Financial Report for year ended 30 June 2015

OILEX LTD

Foundations for value and growth

 

 

 

Oilex has a diversified oil and gas portfolio, focused on Indian Ocean rim countries with proven onshore hydrocarbon provinces.

 

Strategic Focus

·    Assets with deep markets, existing infrastructure & good geology

·    Production, cash flow and reserves

·    Targeting cash positive operations in India¹

Portfolio

·    India - Cambay asset in Gujarat State, a leading industrialised

state in India

·    Partnered with Gujarat State Petroleum Corporation

·    Australia - low cost entry into 3 million acres in Canning Basin

Value Catalysts

·    Assets in a premium market, with a low cost structure

·    Experienced executive team focused on delivery

·    Building a sustainable business

 

2P ~20MMBoe

3P ~37MMBoe

2C ~80MMBoe

 

¹ Excluding Cambay Field capex

 

Contents

Chairman's Review

Business Review

Permit Schedule

Directors' Report

Remuneration Report - Audited

Lead 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

Definitions

Business Directory

Corporate Information

 

 

CHAirman's review

 

Dear Shareholder,

The 2014/15 Financial Year was a landmark year for Oilex, with significant progress achieved at our Cambay Field Project, successfully delivering the proof-of-concept well Cambay-77H. Oilex is the first company to successfully apply proven North American drilling and completion technology to develop and produce oil and gas within the Cambay Basin, by completing a long term production test of a multi stage fracture stimulated horizontal tight oil/gas well in India. Following this success, Oilex obtained Joint Venture and Government of India approval for a comprehensive 2015/16 work programme and delivered a significant upgrade to Reserves and Contingent Resources. 

Subsequent to the upgrade of Reserves and Contingent Resources, Oilex has successfully raised, after the end of the year, $30 million (before expenses) from new institutional, sophisticated, strategic and existing shareholders. Oilex is pleased to welcome a new strategic investor Zeta Resources Limited following completion of this capital raising.

Oilex is focused on executing the 2015/16 work programme to deliver production growth and cash flow, underpinned by gross 2P Reserves of 206 Bcf plus 8 MMbbl of liquids independently assessed by RISC Operations Pty Ltd (RISC).

Your board believes that India offers a compelling investment proposition as the world's fourth largest energy consumer with a large unsatisfied gas demand. India is forecast to be the world's fastest growing large economy over the next two years.  Strong growth, combined with a growing middle class forecast to be ~475 million people by 2030 results in significant growth in energy and natural gas consumption.

The Cambay Field is located at the hub of India's large gas distribution network close to the existing gas pipeline grid in the State of Gujarat.  This position adjacent to an existing gas pipeline grid with spare capacity should facilitate the rapid commercialisation of Cambay Field gas on a cost-effective basis to bring Reserves into production and unlock value for all stakeholders.  

It is anticipated that while the global energy markets are experiencing significant price constraints, with our unique position to supply onshore gas close to infrastructure in Gujarat state, the growing demand for energy should ensure that domestic prices will be insulated from external price pressures.

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 look forward to the successful commercialisation of the Cambay Field and moving into production in 2016 and beyond.

 

Mr MDJ Cozijn

Chairman

24 September 2015

 

BUSINESS REVIEW

Strategy

Oilex's strategy is to become a leading "tight" oil and gas producer in India by utilising North American drilling and completion technology to develop and produce tight resources in the Cambay Basin.  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.

The Oilex strategy is focused on proven onshore hydrocarbon provinces demonstrating three key qualities essential to deliver sustainable value for Shareholders:

·          Markets

·          Infrastructure

·          Geology

India

During the year Oilex remained firmly focused on developing the major tight hydrocarbon potential at the Company's Cambay Project, onshore Gujarat, India.  This focus is driven by the large independently assessed Reserves and Contingent Resource within the Cambay PSC located within a fast growing energy market.  India is the world's fourth largest energy consumer with a significant unsatisfied gas demand and relatively high sustainable gas prices.  The International Energy Agency forecasts India's gas demand to increase by over 5% per annum over the next 15 years and to continue to outpace domestic gas supplies.

India's global middle class is small, at around 50 million people, or 5% of its population.  India's middle class is projected to grow steadily over the next decade, reaching 200 million by 2020¹ after which, India's middle-class growth is expected to accelerate, reaching 475 million people by 2030¹ and adding more people than the Chinese to the global middle class worldwide after 2027.  As the middle class expands, the energy consumption per capita represents significant growth potential for consumption of hydrocarbon energy.

Importantly, the Cambay Project is ideally located at a hub of India's large gas distribution network and approximately 10 km from the existing gas pipeline grid and well-positioned to rapidly commercialise production in the fast-growing, demand-driven domestic energy market.

Cambay Field, Onshore Gujarat, India

(Oilex - 45%, Operator)

Background

Oilex operates the Cambay Field Production Sharing Contract (PSC) 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 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.

The 161 km² Cambay Contract Area contains thick, low permeability Eocene reservoirs.  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 the 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 issues in the OSII.

ONGC drilled over 30 wells to variable total depths through the Eocene "tight" siltstone 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 in the range of 0.3 - 4.2 MMscfd.

In 2009 the sophisticated "tight" reservoir drilling and production technology which has driven the North American "shale" 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, its international industry contacts and operating experience in India.

In 2014 significant progress was achieved on the Cambay Field development.  The Company successfully completed the Cambay-77H production test.  The test objective was acquiring long term performance data from the Eocene Y zone, which is essential for the assessment of reservoir properties.

Delivering the Proof of Concept

Proof of Concept objectives are critical to demonstrating that the Cambay Field can be commercially developed using multi-stage fracture treatments (fracs) in horizontal wells.  Key objectives achieved include:

·          Efficient horizontal drilling operations demonstrating the repeatability of targeting the Y zone

·          Y zone reservoir properties are laterally consistent, having variability within expectations

·          Successful completion of 24 fracture treatments in 2 wells

·          Successful acquisition and deployment of fracture data using micro-seismic

·          Successfully demonstrated "Plug and Perf" completion technique in India

·          First horizontal well in the Cambay Basin with multiple fracture treatments to achieve flowback

·          Flowback data used to calibrate horizontal well model for the first time

·          Future well designs may have wider frac spacing, leading to significant cost savings

Figure 1 :  Cambay Field - recorded hydrocarbon flowrates from Y zone reservoir

Work Programme and Budget 2015/16

The work programme and budget for the 2015/16 year has been approved by both the Joint Venture and the Government of India.  Oilex has commenced work on schedule critical, tendering activities and expects to take advantage of the recent decrease in global oil & gas activity to achieve a reduction in drilling and other costs.

The work programme consists of a firm 2 well drilling campaign and 2 contingent wells.  Tenders are currently being evaluated and it is anticipated that spudding of the first well will commence late in H2 2015.  Full diameter core across the Y zone will be collected in each firm well.  Special analysis will be conducted on each core and the data obtained from the analysis will be used to finalise the frac design for each well.  Core analysis is widely undertaken in North America and it is anticipated that core data will enable a better frac efficiency to be achieved compared to Cambay-77H.

Also forming part of the approved work programme are 5 well work-overs to boost oil and possibly gas production from existing wells.  This work-over campaign is integral to achieving the Company's target of cash flow positive operations (excluding exploration and field development costs) in India during 2015.  A number of existing wells are able to deliver gas for the local low pressure market that exists within the immediate vicinity of the field and serviced by a low pressure gas reticulation network.

Engineering studies for permanent production and gas treatment facilities have commenced.  These studies will examine the cost and schedule parameters of a range of throughput sizes as part of the development planning for the field.  The work includes conceptual design of a small throughput plant that would enable pipeline quality gas to be sold into the gas grid relatively quickly and thus tapping into a larger market. 

Oilex has concluded two gas sale agreements (GSAs) to date.  GSAs are conducted via a bid system, with buyers submitting offers to purchase via a tender process.  Given the demand for gas by nearby industrial users, strong pricing has been secured.

Existing industry located within 15km of the Cambay Field also means very low capital cost is associated with sales of gas to the local market and the tie-in to the existing gas transmission pipeline network.  The network has excess capacity for additional gas that can be used for gas from the Cambay Field.

Oilex is working towards putting three wells in two separate fields into production in the 2015/16 year:

·          Cambay-73 (production commenced in June 2015)

·          Cambay-77H

·          Bhandut-3

Oilex recommenced gas production in the Cambay Field in June 2015 for the first time since the early 1990's.  Production from the three historical wells will be a substantial step towards cash positive operations in India for the Company as a result of the strong gas demand and associated robust gas price structure in Gujarat State. 

Cambay-77H Well

During the financial year Oilex successfully completed the fracture stimulation of four stages (8 fractures) in the 350 metre lateral section.  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.

Cambay-73 Well

Cambay-73 is located about 1 km to the south of Cambay-77H.  Cambay-73 and Cambay-77H have intersected the same Y zone reservoir and both have produced gas and light oil/condensate.  Gas composition analyses conclude that gas from Cambay-77H and Cambay-73 is almost identical with minimal processing required to reach pipeline specification.

In April 2013 Oilex announced a GSA was signed for "offspec" gas from Cambay-73 and was submitted to the Government for endorsement.  The initial term was for two years and additional wells can be added to the contract if potential production exists.  In July 2014, the relevant authorities within the Government endorsed the GSA.  This was a critical milestone for increasing production from the field and supplying gas to the local market.

Construction of production facilities at Cambay-73 was completed during May 2015, with tie-in of the low pressure pipeline subsequently completed in June 2015.  Cambay-73 will supply gas to a low pressure gas market in the vicinity of the Cambay Field and commenced production at 50 boepd of gas and condensate.  The condensate will be separated at the field and trucked to a nearby refinery together with other Cambay crude oil.

Figure 2:  Cambay 73 production facility

Reserves and Contingent Resources

In April 2015 RISC, an Australian based, internationally recognised independent petroleum advisory group, completed an independent Resource Report of the Eocene Formation of the Cambay Field.  This work follows on from its evaluation of Cambay-77H flowback and test data in December 2014.  RISC has evaluated 2 of 6 potential Eocene reservoirs, the X and Y zones, and the results for Reserves and Contingent Resources are summarised below.

Table 1: Reserves

	Estimated Cambay Field Reserves
	1P*		2P		3P
Y Zone	Gas Bcf	C5+ MMbbls	Gas Bcf	C5+ MMbbls	Gas Bcf	C5+ MMbbls
Total - Gross	Nil	Nil	206	8.0	377	17.3
Oilex net working interest	Nil	Nil	93	3.6	170	7.8

*Gross 90 Bcf of gas and 2.9 MMbbls of C5⁺ (Oilex net working interest of 40.5 Bcf of gas and 1.3 MMbbls of C5⁺) would be categorised as 1P subject to securing finance for the development, according to the PRMS guidelines.  These quantities are included in the 1C Contingent Resources in Table 2.

Table 2: Contingent Resources

	Unrisked Cambay Field Contingent Resource Estimates
	1C		2C		3C
X and Y Zones	Gas Bcf	C5+ MMbbls	Gas Bcf	C5+ MMbbls	Gas Bcf	C5+ MMbbls
Total - Gross	388	23.7	720	52.8	1239	104
Oilex net working interest	215**	12**	324	23.8	557.6	46.8

**Includes Oilex net working interest of 40.5 Bcf of gas and 1.3 MMbbls of C5⁺ that would be categorised as 1P subject to securing finance for the development.

Notes to Tables

(1)   The Reserves and Contingent Resources estimates prepared by RISC as of 1 April 2015, and stated in the tables above, have been prepared in accordance with the definitions and guidelines set forth in Petroleum Resources Management System, 2007 (PRMS) approved by the Society of Petroleum Engineers (SPE).

(2)   The Reserves and Contingent Resources shown in the above tables have been estimated using probabilistic methods.  The total in Table 2 is the statistical aggregate of the relevant volumes.

(3)   The estimates included in Table 2 Contingent Resources have not been adjusted for the chance of development due to one or more contingencies.

(4)   These estimates have not been endorsed by the Government of India or the Directorate General of Hydrocarbons, India.

(5)   Oilex is operator of, and has a 45% net working interest in, the Cambay Field Production Sharing Contract (PSC). Net working interest is not the same as the net economic entitlement under the Cambay PSC and the net economic entitlement varies with development strategy and size.  For reference, Oilex's net economic entitlement for the 2P volumes is estimated to be 94.4% of its net working interest.

(6)   Cambay Field covers 161 km² and environmental approvals have been granted for 60 wells and modernisation and expansion of the Gas Gathering Station (GGS).  34 new wells are estimated to be required for recovery of the Reserves.  The actual well count may vary.

(7)   Contingent Resources were previously announced on 11 October 2011 and there has been no revision until this announcement.

Reserves and Contingent Resources Reconciliation by Period

Table 3: Reserves

Cambay India	Estimated Cambay Field Reserves
	1P* Undeveloped		2P Undeveloped		3P
Y Zone	Gas Bcf	C5+ MMbbls	Gas Bcf	C5+ MMbbls	Gas Bcf	C5+ MMbbls
Total - Gross 30/06/2014	Nil	Nil	Nil	Nil	Nil	Nil
Recognition of new reserves April 2015	Nil*	Nil*	206	8.0	377	17.3
Revision,  extension and discoveries	-	-	-	-	-	-
Acquisitions and divestments	-	-	-	-	-	-
Production	-**	-**	-**	-**	-**	-**
Total - Gross 30/06/2015	Nil	Nil	206	8.0	377	17.3
Oilex net working interest	Nil	Nil	93	3.6	170	7.8

 

*Gross 90 Bcf of gas and 2.9 MMbbls of C5⁺ (Oilex net working interest of 40.5 Bcf of gas and 1.3 MMbbls of C5⁺) would be categorised as 1P subject to securing finance for the development, according to the PRMS guidelines.  These quantities are included in the 1C Contingent Resources in Table 4.

**Actual Cambay Field production in the quarter ended 30 June 2015 was 669 Bbls and 1082 Mscf (gross), net to Oilex 301 Bbls and 487 Mscf.  Production for the period 1 April to 30 June 2015 has been excluded from the table above as these amounts are immaterial relative to total Reserves and Oilex net working interest.

 

Table 4: Contingent Resources

Cambay India	Unrisked Cambay Field Contingent Resource Estimates
	1C		2C		3C
X and Y Zones	Gas Bcf	C5+ MMbbls	Gas Bcf	C5+ MMbbls	Gas Bcf	C5+ MMbbls
Total - Gross 30/06/2014	Nil	Nil	Nil	Nil	Nil	Nil
Recognition of contingent resources April 2015	388	23.7	720	52.8	1239	104.0
Total - X and Y Zones Gross 30/6/2015	388	23.7	720	52.8	1239	104
Oilex net working interest	215**	12**	324	23.8	557.6	46.8

 

**Includes Oilex net working interest of 40.5 Bcf of gas and 1.3 MMbbls of C5⁺ that would be categorised as 1P subject to securing finance for the development.

Infrastructure

The Cambay Field is located approximately 10km from the gas pipeline network with spare capacity.  The pipeline connection to the high pressure grid will be constructed and owned by a third party, which is likely to be an affiliate of Oilex's Joint Venture partner, Gujarat State Petroleum Corporation (GSPC).  Timing of construction has yet to be determined.

The 2P Reserves are anticipated to support a plateau gas production rate of ~50MMscfd, whilst the 2P + 2C combined volumes may support a plateau gas production rate of 125 - 250MMscfd.  Studies, yet to be completed, will determine an optimum field gas production profile and incorporate data from wells drilled as part of the 2015/16 budget.

The establishment of reserves provides a strong foundation for the expedited development of the Cambay Field and achievement of our key corporate goals of increasing production, cash flow and reserves.  Oilex's first-mover advantage in opening the Cambay Basin (and India) to development of its significant tight oil and gas resources, places the Company on a strong growth trajectory in a robust energy market.

Figure 3:  Gujarat: Gas Pipeline Network to the Nation

Bhandut Field, Onshore Gujarat, India

(Oilex - 40%, Operator)

The field was discovered and developed initially by ONGC.  The field has produced 17,572 bbls of oil since acquisition.

Bhandut-3 has previously flowed at a maximum rate of 6.5MMscfd through a 10mm choke with a flowing tubing head pressure of 1,190 psia during an isochronal test.  The test confirmed the reservoir sand has a permeability of 124mD, making it a conventional reservoir.  It is planned to deliver approximately 0.5-1MMscfd from the Bhandut-3 well.  The Company anticipates the cost of the production facilities payback in seven months from commencement of production based upon the contracted gas price.

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.

Having received endorsement of the gas sales agreement, the Bhandut Joint Venture has commenced the process to establish the appropriate production facilities for Bhandut-3.  This will include a compressed natural gas (CNG) loading facility that will enable CNG "bullet" trucks to be loaded at site for transportation of the gas to end users.  Bhandut-3 gas is "lean" and therefore no material condensate production is expected.

Design engineering work for the gas production facilities required for Bhandut-3 has been completed.  Scope of work and materials requirements have been completed.  The production facility is expected to be completed during Q3 2015.

Sabarmati Field, Onshore Gujarat, India

(Oilex - 40%, Operator)

The Sabarmati Field Petroleum Mining Lease expired on 22 September 2014.  On 28 February 2015 the Joint Venture and the Government of India approved the plug & abandonment of Sabarmati-1 (SMT-1), the removal & transfer of equipment to Cambay Field and a site restoration plan.  Plug & abandonment workover for well SMT-1 was completed in early March 2015 and site restoration works were subsequently completed.  In May 2015 the regulator, the Directorate General Hydrocarbons completed a site visit and Oilex is now awaiting their report to finalise the relinquishment of the Field.

Canning Basin, Western Australia

Oilex acquired a large SPA 17 AO (Special Prospecting Authority), now converted to exploration permit STP-EPA-0131, and two adjacent exploration areas, STP-EPA-0106 and STP-EPA-0107 in the onshore Canning Basin, Western Australia.  The combined total area is ~3 million acres.

The Canning Basin asset is located adjacent to the Pilbara, a global resource centre for iron ore and LNG.  Oilex has a low cost entry into a province with the key determinates for success being:

·          Markets

·          Infrastructure

·          Geology

The acreage is in a unique position in the Canning Basin as it is adjacent to many world class mining projects in the Pilbara region.  There has been development of a significant amount of infrastructure in the area with the Great Northern Highway, numerous sealed roads, good quality graded roads and multiple airstrips being present within the Oilex acreage.  The Telfer Gas pipeline traverses STP-EPA-0131 and any future pipelines from the Canning Basin to the export terminals at Port Hedland and Karratha would have to pass through the acreage (Figure 4).

Figure 4: Significant infrastructure within and adjacent to Oilex's Wallal Graben permits - a unique situation in the Canning Basin

Oilex acquired this acreage as it is contained within a unique setting.  The Canning Basin has sometimes been considered to be low prospectivity due to the diluted nature of the key source rock intervals.  However, the U.S. EIA identified the Canning Basin as having the largest unconventional potential in Australia.  The primary attraction of the narrow, restricted Wallal Graben is its interpreted potential for the deposition of source rocks which have not endured dilution from more oxygen-rich oceanic circulation.  Also, being located directly adjacent to the large Archaean Pilbara Craton protects this area from significant uplift and erosion which has sometimes occurred in the Canning Basin resulting in either the stripping-off of key source intervals or the inability for the source-rocks to achieve suitable depth of burial.

Prospectivity

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 5.5 km deep, which is viewed positively for the generation of hydrocarbons.

Numerous identified play-types are expected to continue along the length of the Wallal Graben beyond the area covered by 2D seismic grid resulting in potentially substantial hydrocarbon volumes being present within all three permits.  This assumption has been demonstrated by a new 2D seismic line in 2014 by Geological Survey of Western Australia in collaboration with Geoscience Australia within the northern STP-EPA-0106 permit.  This new line is located 9 km north of the vintage 2D seismic.  The identified prospectivity on the vintage dataset is clearly imaged on the new 2D seismic line supporting that the prospectivity is laterally extensive along the graben.

The leads and prospects inventory comprises multiple play-types ranging from simple structural traps (Figure 5) to well-defined fan systems (Figure 6).  Due to the concentrated prospectivity, a range of play-types and reservoir targets can be tested by a single vertical well resulting in the evaluation of potentially substantial hydrocarbon volumes at numerous intervals.

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

Figure 5: Example of structural lead - simple tilted fault block with overlying channel.  Note the two interpreted unconventional plays.

Figure 6: Example of combination lead - fan systems within dip closure along basin margin fault with larger stratigraphic trapping element.  Note the clearly defined, extensive fan systems interpreted on 2D seismic (strike line).

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.

There has been some significant progress made on the Canning Project during the financial year, including:

·          Detailed interpretation of the airborne gravity gradiometry and magnetics survey

·          Negotiating a formal exploration permit with the Government of Western Australia following the submission of the final report and other documentation to the Department of Minerals and Petroleum for SPA 17 AO

·          The final interpretation confirms Oilex's structural model of the Wallal Graben, which is clearly-imaged by 2D seismic data in Oilex's adjacent permits, extends into SPA 17 AO

·          Negotiations with Traditional Owner Groups either holding Native Title or claiming Native Title over the entire project

The newly acquired airborne gravity and magnetic survey, together with 2D seismic, regional gravity, magnetic, surface geological and well data has confirmed Oilex's structural model of the Wallal Graben.

The Graben is present in Oilex's three, 100%-owned, exploration areas.

Oilex continues to negotiate Native Title agreements with Traditional Owners.  Upon finalisation of the agreements the regulatory process of conversion of STP-EPA-0131, STP-EPA-0106 and STP-EPA-0107 to formal exploration permits will commence.

Figure 7: Interpretation of the Wallal Graben extent overlain on the magnetic depth to basement horizon (meters relative to sea level)

JPDA 06-103, Timor Sea

(Oilex - 10%, Operator)

The Joint Venture submitted a request to the Autoridade Nacional do Petroleo (ANP) to terminate the PSC by mutual agreement in accordance with its terms and without penalty or claim on 12 July 2013 (Request to Terminate).

The Request to Terminate followed Joint Venture concerns over the security of PSC tenure as a result of developments within the JPDA, including JPDA (06-103), which are outside the control and influence of the Joint Venture Participants, including:

·      existence of separate unilateral rights to terminate the Certain Maritime Arrangements in the Timor Sea (CMATS) arising in 2013 in favour of both the Government of Timor Leste and the Government of Australia; and

·      formal arbitration proceedings being initiated by the Timor Leste Government against the Government of Australia to have CMATS declared void ab initio.

On 15 January, 2014 the ANP suspended the PSC for 3 months to provide sufficient time for a response to the Request to Terminate be determined.  The ANP subsequently granted successive 3 month extensions to the PSC.

In May 2015 the ANP responded to the Joint Venture and advised that the Request to Terminate had been rejected.  Shortly thereafter, the Joint Venture received a Notice of Intent to Terminate the PSC (Notice) from the ANP.

The Notice asserts a monetary claim against the Joint Venture for payment of the estimated cost of exploration activities not carried out in 2013 and certain local content obligations set out in the PSC.  The total amount sought to be recovered by the ANP in the Notice is approximately US$17 million (Oilex share US$1.7 million).  

The Joint Venture has previously requested credit for excess expenditure on the approved work programme in the amount of circa US$56 million and this issue remains unresolved.  The Notice does not include any reference to, nor allowance for, credit for excess monies which have been spent by the Joint Venture during the PSC term.  Oilex considers such excess expenditure should be included as part of any financial assessment incorporated in the termination process.

Subsequent to the end of the year, the ANP issued the Notice of Termination of the PSC JPDA 06-103 effective 15 July 2015.

The Joint Venture continues to discuss the financial liability of the Contractor upon termination with the ANP.

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.  During the financial year Oilex received good faith payments from PT Sumatera Persada Energi (SPE) toward the US$4.8 million arbitration award in favour of Oilex.

Background

Oilex (West Kampar) Limited (OWKL), a wholly owned subsidiary of Oilex Ltd, was assigned a 45% participating interest in the West Kampar PSC pursuant to a farmout agreement entered into with SPE in May 2007.  The initial area of the West Kampar PSC was 4,471 km².

In August 2008, OWKL entered into a second farmout agreement to acquire 15% additional equity interest in the PSC thereby increasing its interest from 45% to 60% subject to meeting certain conditions precedent.  In January 2009 OWKL terminated the second farmout 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 OWKL under the terms of that agreement.  OWKL 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 OWKL.  SPE's obligations to repay the debt were secured by a parent company guarantee granted by Asiabumi to OWKL in 2008.  On 24 June 2010, the International Court of Arbitration of the ICC found in favour of OWKL in its claim against Asiabumi for the recovery of US$4.8 million that is owed to OWKL.  The Award granted in Oilex's favour took effect immediately.  OWKL is pursuing the recovery of the monies owing under the Award.  OWKL 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 OWKL is satisfied, OWKL will not pursue this assignment.

During the financial year, following application by a creditor, the Commercial Court in Jakarta appointed an Administrator and implemented a scheme of arrangement to repay creditors over a 10 year period.  As this scheme excluded Oilex's claim, Oilex has commenced legal action to recover the balance of the arbitration award and to ensure its interests are protected.

Financial

Treasury policy

The funding requirements of the Group are reviewed on a regular basis by the Group's Chief Financial Officer and reported to the Board to ensure the Group is able to meet its financial obligations as and when they fall due.  Internal cash flow models are used to review and to test investment decisions.  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.

Formal control over the Group's activities is maintained through a budget and cash flow monitoring process with annual budgets considered in detail by the Board and forming the basis of the Company's strategy.

Cash flows are tested under various scenarios to ensure that expenditure commitments are able to be met under all reasonably likely scenarios.  Expenditures are also carefully monitored against budget.

The Company continues to actively develop funding options in order that it can meet its expenditure commitments (refer note 26 of the consolidated financial statements) and its' planned future discretionary expenditure

Liquidity and funding

In December 2013 the Company secured a £7,500,000 three year Equity Financing Facility (EFF) with Darwin Strategic Limited (Darwin).  Under the terms of the Placing Agreement with Westhouse Securities Limited executed in July 2015, Oilex has agreed to make no further use or issue any shares pursuant to the equity draw down facility with Darwin.

As at 30 June 2015 the Group had no loan borrowings.

Corporate

During the financial year Oilex undertook a number of funding transactions.

In August 2014 the Company raised £1,171,800 or $2,131,708, before expenses of $136,630 with a placement of 18,600,000 shares at 6.3 pence or 11.46 cents costs via drawdown on the Equity Financing Facility with Darwin Strategic Limited.

In December 2014 the Company completed an underwritten Share Purchase Plan raising $2,500,000 before expenses of $382,079, allotting 60,975,610 shares at 4.1 cents per share, including the issue of 5,000,000 underwriter options exercisable at ten cents per share and expiring on 22 December 2014.

Risk Management

The Audit and Risk Committee oversees the Group's internal financial control system and oversees the Company's risk management framework.  Management of business risk, particularly exploration, development and operational risk is essential for success in the oil & gas business.  The Group manages risk through a formal risk identification and risk management system.

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.

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. Peter Bekkers, Chief Geoscientist employed by Oilex Ltd.  Mr. Bekkers has over 19 years' experience in petroleum geology and is a member of the Society of Petroleum Engineers and AAPG.  Mr. Bekkers 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. Bekkers 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.

PERMIT SCHEDULE

PERMIT SCHEDULE AS AT 30 JUNE 2015
ASSET	LOCATION	ENTITY	EQUITY %	OPERATOR
Cambay Field PSC	Cambay/Gujarat/ India	Oilex Ltd Oilex NL Holdings (India) Limited	30 15	Oilex Ltd
Bhandut Field PSC	Cambay/ Gujarat/ India	Oilex NL Holdings (India) Limited	40	Oilex NL Holdings (India) Limited
Sabarmati Field PSC	Cambay/ Gujarat/ India	Oilex NL Holdings (India) Limited	40	Oilex NL Holdings (India) Limited
West Kampar PSC	Central Sumatra/ Indonesia	Oilex (West Kampar) Limited	67.5 (1)	PT Sumatera Persada Energi
JPDA 06-103 PSC	Flamingo/ Joint Petroleum Development Area/ Timor-Leste & Australia	Oilex (JPDA 06-103) Ltd	10	Oilex (JPDA 06-103) Ltd
STP-EPA-0131	Canning/ Western Australia	Admiral Oil Pty Ltd	100	Admiral Oil Pty Ltd
STP-EPA-0106	Canning/ Western Australia	Admiral Oil and Gas (106) Pty Ltd	100	Admiral Oil and Gas (106) Pty Ltd
STP-EPA-0107	Canning/ Western Australia	Admiral Oil and Gas (107) Pty Ltd	100	Admiral Oil and Gas (107) Pty Ltd

 

⁽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 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 pursue this assignment.

 

 

2015 FINANCIAL REPORT

CONTENTS

 

Directors' Report

Remuneration Report - Audited

Lead 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 2015

The directors present their report together with the consolidated financial statements of the Group comprising of Oilex Ltd (the Company) and its subsidiaries for the financial year ended 30 June 2015 and the auditors' report thereon.

DIRECTORS

The directors of the Company at any time during or since the end of the financial year are:

Mr Max Cozijn

(Non-Executive Chairman)

BCom CPA MAICD

Chairman since the Company listed on the Australian Securities Exchange (ASX) in 2003, Mr Cozijn has over 35 years of experience in the administration of listed mining and industrial companies.  He is a Non-Executive Chairman of Jacka Resources Limited and Finance Director of 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:

·    Energia Minerals Limited (from May 1997 to current)

·    Jacka Resources Limited (from May 2014 to current)

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

·    Carbon Energy Limited (from September 1992 to April 2015)

Mr Sundeep Bhandari

(Non-Executive Vice Chairman)

BCom

Mr Bhandari was appointed as a Director (Vice Chairman) in November 2011.  Mr Bhandari has over 31 years of business experience in India, of which more than 21 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 was also Chairman of the Corporate Advisory Board of Cairn India Ltd from 2006 to March 2014.  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 Jeffrey Auld

(Non-Executive Director)

MBA BA (Econ)

Mr Auld was appointed as a UK based Director in January 2015.  Mr Auld has over 24 years of experience in the oil and gas sector, focused on financial and commercial management in upstream oil and gas development.  He has worked with a number of major financial institutions, including Macquarie Capital (Europe) Limited in London where he served as Managing Director - Head of EMEA Oil and Gas.  Mr Auld has also worked for Canaccord Adams Limited and Goldman, Sachs & Co.  Mr Auld's experience includes corporate and commercial management in exploration and production companies including London Stock Exchange listed Premier Oil Plc, as well as PetroKazakhstan Inc and Equator Exploration Limited.  Mr Auld currently is a director of AIM listed Lansdowne Oil and Gas plc.  He is also a director and CEO of various private UK oil and gas development companies.

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

Mr Ronald Miller

(Managing Director)

MSc Engineering and BSc Ocean Engineering, MAICD (Retired Chartered Engineer)

Initially appointed as a Non-Executive Director in July 2009, Mr Miller was appointed Managing Director on 1 January 2013.  A chartered professional engineer (1989 - 2011), Mr Miller has more than 39 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 not been a director of any other listed companies.

Dr Bruce McCarthy

(Non-Executive Director - Resigned 18 November 2014)

BSc (Hons) PhD Geology

Dr McCarthy was the Managing Director from February 2005 until January 2013, when he became a Non-Executive Director.    Dr McCarthy retired from the Board in November 2014.

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

DIRECTORS' MEETINGS

Directors in office, committee membership and directors' attendance at meetings during the 2014/15 financial year are as follows:

	Board Meetings			Audit Committee Meetings(1)			Remuneration Committee Meetings(1)		Nomination Committee Meetings(1)
	Held(2)	Attended	Held(2)		Attended	Held(2)		Attended	Held(2)	Attended
M D J Cozijn	11(3)	11	4		4	1		1	1	1
S Bhandari	10	10	4(4)		3	1(5)		1	1(3)	1
J D Auld (7)	6	6	2		2	-		-	-	-
B H McCarthy	4	4	1		1	1		-	-	-
R L Miller	11	11	-		4(6)	-		-	1	1

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

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

⁽³⁾        Chairman of respective meetings. When the Board meets in its capacity as the Nomination committee, Mr S Bhandari chairs the meeting.

⁽⁴⁾        Mr S Bhandari chairs the meetings. Mr Cozijn acted as Chair for 12 September 2014 Audit Committee Meeting.

⁽⁵⁾        Mr S Bhandari chairs the meetings.

⁽⁶⁾        "Attended" indicates attendance by invitation. Where a director is not a member of a Committee but attended meetings during the period only the number of meetings attended, rather than held, is disclosed.

⁽⁷⁾        Appointed to Audit Committee effective 10 February 2015.

EXECUTIVE MANAGEMENT

Mr Ronald Miller

(Managing Director)

MSc Engineering and BSc Ocean Engineering, MAICD (Retired Chartered Engineer)

Mr Miller was appointed as a Non-Executive Director in July 2009 and Managing Director from 1 January 2013.  A chartered engineer in Australia from 1989 to 2011, Mr Miller brings more than 39 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.

Mr Chris Bath

(Chief Financial Officer & Company Secretary - Appointed 24 October 2014)

CA MAICD

Mr Bath was appointed Chief Financial Officer and Company Secretary in October 2014.  He is a Chartered Accountant with significant experience in the energy and resource sectors in both Australia and Asia.  Most recently he was CFO and Company Secretary for an ASX S&P/ASX 200 listed oil and gas company.  Prior to that, Mr Bath was Deputy CFO Asia Pacific for a Fortune 500 global commodity business, based in Singapore.  Mr Bath has been involved in the energy and resource sectors operating across Asia and with listed entities in Australia, Indonesia, Singapore and the United Kingdom.  He has experience in the areas of debt and equity markets, mergers and acquisitions, joint venture management and operations. 

Mr Peter Bekkers 

(Chief Geoscientist)

BSC (Hons) Geology and Geophysics

Mr Bekkers joined Oilex in 2007 as the Senior Explorationist.  He has over 19 years of experience in Australian and international oil and gas exploration activities including the Far East, Middle East, West Africa and South East Asia.  Prior to joining Oilex, Mr Bekkers held various roles with Woodside Energy Ltd, Santos Ltd and Boral Energy Ltd in exploration and new ventures evaluation.  Mr Bekkers was appointed Chief Geoscientist for Oilex in April 2010.

Mr Jayant Sethi

(Head - India Assets - Appointed 16 February 2015)

Geology (Masters)

Mr Sethi joined Oilex in February 2015 as Head - India Assets and is based in Gandhinagar India.  Mr Sethi has over 30 years of experience in the Indian oil and gas upstream industry.  Mr Sethi previously held senior management positions with Cairn Energy Ltd and the Oil & Natural Gas Corporation, India's National Oil Company in areas of exploration, development, portfolio evaluation, joint venture management, procurement supply chain and enhanced oil recovery.

COMPANY SECRETARIES

Mr Chris Bath CA MAICD was appointed Company Secretary on 24 October 2014. 

Mr Cathal Smith LLB, LLM, MBA is the alternate Company Secretary.

Mr Robert Ierace was Company Secretary from 30 January 2013 until 24 October 2014.

 

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 and gas.

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 2015 amounted to $17,388,524 (2014: loss of $3,752,611).  The increase in the loss was due to $11,870,051 for the impairment of exploration and evaluation assets in the current year (2014: nil).

FINANCIAL POSITION

The net assets of the consolidated entity totalled $26,603,951 as at 30 June 2015 (2014: $33,354,242).

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 Review of Operations on pages 3 to 16 of this report.

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

The Review of Operations details those changes that have had a significant effect on the Group. 

Other than those matters, there have been no other significant changes in the state of affairs of the Group that occurred during the financial year.

SIGNIFICANT EVENTS AFTER BALANCE DATE

On 7 July 2015 the Company announced a two tranche placement and an underwritten rights issue to raise $30 million.  Tranche One utilised the existing placement capacity under ASX Listing Rule 7.1 with 45,393,463 shares being issued at $0.041 to raise $1,861,132 before expenses.  Tranche One was completed on 15 July 2015. The fully underwritten rights issue closed on 28 July 2015, with a total of 169,476,565 shares being issued at $0.041 to raise $6,948,539 before expenses.

At a general meeting on 12 August 2015, shareholders approved the issue of 287,303,619 Tranche Two shares at $0.041 to raise $11,779,448 before expenses.

In addition, shareholders approved the issue of 124,019,608 Zeta Deferred Shares at a price of A$0.0418 to raise $5,184,020 before expenses, and the issue of A$4,243,500 of 20 year, zero coupon unsecured convertible loan notes to Zeta, which will be convertible into shares at Zeta's option at any time, subject to compliance with Australian law, at a conversion price of A$0.0418 per share.  The issue of these convertible notes will occur contemporaneously with the issue to Zeta of 124,019,608 new ordinary shares under Tranche Two, to be settled no later than 12 November 2015.

On 27 July 2015 the Company issued a further 341,300 shares on the exercise of listed options with an exercise price of $0.15.

On 15 July 2015 the Autoridade Nacional do Petroleo (ANP) advised that it had terminated the PSC JPDA 06-103 as at that date. The Notice of Termination included a demand for payment of the monetary claim, previously advised, against the Joint Venture for payment of the estimated cost of exploration activities not undertaken in 2013 and certain local content obligations set out in the PSC.  The total amount sought to be recovered by the ANP in the Notice is approximately US$17 million (Oilex share US$1.7million).  The Company has not provided for a monetary settlement in its financial statements. As the Joint Venture has made significant overpayments in the work programme, it is of the opinion that the excess expenditure should be included as part of any financial assessment incorporated in the termination process.  Refer note 28.

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 Review of Operations on pages 3 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 report as, in the opinion of the Board, these would be speculative and as such, disclosure would not in the best interests of the Group.

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 unlisted 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:

	Number of Ordinary Shares		Number of Options Over Ordinary Shares
	Direct	Indirect	Direct	Indirect
M D J Cozijn	-	1,848,218	-	-
S Bhandari	-	8,600,000	-	4,000,000
J D Auld	1,219,513	-	-	-
R L Miller	-	6,517,242	-	6,000,000

 

SHARE OPTIONS

Unissued shares under options

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

 

Expiry Date	Exercise Price	Number of Shares	Expiry Date	Exercise Price	Number of Shares
Unlisted Options			Unlisted Options
17 December 2015	$0.15	3,000,000	25 August 2017	$0.25	1,500,000
8 March 2016	$0.25	5,000,000	11 November 2017	$0.25	2,000,000
27 June 2016	$0.15	500,000	22 December 2017	$0.10	5,000,000
4 November 2016	$0.15	2,000,000	16 February 2018	$0.25	500,000
11 November 2016	$0.15	2,000,000	5 August 2018	$0.35	1,075,000
5 December 2016	$0.15	3,000,000	16 February 2019	$0.35	500,000
27 June 2017	$0.25	500,000	29 April 2019	$0.15	4,000,000
5 August 2017	$0.25	1,075,000	25 August 2019	$0.35	1,500,000
			Total		33,150,000

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

Unissued Shares Under Option that Expired During the Year 

During the financial year, the following unlisted employee options were cancelled:

Date Lapsed	Number	Exercise Price
1 July 2014	4,150,000	$0.30
10 November 2014	8,737,500	$0.37
27 January 2015	1,000,000	$0.15
27 January 2015	1,000,000	$0.25
20 May 2015	250,000	$0.35

Shares issued on exercise of unlisted options

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

Shares issued on exercise of listed options

During and 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): 

	Number of Shares	Amount Paid on Each Share
During the financial year	7,295,640	$0.15
Since the end of the financial year	347,613	$0.15

On 7 September 2015, all the listed options issued by the Company expired unexercised. 

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

·     the non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor's own work, acting in a management or decision making capacity for the Group, acting as an advocate for the Group or jointly sharing risks and rewards.

Refer note 23 for details of the amounts paid to the auditor of the Group, KPMG Australia, and its network firms for audit and non-audit services provided during the year.

LEAD AUDITOR'S INDEPENDENCE DECLARATION

The Lead Auditor's Independence Declaration for the year ended 30 June 2015 has been received and can be found on page 38.

REMUNERATION REPORT - AUDITED

1.     PRINCIPLES OF COMPENSATION - AUDITED

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 leave entitlements and 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 senior executives is separately reviewed at the time of promotion or initial appointment.

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

There were no short-term incentives awarded during the period. The short-term incentive cash bonus awarded in the previous year was accrued as compensation and paid in the current year.

Long-Term Incentive Bonus

Options issued to senior executives during the year are issued under the Australian Securities Exchange Rule 7.1. 

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.

Whilst the Company has moved certain assets to development on 30 June 2015, during the reporting period the Company was an exploration and appraisal company that was not generating profits or net operating cash inflows and as such does not pay any dividends, and consequently remuneration packages are not linked to profit performance.  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 considered 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.

	2015	2014	2013	2012	2011
Share Price (cents)	6.1	11.5	5.0	11.0	33.0

 

The remuneration of directors, consists of a cash component as well as an equity component, and is designed to retain directors of a high calibre, whilst rewarding them for their ongoing commitment and contribution to the Company on a cost effective basis. The issue of options to directors, subject to shareholder approval, is judged by the Company, to further align the directors' interests with that of shareholders, whilst maintaining the cash position of the Company. The Board does not consider that there are any significant opportunity costs to the Company or benefits foregone by the Company in issuing options to directors.

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 2015 other than to include the legislated increases to the superannuation guarantee levy of 0.25 per cent.

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 2015. 

The company's United Kingdom based Non-Executive Director Mr Auld, appointed in January 2015, receives a fee of £45,000 per annum.

The aggregate maximum fixed annual amount of remuneration available for Non-Executive Directors of $500,000 per annum was approved by Shareholders on 9 November 2011.

In addition to this fixed component, the Company can remunerate any director called upon to perform extra services or undertake any work for the Company beyond their general duties. This remuneration may either be in addition to, or in substitution for, the director's share of remuneration approved by Shareholders.

Gross fees paid to India Hydrocarbons Limited ("IHL"), a related party of Mr Bhandari, are for consultancy services provided in addition to directorial services and therefore are not part of the fixed component. Payments made for consultancy services to IHL 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 $161,059 (2014: $244,911) relating to consultancy services are disclosed in the key management personnel disclosures in the Related Parties note 27 to the Consolidated Financial Statements. The Group's share of these fees of $77,845 (2014: $115,108) are disclosed in other related party transactions in the Related Parties note 27 to the Consolidated Financial Statements. The balance of 52% (2014: 53%) is payable by the Joint Operations.

Following the departure of Oilex's Chief Operating Officer the previous financial year, Mr Bhandari took on a more active role in India, assisting in strategy, commercial and joint venture related issues. This work ceased on 30 September 2014. 

1.4 Remuneration Consultants

There were no remuneration recommendations made in relation to key management personnel by remuneration consultants in the financial year ended 30 June 2015.

1.5 Clawback Policy

The Board has adopted a Clawback Policy to apply from August 2015 in relation to circumstances where an employee acts fraudulently or dishonestly, or wilfully breaches their duties to the Company.

2.     EMPLOYMENT CONTRACTS - AUDITED

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

 

Executive	Position	Contract Start Date	Contract Termination Date	Resignation Notice Required	Unvested Options on Resignation	Termination Notice Required from the Company (1)	Termination Payment
R Miller (2)	Managing Director	n/a	n/a	n/a	Forfeited	n/a	n/a
C Bath	Chief Financial Officer and Company Secretary	24 October 2014	n/a	1 month	Forfeited	1 month	For termination by the Company, one months' salary plus any accrued leave entitlement.
P Bekkers	Chief Geoscientist	6 March 2007	n/a	1 month	Forfeited	1 month	For termination by the Company, one months' salary plus any accrued leave entitlement. If a Material Change Event occurs, employee may give notice to the Company within 60 days of the Material Change Event, terminating the Contract of Employment and following that effective date, the Company will pay a Termination Payment equal to $125,000.
J Sethi	Head - India Assets	16 February 2015	n/a	1 month	Forfeited	30 days	For termination by the Company, one months' salary plus any accrued leave entitlement.

⁽¹⁾        The Company may terminate the contract immediately if serious misconduct has occurred. In this case the termination payment is only the fixed remuneration earned until the date of termination and any unvested options will immediately be forfeited.

⁽²⁾        The Managing Director's services are retained via a consultancy arrangement approved by the Board in December 2012.  The Board intends to negotiate and enter into an appropriate agreement with Mr Miller.