HYDROCARBON DYNAMICS LIMITED — Interim / Quarterly Report 2012

Jul 26, 2012

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June 2012 27 July 2012 Quarterly Activity Report

Company Snapshot

ASX Code:	PYM
Recent price: (20 July 2012)	$0.037
Cash on hand:	$1,060,000
Shares outstanding:	259,360,278
Market Capitalisation:	$10m
Share price range (12 months):	$0.021 - $0.18

Production

Quarterly Sales Report (net to Pryme)

Project	June 2012 Quarter	June 2012 Quarter	Calendar Year to Date	Calendar Year to Date
	Natural Gas (Mcf)	Oil/Condensate (Bbls)	Natural Gas (Mcf)	Oil/Condensate (Bbls)
La Salle Parish	0	1,847	0	3,473
Four Rivers	0	1,402	0	2805
Raven *	11,200	263	23,956	576
Turner Bayou*	0	2,873	0	6142
Total	11,200	6,385	23,956	12,996
Total(BOE)**	8,252		16,989

• Actual sales for the first two months of the quarter and an estimate based on production data for the last month of the quarter.

** Natural gas is converted to BOE on the basis of 6 Mcf of natural gas is equivalent to 1 BOE.

Average net daily sales to Pryme’s account for the June quarter were 70 Bbls/day of oil and 123 Mcfd of natural gas (91 BOE/day). This represents a decrease of 6% from the March quarter and is mainly attributable to normal decline across most producing assets.

ABN: 75 117 387 354 Tel: +61 7 3371 1103 | Fax: +61 7 3371 1105 Level 7 320 Adelaide Street Brisbane Qld 4000 Australia | GPO Box 111 Brisbane Qld 4001 www.prymeenergy.com

BRISBANE – HOUSTON

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Turner Bayou Chalk Project

Pryme has a 40% working interest in 25,791 acres (10,316 net acres) in the Turner Bayou Project and is initially targeting development of the Austin Chalk horizon. up to 30 gross Austin Chalk well locations are possible within the project area based on a 640 acre well spacing.

In addition to the Austin Chalk potential of the Turner Bayou project area, exploration drilling within Pryme’s Turner Bayou leases has intersected the Tuscaloosa Marine Shale which is analogous to the prolific Eagle Ford Shale in South Texas. Several exploration and production companies operating in proximity to Turner Bayou have achieved encouraging results from tests of this formation. The Company will continue to monitor this activity and update the market as appropriate.

Wells to test the Austin Chalk formation within Turner Bayou are located using Pryme’s proprietary 3D seismic data, drilled to approximately 15,000 feet vertical depth and then horizontally for a further 4,000 to 6,000 feet targeting major phase oil. Naturally occurring fracture systems within the chalk act as the reservoir and typically do not require stimulation. Pryme has drilled two Austin Chalk wells within Turner Bayou (Pryme 40% WI). The second well, the Deshotels 13H, returned an initial potential rate of 1,167bpd of oil and 600Mcf/d of natural gas despite a sub optimal completion method and resulting mechanical issues.

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The above map shows recent activity in the Austin Chalk directly surrounding Prymes acreage in Avoyelles Parish Louisiana. Prymes acreage is centred in and around the green oval and wells drilled to date (Deshotels 20H and 13H) are shown in green.

Deshotels 20H and 13H Production (40% WI / 30% NRI)

The average daily production rate for these wells during the June 2012 quarter was 107 Bbls/day (32 Bbls/day net to Pryme.)

Production from both Deshotels 20H and 13H wells has remained fairly stable despite the mechanical issues encountered which impeded their effective completion. Installation of a lift system on the 20H in the coming months is expected to increase production until such time as the liner hanger is repaired and the well is completed properly.

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Over the past 6 months Pryme and its partners have been evaluating side-tracking of the Deshotels 13H well by drilling a new lateral well from the existing vertical well-bore and installing a slotted liner through the oil and natural gas fractures in the Austin Chalk formation. The side-tracked well would by-pass the failed Packers Plus liner system installed in the original lateral drilled from the 13H well-bore. It is intended that work on the side-track will commence after a farm-in partner or additional funding are secured.

The production units containing both the Deshotels 20H and 13H wells (approximately 2,160 acres) are held by production.

Farm Out Arrangements

During the Quarter the Company was focussed on farming out of a portion of Pryme’s interest in Turner Bayou with the aim of raising capital and accelerating the continuing field appraisal and development of the project. Work in this regard is continuing.

LaSalle Parish Project (8% - 21.5% Interest)

Second quarter oil sales of 1,847 barrels (20 Bbls/day net to Pryme) were 14% higher than for the previous quarter. This is mainly attributable to saltwater facility repairs in Routh Point Field which halted production from that field for 30 days and reduced production for the March Quarter.

Four Rivers Project (25% WI / 18.75% - 20% NRI)

Second quarter sales from the Four Rivers project was 1,402 barrels of oil net to Pryme, which was at the same level as in the previous quarter. Average sales net to Pryme were 15 Bbls/day for the quarter.

The LaSalle Parish and Four Rivers projects target the same Middle Wilcox formation oil sands in LaSalle, Winn, Concordia and Catahoula Parishes in Louisiana and in Adams, Jefferson and Wilkinson Counties in Mississippi. To simplify reporting on the progress of these projects they will be merged and referred to simply as the Four Rivers project. This change will be reflected on Pryme’s website in the coming weeks and in future reports to the ASX.

Raven Project (35% WI / 25.38% NRI)

First quarter sales for the Raven project were 11,200 Mcf of natural gas and 263 barrels of condensate net to Pryme, a 12% decrease in gas sales over the previous quarter due to normal decline and a 1.5% decrease in condensate sales due to the timing of oil deliveries and normal decline.

Financial

Cash on hand at 30 June 2012 was $1.1m. Cash receipts from oil & gas sales for the quarter totalled $0.7m. Revenue before royalty payments for the quarter totalled $0.8m. Cash receipts are lower than the reported revenue due to cash receipts from sales being disbursed net of royalties and the timing of working interest holder distributions by the operator.

For further Company information please visit our website at www.prymeenergy.com or contact:

Justin Pettett Ryan Messer Managing Director Chief Operating Officer Pryme Energy Limited Pryme Energy Limited Telephone: +61 7 3371 1103 Telephone: +1 713 401 9806 Email: justin@prymeenergy.com Email: ryan@prymeenergy.com

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Appendix 5B Mining exploration entity quarterly report

Introduced 01/07/96 Origin Appendix 8 Amended 01/07/97, 01/07/98, 30/09/01, 01/06/10, 17/12/10

Name of entity ABN Pryme Energy Limited 75 117 387 354

Quarter ended (“current quarter”) 30 June 2012

Consolidated statement of cash flows

Cash fo 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 1.10 1.11 1.12 1.13	ws related to operating activities Receipts from product sales and related debtors Payments for (a) exploration and evaluation (b) development (c) production (d) administration Dividends received Interest and other items of a similar nature received Interest and other costs of fnance paid Income taxes paid Other (provide details if material) Net Operating Cash Flows	Current quarter $A’000	Year to date (6 months) $A’000
		744 (204) - (389) (538) - 5 (348) - 55	1,505 (1,213) - (709) (1,140) - 45 (348) - 218
		(675)	(1,642)
	Cash fows related to investing activities Payment for purchases of: (a) prospects (b) equity investments (c) other fxed assets Proceeds from sale of: (a) prospects (b) equity investments (c) other fxed assets Loans to other entities Loans repaid by other entities Other (provide details if material) Net investing cash fows Total operating and investing cash fows (carried forward)	- - (2) - - 45 - - -	- - (59) - - 1,627 - - -
		43	1,568
		(632)	(74)

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Appendix 5B Mining exploration entity quarterly report

1.13 Total operating and investing cash fows (brought forward)	(632)	(74)
Cash fows related to fnancing 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 (provide details if material) Net fnancing cash fows	- - - (4,100) - -	- - - (4,100) - -
	(4,100)	(4,100)
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 ofquarter	(4,732) 5,773 19	(4,174) 5,233 1
	1,060	1,060

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 theparties included in item 1.10	Current quarter $A’000
		230
		-
1.25	Explanation necessaryfor an understandingof the transactions
	N/A

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 N/A

• 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

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Appendix 5B

Mining exploration entity quarterly report

Financing facilities available

Add notes as necessary for an understanding of the position.

3.1 Loan facilities 3.2 Credit standbyarrangements	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
	300
	-
	173
	525
Total	998

Reconciliation of cash

Reconciliation of cash
Reconciliation of cash at the end of the quarter (as shown in the consolidated statement of cash fows) to the related items in the accounts is as follows.	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)	1,060	5,773
	-	-
	-	-
	-	-
Total: cash at end ofquarter(item 1.22)	1,060	5,773

Changes in interests in mining tenements

6.1 Interests in mining tenements relinquished, reduced or lapsed 6.2 Interests in mining tenements acquired or increased	Tenement reference	Nature of interest (note (2))	Interest at beginning ofquarter	Interest at end of quarter
	-	-	-	-
	-	-	-	-

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Appendix 5B

Mining exploration entity quarterly report

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 (see note 3) (cents)	Amount paid up per security (see note 3) (cents)
7.1 Preference+securities (description) 7.2 Changes during quarter (a) Increases through issues (b) Decreases through returns of capital, buy-backs, redemptions			N/A
7.3 +Ordinary securities 7.4 Changes during quarter (a) Increases through issues (b) Decreases through returns of capital, buy- backs	259,360,278	259,360,278	Various	Fully Paid
7.5 +Convertible debt securities (description) 7.6 Changes during quarter (a) Increases through issues (b) Decreases through securities matured, converted	Nil 14,917,467	- -	- $0.30	- -
7.7 Options (description and conversion factor) 7.8 Issued during quarter 7.9 Exercised during quarter 7.10 Expired during quarter	- - -	- - -	Exercise Price - - -	Expiry Date - - -
7.11 Debentures (totals only)			NA
7.12 Unsecured notes(totals only)			NA

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Appendix 5B

Mining exploration entity quarterly report

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 5).

• 2 This statement does give a true and fair view of the matters disclosed.

Sign here: ...................................................... Date: 27 July 2012

(Director)

Print name: Justin Pettett

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 1022: Accounting for Extractive Industries and AASB 1026: Statement of Cash Flows apply to this report.

• 5 Accounting Standards ASX will accept, for example, the use of International Financial Reporting 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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