ADX ENERGY LTD — Interim / Quarterly Report 2011

Jul 28, 2011

29 July 2011

Activities Report

Period Ended 30 June 2011

ADX Energy Ltd ( ASX: ADX ) is pleased to provide the following activities update outlining the progress within your company over recent months as well as our plans for the coming year. ADX is poised to commence drilling at Sidi Dhaher but there is much more going on in the company that deserves shareholder attention.

Recent Highlights

• Sidi Dhaher Well Spud Imminent – A DHI supported, multi target, onshore structure with a mean prospective resource potential exceeding 70 million Barrels oil equivalent.

• Dougga Resource Upgrade – A competent persons report based on 3D seismic mapping conducted for the Dougga field has resulted in an increase in mean contingent resource estimates to 79 mmboe (239 Bcf Sales gas and 41 mmbbls liquids). The ADX most likely estimate is approximately 110 mmboe.

• Sicily Channel Prospect Inventory – in addition to Dougga, mapping based on recently acquired 3D seismic has generated three material prospects with a prospective resource potential totalling over 400 mmboe. Additional prospective potential of 570 mmboe based on 2D seismic provides further opportunities.

• New Sicily Channel Acreage Award - acquisition of offshore exploration permit d 364 C.R-.AX in Italian waters adjacent to ADX’s offshore Tunisian Kerkouane permit at 100% interest.

• Romania Onshore Parta Block - scouting work for a 2D and 3D seismic program was completed. High quality seismic can be acquired very cost efficiently in the Parta area.

Sidi Dhaher Drilling

Chorbane Permit, 40% Interest (Operator)

Following a six month interruption due to the Tunisian revolution, ADX is now ready to spud its onshore Sidi Dhaher well due to a combination of persistence on ADX’s side and the support from the highest levels of the Tunisian authorities to enable drilling preparations to go ahead in a populated area.

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Figure 1: Chorbane permit

The seismically well defined, multi target prospect is expected to take approximately 35 days to drill. The first and shallowest target at approximately 1,150 meters depth is the nearby producing Eocene reservoir. A flat spot identified on several 2D seismic lines is conformable with structure and therefore is indicative of trapped hydrocarbons (DHI or Direct Hydrocarbon Indicator). The most likely case resource estimate for the Eocene target is – 175 Bcf of gas with the possibility for an additional oil leg. Short distance and access to onshore processing, a strong gas market and oil equivalent gas pricing conditions would enhance any gas development.

In addition, the structure has significant closure at Upper and Lower Cretaceous reservoirs that add significant upside and risk reduction to the prospect. Of special interest is the large closure (+25km[2] ) at the Abiod reservoir level that is, in many respects, comparable to the Sidi-El Kilani field, which to date has produced approximately 50 Mmbbls of oil from the same horizon, approximately 30km north of the Sidi Dhaher Prospect. The most likely prospective resource estimate for the Abiod is 44 million barrels of oil. Additional targets also exist including the deeper Douleb and Bireno reservoirs that produce oil in the Guebiba-El Hajeb field immediately east of the permit.

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Figure 2: Seismic lines through Sidi Dhaher Prospect also show a flat spot at the shallow reservoir target. Deeper prospective reservoirs such as the Abiod, Douleb and Bireno reservoirs will also be penetrated.

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Figure 3: Rig Site

1. Challenger Rig 37 on Sidi Dhaher location, drill pipes in foreground.

2. View from rig floor, desander and degaser units in foreground, green geotextile covered mud pits in mid ground, olive tree plantation in background.

3. Radiators for cooling diesel engines in foreground, background shows rig.

4. Local community members waiting in front of medical unit container for a medical check.

5. Rig inspector standing on top of a mud tank, next to desander unit on his right.

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Sicily Channel Assets (ADX Operated)

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Figure 4: Kerkouane, Pantelleria and new Italian permit location map

Dougga Appraisal, Concept Study and Competent Persons Report:

Dougga is a liquids rich gas field where ADX plans to undertake further appraisal drilling to confirm commerciality. The large approximately 740 km[2] dual sensor 3D seismic survey ADX acquired with PGS and completed in Q3-Q4 2010, has been an excellent investment in terms of Dougga resource definition and portfolio enhancement. The subsequent ADX in house interpretation work on 3D seismic in combination with a resource and development engineering review of the Dougga gas condensate field by Tracs – AGR, an internationally recognised reserves audit, resulted in an upgrade of P90 and P50 contingent resources for the Dougga gas condensate field (Table 1). It also reliably identified a deeper, yet to be drilled, target in the Lambouka structure and a large near field prospect next to the Dougga field, the Dougga West Prospect.

Table 1: Dougga Resource Estimates by Tracs

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*Note: In relation to the above probabilities it should be noted that recent ADX in-house reservoir engineering reviews, together with more detailed 3D mapping work, have indicated that the most likely gas water contact (GWC) for Dougga is likely to be deeper than the one used by Tracs for their P50 assessment. As a result the ADX estimate for the most likely case (mean) is approximately 110 mmboe. This approximate is the Tracs 3C case, (112.9 mmboe) which was determined with a GWC similar to the one interpreted as “most likely” by ADX.

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The development concept study and economic analysis by Tracs AGR has further revealed that the project economics for Dougga are compelling based on an offshore floating production system for condensate removal and dehydration together with an onshore gas plant (in the order of a billion USD NPV(10)). Recent studies by ADX indicate the potential for significant development CAPEX reductions utilising a subsea development tied back to an onshore gas plant. The Tunisian authorities have expressed in several meetings with ADX, their strong support for drilling of a Dougga appraisal well and indicated their commercial support for the development of Dougga together with Lambouka (15km from Dougga) and the nearby Dougga West prospect, represent the potential for a large and strategic resource development.

ADX intends to undertake further concept development studies during the second half of 2011 with a view to substantially enhancing project economics and materiality ahead of seeking a farminee to assist in the funding of a Dougga appraisal well and the drilling of at least one near field exploration prospect.

Sicily Channel Exploration Portfolio Development

As discussed above, ADX has utilised recently acquired 3D seismic to assist in the definition of Dougga and assess a number of potentially substantial near field exploration opportunities. These newly defined prospects have the potential to contain in excess of 400 mmboe based on ADX studies and mapping. The prospects are summarised in table 2 below;

Table 2: Near field exploration, including Dougga and Lambouka gas discovery, covered by dual sensor 3D seismic, most likely prospective resources estimate

		Resource Estimate [mmboe]
Project Name	Status		Likely Fluid
Lambouka-Deep	Drill Deeper - Exploration	126	gas condensate
Dougga West	Near Field Exploration	226	oil or gas condensate (resource given for oil case in Birsa)
Dougga North West	Exploration	57	gas condensate
TOTAL COVERED BY 3D SEISMIC		409 mmboe

The above mentioned Kerkouane prospects are shown in relation to the Dougga and Lambouka discoveries below.

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Figure 4: Prospects Kerkouane/Pantelleria

Of immediate interest outside the 3D area is the Kerkouane-1 well in the north western part of the Kerkouane license which had significant gas shows during exploration drilling and will be covered by two new seismic lines which Shell will acquire as part of a large 2D survey in their neighbouring licenses. ADX has and its partners have given approval to Shell to shoot seismic into its Kerkouane block in order to tie with the Kerkouane-1 gas well.

The resource potential (ADX in-house, most likely) of appraisal and exploration opportunities which are outside the 3D seismic area is summarised in the table below:

Table 3: Near field appraisal and exploration, covered by 2D seismic, most likely prospective resources

		ML Resource [mmboe]
Project Name	Status		Fluid
Kerkouane	Appraisal	87	gas condensate
Lambouka Overthrust	Exploration	17	gas condensate
Tazerka - North	Exploration	24	oil
Galliano	Exploration	122	gas condensate
East Galliano	Exploration	146	gas condensate
North Zibbibo	Exploration	20	oil
CapBon Mare	Exploration	77	gas condensate
Carthage	Exploration	79	gas condensate
TOTAL COVERED BY 2D SEISMIC		572 mmboe

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The combined contingent and prospective most likely resource potential currently identified on both 2D and 3D seismic data is 1.15 billion barrels of oil equivalent. The company’s near term objective is to move significant contingent resources into reserves category through the appraisal of Dougga and the drilling of material and prospective near field targets in the 3D covered area. In the longer term ADX and its partners will focus on maturing the large number of 2D prospects for drilling.

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Figure 5: Dougga cross-section and map

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Figure 7: Dougga West cross-section and map

New Sicily Channel Acreage in Italy

D 364 C.R-.AX Exploration Permit, 100% Interest (Operator)

The D 364 C.R-.AX Exploration permit shown in the map below is contiguous with the ADX operated Pantelleria and Kerkouane permits. Ongoing exploration work within these permits has identified a number of prospects and leads as well as prospective hydrocarbon fairways which have previously remained undetected. The recently acquired geophysical data has confirmed this interpretation. These highly prospective fairways trend into the offshore areas covered by the new permit. The permit has not seen modern seismic techniques but success in the area has attracted the recent interest of majors such as Shell and Repsol.

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In addition the permit offers excellent fiscal terms, materiality, access to developed markets, proximal infrastructure and the ability to gain leverage via farmout given ADX’s large equity position. ADX has also submitted an application for the adjacent permit d 363 C.R-.AX which contains the Nilde oil field which has yet to be awarded.

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NW Lead Dougga West Prospect Dougga Field SE
Kerkouane-Tunisia 3D seismic section
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Figure 8: Kerkouane – cross-section

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NW Nilde Field SE
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Figure 9: Cross-section – ADX permit Italy

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Figure 10: Location map of new permit D364 C.R.-AX

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Onshore Romania – Pannonian Basin

Parta Permit, 60% Interest (Operator)

ADX successfully bid for the Parta block in South West Romania and signed the fiscally highly lucrative concession agreement with the government in late January 2011. Whilst ADX is waiting for the ratification signature from the president of Romania, scouting work for 2D and 3D seismic has been completed. It can be expected that high quality seismic can be acquired in a cost efficient manner. Interpretation of already available 2D seismic data and well data has further enhanced the resource portfolio in this low risk area where modern exploration and production technology has not yet been applied and where small discoveries can be easily and quickly brought on stream and monetized. It should be noted that the Pannonian basin in Romania and partly also Hungary and Serbia still offers large upside resource potential. Of particular interest are stratigraphic traps which are well proven to work in the area, but have not been explored deliberately because of a lack of high quality 2D and 3D seismic data. Several operators in the area have also announced that large potential for unconventional gas exists in the area.

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Figure 6: Location map of Parta permit

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Summary

The delays of the last six months have been a frustrating period for the Company, however ADX has continued to enhance its existing asset base and add further opportunities in line with its strategy of early entry into high impact opportunities, in proven basins with access to high value markets.

The Company has a deep inventory of high quality appraisal and exploration assets which provide the opportunity for substantial growth. We thank shareholders for their patience and ongoing support as we launch in to an exciting drilling program at Sidi Dhaher.

Corporate & Finance

ADX has previously entered into farmin agreements with other entities looking to earn participation in the Chorbane permit. As a result of these agreements ADX will be fully funded through the expected cost of the imminent Sidi Dhaher well.

Commencement of Sidi Dhaher drilling will allow release of US$ 1 million held as a performance bond (100% ADX) in Tunisia.

Certain participants in the Lambouka Prospect Area owe ADX approximately US$ 1.2 million, which is expected to be recouped in the current quarter (July to September 2011).

Yours faithfully

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WOLFGANG ZIMMER Managing Director

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