METGASCO LTD — AGM Information 2014

Nov 27, 2014

Metgasco AGM 2014. Chairmans Address. 28 November 2014.

28 November 2014

My fellow shareholders

Thank you for attending today’s AGM, the tenth since Metgasco’s listing and the fourth since the Liberal/National government came into power in New South Wales and took responsibility for development of the state’s gas resources.

Regrettably, there has been little progress in the state for gas exploration and production during this term of government. Your company has been badly impacted by the “shifting sands” and delays resulting from a period of effective moratorium and numerous government policy and regulatory changes. These have, in our view, created substantial sovereign risk in New South Wales.

It is especially disturbing that this lack of progress in NSW is set against a backdrop of rising prices for NSW gas supplies and predicted shortages. Yet the State has substantial gas resources that can be unlocked to address these issues. We only have to look across the border to Queensland to see what the potential benefits to local communities and the State could be if there were supportive NSW government policies for an industry that responsibly manages its environmental and community obligations.

To put this into context, around $70 Billion in investment has provided the communities of our Queensland “state of origin” colleagues with thousands of jobs, new sources of income in regional communities, and a royalty stream for decades to come. Notably, this new source of gas energy will provide our international neighbors with an energy source which is better for the environment and carbon emissions.

Before addressing broader issues, I wish to make a few comments on the Rosella well, which our Managing Director, Peter Henderson, will cover in some detail.

The Rosella Exploration Well

SLIDE 1

As you are aware, earlier this year we prepared to drill our Rosella exploration well at Bentley targeting conventional and tight gas. The well is not a coal seam gas well. We received all necessary approvals and had the consent and enthusiastic support of the landholder.

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Metgasco AGM 2014. Chairmans Address. 28 November 2014.

Our approval to drill was suspended a few days before drilling operations were to commence – without even a phone call.

Leave aside that we consider that there was no lawful right for the suspension;

Leave aside that we consider there was no lawful basis as we had met our obligations.

The simple fact is that there was no need for the suspension!!! The drill rig was not even in the state!!

A phone call would have brought any issues to our attention and potentially allowed them to be addressed.

The action has set a terrible precedent for resource companies operating in NSW.

The Office of Coal Seam Gas recommended suspension without notice. It would seem obvious that it could not impartially review its own decision. Despite that, a request to the Premier for independent review was rejected. Unsurprisingly, the Office confirmed its original decision.

Accordingly, we have had no choice but to seek judicial review of the decision in court. The matter was heard in the NSW Supreme Court on October 20 and 21. We are quietly confident of the outcome. We do not know the timing of the judgment; although our legal advisors advise that based on experience we may get a decision prior to Christmas.

Assuming a successful outcome for Metgasco, we would expect the government to settle the matter. Failing this, we will be looking to pursue damages after carefully considering the findings of the judge. Any decision will also need to consider the issues of time and cost.

New NSW Gas Plan

New South Wales is the last mainland state to develop its own gas production industry. It has not been an adopter of policy and regulatory settings that work elsewhere. The challenges presented at community, political and government level s seem to be overwhelming to these groups, resulting in substantial damage to the gas industry and to our company.

Following the government’s election in March 2011, an effective moratorium was placed on activity while a parliamentary review occurred. This lasted into 2012 and was followed by numerous ad hoc policy changes. These have been the cause of much delay and have done much to damage investor and community confidence in the state. They have had the effect of halting new exploration and production across the State’s gas industry.

The Chief Scientist recently completed a review into the gas industry. The review confirmed what Metgasco and the gas industry have consistently stated – that there is no valid reason why a coal seam gas industry could not proceed in NSW. The review also served to shine a light on the false claims of anti‐gas opponents, some of which have been made to create fear

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Metgasco AGM 2014. Chairmans Address. 28 November 2014.

and mistrust and to hijack community confidence in the development of an onshore gas industry.

SLIDE 2

In response to the Chief Scientist’s report, a new NSW Gas Plan was announced two weeks ago. The Plan identifies five priority pathways to reset NSW’s approach to gas:

• 1 Better science and information to deliver world’s best practice regulation

• 2 Pause, reset and recommence: Gas exploration on our terms

• 3 Strong and certain regulation

• 4 Sharing the benefits

• 5 Securing NSW gas supply needs.

In regards to Item 2, gas exploration has always been on terms set by the elected government and set out under its Onshore Petroleum Act and associated regulations. Decoded it means: Another change to the government’s terms for exploration.

Commitment to strong and certain regulation is welcome. Unfortunately, the proposed changes mean that certainty is some time away. Many of the details in the new policy will not be resolved until at leastmid‐2015.

Just a few examples:

• Which landholders will be compensated?

• What principles will apply?

• When will IPART, who is now charged with determining the charges to compensate landholders, make these known?

• What are the new licence conditions the government plans to introduce in 2015?

• How does a “use it” or “lose it” policy in NSW relate to exploration, when exploration to determine whether there is any gas and whether it is commercial in quantity takes several years?

Numerous legislative changes are required and regulatory responsibilities are altered – yet again. The EPA is now the lead regulator for gas exploration and production. The government’s announcement has again given the green light in principle but provided another set of traffic lights in practice.

The policy also provides for a one off buy back of petroleum exploration licences, although on what terms is not yet known. Given the continuing changing rules and ongoing delays in NSW, it would not surprise if all exploration licence holders – even the largest ones – gave some thought ‐ at least in private ‐ to this option!!

The policy is indeed a reset.

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Metgasco AGM 2014. Chairmans Address. 28 November 2014.

And I know investors wonder whether further resets, reviews or changes lie ahead?

The implications for Metgasco and for gas exploration and production in the Northern Rivers are unclear. Accordingly Metgasco sought a meeting with the Minister to understand these implications as a matter of priority.

We met with senior officers in the Department of Resources and Energy. These officers confirmed that there were numerous policy details to be resolved. They also considered a further period of 2 – 3 years of further change can be expected as this will be required to establish the requisite policy, legislative and regulatory settings for a single independent regulator for all onshore subsurface resources. . They acknowledged the continuing investor uncertainty this created. They also advised they expected buyback to be offered to all NSW licencees but compensation can be expected to be a minimal amount.

In the 10 years in which it has been operating as a listed company, Metgasco has identified a very significant gas resource in the Clarence Moreton region. We are keen to pursue to its commercialisation. Disappointingly, it is clear that a longer timeframe than was envisaged previously will be required.

Future of Gas Development in the Northern Rivers

SLIDE 3

There have been media reports that some governments MPs in the Northern Rivers region support a buyback or cancellation of Metgasco’s licences in the region. It is unclear whether this is government policy or otherwise.

If this is government policy, I am sure these honorable members would insist on fair compensation. Fair compensation would be necessary to restore investor confidence in NSW. It is also consistent with the principles established elsewhere ‐ for example when a landholder has his farm bought out by government for alternate use such as a road or if a cotton farmer participated in the national water buyback scheme.

Metgasco was issued with licences by the then NSW government over 10 years ago, which not only permitted but obliged us to explore for gas in the Northern Rivers. We have complied with these obligations. Our shareholders have invested about $120 million over 10 years and Metgasco have discovered the state’s second largest gas resource, after drilling over 50 wells. Many of our almost 5000 shareholders are residents of NSW, including a large number living in the Northern Rivers. Our investors responded to the then NSW government’s policy supporting onshore gas exploration in NSW, wanting to see a vibrant local community underpinned by regional energy development. They invested in good faith in Metgasco, who explored as required under licences and regulations set by the NSW government of the day. Our shareholders and their investments deserve to be treated with respect.

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Metgasco AGM 2014. Chairmans Address. 28 November 2014.

The lack of recognition of the damage that has been done to Metgasco and other bona fide NSW gas companies is a clear oversight in the NSW gas plan. The government needs to redress this. Righting this wrong is necessary to rebuild investor confidence.

In the absence of an acceptable agreement otherwise, we remain keen to pursue the commercialisation of our gas resources in the Northern Rivers when investment and regulatory conditions support this. We will continue to seek opportunities to work constructively with the government to rebuild community and investor confidence.

The Board has previously advised it would consider opportunities outside NSW if these would complement the assets in the Clarence Moreton basin. Ideally, the opportunity would offer immediate or near term cash flow from production as well as an opportunity to attract capital. To date no such opportunity has been secured.

As at September 30, the company had cash reserves of $10.2 Million. With the actions taken in March 2013 to reduce staff numbers and overheads, our projected annual non‐operating expenditure is below $3 million. There is the potential to reduce costs further in the event that no diversification opportunity was secured and delays continued. Despite the government’s new gas plan being welcomed for its statement of support for an onshore gas industry, it does not unambiguously provide the certainty that removes continuing sovereign risk. As such, the investment community is yet to show any increase in confidence in investing in NSW. This can only begin to change when policy details are clarified, regulatory changes complete and government actions supporting an onshore gas industry are demonstrated consistently.

Given ongoing delay in the Northern Rivers, the lack of investor confidence in NSW and the outlook for continuing sovereign risk, diversification remains a priority in order to set the company on a growth path.

Conclusion

SLIDE 4

To conclude, the Board is extremely disappointed for our company and its shareholders that there has been minimal progress in developing an onshore gas industry in the Northern Rivers or elsewhere in NSW during this term of government. We have recently been presented with a new gas plan by the government and face further uncertainty and delay. The net result is that, at least for the gas industry, NSW is not currently viewed as a good place to do business and the government’s sovereign risk reputation looks questionable.

Metgasco has identified a significant gas resource in the Northern Rivers, and demand for new gas supplies remains strong. We are keen to pursue its commercialization when regulatory and investment conditions support this. We will continue to look to settle the Rosella matter with

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Metgasco AGM 2014. Chairmans Address. 28 November 2014.

government, but will consider legal options if this is not achieved. We will also continue to pursue opportunities to diversify outside NSW to complement the longer timeframe required to develop our Clarence Moreton resource. This can offer a more timely path to value for shareholders.

Speech by Peter Henderson Managing Director

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Metgasco AGM 2014. Chairmans Address. 28 November 2014.

Chairman’s speech Pt 2

Thank you Peter.

Before we turn to questions and procedural matters, I wish to cover a few other items

Annual Accounts

SLIDE

In the 2014 annual accounts, reserves and resources have been downgraded from those reported in 2013, with all reserves moved to the resource category. The recoverable amount of capitalised exploration and evaluation expenditure has also been assessed and it has been decided to that it is necessary to impair this expenditure to nil. These decisions reflect the significant degree of uncertainty in the NSW business climate, in comparison with the environment that has existed.

Metgasco’s share price at present is a clear indication that many in the investment community are not confident in the NSW Government’s resolve to honour exploration rights. Under these circumstances and with court action underway against the NSW Government, Metgasco’s Board believes that there is uncertainty about when its gas resources can be developed. As such, it was more appropriate to recognise resources rather than reserves and to impair capitalised exploration and evaluation expenditure. These matters are more fully explained in the annual report.

I ask you to note that these decisions were made prior to the recent NSW announcement of a new plan for NSW gas.

Board Changes

Following last year’s annual general meeting, there have been several changes to the Board. A new director Mr. Peter Berry has been added to the Board. Peter brings extensive commercial and investment banking skills. I have replaced Mr. Nicholas Heath as Chairman who has also retired from the Board. Mr. Heath agreed to stay on the Board longer than originally anticipated to assist with strategy and activity regarding the Rosella suspension and to finalise year end accounts. Mr. Heath has provided Metgasco with strong leadership and wise counsel over a very challenging period. On behalf of the Board and all the company’s shareholders I thank Nick for his service.

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Metgasco AGM 2014. Chairmans Address. 28 November 2014.

Remuneration

Last year, the company’s remuneration report was not supported by the necessary 75% majority. The company now has a first strike against it. If the remuneration report does not receive the necessary 75% majority, a motion to spill the Board will be put. If that motion is successful, a meeting will be called to elect a new Board.

Fees for directors were reduced in March 2013 and there has been no increase since that time. There was a significant increase in director workload this year, primarily arising from the Rosella suspension. Notwithstanding this, no additional fees were received by directors.

There have been no increases in salaries paid to key management personnel during the year.

The remuneration “two strike” rule gives shareholders an opportunity to express its view on remuneration and an additional means to change Board composition.

In the Board’s view, the company will benefit from strong support from shareholders for the Board in the eyes of the general community and government. This is important as we endeavor to address the numerous challenges ahead. The Board and I wish to thank shareholders for the strong support already shown. For those who have not yet voted, we invite you to also support the remuneration report and the election of Peter Berry and myself. We of course acknowledge the rights of shareholders not to do so.

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