<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, 2003

[ ]             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 [ ]



<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........................        5
Item 2.        Offer Statistics and Expected Timetable......................................        5
Item 3.        Key Information..............................................................   6 - 11
Item 4.        Information on the Company...................................................  12 - 19
Item 5.        Operating and Financial Review and Prospects.................................  20 - 30
Item 6.        Directors, Senior Management and Employees...................................  31 - 34
Item 7.        Major Shareholders and Related Party Transactions............................  35 - 36
Item 8.        Financial Information........................................................       36
Item 9.        The Offer and Listing........................................................  37 - 39
Item 10.       Additional Information.......................................................  39 - 53
Item 11.       Quantitative and Qualitative Disclosure about Market Risk....................       53
Item 12.       Description of Securities Other Than Equity Securities ......................       54



                                     PART II

Item 13.       Defaults, Dividend Arrearages and Delinquencies..............................       54
Item 14.       Material Modifications to the Rights of Security Holders and
               Use of Proceeds..............................................................       54
Item 15.       Controls and Procedures......................................................       54
Item 16A.   Audit Committee Financial Expert................................................       54
Item 16B.   Code of Ethics..................................................................       54
Item 16C.   Principal Accountant Fees and Services..........................................       54
Item 16D.      Exemptions from the Listing Standards
               For Audit Committee..........................................................       55
Item 16E.      Purchases of Equity Securities by the
               Issuer and Affiliated Purchasers.............................................       55


                                    PART III

Item 17.       Financial Statements.........................................................       55
Item 18.       Financial Statements.........................................................       55
Item 19.       Exhibits.....................................................................       55

Signatures..................................................................................       56
Exhibit Index...............................................................................       87
</Table>



<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 U.S. subsidiary of Petsec Energy
Ltd. The reference to "PPI" is used to refer to Petsec Petroleum Inc., also a
wholly owned U.S. 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 U.S. 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, 2001, 2002 and 2003.

References to "US", "U.S.", "USA" and "U.S.A." are to the United States of
America. 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



                                       4
<PAGE>



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%.

         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.


                                     PART I

         ITEM 1 - IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

                                 Not applicable


                ITEM 2 - OFFER STATISTICS AND EXPECTED TIMETABLE

                                 Not applicable



                                       5
<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
years indicated. The financial data for each of the five years ended December
31, 1999, 2000, 2001, 2002 and 2003 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, PEI filed a voluntary petition under Chapter 11 of
the U.S. Bankruptcy Code (the "Bankruptcy Code"). As a result of that 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 Bankruptcy Code and the Company
regained control over PEI. The results of PEI have been consolidated into the
Company from that date forward. See "Item 4 - Information on the Company" within
this Form 20-F.

<Table>
<Caption>
                                                                                Year ended December 31
                                                             ------------------------------------------------------------------
                                                                   1999          2000          2001          2002          2003
                                                             ----------    ----------    ----------    ----------    ----------
<S>                                                          <C>           <C>           <C>           <C>           <C>
                                                                            (In thousands, except per share data)
INCOME STATEMENT DATA
   Oil and gas sales (net of royalties payable)              $   31,000    $    8,257    $       --    $       --    $   23,270
   Oil and gas royalties                                             --            --            --           201         1,949
                                                             ----------    ----------    ----------    ----------    ----------
       Total revenues                                        $   31,000    $    8,257    $       --    $      201    $   25,219
                                                             ----------    ----------    ----------    ----------    ----------

   Lease operating expenses                                       7,045         1,657            --            --         1,557
   Depletion, depreciation and amortization                      21,295         4,845            28            34         6,574
   Exploration expenditure                                        2,750           365           422         1,176         1,329
   Dry hole and abandonment costs                                 2,840           611           877         1,066            --
   Impairment expense                                             7,480            --            --            --            38
   General, administrative and other expenses                     6,859         3,625         1,264         1,691         3,519
   Stock compensation expense                                       260           138            11            40            90
                                                             ----------    ----------    ----------    ----------    ----------
       Total operating expenses                                  48,529        11,241         2,602         4,007        13,107
   Profit (loss) on sale of assets                                  241           592             9            (8)           --
                                                             ----------    ----------    ----------    ----------    ----------
   Income (loss) from operations                                (17,288)       (2,392)       (2,593)       (3,814)       12,112
   Other income                                                     260             1           200           137           364
   Profit on sale of investments                                  2,561            --            --            --            --
   Interest expense                                             (10,963)       (3,378)           --            --           (10)
   Interest income                                                1,070         1,037           447           136           142
                                                             ----------    ----------    ----------    ----------    ----------
   Income (loss) before income tax and extraordinary items      (24,360)       (4,732)       (1,946)       (3,541)       12,608
   Income tax benefit (expense)                                    (764)          (10)            8           254           492
                                                             ----------    ----------    ----------    ----------    ----------
   Net income (loss) before extraordinary items              $  (25,124)   $   (4,742)   $   (1,938)   $   (3,287)   $   13,100
   Extraordinary items (net of nil tax)
       Recognition of deferred gain on subsidiary
         emergence from bankruptcy                                   --            --        37,147            --            --
       Distribution from bankruptcy trustee                          --            --         1,103            --            --

                                                             ----------    ----------    ----------    ----------    ----------
   Net income (loss)                                         $  (25,124)   $   (4,742)   $   36,312    $   (3,287)   $   13,100
                                                             ----------    ----------    ----------    ----------    ----------

BASIC AND DILUTED EARNINGS PER SHARE
   Earnings (loss) before extraordinary items per share      $    (0.23)   $    (0.04)   $    (0.02)   $    (0.03)   $     0.12
   Extraordinary items per share                                     --            --          0.36            --            --
                                                             ----------    ----------    ----------    ----------    ----------
   Earnings (loss) per share                                 $    (0.23)   $    (0.04)   $     0.34    $    (0.03)   $     0.12
                                                             ----------    ----------    ----------    ----------    ----------

   Earnings (loss) before extraordinary items per ADR *      $    (1.17)   $    (0.22)   $    (0.10)   $    (0.17)   $     0.62
   Extraordinary items per ADR                                       --            --          1.82            --            --
                                                             ----------    ----------    ----------    ----------    ----------
   Earnings (loss) per ADR                                   $    (1.17)   $    (0.22)   $     1.72    $    (0.17)   $     0.62
                                                             ----------    ----------    ----------    ----------    ----------

   Weighted average number of ordinary shares outstanding       107,429       106,589       105,752       105,736       105,736
</Table>



                                       6
<PAGE>


<Table>
<Caption>
                                                                                Year ended December 31
                                                             ------------------------------------------------------------------
                                                                   1999          2000          2001          2002          2003
                                                             ----------    ----------    ----------    ----------    ----------
<S>                                                          <C>           <C>           <C>           <C>           <C>
CASH FLOW DATA

   Net cash provided by (used in) operating activities       $   12,588    $      518    $   (1,166)   $   (2,728)   $   18,589
   Net cash provided by (used in) investing activities           60,408        (6,136)          104        (8,170)      (13,574)
   Net cash provided by (used in) financing activities          (66,125)       (2,185)           --            --         6,851

BALANCE SHEET DATA (at period-end)
   Total assets                                              $  110,536    $   16,036    $   15,096    $   14,206    $   38,444
   Short-term loans                                                  --            --            --            --           328
   Current maturities - credit facility                           7,875            --            --            --            --
   Borrowings less current maturities                            99,684            --            --            --            --
   Net assets (liabilities)                                     (19,526)      (22,953)       13,584        10,248        23,203
   Share capital                                                122,463       120,789       120,661       120,701       120,791

   Number of ordinary shares outstanding                        107,401       105,786       105,736       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 Noon Buying Rate at May 3, 2004 was 0.7155.

         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, 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
Year ended December 31, 2003                                        0.6515          0.7442         0.5617         0.7431
   November 2003                                                    0.7166          0.7241         0.6971         0.7169
   December 2003                                                    0.7394          0.7442         0.7284         0.7431
   January 2004                                                     0.7699          0.7793         0.7518         0.7560
   February 2004                                                    0.7773          0.7992         0.7591         0.7649
   March 2004                                                       0.7498          0.7728         0.7296         0.7475
   April 2004                                                       0.7443          0.7672         0.7188         0.7164
</Table>


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

         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 Australian Stock Exchange Limited ("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 operating activities are primarily conducted through PEI
and PPI, two of PEL's wholly owned U.S. operating subsidiaries, and its
transactions are denominated predominantly in US dollars. PEI's operations are
conducted in the U.S. and PPI's exploration activities are conducted in China
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 could materially 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, 1999, 2000, 2001, 2002 and 2003.



                                       7
<PAGE>



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, 2003, our principal assets consisted of cash,
receivables and interests in proved and unproved oil and gas properties. Our
proved reserves are located in five Gulf of Mexico offshore leases of which only
three were producing at December 31, 2003. Because we have limited capital
resources, and our operating cash flow will be limited by the number of our
producing properties, our growth prospects may be limited. For the immediate
future, our prospects for growth will depend upon our ability to expand our
production base using cash flow generated from our limited number of producing
properties.

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
since cash flow from operations is limited by the number of our producing
properties and external sources of capital are limited. 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. Given these uncertainties and limitations, 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.

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 $14.8 million during 2003. We expect our total
capital expenditures in 2004 to be at least $22 million, including $1.3 million
for anticipated lease awards in the Gulf of Mexico. The funding of our future
capital expenditures is primarily dependent upon the generation of sufficient
cash flow from our operating activities and proceeds from our equity offering
that we consummated on January 6, 2004. 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 only have a $2 million bank
credit facility that is limited to use for obtaining letters of credit. 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 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."



                                       8
<PAGE>



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 May 3, 2004, the Company's primary
operating subsidiary, PEI, had 12 employees. Although we have entered into
contracts with key 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."

SUBSTANTIALLY ALL OF OUR OUTSTANDING ACCOUNTS RECEIVABLE MAY BE FROM A SINGLE
PURCHASER OF OUR OIL AND GAS.

         We typically sell all of our monthly gas production to a single
purchaser. We monitor our purchasers for developments that may indicate whether
the purchaser is having financial difficulty. Also, when we deem it appropriate,
we require the parent companies of our purchasers to give us a guarantee that
the parent will pay any delinquent obligations of their subsidiary.

         However, if a purchaser is unable to pay for the gas that we sell, we
could incur a significant amount of bad debt expense. Due to the delay in
recognizing a purchaser is unable to pay, our exposure to such a bad debt due to
non-payment by a purchaser could be as much as two months of revenue.

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. Higher prices may reduce
the amount of oil and gas purchased from us because of reduced demand, and lower
prices may 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 could 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:

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

     o   market uncertainty;

     o   the level of consumer product demand;

     o   weather conditions;

     o   domestic and foreign governmental regulations;

     o   the price and availability of alternative fuels;

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

     o   the foreign supply of oil and natural gas;

     o   the price of oil and gas imports; and

     o   general economic conditions.



                                       9
<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:

     o   unexpected drilling conditions;

     o   geological pressure or irregularities in formations;

     o   equipment failures or accidents;

     o   weather conditions;

     o   shortages in experienced labor;

     o   shortages or delays in the delivery of equipment; and

     o   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 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 all of our 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 other 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.


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 2004, most of our production and revenues will be derived from wells
located on two platforms in the Gulf of Mexico. One platform, with five of our
wells, is located at West Cameron 352 and the second platform, with two of our
wells, will be installed at Vermilion 258. Accordingly, if the level of
production from these platforms substantially declines as a result of the
occurrence of any of the inherent operating risks, it could have a material
adverse effect on our overall production levels and our revenues.




                                       10
<PAGE>



OUR CASH BALANCES HELD IN AUSTRALIAN DOLLARS ARE EXPOSED TO CURRENCY EXCHANGE
RATE FLUCTUATIONS BETWEEN THE US DOLLAR AND THE AUSTRALIAN DOLLAR.


         Since most of our operations are conducted in US dollars, we generally
maintain a substantial portion of our cash balances in US dollar accounts.
Occasionally, however, we may have substantial cash deposits in Australian
dollar accounts. For example, at year end, we had approximately $7.5 million in
US dollar equivalents deposited in Australian dollar accounts (A$10.1 million).
Substantially all of our Australian dollar cash on deposit was received from
share subscriptions received in advance of our January 6, 2004 common share
offering. Until these funds are converted to US dollars, the US dollar value of
the deposits will change as the exchange rate between the two currencies
fluctuate.

         We currently do not use derivative financial instruments to hedge our
foreign exchange rate risk exposure.

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; bonding
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.



                                       11
<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. The Company's
joint venture operations in China are conducted through its wholly owned
subsidiary PPI, also a Nevada corporation incorporated in 1987.

         On January 6, 2004, Petsec issued 12,846,800 shares at A$0.95 per share
to raise a net A$11.6 million or approximately US$8.6 million, following a
placement arranged in December 2003. The Company expects to use the funds for
the development of Vermilion 258, for exploration and development in the Beibu
Gulf offshore China, to fund lease acquisitions that were acquired at the March
2004 Central Gulf of Mexico lease sale, and for any other acquisition,
exploration, and development opportunities that may arise.

         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
                           Phone 011-612-9247-4605

The principal office address and telephone number of Petsec's U.S. incorporated
subsidiaries is as follows:

                           Petsec Energy Inc.
                           3861 Ambassador Caffery Parkway
                           Suite 500
                           Lafayette LA 70503
                           (337) 989 1942

CAPITAL EXPENDITURES AND DIVESTITURES

         United States. In 1998, a disappointing drilling program, compounded by
low oil and gas prices, caused PEI's outstanding debt to reach detrimental
levels. As a result, PEI sold a 50% working interest in a substantial number of
its properties at the start of 1999. It also transferred its status as operator
on the properties sold. Proceeds from the sale were used to reduce debt.
However, PEI continued to have difficulty servicing its remaining debt,
including $100 million of 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
U.S. Bankruptcy Code on April 13, 2000. An agreement was reached between and
among PEI, Petsec (U.S.A.) Inc., as equity owner, 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. The sale of PEI's assets was completed in December 2000
pursuant to a Plan of Reorganization approved under the Bankruptcy Code.

         In December 2000, the Company acquired working interests in five
untested exploration leases from PEI for $2.9 million, including $2.8 million
for the Vermilion 258 lease, 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.

         In 2001, 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



                                       12
<PAGE>



("MMS") of the United States. The submitted bids were the high bids on five
leases and subsequently were awarded to the Company 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 by the operator of
two of those leases in which the company has a 7% overriding royalty interest.
Gas and oil production from Ship Shoal 184 and Ship Shoal 191 ("Ship Shoal
184/191") commenced in the fourth quarter of 2002, and first royalties were
received in February 2003.

         The Company acquired a 75% working interest in 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 the
adjacent West Cameron 352 lease 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 was upgraded and production
from all three wells commenced towards the end of January 2003. The total cost
of the acquisition, drilling of the first three wells and platform upgrade
related to West Cameron 343 and West Cameron 352 ("West Cameron 343/352") wells
was $7.6 million and $1.5 million in 2002 and 2003, respectively.

         In August and September 2003, the Company drilled two additional wells
from the West Cameron 352 platform. Both wells encountered hydrocarbon-bearing
sands with economic potential and were brought into production in October 2003.
The total cost to drill the two wells was $5.0 million.

         In December 2003, the Company drilled a well at Vermilion 258 that
encountered hydrocarbon-bearing sands with economic potential. In January 2004,
the well was cased and suspended awaiting further development. The Company
expended $4.4 million in 2003 on the well. In January 2004, following the casing
and suspension of the first well, the Company drilled a second well at Vermilion
258. That well also encountered hydrocarbon-bearing sands with economic
potential and was cased and suspended awaiting further development. The Company
is constructing production facilities for Vermilion 258 and plans to install a
platform and pipeline. Following the installation, scheduled for the second
quarter of 2004, the Company will complete the two wells and expects that
production will start in the third quarter of 2004. The total estimated cost of
drilling the two wells, constructing and installing the facilities, and
completing the wells for production is expected to be $15.6 million.

         As of December 31, 2003, the Company has overriding royalty interests
or working interests in 11 exploration leases located in the Gulf of Mexico,
offshore Louisiana and Texas of which six are currently undrilled. At the March
2004 lease sale held in New Orleans, Louisiana by the MMS, the Company was the
high bidder for three additional exploration leases in the Gulf of Mexico. Total
bids on the leases, which are at Main Pass 19, Vermilion 244, and Vermilion 259,
were $1.3 million, net to Petsec. On April 27, 2004 the Company was awarded the
Vermilion 244 and 259 leases in which it will hold 100% working interests. If
awarded, the Company will hold a 55% working interest in the Main Pass 19 lease.
The Company has begun preliminary planning for the possible drilling of up to
five wells in 2004 in the Gulf of Mexico.

         China. In 2002, the Company earned 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 and intersected nine meters of net pay. The well was
plugged and abandoned for further evaluation. The joint venture then completed a
3D seismic survey which was 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.

         In 2003, the joint venture focussed on interpretation of the 3D seismic
survey identifying a number of drill targets. A three well drilling programme
commenced in April 2004 to test one prospect and appraise two of the existing
discoveries. The budgeted cost of the 2004 programme is $4.1 million, net to
Petsec.

         The 12-8-3 appraisal well intersected eleven meters of net oil pay in a
highly permeable sand and confirmed the previous estimates of oil in place. The
oil is a low API crude which will affect recoverability. The Joint Venture will
assess the economic significance of the well over the following two to three
months to make a decision regarding development. Both the 12-7-1 exploration
well and the 12-3-4 appraisal wells were plugged and abandoned as dry holes.

B. BUSINESS OVERVIEW

         Petsec operates as an oil and gas exploration and production company
operating in the shallow waters of the Gulf of Mexico, U.S.A. and in the Beibu
Gulf, offshore China.



                                       13
<PAGE>


         Revenues for 2003 were $25.2 million, comprising $23.3 million of oil
and gas sales, net of royalties paid, and $1.9 million from overriding royalty
interests in its properties at Ship Shoal 184/191, offshore Louisiana.

         For 2002, the Company recorded $0.2 million of oil and gas revenue,
which was entirely the result of its overriding royalty interests at Ship Shoal
184/191. In 2001, the Company had no oil and gas revenue.

         The Company's joint venture operations offshore China have had no
production or revenues to date.

         See "Risk Factors" in "Item 3 D. - Key Information" for a discussion of
risks to the Company's ability to find proved reserves and factors that affect
oil and gas prices.

LIKELY DEVELOPMENTS

         Following the development of its discoveries at Vermilion 258, Petsec
expects to begin production from the two wells drilled on the lease during the
third quarter of 2004. Petsec also plans future exploration and development in
the Gulf of Mexico, the timing of which will be determined by availability of
funds, including expected cashflow from production.

         In the Beibu Gulf, offshore China, further interpretation of the
results of the 12-8-2 field, over the next two to three months, will determine
the possibility of developing the field. A commitment to proceed with the
development could be taken in the third quarter of 2004.

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, 2001, 2002 and 2003. 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,
                                                             ---------------------------------------------
                                                                  2001 (4)            2002            2003
                                                             -------------   -------------   -------------
<S>                                                          <C>             <C>             <C>
TOTAL NET PROVED:
   Oil (Mbbls)                                                          --              23              39
   Gas (MMcf)                                                           --           7,764          10,737
                                                             -------------   -------------   -------------
   Total (MMcfe)                                                        --           7,902          10,971
                                                             -------------   -------------   -------------

NET PROVED DEVELOPED:
   Oil (Mbbls)                                                          --              23              32
   Gas (MMcf)                                                           --           7,764           3,725
                                                             -------------   -------------   -------------
   Total (MMcfe)                                                        --           7,902           3,916
                                                             -------------   -------------   -------------

Estimated future net revenues before income  taxes
   (in thousands)                                                       --          29,900          44,527
Present value of estimated future net revenues before
   income taxes (in thousands) (1)                                      --          26,156          35,495
Standardized measure of discounted future net cash flows
   (in thousands) (2) (3)                                               --          26,156          35,495

Average prices used in calculating the net present values:
   Oil ($ per Bbl)                                                      --   $       29.20   $       32.41
   Gas ($ per Mcf)                                                      --   $        4.57   $        5.99
</Table>



                                       14
<PAGE>



(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 and 2003 due to the
     Company's availability of net operating loss carryforwards at that date.

(4)  As a result of the sale of PEI's assets in 2000 pursuant to its Plan of
     Reorganization, the Company had no proved reserves at 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 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,
                                      ---------------------------------------------
                                           2001            2002            2003
                                      -------------   -------------   -------------
                                                      (In Thousands)
<S>                                   <C>             <C>             <C>
   Acquisition costs                  $          90   $         125   $         519
   Exploration costs                          1,339           2,149           6,586
   Development costs                             --           7,627           8,987
                                      -------------   -------------   -------------
       Total costs incurred           $       1,429   $       9,901   $      16,092
                                      -------------   -------------   -------------
</Table>

         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, 2003.

<Table>
<Caption>
                                          Gross            Net
                                      -------------   -------------
<S>                                   <C>             <C>
      Productive wells (1):
      Oil                                        --              --
      Gas                                         5             3.8
                                      -------------   -------------
      Total                                       5             3.8
                                      -------------   -------------

      Developed Acreage (1)                  15,156           4,567
      Undeveloped Acreage (1) (2)           146,620          49,723
                                      -------------   -------------
      Total                                 161,776          54,290
                                      -------------   -------------
</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. All of our



                                       15
<PAGE>



         wells have multiple producing horizons. 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 9% of the Company's undeveloped acreage will expire in
         2004, 4% will expire in 2006, and the balance will expire in 2008 or
         later.

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

<Table>
<Caption>
                                                                     Years ended December 31,
                                  ---------------------------------------------------------------------------------------------
                                              2001                             2002                           2003
                                  -----------------------------   -----------------------------   -----------------------------
                                      Gross            Net            Gross            Net            Gross            Net
                                  -------------   -------------   -------------   -------------   -------------   -------------
<S>                               <C>             <C>             <C>             <C>             <C>             <C>
Gulf of Mexico
    Exploratory wells                        --              --              --              --              --              --
    Development wells                        --              --               3            2.25               2            1.75
    Dry holes                                 1             0.1              --              --              --              --
    Abandoned wells                          --              --              --              --              --              --

Beibu Gulf, China
    Abandoned wells                          --              --               1            0.25              --              --
                                  -------------   -------------   -------------   -------------   -------------   -------------
                          Total               1             0.1               4            2.50               2            1.75
</Table>

         Present activity. At December 31, 2003, the Company had one exploration
well at Vermilion 258 in the process of being drilled. On January 3, 2004, after
completing the drilling phase on the first well at Vermilion 258, the Company
immediately commenced drilling a second exploration well at Vermilion 258. The
Company is constructing production facilities for Vermilion 258 and plans to
install a platform and pipeline. Following the installation, scheduled for the
second quarter of 2004, the Company will complete the two wells and expects that
production will start in the third quarter of 2004. The Company holds a 100%
working interest in the two wells.

         In China, a three well drilling programme commenced in April 2004 to
test one prospect and appraise two of the existing discoveries. The 12-8-3
appraisal well intersected eleven meters of net oil pay in a highly permeable
sand and confirmed the previous estimates of oil in place. The oil is a low API
crude which will affect recoverability. The Joint Venture will assess the
economic significance of the well over the following two to three months to make
a decision regarding development. Both the 12-7-1 exploration well and the
12-3-4 appraisal wells were plugged and abandoned as dry holes.

OIL AND GAS MARKETING

         The Company sells all of its natural gas, oil and condensate production
at a combination of fixed, index and spot prices pursuant to short term
production sales contracts. The Company uses an outside party to market its oil
and gas. During 2003, approximately 67% of the Company's oil and gas sales were
made to Occidental Energy Marketing, Inc. and 32% were made to Reliant Energy
Services, Inc.

COMPETITION

         The Company competes 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 acquisition
environment.



                                       16
<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 U.S. operations are subject to various types of regulation at the
federal and state 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.

         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 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, which



                                       17
<PAGE>



issued a remand order in October of 2002. In January 2004, FERC denied rehearing
of its October 2002 remand order. Petitions for review of that order have been
filed at the United States Court of Appeals for the District of Columbia Circuit
and are currently pending. We cannot predict whether and to what extent FERC's
market reforms will survive 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.

         Additional proposals and proceedings that might affect the oil and gas
industry are pending before Congress, the FERC, the MMS 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 Company's operations are subject to
stringent federal, state and local laws and regulation governing the discharge
of materials into the environmental or otherwise relating to environmental
protection. Such laws and regulations have generally increased the cost of
planning, designing, drilling, operating and abandoning wells. Although the
Company believes that compliance with environmental laws and 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
administrative, civil or 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 Oil Pollution Act of 1990, as amended, (the "OPA") and regulations
thereunder impose a variety of regulations on "responsible parties" related to
the prevention of oil spills in U.S. waters and liability for damages resulting
from such spills. A "responsible party" includes 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 for offshore facilities under OPA is the payment
of all removal costs plus up to $75 million in other damages, these limits may
not apply if the spill was caused by a party's gross negligence or willful
misconduct, the spill resulted from violation of a federal safety, construction
or operating regulation, or if a party fails to report the spill or cooperate
fully in the cleanup. Few defenses exist to the liability imposed by the OPA.

         OPA also imposes ongoing requirements on lessees or permittees of
offshore areas in which a covered offshore facility is located, including the
preparation of oil spill response plans and proof of financial responsibility in
the amount of $35 million ($10 million if the offshore facility is located
landward of the seaward boundary of a state) to cover at least some costs in a
potential spill. Higher amounts of financial responsibility of up to $150
million my be required 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 Company
believes that it can establish adequate proof of financial responsibility for
its offshore facilities, if required, 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. The Company has any
OPA-required response plans in place.

         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 without a permit. The FWPCA and
similar state laws provide for civil, criminal and administrative penalties for
any unauthorized discharges of pollutants. 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 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. 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,



                                       18
<PAGE>



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
CECLA, although there is a possibility that the Company's future operations
could result in the use, generation, or handling of non-exempt hazardous
substances. Similarly, 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. However, ordinary industrial wastes, such as
paint wastes, waste solvents, laboratory wastes and waste oils, may be regulated
as hazardous waste. Failure of the Company to properly manage and dispose of
materials and wastes generated by or resulting from its operations could result
in the imposition of remedial and abandonment liabilities under CERCLA, RCRA,
and analogous state laws.

         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 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 by 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. The Company's principal subsidiaries are Petsec USA Inc.
a wholly owned company incorporated in Nevada, ("PUSA") and PUSA's wholly owned
subsidiaries Petsec Energy Inc. and Petsec Petroleum Inc., also incorporated in
Nevada.

D. PROPERTY, PLANT AND EQUIPMENT

         At December 31, 2003, the Company had interests in 11 oil and gas
leases located in the shallow waters of the Gulf of Mexico offshore Louisiana
and Texas. As of February 20, 2004, all of these interests collateralize PEI's
$2.0 million credit facility.

         The Company also has a 25% working interest in a petroleum contract
over a 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.



                                       19
<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, 2001,
2002 and 2003, and its financial position at December 31, 2003. 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.

         Upon re-emergence from bankruptcy in 2001, PEI, the Company's only
operating unit at the time, began the task of re-establishing itself as a viable
oil and gas exploration company. Because the Company had no production in 2001
and nearly all of 2002, a simple year-on-year analysis of the Company's
operating results is distorted by the different level of operating activity in
each of the periods presented.

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 conducted 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."

         During 2003, Petsec benefited from its exploration and development
efforts that were initiated in 2002. In late January 2003, production commenced
from three wells at the Company's West Cameron 343/352 location. In August and
September 2003, the Company drilled two additional wells at West Cameron 343/352
and began production from the two wells in October 2003. The $5.0 million costs
to drill and complete the two wells were funded from the cash flow generated by
the first three wells and royalty income from Ship Shoal 184/191.

         During the second quarter of 2003, the Company initiated plans to drill
two wells at its Vermilion 258 lease and drilled the first of the two wells in
December 2003. The well encountered hydrocarbon-bearing sands with economic
potential. The Company committed to developing the first well in early January
2004 and immediately commenced drilling the second well. In 2003, the Company
spent $4.4 million for drilling and development at Vermilion 258 and expects to
spend approximately $11 million in 2004. The Company anticipates that production
from Vermilion 258 will commence late in the second quarter or early third
quarter of 2004. Petsec has a net revenue interest in both wells of 83.33%.

         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. The
contract area contains four other oil discoveries. In 2003, the joint venture
focussed on interpretation of the 3D seismic survey identifying a number of
drill targets. A three well drilling programme commenced in April 2004 to test
one prospect and appraise two of the existing discoveries. The 12-8-3 appraisal
well intersected eleven meters of net oil pay in a highly permeable sand and
confirmed the previous estimates of oil in place. The oil is a low API crude
which will affect recoverability. The Joint Venture will assess the economic
significance of the well over the following two to three months to make a
decision regarding development. Both the 12-7-1 exploration well and the 12-3-4
appraisal wells were plugged and abandoned as dry holes.

         At December 31, 2003, Petsec held interests in 11 leases in the U.S.A.
and one in China, four of which were completed for production. In the USA, four
of the leases are currently held by production and a fifth will be brought into
production late in the second quarter or early third quarter of 2004.

         On January 6, 2004, Petsec issued 12,846,800 shares at A$0.95 per share
to raise a net A$11.6 million or approximately US$8.6 million, following a
placement arranged in December 2003. The Company expects to use the funds for
the development of Vermilion 258, for exploration and development in the Beibu
Gulf offshore China, to fund lease acquisitions that were acquired at the March
2004 Central Gulf of Mexico lease sale, and for any other acquisition,
exploration, and development opportunities that may arise.



                                       20
<PAGE>



         At the March 2004 lease sale held in New Orleans, Louisiana by the MMS,
the Company was the high bidder for three additional explorations leases in the
Gulf of Mexico (Vermilion 244, Vermilion 259 and Main Pass 19) and expects that
the MMS will award the three leases at a cost to the Company of $1.3 million.
Petsec will hold a 55% working interest in the Main Pass 19 lease.

         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.

         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
                                                     2001          2002 (1)        2003 (2)
                                                -------------   -------------   -------------
<S>                                             <C>             <C>             <C>
Net production
   Oil (Mbbls)                                             --               1              19
   Gas (MMcf)                                              --              40           4,403
                                                -------------   -------------   -------------
     Total (MMcfe)                                         --              46           4,517
                                                -------------   -------------   -------------

Net sales data (in thousands):
   Oil                                          $          --   $          28   $         582
   Gas                                                     --             173          24,637
                                                -------------   -------------   -------------
     Total                                      $          --   $         201   $      25,219
                                                -------------   -------------   -------------

Average sales price (3):
   Oil (per Bbl)                                $          --   $       28.00   $       30.84
   Gas (per Mcf)                                           --            4.33            5.60
                                                -------------   -------------   -------------
     Total (per Mcfe)                           $          --   $        4.37   $        5.58
                                                -------------   -------------   -------------

Average costs (per Mcfe):
   Lease operating expenses                     $          --   $          --   $        0.34
   Depletion, depreciation and amortisation                --            0.74            1.46
   General, administrative and other expenses              --           36.76            0.81
</Table>

(1) Production from Ship Shoal 184/191 commenced in November 2002.

(2) Production from three wells at West Cameron 343/352 commenced in January
2003 and production from two additional wells at West Cameron 343/352 commenced
in October 2003.

(3) Includes effects of hedging activities.



                                       21
<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
                                                                   -----------------------------------------------
                                                                       2001              2002             2003
                                                                   -------------    -------------    -------------
                                                                                    (In thousands)
<S>                                                                <C>              <C>              <C>
INCOME STATEMENT DATA
   Oil and gas sales (net of royalties paid or payable)            $          --    $          --    $      23,270
   Oil and gas royalties                                                      --              201            1,949
                                                                   -------------    -------------    -------------
       Total revenues                                              $          --    $         201    $      25,219
                                                                   -------------    -------------    -------------

   Lease operating expenses                                                   --               --            1,557
   Depletion, depreciation and amortization                                   28               34            6,574
   Exploration expenditure                                                   422            1,176            1,329
   Dry hole and abandonment costs                                            877            1,066               --
   Impairment expense                                                         --               --               38
   General, administrative and other expenses                              1,264            1,691            3,519
   Stock compensation expense                                                 11               40               90
                                                                   -------------    -------------    -------------
       Total operating expenses                                            2,602            4,007           13,107

   Gain (loss) on sale of assets                                               9               (8)              --
                                                                   -------------    -------------    -------------
   Profit (loss) from operations                                          (2,593)          (3,814)          12,112

   Other income                                                              200              137              364
   Interest expense                                                           --               --              (10)
   Interest income                                                           447              136              142
                                                                   -------------    -------------    -------------
   Income (loss) before income tax and extraordinary items                (1,946)          (3,541)          12,608

   Income tax benefit                                                          8              254              492
                                                                   -------------    -------------    -------------
   Net income (loss) before extraordinary items                    $      (1,938)   $      (3,287)   $      13,100

   Extraordinary items (net of nil tax)
       Recognition of deferred gain on subsidiary emergence from
         bankruptcy                                                       37,147               --               --
       Distribution from bankruptcy trustee                                1,103               --               --
                                                                   -------------    -------------    -------------
   Net income (loss)                                               $      36,312    $      (3,287)   $      13,100
                                                                   -------------    -------------    -------------
</Table>


YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002

         General. The Company returned to strong profitability for the 2003
financial year due to the successful development and resulting production from
the Company's gas discoveries on the West Cameron 343/352 leases in the Gulf of
Mexico, USA. Historically high gas prices also contributed to the strong
operating profits.

         Production from West Cameron 343/352 commenced in January 2003 and
significantly contributed to the Company's $25.2 million of revenue for the
year. The Company recorded net income of $13.1 million. This compares to a net
loss before extraordinary items of $3.3 million in 2002. Lease operating
expenses were $1.6 million. For 2002, the Company only had production from
properties in which it had an overriding royalty interest. Therefore lease
operating expenses for this period were nil.

         Exploration Expenditures and Dry Hole Costs. In 2003, $1.3 million was
expensed for seismic, geological and geophysical expenditures. 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.



                                       22
<PAGE>



         General and Administrative Expense. General and administrative expense
increased $1.8 million, or 106%, to $3.5 million in 2003 from $1.7 million in
2002. General and administrative expense for 2003 includes $0.9 million of
incentive compensation recorded pursuant to a plan that was established for PEI
employees during 2003. The increase is also attributed to staff and activity
increases following the commencement of production activities in the Gulf of
Mexico.

         Depreciation, Depletion, and Amortization. The $6.5 million increase in
depreciation, depletion, and amortization expense ("DD&A") reflects the start of
production at West Cameron 343/352 in 2003. DD&A on the Company's proved oil and
gas properties is calculated on a units-of-production basis. DD&A in 2003 per
Mcfe was $1.46.

         Net Income (loss). As a result of the commencement of oil and gas
production, net income of $13.1 million was recorded for 2003, an increase of
$16.4 million from the net loss of $3.3 million for 2002. Net income before
extraordinary items was $13.1 million in 2003 compared to a net loss before
extraordinary items of $3.3 million in 2002.

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

         General. The results for 2002 reflected a period of significant
investment in exploration and the Company's efforts to re-establish itself as a
viable oil and gas exploration and production company.

         Production from Ship Shoal 184/191, which commenced in November 2002,
contributed all of the Company's $0.2 million of oil and gas revenue. Production
at West Cameron 343/352 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
extinguishment of PEI's liabilities.

         For 2002, the Company only had production from properties in which it
had an overriding royalty interest and had no production in 2001. Lease
operating expenses for 2001 and 2002 were nil.

         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 plan 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.



                                       23
<PAGE>



OTHER ITEMS AFFECTING RESULTS

         Net operating losses and other carryforwards. For U.S. federal income
tax purposes, at December 31, 2003 the Company had net operating losses ("NOLs")
of approximately $50.7 million which are available to offset future U.S. federal
taxable income. The NOLs from previous tax periods will expire from 2016 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 on future income
even though its NOLs otherwise eliminate its regular tax liability.

HEDGING TRANSACTIONS

         From time to time, the Company utilizes 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 has 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.

         At December 31, 2003 the Company had the following outstanding hedging
transactions in place:

     -   forward sales agreement of 4,000 MMBtu per day of gas production for
         the period January 1, 2004 through to February 29, 2004 at a net
         realised fixed price of US$4.87/MMbtu. The Company accounts for gas
         sales under its forward sales agreements as normal sales.

     -   swap agreements for the period January 1, 2004 through to March 31,
         2004 where the Company receives $5.16/MMBtu for the notional quantity
         of 4,000 MMBtu per day and pays the final settlement price of NYMEX
         natural gas options for each month during the period on the same
         notional quantity. The Company has determined that the swaps are highly
         effective cash flow hedges and qualify for hedge accounting treatment.

         At December 31, 2003, the Company estimated that the loss it would
incur to settle the swap agreements before their expiration, if it had so
elected, would have been approximately $0.3 million. There were no hedge
instruments outstanding at December 31, 2002.

NEW ACCOUNTING PRONOUNCEMENTS

         In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" effective for fiscal years beginning after June 15,
2002. SFAS 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 SFAS 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 nil.

         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". SFAS No. 145 amends existing guidance on reporting gains and
losses on the extinguishment of debt to prohibit the classification of the gain
or loss as extraordinary, as the use of such extinguishments have become part of
the risk management strategy of many companies. SFAS No. 145 also amends SFAS
No. 13, "Accounting for Leases", to require sale-leaseback accounting for
certain lease modifications that have economic effects similar to sale-leaseback
transactions. The provisions of SFAS No. 145 related to the rescission of



                                       24
<PAGE>



SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt", were
applied in fiscal years beginning after May 15, 2002. The provisions of SFAS No.
145 related to Statement 13 were effective for transactions occurring after May
15, 2002. The adoption of SFAS No. 145 had no effect on the Company's financial
statements.

         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. The
Company adopted SFAS No. 146 for restructuring or exit plans developed after
December 31, 2002. The adoption had no impact on the Company's financial
statements.

         In November 2002, the FASB issued FIN 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. The adoption of this interpretation
has not resulted in any additional disclosure as the Company has not provided
any guarantees of indebtedness to others.

         In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure, an amendment of FASB
Statement No. 123". This Statement amends SFAS No. 123, "Accounting for
Stock-Based Compensation", to provide alternative methods of transition for a
voluntary change to the fair value method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in annual and interim financial
statements. The adoption of SFAS No. 148 had no impact on the Company's
financial statements.

         In April 2003, the FASB issued SFAS 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 SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 149 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 SFAS No. 133. In
addition, it clarifies when a derivative contains a financing component that
warrants special reporting in the statement of cash flows. SFAS No. 149 amends
certain other existing pronouncements. This Statement was 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 SFAS No. 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. Petsec adopted SFAS
No. 149 on January 1, 2003. The adoption of SFAS No. 149 had no impact on the
Company's financial statements.

         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 was effective for financial instruments entered into or modified after May
31, 2003 and was otherwise effective at the beginning of the first interim
period after June 15, 2003. The adoption of SFAS No. 150 had no impact on the
Company's financial statements.

         In December 2003, the FASB issued FASB Interpretation No. 46 (revised
December 2003), "Consolidation of Variable Interest Entities" ("FIN 46R"), which
addresses how a business enterprise should evaluate whether it has a controlling
financial interest in an entity through means other than voting rights and
accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation
No. 46, "Consolidation of Variable Interest Entities", which was issued in
January 2003. The Company is required to apply FIN 46 or FIN 46R immediately to
enterprises with variable interest created after January 31, 2003. For interest
in variable interest entities which were created prior to February 1, 2003, FIN
46R is effective for the Company for periods from January 1, 2004.

         The Company is continuing to evaluate the impact of FIN 46R to possible
variable interest entities the Company may have an interest in at January 1,
2004.



                                       25
<PAGE>



         In December 2003, the FASB issued SFAS No. 132 (revised), "Employers'
Disclosures about Pensions and Other Postretirement Benefits". SFAS No. 132
(revised) prescribes employers' disclosures about pension plans and other
postretirement benefit plans; it does not change the measurement or recognition
of those plans. The Statement retains and revises the disclosure requirements
contained in the original SFAS No. 132. It also requires additional disclosures
about the assets, obligations, cash flows, and net periodic benefit cost of
defined benefit pension plans and other postretirement benefit plans. SFAS No.
132 generally was effective for fiscal years ending after December 15, 2003. The
adoption of SFAS No. 132 (revised) had no impact on the Company's financial
statements.

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 contingent obligations will be met. As of March 31, 2004,
the Company had posted $2.3 million of required bonding with the MMS through a
surety company.

         The Company's operations are subject to various U.S. federal, state and
local laws and regulations relating to the protection of the environment. See
"Item 4 - Information on the Company - Regulation." 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.

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

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

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

     o   our outlook on oil and gas prices;

     o   estimates of our oil and gas reserves;

     o   the impact of political and regulatory developments;

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

     o   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.



                                       26
<PAGE>



         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 $12.5
million at December 31, 2003. On January 6, 2004 the Company completed a
placement of 12,846,800 shares at A$0.95 per share arranged in December 2003,
raising a total of A$11.6 million of which A$9.8 million had been received prior
to the end of the financial year. At May 3, 2004, the Company's cash balances
were approximately $12.1 million. The Company's working capital is sufficient
for the Company's present requirements.

Cash Flow

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

<Table>
<Caption>
                                                                                Years Ended December 31,
                                                                           -----------------------------------
                                                                             2001          2002         2003
                                                                           ---------     --------     --------
                                                                                     (in thousands)
<S>                                                                        <C>           <C>          <C>
NET CASH PROVIDED BY (USED IN):
  Operating activities                                                     $ (1,166)     $(2,728)      $18,589
  Investing activities                                                           104      (8,170)      (13,574)
  Financing activities                                                             -            -        6,851
</Table>

         The turnaround in 2003 cash flow provided by operations compared to
2002 was primarily attributable to the commencement of oil and gas production
from the three 2002 discoveries and from production that commenced in October
2003 from two additional wells at West Cameron 343/352. Historically high gas
and oil prices also had a favourable impact on operating cash flow.

         The cash flow from operating activities funded the Company's $13.6
million of net investment activities in 2003 including capital expenditures of
$4.7 million for the drilling, development, and workovers of the first three
wells at West Cameron 343/352, $5.0 million for the drilling of two additional
wells at West Cameron 343/352, $1.2 million for drilling and development at
Vermilion 258, and $0.9 million for exploration and development at Block 22/12
in the Beibu Gulf, China. The Company also placed on deposit an additional $1.1
million of collateral to secure bonds issued to the MMS by a surety company.
Cash used in investment activities was partially offset by cash received upon
the redemption of short-term investment securities.

         Net cash provided by financing activities for the year ended December
31, 2003 was $6.9 million which pre-dominantly related to share subscriptions
monies received in advance for the January 6, 2004 share issuance. The Company
expects to use the funds for the development of Vermilion 258, for exploration
and development in the Beibu Gulf offshore China, to fund lease acquisitions
acquired at the March 2004 Central Gulf of Mexico lease sale, and for any other
acquisition, exploration, and development opportunities that may arise.

Credit Facilities

         Effective February 20, 2004, PEI entered into a $2.0 million credit
agreement with a U.S. bank for the purpose of securing letters of credit issued
by the bank and also to allow the refund of $1.7 million of cash collateral
previously posted to secure surety bonds issued to the MMS. In connection with
the facility, letters of credit totalling $2.0 million are outstanding as of
April 30, 2004. The letters of credit secure bonding and potential plug and
abandonment and environmental contingent liabilities in connection with PEI's
oil and gas operations.

         The new credit facility is secured by mortgages on PEI's interest in
oil and gas properties. The credit facility also contains financial covenants
that require PEI to (1) maintain its tangible net worth to be not less than 90%
of the tangible net worth at the closing date plus 50% of any advances to PEI
from PEL, and (2) a ratio of current assets to current liabilities of at least
one to one.




                                       27
<PAGE>



Future Capital Expenditures and Commitments

         At the March 2004 lease sale held in New Orleans, Louisiana by the MMS,
the Company was the high bidder for three additional exploration leases in the
Gulf of Mexico (Vermilion 244, Vermilion 259 and Main Pass 19). On April 27,
2004 the MMS awarded Petsec the Vermilion 244 and 259 leases and it is expected
that the Main Pass 19 lease will also be awarded. The total cost of these leases
to the Company is $1.3 million. The Company is contemplating the drilling of
three to five wells in 2004 in the Gulf of Mexico.

         In the Gulf of Mexico operations, the Company expects to expend at
least $18 million for acquisitions, exploration and development in 2004
including the leases acquired at the March 2004 Gulf of Mexico lease sale.
Budgeted 2004 capital expenditures for the Beibu Gulf joint venture are $4.1
million. The Company will participate in the drilling of three wells in the
Beibu Gulf in 2004.


C. RESEARCH AND DEVELOPMENT

     Not applicable.

D. TREND INFORMATION

         The Company anticipates that production from Vermilion 258 will
commence in the second half of 2004 and, as a result, production for 2004 will
be higher than 2003.

         Currently, the Company is primarily a gas producer. Gas prices during
the first quarter of 2004 have been generally lower than 2003. In the first
quarter of 2004, the Company will realize approximately $5.50 per Mcf of gas
excluding the impact of any financial hedges. In the first quarter of 2003, when
gas prices were at record high levels, the Company realized approximately $6.85
per Mcf of gas sold. While margins may be lower if the general level of gas
prices remains lower in 2004 compared to 2003, Petsec does not expect lower
prices in 2004 to affect its ability to make a profit.

         The Company records depreciation, depletion, and amortization ("DD&A")
expense on its producing oil and gas properties using a units-of-production
method based on the ratio of actual production to remaining reserves as
estimated by independent petroleum engineers. The effect of any revisions to the
estimated remaining reserves on DD&A is only considered in future periods and no
adjustment is made to accumulated DD&A applicable to prior periods. Because the
West Cameron 343/352 independent reserve estimates for January 1, 2004 included
downward revisions from the January 1, 2003 estimates, DD&A expense rates per
unit of production for West Cameron 343/352 will be higher in 2004 and thus will
negatively impact net income. The DD&A expense in 2003 for West Cameron 343/352
was $6.5 million or $1.59 per Mcfe. The Company estimates that DD&A expense for
West Cameron 343/352 in 2004 will be approximately $9.8 million or $2.19 per
Mcfe assuming production of 4.5 Bcfe and no other increases or decreases to
reserve estimates.

E. OFF-BALANCE SHEET ARRANGEMENTS

         Other than the operating lease commitments in relation to office space,
exploration and lease rental commitments in relation to exploration leases and
the contingent liability for $2.2 million of letters of credit outstanding and
$2.6 million in surety bonds related to exploration leases, plug and abandonment
responsibilities and environmental contingencies, we do not believe that we have
entered into any off balance sheet transaction, arrangement or other
relationship that could materially affect liquidity, the availability of capital
resources or requirements for capital resources.




                                       28
<PAGE>



F. CONTRACTUAL OBLIGATIONS

         The following table shows our other cash commitments as of December 31,
2003.


<Table>
<Caption>
US$'000                                            Payments due by periods as of December 31, 2003
-----------------------------------------------------------------------------------------------------------------
Contractual obligations                      Total    Less than 1     1 - 3 years    3 - 5 years   After 5 years
                                                             year
------------------------------------ -------------- -------------- --------------- -------------- ---------------
<S>                                  <C>            <C>            <C>             <C>            <C>
Operating leases                     $         418  $         366  $           52  $           -- $            --
Exploration lease rental                       222             65             157              --              --
------------------------------------ -------------- -------------- --------------- -------------- ---------------
Total contractual cash obligations   $         640  $         431  $          209  $           -- $            --
------------------------------------ -------------- -------------- --------------- -------------- ---------------
</Table>

         In addition to the contractual cash obligations listed above, the
Company had committed to expending approximately $1.6 million during 2004 for
its share of the China joint venture's approved exploration plans.

G. 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 and costs to acquire mineral interests are capitalized.
Exploration costs, including personnel costs, certain geological and geophysical
expenses including 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



                                       29
<PAGE>



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.

(3) Depreciation, Depletion, and Amortization

         The Company records DD&A expense on its producing oil and gas
properties using a units-of-production method based on the ratio of actual
production to remaining reserves as estimated by independent petroleum
engineers. The effect of any revisions to the estimated remaining reserves on
DD&A is only considered in future periods and no adjustment is made to
accumulated DD&A applicable to prior periods. Because revisions to estimated
reserves are only considered prospectively when calculating DD&A expense, DD&A
expense in current and future periods may be significantly impacted by DD&A
attributable to past periods.

         In 2004, the Company will record DD&A rates related to West Cameron
343/352 that are significantly higher than the rates recorded in 2003 because of
downward revisions to the reserve estimates at January 1, 2004. See
"Trend Information" above.

(4) 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
or 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.



                                       30
<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)                  56       Chairman, Managing Director and Chief Executive Officer
David A. Mortimer                     59       Director, Chairman of Audit and Remuneration and
                                               Nomination Committees
Peter E. Power                        70       Director

Executive officers:
Ross A. Keogh                         45       President of Petsec Energy Inc.
Fiona A. Robertson                    48       Chief Financial Officer
Geoffrey H. Fulcher                   62       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 a director 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, Virgin Blue
Holdings Limited, Macquarie Infrastructure Investment Management Ltd, Arrow
Pharmaceuticals Ltd, and is Deputy Chairman of Australia Post and Chairman of
Citect Corporation Limited, MIA Group Ltd 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 25 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 management and administrative positions, with over 15
of those years as a Corporate Secretary.



                                       31
<PAGE>



B. COMPENSATION

         The total compensation received by the directors of the Company for
their services as directors for 2003 was $71,014. The total compensation
received by the executive officers of the Company and its controlled and related
companies for 2003 was $593,338. 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 2003 by the company associated with Mr. Fern
was $530,000 (2002: $254,000; 2001: $237,000).

<Table>
<Caption>
Fiscal year ended                      Base                           Other         Retirement
December 31, 2003                   emoluments       Bonuses         Benefits      Benefit Plans         Total
-------------------------------- ---------------- -------------- --------------- ------------------ -----------------
<S>                              <C>              <C>            <C>             <C>                <C>
DIRECTORS                               $               $              $                 $                 $
T.N. Fern                               -               -              -                 -                 -
D.A. Mortimer                        32,575             -              -               2,932             35,507
P.E. Power                           32,575             -              -               2,932             35,507
OFFICERS
R.A. Keogh                          143,750         261,262*        40,138               -              445,150
F.A. Robertson                       77,545             -              -                 -               77,545
G. H. Fulcher                        55,378             -            8,750             6,515             70,643
</Table>


         * Includes $95,294 which was accrued at December 31, 2003 and
subsequently paid in March 2004.

         In addition, the Company has accrued $195,000 payable as a retirement
benefit to the directors, Mr. D.A. Mortimer and Dr P.E. Power on retirement. The
Company provides for directors' retirement benefits based on the number of years
service at the reporting date. All non-executive directors are presently
entitled to payments under the scheme which entitles them to a benefit, on
retirement, equivalent to the total remuneration received in the past three
years. During 2003, the Company recorded $98,000 of expense for the directors'
retirement benefit.

         Mr. Keogh's bonus was received pursuant to an employee incentive plan
that PEI established for its employees during 2003. Under the plan, the Company
will pay up to 6 1/2 percent of PEI's operating profit before interest, taxes
and incentive compensation for payment to PEI employees. The allocation of the
bonus to PEI's employees is made at the discretion of the Company's management.
For 2003, the Company recorded $0.9 million of compensation expense under the
plan of which $0.6 million was paid in 2003.

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, 2003, 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, 2003,
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 and 35,000
Ordinary Shares at exercise prices of A$0.41 and A$0.40 per share, respectively.
The options expire on April 16, 2004 and December 1, 2007. 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.


                                       32
<PAGE>



C. BOARD PRACTICES

         The Board of Directors has an Audit Committee, a Remuneration Committee
and a Nomination 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                 3                4

         T.N. Fern                    12               4                 3                4      May 21, 1987
         D.A. Mortimer                12               4                 3                4      July 1, 1985
         P.E. Power                   12               4                 3                4      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 re-election on a rotating basis each year.

         The Company has no severance contracts with its directors other than
the retirement benefits outlined in "Section B" above.

         The Remuneration Committee of which D.A. Mortimer is Chairman 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. All the services
provided by the external auditors are approved by the audit committee prior to
commencement of their work. 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, 2003, the Company had 16 full-time employees 11 of
whom were in Lafayette, Louisiana, and five 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.



                                       33
<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
April 30, 2004 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 119,193,841 Ordinary Shares outstanding on May 3,
2004.

<Table>
<Caption>
                                                    NUMBER OF                                            OPTIONS
                                                ORDINARY SHARES              PERCENTAGE               OVER ORDINARY
NAME                                           BENEFICIALLY OWNED        BENEFICIALLY OWNED               SHARES
----                                           ------------------        ------------------           -------------
<S>                                            <C>                       <C>                          <C>
All Directors and executives as a group
   (6 persons) (1) (2) (3)                        28,071,642                         23.6%                     --
Terrence N. Fern (2) (3)                          26,882,498                         22.6%                     --
D.A Mortimer                                         610,068                             *                     --
P.E. Power                                           190,323                             *                     --
R. A. Keogh                                          275,000                             *              1,250,000
F.A. Robertson                                        75,000                             *                     --
G. H. Fulcher                                         38,753                             *                 35,000
Den Duyts Corporation Pty Limited (3)             18,344,639                         15.4%                     --
</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 3, 2004, were 26,785,989 Ordinary
         Shares and the "relevant" interests of Mr. Fern were 26,785,989
         Ordinary Shares.



                                       34
<PAGE>



           ITEM 7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. MAJOR SHAREHOLDERS

         At May 3, 2004, 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>
        Terrence N. Fern                                     26,882,498          22.55
        Den Duyts Corporation Pty Limited                    18,344,639          15.39
        National Nominees Ltd                                13,046,782          10.95
        ANZ Nominees Limited                                 11,745,244           9.85
        Citicorp Nominees Pty Limited                        10,534,574           8.84
        Canning Oil Pty. Limited                              6,470,661           5.43
</Table>

         Approximately 97% of the Company's voting securities are held by 4,398
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, 2002            April 30, 2003             May 3, 2004
--------------------------------------------- ------------------------- ------------------------- ------------------------
                                              No. of Shares      %         No. of         %       No. of Shares       %
                                                              o'ship       Shares       o'ship                     o'ship
<S>                                           <C>             <C>        <C>            <C>       <C>              <C>
Citicorp Nominees Pty Limited                   7,314,247       6.92     14,447,027      13.66      10,534,574       8.84
ANZ Nominees Limited                           14,556,662      13.77     10,286,435       9.73      11,745,244       9.85
National Nominees Ltd                                  --         --             --         --      13,046,782      10.95
Commonwealth Custodial Services Limited         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 3, 2004 there were 119,193,841 ordinary shares held by 5,048
shareholders.

B. RELATED PARTY TRANSACTIONS

(a)      Directors

         The names of persons who were directors of the Company during the year
ended December 31, 2003 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.

         No loans were made to directors during the year and no such loans are
subsisting.

         At December 31, 2003 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 terms include provision for compensation in the event of
termination without due notice. The cost of the services provided to the
consolidated entity during 2003 by the company associated with Mr. Fern was
$530,000.

         The Company holds unlisted shares in an investment fund of which Mr.
Mortimer is Chairman. At December 2003 the Company had invested $412,000 in the
fund and has a total commitment to the fund of up to $743,000. Subsequent to
balance date the Company invested a further $125,000 in the fund.



                                       35
<PAGE>



         At December 31, 2003, 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.

(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, 2001       December 31, 2002       December 31, 2003
                                                  $'000                   $'000                   $'000
---------------------------------------- ------------------------ ----------------------- -----------------------
<S>                                      <C>                      <C>                     <C>
Receivables - non-current                         5,278                  14,448                  14,902
Payables - non-current                            7,677                   4,131                   5,661
</Table>

         At December 31, 2003, 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.



                                       36
<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, 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

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

Year ended December 31, 2003:
  First Quarter 2003                0.41       0.25       0.30       0.19
  Second Quarter 2003               0.84       0.41       0.62       0.46
  Third Quarter 2003                0.92       0.66       0.68       0.49
  Fourth Quarter 2003               1.13       0.72       0.84       0.54
  First Quarter 2004                1.56       1.04       1.17       0.77

  November 2003                     0.87       0.77       0.65       0.57
  December 2003                     1.13       0.85       0.84       0.63
  January 2004                      1.36       1.04       1.01       0.77
  February 2004                     1.30       1.19       0.97       0.88
  March 2004                        1.56       1.26       1.17       0.94
  April 2004                        1.67       1.18       1.24       0.88
</Table>



                                       37
<PAGE>



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

<Table>
<Caption>
                                       US$
                                 High       Low
                               --------   --------
<S>                            <C>        <C>
Year ended December 31, 1999       2.19       0.38

Year ended December 31, 2000       0.81       0.02

Year ended December 31, 2001       0.47       0.20

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
Year ended December 31, 2003
   First Quarter                   1.22       0.70
   Second Quarter                  2.79       1.23
   Third Quarter                   2.87       2.10
   Fourth Quarter                  4.15       2.35
   First Quarter 2004              5.90       3.98

   November 2003                   3.10       2.65
   December 2003                   4.15       2.92
   January 2004                    5.45       3.98
   February 2004                   5.13       4.55
   March 2004                      5.90       4.50
   April 2004                      6.15       4.35
</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 April 30, 2004, 2,127,112 ADRs were on issue. These were
equivalent to 10,635,560 Ordinary Shares or approximately 10% of the Company's
issued capital.

D. SELLING SHAREHOLDERS

         Not applicable.


E. DILUTION

     Not applicable.



                                       38
<PAGE>



F. EXPENSES OF THE ISSUE

     Not applicable.


                        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; and

(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)).



                                       39
<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."


(b) DIRECTORS' REMUNERATION

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




                                       40
<PAGE>



"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
         traveling 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.

"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



                                       41
<PAGE>



         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.


(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.


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.



                                       42
<PAGE>
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,
         installments 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.

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."



                                       43
<PAGE>



(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.

"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 installments.

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 installments 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 installments 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



                                       44
<PAGE>



         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 installments
                           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.

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



                                       45
<PAGE>



         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.

"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.



                                       46
<PAGE>



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.

         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.




                                       47
<PAGE>



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.

         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 a FDA dividend, the amount so
specified will be exempt from Australian withholding tax. The payment of a 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.



                                       48
<PAGE>



         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.

         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.



                                       49
<PAGE>



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 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.



                                       50
<PAGE>
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 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.
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. 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




                                       51
<PAGE>
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 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.
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.



                                       52
<PAGE>



F. DIVIDENDS AND PAYING AGENTS

     Not applicable.


G. STATEMENT BY EXPERTS

     Not applicable.

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 U.S.A. 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. During 2003, the
Company used a natural gas swap agreement as a hedge to reduce the risk of price
fluctuations on a portion of its future production. In the future, the Company
will continue to use swaps and may use other derivative financial instruments
such as 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 uses the hedge or deferral method of accounting for these instruments
and, as a result, gains and losses on commodity derivative financial instruments
are generally recognized in the same period as the sale of the hedged production
is recognized. See "Item 5 - Operating and Financial Review and Prospects --
Hedging Transactions." The Company does not enter into derivative financial
instruments for speculative or trading purposes.

         The following table shows information on the Company's fixed price gas
swap in place for 2004 as of December 31, 2003:

<Table>
<Caption>
                                              Notional Quantity      Fixed Price Received     Approximate Fair Value at
Date of Agreement      Remaining Term          (MMBtu per day)            per MMBtu               December 31, 2003
------------------- ---------------------- ------------------------ ----------------------- -------------------------------
<S>                 <C>                    <C>                      <C>                     <C>
November 14, 2003      January through              4,000                   $5.16                     ($346,000)
                         March 2004
</Table>

         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.



                                       53
<PAGE>


        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, 2003.

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

                                 Not applicable

                        ITEM 15 - CONTROLS AND PROCEDURES

         Each of our Chief Executive Officer and Chief Financial Officer has
evaluated the effectiveness of the Company's disclosure controls and procedures
as of the end of the period covered by this report. 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 16A - AUDIT COMMITTEE FINANCIAL EXPERT

         Our Board of Directors has determined that it has at least one
financial expert serving on its Audit Committee in the person of Mr. David A.
Mortimer, Chairman of the Audit Committee.

                            ITEM 16B - CODE OF ETHICS

         We have adopted a code of ethics that applies to Chief Executive
Officer, Chief Financial Officer and Principal Accounting Officer. Our code that
applies to these officers of our company is filed as Exhibit 99.3 of this annual
report.

                ITEM 16C - PRINCIPAL ACCOUNTANT FEES AND SERVICES

         The following table presents fees for professional audit services
rendered by KPMG for the audit of the Company's annual financial statements for
2002 and 2003, and fees billed for other services rendered by KPMG.

<Table>
<Caption>
                                               2002              2003
---------------------------------------- ----------------- -----------------
<S>                                      <C>               <C>
Audit fees                                 $   33,372        $   78,506
All other fees (1)                             14,432                --
  Total fees (2)                           $   47,804        $   78,506
</Table>


(1) All other fees consisted principally of fees for audits of workers
compensation insurance declarations and consultation on matters concerning
liquidation of dormant Australian subsidiaries of the Company.

(2) Total fees include amounts billed in foreign currencies, and are translated
to US Dollars as of the date of approval of the fees.



                                       54
<PAGE>



      ITEM 16D - EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

                                 Not Applicable.

     ITEM 16E - PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
                                   PURCHASERS

                                 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-30 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

         31.1 Certification of the CFO pursuant to Section 302 of the
         Sarbanes-Oxley Act of 2002.

         31.2 Certification of the CEO pursuant to Section 302 of the
         Sarbanes-Oxley Act of 2002.

         32.1 Certification of CEO pursuant to section 906 of the Sarbanes-Oxley
         Act of 2002.

         32.2 Certification of CFO pursuant to section 906 of the Sarbanes-Oxley
         Act of 2002.

         99.1 Consent of Independent Auditors

         99.2 Consent of Independent Petroleum Engineers

         99.3 Code of Ethics




                                       55
<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





                                       56
<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, 2003




<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                                              F30
</Table>







                                       F1
<PAGE>



CONSOLIDATED BALANCE SHEETS
Petsec Energy Ltd and subsidiaries


<Table>
<Caption>
                                                                         December 31      December 31
                                                                             2002            2003
                                                                        -------------    -------------
<S>                                                                     <C>              <C>
(US dollars, in thousands)

ASSETS (NOTE 1(b))
Current assets
     Cash                                                               $         596    $      12,462
     Deposits (note 12)                                                            --              381
     Trade debtors                                                                201            3,663
     Other receivables                                                            453              104
     Investment securities (note 5)                                             1,000               --
     Prepayments                                                                   35              367
                                                                        -------------    -------------
     Total current assets                                                       2,285           16,977
                                                                        -------------    -------------

Non-current assets
     Deposits (notes 9(a) and 12)                                                 675            1,734
     Proved and unproved oil and gas properties (note 18)                      10,651           19,157
     Investment securities (note 5)                                               311              345
     Property, plant and equipment (note 6)                                       144              231
     Deferred tax assets (note 2)                                                 140               --
                                                                        -------------    -------------
         Total non-current assets                                              11,921           21,467
                                                                        -------------    -------------
Total assets                                                            $      14,206    $      38,444
                                                                        -------------    -------------

LIABILITIES AND SHAREHOLDERS' EQUITY (NOTE 1(b))
Current liabilities
     Accounts payable and accrued liabilities (note 7)                  $       2,989    $       7,093
     Share subscriptions received in advance (note 10)                             --            7,253
     Short-term loans (note 9(a))                                                  --              328
                                                                        -------------    -------------
         Total current liabilities                                              2,989           14,674
                                                                        -------------    -------------

Long-term liabilities
     Deferred tax liabilities (note 2)                                            840               --
     Other accrued liabilities (note 8)                                           129              567
                                                                        -------------    -------------
         Total long-term liabilities                                              969              567
                                                                        -------------    -------------
Shareholders' equity
     Share capital - 250,000,000 (2002: 250,000,000) authorized
     ordinary shares of 20 Australian cents each. Shares issued
     105,736,041 (2002: 105,736,041). (notes 10 and 11)                       120,701          120,791
     Accumulated other comprehensive loss (note 11)                            (2,376)          (2,611)
     Accumulated deficit                                                     (108,077)         (94,977)
                                                                        -------------    -------------
         Total shareholders' equity (note 11)                                  10,248           23,203
                                                                        -------------    -------------
Total liabilities and shareholders' equity                              $      14,206    $      38,444
                                                                        -------------    -------------
</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
                                                                    2001              2002              2003
                                                               --------------    --------------    --------------
<S>                                                            <C>               <C>               <C>
(US dollars, in thousands except earnings per share)

Oil and gas sales (net of royalties payable)                   $           --    $           --    $       23,270
Oil and gas royalties                                                      --               201             1,949
                                                               --------------    --------------    --------------

Total revenues                                                 $           --    $          201    $       25,219
                                                               --------------    --------------    --------------

Operating expenses
     Lease operating expenses                                              --                --             1,557
     Depletion, depreciation and amortization                              28                34             6,574
     Exploration expenditure                                              422             1,176             1,329
     Dry hole and abandonment costs                                       877             1,066                --
     Impairment expense                                                    --                --                38
     General, administrative and other expenses                         1,264             1,691             3,519
     Stock compensation expense                                            11                40                90
                                                               --------------    --------------    --------------
     Total operating expenses                                           2,602             4,007            13,107
     Profit (loss) on sale of assets                                        9                (8)               --
                                                               --------------    --------------    --------------
     Income (loss) from operations                                     (2,593)           (3,814)           12,112

Other income                                                              200               137               364
Interest expense                                                           --                --               (10)
Interest income                                                           447               136               142
                                                               --------------    --------------    --------------
     Income (loss) before income tax and extraordinary items           (1,946)           (3,541)           12,608
Income tax benefit (note 2)                                                 8               254               492
                                                               --------------    --------------    --------------
     Net income (loss) before extraordinary items              $       (1,938)   $       (3,287)   $       13,100
Extraordinary items (net of nil tax)
     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)                                         $       36,312    $       (3,287)   $       13,100
                                                               --------------    --------------    --------------


Earnings (loss) per common share (note 3)
 - basic, before extraordinary gain                            $        (0.02)   $        (0.03)   $         0.12
 - basic, after extraordinary gain                             $         0.34    $        (0.03)   $         0.12

 - diluted, before extraordinary gain                          $        (0.02)   $        (0.03)   $         0.12
 - diluted, after extraordinary gain                           $         0.34    $        (0.03)   $         0.12
</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
                                                                         2001           2002            2003
                                                                     ------------   ------------    ------------
<S>                                                                  <C>            <C>             <C>
(US dollars, in thousands)

Net income (loss)                                                    $     36,312   $     (3,287)   $     13,100

Other comprehensive income (loss)
     Foreign currency translation adjustments                                 214            (89)            (26)
     Deferred loss on hedging activities                                       --             --            (346)
     Aggregate income tax benefit (expense) related to other
         comprehensive income                                                  --             --             137
                                                                     ------------   ------------    ------------

Comprehensive income (loss)                                          $     36,526   $     (3,376)   $     12,865
                                                                     ------------   ------------    ------------
</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
                                                                 2001             2002              2003
                                                             -------------    -------------    -------------
<S>                                                          <C>              <C>              <C>
(US dollars, in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)                                            $      36,312    $      (3,287)   $      13,100
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities:
- depletion, depreciation and amortization                              28               34            6,574
- dry holes and abandonments                                           877            1,066               --
- impairment expense                                                    --               --               38
- (gain) loss on sale of investments/assets                             (9)               8               --
- recognition of deferred gain                                     (37,147)              --               --
- gain on distribution from bankruptcy trustee                      (1,103)              --               --
- employee stock compensation                                           11               40               90
- deferred income tax benefit                                           --             (254)            (492)
Changes in operating assets and liabilities:
- accounts receivable                                                   --             (546)          (3,462)
- other current assets                                                  (9)               9               17
- accounts payable and accrued liabilities                            (127)             215            3,162
- other accrued liabilities                                              1              (13)            (438)
                                                             -------------    -------------    -------------
Net cash provided by (used in) operating activities                 (1,166)          (2,728)          18,589
                                                             -------------    -------------    -------------

INVESTING ACTIVITIES
     Additions to oil and gas properties                              (965)          (6,487)         (13,372)
     Additions to investments and certificates of deposit              (63)          (1,698)          (1,453)
     Proceeds of asset disposals                                         9                1               --
     Distribution from bankruptcy trustee                            1,103               --               82
     Distribution from investments                                      20               14            1,169
                                                             -------------    -------------    -------------
Net cash provided by (used in) investing activities                    104           (8,170)         (13,574)
                                                             -------------    -------------    -------------

FINANCING ACTIVITIES
     Payment of short-term loans                                        --               --             (402)
     Proceeds from share subscriptions received in advance              --               --            7,253
                                                             -------------    -------------    -------------
         Net cash provided by financing activities                      --               --            6,851
                                                             -------------    -------------    -------------
Increase (decrease) in cash                                         (1,062)         (10,898)          11,866
Cash at the beginning of the period                                 12,556           11,494              596
                                                             =============    =============    =============

CASH AT THE END OF THE PERIOD                                $      11,494    $         596    $      12,462
                                                             -------------    -------------    -------------
</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 production
and royalty interests. The Company only earned revenue from royalty interest
during 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 U.S. subsidiary, Petsec Energy Inc.
("PEI"), filed a voluntary petition under Chapter 11 of the U.S. 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 U.S. 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
(U.S.A.) 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.

On January 6, 2004 the Company completed a placement of 12,846,800 shares at
A$0.95 per share arranged in December 2003, raising a total of A$11.6 million or
US$8.6 of which A$9.8 million or US$7.3 had been received prior to the end of
the financial year and recorded as a current liability in share subscription
received in advance. Immediately after the share placement, 118,582,841 shares
were outstanding.


(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 in 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



                                       F6
<PAGE>

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. During 2003, the Company recorded impairment of $38,000
on a lease that will expire during 2004.

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.

The Company adopted Statement No. 143, "Accounting for Asset Retirement
Obligations" ("SFAS No. 143") effective January 1, 2003. See Note 8 - Other
Accrued Liabilities. Upon adoption, the Company recorded estimated non-current
well abandonment and reclamation liabilities of nil.

(e) 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.

                                                           Method      Estimated
                                                                     useful life
                                                                        in years


Furniture and fittings                                  Straight line 5 to 7
Office machines and
  equipment                                             Straight line 3 to 5
Leasehold improvements                                  Straight line 5 to 7

(f) 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

Investment securities at December 31, 2003 and 2002 consist of equity
securities. The Company classifies its equity securities into trading or
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.

A decline in the market value of any available-for-sale security below cost that
is deemed to be other-than-temporary results in a reduction in carrying amount
to fair value. The impairment is charged to earnings and a new cost basis for
the security is established. To determine whether an impairment is
other-than-temporary, the Company considers whether it has the ability and
intent to hold the investment until a market price recovery and considers
whether it has the ability and intent to hold the investment until a market
price recovery and considers whether evidence indicating the cost of the
investment is recoverable outweighs evidence to the contrary. Evidence
considered in this assessment includes the reasons for the impairment, the
severity and duration of the impairment, changes in value subsequent to
year-end, and forecasted performance of the investee.

Premiums and discounts are amortized or accreted over the life of the related
available-for-sale security as an adjustment to yield using the
effective-interest method. Dividend and interest income are recognized when
earned.

(g) 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.


                                       F7
<PAGE>

(h) Derivative instruments and hedging activities

From time to time, the Company uses derivative instruments, such as natural gas
swaps, to reduce the risk of price fluctuations on a portion of its future
production. The Company will generally limit its hedges to 50% of its
anticipated production.

Under SFAS No. 133, as amended, the nature of a derivative instrument must be
evaluated to determine if it qualifies for hedge accounting treatment.
Instruments qualifying for hedge accounting treatment are recorded as an asset
or liability measured at fair value and subsequent changes in fair value are
recognized in equity through other comprehensive income, net of related taxes,
to the extent the hedge is effective. The cash settlement of effective cash flow
hedges is recorded into revenue in the same period that the underlying hedged
production occurs. Instruments not qualifying for hedge accounting treatment, if
any, are recorded in the balance sheet and changes in fair value are recognized
in earnings as derivative expense (income). At December 31, 2003, the Company's
natural gas swap agreements were considered effective cash flow hedges. The
related liability is recorded in accounts payable and accrued liabilities (see
Note 7). The Company uses a regression analysis to retrospectively test the
effectiveness of the swaps. Hedging losses recorded during 2003 were less than
$0.1 million. (See Note 9 - Financing arrangements, liquidity and financial
instruments disclosure). During 2001 and 2002 no derivative instruments were
entered into.

(i) 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
estimated wages to be paid out and salary rates and includes related on-costs.
Employer contributions to superannuation funds are charged against earnings.
Further information is set out in Note 12.

A liability is recognized for employee incentive plans based on a percentage of
operating profits.

(j) Income taxes

The Company 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.


(k) Foreign currency translation

Substantially all of the Company's oil and gas operations are conducted in US
dollars. The Company generally maintains its surplus cash balances in US dollar
accounts. However, at December 31, 2003, approximately $7.5 million was held in
Australian dollar accounts (A$10.1 million). The amounts deposited in Australian
dollar accounts included $7.3 million received for share subscriptions received
in advance of a January 6, 2004 share offering (see note 10 - Share Capital).

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 Company had no
significant foreign exchange gains or losses during each of the last three
years.

The balance sheets of the Company and its Australian subsidiaries are translated
at the rates of exchange ruling at balance date. The statements of operations
are translated at an 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.



                                       F8
<PAGE>
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,
                         2001        2002        2003
                         ----        ----        ----
<S>                      <C>        <C>          <C>
Average
exchange rate           0.5075      0.5391      0.6515
Exchange rate at
period end              0.5062      0.5598      0.7431
</Table>

(l) Comparatives

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

(m) 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 the fair value of all stock-based
awards on the date of grant as expense over the vesting period. The amount is
recorded as an increase to share capital.


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 2003 were 1.2 to 4.5 years (weighted average 3.4 years); 86.90%; 0%
and 5.53% per annum, respectively; 1.3 to 4.3 years (weighted average 2.8
years); 77.10%; 0% and 4.68% per annum, respectively, in 2002. No options were
issued in 2001. The average fair value per option granted in 2003 using the
Black Scholes valuation method was A$0.30 per option (2002: A$0.07).

(n) Receivables

The collectability of debts is assessed at reporting date and specific provision
is made for any doubtful debts.

Trade debtors

Trade debtors to be settled within 30 to 60 days are carried at amounts due.


(o) 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. Significant items subject to such estimates and assumptions
include impairment of oil and gas properties, depreciation, depletion and
amortisation of capitalised costs and income taxes. Actual results could differ
from those estimates.

(p) Recently Issued Accounting Standards

In December 2003, the FASB issued FASB Interpretation No. 46 (revised December
2003), Consolidation of Variable Interest Entities, which addresses how a
business enterprise should evaluate whether it has a controlling financial
interest in an entity through means other than voting rights and accordingly
should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46,
Consolidation of Variable Interest Entities, which was issued in January 2003.

         The Company is required to apply FIN 46 or FIN 46R immediately to
enterprises with variable interest created after January 31, 2003. For interest
in variable interest entities which were created prior to February 1, 2003, FIN
46R is effective for the Company for periods from January 1, 2004.

         The Company is continuing to evaluate the impact of FIN 46R to possible
variable interest entities the Company may have an interest in at January 1,
2004.

FASB Statement No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity, was issued in May 2003. This
Statement establishes standards for the classification and measurement of
certain financial instruments with characteristics of both liabilities and


                                       F9
<PAGE>

equity. The Statement also includes required disclosures for financial
instruments within its scope. For the Company, the Statement was effective for
instruments entered into or modified after May 31, 2003 and otherwise will be
effective as of January 1, 2004, except for mandatorily redeemable financial
instruments. For certain mandatorily redeemable financial instruments, the
Statement will be effective for the Company on January 1, 2005. The effective
date has been deferred indefinitely for certain other types of mandatorily
redeemable financial instruments. The Company currently does not have any
financial instruments that are within the scope of this Statement.

(q) Recently Adopted Accounting Standards

In June 2001, FASB Statement No. 143, Accounting for Asset Retirement
Obligations, was issued. Statement No. 143 requires the Company to record the
fair value of an asset retirement obligation as a liability in the period in
which it incurs a legal obligation associated with the retirement of tangible
long-lived assets that result from the acquisition, construction, development,
and/or normal use of the assets. The Company also would record a corresponding
asset that is depreciated over the life of the asset. Subsequent to the initial
measurement of the asset retirement obligation, the obligation would be adjusted
at the end of each period to reflect the passage of time and changes in the
estimated future cash flows underlying the obligation. The Company was required
to adopt Statement 143 on January 1, 2003. Upon adoption, the Company recorded
estimated non-current well abandonment and reclamation liabilities of nil.

In April 2002, FASB Statement No. 145, Rescission of FASB Statements No. 4, 44
and 64, Amendment of FASB Statement No. 13, and Technical Corrections, was
issued. Statement 145 amends existing guidance on reporting gains and losses on
the extinguishment of debt to prohibit the classification of the gain or loss as
extraordinary, as the use of such extinguishments have become part of the risk
management strategy of many companies. Statement No. 145 also amends FASB
Statement No. 13, Accounting for Leases, to require sale-leaseback accounting
for certain lease modifications that have economic effects similar to
sale-leaseback transactions. The provisions of Statement 145 related to the
rescission of FASB Statement No. 4, Reporting Gains and Losses from
Extinguishment of Debt, were applied in fiscal years beginning after May 15,
2002. The provisions of Statement 145 related to Statement 13 were effective for
transactions occurring after May 15, 2002. The adoption of Statement 145 had no
effect on the Company's financial statements.

In June 2002, FASB Statement No. 146, Accounting for Costs Associated with Exit
or Disposal Activities, was issued. Statement 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity". The provisions of
Statement 146 were effective for exit or disposal activities initiated after
December 31, 2002, with early application encouraged. The Company adopted SFAS
No. 146 for the year ended December 31, 2003. The adoption had no impact on the
Company's financial statements.

In November 2002, FASB Interpretation No. 45, Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107
and a rescission of FASB Interpretation No. 34, was issued. This Interpretation
enhances the disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under guarantees issued. The
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 the
Interpretation were applicable to guarantees issued or modified after December
31, 2002 and the disclosure requirements were effective for financial statements
of interim or annual periods ending after December 15, 2002. The adoption of
this interpretation has not resulted in any additional disclosure as the Company
has not provided any guarantees of indebtedness to others.

In December 2002, FASB Statement No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123, was issued. This Statement amends FASB Statement No. 123, Accounting for
Stock-Based Compensation, to provide alternative methods of transition for a
voluntary change to the fair value method of accounting for stock-based employee
compensation. In addition, Statement 148 amends the disclosure requirements of



                                      F10
<PAGE>


Statement 123 to require prominent disclosures in both annual and interim
financial statements. The adoption had no impact on the Company's financial
statements.

In December 2003, FASB Statement No. 132 (revised), Employers' Disclosures about
Pensions and Other Postretirement Benefits, was issued. Statement 132 (revised)
prescribes employers' disclosures about pension plans and other postretirement
benefit plans; it does not change the measurement or recognition of those plans.
The Statement retains and revises the disclosure requirements contained in the
original Statement 132. It also requires additional disclosures about the
assets, obligations, cash flows, and net periodic benefit cost of defined
benefit pension plans and other postretirement benefit plans. The Statement
generally was effective for fiscal years ending after December 15, 2003. The
adoption had no impact on the Company's financial statements.




                                      F11
<PAGE>





2. INCOME TAXES

Income (loss) before income taxes for the years ended December 31, 2001, 2002
and 2003 were taxed under the following jurisdictions:


<Table>
<Caption>
                                               Twelve months ended
                                    December 31     December 31     December 31
                                       2001            2002            2003
                                   ------------    ------------    ------------
<S>                                <C>             <C>             <C>
(US dollars, in thousands)

Australia                          $       (489)   $       (846)   $     (1,091)
U.S.                               $     (1,457)   $     (2,695)   $     13,699
                                   ------------    ------------    ------------
                                   $     (1,946)   $     (3,541)   $     12,608
                                   ------------    ------------    ------------
</Table>

The U.S. 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
                                                2001            2002             2003
                                            ------------    ------------    ------------
<S>                                         <C>             <C>             <C>
(US dollars, in thousands)

CURRENT:
Australia                                   $         (8)   $         --    $         --
U.S.                                        $         --    $         --    $        250
                                            ------------    ------------    ------------
                                            $         (8)   $         --    $        250
                                            ------------    ------------    ------------

Deferred:
Australia                                   $         --    $       (254)   $       (742)
U.S.                                        $         --    $         --    $         --
                                            ------------    ------------    ------------
                                            $         --    $       (254)   $       (742)
                                            ------------    ------------    ------------

Income tax expense (benefit)                $         (8)   $       (254)   $       (492)
                                            ------------    ------------    ------------
</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) (2002: 30%,
2001: 34%) to income (loss) before income taxes and extraordinary items as a
result of the following:


<Table>
<Caption>
                                                                           Twelve months ended
                                                               December 31     December 31     December 31
                                                                   2001            2002            2003
                                                               ------------    ------------    ------------
<S>                                                            <C>             <C>             <C>
(US dollars, in thousands)

Computed "expected" tax expense (benefit)                      $       (662)   $     (1,062)   $      3,782

Increase (reduction) in income taxes resulting from:
     Current year tax losses not recognised                             654             808             317
     Utilisation of tax losses not previously recognised                 --              --          (3,592)
     Reversal of contingencies                                           --              --            (977)
     Other                                                               --              --             (22)
                                                               ------------    ------------    ------------
                                                               $         (8)   $       (254)   $       (492)
                                                               ------------    ------------    ------------
</Table>




                                      F12
<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, 2002 and
2003 are presented below.


<Table>
<Caption>
                                                            December 31      December 31
                                                               2002             2003
                                                           -------------    -------------
                                                              (US Dollars, in thousands)
<S>                                                        <C>              <C>
Deferred tax assets:
Employee entitlement provisions                            $         140    $         268
Tax credit carryforward                                               --              250
Net operating loss carry forward                                  22,748           18,942
Total deferred tax assets                                  $      22,888    $      19,460
                                                           -------------    -------------

     Less valuation allowance (1)                                (22,748)         (17,419)
                                                           -------------    -------------
     Net deferred tax assets                                         140            2,041
Deferred tax liabilities
Proved and unproved oil and gas properties                            --           (2,030)
Net unrealized foreign exchange gains transferred to the
     foreign currency translation reserve                  $        (840)   $         (11)
                                                           -------------    -------------
Total deferred tax (liability)                             $        (840)   $      (2,041)
                                                           -------------    -------------

Net deferred tax asset/(liability)                         $        (700)   $          --
                                                           -------------    -------------
</Table>


(1) At January 1, 2001, the valuation allowance was $62,686,000. During 2001,
the valuation allowance decreased by $41,549,000. In 2002, the valuation
allowance increased by $1,611,000. During 2003, the valuation allowance
decreased by $5,329,000.

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. Based upon the level of
historical taxable income and projections for future taxable income over the
periods in which the deferred tax assets are deductible, management believes it
is more likely than not the Company will realize the benefits of these
deductible differences, net of the existing valuation allowances at December 31,
2003. The amount of the deferred tax asset considered realizable, however, could
be reduced in the near term if estimates of future taxable income during the
carryforward period are reduced.

At December 31, 2003, the Company has gross operating loss carryforwards for
Australian income tax purposes of approximately US$2.3 million which are
available to offset future taxable income. These losses have no expiry.

At December 31, 2003 the Company has gross operating loss carryforwards of $50.7
million for United States Federal and State income tax purposes. The
carryforwards from previous tax periods will expire from 2016 through 2021.

The Company has alternative minimum tax credit carryforwards of $250,000, which
are available to reduce future U.S. Federal regular income taxes, if any, over
an indefinite period.


                                      F13
<PAGE>


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
                                                             2001             2002            2003
                                                         -------------   -------------   -------------
                                                                          (in thousands)
<S>                                                      <C>             <C>             <C>
Weighted average number of ordinary shares used in the
     calculation of the basic earnings per share               105,752         105,736         105,736
Incremental shares                                                  --              --           2,047
                                                         -------------   -------------   -------------
Weighted average number of ordinary shares used in the
     calculation of the diluted earnings per share             105,752         105,736         107,783
                                                         -------------   -------------   -------------
</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 employee stock options. The incremental common stock equivalents
were calculated using the treasury stock method. There was no difference between
the basic and diluted weighted average number of ordinary shares in 2001 and
2002 as the exercise price of the options in 2001: 549,000; 2002: 3,628,000 was
above the average market price, and therefore were anti-dilutive.

On January 6, 2004 the Company completed a placement of 12,846,800 shares, which
was arranged in December 2003. Immediately after the share placement,
118,582,841 shares were outstanding. (See Note 9 - Share capital).


4. INTERESTS IN JOINT VENTURES

Included in the assets of the Company are the following items which represent
the Company's interest in the assets and liabilities in joint ventures:

<Table>
<Caption>
                                                                         December 31      December 31
                                                                             2002            2003
                                                                        -------------    -------------
                                                                          (US Dollars, in thousands)
<S>                                                                     <C>              <C>
LEASE PERMITS AND CAPITAL EXPENDITURE
     - Main Pass 89                                                     $         102    $         102
     - West Cameron 343                                                         4,148            5,725
     - West Cameron 352                                                         3,479            4,670
     - Block 22/12, Beibu Gulf                                                    125              981
                                                                        -------------    -------------
                                                                        $       7,854    $      11,478
                                                                        -------------    -------------

THE CONTRIBUTION OF THE CONSOLIDATED ENTITY'S JOINT VENTURE INTERESTS
TO THE OPERATING PROFIT:
     - United Lands #1                                                  $           7    $          --
     - West Cameron 343                                                            --           11,589
     - West Cameron 352                                                            --            3,630
     - Block 22/12, Beibu Gulf                                                 (1,041)            (302)
                                                                        -------------    -------------
                                                                        $      (1,034)   $      14,917
                                                                        -------------    -------------
</Table>

The principal activity of all the joint venture operations is oil & gas
exploration and development for production. Listed below is the name of each of
the joint-venture operations and the percentage interest held in the joint
venture by the consolidated entity:

<Table>
<Caption>
                                              Working Interest held   Working Interest held
                                                      2002                    2003
<S>                                           <C>                     <C>
     Main Pass 89                                     30.0%                  30.0%
     United Lands #1                                   7.5%                   -
     West Cameron 343                                 75.0%                  75.0% to 100.0%
     West Cameron 352                                 75.0%                  56.3% to 75.0%
     Block 22/12, Beibu Gulf                          25.0%                  25.0%
</Table>

                                      F14
<PAGE>

5. INVESTMENTS


<Table>
<S>                                             <C>              <C>
     Current
     Investment in equity funds                 $       1,000    $          --
                                                -------------    -------------

     Non-current
     Listed shares at cost                      $          22    $          45
     Provision against investment                         (22)             (30)
     Unlisted shares at cost                              311              330
                                                -------------    -------------
                                                $         311    $         345
                                                -------------    -------------
</Table>

6 PROPERTY, PLANT AND EQUIPMENT

<Table>
<S>                                             <C>              <C>
     - at cost                                  $         341    $         541
     - accumulated depreciation                          (197)            (310)
                                                -------------    -------------
                                                $         144    $         231
                                                -------------    -------------
</Table>

7 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

<Table>
<S>                                             <C>              <C>
     Current
     Trade creditors                            $       1,706    $       1,038
     Employee related liabilities                          24              358
     Swap liabilities                                      --              346
     Other creditors and accruals                       1,259            5,351
                                                -------------    -------------
                                                $       2,989    $       7,093
                                                -------------    -------------
</Table>


8 OTHER ACCRUED LIABILITIES - NON-CURRENT

<Table>
<S>                                             <C>              <C>
     Employee entitlements provision            $         129    $         286
     Asset retirement obligations                          --              281
                                                -------------    -------------
                                                $         129    $         567
                                                -------------    -------------
</Table>

The Company adopted Statement No. 143, "Accounting for Asset Retirement
Obligations" effective January 1, 2003. During 2003, in accordance with SFAS No.
143, the Company recorded the fair value of its retirement obligations
associated with it operations at West Cameron 343/352 in the Gulf of Mexico.
Production from West Cameron 343/352 commenced in 2003. The retirement
obligations arise out of the legal requirement for the Company to plug wells and
remove facilities and equipment from the property at the end of the property's
useful life. The associated asset retirement costs were also capitalised as part
of the carrying amount of the oil and gas properties. The liabilities for the
asset retirement obligations were discounted and accretion expense was
recognised using the credit-adjusted risk-free interest rate in effect when the
liabilities were initially recognised (ranging from 9% to 10% per annum).

The following table shows the changes to our asset retirement obligations during
2003.


<Table>
<Caption>
                                                                       Year ended
                                                                       December 31
                                                                          2003
                                                                --------------------------
                                                                (US Dollars, in thousands)
<S>                                             <C>                   <C>
Initial asset retirement obligations at January 1, 2003               $          --
Liabilities incurred during the period                                          263
Accretion expense                                                                18
                                                                      -------------
Asset retirement obligation at the end of the period                  $         281
                                                                      -------------
</Table>


                                      F15
<PAGE>


9. FINANCING ARRANGEMENTS, LIQUIDITY, FINANCIAL INSTRUMENTS DISCLOSURES AND
CONCENTRATIONS


(a) Financing arrangements

At December 31, 2003, the consolidated entity had a short-term loan relating to
its U.S. oil and gas operations of $328,000 (2002: Nil), held in the accounts of
Petsec Energy Inc. a wholly owned subsidiary. The interest charge on this
liability is 4.9% pa.

Effective February 20, 2004, PEI entered into a $2.0 million credit agreement
with a U.S. bank for the purpose of securing letters of credit issued by the
bank and also to allow the refund of $1.7 million of cash collateral previously
posted to secure surety bonds issued to the MMS. In connection with the
facility, letters of credit totaling $2.0 million are outstanding as of April
30, 2004. The letters of credit secure bonding and potential plug and
abandonment and environmental contingent liabilities in connection PEI's oil and
gas operations.

The credit agreement is secured by mortgages on PEI's interests in its Gulf of
Mexico oil and gas properties and by funds held on deposit with the lender. The
credit facility also contains financial covenants that require PEI to (1)
maintain its tangible net worth to be not less than 90% of the tangible net
worth at the closing date plus 50% of any advances to PEI from PEL, and (2) a
ratio of current assets to current liabilities of at least one to one.

See Note 11 - Commitments and contingencies.

(b) Interest rate risk exposures

At December 31, 2003, the weighted average interest rate for cash deposits was
3.20% per annum (2002: 1.50%). During the year, cash deposits were primarily
held in US dollars. However, at December 31, 2003, approximately $7.5 million
was held in Australian dollar accounts (A$10.1 million). The amounts deposited
in Australian dollar accounts included $7.3 million received for share
subscriptions in late December 2003, in advance of a January 6, 2004 share
offering (see note 9 - Share Capital).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, 2002 and 2003, operating costs were incurred in both Australian and
US dollars. However, for 2002 and 2003, a substantial majority of operating
costs were transacted in US dollars.

Throughout 2002 and 2003, and except for the monies received in December 2003,
in advance of the January 6, 2004 share offering, the consolidated entity
predominantly held the majority of its liquid funds in US dollars.

Fluctuations in the Australian dollar/US dollar exchange rate have not had a
material impact on the underlying performance of the consolidated entity. The
consolidated entity's policy is not to hedge the Australian dollar/US dollar
exchange rate risk except through natural hedging techniques such as maintaining
cash balances in US dollar accounts to support operations conducted in US
dollars.

(d) Commodity price exposures and hedges

The income of the consolidated entity is affected by changes in natural gas and
crude oil prices, and from time to time, the Company undertakes various
operating and financial transactions (forward sales agreements and swap
contracts involving NYMEX commodity prices for natural gas) to reduce its
exposure to these changes. While these hedging arrangements limit the downside
risk of adverse price movements, they may also limit future revenues from
favorable price movements. The consolidated entity has proved reserves of these
commodities sufficient to cover all these transactions and it only enters into
such transactions to match a portion of its anticipated physical production and
reserves.

Forward sales agreements. At December 31, 2003, the consolidated entity had the
following outstanding forward sales commitments:

         -        4,000 MMBtu/day of production for the period January 1, 2004
                  through to February 29, 2004 at a net realised fixed price of
                  US$4.87/MMbtu (million British thermal units).



                                      F16
<PAGE>


9. FINANCING ARRANGEMENTS, LIQUIDITY, FINANCIAL INSTRUMENTS DISCLOSURES AND
CONCENTRATIONS (CONTINUED)


The Company accounts for forward sales agreements as ordinary sales.

Swaps. In a swap agreement the consolidated entity receives from the
counterparty the difference between the agreed fixed price and the NYMEX
settlement price if the latter is lower than the fixed price. If the NYMEX
settlement price is higher than the agreed fixed price, the consolidated entity
will pay the difference to the counterparty.

At December 31, 2003, the consolidated entity had the following outstanding swap
agreements maturing monthly:

-      swap agreements for the sale of 4,000 MMBtu per day of natural gas at an
       agreed fixed price of US$5.16/MMbtu for the period January 1, 2004
       through to March 31, 2004.

The Company has determined that these swap agreements are highly effective
hedges and thus qualify for hedge accounting treatment. Accordingly, gains or
losses are included in oil and gas revenues when the hedged production is
delivered.

At December 31, the Company estimated that the loss it would incur to settle the
swap agreements before their expiration, if it had so elected, would have been
approximately $0.3 million. There were no hedge instruments outstanding at
December 31, 2002. The obligation for the swap agreements, which was estimated
based on their mark to market, is recorded in accounts payable and other accrued
liabilities. Cash collateral of $0.4 million has been provided to counterparties
against the estimated swap liability.

The termination values for swap agreements will vary with movements in market
prices until the contracts mature.

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 risk
on derivative contracts is minimized as counterparties are recognized financial
intermediaries with acceptable credit ratings determined by a recognized ratings
agency. The credit worthiness of counterparties is subject to continuing review
and full performance is anticipated. The Company has limited the duration of the
transactions and the percentage of the Company's expected aggregate oil and gas
production that may be hedged.

(e) Operating cash flow

In 2001 and 2002, the Company's operations did not generate sufficient cash flow
to cover its current obligations, and the Company had to draw from cash on hand
to fund its operating losses and investments while it was re-establishing itself
as a profitable oil and gas exploration, development, and production company.

After regaining control of PEI in 2001, the Company began an exploration and
development program. Successful oil and gas discoveries in 2002 resulted in
profitability and significant operating cash flows in 2003. The Company expects
that it will be able to continue to generate sufficient operating cash flows to
be a going concern for the foreseeable future.

(f) Concentrations and other credit risk exposures

Financial instruments that potentially expose the Company to credit risk consist
primarily of cash and cash equivalents and trade accounts receivable. The
Company places its short-term invested cash and cash equivalents on deposit with
major financial institutions. The Company does not believe significant credit
risk exists with respect to these cash deposits at December 31, 2003.

All of the Company's revenues are related to the production and sales of oil and
gas in the Gulf of Mexico. During 2003, approximately 67% of the Company's oil
and gas sales were made to Occidental Energy Marketing, Inc. and 32% were made
to Reliant Energy Services, Inc. The Company typically sells all of its monthly
gas production to only one or two purchasers. At December 31, 2003,
substantially all of the Company's outstanding accounts receivable were due from
Reliant Energy.


                                      F17
<PAGE>

9. FINANCING ARRANGEMENTS, LIQUIDITY, FINANCIAL INSTRUMENTS DISCLOSURES AND
CONCENTRATIONS (CONTINUED)


The Company monitors its purchasers for developments that may indicate whether
the purchaser is having financial difficulty. Also, when we deem it appropriate,
we require the parent companies of our purchasers to give us a guarantee that
the parent will pay any delinquent obligations of their subsidiary. If factors
indicate that collection of accounts receivable are doubtful, the Company will
record a bad debt provision. However, for the years presented, the Company has
not recorded any bad debt expense.

The Company also obtains insurance and related products to reduce it exposure to
certain operating risks that are inherent to oil and gas operations. The level
of insurance coverage obtained is based on the Company's judgment of what is
reasonable and appropriate, industry practice and legal and contractual
requirements. To reduce the risk that an insurer would be unable to pay on
future claims, if any, the Company only obtains its insurance from underwriters
with acceptable credit ratings determined by a recognized ratings agency.

(g) Fair values of financial assets and liabilities

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


10. SHARE CAPITAL

<Table>
<Caption>
                                                                 December 31     December 31
                                                                    2002             2003
                                                                -------------   -------------
                                                                  (US Dollars in thousands)
<S>                                                             <C>             <C>
Issued capital
Stated value A$0.20 per share (250,000,000 authorised shares)
105,736,041shares outstanding (2002: 105,736,041 shares)
Ordinary shares fully paid                                      $     120,701   $     120,791
                                                                -------------   -------------
</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.

On January 6, 2004 the Company completed a placement of 12,846,800 shares at
A$0.95 per share, raising a total of A$11.6 million or US$8.6 of which A$9.8
million or US$7.3 had been received prior to the end of the financial year and
recorded as a current liability in share subscription received in advance.
Immediately after the share placement, 118,582,841 shares were outstanding.

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 Share Plan
is currently inactive.

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 are not to exceed 6,987,567. As of December
31, 2003, the number of further shares or options which could be issued within
the limit was 2,909,567 (2002: 3,359,567).



                                      F18
<PAGE>


10. SHARE CAPITAL (CONTINUED)

At December 31, 2003, there were the following unexercised employee options to
purchase the Company's ordinary shares:

<Table>
<Caption>
                                     Weighted
                                     average
                                    remaining
Exercise          Number            contractual         Number         Expiry
prices            outstanding       life (years)        exercisable    dates
--------          -----------       ------------        -----------    ------
<S>               <C>               <C>                 <C>            <C>
A $0.30            3,545,000            3.4                734,000     June 1, 2007
A $0.40              235,000            4.0                 36,000     December 1, 2007 - April 1, 2008
A $0.41               83,000            0.3                 83,000     April 16, 2004
A $0.82              200,000            4.0                     --     December 31, 2007
                  ----------                              --------
A $0.30-A$0.82     4,063,000            3.4                853,000
</Table>

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,
2003, 450,000 additional options were granted to employees; 15,000 options were
cancelled as a result of the termination of the services of a number of
employees. During 2003, the Company recorded $90,000 of compensation expense
related to the option plan (2001: $11,000; 2002: $40,000) determined using the
Black Scholes option-pricing model with an expected life of 1.2 years to 4.5
years (weighted average 3.4 years), volatility of 86.90% and dividend yield and
risk-free interest rate of 0% and 5.53% per annum, respectively. At December 31,
2003 the balance of unearned stock compensation expense to be recorded in future
periods was $101,000.

On January 13, 2004, 5,000 employee options were exercised with an exercise
price of A$0.41 and 3,000 employee options with an exercise price of A$0.40.

OUTSTANDING OPTIONS:


<Table>
<Caption>
                                     Number               Weighted
                                       of                  average
                                   outstanding            exercise
                                     options               price
                                   -----------            --------
<S>                                <C>                    <C>
As at December 31, 2000             1,432,500              A$0.41
Cancelled                            (883,500)             A$0.41
                                   ----------
As at December 31, 2001               549,000              A$0.41
Granted                             3,545,000              A$0.30
Cancelled                            (466,000)             A$0.41
                                   ----------
As at December 31, 2002             3,628,000              A$0.30
Granted                               450,000              A$0.58
Cancelled                             (15,000)             A$0.30
                                   ----------
As at December 31, 2003             4,063,000              A$0.33
                                   ----------

Exercisable at December 31, 2003      853,000              A$0.31
Exercisable at December 31, 2002           --            --
</Table>


                                      F19
<PAGE>


10. SHARE CAPITAL (CONTINUED)


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>
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                        --               --              --              --              --
                                       ----------
As at December 31, 2003                        --               --              --              --              --
                                       ----------
</Table>


                                      F20
<PAGE>



11. SHAREHOLDERS' EQUITY (DEFICIENCY)



<Table>
<Caption>
                                                                   Twelve months ended
                                                       December 31      December 31      December 31
                                                          2001              2002             2003
                                                      -------------    -------------    -------------
(Unless stated otherwise, US dollars, in thousands)
---------------------------------------------------
<S>                                                   <C>              <C>              <C>
Issued capital                                        $     120,661    $     120,701    $     120,791
Accumulated other comprehensive loss                         (2,287)          (2,376)          (2,611)
Accumulated deficit                                        (104,790)        (108,077)         (94,977)
Subscriptions receivable                                         --               --               --
                                                      -------------    -------------    -------------
  Total shareholders' equity                          $      13,584    $      10,248    $      23,203
                                                      -------------    -------------    -------------

Movements during the financial period

Issued capital (number of shares)
  Balance at the beginning of the financial period      105,786,041      105,736,041      105,736,041
  Shares cancelled under Employee Share Plan                (50,000)              --               --
                                                      -------------    -------------    -------------
  Balance at the end of the financial period            105,736,041      105,736,041      105,736,041
                                                      -------------    -------------    -------------

Issued capital
  Balance at the beginning of the financial period    $     120,789    $     120,661    $     120,701
  Shares cancelled under Employee Share Plan                   (139)              --               --
  Stock compensation expense                                     11               40               90
                                                      -------------    -------------    -------------
  Balance at the end of the financial period          $     120,661    $     120,701    $     120,791
                                                      -------------    -------------    -------------

Accumulated deficit
  Balance at the beginning of the financial period    $    (141,102)   $    (104,790)   $    (108,077)
  Net income (loss)                                          (3,287)          13,100           36,312
                                                      -------------    -------------    -------------
  Balance at the end of the financial period          $    (108,077)   $     (94,977)   $    (104,790)
                                                      -------------    -------------    -------------

Subscriptions receivable
  Balance at the beginning of the financial period    $        (492)   $          --    $          --
  Changes in Employee Share Plan loans                          492               --               --
  Discount on Employee Share Plan loans                          --               --               --
                                                      -------------    -------------    -------------
  Balance at the end of the financial period          $          --    $          --    $          --
                                                      -------------    -------------    -------------

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 adjustment
  Balance at the beginning of the financial period    $      (2,132)          (2,271)          (2,360)
  Current period change                                        (139)             (89)             (26)
                                                      -------------    -------------    -------------
  Balance at the end of the financial period          $      (2,271)   $      (2,360)          (2,386)
                                                      -------------    -------------    -------------

  Deferred loss on hedging activities
  Balance at the beginning of the financial period    $          --               --               --
  Deferred loss on natural gas swaps (net of tax of
    $137)                                                        --               --             (209)
                                                      -------------    -------------    -------------
  Balance at the end of the financial period          $          --    $          --    $        (209)
                                                      -------------    -------------    -------------
  Balance at the end of the financial period          $      (2,287)   $      (2,376)   $      (2,611)
                                                      -------------    -------------    -------------
</Table>



                                       F21
<PAGE>
12. COMMITMENTS AND CONTINGENT LIABILITIES

(a) Contingent liabilities

As at December 31, 2003, 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 $100,000 (2002: $76,000).

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 U.S.
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.


The Company's U.S. operations are required to provide bonding or security for
the benefit of U.S. regulatory authorities in relation to its obligations as an
exploration, development and production company. These obligations include the
payments of lease rentals and royalties and the plugging and abandonment of oil
and gas wells and facilities. As of December 31, 2003 the Company is
contingently liable for $2.1 million of surety bonds issued through a surety
company to secure its obligations to the authorities. These bonds have been
partially collateralised by letters of credit and cash deposits.

At December 31, 2003, the Company had $0.7 million of bank letters of credit
outstanding that were issued to partially secure the surety bonds. The letters
of credit were fully secured by cash deposits assigned to the issuing bank.

The Company also provided cash collateral of $381,000 to a counterparty on
January 2004 to March 2004 gas swaps.

(b) Lease commitments

Until it begins exploration or production, the Company pays an annual delay
rental on the Gulf of Mexico properties in which it holds a working interest.
The Company also leases office space and operating equipment under
non-cancelable operating leases expiring from one to two 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, 2001, 2002 and 2003 was $156,000,
$180,000 and $490,000 respectively.

The following table presents the remaining aggregate lease commitments as of
December 31, 2003 under operating leases, including Gulf of Mexico properties,
having initial non-cancellable terms in excess of one year:


<Table>
<Caption>
                                         December 31
                                            2003
                                         -----------
<S>                                      <C>
(US dollars, in thousands)

2004                                      $    431
2005                                           109
2006                                            50
2007                                            50
Thereafter                                      --
                                           -------
                                           $   640
                                           -------
</Table>


                                      F22

<PAGE>


12. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)


(c) Exploration commitments

As of December 31, 2003, the Company had committed to expending approximately
$1.6 million for its share of the China joint venture's approved exploration
plans. It is anticipated that all of these expenditures will be made during
2004.


(d) Superannuation commitments, incentive compensation, and directors'
retirement obligation

For its Australian employees, 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.

During the years ended December 31, 2001, 2002 and 2003, superannuation
contributions were $20,000, $23,000 and $29,000 respectively.

During 2003, the Company established an incentive compensation plan for its PEI
employees. Under the plan, the Company will accrue up to 6 1/2 percent of PEI's
operating profit before interest, taxes and incentive compensation for payment
to PEI employees. Payments under the plan are made twice a year and are
calculated based on the half-year and annual results. During 2003, the Company
recorded $0.9 million of compensation expense of which $0.6 million was paid
within the period.

The Company provides for directors' retirement benefits based on the number of
years service at the reporting date. All non-executive directors are presently
entitled to payments under the scheme which entitles them to a benefit, on
retirement, equivalent to the total remuneration received in the past three
years. During 2003, the Company recorded $98,000 of expense for the directors'
retirement benefit. The total amount accrued for director retirement is
$195,000.


                                      F23
<PAGE>


13. SEGMENT REPORTING

The Company operates in the Oil and Gas industry in the Gulf of Mexico, U.S.A.
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.

The Australia segment operates as the Company's corporate headquarters. The
Company generally does not allocate its corporate expenses to its operating
segments.

In 2001, the USA segment re-established oil and gas exploration activities in
the Gulf of Mexico, and, after a successful 2002 drilling program, achieved an
operating profit in 2003.

During 2002, the Company entered into an agreement to earn a 25% working
interest in Block 22/12 in the Beibu Gulf, offshore China, by participating in
the drilling of the Wei 6/12/1 prospect. In 2003, the China joint venture
evaluated the drilling results, obtained and evaluated additional 3-D seismic
data, began preliminary development planning, and planned for additional test
wells that commenced in the second quarter of 2004. If the joint venture decides
to develop the Wei 6/12/1 prospect, initial production will not likely commence
before 2006.



<Table>
<Caption>
US dollars, thousands                                               AUSTRALIA                                    USA
                                                         2001          2002          2003          2001          2002          2003
<S>                                                <C>           <C>           <C>           <C>           <C>           <C>
Oil & gas sales (net of royalties)                         --            --            --            --            --        23,270
Oil & gas royalties                                        --            --            --            --           201         1,949
                                                   ----------    ----------    ----------    ----------    ----------    ----------
Revenue from customers (1)                                 --            --            --            --           201        25,219
                                                   ==========    ==========    ==========    ==========    ==========    ==========

DD&A                                                       19            18            21             9            16         6,553
                                                   ----------    ----------    ----------    ----------    ----------    ----------
Interest income                                           447           136            99            --            --            43
                                                   ----------    ----------    ----------    ----------    ----------    ----------
Interest expense                                           --            --            --            --            --           (10)
                                                   ----------    ----------    ----------    ----------    ----------    ----------

Income (loss) before tax and extraordinary items         (489)         (846)       (1,091)       (1,457)       (1,654)       14,001
Income tax (expense) benefit                                8           254           742            --            --          (250)
Extraordinary items                                        --            --            --        38,250            --            --
                                                   ----------    ----------    ----------    ----------    ----------    ----------
Income (loss) after tax                                  (481)         (592)         (349)       36,793        (1,654)       13,751
                                                   ==========    ==========    ==========    ==========    ==========    ==========

Total assets                                           12,102         2,127         9,146         2,994        11,954        28,835
Expenditure for additions to long lived assets              2            46             1           963         8,653        14,037

<Caption>

US dollars, thousands                                               CHINA                                  CONSOLIDATED
                                                        2001         2002          2003          2001          2002          2003
<S>                                               <C>          <C>           <C>           <C>           <C>           <C>
Oil & gas sales (net of royalties)                        --           --            --            --            --        23,270
Oil & gas royalties                                       --           --            --            --           201         1,949
                                                  ----------   ----------    ----------    ----------    ----------    ----------
Revenue from customers (1)                                --           --            --            --           201        25,219
                                                  ==========   ==========    ==========    ==========    ==========    ==========

DD&A                                                      --           --            --            28            34         6,574
                                                  ----------   ----------    ----------    ----------    ----------    ----------
Interest income                                           --           --            --           447           136           142
                                                  ----------   ----------    ----------    ----------    ----------    ----------
Interest expense                                          --           --            --            --            --            10
                                                  ----------   ----------    ----------    ----------    ----------    ----------

Income (loss) before tax and extraordinary items          --       (1,041)         (302)       (1,946)       (3,541)       12,608
Income tax (expense) benefit                              --           --            --             8           254           492
Extraordinary items                                       --           --            --        38,250            --            --
                                                  ----------   ----------    ----------    ----------    ----------    ----------
Income (loss) after tax                                   --       (1,041)         (302)       36,312        (3,287)       13,100
                                                  ==========   ==========    ==========    ==========    ==========    ==========

Total assets                                              --          125           981        15,096        14,206        38,962
Expenditure for additions to long lived assets            --        1,123           856           965         9,822        14,894

</Table>
 (1) There are no inter segment sales.



                                       F24
<PAGE>


14. RELATED PARTY DISCLOSURES

Directors

The names of persons who were directors of the Company during the year ended
December 31, 2003 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 terms
include provision for compensation in the event of termination without due
notice. The cost of the services provided to the Group during the year by this
company was $530,000 (2002: $254,000; 2001: $239,000).

The Company holds unlisted shares in an investment fund of which Mr. Mortimer is
Chairman. At December 2003 the Company had invested $412,000 in the fund and has
a total commitment to the fund of up to $743,000. Subsequent to balance date the
Company invested a further $125,000 in the fund.


15.    SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION


<Table>
<Caption>
                                                                     Twelve months ended
                                                          December 31     December 31    December 31
(US dollars, in thousands)                                    2001            2002           2003
                                                          ------------    ------------   ------------
<S>                                                       <C>             <C>            <C>
Cash paid during the period for:
Interest                                                  $         --    $         --   $         10
Income taxes paid (refunded)                                        (8)             --            250

Non-cash items:
Insurance premiums financed with short-term debt          $         --    $         --   $        730
</Table>


16. 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 accounting principles generally accepted in Australia ("AUS
GAAP"), as its primary listing is on the Australian Stock Exchange. Certain
differences exist between Australian GAAP and accounting principles accepted in
the United States of America ("US GAAP"). 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)                                                     2001          2002          2003
                                                                           -----------    -----------  -----------
<S>                                                                         <C>           <C>           <C>
Net income (loss) in accordance with US GAAP                                $   36,312    $   (3,287)   $   13,100

Adjustments for:
   Oil and gas exploration expenditure                                             157           894         1,222
   Oil and gas exploration amortized                                                --            --           (13)
   Impairment expense                                                               --            --           (69)
   Asset retirement obligations                                                     --            --            18
   Stock compensation expense                                                       11            40            90
   Gain on foreign exchange movements                                              860            --            84
   Gain on deconsolidation of controlled entity                                (37,147)           --            --
   Tax effect of AUS GAAP adjustments                                              196            --           554
   Reversal of deferred compensation accrual                                        --            --          (188)
   Other                                                                            (1)           --            --
                                                                            ----------    ----------    ----------
Net income (loss) in accordance with AUS GAAP                               $      388    $   (2,353)   $   14,798
                                                                            ----------    ----------    ----------
</Table>


                                      F25
<PAGE>



16. RECONCILIATION OF NET INCOME (LOSS) AND SHAREHOLDERS' EQUITY (DEFICIT) FROM
US GAAP TO AUSTRALIAN GAAP (CONTINUED)

<Table>
<Caption>
                                                                                          Twelve months ended
                                                                              December 31     December 31       December 31
(US dollars, in thousands)                                                       2001              2002             2003
                                                                             -------------    -------------    -------------
<S>                                                                         <C>              <C>              <C>
Shareholders' equity (deficit) in accordance with
   US GAAP at period end                                                    $      13,584    $      10,248    $      23,203

Adjustments for:
   Oil and gas exploration expenditure                                                197            1,091            2,243
   Oil and gas exploration amortized                                                   --               --              (14)
   Rehabilitation provision                                                            --               --               19
   Accrued expenditure                                                                 --               --              346
   Deferred compensation expense                                                      170              188               --
   Other                                                                               (7)              (8)             (10)
   Cumulative tax effect of AUS GAAP adjustments                                      (61)             (68)             370
                                                                             -------------    -------------    -------------
Shareholders' equity in accordance
   with AUS GAAP at period end                                              $      13,883    $      11,451    $      26,157
                                                                             -------------    -------------    -------------
</Table>


17. PRINCIPAL DIFFERENCES BETWEEN AUSGAAP 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 US 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. Under US GAAP temporary differences
and net operating losses pass a "more likely than not" 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.


                                      F26
<PAGE>


17. PRINCIPAL DIFFERENCES BETWEEN AUSGAAP AND US GAAP (CONTINUED)

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.

ASSET RETIREMENT OBLIGATIONS

Under AUS GAAP, restoration and reclamation provisions are accrued on a unit of
production basis. 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.

The Company adopted Statement No. 143, "Accounting for Asset Retirement
Obligations" effective January 1, 2003. SFAS No. 143 requires the Company to
record the fair value of its retirement obligations as a liability. The
associated asset retirement costs are also capitalised as part of the carrying
amount of the oil and gas properties and amortized on a unit of production
basis. 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. Under US GAAP changes in estimated restoration provisions
are accounted for on a prospective basis and affect future provisions.



18.  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 2003 and 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, 2003 is believed to have caused a material change in the estimates of proved
or proved developed reserves as of that date.


                                      F27
<PAGE>


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

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
                                                       OIL              GAS
                                                      (Mbbl)           (MMcf)
                                                  -------------    -------------
<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
    Revisions of previous estimates                          23           (1,305)
    Extensions, discoveries and other additions              12            8,681
    Production                                              (19)          (4,403)

                                                  -------------    -------------
December 31, 2003                                            39           10,737
                                                  -------------    -------------

Proved developed reserves :
December 31, 2002*                                           23            7,764
December 31, 2003                                            30            2,323
</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
                                                   2001               2002              2003
                                              ---------------   ---------------   ---------------
                                                           (US dollars, in thousands)
<S>                                           <C>               <C>               <C>
Capitalised costs for oil and gas producing
  activities of the following:
    Proved properties                         $            --   $         7,627   $        24,036
    Unproved properties                                 2,974             3,024             1,602
                                              ---------------   ---------------   ---------------
         Total capitalised costs                        2,974            10,651            25,638
    Accumulated depletion, depreciation and
    amortization                                           --                --            (6,481)
                                              ---------------   ---------------   ---------------
         Net capitalised costs                $         2,974   $        10,651   $        19,157
                                              ---------------   ---------------   ---------------
</Table>

<Table>
<Caption>
                                                                      Twelve months ended
                                                          December 31     December 31,     December 31
                                                              2001            2002            2003
                                                          -------------   -------------   -------------
                                                                      (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                                     $          90   $         125   $         519
    Exploration                                                   1,339           2,149           6,586
    Development                                                      --           7,627           8,987
                                                          -------------   -------------   -------------
         Total costs incurred                             $       1,429   $       9,901   $      16,092
                                                          -------------   -------------   -------------
</Table>


                                      F28
<PAGE>


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

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.

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

<Table>
<Caption>
                                                                        December       December 31
                                                                          2002             2003
                                                                      -------------    -------------
                                                                        (US Dollars, in thousands)
<S>                                                                   <C>              <C>
Future cash inflows                                                          36,160           65,612
Less: Future production  and development costs                               (6,260)         (21,085)
        Future income tax expense                                                --               --
                                                                      -------------    -------------
Future net cash flows after income taxes                                     29,900           44,527
Less: 10% annual discount for estimated timing of
    cash flows                                                               (3,744)          (9,032)
                                                                      -------------    -------------
Standardized measure of discounted future net cash flows              $      26,156    $      35,495
                                                                      -------------    -------------

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

Beginning of the period                                               $          --    $      26,156
                                                                      -------------    -------------
   Sales and transfers of oil and gas produced, net of
     production costs                                                          (201)         (23,662)
   Changes in prices and production costs                                        --            7,982
   Extensions, discoveries and improved recoveries
     net of future productions and development costs                         26,357           25,978
   Development costs incurred during the period                                  --            3,293
   Changes in estimated development costs                                        --           (1,906)
   Revisions of previous quantity estimates                                      --           (5,207)
   Accretion of discount                                                         --            1,780
   Other                                                                         --            1,081
                                                                      -------------    -------------
   Net increase (decrease)                                                   26,156            9,339
                                                                      -------------    -------------
End of the period                                                     $      26,156    $      35,495
                                                                      -------------    -------------
</Table>

The computation of the standardized measure of discounted future net cash flows
relating to proved oil and gas reserves at December 31, 2003 was based on
average natural gas prices of approximately $5.60 per Mcf and on average liquids
of approximately $30.84 per barrel, before hedging effects.


                                      F29
<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, 2002 and 2003, 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, 2003.
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 the standards of the Public Company
Accounting Oversight Board (United States). 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 opinion.

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, 2003 and 2002, and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 2003 in conformity with
accounting principles generally accepted in the United States of America.

Accounting principles generally accepted in Australia vary in certain respects
from accounting principles generally accepted in the United States of America.
Information relating to the nature and effect of such differences is presented
in note 16 to the consolidated financial statements.



KPMG

MARCH 8, 2004
SYDNEY, AUSTRALIA


                                      F30
<PAGE>



                                  EXHIBIT INDEX


<Table>
EXHIBIT
NUMBER            DESCRIPTION
<S>               <C>
  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

 31.1             Certification of the CFO pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002.

 31.2             Certification of the CEO pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002.

 32.1             Certification of CEO pursuant to section 906 of the
                  Sarbanes-Oxley Act of 2002.

 32.2             Certification of CFO pursuant to section 906 of the
                  Sarbanes-Oxley Act of 2002.

 99.1             Consent of Independent Auditors

 99.2             Consent of Independent Petroleum Engineers

 99.3             Code of Ethics
</Table>