---

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, 2016

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 number0-29832

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

**Alberta, Canada**(Jurisdiction of
incorporation or organization)

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

**Jesse Meidl, Director**T: (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

---

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:

64,056,876Common Shares, no par
value as of December 31, 2016

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:

[X] International Financial
      Reporting Standards[   ] U.S. GAAP
    as issued by the
      International Accounting
    [   ] OtherStandards 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]

---

TABLE OF CONTENTS

|                                          |        |                                                                   |     |                                                     | Page
|----------------------------------------- | ------ | ----------------------------------------------------------------- | --- | --------------------------------------------------- | ----
|                                          |        |                                                                   |     |                                                     |     
|INTRODUCTION
    AND USE OF CERTAIN TERMS | 1     
|                                          |        |                                                                   |     |                                                     |     
|FORWARD-LOOKING STATEMENTS                | 5     
|                                          |        |                                                                   |     |                                                     |     
|                                          | PART I | 6                                                                
|                                          |        |                                                                   |     |                                                     |     
|                                          |        | ITEM 1.
    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS | 6  
|                                          |        |                                                                   |     |                                                     |     
|                                          |        | ITEM 2.
    OFFER STATISTICS AND EXPECTED TIMETABLE               | 6  
|                                          |        |                                                                   |     |                                                     |     
|                                          |        | ITEM 3. KEY
    INFORMATION                                       | 6  
|                                          |        |                                                                   |     |                                                     |     
|                                          |        |                                                                   | 3.A | SELECTED
      FINANCIAL DATA                       | 6   
|                                          |        |                                                                   |     |                                                     |     
|                                          |        |                                                                   | 3.B | CAPITALIZATION AND INDEBTEDNESS                     | 6   
|                                          |        |                                                                   |     |                                                     |     
|                                          |        |                                                                   | 3.C | REASONS FOR
      THE OFFER AND USE OF PROCEEDS     | 6   
|                                          |        |                                                                   |     |                                                     |     
|                                          |        |                                                                   | 3.D | RISK FACTORS                                        | 6   
|                                          |        |                                                                   |     |                                                     |     
|                                          |        | ITEM 4.
    INFORMATION ON THE COMPANY                            | 16 
|                                          |        |                                                                   |     |                                                     |     
|                                          |        |                                                                   | 4.A | THREE YEAR
      HISTORY AND DEVELOPMENT OF CHELSEA | 16  
|                                          |        |                                                                   |     |                                                     |     
|                                          |        |                                                                   | 4.B | BUSINESS
      OVERVIEW                             | 19  
|                                          |        |                                                                   |     |                                                     |     
|                                          |        |                                                                   | 4.C | ORGANIZATIONAL STRUCTURE                            | 20  
|                                          |        |                                                                   |     |                                                     |     
|                                          |        |                                                                   | 4.D | PROPERTY,
      PLANT AND EQUIPMENT                 | 20  
|                                          |        |                                                                   |     |                                                     |     
|                                          |        |                                                                   | 4.E | UNRESOLVED
      STAFF COMMENTS                     | 24  
|                                          |        |                                                                   |     |                                                     |     
|                                          |        | ITEM 5.
    OPERATING AND FINANCIAL REVIEW AND PROSPECTS          | 24 
|                                          |        |                                                                   |     |                                                     |     
|                                          |        | ITEM 6.
    DIRECTORS AND SENIOR MANAGEMENT                       | 33 
|                                          |        |                                                                   |     |                                                     |     
|                                          |        |                                                                   | 6.A | DIRECTORS
      AND SENIOR MANAGEMENT               | 33  
|                                          |        |                                                                   |     |                                                     |     
|                                          |        |                                                                   | 6.B | COMPENSATION                                        | 35  
|                                          |        |                                                                   |     |                                                     |     
|                                          |        |                                                                   | 6.C | BOARD
      PRACTICES                               | 35  
|                                          |        |                                                                   |     |                                                     |     
|                                          |        |                                                                   | 6.D | EMPLOYEES                                           | 35  
|                                          |        |                                                                   |     |                                                     |     
|                                          |        |                                                                   | 6.E | SHARE
      OWNERSHIP                               | 35  
|                                          |        |                                                                   |     |                                                     |     
|                                          |        | ITEM 7.
    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS     | 36 
|                                          |        |                                                                   |     |                                                     |     
|                                          |        |                                                                   | 7.A | MAJOR
      SHAREHOLDERS                            | 36  
|                                          |        |                                                                   |     |                                                     |     
|                                          |        |                                                                   | 7.B | RELATED
      PARTY TRANSACTIONS                    | 36  

-i-

---

TABLE OF CONTENTS (continued)

| |             |                                                                                                   |      |                                                               | Page
| | ----------- | ------------------------------------------------------------------------------------------------- | ---- | ------------------------------------------------------------- | ----
| |             |                                                                                                   |      |                                                               |     
| |             |                                                                                                   | 7.C  | INTEREST
      OF EXPERTS AND COUNSEL                         | 37  
| |             |                                                                                                   |      |                                                               |     
| |             | ITEM
    8. FINANCIAL INFORMATION                                                                 | 37  
| |             |                                                                                                   |      |                                                               |     
| |             |                                                                                                   | 8.A  | CONSOLIDATED
      STATEMENTS AND OTHER FINANCIAL INFORMATION | 37  
| |             |                                                                                                   |      |                                                               |     
| |             |                                                                                                   | 8.B  | SIGNIFICANT
      CHANGES                                     | 37  
| |             |                                                                                                   |      |                                                               |     
| |             | ITEM
    9. THE OFFER AND LISTING                                                                 | 37  
| |             |                                                                                                   |      |                                                               |     
| |             |                                                                                                   | 9.A  | PRICING
      HISTORY                                         | 37  
| |             |                                                                                                   |      |                                                               |     
| |             |                                                                                                   | 9.B  | PLAN
      OF DISTRIBUTION                                    | 38  
| |             |                                                                                                   |      |                                                               |     
| |             |                                                                                                   | 9.C  | MARKET                                                        | 38  
| |             |                                                                                                   |      |                                                               |     
| |             |                                                                                                   | 9.D  | SELLING
      SHAREHOLDERS                                    | 38  
| |             |                                                                                                   |      |                                                               |     
| |             |                                                                                                   | 9.E  | DILUTION                                                      | 38  
| |             |                                                                                                   |      |                                                               |     
| |             |                                                                                                   | 9.F  | EXPENSES
      OF THE ISSUE                                   | 38  
| |             |                                                                                                   |      |                                                               |     
| |             | ITEM
    10. ADDITIONAL INFORMATION                                                               | 38  
| |             |                                                                                                   |      |                                                               |     
| |             |                                                                                                   | 10.A | SHARE
      CAPITAL                                           | 38  
| |             |                                                                                                   |      |                                                               |     
| |             |                                                                                                   | 10.B | ARTICLES
      OF AMALGAMATION                                | 38  
| |             |                                                                                                   |      |                                                               |     
| |             |                                                                                                   | 10.C | MATERIAL
      CONTRACTS                                      | 39  
| |             |                                                                                                   |      |                                                               |     
| |             |                                                                                                   | 10.D | EXCHANGE
      CONTROLS                                       | 40  
| |             |                                                                                                   |      |                                                               |     
| |             |                                                                                                   | 10.E | TAXATION                                                      | 40  
| |             |                                                                                                   |      |                                                               |     
| |             |                                                                                                   | 10.F | DIVIDENDS
      AND PAYING AGENTS                             | 40  
| |             |                                                                                                   |      |                                                               |     
| |             |                                                                                                   | 10.G | STATEMENT
      BY EXPERTS                                    | 40  
| |             |                                                                                                   |      |                                                               |     
| |             |                                                                                                   | 10.H | DOCUMENTS
      ON DISPLAY                                    | 40  
| |             |                                                                                                   |      |                                                               |     
| |             |                                                                                                   | 10.I | SUBSIDIARY
      INFORMATION                                  | 41  
| |             |                                                                                                   |      |                                                               |     
| |             | ITEM
      11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT NON-PRODUCT RELATED
    MARKET RISK | 41  
| |             |                                                                                                   |      |                                                               |     
| |             | ITEM
    12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                               | 41  
| |             |                                                                                                   |      |                                                               |     
| | PART
    II | 42                                                                                               
| |             |                                                                                                   |      |                                                               |     
| |             | ITEM
    13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                                      | 42  

-ii-

---

TABLE OF CONTENTS (continued)

|          |              |                                                                                                 |      |                                                                             | Page
|--------- | ------------ | ----------------------------------------------------------------------------------------------- | ---- | --------------------------------------------------------------------------- | ----
|          |              |                                                                                                 |      |                                                                             |     
|          |              | ITEM
      14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
    PROCEEDS | 42  
|          |              |                                                                                                 |      |                                                                             |     
|          |              | ITEM
    15. CONTROLS AND PROCEDURES                                                            | 42  
|          |              |                                                                                                 |      |                                                                             |     
|          |              | ITEM
    16. AUDIT COMMITTEE FINANCIAL EXPERTS                                                  | 43  
|          |              |                                                                                                 |      |                                                                             |     
|          |              |                                                                                                 | 16.A | AUDIT
      COMMITTEE FINANCIAL EXPERTS                                     | 43  
|          |              |                                                                                                 |      |                                                                             |     
|          |              |                                                                                                 | 16.B | CODE
      OF ETHICS                                                        | 45  
|          |              |                                                                                                 |      |                                                                             |     
|          |              |                                                                                                 | 16.C | PRINCIPAL
      ACCOUNTANT FEES AND SERVICES                                | 45  
|          |              |                                                                                                 |      |                                                                             |     
|          |              |                                                                                                 | 16.D | EXEMPTIONS
      FROM THE LISTING STANDARDS FOR AUDIT COMMITTEE             | 46  
|          |              |                                                                                                 |      |                                                                             |     
|          |              |                                                                                                 | 16.E | PURCHASES
      OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASER | 46  
|          |              |                                                                                                 |      |                                                                             |     
|          |              |                                                                                                 | 16.F | CHANGE
      IN REGISTRANTS CERTIFYING ACCOUNTANT                          | 46  
|          |              |                                                                                                 |      |                                                                             |     
|          |              |                                                                                                 | 16.G | CORPORATE
      GOVERNANCE                                                  | 47  
|          |              |                                                                                                 |      |                                                                             |     
|          |              |                                                                                                 | 16.H | MINE
      SAFETY DISCLOSURES                                               | 47  
|          |              |                                                                                                 |      |                                                                             |     
|          | PART
    III | 48                                                                                             
|          |              |                                                                                                 |      |                                                                             |     
|          |              | ITEM
    17. FINANCIAL STATEMENTS                                                               | 48  
|          |              |                                                                                                 |      |                                                                             |     
|          |              | ITEM
    18. FINANCIAL STATEMENTS                                                               | 48  
|          |              |                                                                                                 |      |                                                                             |     
|          |              | ITEM
    19. EXHIBITS                                                                           | 48  
|          |              |                                                                                                 |      |                                                                             |     
|SIGNATURE | 49          

-iii-

---

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, 2016.

Unless the context requires otherwise, when used
in this annual report on Form 20-F, the terms Chelsea, we, us our the
Corporation 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, 2016 pursuant to
  Canadian National Instrument (NI) 51- 105;
- AGM means the Annual General Meeting of the Corporation held on
  June 2, 2015;
- 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 -

---

- 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 Chelseas assets in the
  Surat Basin in;
- 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 -

---

- 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 -

---

- 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 Kingom;
- 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;
- 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;
- US GAAP means United States Generally Accepted Accounting
  Principles;
- Warrant means one Common Share purchase warrant of the
  Corporation; and
- 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.

- 4 -

---

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.

- 5 -

---

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 at December 31,2016
    
    2015
    
    2014
    
    2013
    
    2012Total assets
    $10,532,948
    
    $10,786,357
    
    $12,305,046
    
    $13,845,019
    
    $11,073,620Current liabilities
    $4,876,262
    
    $4,457,722
    
    $4,310,779
    
    $4,418,783
    
    $3,667,974Shareholders equity
    $5,290,169
    
    $5,968,352
    
    $7,603,365
    
    $9,010,936
    
    $6,937,162Weighted-average shares
      outstanding
    64,056,876
    
    64,056,876
    
    64,056,876
    
    56,027,645
    
  43,670,542


For the Year Ended December 31,2016
    
    2015
    
    2014
    
    2013
    
    2012Revenue
    $36,701
    
    $68,974
    
    $361,990
    
    $98,805
    
    $79,325Net loss for the year
    $542,938
    
    $467,693
    
    $335,221
    
    $1,005,632
    
    $382,955Basic and diluted loss
    $(0.01)
    
    $(0.01)
    
    $(0.01)
    
    $(0.02)
    
    $(0.01)per share


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.

---

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.

- 7 -

---

**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.

- 8 -

---

**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;                                  
|  |                                                                                             
| | 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.

- 9 -

---

**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. 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.

- 10 -

---

**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 effect 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.

- 11 -

---

**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.

- 12 -

---

**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.

- 13 -

---

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.

- 14 -

---

**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.

- 15 -

---

**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.

- 16 -

---

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**

***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.

**2015**

On
June 1, 2015, the Corporation announced that the BCSC granted a full revocation
of the cease trade order issued by the BCSC on February 18, 1999 in respect of
ITME, a predecessor company to Chelsea.

**2016**

During
2016 the Companys efforts were focused on obtaining financing through the
issuance of equity or debt instruments to existing and new investors, and
monetizing assets held within the portfolio.

**Current
Business Operations**

Throughout
2016 and to the date of this 20-F, the Corporation has continued to advance
discussions with investors, which if successful, is expected to enable the
Corporation to fund its operations and maintain its debt obligations for 2017
and 2018. There is no certainty that the Brokered Private Placement will be
completed.

In
tandem, the Corporation has initiated discussions with multiple parties
regarding the full or partial sale of some of its assets. The proceeds of any
sale would be used by the Corporation to fund its operations and maintain its
debt obligations for 2017 and 2018. There is no certainty that any asset sale
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.

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.

- 17 -

---

**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.

**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 29, 2015 was $0.76201 Australian = $1.00 United States dollar and 0.79561
Canadian = $1.00 United States dollar

- 18 -

---

**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.

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.

- 19 -

---

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
    PercentageOrganization
    OwnershipCooper-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.

- 20 -

---

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:

| | 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. .                                                                                                                                    
|  |                                                                                                                                                                                                                                                      
| | Overriding Royalty Interests:In addition to its
      Working Interest lands, the Corporation also holds an ORRI in more than
      approximately 11.1 million gross acres (60,000 net acres) in both onshore
      and offshore basins in Australia.

During
2016 and 2015, 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 AcresPL 18
    
    Surat
    
    Chelsea
      Oil(1)
    
    46,482
    
    100%
    
    46,482PL 40
    
    Surat
    
    Chelsea
      Oil(1)
    
    18,744
    
    100%
    
    18,744PL 280
    
    Surat
    
    Chelsea
      Oil(1)
    
    23,308
    
    50%
    
    11,654ATP 582
    
    Georgina / Simpson
    
    Cooper-Eromanga
      Oil(1)
    
    5,022,000
    
    100%
    
    5,022,000PEL 100
    
    Cooper / Eromanga
    
    Cooper Energy
    
    73,143
    
    1.00%
    
    731Total
    
    
    
    
    
    5,183,677
    
    
    
    5,099,611


Note:

|1. | Wholly owned subsidiary of Chelsea Oil and
  Gas
|-- | ------------------------------------------------

PRODUCING OVERRIDING ROYALTY INTERESTS

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


Note:

|1. | 1.0% Working Interest only in the Cleansweep field in
      addition to the ORRI held.
|-- | --------------------------------------------------------------------------------------

NON-PRODUCING OVERRIDING ROYALTY INTERESTS

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


Note:

|1. | Wholly-owned subsidiary of
Chelsea.
|-- | -----------------------------------

- 21 -

---

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.

- 22 -

---

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.

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. There are numerous water-flood
projects in Western Canada, including some that recover as high as 40% OOIP.
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.

**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. 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.

- 23 -

---

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.

No
reserves are attributed to ATP 582.

**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 future development
plans call for conversion of Yellowbank Creek 1 to a water injection well,
re-pressuring the reservoir at least partially, and reestablishing 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 28, 2017
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, 2016, 2015 and 2014.

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).

- 24 -

---

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**

In
2012, Total entered into the Georgina Basin through a farm-in whereby it would
spend up to A$190.0 million by 2016 to earn a 68% Working Interest in an
offsetting operators Georgina Basin lands. As well in 2012, Statoil entered into
the Georgina Basin through a farm-in whereby it would spend up to A$210.0
million in separate offsetting Georgina Basin lands to earn an 80% Working
Interest.

In
2014, Statoil terminated its farm-in, and in 2017 Total terminated its farm-in.
The termination of these farm-ins follows unsuccessful exploration results.
Although the Corporation continues to see significant potential in ATP 582, with
the termination of these farm-ins its ability to fund future exploration on this
concession is in doubt.

**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.

The
environment for oil is currently subdued due to world pricing but remains
attractive longer term. 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.

**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.

**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.

- 25 -

---

However
without access to capital or a partner to fund the obligations and development
of these assets, the company will be unable to realise this value. To that end,
the Companys current principle focus is securing finance or a funding partner.

**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,
2016, 2015 and 2014 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 acquisition of International TME Resources Inc. (ITME)
on October 1, 2013, the Company became a Canadian Reporting Issuer and files its
continuing disclosure obligations required under MI 51-105 Issuers Quoted in
the U.S. Over-The-Counter Markets.

**2016
Highlights**

For
the year ended December 31, 2016 the Companys main operations were the
advancement of the Companys fundraising and continued technical development of
the portfolio. These efforts have continued through 2017.

**Results
of Operations**

**Royalty
Income**

For
the year ended December 31, 2016, the Company received $36,701 (2015  $68,974,
2014 $361,990) in freehold royalties from its ORRI both onshore and offshore
Australia. The decrease over prior years is attributable to lower commodity
prices over the comparative periods.

**General
and administrative**

For
the year ended December 31, 2016, the Company incurred $186,416 (2015 
$242,410, 2014  $331,934) in general and administrative (G&A) expenses.
The decrease over 2015 is attributable to reduced travel, professional and
shareholder reporting costs in the current year. In 2014, G&A costs were
attributable to professional costs.

**Depletion**

For
the year ended December 31, 2016, the Company incurred $112,482 in depletion
expense (2015  $112,482, 2014  $112,482). Depletion in 2016 is consistent with
prior years as there has been no change in the depleatable base and the Company
uses straight-line amortization as described in Note 3 of the audited financial
statements for the years ending December 31, 2016, 2015 and 2014.

**Finance
expense**

For
the year ended December 31, 2016, the Company incurred $327,401 in finance
expense (2015  $302,244, 2014  $259,976). The increase over prior years is
attributable to compounding interest on the shareholder loan balance.

- 26 -

---

**Expense
reimbursements**

During
the year, the Company received $87,652 (2015 - $nil, 2014 - $nil) from an arms
length party (the Sponsor. These receipts relate to ongoing travel and general
and administrative expenses the Sponsor has agreed to fund during 2016 and 2017.
The purpose of the reimbursements is for facilitating funding and restructuring
efforts for the Company. There is no obligation to repay these unsecured
advances.

**Foreign
exchange (gain) loss**

For
the year ended December 31, 2016 the Company experienced a foreign exchange loss
of $37,623 (2015  gain of $125,515, 2014  gain of $20,002). The loss in the
current year is attributable to weakness in the US dollar in the current period.
The gains in the prior years were realized on the Companys accounts payable as
both the Australian and Canadian dollars depreciated against the US dollar
during the periods.

**Current
income tax expense**

For
the year ended December 31, 2016, the Company incurred current income tax
expenses of $3,369 (2015  $5,046, 2014  $12,821). 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.

**Net
loss**

For
the year ended December 31, 2016, the Company incurred a net loss of $542,938
(2015  $467,693, 2014  $335,221). The loss in 2016 was attributable to
interest expenses and general and administrative costs. The lower loss in 2014
is attributable to significantly higher revenues, reflecting commodity prices
during the year.

**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, 2016, the Companys foreign currency translation
adjustment was a loss of $135,245 (2015  $1,167,320, 2014  $1,072,350). The
adjustment in 2016 is attributable to the 2% decline in the Australian dollar
compared to the US dollar over the year. The adjustment in 2015 and 2014 is
attributable to the 12% decline in the Australian dollar compared to the US
dollar over each comparable year.

Liquidity and Capital Resources

At
December 31, 2016, the Company had $15,341 (2015  $121,620, 2014  $463,546) in
cash held in the Companys bank accounts. The Companys total accounts
receivable as at December 31, 2016 was $6,527 (2015  $9,048, 2014  $35,852).
The Companys trade accounts payable and shareholder loans outstanding as at
December 31, 2016 was $4.9 million (2015  $4.5 million, 2014  $4.4 million).
The Companys net working capital deficiency as at December 31, 2016 was $4.7
million (2015  $4.3 million, 2014  $3.8 million).

During
2016 the Company received $87,652 (2015 - $nil, 2014 - $nil) from an arms length
party (the Sponsor. These receipts relate to ongoing travel and general and
administrative expenses the Sponsor has agreed to fund during 2016 and 2017. The
purpose of the reimbursements is for facilitating funding and restructuring
efforts for the Company. There is no obligation to repay these unsecured
advances. 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.

- 27 -

---

The
Company has financed its operations to date through the issuance of common
shares to founding directors and other shareholders. Refer to 2017 Summary
herein and note 2 of the audited consolidated financial statements for the year
ended December 31, 2016 for additional discussion of the Companys liquidity and
capital resources. The following table outlines the timing of the Companys debt
and commitments:

Debt /
    February
    August
    August
    September
    AugustCommitment
    2016
    2020
    2024
    2029
    2031
    TotalUS$Shareholder loan
    4,201,120
    -
    -
    -
    -
    4,201,120Total US$
    4,201,120
    -
    -
    -
    -
    4,201,120A$ATP
      582
    -
    11,000,000
    -
    -
    -
    11,000,000PL
      18
    -
    -
    5,000,000
    -
    -
    5,000,000PL
      40
    -
    -
    -
    2,000,000
    -
    2,000,000PL 280
    -
    -
    -
    -
    1,000,000
    1,000,000Total A$
    -
    11,000,000
    5,000,000
    2,000,000
    1,000,000
    19,000,000


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

No
undisclosed subsequent events from December 31, 2016 to the date of this 20-F.

Recent Accounting Pronouncements

In
May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers
("IFRS 15"). The new standard is effective for annual periods beginning
on or after January 1, 2018. Earlier application is permitted. The standard
contains a single model that applies to contracts with customers and two
approaches to recognising revenue: at a point in time or over time. The model
features a contract-based five-step analysis of transactions to determine
whether, how much and when revenue is recognized. New estimates and judgmental
thresholds have been introduced, which may affect the amount and/or timing of
revenue recognized. The new standard applies to contracts with customers. It
does not apply to insurance contracts, financial instruments or lease contracts,
which fall in the scope of other IFRSs. The Company does not expect
the standard to have a material impact on the financial statements.

- 28 -

---

In
July 2014, the IASB issued the complete IFRS 9 ("IFRS 9 (2014)"). The
mandatory effective date of IFRS 9 is for annual periods beginning on or after
January 1, 2018 and must be applied retrospectively with some exemptions. Early
adoption is permitted. The restatement of prior periods is not required and is
only permitted if information is available without the use of hindsight. IFRS 9
(2014) introduces new requirements for the classification and measurement of
financial assets. Under IFRS 9 (2014), financial assets are classified and
measured based on the business model in which they are held and the
characteristics of their contractual cash flows. The standard introduces
additional changes relating to financial liabilities. It also amends the
impairment model by introducing a new expected credit loss model for
calculating impairment. IFRS 9 (2014) also includes a new general hedge
accounting standard which aligns hedge accounting more closely with risk
management. This new standard does not fundamentally change the types of hedging
relationships or the requirement to measure and recognize ineffectiveness;
however it will provide more hedging strategies that are used for risk
management to qualify for hedge accounting and introduce more judgment to assess
the effectiveness of a hedging relationship. Special transitional requirements
have been set for the application of the new general hedging model. The extent
of the impact of adoption of the standard has not yet been determined.

In
January 2016, the IASB issued the complete IFRS 16 Leases ("IFRS 16")
which replaces IAS 17, Leases. The effective date of IFRS 16 is for annual
periods beginning on or after January 1, 2019 and early adoption is permitted.
Under IFRS 16, a single recognition and measurement model will apply for lessees
which will require recognition of assets and liabilities for most leases. The
extent of the impact of adoption of the standard has not yet been determined.

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 28, 2017, 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. On January 18, 2017 all 5.0 million of the warrants expired out of the
money.

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.

- 29 -

---

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.

**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.

- 30 -

---

CONTRACTUAL OBLIGATIONS

The table below outlines our contractual obligations as at December 31, 2016 in
millions of Australian dollars:

Minimum WorkCurrent
    CommitmentLicense
    Phase Expiry
    (A$ million)
    License TermPL 18
    July 2020
    AUD 5.0
    August 2024PL 40
    September 2018
    AUD 2.0
    September 2029PL 280
    August 2015
    AUD 1.0
    August 2031ATP 582
    August 2016
    AUD
      11.0
    August 2020AUD 19.0


OFF-BALANCE SHEET ARRANGEMENTS

Chelsea
does not have any off-balance sheet arrangements.

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. At the date of these financial statements the shareholder has
the right to demand repayment, the debt continues to accrue interest on the same
terms as previously agreed. The Company is in discussions with the debtholder to
further extend maturity of the debt.

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:

- 31 -

---

**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.

**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.

- 32 -

---

As at December 31, 2016, 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.

|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)
      Vancouver, BC
      Independent Director            |  | Chief Executive Officer of Taq Oil Ltd. Since June 2015.
      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.

- 33 -

---

**Cease
Trade Orders**

To
the knowledge of the Corporation, other than as disclosed below, 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.

William
Petrie Sr. and Jesse Meidl were each directors of Birch Lake Energy Inc
(Birch Lake), which was subject to cease trade orders in the province
of Alberta for failure to file financial statements for the financial year ended
December 30, 2014 and subsequent periods. The Toronto Stock Exchange
(TSX) delisted Birch Lakes common shares for failure to meet the
continue disclosure obligations of the TSX on April 5, 2015.

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. On June 1,
2015, the Corporation announced that the BCSC granted a full revocation of the
cease trade order.

**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.

- 34 -

---

**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 key executives is determined by the Board of
Directors having regard to the performance of individuals and market trends.
During 2016, 2015 and 2014, the Company did not incur any salaries and no key
management or Director received any salary or consulting fees.

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.

- 35 -

---

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 26, 2016 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                             |  |              |  |              
|                                      |  |              |  |              
|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 28, 2017, 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 April 28, 2017, 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 8 on the audited consolidated
financial statements for the year ended December 31, 2016. 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, 2016 and 2015.

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.

- 36 -

---

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.

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
    Low2016
    0.04
    0.012015
    0.11
    0.012014
    0.30
    0.042013
    0.35
    0.042012
    0.10
  0.35


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

2016
    2015US$
    High
    Low
    High
    Low1st Quarter
    0.04
    0.01
    0.10
    0.042nd Quarter
    0.02
    0.01
    0.11
    0.043rd Quarter
    0.02
    0.01
    0.10
    0.044th Quarter
    0.02
    0.01
    0.08
  0.01


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

US$High
    LowApril 2017
    0.01
    0.01March 2017
    0.01
    0.01February 2017
    0.01
  0.01


- 37 -

---

January 2017
    0.01
    0.01December 2016
    0.01
    0.01November 2016
    0.01
    0.01


The approximate number of
securities holders of record of the Company on April 28, 2017 was 390 of record,
which does not include stockholders whose shares are held in street or nominee
names. We have no outstanding stock options. See Item 5. Operating and
Financial Review and Prospects  Warrants for additional information.

9.B      PLAN OF DISTRIBUTION

Not
applicable.

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.

- 38 -

---

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. 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.

- 39 -

---

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.

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.

- 40 -

---

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.

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.

- 41 -

---

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, 2016. 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, 2016, based on
criteria established in Internal Control - Integrated Framework (2013) 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, 2016, 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.

- 43 -

---

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.
Peirce is current the Chief Executive Officer and Director of Tag Oil Ltd. Mr.
Pierce was previously 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).

- 44 -

---

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

MNP
LLP was appointed as the Corporations auditor on April 12, 2017. Prior thereto,
KPMG LLP was the auditor of the Corporation from March 31, 2014. The following
table provides information about the fees billed to the Corporation for
professional services rendered by KPMG LLP and MNP LLP during the three prior
fiscal years:

- 45 -

---

|                   | 2016    |  | 2015    |  | 2014   
|------------------ | ------- |  | ------- |  | -------
|                   | MNP     |  | KPMG    |  | KPMG   
|Audit Fees         | $30,000 |  | $10,000 |  | $60,000
|Audit-Related Fees | -       |  | $50,000 |  | -      
|Tax Fees           | -       |  | $7,500  |  | -      
|All Other Fees     | -       |  | -       |  | -      
|Total:             | $30,000 |  | $67,500 |  | $60,000

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, 2016, none of our common shares were repurchased and
cancelled.

16.F    CHANGE IN REGISTRANTS CERTIFYING
ACCOUNTANT

Effective
April 10, 2017, our board of directors resolved to appoint MNP LLP (MNP) as
the Companys independent registered public accounting firm, and KPMG LLP
(KPMG) was dismissed on the same day. We reported the change in our
independent registered public accounting firm to appropriate Canadian regulators
on April 19, 2017. The change was not made due to any disagreements with KPMG
LLP.

The
report of KPMG on our consolidated financial statements as at December 31, 2015
and 2014 and for each of the years in the three year period ended December 31,
2015 contained no adverse opinion or a disclaimer of opinion, and were not
qualified or modified as to audit scope, or accounting principles. The report of
KPMG did contain an emphasis of matter paragraph in relation to the Companys
working capital deficiency as at December 31, 2015, which included shareholder
loans that had matured and were in default, and the negative cash flow from
operation for the year ended December 31, 2015, which events casted significant
doubt about the Companys ability to continue as a going concern.

During
the two fiscal years ended December 31, 2014 and 2015, and the subsequent
interim period through April 12, 2017, the date of resignation of KPMG, there
have been no disagreements with KPMG on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of KPMG, would have caused it
to make reference thereto in their reports on the consolidated financial
statements for such years.

During
the two fiscal years ended December 31, 2014 and 2015, and the subsequent
interim period through April 12, 2017, there have been no reportable events
requiring disclosure pursuant to Item 16F(a)(1)(v) of Form 20-F.

We provided a copy of the above disclosure under this Item 16F to KPMG and
requested that KPMG furnish a letter stating whether it agrees with the above
statements, and if not, stating the respects in which it does not agree. A copy
of the letter from KPMG is filed as Exhibit 16.1.

- 46 -

---

During
the two fiscal years ended December 31, 2014 and 2015, and the subsequent
interim period prior to our engagement of MNP, neither we nor anyone on our
behalf consulted MNP regarding either (i) the application of accounting
principles to a specified transaction, either completed or proposed; or the type
of audit opinion that might be rendered on our financial statements, or (ii) any
matter that was either the subject of a disagreement with MNP or a reportable
event. Also, during the two fiscal years ended December 31, 2014 and 2015, and
the subsequent interim period prior to our engagement of MNP, we have not
obtained any written report or oral advice that MNP concluded was an important
factor considered by us in reaching a decision as to the accounting, auditing or
financial reporting issue.

As used herein, the term reportable event means any of the items listed in
paragraphs (a)(1)(v)(A)-(D) of Item 16F of Form 20-F, and the term
disagreement shall be interpreted in accordance with Item 16F(a)(1)(iv) of
Form 20-F and related instructions to Item 16-F of Form 20-F.

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,
2016, we did not have any mines in the United States subject to regulation by
MSHA under the Mine Act.

- 47 -

---

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

The following  exhibits are incorporated by reference or filed with this 20-F as denoted below:

|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)                                                                                                                                               
|       |  |                                                                                                                                                                                                                                                                                             
|16.1   |  | Letter from KPMG LLP regarding Notice of Change of
    Auditors of Chelsea Oil and Gas Ltd.(1)                                                                                                                                                                                              
|       |  |                                                                                                                                                                                                                                                                                             
|16.2   |  | Consent letter from  MNP LLP(1)                                                                                                                                                                                                                                                             

(1) Filed as an exhibit to this  20-F.

- 48 -

---

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 28, 2017

Chelsea Oil and Gas Ltd.

| | By: | /s/ Jesse Meidl                         
| | --- | ----------------------------------------
| |     | Name:   Jesse Meidl                     
| |     | Title:    
      Chief Executive Officer

- 49 -

---

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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | (d)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | (e)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | (f)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | (g)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

|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.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 51 -

---

|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.              

- 52 -

---

|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.                                                                                                                                                                                                                                                                                                                                                                                                      

- 53 -

---





Chelsea Oil and Gas
Ltd.

Consolidated Financial
StatementsFor the years ended December 31, 2016,
2015 and 2014







---

Chelsea Oil and Gas Ltd.Consolidated Financial StatementsFor the years
      ended December 31, 2016, 2015 and 2014


|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-26

---

|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
statement of financial position as at December 31, 2016, the consolidated
statements of comprehensive loss, changes in equity and cash flows for the year
then ended, and notes, comprising a summary of significant accounting policies
and other explanatory information.

Managements Responsibility for the Consolidated Financial
StatementsManagement is responsible for the preparation and fair
presentation of these consolidated financial statements in accordance with
International Financial Reporting Standards, 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' ResponsibilityOur responsibility is to
express an opinion on these consolidated financial statements based on our
audit. We conducted our audit 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 the auditors 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, the auditor considers 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
audit is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn 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, 2016, and its
consolidated financial performance and its consolidated cash flows for the year
then ended in accordance with International Financial Reporting Standards.

Emphasis of MatterWithout qualifying our opinion,
we draw attention to note 2 in the consolidated financial statements which
describes matters and conditions that indicate the existence of a material
uncertainty that casts significant doubt about Chelsea Oil and Gas Ltd.'s
ability to continue as a going concern.

Other MatterThe consolidated financial statements
of Chelsea Oil and Gas Ltd. as December 31, 2015 and for the year then ended,
were audited by another auditor who expressed an unmodified opinion on those
consolidated financial statements on April 29, 2016.

|Calgary, Alberta |                                         
|---------------- | ----------------------------------------
|April 28, 2017   | Chartered Professional
      Accountants

---

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

|                                           |  |       |  |   | December 31 |   |   | December 31 |  
|------------------------------------------ |  | ----- |  | - | ----------- | - | - | ----------- | -
|As at                                      |  | Notes |  |   | 2016        |   |   | 2015        |  
|                                           |  |       |  |   |             |   |   |             |  
|Current assets                             |  |       |  |   |             |   |   |             |  
|Cash                                       |  | 7     |  | $ | 15,341      |   | $ | 121,620     |  
|Accounts receivable                        |  |       |  |   | 6,527       |   |   | 9,048       |  
|Current assets                             |  |       |  |   | 21,868      |   |   | 130,668     |  
|                                           |  |       |  |   |             |   |   |             |  
|Restricted cash                            |  | 7     |  |   | 172,703     |   |   | 174,859     |  
|Property, plant and equipment              |  | 9     |  |   | 787,278     |   |   | 899,760     |  
|Exploration and
      evaluation assets    |  | 10    |  |   | 9,551,099   |   |   | 9,581,070   |  
|Non-current assets                         |  |       |  |   | 10,511,080  |   |   | 10,655,689  |  
|                                           |  |       |  |   |             |   |   |             |  
|Assets                                     |  |       |  | $ | 10,532,948  |   | $ | 10,786,357  |  
|                                           |  |       |  |   |             |   |   |             |  
|Liabilities                                |  |       |  |   |             |   |   |             |  
|Current liabilities                        |  |       |  |   |             |   |   |             |  
|Shareholder loans                          |  | 8     |  | $ | 4,201,120   |   | $ | 3,881,185   |  
|Trade and other
      payables             |  |       |  |   | 675,142     |   |   | 576,537     |  
|Current liabilities                        |  |       |  |   | 4,876,262   |   |   | 4,457,722   |  
|                                           |  |       |  |   |             |   |   |             |  
|Decommissioning liabilities                |  | 11    |  |   | 366,517     |   |   | 360,283     |  
|                                           |  |       |  |   |             |   |   |             |  
|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                        |  |       |  |   | (6,144,282  | ) |   | (5,601,344  | )
|Accumulated other
      comprehensive loss |  |       |  |   | (3,053,698  | ) |   | (2,918,453  | )
|Shareholders' equity                       |  |       |  |   | 5,290,169   |   |   | 5,968,352   |  
|                                           |  |       |  |   |             |   |   |             |  
|Shareholders' equity and liabilities       |  |       |  | $ | 10,532,948  |   | $ | 10,786,357  |  
|                                           |  |       |  |   |             |   |   |             |  
|Going concern                              |  | 2     |  |   |             |   |   |             |  
|Commitments                                |  | 18    |  |   |             |   |   |             |  

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 |  |   | 2016        |   |   | 2015        |   |   | 2014        |  
|                                              |  |       |  |   |             |   |   |             |   |   |             |  
|Revenues                                      |  |       |  |   |             |   |   |             |   |   |             |  
|Royalty income                                |  |       |  | $ | 36,701      |   | $ | 68,974      |   | $ | 361,990     |  
|                                              |  |       |  |   | 36,701      |   |   | 68,974      |   |   | 361,990     |  
|Expenses                                      |  |       |  |   |             |   |   |             |   |   |             |  
|General and administrative                    |  |       |  |   | 186,416     |   |   | 242,410     |   |   | 331,934     |  
|Depletion                                     |  | 9     |  |   | 112,482     |   |   | 112,482     |   |   | 112,482     |  
|Finance expense                               |  | 13    |  |   | 327,401     |   |   | 302,244     |   |   | 259,976     |  
|Expense reimbursements                        |  | 19    |  |   | (87,652     | ) |   | -           |   |   | -           |  
|Foreign exchange
      (gain) loss            |  |       |  |   | 37,623      |   |   | (125,515    | ) |   | (20,002     | )
|                                              |  |       |  |   | 576,270     |   |   | 531,621     |   |   | 684,390     |  
|                                              |  |       |  |   |             |   |   |             |   |   |             |  
|Net loss before tax                           |  |       |  |   | (539,569    | ) |   | (462,647    | ) |   | (322,400    | )
|Current income tax expense                    |  | 14    |  |   | 3,369       |   |   | 5,046       |   |   | 12,821      |  
|Deferred income tax expense                   |  | 14    |  |   | -           |   |   | -           |   |   | -           |  
|Net income loss                               |  |       |  |   | (542,938    | ) |   | (467,693    | ) |   | (335,221    | )
|                                              |  |       |  |   |             |   |   |             |   |   |             |  
|Foreign currency
      translation adjustment |  |       |  |   | 135,245     |   |   | 1,167,320   |   |   | 1,072,350   |  
|Comprehensive loss                            |  |       |  | $ | (678,183    | ) | $ | (1,635,013  | ) | $ | (1,407,571  | )
|                                              |  |       |  |   |             |   |   |             |   |   |             |  
|Net loss per share (basic and diluted)        |  | 16    |  | $ | (0.01       | ) | $ | (0.01       | ) | $ | (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 |  |   | 2016        |   |   | 2015        |   |   | 2014        |  
|                                        |  |       |  |   |             |   |   |             |   |   |             |  
|                                        |  |       |  |   |             |   |   |             |   |   |             |  
|Share capital                           |  |       |  |   |             |   |   |             |   |   |             |  
|Balance, beginning and end of year      |  | 12    |  | $ | 14,056,459  |   | $ | 14,056,459  |   | $ | 14,056,459  |  
|                                        |  |       |  |   |             |   |   |             |   |   |             |  
|Warrants                                |  |       |  |   |             |   |   |             |   |   |             |  
|Balance, beginning and end of year      |  | 12    |  |   | 254,938     |   |   | 254,938     |   |   | 254,938     |  
|                                        |  |       |  |   |             |   |   |             |   |   |             |  
|Contributed surplus                     |  |       |  |   |             |   |   |             |   |   |             |  
|Balance, beginning and end of year      |  | 12    |  |   | 176,752     |   |   | 176,752     |   |   | 176,752     |  
|                                        |  |       |  |   |             |   |   |             |   |   |             |  
|Accumulated other comprehensive loss    |  |       |  |   |             |   |   |             |   |   |             |  
|Balance, beginning of year              |  |       |  |   | (2,918,453  | ) |   | (1,751,133  | ) |   | (678,783    | )
|Foreign currency translation adjustment |  |       |  |   | (135,245    | ) |   | (1,167,320  | ) |   | (1,072,350  | )
|Balance, end of year                    |  |       |  |   | (3,053,698  | ) |   | (2,918,453  | ) |   | (1,751,133  | )
|                                        |  |       |  |   |             |   |   |             |   |   |             |  
|Accumulated deficit                     |  |       |  |   |             |   |   |             |   |   |             |  
|Balance, beginning of year              |  |       |  |   | (5,601,344  | ) |   | (5,133,651  | ) |   | (4,798,430  | )
|Loss for the year                       |  |       |  |   | (542,938    | ) |   | (467,693    | ) |   | (335,221    | )
|Balance, end of year                    |  |       |  |   | (6,144,282  | ) |   | (5,601,344  | ) |   | (5,133,651  | )
|                                        |  |       |  |   |             |   |   |             |   |   |             |  
|Total equity                            |  |       |  | $ | 5,290,169   |   | $ | 5,968,352   |   | $ | 7,603,365   |  

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                                                    |   | 2016        |   |   | 2015        |   |   | 2014        |  
|                                                                             |   |             |   |   |             |   |   |             |  
|Operating activities                                                         |   |             |   |   |             |   |   |             |  
|Net loss                                                                     | $ | (542,938    | ) | $ | (467,693    | ) | $ | (335,221    | )
|                                                                             |   |             |   |   |             |   |   |             |  
|Items not affecting cash                                                     |   |             |   |   |             |   |   |             |  
|Depletion                                                                    |   | 112,482     |   |   | 112,482     |   |   | 112,482     |  
|Interest on shareholder
      loans                                          |   | 319,935     |   |   | 295,570     |   |   | 285,143     |  
|Debt forgiveness                                                             |   | -           |   |   | -           |   |   | (31,494     | )
|Accretion on
      decommissioning obligations                               |   | 10,545      |   |   | 10,494      |   |   | 12,597      |  
|Unrealized foreign exchange (gain) loss                                      |   | 37,623      |   |   | (125,515    | ) |   | (20,002     | )
|Operating cashflow before working capital
      movements                    |   | (62,353     | ) |   | (174,662    | ) |   | 23,505      |  
|Change in non-cash
      working capital                                     |   | 55,080      |   |   | (49,033     | ) |   | (152,331    | )
|Total cash used in operating activities                                      |   | (7,273      | ) |   | (223,695    | ) |   | (128,826    | )
|                                                                             |   |             |   |   |             |   |   |             |  
|Financing activities                                                         |   |             |   |   |             |   |   |             |  
|Decrease in restricted cash                                                  |   | 2,156       |   |   | 20,552      |   |   | 23,893      |  
|Repayment of shareholder loans and interest                                  |   | -           |   |   | -           |   |   | (151,470    | )
|Total cash provided by (used in) financing activities                        |   | 2,156       |   |   | 20,552      |   |   | (127,577    | )
|                                                                             |   |             |   |   |             |   |   |             |  
|Investing activities                                                         |   |             |   |   |             |   |   |             |  
|Sale of overriding royalty interest                                          |   | -           |   |   | -           |   |   | 25,000      |  
|Sale of exploration and evaluation assets                                    |   | -           |   |   | -           |   |   | 806,115     |  
|Net exploration and evaluation expenditure                                   |   | (93,383     | ) |   | (141,960    | ) |   | (187,567    | )
|Total cash provided by (used in) investing activities                        |   | (93,383     | ) |   | (141,960    | ) |   | 643,548     |  
|                                                                             |   |             |   |   |             |   |   |             |  
|Increase (decrease) in cash                                                  |   | (98,500     | ) |   | (345,102    | ) |   | 387,145     |  
|Foreign exchange gain (loss) on cash
      denominated in a foreign currency |   | (7,779      | ) |   | 3,177       |   |   | (18,597     | )
|Cash, beginning of
      year                                                |   | 121,620     |   |   | 463,546     |   |   | 94,998      |  
|Cash, end of year                                                            | $ | 15,341      |   | $ | 121,620     |   | $ | 463,546     |  
|                                                                             |   |             |   |   |             |   |   |             |  
|Cash interest paid                                                           | $ | -           |   | $ | -           |   | $ | 17,220      |  
|Cash interest received                                                       | $ | 3,079       |   | $ | 3,872       |   | $ | 6,371       |  
|Taxes paid                                                                   | $ | 3,369       |   | $ | 5,046       |   | $ | 12,821      |  

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, 2016, 2015 and 2014 (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. and was renamed Chelsea Oil and Gas Ltd. (Chelsea or the
      Company). The address of the Companys head office is 127, 10thAve 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, and exploration and development activities
      (including commitments in note 18) depend on the ability of the Company to
      obtain financing. For the year ended December 31, 2016, the Company has
      negative cash flow from operations. It has an accumulated deficit of $6.1
      million and a working capital deficit of $4.9 million at December 31, 2016
      which includes $4.2 million of shareholder loans that matured in February
      2016 and are unpaid and in default. These conditions create a material
      uncertainty that casts 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.
      During the year, the Company received reimbursements from an arms length
      party (the Sponsor) for facilitating funding and restructuring efforts
      for the Company in 2016 and 2017. There is no obligation to repay these
      reimbursements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | The only other 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 Company is in discussions with the note holder to extend the
      maturity date of the shareholder loan. 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 property, plant 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 property, plant and equipment and exploration and evaluation assets is
      dependent upon the discovery of economically recoverable 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 exploration and evaluation assets, and
      on future profitable production or proceeds from the disposition of the
      property, plant 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 classifications used in the statement of financial
      position. The appropriateness of the going concern basis is dependent upon
      the events and circumstances outlined above.

F-7

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2016, 2015 and 2014 (US Dollars)

|3. | Basis of preparation:
|-- | ---------------------
|   |                      
|   | a)                   
|   |                      
|   |                      
|   |                      
|   | b)                   
|   |                      
|   |                      
|   |                      
|   | c)                   
|   |                      
|   |                      
|   |                      
|   | d)                   
|   |                      
|   |                      
|   |                      
|   |                      
|   |                      
|   |                      

| | 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.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                         
| | 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.                                            
| |      |                                                                                                                                                                                                                                                                                                                                         
| | 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.                         

F-8

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2016, 2015 and 2014 (US Dollars)

|3. | Basis of preparation
(continued):
|-- | ---------------------------------

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.

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.

F-9

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2016, 2015 and 2014 (US Dollars)

|4. | Significant accounting policies
  (continued):
|-- | ----------------------------------------------

| | a) | Basis of consolidation (continued):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | (ii) Jointly owned operations and
      jointly owned assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | The Company conducts many of its oil and gas production
      activities through jointly controlled operations and the financial
      statements reflect only the Companys proportionate interest in such
      activities. Joint control exists for contractual arrangements governing
      the Company's assets whereby the Company has less than 100 per cent
      working interest, all of the partners have control of the arrangement
      collectively, and spending on the project requires unanimous consent of
      all parties that collectively control the arrangement and share the
      associated risks. The Company does not have any joint arrangements that
      are structured through joint venture arrangements.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | (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 trade and other payables.
      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, 2016, 2015 and 2014 (US Dollars)

|4. | Significant accounting policies
  (continued):
|-- | ----------------------------------------------

| | c) | Financial instruments (continued):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    | 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 trade and other payables, 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-to- day 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, 2016, 2015 and 2014 (US Dollars)

|4. | Significant accounting policies
  (continued):
|-- | ----------------------------------------------

| | d) | Property, plant and equipment and exploration and
      evaluation assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | 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 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 proved 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, 2016, 2015 and 2014 (US Dollars)

|4. | Significant accounting policies
  (continued):
|-- | ----------------------------------------------

| | d) | Property, plant and equipment and exploration and
      evaluation assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | 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.                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | The carrying amount 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 CGU
      level at which there are identifiable cash inflows that are largely
      independent of the cash inflows of other groups of assets. The recoverable
      amount of an asset or CGU is the greater of its fair value less costs of
      disposal 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 comprehensive loss.                                                                     

F-13

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2016, 2015 and 2014 (US Dollars)

|4. | Significant accounting policies
  (continued):
|-- | ----------------------------------------------

| | e) | Impairment:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    | 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 of disposal 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.                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    | 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.                                                                                                                                                                                                                                                                                                                                                          

F-14

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2016, 2015 and 2014 (US Dollars)

|4. | Significant accounting policies
  (continued):
|-- | ----------------------------------------------

| |    | Decommissioning obligations:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    | The Companys activities can give rise to dismantling,
      decommissioning and site disturbance re- mediation 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.                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | 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.

F-15

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2016, 2015 and 2014 (US Dollars)

|4. | Significant accounting policies
  (continued):
|-- | ----------------------------------------------

| | 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 all property, plant and equipment
      and exploration and evaluation assets in Australia. Property, plant and
      equipment is comprised primarily of overriding royalty interests, which
      are the only revenue generating assets of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | m) | Recent accounting pronouncements:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | In May 2014, the IASB issued IFRS 15 Revenue from
      Contracts with Customers ("IFRS 15"). The new standard is effective
      for annual periods beginning on or after January 1, 2018. Earlier
      application is permitted. The standard contains a single model that
      applies to contracts with customers and two approaches to recognising
      revenue: at a point in time or over time. The model features a
      contract-based five-step analysis of transactions to determine whether,
      how much and when revenue is recognized. New estimates and judgmental
      thresholds have been introduced, which may affect the amount and/or timing
      of revenue recognized. The new standard applies to contracts with
      customers. It does not apply to insurance contracts, financial instruments
      or lease contracts, which fall in the scope of other IFRSs. The extent of
      the impact of adoption of the standard has not yet been
  determined.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | In July 2014, the IASB issued the complete IFRS 9
      ("IFRS 9 (2014)"). The mandatory effective date of IFRS 9 is for
      annual periods beginning on or after January 1, 2018 and must be applied
      retrospectively with some exemptions. Early adoption is permitted. The
      restatement of prior periods is not required and is only permitted if
      information is available without the use of hindsight. IFRS 9 (2014)
      introduces new requirements for the classification and measurement of
      financial assets. Under IFRS 9 (2014), financial assets are classified and
      measured based on the business model in which they are held and the
      characteristics of their contractual cash flows. The standard introduces
      additional changes relating to financial liabilities. It also amends the
      impairment model by introducing a new expected credit loss model for
      calculating impairment. IFRS 9 (2014) also includes a new general hedge
      accounting standard which aligns hedge accounting more closely with risk
      management. This new standard does not fundamentally change the types of
      hedging relationships or the requirement to measure and recognize
      ineffectiveness; however, it will provide more hedging strategies that are
      used for risk management to qualify for hedge accounting and introduce
      more judgment to assess the effectiveness of a hedging relationship.
      Special transitional requirements have been set for the application of the
      new general hedging model. The extent of the impact of adoption of the
      standard has not yet been determined.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | In January 2016, the IASB issued the complete IFRS 16
      Leases ("IFRS 16") which replaces IAS 17, Leases. The effective
      date of IFRS 16 is for annual periods beginning on or after January 1,
      2019 and early adoption is permitted. Under IFRS 16, a single recognition
      and measurement model will apply for lessees which will require
      recognition of assets and liabilities for most leases. The extent of the
      impact of adoption of the standard has not yet been
  determined.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

F-16

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2016, 2015 and 2014 (US Dollars)

|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 trade and other payables 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.                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|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.

F-17

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2016, 2015 and 2014 (US Dollars)

|6. | Financial risk management
  (continued):
|-- | ----------------------------------------

| | 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 arrangement 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, 2016 the Companys accounts receivables are current and due within 90
      days.                                                                                                                                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | 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, 2016, the
      Companys financial liabilities being trade and other payables and
      shareholder loans are due within one year (refer to note
  2).

F-18

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2016, 2015 and 2014 (US Dollars)

|6. | Financial risk management
  (continued):
|-- | ----------------------------------------

| | 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, 2016, 2015, and 2014.                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | 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.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | 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, 2016 |   | Restricted Cash |  |   | Recievables |  |   | Payables | 
| | Denominated in US$            | $ | 12,565          |  | $ | 2,328       |  | $ | 305,351  | 
| | Denominated in A$             |   | 174,824         |  |   | 1,628       |  |   | 74,038   | 
| | Denominated in C$             |   | 655             |  |   | 2,571       |  |   | 295,753  | 
| |                               | $ | 188,044         |  | $ | 6,527       |  | $ | 675,142  | 

F-19

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2016, 2015 and 2014 (US Dollars)

|6. | Financial risk management
  (continued):
|-- | ----------------------------------------

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, 2016, the Company held cash of $15,341
      (2015  $121,620). 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, 2016, the Company held restricted cash of
      $172,703 (2015  $174,859). 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.                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                
|8. | Shareholder loans:                                                                                                                                                                                                                                                                                                                                                                             

| |                                                      |   | 2016      |  |   | 2015      |  |   | 2014      |  
| | ---------------------------------------------------- | - | --------- |  | - | --------- |  | - | --------- | -
| | Loans on acquisition of Surat Basin
      properties | $ | 3,000,000 |  | $ | 3,000,000 |  | $ | 3,000,000 |  
| | Accrued and unpaid interest thereon                  |   | 1,201,120 |  |   | 881,185   |  |   | 585,615   |  
| | Loan to fund deposits                                | $ | -         |  | $ | -         |  | $ | 134,250   |  
| | Accrued and unpaid interest thereon                  |   | -         |  |   | -         |  |   | 48,714    |  
| | Repayment                                            |   | -         |  |   | -         |  |   | (151,470  | )
| | Debt
      forgiveness                               |   | -         |  |   | -         |  |   | (31,494   | )
| |                                                      | $ | 4,201,120 |  | $ | 3,881,185 |  | $ | 3,585,615 |  

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. At the date of these
financial statements the shareholder has the right to demand repayment. The debt
continues to accrue interest on the same terms as previously agreed. The Company
is in discussions with the debtholder to further extend maturity of the debt.

F-20

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2016, 2015 and 2014 (US Dollars)

|8. | Shareholder loans (continued):                                                                                                                                                                                                                                                                                                                                                               
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                              
|   | 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, January 1, 2014                  | $ | 1,203,999 |  
| | Dispositions                              |   | (25,000   | )
| | Balance, December 31, 2016, 2015 and 2014 | $ | 1,178,999 |  

| | Accumulated depletion and depreciation   |   |         | 
| | ---------------------------------------- | - | ------- | 
| | Balance, January 1, 2014                 | $ | 54,275  | 
| | Depletion and
      depreciation expense |   | 112,482 | 
| | Balance, December 31, 2014               | $ | 166,757 | 
| | Depletion and
      depreciation expense |   | 112,482 | 
| | Balance, December 31, 2015               | $ | 279,239 | 
| | Depletion and
      depreciation expense |   | 112,482 | 
| | Balance, December 31, 2016               | $ | 391,721 | 

| | Net book value          |   |           | 
| | ----------------------- | - | --------- | 
| | As at December 31, 2014 | $ | 1,012,242 | 
| | As at December 31, 2015 | $ | 899,760   | 
| | As at December 31, 2016 | $ | 787,278   | 

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 29, 2014, Company disposed
of certain overriding royalty interests to an arms-length party.

At December 31, 2016, there were no
indicators of impairment identified. As a result no impairment testing was
conducted.

At December 31, 2015, management
identified impairment indicators in its D&P CGU as a result of a decline in
global commodity prices and significantly reduced access to debt and equity
financings in the exploration and production sector. The recoverable amount of
the CGU was estimated using fair value less costs of disposal based on
comparable market transactions and multiples. It was determined that no
impairment was required as the recoverable amount was higher than the carrying
amount.

At December 31, 2015, management
identified impairment indicators in its D&P CGU as a result of a decline in
global commodity prices and significantly reduced access to debt and equity
financings in the exploration and production sector. The recoverable amount of
the CGU was estimated using fair value less costs to sell based on comparable
market transactions and multiples. It was determined that no impairment was
required as the recoverable amount was higher than the carrying amount.

F-21

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2016, 2015 and 2014 (US Dollars)

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

| | Balance, January 1, 2014           | $ | 12,289,692 |  
| | ---------------------------------- | - | ---------- | -
| | Additions                          |   | 187,567    |  
| | Dispositions                       |   | (806,115   | )
| | Foreign exchange
      translation |   | (1,073,150 | )
| | Balance, December 31, 2014         | $ | 10,597,994 |  
| | Additions                          |   | 141,960    |  
| | Foreign exchange translation       |   | (1,158,884 | )
| | Balance,
      December 31, 2015   | $ | 9,581,070  |  
| | Additions                          |   | 93,383     |  
| | Foreign exchange
      translation |   | (123,354   | )
| | Balance, December 31, 2016         | $ | 9,551,099  |  

|    | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|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
      $366,517 as at December 31, 2016 (2015  $360,283, 2014  $390,902) based
      on an undiscounted inflation-adjusted total future liability of A$671,718
      (2015 and 2014  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, 2016, the liability has been calculated using an
      inflation rate of 3.0% (2015 and 2014  3.0%) and discounted using a
      risk-free rate of 3.0% (2015 and 2014  3.0%).

| | Balance, January 1, 2014           | $ | 415,300 |  
| | ---------------------------------- | - | ------- | -
| | Accretion expense                  |   | 12,597  |  
| | Foreign exchange translation       |   | (36,995 | )
| | Balance,
      December 31, 2014   | $ | 390,902 |  
| | Accretion expense                  |   | 10,494  |  
| | Foreign exchange
      translation |   | (41,113 | )
| | Balance, December 31, 2015         |   | 360,283 |  
| | Accretion expense                  |   | 10,545  |  
| | Foreign exchange translation       |   | (4,311  | )
| | Balance,
      December 31, 2016   |   | 366,517 |  

F-22

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2016, 2015 and 2014 (US Dollars)

|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.
| |    |                                                                            
| | b) | Issued and outstanding:                                                    

| |                                                                        |  | Number of  |  |   |            | 
| | ---------------------------------------------------------------------- |  | ---------- |  | - | ---------- | 
| |                                                                        |  | shares     |  |   | Amount     | 
| | Balance, January 1, 2014 and December 31, 2016 and
      2015 and 2014 |  | 64,056,876 |  | $ | 14,056,459 | 

| | b) | 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, 2016 and 2015, no options have been issued under this
      plan.                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | c) | 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. The incremental fair value with respect to extending the warrant
      term was not significant.                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | On January 18, 2017, all 5.0 million of the warrants
      expired out of the money.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

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

| |                                              |   | 2016    |   |   | 2015    |   |   | 2014    |  
| | -------------------------------------------- | - | ------- | - | - | ------- | - | - | ------- | -
| | Interest income on cash                      | $ | (3,079  | ) | $ | (3,872  | ) | $ | (6,371  | )
| | Interest expense                             |   | 319,935 |   |   | 295,622 |   |   | 285,244 |  
| | Accretion on decommissioning
      liability |   | 10,545  |   |   | 10,494  |   |   | 12,597  |  
| | Shareholder loan forgiveness                 |   | -       |   |   | -       |   |   | (31,494 | )
| | Net finance expense                          | $ | 327,401 |   | $ | 302,244 |   | $ | 259,976 |  

F-23

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2016, 2015 and 2014 (US Dollars)

|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:

| |                                                  |   | 2016     |   |   | 2015     |   |   | 2014     |  
| | ------------------------------------------------ | - | -------- | - | - | -------- | - | - | -------- | -
| | Loss before tax                                  | $ | (539,569 | ) | $ | (462,647 | ) | $ | (322,400 | )
| | Combined tax rate                                |   | 27.0%    |   |   | 25.0%    |   |   | 25.0%    |  
| | Expected income tax reduction                    | $ | (145,684 | ) | $ | (115,662 | ) | $ | (80,600  | )
| | Increase (decrease) resulting from:              |   |          |   |   |          |   |   |          |  
| | Effect of
      foreign tax rates                |   | (9,496   | ) |   | (13,141  | ) |   | (13,187  | )
| | Change in unrecognized
      deferred tax assets |   | 155,249  |   |   | 127,787  |   |   | 93,278   |  
| | Non-deductible and other                         |   | 3,300    |   |   | 6,062    |   |   | 13,330   |  
| | Income tax expense                               |   | 3,369    |   |   | 5,046    |   |   | 12,821   |  

The statutory tax rate increased from
25% to 27% due to an increase in the Alberta provincial tax rate effective July
1, 2015.

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

| | As at December 31                                                                |   | 2016     |   |   | 2015     |   |   | 2014     |  
| | -------------------------------------------------------------------------------- | - | -------- | - | - | -------- | - | - | -------- | -
| |                                                                                  |   |          |   |   |          |   |   |          |  
| | Property, plant and equipment
      / exploration and evaluation assets - Canada | $ | (188,047 | ) | $ | (202,238 | ) | $ | (230,358 | )
| | Non-capital losses  Canada                                                      |   | 188,047  |   |   | 202,238  |   |   | 230,358  |  
| | Property, plant and equipment
      / exploration and evaluation assets  Canada |   | (142,803 | ) |   | (142,803 | ) |   | (142,803 | )
| | Decommissioning obligations  Australia                                          |   | 109,955  |   |   | 142,803  |   |   | 142,803  |  
| | Non-capital losses  Australia                                                   |   | 32,848   |   |   | -        |   |   | -        |  
| |                                                                                  |   |          |   |   |          |   |   |          |  
| | Deferred tax asset (liability)                                                   | $ | -        |   | $ | -        |   | $ | -        |  

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

| | As at December 31                        |   | 2016      |  |   | 2015      |  |   | 2014      | 
| | ---------------------------------------- | - | --------- |  | - | --------- |  | - | --------- | 
| | Canada:                                  |   |           |  |   |           |  |   |           | 
| | Share issue costs                        | $ | -         |  | $ | 58,010    |  | $ | 116,021   | 
| | Non-capital losses (expire 2024 to 2034) |   | 4,759,377 |  |   | 4,486,366 |  |   | 4,307,618 | 
| |                                          |   |           |  |   |           |  |   |           | 
| |                                          | $ | 4,759,377 |  | $ | 4,544,376 |  | $ | 4,423,639 | 

| | As at December 31           |   | 2016      |  |   | 2015      |  |   | 2014    | 
| | --------------------------- | - | --------- |  | - | --------- |  | - | ------- | 
| | Australia:                  |   |           |  |   |           |  |   |         | 
| | Decommissioning obligations | $ | -         |  | $ | 28,683    |  | $ | 18,189  | 
| | Non-capital losses          |   | 1,316,752 |  |   | 1,112,794 |  |   | 850,101 | 
| |                             |   |           |  |   |           |  |   |         | 
| |                             | $ | 1,316,752 |  | $ | 1,141,477 |  | $ | 868,290 | 

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-24

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2016, 2015 and 2014 (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, 2016, 2015 and 2014.

b) Compensation of key management
personnel:

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 2016, 2015 and 2014, the
Company did not incur any salaries and no key management or Director received
any salary or consulting 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. On
January 18, 2017, all 5.0 million of the warrants expired out of the money.

|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, 2016 (2015  64,056,876, 2014  64,056,876). 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, 2016, 2015 and 2014 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-25

---

|Chelsea Oil and Gas Ltd.                                               
|-----------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                         
|For the years
      ended December 31, 2016, 2015 and 2014 (US Dollars)

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

| |               |  |                     |  |   | Remaining         |  |  | Remaining       |  |  |                | 
| | ------------- |  | ------------------- |  | - | ----------------- |  |  | --------------- |  |  | -------------- | 
| |               |  | Current             |  |   | Work Commitment   |  |  | Work Commitment |  |  | License        | 
| | License       |  | Phase               |  |   | ($
      million) |  |  | (A$ million)    |  |  | Term           | 
| | PL 18         |  | Later Development   |  | $ | 3.6               |  |  | AUD 5.0         |  |  | August 2024    | 
| | PL 40         |  | Later Development   |  | $ | 1.4               |  |  | AUD 2.0         |  |  | September 2029 | 
| | PL 280        |  | Initial Development |  | $ | 0.7               |  |  | AUD 1.0         |  |  | August 2031    | 
| | ATP
      582 |  | Second Term         |  | $ | 8.0               |  |  | AUD
      11.0  |  |  | August 2020    | 
| |               |  |                     |  | $ | 13.7              |  |  | AUD 19.0        |  |  |                | 

|19. | Expense reimbursements:                                                                                                                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                      
|    | During the year, the Company received $87,652 (2015 -
      $nil, 2014 - $nil) reimbursements from the Sponsor. These reimbursements
      relate to travel and general and administrative expenses incurred during
      the year. The Sponsor has agreed to fund the Companys funding and
      restructuring efforts. There is no obligation to repay these
      reimbursements.

F-26

---