Cambay Operations Update

25 October 2012

Cambay operations update

·; Independent review of Cambay-76H has provided various recommendations to minimise the risk of similar issues recurring in the planned offset well

·; Importantly, significantly higher pressures and associated flow of hydrocarbons - very positive in tight reservoirs - were encountered post fracture stimulation of the reservoir and had a direct influence on the outcome of the well

·; Oilex intends to implement all appropriate recommendations in future wells

·; Oilex is now in the process of finalising well design and assessing the availability of an appropriate rig and long lead time equipment for the Cambay offset well

Oilex Ltd (ASX:OEX, AIM:OEX) is pleased to announce the results of an analysis of the drilling and completion operations on Cambay-76H. The Company engaged an independent US-based consultant to provide an analysis of the issues with milling operations at Cambay-76H which led to the well being suspended before a flow test could be conducted.

During drilling operations and running casing, the well was controlled using 13.2 ppg mud, indicating formation pressure of approximately 4,000 psi. However, post fracture stimulation downhole pressures were in excess of 5,080 psi for an extended period of time. The conclusion from the independent expert is that the sustained high pressure in the months after fracture stimulation indicates probable connection to a deeper high-pressured zone.

The Company is working on finalising the Cambay offset well design and assessing the availability of equipment and materials that are on the critical path to drill the well while awaiting final approvals from the Joint Venture and regulatory authorities. Oilex will update the market regarding receipt of approvals and timing as the information comes to hand.

Oilex Managing Director, Bruce McCarthy said, "Following fracture stimulation at Cambay-76H, we experienced higher pressures than expected over an extended period of time, indicating that the fractures potentially connected into a deeper, higher pressure zone. The review from the independent consultant has provided us important recommendations to reduce the risk of similar issues occurring in future."

The independent expert was provided access to all of the data collected during drilling, completion, fracture stimulation and milling and fishing operations and concluded:

·; Drilling of the well to 2,740m including 640m horizontal section was completed with minimal problems, ahead of the projected schedule.

·; The fracture stimulation was run in eight stages over seven days with no problems and with good results from the microseismic acquisition.

·; Clean out of the completion assembly encountered numerous problems that accumulated in their magnitude after encountering probable foreign metal in the hole and/or distorted casing leading to suspension of the well.

Based on his analysis of the operations and the design of the well, the independent consultant recommended that the risk of similar failures recurring could be minimised in future wells by taking account of the following factors:

1. The design of the casing will incorporate higher safety factors to counter the potential for deformation during fracture stimulation in future wells given the high natural formation overpressure.

2. Recommendations from the service providers for all downhole equipment and procedures will be requested based on the high formation pressure and fracture stimulation program prior to final selection.

3. Continue to use synthetic oil base mud for drilling operations.

4. Utilise a rotating head so that well control operations do not interrupt drilling and clean out. This negates the need to use heavy drilling fluids that may cause formation damage and wellbore blockage.

5. Utilise the natural pressure in the formation to assist the cleanout operations during milling.

Furthermore, the independent expert concluded that the failure of the drill pipe during cleanout operations was due in most part to high torque caused by deposition of precipitates from the high density fluids inside casing and excessive friction due to possible distorted casing. The degree of fatigue that the drill pipe had undergone prior to being used on Cambay-76H could not be determined.

This analysis will be carefully applied in the design of the offset well currently being undertaken.

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