SOMERTON ENERGY LTD 
By
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.
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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 12,000km2 (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.
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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 8,000km2 (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.
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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
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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:
