Wednesday 31 October 2018

ADX Energy Ltd announced that it has signed an agreement with SDP Services Limited to farmout a 50% interest in the d 363 C.R-.AX Permit (License) containing the Nilde Oil Redevelopment Project and the successfully tested Norma and Naila oil discoveries Offshore Italy. SDP will fund the work program commitments of Audax Energy Srl a wholly owned subsidiary of ADX up to a maximum of Euro 20.82 million to earn a pro-rata interest of 50% upon completion of funding. The transaction is conditional upon the Italian Licensing Authorities ratifying the License. Upon ratification of the License SDP will receive 5% net profits royalty interest attributable to any future production from the Nilde Field. ADX will remain operator of the license.

SDP is a privately owned specialised Oil and Gas services company providing drilling, seismic, testing, hydraulic fracturing and logging services with offices in London. The company generates strong operating cash flow and profit as well as having a substantial balance sheet. The financial capability of SDP is particularly important to provide financial support to ADX with regard to ratification of the permit and future appraisal and development activities.

License Ratification by the Italian Authorities

ADX advised Shareholders on 22 January 2018 that, pursuant to its application to operate the d 363 C.R-.AX Permit via its wholly owned Italian subsidiary Audax, the designated Italian Regulatory Authorities had advised ADX that in the opinion of the Authority Audax had insufficient financial capability to fulfil its Permit commitments. ADX subsequently filed an objection to the Authority’s evaluation as part of the application process. In the same notification the Authority had advised Audax that, with the support of ADX, Audax has the necessary technical and HSSE capacity in line with the legislation. The financial evaluation by the Authority took into account ADX’s obligations in other licenses in Romania and Tunisia. However, the Authority had not taken into account recent financial data or financial support commitments by ADX to its subsidiary Audax. As a result, ADX believe the Authority had not undertaken its evaluation on current or appropriate

information. In the opinion of ADX’s Italian lawyers, the financial evaluation by the Authority was unreasonable and extended beyond the financial evaluation criteria in the legislation. Notwithstanding the compliance by Audax with all the elements provided by law, the Authority had added an additional requirement in their evaluation (not provided in the law)

for the licensee to have upon license ratification the capacity to bear the cost of future committed work program expenditures in the Permit, despite ADX not being obliged, based on the Permit work program commitments, including the costs of drilling a well in year 4 of the Permit.

This Farmout transaction provides the financial support required by the Italian Licensing Authorities and places ADX in a strong position to seek ratification of the License.

Work Program Obligations

Audax was issued the d 363 C.R-.AX permit by the Regulatory Authority in May 2014.

A summary of the Permit work program submitted in 2014 are as follows;

- Year 1 and 2) Seismic purchase and studies year 1 and 2 (Euro 300,000 est),

- Year 3) Seismic acquisition (Euro 520,000 est)

- Year 4) Drill a well (Euro 20,000,000 est). (Note 1)

(Note 1): Well costs have reduced significantly since 2014, ADX current estimate to drill an appraisal well is approximately US$ 14 million.

Permit obligations commence once the license is ratified. ADX has already expended approximately Euro 950,000 which is significantly in excess of the year 1 and 2 work program obligations. Upon ratification ADX intends to accelerate the work program with a view to appraising the remaining resources in Nilde as soon as practically possible.