METGASCO LTD — Capital/Financing Update 2011

May 16, 2011

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ASX / MEDIA RELEASE

ASX Code: MEL

17 May 2011

PROGRESS REPORT ON LNG FEASIBILITY STUDY

Metgasco advises that the LNG feasibility study commissioned by Metgasco and conducted by WorleyParsons has shown that there are a number of LNG development opportunities that are economically attractive at prevailing export LNG prices.

Metgasco commissioned the study in late 2010 to build on the Memorandums of Understanding (MOU) it has signed with LNG Ltd and Flex LNG.

WorleyParsons was asked to evaluate an upstream field development and pipeline transportation options to deliver gas from Metgasco tenements to three LNG project options. These LNG project options included:

1. A new LNG development at Fisherman’s Landing at the Port of Gladstone;

2. An LNG project at the Port of Brisbane; and

3. A floating LNG development, with the FLNG vessel located 30km offshore the coast of NSW.

With LNG sales of 1.5 million tonnes / year and a conservative LNG price of $10/mmbtu[1] , the project would realise total revenues of USD$29 billion over its 20 year life.

The upstream field development plan, covering well spacing, drilling, completion, gas and water gathering, compression, dehydration and water treatment and disposal was based on the supply of 90 PJ of gas per year over 20 years.

Capital and operating costs for each development option were calculated on the basis of all costs, from field costs (wells and gathering and process facilities), pipelines and the full LNG facility.

1 FACTS Global Energy, November 2010

For further information contact: Peter Henderson Glenda McLoughlin Managing Director & CEO Chief Financial Officer

Metgasco Limited ACN 088 196 383 Level 9, 77 Pacific Highway North Sydney NSW 2060 Tel: (02) 9923 9100 Fax: (02) 9923 9199 Website: www.metgasco.com.au

Key inputs/assumptions included:

• Development based on Metgasco’s current 2P and 3P reserves (2,239 PJ);

• Well production forecasts based on information from MHA (Metgasco’s reserve certifier);

• Field planning / gas drainage from Metgasco’s reservoir engineering staff ;

• Drilling of multi lateral wells into the Richmond seam;

• Drilling of vertical wells into the IJK seam;

• Reverse osmosis treatment of produced water;

• Surface engineering and opex based on WorleyParson’s experience with CSG field operations in Queensland;

• Pipeline (field to LNG plant) costs from WorleyParsons (the Gladstone option included an independent pipeline from Casino to Gladstone); and

• LNG plant costs from LNG Ltd and FLEX LNG.

The location of each potential project is described below:

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3. Fisherman’s Landing
1. Port of Brisbane
METGASCO
CASINO 2. Floating LNG
GAS
PROJECT
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The LNG Feasibility Study’s development schedule assumed four years of appraisal, environmental studies and approvals and community consultation before a final investment decision, followed by three years of development drilling, pipeline installation and LNG plant development. In other words, should the appraisal / approval process commence in early 2012, first LNG sales could occur in 2019.

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Total field development capital expenditure has been assessed over the 20 year life of the project and the following table provides further information on the composition of Field Development Capital Expenditure.

Composition of Field Development Capital Expenditure over 20 year life of project

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Well drilling cost Wellhead surface facilities Gas gathering Water gathering Water transfer Water treatment & disposal Infrastructure Gas processing

In addition, Metgasco has considered the potential to supply gas to LNG projects currently in development at Gladstone by way of direct gas supply and also through gas swaps.

Metgasco’s Managing Director, Peter Henderson, said that the study results were encouraging. “Not only do we have three economically attractive options, but Metgasco also has the potential to realise LNG prices and significant gas sales by potentially supplying gas to one or more of the four LNG projects currently in development in Queensland”.

Metgasco has completed a significant body of work to inform its forward commercialisation plans. Commercial discussions on this project have now commenced.

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