TABLE OF CONTENTS

1. HOLE SUMMARY

2. HOLE DESIGN

2.1 FLUID PROGRAMME

2.2 EVALUATION PROGRAMME

2.3 REPORTING

2.4 WELL TESTING

2.5 WIRELINE LOGGING PROGRAMME

3. COMPLETION DIAGRAM

4. WORKPLACE HEALTH AND SAFETY

5. CONTACT PHONE/FAX/EMAIL NUMBERS

APPENDIX 1

JSEA (RISK ASSESSMENT)

1. KOGAN NORTH-35 Production Hole SummaryTenure: PL 194

Map Sheet: Kogan 1:100,000.

Latitude/Longitude: 27 04’ 35 ”S 150 54’ 47”E (GDA 94, Zone 56)

Easting/Northing: 293 063 E 7 003 388 N (GDA 94, Zone 56)

Elevation: 335mLandholder: Peabody (Wilkie Creek)

Tim Bartholomew 07 4663 5555

Nearest Town: Kogan (15km W)

Nearest Road: Dalby-Kogan Rd

Directions to proposed drill sites:

Head west along the Dalby Kogan Road from Dalby (Travel via Old Warrego Highway) Turn right onto Youngs Road (approximately 20km along Old Warrego Highway) Travel along road and go through fenceline towards entrance to Kogan North field on left. Contact Jason Shroeder for access and directions on 0427 691 116

Nearest Wells: Kogan North-3 (Arrow CSG Corehole) Kogan North-15 (arrow development hole) Kogan North-14 (arrow development hole)

Surface Casing Depth: 200m (Top production zone)

Main Target: Iona - Argyle coals

Estimated Total depth: 420m

Net Coal thickness expected: 10m (Beneath casing shoe)

Reason for Drilling well: Drill Kogan North-35 to evaluate water and gas production ratesof the Taroom coal interval

Drilling Contractor:Johnson Drilling Rick Johnson (0428 223 566)

Geophysical wire line logging:

Australian Logging Services (Auslog) 9/29 COLLINSVALE STREET ROCKLEA QLD. 4106(07) 3277 4671 Phil Andrews

Surveyors:

M.J. Hedges Geomeasure Pty. Ltd. 16 Vanessa BoulevardPO Box 103Springwood QLD. 4127(07) 3208 6566 Michael Bessen

Earthmovers:

Bruhl Roadworks and Earthmoving 24 Wilson stTara

07 4665 3391 or 0429 653 391

Contract Wellsite Geologists:

Triassic Geological Solutions Pty Ltd 25 Linden CourtMorayfield QLD. 4506(07) 5498 5568 Tony Kurtz

Figure 1: Kogan North Development Location Map

Kogan North-35

Figure 2: Location of Kogan North-35

50m Ignition Exclusion Zone

Kogan North Drill Site Layout

Area to Be Clear

Spoil Heap

46m (Min)

Flare Pit

Spoil Heap / Berm

PitsMud

Mud TanksRods Handling Area

RigDrillers Workshop, Smoking Area andParking Area

Fuel Bund

Figure 3: Example of a drill site setup for Arrow’s drilling program. Flare pit must be a minimum of 150ft from drilling rig floor.All persons entering within 50m Ignition Exclusion Zone must complete the Arrow Energy Site Specific Drillsite Induction and the Mitchell Drilling Rig 101 Generic Induction available at the site office.

2. Hole Design

The following is a guide for drilling the production well. The actual work carried out may be contingent on the results during drilling and any subsequent special instructions. In the absence of any special instructions, use the guide below.

Drilling programme is as follows:

The proposed drilling procedures are as follows:

Ensure all personal who are to go onsite have received Peabody general inductions

Survey and clear wellsite as per drill site preparation procedures

Site preparations, including mud pits, a flare pit and cellar, as required by drilling rig.

Ensure that the flare pit is a minimum distance of 150ft from the well. Site offices and

parking areas should also be 50m from the well.

Mobilisation of drilling rig, necessary equipment and personnel to the well site

Establishment of all equipment

Drill 12 1/4” (311.15mm) hole with mud to the top Iona (200m)

Deviation surveys are to be run as directed by Arrow Energy Representative (after

18m then at 36m intervals depending on results) Deviation is to be less than 3° Run and cement API 5LB 10 3/4” (273.1mm OD x 9.3mm WT) surface casing to casing

depth using a minimum of 30 - 50% excess cement or as advised by the Arrow Principal

Drilling Engineer

Weld on 10” well head to casing

Equip well with blow-out prevention devices and a flare line. Pressure test BOP system to

350PSI for 10 minutes, then 750PSI for 15 minutes. The operator of the BOP must be

ticketed, and must be witnessed by the Arrow site representative.

Drill 9 7/8” hole with mud to the top production zone (310m)

Deviation surveys are to be run as directed by Arrow Energy Representative (after

18m then at 36m intervals depending on results) Deviation is to be less than 3° Run all wireline logs (as per wireline logging program) over production zone and ensure

gamma and density are run from TD to surface. Run deviation survey.

Run and cement 6 5/8” intermediate casing from surface to casing depth using a

minimum of 30 - 50% excess cement or as advised by the Arrow Principal Drilling

Engineer

Weld on 6” well head to casing

Equip well with blow-out prevention devices and a flare line. Pressure test BOP system to

350PSI for 10 minutes, then 750PSI for 15 minutes. The operator of the BOP must be

ticketed, and must be witnessed by the Arrow site representative.

Drill 5 7/8” hole through Taroom Coal interval with a 30m sump (TD Expected ~420m) with

formation water

Deviation surveys are to be run as directed by Arrow Energy Representative at

36m intervals depending on results Deviation is to be less than 3°

At TD, POOH and perform Wiper Trip making sure all cuttings are out and hole is clean.

Run all wireline logs (as per wireline logging program) over production zone and ensure

gamma and density are run from TD to surface. Run deviation survey.

Under-reaming to be carried using Air and Foam only with 16” underreamer to ream

coal intervals, then

Hole is to be barefoot completed without gravel pack unless otherwise directed by Arrow

Energy N.L.

Hydraulic Jetting & Well Stimulation MethodologyThe jetting tool is rotated at a speed less than ten (10) rpm. The jetting tool is positioned at one level for not less than two minutes and then moved to the next level which should be no more than 6-10 inches vertically from the preceding jetting level. Jetting proceeds from the bottom of the production casing/ liner to the top.

NB: Any modifications MUST be first discussed with the Arrow Energy Principal Drilling Engineer. Subsequently, such modifications must be fully documented.

Flow test well and take water samples if required

After well has been completed, allow well to fill with formation water. Hole is to

be completed as depicted in Figure 4.

Install remaining head fittings

Rig down and rehabilitate site as instructed by Arrow Energy

2.1 Fluid programme

The hole will be drilled using drill mud to reach the surface casing point. If the well is affected by

swelling clays then a KCl mixture (maximum of 3% KCl) is recommended. Below the surface

casing point, the 9 7/8” & 5 7/8” hole will be drilled using formation water. Underreaming of coal is

to be conducted using 16” reamer using air and foam only.

2.2 COMPLETION DIAGRAM

Figure 4: Well Completion diagram for Kogan North-35

Table 1: Predicted Formation Tops for Kogan North-35

Formation Predicted Top (m below Ground

Surface)

Alluvials 0

Springbok 20

Kogan 50

Macalister 85

Wambo 180

Iona 220

Argyle 270

Taroom 320

TD 420

2.2 Evaluation programme

1. Gas levels will be recorded using the VRAE gas monitor and mud agitator system. All gas data to be unloaded at end of shift and forwarded to Arrow Operations Geologists.

2. Chips will be laid out in 3m samples by the drill contractor on a plastic tarp to facilitate logging and sampling or otherwise as directed by the Wellsite geologist.

3. Chips will be collected at 6m intervals through the Springbok Sandstone and at 3m intervals through the Walloon Coal Measures until TD. Chips should be washed, dried and stored.

4. Deviation surveys are to be conducted at 20m intervals below casing shoe. Hole should not deviate more than 3.

5. Australian Logging Services (ALS) will run wireline logs on the well with a minimum suite of gamma, density, caliper, deviation, and sonic (SP/PR, EAL/LN/SN and neutron optional).

6. Well to be flow tested at completion or at a later date. Gas and water samples are to be taken for analysis.

7. Water samples to be taken in 1L bottles at any intersected water flows. Samples to be adequately labelled with well, depth, and date of collection and name of geologist who sampled water

2.3 Reporting

Daily drilling reports will be sent to the Arrow office, then forwarded to Arrow Energy’s Board Members, DNR & M State Mining Engineer, and the Person-in-charge at the end of each day. Suitable communications will be established from the well site as well as the motel. The report will contain:

Well name

Date

Current depth and meters drilled today

Current operations summary

Next 24hrs operations summary

Detailed description of the days operations

Chip/core descriptions

Wellsite geologist interpretation of results so far

Gas readings

Foreseeable problems

Wellsite geologist name and contact number

Drillers name and contact number

The report will be sent to the following people:

Nev Robinson Arrow Energy N.L. nrobinson@arrowenergy.com.au

Damir Horvat Arrow Energy N.L. dhorvat@arrowenergy.com.au

Michael Oberhardt Arrow Energy N.L. moberhardt@arrowenergy.com.au

Darren Holden Arrow Energy N.L. dholden@arrowenergy.com.au

Brad Pinder Arrow Energy N.L. bpinder@arrowenergy.com.au

Paul Boland Arrow Energy N.L. pboland@arrowenergy.com.au

2.4 Well Testing

Well will be flow tested at or after completion with water and gas samples being taken for testing. If significant gas flow is recorded, sample gas using 5L silver bladders.

2.5 Wireline Logging Programme

Australian Logging Services (ALS) will run wireline logs on the well with a minimum suite of gamma, density, caliper, deviation, and sonic (SP/PR, EAL/LN/SN and neutron optional).

Results are to be saved in LAS format. All logs are to be combined into one file and forwarded to Arrow Energy N.L. Brisbane office. A printout of the logs should be completed in the field.

3. WORKPLACE HEALTH AND SAFETY

Prior to commencement of the drilling program, the drilling contractor is to provide a CD ROM with a copy of its OH&S Manual, Drilling Procedures Risk Management Manual, and SOPs together with a list of all employees, sub-contractors and staff anticipated to work on the drilling operation together with legible copies (or scanned onto CD) of evidence that all have been trained in the contractor company’s OH&S Safety Management System and Risk Management System (signed certificates etc.), vehicle licenses, industrial inductions, plant and vehicle use training (drilling qualifications/experience, Hiab, crane etc). Drillers are required to have a current Senior First Aid Certificate and BOP training certificate so that at least one qualified Senior First Aider and BOP trained driller shall be on the rig for each shift.

The drilling contractor and crew should be aware of the risk assessment carried out for this drill hole by Arrow prior to commencing drilling operations. The risk assessment is found on the last page of this document in Appendix 1.

All Arrow staff and contractors working on the drill site shall complete the Arrow Energy NL Drill Site Induction Course, sign the Drillsite Induction Register, and must be familiar with Arrow’s Occupational Health and Safety Policies and Procedures Manual located within the site hut.

All contractors are to attend a weekly safety meeting to discuss safety matters. A copy of minutes and a dated and signed attendance record must be provided to the Arrow Site Supervisor after each site safety meeting.

Prior to the rig moving on site, the drilling contractor representative and the Arrow site representative are to agree on a site layout plan in accordance with Arrow’s site requirements. This is to determine the appropriate location for the site office, site entrance and formal smoking area, all to be located outside the 50m ignition exclusion zone.

The Field Pre-drilling and Safety Checklist is to be completed by the Arrow Energy representative prior to site setup and drilling.

The following is a list of key instructions that must be followed:

o Arrow have now implemented a total smoking ban on all drilling sites while the rig is on site within 50m of the rig and in the Arrow site office. That means no smoking or ignition sources are allowed within 50m of the rig. All ignition sources including cigarettes, matches and cigarette lighters are to be left at the site hut and are not allowed within the 50m ignition exclusion zone.

o Anyone caught smoking within the 50m ignition exclusion zone will be dismissed from site. If the removal of a worker from site (for a smoking breach) results in a perceived unacceptable safety risk, the client Site Supervisor is authorised to shut down the rig at the contractors expense until such time that a replacement contractor is supplied on site. Smoking is allowed behind the site hut in the designated smoking area only.

o PPE to be worn at all times – including hard hats, steel capped boots, eye protection (safety glasses) and long sleeve shirts and pants. Ear protection is to be worn when working in the vicinity of operating drill rigs and compressors.

o All staff and contractors are to sign the Personnel Movements Register daily when they arrive on site and depart from site.

o All visitors must go immediately to the Site Office and sign the Visitors Register on arrival and on departure from the site.

o Visitors who wish to access the site within the 50m ignition exclusion zone must complete the Drill Site Induction Course and sign the Drillsite Induction Register

o No hot work is to be commenced without a Hotwork Permit.o All persons entering property must have a “Right of Entry on Land Form”.

4. CONTACT PHONE/FAX/EMAIL NUMBERS

Service

Emergency Services

Contact Number

000

Arrow EnergyPerson-in-charge Nick Davies Office (07) 3303 0650

Fax: (07) 3303 0651Mob: 0427 015 147

Email: npdavies@arrowenergy.com.au

Arrow Energy Nev Robinson Office: (07) 3303 0650Mob: 0409 848 663

Chris Tedman-Jones Office: (07) 3303 0650Mob: 0428 193 959

Kent Anson Office: (07) 3303 0650Mob: 0411 044 015

Damir Horvat Office: (07) 3303 0650Mob: 0429 490 014

Johnson Drilling Rick Johnson 0428 223 566

Australian Logging Services Phil Andrews (07) 3277 4671

Peabody (Wilkie Creek) Tim Bartholomew (07) 4663 5555

APPENDIX 1 – JSEA (Job Safety and Environmental Analysis (Risk Assessment based)

Task Description of Task

Tools, equipment PPE

Hazards within the task Raw Risk Controls Residual

Risk

Extended history of drilling of a number of wells by Arrow within the Springbok Formation and top of Walloon Coal Measures without recorded significant gas flows or “gas kicks”;

1.

Drill through Springbok Fm and Walloon Coal Measures to the Iona package and setting casing prior to installation of BOP for drilling production zone

Petroleum gas drilling rig and support equipment

Uncontrolled gas flows 19

Extended history of drilling of a number of wells by petroleum and coal exploration companies within the Springbok Formation and top of Walloon Coal Measures without recorded significant gas flows or “gas kicks”;

Experience-based knowledge of the Walloon Coal Measures production zone allowing controlled drilling to nominated depths within the Walloons;

10

Drill well overbalanced;

Additional mud stocks maintained on site;

2.

Drilling through potentially gassy coal sequence to TD

Rig, BOP Gas blowout from coal 14

Use BOP rated and tested to at least 750 PSI (Hydrostatic Pressure at estimated TD + margin)Monitoring of mud pit levels to

10

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Task Description of Task

Tools, equipment PPE

Hazards within the task Raw Risk Controls Residual

Riskdetect any influx into well

Gas leaking from mud into air around rid causing fire hazard 9 Continuous gas monitoring,

eliminate ignition sources 6

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