CHAirman's review
Dear Shareholder,
Your Company has continued to make progress in evaluating the potential of the extensive, Eocene low permeability "tight" reservoirs in the Cambay Field, onshore Gujarat, India as well in the Canning Basin of Western Australia.
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 km2 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 petroleum 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. A significant portion of the gas demand is being met by imported LNG and the new Government in India is looking to stimulate domestic gas production to fill this supply gap and has recently announced a new pricing formula that increases the prices for domestic gas under NELP contracts substantially. The Government is likely to open up opportunities for shale gas and tight hydrocarbons exploitation under a new licencing regime.
During the year the Company successfully drilled and completed the 2,370 metre MD "proof of concept" Cambay-77H well. The well was spudded in March 2014 and intersected the primary reservoir target (Y zone) on prognosis with drilling being completed in April 2014. A comprehensive suite of logs was acquired and preliminary interpretation confirmed the wellbore encountered a significant sequence of hydrocarbon bearing reservoir similar to Cambay-76H. After the rig demobilised the well was ready for fracture stimulation in June 2014. During fracture stimulation gas was detected at surface and elevated overpressure of ~5000 psi was measured indicating a pressure increase of 670 psi.
Subsequent to the end of the financial year milling operations were successfully completed with the commencement of a controlled flow-back of fluids with light oil/condensate being recovered to surface and separated for sale along with associated reservoir gas. Gas associated with the well flow-back is currently being flared to ensure safety of all well-site personnel.
The recovery of ~API 50 light crude during flow-back operations has been particularly encouraging indicating higher than expected liquid hydrocarbon production. Measuring these liquids will provide valuable information regarding the quality of the 8 fracture stimulations and deliverability of the reservoir.
As announced on 4 November 2014 the Production Test has commenced. Cambay 77-H is the first horizontal well with multi-stage fracture treatments to be production tested in India. Cambay 77-H has demonstrated that the Cambay Field is amenable to this technology.
The production test is focused on acquiring long term performance data which is essential for assessment of reservoir properties and will supplement surface data collected during flowback. Oilex intends to announce the successful recovery of the instrumentation and data followed by an announcement regarding the flowback and test results after a preliminary analysis of the data has been completed.
The production test is the final major field activity for Cambay-77H and when concluded, all the proof of concept objectives will have been successfully completed. Oilex will then focus on putting Cambay-77H into production as soon as possible, as well as incorporating the proof of concept outcomes into the planning for the next drilling campaign.
In addition to Cambay-77H operations subsequent to the end of the year the Company received endorsement of the Cambay-73 Gas Sales Agreement from the relevant Government of India Authorities, a critical milestone for increasing production from the field and supplying gas to the local market. Given the similarity between Cambay-73 and Cambay-77H gas, the Company has requested approval to sell gas from Cambay-77H with Cambay-73 gas. Tender evaluations for the results of Bhandut-3 gas sales remain with the Government of India for endorsement.
In August 2013 the Company agreed to sell 10% of the Cambay PSC to Magna Energy Limited ("Magna") for US$4 million. The Sale and Purchase Agreement entered into with Magna contained an unwind trigger process whereby any funds received by Oilex would be converted to shares in Oilex Ltd if one of the triggers provision was enacted. The unwind process was triggered in May 2014 when the Government of India consent for the sale of a 10% participating interest in the Cambay PSC was not received by May 2014. The US$4 million received by Oilex was converted to shares in Oilex, resulting in Magna becoming a cornerstone investor in the Company.
During the year the Company conducted an Aerial Gravity/Magnetic Survey (the "Aerial Survey") in SPA 17 AO (formerly "SPA-0055") in the Canning Basin after signing agreements with Traditional Owner Groups either holding Native Title or claiming Native Title over portions of SPA 17 AO. The Aerial Survey, including acquisition, processing and interpretation, was awarded to CGG Aviation (Australia) Pty Ltd and was completed in April 2014 ahead of schedule and on budget. In June 2014 the Company announced the preliminary interpretation of the Aerial Survey confirms Oilex's structural model that the Wallal Graben, which is clearly imaged by 2D seismic data in Oilex's adjacent permits extends into SPA 17 AO. The Wallal Graben appears to contain the important elements of a working petroleum system including source rocks, structure, thick sedimentary section and sufficient depth of burial to generate hydrocarbons.
During August 2013 the Company announced it had been successful in its bids for gazettal blocks L12-08 and L12-09, covering 6,444 km2 immediately adjacent to SPA 17 AO. 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. The exploration permits awarded are STP-EPA-0106 and STP-EPA-0107.
Subsequent to the end of the year the Company on behalf of its Joint Venture participants in the Timor-Leste Joint Venture, received a further extension to the suspension of JPDA-06-103 Production Sharing Contract ("PSC") to 15 January 2015. The extension was granted for the ANP to complete an assessment of the application by the Joint Venture parties to terminate the PSC without liability following concerns over security of tenure after the Timor-Leste Government initiated formal arbitration proceedings against the Government of Australia to have the Certain Maritime Arrangements in the Timor Sea ("CMATS") declared void ab initio.
During the year the Company successfully raised $14.6 million in additional funds to progress the development of its assets.
The 2014 financial year has been an encouraging year for the Company with progression in the Company's flagship Cambay project as well as significant developments through the acquisition of the Company's Canning Basin acreage in Western Australia.
Dr Bruce McCarthy who has been an integral part of the Company for almost ten years, having been Managing Director from 2005 to 2012 and following that, two years as a non-executive director is retiring as a director at the end of the General Meeting. His previous experience in India led the Company to acquire its flagship asset, Cambay. On behalf of the entire Board, I would like to thank Bruce for the significant contribution he has made to Oilex, and wish him all the best for the future.
The Board has commenced a search process to identify non-executive directors with the right mix of skills, experience and diversity which reflects the Company's strategy and increase the balance of independence on the Board.
On behalf of the Board I wish to record our appreciation for the support and dedication of our Executive Management, staff, joint venture partners, contractors, local communities, shareholders and stakeholders during the year and in particular the team associated with the drilling and completion of Cambay-77H as the Company progresses the development of the Cambay project.
Mr MDJ Cozijn
Chairman
18 November 2014
