AusTex Oil : Annual Report to shareholders

892b71ab-1c53-4cf9-8942-60738f2f8c50.pdf 2 015 R E POR T ANN UA L LIMITED OIL649 AUSTEX118

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ACN

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Contents

1.0	Chairman's Letter	01
2.0	Co-Managing Directors' Review of Operations	02
3.0	Directors Report and Remuneration Report	08
4.0	Auditors Independence Declaration	15
5.0	Independent Auditor's Report	16
6.0	Financial Statements	19
7.0	Corporate Governance Statement	23
8.0	Notes to the financial Statements	24
9.0	Directors' Declaration	46
10.0	Shareholder Information	47
11.0	Corporate Directory	IBC

AUSTEX OIL LIMITED

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Chairman's Letter

Dear Shareholder;

In 2015 AusTex successfully weathered the historic downturn in the oil and gas sector to emerge with a strong balance sheet and a sharpened focus on opportunities for growth. Throughout the year the Board remained cognisant of the fact that with the downturn in oil and gas prices and the general turmoil in the markets, we were being presented with an opportunity to look beyond our core asset base to consider assets that might diversify and reduce geological risk.

While the Board remains confident in the embedded value of its Snake River Project and looks to expand its knowledge of the geology in the area, a significant uplift in shareholder value is more likely to come from the Company having a combination of core assets such as Snake River and upside potential through acquisitions with both production and prospective acreage. AusTex's balance sheet puts the Company in a good position to pursue this.

While 2015 was a year of resilience for the Company, we still saw the benefits of a strong operational year in 2014 with the Company's balance sheet reflecting the strong hedge position and also the significant increase in production from prior years.

At the start of 2015 the Board clearly outlined its strategy by focusing on incremental returns on investment and the careful monitoring of our capital allocation. The Company went into the year with a significant cash balance and an in-the-money hedge position and we emerged even stronger at the end of the year with a cash balance of US$24.6m. This is at a time when many of our peers have gone into liquidation or face continuing uncertainty around their survival.

The strategy executed upon by AusTex in 2015 included:

• slowing production and effectively using the oil formation as free storage;

• significantly decreasing our non-core acreage position and obligations in Kansas;

• maintaining a strong hedging position for current production at oil prices well in excess of the spot market and ensuring as best as possible that production matched the Company's hedging obligations;

• maintaining a strong balance sheet to position the Company to capitalise on opportunities that may present themselves in this current oil market correction;

• a significant reduction in non-essential field staff which helped improve cash flow and drove a strong balance sheet; and

• a continued reduction in non-essential corporate expenditure including those associated with the Australian public company which had already been reduced by more than $1m in 2014.

With the focus in 2016 now on external growth opportunities, the Company is seeking acquisitions that offer both a strategic fit with our existing asset base and diversification with sufficient scale to provide operational efficiency. AusTex has undertaken, and is continuing

to undertake, due diligence on a number of opportunities. Price expectations between buyers and sellers remain divergent but liquidity and leverage pressure will force them to eventually meet. At the time of penning this letter to shareholders, the Company is continuing to look for assets that will provide both acceptable returns at the current forward curve, and a meaningful uplift in value with any upswing in the oil price. While the Board believes it is now well positioned should an appropriate opportunity arise, there is no guarantee the Company will conclude

any acquisitions.

While 2015 was a year of resilience for the Company, we still saw the benefits of a strong operational year in 2014

For a Company that is dual listed and has the majority of its shareholders spread across two continents in Australia and the USA, your Board

is always aiming to improve its dialogue with shareholders. This has resulted in taking on shareholder feedback with the introduction of quarterly investor calls. This won't be the last of our initiatives aimed at improved communications with not only shareholders but other key stakeholders and potential investors as well.

The Board believes that its overall strategy in this oil price environment is appropriately conservative but yet focussed solidly on growth to ensure the long term creation of shareholder value.

On behalf of the Board I would like to thank all shareholders for their continued support as we aim for a better and brighter 2016.

Michael R Stone

Non-Executive Chairman

ANNUAL REPORT 2015 01

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Co-Managing Directors' Review of Operations

2015 Highlights

After a solid performance in 2014 in which the Company achieved a record year in in terms of production, revenue, well development and infrastructure investment, the 2015 year was one in which AusTex ensured that it was in the most resilient position possible to weather the oil and gas price downturn. Notwithstanding the strong headwinds encountered by the sector AusTex emerged in a strong position with an enviable balance sheet.

The Company only drilled one new well in 2015 and shifted the focus from exploration and development to effective cost management and managing production to hedging commitments so as to maximise returns. For this reason production in 2015 was less than the 2014 record year however due to the significant efforts in prior years to build infrastructure and drill at a rapid pace prior to the oil price collapse, AusTex was still able to deliver production well in excess of any of all previous years other than 2014 with annual production of 363,000 BOE (being 112,000 BOE more than the 2013 year).

The following 4 tables highlight the Company's performance in 2015 from a production perspective.

Table 1: Net Monthly Production and Cumulative Annual Total for 2015
Monthly	Average Daily	Change from	Cumulative Calendar Year Production
Month	Production (BOE)	Production (BOE)	Previous Month	('000BOE)
January	39,300	1,268	-7.6%	39.3
February	32,000	1,143	-9.9%	71.3
March	36,800	1,187	3.9%	108.1
April	31,800	1,060	-10.7%	139.9
May	30,600	1,020	-3.8%	170.5
June	29,200	973	-4.6%	199.7
July	31,600	1,020	4.8%	231.3
August	28,800	928	-9.1%	260.1
September	25,700	856	-7.8%	285.8
October	27,600	889	7.4%	313.4
November	24,500	816	-11.2%	337.9
December	25,700	828	4.9%	363.6
Table 2: Net Quarterly Production and Cumulative Annual Total for 2015
Quarter Ending	Total Production ('000BOE)	Change from Previous Quarter	Cumulative Calendar Year Production ('000BOE)
31 March	108.1	-14.4%	108.1
30 June	91.6	-15.3%	199.7
30 September	86.1	-6.0%	285.8
31 December	77.8	-9.6%	363.6
Table 3: Net Annual Production Year on Year from 2011 to 2015
Year	Net Annual Production ('000 BOE)		Change from Previous Year
2011	26		-
2012	105		+298%
2013	251		+139%
2014	439		+75%
2015	363		-17.2%
Table 4: Wells by stage of production process by quarter across 2015
Well Count as of:	31 March 2015	30 June 2015	30 September 2015	31 December 2015
Pumping - Non Operated	4	4	4	4
Pumping - Operated	71	71	66	70
Flowing / Testing	2	2	1	0
Drilled / Fracked	7	7	5	2
Current Shut-In	0	0	9	8
Total Wells	84	84	85	84

02 AUSTEX OIL LIMITED