OVERVIEW

The Company's primary objective is to maximise shareholder value from its principal asset in the Cambay Basin, located onshore Gujarat State in India, whilst also continuing to review other opportunities to create value and diversify risk by adding new assets to the Company's project portfolio which to date focussed on the Cooper-Eromanga Basins in Australia (which is now subject to a conditional disposal) and the United Kingdom Continental Shelf (UKCS).

To that end, Oilex continues to evaluate and implement a range of technical programme options to progress its main objective of accessing the significant gas resource present in siltstones in the EP-IV reservoir at the Company's Cambay PSC. North American unconventional drilling, completion, and stimulation technologies have been applied by the Cambay JV over the last six years with positive but commercially modest results and work is underway to optimise results for future work programmes. The current work programmes are focused on:

· Implementing the settlement agreement reached with Gujarat State Petroleum Corporation (GSPC) to resolve the dispute over the Cambay PSC, and further develop the asset with a new partner;

· Preparing detailed work programmes, including new wells for implementation under the approved Field Development Plan (FDP),

· Arranging the necessary funding to implement the planned work programme; and

· Progressing the Company's new ventures in the Cooper-Eromanga Basins and the UKCS.

HEALTH, SAFETY, SECURITY AND ENVIRONMENT

No lost time incidents were recorded during the quarter.

CAMBAY FIELD, GUJARAT, INDIA

(Oilex: Operator and 45% interest)

Oilex holds a 45% PI in the Cambay Field, with GSPC holding the remaining 55% PI.

The Company's plans at Cambay are well advanced and include the drilling of up to two vertical wells, subject to, inter alia, securing the necessary funding.  

The priority will be to test the drilling and stimulation recommendations from the Baker Hughes-GE study in the EP-IV zone. Any early production will utilise the existing processing and storage facilities, which will be upgraded as required to provide a low-cost path to commercialisation. Given success, a larger drilling programme will follow, with the aim of aggregating sufficient production volumes to connect to the high-pressure pipelines which would offer greater offtake stability and improved gas prices. 

The re-commencement of field operations is, amongst other matters, dependent on finalisation of the settlement agreed with GSPC and necessary financing. Furthermore, u pon the removal of the applicable Covid-19 restrictions in India, the Company will review the planned work programme and update the market at that time.

Sale Process for Cambay PSC

On 9 September 2019, the Company announced that it had reached a settlement with GSPC which, upon completion, will resolve the ongoing Cambay PSC dispute.  Pursuant to the settlement, Oilex and GSPC have agreed that GSPC's 55% PI in Cambay PSC would be subject to a sale process. 

During the quarter, the Company advised that the sale process being conducted by GSPC for its 55% interest in the Cambay PSC continues.  The Company highlights that the sale process of GSPC's PI is internal and confidential to GSPC.  The sale has been and continues to be, subject to significant delays reflecting the impact of Covid-19 on all parties, and India generally.  Regular dialogue continues with both GSPC and the requisite representatives of the Government of India (GoI) to bring these efforts to a positive conclusion.

The Company also notes that the settlement agreement with GSPC has not waived the unpaid cash calls and, accordingly, the Company maintains its rights under the JOA.

Environmental Clearance

The Company is presently in the final stages of obtaining a new environmental clearance from the Ministry of Environment and Forest and Cabinet Committee to supercede the previous clearances already obtained under the previous regulatory requirements.  The clearances are necessary to recommence production at Cambay and in support of the planned drilling programme at Cambay.  Presently, an Environmental Impact Assessment has been prepared by the Company's independent consultants and is pending submission to the applicable authorities and following public hearings.  The public hearings are delayed due to the continued 'lockdown' on account of Covid-19.

Following receipt of the necessary environmental clearances, production from well C-73 and C-77H are on standby for re-commencement.

Joint Venture Management

During the quarter, Oilex received US$0.26m towards outstanding cash calls from its Joint Venture partner. Total outstanding cash calls from GSPC - Est. USD$5.5 million (inclusive of the Est. USD$3.054 million pursuant to the Event of Default (EoD) issued in 2018).

During the quarter, Oilex received US$0.26 million from GSPC towards outstanding cash calls with a further estimated US$0.13 million anticipated to be received in the December 2020 quarter.

BHANDUT FIELD, GUJARAT, INDIA

(Oilex: Operator and 40% interest)

Oilex holds a 40% equity interest in the Bhandut Field, with GSPC holding the remaining PI. Previous drilling in the Bhandut Field intersected a number of hydrocarbon zones, some of which produced historically and are now shut-in. 

The field is currently on care and maintenance and has existing production facilities. The WP&B 2020-21 has been submitted to the Director General of Hydrocarbons for approval.

On 28 January 2020, Oilex announced that it had accepted an offer from Kiri to acquire the Company's PI in Bhandut.  Pursuant to the Agreement entered with Kiri, the Company will receive US$0.29 million in cash proceeds for the sale of its PI and transfer of operatorship rights to Kiri.  Furthermore, Kiri has expressed an interest in engaging the services of Oilex's office to review field production, stabilize operations, and initiate field re-development of the Bhandut PSC in accordance with the FDP.  Bhandut is presently shut-in and has been fully provided for in the Oilex financial statements as at 30 June 2019.

The sale of the Bhandut PSC is nearing completion with only transfer by the GoI now required.  The Company continues to assist the new buyer, Kiri and Company Logistics Private Limited, in finalising the transaction and with its future activities in the PSC under a contract arrangement.

During the quarter, GSPC paid US$0.05 million towards outstanding cash calls from its Joint Venture partner with a further estimated US$0.31 million anticipated to be received in the December 2020 quarter.

Cooper-Eromanga Basins

Sale of Cooper Eromanga Basin Assets

On 15 October 2020, Oilex announced the completion of the sale of all of its interests in the Cooper-Eromanga Basins to Armour Energy Limited (Armour) (ASX:AJQ). Pursuant to the Share Purchase Agreement (SPA), Armour has now acquired 100% of the issued capital of CoEra Limited (CoEra), a wholly-owned Company subsidiary which holds all of Oilex's interests in the Cooper-Eromanga Basins.

The Company's interests in the Cooper-Eromanga Basin comprise:

• 79.33% direct interest in two Petroleum Exploration Licences (PEL 112 and PEL 444) with an option to acquire the remaining 20.67%;

• right to acquire 27 Petroleum Retention Licences from Senex Limited (Northern Fairway PRLs); and

• successful bid Block CO2019-C (PELA 677).

As consideration for the acquisition of Oilex's interests in Cooper-Eromanga Basins, Armour issued 22.05 million Armour shares to Oilex, being Oilex's share of the Tranche 1 consideration. Armour has also reimbursed Oilex in cash for past costs of A$125,000.

Furthermore, if after 60 days from completion the closing Volume Weighted Price Average of Armour shares trading on the ASX falls below $0.037 then Armour shall be required to issue such additional shares in itself (Adjustment Shares) to Oilex, or its nominee to ensure Oilex receives a consideration value of A$906,500, subject to the maximum in Adjustment Shares of ten (10) million Armour shares.  Oilex is entitled to receive 90% of this Tranche 2 consideration.

The shares issued as consideration by Armour are subject to a 12-month voluntary escrow from the date of completion.   In addition, Armour has reimbursed Oilex, in cash, for past costs of A$125,000.

United Kingdom Continental Shelf

East Irish Sea

On 23 December 2019, the Company announced that it had entered into a binding term sheet to acquire a 100% participating interest in the Doyle-Peel licence (P2446) in the East Irish Sea (EIS), offshore the United Kingdom.

The Company advised on 15 March 2020 that it agreed to the following amendments to the agreement with Burgate Exploration and Production Ltd ("Burgate") regarding the acquisition of the Doyle-Peel licence (P2446):

• the completion of the acquisition of the P2446 licence, subject to the applicable conditions precedent, extended from 30 June 2020 to 31 December 2020; and

• the issue of the share consideration for the acquisition of Doyle-Peel is subject to shareholder approval under Listing Rule 7.1.

Doyle-Peel Project Overview

The EIS licences are in a proven gas fairway in the centre of the East Irish Sea Basin in shallow water near existing infrastructure reducing the complexity, risk, and cost of development. The EIS is a prolific basin that has produced around 8 TCF of gas to date with considerable existing gas production, gathering, processing, and transportation infrastructure.  The depth to the target reservoirs is less than 2,000 metres thus providing modest drilling costs.

The licenses lie on the west-dipping graben edge of the Tynwald Fault Zone on the structural trend with the Rhyl and North Morecambe producing gas fields.  Historical production from the primary Triassic Ormskirk reservoirs on this trend shows excellent deliverability characteristics.

The Ormskirk sandstones were deposited in a continental fluvial regime which became drier and more aeolian (with a higher proportion of dune sands) towards the top. The regional seal is provided by the evaporites and mudstones of the Mercia Mudstone group which attains a thickness in excess of 1,000 metres across the basin resulting in low seal risk. Gas charge comes from the Carboniferous Coal Measures which underlie much of the basin. A secondary reservoir-seal pair is provided by the Permian Collyhurst sandstone and overlying evaporites.

The Doyle prospect consists of a tilted fault block closed on the up-dip east side by the north-south trending boundary fault of the Tynwald Fault Zone.  This fault down throws to the east and the footwall of Ormskirk sandstone juxtaposes Mercia Mudstone salts and shales forming a very effective cross fault seal. There is a clearly defined east-west fault bounding the southern extent.  The fault block is distinguished by the strong reflection response shown on the amplitude display.

The Peel prospect is a fault block occupying a structurally similar setting to Doyle and the producing Rhyl gas field.  It is fault-bounded to the east by the Tynwald Fault Zone, with effective cross fault and top seal provided by the Mercia Mudstone. To the south and southwest, dykes have been emplaced which would provide near-vertical seals. The amplitude of the Ormskirk reflector is similar in reflection strength to the Rhyl productive area providing the possibility that this indicates a gas charge.

Blocks 113/22a (Doyle) and 113/27e (Doyle and Peel) have been merged into a single licence being P2446.  Block 113/22a was awarded in the UK Offshore 31st licensing round whereas block 113/27e was awarded in the 30th round.

Pursuant to the award of the P2446 licence, the committed work programme comprises a firm commitment by October 2021 to obtain and reprocess 50 square kilometres of 3D seismic data, obtain 2,500 kms Aeromagnetic data and complete a Rock Physics study.  Following which the Licence has a three-year drill or drop election.

Transaction Overview

Burgate holds a 100% participating interest in Peel-Doyle, in the United Kingdom Seaward Production Licence (P2446, Blocks 113/22a and 113/27e).

Oilex has entered into the Term Sheet to acquire a 100% participating interest in the P2446 licence for consideration of:

a)  payment of £60,000;

b)  issue of 42,500,000 fully paid ordinary shares in Oilex Ltd with a deemed value of £85,000; and

c)  overriding royalty to be paid on the following basis:

i.  0.5% of actual gross revenue from commercial production up to the point when gross capital expenditures related to the development of the licence have been fully recovered from net cash flows ("Payback"); and

ii.  following Payback, the royalty to be paid shall be 2.25% of actual gross revenues.

The completion of the acquisition of the P2446 licence is subject to the following conditions precedent by 31 December 2020:

a)  the UK Oil and Gas Authority ("OGA") approving the assignment and transfer of the P2446 licence from Burgate to Oilex;

b)  the execution of applicable documents necessary to transfer the P2446 licence to Oilex;

c)  execution of a royalty agreement in a form acceptable to the parties; and

d)  the issue of the share consideration for the acquisition of Doyle-Peel receiving shareholder approval under Listing Rule 7.1.

JPDA 06-103, TIMOR SEA

(Oilex: PSC Terminated 15 July 2015 - Operator and 10% interest)

In October 2018, the Company announced the Autoridade Nacional Do Petroleo E Minerais (ANPM) had commenced arbitration proceedings against Oilex and its joint venture partners, in regard to the JPDA PSC where Oilex and its joint venture partners in the PSC were subject to a penalty claim of US$17 million (plus interest).  Oilex is the Operator of the PSC on behalf of the joint venture.

The arbitration hearing, which was scheduled to commence on 10 February 2020, was subsequently suspended while the parties continue their commercial settlement negotiations.  During the quarter the Company, on behalf of the Joint Venture Participants in Joint Petroleum Development Area (JPDA) 06-103 Production Sharing Contract (PSC) in East Timor was pleased to announce it had executed a Deed of Settlement and Release (Deed) with the Autoridade Nacional Do Petroleo E Minerais (ANPM) to terminate the ongoing arbitration proceedings arising from the termination of the PSC by the ANPM in 2015 and settle all claims and counterclaims between the parties.  The execution of the Deed sees an amicable conclusion to the arbitration proceedings.

Under the terms of the Deed, Oilex has committed to a settlement of US$800,000 payable in the 2021 and 2022 financial years.  The settlement was fully provided in the Company's annual financial statements to 30 June 2019.  In addition, the Company has entered into an unsecured loan facility agreement with two of its joint venture partners which further provides the Company with the option, at its sole discretion, to extend the settlement payments

WEST KAMPAR PSC, CENTRAL SUMATRA, INDONESIA 

(Oilex: 45% interest and further 22.5% secured )

During the quarter the Company announced substantial progress has been made towards the Company's strategic objective to regain a participating interest in the West Kampar PSC in Indonesia, which is expected to lead, subject to financing, to recommencing production from the Pendalian Oilfield.

Following various meetings and correspondence with the Government of Indonesia (GoI) and with the support of our local Indonesian partner, the GoI has advised that our Proposed Direct Bid, through the Joint Study of the West Kampar Region, is declared administratively complete and have recorded it as a proposal for a Direct Offer through a Joint Study as stipulated in ESDM Regulation No. 35 of 2008. 

This confirmation from the GoI, which is exclusive to Oilex, provides a pathway to progress the proposed development of West Kampar and provides certain preferential rights in the award of the West Kampar PSC by the GoI.  Oilex's interest in the study and ultimate potential award of the PSC will be on a 50-50 joint basis with its local Indonesian partner, PT Ephindo.

Technical work carried out by Oilex and its advisors estimate that the field can be quickly brought back online at 350 to 400 bopd and that significant additional production potential may be possible from infill drilling and also water injection support.  The return to production will require careful execution in the field given that it has been shut in since 2016.  The oil occurs in five good quality, stacked reservoirs with some stratigraphic complexity, and the application of 3D seismic data which has been acquired but not interpreted should provide a significant improvement in the understanding of the reservoir distribution and future development planning.  Access to the data is to be negotiated with the seismic company that acquired it.  The oil is of good quality with no or little gas.  It is believed that previous production costs can be reduced.  A number of exploration opportunities are present both close to the Pendalian field and in the more distant parts of the block, these require further review evaluation.

CORPORATE

Equity Capital Raising

On 10 August 2020, the Company announced it had issued 312,500,000 ordinary shares pursuant to the placement first announced on 31 July 2020.  The share issue at GBP0.08 pence per share (0.144 AUD cents per share) was pursuant to an equity capital raising to secure funding of GBP0.25 million (AUD0.5 million (Subscription Shares). 

As announced on 31 July 2020, the Company advised that it had issued 15,000,000 unlisted options exercisable at GBP0.08 pence on or before 12 August 2022.  The options were issued to advisors pursuant to the equity capital raising.

Cash Balance

At the end of the quarter, Oilex retained cash resources of $0.51 million. 

Capital Structure

The shares and options on issue as at 30 September 2020 were as follows:

The above table does not include 113,636,364 options to be issued, subject to shareholder approval, pursuant to the extension of the Series C loan.

Qualified Petroleum Reserves and Resources Evaluator Statement

Pursuant to the requirements of Chapter 5 of the ASX Listing Rules, the information in this report relating to petroleum reserves and resources is based on and fairly represents information and supporting documentation prepared by or under the supervision of Mr Joe Salomon, Managing Director employed by Oilex Ltd. Mr Salomon has over 32 years' experience in petroleum geology and is a member of the Society of Petroleum Engineers and AAPG. Mr Salomon meets the requirements of a qualified petroleum reserve and resource evaluator under Chapter 5 of the ASX Listing Rules and consents to the inclusion of this information in this report in the form and context in which it appears. Mr Salomon also meets the requirements of a qualified person under the AIM Note for Mining, Oil and Gas Companies, and consents to the inclusion of this information in this report in the form and context in which it appears.