ADX Energy : MOU Nilde Field Development Planning

ASX Release

22 December 2016

Nilde Field Development Planning MOU

ADX and Calm Oceans Pte Ltd (COPL) enter into MOU to jointly progress a Field Development Plan for the Re development of the Nilde utilising COPL's leased self-install platform facility

KEY POINTS

• COPL has developed and constructed a self-installing Mono Column Platform (MCP) and is designing a gravity based mooring, storage and offloading system (RPSO) ideal for the redevelopment of the Nilde Field.

• The MCP is capable of supporting a drilling rig, production processing equipment, water and gas reinjection facilities as well as accommodation.

• COPL intends to supply the MCP and RPSO to ADX on an agreed lease dry boat charter basis.

• COPL will assist ADX to secure additional topside facilities (production and drilling) at competitive rates from third parties or purchase equipment on an open book basis and lease these to ADX at an agreed lease rate based on an agreed rate of return.

• This innovative option enables the field to be re developed with reduced well costs (less 60%) utilising a platform drilling rig, enabling dry trees and reinjection of produced fluids to ensure environmental compliance.

• ADX plans to complete subsurface development studies, reserves studies including a third party reserves or resources assessment during the first quarter of 2017.

• COPL will provide surface facilities capital costs, operating costs, lease rate data and engineering design details required to submit a Development Plan to the Italian Authorities by June 2017.

• ADX believes the MCP and RPSO is technically superior option providing significant capital cost and operating cost savings as well as superior operability due to the ability for well intervention though out the project life.

• The owner of COPL, Mr Brian Chang, brings an extensive track record in development engineering, fabrication and installation. The combination of ADX geotechnical experience with COPL's facilities engineering capability significantly enhances the Nilde project both technically and financially.

See Note 1: Background regarding Mr Brian Chang (Calm Oceans Pte. Ltd.) at the end of this release.

ADX goal now is to submit a compliant Field Development Plan to the Italian Authorities for the Nilde Redevelopment project by Mid 2017 incorporating the Mono Column Platform concept with the assistance and support of COPL.

ADX Energy Ltd (ASX:ADX) advises that it has executed a binding memorandum of understanding with Calm Oceans Pte Ltd (COPL) setting out a program for collaboration during the Development Planning phase to jointly progress the Nilde Redevelopment Project.

ADX has a 100% interest* and is operator of the d363 CR.AX permit located offshore Sicily which includes the Nilde oil field and the Nilde Bis oil discovery. ADX has undertaken extensive geotechnical and reservoir engineering studies utilising an extensive seismic, drilling and production data base and has commissioned independent 3rd party resource reports. ADX believes substantial economic resources remain at Nilde that can be recovered via an appropriate redevelopment project which will require the drilling of at least two production wells. It is ADX intention to redevelop the field reinjecting produced fluids including water, gas and CO2 to ensure the project has best practice environmental compliance.

ADX is currently finalising dynamic flow modelling using the 3 dimensional geological model recently completed for the field. The modelling includes history matching of historical production data to that derived from the dynamic flow model. This process provides further validation of the geological model which is the input to the dynamic flow model. The work will provide an optimised subsurface development plan based on simulated production forecasting and a remaining recoverable resource for the field based on predicted well production. This work is expected to be completed during January 2017 and will be provided to an independent expert for a third party resource or reserves determination.

COPL has developed and constructed a self-installing Mono Column Platform (MCP) and is designing a gravity based mooring, storage and offloading system (RPSO) suitable for the redevelopment of the Nilde Field. The MCP is capable of supporting a suitable drilling rig, production processing equipment, water and gas reinjection facilities as well as accommodation facilities.

COPL intends to supply the MCP and RPSO to ADX on an agreed lease dry boat charter basis. COPL will also assist ADX to secure additional topside facilities (production and drilling) at competitive rates from third parties or purchase equipment on an open book basis and lease them to ADX at an agreed lease rate based on an agreed rate of return.

The RPSO is expected to provide an optimal storage and offloading solution in terms of installation costs, manning costs and lease rates compared to a ship based floating storage offloading (FSO) system. If however the RPSO can't meet required cost, regulatory standards or schedule requirements the parties will consider a third party FSO solution.

The MCP includes an accommodation module and is designed to incorporate third party production facilities (production processing, power, pumping, compression, vent, utility and control systems) which are expected to compete favourably on lease rates, operating costs and capital costs (see Schedule 1) with other Mobile Production Unit (MOPU) solutions or a Floating Production Storage Facility (FPSO) solution.

* ADX has commenced a process with the Italian Designated Authority to convert the exclusively awarded application to a ratified licence. This process was commenced after the award by the Ministry of Industry. ADX believes ratification will occur during the first quarter of 2017.

The MCP and RPSO option schematic - incorporating production, storage and drilling capability with dry well heads. Source: Calm Oceans Pte. Ltd, Mono Column Platform and storage technologies are proprietary, patented and patent pending.

The MCP option provides the ability to drill and immediately produce minimising the time between capital expenditures and revenue. The economics of the system are further enhanced by the self install nature of the system which does not require the pre installation of expensive mooring systems, subsea well heads and subsea trees, subsea control systems and high pressure flexible flow lines. The major economic driver is a reduction in drilling costs and completion costs of approximately 60% compared to subsea options. This is partly due to the reduced drilling spread rate, the simplicity of dry wellheads at surface which do not require subsea control and tie back systems.

A significant operational advantage and risk mitigating factor is the ability to re-enter wells at any time or the cost effective ability to drill additional wells to maximise oil recovery. The costs of the platform drilling option is enhanced by the ability to purchase a high specification drilling rigs at highly discounted values.

The nature of the COPL and ADX relationship is expected to yield substantial cost savings in accessing third party equipment in the current turn down environment. COPL is willing to purchase equipment and lease it back to ADX on an open book cost basis there by taking advantage of reduced equipment costs. The re-deployable nature of the MCP platform enables other discoveries in the permit to be developed economically as well as already identified high value near field exploration targets.

Schedule 1

Project Capital Cost Estimates

Capital Cost Item (Current Estimates)	US $ (millions)
Development Project Management for MCP, RPSO, Drilling Rig and Well Engineering	$ 10.00
Engineering and Development Planning MCP Accommodation and RPSO	$ 12.00
Production Facilities Engineering, Development Planning, Integration and Hook up	$ 4.00
Purchase Flexible Flow lines and Offloading Hoses	$ 4.00
Load, Tow, Offload & Install MCP & RPSO	$ 7.00
Development Drilling - 2 Dry Tree Production wells and 1 Dry Tree Disposal well	$ 30.00
Total	$ 67.00

Note: Excludes pre production operating costs

Equipment Lease Rates and Operating Cost Estimates
Lease Rates and OPEX (Current Estimates)	US $ / day
MCP Bareboat ($ mm) RPSO Bareboat ($ mm) Topside Bareboat ($ mm) Operations Day Rate ($'mm) Boats & Helicopters Overhead	$48,000/d $27,000/d $15,000/d Production $12,000 /d, Management $5000/d FS Vessel $6,000/d, SO Vessel $7,000/d, Helicopters $3,000/d Local $5,000/d, Head Quarters $3,000/d, Misc $4,000/d
Total	$135,000/d

Key Planning Milestones

Activity	Duration (months)
Complete Reservoir Simulation	1
Independent Experts Resource / Reserves Report	2
Completion of Field Development Plan	3
Regulatory Approvals	6 to 9
FID to Ist Production	18

The above schedule is a summary of COPL's and ADX current estimates for capital and operating costs.

The lease rates and operating costs for production facilities are based on budget estimates from equipment providers

The above costs represent a significantly reduced capital and operating costs compared to an FPSO facility based on ADX discussions with contractors to date. The reduced capital cost and large vendor lease component also significantly enhances ADX ability to finance the project via a partial sell down of the project. The ability to deliver the project with a capable, experienced, fabricator and project developer provides the ability to attract financial investors or oil traders willing to provide finance in exchange for future oil rather than relying on larger companies many of which are debt ridden in the