Dear Fellow Shareholder,

Transcription

1 Dear Fellow Shareholder, On behalf of the Board of Directors of Bass Strait Oil Company Ltd ( Company ), I am pleased to invite you to attend the 2013 Annual General Meeting. Enclosed are the Notice of Annual General Meeting and Proxy Form which set out the items of business. The meeting will be held on Tuesday 26 November 2013 commencing at am at the RACV City Club, 501 Bourke Street, Melbourne. I encourage you to: 1. Read the enclosed Notice of Annual General Meeting and Explanatory Statement which outlines the Directors recommendations for each resolution; and 2. Vote in person at the meeting, or by proxy. If you are attending the meeting, please bring the enclosed documents with you to facilitate registration. If you are unable to attend the meeting, I encourage you to complete the enclosed voting form. The Shareholder voting form should be lodged with the Company s share registry in accordance with the instructions set out in the voting form so that it is received not less than 48 hours before the scheduled start of the meeting. Corporate shareholders will be required to complete a "Certificate of Appointment of Corporate Representative" to enable a person to attend on their behalf. A form of this certificate may be obtained from the Company's share registry. Please note that attached to the Notice of Annual General Meeting is an Independent Expert s Report in relation to the Farm-ins (as defined in the Notice of Annual General Meeting) in respect of Vic/P41 and Vic/P68 which concludes that the proposed Farm-In Agreements (as defined in the Notice of Annual General Meeting) (and the Farm-ins) are both fair and reasonable to the non-associated Shareholders of the Company. I look forward to seeing you at the meeting. Yours faithfully John L C McInnes Chairman 25 October 2013

2 BASS STRAIT OIL COMPANY LTD ABN NOTICE OF ANNUAL GENERAL MEETING NOTICE IS HEREBY GIVEN that the Annual General Meeting ( AGM ) of the Members of Bass Strait Oil Company Ltd ( Company or BAS ) will be held at the RACV City Club, 501 Bourke Street, Melbourne on Tuesday, 26 November 2013 commencing at am, and will be followed by a Company Presentation. The Explanatory Statement that accompanies this Notice forms part of it and provides additional information regarding the business of the meeting. ORDINARY BUSINESS AGENDA Financial Accounts and Reports To receive and consider the Financial Report, the Directors Report and the Auditor s Report for the year ended 30 June 2013 (as set out in the Annual Report 2013). Resolution 1: Adoption of Remuneration Report To consider and if thought fit, pass the following resolution as an ordinary resolution: To adopt the Remuneration Report for the financial year ended 30 June 2013, as set out in the Directors Report section of the Annual Report. Note the vote on this resolution is advisory only and does not bind the Directors or the Company. Voting Exclusion As required by the Corporations Act 2001 (Cth) ( Corporations Act ) and the ASX Listing Rules ( Listing Rules ), no member of the Company s key management personnel ( Key Management Personnel ), details of whose remuneration is included in the Remuneration Report, or a closely related party of any such a member may vote on Resolution 1 and the votes of such persons will be disregarded by the Company, unless the vote is not cast on behalf of any such member or closely related party of any such member and: (a) the person voting votes as a proxy appointed by writing that specifies how the proxy is to vote on Resolution 1; or (b) the person voting is the Chair of the AGM ( Chair ) who votes as a proxy appointed by writing that specifies the way the Chair is to vote on Resolution 1 and which expressly authorises the Chair to vote on Resolution 1 even though that Resolution is connected directly or indirectly with the remuneration of a member of Key Management Personnel and even though the Chair is a member of the Key Management Personnel.

3 Resolution 2: Re-election of Andrew Philip Whittle as a Director To consider and, if thought fit, to pass the following resolution as an ordinary resolution: That Andrew Philip Whittle, being a Director of the Company, who retires by rotation at the close of the Annual General Meeting in accordance with Clause 35(c) of the Company s Constitution and being eligible, is hereby re-elected as a Director of the Company. Note: Mr Whittle is a current Director and member of the Board of the Company. The Directors of the Company (excluding Mr Andrew Whittle) RECOMMEND that Shareholders vote in favour of this Resolution. Resolution 3: Assignment of a 25.8% interest in Vic/P41 and the option to acquire a 50% interest in Vic/P68 To consider and, if thought fit, to pass, the following resolution as an ordinary resolution: That for the purposes of ASX Listing Rule 10.1 and for all other purposes, the shareholders approve the assignment of a 25.8% interest in Vic/P41 and the option to acquire a 50% interest in Vic/P68 to a substantial holder of the Company (namely Cooper Energy Limited) on the terms and conditions of the Farm-In Agreements described in the Explanatory Notes accompanying this Notice of Annual General Meeting and the Independent Expert s Report. Note: The Directors of the Company RECOMMEND that Shareholders vote in favour of this Resolution. Voting Exclusion As required by the Corporations Act and the Listing Rules, Cooper Energy Limited, or a closely related party or associate of Cooper Energy Limited may not vote on Resolution 3 and the votes of such persons will be disregarded by the Company, unless the vote is not cast on behalf of any such member, or closely related party or associate of any such member and: (a) the person voting votes as a proxy appointed by writing that specifies how the proxy is to vote on Resolution 3; or (b) the person voting is the Chair who votes as a proxy appointed by writing that specifies the way the Chair is to vote on Resolution 3 and which expressly authorises the Chair to vote on Resolution 3. By order of the Board R M Hamilton Company Secretary 25 October 2013

4 EXPLANATORY STATEMENT The Financial Report, the Directors Report and the Auditor s Report for the year ended 30 June 2013 (contained in the Annual Report 2013). Shareholders have been notified that the Bass Strait Oil Company Ltd Annual Report 2013 ( Annual Report 2013 ) can be found under Bass Strait Oil Company Ltd s website ( under Announcements and Presentations and have been given the option of having a printed copy of the Report sent to them. The Annual Report 2013 has been sent to those Shareholders who requested it. During the discussion there will be an opportunity for Shareholders to ask questions about, or comment on, the Annual Report 2013 and management of the Company. Resolution 1 - To adopt the Remuneration Report for the year ended 30 June 2013 The Company is required under the Corporations Act to include, in the business of its AGM, a resolution that the Remuneration Report for the financial year ended 30 June 2013 be adopted. The resolution is advisory only and does not bind the Directors. However, the Directors will take into account the outcome of the vote when reviewing the remuneration policies and practices. During discussion of this Resolution there will be an opportunity for Shareholders to ask questions about, or comment on, the Remuneration Report. The Remuneration Report which forms part of the Directors Report is set out on pages 11 to 15 of the Annual Report Directors Recommendation Acknowledging that each Director has a personal interest in his or her own remuneration from Bass Strait Oil Company Ltd, as described in the Remuneration Report, the Directors unanimously RECOMMEND the adoption of the Remuneration Report. Voting Exclusion As required by the Corporations Act and the Listing Rules, no member of the Key Management Personnel, details of whose remuneration is included in the Remuneration Report, or a closely related party of any such a member may vote on the Resolution and the votes of such persons will be disregarded by the Company, unless the vote is not cast on behalf of any such member or closely related party of any such member and: (a) (b) the person voting votes as a proxy appointed by writing that specifies how the proxy is to vote on the Resolution; or the person voting is the Chair who votes as a proxy appointed by writing that specifies the way the Chair is to vote on the Resolution and which expressly authorises the Chair to vote on the Resolution even though that Resolution is connected directly or indirectly with the remuneration of a member of Key Management Personnel and even though the Chair is a member of the Key Management Personnel. Resolution 2 Re-election of Andrew Philip Whittle as a Director The Constitution of the Company requires that at every Annual General Meeting one-third, or the next highest number nearest one-third, of the Directors shall retire from office and provides that such Director(s) are eligible for re-election at the meeting. Non-Executive Director since 9 August Mr Whittle has over 40 years experience in the petroleum exploration and production industries world wide, with a focus on SE Asia and Australia. His experience includes over 21 years with several affiliates of Exxon Corporation, finally in the position of Geological Manager of Esso Australia.

5 He is also currently Chairman of Central Petroleum Limited, a Director of Bumi Armada Sdn Bhd, a major offshore service company which listed in Malaysia in mid 2011 and a founding Director of Petroval Australasia Pty Ltd, as well as other unlisted companies. He is a member of the American Association of Petroleum Geologists and the Petroleum Exploration Society of Australia. Mr Whittle served on the audit committee during the year. Directors Recommendation The Directors (excluding Mr Andrew Whittle) RECOMMEND that Shareholders vote in favour of Resolution 2. Resolution 3 Assignment of a 25.8% interest in Vic/P41 and the option to acquire a 50% interest in Vic/P68 Introduction Historically, on 7 June 2002 BAS executed a Farm-in and option Agreement with Eagle Bay Resources NL (now Strategic Energy Resources Ltd) with respect to Vic/P41. Under the agreement BAS acquired a 20% interest in Vic/P41 and was appointed operator of the permit. In consideration of the transfer of this interest BAS met the costs of a 221.5sq km seismic survey fulfilling the year 4 work program commitment. On 11 June 2003 BAS exercised an option under the agreement to obtain a further 55% interest in Vic/P41 by agreeing to fund a 250sq km 3D seismic survey in Year 5 of the permit. By an agreement dated 31 October 2003, BAS granted Moby Oil & Gas Ltd an option to Farm-in to Vic/P41, giving Moby an option to acquire a 30% interest in the permit by meeting the first $1.0 million of the costs of the 250sq km 3D seismic survey. BAS then held a 45% interest in Vic/P41. On 23 April 2013 BAS announced that it had exercised its pre-emptive rights in relation to Moby s disposal of its 25% interest in the joint venture subject to regulatory approval, which was received. BAS then held % and has retained operatorship of the permit. On 6 May 2012 BAS announced that it had been granted exploration permit Vic/P68 with an initial six year work program. The Notice of Annual General Meeting and the proposed resolution for consideration by BAS shareholders concerns the proposed assignment by BAS of a 25.8% interest in Vic/P41 to Cooper Energy Limited ( Cooper ) and the option for Cooper to acquire a 50% interest in Vic/P68. The BAS Directors believe Cooper will bring significant technical and gas commercialisation expertise to the Company s activities as well as a strong balance sheet to be able to advance work programs on these permits moving forward. Shareholders should note that Cooper currently holds 19.9% of the issued capital in BAS. Accordingly the BAS board considers that the proposed assignment of a 25.8% interest in Vic/P41 to Cooper and the option for Cooper to acquire a 50% interest in Vic/P68, is or may be, a disposal of a substantial asset to a substantial BAS shareholder. Accordingly completion pursuant to the farm-in agreements to which these transactions relate ( Farm-In Agreements ) is conditional upon BAS first obtaining BAS shareholder approval of this transaction. An Independent Expert s Report (please see the further details below) was commissioned by BAS for the purpose of assisting non-associated BAS shareholders consideration and assessment of the merits of the proposed farm-ins under the Farm-In Agreements ( Farm-ins ) and the making of their decision whether to vote in favour of the Resolution. Shareholders are urged to carefully consider the Independent Expert s Report and to understand the scope of the report and the assumptions made.

6 The BAS Board is of the view that shareholder value will be enhanced by the assignment of an interest in Vic/P41 and the option to acquire an interest in Vic/P68 (as contemplated by the Farm-In Agreements). On completion BAS will have been funded for its share of the reprocessing and merging of multiple 3D datasets and selected QI/AVO analyses, including 685sq km within the permits. Overview The proposed resolution is that for the purposes of Listing Rule 10.1 and for all other purposes, the BAS shareholders approve the assignment of a 25.8% interest in Vic/P41 to Cooper and the option for Cooper to acquire a 50% interest in Vic/P68 pursuant to the Farm-In Agreements. Listing Rule 10.1 requires BAS to obtain Shareholder approval to BAS disposing of a substantial asset to a substantial holder of BAS shares. Cooper (and its associates) will be excluded from voting on this resolution and any votes cast on the resolution by Cooper (and its associates) will be disregarded. Regulatory Requirements A substantial asset is defined by the Listing Rules as an asset valued at greater than 5% of the equity interests of BAS, as set out in the latest accounts of BAS given to the ASX by BAS. A substantial holder is defined as a person who holds at least 10% of the total votes attached to all voting shares. For the purposes of Listing Rule 10.1, the proposed assignment of a 25.8% interest in Vic/P41 to Cooper and the option for Cooper to acquire a 50% interest in Vic/P68 is subject to BAS shareholder approval because: (a) the value of BAS s interest in Vic/P41 and Vic/P68 exceeds 5% of the current equity interests of BAS; and (b) Cooper owns approximately 19.9% of the issued share capital of BAS and Cooper is therefore a substantial shareholder of BAS. Listing Rule provides that the Notice of Meeting seeking Shareholder approval for the purpose of Listing Rule 10.1 must include a report on the proposed transaction from an independent expert. Accompanying this Explanatory Memorandum is an Independent Expert s Report prepared by ResourceInvest Pty Ltd ( ResourceInvest ). This report contains a detailed examination of the proposed Farm-ins and has concluded that the proposed Farm-In Agreements (and the Farm-ins) are both fair and reasonable to the non-associated Shareholders of BAS. A copy of the Independent Expert s Report can be found at BAS s website ( under Announcements and Presentations attached to a copy of this Notice of Annual General Meeting. A hard copy of the Independent Expert s Report will be provided by BAS to all shareholders on request (free of charge). Farm-In Agreements The Farm-In Agreements provide that subject to certain conditions precedent, BAS agrees to transfer a 25.8% interest in Vic/P41 to Cooper and the option for Cooper to acquire a 50% interest in Vic/P68, and Cooper agrees to fund BAS s share of the reprocessing and merging of multiple 3D datasets and selected QI/AVO analyses. The conditions precedent includes receiving Government and (in the case of the Vic/P41 Farm-In Agreement) Joint Venture approvals. Independent Experts Report For the purposes of the Resolution, BAS s Directors have engaged ResourceInvest to prepare an Independent Expert s Report in accordance with ASX Listing Rule

7 The Independent Expert has concluded that the proposed Farm-ins are both fair and reasonable to the non-associated Shareholders. The Independent Expert has identified a number of possible advantages and disadvantages associated with the proposed Farm-ins (including at pages 17 to 18 of their Report). Shareholders should consider these factors carefully. The following is a summary of the advantages and disadvantages for BAS in either proceeding, or not proceeding, with the Farm-in with the assignment of a 25.8% interest in Vic/P41 to Cooper and the option for Cooper to acquire a 50% interest in Vic/P68 for consideration of BAS being funded for its share of the reprocessing and merging of multiple 3D datasets and selected QI/AVO analyses, including 685sq km within the permits. (Proposed transaction). (a) Proposed Transaction proceeding: (i) Advantages (A) The proposed farm-in relieves BAS from expenditure of approximately $865,000 and largely meets annual permit commitments on the two permits. This sum is equivalent to 38% of the Company s cash resources reported at 30 June The cost of this benefit is the 40% dilution of the Company s interest in Vic/P41, and its possible 50% dilution in Vic/P68. (B) Reduces the need for the Company to raise further capital. Applying similar share price discounts and costs that applied in the 2012 share placement, it is likely that the Company would be required to raise $900,000 at approximately 0.8 cents per share. A placement of this size would dilute all existing shareholders by about 20% across all Company assets. (ii) Disadvantages (C) The cost of this benefit is the 40% dilution of the Company s interest in Vic/P41, and its possible 50% dilution in Vic/P68. Board Recommendation The BAS Board has been trying to enter into farm-in arrangements in relation to Vic/P41 for the last six years and has received no other offers to date but believes the proposed Farm-in and the option to acquire a 50% interest in Vic/P68 provides the greatest potential value and certainty to BAS shareholders. The BAS board has taken into account that it is a joint venture participant in Vic/P41. In the absence of a superior proposal, the Board unanimously recommends that BAS shareholders approve the proposed Farm-in to Vic/P41 by Cooper and the option for Cooper to acquire a 50% interest in Vic/P68 on the terms of the Farm-In Agreements. The BAS Board also recommends that BAS shareholders seek their own financial advice concerning the Farm-In Agreements. Additional information The Board of Directors is not aware of any other information which is relevant to the consideration by BAS shareholders of the proposed resolution other than that which is detailed in the Notice of Annual General Meeting. Voting Exclusions Pursuant to Listing Rule and Chapter 14 of the Listing Rules, BAS will disregard any votes cast on the Resolution by:

8 Cooper and any person who might obtain a benefit, except a benefit solely in the capacity of a holder of ordinary securities, if the Resolution is passed; and An associate of that person (or those persons). However, BAS need not disregard a vote if: It is cast by a person as a proxy for a person who is entitled to vote, in accordance with the directions on the proxy form; or It is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides. The Company has determined that a Member s entitlement to vote at the Meeting will be the entitlement of that Member as set out in the register of members as at 7pm on Friday, 22 November 2013.

9 ResourceInvest Pty Ltd ABN Waterton Hall Road, Rowella, Tasmania, 7270 PO Box 125 Beaconsfield, Tasmania, 7270 T: E: resourceinvest@bigpond.com Bass Strait Oil Company Limited Independent Expert s Report Farmout of Gippsland Basin permits Vic/P41 and Vic/P68 to Cooper Energy Ltd We have concluded that the Proposed Transaction is FAIR AND REASONABLE to shareholders not associated with the Proposed Transaction 17 October 2013

10 17 October 2013 The Directors Bass Strait Oil Company Ltd Level 1, 99 William Street Melbourne VICTORIA 3000 Dear Sirs, Proposed Farmout of Gippsland Basin Permits On 31 July 2013, Bass Strait Oil Company Ltd ( Bass Strait Oil, BAS, or the Company ) announced that it had executed Farmin agreements (the Proposed Transaction ) with Cooper Energy Ltd ( Cooper Energy ) with regard to Gippsland Basin permits Vic/P41 and Vic/P68. Under the terms of the agreements, Cooper Energy will fund Bass Strait Oil s share of reprocessing and merging of multiple 3D datasets and selected QI/AVO analysis. In consideration for the work to be undertaken, Bass Strait Oil will assign Cooper Energy a 25.8% interest in Vic/P41 and the option to acquire a 50% interest in Vic/P68. Cooper Energy is a 19.9% shareholder of Bass Strait Oil. Australian Securities Exchange ( ASX ) Listing Rule 10.1 prohibits a listed entity from disposing of a substantial asset to an entity that is a substantial shareholder without the prior approval of its shareholders. A substantial shareholder includes a shareholder with a relevant interest in at least 10% of the issued voting shares in the listed entity. An asset is substantial if its value, or the value of the consideration being paid, is 5% or more of the listed entity s equity as set out in the latest accounts lodged with the ASX. Given the substantial nature of the 19.9% interest in Bass Strait Oil held by Cooper Energy, and the substantial nature of the assets involved, ASX Listing Rule 10.1 is deemed to apply to the Proposed Transaction. Under ASX Listing Rule , a notice of meeting containing a resolution being put to shareholders for the purposes of ASX Listing Rule 10.1 must be accompanied by an independent expert s report stating, in that person s opinion, whether or not the proposed transaction is fair and reasonable to the shareholders not associated with the transaction. Independent Expert s Report Page 2

11 Consistent with the requirement under ASX Listing Rule and to assist with the requirement (under the Act) to provide shareholders with all material information, the Directors of Bass Strait Oil have requested ResourceInvest Pty Ltd ( ResourceInvest ) to prepare an independent expert s report, the purpose of which is to provide an independent opinion as to whether or not the Proposed Transaction, is fair and reasonable to the Non-Associated Shareholders. The Non-Associated Shareholders are to vote on the Proposed Transaction at a general meeting to be held on or around [26] November 2013 (the Meeting ). Our independent expert s report is to be included with the Notice of Meeting and Explanatory Statement being sent to Bass Strait Oil s shareholders in relation to the Meeting. The ASX Listing Rules do not define the term fair and reasonable and provide no direct guidance on what should be considered when assessing whether or not a particular transaction is fair and reasonable for the purposes of ASX Listing Rule The Australian Securities and Investment Commission has issued Regulatory Guide 111: Content of expert reports ( RG 111 ) which provides some direction as to what matters an independent expert should consider and how fair and reasonable should be interpreted in a range of circumstances. RG 111 states that in deciding on the appropriate form of analysis, an expert should bear in mind that the main purpose of the report is to adequately deal with the concerns that could reasonably be anticipated of those persons affected by the proposed transaction (i.e. the shareholders not involved in the transaction). A key consideration of the shareholders of a company entering into a substantial transaction with a related party is generally whether or not they will be better or worse off because of the transaction. The primary rationale behind ASX Listing Rule 10.1 is to ensure, as far as practicable, that nonassociated shareholders are no worse off because of a substantial related party transaction. It has long been accepted in Australian mergers and acquisitions practice that the words fair and reasonable establish two distinct criteria for an expert analysing a transaction: (a) is the offer fair ; and (b) is it reasonable? That is, fair and reasonable is not regarded as a compound phrase. Under this convention, an offer is fair if the value of the offer price or consideration is equal to or greater than the value of the subject of the offer. RG provides that An offer is reasonable if it is fair. It might also be reasonable if, despite being not fair, the expert believes that there are sufficient reasons for security holders to accept the offer in the absence of any higher offer. Summary of Opinion In Section 5 we set out commercial and qualitative factors which we have taken into consideration, and in Section 6 we provide our conclusion. This indicates that the value of the consideration being offered is commensurate with the exploration risk associated with the prospectivity. Taking into consideration the matters detailed in the attached independent expert s report, in the opinion of ResourceInvest, the Proposed Transaction is considered to be fair. Consistent with RG111 the Proposed Transaction is also, therefore, reasonable. Independent Expert s Report Page 3

12 Our opinion is made as at the date of this letter and reflects circumstances and conditions as at that date. This letter must be read in conjunction with the full independent expert s report as attached. Yours faithfully ResourceInvest Pty Ltd Peter Cameron Director Independent Expert s Report Page 4

13 Contents 1 Details of the Proposed Transaction Scope of Work Cost Estimate Permit Allocation Scope of the Report Overview of Bass Strait Oil Overview of Farmout Permits Vic/P Vic/P Evaluation of the Proposed Transaction Background to Farmout of Vic/P41 and Vic/P Previous valuations Recent transactions Moby Oil & Gas Limited Other transactions Gippsland Basin Otway Basin Advantages to Bass Strait Oil of Proposed Farmout Conclusion Vic/P Vic/P Opinion Appendix 1 - Declarations Appendix 2 Sources of Information Appendix 3 - Glossary List of Figures Figure 1. Bass Strait Oil permits map Figure 2. Bass Strait Oil Gippsland Basin permits Figure 3. Gippsland Basin permit Vic/P Independent Expert s Report Page 5

14 List of Tables Table 1. Cost allocation Table 2. Bass Strait Oil permit interests Table 3. Bass Strait Oil Balance Sheet Table 4. Exploration & evaluation expenditure 30 June Table 5. Vic/P41 Initial second renewal work programme Table 6. Revised Vic/P41 work programme Table 7. Vic/P68 work programme Independent Expert s Report Page 6

15 1 Details of the Proposed Transaction On 31 July 2013, Bass Strait Oil Company Ltd ( Bass Strait Oil or the Company ) announced that it had executed Farmin agreements (the Proposed Transaction ) with Cooper Energy Ltd ( Cooper Energy ) with regard to Gippsland Basin permits Vic/P41 and Vic/P68. Under the terms of the agreements, Cooper Energy will fund Bass Strait Oil s share of reprocessing and merging of multiple 3D datasets and selected QI/AVO analysis. In consideration for the work to be undertaken, Bass Strait Oil will assign Cooper Energy a 25.8% interest in Vic/P41 and the option to acquire a 50% interest in Vic/P Scope of Work Cooper Energy has agreed to undertake: Pre-Stack Time Migration (PSTM) reprocessing of 1,205 km 2 of 3D seismic data along the Rosedale fault system from the Kipper field across southern Vic/P68 to the eastern edge of Vic/P 41. The reprocessed PSTM volume will consist of 430 km 2 within Vic/P41, 255 km 2 within Vic/P68 and 520 km 2 outside both permits to provide adequate tie points to the Kipper analogue field and well based shear sonic data. A quantitative interpretation (QI) study including a petrophysical study, rock physics and stochastic modelling of at least two wells within the PSTM reprocessed volume area, which will be input into a simultaneous inversion. An integration of well data and seismic data, to highlight lithology and fluid effects, for better reservoir interpretation. Additionally, a calibrated inversion may allow discrimination between reservoir and volcanics which are present in the area. Seismic horizon and fault interpretation on the reprocessed volume. Key horizon data to be depth converted. Refine fault definition and lithology prediction on either side of the Rosedale fault. 1.2 Cost Estimate Item Cost A$ Reprocessing and QI 800,000 Data 20,000 Fault Seal Study 100,000 Interpretation 162,000 Total 1,082, Permit Allocation The reprocessed Pre Stack Migration volume will consist of 430 km 2 within Vic/P41, 255 km 2 within Vic/P68 and 520 km2 outside both permits to provide adequate tie points to the Kipper analogue field and well based shear sonic data. The data over the analogue and well tie points will equally impact both permits. Thus the cost distribution between each permit is shown in Table 1: Table 1. Cost allocation. Permit Permit Share Total Cost A$ Bass Strait Share A$ Vic/P41 57% 616, ,198 Vic/P68 43% 465, ,260 Independent Expert s Report Page 7

16 2 Scope of the Report Australian Securities Exchange ( ASX ) Listing Rule 10.1 prohibits a listed entity from disposing of a substantial asset to an entity that is a substantial shareholder without the prior approval of its shareholders. A substantial shareholder includes a shareholder with a relevant interest in at least 10% of the issued voting shares in the listed entity. An asset is substantial if its value, or the value of the consideration being paid, is 5% or more of the listed entity s equity as set out in the latest accounts lodged with the ASX. Given the substantial nature of the 19.9% interest in Bass Strait Oil held by Cooper Energy, and the substantial nature of the assets involved, ASX Listing Rule 10.1 is deemed to apply to the Proposed Transaction. Under ASX Listing Rule , a notice of meeting containing a resolution being put to shareholders for the purposes of ASX Listing Rule 10.1 must be accompanied by an independent expert s report stating, in that person s opinion, whether or not the proposed transaction is fair and reasonable to the shareholders not associated with the transaction. Consistent with the requirement under ASX Listing Rule and to assist with the requirement under the Act to provide shareholders with all material information, the Directors of Bass Strait Oil have requested ResourceInvest Pty Ltd ( ResourceInvest ) to prepare an independent expert s report, the purpose of which is to provide an independent opinion as to whether or not the Proposed Transaction, is fair and reasonable to the Non-Associated Shareholders. The ASX Listing Rules do not define the term fair and reasonable and provide no direct guidance on what should be considered when assessing whether or not a particular transaction is fair and reasonable for the purposes of ASX Listing Rule The Australian Securities and Investment Commission has issued Regulatory Guide 111: Content of expert reports ( RG 111 ) which provides some direction as to what matters an independent expert should consider and how fair and reasonable should be interpreted in a range of circumstances. RG 111 states that in deciding on the appropriate form of analysis, an expert should bear in mind that the main purpose of the report is to adequately deal with the concerns that could reasonably be anticipated of those persons affected by the proposed transaction (i.e. the shareholders not involved in the transaction). A key consideration of the shareholders of a company entering into a substantial transaction with a substantial shareholder is, generally, whether or not they will be better or worse off because of the transaction. The primary rationale behind ASX Listing Rule 10.1 is to ensure, as far as practicable, that non-associated shareholders are no worse off because of a substantial shareholder transaction. It has long been accepted in Australian mergers and acquisitions practice that the words fair and reasonable establish two distinct criteria for an expert analysing a transaction: (a) is the offer fair ; and (b) is it reasonable? That is, fair and reasonable is not regarded as a compound phrase. In determining what is fair and reasonable in the context of a takeover bid, RG 111 states, inter alia, that: an offer is fair if the value of the offer price or consideration is equal to or greater than the value of the securities that are the subject of the offer; and Independent Expert s Report Page 8

17 an offer is considered reasonable if it is fair or, if the offer is not fair, it may still be reasonable after considering other significant factors which justify the acceptance of the offer in the absence of a higher bid. The Proposed Transaction is not a takeover bid, and hence the valuation of securities is not applicable. Consistent with RG 111 guidance, however, in assessing whether or not the Proposed Transaction is fair to the Non-Associated Shareholders we have considered the fair value of the 25.8% interest in Vic/P41 being acquired and the option to acquire 50% of Vic/P68 in terms of comparable transactions and perceived exploration risk. Fair value in this context is considered to be the consideration at which an asset could be exchanged between a knowledgeable and willing but not anxious seller and a knowledgeable and willing but not anxious buyer both acting at arm s length. 3 Overview of Bass Strait Oil Bass Strait Oil is an oil and gas exploration company focussed on South east Australia with permits in the offshore Gippsland Basin and the onshore Otway Basin (Figure 1). It has a small royalty interest from the Bass Basin. The company is listed on the ASX with a market capitalisation of $5.2 million and an enterprise value of $2.9 million. Figure 1. Bass Strait Oil permits map. Permit interests are shown in Table 2. Table 2. Bass Strait Oil permit interests. Independent Expert s Report Page 9

18 Basin Permit Interest % Offshore Gippsland Vic/P47 40 Vic/P Vic/P Vic/P Vic/P66 60 Onshore Otway PEP PEP PEP Offshore Bass T/L1 (Yolla Field) overriding royalty The Company s balance sheet for the past two years is shown in Table 3. Table 3. Bass Strait Oil Balance Sheet. 30 June $ million $ million Current Assets Cash and Deposits Receivables Other assets Non-Current Assets Exploration and evaluation Property, plant and equipment Intangible assets Total Assets Current Liabilities Payables Provisions Non-Current Liabilities Payables Net Assets Capital Shareholders Funds Reserves Retained earnings Total Equity Independent Expert s Report Page 10

19 Table 4 shows the distribution of exploration and evaluation expenditure from the 2013 balance sheet across the Company s permits, and demonstrates that Vic/P41 represents a substantial asset under the definition of Listing Rule Table 4. Exploration & evaluation expenditure 30 June Exploration & evaluation Share of Total Share of Net $ million Expenditure 2013 Assets % Assets % Vic/P Vic/P Vic/P Other Total Exploration & evaluation Total Assets Net Assets During the 2013 financial year: The Company placed 56.2 million shares at 1.5 cents per share to Somerton Energy Ltd, a wholly owned subsidiary of Cooper Energy Ltd for total proceeds of $843,089. The Company raised approximately $1,110,603 through a fully underwritten nonrenounceable entitlement issue of 74,040,192 shares. A Technical Services Agreement was executed with Cooper Energy to provide access to additional commercial and technical expertise, as required. This agreement allows Bass Strait Oil, at its sole discretion, to use Cooper Energy staff on a non-exclusive basis, at normal commercial rates. The Company increased its participating interest in Vic/P41 from 45% to %. Variations to work program commitments in Vic/P47 were granted. A re-assessment of the Judith gas resource in Vic/P47 was completed to incorporate new seismic inversion data. The Vic/P66 Joint Venture parties formally agreed to withdraw from the permit. The Company s Gippsland Basin permits are shown in Figure 2. Independent Expert s Report Page 11

20 Figure 2. Bass Strait Oil Gippsland Basin permits. 4 Overview of Farmout Permits 4.1 Vic/P41 The Vic/P41 permit is located on the northern margin of the Gippsland Basin (Figure 2 and Figure 3). The permit covers an area of 540 km 2 ; in water depths of metres. The permit was initially granted on 14 th May 1998 to Eagle Bay Resources NL (now Strategic Energy Resource Limited) for a term of 6 years. Bass Strait Oil and Moby Oil and Gas Ltd farmed into the permit by acquiring seismic data (2D and the Oscar 3D seismic survey) during the first permit term. It was renewed for a term of 5 years on 20 th September 2006, and Oil Basins Limited farmed in to the permit in August The permit entered its second renewal term of 5 years on 29 th November The current permit interests are Bass Strait Oil % and operator, Oil Basins % and Strategic Energy Resources 17.5%. The permit is currently in Year 2. The initial work programme for the second renewal is shown in Table 5. Independent Expert s Report Page 12

21 Table 5. Vic/P41 Initial second renewal work programme. Year of Permit term Permit Year Starts Permit Year Ends Minimum Work Requirements 1 29/11/ /11/2012 Geological and Geophysical Studies 2 29/11/ /11/2013 Acquire and Process 70 km 2 3D seismic 3 29/11/ /11/2014 Simultaneous Seismic Inversion & seismic interpretation Estimated Expenditure (indicative) $A 150, , , /11/ /11/2015 Drill one exploration well 30,000, /11/ /11/2016 Geological and Geophysical Studies 150,000 The permit second renewal application was submitted with the objective of the primary work program being to determine the highest ranked prospect for drilling a test of the Rosedale Fault/Golden Beach play in the permit area. In this regard the proposed work program was focused toward trying to mature Lead A (renamed the Stanton Lead) in the southwest area of the permit. As this was the only area of the permit not covered with 3D seismic data it was proposed to record 3D seismic data over the Stanton Lead in Year 2 of the program. Upon entering the renewal phase the Stanton lead was remapped and the key risk elements reviewed. Compared to the earlier assessment of the lead, this work highlighted the structural complexity of the feature and risks associated with reservoir quality, top and cross fault seal. The lead is located in water depths from 600 to 700 metres and is quite distant from existing infrastructure. In this setting the lead was not considered large enough to be commercially viable. In addition, a review of migration pathway maps demonstrated that there were no migration pathways from possible source kitchens into the Stanton Lead. Independent Expert s Report Page 13

22 Figure 3. Gippsland Basin permit Vic/P41. This new geological knowledge highlighted that the Stanton Lead could not be matured into a technically or commercially viable drillable prospect. The JV therefore changed the exploration strategy for the permit and applied for a variation in permit commitment, which was granted on 8 July 2013, and shown in Table 6. Table 6. Revised Vic/P41 work programme. Year of Permit term Permit Year Starts Permit Year Ends Minimum Work Requirements Estimated Expenditure (indicative) 1 29/11/ /11/2012 Geotechnical Studies 150, /11/ /11/ km 2 3D Seismic Reprocessing, Fault Seal and QI studies 3 29/11/ /11/2014 Geological and Geophysical Studies Independent Expert s Report Page 14 $A 850, , /11/ /11/2015 One (1) Exploration well 30,000, /11/ /11/2016 Geotechnical Studies 150,000

23 4.2 Vic/P68 Vic/P68 is located on the northern margin of the Gippsland Basin between two Bass Strait Oil permits, Vic/P47 and Vic/P41 (Figure 2). The permit was awarded to Bass Strait Oil in May 2012 for a six year period with a work programme as shown in Table 7, and is currently in Year 2. Vic/P68 is geologically diverse with elements of the basin s Northern Platform, Northern Terrace, and the deeper basin on the downthrown side of the Rosedale Fault System. Table 7. Vic/P68 work programme. Year of Permit term Permit Year Starts Permit Year Ends Minimum Work Requirements Estimated Expenditure (indicative) 1 4/5/2012 3/5/2013 Geotechnical Studies 250, /5/2013 3/5/2014 Geotechnical Studies 250, /5/2014 3/5/2015 Acquire and process 225 km 2 3D seismic data Secondary Term (Discretionary) $A 3,000, /5/2015 3/5/2016 Geotechnical Studies 250, /5/2016 3/5/2017 One (1) exploration well 20,000,000 4/5/2017 3/5/2018 Geotechnical Studies 250,000 5 Evaluation of the Proposed Transaction 5.1 Background to Farmout of Vic/P41 and Vic/P68 The joint venture has been attempting to Farmout Vic/P41 since May 2006 (as disclosed in Bass Strait Oil Annual Reports, , and various Bass Strait Oil and joint venture party ASX releases). The basic Farmout rationale has consistently addressed prospects associated with the downthrown Rosedale Fault Play which includes the Kipling, Benchley and Cotton prospects. In February 2009, an online data room was established through EZ Data Room, offering national and international access to Vic/P41 data. In May 2010, Oil Basins was appointed by the Joint Venture to act as agent and manage the farmout process. In March 2011, letters were sent to 21 companies seeking farmin expressions of interest. In August 2012, Bass Strait Oil appointed a specialist Oil and Gas industry farmout and divestiture company, Schlumberger IndigoPool, to seek industry interest in Vic/P41 and Vic/P68 (and its other Gippsland Basin permits) both nationally and internationally. Both physical and online data rooms were set up for interested parties to interrogate all relevant technical data. Independent Expert s Report Page 15

24 Of the 88 companies contacted by IndigoPool, 20 failed to reply, 58 declined the offer, and 10 expressed initial interest, and of these 8 proceeded to sign a Confidentiality Agreement in order to review the data. One company made a short visit to the Bass Strait Oil data room and then declined the opportunity. Another company requested the full dataset. In summary, over a six year period of seeking farmin interest, only Cooper Energy has made an offer to proceed. 5.2 Previous valuations In December 2011 Bass Strait Oil commissioned PetroVal Australasia Pty Ltd (PetroVal) to provide an assessment of the underlying asset value of the Company following an unsolicited approach by a third party relating to a possible corporate action. This valuation was thus commissioned in the context of a possible defence strategy. The valuation of Bass Strait Oil s then 45% interest in Vic/P41 was given as between $3 million and $6 million based on a farmout methodology for the drilling of one $30 million exploration well. This implies a value of between $66,666 and $133,333 per percentage point for the permit. Having due consideration to the fact that no current farmin is envisaged that will involve the drilling of an exploration well; that the valuation is almost two years old; and that it was prepared for a possible corporate defence, we have not relied on this valuation in the current assessment. 5.3 Recent transactions Moby Oil & Gas Limited On 4 March 2013, Moby Oil & Gas Limited (Moby) impaired Vic/P41 and sought to assign their permit interest to the other participants in the joint venture. On 21 March 2013 Moby announced it had negotiated final terms on which to dispose of its 25% interest in the joint venture and the permit to Oil Basins. Bass Strait Oil subsequently exercised its pre-emptive rights in relation to this interest, and the Moby interest was divided on a pro rate basis between Oil Basins and Bass Strait Oil. The consideration paid to Moby for their interest was a nominal sum ($1). The only benefit to Moby from the transaction was relief from future exploration expenditure. That is, this transfer of interest was made without any promote or significant consideration. We note that the PetroVal valuation was publicly available at the time of this transaction yet appears to have had no bearing on the consideration. 5.4 Other transactions There has been little recent farmin activity in the offshore Gippsland Basin, or regionally, that can offer directly comparable transactions, but we consider three previous transactions Gippsland Basin Hibiscus Petroleum Berhad (Hibiscus) of Malaysia completed its farmin to Vic/P57 containing the West Seahorse field in January This is an oil development project and not an exploration farmin and cannot be considered comparable. Independent Expert s Report Page 16

25 5.4.2 Otway Basin Vic/P67 In September 2013 WHL Energy Ltd (WHL) signed a farmout agreement with AWE Limited (AWE) to earn a 60% equity in permit Vic/P67 in the offshore Otway Basin by funding a 3D seismic survey up to a cost cap of US$9 million. This implies a simple farmin metric of US$150,000 (~A$160,000) per percentage point (US$9 million / 60%), for the permit. In October 2013 Tap Oil agreed to pay up to a maximum of US$2.95 million for an option to acquire an initial 10% interest in the same permit. Vic/P67 contains the 1993 La Bella gas discovery, which is estimated by WHL to contain a 2C Contingent Resource of 114 Petajoules of gas and 1.4 million barrels of condensate, with adjacent leads. This permit must be considered far superior to Vic/P41 at current levels of evaluation Vic/P62 In November 2011, Singapore based Loyz Energy Ltd (Loyz) farmed into Vic/P62 in the Torquay Subbasin in a staged farmin that included a cash payment of $650,000 to earn a 20% interest, followed by the funding of a 3D seismic survey to earn a further 50% interest. The initial purchase implies a value of $32,500 per percentage point. We are not aware of further costs incurred by Loyz but estimate that the total farmin transaction may imply a simple farmin value of ~$100,000 per percentage point. 5.5 Advantages to Bass Strait Oil of Proposed Farmout As noted in Table 1, the proposed farmout will provide a benefit equivalent to some $400,000 to Bass Strait Oil with respect to Vic/P41, which covers more than 70% of the Company s Year 2 commitment in that permit. The cash equivalent benefit of $465,000 in Vic/P68 exceeds the Year 2 commitment in that permit. The proposed farmout relieves Bass Strait Oil from expenditure of approximately $865,000 and largely meets annual permit commitments on the two permits. This sum is equivalent to 38% of the Company s cash resources reported at 30 June The cost of this benefit is the 40% dilution of the Company s interest in Vic/P41, and its possible 50% dilution in Vic/P68. The only alternative funding to meet this expenditure, while preserving the Company s existing cash balance, is to raise further capital. Applying similar share price discounts and costs that applied in the 2012 share placement, it is likely that the Company would be required to raise $900,000 at approximately 0.8 cents per share. A placement of this size would dilute all existing shareholders by about 20% across all Company assets. We consider the proposed farmout a preferred use of capital. 6 Conclusion In arriving at our opinion we have considered the following: The Cooper Energy farmin proposal offers a well-considered technical work programme that addresses the exploration requirements of Vic/P41 and surrounding area. The terms of the proposed farmin are modest but reflect the exploration risk associated with the prospects. The offshore Gippsland Basin is a relatively mature exploration province undergoing production decline, and attracting little current exploration interest. Exploration targets are being considered at deeper levels in the geological section, well below the highly productive top Latrobe Group oil and gas fields that have produced for up to forty years. Productive Independent Expert s Report Page 17

26 analogues for this deeper section do exist, but their exploration requires more sophisticated geophysical techniques than employed in the past. Prospects at this deeper level are likely to have greater risk associated with structural integrity and reservoir-seal morphology. Undertaking a share placement to raise equivalent funding would disadvantage Non Associated Shareholders compared with accepting the Proposed Transaction. Specifically, we also considered the following: 6.1 Vic/P41 The Cooper Energy farmin terms fall below the previous expectations of Bass Strait Oil and the joint venture in that no back cost reimbursement is envisaged and the scope of work, while technically justified, is not a large monetary commitment. On a simple farmin metric Cooper Energy is paying an estimated $398,366 to earn 25.8% in Vic/P41, or ~$15,400 per percentage point. This is around 10% of the level AWE is paying to enter Vic/P67 which contains an existing gas discovery with attributable Contingent Resources. Moby Oil was prepared to relinquish its interest for a nominal consideration. Over more than a six year period, no other offers to farmin to Vic/P41 have been received, despite active farmout attempts through a number of avenues. We are not aware of any other likely bidders for Vic/P41. We believe that the length of time taken to achieve a farmin offer reflects the industry s perception of the exploration risk associated with Vic/P41. This perception has had a negative impact on value. If a similar offer had been received through the IndigoPool farmout process from a nonsubstantial shareholder, we believe Bass Strait Oil would likely have accepted it. 6.2 Vic/P68 This is a recent permit with low exploration commitments. Exploration of this permit is considered high risk. 7 Opinion On the basis set out above we consider that the Proposed Transaction is fair. Consistent with RG111 the Proposed Transaction is also, therefore, reasonable. Thus, our view is that the Non Associated Shareholders are not being disadvantaged by the proposed farmin by Cooper Energy to a 25.8% interest in Vic/P41, with the option to farmin to 50% of Vic/P68. Independent Expert s Report Page 18