June 2011 ASX Code: AED Quarterly Activities Report AED s vision is to be a leading oil and gas company with a diversified asset portfolio and producing fields in the Asia Pacific Region. Highlights: Capital raising announced for future exploration and asset development program with $16.75m placement and a $4.5m rights issue Completion of first tranche placement of 30 million shares and $2.25m funds received John Imle appointed new Chief Executive Officer Seismic program commenced in Brunei Exploration period for Rombebai PSC extended to July 2013 AED have been appointed Operator of South Madura PSC Redemption and cancellation of SGX convertible notes From the Chief Executive Officer I am very pleased to note that after a quarter of intense corporate activity, AED has emerged in a vastly improved financial position and with a promising outlook. The Company s financial position has been significantly bolstered through the capital raising activities recently undertaken. This not only promises to secure the current position of the Company, but is also expected to provide us with the necessary funds to embark on an active exploration program in which we are confident of significantly enhancing the value of our highly prospective exploration and appraisal holdings. The recent placement with Sprott Private Wealth LP has introduced significant clients of theirs onto the register as substantial shareholders. Sprott is widely respected as a sophisticated and successful investor in the natural resource sector, with a combination of both technical and investment expertise. Their support of AED is a strong validation of the technical appeal of our assets and the investment appeal of our Company. AED is moving forward with the support of a number of positive factors and a shift in focus towards operational matters and enhancing our asset base. Upon completion of the capital raising program we will have a strong balance sheet and the funding required for an active exploration program. We have strong confidence in our Brunei acreage given the recent technical successes and commencement of a new seismic program. The recently announced time extension on our Rombebai permit should increase interest from potential farm-in partners and a recent geological review of our South Madura block has increased our optimism regarding its potential. This underpins my confidence that we are well positioned to generate significant value accretion for shareholders and we greatly appreciate your support during this period of capital raising. Yours sincerely John Imle 1
Corporate AED experienced a period of significant and positive corporate activity during the quarter. This included the appointment of a new Chief Executive Officer and the entry into arrangements for the raising of significant additional funding which should assure the timely execution of current and future operations. $16.75m Placement and $4.5m Rights Issue Subsequent to the end of the quarter, AED announced an equity capital raising program to raise gross proceeds of up to approximately $21.25 million. These funds will assist ongoing capital requirements and introduce significant new investors with extensive industry and investment experience. The Company believes this capital raising and associated restructure will provide a sound base for future growth at a time when equity capital is difficult to source. AED is confident in the successful completion of the capital raising after having executed a term sheet with Sprott Private Wealth LP and ARF Amber Pte Ltd. Sprott Inc is a leading independent asset manager dedicated to achieving superior returns for its clients over the long term. Key components of the capital raising program are: $2.25 million has been raised and completed by the placement of up 30 million shares at 7.5 cents $14.5 million to be raised by a second placement of up to 193 million shares at 7.5 cents, conditional on shareholder approval and other requirements A rights issue to be offered to eligible existing shareholders (including participants in the initial placement of 30 million shares) on the basis of 1 new share to be offered for each 4 shares held on the record date at an offer price of 7.5 cents to raise up to $4.5 million One option to be issued for each share issued pursuant to the above transactions at no additional cost, such options to have a 5 year term and exercisable at 20 cents Access to a $3m bridging facility (subject to satisfaction of certain conditions) In-principle agreement with the holder of AED s US$20m 6% unsecured convertible notes to effect certain amendments to the terms of those notes Potential changes to the Board of AED including a minimum of two new director appointments This injection of substantial new capital allows AED to continue to pursue its 2011 work plans and to develop its longer term strategic plans Sprott s involvement gives AED access to considerable experience in the industry First Tranche Placement Completed Subsequent to quarter end, AED completed the allotment and issue of First Tranche Placement shares, being the first stage of the capital raising outlined above and in the ASX release on 8 July 2011. Thirty (30) million shares in AED have been issued to sophisticated and professional investors introduced by Sprott Private Wealth LP at an issue price of 7.5 cents, for a total consideration of $2.25 million. 2
Use of Funds AED will use the proceeds of the announced capital raise principally for current operations in Block L, Brunei. Specifically, funds will be used for 3D seismic acquisition for evaluation and potential redevelopment of the Jerudong oilfield and for the evaluation of the Lempuyang gas discovery. The funds will also cover the pre-drilling costs for two or three wells in 2012. In addition, some funding will go towards drilling and seismic preparatory work and G&G studies in Rombebai (Indonesia), South Madura (Indonesia) and the Timor Sea (Australia) and general corporate and working capital purposes. Extraordinary General Meeting and Rights Issue Information It is expected that an Extraordinary General Meeting will be held in mid to late September to seek shareholder approval of the matters referred to in the above described Placement and Rights Issue. Further details of the Rights Issue, including eligibility criteria for participation in the Rights Issue, the ability of eligible shareholders to apply for additional shares in excess of their entitlement, and the indicative timetable for the Rights Issue will be notified to the market promptly once finalised by the Company and the detailed documentation is expected to be sent to Shareholders in mid August. Share Purchase Plan Results Following the closure of AED s SPP on 2 May 2011, 4,794,787 new shares were issued at $0.24 per share raising $1.1 million Appointment of New CEO John Imle was appointed to the role of Chief Executive Officer effective from 1 May 2011. John s mandate from the Board is to strengthen the operational and technical focus of the Executive team and manage the next stages of the Company s significant exploration, appraisal and development program. John originally joined the Board as Nations Petroleum s representative in early 2010, following AED s acquisition of Nations assets in Indonesia (Rombebai and South Madura PSCs) and Brunei (Block L). John s appointment as CEO is concurrent with John stepping down from his role at Nations Petroleum. He has operational knowledge of AED s assets in Brunei and Indonesia and, as a petroleum engineer, brings over 40 years experience in the oil and gas industry to the post. His career highlights include operations management and Executive level positions at the US energy company Unocal Corporation. He became Unocal s Head of Global Oil, Gas and Geothermal and then rose to the ranks of President and Vice Chairman. He served on Unocal s Board of Directors for over 10 years. 3
Projects Brunei Block L Onshore & offshore (AED interest: 50%) Highlights: Preparation for seismic acquisition program has commenced for the Jerudong area (oil potential) and an East Tutong area (gas/oil potential) Langkuas prospect is being reviewed as a near term drilling target Brunei Darussalam is the third largest oil and gas producer in South-East Asia. The numerous oil and gas fields in Brunei have been prolific producers with one main field producing over one billion barrels of oil. AED s holding in Brunei covers a third of Brunei s land mass. Onshore Brunei is significantly underexplored and existing infrastructure means development costs may be kept to a minimum. Block L covers 2,253 km 2 and encompasses much of eastern onshore Brunei. It also contains an offshore component. AED holds a 50 per cent operating interest in the block through its subsidiary AED South East Asia Limited. Its Joint Venture partners are Kulczyk Oil Brunei (40%) and QAF Brunei Sdn Bhd (10%). Given the technical successes to date, there is a strong argument for increasing the rate of investment in Brunei in order to realise the value of the block as soon as possible. GAS The work done in Block L during this quarter has resulted in a classification of gas discovery requiring appraisal. Additional drilling and testing is required before a definitive statement can be made about reserves and commerciality. The Lempuyang-1 and Lukut-1 wells proved the geologic model for this area of Block L and demonstrate that there is producible gas present in good reservoir sands. The information AED has gathered from these wells, coupled with planned additional 3D seismic work up-dip from the discovery, will provide a roadmap for a full appraisal of the gas potential. AED continues to believe the potential for prospective resources in Block L is significant at between 200 Bcf and 1.2 Tcf (unrisked), unchanged from the pre-drilling estimates. OIL The Block L Joint Venture will acquire 3D seismic over the previously produced Jerudong oilfield in 2011 and plan to begin drilling potential development wells in 2012. This oil field was first discovered and produced in the 1950 s and was abandoned in the 1960 s, however at the time of abandonment the well was still producing oil and remains undepleted. AED believes the potential for finding additional recoverable oil in the field is high through the use of 3D seismic and modern drilling techniques. The Company s confidence in this exploration project is high, particularly given current oil prices. AED expect to confirm the presence of commercial oil at Jerudong, with prospective resources likely to be millions to tens of millions of barrels. Furthermore, AED is also optimistic that deeper oil pools could have more significant volumes. In the event of a discovery, the availability of infrastructure in Brunei means that oil could be brought online relatively quickly. Figure 1: A-B. Gas produced from two test horizons. A. Lower test zone, B. Upper Test Zone 4
BRUNEI FORWARD PROGRAM The Phase 2 seismic program was finalised following agreement with Joint Venture partners and PetroleumBRUNEI (PB). The 3D seismic program comprises: 130 sq km of 3D seismic over the West Jerudong area; One 13.5 sq km 3D test swath east of Lempuyang-1; and One 2D seismic line (13 km) south of Birau-2. An additional 150 sq km of 3D seismic will be acquired depending on the outcome of the 3D test swath and 2D seismic A seismic contract has been awarded and mobilisation of operations for this program has commenced. To expedite preparations for exploration drilling and reduce the time lag between acquisition and target selection, processing and interpretation will be carried out concurrently with acquisition as the data becomes available. In addition to the firm seismic program, the Joint Venture is considering acquiring additional 3D seismic if structural roll-over is confirmed by the 3D test swath and 2D seismic. This area is up-dip from the Lempuyang-1 gas discovery and if roll-over is proven will add significant exploration potential to the block. This extension could be up to 150 sq km, with an additional ~50 sqkm overlap of the Phase 1 3D seismic to improve the data quality and assist merging of the 3D datasets. The Operator is currently reviewing near drill ready prospects on the current 3D seismic for the upcoming drilling program. The largest of these, Langkuas, is a simple amplitude supported three-way fault closure with prospective resource estimates of between 200 and 420 Bcf (unrisked). Drilling at Jerudong will begin in 2012 with the targets to be determined after the interpretation of the new Jerudong 3D seismic acquisition. The forward plan is shown below (Figure 2): Figure 2: Block L forward plan 5
Indonesia The uniquely exciting Indonesian prospects of Rombebai and South Madura represent significant opportunities for AED. These opportunities will help to realise the strategy to identify, explore, develop and commercialise high impact oil and gas opportunities in the Asia Pacific region. Rombebai, Papua Onshore (AED interest: 100%) Highlights: Licence extension to July 2013 Remapping of Gesa structure on Rombebai confirms large size and multi Tcf potential in range of 2 30 Tcf (unrisked) A re-evaluation of the Niengo structure, in the Rombebai contract area showed commercial gas production potential Farm-out process recommenced to attract new participants A careful review of all data provides a more positive view of this relatively high risk but very high reward contract area. A past gas discovery in the Niengo-1 well flowed gas at rates which would clearly be commercial. The Neingo anticline was defined by gravity data and a small amount of seismic data in 1958. At the time gas was not marketable and no follow-up work was undertaken. On the better-defined Gesa anticline, two wells were drilled in 1956 and 1957; both of which had to be abandoned due to high pressures accompanied by gas flow before reaching their objectives. Given the renewed interest in long-term LNG projects caused by the current re-evaluation of nuclear power, particularly in Japan, AED believe there will be strong interest among major companies for participation in Rombebai. Importantly, the exploration period on the acreage has recently been extended to July 2013, further increasing the appeal. The potential gas volumes in the Rombebai contract area may be of world class LNG size. Recent remapping of the Gesa and Niengo anticlines shows potential volumes from 2 to more than 30 Tcf (unrisked) in the combined prospects. A new well on the Gesa anticline, (Kare-1) has been proposed and approved by the Indonesian authorities; detailed planning and permitting is underway. The recruitment of Joint Venture participants by way of a farm-out has commenced. 6
Figure 3 Figure 3. Seismic section shows multiple anomalous amplitudes and multiple stacked rising AVO events. The estimated prospective resource potential for the Gesa prospect is between 2 and 30 Tcf (unrisked). Four horizon levels have been mapped and nominal net sand thicknesses have been applied to each level, along with other parameters for the low/mid/high case volume estimates. The low-case scenario only considers volumes associated with the West Gesa high, and the mid and high case scenarios include the entire Gesa structure. FORWARD WORK PROGRAM AED is continuing with interpretation and mapping and will carry out reprocessing on available 2D seismic data. This reprocessing will provide critical information for casing design of the Kare-1 exploration/appraisal well, as well as being used to carry out an AVO analysis. Drilling preparation activities for the Kare-1 well are continuing. 7
South Madura Onshore (AED interest: 60%) Highlights: South Madura being reviewed for deep carbonate oil and gas potential Possible analogues to nearby discoveries at Banyu Urip, Jeruk and Madura BD fields AED assume Operatorship AED s current exploration in South Madura is focused on assessing the deeper Kujung platform play, as well as continuing to review the shallow clastic potential. This work will build a lead and prospect inventory prior to seismic acquisition and exploration drilling. A reassessment of the Kurnia structure has been undertaken and several further leads have been identified in other areas of the block. The Kurnia prospect was drilled by Kurnia-1 in 2007 and produced gas under test conditions from the Kujung formation. AED s attention has been drawn to the deep Kujung platform play by one of AED s highly experienced geophysical interpreters. This play is successful in the Cepu block to the west and also in the Madura Straits to the south. The Company believe these trends extend into the South Madura contract area and are further supported by information from the Kurnia-1 gas discovery drilled before AED entered the PSC. AED believe there will be at least three to six leads for deep Kujung oil and gas targets, which need to be defined by 3D seismic, which will be acquired in the block in 2012. Therefore, the South Madura PSC is of increasing interest to those companies able to provide the capital required for its evaluation. Target volumes are expected to be in the fifty million barrel range and potentially upward to several hundred million barrels. Subsequent to quarter end AED assumed Operator of this PSC (subject to approval by Indonesian government agencies), further evidencing our enthusiasm in this acreage and increasing our ability to manage the future exploration direction through seismic acquisition and drilling programs. FORWARD WORK PROGRAM Prospects within the Kujung formation are currently being delineated on the available 2D seismic and appear to display similar depositional geometries to the nearby field analogues. AED intends to continue mapping prior to planning and acquiring a 3D seismic survey which will be used for future exploration drilling. South Madura PSC Oil Field Gas Field Figure 4: South Madura PSC area 8
Australia Puffin And Talbot Fields, Bonaparte Basin, Western Australia Offshore (AED interest: 40%) These licences were the basis for the existence of AED. Now operated by Sinopec, the licences are undergoing additional studies based on new and re-processed 3D seismic data. This work, which specifically includes a comprehensive study of the Puffin field re-development potential, should be complete at the end of this year. Given the continued increase in oil prices and new techniques for the development of marginal oil fields, AED believes that a redevelopment project may eventually be possible. In addition, there is potential for exploration targets in the AC/P22 and AC/L6 licence areas, including deeper play types. Placing a timetable on the Puffin redevelopment is difficult, and the asset is best viewed as having option value for the medium term. AED is conducting an independent review of this asset which looks at opportunities in the deeper Jurassic and Triassic formations. Company Forward Activity Schedule With a strong balance sheet and significant cash reserves, AED is well funded to pursue an active work program over the next 18 months. The below table gives an indicative illustration of the company s forward plans at each operation. Planned Activity Schedule 2011 2012 Q3 Q4 Q1 Q2 Q3 Q4 Block L PSA 3D seismic Acquisition (130 km 2 ) G&G (eg. Seismic Interpretation) Oil Exploration Well (x2) Gas Exploration Well (x1) Rombebai PSC G&G (eg. Seismic reprocessing, AVO, Pore pressure) Exploration Well (Kare-1) South Madura PSC G&G (eg. 2D Seismic interpretation) 3D Seismic Acquisition (200km 2 ) G&G (eg. Seismic Interpretation) Exploration Well (x1) Puffin/Tabot G&G (eg. Seismic Interpretation) Exploration Well Figure 5: Company Forward Activity Schedule 9
Financial Cash Flows AED continues to follow its current strategies in respect of the activities associated with planning and exploration in relation to its key assets being: Block L in Brunei, Rombebai and South Madura in Indonesia and the Puffin field in Australia. Major cash outflows for the quarter therefore comprised: Operating: A$1.0 million was paid in relation to the Puffin field maintenance, decommissioning costs and corporate costs; and A$0.2 million net interest paid Investing: A$3.0 million exploration and evaluation capital expenditure primarily in relation to the testing and appraisal of drilling results in Brunei and for preparatory planning work for the forthcoming 3D seismic acquisition; $A1.0 million for the ongoing appraisal and development preparations at South Madura and Rombebai; and A$0.2 million on continuing geological and geophysical studies on the review the interpretation of the new seismic acquisition and reprocessed seismic for determining the exploration and development plans on the Puffin and Talbot Field in Australia Financing: A$12.1 million of the 9% Unsecured Convertible Notes and associated borrowing costs were repaid during the quarter. The holders of AED s remaining 9% convertible unsecured notes listed on SGX-ST (Convertible Notes) exercised their option to require AED to redeem those notes on 30 April 2011. In accordance with their terms, Convertible Notes with a principal value of US$12,112,500 were redeemed for cash. This was the last of the outstanding notes and all the SGX listed Convertible Notes have now been cancelled and delisted. A$1.1 million was received from the Share Purchase Plan A$0.9 million was received in respect of draw downs under the LJCI 4.75% Unsecured Convertible Note facility At 30 June 2011, AED had a cash and cash equivalents and other financial assets balance of A$3.2 million. 10
About AED Oil Ltd AED Oil Limited is an Australian Securities Exchange-listed company (ASX Code: AED) focused on oil and gas exploration and development. AED has a diversified portfolio of high-impact exploration and development projects spanning: Brunei 50 per cent operating interest in Block L Indonesia 100 per cent interest in the Rombebai PSC (multi-tcf gas exploration potential) and 60 per cent interest in onshore block in South Madura (onshore, low cost, oil and gas exploration potential) Australia 40 per cent interest in the offshore Puffin and Talbot oil fields AED consists of a small team of experienced technical experts and highly qualified management personnel. The Company focuses its management expertise on driving oil and gas projects from the exploration phase through to production. The team of technical experts has a very broad skill set with experience working across onshore and offshore oil and gas industries and for companies such as BP, ExxonMobil, and Shell. The Company has a vast network of specialist industry leading consultants in the oil and gas field which it is able to call on to supplant its in-house skill base. By engaging a relatively small team of technical experts on staff, AED has the ability to engage world class and industry leading consultants on an as needs basis. For more information please visit our website: www.aedoil.com or contact: Trevor Slater Company Secretary T + 61 3 9656 7800 E admin@aedoil.com Media Contacts Richard Little Chief Financial Officer T +613 9656 7800 Registered Office and Head Office Level 20/8 Exhibition Street Melbourne VIC 3000 Postal Address PO Box 18199 Collins Street East VIC 8003 AUSTRALIA Phone: (03) 9656 7800 Fax: (03) 9654 7006 Email: admin@aedoil.com ACN: 110 393 292 11