Interim Report 31 December 2015
The directors present their report together with the condensed interim financial report of the Group comprising of Oilex Ltd (the Company) and its subsidiaries for the half year ended 31 December 2015 and the auditor’s review report thereon.
Interim Report 31 December 2015
The directors of the Company at any time during the interim period and until the date of this report are detailed below. All directors were in office for this entire period unless otherwise stated.
Mr Max Dirk Jan Cozijn Non-Executive Chairman
Mr Jonathan Salomon Non-Executive Director - Appointed 29 November 2015
Mr Bradley Lingo Non-Executive Director - Appointed 11 February 2016
Mr Ronald Miller Managing Director
Mr Sundeep Bhandari Non-Executive Vice Chairman - Ceased 25 November 2015
Mr Jeffrey Auld Non-Executive Director - Ceased 25 November 2015
The Group incurred a consolidated loss after income tax of $23,307,742 for the half year (31 December 2014: loss of $3,118,088). Revenue for the period has decreased due to the decline in the oil price combined with a decrease in production in the current period. The increase in the loss was primarily due to $11,572,740 for the non-cash impairment of exploration and evaluation assets, $3,466,892 for the non-cash impairment of development assets and the increase in exploration and evaluation expense due to the accrual of the Joint Venture Partner’s share of Cambay Joint Venture creditors totalling $1,723,200 (refer note 10) in the current period (31 December 2014: nil). Higher administrative expenditure $2,272,774 (31 December 2014: $1,718,780) includes significant legal fees incurred due to the Zeta Resources Limited litigation. Cash and cash equivalents held by the Group as at 31 December 2015 totalled $11,546,688 (30 June 2015: cash and cash equivalents $1,187,158).
Review of Operations
Oilex is focused on assets around the Indian Ocean Rim. The Company is evaluating and commercialising the extensive Eocene low permeability (tight) reservoirs in its onshore Cambay Field project located in the state of Gujarat, India, where energy market fundamentals are relatively attractive. Oilex is applying tight reservoir evaluation, drilling and production techniques which have been developed and widely used by the shale gas and tight oil (SGTO) industry in North America. Oilex also has a large frontier acreage position in the onshore Canning Basin, Western Australia, which is anticipated to be prospective for conventional and SGTO resources.
Production for the period was 3,112 boe. Oil production for the period was net 1,104 bbl (prior period 2,588 bbl) and gas production was 2,008 boe (nil for the prior period). The lower production during the current period was a result of C-77H production only recommencing in December 2015. C-73 and various workovers also contributed to production during the period. Production for the half year ended December 2014 included C-77H well test production which was completed in November 2014.
Sales from the Cambay Field for the half year to December 2015 included oil and gas and amounted to net 2,598 boe (prior period 2,009 boe).
During the period a number of workovers were completed.
During the period a workover was successfully completed on Cambay-19z, which produced oil within expectations at ~12 bopd plus associated gas from the Eocene (EP-IV) formation. Cambay-19z is located approximately 1.4 km to the west of Cambay-77H.
Additional workover activity was undertaken at Cambay-20 to improve production performance. This workover activity involved the installation of a hydraulic lift pump unit and downhole pump. Cambay-20 has previously been an intermittent oil and gas producer without using a downhole pump. Upon completion and pumping out of the brine gas was detected at surface in a similar manner to Cambay-19z and influx of liquids from the reservoir to the well bore was being assessed during the period to determine the overall production potential of the well.
The Company completed the workover of Cambay-77H which included replacement of the frac tree with a production tree and installation of production tubing. Since restarting production in December 2015, Cambay-77H production has gradually increased from 51 boepd. The initial average production rate for 10 days (IP10) was ~71.5 boepd and average IP10 condensate gas ratio (CGR) was ~92.5 bbls/MMscf. Production for 30 days was achieved on 4 January 2016 and Cambay-77H averaged ~70 boepd, meeting the buyer’s demand, with an average tubing head pressure of 1,851 psig and the CGR remained stable averaging ~90 bbls/MMscf. With further production, it is expected that the CGR may decrease to the anticipated 40-50 bbls/MMscf as the tubing head pressure decreases.
Cambay Gas Market
Cambay-77H gas continues to be sold into the low-pressure gas market in the immediate vicinity of the field partially serviced by the gas buyer and has a peak demand rate of ~0.57 MMscfd. The Company has been monitoring the licensing process by the Government of India (GOI) for expansion of a City Gas Distribution Network for the Anand Geographical Area (Area) which is ~1,900 km2. The Cambay Field is located within the Area and has a natural competitive advantage to imported LNG, which is currently used to supplement domestic gas within the Area.
Cambay-78H and Cambay-80H
During the period the joint venture partner had formally indicated to the Company that it wished to vary the approved 2015/16 work programme, by flowing Cambay-77H for a period of six continuous months before embarking on the approved 2 well drilling campaign which included Cambay-78H and 80-H. In light of this and a change in the Company’s funding arrangements resulting from non-receipt in November 2015 of the deferred settlement portion of the capital raising from Zeta Resources Limited, which was approved by Shareholders on 12 August 2015, the commencement of the approved two well drilling programme, including tendering, has been delayed. Any change to the approved work programme for the Joint Venture agreed between the parties requires subsequent approval by the GOI, under the terms of the Cambay Production Sharing Contract.
Production Sharing Contract (PSC) Term
The PSC primary term expires in September 2019, provides for two five year extensions, such that the PSC could be extended to 2029, subject to a field development plan being submitted. The GOI has recently issued a policy proposal to extend the term of the PSC to the economic life of the field. The GOI proposal is anticipated to be finalised in 2016.
Cambay Joint Venture Management
The Company has had a number of constructive meetings with its joint venture partner to resolve the outstanding joint venture receivable amounts, the workover campaign, rescheduling the drilling of Cambay-78H and Cambay-80H wells, and the joint venture partner’s participation in these wells. While these negotiations continue, various activities for the Cambay project will be delayed. As at 31 December 2015 Indian joint venture third party creditors totalled US$2.3 million, and creditor payments are being managed by the Operator pending receipt of outstanding cash calls. As at 31 December 2015 the joint venture partner owed ~US$7.3 million to the Cambay Joint Venture.
A draft budget for the 2016/17 year has been submitted to the Joint Venture for review and consideration.
Oilex has engaged the services of Mr Vijay Misra to provide strategic advice for its Indian business. Mr Vijay Misra has over 25 years’ experience in the oil and gas industry in India, including senior positions with ONGC and Oil India Ltd including Staff Officer to the Chairman, Country Head for the Sapura Group (Malaysia). Mr Misra has been Chairman of Interlink Petroleum Limited since October 2012.
During the period Oilex progressed the establishment of production facilities for Bhandut-3. The Bhandut-3 well and the associated gas production facilities were ready for start-up in December 2015. The gas buyer is responsible for construction of a pipeline to deliver the gas for further processing and had undertaken to have the pipeline completed no later than 31 December 2015. The Company anticipates that this will now be completed in March 2016 to allow commercial production to commence. Bhandut gas is delivered to a third party operated gas processing plant where the gas is further treated to the required pipeline specification and subsequently compressed for entry into the gas network.
The Bhandut-3 production test results have been further analysed and the internal deterministic estimate of 2C Contingent Resource has been upgraded to ~425MMscf (~170MMscf Oilex net) as at 21 August 2015.
Wallal Graben - Western Australia (Canning Basin)
The Goldwyer Formation, a potential resource play, is interpreted to exist within the Wallal Graben. The Wallal Graben may be a relative sweet spot for these organic-rich source rocks as geologically it appears to have been a restricted basin.
The Company has identified and evaluated a suite of 14 conventional leads within three application permits. The leads and prospects inventory comprises multiple play-types ranging from simple structural traps to well-defined fan systems. An evaluation of the unconventional prospectivity was also undertaken which highlighted that unconventional plays are interpreted to exist.
The signing of Heritage Agreements with the Nyangumarta people in relation to the two northern blocks is linked to a request to the Department of Mines and Petroleum (DMP) that all three blocks be awarded simultaneously. Consultations on the Heritage Agreements for all blocks are ongoing. Subsequent to finalising Heritage Agreements with the Native Title parties, the DPM will make an offer to grant a Petroleum Exploration Permit for each of the three blocks to the Company for acceptance.
Farmout efforts are still underway and the Company continues to review how to best market and fund this project given the current difficult economic climate for the oil and gas industry.
The interest in the exploration asset offshore Timor Sea was terminated on 15 July 2015 by the Autoridade Nacional do Petroleo. The Joint Venture has disputed the claim of US$17,018,790 and is attempting to reach an amicable settlement.
Oilex continues to pursue the enforcement of the Arbitration Award with respect to its interest in the West Kampar PSC, onshore Sumatra, Indonesia.
The consolidated financial statements have been prepared on a going concern basis which contemplates that the Group will continue to meet its commitments and the realisation of assets and the settlement of liabilities in the normal course of business.
The ability of the Group to meet both contractual and forecast expenditure will require additional funds through asset sales or new share issues. Further information is provided in Note 2 (b) of the consolidated financial statements.
In July 2015, Oilex announced a two tranche placement and underwritten rights issue to raise $30 million (Capital Raising). The Capital Raising comprised the following components:
- First tranche placement raising $1.8 million, completed in July
- Fully underwritten rights issue raising $7.0 million, completed in August
- Second tranche placement raising $11.8 million, completed in August
- Zeta Resources Limited deferred shares and convertible notes to raise $9.4 million to be settled by 12 November 2015
Zeta Resources Limited (Zeta) subscribed for rights issue shortfall shares and second tranche shares totalling 112,011,067 and paid $4,592,454 to increase their interest in the Company to 10.3%. Zeta defaulted on its deferred funding commitment of $9.4 million and commenced legal action against the Company. The Company filed its defence and counterclaim on 16 December 2015. The parties had agreed to a standstill on legal action until 1 March 2016 to explore a possible commercial resolution. A resolution was unable to be agreed and as a result, and in accordance with consent orders made with the Federal Court on 29 February 2016, Zeta must now file and serve any reply and defence to Oilex’s cross claim by 29 March 2016. The parties are continuing discussions.
Significant Events After Balance Date
On 15 January 2016 the ANP advised it was willing to accept US$13,585,790 as full and final settlement. This offer was open to acceptance until 12 February 2016. Oilex (JPDA 06-103) Limited’s share of the revised demand for payment is US$1,358,579. On 11 February 2016, the Joint Venture rejected this offer on the basis that the Joint Venture considers a nil penalty should be imposed, and a much lower settlement figure is applicable. As at the date of this report the ANP has not responded to the Joint Venture.
The Company has not provided for a monetary settlement in its financial statements. As the Joint Venture has made significant overpayments in the work programme, it is of the opinion that the excess expenditure should be included as part of any financial assessment incorporated in the termination process.
The Joint Venture continues to discuss the financial liability of the Contractor upon termination with the ANP. Whilst negotiations continue the Contractor has not reached a conclusion with the ANP.
On 11 February 2016 Oilex announced the appointment of Mr Bradley Lingo as a Non-Executive Director. The appointment of a new independent non-executive director, with significant experience in the oil and gas industry, including business development, new ventures, mergers and acquisitions and corporate finance is in line with the Company’s decision to appoint additional directors to achieve the right mix of skills, experience and diversity which reflects the Company’s strategy and increase the balance of independence on the Board.
There are no other significant subsequent events occurring after balance date.
Interim Report 31 December 2015