METGASCO LTD — Capital/Financing Update 2006

Dec 3, 2006

ABN 24 ORR 194 383

Levef 3, 32 Walker St, North Sydney, NSW, 2060 tel +61 2 9923 9100 fax +61 2 9923 9199 www.metgasco.com.au

THIS IS AN IMPORTANT DOCUMENT AND SHOULD BE READ IN ITS ENTIRETY

28 November 2006

Dear Shareholder

SHARE PURCHASE PLAN OFFER

The Directors of Metaasco Limited ("Company") are pleased to offer shareholders the opportunity to participate in its Share Purchase Plan ("SPP") which was announced on Monday 13 November 2006.

Eastern Australian gas markets are experiencing buoyant conditions and the coal seam gas sector is rapidly expanding to meet this growing demand for gas. Metgasco's Casino gas project in the Clarence Moreton basin in northern New South Wales is well placed in this market. In order to accelerate the Company's development, the Directors have resolved to allow shareholders to purchase up to \$5,000 of Metgasco shares at a discount to the market price.

Under the terms of the offer, existing shareholders have until Friday 15 December 2006 to purchase up to \$5.000 worth of shares. The offer is priced at 32 cents representing an 11% discount on the weighted average market price of Metgasco's shares traded over the past 5 trading days. Given the attractiveness of the pricing, we have restricted the offer to those shareholders on record as at 5.00pm on Monday 27 November 2006.

As you know, over the past 12 months the Company has been developing the Casino Gas Project and the Richmond Valley Power Station. These projects were recently declared Major Projects by the State Government of New South Wales and given fast track development approval status. Funds raised from this offer will be used to:

• fund the Company's Reserve Expansion Drilling Program to establish sufficient gas reserves to supply the $\bullet$ power station:
• conduct an environmental assessment study on the project: $\bullet$
• contribute towards funding field operations and infrastructure; $\bullet$
• progress additional commercialisation opportunities; and $\bullet$
• replenish working capital.

You can find further information on the Company's activities on our website www.metgasco.com.au.

Participation in the SPP is entirely voluntary, but the SPP is non-renounceable which means that you cannot transfer your right to purchase shares to another party. The SPP opens on Tuesday 28 November 2006 and closes on Friday 15 December 2006.

Shareholders may apply for a parcel of ordinary shares in the following amounts:

• A\$5,000 being 15,625 shares at A\$0.32 per share
• A\$2,000 being 6,250 shares at A\$0.32 per share
• A\$1,000 being 3,125 shares at A\$0.32 per share
• A\$500 being 1,563 shares at A\$0.32 per share

The SPP is available to shareholders of the company with a registered address in Australia and New Zealand. Prior to electing to participate in the SPP, shareholders should consider the terms and conditions of the SPP, their own financial objectives and circumstances and whether participation in the SPP suits those objectives and circumstances. The Directors of Metgasco have the discretion to alter key dates and terms.

This offer is underwritten to the value of \$2 million by Taylor Collison Limited. The Company has entered an underwriting agreement to this effect and will pay a fee related to the underwritten amount to the underwriter. Metgasco will pay a 2% broker handling fee to facilitate acceptances under the SPP. This fee will be payable where a Participating Organisation of the Australian Stock Exchange's stamp appears on the Application Form.

Accompanying this letter is a document entitled "Share Purchase Plan Terms and Conditions" which explains how the new shares will be issued should you participate in this offer. Also included is a personalised application form which you need to complete in accordance with the instructions provided and return to the Company's share registry office, Computershare Investor Services Pty Limited, with payment, in the reply paid envelope, so that it is received no later than 5.00pm on Friday 15 December 2006.

On the basis of the issue price of shares under the offer, the Directors recommend the SPP to shareholders. Each of the Directors intends where entitled, in respect of their own shareholdings, to apply for the maximum entitlement of \$5,000 of new shares.

I hope that you will give favourable consideration to this offer as a convenient means of increasing your holding in the Company as we move toward development of these exciting and important projects.

Yours faithfully

$\mathscr{B}$

Dr Peter Power Chairman

METGASCO LIMITED ACN 088 196 383

SHARE PURCHASE PLAN OFFER-TERMS AND CONDITIONS

1. OFFER TIMETABLE

This offer is dated and taken to be made on 27 November 2006 (Record Date).

The offer opens on 28 November 2006 (Opening Date).

The offer closes at 5.00pm on Friday 15 December (Closing Date), unless extended. Application Forms and cheques or money orders may not be processed or held to be valid if they have not been received by Metgasco by this time.

The Shares are proposed to be allotted and dispatched to you on or around 22 December 2006. (Allotment and Dispatch Date).

Metgasco has the discretion to change, at any time, any of the Opening Date, the Closing Date, the Allotment and Dispatch Date to later dates by lodging a revised timetable with the ASX.

2. ELIGIBILITY TO PARTICIPATE

You are eligible to participate in the offer only if you hold shares in Metgasco at the Record Date with a registered address in either Australia or New Zealand. The Board has determined that it is not practical for holders of shares who are resident in other jurisdictions to participate in the SPP.

To the extent that you hold shares on behalf of another person resident outside Australia or New Zealand, it is your responsibility to ensure that any acceptance is in compliance with all applicable foreign laws.

Joint holders of shares are taken to be a single registered holder of shares for the purposes of determining whether they are an Eligible Shareholder and the certification on the Application Form is taken to have been given by all of them.

Where a trustee or nominee is a registered holder of shares and is expressly noted on the register as holding shares on account of a named beneficiary, the named beneficiary will be taken to be the registered holder of those shares. An application for shares, certification or issue of shares to the trustee or nominee will be taken to be an application or certification by, or an issue to, the named beneficiary.

If you are an Eligible Shareholder, your rights under this offer are personal to you and non-renounceable, so you may not transfer them.

3. OFFER PRICE

The price for each SPP share offered for issue under the SPP is A\$0.32 (Offer Price).

The Offer Price represents a discount of 11% to the volume weighted average price of Metgasco's shares over the five trading days prior to 27 November 2006.

You should note that the market price of shares may rise or fall between the date of this Offer and the Allotment Date. Any such change in the share price will not affect the SPP Price. This means that the SPP Price may be either higher or lower than the price of shares at the time the SPP shares are issued to you.

$\overline{4}$ APPLICATIONS FOR SHARES

If you are an Eligible Shareholder and wish to participate in the SPP, you must complete the Application Form and provide a cheque or money order in accordance with the instructions on the Application Form.

You may apply to purchase shares to the value of the Parcel you select on the Application Form. These Parcels are subject to scaleback and rounding. Eligible Shareholders who receive more than one offer under the SPP (for example, because they hold Shares in more than one capacity) may apply on different Application Forms for more than one Parcel, but may not apply for Shares with an aggregate value of more than \$5,000.

The Board reserves the right to reject any application for SPP shares to the extent that it considers that the application (whether alone or in conjunction with other applications) does not comply with these requirements.

5. COSTS OF PARTICIPATION

No brokerage, commissions, stamp duty or other transaction costs will be payable by Eligible Shareholders in respect of the application form and issue of shares under the SPP.

6. GENERAL

The Board may change or terminate the Offer at any time prior to the Allotment Date. In the event that the Board does so, it will advise the ASX. Any omission to give notice of changes to, or termination of, the offer, or the non-receipt of any such notice, will not invalidate the change of termination.

If you apply for shares under the SPP, you will apply for a certain value rather than a certain number of shares. The number of shares you receive will be determined by:

(a) if there is no scaleback applied to your allotment, dividing the value of the Shares you have applied for by the Offer Price: or

(b) If there is a scaleback applied to your allotment, dividing the value of the shares you have been allotted by the Offer Price.

If the value of shares is not a whole dollar number Metgasco reserves the right to round the number of allocated shares up or down to the nearest whole number.

Metgasco may settle in any manner it deems appropriate, any disputes or anomalies which may arise in connection with or by reason of the operation of the offer, whether generally or in relation to any applicant or application of Shares. The decision of Metgasco will be conclusive and binding on all persons to whom the determination relates.

Shares issued under the SPP will rank equally with and have the same voting rights and other entitlements as existing shares quoted on the ASX.

Metgasco will apply for Shares issued under the SPP to be quoted on the ASX. It is anticipated that the Shares will be quoted on the ASX shortly after the Allotment Date.

These terms and conditions are governed by the laws in force in New South Wales.