1 Sep 2011 13:51
Please note you view the Oilex Ltd Financial Report for Year Ended 30 June 2011, in its entirety on the company's website www.oilex.com.au
HIGHLIGHTS
Cambay Field, Onshore Gujarat, India
* Successfully drilled and completed Cambay-76H, a 2,740 metre "proof of
concept" well including a 610 metre horizontal section, the longest
horizontal well drilled to date in Cambay Basin
* Successfully completed eight stage fracture stimulation programme on Cambay-76H
well
* Extended production testing of Cambay-76H to start soon
* Completed technical studies to unlock potential of Cambay Eocene "tight"
reservoirs using leading-edge North American tight gas industry technology
and expertise
* Cambay Field Reserves and Contingent Resources significantly upgraded
* Independent Reserves Certification of Cambay Eocene "tight" reservoirs with
Netherland Sewell Associates Inc. in progress
Financial
Oilex retained $19.1 million cash at the end of the year with no corporate debt
$10 million placement successfully completed in December 2010
FIGURE 1: cAMBAY 76H DRILLING OPERATIONS
ContentsChairman's Review 1Business Review 3Permit Schedule 19
Corporate Governance Statement 20
Directors' Report 27
Remuneration Report 34
Auditor's Independence Declaration 42
Consolidated Statement of Comprehensive Income 43
Consolidated Statement of Financial Position 44
Consolidated Statement of Changes in Equity 45
Consolidated Statement of Cash Flows46
Notes to the Consolidated Financial Statements 47
Directors' Declaration 80Independent Audit Report 81Shareholder Information 83Business Directory 85Corporate Information 86 Chairman's reviewDear Shareholder,I am pleased to report that during the year your Company has made significantprogress in confirming the potential of the extensive, Eocene low permeability("tight") reservoirs in the onshore Cambay Field, Gujarat in India. The CambayField represents a potential major growth asset for the Company withsignificant reserves and resources and the potential to generate near termproduction and cash flows in a location where energy market fundamentals areattractive.
The Company's strategy in commercialising the Cambay Field "tight" Eocene reservoirs is to apply leading-edge tight reservoir evaluation, drilling and production technologies and techniques which have been developed in recent years in the rapidly expanding "tight" and shale gas industry in North America.
FIGURE 2: PREPARATION FOR CAMBAY 76H FRACTURE STIMULATION OPERATIONS
The Company has now achieved a major objective of this strategy by successfullydrilling and completing the Cambay 76H "proof of concept" horizontal well andperforming a multi stage fracture stimulation of the well. The Cambay-76H wellis the first of its kind in India and represents an important milestone indemonstrating that "tight" reservoir drilling, completion and stimulationtechniques and technologies can be successfully transferred and implemented inIndia. The Company's operating presence and experience in India wasinstrumental in achieving this successful outcome.
A long term flow test will now be performed on the Eocene Y zone "tight" reservoir interval in the Cambay-76H well. The results are anticipated to be received over the coming months.
During the year the Company also completed detailed technical studies of theEocene "tight" reservoirs using its existing comprehensive well and technicaldata base. After detailed analysis of the data, the Company announced anupgrade to Cambay Field unaudited reserves and resources in September 2010. TheCompany was advised by two North American companies who are industry leaders inthe field of "tight" and "shale gas" reservoir evaluation.Subsequently, the Company has commissioned Netherland Sewell Associates Inc. toundertake an independent certification of the Cambay "tight" reservoirs. It isanticipated that this study will be completed following analysis of the resultsof the Cambay-76H extended production test.The Company anticipates that the independent reserves certification andCambay-76H production test results will confirm the significant commercialpotential of the Cambay Eocene "tight" reservoirs and will justify progressingwith a sizeable drilling campaign to develop and further evaluate the Cambay"tight" reservoirs for commercialisation.With the progress made on the Cambay Field during the year, the Company'sprimary focus is now in India. Our Executive Directors, Dr Bruce McCarthy andBen Clube, are dedicating increasing amounts of their time in India to managethe existing Cambay asset and to pursue expansion opportunities that may arise.The Company is continuing to build its Indian based organisation so that it iswell positioned to progress with the next phase of activity in development ofthe Cambay asset.At the end of the year the Company had retained cash of $19.1 million and hadno commercial loans outstanding. In December 2010 the Company completed a $10million placement with UK AIM institutional investors which was oversubscribed.The placement has helped raise the Company's profile being one of the fewinvestment vehicles providing exposure to the growing Indian energy andpetroleum sectors. Presently over 40% of the Company's shares are held on theLSE AIM register in the UK.
On behalf of the Board I wish to record our appreciation for the support and contribution of our staff, joint venture partners, contractors, local communities and our shareholders during this transformational year.
Mr MDJ CozijnChairman1 September 2011BUSINESS REVIEWOverview
During the year Oilex took important steps towards unlocking the potential of its extensive onshore "tight" reservoirs in the Cambay Field located in the state of Gujarat, "the growth engine of India".
On 6th September 2010, the Company announced a significant upgrade to itsreserves and contingent resources on the extensive Cambay Field lowpermeability ("tight") Eocene reservoirs in India. This announcement followed a9-month programme of extensive technical studies on the Cambay Field "tight"reservoirs using proprietary technologies derived from "tight" and shale gasprojects in North America.
In early 2011, the Company engaged Netherland Sewell Inc. to undertake an independent certification of the Cambay "tight" reservoir reserves and resources. A final report is expected in the coming months when the test results from Cambay-76H are known.
FIGURE 3: FRACTURE STIMULATION EQUIPMENT AT CAMBAY 76H
An important milestone was reached in assessing the potential of the "tight"reservoirs by successfully drilling and completing the Cambay 76H "proof ofconcept" well. The Cambay-76H horizontal multi-stage fracture stimulation well,the first of its kind in India, is evaluating the production potential of theEocene Y zone "tight" reservoir. An eight stage fracture stimulation operationwas completed on the well and a long term flow test will now be performed.During the year a revised Cambay Oil Sales Agreement was also concluded whichincreases the price received for crude oil sales and fixes future prices to aninternational benchmark. The new price structure will apply to future oil andcondensate production from the Cambay "tight" Eocene reservoirs.
With the Company's increasing focus on India, it has relocated its India operations office to Gandhinagar, the capital of Gujarat, and closer to its Joint Venture partner, Gujarat State Petroleum Corporation Ltd. The company has also strengthened its management, drilling and support teams based in India.
The Cambay PSC is located in the heart of Gujarat's industrial corridor.Gujarat GDP growth has been averaging over 10% in recent years and is one ofthe India's most industrialised states. Gas demand in India is rising fast withdemand outstripping the pace of domestic supply. Gujarat has an established andexpanding gas pipeline network close to the Cambay Field contract area.
FIGURE 4: INFRASTRUCTURE MAP OF GUJARAT
In its WA-388-P permit, offshore Western Australia, the Company participated in the drilling of the La Rocca-1 exploration well. Although the well result was a disappointment, the Company had previously secured full funding for its share of the well costs under the terms of a modified farm-out agreement with Apache.
In the Timor Sea, the regulatory authority agreed to a modification of the workprogram that gives the Joint Venture significant flexibility in being able torelinquish the contract area after the next well. During the year the Companycompleted an infill 3D seismic survey covering the Tutuala lead in the northernpart of the contract area.In Indonesia, the Company continues to pursue avenues to resolve the JointVenture dispute with the Operator of the West Kampar PSC. In Oman the Companyhas completed the relinquishment work programme at well sites and is completingthe remaining administrative relinquishment requirements.The Company's financial position was strengthened during the year with theCompany completing a placement to sophisticated and professional investors inthe UK in December 2010. The placement resulted in gross proceeds of £6.0million. The Company's cash position remains robust with cash at the end of theyear of $19.1 million.
Cambay PSC (45% Operator) Onshore Gujarat, India
Successfully drilled and completed 2,740 metre Cambay-76H well including 610metre horizontal section, the longest horizontal well drilled to date in CambayBasin
Performed eight stage fracture stimulation and started extended production test
Unaudited Reserves and Contingent Resources significantly upgraded
Independent Reserves Certification in progress
Revised Oil Sales Agreement concluded fixing future prices to an international benchmark
Oilex's principal focus is on unlocking the value of the Eocene tightreservoirs that extend across the 161 km2 Cambay PSC contract area onshoreGujarat, India. During the year Oilex announced a significant upgrade to itsReserves and Contingent Resources for the Cambay Field low permeability Eocenereservoirs, following a 9 month program of extensive technical studies. Thesestudies used proprietary reservoir evaluation technologies derived from similar"tight and shale gas" projects in North America.
FIGURE 5: Location map, Cambay Basin Gujarat, India
The Eocene section is found beneath the regionally extensive shale (TarapurShale) which acts as a regional seal for the underlying reservoir objectives inthe siltstones of the Cambay Shale Formation. The reservoirs are over-pressuredacross a broad area indicating that the overlying Tarapur Shale is a veryeffective seal, and so isolating the normally pressured shallower reservoirsfrom the deeper siltstone section below in which hydrocarbons are trapped atCambay Field. The section is relatively deep below 1,400 metres at itsshallowest and generally deeper than 1,700 metres below the surface.
FIGURE 6: CAMBAY 76H BLACK PEARL RIG 1 AT CAMBAY 76H LOCATION
The tables in Figure 8 & 9 summarise the net (Oilex 45%) reserves and contingent resources for the Cambay Field "tight" Eocene reservoirs at 6 September 2010:
Summary of Reserves
Reserves Justified for Development Attributable to Oilex Net Working Interest (45%) Probability P90 P50 P10 Natural gas (BCF) 248 384 591 Condensate (MMbbls) 11 17 27
Net reserves presented above include Government share of production applicable under the PSC.
Figure 7: SUMMARY OF RESERVES
Summary of Contingent Resources
Contingent Resources Development Pending Attributable to Oilex Net Working Interest (45%) Probability P90 P50 P10 Natural gas (BCF) 186 324 568 Condensate (MMbbls) 8 14 26
Net contingent resources presented above include Government share of production applicable under the PSC.
Figure 8: SUMMARY OF CONTINGENT RESOURCES
These estimates were prepared in accordance with generally accepted engineeringand evaluation principles set out by the Society of Petroleum Engineers (SPE)PRMS guidelines and are classified as Reserves Justified for Development andContingent Resources Development Pending. The probabilistic unaudited estimateshave been prepared by Oilex with advice from North American "tight" and shalegas consultants. It is the Company's view that the P90, P50 and P10 "ReservesJustified for Development" estimates set out above correspond to "proved","proved plus probable", and "proved plus probable plus possible" reservesrespectively under the ASX Listing Rules. The estimates have not been endorsedby the Government of India or the Directorate General of Hydrocarbons, India.In undertaking the petrophysical evaluation of 36 wells that penetrated theEocene section, the Company used proprietary low permeability softwareapplications which provided a range of values for critical reservoircharacteristics, fundamental to generating estimates of hydrocarbon-in-placevolumes. Using the results of these petrophysical analyses, optimal fracturestimulation designs and associated production profiles were then modelled. Thetechnical evaluation was enhanced by the re-processing and re-interpretation ofblock-wide 3D seismic data.
FIGURE 9: Pumping Trucks for Fracture Stimulation Operation at Cambay 76H
In preparing its reserve and resource estimates, the Company was advised by twoNorth American companies, NuTech Energy Alliance ("NuTech"), a leader inadvanced petrophysical, geological and fracture stimulation solutions for"tight" and "shale gas" reservoirs, and Morning Star LLC ("Morning Star"), aworldwide petroleum consulting group with expertise in reservoir engineering in"tight" reservoir projects.In January 2011 a data package was submitted to Netherland Sewell AssociatesInc. ("NSAI") for the purpose of completing an Independent ReservesCertification of the Cambay Eocene "tight" reservoirs in conformance tointernational standards set by the Society of Petroleum Engineers (SPE), thePRMS Guidelines. Substantial progress has been made and NSAI has confirmed sixdistinct hydrocarbon bearing zones within the Eocene section.NSAI has advised that in order to achieve the best possible classification forthe Y Zone, it will be necessary to demonstrate that tight gas technologyinvolving multi-stage fracture stimulation of horizontal wells can beeffectively applied in India to achieve commercial flow rates. Accordingly, thereserves and resource certification report will be completed after results fromthe Cambay-76H "proof of concept" well production test.The Cambay-76H well spudded on June 8th 2011. Being the first well of its kindin India, an extended period of preparation, planning and mobilization wasrequired in order to acquire the necessary services, equipment and personnelrequired to successfully implement certain of these "tight" reservoirtechnologies in India.After kicking off from the vertical hole at 1,167 metres, the well was drilledto the horizontal landing point at 2,106 metres and the horizontal section wasdrilled to 2,740 metres. The Cambay-76H well intersected the Y Zone reservoiron prognosis and well log data while drilling indicated poroushydrocarbon-bearing intervals with elevated gas readings throughout thehorizontal section.The completion string for the eight stage fracture stimulation programme wassuccessfully run in the 610 metre horizontal and the fracture stimulationprogram of the Eocene "tight" reservoir Y Zone was conducted. After wellclean-up a long term production test will be started to determine flow rates,quality of hydrocarbons and general well performance. The results of the longterm production test will also provide fundamentally important information forthe ongoing Independent Reserves Certification.
FIGURE 10: Wellhead Preparations for Fracture Stimulation Operations at Cambay 76H
In late January 2011 a well test operation commenced on an existing shut inwell, Cambay-73 which flowed gas and condensate when it was drilled as aconventional vertical well and tested in 2008 from two zones in the Eocene EPIV. The well test provided fluid composition and pressure data on the Cambay"tight" Eocene reservoirs and these data will be used for the IndependentReserves Certification.During the year Oilex agreed with Indian Oil Corporation ("IOC") to revise theexisting Cambay Field Crude Off-Take Sales Agreement. The revised agreementincludes a new price structure whereby the price paid by IOC to the CambayField Joint Venture for Cambay crude oil and condensate will be based on newinternational benchmark crude of similar assay quality. The new price structureis applied retrospectively so that the Cambay Joint Venture receives anadjustment payment for a portion of the field's past production ofapproximately US$0.7 million. In future, Oilex will sell condensate and crudeproduction from the Cambay Eocene "tight" reservoirs under the favourablyrevised agreement, including any liquids produced from the initial "proof ofconcept" well Cambay-76H. The agreement is subject to the final signature ofONGC, which facilitates transportation of the crude on behalf of IOC.
Production and Other Potential
Total net production from existing wells in the Cambay, Bhandut and Sabarmati Fields during the financial year was 4,985 barrels of oil (Oilex share). Production had previously come from discoveries in Miocene sandstones which have now substantially depleted.
FIGURE 11: Farmland in Cambay 76 PSC
Oilex has also identified seismic anomalies in the Oligocene (OSII) on the eastern flank of the block that have not been previously drilled. These anomalies along with the fractured Deccan basalt play (that has proven to have oil reservoirs in the Tarapur block to the north of the Cambay Field) also remain potential targets for future drilling programs.
FIGURE 12: Cambay 76h Fracture Stimulation Wellhead
FIGURE 13: CAMBAY BASIN - LOCATION MAP, INFRASTRUCTURE AND OIL AND GAS FIELDS
Background
Oilex operates the Cambay Field Production Sharing Contract in the Cambay Basin onshore Gujarat, India on behalf of its Joint Venture with Gujarat State Petroleum Corporation Ltd.
The Cambay Basin lies in the heart of Gujarat's industrial corridor which isIndia's largest centre of heavy industry. There is an extensive existinginfrastructure of oil and gas pipelines connecting the Cambay Basin fields tolocal industries and other centres such as Delhi. Gujarat accounts for a largeproportion of India's industrial output, is one of the fastest growing statesin India and has a large and expanding energy market.The 161km2 Cambay contract area contains thick, low permeability reservoirs inthe Eocene section. The contract area was previously explored and developed byOil and Natural Gas Corporation (ONGC), India's largest State-owned oil and gascompany in the period from 1957 through to 1980's. However it was developed asa gas field mainly from the shallower Oligocene (OSII) reservoirs in thesouthern part of the contract area. Since its inception, the Cambay Field hasproduced about 52 billion cubic feet of gas until it was shut-in in the early1990's due to water and sand production problems.ONGC drilled over 30 wells to variable total depths through the Eocene tightreservoirs, using conventional drilling and completion technology. The deepestwell, Cambay-40 was drilled in 1963 to a depth of more than 3,200 metres withgas shows at the bottom of the well. The flow rates from conventional tests inthe Eocene section of the various wells were relatively low, in the range of0.3 - 4.2 MMSCF/DAY and production volumes were minimal.Oilex acquired a 30% equity interest in the Cambay Production Sharing Contract(PSC) in March 2006 and a further 15% equity in 2007, having identified the lowpermeability Eocene reservoirs as a potentially under-exploited section. Toevaluate this potential Oilex and GSPC completed the following work programbetween 2006 and 2008:
acquired 3D seismic over the entire contract area;
drilled 5 conventional vertical wells all of which had strong indications of oil and gas while drilling including oil and gas in mud at surface;
tested oil or gas condensate from vertical wells with
conventional completions;
conducted small scale fracture stimulations on 3 wells;
conducted pre- and post- fracture stimulation well tests resulting in flows of oil or gas and condensate to surface;
initiated long term production testing on Cambay-19Z. Cambay-73 was shut in as a potential gas condensate producer.
Oilex concluded from this work program that the potential of the Eocene "tight"reservoirs could be best harnessed by drilling horizontal wells and undertakinglarger scale, multi-stage fracture stimulation of the tight reservoirs.Oilex had planned a horizontal well in the Eocene section as part of its workprogram in 2008 but the drilling campaign was suspended in November 2008 afterthe discovery of oil in the Miocene Basal Sand (MBS) in the Cambay-74 well andthe rig contract was terminated. Cambay-74 was completed as an oil productionwell at the shallow Miocene interval.In 2009 Oilex recognised that evaluation and commercialisation of the Eocenereservoirs could be enhanced by the application of sophisticated tightreservoir evaluation, drilling and production techniques which have beendeveloped in recent years in the growing shale gas industry in North America.Although the Cambay Eocene "tight" reservoirs are well known throughout thebasin from first discovery in 1957, the technology which has been developed inNorth America to the point of wide acceptance in the oil and gas business isdirectly relevant and applicable at Cambay Field. Oilex was well placed toexploit these technologies on behalf of the Cambay Joint Venture given theexisting comprehensive technical data base that it had acquired or improvedupon since 2005, its international industry contacts and its experience ofoperating in India.
FIGURE 14: OILEX STAFF at CAMBAY 76H WELL LOCATION
BHANDUT AND SABARMATI FIELDS:ONSHORE GUJARAT, INDIA
[Oilex - 40%, Operator]
The fields were discovered and developed initially by ONGC. Hydrocarbons werefound in Miocene sandstones at Bhandut and Eocene sandstones at Sabarmati andcontinue to be produced on at combined average of approximately about 15barrels of oil per day. The fields were acquired by the GSPC and Niko JointVenture in 1995 and Oilex subsequently acquired Niko's interest in 2006.The Sabarmati field is located on the southern culmination of a trend ofproducing oil fields operated by ONGC, on the outskirts of Ahmedabad, thelargest city in Gujarat. Oil has been produced from the Eocene section from onewell at low rates since inception of the PSC in 1994. The field has potentialfor further exploitation from its Eocene low permeability reservoirs in asimilar manner to Cambay. It covers an area of 6 km2.The first 3D seismic survey over Bhandut field was acquired in February 2007.The main reservoir units in the shallower section are sandstones with irregulardistribution. At deeper stratigraphic levels exploration targets are likely tobe gas-bearing. The contract area remains prospective and covers an area of 6km2.
WA-388-P North West Shelf, Australia
(Oilex 14% pre farm-in / 8.4% post farm in)
Drilled La Rocca-1 exploration well - no indications of gas in log data in the Intra Mungaroo channel objective
Full funding secured for La Rocca-1 well costs under the terms of a farm-out and subsequently modified agreement with Apache
During the year Oilex completed the interpretation of the Rose 3D seismic dataas Operator of the WA388-P block, located outboard of the North West Shelf,Pluto, Wheatstone, and Gorgon fields, offshore Western Australia. A portfolioof prospects and play types was developed with seven leads identified rangingin potential size from 0.3 to 2.8 trillion cubic feet (TCF) of prospective gasresource (recoverable best estimate, 100% basis). Seismic amplitude anomaliesevident in the 3D seismic data also suggested the presence of gas by analogywith nearby fields and discoveries.
FIGURE 15: LOCATION MAP WA-388-P
FIGURE 16: (RIGHT) LEADS MAP WA-388-P
The first exploration well in the WA-388-P permit was spudded on 30 April 2011targeting the "La Rocca" gas prospect. The well was operated by ApacheNorthwest Pty Ltd ("Apache") and was drilled using the "Ocean Patriot" drillingrig.The La Rocca-1 well was drilled to a total depth of 4,864 metres after drillingthrough the Intra Mungaroo formation channel sandstone objectives. There wereno indications of gas in log data and the well was plugged and abandoned aftercompletion of wire-line logs. The Operator is currently reviewing options forthe future work program for the permit.Oilex secured funding for its share of the La Rocca-1 well costs under theterms of a farm-out agreement (amended) with Apache. Under the farm outagreement Apache obtained a 40% interest in the WA-388-P permit by paying 100%of the first exploration well and testing up to an agreed cap. Under the farmout agreement, Oilex retained an 8.4% interest in the permit and Apachereplaced Oilex as the permit operator. An amendment to the farm-in agreementwas then concluded at Apache's request to address commercial issues specific toApache. Under the amendment Oilex sold its 5.6% farm-out interest to Apache forcash consideration equivalent to the value of being carried through the welland testing under the original farm-in agreement. The amendment did notmaterially alter the Company's commercial position under the farm-in agreement.
FIGURE 17: Ocean Patriot Rig (Photo Courtesy of Diamond Offshore)
Background
The permit was awarded in August 2006. Initial work involved interpretation ofthe reprocessed 2D and existing third party seismic data and was completed in2008 with attractive structural and stratigraphic trends identified. This workprovided the basis for Sasol to farm in for 30% equity interest in the permitby funding 60% of certain costs of the Rose 3D seismic survey.The Rose 3D seismic survey of 1,180 km2 began in August 2008 over thesouth-eastern part of the permit covering the area of prospective leads mappedfrom the older data. The seismic vessel "Geowave Champion" completed the surveyin September 2008. Significant operational efficiencies were obtained throughjointly conducting the survey with holders on an adjacent permit with Oilexacting as operator for the entire survey. Processing of the 3D seismic wascompleted in July 2009. Seismic inversion studies and seismic interpretationwere completed in June 2010.JPDA 06-103, TIMOR SEA(Oilex Operator - 10%)
A variation to the work programme was approved by the Designated Authority which allows for relinquishment of the contract area if the third well is unsuccessful.
Completed 3D seismic survey to provide infill coverage across the Tutuala lead located in the north of the contract area
The Autoridade Nacional Do Petroleo (ANP), the Designated Authority for theJoint Petroleum Development Area (JPDA) in the Timor Sea has approved the JPDA06-103 Joint Venture's proposal to vary the Production Sharing Contract (PSC)work programme. Under the approved variation the decision to drill the fourthcommitment well on the JPDA 06-103 PSC will be at the discretion of theOperator if the third well is unsuccessful (two well have previously beendrilled on the block). The ANP has also agreed that the PSC may be relinquishedif the Operator and the Joint Venture partners decide not to proceed with anyfurther exploration after the third well. The ANP has also agreed to anextension to the exploration term with the primary term now ending on 16January 2012.
FIGURE 18: LOCATION MAP JPDA 06-103 TIMOR SEA
FIGURE 19: PROSPECTS AND LEADS JPDA06-103
During the year an infill 220 km2 seismic survey was completed by PetroleumGeo-Services ("PGS") in June 2011 over part of Tutuala Lead in northern part ofthe block. The previously identified Tutuala lead at the Top Plover Formationstratigraphic level was only partially covered by 3D data and the new surveyprovides coverage between the existing adjacent 3D surveys.Additional reprocessing of existing 3D seismic data is also being undertaken toconfirm the size and shape of an alternative structure, Bazartete, which mayalso be considered as a drilling target.
The Joint Venture expects to drill the next exploration well in JPDA 06-103 after the completion of seismic processing and interpretation and maturation of leads into drilling targets.
BackgroundThe contract area JPDA 06-103, covering an area of 3,741 km2 is located in thehighly prospective Flamingo Trough portion of the Northern Bonaparte Basin. Itlies adjacent to significant recent discoveries and close to prolific producingfields further to the west along geological trend.In November 2006, Oilex (JPDA 06-103) Limited (Operator) and the Joint Ventureparties entered into a Production Sharing Contract ("PSC") with the DesignatedAuthority for block JPDA 06-103 and the PSC was signed in January 2007(effective date 15 January 2007). The block is located to the east of theLaminaria, Corallina and Kuda Tasi oil fields and to the north of the Kakatuaand Elang oil fields and the giant Bayu-Undan gas condensate field.The Maura 3D seismic survey, the first phase of offshore operations in theblock, was completed successfully by the Geowave Champion seismic vessel inAugust 2008. The survey covered an area of 2,140 km2 and, in combination withexisting 3D seismic data in the block, provides 3D seismic coverage over about90% of the contract area. Processing of the data concluded early in 2009 andthe interpretation of the data over the entire block was available in lateMarch 2009. A portfolio of prospects was prepared and prioritized. Prospectsranged in water depths from about 100 to 1,400 metres.During December 2009 and February 2010 the JPDA 06-103 Joint Venture drilledthe Lor©-1 and Lolotoe-1 exploration wells. Neither well encountered commercialhydrocarbon zones. The well results were then integrated with existing data andthe implications for prospectivity and the selection of future drilling targetsreviewed with JPDA 06-103 Joint Venture and ANP in developing a forward workprogram for the block.
West Kampar PSC, Central Sumatra
(Oilex - 45% + further 22.5% secured*)
Oilex continues to pursue a resolution to the Joint Venture dispute
Oilex continues to take steps to advance its participating interest in the WestKampar PSC and to pursue enforcement of its Arbitration Award while remainingopen to a commercial resolution to the Joint Venture dispute with the Operatorin the West Kampar PSC. Discussions continue on a possible commercialresolution to the dispute.Oilex understands from industry communications and reports in the Indonesianpress that PT Sumatera Persada Energi (SPE) has drilled and tested a secondwell (Pendalian 4) in the Pendalian Field. Oilex is aware of Indonesian pressarticles which claims significant flow rates from multiple zones in thePendalian 4 well, during testing and refers to plans for development of thePendalian Field. Due to SPE's claim relating to Oilex's interest in the PSC,for over a year Oilex has, despite requests, not been provided by SPE with anydata relating to the West Kampar PSC operations including any results oftesting the Pendalian 4 well. Oilex is therefore unable to comment on orendorse the press reports.
FIGURE 20: WEST KAMPAR PSC LOCATION MAP, SUMATRA, INDONESIA
FIGURE 21: LOCATION MAP CENTRAL SUMATRA BASIN FIELDS AND PIPELINE INFRASTRUCTURE
BackgroundOilex (West Kampar) Limited (Oilex), a wholly owned subsidiary of Oilex Ltd,was assigned a 45% participating interest in the West Kampar PSC pursuant to afarm out agreement entered into with SPE in May 2007. The West KamparProduction Sharing Contract covers an area of 4,471 km2. It is located incentral Sumatra adjacent to the most prolific oil producing province inIndonesia, the Central Sumatra Basin, from which over 10 billion barrels of oilhave been produced to date.
The Pendalian-3 well was drilled in 2007 to appraise the oil field discovered in 1993 by the Pendalian-1 well, a cored slim
hole which encountered a number of oil zones at depths ranging from 250 metresto 500 metres. Two of the zones flowed oil from drill stem tests in Pendalian-1with maximum rates achieved of up to 530 bopd.In August 2008, Oilex 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 Oilexterminated the second farm out agreement when conditions were not met by thedue date and many issues remained unresolved with the Operator. With thetermination of that agreement, SPE is required to reimburse the monies advancedby Oilex under the terms of that agreement. Oilex commenced ICC (InternationalChamber of Commerce) Arbitration against PT Asiabumi Petroleo (Asiabumi) inSingapore in April 2009 following the failure of SPE in early 2009 to repay adebt owing to Oilex. SPE's obligations to repay the debt were secured by aparent company guarantee granted by Asiabumi to Oilex in 2008.On 24 June 2010, the International Court of Arbitration of the ICC found infavour of Oilex in its claim against Asiabumi for the recovery of US$4.6million that is owed to Oilex. Asiabumi is the parent company of the Operator(SPE). The Award granted in Oilex's favour took effect immediately. Oilex ispursuing the recovery of the monies owing under the Award.Oilex maintains that it is further entitled to have assigned an additional22.5% to its 45% holding through the exercise of its rights under a Power ofAttorney granted by SPE following the failure of SPE to repay the funds duereferred to above. The assignment has been provided to BPMigas but has not yetbeen approved or rejected. If the debt due to Oilex is satisfied, it will notpursue this assignment.SPE continues to allege that Oilex no longer has an interest in the West KamparPSC arising out of an alleged failure to perform obligations under the farm-outagreement entered into by the parties in 2007. Oilex denies those allegationsand maintains that it holds its 45% interest in the West Kampar PSC. TheIndonesian regulator, BPMIGAS has not transferred Oilex's 45% participatinginterest to SPE despite requests from SPE.Oilex was notified of a claim by SPE in an Indonesian court in which SPE isseeking damages from Oilex for alleged defamation arising out of correspondencein November 2008 that provided BPMigas with information relating to SPE'sperformance as Operator. The claim is substantially the same as the claim whichSPE commenced against Oilex in early 2010 and which Oilex was advised inOctober 2010 SPE had withdrawn. Oilex rejects the allegations in the claim andwill vigorously oppose the claim.Block 56, Oman(Oilex Operator - 25%)
Notice has been given to the Oman Ministry of Oil and Gas of the intention to relinquish the Block 56 Contract Area
The relinquishment work programme at well sites has been completed to the satisfaction of the MOG
The Block 56 Joint Venture has given notice to the Oman Ministry of Oil and Gas(MOG) of its intention to relinquish all of the Block 56 Contract Area inaccordance with the Exploration and Production Sharing Agreement (EPSA). Theminimum financial obligation relating to the exploration work commitments underthe EPSA has been satisfied by the Joint Venture.On behalf of the Block 56 Joint Venture, Oilex Oman Limited (as Operator) hascompleted the relinquishment work programme at well sites to the satisfactionof the MOG and is completing the remaining administrative requirements.
Financial
Completed placement of fully paid shares to sophisticated professional investors in the UK resulting in gross proceeds of £6.0 million.
Cash at end of the year of $19.1 million with no corporate debt.
Oilex has managed its cash resources and Oilex retained cash of $19.1 million cash at the end of the year with no corporate debt. Net operating cash and investing cash outflows for the year was $5.8 million.
In December 2010 a placing to UK institutional investors was completed raising£6.0 million at 20p with 30 million shares being issued. The Company currentlyhas on issue 253.3 million shares and 33.6 million unlisted options. Since 1July 2010 to date of this report, 28.9 million unlisted options have beengranted, 14.5 million unlisted options have expired and 3.3 million unlistedoptions have been exercised.
The following table provides a summary of historical financial data.
Year ended 30 June 2011 2010 2009 Balance Sheet Cash ($ million) 19.07 16.81 10.51 Net Assets ($ million) 36.12 38.06 39.30 Cash Flow Operating ($ million) (0.95) (0.76) (1.99) Investing ($ million) (4.82) (2.23) (29.67) Financing ($ million) 9.89 9.42 9.37 Shares on issue (million) 253.27 220.07 176.05 Share price at year end (cents) 33.0 8.5 15.5
Market capitalisation at year end ($ million) 83.6 18.7 27.3
FIGURE 22: HISTORICAL FINANCIAL SUMMARY
Health, Safety, Security and Environment
HSS&E Record
Oilex recorded over 1,000,000 man hours worked in India with only one Lost Time Incident. Oilex recorded no LTI's in relation to its other centres of operations.
Community Support and Training
At the request of the Government of Timor Leste and the ANP, Oilex has agreedto contribute to a training program for citizens of Timor Leste who have thecapability to work offshore in the oil and gas industry.
Policy
Oilex is committed to protecting the health and safety of everybody who plays apart in our operations or lives in the communities where we operate. Whereverwe operate, we will conduct our business with respect and care for both thelocal and global, natural and social environment and systematically managerisks to drive sustainable business growth. We will strive to eliminate allinjuries, occupational illness, unsafe practise and incidents of environmentalharm from our activities. The safety and health of our workforce and ourenvironment stewardship are just as important to our success as operational andfinancial performance and the reputation of the company.Oilex respects the diversity of cultures and customs that it encounters andendeavours to incorporate business practices that accommodate such diversityand that have a beneficial impact through our working involvement with localcommunities. We strive to make our facilities safer and better places in whichto work and our attention to detail and focus on safety, environmental, healthand security issues will help to ensure high standards of performance. We arecommitted to a process of continuous improvement in all we do and to theadoption of international industry standards and codes wherever practicable.Through implementation of these principles, Oilex seeks to earn the public'strust and to be recognised as a responsible corporate citizen.
FIGURE 23: FIELDS NEAR CAMBAY 76H WELL LOCATION
LIST OF ABBREVIATIONS AND DEFINITIONS USED HEREIN
Associated Natural gas found in contact with or dissolved in crude oil in Gas the reservoir. It can be further categorized as Gas-Cap Gas or Solution Gas. Bbls Barrels of oil or condensate BCF Billion Cubic Feet at standard temperature and pressure conditions Barrels of Oil Equivalent. Converting gas volumes to the oil equivalent is customarily done on the basis of the nominal heating content or calorific value of the fuel. Common industryBOE gas conversion factors usually range between 1 barrel of oil equivalent (BOE) = 5,600 standard cubic feet (scf) of gas to 1 BOE = 6,000 scf. (Many operators use 1 BOE = 5,620 scf derived from the metric unit equivalent 1 m³ crude oil = 1,000 m³ natural gas). BOPD barrels of oil per day
Deterministic The method of estimation of Reserves or Resources is called
deterministic if a discrete estimate(s) is made based on known Estimate geoscience, engineering, and economic data. Gas to oil ratio in an oil field, calculated using measured natural gas and crude oil volumes at stated conditions. The gas/GOR oil ratio may be the solution gas/oil, symbol Rs; produced gas/ oil ratio, symbol Rp; or another suitably defined ratio of gas production to oil production. Volumes measured in scf/bbl. MMSCF/DAY million standard cubic feet (of gas) per day MMbbls million barrels of oil or condensate (recoverable) Those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations by application of development projects, but which are not currently considered to be commercially recoverable due to one or more contingencies. Contingent Resources may include, for example, projects for which there are currently no viable markets, or where commercial recovery is dependent on technology under development, or where evaluation of the accumulation is insufficient to clearly assessContingent commerciality. Contingent Resources are further categorized in Resources accordance with the level of certainty associated with the estimates and may be sub-classified based on project maturity and/or characterized by their economic status. Development Pending - A discovered accumulation where project activities are ongoing to justify commercial development in the foreseeable future. Development Unclarified or on Hold - A discovered
accumulation
where project activities are on hold and/or where
justification
as a commercial development may be subject to significant delay. Prospective Those quantities of petroleum which are estimated, as of a givenResources date, to be potentially recoverable from undiscovered accumulations Reserves are those quantities of petroleum anticipated to be commercially recoverable by application of development projects to known accumulations from a given date forward under defined conditions. Proved Reserves are those quantities of petroleum, which by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under defined economic conditions, operating methods, and government regulations. Probable Reserves are those additional Reserves which analysis of geoscience and engineering data indicate are less likely to be recovered than Proved Reserves but more certain to be Reserves recovered than Possible Reserves. Possible Reserves are those additional reserves which analysis of geoscience and engineering data indicate are less likely to be recoverable than Probable Reserves.3P P90 refers to the quantity for which it is estimated there is at least a 90% probability the actual quantity recovered will equal or exceed; P50 refers to the quantity for which it is estimated there is at least a 50% probability the actual quantity recovered will equal or exceed; and P10 refers to the quantity for which it is estimated there is at least a 10% probability the actual quantity recovered will equal or exceed. SCF/BBL standard cubic feet (of gas) per barrel (of oil) TCF Trillion Cubic Feet The reservoir cannot be produced at economic flow rates or Tight Gas recover economic volumes of natural gas unless the well is Reservoir stimulated by a large hydraulic fracture treatment, a horizontal wellbore, or by using multilateral wellbores PERMIT SCHEDULE ASSET BASIN / STATE / COUNTRY JOINT VENTURE EQUITY OPERATOR PARTIES % Oilex Ltd 30.0 Oilex NL Holdings 15.0 Cambay Cambay/ Gujarat / India (India) Limited Oilex Ltd Field PSC Gujarat State Petroleum Corp. 55.0 Ltd Oilex NL Holdings 40.0 (India) Limited Oilex NL Bhandut Cambay/ Gujarat / India Holdings Field PSC Gujarat State (India) Petroleum Corp. 60.0 Limited Ltd Oilex NL Holdings 40.0 (India) Limited Oilex NL
Sabarmati Cambay/ Gujarat / India Holdings
Field PSC Gujarat State (India) Petroleum Corp. 60.0 Limited Ltd Oilex Oman Limited 25.0 GAIL (India) 25.0 Limited Videocon Oman 56 25.0 Block 56 South Oman/ Oman Limited Oilex Oman EPSA Limited Bharat PetroResources 12.5 Limited Hindustan Petroleum Corp. 12.5 Ltd Oilex (West 67.5 West Kampar) Limited (1) PT Sumatera
Kampar Central Sumatra/ Indonesia Persada PSC Energi PT Sumatera 32.5 Persada Energi Oilex (JPDA 06-103) Ltd 10.0 Japan Energy E&P 15.0 JPDA Pty Ltd GSPC (JPDA) 20.0 JPDA Flamingo/ Joint Petroleum Limited 06-103 Development Area / Oilex Ltd 06-103 Limited Bharat PetroResources 20.0 JPDA Ltd Pan Pacific Petroleum (JPDA 15.0 06-103) Pty Ltd Oilex Ltd 8.4 Gujarat State 8.4 Petroleum Corp. Ltd Videocon 8.4 Industries Ltd Apache
WA-388-P Carnarvon/ WA / Australia Bharat 8.4 Northwest
Pty(2) PetroResources Ltd Ltd Hindustan 8.4 Petroleum Corp Ltd Apache Northwest 40.0 Pty Ltd Sasol Petroleum 18.0 Australia 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 SPE following the failure of SPE to repay funds due. The assignment has been provided to BPMigas but has not yet been approved or rejected. If Oilex is paid the funds due then it will not pursue this assignment.
(2) The WA-388-P Joint Venture entered into a farm-in agreement with ApacheNorthwest Pty Ltd ("Apache"). Oilex, GSPC, Videocon, Bharat PetroResources, andHPCL participating interests in the WA-388-P permit were previously 14% and are8.4% after finalisation of the farm-in. Sasol's participating interest was 30%and is 18% after finalisation of the farm-in. Oilex entered into a sale andfarm-in amendment agreement with Apache. Oilex participating interest is now8.4% following finalisation of the sale and farm-in amendment agreement. Apacheis now the operator.
Corporate Governance Statement
Approach to Corporate Governance
Oilex Ltd ("Company") has made it a priority to adopt systems of control and accountability as the basis for the administration of corporate governance.
Some of these policies and procedures are summarised in this statement.Commensurate with the spirit of the ASX Corporate Governance Council'sCorporate Governance Principles and Recommendations 2nd edition ("Principles &Recommendations"), the Company has followed each recommendation where the Boardhas considered the recommendation to be an appropriate benchmark for itscorporate governance practices. Where the Company's corporate governancepractices follow a recommendation, the Board has made appropriate statementsreporting on the adoption of the recommendation. In compliance with the "ifnot, why not" regime, where, after due consideration, the Company's corporategovernance practices depart from a recommendation, the Board has offered fulldisclosure and an explanation for the adoption of its own practice.Further information about the Company's corporate governance practices may befound on the Company's website at www.oilex.com.au, under the section marked"Corporate Governance". The Company reports below on how it has followed (or otherwise departed from)each of the Principles & Recommendations during the 2010/2011 financial year ("Reporting Period"). The Principles & Recommendations were amended in 2010. These amendments apply to the Company's first financial year commencing on orafter 1 January 2011. Accordingly, disclosure against the Principles &Recommendations as amended in 2010 will be made in relation to the Company'sfinancial year ended 30 June 2012. The report below is made against thePrinciples and Recommendations prior to their amendment in 2010.
However, the Company does wish to report that on 27 June 2011, it adopted a Diversity Policy in accordance with new Recommendation 3.2. A copy of the Company's Diversity Policy was released to ASX and AIM on 30 June 2011 and is available on the Company's website at www.oilex.com.au.
Board
Roles and responsibilities of the Board and Senior Executives
(Recommendations: 1.1, 1.3)
The Company has established the functions reserved to the Board and those delegated to senior executives, and has set out these functions in its Board Charter.
The Board is collectively responsible for promoting the success of the Companythrough its key functions of overseeing the management of the Company,providing overall corporate governance of the Company, monitoring the financialperformance of the Company, engaging appropriate management commensurate withthe Company's structure and objectives, involvement in the development ofcorporate strategy and performance objectives, and reviewing, ratifying andmonitoring systems of risk management and internal control, codes of conductand legal compliance.Senior executives are responsible for supporting the Managing Director andassisting the Managing Director in implementing the running of the generaloperations and financial business of the Company in accordance with thedelegated authority of the Board. Senior executives are responsible forreporting all matters which fall within the Company's materiality thresholds atfirst instance to the Managing Director or, if the matter concerns the ManagingDirector, directly to the Chair.
The Company's Board Charter is available on the Company's website at www.oilex.com.au.
Skills, experience, expertise and period of office of each Director
(Recommendation: 2.6)
A profile of each Director setting out their skills, experience, expertise and period of office is set out in the Directors' Report.
Director independence
(Recommendations: 2.1, 2.2, 2.3, 2.6)
The Board does not have a majority of directors who are independent. The Boardconsiders that its current composition is an appropriate blend of skills andexpertise, relevant to the Company's business. The Board is aware of theimportance of independent judgement and considers independence, amongst otherthings, when new appointments to the Board are made. The sole independent director of the Company is Laxmi Bhandari. Mr Bhandari isindependent as he is a non-executive director who is not a member of managementand who is free of any business or other relationship that could materiallyinterfere with, or could reasonably be perceived to materially interfere with,the independent exercise of his judgement.Independence is measured having regard to the relationships listed in Box 2.1of the Principles & Recommendations and the Company's materiality thresholds. The materiality thresholds are set out below.
The Board has agreed on the following guidelines for assessing the materiality of matters, as set out in the Company's Board Charter:
* Balance sheet items are material if they have a value of more than 10% of
pro-forma net asset.
* Items are also material if they impact on the reputation of the Company,
involve a breach of legislation, are outside the ordinary course of
business, could affect the Company's rights to its assets, if accumulated
would trigger the quantitative tests, involve a contingent liability that
would have a probable effect of 10% or more on balance sheet or profit and
loss items, or will have an effect on operations which is likely to result
in an increase or decrease in net income or dividend distribution of more
than 10%.
* Contracts will be considered material if they are outside the ordinary
course of business, contain exceptionally onerous provisions in the opinion
of the Board, impact on income or distribution in excess of the
quantitative tests, there is a likelihood that either party will default
and the default may trigger any of the quantitative or qualitative tests,
are essential to the activities of the Company and cannot be replaced or
cannot be replaced without an increase in cost which triggers any of the
quantitative tests, contain or trigger change of control provisions, are
between or for the benefit of related parties, or otherwise trigger the
quantitative tests.
Profit and loss items are material if they will have an impact on the current year operating result of 10% or more.
The non-independent directors of the Company are Max Cozijn, Bruce McCarthy, Ray Barnes, Ben Clube and Ron Miller.
The non-independent Chair of the Board is Max Cozijn. The Board considers thatMr Cozijn is the most appropriate person for the position of Chair because ofhis industry experience. The Board is of the view that it is only Mr Cozijn'sprior role as Company Secretary that precludes him from being consideredindependent, and that his former role as Company Secretary is unlikely to causea conflict of interest or impede his ability to exercise independent judgement.Mr Cozijn ceased to act as Company Secretary on 1 May 2009.
The Managing Director is Bruce McCarthy who is not Chair of the Board.
Independent professional advice
(Recommendation: 2.6)
To assist directors with independent judgement, it is the Board's policy thatif a director considers it necessary to obtain independent professional adviceto properly discharge the responsibility of their office as a director then,provided the director first obtains approval from the Chair for incurring suchexpense, the Company will pay the reasonable expenses associated with obtainingsuch advice.
Selection and (Re)Appointment of Directors
(Recommendation: 2.6)
In determining candidates for the Board, the Nomination Committee (orequivalent) follows a prescribed process whereby it evaluates the mix ofskills, experience and expertise of the existing Board. In particular, theNomination Committee (or equivalent) is to identify the particular skills thatwill best increase the Board's effectiveness. Consideration is also given tothe balance of independent directors. Potential candidates are identified and,if relevant, the Nomination Committee (or equivalent) recommends an appropriatecandidate for appointment to the Board. Any appointment made by the Board issubject to ratification by shareholders at the next general meeting.The Board recognises that Board renewal is critical to performance and theimpact of Board tenure on succession planning. Each director other than theManaging Director, must not hold office (without re-election) past the thirdannual general meeting of the Company following the Director's appointment orthree years following that director's last election or appointment (whicheveris the longer). However, a Director appointed to fill a casual vacancy or as anaddition to the Board must not hold office (without re-election) past the nextannual general meeting of the Company. At each annual general meeting a minimumof one director or a third of the total number of directors must resign. Adirector who retires at an annual general meeting is eligible for re-electionat that meeting. Re-appointment of directors is not automatic.
The Company's Policy and Procedure for the Selection and (Re)Appointment of Directors is available on the Company's website at www.oilex.com.au.
Board committeesNomination Committee(Recommendations: 2.4, 2.6)
The Company has not established a separate Nomination Committee. Given the current size and composition of the Board, the Board believes that there would be no efficiencies gained by establishing a separate Nomination Committee.
Accordingly, the Board performs the role of the Nomination Committee. Itemsthat are usually required to be discussed by a Nomination Committee are markedas separate agenda items at Board meetings when required and when the Boardconvenes as the Nomination Committee it carries out those functions which aredelegated to it in the Company's Nomination Committee Charter. The Board dealswith any conflicts of interest that may occur when convening in the capacity ofthe Nomination Committee by ensuring the director with conflicting interests isnot party to the relevant discussions.The full Board, in its capacity as the Nomination Committee, held four meetingsduring the Reporting Period. Details of the directors' attendance atNomination Committee meetings are set out in the Directors' Report. The Boardhas adopted a Nomination Committee Charter to assist it to fulfil its functionas the Nomination Committee.
The Company's Nomination Committee Charter is available on the Company's website at www.oilex.com.au.
Audit Committee
(Recommendations: 4.1, 4.2, 4.3, 4.4)
The Company has established an Audit Committee.
Due to the composition of the Board, the Audit Committee is not structured incompliance with Recommendation 4.2. Whilst the Audit Committee comprises threenon-executive directors: Ron Miller, (Chair); Max Cozijn and Laxmi Bhandari,only Laxmi Bhandari is independent. The Board considers that Mr Miller is themost appropriate person to be Chair of the Audit Committee because of hisindustry experience. The Board is of the view that Mr Miller's role as atechnical consultant is not a material relationship in accordance with theBoard Charter guidelines for assessing the materiality of matters, and that hisrole as consultant is unlikely to cause a conflict of interest or impede hisability to exercise independent judgement.
The Company considers that the members of the Audit Committee are the most appropriate, given their experience and qualifications, for the Company's current needs. The Board has adopted an Audit Committee Charter, which the Audit Committee applies when convening. The Audit Committee Charter makes provision for the Audit Committee to meet with the external auditor, as required.
The Audit Committee held two meetings during the Reporting Period. Details ofthe directors who are members of the Audit Committee and their attendance atAudit Committee meetings are set out in the Directors' Report.
Details of each of the director's qualifications are set out in the Directors' Report.
The Company has established procedures for the selection, appointment androtation of its external auditor. The Board is responsible for the initialappointment of the external auditor and the appointment of a new externalauditor when any vacancy arises, as recommended by the Audit Committee.Candidates for the position of external auditor must demonstrate completeindependence from the Company through the engagement period. The Board mayotherwise select an external auditor based on criteria relevant to theCompany's business and circumstances. The performance of the external auditoris reviewed on an annual basis by the Audit Committee and any recommendationsare made to the Board.
The Company's Audit Committee Charter and the Company's Procedure for Selection, Appointment and Rotation of External Auditor are available on the Company's website at www.oilex.com.au.
Remuneration Committee
(Recommendations: 8.1, 8.2, 8.3)
The Company has established a Remuneration Committee.
The Remuneration Committee held one meeting during the Reporting Period. Details of the directors who are members of the Remuneration Committee and their attendance at Remuneration Committee meetings are set out in the Directors' Report.
To assist the Remuneration Committee to fulfil its functions, the Board has adopted a Remuneration Committee Charter.
Details of remuneration, including the Company's policy on remuneration, arecontained in the "Remuneration Report" which forms of part of the Directors'Report. Non-executive directors are remunerated at a fixed fee for time,commitment and responsibilities. Remuneration for non-executive directors isnot linked to individual performance. Given the stage of development of theCompany and the financial constraints applicable to it, the Company mayconsider it appropriate as an additional incentive or reward, to issue unquotedoptions to non-executive directors, subject to obtaining the relevant Board andshareholder approvals. This policy is subject to annual review. Pay andrewards for executive directors and senior executives consists of a base salaryand performance incentives. Long term performance incentives may includeoptions granted at the discretion of the Board and subject to obtaining therelevant approvals.
There are no termination or retirement benefits for non-executive directors (other than for superannuation).
The Company's Remuneration Committee Charter includes a statement of the Company's policy on prohibiting transactions in associated products which limit the risk of participating in unvested entitlements under any equity based remuneration schemes.
The Company's Remuneration Committee Charter is available on the Company's website at www.oilex.com.au.
Performance evaluationSenior executives(Recommendations: 1.2, 1.3)The Managing Director is responsible for evaluating the performance of seniorexecutives. The performance evaluation of senior executives comprises informaldiscussions on group and individual performance; evaluations are held as partof strategy and business review coupled with the annual remuneration review.During the Reporting Period the evaluation of senior executives in the currentreporting period was undertaken by the Finance Director and Technical Directorin accordance with this process, as the Managing Director was overseas.
Board, its committees and individual directors
(Recommendations: 2.5, 2.6)
The Chair is responsible for evaluation of the Board and, when deemed appropriate, Board committees and individual directors. The Nomination Committee is responsible for evaluating the Managing Director. The evaluation of the Board, any applicable committees and individual directors comprises informal reviews by the Chair with the Managing Director.
During the Reporting Period an evaluation of the Board, its committees, and individual directors took place in accordance with the process disclosed.
Ethical and responsible decision making
Code of Conduct
(Recommendations: 3.1, 3.3)
The Company has established a Code of Conduct as to the practices necessary tomaintain confidence in the Company's integrity, practices necessary to takeinto account their legal obligations, and the expectations of theirstakeholders and responsibility and accountability of individuals for reportingand investigating reports of unethical practices.
A summary of the Company's Code of Conduct is available on the Company website at www.oilex.com.au.
Policy for Trading in Company Securities
(Recommendations: 3.2, 3.3)
The Company has established a Policy for Trading in Company Securities by directors, senior executives and employees.
A copy of the Company's Policy for Trading in Company Securities is available on the Company's website at www.oilex.com.au.
Continuous Disclosure
(Recommendations: 5.1, 5.2)
The Company has established written policies and procedures designed to ensurecompliance with ASX Listing Rule disclosure requirements, and accountability ata senior executive level for that compliance.
A summary of the Company's Policy on Continuous Disclosure and a summary of the Company's Compliance Procedures are available on the Company's website at www.oilex.com.au.
Shareholder Communication(Recommendations: 6.1, 6.2)
The Company has designed a communications policy for promoting effective communication with shareholders and encouraging shareholder participation at general meetings.
A summary of the Company's Shareholder Communication Policy is available on the Company's website at www.oilex.com.au.
Risk Management
(Recommendations: 7.1, 7.2, 7.3, 7.4)
The Board has adopted a Risk Management Policy, which sets out the Company'srisk profile. Under the policy, the Board is responsible for approving theCompany's policies on risk oversight and management and satisfying itself thatmanagement has developed and implemented a sound system of risk management andinternal control.Under the policy, the Board delegates day-to-day management of risk to theManaging Director, who is responsible for identifying, assessing, monitoringand managing risks. The Managing Director is also responsible for updating theCompany's material business risks to reflect any material changes, with theapproval of the Board.
In fulfilling the duties of risk management, the Managing Director may have unrestricted access to Company employees, contractors and records, and may obtain independent expert advice on any matter they believe appropriate, with the prior approval of the Board.
The Board has established a separate Audit Committee to monitor and review theintegrity of financial reporting and the Company's internal financial controlsystems and risk management systems. Before the adoption of the financialstatements the Audit Committee receives a written declaration from the ManagingDirector and Finance Director in accordance with Recommendation 7.2 confirmingthe operation of the Company's risk management and internal control system.As part of preparing this declaration, each finance and business unit managerare required to provide a signed letter of representation reporting to both theManaging Director and the Finance Director.
In addition, the following risk management measures have been adopted by the Board to manage the Company's material business risks:
* the Board has established authority limits for management, which, if
proposed to be exceeded, requires prior Board approval;
* the Board has adopted a corporate governance manual which contains other
policies to assist the Company to establish and maintain its governance
practices.
the Board has adopted a compliance procedure for the purpose of ensuring compliance with the Company's continuous disclosure obligations; and
The Company's risk management system includes the preparation of a riskregister by management to identify the Company's material business risks andrisk management strategies for these risks. In addition, the process ofmanaging material business risks is allocated to members of senior management.The risk register is periodically reviewed by management and the Board andupdated as required.
The categories of risk to be reported on or referred to as part of the Company's systems and processes for managing material business risk include exploration, appraisal, reserves, development, production, financial, commercial, sovereign, legal / regulatory, operations (including weather), environmental, health and safety, retention of personnel, security, and information systems.
The Board has required management to design, implement and maintain riskmanagement and internal control systems to manage the Company's materialbusiness risks. The Board also requires management to report to it confirmingthat those risks are being managed effectively. The Board has received a reportfrom management as to the effectiveness of the Company's management of itsmaterial business risks. The Managing Director and Finance Director have provided a declaration to theBoard in accordance with section 295A of the Corporations Act and have assuredthe Board that such declaration is founded on a sound system of risk managementand internal control and that the system is operating effectively in allmaterial respects in relation to financial reporting risk.A summary of the Company's Risk Management Policy is available on the Company'swebsite at www.oilex.com.au.2011 FINANCIAL REPORTCONTENTS Directors' Report 27Remuneration Report 34
Auditor's Independence Declaration 42
Consolidated Statement of Comprehensive Income 43
Consolidated Statement of Financial Position 44
Consolidated Statement of Changes in Equity 45
Consolidated Statement of Cash Flows 46
Notes to the Consolidated Financial Statements 47
Directors' Declaration 80Independent Audit Report 81Shareholder Information 83
The directors of Oilex Ltd present their report (including the Remuneration Report) together with the financial report of the consolidated entity, being Oilex Ltd (the "Company") and its controlled entities (the "Group") for the financial year ended 30 June 2011 and the auditors' report thereon.
DIRECTORS
The names and details of the directors of the Company in office during the financial year and until the date of this report are detailed below. Directors were in office for this entire period unless otherwise stated.
Mr Max Dirk Jan Cozijn(Non-Executive Chairman)BCom CPA MAICDChairman since the Company listed on the Australian Securities Exchange ("ASX")in 2003, Mr Cozijn has over 32 years experience in the administration of listedmining and industrial companies. He is a Non-Executive Director of CarbonEnergy Limited and Energia Minerals Limited, Non-Executive Chairman of MagmaMetals Limited and Chairman of Malagasy Minerals Limited and is a director ofvarious private companies.
During the last three years Mr Cozijn has been a director of the following listed companies:
* Carbon Energy Limited (from September 1992 to current)
* Malagasy Minerals Limited (from September 2006 to current)
* Energia Minerals Limited (listed on ASX 24 December 2009) (from 13 May 1997
to current)
Magma Metals Limited (from June 2005 to current)
Dr Bruce Henry McCarthy(Managing Director)BSc (Hons) PhD Geology
Appointed Managing Director in February 2005, Dr McCarthy has over 32 years experience in the oil and gas exploration and production industry in geotechnical and management positions. Further details of Dr McCarthy's qualifications and experience can be found in the Executive Management section of the Directors' Report.
During the last three years Dr McCarthy has not been a director of any other listed companies.
Mr Raymond George Barnes(Technical Director)BSc (Hons) Geology
Appointed as a director in September 2005, Mr Barnes has over 39 years experience in the oil and gas exploration and production industry. Further details of Mr Barnes' qualifications and experience can be found in the Executive Management section of the Directors' Report.
During the last three years Mr Barnes has not been a director of any other listed companies.
Mr Ben Clube
(Finance Director & Company Secretary)
BSc (Hons) Geology ACAAppointed as a director in July 2009, Mr Clube has over 17 years experience inthe oil and gas exploration and production industry. Further details of MrClube's qualifications and experience can be found in the Executive Managementsection of the Directors' Report.
During the last three years Mr Clube has not been a director of any other listed companies.
Mr Laxmi Lal Bhandari(Non-Executive Director)
BSc Geology and MSc Geology
Mr Bhandari was appointed as a director in November 2006 and is based in NewDelhi, India. He worked with Oil and Natural Gas Corporation Ltd ("ONGC"), thelargest public sector corporation in the oil and gas sector in India as aGeologist and in management roles, on many significant projects over 40 yearsincluding the discovery and development of the Bombay High offshore fields. MrBhandari held high level positions including Chairman and Managing Director ofONGC Videsh, the international exploration arm of ONGC, and Chairman of ONGC.On leaving ONGC, Mr Bhandari became President of Tata Petrodyne, the oil andgas subsidiary of Tata Industries, a very large Indian industrial corporation.In 2003 he took up the position of Managing Director of India Hydrocarbons Ltdand continued until June 2006.
During the last three years Mr Bhandari has not been a director of any other listed companies.
Mr Ronald Miller(Non-Executive Director)
MSc Engineering and BSc Ocean Engineering
Mr Miller was appointed as a director in July 2009. A chartered engineer, MrMiller brings more than 32 years of experience in the international petroleumindustry including corporate governance, extensive background in leadingmulti-disciplinary upstream organisations and project developments, includingthe design and construction of oil and gas projects. During his career to date,Mr Miller has held a range of senior positions including with Mobil, Ampolex,Clough and Hyundai Heavy Industries.
During the last three years Mr Miller has been a director of the following listed company:
Neon Energy Limited (formerly Salinas Energy Limited) (from March 2006 to 17 November 2010).
DIRECTORS' MEETINGS
Directors in office, committee membership and directors' attendance at meetings during the 2010/2011 financial year.
Board Audit Committee Remuneration Nomination Committee Meetings Meetings Committee Meetings Meetings Held(1) Attended Held(1) Attended Held (1) (3) Attended Held(1) Attended M D J Cozijn 9(4) 9 2 2 1 1 4(4) 4 B H McCarthy 9 9 - - - - 4 4 R G Barnes 9 9 - - - - 4 4 B Clube 9 9 - 2(2) - 1(2) 4 4 L L Bhandari 9 4 2 1 1 0 4 3 R L Miller 9 9 2(4) 2 1(4) 1 4 4
"Held" indicates the number of meetings available for attendance by the director during the period of each director's tenure.
"Attended" indicates attendance by invitation.
Please refer to the Corporate Governance Report for details of the change to the composition of the Remuneration Committee during the financial year.
Chairman of respective meetings.
EXECUTIVE MANAGEMENTDr Bruce Henry McCarthy(Managing Director)BSc (Hons) PhD Geology
Dr McCarthy has onshore and offshore experience gained in UK, Australia andIndia working for independent and large multinational companies. He has workedas an independent consultant and for Cairn Energy PLC (UK) responsible for theoperating subsidiary in India until 2002 when he returned to Australia. From1996 to 2000, Dr McCarthy was based in India with Command Petroleum India Ltd("Command") and with Cairn Energy India Pty Ltd ("Cairn") after Command mergedwith Cairn in 1997. Until 1995, he spent 14 years with Marathon Oil Corporationworking in the North Sea and based in the United Kingdom, working on the NorthWest Shelf of Western Australia and in the Timor Sea based out of Perth,Western Australia.Mr Raymond George Barnes(Technical Director)BSc (Hons) GeologyMr Barnes has worked in Europe, North and South America, South East Asia, theMiddle East and Australia with an outstanding record of finding and developingcommercial oil and gas discoveries in Australia and internationally. Recentappointments include Technical Director of Voyager Energy Limited from 2001until 2005 and Exploration Manager of Apache Energy based in Perth during avery aggressive exploration and development phase in the offshore CarnarvonBasin when over 40 discoveries were made. Prior to 1997, Mr Barnes held seniormanagement positions for Ampolex based in Denver, Colorado where he wasresponsible for the United States and South American operations following aperiod in Perth, Western Australia where he was responsible for North WestShelf and Timor Sea operations.
Mr Ben Clube
(Finance Director & Company Secretary)
BSc (Hons) Geology ACA
Mr Clube joined Oilex in May 2008 and brings a depth of commercialinternational oil and gas expertise to the Oilex group, having spent the past15 years at BHP Billiton Petroleum in a variety of senior management roles,including Vice President of Finance and Planning in Houston, London and Perth.A Chartered Accountant, he holds a Bachelor of Science with Honours in Geologyfrom the University of Edinburgh and previously worked as Audit Manager atPricewaterhouseCoopers in London.
Mr John Lamberto
(Exploration Manager)
B AppSc Grad Dip AppSc (Geophysics)
Mr Lamberto joined Oilex in 2007 as Chief Geophysicist. He has over 26 years ofexperience in Australian and international oil and gas exploration activities.He has held various senior roles with Lasmo Energy plc, Ampolex Ltd, MobilExploration, OMV AG (Middle East) and BHP Billiton, as well as having worked asan independent consultant. Mr Lamberto was appointed Exploration Manager forOilex in April 2010.Mr Jay Laurie
(General Counsel & Company Secretary - Until 31 March 2011)
BA LLB (Hons)
Mr Laurie has over 16 years experience in private practice and in-house legalroles. Following a number of years with a large commercial law firm, he hasheld in-house counsel roles in the Australian and international resourcessector over the last 10 years. Mr Laurie was Senior Counsel at Woodside EnergyLtd before joining Oilex in 2007 as General Counsel. Mr Laurie was appointedCompany Secretary on 1 May 2009.
COMPANY SECRETARIES
The following individuals have acted as company secretary during the year ended 30 June 2011:
Mr Ben ClubeBSc (Hons) Geology ACA
Mr Clube was appointed Company Secretary effective 31 March 2011.
Mr Jay Laurie
BA LLB (Hons)
Mr Laurie was Company Secretary from 1 May 2009 until 31 March 2011.
Mr Bradley Boyle
LLB, MAICD, ACIS, ICSA
Mr Boyle was appointed Dual Company Secretary effective 24 May 2011. Mr Boyleholds a Bachelor of Law degree and is a Corporate Manager with Balance LegalPty Ltd, with extensive experience as an in-house counsel and companysecretary. Mr Boyle has acted for the Australian Government Solicitor andCommonwealth Director of Public Prosecutions. Prior to being admitted as alawyer, Mr Boyle was a member of the West Australian Police Service.
PRINCIPAL ACTIVITIES
The principal activities of the consolidated entity during the course of the financial year included:
* Exploration for oil and gas;
* Production and sale of oil.
Appraisal and development of oil and gas properties; and
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 2011 amounted to $10,758,065 (2010: loss of $10,698,140).
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 on pages 3 to 18 of this report.
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
In November 2010 Apache Northwest Pty Ltd ("Apache") entered into a farm-inagreement with the WA-388-P Joint Venture. Apache earned a 40% interest in theWA-388-P permit by agreeing to pay 100% of the first exploration well (up to anagreed cap) and 100% of the well test costs (up to an agreed cap) if the JointVenture approves testing the well. Under the farm-in agreement Oilex initiallyfarmed out 5.6% of its 14% interest to Apache. Apache replaced Oilex as thepermit operator. An amendment to the farm-in agreement was later concluded atApache's request to address commercial issues specific to Apache. Under theamendment Oilex subsequently sold its 5.6% farm-out interest to Apache. Thefarm-in and amendment have received Australian Government approval. In December 2010 30 million new ordinary shares were placed at 20 pence each(AUD $0.32) to sophisticated professional investors in the UK. This placementresulted in gross proceeds of $9.46 million.In January 2011 the Autoridade Nacional Do Petroleo ("ANP") the DesignatedAuthority for the Joint Petroleum Development Area ("JPDA") in the Timor Seaagreed to vary the Production Sharing Contract ("PSC") work programme. Underthe approved variation the decision to drill the fourth commitment well on theJPDA 06-103 PSC will be at the discretion of the Operator if the third well isunsuccessful. The ANP has also agreed that the PSC may be relinquished if theOperator and the Joint Venture partners decide not to proceed with any furtherexploration after the third well.
There have been no other significant changes in the state of affairs of the Group that occurred during the financial year not otherwise disclosed in this report or the financial statements.
SIGNIFICANT EVENTS AFTER BALANCE DATE
On 1 July 2011 7,800,000 options previously issued to Directors expired unexercised.
There were no other significant subsequent events occurring after year end.
LIKELY DEVELOPMENTS
Other than the matters referred to elsewhere in this report, further disclosureas to likely developments in the operations of the Group and expected resultsof those operations would, in the opinion of the Board, be speculative and notin the best interests of the Group.
FINANCIAL POSITION
Capital Structure and Treasury Policy
At the date of this report, the Company had a total issued capital of 253,324,885 ordinary shares, 33,575,000 unlisted options exercisable at prices between $0.30 and $2.75 per share and 65,000 performance rights.
Cash management is reviewed on a regular basis by the Group's Finance Director and reported to the Board on a monthly basis to ensure the Group is able to meet its financial obligations as and when they fall due. Until sufficient operating cash flows are generated from its operations, the Group remains reliant on equity or debt funding to fund its expenditure commitments.
Liquidity and Funding
As at 30 June 2011 the Group had no borrowings or undrawn financing facilities.The Company continues to actively develop funding options in order that it canmeet its expenditure commitments (see Note 27) and its planned futurediscretionary expenditure.
ENVIRONMENTAL ISSUES
The Group's oil and gas exploration and production activities are subject toenvironmental regulation under the legislation of the respective states andcountries in which they operate. The majority of the Group's activities involvelow level disturbance associated with its exploration drilling programs. TheBoard actively monitors compliance with these regulations and as at the date ofthis report is not aware of any material breaches in respect of theseregulations.
DIRECTORS' INTERESTS
The relevant interest of each director in shares and options issued by the Company, as notified by the directors to the ASX in accordance with S205G(1) of the Corporations Act 2001, at the date of this report is as follows.
Number of Number of Options Ordinary Shares Over Ordinary Shares Direct Indirect Direct Indirect M D J Cozijn - 1,000,000 - 1,000,000 L L Bhandari - - - 750,000 B H McCarthy - 1,150,000 - 4,000,000 R G Barnes 198,871 600,000 4,000,000 - B J M Clube - 52,174 2,000,000 2,000,000 R L Miller - 2,524,436 - 2,250,000
SHARE OPTIONS AND PERFORMANCE RIGHTS
Options and Performance Rights Granted to Directors and Executives of the Company
During or since the end of the financial year, the Company granted options forno consideration over unissued ordinary shares in the Company, to the followingdirectors and executives, (or their nominees), of the Company as part of theirremuneration. No performance rights were issued to directors or executives.OPTIONS Number of Exercise Price Expiry Date Options Granted Directors M D J Cozijn 500,000 $0.30 10 November 2012 M D J Cozijn 500,000 $0.37 10 November 2014 L L Bhandari 375,000 $0.30 10 November 2012 L L Bhandari 375,000 $0.37 10 November 2014 B H McCarthy 5,500,000 $0.30 10 November 2012 B H McCarthy 2,000,000 $0.37 10 November 2014 R G Barnes 2,500,000 $0.30 10 November 2012 R G Barnes 1,500,000 $0.37 10 November 2014 B J M Clube 2,000,000 $0.30 10 November 2012 R L Miller 1,500,000 $0.30 10 November 2012 Executives J Lamberto 850,000 $0.30 10 November 2012 J Lamberto 850,000 $0.37 10 November 2014 J W R Laurie 325,000 $0.30 10 November 2012 J W R Laurie 325,000 $0.37 10 November 2014
All options were granted during the financial year. No options have been granted to Directors or Executives since the end of the financial year.
Unissued Shares Under Option and Performance Rights
At the date of this report unissued ordinary shares of the Company under option (with an exercise price) are:
Expiry Date Exercise Number of Expiry Date Exercise Number of Price Shares Price Shares 30 September $1.57 500,000 1 July 2014 $0.30 4,150,000 2011 31 March 2012 $2.75 300,000 10 November $0.37 8,737,500 2014 30 June 2012 $2.75 900,000 1 August 2013 $0.50 150,000 15 September $0.30 2,000,000 1 August 2015 $0.63 150,000 2012 10 November $0.30 16,687,500 2012 TOTAL 33,575,000
These options do not entitle the holder to participate in any share issue of the Company or any other body corporate.
At the date of this report unissued ordinary shares of the Company subject to performance rights are:
Expiry Date Exercise Number of Price Rights 1 July 2013 - 2008 - 65,000 rights Vesting of the performance rights is subject to the Company meeting performanceconditions based on the share price growth of the Company compared to thegrowth in the Standard & Poors (S&P) / ASX 200 Energy Sector Index (code XEJ)and at the discretion of the Board of Oilex Ltd.
Performance rights are usually granted in three tranches with each tranche having a grant date, performance measurement date and expiry date. Performance rights will vest only if specified performance conditions are satisfied.
Under the performance condition, the Oilex (OEX) share price growth is compared to the growth of the Standard & Poors (S&P) / ASX 200 Energy Sector Index.
* If the OEX share price growth is equal to or greater than 100% of the Index
growth, the performance rights will vest.
* If, over a three year measurement period, the OEX share price growth is
equal to or greater than 150% of the Index, the outperformance rights will
be granted and vest immediately.
If the OEX share price growth is equal to or greater than 50% of the Index growth, 50% of the performance rights will vest.
Shares Issued on Exercise of Options and Employee Performance Rights
During or since the end of the financial year, the Company issued ordinary shares as a result of the exercise of options as follows (there were no amounts unpaid on the shares issued):
Number of Shares Amount Paid on Each Share
3,250,000 $0.30
During or since the end of the financial year, the Company has not issued ordinary shares as a result of the exercise of Employee Performance Rights.
INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS
The Group paid a premium in respect of insurance cover for the directors andofficers of the Group. The Group has not included details of the nature of theliabilities covered or the amount of the premium paid in respect of thedirectors' liability and legal expense insurance contracts, as such disclosureis 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 2011 (Cth).
NON-AUDIT SERVICES
The Company may decide to employ the Auditor on assignments additional to theirstatutory audit duties where the Auditor's expertise and experience with theGroup is important. The Board has considered their position and, in accordance with the advicereceived from the Audit Committee, is satisfied that the provision of thenon-audit services is compatible with the general standard of independence forauditors imposed by the Corporations Act 2001. The directors are satisfied thatthe provision of non-audit services by the Auditor, as set out below, did notcompromise the auditor independence requirements of the Corporations Act 2001for the following reasons:
all non-audit services have been reviewed by the Audit Committee to ensure they do not impact the impartiality and objectivity of the Auditor; and
none of the services undermine the general principles relating to auditorindependence as set out in APES 110 Code of Ethics for Professional Accountants, including reviewing or auditing the Auditor's own work, acting in amanagement or decision-making capacity for the Company, acting as an advocatefor the Company or jointly sharing risks and rewards.Details of the amounts paid to the auditor of the Company, KPMG Australia, andits related practices for audit and non-audit services provided during the
yearare set out below. 2011 2010 $ $ Audit Services Auditors of the Company
Audit and review of financial reports (KPMG Australia) 87,377 91,375
Audit of Joint Ventures operated by Oilex Ltd - operator proportion only (KPMG Australia) 339 6,242 Audit and review of financial reports (KPMG related practices) 53,360 13,667 141,076 111,284 Other Services Assurance and Other Services KPMG Australia - - KPMG related practices - 8,449 Taxation Services Taxation compliance services (KPMG Australia) 37,170 23,884
Taxation compliance services (KPMG related practices) 3,557 15,076
40,727 47,409
REMUNERATION REPORT - AUDITED
PRINCIPLES OF COMPENSATION
Remuneration is referred to as compensation throughout this report. The Remuneration Report explains the remuneration arrangements for Oilex Ltd's directors and senior executives 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 competitivelyset to attract, retain and motivate appropriately qualified and experienceddirectors and senior executives. The Remuneration Committee obtains advice onthe appropriateness of compensation packages of both the Company and the Groupgiven trends in comparative companies both locally and internationally and theobjectives of the Company'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 Company's performance including:
* the Group's earnings; and
* the growth in share price and delivering constant returns on shareholder
wealth; and
* the structure of each compensation package for key management personnel;
and
* exploration success; and
* development of projects
the ability of key management personnel to control the performance of the relevant segments;
Compensation packages include a mix of fixed compensation and long term performance-based incentives. In specific circumstances the Company 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 employercontributions to superannuation funds. Compensation levels are reviewedannually by the Remuneration Committee through a process that considersindividual, segment and overall performance of the Group. In addition, reviewsof available data on oil and gas industry companies provide comparison figuresto ensure the directors' and senior executives' compensation is competitive inthe market. Compensation for a senior executive is separately reviewed at thetime of a promotion.
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 Company does not utilise short-term incentives on an annual or regularbasis, as these are not considered part of the standard compensation packagefor key management personnel. In certain circumstances the RemunerationCommittee may, for reasons of retention or motivation, consider the use ofshort-term incentives. Short-term incentives, if granted, are at the discretionof the Remuneration Committee having regard to the business plans set beforethe commencement of the financial year.
All short-term incentives awarded during the period are included in compensation and fully vested to key management personnel during the period.
Long-term incentive bonus
The Oilex Ltd Employee Performance Rights Plan ("the Plan") was implemented following shareholder approval at the 2006 Annual General Meeting ("AGM") and was last ratified by shareholders at the AGM on 26 November 2009.
The Plan is a long-term incentive plan designed to allow the Company to attractand retain talented employees. The Plan aims to closely align the interests ofsenior executives and employees with those of Shareholders and create a linkbetween increasing Shareholder value and employee reward. The Plan permits the Board to grant rights to acquire shares in the Company.Rights granted under the Plan may be in the form of options with a market basedexercise price, or performance rights (that is, zero exercise price options),or a combination of these depending upon the Company's objectives in making thegrant. The exercise price of the unlisted options is set at a premium to theshare price at the time they are granted. The change in share price is the keyperformance criteria for achieving a benefit under the Plan as the value thatmay be generated on exercise of options is dependent upon an increase in theshare price above the exercise price of the options.The issue of performance rights or zero exercise price options are subject to aperformance benchmark, based on Oilex's percentage share price growth comparedto the growth in the S&P/ASX 200 Energy Sector Index, which, subject to thediscretion of the Board of Oilex Ltd, must be satisfied before any performancerights can be exercised enabling the relevant employee to receive shares in theCompany. Given Oilex is an exploration and appraisal company that is not yet generatingprofits or net operating cash flows and as such has not paid any dividends, itis the performance of the overall exploration program and ultimately shareprice that largely determines the success of Oilex's management team. TheRemuneration Committee therefore considers that fixed compensation combinedwith a long-term incentive component is the best remuneration structure forachieving the Company's objectives to the benefit of employees and shareholdersalike. The Remuneration Committee considers that the above performance linkedcompensation is assisting the Company in meeting its' objectives.
During the year there has been an overall increase to Directors and Key Executives remuneration. This is a consequence of the need to offer market competitive packages, taking into account that voluntary reductions in remuneration were made in the previous financial year and the additional workload of executives due to the increased activity in India.
1.3 Non-Executive Directors
Total compensation for all Non-Executive Directors is set based on comparisonwith external data with reference to fees paid to non-executive directors ofcomparable companies. Directors' fees cover all main board activities.
From 1 July 2011 Non-Executive Directors' base annual fees including superannuation have been set at $87,200 for the Chairman and $54,500 for the other Non Executive Directors.
Payments made for technical services to La Jolla Enterprises Pty Ltd, a company of which Mr R L Miller is an employee, are disclosed in Note 28 to the Consolidated Financial Statements.
Payments made for consultancy services to India Hydrocarbons Limited, a related party of Mr L L Bhandari, are disclosed in Note 29 to the Consolidated Financial Statements.
EMPLOYMENT CONTRACTS
The following table summarises the key terms and conditions of contracts between key executives and the Company:
Unvested Termination Options and Notice Contract Contract Resignation Performance Required Start Termination Notice Rights on from the Termination Executive Position Date Date Required Resignation Company (3) Payment B H Managing 1 31 May 2012 6 months Forfeited 6 months For
McCarthy Director December
termination by(1) 2010 Company, an amount limited to the maximum payable in accordance with the Corporations Act 2001 (Cth), calculated on the basis of the remuneration over the previous 12 months, paid within 2 business days after the last working day, subject to any limitation set by the Corporations Act 2001 (Cth). For termination by executive upon a Material Change Event, a payment equivalent to 12 months' remuneration will be payable. R G Technical 1 July 30 June 180 days Forfeited 180 days For Barnes Director 2008 2011 termination by(2) Company, $500,000 plus GST within 30 days after the date of the notice of termination provided that, if required under the Corporations Act 2001 (Cth), all necessary approvals are obtained. For termination by executive upon a Material Change Event, a payment equivalent to 12 month fee plus 3 months notice will be payable. Subject to the Corporations Act 2001 and any necessary approvals required thereunder. B J M Finance 5 May n/a 3 months Forfeited 3 months For Clube Director & 2008 termination by Company the Company Secretary the average annual remuneration calculated over the last three years of employment (including salary, superannuation and other benefits, but not including STI, LTI's). The above termination payments are also payable if the employee gives notice following a Material Change Event. J Exploration 1 May n/a 1 month Forfeited 1 month For Lamberto Manager 2007 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 $160,000.
J W R General 12 March 31 March 3 months Forfeited 3 months
For Laurie Counsel & 2007 2011 termination by Company the Company (to 31 Secretary the average March annual 2011) remuneration calculated over the last three years of employment (including salary, superannuation and other benefits, but not including STI, LTI's).
On 1 December 2010 the Company entered into an agreement with Dr McCarthy as Managing Director of Oilex Ltd for a maximum period of 18 months.
On 1 July 2008 the Company entered into an agreement with Ad Valorem ResourceConsultants Pty Ltd for the provision of Mr Barnes' services in the position ofTechnical Director of Oilex Ltd for a period of three years. The contract hassubsequently been extended from July 2011 to November 2011.The Company may terminate the contract immediately if serious misconduct hasoccurred. In this case the termination payment is only the fixed remunerationearned until the date of termination and any unvested options and performancerights will immediately be forfeited.
DIRECTORS' AND EXECUTIVE OFFICERS' REMUNERATION
Details of the nature and amount of each major element of remuneration of eachdirector of the Company and each of the named Company Executives and relevantGroup Executives who received the highest remuneration are: Short - Term Post STI Employment Other Salary Cash Non Super- Long & Bonus Monetary annuation Term Termination Fees(5) (6) Benefits Total Benefits Benefits Benefits Year $ $ $ $ $ $ $ Non-Executive Directors M D J Cozijn 2011 80,000 - - 80,000 7,200 - - Chairman 2010 80,000 - - 80,000 7,200 - - LL Bhandari 2011 43,600 - - 43,600 - - - Non-Executive Director 2010 34,880 - - 34,880 - - - R L Miller (1) 2011 174,608 - - 174,608 34,880 - - Non-Executive Director 2010 66,608 - - 66,608 34,880 - - Executive Directors B H McCarthy (2) 2011 443,309 - 35,521 478,830 8,866 - - Managing Director 2010 399,996 - 50,637 450,633 - - - R G Barnes 2011 398,100 - - 398,100 - - - Technical Director 2010 348,000 - - 348,000 - - - B J M Clube 2011 347,725 - - 347,725 30,600 - - Finance Director / Company Secretary 2010 311,514 - - 311,514 26,715 - - Executives J W R Laurie 2011 235,299 - - 235,299 20,048 - 298,425 General Counsel / Company Secretary (3) 2010 263,122 - - 263,122 23,440 - -
J Lamberto (4) 2011 343,990 30,000 - 373,990 31,500 - - Exploration Manager 2010 309,354 - - 309,354 25,779 - - Share Based Payments Value of Value of Performance Options as Rights as Proportion Proportion Performance of of Options Rights Total Remuneration Remuneration $ $ $ % %
Non-Executive Directors
M D J Cozijn 108,573 - 195,773 55% - Chairman - - 87,200 - - LL Bhandari 81,429 - 125,029 65% - Non-Executive Director - - 34,880 - - R L Miller (1) 138,787 - 348,275 40% -
Non-Executive Director 164,552 - 266,040 62% -
Executive Directors B H McCarthy (2) 756,349 - 1,244,045 61% - Managing Director - - 450,633 - - R G Barnes 417,735 - 815,835 51% - Technical Director - - 348,000 - - B J M Clube 233,384 - 611,709 38% - Finance Director / Company Secretary 450,287 - 788,516 58% - Executives J W R Laurie 84,374 - 638,146 13% - General Counsel /
Company Secretary (3) 161,348 35,781 483,691 33% 7%
J Lamberto (4) 184,749 - 590,239 31% -
Exploration Manager 87,353 44,792 467,278 19% 10%
The Directors of the Company may be Directors of the Company's subsidiaries. Noremuneration is received for directorships of subsidiaries. All key managementpersonnel are employed by the parent entity.Includes Non-Executive Director fees, as well as consultancy fees for technicalservices undertaken at the specific request of the Company. Refer Note 28 tothe Consolidated Financial Statements.
Non-monetary benefits include the provision of accommodation and related expenses whilst working away from normal place of residence.
Termination benefits paid on redundancy, in accordance with a contractual agreement. Mr Laurie ceased employment on 31 March 2011.
On 1 April 2010 Mr Lamberto became Key Management Personnel. The proportion of remuneration performance related is 5% in 2011, (2010: 10%).
Includes accrued employee leave entitlements.
The amount represents the STI earned in the respective year, with the amount being paid in the following year.
Notes in Relation to the Table of Directors' and Executive Officers' Remuneration
The fair value of the options is calculated at the date of grant using theBlack-Scholes Model. Because of the performance condition attaching to theperformance rights, a Monte Carlo Simulation is used to value the rights. Thefair value of the options and rights is allocated to each reporting periodevenly over the period from grant date to vesting date. The value disclosed isthe portion of the fair value of the options and performance rights allocatedto this financial year. In valuing the options and performance rights, marketconditions have been taken into account.
The following factors and assumptions were used in determining the fair value of 2011 options and performance rights on grant date:
Fair Price of Risk Free Grant Expiry Value Per Exercise Shares on Expected Interest DividendDate Date Option Price Grant Date Volatility Rate Yield OPTIONS 10 10 Nov $0.09 $0.30 $0.22 91.00% 4.75% - November 2012 2010 10 10 Nov $0.13 $0.37 $0.22 91.00% 4.75% - November 2014 2010 16 10 Nov $0.11 $0.30 $0.25 89.80% 4.75% - November 2012 2010 16 10 Nov $0.15 $0.37 $0.25 89.80% 4.75% - November 2014 2010 PERFORMANCE RIGHTS
No performance rights were issued in the year ended 30 June 2011
Equity Instruments
All options refer to options and rights over shares of the Company, which are exercisable on a one-for-one basis.
4.1 Options and Performance Rights Over Equity Instruments Granted as Compensation
Details of options and performance rights over ordinary shares in the Companythat were granted as compensation to key management personnel and executivesduring the financial year and details of options that vested during thefinancial year are as follows: Exercise Price of Number of Fair Value Options Expiry Date Number of Options Grant of Options of Options Options Granted Date Granted Granted Granted Vested(1) options Executive Directors B H 5,500,000 10 $0.09 $0.30 10 November McCarthy November 2012 2010 B H 2,000,000 10 $0.13 $0.37 10 November 7,500,000 McCarthy November 2014 2010 R G 2,500,000 10 $0.09 $0.30 10 November Barnes November 2012 2010 R G 1,500,000 10 $0.13 $0.37 10 November 4,000,000 Barnes November 2014 2010 B J M 2,000,000 10 $0.09 $0.30 10 November 4,000,000 Clube November 2012 2010 Non-Executive Directors M D J 500,000 10 $0.09 $0.30 10 November Cozijn November 2012 2010 M D J 500,000 10 $0.13 $0.37 10 November 1,000,000 Cozijn November 2014 2010 L L 375,000 10 $0.09 $0.30 10 November Bhandari November 2012 2010 L L 375,000 10 $0.13 $0.37 10 November 750,000 Bhandari November 2014 2010 R L 1,500,000 10 $0.09 $0.30 10 November 2,250,000 Miller November 2012 2010 Executives J 850,000 10 $0.09 $0.30 10 November Lamberto November 2012 2010 J 850,000 10 $0.13 $0.37 10 November 2,000,000 Lamberto November 2014 2010 J W R 325,000 16 $0.11 $0.30 10 November Laurie(2) November 2012 2010 J W R 325,000 16 $0.15 $0.37 10 November 1,400,000 Laurie(2) November 2014 2010
(1) Including options granted in prior periods. (2) Option exercise period extended by the Board to
expiry date. PERFORMANCE RIGHTS
No performance rights were issued during the financial year. With the exception of options that have vested, which can be retained by theemployee in accordance with the timeframes specified under the EmployeePerformance Rights Plan rules, all options expire on the earlier of theirexpiry date or termination of the individual's employment. The options thatwere granted during the financial year vested on grant date and are exercisableat any time between the vesting date and the expiry date. However, options thathave vested can be retained by Directors until expiry date, and do not expireon termination of employment. Further details, including grant dates andexercise dates regarding options granted to key management personnel are inNote 20 to the financial statements.
4.2 Options and Performance Rights Over Equity Instruments Granted as Compensation Granted Since Year End:
No performance rights or options over ordinary shares in the Company were granted as compensation to key management personnel and executives since the end of the financial year.
4.3 Modification of Terms of Equity-Settled Share-based Payment Transactions
No terms of equity-settled share-based payment transactions (including options granted as compensation to key management personnel) have been altered or modified by the issuing entity during the financial year.
4.4 Exercise of Options and Performance Rights Granted as Compensation
During the financial year no shares were issued on the exercise of options previously granted as compensation.
During the financial year no shares were issued to directors or executives on the exercise of performance rights previously granted as compensation.
4.5 Analysis of Options and Performance Rights Granted as Compensation
Details of vesting profiles of the options and performance rights granted as remuneration to each key management person and each of the named Company executives and relevant Group executives is detailed below:
Options and Performance Rights Granted Financial % % Vested in Forfeited Years in Which Grant Number Grant Date Year in Year Vests OPTIONS Executive Directors B H 4,000,000 22 November - - (a) McCarthy 2007 B H 7,500,000 10 November 100% - (b) McCarthy 2010 R G 3,000,000 22 November - - (a) Barnes 2007 R G 4,000,000 10 November 100% - (b) Barnes 2010 B J M 1,500,000 1 May 2008 33% 67% (c) Clube B J M 1,500,000 26 November 100% - (d) Clube 2009 B J M 2,000,000 10 November 100% - (b) Clube 2010 Non-Executive Directors M D J 500,000 22 November - - (a) Cozijn 2007 M D J 1,000,000 10 November 100% - (b) Cozijn 2010 L L 300,000 22 November - - (a) Bhandari 2007 L L 750,000 10 November 100% - (b) Bhandari 2010 R L 750,000 26 November - - (d) Miller 2009 R L 1,500,000 10 November 100% - (b) Miller 2010 Executives
J Lamberto 1,050,000 1 May 2007 - 33% (c)
J Lamberto 100,000 8 August - 100% (e) 2007 J Lamberto 300,000 17 August 100% - (d) 2009 J Lamberto 1,700,000 10 100% - (b) November 2010 J W R 80,000 3 August - 100% (e) Laurie 2007 J W R 450,000 17 March - 33% (c) Laurie 2008 J W R 750,000 17 August 100% - (d) Laurie 2009 J W R 650,000 16 100% - (b) Laurie November 2010 PERFORMANCE RIGHTS
No performance rights were issued during the
financial year.
4.5 Analysis of Options and Performance Rights Granted as Compensation (continued)
The options issued may vest and can be exercised as one half immediately and in full during the year after grant date. All options that have vested can be retained by the Director upon resignation or termination of employment. All these options vested in previous financial years.
The options issued vested and can be exercised on grant date. All options thathave vested can be retained by the employee upon resignation or termination ofemployment, within the timeframes specified under the Employee PerformanceRights Plan rules. All options that have vested can be retained by the Directorupon resignation or termination of employment.The options issued may vest and can be exercised as one third one year fromgrant date, two thirds two years after grant date and in full three years fromgrant date. All options that have vested can, upon resignation or terminationof employment be retained by the employee within the timeframes specified underthe Employee Performance Rights Plan rules and by directors until their expiry. The options issued vested and can be exercised from 1 July 2010. All optionsthat have vested can be retained by the employee upon resignation ortermination of employment, within the timeframes specified under the EmployeePerformance Rights Plan rules. All options that have vested can be retained bythe Director upon resignation or termination of employment.
The performance rights initially available in three tranches over three years were cancelled in February 2011 as they had not satisfied the performance conditions.
4.6 Analysis of Movements in Options
The movement during the financial year, by value, of options over ordinary shares in the Company held by each key management person and each of the named Company executives and relevant Group executives is detailed below:
Value of Options $ Granted in Year (a) Exercised in Year (b) Forfeited in Year (c) Executive Directors B H McCarthy 756,349 - - R G Barnes 417,735 - - B J M Clube 184,033 - 339,859 Non-Executive Directors M D J Cozijn 108,573 - - L L Bhandari 81,429 - - R L Miller 138,025 - - Executives J Lamberto 184,574 - 114,702 J W R Laurie 83,936 - 85,785
The value of options granted in the year is the fair value of the options calculated at grant date using the Black-Scholes Model. The total value of the options granted is included in the table above. This amount is allocated to remuneration over the vesting period.
The value of options exercised during the year is calculated as the market price of shares of the Company on the ASX as at close of trading on the date the options were exercised after deducting the price paid to exercise the option.
The value of options forfeited during the year represents the cumulative benefit foregone and was calculated using the Black-Scholes Model.
There were no movements in options during the financial year for any other Director or Executive other than those disclosed above.
There is no adjustment made to the value of options included in remuneration or the financial results where the option has a greater or lesser value as compared to the grant date value.
4.7 Analysis of Movements in Performance Rights
The movement during the financial year, by value, of performance rights overordinary shares in the Company held by each key management person and each ofthe named Company executives and relevant Group executives is detailed below: Value of Performance Rights $ Granted in Year (a) Exercised in Year (b) Forfeited in Year (c) Executives J Lamberto - - 129,480 J W R Laurie - - 103,920
The value of rights granted in the year is the fair value of the rights calculated at grant date using a Monte Carlo Simulation. The total value of the rights granted is included in the table above. This amount is allocated to remuneration over the vesting period.
The value of rights exercised during the year is calculated as the market price of shares of the Company on the ASX as at close of trading on the date the rights were exercised after deducting the price paid to exercise the right.
The value of performance rights forfeited during the year represents the cumulative benefit foregone and was calculated using a Monte Carlo simulation.
AUDITOR'S INDEPENDENCE DECLARATION
The lead Auditor's Independence Declaration for the year ended 30 June 2011 has been received and can be found on page42.
………………………………….. ……………………………………..
Dr Bruce H McCarthy Mr Ben Clube
Managing Director Finance Director
Signed in accordance with a resolution of the Directors
West PerthWestern Australia1 September 2011 KPMG
Lead Auditor's Independence Declaration under Section 307C of the Corporations Act 2001
To: the directors of Oilex Ltd
I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 30 June 2011 there have been:
no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the audit.
KPMG Brent SteedmanPartnerPerth1 September 2011
KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2011 2011 2010 Note $ $ Revenue 6(a) 1,058,475 1,008,777 Cost of sales 6(b) (417,283) (1,036,509) Gross profit/(loss) 641,192 (27,732) Other income 6(c) 4,576,687 6,072 Exploration expenditure (5,114,816) (1,067,483) Administration expense 6(d) (2,083,282) (1,318,091) Share-based payments 20 (3,801,346) (1,663,142) Other expenses 6(e) (3,470,860) (6,802,919) Results from operating activities (9,252,425) (10,873,295) Finance income 323,308 258,484 Finance costs (197) (1,783) Foreign exchange loss 6(f) (1,828,751) (81,546) Net finance (loss)/income (1,505,640) 175,155 Loss before income tax (10,758,065) (10,698,140) Income tax expense 7 - - Loss for the period (10,758,065) (10,698,140) Other comprehensive income Foreign currency translation difference (4,834,113)
(1,626,104)
Other comprehensive loss for the period, net of
income tax (4,834,113) (1,626,104) Total comprehensive loss for the period (15,592,178) (12,324,244) Earnings per share
Basic loss per share (cents per share) 8 (4.5) (37.7) Diluted loss per share (cents per share) 8 (4.5) (37.7)
The above Consolidated Statement of Comprehensive Income is to be read in conjunction with the accompanying notes.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2011
2011 2010 Note $ $ Assets Cash and cash equivalents 9 19,070,262 16,809,095 Trade and other receivables 10 2,833,625 1,465,103 Prepayments 11 114,915 132,285 Inventories 12 1,681,600 1,466,357 Total current assets 23,700,402 19,872,840 Exploration and evaluation 13 22,394,942 23,281,236
Property, plant and equipment 14 448,919 561,730
Development assets 15 - 542,673 Total non-current assets 22,843,861 24,385,639 Total assets 46,544,263 44,258,479 Liabilities Trade and other payables 16 7,979,542 3,269,527 Employee benefits 17 198,275 143,670 Provisions 18 - 71,344 Total current liabilities 8,177,817 3,484,541 Provisions 18 2,210,708 2,712,492
Total non-current liabilities 2,210,708 2,712,492
Total liabilities 10,388,525 6,197,033 Net assets 36,155,738 38,061,446 Equity Issued capital 19 130,043,957 120,158,833 Reserves 19 7,424,259 13,024,917 Accumulated losses (101,312,478) (95,122,304) Total equity 36,155,738 38,061,446
The above Consolidated Statement of Financial Position is to be read in conjunction with the accompanying notes.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2011 Attributable to Equity Holders of the Company Foreign Currency Issued Option Translation Accumulated Capital Reserve Reserve Losses Total Equity $ $ $ $ $ Balance at 1 July 2009 110,734,909 12,819,214 5,511,137 (89,766,636) 39,298,624 Total comprehensive (loss)/income for the period Profit or loss - - - (10,698,140) (10,698,140) Other comprehensive income Foreign currency translation differences - - (1,626,104) - (1,626,104) Total other comprehensive income - - (1,626,104) - (1,626,104) Total comprehensive (loss)/income for the period - - (1,626,104) (10,698,140) (12,324,244) Transactions with owners, recorded directly in equity Contributions by and distributions to owners Shares issued 10,120,000 - - - 10,120,000 Capital raising costs (696,076) - - - (696,076) Shares issued on - - - - - exercise of options Transfer on exercise of options or performance rights - (28,000) - 28,000 - Transfers on forfeited options - (5,314,472) - 5,314,472 - Share-based payment transactions - 1,663,142 - - 1,663,142 Total transactions with owners 9,423,924 (3,679,330) - 5,342,472 11,087,066 Balance at 30 June 2010 120,158,833 9,139,884 3,885,033 (95,122,304) 38,061,446 Balance at 1 July 2010 120,158,833 9,139,884 3,885,033 (95,122,304) 38,061,446 Total comprehensive (loss)/income for the period Profit or loss - - - (10,758,065) (10,758,065) Other comprehensive income Foreign currency translation differences - - (4,834,113) - (4,834,113) Total other comprehensive income - - (4,834,113) - (4,834,113) Total comprehensive (loss)/income for the period - - (4,834,113) (10,758,065) (15,592,178) Transactions with owners, recorded directly in equity Contributions by and distributions to owners Shares issued 9,459,246 - - - 9,459,246 Capital raising costs (534,122) - - - (534,122) Shares issued on 960,000 - - - 960,000 exercise of options Transfer on exercise of options or performance rights - (362,669) - 362,669 - Transfers on forfeited options - (4,205,222) - 4,205,222 - Share-based payment transactions - 3,801,346 - - 3,801,346 Total transactions with owners 9,885,124 (766,545) - 4,567,891 13,686,470 Balance at 30 June 2011 130,043,957 8,373,339 (949,080) (101,312,478) 36,155,738
The above Consolidated Statement of Changes in Equity is to be read in conjunction with the accompanying notes.
2011 2010 Note $ $
Cash flows from operating activities
Cash receipts from customers 904,824 1,194,982 Payments to suppliers and employees (2,227,459) (2,137,395) Cash outflow from operations (1,322,635) (942,413) Interest received 367,802 184,447
Net cash used in operating activities 21 (954,833) (757,966)
Cash flows from investing activities
Advances from joint ventures 34,588 24,112
Proceeds from sale of assets and materials 5,002 29,751 Proceeds from sale of petroleum interests 4,572,447 - Payments for exploration and evaluation (9,330,270)
(2,120,143)
Acquisition of development assets - (14,894) Acquisition of property, plant and equipment (102,589) (147,595) Net cash used in investing activities (4,820,822) (2,228,769)
Cash flows from financing activities Proceeds from issue of share capital 10,419,246 10,120,000
Payment for share issue costs (534,122) (696,076)
Net cash from/(used in) financing activities 9,885,124 9,423,924
Net increase/(decrease) in cash held 4,109,469 6,437,189 Cash and cash equivalents at 1 July 16,809,095 10,506,379 Effect of exchange rate fluctuations on cash (1,848,302) (134,473) held Cash and cash equivalents at 30 June 9 19,070,262 16,809,095
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2011
NOTE 1 - REPORTING ENTITY
Oilex Ltd (the "Company") is a company domiciled in Australia. The consolidatedfinancial statements of the Company as at and for the year ended 30 June 2011comprise the Company and its subsidiaries (together referred to as the "Group"and individually as "Group Entities") and the Group's interest in associatesand jointly controlled entities. Oilex Ltd is a company limited by sharesincorporated in Australia whose shares are publicly traded on the AustralianSecurities Exchange ("ASX") and on the AIM Market of the London Stock Exchange.The Group is primarily involved in the exploration, evaluation, development
andproduction of hydrocarbons.NOTE 2 - BASIS OF PREPARATIONStatement of ComplianceThe consolidated financial statements are general purpose financial statementswhich has been prepared in accordance with Australian Accounting Standards("AASBs") adopted by the Australian Accounting Standards Board ("AASB") and theCorporations Act 2001. The consolidated financial statements comply withInternational Financial Reporting Standards ("IFRSs") adopted by theInternational Accounting Standards Board ("IASB").
The consolidated financial statements were authorised for issue by the Board of Directors on 1 September 2011.
Basis of Measurement
The consolidated financial statements have been prepared on the historical cost basis except for the following material items in the statement of financial position:
Financial instruments at fair value through profit or loss are measured at fair value;
Available-for-sale financial assets are measured at fair value; and
Functional and Presentation Currency
The consolidated financial statements are presented in Australian dollars, which is the Company's functional currency. The functional currency of the majority of the Company's subsidiaries is United States dollars.
Use of Estimates and Judgements
The preparation of the consolidated financial statements in conformity withIFRSs requires management to make judgements, estimates and assumptions thataffect the application of accounting policies and the reported amounts ofassets, liabilities, income and expenses. Actual results may differ from theseestimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.
In the process of applying the Group's accounting policies, management has madethe following judgements, apart from those involving estimates, which have themost significant effect on the amount recognised in the consolidated financialstatements.
Exploration and Evaluation Assets
The Group's accounting policy for exploration and evaluation expenditure is setout in Note 3(e). The application of this policy necessarily requiresmanagement to make certain estimates and assumptions as to future events andcircumstances, including, in particular, the assessment of whether economicquantities of reserves have been found. Any such estimates and assumptions maychange as new information becomes available. If, after having capitalisedexpenditure under this policy, it is determined that the expenditure isunlikely to be recovered by future exploitation or sale, then the relevantcapitalised amount will be written off to the consolidated statement ofcomprehensive income.
In the process of applying the Group's accounting policies, estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are as follows:
Reserve Estimates
Development costs are amortised on a units of production basis over the life ofeconomically recoverable reserves, so as to write off costs in proportion tothe depletion of the estimated reserves. The estimation of reserves requiresinterpretation of geological and geophysical data. The geological and economicfactors which form the basis of reserve estimates may change over reportingperiods.
Rehabilitation Provisions
The Group estimates the future removal costs of onshore oil and gas productionfacilities, wells and pipeline at the time of installation of the assets. Inmost instances, removal of assets occurs many years into the future. Thisrequires judgemental assumptions regarding removal date, future environmentallegislation, the extent of reclamation activities required, the engineeringmethodology for estimating cost, future removal technologies in determining theremoval cost, and asset specific discount rates to determine the present valueof these cash flows. For more detail regarding the policy in respect ofprovision for rehabilitation refer to Note 3(k).
Changes in Accounting Polices
The Group has not changed its accounting policies in the financial year end 30 June 2011.
Going Concern BasisThe Directors believe that it is appropriate to prepare the consolidatedfinancial statements on a going concern basis. As at 30 June 2011, the Group'scurrent assets exceeded current liabilities by $15,522,585 and the Group hascash and cash equivalents of $19,070,262. The Group will continue to manage itsevaluation and operating activities to ensure that it has sufficient cashreserves for the next twelve months. The Group will require funding within thenext twelve months to undertake further evaluation and development of theCambay asset. In the opinion of the Directors, the Group will be in a positionto continue to meet its minimum expenditures for at least twelve months fromthe date of this report, and that the Company has adequate plans in place inorder that its funding requirements in the foreseeable future can be met. Iffurther funds are not able to be raised or realised, then the Directors willneed to reduce expenditures.The Directors are satisfied that the Company will be able to realise its assetsand discharge its liabilities in the normal course of business. In thiseconomic climate uncertainty exists in the Group's ability to achieveanticipated exploration and development goals, access funds and realise thecurrent value of its assets. Consequently the Directors regularly assess theCompany's and the Group's status as a going concern and its changing riskprofile, as circumstances change.
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements and have been applied consistently by Group entities, except as explained in Note 2(e) which address changes in accounting policies.
Basis of Consolidation
Subsidiaries
Subsidiaries are entities controlled by the Group. The financial statements ofsubsidiaries are included in the consolidated financial statements from thedate that control commences until the date that control ceases. The accountingpolicies of subsidiaries have been changed when necessary to align them withthe policies adopted by the Group.
Joint Ventures
Joint ventures are those entities over whose activities the Group has joint control, established by contractual agreement.
Jointly Controlled Operations and Assets
The interest of the Group in unincorporated joint ventures and jointlycontrolled assets are brought to account by recognising, in its consolidatedfinancial statements, the assets it controls, the liabilities that it incurs,the expenses it incurs and the share of income that it earns from the sale ofgoods or services by the joint venture.
Transactions Eliminated on Consolidation
Intragroup balances and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements.
Foreign Currency
Foreign Currency Transactions
Transactions in foreign currencies are translated to the respective functionalcurrencies of Group entities at exchange rates at the dates of thetransactions. Monetary assets and liabilities denominated in foreign currenciesat the reporting date are retranslated to the functional currency at theforeign exchange rate at that date. The foreign currency gain or loss onmonetary items is the difference between amortised cost in the functionalcurrency at the beginning of the period, adjusted for effective interest andpayments during the period, and the amortised cost in foreign currencytranslated at the exchange rate at the end of the reporting period. Non-monetary assets and liabilities denominated in foreign currencies that aremeasured at fair value are retranslated to the functional currency at theexchange rate at the date that the fair value was determined. Foreign currencydifferences arising on retranslation are recognised in profit or loss.Non-monetary items that are measured in terms of historical cost in a foreigncurrency are translated using the exchange rate at the date of the transaction.
Foreign Operations
The assets and liabilities of foreign operations are translated to Australiandollars at exchange rates at the reporting date. The income and expenses offoreign operations are translated to Australian dollars at exchange rates atthe dates of the transactions.Foreign currency differences are recognised in other comprehensive income andthe differences have been recognised in the foreign currency translationreserve ("FCTR"). When the settlement of a monetary item receivable from orpayable to a foreign operation is neither planned nor likely in the foreseeablefuture, foreign exchange gains and losses arising from such a monetary item areconsidered to form part of a net investment in a foreign operation and arerecognised in other comprehensive income and are presented within equity in
theFCTR.Financial Instruments Share CapitalOrdinary Shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects.
Non-derivative Financial Assets
The Group initially recognises loans and receivables and deposits on the datethat they are originated. All other financial assets (including assetsdesignated at fair value through profit or loss) are recognised initially onthe trade date at which the Group becomes a party to the contractual provisionsof the instrument.The Group derecognises a financial asset when the contractual rights to thecash flows from the asset expire, or it transfers the rights to receive thecontractual cash flows on the financial asset in a transaction in whichsubstantially all the risks and rewards of ownership of the financial asset aretransferred. Any interest in transferred financial assets that is created orretained by the Group is recognised as a separate asset or liability.Financial assets and liabilities are offset and the net amount presented in thestatement of financial position when, and only when, the Group has a legalright to offset the amounts and intends either to settle on a net basis or torealise the asset and settle the liability simultaneously.
The Group may have the following non-derivative financial assets: financial assets at fair value through profit or loss, held-to-maturity financial assets, loans and receivables and available-for-sale financial assets.
Loans and Receivables
Loans and receivables are financial assets with fixed or determinable paymentsthat are not quoted in an active market. Such assets are recognised initiallyat fair value plus any directly attributable transaction costs. Subsequent toinitial recognition loans and receivables are measured at amortised cost usingthe effective interest method, less any impairment losses.
Loans and receivables comprise trade and other receivables.
Non-derivative Financial Liabilities
The Group initially recognises debt securities issued and subordinatedliabilities on the date that they are originated. All other financialliabilities (including liabilities designated at fair value through profit orloss) are recognised initially on the trade date at which the Group becomes aparty to the contractual provisions of the instrument. The Group derecognises afinancial liability when its contractual obligations are discharged orcancelled or expire. Financial assets and liabilities are offset and the netamount presented in the statement of financial position when and only when, theGroup has a legal right to offset the amounts and intends either to settle on anet basis or to realise the asset and settle the liability simultaneously.
The Group may have the following non-derivative financial liabilities: bank overdrafts and trade and other payables.
Such financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortised cost using the effective interest rate method.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash balances, call deposits, cash in transit and short-term deposits with an original maturity of three months or less.
Exploration and Evaluation Expenditure
Exploration and evaluation expenditure in respect of each area of interest is accounted for under the successful efforts method.
Exploration licence acquisition costs relating to established oil and gas exploration areas are capitalised.
The costs of drilling exploration wells are initially capitalised pending theresults of the well. Costs are expensed where the well does not result in thesuccessful discovery of potentially economically recoverable reserves.
All other exploration and evaluation expenditure, including general administration costs, geological and geophysical costs and new venture expenditure is expensed as incurred, except where:
The expenditure relates to an exploration discovery for which, at balance date, an assessment of the existence or otherwise of economically recoverable reserves is not yet complete; or
The expenditure relates to an area of interest under which it is expected that the expenditure will be recouped through successful development and exploitation or by sale.
When an oil or gas field has been approved for commercial development, the accumulated exploration and evaluation costs are transferred to development expenditure. Amortisation of capitalised costs is not charged on revenues earned from production testing.
Development Assets
Development expenditure includes past exploration and evaluation costs,pre-production development costs, development drilling, development studies andother subsurface expenditure pertaining to that area of interest. Costs relatedto surface plant and equipment and any associated land and buildings areaccounted for as property, plant and equipment.The definition of an area of interest for development expenditure is narrowedfrom the exploration permit for exploration and evaluation expenditure to theindividual geological area where the presence of an oil or natural gas fieldexists, and in most cases will comprise an individual oil or gas field.
Development expenditure is reviewed for impairment at each reporting date where there is an indication that the individual geological area may be impaired (refer Note 3(i)(ii)).
Amortisation is not charged on costs carried forward in respect of areas of interest in the development phase until production commences. When production commences, carried forward development costs are amortised on a units of production basis over the life of economically recoverable reserves.
Property, Plant and Equipment
Recognition and Measurement
Items of property, plant and equipment are measured at cost less accumulateddepreciation and accumulated impairment losses. The cost of self-constructedassets includes the cost of materials, direct labour, the initial estimate,where relevant, of the costs of dismantling and removing the items andrestoring the site on which they are located and an appropriate proportion ofoverheads.Gains and losses on disposal of an item of property, plant and equipment aredetermined by comparing the proceeds from disposal with the carrying amount ofproperty, plant and equipment and are recognised net within other income inprofit or loss.
Subsequent Costs
The cost of replacing part of an item of property, plant and equipment isrecognised in the carrying amount of the item if it is probable that the futureeconomic benefits embodied within the part will flow to the Group and its costcan be measured reliably. All other costs are recognised in profit or loss.
Depreciation
Depreciation is recognised in profit or loss using the reducing balance methodover the estimated useful life of the assets, with the exception of softwarewhich is depreciated at prime cost. The estimated useful lives in the currentand comparative periods are as follows: * Motor vehicles 2 to 7 years * Office furniture 2 to 10 years
Plant and equipment 2 to 7 years
Depreciation methods, useful lives and residual values are reviewed and adjusted if appropriate, at each financial year end.
Inventories
Inventories are measured at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.
Impairment
Financial Assets (including receivables)
A financial asset not carried at fair value through profit or loss is assessedat each reporting date to determine whether there is objective evidence that itis impaired. A financial asset is impaired if objective evidence indicatesthat a loss event has occurred after the initial recognition of the asset, andthat the loss event had a negative effect on the estimated future cash flows ofthat asset that can be estimated reliably. Objective evidence that financialassets are impaired can include default or delinquency by a debtor,restructuring of an amount due to the Group on terms that the Group would notconsider otherwise, indications that a debtor or issuer will enter bankruptcyor the disappearance of an active market for a security. In addition, for aninvestment in an equity security, a significant or prolonged decline in itsfair value below its cost is objective evidence of impairment.The Group considers evidence of impairment for receivables at both a specificasset and collective level. All individually significant receivables areassessed for specific impairment. All individually significant receivablesfound not to be specifically impaired are then collectively assessed for anyimpairment that has been incurred but not yet identified. Receivables that arenot individually significant are collectively assessed for impairment bygrouping together receivables with similar risk characteristics.In assessing collective impairment the Group uses historical trends of theprobability of default, timing of recoveries and the amount of loss incurred,adjusted for management's judgement as to whether current economic and creditconditions are such that the actual losses are likely to be greater or lessthan suggested by historical trends.An impairment loss in respect of a financial asset measured at amortised costis calculated as the difference between its carrying amount and the presentvalue of the estimated future cash flows discounted at the asset's originaleffective interest rate. Losses are recognised in profit or loss and reflectedin an allowance account against receivables. Interest on the impaired assetcontinues to be recognised through the unwinding of the discount. When asubsequent event causes the amount of impairment loss to decrease, the decreasein impairment loss is reversed through profit or loss.
Non-financial Assets
The carrying amounts of the Group's non-financial assets, other thaninventories and deferred tax, are reviewed at each reporting date to determinewhether there is any indication of impairment. If any such indication existsthen the asset's recoverable amount is estimated.
An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that are largely independent from other assets and groups. Impairment losses are recognised in profit or loss.
The recoverable amount of an asset or cash-generating unit is the greater ofits value in use and its fair value less costs to sell. In assessing value inuse, the estimated future cash flows are discounted to their present valueusing a pre-tax discount rate that reflects current market assessments of thetime value of money and the risks specific to the asset.Impairment losses recognised in prior periods are assessed at each reportingdate for any indications that the loss has decreased or no longer exists. Animpairment loss is reversed if there has been a change in the estimate used todetermine the recoverable amount. An impairment loss is reversed only to theextent that the asset's carrying amount does not exceed the carrying amountthat would have been determined, net of depreciation or amortisation, if noimpairment loss had been recognised.
Employee Benefits
Wages, Salaries, Annual Leave and Sick Leave
Liabilities for employee benefits for wages, salaries, annual leave and fringebenefits that are expected to be settled within 12 months of the reporting daterepresent present obligations resulting from employee services provided toreporting date. The liabilities are calculated at undiscounted amounts based onremuneration wage and salary rates that the Group expects to pay as at thereporting date.
Long-term Service Benefits
The Group's net obligation in respect of long-term service benefits is theamount of future benefit that employees have earned in return for their servicein the current and prior periods. The obligation is calculated using expectedfuture increases in wage and salary rates including related on-costs andexpected settlement dates, and is discounted using the rates attached to theTreasury Bonds (issued by the Commonwealth Government) at the balance sheetdate which have maturity dates approximating to the terms of the Group'sobligations.
Share-based Payment Transactions
Employee options allow employees to acquire shares of the Company. The fairvalue of options granted is recognised as an employee expense with acorresponding increase in equity. The fair value is measured at grant date andspread over the period during which the employees become unconditionallyentitled to the options. Options are also provided as part of consideration forservices by financiers and advisors. The fair value of the options granted ismeasured using the Black-Scholes Model, taking into account the terms andconditions upon which the options were granted. The amount recognised as anexpense is adjusted to reflect the actual number of share options that vestexcept where forfeiture is only due to share prices not achieving the thresholdfor vesting.Performance rights are also granted to employees. The fair value of performancerights granted is recognised as an employee expense with a correspondingincrease in equity. The fair value is measured at grant date and allocated overthe period during which the employees become unconditionally entitled to theperformance rights. The fair value of the performance rights is determined byan external valuer using a Monte Carlo Simulation taking into account the termsof the performance condition under which the rights are granted.
When the Group grants options and performance rights over its shares to employees of subsidiaries, the fair value at grant date is recognised as an increase in the investments in subsidiaries, with a corresponding increase in equity over the vesting period of the grant.
Provisions
Provisions are recognised when the Group has a present obligation (legal orconstructive) as a result of a past event, and it is probable that an outflowof economic benefits will be required to settle the obligation and when areliable estimate can be made of the amount of the obligation. Provisions aredetermined by discounting the expected future cash flows at a pre-tax rate thatreflects current market assessments of the time value of money and whereappropriate, the risks specific to the liability.
Provisions are made for site rehabilitation of an oil and gas field on an incremental basis during the life of the field (which includes the field plant closure phase). Provisions include reclamation, plant closure, waste site closure and monitoring activities. These costs have been determined on the basis of current costs, current legal requirements and current technology. Changes in estimates are dealt with on a prospective basis.
Product Revenue
Revenue is recognised when the significant risks and rewards of ownership havetransferred to the buyer. Risks and rewards of ownership are considered passedto the buyer at the time of delivery of the product to the customer.All revenue is stated net of the amount of Goods and Services Tax ("GST").
Leases
Payments made under operating leases are recognised in profit or loss on a straight line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense and are allocated over the lease term.
Finance Income and Expenses
Finance income comprises interest income on funds invested. Interest income isrecognised as it accrues in profit or loss, using the effective interestmethod. Finance expenses comprise interest expense on borrowings and unrealisedforeign exchange losses. Foreign currency gains and losses are reported on
anet basis.Income TaxIncome tax expense comprises current and deferred tax. Income tax is recognisedin profit or loss except to the extent that it relates to a businesscombination, or items recognised directly in equity, or in other comprehensiveincome recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognised in respect of temporary differences between thecarrying amounts of assets and liabilities for financial reporting purposes andthe amounts used for taxation purposes. Deferred tax is not recognised fordifferences relating to investments in subsidiaries to the extent that theyprobably will not reverse in the foreseeable future. Deferred tax is measuredat the tax rates that are expected to be applied to the temporary differenceswhen they reverse, based on the laws that have been enacted or substantivelyenacted by the reporting date.A deferred tax asset is recognised to the extent that it is probable thatfuture taxable profits will be available against which the temporary differencecan be utilised. Deferred tax assets are reviewed at each reporting date andreduced to the extent that it is no longer probable that the related taxbenefit will be realised.The Company and its wholly-owned Australian resident entities formed atax-consolidated group with effect from 1 July 2004 and are therefore taxed asa single entity from that date. The head entity within the tax-consolidatedgroup is Oilex Ltd.Current tax expense/income, deferred tax liabilities and deferred tax assetsarising from temporary differences of the members of the tax-consolidated groupare recognised in the separate financial statements of the members of thetax-consolidated group using the 'separate taxpayer within group' approach byreference to the carrying amounts of assets and liabilities in the separatefinancial statements of each entity and the tax values applying under taxconsolidation.
Goods and Services Tax
Revenues, expenses and assets are recognised net of the amount of GST except:
When the GST incurred on a purchase of goods and services is not recoverablefrom the taxation authority, in which case the GST is recognised as part of thecost of acquisition of the asset or as part of the expense item as applicable;andReceivables and payables, which are stated with the amount of GST included.The net amount of GST recoverable from, or payable to, the taxation authorityis included as part of receivables or payables in the Consolidated Statement ofFinancial Position.Cash flows are included in the Consolidated Statement of Cash Flows on a grossbasis and the GST component of cash flows arising from investing and financingactivities, which is recoverable from, or payable to, the taxation authority,is classified as operating cash flows.
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.
Earnings Per Share
Basic earnings per share is calculated as net profit or loss attributable to members of the Group, divided by the weighted average number of ordinary shares, adjusted for any bonus element.
Diluted earnings per share is determined by adjusting the profit attributableto ordinary shareholders and weighted average number of shares outstanding forthe effects of all dilutive potential ordinary shares, which comprise shareoptions and performance rights granted to employees.
Segment Reporting
An operating segment is a component of the Group that engages in businessactivities from which it may earn revenues and incur expenses, includingrevenues and expenses that relate to transactions with any of the Group's othercomponents. All operating segments' operating results are regularly reviewed bythe Group's Managing Director to make decisions about resources to be allocatedto the segment and assess its performance and for which discrete financialinformation is available.Segment results that are reported to the Managing Director include itemsdirectly attributable to a segment as well as those that can be allocated on areasonable basis. Unallocated items comprise mainly corporate assets (primarilythe Company's headquarters), head office expenses and income tax assets andliabilities.
Segment capital expenditure is the total cost incurred during the period to acquire exploration and development assets, property, plant and equipment and intangible assets other than goodwill.
Comparatives
Certain comparatives have been reclassified to conform with the presentationand classification in the current year. These include the presentation of theConsolidated Statement of Comprehensive Income in conformity with therequirements of AASB 101 Presentation of Financial Statements and disclosuresincluded in Note 6.
New Standards and Interpretations Not Yet Adopted
The following standards, amendments to standards and interpretations have beenidentified as those which may impact the entity in the period of initialapplication. They are available for early adoption at 30 June 2011, but havenot been applied in preparing this financial report.
* AASB 9 Financial Instruments includes requirements for the classification
and measurement of financial assets and financial liabilities and the
recognition and derecognition requirements for financial instruments. This
standard is a result of the first part of Phase 1 of the project to replace
AASB 139 Financial Instruments: Recognition and Measurement. AASB 9 will
become mandatory for the Group's 30 June 2014 financial statements.
Retrospective application is generally required, although there are
exceptions, particularly if the entity adopts the standard for the year
ended 30 June 2012 or earlier. The amendments are not expected to have a
significant impact on the consolidated financial statements.
* AASB 2009-11 Amendments to Australian Accounting Standards arising from
AASB 9. AASB 9 retains but simplifies the mixed measurement model and
establishes two primary measurement categories for financial assets;
amortised costs and fair value. The basis of classification depends on the
entity's business model and the contractual cash flow characteristics of
the financial asset. The guidance in AASB 139 on impairment of financial
assets continues to apply. The amendments, which become mandatory for the
Group's 30 June 2014 financial statements, are not expected to have a
significant impact on the consolidated financial statements.
* AASB 2009-12 Amendments to Australian Accounting Standards arising from the
Annual Improvements Project. This standard makes amendments to several
Australian Accounting Standards and Interpretations. These amendments
principally arise from editorial corrections made by the IASB and the AASB.
The amendments, which become mandatory for the Group's 30 June 2012
consolidated financial statements, are not expected to have a significant
impact on the consolidated financial statements.
* AASB 2010-4 Further Amendments to Australian Accounting Standards arising
from the Annual Improvements Project. A collection of non-urgent but
necessary improvements to the following accounting standards: AASB 1, AASB
7, AASB 101, AASB 134 and Interpretation 13. The amendments, which become
mandatory for the Group's 30 June 2012 consolidated financial statements,
are not expected to have a significant impact on the consolidated financial
statements.
AASB 124Related Party Disclosures (revised) simplifies and clarifies the intended meaning of the definition of a related party and eliminates inconsistencies from the definition. The amendments, which will become mandatory for the Group's 30 June 2012 financial statements, are not expected to have any impact on the consolidated financial statements.
In addition there are a number of IASB Standards and Interpretations awaitingapproval by the AASB. These include IAS27 Separate Financial Statements(application date 1 January 2013), IAS28 Investments in Associates and JointVentures (application date 1 January 2013), Amended IAS 19 Employee Benefits(application date 1 January 2013), Amendments to IAS 1 Presentation ofFinancial Statement (application date 1 July 2012), IFRS 10 ConsolidatedFinancial Statements (application date 1 January 2013), IFRS 11 JointArrangements (application date 1 January 2013), IFRS 12 Disclosures ofInterests in Other Entities (application date 1 January 2013) and IFRS 13 FairValue Measurement (application date 1 January 2013). The Standards andInterpretations will be first applied in the consolidated financial statementson or after the effective date of each announcement. The impact of the initialapplication of the Standards and Interpretations is not yet known or is notreasonably estimable.
NOTE 4 - DETERMINATION OF FAIR VALUES
A number of the Group's accounting policies and disclosures require thedetermination of fair value, for both financial and non-financial assets andliabilities. Fair values have been determined for measurement and/ordisclosure purposes based on the following methods. Where applicable, furtherinformation about the assumptions made in determining fair values is disclosedin the notes specific to that asset or liability.
Trade and Other Receivables
The fair value of trade and other receivables, excluding construction work inprogress, is estimated as the present value of future cash flows, discounted atthe market rate of interest at the reporting date.
Non-derivative Financial Liabilities
Fair value, which is determined for disclosure purposes, is calculated based onthe present value of future principal and interest cash flows, discounted atthe market rate of interest at the reporting date.
Share-based Payment Transactions
The fair value of options is measured using the Black-Scholes Model. The fairvalue of performance rights is determined by an external valuer using a MonteCarlo Simulation. Measurement inputs include share price on measurement date,exercise price of the instrument, expected volatility (based on weightedaverage historic volatility adjusted for changes expected due to publiclyavailable information), weighted average expected life of the instruments(based on historical experience and general option holder behaviour), expecteddividends and the risk-free interest rate (based on government bonds). Serviceand non-market performance conditions attached to the transactions are nottaken into account in determining fair value.
NOTE 5 - OPERATING SEGMENTS
The Group has identified its operating segments based upon the internalmanagement reports that are reviewed and used by the executive management teamin assessing performance and that are used to allocate the Groups resources.The operating segments identified by management are based on the nature andgeographical location of the business or joint venture. Each managed segmenthas responsible officers that are accountable to the Managing Director (theGroup's chief operating decision maker).The Group's executive management team evaluates the financial performance ofthe Group and its segment principally with reference to revenues, productioncosts, expenditure on exploration evaluation and development costs.The Group operates in one business segment, being the exploration, developmentand production of hydrocarbons and its revenue from the sale of oil and gas.Information reported to the Group's chief operating decision maker is on ageographical basis.
Financing requirements, finance income and expenses are managed at a Group level. Other items include non-segmental revenue, expenses and associated assets and liabilities not allocated to operating segments, mostly comprising corporate assets and expenses. It also includes expenses incurred by non-operating segments, such as new ventures and those undergoing relinquishment.
Major Customer
The Group's most significant customer, Indian Oil Corporation Limited, in itscapacity as nominee of the Government of India, represents 100% of the Group'stotal revenues (2010:100%).
NOTE 5 - OPERATING SEGMENTS (Continued)
India Australia JPDA (1) 2011 2010 2011 2010 2011 2010 $ $ $ $ $ $ Revenue External revenue 1,058,475 1,008,777 - - - - Cost of sales Production costs (437,549) (637,811) - - - - Amortisation of development costs (4,851) (353,946) - - - - Movement in oil stocks inventory 25,117 (44,752) - - - - Total cost of sales (417,283) (1,036,509) - - - - Gross profit /(loss) 641,192 (27,732) - - - - Exploration expenditure (3,260,609) (663,793) (298,897) (230,940) (433,750) 2,408,538 Impairment of exploration and evaluation expenditure - (4,266,207) (2,716,889) - - (964,381) Impairment of development assets (477,754) (833,052) - - - - Depreciation (29,267) (34,313) - - (1,404) (12,604) Share-based payments - (49,217) - - (16,781) (9,706) Other income 4,002 462 4,572,447 - - 9,562 Other expenses (29,094) (184,124) - - (7,760) (9,027) Reportable segment profit/ (loss) before income tax (3,151,530) (6,057,976) 1,556,661 (230,940) (459,695) 1,422,382 Net finance income Foreign exchange (loss)/gain Income tax expense Loss for the period Segment assets 21,343,629 15,185,651 - 68,309 681,229 1,305,598 Segment liabilities 4,355,589 3,072,316 2,716,889 28,513 200,968 363,924 Other segment information Additions to exploration assets 4,271,898 165,815 2,716,889 - 6,747 112,666 Additions to development assets - 14,894 - - - - Additions to other plant and equipment 43,811 2,276 - - - 196 Indonesia Corporate Consolidated 2011 2010 2011 2010 2011 2010 $ $ $ $ $ $ Revenue External revenue - - - - 1,058,475 1,008,777 Cost of sales Production costs - - - - (437,549) (637,811) Amortisation of development costs - - - - (4,851) (353,946) Movement in oil stocks inventory - - - - 25,117 (44,752) Total cost of sales - - - - (417,283) (1,036,509) Gross profit /(loss) - - - - 641,192 (27,732) Exploration expenditure - - (1,121,560) (2,581,288) (5,114,816) (1,067,483) Impairment of exploration and evaluation expenditure - - - - (2,716,889) (5,230,588) Impairment of development assets - - - - (477,754) (833,052) Depreciation - - (152,923) (384,308) (183,594) (431,225) Share-based payments - - (3,784,565) (1,604,219) (3,801,346) (1,663,142) Other income - - 238 (3,952) 4,576,687 6,072 Other expenses (17,236) (35,272) (2,121,815) (1,397,722) (2,175,905) (1,626,145) Reportable segment profit/ (loss) before income tax (17,236) (35,272) (7,180,625) (5,971,489) (9,252,425) (10,873,295) Net finance income 323,111 256,701 Foreign exchange (loss)/gain (1,828,751) (81,546) Income tax expense - - Loss for the period (10,758,065) (10,698,140) Segment assets 8,274,578 10,553,611 16,244,827 17,145,310 46,544,263 44,258,479 Segment liabilities 1,868,304 2,045,498 1,246,775 686,782 10,388,525 6,197,033 Other segment information Additions to exploration assets - 49,083 - - 6,995,534 327,564 Additions to development assets - - - - - 14,894 Additions to other plant and equipment - - 58,778 145,123 102,589 147,595
There were no significant inter-segment transactions during the year.
(1) Joint Petroleum Development Area
Geographical Segments
The Group operates in India, Australia and JPDA. It has interests in othercountries including Oman and Indonesia. In presenting information on the basisof geographical segments, segment revenue and segment assets are based on thelocation of operating activity. Revenue Non-current assets 2011 2010 2011 2010 $ $ $ $ India 1,058,475 1,008,777 14,204,367 13,368,133 Australia - - - - JPDA - - 51,652 55,622 Indonesia - - 8,274,402 10,553,061 Other - - 313,440 408,823 1,058,475 1,008,777 22,843,861 24,385,639
NOTE 6 - REVENUE AND EXPENSES
Loss from ordinary activities before income tax has been determined after the following revenues and expenses:
Note 2011 2010 $ $ (a) Revenue Oil sales 1,058,475 1,008,777 (b) Cost of Sales Production costs (437,549) (637,811)
Amortisation of development assets (4,851) (353,946) Movement in oil stocks inventory 25,117 (44,752)
(417,283) (1,036,509) (c) Other Income
Profit on sale of (WA-388-P) petroleum 25 interests 4,572,447 - Profit on disposal of other assets 4,240 6,072 4,576,687 6,072 (d) Administrative Expenses Employee benefits expense (914,782) (711,950) Administration expense (1,168,500) (606,141) (2,083,282) (1,318,091) (e) Other Expenses Depreciation expense 14 (183,594) (431,225)
Impairment of exploration and evaluation 13 assets (2,716,889) (5,230,588) Impairment of development assets 15 (477,754) (833,052)
Well abandonment expense (34,573) - Impairment of inventory 12 (58,050) (308,054) (3,470,860) (6,802,919) (f) Foreign Exchange Loss
Foreign exchange loss - realised (1,131) (16,075) Foreign exchange loss - unrealised (1,827,620) (65,471)
(1,828,751) (81,546) NOTE 7 - INCOME TAX EXPENSE
Numerical reconciliation between tax expense and pre-tax accounting loss:
2011 2010 $ $ Loss before income tax (10,758,065) (10,698,140)
Income tax using the domestic corporation tax rate of 30% (2010: 30%) (3,227,420) (3,209,442) Effect of tax rate in foreign jurisdictions (458,597) (843,175)
Non-deductible expenses Share-based payments 1,140,404 498,943
Foreign expenditure not brought to account 1,285,868 1,752,423
Other non-deductible expenses 202,887 121,910 (1,056,858) (1,679,341)
Unrecognised deferred tax assets generated during the year and not brought to account at balance date as realisation
is not regarded as probable 1,056,858 1,679,341
Unrecognised deferred tax assets not brought to account at balance date as realisation is not regarded as probable - temporary differences
Other 6,397,199 3,720,287
Losses available for offset against future taxable income 12,920,710
17,073,055
Deferred tax asset not brought to account 19,317,909 20,793,342
The deductible temporary differences and tax losses do not expire under current tax legislation.
The balance of the deferred tax asset not brought to account for the 2011 financial year will only be obtained if:
* Future assessable income is derived of a nature and of an amount sufficient
to enable the benefit to be realised;
* The companies are able to meet the continuity of ownership and/or
continuity of business tests.
The conditions for deductibility imposed by the tax legislation continue to be complied with; and
Tax Consolidation
In accordance with tax consolidation legislation the Company, as the head entity of the Australian tax-consolidated group, has assured the deferred tax assets initially recognised by members of the tax-consolidated group.
NOTE 8 - LOSS PER SHAREBasic Loss Per ShareThe calculation of basic loss per share at 30 June 2011 was based on the lossfor the period attributable to ordinary shareholders of $10,758,065 (2010: lossof $10,698,140) and a weighted average number of ordinary shares outstandingduring the financial year ended 30 June 2011 of 237,584,474 (2010:204,407,270), calculated as follows: 2011 2010 $ $
i) Loss Attributable to Ordinary Shareholders
Loss for the Period 10,758,065 10,698,140 2011 2010 Number Number
ii) Weighted Average Number of Ordinary Shares Issued ordinary shares at 1 July 220,074,885
176,054,885
Effect of shares issued 16,273,973
28,352,385
Effect of share options exercised 1,235,616 - Weighted average number of ordinary shares at 30 237,584,474 204,407,270June Diluted Loss Per Share
The Company's potential ordinary shares, being its options and performance rights granted, are not considered dilutive as the conversion of these options and rights would result in a decrease in the net loss per share.
NOTE 9 - CASH AND CASH EQUIVALENTS
2011 2010 $ $
Cash at bank and on hand 8,259,021 10,624,066
Short-term bank deposits 10,811,241 6,185,029
19,070,262 16,809,095
The Group's exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in Note 23.
NOTE 10 - TRADE AND OTHER RECEIVABLES
2011 2010 $ $ CURRENT
Joint venture receivables 2,563,392 1,127,919
Other receivables 270,233 337,184 2,833,625 1,465,103 NOTE 11 - PREPAYMENTS 2011 2010 $ $ Prepayments 114,915 132,285 NOTE 12 - INVENTORIES 2011 2010 $ $
Oil on hand - net realisable value 50,011 34,273
Drilling inventory - cost 85,544 109,102
Drilling inventory - net realisable value 1,546,045 1,322,982
1,681,600 1,466,357
During the year ended 30 June 2011, the writedown to net realisable value amounted to $58,050 (2010:$308,054), which is included in other expenses. There was no reversal of writedowns.
NOTE 13 - EXPLORATION AND EVALUATION
2011 2010 $ $ Balance at 1 July 23,281,236 31,261,621
Expenditure capitalised net of recovery 6,995,534 327,564 Transfer to development expenditure -
(1,662,560)
Impairment of exploration and evaluation expenditure (2,716,889) (5,230,588)
Effect of movements in foreign exchange rates (5,164,939) (1,414,801) Balance at 30 June 22,394,942 23,281,236 The Cambay asset is currently under evaluation. It has minimal production fromongoing well tests that is sold to a third party. In accordance with Note 3(e)no amortisation of the asset has been recorded.
Exploration and evaluation assets are reviewed at each reporting date to determine whether there is any indication of impairment, refer Note 3(i)(ii).
When a well does not result in the successful discovery of potentially economically recoverable reserves it is expensed.
NOTE 14 - PROPERTY, PLANT AND EQUIPMENT
Motor Office Plant and Vehicles Equipment Furniture Total $ $ $ $ Cost Balance at 1 July 2009 20,845 1,654,445 236,321 1,911,611 Acquisitions - 132,965 14,630 147,595 Disposals (6,909) (68,137) (2,520) (77,566) Currency translation differences (733) (15,216) (3,468) (19,417) Balance at 30 June 2010 13,203 1,704,057 244,963 1,962,223 Balance at 1 July 2010 13,203 1,704,057 244,963 1,962,223 Acquisitions - 96,440 6,149 102,589 Disposals - (4,012) - (4,012) Currency translation differences (2,851) (75,015) (24,282) (102,148) Balance at 30 June 2011 10,352 1,721,470 226,830 1,958,652 Depreciation and Impairment Losses Balance at 1 July 2009 10,095 948,194 68,708 1,026,997 Depreciation charge for the year 2,364 400,176 28,685 431,225 Disposals (3,863) (48,289) (2,051) (54,203) Currency translation differences (240) (3,101) (185) (3,526) Balance at 30 June 2010 8,356 1,296,980 95,157 1,400,493 Balance at 1 July 2010 8,356 1,296,980 95,157 1,400,493 Depreciation charge for the year 1,752 167,851 13,991 183,594 Disposals - (3,252) - (3,252) Currency translation differences (1,943) (53,374) (15,785) (71,102) Balance at 30 June 2011 8,165 1,408,205 93,363 1,509,733 Carrying amounts At 1 July 2009 10,750 706,251 167,613 884,614 At 30 June 2010 4,847 407,077 149,806 561,730 At 1 July 2010 4,847 407,077 149,806 561,730 At 30 June 2011 2,187 313,265 133,467 448,919 NOTE 15 - DEVELOPMENT ASSETS 2011 2010 $ $ Cost Balance at 1 July 1,787,962 - Transfer from exploration - 1,662,560 Acquisitions - 14,894
Currency translation differences (309,692) 110,508
Balance at 30 June 1,478,270 1,787,962 Amortisation and Impairment Losses Balance at 1 July 1,245,289 -
Impairment of development assets 477,754 833,052
Amortisation charge for the year 4,851 353,946
Currency translation differences (249,624) 58,291
Balance at 30 June 1,478,270 1,245,289 Carrying amounts At 1 July 542,673 - At 30 June - 542,673
NOTE 16 - TRADE AND OTHER PAYABLES
2011 2010 $ $
Trade creditors and accruals 7,979,542 3,269,527
NOTE 17 - EMPLOYEE BENEFITS
2011 2010 $ $
Employee entitlements 198,275 143,670
NOTE 18 - PROVISIONS 2011 2010 $ $ Site Restoration and Well Abandonment Balance at 1 July 2,783,836 2,829,930
Provisions made during the year 91,084 53,508
Provisions utilised during the year (60,723) -
Effect of movements in exchange rates (603,489) (99,602)
Balance at 30 June 2,210,708 2,783,836 Current - 71,344 Non-Current 2,210,708 2,712,492 Total at 30 June 2,210,708 2,783,836
NOTE 19 - ISSUED CAPITAL AND RESERVES
Issued Capital
A reconciliation of the movement in capital and reserves for the consolidated entity can be found in the Consolidated Statement of Changes in Equity.
Number of Ordinary Shares 2011 2010 On issue at 1 July - fully paid 220,074,885 176,054,885 Shares issued for cash 30,000,000 44,000,000 Shares issued on exercise of performance rights - 20,000 Shares issued on exercise of options 3,200,000 - On issue at 30 June - fully paid 253,274,885 220,074,885 On 15 December 2010 Oilex Ltd issued thirty million shares on the AIM Market ofthe London Stock Exchange at 20 pence (AUD$0.32) per share (2010:$0.23 issuedon the Australian Stock Exchange). All issued shares are fully paid.
Additionally, three million two hundred thousand ordinary shares were issued as a result of the exercise of vested options issued to employees and advisors with an exercise price of $0.30. All issued shares are fully paid.
The Company has issued share options and performance rights to employees (see Note 20) and issued share options to financiers and advisors.
The Company does not have authorised capital or par value in respect of its issued shares. All issued shares are fully paid.
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company.
Option Reserve
The option reserve recognises the fair value of options and performance rights issued but not exercised. Upon the exercise of options, the balance of the option reserve relating to those options is recognised in profit or loss or transferred to accumulated losses depending upon the nature or type of the options.
Foreign Currency Translation Reserve
The foreign currency translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations.
NOTE 20 - SHARE-BASED PAYMENTS
The terms and conditions of options and performance rights granted by the Company to employees are as follows, whereby all options and performance rights are settled by physical delivery of shares:
Number of Contractual Life of Grant Date Instruments Vesting Conditions Options Options Key Management Personnel Three years of 3 April 2007 150,000 service 5 years 22 November 2007 3,900,000 Vest immediately 3 years 22 November 2007 3,900,000 One year of service 3 years Three years of 17 March 2008 400,000 service 4 years Three years of 1 May 2008 500,000 service 4 years 17 August 2009 1,050,000 One year of service 5 years 24 August 2009 100,000 One year of service 5 years 26 November One year of service 5 years 2009 2,250,000 10 November 2010 13,225,000 Vest immediately 2 years 10 November 2010 5,225,000 Vest immediately 4 years 16 November 2010 325,000 Vest immediately 2 years 16 November 2010 325,000 Vest immediately 4 years Other Employees Three years of 3 April 2007 150,000 service 5 years 17 August 2009 750,000 One year of service 5 years 10 November 2010 1,187,500 Vest immediately 2 years 10 November 2010 1,187,500 Vest immediately 4 years Financiers and Advisors 25 July 2007 500,000 One year of service 4 years 15 September 2010 2,000,000 Vest immediately 2 years 7 February 2011 2,000,000 Vest immediately 2 years 7 February 2011 2,000,000 Vest immediately 4 years Total Options 41,125,000 Performance rights Key Management Personnel
No performance rights held by Key Management Personnel
Other Employees 11 January 2007 15,000 One year of service 5 years 11 July 2008 21,000 One year of service 5 years 11 July 2008 22,000 Two years of service 5 years 11 July 2008 22,000 Three years of service 5 years Total Performance Rights 80,000 The number and weighted average exercise prices of share options are asfollows: Weighted Weighted Average Number of Average Number of Exercise Price Options Exercise Price Options 2011 2011 2010 2010 Outstanding at the beginning of the period $1.62 22,475,000 $1.56 32,775,000 Forfeited during the period $2.07 (500,000) $0.30 (1,150,000) Lapsed during the period $1.91 (6,225,000) $0.99 (16,650,000) Exercised during the period $0.30 (3,200,000) - - Granted during the period $0.32 28,575,000 $0.30 7,500,000 Outstanding at the end of the period $0.77 41,125,000 $1.62 22,475,000 Exercisable at the end of the period $0.77 41,125,000 $1.89 17,975,000
The options outstanding at 30 June 2011 have an exercise price in the range of$0.30 to $2.75 (2010: $0.30 to $2.75) and a weighted average contractual lifeof 1.7 years (2010: 1.5 years).
The weighted average share price at the date of exercise for share options exercised during the financial year was $0.47 (2010: no options exercised).
The following factors and assumptions were used in determining the fair valueof options and performance rights on grant date that were expensed in thecurrent financial year: Fair Value Price of Risk Free Grant Vesting Expiry Per Exercise Shares on Expected Interest DividendDate Date Date Option Price Grant Date Volatility Rate Yield OPTIONS 1 May 30 April 30 April 2008 2011 2012 $0.34 $2.75 $1.04 65.9% 7.25% - 17 August 1 July 1 July 2009 2010 2014 $0.19 $0.30 $0.26 97.21% 3.00% - 26 November 1 July 1 July 2009 2010 2014 $0.22 $0.30 $0.31 91.87% 3.00% - 15 15 15
September September September
2010 2010 2012 $0.10 $0.30 $0.21 100.44% 4.50% - 10 10 10
November November November
2010 2010 2012 $0.09 $0.30 $0.22 91.00% 4.75% - 10 10 10
November November November
2010 2010 2014 $0.13 $0.37 $0.22 91.00% 4.75% - 16 16 10
November November November
2010 2010 2012 $0.11 $0.30 $0.25 89.80% 4.75% - 16 16 10
November November November
2010 2010 2014 $0.15 $0.37 $0.25 89.80% 4.75% - 7 7 10
February February November
2011 2011 2012 $0.28 $0.30 $0.48 90.20% 4.75% - 7 7 10
February February November
2011 2011 2014 $0.33 $0.37 $0.48 90.20% 4.75% - PERFORMANCE RIGHTS 11 July 30 July 1 July $0.98 Nil $1.10 60% - 80% 6.50% - 2008 2009 2013 11 July 30 July 1 July $0.91 Nil $1.10 60% - 80% 6.50% - 2008 2010 2013 11 July 30 July 1 July $0.79 Nil $1.10 60% - 80% 6.50% - 2008 2011 2013
The following share-based payments have been recognised in the Consolidated Statement of Comprehensive Income:
2011 2010 $ $ Directors and Employees
Share options - equity settled 2,263,648 1,272,327 Performance rights - equity settled 19,560 160,191
2,283,208 1,432,518 Financiers and Advisors
Share options - equity settled 1,518,138 230,624 Total share-based payments expense 3,801,346 1,663,142
NOTE 21 - RECONCILIATION OF CASH FLOWS FROM OPERATING ACTIVITIES
2011 2010 $ $ Net loss for the period (10,758,065) (10,698,140) Impairment and amortisation of development assets 482,605 1,186,998 Depreciation 183,594 431,225
Profit on sale of petroleum interest (4,572,447) - Profit on disposal of assets and materials (4,240) (6,072)
Exploration expenditure 7,831,705 6,298,071 Well abandonment expenditure 95,296 - Equity-settled share-based payments 3,801,346
1,663,142
Unrealised foreign exchange loss/(gain) 1,668,370 (14,773)
Impairment of inventory 58,050 308,054
Operating Loss Before Changes in Working Capital and
Provisions (1,213,786) (831,495)
Increase/(decrease) in trade and other payables 204,458 (180,534)
Decrease/(increase) in prepayments 8,430 (11,184) Decrease in trade and other receivables 59,342 245,727
Decrease in provisions (60,723) -
(Increase)/decrease in oil inventory (25,117) 44,752 Increase/(decrease) in employee benefits 72,563 (25,232)
Net Cash Used In Operating Activities (954,833) (757,966)
NOTE 22 - CONSOLIDATED ENTITIES
Country of Ownership Interest % Incorporation 2011 2010 Parent Entity Oilex Ltd Australia Subsidiaries
Independence Oil and Gas Limited Australia 100 100
Admiral Oil NL Australia 100 100
Oilex NL Holdings (India) Limited Cyprus 100 100
Oilex India Pvt Ltd India 90 90 Oilex Oman Limited Cyprus 100 100 Oilex (JPDA 06-103) Ltd Australia 100 100 Oilex (West Kampar) Limited Cyprus 100 100
Although the Group holds less than 100% of the voting power of Oilex India Pvt Ltd, the value attributable to outside equity interests is not material and therefore is not disclosed separately in the accounts.
NOTE 23 - FINANCIAL INSTRUMENTS
Financial Risk Management
The Group has exposure to the following risks from their use of financial instruments:
Credit riskLiquidity riskMarket risk
This note presents qualitative and quantitative information in relation to the Group's exposure to each of the above risks and the management of capital.
The Board of Directors has overall responsibility for the establishment andoversight of the risk management framework and the development and monitoringof risk management policies. Risk management policies are established toidentify and analyse the risks faced by the Group, to set appropriate risklimits and controls, and to monitor risks and adherence to limits. Riskmanagement policies and systems are reviewed regularly to reflect changes inmarket conditions and the Group's activities.
Credit Risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's receivables from customers and joint ventures.
Trade and Other Receivables
The Group's exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the Group's customer base, including the default risk of the industry and country in which customers operate, has less of an influence on credit risk.
The maximum exposure to credit risk is represented by the carrying amount ofeach financial asset. The maximum exposure to credit risk at the reporting
datewas: 2011 2010 $ $ Cash and cash equivalents 19,070,262 16,809,095
Trade and other receivables - current 2,833,625 1,465,103
21,903,887 18,274,198
The Group's cash and cash equivalents are held with major banks and financial institutions.
The Group's most significant customer, an Indian public sector petroleum company, accounts for $173,330 of the trade and other receivables carrying amount as 30 June 2011 (2010: $147,860).
Impairment Losses
The aging of the trade and other receivables at the reporting date was:
2011 2010 Gross Gross $ $ Consolidated Not past due 496,363 662,353 Past due 0-30 days 1,024,472 252,472 Past due 31-120 days 1,157,909 388,327
Past due 121 days to one year 103,277 118,544
More than one year 51,604 43,407 2,833,625 1,465,103 Receivable balances are monitored on an ongoing basis. The Group may at timeshave a high credit risk exposure to its joint venture parties. Based on thecredit status of the counterparties, the Group believes that no impairmentallowance is necessary in respect of trade and other receivables that are pastdue.Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due without incurring unacceptable losses or risking damage to the Group's reputation.
The Group manages liquidity by monitoring present cash flows and ensuring thatadequate cash reserves, financing facilities and equity raisings are undertakento ensure that the Group can meet its obligations.The table below analyses the Group's financial liabilities by relevant maturitygroupings based on the remaining period at the balance date to the contractualmaturity date. The amounts disclosed in the table are the contractualundiscounted cash flows. Carrying Contractual 6 months or 6 - 12 1 - 2 Amount Cash Flows less months years $ $ $ $ $ 2011 Trade and other payables 7,979,542 7,979,542 7,979,542 - -
Total financial liabilities 7,979,542 7,979,542 7,979,542 - -
2010 Trade and other payables 3,269,527 3,269,527 3,269,527 - -
Total financial liabilities 3,269,527 3,269,527 3,269,527 - -
Market RiskMarket risk is the risk that changes in market prices, such as foreign exchangerates, interest rates and equity prices will affect the Group's income or thevalue of its holdings of financial instruments. The objective of market riskmanagement is to manage and control market risk exposures within acceptableparameters, while optimising the return.
Currency risk
An entity is exposed to currency risk on sales and purchases that are denominated in a currency other than the functional currency of the entity.The currencies giving rise to this risk are the US dollar and Indian rupee.
The exposure to currency risk at balance date was as follows:
2011 2010 USD INR USD INR
In equivalents of Australian dollar $ $ $ $ Cash and cash equivalents 10,394,884 647,564 9,751,070 33,912 Trade and other receivables 181,061 563,739 198,532 293,139 Trade and other payables (3,838,582) (376,827) (2,503,322) (303,096) Gross balance sheet exposure 6,737,363 834,476 7,446,280 23,955
The following significant exchange rates applied during the year:
Average Rate Reporting Date
Spot Rate AUD 1 2011 2010 2011 2010 USD 0.9881 0.8823 1.0726 0.8410 INR 44.770 41.047 47.994 39.228
Foreign Currency Sensitivity
A 10% strengthening/weakening of the Australian dollar against the followingcurrencies at 30 June would have (increased)/ decreased the loss by the amountsshown below. This analysis assumes that all other variables, in particularinterest rates, remain constant. The analysis is performed on the same basisfor 2010. 2011 2010 $ $ 10% Strengthening United States dollars (USD) (748,596) (827,364) Indian rupees (INR) (92,720) (2,662) 10% Weakening United States dollars (USD) 612,487 676,935 Indian rupees (INR) 75,862 2,178 Interest rate riskAt the reporting date the interest rate profile of the interest-bearingfinancial instruments was: Carrying Amount 2011 2010 $ $ Fixed Rate Instruments
Financial assets (short term deposits) 10,811,241 6,185,029
Variable Rate Instruments Financial assets 8,259,021 10,624,066
Fair Value Sensitivity Analysis for Fixed Rate Instruments
The Group does not account for any fixed rate financial instruments at fair value through profit or loss so a change in interest rates at the reporting date would not affect profit or loss or equity.
Cash Flow Sensitivity Analysis for Variable Rate Instruments
An increase of 100 basis points in interest rates at the reporting date wouldhave decreased the loss by the amounts shown below. A decrease of 100 basispoints in interest rates at the reporting date would have had the oppositeimpact by the same amount. This analysis assumes that all other variables, inparticular foreign currency rates, remain constant. The analysis is performedon the same basis for 2010. 2011 2010 $ $ Impact on profit or loss 82,590 106,241 Other Price Risks
The Group is exposed to equity price risks arising from equity investments. Equity investments are held for strategic rather than trading purposes. The Group had no exposure to other price risks at June 2011 or June 2010.
Equity Price Sensitivity
The Group had no exposure to equity price sensitivity at June 2011 or June 2010.
Capital Risk Management
The Board's policy is to maintain a strong capital base so as to maintaininvestor, creditor and market confidence and to sustain future development ofthe business. The capital structure of the Group consists of equityattributable to equity holders of the Company, comprising issued capital,reserves and accumulated losses as disclosed in the consolidated statement ofchanges in equity.
Fair Values of Financial Assets and Liabilities
The net fair values of assets and liabilities of the Group approximate their carrying values. The Group has no off-balance sheet financial instruments.
NOTE 24 - AUDITORS' REMUNERATION
2011 2010 $ $ Audit Services Auditors of the Company
Audit and review of financial reports (KPMG Australia) 87,377 91,375
Audit of Joint Ventures operated by Oilex Ltd - operator 339 6,242 proportion only (KPMG Australia) Audit and review of financial reports (KPMG related 53,360 13,667 practices) 141,076 111,284 Other Services
Assurance and Other Services
KPMG Australia - - KPMG related practices - 8,449 Taxation Services Taxation compliance services (KPMG Australia) 37,170
23,884
Taxation compliance services (KPMG related practices) 3,557 15,076 40,727 47,409
NOTE 25 - INTEREST IN JOINT VENTURE OPERATIONS
The Group has the following interests in joint ventures as at 30 June 2011.Principal activities are oil and gas exploration, development and production: Interest % Permit Country 2011 2010 OFFSHORE JPDA 06-103 Timor-Leste/Australia (JPDA) 10.0 10.0 WA-388-P Australia (Carnarvon Basin) 8.4(1) 14.0 ONSHORE Cambay Field India (Cambay Basin) 45.0 45.0 Bhandut Field India (Cambay Basin) 40.0 40.0 Sabarmati Field India (Cambay Basin) 40.0 40.0 Block 56 Oman (South Oman Salt Basin) 25.0 25.0 West Kampar Block Indonesia (Central Sumatra) 67.5(2) 67.5 (1) (1) In November 2010 Apache Northwest Pty Ltd ("Apache") entered into a farm-inagreement with the WA-388-P Joint Venture. Apache earned a 40% interest in theWA-388-P permit by agreeing to pay 100% of the first exploration well (up to anagreed cap) and 100% of the well test costs (up to an agreed cap) if the JointVenture approves testing the well. Under the farm-in agreement Oilex initiallyfarmed out 5.6% of its 14% interest to Apache. Apache replaced Oilex as thepermit operator. An amendment to the farm-in agreement was later concluded atApache's request to address commercial issues specific to Apache. Under theamendment Oilex subsequently sold its 5.6% farm-out interest to Apache for acash payment of $4,572,447. Since past exploration costs had been written off,this payment has been recorded as other income. The farm-in and amendment havereceived Australian Government approval.
(2) Oilex (West Kampar) Limited is entitled to have assigned an additional 22.5% to its holding of 45% through exercise of its rights under a Power of Attorney granted by PT Sumatera Persada Energi (SPE), following the failure by SPE to repay funds due. The assignment has been provided to BPMigas, the Indonesian Government regulator, and has not been approved or rejected. If Oilex is paid the funds due then it will not pursue this assignment.
NOTE 26 - OPERATING LEASES
Leases as Lessee
Non-cancellable operating lease rentals are payable as follows:
2011 2010 $ $ Within one year 246,336 188,378
One year or later and no later than five years 32,537 20,846
278,873 209,224
The Group sub-leases its head office premises at Ground Floor, 26 Colin Street, West Perth under an operating lease.
The Group leases office premises in Dili (Timor-Leste) and Gujarat (India)under operating leases. The leases run for periods of between 6 months and 3years, with an option to renew the lease for a further term after that date. 2011 2010 $ $ Operating lease rentals expensed during the financial year 304,806 302,963
NOTE 27 - EXPENDITURE COMMITMENTS
Exploration Expenditure Commitments
In order to maintain rights of tenure to exploration permits, the Group isrequired to perform minimum exploration work to meet the minimum expenditurerequirements specified by various state and national governments. Theseobligations are subject to renegotiation when application for an explorationpermit is made and at other times. These obligations are not provided for inthe financial report. The expenditure commitments are currently estimated to bepayable as follows: 2011 2010 $ $ Within one year 2,424,974 7,907,252
One year or later and no later than five years 11,563,024 14,747,325
13,987,998 22,654,577 Further expenditure commitments for subsequent permit periods are contingentupon future exploration results. These cannot be estimated and are subject torenegotiation upon expiry of the existing exploration leases.
Capital Expenditure Commitments
The Group has no capital expenditure commitments in the current financial year. (2010: Nil)
Employee Compensation Commitments
2011 2010 $ $ Key Management Personnel
Commitments under non-cancellable employment contracts not provided for in the financial statements and payable:
Within one year 1,295,751 1,804,329 Other Employees
Commitments under non-cancellable employment contracts not provided for in the financial statements and payable:
Within one year 130,450 120,788
NOTE 28 - KEY MANAGEMENT PERSONNEL DISCLOSURES
The following were Key Management Personnel of the Group at any time during thefinancial year and unless otherwise indicated were Key Management Personnel
forthe entire period: Non-Executive Directors Position Max Cozijn Director Laxmi Bhandari Non-Executive Director Ronald Miller Non-Executive Director Executive Directors Position Bruce McCarthy Managing Director Raymond Barnes Technical Director Ben Clube Finance Director Executives Position John Lamberto Exploration Manager Jay Laurie (to 31 March 2011) General Counsel / Company Secretary
Key Management Personnel Compensation
The compensation of non-executive Directors and Key Management Personnel was asfollows: 2011 2010 $ $
Short-term employee benefits 2,096,631 1,813,474
Non monetary benefits 35,521 50,637 Post-employment benefits 133,094 118,014 Termination benefits 298,425 -
Equity compensation benefits 2,005,380 944,113
4,569,051 2,926,238
Individual Directors and Executives Compensation Disclosures
Information regarding individual Directors and Executives compensation is provided in the Remuneration Report section of the Directors' Report.
Apart from the details disclosed in this note, no Director has entered into amaterial contract with the Company since the end of the previous financial yearand there were no material contracts involving Directors' interests existing atyear end.
Key Management Personnel Transactions with the Company or its Controlled Entities
The terms and conditions of the transactions with Key Management Personnel andtheir related parties were no more favourable than those available, or whichmight reasonably be expected to be available, on similar transactions tonon-key management personnel related entities on an arm's length basis.
The aggregate amounts recognised during the year relating to Key Management Personnel and their related parties were as follows:
Key Management Personnel Transaction Note 2011 2010 $ $ Dr B H McCarthy Management services 1 166,665 450,633 Mr R G Barnes Technical and management services 2 398,100 348,000 Mr R L Miller Technical services 3 174,608 66,608
The Group from 1 July 2010 to 30 November 2010 used the services of Macuale Consultancy Pty Ltd of which Dr McCarthy is a Director. Rates charged were at market rates and have been included in the remuneration of Key Management Personnel disclosure.
Oilex used the services of Ad Valorem Resource Consultants Pty Ltd of which Mr Barnes is a Director. Rates charged were at market rates and have been included in the remuneration of Key Management Personnel disclosure.
Oilex used the services of La Jolla Enterprises Pty Ltd, of which Mr Miller isan employee. Rates charges were at market rates and have been included in theremuneration of Key Management Personnel disclosure.
Options and Performance Rights over Equity Instruments Granted as Compensation
The movement during the financial year in the number of options and performancerights over ordinary shares in the Company held, directly, indirectly orbeneficially, by each key management person, including their related parties,is as follows: Vested Vested and Granted During Exercisable Held at 1 as Other Held at 30 the at 30 June 2011 July 2010 Compensation Exercised Changes # June 2011 Year 2011 (1) OPTIONS Directors M D J 500,000 1,000,000 - - 1,500,000 1,000,000 1,500,000 Cozijn L L 300,000 750,000 - - 1,050,000 750,000 1,050,0000 Bhandari B H 4,000,000 7,500,000 - - 11,500,000 7,500,000 11,500,000 McCarthy
R G 3,000,000 4,000,000 - - 7,000,000 4,000,000
7,000,000 Barnes B J M 3,000,000 2,000,000 - (1,000,000) 4,000,000 4,000,000 4,000,000 Clube R L 750,000 1,500,000 - - 2,250,000 2,250,000 2,250,000 Miller
Other Key Management Personnel J 650,000 1,700,000 - (350,000) 2,000,000 2,000,000 2,000,000 Lamberto J W R 1,050,000 650,000 - (150,000) 1,550,000 1,400,000 1,550,000 Laurie PERFORMANCE RIGHTS Directors
No performance rights were issued to Directors during the financial year. Other Key Management Personnel
J 100,000 - - (100,000) - - - Lamberto J W R 80,000 - - (80,000) - - - Laurie
# Other changes represent options and rights that expired or were forfeited
during the year.
No options held by Key Management Personnel are vested but not exercisable. (1)On 1 July 2011 four million options held by Dr B McCarthy (or his nominee), three million options held by Mr R Barnes, five hundred thousand options held by Mr M Cozijn (or his nominee) and three hundred thousand options held by Mr L Bhandari, totalling seven million eight hundred thousand options, expired
unexercised. Vested and Held at Exercisable Granted 30 Vested at Held at 1 as Other June During 30 June 2010 July 2009 Compensation Exercised Changes # 2010 the Year
2010 OPTIONS Directors M D J 1,000,000 - - (500,000) 500,000 - 500,000 Cozijn L L 300,000 - - - 300,000 - 300,000 Bhandari B H 7,000,000 - - (3,000,000) 4,000,000 - 4,000,000 McCarthy R G 4,000,000 - - (1,000,000) 3,000,000 - 3,000,000 Barnes B J M 1,500,000 1,500,000 - - 3,000,000 500,000 1,000,000 Clube R L - 750,000 - - 750,000 - - Miller
Other Key Management Personnel P G 1,200,000 1,000,000 - (1,800,000) 400,000 400,000 400,000 Senycia J 1,050,000 300,000 - (700,000) 650,000 350,000 350,000 Lamberto W K 1,200,000 300,000 - - 1,500,000 1,100,000 1,500,000 Morrison J W R 450,000 750,000 - (150,000) 1,050,000 150,000 300,000 Laurie PERFORMANCE RIGHTS Directors
No performance rights were issued to Directors during the financial year. Other Key Management Personnel
P G 145,000 - - (120,000) 25,000 - 25,000 Senycia J 100,000 - - - 100,000 - - Lamberto J W R 80,000 - - - 80,000 - - Laurie
# Other changes represent options and rights that expired or were forfeited
during the year.
No options held by Key Management Personnel are vested but not exercisable.
Movements in Shares
The movement during the financial year in the number of ordinary shares in the Company held, directly, indirectly or beneficially, by each Key Management Personnel, including their related parties, is as follows:
Received on Held at Exercise of Held at
2011 1 July 2010 Purchases Options Sales 30 June 2011
Directors M D J Cozijn 1,500,000 - - (500,000) 1,000,000 L L Bhandari - - - - - B H McCarthy 1,150,000 - - - 1,150,000 R G Barnes 798,871 - - - 798,871 B J M Clube 52,174 - - - 52,174 R L Miller 2,524,436 - - - 2,524,436 Other Key Management Personnel J Lamberto - - - - - J W R Laurie - - - - - Received on Held at Exercise of Held at 2010 1 July 2009 Purchases Options Sales 30 June 2010 Directors M D J Cozijn 1,500,000 - - - 1,500,000 L L Bhandari - - - - - B H McCarthy 1,150,000 - - - 1,150,000 R G Barnes 798,871 - - - 798,871 B J M Clube 52,174 - - - 52,174 R L Miller 2,424,436 100,000 - - 2,524,436 Other Key Management Personnel P G Senycia - - - - - J W R Laurie - - - - - J Lamberto - - - - -
No shares were granted to Key Management Personnel during the financial year as compensation.
NOTE 29 - RELATED PARTY TRANSACTIONS
Identity of Related Parties
The Group has a related party relationship with its subsidiaries (see Note 22),joint ventures (see Note 25) and with its' Key Management Personnel (see Note28). Other Related Parties 2011 2010 $ $ Balance Legal Pty Ltd
Mr B Boyle, an employee of Balance Legal Pty Ltd is the dual Company Secretary of Oilex Ltd. Retainer for corporate legal and company secretarial services 16,850 -
India Hydrocarbons Limited Mr L L Bhandari, a Director of Oilex Ltd, is the father of the Managing Director of India Hydrocarbons Limited, Mr S Bhandari
Consultancy service fees 37,382 26,840 Options(1) 1,229,854 - (1) Shareholder approval was given on 7 February 2011 at Oilex Ltd's GeneralMeeting to issue 2,000,000 options with an exercise price of $0.30, expiring 10November 2012 and 2,000,000 options with an exercise price of $0.37, expiring10 November 2014, to India Hydrocarbons Limited.
NOTE 30 - CONTINGENCIES
The Directors are of the opinion that provisions are not required in respect of these matters, as it is not probable that a future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement.
Oilex Ltd has issued guarantees in relation to the lease of corporate officesin West Perth, as well as corporate credit cards. The bank guarantees amountsto AUD$145,238. An equal amount is held in cash and cash equivalents assecurity by the banks.In June 2010 Oilex requested an extension to its Good Standing Agreement("GSA") with the Australian Government on behalf of the Joint Venture partnersfor exploration permit EPP27 which the Joint Venture previously relinquishedwith the Australian Government's approval. Oilex's monetary share of the GSA is$2,101,225. In July 2010, the Australian Government agreed to extend the GSAuntil the conclusion of the 2011 Australian Offshore Petroleum ExplorationRelease, including re-release of any 2011 areas.
NOTE 31 - SUBSEQUENT EVENTS
On 1 July 2011 7,800,000 options previously issued to Directors expired unexercised.
There were no other significant subsequent events occurring after year end.
NOTE 32 - PARENT ENTITY DISCLOSURE
As at, and throughout, the financial year ended 30 June 2011 the parent companyof the Group was Oilex Ltd. 2011 2010 $ $ Result of the Parent Entity Loss for the period (18,293,929) (12,380,715) Other comprehensive income 2,730,084 85,203 Total comprehensive income (15,563,845) (12,295,512)
Financial Position of the Parent Entity at Year
End Current assets 20,821,914 18,189,760 Total assets 42,601,338 40,176,619 Current liabilities 5,390,819 844,078 Total liabilities 6,538,265 2,236,171
Total Equity of the Parent Entity Comprising of:
Issued capital 130,043,957 120,158,833 Option reserve 8,373,339 9,139,884
Foreign currency translation reserve 3,324,021 593,937
Accumulated losses (105,678,244) (91,952,206) Total Equity 36,063,073 37,940,448 Parent Entity Contingencies
The directors are of the opinion that provisions are not required in respect to these matters, as it is not probable that a future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement.
Oilex Ltd has issued guarantees in relation to the lease of corporate officesin West Perth, as well as corporate credit cards. The bank guarantees amountsto AUD$145,238. An equal amount is held in cash and cash equivalents assecurity by the banks.
Oilex Ltd has entered into the following guarantees in respect of its subsidiaries;
Oilex Ltd on 5 October 2006 issued a Parent Company Performance Guarantee inrelation to the Exploration and Production Sharing Agreement entered into withthe Government of the Sultanate of Oman through the Ministry of Oil and Gasdated 28 June 2006.
Oilex Ltd on 7 November 2006 issued a Deed of Parent Company Performance Guarantee in relation to the Production Sharing Contract entered into with the Timor Sea Designated Authority dated 15 November 2006.
Parent entity capital commitments for acquisition of property plant and equipment
Oilex Ltd has no capital commitments as at 30 June 2011 (2010: Nil).
Parent entity guarantee (in respect of debts of its subsidiaries)
Other than the Performance Guarantees disclosed as parent entity contingencies above, Oilex Ltd has issued no guarantees in respect of debts of its subsidiaries.
In the opinion of the Directors of Oilex Ltd (the "Company"):
the consolidated financial statements and notes set out on pages 43 to 79, andthe Remuneration Report in the Directors' Report, set out on pages 34 to 41,are in accordance with the Corporations Act 2001, including:
giving a true and fair view of the Group's financial position as at 30 June 2011 and of its performance for the financial year ended on that date; and
complying with Australian Accounting Standards and the Corporations Regulations 2001;
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.
The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Managing Director and Finance Director for thefinancial year ended 30 June 2011.
The Directors draw attention to Note 2(a) to the consolidated financial statements, which includes a statement of compliance with International Financial Reporting Standards.
Signed in accordance with a resolution of the Directors.
Dr B HMcCarthy Mr B ClubeManagingDirector Finance Director West Perth1 September 2011 KPMG
Independent auditor's report to the members of Oilex Ltd
Report on the financial report
We have audited the accompanying financial report of Oilex Ltd (the company),which comprises the consolidated statement of financial position as at 30 June2011, and consolidated statement of comprehensive income, consolidatedstatement of changes in equity and consolidated statement of cash flows for theyear ended on that date, notes 1 to 32 comprising a summary of significantaccounting policies and other explanatory information and the directors'declaration of the Group comprising the company and the entities it controlledat the year's end or from time to time during the financial year.
Directors' responsibility for the financial report
The directors of the company are responsible for the preparation of thefinancial report that gives a true and fair view in accordance with AustralianAccounting Standards and the Corporations Act 2001 and for such internalcontrol as the directors determine is necessary to enable the preparation ofthe financial report that is free from material misstatement whether due tofraud or error. In note 2(a), the directors also state, in accordance withAustralian Accounting Standard AASB 101 Presentation of Financial Statements,that the financial statements of the Group comply with International FinancialReporting Standards. Auditor's responsibilityOur responsibility is to express an opinion on the financial report based onour audit. We conducted our audit in accordance with Australian AuditingStandards. These Auditing Standards require that we comply with relevantethical requirements relating to audit engagements and plan and perform theaudit to obtain reasonable assurance whether the financial report is free frommaterial misstatement.An audit involves performing procedures to obtain audit evidence about theamounts and disclosures in the financial report. The procedures selected dependon the auditor's judgement, including the assessment of the risks of materialmisstatement of the financial report, whether due to fraud or error. In makingthose risk assessments, the auditor considers internal control relevant to theentity's preparation of the financial report that gives a true and fair view inorder to design audit procedures that are appropriate in the circumstances, butnot for the purpose of expressing an opinion on the effectiveness of theentity's internal control. An audit also includes evaluating theappropriateness of accounting policies used and the reasonableness ofaccounting estimates made by the directors, as well as evaluating the overallpresentation of the financial report.We performed the procedures to assess whether in all material respects thefinancial report presents fairly, in accordance with the Corporations Act 2001and Australian Accounting Standards, a true and fair view which is consistentwith our understanding of the Group's financial position and of itsperformance.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative.
KPMGIndependence
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.
Auditor's opinion In our opinion:
the financial report of the Group is in accordance with the Corporations Act 2001, including:
giving a true and fair view of the Group's financial position as at 30 June 2011 and of its performance for
the year ended on that date;
and
complying with Australian Accounting Standards and the Corporations Regulations 2001.
the financial report also complies with International Financial Reporting Standards as disclosed in note 2(a).
Report on the remuneration report
We have audited the Remuneration Report included in pages 34 to 41 of thedirectors' report for the year ended 30 June 2011. The directors of the companyare responsible for the preparation and presentation of the remuneration reportin accordance with Section 300A of the Corporations Act 2001. Ourresponsibility is to express an opinion on the remuneration report, based onour audit conducted in accordance with auditing standards.Auditor's Opinion
In our opinion, the remuneration report of Oilex Ltd for the year ended 30 June 2011, complies with Section 300A of the Corporations Act 2001.
KPMG Brent SteedmanPartnerPerth, WA1 September 2011
KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative.
The shareholder information set out below was applicable as at 12 August 2011.
Shareholding
Distribution of share and option holdings
Size of holding Number of Number of Number of shareholders unlisted performance option holders right holders 1 - 1,000 297 - - 1,001 - 5,000 780 - - 5,001 - 10,000 501 - - 10,001 - 1,056 1 2 100,000 100,001 and 266 22 - over Total 2,900 23 2
Of the above total 352 ordinary shareholders hold less than a marketable parcel.
There are no substantial shareholders holding 5% or more of the Company's shares.
Voting Rights
The voting rights attached to the ordinary shares are governed by the Constitution.
On a show of hands every person present who is a Member or representative of aMember shall have one vote and on a poll, every Member present in person or byproxy or by attorney or duly authorised representative shall have one vote foreach share held. None of the options or performance rights give an entitlementto voting rights.
The name of the Company Secretary is Mr B Clube.
The address of the principal registered office is Ground Floor, 26 Colin Street, West Perth WA 6005, Australia, Telephone +61 8 9485 3200.
Register of Securities
The register of securities listed on the Australian Securities Exchange is held by Security Transfer Registrars Pty Ltd, 770 Canning Highway, Applecross WA 6153, Australia, Telephone +61 8 9315 2333.
The register of securities listed on the AIM Market of the London Stock Exchange is held by Computershare Investor Services PLC, PO Box 82, The Pavilions, Bridgwater Road, Bristol BS13 8AE, United Kingdom, Telephone +44 870 702 003.
Stock Exchange ListingQuotation has been granted for all the ordinary shares of the Company on allMember Exchanges of the Australian Securities Exchange and the AIM Market ofthe London Stock Exchange and trades under the symbol OEX.
Detailed schedules of exploration and production permits held are included in the Operations Review.
Directors' interest in share capital is disclosed in the Directors' Report.
Unquoted Securities - Options & Performance Rights
Total unlisted options on issue are 33,575,000
Dr B H McCarthy (Managing Director) holds a total of seven million five hundred options, (sees Note 20 and 28), which represents 22.34% of all outstanding options.
Total performance rights on issue are 65,000.
There is currently no on-market buy-back in place
Twenty Largest Shareholders % of issued Shareholder Shares held capital
HSBC Custody Nominees (Australia) Limited 19,042,150 7.52
Citicorp Nominees Pty Limited 13,599,674 5.37 National Nominees Limited 11,850,438 4.68 BBHISL Nominees Limited 7,025,000 # 2.77 Chase Nominees Limited 6,922,000 # 2.73 Lynchwood Nominees Limited 6,461,200 # 2.55 Barclayshare Nominees Limited 6,199,489 # 2.45 Chase Nominees Limited 4,219,488 # 1.67 Giltspur Nominees Limited 3,690,794 # 1.46 Chase Nominees Limited 3,427,889 # 1.35
TD Waterhouse Nominees (Europe) Limited 3,398,697 # 1.34
L R Nominees Limited 3,135,192 # 1.24
JP Morgan Nominees Australia Limited 3,111,691 # 1.23
Nutraco Nominees Limited 3,053,634 1.21
HSBC Global Custody Nominee (UK) Limited 3,000,000 # 1.18
BBHISL Nominees Limited 2,851,799 # 1.13
Speirs & Jeffrey Fund Management Ltd 2,721,500 # 1.07 Speirs & Jeffrey Client Nominees Ltd 2,577,200 # 1.02
Forest Nominees Limited 2,355,390 # 0.93 Brewin Nominees Limited 2,300,593 # 0.90 Total 110,943,818 43.80
Total issued shares as at 12 August 2011 253,324,885 100.00 (#) Included within the total issued capital are 111,698,592 shares held on theAIM register. Included within the top 20 shareholders are certain AIMregistered holders as markedREGIONAL OFFICESINDIAGandhinagar Project OfficeOilex LtdCambay Square2nd Floor
X22 - 24 GIDC Electronics Estate
Sector-25 Gandhinagar 382044GujaratIndia TIMOR-LESTEDili Branch OfficeOilex (JPDA 06-103) LtdAvenida de PortugalKampo AlorDiliTimor-Leste CORPORATE INFORMATION Directors M D J Cozijn BCom CPA MAICDNon-Executive Chairman
B H McCarthy BSc (Hons) PhD Geology
Managing Director
R G Barnes BSc (Hons) Geology
Technical Director
B J M Clube BSc (Hons) Geology ACA
Finance Director
L L Bhandari BSc Geology and MSc Geology
Non-Executive Director
R L Miller MSc Engineering and BSc Ocean Engineering
Non-Executive Director Company Secretaries
B J M Clube BSc (Hons) Geology ACA
B Boyle LLB MAICD ACIS ICSAAuditorsKPMG235 St Georges TerracePerth WA 6000Australia Annual General Meeting
The annual general meeting of Oilex Ltd will be held
at the Celtic Club 48 Ord Street, West Perth at 3.30pm
on 9 November 2011Websitewww.oilex.com.auEmailoilex@oilex.com.auIncorporation
Incorporated in the State of Victoria on 2 June 1997
Registered and Principal Office
Ground Floor26 Colin StreetWest Perth WA 6005AustraliaPh. +61 8 9485 3200Fax +61 8 9485 3290 Postal AddressPO Box 588West Perth WA 6872Australia Stock Exchange Listings
Oilex Ltd's shares are listed under the code OEX on the Australian Securities Exchange and on the AIM Market of the London Stock Exchange.
Nominated Adviser to AIM Market
Ambrian Partners LimitedOld Change House128 Queen Victoria StreetLondon EC4V 4BJUnited Kingdom Share Registries
Security Transfer Registrars Pty Ltd (for ASX)
770 Canning HighwayApplecross WA 6153Australia
Computershare Investor Services PLC (for AIM)
The PavilionsBridgwater RoadBristol BS13 8AEUnited Kingdom Oilex LtdACN 078 652 632ABN 50 078 652 632
XLON