METGASCO LTD — Capital/Financing Update 2006

Jan 8, 2006

9 January 2006

AUSTRALIAN STOCK EXCHANGE Via Electronic Lodgement

METGASCO DRILLING UPDATE

Following mobilization of equipment to the South Casino site prior to the Christmas break, Metgasco Limited advises following progress on its 2^nd phase program. As at 9.00am Monday 9^th January activities are:

• A workover platform provided by AJ Lucas has completed pulling rods from wells MSC-03 and MSC-05.
• In addition to the UDR 1200 to be used to drill the two horizontal wells. AJ Lucas have mobilized a KL1500 truck mounted rig to expedite activities. The KL 1500 is currently moving onto the MSC05 well site to pull tubing and pump to prepare the well as the intersection point and vertical drainage off take for the horizontal well MSC-09. The KL 1500 rig will then move onto MSC-03 to remove tubing and pump.
• It is intended that when this is complete, the KL 1500 will move onto site MSC-08 where it will $\bullet$ complete the existing pre collar hole with coring to an estimated TD of 680m. The core will provide additional control on seam geometry for the horizontal hole MSC-09 and provide further sample for gas content, composition and coal character analysis.
• Following arrival of rod containers the UDR 1200 is in final commissioning and preparing to move onto site MSCO-10. MSC-10 will be completed as a horizontal into MSC-08 which will act as the vertical offtake. Subject to further adverse weather this hole is expected to commence in the next few days.
• Once MSCO-10 has been completed the rig will move onto the pad at MSC-08 where it will ٠ commence the 2^nd horizontal well MSCO-9. MSC-09 will be drilled from the pad at MSC08 with MSC-05 acting as the vertical offtake.
• Subject to rig suitability and approvals it is intended that well MSC-03 be deepened via coring $\blacksquare$ from current TD of 680m to approximately 1200m. The objective of coring is to determine if potential oil or gas bearing sands of the Heifer Creek Sandstone member exist in the Koukandowie Formation, immediately beneath the Walloon Coal Measures. The core will provide sample for testing to determine if a larger scale seismic program and conventional drilling should be undertaken.

Overview of Project

Metgasco owns 100% of PEL 16 located near the townships of Casino and Lismore in Northern New South Wales. The focus of exploration is coalbed methane of the Walloon Coal Measures of the Clarence Moreton Basin. The Walloon Coal Measures have been the subject of intense exploration and development activity in the past 4 years. In the Surat Basin, exploration and development in the Walloon Coal Measures has now established 3P Reserves of in excess of 1800Pi and commercial production is expected from at least 3 fields in the next 18 months.

Metgasco PEL 16 is well located in an area of no embedded energy supply in one of the fastest growing population areas of Australia and is also only 70km from the Queensland Gas Market.

For further information contact:

David Johnson Managing Director Managing Director

Metgasco Ltd

Tel: (02) 9363 9604

Mob: 0418 418 533

Fax: (02) 9327 4765 ract:
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