METGASCO LTD — AGM Information 2013

Oct 28, 2013

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Annual General Meeting Managing Director’s address

29 October 2013

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Disclaimer

This presentation is being provided for the sole purpose of providing the recipients with background information about Metgasco Ltd (Metgasco). No representation, express or implied, is made as to the fairness, accuracy, completeness or correctness of information contained in this presentation, including the accuracy, likelihood of achievement or reasonableness of any forecasts, prospects, returns or statements in relation to future matters contained in the presentation (“forward-looking statements”). Such forward-looking statements are by their nature subject to significant uncertainties and contingencies and are based on a number of estimates and assumptions that are subject to change (and in many cases are outside the control of Metgasco, its Directors and Officers) which may cause the actual results or performance of Metgasco to be materially different from any future results or performance expressed or implied by such forward-looking statements.

This presentation provides information in summary form only and is not intended to be complete. It is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any particular investor.

Due care and consideration should be undertaken when considering and analysing Metgasco’s financial performance. All references to dollars are to Australian Dollars unless otherwise stated.

To the maximum extent permitted by law, neither Metgasco nor its related corporations, Directors, employees or agents, nor any other person, accepts any liability, including, without limitation, any liability arising from fault or negligence, for any loss arising from the use of this presentation or its contents or otherwise arising in connection with it.

This presentation should be read in conjunction with other publicly available material. Further information including historical results and a description of the activities of Metgasco is available on our website, www.metgasco.com.au.

ASX Listing Rule 5.11 Disclosure

Reserves have been certified by Mr Tim Hower of MHA Petroleum Consultants (Denver) who is a qualified person as defined under the ASX Listing Rule 5.11. Reserves have been developed within the guidelines of the SPE. Mr Hower has consented to the use of the reserve figures in this presentation. Conversion of reserves from PJ to Bcf at 1.04 PJ/1.00 Bcf.

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A frustrating and difficult two years

	2011 2012 2013	2011 2012 2013	2011 2012 2013	2011 2012 2013	2011 2012 2013	2011 2012 2013	2011 2012 2013	2011 2012 2013	2011 2012 2013	2011 2012 2013	2011 2012 2013	2011 2012 2013	2011 2012 2013	2011 2012 2013	2011 2012 2013	2011 2012 2013	2011 2012 2013	2011 2012 2013	2011 2012 2013	2011 2012 2013	2011 2012 2013	2011 2012 2013	2011 2012 2013	2011 2012 2013	2011 2012 2013	2011 2012 2013	2011 2012 2013	2011 2012 2013	2011 2012 2013	2011 2012 2013	2011 2012 2013	2011 2012 2013	2011 2012 2013	2011 2012 2013	2011 2012 2013	2011 2012 2013
	Jan	**Feb **	**Mar **	**Apr **		**May **	**Jun **	Jul	**Aug **	**Sep **	**Oct **	**Nov **	**Dec **	Jan	**Feb **	**Mar **	**Apr **	**May **	**Jun **	Jul	Aug Se	**p Oct **	**Nov Dec **	Jan	**Feb **	Mar	**Apr **		**May **	**Jun **	Jul	**Aug **	**Sep **	**Oct **	**Nov **	Dec
Gasland followed by concerted anti-gas program
NSW election NSW audit NSW Upper house inquiry Effective moratorium - development of new regulations Announcement of new regulations - greenlight Surprise announcement - exclusion zones/EPA/CS report Chief Scientist review Federal election
CP -18, HP 01 drilling - testing New strategy/focus - fund raising First Gas Sales agreement - Richmond Dairies Concerted farmout effort Resolution of water management plans with government Second fund raising Production licence applications Negotiation of compressed natural gas agreement 2D seismic acquired Two wells drilled - Thornbill E04 and Bowerbird E04 Suspension decision Decommissioning / rehabilitation program Announcement of Rosella drilling									M	OU				GS	A

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Suspension decision

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Industry on hold during NSW government review – essentially no
field activity
Feb 20 NSW Exclusion Zones/ EPA
changes
Santos-ESG and Arrow-
Bow deals. LNGL and
ERM increase stakes in Licences renewed / NSW
MEL support
Federal election
Field operations -
anti-CSG protest
Metgasco suspension
announcement
New management team and
focus
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July 2011

July 2012

July 2013

• NSW Government announcement in February 2013 a complete surprise to the market – damaged industry and investor confidence in NSW gas

• Ability to attract partners or new capital severely impaired

• Regulatory / department changes created confusion / uncertainty which would frustrate and delay any near to mid-term exploration and development approvals

• High operating costs could not be sustained in this environment

• To do other than suspend operations and cut costs would have been irresponsible and seriously weakened company

• Before suspending, Metgasco sought and achieved approval of reduced work programs to secure exploration licences

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Was the suspension decision the right one?

Yes:

• All other gas exploration/development companies in NSW took action to reduce, delay or abandon their programs in line with our decision

• As expected, definition of key policies and procedures continues, with resulting confusion. Approvals required for ongoing work would certainly have been delayed.

• We now have title to our exploration licences, the gas remains, the market (demand and pricing) is improving and there is strong evidence of the benefits CSG brings to NSW:

• We are ready to restart CSG activities when the political /regulatory and investment climate is right

What we need to restart CSG activities:

• Confidence that the NSW Government is supporting the industry – explicit public demonstration

• Clarification and stability in regulation – preferably substantial simplification and streamlining – decisions in timely manner

• Evidence that other exploration and development approvals are proceeding at a sensible pace

• Confidence that there are joint venture partners ready to work in NSW and that the investment community will support NSW investment

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Why did we announce a Rosella-1 restart in October?

• Rosella-1 will test the Greater Mackellar structure: a conventional / tight gas prospect. It is not a CSG well.

• Compared to CSG wells, a single conventional well:

• can be much more decisive and add much more value to Metgasco

• does not have the same formation water handling requirements

• can provide short term results

• has clearer exploration / development approval processes

• Value in building on positive government leadership (Minister Macfarlane’s initiatives)

Why the well not been drilled earlier:

• 2011/2012 – exploration licence renewal delayed (effective moratorium)

• Preferable to have 2D seismic – acquisition program delayed due to unusually wet weather

• Environmental approvals sought but regulatory approval process not yet completed

• Desirable to avoid anti-fossil fuel campaign before federal election

• No political support for drilling before Federal election

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Conventional / tight gas potential

• Kingfisher E01

• First major conventional gas discovery in NSW (November 2009)

• Large section of gas charged sands identified

• 138 metres of gas charged sands in Ripley Road and Gatton formations

• Up to 500 meters of additional section below TD of Kingfisher E01

• Plan to test the Greater Mackellar structure with the Rosella E01 well:

• Potential: 2.2 TCF, P10 OGIP

Kingfisher E01 Proposed Rosella E01

• Primary target is Ripley Road formation (Precipice) – commercial flow rates?

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• Secondary target – tight gas found in Kingfisher E01 – Gatton formation

• Confirm tight gas potential in the broader exploration area – follow-up targets recognized

• Rosella E01 – normal exploration risks plus:

• Seismic coverage not extensive

• Reservoir quality

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Costs have been managed

 Steady, systematic reduction in costs over two years  Large cuts in response to suspension decision

Expenditure $’s

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30.0
25.0
20.0
15.0
10.0
5.0
-
2 years,2011-2013 Annualised Suspension mode
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Drilling and pre-drilling equipment Consultants Seismic and associated studies Site abandonment Field operations Lease payments Capital equipment Office and overhead payments Advisory fees Payments to be listed including audit Head office employee related payments

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Ability to handle ongoing technical work necessary, and to scale up quickly for seismic, drilling and development activity

Regulations - “smart”, not “tough” - and timely

• Metgasco strongly supports government regulation, monitoring and enforcement

Strategic Agricultural Land Map CSG Buffer to Residential Zones Existing & Future

• Metgasco is promoting “smart” regulations, not tough regulations

• Regulations are meant to manage risk:

• If risk is low, then regulation level should be small

• If risk is high, regulation and monitoring should be high

• Unnecessarily tough, slow or wholly redundant regulatory processes just delay and discourage industry

• Exclusion zones are an example of very poor regulation – totally arbitrary, no scientific, engineering or risk basis whatsoever

• Another poor regulation: the proposed SEPP amendment to overcome problems with merit appeal process must apply to petroleum, not just mining.

• Other Australian states are seeking to simplify and streamline their regulations and approval processes

• why has NSW headed in the opposite direction?

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Reserve reduction: just one of the impacts of poor regulation

 CSG Reserves and Resources as of 31 December 2012

CSG Buffer to Residential Zones Existing & Future

2012
	Reserves Resources
	1P (PJ) 2P (PJ) 3P (PJ) 2C (PJ)
PEL 13		31	303	1334
PEL 16	2.7	397	2,239	1,177
PEL 426	-
Total	2.7 428 2,542 2,511

 CSG Reserves and Resources – post exclusion zones

	Reserves Resources	Reserves Resources	Reserves Resources	Reserves Resources
	1P (PJ) 2P (PJ) 3P (PJ) 2C (PJ)
PEL 13		31	437	1,199
PEL 16	2.6	307	1,618	1,174
PEL 426	-
Total	2.6 338 2,055 2,373

Note:

1.1P, 2P, 3P & 2C Reserves and Resources certified by MHA Petroleum Consultants (Denver).

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Groundwater modelling

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Preliminary
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Example: Modelling (draft) of Clarence Moreton Basin (by Parsons Brinkerhoff) to determine likely impact on surface water supplies, laying a foundation for future approvals and water monitoring.

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Preliminary
Drawdown at Location 1
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Community relations

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• Presentations at public meetings

• Regular dinner meetings with community leaders

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• Open days

• Letters to landholders and general community

• Videos – Switch and Fracknation – available at libraries

• Website

• Regular weekly advertisements

• Community Consultation Group

• Availability – local media

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• Local support:

• 300 voluntary agreements

• Richmond Valley Council (Casino), found that 70% of the community were somewhat supportive, supportive or very supportive of the following position:

If the Coal Seam Gas industry in the Richmond valley resulted in increased employment; economic welfare for the region and was appropriately regulated and proven to be environmentally safe, how supportive would you be of Richmond Valley Council working with CSG stakeholders and regulators to ensure the community benefit from this industry?

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Post federal election: “Have we turned the corner?”

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Jobs, jobs, jobs vs my grandchildren’s future

 Community perception – extreme views presented:

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Jobs
Jobs
Jobs
Royalties
Energy security
APPEA 2011
“We want CSG ”
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Allegations of water contamination and health concerns

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Allegations of farming productivity losses
Landholder rights
Industrialisation of rural communities
Renewables can supply 100% of needs
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• General community is confused by extremity of views presented

• When in doubt, many people will choose the option that might appear to protect their grandchildren

• Metgasco program tries to promote benefits of a safe and regulated industry

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Key Achievements since mid - 2011

• One of the most active CSG companies in NSW; acquired seismic and drilled two exploration wells (in a very subdued NSW industry) – despite local protest action

• Unfortunately needed to suspend activity in March 2013 due to political and investment climate

• Unable to drill planned CSG laterals to provide further confidence re commerciality given political and regulatory environment

• Unable to attract quality farmin partner given low investment confidence following NSW Government decisions

• Significant progress with environmental and planning submissions required for new production / licences

• Signed gas sales agreement with Richmond Dairies

• Disappointed we have not yet been able to deliver gas given political and regulatory environment

• Gas sales agreement with compressed natural gas supplier negotiated – ready for signing

• Further development/understanding of conventional gas potential (seismic and studies)

• Drilling to test conventional potential was delayed due to political and regulatory environment, but recently announced planning to drill Rosella

• Reduced overhead costs by 15%

• Further reduced costs and liabilities by decommissioning wells and ponds no longer required

• Punching above our weight in terms of government lobbying / policy input

• Active community relations program

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Metgasco can contribute to NSW’s gas supply needs

• CSG

• Largest uncontracted CSG reserves in eastern Australia

• Broad recognition of gas prices about to increase significantly

• Benefits of CSG to Queensland economy and rural areas increasingly obvious

Conserve cash, manage an active community relations program until the investment environment improves sufficiently to encourage partner participation and investment community support. Lobby government for “smart” regulations and timely approvals

• Conventional / tight gas

• Potential to demonstrate commerciality and move into production faster than CSG

Drill Rosella E01 in 1H 2014 and progress development promptly if successful

• Challenges

• Improving local and broader community support

• Working with government to streamline regulations and approval processes

• Demonstrating productivity of CSG reserves

• Commercialising possible tight gas Greater Mackellar field

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