LION ENERGY LIMITED — Proxy Solicitation & Information Statement 2004

Dec 5, 2004

LION ENERGY LIMITED A.C.N. 000 753 640

NOTICE OF MEETING

A meeting of members of the company will be held at Suite 33, 168 Melbourne Street, North Adelaide SA 5006 on 7 January 2005 at 10.30 a.m. (Adelaide time) to consider the following resolution with or without amendment:

Sale of Assets

"That for the purposes of ASX Listing Rule 11.2 and all other purposes, the members approve the sale by Lion Energy Limited ("Lion") to PT Ilham Treda Industri (or nominee) of it's interest in the Bula oil production tenement in Indonesia, a drilling rig and other heavy equipment used in Indonesia as detailed in the explanatory memorandum that accompanied the notice of this meeting."

Notes:

(a) Explanatory memorandum. An explanatory memorandum accompanies and forms part of this notice of meeting.

(b) Voting exclusion: To comply with the ASX Listing Rules, the company will disregard any votes cast on the resolution by PT Ilham Treda Industri (or other purchaser of the assets nominated by them) or any associate of them or a person who might obtain a benefit, except a benefit solely in the capacity of a holder of ordinary securities, if the resolution is passed. However, the company will not disregard a vote if: (i) 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 (ii) 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.

(c) Corporate representatives: A member that is a body corporate may appoint an individual as a representative to exercise all or any of its powers at a meeting of the company, subject to compliance with Corporations Act 2001 s. 250D.

(d) Proxies: A proxy form accompanies this notice of meeting. A member has a right to appoint a proxy; the proxy need not be a member of the company; a member who is entitled to cast 2 or more votes may appoint 2 proxies and may specify the proportion or number of votes each proxy is appointed to exercise. To be effective, a proxy form (and, if the proxy form is signed by the appointor's attorney – the authority under which the proxy form was signed or a certified copy of the authority) must be received by the company at least 48 hours before the meeting. The company will receive proxy forms and proxy form authorities at Suite 33, 168 Melbourne Street. North Adelaide SA 5006 or by facsimile to (08) 8239 1744.

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By order of the Board of Lion Energy Limited

Signed: Stacey Muggleton (Secretary)

LION ENERGY LIMITED A C.N. 000 753 640

EXPLANATORY MEMORANDUM

Dear Shareholder

This document is for your consideration of an ordinary resolution to approve Lion selling it's interest in the Bula oil production tenement in Indonesia, a drilling rig and other heavy equipment used in Indonesia

If the sales complete. Lion will retain its significant investment in the Oseil tenement in Indonesia and its 10.63% shareholding in Entek Energy Limited.

About this meeting

Pursuant to ASX Listing Rule 11.2, if a listed entity proposes to make a significant change to the nature or scale of its activities which involves the entity disposing of its main undertaking, the entity must get the approval of holders of its ordinary securities and must comply with any requirements of ASX in relation to the notice of meeting. The notice of meeting must include a voting exclusion statement.

This meeting is to satisfy the requirement of ASX Listing Rule 11.2.

Lion gave ASX copies of this Explanatory Memorandum, the Notice of Meeting and the Proxy Form before these documents were sent to you. However neither ASX nor their officers take any responsibility for the merits of the proposal now before you.

About the proposed sales

Preliminary to this transaction. Lion invited potential arm's length purchasers to conduct due diligence on the underlying assets in Indonesia (other than the Oseil tenement) and then, at the conclusion of that phase, negotiated a sale of those assets.

On 8 October 2004 Lion notified the market that due diligence was being undertaken. On 17 November 2004 Lion notified the market that a sale of the assets was agreed, subject to various conditions, including that Lion shareholders approve the sale.

The key elements of the proposed sales are:

• The Purchaser: The purchaser is PT Ilham Treda Industri (or nominee acceptable to Lion). $(a)$ That entity is at arm's length to Lion and its officers and, so far as is known, to any substantial shareholder of Lion.
• Assets to be sold: The assets to be sold are: $(b)$
• All the issued shares in Indonesia Prima Energy Services Limited (a company that in $\circ$ turn holds all the shares in PT Prima Jasa Energi that owns and operates a drilling rig and heavy equipment in Indonesia).
• All the issued shares in Kalrez Petroleum (Seram) Limited, a company that owns a $\circ$ 100% interest in the Bula tenement. That company also owns a 2.5% interest in the Oseil tenement, which asset will be freely transferred to another Lion subsidiary before closure of the sale of shares in Kalrez Petroleum (Seram) Limited. That company also holds an inventory of recovered oil, the value of which will be recognised in the final sale price of the shares.
• Conditions: The sales are subject to fulfilment of these conditions by 7 January 2005 (or as $(c)$ may be agreed or waived):

• Lion shareholders approving the sale $\circ$

• The 2.5% interest in the Oseil tenement being freely transferred out by Kalrez $\circ$ Petroleum (Seram) Limited to another Lion subsidiary

• Perusahaan Pertambangan Minyak Dan Gas Bumi Negara (an Indonesian $\circ$ government instrumentality) and the government of Indonesia consent to that transfer out of the Oseil tenement
• Perusahaan Pertambangan Minyak Dan Gas Bumi Negara and the government of $\circ$ Indonesia consent to the transfer of the shares in the two subsidiaries being sold
• An entity holding a share in one of the subsidiaries on trust for Lion transferring that $\circ$ share as directed by Lion.
• Cash proceeds: At completion, Lion expects to receive total cash proceeds of about total $(d)$ \$7,200,000¹ of which about \$4,408,000 would be loans (principal and interest) repaid by Indonesia Prima Energy Services Limited and the balance from sale prices (after adjustments for any external liabilities, the market value of oil inventory (an expected 40,000 barrels) net of Indonesian government royalty, the market value of any incidental assets).
• $(e)$ Completion: This should occur in mid to late January 2005.

Though these sales are now structured as sales of shares in subsidiary companies, the parties may choose to change that, for example by direct sales of the underlying assets rather than the companies that hold those assets, in order to accommodate the requirements of stakeholders and to facilitate the transaction. A change in the structure would not reduce Lion's cash proceeds from the transaction.

Lion expects to apply nearly the whole cash proceeds (net of transaction costs) in acquiring (by purchase or farm-in) oil or gas tenements in the proximate future as opportunities arise. Lion does not intend to pay a dividend, or return of capital, as a result of these sales.

About Lion's total assets

As shown in our 2004 Annual Report, Lion had on 30 June 2004 these asset groups:

$1₁$ 100% interest in Bula Petroleum Sharing Contract (held through Kalrez Petroleum (Seram) Limited), including a drilling rig and heavy equipment (held through PT Prima Jasa Energi).

These are the assets Lion proposes to sell.

The Bula PSC is a mature and declining oil field that produced an average of 520 barrels per day during FY 2004. Production is now about an average 420 barrels per day. Kalrez Petroleum (Seram) Limited is the operator of the tenement.

The drilling rig and heavy equipment are now contracted to work in the Oseil field but are also used for Bula drilling and work-over operations when not contracted to the Oseil field.

This Explanatory Memorandum refers to Australian currency and consistently assumes an exchange rate of 76 cents Australian currency for one dollar American currency. The proposed sale is in fact denominated in American currency. For the sake of consistency, historical costs and gross profit contributions originally in American currency are now shown in Australian currency. Lion has not hedged the receivables under the proposed sales and is exposed to any change in the exchange rate between now and completion

Historical cost at end FY 2004: \$2,249,862

Gross profit FY 2004: Oil \$2,615,850 + Rig rentals \$769,110

$2₁$ 2.5% interest in Seram (Non Bula) PSC (Oseil).

This asset is to be retained in the Lion Group.

This is a developing oil field with 3 wells in production through a main production facility commissioned in late 2003. Phase II development drilling is expected to commence in the last quarter of FY 2004 with production projected to reach about 17,000 barrels per day by the second quarter of FY 2005, of which Lion's share would be about 450 barrels per day. The main production facility could handle more than 17,000 barrels per day after some minor alterations. Oil from the Oseil field is of higher quality than that from the Bula field. Lion is not the operator of this tenement.

Historical cost at end FY 2004: \$7,137.187

Gross profit FY 2004: \$430,300

$3.$ 12.5% interest in 6 Cooper Basin exploration licences.

After 30 June 2004 these assets, valued at total \$4,400,000, were spun out to Entek Energy, in which Lion now holds a 10.63% shareholding.

Historical cost at end FY 2004:	\$220,000 (10.63% shareholding in Entek)
Gross profit FY 2004:	Nil
Market valuation 15/11/04:	\$1,554,000 (10.63% shareholding in Entek assuming a market price of \$0.37 per share).

The 2.5% interest in Oseil is, and remains, Lion's most valuable asset.

Reasons for the proposal

Your directors urge you to vote in favour of approval as:

• The Bula tenement is a mature and declining oil field $\bullet$
• The assets up for sale represent only a minority of total assets (on historical costs) and are to $\bullet$ be sold at market value to an arm's length purchaser
• Lion intends to apply nearly the whole cash proceeds (net of transaction costs) to acquiring $\bullet$ replacement oil or gas tenements.

Yours faithfully

Lion Energy Limited

1. a. Mescarella

G A Mercorella Executive Chairman

LION ENERGY LIMITED A.C.N. 000 753 640

APPOINTMENT OF PROXY

INNe ...................................

$\mathfrak{0}$ . . . . . . . . . . . . . . . . . . .

being a member(s) of the company appoint:

(Name of first proxy)....................................

and

(Name of second proxy, if any)....................................

or in his/their absence the chairman of the meeting, as my/our proxies to vote at the meeting of the members of the company to be held on 7 January 2005 at 10.30 a.m. (Adelaide Time) or at any adjournment thereof.

(Voting instructions to be indicated by placing a tick ⊠ in the appropriate box. If no instruction is given the Proxy may vote as that person thinks fit, or abstain.)

If you DO NOT wish to direct your proxy how to vote, please place a mark in the box: $\Box$

By marking this box, you acknowledge that the Chairman may exercise your proxy even if he has an interest in the outcome of the resolution and votes cast by him other than as proxy holder will be disregarded because of that inferest

The Chairman intends to vote in favour of this resolution.

RESOLUTION	FIRST PROXY		SECOND PROXY
	For	Against	For	Against
To approve a sale of assets
Signed		.

(a body corporate should sign by signatures of 2 officers who must state the office held, or by a sole director and sole secretary who must state that the person is the sole director and sole secretary)

Notes:

• This form need not be dated or witnessed. $(a)$
• $(b)$ A member has a right to appoint a proxy; the proxy need not be a member of the company; a member who is entitled to cast 2 or more votes may appoint 2 proxies and may specify the proportion or number of votes each proxy is appointed to exercise.
• To be effective, a proxy form (and, if the proxy form is signed by the appointor's attorney the $(c)$ authority under which the proxy form was signed or a certified copy of the authority) must be received by the company at least 48 hours before the meeting.
• The company will receive proxy forms and proxy appointment authorities at Suite 33, 168 Melbourne $(d)$ Street, North Adelaide SA 5006 or by facsimile to (08) 8239 1744.