Kina Petroleum Corporation (“Kina”, “KPC” or “the Company”) was formed in 2009 to participate in the exploration and acquisition of oil and gas assets in PNG, and since its float in late 2011, has raised over US$48 million with nearly US$9 million cash on hand at the end of 2017. As it has always done, Kina continues to leverage its large exploration position to support growth related activity in its licenses. This is despite the two to three year period preceding the date of this report presenting significant challenges because of a well documented decline in Oil price, coupled with uncertainty over the timing of extension of licenses which are foundations of our acreage portfolio.

At the beginning of 2017 oil prices were still languishing at US$50/bbl and dropped below US$45/bbl at mid year, but since then have risen steadily and have been trading at around US$70/bbl in the first half of 2018. Despite this recent rebound, the last 3 years of low prices has caused Kina and our industry to cut exploration activities and costs and to revisit strategies in the very difficult and uncertain conditions that prevail.

Over the last 3 years Kina has cut its costs by reducing manpower, freezing salaries and most importantly restructured our exploration obligations. But even more importantly, Kina has focused on our discovered assets, addressed their resource size, their cost of development and their viability of development in a US$50/bbl oil price environment.

In eastern PNG where Kina is the operator and 100% equity holder of its licences, the company has had its work commitments restructured via extension of PPLs 338 and 340 and the issue of 4 new licences - PPLs 581, 596, 597 and 598. This has been achieved by close and open dialogue with the Department of Petroleum and Energy in Port Moresby, with Kina keeping the Department abreast of the company’s strategy and goals.

Only in our non-operated licences are we yet to have our work programs restructured, although confirmation of the extension of PPL 339 is imminent.

In western PNG Kina has built a large exposure to the Fly Platform oil and gas clastic play. PRL 21 is very much central to Kina’s strategy for commercialization of the play. PRL 21 was awarded in 2011 with 6 successful intersections of the wet gas reservoir within the licence, 4 of which were drilled by the current joint venture. The success of the PRL 21 drilling campaign from 2011 – 2013 highlighted the potential of the play but rapid commercialisation of the play has been hampered by the recent period of low oil prices. This situation is being addressed by the joint venture.

PRL 21 is not only the lynch-pin of the Fly Platform play - it is fundamental to Kina’s future and therefore the company has been actively considering commercialisation options for the licence. The Board and Management continue to work on value maximisation strategies.

As with eastern PNG, the existing work programs for the company’s Western Province exploration licences - PPLs 435, 436 and 437 - have work programs which are legacies of the US$100/bbl oil price environment. We continue to work with the DPE to re-calibrate these to the current and near term industry environment.

Kina’s integrated technical work for these Western Province PPLs has highlighted a number of very large oil targets in Western Province which lead us to apply for APPL 611 to secure tenure over the whole play trend. In advance of future seismic programs Kina undertook scouting of the proposed work areas in late 2017. Because the prospects cover a large area, the proposed seismic survey will be of a similar scale. Kina’s screening studies suggest a program of about 420km over the top ranked prospects in PPLs 435,436 and 437 would cost US$26.5million at an average cost of around US$52,000/km if technology currently on offer in PNG was used. The company views this as unacceptably high based on management’s experience of surveys carried out previously in the Aramia area of Western Provence, where per kilometre cost of less than US$20,000/km were achieved. Part of Kina’s restructuring of its work program will address current nodal seismic technology and its applicability to the Fly Platform Play.