REX INTERNATIONAL HOLDING LIMITED UNLOCKING VALUE ANNUAL REPORT 2017 CONTENTS 01 CORPORATE PROFILE 22 RESERVES AND RESOURCES 02 GROUP CORE STRUCTURE 23 OPERATIONS REVIEW 03 FINANCIAL HIGHLIGHTS 30 FINANCIAL REVIEW 04 LETTER TO SHAREHOLDERS 32 INVESTOR RELATIONS 08 CORPORATE DATA 33 SUSTAINABILITY REPORT 09 BOARD OF DIRECTORS 41 CORPORATE GOVERNANCE REPORT 12 SENIOR MANAGEMENT - CORPORATE 80 FINANCIAL STATEMENTS 15 SENIOR MANAGEMENT - OPERATIONS 173 STATISTICS OF SHAREHOLDINGS 17 REX TECHNOLOGIES 175 NOTICE OF ANNUAL GENERAL MEETING 20 MILESTONES PROXY FORM QUALIFIED PERSON'S REPORT SPONSOR STATEMENT This Annual Report has been prepared by the Company and its contents have been reviewed by the sponsor, PrimePartners Corporate Finance Pte. Ltd. (the “Sponsor”) for compliance with the Singapore Exchange Securities Trading Limited (the “SGX-ST”) Listing Manual Section B: Rules of Catalist. The Sponsor has not verified the contents of this Annual Report. The Sponsor has also not drawn on any specific technical expertise in its review of this Annual Report. This Annual Report has not been examined or approved by the SGX-ST. The Sponsor and the SGX-ST assume no responsibility for the contents of this Annual Report including the accuracy, completeness or correctness of any of the information, statements or opinions made or reports contained in this Annual Report. The contact person for the Sponsor is Ms Jennifer Tan, Senior Manager, Continuing Sponsorship (Mailing Address: 16 Collyer Quay, #10-00 Income at Raffles, Singapore 049318 and E-mail: [email protected]). CORPORATE PROFILE Rex International Holding’s key differentiator from other exploration and production (“E&P”) companies is its proprietary liquid hydrocarbon indicator Rex Virtual Drilling. Rex International Holding Limited ("Rex International Holding", or the "Company", and together with its subsidiaries, the "Group") is an oil exploration and production company that owns a set of proprietary and innovative exploration technologies, Rex Technologies, developed by the Company’s Swedish founders. These include the liquid hydrocarbon indicator Rex Virtual Drilling technology, which can identify the location of oil reservoirs in the sub-surface using seismic data. Rex Virtual Drilling, the Group’s key differentiator, has been used to grow and de-risk Rex International Holding’s portfolio of exploration and development assets. Since the Company’s listing in July 2013, the Group has achieved two discoveries, one each in Oman and Norway. The Group also offers Rex Virtual Drilling screening services to other oil exploration companies as an additional tool to increase the success rate of finding oil. Rex International Holding's interests are in key assets in Oman and Norway, covering an aggregate area of over 18,000 square kilometres. The Company was listed on the Singapore Exchange Securities Trading Limited’s Catalist Board on 31 July 2013. VALUES VISION INNOVATION INTEGRITY ENTREPRENEURSHIP To be a leading Game-changing, Trustworthy in both Our forward-looking, agile independent E&P company environmentally-friendly words and actions, in all and entrepreneurial team that has an international technologies that will business dealings. aims to create value for all portfolio of concessions transform oil exploration stakeholders. which has been selected and production using the Group's game- practices. changing, eco-friendly and proprietary suite of Rex Technologies. Rex 1 International Holding Limited GROUP CORE STRUCTURE REX INTERNATIONAL HOLDING LIMITED TECHNOLOGY SERVICES REX TECHNOLOGY MANAGEMENT LT D 100% EXPLORATION & PRODUCTION CORE AREAS LIME PETROLEUM MASIRAH AS OIL LTD 90.00% 92.65% 6 offshore concessions 1 offshore concession NORWAY OMAN OTHER INVESTMENTS STEELDRUM OIL COMPANY INC. 25.72% 3 onshore concessions TRINIDAD & TOBAGO All percentages represent effective equity interest in significant and core entities held by the Group as at 8 March 2018. Annual Report 2 2017 FINANCIAL HIGHLIGHTS GROUP US$'000 FY2017 FY2016 Revenue 356 350 Loss for the year, net of tax (8,931) (31,739) Total comprehensive loss for the year, net of tax (8,636) (30,458) Loss per share (US cents) (0.67) (2.33) US$'000 31 Dec 2017 31 Dec 2016 Non-current assets 83,997 70,128 Current assets 57,613 90,139 Total assets 141,610 160,267 Non-current liabilities 13,098 11,402 Current liabilities 3,358 15,429 Total liabilities 16,456 26,831 Net asset value (“NAV”)* 125,154 133,436 Total equity 125,154 133,436 NAV per share (US cents) 9.75 10.53 * NAV as disclosed above includes non-controlling interests. Rex 2 3 International Holding Limited UNLOCKING VALUE has been increasing for the last eight years in a row.3 In its January 2018 monthly report, the US Energy Information Administration (EIA) raised its 2018 world oil demand growth forecast by 100,000 barrels per day (bpd) from its previous estimate. The EIA forecast 2019 world oil demand to hit 101.76 million bpd, up 1.65 million bpd from 2018.4 The renewed bullish sentiment could well be a signal that a sustained rebalancing of supply and demand of oil is on the horizon. Rex International Holding continued to progress on its activities in its key assets in Oman and Norway during 2017. For the financial year ended 31 December 2017 (“FY2017”), the Group recorded a total comprehensive loss of US$8.64 million, a significant reduction from a total DEAR SHAREHOLDERS, comprehensive loss of US$30.46 million in the financial year ended 31 December 2016 (“FY2016”), due to lower Oil prices remained volatile for much of 2017 but rallied impairments and administrative costs in FY2017. As at in the last week of the year, on the back of an extension in 31 December 2017, the Group has US$45.27 million in supply curbs implemented by the Organization of Petroleum liquid assets comprising cash, cash equivalents and Exporting Countries (OPEC) and other producing nations in quoted investments. November 2017, and the fall in US crude stockpiles to their lowest level since October 2015. The oil price swings during VALUE CREATION STRATEGY IN NORWAY 2017 tracked global events such as Hurricane Harvey, supply Rex International Holding has adopted a technology and disruptions in Libya and Kurdistan and the Forties pipeline infrastructure-led strategy in Norway. The Group’s discovery shutdown in the UK North Sea.1 in Rolvsnes (previously known as Edvard Grieg South) in licence PL338C in Norway is located near to Johan As at January 2018, oil prices were at the highest closing Sverdrup, one of the five largest oil fields on the Norwegian levels since December 2014 and within close range of continental shelf with expected resources of between prices last seen on 28 November 2014, the day after 1.9 to 3.0 billion barrels of oil5, and adjacent to the OPEC's fateful decision not to cut production to stamp out producing Edvard Grieg and Ivar Aasen fields with estimated a global oil glut and slide in prices.2 World demand for oil combined reserves of some 400 million barrels of oil6 . 1Bloomberg, “OPEC wins over investors for most bullish start of year ever”, 30 December 2017 2 CNBC, “Oil prices are close to levels not seen since the Thanksgiving 2014 bloodbath”, 10 January 2018 3 Bloomberg and IEA data 4 Reuters, “US EIA lifts 2018 world oil demand growth forecast”, 10 January 2018 5 Source: https://www.statoil.com/en/what-we-do/johan-sverdrup.html 6 Sources: https://www.lundin-petroleum.com/eng/development_EdvardGrieg.php; http://www.akerbp.com/en/production-started-at-the-ivar-aasen-field/ Annual Report 4 2017 Rex 4 5 International Holding Limited Rex Virtual Drilling (“RVD”) has been used to select and build unrisked) in the entire concession were estimated to be a cluster of licences in this oil prolific area that already has about 4.7 billion barrels of oil equivalent by Aker Geo and pipeline infrastructure in place, allowing a fast-track path to Pareto Asia (28 February 2012). potential commercialisation and return on investment from existing oil discoveries. MARKETING REX VIRTUAL DRILLING AS A DE-RISKING TOOL In 2017, development feasibility studies were being carried Rex International Holding’s core competence remains in out on the Rolvsnes discovery. Another well is scheduled to the technology arena, its proprietary liquid hydrocarbon be drilled by the end of the second quarter of 2018 to better indicator RVD being the cornerstone of its suite of understand the reservoir. If drill stem tests are positive, the technologies. The Group’s original business model at its well will be tied back to the Edvard Grieg platform for test listing had been to use RVD to identify oil-in-the-ground production in 2020. Subsidiary Lime Petroleum AS (“LPA”), in its own assets, validate the RVD results through oil in which the Group has a 90.0 per cent effective interest, discoveries and monetise by, amongst others, selling oil- holds a 30 per cent stake in the licence. in-the-ground. This business model had to be changed to adapt to the new normal of a much lower oil price operating TARGETING PRODUCTION IN OMAN environment from the highs of more than US$100 per barrel In May 2017, the Group completed the drilling of the of oil, where demand for oil-in-the-ground had been muted. Karamah#1 exploration well in Block 50 Oman. Hydrocarbon Efforts have been stepped up to build a recurring revenue shows were found in several stratigraphic zones in the stream by actively marketing RVD scanning services to a well. An extensive logging programme was conducted wider group of oil exploration companies, on top of using throughout the target intervals. All these further proved the RVD primarily to de-risk the Group’s own assets. prospectivity and active petroleum system in the vast block.