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EMERALD RESOURCES NL Interim / Quarterly Report 2009

Apr 29, 2009

64849_rns_2009-04-29_077b4479-0c73-47c5-af6b-378fdaa948ff.pdf

Interim / Quarterly Report

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Level 2, 16 Altona Street West Perth WA 6005 Ph: 08 9482 0510 Fax: 08 9482 0505 Email: [email protected] www.emeraldoilandgas.com

30 April, 2009

Centralised Company Announcements Platform Australian Stock Exchange 10[th] floor, 20 Bond Street Sydney NSW 2000

QUARTERLY ACTIVITIES AND CASHFLOW REPORT – MARCH 31, 2009

Please find attached the Quarterly Activities Report and Appendix 5B Quarterly Cashflow Report for the quarter ended March 31, 2009.

Yours sincerely,

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MIKE KRZUS Chief Executive Officer [email protected]

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ASX Release

30 April 2009

EMERALD OIL & GAS NL

Level 2, 16 Altona Street West Perth WA 6005 Tel: +61 8 9482 0510 Fax: +61 8 9482 0505

Contact:

QUARTERLY ACTIVITIES REPORT FOR THREE MONTHS ENDED 31 March 2009

Highlights

USA

  • Appalachian Basin Gas Development Project , Kentucky – 8 well frac program, first production from 3 wells.

MIKE KRZUS

Chief Executive Officer [email protected]

BOB BERVEN

Technical Director [email protected]

Extensive well re-work program under review possible commencement 3[rd] quarter 2009.

West Virginia – 2 wells drilled, extensive well deepening re-work program under due diligence. Possible commencement 3[rd] quarter to enable production system commissioning.

JOHN HANNAFORD

Finance Director

[email protected]

MORGAN BARRON

Company Secretary [email protected]

E-MAIL: [email protected]

WEBSITE:

www.emeraldoilandgas.com

Directors/Officers:

Jeremy Shervington - Chairman John Hannaford - Director Bob Berven – Director Mike Krzus – CEO / COO

Issued Capital:

115,481,534 Shares (EMR) 6,486,639 Unlisted options

  • NW Alice Project, Jim Wells County, Texas. Preparation for 2[nd] well, planned in 3[rd] quarter 2009.

  • Greenbush Project, Ward & Renville Counties, North Dakota. Encore Operating’s first horizontal well drilled in the quarter, results inconclusive and under review by operator.

Canning Basin WA

  • EP104 JV, Stokes Bay #1 well – Nitrogen stimulation flow test of well was inconclusive. Assessing options for further testing.

Corporate

  • Appointment Mike Krzus as CEO/COO, a petroleum engineer highly experienced in gas & oil field development and gas commercialisation.

Market Capitalisation: Undiluted $5.9m (@ 5.1 cents)

Cash on hand 31.03.09 $3.6 million

EMERALD OIL & GAS NL – MARCH QUARTERLY REPORT 2009

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USA Projects

Appalachian Basin, Kentucky and West Virginia (Emerald earning 80% Working Interests; Operator: P&J Resources Inc)

OVERVIEW

During the quarter Emerald progressed its Appalachian Basin Gas Development Project with the status as at the date of this report:

  • 8 gas well re-completion program in Magoffin County, Kentucky progressing well, with more favourable commercial terms agreed in principle - 3 wells now producing gas at approximately 60 Mscfd (currently limited by constraints of wellhead equipment), 5 awaiting fracture treatments;

  • Evaluating proposal by P&J Resources to re-complete up to 100 shut in gas wells in Magoffin County, Kentucky;

  • 2 recently drilled gas wells in Wayne County, West Virginia awaiting completion;

  • Concluding final gas sales arrangements for current and future gas production up to the capacity of existing gathering system in Kentucky;

  • US Corporate Consolidation to 100% ownership of entity holding the Appalachian project;

  • Emerald is currently negotiating the acquisition of interests in additional wells in West Virginia to aggregate gas production to commission a 10MMscfd production system and commence gas sales.

Extreme weather conditions over the winter including a ‘26 year’ storm, ice storms, heavy rain and continuing wet weather have made access roads impassable for much of the quarter. This has left some heavy equipment ‘stranded’ on location and resulted in well and pipeline activity delays in Kentucky and West Virginia. Weather conditions are expected to improve through the second and third quarters, (North American spring and summer) allowing more efficient operating conditions.

LOCATION

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P&J Resources’ acreage is located in Magoffin County, Kentucky and Wayne County, West Virginia.

EMERALD OIL & GAS NL – MARCH QUARTERLY REPORT 2009

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OPERATIONS

- Kentucky Magoffin County

Emerald and P&J Resources completed the Big Six formation with fracture stimulations in 3 wells during the quarter, which were put onto production in early April. The well completion program is continuing with the remaining 5 wells expected to be re-completed and on production by mid-year.

No production was recorded during the quarter, as first production was only achieved on 1 April. Three wells are currently producing at approximately 60Mscfd, limited by the constraints of wellhead equipment, but are expected to be capable of significantly higher production rates. Initial re-completions in all 8 wells will involve fracture treatments in the Big Six formation, due to its relatively high productivity and sweet gas which does not required sulfur treatment. However, multiple pay zones exist in all the wells in this area and it is intended to re-complete and comingle production from the remaining zones later.

Well Emerald
NRI*
Depth
(feet)
Producing
Formation
Status
GV Joseph - 6 65% 2,350 Big Six Producing April
Thomas Keeth-1 65% 2,280 Big Six Producing April
Don Cecil-1 65% 2,446 Big Six Producing April
J Montgomery-1 65% 2,976 Big Six Well re-completion in progress
J Montgomery-2 65% 3,147 Big Six Well re-completion in progress
JD Vander-pool #5 65% 2,500 Big Six Awaiting re-completion
GV Joseph – 1 65% 2,402 Big Six Awaiting re-completion
GV Joseph – 2 65% 2,350 Big Six Awaiting re-completion

*** 80% Working Interest in 81.25% Revenue Interest**

After discussions with P&J Resources (Operator), in-principle agreement was reached to increase the well re-completion program from 6 to 8 wells under more favorable commercial terms. As part of the new arrangements, 3 new wells were added. One of these wells replaced the Timothy Franklin well (previously included in the original 6 well agreement) with a well closer and more easily tied in to the BTU gathering system. Emerald is farming in to the additional wells by paying 100% of the re-completion costs for an 80% working interest. In addition, Emerald will receive 100% of the working interest revenue less a 1/16 overriding royalty until well completion costs are recovered, before reverting to its 80% working interest.

Under the new arrangements, the wells are tied in to BTU Energy’s gathering system and Emerald has been granted free access to the system. The BTU gathering system connects to the Jefferson Gas LLC gas pipeline. Gas pricing under the gas sales agreement between BTU and Jefferson is yet to be finalized, but is expected to reflect between 80% and 90% of realized Appalachian gas pricing for initial production, with price escalating as delivered volumes increase.

Well Re-work Program

P&J has offered Emerald access to approximately 100 existing wells which require re-work similar to the 8 well programme above, on similar commercial terms. These wells are

EMERALD OIL & GAS NL – MARCH QUARTERLY REPORT 2009

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already tied into the BTU gathering system and gas would be sold into Jefferson’s pipeline on the same terms. Emerald has commenced technical studies and due diligence on what is expected to be an extensive well re-work program in P&J’s Magoffin County acreage.

Under the proposed terms Emerald would pay all well re-work costs for an 80% working interest in each well. In addition, Emerald would receive 100% of the working interest revenue less a 1/16 ORR until costs are recovered, before reverting to its 80% working interest. Emerald is reviewing available well data with a view to commencing well re-work activities in the third quarter.

The objective of the above existing well programs is to rapidly increase Emerald’s Appalachian production base and revenue stream at a fraction of the cost of trying to achieve the same by drilling new wells.

50 well acquisition and associated infrastructure

Emerald has decided not to proceed with the previously proposed acquisition of a 25% interest in 50 wells in Magoffin County due to legal issues in relation to the title of the remaining 75% interest in the wells.

- West Virginia Wayne County

The two wells drilled in Wayne County in 2008 were to be completed with fracture stimulation treatments during the quarter, however poor conditions of the access roads due to heavy rain prevented movement of necessary equipment. These wells will be completed in the second quarter as soon as conditions improve. Drilling activity on third well, Ferguson #4 has been deferred, pending studies to determine Emerald’s development plans in the area.

Well Emerald
NRI*
Depth
(feet)
Prospective
Formations
Status
Myrtle Crum #4 65% 5,200 Devonian Shale,
Coniferous, Big Six
Awaiting well completion
Chiarenzelli 1 65% 5,200 Devonian Shale,
Coniferous, Big Six
Awaiting Well Completion
Ferguson #4 65% 4,000 Devonian Shale,
Coniferous, Big Six
Site prepared, awaiting drilling decision

*** 80% Working Interest in 81.25% Revenue Interest**

Emerald is currently initiating technical planning and working to consolidate commercial arrangements for its ownership interests in the Big Sandy 10” pipeline and associated gas production system (system capacity 10 MMscfd) and for working interests in additional gas wells and acreage surrounding the production system. The Big Sandy gas development represents a substantial growth opportunity for Emerald, involving integrated beneficial interests across the entire upstream value chain, from gas wells and associated reserves through the gas gathering/processing infrastructure to the gas sales point.

Studies are expected to commence in Q2 to plan commissioning of the Big Sandy production system, consisting of a 10” pipeline, compressors and trunkline tap into the El Paso gas Trunkline. This will indicate the initial well volumes required to reliably start up the production system, which will in turn drive well activities. Initial scoping estimates suggest 5 to 7 gas wells may be needed to provide sufficient production volumes and pressure to commission the new production system and achieve initial steady state operations. This gas is expected to come from the recently drilled Emerald wells above, a

EMERALD OIL & GAS NL – MARCH QUARTERLY REPORT 2009

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number of wells from the well Deepening program below and/or acquisition of new gas well interests in the area.

Well Deepening Program

P&J has approximately 100 existing, shut-in wells, previously drilled and cased to the Berea formation (~1800 feet). P&J and Emerald are investigating a program to re-enter and deepen these wells to Devonian Shale (~2600 feet). It is proposed Emerald pays the costs of deepening and re-completing the wells for an 80% working interest in each well, on similar terms to the Kentucky re-work wells.

As with the Kentucky well re-completion programs, the objective is to rapidly build a substantial production base at a fraction of the cost of drilling new wells. Technical due diligence with available technical data is expected to commence in Q2, with the well deepening program potentially commencing in the third quarter, subject to technical studies and conclusion of commercial agreements.

Appalachian Drilling Plans

Emerald intends to concentrate its efforts on maximizing production in Kentucky and West Virginia in the short term through existing well projects to demonstrate production potential of the areas and establish a secure revenue stream before further drilling. This will also provide the technical insight required to optimally locate new wells and will hopefully allow time for US gas prices to improve before committing further drilling expenditure.

Emerald has withdrawn from funding arrangements with Avant Garde Resources LLC entered into in 2008, regarding the provision of funding for the Appalachian drilling.

North West Alice, Jim Wells County, Texas (Emerald 10% Working Interest; Operator: Noble Energy Inc.)

The Operator, Noble Energy, has completed processing and interpretation of the 3D seismic data covering the large 100 Bcf anticline structure where the discovery well was drilled in March 2007. The operator is completing the acquisition of further leases in the Area of Mutual Interest. A follow up well is planned for Q3 2009.

Greenbush Project, Ward & Renville Counties, North Dakota (Emerald 3.75% Working Interest after payout; Operator: Encore Operating LP)

During the quarter, Encore Operating LLC completed the recently drilled Brekhus 2-14H horizontal Bakken well with an open hole hydraulic fracture treatment. Results to date are inconclusive and Emerald is awaiting a recommendation from the Operator.

New Projects – USA

The Company continues to review and assess new oil and gas exploration project opportunities in the USA which have been sourced through current partners and other industry participants.

EMERALD OIL & GAS NL – MARCH QUARTERLY REPORT 2009

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Australian Projects

EP104/R1, Canning Basin WA (Emerald 12.75% Working Interest; Operator: Arc Energy Ltd)

The Stokes Bay well was drilled in October, 2007 in the EP 104/R1 Permits located in the Canning Basin, near the town of Derby, Western Australia. The well was suspended after large volumes of drilling mud were lost in what is believed to be a cavernous reef system in the Nullara Formation. Since then, two attempts were made by the Operator, Buru Energy Limited, to induce flow in the well and to obtain a gas sample. Both attempts failed, however wellhead pressures of around 1200 psi and gas accumulation in the well reoccurred after each attempt.

Emerald is currently awaiting advice from Buru regarding further well activities to determine if the Stokes Bay well is a potentially commercial gas discovery. Emerald intends to work with Buru and other joint venture participants during Q2 to clarify a way forward for this potential gas discovery.

EPA 4/05-6 Canning Basin, WA

(Emerald 100% Working Interest and operator)

Emerald’s application EPA 4/05-6 lies immediately to the west of the EP104 permits and, is currently proceeding through the Native Title process. The permit covers a significant extension of the Pinnacle Fault to the west of the EP104/R1 permit and includes several structures similar to that intersected at Stokes Bay mapped from existing seismic data.

EP463 & TP24 (Lacepede Islands) AND WA-419-P (Offshore) Canning Basin, WA (Emerald 100% Working interest, Operator)

During the quarter, Emerald commenced planning for studies to mature leads and prospects in its strategic holdings along the structurally significant Pinnacle Fault zone and its projection offshore. The Pinnacle Fault is a key structural element between the Fitzroy Sub-Basin and the Lennard Shelf. It is believed to be the conduit for oil and gas migration from the Fitzroy Sub-Basin into structural and stratigraphical traps on the adjacent Lennard Shelf to the north.

In view of the successful discovery of Devonian “reefal” reservoir rocks in the Stokes Bay 1 well at EP104/R1, Emerald believes there is significant potential to discover several similar prospects along the western extension of the Pinnacle Fault (see map below).

EMERALD OIL & GAS NL – MARCH QUARTERLY REPORT 2009

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Canning Basin showing Emerald’s EP104 / R1 (pale yellow, Emerald 12.75%) and EPA 4/05-6 (green, Emerald 100%) interests, and mapped prospects and leads. The new EP L07-6 & T071 (Lacapede Islands) and EPA 13SL/07-8 blocks (Emerald 100%) are shown in yellow. The main feature on all leases is the Pinnacle Fault, the conduit for much of the previous hydrocarbon production on the Lennard Shelf portion of the Canning Basin.

Emeralds current tenement holdings in the Canning Basin are:

Exploration Permit/Retention
Licence/Applications
Emerald Net
Working Interest
Permit Size
(approx sq km)
EP 104 (R5)
12.75%
Retention Lease R1
12.75%
Application L98-1 (option)
12.75%
Application EP 4/05-6
100%
EP463
100%
TP24
100%
WA-419-P
100%
Total
700
290
200
4,600
200
400
8,000
14,390

EMERALD OIL & GAS NL – MARCH QUARTERLY REPORT 2009

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Corporate

During the quarter, Mr Mike Krzus was appointed CEO/COO. Mr Krzus is a highly experienced petroleum engineer with over 26 years experience in the Oil & Gas Industry in Canada, the Netherlands and Australia, including 22 years with Woodside and Shell. Mr. Krzus has extensive experience in oil & gas field development and production optimisation and in gas commercialization, ranging from small onshore fields to large, complex, integrated offshore oil/gas and LNG developments. Emerald is pleased to welcome Mr Krzus to the company.

At 31 March 2009 the consolidated entity had $3.6m cash on hand.

The Company made the following announcements during the quarter and up to the date of this quarterly report:

Date Headline
6/04/2009 Notice ofGeneral Meeting/ProxyForm
3/04/2009 FIRST GAS PRODUCTION IN KENTUCKY
11/03/2009 Half Year Accounts
19/02/2009 GREENBUSH PROJECTUPDATE
12/02/2009 APPOINTMENT OF CEO / COO
2/02/2009 QuarterlyActivities and Cashflow Report

For more information please contact:

Emerald Oil & Gas NL

Tel: +618 9482 0510

MIKE KRZUS Chief Executive Officer [email protected]

JOHN HANNAFORD Executive Director – Finance [email protected]

About Emerald Oil & Gas NL

Emerald Oil & Gas NL (ASX: EMR) was listed on the ASX in June 2006. Emerald is an oil and gas exploration and production company with project interests in Kentucky, West Virginia, North Dakota and Texas in the USA and in the Canning Basin of Western Australia. Emerald’s focus is on both conventional and non-conventional reservoir targets for oil and gas prospects. Its primary objective is to achieve near term production and cashflow to build shareholder value and provide funds to fuel further growth. Emerald’s strategy is to take modest but meaningful positions in exploration projects that can be swiftly brought into production.

EMERALD OIL & GAS NL – MARCH QUARTERLY REPORT 2009

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Information in this report pertaining to exploration potential was compiled by Robert Berven, Emerald Oil & Gas NL’s Technical Director who is a Member of the Australasian Institute of Mining and Metallurgy and the American Association of Petroleum Geologists CPG # 2498.

Statements regarding Emerald’s plans with respect to its petroleum properties are forward-looking statements. There can be no assurance that Emerald’s plans for development of its petroleum properties will proceed as currently expected. There can be no assurance that Emerald will be able to confirm the presence of additional petroleum deposits, that any discovery will prove to be economic or that an oil or gas field will successfully be developed on any of Emerald’s petroleum properties.

EMERALD OIL & GAS NL – MARCH QUARTERLY REPORT 2009

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Appendix 5B

Mining exploration entity quarterly report

Name of entity

Emerald Oil & Gas NL

ABN
009 795 046
Consolidated statement of cash flows
Quarter ended(“currentquarter”) Quarter ended(“currentquarter”)
31 March 2009
Cash flows related to operating activities
1.1
Receipts from product sales and related
debtors
1.2
Payments for:
(a) exploration and evaluation
(b) development
(c) production
(d) administration
1.3
Dividends received
1.4
Interest and other items of a similar nature
received
1.5
Interest and other costs of finance paid
1.6
Income taxes paid
1.7
Other (provide details if material)
Net Operating Cash Flows
Current quarter
$A’000
Year to date
(9 months)
$A’000
(27)
(921)
(492)
132
(903)
(1,275)
(1,040)
290
(1,308) (2,928)
Cash
flows
related
to
investing
activities
1.8
Payment for purchases of:
(a) prospects
(b) equity investments
(c) other fixed assets
1.9
Proceeds from sale of:
(a) prospects
(b) equity investments
(c) other fixed assets
1.10
Loans to other entities
1.11
Loans repaid by other entities
1.12
Other (provide details if material)
Net investing cash flows
1.13
Total operating and investing cash flows
(carriedforward)
-
-
(115)
1,298
- 1,183
(1,308) (1,745)

EMERALD OIL & GAS NL – MARCH QUARTERLY REPORT 2009

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1.13
Total operating and investing cash flows
(brought forward)
(1,308) (1,745)
Cash
flows
related
to
financing
activities
1.14
Proceeds from issues of shares, options,
etc.
1.15
Proceeds from sale of forfeited shares
1.16
Proceeds from borrowings
1.17
Repayment of borrowings
1.18
Dividends paid
1.19
Other - Capital Raising Costs
1.20
Other
Net financing cash flows - -
Net increase (decrease) in cash held
1.20
Cash at beginning of quarter/year to date
1.21
Exchange rate adjustments to item 1.20
1.22
Cash at end of quarter
(1,308)
4,970
-
(1,745)
5,407
-
3,662 3,662

Payments to directors of the entity and associates of the directors Payments to related entities of the entity and associates of the related entities

1.23
1.24
Aggregate amount of payments to the parties included in
item 1.2
Aggregate amount of loans to the parties included in item
1.10
Current quarter
$A'000
147
Nil
1.25 Explanation necessary for an understanding of the transactions
The amount above includes payments to directors and to companies associated with
John Hannaford and Jeremy Shervington for this quarter and previous quarters.
The payments to Ventnor Capital, accompany associated with John Hannaford relate
to the provision of consulting fees, company secretarial services, accounting and
bookkeeping, secretarial services and the provision office accommodation on
commercial terms.
The payments to Jeremy Shervington Legal Practice relate to the provision of legal
services oncommercialterms.

Non-cash financing and investing activities

  • 2.1 Details of financing and investing transactions which have had a material effect on consolidated assets and liabilities but did not involve cash flows

  • 2.2 Details of outlays made by other entities to establish or increase their share in projects in which the reporting entity has an interest N/A

EMERALD OIL & GAS NL – MARCH QUARTERLY REPORT 2009

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Financing facilities available

Add notes as necessary for an understanding of the position.

3.1
Loan facilities
3.2
Credit standby arrangements
Amount available
$A’000
Amount used
$A’000
- -
- -

Estimated cash outflows for next quarter

4.1
Exploration and evaluation
4.2
Development
4.3
Production
4.4
Administration
$A’000
500
800
200
Total 1,500

Reconciliation of cash

Reconciliation of cash
Reconciliation of cash at the end of the quarter (as
shown in the consolidated statement of cash flows)
to therelateditemsinthe accountsis asfollows.
Current quarter
$A’000
Previous quarter
$A’000
5.1
Cash on hand and at bank
5.2
Deposits at call
5.3
Bank overdraft
5.4
Other (provide details)
3,662 2,080
- 2,890
- -
- -
Total: cash at end of quarter(item 1.22) 3,662 4,970

Changes in interests in mining tenements

g tenements
Tenement
reference
Nature of
interest
(note (2))
Interest at
beginning of
quarter
Interest at
end of
quarter
W07-12,
EP463,
TP/24, WA-
419P
Emerald
100%
working
interest
Nil 100%
Working
Interest

EMERALD OIL & GAS NL – MARCH QUARTERLY REPORT 2009

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Issued and quoted securities at end of current quarter

Description includes rate of interest and any redemption or conversion rights together with prices and dates.

Total number Number
quoted
Issue price
per security
(cents)
Amount paid
up per
security
(cents)
7.1
Preference+securities
(description)
7.2
Changes during quarter
(a) Increases through
issues
(b) Decreases through
returns of capital, buy-
backs, redemptions
7.3
+Ordinary securities
7.4
Changes during quarter
(a) Increases through
issues
(b) Increases through
conversion of options
(c) Release from escrow
(d) Decreases through
returns of capital, buy-
backs
115,481,534 115,481,534
7.5
+Convertible debt
securities(description)
7.6
Changes during quarter
(a) Increases through
issues
(b) Decreases through
securities matured,
converted
- -
- -
7.7
Options (description and
conversion factor)
7.8
Issued during quarter
7.9
Exercised during quarter
7.10
Expired during quarter
661,638
2,000,000
1,500,000
325,000
2,000,000
-
-
-
-
-
Exercise price
17.68 cents
30 cents
25 cents
25 cents
25 cents
Exercise date
23/01/11
31/12/09
28/02/10
31/12/09
31/05/11
- -
- -
- -
7.11
Debentures
(totals only)
- -
7.12
Unsecured notes (totals
only)
- -

EMERALD OIL & GAS NL – MARCH QUARTERLY REPORT 2009

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Compliance statement

1 This statement has been prepared under accounting policies which comply with accounting standards as defined in the Corporations Act or other standards acceptable to ASX (see note 4).

2 This statement does / ~~does not*~~ give a true and fair view of the matters disclosed.

Sign here:

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Date: 30 April 2009

(Director/Company secretary)

Print name: John Hannaford

Notes

1 The quarterly report provides a basis for informing the market how the entity’s activities have been financed for the past quarter and the effect on its cash position. An entity wanting to disclose additional information is encouraged to do so, in a note or notes attached to this report.

2 The “Nature of interest” (items 6.1 and 6.2) includes options in respect of interests in mining tenements acquired, exercised or lapsed during the reporting period. If the entity is involved in a joint venture agreement and there are conditions precedent which will change its percentage interest in a mining tenement, it should disclose the change of percentage interest and conditions precedent in the list required for items 6.1 and 6.2.

3 Issued and quoted securities The issue price and amount paid up is not required in items 7.1 and 7.3 for fully paid securities .

4 The definitions in, and provisions of, AASB 6: Exploration for and Evaluation of Mineral Resources and AASB 107: Cash Flow Statements apply to this report.

5 Accounting Standards ASX will accept, for example, the use of International Accounting Standards for foreign entities. If the standards used do not address a topic, the Australian standard on that topic (if any) must be complied with.

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EMERALD OIL & GAS NL – MARCH QUARTERLY REPORT 2009

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