KEY PETROLEUM LIMITED

KEY PETROLEUM LIMITED ABN 50 120 580 618

NOTICE OF ANNUAL GENERAL MEETING

EXPLANATORY MEMORANDUM

AND PROXY FORM

Date of Meeting 30 November 2012 Time of Meeting 10:00 am

Place of Meeting The Celtic Club 48 Ord Street WEST PERTH WA 6005

This Notice of Annual General Meeting should be read in its entirety. If Shareholders are in doubt as to how they should vote, they should seek advice from their accountant, solicitor or other professional adviser prior to voting.

The 2012 Annual Report may be viewed on the Company’s website at www.keypetroleum.com.au

KEY PETROLEUM LIMITED

Notice of Annual General Meeting 30 November 2012

ABN 50 120 580 618

NOTICE OF ANNUAL GENERAL MEETING

Notice is hereby given that the Annual General Meeting of Shareholders of Key Petroleum Limited ( Company ) will be held at The Celtic Club, 48 Ord Street, West Perth, Western Australia on 30 November 2012 at 10:00 am for the purpose of transacting the following business.

The Explanatory Memorandum to this Notice provides additional information on matters to be considered at the meeting. The Explanatory Memorandum and the Proxy Form are part of this Notice.

Terms used in this Notice will, unless the context otherwise requires, have the same meaning given to them in the glossary contained in the Explanatory Memorandum.

2012 Financial Statements

To receive the financial statements of the Company for the year ended 30 June 2012, consisting of the annual financial report, the Directors’ report and the auditor's report.

Resolution 1 – Re-election of Dennis Wilkins as a Director

To consider and, if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution :

" That Dennis Wilkins, having retired as a Director of the Company in accordance with the Company’s Constitution and, being eligible, having offered himself for re-election, be re-elected a Director of the Company. "

Short Explanation: Pursuant to the Company’s Constitution, one-third of the Directors of the Company (other than the Managing Director) must retire at each AGM and, being eligible, may offer themselves for re-election at that AGM.

Resolution 2 – Election of Kane Marshall as a Director

To consider and, if thought fit, pass the following resolution as an ordinary resolution:

“That, for all purposes, Kane Marshall, who was appointed to the Board since the last Annual General Meeting of the Company is elected as a Director.”

Short Explanation: Pursuant to Listing Rule 14.4, a director appointed as an addition to the board must not hold office (without re-election) past the next AGM of the Company and, being eligible, may offer themselves for re-election.

Resolution 3 – Election of Ian Paton as a Director

To consider and, if thought fit, pass the following resolution as an ordinary resolution:

“That, for all purposes, Ian Paton, who was appointed to the Board since the last Annual General Meeting of the Company is elected as a Director.”

Resolution 4 - Election of Rex Turkington as a Director

To consider and, if thought fit, pass the following resolution as an ordinary resolution:

“That, for all purposes, Rex Turkington, who was appointed to the Board since the last Annual General Meeting of the Company is elected as a Director.”

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KEY PETROLEUM LIMITED Notice of Annual General Meeting 30 November 2012

Resolution 5 – Adoption of Remuneration Report

To consider and, if thought fit, to pass, with or without amendment, the following advisory only resolution:

" That, for the purposes of Section 250R(2) of the Corporations Act, and for all other purposes, the Remuneration Report forming part of the Company’s 2012 Annual Report be and is hereby adopted. "

Short Explanation: Section 250R of the Corporations Act requires a listed company to put to Shareholders at each AGM a resolution adopting the report on the remuneration of the Company’s Directors, executives and senior managers included in the Company’s Annual Report. The above Resolution is being proposed to comply with this requirement. The vote on this Resolution is advisory and neither binds the Company’s Directors nor the Company. A reasonable opportunity will be provided to Shareholders for discussion of the Remuneration Report at the AGM.

Voting Prohibition : The Company will, in accordance with the Corporations Act, disregard any votes cast on Resolution 5 by a member of the key management personnel or a Closely Related Party of such a member. However, the Company will not disregard a vote if it is cast by a that person as a proxy appointed in writing and the proxy specifies how that person is to vote on Resolution 5 and the vote is cast on behalf of that person.

Resolution 6 – Approve Increase in Level of Directors Remuneration

To consider and, if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution :

"That in accordance with Listing Rule 10.17 of the Listing Rules of ASX, the maximum aggregate remuneration payable to Directors as Directors’ fees be increased from $300,000 to $500,000 for each financial year commencing 1 July 2012 and to be allocated between the Directors in such proportion as the Board may determine.”

Short Explanation: The Company’s Constitution and the Listing Rules require shareholder approval to increase the maximum Directors’ fees payable to non-executive Directors in each year.

Voting Exclusion: The Company will, in accordance with the Listing Rules, disregard any votes cast on Resolution 6 by any of the Company’s Directors and any of their Associates. However, subject to the voting prohibition below, the Company will not disregard a vote cast by a person as a proxy for a person who is entitled to vote, in accordance with the directions on the proxy form, or cast by the person chairing the meeting as a proxy for a person who is entitled to vote, in accordance with the directions on the proxy form to vote as the proxy decides.

Voting Prohibition: The Company will, in accordance with the Corporations Act, disregard any votes cast on Resolution 6 by a member of the key management personnel or a Closely Related Party of such a member. However, the Company will not disregard a vote if it is cast by such a person if:

(a) the person is acting as proxy and the proxy form specifies how the proxy is to vote, and the vote is not cast on behalf of a person who is otherwise excluded from voting on this Resolution as described above; or
(b) the person is the Chair voting an undirected proxy which expressly authorises the Chair to vote the proxy on a resolution connected with the remuneration of a member of the key management.

Resolution 7 – Ratification of Allotment and Issue of Shares

To consider and, if thought fit, to pass the following resolution, with or without amendment, as an ordinary resolution :

“That, for the purpose of Listing Rule 7.4 of the Listing Rules of the ASX and for all other purposes, the Company approves and ratifies the allotment and issue of 42,436,710 Shares to persons who are not related parties of the Company.”

Voting Prohibition : The Company will disregard any votes cast on this Resolution by a person who participated in the issue and any associates of those persons. However, the Company need not disregard a vote if it is cast by a person as a proxy for a person who is entitled to vote, in accordance with the directions on the Proxy Form, or, it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the Proxy Form to vote as the proxy decides.

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Resolution 8 – Approval of 10% Placement Facility

To consider and, if thought fit, to pass, with or without amendment, the following resolution as a special resolution :

“ That, pursuant to and in accordance with Listing Rule 7.1A and for all other purposes, Shareholders approve the issue of Equity Securities up to 10% of the issued capital of the Company (at the time of the issue) calculated in accordance with the formula prescribed in Listing Rule 7.1A.2 and on the terms and conditions in the Explanatory Memorandum. ”

Voting Prohibition: The Company will disregard any votes cast on this Resolution by a person (and any associates of such a person) who may participate in the 10% Placement Facility and a person who might obtain a benefit, except a benefit solely in the capacity of a holder of Shares, if this Resolution is passed.

However, the Company will not disregard a vote if:

(a) it is cast by a person as a proxy for a person who is entitled to vote, in accordance with directors on the Proxy Form; or

(b) it is cast by the Chairman as proxy for a person who is entitled to vote, in accordance with a direction on the Proxy Form to vote as the proxy decides.

Resolution 9 – Approval of Grant of Options to Mr Rex Turkington

To consider and, if thought fit, to pass, with or without amendment , the following resolution as a special resolution :

“That, for the purpose of Listing Rule 10.11 of the Listing Rules, section 208 of the Corporations Act and for all other purposes, the issue to Mr Rex Turkington, or his nominees, for nil consideration of three tranches of 2,000,000 Options (6,000,000 in total) to acquire fully paid shares in the capital of the Company, at exercise prices of 150%, 175% and 200% respectively of the VWAP of the fully paid ordinary Shares of the Company on the five trading days prior to the date of the meeting to approve the issue, expiring on 6 August 2017, on the terms and conditions outlined in the Explanatory Statement and in Annexures A, B and C, be and is hereby approved.”

Short Explanation: Approval is sought under Listing Rule 10.11 and section 208 of the Corporations Act to authorise the Company to issue these securities. Please refer to the Explanatory Statement for details. If approval is given under Listing Rule 10.11, approval is not required under Listing Rule 7.1.

Voting Exclusion Statement

The Company will, in accordance with the Listing Rules, disregard any votes cast on Resolution 9 by any person who may participate in the proposed issue or a person who might obtain a financial benefit, except a benefit solely in the capacity of a holder of ordinary securities, if the resolution is passed, or any associate of that person. However, the Company will not disregard a vote cast by a person as a proxy for a person who is entitled to vote, in accordance with the directions on the proxy form, or cast by the person chairing the meeting as a proxy for a person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides.

Resolution 10 – Approval of the Employee Share Option Plan of Key Petroleum Limited

To consider and, if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution :

“That the Employee Share Option Plan of Key Petroleum Limited, the rules of which are appended to the Explanatory Statement, and the issue of options under that plan, be approved by Shareholders for all purposes, including for the purpose of Listing Rule 7.2 Exception 9 (as an exception to Listing Rule 7.1).”

Voting Prohibition: The Company will disregard any votes cast on Resolution 10 by a Director of the Company (except a Director who is ineligible to participate in any employee incentive scheme in relation to the Company) and any associate of a Director. However, the Company need not disregard a vote on this Resolution 10 if it is cast by a person as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form or it is cast by the person chairing the meeting as proxy for a person entitled to vote, in accordance with a direction on a proxy form to vote as the proxy decides.

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Resolution 11 – Key Management Personnel Options – Amendment of Manner of Exercise

To consider and, if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution:

“That Shareholders approve changes in relation to the amendment to the manner of exercise of Options on the terms and conditions set out in the Explanatory Memorandum.”

Voting Exclusion: The Company will disregard any votes cast on this Resolution by any Director, other than any Directors who are ineligible to participate in any employee incentive scheme in relation to the Company, and any associates of those Directors. However, the Company need not disregard a vote if it is cast by a person as a proxy for a person who is entitled to vote, in accordance with the directions on the Proxy Form, or, it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the Proxy Form to vote as the proxy decides.

Resolution 12 – Share Placement Facility

To consider and if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution :

“That, for the purpose of Listing Rule 7.1 of the Listing Rules of the ASX and for all other purposes, the Directors be authorised to issue and allot up to 100,000,000 Shares in the capital of the Company at an issue price of not less than 80% of the average market price of the Company’s Shares (calculated over the 5 days on which sales of shares were recorded before the day on which the issue is made), with such Shares to be issued to such persons as the Directors in their absolute discretion may determine and otherwise upon the terms and conditions set out in the Notice and Explanatory Memorandum”

Short Explanation : Approval is sought under Listing Rule 7.1 to allow the Company to allot and issue up to 100,000,000 Shares at an issue price not less than 80% of the average market price of the Company’s Shares. Any Shares issued in accordance with Resolution 12 will be issued and allotted 3 months from the date of the AGM (or such later date as approved by ASX). Please refer to the Explanatory Memorandum for details.

Voting Exclusion : The Company will, in accordance with the Listing Rules of the ASX disregard any votes cast on Resolution 12 by any person who may participate in the proposed issue and a person who might obtain a benefit, except a benefit solely the in the capacity of a holder or ordinary securities, if the resolution is passed, and any of their Associated. However, the Company will not disregard a vote if it is cast by a person as proxy for a person who is entitled to vote, in accordance with the directors on the proxy form, or it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides.

A Proxy Form is attached.

To be valid, properly completed Proxy Forms must be received by the Company no later than 10:00 am (WST) on 28 November 2012:

by post to:

GPO Box 242, Melbourne VIC 3001

by facsimile on 1800 783 447 (within Australia) or +61 3 9938 4434 (outside Australia

By order of the Board

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Dennis Wilkins Company Secretary Date: 11 October 2012

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KEY PETROLEUM LIMITED Notice of Annual General Meeting 30 November 2012

PROXIES

A Shareholder entitled to attend and vote at the above meeting may appoint not more than two proxies. Where more than one proxy is appointed, each proxy must be appointed to represent a specified proportion of the Shareholder's voting rights.

A proxy may, but need not be, a Shareholder of the Company.

The instrument appointing the proxy must be in writing, executed by the appointor or his attorney duly authorised in writing or, if such appointor is a corporation, either under seal or under hand of an officer duly authorised.

The instrument of proxy (and the power of attorney or other authority, if any, under which it is signed) must be lodged by person, post, courier or facsimile and reach the registered office of the Company at least 48 hours prior to the meeting. For the convenience of Shareholders a Proxy Form is enclosed.

ENTITLEMENT TO VOTE

For the purposes of regulation 7.11.37 of the Corporations Regulations 2001, the Company determines that members holding Shares at 5:00 pm (WST) on 28 November 2012 will be entitled to attend and vote at the AGM.

CORPORATIONS

A corporation may elect to appoint a representative in accordance with the Corporations Act, in which case the Company will require written proof of the representative's appointment, which must be lodged with, or presented to the Company before the meeting.

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KEY PETROLEUM LIMITED Notice of Annual General Meeting 30 November 2012

EXPLANATORY MEMORANDUM

This Explanatory Memorandum has been prepared for the Shareholders of Key Petroleum Limited ABN 50 120 580 618 ( Company ) in connection with the business to be conducted at the Annual General Meeting of the Company to be held at The Celtic Club, 48 Ord Street, West Perth, Western Australia, on 30 November 2012 commencing at 10:00 am.

This Explanatory Memorandum should be read in conjunction with, and form part of, the accompanying notice.

The Directors recommend that Shareholders read this Explanatory Memorandum in full before making any decision in relation to the Resolutions.

Terms used in this Explanatory Memorandum will, unless the context otherwise requires, have the same meaning given to them in the glossary as contained in this Explanatory Memorandum.

At the AGM, Shareholders will be asked to consider the following Resolutions:

re-electing Mr Dennis Wilkins as a Director, who retires by rotation in accordance with the Company’s Constitution;
electing Mr Kane Marshall as a Director;
electing Mr Ian Paton as a Director;
electing Mr Rex Turkington as a Director;
adopting the Remuneration Report;
approving increase in level of Directors’ Remuneration;
ratification of allotment and issue of Shares;
approving a 10% Placement Facility;
approval of grant of options to Mr Rex Turkington;
approval of the Employee Share and Option Plan of Key Petroleum Limited;
key management personnel options – Amendment of manner of exercise; and
approving a share placement facility.

Financial and Other Reports

As required by Section 317 of the Corporations Act, the financial statements for the year ended 30 June 2012 and the accompanying Directors report, Directors’ declaration and auditor’s report will be laid before the meeting.

Neither the Corporations Act, nor the Company’s Constitution requires a vote on the reports. However, the Shareholders will have an opportunity to ask questions about the reports at the AGM.

Resolution 1 – Re-election of Dennis Wilkins as a Director

1.1 Introduction

Dennis Wilkins was appointed as a Director on 5 July 2006.

In accordance with Listing Rule 14.4, no director of the Company may hold office (without re-election) past the third AGM following the director’s appointment or 3 years, whichever period is longer. The Company’s Constitution also requires that one third of the Company’s directors must retire at each AGM. Accordingly, Mr Wilkins will retire by rotation and, being eligible, offers himself for re-election.

Resolution 1 is an ordinary resolution, requiring it to be passed by a simple majority of votes cast by the Shareholders entitled to vote on it.

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Notice of Annual General Meeting 30 November 2012

1.2 Director’s Biography

Mr Wilkins is the founder and principal of DWCorporate Pty Ltd a leading privately held corporate advisory firm servicing the natural resources industry.

Since 1994 he has been a director of, and involved in the executive management of, several publicly listed resource companies with operations in Australia, PNG, Scandinavia and Africa. From 1995 to 2001 he was the Finance Director of Lynas Corporation Ltd during the period when the Mt Weld Rare Earths project was acquired by the group. He was also founding director and advisor to Atlas Iron Limited at the time of Atlas’ initial public offering in 2006.

Since July 2001 Mr Wilkins has been a running DWCorporate Pty Ltd where he advises on the formation of, and capital raising for, emerging companies in the Australian resources sector.

He is currently non-executive director of Minemakers Ltd.

1.3 Directors’ Recommendation

All the Directors, with Mr Wilkins abstaining, recommend that Shareholders vote in favour of Resolution 1.

Resolution 2 – Election of Kane Marshall as a Director

2.1 Introduction

Resolution 2 proposes the election of Kane Marshall as a Director of the Company with effect from close of the Meeting.

Resolution 2 is an ordinary resolution, requiring it to be passed by a simple majority of votes cast by the Shareholders entitled to vote on it.

2.2 Director’s Biography

Kane Marshall was recently appointed Chief Executive Officer and has now been made Managing Director of Key Petroleum Limited. Mr Marshall has several years’ experience working in the international oil industry. He was most recently employed by Santos Ltd as a Consultant Production Engineer at the Roma Implementation Team in Brisbane and prior to that, as a Reservoir Engineer for Chevron Australia Pty Ltd's Greater Gorgon project in Perth where he produced full field simulation models, designed and executed drill stem tests including hydrate mitigation, well control, perforation, cased hole evaluation and bean up strategies.

Early in 2002 Mr Marshall moved to the United Kingdom where he worked for Highland Energy Limited as a Reservoir Engineer then with RWE Dea UK Limited as a Petroleum Engineer.

Mr Marshall holds academic qualifications which include a Masters of Petroleum Engineering from Curtin University, Bachelor of Science (Petroleum Geology) and a Bachelor of Commerce in Investment Finance and Corporate Finance.

2.3 Directors’ Recommendation

All the Directors, with Mr Marshall abstaining, recommend that Shareholders vote in favour of Resolution 2.

Resolution 3 – Election of Ian Paton as a Director

3.1 Introduction

Resolution 3 proposes the election of Ian Paton as a Director of the Company with effect from close of the Meeting.

Resolution 3 is an ordinary resolution, requiring it to be passed by a simple majority of votes cast by the Shareholders entitled to vote on it.

3.2 Director’s Biography

Ian Paton, a Geophysicist and Petroleum Engineer, has substantial worldwide experience in the oil and gas industry having held senior technical and management roles in both exploration and development with numerous companies including Santos Ltd, Conoco, Coogee Resources Pty Ltd, New Standard Energy and PTTEP, a national petroleum and exploration company of Thailand.

Mr Paton has been instrumental in many oil and gas discoveries in Australia and South East Asia and the United States over the last 30 years

3.3 Directors’ Recommendation

All the Directors, with Mr Paton abstaining, recommend that Shareholders vote in favour of Resolution 4.

Resolution 4 – Election of Rex Turkington as a Director

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KEY PETROLEUM LIMITED Notice of Annual General Meeting 30 November 2012

4.1 Introduction

Resolution 4 proposes the election of Rex Turkington as a Director of the Company with effect from close of the Meeting. Resolution 4 is an ordinary resolution, requiring it to be passed by a simple majority of votes cast by the Shareholders entitled to vote on it.

4.2 Director’s Biography

Rex Turkington is a highly experienced corporate advisor and economist who has worked extensively in the financial services and stockbroking industry in Australia, specializing in the exploration and mining sectors.

He has extensive experience with equities, derivatives, foreign exchange and commodities, and has participated in numerous corporate initial public offerings and capital raisings for listed exploration and mining companies.

Mr Turkington is currently a Director of an Australian corporate advisory company, offering corporate finance and investor relations advice to listed companies. He holds a first class Honors Degree in economics, and is an Associate of the Securities Institute of Australia.

4.3 Directors’ Recommendation

All the Directors, with Mr Turkington abstaining, recommend that Shareholders vote in favour of Resolution 4.

Resolution 5 – Remuneration Report

5.1 Introduction

As required by the Corporations Act, the Board is presenting the Remuneration Report to Shareholders for consideration and adoption by a non–binding vote. The Remuneration Report contains:

information about the Board’s policy for determining the nature and amount of remuneration of the Directors and senior executives of the Company;
a description of the relationship between the Company’s remuneration policy and the Company’s performance;
a summary of performance conditions for each of the Directors and senior executives, including a summary of why they were chosen and how performance is measured against them; and
remuneration details for each Director and for each of the Company’s specified executives.

The Remuneration Report, which is part of the Annual Report, has been sent to Shareholders who have made an election to receive the Annual Report. Copies of the Annual Report are available by contacting the Company’s share register or visiting the Company’s web site www.keypetroleum.com.au.

5.2 Voting on the Remuneration Report

In accordance with section 250R(4) of the Corporations Act, a vote on the Remuneration Report Resolution must not be cast (in any capacity) by or on behalf of either the following persons:

(a) a member of the key management personnel, whose remuneration details are included in the Remuneration Report; or
(b) a Closely Related Party of such a member.

However, a person described above may cast a vote on the Resolution if:

(c) the person does so as a proxy appointed in writing that specifies how the proxy is to vote on the Remuneration Report Resolution; and
(d) the vote is not cast on behalf of the person described in paragraphs (a) or (b) above.

The Chairman will cast available proxies in favour of Resolution 5.

Shareholders may choose to direct the Chairman to vote for or against Resolution 5 or to abstain from voting.

Resolution 6 – Approve Increase in Level of Directors Remuneration

6.1 General

Listing Rule 10.17 provides that the maximum aggregate amount of the remuneration payable as Directors’ fees to nonexecutive Directors is to be determined by Shareholders in a general meeting by ordinary resolution.

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Executive Directors receive salary and other remuneration in accordance with the terms of their employment agreements, but do not receive Directors’ fees. The remuneration paid by the Company to the executive Directors is not included in the maximum aggregate amount of Directors’ fees for the purpose of this Resolution.

This Resolution seeks Shareholder approval to increase the maximum Directors’ fees payable to non-executive Directors in each financial year from 1 July 2012 from $300,000 to $500,000 in aggregate to provide the Board with flexibility to appoint further non-executive independent Directors to enhance the capability of the Board and deal with the various interests of the Company now and in the future.

The last determination of maximum Directors’ fees was in 2006, when the maximum was set at $300,000. The Directors do not intend to necessarily utilise the entire maximum sum of $500,000 in the first instance. By having an increase in the maximum amount that can be paid to Directors, the Directors have the flexibility to seek new independent non-executive Directors to appoint to the Board as and when appropriate.

6.2 Voting on the Resolution

In accordance with section 250BD of the Corporations Act, a vote on Resolution 6 must not be cast (in any capacity) by or on behalf of either the following persons:

(a) a member of the key management personnel; or
(b) a Closely Related Party of such a member.

However, a person described above may cast a vote on Resolution 6 as a proxy if the vote is not cast on behalf of a person described in subparagraphs (a) or (b) above and either:

(c) the person does so as a proxy appointed in writing that directs how the proxy is to vote on Resolution 6; or
(d) the person is the Chairman and the appointment of the Chairman as proxy:
(i) does not specify the way the proxy is to vote on Resolution 6; and
(ii) expressly authorises the Chairman to exercise the proxy even if Resolution 6 is connected directly or indirectly with the remuneration of the key management personnel.

6.3 Directors’ Recommendation

As the non-executive Directors have an interest in the outcome of this Resolution, the Board makes no recommendation as to how Shareholders should vote in relation to Resolution 6.

Resolution 7 – Ratification of Allotment and Issue of Shares

7.1 General

On 23 August 2012, the Company issued 42,436,710 fully paid ordinary Shares.

Resolution 7 seeks Shareholder ratification pursuant to ASX Listing Rule 7.4 for the issue of these Shares.

ASX Listing Rule 7.1 provides that a company must not, subject to specified exceptions, issue or agree to issue more equity securities during any 12 month period than that amount which represents 15% of the number of fully paid ordinary securities on issue at the commencement of that 12 month period.

ASX Listing Rule 7.4 sets out an exception to ASX Listing Rule 7.1. It provides that where a company in general meeting ratifies the previous issue of securities made pursuant to ASX Listing Rule 7.1 (and provided that the previous issue did not breach ASX Listing Rule 7.1) those securities will be deemed to have been made with shareholder approval for the purpose of ASX Listing Rule 7.1.

By ratifying this issue, the Company will retain the flexibility to issue equity securities in the future up to the 15% annual placement capacity set out in ASX Listing Rule 7.1 without the requirement to obtain prior Shareholder approval.

7.2 Technical information required by ASX Listing Rule 7.4

Listing Rule 7.5 contains certain requirements as to the contents of a notice sent to Shareholders for the purposes of Listing Rule 7.4 and the following information is included in this Explanatory Memorandum for that purpose:

(a) 42,436,710 Shares were issued by the Company, to parties who are sophisticated and professional investors and are not r elated parties of the Company;
(b) the issue price per Share was $0.028;
(c) the Shares rank equally with the existing Shares;
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Notice of Annual General Meeting 30 November 2012

(d) funds raised from these placements were used for exploration activities and working capital purposes; and
(e) a voting exclusion statement is included in the Notice.

Resolution 8 – Approval of 10% Placement Facility

8.1 General

Listing Rule 7.1A enables eligible entities to issue Equity Securities up to 10% of its issued share capital through placements over a 12 month period after the AGM ( 10% Placement Facility ). The 10% Placement Facility is in addition to the Company’s 15% placement capacity under Listing Rule 7.1.

An eligible entity for the purposes of Listing Rule 7.1A is an entity that is not included in the S&P/ASX 300 Index and has a market capitalisation of $300 million or less. The Company is an eligible entity.

The Company is now seeking Shareholder approval by way of a special resolution to have the ability to issue Equity Securities under the 10% Placement Facility.

The exact number of Equity Securities to be issued under the 10% Placement Facility will be determined in accordance with the formula prescribed in Listing Rule 7.1A.2 (refer to Section 8.2(c) below).

The Directors of the Company believe that Resolution 8 is in the best interests of the Company and unanimously recommend that Shareholders vote in favour of this Resolution.

8.2 Description of Listing Rule 7.1A

(a) Shareholder approval

The ability to issue Equity Securities under the 10% Placement Facility is subject to shareholder approval by way of a special resolution at an AGM.

(b) Equity Securities

Any Equity Securities issued under the 10% Placement Facility must be in the same class as an existing quoted class of Equity Securities of the Company.

The Company, as at the date of the Notice, has on issue four classes of Equity Securities, being Shares, Options and Performance Rights. The Shares are the only class of Equity Securities that are issued.

(c) Formula for calculating 10% Placement Facility

Listing Rule 7.1A.2 provides that eligible entities which have obtained shareholder approval at an AGM may issue or agree to issue, during the 12 month period after the date of the AGM, a number of Equity Securities calculated in accordance with the following formula:

(A x D) – E

A is the number of shares on issue 12 months before the date of issue or agreement:
- (i) plus the number of fully paid shares issued in the 12 months under an exception in Listing Rule 7.2;
- (ii) plus the number of partly paid shares that became fully paid in the 12 months;
- (iii) plus the number of fully paid shares issued in the 12 months with approval of holders of shares under Listing Rule 7.1 and 7.4. This does not include an issue of fully paid shares under the entity’s 15% placement capacity without shareholder approval;
- (iv) less the number of fully paid shares cancelled in the 12 months.
- Note that A has the same meaning in Listing Rule 7.1 when calculating an entity’s 15% placement capacity.
D is 10%;
E is the number of Equity Securities issued or agreed to be issued under Listing Rule 7.1A.2 in the 12 months before the date of the issue or agreement to issue that are not issued with the approval of shareholders under Listing Rule 7.1 or 7.4.
(d) Listing Rule 7.1 and Listing Rule 7.1A
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KEY PETROLEUM LIMITED Notice of Annual General Meeting 30 November 2012

The ability of an entity to issue Equity Securities under Listing Rule 7.1A is in addition to the entity’s 15% placement capacity under Listing Rule 7.1.

At the date of this Notice, the Company has on issue 450,509,417 Shares. The Company therefore has, subject to Resolution 6 being passed, a capacity to issue:

(i) 67,576,412 Equity Securities under Listing Rule 7.1; and
(ii) subject to Shareholder approval being sought under Resolution 8, 45,050,941 Equity Securities under Listing Rule 7.1A.

The actual number of Equity Securities that the Company will have capacity to issue under Listing Rule 7.1A will be calculated at the date of issue of the Equity Securities in accordance with the formula prescribed in Listing Rule 7.1A.2 (refer to Section 8.2(c) above).

(e) Minimum Issue Price

The issue price of Equity Securities issued under Listing Rule 7.1A must be not less than 75% of the VWAP of Equity Securities in the same class calculated over the 15 Trading Days immediately before:

(i) the date on which the price at which the Equity Securities are to be issued is agreed; or
(ii) if the Equity Securities are not issued within 5 Trading Days of the date in paragraph (i) above, the date on which the Equity Securities are issued.

(f) 10% Placement Period

Shareholder approval of the 10% Placement Facility under Listing Rule 7.1A is valid from the date of the AGM at which the approval is obtained and expires on the earlier to occur of:

(i) the date that is 12 months after the date of the AGM at which the approval is obtained; or
(ii) the date of the approval by shareholders of a transaction under Listing Rules 11.1.2 (a significant change to the nature or scale of activities) or 11.2 (disposal of main undertaking),

or such longer period if allowed by ASX ( 10% Placement Period ).

8.3 Listing Rule 7.1A

The effect of Resolution 8 will be to allow the Directors to issue the Equity Securities under Listing Rule 7.1A during the 10% Placement Period without using the Company’s 15% placement capacity under Listing Rule 7.1.

Resolution 8 is a special resolution and therefore requires approval of 75% of the votes cast by Shareholders present and eligible to vote (in person, by proxy, by attorney or, in the case of a corporate Shareholder, by a corporate representative).

8.4 Specific information required by Listing Rule 7.3A

Pursuant to and in accordance with Listing Rule 7.3A, information is provided in relation to the approval of the 10% Placement Facility as follows:

(a) The Equity Securities will be issued at an issue price of not less than 75% of the VWAP for the Company’s Equity Securities over the 15 Trading Days immediately before:
(i) the date on which the price at which the Equity Securities are to be issued is agreed; or
(ii) if the Equity Securities are not issued within 5 Trading Days of the date in paragraph (i) above, the date on which the Equity Securities are issued.
(b) If Resolution 7 is approved by Shareholders, and the Company issues Equity Securities under the 10% Placement Facility, the existing Shareholders’ voting power in the Company will be diluted as shown in the below table. There is a risk that:
(i) the market price for the Company’s Equity Securities may be significantly lower on the date of the issue of the Equity Securities than on the date of the meeting; and
(ii) the Equity Securities may be issued at a price that is at a discount to the market price for the Company’s Equity Securities on the issue date or the Equity Securities are issued as part of consideration for the acquisition of a new asset,

which may have an effect on the amount of funds raised by the issue of the Equity Securities.

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KEY PETROLEUM LIMITED Notice of Annual General Meeting 30 November 2012

The table below shows the dilution of existing Shareholders on the basis of the current market price of Shares and the current number of ordinary securities for variable “A” calculated in accordance with the formula in Listing Rule 7.1A.2 as at the date of this Notice.

The table shows:

(i) two examples where variable “A” has increased by 50% and 100%. Variable “A” is based on the number of ordinary securities the Company has on issue. The number of ordinary securities on issue may increase as a result of issues of ordinary securities that do not require Shareholder approval (for example, a pro rata entitlements issue or scrip issued under a takeover offer) or future specific placements under Listing Rule 7.1 that are approved at a future Shareholders’ meeting; and
(ii) two examples of where the issue price of ordinary securities has decreased by 50% and increased by 100% as against the current market price.

Variable “A” in Listing Rule 7.1A.2			Dilution
		$0.0155 50% decrease in Issue Price	$0.031 Issue Price	$0.062 100% increase in Issue Price
Current Variable A 450,509,417 Shares	10% voting dilution	45,050,941 Shares	45,050,941 Shares	45,050,941 Shares
	Funds raised	$698,290	$1,396,579	$2,793,158
50% increase in current Variable A 675,764,126 Shares	10% voting dilution	67,576,412 Shares	67,576,412 Shares	67,576,412 Shares
	Funds raised	$1,047,434	$2,094,869	$4,189,738
100% increase in current Variable A 901,018,834 Shares	10% voting dilution	90,101,883 Shares	90,101,883 Shares	90,101,883 Shares
	Funds raised	$1,396,579	$2,793,158	$5,586,317

The table has been prepared on the following assumptions:

(i) The Company issues the maximum number of Equity Securities available under the 10% Placement Facility.
(ii) No Options are exercised into Shares before the date of the issue of the Equity Securities.
(iii) The 10% voting dilution reflects the aggregate percentage dilution against the issued share capital at the time of issue. This is why the voting dilution is shown in each example as 10%.
(iv) The table shows only the effect of issue of Equity Securities under Listing Rule 7.1A, not under the 15% placement capacity under Listing Rule 7.1.
(v) The issue price is $0.031, being the closing price of the Shares on ASX on 5 October 2012.
(c) The Company will only issue and allot the Equity Securities during the Placement Period. The approval under Resolution 7 for the issue of the Equity Securities will cease to be valid in the event that Shareholders approve a transaction under Listing Rule 11.1.2 (a significant change to the nature or scale of activities) or Listing Rule 11.2 (disposal of main undertaking).
(d) The Company may seek to issue the Equity Securities for the following purposes:
(i) cash consideration. In such circumstances, the Company intends to use the funds raised towards exploration of the Cryene-1 commitment well and Waugh-1 well and and/or general working capital; or
(ii) non-cash consideration for the acquisition of new assets and investments. In such circumstances the Company will provide a valuation of the non-cash consideration as required by Listing Rule 7.1A.3.
The Company will comply with the disclosure obligations under Listing Rules 7.1A(4) and 3.10.5A upon issue of any Equity Securities.

The Company’s allocation policy is dependent on the prevailing market conditions at the time of any proposed issue pursuant to the 10% Placement Facility. The identity of the allottees of Equity Securities will be determined on a case-by-case basis having regard to the factors including but not limited to the following:

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KEY PETROLEUM LIMITED

Notice of Annual General Meeting 30 November 2012

(iii) the methods of raising funds that are available to the Company, including but not limited to, rights issue or other issue in which existing security holders can participate;
(iv) the effect of the issue of the Equity Securities on the control of the Company;
(v) the financial situation and solvency of the Company; and
(vi) advice from corporate, financial and broking advisers (if applicable).

The allottees under the 10% Placement Facility have not been determined as at the date of this Notice but may include existing substantial Shareholders and/or new Shareholders who are not related parties or Associates of a related party of the Company.

(e) The Company has not previously obtained Shareholder approval under Listing Rule 7.1A.
(f) A voting exclusion statement is included in the Notice. At the date of the Notice, the Company has not approached any particular existing Shareholder or security holder or an identifiable class of existing security holder to participate in the issue of the Equity Securities. No existing Shareholder’s votes will therefore be excluded under the voting exclusion in the Notice.

Resolution 9 – Approval of Grant of Options to Mr Rex Turkington

9.1 General

The Company proposes to grant 6,000,000 Options to Mr Rex Turkington, or his nominees, for nil consideration to be exercised as follows:

(a) 2,000,000 shares at an exercise price of 150% of the VWAP of the fully paid ordinary shares 5 days prior to the date of the meeting to approve the issue and expiring 6 August 2017;
(b) 2,000,000 shares at an exercise price of 175% of the VWAP of the fully paid ordinary shares 5 days prior to the date of the meeting to approve the issue and expiring 6 August 2017;
(c) 2,000,000 shares at an exercise price of 200% of the VWAP of the fully paid ordinary shares 5 days prior to the date of the meeting to approve the issue and expiring 6 August 2017.

The full terms of the Options are set out in Annexure A to this Explanatory Statement.

The Directors consider that the incentive represented by the grant of the Options is a cost effective and efficient means for the Company to provide a reward and incentive.

The exercise price will only be known on the date of issue. Assuming that the Options were issued on the date of this Notice, the exercise prices would be would be $0.04, $0.05 and $0.06 respectively. On that basis, in the event all the Options are exercised, Mr Turkington (or his nominee) will need to pay a total of $300,000 to the Company.

9.2 Related Party Transactions Generally

Chapter 2E of the Corporations Act prohibits a public company from giving a financial benefit to a related party of the public company unless either:

(a) the giving of the financial benefit falls within one of the nominated exceptions to the provision; or
(b) prior Shareholder approval is obtained to the giving of the financial benefit and the benefit is given within 15 months after obtaining such approval.

For the purposes of Chapter 2E, Directors and persons who were a related party in the previous six months are considered to be related parties of the Company.

Resolution 9 provides for the grant of Options to a related party which is a financial benefit requiring Shareholder approval. For the purpose of Chapter 2E of the Corporations Act the following information is provided.

9.3 The related party to whom the proposed Resolutions would permit the financial benefit to be given

Subject to Shareholder approval, the Options the subject of Resolution 9 will be granted to Mr Turkington, or his nominee, within one month of the passing of these Resolutions. Mr Turkington is a Director of the Company and is therefore classified as a related party.

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KEY PETROLEUM LIMITED Notice of Annual General Meeting 30 November 2012

9.4 The nature of, reasons for and basis for the financial benefit

The proposed financial benefit is the grant of 6,000,000 options to Mr Turkington, or his nominee, for nil issue price. Each Option will allow Mr Turkingotn to subscribe for one ordinary fully paid Share in the Company. The exercise price of each tranche of Options is as follows:

(a) 2,000,000 shares at an exercise price of 150% of the VWAP of the fully paid ordinary shares 5 days prior to the date of the meeting to approve the issue and expiring 6 August 2017;
(b) 2,000,000 shares at an exercise price of 175% of the VWAP of the fully paid ordinary shares 5 days prior to the date of the meeting to approve the issue and expiring 6 August 2017;
(c) 2,000,000 shares at an exercise price of 200% of the VWAP of the fully paid ordinary shares 5 days prior to the date of the meeting to approve the issue and expiring 6 August 2017.

The Options form part of the Mr Turkinton’s incentive for continuing and future efforts. Options are considered to be the appropriate incentive at the Company’s current size and stage of development, being an exploration company with limited cash reserves. If the Mr Turkington’s is to derive any value from the Options, the market Share price must be in excess of the exercise price at the time of exercise. As the exercise price of the Options is at a premium to the most recent closing Share price prior to the date of this Notice, and the average Share price as traded over the previous 6 months, the Options represent an incentive to Mr Turkington to achieve this increase in the Share price, which would result in an increase in Shareholder value.

9.5 Directors' recommendation

All directors except Mr Turkington recommend Shareholders vote in favour of Resolution 9. Mr Tukington does not wish to make a recommendation about the proposed Resolution 9 as he may potentially receive a financial benefit from the passing of the Resolution in relation to the grant of Options and does not consider himself sufficiently independent to make a recommendation.

9.6 Interests of Directors

Mr Turkigton has noted his interest in the approval of Resolution 9 in relation to the Options.

9.7 Any other information that is reasonably required by members to make a decision and that is known to the Company or any of its officers

(a) The proposed Resolution would have the effect of giving power to the Directors to grant 6,000,000 Options to Mr Tukington, or his nominees.
(b) The exercise of the Options is subject to the terms and conditions as set out in Annexure A to this Explanatory Statement and as otherwise mentioned above.
(c) The Directors, in conjunction with the Company's advisers, have provided an indicative value to the Options by reference to the Black-Scholes valuation method. The valuation cannot be finalised until the grant date of the Options.
(d) The total value of the Options to be issued is outlined in Table 1 below. If Options granted to Mr Turkington, or his nominee, are exercised, the effect would be to dilute the Shareholdings of the existing Shareholders.

Table 1 - Details of Director Options

Name	Relationship	Number of options	Exercise price	Expiry date	Vesting	Value as determined by Black-Scholes valuation
Rex Turkington	Director	2,000,000	150% of the VWAP of the fully paid ordinary shares 5 days prior to the date of the meeting	6 August 2017	Once the market capitalisation of the Company appreciates by 100% from the date of the meeting	$ 57,800

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KEY PETROLEUM LIMITED

Notice of Annual General Meeting 30 November 2012

Name	Relationship	Number of options	Exercise price	Expiry date	Vesting	Value as determined by Black-Scholes valuation
Rex Turkington	Director	2,000,000	175% of the VWAP of the fully paid ordinary shares 5 days prior to the date of the meeting	6 August 2017	Once the market capitalisation of the Company appreciates by 150% from the date of the meeting	$ 57,600
Rex Turkington	Director	2,000,000	200% of the VWAP of the fully paid ordinary shares 5 days prior to the date of the meeting	6 August 2017	Once the market capitalisation of the Company appreciates by 200% from the date of the meeting	$ 57,200

Option Valuation details

Valuation details
Details	Input	Input	Input
Shareprice	$0.031	$0.031	$0.031
Exercise Price	$0.0465	$0.05	$0.06
Risk Free Rate (RBA Cash Rate)	2.54%	2.54%	2.54%
Volatility (Annualised)	175.58%	175.58%	175.58%
Start Date	30 November 2012	30 November 2012	30 November 2012
ExpiryDate	6 August 2017	6 August 2017	6 August 2017
Valueper Option	$0.0289	$0.0288	$0.0286

(e) As at the date of this Notice, the issued capital of the Company comprised 450,509,417 Shares. If all Options granted as proposed above are exercised, and no other share issues proceed, the effect would be to dilute the Shareholding of existing Shareholders as per the following table:

Shares on Issue Options to be granted New Total Dilutionary Effect	Existing Shares and Options
	450,509,417
	6,000,000
	456,509,417
	1.31%

(f) Mr Turkinton’s current interests in securities of the Company are set out in the table below:

Director Rex Turkington	Shareholding
	Nil

(g) The market price of the Company's Shares during the term of the Options will normally determine whether or not the Option holder exercises the Options. At the time any Options are exercised and Shares are issued pursuant to the exercise of the Options, the Company's Shares may be trading at a price which is higher than the exercise price of the Options.
(h) The Options will not be quoted on the ASX and, as such, have no actual market value. The fully paid ordinary Shares of the Company have been traded on the ASX since April 2007. In the twelve months prior to the date of this notice the Shares have traded in the range of $0.012 to $0.061, the most recent closing price prior to printing of this notice was 3.1 cents. The Options are capable of being converted to Shares by payment of the exercise price.
(i)

Mr Turkington currently receives director fees of $60,000 plus GST.

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Notice of Annual General Meeting 30 November 2012

KEY PETROLEUM LIMITED

(j) Under the Australian equivalent of IFRS, the Company is required to expense the value of the Options in its statement of financial performance for the current financial year. Other than as disclosed in this Explanatory Statement, the Directors do not consider that from an economic and commercial point of view, there are any costs or detriments, including opportunity costs or taxation consequences for the Company or benefits foregone by the Company in granting the Options to Mr Turkington or his nominee pursuant to Resolution 9.
(k) Neither the Directors nor the Company are aware of any other information that would be reasonably required by Shareholders to make a decision in relation to the financial benefits contemplated by this Resolutions.

Resolution 10 – Approval of the Employee Share Option Plan Key Petroleum Limited

10.1 General

As an incentive to employees of Key Petroleum, the Company has adopted a scheme called the Employee Share Option Plan of Key Petroleum Limited ( ESOP ).

The purpose of the ESOP is to give employees, directors and executive officers of the Company an opportunity, in the form of Options, to subscribe for ordinary shares in the Company. The Directors consider the ESOP will enable the Company to retain and attract skilled and experienced employees, Board members and executive officers and provide them with the motivation to make the Company more successful.

Resolution 10 seeks to approve the ESOP for the purposes of Listing Rule 7.2 Exception 9, for a period of three years from the date of the Annual General meeting, and for all other purposes.

The rules of the ESOP are attached as Annexure B to this Explanatory Memorandum.

10.2 Listing Rule issues

Listing Rule 7.1 provides that without the approval of the holders of ordinary securities, an entity must not issue or agree to issue equity securities which amount to more than 15% of its issued share capital in any rolling 12 month period. However, Listing Rule 7.2 sets out a number of exceptions to Listing Rule 7.1. These exceptions include Exception 9 which is an issue under an employee incentive scheme if within 3 years before the date of issue the holders of ordinary securities have approved the issue of securities under the scheme as an exception to this rule.

10.3 Brief Overview of the Scheme

A summary of the terms and conditions of the ESOP are set out below.

10.4 Participants in the ESOP

The Board may offer free Options to persons ( Eligible Persons ) who are:

full-time or part-time employees;
directors, alternate directors; or
company secretary’s.

Upon receipt of such an Offer, the Eligible Person may nominate an associate acceptable to the Board to be issued with the Options.

10.5 Terms of Options

There is no issue price for the Options. The exercise price for the Options will be determined by the Board and will not be less than the market value of Ordinary Shares at the date of grant.

The Company may allow Option Holders to elect that the Company instead allot and issue the number of Shares that are equal in value to the difference between the then Share price and the Exercise Price otherwise payable in relation to the Options (with the number of Shares rounded down).

Shares issued on exercise of Options will rank equally with other ordinary shares of the Company.

Options may not be transferred without the approval of the Board. Quotation of Options on the Australian Securities Exchange (ASX) will not be sought. However the Company will apply to ASX for Quotation of shares issued on the exercise of Options.

10.6 Restrictions on Issues and Exercise of Options

The Board may not offer Options under the ESOP if the total number of shares which would be issued were each Option accepted, together with the number of shares in the same class or Options to acquire such shares issued pursuant to all

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KEY PETROLEUM LIMITED Notice of Annual General Meeting 30 November 2012

employee or executive share ESOPs during the previous five years, exceeds 5% of the total number of issued shares in that class as at the date of the offer.

Options may only be issued or exercised within the limitations imposed by the Corporations Law and the ASX Listing Rules.

10.7 Exercise of Options

Options may be exercised at any time between 2 and 5 years after the date of grant of the Options.

If an Eligible Person leaves the employment of the group:

(a) 2 years or more after Options are issued; or
(b) because of retirement at or after 55 years of age, disablement, retrenchment, death or any other circumstances approved by the Board,

the Options may be exercised within 30 days (or 3 months in the case of death), or any longer period permitted by the Board. If not exercised in that time, the Options lapse.

If an Eligible Person leaves the employment of the group earlier than 2 years after Options are issued and (b) above does not apply, the Options lapse.

If an Eligible Person acts fraudulently, dishonestly or in breach of obligations to the Company or any subsidiary then, at the Board’s discretion, Options issued for that person will lapse.

Unexercised Options will automatically lapse five years after they are issued.

10.8 Participation in Future Issues

The holders of Options will not participate in new issues, including bonus issues, unless they have exercised the Options at that time and provided such exercise is permitted by the terms of the Option.

If there is a bonus issue to shareholders, the number of shares over which the Option is exercisable may be increased by the number of shares which the holder of the Option would have received if the Option had been exercised before the record date for the bonus issue.

In the event that a pro rata issue (except a bonus issue) is made to the holders of the underlying securities in the Company, the exercise price of the Options may be reduced in accordance with Listing Rule 6.22.

10.9 Capital Reconstruction

In the event of any reconstruction (including consolidation, subdivision, reduction or return) of the issued capital of the Company, all rights of the Option holder will be changed to the extent necessary to comply with the Listing Rules applying to the reconstruction of capital, at the time of the reconstruction.

Resolution 11 - Approval of Amendment to Terms of Existing Options Issued to Key Management Personnel

Resolution 11 seeks to amend the terms of Options which have been issued to key management personnel. This Resolution does not seek approval but for the issuing of further Options to key management personnel, nor does it seek to change the vesting period, the exercise price of the expiry date of the Options.

The amendment proposed is the introduction of a cashless exercise of Options mechanism. If accepted, such a mechanism will enable a key management personnel, at their election, to exercise their vested Option not by way of payment of the applicable exercise price, but rather by choosing to receive the positive difference between the exercise price and the Share price at exercise in Shares, with the number of Shares allocated based on the Share price at exercise.

The amendments will:

Not change the fundamental entitlements of Option holders;
Simply assist an Option holder from a cash flow perspective if they choose to exercise their Options in a cashless manner;
Leave an Option holder who chooses to exercise their Options in a cashless manner in the same economic position as if they had exercised all of their Options, paid the relevant total exercise price, and disposed of some of their Shares equal to value to that total exercise price; and
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KEY PETROLEUM LIMITED Notice of Annual General Meeting 30 November 2012

Result in less Shares being issued upon exercise of existing Options, to the benefit of Shareholders, with less dilution of their own shareholdings.

The following example demonstrates how cashless exercise of existing Options would operate:

1,000,000 Options have vested and are to be exercised by a participant.
Those Options were granted with an exercise price of $0.20.
We assume that the Company’s Share price is $0.30 as at the date of the exercise of those Options.
If the participant was to exercise those Options as currently provided in their terms and conditions, then the participant will be required to pay a total exercise price of $200,000 (being $0.20 per Option multiplied by 1,000,000 Options) and 1,000,000 Shares will then be held by the participant. The net economic position for the participant based on the above is $100,000, being $300,000 worth of Shares less the total exercise price of $200,000.
If the participant was able to exercise those same Options through the cashless exercise mechanism, then rather than paying the above total exercise price, upon exercise the participant would be issued with 333,333 Shares. The net economic position for the participant is the same: $100,000. The key advantage for Shareholder is that only 333,333 Shares would be issued instead of 1,000,000 Shares as per standard exercised Option.

There are currently 21,000,000 Options which have been issued (but which have yet to be exercised) to key management personnel.

Listing rule issues

Approval is being sought from shareholders to approve the amendment to the terms of the Options already issued so that the Company will satisfy Listing Rule 6.23.4 which requires shareholder approval for changes to terms of options

Resolution 12 – Share Placement Facility

Resolution 12 seeks the approval of Shareholders for a Share Placement Facility of up to 100,000,000 ordinary fully paid Shares, which the Directors may utilise to raise additional working capital for the Company.

The Directors believe that it is prudent for the Company to have a Share Placement Facility available so that it has the flexibility to raise additional capital should market conditions provide the opportunity. If not utilised, the facility would lapse 3 months after the date for the meeting.

ASX Listing Rule 7.1 prohibits a company from issuing shares representing more than 15% of its issued capital in any 12 month period, with the prior approval of its shareholders (subject to certain exceptions). Accordingly, Shareholder approval is being sought under Listing Rule 7.1 for the issue of up to 100,000,000 Shares in the Company. In accordance with Listing Rules 7.3 the following information is provided to Shareholders.

(a) the maximum number of securities that may be issued under Resolution 12 is 100,000,000 Shares;
(b) any Shares issued in accordance with Resolution 12 will be issued and allotted within 3 months from the date of the AGM (or such later date as approved by ASX);
(c) the Shares will be issued to institutional and sophisticated investors. As at the date of this Notice there has been no decision by the Directors to issue any Shares. Accordingly, the names of any allottee or proposed allottees are not known;
(d) the Shares will be issued at a price which is not less than 80% of the average market price of the Company’s Shares, calculated over the 5 days in which sales on the Company’s Shares were recorded on ASX before the day on which an issue is made;
(e) any Shares issued pursuant to Resolution 12 will rank equally in all respects with existing fully paid Shares on issued in the Company;
(f) funds raised by the issue of any Shares will be issued as additional working capital for the Company to continue exploration at the Canning Basin permits; and
(g) it is not known whether any allotments will occur as a single allotment or will occur progressively However, it would be likely that any issue of Shares will be made as s single allotment.
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KEY PETROLEUM LIMITED Notice of Annual General Meeting 30 November 2012

GLOSSARY

In this Explanatory Memorandum and the Notice, the following terms have the following meanings unless the context otherwise requires:

10% Placement Facility	has the meaning given in Section 3.1.
10% Placement Period	has the meaning given in Section 3.2.
AGM	means an Annual General Meeting
Annual Report	means the Directors’ report, the annual financial report and auditors report in
	respect of the financial year ended 30 June 2012.
Associate	has the same meaning as defined in Section 11 and Sections 13 to 17 of the
	Corporations Act.
ASX	means ASX Ltd ABN 98 008 624 691 and, where the context requires, the
	Australian Securities Exchange operated by ASX Ltd.
Board	means the board of Directors of the Company.
Closely Related Party	has the same meaning as defined in Section 9 of the Corporations Act.
Company	means Key Petroleum Limited ABN 50 120 580 618.
Corporations Act	means Corporations Act 2001 (Cth).
Director	means a director of the Company.
Explanatory Memorandum	means this information attached to the Notice, which provides information to
	Shareholders about the Resolutions contained in the Notice.
Listing Rules	means the listing rules of ASX.
Notice or Notice of Meeting	means the Notice of Annual General Meeting accompanying this Explanatory
	Memorandum.
Proxy Form	means the proxy form attached to this Notice.
Remuneration Report	means the remuneration report of the Company outlined in the Annual Report.
Resolution	means a resolution contained in the Notice.
Share	means a fully paid ordinary share in the capital of the Company.
Shareholder	means the holder of a share.

20 –

ANNEXURE A TERMS AND CONDITIONS OPTIONS EXPIRING 6 AUGUST 2017

The Options to be issued pursuant to the Resolution will be issued on the following terms:

Each Option shall be issued for no consideration.
The exercise price of each Option will be:
a. 2,000,000 at 150% of the VWAP of the fully paid ordinary shares of the Company on the five days prior to the date of meeting;
b. 2,000,000 at 175% of the VWAP of the fully paid shares of the Company on the five days prior to the date of the meeting; and
c. 2,000,000 at 200% of the VWAP of the fully paid ordinary shares of the Company on the five days prior to the date of the meeting(“ Exercise Price ”).
Each Option entitles the holder to subscribe for one Share in Key Petroleum Limited ABN 50 120 580 618 (“ Company ”) upon the payment of the Exercise Price per Share subscribed for.
2,000,000 of the Options will vest once the market capitalisation of the Company appreciates by 100% from 30 November 2012. ( “Vesting Date A” )
2,000,000 of the Options will vest once the market capitalisation of the Company appreciated by 150% from 30 November 2012 (“ Vesting Date B ”)
2,000,000 of the Options will vest once the market capitalisation of the Company appreciated by 200% from 30 November 2012 (“ Vesting Date C ”)
The Options will lapse at 5.00 pm, Western Standard Time on 6 August 2017 (" Expiry Date ").
The Options may be transferred at any time in accordance with the Corporations Law, the SCH Business Rules and/or the Listing Rules;
There are no participating rights or entitlements inherent in these Options and holders of the Options will not be entitled to participate in new issues of capital that may be offered to shareholders during the currency of the Option.
Option holders have the right to exercise their Options prior to the date of determining entitlements to any capital issues to the then existing shareholders of the Company made during the currency of the Options, and will be granted a period of at least 10 business days before books closing date to exercise the Options.
In the event the Company proceeds with a pro rata issue (except a bonus issue) of securities to the holders of Shares after the date of issue of the Options, the exercise price of the Options will be adjusted in accordance with the formula set out in ASX Listing Rule 6.22.2.
In the event of any re-organisation (including reconstruction, consolidation, subdivision, reduction or return of capital) of the issued capital of the Company, the Options will be re-organised as required by the Listing Rules, but in all other respects the terms of exercise will remain unchanged.
The Options shall be exercisable at any time until the Expiry Date (“ Exercise Period ”) by the delivery to the registered office of the Company of a notice in writing (“ Notice ”) stating the intention of the Option holder to exercise all or a specified number of Options held by them accompanied by an Option certificate and a cheque made payable to the Company for the subscription monies for the Shares. The Notice and cheque must be received by the Company during the Exercise Period. An exercise of only some Options shall not affect the rights of the Option holder to the balance of the Options held by it.
The Company may allow Option Holders to elect that the Company instead allot and issue the number of Shares that are equal in value to the difference between the then Share price and the Exercise Price otherwise payable in relation to the Options.
The Company shall allot the resultant Shares and deliver a statement of shareholdings with a holders’ identification number within 5 business days of exercise of the Options.

The Shares allotted shall rank, from the date of allotment, equally with the existing ordinary shares of the Company in all respects.

KEY PETROLEUM LIMITED Notice of Annual General Meeting 30 November 2012

ANNEXURE B EMPLOYEE SHARE AND OPTION PLAN

22 –

RULES OF THE EMPLOYEE SHARE OPTION PLAN OF KEY PETROLEUM LIMITED

ACN 120 580 618

1 –

Clause	Clause	Page No
1.	DEFINITIONS AND INTERPRETATION	3
2.	NAME OF THE PLAN	2
3.	COMMENCEMENT OF THE PLAN	2
4.	ELIGIBLE PERSONS	2
5.	INVITATION TO PARTICIPATE	2
6.	ASSOCIATE ACCEPTING INVITATION	3
7.	LIMIT TO SIZE OF PLAN	4
8.	OPTIONS GRANTED FREE	4
9.	REGISTER OF OPTION HOLDERS	4
10.	EXERCISE PRICE	4
11.	PERFORMANCE HURDLES AND EXERCISE PERIODS	4
12.	MANNER OF EXERCISE OF OPTIONS	5
13.	SHARES ARISING ON EXERCISE	5
14.	OPTIONS NOT TRANSFERABLE	5
15.	LAPSING	5
16.	PARTICIPATION IN DIVIDENDS AND NEW ISSUES	6
17.	BONUS ISSUES	6
18.	RIGHTS ISSUES	6
19.	NOTIFICATION OF BONUS AND RIGHTS ISSUES	7
20.	REORGANISATION OF SHARE CAPITAL	7
21.	LISTING ON THE ASX	7
22.	TAKEOVERS	7
23.	EMPLOYEE BOUND BY RULES AND CONSTITUTION	8
24.	PLAN NOT PART OF OTHER ARRANGEMENTS	8
25.	PLAN FORMS	8
26.	POWERS OF THE DIRECTORS	8
27.	COMMENCEMENT AND TERMINATION OF THE PLAN	9
28.	GENERAL	9
SCHEDULE (NOTICE OF EXERCISE OF OPTION)		10

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PLAN RULES OF THE EMPLOYEE SHARE OPTION PLAN OF KEY PETROLEUM LIMITED ACN 120 580 618

1. DEFINITIONS AND INTERPRETATION

1.1 In the construction of these Rules, unless the contrary intention appears:

“ Associate ” has the meaning given it in Rule 6.3;

“ the ASX ” means Australian Stock Exchange Limited ACN 008 624 691;

“ at any time ” means at any time and from time to time;

“ the Company ” means Key Petroleum Limited ACN 120 580 618;

“ Directors ” means the directors of the Company in office for the time being;

“ Eligible Person ” means a person meeting the requirements of Rule 4.2;

“ exercise price ” means the sum of money required to be paid to exercise an Option;

“ Listing Rules ” means the Listing Rules of the ASX, each as amended from time to time, except to the extent of any express written waiver by the ASX in respect of the Company;

“ Market Price of a Share ” on a particular day means the weighted average market price per Share (weighted by reference to volume) during the five consecutive trading days on the ASX ending on the day before the particular date;

“ Option ” means an option to subscribe for and be allotted a Share, where that option has been issued under the Plan;

“ Option Holder ” means the person in whose name an Option Certificate is issued. Note: an employee may have nominated an Associate (e.g. spouse or family company) to be granted the Options. In that event the “Option Holder” is the Associate, not the employee.

“ person ” includes an individual, corporation, trust, partnership or other entity;

“ Plan ” means the Employees Share Option Plan of the Company;

“ Share ” means an ordinary fully paid share in the capital of the Company;

“ Rules ” means these Rules as amended from time to time;

“ the Secretary ” means the company secretary for the time being of the Company;

“ the Tax Act ” means whichever of the following is applicable at the relevant time in the context of this Plan:

(a) the Income Tax Assessment Act 1936 (Cwlth);

(b) the Income Tax Assessment Act 1997 (Cwlth).
1.2 Italicised notes and italicised examples set out beneath particular Rules are not part of these Rules. Accordingly:
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KEY PETROLEUM LIMITED Employee Share and Option Plan

(a) such notes or examples may at any time be added to, varied or deleted from these Rules by the Directors; and
(b) the Rules may be published at any time with or without any one or more of those notes and examples, and either uniformly or on a selective basis.
1.3 In the construction of these Rules:
(a) singular includes plural, and vice versa, and words importing any gender include each other gender;
(b) except for the definitions in Rule 1.1, any expression in these Rules which deals with a matter dealt with by a Listing Rule, has the same meaning as in that Listing Rule;
(c) all references to statutory provisions includes any regulation made under that legislation and are construed as references to any statutory modification or re-enactment (whether before, on or after the commencement of this Plan) for the time being in force.

2. NAME OF THE PLAN

The Plan is to be known as:

(a) “the Employees Share Option Plan of Key Petroleum Limited”; or
(b) such other name as the Directors may at any time determine.

3. COMMENCEMENT OF THE PLAN

The Plan commences on the day that approval for introduction of the Plan is first given by the Members of the Company in general meeting.

4. ELIGIBLE PERSONS

4.1 Only Eligible Persons (and their Associates) may be invited to participate in the Plan.
4.2 Each of the following is an Eligible Person:
(a) a full-time employee of the Company;
(b) a permanent part-time employee of the Company;
(c) a person who is a director, alternate director or company secretary of the Company.

5. INVITATION TO PARTICIPATE

5.1 The Directors may at any time issue invitations to participate in the Plan and grant Options in accordance with the Plan.

5.2 The Directors have an absolute discretion:
(a) as to which Eligible Persons (determined in accordance with Rule 4.2) will be invited to participate in the Plan; and
(b) as to the number of Options offered to each such Eligible Person.
5.3 In exercising their discretion under these Rules in relation to any matter (including under Rule 5.2 and the terms of issue of any Option), the Directors may take into account any matter they consider relevant. This includes, but is not limited to, considering in relation to an Eligible Person:
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KEY PETROLEUM LIMITED Employee Share and Option Plan

(a) the position they hold, or role they play, in the Company;
(b) the nature or terms of their employment or other contractual arrangements;
(c) the contribution they make to the Company in its business;
5.4 Each invitation to an Eligible Person to participate in the Plan must be in writing, signed by the Secretary or any Director, and shall:
(a) specify the time within which the invitation may be accepted;
(b) specify the number of Options being offered;
(c) contain such other matters as the Directors at any time determine.
5.5 An acceptance of such an invitation is effective only if:
(a) it is in such form as the Directors determine or in particular circumstances are prepared to accept; and
(b) it is received by the Secretary within the period stipulated for acceptance; and
(c) it is completed and accompanied by such documents as the Directors may at any time determine.
5.6 The acceptance of an invitation does not create a binding contract to grant Options. After acceptance the Directors may in their absolute discretion determine:
(a) not to grant the Options identified in the invitation; or
(b) grant Options which differ in number or their terms from that identified in the invitation.
5.7 If there is any inconsistency between the terms of an Option incorporated into its Option Letter and either the terms of the invitation or these Rules, the terms of the Option Letter prevail.

6. ASSOCIATE ACCEPTING INVITATION

6.1 An Eligible Person to whom an invitation to participate in the Plan has been issued may, in accepting such invitation, nominate a person who is an Associate of the Eligible Person to be the grantee of the Options offered.
6.2 If the Directors are satisfied, based on statements made or information supplied by the Eligible Person, that the person nominated is in fact an Associate of the Eligible Person, the Directors may accept that nomination and the Associate will become the Option Holder.
6.3 The expression “Associate” in relation to an Eligible Person has the same meaning as it has in section 139GE of the Tax Act.

Note: “Associate” is defined in wide terms. It includes:

(a) a “relative” of the Eligible Person (e.g. parent, uncle, aunt, brother, sister, child, nephew, niece, or the spouse of any of these);
(b) a company where the Eligible Person holds (whether directly or indirectly) at least one share in the company;
(c) a trustee of a trust where the Eligible Person is capable of benefiting under the trust (whether directly or indirectly).
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KEY PETROLEUM LIMITED

Employee Share and Option Plan

7. LIMIT TO SIZE OF PLAN

At any particular point of time the total of:

(a) the number of Shares the subject of Options which are both unexercised and unexpired; and
(b) the number of Shares issued as a result of the exercise of Options,

must not exceed 5% of the number of Shares on issue at that time.

8. OPTIONS GRANTED FREE

No consideration is payable by any person in respect of the grant by the Company of an Option under the Plan.

Note: While the Option is free, there may be tax payable by the Eligible Person in respect of the value, attributed by the Tax Act, of that free Option.

9. REGISTER OF OPTION HOLDERS

The required information in relation to all Options must be entered in the Register of Option Holders maintained by the Company under sections 168 and 170 of the Corporations Act.

10. EXERCISE PRICE

10.1 At the time of grant of an Option, the Directors will specify the exercise price of the Option.
10.2 Without limiting the ways in which the exercise price may be specified, it may include:
(a) a fixed amount;
(b) the Market Price of a Share on the date the invitation is made under Rule 5.4;
(c) the Market Price of a Share on the date the Option is granted;
(d) the Market Price of a Share on a specified date which is after the date the Option is granted;
(e) a percentage above the amount in (b), (c) or (d).

11. PERFORMANCE HURDLES AND EXERCISE PERIODS

11.1 At the time of grant of an Option, the Directors will specify:
(a) the days on which, or periods during which, the Option is exercisable; and
(b) the performance hurdles, if any, that must be satisfied before the Option is exercisable; and
(c) any other requirements that must be satisfied before the Option is exercisable.
11.2 Without limiting the ways in which matters in (b) and (c) of the preceding Rule are specified, the Directors may specify that:
(a) an Option is exercisable in a specified period if, at any time in another specified period, the Market Price of a Share has exceeded a specified figure;
(b) an Option is exercisable in a specified period if specified criteria are met or specified events have occurred by a specified time;
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KEY PETROLEUM LIMITED Employee Share and Option Plan

(c) an Option is not exercisable while the Eligible Person is in breach of the terms of the service agreement or other arrangements (whether directly with the Company or not) by which the Eligible Person remains an Eligible Person.

12. MANNER OF EXERCISE OF OPTIONS

12.1 An Option may only be exercised if it has not yet lapsed, has not been cancelled, and the performance hurdles and other requirements in the Option Certificate have been satisfied.
12.2 An Option is exercised if there are received at the registered office of the Company in Perth (or at such other place as is authorised by the Directors) the following:
(a) a Notice of Exercise of Option duly completed and executed by the Option Holder, such Notice being either in the form of that in the Schedule to these Rules or in the form of that in the Option Certificate or in other usual or common form; and
(b) payment of the exercise price in respect of each Option being exercised.
12.3 The Company may decide in its absolute discretion that an Option Holder will not be required to provide payment of the Exercise Price of Options by cash, cheque or some other method acceptable to the Company, but that on exercise of the Options, the Option Holder may elect that the Company instead allot and issue the number of Shares that are equal in value to the difference between the then Share price and the Exercise Price otherwise payable in relation to the Options (with the number of Shares rounded down).
12.4 The minimum number of Options that may be exercised at any time is 10% of all those Options held by the Option Holder at that time which have the same exercise price and the same performance hurdles.
12.5 Whenever the Option Holder duly exercises Options but there remains after such exercise one or more unexercised Options the subject of the Option Certificate, the Company shall issue an Option Statement for the number or remaining Options.

13. SHARES ARISING ON EXERCISE

13.1 Each Share allotted as a result of the exercise of an Option will rank pari passu with all other Shares which comprise the main class of Shares quoted on the ASX and may not be sold within 12 months of their allotment and issue if such sale would contravene section 707 of the Corporations Act.
13.2 Following allotment of a Share as a result of the exercise of an Option, the Company will make application, within the period specified in the Listing Rules, for the new Share to be quoted on the ASX.

14. OPTIONS NOT TRANSFERABLE

14.1 The Options will not be listed or quoted on any stock exchange.
14.2 An Option is personal to the Option holder and the Option holder may not sell, transfer or otherwise dispose of, or make a declaration of trust in respect of, it except to an Associate of that Option Holder..

15. LAPSING

Each Option will lapse on the earliest to occur of:

(a) the end of the date, if any, specified in the Option Certificate as the date on which the Option expires or lapses;
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KEY PETROLEUM LIMITED Employee Share and Option Plan

(b) if when the Option was granted the Option Holder was an Eligible Person, the date, which is three calendar months following, on which the Option Holder ceases to be an Eligible Person, regardless of the reasons or causes for the Option Holder ceasing to be an Eligible Person;
(c) if when the Option was granted the Option Holder was an Associate of an Eligible Person, the earlier to occur of:
(i) the date, which is three calendar months following, on which the Eligible Person ceases to be an Eligible Person, regardless of the reasons or causes for them ceasing to be an Eligible Person;
(ii) the date, which is three calendar months following, on which the Option Holder ceases to be an Associate of the Eligible Person.

16. PARTICIPATION IN DIVIDENDS AND NEW ISSUES

16.1 Each Option does not give any right to participate in dividends declared or paid on existing Shares. However, a Share allotted pursuant to the exercise of the Option is entitled to participate in those dividends where the record date for the dividend is after the date the Share is allotted.
16.2 An Option Holder cannot, in that capacity, participate in new issues of securities of the Company without exercising the Option. However:
(a) under Rule 17 there may be an adjustment to the number of Shares over which the Option may be exercised; and
(b) under Rule 18 there may be a reduction in the exercise price of the Option.

17. BONUS ISSUES

If at any time after the date an Option is granted and before it is exercised there is a bonus issue to the holders of Shares, the number of Shares over which the Option is exercisable will be increased by the number of Shares which the Option Holder would have received if the Option had been exercised before the record date for the bonus issue. The effect will be that the Option Holder will be entitled, upon exercise of each Option, and without any change to the exercise price, to receive additional Shares equal to the number of bonus shares that would have been issued as if the Option had been exercised on the day prior to the record date of the bonus share issue.

18. RIGHTS ISSUES

If at any time after the date an Option is granted and before it is exercised there is a pro rata issue (other than a bonus issue) to the holders of Shares, the exercise price of each unexercised Option will be reduced according to the following formula:

the new exercise price of the Option is equal to the old exercise price of the Option less a value attributed to the right as calculated in accordance with a formula;
that formula (for valuing the right) is:

E[P - (S + D)]

N + 1

where:

“E” = the number of Shares into which one Option is exercisable;
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KEY PETROLEUM LIMITED Employee Share and Option Plan

Note: E is one, unless the number has changed because of a bonus issue.

“P” = the average market price per Share (weighted by reference to volume) during the 5 trading days ending on the day before the ex rights date or ex entitlements date (calculated in accordance with Listing Rule 6.2.2.2);
“S” = the subscription price for a security under the pro rata issue;
“D” = the dividend due but not yet paid on existing Shares (except those to be issued under the pro rata issue);
“N” = the number of Shares with rights or entitlements that must be held to receive a right to one new security.

19. NOTIFICATION OF BONUS AND RIGHTS ISSUES

The Company will notify each Option Holder and the ASX, within one month after the record date of a bonus issue or other pro rata issue, of the adjustment to the number of Shares over which each Option exists and of any adjustment to the exercise price.

20. REORGANISATION OF SHARE CAPITAL

The rights of an Option Holder will be changed to the extent necessary to comply with the Listing Rules applying to any reorganisation of the capital of the Company (at any time after the Options are granted) at the time of the reorganisation.

21. LISTING ON THE ASX

If any of the following events occurs:

(a) a trading halt, suspension of quotation of Shares on the ASX, reinstatement of such quotation, or ending of such quotation; or
(b) the removal of the Company from the official list of the ASX,

then:

(i) any unexercised Options do not, by reason of that event alone, lapse; and
(ii) the terms of each Option Certificate remain unaltered in their application (with no extension of time being granted) even though this may mean that either the Company or the Option Holder is thereby prevented from satisfying, effecting or complying with a provision of the Option Certificate; and
(iii) the Option Holder has no claim for damages against the Company, regardless of the reason or cause of such event occurring.

22. TAKEOVERS

22.1 The Directors, when granting an Option, may in their absolute discretion determine that the terms of the following 4 Rules in relation to takeovers, or a modified form of them as the Directors determine, are included in the Option Certificate as terms on which the Options are granted.
22.2 If a takeover bid is made for the Shares then, at any time during the Takeover Period:
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KEY PETROLEUM LIMITED

Employee Share and Option Plan

(a) the Company may give the Option Holder not less than 7 days written notice of the intention of the Company to cancel one or more of the Options;
(b) the Company may, at any time after expiry of that notice and during the Takeover Period, cancel the number of Options in respect of which it gave notice under paragraph (a) by giving the Option Holder a written notice to that effect.
22.3 If the value of the maximum consideration offered by the bidder for each Share under the takeover bid exceeds the exercise price of an Option so cancelled, the Company must pay to the Option Holder an amount equal to that excess. Such payment must be made by the Company by no later than the end of the Takeover Period. If there is no such excess, no payment by the Company is required.
22.4 If a takeover bid is made for the Shares then, at any time during the Takeover Period, the Option Holder may exercise each Option (which has not yet been cancelled under Rule 22.2(b)) at the exercise price, despite the fact that either it is then outside an exercise period specified in the Option Certificate or a performance hurdle specified in the Option Certificate has not yet been satisfied.
22.5 For the purposes of the 4 preceding Rules:
(a) “the Takeover Period” is from the start of the offer period until one month after the end of the offer period;
(b) any expression used in those Rules which is given a particular meaning in the context of Chapter 6 (takeovers) of the Corporations Act has the same meaning in those 3 Clauses.

23. EMPLOYEE BOUND BY RULES AND CONSTITUTION

23.1 Each Eligible Person or Associate who accepts an invitation to take up Options under the Plan, and each Option Holder, is bound by these Rules.
23.2 Each Option Holder who exercises an Option and is allotted a Share is bound by these Rules and by the Constitution of the Company in the same way as any other holder of Shares.

24. PLAN NOT PART OF OTHER ARRANGEMENTS

The Plan, its Rules and the terms of an Option Statement:

(a) do not form part of any contract of employment between an employee and the Company;
(b) do not form part of any contractual arrangements which may give rise to a person being an Eligible Person; and
(c) do not confer, directly or indirectly, on any person any legal or equitable right whatsoever (other than rights as holders of any Shares issued pursuant to exercise of Options under the Plan) against the Company.

25. PLAN FORMS

The Directors may at any time require an Eligible Person or Associate to whom Options are to be granted, or an Option Holder, to complete and return to the Secretary such documents as the Directors consider should, for legal or taxation purposes, be completed by that person.

26. POWERS OF THE DIRECTORS

The Plan will be administered by the Directors who have power at any time to:

(a) determine appropriate procedures for administration of the Plan consistent with the provisions of these Rules;
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KEY PETROLEUM LIMITED Employee Share and Option Plan

(b) resolve conclusively all questions of fact or interpretation arising in connection with the Plan;
(c) delegate to any one or more persons, for such period and on such conditions as they may determine, the exercise of any of their powers or discretions arising under the Plan; and
(d) subject to any restrictions imposed by the Corporations Act or the Listing Rules, add to, delete or otherwise vary these Rules.

27. COMMENCEMENT AND TERMINATION OF THE PLAN

The Plan may at any time be terminated by resolution of the Directors.

28. GENERAL

The Plan is governed by and construed in accordance with law for the time being in the State of Western Australia.

9 –

KEY PETROLEUM LIMITED Employee Share and Option Plan

SCHEDULE (NOTICE OF EXERCISE OF OPTION)

TO: KEY PETROLEUM LIMITED ACN 120 580 618 (“ the Company ”)

FROM: [ INSERT NAME ] (“ the Option Holder ”)

[ insert address ]

The Option Holder exercises the number of Options specified below, each Option entitling the Option Holder to subscribe for and be allotted to the Option Holder an ordinary fully paid share in the Company at an issue price per share equal to the exercise price specified below.

The Option Holder agrees to be bound by the Constitution of the Company and authorises the Company to enter the name of the Option Holder in the register of members of the Company in respect of the shares.

NUMBER OF OPTIONS EXERCISED:	__________
EXERCISE PRICE OF EACH OPTION:	__________

Enclosed ia a cheque in favour of the Company (equal to the exercise price multiplied by the number of Options exercised).

DATED: _//__

SIGNATURE(S)/EXECUTION
_____	_____
Individual	Director
______	_____
Sole director and sole secretary	Director/Secretary

10 –

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Petroleum Ltd

ABN 50 120 580 618

Lodge your vote:

By Mail:

Computershare Investor Services Pty Limited GPO Box 242 Melbourne Victoria 3001 Australia

T 000001 000 KEY MR SAM SAMPLE FLAT 123 123 SAMPLE STREET THE SAMPLE HILL SAMPLE ESTATE SAMPLEVILLE VIC 3030

Alternatively you can fax your form to (within Australia) 1800 783 447 (outside Australia) +61 3 9473 2555

For Intermediary Online subscribers only (custodians) www.intermediaryonline.com

For all enquiries call:

(within Australia) 1300 267 463 (outside Australia) +61 3 9415 4000

Proxy Form

 For your vote to be effective it must be received by 10:00am Wednesday 28 November 2012

How to Vote on Items of Business

All your securities will be voted in accordance with your directions.

Appointment of Proxy

Voting 100% of your holding: Direct your proxy how to vote by marking one of the boxes opposite each item of business. If you do not mark a box your proxy may vote as they choose. If you mark more than one box on an item your vote will be invalid on that item.

Voting a portion of your holding: Indicate a portion of your voting rights by inserting the percentage or number of securities you wish to vote in the For, Against or Abstain box or boxes. The sum of the votes cast must not exceed your voting entitlement or 100%.

Appointing a second proxy: You are entitled to appoint up to two proxies to attend the meeting and vote on a poll. If you appoint two proxies you must specify the percentage of votes or number of securities for each proxy, otherwise each proxy may exercise half of the votes. When appointing a second proxy write both names and the percentage of votes or number of securities for each in Step 1 overleaf.

A proxy need not be a securityholder of the Company.

Signing Instructions

Individual: Where the holding is in one name, the securityholder must sign.

Joint Holding: Where the holding is in more than one name, all of the securityholders should sign.

Power of Attorney: If you have not already lodged the Power of Attorney with the registry, please attach a certified photocopy of the Power of Attorney to this form when you return it.

Companies: Where the company has a Sole Director who is also the Sole Company Secretary, this form must be signed by that person. If the company (pursuant to section 204A of the Corporations Act 2001) does not have a Company Secretary, a Sole Director can also sign alone. Otherwise this form must be signed by a Director jointly with either another Director or a Company Secretary. Please sign in the appropriate place to indicate the office held. Delete titles as applicable.

Attending the Meeting

Bring this form to assist registration. If a representative of a corporate securityholder or proxy is to attend the meeting you will need to provide the appropriate “Certificate of Appointment of Corporate Representative” prior to admission. A form of the certificate may be obtained from Computershare or online at www.investorcentre.com under the information tab, "Downloadable Forms".

Comments & Questions: If you have any comments or questions for the company, please write them on a separate sheet of paper and return with this form.

 Turn over to complete the form



View your securityholder information, 24 hours a day, 7 days a week:

www.investorcentre.com

View the Annual Report:

www.keypetroleum.com.au

Your secure access information is:

SRN/HIN: I9999999999

 PLEASE NOTE: For security reasons it is important that you keep your SRN/HIN confidential.

916CR_0_Sample_Proxy/000001/000001

MR SAM SAMPLE FLAT 123 123 SAMPLE STREET THE SAMPLE HILL SAMPLE ESTATE SAMPLEVILLE VIC 3030

I ND

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==> picture [157 x 38] intentionally omitted <==

----- Start of picture text -----

I9999999999
----- End of picture text -----

Change of address. If incorrect, mark this box and make the correction in the space to the left. Securityholders sponsored by a broker (reference number commences with ’ X ’) should advise your broker of any changes. I 9999999999

Proxy Form

Please mark to indicate your directions

Appoint a Proxy to Vote on Your Behalf

XX

I/We being a member/s of Key Petroleum Limited hereby appoint

==> picture [21 x 21] intentionally omitted <==

the Chairman of the Meeting OR



PLEASE NOTE: Leave this box blank if you have selected the Chairman of the Meeting. Do not insert your own name(s).

or failing the individual or body corporate named, or if no individual or body corporate is named, the Chairman of the Meeting, as my/our proxy to act generally at the Meeting on my/our behalf and to vote in accordance with the following directions (or if no directions have been given, and to the extent permitted by law, as the proxy sees fit) at the Annual General Meeting of Key Petroleum Limited to be held at The Celtic Club, 48 Ord Street, West Perth WA 6005 on Friday 30 November 2012 at 10:00am and at any adjournment or postponement of that Meeting.

Chairman authorised to exercise undirected proxies on remuneration related resolutions: Where I/we have appointed the Chairman of the Meeting as my/our proxy (or the Chairman becomes my/our proxy by default), I/we expressly authorise the Chairman to exercise my/our proxy on Resolutions 5, 7, 9, 10 and 11 (except where I/we have indicated a different voting intention below) even though Resolutions 5, 7, 9, 10 and 11 are connected directly or indirectly with the remuneration of a member of the key management personnel, which includes the Chairman. Important Note: For Resolution 6 this express authority is also subject to you marking the box in the section below. If the Chairman of the Meeting is (or becomes) your proxy you can direct the Chairman to vote for or against or abstain from voting on Resolutions 5, 7, 9, 10 and 11 by marking the appropriate box in step 2 below.

Important for Resolution 6: If the Chairman of the Meeting is your proxy and you have not directed the Chairman how to vote on Resolution 6 below, please mark the box in this section. If you do not mark this box and you have not otherwise directed your proxy how to vote on Resolution 6, the Chairman of the Meeting will not cast your votes on Resolution 6 and your votes will not be counted in computing the required majority if a poll is called on this Resolution. The Chairman of the Meeting intends to vote undirected proxies in favour of Resolution 6 of business.

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I/We acknowledge that the Chairman of the Meeting may exercise my/our proxy even if the Chairman has an interest in the outcome of Resolution 6 and that votes cast by the Chairman, other than as proxy holder, would be disregarded because of that interest.

Items of Business  PLEASE NOTE: If you mark the Abstain box for an item, you are directing your proxy not to vote on your behalf on a show of hands or a poll and your votes will not be counted in computing the required majority.


Resolution	1	Re-election of	Resolution 7	Ratification of
		Dennis Wilkins as a		Allotment and Issue
		Director		of Shares

Resolution	2	Election of Kane	Resolution 8	Approval of 10%
Resolution	3	Marshall as a Director Election of Ian Paton	Resolution 9	Placement Facility Approval of Grant of Options to Mr Rex
		as a Director		Turkington
Resolution	4	Election of Rex	Resolution 10	Approval of the
		Turkington as a		Employee Share
Resolution	5	Director Adoption of Remuneration	Resolution 11	Option Plan of Key Petroleum Limited Key Management
Resolution	6	Report Approve Increase in Level of Directors		Personnel Options - Amendment of Manner of Exercise
		Remuneration	Resolution 12	Share Placement Facility

The Chairman of the Meeting intends to vote all available proxies in favour of each item of business.

SIGN

Signature of Securityholder(s) This section must be completed.

Individual or Securityholder 1	Securityholder 2	Securityholder 3

Sole Director and Sole Company Secretary	Director	Director/Company Secretary
	Contact
Contact	Daytime	/ /
Name	Telephone	Date

1 5 7 3 6 3 A

K E Y

AI assistant

KEY PETROLEUM LIMITED — AGM Information 2012

65176_rns_2012-10-30_3d30372e-bd26-46b5-85a8-85da0a83f846.pdf

KEY PETROLEUM LIMITED ABN 50 120 580 618

NOTICE OF ANNUAL GENERAL MEETING

EXPLANATORY MEMORANDUM

KEY PETROLEUM LIMITED

ABN 50 120 580 618

NOTICE OF ANNUAL GENERAL MEETING

2012 Financial Statements

Resolution 1 – Re-election of Dennis Wilkins as a Director

Resolution 2 – Election of Kane Marshall as a Director

Resolution 3 – Election of Ian Paton as a Director

Resolution 4 - Election of Rex Turkington as a Director

Resolution 5 – Adoption of Remuneration Report

Resolution 6 – Approve Increase in Level of Directors Remuneration

Resolution 7 – Ratification of Allotment and Issue of Shares

Resolution 8 – Approval of 10% Placement Facility

Resolution 9 – Approval of Grant of Options to Mr Rex Turkington

Voting Exclusion Statement

Resolution 10 – Approval of the Employee Share Option Plan of Key Petroleum Limited

Resolution 11 – Key Management Personnel Options – Amendment of Manner of Exercise

Resolution 12 – Share Placement Facility

PROXIES

ENTITLEMENT TO VOTE

CORPORATIONS

EXPLANATORY MEMORANDUM

Financial and Other Reports

Resolution 1 – Re-election of Dennis Wilkins as a Director

1.1 Introduction

1.2 Director’s Biography

1.3 Directors’ Recommendation

Resolution 2 – Election of Kane Marshall as a Director

2.1 Introduction

2.2 Director’s Biography

2.3 Directors’ Recommendation

Resolution 3 – Election of Ian Paton as a Director

3.1 Introduction

3.2 Director’s Biography

3.3 Directors’ Recommendation

Resolution 4 – Election of Rex Turkington as a Director

4.1 Introduction

4.2 Director’s Biography

4.3 Directors’ Recommendation

Resolution 5 – Remuneration Report

5.1 Introduction

5.2 Voting on the Remuneration Report

Resolution 6 – Approve Increase in Level of Directors Remuneration

6.1 General

6.2 Voting on the Resolution

6.3 Directors’ Recommendation

Resolution 7 – Ratification of Allotment and Issue of Shares

7.1 General

7.2 Technical information required by ASX Listing Rule 7.4

Resolution 8 – Approval of 10% Placement Facility

8.1 General

8.2 Description of Listing Rule 7.1A

(A x D) – E

(e) Minimum Issue Price

(f) 10% Placement Period

8.3 Listing Rule 7.1A

8.4 Specific information required by Listing Rule 7.3A

The table shows:

Resolution 9 – Approval of Grant of Options to Mr Rex Turkington

9.1 General

9.2 Related Party Transactions Generally

9.3 The related party to whom the proposed Resolutions would permit the financial benefit to be given

9.4 The nature of, reasons for and basis for the financial benefit

9.5 Directors' recommendation

9.6 Interests of Directors

9.7 Any other information that is reasonably required by members to make a decision and that is known to the Company or any of its officers

KEY PETROLEUM LIMITED

Option Valuation details

KEY PETROLEUM LIMITED

Resolution 10 – Approval of the Employee Share Option Plan Key Petroleum Limited

10.1 General

10.2 Listing Rule issues

10.3 Brief Overview of the Scheme

10.4 Participants in the ESOP

10.5 Terms of Options

KEY PETROLEUM LIMITED AGM Information 2012