<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 20-F

(Mark One)

[ ]           REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (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, 2002

[ ]           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES
                              EXCHANGE ACT OF 1934
           For the transition period from_____________to_____________

                         Commission file number 0-28608

                                PETSEC ENERGY LTD
             (Exact name of Registrant as specified in its charter)

                           NEW SOUTH WALES, AUSTRALIA
                 (Jurisdiction of incorporation or organization)

             LEVEL 13, 1 ALFRED STREET, SYDNEY, NSW 2000, AUSTRALIA
                    (Address of principal executive offices)

 Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each                                              Name of each exchange
    class                                                   on which registered
    None                                                           None

 Securities registered or to be registered pursuant to Section 12(g) of the Act.
                           American Depositary Shares

 Securities for which there is a reporting obligation pursuant to Section 15(d)
                                   of the Act.
                                      None

   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.

                           105,736,041 Ordinary Shares

         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 which financial statement item the registrant has
                               elected to follow.

                           Item 17 [ ]      Item 18 [X]

   Indicate by check mark whether the registrant has filed all documents and
   reports required to be filed by Sections 12, 13 or 15(d) of the Securities
 Exchange Act of 1934 subsequent to the distribution of securities under a plan
                             confirmed by a court.

                          Yes    [X]           No [ ]

                                        1

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                  Page
                                                                                                  ----
<S>                                                                                              <C>
Introduction....................................................................                       3
Glossary of Certain Industry Terms..............................................                   4 - 5

                                     PART I

Item 1.        Identity of Directors, Senior Management and Advisers............                       6
Item 2.        Offer Statistics and Expected Timetable..........................                       6
Item 3.        Key Information..................................................                  7 - 12
Item 4.        Information on the Company.......................................                 13 - 21
Item 5.        Operating and Financial Review and Prospects.....................                 22 - 33
Item 6.        Directors, Senior Management and Employees.......................                 34 - 37
Item 7.        Major Shareholders and Related Party Transactions................                 38 - 39
Item 8.        Financial Information............................................                      39
Item 9.        The Offer and Listing............................................                 40 - 42
Item 10.       Additional Information...........................................                 43 - 58
Item 11.       Quantitative and Qualitative Disclosure about Market Risk........                      58
Item 12.       Description of Securities Other Than Equity Securities...........                      58

                                     PART II

Item 13.       Defaults, Dividend Arrearages and Delinquencies..................                      58
Item 14.       Material Modifications to the Rights of Security Holders and
               Use of Proceeds..................................................                      58
Item 15.       Controls and procedures..........................................                      59
Item 16.       Reserved.........................................................                      59

                                    PART III

Item 17.       Financial Statements.............................................                      59
Item 18.       Financial Statements.............................................                      59
Item 19.       Exhibits.........................................................                      59

Signatures......................................................................                      60
Exhibit Index...................................................................                      63
</TABLE>

                                        2

<PAGE>

                                  INTRODUCTION

Unless the context otherwise indicates, references in this Form 20-F to "we",
"us", "our", "Petsec" or the "Company" are to Petsec Energy Ltd, an Australian
public company (Australian Company Number 000 602 700), and its majority-owned
subsidiaries and entities in which it owns at least a 50% ownership interest.
The reference "PEL" is used to refer to Petsec Energy Ltd, the Australian public
company, separately from its subsidiaries. The reference to "PEI" is used to
refer to Petsec Energy Inc., a wholly owned US subsidiary of Petsec Energy Ltd.
The reference to "PPI" is used to refer to Petsec Petroleum Inc., also a wholly
owned US subsidiary of Petsec Energy Ltd. The Company publishes consolidated
financial statements in Australian dollars as required under Australian law and
under Australian generally accepted accounting principles ("AUS GAAP"). The
Company also publishes consolidated financial statements in US dollars and under
US generally accepted accounting principles ("US GAAP") as set out under Item 18
in this Form 20-F. All financial information in this Form 20-F is based on US
GAAP.

This report covers the years ended December 31, 2000, 2001 and 2002.

On April 13, 2000, PEI filed for Chapter 11 protection under the U.S. Bankruptcy
Code. As a result of this filing, control over PEI became impaired and
consequently PEI was deconsolidated as of that date for financial accounting
purposes. An agreement was reached between and among PEI, Petsec (USA) Inc., a
Nevada corporation and wholly owned subsidiary of PEL, as equity owner ("PUSA"),
certain senior management of PEI, the Official Committee of Unsecured Creditors
and certain holders of its 9 1/2% Senior Subordinated Notes due 2007 (the "9
1/2% Notes") to sell PEI or all of its assets, and for an agreed distribution of
the sale proceeds to PEI's creditors, PUSA, as equity owner, and certain of
PEI's senior management team in the U.S. The sale of PEI's assets was completed
in December 2000.

On January 16, 2001, PEI emerged as a reorganized entity under the U.S.
Bankruptcy Code resulting in the settlement of all outstanding claims and
discharge of all liabilities of PEI. The Company regained control over PEI and
the results of PEI have been consolidated into the Company from that date. See
Item 4. - Information On the Company - A. History and development of the Company
within this Form 20-F.

References to "US dollars" or "US$" or "$" are to United States dollars and
references to "A$" are to Australian dollars.

                                       3

<PAGE>

                       GLOSSARY OF CERTAIN INDUSTRY TERMS

The definitions set forth below apply to the indicated terms as used in this
Form 20-F. All volumes of natural gas referred to herein are stated at the legal
pressure base of the state or area where the reserves exist and at 60 degrees
Fahrenheit and, in most instances, are rounded to the nearest major multiple.

         Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used
herein in reference to crude oil or other liquid hydrocarbons.

         Bcf. Billion cubic feet.

         Bcfe. Billion cubic feet of gas equivalent, determined using the ratio
of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas
liquids.

         Btu. British thermal unit, which is the heat required to raise the
temperature of one-pound mass of water from 58.5 to 59.5 degrees Fahrenheit.

         Completion. The installation of permanent equipment for the production
of oil or natural gas, or in the case of a dry hole, the reporting of
abandonment to the appropriate agency.

         Developed acreage. The number of acres that are allocated or assignable
to producing wells or wells capable of production.

         Development well. A well drilled within the proved area of an oil or
natural gas reservoir to the depth of a stratigraphic horizon known to be
productive.

         Dry hole or well. A well found to be incapable of producing
hydrocarbons in sufficient quantities such that proceeds from the sale of such
production exceed production expenses and taxes.

         Exploratory well. A well drilled to find and produce oil or natural gas
reserves not classified as proved, to find a new reservoir in a field previously
found to be productive of oil or natural gas in another reservoir or to extend a
known reservoir.

         Field. An area consisting of a single reservoir or multiple reservoirs
all grouped on or related to the same individual geological structural feature
and/or stratigraphic condition.

         Gross acreage or gross wells. The total acres or wells, as the case may
be, in which a working interest is owned.

         Liquids. Crude oil, condensate and natural gas liquids.

         MBbls. One thousand barrels of crude oil or other liquid hydrocarbons.

         Mcf. One thousand cubic feet.

         Mcf/d. One thousand cubic feet per day.

         Mcfe. One thousand cubic feet of gas equivalent, determined using the
ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural
gas liquids.

         MMS. Minerals Management Service of the United States Department of the
Interior.

         MMbtu. One million Btus.

         MMcf. One million cubic feet.

         MMcfe. One million cubic feet of gas equivalent, determined using the
ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural
gas liquids.

         Net acres or net wells. The sum of the fractional working interests
owned in gross acres or gross wells.

         OCS. Outer Continental Shelf.

         Oil. Crude oil and condensate.

         Present value or PV10. When used with respect to oil and natural gas
reserves, the estimated future gross revenue to be generated from the production
of proved reserves, net of estimated production and future development costs,
using prices and costs in effect as of the date indicated, without giving effect
to non-property related expenses such as general and administrative expenses,
debt service and future income tax expense or to depreciation, depletion and
amortization, discounted using an annual discount rate of 10%.

                                        4

<PAGE>

         Productive well. A well that is found to be capable of producing
hydrocarbons in sufficient quantities such that proceeds from the sale of such
production exceed production expenses and taxes.

         Proved developed nonproducing reserves. Proved developed reserves
expected to be recovered from zones behind casing in existing wells.

         Proved developed producing reserves. Proved developed reserves that are
expected to be recovered from completion intervals currently open in existing
wells and capable of production to market.

         Proved reserves. The estimated quantities of crude oil, natural gas and
natural gas liquids that geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions.

         Proved undeveloped location. A site on which a development well can be
drilled consistent with spacing rules for purposes of recovering proved
undeveloped reserves.

         Proved undeveloped reserves. Proved reserves that are expected to be
recovered from new wells on undrilled acreage or from existing wells where a
relatively major expenditure is required for recompletion.

         Recompletion. The completion for production of an existing well bore in
another formation from that in which the well has been previously completed.

         Reservoir. A porous and permeable underground formation containing a
natural accumulation of producible oil and/or natural gas that is confined by
impermeable rock or water barriers and is individual and separate from other
reservoirs.

         Royalty interest. An interest in an oil and natural gas property
entitling the owner to a share of oil or natural gas production free of costs of
production.

         Undeveloped acreage. Lease acreage on which wells have not been drilled
or completed to a point that would permit the production of commercial
quantities of oil and natural gas regardless of whether such acreage contains
proved reserves.

         Working interest or W.I. The operating interest which gives the owner
the right to drill, produce and conduct operating activities on the property and
a share of production.

                                        5

<PAGE>

                                     PART I

         ITEM 1 - IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

                                 Not applicable

                ITEM 2 - OFFER STATISTICS AND EXPECTED TIMETABLE

                                 Not applicable

                                        6

<PAGE>

                            ITEM 3 - KEY INFORMATION

A. SELECTED FINANCIAL DATA

         The following table sets forth in US dollars and under US GAAP selected
historical consolidated financial data for the Company as of and for each of the
periods indicated. The financial data for each of the five years ended December
31, 1998, 1999, 2000, 2001 and 2002 is derived from the Company's US Dollar
Financial Statements, which were prepared under US GAAP. The following data
should be read in conjunction with "Item 5 - Operating and Financial Review and
Prospects" and the financial statements and notes thereto included elsewhere in
this Annual Report.

         On April 13, 2000, the Company's wholly owned US subsidiary Petsec
Energy Inc, ("PEI"), filed for Chapter 11 protection under the U.S. Bankruptcy
Code. As a result of this filing, control over PEI became impaired and
consequently PEI was deconsolidated for financial accounting reporting purposes
as of that date. On January 16, 2001, PEI emerged as a reorganized entity under
the U.S. Bankruptcy Code resulting in the settlement of all outstanding claims
and discharge of all liabilities of PEI. The Company regained control over PEI
and the results of PEI have been consolidated into the Company from that date.

<TABLE>
<CAPTION>
                                                                      Year ended December 31
                                                   -------------------------------------------------------------
                                                      1998        1999          2000         2001         2002
                                                               (In thousands, except per share data)
<S>                                                <C>          <C>          <C>          <C>          <C>
INCOME STATEMENT DATA:
  Oil and gas sales (net of royalties payable)     $  92,017    $  31,000    $   8,257    $       -    $       -
  Oil and gas royalties                                    -            -            -            -          201
                                                   ---------    ---------    ---------    ---------    ---------
    Total revenues                                 $  92,017    $  31,000    $   8,257    $       -    $     201

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

  Lease operating expenses                            14,989        7,045        1,657            -            -
  Depletion, depreciation and amortization            57,672       21,295        4,845           28           34
  Exploration expenditure                              7,427        2,750          365          422        1,176
  Dry hole and abandonment costs                      27,503        2,840          611          877        1,066
  Impairment expense                                  72,916        7,480            -            -            -
  General, administrative and other expenses          10,777        6,859        3,625        1,264        1,691
  Stock compensation expense                             937          260          138           11           40

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

    Total operating expenses                         192,221       48,529       11,241        2,602        4,007
  Profit (loss) on sale of assets                         68          241          592            9           (8)

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

  Loss from operations                              (100,136)     (17,288)      (2,392)      (2,593)      (3,814)
  Other income (expense)                                 (86)         260            1          200          137
  Profit on sale of investments                            -        2,561            -            -            -
  Interest expense                                    (9,044)     (10,963)      (3,378)           -            -
  Interest income                                      1,214        1,070        1,037          447          136

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

  Loss before income tax and extraordinary items    (108,052)     (24,360)      (4,732)      (1,946)      (3,541)
  Income tax benefit (expense)                        11,547         (764)         (10)           8          254

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

  Net loss before extraordinary items              $ (96,505)   $ (25,124)   $ (4,742)    $  (1,938)   $  (3,287)
  Extraordinary items
    Recognition of deferred gain on subsidiary
      emergence from bankruptcy                            -            -            -       37,147            -
    Distribution from bankruptcy trustee                   -            -            -        1,103            -

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

    Net income (loss)                              $ (96,505)   $ (25,124)   $  (4,742)   $  36,312    $  (3,287)

                                                   ---------    ---------    ---------    ---------    ---------
</TABLE>

                                        7

<PAGE>

<TABLE>
<CAPTION>
                                                                            Year ended December 31
                                                        -------------------------------------------------------------
                                                          1998         1999          2000         2001         2002
                                                                    (In thousands, except per share data)
<S>                                                     <C>          <C>          <C>          <C>          <C>
BASIC AND DILUTED EARNINGS PER SHARE:
  Loss before extraordinary items per share             $   (0.90)   $   (0.23)   $   (0.04)   $   (0.02)   $   (0.03)
  Extraordinary items per share                                 -            -            -         0.36            -
                                                        -------------------------------------------------------------
  Earnings (loss) per share                             $   (0.90)   $   (0.23)   $   (0.04)   $    0.34    $   (0.03)
                                                        -------------------------------------------------------------

  Loss before extraordinary items per ADR*              $   (4.48)   $   (1.17)   $   (0.22)   $   (0.10)   $   (0.17)
  Extraordinary items per ADR                                   -            -            -         1.82            -
                                                        -------------------------------------------------------------
  Earnings (loss) per ADR                               $   (4.48)   $   (1.17)   $   (0.22)   $    1.72    $   (0.17)
                                                        -------------------------------------------------------------

  Weighted average number of ordinary
      shares outstanding                                  107,601      107,429      106,589      105,752      105,736

CASH FLOW DATA:
  Net cash provided by (used in) operating activities   $  55,056    $  12,588    $     518    $  (1,166)   $  (2,728)
  Net cash (used in) provided by investing activities    (134,750)      60,408       (6,136)         104       (8,170)
  Net cash provided by (used in) financing activities      74,011      (66,125)      (2,185)           -            -

BALANCE SHEET DATA:
  Total assets                                          $ 199,213    $ 110,536    $  16,036    $  15,096    $  14,206
  Current maturities - credit facility                     67,250        7,875            -            -            -
  Borrowings less current maturities                      106,406       99,684            -            -            -
  Net assets (liabilities)                                  4,355      (19,526)     (22,953)      13,584       10,248
  Share capital                                           122,697      122,463      120,789      120,661      120,701

  Number of ordinary shares outstanding                   107,601      107,401      105,786      105,736      105,736
</TABLE>

*  American Depository Receipt. See Item 9.C.

EXCHANGE RATES

         Where US dollar amounts in this Form 20-F have not been derived from
the Financial Statements (and therefore translated using the exchange rates in
the notes to the Financial Statements), the translations of Australian dollars
into US dollars (unless otherwise indicated) have been made at the appropriate
Noon Buying Rate as specified.

         The following table sets forth certain information with respect to
historical exchange rates, using the Noon Buying Rates for Australian dollars
expressed in US dollars per Australian dollar:

<TABLE>
<CAPTION>
                                                                   US Dollar per Australian Dollar
                                                       -------------------------------------------------------
            Period                                     Average*         High        Low          End of Period
            ------                                     --------         ----        ---          -------------
<S>                                                    <C>             <C>        <C>            <C>
Year ended December 31, 1998                            0.6295         0.6868     0.5550            0.6123
Year ended December 31, 1999                            0.6444         0.6705     0.6179            0.6560
Year ended December 31, 2000                            0.5746         0.6386     0.5162            0.5489
Year ended December 31, 2001                            0.5075         0.5714     0.4812            0.5062
Year ended December 31, 2002                            0.5391         0.5772     0.5075            0.5598
   November 2002                                        0.5617         0.5668     0.5548            0.5557
   December 2002                                        0.5635         0.5666     0.5593            0.5598
   January 2003                                         0.5831         0.5918     0.5617            0.5840
   February 2003                                        0.5952         0.6078     0.5851            0.6007
   March 2003                                           0.6017         0.6160     0.5906            0.5953
   April 2003                                           0.6106         0.6233     0.5982            0.6175
</TABLE>

* Average of Noon Buying Rates for the period based on month end rates

                                        8

<PAGE>

         Fluctuations in the Australian dollar/US dollar exchange rate will
affect the US dollar equivalent of the Australian dollar price of the Company's
Ordinary Shares on the ASX and, as a result, are likely to affect the market
price of the Company's ADRs in the United States. Such fluctuations also would
affect the US dollar amounts received by holders of ADRs on conversion by the
Depositary of cash dividends, if any, paid in Australian dollars on the Ordinary
Shares underlying the ADRs.

         The Company's primary activities are in the United States through PEI,
PEL's wholly owned US operating subsidiary, and its transactions are denominated
predominantly in US dollars. Exploration activities are also conducted in China
through another wholly owned US subsidiary, Petsec Petroleum Inc. ("PPI") with
joint venture budgets denominated in US dollars. For the foreseeable future,
therefore, fluctuations in the Australian dollar/US dollar exchange rate are
expected to have only a small effect on the Company's underlying performance, as
measured in US dollars, and on the Company's financial statements prepared in US
dollars. Such fluctuations would affect the Company's financial results as
reported in Australian dollars.

         The Company has not paid any dividends for the fiscal years ended
December 31, 1998, 1999, 2000, 2001 and 2002.

B. CAPITALIZATION AND INDEBTEDNESS

         Not applicable.

C. REASONS FOR THE OFFER AND USE OF PROCEEDS

         Not applicable.

D. RISK FACTORS

OUR GROWTH PROSPECTS MAY BE LIMITED BECAUSE WE HAVE LIMITED OPERATIONS AND
PROPERTIES WITH PROVED RESERVES OR PRODUCTION.

         At December 31, 2002, our principal assets consisted of cash,
investment securities and interests in proved and unproved oil and gas
properties. The Company and PEI have limited capital resources. For the
immediate future, our prospects for growth will depend upon expansion of our
existing production base.

WE MAY NOT BE ABLE TO FIND OR ACQUIRE SIGNIFICANT PROVED RESERVES.

         Our future natural gas and oil production is highly dependent upon our
level of success in finding, developing or acquiring reserves that are
economically recoverable. The business of exploring for, developing or acquiring
reserves is capital intensive and uncertain. We may be unable to make the
necessary capital investment to maintain or expand our oil and gas reserves if
cash flow from operations is limited and external sources of capital become
limited or unavailable. We cannot assure you that our future exploration,
development and acquisition activities will result in significant proved
reserves or that we will be able to drill productive wells at acceptable costs.
In addition, most of our leases with working interests are in the Gulf of
Mexico. In general, the volume of production from oil and gas properties
declines as reserves are depleted. The decline rates depend on reservoir
characteristics. Gulf of Mexico reservoirs experience steep declines, while the
declines in long-lived fields in other regions are lower. Any future reserves
discovered on our existing leases will decline as they are produced unless we
acquire additional properties with proved reserves.

WE MAY NOT BE ABLE TO FUND OUR PLANNED CAPITAL EXPENDITURES.

         In the past, we have spent a substantial amount of capital for the
development, exploration, acquisition and production of oil and natural gas
reserves. Substantial capital expenditures are required to access reserves and
undertake a drilling program to find new reserves. Our capital expenditures
including acquisitions were $9.9 million during 2002. We expect our total
capital expenditures in 2003 to be at least $11 million, excluding property
acquisitions. The funding of our future capital expenditures is dependent upon
the generation of sufficient cash flow from our operating activities. If low oil
and natural gas prices, drilling or production delays, operating difficulties or
other factors, many of which are beyond our control, cause our revenues and cash
flows from operations to decrease, we may be restricted in our ability to spend
the capital necessary to complete our drilling and development program. We do
not have a bank credit facility and we may not be able to borrow the funds
necessary to support our working capital needs or our capital expenditures
program. After utilizing our available sources of financing, we may be forced to
raise debt or equity proceeds to fund such expenditures. Our financial resources
are limited, and we cannot

                                        9

<PAGE>

assure you that debt or equity financing or cash generated by operations will be
available to meet these requirements. A curtailment of capital spending could
adversely affect our ability to create production and our future cash flow from
operations. See "Item 5--Operating and Financial Review and Prospects--B.
Liquidity and Capital Resources."

THE LOSS OF KEY PERSONNEL COULD ADVERSELY AFFECT OUR ABILITY TO OPERATE.

         Our operations are dependent upon a relatively small group of key
management and technical personnel. As of March 28, 2003, the Company's primary
operating subsidiary, PEI, has nine (9) employees. Although we have entered into
contracts with these managers and technical personnel, we cannot assure you that
such individuals will remain with the Company for the immediate or foreseeable
future. The unexpected loss of the services of one or more of these individuals
could have a detrimental effect on the Company.

COMPETITION WITHIN OUR INDUSTRY MAY ADVERSELY AFFECT OUR OPERATIONS.

         We operate in a highly competitive environment. The Company competes
with major and independent oil and gas companies and other independent producers
of varying sizes for the acquisition of desirable oil and gas properties and the
equipment and labor required to develop and operate such properties. Most of
these competitors have financial and other resources substantially greater than
ours. See "Item 4 - Information on the Company - Competition."

OIL AND GAS PRICE DECLINES AND THEIR VOLATILITY COULD ADVERSELY AFFECT OUR
REVENUES, CASH FLOWS AND PROFITABILITY.

         Prices for oil and natural gas fluctuate widely. The Company's
revenues, profitability and future rate of growth depend substantially upon the
prevailing prices of oil and natural gas. Increases and decreases in prices also
affect the amount of cash flow available for capital expenditures and our
ability to borrow money or raise additional capital. Lower prices may also
reduce the amount of oil and natural gas that we can produce economically. Any
substantial or extended decline in the prices of or the demand for oil and
natural gas would have a material adverse effect on our financial condition,
liquidity and results of operations.

         We cannot predict future oil and natural gas prices. Factors that can
cause price fluctuations include:

    -    relatively minor changes in the supply of and demand for oil and
         natural gas;

    -    market uncertainty;

    -    the level of consumer product demand;

    -    weather conditions;

    -    domestic and foreign governmental regulations;

    -    the price and availability of alternative fuels;

    -    political and economic conditions in oil producing countries,
         particularly those in the Middle East;

    -    the foreign supply of oil and natural gas;

    -    the price of oil and gas imports; and

    -    general economic conditions.

                                       10

<PAGE>

OUR OPERATIONS ARE SUBJECT TO NUMEROUS RISKS OF OIL AND GAS DRILLING AND
PRODUCTION ACTIVITIES.

         Oil and gas drilling and production activities are subject to numerous
risks, including the risk that no commercially productive oil or natural gas
reservoirs will be found. The cost of drilling and completing the wells is often
uncertain. Oil and gas drilling and production activities may be shortened,
delayed or canceled as a result of a variety of factors, many of which are
beyond our control. These factors include:

    -    unexpected drilling conditions;

    -    geological pressure or irregularities in formations;

    -    equipment failures or accidents;

    -    weather conditions;

    -    shortages in experienced labor;

    -    shortages or delays in the delivery of equipment; and

    -    constraints on access to transportation systems (pipelines) delaying
         sale of oil and or gas.

         The prevailing prices of oil and natural gas also affect the cost of
and demand for drilling rigs, production equipment and related services.

         We cannot assure you that the wells we drill will be productive or that
we will recover all or any portion of our investment. Drilling for oil and
natural gas may be unprofitable. Drilling activities can result in dry wells and
wells that are productive but do not produce sufficient net revenues to return a
profit after drilling, operating and other costs.

OUR INDUSTRY EXPERIENCES NUMEROUS OPERATING RISKS.

         The exploration, development and production of oil and natural gas,
involves a variety of operating risks. These risks include the risk of fire,
explosions, blow-outs, pipe failure, abnormally pressured formations and
environmental hazards. Environmental hazards include oil spills, gas leaks,
pipeline ruptures or discharges of toxic gases. If any of these industry
operating risks occur, we could have substantial losses. Substantial losses may
be caused by injury or loss of life, severe damage to or destruction of
property, natural resources and equipment, pollution or other environmental
damage, clean-up responsibilities, regulatory investigation and penalties and
suspension of operations. Additionally, most of our oil and gas operations are
located offshore in the Gulf of Mexico and are subject to the additional hazards
of marine operations such as capsizing, collision and adverse weather and sea
conditions. The Gulf of Mexico area experiences tropical weather disturbances,
some of which can be severe enough to cause substantial damage to facilities and
possibly interrupt production. In accordance with industry practice, the Company
maintains insurance against some, but not all, of the risks described above. We
cannot assure you that our insurance will be adequate to cover losses or
liabilities. Also, we cannot predict the continued availability of insurance at
premium levels that justify its purchase.

TERRORIST ATTACKS AIMED AT OUR FACILITIES COULD ADVERSELY AFFECT OUR BUSINESS.

         On September 11, 2001, the United States was the target of terrorist
attacks of unprecedented scale (the "September 11th attacks"). Since the
September 11th attacks, the U.S. government has issued warnings that U.S. energy
assets may be the future targets of terrorist organizations. If any future
terrorist attacks are aimed at our facilities, our purchasers' facilities,
transportation systems or the industry infrastructure, our business could be
materially adversely affected. Furthermore, such an actual or imminent terrorist
attack could affect our ability to obtain insurance against our operating risks.

                                       11

<PAGE>

A SIGNIFICANT PORTION OF OUR PRODUCTION, REVENUES AND CASH FLOW FROM OPERATING
ACTIVITIES ARE DERIVED FROM ASSETS THAT ARE CONCENTRATED IN A GEOGRAPHIC AREA.

         In 2003, most of our revenues will be derived from production from our
wells at West Cameron 352 and West Cameron 343. All of these wells are drilled
or will be drilled from a single platform in West Cameron 352. Accordingly, if
the level of production from these fields substantially declines, it could have
a material adverse effect on our overall production levels and our revenues.

OUR OIL AND GAS OPERATIONS ARE SUBJECT TO VARIOUS GOVERNMENTAL REGULATIONS THAT
MATERIALLY AFFECT OUR OPERATIONS.

         Our oil and gas operations are subject to various U.S. federal, state
and local laws and regulations. These laws and regulations may be changed in
response to economic or political conditions. Regulated matters include permits
for exploration, development and production operations; limitations on drilling
activities in environmentally sensitive areas, such as wetlands, and
restrictions on the way we can release materials into the environment; bonds or
other financial responsibility requirements to cover drilling contingencies and
well plugging and abandonment costs; reports concerning operations, the spacing
of wells, unitization and pooling of properties, taxation and interstate
transportation of oil and natural gas. At various times, regulatory agencies
have imposed price controls and limitations on production. In order to conserve
supplies of oil and gas, these agencies have restricted the rate of flow of oil
and gas wells below actual production capacity. In addition, the U.S. federal
Oil Pollution Act, as amended ("OPA"), requires operators of offshore facilities
such as us to prove that they have the financial capability to respond to costs
that may be incurred in connection with potential oil spills. Under OPA and
other U.S. federal and state environmental statutes, including the federal
Comprehensive Environmental Response, Compensation and Liability Act, as amended
("CERCLA"), and the federal Resource Conservation and Recovery Act, as amended
("RCRA"), owners and operators of certain defined onshore and offshore
facilities are strictly liable for spills of oil and other regulated substances,
subject to certain limitations. Consequently, a substantial spill from one of
our facilities subject to laws such as OPA, CERCLA and RCRA could require the
expenditure of additional, and potentially significant, amounts of capital, or
could have a material adverse effect on our earnings, results of operations,
competitive position or financial condition. U.S. federal, state and local laws
regulate the production, handling, storage, transportation and disposal of oil
and gas, by-products from oil and gas and other substances, and materials
produced or used in connection with oil and gas operations. We cannot predict
the ultimate cost of compliance with these requirements or their effect on our
operations. See "Item 4--Information on the Company."

         The Company also has an interest in a joint venture operating in China
(Block 22/12, Beibu Gulf). The joint venture is subject to the laws and
regulations of the People's Republic of China, including those relating to the
exploration, development, production, marketing, pricing, transportation and
storage of natural gas and crude oil, taxation and safety and environmental
matters. The joint venture may be adversely affected by changes in governmental
policies or other political, economic or social developments in or affecting
China which are not within its control, including, among other things, licensing
and exploration arrangements, changes in crude oil and natural gas development
policies or regulations, marketing and pricing policies, renegotiation or
nullification of existing contracts, taxation policies, exchange controls and
repatriation arrangements and renminbi/US dollar exchange rate fluctuations.

OUR SHAREHOLDERS MAY NOT BE ABLE TO SELL SHARES OF THE COMPANY AT THE TIME, IN
THE QUANTITY OR AT THE PRICE DESIRED BECAUSE OF OUR LOW TRADING VOLUME.

         Our ordinary shares are traded on the Australian Stock Exchange
(symbol: PSA), and our American Depositary Receipts ("ADRs") are traded in the
U.S. on the OTC Pink Sheets (symbol PSJEY.PK). However, neither the ordinary
shares nor the ADRs have substantial trading volume, and on some days no ADRs
are traded. Because of this limitation, among others, our shareholders may not
be able to sell shares of the Company at the time, in the quantity, or at the
price desired.

                                       12

<PAGE>

                       ITEM 4 - INFORMATION ON THE COMPANY

A. HISTORY AND DEVELOPMENT OF THE COMPANY

         Petsec Energy Ltd is an independent oil and gas exploration and
production company operating primarily in the shallow waters of the Gulf of
Mexico, U.S.A. and in the Beibu Gulf, offshore China. It is an Australian public
company incorporated in New South Wales, Australia on December 7, 1967 with
ordinary shares traded on the Australian Stock Exchange (symbol: PSA), and
American Depositary Receipts ("ADRs") traded in the U.S. on the OTC Pink Sheets
(symbol PSJEY.PK). In 1990, the Company incorporated PEI, its wholly owned
subsidiary, and commenced evaluating oil and gas exploration opportunities in
the U.S., primarily in the Gulf of Mexico, offshore Louisiana.

         Historically, the Company has acquired substantially all of its leases
on the Outer Continental Shelf at federal or state lease sales. Until December
31, 1998, the Company held 100% working interests in its Gulf of Mexico
properties. A disappointing drilling program in 1998 compounded by low oil and
gas prices caused PEI's outstanding debt to reach unacceptable levels. Effective
January 1, 1999, PEI sold a 50% working interest in a substantial number of its
properties to Apache Corporation, an unrelated independent exploration and
production company. It also transferred operations on the properties sold.
Proceeds from the sale were used to reduce debt.

         PEI engaged a financial advisor in October 1999 to assist with the
restructure of $100 million aggregate principal amount of its 9 1/2% Senior
Subordinated Notes due 2007 (the "9 1/2% Notes"). PEI did not make the interest
payment due on the 9 1/2% Notes at December 15, 1999, and was in default under
the indenture governing the 9 1/2% Notes (the "Indenture").

         PEI subsequently filed a voluntary petition under Chapter 11 of the US
Bankruptcy Code (the "Bankruptcy Code") on April 13, 2000. An agreement was
reached between and among PEI, Petsec (USA) Inc., a Nevada corporation and
wholly owned subsidiary of Petsec Energy Ltd, as equity owner ("PUSA"), certain
senior management of PEI, the Official Committee of Unsecured Creditors and
certain holders of the 9 1/2% Notes to sell PEI or all of its assets, and for an
agreed distribution of the sale proceeds to PEI's creditors, PUSA, as equity
owner, and certain of PEI's senior management team in the U.S. The sale of PEI's
assets was completed in December 2000 pursuant to a Plan of Reorganization
approved under the Bankruptcy Code.

         The Company acquired working interests in five untested exploration
leases from PEI for $2.9 million pursuant to the sale of assets under PEI's Plan
of Reorganization. On January 16, 2001, PEI emerged from Chapter 11 and the
Company regained control of PEI and its geological and geophysical database, and
related office equipment.

         The Company entered into agreements with three independent U.S. oil and
gas companies to bid for exploration leases in the March 2001 lease sale held in
New Orleans, Louisiana by the Minerals Management Service ("MMS") of the United
States. The submitted bids were the high bids on five leases and subsequently
were awarded by the MMS. The Company retained overriding royalty interests of 4%
to 7% in each of the five leases. The Company subsequently added a 30% working
interest in one of the leases by contributing $0.1 million of the acquisition
cost.

         During 2002, four wells were drilled successfully on Ship Shoal 184 and
191, offshore Louisiana in which the company has a 7% overriding royalty
interest, one on Ship Shoal 184 and three on Ship Shoal 191. Gas and oil
production commenced in the fourth quarter of 2002, and first cash royalties
were received in February 2003.

         The Company also acquired a 75% working interest in an exploration
lease (West Cameron 343, offshore Louisiana) at the March 2002 lease sale held
in New Orleans, Louisiana by the MMS. In addition, the Company earned a 75%
working interest in an adjacent lease (West Cameron 352) by drilling a well in
October 2002. A total of three wells were drilled on these two leases during the
fourth quarter of 2002, each well encountering hydrocarbon-bearing sands with
economic potential. The existing production platform on West Cameron 352 has
been upgraded and production from all three wells commenced towards the end of
January 2003. In 2002, the total cost of the acquisition, drilling and platform
upgrade related to West Cameron 343 and West Cameron 352 wells was $7.6 million.
As of March 31, 2003, the Company has expended an additional $1.4 million for
the drilling platform upgrade related to these wells.

                                       13

<PAGE>

         In the first quarter of 2002, the Company agreed to earn a 25% working
interest in a block in the Beibu Gulf, offshore China by contributing to the
drilling of a well. The Wei 6-12-1 well was drilled in March 2002 and
intersected nine meters of net pay, similar to four previous discoveries. The
well was plugged and abandoned for further evaluation. The joint venture then
completed a 3D seismic survey which is being used to evaluate the economic
potential of the existing discoveries and plan for future work. The Company
expended $1.0 million in 2002 on the Wei 6-12-1 well.

         As of December 31, 2002, the Company has overriding royalty interests
or working interests in 11 exploration leases located in the Gulf of Mexico,
offshore Louisiana and Texas. At the March 2003 lease sale held in New Orleans,
Louisiana by the MMS, the Company was the high bidder for two additional
exploration leases in the Gulf of Mexico (Vermilion 257 and Vermilion 246).
Subsequently, the MMS has awarded the two leases to the Company. In the third
and fourth quarters of 2003, the Company expects to drill two to three
additional wells in the Gulf of Mexico and possibly one well in China for an
estimated capital expenditure of $11 million. The Company expects that it will
fund these projects with cash flow from existing operations.

         The Company is registered with the Australian Securities and Investment
Commission, Australian Company Number 000 602 700. The principal address and
telephone number is as follows:

                      Petsec Energy Ltd
                      Level 13
                      1 Alfred Street
                      Sydney, NSW 2000
                      Australia

                      011-612-9247-4605

B. BUSINESS OVERVIEW

         Following the completion of the PEI reorganization in January 2001, the
Company focused on re-establishing its U.S. oil and gas operations. At December
31, 2002, the Company has overriding royalty interests or working interests in
11 leases in the Gulf of Mexico. The Company has also established a new
management and technical team located in Lafayette, Louisiana in the U.S.

         For 2002, the Company recorded $0.2 million of revenue, which was
entirely the result of its overriding royalty interests in its properties at
Ship Shoal 184 and 191, offshore Louisiana. In 2001, the Company had no revenue.
In 2000, the Company recorded $8.3 million of revenue, which resulted from PEI's
operations in the Gulf of Mexico prior to the deconsolidation of PEI on April
13, 2000.

         The Company's 75% working interests in West Cameron 343 and 352
commenced production in January 2003. The Company generated operating revenues
of $10.1 million from net oil and gas production for the first quarter 2003.
Exploration and evaluation continues in the Beibu Gulf in China by the joint
venture.

LIKELY DEVELOPMENTS

         Future exploration and development in the Gulf of Mexico and the Beibu
Gulf is planned, the timing of which will be determined by availability of
funds, including expected cashflow from production.

                                       14

<PAGE>

OIL AND GAS RESERVES

         The following table sets forth estimated net proved oil and gas
reserves of the Company (all of which were held in PEI), and the associated
historical estimated future net revenues before income taxes and the present
value of estimated future net revenues before income taxes related to such
reserves as of December 31, 2000, 2001 and 2002. All information relating to
estimated net proved oil and gas reserves and the estimated future net cash
flows attributable thereto is based upon reports by Ryder Scott Company L.P.,
Petroleum Consultants. All calculations of estimated net proved reserves have
been made in accordance with the rules and regulations of the SEC, and, except
as otherwise indicated, give no effect to federal or state income taxes
otherwise attributable to estimated future net revenues from the sale of oil and
gas. The present value of estimated future net revenues has been calculated
using a discount factor of 10% per annum.

<TABLE>
<CAPTION>
                                                                                 As of December 31,
                                                                     -----------------------------------------
                                                                     2000 (4)         2001 (4)           2002
<S>                                                                  <C>              <C>               <C>
TOTAL NET PROVED:
     Oil (MBbls)                                                        -                -                  23
     Gas (MMcf)                                                         -                -               7,764
     Total (MMcfe)                                                      -                -               7,902

NET PROVED DEVELOPED:
     Oil (MBbls)                                                        -                -                  23
     Gas (MMcf)                                                         -                -               7,764
     Total (Mmcfe)                                                      -                -               7,902

Estimated future net revenues before income taxes
   (in thousands)                                                       -                -              29,900
Present value of estimated future net revenues before
   income taxes (in thousands) (1)                                      -                -              26,156
Standardized measure of discounted future net cash flows
   (in thousands) (2) (3)                                               -                -              26,156

Average prices used in calculating the net
   present values:
     Oil ($ per Bbl)                                                    -                -              $29.20
     Gas ($ per Mcf)                                                    -                -              $ 4.57
</TABLE>

(1)  The present value of estimated future net revenues before income taxes
     attributable to the Company's reserves was prepared using constant prices,
     including the effects of hedging as of the calculation date, discounted at
     10% per annum on a pre-tax basis. These prices have varied significantly
     from year to year, affecting the net present values, and are not
     necessarily representative of current prices.

(2)  The standardized measure of discounted future net cash flows represents the
     present value of estimated future net revenues after income tax discounted
     at 10% per annum.

(3)  Income taxes have not been provided for in 2002 due to the Company's
     availability of net operating loss carryforwards at that date.

(4)  As a result of the sale of all of PEI's assets in 2000 pursuant to its Plan
     of Reorganization, the Company had no proved reserves at December 31, 2000
     and December 31, 2001.

         There are numerous uncertainties inherent in estimating quantities of
proved reserves, future rates of production and the timing of development
expenditures, including many factors beyond the control of the Company. The
reserve data set forth herein represents only estimates. Reserve engineering is
a subjective process of estimating underground accumulations of oil and gas that
cannot be measured in an exact manner. The accuracy of any reserve estimate
depends on the quality of available data and the interpretation of that data by
geological engineers. Results of drilling, testing and production subsequent to
the date of an estimate may justify a revision of such estimates. If
significant, these revisions would change the schedule of any further production
and development drilling. Accordingly, reserve estimates generally differ from
the quantities of oil and gas ultimately produced. Further, the estimated future
net revenues from proved reserves and the present value thereof are based upon
certain

                                       15

<PAGE>

assumptions, including geological success, prices, future production levels and
costs that may not prove to be correct. Predictions about prices and future
production levels are subject to great uncertainty, and the meaningfulness of
such estimates depends on the accuracy of the assumptions upon which they are
based.

ACQUISITION, PRODUCTION AND DRILLING ACTIVITY

         Acquisition and development costs. The following table sets forth
certain information regarding the costs incurred by the Company in its
acquisition, exploration and development activities in the Gulf of Mexico and
China during the period indicated.

<TABLE>
<CAPTION>
                              Years ended December 31,
                           -----------------------------
                           2000(1)     2001         2002
                           -------     ----         ----
                                 (In Thousands)
<S>                        <C>        <C>          <C>
 Acquisition costs         $2,884     $   90       $  125
 Exploration costs            682      1,339        2,149
 Development costs          1,889          -        7,627
                           ------     ------       ------

 Total costs incurred      $5,455     $1,429       $9,901
                           ======     ======       ======
</TABLE>

(1) Represents costs related to the activities of PEI between January 1, 2000
and April 13, 2000 and acquisition of five leases by the Company from the PEI
asset sale.

         Productive well and acreage data. The following table sets forth
certain statistics for the Company regarding the number of productive wells and
developed and undeveloped acreage in the Gulf of Mexico as of December 31, 2002.

<TABLE>
<CAPTION>
                               Gross      Net
                               -----      ---
<S>                           <C>       <C>
Productive wells (1):
Oil                                 -         -
Gas                                 3      2.25
                              -------   -------

Total                               3      2.25
                              -------   -------

Developed Acreage (1)          15,156     4,567
Undeveloped Acreage (1) (2)   146,620    49,524
                              -------   -------

Total                         161,776    54,091
                              =======   =======
</TABLE>

(1)  Productive wells consist of producing wells and wells capable of
     production, including gas wells awaiting pipeline connections. Wells that
     are completed in more than one producing horizon are counted as one well.
     Undeveloped acreage includes leased acres on which wells have not been
     drilled or completed to a point that would permit the production of
     commercial quantities of oil and gas, regardless of whether or not such
     acreage contains proved reserves. A gross acre is an acre in which an
     interest is owned. A net acre is deemed to exist when the sum of fractional
     ownership interests in gross acres equals one. The number of net acres is
     the sum of the fractional interests owned in gross acres expressed as whole
     numbers and fractions thereof.

(2)  Leases covering 20% of the Company's undeveloped acreage will expire in
     2003, 19% will expire in 2004, and the balance will expire in 2006 or
     later.

                                       16

<PAGE>

         Drilling activity. The following table sets forth the Company's
drilling activity for the periods indicated.

<TABLE>
<CAPTION>
                                     Years ended December 31,
                      -------------------------------------------------------
                          2000(1)           2001                  2002
                          -------           ----                  ----
                      Gross     Net     Gross      Net      Gross         Net
<S>                   <C>       <C>     <C>        <C>      <C>          <C>
Gulf of Mexico
  Exploratory wells      1      0.2        -         -         -            -
  Development wells      -        -        -         -         3         2.25
  Dry holes              -        -        1       0.1         -            -
  Abandoned wells        -        -        -         -         -            -

Beibu Gulf, China
  Abandoned wells        -        -        -         -         1         0.25
                      ----      ---    -----       ---     -----         ----

       Total             1      0.2        1       0.1         4         2.50
                      ====      ===    =====       ===     =====         ====
</TABLE>

   (1) Relates to activity in 2000 by PEI between January 1, 2000 and April 13,
       2000.

OIL AND GAS MARKETING

         The Company had no working interest production at December 31, 2002.
However, the Company commenced production from three wells in late January 2003
in which it has working interests. The Company uses an outside party to market
its oil and gas.

PRODUCTION SALES CONTRACTS

         The Company had no marketing contracts in place at December 31, 2002.
However, the Company commenced production from three wells in late January 2003
in which it has working interests and, through May 2003, has sold its gas
production at spot prices pursuant to monthly production sales contracts.

         Historically, all of the Company's gas production has been sold to a
variety of purchasers under short-term (one year or less) contracts or
thirty-day spot purchase contracts. Natural gas sales contracts are based upon
field posted prices plus negotiated bonuses, except for natural gas sold
pursuant to fixed price contracts for hedging purposes. See "Item 5 - Operating
and Financial Review and Prospects." Based upon current demand for oil and gas
in the Gulf of Mexico region, the Company believes that there is sufficient
competition for the purchase of its hydrocarbons to ensure that the Company will
continue to receive market pricing.

         Most of the Company's oil and all of the Company's gas is transported
through gathering systems and pipelines that are not owned by PEI.
Transportation space on such gathering systems and pipelines is occasionally
limited, and at times unavailable, due to repairs or improvements being made to
such facilities or due to such space being utilized by other oil or gas shippers
with priority transportation agreements. While the Company has not experienced
any inability to market its natural gas and oil, if transportation space is
restricted or unavailable, the Company's cash flow could be adversely impacted.

COMPETITION

         The oil and gas industry is highly competitive. The Company will
compete for the acquisition of oil and gas properties with numerous other
entities, including major oil companies, other independent oil and gas concerns
and individual producers and operators. Many of these competitors have
financial, technical and other resources substantially greater than those of the
Company. Such companies may be able to pay more for productive oil and gas
properties and exploratory prospects and to define, evaluate, bid for and
purchase a greater number of properties and prospects than the Company's
financial or human resources permit. The Company's ability to acquire additional
properties and to discover reserves in the future will be dependent upon its
ability to evaluate and select suitable properties, to access adequate
financing, and to consummate transactions in a highly competitive environment.

                                       17

<PAGE>

REGULATION

         The U.S. domestic oil and gas industry is extensively regulated by U.S.
federal, state and local authorities. In particular, oil and gas production
operations and economics are affected by price controls, environmental
protection statutes and regulations, tax statutes and other laws relating to the
petroleum industry, as well as changes in such laws, changing administrative
regulations and the interpretations and application of such laws, rules and
regulations.

         Regulation of Natural Gas and Oil Exploration and Production. The
Company's operations are subject to various types of regulation at the federal,
state and local levels. Such regulation includes requiring permits for the
drilling of wells, maintaining bonding requirements in order to drill or operate
wells and regulating the location of wells, the method of drilling and casing
wells, the surface use and restoration of properties upon which wells are
drilled, the plugging and abandoning of wells and the disposal of fluids used in
connection with operations. The Company's operations are also subject to various
conservation laws and regulations. The effect of these regulations may limit the
amount of oil and gas the Company can produce from its wells and may limit the
number of wells or the locations at which the Company can drill. Any of these
actions could negatively impact the amount or timing of revenues.

         Federal Leases. The Company has in the past had operations located on
federal oil and gas leases, which are administered by the MMS. The Company also
anticipates future exploration and development of federal oil and gas leases.
Such leases are issued through competitive bidding, contain relatively
standardized terms and require compliance with detailed MMS regulations and
orders pursuant to the Outer Continental Shelf Lands Act ("OCSLA") (which are
subject to change by the MMS). For offshore operations, lessees must obtain MMS
approval for exploration, and development and production plans prior to the
commencement of such operations. In addition to permits required from other
agencies (such as the Coast Guard, the Army Corps of Engineers and the
Environmental Protection Agency (the "EPA")), lessees must obtain a permit from
the MMS prior to the commencement of drilling. Lessees must also comply with
detailed MMS regulations governing, among other things, engineering and
construction specifications for offshore production facilities, safety
procedures, flaring of production, plugging and abandonment of OCS wells,
calculation of royalty payments and the valuation of production for this
purpose, and removal of facilities. To cover the various obligations of lessees
on the OCS, the MMS generally requires that lessees post substantial bonds or
other acceptable assurances that such obligations will be met. The cost of such
bonds or other surety can be substantial and there is no assurance that bonds or
other surety can be obtained in all cases. Under certain circumstances, the MMS
may require Company operations on federal leases to be suspended or terminated.
Any such suspension or termination could materially and adversely affect the
Company's financial condition and operations.

         In 2000, the MMS issued a final rule modifying the valuation procedures
for the calculation of royalties owed for crude oil produced from federal
leases. When oil production sales are not in arms-length transactions, the new
royalty calculation will base the valuation of oil production on spot market
prices instead of the posted prices that were previously utilized. The Company
cannot predict how it might be affected by such rules.

         Natural Gas and Oil Marketing and Transportation. The transportation
and sale for resale of natural gas in interstate commerce are regulated pursuant
to the Natural Gas Act of 1938 (the "NGA"), the Natural Gas Policy Act of 1978
(the "NGPA") and the regulations promulgated thereunder by the Federal Energy
Regulatory Commission (the "FERC"). In the past, the federal government has
regulated the prices at which gas could be sold. Deregulation of wellhead
natural gas sales began with the enactment of the NGPA. In 1989, Congress
enacted the Natural Gas Wellhead Decontrol Act (the "Decontrol Act"). The
Decontrol Act removed all NGA and NGPA price and non-price controls from
wellhead sales of natural gas effective January 1, 1993. The FERC's regulations
currently eliminate price controls from the sales of natural gas by pipeline
affiliates, most of which remain subject to FERC's jurisdiction under the NGA.
While sales by producers, such as the Company, of natural gas and all sales of
crude oil, condensate, and natural gas liquids can currently be made at
uncontrolled market prices, there is no assurance that such regulatory treatment
will continue indefinitely into the future. Congress or, in the case of the
jurisdictional sales of natural gas by pipeline affiliates, the FERC could
reenact price controls in the future.

         Commencing in 1992, the FERC issued Order No. 636 and subsequent orders
(collectively, "Order No. 636"), which require interstate pipelines to provide
transportation separate, or "unbundled," from the pipelines' sales of gas. Also,
Order No. 636 requires pipelines to provide open-access transportation on a
basis that is equal for all shippers. Although Order No. 636 does not directly
regulate our activities, the FERC has stated that it intends for Order No. 636
to foster increased competition within all phases of the natural gas industry.
The implementation of these orders has not had a material adverse effect on our
results of operations. The courts have largely affirmed the

                                       18

<PAGE>

significant features of Order No. 636 and numerous related orders pertaining to
the individual pipelines, although certain appeals remain pending and the FERC
continues to review and modify its open access regulations.

         In 2000, the FERC issued Order No. 637 and subsequent orders
(collectively, "Order No. 637"), which imposed a number of additional reforms
designed to enhance competition in natural gas markets. Among other things,
Order No. 637 effected changes in FERC regulations relating to scheduling
procedures, capacity segmentation, pipeline penalties, rights of first refusal
and information reporting. Most major aspects of Order No. 637 were upheld on
judicial review, though certain issues, such as capacity segmentation and rights
of first refusal, were remanded to the FERC, have been considered on remand and
are currently pending rehearing at the FERC. We cannot predict whether and to
what extent FERC's market reforms will survive rehearing and further judicial
review and, if so, whether the FERC's actions will achieve the goal of
increasing competition in markets in which our natural gas is sold. However, we
do not believe that we will be affected by any action taken materially
differently than other natural gas producers and marketers with which we
compete.

         The OCSLA requires that all pipelines operating on or across the OCS
provide open-access, non-discriminatory service. Commencing in April 2000, the
FERC issued Order Nos. 639 and 639-A (collectively, "Order No. 639"), which
imposed certain reporting requirements applicable to "gas service providers"
operating on the OCS concerning their prices and other terms and conditions of
service. The purpose of Order No. 639 is to provide regulators and other
interested parties with sufficient information to detect and to remedy
discriminatory conduct by such service providers. The FERC has stated that
these reporting rules apply to OCS gatherers and has clarified that they may
also apply to other OCS service providers including platform operators
performing dehydration, compression, processing and related services for third
parties. The U.S. District Court recently overturned the FERC's reporting
rules as exceeding its authority under OSCLA. The FERC has recently appealed
this decision. We cannot predict whether and to what extent these regulations
might be reinstated, and what effect, if any, they may have on us. The rules,
if reinstated, may increase the frequency of claims of discriminatory service,
may decrease competition among OCS service providers and may lessen the
willingness of OCS gathering companies to provide service on a discounted basis.

         Additional proposals and proceedings that might affect the oil and gas
industry are pending before Congress, the FERC and the courts. The Company
cannot predict when or whether any such proposals may become effective. In the
past, the natural gas industry has been heavily regulated. There is no assurance
that the less stringent regulatory approach currently pursued by the FERC and
Congress will continue indefinitely.

         Environmental regulation. The exploration, development and production
of oil and natural gas are subject to stringent environmental regulation by
state and federal authorities including the U.S. Environmental Protection
Agency. Such regulation has increased the cost of planning, designing, drilling,
operating and in some instances, abandoning wells. In most instances, the
regulatory requirements relate to the prevention of air and water pollution and
in handling and disposal of drilling and production waste products. Although the
Company believes that compliance with environmental regulations will not have a
material adverse effect on operations or earnings, the risks of substantial
costs and liabilities are inherent in oil and gas operations, and there can be
no assurance that significant costs and liabilities, including criminal
penalties, will not be incurred. Moreover, it is possible that other
developments, such as stricter environmental laws and regulations, and claims
for damages to property or person resulting from the Company's operations could
result in substantial costs and liabilities.

         The Comprehensive Environmental Response, Compensation and Liability
Act, as amended ("CERCLA"), also known as the "Superfund" law, imposes
liability, without regard to fault or the legality of the original conduct, on
certain classes of persons with respect to the release of a "hazardous
substance" into the environment. These persons include the owner and operator of
the disposal site or sites where the release occurred and companies that
disposed or arranged for the disposal of the hazardous substances found at such
site. Persons who are or were responsible for releases of hazardous substances
under CERCLA may be subject to joint and several liability for costs of cleaning
up the hazardous substances that have been released into the environment and for
damages to natural resources, and it is not uncommon for neighboring landowners
and other third parties to file claims for personal injury and property damage
allegedly caused by the hazardous substances released into the environment. Most
drilling and production wastes are currently exempt from classification as
hazardous substances under CERCLA, although there is a possibility that the
Company's future operations could result in the use, generation, or handling of
non-exempt hazardous substances.

                                       19

<PAGE>

         The Oil Pollution Act of 1990 (the "OPA") and regulations thereunder
impose a variety of regulations on "responsible parties" related to the
prevention of oil spills and liability for damages resulting from such spills in
U.S. waters, including the OCS. A "responsible party" includes the owner or
operator of an onshore facility, vessel or pipeline, or the lessee or permittee
of the area in which an offshore facility is located. OPA assigns liability to
each responsible party for oil clean up costs and a variety of public and
private damages. While liability limits apply in some circumstances, a party
cannot take advantage of liability limits if the spill was caused by gross
negligence or willful misconduct or resulted from violation of a federal safety,
construction or operating regulation. If the party fails to report a spill or
cooperate fully in the cleanup, liability limits likewise do not apply. Even if
applicable, the liability limits for offshore facilities require the responsible
party to pay all removal costs, plus up to $75 million in other damages. Few
defenses exist to the liability imposed by the OPA.

         OPA also imposes ongoing requirements on responsible parties, including
the preparation of oil spill response plans and proof of financial
responsibility to cover at least some costs in a potential spill. OPA and
regulations adopted by the MMS require responsible parties of covered offshore
facilities that have a worst case oil spill potential of more than 1,000 barrels
to demonstrate financial responsibility in amounts ranging from $10 million in
specified state waters to $35 million in federal OCS waters, with higher
amounts, up to $150 million, in certain limited circumstances where the MMS
believes such a level is justified by the risks posed by the operations, or if
the worst-case spill discharge volume possible at the facility may exceed the
applicable threshold volumes specified under the MMS's final rule.

         The Company expects to be subject to OPA financial responsibility
requirements if it develops any of its offshore lease prospects in U.S. waters.
The operator will provide evidence of financial responsibility on properties in
which the Company has a non-operating working interest. The Company anticipates
that it will satisfy OPA responsibility obligations with respect to properties
it operates through insurance. The Company believes that it can establish
adequate proof of financial responsibility for its offshore facilities at no
significant increase in expense over recent prior years. However, the Company
cannot predict whether these financial responsibility requirements under the OPA
will result in the imposition of substantial additional annual costs to the
Company in the future or otherwise materially adversely affect the Company. The
impact, however, should not be any more adverse to the Company than it will be
to other similarly situated or less capitalized owners or operators in the Gulf
of Mexico. OPA also imposes other requirements on facility operators, such as
the preparation of an oil spill contingency plan. The Company has such plans in
place. The failure to comply with ongoing requirements or inadequate cooperation
in a spill event may subject a responsible party to civil or even criminal
liability.

         The Resource Conservation and Recovery Act, as amended ("RCRA"),
generally does not regulate most wastes generated by the exploration and
production of oil and gas. RCRA specifically excludes from the definition of
hazardous waste "drilling fluids, produced waters and other wastes associated
with the exploration, development or production of crude oil, natural gas or
geothermal energy." However, legislation has been proposed in Congress from time
to time that would reclassify certain oil and gas exploration and production
wastes as "hazardous wastes," which would make the reclassified wastes subject
to much more stringent handling, disposal and clean-up requirements. If such
legislation were to be enacted, it could have a significant impact on our
operating costs, as well as the oil and gas industry in general. Moreover,
ordinary industrial wastes, such as paint wastes, waste solvents, laboratory
wastes and waste oils, may be regulated as hazardous waste.

         The Federal Water Pollution Control Act, as amended ("FWPCA"), imposes
restrictions and strict controls regarding the discharge of produced waters and
other oil and gas wastes into navigable waters. Permits must be obtained to
discharge pollutants to waters and to conduct construction activities in waters
and wetlands. The FWPCA and similar state laws provide for civil, criminal and
administrative penalties for any unauthorized discharges of pollutants and
unauthorized discharges of reportable quantities of oil and other hazardous
substances. Many state discharge regulations and the Federal National Pollutant
Discharge Elimination System general permits issued by EPA prohibit the
discharge of produced water and sand, drilling fluids, drill cuttings and
certain other substances related to the oil and gas industry into coastal
waters. Although the costs to comply with zero discharge mandates under federal
or state law may be significant, the entire industry is expected to experience
similar costs and we believe that these costs will not have a material adverse
impact on our results of operations or financial position. The EPA has adopted
regulations requiring certain oil and gas exploration and production facilities
to obtain permits for storm water discharges. Costs may be associated with the
treatment of wastewater or developing and implementing storm water pollution
prevention plans.

         China. The petroleum industry in the People's Republic of China ("PRC")
is regulated by the PRC government. Areas over which it exercises control
include licensing, exploration, production, distribution, pricing, exports,
allocation of various resources used by the industry and environmental
management. The State and Trade

                                       20

<PAGE>

Commission has recently become the primary co-ordinator for the petroleum
industry and, together with other relevant governmental agencies, provides
regulatory supervision over the industry.

         Participation by foreign companies in offshore oil and gas production
in China, alone or in joint venture, is conducted in co-operation with the China
National Offshore Oil Corporation under a petroleum contract. The contract
includes provisions covering minimum expenditure requirements for exploration,
terms of relinquishment of exploration acreage, evaluation of development and
development planning upon discovery of petroleum reserves, production sharing
arrangements and recovery of capital expenditures, as well as the
responsibilities of the foreign company as operator.

         Foreign participants are subject to the tax laws and regulations of the
PRC.

C. ORGANIZATIONAL STRUCTURE

         Petsec Energy Ltd is an Australian Public Company, incorporated in New
South Wales, Australia, with ordinary shares traded on the Australian Stock
Exchange (symbol: PSA), and American Depository Receipts traded in the U.S. on
the OTC Pink Sheet (symbol PSJEY.PK). The Company's principal subsidiaries are
Petsec USA Inc. ("PUSA"), a wholly owned company incorporated in Nevada, and
PUSA's wholly owned subsidiaries Petsec Energy Inc. ("PEI") and Petsec Petroleum
Inc. ("PPI"), also incorporated in Nevada.

         At December 31, 2000 PEI was not controlled by Petsec Energy Ltd as a
result of PEI's Chapter 11 filing on April 13, 2000. As a result of this filing,
control over PEI became impaired and PEI was deconsolidated as of that date
unless and until control was re-established. PEI emerged as reorganized entity
under the U.S. Bankruptcy Code on January 16, 2001, resulting in the settlement
of all outstanding claims and discharge of all liabilities of PEI. The Company
regained control over PEI and the results of PEI have been consolidated into the
Company from that date.

D. PROPERTY, PLANT AND EQUIPMENT

         At December 31, 2002, the Company has interests in 11 oil and gas
leases located in the shallow waters of the Gulf of Mexico offshore Louisiana
and Texas.

         The Company also has a 25% working interest in a lease block in the
Beibu Gulf, offshore China.

         Refer to tables set forth in "B. Business Overview" within this Item 4.
for information regarding the Company's oil and gas reserves and production.

                                       21

<PAGE>

         ITEM 5 - OPERATING AND FINANCIAL REVIEW AND PROSPECTS

A. OPERATING RESULTS

INTRODUCTION

         The following discussion is intended to assist in the understanding of
the Company's results from operations for the years ended December 31, 2000,
2001 and 2002, and its financial position at December 31, 2002. The Company's
Financial Statements for these periods are set forth under Item 18 and should be
referred to in conjunction with the following discussion.

         On April 13, 2000, PEI filed for Chapter 11 under the U.S. Bankruptcy
Code. As a result of this filing, control over PEI became impaired and
consequently PEI was deconsolidated as of that date unless and until control was
re-established. PEI emerged as a reorganized entity under the U.S. Bankruptcy
Code on January 16, 2001, and the results of PEI have been consolidated into the
Company from that date. See "Item 4. - Information On the Company - A History
and development of the Company" within this Form 20-F.

         The deconsolidation of PEI in 2000, the Company's only operating unit,
distorts a simple year-on-year analysis when examining the following
information.

OVERVIEW

         The Company's results from operations are primarily generated from its
operations in the Gulf of Mexico and its 25% working interest in a block in the
Beibu Gulf, offshore China. All of the Company's oil and gas operations in the
Gulf of Mexico are owned by PEI. The 25% working interest in the Beibu Gulf is
owned by PPI. For the periods discussed, however, other factors also impacted
income from operations and net income, which are discussed below under the
caption "Other Items Affecting Results."

         The Company acquired non-cost bearing overriding royalty interests in
five exploration leases at the Central Gulf of Mexico lease sale held in March
2001. Subsequently the Company acquired a 30% working interest in one of these
leases at a cost of $110,000.

         Production in 2000 prior to the deconsolidation of PEI was 2,838 MMcfe.
The Company had no production in 2001.

         In 2002, Petsec was the operator of three wells on the West Cameron
352/343 leases in the Gulf of Mexico where the Company holds a 75% working
interest. The wells all intersected gas bearing sands and were completed for
production which commenced in January 2003. The Company earned a working
interest in certain of the exploration rights in the West Cameron 352 producing
block, including access to a platform and production facilities, and acquired
the West Cameron 343 lease at the MMS lease sale in March 2002.

         In 2002, four wells were drilled on the Ship Shoal 184/191 leases. All
were completed for oil and gas production which began in November 2002 through
to January 2003. Petsec holds a 7% overriding royalty interest in the leases.

         In the Beibu Gulf 22/12 contract area, China, Petsec earned a 25%
working interest by participating in the Wei 6-12-1 well in March 2002. The well
intersected nine metres of net oil pay. The well was plugged and abandoned and
will be subjected to further investigation. The contract area contains four
other oil discoveries. Studies concluded in the year using data from a 3D
seismic survey shot in September 2002, indicate that these oil accumulations
could be economic.

         At December 31, 2002, Petsec held interests in 11 leases in the USA and
one in China, seven of which were completed for production.

         The Company accounts for its oil and gas operations under the
successful efforts method of accounting. Under this method, the Company
capitalizes lease acquisition costs, costs to drill and complete exploration
wells in which proved reserves are discovered and costs to drill and complete
development wells. Costs to drill exploratory wells that do not find proved
reserves are expensed. Seismic, geological and geophysical, and delay rental
expenditures are expensed as incurred.

                                       22

<PAGE>

         The following table sets forth certain operating information with
respect to the oil and gas operations of the Company.

<TABLE>
<CAPTION>
                                                                  Year ended December 31
                                                            2000(1)         2001         2002(2)
                                                            -------         ----         -------
<S>                                                         <C>           <C>           <C>
Net production:

Oil (MBbls)                                                     190              -             1
Gas (MMcf)                                                    1,698              -            40

                                                            -------       --------      --------
  Total (MMcfe)                                               2,838              -            46

                                                            -------       --------      --------
Net sales data (in thousands):
  Oil                                                       $ 4,471       $      -      $     28
  Gas                                                         3,786              -           173

                                                            -------       --------      --------
Total                                                       $ 8,257       $      -      $    201

                                                            -------       --------      --------
Average sales price (3):
  Oil (per Bbl)                                             $ 23.53       $      -      $  28.00
  Gas (per Mcf)                                                2.23              -          4.33
  Total (per Mcfe)                                             2.91              -          4.37

Average costs (per Mcfe):
  Lease operating expenses                                  $  0.58       $      -      $      -
  Depletion, depreciation
     and amortisation                                          1.71              -          0.74
  General, administrative
     and other expenses                                        1.28              -         36.76
</TABLE>

   (1) Includes the results of Petsec Energy Inc. through April 13, 2000 only.

   (2) Production commenced in November 2002.

   (3) Includes effects of hedging activities.

                                       23

<PAGE>

RESULTS OF OPERATIONS

         The following table sets forth in US dollars and under US GAAP,
selected consolidated financial data for the Company for the periods indicated.

<TABLE>
<CAPTION>
                                                                   Year ended December 31
                                                           --------------------------------------
                                                              2000          2001          2002
                                                                       (In thousands)
<S>                                                        <C>            <C>           <C>
INCOME STATEMENT DATA:
  Oil and gas sales (net of royalties payable)             $    8,257     $      -      $     201
                                                           ----------     --------      ---------

  Lease operating expenses                                      1,657            -              -
  Depletion, depreciation and amortization                      4,845           28             34
  Exploration expenditure                                         365          422          1,176
  Dry hole and abandonment costs                                  611          877          1,066
  General, administrative and other expenses                    3,625        1,264          1,691
  Stock compensation expense                                      138           11             40

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

     Total operating expenses                                  11,241        2,602          4,007
  Profit (loss) on sale of assets                                 592            9             (8)

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

  Loss from operations                                         (2,392)      (2,593)        (3,814)
  Other income (expense)                                            1          200            137
  Interest expense                                             (3,378)           -              -
  Interest income                                               1,037          447            136

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

  Loss before tax                                              (4,732)      (1,946)        (3,541)
  Income tax benefit (expense)                                    (10)           8            254

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

  Net loss before extraordinary items                      $   (4,742)    $ (1,938)     $  (3,287)
  Extraordinary items
     Recognition of deferred gain on subsidiary
       emergence from bankruptcy                                    -       37,147              -
     Distribution from bankruptcy trustee                           -        1,103              -

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

     Net income (loss)                                     $   (4,742)    $ 36,312      $  (3,287)

                                                           ----------     --------      ---------
</TABLE>

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

         General. The results for the year reflected a period of significant
investment in exploration drilling by the Company which resulted in a return to
oil and gas production by year end.

         Production from Ship Shoal 184 and 191, which commenced in November
2002, contributed all of the Company's $0.2 million of revenue. Production at
West Cameron did not begin until January 2003. Consequently, after
administration expenses of $1.7 million, exploration expenditures of $1.2
million and dry-hole costs of $1.1 million, there was a net loss for the year of
$3.3 million after tax and before extraordinary items, compared to a net loss
before extraordinary items of $1.9 million in 2001.

         On January 16, 2001, PEI emerged as a reorganized entity under the U.S.
Bankruptcy Code and the Company regained control over the entity. As a
consequence, the results of PEI have been consolidated into the Company's
accounts from that date. PEI's emergence from bankruptcy resulted in the
recognition of an extraordinary gain of $37.1 million in 2001 as a result of the
forgiveness of liabilities.

         For 2002, the Company only had production from properties in which it
had an overriding royalty interest and had no production in 2001. Therefore
lease operating expenses for both periods are nil.

                                       24

<PAGE>

         Exploration Expenditures and Dry Hole Costs. In 2002, $1.1 million was
expensed as incurred for dry hole costs and abandonments and $1.2 million was
expensed for seismic, geological and geophysical expenditures. Substantially all
of the dry hole costs and abandonments were the result of operations in the
Beibu Gulf, China. In 2001, $0.9 million was expensed for dry hole costs and
$0.4 million was expensed for seismic, geological and geophysical expenditures.
The increases reflect the Company's increased efforts and activity in acquiring,
exploring and developing oil and gas properties.

         General and Administrative Expense. General and administrative expense
increased $0.4 million, or 34%, to $1.7 million in 2002 from $1.3 million in
2001. This increase arose due to staff and activity increases as the Company
increased its efforts and activity in acquiring, exploring and developing oil
and gas properties.

         Recognition of deferred gain on subsidiary emergence from bankruptcy.
For 2001, PEI's emergence from bankruptcy resulted in the recognition of an
extraordinary gain of $37.1 million as a result of the forgiveness of
liabilities.

         Distribution from bankruptcy trustee. For 2001, in accordance with the
distribution scheme under the Plan of Reorganization, the Company received $1.1
million from the sale of PEI's assets.

         Net Income (loss). As a result of the conditions noted above, net loss
of $3.3 million was recorded for 2002, a decrease of $39.6 million from the net
income of $36.3 million for 2001. Net loss before extraordinary items was $3.3
million in 2002 compared to net loss before extraordinary items of $1.9 million
in 2001.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

         General. On January 16, 2001, PEI emerged as a reorganized entity under
the U.S. Bankruptcy Code and the Company regained control over the entity. As a
consequence, the results of PEI have been consolidated into the Company's
accounts from that date. PEI's emergence from bankruptcy resulted in the
recognition of an extraordinary gain of $37.1 million as a result of the
forgiveness of liabilities.

         Comparative analysis between years ended December 31, 2001 and December
31, 2000 is significantly skewed as a consequence of the deconsolidation of PEI
at April 13, 2000, and subsequent reconsolidation on January 16, 2001.

         The Company had no production in 2001 therefore oil and gas revenues
and lease operating expenses for the period were nil.

         Exploration Expenditures and Dry Hole Costs. In 2001, $0.9 million was
expensed as incurred for dry hole costs and abandonments and $0.4 million was
expensed for seismic, geological and geophysical expenditures. In 2000, $0.6
million was expensed for dry hole costs and $0.4 million was expensed for
seismic, geological and geophysical expenditures.

         General and Administrative Expense. General and administrative expense
decreased $2.3 million, or 65%, to $1.3 million in 2001 from $3.6 million in
2000. This decrease arose due to staff and activity reductions following the
Chapter 11 filing by PEI on April 13, 2000.

         Interest Expense. Interest expense in 2001 was nil compared to $3.4
million in 2000, following the Chapter 11 filing by PEI in April 2000.

         Recognition of deferred gain on subsidiary emergence from bankruptcy.
PEI's emergence from bankruptcy resulted in the recognition of an extraordinary
gain of $37.1 million as a result of the forgiveness of liabilities.

         Distribution from bankruptcy trustee. In accordance with the
distribution scheme under the Plan of Reorganization, the Company received $1.1
million from the sale of PEI's assets.

         Net Income (loss). As a result of the conditions noted above, net
income of $36.3 million was recorded for 2001, an increase of $41.0 million over
the loss of $4.7 million for 2000.

                                       25

<PAGE>

OTHER ITEMS AFFECTING RESULTS

         Profit on sale of assets. In April 2000 the Company realized a gain of
$0.6 million following the sale of six oil and gas properties.

         Net operating losses and other carryforwards. For U.S. federal income
tax purposes, at December 31, 2002 the Company had net operating losses ("NOLs")
of approximately $65.1 million which are available to offset future U.S. federal
taxable income, if any, from 2005 through 2021. The effective tax rate has
altered mainly due to the recognition of valuation allowances on carry-forward
losses due to the uncertainty of future realization of the NOLs.

         For alternative minimum tax purposes, NOLs may be further adjusted to
determine the allowable alternative tax NOLs, and the alternative tax NOLs can
be used to offset no more than 90% of alternative minimum tax income.
Accordingly, the Company may owe an alternative minimum tax even though its NOLs
otherwise eliminate its regular tax liability.

HEDGING TRANSACTIONS

         There were no hedge instruments outstanding during 2001 or 2002.

         The following information is presented for comparative purposes.

         From time to time, the Company has utilized hedging transactions with
respect to a portion of its oil and gas production to achieve a more predictable
cash flow and to reduce its exposure to oil and gas price fluctuations. While
these hedging arrangements limit the downside risk of adverse price movements,
they may also limit future revenues from favorable price movements. The use of
hedging transactions also involves the risk that the counterparties will be
unable to meet the financial terms of such transactions. The credit worthiness
of counterparties is subject to continuing review and full performance is
anticipated. The Company limited the duration of the transactions and the
percentage of the Company's expected aggregate oil and gas production that may
be hedged. The Company accounts for these transactions as hedging activities
and, accordingly, gains or losses are included in oil and gas revenues when the
hedged production is delivered.

         Prior to the deconsolidation of PEI, the Company had entered into
forward swap contracts with major financial institutions to reduce the effect of
price volatility on oil and gas sales. In swap agreements, the Company receives
the difference between an agreed fixed price per unit of production and a
floating price issued by a third party. If the floating price is higher than the
fixed price, the Company pays the difference to the third party and vice versa.
The Company currently has no forward swap contracts.

         Prior to the deconsolidation of PEI, the Company also had entered into
collar agreements with third parties. A collar agreement is similar to a swap
agreement except that the Company receives the difference between the floor
price and the floating price if the floating price is below the floor. The
Company pays the difference between the ceiling price and the floating price if
the floating price is above the ceiling. The Company currently has no collar
agreements with third parties.

         The Company does not trade in derivatives without underlying estimated
production and proved reserves to cover the hedging contracts in which it
enters, consequently no hedging activities were entered into in 2002. As
production increases in 2003 the Company will review the need for hedging.

         For the period 1 January, 2000 through April 13, 2000, hedging
activities decreased revenues by $1.3 million.

                                       26

<PAGE>

NEW ACCOUNTING PRONOUNCEMENTS

         In July 2001 the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations" effective for fiscal years beginning after June 15,
2002. Statement No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs, and applies to legal obligations associated
with the retirement of long-lived assets and/or the normal operation of a
long-lived asset. Under Statement No. 143, the fair value of a liability for an
asset retirement obligation is recognised in the period in which it is incurred
if a reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalised as part of the carrying amount of the
long-lived asset. The liability is discounted and accretion expense is
recognised using the credit-adjusted risk-free interest rate in effect when the
liability was initially recognised. SFAS No. 143 was adopted by the Company on
January 1, 2003. Upon adoption, the Company recorded estimated non-current well
abandonment and reclamation liabilities of $0.2 million and capitalised
corresponding amounts in oil and gas properties.

         In August 2001 the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses financial
accounting and reporting for the impairment of long-lived assets and will
supersede (a) SFAS No. 121 with respect to the accounting for the impairment or
disposal of long-lived assets and (b) Accounting Principles Board Opinion No. 30
(Opinion 30) for the disposal of a segment of a business. SFAS No. 144 retains
the requirements of SFAS No. 121 to (a) recognise an impairment loss if the
carrying amount of a long-lived asset is not recoverable from its undiscounted
cash flows and (b) measure an impairment loss as the difference between the
carrying amount and fair value of the asset.

         SFAS No. 144 also requires that a long-lived asset to be abandoned,
exchanged for a similar productive asset, or distributed to owners in a spin-off
be considered held and used until the asset is disposed of, exchanged or
distributed.

         SFAS No. 144 retains the basic provisions of Opinion 30 for the
presentation of discontinued operations in the income statement but broadens
that presentation to include a component of an entity (rather than a segment of
a business). A component of an entity comprises operations and cash flows that
can be clearly distinguished, operationally and for financial reporting
purposes, from the rest of the entity. A component of an entity that is
classified as held for sale or that has been disposed of is presented as a
discontinued operation if the operations and cash flows of the component will be
(or have been) eliminated from the ongoing operations of the entity and the
entity will not have any significant continuing involvement in the operations of
the component. In addition, discontinued operations are no longer measured on a
net realisable value basis, and future operating losses are no longer recognised
before they occur.

         The Company implemented SFAS No.144 on January 1, 2002. This statement
did not have a material impact on the Company's consolidated results or
financial position on the date of adoption.

         In April 2002 the FASB issued SFAS No.145, "Rescission of FASB
Statements No.4, 44 and 64, Amendment of FASB Statement No.13, and Technical
Corrections." As a result of the rescission of SFAS No.4, a gain or loss on
extinguishment of debt will no longer be presented as an extraordinary item upon
the adoption of SFAS No.145, which is effective for the Company in the fiscal
year beginning January 1, 2002.

         In July 2002 the FASB issued SFAS No.146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No.146 is based on the
general principle that a liability for a cost associated with an exit or
disposal activity should be recorded when it is incurred and initially measured
at fair value. SFAS No.146 applies to costs associated with (1) an exit activity
that does not involve an entity newly acquired in a business combination, or (2)
a disposal activity within the scope of SFAS No.144. These costs include certain
termination benefits, costs to terminate a contract that is not a capital lease,
and other associated costs to consolidate facilities or relocate employees.
Because the provisions of this statement are to be applied prospectively to exit
or disposal activities initiated after December 31, 2002, the effect of adopting
this statement cannot be determined.

         In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, including Indirect
Guarantees of Indebtedness to Others." This Interpretation elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under guarantees issued. This Interpretation
also clarifies that a guarantor is required to recognize, at inception of a
guarantee, a liability for the fair value of the obligation undertaken. The
initial recognition and measurement provisions of this interpretation are
applicable to guarantees issued or modified after December 31, 2002 and are not
expected to have a material effect on the Group's financial statements. The
adoption of this interpretation has not resulted in any additional disclosure as
the Group has not provided any guarantees of indebtedness to others.

                                       27

<PAGE>

         In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities." This Interpretation requires the consolidation
of entities that cannot finance their activities without the support of other
parties and that lack certain characteristics of a controlling interest, such as
the ability to make decisions about the entity's activities via voting rights or
similar rights. This Interpretation applies immediately to variable interests in
variable interest entities created after January 31, 2003, and to variable
interests in variable interest entities obtained after January 31, 2003. For
companies with a variable interest in a variable interest entity created before
February 1, 2003, this Interpretation applies to the Group no later than the
beginning of the first interim or annual reporting period beginning after June
15, 2003. The application of this Interpretation is not expected to have a
material effect on the Group's financial statements.

         In April 2003, the FASB issued Statement No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities." This Statement
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities under Statement No. 133, ""Accounting for
Derivative Instruments and Hedging Activities." This Statement requires
contracts with comparable characteristics be accounted for similarly. In
particular, this Statement clarifies under what circumstances a contract with an
initial net investment meets the characteristic of a derivative as discussed in
Statement No. 133. In addition, it clarifies when a derivative contains a
financing component that warrants special reporting in the statement of cash
flows. Statement No. 149 amends certain other existing pronouncements. This
Statement is effective for contracts entered into or modified after June 30,
2003, except for hedging relationship designated after June 30, 2003. The
provisions of this Statement that relate to Statement 133 implementation issues
that have been effective for fiscal quarters that began prior to June 15, 2003,
should continue to be applied in accordance with their respective effective
dates. In addition, certain provisions relating to forward purchases or sales of
when-issued securities or other securities that do not yet exist, should be
applied to existing contracts as well as new contracts entered into after June
30, 2003. We are in the process of evaluating the impact of the adoption of
Statement No. 149.

         In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity". SFAS
No. 150 requires issuers to classify as liabilities (or assets in some
circumstances) three classes of freestanding financial instruments (presently
classified as equity) that embody obligation for the issuer. Generally, SFAS No.
150 is effective for financial instruments entered into or modified after May
31, 2003 and is otherwise effective at the beginning of the first interim period
after June 15, 2003. We are in the process of evaluating the impact of SFAS No.
150.

OTHER MATTERS

         To cover the various obligations of lessees on the OCS, the MMS
generally requires that lessees post substantial bonds or other acceptable
assurances that such obligations will be met. The Company has posted the
required bonds.

         The Company's operations are subject to various U.S. federal, state and
local laws and regulations relating to the protection of the environment. The
Company believes its operations are in material compliance with current
applicable environmental laws and regulations. However, there can be no
assurance that current regulatory requirements will not change, currently
unforeseen environmental incidents will not occur or past unknown non-compliance
with environmental laws will not be discovered.

FORWARD-LOOKING STATEMENTS

         The information in this Form 20-F, includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). All statements, other than statements of historical or present facts,
that address activities, events, outcomes and other matters that the Company
plans, expects, intends, assumes, believes, budgets, predicts, forecasts,
projects, estimates or anticipates (and other similar expressions) will, should
or may occur in the future are forward-looking statements. These forward-looking
statements are based on management's current belief, based on currently
available information, as to the outcome and timing of future events. When
considering forward-looking statements, you should keep in mind the risk factors
and other cautionary statements in this Form 20-F.

                                       28

<PAGE>

         Forward-looking statements appear in a number of places and include
statements with respect to, among other things:

   -     planned capital expenditures and availability of capital resources to
         fund capital expenditures;

   -     estimates of our future natural gas and liquids production, including
         estimates of any increases in oil and gas production;

   -     our outlook on oil and gas prices;

   -     estimates of our oil and gas reserves;

   -     the impact of political and regulatory developments;

   -     our future financial condition or results of operations and our future
         revenues and expenses; and

   -     our business strategy and other plans and objectives for future
         operations.

         We caution you that these forward-looking statements are subject to all
of the risks and uncertainties, many of which are beyond our control, incident
to the exploration for and development, production and sale of oil and gas.
These risks include, but are not limited to, commodity price volatility,
inflation, lack of availability of goods and services, environmental risks,
drilling and other operating risks, regulatory changes, the uncertainty inherent
in estimating proved oil and natural gas reserves and in projecting future rates
of production and timing of development expenditures and the other risks
described in this Form 20-F.

         Should one or more of the risks or uncertainties described above or
elsewhere in this Form 20-F occur, or should underlying assumptions prove
incorrect, our actual results and plans could differ materially from those
expressed in any forward-looking statements. We specifically disclaim all
responsibility to publicly update any information contained in a forward-looking
statement or any forward-looking statement in its entirety and therefore
disclaim any resulting liability for potentially related damages.

         All forward-looking statements express or implied, included in this
Form 20-F and attributable to the Company are qualified in their entirety by
this cautionary statement. This cautionary statement should also be considered
in connection with any subsequent written or oral forward-looking statements
that the Company or persons acting on its behalf may issue.

B. LIQUIDITY AND CAPITAL RESOURCES

         The Company had cash available in the amount of approximately $0.6
million at December 31, 2002. Following the January 2003 commencement of
production at West Cameron 352/343, the Company has generated surplus cash flow
from operations. At May 31, 2003, the Company's cash balances were approximately
$8.9 million.

Cash Flow

         The following table represents cash flow data for the Company for the
periods indicated.

<TABLE>
<CAPTION>
                                                                        Years Ended December 31,
                                                                 -------------------------------------
                                                                   2000           2001          2002
                                                                 -------------------------------------
                                                                            (in thousands)
<S>                                                              <C>            <C>            <C>
CASH FLOW DATA:
     Net cash provided by (used in) operating activities         $   518        $(1,166)       $(2,728)
     Net cash in provided by (used in)  investing activities      (6,136)           104         (8,170)
     Net cash provided by (used in) financing activities          (2,185)             -              -
</TABLE>

                                       29

<PAGE>

         Net cash used in operating activities for the year ended December 31,
2002 was $2.7 million compared to $1.2 million in the year ended December 31,
2001. The increase in cash used in operations was primarily the result of the
Company's increased oil and gas operations after PEI emerged from its Chapter 11
bankruptcy in 2001. Cash flow from operations for 2002 was negative due to
minimal production.

         Net cash used in operating activities for the year ended December 31,
2001 was $1.2 million compared to net cash provided by operating activities of
$0.5 million in the year ended December 31, 2000. The decrease was primarily due
to the April 13, 2000 Chapter 11 filing and subsequent deconsolidation of PEI
from the Company's financial statements. In 2001 the Company had no oil and gas
production; consequently, operating cash flows were negative.

         Net cash used in investing activities for the year ended December 31,
2002 was $8.2 million compared to net cash provided by investing activities of
$0.1 million in the year ended December 31, 2001. The increase in investment
expenditures was primarily the result of the Company's increased efforts and
activity in acquiring, exploring and developing oil and gas properties.

         Net cash provided by investing activities for the year ended December
31, 2001 was $0.1 million compared to net cash used in investing activities of
$6.1 million in the year ended December 31, 2000. The increase relates to
distributions from the PEI bankruptcy trustee offset by acquisition of leases.
In 2000, cash used in investing activities related mainly to capital
expenditures on exploration, development and permits prior to the
deconsolidation of PEI, and $2.9 million paid by the Company in December 2000 to
purchase five oil and gas leases. This was offset by the receipt of $8.5 million
in proceeds from the sale of certain oil and gas properties prior to the Chapter
11 filing by PEI.

         The Company had no financing activities for the years ended December
31, 2002 and 2001. All operating and investing activities were funded with
existing cash.

         Net cash used in financing activities for the year ended December 31,
2001 was nil compared to $2.2 million in the year ended December 31, 2000. In
2000, PEI utilized proceeds from asset sales to repay borrowings under a secured
credit facility prior to its deconsolidation.

Capital Expenditures and Commitments

         In March 2002, the Company acquired a 75% working interest in a lease
in the March 2002 Gulf of Mexico lease sale conducted by the MMS. The Company
also entered into a farmin agreement to earn a 75% working interest in certain
areas of an adjoining lease by drilling a well at its sole cost. Three wells
were drilled on these leases in the fourth quarter of 2002 and existing
production facilities upgraded to handle production. In addition, the Company
earned a 25% working interest in a lease in the Beibu Gulf, offshore China by
participating in the drilling of a well. The Company has met and expects to
continue to meet any commitments to these leases from cash funds currently on
hand or cash flow from operations. Cash funding capital expenditures in 2002
amounted to $6.5 million.

         The Company participated in the March 2001 Gulf of Mexico lease sale
conducted by the MMS by granting three independent US oil and gas companies the
right to bid for five leases. The Company incurred no capital expenditures and
retained overriding royalty interests ranging from 4% to 7% in exchange for
granting the companies the right to bid. The Company subsequently acquired a 30%
working interest in one of the leases by contributing to the acquisition cost.
The submitted bids were the high bids and were awarded by the MMS. Drilling
operations commenced on two of the leases in early 2002 at no cost to the
Company.

         Capital expenditures in 2001 of approximately $1.0 million included the
above mentioned acquisition of a 30% working interest in a lease in the Gulf of
Mexico and participation in a dry hole in onshore Louisiana. Capital
expenditures in 2000 of approximately $12.1 million represent expenditures
incurred by PEI up to April 13, 2000 under commitments to joint venture work
programs, plus acquisition by the Company of the five leases pursuant to the PEI
asset sale under PEI's Plan of Reorganization.

         At the March 2003 lease sale held in New Orleans, Louisiana by the MMS,
the Company was the high bidder for two additional explorations leases in the
Gulf of Mexico (Vermilion 257 and Vermilion 246). Subsequently, the MMS awarded
both of these leases to the Company. During 2003, the Company expects to drill
two to three additional wells in the Gulf of Mexico and possibly one well in
China for an estimated capital expenditure of $11 million. The funding of this
capital expenditure is dependent upon sufficient cash flow from our existing
activities.

                                       30

<PAGE>

         Because of its restricted capital the Company will continue the risk
adverse approach that it commenced in 1999. The Company will focus on the
exploration of its 100% owned leases by way of farmout with US independent oil
and gas companies. The Company expects to meet its planned capital expenditure
needs from cash funds on hand or from cash flow from operations.

The following table shows our cash commitments as of December 31, 2002.

<TABLE>
<CAPTION>
US$'000                                 Payments due by periods as of December 31, 2002

                               Total         Less than 1 year   1 - 3 years        3 - 5 years        After 5 years
<S>                            <C>           <C>                <C>                <C>                <C>
Contractual
obligations
Operating leases                 356               201               155                 -                 -
Exploration and
lease rental                   1,191               127             1,064                 -                 -
Total contractual
cash obligations               1,547               328             1,219                 -                 -
</TABLE>

Off balance sheet arrangements

         Other than the operating lease commitments in relation to office space
and exploration and lease rental commitments in relation to exploration leases,
we do not believe that we have entered into any off balance sheet transaction,
arrangement or other relationship that is likely to materially affect liquidity,
the availability of capital resources or requirements for capital resources. As
noted in Developments since December 31, 2002, the Company's capital
expenditures will be limited and dependent on cash flow from oil and gas
operations.

Credit Facilities

         Following the reorganization of PEI, the Company does not have any
credit facilities.

C. RESEARCH AND DEVELOPMENT

     Not applicable.

D. TREND INFORMATION

         Historically the Company had acquired substantially all of its leases
on the OCS at U.S. federal or state lease sales and until December 31, 1998, it
held 100% working interests in its Gulf of Mexico properties, unlike many other
independent energy companies that conduct business through fractional working
interests and non-operated joint ventures. A disappointing drilling program in
1998, changing market conditions and the Chapter 11 filing by its US operating
subsidiary, PEI, caused the Company to commence a more risk adverse approach to
its exploration and development activity. The Company has entered into
agreements with other US independent oil and gas companies to participate in
joint venture drilling operations and joint bidding at federal or state lease
sales. The Company expects to pursue similar agreements in the future.

E. DEVELOPMENTS SINCE DECEMBER 31, 2002

         In the Gulf of Mexico, Petsec brought two gas wells on the West Cameron
343 lease and one gas well on the West Cameron 352 lease into production. Petsec
has net revenue interests in the leases of 61.75% and 57.375% respectively. Two
further wells were brought into production on Ship Shoal 191 in January in which
the Company has a 7% overriding royalty interest. At the MMS Central Gulf of
Mexico lease sale in March 2003, Petsec was high bidder on two leases at an
acquisition cost of $228,888 each. Subsequently, the MMS awarded both of the
leases to the Company.

         The Company expects in 2003 to acquire lease interests and to
participate in the drilling of three additional wells in the Gulf of Mexico and
to participate in exploration, development studies, and possibly one well in
offshore China.

         The Company's capital expenditures will be limited and dependent on
cash flow from oil and gas operations and future drilling success.

                                       31

<PAGE>

F. CRITICAL ACCOUNTING POLICIES

         The Company's critical accounting policies are those that we believe
are most important to the portrayal of its financial condition and results, and
that require management's most difficult, subjective or complex judgments. In
many cases, the accounting treatment of a particular transaction is specifically
dictated by generally accepted accounting principles with no need for the
application of the Company's judgment. In certain circumstances, however, the
preparation of consolidated financial statements in conformity with generally
accepted accounting principles requires the Company to use its judgment to make
certain estimates and assumptions. These estimates affect the reported amounts
of assets and liabilities and disclosures of contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. The Company believes the
policies described below are its critical accounting policies.

(1)      Successful efforts method of accounting

The Company accounts for its natural gas and crude oil exploration and
development activities utilizing the successful efforts method of accounting.
Under this method, costs of productive exploratory wells, development dry holes
and productive wells, costs to acquire mineral interests and 3-D seismic costs
are capitalized. Exploration costs, including personnel costs, certain
geological and geophysical expenses including 2-D seismic costs and delay
rentals for oil and gas leases, are charged to expense as incurred. Exploratory
drilling costs are initially capitalized, but charged to expense if and when the
well is determined not to have found reserves in commercial quantities. As
detailed below, capitalized costs are subject to impairment tests. Each part of
the impairment test is subject to a large degree of management judgment,
including the determination of a property's reserves, future cash flows, and
fair value.

(2)      Impairment of oil and gas properties

The Company reviews its oil and gas properties for impairment at least annually
and whenever events and circumstances indicate a decline in the recoverability
of their carrying value. The Company estimates the expected future cash flows of
its oil and gas properties and compares such future cash flows to the carrying
amount of the properties to determine if the carrying amount is recoverable. If
the carrying amount exceeds the estimated undiscounted future cash flows, the
Company will adjust the carrying amount of the oil and gas properties to their
fair value. The factors used to determine fair value include, but are not
limited to, estimates of proved reserves, future commodity pricing, future
production estimates, anticipated capital expenditures, and a discount rate
commensurate with the risk associated with realizing the expected cash flows
projected.

Management's assumptions used in calculating oil and gas reserves or regarding
the future cash flows or fair value of our properties are subject to change in
the future. Any change could cause impairment expense to be recorded, reducing
our net income and our basis in the related asset. Future prices received for
production and future production costs may vary, perhaps significantly, from the
prices and costs assumed for purposes of calculating reserve estimates. There
can be no assurance that the proved reserves will be developed within the
periods estimated or that prices and costs will remain constant. Actual
production may not equal the estimated amounts used in the preparation of
reserve projections. As these estimates change, the amount of calculated
reserves change. Any change in reserves directly impacts our estimated future
cash flows from the property, as well as the property's fair value.
Additionally, as management's views related to future prices change, this
changes the calculation of future net cash flows and also affects fair value
estimates. Changes in either of these amounts will directly impact the
calculation of impairment.

Given the complexities associated with oil and gas reserve estimates and the
history of price volatility in the oil and gas markets, events may arise that
would require the Company to record an impairment of the recorded book values
associated with oil and gas properties. The Company has recognized impairments
in prior years and there can be no assurance that impairments will not be
required in the future.

                                       32

<PAGE>

(3)      Income taxes

Deferred tax assets are recognized for temporary differences in financial
statement and tax basis amounts that will result in deductible amounts and
carryforwards in future years. Deferred tax liabilities are recognized for
temporary differences that will result in taxable amounts in future years.
Deferred tax assets and liabilities are measured using enacted tax law and tax
rate(s) for the year in which the Company expects the temporary differences to
be deducted or settled. The effect of a change in tax law or rates on the
valuation of deferred tax assets and liabilities is recognized in income in the
period of enactment. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion
of all of the deferred tax assets will not be realized. The Company's ability to
realize the benefit of its deferred tax assets requires that the Company achieve
certain future earnings levels prior to the expiration of its NOL carryforwards.
The Company has established a valuation allowance against the future tax benefit
of a portion of its NOL carryforwards. The Company's NOL carryforwards are
subject to review and potential disallowance upon audit by the tax authorities
in the jurisdictions where the loss was incurred.

                                       33

<PAGE>

ITEM 6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. DIRECTORS AND SENIOR MANAGEMENT

         The following table sets forth the name, age and position of each
director and executive officer of the Company.

<TABLE>
<CAPTION>
       Name                           Age                         Position
<S>                                   <C>      <C>
Directors:
Terrence N. Fern (1)                  55       Chairman, Managing Director and Chief Executive Officer
David A. Mortimer                     58       Director
Peter E. Power                        69       Director

Executive officers:
Ross A. Keogh                         44       President of Petsec Energy Inc.
Fiona A. Robertson                    47       Chief Financial Officer
Geoffrey H. Fulcher                   61       Company Secretary
</TABLE>

(1) Mr. Fern provides services to the Company through contractual arrangements
    between the Company and corporate affiliates.

     The following biographies describe the business experience of the directors
and executives of the Company and Petsec Energy Inc.

         TERRENCE N. FERN has over 30 years of extensive international
experience in petroleum and minerals exploration, development and financing. He
holds a Bachelor of Science degree from The University of Sydney and has
followed careers in both exploration geophysics and natural resource investment.
Mr. Fern is also the Chairman of Climax Mining Ltd.

         DAVID A. MORTIMER has over 35 years corporate finance experience and
was a senior executive of TNT Limited Group from 1973 serving as Finance
Director and Chief Executive. He retired as its Chairman in 1997. He is a
director of Leighton Holdings Limited, Adsteam Marine Limited, Australian
Tourist Commission, Macquarie Infrastructure Investment Management Ltd, Arrow
Pharmaceuticals Ltd, MIA Group Ltd and is Deputy Chairman of Australia Post and
Chairman of Ci Technologies Group Limited and Crescent Capital Partners Limited.
Mr. Mortimer holds a Bachelor of Economics degree from The University of Sydney.

         PETER E. POWER has over 40 years experience in petroleum exploration
worldwide. Dr. Power has a Bachelor of Science degree from The University of
Sydney and gained his doctorate at the University of Colorado, USA. He has
served as Chairman of the Australian Petroleum Production and Exploration
Association and President of the Australian Geoscience Council. Dr. Power was
Managing Director of Ampolex Limited from 1987 to 1996.

         ROSS A. KEOGH joined the Company in 1989 and has over 20 years
experience in the oil and gas industry. Between 1979 and 1989, Mr. Keogh worked
in the financial accounting and budgeting divisions of Total Oil Company and as
Joint Venture Administrator for Bridge Oil Limited in Australia. Mr. Keogh holds
a Bachelor of Economics degree, with a major in Accounting, from Macquarie
University in Sydney. Mr. Keogh was appointed Chief Financial Officer in
November 1998 until April 2002, and appointed President of PEI in April 2002.

         FIONA A. ROBERTSON joined the Company in 2002 as the Chief Financial
Officer of the Petsec Energy Ltd group. Mrs Robertson has over twenty five years
of corporate finance experience, fifteen in the resources industry. She spent
fourteen years working for the Chase Manhattan Bank in London, New York and
Sydney, and eight years with Delta Gold as General Manager, Finance/Chief
Financial Officer. Mrs Robertson holds an MA in geology from Oxford University,
is a Fellow of the Australian Institute of Company Directors and a Member of the
Australasian Institute of Mining and Metallurgy.

         GEOFFREY H. FULCHER has had over 30 years experience in the petroleum
and mining industries in field and management positions, with over 15 of those
years as a Corporate Secretary.

                                       34

<PAGE>

B. COMPENSATION

         The total compensation received by the directors of the Company for
their services as directors for 2002 was $58,762. The total compensation
received by the executive officers of the Company and its controlled and related
companies for 2002 was $231,372. A company associated with Mr. Fern provided
management services to the consolidated entity in the ordinary course of
business and on normal terms and conditions. The cost of the services provided
to the consolidated entity during 2002 by the company associated with Mr. Fern
was $254,000 (2001: $237,000; 2000: $277,000).

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Fiscal year ended                     Base                                              Retirement
December 31, 2002                  emoluments        Bonuses        Other Benefits     Benefit Plans           Total
--------------------------------------------------------------------------------------------------------------------
<S>                                <C>               <C>            <C>                <C>                    <C>
                                       $                $                 $                  $                  $
DIRECTORS
T.N. Fern                                 -             -                   -                  -                   -
D.A. Mortimer                        26,955             -                   -              2,426              29,381
P.E. Power                           26,955             -                   -              2,426              29,381

OFFICERS
R.A. Keogh                           98,416             -                   -                  -              98,416
F.A. Robertson                       75,080             -                   -                  -              75,080
G. H. Fulcher                        45,823             -               6,662              5,391              57,876
--------------------------------------------------------------------------------------------------------------------
</TABLE>

         In addition, the Company has accrued $84,000 payable as a retirement
benefit to the director, Mr. D.A. Mortimer on his retirement.

SHARE AND OPTION PLANS

         The Company maintains an Employee Share Plan (the "Share Plan") and an
Employee Share Option Plan (the "Option Plan"). Both plans were approved by the
shareholders at the Company's 1994 Annual General Meeting and are administered
by a committee (the "Remuneration Committee") appointed by the Board of
Directors. The total number of Ordinary Shares issued or subject to option under
all share and option plans during any five-year period may not exceed 6,987,567.
This was amended from 6.5% of the total number of issued Ordinary Shares at the
Company's annual general meeting on May 26, 1999.

         The Share Plan provides for the issue of Ordinary Shares to employees
and directors at prevailing market prices. Purchases pursuant to the Share plan
are financed by interest-free loans from the Company, subject to certain
conditions set by the Remuneration Committee. Grants are subject to a minimum
six-month vesting term and the vesting may also be contingent upon the market
price of the Ordinary Shares on the ASX achieving certain benchmarks. After the
vesting of such shares, the grantee may either repay the Company loan or sell
such shares and retain the difference. As of December 31, 2002, there were no
entitlements to shares under the Plan.

         The Option Plan provides for the issue of options to purchase Ordinary
Shares to employees and (with shareholder approval) directors at prevailing
market prices and subject to certain conditions set by the Remuneration
Committee. Grants are subject to a minimum six-month vesting term and the
vesting may also be contingent upon the market price on the ASX of the Ordinary
Shares achieving certain benchmarks. Options granted under the Option Plan
expire not more than five years from the date of grant. As of December 31, 2002,
directors of the Company held no options to purchase Ordinary Shares pursuant to
the Option Plan. Mr G.H. Fulcher held options to purchase 20,000 Ordinary Shares
at an exercise price of A$0.40 per share. The options expire on April 16, 2004.
Mr. Keogh held options to purchase an aggregate of 1,250,000 Ordinary Shares at
an exercise price of A$0.30 per share. Mr Keogh received his options during 2002
and his options expire on June 1, 2007. No other directors or executive officers
held options.

                                       35

<PAGE>

C. BOARD PRACTICES

         The Board of Directors has an Audit Committee and a Remuneration
Committee, of which each director is a member. Meetings of the Board and
Committees held during the year and attendance by directors were as follows:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
                          Regular         Additional          Audit      Remuneration        Date
                           Board            Board           Committee     Committee     Director First
                          Meetings         Meetings          Meetings      Meetings        Appointed
-----------------------------------------------------------------------------------------------------
<S>                       <C>             <C>               <C>          <C>            <C>
Total number held
During the year              12               4                 2             1

T.N. Fern                    12               4                 1             1         May 21, 1987
D.A. Mortimer                12               4                 2             1         July 1, 1985
P.E. Power                   12               4                 2             1         July 21, 1999
-----------------------------------------------------------------------------------------------------
</TABLE>

         The Company's Constitution does not impose limits to each director's
term in office. However, under the Australian Corporations Act 2001, at least
one third of the Company's directors (other than the Managing Director) must
retire at each annual general meeting and may present themselves for
re-election. To comply with that act, the non-Managing Directors of the Company
stand for reelection on a rotating basis each year.

         The Company has no severance contracts with its directors.

         The Remuneration Committee is responsible for making recommendations to
the Board on remuneration policies and packages applicable to the Board members
and senior executive officers of the Company. The broad policy is to ensure the
remuneration package properly reflects the relevant person's duties and
responsibilities and that remuneration is competitive in attracting, retaining
and motivating people of the highest quality. Executive directors may receive
bonuses based on the achievements of specific goals related to the performance
of the consolidated entity. Non-executive directors do not receive any
performance-related remuneration. The Remuneration Committee comprises all of
the directors.

         The role of the Audit Committee is to review the half yearly and annual
accounts, to discuss the auditor's reports and reviews, and to oversee the
maintenance of a framework of internal control in the Company. The
responsibilities of the audit committee also include an annual review of the
performance of the auditors and of their reappointment. The external auditors
are invited to attend audit committee meetings. The audit committee comprises
all of the directors.

         Under Australian Law, a company may pay non-executive directors without
obtaining shareholders' consent, a benefit on retirement proportional to the
length of service of the director, with a maximum of seven times the average
remuneration of the last three years of service. There are no other
non-executive director retirement benefits.

D. EMPLOYEES

         As of December 31, 2002, the Company had 14 full-time employees eight
of whom were in Lafayette, Louisiana, and six of whom were in Australia. See
"Item 3 - Key Information - D. Risk Factors" "The loss of key personnel could
adversely affect our ability to operate." The Company also relies on the
services of certain consultants for technical and operational guidance. The
Company believes that its relationships with its employees and consultants are
satisfactory and has entered into employment and consulting contracts with
certain of its executives and consultants whom it considers particularly
important to the operations of the Company. There can be no assurance that such
individuals will remain with the Company for the immediate or foreseeable
future. None of the Company's employees are covered by a collective bargaining
agreement. From time to time, the Company also utilizes the services of
independent consultants and contractors to perform various professional
services, particularly in the areas of construction, design, well site
surveillance, permitting and environmental assessment.

                                       36

<PAGE>

E. SHARE OWNERSHIP

         The following table sets forth certain information regarding the
beneficial ownership of the Company's ordinary shares ("Ordinary Shares") as of
May 31, 2003 by each person who is known by the Company to own beneficially 10%
or more of the Ordinary Shares and by all directors and executive officers of
the Company and Petsec Energy Inc, as a group. The percentages herein have been
calculated based on the 105,736,041 Ordinary Shares outstanding on May 31, 2003.

<TABLE>
<CAPTION>
                                                  NUMBER OF
                                               ORDINARY SHARES                             PERCENTAGE
                 NAME                         BENEFICIALLY OWNED                        BENEFICIALLY OWNED
                 ----                         ------------------                        ------------------
<S>                                           <C>                                       <C>
All Directors and executives as a group
   (6 persons) (1) (2) (3)                        27,988,542                                  26.5%
Terrence N. Fern (2) (3)                          26,882,498                                  25.4%
D.A Mortimer                                         610,068                                      *
P.E. Power                                           180,223                                      *
R. A. Keogh                                          275,000                                      *
F.A. Robertson                                        25,000                                      *
G. H. Fulcher                                         40,753                                      *
Den Duyts Corporation Pty Limited (3)             18,344,639                                  17.4%
</TABLE>

* These persons individually have less than 1% beneficial ownership of the
Company's outstanding ordinary shares.

(1)  Includes Ordinary Shares held by family-controlled entities or companies
     associated with such individuals. Also includes Ordinary Shares reflected
     for Terrence N. Fern, Chairman and Managing Director of the Company. See
     Notes (2) and (3) below.

(2)  Includes 4,000 Ordinary Shares held by Mr. Fern directly; 96,509 Ordinary
     Shares held by a trust of which Mr. Fern is a shareholder of the corporate
     trustee; 6,470,661 Ordinary Shares held by a trust of which Den Duyts
     Corporation Pty Limited ("Den Duyts") is a shareholder and Mr. Fern is a
     director of the corporate trustee; 1,966,689 Ordinary Shares held by a
     corporation of which Mr. Fern is a shareholder; and 18,344,639 Ordinary
     Shares held by a trust, Den Duyts. Excludes 4,000 Ordinary Shares held by
     Mr. Fern's wife of which he disclaims that he is the beneficial owner and
     42,000 Ordinary Shares held by Mr. Fern's adult children of which he
     disclaims that he is the beneficial owner (as defined under Rule 13D-3 of
     the Securities Exchange Act of 1934 (the "Exchange Act") ("Beneficial
     Owner")). See Note (3) below.

(3)  Den Duyts is a company, which acts as the trustee of a trust, the
     beneficiaries of which include members of Mr. Fern's family. Mr. Fern is
     deemed to be the Beneficial Owner of such shares.

     Under Australian law a shareholder is required to disclose to the Company
     if the shareholder is "entitled" to 5% or more of the Company's Ordinary
     Shares. A shareholder making such disclosure is required to aggregate with
     the shares held personally and beneficially by such shareholder any other
     shares in which the shareholder or an "associate" of the shareholder has a
     "relevant interest". Under Australian law, a person has a "relevant
     interest" in a share held by another person if the first person or a
     corporate entity controlled by the first person has the right to exercise
     or control the exercise of the voting rights in respect of that share or
     has the power to dispose of or control the disposal of that share. An
     "associate" is defined broadly and includes any person with whom the first
     person has an agreement, arrangement or understanding relating to control
     over shares, or with whom the first person proposes to act in concert. The
     "relevant" interests of Den Duyts including its associates at May 31, 2003,
     were 26,785,989 Ordinary Shares and the "relevant" interests of Mr. Fern
     were 26,785,989 Ordinary Shares.

                                       37

<PAGE>

         ITEM 7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. MAJOR SHAREHOLDERS

         At May 31, 2003, shareholders who were the beneficial owners of 5% or
more of the Company's voting securities were:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
             Name of Holder                        Number of Shares       %
-----------------------------------------------------------------------------
<S>                                                <C>                  <C>
Den Duyts Corporation Pty Limited                     18,344,639        17.35
Citicorp Nominees Pty Limited                         14,447,027        13.66
ANZ Nominees Limited                                  10,286,435         9.73
Commonwealth Custodial Services Limited                8,870,420         8.39
Canning Oil Pty. Limited                               6,470,661         6.12
-----------------------------------------------------------------------------
</TABLE>

         Approximately 90% of the Company voting securities are held by 4,381
shareholders in the host country.

         Major shareholders who had significant changes in the percentage
ownership held during the past three years were:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
               Shareholder                          April 30, 2001          April 30, 2002        April 30, 2003
------------------------------------------------------------------------------------------------------------------
                                                    No. of        %        No. of        %        No. of       %
                                                    Shares      o'ship     Shares     o'ship      Shares     o'ship
<S>                                               <C>           <C>      <C>          <C>       <C>          <C>
Citicorp Nominees Pty Limited                      6,232,247     5.89     7,314,247     6.92    14,447,027   13.66
ANZ Nominees Limited                              13,705,267    12.96    14,556,662    13.77    10,286,435    9.73
Commonwealth Custodial Services Limited            9,887,535     9.35     9,424,860     8.91     8,870,420    8.39
------------------------------------------------------------------------------------------------------------------
</TABLE>

         The Company's shares are all of one class and carry equal voting
rights. At May 31, 2003 there were 105,736,041 ordinary shares held by 4,685
shareholders.

B. RELATED PARTY TRANSACTIONS

(a)      Directors

         The names of persons who were directors of the Company during the year
ended December 31, 2002 are Messrs T.N. Fern, D.A. Mortimer and P.E. Power.

         Details of the director's remuneration are set out in Item 6 -
Directors, Senior Management and Employees.

(b)      Executive officer and director compensation and interest of management
in certain transactions

         Other than as disclosed below in this section, there were no material
contracts involving directors during the year.

         Other than as disclosed below in this note, no loans were made to
directors during the year and no such loans are subsisting.

         At December 31, 2002 there were no loans outstanding to directors.

         A company associated with Mr. Fern provided management services to the
consolidated entity in the ordinary course of business and on normal terms and
conditions. The cost of the services provided to the consolidated entity during
2002 by the company associated with Mr. Fern was $254,000.

         At December 31, 2002, the aggregate number of ordinary shares in the
Company held directly, indirectly or beneficially by directors of the Company or
their director-related entities was 27,731,123.

                                       38

<PAGE>

(c)      Controlled entities

         Details of dealings of the Company with wholly owned controlled
entities are set out below:

         The aggregate amounts receivable from/and payable to wholly owned
entities by the Company at balance date were:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
                                    December 31, 2000       December 31, 2001       December 31, 2002
                                          $'000                   $'000                   $'000
-----------------------------------------------------------------------------------------------------
<S>                                 <C>                     <C>                     <C>
Receivables - non-current                 5,319                   5,278                   14,448
Payables - non-current                    8,372                   7,677                    4,131
-----------------------------------------------------------------------------------------------------
</TABLE>

         At December 31, 2002, the Company had provided against various loans to
wholly owned Australian controlled entities.

C. INTEREST OF EXPERTS AND COUNSEL

         None.

                         ITEM 8 - FINANCIAL INFORMATION

A. CONSOLIDATED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION

         The US Dollar Financial Statements of the Company and the Independent
   Auditors' Report are included on pages F-1 through F-24 of the Form 20-F. See
   Item 18 below.

B. SIGNIFICANT CHANGES

         None.

                                       39

<PAGE>

                         ITEM 9 - THE OFFER AND LISTING

A. OFFER AND LISTING DETAILS - PRICE HISTORY OF ORDINARY SHARES AND ADRs

         The following table sets forth, for the periods indicated, the high and
low closing sale prices per Ordinary Share as reported on the ASX in Australian
dollars and translated into US dollars at the Noon Buying Rate on the respective
dates on which such closing prices occurred, unless otherwise indicated.

<TABLE>
<CAPTION>
                                                      A$                       US$
                                             High           Low        High           Low
<S>                                          <C>            <C>        <C>           <C>
Year ended December 31, 1998:                6.50           0.43       4.17          0.27

Year ended December 31, 1999:                0.72           0.19       0.47          0.12

Year ended December 31, 2000:                0.25           0.08       0.16          0.05

Year ended December 31, 2001:                0.19           0.11       0.10          0.06
  First Quarter                              0.14           0.11       0.07          0.06
  Second Quarter                             0.19           0.11       0.10          0.06
  Third Quarter                              0.18           0.12       0.09          0.06
  Fourth Quarter                             0.16           0.13       0.08          0.07

Year ended December 31, 2002:                0.30           0.14       0.16          0.07
  First Quarter                              0.20           0.14       0.11          0.07
  Second Quarter                             0.24           0.16       0.14          0.09
  Third Quarter                              0.30           0.19       0.16          0.10
  Fourth Quarter                             0.29           0.23       0.16          0.13
  First Quarter 2003                         0.29           0.23       0.16          0.13

  December 2002                              0.28           0.23       0.16          0.13
  January 2003                               0.38           0.25       0.22          0.15
  February 2003                              0.38           0.32       0.23          0.19
  March 2003                                 0.41           0.33       0.25          0.20
  April 2003                                 0.60           0.41       0.37          0.25
  May 2003                                   0.66           0.52       0.43          0.34
</TABLE>

                                       40

<PAGE>

         The following table sets forth for the periods indicated the high and
low closing prices per ADR on the US markets, as discussed below, in US dollars:

<TABLE>
<CAPTION>
                                                                 US$
                                                   High                     Low
<S>                                                <C>                      <C>
Year ended December 31, 1998                       21.75                    1.38

Year ended December 31, 1999                        2.19                    0.38

Year ended December 31, 2000                        0.81                    0.02

Year ended December 31, 2001
   First Quarter                                    0.35                    0.20
   Second Quarter                                   0.47                    0.26
   Third Quarter                                    0.45                    0.30
   Fourth Quarter                                   0.41                    0.31

Year ended December 31, 2002
   First Quarter                                    0.51                    0.35
   Second Quarter                                   0.68                    0.41
   Third Quarter                                    0.81                    0.50
   Fourth Quarter                                   0.81                    0.32
   First Quarter 2003                               1.22                    0.70

   December 2002                                    0.81                    0.32
   January 2003                                     1.10                    0.70
   February 2003                                    1.10                    0.96
   March 2003                                       1.22                    0.99
   April 2003                                       1.95                    1.23
   May 2003                                         2.10                    1.70
</TABLE>

B. PLAN OF DISTRIBUTION

     Not applicable.

C. MARKETS

         The trading market for the Company's Ordinary Shares is the Australian
Stock Exchange Limited ("ASX"), which is the principal stock exchange in
Australia. The Company's symbol on the ASX is "PSA". All on-market transactions
for the Company's shares are executed on the ASX's electronic trading system and
information on transactions is therefore immediately available. Current ASX
settlement requirements are within three days after the transaction.

         On October 13, 2000, the ADRs commenced trading on the OTC Pink Sheets
under the ticker symbol "PSJEY.PK". Each ADR evidences one American Depositary
Share ("ADS"), which represents five Ordinary Shares. The depositary of the ADRs
representing the ADSs is The Bank of New York ("Depositary").

         As at May 31, 2003, 2,782,077 ADRs were on issue. These were equivalent
to 13,910,385 Ordinary Shares or approximately 13% of the Company's issued
capital.

                                       41

<PAGE>

D. SELLING SHAREHOLDERS

   Not applicable.

E. DILUTION

   Not applicable.

F. EXPENSES OF THE ISSUE

   Not applicable.

                                       42

<PAGE>

                        ITEM 10 - ADDITIONAL INFORMATION

A. SHARE CAPITAL

   Not applicable.

B. CONSTITUTION

1.

The Company was incorporated in New South Wales, Australia on December 7, 1967
and is registered with the Australian Securities and Investments Commission,
Australian Company Number 000 602 700.

The Company is subject to Australian Corporations Act 2001 which does not
require that a Corporation set out its objects and purposes in its constitution.
The Act provides that a company has the legal capacity and powers of an
individual. A company also has all the powers of a body corporate, including the
power to:

(a)      issue and cancel shares in the company;

(b)      issue debentures;

(c)      grant options over unissued shares in the company;

(d)      distribute any of the company's property amongst the members in kind or
         otherwise;

(e)      give security by charging uncalled capital;

(f)      grant a floating charge over the company's property;

(g)      arrange for the company to be registered or recognised as a body
         corporate in any place outside Australia;

(h)      do anything that is authorised to do by any other law (including a law
         of a foreign country).

2.

Under the Corporations Act 2001, one third of the Company's directors (other
than the Managing Director) must retire at each annual general meeting and may
present themselves for re-election.

(a)      CONTRACTS WITH DIRECTORS.

The following is an extract from the Company's constitution.

"60      DIRECTORS' CONTRACTS WITH THE COMPANY

60.1     A Director is not disqualified by that office from:

         (a)   holding any other office or place of profit in the Company
               (except that of auditor) or in any body corporate in which the
               Company is a member or otherwise interested;

         (b)   entering into a contract or arrangement with the Company (or
               other body corporate as referred to in CLAUSE 60.1(a)) as vendor,
               purchaser, underwriter or otherwise; or

         (c)   retaining for the Director's own benefit any profit arising from
               any office or place of profit (as referred to in CLAUSE 60.1(a))
               or realised by any contract or arrangement (as referred to in
               CLAUSE 60.1(b)).

                                       43

<PAGE>

60.2     In respect of any contract or arrangement in which a Director is
         interested as referred to in CLAUSE 60.1(b) or in respect of any other
         contract or arrangement in which that Director has a direct or indirect
         material interest:

         (a)   the contract or arrangement may not be avoided by reason only of
               the interest of the Director;

         (b)   (unless the interest that the Director has is an interest as a
               Member and in common with the other Members or the Director is
               entitled to vote or be present under section 232A or section 232B
               of the Corporations Act 2001) the Director shall not vote at a
               Directors' Meeting in respect of the contract or arrangement and
               must not be present at a Directors' Meeting whilst the matter is
               being considered; and

         (c)   the nature of the Director's interest must be disclosed by the
               Director before or at the relevant Meeting of Directors at which
               the contract or arrangement is to be considered, subject to
               CLAUSE 60.3.

60.3     A general notice given to the Directors by any Director to the effect
         that the Director is an officer or a member of or interested in any
         specified firm or corporation and is to be regarded as interested in
         all transactions with such firm or corporation is sufficient disclosure
         as required by the Corporations Act 2001 as regards that Director and
         those transactions. After such general notice it is not necessary for
         that Director to give any special notice relating to any particular
         transaction with that firm or corporation.

60.4     A Director may be a director or other officer of, or otherwise
         interested in, any corporation promoted by the Company or in which the
         Company is interested as shareholder or otherwise, or which holds any
         Shares in the Company, and the following provisions apply:

         (a)   no such Director is accountable to the Company for any
               remuneration or other benefits received by that Director as a
               director or officer, or from that Director's interest in, such
               corporation;

         (b)   the Directors may exercise the voting power conferred by the
               shares or other interest in any such other corporation held or
               owned by the Company, or exercisable by them as directors of such
               other corporation as they think fit (including voting in favour
               of any Resolution appointing themselves or any of them directors
               or other officers of such corporation); and

         (c)   any Director may vote in favour of the exercise of voting rights
               as referred to in this clause 60.4 notwithstanding that such
               Directors may be, or be about to be, appointed a director or
               other officer of that corporation and as such is or may become
               interested in the exercise of such voting rights in the manner
               referred to in clause 60.1.

60.5     A Director must (in accordance with the Listing Rules) forthwith advise
         the Company Announcements Office of the ASX of any interest the
         Director may have in any material contract to which the Company is a
         party or in which the Company also has an interest."

                                       44

<PAGE>

(b)      DIRECTORS' REMUNERATION

The following is an extract from the Company's constitution.

"48            REMUNERATION OF DIRECTORS

48.1     Subject to the Listing Rules and clause 48.2, the Directors shall be
         paid for their services as Directors such remuneration (not exceeding a
         maximum sum that is from time to time approved by the Company by
         resolution passed in General Meeting) as the Directors determine. The
         notice convening a General Meeting at which it is proposed to seek
         approval to increase that maximum sum shall be in accordance with the
         requirements of the Listing Rules and shall specify the proposed new
         maximum sum and the amount of the proposed increase.

48.2     Any Director who is remunerated as an Executive Director shall not be
         remunerated under clause 48.1.

48.3     The remuneration fixed under clause 48.1:

         (a)   shall be divided among the Directors in the proportions as they
               may agree or, if they cannot agree, equally among them;

         (b)   is exclusive of any benefits which the Company provides to
               Directors in satisfaction of legislative schemes including,
               without limitation, benefits provided under superannuation
               guarantee or training guarantee or similar schemes; and

         (c)   is exclusive of any indemnity paid by the Company under this
               Constitution and any premium paid by the Company in respect of a
               contract insuring a Director against liability incurred as an
               officer of the Company.

48.4     The Directors shall also be entitled to be paid or reimbursed for all
         travelling and other expenses properly incurred by them in attending
         and returning from any meeting of the Directors, committee of the
         Directors, General Meetings of the Company or otherwise in connection
         with the business or affairs of the Company.

48.5     If any Director, with the approval of the Directors, performs extra
         services or makes any special exertions for the benefit of the Company,
         the Directors may approve the payment to that Director of special and
         additional remuneration as the Directors think fit having regard to the
         value to the Company of the extra services or special exertions. Any
         special or additional remuneration shall not include a commission on or
         a percentage of profits or operating revenue.

48.6     Remuneration payable by the Company and any entity under its control to
         Directors shall be by a fixed sum, and not by a commission on, or
         percentage of, the profits or operating revenue of the Company."

(c)      BORROWING POWERS

The borrowing powers of directors can be varied by amending the Company's
constitution by a special resolution at a general meeting of shareholders.

The following is an extract from the Company's constitution.

                                       45

<PAGE>

"62            BORROWING POWERS OF DIRECTORS

62.1     The Board may from time to time at its discretion raise or borrow any
         sum or sums of money for the purposes of the Company, with or without
         security.

62.2     The Board may raise or secure the repayment of such moneys or any
         debts, liabilities, contracts or obligations undertaken or incurred by
         the Company in such a manner and upon such terms and conditions as it
         thinks fit, and in particular by the issue of unsecured notes or by the
         issue or re-issue of debentures or debenture stock charged upon all or
         any part of the property of the Company both present and future
         including its uncalled shares for the time being. Every debenture or
         security created by the Company may be so framed that they shall be
         assignable free from any equities between the Company and the original
         or any intermediate holders.

6.2.3    The Board may for the purposes of securing the payment of any
         debentures, bonds or other securities or the payment with interest of
         any moneys borrowed or payable under any contract or otherwise, make
         and carry into effect any arrangement which it may deem expedient by
         assigning or conveying any property of the Company including uncalled
         shares to trustees.

62.4     Any bonds, debentures or other securities may be issued at a
         discount or premium or otherwise and with or without rights or
         obligations.

62.5     The Board shall cause to be kept at the Office a register of mortgages
         and charges, in which are to be entered all mortgages and charges
         specifically affecting property of the Company and all floating charges
         on the undertaking or any property of the Company giving in each case a
         short description of the property mortgaged or charged, the amount of
         the mortgage or charge and, except in the case of securities to bearer,
         the names of the mortgages or persons entitled to the mortgage or
         charge.

62.6     If the Board or any Director or any officer of the Company shall become
         personally liable for the payment of any sum primarily due from the
         Company, the Board may execute or cause to be executed any mortgage,
         charge or security over or affecting the whole or any part of the
         assets of the Company by way of indemnity to secure the persons or
         person liable from any loss in respect of such liability."

(d)      AGE LIMITS OF DIRECTORS

There is no age limit of directors contained in the Company's constitution. The
Corporations Act 2001 of Australia provides that after a director reaches the
age of 70 years, the director must submit to re-election at each annual general
meeting.

(e)      DIRECTOR'S SHAREHOLDING QUALIFICATION

There is no requirement for a director to hold shares in the company.

3.       CLASS OF SHARES

There is only one class of share on issue, namely ordinary shares. Rights and
restrictions of the shares are set out below:

(a)      DIVIDEND RIGHTS

The following is an extract from the Company's constitution.

"69      DIVIDENDS

69.1     The Company in General Meeting may determine to pay a dividend if and
         only if the Board has recommended a dividend and the dividend so
         determined shall not exceed the amount recommended by the Board.

69.2     The Board may from time to time determine a Dividend to be paid to the
         Members.

                                       46

<PAGE>

70       ENTITLEMENT TO DIVIDENDS

70.1     Subject to clause 70.2, a Dividend shall, subject to the rights of or
         any restrictions on the holders of Shares created or raised under any
         special arrangement as to Dividend, be payable on all Shares in
         proportion to the amount paid or credited as paid in respect of such
         Shares and may be declared at a rate per annum in respect of a
         specified period.

70.2     For the purposes of clause 70.1, no amount paid on a Share in advance
         of calls or the due date for the payment of any instalment shall be
         treated as paid on that Share.

70.3     The Board or the Company in General Meeting may determine one Dividend
         on all Shares or may determine at any one meeting of the Board or
         General Meeting two or more Dividends. Where more than one Dividend is
         determined, each Dividend may be determined on any Shares to the
         exclusion of any other Shares, however the amount payable out of the
         total of the amount of all Dividends determined at the meeting on all
         Shares is to be in accordance with the proportion stated in clause
         70.1.

70.4     The Company does not incur a debt to Members merely by fixing the
         amount or time for payment of a Dividend. The debt only arises when the
         time fixed for payment arrives, and the decision may be revoked by the
         Directors at any time before then.

70.5     For Dividend purposes, a transfer of Shares registered after the record
         date for determining those entitled to receive a Dividend but before a
         Dividend is payable shall not pass any right to a Dividend fixed for
         payment on such Shares before the record date.

70.6     The Board may retain the Dividends payable upon Shares in respect of
         which any person is entitled to transfer under clause 17 until such
         person shall become registered as a Member in respect of such Shares or
         has transferred such Shares.

70.7     The Board may retain the Dividends on which the Company has a charge
         and may apply the same in or towards satisfaction of the calls,
         instalments or sums owing in respect of which the charge exists.

"73            PAYMENT OF DIVIDEND

73.3     All Dividends remaining unclaimed for one year after having been
         declared may be invested or otherwise made use of by the Board for the
         benefit of the Company until claimed or otherwise disposed of according
         to Corporations Act 2001."

(b)      VOTING RIGHTS

The following is an extract from the Company's constitution.

"33            ENTITLEMENT TO VOTE AT GENERAL MEETINGS

33.1     (a)   Subject to any rights or restrictions for the time being attached
               to any Shares, votes may be given either personally or by proxy
               or by attorney under power or in the case of a corporation by its
               duly authorised representative.

         (b)   No person is entitled to vote unless he or she is a Member and
               present in person or by proxy or attorney or is the duly
               authorised representative of a corporation which is a Member.

33.2     Subject to the rights or restrictions attached to any Shares, on a show
         of hands every Member present in person or by proxy or attorney or by
         duly authorised representative has one vote.

33.3     On a poll, every Member present in person or by proxy or attorney or by
         duly authorised representative has one vote for every fully paid Share
         and a fraction of a vote for every partly paid Share equivalent. The
         fraction must be equivalent to the proportion which the amount paid
         (not credited) is of the total amounts paid up and payable (excluding
         amounts credited). Amounts paid in advance of a call are ignored when
         calculating the proportion.

                                       47

<PAGE>

33.4     Notwithstanding anything express or implied in this Constitution a
         Member is not entitled to vote at any General Meeting in respect of any
         Shares held by the Member upon which calls remain unpaid.

33.5     (a)   If two or more persons are registered as joint holders of any
               Share, one only of such holders shall be entitled to vote at a
               Meeting either personally or by proxy, attorney or duly
               authorised representative in respect of such Share as if he or
               she were solely entitled to it.

         (b)   If more than one of such joint holders is present at any Meeting
               personally or by proxy, attorney or duly authorised
               representative and seeks to vote, then that one of the holders
               present whose name stands first on the Register and no other
               shall be entitled to vote in respect of such Share.

         (c)   Several executors or administrators of a deceased Member in whose
               name any Share stands shall for the purpose of this CLAUSE 33 be
               deemed joint holders of such Share.

33.6     Any person entitled under clause 11 to take a transfer of any Shares
         may vote at any Meeting in respect of those Shares in the same manner
         as if he or she were the registered holder of those Shares, provided
         that at least 48 hours before the time of the Meeting or adjourned
         Meeting as the case may be at which he or she proposes to vote, he or
         she must satisfy the Directors of his or her right to take a transfer
         of those Shares unless the Directors have admitted his or her right to
         vote at that Meeting."

(c)      RIGHT TO SHARE OF PROFITS

None of the Company's shares carry a right to a share of profits other than
through participation in any dividend distribution.

(d)      SURPLUS ON LIQUIDATION

The following is an extract from the Company's constitution.

"80            WINDING UP

80.1     Subject to clauses 80.2 and 80.3, if the Company is wound up, the
         assets available for distribution among the Members shall be
         distributed, as nearly as may be, to the Members in proportion to the
         capital paid up, or which ought to have been paid up, at the
         commencement of the winding up, on the Shares held by them
         respectively."

(e)      REDEMPTION PROVISIONS

The following is an extract from the Company's constitution.

"21            REDUCTION OF SHARE CAPITAL

         The Company may reduce its share capital in any manner permitted by the
Corporations Act 2001 and the Listing Rules."

(f)      SINKING FUND PROVISIONS

Not applicable

(g)      CALLS ON SHARES

The following is an extract from the Company's constitution.

                                       48

<PAGE>

"10            CALLS ON SHARES

10.1     The Directors may, subject to the terms upon which any Shares may have
         been issued from time to time, make such calls as the Directors think
         fit upon the Members in respect of moneys unpaid on their respective
         Shares.

10.2     Calls may be made payable by instalments.

10.3     Not less than 30 Business Days' (or such lesser period as permitted by
         the Listing Rules) notice of a call, specifying the amount of the call,
         the time and place for payment and all other matters required to be
         specified in the notice by the Listing Rules, shall be given to Members
         liable to pay the call.

10.4     A call may be revoked, postponed or extended by the Directors.

10.5     A call is deemed to have been made at the time when the Resolution of
         the Directors authorising the call was passed.

10.6     The non-receipt of a notice of a call by or the accidental omission to
         give notice of a call to any of the Members does not invalidate the
         call.

10.7     Any amount that, by the terms of issue of a Share or otherwise, is
         payable at any fixed time or by instalments at fixed times, is payable
         as if it were a call duly made by the Directors and of which due notice
         had been given. If the amount is not paid when due, the provisions of
         this Constitution as to payment of interest, expenses, forfeiture or
         otherwise apply as if the amount had become payable by virtue of a call
         duly made and notified.

10.8     The joint holders of Shares are severally as well as jointly liable for
         the payment of all amounts of instalments and calls in respect of such
         Shares.

10.9     When issuing partly paid Shares, the Directors may differentiate
         between the Members as to the amount of calls to be paid and the times
         of payment.

10.10    If a sum called is not paid on or before the date for payment the
         person from whom the sum is due shall pay interest on the sum (or on so
         much as remains unpaid from time to time) at such rate as the Directors
         may determine, not exceeding 20% per annum, calculated from the date
         appointed for payment of the call until the time of actual payment. The
         Directors may waive such interest in whole or in part.

10.11    In the event of non-payment of any call the Company may proceed to
         recover the unpaid amount with interest and expenses (if any) by
         action, suit or otherwise against the relevant Member but any such
         action is without prejudice to the right to forfeit the relevant Share
         and either or both of such rights may be exercised by the Directors in
         their discretion.

10.12    In any proceedings under clause 10.11:

         (a)   proof of the following by the Company will be conclusive evidence
               of the debt:

              (i)      that the name of the Member sued is entered in the
                       Register as a holder of the relevant Shares;

              (ii)     that the resolution making the call is duly recorded in
                       the minute book;

              (iii)    that notice of the call was duly given to the registered
                       holder of the Shares in accordance with clause 10.3, or
                       (in the case of calls or instalments payable at fixed
                       times by the terms of issue of the Share), those terms;
                       and

              (iv)     that the sum or call has not been paid;

         (b)   the Company need not prove:

              (i)      the appointment of the Directors who made the allotment
                       or call;

              (ii)     the passing of the resolution making the call; or

              (iii)    any other matters.

10.13    The Directors may, if they think fit, accept from any Member all or any
         part of the amount unpaid on a Share although no part of that amount
         has been called up.

10.14    The Directors may authorise payment by the Company of interest upon the
         whole or any part of moneys paid in advance of a call until the amount
         becomes payable, at such rate as the Member paying such sum and the
         Directors agree upon.

                                       49

<PAGE>

10.15    Any amount paid in advance of calls is to be treated as an unsecured
         loan until a call is due and until that time not included or taken into
         account in ascertaining the amount of Dividend payable upon the
         relevant Shares.

10.16    The Directors may at any time repay any amount paid in advance of a
         call upon giving to the Member one month's notice in writing.

10.17    The Directors may at any time enter into on behalf of the Company
         contracts with any or all of the Members holding partly paid Shares to
         extinguish the liability of those Members to pay to the Company any
         amount unpaid on the Shares held by them, provided that such
         extinguishment of liability is done in accordance with the Corporations
         Act 2001 and the Listing Rules."

(h)      DISCRIMINATION AGAINST SUBSTANTIAL SHAREHOLDERS

Not applicable

4.       CHANGING STOCKHOLDER RIGHTS

 There is presently only one class of share on issue. If there is more than one
class of share on issue at any time, rights attaching to a class of shares may
be varied by a 75% majority at a meeting of holders of that class of share, in
accordance with the following extract from the Company's constitution.

"4             VARIATION OF RIGHTS ATTACHING TO SHARES

4.1      If at any time the Company has on issue different classes of Shares,
         the rights and privileges attached to any class (unless otherwise
         provided by the terms of issue of the Shares of that class) may,
         whether or not the Company is being wound up, be varied with the
         sanction of a Special Resolution passed at a separate Meeting of the
         holders of the Shares of that class.

4.2      The provisions of the Corporations Act 2001 and this Constitution
         relating to Special Resolutions and General Meetings apply to every
         Meeting referred to in clause 4.1, with such changes as are necessary,
         except that the quorum is Members present holding or representing 75%
         of the nominal amount of the Shares of the class and that any Member
         present holding Shares of the class may demand a poll.

4.3      If a quorum is not present at any Meeting referred to in clause 4.1 or
         if the Special Resolution is not passed by the necessary majority, all
         or any of the rights and privileges attaching to the relevant class of
         Shares may be varied with the consent in writing of the holders of at
         least 75% of the issued Shares of that class within 2 calendar months
         from the date of the Meeting."

5.       GENERAL MEETINGS OF THE COMPANY

The following is an extract from the Company's constitution.

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"25            GENERAL MEETINGS

25.1     An Annual General Meeting of the Company must (unless otherwise
         permitted by the Corporations Act 2001) be held:

         (a)   at least once in every calendar year, and

         (b)   within the period of five months after the end of its financial
               year.

25.2     General Meetings of the Company other than Annual General Meetings are
         in this Constitution called General Meetings.

25.3     The Directors may whenever they think fit convene a General Meeting.

25.4     Except as provided in ss 249D, 249E and 249F of the Corporations Act
         2001, no Member or Members may convene a General Meeting.

25.5     The Company may hold a General Meeting at 2 or more venues using any
         technology that gives the Members as a whole a reasonable opportunity
         to participate.

26             NOTICE OF GENERAL MEETINGS

26.1     Subject to the provisions of the Corporations Act 2001 as to the notice
         required for Special Resolutions, not less than 28 days' notice
         (exclusive of the day on which the notice is given or deemed to be
         given but inclusive of the day for which the meeting is convened) of
         any General Meeting shall be given in writing to all the Members
         entitled to receive notices of Meetings in the manner provided in this
         Constitution unless otherwise permitted by the Corporations Act 2001.

26.2     Every notice of a General Meeting must comply with s 249L of the
         Corporations Act 2001.

26.3     The accidental omission to give notice of any General Meeting to or the
         non-receipt of any such notice by any of the Members or the Auditors or
         the Secretary or the ASX or the accidental omission to advertise (if
         necessary) such meeting shall not invalidate the proceedings at or any
         Resolution passed at any such Meeting."

6.       LIMITATIONS ON SHARE OWNERSHIP

There are no limitations on the rights to own securities other than those
contained within Australian law, including the Foreign Acquisitions and
Takeovers Act, 1975, the Corporations Act 2001 and the Trade Practices Act,
1974.

7.       CHANGE OF CONTROL

         None.

8.       SUBSTANTIAL SHAREHOLDINGS

The Corporations Act 2001 requires disclosure of a relevant interest in the
Company of 5% or more. There are no applicable provisions in the Company's
constitution.

C.       MATERIAL CONTRACTS

     None.

D.       EXCHANGE CONTROLS

         The Australian government currently does not impose any limits,
including any foreign exchange controls, that restrict the export or import of
capital by the Company or that affect the remittance of dividends, interest or
other payments to non-resident holders of the Company's securities (except as
set out below in this Item 10). Any transfer of Australian or foreign currency
of A$10,000 or more by a person and any international funds transfer into or out
of Australia by certain banks and other cash dealers must be reported to the
Australian government's Transaction Reports and Analysis Centre (AUSTRAC). See
also "Taxation - Australian Taxation" for a discussion of the Australian
dividend withholding tax.

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         There is no provision in Australian law (except as stated below in this
Item 10) or in the Company's constituent documents that prevents or restricts a
non-resident of Australia from freely owning and voting the Ordinary Shares
which underlie the Company's ADRs.

         Non-Australian shareholders should be aware that Australian law
contains certain provisions that may apply if a significant interest in the
Ordinary Shares is proposed to be acquired. The following brief discussion of
relevant Australian law restrictions on non-Australian ownership of securities
is in no way intended to be an exhaustive statement of the Australian position.
The discussion does not address general restrictions in Australian law on
securities ownership per se.

         The Australian Foreign Acquisitions and Takeovers Act of 1975 (the
"Foreign Takeovers Act") requires notification to the Australian government of
any proposed acquisition by a foreign person which would result in such person
and any of its associates controlling not less than 15% of the voting power or
holding an interest in not less than 15% of the shares of an Australian company
with total assets valued at A$5 million or more. Upon receipt of such
notification, the Australian government has the authority to review such
acquisition. The Australian government also has the authority to review any
transaction involving two or more foreign persons who, with their associates,
are able to control at least 40% of the voting power or hold interests in not
less than 40% of the shares of an Australian corporation. Under its present
policy and except in certain special cases, the Australian government will
automatically approve such acquisitions if the corporation has total assets of
less than A$50 million. Where the corporation has assets in excess of A$50
million (as does the Company), the Australian government either may permit the
proposed acquisition to proceed subject to conditions or may prohibit the
transaction as contrary to the national interest. Under the terms of the Foreign
Takeovers Act, ownership of ADRs will constitute ownership of shares or voting
power of the Company.

         Section 671B of the Australian Corporations Act 2001 requires a
shareholder who is entitled (within the meaning of the Australian Corporations
Act) to 5% or more of the voting shares of a corporation (a "substantial
shareholder') to notify the corporation of such shareholding within two business
days after the shareholder becomes aware that the shareholder is a substantial
shareholder. Section 671B of the Australian Corporations Act 2001 also requires
a substantial shareholder to further notify the corporation when its entitlement
changes by an amount equal to 1% or more of the voting shares. Under the
Australian Corporations Act 2001, a person who holds an ADR is deemed to be
entitled to the underlying shares.

         Section 606 of the Australian Corporations Act 2001 prohibits, subject
to the making of a formal takeover offer or certain limited exceptions, a
shareholder from acquiring shares in an Australian company if the acquisition
would result in the shareholder having an entitlement (within the meaning of the
Australian Corporations Act 2001) to more than 20% of the voting shares of the
corporation (or the acquisition would result in a shareholder who is already
entitled to not less than 20% but less than 90% of the shares becoming entitled
to a greater percentage).

         The Australian Trade Practices Act of 1974 regulates, among other
matters, offshore acquisitions affecting Australian markets. Under Section 50A
of such Act, the Australian Competition Tribunal may, in certain circumstances,
make a declaration that prohibits a corporation from carrying on business in a
particular market for goods and services in Australia where a foreign
acquisition would have the effect or be likely to have the effect of
substantially lessening competition in that market. Such acquisitions may be
examined by the Australian Competition Tribunal on public interest grounds.

         Shareholders who could possibly be affected by any of the above
legislation should seek independent advice from a qualified Australian attorney.

E.       TAXATION

AUSTRALIAN TAXATION

      Dividends. Fully franked dividends (i.e., dividends paid out of the
Company's profits which have been subject to Australian income tax at the
maximum corporate tax rate) which are paid to shareholders who are U.S.
residents will not be subject to Australian income or Australian withholding,
taxes. Unfranked dividends (i.e., dividends that are paid out of profits that
have not been subject to Australian income tax) are subject to Australian
withholding tax when paid to U.S. resident shareholders. In the event the
Company pays partially franked dividends, shareholders will be subject to
withholding tax on the unfranked portion. Pursuant to the bilateral taxation
convention between Australia and the United States (the "Treaty"), the
withholding tax imposed on dividends paid by the Company to a U.S. resident is
limited to 15%. Refer, however, to "Changes to the Treaty," below.

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<PAGE>

      Dividends which are paid to the Company by a U.S. subsidiary out of the
trading profits of that subsidiary will give rise to a credit in the Company's
"foreign dividend account" ("FDA"). Where the Company has a credit balance in
its FDA and makes a written FDA declaration specifying that all or a portion of
an unfranked dividend to be paid by the Company is an FDA dividend, the amount
so specified will be exempt from Australian withholding tax. The payment of an
FDA dividend gives rise to a debit in the Company's FDA account. The Australian
Federal Government is considering the extension of the dividend withholding tax
exemption to all types of foreign income derived by an Australian company.

      Sales of ADSs or Ordinary Shares. U.S. residents who do not hold and have
not at any time in the five years preceding the date of disposal held (for their
own account or together with associates) 10% or more of the issued share capital
of a public Australian company are not liable for Australian capital gains tax
on the disposal of shares or ADSs of such company.

      U.S. residents are subject to Australian capital gains tax on the disposal
of shares or ADSs of a private Australian company where the disposal
consideration exceeds the cost base unless such a gain is exempt from Australian
tax under the Treaty. The rate of Australian tax on taxable capital gains
realized by U.S. residents is 30% for companies for the 2003 income year (for
most taxpayers, the year ending June 30, 2003). For individuals, the rate of tax
increases from 29% to a maximum of 47%. However, if the Ordinary Shares or ADSs
are held for 12 months or more, an individual should be entitled to an exemption
of 50% of the otherwise taxable capital gain. U.S. residents who are subject to
Australian tax on capital gains made on the disposal of shares or ADSs are
required to file an Australian income tax return for the year in which the
disposal occurs.

      Non-residents of Australia who are securities dealers or in whose hands a
profit on disposal of ADSs or Ordinary Shares is regarded as ordinary income and
not as a capital gain (such ADSs and Ordinary Shares are referred to as "revenue
assets") will be subject to Australian income tax on Australian source profits
arising on the disposal of the ADSs or Ordinary Shares, unless such profits are
exempt from Australian tax under the Treaty. Prospective investors should
consult their own tax advisors in determining whether the ADSs or Ordinary
Shares are revenue assets because such a conclusion depends on the particular
facts and circumstances of the individual investor.

      Pursuant to the Treaty, capital gains or profits arising on the disposal
of ADSs or Ordinary Shares which constitute "business profits" of an enterprise
carried on by a U.S. resident who does not carry on business in Australia
through a permanent establishment to which such gains or profits are
attributable are exempt from Australian tax. Refer, however, to "Changes to the
Treaty," below. The term "business profits" is not defined in the Treaty and
thus its meaning in the present context is that which the term has under
Australian tax law. The Australian Courts have held that the term business
profits is not confined to profits derived from the carrying on of a business
but must embrace any profit of a business nature or commercial character. The
term "permanent establishment" is defined in the Treaty to mean a fixed place of
business through which an enterprise is carried on and includes an Australian
branch of the U.S. resident and an agent (other than an agent of independent
status) who is authorized to conclude contracts on behalf of the U.S. resident
and habitually exercises that authority in Australia. Any capital gains or
profits derived by a U.S. resident from the disposal of the ADSs or Ordinary
Shares held as revenue assets (including gains derived by a securities dealer)
will constitute business profits under the Treaty and, thus be exempt from
Australian tax, provided that such holder does not carry on business in
Australia through a permanent establishment to which such gains or profits are
attributable.

      The view of the Australian Taxation Commissioner is that the Treaty in its
current form would not preclude Australia from taxing a capital gain realised by
a U.S. resident on the sale of ADSs or Ordinary Shares.

      U.S. residents with no taxable capital gains or income (or deductible
losses) from sources in Australia other than dividends with respect to the
Ordinary Shares or ADSs are not required to file an Australian income tax
return.

      Changes to the Treaty. On September 27, 2001, the Governments of the
United States and Australia signed a Protocol ("the Protocol") amending the
existing Treaty. The Protocol came into force on May 12, 2003 and has the
following dates of effect:

      1  For withholding taxes, the protocol will have effect in relation to
         payments made on or after July 1, 2003.

      2  For other taxes covered, the protocol will have effect in respect of
         income, profits or gains of years of income beginning on or after July
         1, 2004.

                                       53

<PAGE>

      Broadly, subject to the two exceptions mentioned below, the existing tax
treatment of dividends paid to U.S. residents will continue; that is, no
withholding tax will be imposed on the franked component of dividends paid to a
U.S. resident shareholder and 15% withholding tax will be imposed on the
unfranked component of dividends. The two exceptions are:

     a)  no withholding tax will be imposed on unfranked dividends paid to a
         U.S. resident company which is ( beneficially entitled to 80% of the
         voting power (for a 12 month period prior to the date the dividend is
         declared) of the Company and the U.S. resident company satisfies a
         public listing requirement; and

     (b) a withholding tax limit of 5% will apply to unfranked dividends paid to
         a U.S. resident company that holds at least 10% of voting power in the
         Company but does not meet the 80% test mentioned above.

      The Protocol will also amend the Treaty to the effect that Australia will
not be precluded by the Treaty from taxing capital gains derived by a U.S.
resident on the sale of ADSs or Ordinary Shares.

UNITED STATES FEDERAL INCOME TAXATION

         The following is a summary of the principal U.S. federal income tax
consequences of the purchase, ownership and sale of ADSs (which are evidenced by
ADRs) by a "U.S. Holder." As used herein, the term "U.S. holder" means a
beneficial owner of ADRs that is for U.S. federal income tax purposes (1) an
individual who is a U.S. citizen or U.S. resident alien; (2) a corporation, or
other entity taxable as a corporation for U.S. federal income tax purposes, that
was created or organized in or under the laws of the United States, any state
thereof or the District of Columbia; (3) an estate whose income is subject to
U.S. federal income taxation regardless of its source; or (4) a trust if a court
within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust, or that has a valid
election in effect under applicable U.S. Treasury Regulations to be treated as a
United States person.

         In this discussion, we do not purport to address all tax considerations
that may be important to a particular holder in light of the holder's
circumstances, or to certain categories of investors that may be subject to
special rules, such as financial institutions, insurance companies, regulated
investment companies, tax-exempt organizations, dealers in securities or
currencies, persons whose functional currency is not the U.S. dollar, U.S.
expatriates, persons that own directly, indirectly or constructively 10% or more
of our voting stock, partnerships or other pass-through entities, persons who
hold ADRs as part of a hedge, conversion transaction, straddle or other risk
reduction transaction, or persons who acquire ADRs pursuant to the exercise of
employee stock options or otherwise as compensation. This discussion is limited
to U.S. Holders who hold ADRs as capital assets (within the meaning of section
1221 of the Internal Revenue Code of 1986, as amended (the "Code")). If a
partnership holds ADRs, the tax treatment of a partner generally will depend
upon the status of the partner and the activities of the partnership. This
discussion also does not address the tax considerations arising under the laws
of any foreign, state, local, or other jurisdiction.

         This summary is based upon the provisions of the Code, applicable
Treasury Regulations promulgated thereunder, judicial authority and
administrative interpretations, as of the date hereof, all of which are subject
to change, possibly with retroactive effect, or are subject to different
interpretations. We cannot assure you that the Internal Revenue Service will not
challenge one or more of the tax consequences described herein, and we have not
obtained, nor do we intend to obtain, a ruling from the IRS or an opinion of
counsel with respect to the United States federal tax consequences of acquiring,
holding or disposing of ADRs.

         THE SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW IS
FOR GENERAL INFORMATION PURPOSES ONLY. U.S. HOLDERS OR PROSPECTIVE U.S. HOLDERS
OF ADRS THEREFORE SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE
APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS,
INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL OR FOREIGN TAX LAWS AND
TAX TREATIES AND POSSIBLE CHANGES IN LAW.

TAXATION OF DIVIDENDS

         The amount of any distribution paid to a U.S. Holder in respect of
Ordinary Shares represented by the ADRs, including any Australian taxes withheld
from the amount of such distribution, will be includable in gross income of the
U.S. Holder as a dividend, to the extent paid out of current or accumulated
earnings and profits, on the date such distributions are received by the
Depositary. Generally, such dividends will be treated as foreign source passive
income for U.S. foreign tax credit purposes. The amount of any distribution of
property other than cash will be the fair market value of the property on the
date of the distribution. To the extent the amount of a distribution received by
a U.S. Holder exceeds that holder's share of the Company's current and
accumulated earnings and

                                       54

<PAGE>

profits, the excess will be applied first to reduce such U.S. Holder's tax basis
in the ADRs and then, to the extent the distribution exceeds the U.S. Holder's
tax basis, will be treated as capital gain.

         Dividends paid with respect to the Ordinary Shares generally will not
be eligible for the dividends received deduction allowed to corporations
receiving dividends from certain U.S. corporations. Under certain circumstances,
a U.S. Holder that is a corporation and that owns ADRs representing at least 10%
of the total voting power and value of the stock of the Company may be entitled
to a 70% deduction of the U.S. source portion of dividends received from the
Company (unless the Company qualifies as a "Foreign Personal Holding Company" or
a "Passive Foreign Investment Company" as defined below). The availability of
the dividends received deduction is subject to several complex limitations,
which are beyond the scope of this discussion, and U.S. Holders of ADRs should
consult their own tax advisors regarding the dividends received deduction.

         Under recently enacted legislation, subject to certain restrictions and
limitations, U.S. Holders that are individuals, estates or trusts may be
eligible for the maximum 15% long-term capital gains tax rate on dividends
received from "qualified foreign corporations." The term qualified foreign
corporation includes a foreign corporation that is eligible for the benefits of
a comprehensive income tax treaty with the United States which the U.S. Treasury
Department determines to be satisfactory and which includes an exchange of
information provision. The legislative history underlying the provision
indicates that until the U.S. Treasury Department issues guidance regarding the
determination of treaties as satisfactory for this purpose, a foreign
corporation will be considered to be a qualified foreign corporation if it is
eligible for the benefits of a comprehensive income tax treaty with the United
States that includes an exchange of information provision (other than the
U.S.-Barbados Treaty). The U.S. - Australia Income Tax Treaty contains such an
exchange of information provision and thus, it appears that the Company should
be treated as a qualified foreign corporation. However, if the Company
constitutes a "Foreign Personal Holding Company," a "Foreign Investment
Company," or a "Passive Foreign Investment Company," each as defined below, for
its taxable year during which it pays a dividend, or for its immediately
preceding taxable year, the Company generally will not be treated as a
"qualified foreign corporation" and dividends received by U.S. Holders that are
individuals, estates or trusts will be subject to U.S. federal income tax at
ordinary income tax rates (and not at the preferential tax rates applicable to
long-term capital gains).

         Dividends paid in Australian dollars will be includable in income in
the U.S. dollar amount based on the exchange rate on the date such dividends are
paid by the Company. U.S. Holders of ADRs will be required to recognize their
share of any exchange gain or loss realized by the Depositary upon the
conversion of Australian dollars into U.S. dollars and any such gain or loss
will be ordinary gain or loss.

FOREIGN TAX CREDIT

         A U.S. Holder who pays (or has withheld from distributions) Australian
taxes with respect to the ownership of the ADRs may be entitled to claim a
foreign tax credit for the amount of such Australian taxes against such U.S.
Holder's U.S. federal income tax liability, subject to certain limitations and
restrictions that may vary depending upon such holder's circumstances. Instead
of claiming the foreign tax credit, a U.S. Holder may deduct the U.S. dollar
value of such Australian taxes in computing such U.S. Holder's taxable income,
subject to generally applicable limitations under U.S. federal income tax law.
The election to credit foreign taxes is made on a year-by-year basis and applies
to all foreign taxes paid by (or withheld from distributions to) the U.S. Holder
during that year.

TAXATION OF WITHDRAWALS

         U.S. Holders of ADRs that exercise their right to withdraw Ordinary
Shares from the Depositary in exchange for the ADRs representing such Ordinary
Shares will generally not be subject to United States federal income tax on such
exchange. The aggregate basis of the Ordinary Shares so received will be equal
to the U.S. Holder's aggregate adjusted basis in the ADRs exchanged therefor.

TAXATION OF CAPITAL GAINS

         A U.S. Holder generally will recognize a capital gain or loss for
United States federal income tax purposes upon a sale or other disposition of
ADRs in an amount equal to the difference between such U.S. Holder's tax basis
in the ADRs and the amount realized on their disposition. The amount realized
includes the amount of cash and the fair market value of any property received
by a U.S. Holder in exchange for the ADRs. Such capital gain or loss will be
long-term capital gain or loss if the U.S. Holder holds the ADRs for more than
one year. Certain limitations exist on the deductibility of capital losses by
both corporate and individual taxpayers. Capital gains and losses on the

                                       55

<PAGE>

sale or other disposition by a U.S. Holder of ADRs generally will constitute
gains or losses from sources within the United States.

INFORMATION REPORTING AND BACKUP WITHHOLDING

         Information reporting may apply to a U.S. Holder with respect to
distributions made by the Company or to the proceeds of the sale or other
disposition of ADRs, and backup withholding (currently at a rate of 28%) may
apply unless the U.S. Holder provides the appropriate intermediary with a
taxpayer identification number, certified under penalties of perjury, as well as
certain other information or otherwise establishes an exemption from backup
withholding. Any amount withheld under the backup withholding rules is allowable
as a credit against the U.S. Holder's federal income tax liability, if any, and
a refund may be obtained if the amounts withheld exceed the U.S. Holder's actual
U.S. federal income tax liability and the required information is provided to
the IRS.

OTHER U.S. TAX CONSIDERATIONS

         Set forth below are certain material exceptions to the above-described
general rules describing the United States federal income tax consequences
resulting from the holding and disposition of the ADRs.

         Foreign Personal Holding Company

         If at any time during a taxable year (a) more than 50% of the total
voting power or the total value of the Company's outstanding shares is owned
(including through ownership of ADRs), directly or indirectly (pursuant to rules
of constructive ownership), by five or fewer individuals who are citizens or
residents of the United States and (b) 60% (or 50% in certain cases) or more of
the Company's gross income for such year consists of certain types of passive
income (e.g., dividends, interest, royalties, certain gains from the sale of
stock and securities, and certain gains from commodities transactions), the
Company may be treated as a "Foreign Personal Holding Company" ("FPHC"). In that
event, U.S. Holders of ADRs of the Company would be required to include in gross
income for such year their allocable portions of such passive income to the
extent the Company does not actually distribute such income.

         The Company does not believe that it currently constitutes a FPHC
[Company to confirm]. However, there can be no assurance that the Company will
not be considered a FPHC for the current or any future taxable year.

         Foreign Investment Company

         If (a) 50% or more of the total voting power or the total value of the
Company's outstanding shares is owned (including through ownership of ADRs),
directly or indirectly (pursuant to rules of constructive ownership), by
citizens or residents of the United States, U.S. partnerships or corporations,
or U.S. estates or trusts (as defined for U.S. federal income tax purposes), and
(b) the Company is found to be engaged primarily in the business of investing,
reinvesting, or trading in securities, commodities, or any interest therein, the
Company may be treated as a "Foreign Investment Company" ("FIC"), causing all or
part of any gain realized by a U.S. Holder selling or exchanging ADRs of the
Company to be treated as ordinary income rather than capital gain. The Company
does not believe that it currently constitutes a FIC [Company to confirm].
However, there can be no assurance that the Company will not be considered a FIC
for the current or any future taxable year.

         Controlled Foreign Corporation

         If more than 50% of the total voting power or the total value of the
Company's outstanding shares is owned (including through ownership of ADRs),
actually or constructively, by citizens or residents of the United States, U.S.
partnerships or corporations, or U.S. estates or trusts (as defined for U.S.
federal income tax purposes), each of which owns (including through ownership of
ADRs), actually or constructively, 10% or more of the total voting power of the
Company's outstanding shares (each a "10% Shareholder"), the Company would be
treated as a "Controlled Foreign Corporation" ("CFC").

         The classification of the Company as a CFC would cause many complex
results, including that 10% Shareholders would generally (i) be treated as
having received a current distribution of the Company's "Subpart F income" and
(ii) would also be subject to current U.S. federal income tax on their pro rata
shares of the Company's earnings invested in "United States property." In
addition, gain from the sale or other taxable disposition of ADRs of the Company
by a U.S. Holder that is or was a 10% Shareholder at any time during the
five-year period ending with the sale is treated as a dividend to the extent of
earnings and profits of the Company attributable to the ADRs sold or exchanged.
If the Company is classified as both a Passive Foreign Investment Company as
described below

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<PAGE>

and a CFC, the Company generally will not be treated as a Passive Foreign
Investment Company with respect to 10% Shareholders.

         The Company does not believe that it currently constitutes a CFC
[Company to confirm]. However, there can be no assurance that the Company will
not be considered a CFC for the current or any future taxable year. The CFC
rules are very complicated, and U.S. Holders should consult their own tax
advisor regarding the CFC rules and how these rules may affect their U.S.
federal income tax situation.

         Passive Foreign Investment Company

         Special U.S. federal income tax rules apply to U.S. Holders of shares
(including ADRs representing such shares) in a "Passive Foreign Investment
Company" ("PFIC"). In general, a PFIC is any non-United States corporation if,
for any taxable year, either (a) 75% or more of its gross income is "passive
income" (the "Income Test") or (b) the average percentage, by fair market value
(or, if the corporation is not publicly traded and either is a CFC or makes an
election, by adjusted tax basis), of its assets that produce or are held for the
production of "passive income" is at least 50% (the "Asset Test"). Passive
income includes, for example, dividends, interest, certain rents and royalties,
certain gains from the sale of stock and securities, and certain gains from
commodities transactions.

         For purposes of the Income Test and the Assets Test, if a foreign
corporation owns (directly or indirectly) at least 25% by value of the stock of
another corporation, such foreign corporation shall be treated as if it (a) held
a proportionate share of the assets of such other corporation, and (b) received
directly its proportionate share of the income of such other corporation. Also,
for purposes of such tests, passive income does not include any interest,
dividends, rents or royalties that are received or accrued from a "related"
person to the extent such amount is properly allocable to the income of such
related person which is not passive income. For these purposes, a person is
related with respect to a foreign corporation if such person "controls" the
foreign corporation or is controlled by the foreign corporation or by the same
persons that control the foreign corporation. For these purposes, "control"
means ownership, directly or indirectly, of stock possessing more than 50% of
the total voting power of all classes of stock entitled to vote or of the total
value of stock of a corporation.

         U.S. Holders owning common shares of a PFIC are subject to the highest
rate of tax on ordinary income in effect for the applicable taxable year and to
an interest charge based on the value of deferral of tax for the period during
which the common shares (including ADRs representing such shares) of the PFIC
are owned with respect to certain "excess distributions" on and dispositions of
PFIC stock. However, if the U.S. Holder makes a timely election to treat a PFIC
as a qualified electing fund ("QEF") with respect to such shareholder's interest
therein, the above-described rules generally will not apply. Instead, the
electing U.S. Holder would include annually in his gross income his pro rata
share of the PFIC's ordinary earnings and net capital gain regardless of whether
such income or gain was actually distributed. A U.S. Holder of a QEF can,
however, elect to defer the payment of U.S. federal income tax on such income
inclusions. In addition, subject to certain limitations, U.S. Holders owning,
actually or constructively, marketable (as specifically defined) stock in a PFIC
will be permitted to elect to mark that stock to market annually, rather than be
subject to the tax regime described above. Amounts included in or deducted from
income under this alternative (and actual gains and losses realized upon
disposition, subject to certain limitations) will be treated as ordinary gains
or losses.

         The Company believes that it did not constitute a PFIC for its fiscal
year ended December 31, 2002. However, there can be no assurance that the
Company will not be considered a PFIC for the current or any future taxable
year. There can be no assurance that the Company's determination concerning its
PFIC status will not be challenged by the IRS, or that it will be able to
satisfy record keeping requirements that will be imposed on QEFs in the event
that it qualifies as a PFIC.

         The PFIC rules are very complicated, and U.S. Holders should consult
their own tax advisors regarding the PFIC rules and how these rules may affect
their U.S. federal income tax situation.

F. DIVIDENDS AND PAYING AGENTS

   Not applicable.

G. STATEMENT BY EXPERTS

   Not applicable.

                                       57

<PAGE>

H. DOCUMENTS ON DISPLAY

       The Company electronically files certain documents with the SEC including
its Annual Report of Foreign Private Issuers on Form 20-F; Report of Foreign
Issuer on Form 6-K; and any related amendments and supplements thereto. You may
read and copy any materials the Company files with the SEC at the SEC's Public
Reference Room at 450 Fifth Street, NW, Washington, DC 20549. You may obtain
information regarding the Public Reference Room by calling the SEC at
1-800-SEC-0330. In addition, the SEC maintains an internet website at
www.sec.gov that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC.

       The Company provides a link to the SEC's website on its internet website,
www.petsec.com.au. Information on the Company's website does not constitute part
of this Annual Report. You may also contact the Company in the USA at
337-989-1942, extension 208, for paper copies of these reports free of charge.

I. SUBSIDIARY INFORMATION

   Not applicable.

     ITEM 11 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

       The Company is exposed to market risk from adverse changes in commodity
prices and interest rates as discussed below.

       Commodity Price Risk. The Company is an oil and gas exploration and
production company, and, thus sells natural gas and crude oil. As a result, the
Company's financial results can be significantly affected as these commodity
prices fluctuate widely in response to changing market forces. In the past the
Company has made use of derivative financial instruments such as forward swap
contracts and collars as a hedging strategy to manage commodity prices
associated with oil and gas sales and to reduce the impact of commodity price
fluctuations. The Company used the hedge or deferral method of accounting for
these instruments and, as a result, gains and losses on commodity derivative
financial instruments were generally offset by similar changes in the realized
prices of the commodities. See "Item 5 - Operating and Financial Review and
Prospects -- Hedging Transactions." The Company currently has no derivatives
contracts in place.

       Interest Rate Risk. Currently, the Company has no open interest rate
swap or interest rate lock agreements. The Company's only exposure to interest
rate risk is in relation to the floating rate earned on the Company's cash
balances. The Company currently has no debt.

       ITEM 12 - DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

                                 Not applicable

                                     PART II

          ITEM 13 - DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

       The Company had no material defaults, dividend arrearages or
delinquencies in fiscal year ended December 31, 2002.

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

                                 Not applicable

                                       58

<PAGE>

                        ITEM 15 - CONTROLS AND PROCEDURES

         In the 90-day period before the filing of this report, each of our
Chief Executive Officer and Chief Financial Officer has evaluated the
effectiveness of the Company's disclosure controls and procedures. These
disclosure controls and procedures are those controls and other procedures the
Company maintains, which are designed to ensure that all of the information
required to be disclosed by the Company in all of its combined and separate
periodic reports filed with the SEC is recorded, processed, summarized and
reported, within the time periods specified in the SEC's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by the
Company in their reports filed or submitted under the Securities Exchange Act of
1934 is accumulated and communicated to its management, including the Company's
Chief Executive Officer and Chief Financial Officer, as appropriate to allow
those persons to make timely decisions regarding required disclosure. No
significant deficiencies or material weaknesses were detected. Subsequent to the
date when the disclosure controls and procedures were evaluated, there have not
been any significant changes in our controls or procedures or in other factors
that could significantly affect such controls or procedures.

                               ITEM 16 - RESERVED

                                 Not applicable.

                                    PART III

                         ITEM 17 - FINANCIAL STATEMENTS

         Not applicable - see Item 18 below.

                         ITEM 18 - FINANCIAL STATEMENTS

         The US Dollar Financial Statements of the Company and the Independent
Auditors' Report are included on pages F-1 through F-24 of this Form 20-F.

                               ITEM 19 - EXHIBITS

EXHIBITS

         1.1 Constitution of the Company, incorporated herein by reference to
         Exhibit 23.1 to Form 20-F for the Company for the year ended December
         31, 2000 (File No. 0-28608).

         8.1 Subsidiaries of the Company

         99.1 Consent of Independent Auditors

         99.2 Consent of Independent Petroleum Engineers

         99.3 Petsec Energy Ltd certification

         99.4 Petsec Energy Ltd certification

                                       59

<PAGE>

                                   SIGNATURES

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

By: /s/ Fiona A. Robertson
        ------------------

Fiona A. Robertson
Chief Financial Officer

I, Fiona A. Robertson, certify that:

1.  I have reviewed this annual report on Form 20F of Petsec Energy Ltd;

2.  Based on my knowledge, this annual report does not contain any untrue
    statement of a material fact or omit to state a material fact necessary to
    make the statements made, in light of the circumstances under which such
    statements were made, not misleading with respect to the period covered by
    this annual report;

3.  Based on my knowledge, the financial statements, and other financial
    information included in this annual report fairly present in all material
    respects the financial condition, results of operations and cash flows of
    the registrant as of and for, the periods presented in this annual report;

4.  The registrant's other certifying officers and I are responsible for
    establishing and maintaining disclosure controls and procedures (as defined
    in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

    (a)  designed such disclosure controls and procedures to ensure that
         material information relating to the registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this annual report is
         being prepared;

    (b)  evaluated the effectiveness of the registrant's disclosure controls and
         procedures as of a date within 90 days prior to the filing date of this
         annual report (the "Evaluation Date"); and

    (c)  presented in this annual report our conclusions about the effectiveness
         of the disclosure controls and procedures based on our evaluation as of
         the Evaluation Date;

5.  The registrant's other certifying officers and I have disclosed, based on
    our most recent evaluation, to the registrant's auditors and the audit
    committee of the registrant's board of directors (or persons performing the
    equivalent function):

    (a)  all significant deficiencies in the design or operation of internal
         controls which could adversely affect the registrant's ability to
         record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and

    (b)  any fraud, whether or not material, that involves management or other
         employees who have a significant role in the registrant's internal
         controls; and

6.  The registrant's other certifying officers and I have indicated in this
    annual report whether or not there were significant changes in internal
    controls or in other factors that could significantly affect internal
    controls subsequent to the date of our most recent evaluation, including any
    corrective actions with regard to significant deficiencies and material
    weaknesses.

Date: June 27, 2003

/s/ Fiona A. Robertson
    ------------------

Fiona A. Robertson
Chief Financial Officer

                                       60
<PAGE>

Terrence Norman Fern
Chief Executive Officer

I, Terrence Norman Fern, certify that:

1.  I have reviewed this annual report on Form 20F of Petsec Energy Ltd;

2.  Based on my knowledge, this annual report does not contain any untrue
    statement of a material fact or omit to state a material fact necessary to
    make the statements made, in light of the circumstances under which such
    statements were made, not misleading with respect to the period covered by
    this annual report;

3.  Based on my knowledge, the financial statements, and other financial
    information included in this annual report fairly present in all material
    respects the financial condition, results of operations and cash flows of
    the registrant as of and for, the periods presented in this annual report;

4.  The registrant's other certifying officers and I are responsible for
    establishing and maintaining disclosure controls and procedures (as defined
    in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

    a.   designed such disclosure controls and procedures to ensure that
         material information relating to the registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this annual report is
         being prepared;

    b.   evaluated the effectiveness of the registrant's disclosure controls and
         procedures as of a date within 90 days prior to the filing date of this
         annual report (the "Evaluation Date"); and

    c.   presented in this annual report our conclusions about the effectiveness
         of the disclosure controls and procedures based on our evaluation as of
         the Evaluation Date;

5.  The registrant's other certifying officers and I have disclosed, based on
    our most recent evaluation, to the registrant's auditors and the audit
    committee of the registrant's board of directors (or persons performing the
    equivalent function):

    a.   all significant deficiencies in the design or operation of internal
         controls which could adversely affect the registrant's ability to
         record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and

    b.   any fraud, whether or not material, that involves management or other
         employees who have a significant role in the registrant's internal
         controls; and

6.  The registrant's other certifying officers and I have indicated in this
    annual report whether or not there were significant changes in internal
    controls or in other factors that could significantly affect internal
    controls subsequent to the date of our most recent evaluation, including any
    corrective actions with regard to significant deficiencies and material
    weaknesses.

Date: June 27, 2003

/s/ Terrence Norman Fern
    --------------------

Terrence Norman Fern
Chief Executive Officer

                                       61
<PAGE>

P E T S E C   E N E R G Y   L T D
ACN 000 602 700

US Dollar Financial Statements
Under US Generally Accepted
Accounting Principles
December 31, 2002

<TABLE>
<S>                                                                      <C>
Consolidated Balance Sheets                                               F2
Consolidated Statements of Operations                                     F3
Consolidated Statements of Comprehensive Income (Loss)                    F4
Consolidated Statements of Cash Flows                                     F5
Notes to the Consolidated Financial Statements                            F6
Independent Auditor's Report                                             F24
</TABLE>

Note: Further information relating
to the operations of the Company
is available through either of the
following:
1. The Company's home page at
http://www.petsec.com.au
2. By contacting
The President
Petsec Energy Inc.
4023 Ambassador Caffery Parkway
Caffery Plaza - Suite 550
Lafayette LA 70503
(337) 989 1942

                                       F1

<PAGE>

CONSOLIDATED BALANCE SHEETS
Petsec Energy Ltd and subsidiaries

<TABLE>
<CAPTION>
                                                            December 31  December 31
(US dollars, in thousands)                                     2001          2002
------------------------------------------------------------------------------------
<S>                                                         <C>          <C>
ASSETS (NOTE 1(b))
Current assets
     Cash                                                    $  11,494    $     596
     Certificates of deposit (note 11)                             225          675
     Trade debtors                                                   -          201
     Other receivables                                             108          453
     Investment securities                                           -        1,000
     Prepayments                                                    44           35
     Deferred tax assets (note 2)                                  135          140
                                                             ----------------------
         Total current assets                                   12,006        3,100
                                                             ----------------------
Non-current assets
     Proved and unproved oil and gas properties                  2,974       10,651
     Investment securities                                          63          311
     Property, plant and equipment (note 5)                         53          144
                                                             ----------------------
         Total non-current assets                                3,090       11,106
                                                             ----------------------
Total assets                                                 $  15,096    $  14,206
                                                             ----------------------
LIABILITIES AND SHAREHOLDERS' EQUITY (NOTE 1(b))
Current liabilities
     Accounts payable and accrued liabilities (note 6)       $     390    $   2,989
                                                             ----------------------
         Total current liabilities                                 390        2,989
                                                             ----------------------
Long-term liabilities
     Deferred tax liabilities (note 2)                           1,006          840
     Other accrued liabilities (note 7)                            116          129
                                                             ----------------------
         Total long-term liabilities                             1,122          969
                                                             ----------------------
Shareholders' equity

     Share capital (notes 9 and 10)                            120,661      120,701
     Accumulated other comprehensive loss (notes 4 and 10)      (2,287)      (2,376)
     Accumulated deficit                                      (104,790)    (108,077)
                                                             ----------------------
         Total shareholders' equity (note 10)                   13,584       10,248
                                                             ----------------------
Total liabilities and shareholders' equity                   $  15,096    $  14,206
                                                             ----------------------
</TABLE>

See accompanying notes to consolidated financial statements.

                                       F2

<PAGE>

CONSOLIDATED STATEMENTS
OF OPERATIONS
Petsec Energy Ltd and subsidiaries

<TABLE>
<CAPTION>
                                                                Twelve months ended
                                                      December 31    December 31    December 31
(US dollars, in thousands except earnings per share)      2000           2001          2002
-----------------------------------------------------------------------------------------------
<S>                                                   <C>             <C>             <C>
Oil and gas sales (net of royalties payable)            $  8,257       $      -        $      -
Oil and gas royalties                                          -              -             201
                                                        ---------------------------------------
Total revenues                                          $  8,257       $      -        $    201
                                                        ---------------------------------------
Operating expenses
     Lease operating expenses                              1,657              -               -
     Depletion, depreciation and amortization              4,845             28              34
     Exploration expenditure                                 365            422           1,176
     Dry hole and abandonment costs                          611            877           1,066
     General, administrative and other expenses            3,625          1,264           1,691
     Stock compensation expense                              138             11              40
                                                        ---------------------------------------
     Total operating expenses                             11,241          2,602           4,007
     Profit (loss) on sale of assets                         592              9              (8)
                                                        ---------------------------------------

     Loss from operations                                 (2,392)        (2,593)         (3,814)

Other income                                                   1            200             137
Interest expense                                          (3,378)             -               -
Interest income                                            1,037            447             136
                                                        ---------------------------------------
     Loss before income tax and extraordinary items       (4,732)        (1,946)         (3,541)
Income tax benefit (expense) (note 2)                        (10)             8             254
                                                        ---------------------------------------
     Net loss before extraordinary items                $ (4,742)      $ (1,938)       $ (3,287)
Extraordinary items
     Recognition of deferred gain on subsidiary
         emergence from bankruptcy (note 1(b))                 -         37,147               -
     Distribution from bankruptcy trustee (note 1(b))          -          1,103               -
                                                        ---------------------------------------
       Net income (loss)                                $ (4,742)      $ 36,312        $ (3,287)
                                                        ---------------------------------------

Earnings (loss) per common share (note 3)
 - basic, before extraordinary gain                     $  (0.04)      $  (0.02)       $  (0.03)
 - basic, after extraordinary gain                      $  (0.04)      $   0.34        $  (0.03)

 - diluted, before extraordinary gain                   $  (0.04)      $  (0.02)       $  (0.03)
 - diluted, after extraordinary gain                    $  (0.04)      $   0.34        $  (0.03)
</TABLE>

See accompanying notes to consolidated financial statements.

                                       F3

<PAGE>


CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)
Petsec Energy Ltd and subsidiaries

<TABLE>
<CAPTION>
                                                          Twelve months ended
                                                December 31   December 31  December 31
(US dollars, in thousands)                         2000           2001         2002
--------------------------------------------------------------------------------------
<S>                                             <C>           <C>          <C>
Net income (loss)                                 $(4,742)      $36,312      $(3,287)
                                                  ----------------------------------

Foreign currency translation adjustments,
     net of tax (note 4)                            1,257           214          (89)
                                                  ----------------------------------
Comprehensive income (loss)                       $(3,485)      $36,526      $(3,376)
                                                  ----------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

                                       F4

<PAGE>

CONSOLIDATED STATEMENTS
OF CASH FLOWS
Petsec Energy Ltd and subsidiaries

<TABLE>
<CAPTION>
                                                                             Twelve months ended
                                                                 December 31    December 31     December 31
(US dollars, in thousands)                                          2000            2001           2002
----------------------------------------------------------------------------------------------------------
<S>                                                              <C>            <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)                                                $   (4,742)     $  36,312      $   (3,287)
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities:
-    depletion, depreciation and amortization                         4,845             28              34
-    dry holes and abandonments                                         611            877           1,066
-    (gain) loss on sale of investments/assets                         (592)            (9)              8
-    recognition of deferred gain                                         -        (37,147)              -
-    gain on distribution from bankruptcy trustee                         -         (1,103)              -
-    employee stock compensation                                        138             11              40
-    interest income on subscriptions receivable                        (80)             -               -
-    amortization of borrowing costs and discount on notes              264              -               -
-    income tax benefit                                                   -              -            (254)
Changes in operating assets and liabilities:
-    accounts receivable                                               (186)             -            (546)
-    other current assets                                             1,306             (9)              9
-    accounts payable and accrued liabilities                        (1,274)          (127)            215
-    other accrued liabilities                                          228              1             (13)
                                                                 -----------------------------------------
Net cash provided by (used in) operating activities                     518         (1,166)         (2,728)
                                                                 -----------------------------------------

INVESTING ACTIVITIES
     Additions to oil and gas properties                            (12,113)          (965)         (6,487)
     Additions to investments and certificates of deposit              (225)           (63)         (1,698)
     Proceeds of asset disposals                                      8,450              9               1
     Distribution from bankruptcy trustee                                 -          1,103               -
     Distribution from investments                                        -             20              14
     Loss of cash on deconsolidation of controlled entity            (2,248)             -               -
                                                                 -----------------------------------------
Net cash provided by (used in) investing activities                  (6,136)           104          (8,170)
                                                                 -----------------------------------------

FINANCING ACTIVITIES
     Proceeds from bank credit facility                              19,330              -               -
     Repayments of bank credit facility                             (21,515)             -               -
                                                                 -----------------------------------------
         Net cash used in financing activities                       (2,185)             -               -
                                                                 -----------------------------------------
Decrease in cash                                                     (7,803)        (1,062)        (10,898)
Cash at the beginning of the period                                  20,359         12,556          11,494
                                                                 -----------------------------------------
CASH AT THE END OF THE PERIOD                                    $   12,556      $  11,494      $      596
                                                                 -----------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

                                       F5

<PAGE>

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Petsec Energy Ltd and subsidiaries

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

The significant accounting policies which have been adopted in the preparation
of this financial report are:

(a) Description of business

Petsec Energy Ltd ("the Company") is an independent exploration, development and
production company operating in the shallow waters of the Gulf of Mexico, U.S.A.
and in the Beibu Gulf, offshore China. The primary business of the Company is
exploration, development and production of oil and gas; therefore, the Company
is directly affected by fluctuating economic conditions in the oil and gas
industry. During the year the Company earned revenue from oil and gas royalty
interests. The Company did not have any production during 2001 and 2002.

(b) Basis of preparation

The financial statements have been prepared on a going concern basis in
accordance with US GAAP, with the US dollar as the reporting currency.

The following information is provided for comparative purposes.

On April 13, 2000, the consolidated entity's US subsidiary, Petsec Energy Inc.
("PEI"), filed a voluntary petition under Chapter 11 of the US Bankruptcy Code
in the United States Bankruptcy Court. Petsec Energy Ltd's control over PEI was
significantly impaired as a result of the protection PEI was entitled to receive
under the US Bankruptcy Act. Consequently the directors decided to deconsolidate
PEI from the consolidated entity's financial statements as at April 13, 2000
unless and until control was re-established.

The gain, resulting from the deconsolidation of PEI, had been deferred until all
obligations were extinguished, which was considered to be as of the date PEI
emerged from Chapter 11.

An agreement was reached between and among PEI, Petsec (USA) Inc. a Nevada
Corporation and wholly owned subsidiary of PEL, as equity owner ("PUSA"),
certain senior management of PEI, the Official Committee of Unsecured Creditors
and certain holders of the 9 1/2 % Notes to sell PEI or all of its assets, and
for an agreed distribution of the sale proceeds to PEI's creditors, PUSA, as
equity owner, and certain of PEI's senior management team in the United States.
The sale of PEI's assets was completed in December 2000 pursuant to the
Bankruptcy Court approved Plan of Reorganization. In accordance with the
distribution scheme under the Plan of Reorganization the Company received
approximately US$1.1 million in 2001.

PEI emerged from Chapter 11 on January 16, 2001, consequently the financial
effect of emerging from Chapter 11 was recorded in the December 31, 2001
financial statements. PEI's emergence from bankruptcy resulted in the
recognition of an extraordinary gain of $37.1 million in 2001 as a result of the
forgiveness of liabilities.

(c) Principles of consolidation

The consolidated financial statements include the financial statements of the
Company and its subsidiaries ("the Group"). All significant intercompany
balances and transactions have been eliminated on consolidation.

(d) Oil and gas properties

The Company uses the successful efforts method of accounting for oil and gas
producing activities. Costs to acquire mineral interests in oil and gas
properties, to drill and equip exploratory wells that find proved reserves, and
to drill and equip development wells are capitalized. Costs to drill exploratory
wells that do not find proved reserves, and geological and geophysical costs are
expensed as incurred. Capitalized costs of producing oil and gas properties are
depreciated and depleted by the units-of-production method.

Unproved oil and gas properties are periodically assessed on a
property-by-property basis, and a loss is recognized to the extent, if any, that
the cost of the property has been impaired.

The Company assesses the impairment of capitalized costs of proved oil and gas
properties on a field-by-field basis, utilizing its current estimate of future
revenues and operating expenses associated with proved reserves. In the event
net undiscounted cash flow is less than the carrying value, an impairment loss
is recorded based on estimated fair value, which would consider discounted
future net cash flows.

On the sale or retirement of a complete unit of a proved property, the cost and
related accumulated depletion, depreciation and amortization are eliminated from
the property accounts, and the resultant gain or loss is recognized.

(e) Capitalized interest

No interest was capitalized in 2000, 2001 and 2002.

                                       F6

<PAGE>

(f) Depreciation - other property, plant and equipment

Depreciation is provided on other property, plant and equipment so as to write
off the assets progressively over their estimated useful life using the straight
line method.

<TABLE>
<CAPTION>
-------------------------------------------------------
                            Method           Estimated
                                            useful life
-------------------------------------------------------
<S>                         <C>             <C>
Furniture and fittings      Straight line         7
Office machines and
  equipment                 Straight line         7
Motor vehicles              Straight line         4
Leasehold improvements      Straight line         5
</TABLE>

(g) Investments

     (i) Joint ventures

The consolidated entity's interest in unincorporated joint ventures is brought
to account by including in the respective financial statement classes the amount
of:

     - the consolidated entity's interest in each of the individual assets
     employed in the joint ventures;

     - the liabilities of the consolidated entity in relation to the joint
     ventures; and

     - the consolidated entity's interest in the expenses incurred in relation
     to the joint ventures.

     (ii) Investment securities

All securities not included in trading or held to maturity are classified as
available for sale.

Trading and available-for-sale securities are recorded at fair value. Unrealized
holding gains and losses, net of the related tax effect, on available-for-sale
securities are excluded from earnings and are reported as a separate component
of other comprehensive income until realized. Realized gains and losses from the
sale of available-for-sale securities are determined on a
specific-identification basis.

(h) Revenue recognition

Sales are brought to account when product is in the form in which it is to be
delivered and an actual physical quantity has been provided or allocated to a
purchaser pursuant to a contract.

Revenue from oil and gas royalties is recognised on an accrual basis in
accordance with the terms of underlying royalty agreements. Revenue from oil and
gas royalties is measured at the fair value of the consideration receivable.

(i) Derivative instruments and hedging activities

On January 1, 2001, the Group adopted Statement 133, as amended by SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities".
As a result of the filing for voluntary protection under Chapter 11 of the US
Bankruptcy Code in the United States Bankruptcy Court and the corresponding
deconsolidation of PEI, the impact of the adopting Statement 133, as amended,
was not material.

During 2001 and 2002 no derivative instruments were entered into.

(j) Employee entitlements

The provision for employee entitlements to wages, salaries and annual leave
represents the amount of the present obligation to pay resulting from employees'
services provided up to balance date. The provision has been calculated based on
current wage and salary rates and includes related on-costs. Employer
contributions to superannuation funds are charged against earnings. Further
information is set out in note 11.

(k) Income taxes

The Group accounts for income taxes following the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Where realization of a deferred tax
asset is not considered more likely than not a valuation allowance is
established. See note 2 for further discussion.

(l) Foreign currency translation

Foreign currency transactions are translated at the rates of exchange ruling at
the date of the transactions. Amounts receivable and payable in foreign
currencies are translated at the rates of exchange ruling at balance date.

Exchange differences relating to amounts receivable and payable in foreign
currencies are brought to account in earnings as exchange gains or losses in the
financial period in which the exchange rates change.

The balance sheets of the Company and its Australian subsidiaries are translated
at the rates

                                       F7

<PAGE>

of exchange ruling at balance date. The statements of operations are translated
at a weighted average rate for the period. Exchange differences arising on
translation are taken directly to the foreign currency translation reserve and
form part of the accumulated other comprehensive loss.

The exchange rates (US dollars for one Australian dollar) used in the
preparation of these financial statements are:

<TABLE>
<CAPTION>
------------------------------------------------
                          Twelve months ended
                              December 31,
                        2000     2001      2002
------------------------------------------------
<S>                     <C>      <C>      <C>
Weighted average
exchange rate           0.5746   0.5075   0.5391
Exchange rate at
period end              0.5489   0.5062   0.5598
</TABLE>

(m) Comprehensive income (loss)

SFAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and presentation of comprehensive income and its components in a full
set of financial statements. Comprehensive income (loss) consists of net income
(loss) and other items of comprehensive income (loss) and is presented in the
consolidated statements of comprehensive income (loss).

(n) Comparatives

Where necessary, comparative information has been reclassified to achieve
consistency in disclosure with current financial year amounts and other
disclosures.

(o) Stock compensation

The Company has an Employee Option Plan and issues options to employees and
certain consultants of the Company to purchase stock in the Company.

The Company recognizes stock compensation expense in respect of the options
granted to the Company's employees and certain consultants in accordance with
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation", under which it recognizes as expense over the vesting period the
fair value of all stock-based awards on the date of grant. The amount is
recorded as an increase to share capital.

During 2002 the Company cancelled 466,000 employee options on issue and issued
3,545,000 new options under the plan. The stock compensation expense relating to
the new options is accounted for in accordance with SFAS No. 123 (refer to note
9 for movements in employee options and shares).

The fair value was determined using the Black-Scholes valuation method. The
calculation takes into account the exercise price, expected life, current price
of underlying stock, expected volatility of underlying stock, expected dividend
yield and the risk-free interest rate. The expected life, volatility, dividend
yield and risk-free interest rates used in determining the fair value of options
granted in 2002 were 1.3 to 4.3 years (weighted average 2.8 years); 77.10%; 0%
and 4.68% per annum, respectively. No options were issued in 2001 and 2000.

(p) Use of estimates

The preparation of the financial statements requires management to make
estimates and assumptions which affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reported period. Actual results could differ from those estimates.

                                       F8

<PAGE>

2.   INCOME TAXES

Income (loss) before income taxes for the years ended December 31, 2000, 2001
and 2002 were taxed under the following jurisdictions:

<TABLE>
<CAPTION>
-------------------------------------------------------------------
                                            Twelve months
                                               ended
                                December 31  December 31 December 31
(US dollars, in thousands)          2000        2001        2002
-------------------------------------------------------------------
<S>                             <C>          <C>         <C>
Australia                         $   (660)   $   (489)   $   (846)
US                                $ (4,072)   $ 36,793    $ (2,695)
                                  --------------------------------
                                  $ (4,732)   $ 36,304    $ (3,541)
                                  --------------------------------
</TABLE>

The US jurisdiction income for December 31, 2001, included a non assessable
extraordinary gain of $37.1 million arising on the forgiveness of liabilities as
a result of a subsidiary emerging from bankruptcy, and a taxable extraordinary
gain of US$1.1 million, being the distribution from the bankruptcy trustee. Tax
payable on this distribution was sheltered using carried forward net operating
losses.

Income tax expense (benefit) is presented below:

<TABLE>
<CAPTION>
                                                                          Twelve months
                                                                              ended
                                                         December 31        December 31            December 31
(US dollars, in thousands)                                   2000              2001                   2002
---------------------------------------------------------------------------------------------------------------
<S>                                                      <C>               <C>                    <C>
     Current:
     Australia                                           $         10      $          (8)         $           -
                                                         ------------------------------------------------------

     Deferred:
     Australia                                           $          -      $           -          $        (254)
     US                                                  $          -      $           -          $           -
                                                         ------------------------------------------------------
                                                         $          -      $           -          $        (254)
                                                         ------------------------------------------------------

     Income tax expense (benefit)                        $         10      $          (8)         $        (254)
                                                         ------------------------------------------------------
</TABLE>

Income tax expense (benefit) differed from the amounts computed by applying an
income tax rate of 30% (the statutory rate in effect in Australia) (2001: 34%,
2000: 34%) to income (loss) before income taxes and extraordinary items as a
result of the following:

<TABLE>
<CAPTION>
                                                               Twelve months ended
                                                       December 31  December 3   December 31
(US dollars, in thousands)                                 2000        2001         2002
--------------------------------------------------------------------------------------------
<S>                                                    <C>          <C>          <C>
Computed "expected" tax expense (benefit)                $(1,609)     $  (662)     $(1,062)

Increase (reduction) in income taxes resulting from:
     US benefit lost on deconsolidation                    1,384            -            -
     Benefit of tax losses not recognised                    235          654          808
                                                         ---------------------------------
                                                         $    10      $    (8)     $  (254)
                                                         ---------------------------------
</TABLE>

                                       F9

<PAGE>

2.   INCOME TAXES (CONTINUED)

The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 2001 and
2002 are presented below.

<TABLE>
<CAPTION>
                                                                     December 31  December 31
                                                                         2001        2002
                                                                    (US Dollars, in thousands)
                                                                    --------------------------
<S>                                                                 <C>           <C>
Deferred tax assets:

Financial provisions not currently deductible for tax purposes         $    135    $    140
Net operating loss carry forward                                         22,137      22,748
                                                                       --------------------
                                                                         22,272      22,888
Less valuation allowance                                                (22,137)    (22,748)
                                                                       --------------------
Total deferred tax assets                                              $    135    $    140
                                                                       --------------------
Deferred tax liabilities:

Net unrealized foreign exchange gains transferred to the
     foreign currency translation reserve                              $ (1,006)   $   (840)
                                                                       --------------------

Net deferred tax liability                                             $   (871)   $   (700)
                                                                       --------------------
</TABLE>

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment. The remaining balance of
deferred tax assets are expected to be realized through the reversal of taxable
temporary differences.

At December 31, 2002, the Company has gross operating loss carryforwards for
Australian income tax purposes of US$1.9 million which are available to offset
future taxable income. These losses have no expiry.

At December 31, 2002 the Company has gross operating loss carryforwards of $63.2
million for United States Federal and State income tax purposes, which are
available to offset future Federal and State taxable income, if any, from 2005
through 2019.

3.   EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per ordinary share is computed by dividing net income
(loss) by the weighted average number of ordinary shares outstanding during the
respective period. Diluted earnings per ordinary share is computed by dividing
net income by the weighted average number of ordinary shares outstanding plus
potentially dilutive ordinary shares.

<TABLE>
<CAPTION>
                                                                        Twelve months ended
                                                            December 31    December 31     December 31
                                                               2000            2001            2002
                                                                          (in thousands)
                                                            ------------------------------------------
<S>                                                         <C>            <C>             <C>
Weighted average number of ordinary shares used in the
     calculation of the basic earnings per share              106,589        105,752         105,736
Weighted average number of ordinary shares used in the
     calculation of the diluted earnings per share            106,589        105,752         105,736
</TABLE>

                                       F10

<PAGE>

3.  EARNINGS PER SHARE (CONTINUED)

<TABLE>
<CAPTION>
                                              2000                   2001                    2002
                                      --------------------  -----------------------   --------------------
                                      (US$'000)  ($/share)  (US$'000)     ($/share)   (US$'000)  ($/share)
<S>                                   <C>        <C>        <C>           <C>         <C>        <C>
EARNINGS PER COMMON SHARE - BASIC
Net income (loss) before
   extraordinary item                  (4,742)     (0.04)     (1,938)       (0.02)     (3,287)     (0.03)
Extraordinary item                          -          -      38,250         0.36           -          -
                                       -----------------------------------------------------------------
Net income (loss)                      (4,742)     (0.04)     36,312         0.34      (3,287)     (0.03)
                                       -----------------------------------------------------------------
EARNINGS PER COMMON SHARE - DILUTED
Net income (loss) before
   extraordinary item                  (4,742)     (0.04)     (1,938)       (0.02)     (3,287)     (0.03)
Extraordinary item                          -          -      38,250         0.36           -          -
                                       -----------------------------------------------------------------
Net income (loss)                      (4,742)     (0.04)     36,312         0.34      (3,287)     (0.03)
                                       -----------------------------------------------------------------
</TABLE>

A difference between the weighted average number of ordinary shares used for
basic and diluted earnings per share arises due to the dilutive effect of
unexercised options and is measured utilizing the treasury stock method. There
is no difference between the basic and diluted weighted average number of
ordinary shares in 2000, 2001 and 2002 as the exercise price of the 3,628,000
options (2000: 1,432,500; 2001: 549,000) is above the average market price, and
therefore are anti-dilutive.

4.   OTHER COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
                                                                    Twelve months
                                                                       ended
                                                      December 31    December 31     December 31
                                                         2000           2001            2002
                                                             (US Dollars, in thousands)
                                                      ------------------------------------------
<S>                                                   <C>            <C>            <C>
Foreign currency translation adjustments -
   Australian operations (no tax effect)              $    1,257     $      214     $       (89)
                                                      ------------------------------------------
</TABLE>

5.   PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
                                                                       December 31     December 31
                                                                          2001            2002
                                                                      (US Dollars, in thousands)
                                                                     ----------------------------
<S>                                                                  <C>             <C>
- at cost                                                            $      266      $      341
- accumulated depreciation                                                 (213)           (197)
                                                                     ---------------------------
                                                                     $       53      $      144
                                                                     ---------------------------
</TABLE>

6.   ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

<TABLE>
<CAPTION>
                                                                    December 31      December 31
                                                                        2001            2002
                                                                     (US Dollars, in thousands)
                                                                    ----------------------------
<S>                                                                 <C>              <C>
Current
Trade creditors                                                     $       102       $   1,706
Sundry creditors and accruals                                               288           1,283
                                                                    ---------------------------
                                                                    $       390       $   2,989
                                                                    ---------------------------
</TABLE>

7.   OTHER ACCRUED LIABILITIES

<TABLE>
<CAPTION>
                                                                     December 31     December 31
                                                                        2001            2002
                                                                     (US Dollars, in thousands)
                                                                     --------------------------
<S>                                                                  <C>             <C>
Employee entitlements provision                                      $      116       $     129
                                                                     --------------------------
                                                                     $      116       $     129
                                                                     --------------------------
</TABLE>

                                       F11
<PAGE>

8.   FINANCING ARRANGEMENTS, LIQUIDITY AND FINANCIAL INSTRUMENTS DISCLOSURES

(a)  Financing arrangements

At December 31, 2002, the consolidated entity had no external debt (2001: Nil).

(b)  Interest rate risk exposures

At December 31, 2002, the weighted average interest rate for cash deposits was
1.50% per annum (2001: 1.40%). Cash deposits were held primarily in US dollars.

The other financial assets and liabilities detailed in the financial statements
(receivables, payables and investments) are all non-interest bearing.

(c)  Foreign exchange exposures

During 2001 and 2002, operating costs were incurred in both Australian and US
dollars following the commencement of US exploration activities.

Throughout 2001 and 2002, the consolidated entity held the majority of its
liquid funds in US dollars.

Fluctuations in the Australian dollar/US dollar exchange rate have impacted the
underlying performance of the consolidated entity. The consolidated entity's
policy is not to hedge the Australian dollar/US dollar exchange rate risk.

(d)  Commodity price exposures

As at December 31, 2002 the consolidated entity did not have any outstanding
derivative instruments nor has it entered into any derivative instruments during
2002.

(e)  Credit risk exposures

Credit risk represents the loss that would be recognised if counterparties
failed to perform as contracted.

i)   On-balance sheet financial assets:

The credit risk on financial assets, excluding investments, of the consolidated
entity which have been recognised on the balance sheet is the carrying amount,
net of any provision for doubtful debts.

ii)  Off-balance sheet financial instruments:

The consolidated entity does not have any off-balance sheet financial
instruments.

(f)  Fair values of financial assets and liabilities

The carrying values of cash and cash equivalents, receivables, accounts payable
are estimated to approximate fair values because of their short maturity.

                                       F12
<PAGE>

9.   SHARE CAPITAL

<TABLE>
<CAPTION>
                                                                           December 31    December 31
                                                                               2001          2002
                                                                             (US Dollars in thousands)
                                                                           --------------------------
<S>                                                                        <C>            <C>
Issued capital
105,736,041 (2001: 105,736,041 shares)
ordinary shares fully paid                                                  $ 120,661      $ 120,701
                                                                            ------------------------
</TABLE>

Holders of ordinary shares are entitled to receive dividends as declared from
time to time and are entitled to one vote per share at shareholders' meetings.

In the event of winding up of the Company ordinary shareholders rank after
creditors and are fully entitled to any proceeds of liquidation.

At its general meeting on November 29, 1994, the Company approved the
establishment of an Employee Share Plan and an Employee Option Plan. The plans
are administered by a committee appointed by the Board. The Employee Share Plan
(and associated loan scheme) provides for the issue of ordinary shares in the
Company at the ruling market price to employees and directors of the
consolidated entity. The purchases of the shares are financed by interest-free
loans from the Company to the employees and directors.

The Employee Option Plan provides for the issue of options to buy shares in the
Company to employees and directors of the consolidated entity. The exercise
prices of the options are the ruling market prices when the options are issued
with a hurdle price at a higher level. The total shares and options issued to
employees over a five-year period is not to exceed 6,987,567. This was amended
from 6.5% of issued capital at the Company's annual general meeting on May 26,
1999. As at December 31, 2002, the number of further shares or options which
could be issued within the limit was 3,359,567 (2001: 6,438,567).

At December 31, 2002, there were the following unexercised options to purchase
the Company's ordinary shares:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Date of grant                Expiry date             Number of shares            Exercise price
-----------------------------------------------------------------------------------------------------
<S>                         <C>                      <C>                    <C>
April 17, 1999              April 16, 2004                 83,000           A$0.41 (employee options)

June 3, 2002                June 1, 2007                3,530,000           A$0.30 (employee options)

July 1, 2002                June 1, 2007                   15,000           A$0.30 (employee options)
                                                        ---------
                                                        3,628,000
                                                        ---------
</TABLE>

On January 23, 2003, 30,000 employee options were issued expiring December 1,
2007 with an exercise price of A$0.30.

The options become exercisable at various dates and after various share price
hurdles of the Company have been reached. During the year ended December 31,
2002, 3,545,000 additional options were granted to employees; 466,000 options
were cancelled as a result of the termination of the services of a number of
employees.

                                       F13
<PAGE>

9.   SHARE CAPITAL (CONTINUED)

OUTSTANDING OPTIONS:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
                                                              Weighted                    Weighted
                                                               average                    average
                                    Number       Weighted     remaining                   exercise
                                      of          average    contractual                   price
                                  outstanding    exercise       life          Number      of those
                                   options        price        (years)      exercisable  exercisable
----------------------------------------------------------------------------------------------------
<S>                               <C>            <C>         <C>            <C>          <C>
As at December 31, 1999            3,125,500      A$1.15         4.0             -            -
Cancelled                           (345,000)     A$4.60           -             -            -
Forfeited                         (1,348,000)     A$0.41           -             -            -
                                  ----------
As at December 31, 2000            1,432,500      A$0.41         3.3             -            -
Cancelled                           (883,500)     A$0.41           -             -            -
                                  ----------
As at December 31, 2001              549,000      A$0.41         2.3             -            -
Granted                            3,545,000      A$0.30           -             -            -
Cancelled                           (466,000)     A$0.41           -             -            -
                                  ----------
As at December 31, 2002            3,628,000      A$0.30         4.3             -            -
                                  ----------
</TABLE>

EMPLOYEE SHARE PLAN:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
                                                             Weighted                      Weighted
                                                              average                       average
                                    Number      Weighted     remaining                       issue
                                      of         average    contractual                      price
                                  outstanding     issue     life of loan        Number      of those
                                    shares        price        (years)          vested       vested
----------------------------------------------------------------------------------------------------
<S>                               <C> <C>        <C>        <C>                 <C>        <C>
As at December 31, 1999            1,675,000     A$1.99         0.2                -           -
Issued but bought back            (1,625,000)    A$1.87         -                  -           -
                                  ----------
As at December 31, 2000               50,000     A$5.60         0.9                -           -
Issued but bought back               (50,000)    A$5.60         -                  -           -
                                  ----------
As at December 31, 2001                    -       -            -                  -           -
                                  ----------
As at December 31, 2002                    -       -            -                  -           -
                                  ----------
</TABLE>

                                       F14

<PAGE>

10.  SHAREHOLDERS' EQUITY (DEFICIENCY)

<TABLE>
<CAPTION>
                                                                              Twelve months
                                                                                  ended
                                                                  December 31  December 31  December 31
(US dollars, in thousands)                                            2000         2001         2002
-------------------------------------------------------------------------------------------------------
<S>                                                               <C>          <C>          <C>
Issued capital                                                     $ 120,789    $ 120,661    $ 120,701
Accumulated other comprehensive loss                                  (2,148)      (2,287)      (2,376)
Accumulated deficit                                                 (141,102)    (104,790)    (108,077)
Subscriptions receivable                                                (492)           -            -
                                                                   ---------    ---------    ---------
  Total shareholders' equity (deficiency)                          $ (22,953)   $  13,584    $  10,248
                                                                   ---------    ---------    ---------
Movements during the financial period
Issued capital
  Balance at the beginning of the financial period                 $ 122,463    $ 120,789    $ 120,661
  Shares cancelled under Employee Share Plan                          (1,812)        (139)           -
  Stock compensation expense                                             138           11           40
                                                                   ---------    ---------    ---------
  Balance at the end of the financial period                       $ 120,789    $ 120,661    $ 120,701
                                                                   ---------    ---------    ---------
Accumulated deficit
  Balance at the beginning of the financial period                 $(136,360)   $(141,102)   $(104,790)
  Net income (loss)                                                   (4,742)      36,312       (3,287)
                                                                   ---------    ---------    ---------
  Balance at the end of the financial period                       $(141,102)   $(104,790)   $(108,077)
                                                                   ---------    ---------    ---------
Subscriptions receivable
  Balance at the beginning of the financial period                 $  (2,224)   $    (492)   $       -
  Changes in Employee Share Plan loans                                 1,812          492            -
  Discount on Employee Share Plan loans                                  (80)           -            -
                                                                   ---------    ---------    ---------
  Balance at the end of the financial period                       $    (492)   $       -    $       -
                                                                   ---------    ---------    ---------
Accumulated other comprehensive loss
  Unrealised loss on investment securities
  Balance at the beginning of the financial period                 $     (16)   $     (16)   $     (16)
                                                                   ---------    ---------    ---------
  Balance at the end of the financial period                       $     (16)   $     (16)   $     (16)
                                                                   ---------    ---------    ---------
  Foreign currency translation reserve
  Balance at the beginning of the financial period                 $  (3,389)   $  (2,132)   $  (2,271)
  Current period change                                                1,257         (139)         (89)
                                                                   ---------    ---------    ---------
  Balance at the end of the financial period                       $  (2,132)   $  (2,271)   $  (2,360)
                                                                   ---------    ---------    ---------
  Balance at the end of the financial period                       $  (2,148)   $  (2,287)   $  (2,376)
                                                                   ---------    ---------    ---------
</TABLE>

11.  COMMITMENTS AND CONTINGENT LIABILITIES

(a) Contingent liabilities

As at December 31, 2002, the estimated maximum contingent liability of the Group
in respect of securities issued in compliance with the conditions of various
agreements and permits granted to controlled entities pursuant to governmental
acts and regulations is $76,000 (2001: $68,000).

The consolidated entity is a defendant from time to time in legal proceedings.
Where appropriate the consolidated entity takes legal advice. The consolidated
entity does not consider that the outcome of any current proceedings is likely
to have a material effect on its operations or financial position.

The production, handling, storage, transportation and disposal of oil and gas,
by-products thereof and other substances and materials produced or used in
connection with oil and gas operations were subject to regulation under US
federal, state and local laws and regulations primarily relating to protection
of human health and environment. To date, expenditure related to complying with
these laws and for remediation of existing environmental contamination has not
been significant in relation to the results of operations of the Group.

                                       F15

<PAGE>

11.  COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)

The Company's US subsidiary is required to deposit bonds for the benefit of US
regulatory authorities in relation to its exploration and development
activities. These bonds which have been fully cash collateralised amount to
US$675,000. These deposits mature on various dates up to December 31, 2003.

<TABLE>
<CAPTION>
                                                                                            December 31
(US dollars, in thousands)                                                                      2002
-------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>
(b)  Lease commitments in relation to office space

Future operating lease rentals on property:

Due not later than 1 year                                                                    $    201
Due later than 1 year but not later than 2 years                                                  117
Due later than 2 years but not later than 3 years                                                  38
                                                                                             --------
                                                                                             $    356
                                                                                             --------
</TABLE>

The consolidated entity leases property under non-cancellable operating leases
expiring from one to three years. Leases generally provide the consolidated
entity with a right of renewal at which time all terms are renegotiated. Lease
payments comprise a base amount plus an incremental contingent rental.
Contingent rentals are based on either movements in the Consumer Price Index or
operating criteria.

Rent expense for the years ended December 31, 2000, 2001 and 2002 was $192,000,
$156,000 and $180,000 respectively.

<TABLE>
<CAPTION>
                                                                                            December 31
(US dollars, in thousands)                                                                     2002
-------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>
(c)  Exploration and lease rental commitments

Due not later than 1 year                                                                    $    127
Due later than 1 year but not later than 2 years                                                1,057
Due later than 2 years but not later than 3 years                                                   7
                                                                                             --------
                                                                                             $  1,191
                                                                                             --------
</TABLE>

Exploration and lease rental commitments represent future obligations the
Company is committed to pay for exploration leases.

(d) Superannuation commitments

The Group contributes to one employer-established accumulation superannuation
fund and to employees' private superannuation arrangements. Employee
contributions are based on various percentages of their gross salaries.

The Group is under no legal obligation to make up any shortfall in the
employer-established accumulation fund's assets or to meet payments due to
employees. No actuarial assessment has been undertaken and an assessment is not
required. The assets of the fund are sufficient to meet all benefits payable in
the event of its termination, or the voluntary or compulsory termination of
employment of each employee of the Group. During the years ended December 31,
2000, 2001 and 2002, superannuation contributions were $33,000, $20,000 and
$23,000 respectively.

                                       F16

<PAGE>

12.  SEGMENT REPORTING

The Company operates in the Oil and Gas industry in the Gulf of Mexico, USA and
China. The Company's corporate head office is in Australia. Management selected
these segments for internal reporting purposes and has organised its enterprise
around this.

Between January 1, 2000 and April 13, 2000, the Company operated predominantly
in one geographic and industry segment namely the USA and the Oil and Gas
industry. Subsequent to Petsec Energy Inc. filing for protection under Chapter
11 of the U.S. Bankruptcy Code on April 13, 2000, the Group maintained a head
office in Australia where all material assets were held.

On December 15, 2000, the Group acquired oil and gas exploration leases in the
USA for a total of $2.9 million. In 2001 the Group re-established oil and gas
exploration activities in the Gulf of Mexico, USA. In February 2002, the Group
entered into an agreement to earn a 25% working interest in Block 22/12 in the
Beibu Gulf, offshore China.

<TABLE>
<CAPTION>
US dollars, thousands                           AUSTRALIA                          USA
                                         2000       2001      2002          2000       2001      2002
<S>                                    <C>         <C>        <C>         <C>         <C>      <C>
Oil & gas sales (net of royalties)           -          -         -         8,257          -         -
Oil & gas royalties                          -          -         -             -          -       201
                                       ----------------------------       ----------------------------
Revenue from customers                       -          -         -         8,257          -       201
                                       ============================       ============================
DD&A                                        19         19        18         4,826          9        16
                                       ============================       ============================
Interest income                          1,037        447       136             -          -         -
                                       ============================       ============================
Interest expense                             -          -         -         3,378          -         -
                                       ============================       ============================

Income (loss) before tax and
extraordinary items                     (1,403)    (1,603)     (243)       (3,329)      (343)   (2,300)
Income tax (expense) benefit               (10)         8       254             -          -         -
Extraordinary items                          -          -         -             -     38,250         -
                                       ----------------------------       ----------------------------
Income (loss) after tax                 (1,413)    (1,595)       11        (3,329)    37,907    (2,300)
                                       ============================       ============================

Total assets                                       12,102     2,127                    2,994    11,954
Expenditure for additions to long
lived assets                                            2        46                      963     8,653
There are no inter segment sales.
</TABLE>

<TABLE>
<CAPTION>
                                                 CHINA                              CONSOLIDATED
US dollars, thousands                    2000      2001       2002           2000       2001      2002
<S>                                    <C>         <C>      <C>           <C>         <C>       <C>
Oil & gas sales (net of royalties)         -         -          -            8,257          -          -
Oil & gas royalties                        -         -          -                -          -        201
                                       ---------------------------        ------------------------------
Revenue from customers                     -         -          -            8,257          -        201
                                       ===========================        ==============================
DD&A                                       -         -          -            4,845         28         34
                                       ===========================        ==============================
Interest income                            -         -          -            1,037        447        136
                                       ===========================        ==============================
Interest expense                           -         -          -            3,378          -          -
                                       ===========================        ==============================

Income (loss) before tax and
extraordinary items                        -         -        (998)         (4,732)    (1,946)    (3,541)
Income tax (expense) benefit               -         -          -              (10)         8        254
Extraordinary items                        -         -          -                -     38,250          -
                                       ---------------------------        ------------------------------
Income (loss) after tax                    -         -        (998)         (4,742)    36,312     (3,287)
                                       ===========================        ==============================

Total assets                                         -         125                     15,096     14,206
Expenditure for additions to long
lived assets                                         -       1,123                        965      9,822
There are no inter segment sales.
</TABLE>

                                       F17

<PAGE>

13.  RELATED PARTY DISCLOSURES

Directors

The names of persons who were directors of the Company during the year ended
December 31, 2002 are Messrs T.N. Fern, D.A. Mortimer and P.E. Power.

Other than as disclosed below in this Note there were no material contracts
involving directors during the year.

Other than as disclosed below in this Note, no loans were made to directors
during the year and no such loans are outstanding.

A company associated with a director provided management services to the Group
in the ordinary course of business and on normal terms and conditions. The cost
of the services provided to the Group during the year by this company was
$254,000 (2001: $239,000; 2000: $277,000).

The Company holds unlisted shares in an investment fund of which Mr Mortimer is
Chairman.

14.  SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                                         Twelve months ended
                                                            December 31      December 31      December 31
(US dollars, in thousands)                                     2000             2001             2002
---------------------------------------------------------------------------------------------------------
<S>                                                         <C>             <C>               <C>
Cash paid during the period for:
Interest                                                    $   2,495       $          -      $         -
Income taxes paid (refunded)                                       10                 (8)               -

</TABLE>

                                       F18

<PAGE>
15.  RECONCILIATION OF NET INCOME (LOSS) AND SHAREHOLDERS' EQUITY (DEFICIT) FROM
     US GAAP TO AUSTRALIAN GAAP

The Company prepares separate Australian dollar financial statements in
conformity with Australian generally accepted accounting principles ("AUS
GAAP"), as its primary listing is on the Australian Stock Exchange. The purpose
of this note is to reconcile net income (loss) and shareholders' equity
(deficit), utilizing the US dollar as the reporting currency for both AUS GAAP
and US GAAP, and list the principal differences between AUS GAAP and US GAAP.

<TABLE>
<CAPTION>
                                                                          Twelve months ended
                                                            December 31       December 31      December 31
(US dollars, in thousands)                                      2000             2001              2002
----------------------------------------------------------------------------------------------------------
<S>                                                         <C>              <C>               <C>
Net income (loss) in accordance with US GAAP                $     (4,742)    $      36,312     $    (3,287)

Adjustments for:
   Oil and gas exploration expenditure                               151               157             894
   Oil and gas exploration amortized                                 (64)                -               -
   Rehabilitation expenses                                            (7)                -               -
   Stock compensation expense                                        138                11              40
   Interest income on subscription receivable                        (80)                -               -
   Gain on foreign exchange movements                              1,267               860               -
   Loss on sale of assets                                         (2,285)                -               -
   Gain on deconsolidation of controlled entity                   29,404           (37,147)              -
   Tax effect of AUS GAAP adjustments                              1,848               196               -
   Other                                                             (24)               (1)              -
                                                            ------------     -------------     -----------
Net income (loss) in accordance with AUS GAAP               $     25,606     $         388     $    (2,353)
                                                            ------------     -------------     -----------
Shareholders' equity (deficit) in accordance with
   US GAAP at period end                                    $    (22,953)    $      13,584     $    10,248

Adjustments for:
   Oil and gas exploration expenditure                                40               197           1,091
   Deferred compensation expense                                     185               170             188
   Subscriptions receivable in respect of
     employee shares                                                 154                 -               -
   Other                                                              (7)               (7)             (8)
    Deferred gain on deconsolidation of controlled
      entity                                                      37,147                 -               -
   Cumulative tax effect of AUS GAAP adjustments                     (67)              (61)            (68)

Shareholders' equity in accordance                          ------------     -------------     -----------
   with AUS GAAP at period end                              $     14,499     $      13,883     $    11,451
                                                            ------------     -------------     -----------
</TABLE>

                                       F19

<PAGE>

PRINCIPAL DIFFERENCES BETWEEN AUS GAAP AND US GAAP

The principal differences between AUS GAAP and US GAAP which are material to the
preparation of the consolidated financial statements of the Group are set out
below in this Note. See note 1 for a description of US GAAP policies related to
the discussion below.

EXPLORATION AND DEVELOPMENT EXPENDITURE

Under AUS GAAP, all exploration and development expenditure is capitalized to
the extent that it is expected to be recouped through successful exploitation of
an area or sale, or where exploration and evaluation activities have not yet
reached a stage which permits a reasonable assessment of the existence of
economically recoverable reserves, and significant activities are continuing.

The main difference from AUS GAAP is that under US GAAP all general, geological
and geophysical costs are expensed as incurred. Under both US GAAP and AUS GAAP
drilling costs of successful wells are capitalized and drilling costs relating
to unsuccessful exploration wells are written off.

INCOME TAXES

Accounting under AUS GAAP is under the liability method and is equivalent in
most major respects to SFAS No. 109, "Accounting for Income Taxes". However for
AUS GAAP, deferred tax assets related to temporary differences are brought to
account when they are "assured beyond a reasonable doubt" and net operating
losses pass a "virtually certain" threshold.

EMPLOYEE COMPENSATION

Under AUS GAAP employee options issued under the Employee Option Plan do not
result in compensation expense. The options are issued at the current market
price on the grant date. The options have a vesting period of at least six
months and may require the market price of the Company's shares to have
appreciated to a certain level ("hurdle price") before the options become
exercisable.

Similarly, under AUS GAAP the employee shares issued under the Employee Share
Plan do not result in compensation expense. Under the Employee Share Plan shares
are issued at the current market price on the issue date. The shares are funded
by interest free loans, generally for five years. The shares cannot be sold for
a minimum restricted period of at least six months and may require the market
price of the Company's shares to have appreciated to a certain level before the
shares become unrestricted.

SFAS No. 123, Accounting for Stock-Based Compensation, requires shares and
options or rights issued to employees to be recognized either using the fair
value method or the intrinsic value method, as prescribed by Accounting
Principles Board Opinion No. 25 and its related interpretations.

The Company has adopted the fair value method. The fair value method results in
compensation expense of such shares and options or rights being recorded in the
statement of financial performance over the vesting period.

GAIN ON DECONSOLIDATION

For US GAAP purposes, the gain resulting from the deconsolidation of PEI had
been deferred until all obligations were extinguished, which was considered to
be as of January 16, 2001, the date PEI emerged from Chapter 11 as a reorganized
entity.

For AUS GAAP purposes, the gain on deconsolidation had been recognised in the
income statement as at April 13, 2000, the date of PEI's filing for Chapter 11.

ADJUSTMENTS TO RESTORATION AND RECLAMATION PROVISIONS

Under both AUS GAAP and US GAAP, restoration and reclamation provisions are
accrued on a unit of production basis. Under AUS GAAP, when a revised assessment
of the final reclamation costs results in the accrual previously provided being
in excess of the amount required, the provision may be reduced in the current
year to a cumulative amount based on the revised estimate and consequently a
cumulative reduction may be recognized in the statement of operations.
Subsequent charges for reclamation provisions are calculated from the reduced
provision on the balance sheet. Under US GAAP changes in estimated restoration
provisions are accounted for on a prospective basis and affect future
provisions.

                                       F20

<PAGE>

17.  SUPPLEMENTARY OIL AND GAS DISCLOSURES - UNAUDITED

Users of this information should be aware that the process of estimating
quantities of "proved" and "proved developed" natural gas and crude oil reserves
is very complex, requiring significant subjective decisions in the evaluation of
all available geological, engineering and economic data for each reservoir. The
data for a given reservoir may also change substantially over time as a result
of numerous factors including, but not limited to, additional development
activity, evolving production history and continual reassessment of the
viability of production under varying economic conditions. Consequently,
material revisions to existing reserve estimates occur from time to time.
Although every reasonable effort is made to ensure that reserve estimates
reported represent the most accurate assessments possible, the significance of
the subjective decisions required and variances in available data for various
reservoirs make these estimates generally less precise than other estimates
presented in connection with financial statement disclosures.

Proved reserves are estimated quantities of natural gas, crude oil and
condensate that geological and engineering data demonstrate, with reasonable
certainty, to be recoverable in future years from known reservoirs under
existing economic and operating conditions.

Proved developed reserves are proved reserves that can be expected to be
recovered through existing wells with existing equipment and operating methods.

Estimates of proved and proved developed reserves at December 2002 were based on
studies performed by Ryder Scott Company L.P.

As at December 31, 2001 the Company had no proved or proved developed reserves.

No major discovery or other favourable or adverse event subsequent to December
31, 2002 is believed to have caused a material change in the estimates of proved
or proved developed reserves as of that date.

ESTIMATED NET QUANTITIES OF OIL AND GAS RESERVES

The following table sets forth the Company's net proved reserves, including the
changes therein, and proved developed reserves (all within the United States),
as estimated by Ryder Scott Company L.P.

<TABLE>
<CAPTION>
                                                                                 CRUDE              GAS
                                                                                  OIL              (MMcf)
                                                                                (Mbbl)
<S>                                                                             <C>                <C>
Proved developed and undeveloped reserves:
December 31, 2001                                                                    -                 -

    Extensions, discoveries and other additions                                     24             7,804
    Production                                                                      (1)              (40)
                                                                                -------------------------
December 31, 2002                                                                   23             7,764
                                                                                -------------------------
Proved developed reserves *:
December 31, 2002                                                                   23             7,764
</TABLE>

* The proved classification was determined subsequent to year end following the
receipt of the Ryder Scott reserve estimates.

<TABLE>
<CAPTION>
                                                         December 31       December 31         December 31
                                                             2000              2001               2002
                                                                     (US dollars, in thousands)
                                                         --------------------------------------------------
<S>                                                      <C>               <C>                 <C>
Capitalised costs for oil and gas producing activities
    of the following:
    Proved properties                                    $        -        $        -          $      7,627
    Unproved properties                                       2,884             2,974                 3,024
                                                         ---------------------------------------------------
         Total capitalised costs                              2,884             2,974                10,651
    Accumulated depletion, depreciation and
    amortization                                                  -                 -                     -

                                                         --------------------------------------------------
         Net capitalised costs                           $    2,884        $    2,974          $     10,651
                                                         --------------------------------------------------
</TABLE>

                                       F21

<PAGE>

17.  SUPPLEMENTARY OIL AND GAS DISCLOSURES - UNAUDITED (CONTINUED)

<TABLE>
<CAPTION>
                                                                      Twelve months ended
                                                         December 31       December 31,        December 31
                                                             2000             2001                2002
                                                                      (US dollars, in thousands)
                                                         -------------------------------------------------
<S>                                                      <C>               <C>                 <C>
Costs incurred for oil and gas property acquisition,
  exploration and development activities are as
follows:
    Lease acquisition                                    $     2,884       $        90         $       125
    Exploration                                                  682             1,339               2,149
    Development                                                1,889                 -               7,627
                                                         -------------------------------------------------
         Total costs incurred                            $     5,455       $     1,429         $     9,901
                                                         -------------------------------------------------
</TABLE>

In 2000 the Group had US$2.9 million of capitalised costs associated with
unproven properties acquired from the PEI asset sale.

Standardized measure of discounted future net cash flows relating to proved oil
and gas reserves

The following information has been developed utilizing procedures prescribed by
Statement of Financial Accounting Standards No. 69 (SFAS No. 69) "Disclosures
about Oil and Gas Producing Activities" and based on natural gas and crude oil
reserve and production volumes estimated by Ryder Scott Company L.P. It may be
useful for certain comparative purposes, but should not be solely relied upon in
evaluating the Group or its performance. Further, information contained in the
following table should not be considered as representative of realistic
assessments of future cash flows, nor should the standardized measure of
discounted future net cash flows be viewed as representative of the current
value of the Group.

The Company believes that the following factors should be taken into account in
reviewing the following information: (1) future costs and selling prices will
probably differ from those required to be used in these calculations; (2) due to
future market conditions and governmental regulations, actual rates of
production achieved in future years may vary significantly from the rate of
production assumed in the calculations; (3) selection of a 10% annual discount
rate is arbitrary and may not be reasonable as a measure of the relative risk
inherent in realizing future net oil and gas revenues; and (4) future net
revenues may be subject to different rates of income taxation.

Under the standardized measure, future cash inflows were estimated by applying
period end oil and gas prices adjusted for fixed and determinable escalations
including hedged prices to the estimated future production of period end proved
reserves. In the periods presented, none of the Group's future oil and gas
positions were subject to such positions. Future cash inflows were reduced by
estimated future development, abandonment and production costs based on
period-end costs in order to arrive at net cash flow before tax. Future income
tax expense has been computed by applying period-end statutory tax rates to
aggregate future pre-tax net cash flows, reduced by the tax basis of the
properties involved and tax carry forwards. Use of a 10% annual discount rate is
required by SFAS No. 69.

Management does not rely solely upon the following information in making
investment and operating decisions.

Such decisions are based upon a wide range of factors, including estimates of
probable as well as proved reserves and varying price and cost assumptions
considered more representative of a range of possible economic conditions that
may be anticipated.

                                      F22
<PAGE>

17.  SUPPLEMENTARY OIL AND GAS DISCLOSURES - UNAUDITED (CONTINUED)

The standardized measure of discounted future net cash flows relating to proved
oil and gas reserves was as follows.

<TABLE>
<CAPTION>
                                                                                        December 31
                                                                                            2002
                                                                                (US Dollars, in thousands)
<S>                                                                             <C>
Future cash inflows                                                                           36,160
Less: Future production costs                                                                 (6,260)
        Future income tax expense                                                                  -
                                                                                      --------------
Future net cash flows after income taxes                                                      29,900
Less: 10% annual discount for estimated timing of
    cash flows                                                                                (3,744)
                                                                                      --------------
Standardized measure of discounted future net cash flows                              $       26,156
                                                                                      --------------

Summary of the changes in standardized measure of discounted
    future net cash flows applicable to proved oil and gas reserves

Beginning of the period 1/1/02                                                        $            -
                                                                                      --------------

   Sales and transfers of oil and gas produced, net of
     production costs                                                                           (201)
   Extensions, discoveries and improved recoveries
     net of future productions and development costs                                          26,357
                                                                                      --------------
   Net increase (decrease)                                                                    26,156
                                                                                      --------------
End of the period 12/31/02                                                            $       26,156
                                                                                      --------------
</TABLE>

The computation of the standardized measure of discounted future net cash flows
relating to proved oil and gas reserves at December 31, 2002 was based on
average natural gas prices of approximately $4.57 per mcf and on average liquids
of approximately $29.20 per barrel, before hedging effects.

                                      F23
<PAGE>

INDEPENDENT AUDITOR'S REPORT

PETSEC ENERGY LTD AND SUBSIDIARIES
The Board of Directors and Stockholders of Petsec Energy Ltd

We have audited the accompanying consolidated balance sheets of Petsec Energy
Ltd and its subsidiaries as of December 31, 2001 and 2002, and the related
consolidated statements of operations, comprehensive income (loss) and cash
flows for each of the years in the three-year period ended December 31, 2002.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to report on these consolidated financial
statements based on the results of our audits.

We conducted our audits in accordance with auditing standards generally accepted
in Australia and the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our report.

In our opinion, the financial statements referred to above present fairly, in
all material aspects, the financial position of Petsec Energy Ltd as of December
31, 2002 and 2001, and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 2002 in conformity with
accounting principles generally accepted in the United States of America.

KPMG

March 28, 2003

Sydney, Australia

                                      F24
<PAGE>

                                  EXHIBIT INDEX

1.1      Constitution of the Company, incorporated herein by reference to
         Exhibit 23.1 to Form 20-F for the Company for the year ended December
         31, 2000 (File No. 0-28608).

8.1      Subsidiaries of the Company

99.1     Consent of Independent Auditors

99.2     Consent of Independent Petroleum Engineers

99.3     Petsec Energy Ltd certification

99.4     Petsec Energy Ltd certification