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The Company believes oil and gas resource potential of the Exploration Licences is exceptionally large. Within the northern sector of PEL 6, (Surat/Bowen Basin), total potential Oil In-place is estimated to be 173 million barrels and total potential Gas In-place is 386 BCF. The Company believes hydrocarbon potential in the Darling Basin, PELs 8, 422 and 424, is even more impressive. Over one billion barrels of potential Oil In-place or over 2.5 TCF of potential Gas In-place, could exist, collectively, in just three prospects in these licences. The Company believes this magnitude of resource potential is not unlike the potential of the onshore Cooper-Eromanga and Surat/Bowen Basins.

Estimated resource potential has been based on modern, good quality seismic data and there is a high degree of certainty with regard to structural configuration. Sparse drilling density and limited deep well penetrations in the Darling Basin have inhibited the determination of source rock potential in PELs 8, 422 and 424. Lack of evidence that source rocks exist in the various sub-basins of the Darling Basin area has led to a perception that geological risk is high, which in turn has impeded exploration activity in the past. However, there are Australian and global analogues of prolific hydrocarbon production in Devonian-aged basins and it is not unrealistic to expect that mature source rocks occur in the area of the Darling Basin. If this is the case, then all the elements of an active petroleum system could exist in the Basin, and the potential for a future petroleum discovery could be significant.

Recent exploration endeavours have focussed on reducing the pre-drill risk of prospects in the northern NSW Exploration Licences. Seismic attribute studies, including spectral attenuation, have been carried out in PEL 6. This technology has successfully indicated hydrocarbons in the Queensland sector of the Surat/Bowen Basin for other explorers and its use in NSW is considered by the Company to be equally valid given that the same sequence of sediments occurs on both sides of the border. Spectral attenuation anomalies arise from preferential absorption of the seismic signal by petroleum fluids within the reservoir rocks. Attenuation anomalies associated with the Willaroo Prospect have been detected at the two primary reservoirs levels, which suggest that hydrocarbons could exist in both the Jurassic Precipice Sandstone and the Permian Back Creek Formation. If the proposed well, Willaroo-1, encounters hydrocarbons then further spectral analyses will be carried out on nearby exploration prospects in PEL 6 to prioritise them for drilling.

A soil gas survey has recorded strong signature anomalies that indicate source rocks are mature and oil prone. In addition to other anomalies identified in the Darling Basin, these results are very encouraging for the generation, migration and accumulation of hydrocarbons.

The licence covers an area of 5,163 km2 and is immediately south of the Queensland-New South Wales border near Goondiwindi (Figure 2). The northern portion of PEL 6 is located within the limits of the southern extension of the Bowen and overlying Surat Basins. Both basins have been the subject of extensive hydrocarbon exploration in Queensland where numerous oil and gas discoveries have been made since the early 1960s.

The proposed exploration program to the end of the current term of PEL 6 in June 2009 includes the drilling of one well and the acquisition of 100 line kilometres of 2D seismic.

However, in the event that hydrocarbons are encountered in the Willaroo-1 well, a 3D seismic program may replace the 2D program.

Seismic data recorded during the 2002 Whalan Creek Survey in northern PEL 6 resulted in the delineation of four petroleum prospects. All of these prospects possess multiple reservoir objectives that individually offer significant hydrocarbon potential. The unrisked resource potential of the primary reservoir objectives in northern PEL 6 is 386 BCF Gas In-place (Permian sandstones) and the total potential Oil In-place is 173 MMBO (Jurassic sands), as summarised in Table 3.

Triassic reservoirs also exist but these are secondary to the petroleum potential shown for the Precipice and Lower Back Creek sandstone units.

The preferred prospect for drilling first is Willaroo, and the proposed Willaroo-1 well location (Figure 2) is coincident with the spectral attenuation anomaly (Figure 3- as labelled) that coincides with the structural crest. Design of the well and preparation of the drilling program have been completed for this well. Willaroo-1 is ready for drilling and plans are in place to commence drilling operations once a rig contract has been signed.

Several satellite structures in the Willaroo area represent immediate follow-up drilling opportunities if encouraging hydrocarbon shows are encountered during the drilling of Willaroo-1.

Australian Permo-Triassic age sedimentary basins, such as the Cooper and Bowen Basins, are prolific oil and gas producing provinces. It has long been acknowledged that the Late Permian coal bearing sediments have generated most of the oil and gas discovered in these basins. Analyses of technical data, including drilling results, confirm that these same source rocks exist in and around PEL 6. Permian and Triassic reservoirs in the Bowen Basin to the north are generally of poor quality but sandstone reservoirs penetrated in PEL 6 are of excellent quality (Goondiwindi-1 and Limebon-1 wells). Familiarity with the prospective sedimentary sequence within PEL 6 means that Willaroo and other nearby prospects are likely to have moderate pre-drill risk.