070926 draft bul 30jun07 report v17 · 12 interests in joint venture operations 32 13 other...

(formerly Energy Investments Limited)

F I N A N C I A L S T A T E M E N T S F O R T H E P E R I O D

1 J U L Y 2 0 0 6 T O 3 0 J U N E 2 0 0 7

BLUE ENERGY LIMITEDACN 054 800 378

C O N T E N T S

BLUE ENERGY LIMITED AND CONTROLLED ENTITIES1

Page

Directors’ Report 2

Corporate Governance Statement 13

Auditors Independence Declaration 16

Income Statement 17

Balance Sheet 18

Statement of Change in Equity 19

Cash Flow Statement 20

Notes to the Financial Statements 21

1 Statement of Significant Accounting Policies 21

2 Accounting Policies 21

3 Revenue 26

4 Profit / (Loss) for the Year 26

5 Income Tax 27

6 Auditors Remuneration 27

7 Profit / (Loss) per Share 28

8 Key Management Personnel 28

9 Cash and Cash Equivalents 31

10 Trade and Other Receivables 32

11 Controlled Entities 32

12 Interests in Joint Venture Operations 32

13 Other Financial Assets 33

14 Property, Plant and Equipment 34

15 Exploration and Evaluation Expenditure 34

16 Intangible Assets 34

17 Trade and Other Payables 35

18 Borrowings 35

19 Tax 36

20 Issued Capital 36

21 Reserves 37

22 Contingent Assets and Liabilities 37

23 Segment Reporting 37

24 Cash Flow Information 38

25 Related Party Disclosure 39

26 Financial Instruments 39

27 Commitments 41

28 Events Subsequent to Reporting Date 42

29 Share-based Payments 42

30 Change in Accounting Policy 43

31 Company Details 43

Directors’ Declaration 44

Audit report 45

Additional Shareholder Information 47

Corporate Directory 48

DIRECTORS’ REPORT


The directors of Blue Energy Limited (“the Company” or “BUL”) submit herewith their report on theCompany and its controlled entities (“the Group”, “the economic entity” or “the consolidated entity”) withrespect to the financial year ended 30 June 2007.

The names and particulars of the directors of the Company in office during or since the end of the financialyear are as follows. None of the current directors were in office at the start of the financial year and bothBill Highland and Alexander Beard were appointed subsequent to 30 June 2007.

DIRECTORS

Norman Zillman, BSc(Geology), BSc Hons (Botany)Chairman, Appointed 9 October 2006

Norm Zillman is a professional geologist with 40 years experience in petroleum, coal and mineralexploration and production in Australia and internationally. His initial experience was as a petroleumgeologist with international companies Aquitaine Petroleum in New Guinea and Australia and Union OilCompany of California in Australia and Indonesia. Mr Zillman has occupied the positions of DeputyGeneral Manager of Crusader Limited, General Manager Exploration and Production of Beach PetroleumN.L. and Claremont Petroleum Limited and Manager of the Petroleum Branch of the QueenslandDepartment of Mines and Energy and State Mining Engineer for Petroleum.

More recently Mr Zillman has been responsible for a number of successful public resource floats on theAustralian Stock Exchange (ASX). He was the inaugural Managing Director and Founder of Coal BedMethane (CBM) company, Queensland Gas Company Limited (QGC), being responsible for the initialacquisition of all of its areas, the successful floating on the ASX and the discovery of QGC’s first CBM gas field Argyle. He was also the inaugural Chairman and Founder of conventional oil and gas company GreatArtesian Oil and Gas Limited (GOG) which he also successfully listed on the ASX resulting in numerouscommercial gas and oil discoveries. Mr Zillman is also a Director of Enterprise Energy NL.

Sharif Oussa BSc (Geology)Managing Director, Appointed 9 October 2006

Sharif Oussa is a geologist and former resources and finance analyst and is also one of the originalfounders of Blue Energy (Qld) Pty Ltd (formerly Blue Energy Pty Ltd), now a 100% owned subsidiary ofBlue Energy Limited (formerly Energy Investments Limited). Sharif was also a founder of ASX listedPlanet Gas Limited, a CBM exploration and development company, Great Artesian Oil and Gas Limited, aconventional oil and gas company, Purus Energy Limited a CBM natural gas company and a formerDirector of Gulf Mines Limited.

Brian J McGillivray BBus, FCPADirector, Appointed 9 October 2006

Mr McGillivray is Managing Director of ASEAN Corporate Services Pty Ltd, an independent consulting firmproviding management services, capital raising and corporate structuring advice primarily in the resourcessector.

Mr McGillivray has been a Director of specialty engineering company, Energy Process Services Pty Ltd,providing EPCM project services to the oil and gas industry in Australia and overseas. He has extensiveexperience with negotiation and management of farm-ins, Joint Ventures and Production SharingContracts in Australia and internationally.

William HighlandNon-Executive Director, Appointed 18 July 2007

Mr Highland is presently a senior executive and Investment Manager with CVC Limited (ASX:CVC), andhas extensive general management experience in developing and building companies in Australia, USA,China, Europe with OPSM, BTR Nylex, Boral and with the CVC Group. Mr Highland graduated as a CivilEngineer and is certified Mine Manager, and his previous experience includes hands on seniormanagement positions in the construction materials, industrial minerals, and the industrial safety andmedical equipment sectors. Over the last five years Mr Highland has also established specialist knowledgeand expertise in the environmental sectors and has driven CVC's investment activities in expansionaryenergy businesses.

Additionally, Mr Highland has served as a Director for both public and private companies, including aprevious position as a Director of Tamaya Resources Limited (ASX:TMR) and a current position as aDirector of BioPower Systems Pty Limited.

DIRECTORS’ REPORT


DIRECTORS (Continued)

Alexander Beard, BCom, FICA, AICDNon-Executive Director, Appointed 18 July 2007

Alexander Beard, currently a director of a number of public entities including CVC Limited, has extensiveexpertise and experience working in partnership with the management of investee companies. This hasseen him involved in a variety of roles ranging from Chief Financial Officer, General Manager to ManagingDirector and encompassing all of the responsibilities of the roles.

Mr Beard has extensive experience in capital raisings, debt financing, negotiations of key agreements andarrangements, profitable exit of investments via initial public offerings and trade sales, and recoverystrategies for non-performing companies.

Shane Doherty (retired 17 February 2007)Peter Meagher (retired 17 February 2007)Howard Dewhirst (appointed 9 October 2007, retired 17 February 2007)Domenic Martino (retired 10 October 2006)

Directorships of other listed companies

Directorships of other listed companies held by directors in the 3 years immediately before the end of thefinancial year are as follows:

Name Company Period of directorship

Mr Norman Zillman Planet Gas Limited April 2004 to February 2007Great Artesian Oil and Gas Ltd August 2003 to June 2006Enterprise Energy NL May 2007 to present

Mr Brian McGillivray Baraka Petroleum Limited July 2006 to August 2007Mr William Highland Tamaya Resources Limited November 2005 to February 2006Mr Alexander Beard CVC Limited August 2000 to present

CVC Trinity Property Fund December 2005 to presentCellnet Group Limited December 2006 to presentMercury Mobility Limited December 2007 to presentTamaya Resources Limited November 2005 to February 2006

Company Secretary

Brian J McGillivray FCPA

Brian McGillivray, was appointed Company Secretary on 16 June 2005 and holds a Bachelor of BusinessDegree, is a FCPA and has 30 years public practice experience with particular emphasis in the energy andresources industries.

Interests in shares and options of the company and related bodies corporate

As at the date of this report, the interests of the directors in the shares and options of Blue Energy Limitedwere:

Fully paid sharesheld directly

Fully paid sharesheld indirectly

Options helddirectly

Mr Norman Zillman - 5,552,778(1) 15,000,000(5)

Mr Sharif Oussa - 27,850,000(2) -

Mr Brian McGillivray - 6,000,000(3) 2,500,000(6)

Mr William Highland - 60,000(4) -

Mr Alexander Beard - - -

(1) Mr Zillman has an interest in these shares of which 3,257,778 are held by Rockmaster Pty Ltd,1,795,000 are held by Nitroshire Pty Ltd and 500,000 are held by Tyres Petroleum Pty Ltd.

(2) Mr Oussa has an interest in these shares which are held by ANZ Nominees <Cash Income A/C>.

DIRECTORS’ REPORT


Interests in shares and options of the company and related bodies corporate (continued)

(3) Mr McGillivray has an interest in these shares which are held by Blueseas Investments Pty Ltd<ASEAN Superannuation Fund>.

(4) Mr Highland has an interest in these shares all of which are held by a member of his family, beingDeborah Highland.

(5) These options were granted to Mr Zillman pursuant to the terms of the Incentive Options and areexercisable as follows:

5,000,000 ‘A’ Incentive Options at 17 cents within a 36 month period commencing 30 March 2007. 5,000,000 ‘B’ Incentive Options at 25 cents within a 48 month period commencing 30 September

2007. 5,000,000 ‘C’ Incentive Options at 30 cents within a 48 month period commencing 30 March 2008.

(6) These options were granted to Mr McGillivray pursuant to the terms of the Incentive Options and areexercisable as follows:

750,000 “A” Incentive Options at 25 cents within a12 month period commencing 2 September 2008. 750,000 “C” Incentive Options at 35 cents withina 30 month period commencing 2 March 2008. 333,333 ‘A’ Incentive Options at 40 cents within a 30 month period commencing 17 August 2006. 333,333 ‘B’ Incentive Options at 50 cents within a 36 monthperiod commencing 17 February 2007. 333,334 ‘C’ Incentive Options at 60 cents within a 30 month period commencing 17 August 2007.

No options have been exercised during the financial year or to the date of this report.

Other interests of Directors

Bannerblock Pty Ltd provides Mr Zillman’s services for management and other consultancy for a monthly fee of $6,000, excluding GST, and Mr Zillman’s director’s fee of $4,000 per month, excluding GST, is alsopaid to this company.

ASEAN Corporate Services Pty Ltd provides Mr McGillivray’s services for management and otherconsultancy for a monthly fee of $12,500, excluding GST, and Mr McGillivray’s director’s fee of $4,000 permonth, excluding GST, is also paid to this company.

LOSS PER SHAREEconomic

EntityParentEntity

(Cents) (Cents)

Basic loss per share 1.29 1.29

Diluted loss per share 1.29 1.29

DIVIDENDS

No dividends were paid or declared by the company during the financial year. The directors do notrecommend the payment of a dividend.

CORPORATE INFORMATION

Corporate structure

Blue Energy Limited (“BUL”) (formerly Energy Investments Limited) is a company limited by shares thatwas incorporated on 20 January 1992 and is domiciled in Australia. Blue Energy Limited has prepared aconsolidated financial report incorporating the following 100% owned Australian entities that it controlledduring the financial year:

Blue Energy (Qld) Pty Ltd (“BEP”)Eureka Petroleum Pty Ltd (“EPP”)Kompliment Pty Ltd (“KPL”)Everdue Pty Ltd (“EPL”)Energy Investments PNG Pty Ltd (“EIP”)

DIRECTORS’ REPORT


Group Composition

On 31 March 2006 the company acquired all the issued shares in BEP pursuant to agreements with theformer shareholders of BEL and approved by Shareholders on 17 February 2006. The shares in BEP’s wholly owned subsidiaries EPP, KPL and EPL were transferred to the Company on 31 March 2006.

EPP was incorporated on 26 November 2003 and acquired by BEP on 21 December 2005 pursuant to ashare purchase agreement. EPP is the holder of ATP’s and Applications for ATP’s in Queensland.

KPL was incorporated on 24 October 2005, as a 100% owned subsidiary of BEP, for the purpose ofundertaking specific oil and gas exploration joint ventures.

EPL was incorporated on 26 October 2005, as a 100% owned subsidiary of BEP, for the purpose ofundertaking specific oil and gas exploration joint ventures.

EIP was incorporated on 17 May 2005, as a 100% owned subsidiary of BEP, for the purpose ofundertaking oil and gas exploration activities in Papua New Guinea.

The consolidated entity incurred an operating loss after income tax for the period of $3,596,672.

Principal Activities

Blue Energy Limited is a specialist energy company that undertakes the exploration, evaluation anddevelopment of coal bed methane (“CBM”) and conventional oil and gas resources primarily within easternAustralia. No significant change in the nature of this activity occurred during the financial year.

OPERATING AND FINANCIAL REVIEW

Group Overview

The year under review is the first full year following the Company’s acquisition of the substantial portfolio of coal bed methane tenements and conventional oil & gas joint venture interests in the Cooper Basin.Following a restructuring of the Company’s board and changes to the substantial shareholder base thedirectors have completed two interim fund raisings while continuing to assess the development potential ofthe over 30,000 km² of tenements. The completion of over 340 km² of 3D seismic on PEL 106 SpinelBlock in the Cooper Basin has provided significant data for ongoing evaluation. A farm-out of 50% of theCompany’s interest for 100% of the seismic cost and 50% of future well costs has strengthened the Company’s strategic position in the area. A recruitment program to secure experienced operationalpersonnel commenced in May 2007 with the appointment of a Chief Operating Officer and negotiationscommenced with cornerstone investor CVC Limited to secure funding for the planned CBM developmentprograms.

Operating results, review of operations and state of affairs

Corporate

Board Changes

The following board changes took place on 10 October 2006:Then Chairman Mr Domenic Martino retiredMr Norman Zillman joined the board as ChairmanMr Sharif Oussa was appointed Managing DirectorMr Shane Doherty moved to a non-executive roleMr Howard Dewhirst and Mr Brian McGillivray joined the board.

On 16 February 2007 Shane Doherty, Peter Meagher and Howard Dewhirst retired from the Board.

On 18 July 2007, Mr William Highland and Mr Alexander Beard where appointed to the Board.

Funding arrangements

In November 2006 the Company raised $5,407,650, net of issue costs, by the issue of 37,721,593 ordinaryshares of the Company.

In March 2007 Melbourne based investment banking group Chimaera Capital provided a loan facility to theCompany of up to $4.6 million which was generally applied to the Company’s joint venturecommitmentsand CBM development programs.

DIRECTORS’ REPORT


Operating results, review of operations and state of affairs (continued)

General Corporate

Following Shareholder approval on 30 March 2007, the Directors changed the Company’s name fromEnergy Investments Limited to Blue Energy Limited and commenced trading on the ASX under the codeBUL on 15 May 2007.

The name change reflects the refocus of the Company on its growing portfolio of coal bed methanetenements.

In May 2007 the Company strengthened its technical and operational capabilities with the appointment ofhighly qualified coal bed methane specialist Ray Johnson Jnr as the Company’s Chief Operating Officer.Ray is leading the Company’s efforts to broaden the CBM technical experience and knowledge base within the operational team.

In 2004, Ray joined Queensland Gas Company Limited “QGC”as General Manager of Operations and leda team of production, drilling, and geosciences personnel to achieve superlative performance frompreviously underachieving pilots and new pilot wells in exploratory tenements. These technical andoperational achievements lead to the award of the first and second tranches of third-party reservecertifications in the Walloon coals in the Surat Basin for QGC.

Operating and Exploration Activities

Blue Energy (Qld) Pty Ltd (formerly Blue Energy Pty Ltd)

Conventional oil and gas: ATPs 656A, 657A, 658A and 660A of the Cooper-Eromanga Basin inQueensland, Australia (100% owned)

No field activities were undertaken and the compilation of data for the region continues to be undertaken.Preliminary geological mapping and review work continued on these properties which are the subject ofcurrent applications. Native Title claim negotiations continue at the date of this report and will be finalisedprior to the granting of the Applications by the Queensland Government Department of Natural Resources& Mines.

Discussions with Native Title Representative Bodies were continued in the period.

Eureka Petroleum Pty Ltd

Coal Bed Methane: ATPs 813,814,817,818 and 819 in Queensland, Australia (100% owned)

No field activities were undertaken on these properties in the financial year. A review of regional geologyand related data continues. Planning is underway for appraisal drilling in the 100% owned ATP817P in theBowen Basin, west of Santos Limited’s Fairview Field and in 100% owned ATP818P in the Surat Basin east of Queensland Gas Company’s and Arrow Energy’s Walloon CBM projects.

The Company has signed a Heads of Agreement with CSM Energy Limited (“CSM”) and is finalising theJoint Operating Agreement for the joint development of a Coal Bed Methane pilot program on the EasternBlock of the highly prospective ATP 814P license. Discussions are continuing with CSM Energy Limited onthe extent of the work program associated with the proposed farm-in to a portion of ATP814P.

Coal Bed Methane: ATP 854 and 859 in Queensland, Australia (100% owned)

Agreements were entered into in the period to acquire Bowen/ Surat Basin ATP’s 854 and 859 which were granted on 19 June and 18 June 2007 respectively. The acquisition adds approximately 2,864 Km² to theCompany’s CBM and natural gas acreage.

Coal Bed Methane Joint Venture: ATP 613,674 and 733 (90% interest)

The Company fully funded the drilling of two exploration wells for the Joint Venture with MagellanPetroleum Australia Limited during the year, to test the coal seam potential of the previously unexploredBurrum Coal Measures in the in the northern portion of the Burrum Syncline. Evaluation of the coal seamgas potential of the seams encountered in the Burrum -1 and Burrum-2 wells is continuing.

DIRECTORS’ REPORT


Operating and Exploration Activities (continued)

Drilling of the Burrum No 1 CBM well with the Depco Rig 22-UDR 1200 was completed in ATP613P to atotal depth of 438 metres. The well was fully cored to TD and wireline logs run to further evaluate the coalseams intersected, particularly those in the open-hole section. Several coal seams were intersected andsampled for desorption analysis.

The second well in the program, Burrum No 2 was spudded on 4 March 2007 and drilled in open hole to adepth of 115m. The well was fully cored from 115 m to 390 m in the Burrum Coal Measures and threeDST’s were run. The well was then open holed to a TD of 545 m and wireline logs run. Coal seams with a total net thickness of approximately 16 meters were cored and sampled for desorption analysis.

Evaluation of the coal seams’ gas potential is continuing.

Kompliment Pty Ltd & Everdue Pty Ltd

Blue Energy Limited, through its wholly owned subsidiaries, holds a 37.5% working interest in the Rosscoand Paprika gas/condensate discovery Blocks and a 50% working interest in any production within theParanta Block, including the Cadenza gas/condensate discovery and may earn a 50% interest in theSpinel Block.

The Company has entered into a farmout agreement with Odin Energy Limited (“Odin”) whereby Odin will reimburse 100% of Blue Energy’s $4.6 million expenditure on the recently completed Spinel Block 3D Seismic Survey.

Odin paid a non refundable deposit of $2 million and the balance of approximately $2.476 million was paidto the Company on 27 August 2007 pursuant to the Farm-in agreement dated 17 May 2007. Odin will earna right to participate in a four well drilling program to earn a 25% interest in the highly prospective 360km²Spinel Block within PEL 106 operated by Great Artesian Oil & Gas Ltd.

The Joint Venture activities during the year involved completing the acquisition phase of the SpinelSeismic Survey. Data processing commenced immediately and has progressed according to schedule.Interpretation will commence shortly with a view to selecting targets for drilling by the end of September.Operator, Great Artesian Oil & Gas Ltd, announced on 26 July that the Ensign 30 drilling rig had beensecured for a multi-well drilling program, scheduled to commence in September or October.

The Spinel 3D seismic survey is the largest reconnaissance survey of its type conducted in this part of thePatchawarra Trough. Acquisition was operated by Great Artesian and took four months to complete from14 December 2006 to 15 April 2007. It was completed ahead of schedule and under budget.

The estimated total cost of this program was $7.6 million of which Blue Energy Limited funded approx $4.6million. It is expected to provide detailed imagery at key reservoir levels leading to the identification of newstructural and stratigraphic targets.

The Spinel survey was designed to merge with the pre-existing Paranta and Raven-Moonanga 3D surveysto provide even greater regional 3D seismic coverage, including coverage over the Company’s Paprika and Rossco gas/condensate discoveries in order to provide detailed control for future developmentplanning.

During the year the operator, Great Artesian Oil & Gas Ltd also commenced a technical study to determinethe most economic method of connecting and producing gas/condensate from the Rossco, Paranta,Paprika and Cadenza discoveries.

Energy Investments PNG Pty Ltd

EIP has lodged applications for four PPL’s in offshore Papua New Guinea. Negotiations are continuing with the authorities.

Financial Position

The net assets of the Company have increased by $3,477,434 from 30 June 2006 to 30 June 2007 to$19,100,173. The increase has largely resulted from the capital raising during the year and the applicationof funds to evaluation and exploration expenditure.

DIRECTORS’ REPORT


SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

Significant changes in the state of affairs of the company during the financial year were as follows:

- November 2006 the Company issued 37,721,593 ordinary fully paid shares at 15 cents per share tosophisticated investors to raise $5,658,239 (before costs).

- May 2007 the Company issued 2,640,945 shares at 15 cents per share to creditors of the Company toretire debt of $396,142.

- In March 2007 Melbourne based investment banking group Chimaera Capital provided a loan of$3,299,719 which was generally applied to the Company’s joint venture commitments and CBM development programs. The total loan facility agreed with Chimaera Capital was $4.6 million.

- In May 2007 the Company entered into a farm-out agreement with Odin Energy Limited (“Odin”) whereby Odin will reimburse 100% of Blue Energy’s $4.6 million expenditure on the recently completed Spinel Block 3D Seismic Survey. Odin initially paid a non refundable deposit of $2 millionand $2.476 million was paid on 27 August 2007. Odin will have a right to participate in a four welldrilling program to earn a 25% interest in the highly prospective 360km² Spinel Block within PEL 106operated by Great Artesian Oil & Gas Ltd.

SIGNIFICANT EVENTS AFTER THE BALANCE DATE

On 17 July 2007 the Company entered into an agreement with CVC Limited, a listed diversified investmentand funds management group, to provide new equity of $30 million. The first tranche of 13,604,730 shareswere issued on 18 Jul 2007 to raise $3,401,182 together with 566,864 Options to acquire shares of theCompany at an exercise price of 25 cents.

Pursuant to an agreement with Chimaera Capital the Company drew down the balance of it’s loan facility and on 17 July 2007, converted the total debt of $4,600,000 to equity by the issue of 25,555,556 ordinaryshares of the Company together with 750,000 options exercisable at 25 cents. A further 728,505 ordinaryshares were issued to Chimaera Capital in payment of accrued interest of $109,275.

Mr William Highland and Mr Alexander Beard joined the Board on 18 July 2007 as non executive directors.

The directors granted 7,150,000 Options to acquire shares of the Company, under the Employee ShareOption Plan, to employees and contractors to the Company pursuant to contracts of employment andservice as incentives for performance.

On 14 September 2007 Shareholders approved a further Placement of 106,395,270 shares to raise$26,598,818 and the issue of 4,433,136 Options to acquire shares of the Company at an exercise price of25 cents. Shareholders also approved the granting of 1.5 million Directors Options to Mr Brian McGillivray.

On 24 September 2007 the Company closed the $26.589m Placement and issued 106,395,270 sharesand 4,433,136 Options.

Odin Energy Limited paid $2.476 million to the Company on 27 August 2007 pursuant to the Farm-inagreement dated 17 May 2007.

On 16 August 2007 the Company issued 600,000 ordinary shares of the Company on the conversion of150,000 $1.00 Convertible Notes.

LIKELY DEVELOPMENTS AND EXPECTED RESULTS

The Company expects to continue to operate as an oil & gas exploration company. In accordance with itsobjectives the Company intends to bring a number of its discovery wells into production, enhance itsexploration properties by completing work programs and/or securing farm-outs.

Environmental Regulation and Performance

The Group holds various licences to regulate its exploration activities in Australia. These licences includeconditions and regulations with respect to the rehabilitation of areas disturbed during the course of itsexploration activities.

So far the Directors are aware, all exploration activities have been undertaken in compliance with allrelevant environmental regulations.

DIRECTORS’ REPORT


SHARE OPTIONS

Unissued shares

At the date of this report, there were 33,400,000 unissued ordinary shares under options (19,000,000 atreporting date). Refer to note 29 of the financial statements and to the significant events after balancedate, at note 28, for further details of the outstanding options.

Currently, none of the options issued by the Company are quoted on the Australian Stock Exchange.

Shares issued as a result of the exercise of options

No shares have been issued by virtue of the exercise of an option during the year or to the date of thisreport.

Employee options

The Company has in place an Employee Share Option Plan (“ESOP”) butduring the financial year nooptions were granted to employees or contractors under the ESOP. Since the end of the financial year7,150,000 Options have been granted to employees and contractors.

The Company granted the following options over unissued shares during the year pursuant toShareholders approval given on 17 February 2007:

Fifteen million Incentive Options were granted to Mr Norman Zillman, the Chairman, and two millionIncentive Options were granted to Mr Howard Dewhirst, a contracting Company advisor, which areexercisable, in each case, as follows:

5,666,667 ‘A’ Incentive Options, exercisable at 17 cents on or before 3 years from issue. 5,666,667 ‘B’ Incentive Options, exercisable at 25 cents on or before 4 years from issue. 5,666,666 ‘C’ Incentive Options, exercisable at 30 cents on or before 4 years from issue.

At the date of this report, the unissued shares of Blue Energy Limited under option are as follows:

Grant Date Date of Expiry Exercise Price Number Under Option

17 February 2006 17 February 2009 40 cents 666,66617 February 2006 17 February 2010 50 cents 666,66617 February 2006 17 February 2010 60 cents 666,66830 March 2007 30 March 2010 17 cents 5,666,66730 September 2007 30 March 2011 25 cents 5,666,66730 March 2008 30 March 2011 30 cents 5,666,66618 July 200714 September 2007

18 July 200918 July 2009

25 cents25 cents

1,316,8644,433,136

22 August 2007 22 August 2009 25 cents 7,600,00014 September 2007 14 September 2007 25 cents 750,00022 August 2007 22 August 2009 30 cents 2,600,00022 August 2007 22 August 2010 35 cents 2,000,00014 September 2007 14 September 2010 35 cents 750,000

INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS

The Company has not entered into any insurance contract to provide director’s and officer’s liability insurance, at the time of this Report. The Company may however seek such insurance in the ensuingyear.

Other than stated above, the Company has not during or since the financial year ended, agreed toindemnify an officer of the Company against a liability arising from acts carried out in their position as anofficer of the Company.

REMUNERATION REPORT

This report outlines the remuneration arrangements in place for directors and executives of Blue EnergyLimited (the Company).

DIRECTORS’ REPORT


REMUNERATION REPORT (continued)

Remuneration philosophy

The Company’s broad remuneration policy is to ensure each remuneration package properly reflects the person’s duties and responsibilities and that remuneration is competitive in attracting, retaining andmotivating people of the highest quality.

The objective of the Company’s executive reward framework, which currently applies to Mr Oussa(Managing Director) and Mr Zillman (Non-Executive Chairman), Mr McGillivray (Executive Director andCompany Secretary) and Mr Raymond Johnson Jnr (Chief Operating Officer), is to ensure reward forperformance is competitive and appropriate for the results delivered. The framework aligns executivereward with achievement of strategic objectives and the creation of value for shareholders, and conformsto market best practice for delivery of reward.

The Board ensures that executive reward satisfies the following key criteria for good reward governancepractices; competitiveness and reasonableness, acceptability to shareholders, transparency and capitalmanagement

The Company has structured an executive remuneration framework that is market competitive andcomplimentary to the reward strategy of the organisation.

The following table discloses the remuneration of the directors and executives of the Company for the yearto 30 June 2007:

Primary Post-employment

OtherBenefits

Equityoptions

DirectorsSalary &/orcontractual

feesSuperannuation Total

$ $ $ $ $Mr N Zillman 86,774 - - 1,100,000 1,186,774Mr S Oussa 208,033 - - - 208,033Mr B McGillivray 184,970 - - - 184,970Mr H Dewhirst 16,700 - - 146,667 163,367

Total Directors 496,477 - - 1,246,667 1,743,144

ExecutivesMr R Johnson Jr 9,655 - - - 9,655

Total Executives 9,655 - - - 9,655

Each director and executive is compensated under an arrangement with the Company, the provisions ofwhich include the reimbursement of reasonable business related expenses including accommodation andother expenses that a Director or other executive properly incurs in attending meetings of Directors or anymeetings of committees of Directors, in attending any meetings of Members and in connection with thebusiness of the Company. A Director may be paid fees or other amounts as the Directors determinewhere a Director performs duties or provides services outside the scope of their normal Director’s duties.

Elements of remuneration related to performance

No element of the Director’s remuneration is currently dependent on the satisfaction of a relatedperformance condition.

Options issued as part of remuneration

Granted No. Optionsgranted as

part ofremuneration

Totalremunerationrepresentedby options

Optionsexercised

OptionsLapsed

Total

Directors $ % $ ($) $Mr N Zillman 15,000,000 1,100,000 92.7% - - 1,100,000Mr H Dewhirst 2,000,000 146,667 89.8% - - 146,667

DIRECTORS’ REPORT


Value of options issued to directors

On 30 March 2007 fifteen million incentive options were granted to Director Mr Norman Zillman and twomillion incentive options were granted to Director Mr Howard Dewhirst. A valuation of the incentive optionshas been obtained from an independent expert who has determined that the technical value of theincentive options is $1,246,667.

No other options were granted to Directors, exercised or lapsed during the year.

Share and option schemes

An Employee Share Option Plan is in existence at the date of this report. No options have been issuedunder the Employee Share Option Plan during the year.

Employment contracts

As at the date of this report, the Company has entered into the following employment contracts:

Mr Raymond Johnson Jnr. (Chief Operating Officer) –A contract has been entered into with Mr JohnsonJnr for three years commencing 21 May 2007 incorporating a remuneration package based on a daily rateof $1,500.00 and termination clauses in the event of breaches by either party or otherwise on thirty daysnotice. The contract provides for the granting of 6,000,000 Incentive Options to acquire shares of theCompany to vest in three tranches of 2,000,000 each on the achievement of certain performance criteriaset by the Company.

DIRECTORS’ MEETINGS

The number of meetings of directors held and number of meetings attended by each of the directors of thecompany during the financial year were as follows:

The audit, finance, nomination, risk management and environment functions are currently handled by thefull Board of the Company. The Company is not of a size, nor are its financial affairs of such a complexity,to justify separate committees of the board of directors. This is considered appropriate at the current stageof the Company’s development but will be reviewed from time to time.

PROCEEDINGS ON BEHALF OF THE COMPANY

No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene inany proceedings to which the Company is a party for the purpose of taking responsibility on behalf of theCompany for all or any part of those proceedings.

AUDITOR’SINDEPENDENCE DECLARATION

The directors received the declaration on page 16 from the auditor of Blue Energy Limited.

NON-AUDIT SERVICES

The Group’s auditor WHK Horwath (formerly Grant Thornton) did not provide any services that were notAudit services during the financial year. Generally, where non-audit services are provided by the Group’s auditor, the directors must be satisfied that the provision of the non-audit service is compatible with thegeneral standard of independence for auditors imposed by the Corporations Act 2001. The nature andscope of each type of non-audit service provided must not compromise the general principles relating toAuditor independence as set out in the Institute of Chartered Accountants in Australia and CPA Australia’s Professional Statement F1: Professional Independence.

Numbers of meetings of full board

Held AttendedMr Norman Zillman 4 4

Mr Sharif Oussa 4 4

Mr Brian McGillivray 4 4

Mr Domenic Martino (retired) 3 3

Mr Shane Doherty (retired) 4 4

Mr Peter Meagher (retired) 4 4

Mr Howard Dewhirst (retired) 1 1

DIRECTORS’ REPORT


This report has been signed in accordance with a resolution of the directors made pursuant to s298 (2) ofthe Corporations Act 2001.

For and on behalf of the directors

Sharif OussaManaging Director

Sydney, 26 September 2007

C O R P O R A T E G O V E R N A N C E S T A T E M E N T


The Board of Directors (“the Board”) of Blue Energy Limited (“the company”) is responsible for the Corporate Governance of the consolidated entity. The Board guides and monitors the business and affairsof the company on behalf of the shareholders by whom they are elected and to whom they areaccountable.

To ensure the Board is well equipped to discharge its responsibilities it has established guidelines for thenomination and selection of directors and for the operation of the Board.

The best practice recommendations of the ASX Corporate Governance Council, including CorporateGovernance practices and suggested disclosures are set out below and have been applied for the entirefinancial year ended 30 June 2007. Where there has been any variation from the recommendations it isbecause the Board believes that the company is not as yet of a size, nor are its financial affairs of suchcomplexity to justify some of those recommendations and as such those practices continue to be thesubject of the scrutiny of the full Board.

Board composition

The Board comprises five directors, Mr Norm Zillman (Non Executive Chairman), Mr Sharif Oussa and MrBrian McGillivray, each of whom are Executive Directors, and Mr Bill Highland (appointed subsequent tobalance date) and Mr Sandy Beard (appointed subsequent to balance date) both Non-Executive Directors.

The skills, experience and expertise relevant to the position of each director who is in office at the date ofthis report, their attendances at meetings and their term of office are detailed in the directors’ report. Due to the size of the Company, there is not a clear majority of the Board who are independent directors. Thisis contrary to ASX Corporate Governance Principle 2.1 which recommends that a company’s board comprise a majority of independent directors, however, given the relative size of the Company, theinterests of the shareholders and the stage of its development, the directors consider the current boardcomposition is appropriate. The situation will be monitored and changed in line with best practice as andwhen the directors feel the company is of sufficient size. The full names of the directors of the Company inoffice at the date of this statement are:

Name Position CommitteesMr Norman Joseph Zillman Non-Executive Chairman NoneMr Sharif Awad Oussa Managing Director NoneMr Brian John McGillivray Executive Director NoneMr William James Highland Non-Executive Director NoneMr Alexander Damien Beard Non-Executive Director None

When determining whether a director is independent, the Board has determined that the director must notbe an executive and:

is not a substantial shareholder of the Company or an officer of, or otherwise associated directlywith, a substantial shareholder of the Company;

within the last three years has not been employed in an executive capacity by the Company orbeen a director after ceasing to hold any such employment;

within the last three years has not been a principal or employee of a material professional adviseror a material consultant to the Company or an employee materially associated with the serviceprovided;

is not a material supplier or customer of the Company or an officer of or otherwise associateddirectly or indirectly with a significant supplier or customer;

has no material contractual relationship with the company other than as a director of theCompany;

is free from any interest and any business or other relationship which could, or could reasonablybe perceived to, materially interfere with the director’s ability to act in the best interests of theCompany.

For the purposes of the determinations referred to above, materiality will be assessed on a case by casebasis, but in any event a prima facie case of materiality will be one where the services provided to theGroup by the advisor, consultant or supplier exceeds $100,000 per annum.

Independent directors have the right to seek independent professional advice in the furtherance of theirduties as directors, at the Company’s expense.



The Board and Board nominations

The Company does not presently operate a nomination committee. As such, the full Board (subject tomembers voting rights in general meeting) is responsible for selection of new members and has regard toa candidates experience and competence.

Under the Company’s Memorandum and Articles of Association:

the minimum number of directors on the Board is three; the maximum number of directors on the Board is ten; a director (other than the Managing Director) may not retain office for more than three years

without submitting for re-election; and at the Annual General Meeting each year effectively one third of the directors in office (other than

the Managing Director) retire by rotation and must seek re-election by shareholders.

Securities trading policy

The Company’s policy regarding directors and employees trading in its securities is set down by the Board. A formal securities trading policy has been adopted whereby the directors and employees are restrictedfrom acting on material information until it has been released to the market in accordance with the ASXrequirements of continuous disclosure and adequate time has been given for this to be reflected in theprice of its securities.

Directors’ remuneration and policies

The Company does not presently operate a remuneration committee and the remuneration of all directorsis determined by the members of the Board.

All compensation arrangements for directors including the Managing Director are determined by thedirectors after taking into account the current competitive rates prevailing in the market.

The amount of remuneration for all directors including the full remuneration packages, comprising allmonetary and non-monetary components of the Executive and Non Executive Directors, are detailed in thedirectors’ report.

Executives may receive base salary, superannuation, fringe benefits and in some cases, performanceincentives as agreed by the Board. These packages would be reviewed on an ongoing basis.

All remuneration to be paid to present or future executives will be valued at the cost to the Company andexpensed.

The Board expects that the remuneration structure that is implemented will result in the Company beingable to attract and retain the best executives to manage the consolidated entity into the future. It will alsoprovide the executives with the necessary incentives to work to grow long-term shareholder value.

The Board can exercise its discretion in relation to approving incentives, bonuses and options. There areno schemes for retirement benefits other than statutory superannuation for independent directors, whenagreed, as part of a remuneration package.

External auditors

The auditors of the Company, WHK Horwath (formerly Grant Thornton), have open access to the Board atall times. WHK Horwath have audited the Company since September 1993 and have a policy of rotatingaudit partners every 5 years.

WHK Horwath will be invited to attend the Company’s general meetings.

Audit committee

The Company does not wish to adopt an Audit Committee at this time. The responsibilities of the AuditCommittee, if adopted, would be laid out in its terms of reference, and amongst other things would includethe responsibility to ensure that an effective internal control framework exists within the entity, to producehalf year and annual financial statements.



Managing risks

The Board meets regularly to evaluate, control, review and implement the Company’s operations and objectives.

Regular controls established by the Board include:

approval of expenditure budgets; detailed monthly and quarterly financial reporting; delegation of authority to the Managing Director to ensure approval of expenditure obligations within

budgets; retention of non budgeted expenditure approval; implementation of operating plans, cash flows and budgets by management and Board monitoring of

progress against projections; and procedures to allow directors, and management in the furtherance of their duties, to seek independent

professional advice via the utilisation of various external technical consultants.

The Board recognises the need to identify areas of significant business risk and to develop and implementstrategies to investigate these risks.

Commitment to stakeholders & ethical standards

The Board supports the highest standards of Corporate Governance and requires its members and themanagement and staff of the Company to act with integrity and objectivity in relation to: Compliance with laws and regulations affecting the Company’s operations; The ASX’s Corporate Governance policy; Employment practices; Responsibilities to the community; Responsibilities to the individual; The environment; Conflict of interests; Confidentiality; Ensure that shareholders and the financial community are at all times fully informed in accordance withthe spirit and letter of the ASX’s continuous disclosure requirements;

Corporate opportunities arising for personal gain or to compete with the Company; Protection of and proper use of the Company’s assets; and Active promotion of ethical behaviour.

Monitoring of the board’s performance and communication to shareholders

In order to ensure that the Board continues to discharge its responsibilities in an appropriate manner, theperformance of all directors is constantly reviewed by the Chairman. The Company does not presentlyhave an evaluation of the Board members performed by an independent consultant.

The Board aims to ensure that the shareholders, on behalf of whom they act, are informed of allinformation necessary to assess the performance of the directors. Information is communicated to theshareholders through: the annual financial report which is distributed to all shareholders; the future availability of the Company’s quarterly report to shareholders so requesting; the half-yearly report distributed to all shareholders; adherence to continuous disclosure requirements; the annual general meeting and other meetings so called to obtain shareholder approval for Board

action as appropriate.

- ▪ -

AUDITOR’S INDEPENDENCE DECLARATION In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of Blue Energy Limited for the year ended 30 June 2007, I declare that, to the best of my knowledge and belief, there have been: (a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the

audit; and

(b) no contraventions of any applicable code of professional conduct in relation to the audit. WHK HORWATH PERTH AUDIT PARTNERSHIP

CYRUS PATELL Principal Perth, WA Dated this 26th day of September 2007

Total Financial Solutions

Horwath refers to Horwath International Association, a Swiss verein. Each member of the Association is a separate and independent legal entity.

Member Horwath International WHK Horwath Perth Audit Partnership ABN 96 844 819 235 Level 6, 256 St Georges Terrace Perth WA 6000 Australia GPO Box P1213 Perth WA 6844 Australia Telephone +61 8 9481 1448 Facsimile +61 8 9481 0152 Email [email protected] www.whkhorwath.com.au A WHK Group firm

I N C O M E S T A T E M E N T


Income StatementFOR YEAR ENDED 30 JUNE 2007

Economic Entity Parent EntityNote 2007

$2006

$2007

$2006

$

Revenue 3 73,280 41,936 49,200 41,853

Other income 3 236,562 381,631 236,562 381,631

Operating & administration expenses 4 (2,165,984) (1,128,363) (2,138,354) (1,081,956)

Unrealised loss on investments 4 - (335,688) - (335,688)

Finance costs 4 (473,766) (171,452) (473,766) (171,452)

Asset impairment expense 16 - (63,790) - (63,790)

Option expense 29 (1,246,667) (70,400) (1,246,667) (70,400)

Profit / (Loss) from continuingoperations before income tax (3,576,575) (1,346,126) (3,573,025) (1,299,802)

Income tax expense 5 (20,097) (12,516) (20,097) (12,516)

Profit / (Loss) after income taxexpense (3,596,672) (1,358,642) (3,593,122) (1,312,318)

Profit / (Loss) attributable to themembers of the parent (3,596,672) (1,358,642) (3,593,122) (1,312,318)

Profit / (Loss) per share (cents pershare):

- basic 7 (1.29) (1.00) (1.29) (0.97)

- diluted 7 (1.29) (1.00) (1.29) (0.97)

The accompanying notes form part of these financial statements

B A L A N C E S H E E T


Balance SheetAS AT 30 JUNE 2007

Economic Entity Parent EntityNote 2007

$2006

$2007

$2006

$ASSETSCurrent AssetsCash and cash equivalents 9 1,366,092 172,910 1,355,476 161,506Trade and other receivables 10a 151,140 80,545 91,644 60,976Other financial assets 13 60,593 460,577 60,593 460,577Total Current Assets 1,577,825 714,032 1,507,713 683,059

Non-Current AssetsFinancial assets 13 - - 13,648,230 13,648,230Property, plant and equipment 14 43,050 17,207 40,717 13,474Trade and other receivables 10b 309,554 190,000 11,302,232 5,817,668Exploration & evaluation expenditure 15 25,005,604 21,244,491 - -Deferred tax assets 19 - - - -

Total Non-Current Assets 25,358,208 21,451,698 24,991,179 19,479,372

TOTAL ASSETS 26,936,033 22,165,730 26,498,892 20,162,431

LIABILITIESCurrent LiabilitiesTrade and other payables 17 849,333 2,789,471 362,317 739,848Short term borrowings 18a 3,386,401 149,844 3,386,401 149,844Total Current Liabilities 4,235,734 2,939,315 3,748,718 889,692

Non-Current LiabilitiesLong term borrowings 18b 3,650,000 3,650,000 3,650,000 3,650,000

Total Non-Current Liabilities 3,650,000 3,650,000 3,650,000 3,650,000

TOTAL LIABILITIES 7,885,734 6,589,315 7,398,718 4,539,692

NET ASSETS 19,050,299 15,576,415 19,100,174 15,622,739

EQUITYIssued Capital 20 23,081,225 17,257,335 23,081,225 17,257,335Reserves 21 1,317,067 70,400 1,317,067 70,400Accumulated losses (5,347,993) (1,751,320) (5,298,118) (1,704,996)

TOTAL EQUITY 19,050,299 15,576,415 19,100,174 15,622,739


S T A T E M E N T O F C H A N G E S I N E Q U I T Y


Statement of Changes in EquityFOR THE PERIOD ENDED 30 JUNE 2007

IssuedCapital

AccumulatedLosses

OptionReserve Total

$ $ $ $ECONOMIC ENTITYAt 30 June 2005 160,969 (392,678) - (231,709)Loss for the period - (1,358,642) - (1,358,642)Issue of share capital 17,180,726 - - 17,180,726Share issue costs (84,360) - - (84,360)Option reserve - - 70,400 70,400At 30 June 2006 17,257,335 (1,751,320) 70,400 15,576,415

ECONOMIC ENTITYAt 30 June 2006 17,257,335 (1,751,320) 70,400 15,576,415Loss for the period - (3,596,672) - (3,596,672)Issue of share capital –capitalraising 5,658,239 - - 5,658,239Issue of share capital –conversionof convertible note 396,142 - - 396,142Share issue costs (250,588) - - (250,588)Income tax expense reported inequity 20,097 - - 20,097Option reserve - - 1,246,667 1,246,667At 30 June 2007 23,081,225 (5,347,992) 1,317,067 19,050,299

PARENT ENTITYAt 30 June 2005 160,969 (392,678) - (231,709)Loss for the period - (1,312,318) - (1,312,318)Issue of share capital –capitalraising 2,564,000 - - 2,564,000

Issue of share capital –conversionof convertible note 904,806 - - 904,806

Shares issued for acquisition ofsubsidiaries 13,711,920 - - 13,711,920

Share issue costs (84,360) - - (84,360)Option reserve - - 70,400 70,400At 30 June 2006 17,257,335 (1,704,996) 70,400 15,622,739

PARENT ENTITYAt 30 June 2006 17,257,335 (1,704,996) 70,400 15,622,739Loss for the period - (3,593,122) - (3,593,122)Issue of share capital –capitalraising 5,658,239 - - 5,658,239Issue of share capital –conversionof convertible note 396,142 - - 396,142Share issue costs (250,588) - - (250,588)Income tax expense reported inequity 20,097 - - 20,097Option reserve - - 1,246,667 1,246,667At 30 June 2007 23,081,225 (5,298,118) 1,317,067 19,100,174


C A S H F L O W S T A T E M E N T


Cash Flow StatementFOR THE PERIOD ENDED 30 JUNE 2007

Economic Entity Parent Entity

Note2007

$2006

$2007

$2006

$Cash flows from operating activities

Payments to suppliers and employees (2,548,203) (447,154) (2,532,605) (449,844)Dividends received - - -Sundry income received 15,931 14,937 15,931 14,937Interest received 28,008 9,924 27,669 9,841Finance costs (376,392) (58,356) (376,392) (58,356)Net cash flows used in operatingactivities 24a (2,880,656) (480,649) (2,865,397) (483,422)

Cash flows from investing activitiesProceeds from sale of investments 582,329 - 582,329 -Purchase of property, plant andequipment (46,384) (23,491) (46,384) (23,491)Funds provided for exploration andevaluation (5,420,093) (5,817,668) - -Net cash from acquisition of subsidiaries - 8,631 - -Proceeds from capital return oninvestments 54,218 220,700 54,218 220,700Net cash flows provided by / (used by)investing activities (4,829,930) (5,611,828) 590,163 197,209

Cash flows from financing activities

Proceeds from Share Issue 6,054,381 2,564,000 6,054,381 2,564,000

Capital raising costs (250,588) (84,360) (250,588) (84,360)

Proceeds from Convertible Note - 3,650,000 - 3,650,000

Loans provided to controlled entities - - (5,484,564) (5,817,668)Pre-paid joint venture costs (50,000) - - -Repayment of loans (519,744) - (519,744) -Proceeds from borrowings 3,669,719 - 3,669,719 -Net cash flows provided by / (used in)financing activities 8,903,768 6,129,640 3,469,204 311,972

Net increase / (decrease) in cash held 1,193,182 37,163 1,193,970 25,759Cash at beginning of financial year 172,910 135,747 161,506 135,747

Cash at end of financial year 9 1,366,092 172,910 1,355,476 161,506


N O T E S T O A N D F O R M I N G P A R T O F T H E F I N A N C I A L S T A T E M E N T S

For the financial year ended 30 June 2007


Notes to the Financial StatementsFOR THE YEAR ENDED 30 JUNE 2007

1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Preparation

The financial report of Blue Energy Limited and its controlled entities is a general purpose financialreport which has been prepared in accordance with the requirements of the Corporations Act 2001,Australian Accounting Standards, Urgent Issues Group Interpretations, other authoritativepronouncements of the Australian Accounting Standards Board and has also been prepared on anaccrual basis and is based on historical costs.

The financial report is presented in Australian dollars.

The financial report of Blue Energy Limited and controlled entities for the financial year ended 30 June2007 was authorised for issue in accordance with a resolution of the directors on 26 September 2007.

Blue Energy Limited is a company limited by shares, incorporated in Australia and whose shares arepublicly traded on the Australian Stock Exchange.

The Group has one business activity, being the exploration for gas and petroleum resources. Thisactivity is carried out from theGroup’stwo principal business offices in Sydney, New South Wales andBrisbane, Queensland, and currently in one geographical segment, being Australia, principally inQueensland.

Statement of compliance

The financial report of Blue Energy Limited and controlled entities, and Blue Energy Limited anindividual parent entity, complies with Australian Accounting Standards, which include AustralianEquivalents to International Financial Reporting Standards (AIFRS), in their entirety. Compliance withAIFRS ensures that the financial report also complies with International Financial Reporting Standards(IFRS) in their entirety.

2. ACCOUNTING POLICIES

(a) Comparatives

The financial report is for the period 1 July 2006 to 30 June 2007. Comparatives between the 2006and the 2007 year end balance dates are provided for the Economic and Parent Entity.

When required by accounting standards, comparative figures have been adjusted to conform tochanges in presentation for the current financial year.

(b) Basis of consolidation

The consolidated financial statements comprise the financial statements of Blue Energy Limited andits subsidiaries as at 30 June 2007 (“the Group” or “the economic entity”), (see note 11).

The financial statements of subsidiaries are prepared for the same reporting period as the parentcompany, using consistent accounting policies. In preparing the consolidated financial statements allintercompany balances and transactions, including any unrealised profits arising from intra-grouptransactions, have been eliminated in full.

The subsidiaries were consolidated from the date on which control was transferred to the Group andwill cease to be consolidated from the date on which control is transferred out of the Group.

(c) Property, plant and equipment

Each class of plant and equipment is carried at cost or fair value, less, where applicable, anyaccumulated depreciation and impairment losses.

Plant and equipment are measured on the cost basis. The carrying amount of plant and equipment isreviewed annually by directors to ensure it is not in excess of the recoverable amount from these




Property, plant and equipment (continued)

assets. The recoverable amount is assessed on the basis of the expected net cash flows which willbe received from the assets employment and subsequent disposal. The expected net cash flowshave been discounted to their present values in determining recoverable amounts.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, asappropriate, only when it is probable that future economic benefits associated with the item will flow tothe group and the cost of the item can be measured reliably. All other repairs and maintenance arecharged to the income statement during the financial period in which they are incurred.

Depreciation

The depreciable amount of all fixed assets are depreciated on either a straight line or diminishingvalue basis over their useful lives commencing from the time the asset is held ready for use.

The depreciation rates used for each class of depreciable assets are:

Class of Fixed Asset Depreciation Rate

Furniture and Fittings 13% to 25%Plant and Equipment 13% to 40%

The asset’s residual values and useful lives are reviewed, and adjusted if appropriate, at each balancedate.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’scarrying amount is greater than its estimated recoverable amount.

Gains or losses on disposal are determined by comparing proceeds with the carrying amount. Thesegains and losses are included in the income statement.

(d) Exploration and evaluation expenditure

Exploration, evaluation and development expenditure incurred is accumulated in respect of eachidentifiable area of interest. These costs are only carried forward to the extent that they are expectedto be recouped through the successful development of the area or where activities in the area havenot yet reached a stage that permits reasonable assessment of the existence of economicallyrecoverable reserves.

Accumulated costs in relation to an abandoned area are written off in full against profit in the year inwhich the decision to abandon the area is made.

When production commences, the accumulated costs for the relevant area of interest are amortisedover the life of the area according to the rate of depletion of the economically recoverable reserves.

A regular review is undertaken of each area of interest to determine the appropriateness of continuingto carry forward costs in relation to that area of interest.

Costs of site restoration are provided over the life of the facility from when exploration commencesand are included in the costs of that stage. Site restoration costs include the dismantling and removalof mining plant, equipment and building structures, waste removal, and rehabilitation of the site inaccordance with clauses of the mining permits. Such costs have been determined using estimates offuture costs, current legal requirements and technology on an undiscounted basis.

Any changes in the estimates for the costs are accounted on a prospective basis. In determining thecosts of site restoration, there is uncertainty regarding the nature and extent of the restoration due tocommunity expectations and future legislation. Accordingly the costs have been determined on thebasis that the restoration will be completed within one year of abandoning the site.

(e) Income tax

The charge for current income tax expense is based on the profit for the year adjusted for any non-assessable or disallowed items. It is calculated using the tax rates that have been enacted or aresubstantially enacted by the balance sheet date.




Income tax (continued)

Deferred tax is accounted for using the balance sheet liability method in respect of temporarydifferences arising between the tax bases of assets and liabilities and their carrying amounts in thefinancial statements. No deferred income tax will be recognised from the initial recognition of an assetor liability, excluding a business combination, where there is no effect on accounting or taxable profitor loss.

Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset isrealised or liability is settled. Deferred tax is credited in the income statement except where it relatesto items that may be credited directly to equity, in which case the deferred tax is adjusted directlyagainst equity.

Deferred income tax assets are recognised to the extent that it is probable that future tax profits will beavailable against which deductible temporary differences can be utilised.

The amount of benefits brought to account or which may be realised in the future is based on theassumption that no adverse change will occur in income taxation legislation and the anticipation thatthe economic entity will derive sufficient future assessable income to enable the benefit to be realisedand comply with the conditions of deductibility imposed by the law.

Blue Energy Limited and its wholly-owned Australian subsidiaries have formed an income taxconsolidated group under the tax consolidation regime. Each entity in the group recognises its owncurrent and deferred tax liabilities, except for any deferred tax liabilities resulting from unused taxlosses and tax credits, which are immediately assumed by the parent entity. The current tax liability ofeach group entity is then subsequently assumed by the parent entity. The group has notified theAustralian Tax Office that it formed an income tax consolidated group to apply from 1 April 2006. Thetax consolidated group has entered a tax sharing agreement whereby each company in the groupcontributes to the income tax payable in proportion to their contribution to the net profit before tax ofthe tax consolidated group.

(f) Revenue

Revenue is recognised to the extent that it is probable that the economic benefits will flow to theConsolidated Entity and the revenue can be reliably measured. The following specific recognitioncriteria must also be met before revenue is recognised:

Interest revenue is recognised as the interest accrues to the net carrying amount of the financialasset.

Rental revenue is derived from the sub-letting (on a month to month basis) of office premises. Therevenue is recognised on an accruals basis.

Revenue from the sale of investments is recognised upon being notified of the settlement of the sale.

All revenue is stated net of the amount of goods and services tax (GST).

(g) Issued Capital

Issued Capital is recognised at the fair value of the consideration received by the company.

Any transaction costs arising on the issue of shares are recognised directly in equity as a reduction ofthe share proceeds received.

For equity-settled share based payment transactions for goods or services received, excludingemployee services, the consolidated entity recognises and measures the increase in equity at the fairvalue of the goods or services received, unless that fair value cannot be estimated reliably, in whichcase the consolidated entity measures the value of the goods or services received, by reference to thefair value of the equity instrument granted.

(h) Leases

The determination of whether an arrangement is or contains a lease is based on the substance of thearrangement and requires an assessment of whether the fulfilment of the arrangement is dependenton the use of a specific asset or assets and whether the arrangement conveys a right to use theasset.




Leases (continued)

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset areclassified as operating leases. Operating lease payments are recognised as an expense in theincome statement on a straight-line basis over the lease term.

(i) Interest in joint ventures

The economic entity’s interests in joint venture entities are bought to account using the cost method.

(j) Trade and other receivables

Trade receivables, which generally have 30-90 day terms, are recognised and carried at originalinvoice amount less an allowance for any uncollectible amounts. An estimate of the doubtful debts ismade when collection of the full amount is no longer probable. Bad debts are written off whenidentified.

(k) Cash and cash equivalents

Cash and cash equivalents in the balance sheet comprise cash at bank and short term deposits withan original maturity of three months or less.

(l) Trade and other payables

Trade payables and other payables are carried at cost and represent liabilities for goods and servicesprovided to the Group prior to the end of the financial year that are unpaid and arise when the Groupbecomes obliged to make future payments in respect of the purchase of these goods and services.

(m) Financial instruments

Recognition

Financial assets are initially measured at cost on trade date, which includes transaction costs, whenthe related contractual rights or obligation exist. Subsequent to initial recognition these instrumentsare measured as set out below.

Financial assets at fair value through profit and loss

A financial asset is classified in this category if acquired principally for the purpose of selling in theshort term, or if so designated by management and within the requirements of AASB 139 “Recognition and Measurement of financial assets”. Realised and unrealised gains and losses arising from changein the fair value of these assets are included in the income statement in the period in which they arise.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments thatare not quoted in an active market and are stated at amortised cost using the effective interest ratemethod.

Available for sale financial assets

Available for sale financial assets include any financial assets not included in the above categories.Available for sale financial assets are reflected at fair value. Unrealised gains and losses arising fromchanges in fair value are taken directly to equity.

Financial liabilities

Non-derivative financial liabilities are recognised at amortised cost, comprising original debt lessprincipal payments and amortisation.

Fair value

Fair value is determined based on current bid prices for all quoted investments. Valuation techniquesare applied to determine the fair value for all unlisted securities, including recent arms lengthtransactions, reference to similar instruments and option pricing models.




Financial instruments (continued)

Impairment

At each reporting date the Company assess whether there is objective evidence that a financialinstrument has been impaired. In the case of available for sale instruments, a prolonged decline in thevalue of the instrument is considered to determine whether an impairment has arisen. Impairmentlosses are recognised in the income statement.

(n) Impairment of Assets

At each reporting date, the group reviews the carrying amount of its tangible and intangible assets todetermine whether there is any indication that those assets have been impaired. If such an indicationexists, the recoverable amount of the asset, being the higher of theasset’s fair value lest costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the income statement.

Impairment testing is performed annually for any goodwill and intangible assets with indefinite lives.

Where it is not possible to estimate the recoverable amount of an individual asset, the group estimatesthe recoverable amount of the cash generating unit to which the asset belongs.

(o) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of assets thatnecessarily take a substantial period of time to prepare for their intended use or sale, are added to thecost of those assets, until such time as the assets are substantially ready for their use or sale.

All other borrowing costs are recognised in income in the period they are incurred.

(p) Employee benefits

Provision is made for the Company’s liability for employee benefits arising from services rendered by employees to balance date. Employee benefits that are expected to be settled within one year havebeen measured at the amounts expected to be paid when the liability is settled. Employee benefitspayable later than one year have been measured at present value of the estimated future cashoutflows to be made for those benefits.

(q) Goods and Services Tax (GST)

Revenues, expenses and assets are recognised net of the amount of GST, except where the amountof GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST isrecognised as part of the cost of acquisition of the asset or as part of an item of the expense.Receivables and payables in the balance sheet are shown inclusive of GST.

Cash flows are presented in the cash flow statement on a gross basis, except for the GST componentof investing and financing activities, which are disclosed as operating cash flows.

(r) Goodwill

Goodwill and goodwill on consolidation are initially recorded at the amount by which the purchaseprice for a business or for an ownership interest in a controlled entity exceeds the fair value attributedto its net assets at date of acquisition. Goodwill on acquisition of subsidiaries is included in intangibleassets. Goodwill is tested annually for impairment and carried at cost less accumulated impairmentlosses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relatingto the entity sold.

Critical Accounting Estimates and Judgements

The directors evaluate estimates and judgements incorporated into the financial report based on historicalknowledge and best available current information. Estimates assume a reasonable expectation of futureevents and are based on current trends and economic data, obtained both externally and within the group.




Critical Accounting Estimates and Judgements (continued)

Key Estimates–Impairment

The group assesses impairment at each reporting date by evaluating conditions specific to the group thatmay lead to impairment of assets. Where an impairment trigger exists, the recoverable amount of theasset is determined. Value-in-use calculations performed in assessing recoverable amounts incorporate anumber of key estimates.

3. REVENUEEconomic Entity Parent Entity

Revenue from: 2007$

2006$

2007$

2006$

Operating activitiesInterest received from other persons 57,349 9,924 33,269 9,841Rental Income from other persons 11,660 17,075 11,660 17,075Other 4,271 14,937 4,271 14,937

73,280 41,936 49,200 41,853

Non-operating activitiesProfit on sale of current investment 163,936 381,631 163,936 381,631Unrealised gain on investments 18,408 - 18,408 -Capital return on investments 54,218 - 54,218 -

236,562 381,631 236,562 381,631

4. PROFIT / (LOSS) FOR THE YEAREconomic Entity Parent Entity

(a) Operating expenses2007

$2006

$2007

$2006

$ConsultantsDepreciationLegal feesRent & outgoingsTravel & subsistenceOther expenses

658,34320,54171,353

143,351256,039

1,016,357

606,45512,77661,42688,60974,064

285,033

655,21819,14171,353

143,351239,844

1,009,447

613,57512,26546,12387,64974,064

248,280Total operating expenses 2,165,984 1,128,363 2,138,354 1,081,956

(b) Unrealised loss on investments - 335,688 - 335,688

(c) Finance costsInterest on convertible note 365,000 77,294 365,000 77,294Interest on other loans 108,766 94,158 108,766 94,158

473,766 171,452 473,766 171,452




5. INCOME TAXEconomic Entity Parent Entity

a) The components of tax expensecomprise:

2007$

2006$

2007$

2006$

Cur rent i nc om e t ax

Current income tax charge (1,923,683) (7,439,273) (791,934) (395,292)Adjustments in respect of currentincome tax of previous years 1,181,280 162,217 (1,268) 162,217

Def erred i nc om e t ax

Relating to origination and reversal oftemporary differences 1,224,050 2,156,597 96,783 (96,107)

Current year tax losses not recognisedin the current period 0 5,132,975 716,516 341,698

Benefit of prior year tax losses broughtto account in the current year (461,550) - - -Income tax expense reported in incomestatement 20,097 12,516 20,097 12,516

b) The prima facie tax on profit / (loss) before income tax is reconciled to the income tax as follows;

Prima facie income tax payable on profit / (loss) before income tax at 30% (2006: 30%)

Reconciliation to income tax expense on accounting profit / (loss)Economic Entity Parent Entity

2007$

2006$

2007$

2006$

Accounting profit /(loss) before income tax (3,576,575) (1,346,126) (3,573,025) (1,299,802)Tax expense / (revenue) at the statutoryincome tax rate of 30%

(1,072,972) (403,838) (1,071,907) (389,941)

Sundry non-deductible(deductible)expenses 380,098 52,203 375,488 48,552Recognition of uplifts due to taxconsolidation 1,174,521 (4,686,255) - -

Over-provision of tax in prior year - (82,569) - 12,208Benefit of tax losses and temporarydifferences not brought to account - 5,132,975 716,516 341,697Benefit of prior year tax losses brought toaccount in the current year (461,550) - - -

Income Tax expense 20,097 12,516 20,097 12,516

6. AUDITORS REMUNERATION

Economic Entity Parent Entity2007

$2006

$2007

$2006

$Remuneration of the auditor of the parentand economic entity for:- auditing the year-end financial report 17,500 17,050 17,500 17,050- review of mid-year financial report 10,500 5,400 10,500 5,400- accounting advice - - - -




7. PROFIT / (LOSS) PER SHARE

Basic profit / (loss) per share amount is calculated by dividing net profit / (loss) for the period attributable toordinary equity holders of the parent by the weighted average number of ordinary shares outstandingduring the period.

The following reflects the income and share data used in the basic earnings per share computations:

6,999,998 options exercisable at the balance date have not been included in the computation of dilutedearnings per share as this result is anti-dilutive in nature.

In the reporting period to 30 June 2006, convertible notes for $3,650,000 where issued. These notes areconvertible at the rate of 4 ordinary fully paid shares for every dollar being a total, if fully converted, of14,600,000 ordinary fully paid shares. The notes are repayable on 31 March 2009 or by agreement withthe Note Holders on 31 March 2010. No Notes were converted in the period to 30 June 2007 and anypotential dilutive effect has not been taken into account. Since the reporting date 150,000 Notes havebeen converted to 600,000 ordinary shares.

Since the reporting date the Company has issued 146,284,061 ordinary shares of the Company and14,400,000 Options to acquire shares of the Company.

There have been no other transactions involving ordinary shares or potential ordinary shares since thereporting date and before the completion of these financial statements.

8. KEY MANAGEMENT PERSONNEL

(a) Details of Key Management Personnel

(i) DirectorsAt the end of the financial year the Board comprised three directors.

Name Position Date ofAppointment

Committees

Mr N Zillman Non-Executive Chairman 9 October 2006 -

Mr S Oussa Managing Director 9 October 2006 -

Mr B McGillivray Executive Director 9 October 2006 -

(ii) Executives

Name Position Date ofAppointment

Ray Johnson Jnr Chief Operating Officer 21 May 2007 -


Net profit / (loss) attributable to ordinaryequity holders of the parent

2007$

($3,596,672)

2006$

($1,358,642)

2007$

($3,593,122)

2006$

($1,312,318)

Weighted average number of ordinaryshares for basic earnings per share

279,508,215 135,901,489 279,508,215 135,901,489

Weighted average number of ordinaryshares for dilutive earnings per share

279,508,215 135,901,489 279,508,215 135,901,489




(b) Compensation of Key Management Personnel

(i) Compensation Policy

The performance of the Group will depend upon the quality of its directors and executives. To prosper, theGroup must attract, motivate and retain highly skilled directors and executives.

The company’s broad compensation policy is to ensure each compensation package properly reflects theperson’s duties and responsibilities and that compensation is competitive in attracting, retaining and motivating people of the highest quality.

The Board ensures that executive reward satisfies the following key criteria for good reward governancepractices:- Competitiveness and reasonableness- Acceptability to shareholders- Transparency- Capital management

The company has structured an executive compensation framework that is market competitive andcomplimentary to the reward strategy of the organisation.

Remuneration packages may contain the following key elements:Primary benefits–salary and directors fees;Post employment benefits–including superannuation and prescribed retirement benefits;Equity– share options granted under the company’s ESOP; andOther benefits.

The combinations of these comprise the total compensation for directors and executives.

Executives may receive base salary, superannuation, fringe benefits and in some cases, performanceincentives. Executives and staff may be invited by the Board to participate in the Employee Share OptionPlan. These packages are reviewed on an ongoing basis.

All compensation to be paid to present or future executives will be valued at the cost to the company andexpensed. Options are valued using the Black-Scholes model.

The Board expects that the compensation structure that is implemented will result in the company beingable to attract and retain the best executives to manage the consolidated entity. It will also provide theexecutives with the necessary incentives to work to grow long-term shareholder value.

The Board can exercise its discretion in relation to approving incentives, bonuses and options. There areno schemes for retirement benefits other than statutory superannuation for independent directors.

The Group does not presently operate a remuneration committee and the compensation of all directorsand executives is determined by the members of the Board

(ii) Compensation of Key Management Personnel

Compensation of the Key Management Personnel for the period ended 30 June 2007 (consolidated)

Short-Term PostEmployment

Long-Term

Share-based

Payment

Total performancerelated

Directors Salary &fees

OtherBenefits

Super-annuation

Incentiveplans Options Total %

$ $ $ $ $ $

Mr N Zillman 86,774 - - - 1,100,000 1,186,774 0%Mr S Oussa 208,033 - - - - 208,033 0%Mr B McGillivray 184,970 - - - - 184,970 0%Mr H Dewhirst 16,700 - - - 146,667 163,367 0%

TOTAL 496,477 - - - 1,246,667 1,743,144 0%

Executives

Mr R Johnson Jnr 9,655 - - - - 9,655 0%TOTAL 9,655 - - - - 9,655 0%




Compensation of the Key Management Personnel for the period ended 30 June 2006 (consolidated)

Short-Term PostEmployment

Long-Term

Share-based

Payment

Total performancerelated

Directors Salary &fees

OtherBenefits

Super-annuation

Incentiveplans Options Total %

$ $ $ $ $ $Mr D Martino 120,000 - - - - 120,000 0%Mr S Doherty 250,000 - - - - 250,000 0%Mr P Meagher 42,000 - - - 35,200 77,200 0%

TOTAL 412,000 - - - 35,200 447,200 0%

ExecutivesNil - - - - - - -

(iii) Contracts for Services

Key Management Personnel may be employed by the Company under a contract.

At the date of this report, the following contracts had been entered into with the following key managementpersonnel;

Mr Raymond Johnson Jnr (Chief Operating Officer) - A contract has been entered into with Mr Johnson Jnrfor three years commencing 21 May 2007 incorporating a remuneration package based on a daily rate of$1,500.00 and termination clauses in the event of breaches by either party or otherwise on thirty daysnotice. The contract provides for the granting of 6,000,000 Incentive Options to acquire shares of theCompany to vest in three tranches of 2,000,000 each on the achievement of certain performance criteriaset by the Company.

(c) Compensation options: Granted during the period

During the financial year options were granted as equity compensation benefits under the terms ofagreements with directors as disclosed below. The options were granted for nil consideration. Each optionentitles the holder to subscribe for one fully paid ordinary share in the entity at the stated exercise price.

Vested Granted Terms and Conditions of Each Grant

Number NumberGrantDate

Fair Valueper optionat grant

dateCents

Exerciseprice per

shareCents

FirstExercise

Date

ExpiryDate and

LastExercise

DateDirectors

Mr N Zillman A 5,000,000 5,000,000 30/03/07 7.8 17 30/03/07 30/03/10B - 5,000,000 30/03/07 7.5 25 30/09/07 30/03/11C - 5,000,000 30/03/07 6.7 30 30/03/08 30/03/11

TOTAL 5,000,000 15,000,000

Mr H Dewhirst A 666,667 666,667 30/03/07 7.8 17 30/03/07 30/03/10B - 666,667 30/03/07 7.5 25 30/09/07 30/03/11C - 666,666 30/03/07 6.7 30 30/03/08 30/03/11

TOTAL 666,667 2,000,000

None of the options issued by the Company are quoted on the Australian Stock Exchange or had beenexercised during the financial year or up to the date of this report.

(d) Number of options held by Key Management Personnel at the reporting date

Balance30/06/07

TotalVested

TotalExercisable

TotalUnexercisable

Mr N Zillman 15,000,000 5,000,000 5,000,000 10,000,000Mr B McGillivray 1,000,000 666,666 666,666 333,334




(e) Shareholdings of Directors and Executives

Shares held in Blue Energy Limited (number)

Balance atbeg ofperiod

Granted asremuneration

On exerciseof

Options

NetChangeOther

Balance atend ofperiod

Directors

Mr N Zillman 5,552,778 - - - 5,552,778(1)

Mr S Oussa 27,850,000 - - - 27,850,000(2)

Mr B McGillivray 6,500,000 - - (500,000) 6,000,000(3)

Mr W Highland - - - 60,000 60,000(4)

Mr A Beard - - - - -

Total 39,902,778 - - (440,000) 39,462,778

ExecutivesMr R Johnson Jnr - - - 90,000 90,000

Total - - - 90,000 90,000

(1) Mr Zillman has an interest in these shares of which 3,257,778 are held by Rockmaster Pty Ltd,1,795,000 are held by Nitroshire Pty Ltd and 500,000 are held by Tyres Petroleum Pty Ltd.

(2) Mr Oussa has an interest in these shares which are held by ANZ Nominees <Cash Income A/C>.

(3) Mr McGillivray has an interest in these shares which are held by Blueseas Investments Pty Ltd<ASEAN Superannuation Fund>.

(4) Mr Highland has an interest in these shares all of which are held by a member of his family, being MrsDeborah Highland.

(f) Loans to Directors and Executives

No loans have been made by any Group company to any director or executive during the period or to thedate of this report.

9. CASH AND CASH EQUIVALENTS

For the purposes of the Balance Sheet and the Cash Flow Statement, cash and cash equivalents comprisethe following at 30 June 2006:


$2006

$2007

$2006

$

Cash at bank and in hand 1,358,422 165,326 1,355,476 161,506Short-term deposits 7,670 7,584 - -

1,366,092 172,910 1,355,476 161,506

Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits aremade for varying periods of up to six months at a time and earn interest at the short term deposit rate.Effective interest rate on the short term deposit was 2.65%.

The fair value of cash and cash equivalents of the Group is $1,366,092 and of the Parent is $1,355,476.




10. TRADE AND OTHER RECEIVABLES


a) Current:2007

$2006

$2007

$2006

$

Rent receivable on sub-lease - 18,760 - 18,760Goods and services tax receivable 78,776 36,122 74,346 21,618Pre-paid joint venture costs 50,000 - - -Rental bonds and deposits 18,098 21,398 17,298 20,598Amount due from past Director of Blue Energy(Qld) Pty Ltd 4,266 4,266 - -

151,140 80,546 91,644 60,976

b) Non-current:Loans to subsidiaries1 - - 11,302,232 5,817,668Tenement related performance bonds 309,554 190,000 - -

309,554 190,000 11,302,232 5,817,668

1 As at 30 June 2007, advances of $11,302,232 ($5,817,668 to 30 June 2006) have been made by theparent entity to its subsidiaries to enable them to engage in joint venture and other explorationactivities. These loans are unsecured, interest free and have no fixed repayment terms. There wereno other transactions between the entities.

11. CONTROLLED ENTITIES

The consolidated financial statements include the financial statements of Blue Energy Limited and thesubsidiaries listed in the following table.

Percentage Owned(%)

Name State ofincorporation

2007$

2006$

Blue Energy (Qld)Pty Ltd New South Wales 100% 100%Eureka Petroleum Pty Ltd Queensland 100% 100%Kompliment Pty Ltd Western Australia 100% 100%Everdue Pty Ltd Western Australia 100% 100%Energy Investments PNG Pty Ltd Western Australia 100% 100%

12. INTERESTS IN JOINT VENTURE OPERATIONS

Joint Venture Partner InterestRossco-1 Joint Venture Great Artesian Oil and Gas Limited 37.5%Paprika-1 Joint Venture Great Artesian Oil and Gas Limited 37.5%Cadenza-1 Joint Venture Great Artesian Oil and Gas Limited 50%Paranta Block Joint Venture Great Artesian Oil and Gas Limited 50%Burrum CSM Joint Venture Magellan Petroleum Limited 90%

The joint venture interests amount to exploration and evaluation expenditure. The recoverability of thecarrying amount of the exploration and evaluation assets is dependent on successful development andcommercial exploitation, or alternatively, sale of the respective areas of interest.

There are no joint venture assets or liabilities as the respective parties are in the process of earning theirrelevant interests, therefore joint venture interests have been recognised at cost.




INTERESTS IN JOINT VENTURE OPERATIONS (continued)

Details of arrangements entered into with farminees

Everdue Pty Ltd (“EPL”)

PEL 106 –Paranta Seismic Block in South Australia

Within the Paranta Block are gas discoveries Paranta-1, Nutmeg-1 and Cadenza-1. Interpretation of the3D seismic acquired in the previous period has confirmed other targets within the Block of which Luxor-1is planned to be drilled in the 2007/2008 financial year. Further studies of the early production and gasgathering options were carried out during the period and planning for CHPT undertaken on Cadenza-1.

EPL holds a 50% interest in each discovery well and on completion of one further well will have earned a50% farm-in interest in the Block.

Kompliment Pty Ltd (“KPL”)

PEL 106 –Rossco-1and Paprika-1 Blocks in South Australia

KPL holds a 37.5% farm-in interest in these two discoveries.

PEL 106 –Spinel Block 3D Seismic in South Australia

KPL has paid 100% of the cost of acquiring approximately 340 km² of 3D seismic and may earn a 50%interest in the whole of the Block by completing four wells. In May 2007 KPL entered into an agreement tofarmout 50% of its farmin rights to Odin Energy Limited on the reimbursement by Odin of 100% of KPL’s 3D seismic survey costs and 50% of each of the four proposed wells Odin will earn a 25% interest in eachof the proposed wells and on completion of all four wells will have earned a 25% interest in the whole ofthe Spinel Block.

KPL may earn up to 50% participating interest in any Petroleum Production Licenses and an aggregate50% in the whole of the Block on completion of four proposed wells. On the basis that Odin participate inall four wells KPL will have earned a 25% interest in the Spinel Block.

13. OTHER FINANCIAL ASSETS

Financial assets at fair value throughprofit or loss:


2007$

2006$

2007$

2006$

Listed investments at fair value- Shares in listed corporations 60,593 460,577 60,593 460,577

Total financial assets held for trading 60,593 460,577 60,593 460,577

Available-for-sale financial assets: Economic Entity Parent Entity2007

$2006

$2007

$2006

$Unlisted investments, at cost- Investment in controlled entities - - 13,648,230 13,648,230Total Available-for-sale financial assets - - 13,648,230 13,648,230

Available-for-sale financial assets comprise investments in the ordinary share capital of subsidiarycompanies. There are no fixed returns or fixed maturity date attached to these investments.




14. PROPERTY, PLANT AND EQUIPMENTEconomic Entity Parent Entity

2007$

2006$

2007$

2006$

Furniture and fittings at cost 3,804 1,940 3,343 1,940Less: Accumulated depreciation (2,477) (1,023) (2,016) (1,023)

1,327 917 1,327 917

Plant and equipment at cost 61,708 19,947 55,507 13,746Less: Accumulated depreciation (23,265) (5,902) (19,397) (3,434)

38,443 14,045 36,110 10,312

Computer software at cost 13,864 10,644 13,864 10,644Less: Accumulated depreciation (10,584) (8,399) (10,584) (8,399)

3,280 2,245 3,280 2,245

Net carrying amount 43,050 17,207 40,717 13,474

Movement in Carrying Amounts

EconomicEntity

$

ParentEntity

$

Balance at beginning of the year 17,207 13,474Property, Plant & Equipment Purchases 46,384 46,384Depreciation expense (20,541) (19,141)Carrying amount at end of year 43,050 40,717

15. EXPLORATION AND EVALUATION EXPENDITURE

The ultimate recoupment of the expenditure on oil and gas interests is dependent upon successfuldevelopment and commercial exploitation or alternatively the sale of the respective areas of interest atamounts at least equal to book value.


$2006

$2007

$2006

$Exploration and evaluation expenditureacquired and recognised on consolidation 13,648,230 13,648,230 - -

Other exploration & evaluation expenditure 11,357,374 7,596,261 - -

Total exploration & evaluation expenditurebought to account 25,005,604 21,244,491 - -

16. INTANGIBLE ASSETSEconomic Entity Parent Entity

Goodwill2007

$2006

$2007

$2006

$Cost on acquisition of subsidiaries - 63,790 - 63,790Accumulated impairment losses - (63,790) - (63,790)

Net carrying value - - - -

Goodwill on acquisition arose from the difference between the consideration paid and fair value of the netassets of the subsidiaries acquired in the 2006 financial year. It was determined that the fair value ofgoodwill on acquisition of the subsidiaries was nil and it was fully impaired at the acquisition date.




17. TRADE AND OTHER PAYABLESEconomic Entity Parent Entity

Current:2007

$2006

$2007

$2006

$Trade payables1 305,335 204,929 299,465 175,875Joint venture payables 370,605 1,910,028 - -Sundry payables and accrued expenses 151,041 667,1662 40,500 556,625Employee cost & expenses payable 22,352 7,348 22,352 7,348

849,333 2,789,471 362,317 739,848

(1) Trade payables include amounts payable to key management of $93,660 at the end of thefinancial year (2006: $18,000).

(2) Sundry payables and accrued expenses include amounts payable to key management of nil atthe end of the financial year (2006: $493,000).

Trade payables are non interest bearing and are normally settled on 30 day terms.

18. BORROWINGSEconomic Entity Parent Entity

2007$

2006$

2007$

2006$

a) Short term:Variable interest loan 3,386,301 - 3,386,301 -Leverage loan (secured) - 149,744 - 149,744Unsecured borrowing 100 100 100 100Total short term borrowings 3,386,401 149,844 3,386,401 149,844

b) Long term:Convertible notes1 (unsecured) 3,650,000 3,650,000 3,650,000 3,650,000Total long term borrowings 3,650,000 3,650,000 3,650,000 3,650,000

Total borrowings 7,036,401 3,799,844 7,036,401 3,799,844

1 The general terms of the convertible notes are as follows:

i. Term: 36 months being maturity date 31 March 2009, which may be extended by mutualagreement for a period of up to 12 months on the same terms and conditions.

ii. The face value of the Convertible Note is A$1.00 per Note.

iii. Coupon rate: Fixed rate 10.0% per annum. Interest payable quarterly in arrears.

iv. Conversion price: $0.25 per BUL share. That is a conversion rate of 4 BUL shares foreach Note.

v. Conversion rights: The Notes can be converted at any time at the sole election of theNoteholder in whole or in part (in amounts of not less than A$100,000) into the issuedequity of BUL at the Conversion Price. The shares issued on conversion of the Notes will belisted for quotation promptly by BUL and will rank parri passu with BUL’s issued ordinary shares. In the event that the share price of BUL is greater than two (2) times the ConversionPrice, for a consecutive period of 90 days, BUL can request (and the Noteholder mustagree if so requested) that the Noteholder convert its Notes into BUL issued ordinary fullypaid shares at the Conversion Price.

vi. Issue of shares: On conversion of a Note the shares will be issued by BUL on or beforethat date that is five (5) business days after the date of delivery of a conversion notice toBUL, if BUL is capable of issuing a section 708A(5) notice, or otherwise twenty one (21)business days after the date of delivery of a conversion notice to BUL, if BUL is unable toissue a section 708A(5) notice immediately.

2 AASB 139 requires the disclosure of the liability and equity components separately. An equitycomponent is evident where there is a difference between the converting liability’s coupon rate and the prevailing market interest rate for a similar instrument. In this case, the Directorshave determined that the prevailing market interest rate for the convertible note, taking intoconsideration the industry and position of the company, is equal to the coupon rate of theinstrument. Therefore no equity component has been recognised.




19. TAX

a) AssetsEconomic Entity Parent Entity

Deferred tax assets include: 2007$

2006$

2007$

2006$

Temporary differences attributable to:Provisions 2,237 - 2,237 -Accruals 7,169 12,516 7,169 12,516Business related costs 541 - - -Other 3,702 - 3,702 -

Total deferred tax assets 13,649 12,516 13,108 12,516

b) Gross Movements in deferred tax accounts

Economic Entity Parent EntityThe overall movement in the deferred taxaccount is as follows:

2007$

2006$

2007$

2006$

Opening Balance - 12,516 - 12,516Equity 20,097 - 20,097 -Charged to income statement (20,097) (12,516) (20,097) (12,516)

Closing Balance - - - -

c) Deferred Tax Assets


$2006

$2007

$2006

$Unrecognised Deferred Tax Balances

Unrecognised deferred tax assets - Losses 8,715,094 7,488,844 8,715,094 7,488,844Unrecognised deferred tax assets –Capital Losses

49,147 - 49,147 -

Unrecognised deferred tax assets - Other 13,649 115,691 13,108 114,949Unrecognised deferred tax liabilities (3,388,106) (2,259,772) - -Net unrecognised deferred tax assets 5,389,784 5,344,763 8,777,349 7,603,793

20. ISSUED CAPITAL2007 2006

Number ofShares

$ Number ofShares

$

Ordinary Shares:Issued & Fully Paid 294,951,613 23,081,225 254,589,075 17,257,335

Movements in ordinary shares on issue:

Opening balance 254,589,075 17,257,335 14,608,294 160,969

Issue in consideration of the satisfaction ofdebt 2,640,945 396,142 131,474,647 904,806

Issued shares at 15 cents per share 37,721,593 5,658,239 17,093,333 2,564,000

Capital raising costs - (250,588) - (84,360)

Income tax expense reported in equity(Capital raising costs) - 20,097 - -

Issued in consideration for the acquisition ofBlue Energy Pty Ltd, Eureka Petroleum PtyLtd, Kompliment Pty Ltd and Everdue Pty Ltdat 15 cents per share

- - 91,412,801 13,711,920

Closing balance 294,951,613 23,081,225 254,589,075 17,257,335

Ordinary shares have no par value. There is no limit to the authorised share capital of the Company.




ISSUED CAPITAL (continued)

At the shareholders meetings each ordinary share is entitled to one vote when a poll is called, otherwiseeach shareholder has one vote on a show of hands.

The Company did not pay a dividend during the year ended 30 June 2007, nor has any dividend beenproposed up to the reporting date. Ordinary shares would participate in dividends and the proceeds onany winding up of the parent entity in proportion to the number of shares held.

Options over shares

During the period the Company issued 17,000,000 Options to Directors and contractors. None of theOptions are listed and no options had been exercised at 30 June 2007.

21. RESERVES

Option Reserve

This reserve is used to record items recognised as expenses on valuation of share options provided todirectors or employees as part of their remuneration, and to contractors as payment for goods andservices provided, performance or incentive.

22. CONTINGENT ASSETS AND LIABILITIES

The directors are not aware of any contingent liabilities or contingent assets at 30 June 2007, nototherwise disclosed in this report.

23. SEGMENT REPORTING

The Company operates in a single business segment, being the oil and gas exploration industry, and in asingle geographic location. An immaterial amount was spent on evaluation of projects in Papua NewGuinea, Turkey and Mozambique, however, as yet no commitments have been made for operations totake place in any of those locations.




24. CASH FLOW INFORMATION

a) Reconciliation of the profit / (loss) after tax to the net cash flows from operations


$2006

$2007

$2006

$

Profit / (Loss) after income tax (3,596,672) (1,358,642) (3,593,122) (1,312,318)

Adjustments for:Cash flows excluded from profitattributable to operating activities- Capital return on investment

previously written off (54,218) - (54,218) -Depreciation 20,541 12,776 19,141 12,265Profit on sale of investments (163,936) (381,631) (163,936) (381,631)Unrealised (gain)/loss on investments (18,408) 335,688 (18,408) 335,688Share options expensed 1,246,667 70,400 1,246,667 70,400Finance costs 86,582 94,158 86,582 94,158Interest on convertible note - 18,938 - 18,938Goodwill impairment expense - - - 63,790

Changes in assets and liabilities(Increase)/decrease in trade debtors andreceivables (20,594) (63,752) (30,669) (36,532)Increase/(decrease) in Trade Creditors &Accruals (408,171) 778,900 (384,987) 639,304(Decrease)/increase in provision foremployee entitlements 7,456 - 7,456 -(Increase)/decrease in future income taxbenefit 20,097 12,516 20,097 12,516

Net cash used in operating activities (2,880,656) (480,649) (2,865,397) (483,422)

b) Acquisition of entities

During the 2006 financial year 100% of the entities outlined in note 20 where acquired. Details of thissingle transaction are;


$2006

$2007

$2006

$Purchase consideration - 13,711,920 - 13,711,920

Cash consideration (outflow) - - - -

Assets and liabilities held at acquisitiondate:

Current assets - 8,631 - -Non-current assets - 3,354,428 - -Current liabilities - (773,565) - -Non-current liabilities - (2,653,284) - -

Goodwill on acquisition - (63,790) - -Fair value of tenement and joint venturerights - 13,711,920 - -Investment in subsidiaries - - - 13,648,130Goodwill on acquisition of subsidiaries(charged to income statement) - 63,790 - 63,790

Consideration: Share Issue - (13,711,920) - (13,711,920)




CASH FLOW INFORMATION (continued)

The goodwill is the difference paid by the Company for the net assets of the subsidiaries at fair value. Thisgoodwill was tested for impairment at acquisition and it was determined that its fair value was nil and it wasimmediately expensed. The Goodwill was immediately expensed because it never held actual value.

The other assets and liabilities arising from the acquisition are recognised at fair value which is equal to itscarrying value.

25. RELATED PARTY DISCLOSURE

During the financial year the following related party transactions occurred;

Key Management Personnel

Economic Entity Parent EntityDirector & Consulting fees were paid to oraccrued by the following and are related partytransactions:

2007$

2006$

2007$

2006$

ASEAN Corporate Services Pty Ltd–a companyassociated with Brian McGillivray (Director ofBlue Energy Limited October 2006 to present)

184,970 - 184,970 -

Bannerblock Pty Ltd –a company associatedwith Norman Zillman (Director of Blue EnergyLimited October 2006 to present)

86,774 - 86,774 -

Graceview Pty Ltd –a company associated withShane Doherty (former Director of Blue EnergyLimited)

- 250,000 - 250,000

Other than disclosed above or the disclosed loans to subsidiaries there have been no other transactionswith related parties during the year.

The ultimate parentThe ultimate parent entity is Blue Energy Limited

SubsidiariesBlue Energy Limited provides funding for the subsidiaries to continue to develop their respective oil andgas exploration and evaluation activities.

Terms and conditions of transactions with related partiesTransactions with related parties are made in arms length transactions both at normal market prices andon commercial terms.

26. FINANCIAL INSTRUMENTS

The Group’sfinancial instruments comprise, trade and other receivables, trade and other payables,publicly listed investments and cash. The Group policy is not to enter into any derivative or hedgingtransactions.

Fair ValuesThe Directors have performed a review of the financial assets and liabilities as at 30 June 2007 and haveconcluded that the fair value of those assets and liabilities are not materially different to book values giventhe short term nature of the instruments.

Interest Rate RiskThe following table sets out the carrying amount of the consolidated and parent entity’s financialinstruments that are exposed to interest rate risk:




FINANCIAL INSTRUMENTS (continued)

Economic Entity

2007

WeightedAverageInterest

Rate

FixedInterest

Rate$

FloatingInterest

Rate$

Non-InterestBearing

$Total

$Financial AssetsCash and Cash Equivalents 2.65% - 1,366,092 - 1,366,092Trade and Other Receivables - - - 460,694 460,695Shares in listed companies - - - 60,593 60,593Total - 1,366,092 521,287 1,887,379Financial LiabilitiesTrade and Other Payables - - - 478,828 478,828Joint venture commitments - - - 370,605 370,605Variable interest loans 13.75% - 3,386,301 - 3,386,301Convertible note 10% 3,650,000 - - 3,650,000Total 3,650,000 3,386,301 849,433 7,885,734

Economic Entity

2006


Rate

FixedInterest

Rate$

FloatingInterest

Rate$

Non-InterestBearing

$Total

$Financial AssetsCash and Cash Equivalents 2.65% - 172,910 - 172,910Trade and Other Receivables - - - 270,546 270,546Shares in listed companies - - - 460,577 460,577Total - 172,910 731,123 904,033Financial LiabilitiesTrade and Other Payables - - - 879,543 879,543Joint venture commitments - - - 1,910,028 1,910,028Leverage Loan 9% - 149,744 - 149,744Convertible note 10% 3,650,000 - - 3,650,000Total 3,650,000 149,744 2,789,571 6,589,315

Parent Entity

2007


Rate

FixedInterest

Rate$

FloatingInterest

Rate$

Non-InterestBearing

$Total

$Financial AssetsCash and Cash Equivalents 2.65% - 1,355,476 - 1,355,476Trade and Other Receivables - - - 11,393,876 11,393,876Shares in listed companies - - - 60,593 60,593Total - 1,355,476 11,454,469 12,809,945Financial LiabilitiesTrade and Other Payables - - - 362,417 362,417Variable interest Loan 13.75% - 3,386,301 - 3,386,301Convertible note 10% 3,650,000 - - 3,650,000Total 3,650,000 3,386,301 362,417 7,398,718

Parent Entity

2006


Rate

FixedInterest

Rate$

FloatingInterest

Rate$

Non-InterestBearing

$Total

$Financial AssetsCash and Cash Equivalents 2.65% - 161,506 - 161,506Trade and Other Receivables - - - 5,878,644 5,878,644Shares in listed companies - - - 460,577 460,577Total - 161,506 6,339,221 6,500,727Financial LiabilitiesTrade and Other Payables - - - 739,948 739,948Leverage Loan 9% - 149,744 - 149,744Convertible note 10% 3,650,000 - - 3,650,000Total 3,650,000 149,744 739,948 4,539,692




FINANCIAL INSTRUMENTS (continued)

Interest on financial instruments classified as floating rate is re-priced at intervals of less than one year.

Credit RiskThe Group’s maximum exposure to credit risk at the reporting date in relation to each class of recognised financial assets is the carrying amount of those assets as indicated in the consolidated balance sheet. TheGroup holds no derivative financial instruments.

Liquidity RiskThe group manages liquidity risk by monitoring forecast cash flows.

27. COMMITMENTS

(a)(i) Eight series exploration work obligations (Eureka Petroleum Pty Ltd)

The subsidiary companies holding the relevant coal bed methane exploration interests have pledged thatcertain work programmes will be carried out. These work programmes are as follows;

(a)(ii) Six series exploration work obligations (Blue Energy (Qld) Pty Ltd)

The subsidiary companies have applied for the relevant oil and gas exploration interests and upon grantingwill pledged that certain work programmes will be carried out. These work programmes are expected asfollows;

(a)(iii) Farmed-in Joint Venture Oil and Gas Interests

The following table provides a description of the work programmes and the minimum programme costsunder the terms of the relevant agreements made by the relevant subsidiary with the joint venture partner.

Project Work Programme Year 1

A$

Years 2–5

A$

More than5 years

A$Paranta Block Works include further drilling, completion, well

installation and production preparation. 3,735,911 - -

Spinel Block Works include interpretation of 3D seismicsurveying, drilling four wells, completion, andproduction preparation.

5,379,350 5,270,000 -

Paprika - JV Complete cased hole production testing 827,822 - -

Total $9,943,083 5,270,000 -

Exploration expenditure commitments–100% ownedcoal bed methane tenements

Consolidated2007

$

Parent2007

$Within 1 year 1,400,000 -After 1 year but no more than 2 years 3,350,000 -More than 2 years but no more than 5 years 11,580,000 -

16,330,000 -

Exploration expenditure commitments–100% ownedconventional oil & gas tenements

Consolidated2007

$

Parent2007

$Within 1 year - -After 1 year but no more than 2 years 600,000 -More than 2 years but no more than 5 years 15,175,000 -

15,775,000 -




28. EVENTS SUBSEQUENT TO REPORTING DATE

On 17 July 2007 the Company entered into an agreement with CVC Limited, a listed diversified investmentand funds management group, to provide new equity of $30 million. The first tranche of 13,604,730 shareswere issued on 18 Jul 2007 to raise $3,401,182 together with 556,864 Options to acquire shares of theCompany at an exercise price of 25 cents.

Pursuant to an agreement with Chimaera Capital the Company drew down the balance of it’s loan facility and on 17 July 2007, converted the total debt of $4,600,000 to equity by the issue of 25,555,556 ordinaryshares of the Company together with 750,000 options exercisable at 25 cents. A further 728,505 ordinaryshares were issued to Chimaera Capital in payment of accrued interest of $109,275.

Mr William Highland and Mr Alexander Beard joined the Board on 18 July 2007 as non executive directors.

The directors granted 7,150,000 Options to acquire shares of the Company, under the Employee ShareOption Plan, to employees and contractors to the Company pursuant to contracts of employment andservice as incentives for performance.

On 14 September 2007 Shareholders approved a further Placement of 106,395,270 shares to raise$26,598,818 and the issue of 4,433,136 Options to acquire shares of the Company at an exercise price of25 cents. Shareholders also approved the granting of 1.5 million Directors Options to Mr Brian McGillivray.

On 24 September 2007 the Company closed the $26.589m Placement and issued 106,395,270 sharesand 4,433,136 Options.

Odin Energy Limited paid $2.476 million to the Company on 27 August 2007 pursuant to the Farm-inagreement dated 17 May 2007.

On 16 August 2007 the Company issued 600,000 ordinary shares of the Company on the conversion of150,000 $1.00 Convertible Notes.

29. SHARE-BASED PAYMENTS

The following share-based payments were made during the year:

The Directors approved the issue of 765,000 ordinary shares at 15c each in lieu of cash payment forconsulting fees totalling $114,750.

In addition, the Directors approved the issue of 1,875,945 ordinary shares at 15c each in conversion ofdebt and interest owing of $281,392.

Fiftteen million Incentive Options were granted to Mr Norman Zillman, a Director, and two million IncentiveOptions were granted to Mr Howard Dewhirst, a contactor and previous Director, which are exercisable, ineach case, as follows: 5,666,667 ‘A’ Incentive Options at 17 cents within a 36 month period commencing 30 March 2007. 5,666,667 ‘B’ Incentive Options at 25cents within a 48 month period commencing 30 September

2007. 5,666,666 ‘C’ Incentive Options at 30cents within a 48 month period commencing 30 March 2008.These options were granted with shareholder approval on 17 February 2006.

No shares have been issued by virtue of the exercise of an option during the year or to the date of thisreport.

Economic Entity Parent Entity2007 2006 2007 2006

Number ofOptions

WeightedAverageExercisePrice $

Numberof

Options


Number ofOptions


Numberof

Options


Outstandingat beginningof year

2,000,000 0.50 - - 2,000,000 0.50 - -

Granted 17,000,000 0.24 2,000,000 0.50 17,000,000 0.24 2,000,000 0.50Forfeited - - - - - - - -Exercised - - - - - - - -Expired - - - - - - - -Outstandingat year-end 19,000,000 0.27 2,000,000 0.50 19,000,000 0.27 2,000,000 0.50




SHARE-BASED PAYMENTS (continued)

The weighted average fair value of options granted during the year, calculated using the Black Scholespricing model, was $0.0733 per option. This price was calculated using the Black Scholes option pricingmodel applying the following inputs:

Note A B C

Exercise price $0.17 $0.25 $0.30Underlying share price 1 $0.16 $0.16 $0.16Standard deviation of returns (annualised) 2 70% 70% 70%Risk free interest rate 3 6.09% 5.99% 5.99%Expiration period 3 4 4

1. The underlying spot price is based on the price of the security on the ASX at 14 February 2007.2. The anticipated standard deviation over the life of the options is based on the company’s

historical data from theAustralian Graduate School of Management’s Risk Measurement Service.3. The risk free rate is the Commonwealth Government securities rate with a maturity approximating

that of the expiration period of the options (Source: Reserve Bank of Australia).

30. CHANGE IN ACCOUNTING POLICY

The following Australian Accounting Standards that have recently been issued or amended but are not yeteffective have not been adopted for the reporting period ended 30 June 2007:

AASBAmend-

ment

AffectedStandard(s)

Nature of change to accountingpolicy

Applicationdate of

standard*

Applicationdate forGroup

2005-10Amendmentsto AustralianAccountingStandards

AASB 1 –First timeadoption of AIFRSAASB 4AASB 101AASB 114AASB 117AASB 133AASB 1023AASB 1038AASB 139AASB 132

The disclosure requirements of AASB132: Financial Instruments: Disclosureand Presentation have been replaceddue to the issuing of AASB 7: FinancialInstruments: Disclosures in August2005. These amendments will involvechanges to financial instrumentdisclosures within the financial report.However, there will be no direct impacton amounts included in the financialreport as it is a disclosure standard.

1 January2007

1 July 2007

AASB 7FinancialInstruments:Disclosures

AASB 132 As above. 1 January2007

1 July 2007

* Application date is for the annual reporting periods beginning on or after the date shown in the above table.

31. COMPANY DETAILS

REGISTERED OFFICE Level 1, 34 Colin StreetWest Perth 6005Western Australia

PRINCIPAL PLACE OF BUSINESS Level 233 York StreetSydney NSW 2000

DIRECTORS’ DECLARATIO N


Directors’ DeclarationThe directors of the company declare that:

1. the financial statements and notes, as set out on pages 17 to 43, are in accordance with theCorporations Act 2001, and:

a. comply with Accounting Standards and Corporations Regulations 2001;

b. give a true and fair view of the financial position as at 30 June 2007 and of their performancefor the period ended on that date of the company and economic entity;

2. the Chief Executive Officer and Chief Financial Officer have each declared that;

a. the financial records of the company for the financial year have been properly maintained inaccordance with section 286 of the Corporations Act 2001;

b. the financial statements and notes for the financial year comply with the AccountingStandards; and

c. the financial statements and notes for the financial year give a true and fair view;

3. in the director’s opinion there are reasonable grounds to believe that the company will be able topay its debts as and when they become due and payable.

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

Sharif A OussaManaging Director

Dated this 26th day of September 2007

INDEPENDENT AUDIT REPORT TO MEMBERS OF BLUE ENERGY LIMITED We have audited the accompanying financial report of Blue Energy Limited (the company) and Blue Energy Limited and Controlled Entities (the consolidated entity), which comprises the balance sheet as at 30 June 2007, and the income statement, statement of changes in equity and cash flow statement for the year ended on that date, a summary of significant accounting policies and other explanatory notes and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal control relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note1, the directors also state, in accordance with Accounting Standard AASB 101: Presentation of Financial Statements, that compliance with the Australian equivalents to International Financial Reporting Standards (IFRS) ensures that the financial report, comprising the financial statements and notes, complies with IFRS. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, provided to the directors of Blue Energy Limited on 26th September 2007 would be in the same terms if provided to the directors as at the date of this auditor’s report.

Total Financial Solutions

Horwath refers to Horwath International Association, a Swiss verein. Each member of the Association is a separate and independent legal entity.

Member Horwath International WHK Horwath Perth Audit Partnership ABN 96 844 819 235 Level 6, 256 St Georges Terrace Perth WA 6000 Australia GPO Box P1213 Perth WA 6844 Australia Telephone +61 8 9481 1448 Facsimile +61 8 9481 0152 Email [email protected] www.whkhorwath.com.au A WHK Group firm

Auditor’s Opinion In our opinion, the financial report of Blue Energy Limited is in accordance with the Corporations Act 2001 including:

a) i. giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2007 and of their performance for the year ended on that date; and

ii. complying with Australian Accounting Standards (including Australian Accounting Interpretations)

and the Corporations Regulations 2001.

b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1.

WHK HORWATH PERTH AUDIT PARTNERSHIP

CYRUS PATELL Principal Perth, WA Dated this 26th day of September 2007

A D D I T I O N A L S H A R E H O L D E R I N F O R M A T I O N


Additional Shareholder InformationAdditional information required by the Australian Stock Exchange Ltd and not shown elsewhere in thisreport is as follows. The information is current as at 31 August 2007.

(a) Distribution of equity securities

Ordinary share capital• 335,440,404 fully paid ordinary shares are held by 1,471 individual shareholders.All issued ordinary shares carry one vote per share and carry the rights to dividends.

The number of holders of ordinary shares by range is:

Range TotalHolders

Units % IssuedCapital

1 - 1,000 29 17,409 0.011,001 - 5,000 193 636,059 0.19

5,001 - 10,000 265 2,251,551 0.6710,001 - 100,000 744 30,614,856 9.13

100,001 - 9,999,999,999 240 301,920,529 90.01

Total 1,471 335,440,404 100.00

(b) Substantial shareholders

Ordinary shareholders Number %ANZ NOMINEES LIMITED CASH INCOME A/C 116,776,822 34.81FORTIS CLEARING NOMINEES P/L SETTLEMENT A/C 25,737,323 7.67

142,514,145 42.48

(c) Twenty largest holders of quoted equity securities

Ordinary shareholders Number %

ANZ NOMINEES LIMITED CASH INCOME A/C 116,776,822 34.81FORTIS CLEARING NOMINEES P/L SETTLEMENT A/C 25,737,323 7.67CVC LIMITED 13,604,730 4.06JASMAH INVESTMENTS PTY LTD THE JASMAH INVESTMENTS A/C 12,000,000 3.58ASPAC MINING LIMITED 6,196,000 1.85BLUESEAS INVESTMENTS PTY LTD ASEAN SUPER FUND A/C 6,000,000 1.79FARJOY PTY LTD 6,000,000 1.79ZENDALE HOLDINGS PTY LTD THE ZENDALE UNIT A/C 6,000,000 1.79SODELL INVESTMENTS PTY LTD 5,166,667 1.54VANDYSON PTY LTD 3,808,000 1.14ROCKMASTER PTY LTD 3,257,778 0.97BRIDGES NOMINEE PTY LIMITED 3,000,000 0.89MR ANDREW BRUCE MRS WENDY BRUCE BRUCE FAMILY S/F A/C 2,532,999 0.76BRENTEX HOLDINGS PTY LTD THE TLM A/C 2,518,334 0.75AGENTS BUILDING COMPANY "NORTH SYDNEY" PTY LTD 2,500,000 0.75CUMBERLAND INVESTMENTS (WA) PTY LTD 2,000,000 0.60DERRIN BROTHERS PROPERTIES LTD 2,000,000 0.60FORTY TRADERS LIMITED 2,000,000 0.60MRS LORRAINE JEAN ZILLMAN 2,000,000 0.60NITROSHIRE PTY LTD 1,795,000 0.54

224,893,653 67.08

C O R P O R A T E D I R E C T O R Y


BLUE ENERGY LIMITEDACN 054 800 378

DIRECTORS N J Zillman (Non-Executive Chairman)S A Oussa (Managing Director)B J McGillivray (Executive Director)W J Highland (Non-Executive Director)A D Beard (Non-Executive Director)

COMPANY SECRETARY B J McGillivray

REGISTERED OFFICE Level 1, 34 Colin StreetWest Perth 6005Western Australia

PO Box 1727West Perth WA 6872AUSTRALIA

+61 8 9217 2230+61 8 9217 2229

SYDNEY OFFICE Level 233 York StreetSydney NSW 2000

+61 2 9299 6961+61 2 9279 4744

BRISBANE OPERATIONS 15c Central Brunswick421 Brunswick StreetFortitude Valley Qld 4006

+61 7 3257 3077+61 7 3257 3066

SHARE REGISTRY Computer Share Registry Services LimitedLevel 2, Reserve Bank Building45 St George’s TerracePerth WA 6000

+61 8 9323 2000

AUDITORS WHK Horwath (formerly Grant Thornton)Level 6, 256 St George’s TerracePerth WA 6000

STOCK EXCHANGE Australian Stock Exchange LimitedExchange Plaza2 The EsplanadePerth Western Australia 6000

Trading codeOrdinary shares: BUL

070926 draft bul 30jun07 report v17 · 12 interests in joint venture operations 32 13 other...

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