ASX / MEDIA RELEASE ASX Code: MEL 31 October 2011 QUARTERLY ACTIVITIES REPORT FIRST QUARTER ENDED 30 SEPTEMBER 2011 Highlights In August, Metgasco raised $21.55 million in new capital to progress the Company s gas commercialisation and appraisal program. Metgasco is currently focussed on preparations for the 2011/2012 drilling campaign which will entail: Drilling of CSG production wells to supply gas to Casino based gas consumers, including the Richmond Valley Power Station; Drilling of the Rosella E01 Conventional gas exploration well on the Greater Mackellar structure to the north of the Kingfisher gas discovery. Approximately 34 line km of new 2D seismic over the Greater Mackellar structure will be acquired to assist in identifying the optimal location for this well. Drilling of a core well in PEL 13 Bowerbird E03; and Drilling of two core wells in PEL 426 Thornbill E03 and Thornbill E04. On 14 July 2011, Metgasco booked its first reserves in PEL 13 and in doing so achieved a significant reserve upgrade. Reserves in the 2P category increased to 428 PJ and reserves in the 3P category increased to 2,542 PJ. The Company also increased its 2C Contingent Resource to 2,511 PJ. Metgasco remains one of the few independent gas companies on the east coast of Australia with large uncommitted gas reserves. On 26 July 2011 Metgasco advised that it had achieved encouraging early gas production from the Company s multi-lateral CSG pilot wells, with the Harrier P01 well producing gas at rates well above expectations and with further dewatering activity to continue. Metgasco continued discussions with a number of parties about gas commercialisation possibilities. Metgasco Quarterly Report Page 1
Review of Exploration and Appraisal Developments Conventional Exploration and Appraisal Program Conventional Drilling Metgasco has continued to progress preparations to acquire seismic over the Mackellar North structure. The Company intends to acquire 34 line km of new 2D seismic in the Kingfisher / Mackellar area. The purpose of this new seismic is to further clarify the structural relationships with the Greater Mackellar Structure. The Kingfisher gas field appears to be a subset of this Greater Mackellar Structure. Seismic data acquired in 2010 indicates that the Kingfisher, Mackellar and Mackellar North prospects are part of a large structural trend that shallows towards the north along the mid-basin high. Incorporating the results of the Kingfisher discovery well into the seismic mapping suggests that the 138 metres of gas bearing reservoirs encountered in this well can be intersected at shallower levels to the north. Metgasco intends to further evaluate these reservoirs through the drilling of a new conventional well in addition to testing a further 500 metre section below the reservoirs encountered in Kingfisher. Metgasco considers that the deeper section containing the Ripley Road sandstone and the Laytons Range conglomerate is likely to have higher permeability. This view is based upon analogues with the Surat Basin, investigation of comparable core data and results from previous production testing in Kingfisher E01. The Greater Mackellar Structure has the following unrisked OGIP estimates: 720 Bcf (P90 Low Case) 1,379 Bcf (P50 Base Case) 2,124 Bcf (P10 Upside Case) This probabilistic resource estimation has been determined on the basis of the current seismic mapping using Monte Carlo style predictive modelling software. Subject to the results of the new seismic, selection of a well site is anticipated towards the end of the year with drilling planned for 2012 calendar year. Planning is currently underway for the drilling of this well Rosella E01. The exploration team continued its evaluation of the conventional potential of the company s acreage. The objective of the strategy is to develop a better understanding of the controls on hydrocarbon prospectivity, particularly in regard to the reservoir quality of the primary target intervals the Ripley Road sandstone and the Gatton formation. This work has included examination and analysis of core and cutting samples from wells previously drilled within the basin to further assist in the assessment of the conventional prospects and leads identified from seismic mapping and to optimise the location and design of the Rosella E01 well. Metgasco Quarterly Report Page 2
Coal Seam Gas ( CSG ) Exploration and Appraisal Program Encouraging gas production rates from CSG pilot wells During the quarter, Metgasco continued to dewater the Harrier P01 and Corella P18 CSG pilot wells. The objective of these wells is to provide further confidence on commercial flow rates from this area where Metgasco has established its initial 1P, proven reserve certification. Production from the Harrier P01 well has been very encouraging with a production rates in excess of expectations while dewatering. Metgasco s lead CSG pilot well, Corella P11 was worked over during the quarter and has been brought back on line with gas production rates returning to prior levels. Maiden reserves in PEL 13 and significant reserve upgrade achieved. The first gas reserves in PEL 13 were recognised during the quarter. A large gas resource in PEL 13 has been identified as indicated by an initial certification 2C (Contingent Resource) of 1,334 PJ. The gas resource is recognised in the Walloon Coal Measures with the Richmond Coal Seam and the IJK Coal Seam(s) confirmed as primary targets for future development. 2012 CSG Exploration Program Metgasco is currently planning to drill three core wells to further evaluate the CSG potential in PEL 13 and PEL 426. Bowerbird E03 is planned to be drilled in PEL 13 to examine the Walloon Coal Measures on the western side of the Casino trough. Two core wells, Thornbill E04 and Thornbill E03 are planned to be drilled in PEL 426. These wells are planned to evaluate the Walloon Coal Measures in the southern end of the basin to increase knowledge in this area.. Certified Reserves On 14 July 2011 Metgasco secured its maiden reserves in PEL 13. The Company s current reserve position is described on the following page. All reserves recognised to date are from coal seam gas. No reserves have been recognised to date from the Company s conventional discovery Kingfisher. Metgasco Quarterly Report Page 3
Independently certified gas reserves Petajoules (PJ) All reserves are 100% owned by Metgasco Reserve Category PEL 13 PEL 16 Total 1P (Proven) 2.7 2.7 2P (Proven + Probable) 31 397 428 3P (Proven + Probable + Possible) 303 2,239 2,542 2C Contingent Resource 1,334 1,177 2,511 The estimates of gas reserves have been prepared by Mr Tim Hower, and staff under his supervision, of MHA Petroleum Consultants (Denver). Mr Hower is chairman of MHA and has over 25 years of petroleum engineering experience and is a qualified person as defined under the ASX listing rule 5.11. Reserves have been developed within the guidelines of the SPE. MHA has consented to the use of this information. Review of Commercial Developments Progress on local gas sales During the quarter, Metgasco has progressed its planning for supplying gas to local businesses in the Casino area. The planning for this project and final gas supply agreement are expected to be complete by the end of 2011 with first gas sales (subject to environmental and production license approvals) by end of 2012 (calendar year). Gas supply infrastructure for Richmond Dairies will be consolidated with gas supply infrastructure to the Richmond Valley Power Station (RVPS). The Company intends to construct the first stage of this project in the coming year. Gas commercialisation strategy Metgasco is continuing to engage in discussions with gas buyers on commercialisation opportunities. Review of Corporate Developments Successful Capital Raising In the previous quarter, Metgasco undertook an institutional placement at $0.26 per new ordinary share. This placement was completed on 17 June 2011 and raised $6.25 Million from new and existing institutional and sophisticated investors in Australia. Following this, the Company announced a Share Purchase Plan ( SPP ) on the same terms as offered to large investors. The SPP close on 26 July 2011 and raised a total of $15.3 Million. Funds from this capital raising will be used to progress the Company s commercialisation agenda. Metgasco Quarterly Report Page 4
Community and Government Engagement Metgasco continued to be actively engaged in community forums during the quarter with presentations being made to numerous communtiy and industry forums. These presentations have focussed on providing information on the regulatory environment that the coal seam gas industry operates within, standard operating practices for protection of ground water resources during drilling and the environmental benefits of gas as a clean energy source. A standing committee of the upper house of the Parliament of NSW is currently conducting an inquiry into the coal seam gas industry. Metgasco has made a formal submission to this inquiry. Representatives from this committee visited Metgasco s operations during the quarter and obtained a briefing on operational and environmental management practices in the gas exploration and production industry. This committee is expected to provide its findings in April 2012. The NSW Government is currently reviewing the activities of coal seam gas companies in NSW. During the quarter Metgasco completed an audit of well sites and provided a report to the NSW Department of Trade and Investment, Regional Infrastructure and Services on operational compliance with license terms and conditions. This compliance audit was a significant task completed in a short time frame. We are pleased to advise shareholders that Metgasco continues to maintain its excellent environmental track record with no environmental breaches identified. Metgasco has never had a reportable environmental incident in the history of its operations. Cash Position The Company ended the quarter with a cash position of $20.3 million. Annual Report and Annual General Meeting Metgasco s Annual Report was sent to shareholders on 13 October 2011. The Company s Annual General Meeting will be held at 11.00am on 14 November 2011 at Christie Corporate, Level 4, 100 Walker St, North Sydney, 2060. Shareholder Base At 30 September 2011 Metgasco had 337,396,221 shares on issue and 8,171,954 options outstanding. The number of shareholders as at 30 September 2011 was 5,856. Metgasco Quarterly Report Page 5
Outlook - Planned Forward Work Program Next Quarter 2012 drilling / development program: Planning and studies to support the 2012 program. New 2D seismic to be acquired over Mackellar North conventional gas structure Finalisation of land access agreements and government approvals for the acquisition of 34 line km of new 2D seismic. Commercial discussions Progress commercial discussions Background on Metgasco www.metgasco.com.au Metgasco has a 100% interest in PEL 16, 13 and 426 in the Clarence Moreton Basin in NSW where we operate the largest acreage position in the basin. Metgasco currently has 2P gas reserves of 428 Petajoules and 3P gas reserves of 2,542 Petajoules. We are exploring for conventional and unconventional gas. Metgasco is currently progressing its gas commercialisation agenda which includes gas and electricity supply to NSW and gas supply to Queensland. With gas in place resources likely to exceed the domestic markets requirements and sufficient to supply export scale projects, Metgasco is currently investigating LNG project development options. For further information contact: Peter Henderson Glenda McLoughlin Managing Director Chief Financial Officer Address Level 9, 77 Pacific Highway North Sydney NSW 2060 Tel: +61 2 9923 9100 Fax:+61 2 9923 9199 Metgasco Quarterly Report Page 6