Announcement PDF For Immediate Release ASX Announcement 29 February 2024 2023 Annual Report and Audited Financial Statements Australis Oil & Gas (“Australis” or “Company”) is pleased to provide its 2023 Annual Report including the audited consolidated financial statements for the year ended 31 December 2023. 2023 was a year in which Australis focused on managing its existing TMS asset in a safe and economic manner whilst seeking a partner for new drilling activity within the Company’s large but undeveloped asset position in the play. The Company generated surplus cashflow from operations, which was used to service debt and undertake minimal yet strategic leasing. Existing cash reserves were utilised to reduce principal debt by US$4 million to $8 million by year end resulting in net debt remaining as it was at the commencement of the year at US$4.2 million. The capital expenditure discipline program required certain leases (non HBP) expiring without renewal leading to the write down of US$9.4 million of previously capitalised expenditure. The intention is to re-lease many of these areas subject to capital availability. The Company’s net loss after tax of US$15.3 million was largely the result of the abovementioned write down of expired leaseholds and a significant increase in the depletion expense (non cash) due to a change in calculation methodology. The positioning of the Company’s large undeveloped TMS Core area and the diminishing Tier 1 undeveloped locations within the established and maturing plays, provides the board with continuing confidence an appropriate partner or partners for the development and unlocking of the value of the Company’s TMS asset will be achieved. A summary of financial and operating results for the year are as follows: Financial Results 2023 - (US$) Gross revenue from oil sales (before royalties& hedges) Loss from hedging Average realised sales price (including hedges) Field Netback* (US$) Field Netback (Working Interest)* (bbl) Adjusted EBITDA* Net loss after taxation Year end cash position Total Facility borrowings $21.8 million $(1.1) million $75/bbl $7.5 million $27.12/bbl $1.0 million $(15.3) million $3.8 million $8.0 million A UST RA LI S O I L & GA S LI MI T E D ABN 34 609 262 937 Ground Floor, 215 Hay Street Subiaco WA 6008 • PO Box 8225 Subiaco East WA 6008 T +61 (8) 9220 8700 • F +61 (8) 9220 8799 www.australisoil.com Operating Results 2023 Oil sales (Working Interest) Net oil sales (after royalties) TMS year end independent PDP reserves (Net)1 Year end independent mid case(2C) contingent resources1 Total Acreage leased within the TMS Core Acreage leased and HBP within the TMS Core 277,000 bbls 225,000 bbls 2.1 MMbls 86 MMbbls 61,400 net acres 38,900 net acres *Field Netback and Adjusted EBITDA are considered non-IFRS measures. Please refer to Non-IFRS Financial Measures below. The 2023 Annual Report and Appendix 4E is attached. Australis Oil & Gas Limited advises that in accordance with Clause 6.1 of the Australis constitution and ASX Listing Rule 3.13.1: a) The 2024 Annual General Meeting (AGM) will be held at 11.00am (WST) on Tuesday 14 May 2024, and b) the closing date for the receipt of nominations from persons wishing to be considered for election as a director is 21 March 2024. Any nominations must be received in writing no later than 5.00 pm (WST) on 21 March 2024 at the Company’s registered office. Shareholders of the Company (Shareholders) will be advised of further details regarding the AGM in a separate Notice of Meeting, which will be provided to Shareholders in April 2024. The Notice of Meeting will also be available on the ASX Company Announcements Platform and on the Company’s website at www.australisoil.com. This ASX announcement was authorised for release by the Australis Disclosure Committee. For further information, please contact: Ian Lusted Managing Director Australis Oil & Gas Limited +61 8 9220 8700 Graham Dowland Finance Director Australis Oil & Gas Limited +61 8 9220 8700 About Australis Australis (ASX: ATS) is an ASX listed upstream oil and gas company seeking to provide shareholders value and growth through the strategic development of its quality onshore oil and gas assets in the United States of America. The Company’s acreage within the core of the oil producing TMS contains 2.7 million bbls of producing reserves (mid case) providing free cash flow and approximately 86.3 million bbls of mid case 2C recoverable oil. The Company was formed by the founders and key executives of Aurora Oil & Gas Limited, a team with a demonstrated track record of creating and realising shareholder value. Footnotes 1. All estimates and risk factors taken from Ryder Scott, report prepared as at 31 December 2023 and generated for the Australis concessions to SPE standards. See ASX announcement released on 31 January 2024 titled “Activities Report and Year End Reserves Update”. The analysis was based on a land holding of 61,400 net acres. Australis is not aware of any new information or data that materially affects the information included in the referenced announcement and all the material assumptions and technical parameters underpinning the estimates in the original announcement continue to apply and have not materially changed. Ryder Scott generated their independent reserve and contingent resource estimates using a deterministic method which is based on a qualitative assessment of relative uncertainty using consistent interpretation guidelines. The independent engineers using a deterministic incremental (risk based) approach estimate the quantities at each level of uncertainty discretely and separately. 2 Non-IFRS Financial Measures References are made within this report to certain financial measures that do not have a standardised meaning prescribed by International Financial Reporting Standards (IFRS). Such measures are neither required by, nor calculated in accordance with IFRS, and therefore are considered Non–IFRS financial measures. Field Netback and Adjusted EBITDA are Non-IFRS financial measures commonly used in the oil and gas industry. Non-IFRS financial measures used by the Company, including Field Netback and Adjusted EBITDA, may not be comparable with the calculation of similar measures by other companies and should not be construed as an alternative to other financial measures determined in accordance with IFRS. Adjusted EBITDA represents net income /(loss) for the period before income tax expense or benefit, finance costs, depletion, depreciation and amortisation charges, expire lease write off and impairment provision. EBITDAX represents Adjusted EBITDA before exploration expenditure. The following table reconciles net profit after tax to Adjusted EBITDA and EBITDAX: 31 December 2023 US$’000 Net profit after tax (15,315) Adjustments: Net finance expenses 1,027 EBIT Depletion Depreciation – production equipment Depreciation Expired ease write off Adjusted EBITDA Exploration expenditure EBITDAX (14,288) 2,920 2,733 319 9,362 1,046 3 1,049 FIELD NETBACK Field Netback represents oil and gas sales net of royalties, production and state taxes, inventory movements, hedging gains or losses, field based production expenses but excludes depletion and depreciation. GLOSSARY Term TMS bbl(s) MM PDP 2C TMS Core HBP Definition Tuscaloosa Marine Shale Barrel(s) of oil Millions Proved Producing Reserves Most Likely Contingent Resource The Australis designated productive core area of the TMS delineated by production history Leased minerals deemed held by production by an existing producing well. 3 29 February 2024 APPENDIX 4E FINANCIAL YEAR ENDED 31 DECEMBER 2023 AUSTRALIS OIL & GAS LIMITED (ASX: ATS) ABN or equivalent company reference 34 609 262 937 This information should be read in conjunction with the Australis Oil & Gas Limited 2023 Annual Report (which contains the 2023 audited Financial Report and other information required for Appendix 4E) Results for Announcement to the Market (1) Revenue from ordinary activities Decreased by 27% from US$28.4 million in 2022 to US$20.7 million in 2023 Loss / Profit from ordinary activities after tax attributable to members Decreased by 879% from a profit of US$2.0 million for 2022 to a loss of US$15.3 million for 2023 Net loss / profit for the period attributable to members Decreased by 879% from a profit of US$2.0 million for 2022 to a loss of US$15.3 million for 2023 (1) (1) An explanation of the results is contained within the 2023 Annual Report which can be found on the ASX website or the Australis website at www.australisoil.com (1) Comparisons are made to the financial year ended 31 December 2022 Dividends No dividends have been paid or proposed for the year ended 31 December 2023 (2022: nil) Net Tangible Asset per Security 31 December 2023 US$0.04 31 December 2022 US$0.05 This report is based on audited accounts This ASX announcement was authorised for release by the Australis Disclosure Committee. For further information, please contact either: Graham Dowland Finance Director Australis Oil & Gas Limited +61 8 9220 8700 Julie Foster Company Secretary Australis Oil & Gas Limited +61 8 9220 8700 A UST RA LI S O I L & GA S LI MI T E D ABN 34 609 262 937 Ground Floor, 215 Hay Street Subiaco WA 6008 • PO Box 8225 Subiaco East WA 6008 T +61 (8) 9220 8700 • F +61 (8) 9220 8799 www.australisoil.com 2023 ANNUAL REPORT Australis Oil & Gas Limited ABN 34 609 262 937 CONTENTS CHAIRMAN’S LETTER 2 BUSINESS STRATEGY, TMS ASSET AND 2022 OPERATIONS 4 FINANCIAL AND CORPORATE REVIEW 15 GLOSSARY 27 SUSTAINABILITY REPORT 31 DIRECTORS’ REPORT 41 REMUNERATION REPORT 49 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME 68 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 69 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 70 CONSOLIDATED STATEMENT OF CASH FLOWS 71 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 72 DIRECTORS’ DECLARATION 124 AUDITOR’S INDEPENDENCE DECLARATION 125 INDEPENDENT AUDIT REPORT 126 ASX ADDITIONAL INFORMATION 130 CORPORATE DIRECTORY 132 2023 ANNUAL REPORT AUSTRALIS OIL & GAS LIMITED 1 CHAIRMAN’S LETTER We believe that diminishing Tier 1 oil locations in other maturing plays will reinforce the uniqueness of the TMS Core, given its productivity, attractive commercial characteristics and substantial remaining undeveloped inventory. Your Board’s objective has been and remains the creation and realisation of shareholder value. We have a strategy to deliver this and remain committed to it. Our strong preference remains the use of our largely undeveloped acreage as currency to generate funded activity on our asset base that will lead to an upward revaluation. The macro environment for oil in the US and wider has been complex in recent years and remains so. The US industry does, however, remain large, active and crucially important to both the economy and domestic politics. We share the view of many that, U.S. oil is likely headed toward a period of decreasing growth and increasing upward price pressure. U.S. oil’s drilling inventory and reserves are showing some signs of increasing in value and demand, with recent transactions referencing these components as being key drivers. We have regularly commented that top shale locations are dwindling, and it seems quality oil reserves are now commanding a premium. Oilfield services firms’ reports are a useful guide to industry activity levels. They are reporting a downward drift in activity, while capital expenditure planning overall presents a flat yet mixed picture, particularly outside the Permian, an area now dominated by large operators. Larger firms are focusing more on acquiring assets with their cash flow whilst at the same time reducing debt. Smaller firms are seeking to grow or at least maintain production. 2 AUSTRALIS OIL & GAS LIMITED 2023 ANNUAL REPORT Clearly there has been a shift of institutional development capital away from the oil space due to ESG and carbon emissions thereby reducing capital available for growth. This is problematic for development scenarios and in particular exploration that cannot be undertaken outside of operating cashflow. Will this increase interest, demand and premiums paid for future drilling inventory (as distinct from exploration)? We think so and perhaps the recent acquisition of Hess by Chevron is illustrative of this. Whereas most oil-based transactions in recent years having been centered around current production and profitability, this transaction included a significant element of undeveloped reserves value. We believe that diminishing Tier 1 oil locations in other maturing plays will reinforce the uniqueness of the TMS Core, given its productivity, attractive commercial characteristics and substantial remaining undeveloped inventory. The production history available for our wells paints a very clear picture as to performance and nature of our production, without taking in to account the potential upside associated with technological and operating practice advances in recent years. We remain confident about oil’s role in the international economy for some time and it being a valuable commodity in 2024 and beyond as energy in due course transitions to a post hydrocarbons era. CHAIRMAN’S LETTER Australis’ 2023 operational cashflow has largely enabled the maintenance of our significant largely undeveloped asset and shareholder exposure to the opportunity it represents, as well as service of our debt obligations. Our financial results are covered in detail within this report. You will see that cashflow for the year was lower than last year due to lower production, principally as a result of natural production decline, and overall lower commodity prices. A material write down was made related to leases that expired during the year that were not retained. Our operations and management teams again deserve credit for the manner in which operations have been managed. Throughout this financial year all operations were executed with an excellent environmental, health and safety record. Your Board remains committed in their roles and offer significant knowledge and experience to our circumstances. Management and staff have again worked very hard during 2023 and I would like to acknowledge their contribution and service. As in previous years, I would like to take this opportunity to welcome new shareholders and express my appreciation for your confidence and commitment. For our longer standing shareholders, thank you again for your loyalty and continued support. Yours sincerely, Jon Stewart Chairman 2023 ANNUAL REPORT AUSTRALIS OIL & GAS LIMITED 3 BUSINESS STRATEGY, TMS ASSET AND 2023 OPERATIONS BUSINESS STRATEGY & THE TUSCALOOSA MARINE SHALE Australis was formed in 2014 by the former Australian employees of Aurora Oil & Gas, which was sold that year to Baytex for A$1.6 billion. The team sought a new US unconventional asset which • • • • had oil weighted production had demonstrable reservoir quality and production deliverability provided a low entry cost and the potential for material scale had existing or easily accessed infrastructure and proximity to sales markets. Over the next two years a large number of opportunities were considered but none could meet all of the key criteria management had designated. Entry costs to the more established plays continued to be prohibitive, even with the prevailing oil prices markedly lower than the levels seen in early 2014, exploration plays inherently had too much uncertainty on reservoir performance and most early activity carried out on available appraisal opportunities had already identified key barriers to development. In 2016 the Company listed on the ASX with the acquisition of an initial leased position in the Tuscaloosa Marine Shale (TMS), based on management’s belief that the TMS had all the qualities necessary for an emerging unconventional asset to evolve to mainstream and full development status. At the time, there had been approximately 80 wells drilled in the play which had delineated a core area with superior and consistent reservoir characteristics and TMS production data over a 2-3 year period for the most recently drilled wells showed deliverability on par with the best parts of the established unconventional oil plays. The play’s location in southwest Mississippi is within 60 miles of significant refining capacity and multiple pipelines with capacity were already running through the area. Furthermore, there was very little competition for acreage and hence the entry costs were low allowing Australis to target a material position. Finally, the state oil and gas regulations and field rules were highly supportive for development activities. Through a series of transactions and an active leasing program Australis built a controlling position within the production-delineated core where reservoir quality and well design had delivered consistent results. Australis also aggregated all the available data and analysis to better understand why the TMS core area worked and what differentiated it from the rest of the depositional play where earlier results had been highly variable. This understanding would be vital to addressing the existing industry views that the TMS, as a whole, was a challenging resource play. 4 AUSTRALIS OIL & GAS LIMITED 2023 ANNUAL REPORT BUSINESS STRATEGY, TMS ASSET AND 2023 OPERATIONS The Australis acquisition of the Encana position in 2017 was particularly useful, as the large cap Canadian oil and gas company had done a substantial amount of technical work in 2013 / 2014 and had already internally designated the play as commercial and were moving to full field development. The precipitous oil price drop later in 2014 suspended those plans and, ultimately, led to Encana selling 7 non- core assets within their portfolio of which their TMS position was the last. That acquisition also allowed Australis to access unique technical information through a Schlumberger-led consortium, where the principal operators in the TMS had pooled data and shared analysis. This database has provided considerable insight into the key drivers for well performance. In 2018/19 Australis completed a six-well work program which had four key aims, which are discussed below. 1. 2. 3. 4. Confirm well deliverability. On a per foot basis the wells delivered oil production as per expectation (see Figure 1 with results). Convert term lease acreage to longer term HBP status. Australis converted approximately 10,000 net acres to HBP (with a term that coincides with the producing life of the well, estimated at >20 years). Demonstrate consistency in well execution. Whilst two wells were drilled as planned and below budget, Australis encountered operational challenges on two other wells leading to shorter well lengths than planned. Australis attempted to implement a new fluids design on the final two wells which did not lead to successful execution. Post-mortem analysis of the program clearly showed cause of issues on the shorter wells and confirmation of engineering design when executed correctly. Achieve Incremental production and revenue increase to support operations and strategy. This was achieved, albeit the levels of incremental production (and resulting revenue) were heavily influenced by the total producing footage achieved in the campaign. The Company’s corporate business strategy has been clear and consistent since inception: to identify a quality unconventional oil play located onshore in the USA and secure a low-cost entry, build a material position before finding a partner to help fund development activity and finally maximise shareholder value by developing the asset or seeking exit opportunities through sale to a larger operating entity. Following the conclusion of drilling operations in late 2019, our strategic focus switched to finding a partner for further development activities. The events surrounding the COVID pandemic in Q1 2020 were unforeseen and required significant restructuring of costs and overheads. The global pandemic also introduced substantial caution to business development activities in the industry in general during 2020 and the first part of 2021. The oil price and business confidence recovered in late 2021, and by 2022 Australis was able to recommence targeted partnering efforts within the industry which have continued through 2023. It has been a challenge to convince industry participants to invest in the TMS during this period. The reasons for this reluctance have typically not been technical in nature, but have ranged from issues around corporate strategic focus on cash flow and returns over exploration and early stage development, to concerns over stakeholder perception of the TMS based on its development history, rather than a contrary technical view on the productivity and potential of the TMS. Australis has completed diligence processes with a variety of public and private oil and gas companies who ultimately advised that the timing was not yet right for a play such as the TMS within their portfolio. Potential financial partners have typically felt that the play is too early stage for their desired low risk returns and with funding generally harder to find there is demand within the established plays for this type of capital. Whilst frustrating for shareholders and management alike, Australis has continued to receive interest in the TMS play and continues to hold discussions with potential participants. The technical confirmation of the play’s credentials during counterparty diligence reviews reinforces the fundamentals of the TMS and market conditions continue to evolve to a point where quality early stage oil plays will have to be developed. The key market conditions are discussed below. • • • the US unconventional oil industry continues to rely heavily on three key plays with over 87% of the oil produced originating from the Permian, Eagle Ford and Bakken. the Eagle Ford and Bakken are increasingly mature, with the majority of quality Tier 1 locations already drilled. These areas were already in decline prior to the oil price drop in 2020 and have seen only modest recoveries since the COVID pandemic. Whilst the Permian still has a significant inventory of future wells, in Q3 2022 Permian operators reported the first indications of maturing stock and reduced average new well performance. As can be seen in the chart below generated from data sourced from the US Energy Information Administration (EIA), production growth within the Permian has plateaued. 2023 ANNUAL REPORT AUSTRALIS OIL & GAS LIMITED 5 BUSINESS STRATEGY, TMS ASSET AND 2023 OPERATIONS DAILY OIL PRODUCTION - KEY UNCONVENTIONAL PLAYS 7,000,000 Daily Oil Production (bbls/day) 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Permian Oil Production Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Bakken Oil Production Jan-19 Jan-20 Jan-21 Jan-22 Jan-23 Jan-24 Eagle Ford Oil Production Figure 1: Key unconventional oil play production rates (bbls/day). Source EIA • • • 6 Public US oil and gas companies have been under considerable shareholder pressure in recent years to change their business model from one focused on production growth to one that prioritises increased shareholder returns. Data show they remained disciplined during 2023, with little or no production growth reported. As can be seen in the above chart, only the Permian production had any material growth during 2023, which continued to be largely driven by private companies that adopted a more traditional approach to the higher oil prices and possibly attempting to grow their production base to make themselves an attractive transaction target. Consolidation in the established plays has continued and consensus amongst industry commentators is that there are very few remaining options for establishing or growing a position in a material way in in such basins apart from a limited number of private companies in the Permian or significant transactions and mergers involving large public companies. Australis continues to believe that companies with limited Tier 1 drilling inventory will be forced to look outside these three well-established oil plays and, with unconventional exploration largely complete in North America, undeveloped but discovered and delineated plays such as the TMS will be highly sought after. Our confidence in a transaction is supported by the successful diligence processes we have concluded. Recent examples of the industry recognising these known but undeveloped assets is the large scale entry in to the oil window of the Utica Shale by EOG and Continentals recent transition to a private company and their focus on the Powder River Basin. AUSTRALIS OIL & GAS LIMITED 2023 ANNUAL REPORT BUSINESS STRATEGY, TMS ASSET AND 2023 OPERATIONS TUSCALOOSA MARINE SHALE (TMS) ASSETS TMS BRIEF HISTORY The unconventional oil and gas industry has been built upon the application of modern development technology such as horizontal drilling and fracture stimulation, to known hydrocarbon bearing source rocks. The TMS has long been identified as the source rock for conventional reservoirs in the area and following the early success of the nearby and similarly aged Eagle Ford Shale in 2009 – 2011 a number of companies took substantial positions in the TMS and drilled several appraisal wells in order to assess its technical and economic viability. The TMS is depositionally a large area and in order to focus their efforts, companies used the Eagle Ford Shale as an analogue and targeted the equivalent characteristics that had proved to be the most productive in that play. In the TMS, these target horizons were considerably deeper and hotter than in the Eagle Ford, which generally made the drilling more difficult and expensive. Furthermore, the production results of these early wells were variable and ultimately companies such as EOG and Devon elected to exit their position at that time (between 2012 and 2013) and pursue other delineated and lower cost options within their portfolios. As a result, the TMS began to develop a reputation as being a challenging play. A number of operators remained active in the play and over the next two years approximately 50 wells were drilled which helped delineate an area of consistent productivity in a shallower part of the TMS than that initially targeted. They also largely resolved the early technical and operational challenges that all unconventional reservoirs face when first being developed. By 2014, activity levels were picking up in the play with 7 rigs operating at one point during that year. Encana in particular implemented a structured appraisal program of leasing and drilling within the delineated core area. In late 2014 the oil price dropped dramatically from highs of ~US$100/bbl to as low as US$35/bbl and industry activity slowed considerably and practically stopped in emerging plays such as the TMS. All of the incumbent operators in the TMS went through some form of debt restructuring or bankruptcy process and the play’s reputation was further tarnished, such that no TMS drilling activity took place between early 2015 and late 2018. 2023 ANNUAL REPORT AUSTRALIS OIL & GAS LIMITED 7 BUSINESS STRATEGY, TMS ASSET AND 2023 OPERATIONS However, the wells that were drilled and completed in 2014, using a design that reflects the start of the optimisation process and benefiting from having targeted the TMS Core area generated extended production profiles. This long production history allowed high confidence and favourable comparisons to the more established and evolved plays with thousands of wells drilled within them. The comparisons clearly showed quality rock productivity within that core area. The Chart below (Figure 2) shows production data from areas within the key US oil plays, ie. Permian, Bakken and Eagle Ford. The chart is taken from a Novilabs report issued in late 2022. The lines show the cumulative production in the initial 12 months, normalised for horizontal length, for wells placed on production in each of the years shown. The lines represent different areas of those established plays and the line thickness shows the number of wells that started production in that year. In total there had been over 80,000 wells drilled in these three plays at the time the data was collected. The thickest three lines (Yellow – Delaware, Red – Midland and Dark blue – Other Williston) have all shown flat productivity or even a decrease over the last 4 years. The central Eagle Ford peaked in 2017 but has been on a downward trend since. Then smaller discrete areas such as the Elm Coulee has had a peak in productivity before being drilled out and then declining over the last three years. It is a slightly different format, but the red dots show the TMS productivity in the same way and on the same scale. There have only been 90 wells drilled in total and if a line were used it would be very thin, the dots are shown for emphasis. It can be clearly seen that on a comparative basis the TMS has equivalent productivity to the best of the established plays, including the wells drilled by Australis in 2019. Cum 12 month oil production per 1,000ft (bbls) 30K 25K 20K 15K 10K 5K 0K 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Year Figure 2 : Chart comparing Novilabs analysis of the established oil plays to the TMS 8 AUSTRALIS OIL & GAS LIMITED 2023 ANNUAL REPORT 2021 BUSINESS STRATEGY, TMS ASSET AND 2023 OPERATIONS OPERATIONS IN 2023 SAFETY AND ENVIRONMENTAL PERFORMANCE During 2023 Australis only had one reportable spill and four non-reportable spills totaling 10.23 bbls (4.19 bbls of oil and 6.04 bbls of water), all contained within the wellsite pads and all remediated. These figures represent an improvement on the already commendable environmental