ANNUAL REPORT 2O19 www.oilex.com.au For personal use only 01 OILEX LTD ANNUAL REPORT 2019For personal use only 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 Auditor's Report Shareholder Information Definitions Corporate Information 02 03 05 13 15 23 32 33 34 35 36 37 74 75 79 81 82 OILEX LTD ANNUAL REPORT 2019For personal use only 03 CHAIRMAN’S REVIEW Dear Shareholder, The 2018 financial year was a year of both challenges and delivery. The 2019 financial year has been similarly challenging. There are two words that best summarize this past financial year – resolve and resolution. For the better part of the financial year the Company has been locked in an effort to manage the continuing failure of our joint venture partner - Gujarat State Petroleum Corporation Limited (GSPC) – to meet its obligations under the Cambay Production Sharing Contract (Cambay PSC) in Gujarat State in India. This ongoing failure ultimately led the Company to declare GSPC to be in default under the Cambay Joint Operating Agreement (JOA) in May 2018. The Company’s resolve reflects the significant undeveloped multi TCF gas resource within the Cambay PSC - the Cambay Tight Gas Project - that requires further investment and appraisal work to ultimately demonstrate the project’s commerciality. In terms of delivery, although the Ministry of Petroleum and Natural Gas (MoPNG) approved a ten-year extension of the Cambay PSC in April 2018, during the past financial year, the Company has been firmly of the position that until such time as the disputes under the Cambay PSC with GSPC were resolved and the events of default were remedied in some form or fashion that no additional investment or any appraisal work could be undertaken. This continuing circumstance has been the ultimate test of the Company’s conviction in the commercial potential of the Cambay Tight Gas Project and a test of the Company’s resolve to (1) firstly, deliver a positive outcome for shareholders and (2) secondly, secure additional projects that the Company could build its future around based on its depth of technical and commercial experience built to deliver the Cambay Tight Gas Project. I can report that the resolve to deliver these outcomes for shareholders has delivered resolution on both fronts. In the first instance, the Company believes it has now secured a pathway to the ultimate resolution of the long-running dispute with GSPC in the Cambay PSC which will allow the appraisal of the Cambay Tight Gas Project to progress. On 9 September 2019, the Company announced that it had entered into an agreement with GSPC and the Director General of Hydrocarbons (DGH) pursuant to which GSPC would conduct a formal sale process to sell their interest in the Cambay PSC and thereby exit the joint venture allowing a new committed partner, once identified, to enter the project and for the project to thus proceed. Under this agreement, GSPC is committed to complete this sale process within 90-days of the agreement therefore allowing the Company to begin planning to commence work on the project in the coming calendar year. Delivering this resolution enables the Company to get back to the tools and start not only the planning but the actual appraisal drilling, completion and stimulation program that the technical studies undertaken with Schlumberger, Baker Hughes GE and Oilfield Data Services Inc. outlined as the next stage of work programs to prove the commerciality of the Cambay Tight Gas Project. With respect to securing additional growth projects that deliver value for shareholders, the Company has also delivered. After exhaustive consideration of many alternatives, the Company selected two very specific areas to focus on based on the Company’s technical and commercial knowledge, expertise and experience that could deliver significant value recognition from the Company’s existing shareholder-base and attract significant interest from existing and prospective new shareholders. These two focus areas are two recognized ‘Super Basins’ that are very much open for business to junior oil and gas companies with highly supportive regulators, have a wealth of existing, high quality open file data and present multiple low cost entry opportunities in terms of production, development and exploration positions - the Australian Cooper Basin and the UK Offshore Continental Shelf. The Company has delivered in both focus areas. In the Cooper Basin, the Company has secured 100% working interest and operatorship of prime acreage positions in the proven Western Flank Oil Fairway and the Northern Oil and Wet Gas Fairway covering approximately 4,700 km2 (1.1 million acres) with significant existing 3D seismic coverage, a significant undeveloped tight discovery with 3C contingent resources of over 1 TCF and deep portfolio of appraisal and exploration leads and prospects. Similarly, in the UK Offshore, the Company has secured in the prolific East Irish Sea the exclusive rights to acquire participation of up to 50% participating interest in three undeveloped gas discoveries immediately adjacent to the North Morecombe Gas Production Platform and Gas Terminal and subsea gathering pipeline – two of which have been drill stem tested and flowed at 12.3 and 22 MMSCFD of low CO2 raw gas. Both the positions in the Cooper Basin and the UK offshore Continental Shelf-East Irish Sea are important new platforms for the Company to deliver growth and value for shareholders that are both real and tangible. Coming from the Company’s resolve, there has been delivery of the expected resolution of the issues that have prevented the appraisal and with success the development of the Cambay Tight Gas Project and delivery of two new platforms for growth and delivery of value for shareholders. We expect that the coming year will see delivery of much activity in each of these areas that will yield significant results. It is our objective to align these three platforms for growth in such a way as the maximize their ability to deliver value across the Company’s diverse shareholder base that will maximize the value recognized by shareholders. 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 30 September 2019 OILEX LTD ANNUAL REPORT 2019For personal use only 04 Cambay Production Facility OILEX LTD ANNUAL REPORT 2019For personal use only 05 BUSINESS REVIEW EXTERNAL IMPACT ON THE PETROLEUM INDUSTRY This last year has seen both oil and regional gas prices holding relatively firm globally, providing some buoyancy to the oil and gas sector. In particular strong interest in the sector has is evident from the UK investment community. The Indian economy remains strong with the Modi government returned to office in a general national election. The Prime Minister India has led an initiative to reduce its dependence on petroleum imports as energy security remains a major concern. The country continues to experience strong positive economic growth. Figure 1: Bhandut Production Facility OILEX LTD ANNUAL REPORT 2019For personal use only 06 BUSINESS REVIEW OILEX STRATEGY During 2018-2019, Oilex 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. Post-the reporting period the Company announced entries to both the Cooper-Eromanga Basins in Australia and the East Irish Sea in the UK. Both these entries follow a well-defined strategy focusing on proven super- basins with world class source rocks, well defined fairways, undeveloped discoveries, progressive regulators, open access to data, existing infrastructure and demonstrable upside potential for junior companies. INTRODUCTION Oilex’s 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. It 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. Development of the potential gas resources in the Cambay PSC has been held up during the year because of a dispute with the second partner in the project, Gujarat State Petroleum Corporation (GSPC). In May of 2018, Oilex announced that it had issued an Event of Default Notice (EOD) to GSPC for failure to pay US$3,054,832 of its participating interest share of expenses. In July 2018, the Company announced that it had issued a notice to require GSPC to withdraw (EoW) from the PSC and to transfer its participating interest to Oilex following the procedures defined by the Joint Operating Agreement (JOA) as GSPC had not remedied the EoD within the prescribed allowed time. Oilex’s action were driven by its desire to return to a drilling programme in the PSC with a pilot test to drill and flow test the identified gas resource. In August 2018, in response to the EoD and EoW, GSPC served notice of an exparte Order from the High Court of Gujarat directing Oilex not to take any coercive steps against GSPC to transfer its participating interest. A number of hearings in the High Court took place until 5 November when Oilex announced the final decision of the court which further delayed the implementation of the EoD and EoW under the conditions that GSPC deposited a sum of approximately US$1.1 million, a bank guarantee for approximately US$3 million with the court, and commenced arbitration proceedings. On the 19 November, Oilex announced that GSPC had complied with the above requirements. In the period from December of 2018 and through the first half of 2019, Oilex met with GSPC on many occasions seeking a commercial settlement to forestall arbitration proceedings and as a pre-cursor to restarting activities in the field. However, despite Oilex submitting a number of proposals, no agreement could be reached. On 9 September 2019, Oilex announced that an agreement with GSPC had been reached noting that the Indian government regulator DGH was also a signatory to the agreement. Under this agreement, GSPC must use its best endeavours to complete a sale of its 55% interest in the Cambay PSC within 90 days, Oilex to lift the EoD and EoW, GSPC is to discharge the SIAC arbitration proceedings, lift the stay order and recover its funds lodged with the High Court. Both parties are required to support the necessary actions to achieve these outcomes. Oilex has been in discussion with a number of Indian based companies who have expressed interest in the Cambay PSC and its potential. OILEX LTD ANNUAL REPORT 2019For personal use only 07 BUSINESS REVIEW CAMBAY FIELD Onshore Gujarat, India OILEX INTEREST OPERATOR 45% Oilex is the Operator of the Cambay Field and holds a 45% participating interest. The remaining 55% interest is held by Joint Venture partner, 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 past history of activity in the basin. This requires application of specific drilling and stimulation technologies to test whether the reservoir will produce at commercial rates. Oilex has developed a work plan to drill 2 vertical wells to test the EP-IV tight gas accumulation in a pilot programme involving stimulation of the reservoir to determine flow rate potential. A Field Development Plan (FDP) has been approved by the government regulator. This was additionally submitted to the Government as a requirement for the application to secure a 10 year extension to the PSC beyond 2019. The FDP encompasses a staged approach, initially focussing on drilling of a small number of new wells to gather key information on reservoir performance. It follows 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 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 of the evaluation confirm the potential for substantially increased flow rates with the application of the appropriate stimulation technology suite. The Government of India was very prompt in providing approval to both the FDP and the PSC extension application. The amended Cambay contract, reflecting the new expiry date of September 2029, is now pending finalisation by the Directorate General of Hydrocarbons. China Pakistan New Delhi Gujurat Cambay PSC Arabian Sea Mumbai I N D I A Hyderabad Nepal Bhutan Bangladesh Kolkata LEGEND Crude oil & product Pipeline Matural Gas Pipeline LNG Terminal Refinery City Capital Bangalore Chennai Bay of Bengal Sources: U.S. Energy Information Administration IHS Edin, USGS 0 250 500 Kilometers Figure 2: Gas Pipeline Network to the Nation OILEX LTD ANNUAL REPORT 2019For personal use only 08 BUSINESS REVIEW 1603 1650 1700 1750 1800 1850 1900 1950 2000 2050 2100 2150 2169 Figure 3: Cambay Field – recorded hydrocarbon flowrates from EP-IV (Y Zone) reservoir 0 1200 2000 Metres Cambay Field Top Y Zone (155 Horizon) Depth Map c.i.10m This initial pilot programme is, subject to securing the necessary funding, and the intention is for a larger drilling programme to 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. Any early production will utilise existing processing and storage facilities upgraded as required to provide a low-cost path to commercialisation. Further work on this work programme will restart once the GPSC sales process is complete. During the year, a small volume of gas was produced into the local low pressure pipeline from the Eocene reservoir. During this financial year, the C-77H well produced 25.22 mmscf and C-73 produced nil mmscf with total production from the block of 5,730 boe. 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. UNRISKED CAMBAY FIELD CONTINGENT RESOURCE ESTIMATES AT JUNE 2019 Net Gas Volume Bcf Net Condensate Volume million bbl 1C X & Y Zones 215 2C 417 3C 728 1C 12 2C 3C 27.4 54.6 During the financial year, the Joint venture received US$560,438 gross from GSPC against outstanding cash calls for Cambay. OILEX LTD ANNUAL REPORT 2019For personal use only 09 BUSINESS REVIEW BHANDUT FIELD Onshore Gujarat, India OILEX INTEREST OPERATOR 40% 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, GSPC. During 2019, GSPC ran a sales process for a number of its projects in the Cambay Basin. This sales process included the Bhandut PSC. The bid closing date was August 31 2019. Oilex is in discussion with potential bidders and is planning to include its participating interest and operatorship in the sale. 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. During the financial year, the Joint Venture received US$97,924 gross from GSPC against outstanding cash calls for Bhandut. At 30 June 2019, gross unpaid cash calls issued to GSPC totalled US$79,980. 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. Figure 4: Bhandut Production Facility OILEX LTD ANNUAL REPORT 2019For personal use only 10 BUSINESS REVIEW JPDA 06-103 Timor Sea OILEX INTEREST OPERATOR 10% WEST KAMPAR PSC Central Sumatra, Indonesia The Company was advised by the Indonesian Government regulator, SKK Migas,that the West Kampar PSC had been terminated following SPE’s failure to meet its obligations under the PSC. The Company continues to engage with the regulator with a view to returning its interest in West Kampar. On 22 October 2018, the Autoridade Nacional de Petoleo e Minerais (ANPM) issued arbitration proceedings against the Joint Venture to recover the claim it imposed upon the Joint Venture following the ANPM’s termination of the PSC. Oilex has a 10% participating interest and is acting as the Operator of the Joint Venture in the arbitration proceedings. In August 2019, the Company announced that it had submitted the Respondent’s First Memorial to the International Chamber of Commerce in Singapore. Furthermore, following a substantive legal and independent expert review, the joint venture has also lodged a US$23.3 million counterclaim against the ANPM as damages from the wrongful termination. The arbitration hearing is scheduled to commence in February 2020. Each Joint Venture party remains jointly and severally liable and has provided parent company guarantees. A notice of default has been issued against both Videocon JPDA 06-103 Limited and GSPC (JPDA) Limited for their failure to pay the joint venture cash calls. OILEX LTD ANNUAL REPORT 2019For personal use only 11 BUSINESS REVIEW 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. A number of debt and equity capital raisings were undertaken during the year to provide working capital for the Company’s activities: » » In July 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 July 2019, the Group entered into an amendment agreement to vary the terms of its loan funding facility of $330,000 entered into on 26 July 2018. Pursuant to the amendment, the loan repayment date has been extended from 26 July 2019 to 1 October 2019. In September 2018, the Company entered into another binding loan agreement with existing investors to secure funding of $315,000 at 5% interest rate with a term to 31 October 2019 plus 76,417,758 options over ordinary shares exercisable at $0.004121. In November 2018, 15,772,871 options were exercised by the investor with the proceeds of the related equity issue being used to repay the related loans balance of $65,000. CORPORATE The Company has dual listing on the Australian Stock Exchange (ASX) and on the Alternative Investment Market (AIM) of the London Stock Exchange with approximately 80% of the Company’s shares held on the Company’s UK register. During the year 100,190,999 broker options were exercised at WAEP £0.004. As at 30 June 2019 the Company had: » » In the September 2018 quarter, the Company arranged an equity capital raise resulting in the placement of 278,237,748 new ordinary shares at an issue price of £0.0019 (A$0.0034) for gross proceeds of £0.53m (A$0.96m); In the December 2018 quarter, the Company arranged an equity capital raise resulting in the placement of 180,555,555 new ordinary shares at an issue price of £0.0036 (A$0.0063) for gross proceeds of £0.65 m (A$1.2m) » » » Available cash resources of $357,970; Borrowings at a carrying amount of $563,955 (face value: $580,000). (Reference should also be made to Note 27 – Subsequent Events for further information); and Issued capital of 2,587,318,001 fully paid ordinary shares and unlisted options of 161,220,442. OILEX LTD ANNUAL REPORT 2019For personal use only 12 BUSINESS REVIEW EXECUTIVE AND BOARD CHANGES HEALTH, SAFETY, SECURITY AND ENVIRONMENT In September 2019, after year end the Board was very pleased to announce the appointment of Mr Peter Schwarz as an Independent Non-Executive Director. A former director of BG Exploration and Production Limited and CEO of independent exploration company Virgo Energy Ltd, Mr Schwarz is a certified petroleum geologist and business development professional with over 35 years’ experience in the oil and gas industry. Mr Schwarz has previously held various senior management roles with Amerada Hess, BG, and Marubeni and is currently a director of Finite Energy Limited, an oil and gas consultancy business he founded over 10 years ago, specializing in strategy and business development advice in the UK and Europe. Mr Schwarz holds a B.Sc. in Geology and a M.Sc. in Petroleum Geology from the University of London. 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. 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 33 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. OILEX LTD ANNUAL REPORT 2019For personal use only 13 PERMIT SCHEDULE AS AT 30 JUNE 2019 ASSET LOCATION Cambay Field PSC (1) Gujarat, India Bhandut Field PSC Gujarat, India JPDA 06-103 PSC (2) Joint Petroleum Development Area Timor Leste and Australia ENTITY Oilex Ltd Oilex N.L. Holdings (India) Limited Oilex N.L. Holdings (India) Limited EQUITY % OPERATOR 30.0 15.0 40.0 Oilex Ltd Oilex N.L. Holdings (India) Limited Oilex (JPDA 06-103) Ltd 10.0 Oilex (JPDA 06-103) Ltd (1) On 29 July 2018, the Company issued a notice to exercise its option to require GSPC to completely withdraw its 55% Participating Interest in the Cambay PSC following GSPC’s failure to completely remedy the Event of Default issued on 29 May 2019. On 5 November 2018 the High Court of Gujarat issued a judgement to further delay the implementation of the EOD subject to certain conditions being fulfilled by GSPC. GSPC subsequently met the conditions and invoked the JOA dispute resolutions in the Singapore International Arbitration Centre. Discussions between the parties have resulted in a settlement agreement co-signed by the Directorate General of Hydrocarbons. The EoD has now been lifted and GSPC is commencing a sale process to dispose of its 55% interest in the Cambay PSC. (2) PSC terminated 15 July 2015. OILEX LTD ANNUAL REPORT 2019For personal use only 14 2019 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 Auditor's Report Shareholder Information 15 23 32 33 34 35 36 37 74 75 79 OILEX LTD ANNUAL REPORT 2019For personal use only 15 DIRECTORS' REPORT Mr Jonathan Salomon (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 33 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. Mr Peter Schwarz (appointed 4 September 2019) (Non-Executive Director) B Sc (Geology), M Sc (Petroleum Geology) Mr Schwarz was appointed as a Non-Executive Director in September 2019. A former director of BG Exploration and Production Limited and CEO of independent exploration company Virgo Energy Ltd, Peter is a certified petroleum geologist and business development professional with over 35 years’ experience in the oil and gas industry. Peter has previously held various senior management roles with Amerada Hess, BG, and Marubeni and is currently a director of Finite Energy Limited, an oil and gas consultancy business he founded over 10 years ago, specialising in strategy and business development advice in the UK and Europe. During the last 3 years Mr Schwarz 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. For the year ended 30 June 2019 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 2019 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: Mr Bradley Lingo (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 33 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, Sunshine Gas Limited, AGL Energy, Roc Oil Limited, the Commonwealth Bank of Australia, Drillsearch Energy Limited and 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 March 2019) Mr Paul Haywood (Non-Executive Director) Mr Haywood was appointed as a Non-Executive Director in May 2017. Mr Haywood has over 16 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. During the last three years Mr Haywood has not been a director of any other ASX listed companies. OILEX LTD ANNUAL REPORT 2019For personal use only 16 DIRECTORS’ REPORT 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 2018/19 financial year are as follows: Board Meetings (1) Non-Executive Directors (4) B Lingo (3) P Haywood Executive Director J Salomon Held (2) 13 13 13 Attended 13 13 13 (1) 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. (2) Held indicates the number of meetings available for attendance by the director during the tenure of each director. (3) Current Chairman. (4) Mr Schwarz was appointed to the board subsequent to 30 June 2019. OILEX LTD ANNUAL REPORT 2019For personal use only 17 DIRECTORS’ REPORT EXECUTIVE MANAGEMENT PRINCIPAL ACTIVITIES Mr Jonathan Salomon (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 33 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. Mr Ashish Khare (Head - India Assets - appointed 8 November 2016) 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 2019 amounted to $3,118,121 (2018: loss of $4,230,977). Revenue for the period decreased due to lower production. Production was cycled from Cambay-77 to Cambay-73 in the September 2018 quarter resulting in minimal oil production thereafter. Gas production from Cambay-73 was voluntarily shut in during the March 2019 quarter with production ceasing from thereon. The prior year results included a reduction in variable operating expenses as part of Group’s effort to reduce costs. In the current year, efforts to contain costs have continued with further reductions in exploration $491,675 (2018: $651,993) and administration employee expenses $819,627 (2018: $925,660). Total Administration expenses of $1,957,850 (2018: $2,101,485) include the above-mentioned reduction in employee expenses; however, this has been offset by increased legal expenses related to the Cambay PSC. Other expenses include a reduction in doubtful debts expense of $108,206 (2018: $1,233,898). Cash and cash equivalents held by the Group as at 30 June 2019 has decreased to $357,970 (30 June 2018: $375,507). FINANCIAL POSITION The net assets of the consolidated entity totalled $3,364,861 as at 30 June 2019 (2018: $4,008,210). DIVIDENDS No dividend was paid or declared during the year and the directors do not recommend the payment of a dividend. Bachelor of Engineering (BE in Chemical Engineering, including petroleum management) REVIEW OF OPERATIONS Mr Khare was appointed Head - India Assets on 8 November 2016 and is based in Gandhinagar India and has over 18 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. 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 5 to 12 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. OILEX LTD ANNUAL REPORT 2019For personal use only 18 DIRECTORS’ REPORT LIKELY DEVELOPMENTS c) On 31 July 2019, the Company announced that it has Additional comments on expected results on operations of the Group are included in the Review of Operations on pages 5 to 12. 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 a) On 23 July 2019, the Group entered into an amendment agreement to vary the terms of its loan funding facility of $330,000 entered into on 26 July 2018. Pursuant to the amendment, the loan repayment date has been extended from 26 July 2019 to 1 October 2019. In addition, the Company will issue 124,060,150 new options to the lenders at an exercise price of $0.00266, which were subject to shareholder approval at a General Meeting to be held on 19 September 2019, which was duly forthcoming. All other loan terms and conditions remain the same; and are extended to 1 October 2019. The total 91,666,666 share options @ $0.0036 exercisable on or before 26 July 2019, attached to the original loans, were not exercised and have lapsed. The above-mentioned 124,060,150 options were subsequently issued on 27 September 2019. b) On 30 September 2019, the Company entered into an amendment agreement to vary the terns of its loan funding facility of $300,000 entered into on 26 July 2018; and the subsequent amendment noted in a) above. Pursuant to the amendment, the loan repayment date has been extended to 15 October 2019. Furthermore, the Company also entered into an amendment agreement to vary the terms of its loan funding facility of $250,000 entered into on 11 September 2018. Pursuant to the amendment, the loan repayment date has been extended from 1 October 2019 to 1 April 2020. Pursuant to the extension, the Company will issue 60,664,887 options at $0.004121 on or before 1 April 2020. arranged an equity capital raising to secure funding of £0.34 million (A$0.6 million) through the placing of 257,329,999 new shares at 0.13 pence (A$0.0023) per share. All shares were subsequently issued on 13 August 2019. d) On 7 August 2019, the Company announced that it has entered into an agreement with Holloman Energy Corporation (HEC) to acquire its 48.5003% interest in the Petroleum Exploration Licence (PEL) 112 and 444 license (the Licenses) in the world class Cooper-Eromanga Basins in South Australia. Pursuant to the share purchase agreement entered into with HEC, the Company will acquire 100% of its wholly owned subsidiary, Holloman Petroleum Pty Ltd (“HPPL”) for gross consideration of 40,416,917 ordinary shares in the Company (Shares) at a deemed price of A$0.003 and A$24,250 for a total consideration of A$145,500. e) On 14 August 2019, the Company announced that it has entered into an agreement with Perseville Investing Inc and Terra Nova Energy (Australia) Pty Ltd (TNA) (collectively, TNP) to acquire up to a further 51.4997% interest in the PEL’s 112 and 444 licenses. Pursuant to the share purchase agreement entered into with TNP, the Company will acquire a further participating interest of 30.833% in the Licenses for consideration of 9,166,333 ordinary shares in the Company at a deemed price of A$0.003 and A$65,000 in cash for a total consideration of A$92,499. In addition, the Company has been granted an Option by TNP for up to 15 months to acquire a further 20.6667% participating interest in the Licenses (Option). The Option can be exercised for consideration of 20,666,700 ordinary shares in the Company at a deemed price of A$0.003 for a total consideration of A$62,000 (Option Exercise Shares). f) In October 2018, the Company announced that Autoridade Nacional Do Petroleo E Minerais (ANPM) had commenced arbitration proceedings against Oilex and its joint venture partners (Respondents), in regard to the JPDA production sharing contract (PSC). On 16 August 2019, the Company announced it had submitted the Respondents First Memorial to the International Chamber of Commerce (ICC) in Singapore. In this regard, following a substantive legal and independent expert review, the joint venture has lodged a counterclaim against the ANPM for the amount of US$23.3 million (plus interest) as damages arising from the wrongful termination of the PSC. The arbitration hearing is scheduled to commence on 10 February 2020. Refer Note 26 for the full background information on this matter. OILEX LTD ANNUAL REPORT 2019For personal use only 19 DIRECTORS’ REPORT SIGNIFICANT EVENTS AFTER BALANCE DATE (CONTINUED) g) On 9 September 2019, the Company announced it has reached an agreement with Gujarat State Petroleum Corporation (GSPC) which, upon completion, will resolve the ongoing Cambay PSC dispute (the Agreement). Significantly, the Indian Directorate General of Hydrocarbons is a signatory to the Agreement. i) On 27 September, the Company announced that it has entered into a binding term sheet with Senex Energy Limited and certain of its related entities (together referred to as “Senex”) to acquire all of Senex’s interest as operator in 27 Petroleum Retention Licenses in the Northern Oil and West Gas Fairway in the world class Cooper-Eromanga Basins in South Australia (the “Northern Fairway PRLs”), subject to satisfaction of conditions (including government approvals). As previously announced in March 2019, the State Government of Gujarat and the GSPC Board of Directors’ have approved a sales process for many of GSPC’s Indian E&P assets. Oilex and GSPC have now agreed to include GSPC’s 55% Participating Interest (PI) in the Cambay PSC in this sale process. GSPC has also undertaken to use its best endeavours to complete the sale process within 90 days from commencement. Pursuant to the Agreement, the Event of Default (EoD) and Event of Withdrawal (EoW) declared by Oilex pursuant to the Cambay Field Joint Operating Agreement (JOA) has been withdrawn and the arbitration tribunal of the Singapore International Arbitration Centre (SIAC) issued an order on 24 September 2019 terminating the arbitration proceedings instituted by GSPC. GSPC has also undertaken to remove the stay order granted in the High Court of Gujarat. h) On 16 September 2019, the Company announced it has entered into an exclusivity agreement with Koru Energy (KLW) Ltd (“Koru”), a subsidiary of Koru Energy Limited, for a potential acquisition of up to a 50% relevant interest in the Knox and Lowry, and Whitbeck gas discoveries (the “KLW Gas Discoveries”) in the East Irish Sea (EIS), offshore the United Kingdom (“Exclusivity Agreement”). The KLW Gas Discoveries are a series of shallow water gas accumulations that were discovered between 1992 and 2009 by the then operators and successfully drill-stem tested confirming discovered volumes that the Company and Koru would seek to bring into production, should the acquisition complete. The KLW Gas Discoveries are ideally located very close to a subsea tie-back pipeline which delivers gas to the nearby and recently refurbished North Morecambe Gas Production Platform and Terminal. The EIS is a prolific basin which has produced more than 6TCF of gas to date with considerable existing gas production, gathering, processing and transportation infrastructure. The KLW Gas Discoveries are located in known conventional shallow reservoirs in shallow water near existing EIS gathering and production infrastructure reducing the complexity, risk and cost of development. The Company will acquire 100% of Senex’s interest in the Northern Fairway PRLs for nominal consideration and assumption of existing abandonment liabilities, PRL fees and PRL expenditure targets. The existing abandonment liabilities relate to previous exploration drilling activities (including the cased and suspended Paning-2 tight gas discovery well) and associated with the Cordillo 3D seismic acquisition operating camp. The existing rehabilitation liabilities are estimated at approximately $1.1m. However, the rehabilitation does not require immediate rectification. The total annual amount of the Northern Fairway PRL renewal fees is approximately $1 million. The Company also assumes the expenditure targets under the PRLs. Failure to achieve the expenditure target will result in pro-rata relinquishment of the permits. The Company notes that the Northern Fairway PRLs are currently suspended by the South Australian Government, suspending the annual license fees and work obligations. Oilex intends to continue this suspension for a period. The agreement with Senex is subject to various conditions including the approval of Oilex as operator of the Northern Fairway PRLs by the South Australian Government. Hartleys Limited, a leading Australian corporate advisory and stockbroking financial services firm, has been appointed to lead the arrangement of funding for the acquisition. Subject to the receipt of regulatory approvals, Oilex anticipates completion of the acquisition by the end of Calendar Year 2019. j) On 30 September 2019, the Company announced that it has arranged an equity capital raising to secure funding of £0.6 million (A$1.1 million) through the placing of 315,789,474 new shares at 0.19 pence (A$0.00348) per share. The shares will be issued to Novum Securities and existing shareholders. There were no other significant subsequent events occurring after year end. OILEX LTD ANNUAL REPORT 2019For personal use only 20 DIRECTORS’ REPORT FINANCIAL POSITION Capital Structure and Treasury Policy As at 30 June 2019 the Group had unsecured loans at face value $580,000 (2018: $nil). Refer note 14 of the Consolidated Financial Statements for details of the carrying amount, terms and conditions, repayment schedule, and options attached to the loans. Details of transactions involving ordinary shares during the financial year are as follows: September 2018 - Share Placements September 2018 Number of Shares Issued Value of Shares $ Gross Amount Raised $ 249,117,189 - 857,723 - Shares Issued for Consulting Services 10,843,344 September 2018 - Non-executive Director Remuneration 3,467,070 37,415 13,868 - - November 2018 - Exercise of Unlisted Options 90,190,999 - 356,187 November 2018 -Non-executive Director Remuneration 1,724,904 13,800 - December 2018 - Share Placements December 2018 - Exercise of Unlisted Options January 2019 - Share Placements April 2019 84,676,114 10,000,000 125,000,000 - Shares Issued for Consulting Services 1,760,000 April 2019 - Non-executive Director Remuneration 2,772,864 June 2019 - Shares Issued for Consulting Services 2,324,569 June 2019 -Non-executive Director Remuneration Total 3,472,569 583,025,053 - - - 8,800 13,864 9,298 13,890 110,935 458,809 39,180 809,517 - - - - 2,632,351 In accordance with the ASX Waiver granted 17 October 2018 the Company advises that the number of remuneration shares that were issued to non-executive directors totalled 11,437,407. This represents 0.44% of the Company’s issued capital as at 30 June 2019. As at the date of this report the Company had a total issued capital of 2,878,064,483 ordinary shares and 69,553,776 unlisted options exercisable at weighted average price of $0.004 per share. OILEX LTD ANNUAL REPORT 2019For personal use only 21 DIRECTORS’ REPORT FINANCIAL POSITION (CONTINUED) Material Uncertainty Related to Going Concern The financial report and audit opinion for the year ended 30 June 2019 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: B Lingo P Haywood J Salomon P Schwarz SHARE OPTIONS Unissued shares under options Number of Ordinary Shares Direct 13,648,950 3,319,101 14,987,013 - Indirect - - - - All options were granted in the current and previous financial years. At the date of this report, unissued ordinary shares of the Company under option (with an exercise price) are: Expiry Date Unlisted Options Issued in 2019: 1 October 2019 (1) 24 December 2020 Issued in previous financial years: 22 May 2020 Total Number of Shares Exercise Price 60,664,887 6,666,667 $0.004121 £0.0036 ($0.004) 2,222,222 69,553,776 £0.0025 ($0.004) (1) Issued in connection to unsecured loans. Refer note 14 of the Consolidated Financial Statements for further detail. These options do not entitle the holder to participate in any share issue of the Company or any other body corporate. OILEX LTD ANNUAL REPORT 2019For personal use only 22 DIRECTORS’ REPORT Unissued shares under option that expired during the year During the financial year, the following unlisted employee and advisor options expired or were cancelled upon cessation of employment: Date Lapsed 6 August 2018 Total Number 275,000 275,000 Exercise Price $0.35 Shares issued on exercise of unlisted options 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): During the financial year Total Since the end of the financial year Amount Paid on Each Share £0.002 ($0.003) £0.002 ($0.004) $0.004 Number of Shares 9,473,684 74,944,444 15,772,871 100,190,199 - INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS 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 24 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 2019 has been received and can be found on page 32. OILEX LTD ANNUAL REPORT 2019For personal use only 23 DIRECTORS’ REPORT 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. 1.1 Fixed Compensation 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. Reductions in remunerations introduced in 2016 and 2017 for Non-Executive Directors, the Managing Director, the Chief Financial Officer, and all staff have remained in place for the full financial year ended 2019. Compensation for senior executives is separately reviewed at the time of promotion or initial appointment. 1.2 Performance Linked Compensation 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 2019. 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. OILEX LTD ANNUAL REPORT 2019For personal use only 24 DIRECTORS’ REPORT 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. 2019 Share Price (cents) 0.2 2018 0.3 2017 0.3 2016 1.0 2015 6.1 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 2019. 1.3 Non-Executive Directors Total compensation for all Non-Executive Directors is based on comparison with external data with reference to fees paid to Non-Executive Directors of comparable companies. Directors’ fees cover all main Board activities and membership of committees, 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 2019. 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 2019, in order to conserve the cash reserves of the Company. Similar shareholder approval was also received at the Annual General Meeting held on 29 November 2018 for the period 1 November 2018 through to 31 October 2019. 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. 1.4 Clawback Policy The Board has adopted the following Clawback Policy applicable from August 2015. In relation to circumstances where an employee acts fraudulently or dishonestly, or wilfully breaches his or her duties to the Company or any of its subsidiaries, the Board has adopted a clawback policy in relation to any cash performance bonuses (including deferred share awards) or LTIs. The Board reserves the right to take action to reduce, recoup or otherwise adjust an employee’s performance based remuneration in circumstances where in the opinion of the Board, an employee has acted fraudulently or dishonestly or wilfully breached his or her duties to the Company or any of its subsidiaries. The Board may: » » » » » » » deem any bonus payable, but not yet paid, to be forfeited; require the repayment by the employee of all or part of any cash bonus received; determine that any unvested and/or unexercised LTIs will lapse; require the repayment of all or part of the cash amount received by the employee following vesting and subsequent sale of a LTI; reduce future discretionary remuneration to the extent considered necessary or appropriate to take account of the event that has triggered the clawback; initiate legal action against the employee; and/or take any other action the Board considers appropriate. 1.5 Remuneration Consultants There were no remuneration recommendations made in relation to key management personnel by remuneration consultants in the financial year ended 30 June 2019. 1.6 Adoption of year ended 30 June 2018 Remuneration Report At the Annual General Meeting held 29 November 2018 shareholders adopted the 30 June 2018 Remuneration Report with a clear majority of 269,627,880 votes in favour, being 96.97% of the votes cast. OILEX LTD ANNUAL REPORT 2019For personal use only 25 DIRECTORS’ REPORT 2. EMPLOYMENT CONTRACTS The following table summarises the terms and conditions of contracts between key executives and the Company: Executive J Salomon Position Contract Start Date Contract Termination Date Resignation Notice Required Managing Director 18 March 2016 18 March 2020 (2) 3 months 3 months For termination by the Company, three months’ salary plus any accrued leave Unvested Options on Termination Notice Required from the Company (1) Resignation Forfeited Termination Payment entitlement. If a Material Change Event occurs, employee may give notice to the Company within one month of the Material Change Event, terminating the Contract of Employment and following that effective date, the Company will pay a Termination Payment equal to six months’ fixed annual remuneration. The fixed annual remuneration of $350,000 was reduced by agreement to $271,950 effective from 1 October 2016. Subject to the Corporations Act 2001 and any necessary approvals required thereunder. M Bolton Chief Financial Officer and Company Secretary 3 June 2016 31 May 2020 (3) 3 months Forfeited 3 months For termination by the Company, three months’ salary plus any accrued leave A Khare Head of India Assets 1 May 2015 n/a 30 days Forfeited 30 days For termination by the Company, one months’ salary plus any accrued entitlement. leave entitlement. (1) The Company may terminate the contract immediately if serious misconduct has occurred. In this case the termination payment is only the fixed remuneration earned until the date of termination and any unvested options will immediately be forfeited. (2) The Managing Director’s contract has extended by mutual agreement between the Company and Mr Salomon on an ongoing basis as at the date of this report.. (3) The Chief Financial Officer’s contract has been extended by mutual agreement between the Company and Mr Bolton on an ongoing basis as at the date of this report. OILEX LTD ANNUAL REPORT 2019For personal use only 26 DIRECTORS’ REPORT 2. EMPLOYMENT CONTRACTS The following table summarises the terms and conditions of contracts between key executives and the Company: Executive J Salomon Position Contract Start Date Contract Termination Date Resignation Notice Required Unvested Options on Resignation Termination Notice Required from the Company (1) Termination Payment Managing Director 18 March 2016 18 March 2020 (2) 3 months Forfeited 3 months M Bolton 3 June 2016 31 May 2020 (3) 3 months Forfeited 3 months Chief Financial Officer and Company Secretary A Khare Head of India Assets 1 May 2015 n/a 30 days Forfeited 30 days For termination by the Company, three months’ salary plus any accrued leave entitlement. If a Material Change Event occurs, employee may give notice to the Company within one month of the Material Change Event, terminating the Contract of Employment and following that effective date, the Company will pay a Termination Payment equal to six months’ fixed annual remuneration. The fixed annual remuneration of $350,000 was reduced by agreement to $271,950 effective from 1 October 2016. Subject to the Corporations Act 2001 and any necessary approvals required thereunder. For termination by the Company, three months’ salary plus any accrued leave entitlement. For termination by the Company, one months’ salary plus any accrued leave entitlement. OILEX LTD ANNUAL REPORT 2019For personal use only 27 DIRECTORS’ REPORT 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: Non-Executive Directors B Lingo (5) Chairman P Haywood (6) Non-Executive Director Executive Director J Salomon (7) Managing Director Executives M Bolton (8) Chief Financial Officer/Company Secretary A Khare (9) Head of India Assets Total Total Salary & Fees $ 20,232 31,716 44,069 46,052 209,670 223,043 190,000 201,875 151,504 155,788 615,475 677,224 Year 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 Short-Term STI Cash Bonus $ Benefits (including Non- Monetary) (1) $ - - - - - - - - - - - - - - - - 9,127 8,259 7,141 6,620 4,984 313 21,252 15,192 Total $ 20,232 31,716 44,069 46,052 218,797 231,302 197,141 208,495 156,488 156,101 636,727 692,416 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. Post-Employment Superannuation Benefits $ Other Long-Term Benefits (2) Termination Benefits Shares, Options and Rights (3) $ $ $ Proportion of Remuneration Performance Related (4) Share-based Payments 44,568 33,084 10,886 7,144 - - - - - - 55,454 40,228 Total $ 70,956 70,956 54,955 53,196 260,058 273,807 230,680 243,162 175,742 171,717 792,391 833,369 - - - - - - - - - - - - % - - - - - - - - - - - 6,156 6,156 - - 19,945 21,189 18,050 19,178 15,517 15,616 59,668 63,920 - - - - 21,316 21,316 15,489 15,489 3,737 - 40,452 36,805 OILEX LTD ANNUAL REPORT 2019For personal use only 28 DIRECTORS’ REPORT Salary & Fees $ 20,232 31,716 44,069 46,052 209,670 223,043 190,000 201,875 151,504 155,788 615,475 677,224 Year 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 Short-Term STI Cash Bonus $ Benefits (including Non- Monetary) (1) $ - - - - - - - - - - - - - - - - 9,127 8,259 7,141 6,620 4,984 313 21,252 15,192 Total $ 20,232 31,716 44,069 46,052 218,797 231,302 197,141 208,495 156,488 156,101 636,727 692,416 Non-Executive Directors B Lingo (5) Chairman P Haywood (6) Non-Executive Director Executive Director J Salomon (7) Managing Director Executives M Bolton (8) A Khare (9) Head of India Assets Total Total Chief Financial Officer/Company Secretary Post-Employment Superannuation Benefits $ 6,156 6,156 - - 19,945 21,189 18,050 19,178 15,517 15,616 59,668 63,920 Share-based Payments Other Long-Term Benefits (2) Termination Benefits Shares, Options and Rights (3) $ $ $ - - - - 21,316 21,316 15,489 15,489 3,737 - 40,452 36,805 - - - - - - - - - - - - 44,568 33,084 10,886 7,144 - - - - - - 55,454 40,228 Total $ 70,956 70,956 54,955 53,196 260,058 273,807 230,680 243,162 175,742 171,717 792,391 833,369 Proportion of Remuneration Performance Related (4) % - - - - - - - - - - - OILEX LTD ANNUAL REPORT 2019For personal use only 29 DIRECTORS’ REPORT 3. DIRECTORS’ AND EXECUTIVE OFFICERS’ REMUNERATION (CONTINUED) Notes in Relation to Directors’ and Executive Officers’ Remuneration (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 2019 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 2018 or 30 June 2019. In accordance with the ASX waiver granted 17 October 2018, the Company advises that the number of remuneration shares that were issued to directors in the year ended 30 June 2019 totalled 11,437,407 and the percentage of the Company’s issued capital represented by these remuneration shares was 0.44%. (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. Similar shareholder approval was also received at the Annual General Meeting held on 29 November 2018 for the period 1 November 2018 to 31 October 2019. (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 2019 Mr Lingo received 9,192,150 remuneration shares (refer point 3 above) at a value of $44,568. As at 30 June 2019 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 2,245,257 remuneration shares (refer point 3 above) at a value of $10,854. As at 30 June 2019 remuneration shares not yet issued to Mr Haywood had a value of $1,807. These shares will be issued in the next financial year. (7) 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 40.5 days leave without pay, further reducing his salary by $42,361 inclusive of statutory superannuation. (8) 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 2019 reflects the reduced working hours implemented 1 October 2017 to facilitate a 20% reduction in salaries. (9) Mr Khare became key management personnel on 8 November 2016 and is based in India. The amount paid in the year ended 30 June 2019 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. OILEX LTD ANNUAL REPORT 2019For personal use only 30 DIRECTORS’ REPORT 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. 4.1 Rights and Options Over Equity Instruments Granted as Compensation There were no rights or options over ordinary shares granted as compensation to key management personnel during the financial year (2018: nil). 4.2 Rights and Options Over Equity Instruments Granted as Compensation Granted Since Year End 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. 4.3 Modification of Terms of Equity-Settled Share-based Payment Transactions No terms of equity-settled share-based payment transactions (including options granted as compensation to key management personnel) have been altered or modified by the issuing entity during the financial year. 4.4 Exercise of Options Granted as Compensation During the financial year no shares were issued on the exercise of options previously granted as compensation. 4.5 Details of Equity Incentives Affecting Current and Future Remuneration There are no rights or options currently held by key management personnel, (2018: nil). 4.6 Analysis of Movements in Equity Instruments 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. 4.7 Options or Rights over Equity Instruments Granted as Compensation There are no rights or options held by key management personnel, or their related parties as at 1 July 2018 through to 30 June 2019. OILEX LTD ANNUAL REPORT 2019For personal use only 31 DIRECTORS’ REPORT 5. KEY MANANGEMENT PERSONNEL TRANSACTIONS 5.1 Other Transactions with Key Management Personnel There were no other transactions with entities associated with key management personnel in the year ended 30 June 2019 (2018: nil). 5.2 Movements in Shares The movement during the financial year in the number of ordinary shares in the Company held, directly, indirectly or beneficially, by each key management person, including their related parties, is as follows: J Salomon B Lingo P Haywood M Bolton A Khare Held at 1 July 2018 14,987,013 4,456,800 1,073,844 - - Received on Exercise of Options Remuneration Shares Issued (1) Other Changes (2) - - - - - - 9,192,150 2,245,257 - - - - - - - Held at 30 June 2019 14,987,013 13,648,950 3,319,101 - - (1) At the AGM held 29 November 2017 shareholders approved the issue of remuneration shares, whereby two 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. Similar shareholder approval was also received at the Annual General Meeting held on 29 November 2019 for the period 1 November 2018 to 1 October 2019. (2) Other changes represent shares that were granted, purchased or sold during the year. END OF REMUNERATION REPORT - AUDITED Mr Brad Lingo Chairman Mr Jonathan Salomon Managing Director Signed in accordance with a resolution of the Directors. West Perth, Western Australia 30 September 2019 OILEX LTD ANNUAL REPORT 2019For personal use only 32 LEAD AUDITOR’S INDEPENDENCE DECLARATION OILEX LTD ANNUAL REPORT 2019For personal use only 33 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2019 Revenue Cost of sales Gross loss Other income Exploration expenditure Administration expense Share-based payments expense Provision for doubtful debts expense Other expenses Results from operating activities Finance income Finance costs Foreign exchange (loss)/gain Net finance costs Loss before tax Tax expense Loss Other comprehensive income/(loss) Items that may be reclassified to profit or loss Foreign operations - foreign currency translation differences Other comprehensive income, net of tax Note 4(a) 4(b) 4(c) 4(d) 4(e) 22 12 4(f) 4(g) 4(h) 4(i) 2019 $ 2018 $ 188,220 (504,926) (316,706) 163,562 (199,266) (35,704) - 13,139 (491,675) (651,993) (1,957,850) (2,101,485) (110,935) (108,206) (40,990) (90,211) (1,233,898) (110,395) (3,026,362) (4,210,547) 4,403 (97,162) 1,000 (91,759) 6,358 (20) (26,768) (20,430) (3,118,121) (4,230,977) 5 - - (3,118,121) (4,230,977) 79,951 79,951 (213,981) (213,981) Total comprehensive loss (3,038,170) (4,444,958) Earnings per share Basic loss per share (cents per share) Diluted loss per share (cents per share) 6 6 (0.13) (0.13) (0.24) (0.24) The above Consolidated Statement of Profit or Loss and Other Comprehensive Income is to be read in conjunction with the accompanying notes. OILEX LTD ANNUAL REPORT 2019For personal use only 34 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2019 Assets Cash and cash equivalents Trade and other receivables Prepayments Inventories Total current assets Exploration and evaluation Development assets Property, plant and equipment Total non-current assets Total assets Liabilities Trade and other payables Employee benefits Borrowings Provisions Total current liabilities Provisions Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Total equity Note 2019 $ 2018 $ 11 12 9 7 8 16 13 10 14 10, 26 10 357,970 497,974 156,464 1,141,309 2,153,717 375,507 738,784 115,271 1,303,245 2,532,807 568,888 539,793 6,495,590 6,165,255 145,927 7,210,405 178,930 6,883,978 9,364,122 9,416,785 697,184 148,731 563,955 855,554 779,249 274,651 - 811,798 2,265,424 1,865,698 3,733,837 3,733,837 3,542,877 3,542,877 5,999,261 5,408,575 3,364,861 4,008,210 17(a) 17(b) 176,502,200 174,046,036 7,501,388 7,628,101 (180,638,727) (177,665,927) 3,364,861 4,008,210 The above Consolidated Statement of Financial Position is to be read in conjunction with the accompanying notes. OILEX LTD ANNUAL REPORT 2019For personal use only 35 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2019 Attributable to Owners of the Company Issued Capital $ Option Reserve $ Loans Options Reserve $ Foreign Currency Translation Reserve $ Accumulated Losses $ Total Equity $ Note 17(a) 17(b) 17(b) 17(b) Balance at 30 June 2017 172,866,479 583,571 Total comprehensive (loss)/income Loss Other comprehensive income Foreign currency translation differences Total other comprehensive loss Total comprehensive (loss)/income Transactions with owners of the Company Contributions and distributions Shares issued Capital raising costs (1) Shares issued on exercise of options Transfers on forfeited options - - - - 1,100,000 (53,800) 43,146 - - - - - - - - (251,682) Share-based payment transactions 90,211 - Total transactions with owners of the Company 1,179,557 (251,682) Balance at 30 June 2018 174,046,036 331,889 Additional doubtful debts provision recognised on implementation of AASB 9 Balance at 30 June 2018 - adjusted Total comprehensive (loss)/income Loss Other comprehensive income Foreign currency translation differences Total comprehensive (loss)/income Total comprehensive loss Transactions with owners of the Company Contributions and distributions Shares issued Capital raising costs Shares issued on exercise of options Transfers on forfeited options Recognition of equity component of loans (Note 14) Derecognition of equity component of loan upon repayment - - 174,046,036 331,889 - - - - 2,126,049 - - - - - (176,187) 27,791 395,367 (293,217) - - - (29,978) - - - - - - - - - - - - - - - - - - - - - - - - - 98,685 (9,945) - 7,510,193 (173,686,632) 7,273,611 - (4,230,977) (4,230,977) (213,981) (213,981) - - (213,981) (213,981) (213,981) (4,230,977) (4,444,958) - - - - - - - - - 1,100,000 (53,800) 43,146 251,682 - - 90,211 251,682 1,179,557 7,296,212 (177,665,927) 4,008,210 - (177,874) (177,874) 7,296,212 (177,843,801) 3,830,336 - (3,118,121) (3,118,121) 79,951 79,951 - - 79,951 79,951 79,951 (3,118,121) (3,038,170) - - - - - - - - - - 293,217 29,978 - - - 2,126,049 (148,396) 395,367 - 98,685 (9,945) 110,935 323,195 2,572,695 Share-based payment transactions 110,935 Total transactions with owners of the Company 2,456,164 (295,404) 88,740 Balance at 30 June 2019 176,502,200 36,485 88,740 7,376,163 (180,638,727) 3,364,861 (1) Capital raising costs include cash payments and the fair value of options granted to the underwriter. The above Consolidated Statement of Changes in Equity is to be read in conjunction with the accompanying notes. OILEX LTD ANNUAL REPORT 2019For personal use only 36 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2019 Cash flows from operating activities Cash receipts from customers Payments to suppliers and employees Cash outflow from operations (Payments for)/proceeds from exploration and evaluation expenses Interest received Interest paid Note 2019 $ 2018 $ 260,501 101,733 (2,575,376) (2,642,215) (2,314,875) (2,540,482) (629,639) (1,419,516) 6,417 (24,466) 6,247 (20) Net cash used in operating activities 11 (2,962,563) (3,953,771) Cash flows from investing activities Proceeds from disposals of assets and scrap materials Acquisition of property, plant and equipment Net cash from/(used in) investing activities Cash flows from financing activities Proceeds from issue of share capital Proceeds from exercise of share options Payment for share issue costs Proceeds from borrowings Repayment of borrowings Net cash from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at 1 July Effect of exchange rate fluctuations on cash held Cash and cash equivalents at 30 June 572 (2,149) (1,577) 13,139 - 13,139 17(a) 2,126,049 1,100,000 395,367 (148,396) 645,000 (65,000) 43,146 (47,415) - - 2,953,020 1,095,731 (11,120) (2,844,901) 375,507 (6,417) 357,970 3,215,565 4,843 375,507 11 The above Consolidated Statement of Cash Flows is to be read in conjunction with the accompanying notes. OILEX LTD ANNUAL REPORT 2019For personal use only 37 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 ABOUT THIS REPORT - OVERVIEW NOTE 1 – REPORTING ENTITY (c) Going Concern Basis 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 30 September 2019. (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. 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 $3,118,121 and had cash outflows from operating activities of $2,962,563. As at 30 June 2019, the Group’s current liabilities exceeded current assets by $111,707 and the Group has cash and cash equivalents of $357,970. On 31 July 2019, the Company announced that it had arranged an equity capital raising to secure funding of £0.34 million (A$0.6 million) through the placing of 257,329,999 new shares at 0.13 pence (A$0.0023) per share. All shares were subsequently issued on 13 August 2019. On 26 July and 11 September 2018, the Group entered into loan agreements with existing investors to secure funding of $580,000. As part of the loan funding, options were issued to the subscribers, which if exercised, the proceeds would be applied to the outstanding loan balance which was due on 26 July 2019 of $330,000 and 1 October 2019 of $250,000. On 23 July 2019, the Group entered into an amendment agreement to vary the terms of its loan funding facility of $330,000 entered into on 26 July 2018. Pursuant to the amendment, the loan repayment date was extended from 26 July 2019 to 1 October 2019. In addition, the Company will issue 124,060,150 new options to the lenders at an exercise price of $0.00266 and expiry date of 31 December 2019, which was approved at a General Meeting held on 19 September 2019. All other loan terms and conditions remain the same; and are extended to 1 October 2019. The total 91,666,666 share options @ $0.0036 exercisable on or before 26 July 2019, attached to the above-mentioned loans, were not exercised and have lapsed. On 30 September 2019, the Company entered into an amendment agreement to vary the terms of its loan funding facility of $300,000 entered into on 26 July 2018. Pursuant to the amendment, the loan repayment date has been extended to 15 October 2019. OILEX LTD ANNUAL REPORT 2019For personal use only 38 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (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 18. 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. Furthermore, the Company also entered into an amendment agreement to vary the terms of its loan funding facility of $250,000 entered into on 11 September 2018. Pursuant to the amendment, the loan repayment date has been extended from 1 October 2019 to 1 April 2020. On 30 September 2019, the Company announced that it has arranged an equity capital raising to secure funding of £0.6 million (A$1.1 million) through the placing of 315,789,474 new shares at 0.19 pence (A$0.00348) per share. The shares will be issued to Novum Securities and existing shareholders upon settlement which is expected on or about mid-October 2019 which is necessary for the Group in the short-term to repay the $330,000 loan and cash payments for new business opportunities. The Group also requires further funding within the next twelve months in order to repay the $250,000 loan, meet planned expenditures for its projects and ongoing administrative expenses and to progress the Cambay drilling programme, and for the new business opportunities in the Cooper-Eromanga Basins and for any new business opportunities that the Group may pursue (refer to note 27). The Group may also require funds in relation to the matter set out in note 26. The Directors believe that the Group will be able to secure sufficient funding to meet the requirements to continue as a going concern, due to its history of previous capital raisings, acknowledging that the structure and timing of any capital raising is dependent upon investor support, prevailing capital markets, shareholder participation, oil and gas prices and the outcome of planned exploration and evaluation activities, which creates uncertainty. In addition, the Group is working towards securing a new joint venture partner for the Cambay Production Sharing Contract (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 and to reduce discretionary administrative expenditure. 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. OILEX LTD ANNUAL REPORT 2019For personal use only 39 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 NOTE 2 – BASIS OF PREPARATION (CONTINUED) (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 and other 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. OILEX LTD ANNUAL REPORT 2019For personal use only 40 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (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. Changes in significant accounting policies The Group has initially applied AASB 15 and AASB 9 from 1 July 2018. Due to the transition methods chosen by the Group in applying these standards, comparative information throughout these financial statements has not been restated to reflect the requirements of the new standards, except for separately presenting impairment loss on trade and other receivables (refer B. below). A. AASB 15 Revenue from Contracts with Customers AASB 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaced AASB 18 Revenue and related interpretations. Under AASB 18, the Group recognised revenue when the significant risks and rewards of ownership transferred to the customer, which was considered to be at the time of delivery of the product to the customer. Under AASB 15, revenue is recognised when the Group transfers control of products to a customer at the amount to which the Group expects to be entitled. Revenue from the sale of oil and gas is recognised at a point in time when control of the product is transferred to the customer, which is typically on delivery. The Group has adopted AASB 15 using the cumulative effect method (without practical expedients), with the effect of initially applying this standard recognised at the date of the initial application (i.e. 1 July 2018). Accordingly, the information presented for 2018 has not been restated – i.e. it is presented, as previously reported, under AASB 18 and related interpretations. Additionally, the disclosure requirements in AASB 15 have not generally been applied to comparative information. The adoption of the new standard had no impact on the financial position or the consolidated financial statements. B. AASB 9 Financial Instruments AASB 9 sets out requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non- financial items. This standard replaces AASB 139 Financial Instruments: Recognition and Measurement. As a result of the adoption of AASB 9, the Group has adopted consequential amendments to AASB 101 Presentation of Financial Statements, which require impairment of financial assets to be presented in a separate line item in the statement of profit or loss and OCI. Previously, the Group’s approach was to include the impairment of trade and other receivables in other expenses. Consequently, the Group reclassified impairment losses amounting to $1,233,898, recognised under AASB 139, from ‘other expenses’ to ‘provision for doubtful debts expense’ in the statement of profit or loss and OCI for the year ended 30 June 2018. (i) Classification and measurement of financial assets and liabilities AASB 9 contains three principal classification for financial assets: measured at amortised cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). The classification of financial assets under AASB 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. AASB eliminates the previous AASB 139 categories of held to maturity, loans and receivables and available for sale. AASB 9 largely retains the existing requirements in AASB 139 for the classification and measurement of financial liabilities. The adoption of AASB 9 has not had a significant effect on the Group’s accounting policies related to financial liabilities. The following table and the accompanying notes below explain the original measurement categories under AASB 139 and the new measurement categories under AASB 9 for each class of the Group’s financial assets and financial liabilities as at 1 July 2018. OILEX LTD ANNUAL REPORT 2019For personal use only 41 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 NOTE 2 – BASIS OF PREPARATION (CONTINUED) (h) Accounting Policies (continued) The effect of adopting AASB 9 on the carrying amounts of financial assets at 1 July 2018 relates solely to the new impairment requirements. Note Original classification under AASB 139 New classification under AASB 9 Financial assets Cash and cash equivalents Loans and receivables Amortised cost Trade and other receivables (1) Loans and receivables Amortised cost Total financial assets Financial liabilities Trade and other payables Total financial liabilities Other financial liabilities Other financial liabilities Original carrying amount under AASB 139 New carrying amount under AASB 9 $ 375,507 738,784 $ 375,507 738,784 1,114,291 1,114,291 (779,249) (779,249) (779,249) (779,249) (1) Trade and other receivables that were classified as loans and receivables under AASB 139 are now classified at amortised cost. An increase of $177,874 in the provision for doubtful debts was recognised in opening retained earnings at 1 July 2018 on transition to AASB 9. The following table reconciles the carrying amounts of financial assets under AASB 139 to the carrying amounts under AASB 9 on transition to AASB 9 on 1 July 2018. Financial assets Amortised cost Trade and other receivables (from loans and receivables classification) Total amortised cost (ii) Impairment of financial assets AASB 139 carrying amount at 30 June 2018 $ Remeasurement $ AASB 9 carrying amount at 1 July 2018 $ 738,784 738,784 - - 738,784 738,784 AASB 9 replaces the ‘incurred loss’ model in AASB 139 with an ‘expected credit loss’ (ECL) model. The new impairment model applies to financial assets measured at amortised cost. Under AASB 9, credit losses are recognised earlier than under AASB 139. For assets in the scope of the AASB impairment model, impairment losses are generally expected to increase and become more volatile. The Group has determined that the application of AASB 9’s impairment requirements at 1 July 2018 results in an additional allowance for impairment as follows: Loss allowance at 30 June 2018 under AASB 139 5,497,703 Additional impairment recognised at 1 July 2018 on: Trade and other receivables as at 30 June 2018 Loss allowance at 1 July 2018 under AASB 9 177,874 5,675,577 The Group has not elected to early adopt any other new or amended AASB’s that are issued but not yet effective (refer note 28). OILEX LTD ANNUAL REPORT 2019For personal use only 42 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 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 39% of the Group’s total revenues (2018: 61%) and Indian Oil Corporation Limited, in its capacity as nominee of the Government of India, with oil sales representing 61% of the Group’s total revenues (2018: 39%). Revenue Revenue is recognised when the Group transfers control of products to a customer at the amount to which the Group expects to be entitled. Revenue from the sale of oil and gas is recognised at a point in time when control of the product is transferred to the customer, which is typically on delivery. Expenses Impairment – refer notes 7 and 8 Doubtful debts – refer note 12 Depreciation – refer note 16 Amortisation – refer note 8 Employee benefits – refer note 10 Leases – refer note 25 OILEX LTD ANNUAL REPORT 2019For personal use only 43 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 NOTE 3 – OPERATING SEGMENTS (CONTINUED) India Australia JPDA (1) Indonesia Corporate (2) Consolidated 2019 $ 2018 $ 2019 $ 2018 $ 2019 $ 2018 $ 2019 $ 2018 $ 2019 $ 2018 $ 2019 $ 2018 $ Revenue External revenue Cost of sales Production costs Amortisation of development assets Movement in oil stocks inventory Write-down of inventories to net realisable values Total cost of sales Gross loss Exploration expenditure expensed Depreciation Share-based payments Other income Provision for doubtful debts expense Other expenses 188,220 163,562 (275,455) (259,799) (1,931) (66,186) (161,354) (504,926) (316,706) (456,892) (21,680) - - - (3,263) 63,796 - (199,266) (35,704) (553,369) (24,514) - 13,139 - (10,459) (1,341,374) Reportable segment profit/(loss) before income tax (805,737) (1,941,822) Net finance income Foreign exchange (loss)/gain Income tax expense Net loss for the year Segment assets Segment liabilities 8,721,862 4,104,158 8,653,049 3,917,537 - - - - - - - - - - - - - - 7 - - - - - - - - - - - - - - - 7 - 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. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (34,783) (11,084) (110,935) - (98,624) (18,488) (90,211) - - - - - - - - 188,220 163,562 (275,455) (259,799) (1,931) (66,186) (161,354) (504,926) (316,706) (491,675) (32,763) (110,935) - (3,263) 63,796 - (199,266) (35,704) (651,993) (43,002) (90,211) 13,139 (92,759) 998 - 6,338 (26,768) - (3,118,121) (4,230,977) - - - - - - - - - - - - - (85,050) (85,050) (23,557) (23,557) 233,653 233,653 (6,737) (6,737) (2,104,219) (792,210) (1,966,075) (2,163,878) (2,369,226) (2,238,431) (3,026,360) (4,210,547) (108,206) (1,233,898) (108,206) (1,233,898) 14,238 861,776 16,809 815,900 78,454 297,022 628,015 954,873 746,920 378,116 9,364,122 5,999,261 9,416,785 5,408,575 OILEX LTD ANNUAL REPORT 2019For personal use only 44 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 NOTE 3 – OPERATING SEGMENTS (CONTINUED) Revenue External revenue Cost of sales Production costs Amortisation of development assets Movement in oil stocks inventory Write-down of inventories to net realisable values Exploration expenditure expensed Total cost of sales Gross loss Depreciation Share-based payments Other income Provision for doubtful debts expense Other expenses Net finance income Foreign exchange (loss)/gain Income tax expense Net loss for the year Segment assets Segment liabilities 188,220 163,562 (275,455) (259,799) (1,931) (66,186) (161,354) (504,926) (316,706) (456,892) (21,680) - - - (3,263) 63,796 (199,266) (35,704) (553,369) (24,514) 13,139 - - - - - - - - - - - - - - - - - 7 - - - - - - - - - - - - - - - 7 - India Australia JPDA (1) Indonesia Corporate (2) Consolidated 2019 $ 2018 $ 2019 $ 2018 $ 2019 $ 2018 $ 2019 $ 2018 $ 2019 $ 2018 $ 2019 $ 2018 $ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (34,783) (11,084) (110,935) - (98,624) (18,488) (90,211) - 188,220 163,562 (275,455) (259,799) (1,931) (66,186) (161,354) (504,926) (316,706) (491,675) (32,763) (110,935) - (3,263) 63,796 - (199,266) (35,704) (651,993) (43,002) (90,211) 13,139 (108,206) (1,233,898) (108,206) (1,233,898) Reportable segment profit/(loss) before income tax (805,737) (1,941,822) (10,459) (1,341,374) (85,050) (85,050) (23,557) (23,557) 233,653 233,653 (6,737) (6,737) (2,104,219) (792,210) (1,966,075) (2,163,878) (2,369,226) (2,238,431) (3,026,360) (4,210,547) 8,721,862 4,104,158 8,653,049 3,917,537 14,238 861,776 16,809 815,900 - - 78,454 297,022 628,015 954,873 746,920 378,116 9,364,122 5,999,261 9,416,785 5,408,575 (92,759) 998 - 6,338 (26,768) - (3,118,121) (4,230,977) OILEX LTD ANNUAL REPORT 2019For personal use only 45 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 NOTE 4 – REVENUE AND EXPENSES Loss from ordinary activities before tax has been determined after the following revenues and expenses: (a) Revenue Oil sales Gas sales (b) Cost of Sales Production costs Amortisation of development assets Movement in oil stocks inventory Write-down of inventory to net realisable values (c) Other Income Profit on disposal of other assets Note 2019 $ 115,673 72,547 188,220 (275,455) (1,931) (66,186) (161,354) (504,926) 2018 $ 63,337 100,225 163,562 (259,799) (3,263) 63,796 - (199,266) - - 13,139 13,139 (d) Exploration Expense 3 (491,675) (651,993) (e) Administration Expenses Employee benefits expense Redundancy benefits Administration expense (f) Other Expenses Depreciation expense Oil sales written off Loss on disposal of plant and equipment (g) Finance income Interest income (h) Finance costs Interest expense - borrowings Interest expense - other (i) Foreign Exchange (Loss)/Gain - net Foreign exchange (loss)/gain- realised Foreign exchange (loss)/gain - unrealised (819,627) (31,928) (1,106,295) (1,957,850) (925,660) (20,320) (1,155,505) (2,101,485) 16 (32,763) - (8,227) (40,990) (43,002) (63,590) (3,803) (110,395) 4,403 6,358 (97,162) - (97,162) 5,582 (4,582) 1,000 - (20) (20) (19,858) (6,910) (26,768) OILEX LTD ANNUAL REPORT 2019For personal use only 46 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Accounting Policy - Revenue Under AASB 18, the Group recognised revenue when the significant risks and rewards of ownership transferred to the customer, which was considered to be at the time of delivery of the product to the customer. Under AASB 15, revenue is recognised when the Group transfers control of products to a customer at the amount to which the Group expects to be entitled. Revenue from the sale of oil and gas is recognised at a point in time when control of the product is transferred to the customer, which is typically on delivery. NOTE 5 – INCOME TAX EXPENSE Numerical reconciliation between tax expense and pre-tax accounting loss: Loss before tax Tax using the domestic corporation tax rate of 27.5% (2018: 27.5%) Effect of tax rate in foreign jurisdictions Non-deductible expenses Share-based payments Foreign expenditure non-deductible Other non-deductible expenses Unrecognised deferred tax assets generated during the year and not brought to account at reporting date as realisation is not regarded as probable Tax expense Tax losses utilised not previously brought to account Tax expense for the year Tax Assets and Liabilities 2019 $ 2018 $ (3,118,121) (857,483) (497,254) (4,230,977) (1,163,519) (401,298) 30,507 1,609,412 208,577 493,759 - 493,759 (493,759) - 24,808 1,404,174 200,478 64,643 - 64,643 (64,643) - During the year ended 30 June 2019, $493,759 of tax losses were recognised and were offset against the current tax liability resulting in nil tax assets and liabilities. Unrecognised deferred tax assets not brought to account at reporting date as realisation is not regarded as probable – temporary differences Other Losses available for offset against future taxable income Deferred tax asset not brought to account 2019 $ 2018 $ 27,482,151 17,018,120 44,500,271 26,397,805 16,204,468 42,602,273 The deductible temporary differences and tax losses do not expire under current tax legislation. The deferred tax asset not brought to account for the 2019 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 2019 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. OILEX LTD ANNUAL REPORT 2019For personal use only 47 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 NOTE 5 – INCOME TAX EXPENSE (CONTINUED) 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 $5,480,637 (2018: $6,003,749). 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. OILEX LTD ANNUAL REPORT 2019For personal use only 48 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 NOTE 6 – LOSS PER SHARE (a) Basic Loss Per Share Loss used in calculating earnings per share 2019 $ 2018 $ Loss for the period attributable to ordinary shareholders 3,380,391 4,230,977 Weighted average number of ordinary shares Issued ordinary shares at 1 July Effect of shares issued Effect of share options exercised Weighted average number of ordinary shares at 30 June (b) Diluted Loss Per Share Note 2019 Number 2018 Number 17 2,001,968,379 1,684,302,899 312,684,194 93,452,655 61,790,019 9,634,703 2,376,442,592 1,787,390,257 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. 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. OILEX LTD ANNUAL REPORT 2019For personal use only 49 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 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 Balance at 1 July Effect of movements in foreign exchange rates Balance at 30 June 2019 $ 539,793 29,095 568,888 2018 $ 518,670 21,123 539,793 As at 30 June 2019, the balance of exploration and evaluation assets relates to the Cambay Field, which is currently at evaluation stage, and there was no impairment of this asset (2018: Nil). 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 reporting 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. OILEX LTD ANNUAL REPORT 2019For personal use only 50 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 NOTE 8 – DEVELOPMENT ASSETS Cost Balance at 1 July Effect of movements in foreign exchange rates Balance at 30 June Amortisation and Impairment Losses Balance at 1 July Amortisation charge for the year Effect of movements in foreign exchange rates Balance at 30 June Carrying Amounts At 1 July At 30 June Cambay Field Development Assets 2019 $ 2018 $ 16,235,257 15,631,750 831,271 603,507 17,066,528 16,235,257 10,070,002 9,704,462 1,931 499,005 3,263 362,277 10,570,938 10,070,002 6,165,255 5,927,288 6,495,590 6,165,255 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 in the 2019 or 2018 financial years. There was no impairment on the Cambay Field development assets during the year ended 30 June 2019 (2018: Nil). 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. OILEX LTD ANNUAL REPORT 2019For personal use only 51 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 NOTE 8 – DEVELOPMENT ASSETS (CONTINUED) 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 Oil on hand - net realisable value Drilling inventory - net realisable value 2019 $ 31,632 1,109,678 1,141,310 2018 $ 94,096 1,209,149 1,303,245 Inventories have been reduced by $161,354 (2018: $nil) as a result of write-down 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 Site Restoration, Well Abandonment and Other Provisions Balance at 1 July Provision adjustments during the year - Termination (refer note 26) Effect of movements in exchange rates Balance at 30 June Current – Termination (refer Note 26) Non-current - Restoration Current - Employee benefits Accounting Policy 2019 $ 2018 $ 4,354,675 4,184,269 - 234,716 4,589,391 855,554 3,733,837 4,589,391 - 170,406 4,354,675 811,798 3,542,877 4,354,675 148,731 274,651 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. OILEX LTD ANNUAL REPORT 2019For personal use only 52 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 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 reporting 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 Cash at bank and on hand 2019 $ 2018 $ 357,970 375,507 The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in note 21. Accounting Policy Cash and cash equivalents comprise bank balances, call deposits, cash in transit and short-term deposits with an original maturity of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments. Reconciliation of Cash Flows from Operating Activities Net loss Amortisation of development assets Depreciation Interest expense Provision for doubtful debts expense Loss on disposal of assets Profit on disposal of scrap Equity settled share-based payments Unrealised foreign exchange (gain)/loss 2019 $ 2018 $ (3,118,121) (4,230,977) 1,931 32,763 72,695 108,206 8,227 - 110,935 (46,688) 3,263 43,002 - 1,297,488 3,803 (13,139) 90,211 (39,134) Operating Loss Before Changes in Working Capital and Provisions (2,830,052) (2,845,483) Movement in trade and other payables Movement in prepayments Movement in trade and other receivables Movement in provisions Movement in inventories Movement in employee benefits Net Cash Used in Operating Activities (82,065) (41,193) (45,269) - 161,936 (125,920) (480,924) 13,278 (570,406) (1,034) (115,135) 45,933 (2,962,563) (3,953,771) OILEX LTD ANNUAL REPORT 2019For personal use only 53 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 NOTE 12 – TRADE AND OTHER RECEIVABLES Current Allocation of receivables Joint venture receivables Other receivables Joint venture receivables Joint venture receivables Provision for doubtful debts Other receivables Corporate receivables Provision for doubtful debts 2019 $ 2018 $ 353,492 144,482 497,974 446,600 292,184 738,784 6,272,808 5,835,042 (5,919,316) (5,388,442) 353,492 446,600 288,040 (143,558) 144,482 401,445 (109,261) 292,184 Joint venture receivables include the Group’s share of outstanding cash calls and recharges owing from the joint venture partners, as well as other minor receivables. The Group considers that there is evidence of impairment if any of the following indicators are present; financial difficulties of the debtor, probability that the debtor will dispute amounts owing and default or delinquency in payment (more than one year old). Whilst the Group has been in ongoing discussions with its joint venture partner GSPC, for repayment of disputed and other amounts owing, in line with identified impairment indicators, an assessment has been made of the recoverable balance as at 30 June 2019. Each receivable has been assessed individually for recovery, and those deemed to have a low chance of recovery have been fully provided for in the current year. Accordingly, the Indian cash calls receivable have been fully provided for. The Group is in continuing discussions with GSPC in order to resolve the outstanding issues and recover the outstanding amounts. The carrying value of trade and other receivables approximates its fair value due to the assessment of recoverability. Details of the Group’s credit risk are disclosed in note 21(b). Movement in provision for doubtful debts Balance at 1 July Provisions (made)/reversed during the year Provision adjustment, as at 1 July 2018, on adoption of AASB 9 Effect of movements in exchange rates Balance at 30 June Allocation of impairment loss Joint venture receivables Other receivables (a) Accounting Policy from 1 July 2018 2019 $ 2018 $ (5,497,703) (4,055,327) (108,206) (1,233,898) (177,874) (279,091) - (208,478) (6,062,874) (5,497,703) (5,919,316) (5,388,442) (143,558) (109,261) (6,062,874) (5,497,703) Trade and other receivables, which includes receivables, loans and deposits, are initially recognised when they are originated. All other financial assets are initially recognised when the Group becomes a party to the contractual provisions of the instrument. All trade and other receivables do not include a significant financing component and are therefore initially measured at the transaction price. OILEX LTD ANNUAL REPORT 2019For personal use only 54 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 On initial recognition, trade and other receivables are classified as measured as at amortised cost. Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets. A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at Fair Value Through Profit or Loss (FVTPL): - - It is held within a business model whose objective is to hold assets to collect contractual cash flows; and Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. For the purpose of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular amount of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs). The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire , or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Impairment of Receivables The Group recognises loss allowances for ‘expected credit loss’ (ECL’s) on financial assets measured at amortised cost. Loss allowances for trade and other receivables are always measured at an amount equal to lifetime ECL’s. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECL’s, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group’s historical experience and informed credit assessment and including forward-looking information. The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due. The Group considers a financial asset to be in default when the financial asset is more than 90 days due past. Lifetime ECL’s are the ECL’s that result from all possible default events over the expected life of a financial instrument. Measurement of ECL’s ECL’s are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive). ECL’s are discounted at the effective interest rate of the financial asset. Expected credit loss assessment for corporate customers as at 1 July 2018 and 30 June 2019 The Group uses its allowance schedule to measure the ECLs of trade and other receivables. The allowance schedule is based on actual credit loss experience over the past years. The ECL computed is purely derived from historical data which management is of the view that the historical conditions are representative of the conditions prevailing at the reporting date. Write-off The gross carrying amount of a financial asset is written off when the Group has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof. (b) Accounting Policy prior to 1 July 2018 The Group initially recognises loans, receivables and deposits on the date that they are originated. All other financial assets (including assets designated at FVTPL) are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value and subsequently measured at amortised cost, less any impairment losses. A provision for doubtful debts is recognised in profit or loss when there is objective evidence of non-recovery or an impairment indicator exists. If receivables are subsequently recovered, or an event causes the amount of impairment loss to decrease, the amounts are reversed through profit or loss. OILEX LTD ANNUAL REPORT 2019For personal use only 55 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 NOTE 12 – TRADE AND OTHER RECEIVABLES (CONTINUED) Impairment of Receivables In assessing collective impairment, the Group uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends. The Group considers that there is evidence of impairment if any of the following indicators are present; financial difficulties of the debtor, probability that the debtor will dispute amounts owing and default or delinquency in payment (more than one year old). Key Estimates and Assumptions The Group considers evidence of impairment for receivables at both a specific asset and collective level. All individually significant receivables are assessed for specific impairment. All individually significant receivables found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Receivables that are not individually significant are collectively assessed for impairment by grouping together receivables with similar risk characteristics. This requires judgemental assumptions regarding recoverability. Changes in these assumptions impact the recoverable amount of the asset. NOTE 13 – TRADE AND OTHER PAYABLES Trade creditors Accruals 2019 $ 302,338 394,846 697,184 2018 $ 297,640 481,609 779,249 The Company’s assessment in note 12, of the recoverability of outstanding cash call amounts owing from its joint venture partner GSPC has resulted in an additional impairment and consequently the Company is of the opinion that the Cambay Joint Venture will be unable to meet its third party liabilities, without financial support from the Company as Operator, due to non-payment of outstanding cash calls by the Joint Venture partner. As a result, the Group has accrued an additional $76,116 at 30 June 2019 (2018: $107,267) to cover Cambay and Bhandut Joint Venture third party liabilities. The carrying value of trade and other payables is considered to approximate its fair value due to the short nature of these financial liabilities. Accounting Policy Trade and other payables are recorded at the value of the invoices received and subsequently measured at amortised cost and are non-interest bearing. The liabilities are for goods and services provided before year end, that are unpaid and arise when the Group has an obligation to make future payments in respect of these goods and services. The amounts are unsecured. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. NOTE 14 – BORROWINGS Unsecured Loans Terms and repayment schedule At 30 June 2019, the terms and conditions of outstanding loans are as follows: 2019 2018 563,955 563,955 - - 2019 $ 2018 $ Currency Nominal interest rate Year of maturity Face value Carrying amount Face value Carrying amount Unsecured loans – from shareholders and financiers AUD 5.0% 2019 580,000 563,955 -- - At balance date, options had been issued to the lenders in connection to the above loans, as follows: a) 91,666,666 share options @ $0.0036 exercisable on or before the applicable loan maturity date of 26 July 2019; and b) 60,664,887 share options @ $0.004121 exercisable on or before the applicable loan maturity date of 1 October 2019. OILEX LTD ANNUAL REPORT 2019For personal use only 56 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 In determining the fair value of the liability component of these borrowing arrangements, it has been estimated that the effective interest rate of similar borrowings without a share option component is 18%. The fair value of the share options equity component of these borrowing arrangements has been recognised in the Loans Options Reserve as the loans have been treated as a convertible note. That is, the borrowing arrangement falls within the definition of a compound financial instrument and as such as been classified as both a financial liability and equity. On 23 July 2019, the Group entered into an amendment agreement to vary the terms of its loan funding facility of $330,000 entered into on 26 July 2018. Pursuant to the amendment, the loan repayment date has been extended from 26 July 2019 to 1 October 2019. In addition, the Company will issue 124,060,150 new options to the lenders at an exercise price of $0.00266 and expiry date of 31 December 2019, which were subject to shareholder approval at a General Meeting to be held on 12 September 2019, which was duly forthcoming. All other loan terms and conditions remain the same; and are extended to 1 October 2019. The total 91,666,666 share options @ $0.0036 exercisable on or before 26 July 2019, attached to the above-mentioned loans, were not exercised and have lapsed. The above-mentioned 124,060,150 options were subsequently issued on 27 September 2019. On 30 September 2019, the Company entered into an amendment agreement to vary the terns of its loan funding facility of $300,000 entered into on 26 July 2018; and the subsequent amendment noted above. Pursuant to the amendment, the loan repayment date has been extended to 15 October 2019. Furthermore, the Company also entered into an amendment agreement to vary the terms of its loan funding facility of $250,000 entered into on 11 September 2018. Pursuant to the amendment, the loan repayment date has been extended from 1 October 2019 to 1 April 2020. Pursuant to the extension, the Company will issue 60,664,887 options at $0.004121 on or before 1 April 2020. The loans are subject to the following key undertakings without prior approval by the lenders: » Not to dispose of assets having an aggregate value of more than $1 million; » Not to incur any financial indebtedness more than $50,000; and » Not to incur any aggregate payment or outgoing exceeding $1m (except for employee benefit expenses). Accounting Policy (a) General All borrowings are initially recognised when the Group becomes a party to the contractual provisions of the lending instrument. All borrowings are initially recognised at fair value less transaction costs. Borrowings are subsequently carried at amortised cost. The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expire. The Group also derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognised at fair value. On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognised in profit or loss. (b) Series A and Series B Loan The liability component of loans are initially recognised at the fair value of a similar liability that does not have an equity conversion option. The equity component is initially recognised at the difference between the fair value of the loan as a whole and the fair value of the liability component. Subsequent to initial recognition, the liability component of the loan is measured at amortised cost using the effective interest method. The equity component of a loan is not remeasured. Interest related to the financial liability is recognised in profit or loss. NOTE 15 – EXPENDITURE COMMITMENTS Exploration Expenditure Commitments In order to maintain rights of tenure to exploration permits, the Group is required to perform exploration work to meet the minimum expenditure requirements specified by various state and national governments. These obligations are subject to renegotiation when application for an exploration permit is made and at other times. These obligations are not provided for in the financial report. The expenditure commitments are currently estimated to be $nil (2018: $nil). There are no minimum exploration work commitments in the Cambay and Bhandut Production Sharing Contracts. When obligations expire, are re-negotiated or cease to be contractually or practically enforceable, they are no longer considered to be a commitment. Further expenditure commitments for subsequent permit periods are contingent upon future exploration results. These cannot be estimated and are subject to renegotiation upon expiry of the existing exploration leases. Capital Expenditure Commitments The Group had no capital commitments as at 30 June 2019 (2018: Nil). OILEX LTD ANNUAL REPORT 2019For personal use only 57 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 NOTE 16 – PROPERTY, PLANT AND EQUIPMENT Cost Balance at 1 July 2017 Disposals Currency translation differences Balance at 30 June 2018 Additions Disposals Currency translation differences Balance at 30 June 2019 Depreciation and Impairment Losses Balance at 1 July 2017 Depreciation charge for the year Disposals Currency translation differences Balance at 30 June 2018 Depreciation charge for the year Disposals Currency translation differences Balance at 30 June 2019 Carrying amounts At 1 July 2018 At 30 June 2019 Accounting Policy Motor Vehicles $ Plant and Equipment $ Office Furniture $ Total $ 9,398 - 383 9,781 - - 527 10,308 8,896 132 - 369 9,397 108 - 508 10,013 893,309 (23,339) 18,151 888,121 - (681) 24,998 912,438 712,811 38,244 (21,025) 13,749 743,779 28,682 (655) 19,095 790,901 145,932 1,048,639 (4,565) 3,009 (27,904) 21,543 144,376 1,042,278 2,149 (13,841) 4,146 2,149 (14,522) 29,671 136,830 1,059,576 105,978 4,626 (3,076) 2,644 110,172 3,973 (5,068) 3,658 827,685 43,002 (24,101) 16,762 863,348 32,763 (5,723) 23,261 112,735 913,649 384 295 144,342 121,537 34,204 24,095 178,930 145,927 Property, plant and equipment is measured at cost less accumulated depreciation and any accumulated impairment losses. The cost of self-constructed assets includes the cost of materials, direct labour, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located and an appropriate proportion of overheads. Gains and losses on disposal are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised net in the consolidated statement of profit or loss and other comprehensive income. Depreciation is calculated using the reducing balance or straight line method over the estimated useful life of the assets, with the exception of software which is depreciated at prime cost. The estimated useful lives in the current and comparative periods are as follows: » Motor vehicles 4 to 7 years » Plant and equipment 2 to 7 years » Office furniture 2 to 10 years Depreciation methods, useful lives and residual values are reviewed and adjusted if appropriate, at each financial year end. Impairment of Property, Plant and Equipment The carrying value of assets are assessed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the assets recoverable amount is estimated. OILEX LTD ANNUAL REPORT 2019For personal use only 58 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 EQUITY, GROUP STRUCTURE AND RISK MANAGEMENT This section addresses the Group’s capital structure, the Group structure and related party transactions, as well as including information on how the Group manages the various financial risks. NOTE 17 – ISSUED CAPITAL AND RESERVES The reconciliation of the movement in capital and reserves for the consolidated entity can be found in the consolidated statement of changes in equity. (a) Issued Capital Ordinary Shares On issue at 1 July - fully paid Issue of share capital Shares issued for cash (1) (6) Shares issued for non-cash (2) (4) (7) (8) Exercise of unlisted options (3) (5) Capital raising costs 2019 Number of Ordinary Shares 2019 $ Issued Capital 2018 Number of Ordinary Shares 2018 $ Issued Capital 2,001,968,379 174,046,036 1,684,302,899 172,866,479 458,793,303 2,126,049 282,894,737 1,100,000 26,365,320 100,190,999 110,936 395,367 23,048,521 11,722,222 - (176,188) - 90,211 43,146 (53,800) Balance at 30 June - fully paid 2,587,318,001 176,502,200 2,001,968,379 174,046,036 Refer notes following for additional information and note 22 for details of unlisted options. The shares issued in lieu of non-executive director income were approved by shareholders at the Annual General Meeting (AGM) held on 29 November 2017 for the period from 1 November 2017 to 31 October 2018; and the AGM held on 29 November 2018 for the period from 1 November 2018 to 1 October 2019. The shares were issued at a price based upon the Volume Weighted Average Price (VWAP) for the 10 trading days prior to the date of issue for the period from 1 July 2018 to 31 October 2018; and the 10-Day VWAP up to the applicable quarter end for the period from 1 November to 30 June 2019. In accordance with the ASX waiver granted on 17 October 2018, the Company advised that the number of remuneration shares that were issued to directors totalled to 11,437,407 for the year ended 30 June 2019, which was equivalent to 0.44% of the Company’s issued capital as at 30 June 2019. Additional information of the issue of ordinary shares and unlisted options: 1) Pursuant to a debt and equity capital raise announcement dated 11 September 2018 and 17 September 2018, relating to the placement of 278,237,748 new ordinary shares at an issue price of £0.0019 (A$0.0034): - - - 157,894,737 shares were issued on 17 September 2018; 91,222,452 shares were issued on 26 September 2018; and 29,120,559 shares were issued on 14 December 2018. 2) On 26 September 2018, the Company issued: - - 317,029 and 10,526,315 shares as consideration for consulting services at an issue price of $A0.004 and £0.0019 (A$0.0034) respectively per ordinary share; and 3,467,070 shares in lieu of non-executive director remuneration at an issue price of $0.004 per ordinary share. 3) On 16 November 2018, the Company issued 90,190,999 shares upon the exercise of the following unlisted options: - - - 64,944,444 options @ £0.00225 per share; 9,473,684 options @ £0.0019 per share; and 15,772,871 options @ A$0.004121 per share. 4) On 29 November 2018, the Company issued 1,724,904 shares in lieu of non-executive director remuneration at an issue price of $0.008 per ordinary share. 5) On 5 December 2018, the Company issued 10,0000 shares upon the exercise of 10,000,000 options @ £0.00225 per ordinary share (expiry 22 May 2020). 6) Pursuant to an equity raise announcement on 18 December 2018 relating to the placement of 180,555,555 new ordinary shares at an issue price of £0.0036 (A$0.006314) per ordinary share: - - - - 55,555,555 shares were issued on 21 December 2018; 39,583,333 shares were issued on 2 January 2019; 71,527,778 shares were issued on 4 January 2019; and 13,888,889 shares were issued on 16 January 2019. OILEX LTD ANNUAL REPORT 2019For personal use only 59 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 NOTE 17 – ISSUED CAPITAL AND RESERVES (CONTINUED) 7) On 1 April 2019: - - the Company issued 1,760,000 shares as consideration for consulting services at an issue price of $A0.005 per ordinary share; and the Company issued 2,772,864 shares in lieu of non-executive director income at an issue price of $0.005 per ordinary share. 8) On 18 June 2019: - - the Company issued 2,324,569 shares as consideration for consulting services at an issue price of $A0.004 per ordinary share; and the Company issued 3,472,569 shares in lieu of non-executive director income at an issue price of $0.004 per ordinary share. The Company does not have authorised capital or par value in respect of its issued shares. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. Accounting Policy Ordinary shares are classified as equity. Transaction costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects. (b) Reserves Foreign Currency Translation Reserve Option Reserve Loans Option Reserve 2019 $ 2018 $ 7,376,163 36,485 88,740 7,296,212 331,889 - 7,501,388 7,628,101 Foreign Currency Translation Reserve (FCTR) The foreign currency translation reserve is comprised of all foreign currency differences arising from the translation of the financial statements of foreign operations from their functional currency to Australian dollars. The assets and liabilities of foreign operations are translated to Australian dollars at exchange rates at the reporting date. The income and expenses of foreign operations are translated to Australian dollars at exchange rates at the dates of the transactions. Foreign currency differences are recognised in other comprehensive income and accumulated in the FCTR. When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign exchange gains and losses arising from such a monetary item are considered to form part of a net investment in a foreign operation and are recognised in other comprehensive income and are presented within equity in the FCTR. Option Reserve The option reserve recognises the fair value of options issued but not exercised. Upon the exercise, lapsing or expiry of options, the balance of the option reserve relating to those options is transferred to accumulated losses. OILEX LTD ANNUAL REPORT 2019For personal use only 60 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 NOTE 18 – CONSOLIDATED ENTITIES Parent Entity Oilex Ltd Subsidiaries Independence Oil and Gas Limited Admiral Oil and Gas Holdings Pty Ltd Admiral Oil and Gas (106) Pty Ltd Admiral Oil and Gas (107) Pty Ltd Admiral Oil Pty Ltd Oilex (JPDA 06-103) Ltd Merlion Energy Resources Private Limited Oilex N.L. Holdings (India) Limited Oilex (West Kampar) Limited (1) Country of Incorporation Ownership Interest % 2019 2018 Australia Australia Australia Australia Australia Australia Australia India Cyprus Cyprus 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 (1) The Group is currently engaging with the Indonesian regulators with a view to returning its interest in West Kampar. It is intended to liquidate the Company as soon as arrangements can be made. Accounting Policy The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. NOTE 19 – JOINT ARRANGEMENTS The Group’s interests in joint arrangements as at 30 June 2019 are detailed below. Principal activities are oil and gas exploration, evaluation, development and production. (a) Joint Operations Interest Permit OFFSHORE JPDA 06-103 (1) ONSHORE Cambay Field Bhandut Field Sabarmati Field (2) West Kampar Block (3) Timor Leste and Australia (JPDA) India (Cambay Basin) India (Cambay Basin) India (Cambay Basin) Indonesia (Central Sumatra) 2019 % 10.0 45.0 40.0 40.0 67.5 2018 % 10.0 45.0 40.0 40.0 67.5 (1) The JPDA 06-103 Production Sharing Contract was terminated on 15 July 2015. The Joint Operating Agreement between the Joint Venture participants is still in effect. (2) The Sabarmati Production Sharing Contract was cancelled on 10 August 2016. The Joint Operating Agreement between the Joint Venture participants is still in effect. (3) Oilex (West Kampar) Limited is entitled to have assigned an additional 22.5% to its holding of 45% through exercise of its rights under a Power of Attorney granted by PT Sumatera Persada Energi (SPE), following the failure by SPE to repay funds due. The assignment request had been provided to BPMigas (now SKK Migas), the Indonesian Government regulator, and had not been approved or rejected. The West Kampar Contract Area Production Sharing Contract was terminated on 15 August 2018. The Group is currently engaging with the Indonesian regulators with a view to returning its interest in West Kampar. It is intended to liquidate the Company as soon as arrangements can be made. OILEX LTD ANNUAL REPORT 2019For personal use only 61 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 NOTE 19 – JOINT ARRANGEMENTS (CONTINUED) (b) Joint Operations The aggregate of the Group’s interests in all joint operations is as follows: Current assets Cash and cash equivalents Trade and other receivables (1) Inventories Prepayments Total current assets Non-current assets Exploration and evaluation Development assets Property, plant and equipment Total non-current assets Total assets Current liabilities Trade and other payables Total liabilities Net assets 2019 $ 2018 $ 81,872 1,907,808 1,054,795 36,286 12,510 1,846,349 1,209,149 36,699 3,080,761 3,104,707 568,887 539,792 6,495,591 6,165,255 111,877 127,145 7,176,355 6,832,192 10,257,116 9,936,899 (137,094) (137,094) (193,534) (193,534) 10,120,022 9,743,365 (1) Trade and other receivables of the joint operations is before any impairment and provisions. (c) Joint Operations Commitments In order to maintain the rights of tenure to exploration permits, the Group is required to perform exploration work to meet the minimum expenditure requirements specified by various state and national governments. These obligations are subject to renegotiation when application for an exploration permit is made and at other times. These obligations are not provided for in the financial report. The Group’s has no exploration expenditure commitments attributable to joint operations during the year (2018: $nil). There are no minimum exploration work commitments in the Cambay and Bhandut Production Sharing Contracts. Accounting Policy Joint arrangements are arrangements of which two or more parties have joint control. Joint control is the contractual agreed sharing of control of the arrangements which exists only when decisions about the relevant activities required unanimous consent of the parties sharing control. Joint arrangements are classified as either a joint operation or joint venture, based on the rights and obligations arising from the contractual obligations between the parties to the arrangement. To the extent the joint arrangement provides the Group with rights to the individual assets and obligations arising from the joint arrangement, the arrangement is classified as a joint operation and as such, the Group recognises its: » » » » » Assets, including its share of any assets held jointly; Liabilities, including its share of any liabilities incurred jointly; Revenue from the sale of its share of the output arising from the joint operation; Share of revenue from the sale of the output by the joint operation; and Expenses, including its share of any expenses incurred jointly. The Group’s interest in unincorporated entities are classified as joint operations. Joint Ventures provides the Group a right to the net assets of the venture and are accounted for using the equity method. The Group currently has no joint venture arrangements. OILEX LTD ANNUAL REPORT 2019For personal use only 62 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 NOTE 20 – RELATED PARTIES Identity of Related Parties The Group has a related party relationship with its subsidiaries (refer note 18), joint operations (refer note 19) and with its key management personnel. Key Management Personnel The following were key management personnel of the Group at any time during the financial year and unless otherwise indicated were key management personnel for the entire period: Non-Executive Directors Brad Lingo Paul Haywood Executive Director Joe Salomon Executives Mark Bolton Ashish Khare Position Non-Executive Chairman Non-Executive Director Position Managing Director Position Chief Financial Officer and Company Secretary Head - India Assets Key Management Personnel Compensation Key management personnel compensation comprised the following: Short-term employee benefits Other long-term benefits Non-monetary benefits Post-employment benefits Equity compensation benefits – shares issued in lieu of salary 2019 $ 615,475 40,542 21,252 59,668 55,454 2018 $ 677,224 36,805 15,192 63,920 40,228 792,391 833,369 Individual Directors’ and Executives’ Compensation Disclosures Information regarding individual Directors’ and Executives’ compensation is provided in the Remuneration Report section of the Directors’ Report. Apart from the details disclosed in this note, or in the Remuneration Report, no Director has entered into a material contract with the Company since the end of the previous financial year and there were no material contracts involving Directors’ interests existing at year end. Key Management Personnel Transactions with the Company or its Controlled Entities There were no transactions in the current year between the Group and entities controlled by key management personnel. OILEX LTD ANNUAL REPORT 2019For personal use only 63 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 NOTE 21 – FINANCIAL INSTRUMENTS The effect of initially applying AASB 9 on the group’s financial instruments is described in Note 2(h). (a) Financial Risk Management The Group has exposure to the following risks arising from financial instruments. i) Credit Risk ii) Liquidity Risk iii) Market Risk This note presents qualitative and quantitative information in relation to the Group’s exposure to each of the above risks and the management of capital. The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework and the development and monitoring of risk management policies. Risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. (b) Credit Risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations; and arises principally from the Group’s receivables from customers and joint ventures. The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the Group’s customer base, including the default risk of the industry and country in which customers operate, has less of an influence on credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset. The maximum exposure to credit risk at the reporting date was: Cash and cash equivalents Trade and other receivables - current 2019 $ 357,970 497,974 855,944 2018 $ 375,507 738,784 1,114,291 The Group’s cash and cash equivalents are held with major banks and financial institutions. The Group’s gross share of outstanding cash calls and recharges owing from joint venture partners and joint operations is $6,129,333 (2018: $5,768,614). The Group’s most significant customers are Enertech Fuel Solutions Pvt Limited (Enertech) with gas sales representing 39% of the Group’s total revenues (2018: 61%) and Indian Oil Corporation Limited, in its capacity as nominee of the Government of India, with oil sales representing 61% of the Group’s total revenues (2018: 39%). Enertech accounts for $nil of trade receivables as at June 2019 (2018: $5,841), whilst the Indian Oil Corporation Limited accounts for $nil of trade receivables (2018: $66,439). Impairment Losses The aging of the trade and other receivables at the reporting date was: Consolidated Gross Not past due Past due 0-30 days Past due 31-120 days Past due 121 days to one year More than one year Provision for doubtful debts Trade and other receivables net of provision 2019 $ 2018 $ 189,941 111,566 202,591 524,518 5,532,232 6,560,848 294,709 73,246 278,346 449,771 5,140,415 6,236,487 (6,062,874) (5,497,703) 497,974 738,784 OILEX LTD ANNUAL REPORT 2019For personal use only 64 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Receivable balances are monitored on an ongoing basis. The Group may at times have a high credit risk exposure to its joint venture partners arising from outstanding cash calls. The Group considers an allowance for expected credit losses (ECL’s) for all debt instruments. The Group applies a simplified approach in calculating ECL’s. The Group bases its ECL assessment on its historical credit loss experience, adjusted for factors specific to the debtors and the economic environment including, but not limited to, financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation and delinquency in payments. The Group has been in discussions with its joint venture partner for repayment of disputed and other amounts owing. The Group is continuing discussions in order to resolve the outstanding issues and recover payment of the outstanding amounts, however due to the age of the receivables amounts, is uncertain of the timing or of full recovery. (c) Liquidity Risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due without incurring unacceptable losses or risking damage to the Group’s reputation. The Group manages liquidity by monitoring present cash flows and ensuring that adequate cash reserves, financing facilities and equity raisings are undertaken to ensure that the Group can meet its obligations. The table below analyses the Group’s financial liabilities by relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Carrying Amount $ Face Value $ Total $ 2 months or less $ 2 – 12 months $ Greater than 1 year $ Contractual Cash Flows 2019 Trade and other payables Borrowings 697,184 563,955 697,184 580,000 697,184 580,000 697,184 - Total financial liabilities 1,261,139 1,277,184 1,277,184 697,184 - 580,000 580,000 2018 Trade and other payables Total financial liabilities Subsequent Events 779,249 779,249 779,249 779,249 779,249 779,249 779,249 779,249 - - - - - - - On 23 July 2019, the Group entered into an amendment agreement to vary the terms of its loan funding facility of $330,000 entered into on 26 July 2018. Pursuant to the amendment, the loan repayment date has been extended from 26 July 2019 to 1 October 2019. On 30 September 2019, the Company entered into an amendment agreement to vary the terms of its loan funding facility of $300,000 entered into on 26 July 2018; and the subsequent amendment noted above. Pursuant to the amendment, the loan repayment date has been extended to 15 October 2019. Furthermore, the Company also entered into an amendment agreement to vary the terms of its loan funding facility of $250,000 entered into on 11 September 2018. Pursuant to the amendment, the loan repayment date has been extended from 1 October 2019 to 1 April 2020. Pursuant to the extension, the Company will issue 60,664,887 options at $0.004121 on or before 1 April 2020. (d) Market Risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. i) Currency risk An entity is exposed to currency risk on sales and purchases that are denominated in a currency other than the functional currency of the entity. The currencies giving rise to this risk are the United States dollar (USD), Indian rupee (INR) and British pound (GBP). OILEX LTD ANNUAL REPORT 2019For personal use only 65 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 NOTE 21 – FINANCIAL INSTRUMENTS (CONTINUED) The amounts in the table below represent the Australian dollar equivalent of balances in the Oilex Group Entities that are held in a currency other than the functional currency in which they are measured in that Group Entity. The exposure to currency risk at balance date was as follows: In equivalents of Australian dollar USD $ 2019 INR $ GBP $ Cash and cash equivalents 20,095 139,811 24,467 Trade and other receivables (1) 229,196 3,219,109 Trade and other payables (3,978) (312,161) Net balance sheet exposure 245,313 3,046,759 - (4,665) 19,802 USD $ 136,584 110,799 2018 INR $ GBP $ 30,392 15,928 3,053,753 (3,958) (188,863) 243,425 2,895,282 - (13,176) 2,752 (1) Trade and other receivables of the joint operation is before any impairment and provisions. The following significant exchange rates applied during the year: AUD USD INR GBP Foreign Currency Sensitivity Average Rate Reporting Date Spot Rate 2019 0.7156 50.5060 0.5527 2018 0.7753 50.4574 0.5762 2019 0.7013 48.4100 0.5535 2018 0.7391 50.7392 0.5634 A 10% strengthening/weakening of the Australian dollar against the following currencies at 30 June would have (increased)/ decreased the loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2018. 10% Strengthening United States dollars (USD) Indian rupees (INR) British pounds (GBP) 10% Weakening United States dollars (USD) Indian rupees (INR) British pounds (GBP) 2019 $ 24,351 304,676 1,980 2018 $ 27,047 321,698 306 (24,351) (304,676) (1,980) (22,129) (263,207) (250) OILEX LTD ANNUAL REPORT 2019For personal use only 66 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 ii) Interest rate risk At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was: Fixed Rate Instruments Financial assets (short-term deposits included in trade receivables) Financial liabilities (borrowings) Variable Rate Instruments Financial assets (cash and cash equivalents) Cash Flow Sensitivity Analysis for Variable Rate Instruments Carrying Amount 2019 $ 2018 $ 100,000 (563,955) 149,004 - 357,970 375,507 An increase of 100 basis points in interest rates at the reporting date would have decreased the loss by the amounts shown below. A decrease of 100 basis points in interest rates at the reporting date would have had the opposite impact by the same amount. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same basis for 2018. Impact on profit or loss iii) Other market price risks 2019 $ 2018 $ 3,580 3,755 At 30 June 2019, the Group had no financial instruments with exposure to other price risks (2018: $nil). Equity Price Sensitivity At 30 June 2019, the Group had no exposure to equity price sensitivity (2018: $nil). (e) Capital Risk Management The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The capital structure of the Group consists of equity attributable to equity holders of the Company, comprising issued capital, reserves and accumulated losses as disclosed in the consolidated statement of changes in equity. (f) Fair Values of Financial Assets and Liabilities The net fair values of financial assets and liabilities of the Group approximate their carrying values. The Group has no off-balance sheet financial instruments and no amounts are offset. OILEX LTD ANNUAL REPORT 2019For personal use only 67 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 OTHER DISCLOSURES This section provides information on items which are required to be disclosed to comply with Australian Accounting Standards, other regulatory pronouncements and the Corporations Act 2001. NOTE 22 – SHARE-BASED PAYMENTS Share-based Payments Expense Shares The following equity settled share-based payment transactions have been recognised in the Consolidated Statement of Profit or Loss and Other Comprehensive Income: Shares and rights - equity settled Non-Executive Directors – remuneration shares (1) Technical and administrative contractors Total share-based payments expense 2019 $ 2018 $ 55,422 55,513 110,935 27,653 62,558 90,211 (1) At the Annual General Meeting held on 29 November 2017, the shareholders of the Company approved the issue of shares in lieu of cash for part of the remuneration for the Non-Executive Directors. The Directors have also agreed to receive part of their Directors fees in the form of the Company’s shares in lieu of cash payments for the period from 1 November 2017 to 31 October 2018, in order to conserve the cash reserves of the Company. Similar shareholder approval was also received at the Annual General Meeting held on 29 November 2018 for the period from 1 November 2018 to 31 October 2019. In accordance with the ASX waiver granted 17 October 2018, the Company advised that the number of remuneration shares that were issued to directors for the year ended 30 June 2019 totalled 11,437,407 (2018 5,530,644) and the percentage of the Company’s issued capital represented by these remuneration shares was 0.44% (2018 0.28%). As at 30 June 2019, the accrued non-executive director fees, being remuneration shares not yet issued totalled $12,607 (2018: $12,575). Unlisted Options At 30 June 2019, the terms and conditions of unlisted options granted by the Company to directors, employees, financiers and advisors are as follows, whereby all options are settled by physical delivery of shares: Grant Date Number of Instruments Vesting Conditions Contractual Life of Options Key Management Personnel Nil Other Employees Nil Financiers and Advisors 22 May 2017 17 September 2018 29 November 2018 19 December 2018 Total Options 2,222,222 91,666,666 60,664,887 6,666,667 161,220,442 Upon granting Upon granting Upon granting Upon granting 3 years 45 weeks 44 weeks 2 years Subsequent to reporting date, no options have been exercised; however the 91,666,666 options have lapsed – for further information refer to Note 27 a). OILEX LTD ANNUAL REPORT 2019For personal use only 68 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Accounting Policy Options allow directors, employees and advisors to acquire shares of the Company. The fair value of options granted to employees is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using the Black-Scholes Model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is only due to share prices not achieving the threshold for vesting. Options may also be provided as part of consideration for services by brokers and underwriters. Any unlisted options issued to the Company’s AIM broker are treated as a capital raising cost. When the Group grants options over its shares to employees of subsidiaries, the fair value at grant date is recognised as an increase in the investments in subsidiaries, with a corresponding increase in equity over the vesting period of the grant. The number and weighted average exercise prices (WAEP) of unlisted share options are as follows: Outstanding at 1 July Lapsed during the year Exercised during the year Granted during the year - - - Granted to Brokers and Financial Advisers (1) Series A Loan Options (3) Series B Loan Options (2) (3) Outstanding at 30 June WAEP 2019 $0.005 $0.35 $0.004 $0.005 $0.004 $0.004 $0.004 Number 2019 77,441,666 (275,000) (100,190,999) 16,140,351 91,666,666 76,437,758 WAEP 2018 $0.009 $0.011 $0.004 - - - Number 2018 286,974,273 (197,810,385) (11,722,222) - - - 161,220,442 $0.005 77,441,666 Exercisable at 30 June $0.004 161,220,442 $0.005 77,441,666 The unlisted options outstanding at 30 June 2019 have an exercise price in the range of $0.004 to $0.006 (2018: $0.004 to $0.35) and a weighted average remaining contractual life of 0.2 years (2018: 1.90 years). The fair value of unlisted options is calculated at the date of grant using the Black-Scholes Model. Expected volatility is estimated by considering historical volatility of the Company’s share price over the period commensurate with the expected term. (1) The following factors and assumptions were used to determine the fair value of 16,140,351 options issued to brokers and financial advisors during the year. 2019 Grant Date Vesting Date Expiry Date Fair Value Per Option Exercise Price Price of Shares on Grant Date Expected Volatility Risk Free Interest Rate Dividend Yield 19 Sept 2018 19 Sept 2018 17 Sept 2020 $0.003 19 Dec 2018 19 Dec 2018 24 Dec 2020 $0.004 $0.004 $0.006 $0.004 $0.006 104.78% 142.57% 1.50% 1.50% - - (2) 15,772,871 Series B loan options were exercised during the period (3) The fair value equity component of the 91,666,666 Series A Loan options and 76,437,758 Series B Loan options has been determined using an implied effective interest rate of 18% pa (effective interest rate on a similar borrowing without an equity component); and is $50,490 and $48,195, respectively. At loan drawdown, this amount has been recognised in the Loan Option Reserve as the loans have been treated as convertible notes. For further information refer to Note 14: Borrowings. OILEX LTD ANNUAL REPORT 2019For personal use only 69 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 NOTE 23 – PARENT ENTITY DISCLOSURE As at, and throughout, the financial year ended 30 June 2019 the parent entity of the Group was Oilex Ltd. Result of the parent entity Loss for the year Other comprehensive income/(loss) Total comprehensive loss for the year Financial position of the parent entity at year end Current assets Total assets Current liabilities Total liabilities Net assets Total equity of the parent entity comprising of: Issued capital Option reserve Loans Options Reserve Foreign currency translation reserve Accumulated losses Total equity Parent Entity Contingencies 2019 $ 2018 $ (3,382,300) (4,758,767) 143,085 (110,414) (3,239,215) (4,869,181) 1,164,081 5,995,034 1,160,603 3,361,943 1,545,758 6,162,360 596,118 2,684,874 2,633,091 3,477,486 176,502,200 174,046,036 36,485 88,740 331,889 - 5,052,168 4,909,084 (179,046,502) (175,809,523) 2,633,091 3,477,486 The Directors are of the opinion that provisions are not required in respect of the following matters, as it is not probable that a future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement. Oilex Ltd has issued a guarantee in relation to corporate credit cards. The bank guarantee amounts to $100,000. An equal amount is held in cash and cash equivalents as security by the bank. (2018: $149,004 in relation to the lease of corporate offices and the corporate credit cards). Parent entity capital commitments for acquisition of property plant and equipment Oilex Ltd had no capital commitments as at 30 June 2019 (2018: Nil). Parent entity guarantee (in respect of debts of its subsidiaries) On 7 November 2006, Oilex Ltd issued a Deed of Parent Company Performance Guarantee in relation to the Production Sharing Contract entered into with the Timor Sea Designated Authority dated 15 November 2006. Refer note 26. Oilex Ltd has issued no other guarantees in respect of debts of its subsidiaries. OILEX LTD ANNUAL REPORT 2019For personal use only 70 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 NOTE 24 – AUDITORS’ REMUNERATION Audit and review services Auditors of the Company – KPMG 2019 $ 2018 $ Audit and review of financial reports (KPMG Australia) 81,400 82,000 Audit of Joint Operations operated by Oilex Ltd Operator proportion only (KPMG Australia) Audit and review of financial reports (KPMG related practices) Other Auditors Audit and review of financial reports (India Statutory) Other services Auditors of the Company – KPMG Taxation compliance services (KPMG Australia) Taxation compliance services (KPMG related practices) Other Auditors Taxation compliance services (India Statutory) NOTE 25 – OPERATING LEASES Leases as Lessee Non-cancellable operating lease rentals are payable as follows: Within one year One year or later and no later than five years 414 20,656 102,470 5,972 108,442 13,213 6,987 20,200 5,255 25,455 2019 $ 27,211 - 27,211 419 16,252 98,671 5,543 104,214 11,723 6,449 18,172 7,094 25,266 2018 $ 86,738 4,711 91,449 The Group leases its head office premises at Level 2, 11 Lucknow Place West Perth, Australia. The lease commenced on 1 June 2019 for a six-month period; with expiry on 30 November 2019. Thereafter, the Group has the option of a month by month lease extension subject to lessor approval. The Group leases office premises in Gandhinagar (India) under an operating lease. The current lease has a three year term, commencing 16 October 2016. Operating lease rentals expensed during the financial year Accounting Policy 2019 $ 2018 $ 102,788 130,981 Operating leases payments are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense and are allocated over the lease term. OILEX LTD ANNUAL REPORT 2019For personal use only 71 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 NOTE 26 – PROVISIONS AND CONTINGENT LIABILITIES Contingent Liabilities at Reporting Date The Directors are of the opinion that provisions (except as noted below) are not required in respect of these matters, as it is not probable that a future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement. Guarantees Oilex Ltd has issued guarantees in relation to the corporate credit cards. The bank guarantees amount to $100,000. Termination Penalty In November 2006 Oilex (JPDA 06-103) Ltd (Operator) and the Joint Venture parties entered into a Production Sharing Contract (PSC) with the Designated Authority for JPDA 06-103 and the PSC was signed in January 2007 (effective date 15 January 2007). On 12 July 2013, the Operator, on behalf of the Joint Venture participants, submitted to the Autoridade Nacional do Petroleo e Minerais (ANPM), the body responsible for managing and regulating petroleum and mining activities in the Timor-Leste area, a request to terminate the PSC by mutual agreement in accordance with its terms and without penalty or claim. The request was issued as a result of ongoing uncertainty as to the security of PSC tenure which arose as a result of a maritime dispute between the governments of Timor Leste and Australia. This request required the consent of the Timor Sea Designated Authority. On 15 May 2015, the ANPM issued a Notice of Intention to Terminate the PSC and subsequently, on 15 July 2015, issued a Notice of Termination and Demand for Payment. The demand for payment (100%) of the penalty claim of US$17.0 million (plus interest) reflected the ANPM’s estimate of the cost of exploration activities not undertaken in 2013, as well as certain local content obligations set out in the PSC. More recently, ANPM has sought to amend its claim to US$22.26 million. On 17 October 2018, the Company announced that it had received correspondence from ANPM advising that it had submitted a Request for Arbitration (RFA) to the International Chamber of Commerce (ICC) in Singapore. The RFA relates to matters associated with the termination of the PSC by the ANPM. In addition to other matters, the Joint Venture considers it has made significant over expenditure in executing the PSC work programme and further, the ANPM failed to properly assess and award credit for such additional expenditure when terminating the PSC. Notwithstanding the Joint Venture considers no penalty payment is applicable, the parties made a number of unsuccessful attempts to settle the matter in dispute prior to the arbitration proceedings issuing. The Group has maintained a USD$600,000 provision for this matter. On 16 August 2019, the Company announced that it had submitted the Respondents First Memorial to the International Chamber of Commerce (ICC) in Singapore. In this regard, following a substantive legal and independent expert review, the joint venture has lodged a counterclaim against the ANPM for the amount US$23.3 million (plus interest) as damages arising from the wrongful termination of the PSC. Oilex holds a 10% participating interest in the JPDA joint venture. The arbitration hearing is scheduled to commence on 10 February 2020. The obligations and liabilities of the Joint Venture participants under the PSC are joint and several and all participants have provided parent company guarantees. The equity interest of the Joint Venture participants are: Oilex (JPDA 06-103) Ltd (Operator) Pan Pacific Petroleum (JPDA 06-103) Pty Ltd Japan Energy E&P JPDA Pty Ltd GSPC (JPDA) Limited # Videocon JPDA 06-103 Limited *# Bharat PetroResources JPDA Ltd Total 10% 15% 15% 20% 20% 20% 100% * The Company understands that the parent company Videocon Industries Ltd is subject to corporate insolvency proceedings and continues to trade under the supervision of an insolvency professional. # A notice of default has been issued against both Videocon JPDA 06-103 Limited and GSPC (JPDA) Limited for their failure to pay the joint venture cash calls. OILEX LTD ANNUAL REPORT 2019For personal use only 72 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 NOTE 27 – SUBSEQUENT EVENTS a) On 23 July 2019, the Group entered into an amendment agreement to vary the terms of its loan funding facility of $330,000 entered into on 26 July 2018. Pursuant to the amendment, the loan repayment date has been extended from 26 July 2019 to 1 October 2019. In addition, the Company will issue 124,060,150 new options to the lenders at an exercise price of $0.00266, and an expiry date of 31 December 2019, which were subject to shareholder approval at a General Meeting to be held on 19 September 2019, which was duly forthcoming. All other loan terms and conditions remain the same; and are extended to 1 October 2019. The total 91,666,666 share options @ $0.0036 exercisable on or before 26 July 2019, attached to the original loans, were not exercised and have lapsed. The above-mentioned 124,060,150 options were subsequently issued on 27 September 2019. b) On 30 September 2019, the Company entered into an amendment agreement to vary the terms of its loan funding facility of $300,000 entered into on 26 July 2018; and the subsequent amendment noted in a) above. Pursuant to the amendment, the loan repayment date has been extended to 15 October 2019. Furthermore, the Company also entered into an amendment agreement to vary the terms of its loan funding facility of $250,000 entered into on 11 September 2018. Pursuant to the amendment, the loan repayment date has been extended from 1 October 2019 to 1 April 2020. Pursuant to the extension, the Company will issue 60,664,887 options at $0.004121 on or before 1 April 2020. c) On 31 July 2019, the Company announced that it has arranged an equity capital raising to secure funding of £0.34 million (A$0.6 million) through the placing of 257,329,999 new shares at 0.13 pence (A$0.002330) per share. All shares were subsequently issued on 13 August 2019. d) On 7 August 2019, the Company announced that it has entered into an agreement with Holloman Energy Corporation (HEC) to acquire its 48.5003% interest in the Petroleum Exploration Licence (PEL) 112 and 444 license (the Licenses) in the world class Cooper-Eromanga Basins in South Australia. Pursuant to the share purchase agreement entered into with HEC, the Company will acquire 100% of its wholly owned subsidiary, Holloman Petroleum Pty Ltd (“HPPL”) for gross consideration of 40,416,917 ordinary shares in the Company (Shares) at a deemed price of 0.3 cents and A$24,250 for a total consideration of A$145,500. e) On 14 August 2019, the Company announced that it has entered into an agreement with Perseville Investing Inc and Terra Nova Energy (Australia) Pty Ltd (TNA) (collectively, TNP) to acquire up to a further 51.4997% interest in the PEL’s 112 and 444 licenses. Pursuant to the share purchase agreement entered into with TNP, the Company will acquire a further participating interest of 30.833% in the Licenses for consideration of 9,166,333 ordinary shares in the Company at a deemed price of 0.3 cents and A$65,000 in cash for a total consideration of A$92,499. In addition, the Company has been granted an Option by TNP for up to 15 months to acquire a further 20.6667% participating interest in the Licenses (Option). The Option can be exercised for consideration of 20,666,700 ordinary shares in the Company at a deemed price of 0.3 cents for a total consideration of A$62,000 (Option Exercise Shares). f) In October 2018, the Company announced that the Autoridade Nacional Do Petroleo E Minerais (ANPM) had commenced arbitration proceedings against Oilex and its joint venture partners (Respondents), in regard to the JPDA production sharing contract (PSC). On 16 August 2019, The Company announced it had submitted the Respondents First Memorial to the International Chamber of Commerce (ICC) in Singapore. In this regard, following a substantive legal and independent expert review, the joint venture has lodged a counterclaim against the ANPM for the amount US$23.3 million (plus interest) as damages arising from the wrongful termination of the PSC. The arbitration hearing is scheduled to commence on 10 February 2020. Refer Note 26 for the full background information on this matter. g) On 9 September 2019, the Company announced it has reached an agreement with Gujarat State Petroleum Corporation (GSPC) which, upon completion, will resolve the ongoing Cambay PSC dispute (the Agreement). Significantly, the Indian Directorate General of Hydrocarbons is a signatory to the Agreement. As previously announced in March 2019, the State Government of Gujarat and the GSPC Board of Directors’ have approved a sales process for many of GSPC’s Indian E&P assets. Oilex and GSPC have now agreed to include GSPC’s 55% Participating Interest (PI) in the Cambay PSC in this sale process. GSPC has also undertaken to use its best endeavours to complete the sale process within 90 days from commencement. Pursuant to the Agreement, the Event of Default (EoD) and Event of Withdrawal (EoW) declared by Oilex pursuant to the Cambay Field Joint Operating Agreement (JOA) has been withdrawn and the arbitration tribunal of the Singapore International Arbitration Centre (SIAC) issued an order on 24 September 2019 terminating the arbitration proceedings instituted by GSPC. GSPC has also undertaken to remove the stay order granted in the High Court of Gujarat. OILEX LTD ANNUAL REPORT 2019For personal use only 73 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 NOTE 27 – SUBSEQUENT EVENTS (CONTINUED) h) On 16 September 2019, the Company announced it has entered into an exclusivity agreement with Koru Energy (KLW) Ltd (“Koru”), a subsidiary of Koru Energy Limited, for a potential acquisition of up to a 50% relevant interest in the Knox and Lowry, and Whitbeck gas discoveries (the “KLW Gas Discoveries”) in the East Irish Sea (EIS), offshore the United Kingdom (“Exclusivity Agreement”). The KLW Gas Discoveries are a series of shallow water gas accumulations that were discovered between 1992 and 2009 by the then operators and successfully drill-stem tested confirming discovered volumes that the Company and Koru would seek to bring into production, should the acquisition complete. The KLW Gas Discoveries are ideally located very close to a subsea tie-back pipeline which delivers gas to the nearby and recently refurbished North Morecambe Gas Production Platform and Terminal. The EIS is a prolific basin which has produced more than 6TCF of gas to date with considerable existing gas production, gathering, processing and transportation infrastructure. The KLW Gas Discoveries are located in known conventional shallow reservoirs in shallow water near existing EIS gathering and production infrastructure reducing the complexity, risk and cost of development. i) On 27 September, the Company announced that it has entered into a binding term sheet with Senex Energy Limited and certain of its related entities (together referred to as “Senex”) to acquire all of Senex’s interest as operator in 27 Petroleum Retention Licenses in the Northern Oil and West Gas Fairway in the world class Cooper-Eromanga Basins in South Australia (the “Northern Fairway PRLs”), subject to satisfaction of conditions (including government approvals). The Company will acquire 100% of Senex’s interest in the Northern Fairway PRLs for nominal consideration and assumption of existing abandonment liabilities, PRL fees and PRL expenditure targets. The existing abandonment liabilities relate to previous exploration drilling activities (including the cased and suspended Paning-2 tight gas discovery well) and associated with the Cordillo 3D seismic acquisition operating camp. The existing rehabilitation liabilities are estimated at approximately $1.1m. However, the rehabilitation does not require immediate rectification. The total annual amount of the Northern Fairway PRL renewal fees is approximately $1 million. The Company also assumes the expenditure targets under the PRLs. Failure to achieve the expenditure target will result in pro-rata relinquishment of the permits. The Company notes that the Northern Fairway PRLs are currently suspended by the South Australian Government, suspending the annual license fees and work obligations. Oilex intends to continue this suspension for a period. The agreement with Senex is subject to various conditions including the approval of Oilex as operator of the Northern Fairway PRLs by the South Australian Government. Hartleys Limited, a leading Australian corporate advisory and stockbroking financial services firm, has been appointed to lead the arrangement of funding for the acquisition. Subject to the receipt of regulatory approvals, Oilex anticipates completion of the acquisition by the end of Calendar Year 2019. j) On 30 September 2019, the Company announced that it has arranged an equity capital raising to secure funding of £0.6 million (A$1.1 million) through the placing of 315,789,474 new shares at 0.19 pence (A$0.00348) per share. The shares will be issued to Novum Securities and existing shareholders. Other than the above disclosure, there has not arisen in the interval between the end of the financial year and the date of this report an item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years. NOTE 28 – OTHER ACCOUNTING POLICES New Standards and Interpretations Not Yet Adopted The following standards, amendments to standards and interpretations have been identified as those which may impact the entity in the period of initial application. They are not yet effective and have not been applied in preparing this financial report. » » AASB 16 Leases provides a new lessee accounting model requiring the recognition of assets and liabilities for all leases with a term greater than twelve months, unless the underlying asset is of low value. It requires the lessee to recognise a right-of-use asset, representing the rights to use the underlying lease asset and a lease liability representing the obligation of lease payments. AASB 16 is effective for annual periods beginning on or after 1 July 2019. The Group has undertaken a review of all its existing leases. The impact on the Group’s financial assets and financial liabilities of the adoption of AASB 16 is being assessed and is dependent upon the adoption approach and application of transitional provisions, as well as assessing new leases anticipated to be entered into. The impact of the adoption of this standard is unlikely to have a material future impact on the Group’s balance sheet once the liability for future leases are recognised. Further information is disclosed in Note 25. IFRIC 23 Uncertainty over Tax Treatments clarifies how the recognition and measurement requirements of IAS 12 Income Taxes are applied when there is uncertainty over income tax treatments. IFRIC 23 is effective for annual periods beginning on or after 1 July 2019. The impact of the adoption of this interpretation is not expected to have a significant on the Group’s Consolidated financial statements. OILEX LTD ANNUAL REPORT 2019For personal use only 74 DIRECTORS’ DECLARATION (1) In the opinion of the Directors of Oilex Ltd (the Company): (a) the consolidated financial statements and notes thereto, and the Remuneration Report in the Directors’ Report, set out on pages 23 to 31, are in accordance with the Corporations Act 2001, including: i) giving a true and fair view of the Group’s financial position as at 30 June 2019 and of its performance for the financial year ended on that date; and ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (a) there are reasonable grounds to believe that the Company and Group will be able to pay its debts as and when they become due and payable. (2) The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Managing Director and Chief Financial Officer for the financial year ended 30 June 2019. (3) The Directors draw attention to note 2(a) to the consolidated financial statements, which includes a statement of compliance with International Financial Reporting Standards. Signed in accordance with a resolution of the Directors. Mr Brad Lingo Chairman Mr Jonathan Salomon Managing Director West Perth, Western Australia 30 September 2019 OILEX LTD ANNUAL REPORT 2019For personal use only 75 INDEPENDENT AUDITOR’S REPORT OILEX LTD ANNUAL REPORT 2019For personal use only 76 INDEPENDENT AUDITOR’S REPORT OILEX LTD ANNUAL REPORT 2019For personal use only 77 INDEPENDENT AUDITOR’S REPORT OILEX LTD ANNUAL REPORT 2019For personal use only 78 INDEPENDENT AUDITOR’S REPORT OILEX LTD ANNUAL REPORT 2019For personal use only 79 SHAREHOLDER INFORMATION Shareholder information as at 1 September 2019 Additional information required by the ASX Limited Listing Rules and not disclosed elsewhere in this report is set out below. The address of the principal registered office is Level 2, 11 Lucknow Place, West Perth, Western Australia 6005, Australia, Telephone +61 8 9485 3200. The name of the Company Secretary is Mr Mark Bolton. Detailed schedules of exploration and production permits held are included in the Business Review. Directors’ interest in share capital options are disclosed in the Directors’ Report. There is currently no on-market buy-back in place. Shareholding (a) Distribution of share and option holdings: Size of holding 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over Total Number of shareholders Number of unlisted option holders 296 474 314 752 495 2,331 - - - - 4 4 (b) Of the above total 1,900 ordinary shareholders hold less than a marketable parcel. (c) Voting Rights: The voting rights attached to the ordinary shares are governed by the Constitution. On a show of hands every person present who is a Member or representative of a Member shall have one vote and on a poll, every Member present in person or by proxy or by attorney or duly authorised representative shall have one vote for each share held. None of the options give an entitlement to voting rights. Register of Securities The register of securities listed on the Australian Securities Exchange is held by Link Market Services Limited, Level 12, 250 St Georges Terrace, Perth, Western Australia 6000, Australia, Telephone +61 8 9211 6670. The register of securities listed on the Alternative Investment Market of the London Stock Exchange is held by Computershare Investor Services PLC, PO Box 82, The Pavilions, Bridgwater Road, Bristol BS13 8AE, United Kingdom, Telephone +44 870 702 003. Stock Exchange Listing Quotation has been granted for all the ordinary shares of the Company on all Member Exchanges of the Australian Securities Exchange and the Alternative Investment Market of the London Stock Exchange (AIM) and trades under the symbol OEX. Unquoted Securities - Options Total unlisted options on issue are 69,553,776. The Managing Director, Mr Jonathan Salomon holds 14,987,013 shares as at 1 September 2019 which represents 0.52% of shares. OILEX LTD ANNUAL REPORT 2019For personal use only 80 SHAREHOLDER INFORMATION Twenty Largest Shareholders Shareholders HSBC Custody Nominees (Australia) Limited Rock (Nominees) LimitedRoy Nominees Limited <127735> Hargreaves Lansdown (Nominees) Limited <15942> Interactive Investor Services Nominees Limited Barclays Direct Investing Nominees Limited Interactive Investor Services Nominees Limited HSDL Nominees Limited Hargreaves Lansdown (Nominees) Limited Hargreaves Lansdown (Nominees) Limited Magna Energy Limited Zeta Resources Limited Lawshare Nominees Limited Chase Nominees Limited HSBC Client Holdings Nominee (UK) Limited <731504> HSDL Nominees Limited Jim Nominees Limited Vidacos Nominees Limited HSDL Nominees Limited UBS Private Banking Nominees Ltd Shares Held 437,509,516 154,989,568 150,581,264 145,235,304 128,346,155 123,908,406 111,901,410 96,114,523 90,399,725 87,471,954 73,505,090 71,323,567 52,121,495 50,000,000 49,283,646 43,294,727 39,985,606 39,275,896 37,755,945 32,266,549 # # # # # # # # # # # # # # # # # % of issued capital 15.20 5.39 5.23 5.05 4.46 4.31 3.89 3.34 3.14 3.04 2.55 2.48 1.81 1.74 1.71 1.50 1.39 1.36 1.31 1.12 Total Total issued shares as at 1 September 2019 1,351,606,658 2,878,064,483 46.96 100.00 Substantial shareholders as disclosed in the most recent substantial shareholder notices given to the company are as follows: Substantial Shareholders Republic Investment Management Pte Ltd Shares Held 422,744,768 % of issued capital 14.74 Republic Investment Management Pte Ltd has subsequently transferred all of its shares to the AIM register. (#) Included within the total issued capital are 1,814,417,003 shares held on the AIM register. Included within the top 20 shareholders are certain AIM registered holders as marked. OILEX LTD ANNUAL REPORT 2019For personal use only 81 DEFINITIONS Associated Gas Natural gas found in contact with or dissolved in crude oil in the reservoir. It can be further categorised as Gas-Cap Gas or Solution Gas. Bbls BCF BCFE BOE BOPD GOR MMscfd MMbbls PSC mD MD Barrels of oil or condensate. Billion cubic feet of gas at standard temperature and pressure conditions. Billion cubic feet equivalent of gas at standard temperature and pressure conditions. Barrels of Oil Equivalent. Converting gas volumes to the oil equivalent is customarily done on the basis of the nominal heating content or calorific value of the fuel. Common industry gas conversion factors usually range between 1 barrel of oil equivalent (BOE) = 5,600 standard cubic feet (scf) of gas to 1 BOE = 6,000 scf. (Many operators use 1 BOE = 5,620 scf derived from the metric unit equivalent 1 m³ crude oil = 1,000 m³ natural gas). Barrels of oil per day. Gas to oil ratio in an oil field, calculated using measured natural gas and crude oil volumes at stated conditions. The gas/oil ratio may be the solution gas/oil, symbol Rs; produced gas/oil ratio, symbol Rp; or another suitably defined ratio of gas production to oil production. Volumes measured in scf/bbl. Million standard cubic feet of gas per day. Million barrels of oil or condensate. Production Sharing Contract. Millidarcy – unit of permeability. Measured Depth. Contingent Resources Those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations by application of development projects, but which are not currently considered to be commercially recoverable due to one or more contingencies. Contingent Resources may include, for example, projects for which there are currently no viable markets, or where commercial recovery is dependent on technology under development, or where evaluation of the accumulation is insufficient to clearly assess commerciality. Contingent Resources are further categorised in accordance with the level of certainty associated with the estimates and may be sub-classified based on project maturity and/or characterised by their economic status. Prospective Resources Those quantities of petroleum which are estimated, as of a given date, to be potentially recoverable from undiscovered accumulations. Reserves are those quantities of petroleum anticipated to be commercially recoverable by application of development projects to known accumulations from a given date forward under defined conditions. Proved Reserves are those quantities of petroleum, which by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under defined economic conditions, operating methods and government regulations. Probable Reserves are those additional Reserves which analysis of geoscience and engineering data indicate are less likely to be recovered than Proved Reserves but more certain to be recovered than Possible Reserves. Reserves Possible Reserves are those additional reserves which analysis of geoscience and engineering data indicate are less likely to be recoverable than Probable Reserves. 3P Probabilistic methods. P90 refers to the quantity for which it is estimated there is at least a 90% probability the actual quantity recovered will equal or exceed. P50 refers to the quantity for which it is estimated there is at least a 50% probability the actual quantity recovered will equal or exceed. P10 refers to the quantity for which it is estimated there is at least a 10% probability the actual quantity recovered will equal or exceed. SCF/BBL Standard cubic feet (of gas) per barrel (of oil). TCF Trillion cubic feet. Tight Gas Reservoir The reservoir cannot be produced at economic flow rates or recover economic volumes of natural gas unless the well is stimulated by a large hydraulic fracture treatment, a horizontal wellbore, or by using multilateral wellbores. OILEX LTD ANNUAL REPORT 2019For personal use only OILEX LTD ANNUAL REPORT 2019 82 CORPORATE INFORMATION DIRECTORS STOCK EXCHANGE LISTINGS Oilex Ltd’s shares are listed under the code OEX on the Australian Securities Exchange and on the Alternative Investment Market of the London Stock Exchange (AIM) AIM NOMINATED ADVISER Strand Hanson Limited 26 Mount Row London W1K 3SQ United Kingdom AIM BROKER Novum Securities Limited 10 Grosvenor Gardens Belgravia London SW1W 0DH United Kingdom SHARE REGISTRIES Link Market Services Limited (for ASX) Level 12 250 St Georges Terrace Perth Western Australia 6000 Australia Computershare Investor Services PLC (for AIM) The Pavilions Bridgwater Road Bristol BS13 8AE United Kingdom AUDITORS KPMG 235 St Georges Terrace Perth Western Australia 6000 Australia Brad Lingo Bachelor of Arts with Honours, Juris Doctorate, MAICD Non-Executive Chairman Joe Salomon B APP SC (Geology), GAICD Managing Director P Schwarz Non-Executive Director P Haywood Non-Executive Director COMPANY SECRETARY Mark Bolton B Business CFO and Company Secretary REGISTERED AND PRINCIPAL OFFICE Level Two 11 Lucknow Place West Perth Western Australia 6005 Australia Ph. +61 8 9485 3200 Fax +61 8 9485 3290 POSTAL ADDRESS PO Box 254 West Perth Western Australia 6872 Australia INDIA OPERATIONS - GANDHINAGAR PROJECT OFFICE 3rd Floor Radhe Arcade ‘Block C’ Nr. Swagat Rainforest 1, Kudasan Gandhinagar Koba Road Gandhinagar 382421 Gujarat, India WEBSITE www.oilex.com.au EMAIL oilex@oilex.com.au OILEX LTD ACN 078 652 632 ABN 50 078 652 632 For personal use only Registered and Principal Office Level 2/11 Lucknow Place West Perth Western Australia 6005 Ph: +61 8 9485 3200 Fax: +61 8 9485 3290 www.oilex.com.au For personal use only