METGASCO LTD — M&A Activity 2014

Dec 21, 2014

Announcement

Merger with Elk Petroleum

Transaction Overview

• Metgasco to merge with Elk Petroleum (Elk) via a Scheme of Arrangement 服
• Establishes a strong platform and clear pathway for value creation for shareholders of both companies
• $\triangleright$ a geographically diversified portfolio of exploration and advanced development assets and a strong cash position
• " Upon completion of the transaction, existing Metgasco security holders and Elk security holders will own 77%¹ and 23%¹, respectively, of the issued ordinary shares of the combined entity (on an undiluted basis)
• Proposed merger has unanimous support of both the Metgasco and Elk Boards 胭
• Metgasco will provide Elk with a short term loan facility of A\$2.5m to assist with 匪 Elk's immediate funding requirements, with the right to convert to shares
• Transaction conditional on Metgasco sourcing additional funds on acceptable $\mathbb H$ terms by 31 March 2015

^1. Subject to adjustment based on treatment of unlisted Elk securities

Transaction Rationale

Enhanced geographical diversification and scale

Medium term gas potential in NSW Clarence Moreton Basin, with 2C contingent resources of 4,428 BCF and exciting conventional and tight gas exploration potential - Undersupplied eastern Australian market with expectation of large price increases

$\checkmark$

Wyoming oil reserves (Grieve project)

Cash flow from the Grieve Enhanced Oil Recovery (EOR) project starting in early, 2017, providing the basis to sustain ongoing operations in the USA and NSW

Upside USA oil potential with Singleton field

Estimated combined cash position of combined entity at 31 December of approximately \$9million

The merged group will be better positioned for growth compared to either company on a standalone basis, and is expected to deliver significant benefits to shareholders

1. MHA? Or Internal estimate?

Overview of Combined Entity

Strategy	Position NSW CMB gas assets to benefit from expected improved business and $_{\rm{B}}$ regulatory environment over next 3 years with: 1) gas shortages and higher prices becoming increasingly evident; and 2) time for NSW Government to implement the new NSW Gas Policy Support Grieve EOR project, with oil revenue expected 1Q 2017 Pursue other business opportunities, such as Nebraskan Singleton field on individual opportunity merit
Board and Management	Board of Directors limited to four directors in the medium term 新 One managing director and three non-executive directors
Financial Position	Estimated cash position of approximately A\$9 million (31 December 2014) Assumption of Elk's US\$12 million limited recourse finance facility repayable from 影 Grieve Project oil production
Assets	NSW CMB exploration licences, with CSG resources and conventional/tight gas 豚 potential 35% interest in Wyoming CO2 EOR projectNebraskan Singleton field 贤

Medium Term Priorities

• Continue to progress Grieve EOR project into production in partnership with world class EOR operator Denbury Resources
• \$70m invested to date. Wells and facilities installed or well advanced. Field re-pressurisation, $\frac{1}{2}$ which is the critical path, proceeding as per expectation.
• first oil expected by March 2017

$\mathbf{3}$

$5\overline{)}$

$\overline{1}$

• Secure additional funds by 31 March 2015 to undertake merger
• $-$ discussions with funding partners currently underway
• Secure and optimise NSW CMB assets: $\mathbb R$
• resolve Rosella suspension dispute with NSW Government
• better understand and allow time for implementation of the new NSW Government Gas Policy
• commence field operations again when business and regulatory environment are satisfactory
• Assess identified opportunities and appropriate timing for pursuit of activities $\boldsymbol{4}$
• Rosella
• Singleton EOR and primary / secondary recovery potential
• Optimise new organisation and costs, subject to approval of merger proposal.

Indicative timetable MEICASCO Key Milestones Target Date Announcement of Merger 22 December 2014 Financing secured 31 March 2015 First Court hearing to approve Scheme Booklet and convene Late April 2015 Scheme Meeting Scheme Booklet despatched to Elk shareholders Late April 2015 Scheme Meeting (Elk) May 2015 Second Court hearing to approve Scheme May 2015 Merger implementation June 2015

Potential for scheme of arrangement / merger implementation to be accelerated from dates shown above

Key Merger Conditions

• Receipt of regulatory and court approvals $\boxplus$
• An independent expert opining that the Merger is in the best interest of Elk $\mathbb H$ shareholders
• Elk shareholder approval of the Merger (by at least 75% of votes cast and 50% $\mathop{\rm I\mskip-4mu\rm I\mskip-4mu\rm I}$ of shareholders voting)
• Each holder of Elk Unlisted Options, Elk Performance Rights and Elk Retention $\rm{I!I}$ Rights entering into a separate Cancellation Deeds with Elk
• No material adverse change in respect of Metgasco or Elk, no prescribed $\blacksquare$ occurrences regarding Elk
• Metgasco securing an amount of additional funding on acceptable terms by 31 $\blacksquare$ March 2015. Metgasco has met with several financiers in the USA and Australia who have indicated interest

The Merger Implementation Deed (MID) also includes customary deal protection clauses including mutual break fees and no shop and no talk provisions, as well as termination rights, obligations of the companies in the lead up to implementation and various other standard provisions relevant to the Merger¹

1. The full terms of the MID are appended to the transaction announcement that has been released to the ASX

Interim Funding

• Metgasco has agreed to provide Elk with a A\$2.5 million convertible loan facility to assist with the company's immediate funding requirements
• The loan is convertible to ordinary shares in Elk at Metgasco's election based on the Volume Weighted Price (VWAP) for the ordinary shares for the 20 day period up to the conversion date subject to a cap of \$0.047 per Elk share
• $\triangleright$ Timeframe governed by the listing rules
• The loan is to be repaid on the within 30 days of the MID being terminated by Metgasco or Elk

Other standard terms typical for a loan of this nature have been agreed and reflected in the loan documentation

Overview of Metgasco

• 100% owned world scale acreage position in $\boxplus$ the Clarence Moreton Basin
• → 4 tenements (PEL 16, 13, 426 & 130) PEL 130 approval under review
• → 1,107,317 acres
• Large CSG resources and further gas resource $\boxtimes$ potential
• $\triangleright$ Certified 2C contingent resources of 4,428 BCF
• NSW and eastern Australia face higher gas $\boxplus$ prices and potential supply shortfall

Capital Structure

ASX code	MEL
Share price (at 19 December, 2014)	\$0.041
Market Capitalisation (million)	\$18
Shares on Issue (million)	444
Options on Issue (million)	1.5
Cash forecast at 31 December 2014 (million)	\$9
Debt	Nil

Major Shareholders

12.7%

ERM

Overview of Elk Petroleum's Assets

The Grieve Project (EOR)

Location	y.	Located in the Wind River Basin approximately 50 miles west of Casper in Wyoming, USA
History	x	Discovered in the 1950s the field has produced 30.2MMbbl (44% recovery) with a peak rate of 12,000 BOPD in 1960
Joint Venture UV)	R	Denbury 65% (operator)
Phase	h. II.	Development phase Over US\$70 million spent by JV to date
Injection to date	目. $\mathbb{R}^+$ 匠	Over 6MMbbl of water (since May 2013) 12 Bcf of CO 2 (since March 2013) Original reservoir pressure of 3000 psi (currently over $~1,500$ psi)
Production	ti.	Oil production expected to commence early 2017 (expected to peak at 7,000 bopd gross in 2019)
Volumetrics	$\mathcal{V}^{\pm}$ i.	STOOIP remaining estimated at 37.6 MMbbls $(13.16 \text{ MMbbs} \text{ net})$ Ryder Scott 2P reserves of net 6.5 MMbbls (Elk share) Project reserves economic at a range of reserve outcomes
CO 2 Contract		$CO2$ supply sourced from the nearby LaBarge field

Location of Grieve Project

Other Exploration/ Development

• Singleton field potential: $\mathbf B$
• CO₂ EOR project in Nebraska $\overline{r}$
• Reservoir engineering studies show potential for 2 to 4 $\overline{r}$ mmstb recovery
• Lease secure and CO₂ supply contracted $\overline{r}$

Disclaimer

• This presentation is being provided for the sole purpose of providing the recipients with background information about Metgasco Ltd (Metgasco). No representation, express or implied, is made as to the fairness, accuracy, completeness or correctness of information contained in this presentation, including the accuracy, likelihood of achievement or reasonableness of any forecasts, prospects, returns or statements in relation to future matters contained in the presentation ("forward-looking statements"). Such forward-looking statements are by their nature subject to significant uncertainties and contingencies and are based on a number of estimates and assumptions that are subject to change (and in many cases are outside the control of Metgasco, its Directors and Officers) which may cause the actual results or performance of Metgasco to be materially different from any future results or performance expressed or implied by such forward-looking statements.
• This presentation provides information in summary form only and is not intended to be complete. It is not intended to be relied upon $\mathbbmss{H}$ as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any particular investor.
• Due care and consideration should be undertaken when considering and analysing Metgasco's financial performance. All $\mathbf{B}$ references to dollars are to Australian Dollars unless otherwise stated.
• To the maximum extent permitted by law, neither Metgasco nor its related corporations, Directors, employees or agents, nor any other person, accepts any liability, including, without limitation, any liability arising from fault or negligence, for any loss arising from the use of this presentation or its contents or otherwise arising in connection with it.
• This presentation should be read in conjunction with other publicly available material. Further information including historical results $\mathbf{m}$ and a description of the activities of Metgasco is available on our website, www.metgasco.com.au.

ASX Listing Rule 5.42 Disclosure

Reserves have been certified by Mr Tim Hower of MHA Petroleum Consultants (Denver) who is a qualified petroleum reserves and $\mathbf n$ resources evaluator as defined under the ASX Listing Rule 5.11. Reserves have been developed within the guidelines of the SPE. Mr Hower has consented to the use of the reserve figures in this presentation. Conversion of reserves from PJ to Bcf at 1.04 PJ/1.00 Bcf.