Melbana Energy : Half Year Financial Report 31 December 2016

Corporate information 1

Directors' report 2

Auditor's independence declaration…………………….…6 Consolidated statement of comprehensive income 7

Consolidated statement of financial position 8

Consolidated statement of cash flows 9

Consolidated statement of changes in equity 10

Notes to the financial statements 11

Directors' declaration 16

Independent auditor's review report 17

Andrew G Purcell (Chairman) Michael J Sandy

Peter J Stickland (Managing Director and Chief Executive Officer)

Colin H Naylor

Level 15, 500 Collins Street Melbourne, Victoria 3000 Australia Telephone +61 (3) 8625 6000

Facsimile +61 (3) 9614 0660 Email: admin@melbana.com

Link Market Services Limited Level 1, 333 Collins Street Melbourne, Victoria 3000 Australia Telephone +61 (3) 9615 9800

Facsimile +61 (3) 9615 9921

Ernst & Young

8 Exhibition Street

Melbourne, Victoria 3000 Australia

ASX Limited

Level 4, North Tower, Rialto 525 Collins Street

Melbourne, Victoria 3000 Australia

Melbana Energy Limited shares are listed on the Australian Securities Exchange (ASX). ASX Code: MAY

The Directors of Melbana Energy Limited (variously the "Company" and "Melbana") submit their report for the half-year ended 31 December 2016.

The Directors of the Company during the half-year ended 31 December 2016 and until the date of this report (in office for the entire period unless otherwise stated) are:

Chairman: Andrew G Purcell, B Eng; MBA (Appointed a director, 30 July 2015 and Chairman 25 November 2015)

Non Executive Director: Michael J Sandy, BSc Hons (Geology), MAICD (Appointed 30 July 2015)

Managing Director & Chief Executive Officer: Peter J Stickland BSc, Hons (Geology), GDipAppFin (Finsia), GAICD (Appointed 30 January 2015)

The loss after tax for the half-year was $1,108,722 (Dec 2015: loss after tax $1,372,911) mainly due to net administration costs ($915,391).

The net loss after tax for the 2015 half year of $1,372,911 was mainly due to net administration costs ($1,212,760).

• Block 9 (Melbana 100%*)

The Production Sharing Contract (PSC) for Block 9, onshore Cuba, was executed on 3 September 2015. The Block 9 PSC area is in a proven hydrocarbon system with multiple discoveries within close proximity, including the multi-billion barrel Varadero oil field. It also contains the Motembo field - the first oil field discovered in Cuba. As an early mover into Cuba, Melbana is now one of the few western companies with a footprint in the expanding Cuban hydrocarbon sector.

During the half-year Melbana announced the initial results of its assessment of Block 9 identifying exploration potential for 8.183 billion barrels of Oil-in-Place, with a Prospective (Recoverable) Resource of 395 million barrels (Best Estimate, 100% basis) of potentially high quality light oil.

Subsequent to the end of the reporting period, Melbana announced that the exploration potential of Block 9 has been increased to approximately 12 billion barrels of Oil-in-Place with a Prospective (Recoverable) Resource of 612 million barrels (Best Estimate, 100% basis) of potentially high quality oil. These latest results represent more than a 50% upgrade to the previous resource assessment. The high potential Alameda prospect has been highgraded as one of the preferred targets for the drilling program.

Prospective Resources Cautionary Statement: The estimated quantities of petroleum that may potentially be recovered by the application of a future development project(s) relate to undiscovered accumulations. These estimates have both an associated risk of discovery and a risk of development. Future exploration appraisal and evaluation is required to determine the existence of a significant quantity of potentially moveable hydrocarbons.

During the reporting period Melbana advised that its plans for the potential drilling of an accelerated initial program of up to two exploration wells in Block 9 were maturing, with a target of finalising well proposals by the end of 1Q, 2017.

* Subject to a conditional 40% option to be exercised no later than September 2017 held by Petro Australis Limited