Investor Presentaiton

Armour Energy and controlled entities armourenergy.com.au Financial report continued Notes to the consolidated financial statements continued NOTE 4. GOING CONCERN The financial statements have been prepared on a going concern basis which contemplates the continuity of normal business activities and the realisation of assets and discharge of liabilities in the ordinary course of business. The Group has achieved relatively stable production during the last 12 months, resulting in $21,103,928 of revenue during the year. The group is forecasting to significantly increase revenue over the coming 12 months due to implementation of a multi-stage field development plan designed to exploit the Group's existing flowing wells. For the year ended 30 June 2020, the Group generated a consolidated net loss before tax of $9,089,084 and incurred operating cash inflows of $2,683,032. As at 30 June 2020, the Group had cash and cash equivalents of $3,245,703, net current assets of $565,491 and net assets of $42,173,529. S Whilst there is growing confidence in the performance of the Kincora Gas Plant and the future ramp up of production from the Kincora Gas Project, at the date of signing these accounts the above conditions give rise to a material uncertainty which may cast significant doubt over the Group's ability to continue as a going concern. COVID-19 RESPONSE Cost Reductions Armour is taking steps to reduce corporate costs by a minimum of 35%. This includes all head office staff reducing remuneration by 20% and unfortunately includes a number of redundancies. The Executive Chairman and Non-Executive Directors have also reduced their fees by 20% from April 2020. Future consideration will be given to the partial payment of Director fees in shares, subject to any necessary shareholder and regulatory approvals. In addition, Armour is seeking to reduce to the full extent possible all other overheads including contractor hours and rates, administration costs and office rent. These remuneration reductions are anticipated to remain in place for at least a six-month period and will be reviewed and updated as and when required. Ssubje Armour is also aiming to reduce operating expenditure at its Kincora Gas Project by approximately 20%, while maintaining its ability to reliably maintain production in a safe and environmentally compliant manner. This will include revised staff rostering and schedules but will unfortunately include some redundancies. Capital Expenditure 2020 The capital raising program as originally announced was aiming to raise approximately $10m via a series of share placements (to raise approximately $5.5m) and an underwritten Accelerated Non-Renounceable Entitlement Offer (to raise approximately $4.5m). Shareholder approval was necessary for the settlement of some of the placement amounts, and this has now been received as a result of the EGM held on 18 September 2020. Due to significant demand from third-party investors in relation to the Company's fund raising, the Board has been able to upsize the conditional placement component to a total of approximately $7m subject to receipt of any necessary further shareholder approvals, which will give the capital raising program a combined total of approximately $15m. The additional equity raised through the upsized conditional placement enables the Company to accelerate several key work programs outlined in the investor presentation released on the ASX on 21 August 2020. The Company intends to use the funds raised from the upsized placement specifically to fund the following work programs: Surat Basin Production Enhancement - the six-well stimulation program which commenced on 10 September 2020 with the commencement of works at the Horseshoe-4 well (see ASX release of 10 September) including accelerating the timing of the portion of the program scheduled for the June 2021 quarter; Cooper Basin Exploration - Accelerating the Cooper Basin exploration program aimed at high grading the existing 2D/3D seismic controlled leads and prospects portfolio to generate 3 to 5 high-quality drill ready 3D controlled prospects by FYE 2021; and Newstead Gas Storage Restart - Undertake minor above ground facility works to restart the Newstead Gas Storage Project including overhaul of the sales gas injection compression equipment and installation of a new bi-directional valves at the pipeline interconnection facilities in the Wallumbilla Gas Hub. In addition to these programs the additional upsized placement funds will also be used for general working capital purposes and provide some flexibility in treasury management. Together with existing working capital, the upsized placement funds further strengthens the Company's balance sheet and puts the Company in a position to significantly increase work program activity aimed at increasing production and cash flow in the near term and developing a pipeline of exploration projects to deliver reserves and production growth across core assets. Notwithstanding the above, the Directors consider it appropriate to prepare the financial statements on a going concern basis after having regard to the above and the following matters: 1. As announced on 20 August 2020 the Company had completed non-core asset sales of $10 million. 2. A total of $15 million has been raised from upfront placement, institutional entitlement offer, retail entitlement offer and conditional placement with $10.6 million being raised post year end. 3. 4. The cash generating ability of the Kincora Project will continue to increase as the Group's development plans move ahead and into Phase 3 and 4 of its growth strategies. The implementation of the long-term field development plan will require capital investment, and the Group has the ability to manage capital and liquidity by taking some or all of the following actions: a) Raising additional capital or securing other forms of financing, as and when necessary to meet the levels of expenditure required to meet the Group's working capital requirements. b) Reducing its level of capital expenditure through farm-outs and/or joint ventures. c) Managing its working capital expenditure. d) Applying for eligible Research and Development tax refund receipts, and other Government incentives; and e) Disposing of non-core assets. Should the Group be unable to continue as a going concern, it may be required to realise its assets and liabilities other than in the ordinary course of business, and at amounts that differ from those stated in the financial statements. The financial statements do not include any adjustment relating to the recoverability and reclassification of the recorded assets amounts, or to the amount and classification of liabilities that might be required should the Group not be able to achieve the matters set out above and thus be able to continue as a going concern. 62 62 63 33