METGASCO LTD — Capital/Financing Update 2006

Jul 16, 2006

ABN 24 088 196 383

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

17 July 2006

Australian Stock Exchange Via Electronic Lodgement

Drilling of Metgasco- Molopo Middle Creek #1 Commenced

Metgasco advises that the, Metgasco-Molopo Middle Creek #1 ("MMMC #1) spudded on July $17.$

The well, operated by Metgasco on behalf of the PEL 13 Joint Venture, is to be drilled to a depth of approximately 600 metres. The well is located 23 km to the south west of Metgasco's South Casino operations in PEL16 and is part of the Company's reserve expansion drilling programme.

The objectives of the well are as follows:

• To identify the presence and thickness of the Walloon Coal Measures ("WCM") on the $\bullet$ western margin of the Clarence Moreton Basin.
• To establish the measure of lateral coal continuity from other known areas including at $\bullet$ South Casino where the company is currently production testing.
• To measure relevant coal seam gas characteristics of any coals intersected. $\bullet$

Funding the drilling of this stratigraphic test well and additional seismic review, reprocessing and interpretation will contribute to the farm in obligations to initially earn 51% in the interest in coal seam methane rights in PEL 13, as previously announced.

For further information contact: David Johnson

Managing Director Metgasco Ltd Tel: (02) 9363 9604 Mob: 0418 418 533 Fax: (02) 9327 4765

Glenda McLoughlin Chief Financial Officer Metgasco Ltd Tel: (02) 9363 9604 Mob: 0413 439 299 Fax: (02) 9327 4765

Metgasco Limited ACN 088 196 383 Suite 10/402 New South Head Rd Double Bay NSW 2025 Tel: (02) 9363 9604 Fax: (02) 9327 4765 Website: www.metgasco.com.au