» During the Quarter a workover rig was mobilised to the C-77H wellsite on 20 June 2022 to prepare the well for the planned re-frac operation in July.
» Production continued on the Company's Cambay gas field, together with gas sales, from the C-73 and C-77H wells.
UNITED KINGDOM CONTINENTAL SHELF CCS
» During the Quarter the Company continued to progress its Medway Hub Carbon Capture and Storage ("CCS") project in the UK. The Company is preparing to apply for CCS licenses under the current NSTA 1st carbon storage licensing round.
WEST KAMPAR, INDONESIA
» Subsequent to the end of the Quarter, the Company has been advised that its efforts to regain a participating interest and control of the West Kampar PSC in Indonesia have been unsuccessful. The Company understands the West Kampar PSC has been awarded to a third party. This marks the end of the Company's activities in Indonesia.
» This Report is for the period 1 April 2022 to 30 June 2022 (the "Quarter")
» Cash resources at 30 June 2022 were A$4.84 million (£2.74 million)
» Post Quarter end, a General Meeting of the Company was held on Wednesday, 13 July 2022 with all resolutions passed via a poll.
» During the Quarter the Company appointed Lisa Wynne as the new Company Secretary
» During the Quarter the Company arranged an equity capital raising, with existing and new sophisticated, institutional and other shareholders, led by Republic Investment Management Pte Ltd ("Republic") and clients of Novum Securities Limited ("Novum"), of £2.5 million (approximately A$4.4 million) before expenses, through the issue, in tranches, of 1,250,000,000 new fully paid ordinary shares ("Placement Shares") at £0.0020 (A$0.0035) per share ("Placement").
CHIEF EXECUTIVE OFFICER'S REPORT TO SHAREHOLDERS FOR THE QUARTER
Following a strategy review in 2021, Oilex Ltd ("Oilex" or the "Company") is currently focused on developing its primary asset in the Cambay Basin, India, and applying to acquire mature gas producing assets and instigate CCS projects in the UK. The focus of the Company will be centred on gas production and CCS to become a carbon-neutral gas producer.
During the Quarter the Company was focused on restarting gas production cycling between two existing production wells in its Cambay PSC, the success of which was achieved and announced on 8 April 2022. Oilex's acquisition of GSPC's 55% PI in the Cambay PSC has enabled it to accelerate field development of the Cambay field's c.930 BCF 2C gas resources (100% gross). Plans to re-frac the existing C-77H well are currently under way with preparatory civil works complete and all major services and equipment secured for the hydraulic fraccing operation, which is planned to commence in July 2022. Subject to the results of the re-fraccing operation, Oilex plans to demonstrate a reliable fraccing methodology for two new wells planned for calendar year 2023, subject to securing the necessary funding. Following the re-frac, the Company will seek to identify a new joint venture partner for the Cambay PSC to mitigate the funding requirement.
HEALTH, SAFETY, SECURITY AND ENVIRONMENT
All work was undertaken safely, without environmental incident and in accordance with COVID-19 related protocols during the Quarter.
CAMBAY FIELD, GUJARAT, INDIA (Oilex: Operator and 100% interest)
The Cambay field development is centred on the successful exploitation of the gas resources held in the Eocene EP-IV reservoir which extends across the field and has been penetrated by over 30 wells. The EP-IV reservoir comprises low permeability ("tight") siltstones and requires frac stimulation to provide economic gas production rates.
Whereas two horizontal wells (C-76H in 2011 and C-77H in 2014) were successfully and efficiently drilled to total depth in the EP-IV reservoir, the fraccing and completion of the wells were disappointing. In advance of drilling two new horizontal wells, the Company decided to re-frac the existing C-77H well to not only increase production but to also develop a reliable fraccing methodology that can be applied to future wells. C-77H had initial production levels of up to 1.0 mmscfd. The Company believes that a successful re-frac stimulation could potentially increase production levels by 3 to 5 times.
Well programs for two new horizontal wells (C-78H and C-79H) have been developed and the Company has engaged the Bedrock/Manan consortium for well management services for the C-77H re-frac (which is currently underway) and the execution of the two new wells which is planned, subject to securing the necessary funding, for calendar year 2023. Funding requirements may be mitigated by a successful farm out on the Cambay PSC.
Receipt of Outstanding Cash Calls
Oilex received a payment of US$154k from its previous Joint Venture partner resulting from reconciling final sale accounts with GSPC's finance team in April 2022. Post the acquisition of 55% of the participating interest in the Cambay field, the Company does not anticipate any further receipts from its previous Joint Venture partner.
Cambay Well 77H Re-Frac
During the Quarter the Company announced that all major services and equipment were secured for the planned C-77H re-frac operation. The workover rig arrived on location at the C-77H wellsite on 20 June 2022 and was being rigged-up in preparation for pulling the completion string from the C-77H wellbore. In addition, civil works to prepare the wellsite for the re-fraccing operations have been completed, and all major services and equipment have been secured for the hydraulic fraccing operation. The re-fraccing operation is planned to commence in July 2022, and is anticipated to last 7 days.
The re-fraccing operation will be followed by flow-back and testing. The Company currently expects to be able to announce the results of the re-frac operation in August 2022.
Cambay Production Re-start Update
During the Quarter the Company announced after a lengthy shut-in of production on the Cambay field (PI 100%), gas production and sales were stabilised from one well (C-73) at circa 0.3 mmscfd, with circa 21 bopd of gas condensate.
Later in the Quarter, the Company announced production for the month of May on the Cambay field (PI 100%), averaging 0.24 mmscfd gas production and 18.5 BPD condensate production. The majority of the production has been from the C-73 well but production from the C-77H well has been intermittently co-mingled to provide a route to higher production levels. However, low pressure grid constraints have limited production rates to the current c.0.3 mmscfd level. The low pressure grid constraints are being addressed by the grid operator which will allow for higher production rates from the field. Towards the end of the Quarter, the C-77H well was taken off production in preparation for the re-fraccing operation.
Cambay Reserves Re-classification
During the Quarter the Company announced the following update with respect to the re-classification of Cambay gas and condensate volumes to reserves and increase in resources.
1. A review of Oilex's net reserve and resource position in the Cambay PSC by an independent reserves auditor has resulted in the return of 206 BCF of gas and 8 million barrels of condensate to the 2P Reserves category from Contingent Resources.
2. Oilex's participating interest in the reserves and resources has increased from 45% to 100% following its purchase of GSPC's share of the project.
The revised reserve and resource position showing the re-allocation from Contingent Resource category to Reserves and the increase in volumes from the GSPC acquisition is shown in Tables 1 and 2:
In April 2015, the Company tabled a Resource Report on the Cambay Field Eocene gas and condensate reservoir which is the same reservoir that hosts current oil and gas production and that is the focus of the upcoming re-frac of the C-77H well as reported in recent announcements.
The resource report was prepared by independent oil and gas advisors RISC and allocated recoverable gas and condensate volumes across Reserve, Contingent Resources and Prospective Resources categories. In June 2016, due to changes in economic assumptions specifically a fall in world oil and gas prices and the then impasse with GSPC deferring field development activities, the Reserves component of the overall gas and condensate volumes was re-classified to Contingent Resources while the aggregate Reserve and Resource volumes remained unchanged.
RISC has again reviewed the recent material changes to the circumstances surrounding the Cambay project which remove the previous impediments to progress on the project development. These changes include the following:
1. Grant of a PSC term extension to September 2029 by the Indian government
2. Approval of a Field Development Plan for the Eocene reservoir by the Indian regulator (the Directorate General of Hydrocarbons)
3. Resolution of the joint venture impasse through Oilex's purchase of GSPC's participating interest taking Oilex's participating interest to 100%
4. Recommencement of gas and condensate production from the Eocene reservoir with the delivery of gas to buyers under a new gas sales agreement
5. Issue of new Environmental Clearances by the Indian government
6. Oilex's commitment to the required work program to develop the resources including advanced planning and contracting for a re-frac of the C-77H well planned to commence in July 2022
7. Improvements in economic factors including the high current global and Indian oil and gas prices and the high demand for petroleum products in India.
As a result, the contingencies for development identified in 2016 have been resolved and RISC considers that the Reserves re-classified as Contingent Resources in 2016 can now be reclassified as undeveloped Reserves, justified for development as shown in Table 1. The Company's net volumes have also increased following the GSPC acquisition as shown in Tables 1 and 2. At this point in time the 1P allocation is zero. Under the Society of Petroleum Engineers Petroleum Resource Management System (PRMS) the 1P volumes may be attributed once capital has been spent and a commercial analysis has confirmed a positive NPV10. Oilex intends that 1P volumes will be added at the appropriate time.
UNITED KINGDOM CONTINENTAL SHELF
Carbon Capture and Storage
During the Quarter the Company continued to progress its Medway Hub CCS project in the UK. The CCS project provides for the capture and transportation of CO2 emissions from coastal combined cycle gas turbines ("CCGT") power stations in liquid form by marine tanker to a floating injection, storage and offloading ("FISO") vessel from which the CO2 would be injected into the Esmond and Forbes depleted gas fields, which are situated in the UKCS, for permanent sequestration.
A pre-FEED* study was completed by Axis Well Technology, which confirmed the technical viability of the project as well as providing scoping economics.
The CCS project is contemplated to be a merchant scheme whereby emitters would pay for the capture, transportation and storage of CO2 from CCGT power station emissions under a long-term contract, instead of incurring the cost of carbon allowances.
The CCS project is subject to contracts with carbon emitters, regulatory approvals and funding. In addition, a full FEED* study will be required to further refine all of the technical aspects of the project, including project costings and economics to prepare for a final investment decision.
On 14 June 2022 the North Sea Transition Authority (NSTA) announced the 1st carbon storage licensing round which excluded the area around the Esmond and Forbes depleted gas fields. NSTA elected to exclude areas where potential CCS and windfarm operations may overlap for the 1st carbon storage licensing round although these may be included in a future licensing round. Consequently, the Company is preparing applications for CCS licenses in alternative structures that are covered by the current licensing round. The closing date for the 1st carbon storage licensing round is 13 September 2022 with license awards expected in early 2023.
JPDA 06-103, TIMOR SEA (Oilex: PSC Terminated 15 July 2015 - Operator and 10% interest)
In August 2020, on behalf of its Joint Venture Participants, Oilex announced a Deed of Settlement and Release (the "Deed") with the Autoridade Nacional Do Petroleo E Minerais ("ANPM").
Under the terms of the Deed, Oilex committed to a settlement of US$800k payable up to the financial year 2024. A total of US$550k has been drawn down to date on the US$800k loan facility provided by two of the joint venture partners to fund the settlement. The joint venture partners providing the loan facility were Japan Energy E&P JPDA Pty Ltd ("JX") and Pan Pacific Petroleum (JPDA 06 103) Pty Ltd ("PPP").
The draw downs from the loan facility, and settlement payments made to ANPM to date included the following:
• US$50k drawn down (US$25k from JX and US$25k from PPP) and paid to ANPM in August 2020;
• US$250k drawn down from JX and paid to ANPM in December 2021; and
• US$250k drawn down from JX and paid to ANPM in March 2022.
No draw downs were made from the loan facility during the current Quarter, leaving the settlement payable to ANPM at the end of the current Quarter unchanged at US$250k.
The loan facility from JX and PPP is restricted for the purposes of the settlement of the Company's liability with ANPM. The portion borrowed from PPP was fully repaid in December 2021. The movement in the remaining loan payable to JX during the current Quarter was as follows:
At the end of the Quarter, there is another US$250k available to be drawn from JX to fund the last instalment of the settlement payable, which is scheduled to be paid to ANPM in September 2022. The interest rate of the loan facility is 11% and the balance of the loan from JX, plus interest, is to be repaid in three instalments (in August 2022, February 2023 and August 2023), prior to the loan's maturity on 17 August 2023.
WEST KAMPAR PSC, CENTRAL SUMATRA, INDONESIA
Subsequent to the end of the Quarter, the Company has been advised that its efforts to regain a participating interest and control of the West Kampar PSC in Indonesia have been unsuccessful. The Company understands the West Kampar PSC has been awarded to a third party. This marks the end of the Company's activities in Indonesia.
CORPORATE AND FINANCIAL
General Meeting of Shareholders
Post Quarter the Company held a General Meeting of the Company on Wednesday, 13 July 2022. All resolutions were passed on a poll.
During the Quarter the Company arranged an equity capital raising, with existing sophisticated, institutional and other shareholders, led by Republic Investment Management Pte Ltd ("Republic") and clients of Novum Securities Limited ("Novum"), of £2.5 million (approximately A$4.4 million) before expenses, through the issue, in tranches, of 1,250,000,000 new fully paid ordinary shares ("Placement Shares") at £0.0020 (A$0.0035) per share ("Placement").
The first tranche of the Placement was completed on 31 May 2022 with the Company issuing 1,075,168,606 Placement Shares under the Company's current ASX Listing Rule 7.1 placement capacity. Out of the second tranche (being the balance of 174,831,394 Placement Shares), 69,932,558 shares were issued on 22 July 2022, following approval obtained at the Company's General Meeting on 13 July 2022. The remaining 104,898,836 Placement Shares are anticipated to be issued by the end of July 2022 or shortly thereafter.
Pursuant to the Company's capital raising advisory agreements, the Company will also issue 30,000,000 unquoted options, exercisable at £0.0020 (A$0.0035) on or before 30 April 2024 ("Fee Options"). The Fee Options were also approved at the general meeting on 13 July 2022 and are anticipated to be issued by the end of July 2022 or shortly thereafter.
Funds raised from the Placement are intended to be applied to the re-fraccing of the Cambay 77H well which is planned for July 2022 (with such re-fraccing now fully funded), the continued development of the Company's plans to undertake a drilling and testing appraisal program on the Cambay field, and the Company's working capital base.
Company Secretary Appointment
During the Quarter the Company announced the resignation of Suzie Foreman and the appointment of Lisa Wynne as Company Secretary. Lisa is a Chartered Accountant and Chartered Secretary with 16-plus years of experience in CFO and Company Secretary roles, and has Board level experience including with ASX and TSX listed companies and significant experience in the exploration and mining industries. Lisa is a Member of the Institute of Chartered Accountants, a Fellow of the Governance Institute of Australia and a member of the Australian Institute of Company Directors.
On 30 June 2022, Non-Executive Director, Mr Peter Schwarz, transferred 10,611,250 of his fully paid ordinary shares in the Company ("Ordinary Shares") from a nominee account held in his name to a nominee account of his spouse, Mrs Lesley Schwarz.
Further, on the same day, Mr Schwarz sold 10,611,250 Ordinary Shares held in his name at £0.00155 per Ordinary Share, then acquired an interest in 10,611,250 Ordinary Shares, which are held in his Stocks and Shares ISA in the registered name of Peter Schwarz, at £0.00165 per Ordinary Share.
Accordingly, the holdings of Mr Schwarz and his family in the Company remain unchanged at 21,222,500 Ordinary Shares.
Payments Made to Related Parties and Their Associates
The attached Appendix 5B includes an amount of A$261k in items 6.1 and 6.2 (total) which constitutes payments to directors for salaries, director fees and superannuation.
At 30 June 2022, Oilex retained cash resources of A$4.84 million (£2.74 million).
The Company also has a loan facility balance of US$250k, which is restricted for the purposes of the settlement of the Company's liability with ANPM. The interest rate of the loan facility is 11%. For further details of the loan refer to the "JPDA 06-103, TIMOR SEA" section above.