(RHEP.L) Rheochem PLC Buy/Sell

Rheochem +61 (8) 9410 8200

Haydn Gardner, CEO

Financial Dynamics +44 (0) 20 7269 7207

Billy Clegg / Edward Westropp / Alex Beagley

Astaire Securities Plc +44 (0) 20 7448 4400

Shane Gallwey

McCall, Aitken, MacKenzie +44 (0) 20 7763 6025

Andy Yeo / Huw Leyshon

This information is provided by RNS The company news service from the London Stock Exchange

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Enquiries:

Rheochem Plc +61 (8) 9410 8200

Haydn Gardner, CEO

Financial Dynamics +44 (0) 20 7269 7207

Billy Clegg / Edward Westropp / Alex Beagley

Astaire Securities Plc +44 (0) 20 7448 4400

Shane Gallwey

McCall, Aitken, McKenzie +44 (0) 20 7464 4062

Andy Yeo

This information is provided by RNS The company news service from the London Stock Exchange

CNTKGMGGKLFGLZM

Enquiries:

Rheochem Plc +61 (8) 9410 8200

Haydn Gardner, CEO
Financial Dynamics +44 (0) 20 7269 7207

Billy Clegg / Edward Westropp / Alex Beagley
Astaire Securities Plc +44 (0) 20 7448 4400

Shane Gallwey
McCall, Aitken, McKenzie +44 (0) 20 7464 4062

Andy Yeo

This information is provided by RNS The company news service from the London Stock Exchange

AGRUUGRAUUPBGQM

Enquiries:

Rheochem +61 (8) 9410 8200

Haydn Gardner, CEO

Financial Dynamics +44 (0) 20 7269 7207

Billy Clegg / Edward Westropp / Alex Beagley

Astaire Securities Plc +44 (0) 20 7448 4400

Shane Gallwey

McCall, Aitken, MacKenzie +44 (0) 20 7763 6025

Andy Yeo

Chief executive's overview

The 2008/2009 financial year has proved challenging to the oil industry on many fronts. The price of oil fell from previous record highs and many oil exploration companies reduced their drilling programmes and were required to write down the value of assets.

Oil and Gas Services

Rheochem's oil services division and Exploration and Production division have not been immune from world events. Nonetheless, the drilling fluids division has continued to perform well and recorded its highest full year earnings and profits to date. Revenue for this division was up from $24.6m to $34.3m a 39.2% rise on the previous year, with EBITDA up from $5.0m to $6.6m, a 32% rise on the previous year. This is a very encouraging result in what was otherwise a difficult economic climate.

The Group added several new customers during the year including Chevron, Woodside Offshore Petroleum, BHP Billiton, Arc Energy, Australian Worldwide Energy, Latent Petroleum and Eastern Star Gas. This demonstrates the inroads Rheochem is making with international oil companies and the increasing acceptance of Rheochem as a viable alternative to traditional major service companies.

During the year Rheochem commenced supply to Coal Bed Methane drilling operations for Eastern Star Gas and Santos. It is anticipated a significant amount of drilling will be required in this sector over many years to fulfil the gas production requirements needed to justify the several LNG projects proposed for Queensland and Rheochem is well placed to service this expanding market.

Internationally, sales to geothermal customers in New Zealand contributed very well to Group profitability and the Company is well positioned to take advantage of the growing interest in geothermal energy in the Australasian region.

Indian operations are now cash flow positive and we look forward to continued growth in India along with the positive impact on the fluid division's profits derived from the sourcing of lower cost products.

The Company received all of the necessary Licences to operate in Indonesia and we have commenced marketing to geothermal and oil and gas companies in this region.

Oil and Gas Trading and Venture Capital Investments

The Exploration and Production division has had a very disappointing year with an operating loss of $55.5m ($46.8m attributable to the Group) (2008: operating profit of $3.6m). The Directors have undertaken a strategic review of its assets following the default in the repayment of a loan by Pacific International Management on the 13th March 2009 which triggered an effective control provision for accounting purposes over the shares in Zeus Petroleum. The required change in the accounting treatment of Zeus, the main asset, from a venture capital investment to a subsidiary with a 50% minority, and the subsequent write down in its asset value has caused a substantial reduction to the Group's balance sheet position. Going forwards this will give greater visibility to the true earnings of the services business as any profit or loss on revaluation of E&P assets will no longer impact the revenue stated in the income statement. Management believe the accounting treatment is now more comparable to its peers. The treatment as a subsidiary also reduces the exposure to large variations in valuation due to forex movements and oil price variation.

The main outcomes of the review are:

Zeus Petroleum has been contacted by Senergy Limited, a UK based drilling company, claiming US$11.9m and £0.472m (approximately A$15.6m) in respect of contracted works not carried out in accordance with the terms of an alleged contract with Zeus. Since initial contact was made by Senergy, informing Zeus of Senergy's claimed position, a series of legal letters have gone between the parties but no clear picture has emerged and the claim has not been escalated to the courts at this time.

While the management of Zeus believe the claim to be baseless, it does give rise to a contingent liability in the Zeus annual accounts and now Zeus is a 50% owned subsidiary this triggers a contingent liability in the group accounts as at 30 June 2009.

Whilst a contingent liability in a subsidiary is deemed to be a contingent liability for group accounting purposes, there is no legal liability attributable to Lochard Energy or Rheochem PLC.

Outlook

Oil and Gas Services

We have again seen the services divisions produce its highest annual revenues and profits in the division's history. We have continued to renew existing contracts and increase our client base including large clients such as Woodside, BHP Billiton and Chevron. Our Indian subsidiary has now become profitable and we have begun exporting chemicals out of India which should improve the profitability of our other subsidiaries.

For the coming year the company focus will be on expanding the oil services business in Australia and internationally and also target geothermal and coal bed methane markets where Rheochem has proven its technological achievements.

Oil and Gas Trading and Venture Capital Investments

In the United Kingdom, Zeus will actively seek farm in partners to drill on exploration licence P1293 (block 14/11) due to expire at the end of 2009. Zeus is also seeking a farm in partner for Licence P1611 (block 14/26b) where it seeks to retain a working interest without further exploration or appraisal expenditure.

Zeus will continue to work with its partners in the Athena field to determine the timing of development sanction subject to an acceptable oil price.

US based Lochard Energy will test its Bearcat gas well to determine if the flow rates are commercial and investigate further development of this field. A final test of radial drilling technology and/or chemical treatments will be conducted on the Blackwell lease as we believe this technology still has merit.

OILFIELD SERVICES

Australia

Rheochem's wholly owned Australian subsidiary, Rheochem Limited, continued to be a major supplier of drilling fluid chemicals and services for onshore and offshore oil and gas drilling campaigns. Rheochem's largest customer is Santos, which is the second largest oil and gas producer in Australia and is listed on the Australian Securities Exchange.

During the period, Rheochem renewed its offshore drilling fluid services contract with Santos until December 2009 and has a separate contract for onshore services which is current until June 2011.

Revenue from this subsidiary was 75.9% of group trading revenue.

New Zealand

In December 2004 Rheochem's wholly owned New Zealand subsidiary, Rheochem Pacific Limited, was awarded its first contract with Mighty River Power to supply drilling fluids and engineering services and this commenced in April 2005. In March 2005, a second contract with Contact Energy Limited was awarded which also commenced in April 2005 and was extended for a further 5 wells in July 2009.

The contract with Mighty River Power was extended in December 2008 and Rheochem Pacific Limited will continue to bid on tenders to supply drilling fluids and engineering services to geothermal, and oil and gas projects in New Zealand.

Revenue for this subsidiary was 14.9% of group trading revenue.

India

Rheochem India Private Limited ("RIPL") was incorporated on 10 May 2005. This entity is jointly owned by Rheochem Plc (70%) and Prabhu Marketing Services ("PMS") (30%) and is accounted for as a subsidiary on consolidation. PMS is the agent in India for Weatherford Completion Products and is actively involved in the oil and gas industry.

RIPL has progressed well and has two existing contracts for the supply of drilling fluids and related engineering services. RIPL will continue marketing into the Indian oil industry in order to grow the business. So far to date, 15 local staff have been employed and training of drilling fluid engineers within India has begun. A drilling fluids laboratory has been established in Mumbai.

RIPL has been deemed technically competent to supply drilling fluids and engineering services by several oil companies operating in India. This builds on our philosophy of having local partners who can facilitate easier entry into the country of operation.

The Directors believe the Indian venture has large growth potential for Rheochem, due to the Indian drilling activity of 131 operating rigs including 44 offshore as at 30 June 2009.

In addition, we believe the country has excellent export potential for oilfield products, which can be manufactured cost effectively in India.

Revenue for this subsidiary was 9.2 % of group trading revenue.

Indonesia

The Company established an 80% owned subsidiary in Indonesia in 2008. Rheochem's Indonesian company is marketing drilling fluids, chemicals and related engineering services to the oil and gas exploration and geothermal industries. The Company is 80% owned by Rheochem Plc and 20% owned by PT Bunga Mas Nusantara (BMN). BMN's associated companies have significant operations in the oil and gas, mining and maritime industries in Indonesia, and are well positioned to support Rheochem's entry into the region. As with India, Indonesia presents several opportunities to export oilfield chemicals to the rest of the world.

No revenues have been established to date.

OIL & GAS ASSETS

STRATEGIC REVIEW

At year end Rheochem performed a strategic review of its Oil and Gas assets trading and venture capital investments associated with Zeus.

The Oil and Gas assets division has had a major change in the way assets are held on the balance sheet.

The default in the repayment of a loan by Pacific International Management on the 13th March 2009 triggered an effective control provision for accounting purposes over the shares in Zeus Petroleum. This changed the holding in Zeus from a venture capital investment to a subsidiary purchase accounting approach. This investment was originally accounted for as a venture capital investment and the Company was required to assign a fair market value for this asset at each reporting period. This inadvertently led to large fluctuations in fair value due to extremely volatile oil prices and foreign exchange rates over the past 2 years.

The write down in its asset value combined with the required change in the accounting treatment of Zeus has caused a substantial reduction to the Company's balance sheet. This will also give greater visibility to the true earnings of the services business as any profit or loss on revaluation of E&P assets will no longer impact the revenue stated in the income statement. This also clarifies the underlying value of assets held within the E&P division. The treatment as a subsidiary also reduces the large variations in valuation due to forex movements and oil price variation.

Zeus will exit its exploration acreage in a timely manner to achieve the best economic outcome. Five North Sea blocks will be relinquished, subject to regulatory approval, and the Company does not currently intend to add new exploration acreage.

The Company will retain its interest in Zeus and negotiate the settlement of all third party loans with a preferred outcome to assume 100% of Zeus with no cash outlay.

Zeus will retain its interest in the North Sea in the Athena discovery in the short term. Farm In partners will be sought for block 14/11 and block 14/26b on terms not requiring exploration expenditure by Zeus and ENVOI have been engaged to find and conclude a deal with suitable partners. ENVOI will also determine the level of interest in the Athena discovery should the company decide to put it up for sale at a later date.

Lochard Energy Inc do not currently intend to acquire any further exploration acreage and will review exit options for the Schuster flats acreage.

OIL & GAS ASSETS

United Kingdom - Zeus

As at June 30 2009 Zeus has a 100% interest in 5 blocks and a 10% interest in 2 part blocks in the Outer Moray Firth area of the North Sea. One of these 10% blocks (14/18b) contains the "Athena" oil discovery which has three development wells drilled but is currently suspended waiting on oil price recovery to justify further developing the project.

In addition Zeus was awarded a 90% interest in part block 14/26b on 17 April 2009 as part of the 25th Licensing round. This block contains the Thunderball discovery which was tested at 34mmscf per day in 1997. No value has yet been attributed to this block apart from historical costs of £6,000.

Zeus Licence interests as at 30 June 2009

Licence Blocks Zeus Interest %
P 1393* 12/15, 13/11,13/12, 13/13 100

P 1293 14/18b ( Athena) 10
P 1401** 13/16b 10
P 1611 14/26b 90

LICENCE P1293 (Block 14/18b) Athena, Zeus 10%

A Competent Persons Report by Sproule International issued to Ithaca Energy assigned 2P recoverable reserves of 29.67 million barrels and 3P recoverable reserves of 43.88 million barrels of oil to the Athena discovery which equates to 2.97 million barrels and 4.39 million barrels respectively to Zeus.

Since this report was published a further two wells have been drilled on the block. Well 14/18-17 was drilled as a deviated well from the main core prospect area to evaluate a possible southern extension to the known oil pool. The leek sands were oil bearing at this location but the well was abandoned due to technical difficulties.

On 21 July 2008, Ithaca announced it had successfully tested 28 degree API sweet oil at a stable rate of 2,330 bopd from its third well (14/18b-18). The well has been completed for future production. Based on this and the success of the earlier 14/18b-15 and 14/18b-16 wells, Ithaca submitted its Field Development Plan application and Environmental Impact assessment statement with the United Kingdom's DECC. Final approval will require an updated development plan once the project has been sanctioned for development.

The development plan calls for 4 or 5 development wells of which three are already drilled.

A development start date has not been established due to the current low oil price.

Athena (Block 14/18b) Reserves

Reserve Category Athena Reserves Athena Reserves
(Gross 100%) (Net to Zeus)
MMstb MMstb
Proved + Probable (2P) 29.67 2.97
Proved + Probable + Possible (3P) 43.88 4.39

LICENCE P1289 (Block 14/11) Zeus 100%

Zeus shot its first long offset 2D seismic survey over its 100% owned block 14/11 in April 2007. Previous seismic results identified a lead on this block which looks very similar to the Athena discovery and could contain unrisked prospective resources of 55 million barrels of oil on a best estimate basis.

After processing of the latest seismic data, a new report was published by RPS Energy which gave unrisked recoverable prospective resources of 93 million barrels of oil on a best estimate basis and 392 million barrels on a high estimate. Zeus is currently looking for farm in partners to drill a well on block 14/11 in 2009 and has conducted a site survey in preparation for drilling.

This licence will expire at the end of December 2009 unless a well is drilled or an extension has been granted. Given the short time frame available to find a farm in partner on suitable terms Rheochem has written down the carrying value of the block to nil.

Zeus Prospective resources Block 14/11 UK North Sea

Block 14/11 Prospective STOIIP (mmbbls) UK North Sea
Prospect Low Best High
Estimate Estimate Estimate
Metis 90 356 1400

Block 14/11 Recoverable Prospective Resources (mmbbls) UK North Sea
Prospect Low Best High
Estimate Estimate Estimate
Metis 20 93 392

LICENCE P1393 (Blocks 12/15, 13/11, 13/12and 13/13) Zeus 100%

This licence covers 4 North Sea blocks. Although a previous report by RPS Energy assigned unrisked mid case prospective resources of 200 million barrels over 4 leads on these blocks, it was felt further seismic was warranted to reduce the drilling risk and increase the potential of attracting a farm in partner on acceptable terms. Zeus shot approximately 1,900 km of 2D seismic which was processed as a synthetic 3D Geocube of approximately 350km2. "The results of the interpretation of this high resolution dataset have confirmed many speculative leads identified on the previous 2D data are not supported. Consequently, there are no remaining prospects of the requisite size, trap competence or risk."

Zeus will relinquish this licence subject to regulatory approval and a relinquishment report is currently being written for submission to DECC. Consequently the carrying value of this acreage has been written down to nil.

LICENCE P1611 (Block 14/26b) Zeus 90%

This licence covers North Sea part block 14/26b which contains the Thunderball discovery well 14/26b-5 which was drilled in 1997. This well is situated approximately six kilometres north east of the Atlantic gas field operated by BG.

The well flowed 34mmscfd from the Burns Sandstone Member. Despite the high flow rate the well was abandoned as it was believed estimated reserves may not have been commercial.

A review of the seismic has indicated this well was drilled on the edge of a stratigraphic trap and therefore may be significantly larger than previously interpreted. This block is carried on the accounts for a historical cost of £6,000.

LICENCE P1401 (Block 13/16b) Zeus 10%

The partners in this block agreed to relinquish the Licence due to the size of the targets and associated geological risk. The value of this block was written to nil in the half year accounts and no further impairment has been booked. Notification of determination of the block was received on 3 August 2009.

Zeus Petroleum have been contacted by Senergy Limited, a UK based drilling company, claiming US$11.9m and £472,000 in respect of contracted works not carried out in accordance with the terms of their alleged contract with Zeus.

Since initial contact was made in October 2008 by Senergy, informing Zeus of Senergy's claimed position, a series of legal letters have gone between the parties but no clear picture has emerged and the claim has not been escalated to the courts at this time.

While the management of Zeus believe the claim to be baseless, it does give rise to a contingent liability in the Zeus annual accounts and now that Zeus is a 50% owned subsidiary this triggers a contingent liability in the group accounts as at 30 June 2009.

Whilst a contingent liability in a subsidiary is deemed to be a contingent liability for group accounting purposes, there is no legal liability attributable to Lochard Energy or Rheochem PLC.

America

Schuster Flats

On the 23 September 2008, Lochard signed an agreement to acquire an 18.75% working interest in natural gas and oil leases in the Schuster Flats prospect from First City Oil and Gas for a consideration of US$557,215 in cash. This prospect is located in the central portion of the Big Horn Basin in the state of Wyoming, USA.

Lochard paid 25% of drilling costs on the first well whilst First City Oil and Gas retained a 6.25% working interest. Exco Resources Inc. ("Exco") retained its 75% working interest.

The acquisition includes an 18.75% interest in approximately 34,300 acres of leasehold interests in Schuster Flats and a 12 month option to acquire an 18.75% interest in approximately 4,586 acres of leasehold interests in the Chabot prospect. Chabot is an oil and gas prospect located in the south eastern portion of the Big Horn Basin and the option is on similar pro-rata terms.

The Schuster Flats prospect is a shallow gas play targeting the Upper-Lance sands. If successful, this trap is large enough to accommodate 240 development wells and has a recoverable resource potential of 500 BCFE.

Exco is a New York Stock Exchange listed company based in Dallas, Texas. Exco holds a 75% working interest in the leases and acts as the operator for the field. The first test well, Sundance ¿2-22, was drilled to a target depth of 8,200 feet and was unsuccessful.

Based upon last year's fall in oil and gas prices the Company wrote down the value of the acreage to A$234,393 at the half year with no further impairment at year end. No further drilling is budgeted for the 2010 financial year.

Blackwell Project

Rheochem, through its 100% owned subsidiary Lochard Energy USA Inc. ("Lochard") has a 65% working interest (48.75% revenue interest) in 22 wells on the Blackwell lease in Caldwell County Texas, USA.

At the half year report the Company wrote off the value of this investment completely however it still expects to work with the drilling contractors to prove up the technology. Future expenditure for 2010 is expected to be minimal .The Company has taken up a liability of US$ 120,000 for the costs associated with potential plugging of the remaining wells. Currently these wells are not required to be plugged as they are held under a production licence. This field is currently producing approximately 50 barrels of oil per month from 2 wells.

Bearcat Prospect

In December 2008, the Company bought a 13.75% working interest (10.31% net revenue interest) in 960 acres of natural gas and oil leases, in a portion of the Bearcat field from First City Oil and Gas for US$145,506 in cash. This sum includes Lochard's share of completion costs for the first well.

The Bearcat field is located in Park County at the north end of the Big Horn Basin in the state of Wyoming, USA. Well Two Dot ¿12-42 was drilled in early December 2008 and logs indicated multiple gas zones including a significant gas show in the targeted Frontier formation. .

The well was tested through a tie back to nearby existing production infrastructure but flowed a mixture of oil and gas at sub economic rates. Given this well is in a known producing field it was decided to perform a larger fracture stimulation job in an endeavour to increase production. This was completed in mid August but has not yet been production tested. This extra testing cost was allowed for in the initial purchase consideration.

It is estimated up to 6 additional wells can be drilled on the acquired acreage. Estimated resource potential is 2 BCF per well. The Company does not intend to participate in more wells in this field until commercial flow rates can be proven from the Two Dot ¿12-42 well.

The Bearcat field has produced hydrocarbons since 1955. Qualmay Development acquired the field in 2002 and currently operates 3 oil wells and 4 gas wells in this field.

Haydn Gardner

Chief Executive

29 September 2009

KPMG Audit Plc

8 Salisbury Square London

EC4Y 8BB

United Kingdom

Independent auditors' report to the members of Rheochem PLC

We have audited the financial statements of Rheochem Plc for the year ended 30 June 2009 set out on pages 34 to 88. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

This report is made solely to the company's members, as a body, in accordance with sections 495 and 496 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members, as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

As explained more fully in the Directors' Responsibilities Statement set out on page 32 the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the APB's web-site at www.frc.org.uk/apb/scope/UKNP

Opinion on financial statements

In our opinion:

Independent auditors' report to the members of Rheochem PLC (continued)

Emphasis of matter: contingent liability and recoverability of non interest bearing loans and other receivables

In forming our opinion on the financial statements, which is not qualified, we have considered the adequacy of the following disclosures. in the financial statements concerning the outcome of the following matters as et out below:

Opinion on other matter prescribed by the Companies Act 2006

In our opinion the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

Adrian John Wilcox

Senior Statutory Auditor for and on behalf of KPMG Audit Plc, Statutory Auditor Chartered Accountants 8 Salisbury Square

London

EC4Y 8BB

Consolidated income statement

for the year ended 30 June 2009

Note 2009 2008
A$ 000's A$ 000's

Continuing operations
Revenue on trading operations 34,178 23,785
(Loss)/profit on revaluation of (24,054) 6,595

venture capital
Revenue 2 10,124 30,380
Cost of sale on trading operations (22,797) (13,346)

Foreign exchange gain/(loss) on
venture capital investments 4,924 (2,479)
Impairment loss oil & gas assets (30,021) -

Cost of sales (47,894) (15,825)

Gross (loss)/profit (37,770) 14,555

Other income 16 7

Administrative expense - Impairment (5,335) -

of goodwill
Administrative expenses - other (9,742) (9,614)
Administrative expenses (15,077) (9,614)

Operating (loss)/profit (52,831) 4,948

Finance income 8,501 1,332
Finance expense (2,132) (417)

(Loss)/profit before tax (46,462) 5,863
Income tax credit/(expense) 4,170 (1,927)

(Loss)/profit for the financial year (42,292) 3,936

Attributable to:
Equity holders of the parent (33,439) 3,894
Minority interests (8,853) 42

(Loss)/profit for the financial year (42,292) 3,936

Earnings per share
Basic (loss )/earnings per share 3 (15.4) 2.2

(cents per share)
Diluted (loss)/earnings per share 3 (15.4) 2.2

(cents per share)

Statement of changes in equity

for the year ended 30 June 2009

Share
Share based
premium payment
Issued account reserve Convertible Asset revaluation Translation Retained Minority
capital loan notes reserve earnings interests
Total
Group A$ 000's A$ 000's A$ 000's A$ 000's A$ 000's A$ 000's A$ 000's A$ 000's A$ 000's
1 July 2007 14,680 11,690 - 96 - 25 6,816 (17) 33,290
Shares issued 11,759 23,337 - (96) - - - 154 35,154
Share issue costs - (2,992) - - - - - - (2,992)
Options granted - - - - - - 191 - 191
Share based payments - - 411 - - - - - 411
Retained profit for - - - - - - 3,894 42 3,936

the year Translation adjustment for the
year - - - - - (499) - - (499)

30 June 2008 26,439 32,035 411 - - (474) 10,901 179 69,491
Shares issued - - - - - - - 108 108
Stepped acquisition - - - - (2,047) - 7,382 3,570 8,905

(see note 11)
Options granted - - 60 - - - - - 60
Share based payments - - 186 - - - - - 186
Retained profit for - - - - - - (33,439) (8,853) (42,292)

the year
Translation adjustment for the - - - - - (851) - - (851)

year
30 June 2009 26,439 32,035 657 - (2,047) (1,325) (15,156) (4,996) 35,607

Statement of changes in equity

for the year ended 30 June 2009

Share
Share based
premium payment
Issued account reserve Convertible Retained
capital loan notes earnings
Total
Company A$ 000's A$ 000's A$ 000's A$ 000's A$ 000's A$ 000's
1 July 2007 14,680 11,690 - 96 681 27,147
Shares issued 11,759 23,337 - (96) - 35,000
Share issue costs - (2,992) - - - (2,992)
Options granted - - - - 191 191
Share based payments - - 411 - - 411
Retained profit for the year - - - - 95 95

30 June 2008 26,439 32,035 411 - 967 59,852
Options granted - - 60 - - 60
Share based payments - - 186 - 186
Retained profit for the year - - - - (24,701) (24,701)

30 June 2009 26,439 32,035 657 - (23,734) 35,397

Consolidated balance sheet

at 30 June 2009
Note 2009 2008
A$ 000's A$ 000's A$ 000's A$ 000's

Current assets
Cash and cash equivalents 9,779 15,009
Trade and other receivables 7,878 4,920
Inventories 7,523 10,487
Investments 4 - 27,624
Other financial assets-rental 11 59

bonds
Non-interest bearing loans 109 6,759
Interest bearing loans 9,025 1,740
Current tax assets 108 -
Prepayments 264 515

Total current assets 34,697 67,113

Non-current assets
Property, plant and equipment 9,264 10,366
Oil and gas intangible assets 26,273 1,665
Deferred tax assets 564 1,221
Prepayments 41 52
Other intangible assets and 3,003 3,072

goodwill
Total non-current assets 39,145 16,376

Total assets 73,842 83,489

Liabilities Current liabilities
Trade and other payables 5,890 4,931
Interest-bearing loans and 9,787 4,707

borrowings
Non-interest-bearing loans and 19,029 -

borrowings
Income tax payable 459 187
Employee benefits 388 338
Provisions 148 -

Total current liabilities 35,701 10,163

Non-current liabilities
Interest-bearing loans and 1,653 266

borrowings
Employee benefits 297 174
Provisions 155 144
Deferred tax liabilities 429 3,251

Total Non-current liabilities 2,534 3,835

Total liabilities 38,235 13,998

Net assets 35,607 69,491

Equity Equity attributable to equity holders of the parent
Issued capital 26,439 26,439
Share premium 32,035 32,035
Other reserves (2,715) (63)
Retained earnings (15,156) 10,901

40,603 69,312
Minority interests (4,996) 179

Total equity 35,607 69,491

Company balance sheet

at 30 June 2009

Note 2009 2008
A$ 000's A$ 000's A$ 000's A$ 000's

Current assets
Cash and cash equivalents 232 15,198
Trade and other receivables 1,437 56
Other financial assets-rental - 28

bonds
Interest bearing loans 25,405 36,183
Non-interest bearing loans 109 -
Current tax asset 51 -
Prepayments 56 72

Total current assets 27,290 51,537

Non-current assets
Investments 4 8,901 8,466
Prepayments 37 48
Deferred tax assets 290 278

Total non-current assets 9,228 8,792

Total assets 36,518 60,329

Liabilities Current liabilities
Trade and other payables 240 138
Employee benefits 159 171

Total current liabilities 399 309

Non-current liabilities
Employee benefits 291 168
Deferred tax liabilities 431 -

Total Non-current liabilities 722 168

Total liabilities 1,121 477

Net assets 35,397 59,852

Equity
Issued capital 26,439 26,439
Share premium 32,035 32,035
Other reserves 657 411
Retained earnings (23,734) 967

Total equity 35,397 59,852

Consolidated cash flow statement

for the year ended 30 June 2009
Note 2009 2008
A$ 000's A$ 000's A$ 000's A$ 000's
(Loss)/Profit for the (42,292) 3,936

financial year Adjustments for:
Depreciation of non-current 915 827

assets
Impairment of non-current 523 -

assets Amortisation of development
abandonment costs 69 118
Net unrealised foreign (5,259) 3,120

exchange (gains)/losses
Impairment of goodwill 5,335 -
Impairment of oil & gas assets 30,021 -
Foreign exchange gain on (4,924) -

venture capital investment
Revaluation of investment 4 24,054 (6,596)
Employee share option costs 246 191
Net finance income (1,110) (915)
Income tax (credit)/expense (4,170) 1,927

3,408 2,608

Changes in assets and liabilities:
(Increase)/decrease in (2,752) 1,074

receivables
Decrease/ (increase)/in 2,964 (4,379)

inventory
Decrease in other financial 47 -

assets-rental bonds
Decrease/(increase) in 262 (312)

prepayments
Increase/(decrease) in 985 (3,935)

payables
Increase in provisions 159 193
Decrease in current tax - (432)

liability
1,665 (7,791)
Interest paid (785) (417)
Income tax paid (545) (471)

Net cash flows from/(used in)
operating 3,743 (6,071)

activities

Cash flows from investing activities
Interest received 596 1,026
Acquisition of subsidiary net 85 -

of cash acquired
Development expenditure (3,918) -
Provision of loans to third (7,450) (1,715)

parties
Loan to joint venture company (5,216) (5,453)
Purchase of property, plant (189) (1,298)

and equipment
Purchase of investment - (9,433)

Net cash flows used in (16,092) (16,873)

investment activities Cash flow from financing activities
Proceeds from issue of share - 32,449

capital Proceeds from issue of shares
minority - 154

Interest
Proceeds from borrowings 10,000 1,639
Repayment of borrowings (3,300) (790)
Payment of finance lease (232) (267)

liabilities Net cash flows from financing
Activities 6,468 33,185
Net (decrease)/increase in (5,881) 10,241

cash and cash Equivalents Cash and cash equivalents at
beginning of 15,009 4,768

the year
Effect of exchange rate 651 -

fluctuations on cash held
Cash and cash equivalents at 9,779 15,009

end of year

Company cash flow statement

for the year ended 30 June 2009

Note 2009 2008
A$ 000's A$ 000's A$ 000's A$ 000's
(Loss)/Profit for the financial (24,701) 95

year Adjustments for:
Net unrealised foreign exchange (440) 111

(gains)/losses
Share option costs 246 162
Impairment of loan to 26,101 -

subsidiary company
Management fees (615) -
Net finance income (3,682) (2,801)
Income tax expense/(gains) 368 (99)

(2,723) (2,532)

Changes in assets and liabilities:
Decrease in receivables 31 -
Decrease in other financial 33 18

assets
Decrease/(increases) in 25 (70)

prepayments
Increase/(decrease) in payables 78 (146)
Decrease in current tax - (84)

liability
Increase in provisions 111 312

Interest paid (17) (3)
Income tax received - 51

Net cash flows used in (2,462) (2,454)

operating Activities

Cash flows from investing activities
Interest received 218 1,013
Provision of loan to (5,573) (1,715)

subsidiaries
Provision of loans to third (7,559) (17,108)

parties
Purchase of investment (435) (302)

Net cash flows used in (13,349) (18,112)

investment activities

Cash flow from financing activities
Proceeds from issue of share - 32,449

capital
Net cash flows from financing - 32,449

activities
Net (decrease)/increase in cash (15,811) 11,883

and cash equivalents

Cash and cash equivalents at
beginning of 15,198 3,315
the year
Effect of exchange rate 845 -

fluctuations on cash held
Cash and cash equivalents at 232 15,198

end of year
Notes

(forming part of the financial statements)

Authorisation of financial statements and statement of compliance with IFRS

The Group's and Company's financial statements for the year ended 30 June 2009 were authorised for issue by the Board of Directors on 29 September 2009 and the balance sheets were signed on the Board's behalf by H Gardner. Rheochem Plc is a public limited company incorporated in England and Wales. The Company's ordinary shares are traded on the Alternative Investment Market (AIM) of the London Stock Exchange and the Australian Securities Exchange (ASX).

The principal accounting policies adopted by the Group and Company are set out in note 1.

1. Accounting policies

Basis of preparation

The group financial statements comprise the Company and its subsidiaries (together referred to as the "Group") and the Group's interest in investments. The parent company financial statements present information about the Company as a separate entity and not about its group.

The Group financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the EU ('Adopted IFRSs'). The parent company financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the EU ('Adopted IFRSs') as applied in accordance with the provisions of the Companies Act 2006.

On publishing the parent company financial statements here together with the group financial statements, the Company is taking advantage of the exemption in s408 of the Companies Act 2006 not to present its individual income statement and related notes which form a part of these approved financial statements.

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements

Going Concern

The financial statements have been prepared on a going concern basis, not withstanding net consolidated current liabilities of A$1m as at 30 June 2009 which the directors believe to be appropriate for the following reasons.

The Group has total net assets of A$35.6million.

Management have prepared cash flow forecasts for the trading oil services business, for the following 12 months and have satisfied themselves the Group will be able to meet its external liabilities as they fall due.

The minority shareholder in Zeus Petroleum Limited (a subsidiary company) has provided it with non interest bearing loans totalling A$19m which are payable on demand (see note 19). Management have been given an indication from the minority shareholder that these loans will not be called until funds have been secured to enable the subsidiary to meet its liabilities as they fall due.

As disclosed in Note 25 a contingent liability of $A15,616,000 has been disclosed but no adjustment has been made in respect of this. The directors believe no outflow is probable.

On these bases the directors believe it is appropriate to prepare the financial statements on a going concern basis.

Adoption of IFRSs in issue but not yet effective

Certain new standards, interpretations and amendments to existing standards have been published and are mandatory for the Group's accounting periods beginning on 1 July 2009 or later periods but which the Group has not adopted early. Those that may be applicable to the Group are as follows:

International Accounting Standards (IAS / IFRSs)

IFRS 1 First time Adoption of International Financial Reporting Standards and Consolidated and Separate Financial Statements

IFRS 2 Amendment to IFRS 2 - Vesting Conditions and Cancellations

IFRS 3 Business Combinations revised

IFRS 8 Operating Segments

IAS 1 Presentation of Financial Statements revised

IAS 23 Borrowing Costs revised

IAS 27 Consolidated and Separate Financial Statements revised

IAS 32 Financial Instruments: Disclosure and Presentation and IAS 1 Presentation of Financial Statement

Improvements to IFRSs

IAS 39 Financial Instruments: Recognition and Measurement

International Financial Reporting Interpretations Committee (IFRIC)

IFRIC 13 Customer Loyalty Programmes

IFRIC 15 Agreements for the construction of real estate

IFRIC 16 Hedges of a net investment in a foreign operation

The impact on the Group's financial statements of the future standards, amendments and interpretations is still under review, but the Group does not currently expect any of these changes to have a material impact on the results or the net assets of the Company or the Group.

Measurement convention

The financial statements are prepared on the historical cost basis except the following assets and liabilities which are stated at their fair value:

These consolidated financial statements are presented in Australian Dollars (A$), which is the Company's functional currency. All financial information presented in A$ has been rounded to the nearest thousand.

Basis of consolidation

Subsidiaries

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 30 June each year. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

On acquisition, the assets and liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired (i.e. discount on acquisition) is credited to profit and loss in the period of acquisition. The interest of minority shareholders is stated at the minority's proportion of the fair values of the assets and liabilities recognised.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the date control commences until the date that control ceases.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Foreign currency

Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated at foreign exchange rates ruling at the dates the fair value was determined.

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to the Group's reporting currency at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated at an average rate for the period where this rate approximates to the foreign exchange rates ruling at the dates of the transactions.

Exchange differences arising from this translation of foreign operations, and of related qualifying hedges are taken directly to the translation reserve. They are released into the income statement upon disposal.

The Group has taken advantage of the relief available in IFRS 1 to deem the cumulative translation differences for all foreign operations to be zero at the date of transition to Adopted IFRSs (1 July 2005).

Significant accounting judgments, estimates and assumptions

In applying the Group's accounting policies management continually evaluates judgements, estimates and assumptions based on experience and other factors, including expectations of future events may have an impact on the Group. All judgments, estimates and assumptions made are believed to be reasonable based on the most current set of circumstances available to management. Actual results may differ from the judgements, estimates and assumptions. Significant judgments, estimates and assumptions made by management in the preparation of these financial statements are outlined below:

Significant accounting estimates

Recovery of deferred tax assets

Deferred tax assets are recognised for deductible temporary differences as management considers that it is probable future taxable profits will be available to utilise these temporary differences.

Significant accounting judgments, estimates and assumptions (continued)

Contingent liabilities

Note 25 discloses the contingent liabilities of the Group and Company.

Carrying value of certain assets and liabilities

The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting period are:

Venture capital investments

Classification

Management separately consider each investment in determining the accounting treatment with reference to accounting standards and interpretations. Management have identified Lochard Energy Ltd as a separate division of Rheochem Plc whose principal aim is to derive capital through the holding of investments.

Management have reviewed each investment on an individual basis and have deemed that it is now appropriate to account for Zeus Petroleum Ltd as a subsidiary with a significant minority since 13 March 2009 when it gained control of the company. This was a result of the default in the repayment of a loan by Pacific Management International Inc which triggered effective control for accounting purposes over the shares in Zeus Petroleum Limited. This is a change in presentation from 2008.

Valuation

Venture capital investments are reported at the Directors estimate of fair value at the reporting date. Fair value represents the amount for which an asset could be exchanged between a knowledgeable, willing party in an arms length transaction.

Given the uncertainties inherent in estimating fair value, a degree of caution is applied in exercising judgements and making the necessary estimates.

Oil and gas assets

Exploration and evaluation costs are initially classified and held as intangible fixed assets rather than being expensed. The carrying value of intangible exploration and evaluation assets are then determined. Management considers these assets for impairment at least annually based on an estimation of the recoverability of the cost pool from future revenues of the related oil and gas reserves. The carrying of value of the North Sea assets included within note 12 is A$25.894m at 30 June 2009. If that asset were to be fully impaired the impact of this on the Group financial statements would be significant.

Critical accounting estimates and assumptions

The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions affecting the application of policies and reported amounts of assets, liabilities, income, expenses and related disclosures. The estimates and underlying assumptions are based on practical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making the judgments about carrying values of assets and liabilities not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Changes in accounting estimates may be necessary, if there are changes in the circumstances on which the estimate was based or as a result of new information. Such changes are recognised in the period in which the estimate is revised.

Significant accounting judgments, estimates and assumptions (continued)

Critical judgements in applying the Group's accounting policies

The application of the Group's accounting policies may require management to make judgements, apart from those involving estimates, which can have a significant effect on the amounts recognised in the financial statements. Management judgement is particularly required when assessing the substance of transactions which have a complicated structure or legal form.

Impairment of goodwill and intangibles with indefinite useful lives

The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the recoverable amount of the cash-generating units to which the goodwill and intangibles with indefinite useful lives are allocated.

Allowance for impairment loss on trade receivables and other receivables

Where receivables are outstanding beyond normal trading terms, the likelihood of the recovery of these receivables is assessed by management.

As at 30 June 2009 the Company was owed A$10,462 m from Pacific International Management Inc. The amount became due on 13 March 2009 and the directors are currently in negotiations regarding final settlement. (see note 2).

Estimate of useful lives of assets

The estimation of the useful lives of assets has been based on historical experience. In addition, the condition of the assets is assessed at least once a year and considered against the remaining useful life. Adjustments to useful life are made when considered necessary.

Revenue recognition

Revenue is recognised to the extent it is probable the economic benefits will flow to the entity and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:

(i) Sale of goods

Revenue on the sale of drilling fluids is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Risks and rewards of ownership are considered passed to the buyer at the time of delivery of the goods to the customer.

(ii) Rendering of engineering services

Contract revenue is recognised by reference to the stage of completion of a contract. Stage of completion is measured by reference to the labour hours incurred to date as a percentage of total estimated labour hours for each contract. When contract revenue cannot be estimated reliably, revenue is recognised only to the extent of the expenses recognised that are recoverable.

(iii) Oil and gas revenue

Oil and gas sales revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for the Group's share of oil and gas supplied in the period.

Oil and Gas Exploration Assets

The Group follows the "successful efforts" method of accounting for exploration and evaluation costs. All licence/project acquisitions, exploration and appraisal costs incurred or acquired on the acquisition of subsidiary, are accumulated in respect of each identifiable project area. Rheochem defines a 'successful exploration well' as a well which discovers probable commercial reserves and where development may go ahead in the near term These costs, which are classified as intangible fixed assets are only carried forward to the extent they are expected to be recouped through the successful development of the area or where activities in the area have not yet reached a stage which permits reasonable assessment of the existence of economically recoverable reserves.

Pre-licence/project costs are written off immediately. Other costs are also written off unless commercial reserves have been established or the determination process has not been completed. Thus accumulated cost in relation to an abandoned area are written off in full against profit in the year in which the decision to abandon the area is made.

When production commences the accumulated costs for the relevant area of interest are transferred from intangible fixed assets to tangible fixed assets as 'Developed oil and gas assets'.

Impairment

Exploration/appraisal assets are reviewed regularly for indicators of impairment following the guidance in IFRS 6 'Exploration for and Evaluation of Mineral Resources' and tested for impairment where such indicators exist. Any impairment arising is recognised in the Income Statement for the year.

Impairment reviews on development/producing assets are carried out on each cash-generating unit identified in accordance with IAS 36 'Impairment of Assets'. Rheochem's cash generating units are those assets which generate largely independent cash flows and are normally, but not always, single development areas.

At each reporting date where there are indicators of impairment, the net book value of the cash generating unit is compared with the measurable recoverable amount. If the net book value is higher, then the difference is written off to the Income Statement as impairment. Forecast production profiles are determined on an asset-by-asset basis using appropriate petroleum engineering techniques.

Where there has been a charge for impairment in an earlier period, that charge will be reversed in a later period where there has been a change in circumstances to the extent that the discounted future net cash flows are higher than the net book value at the time. In reversing impairment losses, the carrying amount of the asset will be increased to the lower of its original carrying value or the carrying value that would have been determined (net of depletion) had no impairment loss been recognised in prior periods.

Depletion of developed oil and gas assets

Costs carried in each well are depreciated on a unit of production basis using the ratio of oil and gas production in the period to the estimated quantity of commercial reserves at the end of the period plus production in the period. Costs in the unit of production calculation include the net book value of capitalised costs plus estimated future development costs. Changes in estimates of commercial reserves or future development costs are dealt with prospectively.

Decommissioning costs

Where a material liability for the removal of production facilities and site restoration at the end of the field life exists, a provision for decommissioning is recognised. The amount recognised is the net present value of estimated future expenditure determined in accordance with local conditions and requirements. An asset of an amount equivalent to the provision is also added to oil and gas exploration assets and depreciated on a unit of production basis. Changes in estimates are recognised prospectively, with corresponding adjustments to the provision and the associated asset.

Oil & gas trading and venture capital investment

Financial assets are recognised at fair value at the balance sheet date and the unrealised gain is included in revenue until such time as the investment is sold, when the proceeds of sale in excess of previously unrealised gain is recognised as revenue and the carrying value of the assets sold is taken to cost of sales.

Venture capital investments are recognised and derecognised on a date where the purchase or sale of an investment is under a binding contract whose terms require the delivery or settlement of the investments. The Group manages its venture capital investments with a view to profiting from the receipt of dividends and changes in fair value of equity investments. Therefore, all quoted investments and unquoted equity investments held for venture capital activity are designated at fair value through profit or loss and subsequently carried in the balance sheet at fair value.

Borrowing costs

Borrowing costs are recognised as an expense when incurred.

Convertible loan notes

Convertible loan notes are regarded as compound instruments, consisting of a liability component and an equity component. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible debt. The difference between the proceeds of issue of the convertible loan notes and the fair value assigned to the liability component, representing the embedded option to convert the liability into equity of the Group, is included in equity.

Issue costs are apportioned between the liability and equity components of the convertible loan notes based on their relative carrying amounts at the date of issue. The portion relating to the equity component is charged directly against equity.

The interest expense on the liability component is calculated by applying the prevailing market interest rate for similar non-convertible debt to the liability component of the instrument. The difference between this amount and the interest paid is added to the carrying amount of the convertible loan note.

Classification of financial instruments issued by the Group

Financial instruments issued by the Group are treated as equity only to the extent that they meet the following two conditions:

(a) they include no contractual obligations upon the group to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the group; and

(b) where the instrument will or may be settled in the company's own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the company's own equity instruments or is a derivative that will be settled by the company's exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.

To the extent this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so classified takes the legal form of the company's own shares, the amounts presented in these financial statements for called up share capital and share premium account exclude amounts in relation to those shares.

Where a financial instrument contains both equity and financial liability components exists these components are separated and accounted for individually under the above policy. The finance cost on the financial liability component is correspondingly higher over the life of the instrument.

Finance payments associated with financial liabilities are dealt with as part of finance expenses. Finance payments associated with financial instruments that are classified in equity are treated as distributions and are recorded directly in equity.

Leases

Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the risks and benefits incidental to ownership.

Operating Leases

The minimum lease payments of operating leases, where the lessor effectively retains substantially all of the risks and benefits of ownership of the leased item, are recognised as an expense on a straight-line basis over the term of the lease.

Finance leases

Leases which effectively transfer substantially the entire risks and benefits incidental to ownership of the leased item to the Group are capitalised at the present value of the minimum lease payments and disclosed as property, plant and equipment under lease. A lease liability of equal value is also recognised.

Capitalised lease assets are depreciated over the shorter of the estimated useful life of the assets and the lease term.

Minimum lease payments are allocated between interest expense and reduction of the lease liability with the interest expense calculated using the interest rate implicit in the lease and charged directly to the Income Statement.

The cost of improvements to or on leasehold property is capitalised, disclosed as leasehold improvements, and amortised over the period of the lease or the estimated useful lives of the improvements, whichever is the shorter.

Cash and cash equivalents

Cash and short-term deposits in the balance sheet comprise cash at bank and in hand and short term deposits with an original maturity of three months or less.

For the purposes of the Consolidated Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

Trade and other receivables

Trade receivables, which generally have 30-90 day terms, are recognised at fair value and subsequently measured at amortised cost less an allowance for any uncollectible amounts.

An allowance for doubtful debts is made when there is objective evidence that the Group will not be able to collect the debts. Bad debts are written off when identified.

Inventories

Inventories are valued at the lower of cost and net realisable value.

Cost is determined on a weighted average basis and includes:

(i) The direct purchase cost of inventory; and

(ii) An allocation of warehouse overheads specifically attributable to bringing the inventory into:

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

Intra-group financial instruments

Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its group, the company considers these to be insurance arrangements and accounts for them as such. In this respect, the Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee.

Income tax

Tax on the profit or loss for the year comprises current and deferred tax. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustments to the tax payable in respect of previous years.

Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognised for all taxable temporary differences except:

Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent it is probable taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilised, except:

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent it is no longer probable sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent it has become probable future taxable profit will allow the deferred tax asset to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Income taxes relating to items recognised directly in equity are recognised in equity and not in profit or loss.

Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority.

Property, plant and equipment

Plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Such cost includes the cost of replacing parts that are eligible for capitalisation when the cost of replacing the parts is incurred. Similarly, when each major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement only if it is eligible for capitalisation.

Depreciation is calculated on a straight line basis over the estimated useful life of the assets as follows:

Life Method
Freehold buildings 50 years Straight line
Plant and equipment 2 ½ - 10 years Straight line
Motor vehicles 5 years Straight line
Liquid drilling fluid plant 10-20 years Straight line

Land is not depreciated.

The assets' residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each financial year-end.

Land and buildings are measured at cost less accumulated depreciation on buildings.

The carrying values of plant and equipment are reviewed for impairment at each reporting date, with recoverable amount being estimated when events or changes in circumstances indicate the carrying value may be impaired.

The recoverable amount of plant and equipment is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

For an asset which does not generate largely independent cash flows, recoverable amount is determined for the cash-generating unit to which the asset belongs, unless the asset's value in use can be estimated to be close to its fair value.

Impairment exists when the carrying amount of an asset or cash-generating unit exceeds its estimated recoverable amount. The asset or cash-generating unit is then written down to its recoverable amount. Plant and equipment impairment losses are recognised in the Income Statement.

Goodwill

Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Company's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities.

Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.

Impairment excluding deferred tax

Assets which have an indefinite useful life are not subject to amortisation and are tested at each balance sheet date for impairment. Assets subject to amortisation or depreciation are reviewed for impairment whenever there is an indication of impairment to determine whether events or changes in circumstances indicate the carrying amount may not be recoverable. If any such conditions exist, the recoverable amount of the asset is estimated in order top determine the extent, if any, of the impairment loss. Where the asset does not generate cash flows that are independent from other assets, estimates are made of the cash flows of the cash generating unit to which the asset belongs.

Impairment excluding deferred tax (continued)

The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. In assessing value in use, estimated future cash flows are discounted to their present value using a discount rate appropriate to the specific asset or cash generating unit.

If the recoverable amount of an asset or cash generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash generating unit is reduced to its recoverable amount. Impairment losses are recognised immediately in the income statement.

Impairment losses in respect of goodwill are not reversed.

Intangible Assets

Development expenditure

Development costs are expensed as incurred, except where future benefits are expected, beyond any reasonable doubt, to exceed those costs. Where development costs are deferred such costs are amortised over future periods on a basis related to expected future benefits, being the life of the contract

The carrying value of an intangible asset arising from development expenditure is tested annually for impairment. If it is determined that the amount is no longer recoverable, this amount identified is written off.

Trade and other Payables

Trade payables and other payables are recognised at fair value and subsequently measured at amortised cost and represent liabilities for goods and services provided to the Group prior to the end of the financial year which are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services.

Loans and Borrowings

All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs.

Subsequent to initial recognition, borrowings are stated at amortised cost using the effective interest method less any impairment losses.

Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

A provision for dividends is not recognised as a liability unless the dividends are declared, determined or publicly recommended on or before the reporting date.

Provision for restoration of leasehold land

The agreement with the lessor in respect of the leasehold land requires the premises to be restored to the condition which existed prior to the installation of the Group's fixtures, fittings and mud plant.

The provision recognised is based upon the Group's assessment of the cost of the removal of these items. The provision has been discounted to its present value, and will be accreted to its estimated cost over the life of the lease.

Employee benefits

Defined contribution plans

A defined contribution plan is a post-employment benefit plan under which the company pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement as incurred.

Provision is made for employee benefits accumulated as a result of employees rendering services up to the reporting date. These benefits include wages and salaries, annual leave and long service leave.

Liabilities arising in respect of wages and salaries, annual leave, sick leave and any other employee entitlements are measured at their nominal amounts based on remuneration rates which are expected to be paid when the liability is settled.

Employee entitlements expenses arising in respect of the following categories:

Share-based payment transactions

The grant date fair value of options granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period in which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using an option valuation model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options which vest except where forfeiture is due only to share prices not achieving the threshold for vesting.

The Group and Company took advantage of the option available in IFRS 1 to apply IFRS 2 only to equity instruments that were granted after 7 November 2002 and which had not vested by 1 July 2005.

Where the Company grants options over its own shares to the employees of its subsidiaries it recognises, in its individual financial statements, an increase in the cost of investment in its subsidiaries equivalent to the equity-settled share-based payment charge recognised in its consolidated financial statements with the corresponding credit being recognised directly in equity.

Where equity instruments are granted to persons other than directors or employees the consolidated income statement is charged with the fair value of any goods or services received.

Contributed equity

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Earnings per share

Basic EPS is calculated as net profit attributable to members, adjusted to exclude costs of servicing equity (other than dividends) divided by the weighted average number of ordinary shares, adjusted for any bonus element.

Diluted EPS is calculated as net profit attributable to members, adjusted for:

costs of servicing equity (other than dividends) and preference share dividends;

the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and

other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares;

divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element.

Investments and other financial assets

Financial assets are classified as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, or available-for-sale investments, as appropriate.

When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transactions costs. The Group determines the classification of its financial assets after initial recognition and, when allowed and appropriate, re-evaluates this designation at each financial year-end.

Purchases and sales of financial assets are recognised on the trade date i.e. the date that the Group commits to purchase or sell the asset. Purchases or sales are purchases or sales of financial assets under contracts that require delivery of the assets within the period established generally by regulation or convention in the marketplace.

(i) Financial assets at fair value through profit or loss

Financial assets classified as held for trading are included in the category 'financial assets at fair value through profit or loss'. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on investments held for trading are recognised in profit or loss.

(ii) Held-to-maturity investments

Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity when the Group has the positive intention and ability to hold to maturity. Investments intended to be held for an undefined period are not included in this classification. Investments that are intended to be held-to-maturity, such as bonds, are subsequently measured at amortised cost. This cost is computed as the amount initially recognised minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initially recognised amount and the maturity amount. This calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums and discounts. For investments carried at amortised cost, gains and losses are recognised in profit or loss when the investments are derecognised or impaired, as well as through the amortisation process.

Investments and other financial assets (continued)

(iii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments which are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process.

(iv) Available-for-sale investments

Available-for-sale investments are those non-derivative financial assets that are designated as available-for-sale or are not classified as any of the three preceding categories. After initial recognition available-for sale investments are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is recognised in profit or loss.

The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date. For investments with no active market, fair value is determined using valuation techniques. Such techniques include using recent arms length market transactions; reference to the current market value of another instrument that is substantially the same; discounted cash flow analysis and option pricing models.

Recoverable amount

Non-current financial assets measured using the cost basis were not carried at an amount above their recoverable amount, and when a carrying value exceeded this recoverable amount, the financial asset was written down to its recoverable amount. In determining recoverable amount, the expected net cash flows were discounted to their present value using a market determined risk adjusted discount rate.

2. Revenue and segment analysis

Revenue represents the amounts derived from the group's ordinary activities, stated net of value added tax.

The group operated in two principal areas of activity being:

the provision of drilling fluids and drilling fluid engineering services to the oil & gas industry

participating in oil & gas assets including trading and venture capital investing activities.

The group operates within five geographical markets, Australia, New Zealand, India, United Kingdom and USA.

Revenue, group profit on ordinary activities before tax and net assets are analysed as follows:
Oil and gas trading and venture capital
Oil and gas operations investments Corporate services Total

A$ 000's A$ 000's A$ 000's A$ 000's A$ 000's A$ 000's A$ 000's A$ 000's

Revenue
Sales to customers 35,145 25,564 17 21 - - 35,162 25,585

Unrealised (loss)/unrealised
profit on revaluation of - - (24,054) 6,595 - - (24,054) 6,595

investments
Management fees - - (103) 447 615 - 512 447
Inter segment sales (881) (942) - (1,305) (615) - (1,496) (2,247)

Total segment revenues 34,264 24,622 (24,140) 5,758 - - 10,124 30,380

Results
Segment results continuing 4,775 4,639 (60,386) 6,122 (2,479) (2,693) (58,090) 8,068

operations
Foreign exchange 335 (530) 4,924 (2,479) - (111) 5,259 (3,120)

(losses)/gains
5,110 4,109 (55,462) 3,643 (2,479) (2,804) (52,831) 4,948

Oil and gas trading and venture capital
Oil and gas operations investments Corporate services Total

A$ 000's A$ 000's A$ 000's A$ 000's A$ 000's A$ 000's A$ 000's A$ 000's
Finance income 8,501 1,332
Finance expense (2,132) (417)

(Loss)/profit on ordinary (46,462) 5,863

operations before income tax

Income tax benefit/(expense) 4,170 (1,927)

Net (loss)/profit (42,292) 3,936

Assets and liabilities
Segment assets 36,090 28,800 26,566 37,321 11,186 17,368 73,842 83,489
Segment liabilities 17,170 9,849 19,995 3,724 1,070 425 38,235 13,998

Other segment information
Acquisition of plant and 189 1,299 - - - - 189 1,299

equipment
Depreciation and amortisation 907 820 8 7 - - 915 827

of plant and equipment
Impairment of plant and 523 - - - - - 523 -

equipment
Impairment of oil & gas assets - - 30,021 - - - 30,021 -
Amortisation of development 69 118 - - - - 69 118

costs

Geographical segment New United
2009 Indonesia Australia Zealand India Kingdom USA Total
A$ 000's A$ 000's A$ 000's A$ 000's A$ 000's A$ 000's A$ 000's

Revenue
Sales to customers - 26,692 5,229 3,224 - 17 35,162
Unrealised loss on revaluation - - - - (24,054) - (24,054)

of investments
Management fees - 615 - - (103) - 512
Inter segment sales - (1,465) - (31) - - (1,496)
Total segment revenues - 25,842 5,229 3,193 (24,157) 17 10,124

Results

Segment results continuing (64) 502 1,533 325 (56,824) (3,562) (58,090)
operations
Foreign exchange - 386 (51) - 4,924 - 5,259

losses/(gains)

(64) 888 1,482 325 (51,900) (3,562) (52,831)
Finance income 8,501
Finance expense (2,132)
Loss on ordinary operations (46,462)

before
income tax benefit
Income tax benefit 4,170
Net loss (42,292)

Assets and liabilities
Segment assets 472 42,102 2,699 2,003 25,998 568 73,842
Segment liabilities - 17,076 875 289 19,825 170 38,235

Assets and liabilities

Other segment information
Acquisition of plant and 5 169 - 15 - - 189

equipment
Depreciation and amortisation - 879 5 23 - 8 915

of plant and equipment
Impairment of plant and - 523 - - - - 523

equipment
Impairment of oil & gas assets - - - - 27,005 3,016 30,021
Amortisation of development - 69 - - - - 69

costs

Geographical segment New United
2008 Australia Zealand India Kingdom USA Total
A$ 000's A$ 000's A$ 000's A$ 000's A$ 000's A$ 000's

Revenue
Sales to customers 20,335 4,259 970 - 21 25,585

Unrealised profit on
revaluation - - - 6,595 - 6,595

of investments
Management fees - - - 447 - 447
Realised profit on investments - - - - - -
Inter segment sales (942) - - (1,305) - (2,247)

Total segment revenues 19,393 4,259 970 5,737 21 30,380

Results Segment results continuing
Operations 1,666 524 146 6,029 (297) 8,068
Foreign exchange losses (547) (94) - (2,479) - (3,120)

1,119 430 146 3,550 (297) 4,948
Finance income 1,332
Finance expense (417)

Profit on ordinary operations
before 5,863
income tax expense
Income tax expense (1,927)

Net profit 3,936

Assets and liabilities
Segment assets 43,685 1,124 1,359 35,579 1,742 83,489
Segment liabilities 9,331 584 359 3,693 31 13,998

Other segment information
Acquisition of plant and 1,279 - 20 - - 1,299

equipment Depreciation and amortisation
of 797 5 18 - 7 827
plant and equipment
Amortisation of development 118 - - - - 118

costs

3. Earnings per share

The major components of income tax expense are:

A$ 000's A$ 000's
Net profit: Earnings used in calculating basic earnings (33,439) 3,894

per share

Net profit: Earnings used in calculating diluted (33,439) 4,085

earnings per share
Number Number
of shares of shares

In thousands of shares
Weighted average ordinary shares used in calculating 217,026 173,785

basic earnings per share

Weighted average ordinary shares used in calculating 217,026 182,622

diluted earnings per share
Basis earnings per share (cents per share) (15.4) 2.2
Diluted earnings per share (cents per share) (15.4) 2.2

4. Investments
Group Company

A$ 000's A$ 000's A$ 000's A$ 000's

Current
Brought forward balance 27,624 13,344 - -
Purchase of further 16.67% in Zeus - 9,377 - -
Revaluation of investment (24,054) 6,596 - -
Elimination of VCI on stepped (3,570) - - -

acquisition (see note 11)
Fair value loan note adjustment - 572 - -
Translation adjustment - (2,265) - -

Total investments (current) - 27,624 - -

Non-current investments in subsidiaries
Brought forward balance - - 8,466 8,165
Purchase of shares in PT Rheochem - - 435 301

Indonesia
Investments at cost - - 8,901 8,466
(i) The Group holds 50% (2008: 50%) of the ordinary share capital of Zeus Petroleum Limited, an energy company operating in the North Sea, United Kingdom. Until 13 March 2009 Zeus Petroleum limited had been held as a venture capital investment. On 13 March 2009, the Company gained control of Zeus Petroleum Limited by virtue of obtaining an exercisable option to acquire the remaining 50% of the share capital of Zeus Petroleum Limited (see note 11).

The principal Group companies at 30 June 2009 are set out below:

Principal activity Proportion of voting Class of share held Place of
Subsidiaries in the year rights and shares incorporation
held
Rheochem Limited Drilling fluid 100% Ordinary Australia
services
Rheochem Pacific Limited Drilling fluid 100% Ordinary New Zealand
services
VRMT Well Services Limited Dormant 51% Ordinary Nigeria
Rheochem India Private Limited Drilling fluid 70% Ordinary India
services
Lochard Energy Limited Venture capital 100% Ordinary United Kingdom
investments /
Holding company
Lochard Energy Incorporated Oil field 100% Ordinary United States of
developments America
PT Rheochem Indonesia Drilling fluid 80% Ordinary Indonesia
services
Zeus Petroleum Limited Oil field 50% Ordinary United Kingdom
developments

The complete notes to the financial statements can be found by clicking on, or pasting the following link into your web browser, to view the associated PDF document.

http://www.rns-pdf.londonstockexchange.com/rns/9122Z_-2009-9-29.pdf</fip P> This information is provided by RNS The company news service from the London Stock Exchange

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Enquiries:

Rheochem +61 (8) 9410 8200

Haydn Gardner, CEO

Financial Dynamics +44 (0) 20 7269 7207

Billy Clegg / Edward Westropp / Alex Beagley

Astaire Securities Plc +44 (0) 20 7448 4400

Shane Gallwey

McCall, Aitken, MacKenzie +44 (0) 20 7763 6025

Andy Yeo / Huw Leyshon

This information is provided by RNS The company news service from the London Stock Exchange

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