Quarterly Report 31 December 2017

oilex ltd

DECEMBER 2017 QUARTERLY REPORT

HIGHLIGHTS

CAMBAY FIELD, ONSHORE GUJARAT, INDIA

» Application for a ten-year extension of the PSC lodged in September 2017 two years ahead of the PSC expiry date of September 2019.

» In support of the PSC extension application process, the Field Development Plan (FDP) was approved by the Joint Venture Management Committee (MC) in January 2018. The MC recommended the PSC for a minimum ten-year extension.

» The MC is chaired by the Director General of Hydrocarbons and includes representatives of the Ministry of Petroleum and Natural Gas (MoPNG).

» The PSC extension application process is now in its final phase with consideration by the MoPNG.

» A revised 2018-19 work programme and budget is being prepared for review and approval, to be implemented, upon receipt of PSC extension and securing adequate financing of the Company and Joint Venture.

» The revised 2018 work programme will prioritise two vertical wells in the EP-IV zone.

» Gas production cycled from C-77H to C-73 at the Cambay Field.

» The Company had approximately 2,860 bbls (gross) on hand as at 31 December 2017.

» During the quarter, the Joint Venture partner, GSPC, made no payments towards outstanding cash calls. The Company continues to maintain a dialogue with GSPC to resolve the payment of the outstanding cash calls.

BHANDUT FIELD, ONSHORE GUJARAT, INDIA

» During the quarter, the Joint Venture partner, GSPC, made no payments towards outstanding cash calls.

» Application for an extension of the PSC lodged in September 2017 two years ahead of the PSC expiry date of September 2019.

» In support of the PSC extension application process, the FDP was approved by the Joint Venture Management Committee in January 2018. The MC recommended the PSC for a minimum ten-year extension.

» The MC is chaired by the Director General of Hydrocarbons and includes representatives of the Ministry of Petroleum and Natural Gas.

» The PSC extension application process is now in its final phase with consideration by the MoPNG.

» Potential opportunities for the sale of the PSC continue to be advanced.

CORPORATE

» Cash resources at 31 December 2017 of approximately $1 million.

» Conditional capital raising to secure funding of up to $2.35 million (£1.33 million) announced in December 2017.

» Implementation of further extensive cost reduction initiatives effective from 1 October 2017.

» Continue to review new opportunities to create value by expanding the Company's project portfolio.

OVERVIEW

The Company's primary objective is to maximise shareholder value from its principal asset in the Cambay Basin, located onshore Gujarat State in India, whilst also continuing to review other opportunities to create value and diversify risk by adding new assets to the Company's project portfolio.

To that end, Oilex continues to evaluate and implement a range of technical programme options to progress the main objective of accessing the significant gas resource present in siltstones in the EP-IV reservoir at the Company's Cambay PSC. North American unconventional drilling, completion and stimulation technologies have been applied by the Joint Venture over the last six years with positive but commercially modest results and work is underway to optimise results for future work programmes. The current technical work programmes are focused on:

· Obtaining a ten-year extension of the Cambay PSC (incorporating a proposed Field Development Program (FDP)). The FDP and application for an extension of the PSC term was lodged in the September 2017 quarter and the Company is working closely with the Director General of Hydrocarbons (DGH) and Ministry of Petroleum and Natural Gas to secure the extension;

· Preparing detailed work programmes including new wells for implementation following the assumed grant of the extension of the Cambay PSC;

· Resolution of outstanding cash calls payable by the Company's Joint Venture partner GSPC; and

· The Company continues to evaluate new opportunities to add to the Company's project portfolio.

HEALTH, SAFETY, SECURITY AND ENVIRONMENT

No lost time incidents recorded during the quarter.

CAMBAY FIELD, GUJARAT, INDIA

(Oilex: Operator and 45% interest)

During the quarter gas production at the Cambay Field cycled from C-77H to C-73 as part of the reservoir management. Production during the quarter averaged 140 mscfd with 7 bopd oil and associated liquids (30 boepd; Oilex net 14 boepd). The current gas sales agreements were renegotiated to take any additional produced volumes as and when required.

In support of the application for an extension of the PSC, a FDP was completed in September and lodged with the DGH. The application, for a ten-year extension of the PSC term beyond its expiry in September 2019, was required to be lodged during September 2017.

During the December 2017 quarter, the FDP was subjected to a review by the DGH with the FDP approved by the Cambay PSC Joint Venture Management Committee (MC) in January 2018. The MC comprises representatives from Oilex, GSPC, DGH and the MoPNG. The application for the PSC extension has now been referred by the DGH for consideration by the MoPNG. A formal response on the application is anticipated in 1H2018 although the Company believes that response may be received within the first quarter.

Whilst the extension application process is underway, the Company continues to advance preparations for the targeted 2018 work programme. The targeted work programme will draw upon the FDP which includes two vertical wells targeting the EP-IV level. The Company is currently working on a revised work programme and budget to be submitted to the Operating Committee of Joint Venture and the DGH. The implementation of the revised 2018-19 work programme and budget is subject to extension of the PSC, additional financing being put in place by Oilex and the funding of the Cambay Joint Venture by all partners. The Company continues to engage with GSPC and other stakeholders to ensure the 2018-19 work programme and budget is equitably funded. In addition, the Company has received approaches from a number of industry participants expressing an interest in the project.

The priority for the revised work 2018-19 programme will be to test the drilling and stimulation recommendations from Baker Hughes in the EP-IV zone. Any early production will utilise existing processing and storage facilities to provide a low-cost path to commercialisation. Given success, a larger drilling programme will follow, with the aim of aggregating sufficient production volumes to connect to the high-pressure pipelines which offer greater offtake stability and improved gas prices.

Joint Venture Management

During the December 2017 quarter, the operator has received no payments towards outstanding cash calls from its joint venture partner.

As at 31 December 2017, gross unpaid cash calls remaining outstanding from GSPC totalled approximately US$5.6 million. The Company continues to maintain a dialogue with its joint venture partner to resolve the payment of these remaining outstanding cash call balances. Oilex as Operator, has continued to bear the ongoing costs of the Joint Venture.

BHANDUT FIELD, GUJARAT, INDIA

(Oilex: Operator and 40% interest)

Oilex holds a 40% equity in the Bhandut Field, with GSPC holding the remaining participating interest. Previous drilling in the Bhandut Field intersected a number of hydrocarbon zones, some of which have been produced and are now shut-in.

The preparation of the Field Development Plan, in support of the application for an extension of the PSC was completed in September 2017. The application for an extension of the PSC term beyond September 2019 (required to be lodged by late September 2017) was lodged with the DGH.

During the December 2017 quarter, the FDP was subjected to a comprehensive review by the DGH. The FDP was approved by the Bhandut PSC Joint Venture Management Committee (MC) in January 2018. The MC comprises representatives from Oilex, GSPC, DGH and MOPNG. The application for the PSC extension has now been referred by the DGH for consideration by the MoPNG. A formal response on the application is anticipated in 1H2018 although the Company believes that response may be received within the first quarter.

The field is currently on care and maintenance, however, the field has ongoing production and exploration potential, coupled with existing production facilities. The Company continues discussions with several parties for the possible sale of its participating interest in the PSC.

During the quarter Oilex received no payments towards outstanding cash calls for Bhandut.

At the end of the quarter, total unpaid cash calls by GSPC was US$85,493 gross.

WALLAL GRABEN, WESTERN AUSTRALIA (CANNING BASIN)

(Oilex: Preferred Applicant 100% interest)

The Wallal Graben asset is located adjacent to the Pilbara, a global resource centre for iron ore and LNG in Western Australia. The Wallal Graben blocks are currently under application with the Department of Mines and Petroleum (DMP) with the final award subject to entering into Heritage Agreements with the Nyangumarta and Njamal People.

JPDA 06-103, TIMOR SEA

(Oilex: PSC Terminated 15 July 2015 - Operator and 10% interest)

Oilex as operator, and on behalf of the JPDA 06-103 Joint Venture participants, continues to seek a resolution to the dispute with Autoridade Nacional do Petroleo e Minerais (ANPM) in relation to matters associated with the termination of JPDA 06-103 PSC. In July 2015, the ANPM rejected the Joint Venture request to terminate the PSC by mutual agreement in good standing and without penalty, and the ANPM sought to impose a penalty of approximately US$17 million upon the Joint Venture and the ANPM terminated the PSC on 15 July 2015. The Joint Venture undertook significantly more exploration expenditure than required during the PSC term and believes the excess was not properly accounted for in accordance with the terms of the PSC.

The Joint Venture continues its dialogue with the ANPM and remains hopeful an amicable settlement will be reached. If the parties are unable to reach an amicable settlement, any party may refer the matter to arbitration. If this occurs, the obligations and liabilities of the Joint Venture participants under the PSC are joint and several, with parent company guarantees provided by all Joint Venture participants. Oilex has a 10% participating interest in the Joint Venture.

WEST KAMPAR PSC, CENTRAL SUMATRA, INDONESIA

(Oilex: 45% interest and further 22.5% secured (1))

The Company remains in dispute with the operating company, PT Sumatera Persada Energi (SPE) which was declared bankrupt. The Indonesian Government regulator, SKK Migas, has confirmed that Oilex continues to retain a 45% participating interest in the PSC. In the absence of a commercial settlement, the Company intends to preserve its rights. Oilex continues to pursue enforcement of the Arbitration Award and a commercial settlement.

CORPORATE

At the end of the quarter Oilex retained cash resources of $0.97 million.

Placement to New Cornerstone Shareholder

During the quarter the Company announced that it had entered into subscription agreements for a conditional capital raising to secure funding of up to $2.35 million (£1.33 million). The placement will occur in two tranches structured as follows:

Tranche 1 -157,894,737 shares at an issue price of $0.0038 (0.215 pence) to raise up to $0.6 million (£0.34 million)

Tranche 2 - 349,240,000 shares at a price of $0.005 (0.283 pence) to raise a further $1.75 million (£0.99 million)

Tranche 2 shares is subject to shareholder approval, as well as the successful extension of the Cambay PSC by the Government of India for a further ten years on or before 31 March 2018. The Company anticipates holding its general meeting to approve Tranche 2 on or about 14 March 2018. The Tranche 1 shares were admitted to trading on or about 29 January 2018.

Cost Reduction Initiatives

Effective from 1 October 2017, the Company has implemented a further cost reduction initiative reflecting the Company's wish to preserve its cash resources ahead of the grant of the extension of the Cambay PSC. The cost reductions, which are being undertaken in both Perth and India, include:

· 20% overall reduction in personnel costs, incorporating reduced hours;

· reduction in corporate and administration costs in the Company's head office and India;

· part payment of non-executive director fees with equity; and

· deferral of all non-essential expenditure.

The cash position at the end of the quarter, cost reduction strategy and together with the possibility of further cash inflows from payment of cash call arrears and or the sale of Bhandut is anticipated to assist the Company in being able to defer any significant equity issues in the near term.

Board Changes

During the quarter Mr Max Cozijn elected to retire from the Board and consequently did not seek re-election at the Company's Annual General Meeting in November 2017.

Issue of Shares

During the December 2017 quarter, the Company has issued 13,945,833 shares during the current quarter as consideration for consulting services.

Qualified Petroleum Reserves and Resources Evaluator Statement

Pursuant to the requirements of Chapter 5 of the ASX Listing Rules, the information in this report relating to petroleum reserves and resources is based on and fairly represents information and supporting documentation prepared by or under the supervision of Mr Joe Salomon, Managing Director employed by Oilex Ltd. Mr Salomon has over 30 years' experience in petroleum geology and is a member of the Society of Petroleum Engineers and AAPG. Mr Salomon meets the requirements of a qualified petroleum reserve and resource evaluator under Chapter 5 of the ASX Listing Rules and consents to the inclusion of this information in this report in the form and context in which it appears. Mr Salomon also meets the requirements of a qualified person under the AIM Note for Mining, Oil and Gas Companies and consents to the inclusion of this information in this report in the form and context in which it appears. 

(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 PT Sumatera Persada Energi (SPE) following the failure of SPE to repay funds due. The assignment request has been provided to BPMigas (now SKK Migas) but has not yet been approved or rejected. If Oilex is paid the funds due it will not be entitled to pursue this assignment.

(2) PSC terminated 15 July 2015

(3) Ultimate parent entity is Oilex Ltd.

(4) Current status is a Preferred Applicant.

Rule 5.5

Appendix 5B

Mining exploration entity and oil and gas exploration entity quarterly report

Introduced 01/07/96 Origin Appendix 8 Amended 01/07/97, 01/07/98, 30/09/01, 01/06/10, 17/12/10, 01/05/13, 01/09/16

Compliance statement

1 This statement has been prepared in accordance with accounting standards and policies which comply with Listing Rule 19.11A.

2 This statement gives a true and fair view of the matters disclosed.

Sign here: Date: 29 January 2018

CFO & Company Secretary

Print name: Mark Bolton