ATP 790P ‘DAANDINE’

ANNUAL REPORT TO 31 OCTOBER 2005

Level 13, 10 Eagle Street, Brisbane QLD 4000, Australia GPO Box 5262, Brisbane QLD 4001, Australia

Telephone: 61-7-3105 3400 Facsimile: 61-7-3105 3401 Email: geolservices@arrowenergy.com.au

CONTENTS

1.0 INTRODUCTION 1

1.1 Location & infrastructure 1

1.2 Tenure details 1

1.3 Exploration concept 1

2.0 REGIONAL GEOLOGY 2

2.1 Paleozoic basement 2

2.2 Bowen Basin 3

2.3 Jurassic-Cretaceous basins 4

2.4 Surat Basin 5

3.0 PERMIT GEOLOGY 8

3.1 Walloon Coal Measures 8

3.2 Precipice Sandstone 8

4.0 CONVENTIONAL EXPLORATION & 10PROSPECTIVITY

4.1 Previous company exploration 10

4.2 Trap 12

4.3 Charge 12

4.4 Reservoir 13

4.5 Seal 13

4.6 Discussion 14

5.0 COAL SEAM GAS EXPLORATION 15

FIGURES

1 Location & infrastructure

2 Graticular Blocks

3 Regional Structure

4 Regional Stratigraphy

5 Walloon CM Stratigraphy

6 Regional Geology

7 Exploration

APPENDIX

COMPOSITE WELL LOGS DAANDINE 1, 2, 3, 4, & 16

1.0 INTRODUCTION

1.1 Location & Infrastructure

ATP 790P is located 17 km west of Dalby. The northern part of the Permit includes a portion of the high pressure gas pipeline connecting Roma to Brisbane, and the area is also serviced by a main rail link and the Warrego Highway which is the principal inland route to western and northern Queensland.

Important areas of population occur at Dalby and Chinchilla, with industrial development taking place at Dalby. Significant coal deposits occur at Kogan Creek, Glen Wilga, and Wilkie Creek, and a 750 MW coal fired power station is planned at Kogan Creek, to become operational in 2007 (Fig 1).

1.2 Tenure details

ATP 790P consisting of 3 blocks was granted to Arrow Energy NL (100%) on 1 November 2004, and expires 31 October 2008 (Fig 2).

After the application for 790P was lodged, but before it was granted, the area was overpegged by EPC 899. This EPC, granted after ATP 790, is owned by Linc Energy, a company intending to extract petroleum from coal seams under the Mineral Resources Act, by the experimental Underground Coal Gasification method.

The government has therefore granted title in the same resource, ie petroleum contained within coal seams, to two different entities, under two different pieces of legislation. This is an unacceptable situation that requires legislative intervention to ensure security of title to the earliest title holder.

PL 230 occupying the northern half of the permit has been granted effective from 19 December 2005.

1.3 Exploration concept

The permit was applied for to assess the coal seam gas (CSG) potential of the mid Jurassic Walloon Coal Measures which extend through the permit.

Within the permit coals attain sufficient thickness and gas content to allow commercial production of methane gas. PL230 has been applied for over the northern part of the permit, and development drilling is underway.

- 1 -

""0000' '

ATP 790P 'DAANDINE' LOCATION &

INFRASTRUCTURE

Z:\arrow\676\Admin\DNRM Reports 7 December 2004 FIG 1

-26°40' 00"

CHINCHILLA

JANDOWAE

-26°50' 00"

Gleen Wilga coall depposit (not minedned)

WARRA

Kogan Ck 750 Mw power

-27°00' 00ss"sttaattiioonn ddeevveellopopmemenntt

WWililkkiiee CCkk ccooaall ddeepopossiitt ((mined)ed)

KOGAN

-27°10' 00"

DALBY

-27°20' 00"

0 5 10

KILOMETRES

15 20

150°

40'

150°

50'

151°

00'

""0000' '

-26°55' 00"

-27°00' 00"

-27°05' 00"

2676 2677

-27°10' 00"

2749

-27°15' 00"

0 2 4 6 8 10

KILOMETRES

-27°20' 00"ATP 790P 'DAANDINE'

BLOCKSBIM: BRISBANE

Z:\arrow\790\Admin\DNRM Reports 20 December 2005 FIG 215

0°50

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150°

55'

151°

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2.0 REGIONAL GEOLOGY

2.1 Paleozoic basement

South East Queensland consists of several fault bounded basement blocks and exotic terranes of late Paleozoic age, intruded by Permian and Triassic granitoid plutons and covered by Triassic to Jurassic and Tertiary intra- cratonic sedimentary basins (Fig 3). These rocks form part of the New England and Yarrol Orogens.

The present day New England Orogen extends for 1500 km from Newcastle to Bowen, and is bounded to the west by the Hunter-Mooki-Goondiwindi Fault System. This fault system is interrupted by the north east striking Undulla Fault, and re-commences northwards as the Burunga Fault. Groundwater geochemistry within PLA 185 northwest of ATP790 indicates the presence of a deep seated fault, and it is likely that the Undulla Fault continues as far as the Condamine River (which may itself be fault controlled).

From the Cambrian Eastern Australia was an active plate margin, although the present tectonic pattern dates principally from the Devonian. During early Devonian to Carboniferous times the region was dominated by a westward dipping subduction zone with a forearc basin (Tamworth and Yarrol Belts) bounded to the west by a volcanic arc (Connor-Auburn Arch) and to the east by an accretionary wedge (Coffs Harbour, Beenleigh and South D’Aguilar Blocks).

These accretionary wedges are sub-parallel to the present coast line and aligned approximately north-south. The Beenleigh, D’Aguilar and Coffs Harbour blocks consist of deformed and metamorphosed turbidite sequences and minor deep sea floor basalt and chert of late Paleozoic age.

Cessation of subduction at the end of the Carboniferous was followed by orogenic deformation and accretion of exotic terranes during the Permian and Triassic. From the Permian to mid Triassic Eastern Australia was part of a convergent plate margin system related to the coalescence of the constituent parts of Gondwana.

The Gympie block accreted to the Yarrol Orogen in mid to late Triassic times, accompanied by initiation of the Ipswich Basin. The process of orogeny and accretion was accompanied by significant strike slip displacement, possibly of the order of hundred of kilometers in the Permian-Carboniferous, and tens of kilometers in the Triassic.

Subduction had ceased in the Late Carboniferous and re-commenced in the east from the Permian to Triassic, with Mesozoic basin development forming in a back arc setting. Mesozoic basins are en-echelon in arrangement, and formed as depressions genetically related to the twisting of the New England Orogen into two coupled oroclines (Texas Orocline and Coffs Harbour Orocline).

TrT

(c

Bowen Basin

YARRAMANYARRAMAN

BLOCKBLOCK ESK

GYMPIEGYMPIE BLOCKBLOCK

NORTH

DD''''AGUILARAGUILAR

MARMARYBOROUGH BASBASIN

TROUGH

NAMBOUR BASIN

Surat Basin

Surat

ATP 790P

Horrane

Trough

(concealed) Gatton Arch

BLOCK

SOUTH D'AGUILAR

BLOCK

IPSWICH BASIN

Basin

Swan Ck Anticline

Laidley Sub-basin

South

Moreton

Anticline

Logan

Sub-basin

SEQ Regional Structure

Tertiary basin

Carboniferous

Permian

Pluton

Triassic

Great Artesian Basin

Bowen Basin0 10 20 30 40

TEXAS

BLOCKNEWNEW

ENGLANDENGLAND

BATHOLITHBATHOLITH

SILVERWOOD BLOCK

EMU CK BLOCK

Clarence

Moreton

Basin16 November 05 Z:\arrow\676\MapInfo Fig 3 KILOMETRES DRAKE

BLOCK

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To the east of the present day Moonie Fault Paleozoic basement is represented by the late Carboniferous Camboon Andesite and Kuttung Volcanics, known collectively as the Kuttung Formation. This is in turn underlain by the metamorphosed Devonian Timbury Hills Formation. To the east are found the Neranleigh-Fernvale Beds. These strata have been assumed to be the same age in Arrow stratigraphy (Fig 4).

2.2 Bowen Basin (Permian-Triassic )

Tectonically, Eastern Australia evolved orogenically from a subduction to cratonic environment by the late Triassic. The earliest rocks of the Bowen- Gunnedah-Sydney Basin (referred to here as the Bowen Basin) are early Permian volcaniclastic marine sediments deposited in an extensional phase in the Denison Trough, Taroom Trough, Gympie Basin and Esk Trough. Subsidence was rapid in fault bounded grabens and half grabens, although sediments may have deposited under relatively shallow conditions.

Early Permian extension was terminated by compression of a late Permian orogeny, followed by intrusion during Triassic extension and a shift to non marine (alluvial and lacustrine) conditions.

Passive thermal subsidence commenced in the mid Permian marked by a widespread marine transgression. Sediment supply from the now inactive volcanic eastern margin decreased, and sedimentation was dominantly clastic with some carbonates.

In the late Permian a belt of fold-thrust mountains developed on the eastern margin. This mountain belt moved progressively westwards, incorporating the older foreland basin. Sedimentation changed diachronously from uniform sheets of marine sediment to syntectonic detritus marked by slumps, debris and turbidity flow deposits representative of an unstable shelf environment.

From the late Permian to mid Triassic the Bowen Basin subsided as a foreland basin (Hunter-Bowen event), while intra-cratonic basins to the west (such as the Galilee Basin) also subsided. On the east margin a resurgent volcanic arc developed, with volcanic sediment deposited to the west and south in alluvial fans. Volcanogenic clastic deposits formed the late Permian Baralaba Coal Measures within the Taroom Trough, age equivalents of the Rangal Coal Measures and Bandanna Formation to the north.

The main locus of deposition was the axial north-south oriented Taroom Trough, and the Denison Trough to the north of the ramp-like Comet Ridge. The basin was asymmetric, with greater sediment thickness on the mountainous eastern overthrust margin within the Taroom Trough, thinning markedly to the west.

The eastern volcanic arc supplied the bulk of sediment to the Bowen Basin, although periodic uplift of cratonic rocks to the west provided influxes of quartzose sediments. Alluvial and lacustrine deposits of the Rewan, Clematis and Moolayember Formations deposited in the early to mid

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Triassic over a very wide area, and the Rewan and Moolayember sequences can be traced

Ma STAGE SURAT (BOWEN) BASIN CLARENCE MORETON BASIN

-100

-110

Cenomanian

Albian

Roma Shelf Mimosa Syncline Cecil Plains Depression Tarong Basin Esk Trough/Laidley SB Ipswich Basin NSW

-120

-130

-140

-150

-160

-170

-180

-190

-200

Aptian

Barremian

Hauterivian

Valanginian

Berriasian

Tithonian

Kimmeridgian Oxfordian

Callovian

Bathonian

Bajocian

Aalenian

Toarcian

Pliensbachian

Sinemurian

Hettangian

Wallumbilla Formation

Bungil Formation

Mooga Sandstone

Orallo Formation

Gubberamunda Sandstone

Westbourne FormationSpringbok Sandstone

Walloon Coal Measures

Hutton Sandstone

Evergreen Shale

Boxvale Sand

Precipice Sandstone'58-0' sand

Kumbarilla Beds

Grafton Formation

Kangaroo Ck Sandstone

Walloon Coal Measures

Koukandowie Formationoolite marker

Gatton Sandstone

Ripley Road Sandstone

Helidon Sand

-210 Rhaetian

Norian

Raceview FmAAAAbbbbeeerrrrddddaaarrrreeee///L/LLaaaayyyytttotoonnnnsss RRaaannngggeee CCooommggglllolooommeeerrrraaaatttetee

Blackstone Fm Ipswich-220

-230

-240

Carnian

Ladinian

Anisian

Moolayember Formation Snake Ck Mudstone Clematis/Showgrounds Sandstone

Tarong Beds Tivoli Fm

Kholo sub Gp

Neara Volcanics Bryden/Esk Beds

Coal Measures

-250Olenekian

InduanRewan Formation 'Red Shale' 'Red Beds'

-260Tartarian

Kazanian

Bandanna Fm KIanga CM Back Ck GpCressbrook Ck Beds

-270

-280

-290

-300

-310

-320

-330

-340

CapitanianWordian Roadian

Kungurian

Artinskian

Sakmarian

Asselian

GzhelianKasimovian

Moscovian

Bashkirian

Serpukhovian

Visean

Aldebaran Sandstone

Cattle Ck Formation

Reids Dome Beds

Back Ck Group

Buffel Formation

Camboon Volcanics Buaraba Mudstone Marumba Beds

-350Tournaisian Yarrol Basin Accretionary Complex Kuttung Fm Texas Beds Neranleigh Fernvale Beds

CR

ETA

CEO

US

CA

RB

ON

IFER

OPE

RM

IAN

TRIA

SSJU

RA

SSI

CM

ISS

ISS

IPP

IP

EN

NS

YLV

AN

ILA

TE

MID

EA

LAE

ALA

MA

RB

UR

G S

UB

T T O

OG

OO

LAW

AH

GR

OU

P/E

SK

NY

MB

OID

A

CM

C

HIL

LIN

GH

Fig 4

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through the Cecil Plains depression and as far east as the Esk Trough. Alluvial fan material within the Rewan Formation and quartzose sand sheets of the Clematis Group derived from uplift to the west.

Sediment flow was along a meridonial southward flowing drainage system which at times was swamped by a lake to form sealing units such as the Snake Creek Mudstone. Sediment flow was likely affected by eustatic changes, and at times supply outstripped the capacity of the basin and sediment flowed into the adjacent Galilee and Cooper Basins.

Towards the end of the Hunter-Bowen event in the mid to late Triassic, deformation was accompanied by westward thrusting and formation of high angle reverse faults by reactivation of earlier extensional faults. The resulting uplift brought about an end to deposition, although a late Triassic extension formed a number of small rift and half graben structures such as the Ipswich and Tarong Basins. Many of these basins contain significant coal seams interbedded with dominantly volcaniclastic rocks. They formed within mountainous terrain and often feature coarse alluvial and colluvial sediments.

The Cecil Plains Depression (also known as the Horrane Trough) southeast of ATP 790 is generally considered to belong to this last extensional phase. It could however on the basis of seismic interpretation be much older and possibly dates to the earliest extensional phase of the Bowen Basin. Similarities of age and lithology suggest the Cecil Plains Depression is likely to represent a downfaulted erosional remnant of the Bowen Basin proper rather than a geologically distinct structure.

2.3 Jurassic-Cretaceous Basins

Great Artesian Basin

A very large intra-cratonic basin complex known as the Great Artesian Basin developed over most of Eastern Australia from the latest Triassic/earliest Jurassic. The Basin formed by a process of passive thermal relaxation over a very large area, terminating with the opening of the Tasman/Coral Sea in the late Cretaceous.

The Great Artesian Basin comprises within Queensland the Surat and Eromanga Basins, and is syn-depositional with adjacent basins including the Mulgildie, Nambour, and Clarence-Moreton Basins. The divisions between basins are based in some cases on underlying structural features, such as the Nebine Ridge separating the Surat Basin from the Eromanga Basin to the west, and the Kumbarilla Ridge which has in recent years been said to separate the Clarence-Moreton and Surat Basins. Basins such as the Nambour Basin and Mulgildie Basin are erosional remnants of a formerly continuous basin.

The entire basin complex represents a giant river and lake system that may at one time have drained to the east through the northern part of the Clarence- Moreton Basin, via a choke point termed the ‘Toowoomba Strait’.

-

The Strait was a broad synclinal valley which breached the barrier of the elevated Texas

-

Block to the south and the Yarraman Block to the north, and was filled by Tertiary basalts to form a modern reversed topography.

A more commonly accepted interpretation however (eg Yago 1996) is that the paleo river system drained westwards into a lacustrine depocenter situated towards the Eromanga Basin. According to Yago, rather than a single large channel extending for several hundred kilometers, a vast floodplain was covered with many smaller channels up to 400m wide.

A series of six fining upward cycles related to eustatic seal level change can be identified across the GAB (Exon). Units form a thick layer cake stratigraphy that is only lightly deformed and can be traced over great distances across several basins. The earlier sequences are alluvial and lacustrine, although with the progressive inundation of Gondwana in the Cretaceous the rocks become marine in character.

2.4 Surat Basin

ATP 790P is situated within the Surat Basin, a large intracratonic sag structure which extends over 43,000 km2 through southern Queensland into NSW. It forms part of the Great Artesian Basin complex and unconformably overlies the Bowen Basin. The Surat Basin is flanked by the Nebine Ridge to the west and Toowoomba Strait to the east (Arrow does not accept the Kumbarilla Ridge as a valid lithostratigraphic boundary), and is stripped to the north where the Bowen Basin is exposed at surface. An axial syncline, the Mimosa Syncline contains the thickest sediments and appears to be at least in part syn-depositional. This syncline is superimposed on the Taroom Trough, probably attributable to a deep seated crustal feature.

The earliest sediments of the Surat Basin may be a late Triassic lacustrine phase equivalent to the Raceview Formation of the Clarence Moreton Basin. These sediments are significantly more deformed than the overlying Jurassic rocks, however they post-date recognised Bowen Basin sequences. It has been suggested that this unit could represent a separate eustatic cycle.

As occurred during deposition of the Bowen Basin, periodic uplift of cratonic rocks to the west supplied quartzose sand sheets which formed reservoir rock units such as the Precipice, Hutton, and Boxvale Sandstones. However, the dominant sediment supply was from volcanic highlands to the east.

Cycle 1

The earliest accepted Surat Basin unit is the Precipice Sandstone, which dates from the latest Triassic/early Jurassic, and forms an extensive thick braided sand sheet. This is overlain by meander and swamp deposits of the Evergreen Formation, which together with the Precipice forms a single fining upwards eustatic cycle (Cycle 1). The Evergreen Shale often contains a basal sand unit and an intermediate sand member (Boxvale Sandstone) as well as an oolite horizon that can be correlated with a similar horizon in the

-

age equivalent Marburg Formation in the adjacent Clarence Moreton Basin.

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Cycle 2

Overlying Cycle 1 is the Hutton Sandstone which forms the basal section of cycle 2. The fining upwards meander/back swamp phase of Cycle 2 is represented by the mid-Jurassic Walloon Coal Measures, which may be subdivided into an upper (Juandah) and lower (Taroom) coal sequence, separated by the erosive Tangalooma Sandstone (Fig 5).

The Taroom sequence contains often very thick seams up to 20m aggregate thickness, which have been further divided into 3 seams by some workers.

The Juandah sequence is divided up into the Argyle, Iona, Wambo, Macalister, and Kogan seams. Individual coal seams cannot be correlated with certainty for any distance, but seam packages can be traced over several tens or even hundreds of kilometers. Each seam represents a fining upwards cycle with a basal sand unit, and may incorporate smaller sub-cycles. This repetition of similar units can make correlation extremely difficult where a recognisable feature such as the Hutton or Tangalooma Sandstone is not logged within a bore.

The overall thickness of the Walloons is remarkably consistent, averaging 420-440 m thick, although individual seam packages can vary in thickness. To the south of Kogan the overlying Cretaceous Springbok Sandstone becomes erosive, progressively removing the Juandah seams.

The Walloon coals were laid down in a highly seasonal polar climate, and are derived from higher plant material which deposited in back swamp environments in what appears to have been a giant meander system analogous to the modern River Ob in Siberia. The perhydrous nature of the coals and their structure and permeability has made them particularly suitable for gas formation and retention.

Cycle 3

The late Jurassic erosive Springbok Sandstone progressively removed the underlying Walloon sequence to the south. This forms the basal part of Cycle3 and is overlain by labile sediments and minor coals of the Westbourne Formation.

Cycle 4-6

Cycle 4 comprises the late Jurassic to early Cretaceous Gubberamunda Sandstone, which formed in a braided to meander environment and is overlain by the fossil wood bearing Orallo Formation. The Orallo Formation contains thin high ash coals. Cycle 5 is early Cretaceous in age and consists of the Mooga Sandstone and Bungil Formation. The upper parts of the cycle reflect marine transgression from the east. Cycle 6 is made up of the Wallumbilla Formation and reflects the regression of the Cretaceous sea with a sequence progressing from neritic to estaurine and fluvial.

Cycle 6 is the last sequence to be preserved and dates from the early

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Cretaceous. Compression with uplift and tilting of the Surat Basin to the south

MID

JU

RA

SSIC

CA

LLO

VIA

N -

BA

JOC

IAN

(AA

LEN

IAN

?) 1

61.2

-171

.8

Ma

EROMANGA BASIN SURAT BASIN CLARENCE MORETON BASIN

ADORI SANDSTONE

BIRKHEAD FORMATION

JUA

ND

AH

SEQ

UEN

CE

SPRINGBOK SANDSTONE

KOGAN

SEAM

MACALISTER SEAM

KUMBARILLA BEDS

SPRINGBOK SANDSTONE

MIAD SANDSTONE

WAMBO SEAM

IONA SEAM

ARGYLE SEAM

TANGALOOMA SANDSTONE

A SEAM

B SEAM TAROOM SEAMC SEAM

TANGALOOMA SANDSTONE

A SEAM

B SEAM TAROOM SEAMC SEAM D SEAM

TAR

OO

M S

EQU

ENC

E

EUROMBAH SANDSTONE EUROMBAH SANDSTONE UNDIFFERENTIATED

HUTTON SANDSTONE HUTTON SANDSTONE HEIFER CK SANDSTONE

FIG 5 WALLOON CM STATIGRAPHY

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followed, with the opening of the Tasman/Coral Sea commencing some 10 Ma later.

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3.0 PERMIT GEOLOGY

3.1 Walloon Coal Measures

Jurassic rocks within the permit are oriented northwest and dip to the southeast at a shallow angle (<5º), the entire basin having been tilted upwards to the north and the northern extensions eroded off at the end of the Cretaceous.

The Surat Basin sequence is superimposed on the Permian-Triassic Bowen Basin sequence, although within the permit area the older sediments are absent and the Jurassic sits directly on Paleozoic basement.

The Surat Basin rocks form a layer cake stratigraphy that is progressively more complete from the lowermost Jurassic zero edge running along the Yarraman Block through successively younger formations until a Cretaceous section is preserved southeast of the permit (Fig 6). Within ATP 790P it is the mid Jurassic section outcropping at surface that is of interest in CSG exploration.

The outcrop edge of the Walloon Coal Measures bisects the permit in a northwest-southeast direction. To the east are the Hutton Sandstone and Evergreen Shale units, which following an old convention are lumped together as the Marburg sub-Group on published 1:250,000 scale mapping from a point northeast of Chinchilla and southwards.

The Walloons tend to be recessive and consequently are covered in alluvium and colluvium, including weathered Tertiary cappings. Outcrop is rare. This belt of flat lying Cainozoic cover extends to the east of the permit, and provides a somewhat imprecise method of delineating the Walloons unit.

In the southwestern half of the authority, bodies of more resistant upper Jurassic to lower Cretaceous Kumbarilla Beds outcrop. A generally complete Walloon section is preserved beneath the erosive Springbok Sandstone which is the basal unit of the undifferentiated Kumbarilla Beds, although to the south of the permit there is progressive removal of the upper Juandah sediments by the Springbok Sandstone.

3.2 Precipice Sandstone

The lowermost unit (excepting the problematic Raceview Formation) of the Surat Basin is the Precipice Sandstone. Surat Basin rocks onlap Paleozoic basement, which seems to have taken the form of flat topped hills with steep sides. This is evident in several wells where a full porous and permeable Precipice Sand has been encountered, only to be absent in wells drilled a short distance away.

The Kumbarilla Ridge is interpreted to be made up of a series of northeast trending ridges, perhaps in an en echelon arrangement, which are bald of Precipice Sand at the highest points (see Figure 8). The structure formed an

""0000' 'Z:\arrow\790\Admin\DNRM FIG

-26°55' 00"

-27°00' 00"

JKkKumbarilla Beds QPc

Condamine Alluvium

-27°05' 00"

-27°10' 00" Top Walloom CM

-27°15' 00"

0 2 4 6 8 10

KILOMETRES

-27°20' 00"

ATP 790P 'DAANDINE' PUBLISHED

1:250,000 SCALE

150°

50'

150°

55'

151°

00'

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isolated series of flat topped hills probably not exceeding 100m in height, and around which the Precipice Sand sheets flowed to the north and south.

This differs significantly from the interpretation by some GSQ workers of the past 20 years of the Kumbarilla Ridge as a major basin-dividing barrier of regional significance. Given that petroleum well lithologies and stratigraphy at Cecil Plains are identical to those on the western side of the of the Kumbarilla Ridge, there is no scientific basis for using the Kumbarilla Ridge as the dividing line between the Clarence-Moreton and Surat Basins. There can be no suggestion at Cecil Plains that the Hutton Sandstone or Evergreen Shale are unable to be differentiated from each other, as is arguably the case east of the Toowoomba Strait.

By contrast the more traditional dividing line of the Toowoomba Strait marks a significant change in lithology, including a transition from the Precipice Sandstone to the Ripley Road (Helidon) Sandstone, and to the undifferentiated Marburg sub-group, and is clearly supportable on lithological grounds.

A notable change in the electrical log signature of the Precipice Sandstone unit is evident in wells as the Undulla Nose (described by some past explorers as a mesa) is approached from the southeast, with a far thinner Precipice Sand containing numerous clay or shale layers. This may have deposited in gullies on the flanks of the mesa, and may not in fact be continuous over the flat top.

The porous and permeable Precipice Sandstone is known to be present in Kogan-1 and absent in Jandowae South-1 to the north. The unit can be traced in outcrop against Paleozoic basement of the Yarraman Block and Triassic rocks of the Tarong Beds south of Yarraman, where the Precipice Sand can be seen to pinch out and Marburg Formation sits on basement. The contact is obscured beneath the basalt capping of the Bunya Mountains, however Marburg rocks sit directly on basement where the contact re- emerges to the north near Kumbia.

To the west the probable pinchout is between Xyloleum-1 and Xylane-1 wells. To the north of ATP 790 Jandowae South-1 contains an apparently near complete Evergreen section, which suggests the pinchout edge cannot be too far to the south. Thus a very approximate pinchout edge can be inferred as indicated in Figure 8.

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4.0 CONVENTIONAL EXPLORATION & PROSPECTIVITY

4.1 Previous company exploration (conventional hydrocarbons)

No petroleum wells have been drilled within the permit. Adjacent wells are tabulated:

Bore Year Operator Result

Brigalow-21 1936 Australian Roma Oil

Percussion well to 186m, penetrated alluvium to 54m, then Walloons to TD. Reported light oil show at 124m + gas shows which produced a 10cmflame. No analysis.

Speculation-1 1948 Condamine Oil Ltd

The well took 14½ years to drill to 879m. Evergreen shales lay directly on Camboon Andesite basement, the Precipice reservoir being absent. Electrical logs show a possible sand at the base of the Evergreen, but this may be tight.

1962 seismic showed the well was drilled off closure. Several oil and gas shows were reported in the Hutton and Evergreen by the driller, while the well completion report in 1963 described shows in the Camboon Volcanics (Kuttung Fm).

Oil shows are probably due to contamination; gas samples were air contaminated with a maximum 1.1% methane.

Scout (Brigalow)-1

1954 Winneils Pty Ltd

Well tested a report of gas at 100.0m in a nearby water bore. Intersected 15m alluvium and Walloon CM to 99m total depth. No signs of oil or gas, however the well may not have reached targetdepth.

Scout (Cameby)-1

1955 Winneils Pty Ltd

Well tested a report of oil between 277-281m in a nearby water bore. The well is said to have penetrated Walloon CM from surface to 302m totaldepth, with no signs of oil.

Kogan-1 1962 Philips Petroleum

This was the first modern petroleum well, drilled to 1047m and terminating in basalt (Kuttung Fm). It was collared on seismic which delineated a culmination on a south plunging anticline (Kogan Nose). Seismic had also indicated possible source beds pinching out against the flanks of the high. Six cores and 3 DST’s were run, and the well was electrically logged.

A 15m porous Precipice (58-0) sand on Triassic shale (possible Raceview equivalent) was water bearing, and the trap described as water flushed. There were problems with depth control on the well but the 678m water rise suggests the correct formation was tested. The DST does not look like a valid test and the card is noted ‘questionable’.

High gas readings were reported in the Walloon CM.

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Canaan-1 1964 Condamine Oil Ltd

1962 seismic had indicated a culmination which was tested by this well to 498m total depth. The well passed through Hutton and Evergreen sediments and a ‘Precipice’ sand on Camboon Volcanics (Kuttung Fm). The porous sand was tested with a DST which recorded a 360m mud and water rise.

Four cores were cut and no indications of hydrocarbons noted other than coal gas (from seams in the Hutton). The Precipice sand was thought to be equivalent to the upper (56-4) sand at Moonie, which may of basal Evergreen rather than Precipice age. Although palynology was done, nosample was collected from the basal sand.

Yarrala-1 1965 Philips- Sunray

This well was sited to test a culmination on a south plunging anticlinal nose. It drilled to 900m, encountering a Walloon, Hutton, Evergreen, and Precipice section on a possible Raceview (or Moolayember) shale. Basement was Camboon Volcanics (Kuttung Fm).

Five cores, 6 DST’s and 3 wireline formation tests were run and the well was electrically logged. A test of the Moonie (58-0) sand recovered a slightly gassy water rise. Coal gas was noted through the Walloon section.

Columboola-1 1965 Union Oil Seismic predicted a fault dependent closure on a fringing anticline east of the Burunga Fault. The well drilled to 1196m terminating in coaly sediments of the Permian Blackwater Group. No indications of hydrocarbons were observed other than minor blue fluorescence without odor or cut in the basal (58-0)Precipice sand. No DST was taken.

Bullock Creek-1 1966 Union Oil A small culmination in seismic was tested to a depth of 503m, however a partial Evergreen Shale section lay directly on Kuttung Fm basement. A thin sand developed on basement had minor dull yellow fluorescence lacking odor and cut, and was not tested.

Bulwer-1 1966 Union Oil This well tested a seismic culmination of 150’ over 11 sq miles. The Precipice 58-0 sand contained residual oil, with dull yellow fluorescence with trace cut and amber cut noted within and above it. A DST was conducted over the permeable sand, recovering a water rise. Fluorescence was recorded from 1119m, however the test was only conducted over the interval 1137-1142m. This does appear to havetested the top of porosity.

Cameby-1 1969 Union Oil A pinchout play in the permeable Precipice sand was tested to 1127m TD. The interval between 1045m-1063m showed bright yellow fluorescence, slight brown stain, and slight straw colored cut. A DST produced a water rise. The trap appears tohave flushed and was not sufficiently close to the pinchout edge.

-

-

Stockyard Creek-1

1972 Target Drilled to 415m. Hutton and Evergreen lay directly on Carboniferous (Kuttung) basement. DST of basal Evergreen obtained a fresh water rise. This well sought the western embayment of the Precipice pinchout edge against the Kogan Nose. It appearsto have been thought that the Moonie Precipice Sand was present in Canaan-1.

Jandowae West-1

1972 Target Drilled to 470m. Hutton and Evergreen lay directly on granite basement. No DST. The well was collared to test the eastern embayment of the Precipice Sand but was thought to have collared on the upthrown side of the Yarrol Fault.

Jandowae South-1

1972 Target Drilled to 616m. Evergreen lay directly onCarboniferous basement, the well being collared too far north of the pinchout edge.

Devondale-1 1981 Lasmo Oil This well encountered Precipice sand on Carboniferous granodiorite basement. The Precipice was unusually shaley in its lower section, and could have been a thin Raceview Formation bed. The Precipice does not have its usual log character and may be either a thin remnant close to the pinchoutor a basal Evergreen sand.

4.2 Trap

None of the previous petroleum wells drilled in the neighbourhood of the permit provides indications of significant hydrocarbons or bypassed pay. The concept of Target Oil in drilling pinchout edge embayments along the flanks of south plunging anticlines was sound, as it appears that only traps with a stratigraphic component have survived flushing in this part of the Surat Basin. Most drilling has targeted purely structural plays which turn out to be bald highs or are true culminations which have nevertheless been water washed.However, none of these pinchout plays occurs within ATP 790.

4.3 Charge

Significant amounts of oil have migrated updip from the Permian source rock kitchen to the west of the Moonie-Burunga Fault. Residual oil trapped in semi-permeable basal Evergreen beds at the interface with a water flushed highly permeable Precipice devoid of hydrocarbons seems not uncommon in this part of the Surat, indicating that at one time the Precipice must have hosted large amounts of oil. The unroofing of the Precipice at its northern outcrop edge and the basinward entry of groundwater may have occurred after the main phase of oil migration. Thus residual pockets will remain where a stratigraphic boundary exists, as appears to be the case at Moonie. An updip pinchout embayment against the western flank of a high such as the Kogan High, Cecil Plains Anticline or Kumbarilla Ridge therefore has a reasonable chance of oil preservation.

-

-

4.4 Reservoir

The Moonie equivalent Precipice Sand (called the ‘58-0’ Sand because it was encountered at 5800’ in UOD Moonie-1) forms an excellent reservoir up to 100m thick. This is a continuous clean sand sheet derived from granitic terrain to the west and extending over a large area, being exposed as cliffs where tilted and eroded to the north near Cracow and Monto. It extends through the Cecil Plains Depression and into the Clarence Moreton Basin where it is known in popular usage as the Helidon Sandstone.

This sand sheet pinches out against the rising paleo-terrain to the north (Fig 8), although it has been described in wells further north such as Speculation-1. This appears to be an error as log character is quite different. The reservoir sands in northern wells are more likely to represent a porous and permeable Basal Evergreen Sand, or what was traditionally known as the Upper Precipice Unit (56-4 Sand).

The Precipice Sand flowed around low paleo-hills such as the Kumbarilla Ridge, with the result that many highs delineated in seismic in the Surat Basin turned out to be bald when drilled. The Evergreen Shale overlapped these older structures, at least some of which were later reactivated, with the result that permeable Evergreen units such as the Boxvale Sandstone may form prospective drapes, particularly where there is some evidence of post Mesozoic folding.

Only Cretaceous to Miocene structures have much possibility of carrying a crestal Precipice Sand. These dominantly north-south oriented folds are imposed on an older northeast to northwest fabric, and include the Moonie High and Cecil Plains Anticline.

A difficulty is that conventional seismic is of little use in predicting the presence of the Precipice Sand, and even 3D seismic may be unable to delineate it. The other problem is that the presence of an apical Precipice Sand on a true culmination does not guarantee hydrocarbons as noted above because of the very great degree of water flushing in the Great Artesian Basin. This was the experience in Giligulgul North-1. Preservation of hydrocarbons requires that a barrier such as a fault or permeability change has existed to protect the resource from flushing.

Basal Evergreen sands, the mid-Evergreen Boxvale Sandstone, and the Hutton Sandstone all have reservoir properties, and represent secondary targets in any well.

4.5 Seal

The Precipice Sand is sealed by the Evergreen Shale; the Boxvale Sandstone has an intraformational seal; the Hutton Sandstone is sealed by the Walloon Coal Measures. Miocene aged fault breaching can occur, with the possibility of re-migrated oil preserved in stratigraphically higher

-

reservoirs such as the Boxvale Sand.

-

4.6 Discussion

The absence of potential combined structural and pinchout plays in ATP 790 suggests it has no known potential for conventional hydrocarbons.

-

5.0 COAL SEAM GAS EXPLORATION

No previous work has been conducted within the permit area for Coal Seam Gas (CSG), although Southeast Teatree-1 was drilled to the west of the permit boundary in 1995 in what was the first Surat Basin Walloon CM CSG test.

A total of 5 CSG wells have been drilled to date within ATP 790P (Fig 7). These wells are:

well name td spud date net coalDaandine-1 464 16 Oct 04 25.0Daandine-2 491.7 23 April 04 25.9Daandine-3 288.5 14 July 05 18.3Daandine-4 497.5 18 November 05 35.9Daandine-16 510.5 21 November 05 37

Preliminary gas contents and coal thicknesses indicate commercial gas production is achievable from the Juandah seams. Reserves have now been certified within the area of PL 230.

Results of the above wells will be supplied as well completion reports in due course.

41P IT

TI

D 92 $Long Swamp-13

" P "0 C 00 0' $$$

$

$

Z:\arrow\790\Admin\DNRM FIG

-26°55' 00"

-27°00' 00"

$$$KNP-1

$$ $ $K$ogan North-24

$Kog$an N$orth-30

$ $ $Kog$an North-11$ $ $ $Kogan North-10

$

Kogan North-4A$ $Koga$n N$orth$-16

$

$ $ $ $Kog$an North-13

-27°05' 00"K 28D

$ $Ko$gan $North-12A

$Daandine-1$

$Daandine-2

Daandine-4$

$

$Daandine-17YARRALA 1$

Daandine-16

-27°10' 00"Top Walloom CM

-27°15' 00"

0 2 4 6 8 10

KILOMETRES

-27°20' 00"

$TOORA 1 ST1

$KUMBARILLA EAST 1

$TWP-8

ATP 790P 'DAANDINE' DRILLING & SEISMIC$ Arrow CSG well

existing seismic line$ existing petroleum well

150°

50'

150°

55'

151°

00'

0

$

top Hutton asl

Precipice Sand subcrop

Precipice Sand >25m

Precipice Sand >50m

43 Thickness of Precipice Sand

-26°15' 00"

CHINCHILLA 1$

$ $BULLOCK CREEK 1

CHINCHILLA 2$$STOCKYARD CREEK 1

-26°30' 00"

$$(SPECULATION) 1

$SCOUT (CAMEBY) 1

-26°45' 00"$JANDOWAE WEST 1

$

39.9$XYLON 1

$XYLANE 1

Undulla Nose $ $SCOUT (BRIGALOW) 1

$JANDOWAE SOUTH 1

HINCH$ILLA

$3$71.56$.5$

mesa?14.45$DEVONDALE 1

$$XYLEM 1

-$27°0202' .08$0" ROCKWOOD 2

$$$XYL-L 1

.7$COND$AMINE

1

53.3$WIEAMBILLA 1

$5$2.7$MALARA 1

51.1$WAMBO CREEK 1

52$$

15.1$KOGAN 1

14.8$KOGAN SOUTH 1

ATP 790P

36$YARRALA 1

46.7$MYRA 1UNDULLA 1

$(DALBY) 20

41$ALICK CREEK 1

14$TARA 1

75$.3$BRAEM

AR 1

DALBY 1$$$KUMBARILLA EAST 1

83$$TIPTON

1

" 015

0°45

'

ATP 790P 'DAANDINE' CONVENTIONAL PETROLEUM PROSPECTIVITYprospective stratigraphic traps

22/12/05Z:\arrow\790\MapInfo FIG 8

$TARA SOUTH 1

61.4$ROCK CREEK 1

$ABERDEEN PARK 1

23.1$$MARMADUA

2GREEN SWAMP 1

$KUMBARILLA 1-1A

RIVERVIEW 1$ $ $ $ 18.3$ $PIEBALD 1

DEEP CROSSING 1

PAGET 1 Kumarilla Ridge mesa complex?

151°

00'

6.0 PROPOSED PROGRAM

Further work will consist of production and stratigraphic drilling, with the intention of bringing so much of the permit as is possible into commercial production. Production will initially concentrate on the Iona-Argyle seam interval.

- 16 -

APPENDIX

COMPOSITE WELL LOGS

DAANDINE-1,2,3,4, & 16

1:25

100.

00 14

0.0

0 75.0

011

5.0

0 50.0

090

.00

25.0

065

.00

0.00

4 050.

00.

00.

00 5 050.

00 1 60

0 0.

0 .0 0

1 650 0

.

0 .0 0

Daandine-1

Gamma SonSico-n1ic

NNEEUUTT-1

SL SSDD PR SP Gamma-2

0102030405060708090

100110120130140150160170180190200210220230240250260270280290300310320330340350360370380390400410420430440450460470480

Alluvials

Springbok Sst

Kogan

Macalister

Wambo

Iona

Argyle

Taroom

0102030405060708090100110120130140150160170180190200210220230240250260270280290300310320330340350360370380390400410420430440450460470480

0. 50.

50.

100.

00 30.0

0 55.0

0

1 6 000 .

00 0

.00

11 5 1000

.0.

000

2 10.2

000

.00

10.

20.

00 - 21.

50 - 19.

00 - 16.

50 -

1:25

Daandine-2

Gamma Sonic N

eSuPtron

SSD LSD

LN EAL SN1

PRCopy-Gamma

0102030405060708090

100110120130140150160170 180190200210220230240250260270280290300310320330340350360370380390400410420430440450460470480490500510520

Alluvial

Springbok Sandstone

Kogan

Macalister

Wambo

Iona

Argyle

Taroom

Hutton Sst

0102030405060708090100110120130140150160170180190200210220230240250260270280290300310320330340350360370380390400410420430440450460470480490500510520

0.00

20.0

0 40.0

0 60.0

0 140.

00 115.

00

15.

00 10.

00 5.0

0 0.0

0 - 2.5

0 - 5.0

0

1:25

GRDaandine-3

DT

SSLDSD

ELANL PR SPGamma

0102030405060708090

100110120130140150160170180190200210220230240250260270280290300310320330340

0102030405060708090100110120130140150160170180190200210220230240250260270280290300310320330340

0.0

0 28.

00

40.

6 184.

00.0

0 115.

00 90.0

0 65.0

0 4 10.2

28.

48.

Scale

Daandine-4Gamma smooth SONI

SSD

LSD

EAL LN

SN1 SP PR

0102030405060708090

100110120130140150160170180190200210220230240250260270280290300310320330340350360370380390400410420430440450460470480490500510520

0102030405060708090100110120130140150160170180190200210220230240250260270280290300310320330340350360370380390400410420430440450460470480490500510520

4.00

24.0

0 44.0

0 64.0

0 140.

00 115.

00 1. 40.

00 1.7

0 2.2

0 10.

20.0

0 - 40.0

0 - 15.0

0 10.0

0 35.0

0

Scale

DD16GAMM SONI

LN

SL SD SN1 PR SP

0102030405060708090

100110120130140150160170180190200210220230240250260270280290300310320330340350360370380390400410420430440450460470480490500510520

0102030405060708090100110120130140150160170180190200210220230240250260270280

290300310320330340350360370380390400410420430

440450460470480490500510520

4. 24.

44.0

0 140.

00 115.

00 90.0

0 65.0

0 2. 2 10.

20.0

0 160.

00 165.

00 170.

100.

200.

00 4.00

24.0

0 44.0

0

Scale

Scale

ANNUAL REPORT

Annual Well Status Report

Report for the 12 month Period ending on 31 October 2005

Tenure Type (ATP or PL)

Tenure Number BASIN FIELD

ATP 790 SURAT DAANDINE

ATP 790 SURAT DAANDINE

ATP 790 SURAT DAANDINE

NOTE the Petroleum and Gas (Production and Safety) Regulation 2004 sections 23 to 27 defines the submission of this data for

each tenure under the 2004 Act

NOTE the Petroleum Regulation 2004 sections 12 and 13 define the submission of this data for each tenure under the Petroleum Act 1923

NOTES1. Report to be lodged within 2 months

after each anniversary day of the granting of the tenure.

2. The Annual Well Status Report forms part of the Annual Report

3. Report to be lodged into QDEX as either a PDF or a Tab-delimited Ascii file