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Subscribing for Shares that are the subject of this Prospectus involves a number of risks. Before deciding whether to invest in the Company, any intending investor is urged to consider the risk factors set out in Section 10 of this Prospectus, which include but are not limited to the risks summarised below:

RISK AREA RISKS FURTHER DETAILS

Re-quotation of Shares on ASX Ability to meet requirements of ASX for re-quotation Section 10.1

Dilution Risk Potential for dilution of shareholder’s interests upon issue of Performance Shares

Sections 3.7, 10.2 and 12.3

Operating in Ukraine Economic, social, political and governmental risks Section 10.3

Legal Risk in Ukraine Ability to obtain effective legal redress if necessary Section 10.4

Exploration and Development Risk Exploration, development and operations risks Section 10.5

Reliability of Technical Information and Project Data

Reliability of technical information and its sources Section 10.6

Title Risk Ability to comply with, retain and renew oil and gas exploration licenses; ability to obtain and comply with production licenses

Sections 10.7 and 10.8

Oil and Gas Price Volatility Oil and gas prices affected by numerous factors and events Section 10.8

Hydrocarbon Reserves, Oil Reserves and Resource Estimates

Resource estimates subjective Sections 10.11 and 10.12

Environmental Risks Impact on the environment and subject to Ukraine legislation Section 10.15

Transport and Infrastructure Risks Inadequate transport services and infrastructure in Ukraine Section 10.20

Drilling Contract Risks Risks in reliance on third party service providers Section 10.21

Demand and Supply Risks Risks of energy demand in Ukraine decreasing forcing Company to consider supply alternative markets

Section 10.22

Use of Unaudited Financial Information

Financial information of Hawkley not subject to audit Section 10.23

Subsidiary Risk Subsidiary holds title to primary assets Section 10.24

Investors should be aware that an investment in the Company involves risks that may be higher than risks associated with an investment in some other companies. Careful consideration should be given to all matters raised in this Prospectus and the relative risk factors prior to applying for Shares offered for subscription under this Prospectus. Some of these risks can be mitigated by the use of appropriate safeguards and actions, but some are outside the Company’s control and cannot be mitigated. Before deciding whether to apply for Shares, investors should consider the risk factors described above, and outlined in more detail in Section 10, together with the information contained elsewhere in this Prospectus.

1. Corporate Directory 4

2. Chairman’s Letter 5

3. Investment Overview 6

4. Details of the Offer 9

5. Company and Project Overview 12

6. Directors, Proposed Directors, Technical Management and Corporate Governance 16

7. Independent Technical Specialist’s Report 19

8. Independent Accountant’s Report 47

9. Solicitor’s Report on Licences 65

10. Risk Factors 88

11. Material Contracts 93

12. Additional Information 98

13. Directors’ Authorisation 103

14. Glossary 104

15. Offer to Ukraine Investments Shareholders 105

Mr Melvyn Bridges

Mr Eric de Mori

Mr Winton Willesee

Mr Winton Willesee

Mr Paul Morgan

Mr Richard Reavley

Mr David Riekie

Mr Ian Hobson

Level 1, 2 Ross Place South Melbourne VIC 3205

Telephone: (03) 9602 4133 Facsimile: (03) 9670 6643

Resource Investment Strategy Consultants Level 3, 1138 Hay Street West Perth WA 6005


Johnston Rorke Level 30, Central Plaza One 345 Queen Street Brisbane QLD 4000

Security Transfer Registrars Pty Ltd 770 Canning Highway Applecross WA 6153


Steinepreis Paganin Lawyers and Consultants Level 4, The Read Building 16 Milligan Street Perth WA 6000


RSM Bird Cameron 8 St Georges Terrace Perth WA 6000


Clifford Chance LLC 75 Hylyanska Street 01032 KYIV Ukraine

Telephone: +38 (044) 390 5885 Facsimile: +38 (044) 390 5886

Cygnet Capital Pty Ltd Ground Floor, 30 Richardson Street West Perth WA 6005

Facsimile: (08) 9226 5511 Telephone: (08) 9322 8744

ICV (Note: the Company’s ASX code will change subject to completion of the Acquisition)

www.incitiveltd.com

* These entities are included for information purposes only. They have not been involved in the preparation of this Prospectus.

On behalf of both the Board and management of Incitive Limited (to be renamed Hawkley Oil and Gas Limited) (Company), I am pleased to present this Prospectus and to offer you the opportunity to become a shareholder in the Company, or to increase your shareholding.

By this Prospectus, the Company is offering for subscription up to 27,500,000 Shares at an issue price of $0.20 each to raise $5,500,000 (plus oversubscriptions of up to a further $2,000,000). Among other things, the issue of this Prospectus is to assist the Company to meet the requirements of ASX and satisfy Chapters 1 and 2 of the ASX Listing Rules.

While the Company has historically focused on its science/biotechnology business, the Company has reached an agreement to acquire a private BVI oil and gas exploration company, Hawkley.

Hawkley has oil and gas assets located in the Dnieper-Donets Basin in the Ukraine. Please refer to Section 5 for further information on Hawkley’s assets.

The acquisition represents an exciting opportunity and a significant change of direction of the Company. The Directors and the Proposed Directors and Hawkley unanimously recommend the Acquisition. It is the view of the Incitive and Hawkley directors that the Acquisition will give the merged entity’s shareholders the opportunity to participate in a potentially significant exploration and development programme in respect of oil and gas projects.

As part of the Acquisition and associated transactions, the Company intends to distribute approximately 80% of its shareholding in its wholly-owned subsidiary, Sarantis Pty Ltd pro rata to the Company Shareholders who hold Shares on the record date (anticipated to be 14 May 2010 as at the date of this Prospectus) (Demerger). This will allow all of the Company’s existing Shareholders to retain the benefit from the potential of Sarantis.

At a general meeting of Shareholders held on 12 April 2010, the Company obtained approval of the acquisition of Hawkley, and associated transactions, including, but not limited to shareholder approval to change the nature and scale of the Company’s activities as a result of the Acquisition. A separate Shareholders’ meeting will be held to seek approval for the Demerger on 6 May 2010.

The Company also received shareholder approval to change its name from “Incitive Limited” to “Hawkley Oil and Gas Limited”. Oil and gas exploration and the possible pursuit of other oil and gas projects will become the Company’s main focus.

The Company will be required to re-comply with Chapters 1 and 2 of the ASX Listing Rules to be reinstated to the Official List of the ASX. As above, the purpose of this Prospectus is to assist with the re-compliance process.

Subject to successful completion of the Offer, there will be a change in the composition of the board of directors and other key personnel responsible for management. The new management team brings a wealth of experience to the Company and possess the necessary expertise and experience required to assist the Company in its objectives.

On behalf of the existing Board of the Company, I welcome your consideration of this opportunity to be part of an exciting new period for the Company. I recommend you read this Prospectus carefully.

Yours sincerely

This Section is not intended to provide full information for existing investors or intending investors to subscribe for Shares in the Company. This Prospectus should be read and considered in its entirety.

The indicative timetable for the proposed change is as follows:

EVENT DATE

Execution of Implementation Agreement 16 February 2010

Announcement of Acquisition 18 February 2010

Suspension of the Company’s Securities from Trading on ASX at the Opening of Trading

12 April 2010

General Meeting to approve Acquisition and Change in Nature and Scale of Activities

12 April 2010

Lodgement of Original Prospectus with the ASIC

15 April 2010

Lodgement of Replacement Prospectus with the ASIC

29 April 2010

Opening of General Offer for Capital Raising under the Prospectus

3 May 2010

Opening of Ukraine Investments Offer 23 April 2010

Closing Date of Ukraine Investments Offer 21 May 2010

Closing Date of General Offer for Capital Raising under the Prospectus

21 May 2010

Settlement of Acquisition 4 June 2010

Anticipated Date the Suspension of Trading is Lifted and the Company’s Securities Commence Trading again on ASX

11 June 2010

This timetable is subject to change and the directors reserve the right to amend the timetable at any time. Notwithstanding this, the Company intends to use its best endeavours to cooperate with all parties to ensure the Acquisition is completed as expeditiously as possible.

While the Company has historically focused on immunology research and development, the Company has recently entered into an Implementation Agreement pursuant to which the Company has agreed to acquire, directly and indirectly, a 100% interest in Hawkley, an oil and gas company, by making separate offers (Hawkley Offers) to:

(a) the shareholders of Hawkley (excluding Ballure Trading, Ukraine Investments and Ukraine Gas Investments);

(b) the shareholders of Ballure Trading;

(c) the shareholders of Ukraine Investments; and

(d) the shareholders of Ukraine Gas Investments,

(together, the Hawkley Vendors) to acquire:

(e) all of the fully paid ordinary shares held in Ukraine Investments;

(f) all of the fully paid ordinary shares held in Ballure Trading;

(g) all of the fully paid ordinary shares held in Ukraine Gas Investments; and

(h) all other shares held in Hawkley (excluding those which are held by Ballure Trading, Ukraine Investments and Ukraine Gas Investments),

and thereby, directly and indirectly, acquire all of the issued share capital of Hawkley (being the Acquisition).

As part of the transaction, the Company has also entered into agreements with:

(a) Avenger Investment Holdings and Victor Dmytriev (together, the Hawkley Creditors) to satisfy the part repayment of loans made by the Hawkley Creditors to Hawkley by the issue of Shares; and

(b) Avenger Investment Holdings, to satisfy the repayment of loans made by Avenger Investment Holdings to Hawkley by the issue of Shares.

A summary of the material terms and conditions of the Implementation Agreement is set out in Section 11.1 of this Prospectus. The Implementation Agreement governs the sale of Hawkley shares to the Company by the shareholders of Hawkley (excluding Ukraine Investments, Ukraine Gas Investments and Ballure Trading). The remaining Hawkley Offers will be dealt with under acquisition agreements between the Company and the relevant Hawkley Vendors, which are referred to in Section 11.

It is the case that most of the Hawkley Vendors are sophisticated and professional investors to whom the issue of Shares (as consideration for the Hawkley Offers) do not require a disclosure document in reliance on the exemptions in Section 708 of the Corporations Act. However, there are a number of shareholders of Ukraine Investments who do not fall under any of these exemptions and therefore the issue of Shares will require disclosure. This Prospectus seeks to satisfy that requirement by containing an offer of securities to those relevant Ukraine Investments Shareholders (Ukraine Investments Offer). Please refer to Sections 4.7 and 15 for further information.

As part of the transaction, the Company intends to undertake the Demerger, whereby it will distribute approximately 80% of its shareholding in its wholly-owned subsidiary, Sarantis, pro rata to the Company Shareholders who hold Shares on the relevant record date. The Demerger is subject to Shareholder approval. A general meeting of Shareholders seeking approval for the Demerger is scheduled to be held on 6 May 2010.

The Board believes that the Acquisition of Hawkley, together with the Demerger, has the potential to deliver significant value to Shareholders.

The Acquisition, in accordance with the terms and conditions of the Implementation Agreement, will result in the Company owning all of the issued capital in, and controlling the business of, Hawkley.

Following the Acquisition, the Directors intend to focus the Company’s operations primarily on the exploration of oil and gas at Hawkley’s Sorochynska and Chernetska Projects. As the Company has no prior involvement in this industry, the Acquisition of Hawkley constitutes a significant change in the nature and scale of the Company’s activities. Therefore the Company needs to comply with Chapters 1 and 2 of the ASX Listing Rules as if it were seeking admission to the official list of ASX.

As above, the Acquisition and associated transactions, including the change of nature and scale of the Company’s activities, are subject to Shareholder approval. A general meeting of Shareholders was held on 12 April 2010 where shareholder approval was obtained for the Acquisition and for the Company to change the nature and scale of its activities. Re-compliance with Chapter 1 of the ASX Listing Rules requires the Company to lodge a prospectus with the ASIC. This Prospectus has been prepared, in part, for the purpose of satisfying that requirement.

In accordance with Chapter 11 of the ASX Listing Rules, trading in the Company’s Shares has been suspended from the date of the general meeting to approve the Acquisition (being 12 April 2010), and will remain suspended until the Company has satisfied all of its obligations under the ASX Listing Rules, including complying with Chapters 1 and 2 of the ASX Listing Rules.

The purpose of this Prospectus is to:

assist the Company to meet the requirements of ASX and satisfy (a) Chapters 1 and 2 of the ASX Listing Rules;

raise $5,500,000 pursuant to the General Offer and satisfy the (b) condition precedent in the Implementation Agreement that requires the Company to raise that amount. A summary of the material terms and conditions of the Implementation Agreement is set out in Section 11.1 of this Prospectus; and

satisfy the requirements of Section 706 of the Corporations Act (c) in respect of the issue of Shares as consideration under the Hawkley Offer to those Ukraine Investment shareholders (in their capacity as Hawkley Vendors) for whom a disclosure document is required (pursuant to the Ukraine Investments Offer).

The Company is aiming to apply the funds raised from the General Offer towards:

(a) operational expenditure necessary to complete and test well #201 and bring the well on stream;

(b) further evaluation and exploration of current licences and potential new projects;

(c) working capital and administration expenses; and

(d) expenses of the General Offer.

The Board believes that funds raised from the General Offer will provide the Company with sufficient working capital to achieve the Company’s objectives set out above.

Prospective investors in the Company should be aware that subscribing for Shares, which are the subject of this Prospectus, involves a number of risks. These risks are set out in Section 10 of this Prospectus. Investors are urged to consider those risks carefully (and, if necessary, consult their professional adviser) before deciding whether to invest in the Company.

The risk factors set out in Section 10 of this Prospectus, and other general risks applicable to all investments in listed securities not specifically referred to, may in the future affect the value of the Shares. Accordingly, an investment in the Company should be considered highly speculative.

It is intended that the funds raised from the General Offer ($5,500,000 with up to $2,000,000 in oversubscriptions) together with existing cash at bank of both the Company ($570,000) and Hawkley ($3,200,000) (as at the date of lodgement of this Prospectus) will be applied as follows:

ITEMMinimum

SubscriptionMaximum

Subscription

Drilling, Completion and Testing $2,480,000 $2,480,000

Connection of well #201 $2,200,000 $2,200,000

Expenses of the Offer and other Transaction Costs $884,012 $884,012

Working Capital $1,875,988 $1,875,988

Drill Site Preparation Chernetska $150,000 $150,000

Further Exploration, Development and Progressing Further Opportunities $0 $2,000,000

Total $9,089,986 $11,089,986

Notes:

1. The above table represents a statement of current intentions as of the date of lodgement of this Prospectus with the ASIC.

2. The total development costs anticipated by the Company in relation to its operations amounts to US$9,700,000 of which US$4,900,000 has been expended as at the date of this Prospectus. Please refer to the Independent Technical Specialist’s Report in Section 7 for further details.

3. Unallocated working capital will be utilised by the Company to consider new opportunities, pay for cost overruns in budgeted expenditures (if any) or, for additional exploration and development expenditure and in the administration of the Company.

Actual expenditure may differ significantly from the above estimates due to a change in market conditions, the development of new opportunities, the results obtained from exploration and other factors (including the risk factors outlined in Section 10). The consideration of new opportunities may result in the Company expending funds on due diligence or other acquisition costs which may not be recouped through the ultimate acquisition and/or development of the project under consideration.

The Company proposes to actively pursue further acquisitions which complement the projects of the Company. There may be a need to direct funds for this purpose or to raise additional capital.

To capitalise on future opportunities, depending on the success of its activities, the Company may require debt or further equity fundraisings.

On the basis that the Company completes the Acquisition and General Offer on the terms set out in this Prospectus, the Company’s capital structure will be as set out below.

Please note that the Company has obtained Shareholder approval at a general meeting held on 12 April 2010 to consolidate its Shares on a 1:26.67 basis (Consolidation).

The Consolidation will take place prior to the completion of the Acquisition and the General Offer. Therefore the capital structure set out below is presented on a post-Consolidation basis (which may be subject to some minor rounding adjustments).

SHARES (POST-CONSOLIDATION)

Shares currently on issue 19,129,659

Shares to be issued to Hawkley Vendors 150,621,8481

Shares to be issued to Cygnet Capital 3,749,5312

Shares to be issued under General Offer 27,500,000

Shares to be issued to Hawkley Creditors 10,704,6603

TOTAL SHARES 211,705,698

OPTIONS (POST-CONSOLIDATION)

Options exercisable at $5.33 on or before 1 September 2010 14,998

Options exercisable at $5.33 on or before 21 November 2010 50,619

Options exercisable at $5.33 on or before 11 August 2011 3,750

Options exercisable at $2.67 on or before 19 November 2011 37,495

Options exercisable at $0.27 on or before 30 June 2012 2,249,719

Options to be issued to Cygnet Capital, exercisable at $0.20 on or before 31 January 2014 11,248,5944

Options to be issued to Cygnet Capital exercisable at $0.20 on or before 31 January 2014 14,758,1555

TOTAL OPTIONS 28,363,330

Performance Shares to be issued to Hawkley Vendors 32,962,9136

Notes1 Please refer to the agreements in Sections 11.1 to 11.5 (inclusive)

and the Independent Accountant’s Report in Section 8 of this Prospectus for further information.

2 Please refer to the Capital Raising Mandate in Section 11.8 for further information.

3 Please refer to the agreements in Sections 11.6 and 11.7 for further information.

4 Please refer to the Capital Raising Mandate in Section 11.8 for further information.

5 Please refer to the Underwriting Agreement in Section 11.9 for further information.

6 Please refer to the agreements in Sections 11.1, 11.4 and 11.5 for further information. Please also refer to Section 3.7.

Part of the consideration for the Acquisition includes a total of 32,962,913 Performance Shares to be issued to the Hawkley Vendors. These Performance Shares convert into ordinary shares on the achievement of certain milestones. Potential investors should be aware that there will be dilution to existing shareholders if the Performance Shares are converted into fully paid ordinary shares. The terms of the Performance Shares are set out in Section 12.3 of this Prospectus. Further details in respect of the recipients and their respective entitlements to the Performance Shares are set out in Section 11.1, 11.4 and 11.5 of the Prospectus.

Subject to the Company being admitted to the Official List, certain Shares and Options on issue prior to the General Offer, and certain of the securities to be issued pursuant to the Acquisition, are likely to be classified by ASX as restricted securities and will be required to be held in escrow.

By this Prospectus, the Company offers 27,500,000 Shares at an issue price of $0.20 each to raise $5,500,000 (General Offer).

The Shares offered under this Prospectus will rank equally with the existing Shares on issue.

The purpose of the General Offer and the use of funds raised are set out in Sections 3.3 and 3.5 of this Prospectus respectively.

The General Offer is conditional upon satisfaction or waiver of certain conditions precedent to the Implementation Agreement. Those outstanding conditions precedent as at the date of this Prospectus are as follows:

(a) the Company complying with any requirements of ASX including, if necessary, the requirements of Chapters 1 and 2 of the ASX Listing Rules, including issuing this Prospectus, as if the Company were applying for admission to the official list of ASX (as required by ASX Listing Rule 11.1.3);

(b) the Company preparing this Prospectus and receiving sufficient applications to meet the minimum subscription under the Prospectus; and

(c) the Company becoming entitled to acquire 100% of the Hawkley Shares as a result of each Hawkley Vendor accepting the relevant Hawkley Offer.

A summary of the material terms and conditions of the Implementation Agreement is contained in Section 11.1 of this Prospectus.

If the conditions set out above are not satisfied or waived in accordance with the Implementation Agreement, none of the Shares offered by this Prospectus will be allotted or issued. In these circumstances, all applications will be dealt with in accordance with the Corporations Act.

The Company has been suspended from quotation on ASX from the date of the general meeting of 12 April 2010 and will not be reinstated until settlement of the Acquisition (which is subject to ASX approving the Company’s re-compliance with Chapters 1 and 2 of the ASX Listing Rules).

In the event that the Company does not receive conditional approval for re-quotation on ASX, it will not proceed with the General Offer and will repay all application monies received.

The Company may, at its discretion, accept oversubscriptions under the General Offer of up to a further $2,000,000 through the issue of up to a further 10,000,000 Shares at an issue price of $0.20.

The maximum amount which may be raised under this Prospectus is therefore $7,500,000.

The minimum subscription for the General Offer is $5,500,000.

If the minimum subscription has not been raised within four (4) months after the date of this Prospectus, all applications will be dealt with in accordance with the Corporations Act.

If you wish to invest in the Company, complete the relevant Application Form provided with or attached to this Prospectus. Completed Application Forms should be returned, together with the application monies in full, prior to 5.00pm (WST) on the Closing Dates to the Company. Alternatively, complete a paper copy of the electronic Application Form which accompanies the electronic version of the Prospectus, which can be found and downloaded from www.incitiveltd.com.

Completed Application Forms and Application Monies should be returned to the Company’s Share registry office or Cygnet Capital as follows:

Security Transfers Registrars Pty Ltd 770 Canning Highway APPLECROSS WA 6153

Cygnet Capital Pty Ltd Ground Floor, 30 Richardson Street WEST PERTH WA 6005

Refer to the instructions on the back of the Application Form when completing your application. Cheques must be made payable to “Incitive Limited – Subscription Account” and crossed “Not Negotiable”. All cheques must be in Australian currency.

An original completed and lodged Application Form, together with a cheque for the application monies, constitutes a binding and irrevocable offer to subscribe for the number of Shares specified in the Application Form. The Application Form does not have to be signed to be a valid application. An application will be deemed to have been accepted by the Company upon allotment of the Shares. The Directors reserve the right to accept or reject any application at their sole and absolute discretion.

The General Offer may be closed at an earlier date and time, at the discretion of the Directors, without prior notice. Applicants are therefore encouraged to submit their Application Forms as early as possible. However, the Company reserves the right to extend the General Offer or accept late Applications.

Under the Implementation Agreement, the Company has agreed to (directly and indirectly) acquire Hawkley by making the Hawkley Offers to the Hawkley Vendors to acquire:

(a) all of the fully paid ordinary shares held in Ukraine Investments;

(b) all of the fully paid ordinary shares held in Ballure Trading;

(c) all of the fully paid ordinary shares held in Ukraine Gas Investments; and

(d) all other shares held in Hawkley (excluding those which are held by Ballure Trading, Ukraine Investments and Ukraine Gas Investments).

A summary of the material terms and conditions of the Implementation Agreement is set out in Section 11.1 of this Prospectus. The Implementation Agreement governs the sale of Hawkley shares to the Company by certain major shareholders of Hawkley. As part of the transaction, the Company has also entered into agreements with the Hawkley Creditors to satisfy the part repayment of loans made by the Hawkley Creditors by the issue of Shares. The Hawkley Offers to the shareholders of Ukraine Investments, Ukraine Gas, Ballure Trading, Avenger Investment Holdings and Victor Dmytriev will be dealt with under acquisition agreements between the Company and the relevant Hawkley Vendors. Summaries of the Acquisition Agreements are set out in Section 11 to 11.5 (inclusive).

It is the case that most of the Hawkley Vendors are sophisticated and professional investors to whom the issue of Shares (as consideration for the Hawkley Offers) do not require a disclosure document in reliance on the exemptions in Section 708 of the Corporations Act. However, there are certain shareholders of Ukraine Investments who do not fall under any of these exemptions and therefore the issue of Shares to those shareholders will require disclosure. This Prospectus seeks to satisfy that requirement by containing the Hawkley Offer to those relevant Ukraine Investments Shareholders (Ukraine Investments Offer).

The full terms and conditions of the Ukraine Investments Offer are set out in Section 15 of this Prospectus.

The rights and liabilities attaching to the Shares are set out in Section 12.1 of this Prospectus. Please note that by accepting the Ukraine Investments Offer, each Ukraine Investments Shareholder agrees that all Shares issued pursuant to the Ukraine Investments Offer will be subject to a voluntary holding lock of 6 months from the date of issue of those Shares. Please refer to clause 8 of the Ukraine Investments Offer in Section 15 for further details.

Only Ukraine Investments Shareholders listed in Schedule 1 may accept their relevant Ukraine Investments Offer under this Prospectus. Accordingly, do not complete the Acceptance Form for the Ukraine Investments Offer unless you are a Ukraine Investments Shareholder listed in Schedule 1.

If you are a Ukraine Investments Shareholder or a Hawkley Vendor and are not listed in Schedule 1, you should have received an acquisition agreement from the Company in respect of your Hawkley Offer. If you have not received that agreement and believe you are entitled to do so, please contact Cygnet Capital on +61 89 322 8744. You may accept the Hawkley Offer via that acquisition agreement.

If you wish to apply for Shares under the General Offer, please refer to Section 4.6 and complete the General Offer Application Form.

To accept the Ukraine Investments Offer, you must execute the Ukraine Investments Offer in Section 15 and sign the transfer form accompanying this Prospectus in accordance with its instructions and lodge the completed form at the Company’s registered office on or before the Ukraine Investments Offer Closing Date.

In order to ensure that all Shares issued in accordance with the Implementation Agreement can be freely traded after their issue, this Prospectus also includes an offer of one Share and one Performance Share that will remain open until immediately after the issue of all Shares contemplated by the Implementation Agreement. No Shares will be issued under this additional offer and it is only incorporated into this Prospectus to ensure compliance with the secondary trading provisions of the Corporations Act.

Subject to ASX granting approval for the Company to be reinstated to trade on the Official List, allotment of the Shares offered by this Prospectus will take place as soon as practicable after the Closing Date. Prior to allotment, all application monies shall be held by the Company on trust. The Company, irrespective of whether the allotment of Shares takes place, will retain any interest earned on the application monies.

The Company will apply to ASX within seven (7) days after the date of this Prospectus for Official Quotation of the Shares offered under this Prospectus. If ASX does not grant permission for Official Quotation of the Shares within three (3) months after the date of this Prospectus, or such longer period as is permitted by the Corporations Act, none of the Shares offered by this Prospectus will be allotted or issued. In that circumstance, all applications will be dealt with in accordance with the Corporations Act.

Cygnet Capital has been appointed as the Lead Manager and Underwriter to the General Offer.

The General Offer is fully underwritten by Cygnet Capital. Please refer to Section 11.8 for further details regarding the engagement of Cygnet Capital as Lead Manager and Section 11.9 for a summary of the Underwriting Agreement.

The Company participates in the Clearing House Electronic Subregister System (CHESS). CHESS is operated by ASX Settlement and Transfer Corporation Pty Ltd (ASTC), a wholly owned subsidiary of ASX, in accordance with the Listing Rules and the ASTC Settlement Rules.

Under CHESS, the Company will not issue certificates to investors. Instead, Share holders will receive a statement of their holdings in the Company. If an investor is broker sponsored, ASTC will send a CHESS statement.

The Company reserves the right to pay a commission of 6% (exclusive of the Goods and Services Tax) of amounts subscribed to any licensed Securities dealers or Australian Financial Services licensee, in respect of valid applications relating to the General Offer, lodged and accepted by the Company and bearing the stamp of the licensed Securities dealer or Australian Financial Services licensee. Payments will be subject to the receipt of a proper tax invoice from the licensed Securities dealer or Australian Financial Services licensee.

Subscribing for Shares the subject of this Prospectus involves a number of risks. These risks are set out in Section 10 of this Prospectus and any intending investor is urged to consider those risks carefully (and if necessary, consult a professional adviser) before deciding whether to invest in the Company.

The risk factors set out in Section 10, and other general risks applicable to all investments in listed Shares not specifically referred to, may in the future affect the value of the Shares. Accordingly, an investment in the Company should be considered speculative.

If you complete an application for Shares, you will be providing personal information to the Company. The Company collects, holds and will use that information to assess your application, service your needs as a Shareholder and facilitate distribution payments and corporate communications to you as a Shareholder.

The information may also be used from time to time and disclosed to persons inspecting the register, including bidders for your Shares in the context of takeovers, regulatory bodies, including the Australian Taxation Office, authorised Shares brokers, print service providers, mail houses and the Share Registry.

You can access, correct and update the personal information that we hold about you. If you wish to do so, please contact the Share Registry at the relevant contact number set out in this Prospectus.

Collection, maintenance and disclosure of certain personal information are governed by legislation including the Privacy Act 1988 (as amended), the Corporations Act and certain rules such as the ASTC Settlement Rules. You should note that if you do not provide the information required on the application for Shares, the Company may not be able to accept or process your application.

No action has been taken to register or qualify the securities, or the General Offer, or otherwise to permit the public offering of the securities, in any jurisdiction outside Australia.

The distribution of this Prospectus within jurisdictions outside Australia may be restricted by law and persons into whose possession this Prospectus comes should inform themselves about and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of those laws.

The Prospectus does not constitute an offer of securities in any jurisdiction where, or to any person to whom, it would be unlawful to issue this Prospectus.

It is the responsibility of any overseas applicant to ensure compliance with all laws of any country relevant to his or her application. The return of a duly completed Application Form will be taken by the Company to constitute a representation and warranty that there has been no breach of such law and that all necessary approvals and consents have been obtained.

The Directors may at any time decide to withdraw this Prospectus and the General Offer in which case the Company will return all application monies, without interest, within 28 days of giving notice of their withdrawal.

Enquiries relating to this Prospectus or requests for additional copies of this Prospectus should be directed to the Company Secretary of the Company by telephoning (03) 9602 4133.

Incitive Limited (to be renamed Hawkley Oil and Gas Limited) (company) is an Australian public company listed on the official list of ASX.

The Company presently operates as an immunology research and development company. The Company specialises in the development of compounds from Bromelain to treat a range of inflammatory and gastrointestinal diseases. The Company’s core assets are located in its wholly owned subsidiary, Sarantis Pty Ltd.

Sarantis’ asset portfolio consists of four patents. Two key patents, ICV0019 and ICV0026, have been granted in Europe and China. The ICV0019 patent is also pending in the US and Japan, while the ICV0026 patent is pending in Japan. The other two patents in the portfolio are granted in the USA and cover treatments of various diseases by stem bromelain, and the treatment of diarrhoea.

ICV0019 is the Company’s lead compound being developed as a new drug to treat inflammation and autoimmune disease. Since its formation, the Company has shown considerable progress in validating ICV0019 as a drug candidate by completing most stages of the pre-clinical development plan including efficacy, manufacturing, preliminary toxicology and safety.

As announced to ASX on 18 February 2010, the Company now intends to change the focus of its activities to oil and gas exploration and production. This change of focus is a consequence of a review of the Company’s life science/biotechnology business, which resulted in the Board forming the view that it was necessary to expand its business beyond the biotechnology sector.

The Company reached an agreement to acquire Hawkley, an oil and gas company with assets in the Dnieper-Donets Basin in the Ukraine.

Following completion of the Acquisition, the Company will become the owner of 100% of the issued share capital of Hawkley. Hawkley owns 100% of the shares in its wholly owned Ukrainian subsidiary company, Prime Gas LLC.

At a general meeting held on 12 April 2010, Shareholders approved the Acquisition and the change in nature and scale of the Company’s activities as a result of the Acquisition. Shareholders also approved the change of the Company’s name from “Incitive Limited” to “Hawkley Oil and Gas Limited”.

As part of the Acquisition and associated transactions, the Company intends to distribute approximately 80% of its shareholding in Sarantis pro rata to the Company Shareholders who hold Shares on the anticipated record date of 14 May 2010 (being the Demerger). This will allow all of the Company’s existing Shareholders to, notwithstanding the Acquisition, retain the benefit from the potential of Sarantis. The Company will retain a 20% interest in Sarantis.

If the Demerger is not approved, the Company will retain a 100% interest in Sarantis. The Company may then seek to divest itself of these assets through a sale or some type of corporate activity in the future.

The Demerger is subject to Shareholder approval. The Acquisition and Demerger is conditional on settlement of the Acquisition. Shareholder approval for the Demerger is being sought at a general meeting to be held on 6 May 2010.

Hawkley is an oil and gas company with assets in the Dnieper–Donets Basin in Ukraine. Janita, via its wholly owned Ukrainian subsidiary Prime Gas LLC, has two licences, ‘Sorochynska’ and ‘Chernetska’, which have up to an estimated 118 million barrels of oil equivalent (mainly in gas and gas condensate) of recoverable reserves and resources.

Discovery History

Oil shows in the Dnieper-Donets basin were first recorded in 1936 in the cap rock of a salt dome. The first significant commercial discovery was in 1950, when the giant Shebelinka gas field was discovered in Lower Permian rocks at a depth of 1,300m. The first oil discovery was made during the same year, in Carboniferous rocks in the Radchenkov field. A number of other significant oil and gas fields were found during the following 10–15 years. In the mid 1960’s, the efficiency of exploration decreased, as progressively smaller fields were found. The number of new discoveries however, increased along with the drilling depths. In the late 1990’s, the U.S. Geological Survey studies identified the presence of a large unconventional basin-centered gas accumulation that encompasses much of the Dnieper-Donets basin area and extends into the Donbass fold-belt.

At least 25 fields in the basin produce from depths greater than 5km. At present, more than 200 oil and gas fields have been discovered. The majority of the reserves are heavily concentrated in three gas fields and three oil fields, the latest of which was found in 1965. Discovered hydrocarbon reserves exceed 11.5 billion BOE, of which 86 percent is gas in-place resources of oil and gas indicate that recoverable reserves may be somewhat larger. Reserves of the largest gas field, the Shebelinka field, is slightly more than 18 tcf gas. Lower Permian rocks contain the greatest portion of the reserves. These reservoirs are sealed by salt. Most of the hydrocarbons were sourced from Devonian and Lower Carboniferous marine rocks. Estimated undiscovered resources of oil and gas in the Dnieper- Donets Basin are shown in Table 1.

F95 F50 F5 MEAN

Oil (mmbo) 86 1,019 2,353 1,098

Gas (bcfg) 6.986 23,203 43.370 24,051

Ukraine is Europe’s fourth largest gas market – c2.6tcf/year and the third largest gas producer – c700bcf/year.

The projects are located in the Dnieper-Donets Basin - the most prolific gas basin in the Ukraine, containing undiscovered resources of around 24tcf gas.

The Sorochynska and Chernetska projects are in the proximity of well developed infrastructure.

The licences are owned 100% by Hawkley’s wholly owned subsidiary, Prime-Gas LLC.

The first well #201 at the Sorochynska Project was spudded on 2 November 2009. Intermediate casing has been set.

Well #201 is located 300m from well #110 which produced between January 1989 and January 1991 from the B18b horizon. Well #201 is targeting the remaining reserves in this horizon.

The gas produced from well #110 was low in impurities (H2S and CO2).

It is planned that the first well at the Chernetska Project will target the B20 oil horizon.

An environmental approval has been obtained for the Sorochynska well #201.

Hawkley has extensive operating experience in Ukraine.

Hawkley believes demand for locally produced gas is strong.

Ukraine was provided with an International Monetary Fund loan of US$16.4bn. One of the objectives of the loan was promotion of greater transparency and deregulation of the Ukraine gas market.

Please refer to the Independent Technical Specialist’s Report in Section 7 of this Prospectus for further details in relation to these highlights.

The Sorochynska project is located approximately 320 km east of Kiev in the Poltava region of Ukraine, 3km to the west from Velyki Sorochynska village.

The area has a developed gas transportation infrastructure. Within 7km of the license is a new gas plant that is already connected to the main trunkline. There is gas processing infrastructure in close proximity to the licence.

The license is an exploration license which includes the rights for pilot production (on a commercial basis) prior to obtaining a production license. The license terms are that geological studies are to be undertaken and one well is to be drilled within the license area.

Location of the field Myrgorodskyi District, Poltavska Region

Subsurface natural resources

Natural gas and gas condensate

Right of use natural resources

Exploration, including pilot production

Total area of the field 96.90 sq. km

Date of issuance 14 August 2007

Duration 5 years – the licence can be extended for a further 5 years and is convertible to a 20 year production licence

Conversion to production licence

Holder of exploration permit has preferential treatment in application for production permit, subject to compliant application.

On positive discovery, holder of exploration permit may be granted production permit automatically.

Permits can be suspended or cancelled – refer to Section 10.8 for further details.

The Sorochynska project is located on the southern slope of the Malosorochynsko-Radchenkivske structural zone in the central part of the Dnieper-Donets depression. It belongs to the Glynsko-Solokhyvske oil-and-gas bearing sub-basin.

The Sorochynska field contains two hydrocarbon bearing horizons (B-18B and B-24/25) in the Visean sandstones of the Lower Carboniferous. The B-18b reservoir is located on the northern slope of a monoclinal block. The reservoir is a stratigraphic pinch-out, broken into separate tectonic blocks bounded by faults with amplitudes of 10-50 metres. Within the field, two wells #469 and #110 produced 7.7 bcf of gas and 227,000 bbls of condensate. Both wells had mechanical failures. Hawkley is currently drilling a twin with well #110 to seek to access the remaining estimated reserves in the BB18b horizon.

Well #201 has recently been experiencing delays due to defective drilling pipe. This resulted in a broken pipe 465 metres down the well. At the time, the well depth was 2,997 metres. As at the date of the Prospectus, successful fishing operations have recovered 2,113 metres with 419 metres of pipe still in the hole. Intermediate casing has been set to 2,429 metres. The open hole is 149 metres below the bottom of the intermediate casing. Hawkley has informed the Company that, since the fishing operations have slowed down, a decision has been made to cement off the pipe remaining in the well and deviate around the obstruction. Dead Eye Engineering (Canada), Smith Company (USA), New Tech (USA) and MI Swaco (USA) have been engaged to manage, engineer, and provide the equipment to complete the directional drilling. One of Hawkley’s contractors has replaced the entire drill string and the new, unused pipe is currently being delivered to site. Cementing operations are anticipated to commence in mid-April 2010. The drilling is intended to proceed until a target depth of 4,200 metres is reached.

The Chernetska project is located approximately 300 km north east of Kiev in the Talalayvskiy district of the Chernigiv region of Ukraine, about 2km to the southeast of the village of Chernetska.

The area has a developed gas transportation infrastructure. A network of pipelines that are part of the United Energy System of Ukraine pass through the License area.

The license is an exploration license which includes the rights for pilot production (on a commercial basis) prior to obtaining a production license. The license terms are that reprocessing of the seismic data studies are to be undertaken and one well is to be drilled within the license area.

Location of the field Talalayivskyi District, Chernygiv Region

Subsurface natural resources

Oil and natural gas

Right of use natural resources

Exploration including pilot production


Date of issuance 19 July 2007

Duration 5 years – the licence can be extended for a further 5 years and is convertible to a 20 year production licence

Conversion to production licence

Holder of exploration permit has preferential treatment in application for production permit, subject to compliant application.

On positive discovery, holder of exploration permit may be granted production permit automatically.

Permits can be suspended or cancelled – refer to Section 10.8 for further details.

The Chernetska gas-condensate project is located in the northwestern part of the Dnieper-Donets Basin in the Glynsko-Solokhyvske oil-and-gas bearing sub-basin.

The Chernetska gas-condensate project is located in the northwestern part of the Dnieper-Donets Basin in the Glynsko-Solokhyvske oil-and-gas bearing sub-basin.

The Chernetska field contains three hydrocarbon bearing horizons (B-20, B-21/22 and B-24/25) in the Visean sandstones and limestones of the Lower Carboniferous.

Well Slob #321 intersected oil in the B-20 horizon near the oil-water contact. Recent seismic studies have shown a three way up dip fault bounded reservoir that is expected to contain up to 4.8 mbbls of oil.

The B-21/22 reservoir is the up dip pinch out extension of the Zymnytska and Voloshka fields to the south of the license area. According to the data reviewed by Hawkley, well Zim #3 (Zymnytska Field) is currently flowing at 5.3 mmcfd gas and 435 bbls condensate per day and well Volo #14 (Voloshka Field) is currently flowing at 11.7 mmcfd gas and 1,080 bbls condensate per day. The B-21/22 horizon is a secondary target within the license. Some of the wells drilled into the B-24/25 horizon may intersect the B-21/22 horizon and may be tested if hydrocarbons are detected.

As at the date of this Prospectus, the primary target within the License is the B-24/25 reservoir. The reservoir consists of a Visean platform carbonate with biohermal development. The well logs show zones of areas of high fracture density with cavities and vugs in the limestone. Three wells were drilled in the late 1980’s, some of which tested commercial gas flows - Lak #7 tested 1.44 mmcfd, Lak #2 tested 1.84 mmcfd and well Slob #3 tested 0.78 mmcfd on open hole tests.

Figure 4 shows a proposal for full development of the project, including the four gas plants.

It should be noted that the continued exploration of the licences (and any resultant production) and the proposed use of funds will be subject to modification on an ongoing basis depending on the results obtained from exploration and development activities as they are carried out.

Due to market conditions, the development of new opportunities and or any number of other factors (including the risk factors outlined in this Prospectus) actual expenditure levels may differ significantly to the above estimates. The Company also intends to capitalise on other opportunities as they arise which may result in costs being incurred that are not included in these estimates. Please refer to Section 5.7 for further details.

Hawkley currently pursues new licence and acquisition opportunities as a matter of course. Significant management time is spent sourcing and reviewing new opportunities. The current focus for such activity is in Ukraine where Hawkley believes it has an advantage over non-current Ukrainian operators through its many years of experience in Ukraine. No guarantee is given that Hawkley will be granted new licences or be successful in acquiring other assets.

The technical information provided in this Prospectus has been compiled by Mr Paul Morgan, the current chairman of Janita Global Limited (trading as Hawkley Oil and Gas Limited) and a qualified geologist with over 30 years experience. Mr Morgan is a member of the Society of Petroleum Engineers. Mr Morgan has reviewed the results, procedures and data contained in this Prospectus. Mr Morgan consents to the inclusion in this Prospectus of the matters based on the information in the form and context in which it appears.

Melvyn Bridges – Executive Chairman

Mr Bridges has over 30 years experience in the biotechnology and healthcare industries. Mr Bridges is currently the Chairman of Alchemia Ltd and ImpediMed Ltd and a non-executive director of Benitec Ltd. He is also a director of a number of private companies involved in the biotech industry.

Mr Bridges will resign as a director on settlement of the Acquisition of Hawkley.

Winton Willesee – Non Executive Director

Mr Willesee is a current Director of the Company and Company Secretary of Sarantis. Mr Willesee is an experienced Director and Company Secretary in the small capitalisation sector of ASX.

Mr Willesee will resign as a director on settlement of the Acquisition of Hawkley.

Eric de Mori - Non Executive Director

Eric is the Associate Director of Corporate Finance for corporate advisory and stock broking firm Cygnet Capital. Eric has over 5 years investment banking and analyst experience covering a wide range of sectors, working with international and Australian based opportunities.

Mr de Mori will resign as a director on settlement of the Acquisition of Hawkley.

Paul Morgan – Non-Executive Chairman

Mr Morgan has 35 years public company experience and is a qualified geologist with over 30 years’ experience in developing countries. Mr Morgan spent 14 years with Chevron Oil Company and was a former member of the Advisory Board of Resource Capital Finance. Mr Morgan was the founding Director of Gabriel Resources and former Executive Chairman of Canadian listed Goldbelt Resources Ltd. Mr Morgan’s Ukrainian experience comes from being the former Chairman and Chief Executive Officer of AIM listed Regal Petroleum. Mr Morgan is a founding member of Hawkley.

Richard Reavley – Chief Executive Officer & Executive Director

Mr Reavley has over 10 years experience working in London’s financial sector and the natural resource industry. A founding member of Hawkley, Mr Reavley has been the managing director of Hawkley since January 2007. Mr Reavley has relevant experience managing oil and gas assets in Europe and Central Asia. He has public company experience as a former director of Goldbelt Resources a TSX listed company. Mr Reavley has a BSc in Chemistry from the University of Kent and an MBA (Finance) from London Business School.

David Riekie – Non Executive Director

Mr Riekie has more than 14 years experience as an Executive Director of a boutique corporate advisory company. During this period Mr Riekie held a variety of non executive board positions, either as Independent Non Executive Chairman or Non Executive Director for ASX listed companies in both the resource and industrial sectors. Mr Riekie has experience in the resource sector at the exploration, pre production and production level for oil and gas, precious and base metals, mineral sands both within Australia and overseas. Mr Riekie is a Chartered Accountant, a Member of the Institute of Company Directors and holds a Bachelor of Economics and a Diploma of Accounting.

At the present time, Hawkley has a small technical management team. Hawkley has retained a number of independent technical consultants, having specialised experience, to provide technical expertise to Hawkley in connection with the design of its phase 1 assessment program, permitting and regulatory compliance, the drill program, seismic testing and resource and reserve estimation.

Following completion of the assessment program, and dependent upon the results of that program, Hawkley intends to develop the depth of its technical management with skill sets and disciplines necessary to continue the logical development of Sorochynska and Chernetska projects and any future projects going forward.

A summary of the key independent technical consultants currently retained, or planned to be retained, by Hawkley is set out below:

Drilling

Hawkley has retained Deadeye Engineering Inc. of Calgary, Alberta, to coordinate the provision of all drilling services necessary to undertake Hawkley’s planned drilling program on the project. Mr. John Garden, the principal of Deadeye Engineering Inc., has extensive experience in cold weather drilling in Alaska, Canada, Siberia and the Ukraine.

Drilling Rigs

Hawkley commenced drilling well #201 on 2 November 2009. Hawkley has entered into a fixed price contract with the joint stock company Bukros to drill well #201.

Hawkley will retain other independent technical consultants from time to time to augment its in house management team.

The Directors monitor the business affairs of the Company on behalf of Shareholders and have formally adopted a corporate governance policy which is designed to encourage Directors to focus their attention on accountability, risk management and ethical conduct. The Board and management are committed to corporate governance and to the extent that they are applicable to the Company have followed the “Principles of Good Corporate Governance and Best Practice Recommendations” issued by the ASX Corporate Governance Council.

Details of the composition of the Board and proposed Board (following the Acquisition) are set out in Section 6.2.

The Board recognises the need for the Company to operate with the highest standards of behaviour and accountability.

An organisational chart indicating the proposed management structure of Hawkley is set out below:

Hawkley is in the process of recruiting additional key personnel to its organisational structure.

Paul Morgan

Richard Reavley

Olga Cherkashina

Victor Dmytriev

Technical Team

John Garden

Igor Kondrat

Sergey Galchenko

Svetlana Shulga

TBA

David Riekie

The members of the Board are considered independent in terms of the ASX Corporate Governance Council’s definition of independent director.

As the Company’s activities increase in size, scope and/or nature the Company’s corporate governance principles will be reviewed by the Board and amended as appropriate.

The Company’s corporate governance statements are available on the Company’s website at www.incitiveltd.com.

The Company’s Board of Directors is responsible for the corporate governance of the Company. The Board develops strategies for the Company, reviews strategic objectives and monitors performance against those objectives. The goals of the corporate governance processes are to:

(a) maintain and increase shareholder value;

(b) ensure a prudential and ethical basis for the Company’s conduct and activities; and

(c) ensure compliance with the Company’s legal and regulatory objectives.

Consistent with these goals, the Board assumes the following responsibilities:

(a) developing initiatives for profit and asset growth;

(b) reviewing the corporate, commercial and financial performance of the Company on a regular basis;

(c) acting on behalf of, and being accountable to, the Shareholders; and

(d) identifying business risks and implementing actions to manage those risks and corporate systems to assure quality.

The Company is committed to the circulation of relevant materials to Directors in a timely manner to facilitate Directors’ participation in the Board discussions on a fully-informed basis.

Election of Board members is substantially the province of the Shareholders in general meeting. However, subject thereto, the Company is committed to the following principles:

(a) the Board is to comprise Directors with a blend of skills, experience and attributes appropriate for the Company and its business; and

(b) the principal criterion for the appointment of new Directors is their ability to add value to the Company and its business.

No formal nomination committee or procedures have been adopted for the identification, appointment and review of the Board membership, but an informal assessment process, facilitated by the Chairman in consultation with the Company’s professional advisors, has been committed to by the Board.

Subject to the Chairman’s approval (not to be unreasonably withheld), the Directors, at the Company’s expense, may obtain independent professional advice on issues arising in the course of their duties.

The remuneration of an executive director will be decided by the Board.

The total maximum remuneration of non-executive Directors is the subject of a Shareholder resolution in accordance with the Company’s Constitution, the Corporations Act and the ASX Listing Rules, as applicable. The determination of non-executive Directors’ remuneration within that maximum will be made by the Board having regard to the inputs and value to the Company of the respective contributions by each non-executive Director.

The Board may award additional remuneration to non-executive Directors called upon to perform extra services or make special exertions on behalf of the Company.

The Company in general meetings is responsible for the appointment of the external auditors of the Company and the Board, from time to time, will review the scope, performance and fees of those external auditors.

The Company is to have a separately constituted audit committee.

The Board’s collective experience will enable accurate identification of the principal risks that may affect the Company’s business. Key operational risks and their management will be recurring items for deliberation at Board Meetings.

The Board is committed to the establishment and maintenance of appropriate ethical standards.

Hawkley Independent Specialist’s Report – March 2010

Independent Technical Specialist’s Report on Certain Petroleum Assets of Hawkley Oil & Gas in Ukraine

on behalf of

Incitive Limited

March 2010

International Experience, Global VisionRISC Pty Ltd Resource Investment Strategy Consultants

AUSTRALIA PERTH OFFICE

Level 3 1138 Hay Street WEST PERTH WA 6005

Tel: +61 (0)8 9420 6660 Fax: +61 (0)8 9420 6690 E-mail: [email protected] Website: www.riscpl.com

AUSTRALIA BRISBANE OFFICE

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UNITED KINGDOM OFFICE

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Integrity Experience Advice


Incitive Limited (“Incitive”) has commissioned RISC Pty Ltd (“RISC”) to provide an Independent Technical Specialist’s Report to be used as part of a prospectus referencing Incitive’s agreement to acquire the oil and gas exploration and development company, Hawkley Oil and Gas Limited (“Hawkley”). The report covers Hawkley’s assets in the Dnieper Donets Basin in Eastern Ukraine. The assets are grouped geographically under the Chernetska Licence and the Sorochynska Licence, and are held in a wholly owned subsidiary company, Prime Gas LLC.

RISC has reviewed the reserves/resources in accordance with the Society of Petroleum Engineers Petroleum Resource Management System (SPE-PRMS) and standards.

The assessment of petroleum assets is subject to uncertainty because it involves judgments on many variables that cannot be precisely assessed, including reserves, future oil and gas production rates, the costs associated with producing these volumes, access to product markets, product prices and the potential impact of fiscal/regulatory changes.

The statements and opinions attributable to RISC are given in good faith and in the belief that such statements are neither false nor misleading. In carrying out its tasks, RISC has considered and relied upon information obtained from Incitive personnel in Perth and Kiev as well as information in the public domain. RISC personnel visited Hawley’s office in Kiev to gather information in preparation of this report. The major sources of information were Hawkley’s own technical work and Moyes & Co’s 2009 evaluation of these licences.

In some respects the project data were not as comprehensive as would typically be available. In particular

the seismic data set was very limited and all on paper, without a description of reprocessing methodology where relevant,

mud logs or drilling reports were not available,

original production data was not available and pressure survey data was limited

PVT and fluid compositional data was limited.

The information provided to RISC has included both hard copy and electronic forms.

Whilst every effort has been made to verify data and resolve apparent inconsistencies, neither RISC nor its servants accept any liability for its accuracy, nor do we warrant that our enquiries have revealed all of the matters, which an extensive examination may disclose. In particular, we have not independently verified property title, encumbrances, regulations that apply to this asset(s). RISC has also not audited the opening balances at the valuation date of past recovered and unrecovered development and exploration costs, undepreciated past development costs and tax losses.

We believe our review and conclusions are sound but no warranty of accuracy or reliability is given to our conclusions.

RISC has no pecuniary interest, other than to the extent of the professional fees receivable for the preparation of this report, or other interest in the assets evaluated, that could reasonably be regarded as affecting our ability to give an unbiased view of these assets.

Our review was carried out only for the purpose referred to above and may not have relevance in other contexts.



1 EXECUTIVE SUMMARY 43

2 OVERVIEW 46

3 Licence 3003 - SOROCHYNSKA 50

3.1 Data Available to RISC 50

3.2 Sorochynska B-18b Reservoir 51

3.2.1 Well results and Historical Production 51

3.2.2 Volumetric Estimation 52

3.2.3 Reservoir Engineering Analysis 55

3.2.4 Development Scenarios 58

3.3 Sorochynska B-24-25 Reservoir 60

3.3.1 Well results 60


3.3.3 Proposed Development Plan 66

4 Licence 2982 - CHERNETSKA 67

4.1 Data Available to RISC 67

4.2 Chernetska B-20 Reservoir 67



4.2.3 Proposed Appraisal Plan 70

4.3 Chernetska B-21-22 Reservoir 72



4.4 Chernetska B-24-25 Reservoir 75



4.4.3 Proposed Development Plan 77

5 Qualifications and Experience 78

5.1 Qualifications 78

5.2 Independence 78

5.3 Consent to being named in Prospectus 79

6 REFERENCES 80

7 APPENDIX 81

7.1 Discussion on State Balance vs RISC vs Moyes resource estimates 81

7.2 Description of Russian reserves system 86

7.3 RISC Probabilistic volumetrics calculation parameters 88

8 LIST OF TERMS 89

Figure 1 Asset location map .....................................................43

Figure 2 Ukrainian tectonic elements ........................................46

Figure 3 Dnieper-Donets Basin stratigraphic column ................47

Figure 4 Dnieper-Donets Basin cross-section ...........................48

Figure 5 Illustrative Sorochynska wireline logs ...........................51

Figure 6 Sorochynska B-18b a) Isopach with notional drainage area shown b) Depth structure map .............54

Figure 7 Material Balance Model of Sorochynska#110 .............56

Figure 8 RISC Production Profile for Sorochynska#201 ............57

Figure 9 RISC and Kisil Production Forecasts ...........................58

Figure 10 Chernetska B-24-25 depth structure map ..................61

Figure 11 B-24-25 Sorochynska well test results ........................61

Figure 12 B-24-25 field and well test locations ...........................64

Figure 13 Well #321 logs ............................................................68

Figure 14 Chernetska B-20 depth structure map ........................70

Figure 15 Chernetska seismic lines a) 249 988 b) 227 9 88 ........71

Figure 16 Chernetska B-21-22 sand pinch-out map...................72

Figure 17 Chernetska B-21-22 seismic 26 992, line illustrating pinch-out .............................................73

Figure 18 Chernetska B-21-22 depth structure map ..................73

Figure 19 Chernetska B-24-25 reservoir thickness and test results ..................................................................77

Figure 20 Comparison of Russian Resource classification versions (Schaefer, 2009) ............................................81

Figure 21 Resource classification: SPE vs Russian (Grace, 1993) ..............................................................82

Table 1 Chernetska and Sorochynska summary resource assessment ................................................................44

Table 2 Sorochynska B-18b reservoir reserves ........................53

Table 3 B-24-25 Sorochynska well test results ........................62

Table 4 B-24-25 flow rate comparison: open hole and production ...........................................................63

Table 5 Sorochynska B-24-25 resources ................................65

Table 6 Sorochynska B-24-25 Geological Probability of Success..................................................................66

Table 7 Chernetska B-20 resources ........................................69

Table 8 Chernetska B-20 Geological Probability of Success ....69

Table 9 Chernetska B-21-22 resources ...................................74

Table 10 Chernetska B-21-22 Geological Probability of Success..................................................................74

Table 11 Chernetska B-24-25 resources ...................................76

Table 12 Resources category comparison.................................85

Table 13 RISC Probabilistic volumetrics calculation parameters 88



Hawkley Oil and Gas (‘Hawkley’) holds two onshore exploration and pilot production licences in the Dnieper-Donets basin in the eastern Ukraine; Chernetska and Sorochynska, situated 200-275 miles to the east of Kiev (see Figure 1). These licences were awarded for an initial 5 year period, extendable for another 5 years, and convertible to 20 year production licences. Hawkley is drilling well #201 on Sorochynska at the time of writing, and has completed a seismic work programme of 386km of 2D seismic reprocessing at Chernetska. RISC has reviewed resources in the following Carboniferous reservoirs: the B-18b, B-20, B-21-22, sandstones, and the B-24-25 limestones.

RISC’s analysis has been influenced by the limited data available: public domain information on fields and wells in the Ukraine is difficult to access since Operators own the well data and are under no obligation to release it, the state published reserves for offset fields are not readily available, and Ukrainian rather than English is the technical language employed. RISC has relied on Hawkley for all of the well results and field production history information, including translations, contained in this report.

On the Sorochynska licence, prior to Hawkley’s operatorship, production of 7.7 Bcf and 247,000 stb condensate was achieved from two wells in the B-18b reservoir, from 1983-1991. The two production wells were interpreted to be in separate fault blocks not in pressure communication. The first well, #469, was abandoned after depletion, while the second well, #110, was abandoned after it watered out. The origin of this water is believed by Hawkley to be behind-casing flow from an overlying water saturated reservoir. The objective of well #201 is to re-develop the #110 fault block. RISC considers that it is a reasonable interpretation that the well did not fail due to encroachment of an active aquifer and estimates that the field has remaining 2P reserves of 13.2Bcf gas and 0.35MMstb of condensate (Table 1). These volumes pass a commerciality test. The development plan is to tie a single well (#201) back to one of two nearby gas plants with an approximately 7km long pipeline, at a total estimated development cost of US$9.7 million.

Also on the Sorochynska licence, the underlying B-24-25 Visean Carbonate interval has had six well penetrations in the licence, all of which had indications of gas and three had measurable flow rates, although sub-economic. Hawkley suggests that these results indicate that the limestones are pervasively gas saturated, that poor evaluation techniques have led to an underestimate of the potential deliverability, and that well designed drilling and completion programmes should lead to significantly better flow rates. RISC considers that resources in the ‘East Block’, which has been successfully tested, are contingent resources with a Best Estimate of 23Bcf gas and that the resources in the ‘Mid block’, which has not had a successful test, are prospective resources with a Best Estimate of 13Bcf gas, and a geological chance of success of 60%. Successful appraisal is dependent on proving areas which have developed good porosity and permeability, and successful production is contingent on establishing that good drilling and completion practices can deliver sustainable and commercial flow rates.

The Chernetska licence has not had any long term production. Six wells have been drilled on-block, of which two have been tested. One of these, well #321, discovered oil in the B-20 sandstone; its short lived test flowed oil but watered out quickly. Hawkley interprets this as evidence for the oil-water contact of a small low relief tilted fault block trap, and plans to appraise up-dip with a future well. RISC



assigns Best Estimate resources of 1.7MMstb oil and classifies these as prospective resources, since the presence of a trap on seismic is not conclusive, and assigns a geological chance of success of 54%.

The Voloshky gas field lies 10km south of the Chernetska licence, and contains gas in the stratigraphically trapped B-21-22 sandstones. These sands pinch-out towards the north-east, onto the basin flank. Hawkley interpret seismic evidence to indicate that

a similar aged interval pinches-out within the Chernetska licence. RISC notes that the interval correlates to unsuccessful wells outside the Voloshky field boundary, and requires an un-proven separate sand lobe development to provide better reservoir quality. RISC has calculated that the Best Estimate recoverable volumes in such a trap are 44Bcf and 2MMstb of condensate, and class these as prospective resources with a geological chance of success of 18%.

The B-24-25 Visean Carbonates also appear to be pervasively gas saturated on the Chernetska licence. Lak-7 (on-block) and Lak-2 (off-block) flowed gas on tests of a few minutes duration with estimated rates of 1.5MMscf/d and 1.8MMscf/d respectively. RISC considers that this establishes contingent resources on the block, and assigns Best Estimate resources of 37Bcf and 1.1MMstb of condensate. Successful production is contingent on establishing that the reservoir can deliver sustained and commercial flow rates on-block, and the higher estimate resources require higher flow rates to be achieved as a result of improved completion practices.

LICENCE RESERVOIR

HAWKLEY WORKING INTEREST

RECOVERABLE GAS (BCF) RECOVERABLE CONDENSATE (MMSTB)

CATEGORYPROVEDPROVED + PROBABLE

PROVED + PROBABLE + POSSIBLE PROVED

PROVED + PROBABLE

PROVED + PROBABLE + POSSIBLE

Sorochynska B-18b 100 0 13.2 0 0.35 Reserves

LICENCE RESERVOIR



CATEGORYLOW

ESTIMATEMID

ESTIMATEHIGH

ESTIMATELOW

ESTIMATEMID

ESTIMATEHIGH

ESTIMATE

SorochynskaB-24-25

East Block100 4.1 23 126 0.1 0.6 3.5

Contingent resources

SorochynskaB-24-25

Mid Block100 2.1 13 77 0.1 0.4 2.2

Prospective resources

Chernetska B-24-25 100 6.1 37 229 0.2 1.1 6.4Contingent resources

Chernetska B-21-22 100 15 44 126 0.7 2.0 5.7Prospective resources

LICENCE RESERVOIR



CATEGORYLOW

ESTIMATEMID

ESTIMATEHIGH

ESTIMATELOW

ESTIMATEMID

ESTIMATEHIGH

ESTIMATE

Chernetska B-20 100 0.6 1.7 4.8Prospective resources



Hawkley Oil and Gas (‘Hawkley’), through its subsidiary, Prime Gas LLC, holds two onshore exploration and pilot production licences in the Dnieper-Donets basin in the eastern Ukraine, awarded through a public tender. Chernetska is situated 200miles ENE of Kiev, and Sorochynska is 275 miles ESE of Kiev (see Figure 2).

Licence 2982, referred to by the area it is located in, ‘Chernetska’, was awarded in July 2007 and covers 69.2km2. Licence 3003, known as ‘Sorochynska’, was awarded in August 2007 and covers 104.6km2. These licences were awarded for an initial 5 year period, extendable for another 5 years, and convertible to 20 year production licences. The proposed work programme on Chernetska was to reprocess 2D seismic and to drill one well: 54 2D seismic profiles, totalling 386.2km, were reprocessed in 2008. The work programme on Sorochynska was to drill one well, and well #201 was spudded on the licence in November 2009 which, at the time of writing, is expected to complete operations in mid-2010.

Hawkley bought these licences based on the official Ukrainian State Reserves, known as the ‘State Balance’. These figures, their Ukrainian (similar to Russian) classification and a comparison with the results of both this analysis and Moyes’ results are shown in the Appendix.

The licences are located in the intra-cratonic Dnieper-Donets basin which contains the majority of the Ukraine’s hydrocarbon production: in 2006 it produced over 730Bcf gas (Pirani, 2007)1. Discovered reserves are reported to be 1.6billion bbls or oil and 59Tcf gas2.

The Ukraine is the main distribution route for gas from Russia and Central Asia to the west, and a network of major gas trunk lines cross the area. A pipeline crosses the Chernetska licence, and one passes within 30km of the Chernetska licence.

1 Pirani, 2007, ‘Ukraine’s Gas Sector’, Oxford Institute for Energy Studies2 Ulmishek, 2001, ‘Petroleum Geology and Resources of the Dnieper-Donets

Basin, Ukraine and Russia’, USGS Bulletin 2201-E http://pubs.usgs.gov/bul/2201/E/

The Dnieper-Donets basin is a Devonian rift overlain by Carboniferous to early Permian post-rift sag. The sedimentary succession of the basin consists of four tectono-stratigraphic sequences (Figure 3). The pre-rift platform sequence includes Middle to early Upper Devonian (mainly) clastic rocks that were deposited in a large intra-cratonic basin. The Upper Devonian synrift sequence may be up to 4–5 kilometres thick. It is composed of marine carbonate, clastic and volcanic rocks and two major salt formations. The postrift sag sequence consists of Carboniferous and Lower Permian clastic marine and alluvial deltaic rocks that are up to 11 kilometres thick in the south-eastern part of the basin. The Lower Permian interval includes a salt formation that is a regional seal for oil and gas fields. The basin was affected by strong compression in Early Permian time,



when areas in the south-east of the basin were uplifted and eroded. The postrift platform sequence comprises Triassic through to Tertiary formations that were deposited in a shallow platform depression that was much more extensive than the historic Dnieper-Donets basin (Ulmishek, 2001). Chernetska and Sorochynska lie on the north and south limbs of the basin respectively and exhibit low relief monoclinal dip out of the basin (see Figure 4).

Historical play types in Hawkley’s licence areas are hosted within multiple reservoirs in Carboniferous shallow marine or fluvial clastics predominantly in stratigraphic traps. Minor structuration may lead to compartmentalisation or structural components of trapping mechanisms. The Visean Carbonate platform play is less well developed; however the limestones frequently exhibit evidence for hydrocarbon saturation during drilling and on test. The Dnieper-Donets basin is classified as a ‘Basin Centred Gas’ (BCG) accumulation (Law 1998), sometimes known as deep-basin, tight or continuous gas accumulations i.e. a basin in which gas is regionally pervasive and lacks a down-dip water contact. Although this work refers to the Carboniferous clastics, the limestone appear to be gas saturated wherever porosity is developed, and Hawkley report that no water has been encountered in these limestones, suggesting that it may conform to the description of a BCG accumulation. Prospectivity is present whenever porosity and fracture permeability combine to deliver commercial flow rates on test. Clastic reservoir seals are provided by intra-Carboniferous shales combined with stratigraphic pinch-out, while carbonate traps are limited by porosity and permeability reduction. The source for the gas and condensates found in the basin is the regional anoxic shale and carbonate of the Lower Carboniferous Visean, and the Devonian.

RISC reviewed the B-18b sandstone and B-24-25 limestone reservoirs in the Sorochynska block and in the Chernetska Block the B-20, B-21-22 sandstone, and B-24-25 limestone reservoirs were reviewed. Ten wells have been drilled on the Sorochynska licence, and two wells produced a combined total of 7.7 Bcf and 247,000 stb condensate from the B-18b reservoir from 1983-1991. Six wells have been drilled on the Chernetska licence, and there has been no production on-block. The licences are covered by a grid of 2D seismic, acquired in a number of campaigns between 1965 and 1984.

The geological and geophysical data available for RISC to perform an evaluation of the assets was limited: drafted structure, thickness and porosity maps of the B-18b reservoir, as well as structure and porosity-thickness maps for the B-24-25 reservoir were provided. Some sample 2D paper seismic lines were also available. Displays of wireline logs were available for most of the wells, presented as single well plots in digital images (Figure 5). These largely Russian wireline logs included: Caliper, Resistivity Potential, Resistivity Gradient and Self Potential. Tabulations of petrophysical parameters were provided, but not the petrophysical analysis. RISC has relied on Hawkley for log interpretation results (porosity and water saturation) since ancillary information such as mud logs and drilling reports were not available, and qualitative interpretation of the resistivity logs was of limited use.

The well drillers spud location document was provided for the well that is actively drilling on the block, #201, together with a translation from the Ukrainian, indicating the well was 300m south-south-west of well #110. At the time of writing the final well survey had not been performed due to thick snow cover.

For the reservoir engineering analysis, historical production and pressure data were not provided by Hawkley, but were taken from an undated simulation report3 which also described rock and fluid properties. Compositional data was provided for the #110 and #469 wells, although no original PVT data were provided for the #110 well. Additionally, the initial #110 well production test (from 1988) was provided. Only production data from 1990 was available for analysis in the Kisil report. The early production data (gas, condensate and water rates for all of 1989) were not provided. Rates in 1989 were interpolated by Kisil based on two data points of cumulative gas production. In the absence of other data, RISC has used this interpolated production history. Initial reservoir pressure for the #110 accumulation was based on a well test report conducted in 1988. No other supporting data for the reservoir pressures used in this assessment were available.

A report prepared by Moyes & Co., Inc. in March 2009 on the evaluation of Sorochynska and Chernetska Licenses for Hawkley was made available for RISC’s review.

Hawkley prepared a Business Plan in July 2009 describing the proposed development activities for both licensed blocks, Sorochynska and Chernetska, which was made available to RISC. The plan details the short, medium and long term field development activities as well as the progress achieved so far, including associated expenditures. This was supported by a presentation document entitled Hawkley Nov 09 presentation.

Supporting documents for the economics review included the following:

Baker Tilly Ukraine - Fiscal regime 2008Baker Tilly Ukraine - Fiscal regime 2007Clifford Chance - Updated title opinionE-mail from office of Prime Gas to Richard Reavley dated 27/01/2010

Public domain information on fields and wells in the Ukraine is difficult to access as Operators own the well data and are under no obligation to release it, the state published reserves for offset fields are not readily available, and the Ukrainian language uses the Cyrillic alphabet which makes internet research unproductive. RISC has relied on Hawkley for all of the well results and field production history information contained in this report.

3 Kisil (an expert of the State Committee on Reserves of Ukraine) produced a reservoir engineering analysis of B-18b production from Sorochynska wells #110 and #469



3.2.1 Well results and Historical Production

Ten deep wells have been drilled on the licence (Figure 6). Well #469 was the first to be drilled in 1981; this tested gas from the B-18b Visean sandstone at around 4km depth. All subsequent wells found the B-18b sandstone formation, with well #110 (1988) also testing gas from this reservoir. In addition, Hawkley is drilling well #201 on the block in a redevelopment of the B-18b reservoir at the time of writing.

Well #469 was placed on production from the B-18b reservoir in 1983, at an initial rate of 7.8-8.8MMscf/d and a Condensate/Gas Ratio (CGR) of 145-150g/m3 (33-34 bbl/MMscf). The well produced with a decreasing CGR and almost no water for four years, until pressures dropped from the initial 41.7MPa to 10.7MPa. The well was abandoned in May 1988 having produced 4.6 Bcf of gas and 14,900 tonnes (0.12 MMstb) of condensate with no significant water.

Production from the Sorochynska #110 well started in January 1989 and produced at gas and condensate rates of approximately 4 MMscf/d and 170 stb/d until January 1991. In May 1990 water rates rose from 1 bbl/d to 11 bbl/d and continued rising to 21 bbl/d in January 1991, when production ceased, with total production of 3.1 Bcf and 0.13 MMstb of condensate.

Hawkley has reviewed the well history and concluded the water production in #110 was due to a casing leak, allowing formation waters into the well from the undepleted and water-saturated B-17 reservoir, rather than as a result of an active aquifer encroaching on the well. Evidence for this is held by the well’s owner, Ukrnafta, and has been seen by Hawkley personnel, but has not been viewed by RISC. Hawkley report that temperature logging showed a rise in temperature, indicating water influx from another formation. The location of the water movement was apparently identified by Gamma logs run before and after water entry: higher radioactivity levels indicated that water had moved through the overlying formation in-between logging runs. Hawkley interpret these data to mean that water entered through the upper perforations, from an overlying horizon.

Hawkley’s plans to redevelop the field are based on a view that a substantial proportion of GIIP remains undeveloped: initial pressure in the reservoir at well #110 was 40.9MPa, very similar to the 41.7MPa observed at #469. However, the final measured pressure at #110 was 33.7MPa, significantly higher than the abandonment pressure of 10.7MPa at #469.

3.2.2 Volumetric Estimation

The B-18b reservoir appears to be present in all wells on the block. A comprehensive geological model has not been described, but the operator considers it to be a fluvial reservoir with restricted communication between individual sand bodies. The formation comprises light grey to dark grey sandstones and siltstones with interspersed claystones, and has a total thickness of 60-90m, of which net sand comprises 7.2-26.8m. This restricted connectivity is required to explain why the #109, #120 wells are dry when they are up-dip from the #469 and #110 producers (Figure 6a). A fault is inferred by the operator between the two shut-in production wells, #469 and #110, to explain the pressure differential between these wells after production, although this has not been demonstrated on seismic.

The Sorochynska licence is located on the southern flank of the basin, and contains little structuration other than monoclinal dip up to the south-south-west (Figure 6b). The limited 2D seismic grid does not define any structural trapping mechanisms at Sorochynska; the trap must therefore be stratigraphic with potentially some fault seal component. Top seal to the B-18b sand is provided by intra-Carboniferous shales and lateral seal by stratigraphic pinch-out, reservoir quality degradation, faulting or a combination of the above. The source for the gas and condensate is the regional anoxic shale and carbonate of the Lower Carboniferous Visean, and the Devonian.

RISC has undertaken material balance analysis to derive in-place volumes from the sparse pressure data available. This estimate has been checked by RISC against the implied spatial extent of the reservoir using a deterministic volumetric calculation. This used Hawkley’s estimate of porosity (9.7%) and water saturation (15%) derived from well logs, and fluid properties derived from the well test and production data. The material balance indicates that the well intersected a connected gas in place volume of 23.5 Bcf. Using the net reservoir thickness seen in the well (10.5m), this infers a



drained area of 2.2km2, equivalent to a circle with radius 830m. Figure 6a shows a drainage circle of 830m centered on #110, for demonstration purposes only. While the material balance calculation provides information on the volumes of gas initially in place, it does not indicate the location or shape of the hydrocarbon pool in relation to the #110 well, and in this project, the seismic and well data provide no additional information to constrain our understanding of the accumulation (see also discussion in Section 3.2.3.1).

While, the new well, #201, has been located as close to #110 as was operationally expedient, 300m to the south-south-west, there remains a finite risk that the development well #201 may miss the #110 gas accumulation. This development proposal is for a single well development, without a plan for additional wells in the event that #201 fails either for geological or mechanical reasons. RISC therefore does not assign any 1P reserves, but assigns the estimated recoverable gas volumes to 2P Reserves.

SOROCHYNSKA RECOVERABLE CONDENSATE (MMSTB) RECOVERABLE GAS (BCF)

CATEGORYFIELD / LEAD

HAWKLEY WORKING INTEREST PROVED

PROVED + PROBABLE

PROVED + PROBABLE+

POSSIBLE PROVEDPROVED + PROBABLE

PROVED + PROBABLE+

POSSIBLE

B-18b 100 0 0.35 0.0 13.2 Reserves

3.2.3 Reservoir Engineering Analysis

RISC used a material balance model to match the historical pressures for the #110 well. There were large uncertainties in the pressure data (including shut-in time and gauge depth), with original data only sighted for the pre-production well test. Additional pressure data are available from the Kisil report (as previously referenced) but could not be verified.

The nearby Sorochynska #469 well was produced from 1983 to 1988. Material balance modelling of this well indicated a single tank-like reservoir, without aquifer support. This is supported by Hawkley’s regional experience, which indicates no active aquifer should be expected.

Pressure depletion in the #469 well was greater than 4500 psi; however the initial pressure in the #110 well was not depleted by production from the #469 well. This implies a sealing fault or other barrier to separate the B-18b reservoir between these two wells. An interpreted fault (Figure 6) has little hard supporting evidence.

Further anecdotal evidence provided by Hawkley supports the mechanism of a depletion drive reservoir, with no aquifer: Hawkley reports that Ukrnafta took pressures in the suspended #469 well in September 2007, measuring it at 11MPa, close to the pressure at final shut-in 19 years previously, which was 10.7MPa. This indicates there was no active aquifer to provide pressure support to the field. Personnel at Hawkley have seen the pressure data, which is owned by Ukrnafta but do not have copies, and so RISC has not reviewed the data.

Given the analogue of the #469 well, a depletion drive seems a reasonable assumption for a 2P case. However, it is possible that this could change with more data.

The Kisil simulation modelling varied the GWC depth to change the OGIP to achieve a history match. No alternative matches were considered.

The following plot shows the available pressure data. In the absence of any supporting data with which to select the most representative pressures, RISC has assumed that the final pressure is representative of reservoir pressure, while the intermediate pressures are not fully built up.



The gas initially in place in the RISC material balance model was 23.5 Bcf.

The new well, Sorochynska #201, is located approximately 300m from well #110. Based on the gas in place interpreted to be accessed by the #110 well and assuming a circular drainage area, the #201 well could be expected to access the same accumulation. However, little is known of the locations of faults and the zero pinch-out edge of the reservoir, so the assumption of a circular area (with #110 in the centre) is an idealised case. As a result, with the drainage shape unknown, the development well involves a risk to the project that it may be water saturated (as at wells #109 and #120). Additionally, due to the unknown locations of the pinch-outs and distribution of reservoir quality, there is a risk of the new well intersecting a very small (or zero) column of gas, or poorer reservoir quality.

The simulation forecast in the Kisil report stopped at an abandonment pressure of 11MPa. This was based on the final measured pressure at the #469 well and controlled by the wellhead pressure. Given the short distance from the #110 well, a similar pipeline pressure drop is expected, leading to similar wellhead pressure constraints as the #469 well (6MPa). No other commercial or economic constraints were applied.

Hawkley stated that a nearby gas project used compression to lower abandonment pressure and extend production, so increasing recovery. Hawkley indicated they would also install compression if it was commercially sensible. RISC assumed an agreement of up to 20 years with the gas plant, which is longer than the production life of the field.

The RISC production forecast for the #201 well is an extension of the material balance history match. It follows the same wellhead pressure constraint (6MPa) as the Kisil simulation and includes the tubing size (73mm OD) provided by Hawkley. It uses an initial condensate gas ratio of 40 bbl/MMscf.

Recovery from the well is 13.3Bcf and 0.35MMbbl condensate. This forecast gives a total recovery factor of 69% for gas and 48% for condensate.

Due to high gas prices in a low operating cost environment, the economic limit is only reached in the final year of the production forecast. This truncates the recovery by 0.1 Bcf, with no significant impact on condensate recovery.

Given the large uncertainties in the field structure, trap and faulting, zero 1P reserves are assigned to the field at this time. Given a successful #201 well, and production history, proved reserves could be attributed in future.

RISC assigns 2P reserves for the Sorochynska #201 project at 13.2Bcf and 0.35MMbbl condensate, based on the material balance work described above.

3P reserves have not been determined as the sparse data set is not suitable for limiting a production forecast for a high-side case. With additional pressure and production data from a successful #201 well an appropriate 3P value could be determined.

The work by Kisil was a basic dynamic reservoir simulation model. The single layer in the model, the lack of modelled aquifer and internal barriers, and the absence of water production means this simple simulation approximates a volumetric reservoir. This is partially confirmed by the reported insensitivity of the simulation results to the geology.

The Kisil simulation and the RISC material balance model provide very similar recoveries. Compared to the RISC forecasts of 13.3Bcf and 0.35MMbbl condensate, the Kisil forecasts were 13.6Bcf and 0.41MMbbl condensate. The plateau period is one year shorter in the RISC forecasts, which also differs slightly in the tail-end production.



3.2.4 Development Scenarios

The first phase of the Sorochynska field development project is a single well development which calls for completion of the #201 well and tie back to a nearby Gas Plant.

The #201 well is currently being drilled in the Sorochynska License with a primary objective of the B-18b Horizon. The estimated drilling time is eight months, including well completion, hook up and downtime. The gas stream for #201 may be processed at one of two gas plants under consideration, each 7km from the field. Hawkley has negotiated permission to access a gas plant which would allow 20 years of production without compression. At the second plant, production would be limited to 7 years without compression, due to the higher plant inlet pressure. A final decision on export route has not been taken. A pipeline will be laid from the well to the plant where the full well stream is processed. Gas and condensate previously produced in the Sorochynska field was of high quality with no H2S or inert gases (CO2 or Nitrogen).

An AFE for US$6.7 million for the 4,500m #201 well was prepared by the operator, while Moyes increased the contingencies and added time for additional depth, downtime and repairs which increased the expected cost to US$10 million. Recent budget updates made available to RISC by Hawkley predict a total cost of US$6.4 million for the well.

The operator has spent approximately US$ 2.8 million on pipe, drilling bits, rig mobilization and site preparation at July 2009 and is planning to spend approximately US$4 million to complete and test the well, and US$2 million to construct the pipeline and other associated infrastructure. The drilling is stated to have commenced in Nov 2009 with an estimated completion date of May 2010. After the evaluation of the test results, the pipeline is planned to be constructed in July 2010 with first gas in August 2010.

RISC has not seen any assumption by the operator regarding the tariff to be paid for processing of natural gas and condensate at the gas plants. Moyes suggests that they are expected to charge US$10/Mcm to process the gas and stabilize the condensate, which is considered plausible by RISC.

RISC has estimated the total development cost as US$9.7 million for the economic evaluation, which includes 15% contingency.

ITEM COST, US$MM

Drilling and Completion of Well# 201 6.4

Infrastructure & Pipeline 2.0

Contingency – 15% 1.3

Total 9.7

RISC has assumed annual fixed Opex of US$360,000 for field operating activities including well maintenance, pipeline surveys and overheads plus plant operating tariff of US$0.30$/Mcf of gas and $3/Bbl of condensate. In addition, the well is assumed to be worked over once every five years at an estimated cost of approximately US$ 220,000.

3.3.1 Well results

Ten wells have been drilled on the licence. Six wells were drilled deep enough to encounter the B-24-25 limestones, and four of them have been cored (Figure 10). All wells are reported to have gas shows and were tested; three wells flowed gas (Figure 11, Table 3).

Hawkley suggest that these results indicate that the limestones are pervasively gas saturated; the lack of structural closures associated with the gas flows support this contention. Hawkley also suggest that poor evaluation techniques have led to an underestimate of the wells’ deliverability. The Visean carbonates have not historically been the main reservoir target, and mud weights and casing programmes have not been optimised for evaluation of this reservoir. Where available, the evidence points to significantly better cased hole tests rates compared to open-hole test rates in nearby wells (see Figure 12, Table 4), indicating that better rates are available from this reservoir. Successful appraisal and production is therefore dependent good drilling/completion practices and on intersecting areas which have developed good porosity and permeability.

There has been no production from the B-24-25 limestone reservoir on the Sorochynska licence. The nearest production from this reservoir was at Kampanske (Figure 12). This field was developed with one well and produced 1.9Bcf (Ukraine C1 category reserves of 2.2Bcf) over 2-3 years. The Pririchne field, which was also developed with a single well, produced 0.35Bcf (Ukraine C1 reserves of 12.8Bcf) over 1-2 years. The Selukhivske field produced 42,400stb of condensate from this reservoir.



WELL NO.

INTERVAL OF TESTING, M

TESTING TYPE RESULTS OF TESTING

PL, (ATM) FORMATION PRESSURE

112 4,540-4,630 WPT Inflow not obtained -

4,628-4,691

Jointly with -26

In the production string

Mineralized water with gas. (water inflow from horizon -26)

527 at depth of 4,673 m

113 4,919-5,006 WPT Gas-enriched drilling fluid n/a

4,928-4,935 4,941-4,967 4,973-4,986

In the production string

Gas-enriched drilling fluid filtrate n/a

109 4,063-4,178 WPT Inflow not obtained -

4,179-4,278 Jointly with -26

WPT Mineralized water with gas

Water inflow from horizon -26

465 at depth of 4,179 m

110 4,785-4,837 WPT Low gas inflow with estimated flow of 3 thousand m3/day 532 at depth of 4,785 m

120 4,536-4,552 WPT Low gas inflow n/a

4,523-4,565 WPT Gas inflow with estimated flow of 10 thousand m3/day 539 at depth of 4,535 m

4,558-4,601 WPT Inflow not obtained -

4,596-4,627 WPT Inflow not obtained -

108 5,260-5,315 Filter Gas inflow with estimated flow of 12.5 thousand m3/day through 4 mm orifice

n/a for technical reasons

5,239-5,245 In the production string

Gas inflow with estimated flow of 3.4 thousand m3/day 629 at depth of 5,230 m



ACCU

MUL

ATIO

N

WEL

L#

DEPT

H IN

INTE

RVAL

OF

FORM

ATIO

N M

D (M

)FORMATION PARAMS OPEN-HOLE PRODUCTION CASING

DIST

ANCE

TO

CHE

RNET

SKA

KMPORO

SITY

(FRA

CTIO

N)

THIC

KNES

S (M

)

HYDR

OCA

RBO

N SA

TURA

TIO

N (F

RACT

ION)

TEST

INTE

RVAL

, MD

(M)

CHO

CK D

IAM

ETER

, MM

GAS

-RAT

E, M

3/DA

Y

COND

ENSA

TE, T

ONN

ES/D

AY

FORM

ATIO

N PR

ESSU

RE,

MPA

TEST

INTE

RVAL

, MD

(M)

CHO

KE D

IAM

ETER

, MM

GAS

-RAT

E, M

3/DA

Y (*=

CALC

ULAT

ED)

COND

ENSA

TE, T

ONN

ES/D

AY

(*=CA

LCUL

ATED

)

FORM

ATIO

N PR

ESSU

RE

MPA

Kampanske 1 4952-5100 0.024 16.2 0.85 - - - - - 4954-4979 10 261,900 45 52.3 22

11 307,200 55

Bilychivske 1 4455-4550 0.030 14.8 0.73 4460-4514 10 1,300 - - 3 20,300 18.3

4498-4529 10 23,200 - 47.6 4 28,000 20.6 36

4516-4558 10 6,000 - - 4494-4530 5 40,600 19 47.9

10 218,300* 103*

Pririchne 1 4702-4782 0.049 43.2 0.8 - - - - - 4704-4780 6 42,000 68 51.4 45

10 87,100* 140*

Lakizinska 2 4483-4579 0.046 37.2 0.8 4507-4536 10 51,200 - 51 - - - - - 0

(Chernetska)

Lakizinska 7 4500-4589 0.026 25.2 0.8 4570-4592 10 42,104 - 51 - - - - - 0

(Chernetska)



The B-24-25 Visean Carbonates are reported to be dark grey to grey, fractured and sometimes vuggy, with dark grey mudstones, sometimes silty. Limestone composition is 82-90%, with typically 2-5% porosity and 0.1-1mD permeability observed in the cores. The B-24-25 limestones top-seal is provided by intra-Carboniferous shales and lateral seal by reservoir quality degradation.

Logs and core were used to establish effective reservoir thickness and porosity. Hawkley derived values by inspection of the available logs; RISC performed a qualitative review of the logs and accepted Hawkley’s results. Gas saturation could not be established by logging due to extensive invasion, so a value of 85% was used by the operator based on published data.

Fluid parameters were determined based on the well test results. No gas-water contacts were observed in any of the wells.

Hawkley depth mapping is based on several lines of 2D seismic, and was accepted by RISC. The mid-Visean Carbonate reflector was mapped to give a structural form map. No evidence for faulting was provided, and hydrocarbon estimates are based on well data alone, with faults and compartmentalization inferred from well results. Hawkley’s areas used for volumetric calculations were taken to be the limits of the license boundary, segmented as indicated in Figure 11. The most productive wells were #108, #110 and #120 are in the East Block, separated from wells #113, #109, #469 in the Mid Block by a notional fault.

RISC considers that the Eastern Fault Block has discovered gas, but development is dependent on improved completion practices which have not been proven on-block to provide commercial well deliverability. Until a well is drilled and an acceptable flow rate achieved, gas can only be considered to be present across the whole eastern block in the High Estimate contingent resource category,

while Low Estimate contingent resources can only be said to be present over a more limited area. The gas in the Mid Fault Block has not delivered commercial flows of gas, and RISC concludes that these are prospective resources, awaiting proof of sufficiently good reservoir quality and gas saturation to deliver commercial flow rates.

RISC has taken a probabilistic approach to resource calculation, incorporating the uncertainty in spatial extent of the effective reservoir. To guide the Low Estimate resource, analogue data from the Kampanske Field has been used to determine the drainage area (0.5km2) and total produced gas (2Bcf) for a typical low productivity Visean Carbonate well (fully described in section 4.4.2). To guide the High Estimate resource, RISC has audited the Moyes development plan (below) and judged that it is a suitable plan to develop resources distributed across the whole block.

For the East block, RISC has assumed in the Low Estimate case that development ceases after bringing two producers on stream at the modest rates and ultimate recovery seen in Kampanske. The Best Estimate has been determined probabilistically, and is equivalent to 3-5 wells producing 4.5-7.5 Bcf each. The resources resulting from the Moyes development plan (8 wells producing 17.8Bcf each) have been used to guide the P10 resource estimate.

For the Mid block, RISC has assumed in the Low Estimate case that development ceases after bringing one producer on stream at the modest rates and ultimate recovery seen in Kampanske. The Best Estimate has been determined probabilistically, and is equivalent to 2-4 wells producing 3.3-6.6 Bcf each. The resources resulting from the Moyes development plan (7 wells producing 11.1Bcf each) have been used to guide the P10 resource.

The resulting resources are presented in the table below, and input parameters are listed in the Appendix. P90 resources have been assigned to the Low Estimate, P50 to the Best Estimate and P10 to the High Estimate.

SOROCHYNSKA B-24-25 RECOVERABLE CONDENSATE (MMSTB) RECOVERABLE GAS (BCF)

CATEGORYRESERVOIR SEGMENT


LOW ESTIMATE

BEST ESTIMATE

HIGH ESTIMATE

LOW ESTIMATE

BEST ESTIMATE

HIGH ESTIMATE

East Block 100 0.1 0.6 3.5 4.1 23 126Contingent resources

Mid Block 100 0.1 0.4 2.2 2.2 13 77Prospective resources

Assigning prospective resources to the Mid Block implies that it is not certain that a well drilled on that block will be successful in encountering hydrocarbons capable of flowing at commercial rates. RISC considers that the Geological (not commercial) Probability of Success of a successful well is 60%: porous, gas saturated reservoir has already been discovered, but a successful test requires there to be adequate permeability. The chance of finding such permeability could be said to be 50% based on drilling results on-block (3 of 6 wells have had successful tests), but knowledge of more modern drilling techniques achieving better outcomes allows the chance of success to be increased.

RESERVOIR TRAP CHARGEPROBABILITY OF SUCCESSPRESENCE EFFECTIVENESS PRESENCE SEAL

1 1 0.6 1 1 60%



3.3.3 Proposed Development Plan

Hawkley’s development plan for the Sorochynska B-24-25 limestones is dependent on lessons learned from a successful development of this reservoir on the Chernetska licence (see section 4.4).

Moyes has proposed development of the East block using eight wells, each draining 2.7km2 (675acres), recovering on average 17.8Bcf and 492,000stb condensate, at an initial rate of 5.5MMscf/d and 210 stb/d, to give a total resource of 126Bcf and 3.4MMstb condensate.

Moyes has proposed development of the Mid block using seven wells, each draining 2.7km2 (675acres), recovering on average 11.1Bcf and 306,000stb condensate, at an initial rate of 4.0MMscf/d and 152 stb/d, to give a total resource of 77Bcf and 1.8MMstb condensate.

RISC considers these to be reasonable plans to develop the High Estimate resources i.e. they will access the maximum recoverable resource stated if a) it proves possible to increase well deliverability through modern and tailored completion practices up to the best rates reported in neighbouring fields, and b) appraisal/development drilling confirms that reservoir of sufficient quality extends across the whole licence.

The geological and geophysical data available for RISC to perform an evaluation of the assets was limited: drafted structure maps, effective reservoir thickness maps and a number of other maps were provided. Many of the 2D paper seismic lines over the B-20 structure were also available.

Displays of wireline logs were available for most of the wells, presented as correlation panels in digital images (Figure 13). These wireline logs were largely from Russian tools: Gamma log, Neutron-Gamma log, Sonic log, Caliper, Resistivity Potential, Resistivity Gradient, Self Potential. Tabulations of petrophysical parameters were provided for the B-20 and B-21-22 reservoirs, but not the petrophysical analysis. A petrophysical analysis report and displays were provided for the B-24-25 reservoir. RISC has relied on Hawkley for log interpretation results since ancillary information such as mud logs and drilling reports were not available, and qualitative interpretation of the resistivity logs was of limited use.

Well test reports were provided, with English translations, for two wells which tested the B-24-25 limestone (Lakizinska-2, Lakizinska-7) and for one well which tested the B-20 sandstone (Slobidska-321). Summary well test information derived from official sources was provided in tabular format by Hawkley.

Public domain information on fields and wells in the Ukraine is difficult to access as Operators own the well data and are under no obligation to release it, the state published reserves are not publicly available, and the Ukrainian language uses the Cyrillic alphabet which makes internet research unproductive. RISC has relied on Hawkley for all of the well results and field history information contained in this report.

4.2.1 Well results

Six wells have been drilled on block one of which, Slob-321, flowed on test. Two wells drilled up-dip from #321, and within approximately 2km of the well, were dry (Figure 14).

The Slob-321 well was tested, but available data was limited to the test summary sheet: the well was tested in August to October 1979, over the perforation interval 4380-4385m MD. An initial oil rate of 140m3/d (881 stb/d) was reported on 4 September, with no reported gas rate. On 5th September, on 3mm and 5mm chokes, the reported oil rates were 10.6 m3/d (67bbl/d) and 54m3/d (340 stb/d), both with gas rates of 2300 m3/d (0.08MMscf/d). The test ceased that same day after formation water was detected in the separator, when the well loaded with water and could not lift liquids.

There has been no production from the B-20 sandstone reservoir on the Chernetska licence.


The B-20 reservoir is transgressive shallow marine sandstone widespread in the Dnieper Donets Basin. It is typically 10-15m thick with porosity in the range 8-20%. Hawkley has mapped a small fault which throws down to the north-east, in the up-dip direction of the otherwise monoclinal basin flank. This creates a small closure up-dip from the #321 well, which found oil and a possible oil-water contact in this reservoir.

Reservoir pay thickness, porosity and water saturation were provided from petrophysical analysis of the wireline logs. RISC visually inspected the logs but did not audit this analysis. A subsurface fluid sample was not retrieved from the well test, so reservoir fluid properties were established from regional data, which has not been viewed by RISC. A sample from the separator indicated that the fluid type is oil, with a surface density of 0.82g/cc.

Hawkley interpret the oil-water contact from wireline log data at 4387.6 m MD, 4211.6m TVDSS.



RISC notes that the seismic data quality is poor, and the presence of the mapped fault is inconclusive. Some support is given on some lines which indicate a slight reversal to the dip which may be the result of a fault, or alternatively stratigraphic thickening could cause this effect (Figure 15). Either alternative appears to result in a small amount of up-dip closure. However, due to the limited data quality an up-dip trap cannot be said to be proven, and the oil must be considered as Prospective Resources, carrying exploration risk.

RISC has used the Hawkley map as a basis from which to estimate volumes. A probabilistic approach has been taken, incorporating

the uncertainty in mapping of this low relief structure. The resulting resources are presented in the table below, and input parameters are listed in Appendix 7.3. RISC considers that closure is unlikely to be bigger than that mapped, and has used the closure down to the OWC to guide the P10 gross rock volume, and the closure at half the hydrocarbon column height to guide the P50 gross rock volume, assuming a reservoir thickness of 10.2m. P90 volumes have been assigned to the Low Estimate, P50 to the Best Estimate and P10 to the High Estimate.

CHERNETSKA OIL-IN PLACE (BCF) RECOVERABLE OIL (BCF)

CATEGORYRESERVOIR


LOW ESTIMATE

BEST ESTIMATE

HIGH ESTIMATE

LOW ESTIMATE

BEST ESTIMATE

HIGH ESTIMATE

B-20 100 1.8 4.9 13.8 0.6 1.7 4.8Prospective resources

RISC estimates a Geological Chance of Success (not commercial chance of success) of 50%, for flowing oil to surface with an up-dip well.

RESERVOIR TRAP CHARGEPROBABILITY OF SUCCESSPRESENCE EFFECTIVENESS PRESENCE EFFECTIVENESS

1 1 0.6 0.9 1 54%

4.2.3 Proposed Appraisal Plan

Hawkley’s plan for appraisal of the B-20 reservoir is to locate an optimal well to test a trap up-dip from the #321 oil well.

RISC recommends that a grid of new 2D seismic lines are acquired over the structure, and processed through a modern sequence including noise attenuation in shot and gather domains, and with application of DMO or PSTM. The seismic lines should then be interpreted on a workstation to maximise the information derived from the reflectivity data. This may reveal whether a valid structure exists, and where the optimal appraisal well location should be located.



4.3.1 Well results

Eighteen wells have been drilled targeting the B-21-22 sandstones in the Voloshky-Zymnyky-Karpylivka field area to the south of Chernetska. The discovery well, #314 (10km south of Chernetska) found a gross sand interval of 42m at a depth of about 4900 m, and flowed 11.7 MMscf/d of gas and 134 tonnes/d (1,080stb/d) of condensate on a 12mm choke. In all, ten wells have intersected what is now considered to be a single field – Voloshky (Voloshkivska). A total of 13.3Bcf of gas and 1.4MMstb of condensate had been extracted from the field between 1984 and 1994.

Zym-4 and Zym-5, immediately north of the Voloshky field and south of Chernetska (Figure 16), found a few metres of net pay which did not flow on test. Between these two wells, Zym-3 (4.5km from Chernetska) found 8m of net pay and flowed 5.3MMscf/d and 54 tonnes/d (435stb/d) of condensate. These wells are considered to define the northern-most edge of the field before pinch-out of the effective reservoir.

Zym-1 and Zym-2 lie to the north-west of the Voloshky field, slightly closer to Chernetska, and did not find reservoir quality sand.

None of the six wells on the Chernetska licence have found B-21-22 sands, although Hawkley interprets a 3m siltier section in the Lak-7 well as being near the pinch-out edge of another B-21-22 style sand pinch-out.


The B-21-22 play concept is of a stratigraphic pinch-out of the sands which comprise the reservoir in the Voloshky gas field to the south of Chernetska. The Voloshky field is reported to be a stratigraphic trap, and reflectors are interpreted to pinch-out northwards (Figure 17). However, several wells which did not produce commercial flow rates are drilled between Voloshky and Chernetska, and as a result the Chernetska reservoir if present, must incorporate a separate, better developed sand lobe in order to provide sufficient deliverability and/or gas saturation.



The mapped structure (Figure 18) shows monoclinal dip across much of the licence, up to the north east.

Hawkley has calculated volumes by combining their mapped pinch-out area with reservoir and fluid parameters from the Voloshky field.

The on-block area within the pinch-out is over 32km2; well Lak-7 is interpreted by Hawkley to lie near the pinch-out edge of the system, as it only contained 3m of poor reservoir quality sand. RISC considers that this well therefore lies beyond the effective reservoir pinch-out, which means that the extent of sands must be reduced in the vicinity of Lak-7. RISC has interpreted a new, maximum extent, pinch-out edge conformable with present day structure (Figure 16) from which to recompute volumes. This gives an area of distribution for the sand of approximately 15km2 on-block.

RISC has taken a probabilistic approach to resource calculation, incorporating the uncertainty in spatial extent of the reservoir sand. The resulting resources are presented in the table below, and input parameters are listed in the Appendix. RISC’s mapped pinch-out has been used to guide the P10 area, and Hawkley’s mapped pinch-out has been used to guide the maximum (P1) area. P90 volumes have been assigned to the Low Estimate, P50 to the Best Estimate and P10 to the High Estimate.

RISC considers that the presence of such a reservoir is unproven, and even if present, it may not form a closed trap. Thus the estimated volumes are considered Prospective Resources, carrying exploration risk.

CHERNETSKA RECOVERABLE CONDENSATE (MMSTB) RECOVERABLE GAS (BCF)

CATEGORYFIELD / LEAD


LOW ESTIMATE

MID ESTIMATE

HIGH ESTIMATE

LOW ESTIMATE

MID ESTIMATE

HIGH ESTIMATE

B-21-22 100 0.7 2.0 5.7 15 44 126Prospective resources

RISC estimates a Geological Chance of Success of 18% for flowing oil to surface in a well located on-block, within the interpreted pinch-out line.

RESERVOIR TRAP CHARGEPROBABILITY OF SUCCESSPRESENCE EFFECTIVENESS PRESENCE EFFECTIVENESS

0.5 0.6 0.6 1 1 18%

Six wells have been drilled on-block, all of which penetrated the Visean Carbonates. Two wells have tested this reservoir in the area: Lak-7 which is on-block, and Lak-2 which is 1.4km outside the block boundary. Both tests were of very limited duration. A comprehensive petrophysical analysis of three nearby wells (Lak-2, Lak-7, Slo-3) has been undertaken (Figure 19).

The Lak-7 well was perforated over the interval 4570-4592m MD on 27th September 1994. It was flowed on a 10mm choke for 5 minutes, and produced an approximate gas flow rate of 1.5 MMscf/d.

The Lak-2 well was perforated over the interval 4507-4563m MD on 4th September 1988. It was flowed on a 10mm choke for 20 minutes, and produced an approximate gas flow rate of 1.8 MMscf/d, with a condensate/oil film.

All other wells are reported to have indications of gas saturation. RISC has relied on Hawkley for log interpretation results as quantitative analysis of the resistivity logs was not possible.

Hawkley suggest that these results indicate that the limestones are pervasively gas saturated; the lack of structural closures associated with the gas flows support this contention. Hawkley also suggest that poor evaluation techniques have led to an underestimate of the wells’ deliverability. The Visean carbonates have not historically been the main reservoir target, and mud weights and casing programmes



have not been optimized for evaluation of this reservoir. Where available, the evidence points to significantly better cased hole tests rates compared to open-hole test rates in nearby wells (see Figure 12, Table 4) indicating that better rates are available from this reservoir. Successful appraisal and production is therefore dependent on intersecting areas which have developed good porosity and permeability.

The nearest production from this reservoir was at Kampanske (Figure 12). This field was developed with one well, and produced 1.9Bcf (Ukraine category C1 reserves of 2.2Bcf) over 2-3 years. The Pririchne field which was also developed with a single well produced 0.35Bcf (Ukraine C1 reserves of 12.8Bcf) over 1-2 years. The Selukhivske field produced 7000 tonnes (56,400stb) of condensate.

The B-24-25 Visean Carbonates are described as limestones with mudstone layers. The B-24-25 limestone’s top-seal is provided by intra-Carboniferous shales and lateral seal by reservoir quality degradation. Well data indicates that gross thickness varies from 66-96m in the area.

Logs were used to establish effective reservoir thickness and porosity. A comprehensive petrophysical analysis of the available log data on-block has been undertaken by Hawkley to establish matrix and fracture porosity. Gas saturation could not be established by logging due to extensive invasion, so Hawkley use a value of 85% based on published data.

Fluid parameters were determined based on the well test results. No gas-water contact was observed in any of the wells.

Hawkley depth mapping is based on several lines of 2D seismic. The mid-Visean Carbonate reflector was mapped to give a structural form map. However, because of the pervasive gas saturation observed, the area used for volumetric calculations was not based on structure, but taken to be the entire area within the license boundary, 51km2 (Figure 19).

RISC accepts the mapping and petrophysical results presented by Hawkley.

RISC considers that since flow rates have been achieved which are above the break-even rates for reasonable gas prices and well costs, even though they are from sub-optimal tests, gas resources can be said to be present on-block, with commercial production contingent on an approved development plan. However, the tests were of very short duration, and therefore RISC’s contingent resource estimates

reflect significant uncertainty in the spatial extent of the reservoir. RISC notes that no long-term test has been undertaken in any of the wells to prove sustained commercial flow rates, and that sub-surface mapping cannot be used to define the extent of the reservoir. As a result Low Estimate contingent resources are estimated by analogy with other 1-well developments in other Visean Carbonate fields in the area, notably:

Kampanske produced 1.9Bcf (Ukraine category C1 reserves of 2.2Bcf) from 2001-2003: using published reservoir parameters this equates to a draining an area of 0.4km2, or 0.5km2 for the full C1 reserves

Pririchne well produced 0.35Bcf (Ukraine category C1 reserves of 12.8Bcf) from 2003-2004: using published reservoir parameters this equates to a draining an area of 0.03km2, or 1.1 km2 for the full C1 reserves

Kampanske is chosen as the best analogy, due to proximity and similarity of reservoir properties to the Chernetska licence. A drainage area of 0.5km2 has been used together with average reservoir parameters from the Chernetska wells in order to calculate resources for a single well development.

RISC has taken a probabilistic approach to resource calculation, incorporating the uncertainty in spatial extent and quality of the effective reservoir. To guide the Low Estimate resource, analogue data from the Kampanske Field has been used to determine the drainage area (0.5km2) and total produced gas (2Bcf) for a typical low productivity Visean Carbonate well. To guide the High Estimate resource, RISC has audited the Moyes development plan (below) and judged that it is a suitable plan to develop resources distributed across the whole block. However, RISC has adjusted down the average porosity, using a mid-estimate of 2.5% rather than 5% used by Moyes, to be consistent with all of the petrophysical results.

RISC has assumed in the Low Estimate case that development ceases after bringing three producers on stream at the modest rates and ultimate recovery seen in Kampanske. The Best Estimate has been determined probabilistically, and is equivalent to 7-10 wells producing 3.7-5.2 Bcf each. The resources resulting from the Moyes development plan (22 wells at 11.8Bcf each) have been used to guide the P10 resource, after adjustment for RISC’s view on porosity.

The resulting resources are presented in the table below, and input parameters are listed in the Appendix. P90 volumes have been assigned to the Low Estimate, P50 to the Best Estimate and P10 to the High Estimate.

CHERNETSKA RECOVERABLE CONDENSATE (MMSTB) RECOVERABLE GAS (BCF)

CATEGORYRESERVOIR


LOW ESTIMATE

BEST ESTIMATE

HIGH ESTIMATE

LOW ESTIMATE

BEST ESTIMATE

HIGH ESTIMATE

B-24-25 100 0.2 1.1 6.4 6.1 37 229Contingent resources



4.4.3 Proposed Development Plan

Hawkley has undertaken reservoir thickness mapping based on seismic reflectivity data, and has attempted to predict zones of better porosity development from seismic inversion products (the yellow areas in Figure 19). The two approaches show some correlation between thickened section and improved reservoir properties, consistent with Hawkley’s geological model of bioherm development. However, RISC notes that the seismic data are too poor to give reliable inversion results and that the results provide an as yet untested reservoir characterisation model which requires exploration drilling in order to be proven.

The development plan includes using these results to locate a well in a location more likely to find reservoir parameters similar to the Lak-2 well (off-block), rather than the Lak-7 well, which had worse reservoir properties and achieved inferior test results.

Moyes has proposed a development using 22 wells, each draining 2km2 (500acres), recovering on average 11.8Bcf and 319,000stb condensate, at an initial rate of 7.5MMscf/d and 285 stb/d, to give a total resource of 260Bcf and 7MMstb condensate.

RISC considers this to be reasonable plan to develop the High Estimate resources i.e. they will access the maximum recoverable resource stated if a) it proves possible to increase well deliverability through modern and tailored completion practices up to the best rates observed in neighbouring fields, and b) appraisal/development drilling confirms that reservoir of sufficient quality extends across the whole licence.

RISC has extensive experience in providing independent technical specialist’s advice to the oil and gas industry. All of the RISC personnel engaged in this assignment are professionally qualified engineers or geoscientists with over 15 years relevant experience and most have in excess of 20 years. The work has been prepared under the supervision of Joe Salomon, a professional geoscientist with over 25 year’s industry experience.

RISC was founded in 1994 to provide independent advice to companies associated with the oil and gas industry. Today the company has approximately 40 highly experienced professional staff at offices in Perth, Australia and London, UK. We have completed over 1300 assignments in 68 countries for nearly 500 clients. Our services cover the entire range of the oil and gas business lifecycle and include:

equity finance

This report does not give and must not be interpreted as giving, an opinion, recommendation or advice on a financial product within the meaning of section 766B of the Corporations Act 2001 or section 12BAB of the Australian Securities and Investments Commission Act 2001.

RISC is not operating under an Australian financial services licence in providing this report.

In accordance with regulation 7.6.01(1)(u) of the Corporations Regulation 2001. RISC makes the following disclosures:

RISC is independent with respect to Incitive Ltd and confirms that there is no conflict of interest with any party involved in the assignment.

Under the terms of engagement between RISC and Incitive Ltd for the provision of this report RISC will receive a fee, based on time expended and our current standard terms and conditions, payable by Incitive Ltd. The payment of this fee is not contingent on the outcome of any proposed transaction of Incitive Ltd.

The Directors and staff of RISC may have from time to time owned shares in Incitive Ltd. No interests are currently directly held by those directors and staff involved in the preparation of this report.

In the last 2 years, RISC has not undertaken assignments for Incitive Ltd.

RISC acknowledges that:

Incitive proposes to issue a Prospectus in respect of Capital raising (The General Offer) and the offer to the vendors of Hawkley Oil and Gas Ltd.

the Prospectus will be issued in hard copy and be available in electronic format

it is named in the Prospectus as the ‘Independent Specialist’ and the Prospectus includes its Independent Technical Specialist’s Report report

RISC has not authorised or caused the issue of the Prospectus and takes no responsibility for any part of the Prospectus, other than any references to its name and the independent specialist report as included in the Prospectus.



Grace et al, 1993, ‘Comparative Reserves Definitions: USA, Europe, and the Former Soviet Union’, Journal of Petroleum Technology, Sep 1993, SPE – SPE 25828

Kisil (an expert of the State Committee on Reserves of Ukraine) produced a reservoir engineering analysis of B-18b production from Sorochynska wells #110 and #469

Law et al, 1998 ‘Basin Centered gas evaluated in Dnieper-Donets basin, Donbas foldbelt, Ukraine’, Oil and Gas Journal, Nov 1998

http://www.ogj.com/index/article-display/22292/articles/oil-gas-journal/volume-96/issue-47/in-this-issue/general-interest/basin-centered-gas-evaluated-in-dnieper-donets-basin-donbas-foldbelt-ukraine.html

Moyes & Co Inc, 2009 (revised), ‘Evaluation of Sorochynska and Chernetska Licenses Held by Prime Oil & Gas LLC, a wholly owned subsidiary of Hawkley Oil and Gas, Onshore Ukraine’

Pirani, 2007, ‘Ukraine’s Gas Sector’, Oxford Institute for Energy Studies http://www.oxfordenergy.org/pdfs/NG21.pdf

Schaefer, 2009, ‘Russian Oil and Gas Reserve Definitions’, presentation at the Annual Meeting of the Society of Petroleum Evaluation Engineers

http://www.spee.org/images/PDFs/2009Convention/5_Schaefer_2009spee_AnnualMeeting_RussianReserveDefinitions.pps

SPE Oil and Gas Reserves Committee, 2005, ‘Comparison of Selected Reserves and Resource Classifications and Associated Definitions, Mapping Subcommittee Final Report, December 2005’, Society of Petroleum Engineers

Ulmishek, 2001, ‘Petroleum Geology and Resources of the Dnieper-Donets Basin, Ukraine and Russia’, USGS Bulletin 2201-E http://pubs.usgs.gov/bul/2201/E/

A discussion comparing the Ukrainian ‘State Balance’ volumes and categories compared to those estimated by RISC, and the earlier estimates of Moyes, is presented below. RISC has not undertaken a rigorous analysis of the State Balance estimates, but has analysed data provided by Hawkley which comes from similar sources to those that would have been used in derivation of the State Balance figures. Hydrocarbon-in-place figures are compared, since the State Balance quotes in-place volumes with an implicit assumption that they can be economically extracted, rather than recoverable volumes.

Hawkley has indicated that the Ukrainian resource classification system is the same as the Russian system. RISC has not viewed documentation describing the Ukrainian system, but has reviewed published documents comparing the Russian systems with the SPE systems prevailing at that time. On the basis of the resource category terms employed, it appears that the Russian classification system used for these licences is the GKZ (State Commission on Mineral Reserves) 1983 vintage (Schaefer 2009, see figure below).

A description of the definitions employed in this system is reproduced below (7.2 Description of Russian reserves system). A detailed comparison of the 1983 system with the prevailing SPE definitions was undertaken by Grace (1993), the results of which are summarised in the figure below.



Sorochynska B-18b

The State Balance is 31.4Bcf GIIP (C1), 31.6Bcf GIIP (C2), and 74.7Bcf GIIP (C3), Moyes’ Best Estimate (2P Reserves) is 22.7Bcf GIIP, and RISC’s Best Estimate (2P Reserves) is 23.5Bcf GIIP.

State Balance estimates for producing fields are undertaken using a material balance method. This is the same approach taken by RISC and Moyes, but the State Balance figures are approximately 1/3 larger, perhaps as a result of a more optimistic analysis of the sparse data.

The State Balance includes C1 reserves because the field has seen commercial flows of gas from production wells. These volumes are Proved (undeveloped) reserves in the SPE system. RISC and Moyes assign these volumes to Probable (2P) rather than Proven (1P) reserves, as there is some risk that the development well may not intersect the remaining gas.

The State Balance also includes C2 reserves, which are undrilled volumes adjacent to C1 reserves. RISC considers that because of the proven reservoir compartmentalisation, further drilling would be required to access additional volumes, and since nearby wells have not found gas, then these additional volumes have to be categorised as Prospective Resources. The State Balance C3 category is used to describe undrilled parts of discovered fields, and is consistent with RISC’s assessment.

Sorochynska B-24-25 (East and Mid)

For the East block, the State Balance is 234.6Bcf GIIP (C2), Moyes’ Best Estimate (Contingent Resource) is 197.4Bcf GIIP, and RISC’s Low-Best-High GIIP estimates are 5.8-32.3-179.1Bcf (Contingent Resources).

For the Mid block, the State Balance is 95.8Bcf GIIP (C3), Moyes Best Estimate is 120.8Bcf GIIP (Contingent Resource), and RISC’s Low-Best-High GIIP estimates are 3.2-18.7-110.0Bcf (Prospective Resources).

The State Balance and Moyes volumes are reasonable estimates of the maximum volumes accessible if the whole of each block contains fully gas saturated reservoir rocks with average reservoir parameters estimated from existing wells, and which provide the deliverability hoped for from improved completion practices, as seen elsewhere in the basin. These maximum estimates are broadly consistent with RISC’s probabilistic P10 estimates, which represent volumes somewhat lower than the maximum. RISC determined Low Estimate resources assuming that the expected deliverability is not achieved, and that this limits the development to fewer wells. RISC’s Best Estimate cases have been derived probabilistically and represent a situation in between the Low and High cases.

The State Balance assigns C2 volumes to the East Block, implying that the gas has been discovered, and that the drilling results can be used to plan a development. RISC and Moyes have taken the position that a development is contingent on sustained commercial flow rates being proven, and allocate them to Contingent Resources.

The State Balance assigns C3 volumes to the Mid Block, implying that gas presence is less certain than in the East Block. Moyes has taken the more positive position that a development is contingent on sustained commercial flow rates being proven, and allocate them to Contingent Resources. RISC agrees with the implication of the State Balance, that gas volumes are less certain since a successful test has not been achieved, and assigns them as Prospective Resources.

Chernetska B-20

The State Balance is 9.7MMstb (C2), Moyes’ Best Estimate (Prospective Resource) is 9.6MMstb, and RISC’s Low-Best-High STOIIP estimates are 1.8-4.9-13.8MMstb (Prospective Resources).

Hawkley has reprocessed seismic and remapped the B-20 reservoir in the Chernetska licence. Using the latest mapping, RISC estimates that a larger volume of oil is possible up-dip from the #321 well than was recognised at the time of the State Balance assessment and Moyes’ evaluation. RISC considers that Moyes’ volume was a High Estimate using the available data, and would be increased to around 14MMstb in line with RISC’s estimate using the new mapping. RISC determined a Low Estimate volume assuming that the accumulation covers a smaller area (equivalent to the mapped structure being only half full). RISC’s Best Estimate case has been derived probabilistically and represents a situation in between the low and high cases.

The State Balance assigns C2 volumes, in line with a designation of discovered hydrocarbons without a successful test. RISC and Moyes take a more negative view that the evidence for a structural trap on existing seismic is ambiguous, requiring more appraisal, and so must be classified as Prospective resources.

Chernetska B-21-22

The State Balance is 254.3Bcf (D1), Moyes’ Best Estimate (Prospective Resource) is 155.0Bcf, and RISC’s Low-Best-High GIIP estimates are 21.9-63.1-180.0Bcf (Prospective Resources).

Hawkley interpret the sand extent on-block to be over 30km2, and the State Balance appears to have been based on this interpretation. Both Moyes and RISC have assumed that the sand distribution is approximately half this amount, with correspondingly lower resulting volumes. RISC has used this sand extent as the P10 area in its probabilistic calculation, and has used Hawkley’s sand extent to guide the P1 area. This has resulted in RISC’s High Estimate volumes being between the State Balance and Moyes’ estimate. RISC considers that there is downside potential in reservoir quality, thickness and areal extent, so Low and Best Estimate volume are lower than both the State Balance and Moyes’ estimates.

The State Balance D1 category is consistent with volumes for a prospect having a nearby field analogue, and is also consistent with RISC’s and Moyes’ Prospective Resource categorisation.

Chernetska B-24-25

The State Balance is 247.1Bcf GIIP (C3) and 1871Bcf (D2), Moyes’ Best Estimate (Contingent Resource) is 346.5Bcf GIIP, and RISC’s Low-Best-High GIIP estimates are 8.8-53.4-325.0Bcf (Contingent Resources).

Moyes volumes are a reasonable estimate of the maximum volumes accessible if the whole of the block contains fully gas saturated reservoir rocks with average reservoir parameters estimated from existing wells, and which provide the deliverability hoped for from improved completion practices, as seen elsewhere in the basin. These maximum estimates are broadly consistent with RISC’s probabilistic P10 estimates, although RISC has been more conservative in porosity estimates, resulting in slightly lower volumes. The State Balance C2 resource is approximately 2/3 of Moyes’ volumes, which may reflect a less optimistic view on distribution of reservoir quality rocks. The State Balance D2 estimate is nearly six times higher than Moyes’ and RISC’s estimates. This would require, for example, the porosity to double (e.g. through extensive fracture porosity development) and for the net-gross to improve by a factor of three, i.e. from approximately 20-30% to 60-100%. This



would be feasible if all the carbonate rock can be made to achieve high deliverability as a result of a highly successful completion strategy. RISC determined Low Estimate resources assuming that the expected deliverability is not achieved, and that this limits the development to fewer wells. RISC’s Best Estimate cases have been derived probabilistically and represent a situation in between the Low and High cases.

The State Balance C3 category is consistent with resources in a formation in a proven oil and gas bearing area requiring more

appraisal drilling. RISC and Moyes have taken the more positive position that a development is contingent on sustained commercial flow rates being proven, since there is a reasonable chance of this happening using offset fields for analogy, and allocate them to Contingent Resources.

The State Balance D2 category essentially describes a Play, or loosely defined Lead, and represents the extreme high end of RISC’s probabilistic distribution of Prospective Resources.

The text below describes the Russian reserves system, and is contained in Moyes’ report:

The Russian reserves system is based solely on the analysis of geological attributes. Explored reserves are represented by categories A, B, and C1; preliminary estimated reserves are represented by category C2; potential resources are represented by category C3; and forecasted resources are represented by categories D1 and D2. Natural gas reserves in categories A, B and C1 are considered to be fully extractable. For reserves of oil and gas

condensate, a predicated coefficient of extraction is calculated based on geological and technical factors.

Category A reserves are calculated on the part of a deposit drilled in accordance with an approved development project for the oil or natural gas field. They represent reserves that have been analyzed in sufficient detail to define comprehensively the type, shape and size of the deposit; the level of hydrocarbon saturation; the reservoir type; the nature of changes in the reservoir characteristics; the hydrocarbon saturation of the productive strata of the deposit; the content and characteristics of the hydrocarbons; and the major features of the deposit that determine the conditions of its

GAS VOLUME ESTIMATES

LIC

EN

CE

RE

SE

RV

OIR

Ukraine State Balance Moyes RISC Moyes RISC

GIIP estimate (Bcf)GIIP (Bcf) GIIP estimate (Bcf) Re

serv

e (B

cf)

Cont

ingen

t (B

cf)

Pros

pect

ve

(Bcf

)

Recoverable reserves estimate (Bcf)

Contingent resources estimate (Bcf)

Prospective resources estimate (Bcf)

C1 C2 C3 D1 D2 Best Low Best High 2P Best High 1P 2P 3P Mid Best High Mid Best High

Soro

chyn

ska B-18b 31.4 31.6 74.7 22.7 23.5 13.6 13.2

B-24-25 (East) 234.6 197.4 5.8 32.3 179 126.2 4.1 23.0 126.0

B-24-25 (Mid) 95.8 120.8 3.2 18.7 110.0 77.2 2.2 13.0 77.0

Cher

nets

ka B-20

B-21-22 254.3 155.0 21.9 63.1 180.0 116.0 15.0 44.0 126.0

B-24-25 247.1 1871 346.5 8.8 53.4 325.0 259.9 6.1 37.0 229.0

CONDENSATE/OIL VOLUME ESTIMATES

LIC

EN

CE

RE

SE

RV

OIR

Ukraine State Balance Moyes RISC Moyes RISC

Oil/condensate in-place estimate (MMstb)

HIIP MMstb

Condensate in-place estimate (MMstb) Re

serv

es

(MM

stb)

Cont

inge

nt-

(MM

stb)

Pros

pect

ive

(MM

stb)

Recoverable reserves estimate (MMstb)

Contingent resources estimate (MMstb)

Prospective resources estimate (MMstb)

C1 C2 C3 D1 D2 Best Low Best High 2P Best High 1P 2P 3P Mid Best High Mid Best High

Soro

chyn

ska B-18b 1.2 1.2 2.8 1.4 0.4 0.35

B-24-25 (East) 8.7 6.9 3.4 0.1 0.6 3.5

B-24-25 (Mid) 3.6 4.6 1.9 0.1 0.4 2.2

Cher

nets

ka B-20 9.7 9.6 1.8 4.9 13.8 2.9 0.6 1.7 4.8

B-21-22 9.4 10.9 5.2 0.7 2.0 5.7

B-24-25 9.1 69.1 12.1 7.0 0.2 1.1 6.4



development (mode of operations, well productivity, strata pressure, natural gas, gas condensate and crude oil balance, hydro and piezo-conductivity and other features).

Category B represents the reserves of a deposit (or portion thereof), the oil or natural gas content of which has been determined on the basis of commercial flows of oil or natural gas obtained in wells at various hypsometric depths. The type, shape and size of the deposit; the effective oil and natural gas saturation depth and type of the reservoir; the nature of changes in the reservoir characteristics; the oil and natural gas saturation of the productive strata of the deposit; the composition and characteristics of crude oil, natural gas and gas condensate under in-situ and standard conditions and other parameters; and the major features of the deposit that determine the conditions of its development have been studied in sufficient detail to draw up a project to develop the deposit.

Category B reserves are computed for a deposit (or a portion thereof) that has been drilled in accordance with either a trial industrial development project in the case of a natural gas field or an approved technological development scheme in the case of an oil field.

Category C1 represents the reserves of a deposit (or of a portion thereof) whose oil or natural gas content has been determined on the basis of commercial flows of oil or natural gas obtained in wells (with some of the wells having been probed by a formation tester) and positive results of geological and geophysical exploration of non-probed wells.

The type, shape and size of the deposit and the formation structure of the oil- and gas-bearing reservoirs have been determined from the results of drilling exploration and production wells and by those geological and geophysical exploration techniques that have been field-tested for the applicable area. The lithological content, reservoir type and characteristics, oil and natural gas saturation, oil displacement ratio and effective oil and natural gas saturation depth of the productive strata have been studied based on drill cores and geophysical well exploration materials. The composition and characteristics of crude oil, natural gas and gas condensate under in-situ and standard conditions have been studied on the basis of well testing data. In the case of an oil and natural gas deposit, the commercial potential of its oil-bearing fringe has been determined. Well productivity, hydro- and piezo-conductivity of the stratum, stratum pressures and crude oil, natural gas and gas condensate temperatures and yields have been studied on the basis of well testing and well exploration results. The hydro-geological and geocryological conditions have been determined on the basis of well drilling results and comparisons with neighboring explored fields.

Category C1 reserves are computed on the basis of results of geological exploration work and production drilling and must have been studied in sufficient detail to yield data from which to draw up either a trial industrial development project in the case of a natural gas field or a technological development scheme in the case of an oil field.

Category C2 reserves are preliminary estimated reserves of a deposit calculated on the basis of geological and geophysical research of unexplored sections of deposits adjoining sections of a field containing reserves of higher categories and of untested deposits of explored fields. The shape, size, structure, level, reservoir types, content and characteristics of the hydrocarbon deposit are determined in general terms based on the results of the geological and geophysical exploration and information on the more fully explored portions of a deposit. Category C2 reserves are used to determine the development potential of a field and to plan geological, exploration and production activities.

Category C3 resources are prospective reserves prepared for the drilling of (i) traps within the oil-and-gas bearing area, delineated by geological and geophysical exploration methods tested for such area and (ii) the formation of explored fields which have not yet been exposed by drilling. The form, size and stratification conditions of the assumed deposit are estimated from the results of geological and geophysical research. The thickness, reservoir characteristics of the formations, the composition and the characteristics of hydrocarbons are assumed to be analogous to those for explored fields. Category C3 resources are used in the planning of prospecting and exploration work in areas known to contain other reserve bearing fields.

Category D1 resources are calculated based on the results the region’s geological, geophysical and geochemical research and by analogy with explored fields within the region being evaluated. Category D1 resources are reserves in lithological and stratigraphic series that are evaluated within the boundaries of large regional structures confirmed to contain commercial reserves of oil and natural gas.

Category D2 resources are calculated using assumed parameters on the basis of general geological concepts and by analogy with other, better studied regions with explored oil and natural gas fields. Category D2 resources are reserves in lithological and stratigraphic series that are evaluated within the boundaries of large regional structures not yet confirmed to contain commercial reserves of oil and natural gas. The prospects for these series to prove to be oil-and gas-bearing are evaluated based on geological, geophysical and geochemical research.

The evaluation of natural gas reserves in newly discovered natural gas or oil-and-gas deposits is carried out under the Russian reserves system using the volume method. The volume method determines the volume of reserves by examining the filtration and capacitive parameters of the deposit based on (i) the area of the deposit; (ii) the effective depth of hydrocarbon saturation; and (iii) the porousness of the deposit and the level of saturation of the hydrocarbons, taking into account thermobaric conditions.

The evaluation of natural gas reserves in deposits already under development is carried out under the Russian reserves system using both the volume method and the material balance method. The material balance method takes into account temporal changes in the effective reservoir pressure as a result of the extraction of the hydrocarbons and the resultant influx of water.



CHERNETSKA B-20

NAME UNIT SHAPE P90 P50 P10 MEAN

GRV km2.m Log nor 3.67 9.9 26.7 13.4

NET-TO-GROSS % Single 100 100 100 100

POROSITY % Normal 13 15 17 15

SW % Normal 15 30 45 30

FVF (BO) vol/vol Normal 1.25 1.3 1.35 1.3

OIL REC FAC % Normal 25 35 45 35

CHERNETSKA B-21-22


AREA km2 Lognor 2.18 5.66 14.7 7.46

THICKNESS M Normal 6 9.8 13.6 9.8


POROSITY % Normal 10 11 12 11

SW % Normal 10 15 20 15

DRY GAS FVF (1/BG) vol/vol Normal 350 360 370 360

GAS REC FAC % Normal 60 70 80 70

CONDENSATE/GAS RATIO stb/MMcf Single 44

CHERNETSKA B-24-25


AREA km2 Lognor 2 10 51 22.4

THICKNESS m Normal 12.1 22 40 24.5

POROSITY % Lognor 1.5 2.5 4 2.6

SW % Normal 10 15 20 15

DRY GAS FVF (1/BG) vol/vol Normal 310 330 350 330



SOROCHYNSKA B24-25 EAST


AREA km2 Lognor 0.5 2.75 15.1 6.7

THICKNESS M Normal 18 21.5 25 21.5


POROSITY % Lognor 4.9 5.05 5.2 5.05

SW % Normal 10 15 20 15

DRY GAS FVF(1/BG) vol/vol Normal 350 360 370 360



SOROCHYNSKA B24-25 MID


AREA Km2 Lognor 0.5 3 17.5 7.7

THICKNESS M Normal 11 12.5 14 12.5


POROSITY % Lognor 4.07 4.6 5.2 4.62

SW % Normal 10 15 20 15

DRY GAS FVF(1/BG) vol/vol Normal 350 360 370 360


CONDENSATE/GAS RATIO stb/mmcf Single 28



The following lists, along with a brief definition, abbreviated terms that are commonly used in the oil and gas industry and which may be used in this report.

ABBREVIATION DEFINITION

1P Equivalent to Proved reserves or Proved in-place quantities, depending on the context.

1Q 1st quarter

2P The sum of Proved and Probable reserves or in-place quantities, depending on the context.

2Q 2nd quarter

2D Two dimensional

3D Three dimensional

4D Four dimensional – time lapsed 3D in relation to seismic

3P The sum of Proved, Probable and Possible Reserves or in-place quantities, depending on the context.

3Q 3rd quarter

3Q 4th quarter

AEO US Energy Information Administration’s Annual Energy Outlook

AFE Authority for Expenditure

Boe US barrels of oil equivalent

Bbl US barrel

bbl/d US barrels per day

Bcf Billion (109) cubic feet

Bcm Billion (109) cubic meters

BFPD Barrels of fluid per day

BOPD Barrels of oil per day

BTU British Thermal Units

BWPD Barrels of water per day

C Celsius

Capex Capital expenditure

CAPM Capital Asset Pricing Model

CGR Condensate Gas Ratio – usually expressed as bbl/MMscf


Contingent Resources

Those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations by application of development projects but which are not currently considered to be commercially recoverable due to one or more contingencies. Contingent Resources are a class of discovered recoverable resources as defined in the SPE-PRMS.

CO2 Carbon dioxide

Cp Centipoise (measure of viscosity)

CPI Consumer Price Index

Deg Degrees

DHI Direct Hydrocarbon Indicator

Discount Rate

The interest rate used to discount future cash flows into a dollars of a reference date

DMO

DST Drill Stem Test

E&P Exploration and Production

Eg Gas expansion factor. Gas volume at standard (surface) conditions / gas volume at reservoir conditions (pressure & temperature)

EIA US Energy Information Administration

EMV Expected Monetary Value

EOR Enhanced Oil Recovery

ESP Electric Submersible Pump

EUR Economic Ultimate Recovery

Expectation The mean of a probability distribution

F Degrees Fahrenheit

FDP Field Development Plan

FEED Front End Engineering Design

FID Final Investment Decision

Fm Formation

FPSO Floating Offshore Production and Storage Unit

FWL Free Water Level

FVF Formation Volume Factor

GIIP Gas Initially In Place

GJ Giga (109) joules

GOC Gas-Oil Contact




GOR Gas Oil Ratio

GRV Gross Rock Volume

GSA Gas Sales Agreement

GTL Gas To Liquid(s)

GWC Gas Water Contact

H2S Hydrogen sulphide

HHV Higher Heating Value

ID Internal Diameter

IRR Internal Rate of Return is the discount rate that results in the NPV being equal to zero.

JV(P) Joint Venture (Partners)

Kh Horizontal permeability

km2 Square kilometres

Krw Relative permeability to water

Kv Vertical permeability

kPa Kilo (thousand) pascal (measurement of pressure)

Mstb/d Thousand US barrels per day

LIBOR London Inter-Bank Offered Rate

LNG Liquefied Natural Gas

LTBR Long-Term Bond Rate

M Metres

MDT Modular Dynamic Formation Tester

mD Millidarcies (permeability)

MJ Mega (106) Joules

MMbbl Million US barrels

MMscf(d) Million standard cubic feet (per day)

MMstb Million US stock tank barrels

MOD Money of the Day (nominal dollars) as opposed to money in real terms

MOU Memorandum of Understanding

Mscf Thousands standard cubic feet

Mstb Thousand US stock tank barrels

MPa Mega (106) pascal (measurement of pressure)

Mss Metres subsea

MSV Mean Success Volume


mTVDss Metres true vertical depth subsea

MW Megawatt

NPV Net Present Value (of a series of cash flows)

NTG Net to Gross (ratio)

ODT Oil Down To

OGIP Original Gas In Place

OOIP Original Oil in Place

Opex Operating expenditure

OWC Oil-Water Contact

P90, P50, P10

90%, 50% & 10% probabilities respectively that the stated quantities will be equalled or exceeded. The P90, P50 and P10 quantities correspond to the Proved (1P), Proved + Probable (2P) and Proved + Probable + Possible (3P) confidence levels respectively.

PBU Pressure Build-Up

PHIT Total Porosity

PJ Peta (1015) Joules

POS Probability of Success

Possible Reserves

As defined in the SPE-PRMS, an incremental category of estimated recoverable volumes associated with a defined degree of uncertainty. Possible Reserves are those additional reserves which analysis of geoscience and engineering data suggest are less likely to be recoverable than Probable Reserves. The total quantities ultimately recovered from the project have a low probability to exceed the sum of Proved plus Probable plus Possible (3P) which is equivalent to the high estimate scenario. When probabilistic methods are used, there should be at least a 10% probability that the actual quantities recovered will equal or exceed the 3P estimate.

Probable Reserves

As defined in the SPE-PRMS, an incremental category of estimated recoverable volumes associated with a defined degree of uncertainty. Probable Reserves are those additional Reserves that are less likely to be recovered than Proved Reserves but more certain to be recovered than Possible Reserves. It is equally likely that actual remaining quantities recovered will be greater than or less than the sum of the estimated Proved plus Probable Reserves (2P). In this context, when probabilistic methods are used, there should be at least a 50% probability that the actual quantities recovered will equal or exceed the 2P estimate.




Prospective Resources

Those quantities of petroleum which are estimated, as of a given date, to be potentially recoverable from undiscovered accumulations as defined in the SPE-PRMS.

Proved Reserves

As defined in the SPE-PRMS, an incremental category of estimated recoverable volumes associated with a defined degree of uncertainty Proved Reserves are those quantities of petroleum, which by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under defined economic conditions, operating methods, and government regulations. If deterministic methods are used, the term reasonable certainty is intended to express a high degree of confidence that the quantities will be recovered. If probabilistic methods are used, there should be at least a 90% probability that the quantities actually recovered will equal or exceed the estimate. Often referred to as 1P, also as “Proven”.

PSC Production Sharing Contract

PSDM Pre-Stack Depth Migration

PSTM Pre-Stack Time Migration

Psia Pounds per square inch pressure absolute

p.u. Porosity unit e.g. porosity of 20% +/- 2 p.u. equals a porosity range of 18% to 22%

PVT Pressure, Volume & Temperature

QA Quality Assurance

QC Quality Control

rb/stb Reservoir barrels per stock tank barrel under standard conditions

RFT Repeat Formation Test

Real Terms (RT)

Real Terms (in the reference date dollars) as opposed to Nominal Terms of Money of the Day

Reserves RESERVES are those quantities of petroleum anticipated to be commercially recoverable by application of development projects to known accumulations from a given date forward under defined conditions. Reserves must further satisfy four criteria: they must be discovered, recoverable, commercial, and remaining (as of the evaluation date) based on the development project(s) applied. Reserves are further categorised in accordance with the level of certainty associated with the estimates and may be sub-classified based on project maturity and/or characterized by development and production status.


RISC Resource Investment Strategy Consultants (t/a RISC Pty Ltd Authors of this report)

RT Measured from Rotary Table or Real Terms, depending on context

SC Service Contract

Scf Standard cubic feet (measured at 60 degrees F and 14.7 psia)

Sg Gas saturation

Sgr Residual gas saturation

SRD Seismic Reference Datum Lake Level

SPE Society of Petroleum Engineers

SPE-PRMS Petroleum Resources Management System, approved by the Board of the SPE March 2007 and endorsed by the Boards of Society of Petroleum Engineers, American Association of Petroleum Geologists, World Petroleum Council and Society of Petroleum Evaluation Engineers.

s.u. Fluid saturation unit. e.g. saturation of 80% +/- 10 s.u. equals a saturation range of 70% to 90%

Ss Subsea

Stb Stock tank barrels

STEO Short Term Energy Outlook

STOIIP Stock Tank Oil Initially In Place

Sw Water saturation

TCM Technical Committee Meeting

Tcf Trillion (1012) cubic feet

TJ Tera (1012) Joules

TLP Tension Leg Platform

TRSSV Tubing Retrievable Subsurface Safety Valve

TVD True Vertical Depth

UAH Ukrainian Hryvnia

US$ United States dollar

US$ million Million United States dollars

WACC Weighted average cost of capital

WHFP Well Head Flowing Pressure

Working interest

A company’s equity interest in a project before reduction for royalties or production share owed to others under the applicable fiscal terms.

WPC World Petroleum Council

WTI West Texas Intermediate Crude Oil

8 St Georges Terrace Perth WA 6000 GPO Box R1253 Perth WA 6844 T +61 8 9261 9100 F +61 8 9261 9111 www.rsmi.com.au

Page 98 Liability limited by a scheme approved under Professional Standards Legislation

RSM Bird Cameron Corporate Pty Ltd ABN 82 050 508 024 Licensed Investment Adviser No 255847

Major Offices in: Perth, Sydney, Melbourne, Adelaide and Canberra

RSM Bird Cameron Corporate Pty Ltd is an independent member firm of RSM International, an affiliation of independent accounting and consulting firms.

E-mail: [email protected] Direct line: 08 9261 9447 Direct fax: 08 9261 9120 AJG: NEB 1 April 2010 The Directors Incitive Ltd Level 1, 2 Ross Place South Melbourne, VIC 3205 Dear Sirs

Investigating Accountant’s Report

1. Introduction

1.1 This report has been prepared at the request of the Directors of Incitive Ltd (“Incitive” or “the Company”) for inclusion in a Prospectus to be dated on or about 1April 2010 relating to the proposed offer of 27,500,000 fully paid ordinary shares in the Company at an issue price of $0.20 per share, to raise $5.5 million.

1.2 The Company may accept oversubscriptions of up to 10,000,000 shares at an issue price of $0.20 per share to raise an additional $2,000,000 before capital raising costs.

1.3 This report has been prepared in accordance with the general disclosure requirements of the Corporations Act 2001 to assist investors make an informed assessment of the financial position of Incitive.

1.4 The future prospects of Incitive, other than the preparation of a pro-forma unaudited statement of financial position of Incitive and its subsidiaries (“the Incitive Group” or “the Group”), assuming completion of the proposed transactions, are not addressed in this report. This report also does not address the rights attaching to the shares to be issued pursuant to this Prospectus, nor the risks associated with the investment.

2. Background

2.1 The Company was incorporated in August 2005 to identify and acquire a portfolio of patented and patentable intellectual property, relating to technologies aimed at developing novel compounds for the treatment of inflammation, autoimmune diseases and cancer.

2.2 In February 2006 the Company made its first acquisition, a 100% interest in Neomune Pty Ltd which in turn owned 60% of PerfoRx Pty Ltd.

2.3 In March 2006 Incitive listed on the ASX and completed the acquisition of Sarantis Pty Ltd (“Sarantis”.

2.4 In March 2008 the Company purchased the remaining 40% of PerfoRx shares and PerfoRx Pty Ltd changed its name to Immunex Pty Ltd on 30 April 2008.

2.5 On 18 February 2010 the Company announced that it had entered into a merger implementation agreement with Janita Global Limited (“Janita”) trading as Hawkley Oil and Gas Pty Ltd (“Hawkley”) and its major shareholders to acquire directly and indirectly all of the shares in Janita through the issue of 150,621,847 fully paid ordinary shares and 32,962,913 performance shares in Incitive (“the Acquisition”).

2.6 Hawkley is an oil and gas explorer, and through its 100% wholly owned Ukrainian incorporated subsidiary, Prime Gas LLC (“Prime Gas”) it has assets in the Dnieper-Donets Basin in Ukraine. Prime Gas holds two exploration licences.

2.7 The Acquisition represents a significant change in the nature and scale of Incitive’s activities.

2.8 The Company intends to use the funds raised pursuant to this Prospectus for exploration of two oil and gas licences in the Ukraine the right to which are being acquired as part of the Hawkley acquisition.

3. Scope of Examination

3.1. You have requested RSM Bird Cameron Corporate Pty Ltd to prepare an Investigating Accountant’s Report on the special purpose financial report comprising:

� The consolidated unaudited Income Statement of the Incitive Group for the half-year ended 31 December 2009 prepared as if Incitive and Hawkley had been operating throughout the period as one consolidated group;

� The reviewed consolidated Balance Sheet of Incitive as at 31 December 2009;

� The pro forma unaudited Balance Sheet of the Incitive Group as at 31 December 2009, assuming the completion of transactions summarised in sections 5 and 6 of this Report; and

� The notes to the financial information.

3.2. The financial information has been prepared and presented in accordance with the accounting policies set out in Note 1 to the financial information.

3.3. Our review has been conducted in accordance with the Australian Auditing Standard on Review Engagements ASRE 2400. We made such enquiries and performed such procedures as we, in our professional judgment, considered reasonable in the circumstances including:-

� an analytical review of all the financial information presented, including a review of the reasonableness of the adjustments used to compile the un-audited pro-forma statement of financial position as at 31 December 2009;

� a comparison of consistency in the application of the recognition and measurement principles in Accounting Standards (including Australian Accounting Interpretations) and the accounting policies adopted by the Company and disclosed in Note 1 of the Appendix to this report;

� inspection of financial records; and

� enquiries of directors and management.

3.4. These procedures were substantially less in scope than that which would be required in an audit examination conducted in accordance with Australian Auditing Standards, thus the level of assurance provided is less than that given in an audit. We have not performed an audit and accordingly, we do not express an audit opinion.

4. Responsibility

4.1. The Directors are responsible for the preparation of the Historical Financial Information.

4.2. It is our responsibility to review the Historical Financial Information and report thereon. We disclaim any responsibility for any reliance on this Report or the financial information to which it relates for any other purpose other than for which it is prepared. This Report should be read in conjunction with the rest of the Prospectus.

5. Subsequent Events

5.1. Significant events subsequent to 31 December 2009 and prior to the date of this report are as follows:

� The injection of $564,314 of cash into Hawkley by way of a loan from one its shareholders, Avenger Investment Holdings Limited (“Avenger”)

5.2. Apart from the matters dealt with in this Report, having regard to the scope of our work, to the best of our knowledge and belief, no material transactions or events outside the ordinary business of the Company have come to our attention that are not otherwise disclosed in this Prospectus, which require further comment upon or adjustment to, the information referred to in this report, or which would cause the information in this report to be misleading.

6. Assumptions adopted in compiling the pro-forma balance sheet

6.1. The pro-forma Balance Sheet of the Company has been included for illustrative purposes only. The pro-forma Balance Sheet as at 31 December 2009 has been prepared by adjusting the unaudited Balance Sheet to reflect significant subsequent events as outlined in section 5 above and the financial effects of the following transactions as if they had occurred at 31 December 2009:

i) A capital raising by Ukraine Gas Investments Pty Ltd (“Ukraine Gas”) to raise net proceeds of $3,290,000. The transfer of the $3,290,000 to Hawkley through the issue of a convertible loan note.

ii) The issue of ordinary shares by Hawkley to Ukraine Gas to convert the convertible loan note of $3,290,000 into equity.

iii) A reduction in the issued share capital of Incitive and the number of issued outstanding options in Incitive through an equal reduction on a 26.67 for 1 basis;

iv) The issue of 150,621,847 Incitive ordinary fully paid shares at $0.20 each and 32,962,913 performance shares to acquire a 100% shareholding in Hawkley, as follows;

� 20,408,163 shares to the shareholders of Ukraine Gas, to acquire Ukraine Gas and as such its investment in Hawkley;

� 46,798,798 to the shareholders of Ukraine Investments Limited, to acquire Ukraine Investments Limited and as such its investment in Hawkley;

� 12,135,915 shares to the shareholders of Ballure Trading Limited, to acquire Ballure Trading Limited and as such its investment in Hawkley; and

� 71,278,971 shares to the remaining shareholders, to acquire their shares Hawkley.

v) The issue of ordinary shares by Hawkley to convert the shareholder loans of $9,065,947 from Ukraine Investments Limited and Ballure Trading Limited into equity.

vi) The issue of 3,204,729 Incitive ordinary fully paid shares at $0.1715 cents each to Avenger in consideration of $549,611 of amounts owed to Avenger by Hawkley;

vii) The issue of 7,499,931 Incitive fully paid ordinary shares at $0.20 each to Hawkley creditors and a payment in cash of $1,499,986 in consideration of amounts owed by Hawkley to Hawkley creditors of $2,999,972;

viii) The issue of 3,749,531 Incitive fully paid ordinary shares at $0.20 each to Cygnet Capital as part consideration for the payment of the corporate advisory fee in connection with the Acquisition;

ix) The issue of 11,248,594 share options to Cygnet Capital as part consideration for the payment of the corporate advisory fee in connection with the Acquisition, exercisable at $0.20 on or before 31 January 2014, valued at $1,687,289. These costs have been charged to accumulated losses;

x) The issue of a minimum 27,500,000 ordinary fully paid shares at 20 cents each to raise $5,500,000 capital pursuant to this Prospectus;

xi) The issue of 14,758,155 share options to Cygnet Capital as consideration for the payment of the corporate advisory fee in connection with the capital raising, exercisable at $0.20 on or before 31 January 2014, valued at $2,213,723. These cost have been netted against share capital raised; and

xii) The payment of other capital raising costs of $857,877. These costs have been netted against share capital raised.

7. Review statement on unaudited and pro-forma unaudited financial information

7.1. Based on our review, which is not an audit, nothing has come to our attention that causes us to believe that the financial information set out in the Appendix to this report does not present fairly:

� The consolidated unaudited Income Statement of the Incitive Group for the half

year ended 31 December 2009 prepared as if Incitive and Hawkley had been operating throughout the period as one consolidated group;

� The reviewed consolidated Balance Sheet of Incitive as at 31 December 2009;

and

� The pro-forma consolidated Balance Sheet of the Incitive Group as at 31 December 2009 adjusted to include the effects of the capital raising proposed in the Prospectus and the completion of the other transactions summarised in sections 5 and 6 of this Report.

8. Declaration

8.1. RSM Bird Cameron Corporate Pty Ltd is a licensed investment adviser under the Corporations Act 2001 and is beneficially owned by the directors of RSM Bird Cameron, a large national firm of chartered accountants.

8.2. Mr A J Gilmour CA is a director and authorised representative of RSM Bird Cameron Corporate Pty Ltd and a director of RSM Bird Cameron. He has professional qualifications and experience appropriate to the advice offered.

8.3. RSM Bird Cameron Corporate Pty Ltd has acted as Investigating Accountant for the Company but has not been involved in the preparation of any other part of this Prospectus. Accordingly, we make no representations as to the completeness and accuracy of the information in any other part of this Prospectus. RSM Bird Cameron Corporate Pty Ltd has not made and will not make any recommendation, through the issue of this report, to potential investors in the Company as to the merits of the investment.

8.4. RSM Bird Cameron Corporate Pty Ltd will receive a fee for the preparation of this report based on actual hours spent on the assignment at normal professional rates. With the exception of the above fees, neither Mr A J Gilmour nor RSM Bird Cameron Corporate Pty Ltd will receive any other benefits, either directly or indirectly, from the preparation of this report and have no pecuniary or other interest which could be regarded as affecting the ability to provide an unbiased opinion in relation to the proposed transaction.

8.5. RSM Bird Cameron Corporate Pty Ltd has consented to the inclusion of this report in the Prospectus in the form and context in which it appears. At the date of this report, this consent has not been withdrawn.

Yours faithfully

A J GILMOUR Director

Appendix A

Page 103

INCITIVE LIMITED CONSOLIDATED INCOME STATEMENT

FOR THE PERIOD 1 JULY 2009 TO 31 DECEMBER 2009

Reviewed

IncitiveUnaudited

Hawkley Pro forma

for the half year

endedfor the half year

ended for the half year

ended 31-Dec-09 31-Dec-09 31-Dec-09 $ $ $ Interest income 5,723 - 5,723Research and development tax concession 102,807 - 102,807 Research and development expenses (11,259) - (11,259)Corporate and administrative expenses (321,295) (309,991) (631,286)Other expenses - (60,280) (60,280)Impairment of goodwill - (201,961) (201,961)Finance costs - (18,145) (18,145)Foreign exchange losses - (343,060) (343,060) (Loss) / profit before income tax (224,024) (933,437) (1,157,461) Income tax expense - - - (Loss) / Profit after before income tax (224,024) (933,437) (1,157,461)

Note: The pro-forma income statement assumes the acquisition of Hawkley occurred at the commencement of the half year ended 31 December 2009.

Appendix A

Page 104

INCITIVE LIMITED CONSOLIDATED BALANCE SHEET

AS AT 31 DECEMBER 2009

Note Incitive

reviewedHawkley

unaudited Subsequent Pro-forma Unaudited Pro-forma

31-Dec-09 31-Dec-09 Events Adjustments 31-Dec-09 $ $ $ $ $Current assets Cash and cash equivalents 2 712,390 75,078 564,314 6,432,137 7,783,919Trade and other receivables 3 303,712 1,014,850 - - 1,318,562Inventory - 206,980 - - 206,980Total current assets 1,016,102 1,296,908 564,314 6,432,137 9,309,461

Non current assets Deferred exploration and evaluation 4 - 6,050,482 - - 6,050,482Plant property and equipment - 8,808 - - 8,808Total non current assets - 6,059,290 - - 6,059,290

Total assets 1,016,102 7,356,198 564,314 6,432,137 15,368,751 Current liabilities Trade and other payables 5 45,592 286,436 - - 332,028Financial liabilities 6 - 3,065,452 564,314 (3,549,583) 80,183 Total current liabilities 45,592 3,351,888 564,314 (3,549,583) 412,211 Non Current liabilities Shareholder loans - 9,065,947 - (9,065,947) -Total non current liabilities - 9,065,947 - (9,065,947) - Total liabilities 45,592 12,417,835 564,314 (12,615,530) 412,211 Net assets 970,510 (5,061,637) - 19,047,667 14,956,540 Equity Share capital 7 8,052,577 2 - 13,867,183 21,919,762Accumulated losses 8 (7,550,760) (7,324,689) - 1,748,165 (13,127,284)Foreign exchange reserve 9 - 2,263,050 - - 2,263,050Option reserve 10 243,928 - - 3,657,084 3,901,012Equity transaction reserve 11 224,765 - - (224,765) -Total equity 970,510 (5,061,637) - 19,047,667 14,956,540

The pro-forma Balance Sheet represents the unaudited Balance Sheet as at 31 December 2009 adjusted for the events outlined in section 5 of this report and the pro-forma transactions outlined in section 6 relating to the issue of shares pursuant to this Prospectus and the Acquisition by Incitive. Should shareholders approve the demerger of Sarantis, the potential impact of the demerger is approximately $42,000 which is not considered material to the Balance Sheet.

Appendix A

Page 105

INCITIVE LIMITED NOTES TO THE FINANCIAL REPORT


1. Summary of Significant Accounting Policies The significant accounting policies that have been adopted in the preparation of this special purpose financial report are: a. Basis of Preparation

This special purpose financial report has been prepared in accordance with the recognition and measurement, but not all the disclosure requirements of Australian Accounting Standards (including Australian Accounting Interpretations), and the Corporations Act 2001. Historical cost convention These financial statements have been prepared under the historical cost convention, as modified by the revaluation of certain assets, where appropriate. Critical accounting estimates and judgements The preparation of financial statements in conformity with AIFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies.

b. Business Combinations

Business combinations are accounted for by applying the acquisition method. The cost of the business combination includes the fair values, at the date of exchange of assets given, liabilities incurred or assumed and equity instruments issued by the acquirer in exchange for control of the acquiree. Any excess of the cost over the acquiree’s interest in the net fair value of the identifiable assets and liabilities and contingent liabilities so recognised is accounted for as goodwill. In accordance with AASB 3 “Business Combinations”, when Incitive (the legal parent) acquired Hawkley (the legal subsidiary), the acquisition was deemed a reverse acquisition since the substance of the transaction is that the existing shareholders of Hawkley have effectively acquired Incitive. Under reverse acquisition accounting, the consolidated financial statements are prepared as if Hawkley had acquired Incitive, not vice versa as represented by the legal position. In reverse acquisition accounting, the cost of the business is deemed to have been incurred by the legal subsidiary (the acquirer for accounting purposes) in the form of equity instruments issued to the owners of the legal parent (the acquiree for accounting purposes). However, due to the fact that the fair value of the equity instruments of the legal subsidiary (Hawkley) was not clearly evident at the date of the pro-forma acquisition, the alternative method was used whereby the cost of the business combination was determined as the total fair value of all issued equity instruments by the legal parent (Incitive) at the time of the business combination.

Appendix A

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1. Summary of Significant Accounting Policies (cont).

As a consequence;

� An exercise is performed to fair value the assets and liabilities of the legal acquirer, Incitive;

� The cost of investment held by the legal parent (Incitive) in the legal subsidiary (Hawkley) reversed on consolidation and the cost of the reverse acquisition is eliminated on consolidation against the consolidated equity and reserves of Incitive and its consolidated entities at the date control is passed. The effect of this is to restate the consolidated equity and reserves balances to reflect those of Hawkley at the date of acquisition;

� The amount recognised as issued equity instruments is determined by adding to the issued equity of the legal subsidiary (Hawkley) immediately before the business combination, the cost of the combination; and

� The consolidated financial statements are issued under the name of the legal parent (Incitive) but are a continuation of the financial statements of the deemed acquirer (Hawkley) under the reverse acquisition rules.

c. Revenue recognition

The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group’s activities as described below. Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances and duties and taxes paid. Interest income Interest income is recognised on a time proportion basis using the effective interest method. Government Grants Grants from the government are recognised at their fair value where there is reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants relating to costs deferred and recognised in the income statement over the period necessary to match them with the costs that they are intended to compensate. The Group recognises the Research and Development concession as a government grant. Government grants relating to the purchase of assets are included in non-current liabilities as deferred income and are credited to the income statement on a straight-line basis over the expected lives of the related assets.

Appendix A

Page 107



1. Summary of Significant Accounting Policies (cont). d. Income tax

The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the national income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. Deferred income tax is recognised for temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. Tax consolidation legislation Incitive Limited and its wholly-owned Australian controlled entities have not implemented the tax consolidation legislation. Accordingly, the income tax expense, tax payable and deferred tax assets and liabilities of each entity are calculated on a standalone basis and are recognised in the entity to which they relate.

Appendix A

Page 108



1. Summary of Significant Accounting Policies (cont). e. Impairment of assets

Intangible assets that have an infinite useful life are not subject to amortisation and are tested annually for impairment or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or group of assets (cash generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of impairment at each reporting date.

f. Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary at the date of the acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is not amortised, instead it is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at costs less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to the cash generating units for the purpose of impairment testing.

g. Foreign Currency Transactions and Balances

Functional and Presentation Currency

The functional currency of each of the entities in the consolidated entity is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the parent entity’s functional and presentation currency.

Transactions and Balances

Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date when fair values were determined. For the purposes of this special Purpose Financial Report, exchange rates of 1AUD = 0.91USD and 1UAH = USD 0.1252 have been applied.

Exchange differences arising on the translation of monetary items are recognised directly in the income statement except where deferred in equity as a qualifying cash flow or net investment hedge.

Appendix A

Page 109



1. Summary of Significant Accounting Policies (cont).

Exchange differences arising on the translation of non-monetary items are recognised directly in equity to the extent that the gain or loss is directly recognised in equity, otherwise the exchange difference is recognised in the income statement.

Translation

The financial results and position of foreign operations whose functional currency is different from the presentation currency are translated as follows:

� Assets and liabilities are translated at year-end exchange rates prevailing at that reporting date;

� Income and expenses are translated at average exchange rates for the period; and

� Retained profits are translated at the exchange rates prevailing at the date of the transaction.

Exchange differences arising on translation of foreign operations are transferred directly to the foreign currency translation reserve in the statement of financial position.

h. Exploration and evaluation expenditure

Mining tenements are carried at cost, less accumulated impairment losses.

Mineral exploration is accumulated in respect of each identifiable area of interest. These costs are only carried forward to the extent that they are expected to be recouped through the successful development of the area of interest or sale of that area of interest, or where exploration and evaluation activities have not reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves and active or significant operations in or in relation to, the area of interest are continuing.

Accumulated costs 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 amortised over the life of the area according to the rate of depletion of the economically recoverable reserves. A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest.

i. Share-Based Payments

The fair value determined at the grant date of equity-settled share-based payments is treated as the cost of assets acquired or expensed on a straight-line basis over the vesting period, based on the Company’s estimate of shares that will eventually vest. Vesting is not conditional upon a market condition. No asset or expense is recognised for share-based payments that do not vest.

For cash-settled share-based payments, a liability equal to the portion of the goods or services received is recognised at the current fair value determined at each reporting date.

Appendix A

Page 110


AS AT 31 DECEMBER 2009 2. Cash and cash equivalents Unaudited Pro-forma 31-Dec-09 After Issue $ $

Cash at Bank 712,390 7,541,796 Adjustments arising in the preparation of the pro-forma balance sheet is summarised as follows Incitive Cash at Bank at 31 December 2009 712,390Hawkley Cash at Bank 31 December 2009 75,078Cash inflows from borrowings 564,314 1,351,782 Issue of convertible loan note by Hawkley 3,290,000Payments to Hawkley creditors (1,499,986)Proceeds from the issue of fully paid ordinary shares in Incitive pursuant to the Prospectus 5,500,000Cash cost of capital raising costs (857,877) 6,432,137 Prof-forma balance 7,783,919

3. Trade and other receivables Incitive

unauditedHawkley

unaudited Pro-forma 31-Dec-09 31-Dec-09 After Issue $ $ $

Loan from V Patch 150,000 - 150,000Benefit in respect of Research and Development expenditure tax concession 102,807 - 102,807Prepaid recoverable taxes - 683,558 683,558Other receivables 50,905 331,292 382,197Total trade and other receivables 303,712 1,014,850 1,318,562

Appendix A

Page 111



4. Exploration and evaluation expenditure Unaudited Pro-forma 31-Dec-09 After Issue $ $

Exploration and evaluation - 6,050,482 Adjustments arising in the preparation of the pro-forma balance sheet is summarised as follows Incitive balance at 31 December 2009 -Hawkley deferred exploration and evaluation balance at 31 December 2009 6,050,482Pro-forma balance 6,050,482

5. Trade and other payables Unaudited Pro-forma 31-Dec-09 After Issue $ $

Trade and other payables 45,592 332,028 Adjustments arising in the preparation of the pro forma balance sheet is summarised as follows Incitive balance at 31 December 2009 45,592Hawkley trade and other payables at 31 December 2009 286,436

332,028

Appendix A

Page 112



6. Financial liabilities Unaudited Pro-forma

31-Dec-09 After Issue

$ $

Financial liabilities - 80,183 Adjustments arising in the preparation of the pro forma balance sheet is summarised as follows

Incitive balance at 31 December 2009 - Hawkley financial liabilities at 31 December 2009 3,065,452 Loan from Avenger 564,314 3,629,766

Settlement of Hawkley financial liabilities through the issue of 3,204,729 fully paid ordinary shares at $0.1715 each

(549,611)

Settlement of Hawkley financial liabilities through the issue of 7,499,931 fully paid ordinary shares at $0.20 each

(1,499,986)

Repayment of Hawkley financial liabilities (1,499,986) (3,549,583)

Pro-forma balance 80,183

7. Accumulated losses Unaudited Pro-forma

31-Dec-09 After Issue

$ $

Accumulated losses (7,550,760) (13,127,284) 1.1 1.2 1.3

Adjustments arising in the preparation of the pro forma balance sheet is summarised as follows

Incitive accumulated losses at 31 December 2009 (7,550,760) Hawkley retained earnings at 31 December 2009 (7,324,689) Elimination of accumulated losses of Incitive on reverse acquisition 7,550,760 Impairment of goodwill generated on reverse acquisition (3,274,065) 3,749,531 shares issued to broker in relation to Acquisition (749,906) 11,248,594 share options issued to broker in relation to Acquisition (1,687,289) Loss on issue of shares to Avenger to repay Hawkley debt (91,335)

Pro-forma balance (13,127,284)

Appendix A

Page 113



8. Share Capital

Number of ordinary

shares $ As at 31 December 2009 510,188,014 8,052,577

Adjustments arising in the preparation of the pro forma balance sheet is summarised as follows Equal reduction in issued share capital on a 1:26.67 basis (491,058,355) -Share capital of Hawkley as at 31 December 2009 - 2Conversion of the Hawkley convertible loan note through the issue of equity - 3,290,000Conversion of the Hawkley shareholder debt through the issue of equity - 9,065,947Fully paid ordinary shares issued as consideration for the acquisition of Hawkley 150,621,847 30,124,369Performance shares issued as consideration for the acquisition of Hawkley (32,962,913) - 3,296,291Elimination of fully paid ordinary shares issued as consideration for the acquisition of Hawkley - (30,124,369)Elimination of performance shares issued as consideration for the acquisition of Hawkley - (3,296,291)Elimination of the capital of Incitive in reverse acquisition - (8,052,577)Consideration for the acquisition of Incitive - 4,244,575Shares issued at $0.1715 each to settle Hawkley debt obligations (fair valued at $0.20) 3,204,729 640,946Shares issued at $0.20 each to settle Hawkley debt obligations 7,499,931 1,499,986Shares issued to broker 3,749,531 749,906Fully paid ordinary shares issued at $0.20 pursuant to the Prospectus 27,500,000 5,500,00014,758,155 share options issued to broker - (2,213,723)Costs associated with the share issue pursuant to this Prospectus - (857,877)

Pro-forma balance 211,705,697 21,919,762

There are also 32,962,913 performance shares outstanding in addition the above ordinary shares.

Oversubscription The Prospectus has provision to accept oversubscriptions of up to a further 10,000,000 shares to raise up to a further $2,000,000. In this situation the costs associated with the share issue would increase by approximately $120,000, and the cash at bank and contributed equity would therefore rise by $1,880,000 and the total number of shares on issue would be 221,705,697.

Fair value of consideration The fair value of the shares issued at the time of the pro-forma has been assessed as $0.20 based on the price of ordinary shares being issued under the Prospectus at the same time. The fair value of the performance shares has been determined based on as assessed probability of the performance terms being met as 50%. Given the underlying value of the ordinary shares that will be issued if the performance hurdle is met of $0.20 and a probability of 50%, this results in consideration of $3,296,291.

Appendix A

Page 114

INCITIVE LIMITED

NOTES TO THE FINANCIAL REPORT AS AT 31 DECEMBER 2009

9. Foreign Exchange Reserve Unaudited Pro-forma

31-Dec-09 After Issue $ $

Foreign Exchange Reserve - 2,263,050 Incitive balance at 31 December 2009 -Arising on consolidation of Hawkley Group 2,263,050Pro-forma balance 2,263,050

10. Option Reserve NoteNumber of

options $

As at 31 December 2009 63,600,000 243,928Options which have subsequently expired (750,000) - Adjustments arising in the preparation of the pro forma balance sheet is summarised as follows Equal reduction in issued outstanding options on a 1:26.67 basis (60,493,419) -Elimination of the pre-acquisition option reserve in Incitive - (243,928) (a) 2,356,581 - 11,248,594 options issued to broker (b) 11,248,594 1,687,28914,758,155 options issued to broker (c) 14,758,155 2,213,723 Pro-forma balance 28,363,330 3,901,012

(a) At the 31 December 2009 the Company had 63,600,000 options outstanding, 750,000 of these expired on 1 March 2010, the remaining 62,850,000 options will be reduced on a 1:26.67 in connection with the Acquisition, the table below sets out the terms attached to these options;

Number of options

Options exercisable at $5.33 on or before 1 September 2010 14,998 Options exercisable at $5.33 on or before 21 November 2010 50,619 Options exercisable at $5.33 on or before 11 August 2011 3,750 Options exercisable at $2.67 on or before 19 November 2011 37,495 Options exercisable at $0.27 on or before 30 June 2012 2,249,719

2,356,581

Appendix A

Page 115



(b) 11,248,594 options are to be issued to the broker as part consideration for the payment of the corporate advisory fee in connection with the Acquisition, with an exercise price of $0.20 and are exercisable on or before 31 January 2014. Using the Black Scholes Model the fair value of an option is approximately $0.15 based on the following criteria:

Input Value Underlying share price $0.20 cents Exercise price $0.20 cents Expected volatility 108% Option life 4 years Risk free interest rate 5.27%

(c) 14,758,155 options to be issued to the broker pursuant to this Prospectus with an exercise price of $0.20 and are exercisable on or before 31 January 2014. Using the Black Scholes Model the fair value of an option is approximately $0.15 based on the following criteria:

Input Value Underlying share price $0.20 cents Exercise price $0.20 cents Expected volatility 108% Option life 4 years Risk free interest rate 5.27%

11. Equity Transaction Reserve Unaudited Pro-forma 31-Dec-09 After Issue $ $

Equity Transaction Reserve 224,765 - Incitive balance at 31 December 2009 224,765 Cancellation of Incitive reserve on reverse takeover (224,765) Pro-forma balance -

12. Related Party Disclosure

(a) The Directors of Incitive at the date of this report are Mr Melvyn Bridges, Mr Eric De Mori and Mr Winton Willesee. (b) Directors’ holdings of shares, directors’ remuneration and other directors’ interests are set out in Section 12 “Additional information” of the Prospectus.

13. Commitments and Contingent Liabilities Incitive has budgeted $4.83 million for exploration expenditure in year 1 assuming minimum subscription to the Prospectus. However, it is at Incitive’s option as to whether the expenditure is incurred. Further details are set out in section 11“Material Contracts” of the Prospectus.

��

CLIFFORD CHANCE LIMITED LIABILITY COMPANY

MEMORANDUM

TO: Mr Melvyn Bridges The Board of Directors Incitive Limited

DATE: 7 April 2010

FROM: Clifford Chance (Kyiv) EXT:

FILE: 62-40467535 COPIES:

Dear Mr Bridges,

We have prepared this memorandum (the "Memorandum") in response to your request to:

(1) confirm the compliance of the procedure for the issuance of the Special Licence for Use of Subsurface Natural Resources No. 2982 dated 19 July 2007 for exploration activities, including pilot production, at Chernetska oil and gas field ("Licence 1"), and the compliance of the Licence 1 with the relevant provisions of Ukrainian law; and

(2) confirm the compliance of the procedure for the issuance of the Special Licence for Use of Subsurface Natural Resources No. 3003 dated 14 August 2007 for exploration activities, including pilot production, at Sorochynske gas and condensate field ("Licence 2" and together with Licence 1 – the "Licences"), and the compliance of Licence 2 with the relevant provisions of Ukrainian law.

The content of the Memorandum is based solely on the documents and information provided to us by "Prime-Gas" Limited Liability Company (the "Documents"). The list of Documents is attached hereto as Annex 1.

The advice set out in this Memorandum is subject to the assumptions and qualifications set out in Annex 2.

Our examination of matters of law has been limited to the laws of Ukraine and we assume that no foreign law affects any of the conclusions stated below. The list of the applicable legislation is attached hereto as Annex 3.

A general description of the oil and gas regulation is attached hereto as Annex 4.

MEMORANDUM

1. LICENCES

1.1 Licence 1

1.1.1 Licence 1 was acquired by "Prime-Gas" Limited Liability Company ("PG") at an auction held on 11 June 2007.

We were provided with Minutes No. 8 on arrangement of the auction for sale of special permits, dated 11 June 2007 ("Minutes No. 8"). Minutes No. 8 records that:

(a) the opening price was UAH 7,669,000 (approx. USD 1,518,000);

(b) each auction step (comparable to the concept of a bid) was UAH 50,000 (approx. USD 9,901);

(c) PG was the sole bidder for Licence 1;

(d) the amount of PG's prepayment was UAH 1,533,800 (approx. USD 303,722); and

(e) the total purchase price was UAH 7,719,000 (approx. USD 1,529,000).

Although it may appear unusual that the auction was held with only one bidder, this is consistent with the Procedure of Auctions for Sale of Special Permits/Licences for Use of Subsurface Natural Resources in 2007, approved by the resolution of the Cabinet of Ministers of Ukraine dated 4 April 2007, No. 611 (the "Auction Procedure"). Paragraph 2 of Clause 17 of the Auction Procedure provides that an auction shall be conducted if at least one bidder is registered and is able to buy the licence at the opening price. We note that even though there is only one bidder, the Auction Procedure requires that bidder to make a bid and the rules applicable to the particular auction will prescribe the minimum amount of each bid (in this case, UAH 50,000).

1.1.2 Based on Minutes No. 8, PG and the Ministry of Environmental Protection of Ukraine (the "Ministry") executed sale-purchase agreement No. 1/8-07 dated 11 June 2007 for the sale of Licence 1 ("SPA 1").

SPA 1 is in standard form and provides the following:

(a) PG must pay the purchase price within 30 calendar days of the SPA 1 execution date;

(b) PG must pay an additional sum of UAH 22,500 (approx. USD 4,455) in respect of geological data on the area covered by Licence 1 within 30 calendar days of the SPA 1 execution date; and

(c) the Ministry must issue Licence 1 after PG has paid the sums due and described in paragraphs 1.1.2(a) and 1.1.2(b).

According to the bank account statement provided to us, PG paid the sums described in paragraphs 1.1.2(a) and 1.1.2(b) on or before 4 July 2007 (i.e., within the time period stipulated in SPA 1).

1.1.3 On 19 July 2007 the Ministry issued Licence 1 to PG.

Description of Licence 1:

Name of the field Chernetska field

Location of the field Talalayivskyi District, Chernygiv Region

Type of the subsurface natural resources Oil and natural gas

Type of the right to use the subsurface natural resources

Exploration including pilot production


Date of issuance 19 July 2007

Duration 5 years

We were advised by PG that the one month time period between the date of the auction and the issue of the Licence 1 was simply a result of an administrative delay at the Ministry. As a matter of practice, the delay in the issue of subsoil licences can take up to two months, so we do not consider this delay to be an issue.

1.1.4 We have not identified any formal or procedural defects in the Licence 1 or the way it was issued.

1.1.5 On 19 July 2007 the Ministry and PG also executed the licensing agreement regarding Licence 1 (the "Licensing Agreement 1").

Please note that in accordance with Ukrainian legislation the licensing agreement forms part of the licence and contains various general terms regarding the use of subsurface natural resources.

1.1.6 Licensing Agreement 1 is in standard form and provides for the following:

(a) PG shall develop and obtain approval for the technical project of exploration (the "Project Plan") within 6 months from the date of the Licensing Agreement 1;

(b) PG shall then apply for allocation of the relevant land plots that may be required for certain parts of the work program. We note that not all exploration works would require land allocation (for example, development of the design for exploration drilling, seismic researches etc.);

(c) before the end of the licence term, PG shall report on the results of its exploration and pilot production activities and, if appropriate, shall apply to the

Ministry for registration of the hydrocarbon reserves PG's name in the State register;

(d) PG shall comply with environmental legislation;

(e) PG shall comply with HSE legislation in respect of its employees;

(f) PG shall ensure that there is an effective safety control system in place (we assume that this is actually a system for monitoring);

(g) PG shall procure that a set of internal rules and procedures for exploration works is developed;

(h) PG shall provide for the training of its employees; and

(i) PG shall provide all operational employees with appropriate work-wear.

According to PG, there were no violations of PG's obligations under the Licensing Agreement 1 as at 22 January 2010. We have not independently verified such PG's compliance.

1.1.7 There is a remote risk that the Licensing Agreement 1 may be treated as not containing all of the "essential terms" required under Ukrainian law to be contained in that agreement. In particular, such "essential terms" as: (i) procedure for exercising control over exploration works, and (ii) title to geological information obtained as a result of exploration works, are not specifically described in the Licensing Agreement 1. However, given that the Licensing Agreement 1 contains a provision stating that Ukrainian law applies where certain issues are not specifically regulated by the Licensing Agreement 1, and Ukrainian law clearly regulates these issues, we do not consider the absence of the specific description of the "essential terms" as a major issue. This is because it is highly likely that the Licensing Agreement 1 will be construed as incorporating the "essential terms" by reference to the law. The parties' continued performance of the Licensing Agreement 1 is an additional mitigating factor for any risks associated with the Licensing Agreement 1.

1.1.8 The Licensing Agreement 1 requires PG to submit a work program for works to be carried out during the licence term. The Licensing Agreement 1 itself contains such program for exploration works (the "Work Program 1") setting general deadlines for the execution of works. The Work Program 1 was subsequently amended on 15 October 2008 as per the letter of the Geological Office of the Ministry as of 27 October 2008. According to Licensing Agreement 1 the Work Program 1 may be further clarified or amended by mutual consent of PG and the Ministry, if sufficiently justified. Under the Licensing Agreement 1, a lack of written response (providing for its justification) to a proposal of any party within 30 days is considered approval of proposed amendments.

1.1.9 According to Ukrainian law, a licence may be terminated if its holder failed to start the use of subsurface area with oil and gas deposits within 180 days following the date of commencement of the licence, unless there is a valid reason for such failure. PG

believes that it has complied with this requirement by means of engaging a third party to prepare a working plan for exploration works on Chernetska field prior to expiration of the 180 days period. Unfortunately, there is no official interpretation or court practice that would provide guidance on whether the legal requirement to commence the use of subsurface area may be satisfied solely by means of commencement of analysis of geological and geophysical information. According to PG, they have clarified this issue with the licensing authority, and the licensing authority believes that the commencement of analysis of geological and geophysical information in fact satisfies the legal requirement to commence the use of subsurface area within 180 days.

1.1.10 According to PG, it is in the process of performing all of its obligations under the Work Program 1, although it has failed to perform some of its obligations by the time required by the Work Program 1 (as amended). For example, PG states that it has already undertaken a number of steps aimed at securing the land plots required for exploration activities, although it has failed to secure land plots by the 3rd quarter of 2009 as required by the Work Program 1 (as amended). Although such non-compliance with certain deadline requirements does not render Licence 1 invalid per se, it may, theoretically, lead to invalidation of Licence 1 if such non-compliance is proven by the relevant authority. In addition, it may result in the future refusal in conversion of exploration licence into production licence.

In our experience, non-compliance of licensees with the deadline requirements of work programs is rather common in Ukraine, while the control over such compliance is carried out sporadically. We are aware of the instances of invalidation of the licenses based on non-compliance with work programs, although it appears that these instances are rare. Based on PG's representation that it is in the process of performing all of its obligations under the Work Program 1 and only having missed some of the deadlines, we do not believe that the risks of invalidation of the Licence 1 are material if PG makes relevant amendments to the Work Program 1. It is common practice in Ukraine to have work programs amended, and we have been informed by PG that it has commenced the process of amending the Work Program 1.

1.1.11 According to PG there has been no correspondence with the Ministry or any other official body regarding Licence 1.

1.2 Licence 2

1.2.1 Licence 2 was acquired by PG at an auction held on 9 July 2007.

We were provided with Minutes No. 5 on arrangement of the auction for sale of special permits dated 9 July 2007 (the "Minutes No. 5"). Minutes No. 5 records that:

(a) the opening price was UAH 11,931,000 (approx. USD 2,363,000);

(b) each auction step (comparable to the concept of a bid) was UAH 100,000 (approx. USD 18,802);

(c) PG was the sole bidder for Licence 2;

(d) the amount of PG's prepayment was UAH 2,386,200 (approx. USD 472,515); and

(e) the total purchase price was UAH 12,031,000 (approx. USD 2,382,000).

It appears that the auction was made in compliance with the Auction Procedure.

1.2.2 Based on Minutes No. 5 PG and the Ministry executed sale-purchase agreement No. 2/5 dated 9 July 2007 for the sale of Licence 2 (the "SPA 2").

SPA 2 is in standard form and provides the following:

(a) PG must pay the purchase price within 30 calendar days of the SPA 2 execution date;

(b) PG must pay additional sum of UAH 102,800.45 (approx. USD 20,356) in respect of geological data (on the area covered by Licence 2) within 30 calendar days of the SPA 2 execution date; and

(c) the Ministry must issue Licence 2 after PG has paid the sums due and described in paragraphs 1.2.2(a) and 1.2.2(b).

According to the bank account statement provided to us, PG paid the sum described in paragraphs 1.2.2(a) and 1.2.2(b) on or before 7 August 2007 (i.e., within the time period stipulated in SPA 2).

1.2.3 On 14 August 2007 the Ministry issued Licence 2 to PG.

Description of Licence 2:

Name of the field Sorochynske field

Location of the field Myrgorodskyi District, Poltavska Region

Type of the subsurface natural resources Natural gas and gas condensate

Type of the right to use the subsurface natural resources

Exploration, including pilot production


Date of issuance 14 August 2007

Duration 5 years

We were advised by PG that the one month time period between the date of the auction and the issue of Licence 2 was simply a result of an administrative delay at the Ministry. As a matter of practice, the delay in the issue of subsoil licences can take up to two months, so we do not consider this gap an issue.

1.2.4 We have not identified any formal or procedural defects in the Licence 2 or the way it was issued.

1.2.5 On 14 August 2007 the Ministry and PG also executed the licensing agreement regarding Licence 2 (the "Licensing Agreement 2").

Please note, that in accordance with Ukrainian legislation the licensing agreement forms part of the licence and contains various general terms regarding the use of subsurface natural resources.

1.2.6 Licensing Agreement 2 is in standard form and provides the following:

(a) PG shall develop and obtain approval for the Project Plan within six months as of the date of the Licensing Agreement 2;

(b) PG shall then apply for allocation of the relevant land plots that may be required for certain parts of the work program. Again, we note that not all exploration works would require land allocation (for example, development of the researches for exploration drilling, seismic researches etc.);

(c) before the end of the licence term, PG shall report on the results of its exploration and pilot production activities and, if appropriate, shall apply to the Ministry for registration of the hydrocarbon reserves PG's name in the State register;

(d) PG shall comply with environmental legislation;

(e) PG shall comply with HSE legislation in respect of its employees;

(f) PG shall ensure that there is an effective safety system in place (we assume that this is actually a system for monitoring);

(g) PG shall procure that a set of internal rules and procedures for exploration works is developed;

(h) PG shall provide for the training of its employees; and

(i) PG shall provide all operational employees with appropriate work-wear.

According to the representations made by PG, there were no violations of PG's obligations under the Licensing Agreement 2 as at 22 January 2010.

1.2.7 Similarly to the Licensing Agreement 1, the Licensing Agreement 2 does not expressly contain some of the "essential terms" and contains only the general reference stating that Ukrainian law applies where certain issues are not covered by the Licensing Agreement 2. Please refer to paragraph 1.1.7. hereof for more detail.

1.2.8 The Licensing Agreement 2 requires PG to submit a work program for works to be carried out during the licence terms. The Licence Agreement 2 itself contains such program for exploration works (the "Work Program 2") setting general deadline for the execution of works. The Work Program 2 was subsequently amended on 15

October 2008 as per the letter of the Geological Office of the Ministry as of 27 October 2008. According to Licensing Agreement 2 the Work Program 2 may be further clarified or amended by mutual consent of PG and the Ministry, if sufficiently justified. Under the Licensing Agreement 2, a lack of written response (providing for its justification) to a proposal of any party within 30 days is considered approval of proposed amendments.

1.2.9 According to PG, it is in the process of performing all of its obligations under the Work Program 2, although it has failed to perform some of its obligations by the time required by the Work Program 2 (as amended). For example, PG failed to carry out drilling and testing of well No. 201 by the 4th quarter of 2009 as required by the Work Program 2 (as amended). Although such non-compliance with certain deadline requirements does not render Licence 2 invalid per se, it may, theoretically, lead to invalidation of Licence 2 if such non-compliance is proven by the relevant authority. In addition, it may result in the future refusal in conversion of exploration licence into production licence.

In our experience, non-compliance of licensees with the deadline requirements of work programs is rather common in Ukraine, while the control over such compliance is carried out sporadically. We are aware of the instances of invalidation of the licenses based on non-compliance with work programs, although it appears that these instances are rare. Based on PG's representation that it is in the process of performing all of its obligations under the Work Program 2 and only having missed some of the deadlines, we do not believe that the risks of invalidation of the Licence 2 are material if PG makes relevant amendments to the Work Program 2. It is common practice in Ukraine to have work programs amended, and we have been informed by PG that it has commenced the process of amending the Work Program 2.

1.2.10 According to PG there has been no correspondence with the Ministry or any other official body regarding Licence 2.

2. LAND ISSUES

Legally, PG may use the land for exploration based on leasehold/freehold or any other arrangement with title holder (including, in the case of an exploration license, a simple "consent"). As a matter of standard practice, most exploration companies arrange for leasehold or servitude rights to land. PG should acquire title to the land or agree the terms for the use of land with the title holder before commencement of any exploration.

2.1 Licence 1

2.1.1 Presently PG has no rights to land plots comprising the area necessary for exploration activities under Licence 1. We note that PG has undertaken some steps in order to obtain servitude to land plots located within the area of Licence 1. However, we do not provide any opinion on the probability of PG's obtaining the servitude.

2.2 Licence 2

2.2.1 PG currently holds a servitude over state owned land allowing for construction of well No. 201 at the Sorochynske field and for the exploration of that field. The servitude agreement was executed between PG and State Entity "Exploratory Enterprise in the name of Dekabristov of Poltava Institute of Agricultural Production in the name of Vavilov UAAN" (holding the permanent use rights to the land) on 17 September of 2008 and was registered at the Mirgorod District Department of Poltava Region Department of the State Land Cadastre on 3 November 2008. The servitude term lasts until 2 November 2010.

2.2.2 In contrast to freehold or leasehold, the servitude gives the owner/user of a land plot the right to the limited use of another's land plot in a specific and limited manner. The law is not specific as to the particular rights included in servitudes (i.e. the scope of rights may differ depending on the parties' agreement) and thus, as a matter of practice, servitudes are commonly used in Ukraine for exploration. Moreover, due to practical difficulties with acquiring freehold or leasehold of state-owned land (please see below) servitude is often the only practical instrument for exploration.

2.2.3 Notwithstanding the common practice vis-a-vis servitudes, we are of opinion that the use of servitudes for exploration is not ideal from a legal perspective. The original purpose of a right of servitude was that it was granted over one plot of land for the benefit of another. Therefore, the validity of a servitude can be questioned if there is no land that can be identified as benefiting from it. PG's right of servitude says that it is for the benefit of PG and not another plot of land. However, any such invalidation would require a court decision and it is not automatic. This would contradict also the established practise in the exploration sector. We are not aware of any such court decision or any attempts to challenge such practice by the public authorities. In an unlikely event that the servitude is invalidated by the court and the titleholder requests PG to stop using the land, PG may have to vacate the land and may be required to clean it up.

2.2.4 Currently, PG has no freehold or leasehold title to any of the land plots comprising the area of either Licence 1 or Licence 2. If PG would like to acquire the freehold or leasehold title to privately owned land plots, this may take up to two months to register such interest (this in addition to the time taken to negotiate and finalise the sale itself). Also, it is very likely that PG would need to change the permitted use (or zoning) of the land before the commencement of the works. Until recently PG could have only acquired freehold or leasehold of state and municipally owned land through an auction procedure. From October 2008 the law provides for a special exception from the auction/tender requirement in relation to entities holding a license to use natural resources if such rights were to be used for the activity covered by the relevant license. According to the current regulation, in order to obtain freehold/leasehold title, PG must obtain the approval of the local authorities for the location of the land for exploration. Then PG must develop and approve an allotment plan (in case of a newly allocated land plot or new zoning) or technical documentation (for existing land plots if no changes to zoning is provided) and, finally, shall obtain a resolution of the local authorities on allocation of the land. Please note that this procedure has only recently been introduced and not been tested in practice yet. In our experience with similar

regulations in the past, it may take up to one year to negotiate and finalise the relevant agreement (for lease or sale) and to register title, although it would not be necessary to change the permitted use of the land plot. Obviously, the exception from the auction/tender rule does not impose on the state authorities any obligation to grant the title to the license holder.

2.2.5 Further, acquiring the ownership or lease rights to the land covered by the servitude mentioned in clause 2.2.4 would require the current user of the land (i.e. State Entity "Exploratory Enterprise in the name of Dekabristov of Poltava Institute of Agricultural Production in the name of Vavilov UAAN") to waive its right of permanent use thereof before the land is leased or sold to PG.

2.2.6 Taking the above into account, it could be difficult for PG to obtain freehold or leasehold title to state-owned land plots in the short term. Thus, in our opinion servitude, is the only practical instrument for PG to use in order to commence exploration in the near term. In the longer terms PG could obtain freehold or leasehold title to the relevant land.

2.2.7 We were not provided with the title document to the land plot under servitude (i.e., the state act on the permanent use) and thus cannot verify the permitted use (zoning) of the relevant land plots. Please note that the state registration of the servitude agreement does not confirm that the permitted use (zoning) of the land plot under servitude is legally designated for construction of the well or exploration. However, the local department of land resources is under a general obligation to control the legitimate use of the land and should have checked the permitted use (zoning) of the land plot prior to registration of the servitude right.

Theoretically, if PG uses the land plot under servitude in violation of zoning requirements, such violation could be considered as a breach of the requirement to use the License in compliance with Ukrainian legislation. In practice, we are aware of numerous cases where land designated for agricultural use is used for exploration without any objections by the state authorities.

2.3 According to the information provided by PG, the land plot used for exploration activities under Licence 2 is designated for agricultural activity. We note the following risks with respect to the "agricultural" status of such land:

2.3.1 due to the recent amendments to the Land Code of Ukraine, the use of agricultural land for any purpose other than agricultural may be challenged, however, this would not affect the validity of the Licences;

2.3.2 under Ukrainian law, the party that granted the servitude to another party has the right to require termination of such servitude if it proves that the other party's use of the servitude would contradict the statutory zoning of the land plot provided under servitude.

3. EXPLORATION AND PILOT PRODUCTION

3.1 PG, as the holder of the Licences, has the right to use the Sorochynske and Chernetska hydrocarbon fields for exploration and pilot production.

3.2 In order to start exploration PG must construct relevant facilities (wells, pipelines, etc.).

According to Ukrainian legislation the construction of hydrocarbon facilities is a licensed activity,1 which means that such works can only be carried out by specially-licensed entity.2 As PG has no such licence, it must contract construction companies with the relevant permits and licences to construct oil and gas facilities, which is a normal practise in the sector.

3.3 We have reviewed the Contractor Agreement on Construction of Well No. 201 of the Sorochynske Field dated 8 July 2008 (the "Contractor Agreement 1") between PG and Open Joint Stock Company Burova Compania "Bukros" (the "Contractor 1").

According to the Contractor Agreement 1, the Contractor 1 is obliged to construct Well No. 201 of the Sorochynske Field within 250 calendar days as of the date start for the works, subject to certain exceptions. We note that the Contractor Agreement 1 does not specify the start date for the works. The fee of the works is fixed at UAH 9,006,600 (approx. USD 1,857,000).

3.4 The Contractor 1 has licence No. 343529 Series AB, dated 22 June 2007 and is entitled, inter alia, to construct wells for exploration and pilot production. Additionally, the Contractor 1 has the construction licence No. 365983 Series AB, dated 6 December 2007.

3.5 We have reviewed the Contractor Agreement on Construction of Well No. 1 of the Chernetska Field dated 31 July 2009 (the "Contractor Agreement 2") between PG and Limited Liability Company "Chernigivspetstekhmontazh Inc." (the "Contractor 2").

3.6 According to the Contractor Agreement 2, the Contractor 2 is obliged to construct Well No. 1 of the Chernetska Field within 340 calendar days as of the date start for the works, subject to certain exceptions. We note that the Contractor Agreement 2 does not specify the start date for the works. The fee of the works is fixed at UAH 2,378,649 (approx. USD 309,000). We have not been provided with the copies of the necessary licences of Contractor 2, however, the compliance with the licensing requirements is an obligation of Contractor 2, but not PG.

4. EXTENSION OF THE LICENCES

4.1 Presently, there is no effective procedure for the issuance of special licences for use of subsurface area. In the past, the Cabinet of Ministers of Ukraine adopted such procedure on an annual basis and the relevant procedure for the year 2010 has not yet been adopted. As Licences expire in 2012 PG would need to apply for extension of the Licences according to the procedure that would be effective in 2012.

1 Law of Ukraine "On Licensing of Certain Types of the Commercial Activities" No. 1775-III, dated 1 June

2000, Joint Order of the State Committee of Ukraine on Question of Regulatory Politic and Entrepreneur and the Ministry No. 107/370, dated 31 July 2007.

2 Article 91(3) of Civil Code of Ukraine, No. 435-IV, dated 16 January 2003.

In the past, the procedures provided for a simplified process of such extension, and thus the Licences could have been extended without an auction and without the need to obtain any additional approval of the local authorities, provided that the holder of a licence did not commit violations of conditions for the use of subsurface area.

Over the last several years some changes have been made to the procedures for the issuance of licences to use subsurface area, so we cannot predict how significantly the procedure may be changed by 2012.

5. ALIENATION OF THE LICENCES

5.1 According to the Procedure Licences may not be sold, assigned or otherwise alienated including by way of contribution into equity of a company or contribution into a joint activity.

5.2 At the same time Licences may be, de facto, transferred as a result of succession when a licensee is reorganised into other company (as a result of merger, accession or separation).

5.3 There is no restriction, however, on a transfer of the shares in a company holding the licences (i.e. PG).

Should you have any questions regarding the above please do not hesitate to contact us.

Kind regards,

Clifford Chance

ANNEX 1 LIST OF THE DOCUMENTS

1. Special Licence for Use of the Subsurface Natural Resources, No. 2982, dated 19 July 2007 for exploration, including pilot production, at Chernetska oil and gas field, issued by the Ministry of Environmental Protection of Ukraine;

2. Special Licence for Use the Subsurface Natural Resources, No. 3003, dated 14 August 2007 for exploration, including pilot production, at Sorochynske gas and condensate field, issued by the Ministry of Environmental Protection of Ukraine;

3. Agreement on the Conditions of Use of the Subsurface Natural Resources, dated 19 July 2007, executed by and between the Ministry of Environmental Protection of Ukraine and "Prime-Gas" LLC;

4. Agreement on the Conditions of Use of the Subsurface Natural Resources, dated 16 August 2007, executed by and between the Ministry of Environmental Protection of Ukraine and "Prime-Gas" LLC;

5. Contractor Agreement on Construction of Well No. 201 of the Sorochynske Field, dated 8 July 2008, executed by and between "Prime-Gas" LLC and the Open Joint Stock Company Burova Compania "Bukros";

6. Charter of "Prime-Gas" LLC, registered by the Shevchenkivsky District in Kyiv City State Administration, dated 17 August 2006;

7. Certificate of State Registration of the Legal Entity "Prime-Gas" LLC, issued by the Shevchenkivsky District in Kyiv City State Administration, dated 17 August 2006;

8. Certificate No. 2762 from the Unified State Register of the Entities and Organizations of Ukraine (YDRPOU), issued by the Statistics Department in Shevchenkivsky District, dated 22 August 2006;

9. Extract from the internet site of the Ministry of Environmental Protection of Ukraine regarding announcement of the auctions for sale of special permits for use of subsurface natural resources, issued by the Ministry of Environmental Protection of Ukraine, dated 11 May 2007;

10. Copy of the announcement of auction published in the official newspaper "Uryadovyy Kurier" dated 11 May 2007 No.81;

11. Extract from the internet site of the Ministry of Environmental Protection of Ukraine regarding announcement of the auctions for sale of special licences for use of subsurface area, issued by the Ministry of Environmental Protection of Ukraine, dated 8 June 2007;

12. Copy of the announcement of auction published in the official newspaper "Uryadovyy Kurier" dated 8 June 2007 No.100;

13. Bank account statements, issued by CJSC "Alfa-Bank" in Kyiv City, dated 22 July 2008 and 26 June 2007 with respect to the payments made for the Licences on 22 May 2007, 21 June 2007, 26 June 2007, 4 July 2007, 7 July 2007;

14. Certificate No. 8-A on acceptance of the application for participation in auction for sale of special permits for use of subsurface natural resources, issued by "Multiservice" LLC, dated 24 May 2007;

15. Certificate No. 39-A on acceptance of the application for participation in auction for sale of special permits for use of subsurface natural resources, issued by "Multiservice" LLC, dated 21 June 2007;

16. Minutes No. 8 on arrangement of the auction for sale of special permits for use of subsurface natural resources, issued by the Auction Committee, dated 11 June 2007;

17. Minutes No. 5 on arrangement of the auction for sale of special permits for use of subsurface natural resources, issued by the Auction Committee, dated 9 July 2007;

18. Form 3-GR, issued by the "Prime-Gas" LLC, dated 22 August 2007;

19. Form 3-GR, issued by the "Prime-Gas" LLC, dated 25 July 2007;

20. Form 6-GR, issued by the "Prime-Gas" LLC, dated 29 January 2008;

21. Form 6-GR, issued by the "Prime-Gas" LLC 19 January 2009;

22. Certificate of State Registration of the Legal Entity Open Joint Stock Company Burova Compania "Bukros", issued by the Executive Committee of the Poltava City Council, dated 9 March 1992;

23. Certificate No. 19/3586 from the Unified State Register of Entities and Organizations of Ukraine (YDRPOU), issued by the Statistics Department in Poltava Region, dated 12 September 2002;

24. Extract from the Charter of Open Joint Stock Company Burova Compania "Bukros", issued by the chancery (w/d);

25. Order of Open Joint Stock Company Burova Compania "Bukros", dated 5 June 2006;

26. Licence No. 343529 Series AB, dated 22 June 2007;

27. Licence No. 365983 Series AB, dated 6 December 2007;

28. Sale-purchase agreement No. 1/8-07, dated June 11, 2007;

29. Sale-purchase agreement No. 2/5, dated July 09, 2007;

30. Servitude agreement dated September 17, 2008;

31. Conclusion of State Department of Environmental Protection in Chernigiv Region dated as of 9 December 2009 No. 908;

32. Act of sanitary inspector dated 4 August 2009 No. 4;

33. Act of land plot selection (w/d);

34. Application for withdrawal of land plot dated 24 November 2009 No. 2097;

35. Application for withdrawal of land plot dated 24 November 2009 No. 2102;

36. Conclusion of Municipal Enterprise "Architectural and Planning Bureau" dated 10 August 2009 No. 36;

37. Conclusion of Talalayivskiy District Department of State Land Resources Committee dated 21 July 2009 No. 01-13/1117;

38. Conclusion of Talalyivskiy District Sanitary and Epidemiologic Institution dated 5 August 2009 No. 654;

39. Contractor Agreement on Construction of Well No. 1 of the Chernetska Field dated 31 July 2009 executed by and between "Prime-Gas" LLC and the Limited Liability Company "Chernigivspetstekhmontazh Inc."

ANNEX 2 QUALIFICATIONS & LIMITATIONS ON LIABILITY

1. Qualifications

1.1 The legal review has been undertaken on the following basis:

(a) we have limited our analysis to the validity of the Licences;

(b) we have not undertaken the examination of the matters of fact with respect to the Licences and PG's actual (physical) compliance with applicable environmental, subsoil, labour or any other requirements, we have relied upon relevant PG's information regarding such actual (physical) compliance;

(c) our examination of matters of law has been limited to the laws of Ukraine we have assumed that no foreign law affects any of the conclusions stated herein;

(d) any conclusions given on matters arising under Ukrainian law are premised on the assumptions that:

(1) governmental authorities have the competence and jurisdiction which they, directly or impliedly, assert;

(2) published or publicly available laws and other normative acts will be correctly interpreted and applied and enforced substantially in the manner in which they are written; and

(3) ambiguities and inconsistencies will be resolved with due consideration given to matters of equity and fairness;

(e) we have not considered the tax consequences of entering into, exercising the rights of, or performing the obligations under, or enforcing the Licence 1 and Licence 2 or any other related documents, by any party thereto;

(f) our conclusions are subject to any factual matter not disclosed to us by PG that may have an impact on them.

(g) it should be noted that the laws of Ukraine are in a state of flux, are often inconsistent, both in their wording and in their application. These factors sometimes cause rapid changes in the effective laws, the adoption of a significant number of new laws (sometimes with retroactive effect), failures or delays in implementing regulations and uncertainty with respect to the applicability and interpretation of such laws. Further, there is no system of precedent nor any entirely effective system, official or otherwise, under which the promulgation of court decisions are made publicly available on a regular basis. We also observe that the courts in Ukraine will not necessarily enforce the laws or agreements as written.

(h) we have not undertaken any due diligence with regard to the historic ownership to the Chernetska and Sorochynske fields;

(i) our knowledge of facts, underlying the opinions expressed in this Memorandum is limited to the information contained in the Documents and certain verbal communications made to us by the representatives of PG;

(j) we have relied solely on the Documents, assuming that the Documents and all the information supplied by PG's representatives were when supplied, and continue to be, true, accurate, complete and not misleading and, accordingly, we have not independently verified the information in the Documents (nor any of the information supplied in relation to the Documents);

(k) we have assumed that PG: (i) has not taken any corporate or other action nor have any steps been taken or legal proceedings started against PG for the liquidation, winding up or dissolution of, or for the appointment of a liquidator, receiver, manager, temporary manager or similar officer of PG or all or any of its assets; (ii) is not insolvent or unable to pay its debts; and (iii) has not been dissolved, and that no event analogous to any of the foregoing has occurred in relation to PG;

(l) we have made no independent enquiries with any Ukrainian regulatory or state agency: (i) regarding PG or the Licences or (ii) that the Documents upon which we have relied are, where appropriate, reflected in the records of any relevant authority or agency;

(m) we have assumed that each of the Documents is in full force and effect and, save where expressly brought to our attention, has not been terminated or amended;

(n) we have assumed that all photocopies of the Documents reviewed by us conform to the originals, and we have assumed the authenticity of the originals of such Documents and the genuineness of all signatures and seals on the Documents;

(o) we have assumed that the persons who signed the Documents are the persons who were duly authorised to sign such Documents;

(p) we have assumed that each party to a Document (including, without limitation, any state or regional authorities) has the right, power and authority and has taken all action necessary to execute and deliver, and to exercise its rights and perform its obligations under, the relevant Document, save as expressly stated in the Memorandum;

(q) we have not reviewed and do not purport to comment on any documents of a tax or accounting nature, including bank statements and balance sheets;

(r) we have not made any assessment of the possible commercial or financial consequences of any particular Document;

(s) except where it has been expressly brought to our attention or is apparent from the face of a particular Document that it has been amended (but no copy of the amendment or the agreement as restated has been provided), we have assumed that such agreements are subsisting, complete and include all amendments or alterations made to such agreements;

(t) we do not discuss, except as expressly stated in the Memorandum, any consent, authorisation, order, registration, filing, approval or notice (including, inter alia, any permits, licences or authorisations that PG may require in order to comply with Ukrainian legislation) that may be necessary in relation to the regular affairs and operations of PG;

(u) our comments are confined solely to the laws and other normative acts of legislative and executive power of Ukraine and the laws and other normative acts of subjects of Ukraine which are in force as at the date of the Memorandum (or, where appropriate, were in force) and have been published and, where relevant, registered with the Ukrainian Ministry of Justice in the manner prescribed by Ukrainian legislation, and which are available through legal databases. Application of such laws and other normative acts may differ from subject to subject within Ukraine where local departments of governmental bodies may adopt an interpretation which differs from the views stated in this Memorandum;

(v) we do not accept any obligation in relation to any change that may occur after the date of the Memorandum in interpretation or application of any laws by the competent authorities of Ukraine in a manner inconsistent with previous interpretation or application of such laws, or in relation to enactment after the date of the Memorandum of any law with retroactive effect. We assume no obligation to update the Memorandum for changes in the laws or other normative acts of Ukraine.

1.2 This Memorandum is for the sole benefit of Incitive Limited and it may not be relied upon by any other person, firm or company whatsoever or for any other purpose unless expressly agreed by us and we do not accept a duty of care to any other person in respect of it. This Memorandum and its contents are confidential.

1.3 This Memorandum is not intended to act in any way as a commercial recommendation, which is a commercial decision for you to make. It is therefore not intended to be, and should not be construed as, an opinion as to matters of law except to the extent apparent from its content.

1.4 This Memorandum has been prepared on the basis that it refers in the English language to Ukrainian legislation in which English law is not the applicable law and the English language may not be the applicable language; accordingly, all such references are to be construed and interpreted in accordance with the meaning of such concepts in Ukrainian legislation and language.

2. Limitations on Liability

2.1 Despite anything to the contrary, and except for matters arising as a result of fraud, wilful misconduct or gross negligence on our part, the aggregate liability of Clifford Chance Kyiv and its associated firms, its partners, agents and employees or any of them (together referred to in this and subsequent clauses as the "Firm") for Damage shall be limited to EUR 40,000,000. For the purposes of this Memorandum, "Damage" shall mean the aggregate of all losses or damages (including interest thereon if any) and costs suffered or incurred, directly or indirectly, by Incitive Limited (together with such other parties whom Incitive Limited has agreed may have the benefit of and rely upon our work on the terms hereof) under or in connection with

this Memorandum or its subject matter (as the same may be amended or varied) and any report prepared pursuant to it, including as a result of breach of contract, breach of statutory duty, tort (including negligence), fault or other act or omission by the Firm but excluding any such losses, damages or costs arising from the fraud or dishonesty of the Firm or in respect of liabilities which cannot lawfully be limited or excluded.

2.2 In order to limit the personal liability and exposure of our partners and employees, you agree (for yourself as well as on behalf of any person or entity advancing any claim by or through you) not to bring any claim for Damage against any of such persons arising from or in any way in relation to this Memorandum.

2.3 In no event shall the Firm be liable for any Damage arising in any way from or in connection with any dishonest, deliberate or reckless misstatement, concealment or other conduct on the part of any other person.

2.4 The Firm shall not be liable for any claim for Damage unless proceedings in respect of such claim have been issued and served on the Firm on or before 1 January 2011.

2.5 Incitive Limited shall not be entitled to recover more than once in respect of any one matter giving rise to a claim for Damage.

2.6 If we pay to Incitive Limited an amount in respect of a claim for Damage and Incitive Limited subsequently recovers or is or becomes entitled to recover from another person an amount which is referable to the matter giving rise to such claim, Incitive Limited shall immediately notify us and, if within its power to do so, shall (at our cost) procure that it shall take such action as we may reasonably require to enforce the recovery against the person in question, and:

(a) if the amount paid by us in respect of such claim is more than the Sum Recovered, Incitive Limited shall immediately pay to us the Sum Recovered; and

(b) if the amount paid by us in respect of such claim is less than or equal to the Sum Recovered, Incitive Limited shall immediately pay to us an amount equal to the amount paid by us; and

(c) if we have not already paid an amount in satisfaction of such claim, the amount of such claim for which we would have been liable shall be reduced by and to the extent of the Sum Recovered.

2.7 For the purposes of paragraph "Sum Recovered" means an amount equal to the total of the amount recovered from the other person plus any interest in respect of the amount recovered from such person less any tax computed by reference to the amount recovered from such person payable by Incitive Limited and less all reasonable costs incurred by Incitive Limited in recovering the amount from such person.

2.8 Any obligations that the Firm incurs in connection with this Memorandum shall be governed by English law and the courts of England shall have exclusive jurisdiction over any matter in relation to this Memorandum on the understanding that any conflicts which may arise between Clifford Chance Kyiv and Incitive Limited shall first be submitted to mediation.

2.9 Except with the prior written consent of the Firm:

(a) this Memorandum is not to be referred to or quoted in whole or in part, in any prospectus, registration statement, offering circular, public filing, loan or other agreement or document; and

(b) this Memorandum is not to be distributed, in whole or in part, to any person.

ANNEX 3 RELEVANT LEGISLATION

1. Code of Ukraine "On Subsurface Natural Resources", No. 132/94-BP, dated 27 July 1994;

2. Land Code of Ukraine, No. 2768-III, dated 25 October 2001;

3. Civil Code of Ukraine, No. 435-IV, dated January 16, 2003;

4. Law of Ukraine "On Oil and Gas", No. 2665-III, dated 12 July 2001;

5. Law of Ukraine "Mining Law of Ukraine", No. 1127-XIV, dated 6 October 1999;

6. Law of Ukraine "On Oil and Gas", No. 2665-III, dated 12 July 2001;

7. Law of Ukraine "On Licensing of Certain Types of the Commercial Activities", No. 1775-III, dated June 01, 2000;

8. Procedure for Issuance of Special Licences for Use of Subsurface Natural Resources in 2007, approved by the Resolution of the Cabinet of Ministers of Ukraine, No. 480, dated 14 March 2007;

9. Procedure for Auctions of Special Licences for Use of Subsurface Natural Resources in 2007, approved by the Resolution of the Cabinet of Ministers of Ukraine, No. 611, dated 4 April 2007;

10. Procedure for Issuance of Special Licences for Use of Subsurface Natural Resources in 2008, approved by the Resolution of the Cabinet of Ministers of Ukraine, No. 273, dated 27 February 2008;

11. Procedure for Issuance of Special Licences for Use of Subsurface Natural Resources in 2009, approved by the Resolution of the Cabinet of Ministers of Ukraine, No. 608, dated 17 June 2009.

ANNEX 4 OVERVIEW OF OIL AND GAS LEGISLATION

1 The subsurface natural resources are the property of the people of Ukraine. Ukrainian and foreign citizens and legal entities are only entitled to use the subsurface natural resources and do not acquire ownership of subsurface natural resources.

2 The right to use the subsurface natural resources requires a licence.

3 The law provides the following types of licences to use subsurface natural resources in oil and gas (the "Licences"):

3.1 geological exploration including pilot production of the fields;

3.2 production (extraction) of natural resources (industrial production of the fields);

3.3 geological exploration including pilot production of the fields with further production of oil and gas (industrial production of the fields);

3.4 construction and exploitation of the underground facilities not connected with production of oil and gas, including construction and exploitation of underground deposits of oil and gas, etc.;

3.5 creation of geological territories and objects that are of scientific, cultural and sanitary importance (scientific test sites, geological nature reserves, medical and recreation facilities, etc.); and

3.6 satisfaction of other needs.

4 The law provides that the Licences may have the following duration:

4.1 geological exploration including pilot production of the oil and gas fields – up to 5 years, and in case of exploration of oil and gas resources within the continental shelf and exclusive (maritime) economic zone – up to 10 years;

4.2 production (extraction) of natural resources (industrial production of the fields) – up to 20 years, and in case of production of oil and gas within the continental shelf and exclusive (maritime) economic zone – up to 30 years;

4.3 geological exploration including pilot production of the fields with further production of oil and gas (industrial production of the fields) – for the term of validity of each separate licence (exploration activities, production activities), but not more than 20 years in case of activities on the land and not more than 30 years in case of the activities within the continental shelf and exclusive (maritime) economic zone ;

4.4 construction and exploitation of the underground deposits of oil or gas – up to 50 years.

5 The procedure for issuing the Licences is approved annually by the Cabinet of Ministers of Ukraine.

6 As a general rule the Licences may be issued via sale at auction, unless there is an exemption. According to Ukrainian law, the Licence to use the subsurface area to produce oil and gas may be granted without auction, if the entity previously held the Licence to explore the subsurface area with oil and gas deposits for the purpose to further produce the explored mineral resources and the deposits of natural resources have been properly approved by the relevant governmental agencies. Other exemptions are established by the annual procedure for issuing the Licences and some other legislative acts.

7 As a general rule, the Licence may not be sold, assigned or otherwise alienated. However, there is no restriction on a transfer of the share capital of any company holding the Licences.

8 The Licence may be suspended in case of:

8.1 violation by the holder of the provisions of the Licence or provisions of the Licence agreement;

8.2 occurrence of a threat to the life and health of the staff and the population as a result of use of subsoil natural resources;

8.3 breach of environmental protection law;

8.4 conducting works at the licensing area, when is not specified in the Licence; and

8.5 other cases prescribed by the legislation.

Suspension of the Licence does not interrupt the term of the Licence.

9 The Licence may be terminated, among other things, in case of:

9.1 waiver of the Licence holder of the right to use the subsurface area;

9.2 liquidation of the holder;

9.3 withdrawal of relevant subsurface natural resources in accordance with the legislation;

9.4 invalidation of the Licence;

9.5 failure to cure the breach that resulted in suspension of the Licence within the established term;

9.6 failure to start using the field within 180 days as of the date of issuance, unless there is a good reason for such failure;

9.7 use of the subsurface natural resources in a non-designated way;

9.8 absence of the need to use the subsurface natural;

9.9 use of subsurface natural resources in way that adversely affects the condition of the subsurface area, leads to environmental pollution or harmful consequences for the public health.

10 A licensee shall commence construction of the hydrocarbon facilities only after and if it gets freehold or leasehold title to the relevant land plots. The freehold or leasehold title to the land plots for exploration/production may not be granted prior to the issuance of the licence.

The Shares offered under this Prospectus should be considered speculative because of the nature of the Company’s business. The future profitability of the Company will be dependent on the successful commercial exploitation of its business and operations.

Whilst the Directors recommend the General Offer, there are numerous risk factors involved. The following is a summary of the more material matters to be considered. However, this summary is not exhaustive and potential investors should examine the contents of this Prospectus in its entirety and consult their professional advisors before deciding whether to apply for the Shares.

Based on the information available, a non-exhaustive list of risk factors which may affect the Company’s financial position, prospects and the price of its listed securities include the following.

As the Company has no prior involvement in the oil and gas industry, the acquisition of Hawkley constitutes a significant change in the nature and scale of the Company’s activities and the Company needs to comply with Chapters 1 and 2 of the ASX Listing Rules as if it were seeking admission to the official list of ASX. There is a risk that the Company may not be able to meet the requirements of the ASX for re-quotation of its Shares on the ASX. Should this occur, the Shares will not be able to be traded on the ASX until such time as those requirements can be met, if at all.

Part of the consideration for the Acquisition includes a total of 32,962,913 Performance Shares to be issued to the Hawkley Vendors. These Performance Shares convert into ordinary shares on the achievement of certain milestones. Potential investors should be aware that there will be dilution to existing shareholders if the Performance Shares are converted into fully paid ordinary shares. The terms of the Performance Shares are set out in Section 12.3 of this Prospectus. Further details in respect of the recipients their respective entitlements to the Performance Shares are set out in Section 11.1, 11.4 and 11.5 of the Prospectus.

The Sorochynska and Chernetska Projects are located in Ukraine and the Company will be subject to the risks associated with operating in that country. Such risks can include economic, social or political instability or change, hyperinflation, currency non-convertibility or instability and changes of law affecting foreign ownership, government participation, taxation, working conditions, rates of exchange, exchange control, exploration licensing, export duties, repatriation of income or return of capital, environmental protection, labour relations as well as government control over mineral properties or government regulations.

Changes to Ukraine’s fiscal regime for oil and gas companies or investment policies and legislation or a shift in political attitude may adversely affect the Company’s operations and profitability.

Ukraine’s legal system is less developed than more established countries and this could result in the following risks:

(a) political difficulties in obtaining effective legal redress in the courts whether in respect of a breach of law or regulation or in an ownership dispute;

(b) a higher degree of discretion held by various government officials or agencies;

(c) the lack of political or administrative guidance on implementing applicable rules and regulations, particularly in relation to taxation and property rights;

(d) inconsistencies or conflicts between and within various laws, regulations, decrees, orders and resolutions; or

(e) relative inexperience of the judiciary and court in matters affecting the Company.

The risks associated with the Ukraine legal environment are detailed further in Section 9.

The business of oil and gas exploration, project development and production, by its nature, contains elements of significant risk with no guarantee of success. Ultimate and continuous success of these activities is dependent on many factors such as:

(a) the discovery and/or acquisition of economically recoverable reserves;

(b) access to adequate capital for project development;

(c) design and construction of efficient development and production infrastructure within capital expenditure budgets;

(d) securing and maintaining title to interests;

(e) obtaining consents and approvals necessary for the conduct of oil and gas exploration, development and production; and

(f) access to competent operational management and prudent financial administration, including the availability and reliability of appropriately skilled and experienced employees, contractors and consultants.

Whether or not income will result from projects undergoing exploration and development programs depends on successful exploration and establishment of production facilities. Factors including costs, actual hydrocarbons and formations, flow consistency and reliability and commodity prices affect successful project development and operations.

Drilling activities carry risk and as such, activities may be curtailed, delayed or cancelled as a result of weather conditions, mechanical difficulties, shortages or delays in the delivery of drill rigs or other equipment. For example, there are risks that the drilling around the pipe on well #201 could cause exploration delays. Please refer to Section 5.4 for further details. In addition, drilling and operations include reservoir risk such as the presence of shale laminations in the otherwise homogeneous sandstone porosity.

Industry operating risks include fire, explosions, unanticipated reservoir problems which may affect field production performance, industrial disputes, unexpected shortages or increases in the costs of consumables, spare parts, plant and equipment, mechanical failure or breakdown, blow outs, pipe failures and environmental hazards such as accidental spills or leakage of liquids, gas leaks, ruptures, discharges of toxic gases or geological uncertainty (such as lack of sufficient sub-surface data from correlative well logs and/or formation core analyses). The occurrence of any of these risks could result in legal proceedings against, and substantial losses to the Company due to injury or loss of life, damage to or destruction of property, natural resources or equipment, pollution or other environmental damage, cleanup responsibilities, regulatory investigation, and penalties or suspension of operations. Damage occurring to third parties as a result of such risks may give rise to claims against the Company.

There is no assurance that any exploration on current or future interests will result in the discovery of an economic deposit of oil or gas. Even if an apparently viable deposit is identified, there is no guarantee that it can be economically developed.

As referred to in the Independent Technical Specialist’s Report in Section 7, in providing technical information, RISC has obtained from and relied on information from Hawkley and information available in the public domain, including with respect to well #101. The major sources of information were Hawkley’s own technical work and Moyes & Co’s 2009 evaluation of the licences. There is a risk that such information may be inaccurate or unable to be adequately verified.

For example, RISC points out in the Independent Technical Specialist’s Report that the publicly available project data and technical information gathered was not as comprehensive as would typically be available. In particular:

(a) the seismic data set was very limited and all on paper, without a description of reprocessing methodology where relevant;

(b) mud logs or drilling reports were not available;

(c) original production data was not available and pressure survey data was limited; and

(d) PVT and fluid compositional data was limited.

If the Acquisition is successful, the ability of the Company to develop and exploit oil and gas reserves in Ukraine depends on its subsidiary, Prime-Gas LLC’s continued compliance with the obligations of its current exploration and development licences and Prime-Gas LLC’s ability to convert these licences into production licences. The continuing validity of the licences and their renewal depends on the steps taken by Prime-Gas LLC. The continued good standing and, where appropriate, renewal of these approvals, permits and licences cannot be assured. In addition, exploration and development licences held by Prime-Gas LLC may not be converted into production licences. In addition, Prime-Gas LLC may be required to cease production at a field for a period of up to 70 days while an application for conversion is considered by governmental authorities.

Ukrainian legislation in relation to the issue of licences to explore and develop oil and gas reserves is in some cases unclear and subject to ambiguity. There can be no assurance that the regulators will not adopt a more stringent approach to granting, maintaining, renewing or converting licences than has been the case to date.

The Solicitor’s Report on Licences in Section 9 states that from time to time, Prime-Gas LLC has failed to meet the obligations set out in the work programmes attached to the licences it holds. For example, in the Solicitor’s Report on Licences it is stated that Prime-Gas LLC did not fully comply with Work Program 1 to the extent that it failed to secure land plots by the 3rd quarter of 2009. As is stated in the Solicitor’s Report, while such non-compliance with certain deadline requirements does not render licence invalid, it may, theoretically, lead to invalidation of the licence if non-compliance is proven by the relevant authority. In addition, it may result in the future refusal in conversion of exploration licence into production licence. However, the management of Prime-Gas LLC has represented to the Company that it is in the process of ensuring compliance of all of its obligations under its work programmes.

According to The Law of Ukraine “On Oil & Gas” dated 12 July 2001 (Oil and Gas Law) in the case of discovery of oil and gas deposit, the permit holder that performed exploration, subject to meeting other conditions of the application, has the preferential right to receive special permit for production of oil and gas.

According to Article 15 of the Oil and Gas Law, in the case where the holder of permit performed geological survey for further industrial development and received a positive decision regarding confirmation of the deposits, the oil and gas subsoil shall be transferred into permit holder’s use without application.

The licences granted to Prime-Gas LLC were granted for an initial 5 year period, extendable for another 5 years, and convertible to 20 year production licences.

In the event that Prime-Gas LLC must apply for a production permit in accordance with Oil and Gas Law, there is no guarantee that the permit will be granted. Even if a production permit is granted Prime-Gas LLC must continue to comply with the conditions of the permit to return the licence and carry out its production activities. There are risks that the relevant permit can be suspended and cancelled for non-compliance or breach.

The Solicitor’s Report on Licences notes that currently, Prime-Gas LLC has no rights to land plots comprising the area necessary for exploration activities under the Chernetska licence. Hawkley has informed the Company that Prime-Gas LLC has undertaken some steps in order to obtain servitude to land plots located within the area of Licence 1. There can be no guarantee that Prime-Gas will obtain these rights.

In relation to the Sorochynske licence, Prime-Gas LLC currently holds servitude over state owned land allowing for construction of well #201 at the Sorochynske field and for the exploration of that field.

As stated in the Solicitor’s Report on Licences and in contrast to freehold or leasehold title, the servitude gives the owner of a land plot the right to the limited use of another’s land plot in a specific and limited manner. The law is not specific as to the particular rights included in servitudes and thus, as a matter of practice, servitudes are commonly used in Ukraine for exploration. Moreover, due to practical difficulties with acquiring freehold or leasehold of state-owned land servitude is often the only practical instrument for exploration. Notwithstanding this common practice, Clifford Chance LLC has noted in the Solicitor’s Report on Licences the use of servitudes for exploration is not ideal from a legal perspective, and its validity could be potentially undermined for a number of reasons. However, Clifford Chance LLC is not aware of any court decision or any attempts to challenge such practice by the public authorities.

Furthermore, Prime-Gas LLC has no freehold or leasehold title to any of the land plots comprising the area of either of the licences. Clifford Chance LLC notes in the Solicitor’s Report on Licences that there are a number of regulatory requirements, including approvals, which must be obtained to acquire freehold or leasehold title, which may take some time to satisfy. Please refer to Section 9 for further details. Clifford Chance LLC states that in this regard, it could be difficult for Prime-Gas LLC to obtain freehold or leasehold title to state-owned land plots and in the short term, servitude, is the only practical instrument for Prime-Gas LLC to use in order to commence exploration in the near term. In the longer term, Prime-Gas LLC could obtain freehold or leasehold title to the relevant land. There can be no guarantee that Prime-Gas LLC will obtain these rights.

The demand for, and price of, oil and natural gas is highly dependent on a variety of factors, including international supply and demand, the level of consumer product demand, weather conditions, the price and availability of alternative fuels, actions taken by governments and international cartels, and global economic and political developments.

International oil and gas prices have fluctuated widely in recent years and may continue to fluctuate significantly in the future. Fluctuations in oil and gas prices and, in particular, a material decline in the price of oil or gas may have a material adverse effect on the Company’s business, financial condition and results of operations.

Hydrocarbon reserve and resource estimates are expressions of judgement based on knowledge, experience and industry practice. Estimates, that were valid when originally calculated, may alter significantly when new information or techniques become available. In addition, by their very nature, resource and reserve estimates are imprecise and depend to some extent on interpretations, which may prove to be inaccurate. As further information becomes available through additional drilling and analysis the estimates are likely to change. This may result in alterations to development and production plans which may in turn, adversely affect the Company’s operations.

Oil reserves are expressions of judgement based on knowledge, experience and industry practice. Estimates which were valid when originally calculated may alter significantly when new information or techniques become available. In addition, by their very nature, oil reserves are imprecise and depend to some extent on interpretations, which may prove to be inaccurate. As further information becomes available through additional fieldwork and analysis, the estimates are likely to change. This may result in alterations to development and commercial oil flow plans which may, in turn, adversely affect the Company’s operations.

Changes in the general economic and political climate in the Ukraine, Australia and on a global basis could impact on economic growth, the oil and gas prices, interest rates, the rate of inflation, taxation and tariff laws, domestic security and may affect the value and viability of any oil and gas activity that may be conducted by the Company.

If the Company achieves success leading to hydrocarbon production, the revenue it will derive through the sale of commodities exposes the potential income of the Company to commodity price and exchange rate risks. Commodity prices fluctuate and are affected by many factors beyond the control of the Company. Such factors include supply and demand fluctuations for oil and gas, technological advancements, forward selling activities and other macro-economic factors.

Furthermore, international prices of various commodities are denominated in United States dollars, whereas the income and expenditure of the Company are and will be taken into account in Australian currency, exposing the Company to the fluctuations and volatility of the rate of exchange between the United States dollar and the Australian dollar as determined in international markets.

The Company will be subject to environmental laws and regulations in connection with operations it may pursue in the oil and gas industry. Such operations are currently in Ukraine. The Company intends to conduct its activities in an environmentally responsible manner and in accordance with all applicable laws. However, the Company may be the subject of accidents or unforeseen circumstances that could subject the Company to extensive liability.

Further, the Company may require approval from the relevant authorities before it can undertake activities that are likely to impact the environment. Failure to obtain such approvals will prevent the Company from undertaking its desired activities. The Company is unable to predict the effect of additional environmental laws and regulations that may be adopted in the future, including whether any such laws or regulations would materially increase the Company’s cost of doing business or affect its operations in any area.

The Company will compete with other companies, including major oil and gas companies. Some of these companies have greater financial and other resources than the Company and, as a result, may be in a better position to compete for future business opportunities. Many of the Company’s competitors not only explore for and produce oil and gas, but also carry out downstream operations on these and other products on a worldwide basis. There can be no assurance that the Company can compete effectively with these companies.

Changes in relevant taxes, legal and administration regimes, accounting practice and government policies may adversely affect the financial performance of the Company.

Insurance against all risks associated with oil and gas production is not always available or affordable. The Company will maintain insurance where it is considered appropriate for its needs. However, it will not be insured against all risks either because appropriate cover is not available or because the Directors consider the required premiums to be excessive having regard to the benefits that would accrue.

The operations of the Company may be affected by various factors, including failure to locate or identify oil reserves, failure to achieve predicted well production flow rates, operational and technical difficulties encountered in production, difficulties in commissioning and operating plant and equipment, mechanical failure or plant breakdown, unanticipated reservoir problems which may affect field production performance, adverse weather conditions, industrial and environmental accidents, industrial disputes and unexpected shortages or increases in the costs of consumables, spare parts, plant and equipment.

The Company’s drilling and production activities may be impaired due to inadequate state infrastructure in Ukraine. The deterioration of the state gas and oil pipeline in Ukraine could disrupt the transportation of goods and supplies and interrupt business operations. In general, Ukraine’s physical infrastructure, including power generation and transmission stations, communication systems and road network largely dates back to Soviet times and are relatively poor in comparison with other developed countries. The Ukrainian Government has been implementing plans to develop Ukraine’s rail, electricity and telephone systems which may result in increased charges or tariffs while failing to generate sufficient funding to repair, maintain or improve these systems. The failure to maintain adequate transport services and networks or a disruption in transport services could cause transportation delays for the Company’s products and impair the Company’s ability to supply its customers.

Oil and gas development and exploration activities are dependent on the availability of drilling rigs and related equipment and the provision of third party services in the particular areas where such activities will be conducted. Prime-Gas LLC contracts or leases services and equipment from third party providers and suppliers. Such equipment and services may be in short supply and may not be readily available at the times and places required. Demand for limited equipment such as drilling rigs may affect the availability of such equipment to the Company and may delay its development and exploration activities. Failure by the Company to secure necessary equipment could adversely affect the Company’s business, results of operations or financial condition. The failure of a third party provider, or supplier, to perform its contractual obligations, or an inability to achieve a commercially viable contract with a third party provider or supplier would have a material adverse impact on the Company’s business, the results of operations or financial condition.

Although Ukraine’s economic outlook has stabilised significantly over recent years, there can be no assurance that anticipated levels of growth in its economy or its energy requirements will in fact materialise. Should its economy fail to grow, then demand for energy and accordingly oil and gas, may not continue to increase in accordance with projected growth rates or may decline. In such circumstances, the Company may need to find alternative markets for certainty of its future oil and gas developments. Such markets may not be available or it may not be economical to access such alternative markets. Should any of these factors occur and if no alternative markets for the Company’s anticipated production are then available, the productivity of the Company may decline. Even if such markets are available, the costs of accessing such alternative markets may be much higher. Any of these factors may have a material adverse effect on the Company’s business, results of operations or financial condition.

Prospective investors should be aware that for the purposes of preparing the Independent Accountant’s report in Section 8, the Independent Accountant has relied on unaudited accounts of Hawkley. There is a risk that the use of financial information that has not been subject to independent audit has the potential to be inaccurate. However, as stated in the Independent Accountant’s Report, there is nothing that has caused the Independent Accountant to believe that the information set out in the Report does not present fairly:

(a) the consolidated unaudited Income Statement of the “Incitive Group” for the half year ended 31 December 2009, prepared as if the Company and Hawkley had been operating throughout the period as one consolidated group;

(b) the reviewed consolidated Balance Sheet of the Company as at 31 December 2009; and

(c) the pro-forma consolidated Balance Sheet of the “Incitive Group” as at 31 December 2009 adjusted to include the effects of the capital raising proposed in the Prospectus and the completion of the other transactions summarised in sections 5 and 6 of the Independent Accountant’s Report (and this Prospectus).

All of Hawkley’s Assets are held by its subsidiary Prime-Gas LLC. The Company’s rights to participate in a distribution of Prime-Gas LLC’s assets in the event of liquidation, re-organisation or insolvency is generally subject to prior claims of Prime-Gas LLC’s creditors, including any trade creditors and preferred shareholders.

The Company’s capital requirements depend on numerous factors. Depending on the Company’s ability to generate income from its operations, the Company may require further financing in the future. Any additional equity financing will dilute shareholdings and debt financing, if available, may involve restrictions on financing and operating activities. If the Company is unable to obtain additional financing as needed, the Company may be required to reduce the scope of its operations and scale back its exploration programmes as the case may be.

As part of its business strategy, the Company may make acquisitions of, or significant investments in, complementary companies or prospects although no such acquisitions or investments are currently planned. Any such transactions will be accompanied by risks commonly encountered in making such acquisitions.

General economic conditions and movements in interest, inflation and currency exchange rates may have an adverse effect on the Company’s exploration, development and production activities, as well as on its ability to fund those activities.

Share market conditions may affect the value of the Company’s quoted securities regardless of the Company’s operating performance. Share market conditions are affected by many factors such as:

(a) general economic outlook;(b) interest rates and inflation rates;(c) currency fluctuations;(d) changes in investor sentiment toward particular market sectors;(e) the demand for, and supply of, capital; and(f) terrorism or other hostilities.

The market price of securities can fall as well as rise and may be subject to varied and unpredictable influences on the market for equities in general and resource exploration stocks in particular. Neither the Company nor the Directors warrant the future performance of the Company or any return on an investment in the Company.

The responsibility of overseeing the day-to-day operations and the strategic management of the Company depends substantially on its senior management and its key personnel. There can be no assurance that there will be no detrimental impact on the Company if one or more of these employees cease their employment.

The above list of risk factors should not to be taken as an exhaustive list of the risks faced by the Company or by investors in the Company. The above factors, and others not specifically referred to above, may in the future materially affect the financial performance of the Company and the value of the Shares. Therefore, the Shares carry no guarantee with respect to the payment of dividends, returns of capital or the market value of those Shares.

On 16 February 2010, the Company, Cygnet Capital, Hawkley and certain major shareholders in Hawkley (Major Shareholders) entered into an implementation agreement (Implementation Agreement) under which the Company has agreed to make the Hawkley Offers to the Hawkley Vendors and thereby, directly and indirectly, acquire all of the issued share capital of Hawkley. The Implementation Agreement was amended by a deed of variation dated 7 April 2010.

The Hawkley Offers (and therefore the Acquisition) are conditional on the satisfaction or waiver (as applicable) of a number of conditions precedent, which are set out in Section 4.2 of this Prospectus (Conditions Precedent).

The consideration to be paid to the Hawkley Vendors for 100% of Hawkley Shares will be the issue of:

(a) 150,621,847 Shares; and(b) 32,962,913 Performance Shares,

(in each case on a post-Consolidation basis) which will be apportioned amongst the Hawkley Vendors in proportion to their interests in Hawkley (held either directly or indirectly).

If the Implementation Agreement is terminated:

(a) by the Company, as a result of a breach of a representation which arises out of the fraud, gross negligence, wilful misconduct or wilful omission by any of the Major Shareholders in relation to certain warranties given by the Major Shareholders;

(b) by the Major Shareholders or Hawkley (other than for a breach of a representation or warranty given by the Company); or

(c) by failure of the Condition Precedent requiring the Company to become becoming entitled to (either directly or indirectly) acquire 100% of the Hawkley shares as a result of each Hawkley Vendor accepting the Hawkley Offers where the terms of Hawkley Offers have been agreed and the Company has made the Hawkley Offer,

Hawkley must pay to the Company and Cygnet Capital a break fee of $2,000,000 (to be divided evenly between the Company and Cygnet Capital) within 5 Business Days of receipt of notice in accordance with the Implementation Agreement.

Settlement of the Implementation Agreement will take place 5 Business Days after satisfaction or waiver (as applicable) of all Conditions Precedent.

On 30 March 2010 Ukraine Gas Investments Pty Ltd (Noteholder) and Hawkley entered into a convertible note deed (Convertible Note Deed) under which the Noteholder has subscribed for a Convertible Note for the subscription sum of $3,500,000 (Subscription Sum).

Within 14 days of termination of the Implementation Agreement, Hawkley must elect to either:

(a) convert the Convertible Note in whole into shares in the capital of Hawkley; or

(b) repay the Convertible Note for cash at the Subscription Sum.

The Convertible Note will be unsecured and the Noteholder will rank equally with all other unsecured creditors of Hawkley.

Ukraine Gas Limited as the Noteholder of the Convertible Note, the subject of the Convertible Note Deed referred to in Section 11.2. In accordance with the Implementation Agreement, the Company has agreed to make offers to all of the shareholders of Ukraine Gas to acquire 100% of the shares in Ukraine Gas. As a result of the acquisition of Ukraine Gas, the Company will indirectly acquire its relevant interest in Hawkley (via the Convertible Note).

Under the terms of the Implementation Agreement and the Ukraine Gas Acquisition Agreement, the Company will issue 20,408,163 Shares at a deemed issue price of $0.20 to the Ukraine Gas Shareholders, to be apportioned between them in proportion to their holding in Ukraine Gas.

Settlement of the Ukraine Gas Acquisition is conditional on, and will occur contemporaneously with, settlement of the Implementation Agreement.

Ukraine Investments Limited is the legal and beneficial owner of 35.94% of the issued shares in the capital of Hawkley. In accordance with the Implementation Agreement, the Company has agreed to make offers to all of the shareholders of Ukraine Investments to acquire 100% of the shares in Ukraine Investments. As a result of the acquisition of Ukraine Investments, the Company will indirectly acquire its 35.94% interest in Hawkley.

Under the terms of the Implementation Agreement and the Ukraine Investments Acquisition Agreement, the Company will issue:

(a) 46,798,798 Shares at a deemed issue price of $0.20; and

(b) 11,846,871 Performance Shares, on the terms set out in Section 12.3 of this Prospectus,

(together, the UIL Consideration Securities) to the Ukraine Investments Shareholders, to be apportioned between them in proportion to their holding in Ukraine Investments.

Certain Ukraine Investments Shareholders are investors for whom a disclosure document is required when making an offer of securities. Those Ukraine Investments Shareholders are made offers via the Ukraine Investments Offer in Section 15. The offer of the UIL Consideration Securities to all Ukraine Investments Shareholders by the Company (whether by way of this Prospectus or not) will be made on the same terms as the Ukraine Investments Acquisition Agreement in Section 15, and as summarised below.

The UIL Consideration Securities held by the Ukraine Investments Shareholders will be subject to a 6 month Holding Lock on and from the date of settlement of the Ukraine Investments Acquisition Agreement.

Settlement of the Ukraine Investments Acquisition is conditional on, and will occur contemporaneously with, settlement of the Implementation Agreement.

Ballure Trading is the legal and beneficial owner of 9.32% of the issued shares in the capital of Hawkley. In accordance with the Implementation Agreement, the Company has agreed to make offers to all of the shareholders of Ballure Trading to acquire 100% of the shares in Ballure Trading. As a result of the acquisition of Ballure Trading, the Company will indirectly acquire its 9.32% interest in Hawkley.

Under the terms of the Implementation Agreement and the Ballure Trading Acquisition Agreement, the Company will issue:

(a) 12,135,915 Shares at a deemed issue price of $0.20; and

(b) 3,072,143 Performance Shares, on the terms set out in Section 12.3 of this Prospectus,

(together, the Ballure Consideration Securities) to the Ballure Trading shareholders, in proportion to their holding in Ballure Trading.

The Ballure Consideration Securities held by the Ballure Trading shareholders will be subject to a 6 month Holding Lock on and from the date of settlement of the Ballure Trading Acquisition Agreement.

Settlement of the Ballure Trading Acquisition is conditional on, and will occur contemporaneously with, settlement of the Implementation Agreement.

On 10 February 2010, Avenger Investment Holdings advanced a loan of USD$564,314 to Hawkley (Avenger Loan). The purpose of this loan was to provide funds to the Company in consideration for Shares.

Hawkley has advised the Company that as at the date of this Prospectus a total of AUD$549,611 is outstanding under the Avenger Loan (Outstanding Loan Amount).

On 7 April 2010 Avenger Investment Holdings, Hawkley and the Company entered into the a deed for the conversion of the Avenger Loan (Avenger Conversion of Loan Deed) under which, and in accordance with the Implementation Agreement, the Company will make an offer to Avenger Investment Holdings to fully satisfy the Outstanding Loan Amount.

The Outstanding Loan Amount will be satisfied by the issue of 3,204,729 Shares at a deemed issue price of AUD$0.1715.

Settlement of the Avenger Conversion of Loan Deed is conditional on, and will occur contemporaneously with, settlement of the Implementation Agreement.

On 22 January 2010 Hawkley and Avenger Investments Holdings and Victor Dmitriyev (together, the Hawkley Creditors) entered into a loan agreement whereby the Hawkley Creditors agreed to loan Hawkley up to USD$5,000,000 (Principle Sum) (Hawkley Creditors Loan). Interest on the Hawkley Creditors Loan was payable at a fixed rate of 2% per annum.

As referred to in the Implementation Agreement Hawkley has advised the Company that as at the date of this Prospectus a total of USD $2,999,972 is outstanding under the Hawkley Creditors Loan (Outstanding Loan Amount).

On 7 April 2010 the Hawkley Creditors, Hawkley and the Company entered into a deed for the conversion of the Hawkley Creditors Loan (Hawkley Creditors Conversion of Loan Deed) under which, and in accordance with the Implementation Agreement, the Company will make an offer to the Hawkley Creditors to fully satisfy the Outstanding Loan Amount.

The Outstanding Loan Amount will be satisfied by the issue of:

(a) 7,499,932 Shares; and

(b) a cash payment of AUD$1,499,986,

to be apportioned between Hawkley Creditors as follows:

(c) Mr Dmitriyev will receive AUD$997,239 and 4,986,195 Shares; and

(d) Avenger will receive AUD$502,747and 2,513,736 Shares.

Settlement of the Hawkley Creditors Conversion of Loan Deed is conditional on, and will occur contemporaneously with, settlement of the Implementation Agreement.

On 13 April 2010 Cygnet Capital Pty Ltd (Cygnet), Hawkley and the Company entered into a mandate under which the Cygnet has agreed to act as the exclusive and corporate advisor and lead broker in relation to the Acquisition (Transaction).

Under the Agreement, Cygnet will undertake the following:

(a) facilitate the efficient execution of the Transaction including assisting with the facilitation of the Offers;

(b) raise no less than $5,500,000 through the issue of Shares in the Company at an issue price of $0.20 (being, the General Offer);

(c) enter into an underwriting agreement pursuant to which Cygnet will agree to fully underwrite the General Offer including but not limited to, provision for Cygnet to procure sub-underwriters to sub-underwrite the Capital Raising (refer to Section 11.9 for a summary of the Underwriting Agreement);

(d) ensure spread requirements are met under the General Offer and re-compliance process under the ASX Listing Rules;

(e) assist with the due diligence;

(f) advise and provide input on the Prospectus framework and content, together with the Company and its legal, accounting and other advisers; and

(g) manage other administrative aspects of the process.

(Fee – Completion of the General Offer): In consideration for successful completion of the General Offer the Company will pay to Cygnet:

(a) a fee representing an amount of 6% of the funds raised by Cygnet pursuant to the General Offer; and

(b) if Cygnet raises no less than $5,500,000 under the General Offer, 14,758,155 options with an exercise price of $0.20 and expiring on 31 January 2014 (Cygnet Options) (to be issued under the Underwriting Agreement).

If the capital raised is less than $5,500,000 then the Cygnet Options will be reduced on a pro-rata amount.

(Fee – Completion of the Transaction): In consideration for successful completion of the Transaction the Company will pay to Cygnet:

(a) 3,749,531 the Company Shares (at a deemed issued price of $0.20 each); and

(b) 11,248,594 the Company Options with an exercise price of $0.20 and expiring on 31 January 2014.

The Company will reimburse Cygnet for any out of pocket expenses incurred in performing the services under the Agreement. Consent from the Company and Hawkley will be obtained before Cygnet incurs costs in excess of $500.

Cygnet will provide the Company and Hawkley with written updates on the status of the General Offer until completion. Cygnet will immediately notify the Company and Hawkley if they are unable to complete the General Offer within the specified time frame.

Either party may terminate the Agreement by giving 1 months’ notice. Termination will not release any party from any obligations accrued prior to termination which are expressed to survive termination.

If, within 12 months of termination, the Company or its shareholders enter into a transaction with a third party with whom Cygnet makes contact during the Agreement or that was introduced by:

(a) Cygnet; or

(b) any third party assisting Cygnet with the mandate,

then the Company agrees that a fee will be payable to Cygnet on terms as negotiated by the parties.

On 13 April 2010, the Company entered into an underwriting agreement (Underwriting Agreement) with Cygnet and Hawkley.

Pursuant to the Underwriting Agreement, Cygnet has agreed to underwrite the General Offer. In consideration for this, the Company has agreed to pay Cygnet:

(a) a fee equal to 6% of the amount raised under the Prospectus; and

(b) subject to no less than $5,500,000 being raised under the Prospectus, the Cygnet Options.

If the Underwritten Amount is less than $5,500,000 the Cygnet Options will be reduced by a pro rata amount.

The Company has also agreed to reimburse Cygnet for all reasonable agreed costs and expenses incurred in connection with the underwriting provided such expenses do not exceed $500.00.

The obligations of Cygnet under the Underwriting Agreement are subject and conditional to:

(a) Cygnet being satisfied with the results of the due diligence investigations in relation to this Prospectus;

(b) Cygnet not being satisfied with the form of, and giving consent to the Prospectus; and

(c) the Prospectus being lodged prior to 5.00pm (Perth time) on the lodgement date.

Cygnet may terminate its obligations under the Underwriting Agreement on the occurrence of any of the following:

(a) (Indices fall): the S&P ASX 200 index is 7% below the level it was at the close of business the day prior to entry into the Underwriting Agreement;

(b) (Prospectus): the Company fails to lodge the Prospectus or withdraws the Offer;

(c) (No listing approval): listing approval has not been granted within 4 business days after the closing date or is withdrawn, withheld or disqualified;

(d) (Supplementary prospectus):

(i) Cygnet decides that a supplementary prospectus be lodged with ASIC for any of the reasons set out in Section 719 of the Corporations Act and the Company fails to lodge that supplementary prospectus; or

(ii) the Company lodges a supplementary prospectus without the written consent of Cygnet;

(e) (Non-compliance with disclosure requirements): the prospectus fails to disclose all information that is required by investors to make an informed assessment of:

(i) the assets, liabilities, financial position, performance, profits, losses and prospects of the Company; and

(ii) the rights attaching to the underwritten shares;

(f) (Restriction on allotment): the Company is restricted from allotting the underwritten shares within the required time frame;

(g) (Withdrawal of consent to prospectus): any person who has previously provided consent to include their name in the prospectus withdraws that consent;

(h) (ASIC application):

(i) an application is made by ASIC for an order under Section 739 or any other section of the Corporations Act;

(ii) the notice of the shortfall shares has not been given to Cygnet within 4 business days of the closing dated; and

(iii) that application made by ASIC has not been dismissed or withdrawn.

(i) (ASIC hearing): ASIC gives notice of its intention to hold a hearing under Section 739 of the Corporations Act to determine whether it should make an interim or final stop order in relation to the Prospectus;

(j) (Takeovers Panel): the Takeovers Panel makes a declaration that the affairs of the Company are unacceptable;

(k) (Authorisation): any material authorisation given in relation to the Prospectus is repealed, revoked or terminated or expires or is modified or amended in a way that is unacceptable to Cygnet;

(l) (Indictable offence): a director of the Company is charged with an indictable offence;

(m) (Hostilities): there is:

(i) an outbreak of hostilities or a material escalation of hostilities after entry into the Underwriting Agreement, involving one or more of Australia, New Zealand, Indonesia, Japan, the United Kingdom, the United States of America or the Peoples Republic of China, the European Union, the Ukraine or any neighbouring State; or

(ii) a terrorist act perpetrated on any of the countries or any diplomatic, military, commercial or political establishment of any of those countries anywhere in the world;

(n) (Default): default or breach by the Company under the Underwriting Agreement of any terms, condition, covenant or undertaking;

(o) (Incorrect or untrue representation): any representation, warranty or undertaking given by the Company in the Underwriting Agreement is or becomes untrue or incorrect;

(p) (Contravention of constitution or Act): a contravention by the Company or its subsidiaries of any provision of its constitution, the Corporations Act, the Listing Rules or any other applicable legislation or any policy or requirement of ASIC or ASX;

(q) (Adverse change): an event occurs which gives rise to a material adverse effect or any adverse change or any development in the assets, liabilities, financial position, trading results, profits, forecasts, losses, prospects, business or operations of the Company or its subsidiaries including if any forecast in the Prospectus becomes incapable of being met or in Cygnet’s reasonable opinion, unlikely to be met in the projected time;

(r) (Error in Due Diligence Results): it transpires that any of the due diligence results or any part of the verification material was false, misleading or deceptive or that there was an omission from them, in any material respect;

(s) (Significant change): a “new circumstance” as referred to in Section 719(1) of the Corporations Act arises that is materially adverse from the point of view of an investor;

(t) (Public statements): without the prior approval of Cygnet a public statement is made by the Company in relation to the Offer, the Issue or the Prospectus;

(u) (Misleading information): any information supplied at any time by the Company or any person on its behalf to Cygnet in respect of any aspect of the Offer or the affairs of the Company or its subsidiaries is or becomes misleading or deceptive or likely to mislead or deceive;

(v) (Change in Act or Policy): there is introduced or there is a public announcement of a proposal to introduce, into the Parliament of Australia or any of its States or Territories, any Act or prospective Act or budget of the Reserve Bank of Australia or any Commonwealth or State authority adopts or announces a proposal to adopt any new, or any major change in, existing, monetary, taxation, exchange or fiscal policy;

(w) (Prescribed Occurrence): other than what is disclosed in the Prospectus, the Company or its subsidiaries:

(i) converts all or any of its shares into a larger or smaller number of shares;

(ii) resolves to reduce its share capital in any way;

(iii) enters into a buyback agreement;

(iv) resolves to approve the terms of a buy back agreement;

(v) making an issue of, or agreeing to, the granting of an option to subscribe for any of its shares or other securities;

(vi) issuing or agreeing to issue convertible notes;

(vii) disposing or agreeing to dispose the whole or a substantial part of its business or property;

(viii) charging, or agreeing to charge the whole or a substantial part of its business or property;

(ix) resolving that it be wound up;

(x) is appointed a liquidator or administrator;

(xi) is order to be wound up by the Court;

(xii) executing a deed of company arrangement;

(xiii) has a receiver, or a receiver and manager appointed in relation to a whole or a substantial part of the their property;

(x) (Suspension of debt payments): the Company suspends payment of its debts generally;

(y) (Event of Insolvency): an event of insolvency occurs in respect of a Relevant Company;

(z) (Judgment against a Relevant Company): a judgment in an amount exceeding $250,000.00 is obtained against the Company or its subsidiaries and is not set aside or satisfied within 14 days;

(aa) (Litigation): litigation, arbitration, administrative or industrial proceedings are, after the date of the Underwriting Agreement commenced against the Company or its subsidiaries, other than any claims foreshadowed in the Prospectus;

(bb) (Change in shareholdings): there is a material change in the major or controlling shareholdings of the Company or its relevant subsidiaries or a takeover offer or scheme of arrangement pursuant to Chapter 5 or 6 of the Corporations Act is publicly announced in relation to the Company or its relevant subsidiaries;

(cc) (Timetable): there is a delay in any specified date in the Timetable which is greater than 20 business days other than as a result of the actions of or a request from Cygnet;

(dd) (Force Majeure): the event of any:

(i) act of God;

(ii) war;

(iii) revolution;

(iv) any other unlawful act against public order or authority;

(v) industrial dispute;

(vi) governmental restraint; or

(vii) any other event which is not within the control of the Parties

(viii) which affects the Company’s business or any obligation under the Underwriting Agreement lasting in excess of 14 days occurs;

(ee) (Certain resolutions passed): the Company or its subsidiaries passes or takes any steps to pass a resolution under Section 254N, Section 257A or Section 260B of the Corporations Act or a resolution to amend its constitution without the prior written consent of Cygnet;

(ff) (Capital Structure): the Company or its subsidiaries alters its capital structure in any manner not contemplated by the Prospectus;

(gg) (Breach of Material Contracts): any of the Company’s material controls is terminated or substantially modified; or

(hh) (Investigation): any person is appointed under any legislation in respect of the companies to investigate the affairs of the Company or its subsidiaries.

The Company and Mr Richard Reavley have entered into an executive services contract for Mr Reavley to provide the services of Chief Executive Officer (Executive Services Agreement).

The Executive Services Agreement is subject to and conditional on settlement of the Implementation Agreement, and subsequent completion of the Acquisition.

(Remuneration Package): The Company will pay Mr Reavley a remuneration package of:

(a) USD$200,000 per annum, inclusive of taxes and statutory superannuation, to be reviewed annually by the Company;

(b) reimbursement for up to $20,000 of all reasonable expenses incurred in the performance of Mr Reavley’s duties;

(c) temporary accommodation costs for temporary accommodation in Perth, Western Australia;

(d) allowance for a motor vehicle of $2000 per month; and

(e) an increase of USD$50,000 per annum subject to the Company achieving commercial production of a well.

(Termination) The Executive Services Agreement may be terminated by the Company in a number of circumstances, including but not limited to:

(a) Mr Reavley being incapacitated by illness or injury of any kind which prevents the performance of duties for a period of 3 consecutive months or any periods aggregating 3 months in any period of 12 months during the term of employment;

(b) Mr Reavley being charged with or convicted of a criminal offence which might injure the reputation or the business of the Company;

(c) a wilful breach of any of the terms of the Executive Services Agreement; or

(d) failure to comply with any reasonable direction or order given by the Company.

The Company may also terminate the agreement by giving three (3) months notice to Mr Reavley and making payment of three (3) months’ worth of the Remuneration Package at the end of the notice period.

If Mr Reavley’s appointment becomes redundant, the Company may terminate the agreement and make payment of twelve (12) months’ worth of Remuneration Package.

Mr Reavley may terminate the agreement immediately if there is a breach of a material term of the Agreement or otherwise at any time by giving 3 months’ written notice to the Company.

The agreement also contains provisions including confidentiality, duties of the executive and non-competition that are customary in this type of agreement.

Hawkley entered into a Consulting Services Agreement (Consulting Agreement) with Mr Paul Morgan on 1 February 2007 to provide consulting services to Hawkley. It is intended that the Consulting Agreement will survive completion of the Acquisition and Mr Morgan will continue to provide the services the subject of the Consulting Agreement to the Company.

Under the Consulting Agreement Mr Morgan is to provide the Company with regular reports in connection with corporate and technical matters pertaining to the extraction of hydrocarbons at the properties owned by the Company.

The Company is required to pay Mr Morgan $1,000 per 8 hour day while engaged on matters relating to the Company. This rate is to be pro-rated according to the number of hours worked each day.

The Company will also reimburse Mr Morgan for all reasonable expenses properly incurred.

The rights, privileges and restrictions attaching to Shares can be summarised as follows:

(a) General Meetings

Shareholders are entitled to be present in person, or by proxy, attorney or representative to attend and vote at general meetings of the Company.

Shareholders may requisition meetings in accordance with Section 249D of the Corporations Act and the Constitution of the Company.

(b) Voting Rights

Subject to any rights or restrictions for the time being attached to any class or classes of shares, at general meetings of shareholders or classes of shareholders:

(i) each shareholder entitled to vote may vote in person or by proxy, attorney or representative;

(ii) on a show of hands, every person present who is a shareholder or a proxy, attorney or representative of a shareholder has one vote; and

(iii) on a poll, every person present who is a shareholder or a proxy, attorney or representative of a shareholder shall, in respect of each fully paid share held by him, or in respect of which he is appointed a proxy, attorney or representative, have one vote for the share, but in respect of partly paid shares shall have such number of votes as bears the same proportion to the total of such shares registered in the shareholder’s name as the amount paid (not credited) bears to the total amounts paid and payable (excluding amounts credited).

(c) Dividend Rights

The Directors may from time to time declare a dividend to be paid to the Shareholders entitled to the dividend. Subject to the rights of any preference Shareholders and to the rights of the holders of any shares created or raised under any special arrangement as to dividend, the dividend as declared shall be payable on all Shares according to the proportion that the amount paid (not credited) is of the total amounts paid and payable (excluding amounts credited) in respect of such Shares in accordance with Part 2H.5 of Chapter 2H of the Corporations Act.

(d) Winding-Up

If the Company is wound up, the liquidator may, with the authority of a special resolution of the Company, divide among the shareholders in kind the whole or any part of the property of the Company, and may for that purpose set such value as he considers fair upon any property to be so divided, and may determine how the division is to be carried out as between the shareholders or different classes of shareholders. The liquidator may, with the authority of a special resolution of the Company, vest the whole or any part of any such property in trustees upon such trusts for the benefit of the contributories as the liquidator thinks fit, but so that no shareholder is compelled to accept any shares or other Shares in respect of which there is any liability. Where an order is made for the winding up of the Company or it is resolved by special resolution to wind up the Company, then on a distribution of assets to members, shares classified by ASX as restricted Shares at the time of the commencement of the winding up shall rank in priority after all other shares.

(e) Transfer of Shares

Generally, shares in the Company are freely transferable, subject to formal requirements, the registration of the transfer not resulting in a contravention of or failure to observe the provisions of a law of Australia and the transfer not being in breach of the Corporations Act or the Listing Rules.

(f) Variation of Rights

Pursuant to Section 246B of the Corporations Act, the Company may, with the sanction of a special resolution passed at a meeting of shareholders vary or abrogate the rights attaching to shares.

If at any time the share capital is divided into different classes of shares, the rights attached to any class (unless otherwise provided by the terms of issue of the shares of that class), whether or not the Company is being wound up may be varied or abrogated with the consent in writing of the holders of three-quarters of the issued shares of that class, or if authorised by a special resolution passed at a separate meeting of the holders of the shares of that class.

As at the date of this Prospectus, the Company has 2,356,581 Options (on a post-Consolidation basis) on issue with various exercise prices and expiry dates as set out in Section 3.6 of this Prospectus.

The Company proposes to issue to Cygnet Capital:

(a) 11,248,594 Options exercisable for $0.20 on or before 31 January 2014 subject to, and as part consideration for, completion of the Acquisition; and

(b) 14,758,155 Options exercisable for $0.20 on or before 31 January 2014 subject to the Company raising the minimum subscription under the General Offer pursuant to this Prospectus,

(on a post-Consolidation basis).

As noted in Section 11.1, and subject to settlement of the Acquisition, the Company proposes issuing 32,961,913 Performance Shares (on a post Consolidation basis) to certain of the Hawkley Vendors. The terms of the Performance Shares are set out as follows:

(a) (Performance Shares) Each Performance Share is a share in the capital of the Company.

(b) (General Meetings) The Performance Shares shall confer on the holder (Holder) the right to receive notices of general meetings and financial reports and accounts of the Company that are circulated to shareholders. Holders have the right to attend general meetings of shareholders of the Company.

(c) (No Voting Rights) The Performance Shares do not entitle the Holder to vote on any resolutions proposed at a general meeting of shareholders of the Company.

(d) (No Dividend Rights) The Performance Shares do not entitle the Holder to any dividends.

(e) (Rights on Winding Up) The Performance Shares participate in the surplus profits or assets of the Company upon winding up of the Company only to the extent of $0.0001 per Performance Share.

(f) (Not Transferable) The Performance Shares are not transferable.

(g) (Reorganisation of Capital) If at any time the issued capital of the Company is reconstructed, all rights of a Holder will be changed to the extent necessary to comply with the applicable ASX Listing Rules at the time of reorganisation.

(h) (Application to ASX) The Performance Shares will not be quoted on ASX. However, upon conversion of the Performance Shares into fully paid ordinary shares into shares, the Company must within seven (7) days after the conversion, apply for the official quotation of the Shares arising from the conversion on ASX.

(i) (Participation in Entitlements and Bonus Issues) Holders of Performance Shares will not be entitled to participate in new issues of capital offered to holders of Shares such as bonus issues and entitlement issues.

(j) (No Other Rights) The Performance Shares give the Holders no rights other than those expressly provided by these terms and those provided at law where such rights at law cannot be excluded by these terms.

(a) (Conversion on achievement of milestone) The Performance Shares will convert into Shares upon satisfaction of, in relation to the Licences, completion of the drilling of well # 201, and a Proved Reserve of value exceeding USD$36,000,000 being independently verified by a qualified expert appointed by the Company (Milestone).

For the purposes of defining “Proved Reserves” the definition is provided in Table 1 (page 24) of the Petroleum Resources Management System document (for convenience laid out here: ‘are those quantities of petroleum, which by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under defined economic conditions, operating methods, and government regulations’).

The value of the reserve for these purposes will be calculated by multiplying recoverable gas and condensate volumes by the gas and condensate prices of the day of the calculation respectively and the UAH/USD forex rate of the day.

(b) (Expiry Date) The Milestone must be achieved on or before that date which is 9 months following the issue date of the Performance Shares (Expiry Date).

(c) (No conversion if Milestone not Achieved) If the Milestone is not achieved on or before the Expiry Date, then the Performance Shares held by each holder will automatically consolidate into one (1) Performance Share and will then convert into one (1) Share.

(d) (Conversion Procedure) The Company will issue the Holder with a new holding statement for the Shares as soon as practicable following the conversion of the Performance Shares into Shares in accordance with condition 2(a).

(e) (Ranking of Shares) The Shares into which the Performance Shares will convert will rank pari passu in all respects with existing Shares.

Directors are not required under the Company’s Constitution to hold any Shares. As at the date of this Prospectus, the current Directors of the Company have relevant interests in Shares (on a post-Consolidation basis) as set out in the table below:

DIRECTOR SHARES OPTIONS

Melvyn Bridges 26,247 378,703

Winton Willesee 665,734 Nil

Eric de Mori Nil 374,953

The Proposed Directors of the Company have relevant interests in Shares (on a post-Consolidation basis) as set out in the table below. These figures include Shares and Performance Shares to be issued to the Proposed Directors under the terms of the Acquisition:

PROPOSED DIRECTOR SHARES OPTIONS

PERFORMANCE SHARES

Richard Reavley

12,760,410 Nil 2,577,699

Paul Morgan 25,520,820 Nil 5,155,399

David Riekie Nil Nil Nil

The Company’s Constitution provides that the remuneration of non-executive Directors will be not more than the aggregate fixed sum determined by a general meeting. The aggregate remuneration for non-executive Directors has been set at an amount not to exceed $200,000 per annum.

The remuneration of executive Directors will be fixed by the Directors and may be paid by way of fixed salary or consultancy fee.

The annual remuneration of each of the Directors (inclusive of superannuation) is set out in the table below:

The remuneration of the current Directors of the last two (2) years is set out as follows:

DIRECTORCURRENT

FINANCIAL YEARPREVIOUS

FINANCIAL YEAR

Melvyn Bridges $72,000 $117,2501

Winton Willesee $120,0003 $127,0002

Eric de Mori $25,000 $54,4151

Notes:

1 Of this amount, $44,000 was paid by the issue of Shares in the Company.2 Of this amount, $87,500 was paid by the issue of Shares in the Company.3 An entity associated with Mr Willesee is engaged to provide corporate and

office services for a fee of $10,000 per month being $120,000 per annum. The engagement is ongoing, unless terminated with 3 months notice. At termination an amount equal to 3 months of fees is payable.

If the Proposed Directors are appointed as Directors of the Company, The Board will review the remuneration arrangements of the Company and seek any necessary Shareholder approvals for increased remuneration in accordance with the Constitution, and any necessary Shareholder approvals for the grant of equity based incentive remuneration. The Company presently intends to remunerate these parties as follows:

PROPOSED DIRECTOR TITLE REMUNERATION PER ANNUM CONTRACT TERMS

Richard Reavley Chief Executive Officer and Executive Director

USD$200,000 (as part of Remuneration Package)

Refer to Section 11.101

Paul Morgan Non-Executive Chairman USD$78,500 plus consultancy fees of $1,000 per day

Refer to Section 11.111

David Rieke Non Executive Director A$62,500 No formal agreement as at the date of this Prospectus1

Notes: 1 Subject to and conditional upon completion of the Acquisition

The Company has entered into (or proposes to enter into) a deed of indemnity, insurance and access with each of its Directors. Under these deeds, the Company agrees to indemnify each Director to the extent permitted by the Corporations Act against any liability arising as a result of the Director acting in the capacity as a director of the Company. The Company is also required to maintain insurance policies for the benefit of the Director and must also allow the Directors to inspect Company documents in certain circumstances.

Other than as set out below or elsewhere in this Prospectus, no:

(a) Director or Proposed Director of the Company;

(b) person named in this Prospectus as performing a function in a professional advisory or other capacity in connection with the preparation or distribution of this Prospectus;

(c) promoter of the Company; or

(d) underwriter (but not a sub-underwriter) to the issue or a financial services licensee named in the Prospectus as a financial services licensee involved in the issue,

has, or had within two (2) years before lodgement of this Prospectus with the ASIC, any interest in:

(a) the formation or promotion of the Company;

(b) any property acquired or proposed to be acquired by the Company in connection with its formation or promotion or in connection with the offer of Shares under this Prospectus; or

(c) the offer of Shares under this Prospectus,

and no amounts have been paid or agreed to be paid and no benefits have been given or agreed to be given to any of those persons as an inducement to become, or to qualify as, a Director of the Company or for services rendered in connection with the formation or promotion of the Company or the offer of Shares under this Prospectus other than the Remuneration set out in Section 12.5.

RSM Bird Cameron has acted as Independent Accountant and has prepared an Independent Accountant’s Report which has been included in Section 8 of this Prospectus. The Company estimates it will pay RSM Bird Cameron a total of $53,500 for these services.

Steinepreis Paganin has acted as the Australian solicitors to the Company in relation to this Prospectus, and has been involved in due diligence enquiries on Australian legal matters. The Company estimates it will pay Steinepreis Paganin $103,926 for these services up to the date of lodgement of this Prospectus with the ASIC. Subsequently, fees will be charged in accordance with normal charge out rates.

RISC has acted as the Independent Technical Specialist and has prepared the Independent Technical Specialist’s Report set out in Section 7 of this Prospectus. The Company estimates that it will pay RISC a total of $122,403 for these services.

Clifford Chance LLC has acted as the Ukrainian solicitors to the Company in relation to this Prospectus, has been involved in and has prepared the Solicitor’s Report on Ukraine Licences set out in Section 9 of this Prospectus. The Company estimates it will pay Clifford Chance LLC approximately $30,779 for these services (based on an exchange rate of 1 EUR = 1.4657 AUD on 14 April 2010).

Cygnet Capital has acted as Lead Manager and Underwriter for the General Offer in relation to this Prospectus. The Company estimates it will pay Cygnet Capital approximately $20,000 for its corporate advisory services. Cygnet Capital will also be entitled to a cash payment, Options and Shares on successful completion of the General Offer and the Acquisition. Please refer to Section 11.8 for further details regarding the engagement of Cygnet Capital as Lead Manager and Section 11.9 for a summary of the Underwriting Agreement. Mr Eric De Mori (an existing Director) is an associate director of Cygnet Capital.

Each of the parties referred to in this Section:

(a) do not make, or purport to make, any statement in this Prospectus other than those referred to in this Section; and

(a) to the maximum extent permitted by law, expressly disclaim and take no responsibility for any part of this Prospectus other than a reference to its name and a statement included in this Prospectus with the consent of that party as specified in this Section.

RSM Bird Cameron has given their written consent to being named as Independent Accountant in this Prospectus and to the inclusion of the Independent Accountant’s Report in Section 8 in the form and context in which the report is included. RSM Bird Cameron has not withdrawn its consent prior to lodgement of this Prospectus with the ASIC.

Steinepreis Paganin has given its written consent to being named as the Australian solicitors to the Company in this Prospectus. Steinepreis Paganin has not withdrawn its consent prior to the lodgement of this Prospectus with the ASIC.

Cygnet Capital has given its written consent to being named as the Lead Manager and Underwriter to the General Offer in this Prospectus has not withdrawn its consent prior to the lodgement of this Prospectus with the ASIC.

Clifford Chance LLC has given its written consent to be named as the Ukrainian solicitors to the Company in this Prospectus and to the inclusion of the Solicitor’s Report on Ukrainian Licences in Section 9 in the form and context in which the report is included. Clifford Chance LLC has not withdrawn its consent prior to lodgement of this Prospectus with the ASIC.

RISC has given its written consent to being named as the Independent Technical Specialist to the Company in this Prospectus and to the inclusion of the Independent Technical Specialist’s Report in Section 7 in the form and context in which the report is included. RISC has not withdrawn its consent prior to the lodgement of this Prospectus with the ASIC.

Hawkley has given its written consent to be named in the Prospectus and the inclusion of statements attributed to it in this Prospectus in the form and context in which they appear. Hawkley has not withdrawn its consent prior to the lodgement of this Prospectus with the ASIC.

Moyes and Co has given its written consent to be named in the Prospectus and the inclusion of statements contained in the Independent Technical Specialist’s Report in Section 7 attributed to Moyes & Co in the form and context in which they are included in the Independent Technical Specialist’s Report, and reference to the report by Moyes & Co entitled ‘Evaluation of Sorochynska and Chernetska Licences Held by Prime Oil & Gas LLC [sic], a wholly owned subsidiary of Hawkley Oil and Gas, Onshore Ukraine’ (revised), 2009 (Moyes Report) in the Independent Technical Specialist’s Report in the form and context in which the Moyes Report is included. Moyes & Co has not withdrawn its consent prior to the lodgement of this Prospectus with the ASIC.

Mr Vitaliy Kisil has given his written consent to be named in the Prospectus and the inclusion of statements contained in the Independent Technical Specialist’s Report in Section 7 attributed to Vitaliy Kisil in the form and context in which they are included in the Independent Technical Specialist’s Report, and reference to the reservoir engineering analysis of B-18b production from Sorochynska wells #110 and #469 produced by Vitaliy Kisil in the form and context in which the analysis is included. Mr Vitaliy Kisil has not withdrawn his consent prior to the lodgement of this Prospectus with the ASIC.

The cash expenses of the General Offer are estimated to be approximately $734,012 and are expected to be applied towards the items set out in the table below:

ITEM OF EXPENDITURE AMOUNT ($)

ASIC Fees $2,010

ASX Fees $37,021

Printing $6,190

Legal Fees – Steinepreis Paganin $103,926

Legal Fees – Clifford Chance $30,779*

Legal Fees – Other 2,943*

Corporate Advisory Fees $20,000

Underwriting Fees $330,000

Independent Accountant’s Fees $56,850

Independent Technical Specialist’s Fees $122,403

Auditor $21,890

TOTAL $734,012

* Based on an exchange rate of 1 EUR = 1.4657 AUD on 14 April 2010

In addition, the Company estimates that other cash-based transaction costs of approximately $150,000 will be incurred in relation to the Acquisition.

As at the date of this Prospectus, the Company is not involved in any legal proceedings and the Directors are not aware of any legal proceedings pending or threatened against the Company.

Pursuant to Class Order 00/044, the ASIC has exempted compliance with certain provisions of the Corporations Act to allow distribution of an electronic Prospectus on the basis of a paper Prospectus lodged with the ASIC, and the publication of notices referring to an electronic Prospectus, subject to compliance with certain conditions.

If you have received this Prospectus as an electronic Prospectus, please ensure that you have received the entire Prospectus accompanied by the appropriate application forms. If you have not, please email the Company at [email protected] and the Company will send you, for free, either a hard copy or a further electronic copy of the Prospectus or both. Alternatively, you may obtain a copy of the Prospectus from the Company’s website at www.incitiveltd.com.

The Company reserves the right not to accept an application form from a person if it has reason to believe that when that person was given access to the electronic application form, it was not provided together with the electronic Prospectus and any relevant supplementary or Prospectus or any of those documents were incomplete or altered.

The acquisition and disposal of Shares in the Company will have tax consequences, which will differ depending on the individual financial affairs of each investor. All potential investors in the Company are urged to obtain independent financial advice about the consequences of acquiring Shares from a taxation viewpoint and generally.

To the maximum extent permitted by law, the Company, its officers and each of their respective advisors accept no liability and responsibility with respect to the taxation consequences of subscribing for Shares under this Prospectus.

The Directors have considered the matter set out in ASIC Regulatory Guide 170 and believe that they do not have a reasonable basis to forecast future earnings on the basis that the operations of the Company are inherently uncertain. Accordingly, any forecast or projection information would contain such a broad range of potential outcomes and possibilities that it is not possible to prepare a reliable best estimate forecast or projection.

This Prospectus is issued by the Company and its issue has been authorised by a resolution of the Directors.

In accordance with Section 720 of the Corporations Act, each Director and Proposed Director has consented to the lodgement of this Prospectus with the ASIC.

Eric de Mori Director

Where the following terms are used in this Prospectus they have the following meanings:

A$ or AUD$ or $ means an Australian dollar.

Acquisition means the proposed acquisition of Hawkley by the Company.

ASIC means Australian Shares & Investments Commission.

Application Form means the application form accompanying this Prospectus relating to the General Offer.

ASX means ASX Limited (ABN 98 008 624 691).

Avenger Investment Holdings means Avenger Investment Holdings Limited, a company incorporated in the British Virgin Islands with company number 227726 and registered address of Palm Grove House, Road Town, Tortola, British Virgin Islands.

Ballure Trading means Ballure Trading Limited, a company incorporated in the British Virgin Islands with company number 506162 and registered address of Palm Grove House, Road Town, Tortola, British Virgin Islands.

Board means the board of Directors as constituted from time to time.

Business Day means a week day when trading banks are ordinarily open for business in Perth, Western Australia.

Closing Date means the closing date for the General Offer as set out in section 3.2, being 21 May 2010.

Company means Incitive Limited (to be renamed Hawkley Oil and Gas Limited) (ABN 68 115 712 162).

Consolidation means consolidation of the Company’s Shares and Options on the basis of one (1) Share for every twenty six point six seven (26.67) Shares or Options held.

Constitution means the constitution of the Company.

Corporations Act means the Corporations Act 2001 (Cth).

Cygnet Capital means Cygnet Capital Pty Ltd (ACN 103 488 606).

Directors mean the directors of the Company at the date of this Prospectus.

Exposure Period means the period of 7 days after the date of lodgement of this Prospectus, which period may be extended by the ASIC by not more than 7 days pursuant to Section 727(3) of the Corporations Act.

General Offer means the offer of 27,500,000 Shares at $0.20 cents each (with the ability to accept oversubscriptions for a further 10,000,000 Shares) as set out in this Prospectus.

Hawkley means Janita Global Limited (BVI Company no. 1020028) (trading as Hawkley Oil and Gas Limited).

Hawkley Creditors means Avenger Investment Holdings Limited and Mr Victor Dmytriev.

Hawkley Offers means the offers by the Company to the Hawkley Vendors to acquire all of the:

(a) fully paid ordinary shares held in Ukraine Investments; (b) fully paid ordinary shares held in Ballure Trading;(c) fully paid ordinary shares held in Ukraine Gas Investments; and(d) other shares held in Hawkley (excluding those which are held

by Ballure Trading, Ukraine Investments and Ukraine Gas Investments),

and thereby, directly and indirectly, acquire all of the issued share capital of Hawkley.

Hawkley Vendors means:

(a) the shareholders of Hawkley (excluding Ballure Trading, Ukraine Investments and Ukraine Gas Investments);

(b) the shareholders of Ballure Trading;(c) the shareholders of Ukraine Investments; and(d) the shareholders of Ukraine Gas Investments.

Implementation Agreement means the implementation agreement between the Company, Hawkley, Cygnet Capital and certain major shareholders of Hawkley dated 16 February 2010 as raised by a deed of variation dated 7 April 2010.

Listing Rules means the official listing rules of ASX.

Official List means the Official List of ASX.

Official Quotation means official quotation by ASX in accordance with the Listing Rules.

Option means an option to subscribe for a Share.

Performance Share means a convertible share proposed to be issued to the Hawkley Vendors on the terms set out in Section 12.3.

Proposed Directors means Messrs Richard Reavley, Paul Morgan and David Riekie, whom it is intended will be appointed as Directors of the Company if Shareholder approved is obtained for their appointment, the Acquisition is successful and otherwise as referred to in this Prospectus.

Prospectus means this replacement prospectus.

Share means a fully paid ordinary share in the capital of the Company.

Share Registry means Security Transfer Registrars Pty Ltd.

Shareholder means a holder of Shares.

US$ or USD$ means a United States dollar.

Ukraine Gas means Ukraine Gas Investments Pty Ltd (ACN 141 626 824).

Ukraine Investments means Ukraine Investments Limited (ACN 123 371 853).

Ukraine Investments Offer means the offer of Shares via this Prospectus contained in Section 15 to those Ukraine Investments Shareholders listed in Schedule 1.

Ukraine Investments Shareholder means a holder of shares in Ukraine Investments.

WST Western Standard Time.

(a) Each person set out in Part 1 of Schedule 1 (each person, severally is a Vendor).

(b) Incitive Limited (ACN 115 712 162) of (Purchaser).

The Vendor is the legal and beneficial owner of that number of fully paid ordinary shares in Ukraine Investments Limited (Company) listed in Part 1 of the Schedule (Shares).

The Vendor agrees to sell the Shares to the Purchaser, and Purchaser agrees to buy the Shares from the Vendor, on the terms and conditions contained in this agreement.

(a) The consideration for the acquisition of the Shares will be the issue of:

(i) the number of fully paid ordinary shares in the Purchaser (Purchaser Shares); and

(ii) the number of performance shares in the Purchaser (Performance Shares),

as specified in Part 1 of the Schedule (the Purchaser Shares and the Performance Shares are together the Consideration Securities).

(b) The Performance Shares will convert into ordinary shares in the capital of the Purchaser on a one (1) for one (1) basis on the achievement of the Milestone in Section 12.3 of the Prospectus.

(c) If the Milestone is not achieved on or before the Expiry Date, then the Performance Shares held by each holder will automatically consolidate into one (1) Performance Shares and will then convert into one (1) Share. The Performance Shares will have further terms and conditions as approved by ASX.

(d) The Consideration Securities may be issued to the Vendor’s nominee.

(e) The Purchaser Shares and Performance Shares are mutually exclusive. For the avoidance of doubt and subject to clause 8, the Vendor may sell its Purchaser Shares and/or its Performance Shares at any time.

(f) The Purchaser Shares issued to the Vendor will be:

(i) admitted to quotation on the official list of the Australian Securities Exchange (ASX) on and from the date of Settlement;

(ii) credited as fully paid ordinary shares; and

(iii) issued free from any encumbrances or third party interests, subject only to the escrow restrictions set out in clause 8 below of this agreement.

(h) The Purchaser must ensure that the Purchaser Shares issued to the Vendor at Settlement are freely tradeable on the ASX without on sale restrictions (including as may arise under section 707 of the Corporations Act 2001) on and from their date of issue, subject only to any escrow restrictions set out in clause 8 below.

In order to accept this Ukraine Investments Offer, the Vendor must complete and sign the Acceptance and Transfer Form and deliver all documents of title in respect of the Shares to the Purchaser, before the Closing Date of the Prospectus. Subject to clause 6(a), once a Vendor has accepted the Ukraine Investments Offer, the Vendor will be unable to revoke acceptance and the contract resulting from acceptance is binding on that Vendor.

(a) Settlement under this agreement is conditional on the conditions in the implementation agreement dated 16 February 2010 (as amended) between the Purchaser, Janita Global Limited, Cygnet Capital Pty Limited, and certain major shareholders of Janita Global Limited (Implementation Agreement) being satisfied or waived in accordance with the terms of the Implementation Agreement.

(b) Settlement of the sale and purchase of Shares under this agreement (Settlement) is interdependent and conditional on settlement occurring under the Implementation Agreement and must occur contemporaneously with settlement under the Implementation Agreement.

(c) The Consideration Securities:

(i) represent a pro-rata allocation to the Vendor of the total number of shares and performance shares issued by the Purchaser to all shareholders of the Company under the Implementation Agreement and sale agreements with shareholders of the Company; and

(ii) rank equally in all respects to the Shares and performance shares issued by the Purchaser to all shareholders of the Company under the Implementation Agreement and sale agreements with shareholders of the Company.

(d) At Settlement:

(i) the Vendor must transfer to the Purchaser the Shares together with all rights attached to them;

(ii) title to and risk in the Shares pass to Purchaser; and

(iii) the Purchaser must issue the Consideration Securities to the Vendor (including by registering the Vendor as the holder of the Consideration Securities, and issuing to the Vendor a holding statement in respect of the Purchaser Shares and share certificates in respect of the Performance Shares) in accordance with the requirements of this agreement. The Purchaser shall deliver copies of the holding statements and share certificates to the Vendor at the address for service in clause 13.

(e) In respect of Settlement:

(i) the obligations of the parties under this agreement are interdependent; and

(ii) unless otherwise stated, all actions required to be performed by a party at Settlement are taken to have occurred simultaneously at the time of Settlement.

(f) If Settlement has not occurred by the Settlement Date of the Implementation Agreement, or the Implementation Agreement is terminated, the Transfer Documents shall be returned to the Vendor and this agreement will be at an end.

Each party must do all things necessary to give full effect to the transactions contemplated by this agreement. If title to the Shares is not capable of being transferred to Purchaser by the Vendor at Settlement then from Settlement the Vendor shall hold the Shares on trust for Purchaser and deal with the rights attaching to the Shares at the Purchaser’s sole and exclusive direction.

(a) The Consideration Securities will be subject to a 6 month Holding Lock on and from the date of Settlement.

(b) For the purposes of this agreement, Holding Lock has that meaning given to that term in the ASTC Settlement Rules.

(a) The Vendor represents and warrants to the Purchaser at the time of signing this agreement and again at Settlement (as a separate warranty) as follows:

(i) The Vendor is the registered owner of the Shares which are free of all encumbrances, other third party rights and there are no outstanding or contingent options, contracts, calls, pre-emptive rights, first refusals, commitments, rights or demands of any kind relating to the Shares

(ii) The Vendor is entitled to sell, assign and transfer the full legal and beneficial ownership in the Shares to the Purchaser on the terms set out in this agreement.

(iii) The Vendor has taken all necessary action to authorise the execution, delivery and performance of this agreement in accordance with its terms and has full power to enter into and perform its obligations under this agreement.

(iv) The execution, delivery and performance by the Vendor of this agreement comply with:

(a) any applicable companies law;

(b) the constitution or other constituent documents of the Vendor, if any; and

(c) any encumbrance which is binding on the Vendor.

(v) If the Vendor is a corporation it is validly incorporated, organised and subsisting in accordance with the laws of its place of incorporation.

(vi) The Vendor has not gone into liquidation or insolvency or passed a winding up resolution or received a deregistration notice under any applicable companies law.

(vii) The Vendor is not the subject of any petition or other process for winding up, writ of execution or process for the appointment of a receiver or receiver and manager of any part of the undertaking or assets of the Vendor and there are no circumstances justifying any of the foregoing.

(b) Where the Vendor enters into this agreement in its capacity as trustee of any trust (Trust), that Vendor warrants to Purchaser that:

(i) it is the sole trustee of the Trust or where there are two or more Vendors they jointly are the only trustees of the Trust;

(ii) no action has been taken or is proposed to remove or replace the Vendor as trustee of the Trust;

(iii) it has power under the relevant trust deed to enter into and observe its obligations under this agreement and it has entered into them in its capacity as trustee of the Trust and for the benefit of the beneficiaries of the Trust;

(iv) it has an unrestricted and unlimited right to be fully indemnified out of the relevant trust fund in respect of obligations incurred by it under this agreement;

(v) it is not in default under the terms of the Trust;

(vi) no action has been taken or is proposed to terminate the Trust; and

(vii) it has complied with all of its obligations in connection with the Trust.

The Purchaser represents and warrants to the Vendor at the time of signing this agreement and again at Settlement (as a separate warranty) as follows:

(a) Subject to section 8, the issue of the Consideration Securities will:

(i) comply with ASX Listing Rule 7.1;

(ii) be eligible to be admitted to quotation on the official list of the ASX on and from the date of Settlement;

(iii) be credited as fully paid ordinary shares; and

(iv) be issued free from any encumbrances or third party interests, subject to the terms of this agreement.

(b) The Purchaser has been incorporated as a company limited by shares in accordance with the laws in its place of incorporation and is validly existing under those laws.

(c) The Purchaser has taken all necessary action to authorise the execution, delivery and performance of this agreement in accordance with its terms and has full power to enter into and perform its obligations under this agreement.

(d) The Purchaser’s obligations under this agreement are valid and binding and enforceable against it.

(e) The execution, delivery and performance by the Purchaser of its obligations under this agreement comply with:

(i) any applicable companies law;

(ii) the constitution or other constituent documents of the Purchaser, if any; and

(iii) any encumbrance which is binding on the Purchaser.

The Vendor irrevocably appoints a director or the company secretary of Purchaser as its attorney, until the Shares are registered in the name of the Purchaser, to do all acts and things and to complete and execute any documents, including but not limited to, the Transfer Documents, and ASX restriction agreements (as applicable) in the name of the Vendor and on the Vendor’s behalf, that may be convenient or necessary for Settlement and the Vendor (or its legal personal representative) will be deemed to ratify and confirm any act or thing done pursuant to the power of attorney.

The Vendor waives any pre-emptive rights in respect of the sale of other Shares or securities of the Company by other security holders of the Company, to the Purchaser.

The Purchaser must pay any Duty and Goods and Services Tax in respect of the execution, delivery and performance of this agreement and any agreement or document entered into or signed under this agreement.

The address for service of notices to the Purchaser is:

Address: c/- Azalea Consulting Pty Ltd, Level 1, 2 Ross Place, South Melbourne, Victoria

Facsimile: +61 39670 6643

Attention: Mr Winton Willesee

The Vendor may change the address for service of notices by providing written notice to the Vendor.

(a) Each of the parties agree to keep the terms and conditions of this agreement confidential and will not, except as required by law including the rules of any stock exchange, disclose the terms and conditions of this agreement to any third party without the prior written consent of the other parties.

(b) For the avoidance of doubt, nothing in this agreement prohibits the Company from complying with its continuous disclosure obligations under the ASX Listing Rules.

This agreement embodies the entire agreement between the parties and supersedes any prior negotiation, arrangement, understanding or agreement with respect to the subject matter of any term of this agreement.

The parties agree to be legally bound by and to implement and give effect to the terms of each obligation under this agreement.

This agreement is governed by the laws of Western Australia.

UKRAINE INVESTMENTS SHAREHOLDER

UKRAINE INVESTMENTS

SHARESCONSIDERATION

SHARESPERFORMANCE

SHARES

Ashbay Holdings Pty Ltd as trustee for the LMS Superannuation Fund (ACN 009 463 772)

92,000 445,987 112,899

Ashbay Holdings Pty Ltd (ACN 009 463 772) 486,000 2,355,976 596,403

Beacon Property Group Pty Ltd as trustee for the Beacon Property Trust (ACN 119 591 187)

25,000 121,192 30,679

Mr Daniel Donovan 25,000 121,192 30,679

Executive Employees (2006) Superannuation Fund 25,000 121,192 30,679

Gunner Resources Pty Ltd (ACN 123 484 828) 176,835 857,241 217,006

James MacKenzie Hall 100,000 484,769 122,717

High Returns Pty Ltd (ACN 124 322 318) 512,001 2,482,020 628,310

Geoffrey Gordon Potter 20,834 100,997 25,567

Samuel John Corbin and Catherine Meredith Willis as trustees for the Willis Family Superannuation Fund Account

70,000 339,338 85,902

Mrs J G Uglow 75,000 363,576 92,037

Westar Productions Pty Ltd as trustee for the BSB Superannuation Fund (ACN 009 365 879)

50,000 242,384 61,358

Zelina Pty Ltd (ACN 081 065 214) 41,500 201,179 50,927

Maximise Investments Pty Ltd (ACN 142 101 899) 833,003 4,038,137 1,022,233

ONLY COMPLETE THIS FORM IF YOU ARE A UKRAINE INVESTMENTS LIMITED SHAREHOLDER

UKRAINE INVESTMENTS OFFER APPLICATION AND TRANSFER FORM

ACCEPTANCE AND TRANSFER FORM IN RELATION TO A PROSPECTUS PREPARED BY INCITIVE LIMITED

Full Name (PLEASE PRINT)

Title, Given Name(s) & Surname or Company Name

OF

Street Number Street

Suburb/Town State Postcode

I/We, the person(s) named above (Seller(s)), being the holder(s) of fully paid, ordinary shares (Ukraine Investments Shares) in Ukraine Investments Limited (Ukraine Investments), a company incorporated in Western Australian, accept the Ukraine Investments Offer contained in the Prospectus to which this Acceptance and Transfer Form is attached (Prospectus) in respect of my/our Ukraine Investments Shares and agree:

to transfer to Incitive Limited (Buyer) all my/our Ukraine Investments Shares and accept the consideration as set out in the Ukraine Investments Offer; and

to be bound by the terms and conditions of the Ukraine Investments Offer and the constitution of the Buyer,

the Buyer agrees to accept the transfer of the Seller’s Ukraine Investments Shares on the terms of the Ukraine Investments Offer.

Signed this ________________ day of ___________________________ 2010.

By:

Individual or Member 1 Member 2 Member 3

Sole Director/Company Secretary Director Director/Company Secretary

Contact Name: Contact Ph (daytime):

Executed by Incitive Limited (ACN 115 712 612) in accordance with Section 127 of the Corporations Act:

Signature of Director

Name of Director in full

Signature of Director or Secretary

Name of Director or Secretary in full

INCITIVE LIMITED ACN 115 712 162

The securities to which this application form (Application Form) relates are fully ordinary paid shares (Shares) in the capital of Incitive Limited (Company). A prospectus containing information regarding investment in Share was lodged with the Australian Securities and Investments Commission on 29 April 2010 (Prospectus). While the Prospectus is current, the Company will send paper copies of the Prospectus, any supplementary documents and the Application Form, free of charge to any person upon request. You should read the Prospectus before applying for Shares. A person who gives another person access to the Application Form must at the same time and by the same means give the other person access to the Prospectus and any supplementary document.

PLEASE READ ALL INSTRUCTIONS ON THE REVERSE OF THIS FORM

Full Name (PLEASE PRINT)

Title, Given Name(s) & Surname or Company Name

Joint Applicant #2 or <designated account>

Joint Applicant #3 or <designated account>

Postal Address (PLEASE PRINT)

Street Number Street

Suburb/Town State Postcode

ABN, Tax File Number or Exemption Applicant #2 Applicant #3

CHESS HIN or Existing SRN (where applicable)

Number of Shares applied for Application Money enclosed at 20 cents per Share A$

I/We whose full name(s) and address appear above hereby apply for the number of Shares shown above (to be allocated to me/us by the Company in respect of this Application) under the Prospectus on the terms set out in the Prospectus.

PLEASE ENTER CHEQUE DETAILS THANKYOU

Drawer Bank BSB or Branch Amount

My/Our contact numbers in the case of inquiry are:

Telephone ( ) Facsimile ( )

Cheques should be made payable to Incitive Limited – Subscription Account, crossed “NOT NEGOTIABLE”. Cheques and completed Application Forms should be forwarded, to arrive no later than 5:00pm on 21 May 2010 (or such other date as is determined by the Directors) to Security Transfer Registrars or Cygnet Capital:

Incitive Limited - Subscription Account

c/- Security Transfers Registrars Pty Ltd 770 Canning Highway Applecross WA 6153

Incitive Limited - Subscription Account

c/- Cygnet Capital Pty Ltd Ground Floor, 30 Richardson Street West Perth WA 6005

OR

If an applicant has any questions on how to complete this Application Form, please telephone Security Transfer Registrars on (08) 9315 2333.

A. Application for Shares

The Application Form must only be completed in accordance with instructions included in Prospectus.

B. Name of Applicant

Write the Applicant’s FULL NAME. This must be either an individual’s name or the name of a company. Please refer to the bottom of this page for the correct form of registrable title. Applications using the incorrect form of registrable title may be rejected.

C. Name of Joint Applicants or Account Designation

If JOINT APPLICANTS are applying, up to three joint Applicants may register. If applicable, please provide details of the Account Designation in brackets. Please refer to the bottom of this page for instructions on the correct form of registrable title.

D. Address

Enter the Applicant’s postal address for all correspondence. If the postal address is not within Australia, please specify Country after City/Town.

E. Contact Details

Please provide a contact name and daytime telephone number so that the Company can contact the Applicant if there is an irregularity regarding the Application Form.

F. CHESS HIN or existing SRN Details

The Company participates in CHESS. If the Applicant is already a participant in this system, the Applicant may complete this section with their existing CHESS HIN. If the applicant is an existing shareholder with an Issuer Sponsored account, the SRN for this existing account may be used. Otherwise leave the section blank and the Applicant will receive a new Issuer Sponsored account and statement.

G. Cheque Details

Make cheques payable to “Incitive Limited – Subscription Account” in Australian currency and cross them “Not Negotiable”. Cheques must be drawn on an Australian Bank. The amount of the cheque should agree with the amount shown on the Application Form.

H. Declaration

This Application Form does not need to be signed. By lodging this Application Form and a cheque for the application money this Applicant hereby:

(1) applies for the number of Shares specified in the Application Form or such lesser number as may be allocated by the Directors;

(2) agrees to be bound by the constitution of the Company;

(3) authorises the directors of the Company to complete or amend this Application Form where necessary to correct any errors or omissions;

(4) acknowledges that he/she has received a copy of the Prospectus attached this Application Form or a copy of the Application Form before applying for the Shares; and

(5) acknowledges that he/she will not provide another person with this Application Form unless it is attached to or accompanied by the Prospectus.

Note that ONLY legal entities are allowed to hold securities. Application Forms must be in the name(s) of a natural person(s), companies or other legal entities acceptable to the Company. At least one full given name and the surname is required for each natural person. Application Forms cannot be completed by persons under 18 years of age. Examples of the correct form of registrable title are set out below.

TYPE OF INVESTOR Correct Form of Registration Incorrect Form of Registration

Individual Use given names in full, not initials Mr John Alfred Smith J A Smith

Company Use the company’s full title, not abbreviations ABC Pty Ltd ABC P/L or ABC Co

Joint Holdings Use full and complete names Mr Peter Robert Williams & Ms Louise Susan Williams

Peter Robert & Louise S Williams

Trusts Use the trustee(s) personal name(s). Mrs Susan Jane Smith <Sue Smith Family A/C>

Sue Smith Family Trust

Deceased Estates Use the executor(s) personal name(s).

Ms Jane Mary Smith & Mr Frank William Smith <Est John Smith A/C>

Estate of late John Smith or John Smith Deceased

Minor (a person under the age of 18) Use the name of a responsible adult with an appropriate designation.

Mr John Alfred Smith <Peter Smith A/C>

Master Peter Smith

Partnerships Use the partners personal names.

Mr John Robert Smith & Mr Michael John Smith <John Smith and Son A/C>

John Smith and Son

Long Names Mr John William Alexander Robertson-Smith

Mr John W A Robertson-Smith

Clubs/Unincorporated Bodies/Business Names Use office bearer(s) personal name(s).

Mr Michael Peter Smith <ABC Tennis Association A/C>

ABC Tennis Association

Superannuation Funds Use the name of the trustee of the fund.

Jane Smith Pty Ltd <Super Fund A/C>

Jane Smith Pty Ltd Superannuation Fund

Any investment decision in relation to Hawkley Oil & Gas should be made after carefulconsideration of Hawkley prospectus (and only on the basis of the information set outin the prospectus). Anyone wishing to apply for securities in Hawkley will needto complete the application form that accompanies the prospectus.