Financial Report for Year Ended 30 June 2012

2012 ANNUAL REPORT

OILEX LTD

ABN 50 078 652 632

A copy of the full report can be downloaded from the Company's website www.oilex.com.au

SUMMARY

Cambay Field, Onshore Gujarat, India

·; Independent Reserves Certification of Cambay Eocene "tight" reservoirs completed by Netherland, Sewell and Associates Inc. confirmed substantial Contingent Resources and Prospective Resources.

·; Successfully drilled, completed and conducted eight stage fracture stimulation programme on the Cambay-76H "proof of concept" horizontal well. The longest horizontal well drilled to date in the Cambay Basin.

·; Micro-seismic and pressure data acquired during the Cambay-76H fracture stimulation programme indicate a stimulated rock volume comparable to that being achieved in North American "tight" reservoirs.

·; Revised well production profile models incorporating post fracture stimulation data indicate Estimated Ultimate Recoverable Volumes in excess of 3 BCFE.

·; Positive indicators during Cambay-76H well operations included hydrocarbon flow to surface and sustained formation over-pressure.

·; Mechanical difficulties with milling assemblies and drill pipe failures in Cambay-76H milling operations resulted in operations being suspended.

·; The Joint Venture is formulating a work programme, the proposed first stage of which is to drill an offset well to the Cambay-76H well. A production test will be conducted to evaluate the commerciality of the Cambay Y Zone "tight" reservoir.

·; Encouraging preliminary results from Cambay-73 production and testing.

Financial

·; Oilex retained $4.4 million cash at the end of the year with no corporate debt.

·; Oilex's financial position was strengthened with a fully underwritten renounceable rights issue completed in September 2012 for $7.1 million before expenses.

Contents

Chairman's Review

Business Review

Permit Schedule

Corporate Governance Statement

Directors' Report

Remuneration Report

Auditor's Independence Declaration

Consolidated Statement of Comprehensive Income

Consolidated Statement of Financial Position

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

Notes to the Consolidated Financial Statements

Directors' Declaration

Independent Audit Report

Shareholder Information

Business Directory

Corporate Information

CHAirman's review

Dear Shareholder,

Your Company has continued to make significant progress in evaluating the potential of the extensive, Eocene low permeability "tight" reservoirs in the Cambay Field, onshore Gujarat, India.

The Company's strategy in commercialising the Cambay Field "tight" reservoirs is to apply leading-edge "tight" reservoir evaluation, drilling and production technologies and techniques which have been developed in recent years in the rapidly expanding "tight" and shale gas industry in North America.

In October 2011 an independent international consultant, Netherland Sewell and Associates Inc. assessed significant Contingent and Prospective Resources for the Cambay Field "tight" reservoirs. Positive results were also obtained from the Cambay-76H "proof of concept" horizontal fracture stimulated well drilled during the year - the first well of its kind in India. Encouraging preliminary results from a flow test on the Cambay-73 vertical well also support the potential for commercial recovery rates. The Cambay Field continues to emerge as a potential major asset for the Company with the prospects of generating near term production and cash flows.

The Cambay Contract Area is a large acreage position and is located at the hub of India's largest gas distribution network close to the existing gas grid. The Indian gas market is expected to be one of the fastest growing in the world over the next two decades. The inherent advantages of gas over alternate fuels, has resulted in the demand for gas in India to consistently outpace supply and the gas deficit in India is expected to increase.

While operational difficulties prevented a flow test being conducted on the Cambay-76H well, the Company and its Joint Venture partner, Gujarat State Petroleum Corporation, intend to drill an offset well near to Cambay-76H to complete the "proof-of-concept" phase before proceeding with a pilot development. The Company is also currently seeking to enhance its technical and operational capabilities and recently announced the appointment of Michael Maloney as Chief Operating Officer, based in India.

During the year, the Company with its Joint Venture partners, in the Timor Leste Joint Venture, selected the Bazartete prospect to drill as the next proposed exploration well. The Company estimates that this prospect has the potential to contain 70.8 million barrels of mean prospective resources (unrisked, 100% basis) with a 23% chance of success (net to Oilex: 7.1 million barrels). The Company is currently seeking to secure a rig and is addressing funding options for this well.

After the end of the financial year the Company completed a fully underwritten renounceable rights issue with the assistance of Patersons Securities Limited acting as Lead Manager and Underwriter. A total of $7.1 million was raised before expenses, which will assist the Company in funding its share of drilling the Cambay offset well.

It is with regret that the Company announced the resignation of Mr Ben Clube as Finance Director and Company Secretary in September 2012. Mr Clube served the Company with distinction over 4 years. On behalf of the Board I would like to thank him for his significant contribution and we wish him well in his new position and future endeavours.

The 2012 financial year has been a challenging year for the Company with the operational difficulties that it experienced on its India project and an uncertain global economy. On behalf of the Board I wish to record our appreciation for the support and dedication of our staff, joint venture partners, contractors, local communities, shareholders and stakeholders during this difficult year.

Mr MDJ Cozijn

Chairman

13 September 2012

FIGURE 1: FRACTURE STIMULATION EQUIPMENT AT CAMBAY-76H

BUSINESS REVIEW

Overview

 "During the year Oilex took further steps in making the transition to becoming a significant unconventional energy producer in India".

Oilex's focus remained firmly on the world-class unconventional energy potential in the Company's highly prospective acreage at Cambay, onshore Gujarat, India.

During the year the significant size of the Cambay project was confirmed. In October 2011 Netherland, Sewell and Associates Inc. ("NSAI") completed an independent assessment of the Cambay Field "tight" reservoirs. NSAI assessed significant Contingent Resources and Prospective Resources with Unrisked Contingent Resources (2C net to Oilex) of 222 billion cubic feet of gas and 37 million barrels of oil from just the two uppermost zones (X and Y zones) of a very thick hydrocarbon bearing section. Promisingly, NSAI also concluded that the deeper zones within the Cambay Field contract area hold very substantial Prospective Resource, highlighting significant additional potential and outstanding long-term growth prospects for Oilex.

The Company's strategy is to utilise modern drilling and completion practices to pursue the unconventional resources in its Cambay project. Significant advancements in drilling and stimulation techniques have been extensively proven in North America in recent years, yet they have not been applied widely in India. At the beginning of the financial year Oilex had successfully drilled and completed the 2,740 metre "proof of concept" Cambay-76H well into the Y zone. An eight stage fracture stimulation programme in the 610 metre horizontal section was successfully completed in August 2011.

Micro-seismic and pump pressure data acquired during the Cambay-76H fracture stimulation programme indicated that the stimulated rock volume surrounding the Cambay-76H well bore is comparable to that obtained in stimulated wells of similar length in the Barnett and Haynesville reservoirs in North America. Production models for the Cambay-76H well incorporating post-fracture stimulation data are encouraging for the commercial production of hydrocarbons from the X and Y Zones. Revised well production profile models that incorporate post-fracture stimulation data indicate commercially viable Estimated Ultimate Recoverable volumes in excess of 3 BCFE.

Unfortunately clean-up operations on the Cambay-76 well were disrupted by abnormally high reservoir pressures and down-hole mechanical difficulties over an extended period of time. During this period there were encouraging indicators with hydrocarbon flow to surface and sustained reservoir over-pressure, however the Joint Venture eventually decided to suspend well operations in May 2012. As a consequence flow back of stimulation fluids to surface and a long term production test could not be performed on Cambay-76H.

In April 2012 the Company started production from Cambay-73, a conventional vertical well into the Y Zone and located about 600m from Cambay-76H, that had been drilled and stimulated in 2008-09. The pressure and fluid data recorded during production from Cambay-73 can be used to assess reservoir performance for a horizontal multistage fracture stimulated well. Preliminary results from Cambay-73 production have been encouraging and support the Company's previous Cambay-76H production modelling. Fluids composition analysis from Cambay-73 has confirmed a liquids-rich gas composition of about 40 barrels per million cubic feet of gas.

India and the Cambay project provide an attractive destination for oil and gas investment. Oilex is particularly well-placed with regard to the terms of our PSC in Cambay, where the minimum profit share to the joint venture parties is 65%. Cost recovery is 100% and oil price is set to comparable international benchmarks. As the world's largest democracy with a legal framework based on British common law, India provides a firm foundation for foreign-owned operations and investment.

India is also one of the world's fastest-growing energy markets. The International Energy Agency forecasts India's gas demand to increase by over 5% per annum over the next 15 years and to quickly outpace supply. These market fundamentals underpin robust future gas prices and highly attractive project economics for the Cambay Project. Importantly, the Cambay Project is ideally located at the hub of India's largest gas distribution network and just 10 kilometres from the existing gas grid. Hence it is well-positioned to rapidly commercialise production in the fast-growing, demand-driven domestic energy market.

During the financial year, in conjunction with Gujarat State Petroleum Corporation, well locations and objectives were being formulated for follow up drilling campaigns to further evaluate and develop the Cambay "tight" reservoirs. The first phase of this proposed work programme is to drill and flow test an offset well at Cambay-76H utilising North American technology.

A successful production test will provide the catalyst for a potential pilot development project and provide data which will enable us to further confirm the commercial potential of the Cambay "tight" X and Y zone reservoirs. The proposed follow up drilling campaign of three vertical and two horizontal wells and a pilot development project is intended to deliver near-term production and cash flow in 2013 as well as reserves.

After year end the Company strengthened its financial position by completing a fully underwritten renounceable rights issue in September 2012 to assist funding the upcoming Cambay offset well and providing working capital. The capital raising resulted in gross proceeds of $7.1 million.

Following the encouraging results from the NSAI independent assessment and the results from the Cambay-76H and Cambay-73 wells during the year, the Company is confident that it can realise the significant resource potential of the Cambay Project. The project's position in a growing domestic gas market, its close proximity to existing infrastructure and attractive fiscal and contract terms provide it with very attractive commercial fundamentals. The Company has demonstrated its ability to access and use proven modern "tight" reservoir technologies in India and it expects to capitalise from this "early mover advantage" in the future. A significant and high impact forward work programme has the potential to add significant shareholder value and to change the financial dynamics of the Company with the potential for development of near term production cash flow reducing the reliance on future equity raisings.

FIGURE 2: CAMBAY-76H WORK-OVER RIG OPERATIONS

Cambay Field Onshore Gujarat, India

(Oilex - 45%, Operator)

FIGURE 3: LOCATION MAP, CAMBAY BASIN GUJARAT, INDIA

In October 2011 Netherland, Sewell and Associates Inc. completed an independent hydrocarbon in-place evaluation and recoverable resources assessment of six potential Eocene reservoirs (X, Y, Z, 180-200, 200-300, 300-400 Zones) in the Cambay Contract Area.

NSAI assessed two shallower Zones (X and Y) to have combined Best Estimate (100% basis) Discovered gross in-place volumes of 1,314.1 billion cubic feet of gas ("BCF") and 1,633.1 million barrels of oil ("MMbo") and unrisked gross recoverable volumes of 494.7 BCF of gas and 83.3 MMbo. NSAI assessed the four deeper Zones (Z, 180-200, 200-300, 300-400) to have combined Best Estimate (100% basis) Undiscovered gross in-place volumes of 12,644 BCF (12.6 trillion cubic feet) of gas and 11,592.3 MMbo and unrisked gross recoverable volumes of 934.8 BCF of gas and 140.4 MMbo.

NSAI's assessment concluded that potential exists for in place crude oil and associated gas as well as primary gas and associated condensate from each of the reservoirs analysed. NSAI has used a ratio of crude oil to primary gas in-place for each reservoir of 60-65% to 40-35% and identified this ratio as a key uncertainty.

The recoverable hydrocarbons in the shallower zones assessed (X and Y) have been classified by NSAI as Contingent Resources.

FIGURE 4: PUMP TRUCKS FOR FRACTURE STIMULATION OPERATION CAMBAY-76H

The 4 deeper Zones - Z, 180-200, 200-300 and 300-400 - have been classified by NSAI as Prospective Resources. The Z Zone has 29 full or partial well penetrations with log responses that may indicate the presence of hydrocarbons but testing of this Zone has not been undertaken in the past. Consequently moveable hydrocarbons have yet to be recovered in commercial quantities from this Zone. The 180-200 Zone has 14 full or partial well penetrations with log responses that indicate hydrocarbons are present and moveable hydrocarbons have been produced by conventional drill stem and production test from a thin inter-bedded sand section in the near-vertical Cambay-19Z well. The well still produces hydrocarbons from this zone. Moveable hydrocarbons have yet to be demonstrated from the wider area of the 180-200 Zone. The limited nature of the data available in the deeper Zones, including as noted above, makes direct comparison with established North American unconventional and "tight" gas producing basins difficult.

The in-place and unrisked recoverable hydrocarbon volumes estimated by NSAI for the six defined zones are as shown in the tables below.

Notes to Tables

(1) The in-place and resource volume estimates prepared by Netherland, Sewell & Associates Inc. and stated in the tables above have been prepared in accordance with the definitions and guidelines set forth in Petroleum Resources Management System, 2007 approved by the Society of Petroleum Engineers ("SPE").

(2) The contingent resources shown in the tables above have been estimated using probabilistic methods. The prospective resources shown in the tables above have also been estimated using probabilistic methods and are dependent on a petroleum discovery being made.

(3) Oil volumes shown comprise crude oil and condensate.

(4) Gas volumes shown comprise free gas and associated gas.

(5) The estimates included in the table for Prospective Resources have not been adjusted for both an associated chance of discovery and a chance of development (see definitions).

(6) The estimates included in the table for Contingent Resources have not been adjusted for the chance of development due to one or more contingencies (see definitions).

(7) The gross (100% working interest) and net to Oilex (45% working interest) estimates include Government share of production applicable under the Production Sharing Contract.

(8) Oilex has a 45% net working interest in the Cambay Field Production Sharing Contract.

Cambay-76H Well

At the commencement of the financial year Oilex had successfully drilled and completed the 2,740 metre "proof of concept" Cambay-76H well. The well included a 610 metre horizontal section and an eight stage fracture stimulation programme, the first well in onshore India to apply these technologies.

During July 2011 the drilling rig was demobilized from the Cambay-76H well site. The fracture stimulation programme was started on 31 July 2011 after a period of mobilization and unplanned repairs to high pressure valves on the fracture stimulation well head tree. The fracture stimulation programme was completed successfully in seven days.

FIGURE 5: BLACK PEARL RIG 1 AT CAMBAY-76H LOCATION

Micro-seismic and pump pressure data were acquired during the fracture stimulation programme. Micro-seismic is used extensively in North America "tight" reservoir development to assist with the interpretation of the effectiveness of fracture stimulation programmes.

The micro-seismic results were reasonably consistent with the pump pressure data and interpretation of the data indicates that each of the eight fracture treatments successfully generated a complex fracture network in the X and Y Zone in the vicinity of the Cambay-76H well bore. The data also indicate that the stimulated rock volume surrounding the Cambay-76H well bore is comparable to that obtained in stimulated wells according to public data available for the Barnett and Haynesville reservoirs in the United States of America. Modelled initial production rates and well recoveries for the Cambay-76H well incorporating these actual post-fracture stimulation data are encouraging for the commercial production of hydrocarbons from the X and Y Zones and indicate Estimated Ultimate Recoverable Volumes in excess of 3 BCFE.

Clean-up operations were started in August 2011 to allow flow back of stimulation fluids to surface and a long term production test to be performed to evaluate the production potential of the Y Zone reservoir. The first fracture stimulation stage was successfully opened for flow back to surface and stimulation fluid, gas, condensate and oil were recorded at the flare pit. Unfortunately, the coiled tubing milling assembly became stuck in the wellbore during milling of the second fracture stage. As a consequence, the Company started the procurement and mobilisation of a work over rig, and imported manufactured specialist retrieval equipment.

In November 2011, while retrieval services and equipment were being mobilised to the Cambay-76H location, pressure at the Cambay-76H wellhead was recorded to have increased to approximately 1,200 psi. Fishing or retrieval operations commenced on 6 December 2011 after the well was subsequently "killed" for the installation of a Blow Out Preventer and proceeded satisfactorily with 246 metres of coiled tubing recovered in four sections over five days. Retrieval operations were then interrupted by high bottom-hole pressure conditions and an influx of gas and fracture stimulation fluids. Well control operations were initiated in mid-December. While a reduction in pressure in the well bore was recorded during well control operations, the well continued to flow. To counter the abnormal pressure a higher density mud system was mobilised and well control operations continued during January and February. Retrieval operations eventually resumed in February and the remainder of the coiled tubing and milling assembly was recovered in early March 2012.

Milling operations of the remaining fracture stimulation stages resumed in early March 2012. Milling operations were concluded on 11 May 2012 at a depth of 2,581 metres, with 6 stages fully opened and of the two remaining stages, one was partially opened. The decision was made to terminate milling operations at this point and the drill pipe parted while pulling out of the well.

During April 2012, operations to retrieve the drill pipe and milling assembly were undertaken. The drill pipe subsequently parted on three separate occasions while attempting to pull out of the well with the milling assembly which brought into question the fundamental integrity of the drill pipe. As a consequence it was decided to suspend operations and the suspension of Cambay-76H well operations was completed in May with equipment, services and personnel demobilised from site. An investigation including laboratory testing of the drill pipe is ongoing in collaboration with the service provider to determine the cause of these failures.

Cambay-73 Well

In April 2012 a previously stimulated well, Cambay-73 which is located about 600m to the south of Cambay-76H, was reopened in order to flow it back to surface, clean up the well to enhance production and to gather additional data to evaluate the potential of the Y Zone reservoir. The Cambay-73 well is a conventional vertical well drilled and completed in 2008 with smaller scale fracture stimulation and 10 metres of active perforations in the Y Zone. The Y Zone in Cambay-73 well is geologically similar to the Cambay-76H reservoir by comparison of well logs.

The pressure and fluid data that can be recorded during production can be directly used to model Y Zone reservoir performance for a horizontal multistage fracture stimulated well. Preliminary results have been encouraging and the data support the recent Cambay-76H production model.

Forward Work Programme

The Cambay Joint Venture is conducting a review of Cambay-76H operations to ensure that maximum value is derived from the work undertaken on the Cambay-76H well and for its wider application for the Cambay project and future work programme. Further activities will start once Joint Venture approvals have been secured for the proposed work programme.

The first stage of work is proposed to comprise an offset well to be drilled close to the Cambay-76H well with the intention to conduct a long term production test. The detailed design and location of the well will be finalised once engineering feasibility studies have been completed. 

After this well is drilled and tested the proposal is to proceed with a work programme of three vertical and two horizontal wells. This phase of work is designed to acquire cores, modern wire line logs, reservoir fluid information and production test data that would generate sales of oil and gas for local markets, assist an independent certifier to move contingent resources to reserves and evaluate the significant potential of the deeper, "tight" reservoirs at Cambay.

FIGURE 6: CAMBAY-76H WELL HEAD

Recruitment

Recruitment efforts for drilling and project management expertise for the Cambay forward work programme made good progress. The Company announced on 24 July, the appointment of Mr Michael Maloney as Chief Operating Officer, to be based in India.

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 Limited.

The Cambay Basin lies in the heart of Gujarat's industrial corridor which is India's largest centre of heavy industry. There is an extensive existing infrastructure of oil and gas pipelines connecting the Cambay Basin fields to local industries and other major centres as far north as Delhi. Gujarat accounts for a large proportion of India's industrial output, is one of the fastest growing states in India and has a large and expanding energy market.

The 161 square kilometres Cambay contract area contains thick, low permeability reservoirs in the Eocene section. The contract area was previously explored and developed by Oil and Natural Gas Corporation ("ONGC"), India's largest State-owned oil and gas company in the period from 1957 through to 1980's. However it was developed as a gas field mainly from the shallower Oligocene ("OSII") reservoirs in the southern part of the contract area. Since its inception, the Cambay Field has produced about 52 billion cubic feet of gas until it was shut-in in the early 1990's due to water and sand production problems.

ONGC drilled over 30 wells to variable total depths through the Eocene "tight" reservoirs, using conventional drilling and completion technology. The deepest well, Cambay-40 was drilled in 1963 to a depth of more than 3,200 metres with gas shows at the total depth of the well. The flow rates from conventional tests in the Eocene section of the various historical, conventional wells were relatively low, in the range of 0.3 - 4.2 MMSCFGD and production volumes were minimal.

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 low permeability Eocene reservoirs as a potentially under-exploited section. To evaluate this potential Oilex and GSPC completed the following work programme between 2006 and 2008:

·; acquired 3D seismic over the entire contract area;

·; drilled 5 conventional vertical wells all of which had strong indications of oil and gas while drilling including oil and gas in mud at surface;

·; tested oil or gas condensate from vertical wells with conventional completions in the Eocene section;

·; conducted small scale fracture stimulations on the Eocene zones in 3 wells;

·; conducted pre and post fracture stimulation well tests from those 3 wells resulting in flows of oil or gas and condensate to surface from the Eocene section;

·; initiated long term production testing on Cambay-19Z;

·; Cambay-73 was shut in as a potential gas condensate producer; and

·; Cambay-74 was completed as an oil production well at the shallow Miocene interval.

FIGURE 7: CAMBAY BASIN - LOCATION MAP, INFRASTRUCTURE AND OIL AND GAS FIELDS

Oilex concluded from this work programme that the potential of the Eocene "tight" reservoirs could be best harnessed by drilling horizontal wells and undertaking larger scale, multi-stage fracture stimulation of the "tight" reservoirs. The technology was not available in India at the time and the understanding of "tight" reservoir development was in its infancy outside of North America.

In 2009 the sophisticated "tight" reservoir evaluation, drilling and production technology which had driven the North American "shale gas" revolution became more widely accessible and Oilex sought to acquire access to those technologies to facilitate the evaluation and commercialisation of the Eocene reservoirs. Oilex was well placed to exploit these technologies on behalf of the Cambay Joint Venture given the existing comprehensive technical data base that it had acquired or improved upon since 2005, its international industry contacts and its experience of operating in India.

BHANDUT AND SABARMATI FIELDS,Onshore Gujarat, India

(Oilex - 40%, Operator)

FIGURE 8: BHANDUT FIELD

The fields were discovered and developed initially by ONGC. Hydrocarbons were found in Miocene sandstones at Bhandut and Eocene siltstones at Sabarmati. The fields were acquired by the GSPC and Niko Joint Venture in 1995 and Oilex subsequently acquired Niko's interest in 2006. During the year the fields produced a combined average of approximately 14 barrels of oil per day.

The Sabarmati Field is located on the southern culmination of a trend of producing oil fields operated by ONGC, on the outskirts of Ahmedabad, the largest city in Gujarat. Oil has been produced from the Eocene section from one well at low rates since inception of the PSC in 1994. The field has potential for further exploitation from its Eocene low permeability reservoirs in a similar manner to Cambay. It covers an area of 6 square kilometres.

The first 3D seismic survey over Bhandut Field was acquired in February 2007. The main reservoir units in the shallower Miocene section are sandstones with irregular distribution. At deeper stratigraphic levels exploration targets are likely to be gas-bearing. The contract area remains prospective and covers an area of 6 square kilometres. 

During the year work over activity was conducted on 2 wells, Bhandut-3 and Bhandut-4. This was partly successful with a thin gas zone in Bhandut-3 flowing gas to surface from a small structure. The Zone has been tested and the results are being assessed. Bhandut-4 well was shut-in pending further evaluation.

Production and Other Potential

Total net production from existing wells in the Cambay, Bhandut and Sabarmati Fields during the financial year was 4,254 barrels of oil (Oilex share). Production had previously come from discoveries in Miocene sandstones which have now substantially depleted.

Oilex has also identified seismic anomalies in the Oligocene 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 potential targets for future drilling programmes.

WA-388-P North West Shelf, Australia

(Oilex - 8.4%, Non-operator)

FIGURE 9: LEADS MAP WA-388-P

During the year work was completed by the Operator Apache Northwest Pty Ltd ("Apache") on the integration of the La Rocca-1 exploration well results into the regional geological models and the interpretation of the pre-stack depth migration reprocessed data across the Placanica prospect. Following this the Operator completed a prospectivity review of the permit.

The WA-388-P permit term expired on 28 August 2012 and the Operator has submitted a relinquishment and renewal programme to the Designated Authority for consideration. Under this proposal the permit will be extended for a further 3 years and there would be a limited work programme commitment including technical studies.

FIGURE 10: LOCATION MAP, WA-388-P

Background

The WA-388-P permit was awarded in August 2006 and is located outboard of the North West Shelf, Pluto, Wheatstone, and Gorgon fields, offshore Western Australia.

Oilex completed the interpretation of the reprocessed 2D and the Rose 3D seismic data as Operator in 2010. A portfolio of prospects and play types was developed with seven leads identified ranging in potential size from 0.3 to 2.8 trillion cubic feet ("TCF") of prospective gas resource (recoverable best estimate, 100% basis).

The La Rocca-1 exploration well was spudded on 30 April 2011. The well was operated by Apache. The well was drilled to a total depth of 4,864 metres. There were no indications of gas in log data and the well was plugged and abandoned. The Operator is currently reviewing options for the future work programme for the permit. 

Oilex secured funding for its share of the La Rocca-1 exploration well costs under the terms of a modified farm-out agreement with Apache. Under the farm out agreement Apache obtained a 40% interest in the WA-388-P permit by paying 100% of the first exploration well. Oilex retained an 8.4% interest in the permit and Apache replaced Oilex as the permit operator.

JPDA 06-103, TIMOR SEA

(Oilex - 10%, Operator)

During the year the seismic data processing and interpretation of the Tutuala 3D Survey was completed. The Tutuala Survey comprises 220 sq km of 3D seismic data across the previously identified Tutuala lead at the Top Plover Formation stratigraphic level. The Tutuala lead was only partially covered by 3D data and the new survey provided infill coverage between the existing adjacent 3D surveys. 

Additional reprocessing and interpretation of existing 3D seismic data was also completed during the year. This confirmed the size and shape of an alternative structure, Bazartete, which was also considered as a drilling target for the next well.

Volumetrics and risking for the leads were completed. The Bazartete lead was delineated as a significant structural depth closure. Final mapping of the Bazartete seismic data shows the presence of a broader depth closure than was previously mapped. The proposed Bazartete-1 well was nominated as the third well location by the JPDA 06-103 Joint Venture.

During the year Autoridade Nacional Do Petroleo ("ANP"), the JPDA Designated Authority, agreed to vary the Production Sharing Contract to extend the initial exploration period by 12 months until 15 January 2013.

Investigations regarding the availability of a suitable rig for drilling in the contract area and well planning were undertaken during the year. The Company is reviewing various options for funding its share of the Bazertete-1 well.

FIGURE 11: PROSPECTS AND LEADS JPDA 06-103

Background

The contract area JPDA 06-103, covering an area of 3,741 sq km is located in the Flamingo Trough portion of the Northern Bonaparte Basin, to the east of the Laminaria, Corallina and Kuda Tasi oil fields and to the north of the Kakatua and Elang oil fields and the giant Bayu-Undan gas condensate field.

In November 2006, Oilex (JPDA 06-103) Ltd (Operator) and the Joint Venture parties entered into a Production Sharing Contract ("PSC") with the Designated Authority for JPDA 06-103 and the PSC was signed in January 2007 (effective date 15 January 2007).

In January 2011 the ANP approved the JPDA 06-103 Joint Venture's proposal to vary the PSC work programme. Under the approved variation the decision to drill the fourth commitment well on the JPDA 06-103 PSC will be at the discretion of the Operator if the third well is unsuccessful. The ANP has also agreed that the PSC may be relinquished if the Operator and the Joint Venture parties decide not to proceed with any further exploration after the third well.

FIGURE 12: LOCATION MAP, JPDA 06-103

West Kampar PSC, Central Sumatra

(Oilex - 45% + further 22.5% secured - Non operator)

·; Oilex continued to take steps to advance its participating interest in the West Kampar PSC and to pursue enforcement of its Arbitration Award. The company has also remained open to and has progressed negotiations on a commercial resolution to the Joint Venture dispute with the Operator in the West Kampar PSC.

·; After consultation with Oilex, PT Sumatera Persada Energi ("SPE"), the Operator of the West Kampar PSC, has withdrawn a defamation claim (please refer to Oilex's ASX announcement on 31 December 2010) from the Indonesian court on the 24 August 2011.

FIGURE 13: LOCATION MAP, CENTRAL SUMATRA BASIN FIELDS AND PIPELINE INFRASTRUCTURE

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 a farm-out agreement entered into with SPE in May 2007. The initial area of the West Kampar PSC was 4,471 sq km.

In August 2008, Oilex entered into a second farm-out 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 Oilex terminated the second farm-out agreement when conditions were not met by the due date and many issues remained unresolved with the Operator. With the termination of that agreement, SPE was required to reimburse the monies advanced by Oilex under the terms of that agreement. Oilex commenced International Chamber of Commerce ("ICC ") Arbitration against PT Asiabumi Petroleo ("Asiabumi") in Singapore in April 2009 following the failure of SPE in early 2009 to repay a debt owing to Oilex. SPE's obligations to repay the debt were secured by a parent company guarantee granted by Asiabumi to Oilex in 2008.

On 24 June 2010, the International Court of Arbitration of the ICC found in favour of Oilex in its claim against Asiabumi for the recovery of US$4.6 million that is owed to Oilex. Asiabumi is the parent company of SPE. The Award granted in Oilex's favour took effect immediately. Oilex is pursuing the recovery of the monies owing under the Award.

Oilex maintains that it is further entitled to have assigned an additional 22.5% to its 45% holding through the exercise of its rights under a Power of Attorney granted by SPE following the failure of SPE to repay the funds due referred to above. The assignment documentation has been provided to BPMigas (the Indonesian regulator) but these have not yet been approved or rejected. If the debt due to Oilex is satisfied, Oilex will not pursue this assignment.

FIGURE 14: WEST KAMPAR PSC LOCATION MAP, SUMATRA, INDONESIA

Block 56, Oman

(Oilex - 25%, Operator - relinquished)

During the year Oilex Oman Limited, the Operator of the Block 56 Joint Venture, completed all relinquishment requirements to the satisfaction of the Ministry of Oil and Gas and in accordance with the Block 56 Contract Area Exploration and Production Sharing Agreement. The block was relinquished in good standing.

Financial

Cash held at end of the year of $4.4 million with no corporate debt. Oilex's financial position was strengthened with a fully underwritten renounceable rights issue completed in September 2012 for $7.1 million before expenses.

Health, Safety, Security and Environment

Policy

Oilex is committed to protecting the health and safety of everybody who plays a part in our operations or lives in the communities where we operate. Wherever we operate, we will conduct our business with respect and care for both the local and global, natural and social environment and systematically manage risks to drive sustainable business growth. We will strive to eliminate all injuries, occupational illness, unsafe practise and incidents of environmental harm from our activities. The safety and health of our workforce and our environment stewardship are just as important to our success as operational and financial performance and the reputation of the Company.

Oilex respects the diversity of cultures and customs that it encounters and endeavours to incorporate business practices that accommodate such diversity and that have a beneficial impact through our working involvement with local communities. We strive to make our facilities safer and better 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 of performance. We are committed to a process of continuous improvement in all we do and to the adoption of international industry standards and codes wherever practicable. Through implementation of these principles, Oilex seeks to earn the public's trust and to be recognised as a responsible corporate citizen.

Information in this report relating to hydrocarbon reserves or resources has been compiled by Mr Ray Barnes B.Sc. (Hons), the Technical Director of Oilex Ltd who has over 38 years' experience in petroleum geology and is a member of the AAPG. Mr Barnes consents to the inclusion of the information in this report relating to hydrocarbon reserves and resources in the form and context in which it appears. Resource estimates contained in this report are in accordance with the standard definitions set out by the Society of Petroleum Engineers, Petroleum Resources Management System, 2007.

This document may include forward-looking statements. Forward-looking statements include, but are not necessarily limited to, statements concerning Oilex Ltd's planned exploration programme and other statements that are not historic facts. When used in this document, the words such as "could", "plan", "estimate" "expect", "intend", "may", "potential", "should" and similar expressions are forward-looking statements. Although Oilex Ltd believes that its expectations reflected in these are reasonable, such statements involve risks and uncertainties, and no assurance can be given that actual results will be consistent with these forward-looking statements."

LIST OF ABBREVIATIONS AND DEFINITIONS USED HEREIN

(1)Oilex (West Kampar) Limited is entitled to have assigned an additional 22.5% to its holding through the 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

This statement outlines the main corporate governance practices in place throughout the financial year, which comply with the ASX Corporate Governance Council recommendations, unless otherwise stated.

Oilex Ltd ("Company") has made it a priority to adopt systems of control and accountability as the basis for the administration of corporate governance. Some of these policies and procedures are summarised in this statement. Commensurate with the spirit of the ASX Corporate Governance Council's Corporate Governance Principles and Recommendations 2nd edition ("Principles & Recommendations"), the Company has followed each recommendation where the Board has considered the recommendation to be an appropriate benchmark for its corporate governance practices. Where the Company's corporate governance practices follow a recommendation, the Board has made appropriate statements reporting on the adoption of the recommendation. In compliance with the "if not, why not" regime, where, after due consideration, the Company's corporate governance practices depart from a recommendation, the Board has offered full disclosure and an explanation for the adoption of its own practice.

The following governance-related documents can be found on the Company's website at www.oilex.com.au, under the section marked "Company Profile", "Corporate Governance":

Charters

Board

Audit Committee

Nomination Committee

Remuneration Committee

Policies and Procedures

Policy and Procedure for Selection and (Re)Appointment of Directors

Policy on Assessing the Independence of Directors

Process for Performance Evaluation

Securities Dealing Policy

Code of Conduct

Continuous Disclosure Policy

Continuous Disclosure Compliance Procedures (summary)

Procedures for the Selection, Appointment and Rotation of External Auditor

Shareholder Communication Policy

Risk Management Policy (summary)

Whistleblower Policy

Diversity Policy

The Company reports below on how it has followed (or otherwise departed from) each of the Principles & Recommendations during the 2011/2012 financial year ("Reporting Period").

Roles and responsibilities of the Board and Senior Executives

(Recommendations: 1.1, 1.3)

The Company has established the functions reserved to the Board and those delegated to senior executives, and has set out these functions in its Board Charter. The information in this statement is current at 13 September 2012.

The Board is collectively responsible for promoting the success of the Company through its key functions of overseeing the management of the Company, providing overall corporate governance of the Company, monitoring the financial performance of the Company, engaging appropriate management commensurate with the Company's structure and objectives, involvement in the development of corporate strategy and performance objectives, and reviewing, ratifying and monitoring systems of risk management and internal control, codes of conduct and legal compliance.

Senior executives are responsible for supporting the Managing Director and assisting the Managing Director in implementing the running of the general operations and financial business of the Company in accordance with the delegated authority of the Board. Senior executives are responsible for reporting all matters which fall within the Company's materiality thresholds at first instance to the Managing Director or, if the matter concerns the Managing Director, directly to the Chair.

The Company's Board Charter is disclosed on the Company's website.

Skills, experience, expertise and period of office of each Director

(Recommendation: 2.6)

A profile of each Director setting out their skills, experience, expertise and period of office is set out in the Directors' Report.

The mix of skills, experience and diversity for which the Board is looking to achieve in membership of the Board reflects the Company's strategy, which is now focussed on India, and in particular focussed on transferring and applying tight reservoir technologies from North America into the Cambay field in Gujarat, India. The Board is currently investigating how to increase the balance of independence on the Board, and achieve a mix of the following skills: tight reservoir technical expertise, industry and UK capital markets experience, India experience, international petroleum industry experience, finance and subsurface engineering expertise.

Director independence

(Recommendations: 2.1, 2.2, 2.3, 2.6)

The Board does not have a majority of directors who are independent. The Board considered that its current composition was an appropriate blend of skills and expertise, relevant to the Company's business. However, the Board is currently reviewing its composition in light of its change in strategy as outlined above and its changing requirements. The Board is aware of the importance of independent judgement and will seek to address the balance of independence on its Board as part of this review.

Independence is measured having regard to the relationships listed in Box 2.1 of the Principles & Recommendations and the Company's materiality thresholds. The materiality thresholds are set out below.

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, could affect the Company's rights to its assets, if accumulated 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 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 course of business, contain exceptionally onerous provisions in the opinion of the Board, impact on income or distribution in excess of the quantitative tests, there is a likelihood that either party will default and the default may trigger any of the quantitative or qualitative tests, are essential to the activities of the Company and cannot be replaced or cannot be replaced without an increase in cost which triggers any of the quantitative tests, contain or trigger change of control provisions, are between or for the benefit of related parties, or otherwise trigger the quantitative tests.

The sole independent director of the Company from 1 July 2011 until 9 November 2011 was Laxmi Bhandari. Mr Bhandari was independent as he was a non-executive director who was not a member of management and who was free of any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the independent exercise of his judgement.

Max Cozijn is now the sole independent director of the Company (since 1 May 2012). Mr Cozijn's independence status changed on 1 May 2012 this year, as that date marked the expiration of three years since Mr Cozijn has been an executive of the Company having served as Company Secretary. Mr Cozijn is now independent as he is a non-executive director who is not a member of management and who is free of any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the independent exercise of his judgment.

The non-independent directors of the Company are Sundeep Bhandari, Bruce McCarthy, Ray Barnes, Ben Clube, Ron Miller (and Max Cozijn for the period 1 July 2011 to 30 April 2012).

The Chair of the Board is Max Cozijn. As discussed above, Mr Cozijn was not considered independent until 1 May 2012. The Board considers that Mr Cozijn is the most appropriate person for the position of Chair because of his corporate governance and industry experience. The Board was of the view that it was only Mr Cozijn's prior role as Company Secretary that precluded him from being considered independent and that his former role as Company Secretary was unlikely to cause a conflict of interest or impede his ability to exercise independent judgement.

The Managing Director is Bruce McCarthy who is not Chair of the Board.

Independent professional advice

(Recommendation: 2.6)

To assist directors with independent judgement, it is the Board's policy that if a director considers it necessary to obtain independent professional advice to properly discharge the responsibility of their office as a director then, provided the director first obtains approval from the Chair for incurring such expense, the Company will pay the reasonable expenses associated with obtaining such advice.

Selection and (Re)Appointment of Directors

(Recommendation: 2.6)

In determining candidates for the Board, the Nomination Committee (or equivalent) follows a prescribed process whereby it evaluates the mix of skills, experience and expertise of the existing Board. In particular, the Nomination Committee (or equivalent) is to identify the particular skills that will best increase the Board's effectiveness. Consideration is also given to the balance of independent directors. Potential candidates are identified and, if relevant, the Nomination Committee (or equivalent) recommends an appropriate candidate for appointment to the Board. Any appointment made by the Board is subject to ratification by shareholders at the next general meeting.

The Board recognises that Board renewal is critical to performance and the impact of Board tenure on succession planning. Each director other than the Managing Director, must not hold office (without re-election) past the third annual general meeting of the Company following the Director's appointment or three years following that director's last election or appointment (whichever is the longer). However, a Director appointed to fill a casual vacancy or as an addition to the Board must not hold office (without re-election) past the next annual general meeting of the Company. At each annual general meeting a minimum of one director or a third of the total number of directors must resign. A director who retires at an annual general meeting is eligible for re-election at that meeting. Re-appointment of directors is not automatic.

The Company's Policy and Procedure for the Selection and (Re)Appointment of Directors is disclosed on the Company's website.

Board committees

Nomination Committee

(Recommendations: 2.4, 2.6)

The Board established a separate Nomination Committee on 10 May 2012. Prior to that date, the Board performed the role of the Nomination Committee. The Board believed that there would be no efficiencies gained by establishing a separate Nomination Committee. Items that were usually required to be discussed by a Nomination Committee were marked as separate agenda items at Board meetings when required and when the Board convened as the Nomination Committee it carried out those functions which are delegated to it in the Company's Nomination Committee Charter. The Board dealt with any conflicts of interest that occurred when it convened in the capacity of the Nomination Committee by ensuring that the director with conflicting interests was not party to the relevant discussions. However, as part of the Board's review of its composition, the Board resolved to establish a separate Nomination Committee comprised of the Non-Executive Directors, Sundeep Bhandari (Chair), Ron Miller and Max Cozijn.

The full Board, in its capacity as the Nomination Committee, held one meeting during the Reporting Period. All members of the Board at the time attended the Nomination Committee, except Laxmi Bhandari. The separate Nomination Committee which was formed on 10 May 2012 has held one meeting. Details of the directors who are members of the Nomination Committee and their attendance at committee meetings are set out in the following table:

The Board has adopted a Nomination Committee Charter which describes the role, composition, functions and responsibilities of the Nomination Committee.

The Company's Nomination Committee Charter is disclosed on the Company's website.

Audit Committee

(Recommendations: 4.1, 4.2, 4.3, 4.4)

The Board has established an Audit Committee.

Due to the composition of the Board, the Audit Committee is not structured in compliance with Recommendation 4.2. Whilst the Audit Committee comprises three non-executive directors: Ron Miller, (Chair); Max Cozijn and Laxmi Bhandari (who resigned on 9 November 2011 and was replaced by Sundeep Bhandari), only Laxmi Bhandari was independent, and Max Cozijn was independent from 1 May 2012. The Board considers that Mr Miller is the most appropriate person to be Chair of the Audit Committee because of his industry experience. The Board is of the view that Mr Miller's role as a technical consultant is not a material relationship in accordance with the Board Charter guidelines for assessing the materiality of matters and that his role as consultant is unlikely to cause a conflict of interest or impede his ability to exercise independent judgement.

The Company considers that the members of the Audit Committee are the most appropriate, given their experience and qualifications, for the Company's current needs. The Board has adopted an Audit Committee Charter, which describes the committee's role, composition, functions and responsibilities. The Audit Committee Charter makes provision for the Audit Committee to meet with the external auditor, as required.

The Audit Committee held three meetings during the Reporting Period. Details of the directors who are members of the Audit Committee and their attendance at Audit Committee meetings are set out in the following table:

Details of each of the director's qualifications are set out in the Directors' Report. All members of the Audit Committee are financially literate and Max Cozijn is an Associate of the Australian Society of Certified Practising Accountants. Mr Ben Clube (Finance Director) and Ms Andrea Bissett (Financial Controller) are both Chartered Accountants and attend Audit Committee meetings by invitation.

The Company has established procedures for the selection, appointment and rotation of its external auditor. The Board is responsible for the initial appointment of the external auditor and the appointment of a new external auditor when any vacancy arises, as recommended by the Audit Committee. Candidates for the position of external auditor must demonstrate complete independence from the Company through the engagement period. The Board may otherwise select an external auditor based on criteria relevant to the Company's business and circumstances. The performance of the external auditor is reviewed on an annual basis by the Audit Committee and any recommendations are made to the Board.

The Company's Audit Committee Charter and Procedure for the Selection, Appointment and Rotation of External Auditor are disclosed on the Company's website.

Remuneration Committee

(Recommendations: 8.1, 8.2, 8.3)

The Board has established a Remuneration Committee. The Remuneration Committee is not structured in accordance with Recommendation 8.2. Although the Company does not have any executive directors serving on the Remuneration Committee, in line with the Recommendation, the Board's current structure does not permit it to establish a Remuneration Committee that meets the structural requirements of Recommendation 8.2 as the Board does not have a sufficient number of independent directors. The Board will continue to monitor the composition of the Remuneration Committee and make appropriate changes to the composition of its Remuneration Committee should further independent directors be appointed to the Board.

The Remuneration Committee held one meeting during the Reporting Period on 15 June 2012. Details of the directors who are members of the Remuneration Committee, and their attendance at the Remuneration Committee meeting are set out in the following table:

To assist the Remuneration Committee to fulfil its functions, the Board has adopted a Remuneration Committee Charter which describes the role, composition, functions and responsibilities of the Remuneration Committee.

Details of remuneration, including the Company's policy on remuneration, are contained in the "Remuneration Report" which forms of part of the Directors' Report. Non-executive directors are remunerated at a fixed fee for time, commitment and responsibilities. Remuneration for non-executive directors is not linked to individual performance. Given the stage of development of the Company and the financial constraints applicable to it, the Company may consider it appropriate as an additional incentive or reward, to issue unquoted options to non-executive directors, subject to obtaining the relevant Board and shareholder approvals. This policy is subject to annual review. Pay and rewards for executive directors and senior executives consists of a base salary and performance incentives. Long term performance incentives may include options granted at the discretion of the Board and subject to obtaining the relevant approvals.

There are no schemes for termination or retirement benefits for non-executive directors (other than for superannuation). However during the Reporting Period (on 8 December 2011) a retirement benefit was paid to former director Laxmi Bhandari. Further details of the benefit paid to Mr Bhandari are set out in item 1.5 of the Principles of Compensation in the Remuneration Report included within the Directors' Report.

The Company's Remuneration Committee Charter includes a statement of the Company's policy on prohibiting transactions in associated products which limit the risk of participating in unvested entitlements under any equity based remuneration schemes.

The Company's Remuneration Committee Charter is disclosed on the Company's website.

Senior executives

(Recommendations: 1.2, 1.3)

The Managing Director is responsible for evaluating the performance of senior executives. The performance evaluation of senior executives comprises informal discussions on group and individual performance; evaluations are held as part of strategy and business review coupled with the annual remuneration review.

During the Reporting Period the evaluation of senior executives was undertaken by the Technical Director as the Managing Director was overseas.

Board, its committees and individual directors

(Recommendations: 2.5, 2.6)

The Chair is responsible for evaluation of the Board and, when deemed appropriate, Board committees and individual directors.

The process for evaluating the performance of the Board, individual directors and any applicable committees is as follows;

·; questionnaires are completed by each director;

·; the Chair of the Nomination Committee meets with each director to discuss the director's responses to the questionnaire;

·; the responses to each of the questionnaires are then summarised and collated and the Chair of the Nomination Committee reports back to the Board; and

·; the Board then review and discuss the report and address any issues as required.

During the Reporting Period an evaluation of the Board, its committees, and individual directors took place in accordance with the process disclosed.

The Nomination Committee is responsible for evaluating the Managing Director. The process for evaluating the performance of the Managing Director is undertaken by the Chair of the Nomination Committee who has a formal discussion with the Managing Director. During the Reporting Period an evaluation of the Managing Director took place in accordance with the process disclosed.

The Company's Process for Performance Evaluation is disclosed on the Company's website.

Ethical and responsible decision making

Code of Conduct

(Recommendations: 3.1, 3.5)

The Company has established a Code of Conduct as to the practices necessary to maintain confidence in the Company's integrity, practices necessary to take into account their legal obligations and the expectations of their stakeholders and responsibility and accountability of individuals for reporting and investigating reports of unethical practices.

Diversity Policy

(Recommendations: 3.2, 3.3, 3.4, 3.5)

The Company has established a Diversity Policy, which includes requirements for the Board to establish measurable objectives for achieving gender diversity and for the Board to assess annually both the objectives and progress towards achieving them.

The following measurable objectives for achieving gender diversity have been set by the Board in accordance with the Diversity Policy:

The proportion of women employees in the whole organisation is set out in the following table. There are no women senior executives or women on the Board.

The Company's Diversity Policy is disclosed on the Company's website.

Continuous Disclosure

(Recommendations: 5.1, 5.2)

The Company has established written policies and procedures designed to ensure compliance with ASX Listing Rule disclosure requirements, and accountability at a senior executive level for that compliance.

The Company's Continuous Disclosure Policy and a summary of its Continuous Disclosure Compliance Procedures are disclosed on the Company's website.

Shareholder Communication

(Recommendations: 6.1, 6.2)

The Company has designed a communications policy for promoting effective communication with shareholders and encouraging shareholder participation at general meetings.

The Company's Shareholder Communication Policy is disclosed on the Company's website.

Risk Management

Recommendations: 7.1, 7.2, 7.3, 7.4)

The Board has adopted a Risk Management Policy, which sets out the Company's risk profile. Under the policy, the Board is responsible for approving the Company's policies on risk assessment and management and satisfying itself that management has developed and implemented a sound system of risk management and internal control.

Under the policy, the Board delegates day-to-day management of risk to the Managing Director, who is responsible for identifying, assessing, monitoring and managing risks. The Managing Director is also responsible for updating the Company's material business risks to reflect any material changes, with the approval 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 they believe appropriate, with the prior approval of the Board.

The Board has established a separate Audit Committee to monitor and review the integrity of financial reporting and the Company's internal financial control systems and risk management systems. Before the adoption of the financial statements the Audit Committee receives a written declaration from the Managing Director and Finance Director in accordance with Recommendation 7.2 confirming the operation of the Company's risk management and internal control system.

As part of preparing this declaration, each finance and business unit manager is required to provide a signed letter of representation reporting to both the Managing Director and the Finance Director.

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, if proposed to be exceeded, requires prior Board approval;

·; 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 risk register by management to identify the Company's material business risks and risk management strategies for these risks. In addition, the process of managing material business risks is allocated to members of senior management. The risk register is reviewed by management and the Board at least every six months 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.

The Board has required management to design, implement and maintain risk management and internal control systems to manage the Company's material business risks. The Board also requires management to report to it confirming that those risks are being managed effectively. The Board has received a report from management as to the effectiveness of the Company's management of its material business risks.

The Managing Director and Finance Director have provided a declaration to the Board in accordance with section 295A of the Corporations Act and have assured the Board that such declaration is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risk.

A summary of the Company's Risk Management Policy is disclosed on the Company's website.

2012 FINANCIAL REPORT

CONTENTS

Directors' Report

Remuneration Report

Auditor's Independence Declaration

Consolidated Statement of Comprehensive Income

Consolidated Statement of Financial Position

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

Notes to the Consolidated Financial Statements

Directors' Declaration

Independent Audit Report

Shareholder Information

DIRECTORS REPORT

The directors of Oilex Ltd present their report (including the Remuneration 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 2012 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.

(Non-Executive Chairman)

BCom CPA MAICD

Chairman since the Company listed on the Australian Securities Exchange ("ASX") in 2003, Mr Cozijn has over 33 years experience in the administration of listed mining and industrial companies. He is a Non-Executive Director of Carbon Energy Limited and Energia Minerals Limited, and Chairman of Malagasy Minerals Limited and is a director of various private 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)

·; Malagasy Minerals Limited (from September 2006 to current)

·; Energia Minerals Limited (listed on ASX 24 December 2009) (from 13 May 1997 to current)

·; Magma Metals Limited (from June 2005 to 25 June 2012)

(Managing Director)

BSc (Hons) PhD Geology

Appointed Managing Director in February 2005, Dr McCarthy has over 33 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 other listed companies.

(Technical Director)

BSc (Hons) Geology

Appointed as a director in September 2005, Mr Barnes has over 40 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.

(Finance Director & Company Secretary)

BSc (Hons) Geology ACA

Appointed as a director in July 2009, Mr Clube has over 18 years' experience in the oil and gas exploration and production industry in finance and management positions. Further details of Mr Clube's qualifications and experience can be found in the Executive Management section of the Directors' Report.

During the last three years Mr Clube has not been a director of any other listed companies.

(Non-Executive Vice Chairman - Appointed 9 November 2011)

BCom

Mr Bhandari was appointed as a director (Vice Chairman) in November 2011. Mr Bhandari has over 27 years' business experience in India, of which more than 17 years have been in the energy business. He has worked with several multinational petroleum companies, including Cairn Energy, Mobil, Marathon, ENI, PGS and Command Petroleum. Mr Bhandari is currently the Chairman of the Corporate Advisory Board of Cairn India Ltd. Mr Bhandari is also a director and shareholder of India Hydrocarbons Ltd.

During the last three years Mr Bhandari has not been a director of any other listed companies.

(Non-Executive Director)

MSc Engineering and BSc Ocean Engineering, MAICD

Mr Miller was appointed as a director in July 2009. A chartered professional engineer (1989 - 2011), Mr Miller has more than 35 years of experience in the international petroleum industry. During his career to date, Mr Miller has held a range of senior positions 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 17 November 2010)

(Non-Executive Director - Resigned 9 November 2011)

BSc Geology and MSc Geology

Mr Bhandari was appointed as a director in November 2006. He worked with Oil and Natural Gas Corporation Ltd ("ONGC") as a Geologist and in management roles, over 40 years. Mr Bhandari held positions including Chairman and Managing Director of ONGC Videsh, the international exploration arm of ONGC and Chairman of ONGC. Subsequently, Mr Bhandari was President of Tata Petrodyne, the oil and gas subsidiary of Tata Industries, a very large Indian industrial corporation.

During the last three years Mr Bhandari has not been a director of any other listed companies.

DIRECTORS' MEETINGS

Directors in office, committee membership and directors' attendance at meetings during the 2011/2012 financial year.

(1) Please refer to the Corporate Governance Report for details of the change to the composition of the Audit, Remuneration, and Nomination Committees during the financial year.

(2) "Held" indicates the number of meetings available for attendance by the director during the period of each director's tenure.

(3) Chairman of respective meetings. Mr S Bhandari was appointed Chairman of the Nomination Committee on 9 November 2011.

(4) "Attended" indicates attendance by invitation.

(5) Mr S Bhandari was appointed a director with effect from 9 November 2011.

(6) Mr L L Bhandari resigned with effect from 9 November 2011.

EXECUTIVE MANAGEMENT

(Managing Director)

BSc (Hons) PhD Geology

Dr McCarthy has onshore and offshore experience gained in UK, Australia and India working for independent and large multinational companies. He has worked as an independent consultant and for Cairn Energy PLC (UK) responsible for the operating subsidiary in India until 2002 when he returned to Australia. From 1996 to 2000, Dr McCarthy was based in India with Command Petroleum India Ltd ("Command") and with Cairn Energy India Pty Ltd ("Cairn") after Command merged with Cairn in 1997. Until 1995, he spent 14 years with Marathon Oil Corporation working in the North Sea and based in the United Kingdom, working on the North West Shelf of Western Australia and in the Timor Sea based out of Perth, Western Australia.

(Technical Director)

BSc (Hons) Geology

Mr Barnes has worked in Europe, North and South America, South East Asia, the Middle East and Australia with an outstanding record of finding and developing commercial oil and gas discoveries in Australia and internationally. Recent appointments include Technical Director of Voyager Energy Limited from 2001 until 2005 and Exploration Manager of Apache Energy based in Perth during a very aggressive exploration and development phase in the offshore Carnarvon Basin when over 40 discoveries were made. Prior to 1997, Mr Barnes held senior management positions for Ampolex based in Denver, Colorado where he was responsible for the United States and South American operations following a period in Perth, Western Australia where he was responsible for North West Shelf and Timor Sea operations.

(Finance Director & Company Secretary)

BSc (Hons) Geology ACA

Mr Clube joined Oilex in May 2008 and brings a depth of finance and commercial international oil and gas expertise to the Oilex group, having spent 15 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 Geology from the University of Edinburgh and previously worked with Pricewaterhouse Coopers in London.

(Exploration Manager)

B AppSc Grad Dip AppSc (Geophysics)

Mr Lamberto joined Oilex in 2007 as Chief Geophysicist. He has over 27 years of experience in Australian and international oil and gas exploration activities. He has held various senior roles with Lasmo Energy plc, Ampolex Ltd, Mobil Exploration, OMV AG (Middle East) and BHP Billiton, as well as having worked as an independent consultant. Mr Lamberto was appointed Exploration Manager for Oilex in April 2010.

Mr David Jackman

(Cambay-76 Project Manager India - Appointed 1 August 2011)

BSc, Petroleum Engineering

Mr Jackman joined Oilex in 2011 as the drilling manager for the Cambay-76H well. Mr Jackman has over 35 years technical and managerial experience in the Middle East, Asia Pacific Rim, Africa and Europe. Mr Jackman has held various senior roles with Andarko Indonesia Company, Mohave Oil and Gas Corporation, Crescent Petroleum Company, Petronas Carigali White Nile (5B) Limited, Lundin Sudan BV, Lundin Blora & Sareba BV, Amerada Hess Indonesia Limited and Energy Equity Limited.

COMPANY SECRETARIES

The following individuals have acted as company secretary during the year ended 30 June 2012:

BSc (Hons) Geology ACA

Mr Clube was appointed Company Secretary effective 31 March 2011.

LLB, MAICD, ACIS, ICSA

Mr Boyle was appointed Dual Company Secretary from 24 May 2011 to 9 March 2012. Mr Boyle holds a Bachelor of Law degree and has extensive experience as an in-house counsel and company secretary.

PRINCIPAL ACTIVITIES

The principal activities of the consolidated entity during the course of the financial year included:

·; Exploration for oil and gas;

·; Appraisal and development of oil and gas ; and

·; Production and sale of oil.

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 2012 amounted to $13,006,779 (2011: loss of $10,758,065).

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 in the Business Review on pages 3 to 15 of this report.

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

In October 2011 Netherland, Sewell and Associates, Inc. completed an independent hydrocarbon in-place evaluation and recoverable resources assessment of six potential Eocene reservoirs (X, Y, Z, 180-200, 200-300, 300-400 Zones) in the Cambay Contract Area. Further detail is included in the Business Review.

At the beginning of the year Oilex had successfully drilled and completed the 2,740 metre "proof of concept" Cambay-76H well which included a 610 metre horizontal section and fracture stimulation programme.

During the year the eight stage fracture stimulation programme for the Cambay-76H "proof of concept" well was successfully completed. Clean-up operations started in August 2011 to allow flow back of stimulation fluids to surface and a long term production test to be performed. Clean-up operations were significantly delayed and interrupted when the milling unit became mechanically stuck and by higher than anticipated formation down-hole pressures. The Company suspended well operations in May 2012. Further detail is included in the Business Review

There have been no other significant changes in the state of affairs of the Group that occurred during the financial year not otherwise disclosed in this report or the financial statements.

SIGNIFICANT EVENTS AFTER BALANCE DATE

On 2 August 2012 Oilex announced a fully underwritten renounceable entitlement offer of 101,329,954 new shares on the basis of 2 new shares for every 5 shares held at an issue price of $0.07 per new share with 1 attaching new option exercisable at $0.15 per share on or before 7 September 2015 for every 2 new shares subscribed for, to raise approximately $7,093,097 before expenses. The issue of the new shares and associated options on 7 September 2015 increased the number of shares on issue from 253,324,885 to 354,654,839 and the number of listed options to 50,665,017.

Shareholders at a General Meeting on 7 September 2012 approved the allotment of 101,329,954 underwriter options at an exercise price of $0.15 expiring 7 September 2012, increasing the total number of listed options issued from 50,665,017 to 151,994,971. Based upon the closing market value on the first day of trading the underwriter options had a fair value of $911,970.

There were no other significant subsequent events occurring after year end.

LIKELY DEVELOPMENTS

Other than the matters referred to elsewhere in this report, further disclosure as to likely developments in the operations of the Group and expected results of those operations would, in the opinion of the Board, be speculative and not in the best interests of the Group.

FINANCIAL POSITION

At the date of this report, the Company had a total issued capital of 354,654,839 ordinary shares, 151,994,971 listed options exercisable at $0.15, 31,725,000 unlisted options exercisable at prices between $0.30 and $0.63 per share and 22,000 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.

As at 30 June 2012 the Group had no borrowings or undrawn financing facilities. The Company continues to actively develop funding options in order that it can meet its expenditure commitments (see Note 26) and its planned future discretionary expenditure.

ENVIRONMENTAL ISSUES

The Group's oil and gas exploration and production activities are subject to environmental regulation under the legislation of the respective states and countries in which they operate. The majority of the Group's activities involve low level disturbance associated with its exploration drilling programmes. The Board actively monitors compliance with these regulations and as at the date of this report is not aware of any material breaches in respect of these regulations.

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 section 205G(1) of the Corporations Act 2001, at the date of this report is as follows.

(1) The number of unlisted options issued by the Company disclosed above excludes 3,500,000 unlisted options issued to a related party of

B H McCarthy, being Mrs R McCarthy.

SHARE OPTIONS AND PERFORMANCE RIGHTS

During or since the end of the financial year, the Company has not granted any options over unissued ordinary shares in the Company, to any directors and executives, (or their nominees), of the Company as part of their remuneration. No performance rights were issued to directors or executives during or since the end of the financial year.

(1) At the date of this report unissued ordinary shares of the Company under option (with an exercise price) are:

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 subject to performance rights are:

Vesting of the performance rights is subject to the Company meeting performance conditions based on the share price growth of the Company compared to the growth 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 the OEX share price growth is equal to or greater than 50% of the Index growth, 50% of 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.

The 22,000 performance rights in tranche 3 vested on 1 July 2011.

During or since the end of the financial year, the Company issued ordinary shares as a result of the exercise of options as follows (there were no amounts unpaid on the shares issued):

During or since the end of the financial year, the Company has not issued ordinary shares as a result of the exercise of Employee Performance Rights.

INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS

The Group paid a premium in respect of insurance cover for the directors and officers of the Group. The Group has not included details of the nature of the liabilities covered or the amount of the premium paid in respect of the directors' liability and legal expense insurance contracts, as such disclosure is prohibited under the terms of the insurance contract.

PROCEEDINGS ON BEHALF OF THE COMPANY

No proceedings have been brought on behalf of the Company, nor has any application been made in respect of the Company under section 237 of the Corporations Act 2001. 

NON-AUDIT SERVICES

The Company may decide to employ the Auditor on assignments additional to their statutory audit duties where the Auditor's expertise and experience with the Group is important.

The Board has considered its position and, in accordance with the advice received from the Audit Committee, is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the provision of non-audit services by the Auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for 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, and its related practices for audit and non-audit services provided during the year are set out below.

REMUNERATION REPORT - AUDITED

1. PRINCIPLES OF COMPENSATION

Remuneration is referred to as compensation throughout this report. The Remuneration Report explains the remuneration arrangements for directors and senior executives of Oilex Ltd who have authority and responsibility for planning, directing and controlling the activities of the Group ("key management personnel").

Compensation levels for key management personnel of the Group are competitively set to attract, retain and motivate appropriately qualified and experienced directors and senior executives. The Remuneration Committee obtains advice on the appropriateness of compensation packages of both the Company and the Group given trends in comparative companies both locally and internationally and the objectives of the Company's compensation strategy.

The compensation structures explained below are designed to attract, retain and motivate 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; and

·; the growth in share price and delivering constant returns on shareholder wealth;

·; exploration success; and

·; development of projects.

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.

Fixed compensation consists of base compensation as well as employer contributions to superannuation funds. Compensation levels are reviewed annually by the Remuneration Committee through a process that considers individual, sector and overall performance of the Group. In addition, reviews of available data on oil and gas industry companies provide comparison figures to ensure the directors' and senior executives' compensation is competitive in the market. Compensation for a senior executive is separately reviewed at the time of a promotion.

Performance linked compensation includes both short-term and long-term incentives designed to reward key management personnel for growth in shareholder wealth. The short-term incentive ("STI") is an "at risk" bonus provided in the form of cash, while the long-term incentive plan ("LTI") is used to reward performance by granting options over ordinary shares of the Company.

Short-term incentive bonus

The Company does not utilise short-term incentives on an annual or regular basis, as these are not considered part of the standard compensation package for key management personnel. In certain circumstances the Remuneration Committee may, for reasons of retention or motivation, consider the use of short-term incentives. Short-term incentives, if granted, are at the discretion of the Remuneration Committee having regard to the business plans set before the commencement of the financial year.

There were no short-term incentives awarded during the period. Short-term incentives awarded in the previous year were accrued as compensation and paid in the current year.

Long-term incentive bonus

The Oilex Ltd Employee Performance Rights Plan ("the Plan") was implemented following shareholder approval at the 2006 Annual General Meeting ("AGM") and was last updated by shareholders at the AGM on 26 November 2009.

The Plan is a long-term incentive plan designed to allow the Company to attract and retain talented employees. The Plan aims to closely align the interests of senior executives and employees with those of shareholders and create a link between increasing shareholder value and employee reward.

The Plan permits the Board to grant rights to acquire shares in the Company. Rights granted under the Plan may be in the form of options with a market based exercise price, or performance rights (that is, zero exercise price options), or a combination of these depending upon the Company's objectives in making the grant. The exercise price of the unlisted 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 issue of performance rights or zero exercise price options are subject to a performance benchmark, based on Oilex's percentage share price growth compared to the growth in the S&P/ASX 200 Energy Sector Index, which, subject to the discretion of the Board of Oilex Ltd, must be satisfied before any performance rights can be exercised enabling the relevant employee to receive shares in the Company.

Remuneration packages are not linked to profit performance as the company is an exploration and appraisal company that is not generating profits or net operating cash inflows and as such does not pay any dividends. It is the performance of the overall exploration and appraisal programme and ultimately the share price that largely determines Oilex's performance. The Remuneration Committee therefore considers that fixed compensation combined with a long-term incentive component is the best remuneration structure for achieving the Company's objectives to the benefit of shareholders. The table below sets out the closing share price at the end of the current and four previous financial years.

There were no grants of shares, options or performance rights to any Non-Executive Director, Executive Director or Key Management Personnel during the year ended 30 June 2012.

Total compensation for all Non-Executive Directors is set based on comparison with external data with reference to fees paid to non-executive directors of comparable companies. Directors' fees cover all main board activities and membership of committees.

The Chairman's base annual fee including superannuation was set at $87,200 on 1 July 2009 and remains unchanged as at 30 June 2012.

The Vice-Chairman's base annual fee including superannuation is $65,400, and is $54,500 for the other Non-Executive Directors.

Payments made for consultancy services to India Hydrocarbons Limited, a related party of Mr S Bhandari, are for services undertaken under a consultancy contract with the Company negotiated effective from 1 May 2006, six years prior to Mr S Bhandari becoming a Non-Executive Director. The gross annual amounts paid of $87,209 (2011: $91,084 plus the value of the four million options that were issued) are disclosed in the Related Party Transactions Note 28 to the Consolidated Financial Statements. The amount to India Hydrocarbons Limited paid since the date of Mr Bhandari's appointment was $55,757 and this has been disclosed as Directors' and Executive Officers' Remuneration and disclosed in Note 27 to the Consolidated Financial Statements.

Payments made for technical services to La Jolla Enterprises Pty Ltd, a company of which Mr R L Miller is an employee relate to services and tasks undertaken at the specific request of the Company. The amount, $63,400 (2011: $174,608) is disclosed as Directors' and Executive Officers' Remuneration and are also disclosed in Note 27 to the Consolidated Financial Statements.

1.4 Remuneration Consultants

In May 2012 Gerard Daniels were engaged by the Board of Directors as Remuneration Consultants to provide market remuneration data to the Remuneration Committee in relation to Non-Executive Directors, Executive Directors and Key Management Personnel for the financial year ending 30 June 2013. No remuneration consultancy services were provided during the current financial year.

Included in the remuneration of Mr LL Bhandari for the year ended 30 June 2012 is a termination payment of $20,812.

This payment was recommended by the Remuneration Committee and ratified by the Oilex Board in recognition of Mr Bhandari's past services to the Company, including his service as a Non-Executive Director and member of the Remuneration and Audit Committees. In addition the Company acknowledged that Mr Bhandari agreed to resign before his next rotation in order to implement the Board's succession plan, including the plan to restructure the Board in line with the Company's existing strategy to focus on India. Also, at 76, Mr Bhandari was four years older than the previously recognised age limit for directors under section 201C (repealed) of the Corporations Act 2011 (Cth).

The Remuneration Committee acknowledges that Non-Executive Directors are not normally provided with retirement benefits, other than statutory superannuation entitlements. There is no provision under the current Non-Executive director employment conditions for the payment of any termination benefits, and the Board does not envisage that any such payments will be made in the future.

The basis of calculation was four weeks for every year of service, approximately 5 years of service and was paid a month after Mr Bhandari had resigned from the Company.

2. EMPLOYMENT CONTRACTS

The following table summarises the terms and conditions of contracts between key executives and the Company:

(1) The contract with Mr Jackman was extended on 13 August 2012 until 30 November 2012.

(2) The Company may terminate the contract immediately if serious misconduct has occurred. In this case the termination payment is only the fixed remuneration earned until the date of termination and any unvested options and performance rights will immediately be forfeited.

DIRECTORS' AND EXECUTIVE OFFICERS' REMUNERATION

Details of the nature and amount of each major element of remuneration of each Director of the Company and each of the named Company Executives and relevant Group Executives who received the highest remuneration are:

The Directors of the Company may be Directors of the Company's subsidiaries. No remuneration is received for directorships of subsidiaries. All Key Management Personnel are employed by the parent entity.

(1) S Bhandari appointed as a Director 9 November 2011. Salary and fees since appointment consist of Director fees of $42,092 and the India Hydrocarbons Limited consultancy service fees, the majority of work which is undertaken by Mr S Bhandari, of $55,757. The net cost to the Company (after Joint Venture recoveries) in relation to the consultancy service was $27,878. Refer Notes 27 and 28 to the Consolidated Financial Statements.

(2) LL Bhandari resigned as a Director 9 November 2011. A termination payment was paid on retirement. Refer item 1.5 of the Principles of Compensation in the Remuneration Report.

(3) Annual Directors fees of $54,500 (2011: $34,880) are salary sacrificed into superannuation. Salary & Fees disclosed above of $63,400 (2011: $174,608) are consultancy fees for technical services undertaken at the specific request of the Company.

Refer Note 27 to the Consolidated Financial Statements.

(4) Non-monetary benefits include provision of accommodation and related expenses whilst working away from normal place of residence.

(5) On 1 August 2011 D Jackman became Key Management Personnel (based in India).

(6) The amount represents the STI earned in the year ended 30 June 2011, with the amount being paid in the current year.

(7) The options issued in the 2011 financial year and disclosed as share-based payments are currently all out of the money. For the value of options forfeited in the current year refer to Note 4.6 of the Remuneration Report.

The fair value of the options is calculated at the date of grant using the Black-Scholes Model. Because of the performance condition attaching to the performance rights, a Monte Carlo Simulation is used to value the rights. The fair value of the options and rights is allocated to each reporting period evenly over the period from grant date to vesting date. The value disclosed is the portion of the fair value of the options and performance rights allocated to this financial year. In valuing the options and performance rights, market conditions have been taken into account.

No options or performance rights were issued to Key Management Personnel and Executives as remuneration during the year ended 30 June 2012.

4. Equity Instruments

All options refer to options and rights over shares of the Company, which are exercisable on a one-for-one basis.

No options or performance rights over ordinary shares in the Company were granted as compensation to Key Management Personnel and Executives during the financial year and no options previously granted vested during the financial year. All options held by Key Management Personnel and Executives vested in previous financial years.

With the exception of options that have vested, which can be retained by the employee in accordance with the timeframes specified under the Employee Performance Rights Plan rules, all options expire on the earlier of their expiry date or termination of the individual's employment. Options that have vested can be retained by Directors until expiry date, and do not expire on termination of employment. Further details, including grant dates and exercise dates regarding options granted to Key Management Personnel are in Note 19 to the financial statements.

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.

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.

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.

Details of vesting profiles of the options and performance rights granted as remuneration to each Key Management Personnel and each of the named Company Executives and relevant Group Executives is detailed below:

(a) The 7,800,000 options granted 22 November 2007, vested in prior years and expired on 1 July 2011.

(b) The options issued vested and were exercisable from 10 November 2010. All options that have vested can be retained by the employee upon resignation or termination of employment, within the timeframes specified under the Employee Performance Rights Plan rules. All options that have vested can be retained by the Director upon resignation or termination of employment.

(c) The options granted 1 May 2008 vested in prior years and expired on 30 June 2012.

(d) The options issued vested and were exercisable from 1 July 2010. All options that have vested can be retained by the employee upon resignation or termination of employment, within the timeframes specified under the Employee Performance Rights Plan rules. All options that have vested can be retained by the Director upon resignation or termination of employment.

(e) The options issued vested and can be exercised from 7 February 2011.

The movement during the financial year, by value, of options over ordinary shares in the Company held by each Key Management Personnel and each of the named Company Executives and relevant Group Executives is detailed below: 

(a) The value of vested options forfeited during the year represents the fair value of the options as measured at grant date and was calculated using the Black-Scholes Model. The options expired unexercised.

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.

No performance rights over ordinary shares in the Company were granted, exercised, forfeited or lapsed during the financial year.

AUDITOR'S INDEPENDENCE DECLARATION

The lead Auditor's Independence Declaration for the year ended 30 June 2012 has been received and can be found on page 41.

Dr Bruce H McCarthy Managing Director   Mr Ben Clube Finance Director

Signed in accordance with a resolution of the Directors.

West Perth

Western Australia

13 September 2012

KPMG

Lead Auditor's Independence Declaration under Section 307C of the Corporations Act 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 2012 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

Graham Hogg

Partner

Perth

13 September 2012

KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation.

The above Consolidated Statement of Comprehensive Income is to be read in conjunction with the accompanying notes.

The above Consolidated Statement of Financial Position is to be read in conjunction with the accompanying notes.

The above Consolidated Statement of Changes in Equity is to be read in conjunction with the accompanying notes.

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 2012

NOTE 1 - REPORTING ENTITY

Oilex Ltd (the "Company") is a company domiciled in Australia. The consolidated financial statements of the Company as at and for the year ended 30 June 2012 comprise the Company and its subsidiaries (together referred to as the "Group" and individually as "Group Entities") and the Group's interest in associates and jointly controlled entities. Oilex Ltd is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange ("ASX") and on the AIM Market of the London Stock Exchange. The Group is primarily involved in the exploration, evaluation, development and production of hydrocarbons. The Group is a for-profit entity for the purpose of preparing the financial statements.

NOTE 2 - BASIS OF PREPARATION

(a) Statement of Compliance

The consolidated financial statements are general purpose financial statements which has been prepared in accordance with Australian Accounting Standards ("AASBs") adopted by the Australian Accounting Standards Board ("AASB") and the Corporations Act 2001. The consolidated financial statements comply with International Financial Reporting Standards ("IFRSs") adopted by the International Accounting Standards Board ("IASB").

The consolidated financial statements were authorised for issue by the Board of Directors on 13 September 2012.

(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:

·; Foreign Currency Translation Reserve refer Note 3(b)(i); and

·; Share-based payment arrangements are measured at fair value.

(c) Functional and Presentation Currency

These 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 with IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

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 made the following judgements, apart from those involving estimates, which have the most significant effect on the amount recognised in the consolidated financial statements.

i) Exploration and Evaluation Assets

The Group's accounting policy for exploration and evaluation expenditure is set out in Note 3(e). The application of this policy necessarily requires management to make certain estimates and assumptions as to future events and circumstances, including, in particular, the assessment of whether economic quantities of resources have been found, or alternatively, that the sale of the respective areas of interest will be achieved. Any such estimates and assumptions may change as new information becomes available. If, after having capitalised expenditure under this policy, it is determined that the expenditure is unlikely to be recovered by future exploitation or sale, then the relevant capitalised amount will be written off to the consolidated statement of comprehensive income.

ii) Going Concern

A key assumption underlying the preparation of the financial statements is that the entity will continue as a going concern. An entity is a going concern when it is considered to be able to pay its debts as and when they fall due, and to continue its operations. Judgement has been required in assessing whether the entity is a going concern as set out in Note 2(f).

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 of economically recoverable reserves, so as to write off costs in proportion to the depletion of the estimated reserves. The estimation of reserves requires interpretation of geological and geophysical data. The geological and economic factors which form the basis of reserve estimates may change over reporting periods.

ii) Rehabilitation Provisions

The Group estimates the future removal costs of onshore oil and gas production facilities, wells and pipeline at the time of installation of the assets. In most instances, removal of assets occurs many years into the future. This requires judgemental assumptions regarding removal date, future environmental legislation, the extent of reclamation activities required, the engineering methodology for estimating cost, future removal technologies in determining the removal cost, and asset specific discount rates to determine the present value of these cash flows. For more detail regarding the policy in respect of provision for rehabilitation refer to Note 3(l).

(e) Changes in Accounting Polices

The Group has adopted all of the new and amended Australian Accounting Standards and Interpretations effective for the current annual reporting period including:

·; AASB 124 Related Party Disclosures (revised)

·; AASB 2009-12 Amendments to Australian Accounting Standards arising from the Annual Improvements Project

·; AASB 2010-3 Amendments to Australian Accounting Standards arising from the Annual Improvements Project

·; AASB 2010-4 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project

·; A AASB 2010-5 Amendments to Australian Accounting Standards

 The adoption of these Standards and Interpretations did not result in any significant changes to accounting policies and disclosures.

(f) Going Concern Basis

The Directors believe it is appropriate to prepare the consolidated financial statements on a going concern basis. As at 30 June 2012, the Group's current assets exceeded current liabilities by $3,332,236 and the Group has cash and cash equivalents of $4,363,383. After the end of the financial year and the lodgement of a prospectus on 6 August 2012, the Company completed a fully underwritten entitlement offer of $7,093,097 before expenses estimated at $743,760. The proceeds from this capital raising will assist to fund activities at its Cambay project in India including subsurface studies, well engineering design, drilling an offset well, field operations and production testing. In addition the capital raising will assist in funding general working capital requirements and the costs of the entitlement offer.

The Group will continue to manage its expenditure to ensure that it has sufficient cash reserves. The Group may require funds within the next twelve months to undertake further evaluation and development activities on its Cambay asset, to drill the Bazartete prospect in the JPDA 06-103 Contract Area (where investigations regarding the availability of a suitable rig are progressing) and for any new business opportunities that the Group may acquire. The Group is currently reviewing various funding options for these activities.

In the opinion of the Directors, the Company has adequate plans in place in order that its funding requirements in the foreseeable future can be met and that the Group will be in a position to continue to meet its minimum administrative, evaluation and development expenditures for at least twelve months from the date of this report. If further funds are not able to be raised or realised, then it may be necessary to sell or farm out some assets and further reduce exploration, evaluation and administrative expenditures.

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 Note 2(e) which address any changes in accounting policies.

(a) Basis of Consolidation

i) Subsidiaries

Subsidiaries are entities controlled by the Group. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed when necessary to align them with the 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 jointly controlled assets are brought to account by recognising, in its consolidated financial 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 of goods 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 functional currencies of Group Entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the foreign exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the reporting period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency 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 Australian dollars at exchange rates at the reporting date. The income and expenses of foreign operations are translated to Australian dollars at exchange rates at the dates of the transactions.

Foreign currency differences are recognised in other comprehensive income and the differences have been recognised in the foreign currency translation reserve ("FCTR"). When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign exchange gains and losses arising from such a monetary item are considered to form part of a net investment in a foreign operation and are recognised in other comprehensive income and are presented within equity in the FCTR.

(c) Financial Instruments

i) Share Capital

Ordinary 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 date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability.

Financial assets and liabilities are offset and the net amount 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 settle on a net basis or to realise the asset and settle the liability simultaneously.

The Group has the following non-derivative financial assets: loans and receivables.

Loans and Receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses.

Loans and receivables comprise trade and other receivables, and cash and cash equivalents (Refer Note 3(d)).

iii) Non-derivative Financial Liabilities

The Group initially recognises debt securities issued and subordinated liabilities on the date that they are originated. All other financial liabilities (including liabilities designated at fair value through profit or loss) are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. Financial assets and liabilities are offset and the net amount 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 settle on a net basis or to realise the asset and settle the liability simultaneously. The Group classifies non-derivative financial liabilities into the other financial liabilities category. 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.

Other financial liabilities comprise trade and other payables.

(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 three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments.

(e) Exploration and Evaluation Expenditure

Exploration and evaluation of hydrocarbons resources is the identification and evaluation of oil and gas resources, as well as the determination of the technical feasibility and commercial viability of extracting the resources. 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 the results of the well. Costs are expensed where the well does not result in the successful 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.

Impairment of Exploration and Evaluation Expenditure

Exploration and evaluation assets are assessed for impairment if sufficient data exists to determine technical feasibility and economic viability or facts and circumstances suggest that the carrying amount exceeds the recoverable amount.

Exploration and evaluation assets are reviewed for impairment if any of the following facts and circumstances exist:

·; The exploration licence term in the specific area of interest has expired during the reporting period or will expire in the near future and it is not anticipated that this will be renewed;

·; Expenditure on further exploration and evaluation of specific areas is not budgeted or planned;

·; Exploration for and evaluation of oil and gas assets in the specific area has not lead to the discovery of potentially commercial reserves; or

·; Sufficient data exists to indicate that the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full, either by development or sale.

Exploration and evaluation 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)).

(f) Development Assets

Development expenditure includes past exploration and evaluation costs, pre-production development costs, development drilling, development studies and other subsurface expenditure pertaining to that area of interest. Costs related to surface plant and equipment and any associated land and buildings are accounted for as property, plant and equipment.

The definition of an area of interest for development expenditure is narrowed from the exploration permit for exploration and evaluation expenditure to the individual geological area where the presence of an oil or natural gas field exists, 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 accumulated depreciation and accumulated impairment losses. The cost of self-constructed assets includes the cost of materials, direct labour, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located and an appropriate proportion of overheads.

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised net within other income in profit or loss.

ii) Subsequent Costs

The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. Ongoing repairs and maintenance is expensed as incurred.

iii) Depreciation

Depreciation is recognised in profit or loss using the reducing balance method over the estimated useful life of the assets, with the exception of software which is depreciated at prime cost. The estimated useful lives in the current and comparative periods are as follows:

·; Motor vehicles 2 to 7 years

·; Plant and equipment 2 to 7 years

·; Office furniture 2 to 10 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) Non-derivative Financial Assets (including receivables)

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. Objective evidence that financial assets are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy or the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

The Group considers evidence of impairment for receivables at both a specific asset and collective level. All individually significant receivables are assessed for specific impairment. All individually significant receivables found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Receivables that are not individually significant are collectively assessed for impairment by grouping together receivables with similar risk characteristics.

In assessing collective impairment the Group uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management's judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset's original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against receivables. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

ii) Non-financial Assets

The carrying amounts of the Group's non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then 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 of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimate used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

(j) Employee Benefits

i) Short-term Employee Benefits

Short-term employee benefits for wages, salaries, annual leave and fringe benefits are measured on an undiscounted basis and expensed as the related service is provided. A liability is recognised based on remuneration wage and salary rates that the Group expects to pay as at the reporting date as a result of past service provided by the employee, if the obligation can be measured reliably.

ii) Long-term Employee Benefits

The Group's net obligation in respect of long-term service benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The obligation is calculated using expected future increases in wage and salary rates including related on-costs and expected settlement dates, and is discounted using the rates attached to the Treasury Bonds (issued by the Commonwealth Government) at the balance sheet date which have maturity dates approximating to the terms of the Group's obligations.

iii) Share-based Payment Transactions

Options allow directors, employees and advisors to acquire shares of the Company. The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. Options are also provided as part of consideration for services by financiers and advisors. The fair value of the options granted is measured using the Black-Scholes Model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is only due to share prices not achieving the threshold for vesting.

Performance rights are also granted to employees. The fair value of performance rights granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and allocated over the period during which the employees become unconditionally entitled to the performance rights. The fair value of the performance rights is determined by an external valuer using a Monte Carlo Simulation taking into account the terms of the performance condition 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) Product Revenue

Revenue is recognised when the significant risks and rewards of ownership have transferred to the buyer. Risks and rewards of ownership are considered passed to the buyer at the time of delivery of the product to the customer. Revenues from test production are accounted for as revenue. All revenue is stated net of the amount of Goods and Services Tax ("GST").

(l) Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and when a reliable estimate can be made of the amount of the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and where appropriate, 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. At each reporting date the rehabilitation provision is re-measured to reflect any changes in the timing or amounts of the costs to be incurred. Any such changes are dealt with on a prospective basis.

(m) 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.

(n) Finance Income and Finance Costs

Finance income comprises interest income on funds invested. Interest income is recognised as it accrues in profit or loss, using the effective interest method. Finance costs comprise interest expense on borrowings and unrealised foreign exchange losses. Foreign currency gains and losses are reported on a net basis as either finance income or finance cost depending on whether foreign currency movements are in a net gain or net loss position.

(o) Income Tax

Income tax expense comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity, or in other comprehensive income.

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.

In determining the amount of current and deferred tax the Group takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. The Group believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience. This assessment relies on estimates and assumptions and may involve a series of judgements about future events. New information may become available that causes the Group to change its judgement regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the period that such a determination is made.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for differences relating to investments in subsidiaries to the extent that they probably will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that the related tax benefit will be realised.

The Company and its wholly-owned Australian resident entities formed a tax-consolidated group with effect from 1 July 2004 and are therefore taxed as a single entity from that date. The head entity within the tax-consolidated group is Oilex Ltd.

Current tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated group are recognised in the separate financial statements of the members of the tax-consolidated group using the 'separate taxpayer within group' approach by reference to the carrying amounts of assets and liabilities in the separate financial statements of each entity and the tax values applying under tax consolidation.

(p) Goods and Services and Other Indirect Taxes

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 authority is included as part of receivables or payables in the Consolidated Statement of Financial Position.

Cash flows are included in the Consolidated Statement of Cash Flows on a gross basis and the GST component of cash flows arising from investing and financing activities, 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.

(q) 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 attributable to ordinary shareholders and weighted average number of shares outstanding for the effects of all dilutive potential ordinary shares, which comprise share options and performance rights granted to employees.

(r) Segment Reporting

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components. All operating segments' operating results are regularly reviewed by the Group's Managing Director to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available.

Segment results that are reported to the Managing Director include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets (primarily the Company's headquarters), head office expenses and income tax assets and liabilities.

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.

(s) Comparatives

Certain comparatives have been reclassified to conform with the presentation and classification in the current year. These include the classifications in the Consolidated Statement of Cash Flows in conformity with the requirements of AASB 107 Statement of Cash Flows and disclosures included in Note 20.

(t) New Standards and Interpretations Not Yet Adopted

The following standards, amendments to standards and interpretations have been identified as those which may impact the entity in the period of initial application. They are not yet effective and have not been applied in preparing this financial report.

·; AASB 9 Financial Instruments includes requirements for the classification and measurement of financial assets and financial liabilities and the recognition and derecognition requirements for financial instruments. This standard is a result of 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 2016 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.

·; AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9. AASB 9 retains but simplifies the mixed measurement model and establishes two primary measurement categories for financial assets; amortised costs and fair value. The basis of classification depends on the entity's business model and the contractual cash flow characteristics of the financial asset. The guidance in AASB 139 on impairment of financial assets continues to apply. The amendments will become mandatory for the Group's 30 June 2014 financial statements.

·; AASB 10 Consolidated Financial Statements introduces a revised definition of control and establishes a single control model that applies to all entities. AASB 10 will become mandatory for the Group's 30 June 2014 financial statements. Retrospective application is required where there is a change in control conclusion between AASB 127/Interpretation 112 and AASB 10.

·; AASB 11 Joint Arrangements establishes principles for financial reporting by parties to a joint venture arrangement. AASB 11 will become mandatory for the Group's 30 June 2014 financial statements. Retrospective application is required with specific restatement requirements for certain transition (ie moving from proportionate consolidation to equity accounting) to simplify the process.

·; AASB 12 Disclosures of Interests in Other Entities contains the disclosure requirements for entities that have interests in subsidiaries, joint arrangements, associates and/or unconsolidated structured entities. AASB 12 will become mandatory for the Group's 30 June 2014 financial statements.

·; AASB 2011-7 Amendments to Australian Accounting Standards arising from the Consolidation and Joint Arrangements Standards gives effect to many consequential changes to a number of standards arising from the issuance of the new consolidation and joint arrangements standard. The amendments will become mandatory for the Group's 30 June 2014 financial statements.

·; AASB 128 Investments in Associates and Joint Ventures (2011) contains limited amendments including the application of AASB 5 Non-current Assets Held for Sale and Discontinued Operations to interests in associates and joint ventures and how to account for changes in interests in joint ventures and associates. AASB 128 will become mandatory for the Group's 30 June 2014 financial statements.

·; AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements removes the requirements to include individual key management personnel disclosures in the notes to the financial statements. Companies will still need to provide these disclosures in the Remuneration Report under s.300A of the Corporations Act 2001. The amendments will become mandatory for the Group's 30 June 2014 financial statements.

·; AASB 13 Fair Value Measurement defines fair value and provides a single framework for measuring fair value when required by other AASBs. AASB 13 will become mandatory for the Group's 30 June 2014 financial statements.

·; AASB 2011-8 Amendments to Australian Accounting Standards arising from AASB 13 makes amendments to several Australian Accounting Standards and Interpretations. These amendments principally arise from the issuance of AASB 13. The amendments will become mandatory for the Group's 30 June 2014 financial statements.

·; AASB 119 Employee Benefits (2011) is amended focussing on but not limited to the accounting for defined benefit plans. In additions it changes the definition of short-term and other long-term employee benefits and some disclosure requirements. Retrospective application is required. AASB 119 will become mandatory for the Group's 30 June 2014 financial statements.

·; AASB 2011-10 Amendments to Australian Accounting Standards arising from AASB 119 (September 2011) makes amendments to several Australian Accounting Standards and Interpretations. These amendments principally arise from the amendments to AASB 119. The amendments will become mandatory for the Group's 30 June 2014 financial statements.

·; AASB 2011-9 Amendments to Australian Accounting Standards - Presentation of Items of Other Comprehensive Income makes a number of changes to the presentation of other comprehensive income including presenting separately those items that would be reclassified to profit and loss in the future and those that would never be reclassified to profit or loss and the impact of tax on those items. Retrospective application is required. The amendments will become mandatory for the Group's 30 June 2013 financial statements.

The potential effect of these Standards is yet to be fully determined, however it is not expected that these will have a significant impact on the consolidated financial statements.

In addition there are a number of IASB Standards and Interpretations awaiting approval by the AASB. These include Amendments to IAS 32 and IFRS 7 Offsetting Financial Assets and Financial Liabilities (IFRS 7 application date 1 January 2013, IAS 32 application date 1 January 2014),and changes in mandatory effective date for IFRS 9 Financial Instruments (application date 1 January 2015). The Standards and Interpretations will be first applied in the consolidated financial statements on or after the effective date of each announcement. The impact of the initial application of the Standards and Interpretations is not yet known or is not reasonably estimable.

NOTE 4 - DETERMINATION OF FAIR VALUES

A number of the Group's accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. Where applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

The fair value of trade and other receivables, excluding construction work in progress, is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date.

Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date.