APA GROUP — Capital/Financing Update 2008

Jul 21, 2008

Heads of Agreement with Pipeline Company APA

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ASX Release: 22 July 2008

Narrabri Coal Seam Gas Secures Early Access to NSW Gas Market

Eastern Star Gas Limited (ASX: ESG) together with its joint venture partner, Gastar Exploration Ltd (AMEX: GST & TSX: YGA.TO) is pleased to announce it has entered into a Heads of Agreement with the APA Group (APA), owner of the Central West and Moomba Sydney Gas Pipelines. Under the HoA, options for early delivery of coal seam gas from the Narrabri area into the NSW gas market are to be investigated.

Mr David Casey, Managing Director of ESG said “we are going to work with APA to develop arrangements that it is envisaged will involve construction of a new pipeline lateral to connect the Narrabri coal seam gas project into APA’s existing gas transmission pipeline system”.

“By making use of existing infrastructure, early market access can be secured whilst complimenting later large-scale gas supply arrangements envisaged by our existing MoU’s with Macquarie Generation and Babcock & Brown” Mr Casey said.

“Securing early market access is of particular interest since, on present projections, gas production rates from the multi-lateral pilot production wells to be drilled by the joint venture later this year will, by around mid 2009, be in excess of what can be used in the Wilga Park Power Station, even with the proposed expansion of the power station. Having direct access to the NSW market will allow other opportunities to be pursued”.

Initially gas will be delivered to market via APA’s Central West Pipeline with APA’s NSW pipeline system subsequently expanded as gas production and markets grow. By matching gas production, pipeline and market requirements in this manner, capital efficiency is maximised and favourable gas transportation tariffs realised.

Mr Casey commented that “the Narrabri coal seam gas joint venture is delighted to be working with the APA Group, which is uniquely well placed to provide gas transportation services at an early opportunity”.

Drilling highlights:

• Dewhurst-4 corehole intersected 15.6m of Bohena coal and is 8km south of the Bibblewindi pilot area.

• Dewhurst-3 corehole intersected 16.2m of Bohena coal and is 8.6km east of the Bibblewindi pilot area.

• Dewhurst-2 corehole intersected 18.2m of Bohena coal including 14.7m in a single ply. Dewhurst-2 is 4.9km east of the Bibblewindi pilot area.

• Bibblewindi-11c corehole intersected 20.1m of Bohena coal including 11.8m in a single ply. Bibblewindi-11c is 4.5km south of the Bibblewindi pilot area.

Recent highlights:

• 2008 CSG exploration and appraisal programme is NSW’s largest ever.

• All new website online.

• Cash $40.86m at 31 March 2008.

Upcoming PEL238 news:

• First two multi laterals to spud late August 2008.

• 180km seismic programme on track for 3rd quarter.

• Schramm TXD-180 stateof-the-art drilling rig in field by August.

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Eastern Star Gas Limited ABN 29 094 269 780

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About ESG

ASX Release: 22 July 2008

ESG is focussed on exploration, development and production of coal seam gas.

The company’s main activity, the Narrabri Coal Seam Gas Project, is located in Petroleum Exploration Licence 238 adjacent to the township of Narrabri in New South Wales. ESG holds a 65.0% interest in the PEL 238 and is the operator. The remaining 35% interest is held by Gastar Exploration Limited (AMEX: GST & TSX: YGA). PEL 238 covers 9,100 kms² of the Gunnedah Basin, the most lightly explored portion of the Bowen-GunnedahSydney Basin complex which presently supplies the dominant proportion of Australia’s coal seam gas production. Production testing is underway at two locations (Bibblewindi and Bohena) and, on the basis of the production pilots, 2P gas reserves of 185 Petajoules and 3P gas reserves of 1,300 Petajoules were independently certified and announced on 24 January 2008.

Further reserves will be generated in 2008/09 in PEL238 through the 20 well corehole programme and the completion of 4 multi-lateral production pilot wells at Bibblewindi, Dewhurst and Coonarah. The in-seam, or horizontal, section of the multi-lateral wells will have a notional length of around 1 km, and will be drilled perpendicular to the fracture system within the target coal seams to maximise connectivity resulting in many times greater flow rates than can be achieved from vertical, fracture-stimulated wells.

Gas from the production pilots will be connected into ESG’s Wilga Park Power Station which will, be expanded to take production test gas in addition to gas currently supplied from ESG’s Coonarah gas field. MOU’s for the supply of gas from PEL 238 have been signed with Macquarie Generation (up to 500 PJ) and Babcock & Brown (up to 40 PJ/a).

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For further information contact:

David Casey Managing Director Tel: 61 2 9251 5599

Lou Caruana Farrington National Tel: 0413 486 155

www.easternstar.com.au

Street Address Postal Address Level 2, 37 Pitt Street, GPO Box 4526, Sydney NSW 2000 Sydney NSW 2001 Tel: 61 2 9251 5599 office@easternstar. Fax: 61 2 9251 2299 com.au ASX:ESG

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