Target Energy : Annual Financial Report to 30 June 2017

(ABN 73 119 160 360)

For the year ended 30 June 2017

Directors' Report 1

Auditor's Independence Declaration 9

Consolidated Statement of Comprehensive Income 10

Consolidated Statement of Financial Position 11

Consolidated Statement of Cash Flows 12

Consolidated Statement of Changes in Equity 13

Notes to the Consolidated Financial Statements 14

Directors' Declaration 45

Independent Auditor's Report 46

Your directors present their report together with the financial statements of the consolidated entity, comprising Target Energy Limited ("Target" or the "Company") and its controlled entities, for the financial year ended 30 June 2017. In order to comply with the provisions of the Corporations Act 2001, the directors report as follows:

The names of directors who held office during or since the end of the year and until the date of this report are as follows. Directors were in office for this entire year unless otherwise stated.

Mr Roe is a petroleum professional with over 35 years experience gained on the industry both in Australian and international projects. He commenced his career with Santos Limited, later taking a senior technical position with Magellan Petroleum Australia Limited, where he was later appointed Exploration Manager. While with Magellan, he had substantial involvement with US and other international projects.

In 1997, Mr Roe left Magellan to start a consulting practice. He has since consulted for numerous Australian explorers, including Santos Limited, Strike Oil Limited, Icon Energy Limited and Hardman Resources Limited. Mr Roe was appointed Exploration Manager for Bounty Oil & Gas NL in 2001, responsible for its portfolio of Australian and international acreage. He was later appointed as Managing Director.

His experience encompasses most Australian sedimentary basins, as well as the USA, New Zealand, Mauritania, Tanzania, Canada, Indonesia, Belize and Argentina.

Mr Roe has no other listed company directorships and has not held any other listed company directorships in the last three years.

Mr Mann is a Fellow of Chartered Accountants of Australia and New Zealand and has more than 30 years experience as a chartered accountant prior to his retirement from private practice in 2003.

Mr Mann has no other listed company directorships and has not held any other listed company directorships in the last three years.

Mr Battrick is an experienced oil and gas executive with over 35 years in international exploration and production, both conventional and unconventional. This has included, more recently, 10 years in senior management and executive director roles within ASX‐listed oil and gas companies. In particular, Mr Battrick has had substantial experience in petroleum projects within the United States.

In the past three years, Mr Battrick has also served as a director of the following listed company:

• MEC Resources (alternate director) appointed 5 September 2017 *

• Sun Resources NL - resigned 10 November 2016

• denotes current directorships

  Christopher Rowe MA (Non Executive Chairman) - resigned 22 September 2017

  Mr Rowe graduated from Cambridge University in Economics and Law. Mr Rowe practised in the UK and Perth where he consulted to both the oil and gas and hard rock sectors of the resource industry, before becoming the Executive Chairman of Cultus Petroleum N.L. in 1979 where he served until 1990. During his tenure, the company participated in a number of commercial discoveries in Australia, New Zealand and the USA.

  During the last three years, Mr Rowe has also served as a director of the following listed company:

  - Northern Star Resources Limited*

• denotes current directorships

Mr Caren graduated with a Bachelor of Commerce (Accounting) from the University of Western Australia and is a member of Chartered Accountants of Australia and New Zealand. He qualified with PricewaterhouseCoopers and worked for them in Australia and overseas for six years. He has since been directly involved in the exploration industry for a further 20 years, initially with a minerals explorer based in Perth but with operations in South America and Asia, for

which he acted as an executive and company secretary. In 2004 he created a specialist company secretarial and advisory consultancy, Dabinett Corporate Pty Ltd. Dabinett Corporate provides financial and corporate services to several listed and unlisted companies involved in the resources sector.

There are no options on issue as at the date of this report.

Nil (2016: Nil) ordinary shares were issued during the financial year as a result of the exercise of options. There are no unpaid amounts on the shares issued.

The following relevant interests in shares and options of the Company or a related body corporate were held by the directors as at the date of this report:

Laurence Roe 31,426,987 - -

Matthew Battrick - - -

Stephen Mann 79,596,062 - - 111,023,049 - -

No dividends have been paid or declared since the start of the financial year and the directors do not recommend the payment of a dividend in respect of the financial year.

The principal activities of the entities within the consolidated entity during the year were the development and production of and exploration for oil and gas in the United States of America. There have been no significant changes in the nature of those activities during the year other than those described below.

During the year, the Company continued to limit development activities to conserve cash in a continuing low oil-price environment. The only operations carried out were workovers of existing wells to maintain existing production. Production continued from the Fairway wells in Texas, however overall rates eased during the year as a consequence of the natural decline in production from individual hydrocarbon producing zones. Cash constraints prevented the Company from developing its asset at a more optimal rate. As a consequence, Target's share of overall production has decreased by 18.8% from 23,562 BOE in the previous financial year to 19,143 BOE at the financial year end. Target holds a share of up to 1,439 net acres in the Permian Basin, of which 1,011 acres are held by production. The Company continued a divestment process for its interests in its Fairway oil and gas properties, but did not receive any offers deemed suitable.

Production remained suspended at the East Chalkley project in Louisiana, due to technical problems with the Pine Pasture #3 well and pending completion of lease negotiations.

Net loss attributable to equity holders of the Company for the year ended 30 June 2017 was $2,252,936 (2016:

$8,931,300). Basic loss per share was 0.2 cents (2016: 0.9 cents).

There have been no significant changes in the state of affairs of the consolidated entity to the date of this report, not otherwise disclosed in this report.