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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C.
20549

FORM 20-F

[  ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

for the fiscal year ended December 31, 2014

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

OR

[  ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-29832

CHELSEA OIL AND GAS LTD.(Exact name of Registrant as specified in its charter)

Alberta, Canada(Jurisdiction of incorporation or
organization)

127, 10thAve NWCalgary,
Alberta, Canada, T2M 0B4(Address of principal executive offices)

Jesse Meidl, DirectorT: (403) 457-1959F: (403) 457-1933127, 10thAve
NWCalgary, Alberta, Canada, T2M 0B4

(Name, Telephone, E-mail and/or Facsimile number and Address
of Company Contact Person)

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered or to be registered pursuant to Section
12(g) of the Act: Common Shares, no par value

Securities for which there is a reporting obligation pursuant
to Section 15(d) of the Act: Common Shares, no par value

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Indicate the number of outstanding shares of each of the
issuers classes of capital or common stock as of the close of the period
covered by the annual report:

64,056,876 Common Shares, no par value as of December
31, 2014

Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [  ]     No [X]

If this report is an annual or transition report, indicate by
check mark if the registrant is not required to file reports pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934. Yes [ 
]     No [X]

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X]     No [  ]

Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).

Yes [ 
]     No [X]

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of accelerated filer and large accelerated filer in Rule 12b-2 of
the Exchange Act (Check one):

| | Large accelerated filer [   ] | Accelerated filer [  ] | Non-accelerated filer [X]
| | ----------------------------- | ---------------------- | -------------------------

Indicate by check mark which basis of accounting the registrant
has used to prepare the financial statements included in this filing:

| | [  ] | U.S. GAAP | [X] | International Financial Reporting
      Standards |      |      
| | ---- | --------- | --- | ------------------------------------------------- | ---- | -----
| |      |           |     | as issued by the International
      Accounting   | [  ] | Other
| |      |           |     | Standards Board                                   |      |      

If Other has been checked in response to the previous
question indicate by check mark which financial statement item the registrant
has elected to follow. Item 17 [  ]     Item
18 [  ]

If this is an annual report, indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [  ]     No [X]

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TABLE OF CONTENTS

|                                                                    |                                                     | Page
|------------------------------------------------------------------- | --------------------------------------------------- | ----
|INTRODUCTION
      AND USE OF CERTAIN TERMS                         | 1                                                  
|FORWARD-LOOKING
      STATEMENTS                                    | 6                                                  
|PART I                                                              |                                                     | 7   
|ITEM
      1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS | 7                                                  
|ITEM
      2. OFFER STATISTICS AND EXPECTED TIMETABLE               | 7                                                  
|ITEM
      3. KEY INFORMATION                                       | 7                                                  
|3.A                                                                 | SELECTED
      FINANCIAL DATA                       | 7   
|3.B                                                                 | CAPITALIZATION
      AND INDEBTEDNESS               | 7   
|3.C                                                                 | REASONS
      FOR THE OFFER AND USE OF PROCEEDS     | 7   
|3.D                                                                 | RISK
      FACTORS                                  | 7   
|ITEM
      4. INFORMATION ON THE COMPANY                            | 17                                                 
|4.A                                                                 | THREE
      YEAR HISTORY AND DEVELOPMENT OF CHELSEA | 17  
|4.B                                                                 | BUSINESS
      OVERVIEW                             | 21  
|4.C                                                                 | ORGANIZATIONAL
      STRUCTURE                      | 22  
|4.D                                                                 | PROPERTY,
      PLANT AND EQUIPMENT                 | 22  
|4.E                                                                 | UNRESOLVED
      STAFF COMMENTS                     | 27  
|ITEM
      5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS          | 27                                                 
|ITEM
      6. DIRECTORS AND SENIOR MANAGEMENT                       | 36                                                 
|6.A                                                                 | DIRECTORS
      AND SENIOR MANAGEMENT               | 36  
|6.B                                                                 | COMPENSATION                                        | 38  
|6.C                                                                 | BOARD
      PRACTICES                               | 39  
|6.D                                                                 | EMPLOYEES                                           | 39  
|6.E                                                                 | SHARE
      OWNERSHIP                               | 39  
|ITEM
      7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS     | 39                                                 
|7.A                                                                 | MAJOR
      SHAREHOLDERS                            | 39  
|7.B                                                                 | RELATED
      PARTY TRANSACTIONS                    | 40  

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TABLE OF CONTENTS (continued)

|                                                                                              |                                                               | Page
|--------------------------------------------------------------------------------------------- | ------------------------------------------------------------- | ----
|7.C                                                                                           | INTEREST OF
      EXPERTS AND COUNSEL                         | 40  
|ITEM 8. FINANCIAL INFORMATION                                                                 | 40                                                           
|8.A                                                                                           | CONSOLIDATED
      STATEMENTS AND OTHER FINANCIAL INFORMATION | 40  
|8.B                                                                                           | SIGNIFICANT CHANGES                                           | 40  
|ITEM 9. THE
      OFFER AND LISTING                                                           | 41                                                           
|9.A                                                                                           | PRICING HISTORY                                               | 41  
|9.B                                                                                           | PLAN OF
      DISTRIBUTION                                    | 41  
|9.C                                                                                           | MARKET                                                        | 42  
|9.D                                                                                           | SELLING
      SHAREHOLDERS                                    | 42  
|9.E                                                                                           | DILUTION                                                      | 42  
|9.F                                                                                           | EXPENSES OF
      THE ISSUE                                   | 42  
|ITEM 10. ADDITIONAL INFORMATION                                                               | 42                                                           
|10.A                                                                                          | SHARE
      CAPITAL                                           | 42  
|10.B                                                                                          | ARTICLES OF AMALGAMATION                                      | 42  
|10.C                                                                                          | MATERIAL
      CONTRACTS                                      | 43  
|10.D                                                                                          | EXCHANGE CONTROLS                                             | 43  
|10.E                                                                                          | TAXATION                                                      | 44  
|10.F                                                                                          | DIVIDENDS AND PAYING AGENTS                                   | 44  
|10.G                                                                                          | STATEMENT BY
      EXPERTS                                    | 44  
|10.H                                                                                          | DOCUMENTS ON DISPLAY                                          | 44  
|10.I                                                                                          | SUBSIDIARY
      INFORMATION                                  | 44  
|ITEM 11. QUANTITATIVE AND
      QUALITATIVE DISCLOSURES ABOUT NON-PRODUCT RELATED MARKET RISK | 45                                                           
|ITEM 12.
      DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                         | 45                                                           
|PART II                                                                                       |                                                               | 46  
|ITEM 13.
      DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                                | 46                                                           

-ii-

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TABLE OF CONTENTS (continued)

|                                                                                            |                                                                             | Page
|------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | ----
|ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY
      HOLDERS AND USE OF PROCEEDS | 46                                                                         
|ITEM 15. CONTROLS AND PROCEDURES                                                            | 46                                                                         
|ITEM 16. AUDIT
      COMMITTEE FINANCIAL EXPERTS                                            | 47                                                                         
|16.A                                                                                        | AUDIT COMMITTEE FINANCIAL
      EXPERTS                                     | 47  
|16.B                                                                                        | CODE OF
      ETHICS                                                        | 49  
|16.C                                                                                        | PRINCIPAL ACCOUNTANT FEES
      AND SERVICES                                | 49  
|16.D                                                                                        | EXEMPTIONS
      FROM THE LISTING STANDARDS FOR AUDIT COMMITTEE             | 50  
|16.E                                                                                        | PURCHASES OF EQUITY
      SECURITIES BY THE ISSUER AND AFFILIATED PURCHASER | 50  
|16.F                                                                                        | CHANGE IN
      REGISTRANTS CERTIFYING ACCOUNTANT                          | 50  
|16.G                                                                                        | CORPORATE GOVERNANCE                                                        | 50  
|16.H                                                                                        | MINE SAFETY
      DISCLOSURES                                               | 50  
|PART III                                                                                    |                                                                             | 51  
|ITEM 17.
      FINANCIAL STATEMENTS                                                         | 51                                                                         
|ITEM 18. FINANCIAL STATEMENTS                                                               | 51                                                                         
|ITEM 19.
      EXHIBITS                                                                     | 51                                                                         
|SIGNATURE                                                                                   |                                                                             | 52  

-iii-

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INTRODUCTION AND USE OF CERTAIN TERMS

Unless otherwise specified, information provided in this annual
report on Form 20-F (this Form 20-F) is as of December 31, 2014.

Unless the context requires otherwise, when used in this annual
report on Form 20-F, the terms Chelsea, we, us our and the Company
refer to Chelsea Oil and Gas Ltd. All dollar amounts contained in this Form 20-F
are expressed in U.S. dollars and references to dollars, $, US$ or USD
are to U.S. dollars, and all references to A$ or AUD are to Australian
dollars and C$ are to Canadian dollars. In addition, unless the context
suggests otherwise, references to:

| |  | ABCA means the Business Corporations Act(Alberta), as amended or re-enacted, including the regulations
      promulgated thereunder;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | ACOR means Australian-Canadian Oil Royalties
      Ltd., a predecessor of Chelsea;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | AIF means the Annual Information Form including
      the appendices hereto filed by Chelsea for the year ended December 31,
      2014 pursuant to Canadian National Instrument (NI) 51- 105;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | AGM means the Annual General Meeting of the
      Corporation held on January 13, 2013;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | Arrangement means the plan of arrangement under
      the provisions of Section 288 of the BCBA between Chelsea and ITME on the
      terms and conditions set forth in the Arrangement Agreement;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | Arrangement Agreement means the arrangement
      agreement dated May 28, 2013 between ITME and Chelsea in respect of the
      Arrangement;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | ATP means Authority to Prospect, an ATP is a
      concession granted by the State of Queensland, Australia, which entitles
      its holders to an exclusive right to explore for oil and natural gas in
      Queensland in the particular area covered by the ATP. Each ATP has an
      initial term of four years. The area covered by an ATP is reduced by
      relinquishment of approximately one-fourth of the area at the start of the
      third year of its effectiveness and an additional one-fourth of the
      original area at the start of the fourth year of its effectiveness. The
      area to be relinquished is chosen by the holder of the ATP. An ATP will
      require some kind of geological and/or geophysical operations, such as new
      seismic or seismic interpretation, drilling or other operations during the
      term of the tenure. The amount of work to be performed depends upon the
      expenditures required for each specific year of the tenure. Holders are
      only required to expend those amounts as set out in the original
      concession document. Applications for renewal may be filed at the time of
      expiration of an ATP;
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | ATP 582 means Authority to Prospect number 582,
      issued pursuant to section 84 of the Petroleum and Gas (Production and
      Safety) Act 2004;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | BCBCA means the Business Corporations Act(British Columbia), as amended or re- enacted, including the
      regulations promulgated thereunder;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | BCSC has the meaning ascribed under Directors
      and Senior Management; Cease Trade Ordersin this Form 20-F;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | Board of Directors means the board of directors
      of Chelsea, as constituted from time to time, and where the context
      requires, includes any duly constituted committee thereof;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

- 1 -

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| |  | Bowen Basin means a foreland basin in eastern
      Queensland of Early Permian to Middle Triassic age sediments. It occupies
      about 160,000km2, the southern half of which is covered by the
      Surat Basin;                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                               
| |  | Brokered Private Placement means the proposed
      brokered private placement of Common Shares and convertible common equity
      led by RiverRock;                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                               
| |  | Central means Central Petroleum Ltd.;                                                                                                                                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                               
| |  | CFI means Carbon Farming Initiative;                                                                                                                                                                                                                                                                                                                        
| |   |                                                                                                                                                                                                                                                                                                                                                               
| |  | Chapman means Chapman Petroleum Engineering
      Ltd., engaged by Chelsea to complete a NI 51-101 reserve report on the
      Louise gas field on PL 40 in the Surat Basin;                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                               
| |  | COGE Handbook means the Canadian Oil and Gas
      Evaluation Handbook prepared jointly by the Society of Petroleum
      Evaluation Engineers (Calgary Chapter) and the Canadian Institute of
      Mining, Metallurgy & Petroleum (Petroleum Society), as amended from
      time to time;                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                               
| |  | Common Shares or Chelsea Common Shares
      means the common shares in the capital of the Corporation;                                                                                                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                                               
| |  | Computershare means Computershare Trust Company
      of Canada, the registrar and transfer agent for the Common Shares;                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                               
| |  | Cooper Basin means the sedimentary geological
      basin of Triassic age covering 130,000 km2in the north east
      part of South Australia and in the south west part of Queensland;                                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                                                                               
| |  | Corporation or Chelsea means Chelsea
      Oil and Gas Ltd., including where the context requires, its predecessors;                                                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                               
| |  | CSG has the meaning ascribed under Industry
      Overview; Availability of Servicesin this Form 20-F;                                                                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                               
| |  | DPIIP means Discovered Petroleum Initially In
      Place, the quantity of petroleum which is estimated, on a given date, to
      be contained in known accumulations, plus those quantities already
      produced therefrom. If the hydrocarbon is oil, it may be referred to as
      OOIP and if the hydrocarbon is gas, it may be referred to as OGIP;
| |   |                                                                                                                                                                                                                                                                                                                                                               
| |  | EA means Environmental Authority;                                                                                                                                                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                               
| |  | Earning Obligations has the meaning ascribed
      under Information of the Company; Three Year History and
      Development of Chelseain this Form 20-F;                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                               
| |  | Farm-Out has the meaning ascribed under
      Information of the Company; Three Year History and Development
      of Chelseain this Form 20-F;                                                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                               
| |  | Farm-Out Interest has the meaning ascribed under
      Property, Plant and Equipmentin this Form 20-F;                                                                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                               
| |  | Georgina Basin means the intracratonic
      sedimentary basin in central and northern Australia, lying within the
      Northern Territory and within Queensland and South Georgina Basin means
      the southerly portion of the Georgina Basin;                                                                                                       

- 2 -

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| |  | IFRSmeans International Financial Reporting
      Standards as issued by the International Accounting Standard Board;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | ITME means International TME Resources Inc.;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Heritage Act has the meaning ascribed under
      Industry Overview; Aboriginal Heritagein this Form 20-F;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | FIRB has the meaning ascribed under Industry
      Overview; Foreign Acquisitions in Australia in this Form 20-F;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | FIRB Approval has the meaning ascribed under
      Industry Overview; Acquiring Sharesin this Form 20-F;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | MI 51-105 has the meaning ascribed under
      Operating and Financial Review and Prospects in this Form 20-F;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Native Title means agreements signed pursuant to
      the Native Title Act 1993 which recognizes that the indigenous people of
      Australia continue to hold rights and interests in relation to certain
      lands and water;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Native Title Act means the Native Title Act
      1933(Cwth), as amended;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | NGL means Natural Gas Liquids, those hydrocarbon
      components that can be recovered from natural gas as liquids, including
      but not limited to ethane, propane, butanes, pentanes plus condensate, and
      small quantities of non-hydrocarbons;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | NI 51-101 means Canadian National Instrument
      51-101 - Standards of Disclosure for Oil and Gas Activities;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | NI 52-110 has the meaning ascribed under
      Audit Committeein this Form 20-F;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Non-Brokered Private Placement means the private
      placement of 5,473,385 subscription receipts of the Corporation issued at
      a price of $0.35 per subscription receipt which closed in January, 2012,
      and which subscription receipts were converted into 5,473,385 Common
      Shares on February 29, 2012;                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Options means stock options to purchase Common
      Shares issued pursuant to the Corporations stock option plan;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Overriding Royaltyor ORRI means
      Overriding Royalty Interest, an interest assigned out of the lessees
      leasehold or Working Interest. The amounts payable from Overriding Royalty
      Interests are payments calculated as a percentage of either Gross
      Production or the gross revenues of the Working Interest (based on the
      wellhead price) from a concession or lease, usually free and clear of all
      exploration, drilling and development and production costs, except for any
      applicable taxes and federal levies. In calculating the wellhead price,
      pipeline and trucking costs have already been deducted from the refinery
      price. The overriding royalties discussed herein are generally expressed
      as a percent of the Gross Production;
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | OTCQB has the meaning ascribed under The
      Offer and Listing; Pricing Historyin this Form 20-F;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Petroleum Act means the Petroleum Act 1923(QLD);                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

- 3 -

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| |  | PEL means Petroleum Exploration License, an
      exclusive oil and gas Exploration Permit issued by the South Australian
      Department of Primary Industries and Resource in the State of South
      Australia, Australia. The initial term of the tenure is for a five (5)
      year period;                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                               
| |  | PL means Petroleum Lease, a lease granted by the
      State of Queensland, Australia under the Petroleum Act and includes any
      variation, renewal, permit, license or other interest issued in
      substitution thereof and any other petroleum tenure or rights to explore
      for or produce Petroleum Substances;                                              
| |   |                                                                                                                                                                                                                                                                                                                                                                               
| |  | PRRT has the meaning ascribed under Industry
      Overview; Land Tenure and Royaltiesin this Form 20-F;                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                               
| |  | PVIL has the meaning ascribed under Directors
      and Senior Management; Bankruptciesin this Form 20-F;                                                                                                                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                                                               
| |  | RiverRock means RiverRock Securities Limited, a
      UK broker and advisor having its principal place of business at 3rd Floor,
      Grosvenor Gardens, London SW1W 0DH, United Kingdom;                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                               
| |  | Ryder Scott means Ryder Scott Company, engaged
      by Chelsea to complete a NI 51-101 resource report on ATP 582 in the
      Georgina Basin;                                                                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                               
| |  | Santos means Santos Ltd. an Australian oil
      company;                                                                                                                                                                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                                                               
| |  | Simpson Basin means the intracratonic early to
      middle Triassic basin occupying 100,000km2of northern South
      Australia, south east Northern Territory and south west Queensland;                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                               
| |  | Sproule means Sproule International Limited,
      engaged by Chelsea to complete a NI 51-101 reserve report on PL 18 and 280
      oil fields in the Surat Basin;                                                                                                                                                                                                          
| |   |                                                                                                                                                                                                                                                                                                                                                                               
| |  | Statoil means Statoil ASA;                                                                                                                                                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                               
| |  | Surat Basin means the intracratonic early
      Jurassic to Cretaceous basin occupying 300,000km2of central
      southern Queensland and central northern New South Wales;                                                                                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                                                                                               
| |  | Surat-Bowen Basin means the combination of
      Permian and Triassic age sediments of the deeper Bowen Basin, overlain by
      the Jurassic and Cretaceous strata of the Surat Basin. Because intervals
      of both sequences are prospective and have produced in close or even
      over-lying proximity, Operators tend to use the two names
      inter-changeably;
| |   |                                                                                                                                                                                                                                                                                                                                                                               
| |  | Section 31 Deed means the right to negotiate
      deed of agreement regarding the addition of excluded land into an ATP
      under Section 31(1)(b) of the Native Title Act 1993 (Cth);                                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                                                               
| |  | Total means Total S.A;                                                                                                                                                                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                                               
| |  | Terra Nova means Terra Nova Energy Ltd.,
      operator of PEL 112 and PEL 444;                                                                                                                                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                               
| |  | US GAAP means United States Generally Accepted
      Accounting Principles;                                                                                                                                                                                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                                                                                               
| |  | Warrant means one Common Share purchase warrant
      of the Corporation; and                                                                                                                                                                                                                                                                                               

- 4 -

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
    Working Interest or WImeans all or a
      fractional part of the ownership rights granted by a concession or lease.
      The owner of a Working Interest or a part thereof pays all costs of
      exploration and is entitled to the Gross Production, less royalties
      retained by the grantor or lessor, and less Overriding Royalty Interests
      or other non-operating interests created or assigned from the Working
      Interest. The owner of a Working Interest may incur operating expenses in
      excess of income.


- 5 -

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FORWARD-LOOKING STATEMENTS

Statements made in this Form 20-F that are not historical or
current facts are forward looking statements made pursuant to the safe harbor
provisions of Section 27A of the Securities Act of 1933, as amended (the
Act), and Section 21E of the Securities Exchange Act of 1934, as
amended. These statements often can be identified by the use of terms such as
may, will, expect, believe, anticipate, estimate, approximate, or
continue, or the negative thereof. We intend that such forward-looking
statements be subject to the safe harbors for such statements. We wish to
caution readers not to place undue reliance on any such forward-looking
statements, which speak only as of the date made. Any forward-looking statements
represent managements best judgment as to what may occur in the future.
However, forward-looking statements are subject to risks, uncertainties and
important factors beyond our control that could cause actual results and events
to differ materially from historical results of operations and events and those
presently anticipated or projected. We disclaim any obligation subsequently to
revise any forward-looking statements to reflect events or circumstances after
the date of such statement or to reflect the occurrence of anticipated or
unanticipated events. See Item 3.D Risk Factors for additional information
relating to our risk factors.

- 6 -

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PART I

|**ITEM 1.** | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
      ADVISERS
|----------- | -----------------------------------------------------------

Not applicable.

|**ITEM 2.** | OFFER STATISTICS AND EXPECTED TIMETABLE
|----------- | ---------------------------------------

Not applicable.

|**ITEM 3.** | KEY INFORMATION
|----------- | ---------------

|3. **A** | SELECTED FINANCIAL DATA
|-------- | -----------------------

The following table presents financial data for Chelsea as of
and for the periods indicated:

|                                          |   | As of December
      31, | 
|----------------------------------------- | - | ------------------------ | 
|                                          |   | 2014                     | 
|                                          |   | IFRS                     | 
|Total assets                              | $ | 12,305,046               | 
|Current liabilities                       | $ | 4,310,779                | 
|Shareholders equity                      | $ | 7,603,365                | 
|Weighted-average
      shares outstanding |   | 56,027,645               | 

|                                       |   | For the Year Ended
      December 31, |  
|-------------------------------------- | - | ------------------------------------- | -
|                                       |   | 2014                                  |  
|                                       |   | IFRS                                  |  
|Revenue                                | $ | 361,394                               |  
|Net loss for the year                  | $ | 335,221                               |  
|Basic and diluted loss
      per share | $ | (0.01                                 | )

|3. **B** | CAPITALIZATION AND
INDEBTEDNESS
|-------- | -------------------------------

Not applicable.

|3. **C** | REASONS FOR THE OFFER AND USE OF
  PROCEEDS
|-------- | -------------------------------------------

Not applicable.

|3. **D** | RISK FACTORS
|-------- | ------------

Overview

You should carefully consider the following factors in addition
to the other information set forth in this Form 20-F. If any of the following
risks actually occur, our business, financial condition and results of
operations and the value of our shareholders common shares would likely suffer.

The Companys primary business consists of the exploration and,
if successful, the development of oil and gas properties. There are a number of
inherent risks associated with the exploration, development and production of
oil and gas reserves, many of these risks are beyond the control of the Company.

Success in the junior oil and gas sector is measured by a
companys ability to raise funds and the ability to secure properties of merit.
Not all of these factors are within managements control. The ability to raise
funds is in part dependent on the state of the junior resource stock market,
which in turn is dependent on the economic climate, oil and gas prices and
perceptions as to which way the market is headed. The ability to secure
properties of merit is in large part dependent on managements contacts and the
vitality of the sector.

- 7 -

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The risks and uncertainties below are not the only issues
facing Chelsea. Additional risks and uncertainties not presently known to
Chelsea or that Chelsea currently considers immaterial may also impair the
business and operations of Chelsea and cause the price of the Chelsea Common
Shares to decline.

Exploration,
Development and Production Risks

Oil and natural gas operations involve many risks that even a
combination of experience, knowledge and careful evaluation may not be able to
overcome. The long-term commercial success of Chelsea depends on its ability to
find, acquire, develop and commercially produce oil and natural gas reserves.
The future value of Chelsea is therefore dependent on the success of Chelseas
activities, which are principally directed toward the exploration, appraisal and
development of its properties in Australia. Exploration, appraisal and
development of oil and natural gas properties is highly speculative and involves
a significant degree of risk. Without the continual addition of new reserves,
any existing reserves that Chelsea may discover or acquire at any particular
time and the production therefrom will decline over time as such existing
reserves are exploited. Any discovery of or future increase in Chelseas
reserves will depend not only on its ability to explore and develop any
properties it may have from time to time, but also on its ability to select and
acquire suitable producing properties or prospects. No assurance can be given
that Chelsea will be able to continue to locate satisfactory properties for
acquisition or participation. Moreover, if such acquisitions or participations
are identified, Chelsea may determine that current markets, terms of acquisition
and participation or pricing conditions make such acquisitions or participations
uneconomical. There is no assurance that commercial quantities of oil and
natural gas will be discovered or acquired by Chelsea.

Oil and natural gas exploration may involve unprofitable
efforts, not only from dry wells, but from wells that are productive but do not
produce sufficient revenues to return a profit after drilling, operating and
other costs. Completion of a well does not assure a profit on the investment or
recovery of drilling, completion and operating costs. In addition, fixing
drilling hazards or environmental damage caused by operations could greatly
increase the cost of those operations, and various field operating conditions
may adversely affect the production from successful wells. These conditions
include delays in obtaining governmental and other approvals or consents,
insufficient storage or transportation capacity or other geological and
mechanical conditions. While diligent well supervision and effective maintenance
operations can contribute to maximizing production rates over time, production
delays and declines from normal field operating conditions cannot be eliminated
and can be expected to adversely affect revenue and cash flow levels to varying
degrees.

Additional Funding
Requirements

Chelsea will have limited financial resources and limited cash
flow from operations, and therefore will likely require additional financing in
order to carry out its oil and natural gas exploration, acquisition and
development activities. There can be no assurance that additional funding will
be available, or available under terms favourable to Chelsea. Failure to obtain
such financing on a timely basis could cause Chelsea to have limited ability to
expend the capital necessary to undertake or complete future drilling programs,
forfeit its interest in certain properties, miss certain acquisition
opportunities and reduce or terminate its operations. There can be no assurance
that debt or equity financing or cash generated by operations will be available
or sufficient to meet these requirements or for other corporate purposes or, if
debt or equity financing is available, that it will be on terms acceptable to
Chelsea. Moreover, future activities may require Chelsea to alter its
capitalization significantly. Financing by issuing additional securities from
the Chelseas treasury may result in a change of control of Chelsea and dilution
to holders of Chelsea Shares.

History of Losses

Chelsea has historically incurred losses from operations. There
can be no assurance that Chelsea will achieve profitability in the future. In
addition, should Chelsea be unable to continue as a going concern, realization
of assets and settlement of liabilities other than in the normal course of
business may be at amounts significantly different from those in the financial
statements.

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Investment Risks

Revenues may not occur for some time, if at all. The timing and
extent of these is variable and uncertain and accordingly the Corporation is
unable to predict when, if at all, profitability will be achieved. An investment
in the Common Shares is highly speculative and should only be made by persons
who can afford a significant or total loss of their investment.

Commodity Prices

Chelseas future revenue, profitability, growth and the
carrying value of its oil and natural gas properties will be substantially
dependent on prevailing prices of oil and natural gas. Chelseas ability to
borrow and to obtain additional capital on attractive terms will also be
substantially dependent upon oil and natural gas prices. Prices for oil and
natural gas are subject to large fluctuations in response to relatively minor
changes in the supply of and demand for oil and natural gas, market uncertainty
and a variety of additional factors beyond the control of Chelsea. These factors
include economic conditions in Australia and elsewhere in the world, the actions
of the Organization of the Petroleum Exporting Countries (OPEC),
governmental regulation, political stability in the Middle East and elsewhere,
the foreign supply of oil and natural gas, the price of foreign imports and the
availability of alternative fuel sources. Any substantial and extended decline
in the price of oil and natural gas could have an adverse effect in the future
on Chelseas carrying value of its proved reserves, borrowing capacity,
revenues, profitability and cash flows from operations, as applicable. There can
be no assurance that recent commodity prices will be sustained if and when
Chelsea commences production or over the life of the Chelseas operations. There
is risk that commodity prices may decline in the future, although it is not
possible to predict the time or extent of such decline.

Early Stage of
Development, Limited Operating and Earnings History

Chelseas business plan requires significant expenditure,
particularly capital expenditure, in its oil and gas exploration phase. Any
future profitability from Chelseas business will be dependent upon the
successful exploration and development of its petroleum properties, and there
can be no assurance that Chelsea will achieve profitability in the future.
Revenues may not occur for some time, if at all. The timing and extent of these
is variable and uncertain and accordingly Chelsea is unable to predict when, if
at all, profitability will be achieved.

Ability to Execute
Exploration and Development Program

It may not always be possible for Chelsea to execute its
exploration and development strategies in the manner in which Chelsea considers
optimal. Chelseas exploration and development programs in onshore Australia
involve the need to obtain approvals from the relevant authorities, which may
require conditions to be satisfied or the exercise of discretion by the relevant
authorities. It may not be possible for such conditions to be satisfied.

Operational Experience

The management and directors of Chelsea have significant
international experience in the oil and gas industry; however, given the fact
that the team was constituted recently, the team has, as a group, limited direct
experience operating in onshore Australia, aside from its consultants and
advisors.

Assessments of Value
of Acquisitions

Acquisitions of oil and natural gas issuers and oil and natural
gas assets are typically based on engineering and economic assessments made by
independent engineers and Chelseas own assessments. These assessments will
include a series of assumptions regarding such factors as recoverability and
marketability of oil and natural gas, future prices of oil and natural gas and
operating costs, future capital expenditures and royalties and other government
levies which will be imposed over the producing life of the reserves. Many of
these factors are subject to change and are beyond Chelseas control. In
particular, the prices of, and markets for, oil and natural gas products may
change from those anticipated at the time of making such assessment. In
addition, all such assessments involve a measure of geologic and engineering
uncertainty which could result in lower production and reserves than
anticipated. Initial assessments of acquisitions may be based on reports by a
firm of independent engineers that are not the same as the firm that Chelsea may
use for its year-end reserve evaluations. Because each of these firms may have
different evaluation methods and approaches, these initial assessments may
differ significantly from the assessments of the firm used by Chelsea. Any such
instance may offset the return on and value of the securities of Chelsea.

- 9 -

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Availability of
Drilling Equipment

Oil and natural gas exploration and development activities are
dependent on the availability of drilling and related equipment in the
particular areas where such activities will be conducted. Demand for such
limited equipment or access restrictions may affect the availability of such
equipment to Chelsea and may delay exploration and development activities.
Recent industry conditions have led to shortages of drilling equipment in
certain areas. To the extent that Chelsea is not the operator of its oil and gas
properties, Chelsea will be dependent on such operators for the timing of
activities related to such properties and will be largely unable to direct or
control the activities of the operators.

Cash Outflow Used In
Operations

The inability of Chelsea to generate positive operating cash
inflow in the future could have a material adverse impact on Chelseas business,
financial condition, results of operations and prospects.

Project Risks

Chelsea will manage a variety of projects in the conduct of its
business. Project delays may delay expected revenues from operations.
Significant project cost over runs could make a project uneconomic. Chelseas
ability to execute projects and market oil and natural gas depends upon numerous
factors beyond Chelseas control, including:

| | the effects of inclement weather;                                                           
|- | --------------------------------------------------------------------------------------------
|  |                                                                                             
| | the availability of drilling and related
      equipment;                                   
|  |                                                                                             
| | unexpected cost increases;                                                                  
|  |                                                                                             
| | accidental events;                                                                          
|  |                                                                                             
| | currency fluctuations;                                                                      
|  |                                                                                             
| | changes in regulations;                                                                     
|  |                                                                                             
| | the availability and productivity of skilled
      labour; and                              
|  |                                                                                             
| | the regulation of the oil and natural gas
      industry by various levels of government and
|  |                                                                                             
| | governmental agencies.                                                                      

Because of these factors, Chelsea could be unable to execute
projects on time, on budget or at all.

Access to
Infrastructure

Chelseas ability to market production from any potential oil
and natural gas discoveries may depend on its ability to secure transportation.
Chelsea may also be affected by deliverability uncertainties related to the
proximity of its potential production to pipelines and processing facilities and
operational problems affecting such pipelines and facilities.

- 10 -

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Delays in Business
Operations

In addition to the usual delays in payments by purchasers of
oil and natural gas to Chelsea or to the operators, and the delays by operators
in remitting payment to Chelsea, payments between these parties may be delayed
due to restrictions imposed by lenders, accounting delays, delays in the sale or
delivery of products, delays in the connection of wells to a gathering system,
adjustment for prior periods, or recovery by the operator of expenses incurred
in the operation of the properties. Any of these delays could reduce the amount
of cash flow available for the business of Chelsea in a given period and expose
Chelsea to additional third party credit risks.

Hedging

From time to time, Chelsea may enter into agreements to receive
fixed prices on any future oil and natural gas production to offset the risk of
revenue losses if commodity prices decline; however, if commodity prices
increase beyond the levels set in such agreements, Chelsea would not benefit
from such increases. Similarly, from time to time, Chelsea may enter into
agreements to fix the exchange rate of various currencies used in its business
in order to offset the risk of revenue or cost related losses in the event of
currency fluctuations. There is no certainty that any such currency hedges which
may be entered into will benefit Chelsea.

Expiration of Permits,
Applications and Authorities

Chelseas properties are and will continue to be held in the
form of permits, applications, authorities and Working Interests in permits,
applications and authorities. If Chelsea or the holder of the permits,
applications and authorities fails to meet the specific requirement of the
permits, applications or authorities (including any requirements as to their
renewal where renewal is available), the permits, applications or authorities
may terminate or expire. There can be no assurance that the obligations required
to maintain each of the permits, applications and authorities will be met. The
termination or expiration of Chelseas permits, applications and authorities or
the Working Interests relating to the permits, applications and authorities
could have a material adverse effect on Chelseas business, financial condition,
results of operations and prospects.

Operational Dependence

In the future other companies may operate some of the assets in
which Chelsea has an interest. As a result, Chelsea may have limited ability to
exercise influence over the operation of such assets or their associated costs,
which could have a material adverse effect on Chelseas business, financial
condition, results of operations and prospects. Therefore, Chelseas return on
the assets operated by others will depend upon a number of factors that may be
outside of Chelseas control, including the timing and amount of capital
expenditures, the operators expertise and financial resources, the approval of
other participants, the selection of technology and risk management practices.

Markets and Marketing

The marketability and price of oil and natural gas that may be
discovered or acquired by Chelsea will be affected by numerous factors beyond
its control. Chelseas ability to market oil and natural gas in the future, may
depend upon its ability to acquire space on pipelines that deliver natural gas
to commercial markets including availability of processing and refining
facilities and transportation infrastructure, including access to facilities,
pipelines and pipeline capacity and economic tariff rates over which Chelsea may
have limited or no control. Chelsea may also be affected by deliverability
uncertainties related to the proximity of its reserves to pipelines and
processing facilities, and related to operational and maintenance problems with
such pipelines and facilities as well as extensive government regulation
relating to price, taxes, royalties, land tenure, allowable production, the
export of oil and natural gas and many other aspects of the oil and natural gas
business. Any delay or failure to acquire access to, or improper operation or
maintenance of, such pipelines and facilities could have a material adverse
effect on Chelseas business, financial condition, results of operations and
prospects.

Competition

Oil and gas exploration is intensely competitive in all phases
and involves a high degree of risk. Chelsea competes with numerous other
participants in the search for, and the acquisition of, oil and natural gas
properties.

- 11 -

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Chelseas competitors include oil and natural gas companies
that have substantially greater financial resources, staff and facilities than
those of Chelsea. Currently Chelsea is insulated from competition on the lands
which it currently holds due to the nature of the proprietary exploration rights
granted by the governing bodies under the various licenses and permits, however
Chelsea may face competition on surrounding lands if it seeks to increase its
land position to acquire other prospective properties. Chelsea may also face
competition from competitors on lands which it currently holds a license or
permit for in the event that, as a condition of the license or permit, it is
required to partially relinquish certain of the lands. In this circumstance, if
Chelsea elects to re-apply for such permits or licenses, there are no assurances
that Chelsea will be successful. Chelseas ability to add reserves in the future
will depend not only on its ability to explore and develop its present
properties, but also on its ability to select and acquire suitable producing
properties or prospects for exploratory drilling. Competitive factors in the
distribution and marketing of oil and natural gas include price and methods and
reliability of delivery. Competition may also be presented by alternate fuel
sources.

Reliance on Key
Personnel

Chelseas success will depend in large measure on the
performance of its management and other key personnel. The loss of the services
of any of such persons could have a material adverse affect on the Chelseas
business, financial condition, results of operations and prospects. Chelsea does
not have key person insurance in effect for management. The contributions of
these individuals to the immediate operations of Chelsea are likely to be of
central importance. In addition, the competition for qualified personnel in the
oil and natural gas industry is intense and there can be no assurance that
Chelsea will be able to continue to attract and retain all personnel necessary
for the development and operation of its business. Investors must rely upon the
ability, expertise, judgment, discretion, integrity and good faith of the
management of Chelsea.

Estimate of Resources

The Corporations historical resource estimates, available in
the Corporations disclosure documents filed on SEDAR and on EDGAR, have been
classified as undiscovered petroleum initially in place and prospective
resources. Any such resource estimates are estimates only. There is no certainty
that any portion of the resources will be discovered. If discovered, there is no
certainty that it will be commercially viable to produce any portion of the
resources. Readers are cautioned that the volumes presented are estimates only
and should not be construed as being exact quantities. Chelseas proposed
drilling and seismic program must be considered as a high risk exploration play.

Estimate of Fair
Market Value

There are numerous uncertainties inherent in an estimate of
fair market value including many factors beyond the Corporations control. The
valuations herein represent estimates only. In general, estimates are based upon
a number of variable factors and assumptions, such as engineering and
geophysical information pertaining to hydrocarbon potential, current material
contracts of the Corporation, production history of competitors on similar land
positions, access to lands, availability, timing and amount of capital
expenditures, marketability of oil and natural gas, royalty rates, the assumed
effects of regulation by governmental agencies, and future operating costs, all
of which may vary from actual results. All such estimates are to some degree
speculative, and are only attempts to define the degree of speculation involved.

Third Party Credit
Risk

Chelsea is or may be exposed to third party credit risk through
its contractual arrangements with its current or future joint venture partners,
marketers of its petroleum and natural gas production and other parties. In the
event such entities fail to meet their contractual obligations to Chelsea, such
failures could have a material adverse effect on Chelseas business, financial
condition, results of operations and prospects.

Management of Growth

Chelsea may be subject to growth-related risks including
capacity constraints and pressure on its internal systems and controls. The
ability of Chelsea to manage growth effectively will require it to continue to
implement and improve its operational and financial systems and to expand, train
and manage its employee base. The inability of Chelsea to deal with this growth
could have a material adverse effect on Chelseas business, financial condition,
results of operations and prospects.

- 12 -

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Market Price of the
Corporation s Securities

The trading price of securities of oil and natural gas
companies is subject to substantial volatility, and such trading prices have
been particularly volatile in recent months. This volatility is often based on
factors both related and unrelated to the financial performance or prospects of
the companies involved. The market price of the Common Shares could be subject
to significant fluctuations in response to variations in Chelseas operating
results, financial condition, liquidity and other internal factors. Factors that
could affect the market price of the Common Shares that are unrelated to
Chelseas performance include domestic and global commodity prices and market
perceptions of the attractiveness of particular industries. The price at which
the Common Shares will trade cannot be accurately predicted.

Insurance

Oil and natural gas exploration, development and production
operations are subject to all the risks and hazards typically associated with
such operations, including hazards such as fire, explosion, blowouts, cratering,
sour gas releases and spills, each of which could result in substantial damage
to oil and natural gas wells, production facilities, other property and the
environment or in personal injury. In accordance with industry practice, Chelsea
is not fully insured against all of these risks, nor are all such risks
insurable. Prior to drilling, Chelsea will obtain insurance in accordance with
industry standards to address certain of these risks. However, such insurance
has limitations on liability that may not be sufficient to cover the full extent
of such liabilities. In addition, such risks may not be insurable in all
circumstances or, in certain circumstances, Chelsea may elect not to obtain
insurance to deal with specific risks due to the high premiums associated with
such insurance or other reasons. The payment of any such uninsured liabilities
would reduce the funds available to Chelsea. The occurrence of a significant
event that Chelsea is not fully insured against, or the insolvency of the
insurer of such event, could have a material adverse effect on Chelseas
business, financial condition, results of operations and prospects.

Dividends

Chelsea has not paid any dividends on the Common Shares and it
is not anticipated that Chelsea will pay any dividends on the Common Shares for
the foreseeable future.

Conflicts of Interest

The directors or officers of Chelsea may also be directors or
officers of other oil and gas companies or otherwise involved in natural
resource exploration and development and situations may arise where they are in
a conflict of interest with Chelsea. Conflicts of interest, if any, which arise
will be subject to and governed by procedures prescribed by the ABCA which
require a director or officer of a company who is a party to, or is a director
or an officer of, or has some material interest in any person who is a party to,
a material contract or proposed material contract with Chelsea to disclose his
or her interest and, in the case of directors, to refrain from voting on any
matter in respect of such contract unless otherwise permitted under the ABCA.

Title to Properties

Title to oil and natural gas interests is often not capable of
conclusive determination without incurring substantial expense. Although title
reviews will be done according to industry standards prior to the purchase of
most oil and natural gas producing properties or the commencement of drilling
wells, such reviews do not guarantee or certify that an unforeseen defect in the
chain of title will not arise to defeat the claim of Chelsea. To the extent
title defects do exist, it is possible Chelsea may lose all or a portion of its
right, title, estate and interest in and to the properties to which the title
relates.

Issuance of Debt

From time to time, Chelsea may enter into transactions to
acquire assets or the shares of other corporations. These transactions may be
financed partially or wholly with debt, which may increase Chelseas debt levels
above industry standards. Depending on future exploration and development plans,
Chelsea may require additional equity and/or debt financing that may not be
available or, if available, may not be available on favourable terms. Neither
Chelseas articles nor its by-laws limit the amount of indebtedness that Chelsea
may incur. The level of Chelseas indebtedness from time to time could impair
Chelseas ability to obtain additional financing in the future on a timely basis
to take advantage of business opportunities that may arise. If Chelsea becomes
unable to pay its debt service charges or otherwise commits an event of default,
such as bankruptcy, lenders may foreclose on or sell Chelseas properties.

- 13 -

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Currency

Many of the operational, capital and other expenses incurred by
Chelsea are paid in Australian dollars or US dollars. If Chelsea achieves
commercial production, the revenue from its products will likely be denominated
in US dollars or Australian dollars. The assets and liabilities of Chelsea are
recorded in Canadian dollars. As a result, fluctuations in the Australian
dollars or the US dollars against the Canadian dollar could result in
unanticipated and material fluctuations in the financial results of Chelsea.
Chelsea does not currently use derivative instruments to hedge exposure to
foreign exchange risks.

Dilution

Chelsea may make future acquisitions or enter into financing or
other transactions involving the issuance of securities of Chelsea which may be
dilutive to existing securityholders.

Regulatory

Oil and natural gas operations (exploration, production,
pricing, marketing and transportation) are subject to extensive controls and
regulations imposed by various levels of government that may be amended from
time to time. Chelseas operations require licenses and permits from various
governmental authorities. There can be no assurance that Chelsea will be able to
obtain all necessary licenses and permits that may be required to carry out
exploration and development of its projects.

In Australia, while government policies and regulations in
relation to exploration, production and marketing are similar in many respects,
they ultimately vary between different states and between different governing
bodies. Chelseas activities will require compliance with various laws, both
state and those of the Commonwealth of Australia, relating to, among other
things, the protection of the environment, Aboriginal cultural heritage, native
title rights, the protection of workers and the public. Changes in government,
government policies and legislation could have a material adverse effect on
Chelseas business, financial condition, results of operations and prospects.

In particular, in order to pursue its exploration programs in
Australia, Chelsea may require approval from government and non-government
bodies to facilitate access to any blocks and tenements in which it has an
interest. Any tenements residing within reserves, including national parks and
conservation reserves, which are subject to state and Commonwealth legislation
could be subject to a change in legislation that could have a material adverse
effect on Chelseas business, financial condition, results of operations and
prospects. In addition, any tenements residing in areas which are subject to
government policies regarding national defence or of any other particular
national interest to Australia may be subject to access requirements that could
result in a material adverse effect on Chelsea if they are particularly onerous
to Chelsea.

Chelseas licenses, permits and authorizations will be subject
to applications for renewal in accordance with their terms. Where a licensee has
not complied with the conditions to which an exploration permit is subject, or
any directions given by the relevant Minister and the Minister is not satisfied
that special circumstances exist that justify the granting of the renewal of the
permit, the Minister may refuse to grant a renewal of a permit. Where a Minister
is satisfied that a commercially exploitable accumulation of petroleum may occur
in an exploration permit area, the Minister may require the licensee to apply
for a production license or risk losing the exploration permit. A Minister may
also refuse to grant a production license, or may grant a production license
subject to such conditions as the Minister sees fit but which are unfavourable
or particularly onerous to Chelsea. If a permit is not renewed or a production
license is not granted or granted subject to unfavourable conditions, Chelsea
may suffer significant damage through loss of the opportunity to develop and
discover that tenement and this could have an adverse effect on Chelseas
business plan.

- 14 -

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Rights to licenses, permits and authorities held by Chelsea
carry with them various obligations in regard to minimum expenditure levels,
work commitments and responsibilities in respect of the environment and safety
generally. Failure to observe such requirements could prejudice the right to
maintain title to a given area.

Environmental Risks
and Regulations

All phases of the oil and natural gas business present
potential environmental risks and hazards and are therefore subject to
environmental regulation pursuant to a variety of federal, state and local laws
and regulations. Environmental legislation provides for, among other things,
restrictions and prohibitions on spills, releases or emissions of various
substances produced in association with oil and natural gas operations. The
legislation also requires that wells and facility sites be operated, maintained,
abandoned and reclaimed to the satisfaction of applicable regulatory
authorities. Compliance with such legislation can require significant
expenditures and a breach may result in the imposition of fines and penalties,
some of which may be material. Environmental legislation is evolving in a manner
expected to result in stricter standards and enforcement, larger fines and
liability and the potential for increased capital expenditures and operating
costs. The discharge of oil, natural gas or other pollutants into the air, soil
or water may give rise to liabilities to governments and third parties and may
require Chelsea to incur costs to remedy such discharge. Generally, Australian
state and territory legislation and associated regulations include provisions
for the regulation of activities on petroleum tenement lands. Statutory
provisions require petroleum tenement lands to be protected and rehabilitated to
ensure that environmental damage is avoidable or minimal where authorized. These
provisions may require approvals and consents to be obtained before certain
lands may be accessed and explored. In addition, each state and territory
government may impose a wide range of obligations on tenement holders to ensure
that petroleum operations comply with various environmental standards and
requirements.

No assurance can be given that environmental laws will not
result in a curtailment of future production (if any) or a material increase in
the costs of production, development or exploration activities or otherwise
adversely affect the Corporations financial condition, results of operations or
prospects.

Changes in Legislation

The return on an investment in securities of Chelsea is subject
to changes in Canadian and Australian tax laws and government incentive programs
and there can be no assurance that such laws or programs will not be changed in
a manner that adversely affects Chelsea or the holding and disposing of the
securities of Chelsea. Legislation, regulations and policies continue to be
introduced by government and government agencies concerning the security of
industrial facilities, including oil and natural gas facilities. Chelseas
operations may be subject to such laws and regulations. Presently, it is not
possible to accurately estimate the costs Chelsea could incur to comply with any
such laws or regulations, but such expenditures could be substantial.

Income Taxes

Chelsea, and all of its subsidiaries will file all required
income tax returns and believes that it will be in full compliance with the
provisions of the Income Tax Act (Canada), United States taxation laws and
Australian taxation laws and all other applicable tax legislation. However, such
returns are subject to reassessment by applicable taxation authorities. In the
event of a successful reassessment of Chelsea, or its subsidiaries, as the case
may be, whether by re- characterization of exploration and development
expenditures or otherwise, such reassessment may have an impact on current and
future taxes payable. In Australia, Chelsea Oil Australia pty will file any
annual income tax returns required pursuant to the Australian taxation laws. It
will be assessed while in exploration and production phases of its operation.
While in exploration it will be assessed as having no or negative income and
will be able to retain a credit towards future income in the event that it has
an income from production in the future. In other words, losses for the
Australian subsidiaries will be able to be set-off against future profits. The
Corporations subsidiaries will still be required to file annual income tax
returns.

- 15 -

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Climate Change

Australia is a signatory to the United Nations Framework
Convention on Climate Change and has ratified the Kyoto Protocol established
thereunder to set legally binding targets to reduce nationwide emissions of
carbon dioxide, methane, nitrous oxide and other so called greenhouse gases.
Subsequently, representatives from approximately 170 countries met in
Copenhagen, Denmark to attempt to negotiate a successor to the Kyoto Protocol.
The result of such meeting was the Copenhagen Accord, a non-binding political
consensus rather than a binding international treaty such as the Kyoto Protocol.

Chelseas exploration and production facilities and other
operations and activities emit greenhouse gases and Chelsea may therefore be
required to comply with various laws under the jurisdiction in which its
activities are being carried out. For example, for its Australian activities, it
will be required to report its greenhouse gas emissions to the Australian
government where those emissions exceed the thresholds prescribed under the
National Greenhouse and Energy Reporting Act 2007 (Cwth). In addition, the
Australian Energy Efficiency Opportunities Act 2006 (Cwth) requires persons
using more than certain amounts of energy per year to identify and implement
opportunities for energy efficiency and to publicly report the results of those
measures. Additionally, the Australian government also is proposing to set a
national greenhouse emissions cap and introduce an associated national
greenhouse emissions trading scheme from 2011. Under such a scheme, companies
may face potentially significant costs to pay for the greenhouse emissions
associated with their operations and activities, as well as face significant
increases in energy costs generally.

The direct or indirect costs of these laws and regulations
could have a material adverse effect on Chelseas business, financial condition,
results of operations and prospects. The future implementation or modification
of greenhouse gases regulations, whether to meet the limits required by the
Kyoto Protocol, the Copenhagen Accord or as otherwise determined, could have a
material impact on the nature of oil and natural gas operations, including those
of Chelsea. Given the evolving nature of the debate related to climate change
and the control of greenhouse gases and resulting requirements, it is not
possible to predict the impact on Chelsea and its operations and financial
condition.

Geo-Political Risks

The marketability and price of oil and natural gas that may be
acquired or discovered by Chelsea is and will continue to be affected by
political events throughout the world that cause disruptions in the supply of
oil. Conflicts, or conversely peaceful developments, arising in the Middle East,
and other areas of the world, have a significant impact on the price of oil and
natural gas. Any particular event could result in a material decline in prices
and therefore result in a reduction of Chelseas net production revenue (if
any).

In addition, Chelseas properties and facilities could be
subject to a terrorist attack. If any of Chelseas properties, wells or
facilities are the subject of terrorist attack it could have a material adverse
effect on Chelseas business, financial condition, results of operations and
prospects. Chelsea will not have insurance to protect against the risk from
terrorism.

Native Title

The requirement to comply with the procedures provided for
under the Native Title Act where native title has not been extinguished is
likely to be affected by exploration or production activities have the potential
to significantly delay the grant of petroleum tenements in Australian
jurisdictions. To the extent such requirements delay or restrict the granting of
any petroleum tenements to Chelsea, or petroleum tenements are not granted to
Chelsea, it could have a material adverse effect on Chelsea. Indigenous Land
Access Agreements with the relevant aboriginal have been entered into and
therefore, at present there are no further negotiations currently required under
the Native Title Act.

Alternatives to and
Changing Demand for Hydrocarbon Products

Fuel conservation measures, alternative fuel requirements,
increasing consumer demand for alternatives to oil and natural gas, and
technological advances in fuel economy and energy generation devices could
reduce the demand for crude oil and other liquid hydrocarbons. The Corporation
cannot predict the impact of changing demand for oil and natural gas products,
and any major changes may have a material adverse effect on the Corporations
business, financial condition, results of operations and cash flows and
therefore on the dividends declared on the Common Shares.

- 16 -

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Forward-looking
Information May Prove Inaccurate

Numerous statements containing forward-looking information are
found in this Form 20-F, documents incorporated by reference herein and other
documents forming part of the Corporations public disclosure record. Such
statements and information are subject to risks and uncertainties and involve
certain assumptions, some, but not all, of which are discussed elsewhere in this
document. The occurrence or non-occurrence, as the case may be, of any of the
events described in such risks could cause actual results to differ materially
from those expressed in the forward-looking information.

Government Approval
for Share Acquisitions

There are circumstances in which the acquisition of shares by a
foreign person or corporation in a foreign corporation which has an Australian
subsidiary (such as Chelsea) may activate the Australian Treasurers powers and,
in order to avoid an adverse order by the Australian Treasurer, require the
foreign person or company to provide prior notification of the proposed
acquisition and seek a statement of no objections in respect of that proposal.
In such case, the associated risks include the Australian Treasurer objecting to
the acquisition, the Australian Treasurer imposing conditions on a statement of
no objection which are onerous, prohibitive or uncommercial, having regard to
the individual circumstances of the foreign person or company and the time
period for assessing the acquisition being extended and unduly delaying the
foreign persons or companys ability to purchase the shares.

Aboriginal Heritage

The procedures and regulatory powers set forth in applicable
laws relating to the protection of Aboriginal cultural heritage in Australia may
delay, limit or prevent oil and gas exploration activities in Australia. Such
procedures and powers, to the extent they affect Chelsea, could have an adverse
effect on Chelseas business, financial condition, results of operations and
prospects.

Other Risks

Chelsea also faces a number of risk factors that are outside of
its control, generally, including, without limitation, terrorist activities,
natural disasters, general economic and other conditions.

|ITEM 4. | INFORMATION ON THE COMPANY                         
|------- | ---------------------------------------------------
|        |                                                    
|4.A     | THREE YEAR HISTORY AND DEVELOPMENT OF
      CHELSEA

Business Development

ACOR was incorporated April 28, 1997 in British Columbia,
Canada. On October 1, 2013, ACOR amalgamated with International TME Resources
Inc. and was renamed Chelsea Oil and Gas Ltd. and continued into the province
of Alberta, Canada. The address of the Companys head office is 127,
10th Ave NW, Calgary, AB Canada.

The Companys business plan is the exploration and development
of the Companys working interest properties in Australia. The Company also
holds and acquires and sells overriding royalty interests in Australia. Current
primary income sources are royalties earned on overriding royalty interests held
by the Company.

Our website address is www.chelseaoilandgas.com. The
information contained on, or that can be accessed through, our website is not
part of, and is not incorporated into, this Form 20-F.

- 17 -

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The Company has continued to be active with its Working
Interest and Overriding Royalty interests held in Australia. The business of
Chelsea during 2014 was to work on its existing Working Interest projects as
well as study the oil and gas exploration acreage available in Australia in
basins that demonstrate a high probability of success with the maximum rate of
return for dollars invested. For additional information on our working and
overriding royalty interests, see Item 4.D Property, Plant and Equipment.

Three Year History

2012

On January 24, 2012, the Corporation announced it completed the
first closing of its Non-Brokered Private Placement, raising gross proceeds of
approximately $1.8 million.

On February 29, 2012 the Corporation announced the completion
of the acquisition of Working Interests in PL 18, PL 40 and PL 280 in the Surat
Basin. The Corporation issued an aggregate of 21,780,935 Common Shares, and
agreed to the issuance of 5,000,000 Warrants. The Warrants have an exercise
price of $0.25 per Common Share, and are only exercisable if the Corporation
trades at a price above $1.00 per share for 10 consecutive days, with a total of
100,000 Common Shares traded during such 10-day period. Additionally, William H.
Petrie Sr. and Jesse Meidl were appointed to the Board of Directors, and the
Corporation received approximately $1.62 million from the release of the
proceeds of the Non-Brokered Private Placement.

On May 18, 2012, the Corporation completed a definitive
farm-out agreement with Terra Nova on the exploration of its Australian Cooper
Basin holdings (the Farm-Out). The Farm-Out, which was made effective May 11,
2012, sets out terms by which Terra Nova could earn a 55% Working Interest in
PEL 112 and PEL 444 (the Farm-Out Interest) concessions by funding seismic
acquisition and a 6 well drilling program on the properties. To earn the
Farm-Out Interest, Terra Nova was required to fund exploration and development
expenditures (the Earning Obligations) totalling at least A$13.7 million.

On September 24, 2012, the Corporation announced it had
received a 4 year renewal for ATP 582. The current programme expiring July 31,
2016 requires 300km of 2D seismic and the drilling of 4 wells with a total
expenditure of A$11.1 million. A further 4 year renewal may be available in 2016
subject to agreement with the State of Queensland on a further work
programme.

2013

On January 13, 2013, the Corporation held its AGM. Shareholders
approved the reelection of Mr. Howard Siegel, Mr. William H. Petrie Sr. and Mr.
Jesse Meidl to the Board of Directors. Mr. Andre Sakhai was added to the board
of directors subsequent to the AGM. Mr. Bernard Lipton and Mr. Jan Soleimani
were not re-elected by shareholders of the Corporation.

On May 31, 2013, the Corporation announced the proposed
acquisition of ITME and NI 51-101 Resource Report from Ryder Scott, who
evaluated a portion of ATP 582 in the South Georgina Basin.

On August 7, 2013, Terra Nova announced the completion of
drilling operations at Wolfman-1 in the Cooper Basin. The well was reported as
dry, and was drilled at no cost to Chelsea.

On October 1, 2013, Chelsea completed the acquisition of ITME.
The acquisition was completed through the Arrangement, whereby Chelsea acquired
all of the issued and outstanding common shares of ITME. The Arrangement was a
significant acquisition under Part 8 of National Instrument 51-102 
Continuous Disclosure Obligations, and Chelsea has filed a business
acquisition report on Form 51-102F4 in respect of the Arrangement. In connection
with the closing of the Arrangement, the Corporation changed its name to
Chelsea Oil and Gas Ltd., moved its corporate and registered head office from
Cisco, Texas to Calgary, Alberta, and reconstituted its Board of Directors and
executive management team. Toby Pierce, Stewart Gibson and Yves Merer were
elected by shareholders to join the Board of Directors of the Corporation, along
with Jesse Meidl and William H. Petrie, Sr. Under the terms of the Arrangement,
ITME shareholders received 0.5431 of a Common Share in exchange for one ITME
common share. Chelsea issued a total of 13,976,542 Common Shares to former ITME
shareholders. Upon completion of the transaction, the Corporation received a new
OTCQB ticker symbol: COGLF.

- 18 -

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On November 29, 2013, the Corporation engaged RiverRock on a
commercially reasonable endeavours basis for the purposes of completing a
private placement of equity or debt of Chelsea. The financing is in progress as
of the date of this Form 20-F.

On December 2, 2013, Terra Nova announced it had completed the
80 km2 Wingman 3D seismic survey in PEL 444 in the Cooper Basin. Having
completed the 3D survey and drilling of the Wolfman-1 well, Terra Nova earned a
25.83% Working Interest in both PEL 112 and PEL 444.

2014

On June 16, 2014, the Corporation announced that it had
received a two-year extension for ATP 582 from the Queensland government. In
addition, the government deferred the mandatory relinquishment requirements
while retaining the available extension provisions.

On October 30, 2014, the Corporation announced that it sold its
non-operated working interests and associated overriding royalty interests in
PEL 112 and 444 in the Cooper Basin, South Australia to an arms length private
company for nominal consideration. Following the sale of PEL 112 and PEL 444,
all of the Corporations working interest properties are located in the state of
Queensland.

Current Business
Operations

The Corporation is continuing to work with RiverRock to
complete the Brokered Private Placement which is expected to enable the
Corporation to fund its operations for 2015 and 2016. There is no certainty that
the Brokered Private Placement will be completed.

For further information on each of the Companys interests, see
Item 4.D Property, Plant and Equipment.

Proposed Future
Business Operations

The Companys strategy is three fold: 1) to seek Overriding
Royalty Interests in oil and gas concessions within sedimentary basins in
Australia, 2) to explore and develop the oil and gas concessions in Queensland,
Australia in which it holds a Working Interest and 3) to seek other Working
Interests in oil and gas concessions within other sedimentary basins of
Australia to promote oil and gas exploration through seismic programs and
drilling operations.

During 2015, the Company intends to secure additional financing
to undertake seismic activities on its assets in Queensland. The Companys
ability to explore other oil and gas opportunities is dependent on adequate
capital resources being available and equity being obtained, and/or finding
partners to fund the exploration and drilling programs on the areas in which the
Company holds Working Interests.

For further information on each of the Companys interests, see
Item 4.D Property, Plant and Equipment.

Competition

The Company is competing with other oil companies for oil and
gas leases and concessions. The oil and gas industry is highly competitive in
all of its phases, with competition for favorable producing royalties,
overriding royalties, and good oil and gas leases being particularly intense.
The Company believes that the exploration program, promised expenditures,
geological and geophysical skill, and familiarity with an area of operations are
the primary competitive factors in the identification, selection, and
acquisition of desirable leases. When attempting to purchase interests in such
properties, the Company competes with independent operators and major oil
companies.

- 19 -

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Foreign Taxes and
United States Tax Credits

As a result of its Overriding Royalty Interests attributable to
properties outside the United States, the Company is subject to the imposition
of taxes by foreign governments upon the Companys income derived from such
foreign jurisdictions. These taxes are of various types, with differing tax
rates, and are subject to change. Generally, the Companys income from a foreign
jurisdiction will be taxed in the same manner as that for other companies
operating in the jurisdiction, but discriminatory taxation by a particular
jurisdiction may occur. The current non-resident corporate income tax rate in
Australia, for Overriding Royalty Interests, is 30%.

As a Canadian corporation, the Company is liable for income
taxes under the laws of Canada. Under Canadian law the Companys
Australian-source income is subject to a 25% tax (on Canadian income). We
believe the 30% Australian tax should be a partial credit toward the payment of
the 25% Canadian tax under double taxation treaties between the countries.

The Company is taxable in the U.S. on U.S. source income.
Because there has been neither U.S. source net income nor any income effectively
connected with a U.S. trade or business, there have been no U.S. taxes incurred
to date.

Governmental
Regulation

Oil and gas operations are subject to federal, state and local
laws and regulations governing waste, environmental quality, pollution control,
conservation and other measures regarding environmental and ecological matters.
It is impossible to predict the impact of environmental legislation and
regulations on the Companys operations and earnings in the future.

The domestic production and sale of oil and gas are subject to
federal regulation by the Department of Energy and the Federal Energy Regulation
Commission. Rates of production of oil and gas have for many years been subject
to federal and state conservation laws and regulations. In addition, oil and gas
operations are subject to extensive federal and state regulations concerning
exploration, development, production, transportation, and pricing, and even to
interruption or termination by governmental authorities.

In foreign countries, the Company may be subject to
governmental restrictions on production, pricing and export controls.
Regulations existing or imposed upon the Company or its properties at the time
of their acquisition may change to an unpredictable extent. The Company will
have little or no control over the change of regulations or imposition of new
regulations and restrictions, expropriation or nationalization by foreign
governments or the imposition of additional foreign taxes. Management believes
that these actions are unlikely to be undertaken by the state governments of
South Australia, Queensland or Victoria, where all of the foreign oil and gas
properties from which the Company receives royalty income are currently located.

Foreign Currency

Due to the nature of the Companys activities in Australia,
portions of the Companys operating capital may at times be held in various
foreign currencies. This subjects the Company to the risk of currency
fluctuations and changes in rates of conversion for different currencies. The
Company does not engage or expect to engage in any hedging or other
transactions, which are intended to manage risks relating to foreign currency
fluctuations. Additionally, revenues generated in foreign countries in which the
Company has or may acquire interests may be subject to governmental regulations,
which restrict the free convertibility of such funds, and all remittances of
funds out of these countries might require the approval of the applicable
governments exchange control agency. Presently, the Company experiences no
difficulties with the free convertibility of funds from Australia. In the
Companys opinion, the foreign exchange control laws currently in effect in
Australia, do not unreasonably delay the remittance of funds generated in
Australia to the United States and Canada. The exchange rate on April 30, 2015
was $0.80109 Australian = $1.00 United States dollar and 0.83176 Canadian =
$1.00 United States dollar

Regulation of Oil and
Natural Gas Production

Our oil and natural gas exploration, production and related
operations are subject to extensive rules and regulations promulgated by
federal, state and local authorities and agencies. Failure to comply with such
rules and regulations can result in substantial penalties. The regulatory burden
on the oil and natural gas industry increases our cost of doing business and
affects our profitability. Although we believe we are in substantial compliance
with all applicable laws and regulations, because such rules and regulations are
frequently amended or reinterpreted, we are unable to predict the future cost or
impact of complying with such laws.

- 20 -

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Many states require permits for drilling operations, drilling
bonds and reports concerning operations, and impose other requirements relating
to the exploration and production of oil and natural gas. Such states also have
statutes or regulations addressing conservation matters, including provisions
for the unitization or pooling of oil and natural gas properties, the
establishment of maximum rates of production from wells, and the regulation of
spacing, plugging and abandonment of such wells.

Environmental Matters

Our operations and properties will be subject to extensive and
changing federal, state and local laws and regulations relating to environmental
protection, including the generation, storage, handling, emission,
transportation and discharge of materials into the environment, and relating to
safety and health. The recent trend in environmental legislation and regulation
generally is toward stricter standards, and this trend will likely continue.
These laws and regulations may: (i) require the acquisition of a permit or other
authorization before construction or drilling commences and for certain other
activities; (ii) limit or prohibit construction, drilling and other activities
on certain lands lying within wilderness and other protected areas; and (iii)
impose substantial liabilities for pollution resulting from our operations. The
permits required for several of our operations are subject to revocation,
modification and renewal by issuing authorities. Governmental authorities have
the power to enforce their regulations, and violations are subject to fines or
injunctions, or both. In the opinion of management, we are in substantial
compliance with current applicable environmental law and regulations, and we
have no material commitments for capital expenditures to comply with existing
environmental requirements. Nevertheless, changes in existing environmental laws
and regulations or in interpretations thereof could have a significant impact on
our business operations, as well as the oil and natural gas industry in general.

|4.**B** | BUSINESS OVERVIEW
|------- | -----------------

The Companys principal activities are the exploration,
development and production of oil, natural gas, and natural gas liquids in
Australia. In addition, the Company has acquired and sold ORRIs on production
in Australia. The Company previously held ORRI on natural gas production in the
United States, however it has not received any material revenues from these
ORRIs since 2009.

For the past three years, all of the Companys revenues were
earned from ORRIs on Australian oil, natural gas and natural gas liquids
production.

The Company has WI operations and ORRI interests in the States
of Queensland, South Australia and Victoria in Australia, and is subject to the
laws and regulations of both the States and the federal laws of Australia, where
applicable.

The Company has ORRIs in Texas and Kentucky, however it has
not earned any revenues on these interests in several years. The Company is
subject to applicable State and federal laws of the United States.

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|4.**C** | ORGANIZATIONAL STRUCTURE
|------- | ------------------------

Significant
Subsidiaries

The following table sets forth
each of our significant subsidiaries, the jurisdiction of organization and the
percentage ownership held by us:

|                                     | Jurisdiction of             | Percentage
|------------------------------------ | --------------------------- | ----------
|                                     | Organization                | Ownership 
|                                     |                             |           
|Cooper-Eromanga Oil Inc.             | Texas, USA                  | 100%      
|                                     |                             |           
|Chelsea Oil Australia Pty
      Ltd. | Queensland,
      Australia | 100%      
|                                     |                             |           
|1629518 Alberta Ltd.                 | Alberta, Canada             | 100%      
|                                     |                             |           
|Cooper Basin Oil & Gas
      Inc.    | Texas, USA                  | 20%       

Organizational Charts

The chart below presents a summary of our ownership and
organizational structure. Each subsidiary companies Country or State of domicile
is represented in parenthesis, and the ownership of each subsidiary is
represented as a percentage.



Chelsea is the parent and holding company for each of
its wholly-owned subsidiaries and minority interest in Cooper Basin Oil and Gas
Inc. Chelsea also directly holds all of the Corporations ORRIs and held the
Working Interests in PEL 112 and 444 which were sold on October 29, 2014.

Cooper-Eromanga Oil Inc. holds ATP 582 as its sole
asset.

Chelsea Oil Australia Pty Ltd. holds the Surat Basin
Petroleum Leases: PL 18, PL 40 and PL 280.

Cooper Basin Oil and Gas Inc. has no assets and is not
currently active. Chelsea has a 20% minority interest in this company.

1629518 Alberta Ltd. has no assets and is not currently
active.

|4.D | PROPERTY, PLANT AND
EQUIPMENT
|--- | -----------------------------

The Companys principal office is located at 127,
10th Ave NW, Calgary, Alberta, Canada, T2M 0B4.

The Company holds Working Interests and ORRIs in Queensland,
Victoria and South Australia. See Item 4.D Property, Plant and Equipment 
Working Interest Holdings, Item 4.D Property, Plant and Equipment  Producing
Overriding Royalty Interests and Item 4.D Property, Plant and Equipment 
Non-Producing Overriding Royalty Interests below for an itemised listing of the
Companys interests and associated geographic region. Chelsea is an Australian
focused exploration, development and production company with approximately 5.2
million net Working Interest acres of land onshore Australia. The Corporation
has a portfolio of assets, as follows:

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| | Surat-Bowen Basin:Six existing oil discoveries
      and one gas pool with independently evaluated reserves.                                                                                                                                            
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                         
| | Georgina and Simpson Basins:multi-billion barrel
      potential in two emerging unconventional resource plays in which three
      super-majors have committed to invest up to A$545 million in the next 3
      years on immediately offsetting lands.
|  |                                                                                                                                                                                                                                                         
| | Overriding Royalty Interests:In addition to its
      Working Interest lands, the Corporation also holds an ORRI in more than
      approximately 9.9 million gross acres (60,000 net acres) in both onshore
      and offshore basins in Australia.    

During 2014 and 2013, the Company received revenues from six of
its ORRIs: PEL 111, PEL 115, ATP 267, ATP 299, ATP 560, and VIC/P54. For further
information, see Item 5. Operating and Financial Review and Prospects 
Managements Discussion and Analysis of Financial Condition and Results of
Operation.

WORKING INTEREST HOLDINGS

|License | Basin              | Operator               | Gross Acres | WI    | Net WI Acres
|------- | ------------------ | ---------------------- | ----------- | ----- | ------------
|PL 18   | Surat              | Chelsea Oil(1)         | 46,482      | 100%  | 46,482      
|PL 40   | Surat              | Chelsea
      Oil(1)   | 18,744      | 100%  | 18,744      
|PL 280  | Surat              | Chelsea Oil(1)         | 23,308      | 50%   | 11,654      
|ATP 582 | Georgina / Simpson | Cooper-Eromanga Oil(1) | 5,022,000   | 100%  | 5,022,000   
|PEL 100 | Cooper / Eromanga  | Cooper Energy          | 73,143      | 1.00% | 731         
|Total   |                    |                        | 5,183,677   |       | 5,099,611   

|Note:
|-----
|     

PRODUCING OVERRIDING ROYALTY INTERESTS

|License    | Basin     | Operator     | Gross Acres | ORR Interest | Net Royalty Acres
|---------- | --------- | ------------ | ----------- | ------------ | -----------------
|VIC P54    | Gippsland | Nexus Energy | 155,676     | 0.05%        | 78               
|PEL 111(1) | Cooper    | Senex Energy | 290,101     | 0.60%        | 1,741            
|PEL 115    | Cooper    | Senex Energy | 65,730      | 0.175%       | 115              
|ATP 267    | Cooper    | Santos       | 220,800     | 0.17%        | 379              
|ATP 299    | Cooper    | Santos       | 441,600     | 0.06%        | 254              
|ATP 560    | Cooper    | First Source | 625,600     | 0.25%        | 1,564            
|Total      |           |              | 1,799,507   |              | 4,131            

|Note:
|-----
|     

NON-PRODUCING OVERRIDING ROYALTY INTERESTS

|License | Basin    | Operator               | Gross Acres | ORR Interest | Net Royalty Acres
|------- | -------- | ---------------------- | ----------- | ------------ | -----------------
|PEL 88  | Cooper   | Senex Energy           | 816,436     | 0.30%        | 4,899            
|PEL 424 | Cooper   | Senex Energy           | 1,516,733   | 0.10%        | 1,517            
|PEL 444 | Cooper   | Terra Nova             | 582,674     | 0.67%        | 3,886            
|ATP 544 | Cooper   | Australia Pete         | 901,600     | 0.81%        | 7,285            
|ATP 550 | Cooper   | Discovery Geo          | 276,000     | 0.25%        | 690              
|ATP 582 | Georgina | Cooper-Eromanga Oil(1) | 5,022,000   | 0.67%        | 33,698           
|ATP 616 | Cooper   | Sundance Resources     | 147,200     | 3.33%        | 4,907            
|ATP 636 | Cooper   | Santos                 | 640,000     | 0.50%        | 3,200            
|Total   |          |                        | 9,319,969   |              | 56,195           

|Note:
|-----
|     

- 23 -

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TOTAL OVERRIDING ROYALTY INTERESTS

|                                             |  | Gross Acres |  |  | Avg. ORR Interest |  |  | Net Royalty Acres | 
|-------------------------------------------- |  | ----------- |  |  | ----------------- |  |  | ----------------- | 
|Producing Overriding
      Royalty Interests |  | 1,799,507   |  |  | 0.22%             |  |  | 4,131             | 
|Non-Producing Overriding Royalty interests   |  | 9,319,969   |  |  | 0.60%             |  |  | 56,195            | 
|Total Overriding Royalty
      Interests     |  | 11,119,476  |  |  | 0.55%             |  |  | 60,326            | 

ASSET SUMMARY

Surat-Bowen Basin

The Surat-Bowen Basin is a combination of Permian and Triassic
age sediments of the deeper Bowen Basin, overlain by the Jurassic and Cretaceous
strata of the Surat Basin. Because intervals of both sequences are prospective
and have produced in close or even over-lying proximity, operators tend to use
the two names inter-changeably.

The Bowen Basin of eastern Queensland is a foreland basin of
Early Permian to Middle Triassic age sediments. It occupies about 60,000km2, the
southern half of which is covered by the Surat Basin. It has a maximum sediment
thickness of about 10,000 metres concentrated in two north-trending depocentres,
the Taroom Trough to the east and the Denison Trough to the north-west.
Deposition in the basin commenced during an Early Permian extensional phase,
with fluvial and lacustrine sediments and volcanics being deposited in a series
of half-grabens in the east while in the west a thick succession of coals and
nonmarine clastics were deposited. Following rifting, there was a thermal
subsidence phase extending from the mid Early to Late Permian, during which a
basin-wide transgression allowed deposition of deltaic and shallow marine,
predominantly clastic sediments as well as extensive coal measures. Foreland
loading of the basin spread from east to west during the Late Permian, resulting
in accelerated subsidence, which allowed the deposition of a very thick
succession of Late Permian marine and fluvial clastics, again with coal and
Early to Middle Triassic fluvial and lacustrine clastics. Sedimentation in the
basin was terminated by a Middle to Late Triassic contractional event.

Over 100 hydrocarbon accumulations have been discovered in the
Bowen Basin, of which about one third are producing fields. Accumulations occur
throughout the succession, but the most important reservoirs are in the Early
Permian and Middle Triassic. Source rocks have been identified throughout the
Permian and in the Middle Triassic and are mostly nonmarine. Proven plays
comprise mostly anticlinal closures sometimes enhanced by a stratigraphic
component, as well as fault rollovers. Other plays are largely untested. The
Bowen Basin also has vast coal resources, with major open cut and underground
coal mines in the north of the basin. Large volumes of methane gas are held at
shallow depths within Permian coals in the north and have potential for coal
seam methane developments.

The Surat Basin is a large, mature, intracratonic, Early
Jurassic to Cretaceous basin occupying approximately 300,000km2 of central
southern Queensland and central northern New South Wales. It has a maximum
sediment thickness of 2500 metres and deposition was relatively continuous and
widespread. Deposition in the basin commenced with the onset of a period of
passive thermal subsidence of much of eastern Australia. During the Early
Jurassic, deposition was mostly fluviolacustrine, while by the Middle Jurassic
coal swamp environments predominated over much of the basin, except in the north
where fluvial sedimentation continued.

Towards the end of the Middle Jurassic, fluvial deposition
again predominated and continued until the earliest Cretaceous. A marine
transgression followed, depositing paralic and marine sediments and reaching its
peak in the Aptian. The subsequent regression caused a fairly abrupt return to
fluvial, lacustrine and paludal environments before sedimentation ceased in the
Aptian. About 100 hydrocarbon accumulations have been discovered in the Surat
Basin, of which about half are producing fields. Most accumulations are
reservoired in Early Jurassic sands, with occasional gas occurrences in the
Middle and Late Jurassic, but all are sourced from the Permian nonmarine
sediments of the underlying Bowen Basin. Proven plays comprise mostly low
amplitude anticlinal closures occasionally associated with thrust faulting and
drapes over basement highs. Because the basin is largely flat-lying and
sedimentation widespread and relatively uniform, other types of traps are
unlikely to be important. The upper part of the Surat Basin sequence comprises
the Great Artesian Basin of Australia, an enormous fresh water resource.

- 24 -

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Chelsea holds a 100% Working Interest in PL 18 and PL 40 as
well as a 50% Working Interest in PL 280. The Corporation is in the process of
completing the transfer of the EA for PL 280. A portion of proceeds from the
sale of PEL 112 and PEL 444 has been held as restricted cash, in the form of a
bank guarantee in favour of the Queensland government. Following the posting of
the bank guarantee, the Corporation has made application with the Queensland
government to complete the transfer of PL 18, PL 40 and PL 280 to Chelsea.

The Corporations Surat-Bowen Basin oil assets comprise six
existing oil pools with 14 million barrels of light, high quality (51°), high
mobility DPIIP, of which, to date, only 6%, or 770,000 barrels has been
recovered. As the oil is 51°, it exhibits high mobility. There is no certainty
that it will be commercially viable to produce any portion of the resources. To
date, exploration has been directed at finding and drilling structural highs,
usually the first phase of exploration before more subtle stratigraphic
prospects are tested. All production has been primary, meaning that no secondary
enhancements such as pressure maintenance, water flooding, etc., have been
implemented. Oil is produced to single well batteries and trucked about 30
kilometres to Fairymount where it enters the Santos pipeline carrying oil from
the Cooper Basin to Brisbane. The last production from the area was from the
Yellowbank Creek pool in 2010.

Given the low overall recovery to date (0.770 mmbo or 6% of
DPIIP) under primary production methods, there is an opportunity for a
relatively low risk redevelopment of the proven productive oil pools. The 9%
gross recovery factor assessed by Sproule in the Possible case relating to
Chelsea contemplates only infill drilling and projects recovery factors only as
achieved to date. NI 51-101 regulations do not provide for allocation of proved
reserves via water-flooding without a direct analog in close proximity. There
are numerous water-flood projects in Western Canada, including some that recover
as high as 40% OOIP; however there are currently no pressure maintenance schemes
being implemented in any direct analog in close proximity to Chelseas
Surat-Bowen Basin assets, and as a result no proved reserves have been
allocated. Good reservoir qualities of porosity and permeability, together with
the high quality and mobility of the oil suggest that reservoir response should
be similar to those observed when similar procedures have been implemented in
Western Canada.

On the PL 40 permit, also in the Surat-Bowen Basin, bypassed
gas has been identified in three wells on Chelseas lands as evaluated by
Chapman.

Georgina and Simpson Basins

The Georgina Basin is a large (ca. 330,000 km2, 5.0mm acres)
intracratonic sedimentary basin in central and northern Australia, lying mostly
within the Northern Territory and partly within Queensland. It is named after
the Georgina River which drains part of the basin. Deposition of locally up to
ca. 4 km of marine and non-marine sedimentary rocks took place from the
Neoproterozoic to the late Paleozoic (ca. 850-350 Ma). Along with other nearby
sedimentary basins of similar age (Amadeus Basin, Officer Basin); the Georgina
Basin is believed to have once been part of the hypothetical Centralian
Superbasin that was fragmented during episodes of tectonic activity.

More recently, the Georgina Basin has been recognized as having
considerable potential for unconventional hydrocarbons within the Arthur Creek
Formation of Middle Cambrian age. This has led to all the prospective parts of
the basin now being held under exploration permits and a new phase of
exploration is under way. The deepest part of the basin, known as the Toko
Syncline, lies within Queensland and is considered by many to have the most
hydrocarbon potential.

The Simpson Basin extends over 100 000 km2 in South Australia,
southeast part of Northern Territory, and southwest part of Queensland.
Approximately half lies in South Australia. It is a circular, poorly defined
depression with one major depo centre, the Poolowanna Trough. The Simpson Basin
has a known petroleum system within the Permian and Triassic sequence and
recently an operator in the adjacent Northern Territory announced an in-house
estimate of 12 to 25 Tcf of prospective unconventional gas resource within its
permit. Chelsea does not know if such estimate was prepared by a qualified
reserves evaluator or auditor or in accordance with the COGE Handbook. There is
no certainty that any portion of the resources will be discovered. If
discovered, there is no certainty that it will be commercially viable to produce
any portion of the resources.

- 25 -

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Validation of this resource is likely to increase exploration
activity in this area. The basin overlies older Pedirka Basin strata, also
considered prospective, and is overlain by the younger Eromanga Basin sediments.

In the Georgina Basin, more specifically the Toko Syncline,
three vertical wells have been drilled to basement and one other was abandoned
before reaching total depth for mechanical reasons. This well did, however,
encounter natural gas which flowed against a full column of drilling fluid at an
estimated 200 Mcf per day. This well is important in that it confirms the
presence of movable hydrocarbons in the basin. Each of the basement penetrations
are on ATP 582 and serve to define the play model and the thermal maturity
windows encountered within the Arthur Creek in the wells. These wells are Todd-1
(1991), Netting Fence-1 (1964), Mirrica-1 (1980), and Ethabuka-1 (1974), the
well that encountered the gas flow but did not reach what is now the
unconventional target. Based on these wells, fairways have been defined within
the Toko Syncline as being prospective for oil, gas and liquids, and dry
natural gas.

All previous seismic and drilling was for conventional
structural traps, particularly near the basin-defining Toomba Fault.
Approximately 200 kilometres of legacy seismic exists on ATP 582 from 1977
through 1981 vintage. This data is of limited value for any possible defining of
hydrocarbon indicators but does serve to define gross structural features.

At the southern portion of ATP 582, thought to contain Simpson
Basin strata, management has identified several untested four-way dip closed
structures on the basis of similar vintage 2D seismic. No wells have tested this
part of ATP 582.

The Corporation has a 100% Working Interest in approximately
five million net acres with multi-billion barrel potential. TOTAL, Statoil and
Santos have committed in excess of A$545 million to drill, core and frac up to
12 wells in 2015 / 2016 on immediately offsetting lands. Independent geological
reports indicate that the Corporations acreage is geologically equivalent if
not superior to adjoining areas controlled by these super-majors. If the
offsetting drilling is successful, the value of Chelseas acreage is anticipated
to increase exponentially.

No reserves are attributed to ATP
582.

The prospective resource in place, if proved to be economically
recoverable, would make Chelsea a major stakeholder in one of Australias
largest gas resources. This resource is projected to be in high demand for
Australias major LNG plants, which are experiencing short-falls in supply
stock. Given the demand from the nearby Asian market, the longer term outlook is
for continued strong prices.

Further, Chelsea enjoys a relatively low work commitment to
maintain the key acreage position in the Arthur Creek fairway, and benefits from
the free exploration that is currently being conducted by the above
super-majors. A step-change in shareholder value could be achieved with minimal
expenditure and dilution.

Cooper Basin

The intra-cratonic Cooper Basin represents a Late Carboniferous
to Triassic depositional episode terminated at the end of the Middle Triassic
with widespread compressional folding, regional uplift and erosion. It lies
unconformably over early Palaeozoic sediments of the Warburton Basin and is
overlain disconformably by the central Eromanga Basin.

Three major troughs (Patchawarra, Nappamerri and Tenappera) are
separated by structural ridges (GidgealpaMerrimeliaInnamincka (GMI) and
Murteree) associated with the reactivation of NW-directed thrust faults in the
underlying Warburton Basin. The major tectonic episode separating the Cooper and
Warburton basins is interpreted to be the DevonianCarboniferous Alice Springs
Orogeny. The three troughs contain up to 2,500 m of Permo-Carboniferous to
Triassic sedimentary fill overlain by as much as 1,300 m of Jurassic to Tertiary
cover.

- 26 -

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The Cooper Basin contains the largest on shore petroleum and
natural gas deposits in Australia (there are larger oil and gas deposits off
shore). Oil was first discovered in the 1960s, and now includes Australias
largest onshore oil field, the Jackson oil field, discovered in 1981. Pipelines
transport oil and gas to the major markets of Brisbane, Adelaide and Sydney.
Overall about 1,800 petroleum wells have been drilled resulting in 160 gas
fields and 75 oil fields in production containing about 630 producing gas wells
and more than 340 producing oil wells.

With respect to Chelseas lands, the most recent exploration
activity is focused on the so-called Western Flank of the Cooper Basin, where
operators have been extending westward the productive trend beyond the edge of
the Permo-Triassic strata and are making discoveries in the overlying Eromanga
Basin sediments. These mainly structural prospects are small in area,
necessitating extensive use of 3D seismic; however, they have historically been
very prolific when found.

In May 2012, the Corporation and Holloman completed the
Farm-Out. Under the Farm-Out, Terra Nova could earn up to a 55% Working Interest
in Chelseas PEL 112 and PEL 444 concessions by funding seismic acquisition and
a six well drilling program on the properties.

On October 30, 2014, the Corporation announced that it sold its
non-operated working interests and associated overriding royalty interests in
PEL 112 and 444 in the Cooper Basin, South Australia to an arms length private
company for nominal consideration. Following the sale of PEL 112 and PEL 444,
all of the Corporations working interest properties are located in the state of
Queensland.

Overriding Royalty Interests

Chelsea has ORRIs over more than approximately 9.3 million
gross acres (60,000 net acres) in the Cooper, Gippsland (Offshore) and Victoria
(Offshore VIC P54) basins. These interests have generated small amounts of
revenue for the Corporation.

Outlook

Along with a 3D seismic survey of the productive trend,
Chelseas immediate plans call for conversion of Yellowbank Creek 1 to a water
injection well, re-pressuring the reservoir at least partially, and
re-establishing production from Yellowbank Creek 2 and 3. These wells were
producing at an approximate 8% oil cut when shut-in, which should be able to be
maintained at higher volumes upon re-pressuring and is in line with oil cuts
experienced in western Canadian pools such as the Dina and Taber pools in
Alberta, Canada.

Concurrent with this, the already permitted 3D program will
further define the existing pools and possibly further develop additional
drilling locations, as well as new pool prospects. This improved reservoir
definition will also greatly aid in the design and implementation enhanced
recovery through additional water-flood and horizontal drilling of the current
pools.

Further, Chelsea believes that similar opportunities exist for
further exploitation of mature pools within the basin generally, and has one or
more in sight at present.

See also the information contained under Item 3.D Risk
Factors and Item 5 Operating and Financial Review and Prospects.

|4.E | UNRESOLVED STAFF COMMENTS
|--- | -------------------------

Not applicable.

|ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS
|------- | --------------------------------------------

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following Managements Discussion and Analysis (MD&A)
dated April 30, 2015 is a review of the results of operations and the liquidity
and capital resources of Chelsea Oil and Gas Ltd. (Chelsea or the Company)
for the years ended December 31, 2014, 2013 and 2012.

- 27 -

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The audited consolidated financial statements of the Company
and its subsidiaries have been prepared in accordance with IFRS as issued by the
International Accounting Standards Board (IASB).

Certain information contained herein is forward-looking and
based upon assumptions and anticipated results that are subject to risks,
uncertainties and other factors. Should one or more of these uncertainties
materialize or should the underlying assumptions prove incorrect, actual results
may vary materially from those expected. For additional information, refer to
Forward Looking Statements.

General Discussion

Georgina Basin

Recent industry activities in the Georgina Basin with
potentially dramatic impact on Chelsea included the drilling last season by
Central Petroleum Ltd. (Central) of the first two wells of up to five
to be drilled under their joint venture with Total. Fracture stimulation and
reservoir evaluation of these initial wells is reported to begin shortly.
Results from this permit immediately adjacent to Chelseas ATP 582, and within
the Toko Syncline, are expected to be reflective of the potential of Chelseas
permit.

West of ATP 582, in a different geological setting, Statoil has
recently terminated its drilling program to earn under a farm-in with
Petrofrontier Ltd. This is not unexpected given Chelseas geological model of
the region, and does not reflect on the potential of the Toko Syncline area of
the Georgina Basin where Chelseas interests lie.

Surat-Bowen Basin

Chelseas lower risk exploitation and development assets in the
Surat-Bowen Basin will be the focus of our efforts in the near future as we
strive to build cashflow. Our technical team believes that while the Surat-Bowen
basins are considered mature by Australian standards, much potential remains for
not only secondary and enhanced recovery projects as typically applied in North
America, but also for significant low risk exploration and development in areas
and formations previously considered uneconomic.

Further, the fiscal regime for oil and, especially natural gas
is very attractive to producers. Unlike North American where natural gas prices
have fluctuated wildly the past decade, Australia and particularly Queensland
has a long term demand for natural gas to supply its existing and planned LNG
exports to Asia. This Asian demand and the under- performance of the coal seam
gas sector has resulted in current prices of $8-$10 per GJ, projected to
increase to $12 to $14 per GJ over the next three to five years.

As a result of technical work this past year, the value of our
Louise PL 40 Probable Reserves have increased, reflecting the increased
production rates shown to be achievable with fracture stimulation of comparable
reservoirs.

The environment for oil is currently subdued due to world
pricing but remains attractive longer term. The Surat-Bowen Basin produces very
high quality oil that is priced according to Tapis, a Malaysian benchmark crude
that trades at a significant premium to both WTI and Brent crude. Further
pricing support comes from the fact that Australia is a significant net importer
of crude oil. Plans for redevelopment of our light oil assets have been deferred
in favour of furthering our natural gas opportunities, as gas markets in
Australia remain highly attractive.

Cooper Basin

In the Cooper Basin, Chelsea divested its non-operated
approximate 14% working interest in PELs 112 and 444 for a nominal cash
consideration that has been deployed on its majority-owned Georgina and
Surat-Bowen assets.

Funding and Capitalization

While the Companys commitments are modest considering the
scope and potential of its asset base, funding is required to advance the
projects. To this end, Chelsea continues its financing process in what is and
has been a difficult capital market for junior energy companies. While
continuing to assemble an investor group, Chelsea has raised funds necessary to
continue operations through a rationalization of certain minor assets including
the Companys non-operated interests in the Cooper Basin and deploying those
funds to advance our primary high working interest assets. Response from the
investment community continues to be very positive with regard to the Companys
assets and in spite of current challenging market conditions for small cap
energy ventures, we have made significant progress and are optimistic that a
significant financing can be secured in the near term, sufficient to meet our
work obligations and advance our current Surat-Bowen projects to cash generating
status. Particulars of any transaction will be released immediately in
accordance with applicable securities laws.

- 28 -

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Summary

Management and the Board continue to believe strongly in the
quality of Chelseas asset base. Ongoing technical work continues to add value
to existing assets and define new opportunities for growth. The pieces are in
place and the catalysts exist to provide a step-change in shareholder value. The
free exploration being carried out by Total in the Georgina Basin is the most
significant of these, with the anticipated completion by Central / Total of the
two wells drilled last season being the most near-term catalyst.

An additional catalyst is the potential to establish and grow
early cash flow from the Surat-Bowen assets. While plans for a re-development of
the Companys light oil pools are deferred until pricing improves, at least one
recompletion and one development well planned to evaluate the probable gas
reserves on the Louise permit. Gas remains a very attractive commodity in
Queensland as new LNG plants are coming onstream facing a shortage of supply
from the intended source of coal seam gas. This supply issue is forecast to
continue, boding well for upstream players who can find the gas to fill that
shortage.

Primarily within the Cooper Basin, Chelsea holds numerous
legacy overriding royalty interests (ORRI), generally small in size but
covering extensive permit areas. These include a 0.175% ORR on the 2.9 Tcf
Hornet discovery. A $500 million development of this discovery began in late
2014, and is forecast to generate up to one million dollars per year to Chelsea
under full field development. In total, including offshore Gippsland Basin,
Chelsea holds varying ORRIs in more 9.3 million acres in addition to its net
approximate 5 million acres of high working interest lands.

Overall Performance

ACOR was incorporated April 28, 1997 in British Columbia,
Canada. On September 27, 2013 ACOR was continued into the province of Alberta.
On October 1, 2013, ACOR amalgamated with ITME and was renamed Chelsea Oil and
Gas Ltd.. The address of the Companys head office is 127, 10th Ave
NW, Calgary, AB Canada.

This MD&A and accompanying financial statements for the
years ended December 31, 2014, 2013 and 2012 are prepared in accordance with
IFRS as the Company is considered a Canadian Reporting Issuer. Chelsea reported
under USGAAP and filed as a US Reporting Issuer until June 30, 2012, when the
Company became a Foreign Private Issuer under applicable US Securities Laws.

With the completion of the Arrangement, the Company is a
Canadian Reporting Issuer and will file its continuing disclosure obligations
required under MI 51-105.

2014 Highlights

For the year ended December 31, 2014 the Companys main
operations were the advancement of the Companys fundraising and continued
technical development of the portfolio. The team has been evaluating the
Companys existing assets throughout 2014, and obtained updated reserve reports
over a portion of the Companys assets establishing near-term cashflow from the
existing discoveries in the Surat Basin.

- 29 -

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Results of Operations

Royalty Income

For the year ended December 31, 2014, the Company received
$361,990 (2013  $98,805, 2012  $79,235) in freehold royalties
from its ORRI both onshore and offshore Australia. The increase over the prior
years is attributable to royalties received from new production, higher
commodity pricing and the impact of the royalty revenue acquired from ITME.

General and administrative

For the year ended December 31, 2014, the Company incurred
$331,934 (2013  $152,963, 2012  $396,848) in general and
administrative (G&A) expenses. The increase over 2013 is attributable to
increased professional and shareholder reporting costs in the current year. In
2012, G&A costs were attributable to professional costs associated with the
acquisition of the Surat Basin assets.

Share-based compensation

For the year ended December 31, 2014, the Company incurred $nil
(2013  $194,075, 2012  $nil) share-based compensation expense.
2013 share-based compensation is associated with the 5.0 million warrants issued
in January 2013 to management, directors and consultants of the Company. No
warrants or options were issued in 2014 or 2012.

Depletion

For the year ended December 31, 2014, the Company incurred
$112,482 in depletion expense (2013  $28,431, 2012  $25,844).
Depletion over the prior years is materially higher, reflecting the higher
depletable base in the company following the acquisition of ITME and higher
production following the new discoveries in the Cooper Basin during 2014.

Finance expense

For the year ended December 31, 2014, the Company incurred
$259,976 in finance expense (2013  $362,199, 2012  $23,010). The
decrease over 2013 is attributable to reduced interest on the shareholder loans
as the Company repaid a portion of the loans during the year. At the time of the
repayment, the Company also received interest relief of $31,494 from the
lenders. The increase compared to 2012 is attributable to interest on the
shareholder loans associated with the Companys Surat Basin acquisition. The
$3.0 million loan note did not accrue interest in 2012, the Company and debt
holders amended the terms of the note in 2013 so that it accrued interest at 8%
per annum, compounded quarterly.

Foreign exchange (gain) loss

For the year ended December 31, 2014 the Company experienced a
foreign exchange gain of $20,002 (2013  loss of $344,066, 2012 
gain of $1,244). The gain in the current year was realized on the Companys
accounts payable as both the Australian and Canadian dollars depreciated against
the US dollar during the year. The loss in 2013 is attributable to foreign gain
loss experienced on the translation of shareholder loans held by the Companys
wholly-owned subsidiaries.

Current income tax expense

For the year ended December 31, 2014, the Company incurred
current income tax expenses of $12,821 (2013  $22,703, 2012 
$17,822). Current income tax expense is derived from withholding taxes on the
Companys overriding and interest revenue received directly from Australian
sources. The change over the prior years is commensurate with the change in
revenue received from those sources over the same period.

- 30 -

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Net loss

For the year ended December 31, 2014, the Company incurred a
net loss of $335,221 (2013  $1,005,632, 2012  $382,955). The
loss in 2014 was attributable to interest expenses and general and
administrative costs. The higher loss in 2013 is attributable to share-based
compensation, interest expenses and foreign exchange which were not experienced
in 2012.

Foreign currency translation
adjustment

Both of the Companys wholly-owned subsidiaries operate
exclusively in Australia, and utilize the Australian dollar as their functional
currency. Assets and liabilities of the Companys Australian operations are
translated into US dollars at period end exchange rates while revenues and
expenses are translated using average rates for the period. Gains and losses
from the translation are deferred and included in accumulated other
comprehensive loss on the consolidated statements of financial position.

For the year ended December 31, 2014, the Companys foreign
currency translation adjustment was a loss of $1,072,350 (2013 
$697,679, 2012  gain of $18,896). The adjustment in 2014 is attributable
to the 15% decline in the Australian dollar compared to the US dollar over the
year. The adjustment in 2013 is attributable to the 12% decline in the
Australian dollar compared to the US dollar over the year. The Australian dollar
was materially on par with the US dollar throughout 2012, with limited
translation impact experienced during the period.

Liquidity and Capital Resources

At December 31, 2014, the Company had $463,546 (2013  $94,998,
2012  $72,120) in cash held in the Companys bank accounts. The Companys total
accounts receivable as at December 31, 2014 was $35,852 (2013  $91,301, 2012 
$331,010). The Companys trade accounts payable and shareholder loans
outstanding as at December 31, 2014 was $4.3 million (2013  $4.4 million, 2012
 $3.7 million). The Companys net working capital deficiency as at December 31,
2014 was $3.8 million (2013  $4.2 million, 2012  $3.2 million). Refer to Item
5 for additional disclosures.

The Company has several projects in development. These include
the exploration of the Georgina Basin on ATP 582, the exploitation of the
Surat-Bowen Basin oilfields, and the development of the Louise gas field. In
aggregate, the Companys work commitments for these projects is estimated at
$19.0 million Australian dollars.

The Company has financed its operations to date through the
issuance of common shares to founding directors and other shareholders. Refer to
2014 Summary herein and note 2 of the audited consolidated financial statements
for the year ended December 31, 2014 for additional discussion of the Companys
liquidity and capital resources. The Company does not use any financial
instruments for hedging purposes.

The following table outlines the timing
of the Companys debt and commitments:

| | Debt /           |  | February  |  |  | August     |  |  | August    |  |  | September |  |  | August    |  |  |            | 
| | ---------------- |  | --------- |  |  | ---------- |  |  | --------- |  |  | --------- |  |  | --------- |  |  | ---------- | 
| | Commitment       |  | 2015      |  |  | 2020       |  |  | 2024      |  |  | 2029      |  |  | 2031      |  |  | Total      | 
| |                  |  |           |  |  |            |  |  |           |  |  |           |  |  |           |  |  |            | 
| | US$              |  |           |  |  |            |  |  |           |  |  |           |  |  |           |  |  |            | 
| | Shareholder loan |  | 3,585,615 |  |  | -          |  |  | -         |  |  | -         |  |  | -         |  |  | 3,585,615  | 
| | Total US$        |  | 3,585,615 |  |  | -          |  |  | -         |  |  | -         |  |  | -         |  |  | 3,585,615  | 
| |                  |  |           |  |  |            |  |  |           |  |  |           |  |  |           |  |  |            | 
| | A$               |  |           |  |  |            |  |  |           |  |  |           |  |  |           |  |  |            | 
| | ATP 582          |  | -         |  |  | 11,000,000 |  |  | -         |  |  | -         |  |  | -         |  |  | 11,000,000 | 
| | PL 18            |  | -         |  |  | -          |  |  | 5,000,000 |  |  | -         |  |  | -         |  |  | 5,000,000  | 
| | PL 40            |  | -         |  |  | -          |  |  | -         |  |  | 2,000,000 |  |  | -         |  |  | 2,000,000  | 
| | PL 280           |  | -         |  |  | -          |  |  | -         |  |  | -         |  |  | 1,000,000 |  |  | 1,000,000  | 
| | Total A$         |  | -         |  |  | 11,000,000 |  |  | 5,000,000 |  |  | 2,000,000 |  |  | 1,000,000 |  |  | 19,000,000 | 

- 31 -

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Plan of Operation and Funding

The Company plans to seek additional oil and gas concessions in
Australia on a ground level basis and will seek partners to join in this
process. The Company has been successful in entering into farm-out arrangements
to defer the exploration commitments on six Australian concessions to joint
venture partners and is confident of being able to repeat this process in the
event the Company is successful in acquiring other concessions in Australia.

Material Commitments

The Company has material financial commitments on several of
its working interest properties located in Australia. PL 18, PL40, PL 280 and
ATP 582 have expenditure requirements that may exceed the Companys Carried
Working Interest in each of these concessions.

ATP 582, PL 18 and PL 40 are owned 100% by the Company, PL 280
is 50% owned by Chelsea. Expenditures on these concessions will require
additional funding or securing a WI partner. See Item 5. Operating and
Financial Review and Prospects  Contractual Obligations for additional
information.

Purchase of Significant Equipment

The Company does not intend to purchase any significant
equipment during the next 12 months.

Subsequent Events

Provision of bank guarantees

In April 2015, the Company provided A$440,000 in bank
guarantees in favour of the Queensland Australia government, these guarantees
will be returned to the Company when it satisfies reclamation obligations on its
licenses. The bank guarantees are held as restricted cash with a Canadian
Chartered Bank.

Shareholder loan extension

On February 28, 2015, the Company and shareholder agreed to
extend the $3.0 million loan to February 28, 2016. The loan will continue to
accrue interest at 8% per annum.

Warrant extension

On January 18, 2015, the Company extended the warrants issued
in January 2013 for two years to January 18, 2017. All other terms remained the
same.

Recent Accounting Pronouncements

In November 2009, the IASB published IFRS 9 Financial
Instruments, which covers the classification and measurement of financial
assets as part of its project to replace IAS 39 Financial Instruments:
Recognition and Measurement. In October 2010, the requirements for classifying
and measuring financial liabilities were added to IFRS 9. Under this guidance,
entities have the option to recognize financial liabilities at fair value
through earnings. If this option is elected, entities would be required to
reverse the portion of the fair value change due to a companys own credit risk
out of earnings and recognize the change in other comprehensive income. The
effective date for IFRS 9 has been deferred to January 1, 2018. Early adoption
will still be available and the standard is required to be applied
retrospectively. The Company is currently evaluating the impact of adopting this
new standard.

The IASB issued IFRS 15 Revenue from Contracts with Customers
which replaces IAS 18 Revenue. IAS 15 specifies revenue recognition criteria
and expanded disclosures for revenue. The new standard is effective for annual
periods beginning on or after January 1, 2017 and early adoption is permitted.
The Company is currently assessing the impact of the standard.

- 32 -

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IAS 32, Financial Instruments: Presentation, which clarifies
the requirements for offsetting financial assets and liabilities. The amendments
clarify when an entity has a legally enforceable right to offset and certain
other requirements that are necessary to present a net financial asset or
liability. There was no impact to the Company on adoption of this standard.

IFRIC 21 Levies provides guidance on accounting for levies in
accordance with the requirements of IAS 37, Provisions, Contingent Liabilities
and Contingent Assets. There was no impact to the Company on adoption of this
standard.

Dividend Policy

No dividends have ever been declared by the Board of Directors
on our common stock. Our losses do not currently indicate the ability to pay any
cash dividends, and the Company does not indicate the intention of paying cash
dividends on our common stock in the foreseeable future.

Securities Authorized For Issuance Under Compensation Plans

Share options

The Company has a share option plan (Option Plan)
whereby it can issue up to 10% of its common shares to directors, management and
consultants at a price in the context of the market price of the shares, or such
a price as determined by the directors. As at April 30, 2015, the Company has
not issued any options pursuant to the Option Plan.

Warrants

On January 9, 2013, the Company issued 5.0 million warrants to
directors, officers and consultants. These performance warrants have an exercise
price of $0.25 per warrant, but are only exercisable if the share price of the
Company exceeds $1.00 per share for ten consecutive trading days, with a minimum
of 100,000 shares traded over the same period. On January 18, 2015, the Company
extended the warrants for two years, expiring January 18, 2017. All other terms
remained the same.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Overview

The Company's primary business consists of the exploration and,
if successful, the development of oil and gas properties. There are a number of
inherent risks associated with the exploration, development and production of
oil and gas reserves, many of these risks are beyond the control of the Company.

Success in the junior oil and gas sector is measured by a
Companys ability to raise funds and the ability to secure properties of merit.
Not all of these factors are within managements control. The ability to raise
funds is in part dependent on the state of the junior resource stock market,
which in turn is dependent on the economic climate, oil and gas prices and
perceptions as to which way the market is headed. The ability to secure
properties of merit is in large part dependent on managements contacts and the
vitality of the sector.

For a detailed discussion of the Companys risk factors, refer
to 3.D Risk Factors.

Business Risks and Risk Mitigation

There are a number of risks facing participants in the upstream
oil and gas industry. Some of the risks are common to all businesses, while
others are specific to the sector. The most important of these risks are set out
below, together with the strategies Chelsea employs to mitigate and minimize
these risks.

- 33 -

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Inherent Industry Risks  Risks of
Failing to Discover Economic Reserves Additions

The Companys strategies include focusing on oil and gas prone
selected areas in Australia, utilizing a team of highly qualified professionals
with expertise and experience in these areas, expanding operations in core
areas, continuously assessing new exploration opportunities to complement
existing activities and striving for a balance between higher risk exploratory
drilling, and lower risk development drilling.

Beyond exploration risk, there is the potential that the
Companys oil and natural gas reserves may not be economically produced at
prevailing prices. Chelsea minimizes this risk by generating exploration
prospects internally, targeting high quality projects and by attempting to
operate the projects and the infrastructure used to access the sales
markets.

Financial Commodity Price, Capital
Expenditure Requirements, Liquidity and Environmental Risks

Commodity prices are driven by supply, demand and market
conditions outside the Companys influence and control. Chelsea manages this
risk by constantly monitoring the forecasted price given by aggregators, banks,
and third party engineering firms.

Chelsea manages capital expenditures by two separate tracking
systems: a historical accounting system that records the actual costs and a
perpetual forecasting model that is constantly updated based on real-time
information. Chelseas capital investment process is based on risk analysis to
ensure capital expenditures balance the objectives of immediate cash flow growth
in development activities and future cash flow from the discovery of reserves
through exploration.

It is likely that in the future, Chelsea will be required to
raise additional capital through debt and equity financings in order to fully
realize the Companys strategic goals and business plans. Chelseas ability to
raise additional capital will depend on a number of factors, such as general
economic and market conditions that are beyond the Companys control. If the
Company is unable to obtain additional financing or to obtain it on favourable
terms, Chelsea may be required to forego attractive business opportunities.
However, as Chelsea strives to be the operator of virtually all of its
operations at a high working interest position, the Company should be able to be
flexible in the timing of operations to ensure a continued strong financial
position. The Company is committed to maintaining a strong balance sheet
combined with an adaptable capital expenditures program that can be adjusted to
capitalize on or reflect acquisition opportunities or a tightening of liquidity
sources if necessary.

The Company manages operational risks by employing skilled
professionals utilizing leading-edge technology and conducting regular
maintenance and training programs. Chelsea has updated its operational emergency
response plan to address these operational issues. In addition, a comprehensive
insurance program is maintained to mitigate risks and protect against
significant losses where possible. Chelsea operates in accordance with all
applicable environmental legislation and strives to maintain compliance with
such regulations.

CONTRACTUAL OBLIGATIONS

The table below outlines our contractual obligations as at
December 31, 2014 in millions of Australian dollars:

| |         |  |                |  |  | Minimum Work |  |  |                | 
| | ------- |  | -------------- |  |  | ------------ |  |  | -------------- | 
| |         |  | Current        |  |  | Commitment   |  |  |                | 
| | License |  | Phase Expiry   |  |  | (A$ million) |  |  | License Term   | 
| | PL 18   |  | July 2015      |  |  | AUD 5.0      |  |  | August 2024    | 
| | PL 40   |  | September 2018 |  |  | AUD 2.0      |  |  | September 2029 | 
| | PL 280  |  | August 2015    |  |  | AUD 1.0      |  |  | August 2031    | 
| | ATP 582 |  | August 2016    |  |  | AUD 11.0     |  |  | August 2020    | 
| |         |  |                |  |  | AUD 19.0     |  |  |                | 

OFF-BALANCE SHEET ARRANGEMENTS

Chelsea does not have any off-balance sheet arrangements.

- 34 -

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RELATED PARTY TRANSACTIONS

Concurrent with the acquisition of the assets in the Surat
Basin in Australia, on March 1, 2012 the Company agreed to pay certain vendors
$3.0 million within 12 months and 8.57 million shares of the Company. The loan
was non-interest bearing and was recorded at net present value of $2,770,084 and
is secured by the Surat assets. At January 1, 2013 the net present value of the
loan was $2,960,396. On March 25, 2013, the Company agreed to amend the terms of
the loan so that interest would accrue at 8% per annum, with interest accruing
from September 1, 2012. On February 28, 2015, the Company and shareholder agreed
to extend the loan to February 28, 2016.

During 2011, the Company borrowed $243,500 from two
stockholders to fund the deposit for one of its exploration concessions in
Australia. In the third quarter of 2012, $109,250 plus accrued interest of
$6,958 was repaid. In the third quarter of 2014, the Company paid $151,470, and
the stockholders agreed to forgive the remaining $31,494 outstanding.

On January 9, 2013, the Company issued 5.0 million warrants to
directors, officers and consultants. These performance warrants have an exercise
price of $0.25 per warrant, but are only exercisable if the share price of the
Company exceeds $1.00 per share for ten consecutive trading days, with a minimum
of 100,000 shares traded over the same period. On January 18, 2015, the Company
extended the warrants for two years, expiring January 18, 2017. All other terms
remained the same.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of the consolidated financial statements in
conformity with IFRS requires management to make estimates and use judgment
regarding the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities as at the date of the consolidated financial
statements and the reported amounts of revenues, expenses and impairment during
the year. By their nature, estimates are subject to measurement uncertainty and
changes in such estimates in future periods could require a material change in
the financial statements. Accordingly, actual results may differ from the
estimated amounts as future confirming events occur. Significant estimates and
judgments made by management in the preparation of these consolidated financial
statements are as follows:

Recoverability of asset carrying
values

The recoverability of development and production asset carrying
values are assessed at a cash generating unit (CGU) level. Determination of
what constitutes a CGU is subject to management judgments. The asset composition
of a CGU can directly impact the recoverability of the assets included therein.
Judgments are required to assess when impairment indicators exist and impairment
testing is required. The key estimates used in the determination of cash flows
from oil and natural gas reserves include the following:

Reserves  Assumptions that are valid at the time of reserve
estimation may change significantly when new information becomes available.
Changes in forward price estimates, production costs or recovery rates may
change the economic status of reserves and may ultimately result in reserves
being restated. The Company has obtained an independently evaluated reserves
report in respect of certain of its assets which is complaint with the Canadian
Securities Administrators National Instrument 51-101: Standards for Disclosure
for Oil and Gas Activities.

Oil and natural gas prices  Forward price estimates are used
in the cash flow model. Commodity prices can fluctuate for a variety of reasons
including supply and demand fundamentals, inventory levels, exchanges rates,
weather, and economic and geopolitical factors.

Discount rate  The discount rate used to calculate the net
present value of cash flows is based on estimates of an approximate industry
peer group weighted average cost of capital. Changes in the general economic
environment could result in significant changes to this estimate.

- 35 -

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Depletion and depreciation

Amounts recorded for depletion and depreciation and amounts
used for impairment calculations are based on estimates of total proved and
probable petroleum and natural gas reserves and future development capital. By
their nature, the estimates of reserves, including the estimates of future
prices, costs and future cash flows, are subject to measurement uncertainty.
Accordingly, the impact to the consolidated financial statements in future
periods could be material.

Market conditions, discovery and analysis of site conditions
and changes in technology. Other provisions are recognized in the period when it
becomes probable that there will be a future cash outflow.

Share-based compensation

Compensation costs recognized for share based compensation
plans are subject to the estimation of what the ultimate payout will be using
pricing models such as the Black-Scholes model which is based on significant
assumptions such as volatility, dividend yield and expected term. Several
compensation plans are also performance based and are subject to managements
judgment as to whether or not performance criteria will be met.

Deferred taxes

Tax interpretations, regulations and legislation in the various
jurisdictions in which the Company operates are subject to change. As such
income taxes are subject to measurement uncertainty. Deferred income tax assets
are assessed by management at the end of the reporting period to determine the
likelihood that they will be realized from future taxable earnings.

Financial Instruments

A financial instrument is any contract that gives rise to a
financial asset of one party and a financial liability or equity instrument of
another party. A financial asset is any asset that is (i) cash; (ii) a
contractual right to receive cash or another financial asset from another party;
(iii) a contractual right to exchange financial instruments with another party
under conditions that are potentially favourable to the entity; or (iv) an
equity instrument of another entity. A financial liability is any liability that
is a contractual obligation to (i) deliver cash or another financial asset to
another party; or (ii) exchange financial instruments with another party under
conditions that are potentially unfavourable to the entity. An equity instrument
is any contract that evidences a residual interest in the assets of an entity
after deducting all of its liabilities.

As at December 31, 2014, the Companys financial instruments
are cash, accounts receivable and accounts payable and accrued liabilities and
shareholder loans. The carrying amounts reflected in the balance sheet are
carrying amounts and approximate their fair values due to the short-term nature
and negligible credit losses.

The Company does not use derivative instruments or hedges to
manage risks because the Companys exposure to credit risk and interest rate
risk is insignificant.

|ITEM 6. | DIRECTORS AND SENIOR MANAGEMENT
|------- | -------------------------------
|        |                                
|6.A     | DIRECTORS AND SENIOR MANAGEMENT

The following table sets out the names and municipalities of
residence of the directors and executive officers of the Corporation, their
present position(s) and offices with the Corporation, their principal
occupations during the last five years and their holdings of Common Shares as at
the date hereof.

The term of office of the directors expires annually at the
time of the Corporations annual shareholder meeting or when or until their
successor is duly appointed or elected. The term of office of the Corporations
executive officers expires at the discretion of the Corporations directors.

- 36 -

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|Name, Residence
      and Position                                          |  | Principal Occupation For The Past Five Years                                                                                                                                                                                                                                                    |  | Director/Officer Since                                                  
|--------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------
|William H. Petrie Sr.(3)
    Cochrane, Alberta
    Executive Chairman       |  | Executive Chairman and a Director of Chelsea
      since March 1, 2012 and Director of Chelsea Oil Australia Pty since
      November 2011.
      Chief Executive Officer and Director of Birch
      Lake Energy Inc. since December 5, 2007.                                                  |  | March 1, 2012 (Director)
    October 1, 2013 (Executive Chairman)       
|                                                                            |  |                                                                                                                                                                                                                                                                                                 |  |                                                                         
|Jesse D. Meidl(1)
    Calgary, Alberta 
    Chief Executive Officer         |  | Chief Executive Officer of Chelsea since
      January 2014, Vice President, Finance and Chief Financial Officer
      of Caithness Petroleum Limited April 2010. Investment Banker
      with Westwind Partners and Thomas Weisel Partners
      International from June 2007.                 |  | March 1, 2012 (Director) 
    January 30, 2014 (Chief Executive Officer)
|                                                                            |  |                                                                                                                                                                                                                                                                                                 |  |                                                                         
|William H. Petrie, Jr. 
    Calgary, Alberta 
    Chief Exploration Officer |  | Chief Exploration Officer, Former
      Vice-President Exploration for Windtalker Energy Corp., Former Technical
      Manager at ENVOI Ltd., UK based firm providing marketing and
      A&D services.                                                                                         |  | October 1, 2013                                                         
|                                                                            |  |                                                                                                                                                                                                                                                                                                 |  |                                                                         
|Yves Merer(1)(2)
    Dubai, UAE      Independent Director                   |  | Chief Executive Officer and Director of
      Caithness Petroleum Limited from August 2011  December 2013. Prior
      thereto, consultant from June 2010  July 2011 in respect of the Middle
      East and North Africa. Country Chairman of Royal Dutch Shell
      plc companies in Iran. |  | October 1, 2013                                                         
|                                                                            |  |                                                                                                                                                                                                                                                                                                 |  |                                                                         
|Stewart Gibson(2)(3)
    Montrose, Scotland    Independent Director         |  | Director and advisor of Sterling Resources Ltd.
      from May 2010- May 2013. Prior thereto, Managing Director,
      Chief Operating Officer, President and Chief Executive Officer
      of Sterling Resources Ltd. from 1999 to May 2010                                                    |  | October 1, 2013                                                         
|                                                                            |  |                                                                                                                                                                                                                                                                                                 |  |                                                                         
|Toby Pierce(1)(2)(3)
    London, UK    Independent Director                 |  | Chairman and Director of Crest Petroleum Corp.
      since May 2012. Prior thereto Partner and Senior Oil Equity
      analyst with GMP Securities LP and Tristone Capital Global Inc.
      in London, England                                                                                 |  | October 1, 2013                                                         

Notes:

|1. | Member of the Audit Committee.                                      
|-- | --------------------------------------------------------------------
|2. | Member of the Corporate Governance and Compensation
      Committee.
|3. | Member of the Reserves Committee.                                   

Audit Committee Financial Expert

Our board of directors has determined that Jesse Meidl
possesses specific accounting and financial management expertise, that he is the
audit committee financial expert as defined by the U.S. Securities and Exchange
Commission, and that he is independent within the meaning of the rules of the
NYSE. Our board of directors has also determined that other members of our audit
committee have sufficient experience and ability in finance and compliance
matters to enable them to adequately discharge their responsibilities.

Cease Trade Orders

To the knowledge of the Corporation, no director or executive
officer is, as of the date of this Form 20-F, or was within 10 years prior to
the date of this Form 20-F, a director, chief executive officer or chief
financial officer of any company (including the Corporation) that: (i) was
subject to a cease trade order, an order similar to a cease trade order or an
order that denied the Corporation access to any exemption under securities
legislation and which order was in effect for a period of more than 30
consecutive days while he was acting in the capacity as director, chief
executive officer or chief financial officer of such company; or (ii) was
subject to any of the foregoing orders for a period of more than 30 consecutive
days after he ceased to be a director, chief executive officer or chief
financial officer of such company and which resulted from an event that occurred
while he was acting in such capacity.

A cease trade order was issued by the British Columbia
Securities Commission (BCSC) under Section 164 of the Securities
Act (British Columbia) against ITME on February 18, 1999 for failure to file
certain continuous disclosure documents. Upon completion of the Arrangement,
such cease trade order applies in the province of British Columbia to Chelsea.
Chelsea has submitted an application to the BCSC to lift such cease trade order.
No determination has been made by the BCSC in respect of such application, and
there is no certainty that Chelseas application will be accepted, or if
accepted, on terms that are favorable to Chelsea. Chelsea has filed a business
acquisition report in respect of the Arrangement.

- 37 -

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Bankruptcies

To the knowledge of the
Corporation, other than as disclosed below, no director, executive officer or
shareholder holding a sufficient number of securities to affect materially the
control of the Corporation, is, as of the date of this Form 20-F, or was within
10 years prior to the date of this Form 20-F, a director or executive officer of
any company that, while such person was acting in that capacity, or within a
year of that person ceasing to act in that capacity, became bankrupt, made a
proposal under any legislation relating to bankruptcy or insolvency or was
subject to or instituted any proceedings, arrangement or compromise with
creditors or had a receiver, receiver-manager or trustee appointed to hold its
assets.

To the knowledge of the
Corporation, no director or executive officer of the Corporation, or shareholder
holding a sufficient number of securities to affect materially the control of
the Corporation has, within the 10 years before the date of this Form 20-F,
become bankrupt, made a proposal under any legislation relating to bankruptcy or
insolvency, or become subject to or instituted any proceedings, arrangement or
compromise with creditors, or had a receiver, receiver manager or trustee
appointed to hold the assets of the director, executive officer or Shareholder.

Stewart Gibson resigned from the
board of Petro Ventures International Limited (PVIL) in March 2013.
PVIL is incorporated in Australia and on 13 September 2013, Administrators,
Scott Langdon & Cliff Rocke of Korda Mentha, were appointed by the PVIL
board.

Penalties or Sanctions

To the knowledge of the
Corporation, no director or executive officer of the Corporation, or shareholder
holding a sufficient number of securities to affect materially the control of
the Corporation has been subject to any penalties or sanctions imposed by a
court relating to securities legislation or by a securities regulatory authority
or has entered into a settlement agreement with a securities regulatory
authority, or has been subject to any other penalties or sanctions imposed by a
court or regulatory body that would likely be considered important to a
reasonable investor in making an investment decision.

Conflicts of Interest

To the knowledge of the
Corporation, there are no conflicts of interest between the Corporation and its
officers, Board of Directors and senior management.

|6. | B COMPENSATION
|-- | --------------

The remuneration of directors and
other key management personnel during the years ended December 31, 2013 and 2012
was as follows:

|                            |   | 2014 |  |   | 2013    | 
|--------------------------- | - | ---- |  | - | ------- | 
|Share-based compensation    | $ | -    |  | $ | 254,938 | 
|Director
      compensation |   | -    |  |   | 12,500  | 
|                            | $ | -    |  | $ | 267,438 | 

The remuneration of directors and
key executives is determined by the Board of Directors having regard to the
performance of individuals and market trends. During 2014 and 2013, the Company
did not incur any salaries and no key management or Director received any salary
or consulting fees.

During 2014, key Company
personnel received performance warrants. The fair value of these warrants was
estimated using the Black-Scholes pricing model based on a volatility of 98%,
risk-free interest rate of 1.5%, expected life of 2 years and no dividend yield.

- 38 -

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|6. | C BOARD PRACTICES
|-- | -----------------

Each director holds office until
the next annual general meeting of the Company unless his or her office is
earlier vacated in accordance with the Articles of the Company (the Articles)
or the ABCA.

During the most recently
completed fiscal year, there were no arrangements (standard or otherwise) under
which directors of the Company were compensated by the Company or its
subsidiaries for services rendered in their capacity as directors, nor were any
amounts paid to the directors for committee participation or special
assignments. There were no arrangements under which the directors of the Company
would receive compensation or benefits in the event of the termination of that
office.

The current members of the Audit
Committee are Messrs. Pierce (Chairman), Merer and Meidl, all of whom are
financially literate and each of Messrs. Pierce and Merer are considered to be
independent under NI 52-110. Mr. Meidl is the Chief Executive Officer of the
Corporation and is therefore not considered to be independent. The audit
committee is responsible for selecting, evaluating and recommending the
Companys auditors to the Board of Directors for shareholder approval;
evaluating the scope and general extent of the auditors review; overseeing the
work of the auditors; recommending the auditors compensation to the Board of
Directors; and assisting with the resolution of any disputes between management
and the auditors regarding financial reporting. The audit committee is also
responsible for reviewing the Companys annual and interim financial statements
and recommending their approval to the Board of Directors; reviewing the
Companys policies and procedures with respect to internal controls and
financial reporting; and establishing procedures for dealing with complaints
regarding accounting, internal controls or auditing matters.

|6. | D EMPLOYEES
|-- | -----------

The Company does not have any
full-time employees. The Company also engages consultants and professionals on
an as needed basis.

|6. | E SHARE OWNERSHIP
|-- | -----------------

As of the date of this Form 20-F,
the Corporations directors and executive officers, including the directors and
officers of the Corporations subsidiaries, as a group beneficially own,
directly or indirectly, or exercise control or direction over, an aggregate of
14,171,400 of the issued and outstanding Common Shares representing 22.1% of the
outstanding Common Shares.

|ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY
      TRANSACTIONS
|------- | -------------------------------------------------------
|        |                                                        
|7.A     | MAJOR SHAREHOLDERS                                     

The following table sets forth
information regarding the beneficial ownership of the common stock of the
Company as of April 30, 2015 by each of the Companys officers and directors,
each person who is known by the Company to own beneficially more than 5% of the
outstanding common stock and all officers and directors of the Company as a
group. The title of the class is common stock, no par value.

|                                      |  | # of Shares  |  |              
|------------------------------------- |  | ------------ |  | -------------
|                                      |  | Beneficially |  | Percentage of
|Name and
      Address of Stockholder |  | Owned        |  | Class        
|                                      |  |              |  |              
|Robert Kamon                          |  | 5,012,717    |  | 7.72%        
|PO Box 1629                           |  |              |  |              
|Cisco TX 76437                        |  |              |  |              
|USA                                   |  |              |  |              
|                                      |  |              |  |              
|Brisbane Petroleum Ltd.               |  | 4,668,319    |  | 7.32%        
|65 Burswood Road                      |  |              |  |              
|Burswood WA 6100                      |  |              |  |              
|Australia                             |  |              |  |              

- 39 -

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|                                      |  | # of Shares  |  |              
|------------------------------------- |  | ------------ |  | -------------
|                                      |  | Beneficially |  | Percentage of
|Name and
      Address of Stockholder |  | Owned        |  | Class        
|                                      |  |              |  |              
|Ely Sakhai                            |  | 3,801,571    |  | 5.93%        
|10 Windsor Drive                      |  |              |  |              
|Old Westbury NY 11568                 |  |              |  |              
|USA                                   |  |              |  |              
|                                      |  |              |  |              
|Jesse Meidl                           |  | 3,771,400    |  | 5.89%        
|127  10thAvenue NW                   |  |              |  |              
|Calgary, Alberta, Canada T2M 0B4      |  |              |  |              
|                                      |  |              |  |              
|William Petrie, Sr.                   |  | 3,700,000    |  | 5.78%        
|P. O. Box 1359                        |  |              |  |              
|Cochrane, Alberta Canada T4C 1B3      |  |              |  |              
|                                      |  |              |  |              
|William Petrie, Jr.                   |  | 3,700,000    |  | 5.78%        
|P. O. Box 1359                        |  |              |  |              
|Cochrane, Alberta Canada T4C 1B3      |  |              |  |              

Note: The stockholders identified
in this table have sole voting and investment power with respect to the shares
beneficially owned by them.

The shareholders listed in the
table above (i) have no rights to acquire additional shares through options,
warrants, rights, or conversion privileges within the next sixty days, and (ii)
do not have voting rights different from other holders of our common shares.

As of April 30, 2015, 31% shares
of the Companys outstanding common stock were held by 339 holders of record in
the United States, not including The Depository Trust Company (DTC). As of May
15, 2014, DTC was the holder of record of 16.1 million shares.

|7. | B RELATED PARTY
TRANSACTIONS
|-- | ----------------------------

Shareholder loans

The Companys shareholder loans
are described in note 9 on the audited consolidated financial statements for the
year ended December 31, 2014. The loans were negotiated between the Company and
the shareholders on terms comparable to arms-length transactions of similar
type. The fair value of the shareholder loans approximates their carrying value
at December 31, 2014 and 2013.

For disclosure about common
shares awarded to directors, see Item 5. Operating and Financial Review and
Prospects  Related Party Transactions and Item 6.B Compensation.

|7. C | INTEREST OF EXPERTS AND
COUNSEL
|---- | -------------------------------

No director, officer or employee
of any of the experts referred to herein is or is expected to be elected,
appointed or employed as a director, officer or employee of Chelsea or of any
associate or affiliate of Chelsea.

|ITEM 8. | FINANCIAL INFORMATION                                        
|------- | -------------------------------------------------------------
|        |                                                              
|8.A     | CONSOLIDATED STATEMENTS AND OTHER FINANCIAL
      INFORMATION

Please see Item 18. Financial
Statements for additional information required to be disclosed under this Item.

|8. B | SIGNIFICANT CHANGES
|---- | -------------------

Please see Item 3. Key
Information, Item 4 Information on the Company and Item 5. Operating and
Financial Review and Prospects for additional information.

- 40 -

---

|ITEM 9. | **THE OFFER AND LISTING**
|------- | -------------------------

|9. | A PRICING HISTORY
|-- | -----------------

The principal trading market for
the common equity securities of the Company is the National Association of
Securities Dealers OTC Quotation Board (the OTCQB) quotation system
under the symbol COGLF. These quotations reflect inter-dealer prices, without
retail mark-up, mark- down or commissions, and may not represent actual
transactions.

The following table summarizes
the annual high and low market prices for the five most recent full financial
years:

US$High
    
    
    Low2014
    
    0.30
    
    
    0.042013
    
    0.35
    
    
    0.042012
    
    0.10
    
    
    0.352011
    
    0.01
    
    
    0.292010
    
    0.02
    
    
    0.22


The following table summarizes
the quarterly high and low market prices for each full financial quarter over
the two most recent full financial years:

2014
    
    
    2013US$
    
    High
    
    
    Low
    
    
    High
    
    
    Low1st Quarter
    
    0.30
    
    
    0.02
    
    
    0.22
    
    
    0.042nd Quarter
    
    0.19
    
    
    0.05
    
    
    0.28
    
    
    0.043rd Quarter
    
    0.14
    
    
    0.06
    
    
    0.35
    
    
    0.104th Quarter
    
    0.10
    
    
    0.04
    
    
    0.31
    
    
    0.10


The following table summarizes
monthly high and low market prices for each of the most recent six months:

US$High
    
    
    LowApril 2015
    
    0.09
    
    
    0.4March 2015
    
    0.09
    
    
    0.04February 2015
    
    0.10
    
    
    0.04January 2015
    
    0.10
    
    
    0.05December 2014
    
    0.10
    
    
    0.04November 2014
    
    0.10
    
    
    0.04


The approximate number of
securities holders of record of the Company on April 30, 2015 was 390 of record,
which does not include stockholders whose shares are held in street or nominee
names. We have no outstanding stock options. There are 5.0 million shares
outstanding pursuant to issued warrants, which become exercisable only if the
price of our common shares exceeds $1.00 per share for 10 consecutive days. See
Item 5. Operating and Financial Review and Prospects  Warrants for additional
information.

|9. B | PLAN OF DISTRIBUTION
|---- | --------------------

Not applicable.

- 41 -

---

|9. C | MARKET
|---- | ------

Our common shares are listed on the
OTCQB under the symbol COGLF.

|9. D | SELLING SHAREHOLDERS
|---- | --------------------

Not applicable.

|9. E | DILUTION
|---- | --------

Not applicable.

|9. F | EXPENSES OF THE ISSUE
|---- | ---------------------

Not applicable.

|ITEM 10. | **ADDITIONAL
      INFORMATION**
|-------- | --------------------------------
|         |                                 
|10.A     | **SHARE CAPITAL**               

Not applicable.

|10. B | ARTICLES OF AMALGAMATION
|----- | ------------------------

The Company is registered under
the ABCA. The Articles do not contain any limitations on the Companys objects
or purposes.

With respect to directors, under
the Articles, a director who is in any way, directly or indirectly, interested
in an existing or proposed contract or transaction with the Company or who holds
any office or possesses any property whereby, directly or indirectly, a duty or
interest might be created to conflict with his or her duty or interest as a
director must disclose the nature and extent of his or her interest in such
contract or transaction or of the conflict or potential conflict with his or her
duty and interest as a director, as the case may be. An interested director can
vote on only a limited number of such matters (securing a loan to the Company, a
contract with an affiliate of which a director is a director or officer, a
contract to subscribe for or underwrite debentures to be issued, a contract
where all other directors are also interested in the contract, compensation of
the directors or insurance or indemnity) provided the interest is disclosed.
Otherwise, even with disclosure of the interest, such a director cannot vote on
a material contract or proposed material contract.

Subject to the ABCA, there is no
restriction in the Articles on the power of the board of directors to have the
Company borrow money, issue debt obligations, secure debt or other obligations
of the Company or give financial assistance to any person. The Articles contain
no provision for the retirement or non-retirement of directors under an age
limit requirement. A director is not required to hold any shares of the Company
in order to be a director.

The Articles provide for the
issuance of an unlimited number of common shares, without par value, and an
unlimited number preferred shares, without par value. All holders of common
shares have equal voting rights (one vote per share), equal rights to dividends
when and if declared, and equal rights to share in assets upon liquidation of
the Company. The common shares are not subject to any redemption or sinking fund
provisions or any purchase or pre-emptive rights. All issued and outstanding
shares are fully paid and non-assessable securities.

The Company may alter the
Articles, by special resolution, to create, define and attach special rights or
restrictions to any common shares as well as to vary or abrogate any special
rights and restrictions attached to any common shares.

An annual meeting of shareholders
must be called by the board of directors not later than 15 months after the last
annual meeting. The directors at any time may call an extraordinary general
meeting of shareholders.

- 42 -

---

Notice of any meeting must be sent in accordance with the ABCA.
All shareholders entitled to vote are entitled to be present at a shareholders
meeting. A quorum is the presence in person or by proxy of the holders of at
least 10% of the issued shares entitled to be voted at the meeting.

Except under the Investment
Canada Act (the ICA), there are no limitations specific to the rights of
non-Canadians to hold or vote our shares under the laws of Canada or our
organizational documents. The ICA requires a non-Canadian making an investment
which would result in the acquisition of control of a Canadian business, the
gross value of the assets of which exceed certain threshold levels or the
business activity of which is related to Canadas cultural heritage or national
identity, to either notify, or file an application for review with, Investment
Canada, the federal agency created by the ICA. The notification procedure
involves a brief statement of information about the investment on a prescribed
form which is required to be filed with Investment Canada by the investor at any
time up to 30 days after implementation of the investment. It is intended that
investments requiring only notification will proceed without intervention by
government unless the investment is in a specific type of business related to
the scope of the ICA. If an investment is reviewable under the ICA, an
application for review in the prescribed form normally is required to be filed
with Investment Canada before the investment is made and it cannot be
implemented until completion of review and Investment Canada has determined that
the investment is likely to be of net benefit to Canada. If the agency is not so
satisfied, the investment cannot be implemented if not made, or if made, it must
be unwound.

|10. C | MATERIAL CONTRACTS
|----- | ------------------

Except as set forth below, no
director or executive officer of the Corporation or a person or company that
beneficially owns, or controls or directs, directly or indirectly, more than ten
percent (10%) of any class or series of voting securities of the Corporation, or
any associate or affiliate of any such person, has had any material interest,
direct or indirect, in any transaction within the three (3) most recently
completed financial years or the current financial year that has materially
affected or is reasonable expected to materially affect the Corporation.

Each of Jesse Meidl, William H.
Petrie, Sr. and William H. Petrie, Jr. were directors, officers and significant
shareholders of 1629518 Alberta Ltd., which company was acquired by Chelsea in
exchange for the issuance of an aggregate of 13,278,571 Common Shares on
February 29, 2012. Concurrently with such acquisition, Chelsea acquired a 100%
Working Interest in PL 18 and 40 and a 50% Working Interest in PL 280 and
completed the Non-Brokered Private Placement. Each of Messrs. Meidl and Petrie,
Sr. were also added to the Board of Directors on such date.

On November 17, 2011, 1629518
Alberta Ltd. (Newco), the Company and the registered and beneficial
owners of all the issued and outstanding shares of Newco (the Newco
Securityholders) entered into a share exchange agreement (the Share
Exchange Agreement). Pursuant to the Share Exchange Agreement, the Company
and the Newco Securityholders exchanged common shares on a one for one basis.
The common shares of the Company that were issued pursuant to the Share Exchange
Agreement were subject to an indefinite hold period in Canada. The Newco
Securityholders were required to surrender the certificates representing their
shares and, in return, were entitled to receive a certificate representing the
Company's common shares. From the date of the Share Exchange Agreement until the
date of closing, the Company had to use its commercially reasonable efforts to
conduct its business in the ordinary course, as well as obtain all necessary
regulatory approvals and financing.

On November 17, 2011, Brisbane
Petroleum Ltd., Delbaere Associates Pty. Limited (both parties together, the
Vendor), Chelsea Oil Australia Pty Ltd (the Purchaser) and the
Company entered into a purchase and sale agreement (the Purchase and Sale
Agreement). Pursuant to the Purchase and Sale Agreement, the Vendor sold and
transferred certain assets to the Purchaser in exchange for the Company issuing
a total of 8,571,429 of its common shares to the Vendor. In order to close the
transaction certain conditions were to be met, including obtaining certain
approvals and consents, passing of certain resolutions and the completing of
financing.

|10. D | EXCHANGE CONTROLS
|----- | -----------------

There are currently no
governmental laws, decrees, regulations or other legislation of Canada or the
United States which restrict the import or export of capital or the remittance
of dividends, interest or other payments to non-residents of Canada or the United States
holding our securities, except as otherwise described in this annual report on
Form 20-F under Item 10.E Taxation.

- 43 -

---

|10. E | TAXATION
|----- | --------

As a result of its Overriding
Royalty Interests attributable to properties outside the United States, the
Company is subject to the imposition of taxes by foreign governments upon the
Companys income derived from such foreign jurisdictions. These taxes are of
various types, with differing tax rates, and are subject to change. Generally,
the Companys income from a foreign jurisdiction will be taxed in the same
manner as that for other companies operating in the jurisdiction, but
discriminatory taxation by a particular jurisdiction may occur. The current
non-resident corporate income tax rate in Australia, for Overriding Royalty
Interests, is 30%.

As a Canadian corporation, the
Company is liable for income taxes under the laws of Canada. Under Canadian law
the Companys Australian-source income is subject to a 25% tax (on Canadian
income). We believe the 30% Australian tax should be a partial credit toward the
payment of the 25% Canadian tax under double taxation treaties between the
countries.

The Company is taxable in the
U.S. on U.S. source income. Because there has been neither U.S. source net
income nor any income effectively connected with a U.S. trade or business, there
have been no U.S. taxes incurred to date.

|10. F | DIVIDENDS AND PAYING
AGENTS
|----- | ---------------------------

Not applicable.

|10. G | STATEMENT BY EXPERTS
|----- | --------------------

Not applicable.

|10. H | DOCUMENTS ON DISPLAY
|----- | --------------------

Any statement in this Form 20-F
about any of our contracts or other documents is not necessarily complete. If
the contract or document is filed as an exhibit to this Form 20-F, the contract
or document is deemed to modify the description contained in this Form 20-F. You
must review the exhibits themselves for a complete description of the contract
or document.

We are subject to the information
filing requirements of the Exchange Act, and accordingly are required to file
periodic reports and other information with the SEC. As a foreign private issuer
under the SECs regulations, we file annual reports on Form 20-F and other
reports on Form 6-K. The information disclosed in our reports may be less
extensive than that required to be disclosed in annual and quarterly reports on
Forms 10-K and 10-Q required to be filed with the SEC by U.S. issuers.

Moreover, as a foreign private
issuer, we are not subject to the proxy solicitation or disclosure requirements
under Section 14 of the Exchange Act, and our directors and principal
shareholders are not subject to the insider short swing profit reporting and
recovery rules under Section 16 of the Exchange Act. Our SEC filings are
available at the SECs website at www.sec.gov. You may also read and copy any
document we file with the SEC at the public reference facilities maintained by
the SEC at SEC Headquarters, Public Reference Section, 100 F Street, N.E.,
Washington D.C. 20549. You may obtain information on the operation of the SECs
public reference facilities by calling the SEC at 1-800-SEC-0330.

|10. I | SUBSIDIARY INFORMATION
|----- | ----------------------

Not applicable.

- 44 -

---

|**ITEM 11.** | QUANTITATIVE AND QUALITATIVE DISCLOSURES
      ABOUT NON-PRODUCT RELATED MARKET RISK
|------------ | ------------------------------------------------------------------------------------

See Item 5. Operating and
Financial Review and Prospects  Quantitative and Qualitative Disclosures About
Market Risks.

|**ITEM 12.** | DESCRIPTION OF SECURITIES OTHER THAN EQUITY
      SECURITIES
|------------ | ------------------------------------------------------------

Not applicable.

- 45 -

---

PART II

|**ITEM 13.** | DEFAULTS, DIVIDEND ARREARAGES AND
      DELINQUENCIES
|------------ | -----------------------------------------------------

None.

|**ITEM 14.** | MATERIAL MODIFICATIONS TO THE RIGHTS OF
      SECURITY HOLDERS AND USE OF PROCEEDS
|------------ | ----------------------------------------------------------------------------------

None.

|**ITEM 15.** | CONTROLS AND PROCEDURES
|------------ | -----------------------

Disclosure Controls and Procedures

In connection with the
preparation of this Form 20-F, an evaluation was carried out by our management,
with the participation of the Chief Executive Officer, of the effectiveness of
our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934 (Exchange Act)) as
of December 31, 2014. Disclosure controls and procedures are designed to ensure
that information required to be disclosed in reports filed or submitted under
the Exchange Act is recorded, processed, summarized, and reported within the
time periods specified in the SEC rules and forms and that such information is
accumulated and communicated to management, including the Chief Executive
Officer, to allow timely decisions regarding required disclosures.

Based on that evaluation, our
management concluded that our disclosure controls and procedures were effective
in reporting information required to be disclosed within the time periods
specified in the SECs rules and forms.

Managements Annual Report on Internal Control Over
Financial Reporting

Management of our company is
responsible for establishing and maintaining adequate internal control over
financial reporting. Our companys internal control over financial reporting is
a process, under the supervision of the Chief Executive Officer, designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of the Companys financial statements for external purposes
in accordance with IFRS accounting principles. Internal control over financial
reporting includes those policies and procedures that:

| |  | Pertain to the maintenance of records that in reasonable
      detail accurately and fairly reflect the transactions and dispositions of
      the Companys assets;                                                                                                                                                                                  
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                       
| |  | Provide reasonable assurance that transactions are
      recorded as necessary to permit preparation of the financial statements in
      accordance with generally accepted accounting principles, and that
      receipts and expenditures are being made only in accordance with
      authorizations of management and the Board of Directors; and
| |   |                                                                                                                                                                                                                                                                                                                                                       
| |  | Provide reasonable assurance regarding prevention or
      timely detection of unauthorized acquisition, use, or disposition of the
      Companys assets that could have a material effect on the financial
      statements.                                                                                                                       

Our management conducted an
assessment of the effectiveness of the Companys internal control over financial
reporting as of December 31, 2014, based on criteria established in Internal
Control - Integrated Framework (1992) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this assessment, our
management concluded that there was no material weakness in our internal
controls over financial reporting, and accordingly, our controls are effective.

---

Because of its inherent
limitations, internal control over financial reporting may not prevent or detect
all misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions or that the degree of compliance with the
policies or procedures may deteriorate.

Report of Independent Registered Chartered
Accountants

This Form 20-F does not include
an attestation report of our registered public accounting firm regarding
internal control over financial reporting. Managements report was not subject
to attestation by our registered public accounting firm under confirming rules
of the SEC adopted pursuant to the 2010 Dodd-Frank Wall Street Reform and
Consumer Protection Act.

Changes in Internal Control

There was no change in our
internal control over financial reporting during the year ended December 31,
2014, that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.

|ITEM 16. | **AUDIT COMMITTEE FINANCIAL
      EXPERTS**
|-------- | -------------------------------------------
|         |                                            
|16.A     | **AUDIT COMMITTEE FINANCIAL
      EXPERTS**

The Audit Committee has been
structured to comply with the requirements of Canadian National Instrument 52-
110 - Audit Committee (NI 52-110) as it relates to OTC reporting
issuers. The Board has determined that the Audit Committee members have the
appropriate level of financial understanding and industry specific knowledge to
be able to perform the duties of the position and in particular are financially
literate as defined in NI 52-110.

The Audit Committee periodically
assesses the adequacy of procedures for the public disclosure of financial
information and review, on behalf of the Board, and reports to the Board the
results of its review and its recommendations regarding all material matters of
a financial reporting and audit nature, including, but not limited to:

| | oversight of the nature and scope of the annual
      audit;                                                           
|- | -----------------------------------------------------------------------------------------------------------------------
| | oversight of managements reporting on internal
      accounting standards and practices; and                          
| | review of financial information, accounting
      systems and procedures, financial reporting and financial statements.

The primary objectives of the Audit Committee are as follows:

| | assist directors in meeting their responsibilities
      (especially for accountability) in respect of the preparation and
      disclosure of the financial statements of the Corporation and related
      matters;
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | provide better communication between directors
      and external auditors;                                                                                                                                          
| | enhance the external auditors independence;                                                                                                                                                                         
| | increase the credibility and objectivity of
      financial reports; and                                                                                                                                             
| | strengthen the role of the outside directors by
      facilitating in-depth discussions between directors on the Audit
      Committee, management and external auditors.                                            

The Audit Committee ensures
satisfactory procedures for (i) receipt, retention and treatment of complaints
received by the Corporation regarding any accounting, internal accounting
controls or auditing matters and (ii) the confidential anonymous submission of
concerns by employees regarding questionable accounting or auditing matters. The
Board is kept informed of the Audit Committees activities by a report delivered
at each regular meeting of the Board of Directors.

- 47 -

---

The Audit Committee shall
recommend the appointment and terms of engagement of the external auditor
annually and reviews and evaluates the external auditor. The external auditor
reports directly to the Audit Committee. In addition, the Audit Committee
pre-approves non-audit services undertaken by the external auditor and on an
annual basis, reviews and discusses with the external auditors all significant
relationships such auditors have with the Corporation to determine the auditors
independence.

The Audit Committee has direct
responsibility for overseeing the work of the external auditor engaged for the
purpose of preparing or issuing an auditors report or performing other audit,
review or attest services, including the resolution of disagreements between the
external auditor and management.

The Audit Committee meets at
least once per financial quarter to fulfill its mandate. A copy of the Audit
Committee Charter is attached as Appendix A to this Form 20-F.

Composition of the Audit Committee

The current members of the Audit
Committee are Messrs. Pierce (Chairman), Merer and Meidl, all of whom are
financially literate and each of Messrs. Pierce and Merer are considered to be
independent under NI 52-110. Mr. Meidl is the Chief Executive Officer of the
Corporation and is therefore not considered to be independent.

Relevant Education and Experience

The following relevant education
and experience of the current and proposed members of the Audit Committee have
been used in assessing their financial literacy:

Toby Pierce (Chairman)

Mr. Pierce was most recently a
Director & Senior Analyst with GMP Securities (London, UK) and prior to GMP
served as Director of Institutional Research at Tristone Capital (London, U.K.)
since 1994. Previous engagements include wellsite geology over a period of five
years for numerous companies across the Western Canadian Sedimentary Basin. In
addition, he has worked for three years across North and Latin America as a
geologist in the mining and exploration industry. Mr. Pierce brings strong
geological and financial understanding within resource sectors. Mr. Pierce holds
an M.B.A. from the Rotman School of Business and a B.Sc. Geology from the
University of Victoria.

Yves Merer

A graduate of the School of
Geology in Nancy, France, Mr. Merer holds a Masters in Petroleum Economics from
the French Institute of Petroleum and began his career in the mining sector
before joining Shell in 1979. After twelve years in operations and production
roles in the North Sea and Brunei, Mr. Merer moved to London in 1992 and spent
four years in a regional business governance role, managing Shells interests in
French-speaking West Africa. In 1996 he was appointed General Manager of Salym
Petroleum Development in Siberia. Mr. Merer then served as Chairman of Shell
Syria, based in Damascus, before moving to Beijing for three years as President
of Shell China Exploration and Production, in charge of a large portfolio of
exploration, development and production assets, both onshore and offshore. In
2006, he moved to Tehran to take on his final role with Shell. As Iran Country
Chairman, he was responsible for several joint ventures, large oil and gas
projects and a number of important contracts.

Jesse Meidl

Mr. Meidl has over 18 years of
experience in the oil and gas sector. He was previously Chief Financial Officer
of a private international energy company, headquartered in London, England.
Prior thereto, he was an investment banker in the International Oil & Gas
group of Thomas Weisel Partners in London (now Stifel Nicolas). Mr. Meidl was
previously the Chief Financial Officer for Arsenal Energy Inc., an international exploration company listed on the Toronto
Stock Exchange, which held production assets in Canada and the USA and
exploration assets in Egypt, Colombia and Uzbekistan. He qualified as a
Chartered Accountant with KPMG in Calgary, where he specialized in oil and gas
exploration and production and services. He also holds the ICAEW Corporate
Finance qualification and a B. Comm. degree from the University of Saskatchewan
(Canada).

- 48 -

---

Audit Committee Over sight

At no time was a recommendation
of the Audit Committee to nominate or compensate an external auditor not adopted
by the board of directors.

Pre-Approval Policies and Procedures

Any proposed audit and permitted
non-audit services (as identified by the Audit Committee at the time the annual
audit engagement is approved) to be provided by the external auditor to the
Corporation or its subsidiaries must receive prior approval from the Audit
Committee. The Corporation has not adopted specific policies and procedures for
the engagement of non-audit services. The Audit Committee will review the
engagement of non-audit services as may be required.

The Chief Executive Officer shall
act as the primary contact to receive and assess any proposed engagements from
the external auditor. Following receipt and initial review for eligibility by
the primary contact, a proposal would then be forwarded to the Audit Committee
for review and confirmation that a proposed engagement is permitted. In the
majority of such instances, proposals may be received and considered by the
Chair of the Audit Committee (or such other member of the Audit Committee who
may be delegated authority to approve audit and permitted non-audit services),
for approval of the proposal on behalf of the Audit Committee. The Audit
Committee Chair will then inform the Audit Committee of any approvals granted at
the next scheduled meeting.

Our board of directors has
determined that Toby Pierce possesses specific accounting and financial
management expertise, that he is the audit committee financial expert as defined
by the U.S. Securities and Exchange Commission, and that he is independent
within the meaning of the rules of the NYSE. Our board of directors has also
determined that other members of our audit committee have sufficient experience
and ability in finance and compliance matters to enable them to adequately
discharge their responsibilities.

|16. B | CODE OF ETHICS
|----- | --------------

The Company has not adopted a
code of ethics that applies to its principal executive officer, principal
financial officer, principal accounting officer or controller, or persons
performing similar functions because it does not believe that, given its small
size and limited operations, a code of ethics is warranted. However, as the
Company grows and it continues to develop its operations it may consider
adopting a code of ethics.

|16. C | PRINCIPAL ACCOUNTANT FEES AND
  SERVICES
|----- | ----------------------------------------

KPMG LLP was appointed as the
Corporations auditor on March 31, 2014. Prior thereto, KWCO PC in Odessa, Texas
in was the auditor of the Corporation from November 26, 2009. The following
table provides information about the fees billed to the Corporation for
professional services rendered by KWCO PC and KPMG LLP during the three prior
fiscal years:

- 49 -

---

The table below summarizes the
fees for professional services rendered by KWCO PC and KPMG LLP during the three
prior fiscal years:

|                   |   | 2014   |  |   | 2013   |  |   | 2012   | 
|------------------ | - | ------ |  | - | ------ |  | - | ------ | 
|                   |   | KPMG   |  |   | KWCO   |  |   | KWCO   | 
|Audit Fees         | $ | 60,000 |  | $ | 65,000 |  | $ | 50,226 | 
|Audit-Related Fees |   | -      |  |   | -      |  |   | -      | 
|Tax Fees           |   | -      |  |   | -      |  |   | -      | 
|All Other Fees     |   | -      |  |   | -      |  |   | -      | 
|Total:             | $ | 60,000 |  | $ | 65,000 |  | $ | 50,226 | 

Our audit committee pre-approves all audit and non-audit
services provided to the Company.

|16. D | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT
    COMMITTEE
|----- | -------------------------------------------------------------

None.

|16. E | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND
    AFFILIATED PURCHASER
|----- | -------------------------------------------------------------------------

We may from time-to-time, subject
to applicable law, purchase our common shares for cancellation in the open
market, provided that any necessary approval has been obtained.

In the year ended December 31,
2014, none of our common shares were repurchased and cancelled.

|16. | F CHANGE IN REGISTRANTS CERTIFYING
    ACCOUNTANT
|--- | --------------------------------------------------

Not Applicable.

|16. G | CORPORATE GOVERNANCE
|----- | --------------------

Our corporate practices are not
materially different from those required of domestic corporations under the NYSE
listing standards.

|16. H | MINE SAFETY DISCLOSURES
|----- | -----------------------

Pursuant to Section 1503(a) of
the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
(Dodd-Frank Act), issuers that are operators, or that have a subsidiary that
is an operator, of a coal or other mine in the United States are required to
disclose in their periodic reports filed with the SEC information regarding
specified health and safety violations, orders and citations, related
assessments and legal actions, and mining-related fatalities under the
regulation of the Federal Mine Safety and Health Administration (MSHA) under
the Federal Mine Safety and Health Act of 1977, as amended (the Mine Act).
During the fiscal year ended December 31, 2014, we did not have any mines in the
United States subject to regulation by MSHA under the Mine Act.

- 50 -

---

PART III

|ITEM 17. | **FINANCIAL STATEMENTS**
|-------- | ------------------------

Not applicable.

|ITEM 18. | **FINANCIAL STATEMENTS**
|-------- | ------------------------

See the list of financial
statements on page F-1 which are filed as part of this annual report on Form
20-F.

|ITEM 19. | **EXHIBITS**
|-------- | ------------

|Number |  | Description                                                                                                                                                                                                                                                                                     
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |  |                                                                                                                                                                                                                                                                                                 
|1.1    |  | Certificate of Amalgamation of
      Chelsea Oil and Gas Ltd. dated October 1, 2013                                                                                                                                                                                                             
|       |  |                                                                                                                                                                                                                                                                                                 
|1.2    |  | Articles of Amalgamation of
      Chelsea Oil and Gas Ltd. dated October 1, 2013                                                                                                                                                                                                                
|       |  |                                                                                                                                                                                                                                                                                                 
|4.1    |  | Voting Agreement entered into
      as of February 29, 2012 by and among Australian-Canadian Oil Royalties,
      Ltd. and Jessie Meidl and William Petrie, Sr.                                                                                                                                 
|       |  |                                                                                                                                                                                                                                                                                                 
|4.2    |  | Share Exchange Agreement among Australian-Canadian Oil
      Royalties Ltd., 1629518 Alberta Ltd. and its individual security holders,
      incorporated by reference to Exhibit 10-1 to ACORs Current Report on Form
      8K filed November 23, 2011                                        
|       |  |                                                                                                                                                                                                                                                                                                 
|4.3    |  | Purchase and Sale Agreement among Australian-Canadian Oil
      Royalties Ltd., Brisbane Petroleum Ltd., Delbaere Associates Pty. Limited
      and Chelsea Oil Australia Pty, Ltd., incorporated by reference to Exhibit
      10-2 to ACORs Current Report on Form 8K filed November 23, 2011
|       |  |                                                                                                                                                                                                                                                                                                 
|8.1    |  | Significant Subsidiaries (as defined in (210.1-02(w) of
      Regulation S-X) of Chelsea Oil & Gas Ltd. (incorporated by reference
      to Item 4 Information on the Company)                                                                                                                
|       |  |                                                                                                                                                                                                                                                                                                 
|12.1   |  | Certification of Chief
      Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002(1)                                                                                                                                                                               
|       |  |                                                                                                                                                                                                                                                                                                 
|12.2   |  | Certification of Chief
      Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002(1)                                                                                                                                                                               
|       |  |                                                                                                                                                                                                                                                                                                 
|12.3   |  | Certification of Chief
      Executive Officer and Chief Financial Officer pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002(1)                                                                                                                                                   

---

SIGNATURE

The registrant hereby certifies
that it meets all of the requirements for filing an annual report on Form 20-F
and that it has duly caused and authorized the undersigned to sign this annual
report on its behalf.

Dated: April 30, 2015

Chelsea Oil and Gas Ltd.By:
    /s/ Jesse MeidlName:
    Jesse MeidlTitle:
    Chief Executive Officer


- 52 -

---

APPENDIX AAUDIT COMMITTEE CHARTER

Role and Obligations

The Audit Committee (the Committee) is a committee of
the board of directors (the Board) of Chelsea Oil and Gas Ltd. (the
Corporation) to which the Board has delegated its responsibility for
the oversight of the nature and scope of the annual audit, the oversight of
managements reporting on internal accounting standards and practices, the
review of financial information, accounting systems and procedures, financial
reporting and financial statements and has charged the Committee with the
responsibility of recommending, for approval of the Board, the audited financial
statements, interim financial statements and other mandatory disclosure releases
containing financial information.

The primary objectives of the Audit Committee are as follows:

|1. | assist directors in meeting their responsibilities

      (especially for accountability) in respect of the preparation and
      disclosure of the financial statements of the Corporation and related
      matters;
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                       
|2. | provide better communication between directors and
      external auditors;                                                                                                                                           
|   |                                                                                                                                                                                                                       
|3. | enhance the external auditors independence;                                                                                                                                                                          
|   |                                                                                                                                                                                                                       
|4. | increase the credibility and objectivity of financial
      reports; and                                                                                                                                              
|   |                                                                                                                                                                                                                       
|5. | strengthen the role of the outside directors by
      facilitating in depth discussions between directors on the Audit
      Committee, management and external auditors.                                             

Membership of Committee

|6. | The Committee will be comprised of at least three (3)
      directors of the Corporation, none of whom are members of management of
      the Corporation and all of whom are independent (as such term is used in
      National Instrument 52-110 - Audit Committees(NI 52-110)
      unless the Board determines that the exemption contained in NI 52-110 is
      available and determines to rely thereon.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                     
|7. | The Board of Directors may from time to time designate
      one of the members of the Committee to be the Chairman of the Committee
      (the Committee Chairman).                                                                                                                                                                                                                                              

All of the members of the Committee must be financially
literate (as defined in NI 52-110) unless the Board determines that an
exemption under NI 52-110 from such requirement in respect of any particular
member is available and determines to rely thereon in accordance with the
provisions of NI 52-110.

Mandate and Responsibilities Committee

It is the responsibility of the Committee to:

|8. | Oversee the work of the external auditors, including the
      resolution of any disagreements between management and the external
      auditors regarding financial reporting.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                 
|9. | Satisfy itself on behalf of the Board with respect to
      Corporations internal control systems:                                                                             

| | (a) | identifying, monitoring and mitigating business risks;
      and          
| | --- | --------------------------------------------------------------------------
| |     |                                                                           
| | (b) | ensuring compliance with legal, ethical and regulatory
      requirements.

|10. | Review the annual and interim financial statements of the
      Corporation and related managements discussion and analysis
      (MD&A) prior to their submission to the Board for approval.
      The process should include but not be limited
to:
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | reviewing changes in accounting principles and policies,
      or in their application, which may have a material impact on the current
      or future years financial statements;
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

| | (b) | reviewing significant accruals, reserves or other
      estimates such as the ceiling test calculation;                                              
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                      
| | (c) | reviewing accounting treatment of unusual or
      non-recurring transactions; (d)ascertaining compliance with covenants
      under loan agreements;
| |     |                                                                                                                                                      
| | (d) | reviewing disclosure requirements for commitments and
      contingencies;                                                                           
| |     |                                                                                                                                                      
| | (e) | reviewing adjustments raised by the external auditors,
      whether or not included in the financial statements;                                    
| |     |                                                                                                                                                      
| | (f) | reviewing unresolved differences between management and
      the external auditors; and                                                             
| |     |                                                                                                                                                      
| | (g) | obtain explanations of significant variances with
      comparative reporting periods.                                                               

|11. | Review the financial statements, prospectuses, MD&A,
      annual information forms (AlF) and all public disclosure
      containing unaudited financial information (including, without limitation,
      annual and interim press releases and any other press releases disclosing
      earnings or financial results) before release and prior to Board approval.
      The Committee must be satisfied that adequate procedures are in place for
      the review of the Corporations disclosure of all other financial
      information and will periodically assess the accuracy of those
      procedures.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12. | With respect to the appointment of external auditors by
      the Board:
|--- | ------------------------------------------------------------------------

| | (a) | recommend to the Board the external auditors to be
      nominated;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (b) | recommend to the Board the terms of engagement of the
      external auditor, including the compensation of the auditors and a
      confirmation that the external auditors will report directly to the
      Committee;                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (c) | on an annual basis, review and discuss with the external
      auditors all significant relationships such auditors have with the
      Corporation to determine the auditors independence;                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (d) | when there is to be a change in auditors, review the
      issues related to the change and the information to be included in the
      required notice to securities regulators of such change; and                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (e) | review and pre-approve any non-audit services to be
      provided to the Corporation or its subsidiaries by the external auditors
      and consider the impact on the independence of such auditors. The
      Committee may delegate to one or more independent members the authority to
      pre-approve non-audit services, provided that the member(s) report to the
      Committee at the next scheduled meeting such pre-approval and the
      member(s) comply with such other procedures as may be established by the
      Committee from time to time.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (f) | recommend to the Board the external auditors to be
      nominated;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (g) | recommend to the Board the terms of engagement of the
      external auditor, including the compensation of the auditors and a
      confirmation that the external auditors will report directly to the
      Committee;                                                                                                                                                                                                                                                                                                                                            

|13. | Review with external auditors (and internal auditor if
      one is appointed by the Corporation) their assessment of the internal
      controls of the Corporation, their written reports containing
      recommendations for improvement, and managements response and follow-up
      to any identified weaknesses. The Committee will also review annually with
      the external auditors their plan for their audit and, upon completion of the audit, their reports
upon the financial statements of the Corporation and its subsidiaries.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 54 -

---

|14. | Review risk management policies and procedures of the
      Corporation (i.e., hedging, litigation and insurance).
|--- | ------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                   
|15. | Establish a procedure for:                                                                                        

| | (a) | the receipt, retention and treatment of complaints
      received by the Corporation regarding accounting, internal accounting
      controls or auditing matters; and
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                       
| | (b) | the confidential anonymous submission by employees of the
      Corporation of concerns regarding questionable accounting or auditing
      matters.                  

|16. | Review and approve the Corporations hiring policies
      regarding partners and employees and former partners and employees of the
      present and former external auditors of the
Corporation.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Committee has authority to communicate directly with the
internal auditors (if any) and the external auditors of the Corporation. The
Committee will also have the authority to investigate any financial activity of
the Corporation. All employees of the Corporation are to cooperate as requested
by the Committee. The Committee may also retain persons having special expertise
and/or obtain independent professional advice to assist in filling their
responsibilities at such compensation as established by the Committee and at the
expense of the Corporation without any further approval of the Board.

Meetings and Administrative Matters

|17. | At all meetings of the Committee every question shall be
      decided by a majority of the votes cast. In case of an equality of votes,
      the Committee Chairman shall be entitled to a second or casting
    vote.                                                                      
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                               
|18. | The Committee Chairman will preside at all meetings of
      the Committee, unless the Committee Chairman is not present in which case
      the members of the Committee that are present will designate from among
      such members a Committee Chairman for purposes of the meeting.     
|    |                                                                                                                                                                                                                                                                                               
|19. | A quorum for meetings of the Committee will be a majority
      of its members, and the rules for calling, holding, conducting and
      adjourning meetings of the Committee will be the same as those governing
      the Board unless otherwise determined by the Committee or the
  Board.
|    |                                                                                                                                                                                                                                                                                               
|20. | Meetings of the Committee should be scheduled to take
      place at least four times per year.                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                               
|21. | Minutes of all meetings of the Committee will be taken.
      The Chief Financial Officer will attend meetings of the Committee, unless
      otherwise excused from all or part of any such meeting by the Committee
      Chairman.                                                         
|    |                                                                                                                                                                                                                                                                                               
|22. | The Committee will meet with the external auditor at
      least once per year (in connection with the preparation of the year-end
      financial statements) and at such other-times as the external auditor and
      the Committee consider appropriate.                                  
|    |                                                                                                                                                                                                                                                                                               
|23. | Agendas, approved by the Committee Chairman, will be
      circulated to Committee members along with background information on a
      timely basis prior to the Committee meetings.                                                                                                         
|    |                                                                                                                                                                                                                                                                                               
|24. | The Committee may invite such officers, directors and
      employees of the Corporation as it sees fit from time, to time to attend
      at meetings of the Committee and assist in the discussion and
      consideration of the matters being considered by the
  Committee.              

- 55 -

---

|25. | Minutes of the Committee will be recorded and maintained
      and circulated to directors who are not members of the Committee or
      otherwise made available at a subsequent meeting of the Board.                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|26. | The Committee may retain persons having special expertise
      and may obtain independent professional advice to assist in fulfilling its
      responsibilities at the expense of the Corporation.                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|27. | Any members of the Committee may be removed or replaced
      at any time by the Board and will cease to be a member of the Committee as
      soon as such member ceases to be a director. The Board may fill vacancies
      on the Committee by appointment from among its members. If and whenever a
      vacancy exists on the Committee, the remaining members may exercise all
      its powers so long as a quorum remains. Subject to the foregoing,
      following appointment as a member of the Committee, each member will hold
      such office until the Committee is reconstituted.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|28. | Any issues arising from these meetings that bear on the
      relationship between the Board and management should be communicated to
      the Chairman of the Board by the Committee
Chairman.                                                                                                                                                                                                                                                                                                                                                                                                      

- 56 -

---





Chelsea Oil and Gas Ltd.

Consolidated Financial StatementsFor the years
ended December 31, 2014, 2013 and 2012



---

|Chelsea Oil and Gas Ltd.                                  
|----------------------------------------------------------
|Consolidated Financial Statements                         
|For the years
      ended December 31, 2014, 2013 and 2012

|Consolidated
      Statements of Financial Position  | F-3             
|---------------------------------------------------- | ----------------
|                                                     |                 
|Consolidated
      Statements of Comprehensive Loss  | F-4             
|                                                     |                 
|Consolidated
      Statements of Changes in Equity   | F-5             
|                                                     |                 
|Consolidated
      Statements of Cash Flows          | F-6             
|                                                     |                 
|Notes
      to the Consolidated Financial Statements | F-7
       F-27

---

|                                | KPMG LLP                 | 
|------------------------------- | ------------------------ | 
|205  5th Avenue SW             | Telephone (403) 691-8000
|Suite 3100, Bow Valley Square 2 | Telefax (403) 691-8008  
|Calgary AB T2P 4B9              | Internet www.kpmg.ca    

INDEPENDENT AUDITORS REPORT

To the Shareholders of Chelsea Oil and Gas Ltd.

We have audited the accompanying consolidated financial
statements of Chelsea Oil and Gas Ltd., which comprise the consolidated
statements of financial position as at December 31, 2014 and December 31, 2013,
the consolidated statements of comprehensive loss, changes in equity and cash
flows for each of the years in the three-year period ended December 31, 2014,
and notes, comprising a summary of significant accounting policies and other
explanatory information.

Managements Responsibility for the Consolidated Financial
Statements

Management is responsible for the preparation and fair
presentation of these consolidated financial statements in accordance with
International Financial Reporting Standards as issued by the International
Accounting Standards Board, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or
error.

Auditors Responsibility

Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We conducted our audits
in accordance with Canadian generally accepted auditing standards and the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we comply with ethical requirements and plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on our judgment, including the
assessment of the risks of material misstatement of the consolidated financial
statements, whether due to fraud or error. In making those risk assessments, we
consider internal control relevant to the entitys preparation and fair
presentation of the consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entitys internal control. An
audit also includes evaluating the appropriateness of accounting policies used
and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our
audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present
fairly, in all material respects, the consolidated financial position of Chelsea
Oil and Gas Ltd. as at December 31, 2014 and December 31, 2013, and its
consolidated financial performance and its consolidated cash flows for each of
the years in the three-year period ended December 31, 2014 in accordance with
International Financial Reporting Standards as issued by the International
Accounting Standards Board.

---

Emphasis of Matter

Without modifying our opinion, we draw attention to Note 2 in
the consolidated financial statements which indicates that Chelsea Oil and Gas
Ltd. has a working capital deficiency as at December 31, 2014 and has minimal
sources of operating cash flow. The continued operation, exploration and
development depend on the ability of the Company to obtain financing. These
conditions, along with other matters as set forth in Note 2 in the consolidated
financial statements, indicated the existence of a material uncertainty that
casts significant doubt about Chelsea Oil and Gas Ltd.s ability to continue as
a going concern.

KPMG

Chartered Accountants April 30, 2015

Calgary, Canada

---

|Chelsea Oil and Gas Ltd.                     
|---------------------------------------------
|Consolidated Statements of Financial Position
|(US Dollars)                                 

|                                     |  |                    |  |   | December 31 |   |   | December 31 |  
|------------------------------------ |  | ------------------ |  | - | ----------- | - | - | ----------- | -
|As at                                |  | Notes              |  |   | 2014        |   |   | 2013        |  
|                                     |  |                    |  |   |             |   |   |             |  
|Current assets                       |  |                    |  |   |             |   |   |             |  
|Cash                                 |  | 7                  |  | $ | 463,546     |   | $ | 94,998      |  
|Accounts receivable                  |  |                    |  |   | 35,852      |   |   | 91,301      |  
|Current assets                       |  |                    |  |   | 499,398     |   |   | 186,299     |  
|                                     |  |                    |  |   |             |   |   |             |  
|Restricted cash                      |  | 7                  |  |   | 195,411     |   |   | 219,304     |  
|Property, plant and equipment        |  | 9                  |  |   | 1,012,242   |   |   | 1,149,724   |  
|Exploration and evaluation assets    |  | 10                 |  |   | 10,597,995  |   |   | 12,289,692  |  
|Non-current assets                   |  |                    |  |   | 11,805,648  |   |   | 13,658,720  |  
|                                     |  |                    |  |   |             |   |   |             |  
|Assets                               |  |                    |  | $ | 12,305,046  |   | $ | 13,845,019  |  
|                                     |  |                    |  |   |             |   |   |             |  
|Liabilities                          |  |                    |  |   |             |   |   |             |  
|Current liabilities                  |  |                    |  |   |             |   |   |             |  
|Shareholder loans                    |  | 8                  |  | $ | 3,585,615   |   | $ | 3,483,436   |  
|Trade and other payables             |  |                    |  |   | 725,164     |   |   | 935,347     |  
|Current liabilities                  |  |                    |  |   | 4,310,779   |   |   | 4,418,783   |  
|                                     |  |                    |  |   |             |   |   |             |  
|Decommissioning
      liabilities    |  | 11                 |  |   | 390,902     |   |   | 415,300     |  
|                                     |  |                    |  |   |             |   |   |             |  
|Shareholders' equity                 |  |                    |  |   |             |   |   |             |  
|Common stock                         |  | 12                 |  |   | 14,056,459  |   |   | 14,056,459  |  
|Warrants                             |  | 12                 |  |   | 254,938     |   |   | 254,938     |  
|Contributed surplus                  |  |                    |  |   | 176,752     |   |   | 176,752     |  
|Accumulated deficit                  |  |                    |  |   | (5,133,651  | ) |   | (4,798,430  | )
|Accumulated other comprehensive loss |  |                    |  |   | (1,751,133  | ) |   | (678,783    | )
|Shareholders' equity                 |  |                    |  |   | 7,603,365   |   |   | 9,010,936   |  
|                                     |  |                    |  |   |             |   |   |             |  
|Shareholders' equity and liabilities |  |                    |  | $ | 12,305,046  |   | $ | 13,845,019  |  
|                                     |  |                    |  |   |             |   |   |             |  
|Going concern                        |  | 2                  |  |   |             |   |   |             |  
|Commitments                          |  | 18                 |  |   |             |   |   |             |  
|Subsequent events                    |  | 7, 8, 12,
      19 |  |   |             |   |   |             |  

The notes are an integral part of these consolidated financial
statements.

Apporoved on behalf of the Board of Directors:

|/s/ Bill Petrie Sr |  | /s/
      Jesse Meidl
|------------------ |  | ---------------------
|William Petrie Sr  |  | Jesse Meidl          

F-3

---

|Chelsea Oil and Gas Ltd.                     
|---------------------------------------------
|Consolidated Statements of Comprehensive Loss
|(US Dollars)                                 

|                                        |  |       |  |   | December 31 |   |   | December 31 |   |   | December 31 |  
|--------------------------------------- |  | ----- |  | - | ----------- | - | - | ----------- | - | - | ----------- | -
|For the years ended                     |  | Notes |  |   | 2014        |   |   | 2013        |   |   | 2012        |  
|                                        |  |       |  |   |             |   |   |             |   |   |             |  
|Revenues                                |  |       |  |   |             |   |   |             |   |   |             |  
|Royalty income                          |  |       |  | $ | 361,990     |   | $ | 98,805      |   | $ | 79,325      |  
|                                        |  |       |  |   | 361,990     |   |   | 98,805      |   |   | 79,325      |  
|Expenses                                |  |       |  |   |             |   |   |             |   |   |             |  
|General and administrative              |  |       |  |   | 331,934     |   |   | 194,075     |   |   | 396,848     |  
|Share-based compensation                |  | 12    |  |   | -           |   |   | 152,963     |   |   | -           |  
|Depletion                               |  | 9     |  |   | 112,482     |   |   | 28,431      |   |   | 25,844      |  
|Finance expense                         |  | 13    |  |   | 259,976     |   |   | 362,199     |   |   | 23,010      |  
|Foreign exchange (gain) loss            |  |       |  |   | (20,002     | ) |   | 344,066     |   |   | (1,244      | )
|                                        |  |       |  |   | 684,390     |   |   | 1,081,734   |   |   | 444,458     |  
|                                        |  |       |  |   |             |   |   |             |   |   |             |  
|Net loss before tax                     |  |       |  |   | (322,400    | ) |   | (982,929    | ) |   | (365,133    | )
|Current income tax expense              |  | 14    |  |   | 12,821      |   |   | 22,703      |   |   | 17,822      |  
|Deferred income tax expense             |  | 14    |  |   | -           |   |   | -           |   |   | -           |  
|Net income loss                         |  |       |  |   | (335,221    | ) |   | (1,005,632  | ) |   | (382,955    | )
|                                        |  |       |  |   |             |   |   |             |   |   |             |  
|Foreign currency translation adjustment |  |       |  |   | 1,072,350   |   |   | 697,679     |   |   | (18,896     | )
|Comprehensive loss                      |  |       |  |   | (1,407,571  | ) |   | (1,703,311  | ) |   | (364,059    | )
|                                        |  |       |  |   |             |   |   |             |   |   |             |  
|Net loss per share (basic and diluted)  |  | 16    |  | $ | (0.01       | ) | $ | (0.02       | ) | $ | (0.01       | )

The notes are an integral part of these consolidated financial
statements.

F-4

---

|Chelsea Oil and Gas Ltd.                    
|--------------------------------------------
|Consolidated Statements of Changes in Equity
|(US Dollars)                                

|                                                          |  |       |  |       | December 31   |   |   | December 31 |   |   | December 31 |  
|--------------------------------------------------------- |  | ----- |  | ----- | ------------- | - | - | ----------- | - | - | ----------- | -
|As at                                                     |  | Notes |  |       | 2014          |   |   | 2013        |   |   | 2012        |  
|                                                          |  |       |  |       |               |   |   |             |   |   |             |  
|Share capital                                             |  | 12    |  |       |               |   |   |             |   |   |             |  
|Balance, beginning of year                                |  |       |  | $     | 14,056,459    |   | $ | 10,534,312  |   | $ | 4,116,877   |  
|Issued to acquire ITME                                    |  | 9     |  |       | -             |   |   | 3,494,453   |   |   | -           |  
|Issued to acquire exploration and evaluation
      assets |  |       |  |       | -             |   |   | 15,194      |   |   | 4,791,805   |  
|Issued to former director                                 |  |       |  |       | -             |   |   | 12,500      |   |   | -           |  
|Private placement for cash                                |  |       |  |       | -             |   |   | -           |   |   | 1,915,684   |  
|Share issue costs                                         |  |       |  |       | -             |   |   | -           |   |   | (290,054    | )
|Balance, end of year                                      |  |       |  |       | 14,056,459    |   |   | 14,056,459  |   |   | 10,534,312  |  
|                                                          |  |       |  |       |               |   |   |             |   |   |             |  
|Warrants                                                  |  | 12    |  |       |               |   |   |             |   |   |             |  
|Balance, beginning of year                                |  |       |  |       | 254,938       |   |   | -           |   |   | -           |  
|Issued                                                    |  |       |  |       | -             |   |   | 254,938     |   |   | -           |  
|Balance, end of year                                      |  |       |  |       | 254,938       |   |   | 254,938     |   |   | -           |  
|                                                          |  |       |  |       |               |   |   |             |   |   |             |  
|Contributed surplus                                       |  | 12    |  |       |               |   |   |             |   |   |             |  
|Balance, beginning and end of year                        |  |       |  |       | 176,752       |   |   | 176,752     |   |   | 176,752     |  
|                                                          |  |       |  |       |               |   |   |             |   |   |             |  
|Accumulated other comprehensive income
      (loss)       |  |       |  |       |               |   |   |             |   |   |             |  
|Balance, beginning of year                                |  |       |  |       | (678,783      | ) |   | 18,896      |   |   | -           |  
|Foreign currency translation adjustment                   |  |       |  |       | (1,072,350    | ) |   | (697,679    | ) |   | 18,896      |  
|Balance, end of year                                      |  |       |  |       | (1,751,133    | ) |   | (678,783    | ) |   | 18,896      |  
|                                                          |  |       |  |       |               |   |   |             |   |   |             |  
|Accumulated deficit                                       |  |       |  |       |               |   |   |             |   |   |             |  
|Balance, beginning of year                                |  |       |  |       | (4,798,430    | ) |   | (3,792,798  | ) |   | (3,409,843  | )
|Loss for the year                                         |  |       |  |       | (335,221      | ) |   | (1,005,632  | ) |   | (382,955    | )
|Balance, end of year                                      |  |       |  |       | (5,133,651    | ) |   | (4,798,430  | ) |   | (3,792,798  | )
|                                                          |  |       |  |       |               |   |   |             |   |   |             |  
|Total equity                                              |  |       |  | **$** | **7,603,365** |   | $ | 9,010,936   |   | $ | 6,937,162   |  

The notes are an integral part of these consolidated financial
statements.

F-5

---

|Chelsea Oil and Gas Ltd.             
|-------------------------------------
|Consolidated Statements of Cash Flows
|(US Dollars)                         

|                                                                             |   | December 31 |   |   | December 31 |   |   | December 31 |  
|---------------------------------------------------------------------------- | - | ----------- | - | - | ----------- | - | - | ----------- | -
|For the years ended                                                          |   | 2014        |   |   | 2013        |   |   | 2012        |  
|                                                                             |   |             |   |   |             |   |   |             |  
|Operating activities                                                         |   |             |   |   |             |   |   |             |  
|Net loss                                                                     | $ | (335,221    | ) | $ | (1,005,632  | ) | $ | (382,955    | )
|                                                                             |   |             |   |   |             |   |   |             |  
|Items not affecting cash                                                     |   |             |   |   |             |   |   |             |  
|Shares
      issued for services                                             |   | -           |   |   | 12,500      |   |   | 25,844      |  
|Share-based compensation                                                     |   | -           |   |   | 152,963     |   |   | -           |  
|Depletion                                                                    |   | 112,482     |   |   | 28,431      |   |   | -           |  
|Interest on shareholder
      loans                                          |   | 285,143     |   |   | 328,352     |   |   | -           |  
|Debt
      forgiveness                                                       |   | (31,494     | ) |   | -           |   |   | -           |  
|Accretion on shareholder
      loans                                         |   | -           |   |   | 39,916      |   |   | -           |  
|Accretion
      on decommissioning obligations                               |   | 12,597      |   |   | 13,117      |   |   | -           |  
|Unrealized foreign exchange (gain) loss                                      |   | (20,002     | ) |   | 344,066     |   |   | 11,370      |  
|Operating cashflow before
      working capital movements                    |   | 23,505      |   |   | (86,287     | ) |   | (345,741    | )
|Change in non-cash working capital                                           |   | (152,331    | ) |   | 134,269     |   |   | 170,651     |  
|                                                                             |   | (128,826    | ) |   | 47,982      |   |   | (175,090    | )
|Financing activities                                                         |   |             |   |   |             |   |   |             |  
|Decrease (Increase) in
      restricted cash                                 |   | 23,893      |   |   | (7,738      | ) |   | (3,975      | )
|Issuance of shares                                                           |   | -           |   |   | -           |   |   | 1,625,630   |  
|Repayment of shareholder loans and interest                                  |   | (151,470    | ) |   | -           |   |   | (109,250    | )
|                                                                             |   | (127,577    | ) |   | (7,738      | ) |   | 1,512,405   |  
|Investing activities                                                         |   |             |   |   |             |   |   |             |  
|Sale of overriding royalty interest                                          |   | 25,000      |   |   | 308,096     |   |   | -           |  
|Sale of exploration and
      evaluation assets                              |   | 806,115     |   |   | -           |   |   | -           |  
|Net
      exploration and evaluation expenditure                             |   | (187,567    | ) |   | (308,777    | ) |   | (1,293,746  | )
|                                                                             |   | 643,548     |   |   | (681        | ) |   | (1,293,746  | )
|                                                                             |   |             |   |   |             |   |   |             |  
|Increase in cash                                                             |   | 387,145     |   |   | 39,562      |   |   | 43,569      |  
|Foreign exchange gain (loss) on cash
      denominated in a foreign currency |   | (18,597     | ) |   | (16,684     | ) |   | -           |  
|Cash, beginning of year                                                      |   | 94,998      |   |   | 72,120      |   |   | 28,551      |  
|Cash, end of year                                                            | $ | 463,546     |   | $ | 94,998      |   | $ | 72,120      |  
|                                                                             |   |             |   |   |             |   |   |             |  
|                                                                             |   |             |   |   |             |   |   |             |  
|Cash interest paid                                                           | $ | 17,220      |   | $ | 6,864       |   | $ | 6,958       |  
|Cash interest received                                                       | $ | 6,371       |   | $ | 7,530       |   |   | -           |  
|Taxes paid                                                                   | $ | 12,821      |   | $ | 22,870      |   | $ | 17,822      |  

The notes are an integral part of these consolidated financial
statements.

F-6

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2014, 2013 and 2012 (US Dollars)

|1. | Reporting entity:
|-- | -----------------

Australian-Canadian Oil Royalties Ltd.
was incorporated April 28, 1997 in British Columbia, Canada. On October 1, 2013,
Australian-Canadian Oil Royalties Ltd. amalgamated with International TME
Resources Inc. (note 9) and was renamed Chelsea Oil and Gas Ltd. (Chelsea or
the Company). The address of the Companys head office is 127, 10th
Ave NW, Calgary, AB Canada.

The Companys business plan is the
exploration and development of the Companys working interest properties in
Australia. The Company also holds and acquires and sells overriding royalty
interests in Australia. Current primary income sources are royalties earned on
overriding royalty interests held by the Company.

|2. | Going concern:
|-- | --------------

The accompanying consolidated financial
statements have been prepared on a going concern basis. The going concern basis
of presentation assumes that the Company will continue in operation for the
foreseeable future and will be able to realize its assets and discharge its
liabilities and commitments in the normal course of business. The Companys
properties are principally in the exploration and development stage and, as a
result, the Company has minimal sources of operating cash flow. The continued
operations, exploration and development activities (including commitments in
note 18) depend on the ability of the Company to obtain financing. At December
31, 2014, the Company has minimal sources of operating cash flow and an
accumulated deficit of $5.1 million. At December 31, 2014 the Company has a
working capital deficit of $3.8 million. These conditions cast significant doubt
on the Companys ability to continue as a going concern.

Additional funds will be required to
explore and develop the Companys properties and to place them into commercial
production. The only source of future funds presently available to the Company
is through the issuance of share capital, or by the sale of an interest in any
of its working and royalty interests in whole or in part. The ability of the
Company to arrange such financing or sale of an interest in the future will
depend in part upon the prevailing market conditions as well as the business
performance of the Company. There can be no assurance that the Company will be
successful in its efforts to arrange additional financing, if needed, on terms
satisfactory to the Company or at all. If additional financing is raised through
the issuance of shares, control of the Company may change and shareholders may
suffer dilution. If adequate financing is not available, the Company may be
required to delay, reduce the scope of, or eliminate one or more exploration
activities or relinquish rights to certain of its interests.

The amounts shown as plant, property
and equipment and exploration and evaluation assets represent acquisition costs
net of recoveries to date, less amounts written off, and do not necessarily
represent present or future values. Recoverability of the amounts shown for
plant, property and equipment and exploration and evaluation assets is dependent
upon the discovery of economically recoverable plant, property and equipment and
exploration and evaluation assets reserves, securing and maintaining title and
beneficial interest in the properties, the ability of the Company to obtain
financing necessary to complete the exploration and development of its plant,
property and equipment and exploration and evaluation assets, and on future
profitable production or proceeds from the disposition of the plant, property
and equipment and exploration and evaluation interests. The consolidated
financial statements do not reflect adjustments that would be necessary if the
going concern basis was not appropriate. If the going concern basis was not
appropriate for these consolidated financial statements, then significant
adjustments would be necessary in the carrying value of assets and liabilities,
the reported revenues and expenses, and the balance sheet classifications used.
The appropriateness of the going concern basis is dependent upon the events and
circumstance outlined above.

F-7

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2014, 2013 and 2012 (US Dollars)

|3. | Basis of preparation:
|-- | ---------------------

| | a) | Statement of compliance:
| | -- | ------------------------

These consolidated financial
statements of the Company have been prepared in accordance with International
Financial Reporting Standards and interpretations (collectively referred to as
IFRS) as issued by the International Accounting Standards Board (IASB).
These consolidated financial statements were approved by the Board of Directors
on April 30, 2015.

| | b) | Basis of preparation:
| | -- | ---------------------

The consolidated financial statements
have been prepared on the historical cost basis. The Companys accounting
policies have been applied consistently to all periods presented in these
consolidated financial statements.

| | c) | Functional and presentation
  currency:
| | -- | ---------------------------------------

These consolidated financial
statements are expressed in US dollars ($ or US$), which is the Companys
functional currency. The Companys wholly owned subsidiaries Cooper-Eromanga Oil
Inc. and Chelsea Oil Australia Pty have a functional currency of Australian
dollars (A$ or AUD).

| | d) | Use of estimates and
judgments:
| | -- | -------------------------------

The preparation of the consolidated
financial statements in conformity with IFRS requires management to make
estimates and use judgment regarding the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities as at the date
of the consolidated financial statements and the reported amounts of revenues
and expenses during the year. By their nature, estimates are subject to
measurement uncertainty and changes in such estimates in future periods could
require a material change in the financial statements. Accordingly, actual
results may differ from the estimated amounts as future confirming events occur.
Significant estimates and judgments made by management in the preparation of
these consolidated financial statements are as follows:

Recoverability of asset carrying
values

The recoverability of oil and gas
asset carrying values are assessed at a cash generating unit (CGU) level.
Determination of what constitutes a CGU is subject to management judgments. The
asset composition of a CGU can directly impact the recoverability of the assets
included therein. The key estimates used in the determination of cash flows from
oil and natural gas reserves include the following:

| | i)  | Reserves  Assumptions that are valid at the time of
      reserve estimation may change significantly when new information becomes
      available. Changes in forward price estimates, production costs or
      recovery rates may change the economic status of reserves and may
      ultimately result in reserves being restated. The Company has obtained an
      independently evaluated reserves report which is compliant with the
      Canadian Securities Administrators National Instrument 51-101: Standards
      for Disclosure for Oil and Gas Activities.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ii) | Oil and natural gas prices  Forward price estimates are
      used in the cash flow model. Commodity prices can fluctuate for a variety
      of reasons including supply and demand fundamentals, inventory levels,
      exchanges rates, weather, and economic and geopolitical
  factors.                                                                                                                                                                                                                                                                                

F-8

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2014, 2013 and 2012 (US Dollars)

| | iii) | Discount rate  The discount rate used to calculate the
      net present value of cash flows is based on estimates of an approximate
      industry peer group weighted average cost of capital. Changes in the
      general economic environment could result in significant changes to this
      estimate.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Depletion and depreciation

Amounts recorded for depletion and
depreciation and amounts used for impairment calculations are based on estimates
of total proved and probable petroleum and natural gas reserves and future
development capital. By their nature, the estimates of reserves, including the
estimates of future prices, costs and future cash flows, are subject to
measurement uncertainty. Accordingly, the impact to the consolidated financial
statements in future periods could be material.

Decommissioning obligations

Amounts recorded for decommissioning
obligations and the related accretion expense requires the use of estimates with
respect to the amount and timing of decommissioning expenditures. Actual costs
and cash outflows can differ from estimates because of changes in laws and
regulations, public expectations, market conditions, discovery and analysis of
site conditions and changes in technology. Other provisions are recognized in
the period when it becomes probable that there will be a future cash outflow.

Share-based compensation

Compensation costs recognized for
share based compensation plans are subject to the estimation of what the
ultimate payout will be using pricing models such as the Black-Scholes model
which is based on significant assumptions such as volatility, dividend yield and
expected term. Several compensation plans are also performance based and are
subject to managements judgment as to whether or not performance criteria will
be met.

Deferred income taxes

Tax interpretations, regulations and
legislation in the various jurisdictions in which the Company operates are
subject to change. As such income taxes are subject to measurement uncertainty.
Deferred income tax assets are assessed by management at the end of the
reporting period to determine the likelihood that they will be realized from
future taxable earnings.

|4. | Significant accounting
policies:
|-- | --------------------------------

The accounting policies set out below
have been applied consistently to all periods presented in these consolidated
financial statements, and have been applied consistently by the Company and its
subsidiaries.

|a) | Basis of
consolidation:
|-- | -----------------------

| | (i) | Subsidiaries:
| | --- | -------------

Subsidiaries are entities controlled by
the Company. Control exists when an entity is exposed to, or has rights to
variable returns from its involvement with the entity and has the ability to
affect these returns through its power over the entity. The financial statements
of subsidiaries are included in the consolidated financial statements from the
date that control commences until the date that control ceases.

F-9

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2014, 2013 and 2012 (US Dollars)

Transaction costs that are incurred in
connection with a business combination, other than those costs associated with
the issue of debt or equity securities, or recognized in profit or loss.

| | (ii) | Jointly owned operations and jointly owned
      assets:
| | ---- | --------------------------------------------------------

The Companys oil and natural gas
activities involve jointly owned assets. The consolidated financial statements
include the Companys share of these jointly owned assets and a proportionate
share of the relevant revenue and related costs.

| | (iii) | Transactions eliminated on
  consolidation:
| | ----- | -------------------------------------------

Intercompany balances and transactions,
and any unrealized income and expenses arising from intercompany transactions
are eliminated in preparing the consolidated financial statements.

|b) | Foreign currency:
|-- | -----------------

| | i)  | Transactions in foreign currencies are generally
      translated to the entities functional currency at the average exchange
      rate for the period. Monetary assets and liabilities denominated in
      foreign currencies are translated to the functional currency at the period
      end exchange rate. Non-monetary assets and liabilities denominated in
      foreign currencies that are carried at fair value are translated to the
      functional currency at the exchange rate at the date that the fair value
      was determined. Non- monetary assets held at historical cost are not
      retranslated subsequent to initial recognition. Foreign currency
      differences arising on translation are recognized in earnings in the
      period in which they arise.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ii) | Assets and liabilities of the Companys Australian
      operations are translated into US dollars at period end exchange rates
      while revenues and expenses are translated using average rates for the
      period. Gains and losses from the translation are deferred and included in
      accumulated other comprehensive income
(AOCI).                                                                                                                                                                                                                                                                                                                                                                                                                                            

|c) | Financial instruments:
|-- | ----------------------

| | (i) | Non-derivativefinancial
      instruments:
| | --- | ------------------------------------------

Non-derivative financial instruments
comprise cash, accounts receivable, shareholder loans and accounts payable and
accrued liabilities. Non-derivative financial instruments are recognized
initially at fair value. Subsequent to initial recognition non-derivative
financial instruments are measured as described below. Financial assets and
liabilities are recognized when the Company becomes a party to the contractual
provisions of the instrument. Financial assets are derecognized when the rights
to receive cash flows from the assets have expired or have been transferred and
the Company has transferred substantially all risks and rewards of ownership.

Financial assets and liabilities are
offset and the net amount is reported when there is a legally enforceable right
to offset the recognized amounts and there is an intention to settle on a net
basis, or realize the asset and settle the liability simultaneously.

F-10

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2014, 2013 and 2012 (US Dollars)

Cash and cash equivalents:

Cash and cash equivalents are comprised
of cash on hand, term deposits held with banks, and other short-term highly
liquid investments with original maturities of three months or less.

Financial assets at fair value through
profit or loss:

An instrument is classified at fair
value through profit or loss if it is held for trading or is designated as such
upon initial recognition. Financial instruments are designated at fair value
through profit or loss if the Company manages such investments and makes
purchase and sale decisions based on their fair value in accordance with the
Companys risk management or investment strategy. Upon initial recognition
attributable transaction costs are recognized in profit or loss when incurred.
Financial instruments are measured at fair value and changes therein are
recognized in profit or loss.

Other:

Other non-derivative financial
instruments, such as accounts receivable, shareholder loans and accounts
payable, are measured at amortized cost using the effective interest method,
less any impairment losses for financial assets.

| | (ii) | Equity instruments:
| | ---- | -------------------

Equity instruments including common
shares, options and warrants are classified as equity. Incremental costs
directly attributable to the issue of common shares and share options are
recognized as a deduction from equity, net of any tax effects, if any.

|d) | Property, plant and equipment and exploration and
      evaluation assets:
|-- | --------------------------------------------------------------------------

| | (i) | Recognition and
measurement:
| | --- | ----------------------------

Development and production
(D&P) costs:

Property, plant and equipment is stated
at cost, less accumulated depletion and depreciation and accumulated impairment
losses. The initial cost of an asset comprises its purchase price or
construction cost, any costs directly attributable to bringing the asset into
operation, the initial estimate of any decommissioning obligation, if any, and,
for qualifying assets, borrowing costs. The purchase price or construction cost
is the aggregate amount paid and the fair value of any other consideration given
to acquire the asset.

Expenditures on major maintenance,
inspections or overhauls are capitalized when the item enhances the life or
performance of an asset above its original standard. Such capitalized oil and
natural gas interests generally represent costs incurred in developing proved
and/or probable reserves and bringing in or enhancing production from such
reserves, and are accumulated on a field or geotechnical area basis. The
carrying amount of any replaced or sold component is derecognized. The costs of
the day-today servicing of property, plant and equipment are recognized in
profit or loss as incurred. Where an asset or part of an asset that was
separately depreciated is replaced and it is probable that future economic
benefits associated with the item will flow to the Company, the expenditure is
capitalized and the carrying amount of the replaced asset is derecognized.

General and administrative costs
associated with property acquisition development activities are capitalized.

F-11

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2014, 2013 and 2012 (US Dollars)

Exploration and evaluation
(E&E) expenditures:

Pre-licence costs are recognized in the
statement of loss as incurred.

Exploration and evaluation
expenditures, including the costs of acquiring licences and directly
attributable general and administrative costs, geological and geophysical costs,
other direct costs of exploration (drilling, trenching, sampling and evaluating
the technical feasibility and commercial viability of extraction) and appraisal
are accumulated and capitalized as E&E assets.

On a quarterly basis, a review of any
areas classified and accounted for as E&E is performed to determine whether
enough information exists to make a determination of the technical feasibility
and commercial viability of the area. Where appropriate, review may indicate
that an area should be further sub-divided due to a significant portion having
been explored whilst a significant undeveloped portion with different traits
(i.e. different zone, technical approach, play type, etc.) remains that requires
additional E&E activities to arrive at the point where it can be assessed
for technical feasibility and commercial viability.

The assessment of technical feasibility
and commercial viability is performed on an area level basis unless further
sub-division is merited. Depending on the extent and complexity of the
prospective play, many wells may need to be drilled and potentially significant
E&E costs accumulated prior to obtaining enough information to make the
determination of technical feasibility and commercial viability possible.
E&E costs are not amortized prior to the conclusion of appraisal activities.
At the completion of appraisal activities, if technical feasibility is
demonstrated and commercial reserves are discovered, then, the carrying value of
the relevant E&E asset will be reclassified as a D&P asset into the cash
generating unit (CGU) to which it relates, but only after the carrying value
of the relevant E&E asset has been assessed for impairment, and where
appropriate, its carrying value adjusted. Typically, technical feasibility and
commercial viability of extracting a mineral resource is considered to be
demonstrable when proven or probable reserves are determined to exist. However,
if the Company determines the area or portion thereof is not technically
feasible and commercially viable, accumulated E&E costs are expensed.

| | (ii) | Depletion and
depreciation:
| | ---- | ---------------------------

The net carrying value of working
interest development and production assets is depleted using the unit of
production method by reference to the ratio of production in the year to the
related proven and probable reserves, taking into account estimated future
development costs necessary to bring those reserves into production. These
estimates are reviewed by independent reserve engineers at least annually.
Natural gas reserves are converted to barrels of oil equivalent based on
relative energy content of 6:1.

For other assets, depreciation is
recognized in profit or loss on a straight-line basis over the estimated useful
lives of each part of an item of property, plant and equipment. Leased assets
are depreciated over the shorter of the lease term and their useful lives unless
it is reasonably certain that the Company will obtain ownership by the end of
the lease term.

The estimated useful lives for other
assets for the current and comparative years are as follows:

| | Office equipment 5  12 years                                                                    
| | -------------------------------------------------------------------------------------------------
| | Fixtures and fittings 5  10 years                                                               
| | Depreciation methods, useful lives and residual
      values are reviewed at each reporting date.

F-12

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2014, 2013 and 2012 (US Dollars)

| | iii) | Subsequent costs:
| | ---- | -----------------

Costs incurred subsequent to the
determination of technical feasibility and commercial viability and the costs of
replacing parts of property, plant and equipment are recognized as oil and
natural gas interests only when they increase the future economic benefits
embodied in the specific asset to which they relate. All other expenditures are
recognized in earnings as incurred. Such capitalized oil and natural gas
interests generally represent costs incurred in developing proved and/or
probable reserves and bringing in or enhancing production from such reserves,
and are accumulated on a field or geotechnical area basis. The carrying amount
of any replaced or sold component is derecognized. The costs of the periodic
servicing of property, plant and equipment are recognized in earnings as
incurred.

|e) | Impairment:
|-- | -----------

| | (i) | Financial assets:
| | --- | -----------------

A financial asset is assessed at each
reporting date to determine whether there is any objective evidence that it is
impaired. A financial asset is considered to be impaired if objective evidence
indicates that one or more events have had a negative effect on the estimated
future cash flows of that asset.

An impairment loss in respect of a
financial asset measured at amortized cost is calculated as the difference
between its carrying amount and the present value of the estimated future cash
flows discounted at the original effective interest rate.

Individually significant financial
assets are tested for impairment on an individual basis. The remaining financial
assets are assessed collectively in groups that share similar credit risk
characteristics.

All impairment losses are recognized in
profit or loss. An impairment loss is reversed when there is a significant
change in the underlying estimates or other objective evidence. For financial
assets measured at amortized cost the reversal is recognized in profit or loss.

| | (ii) | Non-financial
  assets:
| | ---- | -----------------------

Exploration and evaluation assets are
tested for impairment when reclassified to D&P assets or whenever facts and
circumstances indicate potential impairment. Exploration and evaluation assets
are tested separately for impairment or grouped with the associated cash
generating unit. An impairment loss is recognized for the amount by which the
exploration and evaluation expenditures carrying amount exceeds its recoverable
amount.

Values of D&P assets are reviewed
for impairment when indicators of such impairment exist. If any indication of
impairment exists an estimate of the assets recoverable amount is calculated.
Assets are grouped for impairment assessment purposes at the lowest level at
which there are identifiable cash inflows that are largely independent of the
cash inflows of other groups of assets (the cash generating unit or CGU).
The recoverable amount of an asset or CGU is the greater of its fair value less
costs to sell and its value in use. Where the carrying amount of an asset group
exceeds its recoverable amount, the asset group is considered impaired and is
written down to its recoverable amount. An impairment loss is charged to the
statement of loss.

In assessing value in use, the
estimated future cash flows are adjusted for the risks specific to the asset
group and are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money. Fair value
less costs to sell is generally determined at the current market bid price, when
an active market exists. The intent is that this represents what a market
participant would pay to acquire control of the CGU.

F-13

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2014, 2013 and 2012 (US Dollars)

For assets excluding goodwill, an
assessment is made at each reporting date as to whether there is any indication
that previously recognized impairment losses may no longer exist or may have
decreased. If such indication exists, the Company makes an estimate of the
recoverable amount. A previously recognized impairment loss is reversed only if
there has been a change in the estimates used to determine the assets
recoverable amount since the last impairment loss was recognized. If that is the
case the carrying amount of the asset is increased to its recoverable amount.
The increased amount cannot exceed the carrying amount that would have been
determined, net of depreciation, had no impairment loss been recognized for the
asset in prior years.

|f) | Business combinations:
|-- | ----------------------

The acquisition method of accounting is
used to account for acquisitions of subsidiaries and assets that meet the
definition of a business under IFRS. The cost of an acquisition is measured as
the fair value of the assets given, equity instruments issued and liabilities
incurred or assumed at the date of exchange. The recognized amount of
identifiable assets acquired and liabilities and contingent liabilities assumed
in a business combination are measured mostly at fair value at the acquisition
date. The excess of the cost of acquisition over the recognized amount of
identifiable assets, liabilities and contingent liabilities acquired is recorded
as goodwill. If the cost of acquisition is less than the recognized amount of
the net assets of the subsidiary acquired, the difference is recognized
immediately in earnings.

|g) | Share based payments:
|-- | ---------------------

The grant date fair value of
equity-settled options and warrants granted to employees is recognized as
share-based compensation expense, with a corresponding increase in contributed
surplus over the vesting period. Each tranche granted is considered a separate
grant and is fair valued independently. A forfeiture rate is estimated on the
grant date and is adjusted to reflect the actual number of options that vest.

|h) | Provisions:
|-- | -----------

A provision is recognized if, as a
result of a past event, the Company has a present legal or constructive
obligation that can be estimated reliably, and it is probable that an out flow
of economic benefits will be required to settle the obligation. Provisions are
determined by discounting the expected future cash flows at a pre-tax rate that
reflects current market assessments of the time value of money and the risks
specific to the liability. Provisions are not recognized for future operating
losses.

Decommissioning obligations:

The Companys activities can give rise
to dismantling, decommissioning and site disturbance remediation activities.
Provision is made for the estimated cost of site restoration and capitalized in
the relevant asset category.

Decommissioning obligations are
measured at the present value of managements best estimate of expenditure
required to settle the present obligation at the statement of financial position
date. Subsequent to the initial measurement, the obligation is adjusted at the
end of each period to reflect the passage of time and changes in the estimated
future cash flows underlying the obligation.

The increase in the provision due to
the passage of time is recognized as finance costs whereas increases/decreases
due to changes in the estimated future cash flows are capitalized. Actual costs
incurred upon settlement of the asset retirement obligations are charged against
the provision to the extent the provision was established.

F-14

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2014, 2013 and 2012 (US Dollars)

|i) | Revenue:
|-- | --------

Revenue from the sale of oil and
natural gas is recorded when the significant risks and rewards of ownership of
the product is transferred to the buyer which is usually when legal title passes
to the external party. This is generally at the time product enters the pipeline
or delivered to the refinery. Revenue is measured net of discounts, customs
duties and royalties.

Tariffs and tolls charged to other
entities for use of pipelines and facilities owned by the Company are recognized
as revenue as they accrue in accordance with the terms of the service or tariff
and tolling agreements.

Royalty income is recognized as it
accrues in accordance with the terms of the overriding royalty agreements.
Interest income is recognized as it is earned.

|j) | Finance income and
expenses:
|-- | ----------------------------

Finance expense comprises interest
expense on borrowings, accretion of the discount on provisions and transaction
costs.

Borrowing costs incurred for the
construction of qualifying assets are capitalized during the period of time that
is required to complete and prepare the assets for their intended use or sale.
All other borrowing costs are recognized in profit or loss using the effective
interest method.

Finance income is recognized as it
accrues in profit or loss, using the effective interest method.

|k) | Per share amounts:
|-- | ------------------

Basic loss per share is calculated by
dividing the profit or loss attributable to common shareholders of the Company
by the weighted average number of common shares outstanding during the period.
Diluted earnings per share is determined by adjusting the profit attributable to
common shareholders and the weighted average number of common shares outstanding
for the effects of dilutive instruments such as options granted to employees.
The calculation assumes that the proceeds on exercise of options are used to
repurchase shares at the current market price.

|l) | Segment reporting:
|-- | ------------------

A segment is a distinguishable
component of the Company that is engaged either in providing related products or
services (business segment), or in providing products or services within a
particular economic environment (geographic segment), which is subject to risks
and returns that are different from those of other segments. The Company has one
reportable segment, which comprises oil and gas exploration, development and
production activities within Australia.

F-15

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2014, 2013 and 2012 (US Dollars)

|m) | New standards not yet
adopted:
|-- | ------------------------------

In November 2009, the IASB published
IFRS 9 Financial Instruments, which covers the classification and measurement
of financial assets as part of its project to replace IAS 39 Financial
Instruments: Recognition and Measurement. In October 2010, the requirements for
classifying and measuring financial liabilities were added to IFRS 9. Under this
guidance, entities have the option to recognize financial liabilities at fair
value through earnings. If this option is elected, entities would be required to
reverse the portion of the fair value change due to a companys own credit risk
out of earnings and recognize the change in other comprehensive income. The
effective date for IFRS 9 has been deferred to January 1, 2018. Early adoption
is available and the standard is required to be applied retrospectively. The
Company is currently evaluating the impact of adopting this new standard.

The IASB issued IFRS 15 Revenue from
Contracts with Customers which replaces IAS 18 Revenue. IAS 15 specifies
revenue recognition criteria and expanded disclosures for revenue. The new
standard is effective for annual periods beginning on or after January 1, 2017
and early adoption is permitted. The Company is currently assessing the impact
of the standard.

IAS 32, Financial Instruments:
Presentation, which clarifies the requirements for offsetting financial assets
and liabilities. The amendments clarify when an entity has a legally enforceable
right to offset and certain other requirements that are necessary to present a
net financial asset or liability. There was no impact to the Company on adoption
of this standard.

IFRIC 21 Levies provides guidance on
accounting for levies in accordance with the requirements of IAS 37,
Provisions, Contingent Liabilities and Contingent Assets. There was no impact
to the Company on adoption of this standard.

|5. | Determination of fair
values:
|-- | -----------------------------

A number of the Companys accounting
policies and disclosures require the determination of fair value, both for
financial and non-financial assets and liabilities. Fair values have been
determined for measurement and/or disclosure purposes based on the following
methods. When applicable, further information about the assumptions made in
determining fair values is disclosed in the notes specific to that asset or
liability.

The different levels of financial
instrument valuation methods have been defined as follows:

Level 1 fair value measurements are
based on unadjusted quoted market prices. Level 2 fair value measurements are
based on valuation models and techniques where the significant inputs are
derived from quoted indices. Level 3 fair value measurements are based on
unobservable information.

The carrying value of cash, accounts
receivables, shareholder loans and accounts payable and accrued liabilities
included in the consolidated statements of financial position approximate fair
value due to the short term nature of those instruments.

The fair value of warrants is measured
using a BlackScholes option pricing model. Measurement inputs include share
price on measurement date, exercise price of the instrument, expected volatility
based on peer comparisons weighted average expected life of the instruments
based on historical experience and general option holder behavior, expected
dividends, and the riskfree interest rate.

F-16

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2014, 2013 and 2012 (US Dollars)

|6. | Financial risk management:
|-- | --------------------------

The Companys activities expose it to a
variety of financial risks that arise as a result of its exploration,
development, production, and financing activities such as:

| |  | Credit risk   
| | - | --------------
| |  | Liquidity risk
| |  | Market risk   

This note presents information about
the Companys exposure to each of the above risks, the Companys objectives,
policies and processes for measuring and managing risk, and the Companys
management of capital. Further quantitative disclosures are included throughout
these consolidated financial statements.

The Board of Directors oversees
managements establishment and execution of the Companys risk management
framework. Management has implemented and monitors compliance with risk
management policies. The Companys risk management policies are established to
identify and analyze the risks faced by the Company, to set appropriate risk
limits and controls, and to monitor risks and adherence to market conditions and
the Companys activities.

| | a) | Credit risk:
| | -- | ------------

The Company is exposed to credit risk
in relation to its cash and accounts receivable. The Company maintains cash with
highly rated international banks and therefore considers these assets to have
negligible credit risk. Credit risk is the potential financial loss to the
Company if a customer is unable to meet its contractual obligations and arises
principally from the Company's accounts receivables. The Company's accounts
receivable is comprised of:

| |  | Overriding royalty payments
| | - | ---------------------------
| |  | Customers                  
| |  | Joint venture partners     

The Companys accounts receivable are
with overriding royalty owners, customers and joint venture partners who are in
the petroleum and natural gas business and are subject to normal credit risks.
Concentration of credit risk is mitigated by marketing production to purchasers
under normal industry sale and payment terms. The Company routinely assesses the
financial strength of its customers and joint venture partners. The Companys
maximum exposure to credit risk relates to its cash and cash equivalents and
accounts receivable.

Accounts receivable:

The Companys operations are primarily
in Australia. The Companys exposure to credit risk is influenced mainly by the
individual characteristics of each counter party. The Company expects to collect
the outstanding receivables in the normal course of operations. As at December
31, 2013 the Companys trade and other receivables are current and due within 90
days.

F-17

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2014, 2013 and 2012 (US Dollars)

Cash and cash equivalents:

The Company limits its exposure to
credit risk by only investing in liquid securities and only with highly rated
counterparties. The Companys cash is currently held by banks with AA or
equivalent credit ratings or better. Given these credit ratings, management does
not expect any counterparty to fail to meet its obligations.

| | b) | Liquidity risk:
| | -- | ---------------

Liquidity risk is the risk that the
Company will not be able to meet its financial obligations as they fall due. The
Companys approach to managing liquidity is to ensure, as far as possible, that
it will always have sufficient liquidity to meet its liabilities when due, under
both normal and stressed conditions, without incurring unacceptable losses or
risking damage to the Companys reputation.

Typically the Company ensures that it
has sufficient cash on demand to meet expected operational expenses, including
the servicing of financial obligations; this excludes the potential impact of
extreme circumstances that cannot reasonably be predicted, such as natural
disasters and political unrest. To achieve this objective, the Company prepares
annual capital expenditure budgets, which are regularly monitored and updated as
considered necessary. As at December 31, 2014 the Companys financial
liabilities being accounts payable and accrued liabilities and shareholder loans
are due within one year (refer to note 2).

| | c) | Market risk:
| | -- | ------------

Market risk is the risk that changes in
market prices, such as foreign exchange rates, commodity prices and interest
rates will affect the Companys net earnings or the value of financial
instruments. The objective of market risk management is to manage and control
market risk exposures within acceptable limits, while maximizing returns.

Interest rate risk:

Interest rate risk is the risk that
future cash flows will fluctuate as a result of changes in market interest
rates. The shareholder loans bear interest at the prescribed rate in the
debenture agreements. The effect of interest rate fluctuations would not have
had a significant effect on the Companys reported net loss for the years ended
December 31, 2014, 2013 and 2012.

Commodity price risk:

Commodity price risk is the risk that
the fair value of financial instruments or future cash flows will fluctuate as a
result of changes in commodity prices. Petroleum and natural gas prices are
impacted by not only the relationship between the Australian and US dollar but
also world economic events that dictate the levels of supply and demand. At this
time production from the Companys oil and gas properties are not sufficient to
justify the utilisation of financial instruments including derivatives, or
physical instruments including forward sales contracts. The Company will
continually evaluate its exposure to commodity price risks, and if production
and associated revenues increase, the Company will consider the use of
derivatives and other instruments to mitigate its risk exposure.

F-18

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2014, 2013 and 2012 (US Dollars)

Foreign currency risk:

Currency risk is the risk that the
fair value of future cash flows will fluctuate as a result of changes in foreign
exchange rates. The reporting and functional currency of the Company is US$. A
material proportion of the Companys capital expenditures and major service
contracts related to the exploration and development in Australia are
denominated in A$, and as such the Company holds a significant proportion of its
cash in A$ in order to mitigate against foreign currency risk.

The Companys operations are in
foreign jurisdictions, therefore the Company is exposed to foreign currency
exchange rate risk on some of its activities. General and administrative
expenses, are denominated in currencies other than US$ including A$ and Canadian
dollars (C$). The Company also settles certain capital expenditures in A$. To
match the foreign currency on the trade payables related to these activities the
Company may hold cash in the currency of the transaction.

The following table contains an
analysis of US$ equivalent cash balances, trade receivables and trade payables
denominated in each currency:

| |                         |   | Cash and        |  |   | Trade       |  |   | Trade    | 
| | ----------------------- | - | --------------- |  | - | ----------- |  | - | -------- | 
| | As at December 31, 2014 |   | Restricted Cash |  |   | Recievables |  |   | Payables | 
| | Denominated in US$      | $ | 448,134         |  | $ | 29,798      |  | $ | 280,363  | 
| | Denominated in A$       |   | 202,296         |  |   | 1,628       |  |   | 45,878   | 
| | Denominated in C$       |   | 8,527           |  |   | 4,426       |  |   | 398,924  | 
| |                         | $ | 658,957         |  | $ | 35,852      |  | $ | 725,164  | 

| | d) | Capital management:
| | -- | -------------------

The Company's objectives when managing
capital are to safeguard the Company's ability to continue as a going concern
and to maintain a flexible capital structure which will allow it to pursue the
development of its oil and gas properties. Therefore, the Company monitors the
level of risk incurred in its oil and gas property expenditures relative to its
capital structure. The Company considers its capital structure to include
working capital and shareholders' equity. The Company monitors its capital
structure and makes adjustments in light of changes in economic conditions and
the risk characteristics of the underlying assets.

The Company is dependent on external
financing to fund its activities. In order to carry out the planned exploration
and pay for administrative costs, the Company will spend its existing working
capital and raise additional amounts as needed. Management reviews its capital
management approach on an ongoing basis and believes that this approach, given
the relative size of the Company, is reasonable. The Company is not subject to
any capital restrictions.

|7. | Cash and restricted cash:
|-- | -------------------------

At December 31, 2014 the Company held
cash of $463,546 (2013  $94,998). Cash at banks earn interest at floating rates
based on daily bank deposit rates. Short term deposits are made for varying
periods of between one day and three months, depending on the cash requirements
of the Company, and earn interest at the respective short term deposit
rates.

At December 31, 2014, the Company held
restricted cash of $195,411 (2013  $219,304). Restricted cash is cash held on
deposit with a chartered Australian bank which will be returned to the Company
when it satisfies the capital commitments pertaining to the licenses. Subsequent
to year end, the Company provided a further A$440,000 in favour of the
Queensland Australia government, these guarantees will be returned to the
Company when it satisfies reclamation obligations on its licenses.

F-19

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2014, 2013 and 2012 (US Dollars)

|8. | Shareholder loans:
|-- | ------------------

| |                                                      |   | 2014      |   |   | 2013      |  |   | 2012      | 
| | ---------------------------------------------------- | - | --------- | - | - | --------- |  | - | --------- | 
| | Loans on acquisition of
      Surat Basin properties | $ | 3,000,000 |   | $ | 2,960,396 |  | $ | 2,960,396 | 
| | Accretion on shareholder loan                        |   | -         |   |   | 39,604    |  |   | -         | 
| | Accrued and
      unpaid interest thereon            |   | 585,615   |   |   | 312,555   |  |   | -         | 
| | Loan to fund deposits                                | $ | 134,250   |   | $ | 134,250   |  | $ | 134,250   | 
| | Accrued and
      unpaid interest thereon            |   | 48,714    |   |   | 36,631    |  |   | 20,521    | 
| | Repayment                                            |   | (151,470  | ) |   | -         |  |   | -         | 
| | Debt forgiveness                                     |   | (31,494   | ) |   | -         |  |   | -         | 
| |                                                      | $ | 3,585,615 |   | $ | 3,483,436 |  | $ | 3,115,167 | 

Concurrent with the acquisition of the
assets in the Surat Basin in Australia, on March 1, 2012 the Company agreed to
pay certain vendors $3.0 million within 12 months and 8.57 million shares of the
Company. The loan was non-interest bearing and was recorded at net present value
of $2,770,084 and is secured by the Surat assets. At January 1, 2013 the net
present value of the loan was $2,960,396. On March 25, 2013, the Company agreed
to amend the terms of the loan so that interest would accrue at 8% per annum,
with interest accruing from September 1, 2012. On February 28, 2015, the Company
and shareholder agreed to extend the loan to February 28, 2016. During 2011, the
Company borrowed $243,500 from two stockholders to fund the deposit for one of
its exploration concessions in Australia. In the third quarter of 2012, $109,250
plus accrued interest of $6,958 was repaid. In the third quarter of 2014, the
Company paid $151,470, and the stockholders agreed to forgive the remaining
$31,494 outstanding.

|9. | Property, Plant and
Equipment:
|-- | ------------------------------

| | Cost or deemed cost                                    |   |           |  
| | ------------------------------------------------------ | - | --------- | -
| | Balance at January 1, 2012
      and December 31, 2012 | $ | 453,999   |  
| | Acquisitions                                           |   | 1,058,096 |  
| | Dispositions                                           |   | (308,096  | )
| | Balance at December 31, 2013                           | $ | 1,203,999 |  
| | Dispositions                                           |   | (25,000   | )
| | Balance, December 31, 2014                             | $ | 1,178,999 |  

| | Accumulated depletion and
      depreciation |   |         | 
| | -------------------------------------------- | - | ------- | 
| | Balance at January 1,
      2012             | $ | -       | 
| | Depletion and depreciation expense           |   | 25,844  | 
| | Balance at January 1,
      2013             | $ | 25,844  | 
| | Depletion and depreciation expense           |   | 28,431  | 
| | Balance at December 31, 2013                 | $ | 54,275  | 
| | Depletion and depreciation expense           |   | 112,482 | 
| | Balance at December 31, 2014                 | $ | 166,757 | 

| | Net book value          |   |           | 
| | ----------------------- | - | --------- | 
| | As at January 1, 2012   | $ | 453,999   | 
| | As at December 31, 2013 |   | 1,149,724 | 
| | As at December 31, 2014 | $ | 1,012,242 | 

F-20

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2014, 2013 and 2012 (US Dollars)

At December 31, 2014, the Companys
property, plant and equipment is comprised primarily of its overriding royalty
interests in Australia. These interests are currently the Companys only revenue
generating asset. On October 1, 2013, the Company completed the acquisition of
International TME Resources Inc. (ITME) which held overriding royalty
interests in Australia. The Company issued 13.97 million to acquire the entire
share capital of ITME, which held overriding royalty and working interests in
Australia.

On October 29, 2014, Company disposed
of certain non-producing overriding royalty interests to an arms-length party.
On October 15, 2013, the Company disposed of certain non-producing overriding
royalty interests to an arms-length party.

|10. | Exploration and evaluation
  assets:
|--- | ------------------------------------

| | Balance at January 1, 2012                       | $ | 508,811    |  
| | ------------------------------------------------ | - | ---------- | -
| | Acquisitions                                     |   | 8,228,212  |  
| | Additions                                        |   | 1,293,746  |  
| | Balance at December 31, 2012                     | $ | 10,030,769 |  
| | Acquisitions                                     |   | 2,868,845  |  
| | Additions                                        |   | 387,293    |  
| | Capitalized share-based
      compensation costs |   | 101,975    |  
| | Foreign exchange translation                     |   | (1,099,190 | )
| | Balance at December 31, 2013                     | $ | 12,289,692 |  
| | Additions                                        |   | 187,567    |  
| | Dispositions                                     |   | (806,115   | )
| | Foreign exchange translation                     |   | (1,073,150 | )
| | Balance at December 31, 2014                     | $ | 10,597,995 |  

Intangible exploration and evaluation
assets consist of the Companys exploration projects which are pending the
determination of proven or probable reserves, or pending the decision by the
Company to elect to proceed with the development of a project.

On October 29, 2014 the Company
completed the sale of certain E&E assets in Australia for net proceeds of
$0.8 million. On October 1, 2013, The Company completed the acquisition of ITME,
which held working interests in undeveloped land onshore Australia (note 9).

On March 1, 2012, the Company completed
the acquisition of assets in the Surat / Bowen basins in Queensland Australia
through the issue of 21.7 million shares and a $3.0 million non-interest bearing
loan note (note 8).

F-21

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2014, 2013 and 2012 (US Dollars)

|11. | Decommissioning liability:
|--- | --------------------------

The Companys decommissioning liability
results from the ownership interest in oil and natural gas assets. The Company
has estimated the net present value of the decommissioning liability to be
$390,302 as at December 31, 2014 (2013 and 2012  $415,300) based on an
undiscounted inflation-adjusted total future liability of A$671,718 (2013 and
2012  A$671,718). These payments are expected to be made over the next 25 years
with the majority of costs to be incurred between 2024 and 2029. At December 31,
2014, the liability has been calculated using an inflation rate of 3.0% (2013
and 2012  3.0%) and discounted using a risk-free rate of 3.0% (2013 and 2012 
3.0%) .

| | Balance at January 1, 2012         | $ | -       |  
| | ---------------------------------- | - | ------- | -
| | Acquired                           |   | 476,010 |  
| | Accretion expense                  |   | 11,370  |  
| | Gain
      on foreign exchange     |   | (18,896 | )
| | Balance at December 31,
      2012 | $ | 468,484 |  
| | Accretion expense                  |   | 13,117  |  
| | Foreign exchange translation       |   | (66,301 | )
| | Balance at December 31, 2013       | $ | 415,300 |  
| | Accretion expense                  |   | 12,597  |  
| | Foreign exchange translation       |   | (36,995 | )
| | Balance at December 31, 2014       | $ | 390,902 |  

|12. | Share capital:
|--- | --------------

| | a) | Authorized:
| | -- | -----------

Unlimited number of common shares with
no par value. Unlimited number of preferred shares, of which none have been
issued.

F-22

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2014, 2013 and 2012 (US Dollars)

| | b) | Issued and outstanding:
| | -- | -----------------------

| |                                                                    |  | Number of  |  |   |            |  
| | ------------------------------------------------------------------ |  | ---------- |  | - | ---------- | -
| |                                                                    |  | shares     |  |   | Amount     |  
| | Balance at January 1,
      2012                                   |  | 22,705,680 |  | $ | 4,116,877  |  
| | Issued to acquire exploration and evalaution
      assets (note 8) |  | 21,780,935 |  |   | 4,791,805  |  
| | Issued for cash                                                    |  | 5,473,385  |  |   | 1,915,684  |  
| | Share issue costs                                                  |  | -          |  |   | (290,054   | )
| | Balance at December 31,
      2013                                 |  | 49,960,000 |  | $ | 10,534,312 |  
| | Issued to acquire exploration and evaluation
      assets          |  | 69,065     |  |   | 15,194     |  
| | Issued to acquire ITME (note
      9)                              |  | 13,977,811 |  |   | 3,494,453  |  
| | Issued to former director                                          |  | 50,000     |  |   | 12,500     |  
| | Balance at December 31, 2014 and 2013                              |  | 64,056,876 |  | $ | 14,056,459 |  

On January 9, 2013, at the Companys
annual general meeting the authorized common shares available for issue was
changed to unlimited. On the same date, Company issued the final 69,095 shares
to vendors of the Surat basin assets which closed on March 1, 2012. On October
17, 2013 the Company issued 50,000 shares to a former Director of the Company
for past services. On March 1, 2012, the Company issued 5,473,385 shares at
$0.35 per share.

| | c) | Stock option plan:
| | -- | ------------------

Pursuant to resolutions of the Board
of Directors of the Company dated January 9, 2013, the Company established a
stock option plan for its directors, officers, consultants and employees under
which the Company may grant options to acquire a maximum number of common shares
equal to 10% of the total issued and outstanding shares of the Company. At
December 31, 2014, 2013, and 2012 no options have been issued under this plan.

| | d) | Warrants:
| | -- | ---------

On January 19, 2013, the Company granted 5.0
      million warrants to directors, officers and consultants. These performance warrants have an exercise price
      of $0.25 per warrant, but are only exercisable if the share price of the Company exceeds $1.00 per
      share for ten consecutive trading days, with a minimum of 100,000 shares traded over the same period. The fair value of these warrants was estimated
      to be $254,938 using the Black-Scholes pricing model
      based on a volatility of 98%, risk-free interest rate of 1.5%, expected life of 2 years and no dividend
      yield.

On January 18, 2015, the Company extended the
      warrants for two years, expiring January 18, 2017. All other terms remained the same.

| |                                           |  | Number of |  |   |         | 
| | ----------------------------------------- |  | --------- |  | - | ------- | 
| |                                           |  | warrants  |  |   | Amount  | 
| | Balance, January 1,
      2012            |  | -         |  | $ | -       | 
| | Granted                                   |  | 5,000,000 |  |   | 254,938 | 
| | Balance, December 31, 2014, 2013 and 2012 |  | 5,000,000 |  | $ | 254,938 | 

F-23

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2014, 2013 and 2012 (US Dollars)

|13. | Finance expense:
|--- | ----------------

| |                                              |   | 2014    |   |   | 2013    |   |   | 2012    |  
| | -------------------------------------------- | - | ------- | - | - | ------- | - | - | ------- | -
| | Interest income on cash                      | $ | (6,371  | ) | $ | (7,530  | ) | $ | (10,541 | )
| | Interest expense                             |   | 285,244 |   |   | 328,665 |   |   | 22,181  |  
| | Accretion on decommissioning
      liability |   | 12,597  |   |   | 13,117  |   |   | 11,370  |  
| | Shareholder loan forgiveness                 |   | (31,494 | ) |   | -       |   |   | -       |  
| | Accretion on shareholder
      loans         |   | -       |   |   | 39,916  |   |   | -       |  
| | Accretion of accounts recievable             |   | -       |   |   | (11,969 | ) |   | -       |  
| | Net finance expense                          | $ | 259,976 |   | $ | 362,199 |   | $ | 23,010  |  

|14. | Income taxes:
|--- | -------------

The provision for income taxes differs
from the amount that would have been expected by applying the combined federal
and provincial tax rates to the loss for the year. This difference results from
the following items:

| |                                                  |   | 2014     |   |   | 2013     |   |   | 2012     |  
| | ------------------------------------------------ | - | -------- | - | - | -------- | - | - | -------- | -
| | Loss before tax                                  | $ | (322,400 | ) | $ | (982,929 | ) | $ | (365,133 | )
| | Combined tax rate                                |   | 25.0%    |   |   | 25.0%    |   |   | 25.0%    |  
| | Expected income tax reduction                    | $ | (80,600  | ) | $ | (245,732 | ) | $ | (91,283  | )
| | Increase (decrease) resulting from:              |   |          |   |   |          |   |   |          |  
| | Effect of
      foreign tax rates                |   | (13,187  | ) |   | (31,892  | ) |   | (1,292   | )
| | Share-based compensation                         |   | -        |   |   | 63,735   |   |   | -        |  
| | Change in
      unrecognized deferred tax assets |   | 93,278   |   |   | 159,673  |   |   | 104,557  |  
| | Non-deductible and other                         |   | 13,330   |   |   | 76,919   |   |   | 5,840    |  
| | Income tax expense                               |   | 12,821   |   |   | 22,703   |   |   | 17,822   |  
| |                                                  |   |          |   |   |          |   |   |          |  
| | Total tax recovery                               | $ | -        |   | $ | -        |   | $ | -        |  

F-24

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2014, 2013 and 2012 (US Dollars)

Deferred tax assets have not been
recognized in respect of the following temporary differences:

| | As at December 31                                                       |   | 2014      |  |   | 2013      |  |   | 2012      | 
| | ----------------------------------------------------------------------- | - | --------- |  | - | --------- |  | - | --------- | 
| | Canada:                                                                 |   |           |  |   |           |  |   |           | 
| | Property, plant and equipment / exploration
      and evaluation assets | $ | -         |  | $ | -         |  | $ | 880,391   | 
| | Decommissioning obligations                                             |   | -         |  |   | -         |  |   | -         | 
| | Share issue costs                                                       |   | 116,021   |  |   | 174,032   |  |   | 232,043   | 
| | Non-capital losses (expire 2024 to 2034)                                |   | 4,307,618 |  |   | 4,180,104 |  |   | 3,590,102 | 
| |                                                                         |   |           |  |   |           |  |   |           | 
| |                                                                         | $ | 4,423,639 |  | $ | 4,354,136 |  | $ | 4,702,536 | 

| | As at December 31                                                       |   | 2014    |  |   | 2013    |  |   | 2012 | 
| | ----------------------------------------------------------------------- | - | ------- |  | - | ------- |  | - | ---- | 
| | Australia:                                                              |   |         |  |   |         |  |   |      | 
| | Property, plant and equipment / exploration
      and evaluation assets | $ | -       |  | $ | -       |  | $ | -    | 
| | Decommissioning obligations                                             |   | 18,189  |  |   | 5,591   |  |   | -    | 
| | Non-capital losses                                                      |   | 850,101 |  |   | 598,950 |  |   | -    | 
| |                                                                         |   |         |  |   |         |  |   |      | 
| |                                                                         | $ | 868,290 |  | $ | 604,541 |  | $ | -    | 

| | As at December 31                |   | 2014 |  |   | 2013   |  |   | 2012 | 
| | -------------------------------- | - | ---- |  | - | ------ |  | - | ---- | 
| | USA:                             |   |      |  |   |        |  |   |      | 
| | Non-capital losses (expire 2033) | $ | -    |  | $ | 12,890 |  | $ | -    | 
| |                                  | $ | -    |  | $ | 12,890 |  | $ | -    | 

The components of the recognized
deferred income tax asset (liability) are as follows:

| | As at December 31                                                       |   | 2014     |   |   | 2013     |   |   | 2012     |  
| | ----------------------------------------------------------------------- | - | -------- | - | - | -------- | - | - | -------- | -
| |                                                                         |   |          |   |   |          |   |   |          |  
| | Property, plant and equipment
      / exploration and evaluation assets | $ | (373,161 | ) | $ | (401,282 | ) | $ | (142,803 | )
| | Decommissioning obligations                                             |   | 142,358  |   |   | 142,803  |   |   | 142,803  |  
| | Non-capital losses                                                      |   | 230,358  |   |   | 258,479  |   |   | -        |  
| |                                                                         |   |          |   |   |          |   |   |          |  
| | $                                                                       |   | -        |   | $ | -        |   | $ | -        |  

Deferred tax assets have not been
recognized in respect of these items because it is not probable that future tax
profit will be available against which the Company can utilize the benefits.

F-25

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2014, 2013 and 2012 (US Dollars)

|15. | Related party
transactions:
|--- | ---------------------------

| | a) | Shareholder loans:
| | -- | ------------------

The Companys shareholder loans are
described in note 8. The loans were negotiated between the Company and the
shareholders on terms comparable to arms-length transactions of similar type.
The fair value of the shareholder loans approximates their carrying value at
December 31, 2014 and 2013.

| | b) | Compensation of key management
  personnel:
| | -- | -------------------------------------------

The remuneration of directors and other
key management personnel during the years ended December 31, 2014 and 2013 was
as follows:

| |                          |   | 2014 |  |   | 2013    |  |   | 2012 | 
| | ------------------------ | - | ---- |  | - | ------- |  | - | ---- | 
| | Share-based compensation | $ | -    |  | $ | 254,938 |  | $ | -    | 
| | Director compensation    |   | -    |  |   | 12,500  |  |   | -    | 
| |                          | $ | -    |  | $ | 267,438 |  | $ | -    | 

The remuneration of directors and key
executives is determined by the Board of Directors having regard to the
performance of individuals and market trends. During 2014, 2013 and 2012, the
Company did not incur any salaries and no key management or Director received
any salary or consulting fees. During 2013, one former Company Director received
50,000 shares at a deemed value of $0.25 per share for past directors fees.

During 2013, key Company personnel
received performance warrants. The fair value of these warrants was estimated
using the Black-Scholes pricing model based on a volatility of 98%, risk-free
interest rate of 1.5%, expected life of 2 years and no dividend yield.

|16. | Loss per share:
|--- | ---------------

Basic per share amounts are calculated
using the weighted average number of shares outstanding of 64,056,876 for the
year ended December 31, 2014 (2013  56,027,645, 2012 
43,670,542). In computing diluted per share amounts, all of the Companys
outstanding warrants were excluded from the calculation of the weighted average
number of common shares outstanding as they were anti-dilutive.

|17. | Subsidiaries and
jurisdictions:
|--- | -------------------------------

The consolidated financial statements
of the Company for the years ended December 31, 2014, 2013 and 2012 comprise the
Company and the following subsidiaries:

| |                               |  | Country of    |  |  |                            |  |  | % Equity | 
| | ----------------------------- |  | ------------- |  |  | -------------------------- |  |  | -------- | 
| |                               |  | Incorporation |  |  | Assets Held                |  |  | Interest | 
| | Chelsea Oil Australia Pty.    |  | Australia     |  |  | PL 18, PL 40, PL
      280 |  |  | 100%     | 
| | Cooper-Eromanga Oil Inc.      |  | US            |  |  | ATP 582                    |  |  | 100%     | 
| | Cooper Basin Oil and Gas Inc. |  | US            |  |  | -                          |  |  | 20%      | 

F-26

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2014, 2013 and 2012 (US Dollars)

|18. | Commitments:
|--- | ------------

| |               |  |                           |  |  | Remaining       |  |  |                | 
| | ------------- |  | ------------------------- |  |  | --------------- |  |  | -------------- | 
| |               |  | Current                   |  |  | Work Commitment |  |  | License        | 
| | License       |  | Phase                     |  |  | (A$ million)    |  |  | Term           | 
| | PL 18         |  | Later
      Development   |  |  | AUD 5.0         |  |  | August 2024    | 
| | PL 40         |  | Later Development         |  |  | AUD 2.0         |  |  | September 2029 | 
| | PL 280        |  | Initial
      Development |  |  | AUD 1.0         |  |  | August 2031    | 
| | ATP
      582 |  | Second Term               |  |  | AUD 11.0        |  |  | August 2020    | 
| |               |  |                           |  |  | AUD 19.0        |  |  |                | 

|19. | Subsequent events:
|--- | ------------------

Provision of bank guarantees

In April 2015, the Company provided
A$440,000 in bank guarantees in favour of the Queensland Australia government,
these guarantees will be returned to the Company when it satisfies reclamation
obligations on its licenses. The bank guarantees are held as restricted cash
with a Canadian Chartered Bank.

Shareholder loan extension

On February 28, 2015, the Company and
shareholder agreed to extend the $3.0 million loan to February 28, 2016. The
loan will continue to accrue interest at 8% per annum.

Warrant extension

On January 18, 2015, the Company
extended the warrants issued in January 2013 for two years to expire January 18,
2017. All other terms remained the same.

F-27

---