OEX.L Regulatory News (OEX)

OILEX LTD

ABN 50 078 652 632

FINANCIAL REPORT FOR YEAR ENDED 30 JUNE 2018

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

CHAIRMANS REVIEW

Dear Shareholder,

The 2018 financial year has seen the Company deliver on essential outcomes, as well as undertake some difficult challenges.

The Company gained a new cornerstone shareholder, an institutional investor, Republic Investment Management Pte Ltd (Republic). In December 2017 Republic agreed to participate in the January 2018 share placement, taking up an initial 7% interest in Oilex, which increased to just over 12% in May 2018 when Republic subscribed for an additional 112,500,000 shares. The subscription by Republic is seen by the Board as a vote of faith in the direction of the Company. Republic also participated in the debt and equity fundraisings in July and September 2018.

The Company has a significant multi TCF gas resource at the Cambay PSC in Gujarat state in India in the EP-IV tight siltstones that requires drilling and stimulation optimisation technologies to achieve commercial flow rates. In August 2017, Schlumberger, Baker Hughes GE and ODSI completed a technical evaluation of the optimal well and stimulation design required to achieve potential commercial flow rates in the EP-IV reservoir in Cambay Basin.

Schlumberger and Baker Hughes were appointed to complete the core analysis and to report on the reasons for under-performance of past wells. The purpose of their work was to identify any substantial impediments to achieving potential commercial flow rates and to advise on the optimal well and stimulation design required to take the project forward. Notably the results from their analysis has confirmed the potential for substantially increased flow rates with the application of the appropriate stimulation technology suite.

At the start of April 2018, the Company received notification that the Ministry of Petroleum and Natural Gas had approved the proposal for the grant of ten year extensions to both the Cambay and Bhandut PSC. The applications were lodged in September 2017 ahead of the PSC expiry dates of September 2019. Securing this extension was important to regaining momentum in the Company's key asset at Cambay.

In May 2018 the Company, having exhausted all other avenues to recover outstanding Cambay cash calls, issued an Event of Default Notice to GSPC in the amount of equivalent US$3,054,832. This notice, issued pursuant to the Joint Operating Agreement (JOA), is a consequence of GSPC's ongoing failure to pay its participating interest share of the expenses of the Cambay PSC.

In July 2018, after year end the Company formally requested the Directorate General of Hydrocarbons and the Ministry of Petroleum and Natural Gas to affect the transfer of GSPC's participating interest in the Cambay PSC to Oilex. Subsequently, GSPC served notice of an ex-parte Order from the High Court of Gujarat directing the Company not to take any coercive steps against GSPC until a hearing on 4 September 2018, with the High Court then adjourning this matter to 19 September 2018.

Whilst the Company is confident in its position, it may take some time to have this matter resolved and for the Company to consider other remedial strategies.

2018 also saw some governance changes to the Board, with the non-executive Board now consisting entirely of independent directors.

The Company is continuing to actively pursue new opportunities in order to create value by diversifying the Company's project portfolio.

Finally, on behalf of the Board, I wish to thank our staff, contractors, local communities, shareholders and stakeholders for their ongoing support.

Mr B Lingo

Chairman

12 September 2018

BUSINESS REVIEW

External Impact on the Petroleum Industry

This last year has seen a gradual increase in both oil and regional gas prices as the hydrocarbon exploration and production industry shows recovery from previous low prices. However, the industry has not yet fully recovered as shown by lowered activity levels in exploration and companies still going through re-structuring processes.

The Indian economy remains strong, maintaining the highest global growth rate of the large economies. The Indian government initiatives to boost industry and commerce continue across the board underpinning strong energy growth. India is now the world's third largest hydrocarbon consumer with energy security seen as a major concern for the Indian Government.

Figure 1: Bhandut Production Facility

Oilex Strategy

During 2017-2018, Oilex has continued to focus on its core project, Cambay, in India while also evaluating potentially value accretive new business opportunities elsewhere, ranging from discovered undeveloped resources with exploration upside to existing discoveries and production. These evaluations are aimed at broadening the Company's opportunity base and investment opportunities, both within and outside of India.

Introduction

The Cambay Project is located onshore in the state of Gujarat in the heart of one of India's most prolific hydrocarbon and leading industrialised provinces. The project is ideally located near a major industrial corridor and approximately 20 km from the existing national gas pipeline grid. The project is well-positioned to commercialise production in the fast-growing, demand-driven domestic energy market.

The area has a long history of hydrocarbon production from a number of vertically stacked reservoir sections. Oilex continues to focus on a tight siltstone Eocene aged reservoir which has potential for Multi-TCF gas resources within the license area of the Cambay Production Sharing Contract (PSC). A secondary conventional reservoir is present in the Oligocene section.

Oilex has made very significant advances during the year with technical studies providing an advanced understanding of the reasons for past failures/modest success as well as providing confidence for undertaking future drilling, stimulation and flow testing. The studies have identified a number of field procedures required for favourable execution of the Field Development Plan (FDP) work programme. All procedures use materials and processes that are readily available with careful field execution being the key requirement. A full FDP for both the primary Eocene and secondary Oligocene reservoir sections was submitted to the Government of India as part of an application for a 10 year extension to the PSC. This application has been approved by the Government of India.

Production of gas and condensate from Cambay continued throughout the year at low rates. Gas continues to be sold into the low pressure system and the liquid component is stored in Oilex facilities until sale. Approximately 3,840 barrels (gross) of the accumulated volumes were sold after June 2018.

Figure 2: Gas Pipeline Network to the Nation

Cambay Field, Onshore Gujarat, India

(Oilex - 45%, Operator)

Oilex is the Operator of the Cambay Field and holds a 45% participating interest. The remaining 55% interest is held by Joint Venture partner, Gujarat State Petroleum Corporation Limited (GSPC).

Exploration and production in the region started in the late 1950s and early 1960s. Oilex's focus on the tight Eocene siltstone reservoir is a step away from the conventional exploration and production that has dominated the basin. It requires application of specific drilling and stimulation technologies to test whether the reservoir will produce at commercial rates. Core samples from a well drilled in 2008 were analysed by Schlumberger for geomechanics properties and matching of introduced fluids and proppant to the local rock type. This core test analysis along with the data from previous vertical and horizontal wells has been the subject of an in-depth review by Baker Hughes GE aimed specifically to identify reasons for the limited success of past drilling and stimulation, and to outline optimal drilling and stimulation methodologies for future work programmes to establish commercial gas production.

The Baker Hughes evaluation was successful in identifying very specific and correctable reasons for past poor results. Technologies and understanding have progressed since the drilling of the C-76 horizontal well in 2011. The evaluation provides a technical recommendation of the optimal well and stimulation design required to achieve commercial flow rates in the EP-IV reservoir. The results confirm the potential for substantially increased flow rates with the application of the appropriate stimulation technology suite. A second US based independent expert group, ODSI was engaged to review the Baker Hughes conclusions, providing corroboration to all the study outcomes as well as providing some additional insights on some aspects of the study.

In concert with this, a detailed Field Development Plan (FDP) covering both the high potential EP-IV reservoir and the modest potential OS-II reservoir was completed. It was submitted to the Government as a requirement for the application to secure a 10 year extension to the PSC beyond 2019. The development plan encompasses a staged approach, initially focussing on drilling of a small number of new wells to gather key information on reservoir performance.

The Government of India was very prompt in providing approval to both the FDP and the PSC application ahead of expected dates. The amended Cambay contract, reflecting the new expiry date of 2029, is now pending finalisation by the Directorate General of Hydrocarbons.

Further technical studies were undertaken in-house concentrating on the execution in the field for the drilling and stimulation programme. Planning for the drilling and stimulation of two vertical wells is well advanced and discussions have been held with major service providers. Upon success of this initial pilot programme, which is subject to securing the necessary funding, a larger drilling programme will follow, with the aim of aggregating sufficient production volumes to connect to the high-pressure pipelines which offer greater offtake stability and improved gas prices.

Upon the approval of a revised work programme and budget (WP&B) by the Joint Venture Management Committee (MC) and subject to securing the necessary funding, the Company will proceed to order the long lead items for the planned work programme. Any early production will utilise existing processing and storage facilities upgraded as required to provide a low-cost path to commercialisation.

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

During the year, a small volume of gas was produced into the local low pressure pipeline from the Eocene reservoir. The C-77H well produced 31.72 mmscf and C-73 produced 12.27 mmscf. A plan of cycling production alternately from C-77H and C-73 is under way.

The Company is in discussion with potential partner companies who have undertaken data room reviews of the EP-IV tight gas potential and who are interested in taking an equity position in the project.

Joint Venture Management

Oilex has been working with its Joint Venture partner, GSPC, to resolve a number of unpaid cash calls going back several years. During the year Oilex received the equivalent of US$78,182 gross in relation to Cambay and US$34,708 gross in relation to Bhandut from GSPC towards outstanding cash calls. At 30 June 2018, Cambay gross unpaid cash calls issued to GSPC totalled approximately US$5.76 million. Subsequent to 30 June 2018, Oilex received the equivalent of US$171,760 gross from GSPC attributable to the Cambay Field. Oilex endeavoured to engage positively with its Joint Venture partner to resolve these unpaid amounts. In the meantime, Oilex continues to bear the ongoing costs of the Joint Venture.

The Company has actively engaged with GSPC and other key stakeholders for approval of the revised 2018-19 Work Programme and Budget inclusive of drilling two vertical wells. To date GSPC has not agreed, resulting in the current approved budget only covering general administration and maintenance of field operations and production. To ensure that the Joint Venture has met and continues to meet its obligations and expectations of the Government of India, Oilex has met the full cost of many of the Joint Ventures activities including the recent FDP and application for extension of the PSC.

After exhausting all reasonable efforts over an extended period, on 29 May 2018, Oilex issued an Event of Default (EoD) Notice in the amount of equivalent US$3,054,832 to GSPC because of their ongoing failure to pay their share of the participating interest of the expenses of Cambay. Pursuant to the Joint Operating Agreement (JOA), GSPC had the option to remedy its default by settling the outstanding amounts within 60 days. This was not done, resulting in Oilex issuing a notice whereby GSPC was deemed under the JOA to have transferred all its participating interest in the PSC to the non-defaulting parties, ie. Oilex. Furthermore, the Company has formally requested the Directorate General of Hydrocarbons and the Ministry of Petroleum and Natural Gas, India to affect the transfer of GSPC's participating interest (PI) in the Cambay PSC to Oilex.

Oilex, is not seeking 100% interest in the PSC in the medium to long term, and follows general industry principals of seeking to share risk and cost with capable partner companies. The action on the EoD has only taken place to progress a work program which will advance the project and satisfy government expectations. Oilex's principle objective is to realise value from the project for the benefit of all stakeholders.

Following the end of the reporting period, GSPC served notice to Oilex of an Order from the High Court of Gujarat (Court) directing it not to take any coercive steps against GSPC until a hearing held on 4 September 2018 (Order). At this hearing the matter was adjourned until 19 September 2018. The Order has been awarded on an interim basis to delay the Company securing a transfer of the Participating Interest in the Cambay PSC held by GSPC. The Order was obtained on an ex parte basis and accordingly, the Company was not afforded an opportunity to assert its position. The Company notes that, notwithstanding the Order, GSPC remains in ongoing material breach of the JOA with the Event of Default (EoD) remaining in place and Oilex fully intends to enforce its legal and contractual rights.

While the Company is confident in its position, should GSPC fail to comply with the EoD Notice and a legal and or regulatory challenge occurs, it may be necessary for Oilex to consider other remedial strategies.

Cambay Contingent Resources

Resource volumes for the Eocene are unchanged since June 2016 and are summarised in the following table which shows Oilex net working interest. The development plan submitted as part of the application for extension of the PSC term addresses a sub-set of these resources in a staged approach.

Bhandut Field, Onshore Gujarat, India

(Oilex - 40%, Operator)

Oilex N.L. Holdings (India) Limited 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. The field is currently on care and maintenance, however, with ongoing production and exploration potential, coupled with existing production facilities. The Company continued discussions with several parties for the possible sale of its participating interest in the PSC during the year.

In parallel with the Cambay PSC, a Field Development Plan in support of the application for an extension of the PSC was submitted in September 2017 and approved by the Government of India in April 2018.

During the financial year, the Joint Venture received US$34,708 gross from GSPC against outstanding cash calls for Bhandut. At 30 June 2018, gross unpaid cash calls issued to GSPC totalled US$106,649.

Figure 4: Bhandut Production Facility

JPDA 06-103, Timor Sea

(Oilex - 10%, Operator)

Oilex as operator, and on behalf of the JPDA 06-103 Joint Venture participants, continues to seek a resolution to the dispute with Autoridade Nacional do Petroleo e Minerais (ANPM) in relation to matters associated with the termination of JPDA 06-103 PSC. In July 2015, the ANPM rejected the Joint Venture request to terminate the PSC by mutual agreement in good standing and without penalty, and the ANPM sought to impose a penalty of approximately US$17 million upon the Joint Venture and the ANPM terminated the PSC on 15 July 2015. The Joint Venture undertook significantly more exploration expenditure than required during the PSC term and believes the excess was not properly accounted for in accordance with the terms of the PSC. The Joint Venture continues its dialogue with the ANPM and remains hopeful an amicable settlement will be reached. If the parties are unable to reach an amicable settlement, any party may refer the matter to arbitration. If this occurs, the obligations and liabilities of the Joint Venture participants under the PSC are joint and several, with parent company guarantees provided by all Joint Venture participants. Oilex has a 10% participating interest in the Joint Venture.

Canning Basin, Western Australia

Oilex held 3 exploration permit applications covering a large area within the Wallal Graben in the onshore Canning Basin, Western Australia. Following an extended unsuccessful farm-out marketing effort and given that the primary term involved significant expenditure set when the industry viewed exploration more favourably, the Company on 31 July 2018 withdrew its application for the licences.

West Kampar PSC, Central Sumatra

(Oilex - 45%, Non operator)

The Company remains in dispute with the operating company, PT Sumatera Persada Energi (SPE) which was declared bankrupt. The Indonesian Government regulator, SKK Migas, has confirmed that Oilex continues to retain a 45% participating interest in the PSC. In the absence of a commercial settlement, the Company intends to preserve its rights.

Oilex has continued to pursue enforcement of the Arbitration Award and a commercial settlement. Subsequent to year end SKK Migas advised that the Production Sharing Contract had been terminated on 15 August 2018. Oilex continues its discussion with the Government of Indonesia seeking a solution. The carrying value of this investment had been fully provided for in 2012.

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 and monitored monthly by the Board and forming the basis of the Company's financial management 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 and its' planned future discretionary expenditure. During the year several capital raisings were completed to provide for working capital for the company.

As at 30 June 2018 the Group had no loan borrowings. Subsequent to 30 June 2018, the Company entered into loan agreements with existing investors raising $330,000 before costs with a one-year term, 5% interest rate and 91,666,666 attached unlisted options with an exercise price of $0.0036 and an expiry date of 26 July 2019.

In September 2018 the Company entered into another binding loan agreement with Republic to secure funding of $250,000 at 5% interest rate with a term to 31 October 2019 plus 60,664,887 options over ordinary shares exercisable at $0.004121, which are subject to shareholder approval, if required.

Corporate

The Company has dual listing on the ASX and on the Alternative Investment Market (AIM) of the London Stock Exchange with approximately 57% of the Company's shares held on the Company's UK register.

During the year 11,722,222 broker options were exercised at £0.00225.

At a General Meeting in March 2018 Shareholders ratified raising of $0.6 million in January 2018 with 157,894,737 shares issued at $0.0038. On 15 May 2018, the Company raised $0.5 million through the issue of 125,000,000 shares at $0.004.

As at 30 June 2018 the Company had:

· Available cash resources of $375,507;

· No loans or borrowings; and

· Issued capital of 2,001,968,379 fully paid ordinary shares and unlisted options of 77,166,666. 

On 11 September the Company entered into a a debt and equity capital raising to secure funding of approximately £631,980 ($1,142,200) before expenses.

The equity capital raising of 259,816,694 shares at 0.19 pence (A$0.003434) per share for gross proceeds of £493,655 has been undertaken by Novum Securities Limited and is also supported by existing shareholders. In this regard, the Company has received firm written confirmation from Novum Securities Limited for the placing of 157,894,737 shares for £300,000 at 0.19 pence per share. In addition, the Company has entered into a subscription agreement with Republic Investment Management Pte Ltd for 101,921,957 shares to raise £193,652 at 0.19 pence.

Pursuant to the advisory agreement with Novum, the Company will issue 9,473,684 unlisted options exercisable at 0.19 pence on or before three years following the completion with the capital raising.

Executive and Board Changes

Max Cozijn retired as a Non-Executive Director at the November 2017 AGM. Mr Bradley Lingo agreed to act as Non-Executive Chairman in an interim capacity. The Company has initiated a formal search process to identify a potential new Chairman.

On 18 March 2018, Mr Jonathan Salomon's contract as Managing Director, was extended by one year.

The Board continues to review the Board composition with a view to conforming with 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 hydrocarbon industry globally.

Risk Management

The full Board undertakes the function of the Audit and Risk Committee and is responsible for the Group's internal financial control system and the Company's risk management framework. Management of business risk, particularly exploration, development and operational risk is essential for success in the oil and 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 practises 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 Jonathan Salomon, Managing Director employed by Oilex Ltd. Mr Salomon has over 32 years' experience in petroleum geology and is a member of the American Association of Petroleum Geologists, and the Society of Petroleum Engineers. Mr Salomon meets the requirements of a qualified petroleum reserve and resource evaluator under Chapter 5 of the ASX Listing Rules and consents to the inclusion of this information in this report in the form and context in which it appears. Mr Salomon also meets the requirements of a qualified person under the AIM Note for Mining, Oil and Gas Companies and consents to the inclusion of this information in this report in the form and context in which it appears.

 (1) Oilex (West Kampar) Limited is entitled to have assigned an additional 22.5% above its government recognised 45% 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. Subsequent to June 2018, SKK Migas advised that the West Kampar Contract Area Production Sharing Contract had been terminated effective 15 August 2018. Oilex is continuing its discussion with the Government of Indonesia seeking a solution.

(2) Ultimate parent entity is Oilex Ltd.

(3) Application withdrawn after the year end on 31 July 2018.

DIRECTORS REPORT

FOR THE YEAR ENDED 30 JUNE 2018

2018 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 2018

The directors of Oilex Ltd 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 2018 and the auditors' report thereon.

DIRECTORS

The directors of Oilex Ltd in office at any time during or since the end of the financial year are:

(Non-Executive Chairman)

Bachelor of Arts with Honours, Juris Doctorate, MAICD

Mr Lingo was appointed as a Non-Executive Director in February 2016 and Non-Executive Chairman in February 2017. Mr Lingo has more than 32 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 ASX listed companies:

· Elk Petroleum Limited (from August 2015 to current)

(Non-Executive Director)

Mr Haywood was appointed as a Non-Executive Director in May 2017. Mr Haywood has over 15 years of international experience in delivering value for his investment network through a blended skill set of corporate and operational experience, including more than six years in the Middle East, building early stage and growth projects. More recently, Mr Haywood has held senior management positions with UK and Australian public companies in the natural resource and energy sectors including O&G exploration and development in UK, EU and Central Asia. Mr Haywood's expertise stretches across a broad UK and Australian public market, with a cross-functional skill set with diverse experience and capability encompassing research, strategy, implementation, capital and transactional management. Mr Haywood is currently Executive Director of Block Energy Plc and resource focussed UK advisory firm, Plutus Strategies Ltd.

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

(Non-Executive Director - retired 29 November 2017)

BCom CPA MAICD

Mr Cozijn was initially appointed Chairman when the Company listed on the Australian Securities Exchange (ASX) in 2003, having been the founding director of Oilex Ltd. He stepped down as Chairman in February 2017 and retired as a Non-Executive Director at the November 2017 AGM.

During the last three years, up to the date of his resignation, Mr Cozijn has been a director of the following ASX listed companies:

· Jacka Resources Limited (from May 2014 to current)

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

(Managing Director)

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 32 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 Directors' Report.

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

COMPANY SECRETARY

The Chief Financial Officer, Mr Mark Bolton (B Bus) was appointed Company Secretary in June 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 and directors' attendance at meetings during the 2017/18 financial year are as follows:

(a) 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 Audit and Risk Committee and the Remuneration and Nomination Committee. 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 that time.

(b) Held indicates the number of meetings available for attendance by the director during the tenure of each director.

(c) Current Chairman.

(d) Retired 29 November 2017.

EXECUTIVE MANAGEMENT

(Managing Director)

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 and the Society of Petroleum Engineers, and has over 32 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 and Company Secretary)

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 - appointed 8 November 2016)Bachelor of Engineering (BE in Chemical Engineering, including petroleum management)

Mr Khare was appointed Head - India Assets on 8 November 2016 and is based in Gandhinagar India and has over 17 years of experience in the petroleum industry. Mr Khare's area of expertise include upstream oil and gas, as well as midstream and downstream project implementation and operation management. Mr Khare originally worked for Oilex as GM Operations & Business Development, and has experience working for various Indian companies including Cairn India Ltd and Reliance Petroleum.

PRINCIPAL ACTIVITIES

The principal activities of the consolidated entity during 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 the activities during the year.

OPERATING RESULTS

The loss after income tax of the consolidated entity for the year ended 30 June 2018 amounted to $4,230,977 (2017: loss of $3,665,192).

Revenue for the period increased due to both Cambay-73 and Cambay-77 being in production, compared to the prior year when Cambay-77 was shut in after June 2016 until May 2017.

The prior year results included other income being the recovery of $285,558 relating to joint venture receivables reclassified to development assets in prior years, but subsequently received, as well as prior year exploration expenses of $936,721 being offset by a reversal of $1,287,170 resulting in a net write back of $350,449. The current years exploration expenses of $651,993 reflect the Group's effort to reduce costs.

Administration expenses of $2,101,485 (2017: $2,982,826) also reflect the reduction in costs and staff numbers. Other expenses include an increase in the provision for doubtful debts of $1,233,898 (2017: $473,112 write back of the provision following recovery of amounts previously provided for).

Cash and cash equivalents held by the Group as at 30 June 2018 has decreased to $375,507 (30 June 2017: $3,215,565).

FINANCIAL POSITION

The net assets of the consolidated entity totalled $4,008,210 as at 30 June 2018 (2017: $7,273,611).

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 10 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.

LIKELY DEVELOPMENTS

Additional comments on expected results on operations of the Group are included in the Review of Operations on pages 3 to 10.

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.

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

SIGNIFICANT EVENTS AFTER BALANCE DATE

Subsequent to year end the Company entered into two loan agreements with existing investors. The loan agreement on 26 July 2018 secured funding of $300,000 at 5% interest with a one year term plus 83,333,333 options over ordinary shares exercisable at $0.0036, which are subject to shareholder approval at a general meeting to be held 14 September 2018. The loan agreement on 15 August 2018 secured funding of $30,000 at 5% interest with a one year term plus 8,333,333 options over ordinary shares exercisable at $0.0036.

The loan agreements include the following key undertakings:

· Not to dispose of assets having an aggregate value more than A$1 million

· Not to incur any financial indebtedness more than A$50,000

· Not to incur any aggregate payment or outgoing exceeding A$1 million (except for wages)

Subsequent to year end the Group received $232,390 from GSPC towards outstanding cash calls.

On 29 July, the Company exercised its right to require the transfer of GSPC's interest in Cambay as GSPC had not remedied the Event of Default Notice within 60 days. Accordingly, pursuant to the terms of the Joint Operating Agreement, GSPC shall be deemed to have transferred all of its right, title and beneficial interest in the Cambay project. The Company has formally requested the Directorate General of Hydrocarbons and the Ministry of Petroleum and Natural Gas, India to affect the transfer of GSPC's participating interest (PI) in the Cambay PSC to Oilex.

GSPC served notice to Oilex of an Order from the High Court of Gujarat directing it not to take any coercive steps against GSPC until a hearing held on 4 September 2018 (Order). At this hearing the matter was adjourned until 19 September 2018. The Order has been awarded on an interim basis to delay the Company securing a transfer of the Participating Interest in the Cambay PSC held by GSPC. The Order was obtained on an ex parte basis and accordingly, the Company was not afforded an opportunity to assert its position. The Company notes that, notwithstanding the Order, GSPC remains in ongoing material breach of the JOA with the Event of Default (EoD) remaining in place and Oilex fully intends to enforce its legal and contractual rights.

While the Company is confident in its position, should GSPC fail to comply with the EoD Notice and a legal and or regulatory challenge occurs, it may be necessary for Oilex to consider other remedial strategies.

On 11 September the Company entered into a debt and equity capital raising to secure funding of approximately $1,142,200 (£631,980) before expenses.

The equity capital raising of 259,816,694 shares at $0.003434 (0.19 pence) per share for gross proceeds of $892,196 (£493,652) has been undertaken by Novum Securities Limited (Novum) and is also supported by existing shareholders. In this regard, the Company has received firm written confirmation from Novum for the placing of 157,894,737 shares for £300,000 at 0.19 pence per share. In addition, the Company has entered into a subscription agreement with Republic Investment Management Pte (Republic) Ltd for 101,921,957 shares to raise £193,652 at 0.19 pence.

Pursuant to the advisory agreement with Novum, the Company will issue 9,473,684 unlisted options exercisable at 0.19 pence on or before three years following the completion with the capital raising.

The Company has also entered into a binding loan agreement with Republic to secure funding of $250,000 at 5% interest rate with a term to 31 October 2019 plus 60,664,887 options over ordinary shares exercisable at $0.004121, which are subject to shareholder approval, if required. The key undertakings are the same as then loan agreement entered into on 26 July 2018.

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

FINANCIAL POSITION

Capital Structure and Treasury Policy

As at 30 June 2018 the Group had no loan borrowings.

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

In accordance with the ASX Waiver granted 20 October 2017, the Company advises that the number of remuneration shares that were issued to directors totalled 5,530,644. This represents 0.28% of the Company's issued capital as at 30 June 2018.

At the date of this report, the Company had a total issued capital of 2,001,968,379 ordinary shares and 77,166,666 unlisted options exercisable at Australian Dollar equivalent price of $0.004 per share.

Material Uncertainty Related to Going Concern

The audit opinion for the year ended 30 June 2018 identifies a material 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 Project.

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 joint venture contributions, equity raisings 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.

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

All options were granted in previous financial years. No options have been granted since the end of the previous financial year.

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 and advisor options expired or were cancelled upon cessation of employment:

During or since the end of the financial year, the Company issued ordinary shares as a result of the exercise of unlisted 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 of the Consolidated Financial Statements 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 2018 has been received and can be found on page 29.

DIRECTORS REPORT - REMUNERATION REPORT

FOR THE YEAR ENDED 30 JUNE 2018

REMUNERATION REPORT - AUDITED

The Board has performed the function of the Nomination and Remuneration Committee since June 2016 when the Board considered that, given the size and composition of the existing Board, that there are no efficiencies to be gained by having a separate committee. The Board has adopted a Nomination and Remuneration Committee Charter, which describes the role, composition, functions and responsibilities of the committee. The Nomination and Remuneration Committee is responsible for the review and recommendation to the Board, of the Company's Remuneration Policy, senior executives' remuneration and incentives, the remuneration framework for directors, superannuation arrangements, incentive plans and remuneration reporting.

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 or in recognition of specific achievements.

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 September 2016 the Board resolved to reduce the remuneration of Non-Executive Directors by 10%, the Managing Director by 22.3% and the Chief Financial Officer by 5% effective from 1 October 2016, and these reductions remained in place during the year ended 30 June 2018. In addition, further salary reductions of 20% were implemented, with the introduction of reduced working hours for all staff and the Chief Financial Officer, effective from 1 October 2017.

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, motivation or recognition, 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.

There were no short-term incentives, performance bonuses or shares granted to senior executives or staff during the year ended 30 June 2018.

Long-term incentive bonus

Shareholders approved the 2017 Employee Incentive Plan (the Plan) at the AGM held 29 November 2017, which has yet to be implemented.

The Plan is a long-term incentive plan designed to allow the Group to attract and retain talented employees. The Plan aims to closely align the interests of directors, senior executives, employees and eligible contractors with those of shareholders and create a link between increasing shareholder value and employee reward.

The Plan permits the Board to grant shares and rights to acquire shares in the Company. Rights granted under the Plan may be in the form of options with a market based exercise price, or performance rights, or a combination of these depending upon the Company's objectives in making the grant.

Vesting conditions may include one or more objectives and/or time-based milestones set at the discretion of the Board.

Whilst the Company moved certain assets to development in previous financial years, 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 Board 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, rights 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, rights or options to directors.

The Company did not issue any long-term incentives to directors, senior executives or staff during the year ended 30 June 2018.

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, if applicable.

The Board resolved to further reduce the remuneration of Non-Executive Directors by 10% effective from 1 October 2016 and these reductions remained in place during the year ended 30 June 2018.

The Chairman's annual fee including superannuation was set at $70,956 per annum effective from 1 October 2016 and remains unchanged.

The Australian based Non-Executive Directors fees including superannuation was set at $49,275 per annum effective 1 October 2016 and remains unchanged.

The annual fee for Mr Haywood, the Company's United Kingdom based Non-Executive Director was set at £30,000 per annum on commencement in May 2017 and remains unchanged.

At the Annual General Meeting held 29 November 2017 shareholders approved the issue of remuneration shares, whereby Non-Executive Directors agreed to receive part of their Directors fees paid through the issue of shares in lieu of cash payments, for the period of 1 November 2017 through to 31 October 2018, in order to conserve the cash reserves of the Company.

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.

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.

There were no remuneration recommendations made in relation to key management personnel by remuneration consultants in the financial year ended 30 June 2018.

At the Annual General Meeting held 29 November 2017 shareholders adopted the 30 June 2017 Remuneration Report with a clear majority of 138,702,830 votes in favour, being 89.9% of the votes cast.

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 had an initial term of one year expiring 18 March 2017 and has been extended by mutual agreement between the Company and Mr Salomon to 18 March 2019.

(3) The Chief Financial Officer's contract had an initial term of one year expiring 31 May 2017 and has been extended by mutual agreement between the Company and Mr Bolton to 31 May 2019.

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 A Khare are employed by the parent entity.

Refer to the following explanatory notes for additional information.

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

(2) Includes, where applicable, accrued employee leave entitlement movements.

(3) The 2018 share-based payment disclosures relate to the issue of remuneration shares (refer point 4 below). No unlisted options were issued to key management personnel or executives as remuneration during the year ended 30 June 2017 or 30 June 2018. In accordance with the ASX waiver granted 20 October 2017, the Company advises that the number of remuneration shares that were issued to directors in the year ended 30 June 2018 totalled 5,530,644 and the percentage of the Company's issued capital represented by these remuneration shares was 0.28%.

(4) Fees for Non-Executive Directors are not linked to the performance of the Group. At the Annual General Meeting held 29 November 2017 shareholders approved the issue of remuneration shares, whereby Non-Executive Directors agreed to receive part of their Directors fees paid through the issue of shares in lieu of cash payments, for the period of 1 November 2017 through to 31 October 2018, in order to conserve the cash reserves of the Company.

(5) Mr Lingo was appointed a Non-Executive Director on 11 February 2016 and interim Chairman on 23 February 2017 at an annual salary of $70,956 inclusive of statutory superannuation. During 2018 Mr Lingo received 4,456,800 remuneration shares (refer point 3 above) at a value of $22,284. As at 30 June 2018 remuneration shares not yet issued to Mr Lingo had a value of $10,800. These shares will be issued in the next financial year.

(6) Mr Haywood was appointed a Non-Executive Director on 29 May 2017. Mr Haywood is based in the United Kingdom and is paid £30,000 per annum. The amount disclosed is converted into Australian dollars at the applicable exchange rate at the date of payment. During 2018 Mr Haywood received 1,073,844 remuneration shares (refer point 3 above) at a value of $5,369. As at 30 June 2018 remuneration shares not yet issued to Mr Haywood had a value of $1,775. These shares will be issued in the next financial year.

(7) Mr Cozijn elected to retire from the Board at the AGM held on 29 November 2017.

(8) Mr Salomon was appointed Managing Director in March 2016 with an initial fixed annual remuneration of $350,000 per annum, inclusive of statutory superannuation, which was reduced to $271,950 inclusive of statutory superannuation effective from 1 October 2016, following the implementation of cost reductions by the Company.

During the current financial year, Mr Salomon, requested and was granted 26.5 days leave without pay, further reducing his salary by $27,718 inclusive of statutory superannuation.

The 2 million retention rights were issued to Mr Salomon on 19 December 2016 and converted into ordinary shares on 17 March 2017 upon Mr Salomon's employment being extended to 18 March 2018.

(9) Mr Bolton was appointed CFO on 3 June 2016, with an initial fixed annual remuneration of $273,750 inclusive of statutory superannuation, which was reduced to $260,063 effective 1 October 2016. The amount paid in the year ended 30 June 2018 reflects the reduced working hours implemented 1 October 2017 to facilitate a 20% reduction in salaries.

(10) Mr Khare became key management personnel on 8 November 2016 and is based in India. The amount paid in the year ended 30 June 2018 reflects the reduced working hours implemented 1 October 2017 to facilitate a 20% reduction in salaries. Mr Khare's remuneration has been converted from Indian Rupees at the average exchange rate for the year.

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

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

There were no rights or options over ordinary shares granted as compensation to key management personnel during the financial year, (2017: 2,000,000 rights granted to Joe Salomon, Managing Director and converted to ordinary shares on 17 March 2017 upon entering into a subsequent term of employment).

No rights and options over ordinary shares in the Company were granted as compensation to key management personnel and executives since the end of the financial year.

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.

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

There are no rights or options currently held by key management personnel, (2017: 2,000,000 rights granted to Joe Salomon, Managing Director and converted to ordinary shares on 17 March 2017 upon entering into a subsequent term of employment).

There were no shares, rights or options over ordinary shares in the Company granted to or exercised by key management personnel in the current year.

There are no rights or options held by key management personnel, or their related parties as at 1 July 2017 through to 30 June 2018.

5. KEY MANANGEMENT PERSONNEL TRANSACTIONS

There were no other transactions with entities associated with key management personnel in the year ended 30 June 2018, (30 June 2017: $25,000 for management services was paid to Diplomat Holdings Pty Ltd, of which Mr Cozijn is a director and disclosed in the remuneration table).

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:

END OF REMUNERATION REPORT - AUDITED

Signed in accordance with a resolution of the Directors.

West Perth

Western Australia

12 September 2018

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 of Oilex Ltd for the financial year ended 30 June 2018 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

Derek Meates

Partner

Perth

12 September 2018

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 2018

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 2018

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 2018

(1) Prior period 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.

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 2018

ABOUT THIS REPORT

NOTE 1 - REPORTING ENTITY

Oilex Ltd (the Company) is a for-profit entity 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 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 12 September 2018.

(b) Basis of Measurement

The consolidated financial statements have been prepared on the historical cost basis except for share-based payment arrangements measured at fair value and the foreign currency translation reserve. 

A number of the Group's accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for some measurement and/or disclosure purposes and where applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

(c) 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 $4,444,958, including a $1,233,898 increase in the doubtful debt provision, and had cash outflows from operating activities of $3,953,771. As at 30 June 2018, the Group's current assets exceeded current liabilities by $667,109 and the Group has cash and cash equivalents of $375,507.

On the 26 July 2018, the Group entered into loan agreements with existing investors to secure funding of $330,000 which has been received after year end. As part of the loan funding, options will be issued to the subscribers, which if exercised, the proceeds will be applied to the outstanding loan balance on the 26 July 2019. The issue of the options is subject to shareholder approval within 75 days after drawdown. Failure to secure shareholder approval will require immediate repayment of the loan principal and accrued interest.

On the 11 September 2018, the Group has entered into subscription and loan agreements for a capital raising to secure funding of up to A$1.14 million (£630,762).

The share issue will be made to clients of Novum Securities Limited (£300,000) and to existing shareholders including Republic Investment Management Pte Ltd (£193,652).

The Company anticipates that settlement for the equity placement will occur in two tranches in mid-September and in early October.

The Company has also entered into a binding loan agreement with Republic Investors Pte Ltd to secure funding of A$250,000. As part of the loan funding options will be issued to the subscribers, which if exercised, the proceeds will be applied to the outstanding loan balance on the 1 October 2019. The issue of the options is subject to shareholder approval within 75 days after drawdown. Failure to secure shareholder approval will require immediate repayment of the loan principal and accrued interest.

The Group has further reduced its discretionary administration expenditure by implementing further cost reductions.

The Group will require additional funds by early 2019 and further funding within the next twelve months in order to meet planned expenditures for its projects, ongoing administrative expenses and to progress the Cambay Field drilling programme, and for any new business opportunities that the Group may pursue. The Group may also require funds in relation to the matter set out in note 25.

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, through equity capital and debt raisings. 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, which creates uncertainty. In addition, the Group is working towards securing a new Joint venture partner for the Cambay PSC.

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 Group to achieve its forecast cash flows, particularly the raising of additional funds, represents a material uncertainty that may cast significant doubt about whether the Group 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.

(d) Currency and Foreign Currency Transactions

These consolidated financial statements are presented in Australian dollars, which is the Company's functional currency. The functional currency of the Company's subsidiaries is United States or Australian dollars.

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 are translated into the functional currency at the foreign exchange rate at the reporting date.

Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated into the functional currency at the exchange rate at the date that the fair value was determined. 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. Foreign currency differences are generally recognised in profit or loss.

(e) Basis of Consideration

These consolidated financial statements comprise the Company and its subsidiaries (collectively the Group and individually Group Entities).

i) Subsidiaries

Subsidiaries are entities controlled by the Group. The list of controlled entities is contained in note 17. 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 Operations

The interests of the Group in unincorporated joint operations and jointly controlled assets are recorded in note 18.

iii) 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.

(f) 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.

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(c).

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

Income Tax - refer note 5

Exploration and Evaluation Assets - refer note 7

Development Assets - refer note 8

Provisions - refer note 10

Trade receivables - refer note 12

(g) 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.

(h) Accounting Policies

Significant accounting policies that are relevant to the understanding of the consolidated financial statements have been provided throughout the notes to the financial statements. Accounting policies that are determined to be non-significant have not been included in the consolidated financial statements.

The accounting policies disclosed have been applied consistently to all periods presented in these consolidated financial statements and have been applied consistently by Group entities, except for the following changes in accounting policies.

· AASB 2016-5 Amendments to Australian Accounting Standards - Classification and Measurement of Share-based Payment Transactions. The standard makes amendments to AASB 2 Share-based Payment. The amendments address the accounting for the effects of vesting and non-vesting conditions and the accounting for a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled.

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 27).

 OILEX LTD'S RESULTS FOR THE YEAR

This section focuses on the results and performance of the Group.

NOTE 3 - OPERATING SEGMENTS

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components. The Group has identified its operating segments based upon the internal management reports that are reviewed and used by the executive management team in assessing performance and that are used to allocate the Group's resources. The operating segments identified by management are based on the geographical location of the business. Each segment has responsible officers that are accountable to the Managing Director (the Group's chief operating decision maker). The operating results of all operating segments are regularly reviewed by the Group's Managing Director to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available. Segment results that are reported to the Managing Director include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

The Group's executive management team evaluates the financial performance of the Group and its segments principally with reference to revenues, production costs, expenditure on exploration evaluation and development costs.

The Group undertakes the exploration, development and production of hydrocarbons and its revenue is from the sale of oil and gas. Information reported to the Group's chief operating decision maker is on a geographical basis.

Financing requirements, finance income and expenses are managed at a Group level.

Corporate items include administration costs comprising personnel costs, head office occupancy costs and investor and registry costs. It may also include expenses incurred by non-operating segments, such as new ventures and those undergoing relinquishment. Assets and liabilities not allocated to operating segments and disclosed are corporate, and mostly comprise cash, plant and equipment, receivables as well as accruals for head office liabilities.

Major Customer

The Group's most significant customers are Enertech Fuel Solutions Pvt Limited with gas sales representing 61% of the Group's total revenues (2017: 89%) and Indian Oil Corporation Limited, in its capacity as nominee of the Government of India, with oil sales representing 39% of the Group's total revenues (2017: 11%).

Revenue

Revenue is recognised when the significant risks and rewards of ownership have transferred to the buyer. Risks and rewards of ownership are considered passed to the buyer at the time of delivery of the product to the customer. Revenues from test production are accounted for as revenue.

Expenses

Impairment - refer notes 7 and 8

Doubtful debts - refer note 12

Depreciation - refer note 15

Amortisation - refer note 8

Employee benefits - refer note 10

Leases - refer note 24

There were no significant inter-segment transactions during the year.

(1) Joint Petroleum Development Area.

(2) Corporate represents a reconciliation of reportable segment revenues, profit or loss, assets and liabilities to the consolidated figure.

note 4 - revenue and expenses

Loss from ordinary activities before income tax has been determined after the following revenues and expenses:

NOTE 5 - INCOME TAX EXPENSE

Numerical reconciliation between tax expense and pre-tax accounting loss:

Tax Assets and Liabilities

During the year ended 30 June 2018, $64,643 of tax losses were recognised and were offset against the current tax liability resulting in nil tax assets and liabilities.

The deductible temporary differences and tax losses do not expire under current tax legislation.

The deferred tax asset not brought to account for the 2018 financial year will only be realised if:

· It is probable that future assessable income will be derived of a nature and of an amount sufficient to enable the benefit to be realised;

· The conditions for deductibility imposed by the tax legislation continue to be complied with; and

· The companies are able to meet the continuity of ownership and/or continuity of business tests.

The foreign component of the deferred tax asset not brought to account for the 2018 financial year will only be realised if the Group derives future assessable income of a nature and of an amount sufficient to enable the benefit to be realised and the Group continues to comply with the deductibility conditions imposed by the Income Tax Act 1961 (India) and there is no change in income tax legislation adversely affecting the utilisation of the benefits.

Tax Consolidation

In accordance with tax consolidation legislation the Company, as the head entity of the Australian tax-consolidated group, has assumed the deferred tax assets initially recognised by wholly owned members of the tax-consolidated group with effect from 1 July 2004. Total tax losses of the Australian tax-consolidated group, available for offset against future taxable income are $6,003,749 (2017: $6,518,031).

Accounting Policy

Income tax expense comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity, or in other comprehensive income.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for differences relating to investments in subsidiaries to the extent that they probably will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Key Estimates and Assumptions

The application of the Group's accounting policy for recognition of tax losses requires management to make certain estimates and assumptions as to future events and circumstances, including 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. A deferred tax asset is only recognised for unused losses if it is probable that future taxable profits will be available to utilise those losses.

In determining the amount of current and deferred tax the Group considers the impact of uncertain tax positions and whether additional taxes and interest may be due. The Group believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience. This assessment relies on estimates and assumptions and may involve a series of judgements about future events. New information may become available that causes the Group to change its judgement regarding the adequacy of existing tax liabilities, such changes to tax liabilities will impact tax expense in the period that such a determination is made.

NOTE 6 - LOSS PER SHARE

(a) Basic Loss Per Share

(b) Diluted Loss Per Share

The Company's potential ordinary shares, being its options granted, are not considered dilutive as the conversion of these instruments would result in a decrease in the net loss per share.

(c) Subsequent Transactions

The Company has entered into two loan agreements with existing investors since year end. The loan agreement on 26 July 2018 secured funding of $300,000 at 5% interest with a one year term plus 83,333,333 options over ordinary shares exercisable at $0.0036, which are subject to shareholder approval at a general meeting to be held 14 September 2018. The loan agreement on 15 August 2018 secured funding of $30,000 at 5% interest with a one year term plus 8,333,333 options over ordinary shares exercisable at $0.0036.

On 11 September the Company entered into a debt and equity capital raising to secure funding of approximately $1,142,200 (£631,980) before expenses.

The equity capital raising of 259,816,694 shares at A$0.003434 (0.19 pence) per share for gross proceeds of $892,196 (£493,655) has been undertaken by Novum Securities Limited (Novum) and is also supported by existing shareholders. In this regard, the Company has received firm written confirmation from Novum for the placing of 157,894,737 shares for £300,000 at 0.19 pence per share. In addition, the Company has entered into a subscription agreement with Republic Investment Management Pte Ltd (Republic) for 101,921,957 shares to raise £193,652 at 0.19 pence.

Pursuant to the advisory agreement with Novum, the Company will issue 9,473,684 unlisted options exercisable at 0.19 pence on or before three years following the completion with the capital raising.

The Company has also entered into a binding loan agreement with Republic to secure funding of $250,000 at 5% interest rate with a term to 31 October 2019 plus 60,664,887 options over ordinary shares exercisable at $0.004121, which are subject to shareholder approval, if required.

Accounting Policy

Basic earnings per share is calculated by dividing net profit or loss attributable to ordinary shareholders of the parent entity by the weighted average number of ordinary shares outstanding during the year, adjusted for any bonus element.

Diluted earnings per share is determined by adjusting the profit attributable to ordinary shareholders and weighted average number of shares outstanding for the dilutive effect of potential ordinary shares, which may comprise outstanding options, warrants and their equivalents.

 ASSETS AND LIABILITIES

This section provides information on the assets employed to develop value for shareholders and the liabilities incurred as a result.

NOTE 7 - EXPLORATION AND EVALUATION

As at 30 June 2018, the balance of exploration and evaluation assets relates to the Cambay Field, which is currently under evaluation, and there was no impairment of this asset, (2017: $373,780 was impaired in relation to STP-EPA-0131 in the Canning Basin).

The Cambay Field has minimal production that is sold to a third party.

Accounting Policy

Accounting for exploration and evaluation expenditure is assessed separately for each area of interest. Exploration and evaluation expenditure in respect of each area of interest is accounted for under the successful efforts method. 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 prior to securing legal rights to explore an area is expensed. 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 a successful discovery.

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 first tested for impairment and then reclassified as development assets.

Impairment of Exploration and Evaluation Expenditure

The carrying value of exploration and evaluation assets are assessed at each reporting date if any of the following indicators of impairment 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 asset is unlikely to be recovered in full, either by development or sale.

Key Estimates and Assumptions

The application of the Group's accounting policy for exploration and evaluation expenditure necessarily requires management to make certain estimates and assumptions as to future events and circumstances, particularly 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.

NOTE 8 - DEVELOPMENT ASSETS

Cambay Field Development Assets

There was no impairment of the Cambay Field development assets during the year ended 30 June 2018 (2017: Nil).

Development assets are reviewed at each reporting date to determine whether there is any indication of impairment or reversal of impairment. Indicators of impairment can include changes in: market conditions, future oil and gas prices and future costs, extension of the Cambay Production Sharing Contract and the status of the disputes arising from the issue of the event of default notice to GSPC.

No indicators of impairment were identified as at 30 June 2018 based on a review of key assumptions.

Accounting Policy

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.

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.

Impairment of Development Assets

The carrying value of development assets are assessed on a cash generating unit (CGU) basis at each reporting date to determine whether there is any indication of impairment or reversal of impairment. Indicators of impairment can include changes in market conditions, future oil and gas prices and future costs. Where an indicator of impairment exists, the assets recoverable amount is estimated.

An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. A CGU is the smallest identifiable asset group that generates cash flows that are largely independent from other assets and groups. The CGU is the Cambay Field, India. Impairment losses are recognised in profit or loss.

The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell (FVLCS). As a market price is not available, FVLCS is determined by using a discounted cash flow approach. In assessing FVLCS, 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. Valuation principals that apply when determining FVLCS are that future events that would affect expected cash flows are included in the calculation of FVLCS.

Impairment losses are reversed when there is an indication that the loss has decreased or no longer exists and there has been a change in the estimate used to determine the recoverable amount. Such estimates include beneficial changes in reserves and future costs, or material increases in selling prices. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of amortisation, if no impairment loss had been recognised.

Key Estimates and Assumptions

Significant judgements and assumptions are required by management in estimating the present value of future cash flows particularly in the assessment of long life development assets. It should be noted that discounted cash flow calculations are subject to variability in key assumptions including, but not limited to, the expected life of the relevant area of interest, long-term oil and gas prices, currency exchange rates, pre-tax discount rates, number of future wells, production profiles and operating costs.

An adverse change in one or more of the assumptions used to estimate FVLCS could result in an adjustment to the development asset's recoverable amount.

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. There are a number of uncertainties in estimating resources and reserves, and these estimates and assumptions may change as new information becomes available.

NOTE 9 - INVENTORIES

There were no reversal of writedowns to net realisable value.

Accounting Policy

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.

NOTE 10 - PROVISIONS

Accounting Policy

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and when a reliable estimate can be made of the amount of the obligation.

Provisions are made for site rehabilitation of an oil and gas field on an incremental basis during the life of the field (which includes the field plant closure phase). Provisions include reclamation, plant closure, waste site closure and monitoring activities. These costs have been determined on the basis of current costs, current legal requirements and current technology. At each reporting date the rehabilitation provision is re-measured to reflect any changes in the timing or amounts of the costs to be incurred. Any such changes are dealt with on a prospective basis.

Short-term employee benefits for wages, salaries and fringe benefits are measured on an undiscounted basis and expensed as the related service is provided. A liability is recognised based on remuneration wage and salary rates that the Group expects to pay as at the reporting date as a result of past service provided by the employee, if the obligation can be measured reliably.

The Group's net obligation in respect of long-term service benefits is the amount of future benefit that employees have earned in return for their service up to the reporting date. The obligation is calculated using expected future increases in wage and salary rates including related on-costs and expected settlement dates, and is discounted using the high quality corporate bond rate at the balance sheet date which have maturity dates approximating to the terms of the Group's obligations.

Key Estimates and Assumptions

In relation to 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.

NOTE 11 - CASH AND CASH EQUIVALENTS