COMET RIDGE LIMITED — Interim / Quarterly Report 2006

Jan 22, 2007

The Company Announcements Officer Australian Stock Exchange Limited Exchange Centre 20 Bridge Street SYDNEY NSW 2000

By Electronic Lodgement

QUARTERLY ACTIVITIES REPORT FOR THE PERIOD ENDING 31 DECEMBER 2007

HIGHLIGHTS

• First operated well successfully drilled with oil and gas shows over 245 foot thick reservoir section - well to be completed in New Year
• Drilling of second "proof of concept" well on Tow Creek imminent
• Portfolio of 30+ leads developed on Grays Harbor project
• Grays Harbor leasehold position increased by 18,500 acres
• 3 drilling permits for Vader/Cedar Creek submitted
• Leasehold position increased by 25,600 gross acres at Vader
• Rocky Mountain JV partners elected to participate in Florence
• Expanded 3D seismic program for Florence in final planning stage
• Tipton West Stage 1 development drilling completed
• AUD \$7.7 million raised via Entitlement Issue and Placement

US PROJECTS

Tow Creek/Bear River Project - Colorado

Coal View Unit 31-4

The Coal View Unit 31-4 was successfully drilled to a measured depth of 6,600 ft on 26 December. This well was the first of three "proof of concept" wells designed to evaluate the application of directional and under-balanced drilling to the exploitation of oil bearing fractured shales within the Cretaceous aged Niobrara Formation of Colorado.

The well was drilled on the south-eastern flank of the large Tow Creek structure seeking to extend the productive limits of the structure. The well was drilled such that the hole is angled at 40 degrees across the target zones. Oil and gas shows were encountered across two target reservoir intervals. A specialised down hole imaging tool reveals both intervals to be moderately to heavily fractured. It is the fractures that provide the storage

AUSTRALIA Level 9, Wesfarmers House 40 The Esplanade, Perth WA 6000 Phone: 61 8 6464 0499 Fax: 61 8 6464 0498

USA 600 17^th Street, Suite 600-S Denver, Colorado 80202 Phone: +1 (303) 226 1300 Fax: +1 (303) 226 1301

Cornet Ridge Limited ABN 47 106 092 577 Email: comet@cometridge.com.au Website: www.cometridge.com.au

and flow paths for the oil trapped in the reservoir so the presence of numerous fractures is very encouraging.

Completion of the well commenced subsequent to the reporting period, on 8 January, however very cold weather conditions caused a two week delay. The completion operation is due to recommence on 23 January and entails running a perforated liner into the hole and setting it across the interpreted pay intervals. The pipe will not be cemented, to avoid possible impairment of the fractures. An electric submersible pump will be installed at the bottom of the hole. This pump can be run at variable rates to optimise production from the well.

Peltier 11-12

The second well in the program, the Peltier 11-12, is due to spud on 12 January 2007. This well will test the same reservoir targets drilled in the CVU 31-4. The Peltier well is an immediate offset to a well that has produced 470,000 barrels of oil over its 26 year life. The well design is similar to the CVU 31-4 well but incorporates some key enhancements resulting from lessons learned during the drilling of that well.

The Tow Creek and Bear River prospects are relatively low risk exploitation prospects with sizeable per well reserve targets (200 to 500 thousand barrels). The Company has mapped an area of over 30,000 acres that has proven productive on the structure. Using conservative reservoir parameters it can be shown that there are potentially in excess of 200 million barrels of oil trapped in the structure. To date just over 6 MMBO or 3% of the inferred in place oil volume has been produced. Published recovery efficiencies for fractured reservoirs around the world are 15 to 20% and higher. Comet Ridge believes that a significant reserve target exists at Tow Creek, potentially measurable in the tens of millions of barrels. With current oil prices of US\$50+ (AUD\$64) per barrel and expected per well production rates of 50 to 150 BOPD it can be seen that success can quickly translate into cash flow and significant reserve value.

Undesignated Coal View Unit Well

Drilling of the third well will be delayed until the spring. Colorado has experienced a series of winter weather systems with significant snowfalls. These conditions are expected to continue for some time and add significantly to the cost of operations. They also add to the risk of injury. Continuing to operate in these conditions beyond the current obligation well and incurring additional costs is not the best use of shareholders' funds.

Leasehold Position Strengthened

The company continues to strengthen its leasehold position on the Tow Creek and Bear River prospects. An additional 2,408 acres were leased in the last quarter bringing the Company's position to almost 15,000 gross acres over the combined prospect areas. The Company has discontinued publishing maps showing its leasehold position due to competitive reasons.

Florence Project - Colorado (Comet Ridge 26%)

The Company announced on 3 October 2006 that it had closed on the acquisition of a 78% working interest in 4,678 acres (19 sq km) over the historic Florence Oil field in southern Colorado. Since then the Company has added significantly to its lease position (now approaching 7,000 acres) and is in the final stages of planning the acquisition of an expanded 3D seismic program covering approximately 7.5 sq miles.

Florence is the first expansion of the Niobrara oil play that Comet Ridge is pursuing in northern Colorado. In addition to the directional under-balanced drilling technology being applied at Tow Creek, the Company is looking to identify productive subsurface fracture trends via the application of 3D seismic.

In keeping with the terms of the Rocky Mountain Joint Venture arrangement, Comet Ridge offered its two Australian partners: Strike Oil Limited (ASX Code: STX) and A.J. Lucas Group Limited (ASX Code: AJL) the opportunity to participate in the Florence opportunity. Both partners elected to participate. Comet Ridge retains a 26% working interest and operatorship of the project.

Grays Harbor Project - Washington State (Comet Ridge 100% (through St Helens Energy LLC), Operator)

Significant progress has been achieved on the Grays Harbor project. All but one of the existing 2D lines have been received from the seismic reprocessors and interpretation is ongoing. The seismic is being integrated with the well information and other geophysical data sets to create a set of coherent structural and stratigraphic maps. In excess of 30 leads have already been identified and are in various stages of documentation, risking and ranking.

Comet Ridge, via its wholly owned subsidiary St Helens Energy, acquired leases covering in excess of 18,000 acres (74 sq km) at the Washington State oil and gas lease auction held in late October. The average acquisition cost was \$6 (AUD\$8) per acre for 7 year, 12.5% royalty leases.

St Helens now has approximately 438,000 acres (1,770 sq km) under either lease option or oil and gas lease.

Our goal is to be ready to drill by the end of 2007. In preparation, additional seismic acquisition is planned for the second quarter of 2007.

The Grays Harbor project offers numerous opportunities in the form of seismically defined structures and interpreted sand bodies encased in shales. Some of the structures are of sufficient size to contain 50 to 250 Billion Cubic Feet (BCF) of gas. Inhouse economic evaluations using conservative input parameters indicate that a modest 25 BCF discovery would have a before tax net present value of approximately US\$50MM (twice Comet Ridge's current market capitalisation). Clearly the Company's commanding leasehold position in this overlooked but proven oil and gas basin provides shareholders with significant leverage to success.

Cedar Creek/Vader Prospect - Washington (Comet Ridge 40% and non-operator (through St Helens Energy LLC))

The operator of the Cedar Creek/Vader project, Cascadia Energy, has advised St Helens that drilling on the Vader and Cedar Creek prospect areas will likely be deferred until the second quarter due primarily to permitting delays. The objective of these wells is to confirm the extent of the coal seam gas play and to establish a potential coal seam gas resource. Two of the locations will also test the shallow gas potential of sands trapped in structures along trend from a well that tested at a rate of 700 mcf/d from a sandstone reservoir at a depth of 700 feet.

Gas analyses show the gas in the Vader/Cedar Creek area to be dominantly biogenic in nature, i.e. it is generated by bacteria. This is the same mechanism responsible for the vast coal seam gas resources of the Powder River Basin of Wyoming. That basin now produces nearly 1 billion cubic feet of gas per day from similar low rank (thermally immature) coals.

The project area is ideally situated with respect to gas pipeline infrastructure with the Vader prospect acreage lying within 10 miles of a major interstate pipeline.

Cascadia and St Helens continue to assess the potential for conventional gas production from deeper sandstones that exist under the project areas. These potential reservoirs are the same age as those that produce gas at the Mist Field in northern Oregon (65 to 70 BCF of gas produced to date) 30 kilometres to the southwest of the Cedar Creek area. Gas shows and minor flows have been recorded in a number of wells in the Vader/Cedar Creek area from these sandstones.

AUSTRALIAN ACTIVITIES (See Location Map)

Mahalo, Northern ATP 337P, Queensland (Comet Ridge 40%, Non Operator)

A wire line log and a static borehole pressure survey were run in the Mahalo 2 well. The log reveals that the main objective coal seam has thinned and is 10 metres lower than the same coal in the Mahalo 1 well which is only 100 metres away. The surveys conducted do not resolve the question concerning the permeability of the coals nor the apparent lack of gas shows in the second well.

Despite this setback your management team is still enthusiastic about the Mahalo project due to the positive results of the four other wells drilled under the farm-in arrangement. The results of Mahalo 2 have not impacted the in-place gas resource assessment of between 180 and 1,000PJ at this time. With the recently developed trend of consolidation in the coal seam gas business in Queensland, in conjunction with the ever increasing doubts over the Papua New Guinea pipeline during a strengthening gas market, this project still has the potential to deliver significant shareholder value. Comet Ridge now owns a 40% interest in the project having fulfilled all of its earning obligations.

Tipton West Project (Comet Ridge 1.5% Royalty)

Comet Ridge retains a 1.5% gross royalty interest in the Arrow Energy NL operated permits in south-eastern Queensland where the target is the Jurassic aged Walloon Coal Measures.

Stage 1 development drilling (75 producing wells) was completed in December and dewatering is underway.

Arrow announced in early November that the Tipton West Joint Venture had executed a Processing Agreement with the Australian Pipeline Trust who will own and operate a \$31 million processing facility.

First gas sales, and hence rovalty income for Comet Ridge, are expected by late March, 2007.

Galilee Basin Permits (Comet Ridge 100%, Operator)

Comet Ridge has received approval from the Queensland Government to commence the Right to Negotiate process with Native Title Claimants over its two Galilee basin permit applications ATP 743P and ATP 744P.

Comet Ridge is also negotiating with a potential partner for both permits. This partner will carry Comet Ridge through a work program to earn an interest. The Company expects to execute definitive exploration agreements early in the New Year.

PEL'S 427 & 428, Gunnedah Basin, NSW (Comet Ridge 100% & 80%, Non-Op)

Farminee and Operator, Eastern Star Gas, has advised that the Spring Plains seismic survey which incorporates data to be acquired over PEL's 427 and 428 is scheduled for June/July 2007. Eastern Star is earning a 75% interest in PEL 427 and a 60% interest in PEL 428.

CAPITAL RAISING

The Company raised a total of AUD\$7.7 million before costs via a combination Non Renounceable Entitlement Issue and shortfall placement that closed early in the New Year.

The listed securities on issue now total 99.799.536 fully paid shares and 14.185.638 listed options exercisable at 40c and expiring 29 June 2007.

PERSONNEL

The Company's Brisbane based General Manager, Mr Vic Palanyk, has accepted a full time position and will no longer represent Comet Ridge. The Company thanks Vic for his support and dedication over the past two and a half years and congratulates him on his new position.

The Managing Director resumes being the principal point of contact for the Company's Australian interests.

HEALTH, SAFETY AND ENVIRONMENT

The Company and its contractors are very focused on keeping our people safe. The extreme weather conditions experienced in the Rockies this winter add significantly to the challenge.

Corporate Health and Safety Manuals and well specific Emergency Response Plans are in place.

FINANCIAL

As of 31 December 2006 the Company's functional currency became US dollars and all financial reports, including this quarter's Appendix 5B, will be stated in US dollars.

NEXT QUARTER ACTIVITIES

Tow Creek/Bear River

• Complete the Coal View Unit 31-4
• Drill and complete the Peltier 11-12 well
• Prepare to drill third "Proof of Concept" well
• Permit the CVU 36-15, CVU 18-8 and Kruse Trust 10-7 locations

Vader/Cedar Creek

• Permit and prepare to drill 3 to 4 wells in Q2 '07

Grays Harbor

• Finalise mapping of seismic, well data and surface geology
• Map and rank leads and prospects
• Acquire 2D seismic in calendar Q2
• Prepare for drilling later in the year

Florence

• Acquire, process and interpret 3D seismic
• Commence permitting process for drilling program to start in calendar Q3

Yours sincerely

rdyad

ANDREW LYDYARD Managing Director Comet Ridge Limited

For further information contact: Andy Lydyard (USA) Managing Director Phone: +1 (303) 226 1303 Fax: +1 (303) 226 1301 Mobile: +1 (303) 547 4478 Email: andyl@cometridge.com.au

Joanne Ford (Australia) Public Relations Manager Mobile: 0410 633 370 Email: jo@resourcepr.com.au

Location of Comet Ridge's Australian Interests