Financial Report for Year Ended 30 June 2013

11th Sep 2013 10:23

2013 ANNUAL REPORT

OILEX LTD

ABN 50 078 652 632

 

SUMMARY

 

Cambay and Bhandut Fields, Onshore Gujarat, India

· Sold up to 15% interest in Cambay Field to Magna Energy Limited of the UK for up to US$6 million subject to pre-emptive rights and Government of India approvals.

· Gas Sales Agreement signed for production from Cambay-73 and submitted to Government for endorsement.

· Bhandut-3 tested 6.5MMscfd from a 3.5metre gas sand above a depleted oil reservoir. Expressions of interests received to purchase all gas produced from Bhandut-3.

Canning Basin, Western Australia

· Accepted an offer for Special Prospecting Authority with Acreage Option ("SPA/AO") which may partially cover the Wallal Graben in the Canning Basin, Western Australia. The total land area covered by SPA-0055 is 11,400 km2 (~2,800,000 acres).

· Submitted two bids for L12-08 and L12-09 gazettal blocks which cover the remainder of the Wallal Graben. These competitive bids are being evaluated by the Department of Minerals and Petroleum of Western Australia. The total land area covered by the two gazettal blocks is 6,444km2 (~1,600,000 acres).

· As a result of significant industry interest a formal farmout process was started in July 2013.

Financial

· Oilex retained $3.6 million cash at the end of the year with no corporate debt.

· Oilex's financial position was strengthened after the year end by the sale of up to a 15% equity interest in the Cambay PSC for up to US$6 million. In addition, Oilex completed the placement of 68 million shares to raise $3.4 million. The placement consists of two tranches with the second tranche of 30 million shares subject to shareholder approval.

 

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 proven "tight" reservoir evaluation, drilling and production technologies and techniques that have been developed in recent years in the rapidly expanding "tight" and shale gas industry in North America.

The Cambay Contract Area is a large acreage position of 161 square kilometres and is located at the hub of India's largest gas distribution network close to the existing gas grid in the State of Gujarat. 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. The Indian government is looking to stimulate domestic gas production to fill this supply gap and recently approved a new pricing formula for gas prices with the new rates effective from 1 April 2014, with the new gas price expected to be as high as $8/mmbtu from the current price of $4.2/mmbtu.

During the year the Company completed an independent review of Cambay-76H, which failed to record a flow test due to operational difficulties. The independent review provided various recommendations to minimise the risk of similar issues being encountered on any planned horizontal multi stage fracture stimulation wells. Following the recommendations of the independent expert the Company and its Joint Venture partner, GSPC, approved the 2013/14 Work Program and Budget which includes the drilling of Cambay-77H, a planned offset well to be drilled from the same drill pad as Cambay-76H. Cambay-77H is intended to complete the "proof-of-concept" phase before proceeding with a pilot development.

The Company announced during the year the appointment of Michael Maloney as Chief Operating Officer, based in India. In addition the Company has appointed senior drilling personnel with extensive experience in North American horizontal multi-stage fracture stimulation wells.

During the year the Company announced it had accepted an offer for a Special Prospecting Authority with Acreage option in the Canning Basin, Western Australia. The Special Prospecting Authority allows the Company a low cost and low risk entry into one of Australia's premier unconventional basins. The Company also has submitted bids on two gazettal blocks immediately adjacent to the awarded Special Prospecting Authority. The additional acreage is interpreted to contain an extension of the play to the north of the Special Prospecting Authority, potentially capturing an entire newly-defined play fairway.

 

figure. Black Pearl Rig 1 at Cambay-76H location

 

During the year the Company also announced the transition of Dr Bruce McCarthy from Managing Director to Non-Executive Director, as well as the appointment from 1 January 2013 of Mr Ronald Miller as Managing Director, previously Non-Executive Director. Mr Ray Barnes also retired as Technical Director in November 2012.

After the end of the financial year Oilex, on behalf of its Joint Venture participants in the Timor Lesté Joint Venture, submitted to the Autoridade Nacional do Petróleo ("ANP") a request to terminate the Production Sharing Contract by mutual agreement in accordance with its terms and without penalty or claim due to the ongoing uncertainty relating to tenure.

Also after the end of the financial year the Company completed a placement of 68 million shares and 34 million free options with the assistance of DJ Carmichael Pty Ltd and Patersons Securities Limited acting as Joint Lead Managers with RFC Ambrian acting as arranger in the UK. A total of $1.9 million before expenses was raised in September 2013 with an additional $1.5 million before expenses to be raised in October 2013 subject to shareholder approval, which will assist the Company in funding its share of drilling Cambay-77H and meeting working capital requirements. The Company has also successfully negotiated a farm-out of up to 15% the Cambay asset with Magna Energy Limited. The farmout is comprised of US$4 million for a 10% equity share with an additional option for a further 5% equity share for US$2 million. The farmout of up to 15% is subject to a pre-emptive right by Oilex's Joint Venture partner GSPC as well as shareholder approval of the unwind provisions. A General Meeting is scheduled for 4 October 2013 to approve the issue of shares in Oilex to Magna for any funds Magna has paid to Oilex, should the Government of India fail to approve the transfer by 1 May 2014.

The 2013 financial year has been an encouraging year for the Company with progression in the Company's flagship Cambay project as well as securing excellent exploration acreage in the Canning Basin in Western Australia. The Company is seeking to reinvigorate its asset portfolio with onshore acreage targeting tight oil and gas formations located around the Indian Ocean rim.

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 the year, and in particular the contribution of Ron Miller who has taken on the role of Managing Director while the Company progresses the development of the Cambay project.

 

Mr MDJ Cozijn

Chairman

11 September 2013

 

BUSINESS REVIEW

Overview

Oilex continues its transition to becoming a leading "tight" oil and gas producer in India as well as acquiring some excellent exploration acreage in the Canning Basin of Western Australia. It remains focused on near term production from two existing wells in India, while preparing to drill the second horizontal multi-stage fracture stimulated well within the contract area for the Cambay PSC. Oilex continues to examine potential opportunities that fit its strategy of onshore unconventional assets.

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, driven by the large independently certified Contingent Resource within the Cambay PSC. 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's 45% equity share) of 222 billion cubic feet of gas and 37 million barrels of oil from the two uppermost zones of a very thick hydrocarbon bearing section. Promisingly, NSAI also concluded that the deeper zones within the Cambay contract area contain very substantial Prospective Resources, highlighting significant additional potential in a very concentrated area of 161km (40,000 acres).

Subsequent to the end of the financial year the Company agreed to sell 10% of the Cambay PSC to Magna Energy Limited for US$4 million. Magna also has an additional option to acquire a further 5% equity for US$2 million. These funds will be used towards Oilex's 45% share of the cost of the next well, Cambay-77H. Oilex will retain up to 30% equity in Cambay and Unrisked Contingent Resources of 148 Bcf of gas and 25million barrels of hydrocarbon liquids should Magna exercise its option and acquire the total 15% equity.

Oilex's strategy is to utilise modern drilling and completion practices to pursue the tight resources in the Cambay contract area. 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. During the 2012 financial year Oilex successfully drilled and completed and fracture stimulated the 2,740 metre "proof of concept" Cambay-76H well. The fracture stimulation programme consisted of eight stages (16 fractures) in the 610 metre horizontal section was successfully completed in August 2011.

Unfortunately clean-up operations on the Cambay-76H well were disrupted by abnormally high reservoir pressures and down-hole mechanical difficulties over an extended period of time and the Joint Venture decided to suspend operations on Cambay-76H during May 2012.

During the financial year, Oilex engaged an independent US-based consultant to provide an analysis of the issues with milling operations at Cambay-76H which led to the well being suspended before a flow test could be conducted. Based on the independent expert's analysis of the operations and the design of the well, it was recommended that to minimise the risk of similar failures recurring in future wells, Oilex incorporate a number of factors to mitigate risks

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. During June 2013, the Government of India announced an increase in the price of domestic supplies natural gas to stimulate investment in the sector. It is anticipated that the effective price will increase to ~ $8.00 per MMbtu from April 2014, thereby enhancing the value of the Cambay Project. Importantly, the Cambay Project is ideally located at the hub of India's largest gas distribution network and approximately 10 kilometres from the existing gas pipeline grid and well-positioned to rapidly commercialise production in the fast-growing, demand-driven domestic energy market.

 

figure Cambay-73 FLOWING THROUGH A 2-PHASE SEPARATOR

 

A successful production test will provide the catalyst for a potential pilot development project and provide data which will enable Oilex to increase production and cash flow while confirming the commercial potential of the Cambay "tight" X and Y zone reservoirs. The contingent drilling campaign of three vertical and two horizontal wells and a pilot development project will also provide data to support converting Contingent Resources into Reserves.

During the financial year, Oilex executed a Gas Sales Agreement ("GSA") for off-spec gas from Cambay-73. The GSA is subject to Government of India endorsement. Also, a gas sand, 3.5m thick, in Bhandut-3 was successfully production tested at a peak rate of 6.5MMscfd through a 10mm choke. Subsequently, expressions of interests were received to purchase all the gas that could be produced from the well. A successful return to production of Cambay-73 and approval to produce gas from Bhandut-3 will provide production and cash flow.

AUSTRALIA

During the year Oilex announced it had accepted an offer for a Special Prospecting Authority with Acreage option ("SPA-0055") in the Canning Basin, Western Australia. The SPA allows Oilex a low cost and low risk entry into one of Australia's premier unconventional basins and covers an interpreted extension of the Wallal Graben. Oilex has also submitted bids on two gazettal blocks immediately adjacent to SPA-0055. The additional acreage is interpreted to contain the remainder of the Wallal Graben, potentially capturing the entire newly-defined play fairway. Oilex is still awaiting the disposition of its bids from the Western Australian Government.

 

Cambay Field Onshore Gujarat, India

(Oilex - 45%, Operator, reducing to a minimum of 30%)

Work Programme, Key Personnel and Equity Transaction

In April 2013 the Management Committee approved the Cambay Work Program and Budget for the year ended 31 March 2014. The approved Work Program and Budget consists of Cambay-77H to be drilled from the same drill pad as the Cambay-76H well with the intention to conduct a long term production test.

Subsequent to Cambay-77H being drilled and tested, a contingent work programme of three additional horizontal and two vertical wells will be considered. 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.

In July 2012 the Company announced the appointment of Mr Mike Maloney as Chief Operating Officer who is based in India. The Company subsequently has hired key drilling personnel with experience in over 300 horizontal mutli-stage fracture stimulations wells.

Subsequent to the end of the financial year Oilex agreed to sell 10% of the Cambay PSC to Magna Energy Ltd for US$4 million. Magna also has an additional option to acquire a further 5% equity for US$2 million. These funds will be used towards Oilex's 45% share of the cost of the next well, Cambay-77H. The transaction is subject to shareholder approval, pre-emptive rights by GSPC, under the JOA and government approvals.

 

FIGURE 1. Location Map, Cambay Basin Gujarat, India

Independent Engineering Assessment of Cambay-76H

In October 2012, Oilex completed an independent in-depth engineering review and analysis of the issues with milling operations at Cambay-76H which led to the well being suspended before a flow test could be conducted. The independent expert's analysis of the operations and the design of the well led to a number of recommendations to minimise the risk of similar failures recurring in future wells. Key recommendations include:

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

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

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

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

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

Oilex has incorporated all the recommendations into its forward planning and design of Cambay-77H. Oilex has also conducted detailed reviews of the independent assessment with its Joint Venture Partner, GSPC and the Government of India. 

Cambay-77H Well

Cambay-77H well has been engineered and designed taking into consideration the recommendations of the independent expert. It has a 350 metre lateral section which has been designed with four stages of fracture stimulations, each containing two fracture initiation points for a total of 8 fractures along the length of the lateral section. The fracture stimulations will be undertaken using a "plug and perf" technique also widely used in tight formations in North America. Following approval of the work programme and budget, Oilex has focused on preparation of the tender documents for services and long lead items during the last quarter of the financial year. Subsequent to the financial year, the tenders have been issued, competitive bids received and evaluations are in progress.

figure 2. Cambay-76H Work-Over Rig Operations

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 to allow the well to clean up and enhance production from the Cambay PSC. Production was halted by the Government on 28 June 2012 pending Oilex securing an arrangement to sell the small quantities of produced gas. In April 2013 Oilex announced a Gas Sales Agreement ("GSA") was signed for "offspec" gas from Cambay-73 and was submitted to the Government for endorsement. The initial term is for two years and additional wells can be added to the contract if potential production exists.

Cambay-73 also provided additional data to evaluate the potential of the Y Zone reservoir. The Cambay-73 well is a 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 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 upcoming Cambay-77H production model.

Background to Cambay Project 

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.

 

figure 3. Cambay Basin - Location Map, Infrastructure and Oil and Gas Fields

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.

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.

 

Figure 4. Oilex Gandhinagar Project Office Staff

Independent Resource Assessment

In October 2011 Netherland, Sewell and Associates Inc. ("NSAI") 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.

 

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.

Hydrocarbons In-place

 

 Unrisked Recoverable Hydrocarbons

 

 

 

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. On 9 August 2013 Oilex agreed to sell up to 15% of the Cambay asset to Magna Energy Limited. The above figures representing Net to Oilex is prior to the sale of up to 15%.

 

BHANDUT FIELD, Onshore Gujarat, India

(Oilex - 40%, Operator)

The field was discovered and developed initially by ONGC. The field was acquired by the GSPC and Niko Joint Venture in 1995 and Oilex subsequently acquired Niko's interest in 2006. The first 3D seismic survey over Bhandut Field was acquired in February 2007. The main reservoir units in the shallower Miocene section are sandstones with irregular distribution. The field has produced 19,353 bbls of oil since acquisition.

During the financial year, Oilex conducted an isochronal production test of a gas sand above the depleted oil reservoir in Bhandut-3. Bhandut-3 flowed at a maximum rate of 6.5MMscfd (184,370m3/d) through a 10mm choke with a flowing tubing head pressure of 1,190 psia. The isochronal test was conducted to obtain more precise reservoir performance data as part of attempting to realise value from Bhandut and the test confirmed the reservoir sand has a permeability of 124mD, making it a conventional reservoir.

The reservoir section at the well is 3.5m thick with modern well logs. As such, the lateral extent of the gas sand and in-place gas volumes cannot be accurately estimated from static data at present. Dynamic production test flow and pressure data suggests the (best estimate) Contingent Resource (100% basis) may be ~250MMscf (~7,000,000m3). This volume, together with appropriate low and high estimates, can only be confirmed through further production, which requires appropriate gas sales arrangements.

Potential buyers are interested and considering the use of compressed natural gas (CNG) bullet trucks for transportation of natural gas from the well head in the field to end users. This provides flexibility to adjust the offtake rate between 0.5-1.0MMscfd to suit the deliverability of Bhandut-3 gas sand over time. Discussions continue towards reaching a similar off-spec GSA as has been signed for Cambay-73 production. Given the uncertainties, Oilex currently ascribes a commercialisation risk factor of 75% to the Contingent Resource estimate.

Bhandut-3 is a lean gas composition with 98.9% hydrocarbons, of which 94% is methane, and 1.1% is inert gases (Nitrogen and Carbon Dioxide).

As such minimal treatment is required

figure 5. Bhandut Field

 

SABARMATI FIELD, Onshore Gujarat, India

(Oilex - 40%, Operator)

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 was discovered and developed initially by ONGC. The field was acquired by the GSPC and Niko Joint Venture in 1995 and Oilex subsequently acquired Niko's interest in 2006.

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.

During the year the Sabarmati field produced an average of approximately 10 barrels of oil per day (4 barrels net to Oilex).

SPA-0055 Wallal Graben, CANNING BASIN, WESTERN AUSTRALIA

The Company announced in April 2013 that it has accepted an offer for Special Prospecting Authority ("SPA")-0055 which covers acreage in the onshore Canning Basin of Western Australia. SPA-0055 encompasses a large area of approximately 11,400 square kilometres (~2,800,000 acres) which may have a portion of the previously overlooked undrilled Wallal Graben that may be prospective for oil and liquids-rich gas.

Under the terms of the offer, Oilex will have an exclusive Acreage Option ("AO") to negotiate the conversion of a portion (50% to 70% of the total area) of SPA-0055 into a Petroleum Exploration Permit should the initial reconnaissance work programme support the existence of a previously overlooked half graben in this area.

Oilex is planning to conduct a six-month, low-level work programme to assess the SPA's prospectivity for hydrocarbons. This programme includes gravity/magnetic data acquisition and interpretation and is planned to commence at the conclusion of the expedited Native Title Notification Period of four months which completes during September 2013. Upon completion of the work programme, Oilex then has a further six months to negotiate the forward work programme for the Petroleum Exploration Permit derived from the SPA.

Oilex also submitted bids during April 2013 for gazettal blocks L12-08 and L12-09, covering 6,444km2 (~1,600,000 acres) immediately adjacent to SPA-0055. The additional acreage is interpreted to contain an extension of the Wallal Graben to the north of SPA-0055, potentially capturing an entire newly-defined play fairway. Oilex is awaiting a decision by the Department of Mines and Petroleum on these two gazettal blocks.

figure 6. Location Map, Canning Basin SPA area

 

Technical Background

A review of prospective onshore basins in Australia resulted in the identification of a deep, undrilled half graben (Wallal Graben) in the south-west Canning Basin.

Only low resolution gravity/magnetic data and sparse vintage 2D seismic data of variable quality have been acquired over this area. No wells have been drilled sufficiently deep to penetrate the graben-fill. Comparing interpretations of the different geophysical surveys revealed possible discrepancies. While the gravity/magnetic data interpretation defined a relatively shallow graben feature, the 2D seismic data and subsequent depth conversion facilitated the interpretation of an extensive half graben up to 5.5km deep, which is viewed positively for the generation of hydrocarbons.

FIGURE 7. Interpreted 2D seismic line tying the Wallal Graben to the Samphire Graben

 

The nearby Samphire Graben is well imaged on both gravity/magnetic and 2D seismic data, resulting in it being clearly defined on published structural maps of this area. A regional 2D seismic line acquired in 1985 ties both the Wallal and Samphire Grabens (Figure 7). This line clearly shows the lateral extent of the two depo-centers with the Wallal Graben being narrower but deeper than the Samphire Graben. However, this is not reflected on public domain structural maps.

Extensional tectonics in the Ordovician initiated the growth of a major rotational fault that forms the south-west margin of the Wallal Graben with down to northeast rotation. 2D seismic data interpretation clearly defines a prospective "mid-basin ridge" structure that consists of a tilted fault block from Basement to late Ordovician levels, and associated anticlinal drape of the overlying Devonian and Permian sediments (Figure 7).

The Goldwyer Formation, a well acknowledged unconventional play, is interpreted to exist which is a focus objective for Oilex. Significant, high value farm-in activity by industry majors targeting the Goldwyer Formation has occurred. The Wallal Graben may be a relative sweetspot for these organic-rich source rocks due to the geological history of this area of the Canning Basin. Also numerous conventional plays may also exist within the Wallal Graben, enhancing the attractiveness of the acreage.

 

figure 8. Canning Basin SPA-0055 AND GAZETTAL BLOCKS L12-08 AND L12-09

 

Due to the confined nature of the depositional environment, it is postulated that the source rocks within the Wallal Graben may be richer than those deposited in the other areas of the Canning Basin where increased oceanic circulation and less anoxic conditions prevailed.

Based upon the sparse information the Goldwyer Formation is interpreted to be favourably located in the oil/condensate maturity window and within normal drilling depths (2,000-3,000m). Horizontal wells with multi-stage fracture stimulation programmes may enable the economic extraction of hydrocarbons from this interval. Oilex has significant experience in unconventional plays as this is the main focus of Oilex's flagship project in Cambay, India. Oilex's extensive database of analogous North American resource plays will facilitate the understanding of the plays present in the Wallal Graben.

JPDA 06-103, TIMOR SEA

(Oilex - 10%, Operator)

In January 2013 the Autoridade Nacional do Petróleo ("ANP") advised that the current contract period for the JPDA 06-103 Production Sharing Contract ("PSC") had been extended to 15 January 2014, on the condition that the Joint Venture secured a letter of intent or a contract for a drilling rig by 15 June 2013. A Letter of Intent to Award a Contract ("LOI") for a drilling rig was lodged with the ANP by 15 June 2013. The LOI was dependent on security of tenure being resolved.

 

figure 9. Location Map, jPDA06-103 Timor Sea

 

Recent developments outside the control and influence of the Joint Venture Participants include the existence of separate unilateral rights to terminate the Certain Maritime Arrangements in the Timor Sea Treaty (CMATS) arising in favour of both the Government of Timor Lesté and the Government of Australia, and the initiation of formal arbitration proceedings by the Timor Lesté Government against the Government of Australia to have the CMATS declared void ab initio, thereby affecting Security of Tenure. This has led to the Joint Venture Participants submitting to the ANP in July 2013, a request to terminate the PSC by mutual agreement in accordance with its terms and without penalty or claim. This request will require the consent of the Timor Sea Designated Authority

 

figure 10. Prospects and leads jPDA 06-103

 

West Kampar PSC, Central Sumatra

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

Oilex continues to pursue a commercial resolution to the Joint Venture dispute with the Operator in the West Kampar PSC, in parallel with considering options to enforce its Arbitration Award in Jakarta.

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.

 

figure 11. West Kampar PSC Location Map, Sumatra, Indonesia

 

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 the Indonesian regulator, BPMigas (now SKK Migas), but these have not yet been approved or rejected. If the debt due to Oilex is satisfied, Oilex will not pursue this assignment.

 

figure 12. Location Map, Central Sumatra Basin Fields and PIPELINE INFRASTRUCTURE

 

WA-388-P North West Shelf, Australia

(Oilex - 8.4%, Non-operator)

The WA-388-P permit was deemed to have expired on 27 August 2012 and the Operator, Apache Northwest Pty Ltd, has completed all relinquishment requirements to the satisfaction of the Designated Authority and the block has been relinquished in good standing.

Financial

In September 2012 the Company completed an underwritten rights issue raising $7.09 million in gross proceeds at $0.07 per share with a 1 for 2 free attaching $0.15 cent option.

Cash held at end of the year was $3.6 million with no corporate debt. The Company's net assets reduced by 1.6%, compared with the previous year, the reduction reflecting the current year's loss after tax offset by funds received from the above rights issue. Trade payables reduced by 58% from the prior year as payables associated with drilling of Cambay 76H were paid during the current financial year. Trade receivables reduced by 45% reflecting receipt of outstanding cash calls from joint venture partners.

After year end the Company strengthened its financial position by completing announcing a sale of up to 15% of the Cambay PSC to Magna Energy limited for US$6 million. In addition the Company completed the placement of 68 million shares to raise $3.4million before expenses.

Revenue for the year reduced by 38% mainly attributable to a reduction in production from the Bhandut and Cambay Fields.

The Company's loss after tax for the current year reduced by 30% from the prior year. The previous financial year was impacted by a large impairment of exploration assets.

The total issued capital of the Company to 30 June 2013 is 354,778,499 shares and 151,893,311 $0.15 listed options and 27,537,500 unlisted options.

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.

 

Competent Person's Statement

Information in this report relating to hydrocarbon reserves or resources has been reviewed and checked by Mr Peter Bekkers B.Sc. (Hons), the Chief Geoscientist of Oilex Ltd who has over 15 years of experience in petroleum geology and is a member of the Society of Petroleum Engineers and AAPG. Mr Bekkers 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 program 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 (now SKK Migas) 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.

Approach to Corporate Governance

Oilex Ltd ("Company") has established a corporate governance framework, the key features of which are set out in this statement. In establishing its corporate governance framework, the Company has referred to 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" reporting regime, where, after due consideration, the Company's corporate governance practices do not follow a recommendation, the Board has explained its reasons for not following the recommendation and disclosed what, if any, alternative practices the Company has adopted instead of those in the recommendation.

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

Anti Bribery and Corruption Policy

 

The Company reports below on whether it has followed each of the Principles & Recommendations during the 2012/2013 financial year ("Reporting Period"). The information in this statement is current as at 11 September 2013.

 

Board

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, which is disclosed on the Company's website.

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.

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 on pages 28 to 29.

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 continuing to investigate 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 will continue to review its composition in light of its 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 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 is Max Cozijn. Mr Cozijn is 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 judgement.

The non-independent directors of the Company are Sundeep Bhandari, Bruce McCarthy and Ron Miller. Ben Clube and Ray Barnes were also non-independent directors of the Company until their resignations on 14 September 2012 and 14 November 2012 respectively.

The independent Chair of the Board is Max Cozijn.

The Managing Director is Ron Miller who is not also 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. An election of directors is held each year. 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 comprising Sundeep Bhandari (Chair), Ron Miller and Max Cozijn. However, following the changes to the Board during the Reporting Period, the Board resolved that there were no efficiencies gained by having a separate Nomination Committee, and since 21 May 2013 the role is performed by the full Board. When the Board meets in its capacity as the Nomination Committee, Mr Bhandari chairs the meetings. Items that are usually required to be discussed by a Nomination Committee are marked as separate agenda items at Board meetings when required and when the Board convenes as the Nomination Committee it carries out those functions which are delegated to it in the Company's Nomination Committee Charter. The Board deals with any conflicts of interest that occur when it convenes in the capacity of the Nomination Committee by ensuring that the director with conflicting interests is not party to the relevant discussions.

The separate Nomination Committee did not meet during the Reporting Period. Details of director attendance at meetings of the Board in its capacity as the Nomination Committee are set out in the table in the Directors' Report on page 29.

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. The Audit Committee is not structured in compliance with Recommendation 4.2 as set out in the table below. As the Board has only one independent director, the Board is unable to establish an Audit Committee that is structured in compliance with Recommendation 4.2. However, the Audit Committee has been structured to comprise solely non-executive directors.

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 3 meetings during the Reporting Period. Details of the directors' attendance at Audit Committee meetings during the Reporting Period are set out in a table in the Director's Report on page 29. 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 Rob Ierace (Chief Financial Officer and Company Secretary) and Ms Andrea Bissett (Financial Controller) are both Chartered Accountants and attend Audit Committee meetings by invitation.

The Company has established a Procedure 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 as set out in the table below. 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 4 meetings during the Reporting Period. Details of the directors' attendance at Remuneration Committee meetings during the Reporting Period are set out in a table in the Director's Report on page 29.

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 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). 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.

Performance evaluation

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 some of the senior executives took place in accordance with the process disclosed above. There is one senior executive still to be evaluated and this is intended to take place in September 2013.

Board, its committees and individual directors

(Recommendations: 2.5, 2.6)

The Chair of the Nomination Committee 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 did not take place as the evaluations had to be re-scheduled to July 2013 due to the Chair of the Nomination Committee's travel commitments. The evaluations took place in accordance with the process disclosed.

The Chair of the Nomination Committee is responsible for evaluating the Managing Director. The process for evaluating the performance of the Managing Director is by way of a formal discussion with the Chair of the Nomination Committee whereby the following individual performance measures are assessed against, progression of assets through their exploration and evaluation cycle, investment community engagement and ensuring adherence to the Company's corporate governance principles and recommendations.

During the Reporting Period an evaluation of the Managing Director did not take place, but did take place in July 2013 (for the reasons disclosed above) 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.

The Company's Code of Conduct is disclosed on the Company's website.

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 Chief Financial Officer 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 Chief Financial Officer.

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 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 Chief Financial Officer 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.

ASX Corporate Governance Council recommendations checklist

The following table sets out the Company's position with regard to adoption of the Principles & Recommendations as at the date of this statement:

 

In compliance with the "if not, why not" reporting regime, where, after due consideration, the Company's corporate governance practices do not follow a recommendation, the Board has explained above its reasons for not following the recommendation and disclosed what, if any, alternative practices the Company has adopted instead of those in the recommendation.

 

2013 FINANCIAL REPORT

CONTENTS

 

Directors' Report

Remuneration Report

Auditor's Independence Declaration

Consolidated Statement of Profit or Loss and Other 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

For the year ended 30 June 2013

The directors of Oilex Ltd present their report together with the consolidated financial statements of the Group comprising of Oilex Ltd (the "Company"), and its subsidiaries, and the Group's interest in associates and jointly controlled entities for the financial year ended 30 June 2013 and the auditors' report thereon.

DIRECTORS

The names and details of the directors of the Company in office during the financial year and until the date of this report are detailed below. Directors were in office for this entire period unless otherwise stated.

Mr Max Dirk Jan Cozijn

(Non-Executive Chairman)

BCom CPA MAICD

Chairman since the Company listed on the Australian Securities Exchange ("ASX") in 2003, Mr Cozijn has over 34 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 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)

· 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)

· Malagasy Minerals Limited (from September 2006 to 8 August 2013)

Mr Sundeep Bhandari

(Non-Executive Vice Chairman)

BCom

Mr Bhandari was appointed as a director (Vice Chairman) in November 2011. Mr Bhandari has over 28 years' business experience in India, of which more than 18 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.

Mr Ronald Miller

(Managing Director - Appointed 1 January 2013)

MSc Engineering and BSc Ocean Engineering, MAICD

Mr Miller was appointed as a Non-Executive Director in July 2009 and Acting Managing Director in January 2013. After this date, Mr Miller agreed to continue as Managing Director on a temporary basis. A chartered professional engineer (1989 - 2011), Mr Miller has more than 36 years of experience in the international petroleum industry. Further details of Mr Miller's qualifications and experience can be found in the Executive Management section of the Directors' Report. 

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)

Dr Bruce Henry McCarthy

(Non-Executive Director - Appointed 1 January 2013)

(Managing Director - Resigned 31 December 2012)

BSc (Hons) PhD Geology

Appointed Managing Director in February 2005, Dr McCarthy stepped down as Managing Director to become a Non-Executive Director on 1 January 2013. Dr McCarthy has onshore and offshore experience of over 34 years 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.

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

Mr Raymond George Barnes

(Technical Director - Resigned 14 November 2012)

BSc (Hons) Geology

Appointed as a director in September 2005, Mr Barnes has over 41 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. Mr Barnes resigned as Technical Director on 14 November 2012 and continues to provide consultancy services to the Company.

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

Mr Ben Clube

(Finance Director & Company Secretary - Resigned 14 September 2012)

BSc (Hons) Geology ACA

Mr Clube joined Oilex in May 2008 and was appointed as a director in July 2009. Mr Clube has over 19 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. Mr Clube resigned as Finance Director & Company Secretary on 14 September 2012.

During the last three years, up to the date of his resignation, Mr Clube has not been a director of any other listed companies.

DIRECTORS' MEETINGS

Directors in office, committee membership and directors' attendance at meetings during the 2012/2013 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. From 21 May 2013 the Company no longer has a Nomination Committee and the role is performed by the full Board.

(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 Audit and Remuneration Committees on 21 May 2013 after Mr R Miller vacated this role, due to his appointment as Managing Director. When the Board meets in its capacity as the Nomination Committee, Mr S Bhandari chairs the meeting.

(4) Resigned 14 November 2012

(5) Resigned 14 September 2012.

(6) "Attended" indicates attendance by invitation.

EXECUTIVE MANAGEMENT

Mr Ronald Miller

(Managing Director - Appointed 1 January 2013)

MSc Engineering and BSc Ocean Engineering, MAICD

Mr Miller was appointed as a director in July 2009. A chartered engineer in Australia from 1989 to 2011, Mr Miller brings more than 36 years of experience in the international petroleum industry including corporate governance, extensive background in leading multi-disciplinary upstream organisations and project developments, including the design and construction of oil and gas projects. Mr Miller has extensive experience in commercialising and developing oil and gas discoveries. During his career, Mr Miller held a range of senior positions including with Mobil, Ampolex, Clough and Hyundai Heavy Industries.

Dr Bruce Henry McCarthy

(Managing Director - Until 31 December 2012)

BSc (Hons) PhD Geology

Appointed Managing Director in February 2005, Dr McCarthy stepped down as Managing Director to become a Non-Executive Director on 1 January 2013. 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.

Mr Michael Maloney

(Chief Operating Officer) - Appointed 18 July 2012)

B Engineering - Civil (Hons) 

Mr Maloney joined Oilex in July 2012 as Chief Operating Officer. Mr Maloney has 40 years of experience in the oil and gas industry in project management, covering all aspects from exploration and appraisal of assets, through to asset development and execution. Mike has an enviable record in selecting, funding and developing successful oil and gas assets due to his experience as both Operator and execution Service provider. He has been responsible for major onshore and offshore projects in the UK and Norwegian sectors of the North Sea, Australia, India, Malaysia, Vietnam, Japan and South China Sea. He has previously held senior management positions with Nexus Energy, BHP Petroleum, Exxon Mobil, ENI Group, AGR Asia Pacific and Clough.

Mr Robert Ierace

(Chief Financial Officer and Company Secretary - Appointed 30 January 2013)

BCom ACA CSA

Mr Ierace was appointed Oilex Chief Financial Officer and Company Secretary in January 2013. Mr Ierace is responsible for financial compliance and corporate governance as well as implementation of the Company's business plans. Mr Ierace has over 17 years' experience in finance, commercial management, taxation and banking. Mr Ierace's most recent position was CFO and Company Secretary of ASX listed mid cap oil and gas exploration and production company Amadeus Energy Ltd (now Lonestar Resources Ltd). Previous financial roles have included senior finance positions with Credit Suisse First Boston Investment Bank (London), Rio Tinto Iron Ore, Arc Energy Ltd and Kimberley Diamond Company NL.

Mr Raymond George Barnes

(Technical Director - Until 14 November 2012)

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. Mr Barnes resigned as Technical Director on 14 November 2012 and continues to provide consultancy services to the Company.

Mr Ben Clube

(Finance Director & Company Secretary - Until 14 September 2012)

BSc (Hons) Geology ACA

Mr Clube joined Oilex in May 2008 and brought 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. Mr Clube resigned as Finance Director on 14 September 2012.

Mr John Lamberto 

(Exploration Manager - Until 10 August 2012)

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 Lamberto resigned as Exploration Manager on 10 August 2012 and continues to provide consultancy services to the Company.

 

COMPANY SECRETARIES

The following individuals have acted as company secretary during the year ended 30 June 2013:

Mr Robert Ierace

BCom ACA CSA

Mr Robert Ierace was appointed Company Secretary effective 30 January 2013.

Mr David Peterson  

BA Accounting CPA FCSA

Mr Peterson was appointed Company Secretary effective 14 September 2012. Mr Peterson resigned as Company Secretary effective 30 January 2013.

Mr Ben Clube

BSc (Hons) Geology ACA

Mr Clube was appointed Company Secretary effective 31 March 2011. Mr Clube resigned as Company Secretary effective 14 September 2012.

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 2013 amounted to $9,110,457 (2012: loss of $13,006,779). The loss includes $4,590,149 (2012: $8,640,954) for the impairment of exploration and evaluation assets.

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 4 to 16 of this report.

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

The Management Committee approved the Cambay Work Program and Budget for the year ending 31 March 2014.

Oilex commenced preparation work for the Cambay-77 well, eleven tender packages related to drilling and completion services have been issued with a further four tender packages relating to testing and facilities still be issued. Tenders are anticipated to close during August. Subsequent to the evaluation of these bids, a firm drilling schedule for Cambay-77H will be compiled.

The Gas Sales Agreement ("GSA") for Cambay-73 future production continues to be processed by the Government. The Joint Venture is ready to commence preparatory work and restart production upon endorsement of the GSA by the Indian Government.

Bhandut-3 well was production tested during May 2013 and flowed at a peak rate of 6.5MMscfd through a 10mm choke. A number of entities have approach the Bhandut Joint Venture to buy gas from Bhandut-3 and discussions continue with these groups for a Gas Sales Agreement that would facilitate the restart of production from the Bhandut Production Sharing Contract.

In January 2013 the Autoridade Nacional do Petróleo ("ANP") advised that it had granted the JPDA 06-103 Joint Venture an extension to test the Bazartete prospect by 15 January 2014 on the condition that the Joint Venture secured a letter of intent or a contract for a drilling rig by 15 June 2013. In accordance with this condition of the JPDA 06-103 PSC extension, a Letter of Intent to Award a Contract ("LOI") for a drilling rig was lodged with the ANP by the 15 June 2013. The LOI was dependent on security of tenure issues being resolved.

The JPDA 06-103 Joint Venture became aware that a condition of the Certain Maritime Arrangements in the Timor Sea ("CMATS") had lapsed, enabling either Australia or Timor Leste to move to extinguish this Treaty. Based upon legal advice, this change to CMATS may have implications for the Joint Venture's tenure in JPDA 06-103. Subsequent to the reporting period Oilex (JPDA 06-103) Ltd, on behalf of the Joint Venture participants, submitted to the ANP, a request to terminate the PSC by mutual agreement in accordance with its terms and without penalty or claim due to the ongoing uncertainty in relation to security of tenure.

The Company announced on 19 April 2013 that it had accepted an offer for Special Prospecting Authority with Acreage Option (SPA/AO) which partially covers the Wallal Graben in the Canning Basin, Western Australia. The total land area covered by SPA-0055 is 11,400 km2 (~2,800,000 acres). The Company has also submitted two bids for L12-08 and L12-09 gazettal blocks which cover the remainder of the Wallal Graben. These competitive bids are currently being evaluated by the Department of Minerals and Petroleum of Western Australia. The total land area covered by the two gazettal blocks is 6,444km2 (~1,600,000 acres).

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 9 August 2013 the Company announced that it had agreed to sell a 10% participating interest (gross) in the Cambay Production Sharing Contract ("PSC") for four million USD to Magna Energy Limited ("Magna"). Magna also has an option to acquire an additional 5% participating interest (gross) for two million USD. These payments will include the working interest share of the 2013/14 Cambay work programme and budget and the value of the corresponding share of joint venture assets. Under the terms of the agreement, the funds received would be applied towards the proportion of the cost to drill the Cambay-77H horizontal well that relates to Oilex's current 45% participating interest in the Cambay PSC. Unless otherwise mutually agreed, in the event that certain conditions, including the approval of the Government of India have not been satisfied or, where applicable, waived prior to 1 May 2014, the parties have agreed that any payments made by Magna to the Company, to the extent practicable, be converted into shares in Oilex. The issue of shares, under the unwind provisions, will be limited to 19.9% of the enlarged issued capital of Oilex at that time, with any balance of the investment not satisfied in shares repayable in cash.

Shareholders will be asked to approve the unwind provisions at an upcoming general meeting to be held on 4 October 2013. A deposit of two hundred thousand USD has been received after year end, and the balance of the four million USD consideration is payable ten business days after the later of shareholder approval or Oilex's non-operating joint venture participant, GSPC, not exercising its pre-emptive right within 30 days. Magna was introduced to Oilex by India Hydrocarbons Ltd (''IHL"), a related party, who assisted the Company in managing the successful negotiation of the partial sale of its Cambay asset. In recognition of this the Company agreed to the payment of an introduction fee to IHL of 2.5% of the consideration received by the Company, only payable upon receipt of funds from Magna. This introduction fee is at arm's length basis.

On 6 September 2013 the Company announced that it had successfully completed a placement, raising $1,900,000 before expenses estimated at $180,535 with a tranche one placement utilising the Company's remaining 15% placement capacity under ASX Listing Rule 7.1 of 38 million shares at $0.05 per share. An additional 30 million shares at $0.05 per share and 34 million options exercisable at $0.15 per share on or before 7 September 2015, will be issued in a second tranche subject to shareholder approval in October 2013.

Subsequent to the reporting period Oilex (JPDA 06-103) Ltd, on behalf of the Joint Venture participants, submitted to the ANP, a request to terminate the PSC by mutual agreement in accordance with its terms and without penalty or claim due to the ongoing uncertainty in relation to security of tenure. This request will require the consent of the Timor Sea Designated Authority

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

LIKELY DEVELOPMENTS

Additional comments on expected results on operations of the Group are included in the Annual Report under the Business Review on pages 4 to 16.

Further disclosure as to likely developments in the operations of the Group and expected results of those operations have not been included in this Annual Report as, in the opinion of the Board, these would be speculative and not in the best interests of the Group.

FINANCIAL POSITION

Capital Structure and Treasury Policy

During the financial year ended 30 June 2013, Oilex successfully completed a fully underwritten entitlement offer. 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, raising $7,093,097 before expenses of $1,792,385, including $911,970 related to the issue of the underwriter and sub-underwriter options.

The issue of the new shares and options on 7 September 2012 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 2015, 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.

During the financial year 101,660 listed $0.15 options were exercised and 22,000 performance rights were converted. At the date of this report, the Company had a total issued capital of 354,778,499 ordinary shares, 151,893,311 listed options exercisable at $0.15, and 27,462,500 unlisted options exercisable at prices between $0.15 and $0.63 per share.

Cash management is reviewed on a regular basis by the Group's Chief Financial Officer 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, as well as assets divestiture or farmouts to fund its expenditure commitments.

Liquidity and Funding

As at 30 June 2013 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 1,000,000 unlisted options issued to a related party of B H McCarthy, being Mrs R McCarthy.

(2) On 29 January 2013 the Company announced that Mr R Miller would be granted, as part of his remuneration as Managing Director, 2,000,000 unlisted options exercisable at 15 cents per share, vesting from date of grant with a three year term, subject to shareholder approval. As this approval had not been sought as at the date of this report, these options have not yet been issued or included in the table above.

(3) On 30 August 2013 the Company announced a placement to raise $3.4 million before expenses and that Mr R Miller intended to participate in tranche two of the placement, subscribing for one million shares and five hundred thousand attaching listed options subject to shareholder approval at an Extraordinary General Meeting. As this meeting had not been held as at the date of this report, these shares and attached options have not yet been issued or included in the table above.

SHARE OPTIONS AND PERFORMANCE RIGHTS

Options and Performance Rights Granted to Directors and Executives of the Company

During or since the end of the financial year, the Company granted options for no consideration over unissued ordinary shares in the Company, to the following directors and executives, (or their nominees), of the Company as part of their remuneration.

All options were granted during the financial year. No options have been granted since the end of the financial year.

(1) On 29 January 2013 the Company announced that Mr R Miller would be granted, as part of his remuneration as Managing Director, 2,000,000 unlisted options exercisable at 15 cents per share, vesting from date of grant with a three year term, subject to shareholder approval. As this approval had not been sought as at 30 June 2013, these options have not yet been issued or included in the table above.

No performance rights were issued to directors or executives during the financial year. The Employee Performance Rights Plan ("Plan") was last approved by Shareholders at the Company's AGM held on 26 November 2009. If the Company wanted to continue to issue equity securities under the Plan beyond 26 November 2012 without affecting the Company's ability to issue up to 15% of its total ordinary securities in any 12 month period, the Plan would have needed to be renewed during the financial year at the AGM held 14 November 2012. The Board of Directors decided not to seek Shareholder approval to renew the Plan and therefore allowed the plan to lapse, pending a revision of the Plan.

Unissued Shares Under Option and Performance Rights

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

 

These options do not entitle the holder to participate in any share issue of the Company or any other body corporate.

(2) The Employee Performance Rights Plan ("Plan") was last approved by Shareholders at the Company's AGM held on 26 November 2009. If the Company wanted to continue to issue equity securities under the Plan beyond 26 November 2012 without affecting the Company's ability to issue up to 15% of its total ordinary securities in any 12 month period, the Plan would have needed to be renewed during the financial year. The Board of Directors decided not to seek Shareholder approval to renew the Plan and therefore allowed the plan to lapse, pending a revision of the Plan. At the date of this report the Company has no unissued ordinary shares of the Company subject to employee performance rights. The remaining 22,000 employee performance rights in tranche 3 that vested on 1 July 2011 were exercised on 18 September 2012.

 

Shares Issued on Exercise of Employee Options and Employee Performance Rights

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

 

During or since the end of the financial year, the Company has not issued ordinary shares as a result of the exercise of unlisted employee options.

SHARES ISSUED ON EXERCISE OF LISTED OPTIONS

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

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, and did not compromise, 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 network firms 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 Group'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 Group may also provide short term cash incentives based upon the achievement of Company performance hurdles.

1.1 Fixed Compensation

Fixed compensation consists of base compensation as well as 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.

Employees that are permanently based in Gujarat India are paid an allowance up to 35% of their base salary as an Indian Premium. Non-monetary benefits include living expenses and home travel whilst based in India.

1.2 Performance Linked Compensation

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 Group has introduced short-term incentives to some of the executive team that are dependent upon the achievement of performance targets as determined by the Board. These targets include a combination of key strategic, financial and personal performance measures which may have a major influence over company performance in the short-term. Short-term incentives may also be utilised to retain, motivate or reward an executive.

The short-term incentive cash bonus applicable to Mr Maloney, the Chief Operating Officer based in India was set at 30% of his base salary payable on the achievement of:

(1) Commercial flow rate from the offset well to be drilled under the Cambay 2012-13 Work Program and Budget; and

(2) Startup of a pilot gas development project and commencement of gas sales before 31 March 2013; and

(3) Approval of a Development Plan, by 31 March 2013 to commence in the financial year 2013-14 through timely approval of the 2013-14 Work program and Budget.

The dates for satisfaction of the performance hurdles may be changed at the discretion of the Company for unseen or unusual delays in gaining relevant approvals to conduct operations that effect the activity.

Oilex announced the approval of the 2013-14 Work program and Budget on 10 April 2013. The Remuneration Committee awarded 30% of the total short-term incentive to Mr Maloney to recognise this achievement.

The short-term incentive cash bonus applicable to Mr Lamberto was a retention bonus payable, as determined by the Board, if Mr Lamberto continued to provide consultancy services to the Group until 13 April 2013.

Short-term incentives awarded in the current year were accrued as compensation and fully vested to key management personnel during the period. The short-term incentive for Mr Maloney is to be paid in the following year, whilst the short-term incentive for Mr Lamberto was 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").The Employee Performance Rights Plan ("Plan") was last approved by Shareholders at the Company's AGM held on 26 November 2009. If the Company wanted to continue to issue equity securities under the Plan beyond 26 November 2012 without affecting the Company's ability to issue up to 15% of its total ordinary securities in any 12 month period, the Plan would have needed to be renewed during the financial year. The Board of Directors decided not to seek Shareholder approval to renew the Plan and therefore allowed the plan to lapse, pending a revision of the Plan. The unlisted options issued in the current financial year were not issued under the Plan.

The issue of options is designed to allow the Group to attract and retain talented employees. The issue of options 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 issue of unlisted options and the vesting dates are at the discretion of the Board following recommendations received from the Remuneration Committee.

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 for the options issued 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.

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 short-term and long-term incentive components 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.

 

1.3 Non-Executive Directors

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 2013 other than to include the legislated increase to the superannuation guarantee levy of 0.25%.

The Vice-Chairman's base annual fee including superannuation was set at $65,400 on 29 July 2011 and remains unchanged as at 30 June 2013.

The base annual fee including superannuation was set at $54,500 from 1 July 2011 for the other Non-Executive Directors and remains unchanged as at 30 June 2013, other than to include the legislated increase to the superannuation guarantee levy of 0.25%.

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 on 9 November 2011. The gross annual amounts paid of $87,625 (2012: $87,209) are disclosed in the Key Management Personnel Disclosures Note 27 to the Consolidation Financial Statements. The Company's share of these fees of $43,813 (2012: $43,605) are disclosed in the Related Party Transactions Note 28 to the Consolidated Financial Statements. The balance of 50% is payable by the Joint Ventures.

1.4 Remuneration Consultants

Following a formal tender process, in May 2012 Gerard Daniels Australia Pty Ltd ("Gerard Daniels") were engaged as Remuneration Consultants to provide market remuneration data and recommendations to the Remuneration Committee in relation to Non-Executive Directors, Executive Directors and Key Management Personnel for the financial year ending 30 June 2013.

Gerard Daniels issued two reports in July 2012 directly to the Remuneration Committee. The Non-Executive Director Remuneration Review and The Executive Director and Key Management Personnel Remuneration Review provided market data and recommendations for the Remuneration Committee.

Gerard Daniels was paid $18,735 for the provision of the recommendations.

Gerard Daniels provided a statement that the remuneration consultant was contracted and instructed by the Chairman of the Remuneration Committee of the Board and was provided with the direct avenue to the Chairman to provide remuneration recommendations.

All communication with the remuneration consultant was through the Chairman of the Remuneration Committee. The Remuneration Committee, which consists of the Non-Executive Directors, had full oversight of the review and reporting process and therefore, because of this, the Remuneration Committee, and the whole Board, were satisfied that the recommendations made by the remuneration consultant were free from undue influence by key management personnel.

Gerard Daniels provided no other services to the Company during the year.

1.5 Adoption of year ended 30 June 2012 Remuneration Report - First Strike recorded based on a poll

At the Annual General Meeting held 14 November 2012 Resolution 1, the adoption of the Remuneration Report, was put to a poll with greater than 25% of votes cast against this resolution. This resulted in a "first strike" being recorded.

The Remuneration Committee had already tendered and awarded a contract to a remuneration consultant subsequent to the Company receiving its first strike.

The Board has adopted a number of actions in response to the first strike.

The main action is the reduction in the number of executive Directors. Following the resignation of the Technical Director and the Finance Director, the Board replaced the Finance Director with a Chief Financial Officer and did not replace the Technical Director position.

The salary paid to the current Managing Director has been decreased to $270,625 per annum effective 1 April 2013.

The Remuneration Committee's recommendation of the fees to be paid to all Non-Executive Directors, was that the fees remain unchanged, other than to include the legislated increase to the superannuation guarantee levy of 0.25%.

Detailed explanatory notes in relation to the Remuneration Table have been included.

There is no provision under the current Non-Executive director employment conditions for the payment of termination benefits. The Board does not envisage that any such payment will be made in the future.

 

ENDFR SFSSWFFDSEEU

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