The directors present their report together with the condensed interim financial report of the Group (Oilex) comprising of Oilex Ltd (the Company) and its subsidiaries for the half-year ended 31 December 2021 and the auditor’s review report thereon.
DIRECTORS
The directors of the Company at any time during the interim period and until the date of this report are detailed below. All directors were in office for this entire period unless otherwise stated.
Mr Roland Wessel Chief Executive Officer (“CEO”) and Executive Director
Mr Colin Judd Chief Financial Officer (“CFO”) and Executive Director (appointed 27 January 2022)
Mr Jonathan Salomon Executive Chairman
Mr Mark Bolton Non-Executive Director (appointed 1 July 2021)
( Executive Director and Chief Financial Officer until 1 July 2021)
Mr Paul Haywood Independent Non-Executive Director
Mr Peter Schwarz Independent Non-Executive Director
FINANCIAL
The Group incurred a consolidated loss after income tax of $2,235,196 for the half-year (31 December 2020: profit of $418,881, which included a profit after tax for the period from discontinued operations of $354,424).
Following the voluntary shut in of the Cambay Field since calendar quarter Q1 2019 resulting in the cessation of production, no revenue was recognised during the current and previous half-year periods. There was some increase in activity in the Cambay Field, due to the Group starting the initial stages of its refraccing program and consultation for well C-77H. This contributed to an increase of care and maintenance costs to $187,908 (31 December 2020: $44,966).
In the absence of a repayment schedule for outstanding cash calls from Gujarat State Petroleum Corporation (GSPC), the Company has continued to provide in full the amounts owing from its previous Joint Venture partner as well as amounts owing from the Cambay Joint Venture. This has resulted in an increase in the expected credit losses related to Cambay cash calls and recharges of $337,027 (31 December 2020: reversal of expected credit losses of $674,979). This reversal has been partially offset by a reversal of expected credit losses of $98,513 for the Group’s share of JPDA cash call and for other receivables (31 December 2020: increase of expected credit losses of $176,996). As a result, operating results include an expected credit loss expense of $238,514 (31 December 2020: reversal of expected credit losses of $497,983).
The Group also accrued an additional $ 129,613 of exploration expenditure as at 31 December 2021 (31 December 2020: $nil additional exploration expenditure accrued) to cover GSPC’s share of the Cambay Joint Venture third party liabilities. The increase in exploration costs to $493,111 (31 December 2020: $250,661) reflects this additional accrual for GSPC’s share of the Cambay Joint Venture third party liabilities, as well as initial Carbon Capture and Storage (CCS) related activities undertaken during the period.
The increase in employee benefits expenses to $470,694 (31 December 2020: $236,927) reflects increases to employee benefits expenses since the appointment of Roland Wessel and Colin Judd as CEO and CFO respectively. The administrative expenses also included net debit adjustments in accrued recoveries of prior period operating costs from external parties to $117,991 (31 December 2020: net credit recoveries of $211,077), an increase in bank charges to $69,340 (31 December 2020: $4,714) and an increase in other administrative expenses to $492,728 (31 December 2020: $393,733). The increase in bank charges is attributable to the bank charges incurred and relating to the bank guarantee for the Group’s acquisition of GSPC’s 55% participating interest in the Cambay project. The increase in other administration expenses is mainly due to the Group’s increased expenditure on external consultants during the period. These increases collectively resulted in the increase of total administration expenses to $1,150,753 (31 December 2020: $424,297).
Net finance costs of $129,509 (31 December 2020: net finance income of $371,989) includes a loss of $93,492 (31 December 2020: income of $463,050) resulting from the fair value revaluation of listed shares held in Armour Energy Limited.
Cash and cash equivalents held by the Group as at 31 December 2021 has decreased to $1,425,414 (30 June 2021: $4,310,767).
REVIEW OF OPERATIONS
Consistent with the Company’s new strategy to focus on gas production and Carbon Capture and Storage (CCS), Oilex’s activities have centred on the Company’s Cambay field in India and on CCS opportunities in the UK.
The global increased demand for natural gas supplies and the associated strengthening of gas prices underpins the Company’s new strategy. Oilex believes that natural gas will be the dominant transition fuel for the foreseeable future and that the Company is well placed to benefit from this trend. With c. 927 BCF of contingent gas resources, the Cambay field represents a significant opportunity to increase shareholder value.
Oilex has initiated a search for gas production opportunities in the UK Continental Shelf area with emphasis on existing (late life) producing gas fields that may be suitable for CCS projects in the future.
Cambay Field, Onshore Gujarat, India
(Oilex: 100% interest at 4 February 2022)
Oilex holds a 100% Participating Interest (PI) in the Cambay Field Production Sharing Contract (PSC), approval of which was obtained from the Government of India on 4 February 2022.
During the reporting period, Oilex changed its development strategy for the Cambay field. The previous plan was to drill two vertical fracked wells implementing revised fraccing methodologies resulting from extensive analysis of the previous two fracked C-76H and C-77H wells.
The new strategy is to re-frac the C-77H well in an un-fracked section of the horizontal wellbore to prove up a robust fraccing methodology to be implemented on future horizontal wells. One new horizontal well is planned for calendar H2 2022 once the revised fraccing methodology has been proven. A second well will be drilled in 2023.
Since the Company has demonstrated its ability to efficiently drill horizontal wells, the re-frac of C-77H is a cost-effective way to demonstrate that future horizontal wells will provide commercial gas production rates and volumes.
There was no production from the Cambay Field during the six-month period to 31 December 2021.
In December 2021, Oilex arranged for funding via an equity capital raising of £2.0 million ($3.7 million) before costs (“December Placement”). Of the December Placement funds, £0.80 million ($1.48 million) before costs were received before 31 December 2021, and £1.19 million ($2.20 million) before costs were received in January 2022. The total £2.0 million ($3.7 million) will be used, inter alia, to fund the C-77H re-frac operations.
Environmental Clearance
The long-delayed public hearing which is an integral part of the approval for the new Environment Certificate (EC) required for future drilling operations took place in late October and the Company announced receipt of the EC on 7 February 2022.
Production Re-start
The final court approval to remove an injunction preventing production was received in December clearing the way for the Company to bring the C-73 and C-77H wells back on production
United Kingdom Continental Shelf
Potential Mature Producing Gas Field Acquisitions
Oilex have retained LAB Energy Advisors to identify opportunities to purchase mature producing gas assets in the UKCS. The strategy is to acquire existing late field life production with a view to potentially convert fields into CCS projects after depletion.
Carbon Capture and Storage (CCS)
Oilex’s personnel have extensive gas storage experience and expertise. CCS and gas storage share common technical traits and the Company seeks to leverage its technical and commercial experience.
Oilex have applied for a CCS licence on the UKCS Esmond and Forbes depleted gas fields via the OGA CCS nomination process. Oilex personnel have extensive previous knowledge of these two structures and believe they are eminently suitable for CCS activities. Both structures comprise Bunter Sandstone reservoirs and have the storage potential for over 150 million tonnes of CO2.
In addition, Oilex has been developing a CCS “hub” concept (“Medway Hub”) to capture and transport CO2 emissions from three of the UK’s larger CCGT power stations.
Axis Well Technology has undertaken a pre-FEED study of Oilex’s CCS project, the results of which were made available in February 2022.
REVIEW OF OPERATIONS (CONTINUED)
JPDA 06-103, Timor Sea
(Oilex: PSC Terminated 15 July 2015 – Operator and 10% interest)
In August 2020, under the terms of a Deed of Settlement with the Timor Leste government regulatory body for petroleum activities i.e. Autoridade Nacional Do Petroleo E Minerais (ANPM), Oilex committed to a settlement of US$800,000 payable from the 2021 financial year up to the 2024 financial year, resolving a long standing historical dispute related to this now defunct exploration permit.
In order to fund the settlement, the Company entered into an unsecured US$800k loan facility agreement with two of its joint venture partners. To date, a total of US$300k has been drawn down on the loan facility to fund the settlement, leaving an undrawn balance of US$500k on the loan facility. The joint venture partners providing the loan facility are Japan Energy E&P JPDA Pty Ltd (“JX”) and Pan Pacific Petroleum (JPDA 06 103) Pty Ltd (“PPP”). The draw downs (and settlement payments) to date included a US$250k draw down (and settlement payment) which occurred in December 2021.
At the beginning of the half-year, the loan facility had a credit of US$162k, which was used to partially offset the liability incurred from the US$250k draw down made in December 2021. In addition, a further US$17k was paid in December into the loan facility to fully repay the portion of the loan owing to PPP. After interest charges, the balance of the loan facility at half-year end was US$72k.
The interest rate of the loan facility is 11% and the balance of the loan, plus interest, is to be repaid to JX in four instalments (in February 2022, August 2022, February 2023 and August 2023), prior to the loan’s maturity on 17 August 2023.
West Kampar PSC, Central Sumatra, Indonesia
The Company continues to work on its strategic objective to regain a participating interest in the West Kampar PSC in Indonesia, which is expected to lead, subject to financing, to recommencing production from the Pendalian Oilfield. In this respect Oilex and its Indonesian partner have been in discussions with both the Indonesian national government and the local provincial government.
Technical work carried out by Oilex and its advisors estimate that the field can be quickly brought back online at 350 to 400 bopd and that significant additional production potential may be possible from infill drilling and also water injection support. The return to production will require careful execution in the field given that it has been shut in since 2016. The oil occurs in five good quality, stacked reservoirs with some stratigraphic complexity, and the application of 3D seismic data which has been acquired but not interpreted should provide a significant improvement in the understanding of the reservoir distribution and future development planning. Access to the data is to be negotiated with the seismic company that acquired it. The oil is of good quality with no or little gas. It is believed that previous production costs can be reduced. A number of exploration opportunities are present both close to the Pendalian field and in the more distant parts of the block, these require further review evaluation.
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, Executive Chairman employed by Oilex Ltd. Mr Salomon has over 32 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.
MATERIAL UNCERTAINTY RELATED TO GOING CONCERN
The auditor’s review report contains a statement of material uncertainty regarding the Company’s ability to continue as a going concern. The consolidated financial statements have been prepared on a going concern basis, which contemplates the realisation of assets and settlement of liabilities in the normal course of business. The Group will require funding to continue its exploration activities and progress the Cambay Field drilling programme.
The funding requirements of the Group are reviewed on a regular basis by the Group’s Executive Directors and are reported to the Board at each board meeting to ensure the Group can meet its financial obligations as and when they fall due. Until sufficient operating cash flows are generated from its operations, the Group remains reliant on equity raisings, joint venture contributions or debt funding, as well as asset divestitures or farmouts to fund its expenditure commitments.
The Company continues to actively develop funding options in order that it can meet its expenditure commitments and its planned future discretionary expenditure, as well as any contingent liabilities that may arise.
Further information is provided in Note 2 (c) of the consolidated financial statements.
CORPORATE
In December 2021, the Company arranged the funding required for the re-fraccing of the Cambay 77H well in India via an equity capital raising of £2.0 million ($3.7 million) before costs, to be raised via the issue of 1,422,590,303 new fully paid ordinary shares (“Placement Shares”) at £0.0014 ($0.00259) per share (“December Placement”).
Of the December Placement funds, the Company received approximately £0.80 million ($1.48 million) before costs before 31 December 2021, via the issue of
· 349,512,978 Placement Shares on 17 December 2021 (“Tranche 1 Shares”); and
· 222,005,826 Placement Shares on 24 December 2021 (“Tranche 2 Shares”).
The remaining £1.19 million ($2.20 million) of the December Placement funds were settled after the half-year, via the issue of 851,071,499 Placement Shares on 12 January 2022 (“Tranche 3 Shares”).
As at 31 December 2021 the Company had:
· Available cash resources of $1,425,414;
· Borrowings of US$72,158 ($100,767); and
· Issued capital of 6,261,880,020 fully paid ordinary shares and unlisted options of 603,403,361.
SIGNIFICANT EVENTS AFTER BALANCE DATE
The impact of the COVID-19 pandemic is ongoing and while it has been financially negative for the consolidated entity up to 31 December 2021, it is not practicable to estimate the potential impact, positive or negative, after the reporting date. The situation is rapidly developing and is dependent on measures imposed by the Australian and Indian Governments and other countries, such as maintaining social distancing requirements, quarantine, travel restrictions and any economic stimulus that may be provided.
On 12 January 2022, the Company issued 851,071,499 Placement Shares at £0.0014 ($0.00259) per share, being Tranche 3 of the December Placement for the funding required for, inter alia, the re-fraccing of the Cambay 77H well in India.
On 19 January 2022, five inactive entities of the Group (being Independence Oil and Gas Limited, Admiral Oil and Gas Holdings Pty Ltd, Admiral Oil and Gas (106) Pty Ltd, Admiral Oil and Gas (107) Pty Ltd, and Admiral Oil Pty Ltd) were deregistered. These entities had no assets at the time of deregistration.
On 19 January 2022, the Company issued 25,210,084 unquoted options (“Advisor Options”) to Novum Securities Limited (“Novum”), pursuant to the placing agreement the Company had with Novum on or about 21 April 2021, as part of the Company’s equity raising which was completed in the previous reporting period in June 2021. The options were approved by shareholders during the current reporting period at the Annual General Meeting on 26 November 2021. The options are exercisable at £ 0.0024 and expires on 31 May 2024.
On 27 January 2022, Mr Colin Judd, who was appointed during the current period as the Company’s Chief Financial Officer on 1 July 2021, was appointed to the Company’s Board as Executive Director.
On 4 February 2022, the Government of India gave its approval and ratified the Acquisition of GSPC’s 55% participating interest in the Cambay Production Sharing Contract, thereby completing the Acquisition of the Cambay PSC. Following this, the transfer of the balance of the bank guarantee to GSPC is expected to occur in the coming weeks.
On 7 February 2022, the Government of India Ministry of Environment, Forest and Climate Change granted a new Environmental Clearance for the Cambay field.
On 17 February 2022, the issue of 711,295,152 unquoted options for subscribes to the December Placement subscribers (“Placement Options”) were approved by shareholders at a general meeting of Oilex shareholders held on 17 February 2022. At the same general meeting, shareholders also approved the issue of 65,874,899 unquoted options for participating brokers of the December Placement (“Broker Fee Options”). The issue of the Placement Options and Broker Fee Options are expected to occur no later than 17 May 2022.
There were no other significant subsequent events occurring after the interim reporting date.
LEAD AUDITOR’S INDEPENDENCE DECLARATION
The lead auditor’s independence declaration is set out on page 6 and forms part of the Directors’ Report for the half-year ended
31 December 2021.
Signed in accordance with a resolution of the Board of Directors.
Roland Wessel Mr Jonathan Salomon
Chief Executive Officer and Director Executive Chairman
West Perth, Western Australia
11 March 2022
AUDITOR’S INDEPENDENCE
AUDITOR’S INDEPENDENCE DECLARATION
TO THE DIRECTORS OF OILEX LTD
In relation to our review of the financial report of Oilex Ltd for the half year ended 31 December 2021, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct.
PKF Perth
Simon Fermanis
Partner
11 March 2022,
West Perth,
Western Australia
Level 4, 35 Havelock Street, West Perth, WA 6005
PO Box 609, West Perth, WA 6872
T: +61 8 9426 8999 F: +61 8 9426 8900 www.pkfperth.com.au
