CHELSEA OIL AND GAS LTD.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS


(Unaudited)







     NOTICE OF NO AUDITOR REVIEW OF CONDENSED INTERIM FINANCIAL STATEMENTS

Under National Instrument 51-102, Part 4.3 (3) (a), if an auditor has not
performed a review of the financial statements, they must be accompanied by a
notice indicating that the financial statements have not been reviewed by an
auditor. The accompanying condensed interim financial statements of Chelsea Oil
and Gas Ltd. have been prepared by and are the responsibility of the Company's
management and approved by the Board of Directors of the Company. The Company's
independent auditor has not performed a review of these condensed financial
statements in accordance with the standards established by the Canadian
Institute of Chartered Accountants for a review of interim financial statements
by an entity's auditor.




<PAGE>



CHELSEA OIL AND GAS LTD.

Notes to the Consolidated Consolidated Financial Statements As at and for the
three and nine month periods ended September 30, 2013 and 2012

(Unaudited)
--------------------------------------------------------------------------------


Condensed Consolidated Interim Statements of Financial Position              3

Condensed Consolidated Interim Statements of Comprehensive Loss              4

Condensed Consolidated Interim Statements of Changes in Equity               5

Condensed Consolidated Interim Statements of Cash Flows                      6

Notes to the Condensed Consolidated Interim Financial Statements        7 - 26






<PAGE>


CHELSEA OIL AND GAS LTD.
Condensed Consolidated Interim Statements of Financial Position


                                     SEPTEMBER 30   DECEMBER 31     JANUARY 1
   AS AT                  NOTES          2013          2012            2012
-------------------------------------------------------------------------------

CURRENT ASSETS
Cash and restricted cash            $     35,502   $      72,120   $     28,551
Accounts Receivable              7        21,458         331,010         28,398
----------------------------------  ------------   -------------   ------------
CURRENT ASSETS                            56,960        403,130         56,949

Restricted cash
Plant, property and
  equipment                      7       211,566         211,566        207,591
Exploration and                  9       418.454         428,154        453,998
evaluation assets               10     9,588,681       9,554,759        508,812
-------------------------------------------------------------------------------
NON-CURRENT ASSETS                    10,218,701      10,194,480      1,170,401

ASSETS                              $ 10,275,661   $  10,597,610   $  1,227,350
================================================================================

LIABILITIES
CURRENT LIABILITIES
  Shareholder loans                 $  3,364,479   $   3,094,646   $    243,500
  Trade and other payables       8       277,091         573,327        100,064
-------------------------------------------------------------------------------
CURRENT LIABILITIES                    3,641,570       3,667,973        343,564

SHAREHOLDERS' EQUITY
Common Stock                          10,548,132      10,534,313      4,116,877
Warrants                        10       105,382            --             --
Contributed Surplus             10       176,752         176,752        176,752
Accumulated deficit             10    (4,196,175)     (3,781,428)    (3,409,843)
-------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY                   6,634,091       6,929,637        883,786

SHAREHOLDERS' EQUITY AND
LIABILITIES                         $ 10,275,661   $  10,597,610   $  1,227,350
================================================================================

GOING CONCERN                    2
SUBSEQUENT EVENT                12

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

                                                                               3


<PAGE>
<TABLE>
<S>                         <C>    <C>           <C>          <C>           <C>

CHELSEA OIL AND GAS LTD.
Condensed Consolidated Interim Statements of Comprehensive Loss

                                      3 MONTHS      3 MONTHS     9 MONTHS     9 MONTHS
                                        ENDED         ENDED        ENDED        ENDED
                                      SEPT 30,       SEPT 30,     SEPT 30,     SEPT 20,
FOR THE PERIOD ENDED        NOTES       2013          2012         2013         2012
---------------------------------------------------------------------------------------

REVENUES
Royalty income                     $    10,798   $    6,728   $    38,010   $   58,206
---------------------------------------------------------------------------------------
                                        10,798       16,728        38,010       58,206
EXPENSES
Direct operating costs                   1,824         --          11,236          252
General and administrative              12,198       33,206        49,388      158,889
Share-based compensation      11          --           --         105,382        --
Depletion                      9         5,100        6,100         9,700       18,300
---------------------------------------------------------------------------------------
                                        (8,324)     (22,578)     (137,696)    (119,235)
OTHER INCOME (EXPENSE)
Interest income                           --          2,571          --          8,227
Interest expense               8      (190,293)      (1,176)     (274,132)     (29,022)
---------------------------------------------------------------------------------------
Loss before income taxes              (198,617)     (21,183)     (411,828)    (140,030)
Current income tax expense               1,228          399         2,919       10,729

NET LOSS FOR THE YEAR                 (199,845)     (21,582)     (414,747)    (150,759)
---------------------------------------------------------------------------------------

Foreign currency
translation adjustment                   --           --            --           (242)
---------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE LOSS
FOR THE YEAR                       $  (199,845)  $  (21,582)  $  (414,747)  $ (151,001)
---------------------------------------------------------------------------------------

BASIC AND DILUTED                  $     (0.00)  $    (0.00)  $     (0.01)  $    (0.00)
</TABLE>

The accompanying notes are an integral part of these condensed consolidated
interim financial statements.
                                                                               4


<PAGE>
CHELSEA OIL AND GAS LTD.
Condensed Consolidated Interim Statements of Changes in Equity

                                                  SEPTEMBER 30     DECEMBER 31
AS AT                            NOTES                2013             2012
--------------------------------------------------------------------------------

                                 11
SHARE CAPITAL
Balance, beginning of period                    $  10,534,313   $   4,116,877
Issued to acquire oil and gas
properties                                             13,819       4,791,807
Private placement for cash                               --         1,915,684
Share issue costs                11                      --          (290,054)
--------------------------------------------------------------------------------
Balance, end of period                             10,548,132      10,534,313

WARRANTS
Balance, beginning of period                              --              --
Granted                          11                   105,382             --
--------------------------------------------------------------------------------
Balance, end of period                                105,382             --


CONTRIBUTED SURPLUS
Balance, beginning of period                          176,752         176,752
Share-based compensation                                  --              --
--------------------------------------------------------------------------------
Balance, end of period                                176,752         176,752

ACCUMULATED DEFICIT                                (3,781,428)     (3,560,602)
Balance, beginning of period
Loss for the period                                  (414,747)       (150,759)
--------------------------------------------------------------------------------
Balance, end of period                             (4,196,175)     (3,711,361)
--------------------------------------------------------------------------------
TOTAL EQUITY                                    $   6,634,091   $   6,999,704
================================================================================

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

                                                                               5

<PAGE>
CHELSEA OIL AND GAS LTD.
Condensed Consolidated Interim Statements of Cash Flow

                               3 MONTHS       3 MONTHS    9 MONTHS     9 MONTHS
                                 ENDED         ENDED        ENDED        ENDED
                               SEPT 30,       SEPT 30,     SEPT 30,     SEPT 20,
FOR THE PERIOD ENDED             2013         2012          2013         2012
--------------------------------------------------------------------------------

NET LOSS FOR THE PERIOD     $ (199,845)  $   (21,582)  $ (414,747)  $  (151,001)
Items not affecting cash
   Depletion                     5,100         6,100        9,700        18,300
   Stock-based compensation       --            --        105,382          --
--------------------------------------------------------------------------------
Cash flow from operations     (194,745)      (15,482)    (299,665)     (132,701)

Changes in receivables          11,698        (6,784)     309,552         1,745
Changes in payables            268,597      (126,185)     (26,403)       54,224
--------------------------------------------------------------------------------
                                85,550      (148,451)     (16,516)      (76,732)

FINANCING ACTIVITIES
Issuance of shares
(net of issue costs)              --            --           --       1,625,630

INVESTING ACTIVITIES
Net exploration and
evaluation expenditure          (9,982)     (769,498)     (20,102)     (769,498)
Acquisition of oil and gas
interests                         --         (84,519)        --        (531,374)
--------------------------------------------------------------------------------
                                (9,982)     (854,017)     (20,102)   (1,300,872)
Increase (Decrease) in cash     75,567    (1,002,468)     (36,618)      248,026
Cash, beginning of period      (40,066)    1,279,045       72,120        28,551
--------------------------------------------------------------------------------
CASH, END OF PERIOD         $   35,502   $   276,577   $   35,502   $   276,577
================================================================================

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

                                                                               6


<PAGE>

CHELSEA OIL AND GAS LTD.

Notes  to  the Condensed Consolidated Interim Financial Statements
AS AT AND FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2013
AND 2012
(UNAUDITED)

--------------------------------------------------------------------------------

1. REPORTING ENTITY:

     Australian-Canadian Oil Royalties Ltd. was incorporated April 28, 1997 in
     Vancouver, British Columbia, Canada. On September 27, 2013
     Australian-Canadian Oil Royalties Ltd. was continued into the province of
     Alberta. 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 3200, 500-4th Ave SW, Calgary, AB Canada.

     The consolidated financial statements of the Company for the three and nine
     month periods ended September 30, 2013 comprise the Company and two wholly
     owned subsidiaries: Cooper-Eromanga Oil Inc., Chelsea Oil Australia Pty.,
     and its 20% of Cooper Basin Oil and Gas Inc.

     Its primary 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. These consolidated financial statements are prepared
     in U.S. dollars.

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 exploration and
     development of the Company's properties depends on the ability of the
     Company to obtain financing. At September 30, 2013, the Company has minimal
     sources of operating cash flow and an accumulated deficit of $4.1 million.
     At September 30, 2013 the Company has a working capital deficit of $3.6
     million. These conditions cast doubt on the Company's ability to continue
     as a going concern.

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

     The amounts shown as plant, property and equipment and exploration and
     evaluation costs represent acquisition costs net of recoveries to date,
     less amounts written off, and do not necessarily represent present or
     future values. Recoverability of the amounts shown for plant, property and
     equipment and exploration and evaluation costs is dependent upon the
     discovery of economically recoverable plant, property and equipment and
     exploration and evaluation costs reserves, securing and maintaining title

                                                                               7
<PAGE>
CHELSEA OIL AND GAS LTD.

Notes  to  the Condensed Consolidated Interim Financial Statements
AS AT AND FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2013
AND 2012
(UNAUDITED)

--------------------------------------------------------------------------------

     and beneficial interest in the properties, the ability of the Company to
     obtain financing necessary to complete the exploration and development of
     its plant, property and equipment and exploration and evaluation costs, and
     on future profitable production or proceeds from the disposition of the
     plant, property and equipment and exploration and evaluation interests. The
     consolidated financial statements do not reflect adjustments that would be
     necessary if the going concern basis was not appropriate. If the going
     concern basis was not appropriate for these consolidated financial
     statements, then significant adjustments would be necessary in the carrying
     value of assets and liabilities, the reported revenues and expenses, and
     the balance sheet classifications used. The appropriateness of the going
     concern basis is dependent upon the events and circumstance outlined above.

3. BASIS OF PREPARATION:

     a) STATEMENT OF COMPLIANCE:

     The 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"). This is the first reporting period in
     which the Company has prepared its financial statements under IFRS and the
     comparative information has been restated from USGAAP to comply with IFRS.
     In these financial statements, the term USGAAP refers to United States GAAP
     before the adoption of IFRS. Reconciliations to IFRS from the previously
     published USGAAP financial statements are shown in note 13.

     The Company's significant accounting policies under IFRS are presented in
     note 3. These policies have been retrospectively and consistently applied
     except where specific exemptions permitted an alternative treatment upon
     transition to IFRS in accordance with IFRS 1, First-time Adoption of IFRS.
     The impact of the new standards, including reconciliations presenting the
     change from previous GAAP to IFRS as at January 1, 2012, and as at and for
     the year ended December 31, 2012, is presented in note 13.

     The consolidated financial statements were approved and authorized for
     issuance by the Board of Directors on November 28, 2013.

     b) BASIS OF MEASUREMENT:

     The consolidated financial statements have been prepared on the historical
     cost basis.

c) FUNCTIONAL AND PRESENTATION CURRENCY:

     These consolidated financial statements are expressed in US dollars, which
     is the Company's functional currency and the functional currency of its
     wholly owned subsidiary Cooper-Eromanga Oil Inc. The Company's wholly owned
     subsidiary Chelsea Oil Australia Pty has a functional currency of
     Australian dollars.

d) USE OF ESTIMATES AND JUDGMENTS:

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

                                                                               8
<PAGE>
CHELSEA OIL AND GAS LTD.

Notes  to  the Condensed Consolidated Interim Financial Statements
AS AT AND FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2013
AND 2012
(UNAUDITED)

--------------------------------------------------------------------------------


     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. The key estimates used in the determination of cash flows from oil
     and natural gas reserves include the following:

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

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

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

     DEPLETION AND DEPRECIATION

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

     DECOMMISSIONING OBLIGATIONS

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

     SHARE BASED COMPENSATION

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

     DEFERRED 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.


                                                                               9
<PAGE>
CHELSEA OIL AND GAS LTD.

Notes  to  the Condensed Consolidated Interim Financial Statements
AS AT AND FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2013
AND 2012
(UNAUDITED)

--------------------------------------------------------------------------------

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. Certain
     comparative amounts have been reclassified to conform with the current
     period's presentation.

     a) BASIS OF CONSOLIDATION:

     (i) SUBSIDIARIES:

     Subsidiaries are entities controlled by the Company. Control exists when
     the Company has the power to govern the financial and operating policies of
     an entity so as to obtain benefits from its activities. In assessing
     control, potential voting rights that currently are exercisable are taken
     into account. The financial statements of subsidiaries are included in the
     consolidated financial statements from the date that control commences
     until the date that control ceases.

     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. Identifiable assets acquired and liabilities and
     contingent liabilities assumed in a business combination are measured
     initially at their recognized amounts (generally fair value) at the
     acquisition date. The excess of the cost of acquisition over the recognized
     amounts of the identifiable assets, liabilities and contingent liabilities
     acquired is recorded as goodwill. If the cost of acquisition is less than
     the fair value of the net assets of the subsidiary acquired, a bargain
     purchase gain is recognized immediately in the consolidated statement of
     loss.

     (ii) JOINTLY CONTROLLED OPERATIONS AND JOINTLY CONTROLLED ASSETS:

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

     (iii) TRANSACTIONS ELIMINATED ON CONSOLIDATION:

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

     b) FOREIGN CURRENCY:

     i)   Transactions in foreign currencies are generally translated to
          Canadian dollars at the average exchange rate for the period. Monetary
          assets and liabilities denominated in foreign currencies are
          translated to Canadian dollars at the period end exchange rate.
          Foreign currency differences arising on translation are recognized in
          earnings in the period in which they arise.


                                                                              10
<PAGE>

CHELSEA OIL AND GAS LTD.

Notes  to  the Condensed Consolidated Interim Financial Statements
AS AT AND FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2013
AND 2012
(UNAUDITED)

--------------------------------------------------------------------------------

     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-DERIVATIVE fiNANCIAL INSTRUMENTS:

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

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

     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. Cash and cash equivalents are
     designated as loans and receivables.

     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 account receivable and
     accounts payable, are measured at amortized cost using the effective
     interest method, less any impairment losses for financial assets.

     (ii) EQUITY INSTRUMENTS:

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


                                                                              11
<PAGE>
CHELSEA OIL AND GAS LTD.

Notes  to  the Condensed Consolidated Interim Financial Statements
AS AT AND FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2013
AND 2012
(UNAUDITED)

--------------------------------------------------------------------------------

     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. Inspection costs
     associated with major maintenance programs are capitalized and amortized
     over the period to the next inspection. All other maintenance expenditures
     are expensed as incurred.

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

     Exploration and evaluation costs transferred into D&P costs on the basis
     outlined below.

     EXPLORATION AND EVALUATION 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 exploration and evaluation ("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.


                                                                              12
<PAGE>

CHELSEA OIL AND GAS LTD.

Notes  to  the Condensed Consolidated Interim Financial Statements
AS AT AND FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2013
AND 2012
(UNAUDITED)

--------------------------------------------------------------------------------

     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 development and
     production ("D&P") asset into the cash generating unit ("CGU") to which it
     relates, but only after the carrying value of the relevant E&E asset has
     been assessed for impairment, and where appropriate, its carrying value
     adjusted. Typically, technical feasibility and commercial viability of
     extracting a mineral resource is considered to be demonstrable when proven
     or probable reserves are determined to exist. However, if the Company
     determines the area or portion thereof is not technically feasible and
     commercially viable, accumulated E&E costs are expensed.

     (ii) DEPLETION AND DEPRECIATION:

     The net carrying value of 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.

     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.


                                                                              13
<PAGE>

CHELSEA OIL AND GAS LTD.

Notes  to  the Condensed Consolidated Interim Financial Statements
AS AT AND FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2013
AND 2012
(UNAUDITED)

--------------------------------------------------------------------------------

     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 costs 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. An impairment loss is recognized for the amount
     by which the exploration and evaluation expenditure's carrying amount
     exceeds its recoverable amount.

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

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

     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.


                                                                              14
<PAGE>
CHELSEA OIL AND GAS LTD.

Notes  to  the Condensed Consolidated Interim Financial Statements
AS AT AND FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2013
AND 2012
(UNAUDITED)

--------------------------------------------------------------------------------

     g) INVENTORY:

     Crude oil inventory consists of amounts produced and in storage tanks or in
     transit, and is recorded at the lower of the average cost of production and
     estimated net realizable value. Net realizable value is the estimated
     selling price in the normal course of business less applicable selling
     expenses.

     h) SHARE BASED PAYMENTS:

     The grant date fair value of equity-settled options granted to employees is
     recognized as stock-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.

     i)  PROVISIONS:

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

     DECOMMISSIONING OBLIGATIONS:

     The Company's activities can give rise to dismantling, decommissioning and
     site disturbance 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.

     j) 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.


                                                                              15
<PAGE>

CHELSEA OIL AND GAS LTD.

Notes  to  the Condensed Consolidated Interim Financial Statements
AS AT AND FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2013
AND 2012
(UNAUDITED)

--------------------------------------------------------------------------------
     k)  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.

     l) EARNINGS PER SHARE:

     Basic earnings 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 or loss 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.

     ACCOUNTING STANDARDS ISSUED BUT NOT YET APPLIED:

     The Company has reviewed the following new and revised accounting
     pronouncements that have been issued but are not yet effective and
     determined that the following may have an impact on the Company's financial
     statements:

     a) IFRS-9 FINANCIAL INSTRUMENTS:

     The IASB intends to replace IAS 39 Financial Instruments: Recognition and
     Measurement with IFRS-9 Financial Instruments. IFRS 9 will be published in
     three phases, of which the first phase has been published.

     The new standard replaces the current multiple classification and
     measurement models for financial assets and liabilities with a single model
     that has two classification categories: amortized cost and fair value.

     The Company intends to adopt IFRS 9 in its financial statements for the
     annual period beginning on January 1, 2015. The impact of the adoption of
     IFRS 9 has not yet been determined.

     b) JOINT ARRANGEMENTS, CONSOLIDATION AND DISCLOSURES:

     (i)  IFRS-10 Consolidated Financial Statements replaces IAS-27
          Consolidation and Separate Financial Statements and SIC -12
          Consolidation - Special Purpose Entities. This standard provides a
          single model to be applied in control analysis for all investees
          including special purpose entities.


     (ii) IFRS-11 Joint Arrangements replaces IAS 31 Interest in Joint Ventures
          and SIC 13 Jointly Controlled Entities - Non - Monetary Contributions
          by Venturers. IFRS 11 divides joint arrangements into two types, joint
          operations and joint ventures. Under a joint operation, parties have
          rights to the assets and obligations for the liabilities on the
          arrangement and account for their shares share of the assets,
          liabilities, revenues and expenses. Under a joint venture, parties
          have the rights to the net assets of the arrangement and account for
          the arrangement as an investment using the equity method.


                                                                              16
<PAGE>

CHELSEA OIL AND GAS LTD.

Notes  to  the Condensed Consolidated Interim Financial Statements
AS AT AND FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2013
AND 2012
(UNAUDITED)

--------------------------------------------------------------------------------

     (iii) IFRS-12 Disclosures of Interests in Other Entities, combines in a
          single standard the disclosure requirements for subsidiaries,
          associates and joint arrangements as well as unconsolidated structured
          entities.

     The above standards are effective for annual periods beginning on or after
     January 1, 2013 and must be adopted concurrently. The Company is currently
     assessing the expected impact, if any, that the adoption of these standards
     will have on its financial statements.

     (c) FAIR VALUE MEASUREMENT:

     In May 2011, the IASB issued IFRS-13 Fair Value Measurement, which provides
     a consistent and less complex definition of fair value, establishes a
     framework for measuring fair value and sets out disclosure requirements for
     fair value measurements. This standard defines fair value as the price that
     would be received to sell an asset or paid to transfer a liability in an
     orderly transaction between market participants at the measurement date.
     The Company intends to adopt IFRS 13 prospectively in its financial
     statements for the annual period beginning on January 1, 2013. The extent
     of the impact of adoption of IFRS 13 has not yet been determined.

     (d) PRESENTATION OF ITEMS OF OTHER COMPREHENSIVE INCOME:

     In June 2011, the IASB issued an amendment to IAS 1, "Presentation of
     Financial Statements" ("IAS 1") requiring companies to group items
     presented within OCI based on whether they may be subsequently reclassified
     to profit or loss. This amendment to IAS 1 was effective for the Company on
     January 1, 2012 with full retrospective application. The adoption of this
     amendment did not have a material impact on the Company's financial
     statements.

5. DETERMINATION OF FAIR VALUES:

     The Company's financial instruments recognized in the statement of
     financial position consist of cash and cash equivalents, accounts
     receivable, accounts payable and accrued liabilities. The carrying values
     of these financial instruments approximate their fair value due to their
     short terms to maturity. The Company does not have any financial assets
     that are subject to the fair value hierarchy.

     a) Property, plant and equipment and intangible exploration assets:

     The fair value of property, plant and equipment recognized in a business
     combination, is based on market values. The market value of property, plant
     and equipment is the estimated amount for which property, plant and
     equipment could be exchanged on the acquisition date between a willing
     buyer and a willing seller in an arm's length transaction after proper
     marketing wherein the parties had each acted knowledgeably, prudently and
     without compulsion. The market value of oil and natural gas interests
     (included in property, plant and equipment) and intangible exploration
     assets is estimated with reference to the discounted cash flows expected to
     be derived from oil and natural gas production based on externally prepared
     reserve reports. The risk-adjusted discount rate is specific to the asset
     with reference to general market conditions.


                                                                              17
<PAGE>
CHELSEA OIL AND GAS LTD.

Notes  to  the Condensed Consolidated Interim Financial Statements
AS AT AND FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2013
AND 2012
(UNAUDITED)

--------------------------------------------------------------------------------

     The market value of other items of property, plant and equipment is based
     on the quoted market prices for similar items.

     b) Stock options and warrants:

     The fair value of employee stock options 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
     weighted average historic volatility adjusted for changes expected due to
     publicly available information, weighted average expected life of the
     instruments based on historical experience and general option holder
     behaviour, expected dividends, and the risk-free interest rate.

6. FINANCIAL RISK MANAGEMENT:

     Overview:

     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:

     o    Credit risk
     o    Liquidity risk
     o    Market risk

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

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

     a) CREDIT RISK:

     The Company is exposed to credit risk in relation to its cash and accounts
     receivable. The Company maintains cash with highly rated international
     banks and therefore considers these assets to have negligible credit risk.

     Credit risk is the potential financial loss to the Company if a customer is
     unable to meet its contractual obligations and arises principally from the
     Company's accounts receivables. The Company's accounts receivable is
     comprised of:

            [ ] Overriding royalty payments
            [ ] Customers
            [ ] Joint venture partners

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

                                                                              18
<PAGE>

CHELSEA OIL AND GAS LTD.

Notes  to  the Condensed Consolidated Interim Financial Statements
AS AT AND FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2013
AND 2012
(UNAUDITED)

--------------------------------------------------------------------------------

     ACCOUNTS RECEIVABLE:

     All of the Company's operations are conducted in Canada. 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 September
     30, 2013 the Company's trade and other 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 Companies cash
     and cash equivalents are 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 September 30, 2013 the Company's financial liabilities being accounts
     payable and accrued liabilities are due within one year.

     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 Company has no exposure to
     interest rate risk since short-term deposits are earning interest at the
     prevailing short term deposit rate.

                                                                              19
<PAGE>

CHELSEA OIL AND GAS LTD.

Notes  to  the Condensed Consolidated Interim Financial Statements
AS AT AND FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2013
AND 2012
(UNAUDITED)

--------------------------------------------------------------------------------

     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 Canadian and US dollar but also world economic
     events that dictate the levels of supply and demand.

     The Company has completed its first year of commercial operations, and at
     this time production from its 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.

     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 CASH EQUIVALENTS:

     At September 30, 2013 the Company held cash and cash equivalents of $0.247
     million (2012 - $0.283 million). 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 earns interest at the respective short
     term deposit rates. At September 30, 2013, the Company held all of its cash
     in cash at banks and did not hold any short term instruments.

     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 license.

8. SHAREHOLDER LOANS:

     Concurrent with the acquisition of the assets in the Surat Basin in
     Australia, on March 1, 2012 the Company agreed to pay the vendors $3.0
     million within 12 months and 8.5 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 December 31, 2012 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 accrued from September 1, 2012.

                                                                              20
<PAGE>



CHELSEA OIL AND GAS LTD.
Notes  to  the Condensed Consolidated Interim Financial Statements AS AT AND FOR
THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2013 AND 2012 (UNAUDITED)

--------------------------------------------------------------------------------
     During 2011, the Company borrowed $218,500 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.
     The remaining balance of $134,250 accrues interest at 12% per annum.

9.   PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<S>                                                                          <C>

     Cost or deemed cost
     --------------------------------------------------------------------------------
     BALANCE AT JANUARY 1, 2012, DECEMBER 31, 2012 AND SEPTEMBER 30, 2012    $938,575
     --------------------------------------------------------------------------------

     Accumulated depletion, depreciation and impairment costs
     --------------------------------------------------------------------------------
     BALANCE AT JANUARY 1, 2012                                              $484,575
     Depletion and depreciation expense                                        25,844
     --------------------------------------------------------------------------------
     BALANCE AT DECEMBER 31, 2012                                             510,419
     Depletion and depreciation expense                                         9,700
     --------------------------------------------------------------------------------
     BALANCE AT SEPTEMBER 30, 2013                                           $520,119
     --------------------------------------------------------------------------------

     Net book value
     --------------------------------------------------------------------------------
     As at January 1, 2012                                                   $452,915
     As at December 31, 2012                                                  428,154
     AS AT SEPTEMBER 30, 2013                                                $418,454
     --------------------------------------------------------------------------------
</TABLE>


     At September 30, 2013, the Company's property, plant and equipment is
     comprised primarily of its overriding royalty interests. These interests
     are currently the Company's only revenue generating asset.

     IMPAIRMENT TEST:

     At September 30, 2013, the Company conducted an impairment test of its
     property plant and equipment and concluded that no impairment was required.

10.  EXPLORATION AND EVALUATION ASSETS:

       -------------------------------------------------------------------------
       BALANCE AT JANUARY 1, 2012                                     $  508,812
       Acquisitions                                                    7,852,556
       Additions                                                       1,193,392
       -------------------------------------------------------------------------
       BALANCE AT DECEMBER 31, 2012                                    9,554,760
       Additions                                                          33,921
       BALANCE AT SEPTEMBER 30, 2013                                  $9,588,681
       -------------------------------------------------------------------------

     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 March 1, 2012, the Company completed the acquisition of certain assets
     in the Surat / Bowen basins in Queensland Australia. These assets have
     assigned probable reserves, however the underlying wells have been shut-in
     and are currently not producing. The Company intends to complete a
     re-pressurization of the fields through water injection, and reactivate the
     wells. Following the acquisition of additional seismic data, the Company
     may elect to drill additional wells to define the existing pools and
     explore new leads. If the re-pressurization project is successful the
     Company will allocate a portion of its exploration and evaluation costs to
     property, plant and equipment.

                                                                              21
<PAGE>
CHELSEA OIL AND GAS LTD.

Notes  to  the Condensed Consolidated Interim Financial Statements
AS AT AND FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2013
AND 2012
(UNAUDITED)

--------------------------------------------------------------------------------


     IMPAIRMENT TEST:

     At September 30, 2013, the Company conducted an impairment test of its
     property plant and equipment and concluded that no impairment was required.

11. 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:
<TABLE>
<S>                                                      <C>            <C>

                                                         NUMBER OF
                                                          SHARES            AMOUNT
      -----------------------------------------------------------------------------
      BALANCE, JANUARY 1, 2012                           22,705,680     $ 4,116,877
        Issued to acquire oil and gas properties         21,780,935       4,791,806
        Private placement for cash                        5,473,385       1,915,684
        Share issue costs                                      --          (290,054)
     ------------------------------------------------------------------------------
     BALANCE, DECEMBER 31, 2012                          49,960,000     $10,534,313
      Issued to acquire oil and gas properties               69,095          13,819
     ------------------------------------------------------------------------------
     BALANCE, SEPTEMBER 30, 2013                         50,029,065     $10,548,132
     ------------------------------------------------------------------------------
</TABLE>


     On January 9, 2013, at the Company's annual general meeting the authorized
     common shares available for issue was changed to unlimited. On the same
     date, Company issued the final 69,095 shares to vendors of the Surat Basin
     assets which closed on March 1, 2012. The reference price for the shares at
     the date of issue was $0.20 per share.

c) Stock option plan:

     Pursuant to resolutions of the board of directors of the Company dated
     January 9, 2013, the Company established a stock option plan for its
     directors, officers, consultants and employees under which the Company may
     grant options to acquire a maximum number of common shares equal to 10% of
     the total issued and outstanding shares of the Company. At September 30,
     2013 no options have been issued under this plan.

d) Warrants:

     On January 9, 2013, the Company issued 3.0 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 $105,832 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.

                                                        NUMBER OF
                                                        WARRANTS      AMOUNT
     -------------------------------------------------------------------------
     BALANCE, JANUARY 1, 2012 AND DECEMBER 31, 2012         --        $   --
     -------------------------------------------------------------------------
         Issued                                        3,000,000       105,382
     -------------------------------------------------------------------------
     BALANCE, SEPTEMBER 30, 2013                       3,000,000      $105,382
     -------------------------------------------------------------------------


                                                                              22
<PAGE>

CHELSEA OIL AND GAS LTD.

Notes  to  the Condensed Consolidated Interim Financial Statements
AS AT AND FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2013
AND 2012
(UNAUDITED)

--------------------------------------------------------------------------------
12.  SUBSEQUENT EVENT

     ACQUISITION OF INTERNATIONAL TME RESOURCES INC.

     On October 1, 2013, the Company completed the acquisition of International
     TME Resources Inc. ("ITME"). Chelsea issued a total of 13,976,542 common
     shares to acquire all of the issued and outstanding shares of ITME. After
     giving effect to the acquisition, the Company has 64,005,607 common shares
     issued and outstanding.

13. EXPLANATION OF TRANSITION TO IFRS:

     These consolidated financial statements for the nine month period ended
     September 30, 2013 are the Company's first financial statements prepared
     under IFRS. For all accounting periods prior to this year, the Company
     prepared its financial statements under USGAAP. In accordance with IFRS 1,
     certain disclosures relating to the transition to IFRS are given in this
     note. These disclosures are prepared under IFRS as set out in the basis of
     presentation in note 3.

     IFRS 1 allows first time adopters to take advantage of a number of
     voluntary exemptions from the general principal of retrospective
     restatement. The Company has taken the following exemptions:

     IFRS 2 SHARE BASED PAYMENTS

     The Company has elected to take this exemption and will not apply the
     standard to vested share-based payment arrangements prior to the transition
     date of January 1, 2012.

     IFRS 6 FULL COST AS DEEMED COST

     Under the amendments to IFRS 1 made in July 2009, a first-time adopter
     using full cost accounting under USGAAP may elect to measure oil and gas
     assets at the date of transition to IFRS on the amount determined under
     USGAAP.

     IAS 21 CUMULATIVE TRANSLATION DIFFERENCES

     The company has elected to take this exemption, and has reset the foreign
     currency translation reserve to zero at the transition date.

     RECONCILIATION OF CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS FOR THE
     THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012

     There were no transactions which give rise to any material differences
     between USGAAP and IFRS and accordingly, no reconciliation has been
     prepared.

     RECONCILIATION OF CONSOLIDATED STATEMENT OF CASHFLOWS

     The reconciling items between USGAAP and IFRS policies have no material
     impact on the cash flows generated by the Company.

                                                                              23
<PAGE>

CHELSEA OIL AND GAS LTD.

Notes  to  the Condensed Consolidated Interim Financial Statements
AS AT AND FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2013
AND 2012
(UNAUDITED)

--------------------------------------------------------------------------------

     RECONCILIATION OF EQUITY AS AT JANUARY 1, 2012:

                                                         EFFECT OF
                                                        TRANSITION
AS AT                           NOTES      US GAAP        OF IFRS         IFRS
------------------------------------------------------------------------------

ASSETS
Cash                                 $   236,142   $        --    $    236,142
Accounts receivable                       28,397            --          28,397
------------------------------------------------------------------------------

                                         264,539            --         264,539

Plant, property and equipment    a       962,811         113,131       849,680
Exploration and evaluation
assets                           a          --           113,131      (113,131)
------------------------------------------------------------------------------
                                         962,811            --         962,811
------------------------------------------------------------------------------
TOTAL ASSETS                         $ 1,227,350   $   1,227,350
------------------------------------------------------------------------------

LIABILITIES
CURRENT LIABILITIES
  Accounts Payable and
accrued liabilities                  $   100,064   $        --    $    100,064
  Due to related parties                 243,500            --         243,500
------------------------------------------------------------------------------

SHAREHOLDERS' EQUITY
Share capital                          4,116,877            --       4,116,877
Contributed surplus                      176,752            --         176,752
Accumulated deficit                   (3,409,843)           --      (3,409,843)
------------------------------------------------------------------------------
                                         883,786            --         883,786
------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY                 $ 1,227,350   $        --    $  1,227,350
==============================================================================


     EXPLANATION OF THE EFFECT OF THE TRANSITION TO IFRS:

     a) RECLASSIfiCATION OF COST FROM PROPERTY, PLANT AND EQUIPMENT TO
     EXPLORATION AND EVALUATION ASSETS

     In accordance with IAS 16, IAS 38 and IFRS 6 the Company reallocated
     certain costs relating to unproved properties from property, plant and
     equipment to exploration and evaluation assets as a separate line under
     IFRS.

     Effect - increase exploration and evaluation assets and decrease property
     plant and equipment $113,131.

                                                                              24
<PAGE>
CHELSEA OIL AND GAS LTD.

Notes  to  the Condensed Consolidated Interim Financial Statements
AS AT AND FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2013
AND 2012
(UNAUDITED)

--------------------------------------------------------------------------------


     RECONCILIATION OF EQUITY AS AT DECEMBER 31, 2012:


                                                   EFFECT OF
                                                    TRANSITION
AS AT                          NOTES     US GAAP     OF IFRS          IFRS
--------------------------------------------------------------------------------


ASSETS
Cash                                 $   283,686   $      --     $   283,686
Accounts receivable                      331,009          --         331,009
--------------------------------------------------------------------------------
                                         614,695          --         614,695

Plant, property and
equipment                                   --
Exploration and evaluation      a,b    9,990,415    (9,562,259)      428,156
assets                           a          --       9,554,759     9,554,759
--------------------------------------------------------------------------------
                                       9,990,415        (7,500)    9,982,915

--------------------------------------------------------------------------------
TOTAL ASSETS                         $10,605,110   $    (7,500)  $10,597,610
================================================================================


LIABILITIES
CURRENT LIABILITIES
  Accounts Payable and
accrued liabilities                  $   573,327   $      --     $   573,327
  Due to related parties               3,094,646          --       3,094,646
--------------------------------------------------------------------------------
                                       3,667,973          --       3,667,973

SHAREHOLDERS' EQUITY
Share capital                         10,534,313    10,534,313
Contributed surplus                      176,752          --         176,752
Accumulated deficit             a,b   (3,773,928)       (7,500)   (3,781,428)
--------------------------------------------------------------------------------
                                       6,937,137        (7,500)    6,929,637

--------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY                 $10,605,110   $    (7,500)  $10,597,610
================================================================================


     EXPLANATION OF THE EFFECT OF THE TRANSITION TO IFRS:

     a) RECLASSIfiCATION OF COST FROM PROPERTY, PLANT AND EQUIPMENT TO
     EXPLORATION AND EVALUATION ASSETS

     In accordance with IAS 16, IAS 38 and IFRS 6 the Company reallocated
     certain costs relating to unproved properties from property, plant and
     equipment to exploration and evaluation assets as a separate line under
     IFRS.

     Effect - increase exploration and evaluation assets and decrease property
     plant and equipment $9,554,759.

     b) ACCRUE ADDITIONAL DEPLETION

     Following the reclassification of costs from property, plant and equipment
     to exploration and evaluation assets, the balance of assets subject to
     depletion increased, and additional depletion was accrued.


                                                                              25
<PAGE>

CHELSEA OIL AND GAS LTD.

Notes  to  the Condensed Consolidated Interim Financial Statements
AS AT AND FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2013
AND 2012
(UNAUDITED)

--------------------------------------------------------------------------------


     Effect - Increase accumulated depletion and accumulated deficit by $7,500.

     RECONCILIATION OF CONSOLIDATED COMPREHENSIVE STATEMENT OF LOSS FOR YEAR
     ENDED DECEMBER 31, 2012:

                                                     EFFECT OF
                                                     TRANSITION
                               NOTES     US GAAP      OF IFRS         IFRS
--------------------------------------------------------------------------------

REVENUES
Royalty income                      $   90,353   $       --     $        90,353
--------------------------------------------------------------------------------

                                        90,353           --              90,353


EXPENSES
Direct operating costs                  11,028           --              11,028
General and administrative             396,848           --             396,848
Depletion                       b       18,344          7,500            25,844
--------------------------------------------------------------------------------

Operating loss                        (355,867)        (7,500)          175,706

OTHER INCOME (EXPENSE)
Interest income                         10,541           --              10,541
Interest expense                       (22,181)          --             (22,181)
--------------------------------------------------------------------------------

Loss before income tax                (347,507)        (7,500)         (355.007)

Current income tax expense             (17,822)          --             (17,822)

NET LOSS FOR THE YEAR               $ (365,329)  $     (7,500)  $      (372,829)
--------------------------------------------------------------------------------

Foreign currency translation
adjustment                               1,244           --               1,244
--------------------------------------------------------------------------------

TOTAL COMPREHENSIVE LOSS FOR
THE YEAR                            $ (364,085)  $     (7,500)  $      (371,585)
================================================================================


     EXPLANATION OF THE EFFECT OF TRANSITION TO IFRS:

     b) ACCRUE ADDITIONAL DEPLETION

     Following the reclassification of costs from property, plant and equipment
     to exploration and evaluation assets, the balance of assets subject to
     depletion increased, and additional depletion was accrued.

     Effect - Increase accumulated depletion and accumulated deficit by $7,500.


                                                                              26