OEX.L Regulatory News (OEX)

OILEX LTD

ABN 50 078 652 632

Financial report for year ended 30 june 2016

Contents

Chairman's Review

Business Review

Permit Schedule

Directors' Report

Remuneration Report - Audited

Lead Auditor's Independence Declaration

Consolidated Statement of Profit or Loss and Other Comprehensive Income

Consolidated Statement of Financial Position

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

Notes to the Consolidated Financial Statements

Directors' Declaration

Independent Audit Report

Shareholder Information

Definitions

Corporate Information

CHAirman's review

Dear Shareholder

The 2016 financial year has been an extremely challenging year for Oilex and its shareholders, resulting in a loss before income tax of $36 million, primarily affected by non-cash impairment of exploration and development assets of $21.6 million, and reduced recovery of costs from Joint Ventures and costs associated with the Zeta Resources Limited litigation. Against a back drop of a fifteen-year low in oil prices, the Company has had to divert much of its attention from the core business of developing value from its assets to addressing significant joint venture issues in India, costly litigation associated with its last capital raising, and resetting the technical direction at Cambay, in association with lower than expected production rates at its most recent wells and delays associated with joint venture funding contribution to ongoing project activities.

Despite these hurdles, the Company continues to be confident in, and committed to unlocking, the multi TCF in-place tight gas potential in its onshore Cambay Block, Gujarat State in India. To this end, a new vertical well is planned which is essential to determining the optimal formula to underpin any long term commercial development of the substantial undeveloped gas opportunity at Cambay. The next phase of the work programme is designed to address the identified technical and operational risks and is aimed at regaining the momentum behind the Company's core unconventional gas project at Cambay.

The growth in energy demand in India underpins a strong business case for the Joint Venture partners to the Cambay PSC. India is home to 18% of the world's population yet uses only 6% of the world's primary energy. This is despite its energy consumption having almost doubled since 2000. Domestic gas production continues to decline with the growing imbalance being filled by the rapid expansion of LNG imports.

Oilex believes that India has large undeveloped unconventional potential. Limited exploitation, to date, provides a significant opportunity for the discovery and commercial development of these hydrocarbon resources. Oilex has ten years' operating experience in India with a strong local team. Under the revamped leadership team, the Company is focussed on leveraging this opportunity for the benefit of our stakeholders and partners.

Reflecting the changes in the industry environment and the project status, your Board has made the necessary changes to reposition Oilex for a strong future. Besides reducing expenditure, the Company has restructured its board and senior executive management team during the year.

The Company is actively engaged in resolving issues associated with the Cambay joint venture funding requirements, which has necessitated that as Operator the Company has absorbed certain costs to maintain the viability of this joint venture, while developing an ongoing strategy to resolve these issues.

On behalf of the Board I wish to record our appreciation for the support of our executive management and staff, Joint Venture partners, contractors, local communities, shareholders and stakeholders during a difficult year and look forward to unlocking the key to the sustainable commercialisation of the unconventional hydrocarbon resources within the Cambay project.

Mr MDJ Cozijn

Chairman

29 September 2016

BUSINESS REVIEW

Global Economic Environment for Hydrocarbons

The global oil and gas industry has been subjected to continuing challenges brought about by the world wide reduction in oil and gas prices since late 2014. Oil prices have fallen by around 60%, driven by a supply demand imbalance with supply now exceeding demand for nine consecutive quarters. The global LNG supply has seen strong growth with many new liquefaction trains coming on stream this year at the same time that traditional buyers are experiencing falling demand. As a result, the entire oil and gas industry has been under pressure and very few companies have remained immune to value loss and project delays. Oilex commissioned a review of peer company performance between July 2015 and February 2016 which showed an average loss of 40% in share price over this period. Oilex's strategy and day to day operations have been effected and appropriate responses including cost cutting have been taken to adjust to the current situation.

Graph of Global Oil Supply/Demand Based on IEA data from Oil Market Report © OECD/IEA 2016, www.iea.org/oilmarketreport/omrpublic; as modified by Oilex Ltd.

Two cost reduction initiatives have been undertaken. The first was announced in the Company's March 2016 Quarterly Report documenting 47% reduction in Indian ongoing operating costs and 23% reduction in corporate costs. A second measure was announced on 29 September 2016 documenting an additional 30% cut in Indian personnel costs, a review of commercial operations at Cambay and Bhandut Fields, and 40% reduction in personnel costs in Australia. All exploration costs continue to be deferred. The staff reductions have been undertaken reluctantly but in response to the general environment. Efforts have been made to maintain operating capability as far as possible and future activities will be augmented through contract arrangements on an as needed basis. The Company's personnel, excluding non-executive directors, after restructure, consists of 22 full time equivalent (FTE) people in India and 7 FTE in Australia.

Oilex Strategy

Within the context of the sector's global difficulties, Oilex has continued to focus on its projects in the Indian upstream gas industry where demand for hydrocarbons continues to rise within a strong domestic economy seeing GDP growth rates over the last 2 years in excess of 7%. In 2015, India was the world's third largest energy consumer with an increasing imbalance in gas demand over supply. India's domestic gas production, which declined 3.8% in 2015, falls short of requirements, and is supplemented by international LNG imports. These increased by 15% in 2015 and only partially fill the supply-demand gap. India's demand for natural gas is predicted to rise annually by approximately 5%.

Introduction

Oilex's principal project is the Cambay Project located onshore in the state of Gujarat in the heart of one of India's most prolific hydrocarbon provinces. In this area, the presence of hydrocarbons is proven from a long history of drilling and production and infrastructure is already present on a large scale.

Along with its Joint Venture partner, Gujarat State Petroleum Corporation Limited (GSPC), Oilex as operator has worked in this area since 2005 and the Joint Venture has discovered and produced both oil and gas from a number of geological horizons. Current efforts centre on the application of horizontal drilling technologies developed in the hugely successful unconventional hydrocarbon resources boom in North America in recent years. Oilex continues to believe that India's domestic gas industry has enormous potential for similar success, by adapting the North American experience to the Indian hydrocarbon industry and that this approach is only in its infancy. The successful development of unconventional gas fields will provide India with a real opportunity to offset LNG imports and to rejuvenate its domestic industry.

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

Oilex's capability in gas field developments was demonstrated with the testing and marketing of gas from the Cambay asset, and in a small conventional project called Bhandut, where a single well production facility was successfully placed on stream.

Figure 1: Jayant Sethi (centre) with Oilex Staff

Cambay Field, Onshore Gujarat, India

(Oilex - 45%, Operator)

Oilex is the Operator of the Cambay Field Production Sharing Contract (PSC) in the Cambay Basin onshore Gujarat, India and holds a 45% participating interest. The remaining 55% interest is held by Joint Venture partner, Gujarat State Petroleum Corporation Limited.

The Cambay Basin is one of the most prolific hydrocarbon basins in India. Exploration started in the 1950's and hydrocarbon production and observations in many wells validate a rich petroleum system with proven prolific source rocks. The basin lies within one of India's main industrial regions and is India's largest centre of heavy industry. Extensive infrastructure connects producing fields to local industries and other major centres as far north as Delhi.

Figure 2: Gujarat Gas Pipeline Network to the Nation

The 161 km2 Cambay PSC Area contains multiple target horizons for oil and gas. Past production had been established from shallower conventional reservoirs predominantly producing oil in shallower Miocene Basal Sand reservoirs and predominantly wet gas from the Oligocene OS-II reservoir.

The current focus is on deeper unconventional (tight) Eocene reservoirs which are known to be gas charged and referred to as the EP-III/IV or X and Y Zones. The application of recently developed North American drilling and stimulation techniques aimed at commercial production from these targets is still at a very early stage. The following map shows the EP-IV (Y Zone) hydrocarbon flows from wells within the Cambay PSC.

Figure 3: Cambay Field - recorded hydrocarbon flowrates from EP-IV (Y Zone) reservoir

The Oilex operated Joint Venture has drilled two horizontal wells which were multi-stage stimulated (Cambay-76H and Cambay-77H). The drilling of these two wells represents the beginning of the learning curve associated with adapting North American technology to the specifics of the Cambay Basin geology. The first well Cambay-76H spudded in 2011 was successfully drilled with hydrocarbons confirmed in the reservoir section and appearing at surface during the drilling operation. It was stimulated but production could not be established due to downhole equipment failures which could not be rectified. The second well, Cambay-77H drilled in 2014, was successfully placed on production during the year at flow rates lower than anticipated after reservoir stimulation. The results of these two wells served to confirm the wide-spread presence of wet gas saturated, low permeability siltstones that were encountered in the older vertical wells.

In order to determine the optimal drilling and stimulation procedures required to provide higher flow rates from this siltstone section, core samples must be acquired, then analysed by laboratories experienced in providing the solutions for unconventional development. The focus of the next well to be drilled in the Cambay Field will be to acquire the core data which will provide the basis for selecting optimal drilling and completion technologies for future development wells.

Modest levels of oil, gas and condensate production occurred throughout the year from 11 wells producing approximately 4,408 bbl of oil and condensate and 62 MMscf of gas. The wells produce either from the OS-II or the EP-IV or Y Zone with the latter providing most of the production. Two of these wells, Cambay-73 and Cambay-77H provided the bulk of the volume and produced gas with condensate. Production and pressure data from the wells provide an important understanding of reservoir performance. The two wells are about 2 km apart and the well fluid is piped to a gathering station at the Cambay-73 location where the separated gas enters a low pressure distribution pipeline servicing domestic gas demand.

During the year, the wells were at times shut-in while waiting for government approvals to continue test gas production, and have recently been shut-in, awaiting such approval.

Figure 4: Cambay-73 Production Facility

Joint Venture Management

Oilex's Joint Venture partner in the Cambay PSC is Gujarat State Petroleum Corporation Limited. At the end of June 2016, unpaid cash calls issued to GSPC and going back several years totalled approximately US$6.5 million. Between July 2015 and August 2016 the Company received payments from GSPC totalling approximately US$0.76 million in relation to Cambay and approximately US$0.48 million in relation to Bhandut. Oilex continues to engage with its Joint Venture partner to resolve the unpaid cash calls and to obtain a commitment to participate in future activities or to find an alternative solution so that a work programme to progress the Field can take place.

Oilex, as operator, continues to bear the ongoing costs of the Joint Venture and has managed payment of the Cambay Joint Venture creditors.

Negotiations on a work programme and budget acceptable to the Joint Venture partner for Cambay Field are ongoing. Early in the 2016 calendar year Oilex submitted a reduced work programme and budget for the Cambay Project for the Indian financial year starting 1 April 2016. This work programme and budget concentrated primarily on maintenance of the asset; however, it is yet to be approved by the Joint Venture. Subsequent to the reporting period, the Company has submitted a revised work programme and budget to the Joint Venture for approval, inclusive of the planned new vertical well with the dual objective of appraising an area of un-depleted OS-II reservoir and obtaining core samples of the EP-IV zone. Analysis of the core will determine the optimal technologies for commercial development of unconventional gas resource known to be in place. In the absence of a timely and mutually acceptable approval by the Joint Venture, the Company may elect (subject to availability of funds) to sole fund the programme with the objective of progressing production from the Cambay Field. The Cambay PSC primary term expires in September 2019, and the Joint Venture has the possibility of applying for an extension of up to 10 years, such that the PSC could be extended to 2029 or economic life of the field, whichever is earlier, subject to submission of a field development plan and complying with other PSC extension criteria. There are no outstanding work commitments on the PSC before the term expires.

The Government of India approved its Policy for the Grant of Extension to the Production Sharing Contracts (Policy) to small and medium fields in March 2016, listing the Cambay Field in the annexure. Applications are due at least two years in advance of the PSC expiry date. The Policy includes the following pre-requisites for evaluation:

· the area must have a valid mining lease on the date of application;

· the area must have commenced test / commercial production;

· the area covered by the development plan has been submitted to the Management Committee for approval, and be subject to approval of such;

· the Contractor should be able to demonstrate recoverable reserves by submitting a third party reserves report with the extension application; and

· the revised field development plan is required to be submitted.

Subject to the success of the planned work programme, inclusive of the vertical well, the Company anticipates lodging its Field Development Plan in late 2017 in support of its PSC extension application. The application for extension, including final terms and conditions, is at the discretion of the Government of India.

Reserves and Contingent Resources

In April 2015, the Company tabled reserve and contingent resource volumes associated with the EP-III/IV (X and Y Zones) resulting from a review undertaken by third party certifier RISC. Since that time, a number of key factors have changed including:

 i) economic assumptions related to lower gas prices being realised because of the global fall in oil and gas prices;

ii) Oilex's Joint Venture partner's lack of approval of ongoing work programmes and budgets; and;

iii) the resultant deferral in project timing which extends the recovery of reserves to beyond the current term of the PSC. Note that the Company can apply for a PSC extension of 10 years.

On this basis, RISC has recommended that the reserve volumes be re-classified to contingent resources. It should be noted that the volume of hydrocarbons has not been amended. The updated recoverable hydrocarbon volumes are tabulated below.

The Company notes that previously announced production profiles and other forward looking statements based upon the previous reserve volumes are no longer current and shareholders and investors are urged to exercise caution in basing any investment decisions on such information.

Reserves and Contingent Resources Reconciliation by Period

Reserves

*Actual Cambay Field production in the year ended 30 June 2016 was 4,408 Bbls and 62 MMscf (gross), net to Oilex 1,983 Bbls and 28 MMscf. Production for the period 1 July to 30 June 2016 has been excluded from the table above as these amounts are immaterial relative to total Reserves and Oilex net working interest.

Contingent Resources

**Includes gross contingent resources of 90 Bcf of gas and 3 MMbbls of C5+ as announced on 16 April 2015.

Bhandut Field, Onshore Gujarat, India

(Oilex - 40%, Operator)

Oilex N.L. Holdings (India) Ltd is the Operator of the Bhandut Field Production Sharing Contract (PSC) in the Cambay Basin onshore Gujarat, India and holds a 40% participating interest. The remaining 60% interest is held by Joint Venture partner Gujarat State Petroleum Corporation Limited (GSPC).

The Bhandut Field was initially discovered and developed by ONGC in 1976. Oilex has produced 28,093 bbl of oil since the time of taking over the field in 2006.

In 2012 Oilex and GSPC carried out a production workover to perforate an interpreted gas-saturated sandstone in the Bhandut-3 well to address the potential for development. The workover was successful and the well flowed at a maximum rate of 6.5 MMscfd through a 10 mm choke with a flowing tubing head pressure of 1,190 psia from this sandstone during an isochronal test. The reservoir sands are good quality with a permeability of 124 mD. The produced gas is dry gas with 96% methane and requires minimal treatment.

During the year, Oilex completed the construction of a gas production and handling facility. A third party gas purchaser provided the off-take pipeline which connects the gas into the grid after compression at the third party facility. Gas production commenced on 6 April 2016. Since that time the well has been on continuous production. At the end of June 2016 about 46 MMscf of gas and 164 bbl of condensate had been produced. A decline of 45% has occurred and water gas ratio (WGR) has increased to 230 bbl/MMscf at year end. Subsequent to year end, gas production rates have remained low and water production has increased. The field operations remain under review.

The Joint Venture partner GSPC has approved the Work Programme and Budget for the Bhandut Field for the Indian financial year starting 1 April 2016. GSPC payments on cash calls are largely up to date with approximately US$215,000 outstanding.

In September 2016, the mining lease for Bhandut was extended for a period of three years till September 2019.

Figure 5: Bhandut Production Facility

Sabarmati Field, Onshore Gujarat, India

(Oilex - 40%, Operator)

The Sabarmati Field Petroleum Mining Lease expired on 22 September 2014. The formal field relinquishment process has been confirmed by the Directorate General of Hydrocarbons (DGH) and final confirmation of the PSC cancellation by Government of India was received on 26 August 2016.

Canning Basin, Western Australia

Oilex currently holds exploration permit application STP-EPA-0131, and has "preferred applicant" status for two adjacent exploration areas, STP-EPA-0106 and STP-EPA-0107 in the onshore Canning Basin, Western Australia. The combined total area is ~3 million acres.

The acreage is adjacent to many world class mining projects in the Pilbara region. The Great Northern Highway runs through the northern area and the Telfer Gas Pipeline traverses STP-EPA-0131 (Figure 6).

Figure 6: Significant infrastructure within and adjacent to Oilex's Wallal Graben permits

The U.S. EIA identified the Canning Basin as having the largest unconventional potential in Australia. The exploration areas cover the prospective Wallal Graben.

Prospectivity

The three permit areas cover the full onshore extent of the undrilled Wallal half graben located in the south-west Canning Basin. Data coverage, until recently, comprised only low resolution gravity/magnetic data and sparse vintage 2D seismic data of variable quality. Oilex's technical work identified the possibility of a deeper and more extensive half graben system which was subsequently confirmed through the acquisition of an Oilex-funded airborne gravity and magnetic survey.

Multiple play-types including structural and stratigraphic (fan systems visible on seismic data) plays have been identified. It is envisaged that a single vertical well could test multiple targets. Unconventional resource plays are likely to exist within the organic shales interpreted to exist by analogy with the greater Canning Basin. At various geological periods, the Wallal Graben potentially had only a limited connection with the ocean, resulting in very rich source rocks being deposited. That said, source rock presence remains the primary risk in the area and Oilex has been investigating some novel technologies which may provide a de-risking tool.

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

Figure 8: Example of structural lead - simple tilted fault block with stacked overlying channel. Two interpreted unconventional (source rock) plays are also shown.

Grant of the permits requires negotiation with traditional owner groups and Oilex has agreed terms and executed Heritage Protection Agreements in respect of the two northern blocks. Oilex is also in discussion with the Western Australian Government regarding work programmes. The process of the formal offer of Exploration Permits for each area will proceed upon finalisation of all agreements, at which time Oilex can elect whether to accept the offer.

JPDA 06-103, Timor Sea

(Oilex - 10%, Operator)

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

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

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

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

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

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

The Notice asserts a monetary claim against the Joint Venture for payment of the estimated cost of exploration activities not carried out in 2013 and certain local content obligations set out in the PSC. The total amount sought to be recovered by the ANPM in the Notice is approximately US$17 million. The obligations and liabilities of the Joint Venture participants under the PSC are joint and several.

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

During the financial year, the ANPM issued the Notice of Termination of the PSC JPDA 06-103 effective 15 July 2015.

The Joint Venture continues to discuss any financial liabilities which may arise from the termination of the PSC with the ANPM.

In the event the parties are unable to reach an amicable settlement, any party may refer the matter to arbitration, however the ANPM may only do so with the unanimous consent of each of the Joint Commissioners (two of whom are appointed by the Timor-Leste Government and the other by the Australian Government).

The equity interest of the Joint Venture participants are:

The Joint Venture is presently being conducted in accordance with a care and maintenance budget. 

* Presently three participants have agreed to remit the balance of outstanding cash calls, which total US$235,914.

West Kampar PSC, Central Sumatra

(Oilex - 45% + further 22.5% secured, Non operator)

Oilex continues to pursue a commercial resolution to the Joint Venture dispute with the Operator in the West Kampar PSC, in parallel with considering options to enforce its Arbitration Award in Jakarta. The Pendalian Field which lies within the PSC has been managed outside of the terms of the JOA and funded by the Operator with no accounting of any production revenues to Oilex.

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

The carrying value of this investment was reduced to nil in 2012 pending resolution of this matter.

Financial

Treasury policy

The funding requirements of the Group are reviewed on a regular basis by the Group's Chief Financial Officer and reported to the Board to ensure the Group is able to meet its financial obligations as and when they fall due. Internal cash flow models are used to review and to test investment decisions. Until sufficient operating cash flows are generated from its operations, the Group remains reliant on equity or debt funding, as well as assets divestiture or farmouts to fund its expenditure commitments.

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

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

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

As at 30 June 2016 the Group had no loan borrowings.

Corporate

During the financial year, Oilex announced a two tranche placement and underwritten rights issue to raise $30 million (Capital Raising). The Capital Raising comprised the following components:

· First tranche placement raising $1.8 million, completed in July 2015:

· Fully underwritten rights issue raising $7.0 million, completed in August 2015:

· Second tranche placement raising $11.8 million, completed in August 2015; and

· An agreement with Zeta Resources Limited (Zeta) to issue deferred shares and convertible notes to raise $9.4 million to be settled by 12 November 2015.

Zeta failed to settle the subscription for the deferred shares and the convertible notes and commenced legal action on or about 12 November 2015 against the Company in the Federal Court of Australia. On 16 December 2015 the Company filed its defence in the Federal Court proceedings initiated by Zeta. The Company also filed a cross-claim against Zeta seeking orders of specific performance requiring Zeta to perform its obligations and complete the relevant share subscription and convertible note agreements (or otherwise pay damages to the Company). The parties established standstill periods before reaching a settlement that ended the legal proceedings. The terms of the settlement were that each party will no longer pursue its claim against the other, with the legal proceedings to be dismissed on a no admission of liability basis. Oilex agreed to make a payment to Zeta on account of costs of the litigation of $490,000.

In reaching this settlement with Zeta, Oilex has taken into account the significant costs and inherent uncertainty of litigation, and the substantial time commitments and distraction that the litigation presents for the board and management.

As at 30 June 2016 the Company had:

· Available cash resources of $5.16 million;

· No loans or borrowings;

· Issued capital of 1,180,426,999 fully paid ordinary shares; and

· Unlisted options of 20,250,000.

The Company has dual listing on the ASX and on the Alternative Investment Market (AIM) of the London Stock Exchange, where approximately 55% of the Company's shares are domiciled.

Executive and Board Changes

On 18 November 2015 Mr Sundeep Bhandari withdrew his nomination to stand for re-election as a Director of the Company and advised that he would retire at the close of the 25 November 2015 Annual General Meeting (AGM). Shareholders at the AGM did not re-elect Mr Jeffrey Auld, and as a result, the Company needed to appoint a new director to satisfy its obligation under the Corporations Act to have a minimum of three directors. The Company announced the appointment of Mr Jonathan Salomon as an Independent Non-Executive Director of the Company effective 29 November 2015.

On 11 February 2016 the Company announced the appointment of Mr Brad Lingo as an Independent Non-Executive Director.

On 18 March 2016 the Company announced the appointment of Mr Jonathan Salomon as the Managing Director of the Company following the resignation of Mr Ron Miller.

On 10 June 2016, the Company announced the appointment of Mr Mark Bolton as Chief Financial Officer and Company Secretary. Mr Mark Bolton replaced Mr Christopher Bath as CFO and Company Secretary following his resignation on 24 May 2016.

The Board continues to review the Board composition with a view to attaining best corporate governance requirements while being cognisant of the need to conserve the cash resources of the group during this constrained economic environment for the hydro carbon industry globally.

Risk Management

Up until March 2016, the Audit and Risk Committee was responsible for the Group's internal financial control system and the Company's risk management framework. From March 2016, the full board consisting of three directors oversaw these responsibilities. Management of business risk, particularly exploration, development and operational risk is essential for success in the oil & gas business. The Group manages risk through a formal risk identification and risk management system.

Health, Safety, Security and Environment

Policy

Oilex is committed to protecting the health and safety of everybody who plays a part in our operations or lives in the communities where we operate. Wherever we operate, we will conduct our business with respect and care for both the local and global, natural and social environment and systematically manage risks to drive sustainable business growth. We will strive to eliminate all injuries, occupational illness, unsafe practise and incidents of environmental harm from our activities. The safety and health of our workforce and our environment stewardship are just as important to our success as operational and financial performance and the reputation of the Company.

Oilex respects the diversity of cultures and customs that it encounters and endeavours to incorporate business practices that accommodate such diversity and that have a beneficial impact through our working involvement with local communities. We strive to make our facilities safer and better places in which to work and our attention to detail and focus on safety, environmental, health and security issues will help to ensure high standards of performance. We are committed to a process of continuous improvement in all we do and to the adoption of international industry standards and codes wherever practicable. Through implementation of these principles, Oilex seeks to earn the public's trust and to be recognised as a responsible corporate citizen.

Qualified Petroleum Reserves and Resources Evaluator Statement

Pursuant to the requirements of Chapter 5 of the ASX Listing Rules, the information in this report relating to petroleum reserves and resources is based on and fairly represents information and supporting documentation prepared by or under the supervision of Mr Peter Bekkers, Chief Geoscientist employed by Oilex Ltd. Mr Bekkers has over 20 years' experience in petroleum geology and is a member of the Society of Petroleum Engineers and AAPG. Mr Bekkers meets the requirements of a qualified petroleum reserve and resource evaluator under Chapter 5 of the ASX Listing Rules and consents to the inclusion of this information in this report in the form and context in which it appears. Mr Bekkers also meets the requirements of a qualified person under the AIM Note for Mining, Oil and Gas Companies and consents to the inclusion of this information in this report in the form and context in which it appears.

(1) Sabarmati Field relinquishment proposal has been submitted to the Government of India (GOI) and accepted. Formal approval for the cancellation of the Sabarmati Field PSC was received from the GOI on 26 August 2016.

(2) Oilex (West Kampar) Limited is entitled to have assigned an additional 22.5% to its holding through the exercise of its rights under a Power of Attorney granted by PT Sumatera Persada Energi (SPE) following the failure of SPE to repay funds due. The assignment request has been provided to BPMigas (now SKKMigas) but has not yet been approved or rejected. If Oilex is paid the funds due it will not be entitled to also pursue this assignment.

(3) Ultimate parent entity is Oilex Ltd.

(4) Current status is a Preferred Applicant.

2016 FINANCIAL REPORT

CONTENTS

Directors' Report

Remuneration Report - Audited

Lead Auditor's Independence Declaration

Consolidated Statement of Profit or Loss and Other Comprehensive Income

Consolidated Statement of Financial Position

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

Notes to the Consolidated Financial Statements

Directors' Declaration

Independent Audit Report

Shareholder Information

DIRECTORS REPORT

For the year ended 30 June 2016

The directors present their report (including the Remuneration Report) together with the consolidated financial statements of the Group comprising of Oilex Ltd (the Company) and its subsidiaries for the financial year ended 30 June 2016 and the auditors' report thereon.

DIRECTORS

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

(Non-Executive Chairman)

BCom CPA MAICD

Chairman since the Company listed on the Australian Securities Exchange (ASX) in 2003, having been the founding director of Oilex Ltd. Mr Cozijn has a Bachelor of Commerce degree from the University of Western Australia, is a member of CPA Australia and is a member of the Australian Institute of Company Directors. Mr Cozijn has over 35 years of experience in the administration of listed mining and industrial companies and is the Non-Executive Chairman of Jacka Resources Limited and is a director of various private companies.

During the last three years Mr Cozijn has been a director of the following listed companies:

· Jacka Resources Limited (from May 2014 to current)

· Energia Minerals Limited (from May 1997 to June 2016)

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

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

(Non-Executive Director - appointed 11 February 2016)

Bachelor of Arts with Honours, Juris Doctorate, MAICD

Mr Lingo was appointed as a Non-Executive Director in February 2016. Mr Lingo has more than 30 years of experience in a diverse range of oil and gas leadership roles, including business development, new ventures, mergers and acquisitions and corporate finance. Mr Lingo has worked with Tenneco Energy and El Paso Corporation in the US and Australia, the Commonwealth Bank of Australia and Drillsearch Energy Limited. He is currently the Managing Director and CEO of Elk Petroleum Limited.

During the last three years Mr Lingo has been a director of the following listed companies:

· Elk Petroleum Limited (from August 2015 to current)

· Drillsearch Energy Limited (from May 2009 to July 2015)

· Acer Energy Limited (from November 2012 to July 2015)

· Ambassador Oil and Gas Limited (from August 2014 to July 2015)

(Managing Director - appointed 18 March 2016)

(Non-Executive Director - appointed 29 November 2015 to 17 March 2016)

B App Sc (Geology), GAICD

Mr Salomon was appointed as a Non-Executive Director in November 2015 and Managing Director on 18 March 2016. Mr Salomon has over 30 years of experience working for upstream energy companies. Further details of Mr Salomon's qualifications and experience can be found in the Executive Management section of the Director's Report.

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

(Non-Executive Vice Chairman - until 25 November 2015)

BCom

Mr Bhandari was appointed as a Director (Vice Chairman) in November 2011. Mr Bhandari has over 32 years of business experience in India, of which more than 22 years have been in the energy business working with Cairn Energy, Mobil, Marathon, ENI, PGS and Command Petroleum. Mr Bhandari is also a director and shareholder of India Hydrocarbons Ltd. Mr Bhandari retired at the Annual General Meeting (AGM) on 25 November 2015.

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

(Non-Executive Director - until 25 November 2015)

MBA BA (Econ)

Mr Auld was appointed as a UK based Director in January 2015. Mr Auld has over 25 years of experience in the oil and gas sector, focused on financial and commercial management in upstream oil and gas development. Mr Auld's experience includes corporate and commercial management in exploration and production companies. Mr Auld currently is a director of AIM listed Lansdowne Oil and Gas plc. Mr Auld was not re-elected at the Annual General Meeting on 25 November 2015.

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

(Managing Director - resigned 18 March 2016)

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

Initially appointed as a Non-Executive Director in July 2009, Mr Miller was appointed Managing Director on 1 January 2013. A chartered professional engineer (1989 - 2011), Mr Miller has more than 40 years of experience in the international petroleum industry. Mr Miller resigned from the Board in March 2016.

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

COMPANY SECRETARIES

Mr Mark Bolton B Bus was appointed Company Secretary on 10 June 2016.

Mr Cathal Smith LLB, LLM, MBA was appointed interim Company Secretary on 24 May 2016 until 25 August 2016 and consults as Legal Counsel and Commercial Manager.

Mr Chris Bath CA MAICD was Company Secretary and Chief Financial Officer from 24 October 2014 until his resignation on 24 May 2016.

CORPORATE GOVERNANCE STATEMENT

The Corporate Governance Statement, which reports on Oilex's key governance principles and practices is available on the Oilex website.

In establishing its corporate governance framework, the Company has referred to the recommendations set out in the ASX Corporate Governance Council's Corporate Governance Principles and Recommendations 3rd edition. The Company has followed each recommendation where the Board has considered the recommendation to be an appropriate benchmark for its corporate governance practices. Where the Company's corporate governance practices follow a recommendation, the Board has made appropriate statements reporting on the adoption of the recommendation. In compliance with the "if not, why not" reporting regime, where, after due consideration, the Company's corporate governance practices do not follow a recommendation, the Board has explained its reasons for not following the recommendation and disclosed what, if any, alternative practices the Company has adopted instead of those in the recommendation.

The Corporate Governance Statement provides detailed information on the Board and committee structure, diversity and risk management.

DIRECTORS' MEETINGS

Directors in office, committee membership and directors' attendance at meetings during the 2015/16 financial year are as follows:

1. Please refer to the Corporate Governance Statement on the Oilex website for details of the changes to the composition of the Committees during the financial year, following the changes to the Board at the Annual General Meeting on 25 November 2015, the full Board performs the function of these Committees.

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

3. Appointed as Non-Executive Director 11 February 2016

4. Appointed as Non-Executive Director 29 November 2015 and Managing Director on 18 March 2016

5. Non-Executive Director did not stand for re-election at the Annual General Meeting on 25 November 2015

6. Non-Executive Director not re-elected at Annual General Meeting on 25 November 2015

7. Resigned as Managing Director 18 March 2016

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

Following the changes to the Board at the Annual General Meeting on 25 November 2015, the Board resolved that the full Board would perform the role of the Committees. The Company is considering the appointment of additional independent non-executive directors in order to achieve best practice corporate governance and may reconstitute the Committees at the time.

EXECUTIVE MANAGEMENT

(Managing Director - appointed 18 March 2016)

(Non-Executive Director - appointed 29 November 2015 to 17 March 2016)

B App Sc (Geology), GAICD

Mr Salomon was appointed as a Non-Executive Director in November 2015 and Managing Director on 18 March 2016. Mr Salomon has a Bachelor degree in Applied Science and is a member of the American Association of Petroleum Geologists, Petroleum Exploration Society of Australia, South East Asian Petroleum Exploration Society and has over 30 years of experience working for upstream energy companies. Mr Salomon has worked for a number of oil and gas companies in various senior positions including General Manager Exploration and New Ventures at Murphy Oil Corporation and Global Head of Geoscience at RISC PL, in addition to a number of executive director roles including Strategic Energy Resources, Norwest Energy and Nido Petroleum. At several times in his career, Mr Salomon has acted as an independent consultant for various oil and gas companies, including New Standard Energy and Pacrim Energy. Mr Salomon first worked on Indian projects in 1994 while at Ampolex and since that time has maintained connection with the Indian industry, at various times bidding in India's exploration and field development rounds and working with Indian companies as joint venture partners, both in India and internationally.

Mr Mark Bolton

(Chief Financial Officer & Company Secretary - appointed 10 June 2016)

B Business

Mr Bolton was appointed Chief Financial Officer and Company Secretary in June 2016. He has significant experience in the resource sector in Australia, having worked as Chief Financial Officer and Company Secretary for a number of resource companies since 2003. Prior to this, Mr Bolton worked with Ernst & Young as an Executive Director in Corporate Finance. Mr Bolton has experience in the areas of commercial management and the financing of resource projects internationally. He also has extensive experience in capital and equity markets in a number of jurisdictions including ASX and AIM.

(Head - India Assets)

Geology (Masters)

Mr Sethi joined Oilex in February 2015 as Head - India Assets and is based in Gandhinagar India. Mr Sethi has over 31 years of experience in the Indian oil and gas upstream industry. Mr Sethi previously held senior management positions with Cairn Energy Ltd and the Oil & Natural Gas Corporation, India's national oil company in areas of exploration, development, portfolio evaluation, joint venture management, procurement supply chain and enhanced oil recovery.

(Chief Geoscientist)

BSC (Hons) Geology and Geophysics

Mr Bekkers joined Oilex in 2007 as the Senior Explorationist. He has over 20 years of experience in Australian and international oil and gas exploration activities including the Far East, Middle East, West Africa and South East Asia. Prior to joining Oilex, Mr Bekkers held various roles with Woodside Energy Ltd, Santos Ltd and Boral Energy Ltd in exploration and new ventures evaluation. Mr Bekkers was appointed Chief Geoscientist for Oilex in April 2010.

PRINCIPAL ACTIVITIES

The principal activities of the consolidated entity during the course of the financial year included:

· exploration for oil and gas;

· appraisal and development of oil and gas prospects; and

· production and sale of oil and gas.

There were no significant changes in the nature of these activities during the year.

OPERATING RESULTS

The loss after income tax of the consolidated entity for the year ended 30 June 2016 amounted to $36,154,111 (2015: loss of $17,388,524). The increase in the loss was principally due to $10,023,940 for the non-cash impairment of development assets (2015: Nil) and $11,572,740 for the non-cash impairment of exploration and evaluation assets in the current year (2015: $11,870,051). Exploration expenses of $3,972,848 (2015: 1,304,057) have increased by $2,668,791 due to expenditure on the Cambay Project. Administration expenses of $5,648,298 (2015: $3,078,163) have increased primarily due to the reduced recovery of costs from Joint Ventures and costs associated with the Zeta Resources Limited litigation.

FINANCIAL POSITION

The net assets of the consolidated entity totalled $9,328,974 as at 30 June 2016 (2015: $26,603,951).

DIVIDENDS

No dividend was paid or declared during the year and the directors do not recommend the payment of a dividend.

REVIEW OF OPERATIONS

A review of the operations of the Group during the financial year and the results of those operations are set out in the Review of Operations on pages 3 to 16 of this report.

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

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

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

SIGNIFICANT EVENTS AFTER BALANCE DATE

As announced to the market on 29 September 2016, subsequent to year end, the Board resolved to implement an organisation restructure in order to reduce costs. The planned changes include:

· an overall reduction in the number of personnel;

· a reduction in salaries and wages for existing personnel;

· review of commercial operations at Cambay and Bhandut Fields;

· careful management of planned drilling and project costs; and

· deferral of all non-essential expenditure.

There were no other significant subsequent events occurring after year end.

LIKELY DEVELOPMENTS

Additional comments on expected results on operations of the Group are included in the Review of Operations on pages 3 to 16.

Further disclosure as to likely developments in the operations of the Group and expected results of those operations have not been included in this report as, in the opinion of the Board, these would be speculative and as such, disclosure would not be in the best interests of the Group.

FINANCIAL POSITION

Capital Structure and Treasury Policy

Details of transactions involving ordinary shares during the financial year are as follows:

At the date of this report, the Company had a total issued capital of 1,180,426,999 ordinary shares and 17,250,000 unlisted options exercisable at prices between $0.15 and $0.35 per share.

As at 30 June the Group had no loan borrowings.

Emphasis of Matter

The audit opinion for the year ended 30 June 2016 contains an emphasis of matter in relation to the potential uncertainty regarding continuation as a going concern. The consolidated financial statements have been prepared on a going concern basis, which contemplates the realisation of assets and settlement of liabilities in the normal course of business. The Group will require funding in order to continue its exploration activities and progress the Cambay Field drilling programme.

The funding requirements of the Group are reviewed on a regular basis by the Group's Chief Financial Officer and Managing Director and are reported to the Board at each board meeting 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 raisings, joint venture contributions or debt funding, as well as asset divestitures or farmouts to fund its expenditure commitments.

The Company continues to actively develop funding options in order that it can meet its expenditure commitments and its planned future discretionary expenditure, as well as any contingent liabilities that may arise.

ENVIRONMENTAL ISSUES

The Group's oil and gas exploration and production activities are subject to environmental regulation under the legislation of the respective states and countries in which they operate. The majority of the Group's activities involve low level disturbance associated with its drilling programmes and production from existing wells. The Board actively monitors compliance with these regulations and as at the date of this report is not aware of any material breaches in respect of these regulations.

DIRECTORS' INTERESTS

The relevant interest of each director in shares and unlisted options issued by the Company, as notified by the directors to the ASX in accordance with Section 205G (1) of the Corporations Act 2001, at the date of this report is as follows:

SHARE OPTIONS

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

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

During the financial year, the following unlisted employee options expired or were cancelled upon cessation of employment:

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

During and since the end of the financial year, the Company issued ordinary shares as a result of the exercise of listed options as follows (there were no amounts unpaid on the shares issued):

The Group paid a premium in respect of insurance cover for the directors and officers of the Group. The Group has not included details of the nature of the liabilities covered or the amount of the premium paid in respect of the directors' liability and legal expense insurance contracts, as such disclosure is prohibited under the terms of the insurance contract.

PROCEEDINGS ON BEHALF OF THE COMPANY

No proceedings have been brought on behalf of the Company, nor has any application been made in respect of the Company under Section 237 of the Corporations Act 2001.

NON-AUDIT SERVICES

The Company may decide to employ the Auditor on assignments additional to their statutory audit duties where the Auditor's expertise and experience with the Group is important.

The Board has considered the non-audit services provided during the year and is satisfied that the provision of the non-audit services is compatible with, and did not compromise, the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the provision of non-audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons:

· all non-audit services were subject to the corporate governance procedures adopted by the Group and these have been reviewed by the Board to ensure they do not impact the impartiality and objectivity of the auditor; and

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

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

rounding of Amounts

The Company is a company of the kind referred to in ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191 and therefore the amounts contained in this report and in the financial report have been rounded to the nearest dollar, unless otherwise stated.

LEAD AUDITOR'S INDEPENDENCE DECLARATION

The Lead Auditor's Independence Declaration for the year ended 30 June 2016 has been received and can be found on page 41.

REMUNERATION REPORT - AUDITED

A Nomination and Remuneration Committee was established by the Board on 12 August 2015, incorporating the role of the previously established Remuneration Committee, to assist the Board in fulfilling its corporate governance responsibilities with respect to remuneration. The Nomination and Remuneration Committee is responsible for the review and recommendation to the Board, of the Company's Remuneration Policy, senior executives' remuneration, the remuneration framework for directors, superannuation arrangements, incentive plans and remuneration reporting.

The Nomination and Remuneration Committee obtains advice on the appropriateness of compensation packages of both the Company and the Group given trends in comparative companies both locally and internationally and the objectives of the Group's compensation strategy to ensure that the Company can set competitive remuneration to attract, retain and motivate executive directors and senior executives.

Following changes to the Board at the Annual General meeting on 25 November 2015, the appointment of a new managing director in March 2016, and the subsequent decrease in the number of non-executive directors in March 2016 to two directors, the Board resolved in June 2016 that it would perform the function of the Nomination and Remuneration Committee.

1. PRINCIPLES OF COMPENSATION

Remuneration is referred to as compensation throughout this report. The Remuneration Report explains the remuneration arrangements for directors and senior executives of Oilex Ltd who have authority and responsibility for planning, directing and controlling the activities of the Group (key management personnel).

The compensation structures explained below are designed to attract, retain and motivate suitably qualified candidates, reward the achievement of strategic objectives and achieve the broader outcome of creation of value for shareholders. The compensation structures take into account:

· the capability and experience of the key management personnel;

· the ability of key management personnel to control the performance of the relevant segments;

· the current downturn of the resources industry;

· the Company's performance including:

· the Group's earnings; and

· the growth in share price and delivering constant returns on shareholder wealth;

· exploration success; and

· development of projects.

Compensation packages include a mix of fixed compensation and long-term performance-based incentives. In specific circumstances the Group may also provide short-term cash incentives based upon the achievement of Company performance hurdles.

Fixed compensation consists of base compensation and employer contributions to superannuation funds. Compensation levels are reviewed annually through a process that considers individual, sector and overall performance of the Group. In addition, reviews of available data on oil and gas industry companies provide comparison figures to ensure the directors' and senior executives' compensation is competitive in the market.

In January 2016 following a review of cost reduction initiatives, the Board resolved to reduce the remuneration of Non-Executive Directors, the Managing Director and employees by 10% effective from 1 February 2016.

Compensation for senior executives is separately reviewed at the time of promotion or initial appointment.

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 or shares, while the long-term incentive plan (LTI) is used to reward performance by granting options over ordinary shares of the Company.

Short-term incentive bonus

The Group does not utilise short-term incentives on an annual or regular basis, as these are not considered part of the standard compensation package for key management personnel.

In certain circumstances the Board may, for reasons of retention or motivation, consider the use of short-term incentives.

Short-term incentives, if granted, are at the discretion of the Board having regard to the business plans set before the commencement of the financial year as well as the achievement of performance targets as determined by the Board. These targets include a combination of key strategic, financial and personal performance measures which may have a major influence over company performance in the short-term.

The Board appointed Mr Jonathan Salomon as Managing Director on 18 March 2016 for an initial term of one year. The Board included the following STI's in the remuneration package of Mr Salomon, conditional upon shareholder approval.

1. $100,000 in Oilex shares, if by 18 March 2017 the Company implements an agreed programme for the recovery of the joint venture receivables owed to the Company by its joint venture partners as at 31 December 2015 in full, and a drilling campaign undertaken at Cambay field is completed in accordance with an approved work programme and budget.

2. $100,000 in Oilex shares upon resolution of the Zeta Resources Limited litigation.

If shareholder approval is not granted in respect of the above two key performance indicators (KPI's) then these special funding awards will be payable in cash. The pricing of the Oilex shares is to be based on the 20 day VWAP for OEX on the ASX in the 20 trading days preceding the meeting of shareholders to approve such awards.

Oilex announced the settlement of the litigation with Zeta Resources Limited on 8 June 2016. The fully vested short-term incentive awarded to Mr Salomon in the current year of $100,000 was accrued as compensation, if shareholder approval is not granted, this special funding award will be payable in cash in the following year.

During the year no cash performance bonuses were granted to any employee.

Long-term incentive bonus

Long-term incentives include retention rights and options and are issued at the discretion of the Board.

The issue of options is designed to allow the Group to attract and retain talented employees. The issue of options aims to closely align the interests of senior executives and employees with those of shareholders and create a link between increasing shareholder value and employee reward. Any options issued to senior executives are issued under the Australian Securities Exchange Rule 7.1.

The Company did not issue any options to senior executives or staff during the year.

Whilst the Company moved certain assets to development in the last financial year, these have been impaired and the Company does not generate profits or net operating cash inflows and as such does not pay any dividends, and consequently remuneration packages are not linked to profit performance. It is the performance of the overall exploration and appraisal programme and ultimately the share price that largely determines Oilex's performance. The Remuneration Committee therefore considered that fixed compensation combined with short-term and long-term incentive components is the best remuneration structure for achieving the Company's objectives to the benefit of shareholders. The table below sets out the closing share price at the end of the current and four previous financial years.

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

The Board granted the incoming Managing Director, Mr Salomon a possible retention award of 2 million retention rights to fully paid ordinary shares in the Company, if Mr Salomon's employment with the Company is extended beyond the initial one-year term, expiring on 18 March 2017, with the issue of these being subject to shareholder approval.

No non-executive directors have been granted any share rights or unlisted options in this financial year. During the year no long-term incentives were granted to any employee.

1.3 Non-Executive Directors

Total compensation for all Non-Executive Directors is based on comparison with external data with reference to fees paid to Non-Executive Directors of comparable companies. Directors' fees cover all main Board activities and membership of committees.

The Board resolved to reduce the remuneration of Non-Executive Directors by 10% effective from 1 February 2016.

The Chairman's base annual fee including superannuation was set at $87,200 on 1 July 2009 and remained unchanged, other than to include the legislated increases to the superannuation guarantee levy, until 1 February 2016, when it was reduced to $78,840.

The Vice Chairman's base annual fee including superannuation was set at $65,400 on 29 July 2011 and remained unchanged up to 25 November 2015, when this position was vacated.

The company's United Kingdom based Non-Executive Director Mr Auld annual fee was set at £45,000 in January 2015. Mr Auld was not re-elected. The Company has not appointed any new overseas based directors.

The Company set the base fee for Australian based Non-Executive Directors at $50,000 per annum, plus statutory superannuation, together with an additional fee of $25,000 to compensate for any expected additional time commitments. The fees paid to Non-Executive Directors appointed after 1 February 2016 are subject to the 10% reduction.

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

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

Gross fees paid to India Hydrocarbons Limited (IHL), a related party of Mr Bhandari, are for consultancy services provided in addition to directorial services and therefore are not part of the fixed component. Payments made for consultancy services to IHL are for services undertaken under a consultancy contract with the Company negotiated effective from 1 May 2006, six years prior to Mr Bhandari becoming a Non-Executive Director on 9 November 2011. The gross annual amounts paid of $34,327 (2015: $161,059) relating to consultancy services are disclosed in the key management personnel disclosures in the Related Parties note 27 to the Consolidated Financial Statements. The Group's share of these fees of $34,327 (2015 $77,845) are disclosed in other related party transactions in the Related Parties note 27 to the Consolidated Financial Statements. The balance of 0% (2015: 52%) is payable by the Joint Operations.

1.4 Clawback Policy

The Board has adopted the following Clawback Policy applicable from August 2015.

In relation to circumstances where an employee acts fraudulently or dishonestly, or wilfully breaches his or her duties to the Company or any of its subsidiaries, the Board has adopted a clawback policy in relation to any cash performance bonuses (including deferred share awards) or LTIs. The Board reserves the right to take action to reduce, recoup or otherwise adjust an employee's performance based remuneration in circumstances where in the opinion of the Board, an employee has acted fraudulently or dishonestly or wilfully breached his or her duties to the Company or any of its subsidiaries. The Board may:

· deem any bonus payable, but not yet paid, to be forfeited;

· require the repayment by the employee of all or part of any cash bonus received;

· determine that any unvested and/or unexercised LTIs will lapse;

· require the repayment of all or part of the cash amount received by the employee following vesting and subsequent sale of a LTI;

· reduce future discretionary remuneration to the extent considered necessary or appropriate to take account of the event that has triggered the clawback;

· initiate legal action against the employee; and/or

· take any other action the Board considers appropriate.

1.5 Managing Director Sign On and Retention Awards

The table below sets out the special funding and retention awards granted to Mr Salomon as part of his employment contract. The retention award was issued free of charge and enables the holder to subscribe for one fully paid ordinary share in the Company per retention right.

(1) For accounting purposes under AASB 2 Share Based Payments the granting of $100,000 in Oilex shares upon the resolution of the Zeta Resources Limited litigation, subject to shareholder approval has been treated as vested for the year ended 30 June 2016.

The granting of $100,000 in Oilex shares upon recovery of the joint venture partner's outstanding receivable and progressing of the drilling of the next well at Cambay by 18 March 2017, subject to shareholder approval, and the 2,000,000 retention rights that may be granted, should Oilex elect to extend and Mr Salomon elects to enter a subsequent term of employment, also subject to shareholder approval, have been treated as not vested.

(2) The Zeta litigation settlement was announced by the Company on 8 June 2016, with $100,000 expensed to 30 June 2016. For accounting purposes under AASB 2 Share-based Payment where the grant date occurs after year end (upon shareholder approval), the fair value of the grant is estimated at the end of the reporting period 30 June 2016. If shareholder approval is not granted, then this award will be payable in cash.

1.6 Remuneration Consultants

There were no remuneration recommendations made in relation to key management personnel by remuneration consultants in the financial year ended 30 June 2016.

1.7 Adoption of year ended 30 June 2015 Remuneration Report - First Strike recorded based on a poll

At the Annual General Meeting held 25 November 2015 Resolution 1, the adoption of the Remuneration Report, was put to a poll with greater than 25% of votes cast against this resolution. This resulted in a first strike being recorded.

The Board has adopted a number of actions in response to the first strike.

In January 2016, the Board resolved to reduce the remuneration of the Non-Executive Directors, the Managing Director and Australian based employees employed at date of this resolution by 10% effective from 1 February 2016.

The number of directors has been reduced from four to three.

The remuneration package for the Chief Financial Officer position was further reduced following the resignation of Mr Bath in May 2016. The remuneration package upon appointment, for the Chief Financial Officer Mr Bolton was $250,000 plus superannuation.

No STI cash bonuses or LTI unlisted options have been granted to key management personnel or staff in the current year.

Detailed explanatory notes in relation to the Remuneration Table have been included.

1.8 Subsequent Changes to Key Management Personnel Remuneration

On 29 September 2016, the Company announced that it would implement a second expanded organisation restructure in order to further reduce costs.

The Non-Executive Directors base fees, reduced by 10% in February 2016, will now be reduced by a further 10% effective 1 October 2016. The additional annual fee of $25,000 to compensate Mr Lingo for any expected additional time commitments ceased 1 July 2016.

The Managing Director, Mr Salomon has agreed to reduce his base salary by 22.3% effective 1 October 2016.

The Head of India Assets, Mr Sethi has agreed to reduce his base salary by 18% effective 1 October 2016.

The Chief Financial Officer, Mr Bolton has agreed to reduce his base salary by 5% effective 1 October 2016.

The Chief Geoscientist, Mr Bekkers ceased employment effective 30 September 2016.

2. EMPLOYMENT CONTRACTS

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

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

(2) The Managing Director's contract has an initial term of one year, expiring 18 March 2017 which can be extended by mutual agreement between the Company and Mr Salomon.

(3) The Chief Financial Officer's contract has an initial term of one year, expiring 31 May 2017 which can be extended by mutual agreement between the Company and Mr Bolton.

3. DIRECTORS' AND EXECUTIVE OFFICERS' REMUNERATION

Details of the nature and amount of each major element of remuneration of each director of the Company and other key management personnel of the consolidated entity are:

The Directors of the Company may be Directors of the Company's subsidiaries. No remuneration is received for directorships of subsidiaries. All key management personnel other than Mr Sethi are employed by the parent entity.

Refer to the following explanatory notes for additional information.

(1) The amount represents the STI earned in the respective year ended 30 June. There were no cash bonuses granted in 2016.

(2) Benefits, including non-monetary include relocation costs and related expenses, as well as minor benefits, such as payments on behalf of employees considered personal, car parking and any associated fringe benefits tax.

(3) Includes, where applicable, accrued employee leave entitlements.

(4) All share-base payment disclosures, other than for Mr Salomon, relate to unlisted options.

The fair value of the options is calculated at the date of grant using the Black-Scholes Model. The fair value of the options is allocated to each reporting period evenly over the period from grant date to vesting date. The value disclosed is the portion of the fair value of the options allocated in each reporting period. In valuing the options, market conditions have been taken into account.

No options were issued to key management personnel and executives as remuneration during the year ended 30 June 2016.

The value of Mr Salomon's share based payments expense is $100,000 in Oilex shares, subject to shareholder approval (refer note 9).

(5) Mr Cozijn's remuneration reflects the resolution by the Board resolved to reduce the remuneration of Non-Executive Directors, the Managing Director and employees by 10% effective from 1 February 2016. Mr Cozijn received additional remuneration during the previous financial year of $24,000 plus 9.5% superannuation in relation to extra duties undertaken for Oilex (West Kampar) Limited.  

(6) Mr Lingo was appointed a Non-Executive Director on 11 February 2016.

(7) Mr Bhandari was appointed a Non-Executive Director on 9 November 2011 and was a Director to 25 November 2015. Prior to this appointment, India Hydrocarbons Limited (IHL) provided consultancy services to the Group, which continue to be provided until Mr Bhandari stood down at the Annual General Meeting. Mr Bhandari's salary and fees consist of director fees of $27,250 (2015: $65,400) and the IHL consultancy service fees, the majority of work which is undertaken by Mr Bhandari, of $34,327 (2015: $161,059). The net cost to the Group (after Joint Operations recoveries) in relation to the consultancy service was $34,327 (2015: $77,845).

(8) Mr Auld was a Non-Executive Director from 27 January 2015 until the Annual General Meeting held 25 November 2015 at which he was not re-elected. Mr Auld is based in the United Kingdom and was paid £45,000 per annum. The amount disclosed is the pro rata amount converted into Australian dollars at the applicable exchange rate at the date of payment.

(9) On 18 March 2016 Mr Salomon was appointed Managing Director, with a fixed annual remuneration of $350,000 per annum, inclusive of statutory superannuation, prior to this Mr Salomon was a Non-Executive Director appointed 29 November 2015. The amount paid for Managing Director fees since 18 March 2016 was $104,028, including non-monetary benefits of $3,103. The amount paid for Non-Executive Director fees from 29 November 2015 to 17 March 2016 was $23,621 and reflects the resolution by the Board resolved to reduce the remuneration of Non-Executive Directors, the Managing Director and employees by 10% effective from 1 February 2016.

Upon appointment as Managing Director, Mr Salomon was granted the following three initial funding and retention awards, conditional upon shareholder approval:

· $100,000 in Oilex shares upon resolution of the Zeta Resources Limited litigation. This performance condition was achieved as at 8 June 2016.

· $100,000 in Oilex shares in respect of recovery of joint venture partner's outstanding receivables and progressing of the drilling of the next well at Cambay within the Term. This performance condition has not been achieved as at the date of this report.

If shareholder approval is not granted in respect of the above two KPI's then these Awards will be payable in cash. The pricing of the Oilex shares will be based on the 20 day VWAP for OEX on ASX in the 20 days preceding the meeting of shareholders to approve such awards.

· Granting of 2,000,000 Retention Rights to shares at no cost if Mr Salomon and the Company agree that Mr Salomon will enter into a subsequent term of employment as Managing Director. The award of these rights to shares are subject to shareholder approval.

Shareholder approval is expected to be sought at the AGM in November 2016.

(10) Mr Miller resigned as Managing Director on 18 March 2016. Included in the $295,659 (2015: $451,521) invoiced to the Group for his services as Managing Director, was $99,000 (2015: $190,000) in the current year to compensate for additional time spent overseas. Although the Board resolved to reduce the remuneration of Non-Executive Directors, the Managing Director and employees by 10% effective from 1 February 2016, Mr Miller reduced his Managing Director fee by 10% effective 1 January 2016. The Board approved the payment of $69,000 representing the total of Mr Miller's accrued entitlements and termination payments on 18 March 2016.

(11) On 10 June 2016 Mr Bolton became key management personal following his appointment on 3 June 2016.

(12) Mr Bekkers remuneration reflects the resolution by the Board resolved to reduce the remuneration of Non-Executive Directors, the Managing Director and employees by 10% effective from 1 February 2016.

(13) Mr Sethi became key management personnel on 16 February 2015 and is based in India. Mr Sethi's remuneration disclosed in 2016 is for the full year. Mr Sethi's remuneration has been converted from Indian Rupees at the average exchange rate for the year.

(14) Mr Bath resigned 24 May 2016. Mr Bath's remuneration reflects the resolution by the Board resolved to reduce the remuneration of Non-Executive Directors, the Managing Director and employees by 10% effective from 1 February 2016. Mr Bath's termination payment consisted of his accrued leave entitlements.

Analysis of bonuses included in remuneration

There were no short-term incentive cash bonuses awarded as remuneration to key management personnel during the financial year.

4. Equity Instruments

SHARES

There were no ordinary shares in the Company issued as compensation to key management personnel during the financial year.

OPTIONS

All options refer to unlisted options over shares of the Company, which are exercisable on a one-for-one basis.

Details on options over ordinary shares in the Company that were granted as compensation to each key management person during the financial year and details on options that vested during the financial year are as follows:

With the exception of options that have vested, which can be retained by the employee in accordance with the timeframes in the option terms and conditions, all options expire on the earlier of their expiry date or termination of the individual's employment. Options that have vested can be retained by directors until expiry date, and do not expire on termination of employment. Further details, including grant dates and exercise dates regarding options granted to key management personnel are in note 19 to the Consolidated Financial Statements.

4.2 Options Over Equity Instruments Granted as Compensation Granted Since Year End

No 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 Granted as Compensation

During the financial year no shares were issued on the exercise of options previously granted as compensation.

Details of vesting profiles of the options held by each key management person of the Group are detailed below:

Options issued to directors vest on date of grant. All options that have vested can be retained by the director upon resignation or termination of employment.

The options issued to employees can, upon resignation or termination of employee be retained by the employee within three months from the date on which the employee ceases employment. All unvested options will lapse upon resignation or termination of employment prior to the option's vesting date. 

The movement during the financial year of unlisted options over ordinary shares in the Company held by each key management person is detailed below: 

No unlisted options held by key management personnel are vested but not exercisable. The movement during the financial year in the number of options over ordinary shares in the Company held, directly, indirectly or beneficially, by each key management person, including their related parties, is as follows:

5. KEY MANANGEMENT PERSONNEL TRANSACTIONS

Two key management persons, Mr Miller and Mr Bhandari, or their related parties, hold positions in other entities that result in them having control or joint control over the financial or operation policies of those entities.

These entities transacted with the Group during the year. The terms and conditions of the transactions with key management personnel and their related parties were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non-key management personnel related entities on an arm's length basis.

These transactions have all been disclosed in the remuneration table.

5.2 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 person, including their related parties, is as follows:

5.3 Movements in Listed Options

The movement during the financial year in the number of listed options in the Company held, directly, indirectly or beneficially, by each key management person, including their related parties, is as follows:

END OF REMUNERATION REPORT - AUDITED

Mr Max Cozijn Mr Jonathan Salomon

Chairman Managing Director

Signed in accordance with a resolution of the Directors.

West Perth

Western Australia

29 September 2016

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 2016 there have been:

i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and

ii) no contraventions of any applicable code of professional conduct in relation to the audit.

KPMG

Graham Hogg

Partner

Perth

29 September 2016

KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation.

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30 JUNE 2016

The above Consolidated Statement of Profit or Loss and Other Comprehensive Income is to be read in conjunction with the accompanying notes.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2016

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 2016

(1) Capital raising costs include cash payments and the fair value of options granted to the underwriter.

The above Consolidated Statement of Changes in Equity is to be read in conjunction with the accompanying notes.

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2016

The above Consolidated Statement of Cash Flows is to be read in conjunction with the accompanying notes.

notes to the consolidated financial statements for the year ended 30 june 2016

NOTE 1 - REPORTING ENTITY

Oilex Ltd (the Company) is domiciled in Australia. These consolidated financial statements comprise the Company and its subsidiaries (collectively the Group and individually Group Entities). Oilex Ltd is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange (ASX) and on the Alternative Investment Market (AIM) of the London Stock Exchange. The Group is a for-profit entity and is primarily involved in the exploration, evaluation, development and production of hydrocarbons.

NOTE 2 - BASIS OF PREPARATION

(a) Statement of Compliance

The consolidated financial statements are general purpose financial statements which have been prepared in accordance with Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The consolidated financial statements comply with International Financial Reporting Standards (IFRS) adopted by the International Accounting Standards Board (IASB).

The consolidated financial statements were authorised for issue by the Board of Directors on 29 September 2016.

(b) 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:

· Foreign Currency Translation Reserve; and

· Share-based payment arrangements are measured at fair value.

(c) Functional and Presentation Currency

These 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.

(d) Key Estimates, Judgements and Assumptions

In preparing these consolidated financial statements, management continually evaluate judgements, estimates and assumptions that affect the application of the Group's accounting policies and the reported amounts of assets, liabilities, income and expenses. All judgements, estimates and assumptions made are believed to be reasonable based on the most current set of circumstances. Actual results may differ from these judgements, estimates and assumptions. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively.

Going Concern

A key assumption underlying the preparation of the financial statements is that the entity will continue as a going concern. An entity is a going concern when it is considered to be able to pay its debts as and when they fall due, and to continue in operation, without any intention or necessity to liquidate or otherwise wind up its operations. Judgement has been required in assessing whether the entity is a going concern as set out in note 2(g).

In the process of applying the Group's accounting policies, judgements, assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are as follows:

i) Exploration and Evaluation Assets

The Group's accounting policy for exploration and evaluation expenditure is set out in note 3(e). The application of this policy necessarily requires management to make certain estimates and assumptions as to future events and circumstances, including, in particular, the assessment of whether economic quantities of resources have been found, or alternatively, that the sale of the respective areas of interest will be achieved. Critical to this assessment are estimates and assumptions as to contingent and prospective resources, the timing of expected cash flows, exchange rates, commodity prices and future capital requirements. These estimates and assumptions may change as new information becomes available. If, after having capitalised expenditure under this policy, it is determined that the expenditure is unlikely to be recovered by future exploitation or sale, then the relevant capitalised amount will be written off to the consolidated statement of profit or loss and other comprehensive income. The carrying amounts of exploration and evaluation assets are set out in note 12.

ii) Reserve Estimates

Development costs are amortised on a units of production basis over the life of economically recoverable reserves, so as to write off costs in proportion to the depletion of the estimated reserves. The estimation of reserves requires interpretation of geological and geophysical data. The geological and economic factors which form the basis of reserve estimates may change over reporting periods.

iii) Rehabilitation Provisions

The Group estimates the future removal costs of onshore oil and gas production facilities, wells and pipeline at the time of installation of the assets. In most instances, removal of assets occurs many years into the future. This requires judgemental assumptions regarding removal date, future environmental legislation, the extent of reclamation activities required, the engineering methodology for estimating cost, future removal technologies in determining the removal cost, and discount rates to determine the present value of these cash flows. For more detail regarding the policy in respect of provision for rehabilitation refer to note 3(l).

iv) Impairment of Assets

The recoverable amount of the Group's non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. 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 of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset, as well as the timing of the cash flows and expected life of the relevant area of interest, exchange rates, commodity prices, future capital requirements and future operating performance. Changes in these estimates and assumptions impact the recoverable amount of the asset of cash-generating unit, and accordingly could result in an adjustment to the carrying amount of that asset or cash-generating unit.

The carrying amounts of development assets are set out in note 13.

v) Impairment of Receivables

The Group considers evidence of impairment for receivables at both a specific asset and collective level. All individually significant receivables are assessed for specific impairment. All individually significant receivables found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Receivables that are not individually significant are collectively assessed for impairment by grouping together receivables with similar risk characteristics. This requires judgemental assumptions regarding recoverability. Changes in these assumptions impact the recoverable amount of the asset.

The Group considers that there is evidence of impairment if any of the following indicators are present; financial difficulties of the debtor, probability that the debtor will dispute amounts owing and default or delinquency in payment (more than one year old). 

The carrying amounts of receivables are set out in note 10.

vi) Recognition of Tax Losses

The Group's accounting policy for deferred taxes is set out in note 3(p). A deferred tax asset is recognised for unused losses only if it is probable that future taxable profits will be available to utilise those losses. The application of this policy necessarily requires management to make certain estimates and assumptions as to future events and circumstances, including, in particular, the assessment of whether economic quantities of resources have been found, or alternatively, that the sale of the respective areas of interest will be achieved. Any such estimates and assumptions may change as new information becomes available.

(e) Rounding of Amounts

The Company is a company of the kind referred to in ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191 and therefore the amounts contained in this report and in the financial report have been rounded to the nearest dollar, unless otherwise stated.

(f) Changes in Accounting Polices

Except for the following changes, the Group has consistently applied the accounting polices set out in note 3 to all periods presented in these consolidated financial statements.

· AASB 2013-9 Amendments to Australian Accounting Standards - Conceptual Framework, Materiality and Financial Instruments.

· AASB 2015-3 Amendments to Australian Accounting Standards arising from the Withdrawal of AASB 1031 Materiality. 

· AASB 2015-4 Amendments to Australian Accounting Standards - Financial Reporting Requirements for Australian Groups with a Foreign Parent. 

The adoption of new and amended Standards had no impact on the financial position or the consolidated financial statements of the Group.

The Group has not elected to early adopt any other new or amended AASB's that are issued but not yet effective (refer note 3(t)).

(g) Going Concern Basis

The Directors believe it is appropriate to prepare the consolidated financial statements on a going concern basis, which contemplates continuity of normal business activities and the realisation of assets and settlement of liabilities in the ordinary course of business.

The Group has incurred a loss of $36,154,111, including $21,596,680 for non-cash impairment of exploration and development assets, and had cash outflows from operating and investing activities of $9,955,125 and $3,106,013 respectively. As at 30 June 2016, the Group's current assets exceeded current liabilities by $5,259,019 and the Group has cash and cash equivalents of $5,158,361.

The Group will continue to manage its expenditure to ensure that it has sufficient cash reserves for at least the next twelve months. The Group will require additional funds within the next twelve months in order to meet planned expenditures for its projects, including progressing the Cambay Field drilling programme, and for any new business opportunities that the Group may acquire, noting that the timing and amount of discretionary expenditures is able to be varied or deferred as required, although certain commitments exist in the short and medium term. The Group may also require, or receive funds, in relation to its contingent liabilities and assets, refer note 28.

The Directors believe that the Company will be able to secure sufficient funding to meet the requirements to continue as a going concern, due to its history of previous capital raisings, acknowledging that the structure and timing of any capital raising is dependent upon investor support, prevailing capital markets, shareholder participation, oil and gas prices and the outcome of planned exploration and evaluation activities.

The Directors consider the going concern basis of preparation to be appropriate based on its forecast cash flows for the next twelve months and that the Group will be in a position to continue to meet its minimum administrative, evaluation and development expenditures and commitments for at least twelve months from the date of this report.

If further funds are not able to be raised or realised, then it may be necessary for the Group to sell or farmout its exploration and development assets.

The ability of the Company to achieve its forecast cash flows, particularly the raising of additional funds, represents a material uncertainty that may cast significant doubt about whether the Company can continue as a going concern, in which case it may not be able to realise its assets and extinguish its liabilities in the normal course of business and at the stated amounts in the financial statements.

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(f) which addresses any changes in accounting policies.

(a) Basis of Consolidation

i) Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

ii) Joint Arrangements - Joint Ventures

Joint ventures are those entities over whose activities the Group has joint control, established by contractual agreement.

iii) Joint Arrangements - Joint Operations

The interests of the Group in unincorporated joint operations and jointly controlled assets are brought to account by recognising, in its consolidated financial 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 of goods or services by the joint operations.

iv) Transactions Eliminated on Consolidation

Intragroup balances and transactions, and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements.

(b) Foreign Currency

i) Foreign Currency Transactions

Transactions in foreign currencies are translated into the respective functional currencies of Group entities at exchange rates at the dates of the transactions.

Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the foreign exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the reporting period.

Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

ii) Foreign Operations

The assets and liabilities of foreign operations are translated to Australian dollars at exchange rates at the reporting date. The income and expenses of foreign operations are translated to Australian dollars at exchange rates at the dates of the transactions.

Foreign currency differences are recognised in other comprehensive income and presented in the foreign currency translation reserve (FCTR). When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign exchange gains and losses arising from such a monetary item are considered to form part of a net investment in a foreign operation and are recognised in other comprehensive income and are presented within equity in the FCTR.

When a foreign operation is disposed of in its entirety or partially such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal.

(c) Financial Instruments

i) Share Capital

Ordinary 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.

ii) Non-derivative Financial Assets

The Group initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

The Group has the following non-derivative financial assets: loans and receivables and cash and cash equivalents (refer note 3(d)).

Loans and Receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses.

Loans and receivables comprise trade and other receivables.

iii) Non-derivative Financial Liabilities

The Group initially recognises debt securities issued and subordinated liabilities on the date that they are originated. All other financial liabilities (including liabilities designated at fair value through profit or loss) are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. The Group classifies non-derivative financial liabilities into the other financial liabilities category. 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.

Other financial liabilities comprise trade and other payables.

(d) 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 from the acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments.

(e) Exploration and Evaluation Expenditure

Exploration and evaluation of hydrocarbons resources is the identification and evaluation of oil and gas resources, as well as the determination of the technical feasibility and commercial viability of extracting the resources. Exploration and evaluation expenditure in respect of each area of interest is accounted for under the successful efforts method. Accounting for exploration and evaluation expenditure is assessed separately for each area of interest. An area of interest is an individual geological area which is considered to constitute a favourable environment for the presence of hydrocarbon resources or has been proven to contain such resources.

Expenditure incurred on activities that precede exploration and evaluation of hydrocarbon resources including all expenditure incurred prior to securing legal rights to explore an area, is expensed as incurred.

Exploration licence acquisition costs relating to established oil and gas exploration areas are capitalised.

The costs of drilling exploration wells are initially capitalised pending the results of the well. Costs are expensed where the well does not result in the successful 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.

Impairment of Exploration and Evaluation Expenditure

Exploration and evaluation assets are assessed for impairment if sufficient data exists to determine technical feasibility and economic viability or facts and circumstances suggest that the carrying amount exceeds the recoverable amount.

Exploration and evaluation assets are reviewed for impairment if any of the following facts and circumstances exist:

· The exploration licence term in the specific area of interest has expired during the reporting period or will expire in the near future and it is not anticipated that this will be renewed;

· Expenditure on further exploration and evaluation of specific areas is not budgeted or planned;

· Exploration for and evaluation of oil and gas assets in the specific area has not lead to the discovery of potentially commercial reserves; or

· Sufficient data exists to indicate that the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full, either by development or sale.

Exploration and evaluation 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)).

In the statement of cash flows, those cash flows associated with capitalised exploration and evaluation expenditure are classified as cash flows used in investing activities. Exploration and evaluation expenditure expensed is classified as cash flows used in operating activities.

(f) Development Expenditure

Development expenditure includes past exploration and evaluation costs, pre-production development costs, development drilling, development studies and other subsurface expenditure pertaining to that area of interest. Costs related to surface plant and equipment and any associated land and buildings are accounted for as property, plant and equipment.

The definition of an area of interest for development expenditure is narrowed from the exploration permit for exploration and evaluation expenditure to the individual geological area where the presence of an oil or natural gas field exists, 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)). The carrying amounts of development assets are set out in note 13.

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.

(g) Joint Arrangements

Joint arrangements are arrangements of which two or more parties have joint control. Joint control is the contractual agreed sharing of control of the arrangements which exists only when decisions about the relevant activities required unanimous consent of the parties sharing control. Joint arrangements are classified as either a joint operation or joint venture, based on the rights and obligations arising from the contractual obligations between the parties to the arrangement.

To the extent the joint arrangement provides the Group with rights to the individual assets and obligations arising from the joint arrangement, the arrangement is classified as a joint operation and as such, the Group recognises its:

· Assets, including its share of any assets held jointly;

· Liabilities, including its share of any liabilities incurred jointly;

· Revenue from the sale of its share of the output arising from the joint operation;

· Share of revenue from the sale of the output by the joint operation; and

· Expenses, including its share of any expenses incurred jointly.

The Group's interest in unincorporated entities are classified as joint operations.

Joint Ventures provides the Group a right to the net assets of the venture and are accounted for using the equity method. The Group currently has no joint venture arrangements.

(h) Inventories

Inventories comprising materials and consumables and petroleum products 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.

(i) Impairment

i) Non-derivative Financial Assets (including receivables)