13th Sep 2010 07:00
2010 ANNUAL REPORT
SUMMARY
Cambay Field onshore Gujarat, India
- Cambay Field Reserves and Contingent Resources significantly upgraded
- Successful completion of detailed technical studies to unlock potential of
"tight" reservoirs using leading-edge North American "shale gas" industry
technology
- Studies indicate a very good correlation between the Cambay Eocene reservoirs
and the Eagle Ford and Haynesville "tight/shale" plays in the USA
- Drilling and production tests through the first half of 2011
WA-388-P North West Shelf, Australia
- 3D seismic processing studies completed
- Seven leads have been identified ranging in potential size from 0.3 to 2.8
trillion cubic feet of prospective gas resource (potential recoverable best
estimate, 100% basis)
- Considering options for possible drilling
JPDA 06-103 Timor Sea
- Lor©-1 and Lolotoe-1 wells drilled with no commercial discoveries
- Oilex was free carried up to an agreed cap through the two-well campaign
- Future work program and its timing is currently under consideration
West Kampar PSC, onshore Sumatra, Indonesia
- ICC Tribunal found in favour of Oilex in its claim to recover US$4.6million
from Operator's parent company
Corporate Activities
- Oilex retained $16.8 million cash at the end of the year with no corporate debt
- Net operating and investing cash outflows for the year was $3 million.
- Management team and costs restructured during the year
- $10 million placement completed in December 2009.
ContentsChairman's
Review....................................1
Operations
Review....................................2
Permit
Schedule.................................18
Corporate GovernanceStatement................................19
Directors'
Report...................................30
Remuneration
Report...................................37
Auditor's IndependenceDeclaration..............................46Consolidated Statement of ComprehensiveIncome...................................47Consolidated Statementof Financial Position....................48Consolidated Statement of Changes in Equity.....................49Consolidated Statement of Cash Flows............................50Notes to the Consolidated Financial Statements.....................51
Directors'
Declaration..............................83
Independent AuditReport...................................84
Shareholder
Information..............................86
Business Directory.......................88
Corporate Information....................89
CHAIRMAN'S REVIEWDear Shareholder,I am pleased to report that the Cambay Field in India, after a sustained periodof evaluation and analysis, is emerging as a potentially large "tight gas"field and represents a major growth opportunity for the Company. Solid progresshas been achieved during the year in detailed technical studies of the CambayEocene low permeability reservoirs and the Company announced an upgrade toCambay Field reserves in September 2010. The Company has improved itsunderstanding of the potential to commercialise these low permeabilityreservoirs by the application of sophisticated tight reservoir evaluation,drilling and production technology which has been developed in recent years inthe rapidly expanding tight/shale gas industry in North America. The Company iswell placed to implement these technologies in India given its existingcomprehensive well and technical data base and operating presence in Gujarat.The Company was advised by two North American companies; NuTech Energy Alliance("NuTech") a leader in advanced petrophysical, geological and fracturestimulation solutions for "tight" and "shale gas" reservoirs, and Morning StarLLC ("Morning Star"), a worldwide petroleum consulting group with expertise inreserve certification of "tight" reservoir projects. Oilex will commission anindependent reserves certification in fourth Quarter 2010 after completingtechnical studies and well designs and locations.
Continuing on from initiatives commenced in 2009, the Company finalized restructuring of its overheads and activities during this financial year The Company made progress on a number of fronts, building a strong platform for Oilex to deliver major growth for shareholders. The Company has reduced operating and investing cash outflows for the year to $3 million net of recoveries and at the end of the year had retained cash of $16.8 million.
In Australia, the company completed 3D seismic processing studies on theWA-388-P block. The exciting portfolio of leads identified provides potentialfor gas discoveries that could become feedstock for existing LNG projects suchas Pluto, Wheatstone or North West Shelf or as a standalone gas project.The results of the Lor©-1 and Lolotoe-1 exploration wells that were drilled inthe Timor Sea JPDA 06-103 contract area during the year were disappointing.However the Company had previously reduced its financial exposure to the wellsthrough farmout of part of its interest. Under the farmout agreement Oilex wascarried for its remaining 10% share of costs on the two wells (up to an agreedcap) and was reimbursed for some of its past expenditures. Material explorationpotential still remains in the north of the contract area and further work onthe block is under consideration.
Progress in Indonesia has proven to be very slow due to a dispute with the operator. The Company is working to resolve this dispute with the Operator of the West Kampar contract area in Sumatra. The International Chamber of Commerce Tribunal found in favour of Oilex in its claim to recover US$4.6million from the Operator's parent company. With this success, the Company is hopeful that a commercial resolution to this dispute can be found.
With the progress made on the Cambay Field, the Company's focus will increasingly be in India. The Company is reviewing opportunities to develop additional projects while managing its existing portfolio of assets to realise value for shareholders.
With the increasing activity in India, I am very pleased that Dr Bruce McCarthy, Oilex's Managing Director, is now based in Gujarat to manage the existing Cambay asset and any expansion opportunities that may arise from these developments.
While net corporate overheads have been further reduced during the year, theCompany has retained its core personnel and is well placed to further progressits growth opportunities.
On behalf of the Board I wish to record our appreciation for the ongoing support of our executives, staff, joint venture partners, and stakeholders as we strive for success in the Company's projects in India, Australia, Timor-Leste and Indonesia.
Mr MDJ CozijnChairman9 September 2010 OPERATIONS REVIEWOVERVIEW
During the course of the year Oilex's activities have increasingly focussed on India.
The Company initiated a program of extensive technical studies on theproperties of the Eocene low permeability ("tight") reservoirs in the CambayField, Gujarat. In early September 2010 the first phase of these studies wascompleted and the Company announced significant increases in reserves andcontingent resources for the Cambay Field. The following is a summary ofReserves (net recoverable to Oilex's 45% interest, unaudited) at 6 September2010:
- P90 - 248 billion cubic feet (BCF) of gas and 11 million barrels (MMbbls) of
condensate
- P50 - 384 BCF of gas and 17 MMbbls of condensate
- P10 - 591 BCF of gas and 27 MMbbls of condensate
Oilex had previously identified the low permeability Eocene reservoirs as apotentially under-exploited section when it acquired its interest in the CambayField. Between 2006 and 2008 Oilex drilled and tested these tight oil and gasreservoirs using conventional techniques. From these well results, Oilexconcluded that proprietary technology and expertise developed in recent yearsin the growing North American tight/shale gas industry could be appliedeffectively to the tight oil and gas reservoirs at Cambay to improveproductivity.From late 2009, Oilex started a number of technical studies to evaluate theEocene low permeability reservoir section. The petrophysical evaluation of 36well logs that penetrated the Eocene section was undertaken using proprietarylow permeability software applications that give critical reservoircharacteristics which are fundamental to generating in place hydrocarbon volumeestimates in very tight reservoirs. Oilex has applied the results of thepetrophysical analyses to model optimal fracture stimulation well completiondesigns and associated production profiles. In addition, a 3D seismicreprocessing program is underway to identify zones of better potentialproductivity and Oilex has started initial planning and design work fordrilling appraisal / development wells that will acquire critical reservoir andproduction information.The studies indicated a very good correlation between the Cambay Eocenereservoirs and parts of the Eagle Ford and Haynesville reservoirs, two of themost prolific "tight/shale gas" plays in North America. The Cambay Eocenereservoirs that have been analysed display relatively good porosity for "tight'reservoirs" and with a gross thickness of 200 to 500 metres these zones aresubstantially thicker than most North American "tight/shale" reservoirs.Upon completion of further technical studies, Oilex will commission anindependent reserves certification. A drilling program to demonstrate apotential commercial development of the tight gas reservoirs will be undertakensubject to Joint Venture approval. Since March 2010 Bruce McCarthy, Oilex'sManaging Director, has been based in India to lead activities in relation tothe Eocene low permeability reservoir project.In Australia, Oilex completed 3D seismic processing studies on the Company'sWA-388-P block in the offshore Carnarvon basin. Seven leads have beenidentified ranging in potential size from 0.3 to 2.8 trillion cubic feet ofprospective gas resource (potential recoverable best estimate, 100% basis). Thepermit is located in a region of increasing exploration interest, being on thesame play fairway as the Pluto and Wheatstone fields. It is close to theWA-389-P and WA-360-P permits which Woodside and Petrobras respectively arereported to have entered into farm in agreements in 2010.In the Timor Sea JPDA 06-103 contract area, Oilex drilled the Lor©-1 andLolotoe-1 exploration wells as operator on behalf of the Joint Venture. Neitherwell encountered hydrocarbons in commercial quantities. Oilex was free carriedup to an agreed cap through these two wells under a previously announced farmout agreement with Japan Energy. Oilex completed the two well drilling campaignwithin budget. Studies to assess the remaining prospectivity of the block havesince been completed and the Designated Authority and Joint Venture areconsidering the future work program and its timing.In Indonesia Oilex continues to pursue a resolution to the West Kampar PSCJoint Venture dispute. The International Court of Arbitration of theInternational Chamber of Commerce found in favour of Oilex (West Kampar)Limited in its US$4.6million claim against PT Asiabumi Petroleo which is theparent company of PT Sumatera Persada Energi - the other joint venture party inWest Kampar PSC. Oilex will now pursue the enforcement of the Award to recoverthe amount due and attempt to negotiate a resolution to its ongoing JointVenture dispute.The Company has reduced its expenditure while progressing work programs acrossseveral of its assets. Net operating and investing cash outflows for the yearwas $3 million. Management team and costs were also restructured and theCompany's cash position remains robust with $16.8 million cash at the end ofthe year with no corporate debt. During the year a $10.1 million shareplacement was also completed.On the important issue of health, safety and environmental protection, Oilex,as Operator, has achieved a record of zero lost-time incidents. There were noHSE incidents on the JPDA 06-103 drilling campaign and cumulative total manhours worked in India since the last LTI (April 2008) is 819,728. Nooperational incidents had an adverse impact on the natural environment or localcommunities.
CAMBAY FIELD: ONSHORE GUJARAT, INDIA
[Oilex - 45% interest, Operator]
- Cambay Field Reserves and Contingent Resources significantly upgraded
- Successful completion of detailed technical studies to unlock potential of
"tight" reservoirs using leading-edge North American "shale gas" industry
technology
- Studies indicate a very good correlation between the Cambay Eocene reservoirs
and the Eagle Ford and Haynesville "tight/shale" plays in the USA
- Drilling and production tests are expected to be carried out through the first
half of 2011Tight Reservoir Opportunity
The initial phase of extensive studies on the properties of the Eocene low permeability ("tight") oil and gas reservoirs has been completed. Oilex is using leading-edge technology and expertise derived from "tight/shale gas" evaluation projects in North America. Following this, in early September 2010, the Company announced significant increases in reserves and contingent resources for the Cambay Field.
In its evaluation of the reserves and resources the Company was advised by twoNorth American companies; NuTech Energy Alliance ("NuTech") a leader inadvanced petrophysical, geological and fracture stimulation solutions for"tight" and "shale gas" reservoirs, and Morning Star LLC ("Morning Star"), aworldwide petroleum consulting group with expertise in reserve certification of"tight" reservoir projects.The following tables summarise the net (Oilex 45%) reserves and contingentresources for the Cambay Field "tight" Eocene reservoirs at 6 September 2010.These estimates were prepared in accordance with generally accepted engineeringand evaluation principles set forth by the Society of Petroleum Engineers (SPE)PRMS guidelines and are classified as Reserves Justified for Development andContingent Resources Development Pending.The probabilistic unaudited estimates were prepared by Oilex with advice fromNuTech and Morning Star. It is the Company's view that the P90, P50 and P10estimates prepared correspond to proved, proved plus probable, and proved plusprobable plus possible reserves respectively under the ASX Listing Rules. Theestimates have not been endorsed by the Government of India or the DirectorateGeneral of Hydrocarbons, India. Summary of Reserves Reserves Justified for Development Attributable to Oilex Net Working Interest (45%) Probability P90 P50 P10 Natural gas (BCF) 248 384 591 Condensate (MMbbls) 11 17 27
Net reserves presented above include Government share of production applicable under the PSC.
Summary of Contingent Resources
Contingent Resources Development Pending Attributable to Oilex Net Working Interest (45%) Probability P90 P50 P10 Natural gas (BCF) 186 324 568 Condensate (MMbbls) 8 14 26
Net contingent resources presented above include Government share of production applicable under the PSC.
The studies carried out to date have included the detailed analysis of 36 wellpenetrations of the Eocene section of the Cambay Field using proprietary lowpermeability reservoir technologies. With the assistance of experts experiencedwith tight gas producing areas which have emerged in North America in recentyears, Oilex undertook a comprehensive study to identify North American tight/shale plays that are good analogues for the Cambay Field Eocene reservoirs. TheCambay Eocene reservoirs appear to be most analogous to reservoirs in theHaynesville and Eagle Ford Basins in Texas, two of the most prolific tight/shale gas plays in North America.Three "tight pay" zones (X, Y and Z zones), across a 200 to 500 metre grossinterval, have been interpreted in the Cambay Eocene reservoirs from the welllog analysis and 3D seismic. The studies generated the key technical inputsrequired to prepare deterministic and probabilistic in-place volume estimatesand estimates of resources and reserves.
Additional technical data including further analysis of vintage wells, reprocessed 3D seismic, seismic inversion cube, core analysis will be incorporated into a stochastic 3D fine grid volumetric model as it becomes available.
Details of the technical studies have been reviewed with the Cambay Field JointVenture and the Directorate General of Hydrocarbons, the government regulatorybody in India.Dr Bruce McCarthy, Oilex's Managing Director, has been based in India sinceMarch 2010 to prepare for proposed field operations to assess the lowpermeability Eocene reservoirs using modern drilling and completion techniquescurrently employed in North America. These operations will be part of workprograms and budgets that are subject to Joint Venture and Government of India(DGH) approvals.Other Potential
Oilex has also identified seismic anomalies in the Oligocene (OSII) on the eastern flank of the block that have not been previously drilled. These anomalies along with the fractured Deccan basalt play (that has proven to have oil reservoirs in the Tarapur block to the north of the Cambay Field) also remain attractive potential targets for future drilling programs.
Production
Total net production from existing wells in the Cambay, Bhandut and SabarmatiFields during the financial year was 18,805 barrels of oil for the year (Oilexshare). Oil production was substantially from the Miocene Basal Sand (MBS) withapproximately 25% by volume produced from the Eocene siltstones. The Mioceneproduction has principally come from Cambay-74, a 2008 Oilex discovery well,and Cambay 64, an old well Oilex successfully brought into production in 2008.Production from the Miocene section has gradually declined during the year withCambay-64 no longer in production.The Cambay-19Z well is in production from the deeper Eocene section and Cambay72, Cambay-63, Cambay 20 and Cambay 8 wells are also producing intermittently.The average net rate of production for the month of June 2010 for the Cambay,Bhandut and Sabarmati Fields was 24 barrels of oil per day (Oilex share).
Background
Oilex operates the Cambay Field Production Sharing Contract in the Cambay Basin onshore Gujarat, India on behalf of its Joint Venture with Gujarat State Petroleum Corporation Ltd.
The Cambay basin lies in the heart of Gujarat's industrial corridor which isIndia's largest centre of heavy industry. There is an extensive existinginfrastructure of oil and gas pipelines connecting the Cambay Basin fields tolocal industries and other centres such as Delhi.
Gujarat accounts for a large proportion of India's industrial output, is one of the fastest growing states in India and has an enormous market for energy.
The 161km2 Cambay contract area contains thick, low permeability reservoirs inthe Eocene section. The contract area was previously explored and developed byOil and Natural Gas Corporation (ONGC), India's largest State owned oil and gascompany in the period from 1957 through to 1980's. However it was developed asa gas field mainly from the shallower Oligocene (OSII) reservoirs in thesouthern part of the contract area. Since its inception, the Cambay Field hasproduced about 52 billion cubic feet of gas until it was shut-in in the early1990's due to water and sand production problems.ONGC drilled over 30 wells to variable total depths through the Eocene tightreservoirs, using conventional drilling and completion technology. The deepestwell, Cambay-40 was drilled in 1963 to a depth of more than 3,200 metres withgas shows at Total Depth.Oilex acquired a 30% equity interest in the Cambay Production Sharing Contract(PSC) in March 2006 and a further 15% equity in 2007, having identified the lowpermeability Eocene reservoirs as a potentially under-exploited section. Toevaluate this potential Oilex and GSPC completed the following work programbetween 2006 and 2008:
- drilled 5 modern conventional vertical wells all of which had strong
indications of oil and gas while drilling including oil and gas in mud at
surface;
- acquired 3D seismic over the entire contract area;
- fracture stimulated 3 wells;
- conducted pre- and post- fracture stimulation well tests resulting in flows of
oil or gas and condensate to surface;
- initiated long term production testing on Cambay-19Z. Cambay-73 was shut in as
a potential gas condensate producer.
Oilex concluded from this work program that the potential of the Eocene low permeability reservoirs could probably be best harnessed by drilling horizontal wells and undertaking multi-stage fracture stimulation of the tight reservoirs.
Oilex had planned a horizontal well in the Eocene section as part of its workprogram in 2008 but the drilling campaign was suspended in November 2008 afterthe discovery of oil in the Miocene Basal Sand (MBS) in the Cambay-74 well.Cambay-74 was completed as an oil production well at the shallow Mioceneinterval and the rig contract was terminated in November 2008 after extendeddelays and cost over-runs associated with poor performance.In 2009 Oilex recognised that evaluation and commercialisation of the Eocenereservoirs could be enhanced by the application of sophisticated tightreservoir evaluation, drilling and production techniques which have beendeveloped in recent years in the growing shale gas industry in North America.Although the Cambay Eocene low permeability reservoirs are not"unconventional", the technology which has been developed to the point of wideacceptance in the oil and gas business is directly relevant and applicable atCambay Field. Oilex was well placed to exploit these technologies on behalf ofthe Cambay Joint Venture given the existing comprehensive technical data basethat it had acquired or improved upon since 2005.
In late 2009, the Company, on behalf of the Joint Venture, started:
- a 3D seismic reprocessing program covering the entire contract area, to
identify where high potential zones of better potential productivity may be
present in the low permeability reservoir section,
- petrophysical evaluation of logs from 33 well that penetrated the Eocene
section using proprietary low permeability reservoir and shale gas technology
to accurately evaluate critical reservoir characteristics and generate in place
volume estimates,
- applying the petrophysical analyses to build predictive models of optimal
fracture stimulation designs and associated production profiles, and
- initial well planning and design work.
On completion of the analysis of all the wells and other technical data theJoint Venture will be in a position to refine in-place volume and recoverablehydrocarbon estimates for independent certification. A drilling program toprove the potential for commercial development of the tight gas reservoirs willbe undertaken subject to Joint Venture approval and availability of theappropriate rigs and services.
BHANDUT AND SABARMATI FIELDS: ONSHORE GUJARAT, INDIA
[Oilex - 40% interest, Operator]
The fields were discovered and developed initially by ONGC. Hydrocarbons werefound in Miocene sandstones at Bhandut and Eocene sandstones at Sabarmati andcontinue to be produced on at combined average of approximately about 15barrels of oil per day. The fields were acquired by the GSPC and Niko JointVenture in 1995 and Oilex subsequently acquired Niko's interest in 2006.The first 3D seismic survey over Bhandut field was acquired in February 2007.The main reservoir units in the shallower section are sandstones with irregulardistribution and at deeper stratigraphic levels and exploration targets thatare likely to be gas-bearing. The field remains prospective and cover and areaof 6 km2.The Sabarmati field is located on the southern culmination of a trend ofproducing oil fields operated by ONGC, on the outskirts of Ahmedabad, thelargest city in Gujarat. Oil has been produced from the Eocene section from onewell at low rates since inception of the PSC in 1994. The field has potentialfor further exploitation from its Eocene low permeability reservoirs in asimilar manner to Cambay. It covers and area of 6 km2.
WA-388-P: CARNARVON BASIN, OFFSHORE WESTERN AUSTRALIA
[OILEX - 14% Interest, Operator]
- 3D seismic processing studies completed
- Seven leads have been identified ranging in potential size from 0.3 to 2.8
trillion cubic feet of prospective gas resource (potential recoverable best
estimate, 100% basis)
- Direct Hydrocarbon Indicators interpreted from the 3D seismic data suggests the
presence of gas
- Joint Venture is considering options, including further defining the largest
lead, for possible drilling
Oilex completed the interpretation of the Rose 3D seismic data on its WA388-Pblock, located outboard of the Rankin Trend producing fields on the North WestShelf, offshore Western Australia in June 2010.The work has confirmed that the seismic amplitude anomalies evident in the 3Dseismic data are likely Direct Hydrocarbon Indicators suggesting the presenceof gas by analogy with nearby fields and discoveries.A portfolio of leads and play types has been developed. Multiple leads havebeen identified of which at least seven range in potential size from 0.3 to 2.8trillion cubic feet (TCF) of prospective gas resource (recoverable bestestimate, 100% basis). The Joint Venture is now considering options includingfurther defining the largest of the leads Placanica in preparation for possibledrillingThe WA-388-P permit is in the region of increasing exploration interest beinglocated on the same play fairway as the Pluto and Wheatstone fields. It isclose to the WA-389-P and WA-360-P permits which Woodside and Petrobras haverecently been reported to have entered into farm in agreements.Potential exist for gas discoveries of 1TCF or more to provide feedstock forexisting LNG projects such as Pluto, Wheatstone or North West Shelf. There areno outstanding work program commitments on the permit.The fourth year of the permit expired in August 2010. On 10 August 2010 theDesignated Authority approved a variation to the work program in the remainingtwo years of the secondary term permit years 5 and 6. The minimum workrequirement for the fifth year of the permit (August 2010 to August 2011) is450km2 of 3D seismic reprocessing. The last year of the secondary term, year 6,contains an obligation to drill one well. The Joint Venture will decide whetherto enter that permit year prior to August 2011.
Background
The permit was awarded in August 2006. Initial work involved interpretation ofthe reprocessed 2D and existing third party seismic data and was completed in2008 with attractive structural and stratigraphic trends identified. This workprovided the basis for Sasol to farm in for 30% equity interest in the permitby funding 60% of certain costs of the Rose 3D seismic survey.The Rose 3D seismic survey of 1,180 km2 began in August 2008 over thesouth-eastern part of the permit covering the area of prospective leads mappedfrom the older data. The seismic vessel "Geowave Champion" completed the surveyin September 2008. Significant operational efficiencies were obtained throughjointly conducting the survey with holders on an adjacent permit with Oilexacting as operator for the entire survey. Processing of the 3D seismic wascompleted in July 2009. Seismic inversion studies and seismic interpretationwere completed in June 2010.
JPDA 06-103: JOINT PETROLEUM DEVELOPMENT AREA, TIMOR SEA
[OILEX - 10% Interest, Operator]
- Lor©-1 and Lolotoe-1 wells drilled with no commercial discoveries
- Oilex was free carried up to an agreed cap through the two-well campaign under
an earlier farm-out agreement
- Two well campaign completed under budget and with no HS&E incidents.
- Data from Lor©-1 and Lolotoe-1 wells have been integrated with existing
technical data
- Future work program and its timing is currently under consideration
The JPDA 06-103 Joint Venture drilled the Lor©-1 and Lolotoe-1 wells duringfourth Quarter 2009 and first Quarter 2010. Neither well encountered commercialhydrocarbon zones. Both prospects were in water depths of less than 400 metres.The prospective mean oil resources were estimated prior to drilling to be195MMSTBO and 90 MMSTBO for Lor© and Lolotoe respectively (100% basis).In August 2009, as an appropriate risk management decision to reduce itsfinancial exposure to the first two wells, Oilex entered into an agreement tofarm out a 15% of its 25% interest in the block to Japan Energy E&P JPDA PtyLtd, a subsidiary of Japan Energy Corporation. All conditions for thisagreement were subsequently satisfied. Under the farm out agreement Oilex wasentitled to be carried for its remaining share of all costs associated with thetwo wells (up to an agreed cap) and be reimbursed for some of its pastexpenditures.In September 2009, on behalf of the Joint Venture, Oilex signed a contract withSonga Offshore Drilling Limited to secure the services of the semi-submersibledrilling rig "Songa Mercur". The JPDA Designated Authority (Autoridade Nacionaldo Petr³leo - "ANP") also approved a 1 year extension to Contract Year 3 of theProduction Sharing Contract. Contract Year 3 which previously ended on 15January 2010 now ends on 15 January 2011.
The Lor©-1 and Lolotoe-1 well results have been integrated with existing data and the implications for prospectivity and the selection of future drilling targets reviewed with JPDA 06-103 Joint Venture and ANP. The forward work program and its timing are currently under consideration.
Background
The contract area JPDA 06-103, covering an area of 3,741 km2 is located in thehighly prospective Flamingo Trough portion of the Northern Bonaparte Basin. Itlies adjacent to significant recent discoveries and close to prolific producingfields further to the west along geological trend.In November 2006, Oilex (JPDA 06-103) Limited (Operator) and the Joint Ventureparties entered into a Production Sharing Contract ("PSC") with the DesignatedAuthority for block JPDA 06-103 and the PSC was signed in January 2007(effective date 15 January 2007). The block is located to the east of theLaminaria, Corallina and Kuda Tasi oil fields and to the north of the Kakatuaand Elang oil fields and the giant Bayu-Undan gas condensate field.The Maura 3D seismic survey, the first phase of offshore operations in theblock, was completed successfully by the Geowave Champion seismic vessel inAugust 2008. The survey covered an area of 2,140 km2 and, in combination withexisting 3D seismic data in the block, provides 3D seismic coverage over about90% of the contract area. Processing of the data concluded early in 2009 andthe interpretation of the data over the entire block was available in lateMarch 2009. A portfolio of prospects was prepared and prioritized. Prospectsranged in water depths from about 100 to 1,400 metres.
In April 2008, a significant oil discovery at Kitan-1 was made by ENI, the operator of block JPDA 06-105 (adjacent to the west of JPDA 06-103). The Kitan Field is now under development.
WEST KAMPAR PRODUCTION SHARING CONTRACT: ONSHORE SUMATRA, INDONESIA
[Oilex - 45% further 22.5% secured]]
- ICC Tribunal found in favour of Oilex in its claim to recover US$4.6million
from Operator's parent company
- Resolution to Joint Venture dispute being pursued
Oilex continued to take all appropriate measures to resolve the Joint Venture issues with the Operator in the West Kampar PSC.
On 24 June 2010, the International Court of Arbitration of the ICC(International Chamber of Commerce) found in favour of Oilex's wholly ownedsubsidiary, Oilex (West Kampar) Limited, in its claim against PT AsiabumiPetroleo (Asiabumi) for the recovery of US$4.6million that is owed to Oilex.Asiabumi is the parent company of the Operator (PT Sumatera Persada Energi -SPE).Oilex commenced the ICC Arbitration against Asiabumi in Singapore in April 2009following the failure of SPE in early 2009 to repay a debt owing to Oilex undera second farmout agreement between Oilex and SPE which Oilex terminated inJanuary 2009. SPE's obligations to repay the debt were secured by a parentcompany guarantee granted by Asiabumi to Oilex in 2008. The Award granted inOilex's favour took effect immediately. Oilex will pursue the enforcement ofthe Award to recover the amount due.SPE continues to allege that Oilex no longer has an interest in the West KamparProduction Sharing Contract arising out of an alleged failure to performobligations under the farm out agreement entered into by the parties in 2007.Oilex denies those allegations and maintains that it holds its 45% interest inthe West Kampar PSC. The Indonesian regulator, BPMigas has not transferredOilex's 45% participating interest to SPE despite requests from SPE.Oilex maintains that it is further entitled to have assigned an additional22.5% to its 45% holding through the exercise of its rights under a Power ofAttorney granted by SPE following the failure of SPE to repay the funds duereferred to above. The assignment has been provided to BPMigas but has not yetbeen approved or rejected. If the debt due to Oilex is satisfied, Oilex willnot pursue this assignment.Oilex has not been served with the claim filed in January 2010 by SPE in anIndonesian court seeking damages from Oilex for alleged defamation arising outof correspondence relating to SPE's performance as operator. Oilex rejects theallegations in the claim and, if served, will vigorously oppose them.Oilex understands from industry communications and reports in the Indonesianpress that SPE has drilled and tested a second well (Pendalian 4) in thePendalian Field in early 2010. Oilex is aware of recent Indonesian press whichclaims significant flow rates from multiple zones in the Pendalian 4 wellduring testing and refers to plans for development of the Pendalian Field. Dueto SPE's claim relating to Oilex's interest in the PSC, for over a year Oilexhas not been provided by SPE with any data relating to the West Kampar PSCoperations including any results of testing the Pendalian 4 well. Oilex istherefore unable to comment on or endorse the press reports.
Oilex will continue to take steps to advance its participating interest in the West Kampar PSC and to pursue enforcement of its Arbitration Award while remaining open to a commercial resolution to the Joint Venture dispute.
Background
Oilex (West Kampar) Limited (Oilex), a wholly owned subsidiary of Oilex Ltd,was assigned a 45% participating interest in the West Kampar PSC pursuant to afarm out agreement entered into with PT Sumatera Persada Energi (SPE) in May2007. The West Kampar Production Sharing Contract covers an area of 4,471 km2.It is located in central Sumatra adjacent to the most prolific oil producingprovince in Indonesia, the Central Sumatra Basin, from which over 10 billionbarrels of oil have been produced to date.The Pendalian-3 well was drilled in 2007 to appraise the oil field discoveredin 1993 by the Pendalian-1 well, a cored slim hole which encountered a numberof oil zones at depths ranging from 250 metres to 500 metres. Two of the zonesflowed oil from drill stem tests in Pendalian-1 with maximum rates achieved ofup to 530 bopd.In August 2008, Oilex entered into a second farmout agreement to acquire 15%additional equity interest in the PSC thereby increasing its interest from 45%to 60% subject to meeting certain conditions precedent. In January 2009 Oilexterminated the second farm out agreement when conditions were not met by thedue date and many issues remained unresolved with the Operator. With thetermination of that agreement, SPE is required to reimburse the monies advancedby Oilex under the terms of that agreement. SPE's failure to repay those moniesled to the successful ICC Arbitration against SPE's parent company referred toabove.
BLOCK 56: ONSHORE SOUTHERN OMAN, OMAN
[Oilex - 25% interest, Operator]
- Joint Venture has given notice of its intention to relinquish Block 56
The Joint Venture has given notice to the Oman Ministry of Oil and Gas (MOG) of its intention to relinquish all of the Block 56 Contract Area in accordance with the Exploration and Production Sharing Agreement (EPSA).
While three small discoveries were made in Block 56 (Sarha-1, Ghadaq-1, AlJumd-1), the Joint Venture determined that those discoveries would not becommercial to develop under the terms of the EPSA due to their small field sizeor heavy oil characteristics. Attempts to renegotiate commercial terms forBlock 56 with the Omani Ministry of Oil and Gas on behalf of the Joint Venturewere not successful.On behalf of the Block 56 Joint Venture, Oilex Oman Limited (as Operator) isproceeding to close down Joint Venture activities to the mutual satisfaction ofthe MOG and the Joint Venture at the earliest reasonable date.
The minimum financial obligation relating to the exploration work commitments under the EPSA has been satisfied by the Joint Venture.
Background
The Government of the Sultanate of Oman awarded the Exploration and ProductionSharing Agreement ("EPSA") for Block 56 to a consortium of Indian companies andOilex (Operator) on 28 June 2006. The block is located onshore, adjacent toproducing fields operated by PDO, the Oman national oil company, in the SouthOman Salt Basin, which is one of the main producing basins in Oman. The oilproduced from fields in the South Oman Salt Basin is characteristically heavierwith density in the range 150 - 280 API gravity.The joint Venture completed an active exploration and appraisal program,drilling 7 wells. The Sarha-1, Ghadaq-1 and Al Jumd discoveries confirmed thatthe productive trend in the adjacent block to the west continues into Block 56.New seismic data combined with reprocessing of existing data indicated thatthere were a number of structures of similar size to Sarha-1 present in thewestern flank area of Block 56.
CORPORATE ACTIVITIES
- Oilex retained $16.8 million cash at the end of the year with no corporate debt
- Net operating and investing cash outflows for the year was $3 million.
- Management team and costs restructured and reduced during the year
- $10 million placement was completed.
Oilex retained $16.8 million cash at the end of the year with no corporatedebt. Net operating and investing cash outflows for the year was $3.0 million.Organization changes including reduction in personnel numbers were implementedduring the year. Operating cash outflows and corporate overheads were reducedwith further cost reduction programs being implemented at all locations.During the 2010 financial year, the Company raised $10 million. The totalissued capital at 30 June 2010 was 220,074,885 fully paid shares in addition to22,475,000 unlisted options exercisable at prices between $0.30 and $2.75 pershare and 465,000 performance rights.
SAFETY, HEALTH AND ENVIRONMENT
HS&E RECORD
Oilex recorded no LTI's in relation to its employees across all centres of operations giving a Lost Time Incident Frequency Rate for employees of zero.
COMMUNITY SUPPORT AND TRAINING
At the request of the Government of Timor Leste and the ANP, Oilex has agreedto contribute to a training program for citizens of Timor Leste who have thecapability to work offshore in the oil and gas industry. The aim of the programis to establish training facilities in Timor Leste in conjunction with anexisting institution and to develop the local capabilities in training with thesupport of professional entities based in Western Australia which currentlyconduct training to Australian and international standards for offshoreindustries.
POLICY
Oilex is committed to protecting the health and safety of everybody who plays apart in our operations or lives in the communities where we operate. Whereverwe operate, we will conduct our business with respect and care for both thelocal and global, natural and social environment and systematically managerisks to drive sustainable business growth. We will strive to eliminate allinjuries, occupational illness, unsafe practise and incidents of environmentalharm from our activities. The safety and health of our workforce and ourenvironment stewardship are just as important to our success as operational andfinancial performance and the reputation of the company.As Oilex expands its presence in different parts of the world, we shallendeavour to understand the diversity of cultures and customs that weencounter, to incorporate that understanding into the business practice forthat country and to have a beneficial impact through our working involvementwith local communities. We shall strive to make our facilities safer andbetter places in which to work and our attention to detail and focus on safety,environmental, health and security issues will help to ensure high standards ofperformance. We are committed to a process of continuous improvement in all wedo and to the adoption of international industry standards and codes whereverpracticable. Through implementation of these principles, Oilex seeks to earnthe public's trust and to be recognised as a responsible corporate citizen.
LIST OF ABBREVIATIONS AND DEFINITIONS USED HEREIN
Associated Natural gas found in contact with or dissolved in crude Gas oil in the reservoir. It can be further categorized as Gas-Cap Gas or Solution Gas. Bbls Barrels of oil or condensate BCF Billion Cubic Feet at standard temperature and pressure conditions Barrels of Oil Equivalent. Converting gas volumes to the oil equivalent is customarily done on the basis of the nominal heating content or calorific value of the fuel. BOE Common industry gas conversion factors usually range between 1 barrel of oil equivalent (BOE) = 5,600 standard cubic feet (scf) of gas to 1 BOE = 6,000 scf. (Many operators use 1 BOE = 5,620 scf derived from the metric unit equivalent 1 m³ crude oil = 1,000 m³ natural gas). BOPD barrels of oil per day
Deterministic The method of estimation of Reserves or Resources is
called deterministic if a discrete estimate(s) is made
Estimate based on known geoscience, engineering, and economic data.
MMSCF/DAY million standard cubic feet (of gas) per day MMbbls million barrels of oil or condensate (recoverable) Those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations by application of development projects, but which are not currently considered to be commercially recoverable due to one or more contingencies. Contingent Resources may include, for example, projects for which there are currently no viable markets, or where commercial recovery is dependent on technology under development, or where evaluation of the accumulation is insufficient to clearly assess commerciality. Contingent Resources are further categorized in accordance with the level of certainty associated with the estimates and may
Contingent be sub-classified based on project maturity and/or Resources characterized by their economic status.
Development Pending - A discovered accumulation where project activities are ongoing to justify commercial development in the foreseeable future. Development Unclarified or on Hold - A discovered accumulation where project activities are on hold and/or where justification as a commercial development may be subject to significant delay. Prospective Those quantities of petroleum which are estimated, as of aResources given date, to be potentially recoverable from undiscovered accumulations Reserves Reserves are those quantities of petroleum anticipated to be commercially recoverable by application of development projects to known accumulations from a given date forward under defined conditions. Proved Reserves are those quantities of petroleum, which by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under defined economic conditions, operating methods, and government regulations. Probable Reserves are those additional Reserves which analysis of geoscience and engineering data indicate are less likely to be recovered than Proved Reserves but more certain to be recovered than Possible Reserves. Possible Reserves are those additional reserves which analysis of geoscience and engineering data indicate are less likely to be recoverable than Probable Reserves.3P P90 refers to the quantity for which it is estimated there is at least a 90% probability the actual quantity recovered will equal or exceed; P50 refers to the quantity for which it is estimated there is at least a 50% probability the actual quantity recovered will equal or exceed; and P10 refers to the quantity for which it is estimated there is at least a 10% probability the actual quantity recovered will equal or exceed. SCF/BBL standard cubic feet (of gas) per barrel (of oil) TCF Trillion Cubic Feet The reservoir cannot be produced at economic flow rates orTight Gas recover economic volumes of natural gas unless the well isReservoir stimulated by a large hydraulic fracture treatment, a horizontal wellbore, or by using multilateral wellbores Information in this report relating to hydrocarbon reserves or resources hasbeen compiled by Mr Ray Barnes B.Sc. (Hons), the Technical Director of OilexLtd who has over 37 years experience in petroleum geology and is a member ofthe AAPG. Mr Barnes consents to the inclusion of the information in this reportrelating to hydrocarbon reserves and resources in the form and context in whichit appears. Resource estimates contained in this report are in accordance withthe standard definitions set out by the Society of Petroleum Engineers,Petroleum Resources Management System, 2007.
PERMIT SCHEDULE
AS AT 30 JUNE 2010
PERMIT BASIN / STATE / JOINT VENTURE EQUITY OPERATOR
COUNTRY PARTIES % Cambay Cambay / Gujarat Oilex Ltd 30.0 Oilex Ltd Field / India Oilex NL Holdings 15.0 (India) Limited Gujarat State 55.0 Petroleum Corp. Ltd Bhandut Cambay / Gujarat Oilex NL Holdings 40.0 Oilex NL Field / India (India) Limited Holdings (India) Limited Gujarat State 60.0 Petroleum Corp Ltd Oilex NL Holdings 40.0 Sabarmati Cambay / Gujarat (India) Limited Oilex NL Field / India Holdings (India) Gujarat State 60.0 Limited Petroleum Corp. Ltd Block 56 South Oman / Oman Oilex Oman Limited 25.0 GAIL (India) Limited 25.0 Videocon Oman 56 25.0 Limited Oilex Oman Limited Bharat PetroResources 12.5 Limited Hindustan Petroleum 12.5 Corp. Ltd West Central Sumatra / Kampar Sumatra/ Oilex (West Kampar) 67.5 (1)PT Sumatera Block Indonesia Limited Persada Energi PT Sumatera Persada 32.5 Energi JPDA Flamingo / Joint Oilex (JPDA 06-103) 10.0 06-103 Petroleum Ltd Development Area/ Japan Energy E&P 15.0 Oilex (JPDA Timor-Leste & JPDA Pty Ltd 06-103) Ltd Australia GSPC (JPDA) Limited 20.0 Videocon JPDA 06-103 20.0 Limited Bharat PetroResources JPDA 20.0 Ltd Pan Pacific 15.0 Petroleum (JPDA 06-103) Pty Ltd WA-388-P Carnarvon / WA / Oilex Ltd 14.0 Oilex Ltd Australia Gujarat State 14.0 Petroleum Corp Ltd Videocon Industries 14.0 Ltd Bharat 14.0 PetroResources Ltd Hindustan Petroleum 14.0 Corp. Ltd Sasol Petroleum 30.0 Australia Ltd
(1) Oilex (West Kampar) Limited is entitled to have assigned an additional 22.5% to its 45% holding, through exercise of its rights under a Power of Attorney granted by SPE, following the failure of SPE to repay funds due. The assignment has been provided to BPMIGAS but has not yet been approved or rejected, If Oilex is paid the funds due then it will not pursue this assignment.
CORPORATE GOVERNANCE STATEMENT
STATEMENT
Oilex Ltd ("Company") values corporate governance and is committed to implementing and updating systems of control and accountability to administer corporate governance.
Commensurate with the spirit of the ASX Corporate Governance Council'sCorporate Governance Principles and Recommendations ("Principles &Recommendations"), the Company has followed each corporate governancerecommendation where the Board has considered the recommendation to be anappropriate benchmark for its corporate governance practices. Where theCompany's corporate governance practices follow a recommendation, the Board hasmade appropriate statements reporting on the adoption of the recommendation. Where, after due consideration, the Company's corporate governance practicesdepart from a recommendation, the Board has disclosed the reasons for theadoption of its own practices, in compliance with the "if not, why not"reporting regime.
DISCLOSURE OF CORPORATE GOVERNANCE PRACTICES
Summary Statement ASX P & If not, why ASX P & If not, why R(1) not(2) R(1) not(2) Recommendation Y Recommendation Y 1.1 4.3 Recommendation Y Recommendation n/a n/a1.2 4.4³ Recommendation n/a n/a Recommendation Y 1.3³ 5.1 Recommendation Y Recommendation n/a n/a2.1 5.2³ Recommendation Y Recommendation Y 2.2 6.1 Recommendation Y Recommendation n/a n/a2.3 6.2³ Recommendation Y Recommendation Y 2.4 7.1 Recommendation Y Recommendation Y 2.5 7.2 Recommendation n/a n/a Recommendation Y 2.6³ 7.3 Recommendation Y Recommendation n/a n/a3.1 7.4³ Recommendation Y Recommendation Y3.2 8.1 Recommendation n/a n/a Recommendation Y 3.3³ 8.2 Recommendation Y Recommendation n/a n/a4.1 8.3³ Recommendation Y 4.2 1 Indicates where the Company has followed the Principles & Recommendations.
2 Indicates where the Company has provided "if not, why not" disclosure.
3 Indicates an information based recommendation. Information based
recommendations are not adopted or reported against using "if not, why not"
disclosure - information required is either provided or it is not.
WEBSITE DISCLOSURES
Further information about the Company's charters, policies and procedures maybe found at the Company's website at www.oilex.com.au under the section markedCorporate Governance. A list of the charters, policies and procedures whichare referred to in this Corporate Governance Statement, together with therecommendations to which they relate, are set out below.Charters Recommendation (s) Board 1.3 Audit Committee 4.4 Nomination Committee 2.6 Remuneration Committee 8.3 Policies and Procedures
Policy and Procedure for Selection and (Re)Appointment of
2.6Directors
Process for Performance Evaluation 1.2,
2.5
Policy on Assessing the Independence of Directors
2.6 Securities Dealing Policy 3.2, 3.3 Code of Conduct 3.1, 3.3
Continuous Disclosure Policy and Continuous Disclosure 5.1,
5.2
Compliance Procedures (summary) Procedure for Selection, Appointment and Rotation of External
4.4Auditor
Shareholder Communication Policy 6.1,
6.2
Risk Management Policy (summary) 7.1,
7.4
DISCLOSURE - PRINCIPLES & RECOMMENDATIONS
The Company reports below on how it has followed or departed from each of thePrinciples & Recommendations during the 2009/2010 financial year ("ReportingPeriod").
PRINCIPLE 1 - LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT
RECOMMENDATION 1.1:
Companies should establish the functions reserved to the Board and those delegated to senior executives and disclose those functions.
DISCLOSURE:
The Company has established the functions reserved to the Board and has set outthose functions in its Board Charter. The Board is collectively responsible forpromoting the success of the Company through its key functions of overseeingthe management of the Company, providing overall corporate governance of theCompany, monitoring the financial performance of the Company, engagingappropriate management commensurate with the Company's structure andobjectives, involvement in the development of corporate strategy andperformance objectives and reviewing, ratifying and monitoring systems of riskmanagement and internal control, codes of conduct and legal compliance.The Company has established the functions delegated to senior executives andhas set out these functions in its Board Charter. Senior executives areresponsible for supporting the Managing Director and assisting the ManagingDirector in implementing the running of the general operations and financialbusiness of the Company, in accordance with the delegated authority of theBoard.Senior executives are responsible for reporting all matters which fall withinthe Company's materiality thresholds at first instance to the Managing Directoror, if the matter concerns the Managing Director, then directly to the Chair orthe lead independent director, as appropriate.
RECOMMENDATION 1.2:
Companies should disclose the process for evaluating the performance of senior executives.
DISCLOSURE:The Managing Director is responsible for evaluating the performance of seniorexecutives. The performance evaluation of senior executives comprises informaldiscussions on group and individual performance. Evaluations are held as partof strategy and business review coupled with the annual remuneration review.
RECOMMENDATION 1.3:
Companies should provide the information indicated in the Guide to reporting on Principle 1
DISCLOSURE:
During the Reporting Period an evaluation of senior executives took place in accordance with the process disclosed at Recommendation 1.2.
PRINCIPLE 2 - STRUCTURE THE BOARD TO ADD VALUE
RECOMMENDATION 2.1:
A majority of the Board should be independent directors.
NOTIFICATION OF DEPARTURE:
The Board does not have a majority of independent directors. The independent directors of the Board are Laxmi Bhandari and Ron Miller.
The non independent directors of the Board are the Chairman: Max Cozijn and the executive directors: Bruce McCarthy, Ray Barnes and Ben Clube.
The Chairman, Mr Cozijn was not an independent director in the Reporting Period due to having performed the role of Company Secretary within the last three years. Mr Cozijn has not been Company Secretary since 1 May 2009.
EXPLANATION FOR DEPARTURE:
The Board considers that its current composition is an appropriate blend of skills and expertise, relevant to the Company's business. The Board is aware of the importance of independent judgement and considers independence, amongst other things, when new appointments to the Board are made.
RECOMMENDATION 2.2:
The Chair should be an independent director.
NOTIFICATION OF DEPARTURE:
The Chair, Mr Cozijn, is not an independent director.
EXPLANATION OF DEPARTURE:
The Board considers that Mr Cozijn is the most appropriate person for theposition of Chair because of his industry experience. The Board is of the viewthat it is only Mr Cozijn's prior role as Company Secretary that precludes himfrom being considered independent, and that his former role as CompanySecretary is unlikely to cause a conflict of interest or impede his ability toexercise independent judgement. Mr Cozijn ceased as Company Secretary on 1
May2009.RECOMMENDATION 2.3:
The roles of the Chair and Chief Executive Officer should not be exercised by the same individual.
DISCLOSURE:
The Managing Director is Bruce McCarthy who is not Chair of the Board.
RECOMMENDATION 2.4:
The Board should establish a Nomination Committee.
NOTIFICATION OF DEPARTURE:
The Company has not established a separate Nomination Committee.
EXPLANATION FOR DEPARTURE:
The full Board considers those matters and issues that would usually fall to aNomination Committee. Given the size and composition of the Board, the Boarddoes not consider that any efficiencies or other benefits would be gained byestablishing a separate Nomination Committee. When the Board convenes as theNomination Committee it carries out those functions which are delegated in theCompany's Nomination Committee Charter and minutes of the Nomination Committeeare separately recorded. The Board deals with any conflicts of interest thatmay occur when convening in the capacity of Nomination Committee by ensuringany director with conflicting interests is not party to the relevantdiscussions.
RECOMMENDATION 2.5:
Companies should disclose the process for evaluating the performance of the Board, its committees and individual directors.
DISCLOSURE:
The Chair is responsible for evaluation of the Board and, when deemed appropriate, Board committees and individual directors. The Nomination Committee is responsible for evaluating the Managing Director. The evaluation of the Board, any applicable committees and individual directors comprises informal reviews by the Chair with the Managing Director.
RECOMMENDATION 2.6:
Companies should provide the information indicated in the Guide to reporting on Principle 2.
DISCLOSURE:
Skills, Experience, Expertise and term of office of each Director
A profile of each director containing their skills, experience, expertise and term of office is set out in the Directors' Report.
Identification of Independent Directors
The independent directors of the Board are Laxmi Bhandari and Ron Miller. Thesedirectors are independent as they are non-executive directors who are notmembers of management and who are free of any business or other relationshipthat could materially interfere with, or could reasonably be perceived tomaterially interfere with, the independent exercise of their judgment.Independence is measured having regard to the relationships listed in Box 2.1of the Principles & Recommendations and the Company's materiality thresholds. The materiality thresholds are set out below. In the interests of disclosure,during the Reporting Period Mr Miller provided engineering consultancy servicesto the Company on arm's length terms and the compensation for those serviceswas not material to either party. Mr Miller also directly and indirectly holdsshares in the Company however that shareholding is not substantial as definedin the Principles & Recommendations.
Company's Materiality Thresholds
The Board has agreed on the following guidelines for assessing the materiality of matters, as set out in the Company's Board Charter:
- Balance sheet items are material if they have a value of more than 10% of
pro-forma net asset.
- Profit and loss items are material if they will have an impact on the current
year operating result of 10% or more.
- Items are also material if they impact on the reputation of the Company,
involve a breach of legislation, are outside the ordinary course of
business, they could affect the Company's rights to its assets, if
accumulated they would trigger the quantitative tests, involve a contingent
liability that would have a probable effect of 10% or more on balance sheet
or profit and loss items, or they will have an effect on operations which
is likely to result in an increase or decrease in net income or dividend
distribution of more than 10%.
Contracts will be considered material if they are outside the ordinary courseof business, contain exceptionally onerous provisions in the opinion of theBoard, impact on income or distribution in excess of the quantitative tests,there is a likelihood that either party will default and the default maytrigger any of the quantitative or qualitative tests, are essential to theactivities of the Company and cannot be replaced or cannot be replaced withoutan increase in cost of a quantum which triggers any of the quantitative tests,contain or trigger change of control provisions, they are between or for thebenefit of related parties, or otherwise trigger the quantitative tests.
Statement concerning availability of Independent Professional Advice
To assist directors with independent judgement, it is the Board's policy thatif a director considers it necessary to obtain independent professional adviceto properly discharge the responsibility of their office as a director then,provided the director first obtains approval for incurring such expense fromthe Chair, the Company will pay the reasonable expenses associated withobtaining such advice.
Nomination Committee Matters
The full Board, in its capacity as the Nomination Committee held one meetingduring the Reporting Period. The full Board (which comprises Max Cozijn, BruceMcCarthy, Ray Barnes, Laxmi Bhandari, Ron Miller and Ben Clube) was inattendance at the meeting. Please refer to the table in the Directors' Reportfor attendance details in summary form.
To assist the Board to fulfil its function as the Nomination Committee, it has adopted a Nomination Committee Charter.
The explanation for departure set out under Recommendation 2.4 above explains how the functions of the Nomination Committee are performed.
Performance Evaluation
During the Reporting Period an evaluation of the Board, its committees, and individual directors took place in accordance with the process disclosed at Recommendation 2.5. In addition, during the Reporting Period, the Chairman reviewed questionnaires completed by the directors relating to Board performance and other matters and the Remuneration Committee reviewed the performance of individual directors as part of the annual salary review.
Selection and (Re)Appointment of Directors
In determining candidates for the Board, the Nomination Committee (orequivalent) follows a process whereby it considers the balance of independentdirectors on the Board as well as the skills and qualifications of potentialcandidates that will best enhance the Board's effectiveness.The Board recognises that Board renewal is critical to performance and theimpact of Board tenure on succession planning. The longest serving one third ofdirectors plus any other director holding office for more than three yearssince his last election must retire each year. This does not apply to theManaging Director. A director who retires at an annual general meeting iseligible for re-election at that meeting. Re-appointment of directors is notautomatic.
PRINCIPLE 3 - PROMOTE ETHICAL AND RESPONSIBLE DECISION-MAKING
RECOMMENDATION 3.1:
Companies should establish a Code of Conduct and disclose the code or a summaryof the code as to the practices necessary to maintain confidence in thecompany's integrity, the practices necessary to take into account their legalobligations and the reasonable expectations of their stakeholders and theresponsibility and accountability of individuals for reporting andinvestigating reports of unethical practices.
DISCLOSURE:
The Company has established a Code of Conduct as to the practices necessary tomaintain confidence in the Company's integrity, practices necessary to takeinto account their legal obligations and the expectations of their stakeholdersand responsibility and accountability of individuals for reporting andinvestigating reports of unethical practices.
RECOMMENDATION 3.2:
Companies should establish a policy concerning trading in company securities by directors, senior executives and employees, and disclose the policy or a summary of that policy.
DISCLOSURE:
The Company has established a policy concerning trading in the Company's securities by directors, senior executives and employees and the policy is available on the Company's website.
RECOMMENDATION 3.3:
Companies should provide the information indicated in the Guide to reporting on Principle 3.
DISCLOSURE:
Please refer to the section above marked Website Disclosures.
PRINCIPLE 4 - SAFEGUARD INTEGRITY IN FINANCIAL REPORTING
RECOMMENDATION 4.1:
The Board should establish an Audit Committee.
DISCLOSURE:
The Company has established an Audit Committee.
RECOMMENDATION 4.2:
The Audit Committee should be structured so that it:
- consists only of non-executive directors- consists of a majority of independent directors- is chaired by an independent Chair, who is not Chair of the Board- has at least three members.
DISCLOSURE:
The Audit Committee comprises three directors: Ron Miller (Chair), Max Cozijn and Laxmi Bhandari.
The directors on the Audit Committee are all non-executive directors. Mr Miller and Mr Bhandari are independent directors. Mr Cozijn is not an independent director.
RECOMMENDATION 4.3:
The Audit Committee should have a formal charter.
DISCLOSURE:
The Company has adopted an Audit Committee Charter.
RECOMMENDATION 4.4:
Companies should provide the information indicated in the Guide to reporting on Principle 4.
DISCLOSURE:
The Audit Committee held two meetings during the Reporting Period. Mr Miller and Mr Cozijn attended both meetings. Mr Bhandari attended one meeting. Please refer to the table in the Directors' Report for Committee attendance details in summary form.
Details of each of the director's qualifications are set out in the Directors' Report.
Mr Cozijn has a Bachelor of Commerce and is an Associate of CPA Australia. He has over 30 years experience in the administration of listed resource companies.
The Company has established procedures for the selection, appointment androtation of its external auditor. The Board is responsible for the initialappointment of the external auditor and the appointment of a new externalauditor when any vacancy arises, as recommended by the Audit Committee.Candidates for the position of external auditor must demonstrate completeindependence from the Company through the engagement period. The Board mayotherwise select an external auditor based on criteria relevant to theCompany's business and circumstances. The performance of the external auditoris reviewed on an annual basis by the Audit Committee and any recommendationsare made to the Board.
PRINCIPLE 5 - MAKE TIMELY AND BALANCED DISCLOSURE
RECOMMENDATION 5.1:
Companies should establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies.
DISCLOSURE:
The Company has established written policies and procedures designed to ensure compliance with ASX Listing Rule disclosure and accountability at a senior executive level for that compliance. The policy and a summary of the procedures are available on the Company's website.
RECOMMENDATION 5.2:
Companies should provide the information indicated in the Guide to reporting on Principle 5.
DISCLOSURE:
Please refer to the section above marked Website Disclosures.
PRINCIPLE 6 - RESPECT THE RIGHTS OF SHAREHOLDERS
RECOMMENDATION 6.1:
Companies should design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose their policy or a summary of that policy.
DISCLOSURE:
The Company has designed a communications policy for promoting effective communication with shareholders and encouraging shareholder participation at general meetings. A copy of the policy is available on the Company's website.
RECOMMENDATION 6.2:
Companies should provide the information indicated in the Guide to reporting on Principle 6.
DISCLOSURE:
Please refer to the section above marked Website Disclosures.
PRINCIPLE 7 - RECOGNISE AND MANAGE RISK
RECOMMENDATION 7.1:
Companies should establish policies for the oversight and management of material business risks and disclose a summary of those policies.
DISCLOSURE:
The Board has adopted a Risk Management Policy, which sets out the Company'srisk profile. Under the policy, the Board is responsible for approving theCompany's policies on risk oversight and management and satisfying itself thatmanagement has developed and implemented a sound system of risk management andinternal control.Under the policy, the Board delegates day-to-day management of risk to theManaging Director, who is responsible for identifying, assessing, monitoringand managing risks. The Managing Director is also responsible for updating theCompany's material business risks to reflect any material changes, with theapproval of the Board.
In fulfilling the duties of risk management, the Managing Director may have unrestricted access to Company employees, contractors and records and may obtain independent expert advice on any matter considered appropriate, with the prior approval of the Board.
The Board has established a separate Audit Committee to monitor and review theintegrity of financial reporting and the Company's internal financial controlsystems and risk management systems.
In addition, the following risk management measures have been adopted by the Board to manage the Company's material business risks:
* the Board has established authority limits for management which require
prior Board approval to be exceeded;
* the Board has adopted a compliance procedure for the purpose of ensuring
compliance with the Company's continuous disclosure obligations; and
* the Board has adopted a corporate governance manual which contains other
policies to assist the Company to establish and maintain its governance
practices.
The Company's risk management system includes the preparation of a riskregister by management to identify the Company's material business risks andrisk management strategies for these risks. In addition, the process ofmanagement of material business risks is allocated to members of seniormanagement. The risk register is periodically reviewed by management and theBoard and updated as required.
The categories of risk to be reported on or referred to as part of the Company's systems and processes for managing material business risk include exploration, appraisal, reserves, development, production, financial, commercial, sovereign, legal / regulatory, operations including weather, environmental, health and safety, retention of personnel, security and information systems.
RECOMMENDATION 7.2:
The Board should require management to design and implement the risk managementand internal control system to manage the Company's material business risks andreport to it on whether those risks are being managed effectively. The Boardshould disclose that management has reported to it as to the effectiveness ofthe Company's management of its material business risks.
DISCLOSURE:
The Board has required management to design and implement risk management andinternal control systems to manage the Company's material business risks. TheBoard also requires management to report to it confirming that those risks arebeing managed effectively. Further, the Board has received a report from theManaging Director and Finance Director as to the effectiveness of the Company'smanagement of its material business risks.
RECOMMENDATION 7.3:
The Board should disclose whether it has received assurance from the ChiefExecutive Officer (or equivalent) and the Chief Financial Officer (orequivalent) that the declaration provided in accordance with section 295A ofthe Corporations Act is founded on a sound system of risk management andinternal control and that the system is operating effectively in all materialrespects in relation to financial reporting risks.
DISCLOSURE:
The Managing Director and the Finance Director have provided a declaration tothe Board in accordance with section 295A of the Corporations Act and haveassured the Board that such declaration is founded on a sound system of riskmanagement and internal control and that the system is operating effectively inall material respects in relation to financial risk.
RECOMMENDATION 7.4:
Companies should provide the information indicated in the Guide to reporting on Principle 7.
DISCLOSURE:
The Board has received the report from the Managing Director and the Finance Director under Recommendation 7.2.
The Board has received the assurance from the Managing Director and the Finance Director under Recommendation 7.3.
PRINCIPLE 8 - REMUNERATE FAIRLY AND RESPONSIBLY
RECOMMENDATION 8.1:
The Board should establish a Remuneration Committee.
Notification of Departure:
The Company had not established a separate Remuneration Committee until 12 February 2010.
Explanation for Departure:
The Board believed that there would be no efficiencies gained by establishing aseparate Remuneration Committee. Accordingly, the full Board performed therole of Remuneration Committee. Items that were usually required to bediscussed by a Remuneration Committee were discussed by the full Board in itscapacity as the Remuneration Committee and separate minutes of meeting werekept. When the Board convened as the Remuneration Committee it carried outthose functions which are delegated in the Company's Remuneration CommitteeCharter. The Board dealt with any conflicts of interest when convening in thecapacity of Remuneration Committee by ensuring that any director with aconflict of interest was not party to the relevant discussions. However,during the reporting Period the Board reconsidered forming a separateRemuneration Committee in light of the additional two Board appointments thathad been made in July 2009 and established a separate Remuneration Committee on12 February 2010.RECOMMENDATION 8.2:
Companies should clearly distinguish the structure of non-executive directors' remuneration from that of executive directors and senior executives.
DISCLOSURE:
Non-executive directors are remunerated at a market rates (for comparablecompanies) for time, commitment and responsibilities. Remuneration fornon-executive directors is not linked to the performance of the Company. Giventhe stage of development of the Company and the financial constraintsapplicable to it, the Company may consider it appropriate as an additionalincentive or reward, to issue unquoted options to non-executive directors,subject to obtaining the relevant Board and shareholder approvals. This policyis subject to annual review. Pay and rewards for executive directors and senior executives consists of abase salary and performance incentives. Long term performance incentives mayinclude options granted at the discretion of the Board and subject to obtainingthe relevant approvals.
RECOMMENDATION 8.3:
Companies should provide the information indicated in the Guide to reporting on Principle 8.
DISCLOSURE:Details of remuneration, including the Company's policy on remuneration, arecontained in the "Remuneration Report" which forms of part of the Directors'Report.The full Board, in its capacity as the Remuneration Committee, held one meetingduring the Reporting Period. All directors attended this meeting except RayBarnes.
The Remuneration Committee held two additional meetings during the Reporting Period. Mr Miller and Mr Clube attended both those meetings. Mr Cozijn attended one of those two meetings.
Please refer to the table in the Directors' Report for Committee attendance details in summary form.
There are no termination or retirement benefits for non-executive directors (other than for superannuation).
To assist the Board to fulfil its function as the Remuneration Committee, ithas adopted a Remuneration Committee Charter. The Company's RemunerationCommittee Charter includes a statement of the Company's policy on prohibitingtransactions in associated products which limit the risk of participating inunvested entitlements under any equity based remuneration schemes. 2010 FINANCIAL REPORTCONTENTS Directors'
Report...........................................30
Remuneration
Report...........................................37
Auditor's Independence Declaration.................................................46Consolidated Statement of ComprehensiveIncome...........................................47Consolidated Statement of FinancialPosition.........................................48Consolidated Statement of Changes inEquity...........................................49Consolidated Statement of CashFlows............................................50Notes to the Consolidated FinancialStatements.......................................51
Directors'
Declaration......................................83
Independent AuditReport...........................................84
Shareholder
Information......................................86
The Directors present their report together with the financial report of the consolidated entity, being Oilex Ltd (the "Company") and its controlled entities (the "Group") for the financial year ended 30 June 2010 and the Auditors' report thereon.
DIRECTORS
The names and details of the directors of the Company in office during the financial year and until the date of this report are detailed below. Directors were in office for this entire period unless otherwise stated.
Mr Max Dirk Jan Cozijn(Non-Executive Chairman)BCom ASA MAICDAge: 60Chairman since the Company listed on the Australian Securities Exchange ("ASX")in 2003, Mr Cozijn has over 31 years experience in the administration of listedmining and industrial companies. He is a Non-Executive Director of CarbonEnergy Limited and Energia Minerals Limited, Executive Director of Magma MetalsLimited and Chairman of Malagasy Minerals Limited and is a Director of variousprivate companies.
During the last three years Mr Cozijn has been a director of the following listed companies:
* Carbon Energy Limited (from September 1992 to current)
* Magma Metals Limited (from June 2005 to current)
* Malagasy Minerals Limited (from September 2006 to current)
* Energia Minerals Limited (listed on ASX 24 December 2009) (from 13 May 1997
to current)
* Elkedra Diamonds NL (from April 2000 to November 2007)
Dr Bruce Henry McCarthy(Managing Director)BSc (Hons) PhD GeologyAge: 60
Appointed Managing Director in February 2005, Dr McCarthy has over 31 years experience in the oil and gas exploration and production industry in geotechnical and management positions. Further details of Dr McCarthy's qualifications and experience can be found in the Executive Management section of the Directors' Report.
During the last three years Dr McCarthy has not been a director of any otherlisted companies.Mr Raymond George Barnes(Technical Director)BSc (Hons) GeologyAge: 59
Appointed as a Director in September 2005, Mr Barnes has over 38 years experience in the oil and gas exploration and production industry. Further details of Mr Barnes' qualifications and experience can be found in the Executive Management section of the Directors' Report.
During the last three years Mr Barnes has not been a director of any other listed companies.
Mr Ben Clube(Finance Director)BSc (Hons) Geology ACAAge: 44Appointed as a Director in July 2009, Mr Clube has over 16 years experience inthe oil and gas exploration and production industry. Further details of MrClube's qualifications and experience can be found in the Executive Managementsection of the Directors' Report.
During the last three years Mr Clube has not been a director of any other listed companies.
Mr Laxmi Lal Bhandari(Non-Executive Director)
BSc Geology and MSc Geology
Age: 75
Mr Bhandari was appointed as a director in November 2006 and is based in NewDelhi, India. He worked with Oil and Natural Gas Corporation Ltd ("ONGC"), thelargest public sector corporation in the oil and gas sector in India as aGeologist and in management roles, on many significant projects over 39 yearsincluding the discovery and development of the Bombay High offshore fields. MrBhandari held high level positions including Chairman and Managing Director ofONGC Videsh, the international exploration arm of ONGC, and Chairman of ONGC.On leaving ONGC, Mr Bhandari became President of Tata Petrodyne, the oil andgas subsidiary of Tata Industries, a very large Indian industrial corporation.In 2003 he took up the position of Managing Director of India Hydrocarbons Ltdand continued until June 2006.
During the last three years Mr Bhandari has not been a director of any other listed companies.
Mr Ronald Miller(Non-Executive Director)
MSc Engineering and BSc Ocean Engineering
Age: 58
Mr Miller was appointed as a director in July 2009. A chartered engineer, MrMiller brings more than 31 years of experience in the international petroleumindustry including corporate governance, extensive background in leadingmulti-disciplinary upstream organisations and project developments, includingthe design and construction of oil and gas projects. During his career to date,Mr Miller has held a range of senior positions including with Mobil, Ampolex,Clough and Hyundai Heavy Industries.
During the last three years Mr Miller has been a director of the following listed company:
* Neon Energy Limited (formerly Salinas Energy Limited) (from March 2006 to
current) DIRECTORS' MEETINGS
Directors in office, committee membership and directors' attendance at meetings during the 2009/2010 financial year.
Board Audit Committee Remuneration Nomination Meetings Meetings Committee Meetings Committee Meetings Held(1)Attended Held(1) Attended Held(1) (3) Attended Held(1) Attended M D J 8 8 2 2 3 2 1 1 Cozijn B H 8 8 - - 1 1 1 1 McCarthy R G 8 7 - - 1 - 1 1 Barnes B Clube 8 8 - 2(2) 3 3 1 1 L L 8 7 2 1 1 1 1 1 Bhandari R L 8 8 2 2 3 3 1 1 Miller
(1) Held = Number of meetings available for attendance by the Director during the time the Director held office during the year.
(2) By invitation.
(3) Please refer to the Corporate Governance Report for details of the change to the composition of the Remuneration Committee during the financial year.
EXECUTIVE MANAGEMENTDr Bruce Henry McCarthy(Managing Director)BSc (Hons) PhD GeologyAge: 60
Dr McCarthy has onshore and offshore experience gained in UK, Australia andIndia working for independent and large multinational companies. He has workedas an independent consultant and for Cairn Energy PLC (UK) responsible for theoperating subsidiary in India until 2002 when he returned to Australia. From1996 to 2000, Dr McCarthy was based in India with Command Petroleum India Ltd("Command") and with Cairn Energy India Pty Ltd ("Cairn") after Command mergedwith Cairn in 1997. Until 1995, he spent 14 years with Marathon Oil Corporationworking in the North Sea and based in the United Kingdom, working on the NorthWest Shelf of Western Australia and in the Timor Sea based out of Perth,Western Australia.Mr Raymond George Barnes(Technical Director)BSc (Hons) GeologyAge: 59Mr Barnes has worked in Europe, North and South America, South East Asia, theMiddle East and Australia with an outstanding record of finding and developingcommercial oil and gas discoveries in Australia and internationally. Recentappointments include Technical Director of Voyager Energy Limited from 2001until 2005 and Exploration Manager of Apache Energy based in Perth during avery aggressive exploration and development phase in the offshore CarnarvonBasin when over 40 discoveries were made. Prior to 1997, Mr Barnes held seniormanagement positions for Ampolex based in Denver, Colorado where he wasresponsible for the United States and South American operations following aperiod in Perth, Western Australia where he was responsible for North WestShelf and Timor Sea operations.Mr Ben Clube(Finance Director)BSc (Hons) Geology ACAAge: 44Mr Clube joined Oilex in May 2008 and brings a depth of commercialinternational oil and gas expertise to the Oilex group, having spent the past15 years at BHP Billiton Petroleum in a variety of senior management roles,including Vice President of Finance and Planning in Houston, London and Perth.A Chartered Accountant, he holds a Bachelor of Science with Honours in Geologyfrom the University of Edinburgh and previously worked as Audit Manager atPricewaterhouseCoopers in London.
Mr Paul Senycia
(Exploration Manager - Until April 2010)
MAppSc Geophysics
Age: 52
Mr Senycia was formerly Head of Evaluation at Woodside Energy Ltd responsiblefor worldwide exploration and new ventures, and was seconded from Woodside toPetroleum Development Oman (PDO) from 1997 to 2000. Mr Senycia has more than 25years of exploration experience in Australasia, North & West Africa, NorthAmerica and Europe. Mr Senycia left Oilex in April 2010.
Mr Kim Morrison
(Business Development Manager - Until June 2010)
BSc (Hons) Geology and Geophysics
Age: 47
Mr Morrison joined Oilex in May 2008 as Business Development Manager withresponsibility for growing Oilex's portfolio of assets in the countries aroundthe Indian Ocean rim. He has more than 23 years of wide ranging experience inSoutheast and South Asia, North Africa, North America and Australasia invarious senior explorationist roles with Woodside Energy Ltd, ShellInternational and Marathon Oil Company. Mr Morrison left Oilex in June 2010.
Mr Jay Laurie
(General Counsel & Company Secretary)
BA LLB (Hons)
Age: 39
Mr Laurie has over 16 years experience in private practice and in-house legalroles. Following a number of years with a large commercial law firm, he hasheld in-house counsel roles in the Australian and international resourcessector over the last 10 years. Mr Laurie was Senior Counsel at Woodside EnergyLtd before joining Oilex in 2007 as General Counsel. Mr Laurie was appointed asCompany Secretary on 1 May 2009.
Mr John Lamberto
(Exploration Manager - Appointed April 2010)
B AppSc Grad Dip AppSc (Geophysics)
Age: 50
Mr Lamberto joined Oilex in 2007 as Chief Geophysicist. He has over 25 years ofexperience in Australian and International oil and gas exploration activities.He has held various senior roles with Lasmo Energy plc, Ampolex Ltd, MobilExploration, OMV AG (Middle East) and BHP Billiton, as well as having worked asan independent consultant. Mr Lamberto was appointed Exploration Manager forOilex in April 2010.PRINCIPAL ACTIVITIES
The principal activities of the consolidated entity during the course of the financial year included:
* Exploration for oil and gas;
* Production and sale of oil.
* Appraisal and development of oil and gas properties; and
There were no significant changes in the nature of these activities during the year.
OPERATING RESULTS
The loss after income tax of the consolidated entity for the year ended 30 June 2010 amounted to $10,698,140 (2009: loss of $49,798,971).
DIVIDENDS
No dividend was paid or declared during the year and the Directors do not recommend the payment of a dividend.
REVIEW OF OPERATIONS
A review of the operations of the Group during the financial year and the results of those operations are set out on pages 2 to 17 of this report.
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
In August 2009 Oilex entered into an agreement to farmout part of its interestin the offshore block JPDA 06-103 in the Timor Sea to Japan Energy E&P JPDA PtyLtd (Japan Energy). Under the terms of the farmout agreement, Japan Energy, awholly owned subsidiary of Japan Energy Corporation, acquired a 15%participating interest in the JPDA 06-103 Production Sharing Contract (PSC)from Oilex. The consideration payable by Japan Energy under the FarmoutAgreement included both a refund of part of past costs and costs for the firsttwo commitment wells up to an agreed cap.
Shareholders of the Company, at a General Meeting held on 16 November 2009 approved the resolutions to raise $10.12 million through the issue of 44 million ordinary shares at an issue price of $0.23 per share.
In June 2010 the Joint Venture covering onshore Block 56 in Oman (Oilex 25%interest and operator) gave notice of its intention to relinquish the entireBlock 56 Contract Area following discussions with the Oman Ministry of Oil andGas (MOG). The decision to relinquish Block 56, which has been made inaccordance with the Exploration and Production Sharing Agreement (EPSA),follows a detailed review of the prospectivity of the Block followingexploration activities conducted over the past four years. On behalf of theBlock 56 Joint Venture, Oilex Oman Limited (as Operator) will proceed to closedown Joint Venture activities to the mutual satisfaction of the MOG and theJoint Venture at the earliest reasonable date.
There have been no other significant changes in the state of affairs of the Group that occurred during the financial period not otherwise disclosed in this report or the financial statements.
SIGNIFICANT EVENTS AFTER BALANCE DATE
In August 2010, Oilex Ltd's application to the Government of WesternAustralia's Department of Mines and Petroleum, on behalf of the WA-388-P JointVenture, to vary the secondary term of the work program, was approved. Underthe terms of the variation, the work commitment in relation to permit year 5,commencing 28 August 2010, requires the reprocessing of 450km2 3D seismic whichis estimated to cost $450,000. The decision to enter permit year 6 of thesecondary work program will be determined prior to its commencement.
LIKELY DEVELOPMENTS
Other than the matters referred to elsewhere in this report, further disclosureas to likely developments in the operations of the Group and expected resultsof those operations would, in the opinion of the Board, be speculative and notin the best interests of the Group.
FINANCIAL POSITION
Capital Structure and Treasury Policy
At the date of this report, the Company had a total issued capital of 220,074,885 ordinary shares, 21,300,000 unlisted options exercisable at prices between $0.30 and $2.75 per share and 440,000 performance rights.
Cash management is reviewed on a regular basis by the Group's Finance Director and reported to the Board on a monthly basis to ensure the Group is able to meet its financial obligations as and when they fall due. Until sufficient operating cash flows are generated from its operations, the Group remains reliant on equity or debt funding to fund its expenditure commitments.
Liquidity and Funding
As at 30 June 2010 the Group had no borrowings or undrawn financing facilities.The Company continues to actively develop funding options in order that it canmeet its expenditure commitments (see Note 27) and its planned futurediscretionary expenditure.
ENVIRONMENTAL ISSUES
The Group's oil and gas exploration and production activities are subject toenvironmental regulation under the legislation of the respective states andcountries in which they operate. The majority of the Group's activities involvelow level disturbance associated with its exploration drilling programs. TheBoard actively monitors compliance with these regulations and as at the date ofthis report is not aware of any material breaches in respect of theseregulations.
DIRECTORS' INTERESTS
The relevant interest of each director in shares and options issued by the Company, as notified by the Directors to the ASX in accordance with S205G(1) of the Corporations Act 2001, at the date of this report is as follows.
Number of Ordinary Shares Number of Options Over Ordinary Shares Direct Indirect Direct Indirect M D J - 1,500,000 - 500,000 Cozijn L L - - - 300,000 Bhandari B H - 1,150,000 - 4,000,000 McCarthy R G 198,871 600,000 3,000,000 - Barnes B J M 52,174 - 3,000,000 - Clube R L - 2,524,436 - 750,000 Miller
SHARE OPTIONS AND PERFORMANCE RIGHTS
Options and Performance Rights Granted to Directors and Executives of the Company
During or since the end of the financial year, the Company granted options forno consideration over unissued ordinary shares in the Company, to the followingDirectors and Executives of the Company as part of their remuneration. Noperformance rights were issued to Directors or Executives.OPTIONS Number of Options Granted Exercise Price Expiry Date Directors B J M Clube 1,500,000 $0.30 1 July 2014 R L Miller 750,000 $0.30 1 July 2014 Executives P G Senycia(1) 1,000,000 $0.30 1 July 2014 J W R Laurie 750,000 $0.30 1 July 2014 J Lamberto 300,000 $0.30 1 July 2014 W K Morrison 300,000 $0.30 1 July 2014
All options were granted during the financial year. No options have been granted since the end of the financial year.
(1) Options forfeited upon resignation
Unissued Shares Under Option and Performance Rights
(1) At the date of this report unissued ordinary shares of the Company under option (with an exercise price) are:
Expiry Date Exercise Number of Expiry Date Exercise Number of Price Shares Price Shares 31 October $2.00 500,000 1 July 2011 $2.00 3,900,000 2010 31 March $2.00 2,500,000 1 July 2011 $2.50 3,900,000 2011 31 March $2.25 300,000 30 September $1.57 500,000 2011 2011 30 April $2.70 350,000 31 March 2012 $2.75 300,000 2011 30 June 2011 $1.75 900,000 30 June 2012 $2.75 900,000 30 June 2011 $2.25 900,000 1 July 2014 $0.30 4,350,000 30 June 2011 $0.30 2,000,000 TOTAL 21,300,000
These options do not entitle the holder to participate in any share issue of the Company or any other body corporate.
(2) At the date of this report unissued ordinary shares of the Company under option which are subject to performance rights are:
Expiry Date Exercise Number of Price Rights 1 July 2011 - 2006 - 15,000 rights 1 July 2012 - 2007 - 360,000 rights 1 July 2013 - 2008 - 65,000 rights 440,000 Vesting of the performance rights is subject to the Company meeting performanceconditions based on the share price growth of the Company compared to thegrowth in the Standard & Poors (S&P) / ASX 200 Energy Sector Index (code XEJ)and at the discretion of the Board of Oilex Ltd.
Performance rights are usually granted in three tranches with each tranche having a grant date, performance measurement date and expiry date. Performance rights will vest only if specified performance conditions are satisfied.
Under the performance condition, the Oilex (OEX) share price growth is compared to the growth of the Standard & Poors (S&P) / ASX 200 Energy Sector Index.
* If the OEX share price growth is equal to or greater than 100% of the Index
growth, the performance rights will vest.
* If, over a three year measurement period, the OEX share price growth is
equal to or greater than 150% of the Index, the outperformance rights will
be granted and vest immediately.
* If the OEX share price growth is equal to or greater than 50% of the Index
growth, 50% of the performance rights will vest.
Shares Issued on Exercise of Options and Employee Performance Rights
During or since the end of the financial year, the Company has not issued any ordinary shares as a result of the exercise of options.
During or since the end of the financial year, the Company issued ordinary shares as a result of the exercise of Employee Performance Rights as follows (there were no amounts unpaid on the shares issued):
Number of Shares Amount Paid on Each Share 20,000 -
INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS
The Group paid a premium in respect of insurance cover for the directors andofficers of the Group. The Group has not included details of the nature of theliabilities covered or the amount of the premium paid in respect of thedirectors' liability and legal expense insurance contracts, as such disclosureis prohibited under the terms of the insurance contract.
PROCEEDINGS ON BEHALF OF THE COMPANY
No person has applied for leave of Court to bring proceedings on behalf of theCompany or intervene in any proceedings to which the Company is a party for thepurpose of taking responsibility on behalf of the Company for all or any partof those proceedings.
The Company was not a party to any such proceedings during the year.
NON-AUDIT SERVICES
The Company may decide to employ the Auditor on assignments additional to theirstatutory audit duties where the Auditor's expertise and experience with theGroup is important. The Board has considered their position and, in accordance with the advicereceived from the Audit Committee, is satisfied that the provision of thenon-audit services is compatible with the general standard of independence forauditors imposed by the Corporations Act 2001. The Directors are satisfied thatthe provision of non-audit services by the Auditor, as set out below, did notcompromise the auditor independence requirements of the Corporations Act 2001for the following reasons:
* all non-audit services have been reviewed by the Audit Committee to ensure they
do not impact the impartiality and objectivity of the Auditor; and
* none of the services undermine the general principles relating to auditor
independence as set out in APES 110 Code of Ethics for Professional Accountants
, including reviewing or auditing the Auditor's own work, acting in a
management or decision-making capacity for the Company, acting as an advocate
for the Company or jointly sharing risks and rewards.
Details of the amounts paid to the auditor of the Company, KPMG Australia, andits related practices for audit and non-audit services provided during the
yearare set out below. Consolidated 2010 2009 $ $ Audit Services Auditors of the Company Audit and review of financial reports (KPMG Australia) 91,375 112,950 Audit of Joint Ventures operated by Oilex Ltd - operator proportion only (KPMG Australia) 6,242 4,929 Audit and review of financial reports (KPMG related practices) 13,667 68,815 111,284 186,694 Other Services Assurance and Other Services KPMG Australia - 6,590 KPMG related practices 8,449 6,591 Taxation Services
Taxation compliance services (KPMG Australia) 23,884 132,370
Taxation compliance services (KPMG related practices) 15,076 12,201 47,409 157,752
REMUNERATION REPORT - AUDITED
1. PRINCIPLES OF COMPENSATION
Remuneration of directors and executives is referred to as compensation as defined in AASB 124.
Compensation levels for key management personnel of the Group are competitivelyset to attract and retain appropriately qualified and experienced directors andexecutives. The Remuneration Committee obtains advice on the appropriateness ofcompensation packages of both the Company and the consolidated Group giventrends in comparative companies both locally and internationally and theobjectives of the Company's compensation strategy.
The compensation structures explained below are designed to attract suitably qualified candidates, reward the achievement of strategic objectives and achieve the broader outcome of creation of value for shareholders. The compensation structures take into account:
* the capability and experience of the key management personnel;
* the ability of key management personnel to control the performance of the
relevant segments;
* the Company's performance including:
* the Group's earnings;
* the growth in share price and delivering constant returns on shareholder
wealth; and
* the structure of each compensation package for key management personnel.
Compensation packages include a mix of fixed compensation and long term performance-based incentives. In specific circumstances the Company may also provide short term cash incentives based upon the achievement of company performance hurdles.
1.1 Fixed Compensation
Fixed compensation consists of base compensation as well as employercontributions to superannuation funds. Compensation levels are reviewedannually by the Remuneration Committee through a process that considersindividual, segment and overall performance of the Group. In addition, reviewsof external data published by oil and gas industry companies provide comparisonfigures to ensure the directors' and senior executives' compensation iscompetitive in the market. Compensation for senior executives is also reviewedon promotion.
1.2 Performance-Linked Compensation
Compensation of employees linked to performance of the Company includes long-term incentives designed to reward key management personnel for growth in shareholder wealth. The long term incentive plan ("LTI") is used to reward performance by granting options over ordinary shares of the Company. The exercise price of the options is set at a premium to the share price at the time they are granted. The change in share price is the key performance criteria for achieving a benefit under the plan as the value that may be generated on exercise of options is dependent upon an increase in the share price above the exercise price of the options.
The Company has established an Employee Performance Rights Plan that entitlesemployees to zero exercise price options. The performance rights are subject toa performance benchmark, based on Oilex's percentage share price growthcompared to the growth in the S&P/ASX 200 Energy Sector Index, which, subjectto the discretion of the Board of Oilex Ltd, must be satisfied before anyperformance rights can be exercised enabling the relevant employee to receiveshares in the Company.
The Employee Performance Rights Plan also governs the unlisted options issued to staff.
Given Oilex is an exploration company that is not yet generating profits or netoperating cash flows and as such has not paid any dividends, it is theperformance of the overall exploration program and ultimately share price thatlargely determines the success of Oilex's management team. The RemunerationCommittee therefore considers that fixed compensation combined with an LTIcomponent is achieving the Company's objectives to the benefit of employees
andshareholders alike.1.3 Non-Executive DirectorsTotal compensation for all Non-Executive Directors is set based on comparisonwith external data with reference to fees paid to non-executive directors ofcomparable companies. Director's fees cover all main board activities. From 1July 2010 Non-Executive Directors' base fees are set at either $34,880 or$43,600 per annum and the base fee plus superannuation for the Chairman remainsunchanged at $87,200.
Payments to Director Related Parties during the financial year are disclosed in Note 29.
2. EMPLOYMENT CONTRACTS
The following table summarises the key terms and conditions of contracts between key executives and the Company:
Executive Position Contract Contract Resignation Unvested Termination Termination
Start Termination Notice Options and Notice Payment Date Date Required Performance Required Rights on from the Resignation Company3 B H Managing 1 May 30 April 180 days Forfeited 180 days For McCarthy Director 2008 2011 termination by1 Company, $500,000 plus GST within 30 days after the date of the notice of termination provided that, if required under the Corporations Act 2001 (Cth), all necessary approvals are obtained. For termination by executive upon a Material Change Event, a payment equivalent to 12 month fee plus 3 months notice will be payable. Subject to the Corporations Act 2001 and any necessary approvals required thereunder. R G Technical 1 July 30 June 180 days Forfeited 180 days For Barnes 2 Director 2008 2011 termination by Company, $500,000 plus GST within 30 days after the date of the notice of termination provided that, if required under the Corporations Act 2001 (Cth), all necessary approvals are obtained. For termination by executive upon a Material Change Event, a payment equivalent to 12 month fee plus 3 months notice will be payable. Subject to the Corporations Act 2001 and any necessary approvals required thereunder. B J M Finance 5 May n/a 3 months Forfeited 3 months For Clube Director 2008 termination by the Company the average annual remuneration calculated over the period of employment (including salary, superannuation and other benefits not excluding STI, LTI's). The above termination payments are also payable if the employee gives notice following a Material Change Event.
P G Exploration 30 9 April n/a Forfeited n/a n/a Senycia Manager October 2010 2006 (to 9 April 2010) W K Business 1 May 30 June n/a Forfeited n/a n/a Morrison Development 2008 2010 Manager (to 30 June 2010) (1) On 1 May 2008 the Company entered into an agreement with Macuale ConsultancyPty Ltd for the provision of Dr McCarthy's services in the position of ManagingDirector of Oilex Ltd.(2) On 1 July 2008 the Company entered into an agreement with Ad Valorem ResourceConsultants Pty Ltd for the provision of Mr Barnes' services in the position ofTechnical Director of Oilex Ltd for a period of three years.(3) The Company may terminate the contract immediately if serious misconduct hasoccurred. In this case the termination payment is only the fixed remunerationearned until the date of termination and any unvested options and performancerights will immediately be forfeited.
EMPLOYMENT CONTRACTS (CONTINUED)
Executive Position Contract Contract Resignation Unvested Termination Termination Start Termination Notice Options and Notice Payment Date Date Required Performance Required Rights on from the Resignation Company3 J W R General 12 March n/a 3 months Forfeited 3 months For Laurie Counsel & 2007 termination by Company the Company, Secretary an amount equal to the sum of the following: (1) the then current remuneration (including salary, superannuation and other benefits) payable for 12 months plus (2) the amount payable for the termination notice period (which, to avoid doubt, is payable even if employee and Company agree that the employee should leave prior to the end of the notice period). The above termination payments are also payable if the employee gives notice following a Material Change Event. J Exploration 1 May n/a 1 month Forfeited 1 month For Lamberto Manager 2007 termination by the Company, (from 1 one months April salary plus 2010) any accrued leave entitlement. If a Material Change Event occurs, employee may give notice to the Company within 60 days of the Material Change Event, terminating the Contract of Employment and following that effective date, the Company will pay a Termination Payment equal to $160,000 (half base salary) (3) The Company may terminate the contract immediately if serious misconduct hasoccurred. In this case the termination payment is only the fixed remunerationearned until the date of termination and any unvested options and performancerights will immediately be forfeited.
3. DIRECTORS' AND EXECUTIVE OFFICERS' REMUNERATION
Details of the nature and amount of each major element of remuneration of eachDirector of the Company and each of the named Company Executives and relevantGroup Executives who received the highest remuneration are: Short -Term Salary STI Non Total Post Other Termination & Fees Cash Monetary Employment Long / Bonus Benefits Term Superannuation Benefits Sign-on Benefits Benefits Year $ $ $ $ Non-Executive Directors M D J Cozijn 2010 80,000 - - 80,000 7,200 Chairman 2009 100,002 - - 100,002 9,000 LL Bhandari 2010 34,880 - - 34,880 - Non-Executive 2009 40,001 - - 40,001 - Director R L Miller 1 2010 66,608 - - 66,608 34,880 Non-Executive 2009 114,891 - - 114,891 - Director Executive Directors B H McCarthy 2010 399,996 - 50,637 450,633 - 2 Managing 2009 466,665 - - 466,665 - Director R G Barnes 2010 348,000 - - 348,000 - Technical 2009 360,000 - - 360,000 - Director B J M Clube 1 2010 296,834 - - 296,834 26,715 Finance 2009 257,188 - - 257,188 33,829 Director Executives P G Senycia 2010 267,302 - - 267,302 40,862 Exploration 2009 276,951 - - 276,951 79,426 Manager (Ceased 9 April 2010) Share Based Payments Options Performance Total Value of Value of Rights Options as Performance Proportion of Rights as Remuneration Proportion of Remuneration Year $ $ Non-Executive Directors M D J Cozijn 2010 - - 87,200 - - Chairman 2009 363 - 109,365 0% - LL Bhandari 2010 - - 34,880 - - Non-Executive 2009 216 - 40,217 1% -Director
R L Miller 1 2010 164,552 - 266,040 62%
- Non-Executive 2009 - - 114,891 - -Director Executive Directors B H McCarthy 2010 - - 450,633 - -2
Managing 2009 2,908 - 469,573 1%
-Director R G Barnes 2010 - - 348,000 - -
Technical 2009 11,366 - 371,366 3%
-Director
B J M Clube 1 2010 450,287 - 773,836 58% - Finance 2009 290,121 - 581,138 50% -Director Executives
P G Senycia 2010 33,724 (15,987) 325,901 10%
#
Exploration 2009 148,648 48,137 553,162 27%
9%Manager (Ceased 9 April 2010) The Directors of the Company may be Directors of the Company's subsidiaries. Noremuneration is received for directorships of subsidiaries. All key managementpersonnel are employed by the parent entity.
1 R L Miller and B J M Clube appointed Directors 1 July 2009.
2 Non-monetary benefits include $50,637 relating to the provision of accommodation and related expenses whilst working away from normal place of residence.
# Not calculated for the year ended 30 June 2010 as the inclusion would distortthe period given the reversal of the share based payment expense following theresignation of the employee.
DIRECTORS' AND EXECUTIVE OFFICERS' REMUNERATION (CONTINUED)
Details of the nature and amount of each major element of remuneration of eachDirector of the Company and each of the named Company Executives and relevantGroup Executives who received the highest remuneration are: Short -Term Salary STI Non Total Post Other Termination & Fees Cash Monetary Employment Long / Bonus Benefits Term Superannuation Benefits Sign-on Benefits Benefits Year $ $ $ $ Executives (continued) W K 2010 278,523 - - 278,523 25,650 - 71,201 Morrison Business 2009 285,000 - - 285,000 25,650 - - Development Manager (Ceased 30 June 2010) 3 J W R 2010 260,446 - - 260,446 23,440 - - Laurie General 2009 270,000 - - 270,000 24,300 - - Counsel/ Company Secretary J Lamberto 2010 286,438 - - 286,438 25,779 - -
Exploration 2009 253,623 40,000 - 293,623 50,000 - -
Manager (Promoted from 1 April 2010) Share Based Payments Year Options Performance Total Value of Value of Rights Options as Performance Rights Proportion of as Proportion of Remuneration Remuneration Executives $ $ $ % %(continued) W K 2010 213,687 - 589,061 36% -Morrison Business 2009 266,103 - 576,753 46% -Development Manager (Ceased 30 June 2010) 3 J W R 2010 161,348 35,781 481,015 34% 7%Laurie General 2009 62,229 5,683 392,212 16% 9%Counsel / Company Secretary J Lamberto 2010 87,353 44,792 444,362 20% 10% Exploration 2009 90,341 44,669 478,633 19% 9%Manager (Promoted from 1 April 2010)
3 Termination benefits paid on redundancy.
3. DIRECTORS' AND EXECUTIVE OFFICERS' REMUNERATION (CONTINUED)
Notes in Relation to the Table of Directors' and Executive's Remuneration
The fair value of the options is calculated at the date of grant using theBlack-Scholes Model. Because of the performance condition attaching to theperformance rights, a Monte Carlo Simulation is used to value the rights. Thefair value of the options and rights is allocated to each reporting periodevenly over the period from grant date to vesting date. The value disclosed isthe portion of the fair value of the options and performance rights allocatedto this financial year. In valuing the options and performance rights, marketconditions have been taken into account.
The following factors and assumptions were used in determining the fair value of 2010 options and performance rights on grant date:
Fair Value Price of Risk Free Grant Expiry Per Option Exercise Shares on Expected Interest DividendDate Date /Right Price Grant Date Volatility Rate Yield OPTIONS 17 1 July $0.19 $0.30 $0.26 97.20% 3.00% - August 2014 2009 24 1 July $0.18 $0.30 $0.25 97.21% 3.00% - August 2014 2009 26 1 July $0.22 $0.30 $0.31 91.87% 3.00% - November 2014 2009 PERFORMANCE RIGHTS
No performance rights were issued in the year ended 30 June 2010
4. EQUITY INSTRUMENTS
All options refer to options and rights over shares of the Company, which are exercisable on a one-for-one basis.
4.1 Options and Rights Over Equity Instruments Granted as Compensation
Details on options and rights over ordinary shares in the Company that weregranted as compensation to key management personnel and executives during thefinancial year and details on options that vested during the financial year
areas follows: Exercise Price of Number of Fair Value Options Expiry Date Number of Options Grant of Options of Options Options Granted Date Granted Granted Granted Vested(1) OPTIONS Executive Directors B H - - - - - - McCarthy R G - - - - - - Barnes B J M 1,500,000 26 $0.22 $0.30 1 July 2014 500,000 Clube November 2009 Non-Executive Directors M D J - - - - - - Cozijn L L - - - - - - Bhandari R L 750,000 26 $0.22 $0.30 1 July 2014 - Miller November 2009 Executives P G 1,000,000 17 $0.19 $0.30 1 July 2014 400,000 Senycia August (2) 2009 W K 300,000 24 $0.18 $0.30 1 July 2014 1,100,000 Morrison August 2009 J W R 750,000 17 $0.19 $0.30 1 July 2014 150,000 Laurie August 2009 J 300,000 17 $0.19 $0.30 1 July 2014 350,000 Lamberto August 2009
(1) Including options granted in prior periods. (2) Options forfeited upon resignation.
PERFORMANCE RIGHTS
No Performance Rights were issued in the year ended 30 June 2010 With the exception of options that have vested, which can be retained by theemployee in accordance with the timeframes specified under the EmployeePerformance Rights Plan rules, all options expire on the earlier of theirexpiry date or termination of the individual's employment. The options thatwere granted during the year, vested on 1 July 2010 and are exercisable at anytime between the vesting date and the expiry date. Further details, includinggrant dates and exercise dates regarding options granted to key managementpersonnel are in Note 20 to the financial statements.
4.2 Options and Rights Over Equity Instruments Granted as Compensation granted since year end:
No performance rights or options over ordinary shares in the Company were granted as compensation to key management personnel and executives since the end of the financial year.
4.3 Modification of Terms of Equity-Settled Share-Based Payment Transactions
No terms of equity-settled share-based payment transactions (including options granted as compensation to key management personnel) have been altered or modified by the issuing entity during the financial year.
4.4 Exercise of Options Granted as Compensation
During the financial year no shares were issued on the exercise of options previously granted as compensation.
During the financial year no shares were issued to Directors or Executives on the exercise of performance rights previously granted as compensation.
4.5 Analysis of Options and Performance Rights Granted as Compensation
Details of vesting profiles of the options and performance rights granted as remuneration to each key management person and each of the named Company executives and relevant Group executives is detailed below:
Options and Performance Rights Granted Financial % Vested in Forfeited Years in Which Grant Number Date Year in Year Vests OPTIONS Executive Directors B H 4,000,000 22 November - - (a) McCarthy 2007 B H 6,000,000 14 December - 50% (b) McCarthy 2005 R G 3,000,000 22 November - - (a) Barnes 2007 R G 3,000,000 14 December - 33% (b) Barnes 2005 B J M 1,500,000 1 May 2008 33% - (b) Clube B J M 1,500,000 26 November - - (e) Clube 2009 Non-Executive Directors M D J 500,000 22 November - - (a) Cozijn 2007 L L 300,000 22 November - - (a) Bhandari 2007 R L 750,000 26 November - - (e) Miller 2009 Executives P G Senycia 50,000 11 July - 100% (c) 2008
P G Senycia 1,200,000 18 January 33% 67% (b)
2007 P G Senycia 95,000 11 January - 74% (d) 2007
P G Senycia 1,000,000 17 August - 100% (e) 2009 WK Morrison 300,000 24 August 100% - (e) 2009 W K 1,200,000 17 March 67% - (b) Morrison 2008 J W R 750,000 17 August - - (e) Laurie 2009 J W R 450,000 17 March 33% 33% (b) Laurie 2008 J W R 80,000 3 August - - (d) Laurie 2007 J Lamberto 300,000 17 August - - (e) 2009
J Lamberto 1,050,000 1 May 2007 33% 67% (b)
J Lamberto 100,000 8 August - - (d) 2007 PERFORMANCE RIGHTS
No performance rights were issued during the
financial year.
(a) The options issued may vest and can be exercised as one half immediately and in full during the year after grant date. All options that have vested can be retained by the Director upon resignation or termination of employment.
(b) The options issued may vest and can be exercised as one third one year fromgrant date, two thirds two years after grant date and in full three years fromgrant date. All options that have vested can, upon resignation or terminationof employment be retained by the employee within the timeframes specified underthe Employee Performance Rights Plan rules and by directors until their expiry.(c) The performance rights are available in full as at 1 July 2009, subject tosatisfying performance conditions. Such performance conditions will bere-measured as at 30 June 2011.The maximum value of performance rights yet tovest is not determinable as it depends on satisfying the future performanceconditions.
(d) The performance rights are available in three tranches over three years, subject to satisfying performance conditions.
(e) The options issued may vest and can be exercised on 1 July 2010. All optionsthat have vested can be retained by the employee upon resignation ortermination of employment, within the timeframes specified under the EmployeePerformance Rights Plan rules. All options that have vested can be retained bythe Director upon resignation or termination of employment.
4.6 Analysis of Movements in Options
The movement during the financial year, by value, of options over ordinary shares in the Company held by each key management person and each of the named Company executives and relevant Group executives is detailed below:
Value of Options $ Granted in Year (a) Exercised in Year (b) Forfeited in Year (c) Executive Directors B H McCarthy - - 360,000 R G Barnes - - 120,000 B J M Clube 330,628 - - Non-Executive Directors R L Miller 165,314 - - Executives P G Senycia 185,612 - 185,612 W K Morrison 53,926 - - J W R Laurie 139,209 - 83,308 J Lamberto 55,684 - 305,809 (a) The value of options granted in the year is the fair value of the optionscalculated at grant date using the Black-Scholes Model. The total value of theoptions granted is included in the table above. This amount is allocated toremuneration over the vesting period.(b) The value of options exercised during the year is calculated as the marketprice of shares of the Company on the ASX as at close of trading on the datethe options were exercised after deducting the price paid to exercise theoption.
(c) The value of options forfeited during the year represents the cumulative benefit foregone and was calculated using the Black-Scholes Model.
There were no movements in options during the financial year for any other Director or Executive other than those disclosed above.
There is no adjustment made to the value of options included in remuneration or the financial results where the option has a greater or lesser value as compared to the grant date value. As at 30 June 2010 the share price was $0.085, (30 June 2009:$0.150), meaning that all of the 22,475,000 options outstanding as at 30 June 2010 were valued at less than their exercise price.
4.7 Analysis of Movements in Performance Rights
The movement during the financial year, by value, of performance rights overordinary shares in the Company held by each key management person and each ofthe named Company executives and relevant Group executives is detailed below: Value of Performance Rights $ Granted in Year (a) Exercised in Year (b) Forfeited in Year (c) Executives W K Morrison - - - P G Senycia - - 128,450 J W R Laurie - - - J Lamberto - - -
(a) The value of rights granted in the year is the fair value of the rights calculated at grant date using a Monte Carlo Simulation. The total value of the rights granted is included in the table above. This amount is allocated to remuneration over the vesting period.
(b) The value of rights exercised during the year is calculated as the market price of shares of the Company on the ASX as at close of trading on the date the rights were exercised after deducting the price paid to exercise the right.
(c) The value of performance rights forfeited during the year represents the cumulative benefit foregone and was calculated using a Monte Carlo simulation.
AUDITOR'S INDEPENDENCE DECLARATION
The lead Auditor's Independence Declaration for the year ended 30 June 2010 has been received and can be found on page46.
Dr B.H. McCarthy Mr B. Clube Managing Director Finance Director
Signed in accordance with a resolution of the Directors
West PerthWestern Australia9 September 2010 KPMGLead Auditor's Independence Declaration under Section 307C of the CorporationsAct 2001
To: the directors of Oilex Ltd
I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 30 June 2010 there have been:
(i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and
(ii) no contraventions of any applicable code of professional conduct in relation to the audit.
KPMG Brent SteedmanPartnerPerth9 September 2010
KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2010 2010 2009 Note $ $ Revenue 6(a) 1,008,777 1,974,960 Cost of Sales 6(b) (1,036,509) (1,096,605) Gross (Loss)/Profit (27,732) 878,355 Other income/(expense) 6(c) 6,072 (4,423,270) Employee benefits expense 6(d) (711,950) (1,378,667) Depreciation expense 14 (431,225) (558,883)
Exploration expenditure (including recovery of
past costs) (1,067,483) (14,527,850)
Impairment of exploration and evaluation
expenditure 13 (5,230,588) (24,878,979)
Impairment of development assets 15 (833,052) -
Well abandonment provision 18 - (80,248) Administration expense (606,141) (2,421,559) Share based payments 20 (1,663,142) (1,333,603) Other expenses 10 (308,054) (620,836) Results from operating activities (10,873,295) (49,345,540) Finance income 258,484 573,581 Finance costs (1,783) (825) Foreign exchange (loss)/gain (81,546) 86,177 Net finance income 175,155 658,933 Loss before income tax (10,698,140) (48,686,607) Deferred tax expense 7 - (1,112,364) Loss for the period (10,698,140) (49,798,971) Other comprehensive income Foreign currency translation difference (1,626,104)
8,170,131
Net change in fair value of available-for-sale financial assets transferred to profit or loss,
(net of tax) - (2,595,516)
Income tax on other comprehensive income - - Other comprehensive (loss)/ income for the
period, net of income tax (1,626,104) 5,574,615 Total comprehensive loss for the period (12,324,244) (44,224,356) Earnings per share
Basic loss per share (cents per share) 8 (37.7) (32.8) Diluted loss per share (cents per share) 8 (37.7) (32.8)
The above Consolidated Statement of Comprehensive Income is to be read in conjunction with the accompanying notes.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION FOR THE YEAR ENDED 30 JUNE 2010 2010 2009 Note $ $ Assets Cash and cash equivalents 9 16,809,095 10,506,379 Trade and other receivables 10 1,465,103 1,384,981 Prepayments 11 132,285 161,703 Inventories 12 1,466,357 1,892,203 Total current assets 19,872,840 13,945,266 Exploration and evaluation 13 23,281,236 31,261,621
Property, plant and equipment 14 561,730 884,614
Development assets 15 542,673 - Total non-current assets 24,385,639 32,146,235 Total assets 44,258,479 46,091,501 Liabilities Trade and other payables 16 3,269,527 3,795,494 Employee benefits 17 143,670 167,453 Provisions 18 71,344 - Total current liabilities 3,484,541 3,962,947 Provisions 18 2,712,492 2,829,930
Total non-current liabilities 2,712,492 2,829,930
Total liabilities 6,197,033 6,792,877 Net assets 38,061,446 39,298,624 Equity Issued capital 19 120,158,833 110,734,909 Reserves 19 13,024,917 18,330,351 Accumulated losses (95,122,304) (89,766,636) Total equity 38,061,446 39,298,624
The above Consolidated Statement of Financial Position is to be read in conjunction with the accompanying notes.
CONSOLIDATED STATEMENT OF EQUITY FOR THE YEAR ENDED 30 JUNE 2010
Attributable to Equity Holders of the Company Foreign Asset Currency Issued Option Revaluation Translation Accumulated Capital Reserve Reserve Reserve Losses Total Equity $ $ $ $ $ $ Balance at 1 July 2008 101,368,396 13,101,354 2,595,516 (2,658,994)
(41,583,408) 72,822,864 Total Comprehensive (loss)/income for the period Profit or loss - - - - (49,798,971) (49,798,971) Other comprehensive income Foreign currency translation differences - - - 8,170,131 - 8,170,131 Net change in fair value of available-for-sale financial assets transferred to profit or loss, net of tax - - (2,595,516) - - (2,595,516) Total other comprehensive income - - (2,595,516) 8,170,131 - 5,574,615 Total comprehensive (loss)/ income for the period - - (2,595,516) 8,170,131 (49,798,971) (44,224,356) Transactions with owners, recorded directly in equity Contributions by and distributions to owners Shares issued 10,074,000 - - - - 10,074,000 Capital raising costs (707,487) - - - - (707,487) Transfer on exercise of options or performance rights - (239,400) - - 239,400 - Transfers on forfeit of options - (1,376,343) - - 1,376,343 - Share-based payment transactions - 1,333,603 - - - 1,333,603 Total transactions with owners 9,366,513 (282,140) - - 1,615,743 10,700,116 Balance at 30 June 2009 110,734,909 12,819,214 - 5,511,137 (89,766,636) 39,298,624 Balance at 1 July 2009 110,734,909 12,819,214 - 5,511,137
(89,766,636) 39,298,624 Total Comprehensive (loss)/income for the period Profit or loss - - - - (10,698,140) (10,698,140) Other comprehensive income Foreign currency translation differences - - - (1,626,104) - (1,626,104) Total other comprehensive income - - - (1,626,104) - (1,626,104) Total comprehensive (loss)/ income for the period - - - (1,626,104) (10,698,140) (12,324,244) Transactions with owners, recorded directly in equity Contributions by and distributions to owners Shares issued 10,120,000 - - - - 10,120,000 Capital raising costs (696,076) - - - - (696,076) Transfer on exercise of options or performance rights - (28,000) - - 28,000 - Transfers on forfeit of options - (5,314,472) - - 5,314,472 - Share-based payment transactions - 1,663,142 - - - 1,663,142 Total transactions with owners 9,423,924 (3,679,330) - - 5,342,472 11,087,066 Balance at 30 June 2010 120,158,833 9,139,884 - 3,885,033
(95,122,304) 38,061,446
The above Consolidated Statement of Changes in Equity is to be read in conjunction with the accompanying notes.
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2010
2010 2009 Note $ $
Cash flows from operating activities
Cash receipts from customers 1,194,982 2,055,801 Payments to suppliers and employees (2,137,395) (4,846,209) Cash outflow from operations (942,413) (2,790,408) Interest received 184,447 801,791 Net cash used in operating activities 21 (757,966) (1,988,617)
Cash flows from investing activities
Advances from joint ventures 24,112 1,774,613 Proceeds from sale of assets 29,751 5,489
Proceeds from sale of investment - 1,825,067 Acquisition of petroleum interests -
(4,128,333)
Payments for exploration and evaluation (2,120,143)
(28,950,955)
Acquisition of development assets (14,894) - Acquisition of property, plant and equipment (147,595) (192,378) Net cash used in investing activities (2,228,769) (29,666,497)
Cash flows from financing activities Proceeds from issue of share capital 10,120,000 10,074,000
Payment for share issue costs (696,076) (707,488)
Net cash from/(used in) financing activities 9,423,924 9,366,512
Net increase/(decrease) in cash held 6,437,189
(22,288,602)
Cash and cash equivalents at 1 July 10,506,379 33,487,053 Effect of exchange rate fluctuations on cash (134,473) (692,072)
held
Cash and cash equivalents at 30 June 9 16,809,095 10,506,379
The above Consolidated Statement of Cash Flows is to be read in conjunction with the accompanying notes.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2010
NOTE 1 - REPORTING ENTITY
Oilex Ltd (the "Company") is a company domiciled in Australia. The consolidatedfinancial statements of the Company as at and for the year ended 30 June 2010comprise the Company and its subsidiaries (together referred to as the "Group"and individually as "Group Entities") and the Group's interest in associatesand jointly controlled entities. Oilex Ltd is a company limited by sharesincorporated in Australia whose shares are publicly traded on the AustralianSecurities Exchange ("ASX") and on the AIM Market of the London Stock Exchange.The Group is primarily involved in the exploration, evaluation, development
andproduction of hydrocarbons.NOTE 2 - BASIS OF PREPARATION(a) Statement of ComplianceThe financial report is a general purpose financial report which has beenprepared in accordance with Australian Accounting Standards ("AASBs")(including Australian Interpretations) adopted by the Australian AccountingStandards Board ("AASB") and the Corporations Act 2001. The consolidatedfinancial report of the Group complies with International Financial ReportingStandards (IFRSs) and interpretations adopted by the International AccountingStandards Board (IASB).
The consolidated financial statements were authorised for issue by the Board of Directors on 9 September 2010.
(b) Basis of Measurement
The consolidated financial statements have been prepared on the historical cost basis except for the following material items in the statement of financial position:
* financial instruments at fair value through profit or loss are measured at
fair value;
* available-for-sale financial assets are measured at fair value; and
* liabilities for cash-settled share-based payment arrangements are measured
at fair value.
(c) Functional and Presentation Currency
The consolidated financial statements are presented in Australian dollars, which is the Company's functional currency. The functional currency of the majority of the Company's subsidiaries is United States dollars.
(d) Use of Estimates and Judgements
The preparation of the consolidated financial statements in conformity withAASBs requires management to make judgements, estimates and assumptions thataffect the application of accounting policies and the reported amounts ofassets, liabilities, income and expenses. Actual results may differ from theseestimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.
In the process of applying the Group's accounting policies, management has madethe following judgements, apart from those involving estimates, which have themost significant effect on the amount recognised in the consolidated financialstatements.
i) Exploration and Evaluation Assets
The Group's accounting policy for exploration and evaluation expenditure is setout in Note 3(e). The application of this policy necessarily requiresmanagement to make certain estimates and assumptions as to future events andcircumstances, including, in particular, the assessment of whether economicquantities of reserves have been found. Any such estimates and assumptions maychange as new information becomes available. If, after having capitalisedexpenditure under this policy, it is determined that the expenditure isunlikely to be recovered by future exploitation or sale, then the relevantcapitalised amount will be written off to the consolidated statement ofcomprehensive income.
In the process of applying the Group's accounting policies, estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are as follows.
i) Reserve Estimates
Development costs are amortised on a units of production basis over the life ofeconomically recoverable reserves, so as to write off costs in proportion tothe depletion of the estimated reserves. The estimation of reserves requiresinterpretation of geological and geophysical data. The geological and economicfactors which form the basis of reserve estimates may change over reportingperiods.
ii) Rehabilitation Provisions
The Group estimates the future removal costs of onshore oil and gas productionfacilities, wells and pipeline at the time of installation of the assets. Inmost instances, removal of assets occurs many years into the future. Thisrequires judgemental assumptions regarding removal date, future environmentallegislation, the extent of reclamation activities required, the engineeringmethodology for estimating cost, future removal technologies in determining theremoval cost, and asset specific discount rates to determine the present valueof these cash flows. For more detail regarding the policy in respect ofprovision for rehabilitation refer to Note 3(k).
(e) Changes in Accounting Polices
The Group has changed its accounting policies in the financial year end 30 June 2010 in the following areas:
* Determination and presentation of operating segments
* Presentation of financial statements
(f) Going Concern
The Directors believe that it is appropriate to prepare the consolidatedfinancial statements on a going concern basis. As at 30 June 2010, the Group'scurrent assets exceeded current liabilities by $16,388,299 and the Group hascash and cash equivalents of $16,809,095. The Directors are satisfied that thevalue of the Group's assets can be realised through further evaluation,development and production or alternatively through asset sale or farm down.The Directors are also satisfied that the Company has adequate plans in placein order that its funding requirements in the foreseeable future can be met andthat the Company is progressing with these plans accordingly.
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by Group entities, except as explained in Notes 2(e) and 5, which address changes in accounting policies.
(a) Basis of Consolidation
i) Subsidiaries
Subsidiaries are entities controlled by the Group. The financial statements ofsubsidiaries are included in the consolidated financial statements from thedate that control commences until the date that control ceases. The accountingpolicies of subsidiaries have been changed when necessary to align them withthe policies adopted by the Group.
ii) Joint Ventures
Joint ventures are those entities over whose activities the Group has joint control, established by contractual agreement.
iii) Jointly Controlled Operations and Assets
The interest of the Group in unincorporated joint ventures and jointlycontrolled assets are brought to account by recognising, in its consolidatedfinancial statements, the assets it controls, the liabilities that it incurs,the expenses it incurs and the share of income that it earns from the sale ofgoods or services by the joint venture.
iv) Transactions Eliminated on Consolidation
Intragroup balances and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements.
(b) Foreign Currency
i) Foreign Currency Transactions
Transactions in foreign currencies are translated to the respective functionalcurrencies of Group entities at exchange rates at the dates of thetransactions. Monetary assets and liabilities denominated in foreign currenciesat the reporting date are retranslated to the functional currency at theforeign exchange rate at that date. The foreign currency gain or loss onmonetary items is the difference between amortised cost in the functionalcurrency at the beginning of the period, adjusted for effective interest andpayments during the period, and the amortised cost in foreign currencytranslated at the exchange rate at the end of the reporting period. Non-monetary assets and liabilities denominated in foreign currencies that aremeasured at fair value are retranslated to the functional currency at theexchange rate at the date that the fair value was determined. Foreign currencydifferences arising on retranslation are recognised in profit or loss.Non-monetary items that are measured in terms of historical cost in a foreigncurrency are translated using the exchange rate at the date of the transaction.
ii) Foreign Operations
The assets and liabilities of foreign operations are translated to Australiandollars at exchange rates at the reporting date. The income and expenses offoreign operations are translated to Australian dollars at exchange rates atthe dates of the transactions.Foreign currency differences are recognised in other comprehensive income.Since 1 July 2004, the Group's date of transition to AASBs, such differenceshave been recognised in the foreign currency translation reserve (FCTR). Whenthe settlement of a monetary item receivable from or payable to a foreignoperation is neither planned nor likely in the foreseeable future, foreignexchange gains and losses arising from such a monetary item are considered toform part of a net investment in a foreign operation and are recognised inother comprehensive income, and are presented within equity in the FCTR.(c) Financial Instruments i) Share CapitalOrdinary Shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects.
ii) Non-Derivative Financial Assets
The Group initially recognises loans and receivables and deposits on the datethat they are originated. All other financial assets (including assetsdesignated at fair value through profit or loss) are recognised initially onthe trade date at which the Group becomes a party to the contractual provisionsof the instrument.The Group derecognises a financial asset when the contractual rights to thecash flows from the asset expire, or it transfers the rights to receive thecontractual cash flows on the financial asset in a transaction in whichsubstantially all the risks and rewards of ownership of the financial asset aretransferred. Any interest in transferred financial assets that is created orretained by the Group is recognised as a separate asset or liability.Financial assets and liabilities are offset and the net amount presented in thestatement of financial position when, and only when, the Group has a legalright to offset the amounts and intends either to settle on a net basis or torealise the asset and settle the liability simultaneously.
The Group may have the following non-derivative financial assets: financial assets at fair value through profit or loss, held-to-maturity financial assets, loans and receivables and available-for-sale financial assets.
Financial assets at fair value through profit or loss
A financial asset is classified as at fair value through profit or loss if itis classified as held for trading or is designated as such upon initialrecognition. Financial assets are designated at fair value through profit orloss if the Group manages such investments and makes purchase and saledecisions based on their fair value in accordance with the Group's documentedrisk management or investment strategy. Upon initial recognition attributabletransaction costs are recognised in profit or loss when incurred. Financialassets at fair value through profit or loss are measured at fair value, andchanges therein are recognised in profit or loss.
Held-to-maturity financial assets
If the Group has the positive intent and ability to hold debt securities tomaturity, then such financial assets are classified as held-to-maturity.Held-to-maturity financial assets are recognised initially at fair value plusany directly attributable transaction costs. Subsequent to initial recognitionheld-to-maturity financial assets are measured at amortised cost using theeffective interest method, less any impairment losses. Any sale orreclassification of a more than insignificant amount of held-to-maturityinvestments not close to their maturity would result in the reclassification ofall held-to-maturity investments as available-for-sale, and prevent the Groupfrom classifying investment securities as held-to-maturity for the current andthe following two financial years.
Loans and receivables
Loans and receivables are financial assets with fixed or determinable paymentsthat are not quoted in an active market. Such assets are recognised initiallyat fair value plus any directly attributable transaction costs. Subsequent toinitial recognition loans and receivables are measured at amortised cost usingthe effective interest method, less any impairment losses.
Loans and receivables comprise trade and other receivables.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets thatare designated as available-for-sale and that are not classified in any of theprevious categories. The Group's investments in equity securities and certaindebt securities are classified as available-for-sale financial assets.Subsequent to initial recognition, they are measured at fair value and changestherein, other than impairment losses (see note 3(i)(i)), and foreign currencydifferences on available-for-sale equity instruments (see note 3(b)(i)), arerecognised in other comprehensive income and presented within equity in thefair value reserve. When an investment is derecognised, the cumulative gain orloss in equity is transferred to profit or loss.
iii) Non-derivative Financial Liabilities
The Group initially recognises debt securities issued and subordinatedliabilities on the date that they are originated. All other financialliabilities (including liabilities designated at fair value through profit orloss) are recognised initially on the trade date at which the Group becomes aparty to the contractual provisions of the instrument. The Group derecognises afinancial liability when its contractual obligations are discharged orcancelled or expire. Financial assets and liabilities are offset and the netamount presented in the statement of financial position when, and only when,the Group has a legal right to offset the amounts and intends either to settleon a net basis or to realise the asset and settle the liability simultaneously.
The Group may have the following non-derivative financial liabilities: loans and borrowings, bank overdrafts and trade and other payables.
Such financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortised cost using the effective interest rate method.
(d) Cash and Cash Equivalents
Cash and cash equivalents comprise cash balances, call deposits, cash in transit and short-term deposits with an original maturity of six months or less.
(e) Exploration and Evaluation Expenditure
Exploration and evaluation expenditure in respect of each area of interest is accounted for under the successful efforts method.
Exploration licence acquisition costs relating to established oil and gas exploration areas are capitalised.
The costs of drilling exploration wells are initially capitalised pending theresults of the well. Costs are expensed where the well does not result in thesuccessful discovery of potentially economically recoverable reserves.
All other exploration and evaluation expenditure, including general administration costs, geological and geophysical costs and new venture expenditure is expensed as incurred, except where:
- The expenditure relates to an exploration discovery for which, at balance date,
an assessment of the existence or otherwise of economically recoverable
reserves is not yet complete; or
- The expenditure relates to an area of interest under which it is expected that
the expenditure will be recouped through successful development and
exploitation or by sale.
When an oil or gas field has been approved for commercial development, the accumulated exploration and evaluation costs are transferred to development expenditure. Amortisation of capitalised costs is not charged on revenues earned from production testing.
(f) Development Expenditure
Development expenditure includes past exploration and evaluation costs,pre-production development costs, development drilling, development studies andother subsurface expenditure pertaining to that area of interest. Costs relatedto surface plant and equipment and any associated land and buildings areaccounted for as property, plant and equipment.The definition of an area of interest for development expenditure is narrowedfrom the exploration permit for exploration and evaluation expenditure to theindividual geological area where the presence of an oil or natural gas fieldexists, and in most cases will comprise an individual oil or gas field.
Development expenditure is reviewed for impairment at each reporting date where there is an indication that the individual geological area may be impaired (refer Note 3(i)(ii)).
Amortisation is not charged on costs carried forward in respect of areas of interest in the development phase until production commences. When production commences, carried forward development costs are amortised on a units of production basis over the life of economically recoverable reserves.
(g) Property, Plant and Equipment
i) Recognition and Measurement
Items of property, plant and equipment are measured at cost less accumulateddepreciation and accumulated impairment losses. The cost of self-constructedassets includes the cost of materials, direct labour, the initial estimate,where relevant, of the costs of dismantling and removing the items andrestoring the site on which they are located and an appropriate proportion ofoverheads.Gains and losses on disposal of an item of property, plant and equipment aredetermined by comparing the proceeds from disposal with the carrying amount ofproperty, plant and equipment and are recognised net within 'other income'
inprofit or loss.ii) Subsequent CostsThe cost of replacing part of an item of property, plant and equipment isrecognised in the carrying amount of the item if it is probable that the futureeconomic benefits embodied within the part will flow to the Group and its costcan be measured reliably. All other costs are recognised in profit or loss.
iii) Depreciation
Depreciation is recognised in profit or loss using the reducing balance methodover the estimated useful life of the assets, with the exception of softwarewhich is depreciated at prime cost. The estimated useful lives in the currentand comparative periods are as follows: * Motor vehicles 2 to 7 years
* Office furniture 2 to 10 years
* Plant and equipment 2 to 7 years
Depreciation methods, useful lives and residual values are reviewed and adjusted if appropriate, at each financial year end.
(h) Inventories
Inventories are measured at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.
(i) Impairment
i) Financial Assets (including receivables)
A financial asset not carried at fair value through profit or loss is assessedat each reporting date to determine whether there is objective evidence that itis impaired. A financial asset is impaired if objective evidence indicatesthat a loss event has occurred after the initial recognition of the asset, andthat the loss event had a negative effect on the estimated future cash flows ofthat asset that can be estimated reliably. Objective evidence that financialassets (including equity securities) are impaired can include default ordelinquency by a debtor, restructuring of an amount due to the Group on termsthat the Group would not consider otherwise, indications that a debtor orissuer will enter bankruptcy, the disappearance of an active market for asecurity. In addition, for an investment in an equity security, a significantor prolonged decline in its fair value below its cost is objective evidence ofimpairment.The Group considers evidence of impairment for receivables and held-to-maturityinvestment securities at both a specific asset and collective level. Allindividually significant receivables and held-to-maturity investment securitiesare assessed for specific impairment. All individually significant receivablesand held-to-maturity investment securities found not to be specificallyimpaired are then collectively assessed for any impairment that has beenincurred but not yet identified. Receivables and held-to-maturity investmentsecurities that are not individually significant are collectively assessed forimpairment by grouping together receivables and held-to-maturity investmentsecurities with similar risk characteristics.In assessing collective impairment the Group uses historical trends of theprobability of default, timing of recoveries and the amount of loss incurred,adjusted for management's judgement as to whether current economic and creditconditions are such that the actual losses are likely to be greater or lessthan suggested by historical trends.An impairment loss in respect of a financial asset measured at amortised costis calculated as the difference between its carrying amount and the presentvalue of the estimated future cash flows discounted at the asset's originaleffective interest rate. Losses are recognised in profit or loss and reflectedin an allowance account against receivables. Interest on the impaired assetcontinues to be recognised through the unwinding of the discount. When asubsequent event causes the amount of impairment loss to decrease, the decreasein impairment loss is reversed through profit or loss.Impairment losses on available-for-sale investment securities are recognised bytransferring the cumulative loss that has been recognised in othercomprehensive income, and presented in the fair value reserve in equity, toprofit or loss. The cumulative loss that is removed from other comprehensiveincome and recognised in profit or loss is the difference between theacquisition cost, net of any principal repayment and amortisation, and thecurrent fair value, less any impairment loss previously recognised in profit orloss. Changes in impairment provisions attributable to time value are reflectedas a component of interest income.If, in a subsequent period, the fair value of an impaired available-for-saledebt security increases and the increase can be related objectively to an eventoccurring after the impairment loss was recognised in profit or loss, then theimpairment loss is reversed, with the amount of the reversal recognised inprofit or loss. However, any subsequent recovery in the fair value of animpaired available-for-sale equity security is recognised in othercomprehensive income.
ii) Non- Financial Assets
The carrying amounts of the Group's non-financial assets, other thaninventories and deferred tax, are reviewed at each reporting date to determinewhether there is any indication of impairment. If any such indication existsthen the asset's recoverable amount is estimated.
An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that are largely independent from other assets and groups. Impairment losses are recognised in profit or loss.
The recoverable amount of an asset or cash-generating unit is the greater ofits value in use and its fair value less costs to sell. In assessing value inuse, the estimated future cash flows are discounted to their present valueusing a pre-tax discount rate that reflects current market assessments of thetime value of money and the risks specific to the asset.Impairment losses recognised in prior periods are assessed at each reportingdate for any indications that the loss has decreased or no longer exists. Animpairment loss is reversed if there has been a change in the estimate used todetermine the recoverable amount. An impairment loss is reversed only to theextent that the asset's carrying amount does not exceed the carrying amountthat would have been determined, net of depreciation or amortisation, if noimpairment loss had been recognised.
(j) Employee Benefits
i) Wages, Salaries, Annual Leave and Sick Leave
Liabilities for employee benefits for wages, salaries, annual leave and fringebenefits that are expected to be settled within 12 months of the reporting daterepresent present obligations resulting from employee services provided toreporting date. The liabilities are calculated at undiscounted amounts based onremuneration wage and salary rates that the Group expects to pay as at thereporting date.
ii) Long-term Service Benefits
The Group's net obligation in respect of long-term service benefits is theamount of future benefit that employees have earned in return for their servicein the current and prior periods. The obligation is calculated using expectedfuture increases in wage and salary rates including related on-costs andexpected settlement dates, and is discounted using the rates attached to theCommonwealth Government Bonds at the balance sheet date which have maturitydates approximating to the terms of the Group's obligations.
iii) Share-based Payment Transactions
Employee options allow employees to acquire shares of the Company. The fairvalue of options granted is recognised as an employee expense with acorresponding increase in equity. The fair value is measured at grant date andspread over the period during which the employees become unconditionallyentitled to the options. Options are also provided as part of consideration forservices by financiers and advisors. The fair value of the options granted ismeasured using the Black-Scholes Model, taking into account the terms andconditions upon which the options were granted. The amount recognised as anexpense is adjusted to reflect the actual number of share options that vestexcept where forfeiture is only due to share prices not achieving the thresholdfor vesting.Performance rights are also granted to employees. The fair value of performancerights granted is recognised as an employee expense with a correspondingincrease in equity. The fair value is measured at grant date and allocated overthe period during which the employees become unconditionally entitled to theperformance rights. The fair value of the performance rights is determinedusing a Monte Carlo Simulation taking into account the terms of the performancecondition under which the rights are granted.
When the Group grants options and performance rights over its shares to employees of subsidiaries, the fair value at grant date is recognised as an increase in the investments in subsidiaries, with a corresponding increase in equity over the vesting period of the grant.
(k) Provisions
Provisions are recognised when the Group has a present obligation (legal orconstructive) as a result of a past event, and it is probable that an outflowof economic benefits will be required to settle the obligation and when areliable estimate can be made of the amount of the obligation. Provisions aredetermined by discounting the expected future cash flows at a pre-tax rate thatreflects current market assessments of the time value of money and whereappropriate, the risks specific to the liability.
Provisions are made for site rehabilitation of an oil and gas field on an incremental basis during the life of the field (which includes the field plant closure phase). Provisions include reclamation, plant closure, waste site closure and monitoring activities. These costs have been determined on the basis of current costs, current legal requirements and current technology. Changes in estimates are dealt with on a prospective basis.
(l) Interest-bearing Borrowings
All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost with any difference between cost and redemption value being recognised in the profit or loss over the period of the borrowings on an effective interest basis.
(m) Product Revenue
Revenue is recognised when the significant risks and rewards of ownership havetransferred to the buyer. Risks and rewards of ownership are considered passedto the buyer at the time of delivery of the product to the customer.All revenue is stated net of the amount of Goods and Services Tax ("GST").
(n) Leases
Payments made under operating leases are recognised in profit or loss on a straight line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense and are allocated over the lease term.
(o) Finance Income and Expenses
Finance income comprises interest income on funds invested. Interest income isrecognised as it accrues in profit or loss, using the effective interestmethod. Finance expenses comprise interest expense on borrowings and unrealisedforeign exchange losses. Foreign currency gains and losses are reported on
anet basis.(p) Income TaxIncome tax expense comprises current and deferred tax. Income tax is recognisedin profit or loss except to the extent that it relates to a businesscombination, or items recognised directly in equity, or in other comprehensiveincome recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognised in respect of temporary differences between thecarrying amounts of assets and liabilities for financial reporting purposes andthe amounts used for taxation purposes. Deferred tax is not recognised fordifferences relating to investments in subsidiaries to the extent that theyprobably will not reverse in the foreseeable future. Deferred tax is measuredat the tax rates that are expected to be applied to the temporary differenceswhen they reverse, based on the laws that have been enacted or substantivelyenacted by the reporting date.A deferred tax asset is recognised to the extent that it is probable thatfuture taxable profits will be available against which the temporary differencecan be utilised. Deferred tax assets are reviewed at each reporting date andreduced to the extent that it is no longer probable that the related taxbenefit will be realised.The Company and its wholly-owned Australian resident entities formed atax-consolidated group with effect from 1 July 2004 and are therefore taxed asa single entity from that date. The head entity within the tax-consolidatedgroup is Oilex Ltd.Current tax expense/income, deferred tax liabilities and deferred tax assetsarising from temporary differences of the members of the tax-consolidated groupare recognised in the separate financial statements of the members of thetax-consolidated group using the 'separate taxpayer within group' approach byreference to the carrying amounts of assets and liabilities in the separatefinancial statements of each entity and the tax values applying under taxconsolidation.
(q) Goods and Services Tax
Revenues, expenses and assets are recognised net of the amount of GST except:
- When the GST incurred on a purchase of goods and services is not recoverable
from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable;
and
- Receivables and payables, which are stated with the amount of GST included.
The net amount of GST recoverable from, or payable to, the taxation authorityis included as part of receivables or payables in the Consolidated Statement ofFinancial Position.Cash flows are included in the Consolidated Statement of Cash Flows on a grossbasis and the GST component of cash flows arising from investing and financingactivities, which is recoverable from, or payable to, the taxation authority,is classified as operating cash flows.
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.
(r) Discontinued Operations
A discontinued operation is a component of the Group's business that representsa separate major line of business or geographical area of operations that hasbeen disposed of or is held for sale, or is a subsidiary acquired exclusivelywith a view to resale. Classification as a discontinued operation occurs upondisposal or when the operation meets the criteria to be classified as held forsale, if earlier. When an operation is classified as a discontinued operation,the comparative statement of comprehensive income is restated as if theoperation had been discontinued from the start of the comparative period.
(s) Earnings Per Share
Basic earnings per share is calculated as net profit or loss attributable to members of the Group, divided by the weighted average number of ordinary shares, adjusted for any bonus element.
Diluted earnings per share is determined by adjusting the profit attributableto ordinary shareholders and weighted average number of shares outstanding forthe effects of all dilutive potential ordinary shares, which comprise shareoptions and performance rights granted to employees.
(t) Segment Reporting
An operating segment is a component of the Group that engages in businessactivities from which it may earn revenues and incur expenses, includingrevenues and expenses that relate to transactions with any of the Group's othercomponents. All operating segments' operating results are regularly reviewed bythe Group's Managing Director to make decisions about resources to be allocatedto the segment and assess its performance, and for which discrete financialinformation is available.Segment results that are reported to the Managing Director include itemsdirectly attributable to a segment as well as those that can be allocated on areasonable basis. Unallocated items comprise mainly corporate assets (primarilythe Company's headquarters), head office expenses, and income tax assets andliabilities.
Segment capital expenditure is the total cost incurred during the period to acquire exploration and development assets, property, plant and equipment, and intangible assets other than goodwill.
(u) Comparatives
Certain comparatives have been reclassified to conform with the presentation and classification in the current year.
(v) New Standards and Interpretations Not Yet Adopted
The following standards, amendments to standards and interpretations have beenidentified as those which may impact the entity in the period of initialapplication. They are available for early adoption at 30 June 2010, but havenot been applied in preparing this financial report.
* AASB 9 Financial Instruments includes requirements for the classification
and measurement of financial assets resulting from the first part of Phase
1 of the project to replace AASB 139 Financial Instruments: Recognition and
Measurement. AASB 9 will become mandatory for the Group's 30 June 2014
financial statements. Retrospective application is generally required,
although there are exceptions, particularly if the entity adopts the
standard for the year ended 30 June 2012 or earlier. The Group has not yet
determined the potential effect of the standard.
* AASB 124 Related Party Disclosures (revised December 2009) simplifies and
clarifies the intended meaning of the definition of a related party and
provides a partial exemption from the disclosure requirements for
government-related entities. The amendments, which will become mandatory for
the Group's 30 June 2012 financial statements, are not expected to have any
impact on the consolidated financial statements.
* AASB 2009-5Further Amendments to Australian Accounting Standards arising
from the Annual Improvements Process affects various AASBs resulting in
minor changes for presentation, disclosure, recognition and measurement
purposes. The amendments, which become mandatory for the Group's 30 June
2011 financial statements, are not expected to have a significant impact on
the consolidated financial statements.
* AASB 2009-8 Amendments to Australian Accounting Standards - Group Cash -
settled Share-based Payments Transactions resolves diversity in practice
regarding the attribution of cash-settled share-based payments between
different entities within a group. As a result of the amendments Al 8 Scope
of AASB 2 and Al 11 AASB 2 - Group and Treasury Share Transactions will be
withdrawn from the application date. The amendments, which become mandatory
for the Group's 30 June 2011 consolidated financial statements, are not
expected to have a significant impact on the consolidated financial
statements.
* AASB 2009-10 Amendments to Australian Accounting Standards - Classification
of Rights Issue [AASB 132] (October 2010) clarify that rights, options or
warrants to acquire a fixed number of an entity's own equity instruments
for a fixed amount in any currency are equity instruments if the entity
offers the rights, options or warrants pro-rata to all existing owners of
the same class of its own non-derivative equity instruments. The amendments, which will become mandatory for the Group's 30 June 20111 financial statements, are not expected to have any impact on the consolidated financial statements. * IRFIC 19 Extinguishing Financial Liabilities with Equity Instruments addresses the accounting by an entity when the terms of a financial liability are renegotiated and result in the entity issuing equity
instruments to a creditor of the entity to extinguish all or part of the
financial liability. IFRIC 19 will become mandatory for the Group's 30 June
2011 consolidated financial statements, with retrospective application required. The Group has not yet determined the potential effect of the interpretation.
NOTE 4 - DETERMINATION OF FAIR VALUES
A number of the Group's accounting policies and disclosures require thedetermination of fair value, for both financial and non-financial assets andliabilities. Fair values have been determined for measurement and/ordisclosure purposes based on the following methods. Where applicable, furtherinformation about the assumptions made in determining fair values is disclosedin the notes specific to that asset or liability.
Investments in Equity and Debt Securities
The fair value of available-for-sale financial assets is determined by reference to their quoted closing bid price at the reporting date.
Trade and Other Receivables
The fair value of trade and other receivables, excluding construction work inprogress, is estimated as the present value of future cash flows, discounted atthe market rate of interest at the reporting date.
Non-derivative Financial Liabilities
Fair value, which is determined for disclosure purposes, is calculated based onthe present value of future principal and interest cash flows, discounted atthe market rate of interest at the reporting date.
Share-based Payment Transactions
The fair value of options is measured using the Black-Scholes Model. The fairvalue of performance rights is measured using a Monte Carlo Simulation.Measurement inputs include share price on measurement date, exercise price ofthe instrument, expected volatility (based on weighted average historicvolatility adjusted for changes expected due to publicly availableinformation), weighted average expected life of the instruments (based onhistorical experience and general option holder behaviour), expected dividends,and the risk-free interest rate (based on government bonds). Service andnon-market performance conditions attached to the transactions are not takeninto account in determining fair value.
NOTE 5 - OPERATING SEGMENTS
The Group with effect from 1 July 2009 has adopted AASB 8 Operating Segments(which replaces AASB 114 Segment Reporting). AASB 8 requires operating segmentsto be identified on the basis of internal reports about the components of theGroup that are regularly reviewed by the chief operating decision maker indeciding to allocate resources to the segments and to assess performance. Incontrast AASB 114 Segment Reporting required an identity to identify two setsof segments (business and geographical).The Group has identified the its operating segments based upon the internalmanagement reports that are reviewed and used by the executive management teamin assessing performance and that are used to allocate the Groups resources.The operating segments identified by management are based on the nature andgeographical location of the business or joint venture. Each managed segmenthas responsible officers that are accountable to the Managing Director.The Group's executive management team evaluates the financial performance ofthe Group and its' segment principally with reference to revenues, productioncosts, expenditure on exploration evaluation and development costs.
The Group operates in one business segment, being the exploration, development and production of hydrocarbons, and its revenue from the sale of oil & gas. Information reported to the Group's chief operating decision maker is on a geographical basis.
Financing requirements, finance income and expenses are managed at a Group level. Other items include non-segmental revenue, expenses and associated assets and liabilities not allocated to operating segments, mostly comprising corporate assets and expenses. It also includes expenses incurred by non-operating segments, such as new ventures and those undergoing relinquishment.
Comparative segment information has been represented in conformity with the requirement of AASB 8 Operating Segments.
Major Customer
The Group's most significant customer, Indian Oil Corporation Limited, in itscapacity as nominee of the Government of India, represents 100% of the Group'stotal revenues (2009:100%). Operating Segments India Australia JPDA (1) 2010 2009 2010 2009 2010 2009 $ $ $ $ $ $ Revenue External 1,008,777 1,974,960 - - - -Revenue Cost of sales Production (637,811) (911,008) - - - -costs Amortisation (353,946) - - - - -of development costs Movement in (44,752) (185,597) - - - -oil stocks inventory
Total cost (1,036,509) (1,096,605) - - -
-of sales Gross profit (27,732) 878,355 - - - -/(loss) Exploration (663,793) (2,503,549) (230,940) (1,315,951) 2,408,538 (4,197,954)expenditure inc recovery past cots Impairment (4,266,207) (9,647,273) - - (964,381) (4,455,579)of exploration and evaluation expenditure Impairment (833,052) - - - - -of development assets Depreciation (34,313) (53,123) - - (12,604) (34,140) Share based (49,217) (76,323) - - (9,706) (5,128)payments Other income 462 - - - 9,562 - Other (184,124) (821,490) - - (9,027) 15,308expenses Reportable (6,057,976) (12,223,403) (230,940) (1,315,951) 1,422,382 (8,677,493)segment profit/ (loss) before income tax Net finance income Foreign exchange (loss)/gain Deferred tax expense Loss for the period Segment 15,185,651 22,973,134 68,309 133,850 1,305,598 968,793assets Segment 3,072,316 3,941,002 28,513 128,581 363,924 46,917liabilities Other segment information Additions to 165,815 8,706,116 - - 112,666 316,124exploration assets Additions to 14,894 - - - - -development assets Additions to 2,276 11,614 - - 196 -other plant and equipment Indonesia Unallocated Consolidated 2010 2009 2010 2009 2010 2009 $ $ $ $ $ $ Revenue External - - - - 1,008,777 1,974,960Revenue Cost of sales Production - - - - (637,811) (911,008)costs Amortisation - - - - (353,946) -of development costs Movement in - - - - (44,752) (185,597)oil stocks inventory Total cost - - - - (1,036,509) (1,096,605)of sales Gross profit - - - - (27,732) 878,355/(loss) Exploration - (4,966,466) (2,581,288) (1,543,930) (1,067,483) (14,527,850)expenditure inc recovery past cots Impairment - (948,705) - (9,827,422) (5,230,588) (24,878,979)of exploration and evaluation expenditure Impairment - - - - (833,052) -of development assets Depreciation - - (384,308) (471,620) (431,225) (558,883) Share-based - - (1,604,219) (1,252,152) (1,663,142) (1,333,603)payments Other income - - (3,952) - 6,072 -
Other (35,272) (711,983) (1,397,722) (7,406,415) (1,626,145)
(8,924,580)expenses Reportable (35,272) (6,627,154) (5,971,489) (20,501,539) (10,873,295) (49,345,540)segment profit/ (loss) before income tax Net finance 256,701 572,756income Foreign (81,546) 86,177exchange (loss)/gain Deferred tax - (1,112,364)expense Loss for the (10,698,140) (49,798,971)period Segment 10,553,611 10,883,543 17,145,310 11,132,181 44,258,479 46,091,501assets Segment 2,045,498 1,601,276 686,782 1,075,101 6,197,033
6,792,877liabilities Other segment information Additions to 49,083 4,639,508 - 3,376,426 327,564 17,038,174exploration assets Additions to - - - - 14,894 -development assets Additions to - - 145,123 180,763 147,595 192,377other plant and equipment
There were no significant inter-segment transactions during the year.
(1) Joint Petroleum Development Area
Geographical Segments
The Group operates in India, Australia and JPDA. It has interests in othercountries including Oman and Indonesia. In presenting information on the basisof geographical segments, segment revenue and segment assets are based on thelocation of operating activity. Revenue Non-current assets 2010 2009 2010 2009 $ $ $ $ India 1,008,777 1,974,960 13,368,133 19,695,311 Australia - - - - JPDA - - 55,622 909,567 Indonesia - - 10,553,061 10,882,578 Other - - 408,823 658,779 1,008,777 1,974,960 24,385,639 32,146,235 NOTE 6 - REVENUE AND EXPENSESLoss from ordinary activities before income tax has been determined after thefollowing revenues and expenses: 2010 2009 $ $ (a) Revenue Oil Sales 1,008,777 1,974,960 (b) Cost of Sales Production costs (637,811) (911,008)
Amortisation of development assets (353,946) - Movement in oil stocks inventory (44,752) (185,597)
(1,036,509) (1,096,605) (c) Other Income/(Expense)
Loss on sale and revaluation of available-for-sale financial assets - (4,317,272) Profit/(Loss) on disposal of other assets 6,072 (105,998)
6,072 (4,423,270) (d) Employee Benefits Expense
Wages and salaries including superannuation (653,089) (1,213,677) Other associated personnel expenses (84,093) (171,050) Decrease in liability for employee benefits 25,232 6,060
(711,950) (1,378,667) NOTE 7 - INCOME TAX EXPENSE
Numerical reconciliation between tax expense and pre-tax accounting loss:
2010 2009 $ $ Loss before income tax (10,698,140) (48,686,607)
Income tax using the domestic corporation tax rate of 30% (2009: 30%) (3,209,442)
(14,605,982)
Effect of tax rate in foreign jurisdictions (843,175) (1,548,076)
Non-deductible expenses Share-based payments 498,943 400,081
Accounting loss on disposal of available-for-sale financial assets - 1,295,182 Foreign expenditure not brought to account 1,752,423 2,154,300
Other non-deductible expenses 121,910 290,336 (1,679,341) (12,014,159) 2010 2009 $ $
Unrecognised deferred tax assets generated during the year and not brought to account at balance date as realisation is not regarded as probable 1,679,341 10,901,795
Reversal of recognition of prior year deferred tax - (1,112,364) Deferred tax income/(expense) - (1,112,364)
Unrecognised deferred tax assets not brought to account at balance date as realisation is not regarded as probable - temporary differences
Other 3,720,287 3,629,243
Losses available for offset against future taxable income 17,073,055
19,054,165
Deferred tax asset not brought to account 20,793,342 22,683,408
The deferred tax asset not brought to account in relation to Block 56, in Oman of $3,782,428, has been reversed in full in the current year.
The deductible temporary differences and tax losses do not expire under current tax legislation.
The deferred tax asset not brought to account for the 2010 financial year will only be obtained if:
* Future assessable income is derived of a nature and of an amount sufficient
to enable the benefit to be realised;
* The conditions for deductibility imposed by the tax legislation continue to be
complied with; and * The companies are able to meet the continuity of ownership and/or continuity of business tests.
Tax Consolidation
In accordance with tax consolidation legislation the Company, as the head entity of the Australia tax-consolidated group, has assured the deferred tax assets initially recognised by members of the tax-consolidated group.
Tax Assets and Liabilities
In the year 30 June 2009 the deferred tax asset and liability previouslyrecognised was reversed in full as the assets that had given rise to thedeferred tax asset and liability were sold. There is no movement in the currentyear. 2009 $ Liabilities opening balance 1,112,364 Tax liability reversed in equity
(1,112,364)
Available-for-sale financial assets - Tax liabilities recognised in equity -
Assets opening balance 1,112,364
Tax asset reversed in statement of comprehensive income (1,112,364)
Recognition of previously unrecognised tax losses - Tax assets recognised in loss for the period -
Closing balance -
Net tax (assets)/liabilities after set off of tax -
NOTE 8 - LOSS PER SHARE(a) Basic Loss Per ShareThe calculation of basic loss per share at 30 June 2010 was based on the lossfor the period attributable to ordinary shareholders of $10,698,140 (2009: lossof $49,798,971) and a weighted average number of ordinary shares outstandingduring the financial year ended 30 June 2010 of 204,407,270 (2009:151,750,483), calculated as follows: 2010 2009 $ $
i) Loss Attributable to Ordinary Shareholders
Loss for the Period 10,698,140 49,798,971
ii) Weighted Average Number of Ordinary Shares Issued ordinary shares at 1 July 176,054,885
132,083,885
Effect of shares issued 28,352,385
19,666,598
Weighted average number of ordinary shares at 30 204,407,270 151,750,483 June (b) Diluted Loss Per Share
The Company's potential ordinary shares, being its options and performance rights granted, are not considered dilutive as the conversion of these options and rights would result in a decrease in the net loss per share.
NOTE 9 - CASH AND CASH EQUIVALENTS
2010 2009 $ $
Cash at bank and on hand 10,624,066 9,297,790
Short-term bank deposits 6,185,029 1,208,589
16,809,095 10,506,379
The Group's exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in Note 23.
NOTE 10 - TRADE AND OTHER RECEIVABLES
2010 2009 $ $ CURRENT
Joint venture receivables 1,127,919 773,589
Other receivables 337,184 611,392 1,465,103 1,384,981 NOTE 11 - PREPAYMENTS 2010 2009 $ $ Prepayments 132,285 161,703 NOTE 12 - INVENTORIES 2010 2009 $ $
Oil on hand - net realisable value 34,273 84,185
Drilling inventory - cost 109,102 1,235,941
Drilling inventory - net realisable value 1,322,982 572,077
1,466,357 1,892,203
During the year ended 30 June 2010, the writedown to net realisable value amounted to $308,054 (2009:$620,836), which is included in other expenses. There was no reversal of writedowns.
NOTE 13 - EXPLORATION AND EVALUATION
2010 2009 $ $ Balance at 1 July 31,261,621 31,464,923
Expenditure capitalised net of recovery 327,564 12,909,841 Transfer to development expenditure (1,662,560) - Acquisition of exploration assets - 4,128,333
Impairment of exploration and evaluation expenditure (5,230,588) (24,878,979)
Effect of movements in foreign exchange rates (1,414,801) 7,637,503
Balance at 30 June 23,281,236 31,261,621
NOTE 14 - PROPERTY, PLANT AND EQUIPMENT
Motor Plant and Office Vehicles Equipment Furniture Total $ $ $ $ Cost Balance at 1 July 2008 18,890 1,600,167 293,246 1,912,303 Acquisitions - 165,948 26,430 192,378 Disposals - (162,820) (92,491) (255,311) Currency translation differences 1,955 51,150 9,136 62,241 Balance at 30 June 2009 20,845 1,654,445 236,321 1,911,611 Balance at 1 July 2009 20,845 1,654,445 236,321 1,911,611 Acquisitions - 132,965 14,630 147,595 Disposals (6,909) (68,137) (2,520) (77,566) Currency translation differences (733) (15,216) (3,468) (19,417) Balance at 30 June 2010 13,203 1,704,057 244,963 1,962,223
Depreciation and Impairment
Losses Balance at 1 July 2008 6,878 572,739 83,515 663,132 Depreciation charge for the year 4,536 513,552 40,797 558,885 Disposals - (107,737) (36,086) (143,823) Currency translation differences (1,319) (30,360) (19,518) (51,197) Balance at 30 June 2009 10,095 948,194 68,708 1,026,997 Balance at 1 July 2009 10,095 948,194 68,708 1,026,997 Depreciation charge for the year 2,364 400,206 28,685 431,255 Disposals (3,863) (48,289) (2,051) (54,203) Currency translation differences (240) (3,131) (185) (3,556) Balance at 30 June 2010 8,356 1,296,980 95,157 1,400,493 Carrying amounts At 1 July 2008 12,012 1,027,428 209,731 1,249,171 At 30 June 2009 10,750 706,251 167,613 884,614 At 1 July 2009 10,750 706,251 167,613 884,614 At 30 June 2010 4,847 407,077 149,806 561,730 NOTE 15 - DEVELOPMENT ASSETS 2010 2009 $ $ Cost Balance at 1 July - - Transfer from exploration 1,662,560 - Acquisitions 14,894 - Disposals - -
Currency translation differences 110,508 -
Balance at 30 June 1,787,962 - Amortisation and Impairment Losses Balance at 1 July - -
Impairment of development assets 833,052 -
Amortisation charge for the year 353,946 -
Disposals - -
Currency translation differences 58,291 -
Balance at 30 June 1,245,289 - Carrying amounts At 1 July - - At 30 June 542,673 -
During the 2010 financial year Cambay-74 and Cambay-64 were designated as production wells. (2009: undergoing production testing and designated as exploration and evaluation).
NOTE 16 - TRADE AND OTHER PAYABLES
2010 2009 $ $
Trade creditors and accruals 3,269,527 3,795,494
NOTE 17 - EMPLOYEE BENEFITS
2010 2009 $ $
Employee entitlements 143,670 167,453
NOTE 18 - PROVISIONS 2010 2009 $ $ Site Restoration and Well Abandonment Balance at 1 July 2,829,930 1,719,838
Provisions made during the year 53,508 857,598
Effect of movements in exchange rates (99,602) 252,494
Balance at 30 June 2,783,836 2,829,930 Current 71,344 - Non-Current 2,712,492 2,829,930 Total at 30 June 2,783,836 2,829,930
NOTE 19 ISSUED CAPITAL AND RESERVES
(a) Issued Capital
A reconciliation of the movement in capital and reserves for the consolidated entity can be found in the Consolidated Statement of Changes in Equity.
Number of Ordinary Shares 2010 2009
On issue at 1 July - fully paid 176,054,885 132,083,885
Shares issued for cash 44,000,000 43,800,000
Shares issued on exercise of performance rights 20,000 171,000 Shares issued on exercise of options - - On issue at 30 June - fully paid 220,074,885 176,054,885
On 16 November 2009 the general meeting of shareholders approved the issuance of 44 million ordinary shares at an exercise price of $0.23 (2009: $0.23).
Additionally, twenty thousand ordinary shares were issued as a result of the exercise of vested employee performance rights with no exercise price.
The Company has issued share options and performance rights to employees (see Note 20) and issued share options to financiers and advisors.
The Company does not have authorised capital or par value in respect of its issued shares. All issued shares are fully paid.
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company.
(b) Option Reserve
The option reserve recognises the fair value of options and performance rights issued but not exercised. Upon the exercise of options, the balance of the option reserve relating to those options is recognised in profit or loss or transferred to accumulated losses depending upon the nature or type of the options.
(c) Asset Revaluation Reserve
The asset revaluation reserve comprises the cumulative net change in the fair value of available-for-sale financial assets until the investment is derecognised or impaired.
(d) Foreign Currency Translation Reserve
The foreign currency translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations.
NOTE 20 - SHARE-BASED PAYMENTS
The terms and conditions of options and performance rights granted by the Company to employees are as follows, whereby all options and performance rights are settled by physical delivery of shares:
Number of Contractual Life of Grant Date Instruments Vesting Conditions Options Options Key Management Personnel 18 January Three years of 2007 400,000 service 4 years Two years of 3 April 2007 150,000 service 4 years Three years of 3 April 2007 150,000 service 5 years Three years of 31 August 2007 350,000 service 4 years 22 November 2007 3,900,000 Vest immediately 3 years 22 November 2007 3,900,000 One year of service 3 years 17 March 2008 400,000 One year of service 3 years Two years of 17 March 2008 400,000 service 3 years Three years of 17 March 2008 400,000 service 4 years 1 May 2008 500,000 One year of service 3 years Two years of 1 May 2008 500,000 service 3 years Three years of 1 May 2008 500,000 service 4 years 17 August 2009 1,050,000 One year of service 5 years 24 August 2009 300,000 One year of service 5 years 26 November One year of service 5 years 2009 2,250,000 Other Employees Three years of 31 July 2006 775,000 service 4 years Two years of 3 April 2007 150,000 service 4 years Three years of 3 April 2007 150,000 service 5 years 17 August 2009 750,000 One year of service 5 years Financiers and Advisors 10 October Vest immediately 2006 500,000 4 years 22 March 2007 2,500,000 Vest immediately 4 years 25 July 2007 500,000 One year of service 4 years 31 August 2009 2,000,000 Vest immediately 2 years Total options 22,475,000 Number of Contractual Life of Grant Date Instruments Vesting Conditions Options Performance rights Key Management Personnel 11 January 2007 25,000 One year of 5 years service 3 August 2007 27,000 One year of 5 years service 3 August 2007 27,000 Two years of 5 years service 3 August 2007 26,000 Three years of 5 years service 8 August 2007 33,000 One year of 5 years service 8 August 2007 33,000 Two years of 5 years service 8 August 2007 34,000 Three years of 5 years service Other Employees 11 January 2007 15,000 One year of 5 years service 8 August 2007 27,000 One year of 5 years service 8 August 2007 27,000 Two years of 5 years service 8 August 2007 26,000 Three years of 5 years service 14 October 2007 33,000 One year of 5 years service 14 October 2007 33,000 Two years of 5 years service 14 October 2007 34,000 Three years of 5 years service One year of 5 years 11 July 2008 21,000 service 11 July 2008 Two years of 5 years 22,000 service 11 July 2008 Three years of 5 years 22,000 service Total Performance Rights 465,000 The number and weighted average exercise prices of share options are asfollows: Weighted Weighted Ave Average Number of Exercise Number of Exercise Price Options Price Options 2010 2010 2009 2009 Outstanding at the beginning of the period $1.56 32,775,000 $1.37 39,925,100 Forfeited during the $0.30 (1,150,000) $1.97 (150,000) period Lapsed during the $0.99 (16,650,000) $0.47 (7,000,100)period Exercised during the - - - - period Granted during the $0.30 7,500,000 - - period Outstanding at the $1.62 22,475,000 $1.56 32,775,000 end of the period Exercisable at the $1.89 17,975,000 $1.47 29,425,000 end of the period
The options outstanding at 30 June 2010 have an exercise price in the range of $0.30 to $2.75 and a weighted average contractual life of 1.5 years.
No options were exercised during the years ended 30 June 2010 and 30 June 2009.
The following factors and assumptions were used in determining the fair value of options and performance rights on grant date that were expensed in the current financial year:
Fair Price of Risk Free Grant Vesting Expiry Value Per Exercise Shares on Expected Interest DividendDate Date Date Option Price Grant Date Volatility Rate Yield OPTIONS 14 15 14 December September December 2005 2008 2009 $0.09 $0.80 $0.31 75.9% 5.50% - 22 March 22 March 31 March 2006 2006 2010 $0.33 $0.50 $0.53 78.7% 5.75% - 31 July 5 May 31 July 2006 2007 2009 $0.71 $0.50 $0.97 90.9% 5.75% - 31 July 5 May 31 July 2006 2008 2009 $0.66 $0.65 $0.97 90.9% 5.75% - 31 July 5 May 31 July 2006 2009 2010 $0.67 $0.90 $0.97 90.9% 5.75% - 24 31 July January 31 July 2006 2007 2009 $0.73 $0.45 $0.97 90.9% 5.75% - 24 31 July January 31 July 2006 2008 2009 $0.69 $0.55 $0.97 90.9% 5.75% - 10 10 31 October October October 2006 2006 2009 $0.80 $1.50 $1.34 92.8% 6.00% - 10 10 31 October October October 2006 2006 2009 $0.76 $1.75 $1.34 92.8% 6.00% - 10 10 31 October October October 2006 2006 2010 $0.83 $2.00 $1.34 92.8% 6.00% - 18 31 31 January October January 2007 2007 2010 $0.75 $1.40 $1.31 85.8% 6.25% - 18 31 31 January October January 2007 2008 2010 $0.64 $2.00 $1.31 85.8% 6.25% - 18 31 31 January October January 2007 2009 2011 $0.70 $2.50 $1.31 85.8% 6.25% - 18 31 31 January January January 2007 2007 2010 $0.75 $1.40 $1.31 85.8% 6.25% - 22 March 22 March 31 March 2007 2007 2011 $0.61 $2.00 $1.31 68.3% 6.25% - 3 April 31 March 31 March 2007 2008 2010 $0.55 $1.75 $1.35 66.0% 6.25% - 3 April 31 March 31 March 2007 2009 2011 $0.57 $2.25 $1.35 66.0% 6.25% - 3 April 31 March 31 March 2007 2010 2012 $0.60 $2.75 $1.35 66.0% 6.25% - 30 30 25 July September September 2007 2008 2011 $0.56 $1.57 $1.58 31.40% 6.25% - 1 May 30 April 30 April 2007 2008 2010 $0.52 $1.60 $1.22 39.10% 6.25% - 1 May 30 April 30 April 2007 2009 2010 $0.36 $2.10 $1.22 39.10% 6.25% - 1 May 30 April 30 April 2007 2010 2011 $0.33 $2.70 $1.22 39.10% 6.25% - 22 30 November November 1 July 2007 2007 2011 $0.45 $2.00 $1.62 35.90% 6.75% - 22 November 1 July 1 July 2007 2008 2011 $0.32 $2.50 $1.62 35.90% 6.75% - 17 March 30 April 30 April 2008 2009 2011 $0.47 $1.75 $1.20 64.0% 6.25% - 17 March 30 April 30 April 2008 2010 2011 $0.39 $2.25 $1.20 64.0% 6.25% - 17 March 30 April 30 April 2008 2011 2012 $0.42 $2.75 $1.20 64.0% 6.25% - 1 May 30 April 30 April 2008 2009 2011 $0.37 $1.75 $1.04 65.9% 7.25% - 1 May 30 April 30 April 2008 2010 2011 $0.31 $2.25 $1.04 65.9% 7.25% - 1 May 30 April 30 April 2008 2011 2012 $0.34 $2.75 $1.04 65.9% 7.25% - 17 August 1 July 1 July 2009 2010 2014 $0.19 $0.30 $0.26 97.21% 3.00% - 24 August 1 July 1 July 2009 2010 2014 $0.18 $0.30 $0.25 97.21% 3.00% - 31 August 31 August 30 June 2009 2009 2011 $0.12 $0.30 $0.25 97.21% 3.00% - 26 November 1 July 1 July 2009 2010 2014 $0.22 $0.30 $0.31 91.87% 3.00% - PERFORMANCE RIGHTS 11 1 July 1 July $1.40 Nil $1.40 70% - 90% 6.20% - January 2007 2011 2007 11 1 July 1 July $1.22 Nil $1.40 70% - 90% 6.20% - January 2008 2011 2007 11 1 July 1 July $1.05 Nil $1.40 70% - 90% 6.20% - January 2009 2011 2007 3 August 1 July 1 July $1.50 Nil $1.53 60% - 90% 6.30% - 2007 2008 2012 3 August 1 July 1 July $1.28 Nil $1.53 60% - 90% 6.30% - 2007 2009 2012 3 August 1 July 1 July $1.11 Nil $1.53 60% - 90% 6.30% - 2007 2010 2012 14 1 July 1 July $1.50 Nil $1.72 60% - 90% 6.60% - October 2008 2012 2007 14 1 July 1 July $1.45 Nil $1.72 60% - 90% 6.60% - October 2009 2012 2007 14 1 July 1 July $1.26 Nil $1.72 60% - 90% 6.60% - October 2010 2012 2007 11 July 30 July 1 July $0.98 Nil $1.10 60% - 80% 6.50% - 2008 2009 2013 11 July 30 July 1 July $0.91 Nil $1.10 60% - 80% 6.50% - 2008 2010 2013 11 July 30 July 1 July $0.79 Nil $1.10 60% - 80% 6.50% - 2008 2011 2013
The following share-based payments have been recognised in the Consolidated Statement of Comprehensive Income:
2010 2009 $ $ Directors and employees
Share options - equity settled 1,272,327 1,083,808 Performance rights - equity settled 160,191 189,858
1,432,518 1,273,666 Financiers and advisors
Share options - equity settled 230,624 59,937
Total share-based payments expense 1,663,142 1,333,603
NOTE 21 - RECONCILIATION OF CASH FLOWS FROM OPERATING ACTIVITIES
2010 2009 $ $ Net loss for the period (10,698,140) (49,798,971)
Impairment and amortisation of development assets 1,186,998 -
Depreciation 431,225 558,883 Loss on sale of investment -
4,317,272
(Profit)/loss on disposal of assets (6,072) 105,998
Exploration expenditure 6,298,071 39,406,829 Equity-settled share-based payments 1,663,142
1,333,603
Unrealised foreign exchange gain (14,773) (104,857) Deferred tax expense - 1,112,364 Impairment of inventory 308,054 620,836
Operating Loss Before Changes in Working Capital and
Provisions (831,495) (2,448,043)
(Decrease)/Increase in trade and other payables (180,534) 146,264 (Increase)/decrease in prepayments (11,184) 53,585 Decrease/(Increase) in trade and other receivables 245,727 (209)
Increase in provisions - 80,249 Decrease in oil inventory 44,752 185,597 Decrease in employee benefits (25,232) (6,060) Net Cash Used In Operating Activities (757,966)
(1,988,617)
NOTE 22 - CONSOLIDATED ENTITIES
Country of Ownership Interest % Incorporation 2010 2009 Parent Entity Oilex Ltd Australia Subsidiaries
Independence Oil and Gas Limited Australia 100 100
Admiral Oil NL Australia 100 100
Oilex NL Holdings (India) Limited Cyprus 100 100
Oilex India Pvt Ltd India 90 90 Oilex Oman Limited Cyprus 100 100 Oilex (JPDA 06-103) Ltd Australia 100 100 Oilex (West Kampar) Limited Cyprus 100 100
Although the Group holds less than 100% of the voting power of Oilex India Pvt Ltd, the value attributable to outside equity interests is not material and therefore is not disclosed separately in the accounts.
NOTE 23 - FINANCIAL INSTRUMENTS
(a) Financial risk management
The Group has exposure to the following risks from their use of financial instruments:
i) Credit riskii) Liquidity riskiii) Market risk
This note presents qualitative and quantitative information in relation to the Group's exposure to each of the above risks and the management of capital.
The Board of Directors has overall responsibility for the establishment andoversight of the risk management framework and the development and monitoringof risk management policies. Risk management policies are established toidentify and analyse the risks faced by the Group, to set appropriate risklimits and controls, and to monitor risks and adherence to limits. Riskmanagement policies and systems are reviewed regularly to reflect changes inmarket conditions and the Group's activities.
(b) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's receivables from customers and joint ventures.
Trade and other receivables
The Group's exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the Group's customer base, including the default risk of the industry and country in which customers operate, has less of an influence on credit risk.
The maximum exposure to credit risk is represented by the carrying amount ofeach financial asset. The maximum exposure to credit risk at the reporting
datewas: 2010 2009 $ $ Cash and cash equivalents 16,809,095 10,506,379
Trade and other receivables - current 1,465,103 1,384,981
18,274,198 11,891,360
The Group's most significant customer, an Indian public sector petroleum company, accounts for $147,860 of the trade and other receivables carrying amount as 30 June 2010 (2009: $484,152).
Impairment losses
The aging of the trade and other receivables at the reporting date was:
2010 2009 Gross Gross $ $ Consolidated Not past due 662,353 927,292 Past due 0-30 days 252,472 233,062 Past due 31-120 days 388,327 168,025
Past due 121 days to one year 118,544 -
More than one year 43,407 56,602 1,465,103 1,384,981 Receivable balances are monitored on an ongoing basis. The Group may at timeshave a high credit risk exposure to its joint venture parties. Based on thecredit status of the counterparties, the Group believes that no impairmentallowance is necessary in respect of trade and other receivables that are pastdue.(c) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due without incurring unacceptable losses or risking damage to the Group's reputation.
The Group manages liquidity by monitoring present cash flows and ensuring thatadequate cash reserves, financing facilities and equity raisings are undertakento ensure that the Group can meet its obligations.The table below analyses the Group's financial liabilities by relevant maturitygroupings based on the remaining period at the balance date to the contractualmaturity date. The amounts disclosed in the table are the contractualundiscounted cash flows. Carrying Contractual Cash 6 months or 6 - 12 1 - 2 Amount Flows less months years $ $ $ $ $ 2010 Trade and other payables 3,269,527 3,269,527 3,269,527 - - Total financial liabilities 3,269,527 3,269,527 3,269,527 - - 2009 Trade and other payables 3,795,494 3,795,494 3,795,494 - - Total financial liabilities 3,795,494 3,795,494 3,795,494 - - (d) Market riskMarket risk is the risk that changes in market prices, such as foreign exchangerates, interest rates and equity prices will affect the Group's income or thevalue of its holdings of financial instruments. The objective of market riskmanagement is to manage and control market risk exposures within acceptableparameters, while optimising the return.
i) Currency risk
An entity is exposed to currency risk on sales and purchases that are denominated in a currency other than the functional currency of the entity. The currencies giving rise to this risk are the US dollar and Indian rupee.
The exposure to currency risk at balance date was as follows:
2010 2009 USD INR USD INR
In equivalents of Australian dollar $ $ $ $ Cash and cash equivalents 9,751,070 33,912 5,132,838 273,265 Trade and other receivables 198,532 293,139 41,465 837,899 Trade and other payables (2,503,322) (303,096) (2,314,122) (590,779) Gross balance sheet exposure 7,446,280 23,955 2,860,181 520,385
The following significant exchange rates applied during the year:
Average rate Reporting date spot rate AUD1 2010 2009 2010 2009 USD 0.8823 0.7477 0.8410 0.8114 INR 41.047 35.49 39.228 38.15
Foreign currency sensitivity
A 10% strengthening/weakening of the Australian dollar against the followingcurrencies at 30 June would have (increased)/ decreased the loss by the amountsshown below. This analysis assumes that all other variables, in particularinterest rates, remain constant. The analysis is performed on the same basisfor 2009. 2010 2009 $ $ 10% Strengthening United States dollars (USD) (827,364) (317,798) Indian rupees (INR) (2,662) (55,406) 10% Weakening United States dollars (USD) 676,935 260,016 Indian rupees (INR) 2,178 49,276 ii) Interest rate risk
At the reporting date the interest rate profile of the interest-bearing financial instruments was:
Carrying Amount 2010 2009 $ $ Fixed Rate Instruments Financial assets 6,185,029 1,208,589 Financial liabilities - - Variable Rate Instruments
Financial assets 10,624,066 9,297,790
Fair value sensitivity analysis for fixed rate instruments
The Group does not account for any fixed rate financial instruments at fair value through profit or loss so a change in interest rates at the reporting date would not affect profit or loss or equity.
Cash flow sensitivity analysis for variable rate instruments
An increase of 100 basis points in interest rates at the reporting date wouldhave decreased the loss by the amounts shown below. A decrease of 100 basispoints in interest rates at the reporting date would have had the oppositeimpact by the same amount. This analysis assumes that all other variables, inparticular foreign currency rates, remain constant. The analysis is performedon the same basis for 2009. 2010 2009 $ $ Impact on profit or loss 106,241 92,978 iii) Other Price Risks
The Group is exposed to equity price risks arising from equity investments. Equity investments are held for strategic rather than trading purposes. The Group had no exposure to other price risks at June 2010 or June 2009.
Equity Price Sensitivity
The Group had no exposure to equity price sensitivity at June 2010 or June 2009.
(e) Capital risk management
The Board's policy is to maintain a strong capital base so as to maintaininvestor, creditor and market confidence and to sustain future development ofthe business. The capital structure of the Group consists of equityattributable to equity holders of the Company, comprising issued capital,reserves and accumulated losses as disclosed in the consolidated statement ofchanges in equity.
(f) Fair values of financial assets and liabilities
The net fair values of assets and liabilities of the Group approximate their carrying values. The Group has no off-balance sheet financial instruments.
NOTE 24 - AUDITORS' REMUNERATION
2010 2009 $ $ Audit Services Auditors of the Company
Audit and review of financial reports (KPMG Australia) 91,375 112,950
Audit of Joint Ventures operated by Oilex Ltd - operator 6,242 4,929 proportion only (KPMG Australia) Audit and review of financial reports (KPMG related 13,667 68,815 practices) 111,284 186,694 Other Services
Assurance and Other Services
KPMG Australia - 6,590 KPMG related practices 8,449 6,591 Taxation Services Taxation compliance services (KPMG Australia) 23,884
132,370
Taxation compliance services (KPMG related practices) 15,076 12,201 47,409 157,752
NOTE 25 - INTEREST IN JOINT VENTURE OPERATIONS
The Group has the following interests in joint ventures as at 30 June 2010.Principal activities are oil and gas exploration, development and production: Interest % Permit Country 2010 2009 OFFSHORE JPDA 06-103 Timor-Leste / Australia (JPDA) 10 25 WA-388-P Australia (Carnarvon Basin) 14 14 ONSHORE Cambay Field India (Cambay Basin) 45 45 Bhandut Field India (Cambay Basin) 40 40 Sabarmati Field India (Cambay Basin) 40 40 Block 56 Oman (South Oman Salt Basin) 25 25 West Kampar Block Indonesia (Central Sumatra) 67.5 (1) 67.5 (1)
(1) Oilex (West Kampar) Limited is entitled to have assigned an additional 22.5% to its holding of 45% through exercise of its rights under a Power of Attorney granted by PT Sumatera Persada Energi (SPE), following the failure by SPE to repay funds due. The assignment has been provided to BPMigas, the Indonesian Government regulator, but has not been approved or rejected. If Oilex is paid the funds due then it will not pursue this assignment
NOTE 26 - OPERATING LEASES
Leases as Lessee
Non-cancellable operating lease rentals are payable as follows:
2010 2009 $ $ Within one year 188,378 271,819
One year or later and no later than five years 20,846 171,874
209,224 443,693
The Group sub-leases its head office premises at Level 2, 50 Kings Park Road, West Perth under an operating lease. The existing lease expires 8 March 2011.
The Group leases office premises in Muscat (Oman), Dili (Timor-Leste) andVadodara (India) under operating leases. The leases run for periods of between1 and 3 years, with an option to renew the lease for a further term after thatdate. 2010 2009 $ $
Operating lease rentals expensed during the financial
year. 302,963 639,336
NOTE 27 - EXPENDITURE COMMITMENTS
Exploration Expenditure Commitments
In order to maintain rights of tenure to exploration permits, the Group isrequired to perform minimum exploration work to meet the minimum expenditurerequirements specified by various state and national governments. Theseobligations are subject to renegotiation when application for an explorationpermit is made and at other times. These obligations are not provided for inthe financial report. The expenditure commitments are currently estimated to bepayable as follows: 2010 2009 $ $ Within one year 7,907,252 44,481
One year or later and no later than five 14,747,325 19,899,770 years
22,654,577 19,944,251 Further expenditure commitments for subsequent permit periods are contingentupon future exploration results. These cannot be estimated and are subject torenegotiation upon expiry of the existing exploration leases.
Capital Expenditure Commitments
Consolidated 2010 2009 $ $
Contracted but not provided for in the financial statements
and payable: Within one year - 204,891
Employee Compensation Commitments
Consolidated 2010 2009 $ $ Key Management Personnel Commitments under non-cancellable employment contracts not provided for in the financial statements and payable: Within one year 1,804,329 2,322,034 Other Employees Commitments under non-cancellable employment contracts not provided for in the financial statements and payable: Within one year 120,788 215,202
NOTE 28 - KEY MANAGEMENT PERSONNEL DISCLOSURES
The following were Key Management Personnel of the Group at any time during thefinancial year and unless otherwise indicated were key management personnel forthe entire period: Non-Executive Directors Position
Mr Max Cozijn Director Mr Laxmi Bhandari Non-Executive Director Mr Ronald Miller Non-Executive Director Executive Directors Position Dr Bruce McCarthy Managing Director Mr Raymond Barnes Technical Director Mr Ben Clube Finance Director Executives Position Mr Paul Senycia Exploration Manager (to 9 April 2010) Mr John Lamberto Exploration Manager (from 1 April 2010) Mr Kim Morrison Business Development Manager (to 30 June 2010) Mr Jay Laurie General Counsel / Company Secretary
Key Management Personnel Compensation
The compensation of non-executive Directors and Key Management Personnel was asfollows: 2010 2009 $ $ Short-term employee benefits 2,319,028 2,464,321 Non monetary benefits 50,637 - Post-employment benefits 255,727 222,205 Equity compensation benefits 1,175,537 1,000,784
Total disclosed as Directors and Officers Remuneration in Note 3 on page 40 of the Directors Report 3,800,929
3,687,310
Individual Directors and Executives Compensation Disclosures
Information regarding individual Directors and Executives compensation is provided in the Remuneration Report section of the Directors' Report.
Apart from the details disclosed in this note, no Director has entered into amaterial contract with the Company since the end of the previous financial yearand there were no material contracts involving Directors' interests existing atyear end.
Key Management Personnel Transactions with the Company or its Controlled Entities
The terms and conditions of the transactions with Key Management Personnel andtheir related parties were no more favourable than those available, or whichmight reasonably be expected to be available, on similar transactions tonon-key management personnel related entities on an arm's length basis.
The aggregate amounts recognised during the year relating to Key Management Personnel and their related parties were as follows:
Key Management Personnel Transaction Note 2010 2009 $ $ Dr B H McCarthy Management services 1 450,633 466,665 Mr R G Barnes Technical, management 2 348,000 360,000 Mr R L Miller Technical, management 3 66,608 114,891
Key Management Personnel Transactions with the Company or its Controlled Entities (continued)
1. The Group used the services of Macuale Consultancy Pty Ltd of which Dr McCarthy
is a director. Rates charged were at market rates and have been included in
the remuneration of key management personnel disclosure.
2. Oilex used the services of Ad Valorem Resource Consultants Pty Ltd of which Mr
Barnes is a director. Rates charged were at market rates and have been
included in the remuneration of key management personnel disclosure.
3. Oilex used the services of Ematvil Pty Ltd of which Mr Miller is a director.
Rates charges were at market rates and have been included in the remuneration
of key management personnel disclosure.
Options and Performance Rights over Equity Instruments Granted as Compensation
The movement during the financial year in the number of options and performancerights over ordinary shares in the Company held, directly, indirectly orbeneficially, by each key management person, including their related parties,is as follows: Vested and Held at Vested exercisable Held at 1 Granted as Other 30 June during at 30 June 2010 July 2009 compensation Exercised changes # 2010 the year 2010 OPTIONS Directors M D J 1,000,000 - - (500,000) 500,000 - 500,000 Cozijn L L 300,000 - - - 300,000 - 300,000 Bhandari B H 7,000,000 - - (3,000,000) 4,000,000 - 4,000,000 McCarthy R G 4,000,000 - - (1,000,000) 3,000,000 - 3,000,000 Barnes B J M 1,500,000 1,500,000 - - 3,000,000 500,000 1,000,000 Clube R Miller - 750,000 - - 750,000 - -
Other Key Management Personnel P G 1,200,000 1,000,000 - (1,800,000) 400,000 400,000 400,000 Senycia J 1,050,000 300,000 - (700,000) 650,000 350,000 350,000 Lamberto W K 1,200,000 300,000 - - 1,500,000 1,100,000 1,500,000 Morrison J W R 450,000 750,000 - (150,000) 1,050,000 150,000 300,000 Laurie PERFORMANCE RIGHTS Directors
No performance rights were issued to Directors during the financial year. Other Key Management Personnel
P G 145,000 - - (120,000) 25,000 - 25,000 Senycia J 100,000 - - - 100,000 - - Lamberto J W R 80,000 - - - 80,000 - - Laurie W K - - - - - - - Morrison
# Other changes represent options and rights that expired or were forfeited
during the year.
No options held by Key Management Personnel are vested but not exercisable.
Vested and Held at Vested exercisable Held at 1 Granted as Other 30 June during at 30 June 2009 July 2008 compensation Exercised changes # 2009 the year 2009 OPTIONS Directors M D J 1,000,000 - - - 1,000,000 250,000 1,000,000 Cozijn L L 300,000 - - - 300,000 150,000 300,000 Bhandari B H 10,000,000 - - (3,000,000) 7,000,000 2,000,000 7,000,000 McCarthy R G 6,000,000 - - (2,000,000) 4,000,000 2,500,000 4,000,000 Barnes
Other Key Management Personnel
B J M 1,500,000 - - - 1,500,000 500,000 500,000 Clube R S Paces 2,325,000 - - - 2,325,000 775,000 2,325,000 P G 1,200,000 - - - 1,200,000 400,000 800,000 Senycia W K 1,200,000 - - - 1,200,000 400,000 400,000 Morrison J W R 450,000 - - - 450,000 150,000 300,000 Laurie PERFORMANCE RIGHTS Directors
No performance rights were issued to Directors during the financial year Other Key Management Personnel
R S Paces 150,000 - (50,000) (100,000) - - - P G 95,000 50,000 - - 145,000 - 25,000 Senycia J W R 80,000 - - - 80,000 - - Laurie
# Other changes represent options and rights that expired or were forfeited
during the year.
No options held by Key Management Personnel are vested but not exercisable.
Movements in Shares
The movement during the financial year in the number of ordinary shares in the Company held, directly, indirectly or beneficially, by each Key Management Personnel, including their related parties, is as follows:
Held at Held at 1 July Received on exercise of 30 June 2010 2009 Purchases options Sales 2010 Directors M D J 1,500,000 - - - 1,500,000 Cozijn L L - - - - - Bhandari B H 1,150,000 - - - 1,150,000 McCarthy R G Barnes 798,871 - - - 798,871 B J M 52,174 - - - 52,174 Clube R Miller 2,424,436 100,000 - - 2,524,436
Other Key Management Personnel
P G - - - - - Senycia W K - - - - - Morrison J W R - - - - - Laurie J Lamberto - - - - - Held at Held at 1 July Received on exercise of 30 June 2009 2008 Purchases options Sales 2009 Directors M D J 1,300,000 200,000 - - 1,500,000Cozijn L L - - - - - Bhandari B H 800,000 350,000 - - 1,150,000McCarthy R G 623,871 175,000 - - 798,871 Barnes
Other Key Management Personnel
B J M - 52,174 - - 52,174 Clube R S Paces 365,000 - - (365,000) - P G - - - - - Senycia W K - - - - - Morrison J W R - - - - - Laurie
No shares were granted to key management personnel during the financial year as compensation.
NOTE 29 - RELATED PARTY TRANSACTIONS
Identity of Related Parties
The Group has a related party relationship with its subsidiaries (see Note 22),joint ventures (see Note 25) and with its' Key Management Personnel (see Note28).Director Related Parties 2010 2009 $ $ Administration service fee paid to Carbon Energy Limited
(M D J Cozijn is a Director of Carbon Energy Limited) - 5,000
NOTE 30 - CONTINGENCIES
The directors are of the opinion that provisions are not required in respect of these matters, as it is not probable that a future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement.
(a) Oilex Ltd has issued a guarantee in relation to corporate credit cards. The
Bank Guarantee amounts to AUD$100,000. An equal amount is held in cash and
cash equivalents as security by the Bank.
(b) In June 2010 Oilex requested an extension to its Good Standing Agreement (GSA)
with the Australian Government on behalf of the Joint Venture partners for
exploration permit EPP27 which the Joint Venture previously relinquished with
the Australian Government's approval. Oilex's monetary share of the GSA is
$2,101,225. In July 2010, the Australian Government agreed to extend the GSA
until the conclusion of the 2011 Australian Offshore Petroleum Exploration
Release.
(c) PT Sumatera Persada Energi (SPE) has notified Oilex (West Kampar) Limited (OWK)
of a claim filed on 25 January 2010 by SPE in an Indonesian court against OWK.
OWK has not been served with the claim. OWK understands that SPE is seeking
damages from OWK for alleged defamation arising out of correspondence in
November 2008 that provided BPMigas with information relating to SPE's
performance as operator. No information has been provided in relation to how
the damages claimed for costs and damage to SPE's reputation have been
quantified. OWK rejects the allegations in the claim and, if served, will
vigorously oppose the claim.
NOTE 31 - SUBSEQUENT EVENTS
In August 2010, Oilex Ltd's application to the Government of WesternAustralia's Department of Mines and Petroleum, on behalf of the WA-388-P JointVenture, to vary the secondary term of the work program, was approved. Underthe terms of the variation, the work commitment in relation to permit year 5,commencing 28 August 2010, requires the reprocessing of 450km2 3D seismic whichis estimated to cost $450,000. The decision to enter permit year 6 of thesecondary work program will be determined prior to its commencement.
NOTE 32 - PARENT ENTITY DISCLOSURE
As at, and throughout, the financial year ended 30 June 2010 the parent companyof the Group was Oilex Ltd. 2010 2009 $ $ Result of the parent entity Loss for the period (12,380,715) (41,474,647) Other comprehensive income 85,203 (2,879,726) Total comprehensive income (12,295,512) (44,354,373)
Financial position of the parent entity at year end
Current assets 18,189,760 12,519,403 Total assets 40,176,619 42,429,362 Current liabilities 844,078 1,817,878 Total liabilities 2,236,171 3,260,755
Total equity of the parent entity comprising of:
Issued capital 120,158,833 110,734,909 Option reserve 9,139,884 12,819,214
Foreign currency translation reserve 593,937 508,734
Accumulated losses (91,952,206) (84,894,250) Total Equity 37,940,448 39,168,607 Parent entity contingencies
The directors are of the opinion that provisions are not required in respect to these matters, as it is not probably that a future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement.
(a)Oilex Ltd has issued a guarantee in relation to corporate credit cards. The
Bank Guarantee amounts to AUD$100,000. An equal amount is held in cash and cash
equivalents as security by the Bank.
(b)Oilex Ltd has entered into the following guarantees in respect of its
subsidiaries;
i. Oilex Ltd on 5 October 2006 issued a Parent Company Performance Guarantee in
relation to the Exploration and Production Sharing Agreement entered into with
the Government of the Sultanate of Oman through the Ministry of Oil and Gas
dated 28 June 2006.
ii.Oilex Ltd on 7 November 2006 issued a Deed of Parent Company Performance
Guarantee in relation to the Production Sharing Contract entered into with the
Timor Sea Designated Authority dated 15 November 2006.
Parent entity capital commitments for acquisition of property plant and equipment
Oilex Ltd has no capital commitments as at 30 June 2010.
Parent entity guarantee (in respect of debts of its subsidiaries)
Other than the Performance Guarantees disclosed as parent entity contingencies above, Oilex Ltd has issued no guarantees in respect of debts of its subsidiaries.
DIRECTORS' DECLARATION
1. In the opinion of the Directors of Oilex Ltd (the "Company"):
(a) the consolidated financial statements and notes set out on pages 47 to 82, and
the Remuneration Report in the Directors' Report, set out on pages 37 to 45,
are in accordance with the Corporations Act 2001, including:
i) giving a true and fair view of the Group's financial position as at 30 June
2010 and of its performance for the financial year ended on that date; and
ii) complying with Australian Accounting Standards (including the Australian
Accounting Interpretations) and the Corporations Regulations 2001;
(b) there are reasonable grounds to believe that the Company will be able to pay
its debts as and when they become due and payable.
2. The Directors have been given the declarations required by Section 295A of the
Corporations Act 2001 from the Managing Director and Finance Director for the
financial year ended 30 June 2010.
3. The Directors draw attention to Note 2(a) to the consolidated financial
statements, which includes a statement of compliance with International
Financial Reporting Standards.
Signed in accordance with a resolution of the Directors.
…………………… ……………….. Dr B. H. McCarthy Mr B. Clube Managing Director Finance Director West Perth9 September 2010 KPMG
Independent auditor's report to the members of Oilex Ltd
Report on the financial report
We have audited the accompanying financial report of the Group comprising OilexLtd (the Company) and the entities it controlled at the year's end or from timeto time during the financial year, which comprises the consolidated statementof financial position as at 30 June 2010, and consolidated statement ofcomprehensive income, consolidated statement of changes in equity andconsolidated statement of cash flows for the year ended on that date, adescription of significant accounting policies and other explanatory notes 1 to32 and the directors' declaration.
Directors' responsibility for the financial report
The directors of the Company are responsible for the preparation and fairpresentation of the financial report in accordance with Australian AccountingStandards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing andmaintaining internal control relevant to the preparation and fair presentationof the financial report that is free from material misstatement, whether due tofraud or error; selecting and applying appropriate accounting policies; andmaking accounting estimates that are reasonable in the circumstances. In note 2(a), the directors also state, in accordance with Australian AccountingStandard AASB 101 Presentation of Financial Statements, that the financialreport, comprising the financial statements and notes, complies withInternational Financial Reporting Standards. Auditor's responsibilityOur responsibility is to express an opinion on the financial report based onour audit. We conducted our audit in accordance with Australian AuditingStandards. These Auditing Standards require that we comply with relevantethical requirements relating to audit engagements and plan and perform theaudit to obtain reasonable assurance whether the financial report is free frommaterial misstatement.An audit involves performing procedures to obtain audit evidence about theamounts and disclosures in the financial report. The procedures selected dependon the auditor's judgement, including the assessment of the risks of materialmisstatement of the financial report, whether due to fraud or error. In makingthose risk assessments, the auditor considers internal control relevant to theentity's preparation and fair presentation of the financial report in order todesign audit procedures that are appropriate in the circumstances, but not forthe purpose of expressing an opinion on the effectiveness of the entity'sinternal control. An audit also includes evaluating the appropriateness ofaccounting policies used and the reasonableness of accounting estimates made bythe directors, as well as evaluating the overall presentation of the financialreport.
We performed the procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001 and Australian Accounting Standards (including the Australian Accounting Interpretations), a view which is consistent with our understanding of the Group's financial position and of its performance.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.
Auditor's opinionIn our opinion:
(a) the financial report of the Group is in accordance with the Corporations Act
2001, including:
(i) giving a true and fair view of the Group's financial position as at 30 June
2010 and of its performance for the year ended on that date; and
(ii)complying with Australian Accounting Standards (including the Australian
Accounting Interpretations) and the Corporations Regulations 2001.
(b) the financial report also complies with International Financial Reporting
Standards as disclosed in note 2(a).
Report on the remuneration report
We have audited the Remuneration Report included in pages 37 to 45 of thedirectors' report for the year ended 30 June 2010. The directors of the companyare responsible for the preparation and presentation of the remuneration reportin accordance with Section 300A of the Corporations Act 2001. Ourresponsibility is to express an opinion on the remuneration report, based onour audit conducted in accordance with auditing standards. Auditor's opinion
In our opinion, the remuneration report of Oilex Ltd for the year ended 30 June 2010, complies with Section 300A of the Corporations Act 2001.
KPMGBrent SteedmanPartnerPerth, WA9 September 2010
KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative.
SHAREHOLDER INFORMATION
The shareholder information set out below was applicable as at 19 August 2010.
1. Shareholding
(a)Distribution of share and option holdings
Size of Number of Number of unlisted Number of performanceholding shareholders option holders right holders 1 - 1,000 272 - - 1,001 - 833 - - 5,000 5,001 - 587 - - 10,000 10,001 - 1,459 8 7 100,000 100,001 321 16 - and over Total 3,472 24 7
(b) Of the above total 823 ordinary shareholders hold less than a marketable
parcel.
(c) There are no substantial shareholders holding 5% or more of the Company's
shares.(d) Voting Rights
The voting rights attached to the ordinary shares are governed by the Constitution.
On a show of hands every person present who is a Member or representative of aMember shall have one vote and on a poll, every Member present in person or byproxy or by attorney or duly authorised representative shall have one vote foreach share held. None of the options or performance rights give an entitlementto voting rights.
2. The name of the Company Secretary is Mr J W R Laurie.
3. The address of the principal registered office is Level 2, 50 Kings Park Road,
West Perth WA 6005, Australia, Telephone +61 8 9485 3200.
4. Register of Securities
The register of securities listed on the Australian Securities Exchange is held by Security Transfer Registrars Pty Ltd, 770 Canning Highway, Applecross WA 6153, Australia, Telephone +61 8 9315 2333.
The register of securities listed on the AIM Market is held by ComputershareInvestor Services PLC, PO Box 82, The Pavilions, Bridgwater Road, Bristol BS138AE, United Kingdom, Telephone +44 870 702 003.
5. Stock Exchange Listing
Quotation has been granted for all the ordinary shares of the Company on allMember Exchanges of the Australian Securities Exchange and the AIM Market ofthe London Stock Exchange and trades under the symbol OEX.
6. Detailed schedules of exploration and production permits held are included in
the Operations Review.
7. Directors' interest in share capital is disclosed in the Directors' Report.
8. Unquoted Securities - Options & Performance Rights
Total unlisted options on issue are 21,300,000
Dr B H McCarthy (Managing Director) holds a total of four million options, (see Note 20), which represents 18.78% of all outstanding options.
Total performance rights on issue are 440,000.
There is currently no on-market buy-back in place
Twenty Largest Shareholders % of issued Shareholder Shares held capital Citicorp Nominees Pty Limited 16,334,329 7.42 HSBC Custody Nominees 15,826,518 7.19 National Nominees Limited 9,762,308 4.44 Rock (Nominees) Limited 3,891,727 # 1.77 Barclayshare Nominees Limited 3,105,518 # 1.41
TD Waterhouse Nominees (Europe) Ltd 2,380,888 # 1.08
Finder Exploration Pty Ltd 2,200,000 1.00 Mrs M M Herpen 2,000,000 0.91 L R Nominees Limited 1,925,461 # 0.87 Forest Nominees Limited 1,870,450 # 0.85 Arredo Pty Ltd 1,850,000 0.84 ANZ Nominees Limited 1,695,802 0.77 Miramar Superannuation Fund 1,560,000 0.71 HSDL Nominees Limited 1,415,417 # 0.64 Diplomat Holdings Pty Ltd 1,385,000 0.63 Rodal Investments Pty Ltd 1,250,000 0.57 Dr B H McCarthy 1,150,000 0.52 Mr K D Ferreira 1,145,000 0.52 Cartom Pty Ltd 1,113,910 0.51 Greenslade Holdings Pty Ltd 1,000,000 0.46 Total 72,862,328 33.11
Total issued shares as at 19 August 2010 220,074,885 (#) 100.00
(#) Included within the total issued capital are 29,214,918 shares held on the AIM register. Included within the top 20 shareholders are certain AIM registered holders as marked
REGIONAL OFFICESSULTANATE OF OMANMuscat Branch OfficeOilex Oman Limited24-26, 2nd FloorBuilding No 117Al Ma'aridh StreetGhala / BousherMuscatSultanate of Oman INDIAVadodara Project OfficeOilex Ltd101 - 102 Rubillite Hub32, Ajit Nagar SocietyDinesh Mill RoadVadodara 390007GujaratIndia TIMOR-LESTEDili Branch OfficeOilex (JPDA 06-103) LtdAvenida de PortugalKampo AlorDiliTimor-Leste CORPORATE INFORMATIONDirectors
M D J Cozijn BCom ASA MAICD
Non-Executive Chairman
B H McCarthy BSc (Hons) PhD Geology
Managing Director
R G Barnes BSc (Hons) Geology
Technical Director
B J M Clube BSc (Hons) Geology ACA
Finance Director
L L Bhandari BSc Geology and MSc Geology
Non-Executive Director
R L Miller MSc Engineering and BSc Ocean Engineering
Non-Executive Director Company SecretaryJ W R Laurie BA LLB (Hons) AuditorsKPMG235 St Georges TerracePerth WA 6000Australia Annual General Meeting
The annual general meeting of Oilex Ltd will be held at the Celtic Club 48 Ord Street, West Perth at 4.00pm on 10 November 2010
[email protected] Incorporation
Incorporated in the State of Victoria on 2 June 1997
Registered and Principal Office
Level 250 Kings Park RoadWest Perth WA 6005AustraliaPh. +61 8 9485 3200Fax +61 8 9485 3290 Postal AddressPO Box 588West Perth WA 6872AustraliaStock Exchange Listings
Oilex Ltd's shares are listed under the code OEX on the Australian Securities Exchange and on the AIM Market of the London Stock Exchange.
Nominated Adviser to AIM Market
RFC Corporate Finance LtdLevel 15 QV1 Building250 St Georges TerracePerth WA 6000Australia Share Registries
Security Transfer Registrars Pty Ltd (for ASX)
770 Canning HighwayApplecross WA 6153Australia
Computershare Investor Services PLC (for AIM)
The PavilionsBridgwater RoadBristol BS13 8AEUnited Kingdom
vendorRelated Shares:
OEX.L