METGASCO LTD — Management Reports 2005

Jul 25, 2005

26 July 2005

AUSTRALIAN STOCK EXCHANGE Via Electronic Lodgement

QUARTERLY ACTIVITIES REPORT

QUARTER ENDED 30 JUNE 2005

Highlights

• Encouraging early results from pilot production drilling.
• Four wells flowing gas and water. Flow rates being monitored.
• Detailed design and commercial work for proposed 12MW power project $\bullet$ commenced.

Overview of Operations

Over the past quarter, Metgasco completed its pilot production drilling program to test the gas potential of the Walloon Coal Measures in the New South Wales portion of the Clarence Moreton Basin. Early drilling results are very encouraging with all wells on production test showing a steady build up in pressure as the wells are dewatered.

Five pilot production wells and one pre-collar hole have been completed with four wells now placed on production flow test. These wells will be dewatered over the coming weeks. MSC-05 is currently not being drawn down as a result of mechanical failure of the pump. This well will continue to be drawn down once a working pump is re-connected. The company is closely monitoring gas flows, gas composition, water production rates and water composition during draw down. Once sufficient data has been collected estimates of long term flow rate capabilities can be assessed and water management plans developed.

All wells have targeted the two identified coal seams at a depth of 500 - 650 meters. The following table outlines initial results from the pilot drilling program.

Well	Spud Date	Well Type	Total Depth (M)	Net Coal Thickness (M)	Well Status
MSC-03	30.03.05	Development	680	14	Pilot production Test
MSC-04	15.04.05	Development	684	15	Pilot production Test
MSC-05	04.05.05	Development	680	15	Pilot production Test
MSC-06	29.05.05	Development	671	20	Pilot production Test
MSC-07	10.06.05	Development	680	29	Pilot production Test
MSC-08	21.06.05	Pre-Collar	483	not	Cased & Suspended
		Detailed Investigation		measured

The company is pleased that well head data from the recent drilling program has confirmed that the coal seam reservoir is over-pressured at the south Casino pilot field. Data collected from MSC-07 has confirmed a 35psi overpressure previously measured on earlier wells. Over pressuring allows coal to hold a higher gas content and assists the delivery of gas from the coal seam reservoir to the production well. It is likely to have a significant positive impact on the productivity of the south Casino project.

Isotherm testing has been completed during the previous quarter. The results of these tests confirm the high gas storage capacity of the coal seam reservoir. (Recorded at up to 15 m³/t at 6MPa raw.) Together with previously collected data, the isotherm results indicate high gas saturation of the reservoir. Further data is required to confirm the measure of saturation. although the presence of gas flow from the wells completed to date appears to confirm that desorption is occurring after limited dewatering.

Planned Forward Work Program Next Quarter

• Complete drilling of core hole MSC-08 to production depth. $\bullet$
• Continue to monitor gas and water flow rates.
• Optimise well productivity.
• Commence reserve certification process.
• Continue with detailed design and commercial work for the proposed 12MW power project.
• Complete re-interpretation of re-processed seismic data for conventional gas accumulations.

Gas Sales

• Metgasco has entered into a Co-operative Agreement with Country Energy to $\bullet$ potentially develop a 12MW gas fired electricity project to be located at Casino.
• $\bullet$ Additional gas sale MOU's are under negotiation and further options are being assessed that could result in early cash flow.

Overview of Project

Metgasco holds 100% of PEL 16 located near Casino and Lismore in northern New South Wales. The Company is appraising the gas production potential of the Walloon Coal Measures in the Clarence Moreton Basin. The Walloon Coal Measures have been the subject of successful exploration and development activity in Queensland over the past four years. The trial production program will comprise five production test wells and one core hole. The holes will be located between 200m and 600m apart and will consist of both single seam and multiple seam production completions to a depth of approximately 700m. The wells will be flow tested to establish gas production rates with the objective of reserve certification.

For further information contact: Glenda McLoughlin Chief Financial Officer Metgasco Ltd Tel: (02) 9363 9604 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