Highlights

• Tranche 2 funds received from Reabold under agreement to invest US$ 2 million in Danube
• Landowner and ministry approvals received for first appraisal well
• Purchase of long lead items and drilling rig contracting underway
• The Iecea Mica 2 well is a redrill of an historic gas discovery with independently assessed appraisal potential (2C Contingent Resources 15.5 Bcf Note 1) and additional exploration potential defined on 3D seismic (Best Estimate Unrisked Prospective Resources 15.6 Bcf)
• Refer to ADX ASX announcement dated 11 July 2018.
• Excellent economic potential is expected due to low drilling and development costs, favourable fiscal terms and robust gas pricing

ADX Energy Ltd announces that Reabold Resources Plc has transferred Tranche 2 funding of US$ 1.5 million under an agreement to invest a total of US$ 2 million in the special purpose vehicle Danube Petroleum Limited (Danube). Reabold now holds a 29% shareholding in Danube with the remaining 71% held by ADX.

Danube was formed to conduct appraisal, development and exploration activities onshore Western Romania. Danube’s interests are held via a wholly owned Romanian subsidiary including a 50% interest in the Parta exploration license (“Parta”), a 100% interest in the Iecea Mare Production License (transfer in progress) and a 100% participating interest in the Parta Appraisal Program.

The Tranche 2 transfer was made upon the achievement of key milestones including the approval of the location and well program for the first appraisal well by the relevant Romanian Licensing Authority (NAMR), landowner approvals for access to the rig site and finalization of a tendering process for key long lead equipment purchases including casing, tubing and well heads as well as a rig contract to drill the first well of the two well program.

ADX and Reabold have agreed that Reabold has an option (at Reabold’s election) to invest a further funding of US$ 0.5 million and ADX will either invest directly or source investment from a third party of US$ 0.5 million on the same terms as Reabold’s Tranche 1 and Tranche 2 investments by 31 October 2018.

ADX will provide further ongoing updates on operational readiness for the planned Iecea Mica 1 well.

The resulting economics for the appraisal well program are very encouraging with high internal rates of return (IRR) for all cases ranging from 39% to 79%. A high revenue split and rapid pay backs less than 3 years in all cases. Return on investment (ROI) ranges from 3.7 to 10.3. Average cash flows over a 10 year period range from US$ 2.1 to US$ 10.9 million per annum per well. The cumulative discounted cash flows (NPV10) are summarized in the figure above and for case 4 in the figure below, where the NPV(10) is in excess of 80 MM US$ for the Iecea Mare-2 well alone.

The above analysis is made based on the following assumptions;

• 2C Contingent Resource and Best Estimate Prospective Resource Estimates
• Gas pricing 6.23$/mmBtu
• Hydrocarbon Type: Dry Gas
• Royalty rate 3.5%; 7.5% if daily production exceeds 3.9 MMscf/d
• Corporate Tax on profit 16% (No historical costs assumed)
• Inflation 2% p.a. applied to product prices and OPEX
• Max. initial daily production rate per well < 125,000 scbm/d (4.4 MMscf/d)
• Initial decline rate 20% per year for 4 years, later 10% per year
• Production limits are derived from nearby production data.