Exhibit 99.1

CONTINENTAL ENERGY CORPORATION

(An Exploration Stage Company)

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

31 DECEMBER 2011 and 2010

Expressed in U.S. Dollars

(Unaudited – Prepared by Management)





NOTICE OF NO AUDITOR REVIEW OF CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

In accordance with National Instrument 51-102 Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of these condensed interim consolidated financial statements they must be accompanied by a notice indicating that the condensed interim consolidated financial statements have not been reviewed by an auditor.

The accompanying unaudited condensed interim consolidated financial statements of the Company have been prepared by and are responsibility of the Company’s management.




Continental Energy Corporation
(An Exploration Stage Company)
Condensed Interim Consolidated Statements of Financial Position
Expressed in U.S. Dollars
(Unaudited – Prepared by Management)

 

      31 December     30 June  
      2011     2011  
  Note   $     $  
ASSETS           (Note 13)  
Current              

Cash

    33,931     17,427  

Receivables

    558     2,383  

Prepaid expenses and deposits

    10,525     6,100  
               
      45,014     25,910  
Non-current assets              

Investments

5   1     1  

Exploration and evaluation assets

5   1     1  

Property, plant and equipment

6   14,220     18,572  
               
      59,236     44,484  
               
LIABILITIES              
Current              

Accounts payable and accrued liabilities

11   837,345     816,866  

Notes payable

7   32,115     30,603  

Convertible debt

8   231,244     -  
      1,100,704     847,469  
               
CAPITAL AND RESERVES              
Share capital 10   13,522,030     13,522,030  
Reserves 10   8,598,147     8,396,983  
Deficit     (23,161,645 )   (22,721,998 )
               
      (1,041,468 )   (802,985 )
               
      59,236     44,484  

Nature of Operations and Going Concern (Note 1)

ON BEHALF OF THE BOARD:

“Richard L. McAdoo” , Director

“Robert V. Rudman” , Director

- See Accompanying Notes -



Continental Energy Corporation
(An Exploration Stage Company)
Condensed Interim Consolidated Statements of Loss and Comprehensive Loss
Expressed in U.S. Dollars
(Unaudited – Prepared by Management)

 

      For the three     For the three     For the six     For the six  
      months     months     months     months  
      ended     ended     ended     ended  
      31 December     31 December     31 December     31 December  
      2011     2010     2011     2010  
  Note   $     $     $     $  
            (Note 13)           (Note 13)  
Expenses                          

Accretion

8   15,024     -     16,259     -  

Amortization

6   2,031     3,861     4,352     6,252  

Consulting fees

11   35,500     22,500     65,500     45,000  

Filing fees

    2,082     8,620     3,973     8,620  

Financing fees – warrants

10   -     -     160,994     1,115,459  

Foreign exchange loss

    1,700     2,581     (9,282 )   2,195  

Interest and bank charges

    1,690     1,079     3,418     2,237  

Investor relations

    -     4,695     30,440     9,195  

Management fees, salaries and wages

11   35,828     63,356     90,845     157,925  

Office expenses

    1,376     32,955     9,955     68,035  

Professional fees

    25,196     30,606     34,169     51,541  

Rent, office maintenance and utilities

    9,021     5,980     12,603     15,370  

Shareholder communication and transfer agent

    7,426     4,368     7,469     4,368  

Share-based payments expense

10   -     -     12,435     147,894  

Travel and accommodation

    8,497     2,396     14,028     5,067  
                           
Loss before the undernoted     (145,371 )   (182,997 )   (457,158 )   (1,639,158 )
                           
Other income (expenses)                          

Interest income

    8     -     11     -  

Gain on sale of CEPL

5   -     150     -     71,502  

Gain in dissolution of CGX

9   17,829     -     17,829     -  

Write-off of resource property costs

5   -     (298 )   (329 )   (515 )
                           
Loss and Comprehensive Loss for the Period     (127,534 )   (183,145 )   (439,647 )   (1,568,171 )
                           
Loss Per Share – Basic and Diluted     (0.00 )   (0.00 )   (0.01 )   (0.02 )
                           
Weighted Average Number of Shares Outstanding     72,390,381     72,390,381     72,390,381     72,390,381  

- See Accompanying Notes -



Continental Energy Corporation
(An Exploration Stage Company)
Condensed Interim Consolidated Statements of Cash Flows
Expressed in U.S. Dollars
(Unaudited – Prepared by Management)

 

      For the six     For the six  
      months     months  
      ended     ended  
      31 December     31 December  
      2011     2010  
  Note   $     $  
Cash Resources Provided By (Used In)           (Note 13)  
Operating Activities              

Loss for the period

    (439,647 )   (1,568,171 )

Items not affecting cash

             

Accretion

8   16,259     -  

Amortization

6   4,352     6,252  

Financing fees – warrants

10   160,994     1,115,459  

Gain on sale of CEPL

5   -     (71,502 )

Share-based payments expense

10   12,435     147,894  

Write-off of exploration and evaluation costs

5   329     515  

Changes in current assets and liabilities

             

Receivables

    1,825     (4,329 )

Prepaid expenses and deposits

    (4,425 )   398  

Accounts payable and accrued liabilities

    19,460     335,730  
               
      (228,418 )   (37,754 )
               
Investing Activities              
Exploration and evaluation expenditures 5   (329 )   (515 )
Cash on dissolution of CGX 9   (4,749 )   -  
Purchase of equipment, net of recovery     -     (13,638 )
               
      (5,078 )   (14,153 )
               
Financing Activities              
Convertible promissory note 8   250,000     -  
               
      250,000     -  
               
Change in Cash     16,504     (51,907 )
               
Cash Position – Beginning of Period     17,427     88,843  
               
Cash Position – End of Period     33,931     36,936  

There was no cash paid for interest or income taxes for the six months ended 31 December 2011 and 2010.

- See Accompanying Notes -



Continental Energy Corporation
(An Exploration Stage Company)
Condensed Interim Consolidated Statement of Changes in Equity
Expressed in U.S. Dollars
(Unaudited – Prepared by Management)

 

  Share Capital                  
  Common Shares                  
                      Accumulated        
    Number     Amount     Reserves     Deficit     Total  
          $     $     $     $  
Balance – 30 June 2010   72,390,381     13,522,030     7,140,572     (20,828,233 )   (165,631 )
Financing fees - warrants   -     -     1,115,459     -     1,115,459  
Share-based payments   -     -     147,894     -     147,894  
Loss for the six months   -     -     -     (1,568,171 )   (1,568,171 )
Balance – 31 December 2010   72,390,381     13,522,030     8,403,925     (22,396,404 )   (470,449 )
Share-based payments   -     -     (6,942 )   -     (6,942 )
Loss for six months   -     -     -     (325,594 )   (325,594 )
Balance – 30 June 2011   72,390,381     13,522,030     8,396,983     (22,721,998 )   (802,985 )
Convertible debt issuance cost (Note 8)   -     -     12,975     -     12,975  
Financing fees – warrants (Note 10)   -     -     160,994     -     160,994  
Equity component of convertible debt (Note 8)   -     -     14,760     -     14,760  
Share-based payments   -     -     12,435     -     12,435  
Loss for the period   -     -     -     (439,647 )   (439,647 )
                               
Balance – 31 December 2011   72,390,381     13,522,030     8,598,147     (23,161,645 )   (1,041,468 )

- See Accompanying Notes -



Continental Energy Corporation
(An Exploration Stage Company)
Notes to Condensed Interim Consolidated Financial Statements
31 December 2011
Expressed in U.S. Dollars
(Unaudited – Prepared by Management)
 

 

1. Nature of Operations and Going Concern

Continental Energy Corporation (the “Company” or “Continental”) is incorporated under the laws of the Province of British Columbia, Canada. The Company’s corporate office, registered address and records office is located at Suite 2810 – 777 N. Ashley Drive, Tampa, Florida.

The condensed interim consolidated statements of financial position and statements of loss and comprehensive loss of the Company are presented in United States dollars (“U.S. dollars”), which is the functional currency of the Company. The Company trades its shares on the OTC Bulletin Board.

The Company is an oil and gas exploration company engaged in the acquisition, exploration and development of oil and gas properties with the focus being on properties located in Indonesia held under production sharing contracts. The Company is an exploration stage company and none of its oil and gas properties are currently generating revenue. The recovery of the Company’s investment in resource properties and attainment of profitable operations is principally dependent upon financing being arranged by the Company to continue operations, explore and develop the resource properties and the discovery, development and sale of oil and gas reserves. The outcome of these matters cannot presently be determined because they are contingent on future events.

These condensed interim consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern, which assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations. The Company has incurred operating losses over the past several fiscal years, has no current source of operating cash flow, and no assurances that sufficient funding, including adequate financing, will be available to conduct further exploration and development of its oil and gas projects.

The Company’s ability to continue as a going concern is dependent upon its ability to obtain the financing necessary to acquire, explore and develop future oil and gas projects as well as funding ongoing administration expenses by issuance of share capital or through joint ventures. Ultimately the Company must achieve future profitable production or realize proceeds from the disposition of oil and gas interests acquired. Management intends to obtain additional funding by borrowing from directors and officers and issuing common stock in private placements. There can be no assurance that management’s future financing actions will be successful. Management is not able to assess the likelihood or timing of improvements in the equity markets for raising capital for future acquisitions or expenditures. These uncertainties represent a liquidity risk and may impact the Company’s ability to continue as a going concern in the future.

If the going concern assumption were not appropriate for these condensed interim consolidated financial statements, liquidation accounting would apply and adjustments would be necessary to the carrying values and classification of assets, liabilities, the reported income and expenses and such adjustments could be material.




Continental Energy Corporation
(An Exploration Stage Company)
Notes to Condensed Interim Consolidated Financial Statements
31 December 2011
Expressed in U.S. Dollars
(Unaudited – Prepared by Management)
 

 

2. Basis of Presentation

Statement of Compliance and Conversion to International Financial Reporting Standards

The Canadian Accounting Standards Board (“ACSB”) confirmed in February 2008 that International Financial Reporting Standards (“IFRS”) will replace Canadian generally accepted accounting principles (“GAAP”) for publicly accountable enterprises for financial periods beginning on and after 1 January 2011. The Company adopted IFRS for the period beginning 1 July 2011 with a transition date of 1 July 2010.

These condensed interim consolidated financial statements, including comparatives, have been prepared using accounting policies consistent with IFRS and in accordance with International Accounting Standard (“IAS”) 34 Interim Financial Reporting, and IFRS 1 First-time Adoption of International Financial Reporting Standards. The accounting policies followed in these interim financial statements are the same as those applied in the Company’s interim financial statements for the period ended 30 September 2011. The Company has consistently applied the same accounting policies throughout all periods presented, as if these policies had always been in effect. Note 13 discloses the impact of the transition to IFRS on the Company’s reported equity as at 31 December 2010 and comprehensive income for the three and six months ended 31 December 2010, including the nature and effect of significant changes in accounting policies from those used in the Company’s consolidated financial statements for the year ended 30 June 2011.

The accounting policies applied in these condensed interim consolidated financial statements are based on the IFRS effective for the year ended 30 June 2012, as issued and outstanding as of 28 February 2012, the date the Board of Directors approved the statements. Any subsequent changes to IFRS that are given effect in the Company’s annual consolidated financial statements for the year ending 30 June 2012 could result in restatements of these interim consolidated financial statements, including transition adjustments recognized on change-over to IFRS.

The condensed interim consolidated financial statements should be read in conjunction with the Company’s Canadian GAAP annual financial statements for the year ended 30 June 2011, and the Company’s interim financial statements for the quarter ended 30 September 2011 prepared in accordance with IFRS applicable to interim financial statements.


3. Capital Management

The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to pursue the development of its oil and gas properties and to maintain a flexible capital structure for its projects for the benefit of its stakeholders. As the Company is in the exploration stage, its principal source of funds is from the issuance of common shares.

In the management of capital, the Company includes the components of shareholders’ equity as well as cash and accounts receivables.




Continental Energy Corporation
(An Exploration Stage Company)
Notes to Condensed Interim Consolidated Financial Statements
31 December 2011
Expressed in U.S. Dollars
(Unaudited – Prepared by Management)
 

The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may attempt to issue new shares, enter into joint venture property arrangements, acquire or dispose of assets or adjust the amount of cash and short-term investments. The Company’s investment policy is to invest its cash in highly liquid short-term interest-bearing investments selected with regards to the expected timing of expenditures from continuing operations.

The Company is not subject to any externally imposed capital requirements and there was no change in the Company’s capital management during the six months ended 31 December 2011


4. Financial Instruments

Categories of financial instruments

      31 December     30 June  
      2011     2011  
      $     $  
  Financial assets            
 

FVTPL

           
 

Cash

  33,931     17,427  
 

AFS assets

           
 

Investments*

  1     1  
 

Loans and receivables

           

Receivables

  558     2,383  
               
      34,490     19,811  

* Investments are recorded at $1 as fair value is not reliably determined.

      31 December     30 June  
      2011     2011  
      $     $  
  Financial liabilities            
 

Other financial liabilities

           
 

Accounts payable and accrued Liabilities

  837,345     816,866  
 

Notes payable

  32,115     30,603  
 

Convertible debt

  231,244     -  
               
      1,100,704     847,469  

Fair value of financial instruments

Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:




Continental Energy Corporation
(An Exploration Stage Company)
Notes to Condensed Interim Consolidated Financial Statements
31 December 2011
Expressed in U.S. Dollars
(Unaudited – Prepared by Management)
 

Level 1 – unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 – inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; and
Level 3 – inputs that are not based on observable market data.

The Company’s classifications of financial instruments within the fair value hierarchy are summarized below:

      31 December     30 June 2011  
      2011     $  
      $        
  Level 1            
 

Cash

  33,931     17,427  
  Level 2   -     -  
  Level 3   -     -  
      33,931     17,427  

The carrying value of receivables, accounts payable and accrued liabilities, notes payable and convertible debt approximated their fair value because of the short-term nature of these instruments.

Financial Risk Management

The Company’s financial instruments are exposed to certain financial risks. The risk exposures and the impact on the Company’s financial instruments are summarized below.

  a)     

Currency risk

The Company is primarily exposed to currency fluctuations relative to the U.S. dollar through expenditures that are denominated in Canadian dollars and Indonesian Rupiahs. Also, the Company is exposed to the impact of currency fluctuations on its monetary assets and liabilities.

The Company is exposed to foreign currency risk through the following financial assets and liabilities denominated in currencies other than U.S. dollars:

                  Accounts  
                  payable and  
                  accrued  
  31 December 2011   Cash     Receivables     liabilities  
  Canadian dollars $ 128   $ 567   $ (47,056 )
  Indonesian Rupiah RP 5,992,296   RP -   RP -  
                     
                  Accounts  
                  payable and  
                  accrued  
  30 June 2011   Cash     Receivables     liabilities  
  Canadian dollars $ 59   $ 2,327   $ (97,526 )
  Indonesian Rupiah RP 4,476,099   RP -   RP (22,500,000 )

 




Continental Energy Corporation
(An Exploration Stage Company)
Notes to Condensed Interim Consolidated Financial Statements
31 December 2011
Expressed in U.S. Dollars
(Unaudited – Prepared by Management)
 

At 31 December 2011, with other variables unchanged, a +/- 10% change in exchange rates would decrease/increase pre-tax loss by $4,493.

  b)     

Credit risk

Credit risk is the risk of loss if a customer or third party to a financial instrument fails to meet its contractual obligations.

The Company’s cash is held by large Canadian and International financial institutions. Receivables consist of goods and services taxes due from the Federal Government of Canada. Management believes that the credit risk concentration with respect to receivables is remote.

  c)     

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. Liquidity requirements are managed based on expected cash flows to maintain sufficient capital to meet short term obligations. As at 31 December 2011, the Company had a cash balance of $33,931 (30 June 2011 - $17,427) which is not sufficient to settle current liabilities of $1,100,704 (30 June 2011 - $847,469). Management is currently working on obtaining financing to meet these obligations.

  d)     

Interest rate risk

The Company has a positive cash balance and its debt bears interest at fixed rates. The Company has no significant concentrations of credit risk arising from operations. The Company’s current policy is to invest excess cash in investment-grade short-term deposit certificates issued by reputable financial institutions with which it keeps its bank accounts and management believes the risk of loss to be remote. The Company periodically monitors the investments it makes and is satisfied with the credit ratings of its banks.

  e)     

Commodity price risk

The Company’s ability to raise capital to fund exploration and evaluation activities is subject to risks associated with fluctuations in the market price of natural gas. The Company closely monitors commodity prices to determine the appropriate course of action to be taken by the Company.




Continental Energy Corporation
(An Exploration Stage Company)
Notes to Condensed Interim Consolidated Financial Statements
31 December 2011
Expressed in U.S. Dollars
(Unaudited – Prepared by Management)
 

 

5. Exploration and Evaluation Assets

 

    Bengara-II  
    $  
  Balance at 1 July 2010 1  
  General exploration 515  
  Exploration costs written off (515 )
  Balance at 30 June 2011 1  
  General exploration 329  
  Exploration costs written off (329 )
  Balance at 31 December 2011 1  

Bengara-II Property

During the six month period ended 31 December 2011, the Company incurred $329 (31 December 2010 – $515) in geological and geophysical interpretation and evaluation costs on the joint venture area of mutual interest surrounding the Bengara-II PSC in Indonesia. At 31 December 2011 and 2010, no future benefits could be attributed to this property and consequently the capitalized cost were written off.

CGB2

By share purchase and transfer agreements with effective dates of 1 August 1998 and subsequent amendments between 30 September 1998 and 19 January 2000, the Company purchased 100% of the issued and outstanding shares of Continental-GeoPetro (Bengara-II) Ltd. (“CGB2”), a company incorporated in the British Virgin Islands which owned a 100% interest in the Bengara-II PSC in Indonesia.

The Company accounted for the acquisition of CGB2 using the purchase method. On 1 January 2000, the Company farmed out 40% of its 100% interest in CGB2 and its respective underlying properties to GeoPetro.

On 29 September 2006, the Company sold 70% of its 60% interest in CGB2 to CNPC (Hong Kong) Limited (“CNPC-HK”) for a gain of $23,906 and an obligation by CNPC-HK to carry the Company's share of the costs of drilling 4 exploration wells. The Company retained an 18% shareholding of CGB2, which is recorded at $1 in these condensed interim consolidated financial statements as fair value was not reliably determined.

CEPL

During the year ended 30 June 2011, the Company sold 100% of its shares in its inactive subsidiary Continental Energy Pte. Ltd. (“CEPL”) to Transafrica Management SARL (60%) and C&S Infrastructure LLC (40%) for consideration of $71,500 which was to be paid on or before 1 November 2010. Included in the Company’s deficit are the results of operations of CEPL from the date of incorporation to 20 September 2010.

This transaction resulted in a gain of $71,502 based on the net book values recorded in CEPL as at 31 December 2010.




Continental Energy Corporation
(An Exploration Stage Company)
Notes to Condensed Interim Consolidated Financial Statements
31 December 2011
Expressed in U.S. Dollars
(Unaudited – Prepared by Management)
 

 

  Assets $ -  
  Liabilities   2  
         
  Net book value of CEPL   2  
  Consideration on disposition   71,500  
         
  Gain on disposition of CEPL $ 71,502  

Ownership of the CEPL shares was transferred; however payment has not been received by the Company. During the year ended 30 June 2011 the amount receivable was written off as bad debt expense.


6. Equipment

 

            Computer     Furniture and        
            equipment     field        
      Automobiles     and software     equipment     Total  
      $     $     $     $  
                           
  Cost                        
  Balance as at 1 July 2010   35,040     81,178     27,167     143,385  
 

Additions for the year

  3,734     7,146     2,754     13,634  
  Balance as at 30 June 2011   38,774     88,324     29,921     157,019  
  Balance as at 31 December 2011   38,774     88,324     29,921     157,019  
                           
  Accumulated Depreciation                        
  Balance as at 1 July 2010   30,767     69,636     24,017     124,420  
 

Depreciation for the year

  3,381     8,153     2,493     14,027  
  Balance as at 30 June 2011   34,148     77,789     26,510     138,447  
 

Depreciation for the period

  1,084     2,469     799     4,352  
  Balance as at 31 December 2011   35,232     80,258     27,309     142,799  
                           
  Carrying Amounts                        
  Balance as at 1 July 2010   4,273     11,542     3,150     18,965  
  Balance as at 30 June 2011   4,626     10,535     3,411     18,572  
  Balance as at 31 December 2011   3,542     8,066     2,612     14,220  

 




Continental Energy Corporation
(An Exploration Stage Company)
Notes to Condensed Interim Consolidated Financial Statements
31 December 2011
Expressed in U.S. Dollars
(Unaudited – Prepared by Management)
 

 

7. Notes Payable

On 17 February 2011 the Company received a $15,000 loan from a director in exchange for a promissory note. The loan accrues interest at the rate of 10% per annum and was repayable on 17 May 2011. The loan remains outstanding after the maturity date and no new terms have been negotiated. Interest of $756 was accrued for this loan during six month period ended 31 December 2011.

On 13 June 2011 the Company received a $10,000 loan from a director in exchange for a promissory note. A further $5,000 was received from the same director on 23 June 2011 with the same terms as the previous note. The loans accrue interest at the rate of 10% per annum and were repayable on 13 October 2011 and 23 October 2011, respectively. The loans remain outstanding and no new terms have been negotiated. Total interest of $756 was accrued for these loans during the six month period ended 31 December 2011.


8. Convertible Debt

 

    Total  
    $  
  Balance as at 30 June 2011 -  
 

Principal

250,000  
 

Transaction cost – liability component

(12,167 )
 

Equity component

(15,568 )
 

Interest accrued for the period

(7,280 )
 

Accretion expense for the period

16,259  
  Balance as at 31 December 2011 231,244  

On 21 September 2011, the Company issued a convertible promissory note for proceeds of $250,000. The amount bears interest at a rate of 10% per annum or at 15% per annum on default of payment, and matures on 16 September 2012. Interest is payable in quarterly installments. As at 31 December 2011, $7,280 of interest payable is included in accounts payable and accrued liabilities in the statement of financial position. The promissory note is convertible, at the election of the holder, at any time during its term into 3,125,000 common shares of the Company, valued at $0.08 per share. As additional consideration, the Company issued 1,562,500 warrants (“the additional consideration warrants”) (Note 10) to the note holder, exercisable at $0.12 per share up to 21 September 2013.

The fair value of the liability and the equity component were calculated on issuance of the promissory note. The fair value of the liability component was calculated using an estimated market related interest rate of 18% and was determined to be $234,432. The residual amount of $15,568, representing the value of the equity component is included in shareholder’s equity in reserves. The fair value of the equity component was allocated 61% to the conversion feature and 39% to the 1,562,500 warrants granted as additional consideration using Black-Scholes option pricing model with the following assumptions:




Continental Energy Corporation
(An Exploration Stage Company)
Notes to Condensed Interim Consolidated Financial Statements
31 December 2011
Expressed in U.S. Dollars
(Unaudited – Prepared by Management)
 

 

            Additional  
      Conversion     Consideration  
      Feature     Warrants  
  Expected dividend yield   Nil     Nil  
  Expected stock price volatility   213.52%     234.52%  
Risk-free interest rate   0.11%     0.21%  
  Expected life of options (years)   1.00     2.00  

Also in conjunction with the convertible promissory note, the company issued 250,000 finders’ warrants (Note 10) to an arms-length third party, exercisable at a price of $0.12 per share up to 21 September 2013. The fair value of the finders’ warrants was estimated to be $12,975, using the Black-Scholes option pricing model with the following assumptions:

      Finder’s  
      Warrants  
  Expected dividend yield   Nil  
  Expected stock price volatility   234.52%  
  Risk-free interest rate   0.21%  
  Expected life of options (years)   2.00  

$12,167 of the fair value of finders’ warrants has been allocated to the liability component and is being amortized to the statement of loss and comprehensive loss over the life of the loan.

The liability component continues to be presented on the amortized cost basis and is being accreted based on effective interest rate of 26.58% per annum.


9. Investment in Joint Venture

CG Xploration Inc. (“CGX”) is a 50% owned joint venture incorporated in the state of Delaware on 18 November 2005. The Company owns 50% of CGX and an unrelated third party, GeoPetro Resources Company (“GeoPetro”) of San Francisco owns 50%. CGX is operated for the purposes of identifying and developing new oil and gas production sharing contract property acquisitions on behalf of the Company and GeoPetro within a geographically defined area of mutual interest in Indonesia. CGX has been accounted for on the proportionate consolidation method whereby the Company’s proportionate share of assets, liabilities, revenues, costs and expenditures relating to CGX have been recorded in these condensed interim consolidated financial statements.

The following is a summary of the Company’s 50% proportionate share of expenses, assets and liabilities:




Continental Energy Corporation
(An Exploration Stage Company)
Notes to Condensed Interim Consolidated Financial Statements
31 December 2011
Expressed in U.S. Dollars
(Unaudited – Prepared by Management)
 

 

      31 December     30 June  
      2011     2011  
      $     $  
  Current assets   -     7,890  
  Non-current assets   -     -  
  Total assets   -     7,890  
               
  Current liabilities   -     16,193  
  Total liabilities   -     16,193  

 

      For the six     For the six  
      months     months  
      ended     ended  
      31 December     31 December  
      2011     2010  
      $     $  
  Operating Expenses   8,964     65,645  
               
  Net loss for the period   8,964     65,645  

During the six month period ended 31 December 2011, the Company and GeoPetro dissolved CGX. This transaction resulted in a gain of $17,829 based on the net book values recorded in CGX as at 31 December 2011.

  Assets $ 4,749  
  Liabilities   (22,578 )
         
  Loss (Gain) on dissolution of CGX $ (17,829 )

 


10. Share Capital

Authorized Share Capital

500,000,000 common shares without par value
500,000,000 preferred shares without par value

Shares issued

There were no shares issued during the period ended 31 December 2011.




Continental Energy Corporation
(An Exploration Stage Company)
Notes to Condensed Interim Consolidated Financial Statements
31 December 2011
Expressed in U.S. Dollars
(Unaudited – Prepared by Management)
 

Stock options

The Company has established a share purchase option plan whereby the board of directors may, from time to time, grant options to directors, officers, employees or consultants. Options granted must be exercised within a period as determined by the Company's board of directors. Options vest on the grant date unless otherwise determined by the Company's board of directors. The aggregate number of common shares which may be reserved as outstanding Stock Options shall not exceed 20% of the total number of the Company's issued and outstanding common shares at any time, and the maximum number of options held by any one individual at any one time shall not exceed 5% of the total number of the Company's issued and outstanding common shares.

  a)     

Movements in share options during the period

   

 
            Weighted Average  
      Number of     Exercise Price  
      Options     per Share  
  Options outstanding, 1 July 2010   10,750,000     0.07  
 

Options expired

  (1,750,000 )   0.07  
  Options outstanding, 30 June 2011   9,000,000     0.07  
 

Options expired

  (660,000 )   0.07  
  Options outstanding, 31 December 2011   8,340,000   $ 0.07  

 

  b)     

Fair value of options

During the six month period ended 31 December 2011, a total of 660,000 outstanding incentive stock options having an exercise price of $0.07 expired unexercised.

On 21 September 2011, a total of 650,000 outstanding incentive stock options with an exercise price of $0.07 and terms expiring between 31 December 2011 and 30 June 2012 were amended to all have a new expiry date of 31 December 2012. The Company calculated the incremental increase in fair value of these amended stock options to be $12,435, which has been charged to the statement of loss and comprehensive loss.

During the year ended 30 June 2011, a total of 1,750,000 outstanding incentive stock options having an exercise price of $0.07 expired unexercised.

On 29 September 2010, a total of 8,640,000 outstanding incentive stock options granted to directors and senior officers with an exercise price of $0.07 and terms expiring between 31 December 2010 and 2011 were amended to all have new expiry dates between 31 December 2011 and 31 December 2012.




Continental Energy Corporation
(An Exploration Stage Company)
Notes to Condensed Interim Consolidated Financial Statements
31 December 2011
Expressed in U.S. Dollars
(Unaudited – Prepared by Management)
 

The fair value of options amended was estimated on the date of the grant using the Black-Scholes option pricing model, with the following weighted average assumptions:

      For the six     For the six  
      months ended     months ended  
      31 December 2011     31 December 2010  
  Expected dividend yield   Nil     Nil  
  Expected stock price volatility   218%     262%  
  Risk-free interest rate   0.11%     1.42%  
  Expected life of options (years)   1.28     2.18  

 

  c)     

Share options outstanding

A summary of the Company’s options outstanding as at 31 December 2011 is as follows:

        Remaining  
  Options Options Price per contractual life  
  Outstanding Exercisable Share (years) Expiry date
           
  8,340,000 8,340,000 $0.07 1.0 31 December 2012
           
  8,340,000 8,340,000      

The weighted average exercise price of the options exercisable at 31 December 2011 is $0.07.

Warrants

  a)     

Movements in warrants during the period

   

 
            Weighted Average  
      Number of     Exercise Price  
      Warrants     per Share  
  Warrants outstanding, 1 July 2010 and 30 June 2011   17,968,000   $ 0.15  
 

Warrants granted

  1,812,500     0.12  
 

Warrants expired

  (1,000,000 )   0.07  
  Warrants outstanding 31 December 2011   18,780,500   $ 0.15  

 

  b)     

Fair value of warrants

During the six month period ended 31 December 2011, a total of 1,000,000 outstanding share purchase warrants having an exercise price of $0.15 expired unexercised.




Continental Energy Corporation
(An Exploration Stage Company)
Notes to Condensed Interim Consolidated Financial Statements
31 December 2011
Expressed in U.S. Dollars
(Unaudited – Prepared by Management)
 

On 21 September 2011, the Company issued 1,562,500 warrants to the holder of a convertible promissory note as additional consideration. The warrants are exercisable at $0.12 up to 21 September 2013. In addition, the Company also issued 250,000 finders’ warrants to an arms’ length third party, exercisable at a price of $0.12 per share up to 21 September 13.

On 21 September 2011, the terms of 3,975,000 outstanding share purchase warrants having an exercise price of $0.07 and an expiry date of 31 December 2011 were modified to have an exercise price of $0.07 and an expiry date of 31 December 2013.

The Company calculated the incremental increase in the fair value of these amended warrants to be $160,994 which was charged to the statement of loss and comprehensive loss.

On 29 August 2010, a total of 10,000,000 outstanding share purchase warrants having an exercise price of $0.90 and an expiry date of 29 August 2010 were re-priced to have an exercise price of $0.20 and an expiry date of 29 August 2012. The Company calculated the incremental increase in the fair value of these amended warrants to be $1,115,458 which was charged to the statement of loss and comprehensive loss.

The Company revalued certain share purchase warrants, with vesting provisions, which were granted to an investor relations company in fiscal 2010. The incremental increase in the fair value of these revalued warrants was calculated to be $4,639 which was charged to statement of loss and comprehensive loss as share-based payments expense.

The fair value of warrants amended was estimated on the date of the grant using the Black-Scholes option pricing model, with the following weighted average assumptions:

      For the six     For the six  
      months ended     months ended  
      31 December 2011     31 December 2010  
  Expected dividend yield   Nil     Nil  
  Expected stock price volatility   232%     271%  
  Risk-free interest rate   0.21%     1.28%  
  Expected life of options (years)   2.28     2.00  

 

  c)     

Warrants outstanding

A summary of the Company’s warrants outstanding as at 31 December 2011 is as follows:

  Number of Price per  
  Shares Share Expiry Date
  10,000,000 $0.20 29 August 2012
  350,000 $0.09 16 September 2012
  2,643,000 $0.10 26 February 2013
  1,812,500 $0.12 21 September 2013
  3,975,000 $0.07 31 December 2013
  18,780,500    

 




Continental Energy Corporation
(An Exploration Stage Company)
Notes to Condensed Interim Consolidated Financial Statements
31 December 2011
Expressed in U.S. Dollars
(Unaudited – Prepared by Management)
 

The weighted average life of share purchase warrants outstanding as at 31 December 2011 was 1.12 years.


11. Related Party Transactions

Balances and transactions between the Company and its subsidiaries have been eliminated on consolidation and are not disclosed in this note. Details of the transactions and balances between the Company and other related parties are disclosed below.

  a)     

As at 31 December 2011, $522,500 (30 June 2011 - $445,000) is payable to officers of the Company. This amount is included in accounts payable and accrued liabilities and is unsecured, non-interest bearing and has no specific terms for repayment.

As at 31 December 2011, the Company has received an aggregate of $118,415 (30 June 2011 -$132,240) in advances from a related party. This amount is included in accounts payable and accrued liabilities and is unsecured, non-interest bearing and has no specific terms for repayment.

  b)     

Compensation of key management personnel

     
        For the six     For the six  
        months ended     months ended  
    Note   31 December 2011     31 December 2010  
        $     $  
  Salary (i)   127,500     150,000  
  Financing fees (ii)   113,000     -  

 

  (i)     

Key management personnel were not paid post-employment benefits, termination benefits or other long-term benefits during the six months ended 31 December 2011 and 2010.

     
  (ii)     

On 21 September 2011, the Company amended the terms of certain outstanding share purchase warrants (Note 10) to have a new expiry date of 31 December 2013. The amount attributable to directors and officers of the Company is $113,000 and has been recorded on the statements of loss and comprehensive loss as an increase in financing costs for the period.

These transactions are in the normal course of operations and are measured at the exchange amount of consideration established and agreed to by all the related parties.




Continental Energy Corporation
(An Exploration Stage Company)
Notes to Condensed Interim Consolidated Financial Statements
31 December 2011
Expressed in U.S. Dollars
(Unaudited – Prepared by Management)
 

 

12. Segmented Information

The Company’s business consists of only one reportable segment, namely exploration and evaluation of oil and gas properties. Details on a geographical basis are as follows:

      31 December     30 June  
      2011     2011  
  Total Assets   $     $  
               
 

North America

  24,389     13,301  

East Asia

  34,847     31,183  
      59,236     44,484  

 

      For the     For the     For the     For the  
      three months     three months     six months     six months  
      ended     ended     ended     ended  
      31 December     31 December     31 December     31 December  
      2011     2010     2011     2010  
  Net loss   $     $     $     $  
                           

North America

  109,274     139,471     391,080     1,461,686  
 

East Asia

  18,260     43,674     48,567     106,485  
      127,534     183,145     439,647     1,568,171  

 


13. Transition to International Financial Reporting Standards

IFRS 1 First-time Adoption of International Financial Reporting Standards sets forth guidance for the initial adoption of IFRS. Under IFRS 1 the standards are applied retrospectively at the transitional statement of financial position date with all adjustments to assets and liabilities taken to deficit unless certain exemptions are applied. The Company has applied the following exemptions to its opening statement of financial position dated 1 July 2010:

  i)

IFRS 3 - Business Combinations

IFRS 1 indicates that a first-time adopter may elect not to apply IFRS 3 Business Combinations retrospectively to business combinations that occurred before the date of transition to IFRS. The Company has taken advantage of this election and will apply IFRS 3 to business combinations that occur on or after 1 July 2010.

  ii)

IFRS 2 – Share-based Payments

IFRS 1 encourages, but does not require, first-time adopters to apply IFRS 2 Share-based Payments to equity instruments that were granted on or before 7 November 2002, or equity instruments that were granted subsequent to 7 November 2002 and vested before the later of the date of transition to IFRS and 1 January 2005. The Company has elected not to apply IFRS 2 to awards that were granted prior to 7 November 2002 and vested before 1 July 2010.




Continental Energy Corporation
(An Exploration Stage Company)
Notes to Condensed Interim Consolidated Financial Statements
31 December 2011
Expressed in U.S. Dollars
(Unaudited – Prepared by Management)
 

 

  iii)

IFRS 6 – Exploration and evaluation of mineral resources

IFRS 1 provides specific relief in respect of oil and gas assets in that it states that on transition to IFRS, where an entity has applied full cost accounting under its previous GAAP, its oil and gas assets may be measured as follows:

The Company has chosen to apply the exemption and continue using the cost of its exploration and evaluation assets determined under Canadian GAAP.

IFRS 1 also outlines specific guidelines that a first-time adopter must adhere to under certain circumstances. The Company has applied the following guidelines to its opening statement of financial position dated 1 July 2010:

  i)

Estimates

In accordance with IFRS 1, an entity’s estimates under IFRS at the date of transition to IFRS must be consistent with estimates made for the same date under previous GAAP, unless there is objective evidence that those estimates were in error. The Company’s IFRS estimates as of 1 July 2010 are consistent with its Canadian GAAP estimates for the same date.

IFRS employs a conceptual framework that is similar to Canadian GAAP. The adoption of IFRS did not have a material impact on the Company’s statements of loss and comprehensive loss and cash flow from operating, investing, and financing activities for the year ended 30 June 2011 and the three and six month period ended 31 December 2010 as previously presented under Canadian GAAP. There was also no material impact on the Company’s statement of equity as at 1 July 2010, for the three and six month period ended 31 December 2010 and for the year ended 30 June 2011 as presented under Canadian GAAP.





MANAGEMENT’S DISCUSSION & ANALYSIS
FORM 51-102F1
CONTINENTAL ENERGY CORPORATION
For the Second Quarter Ended December 31, 2011 of the Fiscal Year Ending June 30, 2012

The following management discussion and analysis (“MD&A”) of the Company has been prepared as of February 28, 2012 and is intended to supplement and complement Continental Energy Corporation’s (“Continental” or “the Company”) unaudited condensed interim consolidated financial statements for the period ended December 31, 2011. All financial information has been prepared in accordance with accounting policies consistent with International Financial Reporting Standards (“IFRS”) and in accordance with International Accounting Standard (“IAS”) 34. All amounts disclosed are in United States dollars unless otherwise stated.

NATURE OF BUSINESS

Continental is an oil and gas exploration company engaged in the assembly of a portfolio of oil and gas exploration properties with high potential resource prospects. Continental is focusing its efforts in Indonesia where large tracts of acreage can be accumulated. There is a long and positive history of oil exploration success in Indonesia and geological conditions are favorable for hydrocarbon accumulation. Continental owns an 18% participating interest in an Indonesian production sharing contract area covering 901,668 acres, the Bengara-II Block. Continental is an exploration stage company and none of its oil and gas properties currently generate revenue.

HIGHLIGHTS OF THE PAST QUARTER

The “Past Quarter” ended December 31, 2011 marks the end of the Second Quarter of the Company’s annual fiscal year ending June 30, 2012. Significant events having material effect on the business affairs of the Company which have occurred during the six month period ended December 31, 2011 are summarized below:

New CFO Contract
On August 1, 2011, the Company entered into a new employment contract directly with its Chief Financial Officer (“CFO”) for the amount of $7,500 per month. Previously the CFO had been retained under the auspices of Aspen Capital Partner, where he was a managing partner.

Convertible Promissory Note
On September 21, 2011, the Company issued a convertible promissory note for proceeds of $250,000. The amount bears interest at a rate of 10% per annum or 15% per annum on default of a payment, and matures on September 16, 2012. The note is convertible, at the election of the lender, at any time during its term into 3,125,000 shares valued at $0.08 per share. As additional consideration, the Company issued to the note holder 1,562,500 warrants exercisable at a price of $0.12 per share up to September 21, 2013. Also in conjunction with the placement of the note, the Company issued 250,000 finder's warrants to an arms-length third party, also exercisable at a price of $0.12 per share up to September 21, 2013.

Bengara-II 3D Seismic Completed
Pursuant to a press release dated September 27, 2011 the Company announced the hard fought completion of 3D seismic acquisition and processing operations on its Bengara-II Block, Indonesia. The Bengara-II block production sharing contract is owned and operated by Continental-GeoPetro (Bengara-II) Ltd. (“CGB2”), a company in which Continental has retained 18% interest. Surface damage claims disputes with prawn farm operators in the area of the seismic data acquisition program commenced in 2009. These delays have resulted in accumulated delays of two years to the original estimated date for completion of seismic recording operations. These disputes have led to considerable cost increases due to standby charges during down times, and duplication of work; particularly re-surveying, re-bridging, and the re-drilling of seismic shot-holes, made necessary by physical deterioration due to extended periods of inactivity.

CGB2 has applied for lost time compensation to extend the exploration period of the Bengara-II PSC for an additional two years due to these delays. CGB2 has also revised its 2011 budget and increased its estimate of the total cost of the combined 3D and 2D seismic program by an additional $11.6 million, bringing the total estimated completion cost for the 2009 Bengara-II seismic program to $35 Million.

Field shooting and recording operations on the 3D portion of the 2009 Bengara-II block seismic acquisition program are now completed. The full original 3D program of 178 square kilometers (120 km2 full fold) has been recorded. Computer processing of the entire 3D program is also now completed.





Original 2009 plans called for a total of 920 line kilometers of new 2D seismic data to also be shot and recorded. Repositioning of some lines and abandonment of others due to the prawn farm issues has resulted in a reduction of the planned 2D program. CGB2 now expects to complete a total of 685 line kilometers of new 2D seismic recording.

CGB2 is currently finalizing its 2012 work program and budget and the Company will update 2012 drilling plans when the budget is finalized. The drilling of the Muara Makapan-2 appraisal well originally planned for late third quarter 2011 will be delayed by the late completion of the seismic and will likely commence in first quarter 2012.

Dissolution of CGX
The Company and GeoPetro Resources Company (“GeoPetro”) came to a mutual agreement to dissolve the 50/50 joint venture corporate entity, CG Xploration Inc. ("CGX"). CGX was wound up and liquidated in December 2011.

Share Purchase Warrants Activity
During the Past Quarter, the following activity involving the Company’s share purchase warrants occurred:

Exercises - No outstanding share purchase warrants were exercised.

New Issues – No new share purchase warrants were issued. For the three months ended September 30, 2011, a total of 1,812,500 new warrants were issued in connection with a convertible promissory note. The new warrants are exercisable at a price of $0.12 per share up to September 21, 2013.

Expiry – A total of 1,000,000 share purchase warrants expired on December 31, 2011.

Amendments – No amendments were made to the terms of any outstanding share purchase warrants. For the three months ended September 30, 2011, the terms of 3,975,000 share purchase warrants were extended to expire on December 31, 2013 with no change to their exercise price of $0.07.

Incentive Stock Options Activity
During the Past Quarter, the following activity involving the Company’s incentive stock options occurred:

Exercises - No outstanding incentive stock options were exercised.

New Grants – No new incentive stock options were granted.

Expiry – A total of 660,000 outstanding incentive stock options expired on December 31, 2011.

Amendments – No amendments were made to the terms of any outstanding incentive stock options. For the three months ended September 30, 2011, the terms of 650,000 incentive stock options were extended to expire on December 31, 2012 with no change to their exercise price of $0.07.

Common Share Conversion Rights Activity
During the Past Quarter, the following activity involving the common share conversion rights issued by the Company occurred:

Exercises - There were no exercises of outstanding common share conversion rights.

New Issues – There were no new common shares conversion rights issued. During the three month period ended September 30, 2011, the Company issued conversion rights in the amount of 3,125,000 shares as part and parcel of a convertible promissory note which raised proceeds of $250,000 for the Company as described above. The conversion rights provide that the holder may convert the $250,000 note into common shares of the Company at a conversion rate of $0.08 per share. The rights expire on actual repayment of the note. The note provides the repayment on its maturity on September 16, 2012.

Expiry – No outstanding common shares conversion rights expired.

Amendments – There were no amendments to the terms of any outstanding common share conversion rights.

Shares Issues
Subsequent to the end of the Past Quarter and up to the date of this report, no new shares were issued.

SHAREHOLDING

As of the date of this report the Company had 72,390,381 common shares issued and outstanding.
As of the date of this report the Company had 8,340,000 unexercised stock options issued and outstanding.
As of the date of this report the Company had 18,780,500 unexercised warrants issued and outstanding.
As of the date of this report the Company had Nil preferred shares issued and outstanding.





SUBSEQUENT EVENTS

The “Past Quarter” ended December 31, 2011 marks the end of the Second Quarter of the Company’s annual fiscal year ending June 30, 2012. There are no significant events possibly having material effect on the business affairs of the Company which have occurred since the end of the Past Quarter but prior to publication of this report.

RESULTS OF OPERATIONS

Financial Results for the Second Quarter Ended December 31, 2011
The “Past Quarter” ended December 31, 2011 marks the end of the Second Quarter of the Company’s annual fiscal year ending June 30, 2012.

Summary of Quarterly Results

The following table sets out selected unaudited quarterly financial information of Continental and is derived from unaudited quarterly financial statements prepared by management. The Company’s interim consolidated financial statements are prepared in accordance with accounting policies consistent with IFRS.

    Loss from   Basic and Diluted  
    Continued   Income (Loss) per  
    Operations and   Share from Continued  
    Net Income   Operations and Net  
  Revenues (loss)   Income (loss)  
Period $ $   $  
2nd Quarter 2012 Nil (127,534 ) (0.00 )
1st Quarter 2012 Nil (312,113 ) (0.00 )
4th Quarter 2011 Nil (186,529 ) (0.00 )
3rd Quarter 2011 Nil (139,065 ) (0.00 )
2nd Quarter 2011 Nil (183,145 ) (0.00 )
1st Quarter 2011 Nil (1,385,026 ) (0.02 )
4th Quarter 2010 Nil (245,489 ) (0.00 )
3rd Quarter 2010 Nil (409,091 ) (0.01 )

Quarterly results will vary in accordance with the Company’s exploration and financing activities. The Company’s primary source of funding is through the issuance of share capital. When the capital markets are depressed, the Company’s activity level normally declines accordingly. As capital markets strengthen and the Company is able to secure equity financing with favourable terms, the Company’s activity levels and the size and scope of planned exploration projects will increase.

Another factor that affects the Company’s reported quarterly results are write-downs or write-offs of capitalized exploration and evaluation assets. The Company will write-down or write-off capitalized exploration and evaluation assets when exploration results indicate that no further work is warranted. The size and timing of these write-offs cannot typically be predicted and affect the Company’s quarterly results. The Company regularly reviews its oil and gas properties to determine whether or not a write-down or write-off of the capitalized exploration and evaluation assets is required.

Non-cash costs such as share based payments expense and financing fees also effect the size of the Company’s quarterly loss.

Operations

Six month period ended December 31, 2011

Overall, the Company had a loss from operations during the six month period ended December 31, 2011 of $439,647 compared to $1,568,171 in the six month period ended December 31, 2010. The Company had a loss per share of $0.01 in 2011 compared to a loss per share of $0.02 in 2010.

General and administrative expenses decreased by $1,182,000 from $1,639,158 to $457,158 for the six month periods ended December 31, 2010 and 2011, respectively. The significant changes to general and administrative expenses are as follows: Most significantly, non-cash financing fees decreased from $1,115,458 to $160,994 as terms of fewer outstanding share purchase warrants were modified resulting in a lower incremental fair value charge during the six month period ended December 31, 2011. The majority of the other expenditure items in this





category also decreased from 2010 to 2011. Management fees decreased from $157,925 to $90,845 as a result of the termination of an employment contract and the temporary suspension of the salary of an officer in the prior year, both of which had not been effected by the end of the quarter ended December 31, 2010. The Office expenses decreased from $68,035 to $9,955 as a result of the sale of the Company’s inactive subsidiary, Continental Energy Pte. Ltd. (“CEPL”) in the prior year and efforts to wind up the operations of the CGX joint venture. Professional fees decreased from $51,541 to $34,169 as a result of lower charges from accounting consultants. Share-based payments expense resulting from incremental fair value charges due to modification of terms of outstanding share purchase options decreased from $147,894 to $12,435.

The decreases in the above costs were offset by an increase in the following cost categories: Consulting fees increased from $45,000 to $65,500 as a result of the new CFO contract that was entered into during the current six month period. Investor relations costs increased from $9,195 to $30,440 as the result of arrangements that have been made with the provider hosting the Company’s website.

Three month period ended December 31, 2011

Overall, the Company had a loss from operations during the three month period ended December 31, 2011 of $127,534 compared to $183,145 in the three month period ended December 31, 2010. The Company had a loss per share of $0.00 in 2011 and in 2010.

General and administrative expenses decreased by $37,626 from $182,997 to $145,371 for the three month periods ended December 31, 2010 and 2011, respectively. The significant changes to general and administrative expenses are as follows: Filing fees decreased from $8,620 to $2,082 because of reduced activity with the Company’s transfer agent. Management fees decreased from $63,356 to $35,828 as a result of the termination of an employment contract and the temporary suspension of the salary of an officer in the prior year, both of which had not been effected by the end of the quarter ended December 31, 2010. Office expenses decreased from $32,955 to $1,376 as a result of the sale of the Company’s inactive subsidiary, Continental Energy Pte. Ltd. (“CEPL”) in the prior year and efforts to wind up the operations of the CGX joint venture. Professional fees decreased from $30,606 to $25,196 as a result of lower charges from accounting consultants.

The decreases in the above costs were offset by an increase in the following cost categories: Consulting fees increased from $22,500 to $35,500 as a result of the new CFO contract that was entered into during the current period. Rent, office maintenance and utilities costs increased from $5,980 to $9,021 resulting from an increase in rental costs for the Jakarta office. Shareholder communications charges increased from $4,368 to $7,426 as a result of costs related to the Company’s Annual General Meeting. Costs for travel and accommodation increased from $2,396 to $8,497 as a result of efforts by the Company’s management team to negotiate new financing.

Liquidity

As at December 31, 2011, the Company’s condensed interim consolidated financial statements reflect a working capital deficit of $1,055,690. This represents a decrease in working capital of $234,131 compared to the June 30, 2011 working capital deficit of $821,559. The main use of funds was for the Company’s general and administrative expenditures during the period.

The cash balance at December 31, 2011 was $33,931 compared to $17,427 as at June 30, 2011, representing an increase of $16,504.

The Company used $228,418 for operating activities during the six month period ended December 31, 2011 compared with $37,754 in the six month period ended December 31, 2010, related to the ongoing general and administrative expenses of the Company.

Cash resources used in investing activities during the six month period ended December 31, 2011 was $5,078 compared with $14,153 for the six month period ended December 31, 2010. During the six month period ended December 31, 2011 the company lost cash of $4,749 on the dissolution of CGX and incurred exploration and evaluation expenditures on the Company’s oil and gas properties ($329 compared to $515). The Company’s oil and gas property expenditures continue to be at a maintenance level until management decides to commence further exploration and development of its Indonesian properties.

Cash resources provided by financing activities during the six month period ended December 31, 2011 was $250,000 compared with $Nil in the six month period ended December 31, 2010, consisting entirely of the proceeds received upon issuance of the convertible promissory note as disclosed above.





Capital Resources
The Company has no operations that generate cash flow and its long term financial success is dependent on management’s ability to discover economically viable oil and gas deposits. The oil and gas exploration process can take many years and is subject to factors that are beyond the Company’s control.

In order to finance the Company’s exploration programs and to cover administrative and overhead expenses, the Company raises money through equity sales and from the exercise of convertible securities. Many factors influence the Company’s ability to raise funds, including the health of the resource market, the climate for oil and gas exploration investment, the Company’s track record and the experience and caliber of its management.

With a working capital deficit of $1,055,690 as at December 31, 2011, the Company will not have sufficient funds to meet its administrative, corporate development and exploration activities over the next twelve months. Actual funding requirements may vary from those planned due to a number of factors. The Company believes it will be able to raise the necessary capital it requires, but recognizes there will be risks involved that may be beyond its control. The Company is actively sourcing new capital.

Risks and Uncertainties
The Company has no history of profitable operations and its present business is at an early stage. As such, the Company is subject to many risks common to such enterprises, including under-capitalization, cash shortages and limitations with respect to personnel, financial and other resources and the lack of revenues. There is no assurance that the Company will be successful in achieving a return on shareholders' investment and the likelihood of success must be considered in light of its early stage of operations.

The Company has no source of operating cash flow and no assurance that additional funding will be available to it for further exploration and development of its projects when required. Although the Company has been successful in the past in obtaining financing through the sale of equity securities or joint ventures, there can be no assurance that the Company will be able to obtain adequate financing in the future or that the terms of such financing will be favorable. Failure to obtain such additional financing could result in the delay or indefinite postponement of further exploration and development of its properties.

Recent degradation of the market conditions for the financing of equity and/or debt for oil and gas exploration and development companies has created additional uncertainty for future financing of the acquisition or development of the Company’s projects.

The Company’s property interests are located in remote, undeveloped areas and the availability of infrastructure such as surface access, skilled labor, fuel and power at an economic cost, cannot be assured. These are integral requirements for exploration, development and production facilities on oil and gas properties. Power may need to be generated on site.

Oil and gas exploration is a speculative venture. There is no certainty that the money spent on exploration and development will result in the discovery of an economic oil or gas accumulation. There is no assurance that the Company's exploration activities will result in any discoveries of commercial accumulations of oil or gas. The long-term profitability of the Company's operations will in part be related to the success of its exploration programs, which may be affected by a number of factors that are beyond the control of the Company.

The oil and gas industry is intensely competitive in all its phases. The Company competes with many other oil and gas exploration companies who have greater financial resources and technical capacity.

The market price of energy is volatile and cannot be controlled.

The Company is very dependent upon the personal efforts and commitment of its existing management. To the extent that management's services would be unavailable for any reason, a disruption to the operations of the Company could result, and other persons would be required to manage and operate the Company.





The Company’s business consists of oil and gas exploration. Details on a geographic basis are as follows:

  December 31 June 30
  2011 2011
Total Assets   $     $  

North America

24,389 13,301

East Asia

  34,847     31,183  
    59,236     44,484  

 

  For the For the For the For the
  three months three months six months six months
  ended ended ended ended
  December 31, December 31, December 31, December 31,
  2011 2010 2011 2010
Net loss   $     $     $     $  

North America

109,274 139,471 391,080   1,461,686

East Asia

  18,260     43,674     48,567     106,485  
    127,534     183,145     439,647     1,568,171  

ADDITIONAL DISCLOSURE

The “Past Quarter” ended December 31, 2011 marks the end of the Second Quarter of the Company’s annual fiscal year ending June 30, 2012.

Material Contracts & Commitments
During the Past Quarter, no new material contracts or commitments were undertaken and not elsewhere disclosed herein or in the unaudited and management prepared condensed interim consolidated financial statements for the Past Quarter published herewith.

Related Party Transactions
During the Past Quarter, no new related party agreements, or modifications to existing agreements, of any kind were made by the Company which are not otherwise already disclosed herein or in the unaudited and management prepared condensed interim consolidated financial statements for the Past Quarter published herewith.

Details of the transactions and balances between the Company and other related parties are disclosed below:

a)     

As at December 31, 2011, $522,500 (June 30, 2011 - $445,000) is payable to officers of the Company. This amount is included in accounts payable and accrued liabilities and is unsecured, non-interest bearing and has no specific terms for repayment.

 

As at December 31, 2011, the Company has received an aggregate of $118,415 (June 30, 2011 - $132,240) in advances from a related party. This amount is included in accounts payable and accrued liabilities and is unsecured, non-interest bearing and has no specific terms for repayment.

b)     

Compensation of key management personnel

    For the six For the six
    months ended months ended
  Note December 31, 2011 December 31, 2010
        $     $  
Salary (i) 127,500 150,000
Financing fees (ii)     113,000     -  

 

(i)     

Key management personnel were not paid post-employment benefits, termination benefits or other long-term benefits during the six months ended December 31, 2011 and 2010.






(ii)     

On September 21, 2011, the Company amended the terms of certain outstanding share purchase warrants to have a new expiry date of December 31, 2013. The amount attributable to directors and officers of the Company is $113,000 and has been recorded on the statements of loss and comprehensive loss as an increase in financing costs for the period.

These transactions are in the normal course of operations and are measured at the exchange amount of consideration established and agreed to by all the related parties.

Investor Relations, Publicity and Promotion
During the Past Quarter, no new arrangements, or modifications to existing agreements, were made by the Company for investor relations services, publicity, promotion or advertising agreements which are not otherwise already disclosed herein.

Finder's Agreements, Financial Advice & Fund Raising
During the Past Quarter, no new arrangements, or modifications to existing agreements, were made by the Company relating to financial advice, fund raising or finder's agreements which are not otherwise already disclosed herein.

Critical Accounting Policies and Estimates
The details of the Company’s accounting policies are presented in Note 3 of the Company’s condensed interim consolidated financial statements for the period ending September 30, 2011. The following policies are considered by management to be essential for understanding the processes and reasoning that go into the preparation of the Company’s financial statements and the uncertainties that could have a bearing on its financial results:

a) Significant Accounting Estimates and Judgments

The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, profit and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and further periods if the review affects both current and future periods.

Critical accounting estimates

Significant assumptions relate to, but are not limited to, the following:

b) Exploration and Evaluation Assets

General exploration and evaluation (“E&E”) expenditures incurred prior to acquiring legal right to explore are charged to the consolidated statement of loss and comprehensive loss.

E&E expenditures incurred subsequent to acquisition of the legal right to explore are capitalized and accumulated in cost centers established on a country-by-country basis. Such costs include land acquisition costs, geological and geophysical expenses, cost of drilling exploratory wells, and overhead charges directly related to acquisition and exploration activities, less any government incentives relating thereto. E&E assets are not depleted and moved into property, plant and equipment when they are determined to meet certain technical feasibility and commercial viability thresholds determined by management. Upon transfer to property, plant and





equipment, E&E assets are assessed for impairment in addition to regular impairment reviews to ensure they are not carried at amounts above their estimated recoverable values.

The costs related to each cost center in the development stage is depleted and amortized on the unit-of-production method based on the estimated gross proved reserves of each country. Oil and natural gas reserves and production is converted into equivalent units based upon estimated relative energy content

The capitalized costs less accumulated amortization in each cost centre from which there is production is limited to an amount equal to the estimated future net revenue from proved reserves (based on estimated future prices and costs at the statement of financial position date) plus the cost (net of impairments) of unproved properties ("ceiling test"). The total capitalized costs less accumulated depletion and amortization of all cost centres is further limited to an amount equal to the estimated future net revenue from proved reserves plus the cost (net of impairments) of all unproved properties less estimated future general and administrative expenses, future financing costs and taxes.

Proceeds from the farm-out of oil and gas properties are applied against capitalized costs, with no gain or loss recognized, unless such a sale would significantly alter the rate of depletion and amortization.

Changes in Accounting Policies

a)     

Initial Adoption of IFRS

The unaudited condensed interim consolidated financial statements for the period ending December 31, 2011 are prepared in accordance with IAS 34 and accounting policies consistent with IFRS. The Company adopted IFRS in accordance with IFRS 1, First-time Adoption of International Financial Reporting Standards (“IFRS 1”). The first date at which IFRS was applied was July 1, 2010 (“Transition Date”) and the three months ended September 30, 2011 was the Company’s first reporting period under IFRS. IFRS 1 provides for certain mandatory exceptions and optional exemptions for first time adopters of IFRS.

IFRS 1 requires that the same policies are applied for all periods presented in the first IFRS financial statements and that those policies comply with IFRSs in effect as at the end of the first IFRS annual reporting period. Accordingly, the opening IFRS statement of financial position, 2011 comparatives and current period financial statements have been prepared using the same policies. The previously presented 2011 Canadian GAAP financial information has been reconciled to the IFRS information as part of the transition note in accordance with the requirements of IFRS1. Further, the policies applied have been done so on a full retrospective basis unless alternative treatment is permitted or required by an IFRS 1 election or exception.

The Company has applied the following exemptions to its opening statement of financial position dated July 1, 2010:

IFRS 3 - Business Combinations

IFRS 1 indicates that a first-time adopter may elect not to apply IFRS 3 Business Combinations retrospectively to business combinations that occurred before the date of transition to IFRS. The Company has taken advantage of this election and will apply IFRS 3 to business combinations that occur on or after July 1, 2010.

IFRS 2 – Share-based Payments

IFRS 1 encourages, but does not require, first-time adopters to apply IFRS 2 Share-based Payments to equity instruments that were granted on or before November 7, 2002, or equity instruments that were granted subsequent to November 7, 2002 and vested before the later of the date of transition to IFRS and January 1, 2005. The Company has elected not to apply IFRS 2 to awards that were granted prior to November 7, 2002 and vested before July 1, 2010.

IFRS 6 – Exploration and evaluation of mineral resources

IFRS 1 provides specific relief in respect of oil and gas assets in that it states that on transition to IFRS, where an entity has applied full cost accounting under its previous GAAP, its oil and gas assets may be measured as follows:





The Company has chosen to apply the exemption and continue using the cost of its exploration and evaluation assets determined under Canadian GAAP.

IFRS 1 also outlines specific guidelines that a first-time adopter must adhere to under certain circumstances. The Company has applied the following guidelines to its opening statement of financial position dated July 1, 2010:

Estimates

In accordance with IFRS 1, an entity’s estimates under IFRS at the date of transition to IFRS must be consistent with estimates made for the same date under previous GAAP, unless there is objective evidence that those estimates were in error. The Company’s IFRS estimates as of July 1, 2010 are consistent with its Canadian GAAP estimates for the same date.

IFRS employs a conceptual framework that is similar to Canadian GAAP. The adoption of IFRS did not have a material impact on the Company’s statements of loss and comprehensive loss and cash flow from operating, investing, and financing activities for the year ended June 30, 2011 and the three and six month period ended December 31, 2010 as previously presented under Canadian GAAP. There was also no material impact on the Company’s statement of equity as at July 1, 2010, for the three and six month period ended December 31, 2010 and for the year ended June 30, 2011 as presented under Canadian GAAP.

b)     

Future Accounting Changes

IFRS 9, Financial Instruments (“IFRS 9”) was issued by the International Accounting Standards Board (“IASB”) on October 28, 2010, and will replace IAS 39, Financial Instruments: Recognition and Measurement (“IAS 39”). IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. Two measurement categories continue to exist to account for financial liabilities in IFRS 9, fair value through profit or loss (“FVTPL”) and amortized cost. Financial liabilities held for trading are measured at FVTPL, and all other financial liabilities are measured at amortized cost unless the fair value option is applied. The treatment of embedded derivatives under the new standard is consistent with IAS 39 and is applied to financial liabilities and non-derivative hosts not within the scope of the standard. IFRS 9 is effective for annual periods beginning on or after January 1, 2013. The Company is currently evaluating the impact of IFRS 9 on its financial statements.

On December 20, 2010, the IASB published Deferred Tax: Recovery of Underlying Assets – Amendments to IAS 12. The amendments provide an exception to the general principle in IAS 12 that the measurement of deferred income tax assets and deferred income tax liabilities should reflect the tax consequences that would follow from the manner in which the entity expects to recover the carrying amount of an asset. This amendment applies to deferred tax assets or deferred tax liabilities that arise from investment property measured using the fair value model in IAS 40 and introduces a rebuttable presumption that the carrying value of the investment property will be recovered entirely through sale. The amendments must be applied for annual periods beginning on or after January 1, 2012.

In addition, in May 2011, the IASB issued the following standards which have not yet been adopted by the Company: IFRS 10, Consolidated Financial Statements (IFRS 10), IFRS 12, Disclosure of Interests in Other Entities (IFRS 12), IAS 27, Separate Financial Statements (IAS 27), IFRS 13, Fair Value Measurement (IFRS 13) and amended IAS 28, Investments in Associates and Joint Ventures (IAS 28). Each of the new standards is effective for annual periods beginning on or after January 1, 2013 with early adoption permitted. The Company has not yet begun the process of assessing the impact that the new and amended standards will have on its financial statements or whether to early adopt any of the new requirements.





Financial Instruments

Categories of financial instruments

  December 31 June 30
  2011 2011
  $ $
Financial assets    

FVTPL

   

Cash

33,931 17,427

AFS assets

   

Investments*

1 1

Loans and receivables

   

Receivables

  558     2,383  
    34,490     19,811  
    

* Investments are recorded at $1 as fair value is not reliably determined.

  December 31 June 30
  2011 2011
    $     $  
Financial liabilities    

Other financial liabilities

   

Accounts payable and accrued

   

liabilities

837,345 816,866

Notes payable

32,115 30,603

Convertible debt

  231,244     -  
    1,100,704     847,469  

Fair value of financial instruments

Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:

Level 1 – unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 – inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; and
Level 3 – inputs that are not based on observable market data.

The Company’s classifications of financial instruments within the fair value hierarchy are summarized below:

  December 31 June 30
  2011 2011
    $     $  
Level 1    

Cash

33,931 17,427
Level 2 - -
Level 3   -     -  
    33,931     17,427  

The carrying value of receivables, accounts payable and accrued liabilities, notes payable and convertible debt approximated their fair value because of the short-term nature of these instruments.





Financial Risk Management

The Company’s financial instruments are exposed to certain financial risks. The risk exposures and the impact on the Company’ financial instruments are summarized below.

a)     

Currency risk

The Company is primarily exposed to currency fluctuations relative to the U.S. dollar through expenditures that are denominated in Canadian dollars and Indonesian Rupiahs. Also, the Company is exposed to the impact of currency fluctuations on its monetary assets and liabilities.

The Company is exposed to foreign currency risk through the following financial assets and liabilities denominated in currencies other than U.S. dollars:

            Accounts  
            payable and  
            accrued  
December 31, 2011   Cash     Receivables     liabilities  
Canadian dollars $ 128 $ 567 $ (47,056 )
Indonesian Rupiah RP 5,992,296   RP -   RP -  

 

            Accounts  
            payable and  
            accrued  
June 30, 2011   Cash   Receivables   liabilities  
Canadian dollars $ 59 $ 2,327 $ (97,526 )
Indonesian Rupiah RP 4,476,099 RP - RP (22,500,000 )

At December 31, 2011, with other variables unchanged, a +/- 10% change in exchange rates would decrease/increase pre-tax loss by $4,493.

b)     

Credit risk

Credit risk is the risk of loss if a customer or third party to a financial instrument fails to meet its contractual obligations.

The Company’s cash is held by large Canadian and International financial institutions. Receivables consist of goods and services taxes due from the Federal Government of Canada. Management believes that the credit risk concentration with respect to receivables is remote.

c)     

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. Liquidity requirements are managed based on expected cash flows to maintain sufficient capital to meet short term obligations. As at December 31, 2011, the Company had a cash balance of $33,931 (June 30, 2011 - $17,427) which is not sufficient to settle current liabilities of $1,100,704 (June 30, 2011 - $847,469). Management is currently working on obtaining financing to meet these obligations.

d)     

Interest rate risk

The Company has a positive cash balance and its debt bears interest at fixed rates. The Company has no significant concentrations of credit risk arising from operations. The Company’s current policy is to invest excess cash in investment-grade short-term deposit certificates issued by reputable financial institutions with which it keeps its bank accounts and management believes the risk of loss to be remote. The Company periodically monitors the investments it makes and is satisfied with the credit ratings of its banks.

e)     

Commodity price risk

The Company’s ability to raise capital to fund exploration and evaluation activities is subject to risks associated with fluctuations in the market price of natural gas. The Company closely monitors commodity prices to determine the appropriate course of action to be taken by the Company.





Capital Management

The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to pursue the development of its resource properties and to maintain a flexible capital structure which optimizes the costs of capital at an acceptable risk. As the Company is in the exploration stage, its principal source of funds is from the issuance of common shares. In the management of capital, the Company includes share capital as well as cash and receivables.

The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may attempt to issue new shares, enter into joint venture property arrangements or acquire or dispose of assets. In order to maximize ongoing development efforts, the Company does not pay out dividends.

The Company’s investment policy is to invest its cash in highly liquid short-term interest-bearing investments, selected with regards to the expected timing of expenditures from continuing operations.

The Company is not subject to any externally imposed capital requirements.

Additional Disclosure for Venture Issuers without Significant Revenue
Additional disclosure concerning Continental’s general and administrative expenses and exploration and evaluation costs is provided in the Company’s interim consolidated statement of loss and comprehensive loss and Note 5 – Exploration and Evaluation Assets contained in its condensed interim consolidated financial statements for the period ended December 31, 2011.

Approval
The Board of Directors of Continental has delegated the responsibility and authority for approving quarterly financial statements and MD&A to the Audit Committee. The Audit Committee has approved the disclosure contained in this MD&A.

Additional Information
Additional information relating to Continental is available on SEDAR at www.sedar.com.

Claims, Contingencies & Litigation
Except for any contingencies elsewhere disclosed herein, or in the unaudited and management prepared, condensed interim consolidated financial statements for the Past Quarter published herewith, the Company knows of no material, active or pending claims or legal proceedings against them; nor is the Company involved as a plaintiff in any material proceeding or pending litigation that might materially adversely affect the Company or a property interest of the Company.

CONTINUOUS DISCLOSURE & FILINGS - CANADA

Additional disclosure is made on a continuous basis through periodic filings of Company financial information, significant events, including all press releases and material change reports and disclosure of new or changed circumstances regarding the Company. Unaudited quarterly financial statements are filed by the Company with the British Columbia Securities Commissions (“BCSC”) for each fiscal quarter. Shareholders and interested parties may obtain downloadable copies of mandatory filings made by the Company with Canadian securities regulators on the internet at the “SEDAR” website www.sedar.com which is the “System for Electronic Document Archiving and Retrieval”, employed by Canadian securities regulatory commissions to enable publicly traded companies to electronically file and archive documents and filings in compliance with applicable laws and securities trading regulations. The Company began filing on SEDAR in 1997. All Company filings made on SEDAR during the Past Quarter and up to the date of this filing are incorporated herein by this reference.

CONTINUOUS DISCLOSURE & FILINGS - USA

The Company is also a full reporting issuer and filer of US Securities and Exchange Commission (“US-SEC”) filings. US-SEC filings include Form 20F annual reports and audited financial statements. Interim unaudited quarterly financial reports in this format together with press releases and material contracts and changes are filed under Form-6K. The Company has filed electronically on the US-SEC’s EDGAR database commencing with the Company’s Form 20F annual report and audited financial statements since its fiscal year end 2004. See website www.sec.gov/edgar/searchedgar/webusers.htm. Prior to that event the Company filed with the US-SEC in paper form. All Company filings made to US-SEC during the past fiscal year and during the Past Quarter and up to the date of this filing are incorporated herein by this reference.





FORWARD-LOOKING INFORMATION

Forward-looking statements relate to future events or future performance and reflect management's expectations or beliefs regarding future events and include, but are not limited to, statements with respect to the estimation of reserves and resources, the realization of reserve estimates, the timing and amount of estimated future production, costs of production, capital expenditures, success of oil and gas operations, environmental risks, permitting risks, unanticipated reclamation expenses, title disputes or claims and limitations on insurance coverage. In certain cases, forward-looking statements can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved" or the negative of these terms or comparable terminology. By their very nature forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among others, risks related to actual results of current exploration activities; changes in project parameters as plans continue to be refined; future prices of resources; possible variations in resource reserves; accidents, labour disputes and other risks of the oil and gas industry; delays in obtaining governmental approvals or financing or in the completion of development or construction activities; as well as those factors detailed from time to time in the Company's interim and annual financial statements which are filed and available for review on SEDAR at www.sedar.com. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.

---o0o---





Form 52-109FV2
Certification of interim filings – OTC reporting issuer basic certificate

I, Richard L. McAdoo, Chief Executive Officer of Continental Energy Corporation, certify the following:

1.     

Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Continental Energy Corporation (the “issuer”) for the interim period ended December 31, 2011.

2.     

No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

3.     

Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

Date: February 28, 2012

(signed) ”Richard L. McAdoo
Name: Richard L. McAdoo
Title: Chief Executive Officer

  NOTE TO READER  
   
  In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109), this OTC reporting issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of  
     
  i) controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and  
     
  ii) a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.  
   
  The issuer’s certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate. Investors should be aware that inherent limitations on the ability of certifying officers of an OTC reporting issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.
 
 

 





Form 52-109FV2
Certification of interim filings – OTC reporting issuer basic certificate

I, Robert V. Rudman, Chief Financial Officer of Continental Energy Corporation, certify the following:

1.     

Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Continental Energy Corporation (the “issuer”) for the interim period ended December 31, 2011.

2.     

No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

3.     

Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial statements together with the other financial information included in the interim filings fairly present in all material respects the financial condition, results of operations and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

Date: February 28, 2012

(signed) “Robert V. Rudman
Name: Robert V. Rudman
Title: Chief Financial Officer

  NOTE TO READER  
   
  In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109), this OTC reporting issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of  
   
  i) controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and  
   
  ii) a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.  
   
   The issuer’s certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate. Investors should be aware that inherent limitations on the ability of certifying officers of an OTC reporting issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.