Hi JT,seems RL and OIP have some info they won`t release to the...

Hi JT,seems RL and OIP have some info they won`t release to the market.Reply from RL received today.

Hi,

The major issue for the three coreholes that have been drilled to date that the independent geologist is referring to is a lack of any thick coals.

Between the three coreholes (one each in PEL 427, 428 and recently PEL 6) there was only around 15m total coal and the thickest seam intersected was only about 40cm. That is, in each of the wells they found a series of thin coal stringers/bands totalling 4-5m but spread out over a 200-300m interval. These are uneconomic to complete and produce. Yes, if we had a nice 4m thick seam (like ESG have in PEL 238) things may be different.

The lab data is gradually trickling back. We do not intend to release detailed technical data, suffice to say that the gas contents seen so far are not too stunning (less than 5 cu m per tonne DAF). However the biggest problem remains the lack of any thick coals.

We believe that probably only PEL 6 offers any significant CSG prospectivity and you will see that its been valued at well more than the neighbouring licences, PELs 427 and 428. However it requires more drilling to prove up this belief. Its also important to note that ESG is drilling in the Gunnedah Basin targeting the Permian coals. In our acreage we are mainly targetting younger coals in the Surat-Bowen Basin and it is believed that only a small portion of the southernmost bits of PELs 6 and 427 could have some Permian coal although this theory is yet to be proven.

ESG cannot use our funds to drill. At the completion of the current Milguy-1 well, ESG will have earned their 75% interest in the CSG rights of PEL 6, so for future drilling OIP will be contributing 22.5% of the costs and ESG 75%. There are two minor partners holding the other 2.5%.

Kind regards,

Russell