417
)
 
(25,685,590
)
Total income/(expense) for the period
   
-
   
(25,210,173
)
 
2,172,205
   
-
   
-
   
(23,037,968
)
 
(223,913
)
 
(23,261,881
)
Acquisition of minority interest
   
3,624,373
   
-
   
-
   
222,856
   
-
   
3,847,229
   
(3,847,229
)
 
-
 
Share Based Payments
   
-
   
-
   
-
   
-
   
2,414,695
   
2,414,695
   
-
   
2,414,695
 
Issue of share capital
   
43,276,587
   
-
   
-
   
-
         
43,276,587
   
-
   
43,276,587
 
Share issue costs
   
(2,758,240
)
 
-
   
-
   
-
         
(2,758,240
)
 
-
   
(2,758,240
)
At June 30 2006
   
69,366,304
   
(26,356,374
)
 
2,360,284
   
200,397
   
2,414,695
   
47,985,306
   
-
   
47,985,306
 

The consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

F-5
 
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

NOTE 1.   CORPORATE INFORMATION
 
Samson Oil and Gas Limited is a Company limited by shares incorporated in Australia whose shares are publicly traded on the Australian stock exchange.
 
The nature of the operations and principal activities of the Consolidated Entity are described in Note 21 Segment Reporting.
 
NOTE 2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
(a)
Basis of accounting
 
The financial report is a general purpose financial report which has been prepared in accordance with the requirements of the Corporations Act 2001 and applicable Australian Accounting Standards. The financial report has also been prepared on a historical cost basis, except for assets held for trading, which have been measured at fair value.
 
The financial report is presented in Australian Dollars.
 
(b)
Statement of Compliance
 
The financial report complies with Australian Accounting Standards, 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”).
 
Application of AASB 6 Exploration for and Evaluation of Mineral Resources
 
The Consolidated Entity is adopting the Australian equivalent to IFRS 6.
 
Application of AASB 1 First-Time Adoption of Australian Equivalents to International Financial Reporting Standards.
 
This is the first financial report prepared based on AIFRS and comparatives for the year ended June 30, 2005 have been restated accordingly except for the adoption of AASB 132 Financial Instruments: Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement. The Company has adopted the exemption under AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards from having to apply to AASB 132 and AASB 139 to the comparative period. Reconciliations of AIFRS equity and profit for June 30, 2005 to the balances reported in the June 30, 2005 financial report and at transition to AIFRS are detailed in Note 32.
 
F-6
 
The following Australian Accounting Standards that have recently been issued or amended but are not yet effective have not been adopted for the annual reporting period ended June 30, 2006:
 
AASB
Amendment
 
Affected Standard (s)
 
Application date of standard for the Consolidated Entity
 
2005-1
 
AASB 139 Financial instruments: Recognition and Measurement
 
July 1, 2006
 
           
2005-4
 
AASB 139 Financial Instruments: Recognition and Measurement
AASB 132 Financial Instruments: Disclosure and Presentation
AASB 1 First-time adoption of AIFRS
 
July 1, 2006
 
           
2005-6
 
AASB 3 Business Combinations
 
July 1, 2006
 
           
2005-9
 
AASB 4 Insurance Contracts
AASB 1023 General Insurance Contracts
AASB 139 Financial Instruments - Recognition and Measurement  
AASB 132 Financial Instruments - Presentation
 
July 1, 2006
 
           
2005-10
 
AASB 132 Financial Instruments: Disclosure and Presentation AASB 101 Presentation of Financial Statements
AASB 117 Leases
AASB 133 Earnings per Share
AASB 139 Financial Instruments: Recognition and Measurement  
AASB 1 First Time Adoption of AIFRS  
 
July 1, 2007
 
           
2006-1
 
AASB 121 The Effects of Change in Foreign Currency Rates
 
July 1, 2006
 
           
New Standard
 
AASB 7 Financial Instruments: Disclosures
 
July 1, 2007
 

The following Urgent Issues Consolidated Entity Interpretations have recently been issued or amended but are not yet effective and have not been adopted for the annual reporting period ended June 30, 2006.
 
New or revised Standard/UIG Affected Standard (s)
 
Application date of interpretation for the Consolidated Entity
 
UIG 4 Determining Whether an Arrangement Contains a Lease
   
July 1, 2006
 
UIG 5 Rights to Interests in Decommissioning, Restoration and Environmental Rehabilitation Funds
   
July 1, 2006
 
UIG 6 Liabilities Arising from Participating in a Specific Market - Waste Electrical and Electronic Equipment
   
July 1, 2005
 
UIG 7 Applying the Restatement Approach under AASB 129 Financial Reporting in Hyperinflationary Economies
   
July 1, 2006
 
UIG 8 Scope of AASB 2
   
July 1, 2006
 
UIG 9 Reassessment of Embedded Derivatives
   
July 1, 2006
 

All of the above accounting standards are applicable for annual reporting periods commencing on or after January 1, 2006. For the Consolidated Entity the above accounting standards will be applied from their application date. It is anticipated that there will be no change to accounting policy and hence no impact from the application of the above standards.
 
The following amendments, new standards and UIG’s have been issued but are not applicable to the Consolidated Entity and therefore have no impact.
 
AASB
Amendment
 
Affected Standards
 
Application date of standard for the Consolidated Entity
2004-3
 
AASB 1 First-time adoption of AIFRS
AASB 101 Presentation of Financial Statements  
AASB 124 Related Party Disclosures
 
July 1, 2006
         
2005-5
 
AASB 1 First time Adoption of AIFRS
AASB 139 Financial Instruments: Recognition and Measurement
 
July 1, 2006
         
2005-3
 
AASB 119 Employee Benefits
 
July 1, 2006
         
AASB 119
 
December 2004 version of AASB 119 Employment Benefits
 
July 1, 2006
         
UIG 6
 
Liabilities Arising from Participating in a Specific Market - Waste Electrical and Electronic Equipment
 
July 1, 2006
         
UIG 7
 
Applying the Restatement Approach under AASB 129 Financial Reporting in Hyperinflationary Economies
 
July 1, 2006
 
F-7
 
(c)
Basis of consolidation
 
The consolidated financial statements comprise the financial statements of Samson Oil and Gas Limited (the “ Company ” ) and its subsidiaries (together, the  “ Consolidated Entity ” ).
 
The financial statements of subsidiaries are prepared for the same reporting period as the parent Company, using consistent accounting policies.
 
Adjustments are made to bring into line any dissimilar accounting policies that may exist.
 
All intercompany balances and transactions, including unrealized profits arising from intra-group transactions, have been eliminated in full. Unrealized losses are eliminated unless costs cannot be recovered.
 
Subsidiaries are consolidated from the date on which control is transferred to the Consolidated Entity and cease to be consolidated from the date on which control is transferred out of the Consolidated Entity.
 
The continued acquisition of Kestrel Energy Inc throughout the year has been accounted for as a series of equity transactions, whereby any difference between the fair value of the consideration paid and the book value of the minority interests acquired is accounted for as an adjustment to equity transaction at the time of the transaction. Accordingly, the consolidated financial statements include the results of Kestrel Energy Inc for the twelve months ending June 30, 2006 have been included at 100%, with the loss attributed to minority interests calculated at various equity levels.
 
Minority interests represent the portion of profit or loss and net assets in Kestrel Energy Inc not held by the Consolidated Entity and are presented separately in the income statement and within equity in the consolidated balance sheet.
 
(d)
Significant accounting judgments, estimates and assumptions
 
Significant accounting judgments
 
In the process of applying the Consolidated Entity’s accounting policies, management has not made any judgments, apart from those involving estimations, which are likely to have a significant effect on the amounts recognized in the financial statements.
 
Exploration and evaluation
 
The Consolidated Entity’s accounting policy for exploration and evaluation is set out in Note 1 (s). The application of this policy necessarily requires management to make certain estimates and assumptions as to future events and circumstances, in particular the assessment of whether economic quantities of reserves have been found. Any such estimates and assumptions may change as new information becomes available. If, after having capitalized expenditure under our policy, we conclude that we are unlikely to recover the expenditure by future exploitation or sale, then the relevant capitalized amount will be written off to the Income Statement.
 
All exploration expenditure incurred in the current year was expensed to the Income Statement.
 
F-8
 
Significant accounting estimates and assumptions
 
The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting period are:
 
Share-based payment transactions
 
The Consolidated Entity measures the cost of equity-settled transactions with employees and other services providers by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined using a binomial option pricing model, using the assumptions detailed in Note 31.
 
Impairment of Assets
 
In determining the recoverable amount of assets, in the absence of quoted market prices, estimations are made regarding the present value of future cash flows using asset specific discount rates. For oil and gas properties, expected future cash flow estimation is based on reserves, future production profiles, commodity prices and costs.
 
The carrying value of oil and gas properties and plant and equipment as at June 30, 2006 is $55,873,681 (2005: $19,064,988).
 
Restoration obligations
 
The Consolidated Entity estimated the future removal costs of oil and gas wells and production facilities at the time of installation of the assets. In most instances, the removal of assets will occur many years into the future. This requires judgmental assumptions regarding removal data, future environmental legislation, the extent of reclamation articles required the engineering methodology for estimating future cost, future removal technologies in determining the removal cost, and liability specific discount rates to determine the present value of these cash flows. For more detail regarding the policy in respect of the provision for restoration refer to Note 1 (y).
 
Restoration obligations provided for as at June 30, 2006 are $1,388,967 (2005: $238,975).
 
Reserves estimates
 
Estimates of recoverable quantities of proven reserves, that are used to review the carrying value of oil and gas properties, include assumptions regarding commodity prices, discount rates, production and transportation costs for future cash flows. It also requires interpretation of complex and difficult geological and geophysical models in order to make an assessment of the size, shape, depth and quality of reservoirs and their anticipated recoveries. The economic, geological and technical factors we use to estimate reserves may change from period to period. Changes in reserves can impact asset carrying values, and the recognition of deferred tax assets, due to changes in estimated future cash flows. Reserves are integral to the amount of depreciation, depletion and amortization charged to the income statement.
 
Reserves estimates are prepared by independent third parties in accordance with guidelines prepared by the Society of Petroleum Engineers.
 
Units of production method of depreciation and amortization
 
The Company applies the units of production method for depreciation of its oil and gas properties and assets based on hydrocarbons produced. These calculations require the use of estimates and assumptions. Significant judgment is required in assessing the available reserves and future production associated with the assets to be depreciated under this method. Factors that must be considered in determining reserves and future production are the Company’s history of exploiting reserves and the relevant time frames, markets and future developments. When these factors change or become known in the future, such differences will impact pre-tax profit and carrying values of assets. It is impracticable to quantify the effect of these changes in these estimates and assumptions in future periods.
 
F-9
 
(e)
Revenue Recognition
 
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Consolidated Entity and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized:
 
Sale of oil and gas
 
Revenue is recognized when the significant risks and rewards of ownership of the product have passed to the buyer and the amount of revenue can be measured reliably. Risks and rewards are considered to have passed to the buyer at the time of delivery of the product to the customer.
 
Interest income
 
The Consolidated Entity has elected to apply the option available under AASB 1 of adopting AASB 132 and AASB 139 from July 1, 2005. Outlined below are the relevant accounting policies for interest income applicable for the years ending June 30, 2006 and June 30, 2005.
 
Accounting policies applicable for the year ending June 30, 2006
 
Revenue is recognized as the interest accrues using the effective interest method. This is a method of calculating the amortized cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimates of future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset.
 
Accounting policies applicable for the year ending June 30, 2005
 
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Consolidated Entity and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized:
 
Interest income
 
Control of the right to receive the interest payment is attained.
 
Dividend income
 
Control of a right to receive consideration for the dividend is attained, usually evidenced by approval of the dividend at a meeting of shareholders.
 
(f)
Borrowing Costs
 
Borrowing costs are recognized as an expense when incurred.
 
(g)
Leases
 
The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and whether the arrangement conveys a right to use the asset.
 
F-10
 
Consolidated Entity as lessee
 
Finance leases, which transfer to the Consolidated Entity substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized as an expense in profit or loss.
 
Capitalized leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term if there is no reasonable certainty that the Consolidated Entity will obtain ownership by the end of the lease term.
 
Operating lease payments are recognized as an expense in the income statement on a straight line basis over the lease term. Lease incentives are recognized in the income statement as an integral part of the total lease expense.
 
(h)
Cash and cash equivalents
 
Cash and short-term deposits in the balance sheet comprise cash at bank and in hand, and short -term deposits with an original maturity of three months or less.
 
For the purposes of the cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.
 
(i)
Restricted funds
 
The Consolidated Entity may be required to place funds with third parties as bonds for environmental restoration. These bonds are carried as non-current receivables when the release of cash is not expected to occur within twelve months. If the release of funds was expected in less than twelve months from balance date, the value relating to those funds would be carried as a current asset.
 
The bonds are represented by cash and are valued as cash.
 
(j)
Trade and other receivables
 
The Consolidated Entity has elected to apply the option available under AASB 1 of adopting AASB 132 and AASB 139 from July 1, 2005. Outlined below are the relevant accounting policies for trade and other receivables for the years ending June 30, 2006 and June 30, 2005.
 
Accounting policies applicable for the year ending June 30, 2006
 
Trade receivables, which generally have 30-90 day terms, are recognized and carried at original invoice amount less an allowance for any uncollectible amounts.
 
An allowance for doubtful debts is made when there is objective evidence that the Consolidated Entity will not be able to collect the debts. Bad debts are written off when identified.
 
Accounting polices applicable for the year ending June 30, 2005
 
Trade receivables were recognized and carried at original invoice amount less a provision for any uncollectible debts. An estimate for doubtful debts was made when collection of the full amount was no longer probable. Bad debts were written off as incurred.
 
Receivables from related parties were recognized at the original amount advanced less any provision for impairment recognized.
 
F-11
 
(k)
Prepayments
 
Prepayments relate to certain goods and services whereby the payment has been made and the resultant benefit is derived over future periods. Prepayments are recorded as a current asset on the balance sheet until such time as the funds are returned or expensed.
 
(l)
Derecognition of financial assets and financial liabilities
 
The Consolidated Entity has elected to apply the option available under AASB 1 of adopting AASB 132 and AASB 139 from July 1, 2005. Outlined below are the relevant accounting policies applicable to the derecognition of financial assets and financial liabilities for the years ending June 30, 2006 and June 30, 2005.
 
Accounting policies applicable for the year ending June 30, 2006
 
(i)
Financial Assets
 
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized when:
 
·
the rights to receive cash flows from the asset have expired;
 
·
the Consolidated Entity retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party on a ‘pass-through’ arrangement; or
 
·
the Consolidated Entity has transferred the rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards, but has transferred control of the asset.
 
When the Consolidated Entity has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risk and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Consolidated Entity’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of the consideration received that the Consolidated Entity would have to repay.
 
When continuing involvement takes the form of a written and/or purchased option (including a cash-settled option or similar provision) on the transferred asset, the extent of the Consolidated Entity’s continuing involvement is the amount of the transferred asset that the Consolidated Entity may repurchase, except that in the case of a written put option (including a cash-settled option or similar provision) on an asset measured at fair value, the extent of the Consolidated Entity’s continuing involvement is limited to the lower of the fair value of the transferred asset and the exercise price.
 
(ii)
Financial Liabilities
 
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires.
 
When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in profit and loss.
 
F-12
 
Accounting policies applicable for the year ending June 30, 2005
 
(i)
Financial assets
 
A financial asset was derecognized when the contractual rights to receive or exchange cash no longer existed.
 
(ii)
Financial liabilities
 
A financial liability was derecognized when the contractual obligation to deliver or exchange cash no longer existed.
 
(m)
Impairment of financial assets
 
The Consolidated Entity has elected to apply the option available under AASB 1 of adopting AASB 132 and AASB 139 from July 1, 2005. Outlined below are the relevant accounting policies applicable for the years ending June 30, 2006 and June 30, 2005.
 
Accounting policies applicable for the year ending June 30, 2006
 
The Consolidated Entity assesses at each balance date whether or not a financial asset or group of financial assets is impaired.
 
(i)
Financial assets carried at amortized costs
 
If there is objective evidence that an impairment loss on loans and receivables carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through the use of an allowance account. The amount of the loss is recognized in profit or loss.
 
The Consolidated Entity first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment.
 
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in profit or loss, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date.
 
(ii)
Financial assets carried at cost
 
If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value (because its fair value cannot be reliably measured), or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the current market rate of return for a similar financial asset.
 
F-13
 
Accounting policies applicable for the year ending June 30, 2005
 
For current financial assets, refer to Note 1 (j) and Note 1(u).
 
For non current financial assets, refer to Note 1 (u).
 
(n)
Foreign currency translation
 
Both the functional and presentation currency of Samson Oil and Gas Limited is Australian Dollars. The functional currency of Samson Oil and Gas USA, Inc and Kestrel Energy Inc is United States Dollars. Each entity in the Consolidated Entity determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency.
 
Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date.
 
All exchange differences in the consolidated financial report are taken to profit or loss with the exception of differences on foreign currency borrowings that provide a hedge against a net investment in a foreign entity. These are taken directly to equity until the disposal of the net investment, at which time they are recognized in profit or loss.
 
Tax charges and credits attributable to exchange differences on those borrowings are also recognized in equity.
 
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction.
 
Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.
 
The functional currency of Samson Oil and Gas USA, Inc and Kestrel Energy Inc is United States Dollars.
 
As at the reporting date the assets and liabilities of these subsidiaries are translated into the presentation currency of Samson Oil and Gas Limited, at the rate of exchange ruling at the balance sheet date and their income statements are translated at the weighted average exchange rate for the year.
 
The exchange differences arising on the translation are taken directly to a separate component of equity.
 
On disposal of a foreign entity, the deferred cumulative amount recognized in equity relating to that particular foreign operation is recognized in profit or loss.
 
(o)
Income tax
 
Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantially enacted by the balance sheet date.
 
Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
 
Deferred income tax liabilities are recognized for all taxable temporary differences except:
 
·
when the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or
 
F-14
 
·
when the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.
 
Deferred income tax assets are recognized for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilized except:
 
·
when the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor the taxable profit or loss; or
 
·
when the deductible temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, in which case a deferred tax asset is only recognized to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.
 
The carrying amount of deferred income tax assets are reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized.
 
Unrecognized deferred income tax assets are reassessed at each balance sheet date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.
 
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.
 
Income taxes relating to items recognized directly in equity are recognized in equity and not profit and or loss.
 
Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority.
 
(p)
Other taxes
 
Revenues, expense and assets are recognized net of the amounts of GST except:
 
·
when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognized as part of the cost of acquisition of the asset or as part of the expense item as applicable; and
 
·
receivables and payables, which are stated with the amount of GST included.
 
The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet.
 
F-15
 
Cash flows are included in the cash flow statement 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 are classified as operating cash flows.
 
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.
 
(q)
Plant and equipment
 
Plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Such cost includes the cost of replacing parts that are eligible for capitalization when the cost of replacing the parts is incurred. Similarly, when each major inspection is performed its cost is recognized in the carrying amount of plant and equipment as a replacement only if it is eligible for capitalization.
 
Depreciation is calculated on a straight-line basis over the estimated useful life of the assets as follows:
 
Furniture and fittings - over two to five years
 
Lease and well equipment - over the life of the reserve
 
The assets’ residual values, useful lives and amortization methods are reviewed, and adjusted if appropriate, at each financial year end.
 
(i)
Impairment
 
The carrying values of plant and equipment are reviewed for impairment at each reporting date, with the recoverable amount being estimated when events or changes in circumstances indicate that the carrying value may be impaired.
 
The recoverable amount of plant and equipment is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
 
For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs, unless the asset’s value in use can be estimated to be close to its fair value.
 
An impairment exists when the carrying value of an asset or cash-generating units exceeds its estimated recoverable amount. The asset or cash generating unit is then written down to its recoverable amount.
 
For plant and equipment, impairment losses are recognized in the income statement.
 
(ii)
Derecognition and disposal
 
An item of plant and equipment is derecognized upon disposal or when no further future economic benefits are expected from its use or disposal.
 
Any gain or loss arising on derecognition (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the profit or loss in the year the asset is derecognized.
 
F-16
 
(r)
Oil and gas properties
 
Oil and gas properties included capitalized project expenditure, intangible development expenditure and costs associated with lease and well equipment.
 
The Consolidated Entity uses the units of production methods to amortize costs carried forward in relation to its oil and gas properties. For this approach, the calculations are based on proved and probable reserves as determined by our reserves determination.
 
Impairment on the carrying value of oil and gas properties is based on proved and probable reserves and is assessed on a field by field basis.
 
(s)
Petroleum exploration costs
 
All exploration and evaluation costs, including general permit activity, geological and geophysical costs are expensed as incurred except where:
 
·
the expenditure or asset acquired relates to an exploration discovery that, at balance date, the assessment of whether or not an economically recoverable reserve exists is not yet complete; or
 
·
it is expected that the expenditure or asset acquired will be recouped through successful exploitation, or alternatively, by its sale.
 
(t)
Investments and other financial assets
 
The Consolidated Entity has elected to apply the option available under AASB 1 of adopting AASB 132 and AASB 139 from July 1, 2005. Outlined below are the relevant accounting policies for investments and other financial assets applicable for the years ending June 30, 2006 and June 30, 2005.
 
Accounting policies applicable for the year ending June 30, 2006
 
Financial assets in the scope of AASB 139 Financial Instruments: Recognition and Measurement are classified as either financial assets at fair value through the profit and loss, loans and receivables, held-to-maturity investments, or available-for-sale investments, as appropriate. When financial assets are recognized initially, they are measured at fair value, plus, in the case of investments not at fair value through the profit and loss, including directly attributable transaction costs. The Consolidated Entity determines the classification of its financial assets after initial recognition and, when allowed and appropriate, re-evaluates this designation at each financial year-end.
 
All regular way purchases of and sales of financial assets are recognized on the trade date (i.e. the date that the Consolidated Entity commits to purchase the asset), regular way purchases or sales are purchases or sales of financial assets under contracts that require delivery of the assets within the period established generally by regulation or convention in the market place.
 
(i)
Financial assets at fair value through profit or loss
 
The Consolidated Entity has classified certain shares as financial assets at fair value through profit or loss. Financial assets held for trading are classified as current assets and are stated at fair value, with any resultant gain or loss recognized in profit or loss. The fair value of investments that are actively traded in organized financial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date.
 
(ii)
Loans and Receivables
 
Loans and receivables are non-derivative financial assets with fixed determinable payments that are not quoted in an active market. Such assets are carried at amortized cost using the effective interest rate method. Gains and losses are recognized in the profit and loss when the loans and receivables are derecognized or impaired, as well as through the amortization process.
 
F-17
 
Accounting policies applicable for the year ending June 30, 2005
 
Listed shares classified as current assets were carried at cost or net realizable value based on market value if less than cost. Changes in the carrying value of investments were recognized as part of the profit or loss for the period.
 
All other non-current investments were carried at the lower of cost and recoverable amount.
 
Recoverable amount
 
Non-current financial assets were not carried at an amount above their recoverable amount, and where a carrying value exceeded this recoverable amount, the financial asset was written down to its recoverable amount. In determining recoverable amount, the expected net cash flows were not discounted to their present value.
 
(u)
Impairment of assets
 
The Consolidated Entity assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Consolidated Entity makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of its fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets of groups or assets and the asset’s value in use cannot be estimated to be close to its fair value. In such cases the asset is tested for impairment as part of the cash-generating unit to which it belongs. When the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset or cash-generating unit is considered impaired and is written down to its recoverable amount.
 
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses relating to continuing operations are recognized in those expense categories consistent with the function of the impaired assets.
 
An assessment is also made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit or loss. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.
 
(v)
Trade and other payables
 
The Consolidated Entity has elected to apply the option available under AASB 1 of adopting AASB 132 and AASB 139 from July 1, 2005. Outlined below are the relevant accounting policies for trade and other payables applicable for the years ending June 30, 2006 and June 30, 2005.
 
F-18
 
Accounting policies applicable for the year ending June 30, 2006
 
Trade payables and other payables are carried at amortized costs and represent liabilities for goods and services provided to the Consolidated Entity prior to the end of the financial year that are unpaid and arise when the Consolidated Entity becomes obliged to make future payments in respect of the purchase of these goods and services.
 
Accounting policies applicable for the year ending June 30, 2005
 
Liabilities for trade payables and other amounts were carried at cost which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the Consolidated Entity.
 
Payables to related parties were carried at the fair value of consideration received less directly attributable transaction costs.
 
(w)
Interest-bearing loans and borrowings
 
The Consolidated Entity elected to apply the option available under AASB 1 of adopting AASB 132 and AASB 139 from July 1, 2005. Outlined below are the relevant accounting policies for interest-bearing loans and borrowings applicable for the years ending June 30, 2006 and June 30, 2005.
 
Accounting policies applicable for the year ending June 30, 2006
 
All loans and borrowings, including convertible notes, are initially recognized at the fair value of the consideration received less directly attributable transaction costs.
After initial recognition, the fair value of the liability component of convertible notes are subsequently remeasured at amortized cost using the effective interest method, until extinguished on conversion or redemption. Interest on the liability component of the convertible notes is recognized as an expense in profit and loss. The related embedded derivative liability on the convertible note is remeasured to fair value at balance sheet date. The fair value is determined using a binomial option pricing model. The movement in fair value is recognised in profit and loss.

Gains and losses are recognized in profit or loss when the liabilities are derecognized.
 
Accounting policies applicable for the year ending June 30, 2005
 
All loans were measured at the principal amount. Interest was recognized as an expense as it accrued.
 
(x)
Provisions
 
Provisions are recognized when the Consolidated Entity has a present obligation (legal or constructive) as result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
 
When the Consolidated Entity expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement.
 
If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the risks specific to the liability.
 
When discounting is used, the increase in the provision due to the passage of time is recognized as a borrowing cost.
 
F-19
 
(y)
Rehabilitation costs
 
The Consolidated Entity records the present value of the estimated cost of legal and constructive obligations to restore operating locations in the period in which the obligation arises. The nature of restoration activities includes the removal of facilities, abandonment of wells and restoration of affected areas.
 
Typically, the obligation arises when the asset is installed at the production location. When the liability is initially recorded, the estimated cost is capitalized by increasing the carrying amount of the related oil and gas properties. Over time, the liability is increased for the change in present value based on a risk adjusted pre-tax discount rate appropriate to the risks inherent in the liability. The unwinding of the discount is recorded as an accretion charge within finance costs. The carrying amount capitalized in oil and gas properties is depreciated over the useful life of the related asset.
 
Costs incurred that relate to an existing condition caused by past operations, and that do not have a future economic benefit, are expensed.
 
(z)
Employee leave benefits
 
Wages, salaries, annual leave and sick leave
 
Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognized in other payables in respect of employee’s services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognized when the leave is taken and measured at the rates paid or payable.
 
Long service leave
 
The liability for long service is recognized in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturities and currencies that match, as closely as possible the estimated future cash outflows.
 
(aa)
Share-based payment transactions
 
Equity settled transactions:
 
The Consolidated Entity provides benefits to employees (including senior executives) of the Consolidated Entity in the form of share based payments, whereby employees render services in exchange for shares or rights over shares (equity-settled transactions)
 
A formal employee share or share option scheme has not been developed.
 
The cost of equity-settled transactions with employees is measured by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by reference to the current share price in relation to shares and with the use of a binomial option pricing model in relation to rights to acquire shares.
 
In valuing equity settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of Samson Oil and Gas Limited (market conditions) if applicable.
 
F-20
 
The cost of equity-settled transactions is recognized, together with a corresponding increase in equity, over the period in which the performance and/or services conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the vesting period).
 
The cumulative expense recognized for equity-settled transactions at each reporting date until vesting date reflects (i) the extent to which the vesting period has expired and (ii) the Consolidated Entity’s best estimate of the number of equity instruments that will ultimately vest. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. The income statement charge or credit for a period represents the movement in cumulative expense recognized as at the beginning and end of that period.
 
No expense is recognized for awards that do not ultimately vest, except for awards where vesting is only conditional upon a market condition.
 
If the terms of an equity-settled award are modified, as a minimum, an expense is recognized as if the terms had not been modified. In addition, an expense is recognized for any modification that increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee, as measured at the date of modification.
 
If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognized for the award is recognized immediately. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and the new award are treated as they were a modification of the original award, as described in the previous paragraph.
 
The dilutive effect, if any, of the outstanding options is reflected as additional share dilution in the computation of earnings per share (see Note 25).
 
(bb)
Contributed equity
 
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.
 
(cc)
Earnings per share
 
Basic earnings per share is calculated as net profit attributable to members of the parent, adjusted to exclude any costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares, adjusted for any bonus element.
 
Diluted earnings per share is calculated as net profit attributable to members of the parent, adjusted for:
 
·
costs of servicing equity (other than dividends);
 
·
the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognized as expenses; and
 
·
other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares;
 
divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element.
 
F-21
 
(dd)
Comparatives
 
Where necessary, comparatives have been reclassified and repositioned for consistency with current year disclosures.
 
(ee)
Joint Ventures
 
Jointly controlled assets and operations
 
Interests in jointly controlled assets and operations are reported in the financial statements by including the Consolidated Entity’s share of assets employed in the joint ventures, the share of liabilities incurred in relation to the joint ventures and the share of any expenses incurred in relation to the joint ventures in their respective classification categories.
 
(ff)
Financial Instruments Issued by the Company
 
Debt and equity instruments are classified as either liabilities or equity in accordance with the substance of the contractual arrangement.
 
Convertible Note
 
The convertible note is split into two compenents: a debt component and a component representing the embedded derivatives in the convertible note. The debt component represents the Company’s liability for future interest coupon payments and the redemption amount. The embedded derivative represents the value of the option that note holders have to convert into ordinary shares in the Company.
 
The debt component of the convertible note is measured at amortised cost and therefore increases as the present value of the interest coupon payments and redemption amount increases, with a corresponding charge to finance cost. The debt component decreases by the cash interest coupon payments made. The embedded derivative is measured at fair value at each balance date, and the change in fair value is recognized in the income statement.
 
Interest
 
Interest is classified as an expense consistent with the balance sheet classification of the related debt instrument.
 
F-22
 
NOTE 3.   REVENUE AND EXPENSES
 
   
Consolidated Entity
 
   
2006
 
2005
 
   
$
 
$
 
Revenue and Expenses from Continuing Operations
         
(a)   Revenue
         
Sale of oil and gas
         
Oil sales
   
1,061,891
   
336,872
 
Gas sales
   
4,340,816
   
742,926
 
Other
   
81,868
   
49,100
 
     
5,484,575
   
1,128,898
 
Finance Income
             
Interest income
   
300,635
   
138,077
 
               
Total Revenue
   
5,785,210
   
1,266,975
 
               
Other Income
             
Foreign exchange gain
   
228,384
   
-
 
Movement in fair value of embedded derivative
   
2,480,084
   
-
 
Net gain/(loss) on investments sold
   
-
   
750,738
 
Other
   
123,702
   
39,794
 
Total Other Revenue
   
2,832,170
   
790,532
 
               
(b)   General and Administration
             
Employee Benefits
             
Salary and employee benefits
   
(804,309
)
 
(305,307
)
Share based payments - options issued
   
(1,769,450
)
 
-
 
Total Employee Expense Benefits
   
(2,573,759
)
 
(305,307
)
               
Other General and Administration
             
Foreign exchange losses
   
-
   
(58,022
)
Net gain/(loss) on investments sold
   
(26,754
)
 
-
 
Consultants’ fees
   
(761,103
)
 
(418,694
)
Lease payments
   
(206,765
)
 
(105,451
)
Legal costs
   
(166,733
)
 
(150,976
)
Assurance, accounting and taxation advice
   
(395,861
)
 
(148,228
)
Travel and accommodation
   
(354,971
)
 
(227,879
)
Other
   
(962,938
)
 
(264,959
)
Total Other General and Administration Expenses
   
(2,875,125
)
 
(1,374,209
)
               
     
(5,448,884
)
 
(1,679,516
)
(c)   Finance costs
             
Interest expense
   
(599,613
)
 
(75,339
)
Total finance costs
   
(599,613
)
 
(75,339
)
(d)   Depreciation and amortization expense included in the income statement
             
Included in cost of sales:
             
Depreciation
   
368,881
   
5,823
 
Depletion of Oil and Gas Properties
   
2,840,529
   
367,965
 
               
Depreciation of furniture and fittings
   
44,003
   
12,143
 
(e)   Significant Items
             
Impairment Expense - lease and well equipment
   
816,614
   
-
 
Impairment Expense - oil and gas properties
   
16,999,926
   
-
 
Total Impairment Expense
   
17,816,540
   
-
 
(f) Included in exploration expenditure:              
Dry Hole costs
   
3,144,943
   
-
 
 
F-23
 
NOTE 4.  INCOME TAX
 
   
Consolidated Entity
 
   
2006
 
2005
 
   
$
 
$
 
The major components of income tax expense are:
         
Income statement
         
Current income tax:
   
-
   
-
 
Current income tax benefit
   
-
   
-
 
Adjustments in respect of current income tax of previous years
   
-
   
-
 
Deferred income tax:
             
Relating to origination & reversal of temporary differences
   
9,515,554
   
(385,990
)
Deferred tax assets not brought to account as realization is not considered probable
   
(9,515,554
)
 
-
 
Recognition of deferred tax assets not previously brought to account
   
-
   
385,990
 
Income tax expense reported in the income statement
   
-
   
-
 
A reconciliation between tax expense and the product of accounting profit before income tax multiplied by the Consolidated Entity’s applicable income tax rate is as follows:
             
Accounting (loss)/profit before income tax
   
(25,685,590
)
 
(790,205
)
At the Consolidated Entity’s average income tax rates of 30% (2005: 30%)
   
(7,705,677
)
 
(237,062
)
Expenditure not allowable for income tax purposes
   
673,450
   
30,118
 
Income not assessable for income tax purposes
   
(744,025
)
 
-
 
Income tax expense related to current and deferred tax transactions of the wholly owned subsidiaries in the tax consolidation
   
-
   
-
 
Effect of increased US tax rates (in excess of 30%)
   
(1,739,302
)
 
(257,438
)
Deferred tax assets not brought to account as realization is not considered probable
   
9,515,554
   
464,382
 
Income tax expense reported in the income statement
   
-
   
-
 
 
   
Balance Sheet
 
Income Statement
 
   
2006
 
2005
 
2006
 
2005
 
   
$
 
$
 
$
 
$
 
Deferred Income Tax
                 
Deferred income tax at June 30 relates to the following:
                 
CONSOLIDATED
                 
Deferred tax liabilities - Current
                 
Unrealized foreign exchange gains on intercompany loans
   
462,222
   
-
   
462,222
   
-
 
Depletion - oil and gas properties
   
723,386
   
108,234
   
615,152
   
108,234
 
Gross deferred tax liabilities
   
1,185,608
   
108,234
   
1,077,374
   
108,234
 
                           
Deferred tax assets - Current
                         
Assets held for trading
    443,398     324,752     118,646     (877,074
)
                           
Deferred tax assets - Non Current
                         
Losses available to offset against future taxable income
   
8,669,757
   
7,372,910
   
1,296,847
   
617,412
 
Impairment - oil and gas properties
   
9,017,669
   
-
   
9,017,669
   
-
 
Share Issue Costs
   
577,041
   
70,966
   
(144,792
)
 
(18,094
)
Other
   
542,849
   
130,057
   
412,792
       
Deferred tax assets not brought to account as realization is not regarded as probable
   
(18,065,106
)
 
(7,790,451
)
 
(9,623,788
)
 
385,990
 
Gross deferred tax assets
   
1,185,608
   
108,234
   
1,077,374
   
108,234
 
                           
Deferred tax income/(expense)
   
-
   
-
   
-
   
-
 
Net deferred tax recognized in the balance sheet
   
-
   
-
   
-
   
-
 
 
F-24
 
NOTE 4.   INCOME TAX (cont.)
 
The Consolidated Entity has further tax losses arising in Australia of $2,923,043 (2005: $842,533). The benefit of these losses of $876,913 (2005: $252,760) will only be obtained in future years if:
 
 
(i)
the Consolidated Entity derives future assessable income of a nature and an amount sufficient to enable the benefit from the deduction for the losses to be realized; and
 
 
(ii)
the Consolidated Entity has complied and continues to comply with the conditions for deductibility imposed by law; and
 
 
(iii)
no changes in tax legislation adversely affect the Consolidated Entity and the Parent Entity in realizing the benefit from deduction for the losses.
 
The Consolidated Entity has carried forward tax losses in the United States of approximately $19,831,530 (2005: $18,251,443). The utilization of approximately $17,027,805 is limited to an estimated $551,980 per year as a result of a change in ownership of the one of the subsidiaries which occurred in January 2005. If not utilized, the tax net operating losses will expire during the period from 2006 to 2026.
 
The Consolidated Entity has not recognized a deferred income tax asset in relation to these losses as realization of the benefit is not regarded as probable.
 
In addition to the above mentioned Federal carried forward tax losses in the United States, the Company also has approximately $12,642,246 of State carried forward tax losses, with expiry dates between June 2007 to June 2021. A deferred income tax asset in relation to these losses has not been recognized as realization of the benefit is not regarded as probable.
 
The Consolidated Entity does not meet the definition of a group for the purposes of applying tax consolidation.
 
NOTE 5.   DIVIDENDS
 
No dividends have been declared during the year (2005: Nil).
 
The balance of the franking account at the end of the period was nil (2005: Nil).
 
NOTE 6.   CASH AND CASH EQUIVALENTS
 
   
Consolidated Entity
 
   
2006
 
2005
 
   
$
 
$
 
Cash at bank and on hand
   
15,628,126
   
6,708,181
 

Cash at bank earns interest at floating interest rates based on daily bank deposit rates.
 
The fair value of cash and cash equivalents held by the consolidated entity is $15,628,126 (2005:$6,708,181).
 
NOTE 7.   TRADE AND OTHER RECEIVABLES
 
       
Consolidated Entity
 
   
Note
 
2006
 
2005
 
     
$
 
$
 
CURRENT
             
Trade receivables (i)
         
1,626,742
   
321,664
 
Loans to related parties (ii)
         
-
   
125,109
 
Net GST Receivable
         
66,200
   
23,123
 
Accrued Interest
         
26,969
   
-
 
Other receivables (iii)
         
79,728
   
158,430
 
           
1,799,639
   
628,326
 
 
F-25
 
NOTE 7.   TRADE AND OTHER RECEIVABLES (cont.)
 
(i)
These receivables relate to the sale of oil and gas. They are non-interest bearing, unsecured and are generally on 60-90 day terms.
 
(ii)
The amount outstanding in the prior year is a receivable from Peak Resources Inc, a related party of Mr. Tim Hoops, an executive of a subsidiary Company. This money was advanced to Peak Resources to purchase exploration leases on behalf of the subsidiary Company. These leases were assigned to the Company in June 2006. The receivable was non-interest bearing.
 
(iii)
These receivables are non-interest bearing, unsecured and are due for repayment within the next twelve months.
 
Details regarding the effective interest rate and credit risk of current receivables is disclosed in Note 26.
 
NOTE 8.   HELD FOR TRADING FINANCIAL INSTRUMENTS
 
   
Consolidated Entity
 
   
2006
 
2005
 
   
$
 
$
 
CURRENT
         
At fair value (2005: Lower of cost and net realizable value)
             
Shares - listed
   
353,000
   
4,293,717
 
Provision for impairment
   
-
   
(1,581,286
)
     
353,000
   
2,712,431
 

Held for trading investments consist of investments in ordinary shares, and therefore have no fixed maturity date or coupon rate.
 
F-26
 
NOTE 9.   PLANT & EQUIPMENT
 
   
Consolidated Entity
 
   
2006
 
2005
 
   
$
 
$
 
Office Equipment
         
Cost
   
263,717
   
145,341
 
A ccumulated depreciation and impairment
   
(125,415
)
 
(76,713
)
     
138,302
   
68,628
 
As at 1 July, net of accumulated depreciation and impairment
   
68,628
   
5,626
 
Additions
   
107,535
   
53,257
 
Disposals
   
(3,675
)
     
Acquisition of a subsidiary
   
-
   
21,615
 
Depreciation charge for the year
   
(44,003
)
 
(12,143
)
Exchange adjustment
   
9,817
   
273
 
At June 30, net of accumulated depreciation and impairment
   
138,302
   
68,628
 
Lease and Well Equipment
             
Cost
   
2,497,830
   
92,618
 
Accumulated depreciation and   impairment
   
(375,764
)
 
(5,823
)
     
2,122,066
   
86,795
 
As at 1 July, net of accumulated depreciation and impairment
   
86,795
   
-
 
Additions
   
1,599,476
   
93,121
 
Fair value of assets acquired
   
1,522,915
   
-
 
Impairment
   
(816,614
)
 
-
 
Depreciation charge
   
(368,881
)
 
(5,823
)
Exchange adjustment
   
98,375
   
(503
)
At June 30, net of accumulated depreciation and impairment
   
2,122,066
   
86,795
 
Total Plant and Equipment
   
2,260,368
   
155,423
 

Impairment of lease and well equipment
 
At June 30, 2006, the recoverable amount was estimated for certain items of property, plant and equipment used in oil and gas properties. An impairment loss of $816,614 in total was recognized to reduce the carrying amount of those assets to recoverable amount. The recoverable amount estimation was based on value in use and was determined at the cash-generating unit level, being the oil or gas field in which the assets are employed, using a 10% discount rate.
 
The useful life of the assets was estimated as follows for both 2005 and 2006:
 
Office Equipment
Between 3 and 5 years
 
Lease and Well Equipment
Amortized over the expected life of the field, usually between 3 and 25 years
 
All plant and equipment is subject to a first charge mortgage by Macquarie Bank Limited. This charge did not exist at June 30, 2005.
 
F-27

NOTE 10.   DEFERRED EXPLORATION EXPENDITURE
 
   
Consolidated Entity
 
   
2006
 
2005
 
   
$
 
$
 
Balance at the beginning of the year
   
317,531
   
105,972
 
Amount acquired during the year
   
598,633
   
-
 
Expenditure incurred during the year
   
3,105,432
   
343,732
 
Amount written off during the year
   
(317,531
)
 
(132,173
)
     
3,704,065
   
317,531
 
 
The expenditure incurred in the current year relates to costs of drilling a well for which the determination of proved reserves is still pending.
 
No deferred exploration expenditure relates to exploratory well costs that have been capitalised for greater than one year.
 
The recoverability of the carrying value of deferred exploration and evaluation expenditure is dependent on the successful development and commercial exploitation, or alternatively sale, of the respective areas of interest.
 
NOTE 11.   RESTRICTED FUNDS
 
   
Consolidated Entity
 
   
2006
 
2006
 
   
$
 
$
 
Bonds paid to state authorities in relation to exploration permits held
   
89,449
   
116,634
 
     
89,449
   
116,634
 
 
These bonds are interest bearing and will be repaid to the Company following the relinquishment of the related exploration permit by the Company. This is not expected to occur within the next twelve months.
 
NOTE 12.   OIL AND GAS PROPERTIES
 
   
Consolidated Entity
 
   
2006
 
2005
 
   
$
 
  $
 
Proved developed producing properties at cost
   
49,160,758
   
8,059,312
 
Accumulated depletion
   
(3,153,139
)
 
(367,965
)
Impairment
   
(6,226,352
)
 
-
 
     
39,781,267
   
7,691,347
 
               
Proved undeveloped properties at cost
   
24,605,620
   
11,218,218
 
Impairment
   
(10,773,574
)
 
-
 
     
13,832,046
   
11,218,218
 
                       
Total
   
53,613,313
   
18,909,565
 

F-28
 
NOTE 12.   OIL AND GAS PROPERTIES (cont.)

   
Consolidated Entity
 
   
2006
 
2005
 
   
$
 
$
 
Proved Developed Producing Properties
         
As at 1 July, net of accumulated depreciation and impairment
   
7,691,347
   
-
 
Additions
   
5,797,039
   
903,895
 
Fair value of assets acquired
   
32,954,704
   
7,822,907
 
Transfer from Proved Undeveloped Properties
   
1,545,110
   
-
 
Impairment
   
(6,226,352
)
 
-
 
Depreciation charge
   
(2,840,529
)
 
(367,965
)
Exchange adjustment
   
859,948
   
(667,490
)
At June 30, net of accumulated depreciation and impairment
   
39,781,267
   
7,691,347
 
               
Proved Undeveloped Properties
             
As at 1 July, net of accumulated depreciation and impairment
   
11,218,218
   
-
 
Additions
   
-
   
-
 
Fair value of assets acquired
   
13,870,013
   
11,039,898
 
Transfer to Proved Developed Producing Properties
   
(1,545,110
)
 
-
 
Impairment
   
(10,773,574
)
 
-
 
Exchange adjustment
   
1,062,499
   
178,320
 
At June 30, net of accumulated depreciation and impairment
   
13,832,046
   
11,218,218
 

(a)
Assets pledged as security
 
Included in the balances of producing projects and lease and well equipment, in the prior year are assets over which first security mortgages have been granted as security over a loan payable to R&M Oil and Gas Ltd. The terms of the mortgage precludes the assets being sold or being used as security for further mortgages without the permission of the first mortgage holder.
 
In the current year, Macquarie Bank Limited has a first charge mortgage over all assets (including the oil and gas properties) of the Consolidated Entity. This collateral has been provided as part of the funding facility provided by Macquarie Bank Limited to Samson Oil and Gas USA Inc. Refer to Note 15 for further details relating to this facility.
 
   
Consolidated Entity
 
   
2006
 
2005
 
   
$
 
$
 
The written down value of assets pledged as security are:
         
Producing properties
   
39,781,267
   
25,741
 
Non producing properties
   
13,832,046
   
2,435,475
 
     
53,613,313
   
2,461,216
 

(b)
Impairment of oil and gas properties

At June 30, 2006 the Consolidated Entity reviewed the carrying value of its oil and gas properties for impairment. An independent party was commissioned to assess the future net present value of the Consolidated Entity assets, determined to be value in use. The discount rate used to assess the value in use was 10%.

Impairment losses have been determined based on the Consolidated Entity’s proved reserves at June 30, 2006. Commodity pricing used in the Reserve Report is based on June 30, 2006 pricing, which is normally a lower pricing period for gas production. The impairment within the producing assets has been caused to some extent by the drilling results in the Jonah and Look Out Wash Fields, which in the short term have not met expectations.
 
The impairment of non-producing properties, is, in part, due to the failure of the Greens Canyon #2 well. This well did not reach its intended target of the Muddy Formation. The stimulation of the Frontier did not reach long term economic levels, despite early flow rates that were encouraging. Accordingly reserves associated with these stratigraphic levels have been removed from a Proven Category until such time as an economic rate from these reservoirs can be achieved.
 
F-29
 
NOTE 12. OIL AND GAS PROPERTIES (cont.)
 
The value of the oil and gas properties was reviewed on a field by field basis and has resulted in impairments of $16,999,926. It is the Consolidated Entity’s policy to use proved and probable reserves to support the carrying value of its properties.
 
No impairment was recorded in the prior year.
 
NOTE 13.   TRADE AND OTHER PAYABLES
 
   
Consolidated Entity
 
   
2006
 
2005
 
   
$
 
$
 
Trade payables (i)
   
3,885,813
   
797,055
 

(i) Trade payables are non-interest bearing and normally settled on 30-60 day terms.
 
NOTE 14.   PROVISIONS
 
   
Consolidated Entity
 
   
2006
 
2005
 
   
$
 
$
 
Current
         
Provision for Employee Benefits
   
73,619
   
21,215
 
Non-current
             
Provision for Employee Benefits
   
18,119
   
11,358
 
Provision for Restoration
   
1,388,967
   
238,975
 
     
1,407,086
   
250,333
 

A provision for restoration is recognized in relation to the oil and gas activities for costs such as reclamation, plugging wells and other costs associated with the restoration of oil and gas properties. Estimates of the restoration obligations are based on anticipated technology and legal requirements and future costs, which have been discounted to their present value. In determining the restoration provision, the entity has assumed no significant changes will occur in the relevant government legislation in relation to the restoration of such oil and gas properties in the future.
 
   
Consolidated Entity
 
   
2006
 
2005
 
   
$
 
$
 
Provision for Restoration
         
Balance at beginning of year
   
238,975
   
-
 
Acquisition of subsidiary
   
-
   
232,298
 
Recognized upon acquisition of new assets
   
251,179
   
-
 
Additional provision recognized
   
887,057
   
-
 
Unwinding of discount
   
11,756
   
6,677
 
Balance at end of the year
   
1,388,967
   
238,975
 
 
F-30
 
NOTE 15.   NON CURRENT INTEREST BEARING LIABILITIES
 
   
Consolidated Entity
 
   
2006
 
2005
 
   
$
 
$
 
Secured
         
Borrowings secured by mortgage
         
Host Contract
   
19,820,340
   
-
 
Embedded Derivative
   
5,429,004
   
-
 
Borrowing Costs Capitalized
   
(739,616
)
 
-
 
Loan
   
-
   
521,866
 
     
24,509,728
   
521,866
 

On May 26, 2006, the Consolidated Entity drew down on a funding facility provided by Macquarie Bank Limited. The loan is denominated in USD and has been converted to AUD at the spot rate on balance date of USD:AUD 0.7301.

During the period, the Company recognized an embedded derivative in relation to its convertible note issued in May 2006. The note contains a conversion option which allows the holder of the note to convert the note into ordinary shares on the terms set out below. This conversion option has been classified as an embedded derivative and has been bifurcated from the debt facility.

On May 26, 2006, the fair value of the host contract and the embedded derivative amounted to $20,160,984 and $7,646,220 respectively. The fair value movement in the embedded derivative up to June 30, 2006 amounting to $2,480,084 is recognized in profit and loss. As of June 30, 2006 the unamortized discount included in the carrying value of the host contract amounted to $7,573,168.

The Company uses a binomial option pricing model to estimate the fair value of the embedded derivative. The following inputs were used.

   
June 2006
 
May 2006
 
Dividend yield (%)
   
-
   
-
 
Expected volatility (%)
   
50
   
50
 
Risk-free interest rate (%)
   
4.9
   
4.9
 
Expected life of option (years)
   
3-5
   
3-5
 
Option exercise price - cents
   
35-50
   
30-50
 
Share price - cents
   
32
   
30
 

This loan is comprised of two tranches:
 
Tranche A
 
Face Value: US$11,000,000
Interest rate: 9.25%
Maturity date: May 31, 2011

This loan has a face value of US$11,000,000. In addition, 11,000,000 options were granted to Macquarie Bank Limited as part of the loan agreement. These options are convertible at Macquarie Bank Limited’s discretion anytime until the maturity date of the loan. The conversion price of the options is 53.8 cents per share, being the volume weighted average share price of the Company for the 90 trading days prior to May 30, 2006.
 
Tranche B
 
Face Value: US$9,000,000
Interest rate: 9.7%

Maturity date: This tranche maybe repaid at any time at the Company’s option before May 31, 2009 without penalty. There is no requirement for the Company to repay the loan prior to May 31, 2009. This tranche of the loan was originally drawn down for US$10,000,000. On June 30, 2006, the Company repaid US$1,000,000. This loan is recorded at the spot rate applicable at balance date, being AUD/USD 0.7301
 
10,000,000 options were also granted to Macquarie Bank Limited as part of the loan agreement. These options can be exercised at Macquarie Bank Limited’s discretion between May 31, 2009 and May 31, 2011. The conversion price of these options is 120% of the volume weighted average trading price of Samson’s share price for the 90 trading days prior to May 31, 2009, and is subject to adjustment in accordance with customary market practice. The conversion options are embedded in the convertible loan.
 
Accordingly, the conversion options are recognized as part of the liability component of the combined instrument.
 
F-31
 
NOTE 15   NON CURRENT INTEREST BEARING LIABILITIES (cont.)
 
Repayments against this tranche of the facility reduce the number of options outstanding by 1 option for every one US dollar repaid.
 
Both tranches of this loan are secured against all assets of the Consolidated Entity.
 
Both tranches of this loan are fully drawn down and no further draw downs are available under the terms of the loan agreement.
 
The Consolidated Entity is required to maintain a certain Proved Developed Producing Reserve to outstanding debt ratio:
 
In relation to the assets (Stanley Properties) acquired relating to this facility the discounted cashflow relating to Proved Developed Producing Reserve to outstanding debt ratio must be no less than 0.9:1
 
In relation to the discounted cash flow relating to all Consolidated Entity Proved Developed Producing Reserves to outstanding debt the ratio must be no less than 1:1.
 
Other covenants:
 
The Company is required to maintain a current ratio greater than 1:1.
 
The Company is required to maintain Aged Debts (greater than 90 days outstanding) of the Group of less than US$1,000,000.

Debt convenants are measured as at the end of June, March, September and December. The Company is in compliance with these covenants.
 
Terms and conditions relating to the financial instrument outstanding in the prior year:
Interest rate: 12.5% per annum, with interest paid monthly
Maturity date: January 31, 2007.
Secured by a first mortgage on selected oil and gas properties. This loan was repaid during the year.
 
NOTE 16.   CONTRIBUTED EQUITY AND RESERVES
 
(a)
Issued and paid up capital
 
   
Consolidated Entity
 
 
Contributed Equity
 
2006
$
 
2005
$
 
192,263,833 ordinary shares fully paid including shares to be issued (2005 - 77,892,086 ordinary fully paid shares including shares to be issued)
   
69,366,304
   
25,223,584
 

Effective 1 July 1998, the Corporations legislation in place abolished the concepts of authorized capital and par value shares. Accordingly, the parent does not have authorized capital nor par value in respect of its issued shares.   
 
     
2006
   
2005
 
     
No. of shares
   
$
   
No. of shares
   
$
 
Movements in contributed equity for the year
                         
Opening balance
   
70,694,221
   
25,223,584
   
32,112,431
   
10,694,331
 
Issued upon conversion of options (i)
   
33,312
   
8,328
   
1,750,000
   
350,000
 
Capital Raising (ii)
   
92,433,636
   
38,822,127
   
15,000,000
   
5,250,000
 
Share Placement Plan (iii)
   
9,618,750
   
3,847,500
             
Shares issued as part of Kestrel acquisition (iv)
   
16,116,325
   
2,883,030
   
21,831,790
   
6,933,156
 
Shares issued as part of acquisition of exploration tenements (v)
   
1,662,867
   
598,632
   
-
   
-
 
Transaction costs incurred
   
-
   
(2,758,240
)
 
-
   
(289,741
)
Shares on issue at balance date
   
190,559,111
   
68,624,961
   
70,694,221
   
22,937,746
 
Shares to be issued (iv)
   
190,000
   
77,450
   
7,197,865
   
2,285,838
 
Shares to be issued to Kestrel Option Holders (vi)
   
1,514,722
   
663,893
   
-
   
-
 
Closing Balance
   
192,263,833
   
69,366,304
   
77,892,086
    25,223,584  
 
F-32
 
NOTE 16.   CONTRIBUTED EQUITY AND RESERVES (cont.)
 
(i)
The shares issued in the prior year were upon the conversion of 1,750,000 options. The options had an exercise price of 20 cents, were issued on 15 December 1999 and expired on November 30, 2005.
 
The shares issued in the current year were issued upon the conversion of 33,312 options. These options had an exercise price of 25 cents, were issued on 24 December 2004 and expire on December 31 2009.
 
(ii)
In the prior year the Company successfully completed a capital raising issuing 15,000,000 shares at 35 cents each to institutional investors.
 
In the current year the Company successfully completed a number of capital raisings issuing 92,433,636 shares to both institutional investors and shareholders to raise $38,822,127. All shares issued during these capital raisings were issued at 42 cents each.
 
(iii)
In December 2005, the Company completed a share purchase plan, giving existing shareholders of the Company the right to acquire up to $5,000 worth of shares at 40 cents. The Company raised $3,847,500 through this plan.
 
(iv)
These shares were issued to Kestrel shareholders throughout the year as part of the offer to non-US resident shareholders whereby they received five Samson shares for every one Kestrel share held. The Samson share price on the date the acceptance of the offer by the Kestrel shareholder is received is deemed to be the fair value of the share. As at balance date acceptances have been received for 190,000 (2005: 7,197,865) shares which have not yet been issued. These shares will be issued upon the presentation of Kestrel Share Certificates by the owner of the shares.
 
(v)
These shares were issued to a project partner as part of the acquisition of the Hawk Springs Project. The cost has been recognized as exploration expenditure.
 
(vi)
These shares were issued to holders of options in Kestrel Energy Inc as part of the continued acquisition of the Company. The value of the options were valued by an independent expert and the holders were granted the equivalent value of Samson Oil and Gas Limited shares based on the share price at the date of acceptance. All acceptances for this offer were received pre-year end however the shares were granted post year end.
 
(b)
Share Options
 
On December 24, 2004, 10,250,000 options were issued to Directors, employees and other parties. These options have an exercise price of 25 cents and expire on December 31, 2009.
 
On June 14, 2006, 8,500,000 options were issued to employees, directors and other parties not related to the Company. These options vested immediately, had an exercise price of 45 cents and expire on May 31, 2011.
 
On May 22, 2006 3,121,650 options were issued to Macquarie Securities USA Inc as consideration for brokerage services provided. These options vest immediately, have an exercise price of 42 cents and expire on May 31, 2009. They have a deemed value at grant date of 20.79 cents.
 
On May 30, 2006, 21,000,000 conversion options were issued to Macquarie Bank Limited. These conversion options allow the holders of the convertible notes to convert the notes into ordinary shares. These conversion options are accounted for as an embedded derivative and have been bifurcated from the debt and recognised as a liability carried at fair value.  Refer to Note 15, Interest Bearing Liabilities for further details in relation to the terms and conditions of these options. 1,000,000 of these options were cancelled during the period following the repayment by the Company of a portion of the associated loan.
 
F-33
 
NOTE 16.   CONTRIBUTED EQUITY AND RESERVES (cont.)
 
At the end of the year there were 41,838,338 (2005: 10,250,000) unissued ordinary shares in respect of which options were outstanding. Option holders do not have any right by virtue of the option to participate in any share issue of the Company.
 
(c)
Terms and Conditions of Contributed Equity
 
Ordinary shares have the right to receive dividends as declared and, in the event of winding up the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held.
 
Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the Company.
 
       
Consolidated Entity
 
Reserves
 
Note
 
2006
$
 
2005
$
 
Foreign currency translation reserve
         
2,360,284
   
188,079
 
Discount on minority interests acquired
         
200,397
   
(22,459
)
Options reserve
         
2,414,695
   
-
 
           
4,975,376
   
165,620
 
 
   
Consolidated
 
   
Foreign Currency Translation Reserve
 
Share Based Payments Reserve
 
Discount on Minority Interest Reserve
 
Total Reserves
 
   
$
    $     $  
$
 
At July 1, 2004
   
-
   
-
         
-
 
Currency translation differences
   
188,079
   
-
   
(22,459
)
 
165,620
 
At June 30, 2005
   
188,079
   
-
   
(22,459
)
 
165,620
 
-
                         
At July 1, 2005
   
188,079
   
-
   
(22,459
)
 
165,620
 
Currency translation differences
   
2,172,205
   
-
   
-
   
2,172,205
 
Acquisition of minority interests
   
-
   
-
   
222,856
   
222,856
 
Share based payments
   
-
   
2,414,695
   
-
   
2,414,695
 
At June 30, 2006
   
2,360,284
   
2,414,695
   
200,397
   
4,975,376
 

Nature and purpose of reserves
 
Foreign currency translation reserve
 
The foreign currency translation reserve is used to record exchange rate differences arising from the translation of financial statements of foreign subsidiaries.
 
Share Based Payments Reserve
 
This reserve is used to record the value of options issued.
 
Discount on Minority Interests
 
This reserve is used to recognize the difference in the amount recognized to acquire the additional interests in Kestrel Energy Inc and the minority interest in the value of the assets acquired.
 
F-34
 
NOTE 17.   ACCUMULATED LOSSES  
 
   
Consolidated Entity
 
     
2006
   
2005
 
     
$
   
$
 
Balance at the beginning of the year
   
(1,146,201
)
 
(3,189,541
)
Application of AASB 3    
-
   
2,834,573
 
Application of AASB 132 and AAB 139 - July 1, 2005 adjustment
   
222,000
   
-
 
Net profit attributable to members of Samson Oil and Gas Limited
   
(25,432,173
)
 
(791,233
)
Balance at the end of the year
   
(26,356,374
)
 
(1,146,201
)

NOTE 18.   MINORITY INTEREST
 
   
Consolidated Entity
2006
 
Consolidated Entity
2005
 
   
  $
 
  $
 
Balance at the beginning of the year
   
4,071,142
   
-
 
Add share of net assets acquired during the year attributable to minority interest
         
4,070,114
 
Less additional interests acquired by parent during the year.
   
(3,817,725
)
 
-
 
Share of operating (loss)/profit
   
(253,417
)
 
1,028
 
Closing Balance
   
-
   
4,071,142
 

NOTE 19.   COMMITMENTS
 
(a)
Exploration Commitments
 
Due to the nature of the Company’s operations in exploring and evaluating areas of interest, it is very difficult to accurately forecast the nature or amount of future expenditure, although it will be necessary to incur expenditure in order to retain present interests. Expenditure commitments on mineral tenure for the Company can be reduced by selective relinquishment of exploration tenure or by the renegotiation of expenditure commitments. The minimum level of exploration commitments expected in the year ending June 30 2007 is $265,129 (2006: $78,500), which includes the minimum amounts required to retain tenure. It is anticipated that the exploration expenditure commitments in the ensuing periods will be at a similar level.
 
(b)
Development Expenditure
 
At year end the Company had committed to capital development expenditure of US$1,701,290 or A$2,330,215 converted at the AUD/USD spot exchange rate at year end (2005: nil). This expenditure will be incurred during the coming year.
 
(c)
Operating Lease Commitments - Consolidated Entity as lessee
 
The Parent and its subsidiaries have entered into operating leases for the lease of its office space in Perth, Western Australia and Denver, Colorado.  
 
     
Consolidated Entity
 
 
 
 
2006
 
 
2005
 
     
$
   
$
 
Minimum lease payments
   
 
   
 
 
- not later than one year
   
175,801
   
156,088
 
- later than one year and not later than five years
   
178,967
   
284,384
 
Aggregate lease expenditure contracted for at balance date
   
354,768
   
440,472
 
 
The Company has no operating lease commitments later than five years. 
F-35
 
NOTE 19.   COMMITMENTS (cont.)
 
(d)
Remuneration commitments
 
Commitments for the payment of salaries and other remuneration under long-term employment contracts in existence at the reporting date but not recognized as payables:
 
   
Consolidated Entity
 
   
2006
 
2005
 
 
 
$
 
$
 
Within one year:
   
280,000
   
-
 
After one year but not more than five years
   
420,000
   
-
 
     
700,000
   
-
 

Amounts disclosed as remuneration commitments include commitments arising from service contracts of directors and executives referred to in Note 20 that are not recognized as liabilities and are not included in the directors’ or executives’ remuneration.
 
Guarantees
 
Samson Oil and Gas Limited has guaranteed the bank debt of its subsidiary, Samson Oil and Gas USA, Inc. As at June 30, 2006, the outstanding face value of the debt was US$20,000,000 or A$27,393,508 converted at the spot rate at year end of 0.7301 AUD/USD.
 
NOTE 20.   DIRECTOR AND EXECUTIVE DISCLOSURES
 
(a)
Details of key management personnel
 
Chairman - non-executive
Malcolm Burne
 
Executive Director
Terence Barr - Managing Director
 
Non - Executive Directors
David Cairns
Neil MacLachlan
 
Alternate Director
Neil Fearis
 
Executives
Denis Rakich - Company Secretary
Timothy Hoops - Operations Manager, resigned effective June 1, 2006
Robyn Lamont - Chief Financial Officer, appointed May 1, 2006
Jeff Rhodes - Vice President - Engineering, appointed May 1, 2006
 
There were no changes to the above mentioned key management personnel after the reporting date and before the date the financial report was authorized for issue.
 
F-36
 
NOTE 20.   DIRECTOR AND EXECUTIVE DISCLOSURES (cont.)
 
(b)
Compensation of key management personnel
 
The Company has applied the exemption under Corporations Amendments Regulation 2006 which exempts listed companies from providing remuneration disclosures in relation to their key management personnel in their annual reports as required by Accounting Standard AASB 124 Related Party Disclosures . These remuneration disclosures are provided in the Remuneration Report section of the Directors’ Report designated as audited.
 
STRUCTURE

It is the Board’s policy that employment contracts are only entered into with the managing director and senior executives. Only one such contract is in place and details relating to the managing directors contract can be found below. It is expected that contracts will be entered into with Mr. Jeff Rhodes and Ms Robyn Lamont, in early October 2006.
 
(c)
Compensation by category: key management personnel
 
   
Consolidated Entity
 
   
2006
 
2005
 
   
  $
 
$  
 
Short Term
   
630,649
   
319,205
 
Post Employment
   
7,940
   
7,500
 
Share-based Payments
   
1,693,350
   
1,912,000
 
     
2,331,939
   
2,238,705
 
 
(d)
Option holdings of key management personnel (Consolidated )
 
June 30, 2006
 
  Balance at beginning of period July 1, 2005 No. of Options
 
  Exercised during
the year
No. of Options
 
  Granted as compensation No. of Options
 
  Balance at end of period June 30, 2006 No. of Options
 
Directors
                         
M. Burne
   
500,000
   
-
   
500,000
   
1,000,000
 
D. Cairns
   
500,000
   
-
   
500,000
   
1,000,000
 
N. MacLachlan
   
500,000
   
-
   
500,000
   
1,000,000
 
T. Barr
   
4,000,000
   
-
   
4,000,000
   
8,000,000
 
N. Fearis
   
-
   
-
   
-
   
-
 
Executives
                         
D. Rakich
   
500,000
   
-
   
500,000
   
1,000,000
 
T. Hoops
   
2,000,000
   
-
   
-
   
2,000,000
 
J. Rhodes
   
-
   
-
   
2,000,000
   
2,000,000
 
R. Lamont
   
100,000
   
-
   
-
   
100,000
 
     
8,100,000
   
-
   
8,000,000
   
16,100,000
 

All options were vested at year end.
 
F-37
 
NOTE 20.   DIRECTOR AND EXECUTIVE DISCLOSURES (cont.)
 
 
June 30, 2005
 
Balance at beginning of period
July 1, 2004
No. of Options
   
Exercised during the year (1)
No. of Options
   
Granted as compensation
No. of Options (2)
   
Balance at end of period
June 30, 2005
No. of Options
 
Directors
                 
M. Burne
   
500,000
   
(500,000
)
 
500,000
   
500,000
 
D. Cairns
   
500,000
   
(500,000
)
 
500,000
   
500,000
 
N. MacLachlan
   
500,000
   
(500,000
)
 
500,000
   
500,000
 
T. Barr
   
-
   
-
   
4,000,000
   
4,000,000
 
                           
Executives
       
D. Rakich
   
250,000
   
(250,000
)
 
500,000
   
500,000
 
T. Hoops
   
-
   
-
   
2,000,000
   
2,000,000
 
     
1,750,000
   
(1,750,000
)
 
8,000,000
   
8,000,000
 
 
 
(1)
These options were converted to ordinary equity at the exercise price of 20 cents prior to their expiration on November 30, 2004. The underlying options were issued on December 15, 1999.
 
 
(2)
$1,693,350 was recognized as an expense in the Income Statement in relation to the issue of these options. Refer to Note 31 for details in relation to valuation of these options.
 
(e)
Shares issued on exercise of options
 
June 30, 2005
   
Shares Issued
No.
   
Paid per share
   
Unpaid Per Share
 
           
$
   
$
 
Directors
                   
M. Burne
   
500,000
   
0.20
   
-
 
D. Cairns
   
500,000
   
0.20
   
-
 
N. MacLachlan
   
500,000
   
0.20
   
-
 
Executives
                   
D. Rakich
   
250,000
   
0.20
   
-
 
     
1,750,000
             
 
F-38
 
NOTE 20.   DIRECTOR AND EXECUTIVE DISCLOSURES (cont.)
 
(f)
Shareholdings of key management personnel (Consolidated)
 
Shares held in Samson Oil and Gas Limited (number)
 
June 30, 2006
 
Balance
July 1, 2005
 
Granted as Compensation
 
On Exercise of Options
 
Net Change Other
 
Balance
June 30, 2006
 
Ordinary Shares
                     
Directors
                 
M. Burne
   
500,000
   
-
   
-
   
-
   
500,000
 
D. Cairns
   
500,000
   
-
   
-
   
12,500
   
512,500
 
N. MacLachlan
   
1,800,000
   
-
   
-
   
12,500
   
1,812,500
 
T. Barr
   
-
   
-
   
-
   
-
   
-
 
N. Fearis
   
-
   
-
   
-
   
-
   
-
 
Executives
                       
D. Rakich
   
-
   
-
   
-
   
-
   
-
 
T. Hoops (1)
   
-
   
-
   
-
   
-
   
-
 
J. Rhodes (2)
   
-
   
-
   
-
   
-
   
-
 
R. Lamont (3)
   
-
   
-
   
-
   
-
   
-
 
Total
   
2,800,000
   
-
   
-
   
25,000
   
2,825,000
 
 
(1)   Mr. Hoops resigned effective June 1, 2006.
 
(2)   Mr. Rhodes was appointed May 1, 2006.
 
(3)   Ms Lamont was appointed May 1, 2006.

In addition, Mr. Burne is a director and shareholder of Golden Prospect plc, a Company which holds 15,837,141 (2005: 15,837,141) fully paid ordinary shares in the Company.
 
June 30, 2005
 
Balance
July 1, 2004
 
Granted as Compensation
 
On Exercise of Options
 
Net Change Other
 
Balance
June 30, 2005
 
Ordinary Shares
                     
Directors
                 
M. Burne
   
-
   
-
   
500,000
   
-
   
500,000
 
D. Cairns
   
-
   
-
   
500,000
   
-
   
500,000
 
N. MacLachlan
   
-
   
-
   
500,000
   
1,300,000
   
1,800,000
 
T. Barr
   
-
   
-
   
-
   
-
   
-
 
Executives
                       
D. Rakich
   
-
   
-
   
250,000
   
(250,000
)
 
-
 
T. Hoops
   
-
   
-
   
-
   
-
   
-
 
J. Rhodes
   
-
   
-
   
-
   
-
   
-
 
R. Lamont
   
-
   
-
   
-
   
-
   
-
 
Total
   
-
   
-
   
1,750,000
   
1,050,000
   
2,800,000
 

All equity transactions with key management personnel other than those arising from the exercise of compensation options have been entered into under terms and conditions no more favourable than those the Consolidated Entity would have adopted if dealing at arms length.
 
(g)
Loans to key management personnel (Consolidated)  
 
No loans have been granted to key management personnel during the current or prior year.
 
(h)
Other transactions and balances with key management personnel
 
There were no other transaction with key management personnel or their related parties during the current or prior year other than those mentioned above.
 
F-39
 
NOTE 20.   DIRECTOR AND EXECUTIVE DISCLOSURES (cont.)
 
Amounts owing to Specified Directors and Director Related Entities at year end included:
 
   
Consolidated Entity
 
   
2006
 
2005
 
   
  $
 
$
 
Payables - Directors Fees
   
-
   
20,000
 

NOTE 21.   SEGMENT REPORTING
 
The Consolidated Entity’s primary segment reporting is geographic segments. The Consolidated Entity operates in the United States of America and Australia. Oil and gas production and exploration activities occur in the United States of America whilst the head office activities of the Consolidated Entity take place in Australia.
 
The Consolidated Entity operates in one business segment being oil and gas exploration, development and production.
 
The United States of America operations comprise of the operations of Kestrel Energy Inc and Samson Oil and Gas Inc., whilst the parent entity, Samson Oil and Gas Limited operates in Australia.
 
Segment accounting policies are the same as the Consolidated Entity’s policies described in Note 2.
 
Segment assets are classified in accordance with their use within the geographic segments regardless of legal entity ownership.
 
F-40
 
The following table presents revenue, asset and liability information for the geographic segments for the year ending June 30, 2006 and 2005.  
 
   
Australia
 
United States of America
 
Consolidation Entries
 
Consolidated Entity
 
   
2006
 
2005
 
2006
 
2005
 
2006
 
2005
 
2006
 
2005
 
   
$
 
$
 
$
 
$
 
$
 
$
 
$
 
$
 
Revenue
                                 
External Customers
   
-
   
-
   
5,484,575
   
1,128,898
   
-
   
-
   
5,484,575
   
1,128,898
 
Finance Revenue
   
298,160
   
144,253
   
2,475
   
(6,176
)
 
-
   
-
   
300,635
   
138,077
 
Intersegment Revenue
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
 
Total Consolidated Revenue
   
298,160
   
144,253
   
5,487,050
   
1,122,722
   
-
   
-
   
5,785,210
   
1,266,975
 
Other Income
   
1,537,147
   
750,738
   
2,598,786
   
39,794
   
(1,303,763
)
       
2,832,170
   
790,532
 
Segment Result
                                                 
Profit/(loss) before tax and finance costs
   
(25,665,869
)
 
(739,652
)
 
(21,918,854
)
 
(247,003
)
 
22,498,476
   
271,789
   
(25,085,977
)
 
2,119,707
 
Borrowing Costs
   
-
   
-
   
(599,613
)
 
(75,339
)
 
-
   
-
   
(599,613
)
 
(75,339
)
Profit/(loss) before income tax and minority interest
   
(25,665,869
)
 
(739,652
)
 
(22,518,467
)
 
(322,342
)
 
22,498,476
   
271,789
   
(25,685,590
)
 
(790,205
)
Income tax
   
-
   
-
   
-
   
-
               
-
   
-
 
Net/(Loss) profit for the year
   
(25,665,869
)
 
(739,652
)
 
(22,518,467
)
 
(322,342
)
 
22,498,476
   
271,789
   
(25,685,590
)
 
(790,205
)
Assets and Liabilities
                                                 
Segment Assets
   
47,036,080
   
24,350,830
   
25,190,808
   
5,553,784
   
6,163,114
   
-
   
77,861,552
   
29,904,614
 
Segment Liabilities
   
1,793,570
   
221,866
   
28,082,676
   
1,368,603
   
-
   
-
   
29,876,246
   
1,590,469
 
Other segment information
                                                 
Capital expenditure
   
20,028
   
8,817
   
55,831,654
   
44,440
   
-
   
-
   
55,851,682
   
53,257
 
Depreciation and amortization expense
   
9,098
   
5,266
   
3,244,315
   
380,665
   
-
   
-
   
3,253,413
   
385,931
 
Impairment losses recognized in profit or loss
   
23,802,238
   
271,789
   
17,816,540
   
-
   
(23,802,238
)
 
(271,789
)  
17,816,540
   
-
 
Other non cash expenses
   
1,769,450
 
 
- 
 
 
- 
   
-
   
-
   
-
   
1,769,450
 
 
-
 

F-41
NOTE 22.   CASH FLOW STATEMENT
 
   
Consolidated Entity
 
   
2006
 
2005
 
   
$
 
$
 
a) Reconciliation of cash
         
Cash and cash equivalents comprises:
         
- cash at bank and on hand
   
15,628,126
   
243,479
 
- term deposits
   
-
   
6,464,702
 
     
15,628,126
   
6,708,181
 
b) Reconciliation of the net profit/(loss) after tax to the net cash flows from operations
             
Net (loss)/profit from ordinary activities after tax
   
(25,685,590
)
 
(790,205
)
(Decrease) in provision for diminution of investments
   
26,754
   
-
 
Depreciation of non-current assets
   
3,209,412
   
142,375
 
Foreign exchange (gain)/loss
   
(236,984
)
 
58,022
 
Unrealized market loss on market value of shares
   
8,600
   
-
 
Share Based Payments
   
1,769,450
   
-
 
Exploration Expenditure
   
5,244,288
   
254,133
 
Impairment Losses
   
17,816,540
   
-
 
Dividend Income
   
-
   
(25,000
)
Capitalized mineral exploration written off
   
-
   
132,173
 
Net Loss/ (gain) on disposal of investments
   
-
   
(750,738
)
Proceeds from sale of investments
   
2,546,078
   
2,093,044
 
Accretion Expense
   
335,923
   
-
 
Movement in fair value of embedded derivative
   
(2,480,084
)   -
 
Changes in assets and liabilities:
             
(Increase) / decrease in receivables
   
(1,305,078
)
 
(282,968
)
(Increase)/decrease in other assets
   
(29,884
)
 
(356,523
)
Increase/ (decrease) in employee entitlements
   
44,570
   
14,216
 
Increase / (decrease) in payables
   
1,077,616
   
810,292
 
NET CASH FLOWS FROM OPERATING ACTIVITIES
   
2,341,611
 
 
1,298,821
 
Non-Cash Financing and Investing Activities
             

2006
 
Kestrel Energy Inc
 
During the year, the Company continued to receive acceptances made in relation to its offer made in the prior year to non-US Resident shareholders of Kestrel Energy Inc. The Company increased its holding of Kestrel Energy Inc from 78.8% at June 30, 2005 to 93.7% at June 30, 2006. The Company increased the value of its investment in Kestrel from $14,223,048 to $17,183,539 based on this offer.
 
The Company also made an offer to Kestrel Option Holders to acquire their outstanding options. The Company commissioned independent experts to value the outstanding options. The holders of these options were granted Samson Oil and Gas Limited shares to the value of their options based on the share price of the Company at acceptance date. The Company increased its investment in Kestrel by $663,893 and issued 1,514,722 shares as a result of this transaction.
 
Subsequent to year end, the Company in accordance with Colorado State legislation proceeded to compulsorily acquire the remaining outstanding Kestrel shares. Please refer to Note 29, Events Subsequent to Balance Date, for further details in relation to this transaction. The financial effects of this transaction have not been recorded at June 30, 2006.

2005

Kestrel Energy Inc

During the year, the Company made an offer to all non-US Resident shareholders of Kestrel Energy Inc. a junior oil and gas producer listed on the Over the Counter Bulletin Board in the United States of America. This offer was approved at a General Meeting of Samson shareholders held on 24   December 2004. Five Samson shares were granted for every one Kestrel share held by those shareholders that accepted the offer.

As at balance date acceptances had been received in relation to 5,805,931 Kestrel shares, equating to 29,029,655 Samson shares, 21,831,790 of these shares had been issued at balance date. The remaining 7,197,865 Samson shares will be issued post year end.

This acquisition was scrip for scrip, therefore the net cash effect of the transaction was a cash inflow to the economic entity of $362,684, being the cash held by the entity on the date controlled was assumed.

As the offer was unconditional, the issue price of the shares was deemed to be the market price of the Samson shares on the date the acceptance was received by the Company. At balance date the Company controlled 78.2% of Kestrel Energy Inc at a cost of $14,223,048.
 
F-42
 
Details of the acquisition are as follows:-

Fair value of identifiable net assets of controlled entity acquired at 31 January 2005 (the date control was obtained)

Cash
   
362,684
 
Restricted Funds
   
83,272
 
Receivables
   
353,710
 
Other
   
31,676
 
Oil & Gas Properties
   
18,584,111
 
Office Equipment
   
24,655
 
Provision for Restoration
   
(213,190
)
Payables
   
(933,756
)
Outside Equity Interest
   
(4,070,114
)
Net Assets
   
14,223,048
 

For the year ended June 30, 2005, Kestrel Equity Inc contributed a profit of $4,676 to the Company’s net result.
 
NOTE 23.   RELATED PARTY DISCLOSURES
 
The consolidated financial statements include the financial statements of Samson Oil and Gas Limited and the following subsidiaries:  
 
 
   
Country of
   
% Equity Interest
   
Investment
 
Name
 
Incorporation
   
2006
   
2005
   
2006
   
2005
 
Kestrel Energy Inc
   
United States
   
93.7
   
78.8
   
17,847,431
   
14,223,047
 
Samson Oil and Gas USA Inc
   
United States
   
100
   
100
   
641,808
   
641,808
 
                       
18,489,239
   
14,864,855
 

Ultimate parent
 
Samson Oil and Gas Limited is the ultimate Australian parent Company.
 
Other related party transactions
 
2006
 
Except for the granting of shares and options to Key Management Personnel as detailed in Note 20 and those transactions detailed below, there have been no other related party transactions during 2006.
 
During the year, the Australian law firm Jeremy Shervington, with whom Neil Fearis is associated, was paid $71,665 for the provision of services by Neil Fearis. These services were charged on normal commercial terms.
 
2005
 
Receivables
 
During the year the Consolidated Entity advanced funds to Peak Resources Management Inc (“Peak”) a related party of Mr. Tim Hoops. These funds were used to acquire exploration properties on behalf of Samson Oil and Gas USA Inc. As at June 30, 2005, $125,109 was receivable from Peak. This balance was non-interesting bearing, unsecured and expected to be received within the next twelve months. The leases associated with these properties were assigned to the Consolidated Entity in June 2006 and the debt has been extinguished through this transfer.
 
Loans
 
An amount of $521,866 was owing by the Consolidated Entity to R&M Oil and Gas Ltd, a related party of Mr. Tim Hoops. This loan was due for repayment on 31 January 2007, bears interest of 12.5% per annum and was secured by a first mortgage on selected oil and gas properties owned by Kestrel Energy Inc. This loan was repaid to R&M Oil Ltd during the year June 30, 2006.
 
Grant of Options
 
On December 24, 2004 1,000,000 and 500,000 options were granted to Economic Consultants Pty Ltd and John Kopcheff, respectively. Economic Consultants is a director related entity of Kestrel Energy Inc relating to Mr. Robert Pett. John Kopcheff is a non-executive director of Kestrel Energy Inc, a controlled subsidiary of Samson Oil and Gas Limited. These options have an exercise price of 25 cents and expire on December 31, 2009.
 
F-43
 
NOTE 24.   AUDITORS’ REMUNERATION  
 
       
  Consolidated Entity   
 
   
  Note
 
  2006
 
  2005
 
     
$  
 
$
 
Amounts received or due and receivable by Ernst & Young (Australia) for:
               
an audit or review of the financial report of the entity and any other entity in the consolidated Consolidated Entity
         
125,607
   
41,845
 
other services in relation the entity and any other entity in the consolidated Consolidated Entity
                   
provision of tax related services
         
32,805
   
46,125
 
assurance related
         
44,965
   
-
 
           
203,377
   
87,970
 
Amounts received or due and receivable by related practices of Ernst & Young (Australia) for:
                   
an audit or review of the financial report of subsidiaries
         
95,877
   
-
 
           
299,254
   
87,970
 
 
NOTE 25.   EARNINGS/(LOSS) PER SHARE
 
Basic (loss)/earnings per share amounts are calculated by dividing net (loss)/profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.
 
Diluted (loss)/earnings per share amounts are calculated by dividing the net (loss)/ profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all dilutive potential ordinary shares into ordinary shares.
 
The following reflects the income and share data used in the basic and diluted earnings per share computations:  
 
     
Consolidated Entity
Basic
 
     
2006
   
2005
 
     
$  
   
$  
 
Net (loss)/profit
   
(25,685,590
)
 
(790,205
)
Adjustments:
             
Net loss/(profit) attributable to minority interest
   
253,417
   
(1,028
)
Net (loss)/profit attributable to ordinary equity holders adjusted for the effect of minority interest (used in calculating basic and diluted earnings per share)
   
(25,432,173
)
 
(791,233
)
 
   
Number of Shares
 
Weighted average number of ordinary shares used in calculating basic earnings per share
   
104,081,159
   
43,361,114
 
Effect of dilution:
             
Adjusted weighted average number of ordinary shares used in calculating diluted earnings per share
   
104,081,159
   
43,361,114
 
Basic (Loss) per Share - cents
   
(24.43
)
 
(1.82
)
Diluted (Loss) per Share - cents
   
(24.43
)
 
(1.82
)
 
F-44
 
NOTE 26.   FINANCIAL INSTRUMENTS
 
(a)
Fair Values
 
Set out below is a comparison by category of carrying amounts and fair values of the Consolidated Entity’s financial instruments recognized in the financial statements.
 
Market values have been used to determine the fair value of listed held-for-trading investments.
 
The fair values of borrowings have been calculated by discounting the expected future cash flows at prevailing market interest rates.
 
The carrying amount of trade receivables and payables approximates their fair value.
 
   
Carrying Amount
 
Fair Value
 
Consolidated
 
2006
 
2005
 
2006
 
2005
 
 
  $
 
$
 
  $
 
$  
 
Financial Assets
                 
Cash
   
15,628,126
   
6,708,181
   
15,628,126
   
6,708,181
 
Trade and other receivables
   
1,799,639
   
628,326
   
1,799,639
   
628,326
 
Assets held for trading
   
353,000
   
2,712,431
   
353,000
   
2,934,431
 
Restricted Funds
   
89,449
   
116,634
   
89,449
   
116,634
 
Financial Liabilities
                         
Trade and other payables
   
3,885,813
   
797,055
   
3,885,813
   
797,055
 
Interest-bearing liabilities
   
24,509,728
   
521,866
   
27,393,505
   
521,866
 

There are no unrecognized financial assets or financial liabilities or off balance sheet financing arrangements at balance date.
 
(b)
Interest Rate Risk Exposures
 
The Company is exposed to interest rate risk through its financial assets and liabilities. The following table summarizes interest rate risk for the Consolidated Entity, together with average interest rates as at balance date.
 
2006  
 
 
 
 
 
Fixed interest Rate Maturing in:
 
Non-
     
 
 
Consolidated
 
Floating interest rate
 
1 year or less
 
Between 3 and 5 years  
 
interest bearing  
 
Total
 
Average interest rate
 
 
 
$  
 
$  
 
$
 
$
 
$
 
Floating
 
Fixed
 
Financial assets
                             
Cash
   
15,628,126
   
-
   
-
   
-
   
15,628,126
   
3.5
%
 
-
 
Restricted Funds
   
-
   
89,449
   
-
   
-
   
89,449
   
-
   
2.5
%
Receivables
   
-
   
-
   
-
   
1,799,639
   
1,799,639
   
-
   
-
 
Assets held for trading
   
-
   
-
   
-
   
353,000
   
353,000
             
     
15,628,126
   
89,449
   
-
   
2,152,639
   
17,870,214
             
Financial liabilities
                                           
Payables
   
-
   
-
   
-
   
3,885,815
   
3,885,815
   
-
   
-
 
Interest Bearing Liabilities
   
-
   
-
   
24,509,728
   
-
   
24,509,728
   
-
   
9.5
%
 
         
-
   
24,509,728
   
3,885,815
   
28,395,543
   
-
   
-
 
 
F-45
 
NOTE 26.   FINANCIAL INSTRUMENTS (cont.)
 
2005  
 
 
 
 
 
Fixed interest Rate Maturing in:
 
 
 
 
 
 
 
Consolidated
 
Floating interest rate  
 
1 year or less  
 
Between 3 and 5 years  
 
Non-interest bearing  
 
Total  
 
Average interest rate
 
 
$
 
$
 
$
 
$
 
$
 
Floating
 
Fixed
 
Financial assets
                             
Cash
   
6,708,148
   
-
   
-
   
33
   
6,708,181
   
3.0
%
 
-
 
Restricted Funds
   
-
   
-
   
116,634
   
-
   
116,634
   
-
   
2.0
%
Receivables
   
-
   
-
   
-
   
628,326
   
628,326
   
-
   
-
 
Assets held for trading
   
-
   
-
   
-
   
2,712,431
   
2,712,431
   
-
   
-
 
     
6,708,148
   
-
   
116,634
   
3,340,790
   
10,165,572
   
-
   
-
 
Financial liabilities
                                           
Payables
   
-
   
-
         
797,055
   
797,055
   
-
   
-
 
Interest bearing liabilities
   
-
   
-
   
521,866
   
-
   
521,866
   
-
   
12.5
%
 
         
-
   
521,866
   
797,055
   
1,318,921
   
-
   
-
 

Interest on financial instruments classified as floating interest rate is repriced at intervals of less than one year. Interest on financial instruments classified as fixed rate is fixed until the maturity of the instrument. The Consolidated Entity does not have any financial instruments with maturities of greater than one year but less than three years and thus this column has not been included in the table.
 
NOTE 27.   CONTINGENCIES
 
There are no unrecorded contingent assets or liabilities in place for the Group or Company at balance date (2005: Nil).
 
F-46
 
NOTE 28.   INTEREST IN JOINTLY CONTROLLED ASSETS
 
The Company has an interest in the following joint venture operations whose principal activities are oil and gas exploration and production  
 
 
 
 
 
 
 
Percentage of
Interest Held
 
 
Percentage of
Interest Held
 
 
Name
 
 
%
2006
 
 
%
2005
 
Exploration
                   
P39/2574
   
Western Australia
   
25
   
25
 
P39/2575
   
Western Australia
   
25
   
25
 
P39/2576
   
Western Australia
   
25
   
25
 
P39/2577
   
Western Australia
   
25
   
25
 
P39/2578
   
Western Australia
   
25
   
25
 
P39/2579
   
Western Australia
   
25
   
25
 
P39/2614
   
Western Australia
   
25
   
25
 
P39/2615
   
Western Australia
   
25
   
25
 
P39/4276
   
Western Australia
   
25
   
25
 
M39/371
   
Western Australia
   
25
   
25
 
M39/372
   
Western Australia
   
25
   
25
 
M39/397
   
Western Australia
   
25
   
25
 
M39/398
   
Western Australia
   
25
   
25
 
Baxter Shale
   
 
   
55
   
55
 
Browns Ranch
   
United States of America
   
100
   
100
 
North Lake Boeuf
   
United States of America
   
-
   
100
 
Greens Canyon
   
United States of America
   
100
   
100
 
Hawk Springs
   
United States of America
   
50
   
80
 
Stage Coach East
   
United States of America
   
100
   
100
 
Flaming Gorge
   
United States of America
   
100
   
100
 
Gold Coast Unit CBM
   
United States of America
   
50
   
100
 
Firehole Canyon
   
United States of America
   
100
   
100
 
State GC Oil and Gas Field
   
United States of America
   
26
   
-
 
     
 
             
Production
                   
Amber
   
United States of America
   
37.5
   
29
 
Big Hand
   
United States of America
   
4
   
4
 
Bird Canyon
   
United States of America
   
16
   
16
 
Deep Draw
   
United States of America
   
5
   
5
 
Hilight
   
United States of America
   
9
   
9
 
Jalmat
   
United States of America
   
60
   
60
 
Jayson Unit
   
United States of America
   
2
   
2
 
Jonah
   
United States of America
   
21
   
-
 
KayeUnit
   
United States of America
   
2
   
2
 
Kicken Draw
   
United States of America
   
15
   
15
 
LA Ward
   
United States of America
   
3
   
3
 
Look Out Wash
   
United States of America
   
17
   
-
 
Neta
   
United States of America
   
13
   
13
 
Pierce
   
United States of America
   
99
   
99
 
Powder River Basin
   
United States of America
   
18
   
18
 
San Simon
   
United States of America
   
27
   
27
 
Scribner
   
United States of America
   
28
   
28
 
Wagensen
   
United States of America
   
8
   
8
 
Reiser Canyon
   
United States of America
   
100
   
100
 

Oil and gas properties held as jointly controlled assets total $53,613,313 (2005: $18,909,565).
 
F-47
 
NOTE 29.   EVENTS SUBSEQUENT TO BALANCE DATE
 
2006
 
On July 14, 2006, Kestrel Energy Inc filed a Plan of Merger with the Secretary of State in Colorado. Under Colorado State legislation, this filing had the effect of cancelling all remaining Kestrel Energy Inc shares and granting shareholders the right to receive USD142 per share (based on an average of the previous market price of Kestrel). Following the cancellation of these shares, Kestrel Energy Inc became a 100% owned subsidiary of Samson Oil and Gas Limited.
 
At June 30, 2006, there were 6,604 shares outstanding.
 
On September 19, 2006, the Company entered into a fixed forward swap with Macquarie Bank Limited with respect to natural gas indexed at CIG for US$6.03 per MMBTU. The volumes associated with this hedge are as follows:

November 2006 to March 2007
 
35,000 MMBTU
 
25,000 MMBTU
January 2008 to October 2009
 
20,000 MMBTU
 
The financial effect of these transactions has not been included in the balances at June 30, 2006.
 
Other than the matters detailed above, the Directors are not aware of any matters or circumstances not otherwise dealt with in the report or financial statements that have significantly, or may significantly affect the operations of the Consolidated Entity, the results of those operations or the state of affairs of the Consolidated Entity in the subsequent financial years.
 
NOTE 30.   FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
 
The Consolidated Entity’s principal financial instruments comprise bank loans, cash and short term deposits.
 
The main purpose of these financial instruments is to raise finance for the Consolidated Entity’s operations. The Consolidated Entity has various other financial assets and liabilities such as trade receivables, investments or trade payables, which arise directly from its operations. The main risks arising from the Consolidated Entity’s financial instruments are foreign currency risk and commodity risk. The Board reviews and agrees policies for managing each of these risks and they are summarized below.
 
Cash flow interest rate risk
 
The Consolidated Entity has minimal interest rate risk, as its long term borrowings have a fixed rate interest rate; therefore the Consolidated Entity is not exposed to changes in market interest rates.
 
Foreign Currency Risk
 
The Company has two controlled subsidiaries which are based in the United States of America. The functional currency of these subsidiaries is US$.
 
As a result of this significant investment in operations in the United States, the Consolidated Entity’s balance sheet can be affected significantly by movements in the US$/A$ exchange rates. During the year the Consolidated Entity increased its investment in the US significantly through the purchase of assets. This increased investment has been partially hedged by the Company borrowing funds to finance a portion of this investment in US$.
 
F-48

NOTE 30.   FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (cont.)
 
The Consolidated Entity also has transactional currency exposures. Such exposure arises from sales or purchases by its US subsidiaries. These are naturally hedged as the majority of the Consolidated Entity’s expenses incurred in relation to the US$ receipts are also in US$.
 
Commodity Risk
 
The Consolidated Entity is exposed to risk associated with the market price of oil and natural gas. Currently the Consolidated Entity’s exposure to this risk is not hedged. The Board will continue to monitor this risk and seek to mitigate it, if the Board feels it necessary.
 
Credit Risk
 
The Consolidated Entity only trades with recognized, credit worthy third parties.
 
Receivable balances are monitored on an on-going basis with the result that the Consolidated Entity’s exposure to bad debts is not significant. There are no significant concentrations of credit risk within the Consolidated Entity.
 
NOTE 31.   SHARE BASED PAYMENT PLANS
 
Employee Options
 
Whilst the Company does not have a formal employee share option plan in place, options are granted from time to time to better align employees’ interests with that of the Company.
 
During the year 8,500,000 options were issued to employees, directors and consultants associated with the Company. These options have an exercise price of 45 cents, vested immediately and expire on 31 May 2011. The value of these options was 23.87 cents per option for those issued to directors and 15.22 cents per option for those issued to executives. Although the options were issued on the same terms and conditions, different values have been assigned to them due to differences in the variables used in the binomial option pricing model used to the value the options.
 
The associated expense has been recognized in the income statement for the current year. Refer to Note 20 for further detail in relation to options granted to key management personnel.
 
The expense recognized in the income statement in relation to these share based payments is disclosed in Note 3 (b).
 
During the year 33,312 shares were issued to employees as a result of the conversion of options issued in the prior year. These options had an exercise price of 25 cents and expired on December 31, 2009. During the year ended June 30, 2005, 6,200,000 options were issued to employees. These options vested prior to January 1, 2005 and therefore an associated expense has not been recognized under the transitional provisions in AASB 1 First time adoption of AIFRS .
 
The weighted average remaining contractual life for the share options outstanding as at June 30, 2006 is between 3 and 5 years (2005: 4 years).
 
The range of exercise prices for options outstanding at the end of the year was 25 - 45 cents. (2005: 25 cents).
 
The weighted average fair value of options granted during the year was 22.8 cents (2005: 23.9 cents).
 
The fair value of the equity settled share options granted is estimated at grant date using a binomial model taking into account the terms and conditions upon which the options were granted:
 
F-49
 
NOTE 31.   SHARE BASED PAYMENT PLANS (cont.)
 
The following table lists the inputs to the model used for the years ending June 30, 2005 and June 30, 2006:  
 
   
2006
 
2005
 
   
Directors
 
Executives
 
Employees
 
Dividend yield (%)
   
-
   
-
   
-
 
Expected volatility (%)
   
82.55
   
69.79
   
130
 
Risk-free interest rate (%)
   
5.75
   
5.75
   
5.22
 
Expected life of option (years)
   
5
   
5
   
5
 
Option exercise price - cents
   
45
   
45
   
25
 
Share price at grant date - cents
   
40
   
37.5
   
27
 

The expected life of the options is based on the expiry date of the option and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumptions that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. No other features of options granted were incorporated into the measurement of fair value.
 
Other share based payments
 
During the year ended June 30, 2006 1,662,867 fully paid ordinary shares in the Company were granted to Mountain Energy as part consideration for a subsidiary Company share in leasing rights over exploration land in Wyoming. The shares have been valued at the value of the Company’s shares on the date the shares were issued to Mountain Energy, being June 16, 2006, which has been recognized as deferred exploration expenditure. The market value of Samson shares on issue date was 36 cents.
 
As part of the continuing acquisition of Kestrel Energy Limited, fully paid ordinary shares in the Company were issued to Kestrel Option holders. The value of the options held in Kestrel Energy was independently valued and the Australian equivalent of Samson shares were issued to option holders based on the USD:AUD spot price and Samson share price at issue date. This cost has been recognized in the acquisition of a minority interest in Kestrel.
 
On May 22, 2006 3,121,650 options were issued to Macquarie Securities USA Inc as consideration for brokerage services provided. These options vest immediately, have an exercise price of 42 cents and expire on May 31, 2009. They have a deemed value at grant of 20.79 cents. The total fair value of these options, being $645,245 was accounted for as cost of capital raising and is recognized in equity.

In the year ended June 30, 2005, 4,050, 000 options were issued to consultants. These options were not required to be valued and expensed under the accounting standards applicable at the time.
 
The grant date of share based payments is the date in which approval is communicated to recipients by the shareholders or Board of Directors as appropriate.
 
NOTE 32.   TRANSITION TO AIFRS
 
For all periods up to and including the year ended June 30, 2005, the Consolidated Entity prepared its financial statements in accordance with Australian Generally Accepted Accounting Practice (AGAAP). These financial statements for the year ended June 30, 2006 are the first the Consolidated Entity is required to prepare in accordance with Australian equivalents to International Financial Reporting Standards (AIFRS).
 
Accordingly, the Consolidated Entity has prepared financial statements that comply with AIFRS applicable for periods beginning on or after January 1, 2005 and the significant accounting policies meeting those requirements are described in Note 2. In preparing these financial statements, the Consolidated Entity has started from an opening balance as at July 1, 2004, the Consolidated Entity’s transition to AIFRS, and made those changes in accounting policies and other restatements required by AASB 1 First-time adoption of AIFRS.
 
This note explains the principal adjustments made by the Consolidated Entity and the Company in restating its AGAAP balance sheet as at July 1, 2004 and its previously published AGAAP financial statements for the year ended June 30, 2005.
 
F-50
 
NOTE 32.   TRANSITION TO AIFRS (cont.)
 
Exemptions Applied
 
AASB 1 allows first-time adopters certain exemptions from the general requirement to apply AIFRS retrospectively.
 
The Consolidated Entity has taken the following exemptions:
 
·
Comparative information for financial instruments is prepared in accordance with AGAAP and the Company and Consolidated Entity have adopted AASB 132: Financial Instruments: Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement from July 1, 2005.
 
·
AASB 3 Business Combinations has not been applied to acquisitions of subsidiaries or of interests in associated and joint ventures that occurred before July 1, 2004.
 
·
AASB 2 Share-based Payment has not been applied to any equity instruments that were granted on or before November 7, 2002, nor has it been applied to equity instruments granted after November 7, 2002 that vested before January 1, 2005.
 
Explanation of material adjustments to the cash flow statement
 
There are no material differences between the cash flow statement presented under AIFRS and the cash flow statement presented under previous AGAAP.
 
(i)
Reconciliation of total equity as presented under AGAAP to that under AIFRS

   
Consolidated
 
CONSOLIDATED
 
Notes
 
July 1, 2005
 
June 30, 2005
 
July 1, 2004
 
 
 
 
 
  $
 
$
 
$
 
Total equity under AGAAP
       
28,349,340
   
28,349,340
   
7,504,790
 
Adjustments to equity
                 
Change in foreign exchange translation method
   
(A)
 
 
162,793
   
162,793
   
-
 
Change in accounting method for business combination
   
(B)
 
 
(197,988
)
 
(197,988
)
 
-
 
Measurement of investments at fair value
   
(C)
 
 
222,000
   
-
   
-
 
Total equity under AIFRS
       
28,536,145
   
28,314,145
   
7,504,790
 
 
(ii)
Reconciliation of profit after tax under AGAAP to that under AIFRS
 
   
Notes
 
Year ended
June 30, 2005
$
 
Profit after tax as previously reported
         
2,216,690
 
Foreign Exchange Losses
   
(A)
 
 
24,638
 
Change in accounting method for business combination
   
(B)
 
 
(3,032,561
)
Profit after tax under A-IFRS
         
(791,233
)

Note
 
(A)
Foreign Exchange Translation . Under AIFRS, the temporal method is not permitted. Instead the assets and liabilities of overseas subsidiaries are translated into the presentation currency of the Consolidated Entity at the rate of exchange ruling at the balance sheet date and the income statements are translated at the weighted average exchange rate for the period.  
 
F-51
 
NOTE 32.   TRANSITION TO AIFRS (cont.)
 
(B)
Business Combinations . Under AIFRS, management has reassessed the acquisition of Kestrel which occurred during the year ended June 30, 2005, to ensure it has been correctly accounted for in accordance with AASB 3 Business Combinations .
 
(C)
Financial Instruments . Under AIFRS investments have been classified as held for trading and are measured at fair value. Under AGAAP investments were measured at the lower of cost and recoverable amount. As noted above the Company elected not to apply the AIFRS financial instruments standards (AASB 132 and AASB 139) until July 1, 2005. The adjustment represents the impact of marking all investments held for trading to market at July 1, 2005.
 
NOTE 33.
RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA
 
The Company’s consolidated financial statements are prepared in accordance with the Australian equivalents to International Financial Reporting Standards (“AIFRS”) which as applied by the Company also complies with International Financial Reporting Standards (“IFRS”).
 
AIFRS differs in certain significant respects from accounting principles generally accepted in the United States of America (“US GAAP”). The following is a summary of the significant adjustments to net (loss)/profit for the years ended June 30, 2006 and 2005 and to total equity as of June 30, 2006 and 2005 which would be required if US GAAP had been applied instead of AIFRS in the consolidated financial statements. The information for the Company is presented for the twelve months ended June 30, 2005, however the principal operating activity for the Company began with the acquisition of Kestrel Inc. in February 2005. Company operations were insignificant prior to that date. As a result, predecessor information is presented for Kestrel Inc. for the seven month period ended January 31, 2005.
 
(a)
Reconciliation of Net (Loss )/Profit
 
   
Note
 
Year ended
June 30, 2006
A$
 
Year ended
June 30, 2005
A$
 
Net loss reported using AIFRS
         
(25,432,173
)
 
(791,233
)
US GAAP Adjustments
                   
Reversal of impairment expense
   
1
   
15,415,779
   
-
 
Adjustment to depletion expense
   
2
   
(671,271
)
 
-
 
Recognition of additional loss previously applied to minority interest holders
   
4
   
(60,054
)
 
-
 
Recognition of expense related to share-based payments due to timing of transition to AIFRS
   
3
   
-
   
(1,091,950
)
Fair value adjustments related to assets held for trading
   
5
   
-
   
98,708
 
Total Adjustments
         
14,684,454
   
(993,242
)
Net loss in accordance with US GAAP
         
(10,747,719
)
 
(1,784,475
)
Movement in foreign currency translation reserve
         
2,003,105
 
168,030
Comprehensive Loss
         
(8,744,614
)
 
(1,616,445
)
 
F-52

NOTE 33.
RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA (cont.)
 
(b)
Earnings per Share
 
   
Year ended June 30, 2006
A$
 
Year ended
June 30, 2005
A$
 
Net (loss)/profit in accordance with US GAAP
   
(10,747,719
)
 
(1,784,475
)
Weighted average number of ordinary shares used in calculating basic earnings per share:
   
104,081,159
   
43,361,114
 
Effect of dilution:
             
Share options
   
-
   
-
 
Adjusted weighted average number of ordinary shares used in calculating diluted earnings per share
   
104,081,159
   
43,361,114
 
Basic (loss)/earnings per share - in accordance with US GAAP - (cents per share)
   
(10.32
)
 
(4.11
)
Diluted (loss)/earnings per share - in accordance with US GAAP - (cents per share)
   
(10.32
)
 
(4.11
)

Year ended June 30, 2006
 
The following securities (all options), if converted to ordinary shares could potentially dilute basic EPS in the future:
 
Year ended June 30, 2006
Number
 
Expiry Date
 
Exercise Price
10,216,688
 
December 31, 2009
 
25 cents
8,500,000
 
May 31, 2011
 
45 cents
3,121,650
 
May 31, 2009
 
42 cents
11,000,000
 
May 31, 2011
 
53.8 cents (i)
9,000,000
 
May 31, 2011
 
See note below (i)

(i)   These options were granted to Macquarie Bank Limited as part of the convertible loan agreement entered into by the Company in May 2006. The 9,000,000 options can be exercised at Macquarie Bank Limited’s discretion from April 1, 2009 to May 31, 2011. The conversion price for these options will be set as 120% of the volume weighted average trading price of Samson’s share price for the 90 trading days prior to May 31, 2009. The Company’s outstanding debt with the bank will be extinguished upon conversion of these options.
 
These securities have not been included in the computation of diluted EPS for the year ended June 30, 2006 as to do so would have been anti-dilutive.
 
Year ended June 30, 2005
 
When calculating EPS for the year ended June 30 2005 utilising the Net (Loss) calculated in accordance with US GAAP the following securities (all options), if converted to ordinary shares could potentially dilute basic EPS in the future:
 
Year ended June 30 2005
Number
 
Expiry Date
 
Exercise Price
10,216,688
 
December 31, 2009
 
25 cents

These securities have not been included in the computation of diluted EPS for the year ended June 30, 2005 as to do so would have been anti-dilutive.
 
F-53

NOTE 33.
RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA (cont.)
 
(c)
Reconciliation of Shareholders Equity
 
   
Note
 
Year ended June 30, 2006
A$
 
Year ended June 30, 2005
A$
 
Shareholders Equity reported using AIFRS
         
47,985,306
   
28,314,145
 
Reversal of impairment expense
   
1
   
15,415,779
   
-
 
Adjustment to depletion expense
   
2
   
(671,271
)
 
-
 
Recognition of additional loss previously applied to minority interest holders
   
4
   
(60,054
)
 
-
 
Reversal of adjustment under AIFRS to reinstate investment in Kestrel at cost
   
7
   
(2,834,573
)
 
(2,834,573
)
Adjustment to recognize assets held for trading at fair value
   
5
   
-
   
222,000
 
Reduction in value of minority interest
   
4
   
-
   
(3,472,099
)
Movement of remaining minority interest to mezzanine
   
8
    -    
(599,043
)
Fair value adjustments related to assets held for trading
   
5
   
-
 
 
-
 
Adjustment to Foreign Currency Translation Reserve
   
6
   
(189,149
)
 
(20,049
)
Reversal of other reserve value    
9
    (200,397 )  
-
 
Shareholders Equity reporting using US GAAP
         
59,445,641
   
21,610,381
 

 
Notes
 
(1)   Impairment Expense . The application of US GAAP has resulted in lower impairment expense recorded by the Company, due to the two stage process required by US GAAP when assessing impairment. Initially the carrying value of oil and gas properties (including lease and well equipment) is compared to the undiscounted future cash flows relating to that asset. If the carrying value is less than the undiscounted future cash flows, no further adjustments are required. In Samson’s case, many of the oil and gas properties met this test and therefore did not require any further review.
 
If the carrying value of the asset is greater than the future undiscounted cash flows, the asset is required to be written down to its fair value. In determining the fair value of an asset, the company uses the sum of the discounted future cash flows.
 
Under AIFRS, the Company is required to compare the carry value of its oil and gas properties (including lease and well equipment) to the discounted cash flow relating to that asset, effectively skipping the first stage of the US GAAP review. The difference between comparing the carrying values of the oil and gas properties to the discounted cash flows (AIFRS) and the undiscounted cash flows (US GAAP) has resulted in the lower impairment charge for the Company, u nder US GAAP, by $15,415,779 for the year ended June 30, 2006. There was no impairment charge recognized for the year ended June 30, 2005.
 
F-54
 

NOTE 33.
RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA (cont.)
 
(2)   Depletion . As a result of certain adjustments under US GAAP, the carrying value of the Company’s assets has changed significantly. The significant adjustments under US GAAP that affect carrying value pertain to reversal of impairment losses for the fiscal year ended June 30, 2006 and the adjustment related to business combinations for the year ended June 30, 2005. Due mainly to lower impairment expense and the lower asset values applied to minority interest under US GAAP, the asset base to compute the US GAAP depreciation has changed and has resulted in an increase in depreciation expense by $671,271 for the year ended June 30, 2006.
 
(3)   Share Based Payments .   As disclosed in Note 31 to the consolidated financial statements, the Company issued share options to directors, employees and non-employees as an incentive for past performance or in consideration for services rendered.
 
Under AIFRS, the Company accounts for share-based payments under AASB 2 “ Share-Based Payments.”    Options issued after November 7, 2002 and vested on or after January 1, 2005 are required to have the grant-date fair value be recognized as an expense over the vesting period.
 
Under US GAAP, prior to July 1, 2005, the Company accounted for its stock options in accordance with Accounting Principles Board Opinion No. 25:  “ Accounting for Stock Issued to Employees ” and related interpretations (“APB 25”) and adopted the disclosure-only provisions of SFAS No. 123 “Accounting for Stock-Based Compensation” (“SFAS 123”).  Under APB 25, the Company recognized compensation expense for stock options only if the current market price of the underlying stock exceeded the exercise price as at the measurement date.  The resultant compensation cost is charged to earnings rateably over the vesting period.
 
Effective July 1, 2005, the Company adopted the requirements of SFAS 123 (revised 2004) “Share-Based Payments” (“SFAS 123R”) under US GAAP.  SFAS 123R eliminates the option to apply the intrinsic value measurement provisions of APB 25 to stock compensation awards issued to employees. Rather, SFAS No. 123R requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide services in exchange for the award - the requisite service period (usually the vesting period).
 
The Company has elected to apply SFAS 123R using the modified prospective method thereby recognizing the compensation cost in the consolidated financial statements based on grant-date fair value for all share-based payments granted after July 1, 2005, and based on the requirements of SFAS 123, for all unvested awards granted prior to the effective date of SFAS 123R.
 
SFAS 123R is consistent with share-based payments recognition under AASB 2, however, differences arise in terms of transition dates described above. Under AIFRS, the Company did not recognize an expense for stock options issued to employees and non-employees during fiscal year 2005, but have vested prior to January 1, 2005 in accordance with the transition provision under AASB 2. Under US GAAP, compensation expense is recognized based on intrinsic value under APB 25 f or employee stock options and fair value method for options issued to non-employees during fiscal year 2005. This resulted in recognition at cost of share-based payments in US GAAP amounting to $1,091,950. There is no difference in share-based payments expense between US GAAP and AIFRS during the year ended June 30, 2006.
 
As a result of adopting FAS123R on July 1, 2005, the Company’s net loss and net loss per share for the year ended June 30, 2006 was higher by $1,769,450 and 2 cents, respectively, than if it had continued to account for share based payments under APB 25. The adoption of FAS123R had no effect on cash flows.
 
F-55
 
NOTE 33.
RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA (cont.)
 
Options issued to non-employees
 
There are no differences in share-based payment expense for non-employees between US GAAP and AIFRS for the year ended June 30, 2006.
 
Under US GAAP, the Company accounts for share-based compensation to non-employees in accordance with SFAS 123, as amended by SFAS No. 148, “ Accounting for Stock-Based Compensation-Transition and Disclosure ”, and Emerging Issues Task Force Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services .”  Accordingly, the Company has calculated compensation cost based on the estimated fair value of the options as   of the measurement date, using the Black-Scholes mode, and recognised the compensation cost over the period in which the options vest.
 
Additional Share Based Compensation Payment Disclosure Requirements
 
During the fiscal year 2005 the Consolidated Entity issued options to employees and Directors. For the purposes of US GAAP, these options were accounted for under the intrinsic value method of APB 25. In accordance with FAS 123R, the following additional disclosures are required in relation to these options:
 
   
Year ended
June 30, 2005
A$
 
Net income:
     
Net income as reported for US GAAP
   
(1,784,475
)
Add: Stock based employee compensation expense previously include in reported net income, net of related tax effects
   
124,000
 
Deduct: Stock based employee compensation expense determined under fair value method for all awards, net of tax related effects
   
(1,481,800
)
Pro Forma Net Income
   
(3,142,275
)
         
Basic Earnings/(Loss) per common share:
       
As reported - cents per share
   
(4.11
)
Pro Forma - cents per share
   
(7.25
)
         
Diluted Earnings/(Loss) per common share:
       
As reported - cents per share
   
(4.11
)
Pro Forma - cents per share
   
(7.25
)
 
2006
The following is a summary of changes in outstanding employee options for the year ended June 30, 2006:
 
   
Number of Options
 
Weighted average exercise price
A$
 
Weighted average remaining contractual life (months)
 
Aggregate intrinsic value
A$
 
Outstanding at beginning of year
   
6,200,000
   
0.25
   
54
    124,000  
Granted
   
8,500,000
   
0.45
   
59
   
-
 
Exercised
   
(33,312
)
 
0.25
   
42
   
3,664
 
Forfeited
   
-
   
-
   
-
       
Expired
   
-
   
-
   
-
       
Outstanding at end of year
   
14,666,688
   
0.37
   
52
   
127,664
 
                           
All options vest immediately upon issue and therefore are all exercisable at year end.
 
F-56

NOTE 33.
RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA (cont.)
 
The weighted average grant date fair value for the options issued to employees during the year ended June 30, 2006 was 22.8 cents (2005: 23.9 cents).
The total fair value of employee options granted and vested during the year ended June 30, 2006 amounted to $1,769,450 (2005: $1,481,800).
 
During the year, 33,312 options were exercised. These options had an exercise price of 25 cents each and an intrinsic value of 11 cents per share when they were exercised. These options had a cash value of $8,328.
 
During the year ended June 30, 2005, the Company issued 6,200,000 options to Directors and employees. These options had a weighted average exercise price of A$0.25 and an aggregate intrinsic value of $124,000 at grant date.
 
At year end, these were the only options outstanding and had a weighted average remaining contractual life of 54 months. These options all vest immediately upon issue and are therefore all exercisable at year end.
 
The weighted average grant date fair value of these options was 23.9 cents. For the significant asumptions used to estimate the fair value of employee options, refer to Note 31.
 
During the year, 1,750,000 options were exercised. These options had an exercise price of 20 cents and an intrinsic value of $175,000 when they were exercised. These options had a cash value of $350,000.
 
The following is a summary of changes in outstanding options (other than those issued to employees) for the year ended June 30, 2006:
 
   
Number of Options
 
Weighted average exercise price
A$
 
Weighted average remaining contractual life (months)
 
Aggregate intrinsic value
A$
 
Outstanding at beginning of year
   
4,050,000
   
0.25
   
54
   
81,000
 
Granted
   
3,121,650
   
0.42
   
35
   
-
 
Exercised
   
-
   
-
   
-
   
-
 
Forfeited
   
-
   
-
   
-
   
-
 
Expired
   
-
   
-
   
-
   
-
 
Outstanding at end of year
   
7,171,650
   
0.32
   
39
   
81,000
 
                           
All options vest immediately upon issue and therefore are all exercisable at year end.
 
The weighted average grant date fair value for the options issued during the year ended June 30, 2006 (other than those options issued to employees) was 20.79 cents (2005: 23.9 cents). The total fair value of non-employee options granted and vested during the year ended June 30, 2006 amounted to $645,245 (2005: $967,950).

For options granted to non-employees, the binomial pricing model used the following variables to value the options:

   
2006
 
2005
 
Dividend yield (%)
   
-
   
-
 
Expected volatility (%)
   
75
   
130
 
Risk-free interest rate (%)
   
5.58
   
5.22
 
Expected life of option (years)
   
3
   
5
 
Option exercise price - cents
   
42
   
25
 
Share price at grant date - cents
   
40
   
27
 

The expected life of the options is based on the expiry date of the option and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumptions that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. No other features of options granted were incorporated into the measurement of fair value.

The fair value of options in 2006 amounting to $645,245 is accounted for as cost of capital raising and is recognized in equity. The fair value of options issued to non-employees in 2005 amounting to $967,950 is recognized as general and administration expense in the statement of income.
 
(4) Business Combination under AIFRS, the valuation of any minority interest acquired as part of a business combination are recognized at the fair value of assets acquired under U.S. GAAP, the value applied to minority interests is the historical cost of net assets acquired prior to the business combination. The value assigned to the minority interest under US GAAP was therefore significantly lower than under AIFRS. At June 30, 2005, minority interest is lower by $3,472,099 under US GAAP. The reduced value of minority interest resulted in lower asset values under US GAAP and correspondingly resulted in a lower impairment charge being recorded by the Company for US GAAP purposes for the year ended June 20, 2006. (See Note 1)

During the year ended June 30, 2006, for the purposes of US GAAP, a portion of the loss previously attributed to the minority interests was attributed to the members of the parent entity. This is because the minority interests had insufficient assets to absorb the loss.
 
Details of the Acquisition of Kestrel Energy Inc
 
During the fiscal year 2005, the Company made an offer to all non-US resident shareholders of Kestrel Energy Inc, a junior oil and gas producer listed on the Over the Counter Bulletin Board in the United States of America. This offer was approved at a General Meeting of the Company’s shareholders held on December 24, 2004. Five Samson shares were granted for every one Kestrel share held by those shareholders that accepted the offer.
 
As the offer was unconditional, the issue price of the shares was deemed to be the market price of the Samson shares on the date the acceptance by the Kestrel shareholders was received by the Company. At June 30, 2005 the Company controlled 78.2% of Kestrel Energy Inc at a cost of $11,388,475.
 
F-57
 
NOTE 33.   RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA (cont.)
 
Details of the acquisition are as follows in accordance with US GAAP:
 
Fair value of identifiable net assets of controlled entity acquired at January 31, 2005 (the date control was obtained):
 
Cash
   
362,684
 
Restricted Funds
   
83,272
 
Receivables
   
353,710
 
Other
   
31,676
 
Oil and Gas Properties
   
12,274,589
 
Accounts Payable
   
(933,757
)
Asset Retirement Obligation
   
(213,190
)
Minority Interest
   
(570,509
)
         
Net Assets
   
11,388,475
 

The results of Kestrel Energy Inc have been included in the results of the Company from February 1, 2005.
 
If the acquisition of Kestrel transaction had taken place on July 1, 2004, the Company would have recorded consolidated revenue at $2,958,470, a net loss of $1,449,155 and a loss per share 2.42 cents per share. A pro forma adjustment to depletion expense has been included in this calculation.
 
(5) Assets held for trading .   Under AIFRS and US GAAP, assets held for trading are accounted for at fair value, with the fair value movement recognized in profit and loss. However, upon adoption of AIFRS in fiscal year 2006, the Company has elected to apply an exemption available under AASB 1, First Time Adoption of AIFRS , from having to apply AASB 139, Financial Instruments: Recognition and Measurement to the comparative period. As such, assets held for trading as of June 30, 2005 were carried at the lower of cost and net realizable value in accordance with AGAAP. This resulted in different amount recognized in the profit and loss amounting to $98,708 for the year ended June 30, 2005 and different carrying value of assets held for trading as of June 30, 2005 amounting to $222,000. The difference in carrying value as of June 30, 2005 amounting to $222,000 was adjusted to the Company’s equity under AIFRS when it adopted AASB 139 effective July 1, 2005.
 
Included in the assets held for trading detailed in Note 8 is the following:

   
Year ended
June 30, 2006
 
Year ended
June 30, 2005
 
   
A$
 
A$
 
Fair value of investments held with an unrealized loss
   
68,000
   
2,547,431
 
Aggregate amount of unrealized loss
   
104,000
   
1,569,286
 
 
All of the investments listed in this table have been in a continuous loss position for more than twelve months.
 
(6)   Foreign Currency Reserve . The Company has two subsidiaries located in the United States of America. The functional currency of these subsidiaries is the USD, whereas the reporting currency of the company is the AUD. Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. At reporting date, balance sheet items are retranslated to the prevailing spot rate. The exchange differences arising on this translation are taken directly to the foreign currency reserve in shareholders equity.
 
F-58
 
NOTE 33.   RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA (cont.)
 
Whilst there is no difference in the accounting treatment of the translation of foreign subsidiaries between US GAAP and AIFRS, the differences and adjustments noted above have all been denominated in USD and therefore have affected the balance of the foreign currency reserve.

(7) Reversal of adjustment under AIFRS to reinstate investment in Kestrel to cost . As of June 30, 2004, the Company had recognized an impairment loss related to its investment in Kestrel Energy, Inc. amounting to $2,834,573. In accordance with the requirements of AASB3, Business Combination , the Company reversed this previously recognized impairment loss to equity when it gained control of Kestrel Energy Inc. in January 2005. Under US GAAP, this reversal of impairment is not permitted.
 
(8)   Movement of minority interests. Under AIFRS, minority interests are presented within equity, but separate from the parent shareholders' equity. Under US GAAP, minority interests are presented outside equity, in between liabilities and equity. Accordingly, the remaining minority interests under AIFRS as of June 30, 2005 amounting to $599,043 after the adjustment described in Note 4 is reversed under US GAAP.
 
(9)   Other Reserve.  The Company has recorded a value in Other Reserve in relation to the continued acquisition of remaining Kestrel shares.  Under US GAAP, acquisition of minority interest is accounted for under the purchase method.
 
(10) Capitalized Interest .  US GAAP differs from AIFRS in regards to the capitalized of interest. Although the Company incurs development costs related to certain oil and gas fields, the amount of such costs that would be subject to capitalized interest is insignificant and therefore is not reflected as a reconciling difference. 
 
(d)
Oil and Gas Data (unaudited)
 
Information Regarding Proved Oil and Gas Reserves
 
The following information is presented in accordance with Statement of Financial Accounting Standards No. 69, “Disclosures about Oil and Gas Producing Activities” (“SFAS No. 69”) and were prepared by the Company. All reserves are located within the continental United States.
 
Estimated Proved Oil and Gas Reserves
 
Proved reserves are those quantities of hydrocarbons which, by analysis of geological and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under current economic conditions, operating methods and government regulations. Proved reserves can be categorized as developed or undeveloped.
 
Developed Reserves
 
Developed reserves are expected to be recovered from existing wells including reserves behind pipe. Improved recovery reserves are considered developed only after the necessary equipment has been installed, or when the costs to do so are relatively minor.
 
Undeveloped Reserves
 
Undeveloped reserves are expected to be recovered from new wells on undrilled acreage, from deepening existing wells to a different reservoir or where a relatively large expenditure is required to recomplete an existing well or install production or transportation facilities for primary or improved recovery projects.
 
F-59
 
NOTE 33.   RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA (cont.)
 
Following is a summary of proved and proved developed hydrocarbon reserves attributed to the Company:
 
   
Year ended June 30, 2006
 
For the five months from
February 1, 2005 to June 30, 2005
 
   
Oil - mBBLs
 
Gas - mmcf
 
Total - mmcfe
 
Oil - mBBLs
 
Gas - mmcf
 
Total
mmcfe
 
Beginning of year
   
357
   
6,892
   
9,034
   
-
   
-
   
-
 
Revisions of previous quantity estimates
   
(63
)
 
(3,912
)
 
(4,290
)
 
(2
)
 
953
   
941
 
Purchase of reserves in place
   
42
   
9,147
   
18,434
   
366
   
4600
   
6,767
 
Extensions, discoveries and improved recovery
   
-
   
-
   
-
   
-
   
1,432
   
1,432
 
Sale of reserves in place
   
-
   
-
   
-
   
-
   
-
   
-
 
Production
   
(19
)
 
(426
)
 
(538
)
 
(7
)
 
(94
)
 
(136
)
End of year
   
318
   
11,699
   
22,640
   
357
   
6,892
   
9,034
 
 
                                     
Proved Developed Producing
   
309
   
9,279
   
11,133
   
269
   
2,328
   
3,942
 
 
The oil reserves have been converted from barrels of oil to thousands of cubic feet equivalent on the basis of 6 barrels of oil to one mcf of gas.
 
Standardized Measure of Discounted Future Net Cash flows
 
Future hydrocarbon sales and production and development costs have been estimated using prices and cost in effect at the end of the periods indicated. The weighted average period-end prices used for the Company for June 30, 2006 and June 30, 2005 were US$5.43 and US$6.30 per mcf, respectively. The weighted average period-end prices used for the Company for June 30, 2006 and June 30, 2005 were US$62.31 and US$47.52 per boe, respectively. Future cash flows were reduced by estimated future development, abandonment and production costs based on period-end costs. No deductions were made for general overhead, depletion, depreciation and amortization or any indirect costs. All cash flows are discounted at 10%.
 
Changes in demand for hydrocarbons, inflation and other factors make such estimates inherently imprecise and subject to substantial revisions. This table should not be construed to be an estimate of current market value of the proved reserves attributable to the Company.
 
The estimated standardized measure of discounted future net cash flows relating to proved reserves at June 30, 2006 and June 30, 2005 is shown below:
 
   
As at:
 
   
June 30, 2006
USD
 
June 30, 2005
USD
 
Future cash inflows
   
84,273
   
58,459
 
Future production costs
   
(24,380
)
 
(15,734
)
Future development costs
   
(3,430
)
 
(4,850
)
               
Future net cashflows
   
56,463
   
37,875
 
10 % discount
   
(28,817
)
 
(18,920
)
               
Standardised measure of discounted future net cash flows relating to proved reserves
   
27,646
   
18,955
 
 
The principal sources of changes in the standardized measure of discounted future net cash flows during the period ended June 30, 2006 and June 30, 2005 are as follows:
 
   
As at:
 
   
June 30, 2006
USD
 
June 30, 2005
USD
 
Beginning of year
   
18,955
   
-
 
Sales of oil and gas produced during the period, net of production costs
   
(3,013
)
 
(532
)
Net changes in prices and production costs
   
773
   
2,007
 
Changes in estimates of future development costs
   
3,135
   
(2,000
)
Extensions, discoveries and improved recovery
   
-
   
2,100
 
Revisions of previous quantity estimates and other
   
(11,185
)
 
2,479
 
Sale of reserves in place
   
-
   
-
 
Purchase of reserves in place
   
18,037
   
14,397
 
Accretion of discount
   
2,045
   
600
 
Other
   
(1,101
)
 
(96
)
End of year
   
27,646
   
18,955
 
 
F-60
NOTE 33.   RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA (cont.)
 
(e )  Income Tax Under US GAAP
 
   
2006
$
 
2005
$
 
Deferred Income Tax
         
Deferred income tax at June 30 relates to the following:
         
           
CONSOLIDATED
         
Deferred tax liabilities - non current
         
Unrealized foreign exchange gains on intercompany loans
   
462,222
   
-
 
Depletion - oil and gas properties
   
-
   
108,234
 
Gross deferred tax liabilities
   
462,222
   
108,234
 
               
Deferred tax assets - current
             
Assets held for trading
    443,398     324,752  
               
Deferred tax assets - non current
             
Losses available to offset against future taxable income
   
8,890,335
   
7,372,910
 
Depletion - oil and gas properties
   
255,000
   
-
 
Impairment - oil and gas properties
   
3,371,693
   
-
 
Share Issue Costs
   
577,041
   
70,966
 
Other
   
542,849
   
130,057
 
Valuation allowance
   
(13,618,094
)
 
(7,790,451
)
Gross deferred tax assets
   
462,222
   
108,234
 
               
Deferred tax income/(expense)
   
-
   
-
 
Net deferred tax recognized in the balance sheet
   
-
   
-
 
 
The Consolidated Entity has not recognized a deferred income tax asset in relation to these losses as realization of the benefit is not regarded as more likely than not. The effective tax rate for 2006 and 2005 varies from the statutory rate due primarily to changes in the valuation allowance.
 
(f)   Asset Retirement Obligation , prepared in accordance with US GAAP
 
The Company records the present value of obligations associated with the retirement of tangible long-lived assets in the period in which it is incurred. The liability is capitalized as part of the related long-lived asset's carrying amount. Over time, accretion of the liability is recognized as an operating expense and the capitalized cost is depreciated over the expected useful life of the related asset. The Company's asset retirement obligations relate primarily to the plugging, dismantlement, removal, site reclamation and similar activities of its oil and gas properties. Changes in asset retirement obligations during the period were:
 
Provision for Restoration
 
2006
A$
 
2005
A$
 
Balance at beginning of year
   
238,975
   
-
 
Acquisition of subsidiary
   
-
   
232,298
 
Recognized upon acquisition of new assets
   
158,367
   
-
 
Revisions in estimated cash flows (1)
   
524,766
   
-
 
Accretion of discount
   
11,756
   
6,677
 
Balance at end of the year
   
933,864
   
238,975
 

(1) - During the year, the Company undertook a review of its asset retirement obligation, which resulted in additional liability being recognized due to change in estimated ultimate settlement cost.

(2) - Whilst the recognition of the Company’s Asset Retirement Obligation (ARO) is similar under US GAAP and AIFRS, the measurement of the ARO is different. AIFRS requires the Company to discount its expected future cash flows using an inflation adjusted risk free rate, whereas US GAAP requires the Company to use its credit adjusted risk-free rate, adjusted for inflation the higher discount rate utilized under US GAAP has lead to a decrease in the ARO liability recognized. This adjustment on ARO did not result in a material difference between AIFRS and US GAAP Profit and Loss and Equity.
 
F-61
 

NOTE 33.   RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA (cont.)
 
(g)   New Accounting Pronouncements - US GAAP.

Income Taxes
 
In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No 48, “Accounting for Uncertainty in Income Taxes,” an interpretation of FAS 109, “Accounting for Incomes Taxes” (“FIN 48”), to create a single model to address accounting for uncertainly in income tax positions. FIN 48 clarifies the accounting for income taxes, by prescribing a minimum recognition threshold a tax position is required to met before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company will adopt FIN 48 as July 1, 2007, as required. The cumulative effect of adopting FIN 48 will be recorded in retained earnings and other accounts as applicable. The Company has not determined the effect, if any, the adoption of FIN 48 will have the Company’s financial position or the results of the operations.

Fair Value Measurements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 provides enhanced guidance for using fair value to measure assets and liabilities and also responds to investors’ requests for expanded information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. SFAS 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value and does not expand the use of fair value in any new circumstances. Under SFAS 157, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. SFAS 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, SFAS 157 establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. Under SFAS 157, fair value measurements would be separately disclosed by level within the fair value hierarchy. SFAS 157 is effective for financial statements issued for fiscal year beginning after November 15, 2007. The Company plans to adopt this pronouncement in the fiscal year beginning July 1, 2008 and has yet to determine the effect, if any, on the Company’s financial statements.
 
Fair Value Option for Financial Assets and Financial Liabilities
 
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities ( “ SFAS 159 ” ). SFAS 159 allows entities to voluntarily choose, at specified election dates, to meaure many financial assets and financial liabilities (as well as certain nonfinancial instruments that are similar to financial instruments) at fair value (the “ fair value option ” ). The election is made on an instrument-by-instrument basis and is irrevocable. If the fair value option is elected for an instrument, SFAS 159 specifies that all subsequent changes in fair value for that instrument shall be reported in earnings (or another performance indicator for entities such as non-forprofit organizations that do not report earnings). SFAS 159 is effective as of the beginning of an entity ’ s first fiscal year that begins after November 15, 2007. The Company will adopt this pronouncement beginning July 1, 2008 and has yet to determine the effect, if any, on the Company's financial statements.
 
(h) Audited Financial Information - Predecessor Business Acquisition
 
 
Condensed US GAAP Financial Statements for Samson Oil & Gas Limited, including Kestrel Energy Inc as Predecessor Entity

Income Statement   
 
   
Consolidated Entity
Year Ended
 
Kestrel Energy Inc:
 
Continuing Operations
 
June 2006
A$
 
June 2005
A$
 
   Seven months ended
January 31, 2005 A$
 
Revenue
               
Sale of oil and gas
   
5,484,575
   
1,128,898
     
1,829,572
 
Total revenue
   
5,484,575
   
1,128,898
     
1,829,572
 
Cost of sales
   
(5,852,916
)
 
(726,313
)
   
(793,128
)
Operating expenses
                     
Exploration and evaluation expense
   
(5,244,288
)
 
(360,544
)
   
(59,110
)
Impairment expense
   
(2,400,762
)
 
-
     
-
 
General and administrative
   
(5,434,130
)
 
(2,719,444
)
   
(501,983
)
Total operating expenses
   
(13,079,180
)
 
(3,079,988
)
   
(561,093
)
Operating (loss) income
   
(13,447,521
)
 
(2,677,403
)
   
475,351
 
Non-operating income (expenses)
                     
Interest income
   
300,635
   
138,077
     
6,453
 
Interest expense
   
(599,614
)
 
(75,339
)
   
(61,269
)
Net profit/(loss) on sale of held for trading assets
   
(26,754
)
 
750,738
     
-
 
Net foreign exchange gains (losses)
   
228,384
   
(58,022
)
   
-
 
Movement in fair value of embedded derivative
   
2,480,084
   
-
     
-
 
Other
   
123,702
   
138,502
     
66,833
 
Total non-operating income (expenses)
   
2,506,437
   
893,956
     
12,017
 
Net loss before income taxes
   
(10,941,084
)
 
(1,783,447
)
   
487,368
 
Income taxes
   
-
   
-
     
-
 
Net loss before minority interest
   
(10,941,084
)
 
(1,783,447
)
   
487,368
 
Minority interest
   
193,363
   
(1,028
)
   
-
 
Net loss
   
(10,747,721
)
 
(1,784,475
)
   
487,368
 


Basic (loss)/earnings per share - cents
(10.32
)
(1.90
)
4.80
Diluted (loss)/earnings per share - cents
(10.32
)
(1.90
)
4.78
 
 
F-62
 
NOTE 33.
RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA (cont.)
 
CASH FLOW STATEMENT

   
Consolidated Entity
Year ended
 
Kestrel Energy Inc
 
   
June 30, 2006
A$
 
June 30, 2005
A$
 
  Seven months ended January 31, 2005 A$
 
                 
Net cash flows used in operating activities
 
2,341,611
 
769,821
 
382,502
 
                 
Cash flows from investing activities
               
Net cash effect of acquisition of controlled entity
   
-
   
362,684
     
-
 
Payments for plant & equipment
   
(3,166,620
)
 
(53,257
)
   
-
 
Payments for oil and gas properties
   
(46,603,929
)
 
(903,895
)
   
-
 
Payments for exploration, evaluation   and development
   
(11,203,208
)
 
(254,133
)
   
(135,593
)
Monies advanced for drilling bonds held
   
-
   
(201,142
)
   
-
 
Net cash flows (used in)/ from investing activities
   
(60,973,757
)
 
(1,049,743)
     
(135,593
)
                       
Cash flows from financing activities
                     
Proceeds from issue of share capital
   
42,637,182
   
5,600,000
     
-
 
Repayment of loan advanced
   
(1,908,431
)
 
(70,912
)
   
(81,235
)
Proceeds from payment of loan advanced
   
-
   
65,000
     
-
 
Net proceeds from borrowings
   
27,754,900
   
-
     
81,235
 
Payments for borrowing costs
   
(465,106
)
 
-
     
-
 
Payments for costs associated with capital raising
   
(875,950
)
 
(289,741
)
   
-
 
Net cash flows from financing activities
   
67,142,595
   
5,304,347
     
-
 
                       
Net increase/(decrease) in cash held
   
8,510,449
   
5,024,425
     
246,909
 
Net foreign exchange differences
   
409,496
   
20,031
     
-
 
Cash and cash equivalents at the beginning of the period
   
6,708,181
   
1,663,725
     
220,020
 
Cash and cash equivalents at the end of the period
   
15,628,126
   
6,708,181
     
466,929
 
                       
Cash paid for interest
   
(263,690
)
 
(75,339
)
   
(61,269
)

The consolidated cash flow statement should be read in conjunction with the accompanying notes.

F-63
 

NOTE 33.   RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA (cont.)
 
NOTES TO FINANCIAL STATEMENTS
 
Specifically pertaining to Kestrel Energy Inc
 
(1)   Summary of Significant Accounting Policies
 
(a)   Organization and presentation
 
Kestrel Energy, Inc. (Kestrel) was incorporated under the laws of the State of Colorado on November 1, 1978. Kestrel’s principal business is the acquisition, either alone or with others, of interests in proved developed producing oil and gas leases, and exploratory and development drilling.
 
Kestrel presently owns oil and gas interests in the states of Louisiana, New Mexico, Oklahoma, Texas and Wyoming.
 
Control of Kestrel was acquired by Samson Oil & Gas Ltd, an Australian company on February 1, 2005, through an offer to all non-US resident shareholders of Kestrel Energy Inc. Five Samson shares were granted for every one Kestrel share held by those Kestrel shareholders that accepted the offer.
 
Kestrel has been presented as a predecessor to Samson as it represented substantially all of Samson’s operations immediately subsequent to the acquisition. The financial statements have been translated from the functional currency (US dollars) to the Australian dollar at the average exchange rate for the period from July 1, 2004 to January 31, 2005, being 0.7386 USD:AUD.

All operations of Kestrel are located in the continental United States.
 
(b)   Net earnings per Share
 
Basic earnings per share are computed by dividing earnings available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect per share amounts that would have resulted if dilutive potential common stock had been converted to common stock. The following reconciles amounts reported in the financial statements.
 
The following is a reconciliation of the numerators and denominators used in the calculations of basic and diluted earnings per share for the period ending January 31, 2005:
 
   
Seven months ending January 31, 2005
 
   
Net Income
 
A$
 
Weighed Average Number of Shares
 
Per Share  Amount
 cents per  share
 
A$
 
Basic earnings per share:
             
Net income and share amounts
   
487,369
   
10,134,321
   
4.8
 
Dilutive securities
                   
Stock options
          
58,186
        
                     
Diluted earnings per share
                     
Net income and assumed share conversion
   
487,369
   
10,192,507
   
4.8
 
 
F-64
 
NOTE 33.   RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA (cont.)
 
(c)   Interest Expense for Kestrel Energy Inc
 
The expense recognized in the period relates to the following notes payable:
 
On January 24, 2003, Kestrel borrowed US$400,000 from R&M Oil and Gas Ltd., (“R&M”). The loan was originally due on January 31, 2005, bears interest at 12.5% per annum is secured by the Company’s oil and gas interest in Grady County, Oklahoma. On October 13, 2004 the R&M Loan was extended to January 31, 2007 under the same terms and conditions.
 
On May 5, 2003, Kestrel entered into a Line of Credit with Barry Lasker for a maximum loan to the Company of US$200,000. Under the terms of the agreement, all outstanding amounts were due on May 4, 2005 and bore interest at 10% per annum. On February 4, 2004 the loan was assigned to Samson Oil & Gas Limited, a related party and substantial shareholder and Mr Lasker was paid in full. The Samson loan, originally due on May 4, 2005 was extended until May 4, 2006 under the same terms and conditions.
 
On June 8, 2004 Kestrel borrowed US$50,000 from Victoria Petroleum NL with an 8% interest rate which is to be paid on repayment of the loan. This is an unsecured loan due on demand, with no demand made to date.
 
(2)   Asset Retirement Obligations
 
Kestrel records the present value of obligations associated with the retirement of tangible long-lived assets in the period in which it is incurred. The liability is capitalized as part of the related long-lived asset's carrying amount. Over time, accretion of the liability is recognized as an operating expense and the capitalized cost is depreciated over the expected useful life of the related asset. Kestrel’s asset retirement obligations relate primarily to the plugging, dismantlement, removal, site reclamation and similar activities of its oil and gas properties. Changes in asset retirement obligations during the period were:
 
Asset retirement obligations as of July 1, 2004
 
$
239,813
 
Liabilities incurred
   
-
 
Liabilities settled
   
-
 
Accretion expense (included in depreciation, depletion and amortization)
 
$
5,642
 
Asset retirement obligations as of January 31, 2005
 
$
245,455
 

(3)   Information Regarding Proved Oil and Gas Reserves (Unaudited)
 
The information presented below regarding Kestrel oil and gas reserves were prepared by the Company’s engineer. All reserves are located within the continental United States.
 
Proved oil and gas reserves are the estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions.
 
Proved developed oil and gas reserves are those expected to be recovered through existing wells with existing equipment and operating methods. The determination of oil and gas reserves is highly complex and interpretive. The estimates are subject to continuing changes as additional information becomes available.
 
F-65
 
NOTE 33.   RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA (cont.)
 
Estimated net quantities of proved reserves of oil and gas for the seven months ending January 31, 2005 are:
 
   
Seven months ending January 31, 2005
 
   
Oil
(BBLS)
 
Gas
(MMCF)
 
Total
(MMCFE)
 
               
Beginning of period
   
364
   
4,751
   
6,935
 
Revisions of previous quantity estimates
   
14
   
12
   
96
 
Extensions, discoveries and improved recovery
   
-
   
-
   
-
 
Sales of reserves in place
   
-
   
-
   
-
 
Production
   
(12
)
 
(163
)
 
(234
)
End of period
   
366
   
4,600
   
6,797
 
Proved developed reserves - end of period
   
287
   
2,214
   
3,936
 

Standardized Measure of Discounted Future Cash Flows
 
The standardized measure of discounted future net cash flows relating to proved oil and gas reserves and the changes in standardized measure of discounted future net cash flows relating to proved oil and gas reserves were prepared in accordance with the provisions of SFAS 69. Future hydrocarbon sales and production and development costs have been estimated using prices and cost in effect at the end of the periods indicated. The weighted average period-end prices used for Kestrel for January 31, 2005 US$5.853 per mcf for gas and US$38.543 per barrel for oil. Future cash flows were reduced by estimated future development, abandonment and production costs based on period-end costs. No deductions were made for general overhead, depletion, depreciation and amortization or any indirect costs. All cash flows are discounted at 10%.
 
Changes in demand for hydrocarbons, inflation and other factors make such estimates inherently imprecise and subject to substantial revisions. This table should not be construed to be an estimate of current market value of the proved reserves attributable to Kestrel .
 
The principal sources of changes in the standardized measure of discounted future net cash flows during the period ended January 31, 2005 are as follows:
 
   
As at:
January 31, 2005
USD
 
       
Beginning of period
 
$
14,005
 
Sales of oil and gas produced during the period,
   
(869
)
net of production costs
       
Net change in prices and production costs
   
711
 
Changes in estimated future development costs
   
-
 
Extensions, discoveries and improved recovery
   
-
 
Revisions of previous quantity estimates and other
   
224
 
Accretion of discount
   
817
 
Other
   
(492
)
         
End of period
 
$
(14,396
)
 
F-66
 

NOTE 33.   RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA (cont.)
 
C apitalized Expenditure
 
Kestrel capitalized $135,593 worth of development costs during the period, primarily relating to development work performed on the Powder River Basin CBM wells in Campbell County, Wyoming and on the Pierce unit in the PRB, also in Campbell County, Wyoming.
 
The Company also expensed $59,110 as exploration expenditure as it did not meet Kestrel’s criteria for capitalization. This expenditure primarily related to exploration work performed in the Greens Canyon area.
 
F-67
 
 

F-68
 

 
SAMSON OIL & GAS LIMITED
FINANCIAL REPORT

for the half-year ended December 31, 2006
 

 
F-69

SAMSON OIL & GAS LIMITED
 
CONDENSED INCOME STATEMENT (unaudited)
for the half-years ended December 31, 2006 and 2005

       
CONSOLIDATED
 
   
NOTE
 
2006
A$'S
 
2005
A$'S
 
Continuing operations
             
               
Sale of oil and gas
   
3(a
)
 
6,326,261
   
1,803,269
 
Finance revenue
   
3(a
)
 
120,794
   
84,063
 
Total revenue
         
6,447,055
   
1,887,332
 
Cost of sales
         
(3,563,032
)
 
(1,607,883
)
Gross profit
         
2,884,023
   
279,449
 
Other income
   
3(a
)
 
811,124
   
38,318
 
                     
Depreciation expense
         
(25,206
)
 
(15,489
)
Impairment expense
   
4
   
(6,213,863
)
 
-
 
Employee benefits expense
         
(518,733
)
 
(334,717
)
Finance costs
         
(1,393,780
)
 
-
 
Exploration expense
         
(713,067
)
 
(302,055
)
Other expenses
         
(1,563,611
)
 
(1,391,579
)
Loss from continuing operations before income tax
         
(6,733,113
)
 
(1,726,073
)
Income tax expense
         
-
   
-
 
Loss from continuing operations after income tax
         
(6,733,113
)
 
(1,726,073
)
Loss attributable to minority interests
         
-
   
8,381
 
Loss attributable to members of the parent
         
(6,733,113
)
 
(1,717,692
)
                     
Basic loss per share (cents)
         
(3.50
)
 
(2.12
)
Diluted loss per share (cents)
         
(3.50
)
 
(2.12
)

F-70

SAMSON OIL & GAS LIMITED
 
CONDENSED BALANCE SHEET
 (unaudited)

 
     
CONSOLIDATED
 
   
NOTE
 
Dec 31, 2006
A$'S
(unaudited)
 
Jun 30, 2006
A$'S
 
Current assets
             
Cash and cash equivalents
         
7,566,113
   
15,628,126
 
Trade and other receivables
         
2,703,813
   
1,799,639
 
Assets held for trading
         
1,021,000
   
353,000
 
Prepayments
         
527,442
   
413,592
 
Total Current assets
         
11,818,368
   
18,194,357
 
                     
Non-current assets
                   
Restricted funds
         
122,262
   
89,449
 
Property, plant and equipment
         
2,653,051
   
2,260,368
 
Deferred exploration expenditure
         
3,432,463
   
3,704,065
 
Oil and gas properties
         
44,883,520
   
53,613,313
 
Total Non-current assets
         
51,091,296
   
59,667,195
 
Total assets
         
62,909,664
   
77,861,552
 
                     
Current liabilities
                   
Trade and other payables
         
1,592,989
   
3,885,813
 
Other financial liabilities - derivatives
         
52,245
   
-
 
Provisions
         
86,788
   
73,619
 
Total Current liabilities
         
1,732,022
   
3,959,432
 
                     
Non-current liabilities
                   
Interest bearing liabilities
         
22,549,423
   
24,509,728
 
Provisions
       
1,359,190
   
1,407,086
 
Total Non-current liabilities
         
23,908,613
   
25,916,814
 
Total liabilities
         
25,640,635
   
29,876,246
 
Net assets
         
37,269,029
   
47,985,306
 
                     
Equity
                   
Contributed equity
   
8
   
69,347,606
   
69,366,304
 
Accumulated losses
         
(33,089,487
)
 
(26,356,374
)
Reserves
         
1,010,910
   
4,975,376
 
Total equity
         
37,269,029
   
47,985,306
 

F-71

SAMSON OIL & GAS LIMITED
 
CONDENSED CASH FLOW STATEMENT (unaudited)
for the half-years ended December 31, 2006 and 2005

   
CONSOLIDATED
 
   
2006
A$'S
 
2005
A$'S
 
Cash flows from operating activities
         
Receipts from customers and debtors
   
4,041,014
   
1,221,915
 
Payments to suppliers and employees
   
(2,194,645
)
 
(2,508,301
)
Payments for exploration and evaluation
   
(713,068
)
 
(574,547
)
Interest received
   
75,130
   
52,887
 
Net cash flows from/(used in) operating activities
   
1,208,431
   
(1,808,046
)
               
Cash flows from investing activities
             
Cash proceeds from sale of investments
   
-
   
354,650
 
Cash paid for acquisition of office equipment
   
(104,883
)
 
(76,981
)
Loan repaid
   
-
   
(538,756
)
Cash paid for oil and gas properties and development
   
(5,820,055
)
 
(6,080,180
)
Net cash flows used in investing activities
   
(5,924,938
)
 
(6,341,267
)
               
Cash flows from financing activities
             
Cash paid for borrowing costs
   
(269,103
)
 
-
 
Payments for acquisition of minority interest
   
(782,202
)
 
-
 
Interest paid
   
(636,574
)
 
-
 
Proceeds from issue of share capital
   
-
   
12,247,488
 
Payments for costs associated with capital raising
   
(1,212,750
)
 
(432,416
)
Net cash flows (used in)/from financing activities
   
(2,900,629
)
 
11,815,072
 
               
Net (decrease)/increase in cash and cash equivalents held
   
(7,617,136
)
 
3,665,759
 
Effects of foreign exchange on cash balances
   
(444,877
)
 
26,920
 
Cash and cash equivalents at beginning of period
   
15,628,126
   
6,708,181
 
Cash and cash equivalents at end of period
   
7,566,113
   
10,400,860
 
 
F-72

SAMSON OIL & GAS LIMITED
 
CONDENSED STATEMENT OF CHANGES IN EQUITY (unaudited)
for the half-year ended December 31, 2006
 
       
Attributable to equity holders of the parent
         
CONSOLIDATED
 
Issued Capital
 
Accumulated Losses
 
Foreign Currency Translation Reserve
 
Share Based Payments Reserve
 
Other Reserves
 
Total
 
Minority Interests
 
Total
Equity
 
   
$
 
$
 
$
 
$
 
$
 
$
 
$
 
$
 
At July 1, 2006
   
69,366,304
   
(26,356,374
)
 
2,360,284
   
2,414,695
   
200,397
   
47,985,306
   
-
   
47,985,306
 
Currency translation differences
   
-
         
(2,709,820
)
 
-
   
-
   
(2,709,820
)
 
-
   
(2,709,820
)
Total expense for the period recognised directly in equity
               
(2,709,820
)
             
(2,709,820
)
       
(2,709,820
)
Loss for the period
   
-
   
(6,733,113
)
 
-
   
-
   
-
   
(6,733,113
)
 
-
   
(6,733,113
)
Total expense for the period
   
-
   
(6,733,113
)
 
(2,709,820
)
 
-
   
-
   
(9,442,933
)
 
-
   
(9,442,933
)
Acquisition of minority interest
   
-
   
-
   
-
   
-
   
(1,549,433
)
 
(1,549,433
)
 
-
   
(1,549,433
)
Fair value of options issued to minority interest holders
   
-
   
-
   
-
   
-
   
294,787
   
294,787
   
-
   
294,787
 
Share issue costs
   
(18,698
)
 
-
   
-
   
-
   
-
   
(18,698
)
 
-
   
(18,698
)
At December 31, 2006
   
69,347,606
   
(33,089,487
)
 
(349,536
)
 
2,414,695
   
(1,054,249
)
 
37,269,029
   
-
   
37,269,029
 
 
                                                 
At July 1, 2005
   
25,223,584
   
(1,146,201
)
 
188,079
   
-
   
(22,459
)
 
24,243,003
   
4,071,142
   
28,314,145
 
Adoption of AASB 132 and AASB 139    
-
   
222,000
   
-
   
-
   
-
   
222,000
   
-
   
222,000
 
Currency translation differences
   
-
   
-
   
1,291,004
   
-
   
-
   
1,291,004
   
80,592
   
1,371,596
 
Loss for the period
   
-
   
(1,717,692
)
 
-
   
-
   
-
   
(1,717,692
)
 
(8,381
)
 
(1,726,073
)
Total income/(expense) for the period
   
-
   
(1,717,692
)
 
1,291,004
   
-
   
-
   
(426,688
)
 
72,211
   
(354,477
)
Acquisition of minority interest
   
2,883,040
   
-
   
-
   
-
   
(82,377
)
 
2,800,663
   
(2,800,663
)
 
-
 
Issue of share capital
   
12,247,488
   
-
   
-
   
-
   
-
   
12,247,488
   
-
   
12,247,488
 
Share issue costs
   
(432,416
)
 
-
   
-
   
-
   
-
   
(432,416
)
 
-
   
(432,416
)
At December 31, 2005
   
39,921,696
   
(2,641,893
)
 
1,479,083
   
-
   
(104,836
)
 
38,654,050
   
1,342,690
   
39,996,740
 

F-73

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (unaudited)

1.   CORPORATE INFORMATION

Samson Oil & Gas Limited is a company incorporated in Australia and limited by shares, which are publicly traded on the Australian Stock Exchange (ASX code “SSN”).

The principal activities during the half-year of entities within the Consolidated Entity were oil and gas exploration, development and production in the United States of America.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The half-year financial report does not include all notes of the type normally included within the annual financial report and therefore cannot be expected to provide as full an understanding of the financial performance, financial position and financing and investing activities of the consolidated entity as the full financial report.

The half-year financial report should be read in conjunction with the annual financial report of Samson Oil & Gas Limited as at June 30, 2006.

It is also recommended that the half-year financial report be considered together with any public announcements made by Samson Oil & Gas Limited and its controlled entities during the half-year ended December 31, 2006 and 2005 in accordance with the continuous disclosure obligations arising under the Corporations Act 2001 .

(a)   Basis of preparation

The half-year consolidated financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001 , applicable Accounting Standards including AASB 134 Interim Financial Reporting and other mandatory professional reporting requirements.

The half-year financial report has been prepared on a historical cost basis, except for held for trading investments, embedded derivatives and oil and gas derivatives, which are measured at fair value.

The financial report is presented in Australian dollars ($).

For the purpose of preparing the half-year financial report, the half-year has been treated as a discrete reporting period.

(b)   Significant accounting policies

Hedging
 
The Company benefits from the use of derivative financial instruments to manage commodity price exposures.

Specifically the Company utilizes fixed forward swaps in respect of its gas price exposure.

Derivative financial instruments are initially recognized at fair value in the balance sheet and are subsequently re-measured at their fair values. The fair value is calculated by discounting the future value of the forward contract at the appropriate prevailing quoted market rates at reporting date.
 
F-74
 
2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

The Company’s derivative financial instruments do not qualify for hedge accounting under the specific rules in AASB 139 “Financial Instruments: Recognition and Measurement”. Changes in the fair value of the Company’s derivative financial instruments are recognized immediately in the income statement.

The half-year consolidated financial statements have been prepared using the same accounting policies as used in the annual financial statements for the year ended June 30, 2006 , except for the adoption of amending standards mandatory for annual periods beginning on or after July 1, 2006, as described in Note 2(d).

(c)   Basis for Consolidation

The half-year consolidated financial statements comprise the financial statements of Samson Oil & Gas Limited and its subsidiaries as at December 31, 2006 ( “ the Company ” ).

(d)   Changes in accounting policies

The following Australian Accounting Standards and UIG Interpretations that have recently been amended and are effective from July 1, 2006 and are applicable to the Group are outlined in the table below. They are not expected to have any impact on the Group accounts.

Reference
 
Title
 
Application date of standard
 
Application date
             
AASB 2005-4
 
Amendments to Australian Accounting Standards [AASB 139, AASB 132, AASB 1, AASB 1023 & AASB 1038]
 
For annual periods beginning on or after January 1, 2006
 
July 1, 2006
             
AASB 2005-5
 
Amendments to Australian Accounting Standards [AASB 1 & AASB 139]
 
For annual periods beginning on or after January 1, 2006
 
July 1, 2006
             
AASB 2005-9
 
Amendments to Australian Accounting Standards [AASB 4, AASB 1023, AASB 139 & AASB 132]
 
For annual periods beginning on or after January 1, 2006
 
July 1, 2006
             
AASB 2006-1
 
Amendments to Australian Accounting Standards [AASB 121]
 
For annual period ending on or after December 31, 2006
 
July 1, 2006

F-75

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

Australian Accounting Standards and UIG Interpretations that have recently been amended and are effective from July 1, 2007 but are not currently applicable to the Group are listed below:

AASB 2004-3   Amendments to Australian Accounting Standards
 
AASB 2005-1   Amendments to Australian Accounting Standards
 
AASB 2005-3   Amendments to Australian Accounting Standards (AASB 119)
 
AASB 2005-6   Amendments to Australian Accounting Standards (AASB 3)
 
AASB 2006-3   Amendments to Australian Accounting Standards (AASB 1045)
 
AASB 119   Employee Benefits
 
Interpretation 5   Rights to interest arising from Decommissioning, Restoration and Environmental
 
Interpretation 6   Liabilities arising from Participating in a Specific Market - Waste Electrical and Electronic Equipment
 
Interpretation 7   Applying the Restatement Approach under AASB 129 Financial Reporting in Hyperinflationary Economies
 
Interpretation 8   Scope of AASB 2
 
Interpretation 9   Reassessment of Embedded Derivatives

F-76

3.   REVENUE, INCOME AND EXPENSES

   
CONSOLIDATED
 
   
2006
 
2005
 
   
$
 
$
 
Revenue, income and expenses from continuing operations
         
           
(a)   Revenue
         
Sale of oil and gas
         
Oil sales
   
986,179
   
527,520
 
Gas sales
   
4,962,495
   
1,252,826
 
Other
   
377,587
   
22,923
 
     
6,326,261
   
1,803,269
 
               
Finance revenue
   
120,794
   
84,063
 
               
Total Revenue
   
6,447,055
   
1,887,332
 
               
Other Income
             
Other
   
40,266
   
38,318
 
Hedging
   
19,594
   
-
 
Unrealised gain on investments held for trading
   
668,000
   
-
 
Movement in fair value of embedded derivative
   
83,264
   
-
 
     
811,124
   
38,318
 
 
The movement in fair value of embedded derivative relates to changes in the fair value of the conversion option contained within the convertible note issued by the Group in May 2006. The conversion option allows the holder of the convertible note to convert the note into ordinary shares on the terms set out in Note 15 of the 2006 Financial Statements included above. Under AASB 132 ‘Financial Instruments: Presentation,’ the conversion option is classified as an embedded derivative and movements in its fair value are recognised in the income statement.
 
(b)   Expenses
         
Consultants fees
   
441,587
   
345,478
 
Lease payments
   
99,169
   
88,814
 
Travel and accommodation
   
167,864
   
126,131
 
Insurance
   
27,257
   
108,686
 
Audit fees
   
69,142
   
121,882
 

4.   IMPAIRMENT EXPENSE

During the past six months, significant deterioration has occurred in the gas price. This decrease has had a detrimental effect on the value of the company’s reserves. The gas volumes associated with the Group’s reserve have increased, after allowing for depletion throughout the past six months however, the future gas pricing used to value the reserves is lower than it was at June 2006. Net future discounted cashflows from our proved reserves were used to assess the impairment in the period. The discount rate used was 10%.

In most fields across the group, additional reserves have been added which has minimized the impact of the deterioration in the gas price in regard to the discounted future net cashflows of the reserves.
 
F-77

4.   IMPAIRMENT EXPENSE (cont.)

However this was not the case for wells in the Jonah field in Wyoming, because the most recent drilling activity in the adjacent leases has meant that the inlet pressure for Samson wells has increased, which in turn has decreased the productivity from these wells.

The operator of this field has informed the company that they intend to install a compression facility in this area which will boost the performance of the field in February/March. This facility had not been installed as at balance date and therefore the effect of its installation has not been included in the reserves. This has resulted in impairment of this field of $5,071,730. The Look Out Wash field in Wyoming also experience a small impairment ($407,035) primarily relating to the decrease in the gas price. A work over was completed on an older field in the Group.

This work over was unsuccessful and an impairment of $451,110 has been recorded for the company. An additional impairment of $283,988 was recorded in the Group across a series of smaller fields primarily relating to the deterioration in the gas price.

The value of Oil and Gas Properties in the Balance Sheet has been affected by this impairment.

5.   DIVIDENDS PAID AND PROPOSED

No dividends have been paid or declared by the Group during the half-year or to the date of this report.

6.   SEGMENT INFORMATION

Business Segments

The group operates in one business segment being oil and gas exploration, development and production.

Geographic Segments

Geographically, the group operates in the United States of America and Australia. Oil and gas production and exploration activities, and senior management activities, occur in the United States of America, whilst the corporate activities of the group take place in Australia.

F-78

6.   SEGMENT INFORMATION (cont.)

The following table presents revenue and loss information regarding geographic segments for the half-year periods ended December 31, 2006 and December 31, 2005.

   
Australia
 
United States of America
 
Consolidated
 
Half-year ended 31 December
 
2006
 
2005
 
2006
 
2005
 
2006
 
2005
 
   
$
 
$
 
$
 
$
 
$
 
$
 
Revenue
   
-
   
-
   
6,326,261
   
1,803,269
   
6,326,261
   
1,803,269
 
Finance revenue
   
119,572
   
82,881
   
1,222
   
1,182
   
120,794
   
84,063
 
Total revenue
   
119,572
   
82,881
   
6,327,483
   
1,804,451
   
6,447,055
   
1,887,332
 
                                       
Segment result before amortisation and impairment
   
(60,126
)
 
(833,480
)
 
1,578,014
   
44,169
   
1,517,888
   
(789,311
)
Impairment
   
-
   
-
   
(6,213,863
)
 
-
   
(6,213,863
)
 
-
 
Depreciation and Amortisation
   
(5,151
)
 
(4,023
)
 
(2,053,143
)
 
(932,739
)
 
(2,058,294
)
 
(936,762
)
Segment result
   
(65,277
)
 
(837,503
)
 
(6,688,992
)
 
(888,570
)
 
(6,754,269
)
 
(1,726,073
)
                                       
Unallocated:
                                     
Gains on embedded derivatives
                   
83,264
   
-
 
Finance Costs
                           
(62,108
)
 
-
 
Loss from continuing operations after income taxes
                   
(6,733,113
)
 
(1,726,073
)

7.   CONTINGENCIES

There have been no material changes in the contingent assets or liabilities in relation to the Group during the six months ending December 31, 2006.

8.   CONTRIBUTED EQUITY

Issued and paid up capital

   
CONSOLIDATED
 
   
Dec 2006
 
Jun 2006
 
   
$
 
$
 
           
Ordinary fully paid shares
   
69,347,606
   
69,366,304
 

Ordinary shares have the right to receive dividends as declared and, in the event of winding up the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held.

Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the Company.
 
F-79

8.   CONTRIBUTED EQUITY (cont.)

   
CONSOLIDATED
 
   
Number of shares
 
$
 
Movement in ordinary shares on issue
         
Balance at July 1, 2006
   
192,263,833
   
69,366,304
 
Shares issued during the half-year
   
-
   
-
 
Transactions costs on share issues
   
-
   
(18,698
)
Balance at December 31, 2006
   
192,263,833
   
69,347,606
 

Share options  
 
On November 6, 2006, 3,000,000 options were issued pursuant to a private offer to minority interest holders of Kestrel Energy Inc. These options have an expiry date of October 31, 2009 and an exercise price of 42 cents per share. These options have been valued at 9.8 cents per share, using the Binomial pricing model, which takes into account the following variables:

Share price at grant date (cents)
   
26.50
 
Exercise price (cents)
   
42.00
 
Time to expiry (years)
   
3.00
 
Risk free rate (%)
   
6.07
 
Share price volatility (%)
   
69.00
 

At the end of the half-year there were 44,838,338 (June 2006: 41,838,338) unissued ordinary shares in respect of which options were outstanding. Option holders do not have any right by virtue of the option to participate in any share issue of the Company or any related body corporate.

Cancellation of Shares

On July 14, 2006, Kestrel Energy Inc filed a Plan of Merger with the Secretary of State in Colorado. Under Colorado State legislation, this filing had the effect of cancelling all remaining Kestrel Energy Inc shares and granting the shareholders the right to receive US$142 per share (based on an average of the previous market price of Kestrel). Following the cancellation of these shares, Kestrel Energy Inc became a 100% owned subsidiary of Samson Oil and Gas Limited. To date, $782,202 in cash has been paid to effected shareholders. The balance remaining to be paid of $420,800 has been recognised as a current liability within Trade and Other Payables.

9.   HEDGING

During the six months ended December 31, 2006, the Group entered into a fixed forward swap with Macquarie Bank Limited with respect to natural gas indexed at CIG (“Colorado Interstate Gas”) for US$6.03 per MMBTU (“Million British Thermal Units”. The volumes associated with the hedge are as follows:

November 2006 - March 2007
   
35,000 MMBTU
 
April 2007 - December 2008
   
25,000 MMBTU
 
January 2008 - October 2009
   
20,000 MMBTU
 
 
During the six months ended December 31, 2006, the Company recognized $52,468 in expense in relation to the movement in the fair value of this hedge. This has been recognized in other expenses in the Income Statement.
 
F-80

10.   EVENTS AFTER THE BALANCE SHEET DATE

On February 20, 2007, the Group entered into a fixed forward swap with Macquarie Bank Limited with respect to natural gas indexed at CIG for US$6.15 per MMBTU for 25,000 MMBTU per month from March 2007 to September 2009.

Since the end of the half-year, the directors are not aware of any other matters or circumstances not otherwise dealt with in the report or financial statements that have significantly, or may significantly, affect the operations of the Company or the Group, the results of the operations of the Company or the Group, or the state of affairs of the Company or the Group in the subsequent financial year.

11.
RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA

The Company’s consolidated financial statements are prepared in accordance with the Australian equivalents to International Financial Reporting Standards (“AIFRS”) which as applied by the Company also complies with International Financial Reporting Standards (“IFRS”).
 
AIFRS differs in certain significant respects from accounting principles generally accepted in the United States of America (“US GAAP”). The following is a summary of the significant adjustments to net loss for the six month periods ending December 31, 2006 and 2005 and to total equity as of December 31, 2006 and 2005 which would be required if US GAAP had been applied instead of AIFRS in the consolidated financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, have been made which are necessary for a fair presentation of the financial position of the Company at December 31, 2006, and 2005 the results of operations for the six months ended December 31, 2006 and 2005.
 
a)   Reconciliation of Net Loss

   
Note
 
Six months ended
December 2006
A$
 
Six months ended
December 2005
A$
 
Net loss reported using AIFRS
         
(6,733,113
)
 
(1,717,692
)
                     
US GAAP Adjustments
                   
Reversal of impairment expense
   
1
   
5,599,557
   
-
 
Adjustment to depletion expense
   
2
   
(1,359,280
)
 
-
 
                     
Total Adjustments
         
4,240,277
   
-
 
                     
Net loss in accordance with US GAAP
         
(2,492,836
)
 
(1,717,692
)
Movement in foreign currency translation reserve
         
(3,656,374
)
 
1,138,423
Comprehensive Loss
         
(6,149,210
)
 
(579,269
)

F-81

11.
RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA (cont.)

b) Reconciliation of Shareholders Equity

   
Note
 
As at
December 2006
A$
 
As at
December 2005
A$
 
Shareholders Equity reported using AIFRS
         
37,269,029
   
39,996,740
 
Reversal of impairment expense
   
1
   
21,015,336
   
-
 
Adjustment to depletion expense
   
2
   
(2,030,551
)
 
-
 
Recognition of additional loss applied to minority interest holders
   
4
   
(60,054
)
 
-
 
Reversal of adjustment under AIFRS to reinstate investment in Kestrel cost
   
6
   
(2,834,573
)
 
(2,834,573
)
Reduction in valuation of minority interests
   
4
   
-
   
(3,886,160
)
Reversal of remaining minority interest
   
7
   
-
   
(184,982
)
Reversal of other reserve value    
8
   
1,054,249
   
-
 
Adjustment to Foreign Currency Translation Reserve
   
5
   
(1,135,703
)
 
(172,630
)
Shareholders Equity reported using US GAAP
         
53,277,733
   
32,918,395
 
 
Notes

(1)   Impairment Expense . The application of US GAAP has resulted in lower impairment expense recorded by the Company, due to the two stage process required by US GAAP when assessing impairment. Initially the carrying value of oil and gas properties (including lease and well equipment) is compared to the undiscounted future cash flows relating to that asset. If the carrying value is less than the undiscounted future cash flows, no further adjustments are required. In Samson’s case, many of the oil and gas properties met this test and therefore did not require any further review.
 
If the carrying value of the asset is greater than the future undiscounted cash flows, the asset is required to be written down to its fair value. In determining the fair value of an asset, the company uses the sum of the discounted future cash flows.
 
Under AIFRS, the Company is required to compare the carrying value of its oil and gas properties (including lease and well equipment) to the discounted cash flow relating to that asset, effectively skipping the first stage of the US GAAP review. The difference between comparing the carrying values of the oil and gas properties to the discounted cash flows (AIFRS) and the undiscounted cash flows (US GAAP) has resulted in the lower impairment charge for the Company, by $5,599,557 for the six months ended December 31, 2006 or a cumulative amount of $21,015,336 as of December 31, 2006.
 
(2)   Depletion . As a result of certain adjustments under US GAAP, the carrying value of the Company’s assets has changed significantly. The significant adjustments under US GAAP that affect carrying value pertain to reversal of impairment losses for the fiscal year ended June 30, 2006 and the adjustment related to business combinations for the year ended June 30, 2005. Due mainly to lower impairment expense under US GAAP, the asset base to compute the US GAAP depreciation has  changed and has resulted in an increase in depreciation expense of $1,359,280 for the half year ended December 31, 2006.
F-82

11.
RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA (cont.)
 
(3) Share Based Payments
Effective July 1, 2005, the Company adopted the requirements of SFAS 123 (revised 2004) “Share-Based Payments” (“SFAS 123R”) under US GAAP.  SFAS 123R eliminates the option to apply the intrinsic value measurement provisions of Accounting Principles Board Opinion No. 25 “ Accounting  for Stock Issued to Employees”. The Company has elected to apply SFAS 123R using the modified prospective method thereby recognizing the compensation cost in the consolidated financial statements based on grant-date fair value for all share based payments granted after July 1, 2005, and based on the requirements of SFAS 123, for all unvested awards granted prior to the effective date of SFAS 123R. SFAS 123R is consistent with share-based payments recognition under AASB 2, however, there are differences in terms of transition. There are no differences in share-based payment expense between US GAAP and AIFRS during the six-month periods ended December 31, 2006 and 2005.

For options granted during the six months ended December 31, 2006, refer to Note 8. There were no options granted for the six months ended December 31, 2005.
 
F-83

11.
RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA (cont.)
 
(4)   Business Combination under AIFRS, the valuation of any minority interest acquired as part of a business combination are recognized at the fair value applied to minority interests is the historical cost of net assets acquired prior to the business combination. The value assigned to the minority interest under US GAAP was therefore significantly lower than under AIFRS. At December 31, 2005, minority interest is lower by $3,866,160 under US GAAP. The reduced value of minority interest resulted in lower asset values under US GAAP and correspondingly resulted in a lower impairment charge being recorded by the Company for US GAAP purposes for the year ended June 20, 2006. (See Note 1)

During the year ended June 30, 2006, for the purposes of US GAAP, a portion of the loss previously attributed to the minority interests was attributed to the members of the parent entity. This is because the minority interests had insufficient assets to absorb the loss.
 
F-84

11.
RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA (cont.)
 
(5)   Foreign Currency Reserve . The Company has two subsidiaries located in the United States of America. The functional currency of these subsidiaries is the USD, whereas the reporting currency of the company is the AUD. Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. At reporting date, balance sheet items are retranslated to the prevailing spot rate. The exchange differences arising on this translation are taken directly to the foreign currency reserve in shareholders equity.
 
Whilst there is no difference in the accounting treatment of the translation of foreign subsidiaries between US GAAP and AIFRS, the differences and adjustments noted above have all been denominated in USD and therefore have affected the balance of the foreign currency reserve.
 
(6) Reversal of adjustment under AIFRS to reinstate investment in Kestrel at cost. As of June 30, 2004, the Company had recognized an impairment loss related to its investment in Kestrel Energy, Inc. amounting to $2,834,573. In accordance with the requirements of AASB3, Business Combination , the Company reversed this previously recognized impairment loss to equity when it gained control of Kestrel Energy Inc. in January 2005. Under US GAAP, this reversal of impairment is not permitted.
 
(7) Reversal of remaining minority interests. Under AIFRS, minority interests are presented within equity, but separate from the parent shareholders' equity. Under US GAAP, minority interests are presented outside equity, in between liabilities and equity. Accordingly, the remaining minority interests under AIFRS as of December 31, 2005 amounting to $184,982 after the adjustment described in Note 4 is reversed under US GAAP.

(8) Other Reserves. The Company has recorded a value in Other Reserves in relation to the continued acquisition of remaining Kestrel shares.  Under US GAAP, acquisition of minority interest is accounted for under the purchase method.
 
F-85

11.
RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA (cont.)

c)   Embedded Derivative - Convertible Note Facility

The accounting treatment of this facility is the same for US GAAP as for AIFRS, however additional information is required to be disclosed in the interim period accounts under US GAAP.

The Company recognized an embedded derivative in relation to its convertible note issued in May 2006. The note contains a conversion option which allows the holder of the note to convert the note into ordinary shares on the terms set out in Note 16 of the Consolidated Financial Statements for the year ended June 30, 2006. This conversion option has been classified as an embedded derivative and has been bifurcated from the debt facility.

   
Period ended:
 
   
December 31, 2006
A$
 
June 30, 2006
A$
 
Host contract
   
18,436,143
   
19,080,724
 
Embedded derivative
   
4,737,448
   
5,429,004
 
     
23,173,591
   
24,509,728
 
               
The movement in the value of the embedded derivative was recognized as a gain in the Income Statement in the period ended December 31, 2006.

The Company uses a binomial option pricing model to estimate the fair value of the embedded derivative. The following inputs were used

   
December 2006
 
June 2006
 
Dividend yield (%)
   
-
   
-
 
Expected volatility (%)
   
50
   
50
 
Risk-free interest rate (%)
   
4.63
   
4.9
 
Expected life of option (years)
   
3-5
   
3-5
 
Option exercise price - cents
   
35-50
   
30-50
 
Share price
   
32
   
30
 
 
F-86
 
Jonah and Look Out Wash Operations

Statements of Revenues and Direct Operating Expenses
 
F-87
 
Report of Independent Auditors

To the Board of Directors and shareholders of Samson Oil and Gas USA, Inc:

We have audited the accompanying statements of combined revenues and direct operating expenses of the oil and gas properties purchased by Samson Oil and Gas USA, Inc. for the period July 1, 2005 through May 29, 2006, and for the year ended June 30, 2005. These financial statements are the responsibility of Samson Oil and Gas USA, Inc. management. Our responsibility is to express an opinion of these financial statements based on our audits.

We conducted our audits in accordance with auditing standards, generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

The accompanying statements were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in Samson Oil and Gas USA, Inc. Form 20-F and is not intended to be a complete financial presentation of the properties described above.

In our opinion, the financial statements referred to above present fairly, in all material respects, the combined revenues and direct operating expenses of the oil and gas properties purchased by Samson Oil and Gas USA, Inc. from Stanley Energy Inc. for the period from July 1, 2005 though May 29, 2006 and for year ended June 30, 2005, in conformity with accounting principles generally accepted in the United States.
 
By:  /s/ Ernst & Young LLP
        Denver, Colorado
        June 29, 2007
 
F-88

Jonah and Look Out Wash Operations
 
Statements of Revenues and Direct Operating Expenses

For the period from July 1, 2005 through May 29, 2006 and for the twelve months ended June 30, 2005

   
May 29, 2006
US$’s (*)
 
June 30, 2005
US$’s
 
Oil revenues
   
318,182
   
310,633
 
Gas revenues
   
6,558,971
   
5,777,153
 
Other
   
190,048
   
-
 
Total revenue
   
7,067,201
   
6,087,786
 
               
Direct operating expense
             
Lease operating expense
   
(199,317
)
 
(200,487
)
Production taxes and handling
   
(885,136
)
 
(879,444
)
               
Total direct operating expense
   
(1,084,453
)
 
(1,079,932
)
               
Revenues in excess of direct operating expenses
   
5,982,748
   
5,007,854
 

(*)The acquisition of the interest in the Jonah and Look Out Wash fields was completed on May 29, 2006. The above information includes revenue and expenses for the three day period between May 29, 2006 and May 31, 2006. The revenue and expenses relating to this period is immaterial to the statement for the period ended May 31, 2006

1. The Properties
 
On March 6, 2006, Samson Oil & Gas USA Inc (“Samson”), a 100% owned subsidiary of Samson Oil & Gas Limited entered into an agreement with Stanley Energy Inc (“Stanley”) to purchase assets in the Green River Basin of Wyoming. The assets acquired comprise a 21% equity in the 250 crestal portion of the Jonah Field and a 16.6% of gross acreage of 12,500 acres in the Look Out Wash Field.

The acquisition closed on May 29, 2006, with an effective date of November 1, 2005.

2. Basis of Preparation
 
The accompanying historical statements of revenues and direct operating expense (the “Historical Statements”) are presented using accrual basis, and represent the revenues and direct operating expenses attributable to Stanley Energy Inc.’s (“Stanley”) interests in certain producing oil and gas properties located in Sublette County, Wyoming. The Historical Statements include only oil, gas and other revenues and direct lease operating and production expenses. The Historical Statements do not include Federal and State income taxes, interest expense, depletion, depreciation and amortization, accretion or general and administrative expenses. The Historical Statements presented are not indicative of the results of the operations of the acquired properties going forward due to changes in the business and the inclusion of the above mentioned expenses.

Complete financial statements, including a balance sheet, are not presented as the properties were not operated as separate business unit with Stanley. Accordingly it is not practicable to identify all assets and liabilities, or the indirect operating costs applicable to these properties. As such, the Historical Statements of oil revenues and direct operating expenses have been presented in lieu of the financial statements prescribed by Rule 3-05 of Securities and Exchange Commission Regulation S-X.

3. Commitments and Contingencies
 
Pursuant to the terms of the Purchase and Sale Agreement between Samson and Stanley, any claims, litigation or disputes pending as of the effective date (November 1, 2005) or any matters arising in connection with ownership of the properties prior to the effective date are retained by Stanley. Notwithstanding this indemnification, Samson, is not aware of any legal, environmental or other commitments or contingencies that would have a material effect on the Statement of Revenue and Direct Operating expenses.
 
F-89

4. Supplemental Information Regarding Proved Oil and Gas Reserves (unaudited)
 
The following information is presented in accordance with Statement of Financial Accounting Standards No. 69, “Disclosures about Oil and Gas Producing Activities” (“SFAS No. 69”) and were prepared by the Company. All reserves are located within the continental United States.
 
Estimated Proved Oil and Gas Reserves
 
Proved reserves are those quantities of hydrocarbons which, by analysis of geological and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under current economic conditions, operating methods and government regulations. Proved reserves can be categorized as developed or undeveloped.

Developed Reserves
 
Developed reserves are expected to be recovered from existing wells including reserves behind pipe. Improved recovery reserves are considered developed only after the necessary equipment has been installed, or when the costs to do so are relatively minor.

Undeveloped Reserves
 
Undeveloped reserves are expected to be recovered from new wells on undrilled acreage, from deepening existing wells to a different reservoir or where a relatively large expenditure is required to recomplete an existing well or install production or transportation facilities for primary or improved recovery projects.

Following is a summary of proved and proved developed hydrocarbon reserves attributed to the Jonah and Look Out Wash operations:
 
   
11 months ended May 29 2006
 
12 months ended June 30, 2005
 
   
Oil - BBLS
 
Gas- mmcf
 
Total
mmcfe
 
Oil - BBLS
 
Gas- mmcf
 
Total
mmcfe
 
Beginning of year
   
38
   
7,158
   
7,383
   
47
   
8,498
   
8,782
 
Revisions of previous quantity estimates
   
-
   
765
   
765
   
(9
)
 
(1,565
)
 
(1,619
)
Purchase of reserves in place
   
-
   
-
   
-
   
-
   
-
   
-
 
Extensions, discoveries and improved recovery
   
10
   
2,078
   
2,137
   
6
   
1,164
   
1,199
 
Sale of reserves in place
   
-
   
-
   
-
   
-
   
-
   
-
 
Production
   
(5
)
 
(855
)
 
(885
)
 
(6
)
 
(939
)
 
(979
)
End of year
   
43
   
9,146
   
9,400
   
38
   
7,158
   
7,383
 

Standardized Measure of Discounted Future Net Cash flows

Future hydrocarbon sales and production and development costs have been estimated using prices and cost in effect at the end of the periods indicated. The weighted average period-end prices used for gas from the Jonah and Look Out Wash fields for May 29, 2006 and June 30, 2005 were $5.766 and $6.55 per mcf, respectively. The weighted average period-end prices used for oil from the Jonah and Look Out Wash fields for May 29, 2006 and June 30, 2005 were $70.988 and $56.205 per bbl, respectively. Future cash flows were reduced by estimated future development, abandonment and production costs based on period-end costs. No deductions were made for general overhead, depletion, depreciation, amortization, income taxes (state and federal) or any indirect costs. All cash flows are discounted at 10%.
 
F-90

Changes in demand for hydrocarbons, inflation and other factors make such estimates inherently imprecise and subject to substantial revisions. This table should not be construed to be an estimate of current market value of the proved reserves attributable to the Jonah and Look Out Wash fields.

The estimated standardized measure of discounted future net cash flows relating to proved reserves at May 29, 2006 and June 30, 2005 is shown below:

   
As at:
 
   
May 29, 2006
US$'S
 
June 30, 2005
US$'S
 
Future cash inflows
   
55,645
   
49,266
 
Future production costs
   
(15,728
)
 
(13,080
)
Future development costs
   
(1,714
)
 
-
 
               
Future net cash flows
   
38,201
   
36,186
 
10% annual discount
   
(20,164
)
 
(17,933
)
               
Standardized measure of discounted future net cash flows relating to proved reserves
   
18,037
   
18,253
 

The standardized measure of discounted future net cash flows relating to proved oil and gas reserves and the changes in standardized measure of discounted future net cash flows relating to proved oil and gas reserves were prepared in accordance with the provisions of SFAS 69. Future hydrocarbon sales and production and development costs have been estimated using prices and cost in effect at the end of the periods indicated. The weighted average period-end prices used for the Company for June 2005 and May 2006 was US$6.55 and US$5.766per mcf for gas respectively. The weighted average period-end prices used for the Company for June 2005 and May 2006 was US$56.205 and US$70.988 per barrel for gas respectively. Future cash flows were reduced by estimated future development, abandonment and production costs based on period-end costs. No deductions were made for general overhead, depletion, depreciation and amortization or any indirect costs. All cash flows are discounted at 10%.
 
Changes in demand for hydrocarbons, inflation and other factors make such estimates inherently imprecise and subject to substantial revisions. This table should not be construed to be an estimate of current market value of the proved reserves attributable to the Company.

The principal sources of changes in the standardized measure of discounted future net cash flows during the period ended May 29, 2006 and June 30, 2005 are as follows:

   
As at:
 
   
May 29, 2006
US$'S
 
June 30, 2005
US$'S
 
Beginning of the period
   
18,252
   
17,240
 
Sales of oil and gas produced during period, net of production costs
   
(6,011
)
 
(4,927
)
Net change in prices and production costs
   
(2,738
)
 
4,471
 
Extensions, discoveries and improved recovery
   
4,489
   
2,965
 
Revisions of previous quantity estimates and other
   
1,607
   
(3,178
)
Sale of reserves in place
   
-
   
-
 
Accretion of discount
   
1,825
   
1,724
 
Other
   
613
   
(43
)
End of period
   
18,037
   
18,252
 
 
F-91
 

 
 
CONSTITUTION OF
 
SAMSON OIL & GAS LIMITED
 
ACN 009 069 005
 
 
 
 
 
 
 
CONTENTS
 
1
.
PRELIMINARY
1
   
1.1
 
Replaceable rules
1
   
1.2
 
Definitions
1
   
1.3
 
Rules for interpreting this document
3
2
.
LISTING RULES
4
3
.
DIRECTORS
4
   
3.1
 
Number of Directors
4
   
3.2
 
Qualification
4
   
3.3
 
Appointment by the Board
5
   
3.4
 
Appointment by general meeting
5
   
3.5
 
Eligible candidates
5
   
3.6
 
One third of Directors retire annually
5
   
3.7
 
Selection of rotating Directors
6
   
3.8
 
Time of retirement
6
   
3.9
 
Cessation of Director's appointment
6
   
3.10
 
Removal from office
6
   
3.11
 
Too few Directors
7
4
.
ALTERNATE DIRECTORS
7
   
4.1
 
Appointment of Alternates
7
   
4.2
 
Notice of Board meetings
7
   
4.3
 
Obligations and entitlements of Alternates
7
   
4.4
 
Termination of appointment
8
   
4.5
 
Appointments and revocations in writing
8
5
.
POWERS OF THE BOARD
8
   
5.1
 
Powers generally
8
   
5.2
 
Exercise of powers
8
   
5.3
 
Sale of main undertaking
8
6
.
EXECUTING NEGOTIABLE INSTRUMENTS
8
7
.
MANAGING DIRECTOR
9
   
7.1
 
Appointment and power of Managing Director
9
   
7.2
 
Retirement and removal of Managing Director
9
   
7.3
 
Multiple Managing Directors
9
   
7.4
 
Termination of appointment of Managing Director
9
8
.
DELEGATION OF BOARD POWERS
10
   
8.1
 
Delegation to committee or attorney
10
   
8.2
 
Terms of delegation
10
   
8.3
 
Powers of attorney
10
   
8.4
 
Proceedings of committees
10
9
.
DIRECTOR'S DUTIES AND INTERESTS
10
   
9.1
 
Compliance with Act
10
   
9.2
 
Scope of Directors' duties
11
   
9.3
 
Declaration of interests
11
   
9.4
 
Director interested in agreement
11
   
9.5
 
Agreements with third parties
12
   
9.6
 
Obligation of secrecy
12
10.
 
DIRECTORS' REMUNERATION
12
   
10.1
 
Remuneration of Executive Directors
12
   
10.2
 
Remuneration of non-executive Directors
12
   
10.3
 
Additional Remuneration for extra services
13
   
10.4
 
Expenses of Directors
13
   
10.5
 
Directors' retirement benefits
13
11.
 
OFFICERS' INDEMNITY AND INSURANCE
13
   
11.1
 
Indemnity
13
   
11.2
 
Insurance
14
   
11.3
 
Former officers
14
12.
 
BOARD MEETINGS
14

 
 
 

12.1
 
Convening Board meetings
14
12.2
 
Notice of Board meeting
14
12.3
 
Use of technology
15
12.4
 
Chairing Board meetings
15
12.5
 
Quorum
15
12.6
 
Majority decisions
15
12.7
 
Procedural rules
15
12.8
 
Written resolution
16
12.9
 
Additional provisions concerning written resolutions
16
  12.10   Valid proceedings    
13.
 
MEETINGS OF MEMBERS
16
13.1
 
Annual general meeting
16
13.2
 
Calling meetings of members
16
13.3
 
Notice of meeting
17
13.4
 
Postponement or cancellation
17
13.5
 
Fresh notice
17
13.6
 
Notice to joint holders of shares
17
13.7
 
Technology
17
13.8
 
Accidental omission
17
13.9
 
Class meetings
18
14.
 
PROCEEDINGS AT MEETINGS OF MEMBERS
18
14.1
 
Member present at meeting
18
14.2
 
Quorum
18
14.3
 
Quorum not present
18
14.4
 
Chairing meetings of members
18
14.5
 
Attendance at general meetings
19
14.6
 
Members rights suspended while call unpaid
19
14.7
 
Adjournment
19
14.8
 
Business at adjourned meetings
19
15.
 
PROXIES, ATTORNEYS AND REPRESENTATIVES
19
15.1
 
Appointment of Proxies
19
15.2
 
Member's attorney
20
15.3
 
Deposit of proxy forms and powers of attorney
20
15.4
 
Corporate representatives
20
15.5
 
Standing appointments
20
15.6
 
Suspension of proxy or attorney's powers if member present
20
15.7
 
Priority of conflicting appointments of attorney or representative
20
15.8
 
More than 2 current proxy appointments
21
15.9
 
Continuing authority
21
16.
 
ENTITLEMENT TO VOTE
21
16.1
 
Determining voting entitlements
21
16.2
 
Number of votes
22
16.3
 
Casting vote of chairman
22
16.4
 
Votes of joint holders
22
16.5
 
Votes of transmittees and guardians
23
16.6
 
Voting restrictions
23
16.7
 
Objections to right to vote
23
17.
 
HOW VOTING IS CARRIED OUT
23
17.1
 
Method of voting
23
17.2
 
Demands for a poll
23
17.3
 
When and how polls must be taken
24
18.
 
SECRETARY
24
18.1
 
Appointment and removal of secretary
24
18.2
 
Terms and conditions of office
24
18.3
 
Removal from office
24
19.
 
MINUTES
25

 
ii
 

19.1
 
Minutes must be kept
25
19.2
 
Minutes as evidence
25
19.3
 
Inspection of minute books
25
20.
 
COMPANY SEALS
25
20.1
 
Common seal
25
20.2
 
Use of seals
25
20.3
 
Fixing seals to documents
25
21.
 
ACCOUNTS AND AUDIT
26
21.1
 
Company must keep accounts
26
21.2
 
Financial reporting
26
21.3
 
Audit
26
21.4
 
Conclusive reports
26
21.5
 
Inspection of financial records and books
26
22.
 
SHARES
27
22.1
 
Issue at discretion of Board
27
22.2
 
Preference and redeemable preference shares
27
22.3
 
Restrictions on issue
27
22.4
 
Brokerage and commissions
27
22.5
 
Surrender of shares
27
23.
 
CERTIFICATES
27
23.1
 
Uncertificated securities
27
23.2
 
Certificated shares
28
23.3
 
Multiple certificates and joint holders
28
23.4
 
Lost and worn out certificates
28
24.
 
REGISTER
28
24.1
 
Joint holders
28
24.2
 
Non-beneficial holders
29
25.
 
PARTLY PAID SHARES
29
25.1
 
Fixed instalments
29
25.2
 
Pre-payment of calls
29
25.3
 
Calls made by Board
29
25.4
 
Notice of call
29
25.5
 
Classes of shares
30
25.6
 
Obligation to pay calls
30
25.7
 
Called Amounts
30
25.8
 
Proof of call
30
25.9
 
Forfeiture notice
30
  25.10   Forfeiture    
  25.11   Disposal and re-issue of forfeited shares    
  25.12   Notice of forfeiture    
  25.13   Cancellation of forfeiture    
  25.14   Effect of forfeiture    
  25.15   Application of proceeds    
  25.16   Title of new holder    
  25.17   Mortgage of uncalled capital    
26.
 
COMPANY LIENS
32
26.1
 
Existence of liens
32
26.2
 
Sale under lien
33
26.3
 
Protection of lien
33
26.4
 
Indemnity for payments required to be made by the Company
33
27.
 
DIVIDENDS
34
27.1
 
Accumulation of reserves
34
27.2
 
Dividends must be paid out of profits
34
27.3
 
Payment of dividends
34
27.4
 
Amount of dividend
34
27.5
 
Prepayments, payments during dividend period and credits without payment
35

 
iii
 

27.6
 
Dividends in kind
35
27.7
 
Method of payment
35
27.8
 
Joint holders' receipt
35
27.9
 
Retention of dividends by Company
36
  27.10   No interest on dividends    
28
 
SHARE PLANS
36
28.1
 
Implementing share plans
36
28.2
 
Board obligations and discretions
36
29
 
TRANSFER OF SHARES
37
29.1
 
Modes of transfer
37
29.2
 
Market transfers
37
29.3
 
Transfer by written document
37
29.4
 
Restricted securities
38
29.5
 
Refusal to register transfer
38
29.6
 
Transferor remains holder until transfer registered
39
29.7
 
Powers of attorney
39
30
 
TRANSMISSION OF SHARES
39
30.1
 
Death of joint holder
39
30.2
 
Death of single holder
39
30.3
 
Transmission of shares on insolvency or mental incapacity
40
30.4
 
Refusal to register holder
40
31
 
UNMARKETABLE PARCELS
40
31.1
 
Board power of sale
40
31.2
 
Notice of proposed sale
40
31.3
 
Public notice of intention to sell
40
31.4
 
Second notice to member
41
31.5
 
No sale where member gives notices
41
31.6
 
Joint holders
41
31.7
 
Terms of sale
41
31.8
 
Share transfers
41
31.9
 
Application of proceeds
42
  31.10   Protections for transferee    
  31.11   No sale where takeover bid announced    
32
 
ALTERATION OF SHARE CAPITAL
42
32.1
 
Capitalisation of profits
42
32.2
 
Adjustment of capitalised amounts
43
32.3
 
Conversion of shares
43
32.4
 
Reduction of capital
43
32.5
 
Variation of rights
43
33
 
WINDING UP
44
33.1
 
Distribution of assets generally
44
33.2
 
No distribution of liabilities
44
33.3
 
Distribution not in accordance with legal rights
44
34
 
NOTICES
44
34.1
 
Notices by Company
44
34.2
 
Overseas members
45
34.3
 
When notice is given
45
34.4
 
Notice to joint holders
45
34.5
 
Counting days
45
34.6
 
Certificate of Director or Secretary
45
34.7
 
Notices to "lost" members
46
35
 
UNCLAIMED MONEY
46

 
iv
 
 
CONSTITUTION OF SAMSON OIL & GAS LIMITED
(ACN 009 069 005 )
 
(adopted by special resolution of shareholders passed on Tuesday 29 November 2005)
 
1.
PRELIMINARY
 
 
1.1
Replaceable rules
 
The replaceable rules referred to in section 141 do not apply to the Company.
 
 
1.2
Definitions
 
The following definitions apply in this document.
 
" Act " means the Corporations Act 2001 (Cth).
 
" Alternate " means an alternate Director appointed under rule  4.1 .
 
" Appointor " in relation to an Alternate, means the Director who appointed the Alternate.
 
" ASX "   means Australian Stock Exchange Limited.
 
" Board " means the Directors acting collectively under this document.
 
" Business day " has the meaning given by the Listing Rules.
 
" Called Amount " in respect of a share means:
 
 
(a)
the amount of a call on that share which is due and unpaid; and
 
 
(b)
any amount the Board requires a member to pay under rule  25.7 .
 
" Company " means the company named at the beginning of this document whatever its name is for the time being.
 
" Director " means a person who is, for the time being, a director of the Company including, where appropriate, an Alternate.
 
" Dividend " includes bonus.
 
" Executive Director " means a Director who is an employee of the Company or a subsidiary or acts in an executive capacity for the Company or a subsidiary under a contract for services and includes a Managing Director.
 
" Interest Rate " means, in respect of each rule in which that term is used:
 
 
(a)
the rate for the time being prescribed by the Board in respect of that rule; or
 
 
(b)
if no rate is prescribed, 15% each year.
 
 
 
 
 
" Listed " means admitted to the Official List of ASX.
 
" Listing Rules " means the Listing Rules of ASX and any other rules of ASX which are applicable while the Company is admitted to the Official List of ASX, each as amended or replaced from time to time, except to the extent of any express written waiver by ASX.
 
" Managing Director " means a managing director appointed under rule  7.1 .
 
" Member " means a person whose name is entered in the Register as the holder of a share.
 
" Market Transfer " means a transfer (within the meaning of Division 3 of Part 7.12) that:
 
 
(a)
according to the SCH business rules, is a proper SCH regulated transfer; or
 
 
(b)
is a valid transfer under a computerised or electronic system established or recognised by the Act, the Listing Rules or the SCH business rules for the purpose of facilitating dealings in shares.
 
" Ordinary resolution " means a resolution of members other than a special resolution.
 
See sections 168, 169 and the Listing Rules
" Register " means the register of members kept as required by sections 168 and 169 and includes a computerised or electronic subregister established and administered under the SCH business rules.
" Remuneration " in relation to a Director (other than an Executive Director):
 
 
(a)
includes salary, bonuses, fringe benefits and superannuation contributions provided by the Company; and
 
 
(b)
excludes a payment made as compensation for loss of office or in connection with retirement from office and an indemnity under rule  11 .
 
" SCH business rules " means the business rules (within the meaning of Chapter 7) of the securities clearing house as they apply to the Company for the time being.
 
" Secretary " means, during the term of that appointment, a person appointed as a secretary of the Company in accordance with this document.
 
" Special resolution " has the meaning given by section 9.
 
" Unmarketable Parcel " means a parcel of shares of a single class registered in the same name or the same joint names which is, in aggregate, less than the number that constitutes a marketable parcel of shares of that class under the business rules of ASX.
 
 
2
 
 
" Voting Member " in relation to a general meeting, or meeting of a class of members, means a member who has the right to be present, and to vote on, at least 1 item of business to be considered at the meeting.
 
 
1.3
Rules for interpreting this document
 
Headings and marginal notes are for convenience only, and do not affect interpretation. The following rules also apply in interpreting this document, except where the context makes it clear that a rule is not intended to apply.
 
 
(a)
A reference to:
 
 
(i)
legislation (including subordinate legislation) is to that legislation as amended, modified in relation to the Company, re-enacted or replaced, and includes any subordinate legislation issued under it;
 
 
(ii)
a document or agreement, or a provision of a document or agreement, is to that document, agreement or provision as amended, supplemented, replaced or novated;
 
 
(iii)
a person includes any type of entity or body of persons, whether or not it is incorporated or has a separate legal identity, and any executor, administrator or successor in law of the person; and
 
 
(iv)
anything (including a right, obligation or concept) includes each part of it.
 
 
(b)
A singular word includes the plural, and vice versa.
 
 
(c)
A word which suggests 1 gender includes the other genders.
 
 
(d)
If a word is defined, another part of speech has a corresponding meaning.
 
 
(e)
If an example is given of anything (including a right, obligation or concept), such as by saying it includes something else, the example does not limit the scope of that thing.
 
 
(f)
The word " agreement " includes an undertaking or other binding arrangement or understanding, whether or not in writing.
 
 
(g)
A power to do something includes a power, exercisable in the like circumstances to revoke or undo it.
 
 
(h)
A reference to a power is also a reference to authority or discretion.
 
 
(i)
A reference to something being " written " or " in writing " includes that thing being represented or reproduced in any mode in a visible form.
 
 
(j)
Words (other than those defined in rule 1.2 ) which are defined by the Act have the same meaning in this document.
 
 
3
 
 
 
(k)
A reference to a Chapter, Part, Division, or section is a reference to a Chapter, Part, Division or section of the Act.
 
2.
LISTING RULES
 
See Listing Rules 1.1 condition 2, 15.11 and appendix 15A
If the Company is Listed, the following rules apply:
 
(a)   Notwithstanding anything contained in this document, if the Listing Rules prohibit an act being done, the act shall not be done.
 
(b)   Nothing contained in this document prevents an act being done that the Listing Rules require to be done.
(c)   If the Listing Rules require an act to be done or not to be done, authority is given for that act to be done or not to be done (as the case may be).
 
(d)   If the Listing Rules require this document to contain a provision and it does not contain such a provision, this document is deemed to contain that provision.
 
(e)   If the Listing Rules require this document not to contain a provision and it contains such a provision, this document is deemed not to contain that provision.
 
(f)   If any provision of this document is or becomes inconsistent with the Listing Rules, this document is deemed not to contain that provision to the extent of the inconsistency.
 
3.
DIRECTORS
 
 
3.1
Number of Directors
 
The Board may from time to time decide the number of Directors (not counting Alternates (but that number must be at least:
 
 
(a)
3; or
 
 
(b)
the number of Directors (not counting Alternates) in office when the decision is made,
 
(whichever is greater).
 
 
3.2
Qualification
 
A Director need not be a member of the Company. Neither the auditor of the Company for the time being nor any partner or employee of the auditor is eligible to act as a Director of the Company.
 
 
4
 
 
 
3.3
Appointment by the Board
 
Replaces sections 201G and 201H
The Board may appoint a person to be a Director at any time except during a general meeting. Any Director so appointed:
 
(a)
automatically retires at the next annual general meeting and is eligible for re-election by that general meeting; and
 
 
(b)
is not taken into account in deciding the rotation or retirement of Directors or the number of them to retire under rule 3.5 at that general meeting.
 
 
3.4
Appointment by general meeting
 
Replaces section 201G
Subject to this document, section 201E, and to the number of Directors for the time being fixed under rule 3.1 not being exceeded, the Company may appoint Directors by ordinary resolution. A Director appointed to replace one removed from office under rule 3.10 must retire when the Director replaced would have been required to retire if not removed and is eligible for re-election.
 
 
3.5
Eligible candidates
 
The Company in general meeting cannot validly appoint a person as a Director unless:
 
 
(a)
the person retires under rule 3.3 , 3.4 or 3.6 and seeks re-election;
 
 
(b)
the Board recommends the appointment; or
 
 
(c)
at least 30 business days before the meeting at which the relevant resolution will be considered, the Company receives both:
 
 
(i)
a nomination of the person by a member (who may be the person); and
 
 
(ii)
a consent to act as a Director signed by the person;
 
at its registered office.
 
The Company must notify members of every candidate for election as a Director at least 7 days before the relevant general meeting.
 
 
3.6
One third of Directors retire annually
 
At each annual general meeting:
 
 
(a)
one third (or if that is not a whole number, the whole number nearest to one third) of the Directors who are not:
 
 
(i)
appointed, and required to retire, under rule 3.3 ;
 
 
5
 
 
 
 
(ii)
the Managing Director (or if there is more than 1, the 1 (if any) nominated under rule 7.3(a) ; or
 
 
(iii)
Directors only because they are Alternates; and
 
 
(b)
any Director who would, if that Director remained in office until the next annual general meeting, have held that office for more than 3 years,
 
must retire from office and are eligible for re-election.
 
 
3.7
Selection of rotating Directors
 
Subject to rule 3.4 , the Directors who retire under rule 3.6 are those who have held office the longest since last being elected or appointed. If 2 or more Directors have been in office for the same period, those Directors may agree which of them will retire. If they do not agree, they must draw lots to decide which of them must retire.
 
 
3.8
Time of retirement
 
A Director's retirement under rule 3.3 or 3.6 takes effect at the end of the relevant annual general meeting unless the Director is re-elected at that meeting.
 
 
3.9
Cessation of Director's appointment
 
The office of a Director automatically becomes vacant if the person who holds the office:
 
 
(a)
becomes an insolvent under administration;
 
 
(b)
is not permitted by the Act (or an order made under the Act) to be a director;
 
 
(c)
becomes of unsound mind or physically or mentally incapable of performing the functions of that office;
 
 
(d)
fails to attend Board meetings (either personally or by an Alternate) for a continuous period of 3 months without leave of absence from the Board;
 
Rule 3.9(e) replaces section 203A  
(e)
resigns by notice in writing to the Company;
 
(f)
is removed from office under rule 3.10 ; or
 
 
(g)
ceases to qualify as a Director under rule 3.2 .
 
 
3.10
Removal from office
 
Whether or not a Director's appointment was expressed to be for a specified period, subject to section 203D:
 
 
(a)
the Company by ordinary resolution; or
 
 
6
 
 
 
(b)
members holding a majority of the issued shares of the Company conferring the right to vote, by writing delivered to the Company,
 
may remove a Director from office.
 
 
3.11
Too few Directors
 
If the number of Directors is reduced below the minimum required by rule 3.1 , the continuing Directors may act as the Board only:
 
 
(a)
to appoint Directors up to that minimum number;
 
 
(b)
to convene a meeting of members; and
 
 
(c)
in emergencies.
 
4.
ALTERNATE DIRECTORS
 
Replaces section 201K
 
 
4.1
Appointment of Alternates
 
Subject to rule 3.2 , a Director (other than an Alternate) may appoint a person who is approved by the Board (without the vote of the Appointor) to act as Alternate for a specified period or each time the Appointor is unable to attend a Board meeting or act as a Director.
 
 
4.2
Notice of Board meetings
 
If the Appointor requests the Company to give the Alternate notice of Board meetings, the Company must do so. Unless the Appointor has requested it, the Company need not give notice of Board meetings to an Alternate.
 
 
4.3
Obligations and entitlements of Alternates
 
An Alternate:
 
 
(a)
may attend and vote in place of the Appointor at a Board meeting at which the Appointor is not present;
 
 
(b)
if also a Director, has a separate right to vote as Alternate;
 
 
(c)
if Alternate for more than 1 Appointor, has a separate right to vote in place of each Appointor;
 
 
(d)
when acting as Alternate, is an officer of the Company and subject to all the duties, and entitled to exercise all the powers and rights, of the Appointor as a Director; and
 
 
(e)
is entitled to reasonable travelling, hotel and other expenses incurred in attending meetings of the Board or of the Company or while otherwise engaged on the business of the Company on the same basis as other Directors but is not entitled to any other remuneration from the Company (but the Appointor may further remunerate the Alternate).
 
 
7
 
 
 
4.4
Termination of appointment
 
The Appointor may revoke the appointment of a person as Alternate whether or not that appointment is for a specified period. If the Appointor ceases to be a Director, any appointment of an Alternate made by the Appointor immediately ceases.
 
 
4.5
Appointments and revocations in writing
 
The Appointor must appoint, and revoke the appointment of, any Alternate in writing. The appointment or revocation is not effective until a copy is provided to the Company.
 
5.
POWERS OF THE BOARD
 
 
5.1
Powers generally
 
Replaces section 198A
Except as otherwise required by the Act, any other applicable law, the Listing Rules or this document, the Board:
 
(a)
has power to manage the business of the Company; and
 
 
(b)
subject to rule 5.3 , may exercise every right, power or capacity of the Company to the exclusion of the Company in general meeting and the members.
 
 
5.2
Exercise of powers
 
A power of the Board can be exercised only:
 
 
(a)
by resolution passed, or treated by rule  12 as passed, at a meeting of the Board; or
 
 
(b)
in accordance with a delegation of the power under rule  7 , 8 or 25.17 .
 
 
5.3
Sale of main undertaking
 
The Board must not sell or dispose of the main undertaking of the Company unless the decision is ratified by the Company in general meeting.
 
6.
EXECUTING NEGOTIABLE INSTRUMENTS
 
The Board must decide the manner (including the use of facsimile signatures if thought appropriate) in which negotiable instruments can be executed, accepted or endorsed for and on behalf of the Company. The Company may execute, accept, or endorse negotiable instruments only in the manner for the time being decided by the Board.
 
 
8
 
 
7.
MANAGING DIRECTOR
 
 
7.1
Appointment and power of Managing Director
 
The Board may appoint 1 or more Directors to be a Managing Director either for a specified term (but not for life) or without specifying a term.
 
The Board may delegate any of the powers of the Board to a Managing Director:
 
 
(a)
on the terms and subject to any restrictions the Board decides; and
 
 
(b)
so as to be concurrent with, or to the exclusion of, the powers of the Board,
 
and may revoke the delegation at any time.
 
 
7.2
Retirement and removal of Managing Director
 
Subject to rule 7.3 a Managing Director is not:
 
 
(a)
required to retire; or
 
 
(b)
taken into account in determining the number of Directors to retire,
 
by rotation under rule 3.6 but (subject to any contract between the Company and that Managing Director) is otherwise subject to the same rules regarding resignation, removal and retirement from office as the other Directors.
 
 
7.3
Multiple Managing Directors
 
If there are 2 or more Managing Directors at the same time:
 
 
(a)
the Board may nominate one of them as the Managing Director to be exempted from retirement by rotation under rule  3.6 and may revoke the nomination at any time;
 
 
(b)
if a Managing Director has been nominated under rule  7.3(a) and the Board later nominates a different Managing Director under that rule, the one first nominated must retire by rotation at the next annual general meeting unless elected at either of the last 2 annual general meetings; and
 
 
(c)
if none of them is the subject of a current nomination under rule 7.3(a) , all of them must retire by rotation under rule 3.6 .
 
 
7.4
Termination of appointment of Managing Director
 
The appointment of a Managing Director terminates if:
 
 
(a)
the Managing Director ceases for any reason to be a Director; or
 
 
9
 
 
 
(b)
the Board removes the Managing Director from the office of Managing Director (which, subject to any contract between the Company and the Managing Director, the Board has power to do),
 
whether or not the appointment was expressed to be for a specified term.
 
8.
DELEGATION OF BOARD POWERS
 
 
8.1
Delegation to committee or attorney
 
The Board may delegate any of its powers:
 
 
(a)
to a committee consisting of at least 1 Director which may also include people who are not Directors; or
 
 
(b)
to an attorney;
 
and may revoke a delegation previously made whether or not the delegation is expressed to be for a specified period. This rule is supplemental to section 126(1).
 
 
8.2
Terms of delegation
 
A delegation of powers under rule 8.1 may be made:
 
 
(a)
for a specified period or without specifying a period; and
 
 
(b)
on the terms (including power to further delegate) and subject to any restrictions the Board decides.
 
Power exercised in accordance with a delegation of the Board is treated as exercised by the Board.
 
 
8.3
Powers of attorney
 
A power of attorney under rule  8.1 may contain the provisions for the protection and convenience of those who deal with the attorney that the Board thinks appropriate.
 
 
8.4
Proceedings of committees
 
Subject to the terms on which a power of the Board is delegated to a committee, the meetings and proceedings of committees are, to the greatest extent practical, governed by the rules of this document which regulate the meetings and proceedings of the Board.
 
9.
DIRECTOR'S DUTIES AND INTERESTS
 
 
9.1
Compliance with Act
 
Each Director must comply with Divisions 1 and 2 of Part 2D.1.
 
 
10
 
 
 
9.2
Scope of Directors' duties
 
A Director is not disqualified by reason only of being a Director from:
 
 
(a)
holding any office or place of profit or employment other than that of the Company's auditor, or being a member or creditor, of any corporation (including the Company) or partnership other than the auditor; or
 
 
(b)
entering into any agreement with the Company.
 
 
9.3
Declaration of interests
 
A Director who:
 
 
(a)
is in any way interested in a contract or proposed contract with the Company; or
 
 
(b)
holds any office or possesses any property as a result of which duties or interests might be created which are directly or indirectly in conflict with that Director's duties or interests as a Director,
 
must declare the fact and the nature of the interest, or nature, character and extent of the conflict at the first Board meeting held after the relevant facts come to the Director's knowledge or after appointment as a Director (whichever is later).
 
 
9.4
Director interested in agreement
 
Each Director must comply with section 195 in relation to being present, or voting, at a Board meeting that considers a matter in which the Director has a material personal interest. Subject to section 195:
 
 
(a)
a Director may be counted in a quorum at a Board meeting that considers, and may vote on, whether the Company enters into an agreement or proposed agreement in which that Director has an interest;
 
 
(b)
the Company may enter into the agreement and the Director may participate in the execution of any relevant document by or on behalf of the Company;
 
 
(c)
the Director may be counted in a quorum at a Board meeting that considers, and may vote on, matters involving the agreement; and
 
 
(d)
if disclosure under rule 9.3 is made before the agreement is entered into:
 
 
(i)
the Director may retain benefits under the agreement even though the Director has an interest in the agreement; and
 
 
(ii)
the Company cannot avoid the agreement merely because of the existence of the interest.
 
 
11
 
 
 
 
9.5
Agreements with third parties
 
The Company cannot avoid an agreement with a third party merely because a Director:
 
 
(a)
fails to make a disclosure required by rule 9.3 ; or
 
 
(b)
is present at, or counted in the quorum for, a meeting that considers, votes on, or participates in the execution of, that agreement in breach of section 195.
 
 
9.6
Obligation of secrecy
 
Every Director and Secretary must keep the transactions and affairs of the Company and the state of its accounts confidential unless required to disclose them:
 
 
(a)
in the course of duties as an officer of the Company;
 
 
(b)
by the Board or the Company in general meeting; or
 
 
(c)
by law or under the Listing Rules.
 
The Company may require a Director, Secretary, auditor, trustee, committee member or other person engaged by it to sign a confidentiality undertaking consistent with this rule. A Director or Secretary must do so if required by the Company.
 
10.
DIRECTORS' REMUNERATION
 
 
10.1
Remuneration of Executive Directors
 
Subject to any contract with the Company and to the Listing Rules, the Board may fix the remuneration of each Executive Director. That remuneration may consist of salary, bonuses or any other elements but must not be a commission on or percentage of profits or operating revenue.
 
 
10.2
Remuneration of non-executive Directors
 
The Directors (other than the Executive Directors and those who are Directors only because they are Alternates) are entitled to be paid, out of the funds of the Company, an amount of Remuneration which:
 
 
(a)
does not:
 
 
(i)
in any year exceed in aggregate the amount last fixed by ordinary resolution; or
 
 
(ii)
consist of a commission on or percentage of profits or operating revenue; and
 
 
12
 
 
 
(b)
is allocated among them:
 
 
(i)
on an equal basis having regard to the proportion of the relevant year for which each Director held office; or
 
 
(ii)
as otherwise decided by the Board.
 
 
10.3
Additional Remuneration for extra services
 
If a Director, at the request of the Board and for the purposes of the Company, performs extra services or makes special exertions (including going or living away from the Director's usual residential address), the Company may pay that Director a fixed sum set by the Board for doing so. Remuneration under this rule may be either in addition to or in substitution for any remuneration to which that Director is entitled under rule  10.1 or 10.2 .
 
 
10.4
Expenses of Directors
 
The Company must pay a Director (in addition to any remuneration) all reasonable expenses (including travelling and accommodation expenses) incurred by the Director:
 
 
(a)
in attending meetings of the Company, the Board, or a committee of the Board;
 
 
(b)
on the business of the Company; or
 
 
(c)
in carrying out duties as a Director.
 
 
10.5
Directors' retirement benefits
 
Subject to section 200B and the Listing Rules, the Company may agree with a Director or person about to become a Director that, when or after the person dies or otherwise ceases to be a Director, the Company will pay a pension or lump sum benefit to:
 
 
(a)
that person; or
 
 
(b)
after that persons death, any of the surviving spouse, dependants or legal personal representatives of that person.
 
11.
OFFICERS' INDEMNITY AND INSURANCE
 
 
11.1
Indemnity
 
Subject to section 199A, the Company must, to the extent the person is not otherwise indemnified, indemnify every officer of the Company and its wholly-owned subsidiaries and may indemnify its auditor against a liability:
 
 
(a)
incurred as officer or auditor to a person other than the Company or a related body corporate (including a liability incurred as a result of appointment or nomination of the Company or a subsidiary as a trustee or as an officer of another corporation) unless the liability arises out of conduct involving a lack of good faith or is a liability for a pecuniary penalty order under section 1317G or a compensation order under section 1317H; and
 
 
13
 
 
 
(b)
for costs and expenses incurred in defending civil or criminal proceedings in which judgement is given in favour of that person, or in which that person is acquitted, or in which the grounds for making a court order sought by ASIC or a liquidator are found by the court not to have been established, or in connection with proceedings for relief to that person under the Act in which the court grants the relief.
 
 
11.2
Insurance
 
Subject to section 199B, the Company may enter into, and pay premiums on, a contract of insurance in respect of any person.
 
 
11.3
Former officers
 
The indemnity in favour of officers under rule  11.1 is a continuing indemnity. It applies in respect of all acts done by a person while an officer of the Company or one of its wholly owned subsidiaries even though the person is not an officer at the time the claim is made.
 
12.
BOARD MEETINGS
 
 
12.1
Convening Board meetings
 
Replaces section 248C
A Director may at any time, and the Secretary must on request from a Director, convene a Board meeting.
 
12.2
Notice of Board meeting
 
The convenor of each Board meeting:
 
 
(a)
must give reasonable notice of the meeting (and, if it is adjourned, of its resumption) individually to:
 
 
(i)
each Director who is in Australia; and
 
 
(ii)
each Alternate in respect of whom the Appointor has given notice under rule  4.2 requiring notice of Board meetings to be given to that Alternate or whose Appointor is not given notice due to being outside Australia; and
 
 
(b)
may give that notice orally (including by telephone) or in writing,
 
but failure to give notice to, or non-receipt of notice by, a Director does not result in a Board meeting being invalid.
 
 
14
 
 
 
12.3
Use of technology
 
A Board meeting may be held using any means of audio or audio-visual communication by which each Director participating can hear and be heard by each other Director participating or in any other way permitted by section 248D. A Board meeting held solely or partly by technology is treated as held at the place at which the greatest number of the Directors present at the meeting is located or, if an equal number of Directors is located in each of 2 or more places, at the place where the chairman of the meeting is located.
 
 
12.4
Chairing Board meetings
 
The Board may elect a Director to chair its meetings and decide the period for which that Director holds that office. If there is no chairman of Directors or the chairman is not present within 15 minutes after the time for which a Board meeting is called or is unwilling to act, the Directors present must elect a Director present to chair the meeting.
 
 
12.5
Quorum
 
Replaces section 248F
 
Unless the Board decides otherwise, the quorum for a Board meeting is 2 Directors and a quorum must be present for the whole meeting. An Alternate who is also a Director or a person who is an Alternate for more than 1 Appointor may only be counted once toward a quorum. A Director is treated as present at a meeting held by audio or audio-visual communication if the Director is able to hear and be heard by all others attending. If a meeting is held in another way permitted by section 248D, the Board must resolve the basis on which Directors are treated as present.
 
 
12.6
Majority decisions
 
Replaces section 248G
 
A resolution of the Board must be passed by a majority of the votes cast by Directors entitled to vote on the resolution. If an equal number of votes in cast for and against a resolution:
 
 
(a)
if:
 
 
(i)
only 2 Directors are entitled to vote; or
 
 
(ii)
the chairman of the meeting is not entitled to vote,
 
the matter is decided in the negative; or
 
 
(b)
otherwise, the chairman has a second or casting vote.
 
 
12.7
Procedural rules
 
The Board may adjourn and, subject to this document, otherwise regulate its meetings as it decides.
 
 
15
 
 
 
12.8
Written resolution
 
Replaces section 248A
 
If all the Directors entitled to receive notice of a Board meeting and to vote on a resolution sign a document containing a statement that they are in favour of the resolution set out in the document, a resolution in those terms is treated as having been passed at a Board meeting at the time when the last Director signs.
 
 
12.9
Additional provisions concerning written resolutions
 
For the purpose of rule  12.8 :
 
 
(a)
2 or more separate documents in identical terms, each of which is signed by 1 or more Directors, are treated as 1 document;
 
 
(b)
signature of a document by an Alternate is not required if the Appointor of that Alternate has signed the document;
 
 
(c)
signature of a document by the Appointor of an Alternate is not required if that Alternate has signed the document in that capacity; and
 
 
(d)
a telex, telegram, facsimile or e-mail message containing the text of the document expressed to have been signed by a Director that is sent to the Company is a document signed by that Director at the time of its receipt by the Company.
 
 
12.10
Valid proceedings
 
Each resolution passed or thing done by, or with the participation of, a person acting as a Director or member of a committee is valid even if it is later discovered that:
 
 
(a)
there was a defect in the appointment of the person; or
 
 
(b)
the person was disqualified from continuing in office, voting on the resolution or doing the thing.
 
13.
MEETINGS OF MEMBERS
 
 
13.1
Annual general meeting
 
The Company must hold an annual general meeting as required by section 250N.
 
 
13.2
Calling meetings of members
 
 
(a)
The Board or a Director may at any time; and
 
 
(b)
the Board must when required by section 249D or 250N or by order made under section 249G,
 
convene a meeting of members.
 
 
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13.3
Notice of meeting
 
Subject to rule 13.6 , at least 28 days' written notice of a meeting of members must be given individually to:
 
 
(a)
each member (whether or not the member is entitled to vote at the meeting);
 
 
(b)
each Director; and
 
 
(c)
to the auditor.
 
The notice of meeting must comply with sections 249L, 250BA and regulation 7.11.38 and may be given in any manner permitted by section 249J(3).
 
 
13.4
Postponement or cancellation
 
Subject to sections 249D(5) and 250N, the Board may:
 
 
(a)
postpone a meeting of members; or
 
 
(b)
cancel a meeting of members,
 
by written notice given individually to each person entitled to be given notice of the meeting.
 
 
13.5
Fresh notice
 
Replaces section 249M
 
If a meeting of members is postponed or adjourned for 1 month or more, the Company must give new notice of the resumed meeting.
 
 
13.6
Notice to joint holders of shares
 
If a share is held jointly, the Company need only give notice of a meeting of members (or of its cancellation or postponement) to the joint holder who is named first in the Register.
 
 
13.7
Technology
 
See section 249S
 
The Company may hold a meeting of members at 2 or more venues using any technology that gives the members as a whole a reasonable opportunity to participate.
 
 
13.8
Accidental omission
 
The accidental omission to give notice to, or the non-receipt of notice by, any of those entitled to it does not invalidate any resolution passed at a meeting of members.
 
 
17
 
 
 
13.9
Class meetings
 
Rules 13 to 17 inclusive apply to a separate meeting of a class of members as far as they are capable of application and modified as necessary.
 
14.
PROCEEDINGS AT MEETINGS OF MEMBERS
 
 
14.1
Member present at meeting
 
If a member has appointed a proxy or attorney or (in the case of a member which is a body corporate) a representative to act at a meeting of members, that member is taken to be present at a meeting at which the proxy, attorney or representative is present.
 
 
14.2
Quorum
 
The quorum for a meeting of members is 2 Voting Members. Each individual present may only be counted once toward a quorum. If a member has appointed more than 1 proxy or representative only 1 of them may be counted toward a quorum.
 
 
14.3
Quorum not present
 
Replaces section 249T
 
If a quorum is not present within 15 minutes after the time for which a meeting of members is called:
 
 
(a)
if called as a result of a request of members under section 249D, the meeting is dissolved; and
 
 
(b)
in any other case:
 
 
(i)
the meeting is adjourned to the day, time and place that the Board decides and notifies to members, or if no decision is notified before then, to the same time on the same day in the next week at the same place; and
 
 
(ii)
if a quorum is not present at the adjourned meeting, the meeting is dissolved.
 
 
14.4
Chairing meetings of members
 
Replaces section 249U
 
If the Board has appointed a Director to chair Board meetings, that Director may also chair meetings of members. If:
 
 
(a)
there is no Director who the Board has appointed to chair Board meetings for the time being; or
 
 
(b)
the Director appointed to chair Board meetings is not present at the time for which a meeting of members is called or is not willing to chair the meeting,
 
the Voting Members present must elect a member present to chair the meeting.
 
 
18
 
 
 
14.5
Attendance at general meetings
 
See section 249V  
(a)
Every member has the right to attend all meetings of members whether or not entitled to vote.
 
 
(b)
Every Director has the right to attend and speak at all meetings of members of the Company whether or not a member.
 
 
(c)
The auditor has the right to attend any meeting of members of the Company and to speak on any part of the business of the meeting which concerns the auditor in the capacity of auditor.
 
 
14.6
Members rights suspended while call unpaid
 
If a call on a share is due and unpaid, the holding of that share does not entitle a member to be present, speak, or vote at, or be counted in the quorum for, a meeting of members.
 
 
14.7
Adjournment
 
Replaces section 294U(4)
 
The chairman of a meeting of members at which a quorum is present:
 
 
(a)
may, with the consent of the meeting; and
 
 
(b)
must, if directed by ordinary resolution of the meeting,
 
adjourn it to another time and place.
 
 
14.8
Business at adjourned meetings
 
The only business that may be transacted at a meeting resumed after an adjournment is the business left unfinished immediately before the adjournment.
 
15.
PROXIES, ATTORNEYS AND REPRESENTATIVES
 
 
15.1
Appointment of Proxies
 
See Listing Rule 14.2
 
A member may appoint not more than 2 proxies to attend and act for the member at a meeting of members. An appointment of proxy must be made by written notice to the Company:
 
 
(a)
that complies with section 250A(1) and the Listing Rules; or
 
 
(b)
in any other form and mode that complies with the Listing Rules and is, and is signed or acknowledged by the member in a manner, satisfactory to the Board.
 
If a member appoints 2 proxies and the appointment does not specify the proportion or number of the member's votes each proxy may exercise, each proxy may exercise half of those votes.
 
 
19
 
 
 
15.2
Member's attorney
 
A member may appoint an attorney to act, or to appoint a proxy to act, at a meeting of the Company. If the appointor is an individual, the power of attorney must be signed in the presence of at least one witness.
 
 
15.3
Deposit of proxy forms and powers of attorney
 
See Listing Rule 6.10.2
 
An appointment of a proxy or power of attorney is not effective for a particular meeting of members unless:
 
 
(a)
in the case of a proxy, the proxy form and, if it is executed by an attorney, the relevant power of attorney or a certified copy of it; and
 
 
(b)
in the case of an attorney, the power of attorney or a certified copy of it,
 
is received by the Company at its registered office or a fax number at that office (or another address specified for the purpose in the relevant notice of meeting) at least 48 hours before the time for which the meeting was called or, if the meeting has been adjourned, before the resumption of the meeting.
 
 
15.4
Corporate representatives
 
A member that is a body corporate may appoint an individual to act as its representative at meetings of members as permitted by section 250D.
 
 
15.5
Standing appointments
 
A member may appoint a proxy, attorney or representative to act at a particular meeting of members or make a standing appointment and may revoke any appointment. A proxy, attorney or representative may, but need not, be a member.
 
 
15.6
Suspension of proxy or attorney's powers if member present
 
A proxy or attorney has no power to act for a member at a meeting at which the member is present:
 
 
(a)
in the case of an individual, in person; or
 
 
(b)
in the case of a body corporate, by representative.
 
A proxy has no power to act for a member at a meeting at which the member is present by attorney.
 
 
15.7
Priority of conflicting appointments of attorney or representative
 
If more than 1 attorney or representative appointed by a member is present at a meeting of members and the Company has not received notice of revocation of any of the appointments:
 
 
20
 
 
 
(a)
an attorney or representative appointed to act at that particular meeting may act to the exclusion of an attorney or representative appointed under a standing appointment; and
 
 
(b)
subject to paragraph (a) , an attorney or representative appointed under a more recent appointment may act to the exclusion of an attorney or representative appointed earlier in time.
 
 
15.8
More than 2 current proxy appointments
 
An appointment of proxy by a member is revoked (or, in the case of a standing appointment, suspended for that particular meeting) if the Company receives a further appointment of proxy from that member which would result in there being more than 2 proxies of that member entitled to act at a meeting. The appointment of proxy made first in time is the first to be treated as revoked or suspended by this rule.
 
 
15.9
Continuing authority
 
Replaces section 250C(2)
 
An act done at a meeting of members by a proxy, attorney or representative is valid even if, before the act is done, the appointing member:
 
 
(a)
dies or becomes mentally incapacitated;
 
 
(b)
becomes bankrupt or an insolvent under administration or is wound up;
 
 
(c)
revokes the appointment or the authority under which the appointment was made by a third party; or
 
 
(d)
transfers the share to which the appointment relates,
 
unless the Company has received written notice of the matter before the start or resumption of the meeting at which the vote is cast.
 
16.
ENTITLEMENT TO VOTE
 
 
16.1
Determining voting entitlements
 
See Listing Rule 6.10.3
 
Subject to section 250L(4) and rule 17.2(b) which apply to a demand for a poll, to decide, for the purposes of a particular meeting, who are members of the Company and how many shares they hold, the Company must refer only:
 
 
(a)
if the convenor of the meeting determined a specified time under regulation 7.11.38 before notice of the meeting was given, to the Register as it stood at that time; or
 
 
(b)
otherwise, to the Register as it stood 48 hours before the meeting or at any later time required by the SCH business rules.
 
 
21
 
 
 
16.2
Number of votes
 
1. Replaces section 250E(1)
2. See Listing Rule 6.9
 
Subject to section 250A(4), rules 14.6 , 15 , 16.4 , 16.6 and 29.4 and terms on which shares are issued:
 
 
(a)
on a show of hands:
 
 
(i)
if a member has appointed 2 proxies, neither of those proxies may vote; and
 
 
(ii)
subject to paragraph (a)(i), every individual present who is a member, or a proxy, attorney or representative of a member, entitled to vote has 1 vote;
 
 
(b)
on a poll every member present:
 
 
(i)
has 1 vote for every fully paid share held; and
 
 
(ii)
subject to paragraph (c), in respect of each partly paid share held has a fraction of a vote equal to the proportion which the amount paid bears to the total issue price of the share; and
 
 
(c)
the Company must not count an amount:
 
 
(i)
paid in advance of a call; or
 
 
(ii)
credited on a partly paid share without payment in money or money's worth being made to the Company,
 
in calculating the fraction of a vote which the holder of a partly paid share has.
 
 
16.3
Casting vote of chairman
 
If an equal number of votes is cast for and against a resolution at a meeting of members:
 
 
(a)
if the chairman of the meeting is not (or if the chairman were a member would not be) entitled to vote, the matter is decided in the negative; and
 
 
(b)
otherwise, the chairman has a casting vote whether or not the chairman is a member.
 
 
16.4
Votes of joint holders
 
If more than 1 of the joint holders of a share (including, for the purposes of this rule, joint legal personal representatives of a dead member) are present at a meeting of members and tender a vote in respect of the share, the Company may only count the vote cast by the most senior joint holder who tenders a vote. For this purpose, seniority depends on the order in which the names of the joint holders are listed in the Register.
 
 
22
 
 
 
16.5
Votes of transmittees and guardians
 
Subject to section 1072D, if the Board is satisfied at least 48 hours before the time fixed for a meeting, that a person:
 
 
(a)
is entitled to the transmission of a share under rule 30 ; or
 
 
(b)
has power to manage a member's property under a law relating to the management of property of the mentally incapable,
 
that person may vote as if registered as the holder of the share.
 
 
16.6
Voting restrictions
 
If:
 
 
(a)
the Act or the Listing Rules require that some members are not to vote on a resolution, or that votes cast by some members be disregarded, in order for the resolution to have an intended effect; and
 
 
(b)
the notice of the meeting at which the resolution is proposed states that fact,
 
the Company must not count any votes purported to be cast by those members. If a proxy purports to vote in a way or in circumstances that contravene section 250A(4), on a show of hands the vote is invalid and the Company must not count it and on a poll rule 17.3(c) applies.
 
 
16.7
Objections to right to vote
 
A Voting Member or Director may challenge a person's right to vote at a meeting of members. A challenge:
 
 
(a)
may only be made at the meeting; and
 
 
(b)
must be decided by the chairman, whose decision is final.
 
17.
HOW VOTING IS CARRIED OUT
 
 
17.1
Method of voting
 
Replaces section 250J(1), (1A)
 
A resolution put to the vote at a meeting of members must be decided on a show of hands unless a poll is demanded under rule 17.2 either before or on declaration of the result of the vote on a show of hands.
 
 
17.2
Demands for a poll
 
See section 250L
 
A poll may be demanded on any resolution except a resolution concerning the election of the chairman of a meeting by:
 
 
(a)
at least 5 members entitled to vote on the resolution; or
 
 
23
 
 
 
(b)
members entitled to cast at least 5% of the votes that may be cast on the resolution on a poll (worked out as at the midnight before the poll is demanded); or
 
 
(c)
the chairman.
 
The demand for a poll does not affect the continuation of the meeting for the transaction of other business and may be withdrawn.
 
 
17.3
When and how polls must be taken
 
Replaces section 250M
 
If a poll is demanded:
 
 
(a)
if the resolution is for the adjournment of the meeting, the poll must be taken immediately and, subject to rule  17.3(c) , in the manner that the chairman of the meeting directs;
 
 
(b)
in all other cases, the poll must be taken at the time and place and, subject to rule  17.3(c) , in the manner that the chairman of the meeting directs;
 
 
(c)
votes which section 250A(4) requires to be cast in a given way must be treated as cast in that way;
 
 
(d)
a person voting who has the right to cast 2 or more votes need not cast all those votes and may cast those votes in different ways; and
 
 
(e)
the result of the poll is the resolution of the meeting at which the poll was demanded.
 
18.
SECRETARY
 
 
18.1
Appointment and removal of secretary
 
The Board may appoint 1 or more individuals to be a Secretary of the Company either for a specified term or without specifying a term.
 
 
18.2
Terms and conditions of office
 
A Secretary holds office on the terms (including as to remuneration) that the Board decides. The Board may vary any decision previously made by it in respect of a Secretary.
 
 
18.3
Removal from office
 
Subject to any contract between the Company and the Secretary, the Board may remove a Secretary from that office whether or not the appointment was expressed to be for a specified term.
 
 
24
 
 
19.
MINUTES
 
 
19.1
Minutes must be kept
 
The Board must cause minutes of:
 
 
(a)
proceedings and resolutions of meetings of the Company's members;
 
 
(b)
the name of Directors present at each Board meeting or committee meeting;
 
 
(c)
proceedings and resolutions of Board meetings (including meetings of a committee to which Board powers are delegated under rule  8 8); and
 
 
(d)
resolutions passed by Directors without a meeting,
 
to be kept in accordance with sections 251A and 251AA.
 
 
19.2
Minutes as evidence
 
A minute recorded and signed in accordance with sections 251A and 251AA is evidence of the proceeding, resolution or declaration to which it relates unless the contrary is proved.
 
 
19.3
Inspection of minute books
 
The Company must allow members to inspect, and provide copies of the minute books for the meetings of members in accordance with section 251B.
 
20.
COMPANY SEALS
 
 
20.1
Common seal
 
The Board:
 
 
(a)
may decide whether or not the Company has a common seal; and
 
 
(b)
is responsible for the safe custody of that seal (if any) and any duplicate seal it decides to adopt under section 123(2).
 
 
20.2
Use of seals
 
The common seal and duplicate seal (if any) may only be used with the authority of the Board. The Board must not authorise the use of a seal that does not comply with section 123.
 
 
20.3
Fixing seals to documents
 
The fixing of the common seal, or any duplicate seal, to a document must be witnessed:
 
 
(a)
by 2 Directors;
 
 
25
 
 
 
(b)
by 1 Director and 1 Secretary; or
 
 
(c)
by any other signatories or in any other way (including the use of facsimile signatures) authorised by the Board.
 
21.
ACCOUNTS AND AUDIT
 
 
21.1
Company must keep accounts
 
The Board must cause the Company to keep written financial records that:
 
 
(a)
correctly record and explain its transactions (including transactions undertaken as trustee) and financial position and performance; and
 
 
(b)
would enable true and fair financial statements to be prepared and audited,
 
and must allow a Director and the auditor to inspect those records at all reasonable times.
 
 
21.2
Financial reporting
 
The Board must cause the Company to prepare a financial report and a Directors' report that comply with Part 2M.3 and must report to members in accordance with section 314 no later than the deadline set by section 315.
 
 
21.3
Audit
 
The Board must cause the Company's financial report for each financial year to be audited and obtain an auditor's report. The eligibility, appointment, removal, remuneration, rights and duties of the auditor are regulated by sections 324 to 331 inclusive and sections 1280 and 1289.
 
 
21.4
Conclusive reports
 
Audited financial reports laid before the Company in general meetings are conclusive except as regards errors notified to the Company within 3 months after the relevant general meeting. If the Company receives notice of an error within that period, it must immediately correct the report and the report as corrected is then conclusive.
 
 
21.5
Inspection of financial records and books
 
Subject to rule 19.3 and section 247A, a member who is not a Director does not have any right to inspect any document of the Company except as authorised by the Board or by ordinary resolution.
 
 
26
 
 
22.
SHARES
 
 
22.1
Issue at discretion of Board
 
Subject to section 259C and rule 22.3 , the Board may, on behalf of the Company, issue, grant options over or otherwise dispose of unissued shares to any person on the terms, with the rights, and at the times that the Board decides.
 
 
22.2
Preference and redeemable preference shares
 
The Company may issue preference shares (including preference shares that are liable to be redeemed). The rights attached to preference shares are:
 
 
(a)
unless other rights have been approved by special resolution of the Company, the rights set out in the schedule; or
 
 
(b)
the rights approved by special resolution of the Company as applicable to those shares.
 
 
22.3
Restrictions on issue
 
The Company must not issue shares or grant options if the issue or grant would result in a breach of the Listing Rules.
 
 
22.4
Brokerage and commissions
 
The Company may pay brokerage or commissions to a person in respect of that person or another person agreeing to take up shares in the Company.
 
 
22.5
Surrender of shares
 
The Board may accept a surrender of shares:
 
 
(a)
to compromise a question as to whether those shares have been validly issued; or
 
 
(b)
if surrender is otherwise within the Company's powers.
 
The Company may sell or re-issue surrendered shares in the same way as forfeited shares.
 
23.
CERTIFICATES
 
 
23.1
Uncertificated securities
 
If the Act, the Listing Rules and SCH business rules allow the Company not to issue a certificate for particular securities, the Company:
 
 
(a)
need not issue a certificate for those securities; and
 
 
(b)
may cancel a certificate for them without issuing another certificate,
 
 
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and rules 23.3 and 23.4 apply only if there is a current certificate for those securities.
 
 
23.2
Certificated shares
 
See Listing Rule 8.14
 
Unless rule 23.1 applies, the Company must issue a certificate of title to shares that complies with section 1070C and deliver it to the holder of those shares in accordance with section 1071H. The Company must not charge any fee to issue a certificate.
 
 
23.3
Multiple certificates and joint holders
 
Subject to rule 23.1 , if a member requests the Company to issue several certificates each for a part of the shares registered in the member's name, the Company must do so. For this purpose, joint holders of shares are a single member. The Company may issue only 1 certificate that relates to each share registered in the names of 2 or more joint holders and may deliver the certificate to any of those joint holders.
 
 
23.4
Lost and worn out certificates
 
Subject to rule 23.1 , if a certificate:
 
 
(a)
is lost or destroyed and the owner of the relevant securities applies in accordance with section 10870D, the Company must; or
 
 
(b)
is defaced or worn out and is produced to the Company, the Company may,
 
issue a new certificate in its place.
 
24.
REGISTER
 
 
24.1
Joint holders
 
If the Register names 2 or more joint holders of a share, the Company must treat the person named first in the Register in respect of that share as the sole owner of it for all purposes (including the giving of notice) except:
 
 
(a)
delivery of certificates (to which rule  23.3 applies);
 
 
(b)
right to vote (to which rule  16.4 applies);
 
 
(c)
power to give directions as to payment of, or a receipt for, dividends (to which rules  27.7 and 27.8 apply);
 
 
(d)
liability for instalments or calls (which subject to section 1072E(8) is joint and several);
 
(e)
sale of Unmarketable Parcels under rule 31 ; and
 
(f)
transfer.
 
 
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24.2
Non-beneficial holders
 
Subject to sections 169(6) and 1072E, unless otherwise ordered by a court of competent jurisdiction or required by statute, the Company:
 
 
(a)
may treat the registered holder of any share as the absolute owner of it; and
 
 
(b)
need not recognise any equitable or other claim to or interest in a share by any person except a registered holder.
 
25.
PARTLY PAID SHARES
 
 
25.1
Fixed instalments
 
If a share is issued on terms that some or all of the issue price is payable by instalments, the registered holder of the share must pay every instalment to the Company when due. If the registered holder does not do so, rules 25.7 to 25.16 apply as if the registered holder had failed to pay a call.
 
 
25.2
Pre-payment of calls
 
The Board may:
 
 
(a)
accept pre-payment of some or all of the amount unpaid on a share above the sums actually called as a payment in advance of calls;
 
 
(b)
agree to payment by the Company of interest at a rate no higher than the Interest Rate on that part of the advance payment which for the time being exceeds the aggregate amount of the calls then made on the shares in respect of which it was paid; and
 
 
(c)
unless otherwise agreed between the member and the Company, repay the sum or part of it.
 
 
25.3
Calls made by Board
 
Subject to the terms of issue of a share and to any special resolution passed under section 254N, the Board may:
 
 
(a)
make calls on a member for some or all of the money unpaid on a share held by that member;
 
 
(b)
make a call payable by instalments; and
 
 
(c)
revoke or postpone a call before the due date for payment.
 
 
25.4
Notice of call
 
See Listing Rule 6.24, appendix 6A, paragraph 5
 
The Company must give a member on whom a call has been made written notice of the call:
 
 
29
 
 
 
(a)
within the time limits; and
 
 
(b)
in the form,
 
required by the Listing Rules.
 
 
25.5
Classes of shares
 
The Board may issue shares on terms as to the amount of calls to be paid and the time for payment of those calls which are different as between the holders of those shares. The Board may make different calls on different classes of shares.
 
 
25.6
Obligation to pay calls
 
Subject to section 1072E(8), a member subject to a call must pay the amount of the call to the payee named in the notice of call no later than the time specified in the notice. Joint holders of a share are jointly and severally liable for calls.
 
 
25.7
Called Amounts
 
If a call is not paid on or before the day specified for payment, the Board may require the member liable for the call to pay:
 
 
(a)
interest on the amount of the call at the Interest Rate from that day until payment is made; and
 
 
(b)
all costs and expenses incurred by the Company because payment was not made on that day.
 
 
25.8
Proof of call
 
If on the hearing of an action for recovery of a Called Amount it is proved that:
 
 
(a)
the minute books of the Company record the Board's resolution making the call; and
 
 
(b)
notice of the call was given under rule 25.4 ; and
 
 
(c)
the person sued appears in the Register as a holder of the share in respect of which the call was made,
 
proof of those matters is conclusive proof of the debt.
 
 
25.9
Forfeiture notice
 
At any time until a Called Amount is paid, the Board may give the relevant member a notice which:
 
 
(a)
requires the member to pay the Called Amount;
 
 
(b)
states the Called Amount at the date of the notice;
 
 
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(c)
specifies how to calculate the Called Amount when payment is made;
 
 
(d)
specifies a date at least 14 days after the date of the notice by which and a place at which payment must be made; and
 
 
(e)
states that if payment is not made at that place on or before that date, the share to which the call relates is liable to be forfeited.
 
 
25.10
Forfeiture
 
If the requirements of a notice given under rule 25.9   are not satisfied, the Board may forfeit the share in respect of which that notice was given (and all dividends, interest and other money payable in respect of that share and not actually paid before the forfeiture) by resolution passed before the Called Amount is paid.
 
 
25.11
Disposal and re-issue of forfeited shares
 
See Listing Rule 7.39
 
A share forfeited under rule 25.10 immediately becomes the property of the Company. Subject to the Listing Rules, the Board, on behalf of the Company, may:
 
 
(a)
re-issue the share with or without any money paid on it by any former holder credited as paid; or
 
 
(b)
sell or otherwise dispose of the share, and execute and register a transfer of it,
 
to the person and on the terms it decides.
 
 
25.12
Notice of forfeiture
 
The Company must promptly:
 
 
(a)
give notice of the forfeiture of a share to the member who held the share immediately before the resolution for forfeiture was passed; and
 
 
(b)
enter the forfeiture and its date in the Register.
 
A written declaration that a share was forfeited on a specified date and notice of forfeiture was given in accordance with this document signed by a Director or Secretary is, in the absence of proof to the contrary, evidence of those facts and of the Company's right to dispose of the share.
 
 
25.13
Cancellation of forfeiture
 
The Board may cancel the forfeiture of a share on any terms at any time before it disposes of that share under rule 25.11 .
 
 
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25.14
Effect of forfeiture
 
A person who held a share which has been forfeited under rule 25.10 ceases to be a member in respect of that share but remains liable to pay the Called Amount until it is paid in full. The Board may elect not to enforce payment of an amount due to the Company under this rule.
 
 
25.15
Application of proceeds
 
The Company must:
 
 
(a)
apply the net proceeds of any re-issue, sale or disposal of a forfeited share under rule 25.11 (after payment of all costs and expenses) to satisfy the Called Amount; and
 
 
(b)
subject to the terms of issue of the share, pay any surplus to the person who held the share immediately before forfeiture.
 
 
25.16
Title of new holder
 
The title of the new holder of a forfeited share is not affected by any irregularity in the forfeiture or the re-issue, sale or disposal. The sole remedy of any person previously interested in the share is damages which may be recovered only from the Company. The new holder is not liable for the Called Amount.
 
 
25.17
Mortgage of uncalled capital
 
If the Company grants a mortgage or charge over uncalled capital, the Board may delegate its power to make calls to:
 
 
(a)
the person in whose favour the mortgage or charge is granted; or
 
 
(b)
a trustee or agent for that person,
 
on the terms (including power to further delegate) and subject to any restrictions the Board decides. If the Board does so, a call made in accordance with the delegation is treated as made by the Board.
 
26.
COMPANY LIENS
 
 
26.1
Existence of liens
 
Unless the terms of issue provide otherwise, the Company has a first and paramount lien on each share for:
 
 
(a)
all unpaid calls or instalments due but unpaid in respect of that share (including money payable under rule  25.7 ); and
 
 
(b)
amounts paid by the Company for which it is indemnified under rule 26.4.
 
 
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The lien extends to all dividends payable in respect of the share and to proceeds of sale of the share.
 
 
26.2
Sale under lien
 
If:
 
 
(a)
the Company has a lien on a share;
 
 
(b)
an amount secured by the lien is due and payable;
 
 
(c)
the Company has given notice to the member registered as the holder of the share:
 
 
(i)
requiring payment of the amount which is due and payable and secured by the lien;
 
 
(ii)
stating the amount due and payable at the date of the notice;
 
 
(iii)
specifying how to calculate the amount due when payment is made; and
 
 
(iv)
specifying a date (at least 10 business days after the date of the notice) by which and a place at which payment of that amount must be made; and
 
 
(d)
the requirements of the notice given under paragraph (c) are not fulfilled,
 
the Company may sell the share as if it had been forfeited under rule  25.10 . Rules 25.11 , 25.15 and 25.16 apply, to the extent practical and modified as necessary, as if the amount referred to in paragraph (b) were the Called Amount in respect of that share.
 
 
26.3
Protection of lien
 
The Company may do anything necessary or desirable under the SCH business rules to protect a lien or other interest in shares to which it is entitled by law or under this document.
 
 
26.4
Indemnity for payments required to be made by the Company
 
If the law of any jurisdiction imposes or purports to impose any immediate, future or possible liability on the Company, or empowers or purports to empower any person to require the Company to make any payment, on account of a member or referable to a share held by that member (whether alone or jointly) or a dividend or other amount payable in respect of a share held by that member, the Company:
 
 
(a)
is fully indemnified by that member from that liability;
 
 
33
 
 
 
(b)
may recover as a debt due from the member the amount of that liability together with interest at the Interest Rate from the date of payment by the Company to the date of re-payment by the member; and
 
Paragraph (c) replaces section 1072F(3)  
(c)
subject to rule 29.5 , may refuse to register a transfer of any share by that member until the debt has been paid to the Company.
 
Nothing in this document in any way prejudices or affects any right or remedy which the Company has (including any right of set-off) and, as between the Company and the member, any such right or remedy is enforceable by the Company.
 
27.
DIVIDENDS
 
 
27.1
Accumulation of reserves
 
Before declaring any dividend to members, the Board may:
 
 
(a)
set aside out of profits reserves to be applied, in the Board's discretion, for any purpose it decides and use any sum so set aside in the business of the Company or invest it in investments selected by the Board and vary and deal with those investments as it decides; or
 
 
(b)
carry forward any amount out of profits which the Board decides not to distribute without transferring that amount to a reserve; or
 
 
(c)
do both.
 
 
27.2
Dividends must be paid out of profits
 
The Company must not pay a dividend except out of profits of the Company. The Company does not incur a debt merely by fixing the amount or time for payment of a dividend. A debt arises only when the time fixed for payment arrives. The decision to pay a dividend may be revoked by the Board at any time before then. A resolution of the Board as to the amount of the Company's profits and the amount of them available for dividend is conclusive.
 
 
27.3
Payment of dividends
 
Subject to the Act, rules 27.2 , 27.4 and 27.9 , and the terms of issue of shares, the Board may resolve to pay any dividend it thinks appropriate and fix the time for payment.
 
 
27.4
Amount of dividend
 
Subject to the terms of issue of shares, the Company may pay a dividend on 1 class of shares to the exclusion of another class. Subject to rule 27.5 , each share of a class on which the Board resolves to pay a dividend carries the right to participate in a dividend in the same proportion that the amount for the time being paid on the share bears to the total issue price of the share.
 
 
34
 
 
 
27.5
Prepayments, payments during dividend period and credits without payment
 
For the purposes of rule 27.4 :
 
 
(a)
an amount paid in advance of calls is not taken into account as part of the amount for the time being paid on a share;
 
 
(b)
if an amount was paid on a share during the period to which a dividend relates, the Board may resolve that only the proportion of that amount which is the same as the proportion which the period from the date of payment to the end of the period to which the dividend relates bears to the total period to which the dividend relates, is to count as part of the amount for the time being paid on the share; and
 
 
(c)
an amount credited on a partly paid share without payment in money or money's worth being made to the Company is not taken into account as a part of the amount for the time being paid on a share.
 
 
27.6
Dividends in kind
 
The Board may resolve to pay a dividend in cash or satisfy it by distribution of specific assets (including shares or securities of any other corporation), the issue of shares or the grant of options. If the Board satisfies a dividend by distribution of assets, the Board may:
 
 
(a)
fix the value of any asset distributed;
 
 
(b)
make cash payments to members on the basis of the value fixed so as to adjust the rights of members between themselves; and
 
 
(c)
vest an asset in trustees.
 
 
27.7
Method of payment
 
The Company may pay any cash dividend, interest or other money payable in respect of shares by cheque sent, and may distribute assets by sending the certificates or other evidence of title to them, through the post directed to:
 
 
(a)
the address of the member (or in the case of a jointly held share, the address of the joint holder named first in the Register); or
 
 
(b)
to any other address the member (or in the case of a jointly held share, all the joint holders) directs in writing.
 
 
27.8
Joint holders' receipt
 
Any one of the joint holders of a share may give an effective receipt for any dividend, interest or other money payable in relation to that share.
 
 
35
 
 
 
27.9
Retention of dividends by Company
 
The Company may retain the dividend payable on a share:
 
 
(a)
of which a person seeks to be registered as the holder under rules  30.2 or 30.3 , until that person is registered as the holder of that share or transfers it; and
 
 
(b)
on which the Company has a lien, to satisfy the liabilities in respect of which the lien exists.
 
 
27.10
No interest on dividends
 
No member may claim, and the Company must not pay, interest on a dividend (either in money or kind).
 
28.
SHARE PLANS
 
 
28.1
Implementing share plans
 
The Company in general meeting may by ordinary resolution authorise the Board to implement one or more of:
 
 
(a)
a dividend re-investment plan under which any dividend or other cash payment in respect of a share may, at the election of the member entitled to it, be:
 
 
(i)
retained by the Company and applied in payment for fully paid shares issued under the plan; and
 
 
(ii)
treated as having been paid to the member as a dividend and simultaneously re-paid by the member to the Company to be held by it and applied in accordance with the plan; or
 
 
(b)
any other plan under which members may elect that dividends or other cash payments in respect of shares be satisfied by the allotment of further shares, or that issues of further shares be made in place of dividends.
 
 
28.2
Board obligations and discretions
 
The Board:
 
 
(a)
must do everything necessary or desirable to give effect to a share plan implemented under rule 28.1 and the rules governing it; and
 
 
(b)
may:
 
 
(i)
vary the rules governing; or
 
 
(ii)
suspend or terminate the operation of,
 
 
36
 
 
a share plan implemented under rule 28.1 as it thinks appropriate.
 
29.
TRANSFER OF SHARES
 
 
29.1
Modes of transfer
 
Subject to this document, a member may transfer a share by:
 
 
(a)
a Market Transfer; or
 
 
(b)
a written document which:
 
 
(i)
shows the jurisdiction of registration of the Company;
 
 
(ii)
relates only to shares of 1 class; and
 
 
(iii)
is a sufficient instrument of transfer of marketable securities under sections 1073D or in any other form approved by the Board or ASX.
 
The Company must not charge any fee on transfer of a share.
 
 
29.2
Market transfers
 
The Company:
 
 
(a)
may do anything permitted by the Act, the Listing Rules and the SCH business rules that the Board thinks necessary or desirable in connection with the participation of the Company in a computerised or electronic system established or recognised by the Act, the Listing Rules, or the SCH business rules for the purpose of facilitating dealings in shares; and
 
 
(b)
must comply with obligations imposed on it by the Listing Rules or the SCH business rules in relation to Market Transfers.
 
 
29.3
Transfer by written document
 
Replaces section 1072F(2)
 
A document of transfer under rule 29.1(b) must be:
 
 
(a)
delivered to the registered office of the Company or the address of the Register last notified to members by the Company;
 
 
(b)
accompanied by the certificate (if any) for the shares to be transferred or evidence satisfactory to the Board of its loss or destruction; and
 
 
(c)
marked with payment of any stamp duty payable.
 
Property in and title to a document of transfer that is delivered to the Company (but not the shares to which it relates) passes to the Company on delivery.
 
 
37
 
 
 
29.4
Restricted securities
 
If any securities of the Company are classified as restricted securities under the Listing Rules:
 
 
(a)
during the escrow period set by the restriction agreement required by ASX in relation to those securities:
 
 
(i)
the member who holds the restricted securities may not dispose of them; and
 
 
(ii)
the Company must not register a transfer of the restricted securities or otherwise acknowledge a disposal of them,
 
except as permitted by the Listing Rules or ASX; and
 
 
(b)
if there is a breach of the Listing Rules or of the relevant restriction agreement in relation to a restricted security, the holding of that security does not entitle a member:
 
 
(i)
to be present, speak or vote at, or be counted in the quorum for, a meeting of members; or
 
 
(ii)
to receive any dividend or other distribution,
 
while the breach continues.
 
In this rule 29.4 "dispose" (and other grammatical forms of it) has the meaning given by the Listing Rules.
 
 
29.5
Refusal to register transfer
 
Replaces section 1072F(3)
 
The Board:
 
 
(a)
may refuse to register a transfer of shares only if that refusal would not contravene the Listing Rules or the SCH business rules;
 
 
(b)
subject to section 259C, must not register a transfer to a subsidiary of the Company, and
 
 
(c)
must not register a transfer if the Act, the Listing Rules or the SCH business rules forbid registration.
 
If the Board refuses to register a transfer, the Company must give the lodging party notice of the refusal and the reasons for it within 5 business days after the date on which the transfer was delivered to it.
 
 
38
 
 
 
29.6
Transferor remains holder until transfer registered
 
Replaces section 1072F(1)
 
The transferor of a share remains the holder of it until:
 
 
(a)
if the transfer is a Market Transfer, the time the SCH business rules provide that the transfer takes effect; and
 
 
(b)
otherwise, the transfer is registered and the name of the transferee is entered in the Register.
 
 
29.7
Powers of attorney
 
The Company may assume, as against a member, that a power of attorney granted by that member that is lodged with or produced or exhibited to the Company remains in force, and may rely on it, until the Company receives express notice in writing at its registered office of:
 
 
(a)
the revocation of the power of attorney; or
 
 
(b)
the death, dissolution or insolvency of the member.
 
30.
TRANSMISSION OF SHARES
 
 
30.1
Death of joint holder
 
The Company must recognise only the surviving joint holders as being entitled to shares registered jointly in the names of a deceased member and others. The estate of the deceased joint holder is not released from any liability in respect of the shares.
 
 
30.2
Death of single holder
 
The Company must not recognise any one except the legal personal representative of the deceased member as having any title to shares registered in the sole name of a deceased member. If the personal representative gives the Board the documents described in section 1071B(9) or other information that satisfies the Board of the representative's entitlement to be registered as holder of the shares:
 
 
(a)
subject to rules  29.5 and 30.4 the Company must register the personal representative as the holder of the shares as soon as practical after receipt of a written and signed notice to the Company from the representative requiring it to do so; and
 
 
(b)
whether or not registered as the holder of the shares, the personal representative:
 
 
(i)
may, subject to rule 29 , transfer the shares to another person; and
 
 
(ii)
has the same rights as the deceased member.
 
 
39
 
 
 
30.3
Transmission of shares on insolvency or mental incapacity
 
Subject to the Bankruptcy Act 1966, if a person entitled to shares because of the insolvency or mental incapacity of a member gives the Board the information it reasonably requires to establish the person's entitlement to be registered as holder of the shares:
 
 
(a)
subject to rules 29.5 and 30.4 the Company must register that person as the holder of the shares as soon as practical after receipt of a written and signed notice to the Company from that person requiring it to do so; and
 
 
(b)
whether or not registered as the holder of the shares, that person:
 
 
(i)
may, subject to rule 29 , transfer the shares to another person; and
 
 
(ii)
has the same rights as the insolvent or incapable member.
 
If section 1091A applies, this rule is supplemental to it.
 
 
30.4
Refusal to register holder
 
The Company has the same right to refuse to register a personal representative or person entitled to shares on the insolvency or mental incapacity of a member as it would have if that person were the transferee named in a transfer signed by a living, solvent, competent member.
 
31.
UNMARKETABLE PARCELS
 
 
31.1
Board power of sale
 
The Board may sell a share that is part of an Unmarketable Parcel if it does so in accordance with this rule.
 
 
31.2
Notice of proposed sale
 
Once in any 12 month period, the Board may given written notice to a member who holds an Unmarketable Parcel:
 
 
(a)
stating that it intends to sell the Unmarketable Parcel; and
 
 
(b)
specifying a date at least 35 business days after the notice is given by which the member may give the Company written notice that the member wishes to retain the holding.
 
 
31.3
Public notice of intention to sell
 
Before the sale, the Board must publish a notice in a newspaper circulating generally in the area in which the member's address in the Register is, that states:
 
 
(a)
the Board intends to sell the Unmarketable Parcel;
 
 
40
 
 
 
(b)
the name of the member; and
 
 
(c)
the number of shares the Board intends to sell.
 
 
31.4
Second notice to member
 
Before selling an Unmarketable Parcel but after the date specified under rule 31.2(b) the Board must give the holder of the Unmarketable Parcel a second written notice stating:
 
 
(a)
that it intends to sell the Unmarketable Parcel;
 
 
(b)
the date on which it intends to sell it (which must be at least 15 business days after the date of the notice); and
 
 
(c)
that the Company will not sell the Unmarketable Parcel if, before it is sold, the member gives the Company a written notice that the member wants to keep the Unmarketable Parcel.
 
 
31.5
No sale where member gives notices
 
The Company must not sell an Unmarketable Parcel if the Company receives a written notice that the member wants to keep it.
 
 
31.6
Joint holders
 
If an Unmarketable Parcel is held jointly, the Company must give notice under rules 31.2 and 31.4 to each of the joint holders.
 
 
31.7
Terms of sale
 
A sale of shares under this rule includes all dividends payable on and other rights attaching to them. The Company must pay the costs of the sale. Otherwise, the Board may decide the manner, time and terms of sale.
 
 
31.8
Share transfers
 
For the purpose of giving effect to this rule each Director and Secretary has power to:
 
 
(a)
effect a Market Transfer; or
 
 
(b)
execute a share transfer under rule 29.3 ,
 
as agent for a member who holds an Unmarketable Parcel.
 
 
41
 
 
 
31.9
Application of proceeds
 
The Company must:
 
 
(a)
deduct any Called Amount in respect of the shares sold under this rule from the proceeds of sale and pay the balance into a separate bank account it opens and maintains for the purpose only;
 
 
(b)
hold that balance in trust for the previous holder of the shares (the " Divested Member ");
 
 
(c)
as soon as practical give written notice to the Divested Member stating:
 
 
(i)
what the balance is; and
 
 
(ii)
that it is holding the balance for the Divested Member while awaiting the Divested Member's instructions and return of the certificate (if any) for the shares sold or evidence of its loss or destruction;
 
 
(d)
if the shares sold were certificated, not pay the proceeds of sale out of the trust account until it has received the certificate for them or evidence of its loss or destruction; and
 
 
(e)
subject to paragraph (d) , deal with the amount in the account as the Divested Member instructs.
 
 
31.10
Protections for transferee
 
The title of the new holder of a share sold under this rule is not affected by any irregularity in the sale. The sole remedy of any person previously interested in the share is damages which may be recovered only from the Company.
 
 
31.11
No sale where takeover bid announced
 
Notwithstanding rule 31.1 , the Company may not proceed with the sale of an Unmarketable Parcel where a takeover bid for the Company has been announced, but that sale may recommence after the offers made under the takeover bid have expired.
 
32.
ALTERATION OF SHARE CAPITAL
 
 
32.1
Capitalisation of profits
 
The Company may capitalise profits, reserves or other amounts available for distribution to members. Subject to the terms of issue of shares, members are entitled to participate in a capital distribution in the same proportions in which they are entitled to participate in dividends.
 
 
42
 
 
 
32.2
Adjustment of capitalised amounts
 
The Board may settle any difficulty that arises in regard to a capitalisation of profits as it thinks appropriate and necessary to adjust the rights of members among themselves including:
 
 
(a)
fix the value of specific assets;
 
 
(b)
issue fractional certificates;
 
 
(c)
make cash payments to members on the basis of the value fixed or on the basis that fractional entitlements are disregarded so as to adjust the rights of members between themselves; and
 
 
(d)
vest cash or specific assets in trustees.
 
 
32.3
Conversion of shares
 
Subject to sections 254G and 254H, the Listing Rules and rules 22.2 and 32.5 , the Company may convert:
 
 
(a)
shares into a larger or smaller number of shares;
 
 
(b)
an ordinary share into a preference share; and
 
 
(c)
a preference share into an ordinary share,
 
by resolution passed at a meeting of members (but, in the case of a conversion of partly paid shares into a larger number of shares the proportion between the amount paid and the amount unpaid on each share must be the same as before the conversion).
 
 
32.4
Reduction of capital
 
Subject to the Listing Rules, the Company may reduce its share capital:
 
 
(a)
by reduction of capital in accordance with Division 1 of Part 2J.1;
 
 
(b)
by buying back shares in accordance with Division 2 of Part 2J.1;
 
 
(c)
in the ways permitted by sections 258E and 258F; or
 
 
(d)
in any other way for the time being permitted by the Act.
 
 
32.5
Variation of rights
 
If the Company issues different classes of shares, or divides issued shares into different classes, the rights attached to shares in any class may (subject to sections 246C and 246D) be varied or cancelled:
 
 
43
 
 
 
(a)
with the written consent of the holders of a majority of the issued shares of the affected class; or
 
 
(b)
by ordinary resolution passed at a meeting of the holders of the issued shares of the affected class.
 
Subject to the terms of issue of shares, the rights attached to a class of shares are not treated as varied by the issue of further shares of that class.
 
33.
WINDING UP
 
 
33.1
Distribution of assets generally
 
If the Company is wound up, the liquidator may, with the sanction of a special resolution:
 
 
(a)
divide the assets of the Company among the members in kind;
 
 
(b)
for that purpose fix the value of assets and decide how the division is to be carried out as between the members and different classes of members; and
 
 
(c)
vest assets of the Company in trustees on any trusts for the benefit of the members as the liquidator thinks appropriate.
 
 
33.2
No distribution of liabilities
 
The liquidator cannot compel a member to accept marketable securities in respect of which there is a liability as part of a distribution of assets of the Company.
 
 
33.3
Distribution not in accordance with legal rights
 
If the liquidator decides on a division or vesting of assets of the Company under rule 33.1 which does not accord with the legal rights of the contributors, any contributory who would be prejudiced by it may dissent and has ancillary rights as if that decision were a special resolution passed under section 507.
 
34.
NOTICES
 
 
34.1
Notices by Company
 
A notice is properly given by the Company to a person if it is:
 
 
(a)
in writing signed on behalf of the Company (by original or printed signature);
 
 
(b)
addressed to the person to whom it is to be given; and
 
 
(c)
either
 
 
(i)
delivered personally;
 
 
44
 
 
 
(ii)
sent by pre-paid mail (by airmail, if the addressee is overseas) to that person's address; or
 
 
(iii)
sent by fax to the fax number (if any) nominated by that person; or
 
 
(iv)
sent by electronic message to the electronic address (if any) nominated by that person.
 
 
34.2
Overseas members
 
A member whose registered address is not in Australia may notify the Company in writing of an address in Australia to which notices may be sent.
 
 
34.3
When notice is given
 
A notice to a person by the Company is regarded as given and received:
 
 
(a)
if it is delivered personally or sent by fax or electronic message:
 
 
(i)
by 5.00 pm (local time in the place of receipt) on a business day - on that day; or
 
 
(ii)
after 5.00 pm (local time in the place of receipt) on a business day, or on a day that is not a business day - on the next business day; and
 
 
(b)
if it is sent by mail - on the business day after it was posted.
 
A certificate in writing signed by a Director or Secretary of the Company stating that a notice was sent is conclusive evidence of service.
 
 
34.4
Notice to joint holders
 
Notice to joint holders of shares must be given to the joint member named first in the Register. Every person who becomes entitled to a share is bound by every notice in respect of that share that was properly given to a person registered as the holder the share before the transfer or transmission of the share was entered in the Register.
 
 
34.5
Counting days
 
If a specified period must pass after a notice is given before an action may be taken, neither the day on which the notice is given nor the day on which the action is to be taken may be counted in reckoning the period.
 
 
34.6
Certificate of Director or Secretary
 
A certificate signed by a Director or Secretary that a notice was given by the Company as set out in the certificate is admissible as evidence, and is conclusive evidence, that the notice was given.
 
 
45
 
 
 
34.7
Notices to "lost" members
 
If:
 
 
(a)
on 2 or more consecutive occasions a notice served on a member in accordance with this rule is returned unclaimed or with an indication that the member is not known at the address to which it was sent; or
 
 
(b)
the Board believes on other reasonable grounds that a member is not at the address shown in the Register or notified to the Company under rule 34.2,
 
the Company may give effective notice to that member by exhibiting the notice at the Company's registered office for at least 48 hours.
 
This rule ceases to apply if the member gives the Company notice of a new address.
 
35.
UNCLAIMED MONEY
 
The Company must deal with unclaimed dividends and distributions and unclaimed proceeds of shares sold or reissued under this document in accordance with the law relating to unclaimed money in the Company's jurisdiction of registration.
 
 
46
 
 
SCHEDULE
 
Terms of issue of preference shares
 
1.
Definitions
 
The following definitions apply in relation to a preference share issued under rule 22.2(a).
 
" Dividend Amount " for any Dividend Period means the amount calculated as DA = DR x N
365
 
where:
 
DA = Dividend Amount;
 
DR = Dividend Rate; and
 
N = number of days in the relevant Dividend Period.
 
" Dividend Date " means a date specified in the Issue Resolution on which a dividend in respect of that preference share is payable.
 
" Dividend Period " means:
 
 
(a)
the period that begins on and includes the Issue Date and ends on and includes the day before the first Dividend Date after the Issue Date; and
 
 
(b)
the period that begins on and includes each Dividend Date and ends on and includes the day before the next Dividend Date; and
 
 
(c)
the period that begins on and includes the last Dividend Date and ends on and includes the day before the Redemption Date.
 
" Dividend Rate " means the rate specified in the Issue Resolution for the calculation of the amount of dividend to be paid on that preference share on any Dividend Date.
 
" franked dividend " has the meaning given to that term by section 160APA of the Tax Act.
 
" Issue Date " means the date on which the share is issued.
 
" Issue Resolution " means the resolution passed under clause 2 of this schedule.
 
" redeemable preference share " means a preference share which the Issue Resolution specifies is liable to be redeemed:
 
 
(a)
at a fixed time or on the happening of a particular event;
 
 
47
 
 
 
(b)
at the Company's option; or
 
 
(c)
at the holder's option.
 
" Redemption Amount " in relation to a redeemable preference share means the amount specified in the Issue Resolution to be paid on redemption of that share.
 
" Redemption Date " in relation to a redeemable preference share, means the date on which the Issue Resolution requires the Company to redeem that share.
 
" Tax Act " means the Income Tax Assessment Act 1936, the Income Tax Assessment Act 1997, or both, as applicable.
 
2.
Issue Resolution
 
If the Board resolves to issue a preference share, it must pass an Issue Resolution which specifies:
 
 
(a)
the Dividend Date;
 
 
(b)
the Dividend Rate;
 
 
(c)
whether dividends are cumulative or non-cumulative;
 
 
(d)
whether the share is a redeemable preference share or not, and if so:
 
 
(i)
the Redemption Amount; and
 
 
(ii)
if the share is redeemable at the end of a fixed period, the Redemption Date, or otherwise the circumstances (if any) in which the share is redeemable at the option of the holder or of the Company, the way in which that option must be exercised and the way in which the resulting Redemption Date is ascertained,
 
and may also specify that the dividend must be a franked dividend or must not be a franked dividend.
 
3.
Franked dividends
 
If the Issue Resolution specifies that the dividend on preference shares must be a franked dividend, it may also specify:
 
 
(a)
the extent to which the dividend must be franked (within the meaning of the Tax Act); and
 
 
(b)
the consequences of the dividend not being franked, which may include an increase of the dividend by the amount of franking credit which would have been imputed to the holder of the share under the Tax Act if the dividend had been franked in accordance with the Issue Resolution.
 
 
48
 
 
4.
Dividend entitlement
 
The holder of a preference share is entitled, in priority to any payment of dividend on any other class of shares, to a preferential dividend of the Dividend Amount for each Dividend Period. The dividend entitlement is cumulative if the Issue Resolution states that it is cumulative and otherwise is non-cumulative.
 
5.
Priority on winding up
 
The holder of a preference share is entitled, on a winding up, to payment in cash of:
 
 
(a)
the amount then paid up on it; and
 
 
(b)
if the Issue Resolution states that dividends are cumulative, any arrears of dividend,
 
in priority to any payment to the holders of any other class of shares but has no right to participate in surplus assets and profits of the Company or to vote on a winding up.
 
6.
Voting
 
The holder of a preference share has no right to vote at any meeting of members of the Company except:
 
 
(a)
during a period during which a dividend (or part of a dividend) in respect of the share is in arrears; and
 
 
(b)
if approval of preference shareholders is required under Part 2J.1:
 
 
(i)
on a proposal to reduce the Company's share capital; or
 
 
(ii)
on a resolution to approve the terms of a buy-back agreement,
 
then on that proposal or resolution;
 
 
(c)
on a proposal that affects rights attached to the preference share;
 
 
(d)
on a proposal to wind up the Company;
 
 
(e)
on a proposal for the disposal of the whole of the Company’s property, business and undertaking; and
 
 
(f)
during the winding-up of the Company.
 
7.
Notices and financial reports
 
The Company must give the holder of a preference share notice of each meeting of members in accordance with rule 13 and send the holder financial reports in accordance with rule 21.2.
 
 
49
 
 
8.
Redemption of redeemable preference shares
 
Subject to the Act, the Company must redeem a redeemable preference share on the Redemption Date by paying the Redemption Amount to the holder in cash, by cheque or in any other form that the holder agrees to in writing. If the Company sends the holder of a redeemable preference share a cheque for the Redemption Amount, the share is redeemed on the date on which rule 34.3(b) would treat the cheque as being received by the holder, whether or not the holder has presented the cheque. If the holder of a redeemable preference share does not present a cheque for the Redemption Amount within a reasonable period after it is sent, the Company must deal with the Redemption Amount in accordance with rule 35.
 
9.
Equal ranking issues
 
The issue of further preference shares that rank equally with any issued preference shares is not taken to affect the rights of the holders of the existing preference share whether or not the Dividend Rate for the new preference shares is the same as or different from that applicable to that preference share.
 
 
50
 
 
 
 
 
Samson Oil and Gas USA Inc (as Borrower)
 
Each Guarantor listed in schedule 1
 
Each party listed in schedule 2 (as Financier)
 
Macquarie Bank Limited (as Agent)
 
and
 
Macquarie Bank Limited (as Security Trustee)
 
and others
 
 
 
 
MLC Centre Martin Place   Sydney   New South Wales   2000   Australia
Telephone +61 2 9225 5000 Facsimile +61 2 9322 4000
www.freehills.com DX 361 Sydney
 
SYDNEY MELBOURNE PERTH BRISBANE SINGAPORE
Correspondent Offices HANOI HO CHI MINH CITY JAKARTA KUALA LUMPUR
 
Reference PStJ:EdC:36G
 
 
 
 
Each Guarantor listed in schedule 1
 
Each party listed in schedule 2 (a Financier)
 
Macquarie Bank Limited (as Agent)
 
Macquarie Bank Limited (as Security Trustee)
 
and
 
Samson Oil & Gas Limited (as Parent)  
 

Table of contents
 
Clause Page
 
1
Definitions and interpretation
1
 
1.1
  Definitions
1
 
1.2
  Interpretation
24
 
1.3
  Inclusive expressions
25
 
1.4
  Business Day
25
 
1.5
  Accounting Standards
25
 
1.6
  Security Trustee’s limitation of liability protection
25
 
1.7
  Calculation of close out amount in respect of transaction under a Secured
   
  Hedging Agreement subject to ISDA Master Agreement 2002
26
2
Conditions precedent
26
 
2.1
  Conditions precedent to initial Funding Portion
26
 
2.2
  Conditions precedent to all Funding Portions
29
 
2.3
  Certified copies
30
 
2.4
  Cancellation of Commitment
30
 
2.5
  Benefit of conditions precedent
30
3
Commitment, purpose and availability of Convertible Loan Facility
30
 
3.1
  Provision of Commitment
30
 
3.2
  Several obligations and rights of Financiers
30
 
3.3
  Purpose
30
 
3.4
  Prepayment
31
 
3.5
  Redemption of Call Options
31
 
3.6
  Prepayment date
32
4
Funding and rate setting procedures
32
 
4.1
  Delivery of Funding Notice
32
 
4.2
  Requirements for a Funding Notice
32
 
4.3
  Irrevocability of Funding Notice
32
 
4.4
  Number of Funding Portions
32
5
Convertible Loan Facility
33
 
5.1
  Provision of Funding Portions
33
 
5.2
  Payment to the Borrower
33
 
5.3
  Repayment
33
 
5.4
  Interest
33
6
Call Options
33
 
6.1
  Call Option terms
33
 
6.2
  Adjustments to VWAP for Tranche B Call Options
35
 
6.3
  Changes after the Price Set Date for all Call Options
36
 
6.4
  Corporate undertakings
37
 
6.5
  Participation in Additional Rights
37
 
6.6
  Share Ranking
38
 
6.7
  Official Quotation
38
 

 
  6.8
  Variation
38
 
  6.9
  Call Option Certificates
38
 
  6.10
  Cleansing Statement
38
7
  Payments
39
 
  7.1
  Manner of payment
39
 
  7.2
  Payments on a Business Day
39
 
  7.3
  Payments in gross
39
 
  7.4
  Taxes
39
 
  7.5
  Amounts payable on demand
42
 
  7.6
  Appropriation of payments
42
 
  7.7
  Distribution by Agent
43
 
  7.8
  Non-receipt of funds by Agent
43
 
  7.9
  Redistribution of payments
43
 
  7.10
  Rounding
44
 
  7.11
  Currency exchanges
44
 
  7.12
  Secured Hedging Agreement
44
8
  Representations and warranties
44
 
  8.1
  Representations and warranties
44
 
  8.2
  Survival and repetition of representations and warranties
54
 
  8.3
  Reliance by Finance Parties
54
9
  Undertakings
54
 
  9.1
  Provision of information and reports
54
 
  9.2
  Reserve Reports
55
 
  9.3
  Proper accounts
57
 
  9.4
  Notices to the Agent
57
 
  9.5
  Compliance
58
 
  9.6
  Maintenance of capital
58
 
  9.7
  Compliance with laws and Authorisations
58
 
  9.8
  Corporate existence
58
 
  9.9
  Environmental law
59
 
  9.10
  Payment of Taxes and outgoings
60
 
  9.11
  Material Documents
60
 
  9.12
  Amendments to constitution
60
 
  9.13
  Negative pledge and disposal of assets
60
 
  9.14
  Financial Indebtedness
61
 
  9.15
  No change to business
61
 
  9.16
  Financial accommodation
61
 
  9.17
  Restrictions on dealings
61
 
  9.18
  Restrictions on Distributions and fees
62
 
  9.19
  Undertakings regarding Secured Property
62
 
  9.20
  Insurance
63
 
  9.21
  Officers
66
 
  9.22
  Kestrel
66
 
  9.23
  Financial undertakings
66
 
  9.24
  Shareholder Approval
67
 
  9.25
  Term of undertakings
67
 

10
  Events of Default
67
 
  10.1
  Events of Default
67
 
  10.2
  Effect of Event of Default
71
 
  10.3
  Transaction Parties to continue to perform
71
 
  10.4
  Enforcement
71
11
  Increased costs and illegality
72
 
  11.1
  Increased costs
72
 
  11.2
  Illegality
73
12
  Guarantee and indemnity
73
 
  12.1
  Guarantee
73
 
  12.2
  Payment
73
 
  12.3
  Securities for other money
73
 
  12.4
  Amount of Secured Moneys
73
 
  12.5
  Proof by Financiers
74
 
  12.6
  Avoidance of payments
74
 
  12.7
  Indemnity for avoidance of Secured Moneys
75
 
  12.8
  No obligation to marshal
75
 
  12.9
  Non-exercise of Guarantors’ rights
75
 
  12.10
  Principal and independent obligation
75
 
  12.11
  Suspense account
76
 
  12.12
  Unconditional nature of obligations
76
 
  12.13
  No competition
78
 
  12.14
  Continuing guarantee
79
 
  12.15
  Variation
79
 
  12.16
  Judgments
79
 
  12.17
  Additional Guarantors
79
 
  12.18
  Limited recourse - Parent
80
 
  12.19
  Extent of Guarantor’s obligations
81
13
  Indemnities and Break Costs
81
 
  13.1
  General indemnity
81
 
  13.2
  Break Costs
82
 
  13.3
  Foreign currency indemnity
82
 
  13.4
  Conversion of currencies
83
 
  13.5
  Continuing indemnities and evidence of loss
83
14
  Fees, Tax, costs and expenses
83
 
  14.1
  Fees
83
 
  14.2
  Agent’s fees
83
 
  14.3
  Security Trustee’s Fees
84
 
  14.4
  Costs and expenses
84
 
  14.5
  GST
84
15
  Interest on overdue amounts
84
 
  15.1
  Payment of interest
84
 
  15.2
  Accrual of interest
85
 
  15.3
  Rate of interest
85
 

16
  Relations between Agent and Financier
85
 
  16.1
  Appointment of Agent
85
 
  16.2
  Agent’s capacity
85
 
  16.3
  Agent’s obligations
86
 
  16.4
  Agent’s powers
86
 
  16.5
  Instructions to Agent
86
 
  16.6
  Assumptions as to authority
87
 
  16.7
  Agent’s liability
87
 
  16.8
  Delegation
87
 
  16.9
  Agent entitled to rely
87
 
  16.10
  Provision of information
87
 
  16.11
  Indemnity by Financiers
88
 
  16.12
  Independent appraisal by Financiers
88
 
  16.13
  Resignation and removal of Agent
89
 
  16.14
  Institution of actions by Financiers
89
 
  16.15
  Identity of Financiers
89
 
  16.16
  Electronic transmission of notices
89
 
  16.17
  Instructions
90
17
  Assignment and substitution
90
 
  17.1
  Assignment by Transaction Party
90
 
  17.2
  Assignment by Financiers
90
 
  17.3
  Substitution certificate
91
 
  17.4
  Assist
91
 
  17.5
  Securitisation permitted
91
 
  17.6
  Participation permitted
92
 
  17.7
  Lending Office
92
 
  17.8
  No increase in costs
92
18
  Saving provisions
92
 
  18.1
  No merger of security
92
 
  18.2
  Exclusion of moratorium
93
 
  18.3
  Conflict
93
 
  18.4
  Consents
93
 
  18.5
  Principal obligations
93
 
  18.6
  Non-avoidance
93
 
  18.7
  Set-off authorised
94
 
  18.8
  Agent’s certificates and approvals
94
 
  18.9
  No reliance or other obligations and risk assumption
94
 
  18.10
  Power of attorney
95
19
  General
95
 
  19.1
  Confidential information
95
 
  19.2
  Transaction Party to bear cost
95
 
  19.3
  Notices
96
 
  19.4
  Governing law and jurisdiction
96
 
  19.5
  Prohibition and enforceability
97
 
  19.6
  Waivers
97
 
  19.7
  Variation
97
 
  19.8
  Cumulative rights
98
 
 
Schedule 1 - Guarantor
Schedule 2 - Financiers
Schedule 3 - Notice details
Schedule 4 - Officer’s certificate
Schedule 5 - Funding Notice
Schedule 6 - Group Structure Diagram
Schedule 7 - Compliance Certificate
Schedule 8 - Exercise Notice
Schedule 9 - Call Option Certificate
Schedule 10 - Authorised Signatories for Funding Notices
Schedule 11 - Litigation; Governmental Proceedings
Schedule 12 - Unpaid bills
Schedule 13 - Taxpayer identification
Schedule 14 - Other agreements
Schedule 15 - Material Documents that pertain to the Properties
Schedule 16 - Farmout agreements and subject contracts, etc
Schedule 17 - Operators; Operating Agreements
Schedule 18 - Marketing of production
Schedule 19 - Deposit Accounts
Schedule 20 - Executive Offices; Jurisdiction of formation
Schedule 21 - Insurance
Schedule 22 - Authorisations, operating permits and licences
Annexure A - Guarantee Assumption Agreement
Annexure B - Substitution certificate
Annexure C - Properties; Interests
 

This convertible loan facility agreement
 
is made on 2006 between the following parties:
 
1
Samson Oil and Gas USA Inc.
of   1726 Cole Blvd., Suite 210, Lakewood, Colorado 80401 USA
(the Borrower )
 
2
Each party listed in schedule 1
(each a Guarantor )
 
3
Each party listed in schedule 2
(each a Financier )
 
4
Macquarie Bank Limited
ABN 46 008 583 542
of Level 1, No. 1 Martin Place
Sydney NSW 2000
( Agent )
 
5
Macquarie Bank Limited
ABN 46 008 583 542
of Level 1, No. 1 Martin Place
Sydney NSW 2000
( Security Trustee )
 
6
Samson Oil & Gas Limited
ABN 25 009 069 005
of Level 36, Exchange Plaza, 2 The Esplanade, Perth WA 6000
( Parent )
 
Recital
 
The Financiers have agreed to provide the Convertible Loan Facility to the Borrower on the terms of this agreement.
 
The parties agree
 
in consideration of, among other things, the mutual promises contained in this agreement:
 
 
 
1
Definitions and interpretation
 
 
1.1
Definitions
 
In this agreement the following terms shall have the following meanings:
 
Accounting Standards means generally accepted accounting principles, standards and practices applying the law and otherwise generally accepted in Australia, consistently applied;
 
Acquisition means the acquisition by the Borrower of the Stanley Assets pursuant to the Acquisition Agreements;
 
Acquisition Agreements means:
 
(a)
the PSA;
 
Page 1
 
(b)
the “Conveyance” (as defined in the PSA); and
 
(c)
the Post Closing Agreement dated as of March 6, 2006 between the Borrower and the Vendors;
 
Additional Guarantor means a Person who has executed a Guarantee Assumption Agreement;
 
Additional Rights means any bonus shares or other Equity Interests issued or to be issued by the Parent;
 
Additional Rights Closing Date means the date determined by the Parent to be the last day on which a Person may accept any offer of Additional Rights;
 
AFE means an authorisation for expenditure representing an estimate of work to be performed;
 
Affiliate means, in respect of any Person:
 
(a)
any other Person who directly or indirectly controls, is under common control with, or is controlled by such Person,
 
(b)
any director or officer of such Person or of any Person referred to in paragraph (a) above, or
 
(c)
if any Person in paragraph (a) above is an individual, any member of the immediate family (including parents, spouse and children) of such individual and any trust whose principal beneficiary is such individual or one or more members of such immediate family and any Person who is controlled by any such member or trust.
 
As used in this definition, control (including, with its correlative meanings, controlled by and under common control with ) means possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of Equity Interests, by contract or otherwise); provided that, in any event, any Person who owns directly or indirectly 10% or more of the Equity Interests having ordinary voting power for the election of directors or other governing body of a corporation or 10% or more of the Equity Interests of any other Person (other than as a limited partner of such other Person) will be deemed to control such corporation or other Person, and any Subsidiary of any Transaction Party shall be deemed to be an Affiliate of that Transaction Party;
 
Aged Debts means any debt or monetary obligation of a member of the Group (not being Permitted Financial Indebtedness) which is not paid within 90 days of being incurred;
 
Agent means Macquarie Bank Limited ABN 46 008 583 542 of Level 1, No. 1 Martin Place Sydney NSW 2000 (or any replacement agent appointed under clause ‎ 16.13);
 
Associate means an associate as defined in section 318 of the Tax Act;
 
ASX means the Australian Stock Exchange;
 
ASX Business Day has the meaning given to that term in the ASX Listing Rules;
 
ASX Listing Rules means the Australian Stock Exchange Listing Rules;
 
Attorney means an attorney appointed under a Transaction Document;
 
Page 2
 
Australian Dollars and A$ means the lawful currency of the Commonwealth of Australia;
 
Australian Dollar Equivalent means, at any time in respect of any amount denominated other than in Australian Dollars, the amount of Australian Dollars determined by the Agent by translating that amount of currency into Australian Dollars using the spot rate of exchange which the Agent determines to be the rate of exchange which it could, on that day, buy Australian Dollars with that other currency in the ordinary course of business;
 
Authorisation means:
 
(a)
any consent, registration, filing, agreement, notice of non-objection, notarisation, certificate, licence, approval, permit, authority or exemption; or
 
(b)
in relation to anything which a Government Agency may prohibit or restrict within a specific period, the expiry of that period without intervention or action or notice of intended intervention or action;
 
Availability Period means the period commencing on the date of this agreement and ending on the earlier of:
 
(a)
30 May 2006; or
 
(b)
the date on which the Commitment is cancelled or drawn in full under this agreement;
 
Bankruptcy Code means Title 11 of the United States Code as amended from time to time;
 
Bill means a bill of exchange as defined in the Bills of Exchange Act 1909 (Cth);
 
Borrower means Samson Oil and Gas USA Inc;
 
Break Costs means, for any repayment or prepayment the amount (if any) by which:
 
 
(a)
the interest on the amount repaid or prepaid which a Financier should have received under this agreement (had the repayment or prepayment not occurred),
 
exceeds:
 
(b)
the return which that Financier would be able to obtain by placing the amount repaid or prepaid to it on deposit with a Reference Bank,
 
in each case for the period from the date of repayment or prepayment until the last day of the then current Interest Period applicable to the repaid or prepaid amount;
 
Business Day means:
 
(a)
for the purposes of clause  ‎ 19.3, a day on which banks are open for business in the city where the notice or other communication is received excluding a Saturday, Sunday or public holiday; and
 
(b)
for all other purposes, a day on which banks are open for business in Sydney and New York excluding a Saturday, Sunday or public holiday;
 
Calculation Period has the meaning given to that term in clause ‎ 6.1(e)(1)(B);
 
Page 3
 
Call Option means each call option issued by the Parent to a Financier which, if exercised, requires the Parent to issue a Share to the Holder of that Call Option in accordance with clause ‎ 6, being either a Tranche A Call Option or a Tranche B Call Option;
 
Call Option Certificate means each document of title evidencing the issue of a Call Option substantially in the form of, or substantially in the form of, schedule 9;
 
Call Option Issue Date means, in respect of a Call Option, the date the Call Option is issued by the Parent to a Financier in accordance with clause ‎ 6.1(a);
 
Call Option Exercise Period means:
 
(a)
in relation to a Tranche A Call Option, the period commencing on the Call Option Issue Date for the Tranche A Call Options and ending on the Maturity Date; and
 
(b)
in relation to a Tranche B Call Option, the period commencing on 1 April 2009 and ending on the Maturity Date;
 
Change in Law means any present or future law, regulation, treaty, order or official directive or request (which, if not having the force of law, would be complied with by a responsible financial institution) which:
 
(a)
commences, is introduced, or changes, after the date of this agreement; and
 
(b)
does not relate to a change in the effective rate at which Tax is imposed on the overall net income of a Finance Party;
 
Change of Control means the occurrence of any event which results in any Person (either alone or jointly with any other Person) acquiring Control of the Parent or the Parent becoming a Subsidiary of any Person;
 
Class means in respect of a Call Option, either the Tranche A Call Options (which form one Class )   or the Tranche B Call Options (which form another Class );
 
Collateral Security means any present or future Encumbrance, Guarantee or other document or agreement created or entered into by a Transaction Party or any other Person as security for, or to credit enhance, the payment of any of the Secured Moneys;
 
Commitment means:
 
(a)
in respect of a Financier and a Tranche of a Convertible Loan Facility, the amount specified opposite its name in schedule 2 in respect of that Tranche of the Convertible Loan Facility, as adjusted under this agreement; or
 
(b)
in respect of a Financier and without reference to a particular Tranche of the Convertible Loan Facility, the aggregate of the amounts specified opposite its name in schedule 2 for each Tranche of the Convertible Loan Facility, as adjusted under this agreement;
 
Compliance Certificate means a certificate in the form of, or substantially in the form of, schedule 7;
 
Contamination means, in respect of a Property or any other Secured Property, the presence of Pollutants:
 
(a)
in, on or under the Property or Secured Property; or
 
(b)
in the ambient air and emanating from the Property or Secured Property;
 
Page 4
 
Contested Tax means a Tax payable by a Transaction Party where the Transaction Party is contesting its liability to pay that Tax, and has reasonable grounds to do so and for which such Transaction Party has set aside on its books adequate reserves in accordance with applicable Accounting Standards;
 
Contribution Share means, in respect of a Financier at any time, the Secured Moneys plus (without double counting any amount) the Exposure of that Financier at that time expressed as a percentage of the aggregate Secured Moneys plus (without double counting any amount) the aggregate Exposures   of all Financiers at that time (including, in each case, any Secured Hedging Exposure of any Financier);
 
Control means control as defined in section 50AA of the Corporations Act;
 
Controller means a controller as defined in section 9 of the Corporations Act;
 
Convertible Loan Facility means the convertible loan facility made available by the Financiers to the Borrower under this agreement;
 
Corporations Act means the Corporations Act 2001 (Cth);
 
Crude Oil means all crude oil, condensate and other liquid hydrocarbon substances;
 
Current Assets means, at any time, the current assets of the Group as identified in the most recent quarterly Financial Reports of the Group;
 
Current Liabilities means, at any time, the current liabilities of the Group as identified in the most recent quarterly Financial Reports of the Group and including all Secured Moneys;
 
Current Ratio means, at any time, the ratio of Current Assets to Current Liabilities;
 
Deeds of Assignment means each deed of assignment under which the rights of the Parent in respect of any one or more of Samson Securities are assigned to the Security Trustee;
 
Default means:
 
(a)
an Event of Default; or
 
(b)
a Potential Event of Default;
 
Defensible Title means with respect to each Property, title that:
 
(a)
entitles the Person to receive (free and clear of all royalties appearing or not appearing of record, all overriding royalties and all net profits interests or other burdens on or measured by production of Hydrocarbons) not less than the Net Revenue Interest set out in annexure C in all Hydrocarbons produced, saved and marketed from the Property for the productive life of the Property, free and clear of any Lien, other than the Permitted Encumbrances and any Liens, which are in favor of the Finance Parties and their Affiliates or are permitted under this agreement; and
 
(b)
obligates such Person to bear costs and expenses relating to the maintenance, development and operation of such Property in an amount not greater than the Working Interest set out in annexure C for the productive life of such Property;
 
Page 5
 
Delisting
Event means:
 
 
(a)
the Parent ceasing to be listed on ASX;
 
 
(b)
the Shares ceasing to quoted on ASX; or
 
 
(c)
the Shares are suspended from trading on ASX for a period of 20 consecutive “business days” (as that term is defined in the ASX Listing Rules);
 
Deposit Account Control Agreement means the Deposit Account Control Agreement dated on or about the date of this agreement between the Borrower, the Security Trustee and Key Bank;
 
Disqualified Capital Stock means any Equity Interest that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) or upon the happening of any event, matures or is mandatorily redeemable for any consideration other than other Equity Interests (which would not constitute Disqualified Capital Stock), pursuant to a sinking fund obligation or otherwise, or is convertible into or exchangeable for Financial Indebtedness or redeemable for any consideration other than other Equity Interests (which would not constitute Disqualified Capital Stock) at the option of the holder thereof, in whole or in part, on or prior to the date that is one year after the earlier of:
 
(a)
the Maturity Date; and
 
(b)
the date on which there are no Funding Portions or other obligations outstanding under this agreement and all C ommitments (conditional or otherwise) of the Financiers are cancelled in full;
 
Distribution means any dividend, distribution or other amount declared or paid by a Transaction Party on any Equity Interests issued by it;
 
Effective Date means, in respect of a Reserve Report, the meaning given to that term in clause ‎ 9.2(a), clause ‎ 9.2(b) or clause ‎ 9.2(c) (as applicable);
 
Employee Plans means an employee pension benefit plan covered by Title IV of the U.S. Employee Retirement Income Security Act of 1974, as amended, and related rules and regulations;
 
Encumbrance means an interest or power:
 
(a)
reserved in or over an interest in any asset, including any retention of title; or
 
(b)
created or otherwise arising in or over any interest in any asset under a bill of sale, mortgage, deed of trust, assignment of production, charge, Lien, pledge, trust or power,
 
by way of, or having similar commercial effect to, security for the payment of a debt, any other monetary obligation or the performance of any other obligation, and includes any agreement to grant or create any of the above;
 
Environmental Law means any legislation, statutes, orders, regulations or other law regulating Pollutants in connection with the protection of the environment or health and safety in the relevant jurisdiction in which a Transaction Party has been or is operating (including by the export of its products or its waste to that jurisdiction);
 
Page 6
 
Environmental Liability means any actual or potential Loss incurred or which may be incurred in connection with:
 
(a)
the investigation or remediation;
 
(b)
a claim by any third party;
 
(c)
any action, order, declaration or notice by a Government Agency under an Environmental Law; or
 
(d)
any agreement between a Transaction Party and any:
 
(1)
owner or occupier of land; or
 
(2)
Government Agency;
 
of or in respect of Contamination of any Properties or Premises;
 
Equipment has the meaning assigned to that term in the UCC and includes all surface or subsurface machinery, goods, equipment, fixtures, inventory, facilities, supplies or other personal or moveable property of whatsoever kind or nature (excluding property rented by a Transaction Party or taken to the premises for temporary uses) now owned or hereafter acquired by a Transaction Party which are now or hereafter located on or under any of the lands attributable to the Properties which are used for the production, gathering, treatment, processing, storage or transportation of Hydrocarbons and whether or not attributable to the Properties (together with all accessions, additions and attachments to any thereof), including, without limitation, all Wells, casing, tubing, tubular goods, rods, pumping units and engines, “Christmas trees”, platforms, derricks, separators, compressors, gun barrels, flow lines, water injection lines, tanks, gas systems (for gathering, treating and compression), pipelines (including gathering lines, laterals and trunklines), chemicals, solutions, water systems (for treating, disposal and injection), power plants, poles, lines, transformers, starters and controllers, machine shops, tools, storage yards and equipment stored therein, telegraph, telephone and other communication systems, loading docks, loading racks, shipping facilities, platforms, well equipment, wellhead valves, meters, motors, pumps, tankage, regulators, furniture, fixtures, automotive equipment, forklifts, storage and handling equipment, together with all additions and accessions thereto, all replacements and all accessories and parts therefore, all manuals, blueprints, documentation and processes, warranties and records in connection therewith including, without limitation, any and, to the extent permitted, all seismic data, geological data, geophysical data and interpretation of any of the foregoing, all rights against suppliers, warrantors, manufacturers, sellers or others in connection therewith, and together with all substitutes for any of the foregoing;
 
Equity Interests means shares, shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests or unit in a trust or other equity ownership interests in a Person, and any warrants, options or other rights entitling the holder to purchase or acquire any such Equity Interest or which is convertible into any such share, stock or interest;
 
Event of Default means any event specified in clause  ‎ 10.1;
 
Exercise Notice means a notice in the form of, or substantially in the form of, schedule 8;
 
Exercise Date means the date an Exercise Notice is given under clause ‎ 6;
 
Page 7
 
Exercise Price means US$1 per Call Option;
 
Exercise Shares means the Shares issued pursuant to an exercise of the Call Options referred to in an Exercise Notice given by the Holder of those Call Options;
 
Exposure means at any time, in respect of a Financier the sum of:
 
(a)   it Commitments at that time in respect of both Tranches of the Facility; and
 
(b)   if that Financier is also a Secured Hedging Counterparty, its Secured Hedging Exposure at that time;
 
Fee Letter means:
 
(a)   the fee letter dated on or about the date of this agreement between the Borrower and Macquarie Bank Limited; and
 
(b)   the fee letter dated on or about the date of this agreement between the Borrower, the Agent and the Security Trustee;
 
Finance Party means:
 
(a)   the Agent;
 
(b)   the Security Trustee;
 
(c)   a Financier; or
 
(d)   a Secured Hedging Counterparty;
 
Financial Indebtedness means any debt or other monetary liability in respect of moneys borrowed or raised or any financial accommodation including under or in respect of any:
 
(a)   Bill, bond, debenture, note or similar instrument;
 
(b)   acceptance, endorsement or discounting arrangement;
 
(c)   Guarantee;
 
(d)   finance or capital Lease;
 
(e)   agreement for the deferral of a purchase price or other payment in relation to the acquisition of any asset or service;
 
(f)   obligation to deliver goods or provide services paid for more than thirty days in advance by any financier;
 
(g)   agreement for the payment of capital or premium on the redemption of any preference shares;
 
(h)   net liability in respect of any commodity swaps, interest rate swaps, foreign currency hedges, forward exchange rate agreement and futures contract;
 
(i)   receivables sold or discounted (on a non-recourse basis);
 
(j)   counter-indemnity obligation in respect of a Guarantee;
 
Page 8
 
(k)   Disqualified Capital Stock;
 
(l)   undischarged balance of any production payment created by a Person or for the creation of which a Person directly or indirectly received payment,
 
and irrespective of whether the debt or liability:
 
(l)   is present or future;
 
(m)   is actual, prospective, contingent or otherwise;
 
(n)   is at any time ascertained or unascertained;
 
(o)   is owed or incurred alone or severally or jointly or both with any other Person;
 
(p)   comprises any combination of the above; or
 
(q)   is included as a liability under the Accounting Standards
 
Financial Report means, in relation to an entity, the following financial statements and information in relation to the entity, prepared for its financial quarter, financial half year or financial year:
 
(a)   a balance sheet;
 
(b)   an income statement;
 
(c)   a cashflow statement; and
 
(d)   a change in equity statement;
 
Financial Undertaking has the meaning given to that term in clause ‎ 9.23;
 
Financier means each party listed in schedule 2 and any Person who is a Substitute Financier;
 
Funding Date means the date on which a Funding Portion is drawn down, or is to be drawn down, by the Borrower under this agreement;
 
Funding Notice means a notice given under clause  ‎ 4.1;
 
Funding Portion means each portion of the Total Commitment provided under this agreement;
 
Government Agency means any government or any governmental, semi-governmental, administrative, regulatory, fiscal or judicial body, department, commission, authority, tribunal, agency or entity;
 
Governmental Requirements means any law, statute, code, ordinance, order, determination, rule, regulation, judgment, decree, injunction, franchise, permit, certificate, license, authorisation or other directive or requirement, whether now or hereinafter in effect, including Environmental Laws, energy regulations and occupational, safety and health standards or controls, of any Government Agency, including all operating permits and licenses contemplated under clause ‎ 8.1(u);
 
Group means the Parent and its Subsidiaries;
 
Group Structure Diagram means the group structure diagram in schedule 6, as amended or updated by the delivery of a new diagram to the Agent under clause  ‎ 9.1(f);
 
GST means the goods and services tax levied under the GST Act;
 
GST Act means A New Tax System (Goods and Services Tax) Act 1999;
 
Guarantee means any guarantee, suretyship, letter of credit, letter of comfort or any other obligation:
 
Page 9
 
(a)
to provide funds (whether by the advance or payment of money, the purchase of or subscription for shares or other securities, the purchase of assets or services, or otherwise) for the payment or discharge of;
 
(b)
to indemnify any Person against the consequences of default in the payment of; or
 
(c)
to be responsible for,
 
any debt or monetary liability of another Person or the assumption of any responsibility or obligation in respect of the insolvency or the financial condition of any other Person;
 
Guarantee Assumption Agreement means an agreement in the form of, or substantially in the form of, annexure A;
 
Guarantor means:
 
(a)
each party specified in schedule 1; and
 
(b)
any Person who has executed a Guarantee Assumption Agreement;
 
Hazardous Substance Laws means the U.S. Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, Resource Conservation and Recovery Act of 1976, as amended, the Federal Water Pollution Control Act, as amended, 33 U.S.C. 1251 et seq., the Toxic Substances Control Act, 15 U.S.C. 2601 et seq., the Hazardous Liquid Pipeline Safety Act of 1979, as amended, 40 U.S.C. 2001 et seq., the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. 136 et seq., the Federal Clean Air Act, 42 U.S.C. 7401 et seq., any so-called federal, state or local “superfund” or “superLien” statute, and any other applicable federal, state or local law, rule, regulation or ordinance related to the remediation, clean-up or reporting of environmental pollution or contamination or imposing liability (including strict liability) or standards of conduct concerning any Pollutant;
 
Hedging Agreement means
 
(a)
any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index option, swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any Master Agreement (as defined in paragraph (b) below); and
 
(b)
any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc. or any International Foreign Exchange Master Agreement (any such master agreement, together with any related schedules, a Master Agreement ), including any such obligations or liabilities under any Master Agreement;
 
Page 10
 
Holder means, in respect of a Call Option, the Financier to whom that Call Option was issued in accordance with clause ‎ 6.1(a) or any Financier or any Substitute Financier to whom that Call Option is transferred in accordance with clause ‎ 17.2;
 
Hydrocarbons means all Crude Oil and Natural Gas;
 
Independent Engineering Consultant means any independent petroleum engineering firm selected by the Agent (after consultation with the Borrower) to act in such role;
 
Interest Payment Date means the last day of each Interest Period;
 
Interest Period means:
 
(a)
the period commencing on the first Funding Date and ending on the next Quarter Date;
 
(b)
each subsequent period commencing on the last day of the previous Interest Period and ending on the next Quarter Date; and
 
(c)
the last Interest Period will commence on the Quarter Date preceding the Maturity Date (or if that Quarter Date is not a Business Day, the preceding Business Day) and will end on the Maturity Date;
 
If an Interest Period ends on a day which is not a Business Day, it is regarded as ending on the preceding Business Day.
 
Interest Rate means:
 
(a)
in respect of a Funding Portion under Tranche A, 9.25% per annum;
 
(b)
in respect of a Funding Portion under Tranche B, 9.70% per annum;
 
Kestrel means Kestrel Energy, Inc.;
 
Kestrel Assets means the Kestrel Properties and any Kestrel real and personal property;
 
Kestrel Loan means all amounts of Financial Indebtedness owed by Kestrel to the Parent including all amounts outstanding under the Kestrel Loan Documents;
 
Kestrel Loan Document means:
 
(a)
the Revolving Credit Loan Agreement dated as of June 30, 2005 between the Parent and Kestrel as amended by the First Amendment to revolving credit loan agreement to be entered into by the Parent and Kestrel on or about the date of this agreement;
 
(b)
the Revolving Credit Master Note executed by Kestrel and the Parent on June 30, 2005 as amended by the Amendment to Revolving Credit Master Note to be entered into by the Parent and Kestrel on or about the date of this agreement;
 
Kestrel Properties means those properties specified in annexure C;
 
Knowledge means actual knowledge without independent investigation. For entities, knowledge means actual knowledge of any of the entity’s officers or any other individual that has been given primary responsibility for conduct of an independent investigation if one has been conducted;
 
Page 11
 
Knowledge After Due Inquiry means actual knowledge after conducting or directing the conduct of an investigation that is reasonable in light of the relevant circumstances;
 
Lease means:
 
(a)
a lease, charter, hire purchase, hiring agreement or any other agreement under which any property is or may be used or operated by a Person other than the owner; and
 
(b)
with respect to any Property, whether one or more, oil, gas and/or mineral leases or other interests pertaining to such Property, whether now owned or later acquired, and whether made subject to any Collateral Security,
 
and any extension, renewals, corrections, modifications, elections or amendments (such as those relating to unitization) of any such Lease or Leases. The term shall also mean and include any permit, license, concession, approval or similar grant by a Government Agency authorising the development, exploration, extraction and sale of Hydrocarbons in relation to such Property;
 
Lending Office means, in respect of a Financier, the office of that Financier set out opposite its name in schedule 2 or any other office notified by that Financier under this agreement;
 
Lien means any interest in property (real or personal) securing an obligation owed to, or a claim by, a Person other than the owner of the property, whether such interest is based on the common law, statute or contract, and whether such obligation or claim is fixed or contingent, and including:
 
(a)
the Lien or security interest arising from a mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes; or
 
(b)
production payments and the like payable out of oil and gas properties and the Properties;
 
The term Lien shall include easements, restrictions, servitudes, permits, conditions, covenants, exceptions or reservations.
 
Loss means any claim, action, damage, loss, liability, cost, charge, expense, outgoing or payment;
 
Majority Financiers means at any time, one or more Financiers whose aggregate Contribution Shares are more than 50% at that time;
 
Material Adverse Effect means a material adverse effect on:
 
(a)
any Transaction Party’s ability to perform any of its obligations under any Transaction Document;
 
(b)
the enforceability of a Transaction Document; or
 
(c)
the current or prospective assets, business, operations or prospects of any Transaction Party or Kestrel;
 
Material Document means:
 
(a)
an Acquisition Agreement;
 
(b)
any Leases; Operating Agreements, Hydrocarbon purchase, sales, exchange, processing, gathering, treatment, compression and transportation agreements; farmout or farm-in agreements; unitisation agreements; joint venture, exploration, limited or general partnership, dry hole, bottom hole, acreage contribution, purchase and acquisition agreements; area of mutual interest agreements; salt water disposal agreements, servicing contracts; easement and/or pooling agreements; surface leases, pipeline surface leases, permits, licenses, rights-of-way, servitudes or other interests relating to the Properties and any other executory contracts and agreements relating to the Properties;
 
Page 12
 
(c)
a Kestrel Loan Document; or
 
(d)
a Samson Security;
 
Maturity Date means the earlier of 30 May 2011 and the fifth anniversary of the first Funding Date;
 
Mortgage means deed of trust, mortgage, assignment of production, security agreement and financing statement from the Borrower to Macquarie Holdings (USA) Inc., for the benefit of the Security Trustee;
 
Natural Gas means all natural gas, and any natural gas liquids and all products recovered in the processing of natural gas (other than condensate) including, without limitation, natural gasoline, casinghead gas, iso-butane, normal butane, propane and ethane (including such methane allowable in commercial ethane) produced from or attributable to the Properties;
 
Net Revenue Interest means, with respect to any Property, the decimal or percentage share of Hydrocarbons produced and saved from or allocable to such Property, after deduction of all lessor and overriding royalties and other burdens on or paid out of such production;
 
Officer means:
 
(a)
in relation to a Transaction Party, a director or a secretary, or a Person notified to be an authorised officer, of the Transaction Party;
 
(b)
in relation to a Finance Party, any Person appointed by the Finance Party to act as its authorised officer for the purposes of this agreement;
 
Operating Agreement means
 
(a)
any operating agreements covering or relating to any one or more of the Properties as at the date of this agreement; and
 
(b)
any subsequently executed operating agreement covering or relating to any one or more of the Properties that is approved in writing by the Agent;
 
Operator means with respect to the Properties, Kestrel (in the case of the Kestrel Properties), the Borrower (in the case of the Stanley Properties) and any other operators, including contract operators, of the Properties approved by Agent in writing. The Operators for each of the Properties as of the date of execution of this agreement are identified in schedule 17;
 
Other Taxes has the meaning given to that term in clause ‎ 7.4(b);
 
Overdue Rate means 11.70% per annum;
 
Parent means Samson Oil & Gas Limited ABN 25 009 069 005 of Level 36, Exchange Plaza, 2 The Esplanade, Perth WA 6000;
 
Payment Currency means the currency in which any payment is actually made;
 
Page 13
 
Permitted Distribution means a Distribution made where the following conditions are satisfied:
 
(a)
no Default has occurred which is continuing, or will occur as a result of the Distribution being made; and
 
(b)
the Current Ratio following that Distribution being made will be at least 1.5:1;
 
Permitted Encumbrance means:
 
(a)
every Lien created by operation of law securing an obligation that is not yet due;
 
(b)
every Lien for the unpaid balance of purchase money under an instalment contract entered into in the ordinary course of business where there is no default in the payment of any of that money provided that the aggregate amounts secured by all such Liens at any time is no greater than US$150,000 (or its equivalent in any other currency or currencies);
 
(c)
the Samson Security;
 
(d)
any Security or Collateral Security;
 
 
(e)
minor irregularities in title which do not materially interfere with the occupation, use or enjoyment of any of the property to which they relate in the normal course of business as presently conducted or materially impair the value thereof for such property;
 
 
(f)
all interests in the Properties securing obligations owed to, or claimed by, any Person other than a Finance Party, whether such interest is based on the common law, statute or contract, and whether such interest includes Liens or Encumbrances arising by virtue of mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt or lease, consignment or bailment for security purposes, so long as each said interest has been expressly consented to by in writing the Security Trustee,
 
(g)
Liens of landlords, vendors, carriers, warehousemen, mechanics, laborers and materialmen arising by law, and of Operators arising by contract, in the ordinary course of business for sums not yet due or being contested in good faith by appropriate action promptly initiated and diligently conducted, if such reserve as shall be required by generally accepted accounting principles shall have been made therefor; and
 
(h)
any Encumbrances which are subordinate to the Security on term approved by the Agent,
 
which affects or relates to any of the assets of any Transaction Party and, in the case of the Parent only, includes any Encumbrance which affects or relates to any of its assets other than its Secured Property, but only to the extent that Encumbrance only secures repayment of Permitted Financial Indebtedness of the Parent;
 
Permitted Financial Accommodation means:
 
(a)
any financial accommodation or any Guarantee provided by a Transaction Party:
 
(1)
under the Transaction Documents; or
 
Page 14
 
(2)
to another Transaction Party by way of intercompany loans (but only, in the case of a Security Provider, if made to another Security Provider);
 
(b)
any financial accommodation provided by a Transaction Party to a third party or any Guarantee provided by a Transaction Party to a third party in respect of obligations of another Transaction Party (but only, in the case of financial accommodation provided by a Security Provider where it is provided in respect of obligations of another Security Provider);:
 
(1)
in the ordinary course of ordinary business; and
 
(2)
up to a maximum aggregate amount for all Transaction Parties of US$150,000; or
 
(c)
any financial accommodation or loan provided by the Parent to Kestrel provided that the Finance Parties have security over the Parent’s rights in respect of that loan in a form acceptable to the Agent;
 
(d)
with the Agent’s prior written consent;
 
Permitted Financial Indebtedness means:
 
(a)
any liability under any agreement entered into in the ordinary course of business for the acquisition of any asset or service where payment for the asset or service is deferred for a period of not more than 90 days and not exceeding, in aggregate for each Transaction Party, an amount of US$150,000;
 
(b)
any Financial Indebtedness incurred by a Transaction Party in respect of any Permitted Financial Accommodation;
 
(c)
any Financial Indebtedness incurred or permitted to be incurred under any Transaction Document;
 
(d)
any other Financial Indebtedness approved by the Agent in writing;
 
(e)
in the case of the Parent only, any Financial Indebtedness which would not result in a breach of any Financial Undertaking;
 
Person means an individual, corporation, partnership, limited liability company, joint venture, trust or unincorporated organisation, joint stock company or other similar organisation, Government Agency, a court, or any other legal entity, whether acting in an individual, fiduciary or other capacity;
 
Personal Property means all personal property of every kind, whether now owned or later acquired, including all goods (including Equipment), documents, accounts, chattel paper (whether tangible or electronic), money, deposit accounts, letters of credit and letter-of-credit rights (without regard to whether the letter of credit is evidenced by a writing), documents, securities and all other investment property, supporting obligations, any other contract rights (including all rights in transportation agreements, processing agreements, delivery agreements and seismic agreements related to the Properties) or rights to the payment of money, insurance claims and proceeds, all general intangibles (including all payment intangibles and rights to seismic and other geophysical data) and all permits, licenses, books and records including, without limitation, that related to the Properties or the business of the Borrower or Kestrel (as applicable) as it relates to the Properties in any way whatsoever;
 
Page 15
 
Pledge Interests means all of the issued and outstanding Equity Interests of the Borrower and all of the issue and outstanding Equity Interests of Kestrel held by the Parent;
 
Pollutant means a pollutant, contaminant, dangerous, toxic or hazardous substance, petroleum or petroleum product, chemical, solid, special liquid, industrial or other waste and includes:
 
(a)
all elements or compounds that are contained in the list of hazardous substances adopted by the United States Environmental Protection Agency and the list of toxic pollutants designated by the United States Congress or the Environmental Protection Agency or under any Hazardous Substance Laws; and
 
(b)
any “hazardous waste,” “hazardous substance,” “toxic substance,” “regulated substance,” “pollutant” or “contaminant” as defined under any Hazardous Substance Laws;
 
Potential Event of Default means any thing which would become an Event of Default on the giving of notice (whether or not notice is actually given), the expiry of time, the satisfaction or non-satisfaction of any condition, or any combination of the above;
 
Power means any right, power, authority, discretion or remedy conferred on a Finance Party, the Security Trustee, a Receiver or an Attorney by any Transaction Document or any applicable law;
 
Premises means any property owned or occupied by a Transaction Party or which is used by a Transaction Party to carry on any activities;
 
Price Set Date means:
 
(a)
in relation to a Tranche A Call Option, the earlier of the Call Option Issue Date for the Tranche A Options and 30 May 2006; and
 
(b)
in relation to a Tranche B Call Option, 31 March 2009;
 
Principal Outstanding means, at any time, the aggregate principal amount of all outstanding Funding Portions at that time (as reduced by, among things, any deemed prepayment under clause ‎ 6.1(g));
 
Pro Rata Share means:
 
(a)
where used in respect of a particular Tranche of the Convertible Loan Facility, the Commitment of that Financier for that Tranche of the Convertible Loan Facility expressed as a percentage of Total Commitments for that Tranche of the Convertible Loan Facility; and
 
(b)
otherwise, the Commitment of that Financier expressed as a percentage of the Total Commitments for both Tranches of the Convertible Loan Facility;
 
Project Account means the bank account with the details set out below:
Account: Bank of New York
New York, NY 10004
ABA #021000018
Favour:
Macquarie Bank Limited - OBU Sydney
Sydney
A/C No.: 8900055375
Chips UID: 236386
Reference: Samson
 
Page 16
 
or such other bank account as otherwise specified in writing to the Borrower by the Agent;
 
Property or Properties means all Stanley Properties (being the Properties of the Borrower) and all Kestrel Properties (being the Properties of Kestrel). For the purposes of this agreement, the Borrower or Kestrel will be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement, or leases under a financing L ease or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person in a transaction intended to create a financing;
 
Proved Developed Non-Producing Reserves or PDNP Reserves means Proved Reserves which are categorised as both proved behind-pipe and proved shut-in reserves in the definitions referred to in the definition of Proved Reserves below;
 
Proved Developed Producing Reserves or PDP Reserves means Proved Reserves which are categorized as both “Developed” and “Producing” in the definitions referred to in the definition of Proved Reserves below;
 
Proved Developed Producing Reserves Ratio (Stanley) means, at any Quarter Date, the ratio of A: B where:
 
A
is the present value discounted at 10% of future net revenues attributable to all PDP Reserves from the Stanley Properties calculated based on a Reserve Report prepared in accordance with clause ‎ 9.2 the Effective Date of which is that Quarter Date (expressed in US Dollars); and
 
B
is the US Dollar Equivalent of all outstanding Secured Moneys as at that time other than any Secured Moneys under or in connection with a Secured Hedging Agreement;
 
Proved Developed Producing Reserves Ratio (Group) means, at any time, the ratio of A: B where:
 
A
is the amount the present value discounted at 10% of future net revenues attributable to all PDP Reserves from the Properties calculated based on a Reserve Report prepared in accordance with clause ‎ 9.2 the Effective Date of which is that Quarter Date (expressed in US Dollars); and
 
B
is the US Dollar Equivalent of all outstanding Financial Indebtedness of the Group at that time (calculated on a consolidated basis);
 
Proved Reserves has the meaning given that term in the definitions promulgated by the Society of Petroleum Evaluation Engineers and the World Petroleum Congress as in effect at the time in question;
 
Proved Undeveloped Reserves or PUD Reserves means Proved Reserves which are categorized as “Undeveloped” in the definition of Proved Reserves above;
 
PSA means the Purchase and Sale Agreement dated as of 6 March 2006 between the Borrower and the Vendors;
 
PSA Properties means the Properties to be acquired by Borrower upon closing of the transactions contemplated by the PSA;
 
Page 17
 
Purchasers means all Persons, including those parties listed on annexure C or otherwise approved in writing by the Agent who purchase Hydrocarbons attributable or allocable to the Borrower’s or Kestrel’s Net Revenue Interest in the Properties (as applicable);
 
Quarter Date means each 31 March, 30 June, 30 September or 31 December;
 
Receiver means a receiver or receiver and manager appointed under a Security;
 
Record Date means the date on which the entitlement of each existing shareholder of the Parent is determined for the purposes of any pro-rata issue of Additional Rights;
 
Reference Bank means:
 
 
(a)
Bank of America;
 
 
(b)
Barclays Bank PLC;
 
 
(c)
Credit Suisse;
 
 
(d)
JP Morgan Chase Bank NA;
 
 
(e)
Royal Bank of Canada,
 
or any other any bank or financial institution as is agreed from time to time between the Borrower and the Agent;
 
Related Body Corporate means in relation to an entity (the Subject Entity ):
 
(a)
a Subsidiary of the Subject Entity;
 
(b)
an entity of which the Subject Entity is a Subsidiary; or
 
(c)
a Subsidiary of another entity of which the Subject Entity is also a Subsidiary;
 
Relevant Currency means the currency in which a payment is required to be made under the Transaction Documents and, if not expressly stated to be another currency, is US Dollars;
 
Relevant Document means:
 
(a)
a Transaction Document; or
 
(b)
a Material Document;
 
Relevant Number has the meaning given to it in clause ‎ 6.1(e)(1);
 
Reserve Report a report under clause ‎ 9.2(a), clause ‎ 9.2(b) or clause ‎ 9.2(c);
 
Retiring Financier means a Financier which substitutes a Substitute Financier under clause  ‎ 17.3 for any of its Commitment;
 
Same Day Funds means immediately available and freely transferable funds;
 
Samson Security means the mortgages held by the Parent over properties of Kestrel in the following counties: Campbell County, Wyoming; Converse County, Wyoming; Sublette County, Wyoming; Sweetwater County, Wyoming; Lea County, New Mexico ; and Grady County, Oklahoma and assigned by the Parent to the Security Trustee pursuant to the Deeds of Assignment;
 
Page 18
 
Samson Secured Property means the property the subject of the Samson Security;
 
Samson USA means Samson Oil and Gas USA Inc.;
 
Secured Hedging Agreement means a Hedging Agreement with a Secured Hedging Counterparty;
 
Secured Hedging Counterparty means:
 
(a)
Macquarie Bank Limited; or
 
(b)
any other Person agreed in writing to be a “Secured Hedging Counterparty” for the purposes of this agreement by the Borrower and the Agent (acting on the instructions of the Majority Financiers);
 
Secured Hedging Exposure on a day means, in respect of a Secured Hedging   Counterparty, an amount which would be payable by any Transaction Party to that Secured Hedging   Counterparty in respect of all transactions under the Secured Hedging Agreements in respect of which the Secured Hedging Exposure is being calculated, if (without any double-counting):
 
(a)
all amounts actually due and payable but which remain unpaid by the Transaction Party to the Secured Hedging   Counterparty under the Secured Hedging Agreement were payable;
 
(b)
all amounts actually due and payable but which remain unpaid by the Secured Hedging   Counterparty to the Transaction Party under the Secured Hedging Agreement were payable;
 
(c)
all Hedging Transactions with that Secured Hedging Counterparty which have not been closed out and terminated were closed out and terminated on that day, with the notional close out amount calculated pursuant to clause ‎ 1.7 in the case of a Hedging Transaction documented under a 2002 ISDA Master Agreement;
 
(d)
all deposits by way of margin (if any) held for those Hedging Transactions were applied against those Hedging Transactions; and
 
(e)
all amounts (actually or notionally) payable under all Hedging Transactions in any Secured Hedging Agreement referred to in paragraphs (a), (b) and (c) were netted between themselves;
 
Secured Hedging Transaction means any “Transaction” under and as defined in any Secured Hedging Agreement;
 
Secured Moneys means all debts and monetary liabilities of each Transaction Party to the Finance Parties under or in relation to any Transaction Document and in any capacity, irrespective of whether the debts or liabilities:
 
(a)
are present or future;
 
(b)
are actual, prospective, contingent or otherwise;
 
(c)
are at any time ascertained or unascertained;
 
(d)
are owed or incurred by or on account of any Transaction Party alone, or severally or jointly with any other Person;
 
Page 19
 
 
(e)
are owed to or incurred for the account of a Finance Party alone, or severally or jointly with any other Person;
 
(f)
are owed to any other Person as agent (whether disclosed or not) for or on behalf of a Finance Party;
 
(g)
are owed or incurred as principal, interest, fees, charges, Taxes, damages (whether for breach of contract or tort or incurred on any other ground), losses, costs or expenses, or on any other account;
 
(h)
are owed to or incurred for the account of any Finance Party directly or as a result of:
 
(1)
the assignment or transfer to any Finance Party of any debt or liability of any Transaction Party (whether by way of assignment, transfer or otherwise); or
 
(2)
any other dealing with any such debt or liability;
 
(i)
are owed to or incurred for the account of any Finance Party before the date of this agreement or before the date of any assignment of this agreement to any Finance Party by any other Person or otherwise; or
 
(j)
comprise any combination of the above,
 
and including any Secured Hedging Exposure;
 
Secured Property means the property subject to a Security and includes:
 
(a)
the Stanley Properties,
 
(b)
all Personal Property of the Borrower;
 
(c)
the Pledged Interests; and
 
(d)
the Samson Security and the property the subject of the Samson Security;
 
Security means each:
 
(a)
Security Agreement;
 
(b)
Encumbrance granted by an Additional Guarantor under clause ‎ 12.17; and
 
(c)
any Collateral Security or other Security Agreement;
 
Security Agreement means:
 
(a)
each Security Agreement dated as of the date of this agreement between the Borrower and the Security Trustee;
 
(b)
each Share Pledge dated on or about the date of this agreement between the Parent and the Security Trustee;
 
(c)
each Deed of Assignment and the Samson Security to which it relates;
 
(d)
each Mortgage;
 
Security Document means this agreement, the Security Agreements, the Subordination Agreements, financing statements, the Deposit Account Control Agreement and any other agreement or writing evidencing any assignment, Lien, Encumbrance or security interest executed as security for, or to credit enhance, the payment of any of the Secured Moneys;
 
Security Provider means a Person who has granted a Security;
 
Page 20
 
Security Trust means the trust known as the “Samson Security Trust” constituted pursuant to the Security Trust Deed;
 
Security Trust Deed means the document so entitled dated on or about the date of this agreement between the Borrower, each party listed in schedule 1 therein (as initial beneficiaries), each party listed in schedule 2 therein (as initial security providers) and the Security Trustee;
 
Settlement Price has the meaning given to it in clause ‎ 6.1(f);
 
Share Pledge means the pledge agreement executed by Parent in favor of Security Trustee pursuant to which Parent pledges all of its Equity Interests in the Borrower and Kestrel to the Security Trustee;
 
Shares means the fully paid ordinary shares in the capital of the Parent;
 
Stanley Assets means the “Assets” under and as defined in the PSA and, on or after the first Funding Date includes only such of those “Assets” as are owned by the Borrower. For the avoidance of doubt the Stanley Assets includes the Stanley Properties;
 
Stanley Properties means the “Properties” under and as defined in the PSA and specified in annexure C, on or after the first Funding Date includes only such of those “Assets” as are owned by the Borrower;
 
Subsidiary means, in relation to any Person (a parent entity ), any other Person (the relevant entity ):
 
(a)   in respect of which that parent entity holds or owns (directly or indirectly) more than 50% of the voting capital or similar ownership rights; or
 
(b)   over which that parent entity has direct or indirect control (where, for the purposes of this definition, “control” means the power to direct the management and the policies of the relevant entity whether through the ownership of voting capital, by contract or otherwise);
 
(c)   in respect of which that parent entity controls the composition of the board of the relevant entity;
 
(d)   in respect of which that parent entity is in a position to cast, or control the casting of, more than 50% of the maximum number of votes that may be cast at a meeting of the relevant entity; or
 
(e)   where the relevant entity is a Subsidiary of a Subsidiary of the parent entity;
 
Subordination Agreement means the subordination agreement dated on or about the date of this agreement between the Parent, the Borrower and the Security Trustee;
 
Substitution Certificate means a certificate in the form of, or substantially in the form of, annexure B which is executed pursuant to clause  ‎ 17.3;
 
Substitute Financier means a Person substituted by a Financier under clause  ‎ 17.2 for any of the Financier’s Commitment;
 
Tax means:
 
(a)   any tax including the GST, levy, charge, impost, duty, fee, deduction, compulsory loan or withholding; or
 
Page 21
 
(b)   any income, stamp or transaction duty, tax or charge,
 
which is assessed, levied, imposed or collected by any Government Agency and includes any interest, fine, penalty, charge, fee or other amount imposed on or in respect of any of the above;
 
Tax Act means the Income Tax Assessment Act 1936 (Cth) or the Income Tax Assessment Act 1997 (Cth) as applicable;
 
Tax Invoice includes any document or record treated by the Commissioner of Taxation as a tax invoice or as a document entitling a recipient to an input tax credit;
 
Taxing Authority means any Government Agency that has the power to impose taxes upon a Transaction Party or any of the Secured Property;
 
Title Document means any original, duplicate or counterpart certificate or document of title;
 
Total Commitments means, at any time:
 
(a)   where used in respect of a particular Tranche of the Convertible Loan Facility, the aggregate of the Commitments of the Financiers for that Tranche of the Convertible Loan Facility at that time; or
 
(b)   otherwise, the aggregate of the Commitments of the Financiers for both Tranches of the Convertible Loan Facility at that time;
 
Total Undrawn Commitments means, at any time:
 
(a)   where used in respect of a particular Tranche of the Convertible Loan Facility, the aggregate of the Undrawn Commitments of the Financiers for that Tranche of the Convertible Loan Facility at that time; or
 
(b)   otherwise, the aggregate of the Undrawn Commitments of the Financiers for both Tranches of the Convertible Loan Facility at that time;
 
Tranche means a tranche of the Convertible Loan Facility, being either Tranche A or Tranche B;
 
Tranche A Call Options means the 11,000,000 Call Options issued or to be issued in relation to Tranche A;
 
Tranche B Call Options means the 10,000,000 Call Options issued or to be issued in relation to Tranche B;
 
Transaction Document means:
 
(a)   this agreement;
 
(b)   the Security Trust Deed;
 
(c)   a Security;
 
(d)   a Guarantee Assumption Agreement;
 
(e)   a Call Option Certificate;
 
(f)   a Fee Letter;
 
(g)   a Secured Hedging Agreement;
 
(h)   a Substitution Certificate;
 
Page 22
 
(i)   any tripartite or step in documentation in connection with a Material Document required by the Agent;
 
(j)   a Subordination Agreement;
 
(k)   a Deposit Account Control Agreement;
 
or any document or agreement entered into or given under any of the above;
 
Transaction Party means:
 
(a)   the Borrower; and
 
(b)   each Guarantor;
 
UCC means the Uniform Commercial Code presently in effect in the State of Texas or other applicable jurisdiction;
 
Undrawn Commitment means, in respect of a Financier at any time:
 
(a)   where used in respect of a Tranche of the Convertible Loan Facility, the Commitment of that Financier at that time for that Tranche of the Convertible Loan Facility less the Principal Outstanding provided by that Financier at that time under that Tranche of the Convertible Loan Facility; or
 
(b)   otherwise, the Commitment of that Financier at that time for both Tranches of the Convertible Loan Facility at that time less the Principal Outstanding provided by that Financier at that time under both Tranches of the Convertible Loan Facility;
 
US Dollar Equivalent means, at any time in respect of any amount denominated:
 
(a)   other than in US Dollars, the amount of US Dollars determined by the Agent by translating that amount of currency into US Dollars using the spot rate of exchange which the Agent determines to be the rate of exchange which it could, on that day, buy US Dollars with that other currency in the ordinary course of business;
 
(b)   in US Dollars, the amount of those US Dollars;
 
USA PATRIOT Act means the Uniting and Strengthening America by Producing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001, Pub. L. 707-56, as amended, and regulations promulgated thereunder as in effect from time to time;
 
US$, US$ and US Dollars means the lawful currency of the United States of America;
 
Vendors means Stanley Energy, Inc. and Stanley Energy W, Inc.;
 
Well means any existing oil or gas well, salt water disposal well, injection well, water supply well or any other well located on or related to the Properties or any well which may hereafter be drilled and/or completed on any of the Properties, or any facility or Equipment in addition to or replacement of any well; and
 
Working Interest means the property interest which entitles the owner thereof to explore and develop certain land for oil and gas production purposes, whether under an oil and gas lease or unit, a compulsory pooling order or otherwise.
 
Page 23
 
 
1.2
Interpretation
 
In this agreement headings and bold type are for convenience only and do not affect the interpretation of this agreement and, unless the context requires otherwise:
 
 
(a)
words importing the singular include the plural and vice versa;
 
 
(b)
words importing a gender include any gender;
 
 
(c)
other parts of speech and grammatical forms of a word or phrase defined in this agreement have a corresponding meaning;
 
 
(d)
an expression suggesting or referring to a natural Person or an entity includes any company, partnership, joint venture, association, corporation or other body corporate and any Government Agency;
 
 
(e)
a reference to any thing (including any right) includes a part of that thing but nothing in this clause  ‎ 1.2(e) implies that performance of part of an obligation constitutes performance of the obligation;
 
 
(f)
a reference to a clause, party, annexure, exhibit or schedule is a reference to a clause of, and a party, annexure, exhibit and schedule to, this agreement and a reference to this agreement includes any annexure, exhibit and schedule;
 
 
(g)
a reference to a statute, regulation, proclamation, ordinance or by-law includes all statutes, regulations, proclamations, ordinances or by-laws amending, consolidating or replacing it, whether passed by the same or another Government Agency with legal power to do so, and a reference to a statute includes all regulations, proclamations, ordinances and by-laws issued under that statute;
 
 
(h)
a reference to a document includes all amendments or supplements to, or replacements or novations of, that document;
 
 
(i)
a reference to liquidation includes official management, appointment of an administrator, compromise, arrangement, merger, amalgamation, reconstruction, winding up, dissolution, deregistration, assignment for the benefit of creditors, scheme, composition or arrangement with creditors, insolvency, bankruptcy, or a similar procedure or, where applicable, changes in the constitution of any partnership or Person, or death;
 
 
(j)
a reference to a party to any document includes that party’s successors and permitted assigns;
 
 
(k)
a reference to an agreement other than this agreement includes an undertaking, deed, agreement or legally enforceable arrangement or understanding whether or not in writing;
 
 
(l)
a reference to an asset includes all property of any nature, including a business, and all rights, revenues and benefits;
 
 
(m)
a reference to a document includes any agreement in writing, or any certificate, notice, deed, instrument or other document of any kind;
 
 
(n)
no provision of this agreement may be construed adversely to a party solely on the ground that the party was responsible for the preparation of this agreement or that provision;
 
Page 24
 
 
(o)
a reference to drawing, accepting, endorsing or other dealing with a Bill refers to drawing, accepting, endorsing or dealing within the meaning of the Bills of Exchange Act 1909 (Cth);
 
 
(p)
a reference to a body, other than a party to this agreement (including an institute, association or authority), whether statutory or not:
 
 
(1)
which ceases to exist; or
 
 
(2)
whose powers or functions are transferred to another body,
 
is a reference to the body which replaces it or which substantially succeeds to its powers or functions; and
 
 
(q)
references to time are to Sydney time.
 
 
1.3
Inclusive expressions
 
Specifying anything in this agreement after the words “include” or “for example” or similar expressions does not limit what else is included unless there is express wording to the contrary.
 
 
1.4
Business Day
 
Except where clause  ‎ 7.2 applies, where the day on or by which any thing is to be done is not a Business Day, that thing must be done on or by the preceding Business Day.
 
 
1.5
Accounting Standards
 
Any accounting practice or concept relevant to this agreement is to be construed or determined in accordance with the Accounting Standards.
 
 
1.6
Security Trustee’s limitation of liability protection
 
 
(a)
Limitation of liability
 
 
(1)
The Security Trustee enters into this agreement only in its capacity as security trustee of the Security Trust and in no other capacity.
 
 
(2)
A liability arising under or in connection with this agreement (whether that liability arises under a specific provision of this agreement, for breach of contract or otherwise) can be enforced against the Security Trustee only to the extent to which it can be satisfied out of property of the Security Trust out of which the Security Trustee is actually indemnified for the liability.
 
 
(3)
The limitation of the Security Trustee’s liability under this clause  ‎ 1.6 applies despite any other provision of this agreement (other than clause  ‎ 1.6(c)) and extends to all liabilities and obligations of the Security Trustee in relation to any representation, warranty, conduct, omission, agreement or transaction related to this agreement.
 
 
(b)
No action against the Security Trustee personally
 
The parties may not:
 
 
(1)
sue the Security Trustee personally;
 
Page 25
 
 
(2)
seek the appointment of a liquidator, administrator, receiver or similar person to the Security Trustee; or
 
 
(3)
prove in any liquidation, administration or arrangement of or affecting the Security Trustee.
 
 
(c)
Exception
 
The provisions of this clause  ‎ 1.6 will not apply to any obligation or liability of the Security Trustee to the extent that it is not satisfied because there is a reduction in the extent, or an extinguishment, of the Security Trustee’s indemnification out of the assets of the Security Trust, as a result of the Security Trustee’s fraud, gross negligence or breach of trust.
 
 
1.7
Calculation of close out amount in respect of transaction under a Secured Hedging Agreement subject to ISDA Master Agreement 2002
 
For the purpose of calculating the close out amount in the definition of Secured Hedging Exposure for a Secured Hedging Counterparty under a “Transaction” transacted under a 2002 ISDA Master Agreement (where the term “Transaction” has the meaning given to it in the 2002 ISDA Master Agreement), the parties agree that:
 
 
(a)
prior to close out and termination of such transaction, the calculation will be performed on the relevant date on a net basis as if the transaction was closed out and terminated and the “Early Termination Amount” under and as defined in the ISDA Master Agreement was calculated under section 6(e)(i) of the 2002 ISDA Master Agreement based on the assumptions that:
 
 
(1)
that day is an Early Termination Date;
 
 
(2)
the relevant Secured Hedging Counterparty is the Non-defaulting Party; and
 
 
(3)
all transactions entered into with that Secured Hedging Counterparty under a Secured Hedging Agreement are the Terminated Transactions,
 
where the expressions “Early Termination Amount”, “Early Termination Date”, “Non-defaulting Party” and “Terminated Transactions” have the meaning given to those expressions in the 2002 ISDA Master Agreement; and
 
 
(b)
on and after close out and termination of such a transaction, the calculation will be made under section 6(e)(i) of the 2002 ISDA Master Agreement.
 
 
2
Conditions precedent
 
 
 
2.1
Conditions precedent to initial Funding Portion
 
A Financier is not obliged to provide its Commitment or its Pro Rata Share of the first Funding Portion until the Agent has received all of the following in form and of substance satisfactory to the Agent:
 
Page 26
 
 
(a)
officer’s certificate : an officer’s certificate in the form of part 1 of schedule 4 (in respect of the Borrower) and part 2 of schedule 4 (in respect of the Parent) (together with the attachments referred to in the certificate) and dated no more than 5 Business Days before the first Funding Date;
 
 
(b)
Transaction Documents : originals of each Transaction Document which can be executed before the first Funding Date, duly executed by all parties to them other than the Finance Parties and, where applicable:
 
 
(1)
duly stamped or, if not duly stamped, evidence satisfactory to the Agent (acting reasonably) that they will be duly stamped; and
 
 
(2)
in registrable form together with all executed documents necessary to register them,
 
including, if required by the Agent, tripartite or step-in agreements in connection with all or any Material Documents;
 
 
(c)
Material Documents : originals of each Material Document duly executed by all parties to them and, where applicable, duly stamped or, if not duly stamped, evidence satisfactory to the Agent that they will be duly stamped;
 
 
(d)
Shareholder Approval : all necessary shareholder approvals in respect of the Parent and the obligations undertaken by it under the Transaction Documents (including the issue by the Parent of the Call Options and the Shares comprised in the equity raising referred to in clause ‎ 2.1(m));
 
 
(e)
Title Documents : each Title Document required to be lodged with a Finance Party under any Transaction Document;
 
 
(f)
Financial Reports : a copy of the most recent audited or audited reviewed Financial Report of the Group;
 
 
(g)
Authorisations : evidence that:
 
 
(1)
each Transaction Party has obtained, been granted and complied with all Authorisations required in connection with:
 
 
(A)
the entry into and performance of the Transaction Documents; and
 
 
(B)
the completion of the Acquisition; and
 
 
(2)
no breach or revocation has occurred in relation to any such Authorisations;
 
 
(h)
no Encumbrances : confirmation that no Transaction Party has created or allowed to exist any Encumbrance over any of its assets other than a Permitted Encumbrance;
 
 
(i)
no litigation : confirmation that no litigation, arbitration, mediation, conciliation, dispute or criminal or administrative proceeding has been commenced, is pending or to the knowledge of any Transaction Party is threatened in respect of any Transaction Party or Kestrel;
 
 
(j)
enquiries : results of searches, enquiries and requisitions in respect of each Transaction Party and the Secured Property and the Properties;
 
 
(k)
Call Options :   evidence that not less than:
 
 
(1)
11,000,000 Tranche A Call Options; and
 
Page 27
 
 
(2)
10,000,000 Tranche B Call Options,
 
have been issued to the Financiers (with such Options to be issued to the Financiers in their Pro Rata Shares for Tranche A (in the case of the Tranche A Call Options) or Tranche B (in the case of the Tranche B Call O ptions), including receipt by the Financiers of Call Option Certificates for those Tranche A Call Options and Tranche B Call Options (with each Call Option Certificate to evidence not more than 500,000 Call Options);
 
 
(l)
fees and expenses : evidence that all fees and expenses due and payable by a Transaction Party under the Transaction Documents have been paid or will be paid on the first Funding Date out of the proceeds of the first Funding Portion;
 
 
(m)
Equity raising : the Parent has raised not less than the Australian Dollar Equivalent of US$15,000,000 by way of equity raising or placement;
 
 
(n)
Acquisition : evidence:
 
 
(1)
that no amendments or modifications have been made to, and no waivers have been given under, the Acquisition Agreements without the prior written consent of the Agent;
 
 
(2)
of satisfaction of all conditions precedent to completion under the Acquisition Agreements (and that no provision of or condition or condition precedent under an Acquisition Agreement has been waived by any party (whether or not that party is also a party to this agreement) without the written consent of the Agent);
 
 
(3)
that completion of the Acquisition will occur contemporaneously with the first drawdown under the Convertible Loan Facility and that following completion of the Acquisition that no Encumbrance will exist over any Stanley Asset other than a Permitted Encumbrance;
 
 
(o)
opinions: an opinion from:
 
 
(1)
Freehills in respect of the Parent and each Transaction Document to which the Parent is expressed to be a party or which is governed by New South Wales law;
 
 
(2)
Freehills confirming that the terms of the Call Options issued (or to be issued) and each Call Option Certificate will not breach the Corporations Act or the ASX Listing Rules and that the Call Options are not voidable;
 
 
(3)
Davis Graham & Stubbs LLP in respect of the Borrower and each of the Transaction Documents to which the Borrower is expressed to be a party or which is governed by the laws of, or of any state (including the District of Columbia) of, the United States of America;
 
 
(4)
Davis Graham & Stubbs LLP in respect of the title of the Vendors to the Stanley Assets and title of the Borrower to those assets after completion of the Acquisition;
 
 
(p)
material adverse change : evidence that no event or change has occurred that has had or is reasonably likely to have a material adverse effect on the business, assets, operations, material contracts, prospects or condition, financial or otherwise of the Group, Kestrel, the Kestrel Properties, the Stanley Assets or any Transaction Party since the most recent quarterly Financial Report;
 
Page 28
 
 
(q)
due diligence : satisfactory results of due diligence enquires as the Agent in its absolute discretion requires to be conducted by it and/or its legal counsel in relation to the Parent, the Borrower, Kestrel, the Vendor, the Stanley Assets, the Kestrel Properties or any other assets of the Parent or any of its Subsidiaries including market due diligence, legal due diligence, title due diligence, financial due diligence, environmental due diligence and insurance due diligence and an environmental report in relation to the Kestrel Properties;
 
 
(r)
process agent : evidence that each Transaction Party (other than the Parent) has appointed the Parent as its the process agent specified in clause  ‎ 19.4(e);
 
 
(s)
Independent Engineers Report : a report by the Independent Engineering Consultant containing details of the Proved Reserves of the Stanley Properties and the Kestrel Properties and such other information as the Agent may require;
 
 
(t)
Kestrel : evidence that the Parent will be in a position to acquire any Equity Interests in Kestrel not owned by it as at the date of this agreement within 4 months of the first Funding Date and that the Parent will be in a position to ensure compliance with clause ‎ 9.22 within 4 months of the first Funding Date;
 
 
(u)
know your client : documentation and other evidence requested by the Agent to satisfy the “know your client” or “know your customer” procedures of the Agent or any Financier;
 
 
(v)
USA PATRIOT Act : any information required by Section 326 in the USA PATRIOT Act or deemed necessary to verify the identity of the Borrower and the Guarantor as required by Section 326 of the USA PATRIOT Act;
 
 
(w)
further information : such other further information, certificates, Authorisations, due diligence materials and documents as the Agent may, in its absolute discretion, require including information about the operators' plans to remedy well facilities that breach the secondary containment requirements at any of the Properties.
 
 
2.2
Conditions precedent to all Funding Portions
 
A Financier is not obliged to provide its Pro Rata Share of any Funding Portion until the following conditions are fulfilled to the Agent’s satisfaction:
 
 
(a)
Funding Notice : the Borrower has delivered a Funding Notice to the Agent requesting the Funding Portion;
 
 
(b)
Funding Date : the Funding Date for the Funding Portion is a Business Day within the Availability Period;
 
 
(c)
Commitment : the Commitment of that Financier will not be exceeded by providing the Funding Portion;
 
Page 29
 
 
(d)
no D efault : no Default has occurred which is continuing and no Default will result from the Funding Portion being provided.
 
 
2.3
Certified copies
 
An Officer of the relevant Transaction Party must certify a copy of a document given to the Agent under clauses  ‎ 2.1 or ‎ 2.2 to be a true copy of the original document. The certification must be made no more than 5 Business Days before the date on which it is provided.
 
 
2.4
Cancellation of Commitment
 
The Commitments of the Financiers for each Tranche will be cancelled and the Convertible Loan Facility will terminate if the first Funding Date has not occurred on or before 12 noon (Denver USA time) on 30 May 2006 (or such later date or time as the Agent (acting on the instructions of all Financiers) may agree in writing).
 
 
2.5
Benefit of conditions precedent
 
A condition in this clause  ‎ 2 is for the benefit only of the Financiers and only the Agent (acting on the instructions of all Financiers, in the case of a condition in clause ‎ 2.1, or the Majority Financiers, in the case of a condition in clause ‎ 2.2) may waive it.
 
 
3
Commitment, purpose and availability of Convertible Loan Facility
 
 
3.1
Provision of Commitment
 
Each Financier must make its Commitment available to the Borrower on the terms of this agreement.
 
 
3.2
Several obligations and rights of Financiers
 
 
(a)
The obligations and rights of the Financiers under each Transaction Document are several.
 
 
(b)
Failure of a Financier to perform its obligations under a Transaction Document does not relieve any other Financier from any of its obligations under a Transaction Document.
 
 
(c)
No Financier is responsible for the obligations of any other Financier under a Transaction Document.
 
 
(d)
Each Financier may separately enforce its rights under any Transaction Document, unless a Transaction Document provides otherwise.
 
 
3.3
Purpose
 
The Borrower must use the net proceeds of a Funding Portion only in or towards
 
 
(a)
payment of the purchase price for the Stanley Assets under the Acquisition Agreements; and
 
Page 30
 
 
(b)
any other purpose that the Agent (acting on the instructions of all Financiers) approves in writing.
 
 
3.4
Prepayment
 
 
(a)
The Borrower may prepay any of the Principal Outstanding in relation to an outstanding Funding Portion provided to it under Tranche B by giving the Agent at least 20 Business Days’ prior notice specifying:
 
 
(1)
the prepayment date (which must be on or before 31 March 2009); and
 
 
(2)
the relevant Funding Portions which are to be prepaid in whole or in part.
 
 
(b)
The Borrower may not prepay any of the Principal Outstanding under Tranche A and may not prepay outstanding Funding Portions under Tranche B other as set out in clause ‎ 3.4(a) except:
 
 
(1)
with the prior written consent of the Agent (acting on the instructions of the Majority Financiers); or
 
 
(2)
as a consequence of the exercise of any Call Options under and in accordance with clause ‎ 6.
 
 
(c)
Prepayment of part of the Principal Outstanding under this clause ‎ 3.4 may only be made in a minimum amount of US$500,000 and in an integral multiple of US$500,000.
 
 
(d)
The Borrower must prepay the Principal Outstanding specified in the prepayment notice on the prepayment date specified in the notice together with all unpaid interest accrued to the prepayment date in respect of the prepaid amount.
 
 
(e)
The Commitment of a Financier for a Tranche is reduced by its Pro Rata Share of any amount of Principal Outstanding of that Tranche prepaid under this clause  ‎ 3.4 and accordingly a prepaid amount may not be redrawn.
 
 
(f)
A notice given under clause  ‎ 3.4(a) is irrevocable.
 
 
3.5
Redemption of Call Options
 
 
(a)
If the Borrower makes a prepayment or repayment of any Principal Outstanding under either Tranche of the Convertible Loan Facility then the Parent may cancel a number of Call Options on issue in respect of the relevant Tranche of the Convertible Loan Facility equivalent to the amount of Principal Outstanding prepaid, with 1 Call Option to be cancelled per each US$1 of Principal Outstanding prepaid.
 
 
(b)
A cancellation of Call Options under clause ‎ 3.5 will be made in respect of the Call Options held by the Financiers for that Tranche in accordance with their Pro Rata Shares for that Tranche of the Convertible Loan Facility.
 
 
(c)
If any Call Options are to be cancelled under clause ‎ 3.5(a) a Financier with a Commitment for that Tranche of the Facility must promptly return the Call Options Certificates held by it for that Tranche of the Convertible Loan Facility in respect of the number of Call Options cancelled to the Parent and, to the extent necessary, the Parent must issue to each Financier replacement Call Option Certificates for the balance of any Call Options represented in the returned Call Options Certificates which have not been cancelled as a consequence of the prepayment.
 
Page 31
 
 
3.6
Prepayment date
 
The Borrower may make a prepayment under clause  ‎ 3.4(a) on any Business Day occurring on or before 31 March 2009.
 
 
4
Funding and rate setting procedures
 
 
4.1
Delivery of Funding Notice
 
 
(a)
If the Borrower requires the provision of a Funding Portion it must deliver to the Agent a Funding Notice.
 
 
(b)
The Agent must notify each Financier of the contents of each Funding Notice, and of each Financier’s Pro Rata Share of each Funding Portion requested as soon as reasonably practicable and in any event within 1 Business Day after the Agent receives the Funding Notice.
 
 
4.2
Requirements for a Funding Notice
 
A Funding Notice to be effective must be:
 
 
(a)
in writing in the form of, and specifying the matters required in, schedule 5; and
 
 
(b)
received by the Agent before 11.00am on a Business Day at least 2 Business Days before the proposed Funding Date (or any shorter period that the Agent agrees in writing).
 
Schedule 10 lists the Persons authorised to give a Funding Notice on behalf of the Borrower and the signatures and electronic signatures, if applicable, of each such Person. Only one signature from a Person listed on schedule 10 is required for a Funding Notice unless otherwise specified in schedule 10.
 
 
4.3
Irrevocability of Funding Notice
 
The Borrower is irrevocably committed to draw Funding Portions from the Financiers in accordance with each Funding Notice given to the Agent.
 
 
4.4
Number of Funding Portions
 
Only one Funding Portion will be provided to the Borrower under each of Tranche A and Tranche B, in each case in an amount equal to the Total Commitments for the relevant Tranches. Funding Portions under Tranches A and B must be drawn on the same date and the Total Commitments for those Tranches must be drawn in whole (and may not be drawn in part).
 
Page 32
 
 
5
Convertible Loan Facility
 
 
5.1
Provision of Funding Portions
 
Subject to clause ‎ 2, if the Borrower gives a Funding Notice, each Financier must provide to the Agent its Pro Rata Share of each specified Funding Portion in Same Day Funds in US Dollars no later than 12 noon on the specified Funding Date and in accordance with the relevant Funding Notice.
 
 
5.2
Payment to the Borrower
 
On receipt of the amounts paid to it by the Financiers under clause  ‎ 5.1, the Agent must pay those amounts in Same Day Funds in US Dollars to the Borrower or as directed by the Borrower in the relevant Funding Notice.
 
 
5.3
Repayment
 
The Borrower must repay each Funding Portion provided to it and all other Secured Moneys:
 
 
(a)
in full on the Maturity Date; and
 
 
(b)
otherwise as required under this agreement.
 
 
5.4
Interest
 
 
(a)
The Borrower must pay interest on the principal amount of each Funding Portion provided to it for each Interest Period at the Interest Rate for that Funding Portion.
 
 
(b)
Interest is calculated on daily balances on the basis of a 360 day year and for the actual number of days elapsed from and including the first day of each Interest Period to, but excluding, the last day of the Interest Period or, if earlier, the date of prepayment or repayment of the Funding Portion under this agreement.
 
 
(c)
The Borrower must pay accrued interest in arrears to the Agent on each Interest Payment Date.
 
 
6
Call Options
 
 
6.1
Call Option terms
 
 
(a)
The Parent agrees to grant to the Financiers the Tranche A Call Options and the Tranche B Call Options in their Pro Rata Shares for the relevant Tranche of the Convertible Loan Facility on or before the Funding Date in relation to the initial Funding Portion by issuing to each Financier executed Call Option Certificates for the Call Options to be issued to it (with each Call Option Certificate to evidence not more than 500,000 Call Options). No premium is payable by the Financiers in respect of the Call Options.
 
Page 33
 
 
(b)
Each Call Option may be exercised at any time after 9.00am Sydney time on a Business Day during the relevant Call Option Exercise Period for the Exercise Price in accordance with this clause ‎ 6.1.
 
 
(c)
The Call Options are only transferable in accordance with clauses ‎ 17.2 and ‎ 17.3. For the avoidance of doubt, this restriction on transfer does not apply to any Shares issued upon the exercise of a Call Option.
 
 
(d)
Call Options may only be exercised in multiples of 100,000 (or whatever number of Call Options remain if there are less than 100,000) of the same Class of Call Option, by delivering to the Parent the Exercise Notice duly executed by the Holder (together with the Call Options Certificate) specifying the number of Call Options being exercised and the Settlement Price.
 
 
(e)
The Parent must within 5 Business Days of the Exercise Date:
 
 
(1)
issue to the Holder the number of Shares calculated in accordance with the following formula (rounded up to the nearest whole Share) ( Relevant Number ):
 
[Graphic]
 
where:
RN   is the number of Shares to be issued to the Holder as a consequence of the exercise of those Call Options; and
VWAP  
is:
 
  (A)   in the case of the Tranche A Call Options, the US Dollar Equivalent of 130% of the volume weighted average price of the Parent’s shares on the ASX over the 90 days preceding the earlier of the Call Option Issue Date for the Tranche A Call Options and 30 May 2006; and
     
 
(B)
in the case of the Tranche B Call Option, the US Dollar Equivalent of 120% of the volume weighted average price of the Parent’s shares on the ASX during:
 
 
(i)
subject to (ii), the period from 1 January 2009 to 31 March 2009; or,
 
 
(ii)
if a Delisting Event has occurred prior to 31 March 2009, the 90 period ending on the day before the date the Shares ceased to be quoted on ASX or, if the Delisting Event occurred as a result of a suspension of trading, the date the Shares were first suspended from trading
 
that period being the Calculation Period ,
 
NC   is the number of Call Options exercised,
 
adjusted in each case in accordance with clauses 6.2 and 6.3;
 
Page 34
 
 
(2)
issue, or cause to be issued, to Holder a security holder reference number for the Relevant Number of Shares determined in accordance with clause ‎ 6.1(e)(1); and
 
 
(3)
if applicable, issue a replacement Call Option Certificates to the Holder for the balance of any unexercised Call Options (with each Call Option Certificate to evidence not more than 500,000 Call Options).
 
 
(f)
Subject to clause ‎ 6.1(g), the Holder will pay the Parent an amount equal to the Exercise Price multiplied by the number of Call Options exercised ( Settlement Price )   on receipt of the documents referred to in clause ‎ 6.1(e).
 
 
(g)
The Settlement Price payable by the Financier upon the exercise of that Call Option is deemed to be applied towards prepayment of the Principal Outstanding of that Financier. To the extent that the Settlement Price is greater than the Principal Outstanding under the Convertible Loan Facility owing to that Financier at the time of the exercise of the Call Options:
 
 
(1)
the Settlement Price will be applied first in prepayment in full of the Principal Outstanding of that Financier (if any); and
 
 
(2)
the Financier will pay the balance of the Settlement Price following such prepayment to the Parent in accordance with clause ‎ 6.1(f).
 
 
(h)
The Shares issued pursuant to the exercise of the Call Options must be issued as fully paid shares.
 
 
6.2
Adjustments to VWAP for Tranche B Call Options
 
For the purposes of calculating the volume weighted average price of the Parent’s shares on the ASX during the Calculation Period under clause 6.1(e)(1)(b) in relation to any Tranche B Call Options:
 
 
(a)
where, on some or all of the ASX Business Days in the Calculation Period, Shares have been quoted on the ASX as cum dividend or cum any other distribution or entitlement then the volume weighted average price on the ASX Business Days on which those Shares have been quoted cum divided or cum entitlement shall be reduced by an amount ( Cum Value ) equal to:
 
 
(1)
in the case of a dividend or other cash distribution, the amount of that dividend or cash distribution; or
 
 
(2)
in the case of an entitlement which is traded on ASX on any of those Business Days, the volume weighted average price of all such entitlements sold on ASX during the relevant Calculation Period on the Business Days on which those entitlements were traded; or
 
 
(3)
in the case of an entitlement not traded on the ASX during the relevant Calculation Period or a non-cash distribution, the value of the entitlement or non-cash distribution as reasonably determined by the Agent;
 
 
(b)
where the Shares are reconstructed, consolidated, divided or reclassified into a lesser or greater number of securities during the Calculation Period the volume weighted average price shall be adjusted to ensure that the Holders are in an economic position in relation to their Tranche B Call Options that is as similar as reasonably practicable to the economic position prior to the occurrence of the event that gave rise to the need for the adjustment. Any adjustment made by the Agent will constitute an alteration of these terms of issue and these terms of issue will be construed accordingly.
 
Page 35
 
 
6.3
Changes after the Price Set Date for all Call Options
 
 
(a)
In this clause 6.3 the expressions Bonus Issue, Pro Rata Issue, Record Date, Security and Underlying Security have the same meaning as in the ASX Listing Rules.
 
 
(b)
If on or after the Price Set Date for any Class of Call Options:
 
 
(1)
there is a Pro Rata Issue (except a Bonus Issue) to holders of Underlying Securities then on and from the date of the issue the VWAP for each Call Option of that Class is reduced according to the formula set out in ASX Listing Rule 6.22.2 (as at the date of this agreement) as if that VWAP were the “exercise price” referred to in that formula;
 
 
(2)
if there is a Bonus Issue to holders of Underlying Securities, from the date of the issue the Relevant Number of Shares which will be issued upon the exercise of a Call Option of that Class is increased by the number of Securities which the holder of the Call Option would have received on the Record Date for that Bonus Issue if the Call Option had been exercised before the Record Date for the Bonus Issue;
 
 
(3)
the Parent implements a reorganisation of its capital, the Call Options of that Class must be treated as follows:
 
 
(A)
in a consolidation of capital the Relevant Number of Shares which will be issued upon the exercise of a Call Option of that Class must be consolidated in the same ratio as the Shares are consolidated;
 
 
(B)
in a sub-division of capital the Relevant Number of Shares which will be issued upon the exercise of that Call Option of that Class must be sub-divided in the same ratio as the Shares are subdivided;
 
 
(C)
in a return of capital the VWAP for each Call Option of that Class will be reduced by the same amount as the amount returned in relation to each Share; and
 
 
(D)
in a pro rata cancellation of Shares the Relevant Number of Shares to be issued upon the exercise of a Call Option of that Class is reduced in the same ratio as the Shares are cancelled.
 
 
(c)
Notwithstanding the foregoing or clause 6.2, the Borrower must not:
 
 
(1)
issue new Shares (other than by way of placement of Shares by the Borrower at any time and from time to time in accordance with Chapter 7 of the ASX Listing Rules), consolidate Shares, or alter rights or otherwise re-organise its capital in a way which could or might detract from the value of the Call Options unless the Parent obtains the prior written consent of the Agent; or
 
Page 36
 
 
(2)
take any of the actions contemplated in clause 6.3(b) unless and until the shareholder approval contemplated in clause 9.24 has been obtained.
 
 
6.4
Corporate undertakings
 
 
(a)
The Parent must comply with the ASX Listing Rules, the Corporations Act and its constitution in relation to each issue of the Call Options on or before the relevant Call Option Issue Date. Without limiting the foregoing, the Parent must ensure that it is in a position to issue Call Options on the relevant Call Option Issue Date without contravening the ASX Listing Rules.
 
 
(b)
The Parent must:
 
 
(1)
ensure that each Holder is given notice of all general meetings of the Parent and of all resolutions to be considered at those meetings at the same time the shareholders of the Parent are issued with notices;
 
 
(2)
not do anything by way of altering its constitution or otherwise which has the effect of changing or converting any Shares into shares of another class, or restricts the Parent’s ability to issue the Call Options or to issue Shares on the exercise of Call Options; and
 
 
(3)
ensure that each Holder is given:
 
 
(A)
at least 15 Business Days written notice prior to the Record Date in relation to any pro-rata issue of Additional Rights; and
 
 
(B)
at least 15 Business Days written notice prior to the Additional Rights Closing Date in relation to any other issue of Additional Rights.
 
 
6.5
Participation in Additional Rights
 
 
(a)
A Call Option does not confer any rights to dividends.
 
 
(b)
A Call Option does not confer any right on the Holder to participate in a new issue without exercising the Call Option.
 
 
(c)
Each Financier will be entitled to participate in any rights to take up Additional Rights on the same terms and conditions as applicable to the other offerees or shareholders of the Parent provided that the Financier has exercised any Call Option:
 
 
(1)
in relation to any pro-rata issue of Additional Rights, prior to the Record Date; and
 
 
(2)
in relation to any other issue of Additional Rights, prior to the Additional Rights Closing Date.
 
Page 37
 
 
6.6
Share Ranking
 
Any Shares issued to a Holder by the Parent as a result of the exercise of a Call Option will rank pari passu in all respects with all other Shares. Shares issued upon the exercise of Call Options will only carry an entitlement to receive a dividend if they were issued before the record date for that dividend.
 
 
6.7
Official Quotation
 
The Parent shall (within 3 Business Days of the Holder having exercised any Call Options or earlier if required by the ASX Listing Rules) apply for official quotation on ASX of the Exercise Shares allotted as a result of the exercise.
 
 
6.8
Variation
 
 
(a)
The Parent may vary the terms of Call Options, and change their Holders’ rights, to the extent necessary to comply with the ASX Listing Rules applying to reorganisations of capital at the time of the reorganisation.
 
 
(b)
The Parent must notify the Agent and each Financier of any variation to the terms of Call Options under clause ‎ 6.8(a) immediately after the date of the variation.
 
 
(c)
Subject to the ASX Listing Rules, the terms of Call Options applicable to a particular Holder may be varied at any time by written agreement between the Parent and the Holder.
 
 
6.9
Call Option Certificates
 
 
(a)
If any Call Option Certificate is lost, stolen, mutilated, defaced or destroyed, the Holder of the relevant Call Options may apply for a replacement certificate. The application must be accompanied by:
 
 
(1)
a written statement that the certificate has been lost or destroyed and not otherwise pledged, sold or otherwise disposed of;
 
 
(2)
if the certificate has been lost — a written statement that proper searches have been made; and
 
 
(3)
an undertaking that, if the certificate is found or received by the Holder of the relevant Call Options, it will be returned to the Parent.
 
 
(b)
The Parent must issue a replacement certificate or certificates within 10 Business Days after receipt of the documents referred to in clause ‎ 6.9(a) (with each Call Option Certificate to evidence not more than 500,000 Call Options).
 
 
6.10
Cleansing Statement
 
The Parent must comply with all laws and do all acts necessary to enable a Financier to transfer its Exercise Shares to any third party immediately after issue. Without limitation, the Parent must promptly, and in any case within 5 “business days” (as defined in the Corporations Act) issue a notice under section 708A(5)(e) of the Corporations Act which complies with section 708A(6) of the Corporations Act in respect of any Exercise Shares.
 
Page 38
 
 
7
Payments
 
 
7.1
Manner of payment
 
All payments by a Transaction Party under the Transaction Documents must be made:
 
 
(a)
in Same Day Funds;
 
 
(b)
in US Dollars;
 
 
(c)
no later than 11.00am on the due date,
 
to the Agent’s account as specified by the Agent to the Borrower or in any other manner the Agent directs from time to time.
 
 
7.2
Payments on a Business Day
 
If a payment is due on a day which is not a Business Day, the due date for that payment is the next Business Day in the same calendar month or, if none, the preceding Business Day, and interest must be adjusted accordingly.
 
 
7.3
Payments in gross
 
All payments which a Transaction Party is required to make under any Transaction Document must be without
 
 
(a)
any set-off, counterclaim or condition; or
 
 
(b)
any deduction or withholding for any reason unless the Transaction Party is required to make a deduction or withholding by applicable law.
 
 
7.4
Taxes
 
 
(a)
Taxes not deducted from payments to Finance Parties
 
 
(1)
All payments made by any Transaction Party under their agreement or any other Transaction Document will be made free and clear of and without deduction for any and all present or future Taxes, levies, imposts, deductions, charges or withholdings, and all similar liabilities, excluding, in the case of a Financiers, Taxes imposed on its income, and franchise or similar taxes imposed on it, by any jurisdiction (or political subdivision thereof) of which it is a citizen or resident, in which it is organised, or in which it is presently doing business to the extent T axes are imposed solely as a result of their doing business in that jurisdiction.
 
 
(2)
If a Transaction Party is required by law to deduct any Taxes from any sum payable to any Finance Party under any Transaction Document (excluding, in the case of a Financiers, Taxes imposed on its income, and franchise or similar taxes imposed on it, by any jurisdiction (or political subdivision thereof) of which it is a citizen or resident, in which it is organised, or in which it is presently doing business to the extent T axes are imposed solely as a result of their doing business in that jurisdiction):
 
Page 39
 
 
(A)
the sum payable will be increased by an amount so that, after making all required deductions (including deductions applicable to additional sums payable under this clause ‎ 7.4(a)(2)(A)) the Finance Party will receive an amount equal to the sum it would have received had no deductions been made;
 
 
(B)
the Transaction Party must deduct from the sum payable to the Finance Party an amount sufficient to pay the Taxes and pay the balance to the Finance Party, and
 
 
(C)
the Transaction Party must promptly pay the full amount deducted to the relevant T axing Authority or other Government Agency in accordance with applicable law.
 
 
(b)
Other Taxes
 
 
(1)
In addition, and to the fullest extent permitted by applicable law, the Borrower agrees to pay any Tax which is payable in respect of a Transaction Document, including in respect of the execution, delivery, registration, performance, release, discharge, amendment or enforcement of or otherwise with respect to a Transaction Document and including present or future stamp, documentary, mortgage registration or similar taxes or any other excise or property taxes, charges or similar levies (collectively, the Other Taxes ).
 
 
(2)
The Borrower must pay any fine, penalty or other cost in respect of a failure to pay any Tax described in clause 7.4(b)(1) except to the extent that the fine, penalty or other cost is caused by the Agent’s failure to lodge money received from the Borrower within 5 Business Days before the due date for lodgement.
 
 
(3)
The Borrower indemnifies each Finance Party against any amount payable under this clause 7.4(b).
 
 
(c)
INDEMNIFICATION
 
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, AND PROVIDED THAT THERE IS NO DEFAULT OF THE RELEVANT FINANCIER’S REPRESENTATIONS CONTAINED IN THIS AGREEMENT, THE BORROWER WILL INDEMNIFY EACH FINANCIER AND EACH OTHER FINANCE PARTY FOR THE FULL AMOUNT OF TAXES AND OTHER TAXES (INCLUDING, BUT NOT LIMITED TO, ANY TAXES OR OTHER TAXES IMPOSED BY ANY GOVERNMENT AGENCY ON AMOUNTS PAYABLE UNDER THIS CLAUSE ‎ 7.4(c) AND PAID BY THE FINANCIER OR FINANCE PARTY) PAID BY THE FINANCIER OR FINANCE PARTY (ON BEHALF OF THE BORROWER), AND ANY LIABILITY (INCLUDING PENALTIES, INTEREST AND REASONABLE EXPENSES) ARISING FROM OR WITH RESPECT TO THOSE AMOUNTS, WHETHER OR NOT THE TAXES OR OTHER TAXES WERE CORRECTLY OR LEGALLY ASSERTED. ANY PAYMENT PURSUANT TO THE INDEMNIFICATION DESCRIBED IN THIS CLAUSE ‎ 7.4(c) WILL BE MADE BY THE BORROWER WITHIN 30 DAYS AFTER THE DATE THE FINANCIER OR FINANCE PARTY MAKES WRITTEN DEMAND FOR THOSE PAYMENTS. SUCH FINANCIER’S OR FINANCE PARTY’S DEMAND WILL STATE WITH SPECIFICITY THE BASIS FOR THE TAX, IDENTIFY THE TAXING AUTHORITY ASSERTING THE TAX AND CERTIFY THAT FINANCIER OR FINANCE PARTY HAS PAID THE TAX.
 
Page 40
 
 
(d)
Certification of Tax status By Financiers  
 
Each Financier agrees that it will, not more than 10 Business Days after the date of this agreement (or, in the case of a Substitute Financier, within 10 Business Days of becoming a Financier):
 
 
(1)
deliver to the Borrower a duly completed copy of United States Internal Revenue Service Form W-8BEN or W-8ECI, certifying in either case that it is entitled to receive payments under this agreement without deduction or withholding of any United States federal income taxes, and
 
 
(2)
deliver to the Borrower a United States Internal Revenue Service Form W-8 or W-9, as the case may be, and certify that it is entitled to an exemption from United States backup withholding tax.
 
Each Financier further agrees to deliver to the Borrower renewals or additional copies of such form (or any successor form) on or before the date that such form expires or becomes obsolete, and after the occurrence of any event requiring a change in the most recent forms so delivered by it, such additional forms or amendments thereto as may be reasonably requested by the Borrower. All forms or amendments described in the preceding sentence shall certify that the relevant Financier is entitled to receive payments under this agreement without deduction or withholding of any United States federal income taxes, unless an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Financier from duly completing and delivering any such form or amendment with respect to it and such Financier advise the Borrower that they are not capable of receiving payments without any deduction or withholding of United States federal income tax.
 
 
(e)
Certain events Not Entitled to Indemnification  
 
For any period during which a Financier has failed to provide the Borrower with an appropriate form pursuant to clause ‎ 7.4(d) above (unless such failure is due to a change in treaty, law or regulation, or any change in the interpretation or administration thereof by any Government Agency, occurring subsequent to the date on which a form originally was required to be provided) that Financiers shall not be entitled to indemnification under this clause ‎ 7.4 with respect to Taxes imposed by the United States; provided that, if a Financier become subject to Taxes because of its failure to deliver a form required under clause ‎ 7.4(d) above, the Borrower shall take such steps as that Financier shall reasonably request to assist the Financier to recover such Taxes.
 
Page 41
 
 
(f)
Documentation of exemptions
 
To the extent a Financiers is entitled to an exemption from or reduction of withholding tax with respect to payments under this agreement or any other Transaction Document pursuant to the law of any relevant jurisdiction or any treaty, that Financier shall deliver to the Borrower, at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate.
 
 
(g)
INDEMNIFICATION BY FINANCIERS FOR CERTAIN TAX CLAIMS  
 
IF THE U.S. INTERNAL REVENUE SERVICE OR ANY OTHER GOVERNMENT AGENCY ASSERTS A CLAIM THAT THE BORROWER DID NOT PROPERLY WITHHOLD TAX FROM AMOUNTS PAID TO OR FOR THE ACCOUNT OF A FINANCIER (BECAUSE THE APPROPRIATE FORM WAS NOT DELIVERED OR PROPERLY COMPLETED, BECAUSE A FINANCIER FAILED TO NOTIFY THE BORROWER OF A CHANGE IN CIRCUMSTANCES WHICH RENDERED ITS EXEMPTION FROM WITHHOLDING INEFFECTIVE, OR FOR ANY OTHER REASON), THE RELEVANT FINANCIER SHALL INDEMNIFY THAT BORROWER FULLY FOR ALL AMOUNTS PAID, DIRECTLY OR INDIRECTLY, BY THE BORROWER AS TAX, WITHHOLDING THEREFORE, OR OTHERWISE, INCLUDING PENALTIES AND INTEREST, AND INCLUDING TAXES IMPOSED BY ANY JURISDICTION ON AMOUNTS PAYABLE TO THE BORROWER UNDER THIS CLAUSE, TOGETHER WITH ALL COSTS AND EXPENSES RELATED THERETO (INCLUDING ATTORNEYS’ FEES). THE OBLIGATIONS OF FINANCIERS UNDER THIS CLAUSE ‎ 7.4(g) SHALL SURVIVE THE PAYMENT OF THE OBLIGATIONS AND TERMINATION OF THIS AGREEMENT .
 
 
7.5
Amounts payable on demand
 
If any amount payable by a Transaction Party under any Transaction Document is not expressed to be payable on a specified date, that amount is payable by the Transaction Party on demand by the Agent.
 
 
7.6
Appropriation of payments
 
 
(a)
Except where clause  ‎ 7.6(b) applies, all payments made by a Transaction Party under a Transaction Document may be appropriated as between principal, interest and other amounts as the Agent determines or, failing any determination, in the following order:
 
 
(1)
first, towards reimbursement of all fees, costs, expenses, charges, damages and indemnity payments due and payable by the Transaction Parties under the Transaction Documents;
 
 
(2)
second, towards payment of interest due and payable under the Transaction Documents; and
 
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(3)
third, towards repayment or prepayment of the Principal Outstanding.
 
 
(b)
Any money recovered by a Finance Party as a result of the exercise of a Power under a Security must be appropriated in the manner provided in that Security or in the Security Trust Deed.
 
 
(c)
Any appropriation under clauses  ‎ 7.6(a) or ‎ (b) overrides any appropriation made by a Transaction Party.
 
 
7.7
Distribution by Agent
 
 
(a)
A payment received by the Agent under any Transaction Document is received by the Agent on account of the Financiers unless:
 
 
(1)
the payment is made to the Agent for its own account; or
 
 
(2)
a provision in any Transaction Document expressly provides otherwise.
 
 
(b)
The Agent must promptly distribute amounts received on account of the Financiers:
 
 
(1)
in their respective Pro Rata Shares for the Tranche of the Convertible Loan Facility (where received in respect of a particular Tranche of the Convertible Loan Facility); or
 
 
(2)
otherwise, in their respective Pro Rata Shares,
 
and, subject to clause ‎ 7.11 in the same type of funds as received by the Agent.
 
 
7.8
Non-receipt of funds by Agent
 
 
(a)
If:
 
 
(1)
the Agent elects to make a payment ( Agent Payment ) to any party ( Payee ) that is to be made out of a payment ( Payer Payment ) due to the Agent by another party ( Payer ) before the Agent has received the Payer’s Payment; and
 
 
(2)
the Payer does not in fact make the Payer’s Payment to the Agent on the due date,
 
the Payee must repay the Agent Payment to the Agent on demand.
 
 
(b)
The Payer indemnifies the Agent and the Payee against any Loss suffered or incurred by the Agent or the Payee as a result of any failure by the Payer to make the Payer Payment when due.
 
 
7.9
Redistribution of payments
 
 
(a)
If a Financier receives or recovers an amount from a Transaction Party under any Transaction Document other than in accordance with clause  ‎ 7.7:
 
 
(1)
the Financier must advise the Agent that it has received or recovered the amount within 3 Business Days after the receipt or recovery;
 
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(2)
the Financier must within 3 Business Days after demand by the Agent pay to the Agent the amount determined by the Agent to be equal to the amount ( excess amount ) by which the amount received or recovered exceeds the amount the Financier would have received if the amount had been paid to the Agent and distributed in accordance with clause  ‎ 7.7;
 
 
(3)
the Agent must treat the payment of the excess amount as if it were a payment by the Transaction Party to the Agent on account of all the Financiers and promptly distribute the excess amount to the Financiers in accordance with clause  ‎ 7.7; and
 
 
(4)
as between each Transaction Party and the Finance Parties, the excess amount is to be treated as not having been paid to the Financier, but as having been paid to all the Financiers in accordance with their respective entitlements.
 
 
(b)
If an amount to which clause  ‎ 7.9(a) applies is subsequently required to be repaid by the Financier who originally received or recovered it to a Transaction Party, each Finance Party which has received any part of it must repay that part to the Financier who originally received or recovered it, and the adjustments under clause  ‎ 7.9(a)(4) will be reversed.
 
 
7.10
Rounding
 
The Agent may round amounts to the nearest unit of Relevant Currency in making any allocation or appropriation under any Transaction Document.
 
 
7.11
Currency exchanges
 
If a Finance Party receives an amount under a Transaction Document in a currency which is not in the Relevant Currency, the Finance Party:
 
 
(a)
may convert the amount received into the Relevant Currency in accordance with its normal procedures; and
 
 
(b)
is only regarded as having received the amount that it has converted into the Relevant Currency.
 
 
7.12
Secured Hedging Agreement
 
A reference in this clause ‎ 7 to a “Transaction Document” does not include a Secured Hedging Agreement.
 
 
8
Representations and warranties
 
 
8.1
Representations and warranties
 
Each Transaction Party represents and warrants to and for the benefit of each Finance Party as follows. While Kestrel is not a Transaction Party, if and to the extent a representation or warranty explicitly refers to Kestrel or Kestrel’s Properties (or the Properties as a whole), that representation and warranty is given only by the Parent in relation to Kestrel or the Kestrel Properties(and not by the Borrower):
 
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(a)
registration : it is a corporation registered (or taken to be registered) and validly existing under the laws of the place of its incorporation;
 
 
(b)
corporate power : it has the corporate power to own its assets and to carry on its business as it is now being conducted;
 
 
(c)
authority : subject to obtaining the approvals referred to in clause ‎ 2.1(d), it has power and authority to enter into and perform its obligations under the Relevant Documents to which it is expressed to be a party;
 
 
(d)
authorisations : subject to obtaining the approvals referred to in clause ‎ 2.1(d), it has taken all necessary action to authorise the execution, delivery and performance of the Relevant Documents to which it is expressed to be a party;
 
 
(e)
binding obligations : subject to the general principles of law and equity set out in the legal opinions referred to in clause ‎ 2.1(o)(1) and ‎ (3), the Relevant Documents to which it is expressed to be a party constitute its legal, valid and binding obligations and, subject to any necessary stamping and registration, are enforceable in accordance with their terms subject to laws generally affecting creditors’ rights and to principles of equity;
 
 
(f)
transaction permitted : the execution, delivery and performance by it of the Relevant Documents to which it is expressed to be a party will not breach, or result in a contravention of:
 
 
(1)
any law, regulation or Authorisation;
 
 
(2)
its constitution or other constituent documents; or
 
 
(3)
any Encumbrance or agreement which is binding it,
 
and will not result in:
 
 
(4)
the creation or imposition of any Encumbrance on any of its assets other than as permitted under a Transaction Document; or
 
 
(5)
the acceleration of the date for payment of any obligation under any agreement which is binding on it;
 
 
(g)
financial information : its most recent Financial Reports or accounts which it has provided to the Agent under clause  ‎ 2.1(f) or clause ‎ 9.1:
 
 
(1)
give a true and fair view of the financial condition and state of affairs of the   Group as at the date they were prepared;
 
 
(2)
were prepared in accordance with the Accounting Standards; and
 
 
(3)
disclose all Financial Indebtedness and contingent liabilities of the Group;
 
 
(h)
no change in affairs : there has been no change in its or any of its Subsidiaries’ state of affairs since the end of the accounting period for its most recent Financial Reports or accounts, referred to in clause  ‎ 8.1(g) which has had or could have a Material Adverse Effect;
 
 
(i)
representations true : each of its representations and warranties contained in the Transaction Documents is correct and not misleading when made or repeated by it;
 
 
(j)
disclosure :
 
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(1)
all information provided to any Finance Party by or on its behalf in relation to it, its assets, business or affairs or the Relevant Documents, the Acquisition, the Kestrel Properties or the Stanley Assets was correct and not misleading (by omission or otherwise) as at the time it was provided;
 
 
(2)
neither that information nor its conduct or the conduct of anyone on its behalf in relation to the transactions contemplated by the Relevant Documents was, or is, misleading, by omission or otherwise;
 
 
(3)
all forecasts and projections provided to any Finance Party are based on reasonable grounds as at the date of this agreement or, if provided later, at the time provided, using historical information, and have been made in good faith;
 
 
(k)
no failure to disclose :
 
 
(1)
it has not withheld from any Finance Party any information material to the decision of a Finance Party to enter into the Transaction Documents to which the Finance Party is a party;
 
 
(2)
each document or agreement which has the effect of materially varying a Relevant Document has been disclosed to the Agent in writing;
 
 
(3)
all copies of documents (including its latest audited Financial Reports and all Authorisations) given by or on its behalf to any Finance Party are true and complete copies and the agreements included within such documents are in full force and effect (except to the extent specifically disclosed at the time the relevant documents are provided);
 
 
(l)
legal and beneficial owner :
 
 
(1)
it is the   legal and beneficial owner of its Secured Property; and
 
 
(2)
each of the Borrower and Kestrel has or, in the case of the Borrower only upon the consummation of the transaction contemplated by the PSA will have, Defensible Title to its Properties, including each Lease related to its Properties;
 
 
(m)
no Encumbrances or other interests :
 
 
(1)
there is or, in the case of the Borrower with respect to the PSA Properties only, there is, to its Knowledge After Due Inquiry, no Encumbrance over any of its Secured Property or the Properties other than a Permitted Encumbrance;
 
 
(2)
no Person holds or, in the case of the Borrower with respect to the PSA Properties only, no Person holds, to its Knowledge After Due Enquiry, an interest in its Secured Property or the Properties other than under a Permitted Encumbrance;
 
 
(3)
there are or, in the case of the Borrower with respect to the PSA Properties only, there are, to its K nowledge After Due Inquiry, no other Liens or inchoate Liens which, with notice, the passage of time or both could be validly asserted and attached to the Properties related to the provision of goods or services to it for which payment is outstanding more than 60 days;
 
Page 46
 
 
(n)
not a trustee : it does not enter into any Relevant Document as trustee of any trust or settlement;
 
 
(o)
commercial benefit : the entering into and performance by it of its obligations under the Relevant Documents to which it is expressed to be a party is for its commercial benefit and is in its commercial interests;
 
 
(p)
Group Structure:
 
 
(1)
its only Subsidiaries are listed in the Group Structure Diagram; and
 
 
(2)
the Group Structure Diagram is true and correct in all respects and does not omit any material information or details;
 
 
(q)
Call Options : in the case of the Parent only,
 
 
(1)
subject to obtaining the approvals referred to in clause ‎ 2.1(d), it has complied with the ASX Listing Rules, its constitution and the Corporations Act in relation to each issue of the Call Options (including, ASX Listing Rule 7.1); and
 
 
(2)
the   Exercise Shares, if and when issued and delivered on exercise of a Call Option will:
 
 
(A)
be duly and validly issued, fully paid;
 
 
(B)
rank pari passu with and, carry the same rights in all aspects as, the other Shares then on issue;
 
 
(C)
be freely transferable, free and clear of all Liens, encumbrances, security interests or claims of third parties and will not be subject to calls for further payment; and
 
 
(D)
be immediately available for sale or transfer in Australia free of any restriction under section 707(3) of the Corporations Act;
 
 
(r)
Environmental Liabilities: there are or, in the case of the Borrower with respect to the PSA Properties only, there are, to its K nowledge After Due Inquiry. no Environmental Liabilities affecting its Secured Property or the Properties which have had or could have a Material Adverse Effect;
 
 
(s)
no default or breach :
 
 
(1)
neither it nor Kestrel is in breach under any Material Document where such breach has had, or is reasonably likely to have, a Material Adverse Effect;
 
 
(2)
nothing has occurred which is, or, with the giving of notice, lapse of time, satisfaction of some other condition, or any combination of the above, constitutes an event which causes or enables:
 
 
(A)
the acceleration of any payment to be made under any Material Document binding on it; or
 
 
(B)
the enforcement, termination or rescission of any agreement (including a Material Document) binding on it or Kestrel in circumstances which have had or could have a Material Adverse Effect;
 
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(3)
no Default subsists;
 
 
(t)
no litigation, governmental proceedings :
 
 
(1)
no litigation, arbitration, Tax claim, dispute or administrative or other proceeding has been commenced, or to its knowledge is pending or threatened, and no judgment or award has been given, made or is pending which:
 
 
(A)
in whole or in part invalidates its or Kestrel’s power or authority to enter into or perform its obligations under any Relevant Document; or
 
 
(B)
has had, or could have, a Material Adverse Effect;
 
 
(2)
except as set forth in schedule 11, no claim, action, suit or other proceeding is pending or, to its Knowledge, has been threatened against it or Kestrel or its or Kestrel’s predecessor in interest to the Properties with respect to the Properties or the transactions contemplated by this agreement, at law, in equity or otherwise, before or involving any Government Agency, or before any arbitrator or panel of arbitrators, and it has not accepted liability for any such action or proceeding. There is no proceeding pending before any Government Agency and no investigation has been commenced before any Government Agency the effect of which, if adversely decided, could reasonably be expected to have a Material Adverse Effect;
 
 
(u)
Authorisations, operating permits and licenses :
 
 
(1)
all Authorisations required in connection with:
 
 
(A)
the execution, delivery and performance by it, and the validity and the enforceability against it of each Relevant Document to which it is expressed to be a party and the transactions contemplated by those Relevant Document; and
 
 
(B)
its business as now conducted or contemplated (including under Environmental Law),
 
have been obtained or effected and are in full force and effect, and there has been no default by it in the performance of any of the terms and conditions of any of those Authorisations;
 
 
(2)
except as set out in schedule 22, each of the Borrower and Kestrel has fulfilled or, in the case of the Borrower with respect to the PSA Properties only, has fulfilled to its Knowledge After Due Inquiry, all requirements for obtaining and has obtained and maintained all material licenses, permits, operating authorities and other authorisations necessary for the conduct of its business or for it and each Operator to operate or maintain each of its Properties, and each of the Borrower and Kestrel and each Operator is and will be fully qualified to operate and maintain such Properties and to exercise rights under all leases, contracts or other documents governing the operation or maintenance of its Properties. There are, or in the case of the Borrower with respect to the PSA Properties only, there are, to its Knowledge After Due Inquiry no, pending fees, assessments or penalties relating to the permits, licenses and operating authorities. The continuation, validity and effectiveness of each license, permit and other authorisation are not and will not be, or in the case of the Borrower with respect to the PSA Properties only, are not and will not be, to its Knowledge After Due Inquiry,, adversely affected by the transactions contemplated by this agreement or any other Transaction Document. Neither the Borrower or Kestrel is in breach of, or in default under the terms of, and has not engaged in any activity which would cause revocation or suspension of, any such licenses, permits or authorisations and no action or proceeding looking to or contemplating the revocation or suspension of any of them is pending or, to its Knowledge, threatened against the Borrower, Kestrel or any Operator. Neither the Borrower nor Kestrel is in violation in any material respect of any Governmental Requirements relating to any of its Properties or otherwise applicable to it. No suspension of production on the Properties is in effect;
 
Page 48
 
 
(v)
no immunity : it does not, nor do its assets, enjoy immunity from any suit or execution;
 
 
(w)
Taxes : it has filed all tax returns (foreign, federal, state and local) required to be filed and has either paid all T axes due (including interest and penalties) or is contesting such T axes in good faith in appropriate proceedings and have adequate reserves for such contested taxes. No assessments have been made against it by any Taxing Authority nor has any penalty or deficiency been assessed by any Taxing Authority. To its Knowledge, no federal or other income tax return of it is presently being examined by the Internal Revenue Service or any foreign, state or local Government Agency nor are the results of any prior examination by the Internal Revenue Service or any state or local Government Agency being contested by it. No Tax Lien has been filed against it and, to its Knowledge, no claim is being asserted with respect to any such Tax or other such governmental charge against it;
 
 
(x)
Security :
 
 
(1)
subject to any Permitted Encumbrance and subject to the general principles of law and equity set out in the legal opinions referred to in clause ‎ 2.1(o)(1) and ‎ (3), each Transaction Document which is an Encumbrance has the priority it is intended to have under its terms;
 
 
(2)
the right, title and assets and undertakings over which the Security or the Samson Security purports to create an Encumbrance are capable of being Encumbered by and constitute Secured Property under that Security (in the case of a Security) or are capable of being Encumbered by and constitute Samson Secured Property under that Samson Security (as applicable);
 
Page 49
 
 
(y)
securities fully paid: all Equity Interests constituting part of the Secured Property under any Security given by it or any of its Subsidiaries are fully paid;
 
 
(z)
no further Equity Interests: the equity capital of any corporation Equity Interests of which are included in the Secured Property under any Security is as stated to the Agent before the Security was given and there is no agreement, arrangement or understanding under which further shares, or Equity Interests with rights of conversion to shares, in that corporation may be issued to any Person;
 
 
(aa)
winding up etc : as at the date of this agreement no action has been taken:
 
 
(1)
for its winding up, dissolution, de-registration or reorganisation; or
 
 
(2)
for the appointment to or over it, or any of its assets, of any liquidator, provisional liquidator, official manager, administrator, receiver, receiver and manager, trustee, other controller or similar official;
 
 
(bb)
Acquisition Agreements :
 
 
(1)
to its Knowledge after Due Inquiry, each of the parties to the Acquisition Agreements has complied with its obligations under them to date;
 
 
(2)
it is not aware of any breach by any party to an Acquisition Agreement;
 
 
(cc)
solvency : it is solvent and will not become insolvent on entering into or performing its or their respective obligations under the Relevant Documents to which it is a party;
 
 
(dd)
commissions; expenses : except for the commissions for which the Borrower is solely responsible, no broker’s or finder’s fees or commissions have been paid or will be payable by it or any of its affiliates to any Person in connection with the transactions contemplated by this agreement other than those payable to advisors, stockbrokers and financiers associated with raising equity capital associated with the Acquisition. THE BORROWER WILL INDEMNIFY THE AGENT, THE FINANCE PARTIES AND ANY FINANCIER FROM AND AGAINST, AND HOLD EACH OF THOSE PARTIES HARMLESS ON DEMAND FROM, ALL LIABILITIES, COSTS, DAMAGES AND EXPENSES, INCLUDING ATTORNEYS’ FEES AND DISBURSEMENTS RELATING TO ANY THIRD PARTIES CONCERNING FINDER’S, BROKERAGE, FINANCING OR SIMILAR FEES ARISING IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED UNDER THIS AGREEMENT ;
 
 
(ee)
maintenance of properties : except for such acts or failures to act as could not be reasonably expected to have a Material Adverse Effect, the Properties (together with any other properties unitized with any of the Properties) have been maintained, operated and developed in a good and workmanlike manner and in conformity with all Governmental Requirements and in conformity with the provisions of all leases, subleases or other contracts comprising a part of the Properties and other contracts and agreements forming a part of the Properties. Except to the extent it could not reasonably be expected to have a Material Adverse Effect, to the extent applicable:
 
Page 50
 
 
(1)
none of the Properties is subject to having allowable production reduced below the full and regular allowable (including the maximum permissible tolerance) because of any overproduction (whether or not the same was permissible at the time);
 
 
(2)
none of the Wells comprising a part of the Properties (or properties unitized with any of the Properties) deviates from the vertical more than the maximum permitted by Governmental Requirements, and such Wells are, in fact, bottomed under and are producing from, and the well bores are wholly within, the Properties (or in the case of Wells located on properties unitized with any of the Properties, such unitized properties); and
 
 
(3)
each of the Borrower and Kestrel and to its Knowledge, any other Operator are not in violation of, or in default under, any material agreement affecting any Lease or any other contract or agreement to which either it and/or any other Operator is a party or is bound or its property is bound;
 
 
(ff)
USA PATRIOT Act representation : neither it nor any of its Affiliates is a country, individual or entity named on the Specifically Designated National and Blocked Persons list issued by the Office of Foreign Asset Control of the Department of the Treasury of the United States of America;
 
 
(gg)
unpaid bills : except as set out in schedule 12 and Permitted Encumbrances, neither it nor Kestrel has any past due bills for improvements to any of the Secured Property or the Properties that could give rise to mechanics’, materialmen’s or other similar Liens arising by operation of applicable law;
 
 
(hh)
taxpayer identification: in the case of the Borrower only, its federal taxpayer identification is set out in schedule 13;
 
 
(ii)
other agreements : in except as set out in schedule 14, there is no agreement in force and effect (including, without limitation, letters of intent), whether written or oral, between the Borrower, Kestrel or any of its Affiliates and any other Person regarding the acquisition or financing of any of the Properties or the purchase and sale of production from or allocable to the Properties other than pursuant to Hydrocarbon purchase and sale agreements approved by the Agent. Except for rights comprising Permitted Encumbrances and as set out in schedule 14, no Person has any call upon, option to purchase or similar rights under any agreement with respect to the Working Interest or Net Revenue Interest in the Properties or to the production from the Properties other than pursuant to a Hydrocarbon purchase and sale agreement approved by the Agent and Persons who have waived such rights in writing with respect to the Properties;
 
 
(jj)
Material Documents : with respect to the Material Documents that pertain to the Properties, or in the case of the Borrower to its Knowledge After Due Inquiry:
 
Page 51
 
 
(1)
all are in full force and effect in accordance with their terms and constitute valid and binding obligations;
 
 
(2)
no other party to any such Material Document (or any successor in interest to that party) is in breach or default with respect to any of its obligations under those Material Documents which could reasonably be expected to have a Material Adverse Effect;
 
 
(3)
except as set out in schedule 15 no party to any such Material Document has given or has threatened to give notice of any action to terminate, cancel, rescind or procure a judicial reformation of any such Material Document or any of their provisions; and
 
 
(4)
the execution and delivery of this agreement and the consummation of the transactions contemplated by this agreement will not result in a breach of, a default under, or other violation of the provisions of any such Material Document;
 
 
(kk)
farmout agreements and subject contracts, etc : with respect to the Properties and the unit agreements, pooling agreements and other Material Documents creating the interests constituting the Properties, and except as set out in any title opinions and/or reports or other title materials provided by it to the Finance Parties upon which the Finance Parties are expressly entitled to rely there are or, in the case of the Borrower with respect to the PSA Properties only, there are, to its Knowledge After Due Inquiry:
 
 
(1)
no outstanding farmout agreements, obligations to drill additional wells or agreements to engage in other development operations, except for:
 
 
(A)
obligations arising under offset well provisions;
 
 
(B)
obligations arising under provisions of any Operating Agreement which allow the parties to elect whether or not they will participate in development activities; or
 
 
(C)
as set out in schedule 16;
 
 
(2)
no limitations as to the depths covered or substances to which such interests purport to apply; and
 
 
(3)
no royalty provisions (other than those allowing a lessor the right to take in kind) requiring the payment of royalties on any basis other than as specified in those leases, contracts and other agreements;
 
 
(ll)
operating agreements : in with respect to the Operating Agreements relating to the Working Interest and Net Revenue Interest in the Properties there are, or, in the case of the Borrower with respect to the PSA Properties only, there are, to its Knowledge After Due Inquiry:
 
 
(1)
no Operating Agreements to which the Properties are subject other than those listed in schedule 17, which are hereby approved by the Agent;
 
 
(2)
no outstanding calls for payments under any AFE or any payments which are due or which it or, to its Knowledge, any predecessor of it, has committed to make which have not been or are not being paid within the terms required; and
 
Page 52
 
 
(3)
no operations under any of the Operating Agreements with respect to which it has become a non-consenting party nor are there any non-consenting penalties binding or that will become binding upon it that are not reflected in the Net Revenue Interest or Working Interest as set out in annexure C;
 
 
(mm)
suspense of proceeds : except as disclosed by it to the Agent in writing prior to the execution of this agreement, as at the date of this agreement, all proceeds from the sale of Hydrocarbons from the Working Interest or Net Revenue Interest in the Properties are, or, in the case of the Borrower with respect to the PSA Properties only, to its Knowledge After Due Inquiry, being received by the Borrower or Kestrel (as applicable) in a timely manner and are not being held in suspense for any reason;
 
 
(nn)
employee plans : it has no Employee Plans;
 
 
(oo)
marketing of production : except for contracts listed in schedule 18 and in effect on the date of this agreement, or thereafter disclosed in writing to the Agent (with respect to all of which contracts disclosed by it represents that the Borrower or Kestrel, as applicable, is receiving or, in the case of the Borrower with respect to the PSA Properties only, is receiving to its Knowledge After Due Inquiry, a price for all production sold thereunder which is computed substantially in accordance with the terms of the relevant contract and is not or, in the case of the Borrower with respect to the PSA Properties only, is not, to its Knowledge After Due Inquiry, having deliveries curtailed substantially below the subject Property’s delivery capacity), no material agreements exist which are not cancellable on 60 days notice or less without penalty or detriment for the sale of production from its Hydrocarbons (including calls on or other rights to purchase, production, whether or not the same are currently being exercised) that:
 
 
(1)
pertain to the sale of production at a fixed price; and
 
 
(2)
have a maturity or expiry date of longer than 6 months from the date of this agreement;
 
 
(pp)
deposit accounts : the Borrower does not maintain any deposit accounts (as defined in the UCC) other than those listed in schedule 19;
 
 
(qq)
labor matters : neither it nor any of its Affiliates are in violation of any applicable law dealing with labor matters, and all payments due from it or any Affiliate for employee health and welfare insurance have been paid or accrued as a liability on its books, other than any non-payments that do could not, individually or in the aggregate, give rise to a Material Adverse Effect;
 
 
(rr)
eligible contract participant : in the case of the Borrower only, it is an “eligible swap participant” as that term is defined in the United States Commodities Futures Modernization Act of 2000, 17 C.F.R. § 35.1(b)(2) (2006), as amended or supplemented from time to time, and the rules and regulations promulgated thereunder. Commodity Futures Modernization Act of 2000, Pub. L. 106-554, 114 Stat. 2763 (2000); and
 
 
(ss)
Executive Offices; Jurisdiction of Formation : in the case of the Parent only, Capitalization, ownership, Equity Interests in the Borrower and Kestrel owned by the Parent is set out in schedule 20 and are covered by the Share Pledge and delivered to Security Trustee on behalf of the Finance Parties. Except for the Equity Interests described in the preceding sentence, there are no other classes, types or designations of equity interests in the Borrower or Kestrel except as set out in schedule 20. No other Person owns any interest in the Borrower or Kestrel or is the holder of any right that could result in the transfer or issuance of any interest in the Borrower or Kestrel except as set out in schedule 20. The Borrower has no Subsidiaries.
 
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8.2
Survival and repetition of representations and warranties
 
The representations and warranties given under this agreement:
 
 
(a)
survive the execution of each Transaction Document; and
 
 
(b)
(except for the representations and warranties in clause  ‎ 8.1(k) and clause ‎ 8.1(bb)) are repeated on each Funding Date and Interest Payment Date with respect to the facts and circumstances then subsisting. The representation and warranty in clause ‎ 8.1(bb) is repeated on the first Funding Date.
 
 
8.3
Reliance by Finance Parties
 
Each Transaction Party acknowledges that each Finance Party has entered into each Transaction Document to which it is a party in reliance on the representations and warranties given under this agreement.
 
 
9
Undertakings
 
 
9.1
Provision of information and reports
 
Each Transaction Party must provide to the Agent the following:
 
 
(a)
Annual Financial Reports: no later than 90 days after the end of each financial year, copies of the annual audited Financial Report of the Group for that financial year and such other financial reports or statements as the Agent may reasonably require in relation to each of the Borrower and Kestrel for that financial year;
 
 
(b)
Half-year Financial Reports : no later than 60 days after the end of the first half of each financial year, copies of the unaudited semi-annual Financial Report of the Group for that half financial year and such other financial reports or statements as the Agent may reasonably require in relation to each of the Borrower and Kestrel for that half of the financial year;
 
 
(c)
quarterly accounts : no later than 15 days after the end of each calendar quarter, copies of the unaudited accounts of the Group, the Borrower and Kestrel for that quarter;
 
 
(d)
Compliance Certificate : a Compliance Certificate which will contain each Financial Undertaking at that time:
 
Page 54
 
 
(1)
no later than 45 days after the end of each calendar quarter; and
 
 
(2)
together with the documents provided under clauses  ‎ 9.1(a) and ‎ (b);
 
 
(e)
directors’ certificate : at the Agent’s request, a certificate signed by at least 2 directors of the Parent and the Borrower stating:
 
 
(1)
whether a Default has occurred; and
 
 
(2)
if so, full details of the relevant Default and the remedial action being taken or proposed;
 
 
(f)
Group Structure Diagram : an updated Group Structure Diagram on each occasion that the then current Group Structure Diagram becomes incorrect or misleading;
 
 
(g)
MAE events : any information that it becomes aware of which would have or would be likely to have a Material Adverse Effect;
 
 
(h)
documents issued: copies of all documents issued by it to holders of its Equity Interests or any stock exchange at the same time as their issue to those holders or that exchange; and
 
 
(i)
other information : any other information which the Agent reasonably requests in relation to it or any of its assets.
 
 
9.2
Reserve Reports
 
 
(a)
The Parent must provide to the Agent no later than 45 days after the end of each financial year an engineering reserve report prepared by the Independent Engineering Consultant, the effective date of that report being June 30 (the Effective Date ).
 
 
(b)
The Parent must provide to the Agent no later than 45 days after the end of the first half of each financial year an engineering reserve report (the Mid Year Report ) prepared by the Parent, the effective date of that report being December 31 (the Effective Date ). If any Mid Year Report prepared by the Parent and delivered to Agent is not acceptable in form or substance to Agent (in its sole and absolute discretion), Parent shall provide to the Agent a Mid Year Report prepared by the Independent Engineering Consultant no later than 45 days following written notification by Agent to the Borrower that the Mid Year Report prepared by the Parent is not acceptable to Agent.
 
 
(c)
The Parent must provide to the Agent no later than 45 days after the end of the first quarter and the third quarter of each financial year an engineering reserve report (the Quarterly Report ) prepared by the Parent, the effective date of that report being the last day of that quarter (the Effective Date ). If any Quarterly Report prepared by the Parent and delivered to Agent is not acceptable in form or substance to Agent (in its sole and absolute discretion), Parent shall provide to the Agent a Quarterly Report prepared by the Independent Engineering Consultant no later than 45 days following written notification by Agent to the Borrower that the Quarterly Report prepared by the Parent is not acceptable to Agent.
 
 
(d)
The Reserve Reports must set out, without limitation, the projected recoverable reserves attributable to the Working Interests and Net Revenue Interests of the Borrower and Kestrel in the Properties.
 
Page 55
 
 
(e)
The Reserve Reports must be prepared in accordance with the following assumptions:
 
 
(1)
for all Natural Gas:
 
 
(A)
to be sold other than Natural Gas described in clause ‎ 9.2(e)(1)(B) below, the purchase price for each calendar year will be the average of the monthly prices for that year for Natural Gas as reflected in the New York Mercantile Exchange as of the settlement of the last trading day for the contract month coincident with the E ffective D ate of the Reserve Report (as adjusted for appropriate quality, transportation and location differentials approved by Agent), less a percentage discount of 5%. The price calculated for the fifth calendar year will be used for all following years;
 
 
(B)
to be sold on a fixed price basis pursuant to any bona fide contract or with respect to which the price has been hedged pursuant to any New York Mercantile Exchange contract or bona fide price swap agreement or arrangement, the purchase price will be the fixed price (as adjusted for appropriate quality, transportation and location differentials approved by Agent) for the volumes indicated in the contract, agreement or arrangement;
 
 
(2)
for all Crude Oil:
 
 
(A)
to be sold other than Crude Oil described in clause ‎ 9.2(e)(2)(B) below, the purchase price for each calendar year will be the average of the monthly prices for that year for Crude Oil as reflected in the New York Mercantile Exchange as of the settlement of the last trading day for the contract month coincident with the effective date of the Reserve Report (as adjusted for appropriate quality, transportation and location differentials approved by Agent), less a percentage discount of 5%.  The price calculated for the fifth calendar year will be used for all following years.
 
 
(B)
for all Crude Oil to be sold on a fixed price basis pursuant to any bona fide contract or with respect to which the price has been hedged pursuant to any New York Mercantile Exchange contract or bona fide price swap agreement or arrangement, the purchase price will be the fixed price (as adjusted for appropriate quality, transportation and location differentials approved by Agent) for the volumes indicated in the contract, agreement or arrangement;
 
 
(3)
projected operating expenses will appropriately reflect recent actual operating expenses incurred;
 
 
(4)
projected capital expenditures will appropriately reflect recent actual expenditures incurred for similar projects, or will be based on updated cost estimates or AFE’s reflecting current economic conditions;
 
Page 56
 
 
(5)
each Reserve Report will report on PDP Reserves, PDNP Reserves, and PUD Reserves for the Stanley Properties and the Kestrel Properties separately in addition to the Properties (taken as a whole) and will utilise any other assumptions that Agent may request from time to time;
 
 
(f)
the Agent is not required to consider any PDP reserves or value attributable to the Properties if, in Agent’s reasonable opinion, the Agent does not have a first priority Encumbrance on such Properties; and
 
 
(g)
in the computation of present value, projected income from each Reserve Report will be discounted using an annual discount rate of 10%.
 
 
9.3
Proper accounts
 
Each Transaction Party must:
 
 
(a)
keep accounting records which give a true and fair view of its financial condition and state of affairs; and
 
 
(b)
ensure that the accounts it provides under clause  ‎ 9.1(a), (b) or (c) are prepared in accordance with the Accounting Standards.
 
 
9.4
Notices to the Agent
 
Each Transaction Party must notify the Agent promptly upon becoming aware of:
 
 
(a)
any Default occurring;
 
 
(b)
any breach of, or default under, any Material Document to which it or Kestrel is expressed to be a party (whether by it or any other party to that Material Document) and full details of the non compliance and any steps taken by the Transaction Party, Kestrel or the other party to remedy it;
 
 
(c)
any intention by it to or Kestrel exercise any right, power or remedy under any Material Document to which it is a party as a consequence of any default under it;
 
 
(d)
any litigation, arbitration, administration or other proceeding in respect of it or any of its assets or Kestrel or any of its assets being commenced or threatened in respect of an amount which exceeds US$150,000 (or its equivalent in other currencies);
 
 
(e)
any material adverse change in the financial or commercial circumstances or prospects of the Borrower, any entity within the Group or in the condition or operation of the Properties;
 
 
(f)
any Encumbrance (other than a Permitted Encumbrance) that exists over any of its assets or any of the Properties;
 
 
(g)
any proposal of any Government Agency to compulsorily acquire any of its assets or any of the Properties;
 
 
(h)
any notice, order or material correspondence with or from a Government Agency relating to its business or assets or any of the Properties which has or is likely to have a Material Adverse Effect;
 
Page 57
 
 
(i)
the acquisition by it of a Subsidiary;
 
 
(j)
the acquisition by it or any of its Subsidiaries of any interest in real property; and
 
 
(k)
the incurrence, or anything reasonably likely to give rise to the incurrence, of any Environmental Liability in respect of it or any Property.
 
 
9.5
Compliance
 
Each Transaction Party must:
 
 
(a)
comply with all its obligations under each Transaction Document to which it is a party; and
 
 
(b)
ensure that no Event of Default occurs.
 
 
9.6
Maintenance of capital
 
A Transaction Party must not:
 
 
(a)
pass a resolution under sections 254N or 260B of the Corporations Act (or equivalent or similar legislation in any other jurisdiction) or make or pass a resolution to make unpaid capital capable of being called up only in certain circumstances;
 
 
(b)
reduce or pass a resolution to reduce its capital other than with the Agent’s prior written consent (which it may withhold in its absolute discretion);
 
 
(c)
buy-back or pass a resolution to buy-back, any of its shares other than with the Agent’s prior written consent (which consent must not be unreasonably withheld, but may be withheld if, in the Agent’ opinion, the buy-back would have or may have a Material Adverse Effect); or
 
 
(d)
attempt or take any steps to do anything which it is not permitted to do under clauses  ‎ 9.6(a), ‎ (b)or ‎ (c).
 
 
9.7
Compliance with laws and Authorisations
 
Each Transaction Party must:
 
 
(a)
comply with all laws and legal requirements, including each judgement, award, decision, finding or any other determination of a Government Agency, which applies to it or any of its assets, where failure to do so will have or could have a Material Adverse Effect; and
 
 
(b)
obtain, maintain and comply with all Authorisations required by it:
 
 
(1)
for the validity and enforceability of each Relevant Document to which it is a party, or to enable it to perform its obligations under each Relevant Document to which it is a party;
 
 
(2)
in relation to it or any of its assets where failure to do so will have or could have a Material Adverse Effect.
 
Page 58
 
 
9.8
Corporate existence
 
Each Transaction Party must do everything necessary to preserve its corporate existence in good standing, including:
 
 
(a)
not transferring its jurisdiction of registration;
 
 
(b)
not making any application or passing any resolution for winding up;
 
 
(c)
not entering into or effecting any scheme of arrangement or merger or consolidation with any other Person or Persons;
 
 
(d)
not entering into or effecting any other scheme under which it or any of it ceases to exist or under which it assets or liabilities are vested in or assumed by any other Person.
 
 
9.9
Environmental law
 
 
(a)
Each Transaction Party must maintain procedures which are adequate to monitor:
 
 
(1)
its compliance with Environmental Law and Authorisations; and
 
 
(2)
circumstances which may give rise to a substantial claim or to a requirement of substantial expenditure by it or of cessation or material alteration of its activity which is material in the context of its business ( Perilous Circumstances ).
 
 
(b)
The Agent may, at the Borrower’s cost if a Default subsists, have an audit conducted of those procedures, that compliance and any Perilous Circumstances. Each Transaction Party will do everything reasonably requested by the Agent to facilitate that audit.
 
 
(c)
Where the procedures or the audit referred to in clause ‎ 9.9(b) reveal any material non-compliance with Environmental Law or Authorisations, or reveal any Perilous Circumstances, it will promptly remedy them.
 
 
(d)
Within 6 months of the first Funding Date:
 
 
(1)
the Parent must demonstrate to the satisfaction of the Agent that the environmental filings of both Kestrel and the Borrower are in order and up to date in accordance with both good operating practice and the requirement of any laws; and
 
 
(2)
the Borrower must have implemented a policy with respect to matters of Environmental Law on terms acceptable to the Agent including its policy as to:
 
 
(A)
the maintenance of environmental filings;
 
 
(B)
the monitoring of environmental compliance by its operators and plans for addressing issues of non-compliance;
 
 
(C)
strategy for implementation of the recommendations of LT Environmental and Carr (being environmental consultants employed to make environmental assessment prior to the first Funding Date); and
 
 
(D)
strategy for P roperties with a history of persistent non-compliance.
 
Page 59
 
 
9.10
Payment of Taxes and outgoings
 
 
(a)
Each Transaction Party must pay all Taxes when due, other than Contested Taxes.
 
 
(b)
Each Transaction Party must pay all Contested Taxes when the terms of any final determination or settlement require those Contested Taxes to be paid.
 
 
9.11
Material Documents
 
 
(a)
A Transaction Party must not:
 
 
(1)
amend or vary, or agree to an amendment or variation of;
 
 
(2)
terminate, rescind or discharge (except by performance);
 
 
(3)
grant any waiver, time or indulgence in respect of any obligation under;
 
 
(4)
do or omit to do anything which may adversely affect the provisions or operation of; or
 
 
(5)
do or omit to do anything which would give any other Person legal or equitable grounds to do anything in clause  ‎ 9.11(a)(1)- ‎ (4) in respect of,
 
any Material Document to which it is a party.
 
 
(b)
Each Transaction Party must do all things necessary to enforce all of its rights, powers and remedies under each Material Document to which it is a party provided that such enforcement is required in the reasonable commercial judgment of such Transaction Party.
 
 
9.12
Amendments to constitution
 
A Transaction Party must not amend its constitution, charter or any other constituent or organisational document of it without the Agent’s prior written consent which consent must not be unreasonably withheld (including where the amendment has been requested by the ASX (or any other stock exchange on which a Transaction Party’s shares are listed for quotation) unless the amendment relates to an alteration of the constitution or charter which has the effect of changing or converting any Shares into shares of another class, in which case, the Agent may withhold its consent in its absolute discretion.
 
 
9.13
Negative pledge and disposal of assets
 
 
(a)
A Transaction Party must not create or allow to exist or agree to any Encumbrance over any of its assets other than a Permitted Encumbrance.
 
 
(b)
A Transaction Party must not acquire an asset which is, or upon its acquisition will be, subject to an Encumbrance which is not a Permitted Encumbrance.
 
 
(c)
A Transaction Party must not sell, assign, transfer or otherwise dispose of or part with possession of any of its assets except an asset which is subject to a floating charge under a Security and in, and only in, the ordinary course of ordinary business.
 
Page 60
 
 
(d)
A Transaction Party must not allow any other Person to have a right or power to receive or claim any rents, profits, receivables, money or moneys worth (whether capital or income) in respect of its assets other than under a Security.
 
 
(e)
A Transaction Party must not enter into any arrangement under which money or the benefit of a bank or other account may be applied, set-off or made subject to a combination of accounts in circumstances where the arrangement is in connection with:
 
 
(1)
the raising of Financial Indebtedness; or
 
 
(2)
the acquisition of an asset,
 
except for a netting or set-off arrangement in the ordinary course of its ordinary banking arrangements for the purpose of netting debit and credit balances.
 
 
(f)
A Transaction Party must not enter into any arrangement which, if complied with, would prevent any Transaction Party from complying with its obligations under the Transaction Documents.
 
 
(g)
If, by mandatory operation of law, this clause  ‎ 9.13 may not prevent a Transaction Party creating an Encumbrance:
 
 
(1)
this clause  ‎ 9.13 does not prevent a Transaction Party creating that Encumbrance; and
 
 
(2)
before that Encumbrance is created the Transaction Party must ensure that the Security Trustee receives the benefit of a deed of priority granting first ranking priority to each Security in a form and of substance required by the Security Trustee
 
 
9.14
Financial Indebtedness
 
 
(a)
A Transaction Party must not incur any Financial Indebtedness other than Permitted Financial Indebtedness.
 
 
(b)
A Transaction Party must not issue any Disqualified Capital Stock.
 
 
9.15
No change to business
 
A Transaction Party must not engage in any business other than, or do anything which would result in substantial changes to, its existing core businesses and operations (being upstream oil and gas exploration, development and production).
 
 
9.16
Financial accommodation
 
A Transaction Party must not provide any financial accommodation, or give any Guarantee in respect of any financial accommodation, to or for the benefit of any Person, other than Permitted Financial Accommodation.
 
 
9.17
Restrictions on dealings
 
A Transaction Party must not:
 
 
(a)
enter into an agreement;
 
 
(b)
acquire or dispose of an asset;
 
Page 61
 
 
(c)
obtain or provide a service;
 
 
(d)
obtain a right or incur an obligation; or
 
 
(e)
implement any other transaction,
 
with any Person unless it does so on terms which are no less favourable to it than arm’s length commercial terms.
 
 
9.18
Restrictions on Distributions and fees
 
A Transaction Party must not:
 
 
(a)
make any Distribution other than a Permitted Distribution; or
 
 
(b)
pay any director fees, management fees, consultancy fees or other like payments to any director, Associate, or Related Body Corporate of a Transaction Party unless those fees or other payments are
 
 
(1)
reasonable and are no more or less favourable than it is reasonable to expect would be the case if the relevant Persons were dealing with each other at arm’s length; or
 
 
(2)
paid with the Agent’s prior written consent.
 
 
9.19
Undertakings regarding Secured Property
 
Each Transaction Party must:
 
 
(a)
maintenance of the Secured Property :
 
 
(1)
maintain and protect its Secured Property;
 
 
(2)
keep its Secured Property in a good state of repair and in good working order allowing for fair wear and tear;
 
 
(3)
remedy every defect in its title to any part of its Secured Property other than a Permitted Encumbrance;
 
 
(4)
take or defend all legal proceedings to protect or recover any of its Secured Property; and
 
 
(5)
keep its Secured Property valid and subsisting and free from liability to forfeiture, cancellation, avoidance or loss;
 
 
(b)
further security:
 
 
(1)
do anything which the Agent reasonably requests which:
 
 
(A)
more satisfactorily charges or secures the priority of its Security, or secures to the Security Trustee its Secured Property in a manner consistent with any provision of any Transaction Document; or
 
 
(B)
aids in the exercise of any Power of the Security Trustee,
 
Page 62
 
including the execution of any document, the delivery of Title Documents, or the execution and delivery of blank transfers;
 
 
(2)
when the Agent requests, execute a legal or statutory mortgage in favour of the Security Trustee over any real property in form and substance required by the Agent, but the Agent cannot require an obligation which is more onerous than any obligation contained in any Transaction Document; and
 
 
(3)
use its best endeavours to register any mortgage executed under clause  ‎ 9.19(b)(2);
 
 
(c)
Title documents: deposit with the Security Trustee, all the Title Documents in respect of any of its Secured Property which is subject to the fixed charge created under its Security immediately on:
 
 
(1)
its execution of its Security;
 
 
(2)
acquisition of any asset which forms part of its Secured Property and is subject to the fixed charge created by its Security; and
 
 
(3)
the floating charge which is created by its Security crystallising and fixing;
 
 
(d)
registration and protection of security : ensure that its Security is registered and filed in all registers in all jurisdictions in which it must be registered and filed to ensure the enforceability, validity and priority of the Security against all Persons and to be effective as a security;
 
 
(e)
no partnership or joint venture : not enter into any profit sharing arrangement in relation to its Secured Property or any partnership or joint venture with any other Person without the Agent’s written consent (which may not be withheld if the Agent is satisfied that:
 
 
(1)
the profit sharing arrangement, partnership or joint venture is being entered into in the ordinary course of business on arm’s length commercial terms; and
 
 
(2)
the rights of the Transaction Party in respect of that profit sharing arrangement, partnership or joint venture are secured to the Security Trustee for the benefit of the Finance Parties on terms acceptable to the Agent; and
 
 
(3)
the Security Trustee is provided with step-in rights in relation to such profit sharing arrangement, partnership or joint venture on terms acceptable to the Agent;
 
 
(f)
no caveats : cause any caveat which is lodged in respect of its Secured Property, other than a caveat lodged by the Finance Parties to be removed as soon as reasonably practicable but in any event within 10 Business Days after the date that it becomes aware of its existence.
 
 
9.20
Insurance
 
 
(a)
General requirements: Each Transaction Party must insure and keep insured its Secured Property:
 
 
(1)
for amounts and against risks for which a Person holding assets and carrying on a business similar to that of the Transaction Party would prudently take out insurance including well control insurance;
 
Page 63
 
 
(2)
against damage, destruction and any other risk to their full replacement value or on a reinstatement basis;
 
 
(3)
against workers’ compensation and public liability; and
 
 
(4)
for any other risk to the extent and for the amounts the Agent may reasonably require and notify to the Transaction Party from time to time.
 
All coverage shall be in amounts not less than that set out in schedule 21.
 
 
(b)
Payment of premiums : Each Transaction Party must punctually pay all premiums and other amounts necessary to effect and maintain in force each insurance policy.
 
 
(c)
Contents of insurance policy : Each Security Provider must ensure that every insurance policy (other than worker’s compensation and public liability):
 
 
(1)
is taken out in the name of the Security Provider, notes each Finance Party as an insured and insures each of their insurable interests;
 
 
(2)
names the Security Trustee as the loss payee;
 
 
(3)
cannot be terminated or varied by the insurer for any reason including the non-payment of the premium or any other amount in respect of the insurance policy, unless the Security Trustee is given 30 days’ prior written notice; and
 
 
(4)
provides that notice of any occurrence given by one insured party will be regarded as notice given by all insured parties and that failure by one insured party to observe and fulfil the conditions of the policy will not prejudice the rights of any other insured party; and
 
 
(5)
includes any other terms and conditions which the Agent may reasonably require.
 
 
(d)
Reputable insurer : Each Transaction Party must take out each insurance policy with a reputable and substantial insurer approved by the Agent (whose approval is not to be unreasonably withheld).
 
 
(e)
No prejudice : Each Transaction Party must not do or omit to do, or allow or permit to be done or not done, anything which may materially prejudice any insurance policy.
 
 
(f)
Deliver documents : Each Transaction Party must promptly deliver to the Agent:
 
 
(1)
adequate evidence as to the existence and currency of the insurances required under this clause  ‎ 9.20; and
 
 
(2)
any other detail which the Agent may reasonably require and notify to the Transaction Party from time to time.
 
 
(g)
No change to policy : A Transaction Party must not vary, rescind, terminate, cancel or make a material change to any insurance policy without the Agent’s written consent.
 
Page 64
 
 
(h)
Full disclosure : Before entering into each insurance policy, each Transaction Party must disclose to the insurer all facts which are material to the insurer’s risk.
 
 
(i)
Assistance in recovery of money : Each Security Provider must do all things reasonably required by the Agent to enable the Agent to recover any money due in respect of an insurance policy.
 
 
(j)
Notification by Security Provider : Each Transaction Party must notify the Agent as soon as reasonably practicable after it becomes aware of:
 
 
(1)
an event gives rise to a claim of US$100,000 or more under an insurance policy; or
 
 
(2)
the cancellation or variation for any reason of any insurance policy in relation to its Secured Property.
 
 
(k)
Dealing with insurance policy proceeds :
 
 
(1)
Unless clause  ‎ 9.20(k)(3) applies, if no Event of Default is subsisting the proceeds of any insurance policy may be used for any purpose determined by the Security Provider unless the proceeds exceed US$100,000 (or equivalent amount in other currencies) in which case the purpose to which the proceeds are to be applied must also be approved by the Agent.
 
 
(2)
Unless clause  ‎ 9.20(k)(3) applies, if an Event of Default is subsisting the proceeds in respect of any insurance policy of a Security Provider must be used to pay the Secured Moneys outstanding at that time or for any other purpose which the Agent approves.
 
 
(3)
Clauses  ‎ 9.20(k)(1) and ‎ (2) do not apply to proceeds received from any workers’ compensation or public liability policy or reinstatement policy to the extent that the proceeds are paid to a Person:
 
 
(A)
entitled to be compensated under the workers’ compensation or public liability policy; or
 
 
(B)
under a contract for the reinstatement of its Secured Property.
 
 
(l)
Application of reinstatement proceeds : If required under the terms of a reinstatement policy, each Security Provider must apply all proceeds payable under the reinstatement policy to the reinstatement of its Secured Property.
 
 
(m)
Power to take proceedings : If an Event of Default is subsisting and a Receiver has not been appointed, the Security Trustee alone has full power to make, enforce, settle, compromise, sue on and discharge all claims and recover and receive all moneys payable in respect of:
 
 
(1)
any claim under any insurance policy; and
 
 
(2)
any compensation claim in respect of any injury to an employee of the Agent, Receiver or Attorney suffered while exercising or attempting to exercise any Power.
 
Page 65
 
 
9.21
Officers
 
 
(a)
The Borrower must appoint an Officer to have delegated authority to approve all dealings, notices and transactions under the Convertible Loan Facility and the Transaction Documents.
 
 
(b)
Each Transaction Party must notify the Agent of any change to the identity of its Officers for the purposes of this agreement, giving specimen signatures of any new Officer appointed, and, where requested by the Agent, evidence satisfactory to the Agent of the authority of any Officer.
 
 
9.22
Kestrel
 
 
(a)
The Parent must ensure that, within 4 months of after the first Funding Date it acquires any Equity Interests in Kestrel not held by it and that Kestrel then merges with and into the Borrower within that 4 month period.
 
 
(b)
The Parent must ensure that, on and from the date of this agreement until the requirements of clause 9.22(a) are fully satisfied:
 
 
(1)
Kestrel complies with this clause 9 as if the undertakings in this clause 9 were binding on Kestrel and as if each reference to the “Secured Property” in relation to Kestrel were to its Properties; and
 
 
(2)
Kestrel does not sell, assign, transfer or otherwise dispose of or part with possession of any of its assets other than disposals of stock-in-trade for arm’s length cash consideration made in the ordinary course of day to day trading and the expenditure of cash; and
 
 
(3)
Kestrel does not pay or repay any of the Kestrel Debt and that the principal amount of the Kestrel Debt is not less than US$6,151,227.00.
 
 
9.23
Financial undertakings
 
The Borrower and the Parent undertake to ensure that:
 
 
(a)
( Current Ratio ) at all times the Current Ratio is greater than or equal to 1:1;
 
 
(b)
(Proved Developed Producing Reserves Ratio (Stanley) :   on each Quarter Date   the   Proved Developed Producing Reserves Ratio (Stanley) is greater than or equal to 0.90:1;
 
 
(c)
( Proved Developed Producing Reserves Ratio (Group) ): on each Quarter Date   the   Proved Developed Producing Reserves Ratio (Group) is greater than or equal to 1:1; and
 
 
(d)
( Aged Debts ): at all time that the aggregate amount of all Aged Debts of the Group (calculated on a consolidated basis) is no greater than US$1,000,000,
 
each a Financial Undertaking .
 
Page 66
 
 
9.24
Shareholder Approval
 
The Parent must ensure that, within 3 months of the first Funding Date, that the shareholders of the Parent have approved, including for the purposes of ASX Listing Rule 7.1:
 
 
(a)
the issue of any shares in the Parent to any Financier or Substitute Financier other than Macquarie Bank Limited as a result of the exercise of any C all O ptions issued to that Financier transferred to that Substitute Financier under clause ‎ 17.2(e); and
 
 
(b)
the provision of clauses 6.2 and 6.3.
 
 
9.25
Term of undertakings
 
Unless the Agent (acting on the instructions of the Majority Financiers) otherwise agrees in writing, until:
 
 
(a)
the Total Commitments are cancelled; and
 
 
(b)
the Secured Moneys are unconditionally repaid in full; and
 
 
(c)
each Security is discharged,
 
each Transaction Party must, at its own cost, comply with its undertakings in this clause  ‎ 9.
 
 
10
Events of Default
 
 
10.1
Events of Default
 
It is an Event of Default, whether or not it is within the control of a Transaction Party, if:
 
 
(a)
failure to pay : a Transaction Party fails to pay or repay any part of the Secured Moneys when due and payable by it, and the Transaction Party does not remedy the failure within 3 Business Days;
 
 
(b)
financial undertakings: a Transaction Party breaches clause  ‎ 9.23;
 
 
(c)
non-remediable failure : a Transaction Party fails to perform any other undertaking or obligation of it under any Transaction Document and that failure is not   in the opinion of the Agent remediable within 7   days of the relevant default occurring;
 
 
(d)
remediable failure : the failure described in clause  ‎ 10.1(c) is in the opinion of the Agent remediable, and the Transaction Party does not remedy the failure within 7   days of the relevant default occurring (or such longer period as the Agent may agree);
 
 
(e)
misrepresentation : any representation or warranty or statement of a Transaction Party under a Transaction Document is incorrect or misleading when made or repeated and the circumstances giving rise to that incorrect or misleading representation or warranty are not remedied within 7 days of the earlier of the Agent giving notice to any Transaction Party, or a Transaction Party becoming aware, of that misrepresentation, breach of warranty or misstatement;
 
Page 67
 
 
(f)
cross default : any Financial Indebtedness of a Transaction Party or Kestrel in excess of US$100,000 (or the equivalent amounts in other currencies):
 
 
(1)
becomes due and payable, or becomes capable of being declared due and payable, before the scheduled date for payment; or
 
 
(2)
is not paid when due (after taking into account any applicable grace period),
 
 
(g)
Encumbrance : any Encumbrance is enforced, or becomes capable of being enforced, against an asset of a Transaction Party or Kestrel;
 
 
(h)
judgment : a judgment in an amount exceeding US$100,000 (or equivalent amount in any other currency) is obtained against a Transaction Party or Kestrel and is not set aside or satisfied within 10 Business Days;
 
 
(i)
execution : a distress, attachment, execution or other process of a Government Agency is issued against, levied or entered upon an asset of a Transaction Party or Kestrel in an amount exceeding US$100,000 (or equivalent amount in any other currency) and is not set aside or satisfied within 10 Business Days;
 
 
(j)
Controller :   any of the following occur:
 
 
(1)
a Controller is appointed, or any steps are taken to appoint a Controller; or
 
 
(2)
a resolution to appoint a Controller is passed , or any steps are taken to pass a resolution to appoint a Controller,
 
to a Transaction Party or Kestrel or over an asset of a Transaction Party or Kestrel ;
 
 
(k)
winding up : any of the following occur:
 
 
(1)
an application is made;
 
 
(2)
an order is made; or
 
 
(3)
a resolution is passed   or any steps are taken to pass a resolution,
 
for the winding up of any Transaction Party or Kestrel;
 
 
(l)
administration : any of the following occur:
 
 
(1)
an administrator is appointed, or any steps are taken to appoint an administrator; or
 
 
(2)
a resolution to appoint an administrator is passed, or any steps are taken to pass a resolution to appoint an administrator,
 
to a Transaction Party or Kestrel;
 
 
(m)
deregistration : a Transaction Party or Kestrel is deregistered, or any steps are taken to deregister a Transaction Party or Kestrel under the Corporations Act or the corresponding law in the applicable place of incorporation;
 
 
(n)
suspends payment : a Transaction Party or Kestrel suspends payment of its debts generally;
 
Page 68
 
 
(o)
insolvency : a Transaction Party or Kestrel is:
 
 
(1)
unable to pay its debts when they are due; or
 
 
(2)
presumed to be insolvent under the Corporations Act;
 
 
(p)
arrangements : a Transaction Party or Kestrel enters into or resolves to enter into any arrangement, composition or compromise with, or assignment for the benefit of, any of its creditors;
 
 
(q)
reorganisation: a Transaction Party or Kestrel implements a merger, demerger or scheme of arrangement with any Person other than a merger of Kestrel with and into the Borrower;
 
 
(r)
analogous process : anything analogous to anything referred to in clauses ‎ 10.1(h) to ‎ (q) (inclusive), or which has substantially similar effect, occurs with respect to any Transaction Party or Kestrel under any overseas law or any law which commences or is amended after the date of this agreement;
 
 
(s)
ceasing business : a Transaction Party or Kestrel ceases to carry on business;
 
 
(t)
revocation of Authorisation : an Authorisation which is material to the performance by a Transaction Party or Kestrel, to the validity or enforceability of a Transaction Document or to the security of the Agent or the Security Trustee, is repealed, revoked or terminated or expires, or is modified or amended or conditions are attached to it in a manner unacceptable to the Agent (acting reasonably) and is not immediately replaced by an equivalent Authorisation;
 
 
(u)
compulsory acquisition :
 
 
(1)
all or any material part of the Secured Property or other assets of a Transaction Party or Kestrel (including any of the Properties) is compulsorily acquired by or by order of a Government Agency or under law;
 
 
(2)
a Government Agency orders the sale, vesting or divesting of all or any material part of the Secured Property or other material assets of a Transaction Party or Kestrel (including any of the Properties); or
 
 
(3)
a Government Agency takes a step for the purpose of any of the above;
 
 
(v)
Environmental event : there is a requirement of expenditure or of cessation or alteration of activity, under Environmental Law, which has or is likely to have, in the opinion of the Majority Financiers, a Material Adverse Effect;
 
 
(w)
investigation : an investigation into all or part of the affairs of a Transaction Party or Kestrel commences under any company’s or corporations’ legislation in circumstances where if adversely determined that would or would be likely to have, in the opinion of the Majority Financiers, a Material Adverse Effect;
 
 
(x)
unenforceability:
 
 
(1)
a material   provision of a Relevant Document is (or is claimed to be) illegal, void, voidable or unenforceable or does not (or is claimed not to) have the priority the Finance Parties intended it to have;
 
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(2)
any Person becomes entitled to terminate, rescind or avoid any   material   provision of any Relevant Document; or
 
 
(3)
the execution, delivery or performance of a Relevant Document by a Transaction Party breaches or results in a contravention of any law (or is claimed to be);
 
 
(4)
a law or anything done by a Government Agency wholly or partially renders illegal, prevents or restrict the performance or effectiveness of a Relevant Document or otherwise has or is likely to have, in the opinion of the Majority Financiers, a Material Adverse Effect; or
 
 
(5)
any security interest and Encumbrance or any Collateral Security shall cease to be in full force and effect, or shall cease to give the Security Trustee, for the benefit of the Majority Financiers, the Encumbrances, rights, powers and privileges purported to be created and granted under the Transaction Documents in favour of the Security Trustee, or shall be asserted by any Transaction Party not to be a valid, perfected, first priority security interest in or Encumbrance on the Secured Property covered thereby,
 
(“claimed” in this clause ‎ 10.1(x) means claimed by a Transaction Party or a Related Body Corporate of a Transaction Party or any party to a Transaction Document (other than a Finance Party) or anyone on behalf of them);
 
 
(y)
change : any change occurs in any business, assets, liability, ownership, board membership, prospects or condition (financial or otherwise) of any entity within the Group, which in any case, in the opinion of the Majority Financiers would have a Material Adverse Effect or a material adverse effect on the rights of the Finance Parties under the Transaction Documents;
 
 
(z)
Change of Control : a Change of Control occurs;
 
 
(aa)
other activity : the Group commences any substantive business activity unrelated to mineral exploration, mining and recovery;
 
 
(bb)
Delisting Event : a Delisting Event occurs;
 
 
(cc)
material adverse effect: any event or series of events (whether related or note) occurs which, in the opinion of the Majority Financiers, has or is likely to have a Material Adverse Effect or a material adverse effect on the rights of the Finance Parties under the Transaction Documents;
 
 
(dd)
Release of Liens : a Transaction Party or Kestrel fails to provide satisfactory evidence to the Agent, within 30 days of the date of this agreement, that any Lien (other than Permitted Encumbrances) against the Properties in favor of a third-party has been released or subordinated to the Finance Parties on terms satisfactory to the Agent (in its absolute discretion);
 
 
(ee)
Governmental Regulations : a Transaction Party or Kestrel or an Operator fails to comply in all material respects with any governmental regulation pertaining in any way to the Borrower, Kestrel, the Properties, the Hydrocarbons or any of the other Secured Property;
 
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(ff)
Operator : an Operator is removed or withdraws and the replacement Operator is not acceptable to Agent (acting reasonably); or
 
 
(gg)
Decrease in Working Interests or Net Revenue Interests : the Working Interest or Net Revenue Interest in the Properties is decreased from those set out in annexure C without the prior written consent of Agent.
 
 
10.2
Effect of Event of Default
 
 
(a)
If an Event of Default occurs the Agent may, and if so directed by the Majority Financiers must, at any time after its occurrence by notice to the Borrower declare that:
 
 
(1)
the Secured Moneys are immediately due and payable; or
 
 
(2)
the Commitment of each Financier is cancelled,
 
or make each of the declarations under clauses  ‎ 10.2(a)(1) and ‎ (2).
 
 
(b)
The Borrower must immediately repay the Secured Moneys on receipt of a notice under clause  ‎ 10.2(a)(1).
 
 
(c)
All of the Borrower’s account debtors (including any Operator and Purchasers) relating to its Working Interest or Net Revenue Interest in the Properties will, and upon notice by Agent to the Borrower, receive notification from the Agent and the Borrower, that all proceeds from sales of all production or transmission of Hydrocarbons from or allocable to the Borrower’s Net Revenue Interest in the Properties have been assigned to the Agent and are to be paid into the Project Account. Immediately following an Event of Default the Borrower shall use its best efforts to cause all Purchasers to execute the assignment notifications to confirm their agreement to remit all proceeds from sales of all production from or allocable to the Borrower’s Net Revenue Interest in the Properties into the Project Account.
 
 
10.3
Transaction Parties to continue to perform
 
 
(a)
If the Agent makes a declaration under clause  ‎ 10.2:
 
 
(1)
the declaration does not affect the obligations of a Transaction Party under the Transaction Documents; and
 
 
(2)
each Transaction Party must continue to perform its obligations under the Transaction Documents as if the declaration had not been made, subject to any directions given by a Finance Party under any Transaction Document.
 
 
(b)
Clause  ‎ 10.3(a) does not affect the Borrowers’ obligations under clause  ‎ 10.2.
 
 
10.4
Enforcement
 
 
(a)
The Transaction Documents may be enforced without notice to a Transaction Party or any other Person even if:
 
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(1)
a Finance Party accepts any part of the Secured Moneys after an Event of Default; or
 
 
(2)
there has been any other Event of Default.
 
 
(b)
No Finance Party is liable to any Transaction Party for any Loss a Transaction Party may suffer, incur or be liable for arising out of or in connection with a Finance Party exercising any Power, except to the extent specifically set out in a Transaction Document.
 
 
11
Increased costs and illegality
 
 
11.1
Increased costs
 
 
(a)
If a Financier determines that any Change in Law affecting it or any of its holding companies (each a Holding Company ) directly or indirectly:
 
 
(1)
increases the effective cost to the Financier of performing its obligations under the Transaction Documents or funding or maintaining its Commitment or its Pro Rata Share of the Principal Outstanding;
 
 
(2)
reduces any amount received or receivable by that Financier under the Transaction Documents; or
 
 
(3)
in any other way reduces the effective return to the Financier or any Holding Company under the Transaction Documents or the overall return on capital of the Financier or any Holding Company,
 
(each an Increased Cost ), the Borrower must pay to the Financier on demand compensation for the Increased Cost to the extent attributed by the Financier or Holding Company (using the methods it considers appropriate) to the Financier ’s obligations under the Transaction Documents or the funding or maintenance of its Commitment or its Pro Rata Share of the Principal Outstanding.
 
 
(b)
A claim under clause  ‎ 11.1(a):
 
 
(1)
must contain reasonable details of the event giving rise to the claim, the amount of the claim and the basis of computation of the claim; and
 
 
(2)
in the absence of manifest error, is sufficient evidence of the amount to which the Financier is entitled under clause  ‎ 11.1(a) unless the contrary is proved.
 
 
(c)
If the Borrower receives a demand from the Financier under clause  ‎ 11.1(a), the Borrower may, by written notice to the Financier on or before the date which is 20 Business Days after the date of that demand, cancel the Commitment of that Financier and prepay the Secured Moneys of that Financier in full.
 
 
(d)
A notice under clause  ‎ 11.1(c) is irrevocable and the Borrower must, on the date which is 50 Business Days after the date that the notice is given, pay to the Agent on account of the Financier the Secured Moneys of the Financier in full.
 
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11.2
Illegality
 
 
(a)
If any Change in Law or other event makes it illegal for a Financier to perform its obligations under the Transaction Documents or fund or maintain its Commitment, the Financier may by notice to the Borrower:
 
 
(1)
suspend its obligations under the Transaction Documents for the duration of the illegality; or
 
 
(2)
by notice to the Borrower, cancel its Commitment and require the Borrower to repay its Secured Moneys in full on the date which is 40 Business Days after the date on which the Financier gives the notice or any earlier date required by, or to comply with, the applicable law.
 
 
(b)
A notice under clause  ‎ 11.2(a)(2) is irrevocable and the Borrower must, on the repayment date determined under clause  ‎ 11.2(a)(2), pay to the Agent on account of the Financier the Secured Moneys of that Financier in full.
 
 
12
Guarantee and indemnity
 
 
12.1
Guarantee
 
The Guarantors jointly and severally and unconditionally and irrevocably guarantee to each Finance Party the payment of the Secured Moneys due to each Finance Party.
 
 
12.2
Payment
 
 
(a)
If the Secured Moneys are not paid when due, each Guarantor must immediately on demand from the Agent pay to the Agent for the account of the Finance Parties the Secured Moneys in the same manner and currency as the Secured Moneys are required to be paid.
 
 
(b)
A demand under clause  ‎ 12.2(a) may be made at any time and from time to time.
 
 
12.3
Securities for other money
 
Each Finance Party may apply any amounts received by it or recovered under any:
 
 
(a)
Collateral Security; or
 
 
(b)
other document or agreement,
 
which is a security for any of the Secured Moneys and any other money in the manner it determines in its absolute discretion.
 
 
12.4
Amount of Secured Moneys
 
 
(a)
This clause  ‎ 12 applies to any amount which forms part of the Secured Moneys from time to time.
 
 
(b)
The obligations of each Guarantor under this clause  ‎ 12 extend to any increase in the Secured Moneys as a result of:
 
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(1)
any amendment, supplement, renewal or replacement of any Transaction Document to which a Transaction Party and any Finance Party is a party; or
 
 
(2)
the occurrence of any other thing.
 
 
(c)
Clause  ‎ 12.4(b):
 
 
(1)
applies regardless of whether any Guarantor is aware of or consented to or is given notice of any amendment, supplement, renewal or replacement of any agreement to which a Transaction Party and any Finance Party is a party or the occurrence of any other thing; and
 
 
(2)
does not limit the obligations of any Guarantor under this clause  ‎ 12.
 
 
12.5
Proof by Financiers
 
In the event of the liquidation of a Transaction Party, each Guarantor authorises each Finance Party to prove for all money which any Guarantor has paid or is or may be obliged to pay under any Transaction Document, any other document or agreement or otherwise in respect of the Secured Moneys.
 
 
12.6
Avoidance of payments
 
 
(a)
If any payment, conveyance, transfer or other transaction relating to or affecting the Secured Moneys is:
 
 
(1)
void, voidable or unenforceable in whole or in part; or
 
 
(2)
claimed to be void, voidable or unenforceable and that claim is upheld, conceded or compromised in whole or in part,
 
the liability of each Guarantor under this clause  ‎ 12 and any Power is the same as if:
 
 
(3)
that payment, conveyance, transfer or transaction (or the void, voidable or unenforceable part of it); and
 
 
(4)
any release, settlement or discharge made in reliance on any thing referred to in clause  ‎ 12.6(a)(3),
 
had not been made and each Guarantor must immediately take all action and sign all documents necessary or required by the Agent to restore to each Finance Party the benefit of this clause  ‎ 12 and any Encumbrance held by the Finance Parties immediately before the payment, conveyance, transfer or transaction.
 
 
(b)
Clause  ‎ 12.6(a) applies whether or not any Finance Party knew, or ought to have known, of anything referred to in that clause.
 
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12.7
Indemnity for avoidance of Secured Moneys
 
 
(a)
If any of the Secured Moneys (or money which would have been Secured Moneys if it had not been irrecoverable) are irrecoverable by any Finance Party from:
 
 
(1)
any Transaction Party; or
 
 
(2)
a Guarantor on the footing of a guarantee,
 
the Guarantors jointly and severally, unconditionally and irrevocably, and as a separate and principal obligation:
 
 
(3)
indemnify each Finance Party against any Loss suffered, paid or incurred by that Finance Party in relation to the non   payment of that money; and
 
 
(4)
must pay the Agent for the account of the Finance Party an amount equal to that money.
 
 
(b)
Clause  ‎ 12.7(a) applies to the Secured Moneys (or money which would have been Secured Moneys if it had not been irrecoverable) which are or may be irrecoverable irrespective of whether:
 
 
(1)
they are or may be irrecoverable because of any event described in clause  ‎ 12.12;
 
 
(2)
they are or may be irrecoverable because of any other fact or circumstance;
 
 
(3)
the transactions or any of them relating to that money are void or illegal or avoided or otherwise unenforceable; and
 
 
(4)
any matters relating to the Secured Moneys are or should have been within the knowledge of any Finance Party.
 
 
12.8
No obligation to marshal
 
A Finance Party is not required to marshal or to enforce or apply under or appropriate, recover or exercise:
 
 
(a)
any Encumbrance, Guarantee or Collateral Security or other document or agreement held, at any time, by or on behalf of that or any other Finance Party; or
 
 
(b)
any money or asset which that Finance Party, at any time, holds or is entitled to receive.
 
 
12.9
Non-exercise of Guarantors’ rights
 
A Guarantor must not exercise any rights it may have inconsistent with this clause  ‎ 12.
 
 
12.10
Principal and independent obligation
 
 
(a)
This clause  ‎ 12 is:
 
 
(1)
a principal obligation and is not to be treated as ancillary or collateral to any other right or obligation; and
 
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(2)
independent of and not in substitution for or affected by any other Collateral Security which any Finance Party may hold in respect of the Secured Moneys or any obligations of any Transaction Party or any other Person.
 
 
(b)
This clause  ‎ 12 is enforceable against a Guarantor:
 
 
(1)
without first having recourse to any Collateral Security;
 
 
(2)
whether or not any Finance Party has:
 
 
(A)
made demand on any Transaction Party (other than any demand specifically required to be given, or notice required to be issued, to a Guarantor under clause  ‎ 12.2 or any other provision of a Transaction Document);
 
 
(B)
given notice to any Transaction Party or any other Person in respect of any thing; or
 
 
(C)
taken any other steps against any Transaction Party or any other Person;
 
 
(3)
whether or not any Secured Moneys is then due and payable; and
 
 
(4)
despite the occurrence of any event described in clause  ‎ 12.12.
 
 
12.11
Suspense account
 
 
(a)
Each Finance Party may apply to the credit of a suspense account any:
 
 
(1)
amounts received under this clause  ‎ 12;
 
 
(2)
dividends, distributions or other amounts received in respect of the Secured Moneys in any liquidation; and
 
 
(3)
other amounts received from a Guarantor, a Transaction Party or any other Person in respect of the Secured Moneys.
 
 
(b)
Each Finance Party may retain the amounts in the suspense account for as long as it determines and is not obliged to apply them in or towards satisfaction of the Secured Moneys.
 
 
12.12
Unconditional nature of obligations
 
 
(a)
This clause  ‎ 12 and the obligations of each Guarantor under the Transaction Documents are absolute, binding and unconditional in all circumstances, and are not released or discharged or otherwise affected by anything which but for this provision might have that effect, including:
 
 
(1)
the grant to any Transaction Party or any other Person at any time, of a waiver, covenant not to sue or other indulgence;
 
 
(2)
the release (including a release as part of any novation) or discharge of any Transaction Party or any other Person;
 
 
(3)
the cessation of the obligations, in whole or in part, of any Transaction Party or any other Person under any Transaction Document or any other document or agreement;
 
 
(4)
the liquidation of any Transaction Party or any other Person;
 
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(5)
any arrangement, composition or compromise entered into by any Finance Party, any Transaction Party or any other Person;
 
 
(6)
any Transaction Document or any other document or agreement being in whole or in part illegal, void, voidable, avoided, unenforceable or otherwise of limited force or effect;
 
 
(7)
any extinguishment, failure, loss, release, discharge, abandonment, impairment, compounding, composition or compromise, in whole or in part of any Transaction Document or any other document or agreement;
 
 
(8)
any Collateral Security being given to any Finance Party by any Transaction Party or any other Person;
 
 
(9)
any alteration, amendment, variation, supplement, renewal or replacement of any Transaction Document or any other document or agreement;
 
 
(10)
any moratorium or other suspension of any Power;
 
 
(11)
any Finance Party, a Receiver or Attorney exercising or enforcing, delaying or refraining from exercising or enforcing, or being not entitled or unable to exercise or enforce any Power;
 
 
(12)
any Finance Party obtaining a judgment against any Transaction Party or any other Person for the payment of any of the Secured Moneys;
 
 
(13)
any transaction, agreement or arrangement that may take place with any Finance Party, any Transaction Party or any other Person;
 
 
(14)
any payment to any Finance Party, a Receiver or Attorney, including any payment which at the payment date or at any time after the payment date is in whole or in part illegal, void, voidable, avoided or unenforceable;
 
 
(15)
any failure to give effective notice to any Transaction Party or any other Person of any default under any Transaction Document or any other document or agreement;
 
 
(16)
any legal limitation, disability or incapacity of any Transaction Party or of any other Person;
 
 
(17)
any breach of any Transaction Document or any other document or agreement;
 
 
(18)
the acceptance of the repudiation of, or termination of, any Transaction Document or any other document or agreement;
 
 
(19)
any Secured Moneys being irrecoverable for any reason;
 
 
(20)
any disclaimer by any Transaction Party or any other Person of any Transaction Document or any other document or agreement;
 
 
(21)
any assignment, novation, assumption or transfer of, or other dealing with, any Powers or any other rights or obligations under any Transaction Document or any other document or agreement;
 
 
(22)
the opening of a new account of any Transaction Party with any Finance Party or any transaction on or relating to the new account;
 
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(23)
any prejudice (including material prejudice) to any Person as a result of:
 
 
(A)
any thing done or omitted by any Finance Party, any Transaction Party or any other Person;
 
 
(B)
any Finance Party, a Receiver, Attorney or any other Person selling or realising any property the subject of a Collateral Security at less than the best price;
 
 
(C)
any failure or neglect by any Finance Party, a Receiver, Attorney or any other Person to recover the Secured Moneys from any Transaction Party or by the realisation of any property the subject of a Collateral Security; or
 
 
(D)
any other thing;
 
 
(24)
the receipt by any Finance Party of any dividend, distribution or other payment in respect of any liquidation;
 
 
(25)
the failure of any other Guarantor or any other Person who is intended to become a co-surety or co-indemnifier of that Guarantor to execute this agreement or any other document; or
 
 
(26)
any other act, omission, matter or thing whether negligent or not.
 
 
(b)
Clause  ‎ 12.12(a) applies irrespective of:
 
 
(1)
the consent or knowledge or lack of consent or knowledge, of any Finance Party, any Transaction Party or any other Person of any event described in clause  ‎ 12.12(a); or
 
 
(2)
any rule of law or equity to the contrary.
 
 
12.13
No competition
 
 
(a)
Until the Secured Moneys have been fully paid and this clause  ‎ 12 has been finally discharged, a Guarantor is not entitled to:
 
 
(1)
be subrogated to any Finance Party;
 
 
(2)
claim or receive the benefit of:
 
 
(A)
any Encumbrance, Guarantee or other document or agreement of which any Finance Party has the benefit;
 
 
(B)
any moneys held by any Finance Party; or
 
 
(C)
any Power;
 
 
(3)
either directly or indirectly to prove in, claim or receive the benefit of any distribution, dividend or payment arising out of or relating to the liquidation of any Transaction Party liable to pay the Secured Moneys, except in accordance with that clause  ‎ 12.13(b);
 
 
(4)
make a claim or exercise or enforce any right, power or remedy (including under an Encumbrance or Guarantee or by way of contribution) against any Transaction Party liable to pay the Secured Moneys;
 
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(5)
accept, procure the grant of or allow to exist any Encumbrance in favour of a Guarantor from any Transaction Party liable to pay the Secured Moneys;
 
 
(6)
exercise or attempt to exercise any right of set-off against, or realise any Encumbrance taken from, any Transaction Party liable to pay the Secured Moneys; or
 
 
(7)
raise any defence or counterclaim in reduction or discharge of its obligations under this clause  ‎ 12.
 
 
(b)
If required by any Finance Party, a Guarantor must prove in any liquidation of any Transaction Party liable to pay the Secured Moneys for all money owed to the Guarantor.
 
 
(c)
All money recovered by a Guarantor from any liquidation or under any Encumbrance or Guarantee from any Transaction Party liable to pay the Secured Moneys must be received and held in trust by the Guarantor for the Finance Parties to the extent of the unsatisfied liability of the Guarantor under this clause  ‎ 12.
 
 
(d)
A Guarantor must not do or seek, attempt or purport to do anything referred to in clause  ‎ 12.13(a).
 
 
12.14
Continuing guarantee
 
This clause  ‎ 12 is a continuing obligation of each Guarantor, despite:
 
 
(a)
any settlement of account; or
 
 
(b)
the occurrence of any other thing,
 
and remains in full force and effect until:
 
 
(c)
all the Secured Moneys have been paid in full; and
 
 
(d)
this clause  ‎ 12 has been finally discharged by all the Finance Parties.
 
 
12.15
Variation
 
This clause  ‎ 12 extends to cover the Transaction Documents as amended, varied or replaced, whether with or without the consent of any one or more of the Guarantors, including any increase in the limit or maximum principal amount available under a Transaction Document.
 
 
12.16
Judgments
 
A final judgment obtained against a relevant Transaction Party is conclusive as against each Guarantor.
 
 
12.17
Additional Guarantors
 
Each Transaction Party must ensure that any corporation which becomes its Subsidiary (not including Kestrel, to which the provisions of clause ‎ 9.22 apply), within 10   Business Days after it becomes a Subsidiary:
 
 
(a)
executes and delivers to the Agent an officer’s certificate in the form of schedule 4 in respect of that Guarantor attaching documents in respect of that Guarantor in the form and substance acceptable to the Facility Agent acting reasonably;
 
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(b)
executes and delivers to the Agent a Guarantee Assumption Agreement;
 
 
(c)
executes and delivers to the Agent the following Encumbrances (unless the Agent approves otherwise in writing):
 
 
(1)
a fixed and floating charge or other security interest appropriate for the location of the assets of that entity over all its assets and undertaking in a form approved by the Agent;
 
 
(2)
any Collateral Security requested by the Agent,
 
(the New Securities ) to secure, the Secured Moneys:
 
 
(d)
duly stamps each document referred to in this clause  ‎ 12.17;
 
 
(e)
gives to the Agent all duly completed forms, notices and other documents required to register or file with the appropriate Government Agency any document referred to in this clause  ‎ 12.17;
 
 
(f)
provides the Agent with any legal opinions requested by the Agent regarding the enforceability of the documents (including the Encumbrances) granted under this clause ‎ 12.17;
 
 
(g)
executes and delivers to the Security Trustee an “Accession Deed (Security Provider)” under and as defined in the Security Trust Deed;
 
 
(h)
delivers to the Security Trustee all documents and evidence of title to the property to be charged or mortgaged by the New Securities; and
 
 
(i)
does everything that any Finance Party may reasonably request to ensure the enforceability of its obligations as a Guarantor and a Security Provider and as a “Security Provider” under the Security Trust Deed.
 
 
12.18
Limited recourse - Parent
 
 
(a)
The:
 
 
(1)
recourse of the Finance Parties to the Parent or any asset of the Parent under or in connection with the guarantee and indemnity given by it in this clause ‎ 12; and
 
 
(2)
liability of the Parent to the Finance Parties under or in connection with the guarantee and indemnity given by it in this clause ‎ 12,
 
is limited to the Secured Property of the Parent and the amount that is recovered by the Finance Parties from such Secured Property pursuant to the exercise by a Finance Party of their enforcement and other rights under the Transaction Documents or otherwise in relation to such Secured Property.
 
 
(b)
No Finance Party may exercise any Power which is inconsistent with the limitations on the recovery rights of the Finance Parties against the Parent as set out in clause ‎ 12.18(a).
 
 
(c)
Nothing in this clause ‎ 12.18 applies to or limits any right of the Parent under any provision of this agreement other than clause ‎ 12.
 
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12.19
Extent of Guarantor’s obligations
 
 
(a)
If more than one person is named as “Guarantor”, each of them is liable for all the obligations under this clause 12 both individually and jointly with any one or more other persons named as “Guarantor”.
 
 
(b)
The guarantee and indemnity in this clause 12 takes effect as a cross-guarantee and cross-indemnity when one or more of the Transaction Parties are the same as one or more of the Guarantors. In those circumstances, it is a separate guarantee and indemnity in relation to the obligations of each Transaction Party as if that person were:
 
 
(1)
the only person included in the definition of “Transaction Party”; and
 
 
(2)
excluded from the definition of “Guarantor”.
 
 
13
Indemnities and Break Costs
 
 
13.1
General indemnity
 
 
(a)
The Borrower indemnifies each Finance Party against any Loss which that Finance Party, a Receiver (whether acting as agent of the Borrower or of a Finance Party) or an Attorney pays, suffers, incurs or is liable for, in respect of any of the following:
 
 
(1)
a Funding Portion required by a Funding Notice not being made for any reason including any failure by a Transaction Party to fulfil any condition precedent contained in clause  ‎ 2, but excluding any default by that Finance Party;
 
 
(2)
the occurrence of any Default;
 
 
(3)
a Finance Party exercising its Powers consequent upon or arising out of the occurrence of any Default;
 
 
(4)
the non-exercise, attempted exercise, exercise or delay in the exercise of any Power;
 
 
(5)
any act or omission of a Security Provider or any of its employees or agents;
 
 
(6)
the occupation, use or ownership of any Secured Property by a Security Provider or any of its employees or agents;
 
 
(7)
any workers’ compensation claim by any employee of a Security Provider;
 
 
(8)
any insurance policy in respect of any Secured Property;
 
 
(9)
any compulsory acquisition or statutory or judicial divestiture of any Secured Property;
 
 
(10)
any other thing in respect of a Security or any Secured Property;
 
 
(11)
any failure to issue (or defect in the issue of) any Call Options when required under this agreement, or any failure to issue (or defect in the issue of) Exercise Shares on the exercise of any Call Options;
 
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(12)
any payment made by a Financier to the Agent under clause  ‎ 16.11;
 
 
(13)
the repayment of any Funding Portion under Tranche A prior to the Maturity Date (including any voluntary prepayment of all or part of any Funding Portion under clause ‎ 3.4, but excluding any prepayment of all or any part of a Funding Portion as a consequence of the exercise of a Call Option in accordance with clause ‎ 6).
 
 
(b)
The indemnity in clause  ‎ 13.1(a), includes:
 
 
(1)
an amount called “break costs”. These may by calculated by any method amount determined by the relevant Finance Party including by reference to any Loss it being incurs by reason of:
 
 
(A)
the liquidation or re-employment of deposits or other funds acquired or contracted for by the Finance Party to fund or maintain its Commitment; or
 
 
(B)
the termination of arrangements it has made with others to fund (or to maintain its funding of) financial accommodation under the Transaction Documents or to hedge or swap its funding of the transactions contemplated by the Transaction Documents under any hedge or swap arrangement, instrument or contract, whether with an external party or an internal department; and
 
 
(2)
loss of margin,
 
but does not include any Loss paid, suffered, incurred or for which a Finance Party is liable for, or any “break costs” in respect of the repayment of any Funding Portion under Tranche B prior to the Maturity Date.
 
 
13.2
Break Costs
 
The Borrower must, within 3 Business Days of demand by the Agent, pay to the Agent for the account of each Finance Party its Break Costs attributable to all or any part of a Funding Portion being prepaid or repaid by the Borrower on a day other than the last day of the Interest Period for that Funding Portion.
 
 
13.3
Foreign currency indemnity
 
If, at any time:
 
 
(a)
a Finance Party, a Receiver or an Attorney receives or recovers any amount payable by a Transaction Party including:
 
 
(1)
under any judgment or order of any Government Agency;
 
 
(2)
for any breach of any Transaction Document;
 
 
(3)
on the liquidation or bankruptcy of the Transaction Party or any proof or claim in that liquidation or bankruptcy; or
 
 
(4)
any other thing into which the obligations of the Transaction Party may have become merged; and
 
Page 82
 
 
(b)
the Payment Currency is not the Relevant Currency,
 
the Borrower indemnifies each Finance Party, Receiver or Attorney against any shortfall between the amount payable in the Relevant Currency and the amount actually or notionally received or recovered by each Finance Party, Receiver or Attorney after the Payment Currency is converted or translated into the Relevant Currency under clause  ‎ 13.4.
 
 
13.4
Conversion of currencies
 
In making any currency conversion under clause  ‎ 13.2, a Finance Party, Receiver or Attorney may itself or through its bankers purchase one currency with another, whether or not through an intermediate currency, whether spot or forward, in the manner and amounts and at the times it thinks fit.
 
 
13.5
Continuing indemnities and evidence of loss
 
 
(a)
Each indemnity of a Transaction Party in a Transaction Document is a continuing obligation of the Transaction Party, despite:
 
 
(1)
any settlement of account; or
 
 
(2)
the occurrence of any other thing,
 
and remains in full force and effect until:
 
 
(3)
the Secured Moneys are fully and finally repaid; and
 
 
(4)
each Security has been finally discharged.
 
 
(b)
Each indemnity of a Transaction Party in a Transaction Document is an additional, separate and independent obligation of a Transaction Party and no one indemnity limits the general nature of any other indemnity.
 
 
(c)
Each indemnity of a Transaction Party in a Transaction Document survives the termination of any Transaction Document.
 
 
(d)
A certificate given by an Officer of a Finance Party detailing the amount of any Loss covered by any indemnity in a Transaction Document is sufficient evidence unless the contrary is proved.
 
 
14
Fees, Tax, costs and expenses
 
 
14.1
Fees
 
The Borrower must pay to Macquarie Bank Limited for its own account the fees and other amounts agreed between the Borrower and Macquarie Bank Limited in the relevant Fee Letter.
 
 
14.2
Agent’s fees
 
The Borrower must pay to the Agent for its own account the fees and other amounts agreed between the Borrower and the Agent in the relevant Fee Letter.
 
Page 83
 
 
14.3
Security Trustee’s Fees
 
The Borrower must pay the Security Trustee for its own account the fees and other amounts agreed between the Borrower and the Security Trustee in the relevant Fee Letter.
 
 
14.4
Costs and expenses
 
The Borrower must pay all costs and expenses of each Finance Party in relation to:
 
 
(a)
the negotiation, preparation, execution, delivery, stamping, registration, completion, variation and discharge of any Transaction Document;
 
 
(b)
the enforcement, protection or waiver of any rights under any Transaction Document;
 
 
(c)
the consent or approval of a Finance Party given under any Transaction Document; and
 
 
(d)
any enquiry by a Government Agency involving the Borrower, the Parent or any member of the Group,
 
including:
 
 
(e)
any administration costs of each Finance Party in relation to the matters described in clause  ‎ 14.4(c) or ‎ (d); and
 
 
(f)
any legal costs and expenses and any professional consultant’s fees, on a full indemnity basis.
 
 
14.5
GST
 
 
(a)
If GST is or will be imposed on a supply made under or in connection with a Transaction Document by a Finance Party, the Finance Party may, to the extent that the consideration otherwise provided for that supply is not stated to include an amount in respect of GST on the supply:
 
 
(1)
increase the consideration otherwise provided for that supply under the Transaction Document by the amount of that GST; or
 
 
(2)
otherwise recover from the recipient of the supply the amount of that GST.
 
 
(b)
Each Finance Party must issue a Tax Invoice to the recipient of the supply no later than 5 Business Days after payment to the Finance Party of the GST inclusive consideration for that supply.
 
 
15
Interest on overdue amounts
 
 
15.1
Payment of interest
 
Each Transaction Party must pay interest on:
 
 
(a)
any of the Secured Moneys due and payable by it, but unpaid; and
 
 
(b)
any interest payable but unpaid under this clause  ‎ 15.
 
Page 84
 
 
15.2
Accrual of interest
 
The interest payable under this clause  ‎ 15:
 
 
(a)
accrues from day to day from and including the due date for payment up to the actual date of payment, before and, as an additional and independent obligation, after any judgment or other thing into which the liability to pay the Secured Moneys becomes merged; and
 
 
(b)
may be capitalised at monthly intervals.
 
 
 
15.3
Rate of interest
 
The rate of interest payable under this clause  ‎ 15 on any part of the Secured Moneys is the higher of:
 
 
(a)
the Overdue Rate;
 
 
(b)
on the date that part of the Secured Moneys becomes due and payable but is unpaid; and
 
 
(1)
on each date which is 1 month after the immediately preceding date on which the Overdue Rate was determined under this clause  ‎ 15.3(a); and
 
 
(c)
the rate fixed or payable under a judgment or other thing referred to in clause  ‎ 15.2(a).
 
 
 
16
Relations between Agent and Financier
 
 
 
16.1
Appointment of Agent
 
Each Financier appoints the Agent to act as its agent under the Transaction Documents and authorises the Agent to do the following on its behalf:
 
 
(a)
amend or waive compliance with any provision of the Transaction Documents in accordance with the Transaction Documents;
 
 
(b)
all things which the Transaction Documents expressly require the Agent to do, or contemplate are to be done by the Agent, on behalf of the Financiers; and
 
 
(c)
all things which are incidental or ancillary to the Powers of the Agent described in clauses  ‎ 16.1(a) or ‎ (b).
 
 
 
16.2
Agent’s capacity
 
The Agent:
 
 
(a)
in its capacity as a Financier, has the same obligations and Powers under each Transaction Document as any other Financier as though it were not acting as the Agent; and
 
 
(b)
may engage in any kind of banking or other business with any Transaction Party without having to notify or account to the Financiers.
 
Page 85
 
 
16.3
Agent’s obligations
 
 
(a)
The Agent has only those duties and obligations which are expressly specified in the Transaction Documents.
 
 
(b)
The Agent is not required to:
 
 
(1)
keep itself informed as to the affairs of any Transaction Party or its compliance with any Transaction Document; or
 
 
(2)
review or check the accuracy or completeness of any document or information it forwards to any Financier or other Person.
 
 
 
16.4
Agent’s powers
 
 
(a)
Except as specifically set out in the Transaction Documents (including clause  ‎ 16.5), the Agent may exercise its Powers under the Transaction Documents:
 
 
(1)
as it thinks fit in the best interests of the Financiers; and
 
 
(2)
without consulting with or seeking the instructions of the Financiers.
 
 
(b)
The exercise by the Agent of any Power in accordance with this clause  ‎ 16 binds all the Financiers.
 
 
 
16.5
Instructions to Agent
 
The Agent:
 
 
(a)
must exercise its Powers in accordance with any instructions given to it by the Majority Financiers or, if specifically required to do so under a Transaction Document, all Financiers;
 
 
(b)
must not amend or waive any provision of a Transaction Document which has the effect of:
 
 
(1)
increasing the obligations of any Financier; or
 
 
(2)
changing the terms of payment of any amounts payable under the Transaction Documents; or
 
 
(3)
changing the manner in which those payments are to be applied,
 
without the consent of all the Financiers;
 
 
(c)
must not amend or waive any other provision of any Transaction Document without the consent of the Majority Financiers unless the Agent is satisfied that the amendment is made to correct a manifest error or an error of a formal or technical nature only; or
 
 
(d)
must not otherwise exercise any Power which the Transaction Documents specify are to be exercised with the consent or in accordance with the instructions of the Majority Financiers or some other number of Financiers, or amend any such requirement, except with that consent or in accordance with those instructions; and
 
 
(e)
may refrain from acting, whether in accordance with the instructions of the Financiers or otherwise, until it has received security for any amount it reasonably believes may become payable to it by the Financiers under clause  ‎ 16.11.
 
Page 86
 
 
16.6
Assumptions as to authority
 
Each Transaction Party may assume, with inquiry, that any action of the Agent under the Transaction Documents is in accordance with any required authorisations, consents or instructions from the Financiers.
 
 
16.7
Agent’s liability
 
Neither the Agent nor any Related Body Corporate of the Agent nor any of their respective directors, officers, employees, agents or successors is responsible to the Financiers or a Transaction Party for:
 
 
(a)
any recitals, statements, representations or warranties contained in any Transaction Document, or in any certificate or other document referred to or provided for in, or received by any of them under, any Transaction Document;
 
 
(b)
the value, validity, effectiveness, genuineness, enforceability or sufficiency of any Transaction Document (other than as against the Agent) or any other certificate or document referred to or provided for in, or received by any of them under, any Transaction Document;
 
 
(c)
any failure by a Transaction Party or any Financier to perform its obligations under any Transaction Document; or
 
 
(d)
any action taken or omitted to be taken by it or them under any Transaction Document or in connection with any Transaction Document except in the case of its or their own fraud or wilful misconduct or gross   negligence.
 
 
 
16.8
Delegation
 
The Agent may employ agents and attorneys.
 
 
 
16.9
Agent entitled to rely
 
The Agent may rely on:
 
 
(a)
any certificate, communication, notice or other document (including any facsimile transmission or telegram) it believes to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons; and
 
 
(b)
advice and statements of solicitors, independent accountants and other experts selected by the Agent with reasonable care.
 
 
 
16.10
Provision of information
 
 
(a)
The Agent must forward to each Financier:
 
 
(1)
notice of the occurrence of any Default promptly after the Agent becomes actually aware of it; and
 
Page 87
 
 
(2)
a copy of each report, notice or other document promptly after the Agent receives it from a Transaction Party under any Transaction Document.
 
 
(b)
The Agent is not to be regarded as being actually aware of the occurrence of a Default unless the Agent:
 
 
(1)
is actually aware that any payment due by a Transaction Party under the Transaction Documents has not been made; or
 
 
(2)
has received notice from a Financier or a Transaction Party stating that a Default has occurred describing the same and stating that the notice is a Default Notice .
 
 
(c)
If the Agent receives a Default Notice the Agent may treat any such Default as continuing until it has received a further Default Notice from the party giving the original notice stating that the Default is no longer continuing and the Agent is entitled to rely on such second notice for all purposes under the Transaction Documents.
 
 
(d)
The Agent is not to be regarded as having received any report, notice or other document or information unless it has been given to it in accordance with clause  ‎ 19.3.
 
 
(e)
Except as specified in clause  ‎ 16.10(a) and as otherwise expressly required by the Transaction Documents, the Agent has no duty or responsibility to provide any Financier with any information concerning the affairs of any Transaction Party or other Person which may come into the Agent’s possession.
 
 
(f)
Nothing in any Transaction Document obliges the Agent to disclose any information relating to any Transaction Party or other Person if the disclosure would constitute a breach of any law, duty of secrecy or duty of confidentiality.
 
 
 
16.11
Indemnity by Financiers
 
The Financiers severally indemnify the Agent (to the extent not reimbursed by any Transaction Party) in their Pro Rata Shares against any Loss which the Agent pays, suffers, incurs or is liable for in acting as Agent, except to the extent attributable to the Agent’s fraud, wilful misconduct or negligence.
 
 
 
16.12
Independent appraisal by Financiers
 
Each Financier acknowledges that it has made and must continue to make, independently and without reliance on the Agent or any other Financier, and based on the documents and information it considers appropriate, its own investigation into and appraisal of:
 
 
(a)
the affairs of each Transaction Party;
 
 
(b)
the accuracy and sufficiency of any information on which it has relied in connection with its entry into the Transaction Documents; and
 
 
(c)
the legality, validity, effectiveness, enforceability and sufficiency of each Transaction Document.
 
Page 88
 
 
16.13
Resignation and removal of Agent
 
 
(a)
The Agent may, by notice to the Borrower and the Financiers, resign at any time and the Majority Financiers may, by notice to the Borrower and the Agent, remove the Agent from office. The resignation or removal of the Agent takes effect on appointment of a successor Agent in accordance with this clause  ‎ 16.13.
 
 
(b)
When a notice of resignation or removal is given, the Majority Financiers may appoint a successor Agent. If no successor Agent is appointed within 20 Business Days, the Agent may appoint a successor Agent.
 
 
(c)
When a successor Agent is appointed, and executes an undertaking to be bound as successor Agent under the Transaction Documents, the successor Agent succeeds to and becomes vested with all the Powers and duties of the retiring Agent, and the retiring Agent is discharged from its duties and obligations under the Transaction Documents.
 
 
(d)
After any retiring Agent’s resignation or removal, this agreement continues in effect in respect of any actions which the Agent took or omitted to take while acting as the Agent.
 
 
 
16.14
Institution of actions by Financiers
 
 
(a)
A Financier must not institute any legal proceedings against a Transaction Party to recover amounts owing to it under the Transaction Documents, without giving the Agent and each other Financier a reasonable opportunity to join in the proceedings or agree to share the costs of the proceedings.
 
 
(b)
If a Financier does not join in an action against a Transaction Party or does not agree to share in the costs of the action (having been given a reasonable opportunity to do so by the Finance Party bringing the action), it is not entitled to share in any amount recovered by the action until all the Finance Parties who did join in the action or agree to share the costs of the action have received in full all money payable to them under the Transaction Documents.
 
 
 
16.15
Identity of Financiers
 
 
(a)
A Financier must notify the Agent of any assignment or novation of that Financiers’ rights or obligations under any Transaction Document in accordance with clause  ‎ 16.
 
 
(b)
The Agent may treat each Financier as the absolute legal and beneficial holder of its rights under the Transaction Documents for all purposes, despite any notice to the contrary, unless otherwise required by law.
 
 
 
16.16
Electronic transmission of notices
 
Commencing on a date to be determined by the Agent and notified to the other parties to this agreement, notices, requests, demands, consents, approvals, agreements or other communications to or by the Agent under the Transaction Documents:
 
Page 89
 
 
(a)
may be given by means of a secure website established by the Agent, access to which is restricted to the parties to the Transaction Documents (and, where applicable, their financial and legal advisers); and
 
 
(b)
will be taken to be given or made on:
 
 
(1)
a notice being posted on the secure website; and
 
 
(2)
receipt by the Agent of a delivery receipt in respect of an e-mail the Agent has sent to the relevant party’s nominated email address (as notified to the Agent at least 5 days before any e-mail is sent by the Agent or notice posted on the secure website) advising that the notice has become available on the secure website.
 
 
16.17
Instructions
 
The parties acknowledge and agree that an Agent in giving any notice, consent, approval, waiver, variation, direction, agreement or other communication, or forming an opinion, will be acting on the instructions of the Financiers in accordance with this agreement. Where references to “acting reasonably”, “in the opinion”, “being satisfied”, “acting in good faith” or similar expressions are used in connection with an Agent, such references shall be construed to refer to each of the Financiers from whom the Agent is required, or does, obtain instructions in so acting.
 
 
17
Assignment and substitution
 
 
 
17.1
Assignment by Transaction Party
 
A Transaction Party must not assign or novate any of its rights or obligations under a Transaction Document without the Agent’s prior written consent.
 
 
17.2
Assignment by Financiers
 
Any Financier (the Transferor ) may assign or novate any of its rights and obligations under a Transaction Document to any bank or other recognised financial institution (including any investment or hedge fund) (the Transferee ) without the consent of any Transaction Party if:
 
 
(a)
any necessary prior Authorisation is obtained;
 
 
(b)
where the Financier is novating any of its rights and obligations under a Transaction Document, the novation is effected in accordance with clause  ‎ 17.3;
 
 
(c)
if the dealing is with part of the Commitment of that Financier, it must be in a minimum amount of US$1,000,000 and an integral multiple of US$500,000 and so that its remaining Commitment is at least US$1,000,000; and
 
 
(d)
it notifies the Agent and the Borrower; and
 
 
(e)
at the same time as the assignment or novation it transfers to the Transferee:
 
Page 90
 
 
(1)
1 Tranche A Call Option for each US$1 of Commitment for Tranche A, transferred or novated to the Transferee; and
 
 
(2)
1 Tranche B Call Option for each US$1 of Commitment for Tranche B transferred or novated to the Transferee.
 
 
 
17.3
Substitution certificate
 
 
(a)
If a Financier wishes to novate any of its rights and obligations under a Transaction Document to a Substitute Financier, it must notify the Agent at least 5 Business Days before the substitution (or such shorter period as the Agent approves), of the following:
 
 
(1)
the name of the Substitute Financier;
 
 
(2)
the proportion of its Commitment and its Principal Outstanding to be assumed by the Substitute Financier; and
 
 
(3)
the proposed date of the substitution.
 
 
(b)
The Retiring Financier and the Substitute Financier must execute a substitution certificate in the form of annexure B and deliver it to the Agent at least 2 Business Days before the substitution (or such shorter period as the Agent approves).
 
 
(c)
When the Agent receives a substitution certificate under clause  ‎ 17.3(b) it is authorised to, and must:
 
 
(1)
execute it on behalf of all the parties to this agreement other than the Retiring Financier;
 
 
(2)
notify each of the parties to this agreement of the substitution; and
 
 
(3)
deliver copies of it to the Borrower, the Retiring Financier and the Substitute Financier.
 
 
(d)
If any Call Options are to be transferred under this clause ‎ 17 the Retiring Financier must promptly return the Call Options Certificates held by it for relevant Call Options to the Parent and the Parent must issue to the Retiring Financier and the Substitute Financier Call Option Certificates for the balances of Call Options held by them following that transfer (with each Call Option Certificate to evidence not more than 500,000 Call Options).
 
 
 
17.4
Assist
 
Each party must do any thing which the Agent reasonably requests including, executing any documents or amending any Transaction Document, to effect any transfer, assignment, novation or substitution under this clause  ‎ 16.
 
 
 
17.5
Securitisation permitted
 
 
(a)
A Financier may, without having to obtain the consent of or notify a Transaction Party, assign, transfer, sub-participate or otherwise deal with any of its rights under this agreement (but not any Call Options) to a trustee of a trust, a company or any other entity which in each case is established for the purposes of securitisation ( Securitisation Dealing ).
 
 
(b)
Despite any Securitisation Dealing by a Financier:
 
Page 91
 
 
(1)
the Financier must continue to perform all its obligations under this agreement; and
 
 
(2)
any amount paid by the Transaction Party to the Agent for the account of the Financier will satisfy the Transaction Party’s obligation to make that payment until the Transaction Party is:
 
 
(A)
given notice by the Financier of the Securitisation Dealing; and
 
 
(B)
directed by the Financier to pay any amount payable by the Transaction Party under this agreement to the relevant assignee, transferee or sub-participant.
 
 
 
17.6
Participation permitted
 
A Financier may grant a participation interest (being a right to share in the financial benefits of this agreement, without any rights against a Transaction Party) in any of the Financier’s rights and benefits under this agreement to any other bank or other recognised financial institution (including any investment or hedge fund) without having to obtain the consent of or to notify a Transaction Party.
 
 
 
17.7
Lending Office
 
 
(a)
A Financier may change its Lending Office at any time.
 
 
(b)
A Financier must promptly notify the Agent and the Borrower of the change.
 
 
 
17.8
No increase in costs
 
If a Financier assigns or novates any of its rights or obligations under any Transaction Document or changes its Lending Office, no Transaction Party is required to pay any net increase in the aggregate amount of costs, Taxes, fees or charges which:
 
 
(a)
is a   direct consequence of the transfer or assignment or change of Lending Office; and
 
 
(b)
the Financier or its transferee or assignee was aware of or ought reasonably to have been aware of, at the time of the transfer or assignment or change of Lending Office.
 
 
 
18
Saving provisions
 
 
 
18.1
No merger of security
 
 
(a)
Nothing in this agreement merges, extinguishes, postpones, lessens or otherwise prejudicially affects:
 
 
(1)
any Encumbrance or indemnity in favour of any Finance Party; or
 
 
(2)
any Power.
 
Page 92
 
 
(b)
No other Encumbrance or Transaction Document which a Finance Party has the benefit of in any way prejudicially affects any Power.
 
 
 
18.2
Exclusion of moratorium
 
To the extent not excluded by law, a provision of any legislation which directly or indirectly:
 
 
(a)
lessens, varies or affects in favour of a Transaction Party any obligations under a Transaction Document; or
 
 
(b)
stays, postpones or otherwise prevents or prejudicially affects the exercise by any Finance Party of any Power,
 
is negatived and excluded from each Transaction Document and all relief and protection conferred on a Transaction Party by or under that legislation is also negatived and excluded.
 
 
 
18.3
Conflict
 
Where any right, power, authority, discretion or remedy conferred on a Finance Party, a Receiver or an Attorney by any Transaction Document is inconsistent with the powers conferred by applicable law then, to the extent not prohibited by that law, those conferred by applicable law are regarded as negatived or varied to the extent of the inconsistency.
 
 
 
18.4
Consents
 
 
(a)
Whenever the doing of any thing by a Transaction Party is dependent on the consent of a Finance Party, the Finance Party may withhold its consent or give it conditionally or unconditionally in its absolute discretion, unless expressly stated otherwise in a Transaction Document.
 
 
(b)
Any conditions imposed on a Transaction Party by a Finance Party under clause  ‎ 18.4(a) must be complied with by the Transaction Party.
 
 
 
18.5
Principal obligations
 
This agreement and each Collateral Security is:
 
 
(a)
a principal obligation and is not ancillary or collateral to any other Encumbrance (other than another Collateral Security) or other obligation; and
 
 
(b)
independent of, and unaffected by, any other Encumbrance or other obligation which a Finance Party may hold at any time in respect of the Secured Moneys.
 
 
 
18.6
Non-avoidance
 
If any payment by a Transaction Party to a Finance Party is avoided for any reason including any legal limitation, disability or incapacity of or affecting the Transaction Party or any other thing, and whether or not:
 
 
(a)
any transaction relating to the Secured Moneys was illegal, void or substantially avoided; or
 
Page 93
 
 
(b)
any thing was or ought to have been within the knowledge of any Finance Party,
 
the Transaction Party:
 
 
(c)
as an additional, separate and independent obligation, indemnifies each Finance Party against that avoided payment; and
 
 
(d)
acknowledges that any liability of the Transaction Party under the Transaction Documents and any right or remedy of the Finance Parties under the Transaction Documents is the same as if that payment had not been made.
 
 
 
18.7
Set-off authorised
 
If a Transaction Party does not pay any amount when due and payable by it to any Finance Party under a Transaction Document, the Finance Party may:
 
 
(a)
apply any credit balance in any currency in any account of the Transaction Party with the Finance Party in or towards satisfaction of that amount; and
 
 
(b)
effect any currency conversion which may be required to make an application under clause  ‎ 18.7(a).
 
 
 
18.8
Agent’s certificates and approvals
 
 
(a)
A certificate signed by any Officer of the Agent in relation to any amount, calculation or payment under any Transaction Document is sufficient evidence of that amount, calculation or payment unless the contrary is proved.
 
 
(b)
Where any provision of a Transaction Document requires the Agent’s approval, that approval will not be effective unless and until it is provided in writing.
 
 
 
18.9
No reliance or other obligations and risk assumption
 
Each Transaction Party acknowledges and confirms that:
 
 
(a)
it has not entered into any Transaction Document in reliance on any representation, warranty, promise or statement made by or on behalf of any Finance Party;
 
 
(b)
in respect of the transactions evidenced by the Transaction Documents, no Finance Party has any obligations other than those expressly set out in the Transaction Documents; and
 
 
(c)
in respect of interest rates or exchange rates, no Finance Party is liable for:
 
 
(1)
any movement in interest rates or exchange rates; or
 
 
(2)
any information, advice or opinion provided by a Finance Party or any Person on behalf of any Finance Party, even if:
 
 
(A)
provided at the request of a Transaction Party (it being acknowledged by each Transaction Party that such matters are inherently speculative);
 
 
(B)
relied on by a Transaction Party; or
 
Page 94
 
 
(C)
provided incorrectly or negligently.
 
 
 
18.10
Power of attorney
 
 
(a)
For consideration received, each Transaction Party irrevocably appoints the Agent and each Officer of the Agent as the attorney of the Transaction Party to:
 
 
(1)
execute and deliver all documents; and
 
 
(2)
do all things,
 
which are necessary or desirable to give effect to each Transaction Document.
 
 
(b)
An attorney appointed under clause  ‎ 18.10(a) may appoint a substitute attorney to perform any of its powers.
 
 
 
19
General
 
 
 
19.1
Confidential information
 
A Finance Party must not disclose to any Person:
 
 
(a)
any Transaction Document; or
 
 
(b)
any information about any Transaction Party,
 
except:
 
 
(c)
in connection with a permitted assignment, novation, participation or securitisation under clause  ‎ 16, where the disclosure is made on the basis that the recipient of the information will comply with this clause  ‎ 19.1 in the same way that the Finance Party is required to do;
 
 
(d)
to any professional or other adviser consulted by it in relation to any of its rights or obligations under the Transaction Documents;
 
 
(e)
to the Reserve Bank of Australia, the Australian Tax Office or any Government Agency requiring disclosure of the information;
 
 
(f)
in connection with the enforcement of its rights under the Transaction Documents;
 
 
(g)
where the information is already in the public domain, or where the disclosure would not otherwise breach any duty of confidentiality;
 
 
(h)
if required by law; or
 
 
(i)
otherwise with the prior written consent of the relevant Transaction Party (such consent not to be unreasonably withheld).
 
 
 
19.2
Transaction Party to bear cost
 
Any thing which must be done by a Transaction Party under any Transaction Document, whether or not at the request of a Finance Party, must be done at the cost of the Transaction Party.
 
Page 95
 
 
19.3
Notices
 
 
(a)
Any notice or other communication including, any request, demand, consent or approval, to or by a party to any Transaction Document:
 
 
(1)
must be in legible writing and in English addressed to the party in accordance with its details set out in schedule 3 or as specified to the sender by the party by notice;
 
 
(2)
must be signed by an Officer of the sender;
 
 
(3)
is regarded as being given by the sender and received by the addressee:
 
 
(A)
if by delivery in Person, when delivered to the addressee;
 
 
(B)
if by post, on delivery to the addressee; or
 
 
(C)
if by facsimile, when received by the addressee in legible form,
 
but if the delivery or receipt is on a day which is not a Business Day or is after 4.00pm (addressee’s time) it is regarded as received at 9.00am on the following Business Day; and
 
 
(4)
can be relied on by the addressee and the addressee is not liable to any other Person for any consequences of that reliance if the addressee believes it to be genuine, correct and authorised by the sender.
 
 
(b)
A facsimile transmission is regarded as legible unless the addressee telephones the sender within 2 hours after the transmission is received or regarded as received under clause  ‎ 19.3(a)(3) and informs the sender that it is not legible.
 
 
 
19.4
Governing law and jurisdiction
 
 
(a)
This agreement is governed by the laws of New South Wales.
 
 
(b)
Each Transaction Party irrevocably submits to the non-exclusive jurisdiction of the courts of New South Wales.
 
 
(c)
Each Transaction Party irrevocably waives any objection to the venue of any legal process on the basis that the process has been brought in an inconvenient forum.
 
 
(d)
Each Transaction Party irrevocably waives any immunity in respect of its obligations under this agreement that it may acquire from the jurisdiction of any court or any legal process for any reason including the service of notice, attachment before judgment, attachment in aid of execution or execution.
 
 
(e)
Each Transaction Party (other than the Parent):
 
 
(1)
irrevocably appoints Samson Oil & Gas Limited of Level 36, Exchange Plaza, 2 The Esplanade, Perth WA 6000 in relation to proceedings in New South Wales as its agent to receive service of any legal process (including under, in relation to or in connection with a Transaction Document) without excluding any other means of service permitted by the law of New South Wales or that other jurisdiction; and
 
Page 96
 
 
(2)
agrees that failure by a process agent to notify the relevant Transaction Party of the process will not invalidate the proceedings concerned.
 
 
(f)
Samson Oil & Gas Limited accepts its appointment as agent for service of process under clause ‎ 19.4(e).
 
 
 
19.5
Prohibition and enforceability
 
 
(a)
Any provision of, or the application of any provision of, any Transaction Document or any Power which is prohibited in any jurisdiction is, in that jurisdiction, ineffective only to the extent of that prohibition.
 
 
(b)
Any provision of, or the application of any provision of, any Transaction Document which is void, illegal or unenforceable in any jurisdiction does not affect the validity, legality or enforceability of that provision in any other jurisdiction or of the remaining provisions in that or any other jurisdiction.
 
 
 
19.6
Waivers
 
 
(a)
Waiver of any right arising from a breach of this agreement or of any Power arising on default under this agreement or on the occurrence of an Event of Default must be in writing and signed by the party granting the waiver.
 
 
(b)
A failure or delay in exercise, or partial exercise, of:
 
 
(1)
a right arising from a breach of this agreement or the occurrence of an Event of Default; or
 
 
(2)
a Power created or arising on default under this agreement or on the occurrence of an Event of Default,
 
does not result in a waiver of that right or Power.
 
 
(c)
A party is not entitled to rely on a delay in the exercise or non-exercise of a right or Power arising from a breach of this agreement or on a default under this agreement or on the occurrence of an Event of Default as constituting a waiver of that right or Power.
 
 
(d)
A party may not rely on any conduct of another party as a defence to exercise of a right or Power by that other party.
 
 
(e)
This clause may not itself be waived except in writing.
 
 
 
19.7
Variation
 
 
(a)
A variation of any term of this agreement must be in writing and signed by the parties.
 
 
(b)
The Agent may sign a variation of any term of this agreement under clause  ‎ 19.7(a) on behalf of the Financiers where it is permitted to do so in accordance with clause  ‎ 16.5 or any other provision of a Transaction Document.
 
Page 97
 
 
19.8
Cumulative rights
 
The Powers are cumulative and do not exclude any other right, power, authority, discretion or remedy of any Finance Party, Receiver or Attorney.
 
 
 
19.9
Counterparts
 
 
(a)
This agreement may be executed in any number of counterparts.
 
 
(b)
All counterparts, taken together, constitute one instrument.
 
 
(c)
A party may execute this agreement by signing any counterpart.
 
 
 
19.10
Attorneys
 
Each of the attorneys executing this agreement states that the attorney has no notice of the revocation of the power of attorney appointing that attorney.
 
Page 98
 
Executed as an agreement:

Borrower:

Signed by
Samson Oil and Gas USA Inc
by in the presence of:
 
/s/ Robyn Lamont 
Witness
 
Robyn Lamont
Name (please print)
 
Guarantor:

Signed for
Samson Oil & Gas Limited
by its attorney in
the presence of:
 
/s/ Robyn Lamont
Witness
 
Robyn Lamont
Name (please print)
/s/ Terrence M. Barr   
Signatory
 
Terence M. Barr
Name (please print)
 
 
 
 
 
 
 
 
/s/ Terence M. Barr
Signatory
 
Terence M. Barr
Name (please print)
 
 
 
 
Page 1

Financiers:

Signed for
Macquarie Bank Limited
by its attorneys in
the presence of:
 
/s/ Christian A. Coulter
Witness
 
Christian A. Coulter
Name (please print)
 
 
 
 
 
 
 
Agent:

Signed for
Macquarie Bank Limited
by its attorneys in
the presence of:
 
/s/ Christian A. Coulter
Witness
 
Christian A. Coulter
Name (please print)
/s/ Thomas Callinan
Attorney
 
 
Thomas Callinan
Name (please print)
 
 
/s/ Andrew Sinclair
Attorney
 
Andrew Sinclair
Name (please print)
 
 
 
 
 
 
 
/s/ Thomas Callinan
Attorney
 
Thomas Callinan
Name (please print)
 
/s/ Andrew Sinclair
Attorney
 
Andrew Sinclair
Name (please print)
 
Page 2
 
Security Trustee:

Signed for
Macquarie Bank Limited
by its attorneys in
the presence of:
 
/s/ Christian A. Coulter
Witness
 
Christian A. Coulter
Name (please print)
/s/ Thomas Callinan
Attorney
 
 
Thomas Callinan
Name (please print)
 
/s/ Andrew Sinclair
Attorney
 
Andrew Sinclair
Name (please print)
 
Parent:

Signed for
Samson Oil & Gas Limited
by its attorney in
the presence of:
 
/s/ Robyn Lamont
Witness
 
Robyn Lamont
Name (please print)
/s/ Terence M. Barr
Signatory
 
 
Terence M. Barr
Name (please print)
 
Page 3
 
Security Trust Deed
Samson Security Trust
 
Each Initial Beneficiary listed in Schedule 1
 
Each Initial Security Provider listed in Schedule 2
 
and
 
Macquarie Bank Limited
ABN 46 008 583 542
 
 
 
FREEHILLS LOGO
 
 
MLC Centre Martin Place   Sydney   New South Wales   2000   Australia
Telephone +61 2 9225 5000 Facsimile +61 2 9322 4000
www.freehills.com DX 361 Sydney
 
SYDNEY MELBOURNE PERTH BRISBANE SINGAPORE
Correspondent Offices HANOI HO CHI MINH CITY JAKARTA KUALA LUMPUR
 
Reference
 
 
Samson Oil and Gas Security Trust Deed
 
Table of contents
 
Clause
   
page
         
1
 Definitions and interpretation  
1
 
1.1
Definitions
 
1
 
1.2
Interpretation
 
6
 
1.3  
Incorporated definitions
 
8
 
1.4
Inclusive expressions
 
8
 
1.5
Business Day
 
8
 
1.6
Beneficiaries Obligations
 
8
 
1.7
Retired Beneficiary
 
8
         
2
  Declaration of trust  
8
 
2.1
Holding of Trust Fund on trust
 
8
 
2.2
Name
 
9
 
2.3
Period
 
9
 
2.4
Payment of Secured Moneys
 
9
         
3
  Determination of Secured Moneys  
10
 
3.1
Determination of Secured Moneys
 
10
 
3.2
Details of Secured Moneys
 
10
         
4
  Receipt of money  
11
 
4.1
Money not forming part of Recovered Moneys
 
11
 
4.2
Receipt of money after Determination Date
 
11
         
5
  Sharing between Beneficiaries  
12
 
5.1
Pre Determination Date payments
 
12
 
5.2
Sharing after Determination Date
 
12
 
5.3
Rounding
 
13
 
5.4
Refusal to join actions
 
13
 
5.5
Currency conversion
 
13
         
6
Security Trustee’s rights and responsibilities  
13
 
6.1
Security Trustee entitled to exercise all rights
 
13
 
6.2
Instructions and extent of discretion
 
14
 
6.3
Exercise of Powers to waive or amend
 
14
 
6.4
Exercise of enforcement and other powers
 
15
 
6.5
Exercise of other ancillary powers
 
16
 
6.6
Right to appoint agent, delegates
 
16
 
6.7
Events of Default
 
17
 
6.8
No monitoring
 
17
 
6.9
Information
 
18
 
6.10
Security Trustee to have same rights as Beneficiaries
 
18
 
6.11
Security Trustee may contract
 
18
 
6.12
Exercise of Powers
 
18
 
6.13
Application to court for direction
 
18
 
6.14
Security Trustee not liable
 
19
 
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Samson Oil and Gas Security Trust Deed

 
 
6.15  
Indemnity
 
20
 
6.16
Protection of third parties
 
21
 
6.17
Exclusions of law where permitted
 
21
6.18
Independent decisions by Beneficiaries
 
21
 
6.19
Variation
 
22
 
6.20
Additional matters
 
22
 
6.21
Fees
 
22
 
       
7
  Termination of Security Trustee’s appointment  
22
 
7.1
Termination of appointment
 
22
 
7.2
Assurances
 
23
 
7.3
Appointment of successor Security Trustee
 
23
         
8
  Changes to Beneficiaries and Security Providers  
24
 
8.1
Transfers by Beneficiaries
 
24
 
8.2
New Beneficiaries pursuant to transfers
 
24
 
8.3
Other New Beneficiaries
 
24
 
8.4
New Security Provider
 
25
 
8.5
Notice of change
 
25
 
       
9
  Savings provisions  
25
 
9.1
Continuing indemnities
 
25
 
9.2
Non-avoidance
 
26
 
9.3
Exclusion of moratorium
 
26
         
10
  General  
26
 
10.1
Performance by Security Trustee of obligations
 
26
 
10.2
Transaction Party to bear cost
 
27
 
10.3
GST
 
27
 
10.4
Notices
 
27
 
10.5
Governing law and jurisdiction
 
28
 
10.6
Prohibition and enforceability
 
28
 
10.7
Waivers
 
28
 
10.8
Variation
 
29
 
10.9
Cumulative rights
 
29
 
10.10
Consents of Security Trustee
 
29
 
10.11
Limited Recourse of Security Provider
 
29
 
10.12
Counterparts
 
29
 
10.13
Attorneys
 
30
     
Schedule 1 - Initial Beneficiaries  
31
Schedule 2 - Initial Security Providers  
32
 
 
Annexure B - Form of Accession Deed (Security Provider) Clause 8.4
   
 
page 2
 
Samson Oil and Gas Security Trust Deed
 
 
This security trust deed
 
is made on                                                         2006 between the following parties:
 
1
Each party listed in schedule 1
(each an Initial Beneficiary)
 
2
Each party listed in schedule 2
(each an Initial Security Provider )
 
3
Macquarie Bank Limited
ABN 46 008 583 542
of Level 1, No. 1 Martin Place
Sydney NSW 2000
( Security Trustee )
 
Recitals
 
A.
The Security Providers may from time to time enter into a Security.
 
B.
The Security Trustee will hold, among other things, all its right, title and interest in, to and under the Securities on trust for the Beneficiaries on the terms of this deed.
 
This deed witnesses
 
that in consideration of, among other things, the mutual promises contained in this deed, the parties agree:
 
 
1
Definitions and interpretation
 
 
1.1
Definitions
 
In this deed:
 
Accession Deed ( Beneficiary ) means a deed in, or substantially in, the form of annexure A (or in any other form that the parties from time to time agree) under which a New Beneficiary becomes a party to this deed in accordance with clause  8.2 or clause 8.3 ;
 
Accession Deed (Security Provider) means a deed in, or substantially in, the form of annexure B (or in any other form that the parties from time to time agree) under which a New Security Provider becomes a party to this deed in accordance with clause  8.4 ;
 
Agent means the Agent for the time being under and as defined in the Facility Agreement ;
 
Amount Owing means, in respect of a Beneficiary at any time, the Secured Moneys of that Beneficiary at that time;
 
Attorney means an attorney appointed under any Security;
 
Australian Dollars, A$ or AUD means the lawful currency of the Commonwealth of Australia;
 
Beneficiary means:
 
 
(a)
each Initial Beneficiary;
 
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Samson Oil and Gas Security Trust Deed
 
 
(b)
each Finance Party as defined in a Transaction Document;
 
 
(c)
each New Beneficiary; and
 
(d)
any other person which on or prior to the date of this deed Macquarie Bank Limited and the Security Providers have agreed in writing to be a Beneficiary for the purposes of this deed,
 
but does not include a Retired Beneficiary;
 
Business Day means:
 
(a)
for the purposes of clause  10.4 , a day on which banks are open for business in the city where the notice or other communication is received excluding a Saturday, Sunday or public holiday; and
 
(b)
for all other purposes, a day on which banks are open for business in Sydney and New York excluding a Saturday, Sunday or public holiday;
 
Collateral Security means any present or future Encumbrance, Guarantee or other document or agreement created or entered into by a Transaction Party or any other person as security for, or to credit enhance, the payment of any of the Secured Moneys;
 
Controller has the meaning given to the word “controller” in the Corporations Act, but as if “charge” included any Security, and includes a Receiver;
 
Corporations Act means the Corporations Act 2001 ( Cth );
 
Default means:
 
(a)
an Event of Default; or
 
(b)
a Potential Event of Default;
 
Default Notice has the meaning given in clause  6.7(a)(1) ;
 
Determination Date means the date on which the first of the following occurs:
 
(a)
the Security Trustee appoints a Controller under a Security;
 
(b)
the Security Trustee otherwise enforces a Security;
 
(c)
the Agent gives a notice under clause 10.2 of the Facility Agreement;
 
(d)
any other event agreed in writing to be an event for the purposes of this paragraph (d) by the Beneficiaries and the Security Trustee;
 
Event of Default means an Event of Default as defined in any Transaction Document;
 
Facility Agreement means the syndicated convertible loan facility agreement dated or about after the date of this deed between, among others, the Initial Security Providers and the Security Trustee;
 
Exposure means at any time, in respect of a Beneficiary (but without double counting) the sum of its commitment or facility limit (however described) under the Transaction Documents (as determined by the Security Trustee) and the Secured Hedging Exposure of that Beneficiary;
 
Finally Paid means, in respect of the Secured Moneys or any other monetary liability, satisfaction of the following conditions:
 
(a)
payment or satisfaction of it in full; and
 
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Samson Oil and Gas Security Trust Deed
 
(b)
during the 6 month period from and including the day after the payment or satisfaction, no person, including a Transaction Party, liquidator, provisional liquidator, administrator, official manager, trustee in bankruptcy, receiver, receiver and manager, other controller (as defined in the Corporations Act) or similar official, exercises a right to recoup or claim repayment of any part of the amount paid or satisfied, whether under the laws of preferences, fraudulent dispositions or otherwise;
 
Government Agency means any government or any governmental, semi-governmental, administrative, fiscal or judicial body, department, commission, authority, tribunal, agency or entity ;
 
GST means the goods and services tax levied under the GST Act;
 
GST Act means A New Tax System (Goods and Services Tax) Act 1999 (Cth);
 
Guarantee means any guarantee, suretyship, letter of credit, letter of comfort or any other obligation:
 
(a)
to provide funds (whether by the advance or payment of money, the purchase of or subscription for shares or other securities, the purchase of assets or services, or otherwise) for the payment or discharge of;
 
(b)
to indemnify any person against the consequences of default in the payment of; or
 
(c)
to be responsible for,
 
any debt or monetary liability of another person or the assumption of any responsibility or obligation in respect of the insolvency or the financial condition of any other person;
 
Interest Expense means interest and amounts in the nature of, or having a similar purpose or effect to, interest and includes:
 
 
(a)
discount on a bill of exchange or other instrument;
 
 
(b)
fees and amounts incurred on a regular or recurring basis, such as line fees; and
 
 
(c)
capitalised amounts of the same or similar name to the foregoing;
 
Majority Beneficiaries means at any time, one or more Beneficiaries whose aggregate Shares are more than 50%;
 
New Beneficiary means, at any time, a person who is not an existing Beneficiary at that time, and who becomes a Beneficiary after that time in accordance with this deed ;
 
New Security Provider means, at any time, a person who is not an existing Security Provider at that time, and who becomes a Security Provider after that time in accordance with this deed ;
 
Officer means:
 
 
(a)
in relation to the Security Trustee, any officer, as that expression is defined in the Corporations Act, of the Security Trustee;
 
 
(b)
in relation to a Beneficiary, any person whose title contains the “Director”, “Managing Director”, “Manager” or “Vice President”, and any other person appointed by the Beneficiary to act as its authorised officer for the purposes of this deed or in the case of a Beneficiary which is a natural person, that person or any other person appointed by it to act as its authorised officer for the purposes of this deed;
 
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Samson Oil and Gas Security Trust Deed
 
 
(c)
in relation to a Security Provider, a director or a secretary, or a person notified by the Security Provider to the Security Trustee to be an authorised officer, of the Security Provider;
 
Potential Event of Default means a Potential Event of Default as defined in any Transaction Document;
 
Power means, any right, power, authority, discretion or remedy conferred on the Security Trustee, a Controller or an Attorney by any Transaction Document or any applicable law;
 
Receiver means a receiver or receiver and manager appointed under a Security or any Transaction Document;
 
Recovered Moneys means the aggregate amount received or recovered by the Security Trustee under the Transaction Documents or under clauses  2.4 or 4.2 on or after the Determination Date;
 
Related Body Corporate means a “related body corporate” as that expression is defined in section 50 of the Corporations Act;
 
Relevant Currency means the currency in which a payment is required to be made under the Transaction Documents;
 
Retired Beneficiary means, at any time, a Beneficiary which has given a Retirement Notice;
 
Retirement Notice has the meaning given to that term in clause 1.7(a) ;
 
Secured Moneys means all debts and monetary liabilities of the Transaction Parties to the Beneficiaries or the Security Trustee on any account under or in relation to any Transaction Document and in any capacity, irrespective of whether the debts or liabilities:
 
 
(a)
are present or future;
 
 
(b)
are actual, prospective, contingent or otherwise;
 
 
(c)
are at any time ascertained or unascertained;
 
 
(d)
are owed or incurred by or on account of a Transaction Party alone or severally or jointly with any other person;
 
 
(e)
are owed to or incurred for the account of any Beneficiary or the Security Trustee, alone, or severally, or jointly with any other person;
 
 
(f)
are owed to any other person as agent (whether disclosed or not) for or on behalf of a Beneficiary or the Security Trustee;
 
 
(g)
are owed or incurred as principal, interest, fees, charges, Taxes, damages (whether for breach of contract or tort or incurred on any other ground), losses, costs or expenses, or on any other account;
 
 
(h)
are owed to or incurred for the account of a Beneficiary directly or as a result of:
 
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Samson Oil and Gas Security Trust Deed
 
 
(1)
the assignment or transfer to a Beneficiary of any debt or liability of a Transaction Party (whether by way of assignment, transfer or otherwise); or
 
 
(2)
any other dealing with any such debt or liability;
 
 
(i)
are owed to or incurred for the account of a Beneficiary or the Security Trustee before the date of this deed or before the date of any assignment of this deed to any Beneficiary or the Security Trustee by any other person or otherwise; or
 
 
(j)
comprise any combination of the above,
 
and includes any Secured Hedging Exposure;
 
Security means, at any time, each of the following which has been granted at that time:
 
(a)
any Encumbrance entered into by or granted in favour of the Security Trustee (as trustee under this deed) or the benefit of which the Security Trustee acquires after the date of this deed as security for, among other things, the payment of any of the Secured Moneys including any Security as defined in a Transaction Document;
 
(b)
any Collateral Security; or
 
(c)
any other document which the Beneficiaries, the Security Trustee and the Security Providers agree at any time, now or in the future, is a Security for the purposes of this deed,
 
and includes each “Security” and each “Security Agreement” under and as defined in the Facility Agreement;
 
Security Provider means a person who has granted a Security and includes, on the date of this deed, the Initial Security Providers;
 
Share means, in respect of a Beneficiary at any time, the Secured Moneys plus (without double counting any amount) the Exposure of that Beneficiary at that time expressed as a percentage of the aggregate Secured Moneys plus (without double counting any amount) the aggregate Exposures   of all Beneficiaries at that time;
 
Statement means a statement referred to in clause  3.2(a)(1) ;
 
Tax means:
 
 
(a)
any tax, levy, charge, impost, duty, fee, deduction or withholding; or
 
 
(b)
any income, stamp or transaction duty, tax or charge,
 
which is assessed, levied, imposed or collected by a Government Agency and includes any interest, fine, penalty, charge, fee or other amount imposed on or in respect of any of the above;
 
Transaction Document means:
 
 
(a)
this deed;
 
 
(b)
a Security;
 
 
(c)
the Facility Agreement;
 
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Samson Oil and Gas Security Trust Deed
 
 
(d)
any other Transaction Document as defined in a Security or the Facility Agreement (directly or indirectly); or
 
 
(e)
any other document which at a time the Beneficiaries at that time, the Security Trustee and the Security Providers at that time agree at any time, now or in the future, is a Transaction Document for the purposes of this deed ;
 
Transaction Party means:
 
 
(a)
a Security Provider; or
 
 
(b)
any other Transaction Party, now or in the future, defined as such in a Transaction Document; and
 
Trust Fund means:
 
 
(a)
the sum of A$10 referred to in clause  2.1 ;
 
 
(b)
all right, title and interest of the Security Trustee under the Securities and the other Transaction Documents (other than, in the case of other Transaction Documents, those held in a personal capacity) including all money recovered under them (whether on enforcement or otherwise) including all Recovered Moneys;
 
 
(c)
all money paid to the Security Trustee under this deed; and
 
 
(d)
all other property acquired by the Security Trustee and intended to be held for the benefit the Beneficiaries on the trusts of this deed;
 
US$, US Dollars or USD means the lawful currency of the United States of America;
 
wilful default means, in relation to the Security Trustee, a wilful and intentional failure of the Security Trustee to comply with any of its obligations under the Transaction Documents other than a failure which:
 
 
(a)
arises as a result of a failure by a person other than the Security Trustee to comply with a Transaction Document or as a result of a Default;
 
 
(b)
arises due to a lack of proper or complete instructions or directions being given to the Security Trustee under and in accordance with this deed; or
 
 
(c)
is in accordance with a court order or direction or otherwise required by law.
 
 
 
1.2
Interpretation
 
In this deed, headings and bold type are for convenience only and do not affect the interpretation of this deed and, unless the context requires otherwise:
 
 
(a)
words importing the singular include the plural and vice versa;
 
 
(b)
words importing a gender include any gender;
 
 
(c)
other parts of speech and grammatical forms of a word or phrase defined in this deed have a corresponding meaning;
 
 
(d)
an expression suggesting or referring to a natural person or an entity includes any company, partnership, joint venture, association, corporation or other body corporate and any Government Agency;
 
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Samson Oil and Gas Security Trust Deed
 
 
(e)
a reference to any thing (including any right) includes a part of that thing but nothing in this clause  1.2(e) implies that performance of part of an obligation constitutes performance of the obligation;
 
 
(f)
a reference to a clause, party, annexure or schedule is a reference to a clause of, and a party, annexure and schedule to, this deed and a reference to this deed includes any annexure and schedule;
 
 
(g)
a reference to a statute, regulation, proclamation, ordinance or by-law includes all statutes, regulations, proclamations, ordinances or by-laws amending, consolidating or replacing it, whether passed by the same or another Government Agency with legal power to do so, and a reference to a statute includes all regulations, proclamations, ordinances and by-laws issued under that statute;
 
 
(h)
a reference to a document includes all amendments or supplements to, or replacements or novations of, that document;
 
 
(i)
a reference to liquidation includes official management, appointment of an administrator, compromise, arrangement, merger, amalgamation, reconstruction, winding up, dissolution, assignment for the benefit of creditors, scheme, composition or arrangement with creditors, insolvency, bankruptcy, or any similar procedure or, where applicable, changes in the constitution of any partnership or person, or death;
 
 
(j)
a reference to a party to any document includes that party’s successors and permitted assigns;
 
 
(k)
a covenant or agreement on the part of 2 or more persons binds them   jointly and severally, but a covenant by the Security Trustee, the Agent or a Beneficiary, binds the Security Trustee, the Agent or the Beneficiary, as applicable, individually only;
 
 
(l)
a reference to an agreement other than this deed includes an undertaking, deed, agreement or legally enforceable arrangement or understanding whether or not in writing;
 
 
(m)
a reference to an asset includes all property of any nature, including a business, and all rights, revenues and benefits;
 
 
(n)
a reference to a document includes any agreement in writing, or any certificate, notice, instrument or other document of any kind;
 
 
(o)
no provision of this deed may be construed adversely to a party solely on the ground that the party was responsible for the preparation of this deed or that provision; and
 
 
(p)
a reference to a body, other than a party to this deed (including an institute, association or authority), whether statutory or not:
 
 
(1)
which ceases to exist; or
 
 
(2)
whose powers or functions are transferred to another body,
 
is a reference to the body which replaces it or which substantially succeeds to its powers or functions; and
 
 
(q)
a Default is “continuing” or “subsisting” if it has not been remedied in accordance with the relevant Transaction Document under which it arose or waived in accordance with the relevant Transaction Document under which it arose.
 
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Samson Oil and Gas Security Trust Deed
 
 
1.3
Incorporated definitions
 
A word or phrase (other than one defined in clause 1.1) defined in the Facility Agreement has the same meaning in this deed.
 
 
1.4
Inclusive expressions
 
Specifying anything in this deed after the words “include” or “for example” or similar expressions does not limit what else is included unless there is express wording to the contrary.
 
 
1.5
Business Day
 
Subject to any provision to the contrary in any Transaction Document, where the day on or by which any thing is to be done is not a Business Day, that thing must be done on or by the preceding   Business Day.
 
 
1.6
Beneficiaries Obligations
 
The obligations of the Beneficiaries under this deed are several and:
 
 
(a)
failure of a Beneficiary to carry out its obligations does not relieve any other Beneficiary of its obligations; and
 
 
(b)
no Beneficiary is responsible for the obligations of any other Beneficiary.
 
 
1.7
Retired Beneficiary
 
 
(a)
If at any time a Beneficiary confirms in writing to the Security Trustee that the following conditions are fully satisfied in relation to it at that time:
 
 
(1)
all Secured Moneys owing to that Beneficiary have been Finally Paid; and
 
 
(2)
that Beneficiary is not committed to providing further Financial Accommodation to any Transaction Party at that time or at any time in the future,
 
(that notice being a Retirement Notice ) then that Beneficiary will become a Retired Beneficiary.
 
 
(b)
A Beneficiary must promptly provide a Retirement Notice to the Security Trustee if requested to do so in writing by a Transaction Party provided that it is satisfied at that time that the requirements of clause 1.7(a)(1) and 1.7(a)(2) are met in relation to it at that time.
 
 
2
Declaration of trust
 
 
2.1
Holding of Trust Fund on trust
 
The Security Trustee declares that it holds the sum of A$10 in Sydney and will hold the Trust Fund, on trust for the Beneficiaries from time to time on the terms of this deed.
 
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Samson Oil and Gas Security Trust Deed
 
 
2.2
Name
 
The trust established under this deed is to be known as the “Samson Security Trust”.
 
 
2.3
Period
 
The trust established under this deed commences on the date of this deed and, unless terminated at an earlier date, terminates on   the earlier of:
 
 
(a)
the day before the eightieth anniversary of the date of this deed; and
 
 
(b)
the date on which all the Securities have been fully and finally discharged according to their terms (or, if discharged at different times, the date on which the last is fully and finally discharged) and all Recovered Moneys have been distributed in accordance with this deed .
 
 
2.4
Payment of Secured Moneys
 
 
(a)
Each Security Provider must pay the Secured Moneys due by it in accordance with the Transaction Documents and each other obligation under which the Secured Moneys are payable.
 
 
(b)
Each Security Provider must pay the Secured Moneys to the Security Trustee as and when it is due for payment.
 
 
(c)
Clause  2.4(b) is an additional, independent and separate obligation to any obligation of a Security Provider to pay to a Beneficiary the Secured Moneys of the Beneficiary in a Transaction Document or otherwise, but:
 
 
(1)
payment by any Security Provider to the Security Trustee of any such Secured Moneys which are Finally Paid operates in satisfaction of the obligation of the Security Provider to pay the amount to the Beneficiary; and
 
 
(2)
payment by any Security Provider to a Beneficiary in accordance with the Transaction Documents of any Secured Moneys of the Beneficiary which are Finally Paid operates in satisfaction of the obligation of the Security Provider to pay the amount to the Security Trustee.
 
 
(d)
The Transaction Party satisfies a payment obligation only when the amount paid in accordance with the Transaction Documents (even if the Transaction Party pays the amount to a Beneficiary or a Beneficiary receives the amount voluntarily or involuntarily by way of set-off, combination or amalgamation of accounts or otherwise if the Beneficiary is not entitled to the payment under the Transaction Documents).
 
 
(e)
Nothing in clause  2.4(b) affects or derogates from a Security Provider’s obligations to pay Secured Moneys to a Beneficiary (subject to clause  2.4(c)(1) and 2.4(c)(2) ).
 
 
(f)
Any Secured Moneys paid to a Beneficiary or the Security Trustee by a Security Provider are paid as money secured by the Securities.
 
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Samson Oil and Gas Security Trust Deed
 
 
3
Determination of Secured Moneys
 
 
3.1
Determination of Secured Moneys
 
To determine the Secured Moneys of a Beneficiary on any date for the purposes of this deed:
 
 
(a)
any liability which is contingent must be included at its face value;
 
 
(b)
Interest Expense due but unpaid and Interest Expense accrued but not yet due must be included ; and
 
 
(c)
the amount of Secured Moneys of Beneficiary which is a Secured Hedging Counterparty under or in connection with any Secured Hedging Agreement is its Secured Hedging Exposure at that time;
 
 
(d)
amounts in, or denominated, in a currency other than US Dollars must be notionally translated into US dollars by the Security Trustee at the rate of exchange at which the Security Trustee could have, on that date, purchased from another person in the normal course of business in dealing with currencies, that amount of currency with US Dollars (with the same rate to be applied by the Security Trustee for all Beneficiaries for all amounts in or denominated in the same non US Dollars currency as at that date).
 
 
3.2
Details of Secured Moneys
 
 
(a)
The Security Trustee may at any time request a Beneficiary to provide, and the Beneficiary must then, promptly, provide:
 
 
(1)
a statement signed by an Officer of the Beneficiary setting out the Secured Moneys owing to that Beneficiary at the date of the statement or as at any other date requested by the Security Trustee (with any currency translation under clause 3.1(d) to be carried out by the Security Trustee at the relevant date); and
 
 
(2)
any information the Security Trustee reasonably requests in respect of the calculation of the amounts referred to in clause  3.2(a)(1) .
 
 
(b)
The information provided under clause  3.2(a) must include full details of how the Beneficiary has applied the provisions of clause  3.1 in calculating the amounts referred to in clause  3.2(a)(1) .
 
 
(c)
As between the Security Trustee and the Beneficiaries, the Security Trustee may rely on a Statement given by a Beneficiary as sufficient evidence of its contents and the respective amounts of Secured Moneys owing to the Beneficiary as at the date set out in the Statement (in the currency in which it is owing or in which it is denominated) unless the contrary is proved.
 
 
(d)
Any Statement is binding on all Beneficiaries, subject to any contrary determination by the Security Trustee, for the purposes of determining the Share of each Beneficiary under this deed as at the date of the Statement.
 
 
(e)
If a Beneficiary does not provide a Statement, the Security Trustee may determine the Secured Moneys owing to that Beneficiary and issue an alternative Statement which will be taken as the Statement for that Beneficiary for the purposes of this clause  3.2 .
 
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Samson Oil and Gas Security Trust Deed
 
 
4
Receipt of money
 
 
4.1
Money not forming part of Recovered Money s
 
 
(a)
Where any Transaction Document permits or requires money to be placed to the credit of a suspense account:
 
 
(1)
in order to preserve the rights to prove in the bankruptcy or liquidation of any person; or
 
 
(2)
because amounts are contingently due or for any other reason,
 
that money will not, unless otherwise decided by all the Beneficiaries, form part of the Recovered Moneys until, in accordance with the terms of the Transaction Documents, the money is paid to or for the account of the Security Trustee or one or more Beneficiaries (at which time it becomes Recovered Moneys).
 
 
(b)
Where money is placed in a suspense account referred to in clause  4.1(a) , any interest earned and credited to the account is Recovered Moneys.
 
 
4.2
Receipt of money after Determination Date
 
 
(a)
Subject to clause  4.2(b) , if, after the Determination Date, a Beneficiary receives (whether by way of voluntary or involuntary payment or by way of set-off, combination or amalgamation of accounts or otherwise) any Secured Moneys, the Beneficiary must within a reasonable time notify the Security Trustee.
 
 
(b)
Clause  4.2 does not apply to money received by a Beneficiary from the Security Trustee under this deed or through netting under a Secured Hedging Agreement.
 
 
(c)
A Beneficiary who receives an amount referred to in clause  4.2(a) must pay the amount to the Security Trustee within 5 Business Days (or any longer period the Security Trustee agrees to)of receiving it.
 
 
(d)
An amount paid under clause  4.2(c) is to be:
 
 
(1)
regarded as having been received by the Security Trustee and not by the Beneficiary who receives it (and the liability of the Transaction Parties will not be reduced by the recovery or payment, other than to the extent of any distribution received by the party under clause 4.2(d)(2)); and
 
 
(2)
distributed by the Security Trustee as Recovered Moneys.
 
 
(e)
Immediately upon the Beneficiary making or becoming liable to make a payment under clause 4.2(c), each Transaction Party shall indemnify the Beneficiary against the payment to the extent that (despite clause 4.2(d)(1)) its liability has been discharged by the recovery or payment.
 
 
(f)
If a Beneficiary who makes a payment referred to in clause  4.2(c) is obliged to refund any part of that amount under laws relating to insolvency or liquidation or similar events, then:
 
 
(1)
on request from the Security Trustee, each party to which any part of the payment was distributed must repay to the Security Trustee the amount received by that party and the Security Trustee must pay to that Beneficiary (to the extent received from those parties) the amount it is required to refund; and
 
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Samson Oil and Gas Security Trust Deed
 
 
(2)
any balance is Recovered Moneys.
 
 
5
Sharing between Beneficiaries
 
 
5.1
Pre Determination Date payments
 
 
(a)
If, before the Determination Date, a Beneficiary directs the Security Trustee to demand payment from a Security Provider of Secured Moneys which are then due and payable to the Beneficiary, the Security Trustee must promptly make that demand   and the Security Provider must immediately pay the amount demanded to the Security Trustee.
 
 
(b)
On receipt of any money from that Security Provider, the Security Trustee holds it on trust for the Beneficiary who made the request and must pay the full amount received to that Beneficiary or as otherwise required by a Transaction Document.
 
 
(c)
Subject to the Transaction Documents, if, before the Determination Date, the Security Trustee otherwise receives any Secured Moneys due and payable to a Beneficiary, it must promptly pay that money to that Beneficiary.
 
 
(d)
A demand or payment under clause  5.1(a) is not required for money to be made payable or for any enforcement action (including appointment of a Controller or declaring that money is due and payable) under the Transaction Documents, as long as the money is payable or the enforcement action can be taken under the Transaction Documents.
 
 
5.2
Sharing after Determination Date
 
 
(a)
The Recovered Moneys must, as between the Security Trustee and each Security Provider, be applied by the Security Trustee in accordance with the Security under which it is recovered .
 
 
(b)
The Recovered Moneys available for distribution in or towards payment or repayment of the Secured Moneys (after payment out of the Recovered Moneys of any amounts which, under a Security, are required to be paid out of those Recovered Moneys before any distribution is made in or towards payment or repayment of the Secured Moneys) must be applied by the Security Trustee in accordance with any written agreement between all of the Beneficiaries at the time that agreement is made and the Security Trustee at that time but, in the absence of any such agreement, then in the following order of priority:
 
 
(1)
first, in or towards payment of any money due to the Security Trustee in its capacity as security trustee under the Transaction Documents; and
 
 
(2)
second, in or towards payment or repayment to each Beneficiary of its Share (calculated as at the date of the distribution) of the Secured Moneys (calculated as at the date of the distribution) until each Beneficiary has received its Secured Moneys in full.
 
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Samson Oil and Gas Security Trust Deed
 
 
(c)
Clause  5.2(b) is for the benefit of the relevant Beneficiaries only and no other party may claim any benefit under it.
 
 
(d)
An agreement effected under clause  5.2(b) is binding on all Beneficiaries even if they become Beneficiaries after that agreement is effected.
 
 
5.3
Rounding
 
In making any distribution, alteration or appropriation under any Transaction Document the Security Trustee may round amounts to the nearest unit of the relevant currency.
 
 
5.4
Refusal to join actions
 
If a Beneficiary does not join in an action against a Transaction Party or does not agree to share in the costs of the action (having been given a reasonable opportunity to do so), it is not entitled to share in any amount recovered by the action until all the Beneficiaries who did join in the action or agree to share the costs of the action have received in full all money payable to them under the Transaction Documents.
 
 
5.5
Currency conversion
 
If the Security Trustee receives an amount under a Transaction Document in a currency which is not in the Relevant Currency, the Security Trustee:
 
 
(a)
may convert the amount received into the Relevant Currency in accordance with its normal procedures; and
 
 
(b)
is only regarded as having received the amount that it has converted into the Relevant Currency.
 
 
6
Security Trustee’s rights and responsibilities
 
 
6.1
Security Trustee entitled to exercise all rights
 
Subject to this deed, the Security Trustee:
 
 
(a)
is entitled to exercise all Powers under the Securities (including those Powers conferred on trustees generally by statute and those conferred on trustees generally by law or equity in respect of the Securities) as if the Security Trustee were the sole beneficial owner of the Securities; and
 
 
(b)
may in its absolute discretion determine:
 
 
(1)
whether or not to take any steps to enforce a Security or to otherwise seek to recover any money payable under a Security; and
 
 
(2)
the manner of the enforcement (including the terms of any sale under a Security and the identity of any Controller appointed under a Security).
 
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Samson Oil and Gas Security Trust Deed
 
 
(c)
is irrevocably appointed and authorised to enter into the Transaction Documents and act as trustee for the Beneficiaries;
 
 
(d)
has all rights and powers expressly delegated to it by the Transaction Documents together with all other powers reasonably incidental to those powers; and
 
 
(e)
has no duties or responsibilities except those expressly set out in the Transaction Documents.
 
 
6.2
Instructions and extent of discretion
 
 
(a)
Subject to the other terms of this deed, and except in respect of amounts due to the Security Trustee in its personal capacity, in exercising its Powers under a Security or any Transaction Document or in the exercise of any of its rights, powers and discretions under the Transaction Documents, the Security Trustee:
 
 
(1)
must act in accordance with the instructions (if any) of the Majority Beneficiaries; or
 
 
(2)
in the absence of any such instructions, may (but is not obliged to) act as it thinks fit in the best interests of the Beneficiaries.
 
 
(b)
Each Beneficiary authorises the Security Trustee to give any consent and do anything else necessary or appropriate for it to give effect to any instructions given in accordance with this deed.
 
 
(c)
Any action taken by the Security Trustee in accordance with this deed is binding, as between the Security Trustee and the Beneficiaries, on all the Beneficiaries.
 
 
(d)
Despite any other provision of this deed, the Security Trustee is not obliged to take any action under this deed or a Security or exercise any Power until it is first indemnified to its satisfaction in accordance with clause  6.15 or otherwise.
 
 
(e)
When seeking instructions from Beneficiaries, if the Security Trustee considers that the Majority Beneficiaries are constituted by the “Majority Financiers” under the Facility Agreement alone, it may seek instructions from the Agent without approaching any other Beneficiary.
 
 
(f)
The Security Trustee is not obliged to consult with the Beneficiaries before giving any consent, approval or agreement or making any determination under the Transaction Documents except where a Transaction Document expressly provides otherwise.
 
 
6.3
Exercise of Powers to waive or amend
 
The Security Trustee:
 
 
(a)
must not, in its capacity as trustee, waive breaches of, or any Default under, or otherwise excuse the performance of any obligation of a Transaction Party under, a Transaction Document without the prior instructions of the Majority Beneficiaries;
 
 
(b)
must exercise or refrain from exercising a Power and must waive or excuse performance of a Security if so instructed:
 
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Samson Oil and Gas Security Trust Deed
 
 
(1)
by the Majority Beneficiaries; or
 
 
(2)
where a Transaction Document provides for such instructions from the Beneficiaries on a different basis, from the Beneficiaries on that basis;
 
 
(c)
must not amend or vary any Transaction Document unless instructed to do so by:
 
 
(1)
the Majority Beneficiaries or
 
 
(2)
where a Transaction Document provides for such instructions from the Beneficiaries on a different basis, from the Beneficiaries on that basis,
 
but is not obliged to effect any such amendment or variation to the extent it would increase the personal liability of the Security Trustee or derogate from any of its rights under the Transaction Documents.
 
 
6.4
Exercise of enforcement and other powers
 
 
(a)
The Security Trustee must, if so instructed by the Majority Beneficiaries following the occurrence of an Event of Default :
 
 
(1)
give notice in writing to a Security Provider declaring that the relevant Secured Moneys are immediately due and payable;
 
 
(2)
appoint a Controller under a Security;  
 
 
(3)
otherwise enforce or take steps to enforce a Security as directed in writing by the Majority Beneficiaries; or
 
 
(4)
do any one or more of the things in clauses  6.4(a)(1) , 6.4(a)(2) and 6.4(a)(3) .
 
 
(b)
The Security Trustee must if entitled by law to do so, appoint a Controller under the Corporations Act to a Security Provider if so instructed by the Majority Beneficiaries.
 
 
(c)
The Security Trustee must if entitled by law to do so, appoint an administrator under the Corporations Act to a Security Provider if, but only if, instructed to do so by the Majority Beneficiaries.
 
 
(d)
The Security Trustee must at any time after action under clause  6.4(a) , (b) or (c) has been taken, do any other things it considers appropriate (or as instructed by the Majority Beneficiaries) to enforce the whole or any part of the Security in respect of which that first mentioned action was taken and to exercise its Powers under that Security.
 
 
(e)
The Security Trustee must, if so instructed by all Beneficiaries release or discharge:
 
 
(1)
any specified Security in full; or
 
 
(2)
all or any specified assets from any specified Security,
 
but otherwise must not release or discharge a Security or any specified assets from a Security unless required by law or by the express provisions of a Transaction Document to do so.
 
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Samson Oil and Gas Security Trust Deed
 
 
(f)
If the Security Trustee is directed by the Majority Beneficiaries to appoint a Controller under a Security, it must appoint a Controller selected by Majority Beneficiaries.
 
 
(g)
A notice under clause  6.4(a)(1) is not required for money to be made payable or for any enforcement action (including appointment of a Controller or declaring that money is due and payable) under the Transaction Documents as long as the money is payable or the enforcement action can be taken under the Transaction Documents.
 
 
6.5
Exercise of other ancillary powers
 
 
(a)
The Security Trustee:
 
 
(1)
is not responsible for, or liable to any person in respect of, any absence of, or defect in, title or for its inability to exercise any of its Powers under a Security or Transaction Document arising from any absence of, or defect in, title; and
 
 
(2)
need not give notice to any person of the execution of any Security or Transaction Document nor obtain any licence, consent or other authority for the execution of any Security and is not liable to any person for failure to do so.
 
 
(b)
The Security Trustee:
 
 
(1)
may rely on any certificate, notice or other document (including any email , facsimile transmission or telegram) it believes to be genuine and correct and to have been signed or sent by or on behalf of the proper or authorised person or persons;
 
 
(2)
may rely on any advice or statements of solicitors, independent accountants or other experts selected by the Security Trustee with reasonable care; and
 
 
(3)
must place any Security, title document or other document, deed or certificate relating to a Security for the time being in its possession in any properly and safely maintained safe deposit, safe or receptacle selected by it, or with any bank or financial institution   (including a Beneficiary) or person whose business includes undertaking the safe custody of documents, or with any lawyer or firm of lawyers,
 
in any such case without being responsible, or liable, to any person for any loss occasioned by doing so.
 
 
6.6
Right to appoint agent, delegates
 
 
(a)
The Security Trustee, instead of acting personally, may employ an agent to do any act required or permitted to be done under this deed or in relation to the Securities.
 
 
(b)
The Security Trustee may at its own cost:
 
(1)
delegate any of its Powers under this deed or in relation to the Securities, either wholly or partially or subject to any limitations or restrictions, to any person (including any Beneficiary) as it thinks fit, proper or appropriate in its absolute discretion if that delegate agrees to be bound by the terms of this deed as if it was a party to it;  
 
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Samson Oil and Gas Security Trust Deed
 
(2)
for the purpose of any delegation under clause  6.6(b)(1) , execute such powers of attorney or other instruments as it thinks proper; and
 
(3)
revoke any delegation under clause  6.6(b)(1) or power or instrument under clause  6.6(b)(2) , from time to time.
 
 
(c)
No person dealing with the Security Trustee, or any delegate referred to in clause  6.6(b) is bound to enquire whether the delegation remains in force.
 
 
(d)
The Security Trustee may act or rely on the opinion, certificate or advice of, or information obtained from, any agent, delegate or adviser appointed by it. The Security Trustee is not responsible for any loss occasioned by doing so if the Security Trustee has acted in good faith and has not been guilty of fraud, wilful default or gross negligence in so acting.
 
 
(e)
Despite an appointment under clause  6.6(b) , but subject to clause  6.14(a)(2) , the Security Trustee remains liable for any act or omission of any appointee as if such act or omission was of the Security Trustee.
 
 
6.7
Events of Default
 
 
(a)
The Security Trustee is not to be regarded as having knowledge of the occurrence of any Default unless the Security Trustee:
 
(1)
has received notice ( Default Notice ) from a Transaction Party or Beneficiary referring to this deed or the relevant Transaction Document and stating that a Default has occurred and describing the event and stating that the notice is a “Default Notice”; or
 
(2)
is actually aware that a Default has occurred.
 
 
(b)
If the Security Trustee receives a Default Notice or becomes actually aware that a Default has occurred, the Security Trustee must promptly notify all Beneficiaries of the occurrence.
 
 
(c)
If the Security Trustee receives a Default Notice, the Security Trustee may consider the Default to be continuing until it has received a further notice from the party giving the original notice stating that the Default is no longer continuing. The Security Trustee may rely on the second notice for all purposes under this deed and the Transaction Documents.
 
 
6.8
No monitoring
 
The Security Trustee is not required to:
 
 
(a)
keep itself informed as to the performance or observance by any Transaction Party of its obligations under any Transaction Document   or any other document or agreement to which any one or more of them is a party; or
 
 
(b)
inspect the properties or books of any Transaction Party   or to assess or keep under review the business, operations, financial condition, creditworthiness or status of the affairs of any Transaction Party.
 
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Samson Oil and Gas Security Trust Deed
 
 
6.9
Information
 
 
(a)
The Security Trustee must forward to each Beneficiary a copy of each notice, report, set of accounts or other document promptly after the Security Trustee receives it from a Transaction Party under any Transaction Document.
 
 
(b)
The Security Trustee is not obliged to review or check the accuracy or completeness of any report, notice or other document it forwards to any Beneficiary or other person.
 
 
(c)
Except for any notices, reports, accounts or other documents or information which the Security Trustee is required to provide under any Transaction Document, the Security Trustee has no duty or responsibility, but is authorised in its absolute discretion, to provide any Beneficiary with any credit or other information concerning the assets, liabilities, financial condition or business of any Transaction Party   or any of its respective Subsidiaries or Related Body Corporate, which may come into the possession of the Security Trustee.
 
 
(d)
Nothing in any Transaction Document obliges the Security Trustee to disclose any information relating to any Transaction Party if the disclosure would,   or might in the reasonable opinion of the Security Trustee , constitute a breach of any law or duty of secrecy or confidence.
 
 
6.10
Security Trustee to have same rights as Beneficiaries
 
The Security Trustee, in its capacity as a Beneficiary (if it is or becomes one) has the same rights, powers and discretions under this deed as any other Beneficiary and may exercise the same as if it were not acting as the Security Trustee.
 
 
6.11
Security Trustee may contract
 
The Security Trustee may, despite any rule of law or equity to the contrary, enter into any contract or arrangement and transact any kind of business with any Beneficiary or Transaction Party and is not liable to account for any fee, remuneration or profit received or accruing in connection with that contract, arrangement or transaction.
 
 
6.12
Exercise of Powers
 
The Security Trustee or any shareholder, director, Officer or employee of the Security Trustee may be interested as a director, Officer, employee, shareholder, manager or professional advisor or may otherwise stand in a fiduciary position in relation to any party to this deed or any other person and that interest or fiduciary position does not preclude the Security Trustee from exercising any Power (including where an exercise of that Power may benefit that party or person).
 
 
6.13
Application to court for direction
 
The Security Trustee may apply to a court for directions in relation to any question relating to its duties under this deed or to its Powers.
 
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Samson Oil and Gas Security Trust Deed
 
 
6.14
Security Trustee not liable
 
 
(a)
The Security Trustee is not, and its   Related Bodies Corporate (if any) ,   Subsidiaries , directors, Officers, employees, agents, successors or attorneys are not, liable to any party for:
 
 
(1)
any loss or damage occurring as a result of it exercising, failing to exercise or purporting to exercise any Power under this deed or in relation to a Transaction Document;
 
 
(2)
any act of any agent, delegate, Officer or employee of the Security Trustee;
 
 
(3)
any other matter or thing done, or not done, by it in relation to this deed or a Transaction Document;
 
 
(4)
any absence of, or defect in, title or any inability to exercise any of its Powers under a Security;
 
 
(5)
any failure by a Transaction Party to perform its obligations under a Transaction Document;
 
 
(6)
the financial condition or solvency of a Transaction Party;
 
 
(7)
any statement, representation or warranty of a Transaction Party being incorrect or misleading in any respect;
 
 
(8)
acting in accordance with the instructions of one or more of the Beneficiaries or all of the Beneficiaries (as applicable) in accordance with this deed or for refraining from acting in accordance with the instructions of one or more of the Beneficiaries or all of the Beneficiaries (as applicable) in accordance with this deed, or where there are no instructions which are required by this deed for the Security Trustee to act or refrain from acting;
 
 
(9)
acting on any written communication, notice or other document containing a direction or instructions purporting to have been given by one or more of the Beneficiaries ,   the Majority Beneficiaries or all of the Beneficiaries which the Security Trustee believes to be genuine and correct and to have been signed by, or sent by or on behalf of, the proper person;
 
 
(10)
acting on any written communication, notice or other document containing a direction or instructions purporting to have been given by one or more of the Beneficiaries ,   the Majority Beneficiaries or all of the Beneficiaries passed at a meeting of the Beneficiaries at which minutes were made and signed, even though it may subsequently be found that there was some defect in the constitution of the meeting or the passing of the resolution or that for any other reason the resolution was not valid or binding on any of the Beneficiaries whom it purported to bind, or on the Security Trustee; or
 
 
(11)
the value, validity, effectiveness, genuineness, enforceability or sufficiency of any Security, Transaction Document or any other certificate or document given under any of them ,
 
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Samson Oil and Gas Security Trust Deed
 
to the extent that the Security Trustee and its agents, delegates, Officers and employees have acted reasonably in all the circumstances and have not been guilty of fraud, wilful default or gross negligence.
 
 
(b)
Nothing in this clause  6.14 exempts the Security Trustee from liability to a Beneficiary if it fails to follow the lawful directions of one or more of the Beneficiaries ,   the Majority Beneficiaries or all of the Beneficiaries given in accordance with this deed (as applicable) or fails to obtain the required consent of one or more of the Beneficiaries , the Majority Beneficiaries   the Agent or all of the Beneficiaries in any circumstance where the direction is lawfully given or the consent is required under this deed.
 
 
(c)
Failure by the Security Trustee to act due to lack of instructions or lack of proper instructions from one or more of the Beneficiaries , the Majority Beneficiaries or all of the Beneficiaries required to be given under this deed ( as applicable) does not amount to fraud, wilful default or   gross negligence of the Security Trustee.
 
 
(d)
The Security Trustee is not bound by any waiver, amendment, supplement or modification of any Transaction Document unless it gives its prior written consent as Security Trustee under the Transaction Document.
 
 
(e)
The Security Trustee is not liable to any Transaction Party because a Beneficiary fails to perform its obligations under a Transaction Document.
 
 
6.15
Indemnity
 
 
(a)
Subject to clause  6.15(b) and:
 
 
(1)
without prejudice to any right of indemnity given to it by law or equity; and  
 
 
(2)
in addition to, and without prejudice to, any other indemnity in any other Transaction Document,
 
the Security Trustee is entitled to be indemnified out of any money from time to time received by the Security Trustee under the Securities or otherwise forming part of the Trust Fund in respect of:
 
 
(3)
all losses, damages, liabilities and expenses (including any money paid or to be paid for the employment or appointment of any agent) sustained or incurred by it directly or indirectly in the exercise or purported exercise of the Powers under this deed or in relation to the other Transaction Documents or in connection with, or arising out of, its role as Security Trustee (including amounts incurred by the Security Trustee’s agents, advisers, experts or consultants under or in relation to the Transaction Documents); and
 
 
(4)
all actions, proceedings, costs, claims and demands arising in relation to this deed or any other Transaction Document,
 
and the Security Trustee may from time to time retain and pay out of any money recovered from the Securities or otherwise forming part of the Trust Fund an amount to satisfy that indemnity.
 
 
(b)
If there is no money available for the Security Trustee to satisfy its indemnity under clause  6.15(a)(1) , each Beneficiary severally in its Share indemnifies the Security Trustee against that amount and must pay its Share to the Security Trustee within 3 Business Days of demand (the Share of a Beneficiary being determined, as if the date of demand was the Determination Date).   If any Beneficiary is a natural person then that Beneficiary will not be required to indemnify the Security Trustee under this clause 6.15(b) and the Security Trustee will not be able to recover any such amount from that Beneficiary.
 
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Samson Oil and Gas Security Trust Deed
 
 
(c)
The indemnity in clause  6.15(a)(1) does not apply:
 
 
(1)
where the Security Trustee or any of its Officers, agents, delegates, or employees is guilty of fraud, wilful default or gross negligence; or
 
 
(2)
to the extent that any Beneficiary (as beneficiary under this deed) may have a claim against the Security Trustee in accordance with any Transaction Document.
 
 
(d)
Each Security Provider jointly and severally indemnifies:
 
 
(1)
each Beneficiary against all amounts it is required to pay under clause  6.15(b) (other than amounts arising from any dispute between any Beneficiary and any other Beneficiary or the Security Trustee as to the determination of priority amounts or the sharing of money under this deed) and must pay amounts under this clause  6.15(a) on demand;.
 
 
(2)
the Security Trustee for amounts for a natural person would be required to indemnify it under clause 6.15(b) but for the last sentence of that clause.
 
 
6.16
Protection of third parties
 
No person dealing with the Security Trustee is bound to enquire whether the Security Trustee:
 
 
(a)
has been properly appointed under this deed; or
 
 
(b)
has the requisite Power under this deed or another Transaction Document,
 
and any person dealing with the Security Trustee   may assume that anything purported to be done by the Security Trustee under this deed or another Transaction Document has been duly authorised by this deed and the Beneficiaries.
 
 
6.17
Exclusions of law where permitted
 
All liabilities and responsibilities which may from time to time be imposed on the Security Trustee at law or in equity are, to the extent permitted at law or in equity, and, except to the extent provided to the contrary in this deed, expressly negatived and waived by the other parties.
 
 
6.18
Independent decisions by Beneficiaries
 
 
(a)
Each Beneficiary acknowledges that it has, independently and without reliance on the Security Trustee or any other Beneficiary, and based on the documents and information it has considered appropriate, made its own investigation into the affairs and financial condition of each Transaction Party and the value, validity, effectiveness, genuineness and enforceability of each Transaction Document.
 
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Samson Oil and Gas Security Trust Deed
 
 
(b)
Each Beneficiary must independently and without reliance on the Security Trustee or any other Beneficiary, and based on the documents and information it considers appropriate, continue to make its own analysis and decisions in relation to its rights and obligations under any document or agreement to which it and any other Beneficiary or any other Transaction Party is a party.
 
 
(c)
The Security Trustee is not liable if a Beneficiary fails to do anything referred to in clause  6.18(a) or 6.18(b) or if a Beneficiary suffers loss or damage as a result of doing anything referred to in clause  6.18(a) or 6.18(b) .
 
 
6.19
Variation
 
The provisions of this clause  6 , other than clauses  6.14 and 6.15 , may be amended from time to time by   written agreement between the Security Trustee and the Beneficiaries   without the approval of the Security Providers   and so long as the amendment does not increase the liability of any other party or derogate from the rights of any other party.
 
 
6.20
Additional matters
 
 
(a)
The rights and obligations of the Security Trustee under this deed are in addition to, and without prejudice to, its rights and obligations under the other Transaction Documents.
 
 
(b)
If there is any inconsistency between the rights and obligations of the Security Trustee under this deed and the rights and obligations of the Security Trustee under any other Transaction Document, those under this deed prevail to the extent of the inconsistency.
 
 
6.21
Fees
 
The Security Trustee must be paid the fees by the persons agreeing to pay them in accordance with any letters to that effect from or to the Security Trustee.
 
 
7
Termination of Security Trustee ’s appointment
 
 
7.1
Termination of appointment
 
 
(a)
The Security Trustee may resign at any time by giving at least 20 Business Days notice to each Beneficiary to that effect.
 
 
(b)
The Security Trustee may be removed at any time by the Majority Beneficiaries giving to the Security Trustee at least 20 Business Days notice to that effect.
 
 
(c)
On the termination of the Security Trustee’s appointment, whether by resignation, removal or otherwise, the Security Trustee is released from any further obligations as Security Trustee under this deed and the other Transaction Documents from the time of that termination, but the release does not prejudice any liability in respect of any default arising before the termination of appointment.
 
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Samson Oil and Gas Security Trust Deed
 
 
7.2
Assurances
 
Despite clause  7.1 and the terms of any Transaction Document, no resignation, removal or release of the Security Trustee takes effect unless:
 
 
(a)
a successor Security Trustee has been appointed in accordance with clause  7.3 ;
 
 
(b)
the successor Security Trustee undertakes to act as Security Trustee and be bound in that capacity by the terms of this deed and each Security to which the Security Trustee is a party   and executes documents, if required by a Beneficiary, to confirm that undertaking; and
 
 
(c)
the successor Security Trustee obtains title to each Security and the Trust Fund in its capacity as Security Trustee.
 
 
7.3
Appointment of successor Security Trustee
 
 
(a)
If the appointment of the Security Trustee is terminated, by resignation, removal or otherwise, the Majority Beneficiaries may appoint a successor Security Trustee .
 
 
(b)
If no successor Security Trustee is appointed by the Majority Beneficiaries, or accepts the appointment, within 20 Business Days after:
 
 
(1)
notice of resignation or removal is given in accordance with clause  7.1 ; or
 
 
(2)
the Security Trustee’s appointment is otherwise terminated,
 
the terminated Security Trustee may, on behalf of each Beneficiary, appoint a successor Security Trustee on the same terms as the terminated Security Trustee.
 
 
(c)
Each Beneficiary and each Security Provider is bound by the terms of any appointment made under clause  7.3(b) .
 
 
(d)
The Security Trustee, each Beneficiary and each Transaction Party must do all things necessary, including executing any deeds of appointment or vesting, to ensure that the appointment of any successor Security Trustee is properly and promptly effected.
 
 
(e)
When a successor Security Trustee is appointed, the new Security Trustee and each other party to the Transaction Documents has the same rights and obligations among themselves as they would have had if the new Security Trustee had been an original party to the Transaction Documents (other than in relation to any accrued rights against the terminated Security Trustee for default under the Transaction Documents).
 
 
(f)
Each Beneficiary and each other party to this deed (other than the Security Trustee), for consideration received, appoints the Security Trustee and each Officer for the time being and from time to time of the Security Trustee severally its attorney, in its name and on its behalf, to do all things and execute, sign seal and deliver (conditionally or unconditionally in the attorney’s discretion) all documents, deeds and instruments necessary or desirable for the appointment of a successor Security Trustee under clause  7.3(b) and to vest in that successor Security Trustee all of the Trust Fund or any part of it.
 
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Samson Oil and Gas Security Trust Deed
 
 
(g)
The power in clause  7.3(f) may be delegated or a sub-power may be given, and any delegate or sub-attorney may be removed by the attorney appointing it.
 
 
8
Changes to Beneficiaries and Security Providers
 
 
8.1
Transfers by Beneficiaries
 
A Beneficiary may assign any of its rights or novate any of its rights and obligations under any of the Transaction Documents to any person and in any manner permitted under and in accordance with the Transaction Documents.
 
 
8.2
New Beneficiaries pursuant to transfers
 
 
(a)
If a Beneficiary assigns any of its rights or novates any of its rights and obligations under any of the Transaction Documents to which it is a party to a New Beneficiary, the New Beneficiary may become a Beneficiary by executing an Accession Deed (Beneficiary).
 
 
(b)
Each Security Provider and each other Beneficiary for consideration received, irrevocably appoints the Security Trustee, and each Officer for the time being and from time to time of the Security Trustee, severally its attorney to execute any Accession Deed (Beneficiary) for and in the name of the Security Provider or the Beneficiary (as applicable).
 
 
(c)
When a New Beneficiary executes an Accession Deed (Beneficiary):
 
 
(1)
it becomes a Beneficiary and becomes bound by this deed and receives the benefits of a Beneficiary under this deed on the same basis as if it were a party to this deed;
 
 
(2)
the assigning or transferring Beneficiary continues to be bound by this deed unless it has assigned all of its rights, or novated all of its rights and obligations, to one or more New Beneficiaries, in which case it is a Retired Beneficiary;
 
 
(d)
A Beneficiary that assigns any of its rights or novates any of its rights and obligations under any of the Transaction Documents to which it is a party to a New Beneficiary must require, as a condition of that assignment or novation, that the New Beneficiary execute an Accession Deed (Beneficiary) in accordance with this clause  8.2 .
 
 
8.3
Other New Beneficiaries
 
 
(a)
A person may become a Beneficiary other than pursuant to an assignment or novation pursuant to clause  8.2 by executing an Accession Deed (Beneficiary).
 
 
(b)
Each Beneficiary and each Security Provider, for consideration received, irrevocably appoints the Security Trustee, and each Officer for the time being and from time to time of the Security Trustee, severally as its attorney to execute for and in the name of the Beneficiary or the Security Provider, (as applicable) each Accession Deed (Beneficiary) referred to in clause  8.3(a) .
 
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Samson Oil and Gas Security Trust Deed
 
 
(c)
When a New Beneficiary executes an Accession Deed (Beneficiary) referred to in clause  8.3(a) it becomes bound by this deed and receives the benefits of a Beneficiary under this deed on the same basis as if it were a party to this deed.
 
 
8.4
New Security Provider
 
 
(a)
Immediately a person who is not already a Security Provider grants a Collateral Security, each Transaction Party must ensure that,   if the person is a Related Body Corporate of that Transaction Party, the person becomes a party to this deed as a Security Provider by executing an Accession Deed (Security Provider).
 
 
(b)
Each Beneficiary and each Security Provider, for consideration received, irrevocably appoints the Security Trustee, and each Officer for the time being and from time to time of the Security Trustee, severally its attorney to execute for and in the name of the Beneficiary or the Security Provider, (as applicable) any Accession Deed (Security Provider).
 
 
8.5
Notice of change
 
 
(a)
A Beneficiary must promptly notify the Security Trustee of any assignment or novation of that Beneficiary’s rights, benefits or obligations under any Transaction Document.
 
 
(b)
The Security Trustee may treat each Beneficiary (or any assignee or substitute Beneficiary of which the Security Trustee has actual notice) as the holder of the benefit of that Beneficiary’s interests under the Transaction Documents for all purposes, until it receives notice under clause  8.5(a) to the contrary.
 
 
9
Savings provisions
 
 
9.1
Continuing indemnities
 
 
(a)
Each indemnity contained in this deed and each other Transaction Document is a continuing obligation despite:
 
 
(1)
any settlement of account; or
 
 
(2)
the occurrence of any other thing,
 
and remains in full force and effect until:
 
 
(3)
all money owing, contingently or otherwise, under any Transaction Document has been paid in full; and
 
 
(4)
each Transaction Document has been finally discharged.
 
 
(b)
Each indemnity in this deed and each other Transaction Document is an additional, separate and independent obligation and no one indemnity limits the general application of any other indemnity.
 
page 25
 
Samson Oil and Gas Security Trust Deed
 
 
9.2
Non-avoidance
 
The provisions of this deed are not affected by anything which, but for this provision, might have that effect, including:
 
 
(a)
the respective times and dates on which, or the order in which, any of the Transaction Documents were executed, delivered or registered;
 
 
(b)
the respective times and dates on which, or the order in which, the debts and monetary liabilities comprising all or any part of any of the Secured Moneys are incurred or become due;
 
 
(c)
anything contained in any of the Transaction Documents;
 
 
(d)
the enforcement or attempted enforcement of, or the exercise or attempted exercise of any other Power under, any of the Transaction Documents;
 
 
(e)
the repayment from time to time of all or any part of any of the Secured Moneys;
 
 
(f)
the fluctuation (including the reduction and subsequent increase) from time to time of all or any part of any of the Secured Moneys;
 
 
(g)
a Beneficiary being or not being from time to time obliged to:
 
 
(1)
perform its obligations under any Transaction Document at the request, or for the benefit, of any Transaction Party; or
 
 
(2)
do anything which may cause money to become due by any Transaction Party to that Beneficiary;
 
 
(h)
that all or any part of the Secured Moneys are contingent or prospective;
 
 
(i)
the appointment of a liquidator, Controller or other similar officer to a Transaction Party or to all or any part of the assets of a Transaction Party;
 
 
(j)
the liquidation of a Transaction Party;
 
 
(k)
a person becoming or ceasing to be a Beneficiary or a Transaction Party; or
 
 
(l)
any provision of any statute or any rule of law or equity to the contrary.
 
 
9.3
Exclusion of moratorium
 
To the extent not excluded by law, a provision of any legislation which at any time directly or indirectly lessens, stays, postpones, prevents or otherwise prejudicially affects the exercise of any Power, is negatived and excluded from this deed, and all relief and protection conferred on a Transaction Party by or under that legislation is also negatived and excluded.
 
 
10
General
 
 
10.1
Performance by Security Trustee of obligations
 
If a Transaction Party defaults in fully and punctually performing any obligation contained or implied in any Transaction Document, the Security Trustee may, without prejudice to any Power, do all things necessary or desirable, in the Security Trustee’s opinion, to make good or attempt to make good that default to the Security Trustee’s satisfaction.
 
page 26
 
Samson Oil and Gas Security Trust Deed
 
10.2  
Transaction Party to bear cost
 
Except as otherwise expressly provided in a Transaction Document, any thing which must be done by a Transaction Party under any Transaction Document, whether or not at the request of the Security Trustee, is to be done at the cost of the Transaction Party.
 
10.3  
GST
 
If a party is entitled under this deed to be reimbursed or indemnified by another party for a cost or expense incurred in connection with this deed, the reimbursement or indemnity payment must not include any GST component of the cost or expense for which an input tax credit may be claimed by the party entitled to be reimbursed or indemnified, or by its representative member.
 
10.4  
Notices
 
Any notice or other communication including any request, demand, consent or approval, to or by a party to any Transaction Document:
 
(a)  
must be in legible writing and in English addressed as shown below:
 
(1)  
if to the Security Trustee:
 
Address:   Level 1, No. 1 Martin Place
  Sydney NSW 2000
 
Attention:   Metals and Energy Capital Division - Vanessa  Lenthall
 
Facsimile:   (61 2) 8232 3590
 
(2)  
if to an Initial Beneficiary, to the address set out in schedule 1;
 
(3)  
if to an Initial Security Provider, to the address set out in schedule 2;
 
(4)  
if to any other Beneficiary, to the address notified by that Beneficiary to the Security Trustee in writing,
 
or as specified to the sender by any party by notice;
 
(b)  
must be signed by an Officer of the sender;
 
(c)  
is regarded as being given by the sender and received by the addressee:
 
(1)  
if by delivery in person, when delivered to the addressee;
 
(2)  
if by post, on delivery to the addressee; or
 
(3)  
if by facsimile transmission, whether or not legibly received, when received by the addressee,
 
but if the delivery or receipt is on a day which is not a Business Day or is after 4pm (addressee’s time) it is regarded as received at 9am on the following Business Day; and
 
page 27
 
Samson Oil and Gas Security Trust Deed
 
(d)  
can be relied on by the addressee and the addressee is not liable to any other person for any consequences of that reliance if the addressee believes it to be genuine, correct and authorised by the sender.
 
A facsimile transmission is regarded as legible unless the addressee telephones the sender within 2 hours after the transmission is received or regarded as received under clause  10.4(c) and informs the sender that it is not legible.
 
10.5  
Governing law and jurisdiction
 
(a)  
This deed is governed by the laws of New South Wales;.
 
(b)  
The parties irrevocably submits to the non-exclusive jurisdiction of the courts of New South Wales.
 
(c)  
Each Security Provider irrevocably waives any objection to the venue of any legal process on the basis that the process has been brought in an inconvenient forum.
 
(d)  
Each Security Provider irrevocably waives any immunity in respect of its obligations under this deed that it may acquire from the jurisdiction of any court or any legal process for any reason including the service of notice, attachment before judgment, attachment in aid of execution or execution.
 
(e)  
Each Security Provider appoints Samson Oil and Gas Limited   of Level 36, Exchange Plaza, 2 The Esplanade, Perth WA 6000   in relation to proceedings in   New South Wales   as its agent to receive service of any legal process on its behalf (including under, in relation to or in connection with a Transaction Document) without excluding any other means of service permitted by the law of New South Wales or that other jurisdiction.
 
(f)  
Samson Oil and Gas Limited accepts its appointment under clause 10.5(e).
 
(g)  
Each party expressly agrees and consents to the provisions of this clause 10.5.
 
10.6  
Prohibition and enforceability
 
(a)  
Any provision of, or the application of any provision of, any Transaction Document or any Power which is prohibited in any jurisdiction is, in that jurisdiction, ineffective only to the extent of that prohibition.
 
(b)  
Any provision of, or the application of any provision of, any Transaction Document which is void, illegal or unenforceable in any jurisdiction does not affect the validity, legality or enforceability of that provision in any other jurisdiction or of the remaining provisions in that or any other jurisdiction.
 
10.7  
Waivers
 
(a)  
Waiver of any right arising from a breach of this deed or of any Power arising on default under this deed or on the occurrence of an Event of Default must be in writing and signed by the party granting the waiver.
 
(b)  
A failure or delay in exercise, or partial exercise, of:
 
page 28
 
Samson Oil and Gas Security Trust Deed
 
(1)  
a right arising from a breach of this deed or the occurrence of an Event of Default; or
 
(2)  
a Power created or arising on default under this deed or on the occurrence of an Event of Default,
 
does not result in a waiver of that right or Power.
 
(c)  
A party is not entitled to rely on a delay in the exercise or non-exercise of a right or Power arising from a breach of this deed or on a default under this deed or on the occurrence of an Event of Default as constituting a waiver of that right or Power.
 
(d)  
A party may not rely on any conduct of another party as a defence to exercise of a right or Power by that other party.
 
(e)  
This clause may not itself be waived except by writing.
 
10.8  
Variation
 
Subject to clause  6.19 , a variation of any term of this deed must be in writing and signed by the parties.
 
10.9  
Cumulative rights
 
The Powers are cumulative and do not exclude any other right, power, authority, discretion or remedy of the Security Trustee, Receiver or Attorney.
 
10.10  
Consents of Security Trustee
 
Despite the terms of any other Transaction Document, to be binding or effective a consent or approval given by the Security Trustee must be in writing signed by a director, secretary or Officer of the Security Trustee.
 
10.11  
Limited Recourse of Security Provider
 
To the extent that either:
 
(a)  
the liability of a Security Provider is limited under the terms of a Security or other Transaction Document to which it is a party; or
 
(b)  
the rights of recourse or other rights, powers and remedies of the Security Trustee or the Beneficiaries or both are limited under a Security or other Transaction Document to which a Security Provider is a party,
 
then the liability of that Security Provider or the rights of recourse and other rights, powers and remedies of the Security Trustee or the Beneficiaries or both in respect of that Security Provider are limited to the same extent as if the applicable provisions were set out in this deed in full.
 
10.12  
Counterparts
 
This deed may be executed in any number of counterparts. All counterparts together and taken to form one and the same instrument.
 
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Samson Oil and Gas Security Trust Deed
 
10.13  
Attorneys
 
Each of the attorneys executing this deed states that the attorney has no notice of the revocation of the power of attorney appointing that attorney.
 
page 30
 
Samson Oil and Gas Security Trust Deed
 
Schedule 1 - Initial Beneficiaries
 
Name
 
ABN/ACN/ARBN
 
Address and service details
Macquarie Bank Limited
 
ABN 46 008 585 542
 
Address:    Level 1, No. 1 Martin
Place Sydney NSW 2000
Attention:   Metals and Energy
Capital Division -
Vanessa Lenthall
Facsimile:   +61 2 8232 3590
         
 
page 31
 
Samson Oil and Gas Security Trust Deed
 
 
Schedule 2 - Initial Security Providers
 
Name
 
ABN/ACN/ARBN
 
Address
Samson Oil and Gas Limited
 
ABN 25 009 069 005
 
Address:    Level 36, Exchange Plaza,
2 The Esplanade  
Perth WA 6000
Attention:   Denis Rakich
Facsimile:   +61 8 9220 9820
         
Samson Oil and Gas USA Inc
 
N/A
 
Address:    1726 Cole Blvd., Suite 210,
Lakewood, Colorado 80401 USA
Attention:   Robyn Lamont
Facsimile:   +1 303 295 1961
 
 
page 32
 
Samson Oil and Gas Security Trust Deed
 
 
Executed as a deed:
 
Security Providers:

Signed sealed and delivered for
Samson Oil and Gas Limited
by its attorney in the
presence of:
 
       
/s/ Robyn Lamont       /s/ Terence M. Barr   
Witness 		   
Attorney
       
Robyn Lamont
    Terence M. Barr  
Name (please print)
   
Name (please print)
 
Signed sealed and delivered for
Samson Oil and Gas USA Inc
by its attorney in the
presence of:
 
       
/s/ Robyn Lamont     /s/ Terence M. Barr   
Witness   		   
Authorised Signatory
       
Robyn Lamont     Terence M. Barr  
Name (please print)
   
Name (please print)
 
 
page 33
 
Initial Beneficiaries:

Signed sealed and delivered for
Macquarie Bank Limited
by its attorneys in the
presence of:
 
       
/s/ Christian A. Coulter     /s/ Thomas Callinan  
Witness 		   
Attorney
       
Christian A. Cutler     Thomas Callinan  
Name (please print)
   
Name (please print)
       
      /s/   Andrew Sinclair
     
Attorney
       
      Andrew Sinclair
     
Name (please print)
       
   
Security Trustee:

Signed sealed and delivered for
Macquarie Bank Limited
by its attorneys in the
presence of:
 
       
/s/ Christian A. Coulter     /s/ Thomas Callinan  
Witness 		   
Attorney
       
Christian A. Cutler       Thomas Callinan  
Name (please print)
   
Name (please print)
       
      /s/ Andrew Sinclair
     
Attorney
       
      Andrew Sinclair
     
Name (please print)
       
 
 
page 34
 
 

EXECUTION COPY

PURCHASE AND SALE AGREEMENT

Between

Samson Oil and Gas USA Inc.

as
Purchaser

and

Stanley Energy, Inc.
and
Stanley Energy W., Inc.
as
Seller

Dated as of March 6, 2006
 

TABLE OF CONTENTS

ARTICLE 1 PURCHASE AND SALE
 
1
Section 1.1
Purchase and Sale
 
1
Section 1.2
Assets
 
1
Section 1.3
Effective Date and Time
 
3
Section 1.4
Conveyance
 
3
ARTICLE 2 PURCHASE PRICE
 
3
Section 2.1
Purchase Price
 
3
Section 2.2
Determination of Adjusted Purchase Price
 
3
Section 2.3
Payment of Adjusted Purchase Price
 
6
Section 2.4
Preliminary and Final Adjustment Statements
 
7
Section 2.5
Allocation of Purchase Price
 
8
ARTICLE 3 DUE DILIGENCE INSPECTION
 
8
Section 3.1
Access to Information
 
8
Section 3.2
Access to the Assets
 
8
ARTICLE 4 TITLE MATTERS
 
9
Section 4.1
Defective Interests; Adjustments
 
9
Section 4.2
Identification of Defective Interests
 
11
Section 4.3
Casualty Loss
 
14
ARTICLE 5 ENVIRONMENTAL MATTERS
 
15
Section 5.1
Definitions
 
15
Section 5.2
Adjustments for Environmental Defects
 
15
 
i

ARTICLE 6 CLOSING, PAYMENT AND CERTAIN ACTIONS OF THE PARTIES PRIOR TO CLOSING
 
16
Section 6.1
Time and Place of Closing
 
16
 
     
Section 6.2
Government Reviews
 
17
Section 6.3
Inconsistent Activities
 
17
Section 6.4
Division Orders; Transfer Orders
 
17
Section 6.5
Public Announcements
 
18
Section 6.6
Information Kept Confidential
 
18
Section 6.7
Operation of Business
 
19
Section 6.8
Notice of Proceedings and Proposals
 
19
Section 6.9
Consents
 
20
Section 6.10
Financing
 
20
ARTICLE 7 REPRESENTATIONS AND WARRANTIES OF SELLER
 
20
Section 7.1
Organization, Standing and Power
 
20
Section 7.2
Authority and Enforceability
 
21
Section 7.3
Liability for Brokers’ Fees
 
21
Section 7.4
Compliance with Laws; Litigation
 
21
Section 7.5
Necessary Governmental Authorizations
 
22
Section 7.6
Tax Matters
 
22
Section 7.7
Operations
 
22
Section 7.8
Operating Agreements
 
23
Section 7.9
Wells
 
23
Section 7.10
Basic Documents
 
23
Section 7.11
Conduct of Business
 
23
Section 7.12
Leases
 
24
 
ii

Section 7.13
Gas Contracts
 
24
Section 7.14
Calls on Production; Prepayments; Imbalances
 
24
Section 7.15
Taxpayer Identification Number
 
25
Section 7.16
No Bankruptcy
 
25
Section 7.17
Income Taxes
 
25
Section 7.18
Tax Partnerships
 
25
Section 7.19
Consents; Preferential Rights to Purchase
 
25
Section 7.20
Plugging and Abandonment
 
25
Section 7.21
Depth Restrictions
 
25
ARTICLE 8 REPRESENTATIONS AND WARRANTIES OF PURCHASER
 
26
Section 8.1
Organization, Standing and Power
 
26
Section 8.2
Authority and Enforceability
 
26
Section 8.3
Liability for Brokers’ Fees
 
26
Section 8.4
Litigation
 
26
Section 8.5
Necessary Governmental Authorizations
 
27
Section 8.6
Authority to Hold Federal Leases
 
27
Section 8.7
Independent Evaluation
 
27
ARTICLE 9 ASSUMPTION OF LIABILITIES INDEMNIFICATION
 
28
Section 9.1
Purchaser Assumption of Liabilities and Obligations
 
28
Section 9.2
Seller's Retention of Liabilities and Obligations
 
28
Section 9.3
Indemnification
 
28
Section 9.4
Procedure
 
29
Section 9.5
No Insurance, Subrogation
 
30
Section 9.6
Reservation as to Non-Parties
 
31
 
iii

Section 9.7
Survival of Representations, Warranties and Covenants
 
31
Section 9.8
Survival of Indemnification Obligations; Guaranty
 
31
ARTICLE 10 CONDITIONS TO CLOSING
 
31
Section 10.1
Conditions to Obligation of Purchaser to Close
 
31
Section 10.2
Conditions to Obligation of Seller to Close
 
32
Section 10.3
Seller’s Obligations at Closing
 
33
Section 10.4
Purchaser’s Obligations at Closing
 
33
Section 10.5
Obligation of Both Parties at Closing
 
34
ARTICLE 11 TERMINATION AND AMENDMENT
 
34
Section 11.1
Termination
 
34
Section 11.2
Effect of Termination
 
35
Section 11.3
Amendment
 
36
ARTICLE 12 EXPENSES AND TRANSFER TAXES
 
36
Section 12.1
Expenses
 
36
Section 12.2
Sales Taxes and Assessments
 
36
ARTICLE 13 POST-CLOSING OBLIGATIONS
 
36
Section 13.1
Post-Closing Production Receipts and Expenses
 
36
Section 13.2
Cooperation
 
37
ARTICLE 14 1031 EXCHANGE
 
37
ARTICLE 15 MISCELLANEOUS
 
38
Section 15.1
Counterparts
 
38
Section 15.2
Notice
 
38
Section 15.3
Further Assurances
 
38
Section 15.4
Recording Fees and Similar Costs
 
38
Section 15.5
Ad Valorem and Other Taxes
 
39
 
iv

Section 15.6
Governing Law
 
39
Section 15.7
Captions
 
39
Section 15.8
Waivers
 
39
Section 15.9
Exhibits and Schedules
 
39
Section 15.10
Entire Agreement; Amendments
 
39
Section 15.11
Rights Cumulative
 
40
Section 15.12
Binding Effect; Benefits; Third Parties; Joint Ventures
 
40
 
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PURCHASE AND SALE AGREEMENT
 
THIS PURCHASE AND SALE   AGREEMENT (the “ Agreement ”) dated as of March 6, 2006, is between Samson Oil and Gas USA Inc., a Colorado corporation (“ Purchaser ”), with offices at 1726 Cole Blvd., Suite 210, Lakewood, Colorado 80401, and STANLEY ENERGY, INC. , a Nevada corporation (“ SEI ”), and STANLEY ENERGY W., INC., a Nevada corporation (“ SEWI ” and, collectively with SEI, “ Seller ”), each with offices at 1776 Lincoln Street, Suite 1300, Denver, Colorado, 80203. Purchaser and Seller are sometimes referred to herein individually as a “ Party ” and, collectively, as the “ Parties ”.

RECITALS:
 
WHEREAS, Seller is the owner of certain interests in and to those certain oil and gas leases described on Exhibit A attached hereto, together with associated wells and equipment located thereon or appurtenant thereto.
 
WHEREAS, Seller desires to sell to Purchaser and Purchaser desires to purchase from Seller the assets, properties and rights of Seller hereinafter described in the manner and upon the terms and conditions hereinafter set forth.
 
NOW, THEREFORE, in consideration of the premises and of the mutual promises, representations, warranties, covenants, conditions and agreements contained herein, the Parties, intending to be legally bound by the terms hereof, covenant and agree as follows:
 
ARTICLE 1
PURCHASE AND SALE
 
Section 1.1    Purchase and Sale .
 
Subject to the terms and conditions of this Agreement, Seller agrees to sell and convey exclusively to Purchaser and Purchaser agrees to purchase and pay for the Assets (as defined in Section 1.2 below).
 
Section 1.2    Assets .
 
All of the following shall herein be called the “ Assets ”:
 
(a)    All of Seller’s undivided right, title and interest in, to and under the oil, gas and mineral leases (including all leasehold estates, royalty interests, overriding royalty interests and all other interests therein, whether described or not), mineral interests, licenses, permits, and other documents of title described in Exhibit A , and any extensions, renewals, amendments, replacements or substitutions thereof (the “ Leases ”) insofar and only insofar as the Leases cover the lands described on said Exhibit A and lands pooled or unitized therewith (the “ Lands ”) and all of Seller’s right, title and interest in, to and under the wells identified on Exhibit B attached hereto (the “ Wells ”), and including in each case all other interests of Seller in the Leases, Lands and Wells, including, without limitation, reversionary interests, net profits interests, net revenue interests, fee mineral estate interests and any other interests of a similar nature (all of the foregoing referred to herein as the “ Properties ” when referred to collectively and a “ Property ” when referred to individually).
 
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(b)    All of Seller’s undivided right, title and interest in and to all petroleum, hydrocarbons and associated gases produced at and after the Effective Date, as hereinafter defined, from the Properties and all production produced from the Properties to the extent such production is in the tanks as of the Effective Time, as hereinafter defined (the “ Hydrocarbons ”).
 
(c)    All of Seller’s right, title and interest in, to and under all contracts, documents and agreements listed on Exhibit C attached hereto which shall include all contracts, documents and agreements that are appurtenant to or used in connection with the ownership or operation of the Properties (excluding the Leases which are listed on Exhibit A) or to or used in connection with the production, treatment, transportation, sale or disposal of water, hydrocarbons or associated substances from the Properties (“ Basic Documents ”).
 
(d)    Corresponding interests in and to all fixtures, production facilities, equipment, and personal property associated with the Wells and in and to all lease equipment, water gathering and disposal systems, service and downhole equipment, tanks, boilers, buildings, structures, fixtures, personal property, tubing, oil and gas production equipment, pumping units, motors, pipelines, gathering lines, electrical distribution systems, tubulars and inventory and all other machinery, equipment, appurtenances, ancillary facilities, improvements and property of every kind and character, movable or immovable now or as of the Effective Date or the Closing appurtenant to or used in the operation of the Properties or the production, treatment, transportation, sale or disposal of water, hydrocarbons or associated substances from the Properties (“ Related Assets ”).
 
(e)    All books, records, files, data and information related to the Assets described in clauses (a), (b), (c), (d) and (f) hereof, including without limitation (i) all lease files, land files, abstracts, title opinions, electronic files, and (ii) all logs, core analyses, formation tests, films, surveyors’ notes, plane table sheets, shot point data bases and geologic and other scientific data, including seismic data, to the extent such data can be transferred to Purchaser (the “ Files ”); provided that Files shall not include any books, records, files or proprietary data to the extent only that the same relate to properties of Seller other than the Properties.
 
(f)    All instruments, liens and security interests in favor of Seller under any law, rule, or regulation or under the Basic Documents arising from the sale or other disposition after the Effective Date of any of the Assets described in Section 1.2(a) through (e).
 
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Section 1.3    Effective Date and Time .
 
The purchase and sale of the Assets shall be effective as of November 1, 2005 (the “ Effective Date ”), at 7:00 a.m. Mountain Standard Time (the “ Effective Time ”). Except as otherwise specifically provided herein, Seller shall be entitled to production revenues or other amounts realized from and accruing to the Assets prior to the Effective Time and shall be liable for the payment of all costs, liabilities, obligations and expenses attributable to the Assets prior to the Effective Time, and Purchaser shall be entitled to production revenues or other amounts realized from and accruing to the Assets after the Effective Time and shall be liable for the payment of all costs, liabilities, obligations and expenses attributable to the Assets after the Effective Time.
 
Section 1.4    Conveyance .
 
Seller shall convey the Assets to Purchaser at Closing by a Conveyance, Assignment and Bill of Sale substantially in the form of Exhibit D attached hereto (the “ Conveyance ”) and any corresponding forms of assignment for any State or Federal Leases. The Conveyance shall be effective as of the Effective Time.
 
ARTICLE 2
PURCHASE PRICE
 
Section 2.1    Purchase Price .
 
The purchase price for the Assets shall be Thirty Six Million Three Hundred Thousand U.S. Dollars and No Cents (U.S.$36,300,000.00) (the “ Purchase Price ”), subject to adjustment as set forth in Section 2.2 below.
 
Section 2.2    Determination of Adjusted Purchase Price .
 
The Purchase Price shall be adjusted as set forth below and the resulting amount shall herein be called the “ Adjusted Purchase Price .” All adjustments to the Purchase Price shall be made (i) according to the factors described in this Section, (ii) in accordance with generally accepted accounting principles as consistently applied in the oil and gas industry, and (iii) without duplication.
 
(a)    The Purchase Price shall be adjusted upward by the following:
 
(1)    The amount of all costs incurred in the ordinary course of business that are, in accordance with generally accepted accounting principles, attributable to times after the Effective Time that have accrued to and been paid by Seller between the Effective Time and the Original Closing Date or Extended Closing Date, as applicable (such period herein, the “ Adjustment Period ”) including: (i) as costs of the ordinary course of production, processing or other operations directly related to the Assets, (ii) as costs incurred with respect to staking, surveying, title examination, surface grading and similar activities directly related to the Assets, (iii) as costs for the maintenance of any Property, (iv) as costs for the extension or renewal during the Adjustment Period of any Property, (v)  subject to Section 6.7 hereof, as costs of any exploration or development activities on the Properties or related to drilling, completion, recompletion, or workover activities on Wells and conducted during the Adjustment Period, (vi) as unreimbursed costs of insurance coverage during the Adjustment Period on the Assets in accordance with Section 6.7 hereof, (vii) the aggregate amount of all other expenditures made by Seller prior to the Effective Time for costs and expenses directly attributable to the Assets after the Effective Time and (viii) otherwise from the ownership of the Assets during the Adjustment Period.
 
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(2)    The value of all merchantable oil or condensate produced from the Assets and in storage above the pipeline connection at the Effective Time that is credited to the Assets, such value to be the market or contract price in effect as of the Effective Time net of any applicable royalties, sales taxes, and taxes on production including, but not limited to, severance, conservation and ad valorem taxes.
 
(3)    An amount per MMBtu equal to the arithmetic average of the first of the month spot price of gas delivered to Colorado Interstate Gas Company - Rocky Mountains as published in Inside FERC Gas Market Report for November 2005 and February 2006 for any gas which Seller may be entitled to take in excess of its fractional interest in the Wells as a result of underproduction by Seller from the Assets, such amount to be determined as of the Effective Time. Seller and Purchaser agree that for the purposes of the Preliminary Adjustment Statement, the gas imbalance volumes attributable to the Wells are set forth on Exhibit E attached hereto and made a part hereof. The Parties agree that such volumes will be subject to adjustment and confirmation in connection with preparation of the Final Adjustment Statement.
 
(4)    An amount, with respect to each Property in which the net revenue interest (“ NRI ”) plus overriding royalty interests (“ ORRI ”) owned by Seller (exclusive of nonconsent interests) exceeds the aggregate of the NRI plus ORRI for such Property as set forth in Exhibit G attached hereto, calculated by multiplying the Allocated Value (as defined in Section 2.5 below) of such Property set forth on Exhibit G by the quotient of (i) Seller’s actual NRI plus ORRI in such Property as delivered to Purchaser at Closing divided by (ii) the NRI plus ORRI in such Property as reflected on Exhibit G.
 
(5)    An amount equal to aggregate amounts paid by Seller prior to the date hereof as joint interest or similar billings in respect of drilling, completion or similar activities based on the Authorities for Expenditure (“AFEs”) listed on Schedule 2.2 hereto and any other amounts paid by Seller in connection with the drilling and completion of the Wells that are the subject of the AFEs listed on Schedule 2.2.
 
(b)    The Purchase Price shall be adjusted downward by the following:
 
(1)    The proceeds received by Seller during the Adjustment Period attributable to the Assets and that are, in accordance with generally accepted accounting principles, attributable to the period of time after the Effective Time including: (i) proceeds from the sale of oil, gas or other associated minerals (net of any production royalties or other burdens on production, transportation costs and of any taxes on production including, but not limited to, severance, conservation, and ad valorem taxes, not reimbursed to Seller by the purchaser of production) produced from the Properties during the Adjustment Period and proceeds attributable to prepayments, payments for over-production pursuant to gas balancing agreements, take-or-pay payments and similar payments, and (ii) subject to Section 6.7 hereof, proceeds from the sale, salvage or other disposition during the Adjustment Period of any property, equipment or rights included in the Assets.
 
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(2)    Except as provided in Section 2.2(a)(5), an amount equal to all unpaid expenses, burdens and obligations (including without limitation royalties, overriding royalties, rentals, and other charges, including charges billed under applicable operating agreements) which, in accordance with generally accepted accounting principles, accrue or are attributable to the Assets prior to the Effective Time (such costs shall be payable by Purchaser after Closing)
 
(3)    An amount equal to all unpaid production taxes, including, but not limited to, severance, conservation and ad valorem taxes (“ Taxes ”) assessed on production from the Assets for the period ending on the Effective Date. To the extent of this Purchase Price adjustment, all such Taxes shall be payable by Purchaser after Closing. All Taxes determined by the value of any production shall be deemed to be attributable to the period during which such production occurred and not attributable to the year in which such Taxes are assessed including, but not limited to, ad valorem taxes to be assessed in 2006 on the basis of the value of production during 2005, and payable in two installments no later than November 10, 2006, and May 10, 2007, or in a single payment no later than December 31, 2006. The amount of the adjustment shall be determined as of the Effective Time based on the actual amount of the Tax assessed against the Assets, provided that if the actual amount of the assessment is not known, the amount shall be estimated in good faith by Seller based on the quantity of and sales prices for production from the Assets during 2005 to the Effective Date and the tax rates in effect at the time of the estimate. The Parties agree that such estimates will be subject to adjustment and confirmation in connection with preparation of the Final Adjustment Statement. After Closing, Seller shall continue to be responsible for any liability asserted against the Assets for Taxes attributable to all time periods prior to the Effective Time for which no Purchase Price adjustment was taken pursuant to this subparagraph.
 
(4)    An amount equal to the sum of all adjustments provided for in this Agreement for Defective Interests, Title Defects, Environmental Defects and Casualty Losses (as those terms are hereinafter defined), and for preferential rights to purchase.
 
(5)    An amount per MMBtu equal to the arithmetic average of the first of the month spot price of gas delivered to Colorado Interstate Gas Company - Rocky Mountains as published in Inside FERC Gas Market Report for November 2005 and February 2006 for any gas which Seller may be obligated to deliver out of its fractional interest in the Wells as a result of overproduction by Seller from the Assets, such amount to be determined as of the Effective Time. Seller and Purchaser agree that for the purposes of the Preliminary Adjustment Statement, the gas imbalance volumes attributable to the Wells are set forth on Exhibit E attached hereto and made a part hereof. The Parties agree that such volumes will be subject to adjustment and confirmation in connection with preparation of the Final Adjustment Statement.
 
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(6)    An amount with respect to each Property in which the NRI plus ORRI owned by Seller (exclusive of nonconsent interests) is less than the aggregate of the NRI plus ORRI for such Property as set forth in Exhibit G. With respect to each such Property, the amount of downward adjustment in the Purchase Price shall be calculated by multiplying the Allocated Value of such Property set forth on Exhibit G by the quotient of (i) Seller’s actual NRI plus ORRI in such Property as delivered to Purchaser at Closing divided by (ii) the NRI plus ORRI in such Property as reflected on Exhibit G.
 
Section 2.3    Payment of Adjusted Purchase Price .
 
(a)    At Closing, Purchaser shall pay to Seller, by bank transfer of immediately available funds to the account designated by Seller at least two business days prior to Closing, an amount which is equal to the estimated Adjusted Purchase Price as shown in the Preliminary Adjustment Statement (as hereafter defined), less the amount of the First Extension Deposit (as defined in Section 6.1(c) below), if any, the Second Extension Deposit (as defined in Section 6.1(d) below), if any, the Third Extension Deposit (as defined in Section 6.1(e) below), if any, as applicable, and any amounts to be placed at Closing into an Escrow Account as described in Sections 2.4(a), 4.1(c), and 5.2(b)(2) below. The costs of any Escrow Account shall be borne equally by the Parties.
 
(b)    Three business days after the Final Adjustment Statement (as hereafter defined) becomes binding as set forth in Section 2.4(b) below, Seller or Purchaser, as the case may be, shall pay or cause to be paid to the other Party the amount shown in the final and binding Final Adjustment Statement as being due to the other Party. Such payment shall be made by bank wire transfer of immediately available funds to an account designated by the payee. Any disputed amounts deposited in the Escrow Account pursuant to Section 2.4(a) of this Agreement, less escrow fees, shall be applied to the amount shown in the final and binding Final Adjustment Statement and the Parties shall execute joint written instructions to the Escrow Agent to cause the Escrow Account to be distributed in a manner consistent with the final and binding Final Adjustment Statement. Interest on disputed amounts deposited in the Escrow Account shall be distributed in the same manner as the principal amount of the Escrow Account and shall be owed in addition to the amount shown in the final and binding Final Adjustment Statement.
 
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Section 2.4    Preliminary and Final Adjustment Statements .
 
(a)    Seller shall deliver to Purchaser two business days prior to the Original Closing Date or Extended Closing Date, as applicable, a statement (the “ Preliminary Adjustment Statement ”) setting forth Seller’s estimate on a cash basis of the Adjusted Purchase Price. The Preliminary Adjustment Statement shall be based upon actual information available to Seller at the time of its preparation and upon Seller’s good faith estimates and assumptions. There shall be attached to the Preliminary Adjustment Statement such supporting documentation and other data as is reasonably necessary to provide a basis for Seller’s estimate of the Adjusted Purchase Price. Seller and Purchaser shall mutually agree on the Preliminary Adjustment Statement one business day prior to Closing, with any disagreements to be handled in the Final Adjustment Statement and the dispute resolution mechanism set forth in subparagraph (b) below. Any amounts in dispute shall be placed at Closing into an escrow account (“Escrow Account”) established pursuant to an escrow agreement (the “ Escrow Agreement ”) with Wells Fargo Bank NA or another mutually acceptable financial institution (“ Escrow Agent ”) until the Final Adjustment Statement has become binding as provided in subparagraph (b) below.
 
(b)    After Closing, Purchaser and its representatives may conduct an audit of the Preliminary Adjustment Statement and each adjustment or payment that was not finally determined as of Closing and recalculate the estimated Adjusted Purchase Price, as described in Section 2.4(a) hereof. On or prior to the 60th day after the Closing, Purchaser may present Seller with a statement setting forth exceptions, if any, to the Preliminary Adjustment Statement and any final determinations of adjustments or payments (the “ Final Adjustment Statement ”). The Final Adjustment Statement shall become final and binding on Seller and Purchaser on the 30th day following the date the Final Adjustment Statement is received by Seller, unless prior to such 30th day Seller shall deliver to Purchaser a written report containing any changes that Seller proposes to make to the Final Adjustment Statement. If Seller has delivered a notice of disagreement, then the Final Adjustment Statement will become final and binding upon written agreement between Purchaser and Seller resolving all disagreements of Seller. If the Final Adjustment Statement has not become final and binding by the 45th day following its receipt by Seller, then Seller’s disagreements with the Final Adjustment Statement shall be determined by binding arbitration conducted by the accounting firm of Ehrhardt Keefe Steiner Hottman PC (“ Accounting Firm ”) in accordance with the following procedures. No later than 20 days after initiating the arbitration procedure, the Accounting Firm shall conduct a hearing, at which time the Parties shall present such evidence and witnesses as they may choose, with or without counsel. Adherence to formal rules of evidence shall not be required, but the arbitrator shall consider any evidence and testimony that it determines to be relevant, in accordance with procedures that it determines to be appropriate. The arbitrator shall render its written decision regarding Seller’s disagreements with the Final Adjustment Statement within 30 days after the hearing. A decision may be filed in any court of competent jurisdiction and may be enforced by any Party as a final judgment of such court. Without the consent of Purchaser and Seller, the arbitration shall not determine any issues other than Seller’s disagreements with the Final Adjustment Statement. The fees and expenses of such arbitration shall be borne 50% by Seller and 50% by Purchaser.
 
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Section 2.5    Allocation of Purchase Price .  
 
Exhibit G attached hereto sets forth the allocation of the Purchase Price among the Properties (the “ Allocated Value ” of the respective Properties, as applicable). Seller and Purchaser agree that the Allocated Values shall be used by the Parties for calculating adjustments to the Purchase Price as provided herein.
 
ARTICLE 3
DUE DILIGENCE INSPECTION
 
Section 3.1    Access to Information .
 
Between the date of this Agreement and the Original Closing Date, Seller shall, subject to Section 6.6 hereof, take all commercially reasonable steps to (a) give Purchaser and its representatives full access at all reasonable times to the Assets and full access to, and the right to copy, all the books, records, accountants’ work papers, surveys, maps, studies, contracts, geological, geophysical, engineering or other data, computer runs, title opinions, curative materials and other documents of Seller pertaining to the ownership and operation of the Assets; provided that Seller shall have no obligation hereunder to provide Purchaser or its representatives with access to geological, geophysical, engineering or other data to the extent that such data is subject to a confidentiality or contractual obligation to a third party or to an attorney/client or attorney work product privilege, or relates to properties or interests which are not Assets, and (b) furnish or make available to Purchaser such financial and operating data and other information with respect to the Assets as Purchaser shall from time to time reasonably request, but in either case only to the extent that Seller may do so without violating any confidentiality or contractual obligation to a third party and to the extent that Seller has authority to grant such access, and without violating any privilege; provided, however, that Seller shall use all commercially reasonable efforts as soon as practicable after the date hereof to obtain permission from any such third party to grant Purchaser the access contemplated hereby. If copying of materials by Purchaser is prohibited due to the effect of the preceding, Seller shall (to the extent not also prohibited) provide Purchaser with reasonable access for the review of such materials for a period of one year following the Closing. Except as provided in Section 7.10(a) hereof, no warranty is made by Seller as to the information so supplied, and Purchaser agrees that any conclusions drawn therefrom are the result of its own independent review and judgment.
 
Section 3.2    Access to the Assets .
 
(a)    Prior to the Original Closing Date, Seller shall take all commercially reasonable steps to enable Purchaser and/or Purchaser's authorized representatives, agents and employees during normal business hours and, upon advance notice, to have reasonable access to the Assets to allow Purchaser to conduct, at Purchaser's sole risk and expense, on-site inspections and environmental assessments of the Assets including the right to collect air, soil, groundwater or surface water samples and to perform other environmental testing (“ Environmental Examination ”). In connection with such Environmental Examination, Purchaser agrees not to unreasonably interfere with activities on or the normal operation of the Assets. Except to the extent directly caused by Seller's or operator’s gross negligence or willful misconduct, Purchaser agrees to indemnify, defend and hold harmless Seller from and against all Losses (as defined in Section 9.3) arising from or related to the activities of Purchaser, its representatives, agents or employees in connection with such inspection regardless of the negligence or strict liability of Seller.
 
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(b)    Purchaser shall give Seller prior written notice of any environmental inspections or tests, and Purchaser shall give Seller the opportunity to participate in all such inspections and tests and shall provide Seller and the operator of the applicable Assets, at no cost to Seller or the operator of the applicable Assets, all reports of such environmental inspections and tests, provided that all such reports shall be deemed to be confidential between the Parties and such operator and part of the information set forth in Section 6.6.
 
ARTICLE 4
TITLE MATTERS
 
Section 4.1    Defective Interests; Adjustments .
 
(a)    On or before 5:00 p.m. MST on March 6, 2006, (the “ Defects Date ”), Purchaser shall deliver to Seller written notice of Defective Interests (as hereinafter defined), if any. Such notice shall include (i) a description of the Defective Interests, (ii) the basis for the defect ( “Defect” ) that Purchaser believes causes such Assets to be treated as Defective Interests, (iii) the Allocated Values of the Defective Interests, and (iv) the amount by which Purchaser reasonably believes the Allocated Values of the Defective Interests have been reduced (the “Defect Amounts” ) and the computation and information upon which Purchaser’s belief is based. Purchaser shall be deemed to have waived all rights under this Article 4, but not under the special warranty of title included in the Conveyance to be delivered at Closing, with respect to Title Defects, as defined below, unless such Title Defects are included in a written notice given by the Defects Date.
 
(b)    “ Defective Interests ” shall mean that portion of the Properties that Purchaser is entitled under Section 4.2 to treat as defective.
 
(c)    Except as otherwise provided in clause (f) below, the Parties shall proceed as follows with respect to Defective Interests:
 
(1)    as to those Assets which are Defective Interests for which, prior to the Closing, the Defect or other basis for treating such Assets as Defective Interests has been removed to the reasonable satisfaction of Purchaser, or Purchaser has agreed to waive the relevant Title Defect (as defined below) or other Defect and purchase such Assets notwithstanding the Defect, or Seller has provided to Purchaser an indemnity reasonably acceptable to Purchaser indemnifying Purchaser against all Losses, as defined in Section 9.3 hereof, with respect to such Assets arising from the Defect or basis for such Assets being treated as Defective Interests, there shall be no adjustment to the Purchase Price;
 
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(2)    as to those Assets which are Defective Interests for which Purchaser and Seller agree to the Defect Amounts, the Purchase Price shall be reduced by such aggregate amount of such Defect Amounts ;  
 
(3)    as to those Assets which are Defective Interests for which the Parties agree that Seller may attempt to cure such Defective Interests to the satisfaction of Purchaser within ninety (90) days after the Closing, an amount equal to the Allocated Value of the Assets affected by such Defective Interests shall be placed in the Escrow Account as provided in Section 2.3(a) of this Agreement pending such cure; and
 
(4)    except as otherwise provided in Section 2.2(b)(6), as to those Assets which are Defective Interests for which Seller does not elect to cure or is unable to cure to the reasonable satisfaction of Purchaser within the time provided in this subparagraph or such later date as is mutually agreed to by the Parties or as to which the Parties do not agree on the amount of the Purchase Price adjustment under (c)(2) above, such Defective Interests shall be excluded from the Assets to be purchased by Purchaser hereunder and the Purchase Price shall be reduced by an amount equal to the aggregate Allocated Values of such excluded Defective Interests.
 
(d)    In determining which portion of the Assets are Defective Interests, it is the intent of the Parties to include, when practical, only that portion of the Assets materially affected by the Defect or the basis for such Assets being treated as Defective Interests. Defect Amounts shall be determined by the Parties in good faith taking into account all relevant factors; provided that if the Defect is a lien or encumbrance on a Property, the Defect Amount shall be the cost of removing such lien or encumbrance.
 
(e)    If the aggregate total of the Defect Amounts and Environmental Defects exceeds Ten Percent (10.0%) of the Purchase Price, then either Seller or Purchaser may terminate this Agreement pursuant to Section 11.1, without liability to the other, by giving notice on or before the Original Closing Date or, if the Purchaser elects to extend the Closing pursuant to Section 6.1(c), by the First Extension Date, provided, however, that in that event the First Extension Deposit shall promptly be returned to Purchaser.
 
(f)    Notwithstanding anything to the contrary, in no event shall there be any adjustments to the Purchase Price unless, and only to the extent that, the aggregate of the applicable Defect Amounts exceeds $150,000 ( “Defects Threshold” ); provided, however, that Seller shall nevertheless provide reasonable assistance, as requested by Purchaser, but at Purchaser’s cost and expense, to cure the Defects even if the applicable Defect Amounts total less than the Defects Threshold.
 
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Section 4.2    Identification of Defective Interests .
 
(a)    If, prior to the Defects Date, there has been material noncompliance with the laws, rules, regulations, ordinances or orders (“ Legal Requirements ”) of any governmental, agency or authority having jurisdiction over the Assets (“ Governmental Authority ”), resulting in substantial risk of loss of the Assets or value thereof, then Purchaser may elect to treat such of the Assets as are materially and adversely affected by such noncompliance as Defective Interests.
 
(b)    If any necessary third party consent to the sale and transfer of the Assets is not obtained prior to the Defects Date, Purchaser may elect to treat that portion of the Assets subject to such consent requirement as Defective Interests.
 
(c)    If, prior to the Defects Date, there exists any suit, action or other proceeding before any court or government agency that would result in substantial loss   or impairment of Seller’s title to any material portion of the Assets or a material portion of the value thereof, Purchaser may elect to treat that portion of the Assets substantially   and materially affected thereby as Defective Interests.
 
(d)    If any preferential right to purchase is exercised, that portion of the Assets affected by the exercise of such preferential right shall be treated as Defective Interests; provided, however, that the provisions of Section 4.1 with respect to reduction of the Purchase Price shall not be applicable, except the provisions of 4.1(e), and Seller instead shall pay to Purchaser all consideration received by Seller due to exercise of such preferential right. Such payment shall be made on the later of the date of Closing or the date on which the consideration is received.
 
(e)    If there are any division orders or sales contracts not terminable as to Seller or Seller’s interests in the Assets upon 30 days’ notice to the other parties thereto or   contracts other than those listed on Exhibit C hereto, Purchaser may elect to treat that portion of the Assets subject to such division orders, sales contracts or contracts as Defective Interests.
 
(f)    If any Property is affected by a matter which constitutes a Title Defect, Purchaser may elect to treat that portion of the Property subject to such Title Defect as a Defective Interest. The term “ Title Defect ” as used herein shall mean any material encumbrance, encroachment, irregularity, defect in, or objection to Seller’s title to any Property (other than Permitted Encumbrances (as hereinafter defined)), which, based upon petroleum industry standards for the area in which the Properties are located, alone or in combination with other defects, renders Seller’s title to such Property less than good and marketable, or which would unreasonably interfere with Purchaser’s enjoyment of such Property. The term “ good and marketable ” as used herein shall mean that title of Seller, as reflected in the real property records of the county or counties where the Assets are located as of the Closing Date, which entitles Seller to receive from a Property not less than the interest shown on Exhibit G hereto as the aggregate NRI plus ORRI   without reduction, suspension or termination throughout the duration of such Property, obligates Seller to bear a percentage of costs and expenses relating to the maintenance, development and operation of such Property not greater than the interest shown on Exhibit G hereto as WI (unless there is a corresponding increase in the NRI plus ORRI), and is free and clear of material liens, encumbrances, obligations or defects taken or effective at or prior to Closing (other than the Permitted Encumbrances). The term “ Permitted Encumbrances ” as used herein shall mean:
 
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(1)    lessors’ royalties, overriding royalties, reversionary interests and similar burdens of record, in each case so long as they do not operate to reduce the NRI plus ORRI of Seller below that set out in Exhibit G;
 
(2)    preferential rights to purchase and required third-party consents and similar agreements with respect to which waivers or consents are obtained from the appropriate parties or the appropriate time period for asserting the right has expired without an exercise of the rights;
 
(3)    any non-perfected liens for taxes or assessments or, if perfected, that are being contested in good faith in the normal course of business;
 
(4)    any non-perfected materialman’s, mechanic’s, repairman’s, employee’s, contractor’s, operator’s and other similar liens or charges arising in the ordinary course of business or, if perfected, their validity is being contested in good faith by appropriate action;
 
(5)    all rights to consent by, required notices to, filings with, or other actions by governmental entities in connection with the sale or conveyance of oil and gas leases or interests therein if they are customarily obtained subsequent to the sale or conveyance;
 
(6)    conventional rights of reassignment prior to release or termination of a leasehold interest requiring ninety (90) days or less notice to the holders of the rights;
 
(7)    easements, rights-of-way, servitudes, permits, surface leases and other rights in respect of surface operations which do not materially impair the use of the Properties as currently owned and operated;
 
(8)    all rights reserved to or vested in any Governmental Authority to control or regulate any of the Assets in any manner, and all applicable laws, rules and orders of a Governmental Authority;
 
(9)    any encumbrance on or affecting the Assets which is paid by Seller at or prior to Closing or which is discharged at or prior to Closing;
 
(10)    any Title Defects that Purchaser shall have expressly waived in writing or which are deemed to have been waived by operation of Section 4.1(a);
 
(11)    liens and security interests that are to be released at Closing;
 
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(12)    defects in the early chain of title consisting of the mere failure to recite marital status in a document or omission of successors of heirship proceedings, unless Purchaser provides affirmative evidence that such failure or omission has resulted in another party’s actual and superior claim of title to the relevant Property;
 
(13)    defects that have been cured by possession under applicable statutes of limitation for adverse possession or prescription;
 
(14)    defects whatsoever if Seller or its predecessors in title have received proceeds of such production from the relevant property for the last seven years without interruption or challenges based on the alleged defect;
 
(15)    defects based on lack of information in Seller’s files or arising out of lack of survey, unless a survey is required by applicable laws or regulations;
 
(16)    defects based on a gap in Seller’s chain of title in the Bureau of Land Management (“BLM”) records as to Federal Leases, in the State’s records as to State Leases or in the county records as to fee Leases, unless such gap is affirmatively shown to exist in such records by an abstract of title, title opinion or landman’s title chain, which documents shall be included in Purchaser’s notice of Defective Interests; and
 
(17)    changes in WI, NRI or ORI which are based on changes in drilling and spacing units, tract allocation or other changes in pool or unit participation occurring after the Closing.
 
(g)    If, prior to the Defects Date, Purchaser becomes aware of (i) any call upon, option to purchase or similar rights with respect to any portion of production from the Assets (other than any right of a third party operator of any of the Properties to market Seller’s share of production from such Properties which such right is terminable on thirty days’ notice or less) or (ii) any Well is subject to penalties on allowables after the date of this Agreement because of any overproduction or violation of applicable Legal Requirements, Purchaser may treat the Asset affected thereby as a Defective Interest.
 
(h)    If, prior to the Defects Date, Purchaser becomes aware of any material Basic Document (i) which is not in full force and effect or valid and legally binding on Seller, (ii) as to which Seller is in breach or default in a material respect, or (iii) under which Seller has failed to timely make any required payments, Purchaser may treat the Asset materially and adversely affected thereby as a Defective Interest.
 
(i)    If any Assets are burdened by surface use restrictions, excluding BLM restrictions typical for the area in which the Assets are located, that would be unacceptable to a prudent operator, or there are rights of third parties which could interfere with operations for the exploration, development and production within a time that would be acceptable to a prudent operator, Purchaser may treat the Assets materially and adversely affected thereby as a Defective Interest.
 
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(j)    If there are any tax partnership agreements or other agreements requiring payment of costs on a basis disproportionate with the working interest to be acquired by Purchaser, Purchaser may treat the Assets affected thereby as a Defective Interest.
 
Section 4.3    Casualty Loss .
 
If, prior to Closing, any of the Assets are damaged or destroyed by fire, blowout or other casualty (“ Casualty Defect ”), Seller shall notify Purchaser promptly after Seller learns of such event. Seller shall have the right, but not the obligation, to cure any such Casualty Defect by repairing such damage or, in the case of personal property or fixtures, replacing the Assets affected thereby with equivalent items, no later than the date of Closing. To the extent Seller anticipates that a Casualty Defect cannot or will not be cured prior to Closing, Seller shall notify Purchaser promptly and the parties will promptly meet in good faith and attempt to agree upon the aggregate reduction in value of such Assets (including associated damages) on account of such Casualty Defects. If the parties are unable to agree on such amount prior to Closing, then such determination shall be made by an appraiser knowledgeable in the field and acceptable to both parties. If Seller and Purchaser are unable to agree on an appraiser, each shall select an appraiser and the appraisers so selected shall select a third appraiser to make such determination. If such value in aggregate is determined to be less than ten percent (10%) of the Purchase Price, Purchaser shall proceed to purchase the Assets and, at the option of Purchaser, either (a) the Purchase Price will be reduced by the aggregate reduction in the value of the Assets attributable to the Casualty Defects (as agreed by the parties or determined by an appraiser) and Seller shall retain all insurance proceeds and claims against other parties in respect of any such Casualty Defect, or (b) Seller shall assign to Purchaser all of its rights to receive insurance proceeds, and all claims against other parties, in each case in respect of any such Casualty Defect, and the Purchase Price will be reduced by an amount equal to the sum of Seller’s retention or deductible under the Seller’s insurance policies plus the amount by which such aggregate reduction in value exceeds Seller’s insurance policies limits. If the aggregate reduction in value of the Assets attributable to Casualty Defects equals or exceeds ten percent (10%) of the Purchase Price, Purchaser will have the right to terminate this Agreement pursuant to Section 9.1.
 
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ARTICLE 5
ENVIRONMENTAL MATTERS  
 
Section 5.1    Definitions .  
 
For the purposes of the Agreement, the following terms shall have the following meanings:
 
“ Environmental Defect ” means a condition in, on or under the Assets (including, without limitation, air, land, soil, surface and subsurface strata, surface water, ground water, or sediments) that causes an Asset to be in material violation of an Environmental Legal Requirement or a condition that can reasonably be expected to give rise to costs or liability under applicable Environmental Legal Requirements .

“ Environmental Legal Requirement ” means any statute, rule, regulation, code or order, issued by any Governmental Authority in effect, and as in effect, on or before the Effective Time relating to the protection of the environment or the release or disposal of waste materials.

Section 5.2    Adjustments for Environmental Defects .
 
(a)    Notice of Environmental Defects . Purchaser shall provide Seller with written notice of any Environmental Defect which Purchaser's Environmental Examination reveals and will provide evidence thereof. Such notice and evidence shall be given on or before the Defects Date set forth in Section 4.1 hereof. Purchaser shall be deemed to have waived all rights under this Article 5, but not its rights and remedies under Articles 7 and 9 hereof or under any other provisions of this Agreement, with respect to Environmental Defects unless such Environmental Defects are included in a written notice given by the Defects Date.
 
(b)    Defect Adjustments . Upon timely delivery of written notice of an Environmental Defect, the Parties shall proceed as follows:
 
(1)    Seller shall have the option to attempt to remediate such Environmental Defects to the satisfaction of Purchaser on or before the Closing Date;
 
(2)    By mutual consent of the Parties, Seller shall have the option to attempt to remediate such Environmental Defects to the satisfaction of Purchaser within ninety (90) days after the Closing provided, however, that an amount equal to the Allocated Value of the Assets affected by such Environmental Defects shall be placed in the Escrow Account as provided in Section 2.3(a) of this Agreement pending such remediation;
 
(3)    If Seller does not elect to cure or is unable to cure such Environmental Defects to the reasonable satisfaction of Purchaser on or before the Closing Date or such later date as is mutually agreed to by the Parties, Purchaser shall have the option to either accept assignment of the Assets affected by such Environmental Defects or to exclude such Assets from this Agreement (together with any Defective Interests excluded from this Agreement pursuant to Section 4.1(c)(4), the “ Excluded Assets ”). If Purchaser elects to exclude such Assets, the Purchase Price shall be adjusted downward by an amount equal to the Allocated Value of such Excluded Assets.
 
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ARTICLE 6
CLOSING, PAYMENT AND CERTAIN ACTIONS
OF THE PARTIES PRIOR TO CLOSING
 
Section 6.1    Time and Place of Closing .
 
(a)    The purchase by Purchaser and the sale by Seller of the Assets as contemplated by this Agreement (the “ Closing ”) shall, unless otherwise agreed to in writing by Purchaser and Seller, take place at the offices of Holland & Hart LLP , at 555 Seventeenth Street, Suite 3200, Denver, Colorado.
 
(b)    Except as provided in this Section 6.1, the Closing shall be March 6, 2006 (“ Original Closing Date ”).
 
(c)    Purchaser may elect to extend the Closing by ten (10) business days to March 16, 2006 (the “ First Extended Closing Date ”) by the payment of Five Hundred Thousand Dollars and No Cents ($500,000.00) (the “ First Extension Deposit ”) to Seller in immediately available funds no later than 5:00 pm, MST, on or before the next business day after the Original Closing Date. The First Extension Deposit shall be nonrefundable in the event the Closing does not occur except as otherwise provided in Article 11. The First Extension Deposit shall be creditable against the Purchase Price at Closing under Section 2.3 of this Agreement.
 
(d)    If Purchaser has made the election under clause (c) above, Purchaser may elect to further extend the Closing to April 28, 2006 (the “ Second Extended Closing Date ”) by (i) notifying Seller in writing no later than the business day preceding the First Extended Closing Date (i.e., no later than 5:00 p.m., MST, on or before March 15, 2006), and (ii) the payment of Seven Hundred Fifty Thousand Dollars and No Cents ($750,000.00) (the “ Second Extension Deposit ”) to Seller in immediately available funds no later than 5:00 pm, MST, on or before the First Extended Closing Date. The Second Extension Deposit shall be nonrefundable if the Closing does not occur except as otherwise provided in Article 11. The Second Extension Deposit shall be creditable against the Purchase Price at Closing under Section 2.3 of this Agreement.
 
(e)    If Purchaser has made the election under clause (d) above, Purchaser may elect to further extend the Closing by a final thirty (30) days to May 30, 2006 (the “ Third Extended Closing Date ”) by (i) notifying Seller in writing no later than the second business day preceding the Second Extended Closing Date (i.e., no later than 5:00 p.m., MST, on or before April 26, 2006), and (ii) the payment of One Million Dollars and no cents ($1,000,000.00) (the “ Third Extension Deposit ”) to Seller in immediately available funds no later than 5:00 pm, MST, on or before the Second Extended Closing Date. The Third Extension Deposit shall be nonrefundable if the Closing does not occur except as otherwise provided in Article 11. The Third Extension Deposit shall be creditable against the Purchase Price at Closing under Section 2.3 of this Agreement.
 
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(f)    The payment of a First Extension Deposit, a Second Extension Deposit, or a Third Extension Deposit, and any elections under subparagraphs (c) through (e) above, shall not extend or otherwise affect the Defects Date in Section 4.1(a).
 
(g)    Notwithstanding anything to the contrary herein, Purchaser shall use reasonable good faith efforts to notify Seller as soon as it has determined that it will not be making a First Extension Deposit as provided in subparagraph (c) and no later than April 1, 2006 if it has then determined that it will not be making the Third Extension Deposit as provided in subparagraph (e).
 
Section 6.2    Government Reviews .
 
Seller and Purchaser shall in a timely manner (a) make all required filings, if any, with, and prepare applications to and conduct negotiations with, each Governmental Authority as to which such filings, applications or negotiations are necessary or appropriate in the consummation of the transactions contemplated hereby, and (b) provide such information as each may reasonably request to make such filings, prepare such applications and conduct such negotiations. Each party shall cooperate with and use all reasonable efforts to assist the other with respect to such filings, applications and negotiations.
 
Section 6.3    Inconsistent Activities .
 
Unless and until this Agreement has been terminated pursuant to Section 11.1 hereof, Seller shall not, without the prior written consent of Purchaser, directly or indirectly sell or otherwise transfer, negotiate to sell or otherwise transfer, or enter into any agreement with any party other than Purchaser that provides for the purchase and sale or other transfer of the Assets.
 
Section 6.4    Division Orders; Transfer Orders .
 
(a)    Seller shall execute at the Closing Letters in Lieu of Division and Transfer Orders relating to the Assets on forms prepared by Purchaser and reasonably satisfactory to Seller to reflect the transactions contemplated hereby.
 
(b)    Seller shall execute at the Closing the Conveyance and all other assignments necessary to convey to Purchaser all Federal or State leases and properties included in the Assets in the form as prescribed by the applicable Governmental Authority.
 
(c)    Seller shall at the Closing execute with regard to each operating agreement to which Seller is a party and relating to the Assets, each notice prepared by Purchaser, in a form reasonably acceptable to Seller, stating that Seller has assigned to Purchaser its interest in the property subject to such operating agreement.
 
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Section 6.5    Public Announcements .
 
Each Party shall obtain the written consent of the other Party hereto prior to any public announcement by such Party regarding the existence of this Agreement, the contents hereof or the transactions contemplated hereby; provided, however, the foregoing shall not restrict disclosures by Purchaser (or Purchaser’s parent company) or Seller in compliance with applicable securities or other laws or in compliance with existing loan or other agreements binding such Party (or its parent companies) in such Party’s discretion.
 
Section 6.6    Information Kept Confidential .
 
Purchaser and Seller shall hold in strict confidence all aspects of the transactions contemplated by this Agreement and all information and data concerning the Assets and obtained in connection with the transactions contemplated by this Agreement (other than information and data that becomes generally available to the public other than through disclosure by a party hereto or its partners, officers, employees or representatives) and without the prior written consent of the other party hereto neither Purchaser nor Seller shall disclose any such information to anyone other than to its officers, employees and representatives; provided, however, the foregoing shall not restrict disclosures by Purchaser (or Purchaser’s parent company) or Seller in the event and to the extent outside counsel for the Purchaser or Seller, as applicable, advises the disclosing party that such disclosure is required to comply with applicable securities or other laws or with existing loan or other agreements binding such party (or its affiliated companies). The aforesaid obligation shall terminate on the earlier to occur of (a) the Closing or (b) as the information and data in question become generally available to the public other than through the breach by either party or its partners, officers, employees or representatives of said obligation. Seller agrees that, after the Closing, it will hold in strict confidence and not disclose to anyone other than its representatives any information and data concerning the Assets provided to Purchaser in connection with the transactions contemplated by this Agreement unless such information and data have become generally available to the public other than through disclosure by Seller or its partners, officers, employees or representatives. If this Agreement is terminated for any reason, Purchaser shall promptly return to Seller or, with Seller’s prior written consent, destroy all information and data furnished or made available by Seller to Purchaser and obtained by Purchaser in the course of its investigation of the Assets and Purchaser agrees not to retain copies of any such information or data in such event, to keep all such information and data confidential, and not to disclose any such information or data to any third party without obtaining the prior written consent of Seller to such disclosure unless such information and data have become generally available to the public other than through disclosure by Purchaser or its officers, employees or representatives or unless otherwise required under applicable securities or other laws or by existing loan or other agreements binding such party (or its affiliated companies).
 
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Section 6.7    Operation of Business .
 
From the date hereof until the Closing, Seller (i) shall obtain the prior written consent of Purchaser with respect to all material decisions to be made with respect to the Assets, including without limitation any drilling, completion, reworking or similar operations or decisions, and any termination, modification, entering into or extension of any material Basic Documents or understandings affecting the Assets, (ii) shall operate the Assets in a manner consistent with past practices, and in accordance with applicable Legal Requirements and existing operating agreements, including maintaining customary books and records with respect to the Assets consistent with prior practice, (iii) shall act with respect to the Assets in good faith and in accordance with its best business judgment as if the Assets were not being sold to Purchaser hereunder, (iv) shall maintain insurance coverage on the Assets in the amounts and of the types presently in force, (v) shall use commercially reasonable efforts to maintain in full force and effect all Leases and other Basic Documents relating to the Properties, (vi) shall use commercially reasonable efforts to maintain in full force and effect all material permits and approvals affecting the Assets, (vii) shall not transfer, sell, hypothecate, encumber or otherwise dispose of any of the Assets, (viii) shall not take any action with respect to the Assets that would create any liabilities other than those created in the ordinary course of business, (ix) shall use commercially reasonable efforts to maintain the Properties in a manner consistent with past practices and in a state of repair and operation at least as good as at present, except for ordinary wear and tear and depreciation, and (x) shall not modify, terminate, renew, suspend or abrogate any Basic Document.
 
Section 6.8    Notice of Proceedings and Proposals .
 
If between the date hereof and the Closing Seller should obtain actual knowledge of (i) any pending or threatened suit, action, proceeding, claim, investigation or inquiry by any person, entity or Governmental Authority which could affect the Assets, (ii) any proposal from any third party to engage in any material transaction with respect to the Assets, or (iii) any material adverse change in the Assets (or any occurrence or circumstance affecting the Assets which might reasonably be expected to result in any such change), Seller shall give prompt written notice to Purchaser of such matter.
 
Section 6.9    Consents .
 
Seller shall promptly take such reasonable actions necessary to obtain and deliver at Closing all third party consents which are required to consummate the transaction contemplated hereby. The form and content of all of Seller's solicitations for consents affecting the Assets shall be subject to Purchaser's approval. Purchaser shall use its commercially reasonable efforts to promptly identify to Seller any such third party consents of which it becomes aware prior to Closing.
 
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Section 6.10    Financing .
 
Purchaser shall promptly take such reasonable actions necessary to obtain financing necessary to consummate the transactions contemplated herein. Purchaser shall keep Seller reasonably informed on a weekly basis concerning the status and results of its efforts to obtain such financing.
 
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF SELLER
 
To the extent the same are transferable, Seller shall assign to Purchaser, its successors and assigns, at Closing, all of Seller's rights under and by virtue of all covenants and representations, warranties and indemnifications pertaining to the Assets, express or implied (including, without limitation, title and environmental representations, warranties and indemnifications) that were received by Seller in connection with its acquisitions of the Assets. To the extent the same are not transferable, Seller shall use reasonable good faith efforts to enforce the same at the request of and on behalf of Purchaser.

Seller makes the following representations and warranties as of the Effective Time and as of Closing. As used in this Article 7, “to the best of Seller’s knowledge” means the actual knowledge of Lewis W. Douglas, Jr., Scott R. Clark or Douglas Battin, after reasonable inquiry, including, but not limited to, reasonable inquiry of the operators of the Properties.
 
Section 7.1    Organization, Standing and Power .
 
SEI is a Nevada corporation duly formed, validly existing and in good standing under the laws of the State of Nevada, and SEWI is a Nevada corporation duly formed, validly existing and in good standing under the laws of the State of Nevada. Seller has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted, and is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the ownership of the Assets or the nature of its activities makes such qualification necessary. Seller has all requisite power and authority to execute, deliver and perform this Agreement and to consummate the transaction contemplated hereby.
 
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Section 7.2    Authority and Enforceability .
 
The execution, delivery and performance by Seller of this Agreement, and the consummation of the transaction contemplated hereby, have been duly and validly authorized by all necessary action on the part of Seller, and this Agreement constitutes the valid and binding obligation of Seller, enforceable against Seller in accordance with its terms except as such enforceability may be limited by applicable bankruptcy or other similar laws affecting the rights of creditors generally. Neither the execution and delivery by Seller of this Agreement or the Conveyance nor the consummation of the transactions contemplated hereby or thereby, nor compliance by Seller with any of the provisions hereof or thereof, shall (a) conflict with or result in a breach of any provision of its articles or certificate of organization, or bylaws, (b) conflict with or result in a breach of any agreement, instrument, mortgage, deed of trust, lease or other obligation to which Seller is a party or by which Seller or any of the Assets is bound or affected, (c) violate any judgment, order, ruling or decree applicable to Seller or to any of the Assets, (d) violate any statute, rule or regulation applicable to Seller or the Assets, assuming receipt of all routine governmental consents normally acquired after the consummation of transactions such as transactions of the nature contemplated by this Agreement, or (e) result in the imposition of any security interest, lien, claim, charge or encumbrance upon the Assets.
 
Section 7.3    Liability for Brokers’ Fees .
 
Purchaser shall not directly or indirectly incur any liability or expense, as a result of undertakings or agreements of Seller, for brokerage fees, finder’s fees, agent’s commissions or other similar forms of compensation in connection with this Agreement or any agreement or transaction contemplated hereby.
 
Section 7.4    Compliance with Laws; Litigation .
 
(a)    Except as set forth in Schedule 7.4(a) , to Seller’s knowledge, there have been no material violations of any applicable Legal Requirement (including, but not limited to, Environmental Legal Requirements) promulgated by any Governmental Authority which relate to the Assets or the production therefrom or the operation thereof.
 
(b)    To Seller’s knowledge, all material permits, licenses and other authorizations relating to the Properties which are necessary under Legal Requirements (including, but not limited to, Environmental Legal Requirements) with respect to pollution or protection of the environment have been obtained, including Legal Requirements (including, but not limited to, Environmental Legal Requirements) relating to actual or threatened emissions, discharges, or releases of hazardous materials or wastes into ambient air, surface water, ground water or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of hazardous materials or wastes and the Properties are in compliance in all material respects with all terms and conditions of such permits, licenses and authorizations, and with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in such Legal Requirements (including, but not limited to, Environmental Legal Requirements) or contained in any regulation, code, plan, order, decree, judgment, notice or demand letter issued, entered, promulgated or approved thereunder relating to the Properties. Seller has received no notice of, and has no actual knowledge of circumstances relating to, any past, present or future events, conditions, circumstances, activities, practices, incidents, actions or plans which are reasonably likely to materially interfere with or prevent continued material compliance with Legal Requirements (including, but not limited to, Environmental Legal Requirements), or which are reasonably likely to give rise to any material liability, based on or related to the processing, distribution, use, treatment, storage, disposal, transport, or handling, or the emission, discharge, release or threatened release into the environment, of any hazardous toxic material or waste from or attributable to the Properties.
 
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(c)    Except as otherwise provided in Schedule 7.4(c) , to Seller’s knowledge, there are no claims, actions, suits, investigations, inquiries or proceedings pending or threatened against Seller or any affiliate of Seller or affecting the Assets that may have an adverse effect on the Assets taken as a whole or on the operation thereof, that, if adversely determined, would prevent or hinder the consummation of the transactions contemplated hereby, or that seek or could result in the modification, revocation, termination, suspension or other limitation of any Lease or Basic Document. To Seller’s knowledge, there are no outstanding judgments requiring Seller to take any action of any kind with respect to the Assets, or to which Seller or any of the Assets are subject or by which they are bound or affected.
 
Section 7.5    Necessary Governmental Authorizations .
 
To Seller’s knowledge, neither execution and delivery of, nor performance under this Agreement or the Conveyance or any other document or instrument to be executed and delivered by Seller at Closing is prohibited by or requires any consent, authorization, approval or registration (other than pursuant to the Mineral Leasing Act of 1920 with respect to holding federal leases, and as are customarily obtained subsequent to the consummation of transactions such as the transactions contemplated hereby) under any Legal Requirement, or any judgment, order, writ, injunction or decree binding upon Seller.
 
Section 7.6    Tax Matters .
 
To Seller’s knowledge, all Taxes relating to the Assets that have become due and payable through the Effective Time have been properly paid.
 
Section 7.7    Operations .
 
(a)    To Seller’s knowledge, the Properties are being developed, operated and maintained in material compliance with all leases, contracts and commitments to which Seller is a party or by which Seller or any of such Properties are bound.
 
(b)    To Seller’s knowledge: (i) Seller is not, and immediately after the Closing Purchaser will not be, dependent with respect to the Properties on the right to use the properties of others, except under valid and enforceable leases, contracts, pooling or unitization agreements, rights or other arrangements, (ii) all buildings, fixtures, machinery and equipment currently used in the operations related to the Properties are adequate for their normal operations consistent with industry practice, and conform with all applicable Legal Requirements (including but not limited to Legal Requirements relating to environmental protection or health and safety) and (iii) there is no pending or threatened condemnation or expropriation of any part of the Assets.
 
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Section 7.8    Operating Agreements .
 
To Seller’s knowledge, and except as identified on Exhibit C or Schedule 2.2 hereto, with respect to the joint, unit or other operating agreements relating to the Assets: (i) there are no outstanding calls or payments under authorities for expenditures for payments which are due or which Seller has committed to make which have not been made; (ii) there are no operations under the operating agreements with respect to which any Seller has become a non-consenting party; and (iii) there are no outstanding proposals soliciting authorities for expenditures. Seller has not elected under any joint operating agreement included in the Assets to carry any share of any non-consenting party’s share of costs of any operations proposed under such joint operating agreements.
 
Section 7.9    Wells .
 
To Seller’s knowledge, all of the Wells included in the Assets have been drilled and completed within the boundaries of the Leases included in the Assets or within the limits otherwise permitted by contract, pooling or unit agreement, and by applicable Legal Requirements, and no Well included in the Assets is subject to penalties because of any violation of applicable Legal Requirements.
 
Section 7.10    Basic Documents .
 
(a)    Prior to the date hereof, Seller has furnished to Purchaser copies of, or complete access to, all Basic Documents and all Files except the contracts described in paragraphs 18, 20 and 34 of Exhibit C. After providing access to the Files to Purchaser, Seller has and will continue to furnish Purchaser such information known to Seller as is necessary to update the Files until the Closing.
 
(b)    Exhibit C is a complete list of all Basic Documents, other than the Leases listed on Exhibit A.
 
(c)    With respect to the Properties, to the knowledge of Seller, (i) all Basic Documents are in full force and effect and are valid and legally binding obligations of the parties thereto and are enforceable in accordance with their respective terms; (ii) Seller is not in breach or default with respect to any of its obligations pursuant to any such Basic Documents, and Seller has not received written notice of any claim of breach or default; (iii) all payments under the Basic Documents have been timely and properly paid; and (iv)  no other party to any Basic Document is in breach or default with respect to its obligations thereunder.
 
Section 7.11    Conduct of Business .
 
To the knowledge of Seller, since the Effective Time, it has not (a) sustained a loss of, or damage to, any of the Assets, or (b) waived any right of substantial value relating to the Assets; and there has not been (c) any material adverse change in any of the Assets, whether or not arising in the ordinary course of business, or (d) any occurrence or circumstance which might reasonably be expected to result in any such change other than (i) changes in accordance with normal and expected production decline curves and usual operating conditions, and (ii) general changes or expected changes in market prices for production or in the oil and gas industry generally.
 
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Section 7.12    Leases .
 
(a)    With respect to the Leases, to the knowledge of Seller, (i) all Leases are in full force and effect and are valid and legally binding obligations of the parties thereto and are enforceable in accordance with their respective terms; (ii) Seller is not in breach or default with respect to any of its obligations pursuant to any Lease, and Seller has not received written notice of any claim of breach or default; (iii) except as set forth in Schedule 7.12(a) , all payments (including without limitation royalties, delay rentals, shut-in royalties and joint interest or other billings) have been timely and properly paid; and (iv)  no other party to any Lease is in breach or default with respect to its obligations thereunder.
 
(b)    To Seller’s knowledge, with respect to the Leases, unit agreements, pooling agreements, communitization agreements, and other documents creating interests comprising the Assets: (i) other than sliding scale royalty clauses contained in certain of the federal oil and gas Leases, there are no express provisions of the Leases or other documents which increase the royalty share of the lessor; (ii) there are no express provisions of any Leases which prohibit the payment of royalty on the basis of proceeds received under a prudently negotiated arms-length contract; (iii) upon establishment of production in commercial quantities and until such production should cease, the Leases may be maintained in full force and effect over the economic life of the property involved in accordance with the respective habendum clauses contained in such Leases beyond the respective primary terms set forth in said Leases; and (iv) there are no fixed-term Leases which cannot be extended by production at the end of the term.
 
Section 7.13    Gas Contracts .
 
Except as described on Exhibit C, there are no gas purchase and sale agreements, gathering agreements, processing agreements, transportation agreements or other agreements pertaining to the disposition of production to which the Assets, or any portion of the Assets, are dedicated as of the date of this Agreement.
 
Section 7.14    Calls on Production; Prepayments; Imbalances .
 
Except with respect to the rights of third-party operators to market Seller’s share of production, which such rights are terminable on thirty-days notice or less, there are no calls on production or options to purchase production or similar rights with respect to the Assets or to the production therefrom. The Assets are not obligated by virtue of a prepayment arrangement under any contract for the sale of hydrocarbons. Except as set forth on Exhibit E, there are no situations where Seller, pursuant to any balancing arrangements or similar circumstances or under the common law, is required to allow another party to produce more than an insignificant quantity of hydrocarbons which, in the absence of such balancing arrangements or similar situation, would have been produced by Seller, and there are no existing production or pipeline imbalances affecting Seller’s interest in any of the Properties. Seller is not liable, directly or indirectly, for any scheduling or imbalance penalties or charges imposed by any pipeline in connection with the transportation of gas produced from any of the Assets.
 
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Section 7.15    Taxpayer Identification Number .
 
SEI’s Taxpayer Identification Number is 84-1182765, and SEWI’s is 95-4298135.
 
Section 7.16    No Bankruptcy .
 
There are no bankruptcy proceedings pending, being contemplated by, or to Seller's knowledge, based upon reasonable inquiry and investigation, threatened against Seller.
 
Section 7.17    Income Taxes .
 
All of Seller’s income taxes and obligations relating thereto that could result in a lien or other claim against any of the Assets have been properly paid.
 
Section 7.18    Tax Partnerships .  
 
The Assets are not subject to any tax partnership agreements requiring a partnership income tax return to be filed under Subchapter K of Chapter 1 of Subtitle A of the Code.
 
Section 7.19    Consents; Preferential Rights to Purchase .
 
Except for governmental consents which are customarily obtained post Closing, and except as set forth on Schedule 7.19 , no consents or approvals are required to be obtained for the assignment of the Assets to Purchaser which have not been obtained. No person or entity holds a right or option to purchase or preferential right to purchase the Assets, or any part thereof.
 
Section 7.20    Plugging and Abandonment .
 
Except as set forth on Schedule 7.20 , none of the Wells has been plugged or abandoned and, to the knowledge of Seller, there are no other wells on the Land which have been shut in but not plugged and abandoned.
 
Section 7.21 Depth Restrictions .
 
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Except as described on Exhibit A, none of the Leases contain any depth restrictions.
 
ARTICLE 8
REPRESENTATIONS AND WARRANTIES OF PURCHASER
 
Purchaser represents and warrants to Seller as follows in this Article 8:
 
Section 8.1    Organization, Standing and Power .
 
Purchaser is a corporation duly organized, validly existing and in good standing under the laws of Colorado and has full legal power and right to carry on its business as such is now being conducted. Purchaser is or will be by Closing duly qualified as a foreign corporation in the State of Wyoming.
 
Section 8.2    Authority and Enforceability .
 
The execution and delivery by Purchaser of this Agreement, and the consummation of the transactions contemplated hereby, have been duly and validly authorized by all requisite action on the part of Purchaser. This Agreement constitutes the valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms except as such enforceability may be limited by applicable bankruptcy or other similar laws affecting the rights of creditors generally. Neither the execution and delivery by Purchaser of this Agreement nor the consummation of the transactions contemplated hereby nor the compliance by Purchaser with any of the provisions hereof, shall (a) conflict with or result in a breach of any provision of its articles of incorporation or bylaws, (b) conflict with or result in a breach of any material agreement or instrument to which Purchaser is a party or by which Purchaser is bound, (c) violate any judgment, order, ruling, or decree applicable to Purchaser, or (d) violate any statute, rule or regulation applicable to Purchaser, assuming receipt of all routine governmental consents normally acquired after the consummation of transactions such as transactions of the nature contemplated by this Agreement.
 
Section 8.3    Liability for Brokers’ Fees .
 
Seller shall not directly or indirectly incur any liability or expense as a result of undertakings or agreements of Purchaser for brokerage fees, finder’s fees, agent’s commissions or other similar forms of compensation in connection with this Agreement or any agreement or transaction contemplated hereby.
 
Section 8.4    Litigation .
 
There is no suit, action, claim, investigation, or inquiry by any person or entity or by any Governmental Authority and no legal, administrative or arbitration proceeding pending or to Purchaser’s best knowledge, threatened proceeding against Purchaser or any affiliate of Purchaser which has or will materially affect Purchaser’s ability to consummate the transactions herein.
 
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Section 8.5    Necessary Governmental Authorizations .
 
Neither execution and delivery or, nor performance under this Agreement or the Conveyance or any other document or instrument to be executed and delivered by Purchaser at Closing is prohibited by or requires any consent authorization, approval or registration (other than as are customarily obtained subsequent to the consummation of transactions such as the transactions contemplated hereby) under any Legal Requirement, or any judgment, order, writ, injunction or decree binding on Purchaser.
 
Section 8.6    Authority to Hold Federal Leases .
 
Purchaser is a corporation duly incorporated under the laws of one of the states of the United States of America, is authorized to, and upon the Closing hereof shall, take title to and ownership of the federal Leases included in the Properties.
 
Section 8.7    Independent Evaluation .
 
Purchaser is an experienced and knowledgeable investor in the oil and gas business and its risks. Purchaser has retained and taken advice concerning the Assets and the transactions herein from advisors and consultants which are knowledgeable about the oil and gas business and its risks. Purchaser has been afforded the opportunity to examine Seller’s books and records and other information made available by Seller concerning the Assets (the “Background Materials”). The Background Materials contain files, or copies thereof, that Seller has used in its normal course of business and other information about the Assets that Seller has compiled or generated; provided, however, that Purchaser acknowledges and agrees that, except for the express representations and warranties of Seller contained in this Agreement, Seller has made no representations or warranties, express or implied, written or oral, as to the accuracy or completeness of the Background Materials or, except for the express representations and warranties of Seller contained in this Agreement, as to any other information concerning the Assets, furnished or to be furnished to Purchaser or its representatives by or on behalf of Seller, including without limitation any estimate with respect to the value of the Assets or reserves or any projections as to events that could or could not occur. In entering into this Agreement, Purchaser acknowledges and affirms that it has relied and will rely solely on the terms of this Agreement and upon its independent analysis, evaluation and investigation of, and judgment with respect to, the business, economic, legal, tax or other consequences of the transactions herein including its own estimate and appraisal of the extent and value of the petroleum, natural gas and other reserves attributable to the Properties. Except as expressly provided in this Agreement, Seller shall have no liability to Purchaser resulting from any use, authorized or unauthorized, of the Background Materials or any other information relating to the Assets provided by or on behalf of Seller. PURCHASER ACKNOWLEDGES AND AGREES THAT THE RELATED ASSETS ARE BEING SOLD “AS IS” “WHERE IS”, WITH NO REPRESENTATIONS, WARRANTIES OR GUARANTIES, EXPRESS OR IMPLIED, EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT.
 
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ARTICLE 9
ASSUMPTION OF LIABILITIES
INDEMNIFICATION
 
Section 9.1    Purchaser Assumption of Liabilities and Obligations .
 
Upon Closing, Purchaser shall (a) assume and pay, perform, fulfill and discharge its pro rata share of all duties, claims, costs, expenses, liabilities and obligations attributable to the Assets from and after the Effective Time and (b) except to the extent of any Purchase Price adjustment made pursuant to Section 2.2(a)(5), assume and pay all amounts owing under the AFEs listed on Schedule 2.2 regardless of whether such AFE amounts are attributable under generally accepted accounting principles to periods of time before or after the Effective Time, (c) assume and pay the first $250,000.00 in Losses incurred by Purchaser as provided in Section 9.4(a) below, (d) assume any costs to cure or Losses associated with the Defect Threshold under Section 4.1(f), and (e) assume and pay all expenses, burdens and obligations and Taxes for which and only to the extent Purchaser received a downward adjustment of the Purchase Price at Closing pursuant to Sections 2.2(b)(2) and 2.2(b)(3), respectively (collectively, the “ Purchaser’s   Assumed Liabilities ”).
 
Section 9.2    Seller's Retention of Liabilities and Obligations .
 
Upon Closing, Seller retains all duties, claims, costs, expenses, liabilities and obligations attributable to the Assets prior to the Effective Time other than (a) the Purchaser’s Assumed Liabilities, (b) Taxes to be paid by Purchaser under Section 15.5 for which it has received a Purchase Price adjustment under Section 2.2(b)(3), and (c) those Defective Interests, if any, (i) which Purchaser has waived under Section 4.1(c)(1), or (ii) for which Purchaser has received an adjustment under Section 4.1(c)(2) (collectively, the “ Seller’s   Retained Liabilities ”).
 
Section 9.3    Indemnification .
 
“ Losses ” shall mean any actual losses, costs, expenses (including court costs, reasonable fees and expenses of attorneys, technical experts and expert witnesses and the cost of investigation), liabilities, damages, demands, suits, claims, and sanctions of every kind and character (including civil fines) arising from, related to or reasonably incident to matters indemnified against; excluding however any special, consequential, punitive or exemplary damages, diminution of value of an Asset, loss of profits incurred by a party hereto or Loss incurred as a result of the indemnified party indemnifying a third party.
 
After the Closing, subject to Sections 9.4 and 9.7, Purchaser and Seller shall indemnify each other as follows:
 
(a)    Seller's Indemnification of Purchaser . Seller assumes all risk, liability, obligation and Losses in connection with, and shall defend, indemnify, and save and hold harmless Purchaser, its officers, directors, employees and agents, from and against all Losses which arise from or in connection with (i) Seller's Retained Liabilities, (ii) any breach of any representation or warranty made by Seller in this Agreement, (iii)  any other matter for which Seller has agreed to indemnify Buyer under this Agreement, and (iv) any breach by Seller of this Agreement; provided, however, that Seller’s maximum liability under this indemnification obligation shall not exceed the Purchase Price.
 
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(b)    Purchaser’s Indemnification of Seller . Purchaser assumes all risk, liability, obligation and Losses in connection with, and shall defend, indemnify, and save and hold harmless Seller, its officers, directors, employees and agents, from and against all Losses which arise from or in connection with (i) Purchaser's Assumed Liabilities, (ii) any breach of any representation or warranty made by Purchaser in this Agreement, (iii) any other matter for which Purchaser has agreed to indemnify Seller under this Agreement, and (iv) any breach by Purchaser of this Agreement.
 
Section 9.4    Procedure .
 
The indemnifications contained in Section 9.3 shall be implemented as follows:
 
(a)    Coverage . Such indemnity shall extend to all Losses suffered or incurred by the indemnified party exceeding the first $250,000.00 in Losses.
 
(b)    Claim Notice . The party seeking indemnification under the terms of this Agreement (“ Indemnified Party ”) shall submit a written “ Claim Notice ” to the other party (“ Indemnifying Party ”) which, to be effective, must state: (i) the amount of each payment claimed by an Indemnified Party to be owing, (ii) the basis for such claim, with supporting documentation, and (iii) a list identifying to the extent reasonably possible each separate item of Loss for which payment is so claimed. The amount claimed shall be paid by the Indemnifying Party to the extent required herein within ten (10) days after receipt of the Claim Notice, or after the amount of such payment has been finally established, whichever last occurs.
 
(c)    Information . Within 20 days after the Indemnified Party receives notice of a claim or legal action that may result in a Loss for which indemnification may be sought under this Article 9 (“ Claim ”), the Indemnified Party shall give written notice of such Claim to the Indemnifying Party. If the Indemnifying Party or its counsel so requests, the Indemnified Party shall furnish the Indemnifying Party with copies of all pleadings and other information with respect to such Claim. At the election of the Indemnifying Party made within 60 days after receipt of such notice, the Indemnified Party shall permit the Indemnifying Party, as its own expense, to assume control of such Claim (to the extent only that such Claim, legal action or other matter relates to a Loss for which the Indemnifying Party is liable), including the determination of all appropriate actions, the negotiation of settlements on behalf of the Indemnified Party, and the conduct of litigation through attorneys of the Indemnifying Party's choice; provided, however, that no such settlement can result in any liability or cost to the Indemnified Party for which it is entitled to be indemnified hereunder without its consent. If the Indemnifying Party elects to assume control, (i) any expense incurred by the Indemnified Party thereafter for investigation or defense of the matter shall be borne by the Indemnified Party, and (ii) the Indemnified Party shall give all reasonable information and assistance, other than pecuniary, that the Indemnifying Party shall deem necessary to the proper defense of such Claim, legal action, or other matter. In the absence of such an election, the Indemnified Party will use its best efforts to defend, at the Indemnifying Party's expense, any claim, legal action or other matter to which such other party's indemnification under this Article 9 applies until the Indemnifying Party assumes such defense, and, if the Indemnifying Party fails to assume such defense within the time period provided above, settle the same in the Indemnified Party's reasonable discretion at the Indemnifying Party's expense. If such a Claim requires immediate action, both the Indemnified Party and the Indemnifying Party will cooperate in good faith to take appropriate action so as not to jeopardize defense of such Claim or either party's position with respect to such Claim.
 
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(d)    Dispute . If the existence of a valid Claim or amount to be paid by an Indemnifying Party is in dispute, the parties agree to submit determination of the existence of a valid Claim or the amount to be paid pursuant to the Claim Notice to binding arbitration in Wyoming, such arbitration to be conducted as follows: The arbitration proceeding shall be governed by Wyoming law and shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association (“ AAA ”), with discovery to be conducted in accordance with the Federal Rules of Civil Procedure, and with any disputes over the scope of discovery to be determined by the arbitrators. The arbitration shall be before a three person panel of neutral arbitrators, consisting of one person from each of the following categories: (1) an attorney who has practiced in the area of oil and gas law for at least ten years; (2) a retired judge at the Wyoming or United States District Court or Appellate Court level; and (3) a person with at least ten years of oil and gas industry experience as a petroleum engineer. The AAA shall submit a list of persons meeting the criteria outlined above for each category of arbitrator, and the parties shall select one person from each category in the manner established by the AAA. The arbitrators shall conduct a hearing no later than 60 days after submission of the matter to arbitration, and a written decision shall be rendered by the arbitrators within 30 days of the hearing. At the hearing, the parties shall present such evidence and witnesses as they may choose, with or without counsel. Adherence to formal rules of evidence shall not be required but the arbitration panel shall consider any evidence and testimony that it determines to be relevant, in accordance with procedures that it determines to be appropriate. Any award entered in the arbitration shall be made by a written opinion stating the reasons and basis for the award made and any payment due pursuant to the arbitration shall be made within 15 days of the arbitrators' decision. The final decision may be filed in a court of competent jurisdiction and may be enforced by any party as a final judgment of such court. The costs of the arbitration shall be borne by the party against whom any award entered in the arbitration is made, unless the arbitration panel determines otherwise.
 
Section 9.5    No Insurance; Subrogation .
 
The indemnifications provided in this Article 9 shall not be construed as a form of insurance. Purchaser and Seller hereby waive for themselves, their successors or assigns, including, without limitation, any insurers, any rights to subrogation for Losses for which each of them is respectively liable or against which each respectively indemnifies the other, and, if required by applicable policies, Purchaser and Seller shall obtain waiver of such subrogation from their respective insurers.
 
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Section 9.6    Reservation as to Non-Parties .
 
Nothing herein is intended to limit or otherwise waive any recourse Purchaser or Seller may have against any non-party for any obligations or liabilities that may be incurred with respect to the Assets.
 
Section 9.7    Survival of Representations, Warranties and Covenants .
 
The representations and warranties of Seller and Purchaser in this Agreement shall survive Closing for a period of eighteen (18) months except (a) those contained in Sections 7.1, 7.2, 8.1 and 8.2 which shall survive indefinitely, and (b) those contained in Sections 7.4 and 7.6 which shall survive for the applicable statutes of limitation periods. Seller and Purchaser shall have no liability under Sections 9.3(a)(ii) and 9.3(b)(ii), respectively, unless a Claim Notice is submitted by Purchaser or Seller, as the case may be, within the applicable survival period. The covenants of Seller and Purchaser shall survive until fully performed.
 
Section 9.8. Survival of Indemnification Obligations; Guaranty . Except as provided in Section 9.7 hereof, the Indemnification Obligations under Section 9.3 shall survive Closing. Seller shall deliver to Purchaser at closing a guaranty executed by Lewis W. Douglas, Jr. guaranteeing the full and prompt payment and performance of all of Seller’s obligations under this Agreement, including, but not limited to, Seller’s Indemnification obligations, in substantially the form set forth in Exhibit H hereto.
 
ARTICLE 10
CONDITIONS TO CLOSING
 
Section 10.1    Conditions to Obligation of Purchaser to Close .
 
The obligation of Purchaser to consummate the transactions contemplated by this Agreement is subject to the satisfaction of the following conditions unless waived in writing by Purchaser:
 
(a)    Purchaser shall not have been denied access to information, as described in Section 3.1, or the ability to conduct an Environmental Examination, as described in Section 3.2, by any third party operators of the assets or any other third parties having consent rights.
 
(b)    The representations and warranties of Seller set forth herein shall be true and correct in all material respects as of the date of this Agreement and as of the Closing as though made on such dates (including representations and warranties made as of a specific date being true and correct as though that specific date were changed to the date of this Agreement or the Closing);
 
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(c)    Seller shall have performed all obligations and agreements and complied with all covenants and conditions applicable to it contained in this Agreement prior to or on the Closing and shall have executed and delivered the Conveyance prior to or on the Closing;
 
(d)    Purchaser shall have received certificates executed by an officer of Seller, dated as of Closing, reasonably satisfactory in form and substance to Purchaser, certifying that the conditions specified in Sections 10.1(b) and 10.1(c) have been satisfied;
 
(e)    No suit, action or other proceeding by a third party or Governmental Authority shall be pending or threatened which seeks damages from Purchaser in connection with, or seeks to restrain, enjoin or otherwise prohibit, the consummation of the transactions contemplated by this Agreement;
 
(f)    All third-party consents required as a condition to the transfer of the Assets or the benefit of ownership to Purchaser of the Assets shall have been obtained and remain in effect;
 
(g)    There is available to Purchaser financing for this transaction on commercially reasonable terms in the discretion of Purchaser’s Board of Directors;  
 
(h)    No changes in or to the Assets shall have occurred between the Effective Time and the Closing which, taken as a whole, are materially adverse to Purchaser, other than (i) changes in accordance with normal and expected production decline curves and usual operating conditions, (ii) changes in operations undertaken with the written consent of Purchaser pursuant to the provisions of this Agreement, and (iii) general changes or expected changes in market prices for production or in the oil and gas industry generally; and
 
(i)    Purchaser shall have received the guaranty described in Section 9.8 hereof.
 
Section 10.2    Conditions to Obligation of Seller to Close .
 
The obligation of Seller to consummate the transactions contemplated by this Agreement is subject to the satisfaction of the following conditions unless waived in writing by Seller:
 
(a)    The representations and warranties of Purchaser set forth herein shall be true and correct in all material respects as of the date of this Agreement, the Effective Date and as of the Closing as though made on and as of all such dates;
 
(b)    Purchaser shall have performed all obligations and agreements and complied with all covenants and conditions applicable to it contained in this Agreement prior to or on the Closing;
 
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(c)    Seller shall have received a certificate executed by an officer of Purchaser, dated as of Closing, reasonably satisfactory in form and substance to Seller, certifying that the conditions specified in Sections 10.2(a) and 10.2(b) have been satisfied; and
 
(d)    No suit, action or other proceeding by a third party or a Governmental Authority shall be pending or threatened which seeks substantial damages from Seller in connection with, or seeks to restrain, enjoin or otherwise prohibit, the consummation of the transactions contemplated by this Agreement.
 
(e)    Purchaser shall have delivered bonds or commitments to issue bonds sufficient to cover the operation of the Assets as required by applicable Legal Requirements.
 
(f)    Seller shall have received a guaranty executed by Samson Oil & Gas Limited guaranteeing the full and prompt payment and performance of all of Purchaser’s obligations under this Agreement in substantially the form set forth in Exhibit I hereto.
 
Section 10.3    Seller’s Obligations at Closing .
 
At Closing, Seller shall deliver to Purchaser the following:
 
(a)    An executed counterpart of the Conveyance;
 
(b)    Assignments of the Properties, to the extent required, on officially approved federal and/or state assignment forms;
 
(c)    Exclusive possession of the Assets;
 
(d)    The originals or copies of the Files, provided, however, that for a period not to exceed two years after the Closing, upon reasonable request for litigation, tax or other legitimate business purposes Purchaser shall allow Seller, and its agents, employees, and representatives access to examine and copy, at Seller’s own expense, during normal business hours the Files;
 
(e)    The Preliminary Adjustment Statement; and
 
(f)    Such other documents and instruments as shall be reasonably requested by Purchaser and its counsel to effect the intent of this Agreement and consummate the transaction contemplated hereby.
 
Section 10.4    Purchaser’s Obligations at Closing .
 
At Closing, Purchaser shall deliver to Seller the following:
 
(a)    The estimated Adjusted Purchase Price by bank transfer of immediately available funds as set forth in Section 2.3, less the amount of the Deposit, First Extension Deposit, Second Extension Deposit, Third Extension Deposit, as applicable, and any amounts to be paid into Escrow pursuant to Section 2.4 (which Escrow shall be funded at Closing);
 
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(b)    An executed counterpart of the Conveyance, evidencing Purchaser’s acceptance of same and assumption of the Assumed Obligations;
 
(c)    Evidence reasonably satisfactory to Seller of Purchaser’s compliance with Section 10.2(e); and
 
(d)    Such other documents and instruments as shall be reasonably requested by Seller and its counsel to effect the intent of this Agreement and consummate the transaction contemplated hereby.
 
Section 10.5    Obligation of Both Parties at Closing .
 
At Closing and thereafter as may be necessary, the parties hereto shall execute, acknowledge and deliver transfer orders, and/or letters-in-lieu of transfer orders, notifying all oil and gas purchasers to begin directing that all proceeds of production from the Properties which have heretofore been paid to Seller shall immediately be paid to the account of Purchaser. Thereafter, the Parties shall execute, acknowledge, and deliver transfer orders and any other documents and shall take such other action as may be necessary to carry out their obligations under this Agreement.
 
ARTICLE 11
TERMINATION AND AMENDMENT
 
Section 11.1    Termination .
 
This Agreement may be terminated:
 
(a)   by the mutual agreement of Seller and Purchaser at any time prior to the Closing;
 
(b)   by either Party, by written notice delivered to the other Party prior to the Original Closing Date or, if the Purchaser elects to extend the Closing pursuant to Section 6.1(c), by the First Extended Closing Date, if the provisions of Section 4.1(e) give such Party the right to terminate;
 
(c)   by Purchaser if the provisions of Section 4.3 give it the right to terminate;
 
(d)   by Seller, by written notice delivered to Purchaser prior to the Original Closing Date, if Seller reasonably believes the Defects identified in Purchaser’s notice, if any, delivered pursuant to Section 4.1(a) and the Environmental Defects identified in Purchaser’s notice, if any, delivered pursuant to Section 5.2(a) (other than Defects and Environmental Defects upon which a Purchase Price adjustment is made at Closing or which relate to Excluded Assets) will be unduly burdensome or costly to cure or remediate;
 
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(e)   by Seller if the conditions set forth in Section 10.2 are not satisfied on or before the Original Closing Date or, if the Closing Date is extended as provided in Article VI, the Extended Closing Date, or
 
(f)   by Purchaser if the conditions set forth in Section 10.1 are not satisfied on or before the Original Closing Date or, if the Closing Date is extended as provided in Article VI, the Extended Closing Date;
 
provided that the terminating Party shall not have breached the obligations it has undertaken hereunder to perform at Closing. Any Party shall exercise a right of termination provided above by written notice to the other Party In the event Closing has not occurred on the Original Closing Date or, if the Closing Date is extended as provided in Article VI, the Extended Closing Date (the “ Outside Closing Date ”), this Agreement shall automatically terminate except as otherwise provided by the Parties in an executed amendment hereto.
 
Section 11.2    Effect of Termination . Neither Party shall have any liability whatsoever to the other Party arising out of termination of this Agreement except, and only to the extent, as follows:
 
(a)    When Extension Deposits Are To Be Returned. If Purchaser has paid any Extension Deposits pursuant to Sections 6.1(c), (d) or (e) and this Agreement is terminated pursuant to Sections 11.1 (a), (b), (c), (d), Section 11.1(e) if Seller’s condition to Closing in Section 10.2(d) is not satisfied, or Section 11.1(f) if any of Purchaser’s conditions to Closing are not satisfied except the financing condition in Section 10.1(g), Purchaser shall be entitled to a refund of such Deposits within five (5) business days after Seller’s receipt of Purchaser’s notice of termination.
 
(b)    Termination Under Section 11.1(e); Purchaser’s Unauthorized Termination . Notwithstanding any other provisions of this Agreement to the contrary, the Parties acknowledge that the Extension Deposits provided for in Sections 6.1(c), (d) and (e) are option payments that give the Purchaser the right, but not the obligation, to consummate the transaction contemplated by this Agreement and, therefore, if the Closing is extended pursuant to Sections 6.1(c), (d) or (e), and, thereafter, the transaction contemplated by this Agreement is not consummated on or before the Outside Closing Date by reason of Seller’s termination of this Agreement pursuant to Section 11.1(e) or by Purchaser’s termination of this Agreement by notice to Seller and such termination is not authorized by this Agreement, Purchaser shall nevertheless have no liability whatsoever for such termination and Seller shall be entitled to retain all Extension Deposits paid by Purchaser prior to such termination (except for a termination because Seller’s condition to closing in Section 10.2(d) is not satisfied).
 
(c)    Termination Under Section 11.1(f); Seller’s Wrongful Failure to Tender Performance . If the transaction contemplated by this Agreement is not consummated on or before the Outside Closing Date by reason of the Purchaser’s termination of this Agreement pursuant to Section 11.1(f) (other than for the reason that the financing condition set forth in Section 10.1(g) has not been satisfied) or by reason of Seller’s wrongful failure to tender performance and the Purchaser is in compliance with the terms of this Agreement, then the Purchaser retains all legal and equitable remedies against Seller.
 
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Section 11.3    Amendment .
 
(a)    At any time prior to the Closing this Agreement may be amended or modified in any respect by the Parties by an agreement in writing executed in the same manner as this Agreement.
 
(b)    No supplement, modification, waiver or termination of this Agreement shall be binding unless executed in writing by the Parties to be bound thereby.
 
ARTICLE 12
EXPENSES AND TRANSFER TAXES
 
Section 12.1    Expenses .
 
All expenses incurred by Seller in connection with or related to the authorization, preparation or execution of this Agreement, the Conveyance and the Exhibits and Schedules hereto and thereto, and all other matters related to the Closing, including without limitation, all fees and expenses of counsel, accountants and financial advisers employed by Seller, shall be borne solely and entirely by Seller; and all such expenses incurred by Purchaser shall be borne solely and entirely by Purchaser.
 
Section 12.2    Sales Taxes and Assessments .
 
All sales, use, transfer and similar taxes or assessments (including duties, levies and other governmental charges incurred by or imposed on the Parties with respect to the property transfers or other transactions undertaken pursuant to this Agreement) arising from or payable by reason of the conveyance of the Assets to Purchaser shall be borne by Purchaser.
 
ARTICLE 13
POST-CLOSING OBLIGATIONS
 
Section 13.1    Post-Closing Production Receipts and Expenses .
 
Seller shall be entitled to all proceeds of hydrocarbons production attributable to the Assets, and, except as provided herein, is responsible for all costs and expenses, attributable to periods of time prior to the Effective Time, and Purchaser shall be entitled to all proceeds of hydrocarbons production attributable to the Assets, and is responsible for all costs and expenses, attributable to periods of time from and after the Effective Time, and for the AFE costs as provided in Section 9.1(b) of this Agreement. Should either Party receive proceeds from hydrocarbons production from the Assets to which the other Party is entitled (which proceeds have not previously been the subject of Purchase Price adjustments pursuant to Article 2), the receiving Party shall pay over such proceeds to the entitled Party not later than ten days after its receipt of such proceeds. Should either Party receive a statement or invoice for costs which are the responsibility of the other Party (which costs have not previously been the subject of Purchase Price adjustments pursuant to Article 2), the receiving Party shall forward such statement or invoice to the responsible Party and the responsible Party shall timely and properly pay such statement or invoice.
 
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Section 13.2    Cooperation .
 
Each Party shall provide the other Party with reasonable access to all relevant documents, data and other information which may be required by the other Party for the purpose of preparing tax returns and responding to any audit by any taxing jurisdiction. Each Party to this Agreement shall cooperate with all reasonable requests of the other Party made in connection with contesting the imposition of taxes. Notwithstanding anything to the contrary in this Agreement, neither Party shall be required at any time to disclose to the other Party any tax returns or other confidential tax information.
 
ARTICLE 14
1031 EXCHANGE
 
Seller reserves the right, at or prior to Closing, to assign its rights under this Agreement with respect to a portion of the Purchase Price and that portion of the Assets associated therewith (“1031 Assets”), to a Qualified Intermediary (as that term is defined in Section 1.1031(k)-1(g)(4)(v) of the Treasury Regulations) to accomplish this transaction in a manner that will comply, either in whole or in part, with the requirements of a Like-Kind Exchange. Accordingly, Seller may assign its rights under this Agreement to the 1031 Assets to the Qualified Intermediary. Purchaser hereby (i) consents to Seller's assignment of its rights in this Agreement with respect to the 1031 Assets, and (ii) if such an assignment is made, agrees to pay a portion of the Purchase Price into the qualified trust account at Closing as set forth in the 1031 Exchange Agreement used to accomplish the Like-Kind Exchange as directed in writing by Seller. Seller and Purchaser acknowledge and agree that an assignment of this Agreement to a Qualified Intermediary shall not release either party from any of their respective liabilities and obligations to each other or expand any such respective liabilities or obligations under this Agreement, and that neither party represents to the other that any particular tax treatment will be given to either party as a result thereof. Purchaser shall not be obligated to pay any additional costs or incur any additional obligations as a result of Seller's Like-Kind Exchange, and Seller shall indemnify and hold Purchaser harmless from and against all claims, losses and liabilities, if any, resulting from such a Like-Kind Exchange.
 
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ARTICLE 15
MISCELLANEOUS
 
Section 15.1    Counterparts .
 
This Agreement may be executed in one or more counterparts, each of which shall be deemed an original instrument, but all such counterparts together shall constitute but one agreement.
 
Section 15.2    Notice .
 
All notices which are required or may be given pursuant to this Agreement shall be sufficient in all respects if given in writing and delivered personally or by registered or certified mail, postage prepaid, or by facsimile transmission as follows:
 
If to Purchaser:          Samson Oil and Gas USA Inc.
1726 Cole Boulevard, Suite 210
Lakewood, Colorado 80401
Attention: Terry Barr
FAX: 303-295-1361

If to Seller:             c/o Stanley Energy, Inc.
1776 Lincoln Street, Suite 1300
Denver, CO 80203
Attention: Lewis W. Douglas, Jr.
FAX: 303-830-8576
 
All notices shall be deemed to have been duly given at the time of receipt by the Party to which such notice is addressed. For facsimile transmissions, if received after the close of business on any day, such notices shall be deemed to have been given on the next business day.
 
Section 15.3    Further Assurance s .
 
From and after the Closing, at the request of Purchaser but without further consideration, Seller shall execute and deliver or cause to be executed and delivered such other instruments of conveyance and transfer and take such other action as necessary to effectively vest in Purchaser and to put Purchaser in possession of, any of the Assets and rights and relations thereto. This obligation shall include, but not be limited to, taking such action as may be required of Seller to cure any Defective Interests conveyed to Purchaser.
 
Section 15.4    Recording Fees and Similar Costs .
 
Purchaser shall bear any documentary, filing, and recording fees and similar costs incurred and imposed upon, or with respect to, the property transfers contemplated hereby.
 
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Section 15.5    Ad Valorem and Other Taxes .
 
Except as specifically provided in this Section 15.5, Seller shall pay. when due (whether before or after the Closing), all Taxes (as defined in Section 2.2(b)(3)) for which Purchaser has not received a Purchase Price adjustment under Section 2.2(b)(3) and shall protect, defend, indemnify and hold Purchaser harmless from and against all Losses suffered or incurred by Purchaser by reason of Seller’s failure to timely and fully pay all of such taxes. Purchaser shall pay when due all Taxes for which Purchaser has received a Purchase Price adjustment under Section 2.2(b)(3).
 
Section 15.6    Governing Law .
 
This Agreement and the legal relations between the parties shall be governed by and construed in accordance with the laws of the State of Colorado without regard to principles of conflicts of laws otherwise applicable to such determinations.
 
Section 15.7    Captions .
 
The captions in this Agreement are for convenience only and shall not be considered a part of or affect the construction or interpretation of any provision of this Agreement.
 
Section 15.8    Waivers .
 
Any failure by any Party or Parties to comply with any of its or their obligations, agreements or conditions herein contained may be waived in writing, but not in any other manner, by the Party or Parties to whom such compliance is owed. No waiver of, or consent to a change in, any of the provisions of this Agreement shall be deemed or shall constitute a waiver of, or consent to a change in, other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.
 
Section 15.9    Exhibits and Schedules .
 
All Exhibits and Schedules attached to or referred to in this Agreement are incorporated into and made a part of this Agreement.
 
Section 15.10    Entire Agreement; Amendments .
 
This Agreement, the Exhibits and Schedules attached hereto or referred to herein, and the instruments and documents delivered or to be delivered at Closing, embody the entire agreement between the Parties with respect to the subject matter hereof and supersede all prior representations, agreements and understandings, oral or written, with respect thereto. This Agreement may not be modified orally, but only by an agreement signed by the Party or Parties against whom any waiver, change, amendment, modification or discharge may be sought to be enforced.
 
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Section 15.11    Rights Cumulative .
 
The rights and remedies of the Parties under this Agreement shall be cumulative and not exclusive of any rights or remedies which any Party would otherwise have hereunder or at law or in equity or by statute.
 
Section 15.12    Binding Effect; Benefits; Third Parties; Joint Ventures .
 
This Agreement will inure to the benefit of and will be binding upon the Parties and their respective successors and permitted assigns. Seller shall not assign this Agreement or delegate any of its duties hereunder to any other person or entity without the prior written consent of the Purchaser. Purchaser shall not assign this Agreement or delegate any of its duties hereunder to any other person or entity without the prior written consent of the Seller. This Agreement constitutes an agreement solely among the Parties, and, except as otherwise provided herein, is not intended to and will not confer any rights, remedies, obligations or liabilities, legal or equitable, including any right of employment, on any person or entity other than the Parties and their respective successors or permitted assigns, or otherwise constitute any person or entity a third party beneficiary under or by reason of this Agreement. Nothing in this Agreement, express or implied, is intended to or will constitute the Parties hereto partners or participants in a joint venture.
 
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IN WITNESS WHEREOF, this Agreement has been signed by each of the Parties, all as of the date first above written.
 
     
 
PURCHASER:
   
 
Samson Oil and Gas USA Inc.
 
  		 
  		 
 
/s/ Terry Barr
 
Name:   T.M. Barr
 
Title:   Managing Director
 
     
 
SELLER:
   
 
Stanley Energy, Inc.
 
  		 
  		 
 
/s/ Lewis W. Douglas Jr.
 
Name:   Lewis W. Douglas, Jr.
 
Title:   President
 
     
 
Stanley Energy W., Inc.
 
  		 
  		 
 
/s/ Lewis W. Douglas Jr.
 
Name:   Lewis W. Douglas, Jr.
 
Title:   President

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LIST OF EXHIBITS AND SCHEDULES
 
Exhibit A
Oil & Gas Leases and Lands
   
Exhibit B
Oil & Gas Wells
   
Exhibit C
Basic Documents
   
Exhibit D
Form of Conveyance
   
Exhibit E
Wellhead and Pipeline Imbalances
   
Exhibit F
WI, NRI, and ORRI
   
Exhibit G
Allocation of Purchase Price
   
Exhibit H
Form of Douglas Guaranty
   
Exhibit I
Form of Samson Parent Guaranty
   
Schedule 2.2
AFEs
   
Schedule 7.4(a)
Legal Requirements
   
Schedule 7.4(c)
Pending Claims
   
Schedule 7.12(a)
Lease payment claims
   
Schedule 7.19
Consents
   
Schedule 7.20
Shut-in or Temporarily Abandoned Wells


Exhibit 8  —     List of Subsidiaries

Samson Oil & Gas USA, Inc., a Colorado Corporation


Exhibit 15.1

Consent of Independent Auditors

We consent to the use of our report dated June 29, 2007 with respect to the statement of combined revenues and direct operating expenses of the oil and gas properties purchased by Samson Oil & Gas Ltd from Stanley Energy Inc. included in the Form 20-F of Samson Oil & Gas Ltd. dated July 6, 2007.
 
 
/s/ Ernst & Young LLP
Denver, Colorado
July 6, 2007
 
 
 
 
Exhibit 15.2
 
 
Consent of Independent Registered Public Accounting Firm
 
 
We consent to the reference to our firm under the caption "Statement by Experts" and to the use of our report dated June 29, 2007, in this Registration Statement on Form 20-F of Samson Oil & Gas Limited, dated July 6, 2007.
 
 
/s/ Ernst & Young
Perth, Australia
July 4, 2007
 

 
CONSENT OF PETROLEUM ENGINEER

I hereby consent to the inclusion in the Registration Statement on Form 20-F (the "Registration Statement") filed by Samson Oil & Gas Limited (the "Company") of the report presented as of June 30, 2006 and 2005, and for the five-month period from February 1, 2005 to June 30, 2005 relating to the oil and gas reserves of the Company, and to the references to my name appearing in the Registration Statement, including under the heading "Statements by Experts."

 
/s/ Jeffrey W. Rhodes        
Jeffrey W. Rhodes, P.E.
Vice President - Engineering, Samson Oil & Gas Limited

June 29, 2007
 
 
 
 
 

CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
 
We hereby consent to the inclusion of the statements of reserves contained in our report dated 1 September, 2006 and references to us, including under the heading "Statements by Experts" appearing in the Registration Statement on Form 20-F of Samson Oil & Gas Limited as filed with the Securities and Exchange Commission.
 
     
  MHA Petroleum Consultants, Inc
 
  		 
  		 
 
By:    
 
Denver, Colorado
June 29, 2007