At last, things appear to be moving forward for Oilex Ltd (LSE:OEX, ASX:OEX), the Australian oil and gas exploration production company. In its second update on the company’s India Cambay field this week, CEO Roland Wessel announced that the Gujarat Pollution Control Board (GPCB) has confirmed the revocation of the production halt and that it has authorised the use of the Early Gas Production Facility on the Cambay C-73 wellsite.
GPCB’s personnel will visit the C-73 wellsite to remove the production flange seal and once this is done Oilex expects that production will begin immediately after.The announcement is obviously good news for Oilex – although this has been a long time coming. The state government of Gujarat approved the sale of the contract to Oilex for $2.2m back in April 2021 and the sale was expected to complete within Q2 2021. Since then, the sale process has been delayed by disputes and by Covid restrictions.
And while we have not seen any significant share price moves – Oilex shares are continuing to hover around the 0.28p mark – the resumption of gas production is, as the CEO stated, an important milestone for Oilex.
It will create much needed cash flow too
Oilex reported losses after tax of over $2.2m for the half year ended 31 December 2021. A little more than the 2019 loss of $2.0m, although last year the company made a profit of $419,000 (which included a profit after tax for the period from discontinued operations of $354,424). The $2.2m loss can of course be attributed to the fact that there has been no revenue in the current and previous half-year periods but also because exploration expenditure has doubled to just under $500,000 as have administration expenses from $424,297 to $1,150,753: this includes an increase in employee benefits, namely the appointment of Roland Wessel and Colin Judd as CEO and CFO, as well as the use of external consultants.
Cash and cash equivalents held as at 31 December 2021 decreased to $1,425,414 (30 June 2021: $4,310,767). The auditors stated that unless sufficient operating cash flows are generated, Oilex cannot progress the Cambay field drilling programme and that it will require funding, either from equity raisings, joint venture contributions or debt funding to continue.
Funding for Cambay Field in 2022
In January this year, Oilex completed an equity raising of £2.0m to fund the re-fracking of the Cambay 77H well and according to the latest project update, Oilex plans to drill two new horizontal wells in H2 2022 which will employ the revised fracking methodology if it proves successful on the C-77H re-frac. The two new wells will be drilled from the same drilling pad as C-76H and C-77H and will tie into the same processing and grid connection pipeline.
Based on its success, additional wells will be planned for future years to fully exploit the c. 927 BCF of contingent gas resources in the Eocene horizon on the Cambay licence. The latest resource estimate (in 2019) from the Gujarat Energy Research & Management Institute (GERMI) states that there are in-place volumes for the Y zone of 670 BCF gas and 30 million barrels of oil. GERMI’s volumes were restricted to 33% of the total PSC area as their calculations were only carried out for selected areas with certain seismic signatures.
