MANAGING DIRECTOR S ADDRESS Annual General Meeting of Shareholders of Cooper Energy Limited at The Traders Lounge, Hyatt Regency Hotel on Friday 9 November 2012 A lot has happened and a lot has changed in the eleven months since the 2011 Annual General Meeting - as noted in the Chairman s address. My first year as the Cooper Energy Managing Director has certainly been eventful. Importantly, I feel we have made very good progress on implementing the plans and changes to ensure sustainable growth and top quartile shareholder returns. Making changes has required making some tough and difficult decisions. It is important to acknowledge the support that has been provided by the Board over the past year. Being a Non-Executive Director on a relatively small Board of three for most of the 2012 Financial Year in a company undergoing major changes (in the clear interests of shareholder return) is not easy. Cooper Energy has been very fortunate to have had Laurie Shervington and Jeff Schneider involved. The addition of Hector Gordon has added significant valuable technical experience in both the Management Team and the Board The approach we have implemented and are using to manage our business is best illustrated by the following diagram. 1
The decisions we have taken in the past year have been tested against the clear goal to enhance total shareholder return and do this with care. This means that safety, the environment, security and the health of people involved with Cooper Energy and the communities with which we interact are core factors taken into account in all of the decisions we make. The main focus of our business is very much on Australia and Tunisia with close attention to the fundamentals (cost, technical, market and commercial). Cooper Energy has some clear strength (certain assets, our cash flow and cash). We are leveraging these strengths using the significant Cooper Energy management experience and skills. I will illustrate with three very different examples how this approach is being implemented and driving the decisions we make. Firstly- in Tunisia Cooper Energy has built a very good asset position over the past seven years. We have more than 12,000km 2 (3 million acres) of prospective acreage surrounding existing oil production in three contiguous licences. In the last year we have finalised a farm-out of the Bargou permit to Dragon Oil (a company with deep experience in fractured reservoirs offshore which is particularly applicable to the Hammamet West-3 well to be drilled soon). This farm-out, together with an earlier farm-out to Jacka Resources, means that the Cooper Energy 30% interest in the Hammamet West-3 well is fully funded by others up to US$26.6 million. The well is to be drilled in the March 2013 Quarter and it will evaluate and test a resource with upside potential of some 100 million barrels recoverable oil (100% basis). Tunisia is not a market and environment generally well understood by Australian investors. Therefore, in parallel with pursuing the exploration and evaluation of this acreage (being largely funded by others) we are reviewing the best approach to get full value for our shareholders for the valuable Tunisia position. The options range from vending the Tunisia assets into another company, which would likely already be listed in the United Kingdom, through to maintaining the assets within Cooper Energy with the most appropriate organisation structure and funding. The key is the decision will be based on what is in the best interests of Cooper Energy shareholders and having regard to our own capabilities and the other opportunities available. The second illustration is two corporate transactions concluded this year. These are: 1) the merger with Somerton Energy Limited by way of a recommended off-market takeover; and 2) increasing the shareholding in Bass Strait Oil Limited to 19.9% by accepting a private placement together with sub underwriting a pro-rata rights issue. 2
The Otway Basin and Gippsland Basin are both established oil and gas production regions with significant remaining exploration and development potential. Important in our evaluation is that both are well located to available and growing gas markets. The Somerton Energy acquisition increased the Company s Otway Basin permit holding more than ten times to more than 8,000km 2 (2 million acres). Importantly it significantly increased the conventional and unconventional oil and gas opportunities available to the Company. The Bass Strait Oil shareholding is complementary to the Cooper Energy existing assets in the Gippsland Basin and Otway Basin and consistent with the focus on competitive Eastern Australia gas opportunities. Importantly, from a gas development perspective, both the Otway Basin and Gippsland Basin are very well located for access to gas markets at a time when gas demand, gas contract opportunities and gas prices are all increasing. By focusing on the fundamentals and leveraging our strengths and knowledge we have been able to move quickly on building the foundations of a valuable portfolio of Australian oil and gas opportunities. The third illustration is the decision to move the Head Office from Perth to Adelaide. Our key Australian assets, joint venture participants (other than Jacka Resources) government and customer relationships are currently all in Eastern Australia and in particular in South Australia. The decision to relocate the Head Office is in the best interests of the business for both strategic and long term cost reasons. There will be some additional costs incurred this year due to the move. However, on present calculations these are recovered in less than three years through lower general and administration costs in Adelaide. Notwithstanding the benefits - it was still a tough decision given some of the personnel changes that are a natural consequence. I thank the existing Cooper Energy staff for their support with what has not been an easy decision. We have very quickly built a very capable, experienced and energetic technical, finance and commercial team in Adelaide. The Company is fortunate to have Adelaide management and staff with experience, capabilities and a record of success directly aligned with our areas of core focus. Now turning to the results for the 2011/12 Financial Year In the 2011/12 Financial Year there was growth and material improvement in nearly all of our key business indicators. 3
The underlying strength of the core Cooper Basin assets is clear and in particular PEL92 which is operated by Beach Energy Limited. The Tantanna to Gidgealpa pipeline (operated by Santos Limited) which transported most of the Cooper Energy oil production ceased operating on 1 June, 2012 for operational integrity reasons. A new pipeline (the Lycium to Moomba oil pipeline) to be operated by Beach Energy is currently being commissioned and we are hopeful that this will be fully operational in the near future. Until the commencement of the Lycium to Moomba oil pipeline all our Cooper Basin crude oil production has been transported by truck to Moomba. As a result our oil production from 1 June 2011 has been constrained. Notwithstanding this we still expect to exceed 2011/12 total production in the current Financial Year. In 2011/12 the net profit after tax from continuing operations was $8.4million which is a significant improvement on previous years (-$10.3million 2010/11). The 2011/12 profit included a write off of unsuccessful exploration (Indonesia and Poland) and impairment of assets of -$19.6million. In addition there was a deferred tax asset recognition of +$12.2million. This is a consequence of the introduction of Petroleum Resource Rent Tax from 1 July 2012. In 2011/12 the Company participated in the drilling of eleven wells (six exploration wells and five appraisal/development wells) all in the Cooper Basin. Seven of these wells were successful. Coincident with the reduced international exploration expenditure and increased focus on Australia there has been an increased emphasis on building the size of the 4
oil and gas exploration portfolio. This includes increasing the proportion of lower risk opportunities in the portfolio as well as increasing the size of the portfolio overall consistent with strategy. We will also evaluate opportunities which can leverage the strong exploration skills and experience with the specific objective of high upside exposure at low relative cost to the Company. The Tunisia Hammamet West-3 well is a good example of this. Ideally we would like one or two of these opportunities per year. The objective of the exploration approach we are implementing is to improve the return from the exploration capital being invested. Increasing the reserves and resources base of the Company is a major focus for the Board and management. This includes both exploration and acquisitions. To give greater clarity on the reserves and resources base shareholders will note that Cooper Energy has commenced reporting resources as well as reserves as at 30 June each year. The 2012 Financial Year was a year in which there were: material improvements in the performance of the Cooper Basin business; and important decisions taken and investments made to position the company for future growth and success. It is worth noting that in September Cooper Energy entered the ASX300 and in the past year the percentage of shares held by funds and institutions has nearly doubled to more than 60%. The production guidance for the 2013 Financial Year is 550,000 barrels of which 25,000 barrels are from Indonesia. It is possible the full year production guidance will be increased due to recent exploration success and any earlier start-up timing for the Lycium to Moomba oil pipeline. The 2013 Financial Year exploration program has commenced with some pleasing results in the Cooper Basin the first four wells have resulted in three successes. (Butlers-5, Butlers-6 and Windmill-1) In the next six months there will be a material increase in exploration activity with at least eight wells planned to be drilled in the Cooper Basin, Otway Basin, Tunisia and Indonesia. The Tunisia well (Hammamet West-3), if successful could be a game changer in many respects. The first Otway well (Sawpit-2) will be important in better defining the promising Casterton shale and oil and gas opportunity. The Cooper Energy share in both these opportunities is being majority funded by others. In Indonesia we are taking a very measured approach to increasing production and reserves before then deciding the best long term approach to maximizing return. 5
The budgeted capital expenditure for the 2013 Financial Year for all assets totals $27 million. This covers both exploration and development activities. In addition, (as noted earlier) there will be a one off increase to our general and administration costs of some $2.5 million attributable only to the Head Office move to Adelaide. Given the healthy cash and ongoing positive cash flow position of Cooper Energy, corporate opportunities will continue to be evaluated, as noted earlier. Consistent with our strengths, skills and capabilities our main areas of focus are best illustrated by the shaded areas on this map of Australia. Oil and gas opportunities which have the potential to be at the low end of the cost curve, readily accessible to markets and onshore or nearby offshore are opportunities we will evaluate. Important in our decision making is being able to see a clear pathway to commercialisation (in particular for gas) and the opportunity for a few points of supply. This attribute is important in a market which is so geographically spread. Focussing on Eastern Australia does not mean we will ignore Western Australia. However, given our skills and current size and the nature of the Western Australia 6
upstream oil and gas market there are not as many possible opportunities in Western Australia for Cooper Energy. We have adopted a very market and commercially orientated approach combined with the required technical rigour and discipline. We have come a long way in the last 12 months and we have made many changes. We are building a range of valuable opportunities and we have the resources (capability and capacity) to continue the growth and generate top quartile returns. Cooper Energy is in a very different place than we were one year ago. We have a very positive perspective re-enforced by the developments and opportunities created in the past year. As a management team we know we will continue to be measured by the results we deliver. We thank you for your support I look forward to keeping you informed on developments throughout 2013. 7