METGASCO LTD — Capital/Financing Update 2006

Jan 18, 2006

19 January 2006

AUSTRALIAN STOCK EXCHANGE Via Electronic Lodgement

DRILLING UPDATE

Metgasco advises that horizontal well MSC-10 has spudded and that as of 9.00am this morning the UDR 1200 rig is drilling ahead. The rig will drill vertically to approximately 200 metres and then commence drilling at an incline until it reaches the Richmond coal seam at a depth of approximately 500m. The rig will drill in-seam over a distance of approximately 700 metres to intersect with MSC-08, which will operate as its vertical offtake well.

MSC-08 was previously drilled to 483m to the top of the Richmond seam and cased and suspended with a view to taking a core sample and completing the well in the future. In order to complete MSC-08 as a vertical offtake well, Metgasco is currently completing the coring of MSC-08 with the KL 1500 rig. Over the next two weeks, the Company will complete the vertical drilling of this well to a target depth of 680m. The two wells will then be intersected and pumps installed and the well completed.

Once horizontal MSC-10 is completed, Metgasco will commence drilling horizontal well MSC-09. This well will be drilled from the pad of MSC-08 to intersect with the existing vertical well. MSC-05, which will operate as its offtake.

Overview of Project

Metgasco holds 100% of PEL16 located near Casino and Lismore in northern New South Wales. PEL16 contains a CSM gas resource of over 4 trillion cubic feet of gas-in-place and also has the potential for conventional oil and gas reservoirs. The Company has completed a pilot program of 5 vertical wells to test the gas production capability of the Richmond coal seam. This pilot program has now been extended to include drilling two horizontal wells to improve the productivity of the field through predicted enhanced gas flows.

For further information contact: Glenda McLoughlin Chief Financial Officer Metgasco Ltd Tel: (02) 9923 9100 Fax: (02) 9923 9199

Metgasco Limited ACN 088 196 383 Level 3, 32 Walker St North Sydney NSW 2060 Tel: (02) 9923 9100 Fax: (02) 9923 9199 Website: www.metgasco.com.au