METGASCO LTD — Share Issue/Capital Change 2004

Dec 20, 2004

NETCASCO

Prospectus

Prospectus for the Issue of 25 million new Shares at an Issue price each of 20 cents each to raise \$5 million. Oversubscriptions may be accepted through the issue of a further 10 million new Shares to raise an additional \$2 million.

Broker to the Offer Taylor Collison Ltd

Table of Contents

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01	Chairman's Letter
02		Investment Highlights
04	1.	Offer Details
09	2.	Coal Seam Gas
11	З.	The Eastern States Energy Market
13	4.	Business Profile
22	5.	Board and Corporate Governance
26	6.	Risk Factors
30	7.	Independent Consulting Geologist's Report
42	8.	Independent Energy Market Consultant's Report
54	9.	Independent Accountant's Report
60		10. Solicitor's Report
70	11.	Additional Information
81		12. Defined Terms
82		13. Gas Industry Definitions
83		Application Forms

Important Notice

This Prospectus is dated 11th November 2004 and was lodged with ASIC on 11th November 2004. No responsibility for the contents of this Prospectus is taken by ASIC or ASX or their respective officers. This Prospectus does not constitute an offer in any place in which, or to any person to whom, it would be unlawful to make such an offer. The distribution of this Prospectus in jurisdictions outside Australia may be restricted by law and persons who come into possession of this Prospectus should seek advice on and observe any such restrictions. Any failure to comply with such restrictions may constitute a violation of applicable securities laws. No Shares (other than Shares to be issued on exercise of Options) will be issued on the basis of this Prospectus later than 13 months after the date of this Prospectus.

Investors who wish to subscribe for Shares should complete the relevant Application Form inluded in this Prospectus. A copy of this Prospectus can be downloaded from the website of the Company at www.metgasco.com.au. Any person accessing the electronic version of this Prospectus for the purposes of making an investment in the Company must be an Australian resident and must only access the Prospectus from within Australia. The Shares offered under this Prospectus are not being offered on the basis of the electronic copy of the Prospectus displayed on the Company's website and Shares will only be issued on the basis of an Application Form which is contained in a hard copy of the Prospectus.

In accordance with Section 727(3) of the Corporations Act, this Prospectus is subject to an exposure period of 7 days from the date of lodgment with ASIC. The exposure period can be extended by a further 7 days by ASIC. Applications received during the exposure period will be dealt with in accordance with Section 724 of the Corporations Act.

This Prospectus provides information for investors who wish to invest in Metgasco. It should be read in its entirety in order to make an informed assessment of the assets and liabilities. The Shares offered under this Prospectus should be considered speculative. The Company is at an early stage of its development, accordingly there are significant risks associated with investing in the Company. Potential investors should refer to Section 6 for details relating to Risk Factors and take these factors into account and consider whether this is an appropriate investment in view of their personal circumstances, Investors should seek advice from their professional advisor before deciding whether to invest. There is no quarantee that the Shares offered under this Prospectus will make a return on capital investment, that dividends will be paid on the Shares, or that there will be any increase in the value of the Shares in the future.

Chairman's Letter

Dear Investor.

On behalf of all Directors, I am pleased to welcome investors to the initial public offering of Metgasco Limited ("Metgasco" or the "Company").

Metgasco has been established to explore for and develop coal seam methane and conventional gas resources in northern New South Wales. The Company owns 100% of the tenement rights over approximately 800 square kilometres of land in the Clarence Moreton Basin. Work completed on the tenement to date indicates this area contains highly gassy coals and there are also indications that it may contain conventionally reservoired methane. The coal, identified in the Company's drilling campaign to date, is located in a strategic position. It is close to the one of the fastest growing population centres in the country and only 70km from the Queensland gas market.

Natural gas is Australia's fastest growing source of energy. Demand for gas in the eastern Australian gas market is forecast to double over the next 20 years. Growth in demand for gas has been encouraged by the introduction of Government policies in New South Wales and Queensland which are designed to reduce greenhouse gas emissions by rewarding the use of natural gas in power generation. It is Metgasco's objective to become the preferred supplier of gas in northeastern New South Wales and eventually to the southern Queensland market.

Investors in this initial public offering will provide funds for the start of our development plan, but really will be sharing in our staged approach to create value from this resource. The first stage is to conduct pilot production drilling in our tenement area to convert our coal seam gas resource into a producible reserve. In the event that sufficient reserves of gas are confirmed, Metgasco has numerous commercial opportunities. In the second stage of our development plan, the Company intends to develop a potential 12MW power generating project which intends to sell output, together with Greenhouse Gas Abatement Certificates, to the local energy distributor and retailer Country Energy. We then intend to pursue gas sales into the southeast Queensland gas market and in northern New South Wales.

Metgasco is fortunate to have a Board and management team with significant gas industry, engineering, finance, project management and public company experience who are capable of developing the Company into a successful business.

Metgasco is offering a total of 25 million Shares in this Prospectus at 20 cents per Share to raise \$5 million. Offer proceeds will be used to fund the drilling and appraisal of the coal seams in PEL16.

The information contained in this Prospectus is important and should be read carefully and if necessary consult your Financial Advisor.

This Offer represents an opportunity to participate in a company with excellent growth prospects in a new but already proven industry. I look forward to welcoming you as a shareholder of the Company.

Yours sincerely

Dr Peter Power Chairman 11th November 2004

Investment Highlights

Natural Gas is forecast to increase its share of the energy mix in New South Wales and Queensland

Metgasco has a gas resource which is close to growing energy markets

Drilling has identified an area of gas saturated coals

Natural gas consumption in New South Wales and Queensland is forecast to increase from 276 PJ per annum in 2004/05 to 412 PJ per annum by 2019/20. Concerns with respect to greenhouse gas emissions and climate change have led the Federal Government and NSW and Queensland Governments to introduce policy initiatives which encourage gas as the fuel for choice in new power plants.

Metgasco holds 100% rights to PEL16 in the New South Wales portion of the Clarence Moreton Basin where it has been appraising the Walloon Coal Measures. The Company has estimated that this tenement contains Gas in Place of 1.000PJ.

The Company believes the tenement is also prospective for conventional gas accumulations.

PEL 16 is approximately 70km from the Gold Coast gas grid. The project is well located to provide energy to the fast growing regions of northern New South Wales and southern Queensland. There are significant market opportunities in northern NSW and southeast Queensland for gas produced from PEL16.

Exploration drilling has confirmed the presence of very gassy coal seams in the tenement area with a high welghted average gas content of 575 scf/short ton on a dry ash free basis. This compares favourably with other producing coal seam fields in Australia.

Well testing indicates that the coal seam reservoir is overpressured. Overpressuring is commonly associated with highly productive coal seam gas areas in Australia and the United States.

Testing has also confirmed that gas within the coal seams has a high methane content of over 98% CH4 and low levels of impurities.

Next stage of project is flow testing to achieve reserve certification

Metgasco has numerous

commercialisation

opportunities

Funding made available to the Company from the Offer will allow

• $\bullet$ Drilling of 5 to 8 coal seam methane production test wells.
• Flowtesting of these wells and, if successful, $\bullet$ establishment of certified reserves.
• Further progress in the development of gas and power sale agreements.

The Company has entered into a Co-operative Agreement with regional utility, Country Energy, to potentially develop a gas fired power generation project. The development of this project would allow the Company to achieve early cash flow. ACIL Tasman has estimated that electricity demand within a 100km radius of the proposed drilling location is 450MW and is forecast to grow by 200MW by 2010.

The Company's strategy is to pursue gas sale opportunities at the earliest opportunity. Currently there is no gas supply to the northern NSW market other than bottled LPG gas. Metgasco believes there is a market opportunity to supply gas to certain customers in the area. The Company can benefit from low gas transportation costs to provide competitively priced delivered gas into the Queensland gas market.

Experienced Board and Management Team

The Board of Metgasco has significant experience in gas exploration, production and marketing as well as project finance and commercial expertise. The Board is chaired by Dr Peter Power, former Managing Director of Ampolex, one of Australia's most successful independent oil and gas companies.

1.0 Offer Details

Timetable

Date of Prospectus Community Community Community Community Community Community Community Community Community Community Community Community Community Community Community Community Community Community Community Community C
Applications Open	19 November 2004
. Closing Date Networks and Contract Contract Contract Contract Contract Contract On the Contract On the Contract On the Contract On the Contract On the Contract On the Contract On the Contract On the Contract On the Contrac
Allotment Date	21 December 2004
Holding Statements Dispatched	24 December 2004
Expected Date of ASX Listing	29 December 2004

This timetable is indicative only. All or any dates may vary without prior notice. The Company has the right to close the Offer early, extend the Closing Date, decide to withdraw or otherwise not proceed with the Offer or any component of the Offer or to reduce the size of the Offer, in each case without prior notice. Investors are encouraged to submit their Applications as soon as possible after the Opening Date.

The Offer $1.1$

By this Prospectus, Metgasco Limited seeks to raise \$5 million by offering for subscription 25,000,000 new shares at an issue price of 20 cents each, payable in full on application. Oversubscriptions may be accepted through the issue of 10,000,000 new shares at an issue price of 20 cents each to raise an additional \$2 million. All shares issued pursuant to this Prospectus will be issued as fully paid ordinary shares and will rank equally in all respects with the shares already on issue. The rights attaching to Shares are summarised in Section 11.9 of this Prospectus.

1.2 Opening and Closing Dates

Subscription lists will open on the Opening Date and will remain open until 5.00pm Sydney time on the Closing Date subject to the right of the Company to either close the Offer at an earlier time and date or to extend the closing time and date without prior notice. Applicants are encouraged to submit their Applications as early as possible after the Opening Date. If the exposure period for the Prospectus is extended by ASIC then the Opening Date will be altered to the first business day after the last day of the exposure period.

Purpose of Offer and Planned Expenditure $1.3$

Proceeds from the Offer will be used to fund the drilling, appraisal and reserve certification of gas resources within PEL 16 in the Clarence Moreton Basin in northern NSW. Further detail is provided in Section 4.8. The costs associated with the Offer and the corporate overheads of the Company will also be covered by the proceeds of the Offer. The following table shows the proposed use of funds:

Table 1.1 Use of Funds

Expenditure (\$)	the common theory and common common the common way with Oversubscriptions
Drilling and Appraisal	3,110,000	3,990,000
	Personal contracts and a contract of the contracts Administration and Working Capital Constitution Constitution 1,417,600	2,416,000
Cost of Offer	472.400	594.000
Totai

The Company will have sufficient working capital to carry out its stated objectives. The use of funds is contingent upon progressive results of drilling and appraisal. In the event that the Company accepts oversubscriptions, funds will be spent on additional drilling, seismic and appraisal and development costs associated with the proposed power project. The Directors reserve the right to change the allocation of the funds as set out above as circumstances dictate.

Application for Shares 1.4

Applications must be for a minimum of 10,000 Shares (\$2,000) and thereafter in multiples of 1,000 Shares and can only be made by completing the Application Form attached to this Prospectus. The Company reserves the right to reject any Application or to allocate any investor fewer Shares than the number applied for, Completed Offer Application Forms and cheques must be delivered or mailed to the Share Registry or the Company in accordance with the instructions set out in Section 1.6.

1.5 Application Monies held in Trust

All subscription monies received for Shares offered for this Prospectus will be held in trust in a bank account until Shares are allotted

The minimum subscription to be raised pursuant to this Prospectus is \$5,000,000. No shares will be issued pursuant to this Prospectus until the minimum subscription is reached.

Should the minimum subscription not be reached within 3 months after the date of the Prospectus. the Company will either repay the Application monies to the Applicant or issue a supplementary or replacement prospectus and allow Applicants one month to withdraw their Application and be repaid their Application monies. Interest will not be paid on Application monies refunded.

1.6 Making an Application

Applications for Shares offered pursuant to this Prospectus may be made, and will only be accepted, in one of the following forms:

• on the relevant Application Form attached to and forming part of this Prospectus.
• on a paper copy of the relevant electronic Application Form which accompanies the electronic version of the Prospectus, both of which can be found at and downloaded from www.metgasco.com.au

Paper Application Forms, whether accompanying a paper copy of the Prospectus or which have been downloaded from the metgasco.com.au must be accompanied by payment in full of \$0.20 per Share and payments should be made in Australian currency as follows:

• by cheque drawn on and payable at an Australian bank; or
• in the case of overseas residents by bank draft drawn on an Australian bank.

Cheques and drafts must be made payable to "Metgasco Limited Float Account" and crossed "Not Negotiable". Cash will not be accepted and receipts will not be issued. Applicants should ensure that cleared funds are available at the time the Application is lodged, as dishonored cheques will result in the Application being rejected

Applicants completing paper Application Forms should return their completed Application Forms to the Broker to the Offer or Share Registry:

Metgasco Limited	Computershare Investor Services Pty Limited
C/- Taylor Collison	Level 3
Level 2, 55 Hunter St	60 Carrington St
Sydney, NSW 2000	Sydney, NSW 2000

Detailed instructions on how to complete paper Application Forms are set out on the reverse of those forms. It is not a requirement to sign the Application Form.

1.7 Privacy

By completing an Application, investors will be providing personal information to the Company (directly or via the share registry). The Company collects, holds and will use that information to assess the Application and, for successful Applications, to service Shareholder needs.

The information may also be disclosed to persons inspecting the register, bidders for securities in the context of takeovers, regulatory bodies, authorised security brokers, print service providers, mail houses, and other services associated with the Company's share registry. Shareholders can access, correct and update the personal information that the Company holds on them by contacting the Company or the share registry.

Collection, maintenance and disclosure of certain personal information is governed by legislation and certain rules applicable to ASX listed securities. If Applicants do not provide the information required on the Application Form, the Company may not be able to accept or process the Application.

Allocation 18

The Company retains an absolute discretion in allocating Shares under the Offer and reserves the right to allot to an Applicant a lesser number of Shares than the number for which the Applicant applies or to reject an Application. The acceptance of Applications under the allocation of Shares is set at the absolute discretion of the Directors. The Company will not be liable to any person allocated a lesser number of Shares than that applied for.

1.9 Allotments

Allotment of Shares will be made as soon as practicable after the Closing Date. Where the number of Shares allotted is less than the number applied for, the surplus Application moneys will be returned in full by cheque within seven business days after allotment.

1.10 Stock Exchange Listing

Application for admission of the Company to the Official List of ASX, and for Official Quotation of Shares (excluding those, which may be classified by ASX as "restricted securities"), will be made on or before the seventh day after the date of this Prospectus.

If permission by ASX is not granted for the Company to be admitted to the Official List or for Official Quotation of the Shares, before the end of three months after the date of this Prospectus, all Application moneys received pursuant to this Prospectus will be repaid without interest.

The fact that ASX may admit the Company to the Official List and grant Official Quotation to the Shares is not to be taken in any way as an indication of the merits of the Company or the Offer.

1.11 Clearing House Electronic Subregister System (CHESS)

The Company will apply to participate in CHESS pursuant to the ASX Listing Rules and the SCH Business Rules. The Company will not issue certificates to successful applicants, in addition to a CHESS sub register operated by the ASX on the Company's behalf, the Company will operate an issuer sponsored sub register. These two sub registers will make up the Company's register of members.

Investors who elect to hold their Securities on the issuer sponsored sub register will be provided with a holding statement (similar to a bank account statement) which sets out the number of securities allotted to each investor under the Prospectus. For investors who elect to hold Securities on the CHESS sub register, the Company will, on allotment, issue an advice to investors that sets

out the number of Securities allotted to the investor under this Prospectus and, at the end of the month of allotment, the ASX (acting on behalf of the Company) will provide investors with a holding statement that confirms the number of Securities allotted.

A holding statement (whether issued by ASX or the Company) will also provide details of an investor's Holder Identification Number (in the case of a holding on the CHESS sub register) or Security Holder Reference Number (in the case of a holding on the issuer sponsored sub register). Following distribution of these initial holding statements to all investors, a holding statement will only routinely be provided to an investor at the end of any subsequent month during which the balance of the investor's holding of securities changes. Additional holding statements may be requested at any other time (although an administration fee may be charged).

1.12 Non Resident Investors

The distribution of this Prospectus in jurisdictions outside the Commonwealth of Australia may be restricted by law and persons who come into possession of this Prospectus should seek advice and observe any such restrictions. Any failure to comply with such restrictions may constitute a violation of applicable securities laws. It is the responsibility of any Applicant who is resident outside of Australia to ensure compliance with all laws of any country relevant to their Application and any such Applicant should consult their professional advisors as to whether any government or other consents are required, or whether any formalities need to be observed, to enable them to apply for and be allotted Shares. No action has been taken to register or qualify the Shares or the Offer or otherwise permit a public offering of the Shares in any jurisdiction outside Australia.

1.13 Enquiries in Relation to the Offer

This Prospectus provides information for potential investors in Metgasco and should be read in its entirety. If after reading this Prospectus you have questions about any aspect of the investment in Metgasco, please consult your professional advisor.

1.14 Capital Structure

As at the date of this Prospectus, there are 40,000,000 Shares on issue. Immediately following the allotment of Shares pursuant to this Prospectus, the capital structure of the Company will be as per Table 1.2.

Table 1.2 Capital Structure

الاتى بىر بىر بىر بىر بىر بىر بىر بىر بىر بى		with Oversubscriptions
Shares Held by Existing Shareholders	40,000,000	40,000,000
Shares Offered for Subscription	25,000,000	35,000,000
Proposed Issued Capital after Offer	65,000,000	75,000,000
Market Capitalisation at Offer Price.	13,000,000	15,000,000

In addition there will be the following options on issue:

Table 1.3 Options on Issue

المراد المراد المستقبل المستقبل المستقبل المستقبل المستقبل المستقبل المستقبل المستقبل المستقبل المستقبل المستق والمستقبل المستقبل المستقبل المستقبل المستقبل المستقبل المستقبل المستقبل المستقبل المستقبل المستقبل المستقبل ا
Directors Options	14,561,870
Broker Options From Communication Broker Options From Communication	2.000.000
Total Options	16.561.870

Details of these options are to be found in Section 11.10.

The ASX may impose certain restrictions on Securities so as to prevent them being sold, transferred or pledged for a certain period. The Company expects such restrictions to be imposed by the ASX on certain Shares held by Existing Shareholders. In accordance with the requirements of ASX, the Company will enter into restriction agreements with holders of such Shares. The Broker to the Offer may request that other holders of Existing Shares give a voluntary undertaking not to sell, transfer or pledge such Shares for a set period from the date of Quotation without first obtaining the written consent of the Broker of the Offer. Details of this exact number of Shares to be restricted, and corresponding restriction periods, will be published prior to quotation.

Such restrictions will not preclude any Shareholders from participating in a take-over offer subject to the terms of such an offer and the constitution of the Company.

1.15 Broker to the Offer and Commissions

The Offer pursuant to this Prospectus is not underwritten. Taylor Collison is the Broker to the Offer in respect of which it will receive a management fee of 2.5% and a lodgement fee of 3.5% of the amount applied for under this Prospectus together with 2,000,000 options exercisable at \$0.30 per share with an exercise period of four years and nine months, and otherwise on the terms and conditions set out in Section 11.10.2 of this Prospectus. A handling fee of 1.75% will be paid to any licensed securities dealer who lodges applications that are subsequently accepted by the Directors.

1.16 Important Note

The Directors recommend that shareholders and potential investors examine the entire contents of this Prospectus and consult their professional advisers before deciding whether to apply for the Shares offered for subscription.

2.0 Coal Seam Gas

$2.1$ Introduction to the Coal Seam Methane Industry

Coal Seam Methane ("CSM") is a naturally occurring gas which is produced during the creation of coal from organic material such as peat. CSM is mainly comprised of methane, or natural gas, and like other sources of natural gas may contain additional hydrocarbon products such as ethane. While CSM production is relatively new to Australia, the industry has been established in the United States since the 1970s and over the past 30 years has experienced rapid development. Over 1,400 petajoules ("PJ") of gas is now produced from CSM in the United States each year, which is almost twice the annual consumption of gas in the east coast Australian gas markets.

$2.2\,$ The US experience with Coal Seam Methane

The potential for coal seams to produce gas largely began to be investigated by companies in the US in the 1970's. The first CSM fields were developed in the high rank coals of the Black Warrior Basin (Alabama), the Appalachians and the San Juan Basin (Colorado/New Mexico), In the 1990s, the Powder River (Wyoming/Montana) and Raton (Colorado) Basins were developed. There has been significant growth in CBM production since the 1980's. By 2000, coalbed methane supplied 7% of the gas production of the United States and represented 8% of total proven gas reserves.

Coal Seam Methane in Australia 2.3

Most natural gas in Australia is produced in offshore basins and the onshore Cooper basin. Unlike conventional gas, which in eastern Australia typically occurs at depths of 1,500 to 2,000 metres. CSM is found at depths of 200 to 1,000 metres. These shallower depths make it possible to use smaller, more mobile, truck mounted drilling rigs resulting in much lower drilling costs. In recent years the CSM industry has experienced rapid growth brought about by the introduction of low cost drilling technologies and the proximity of CSM resources to markets.

Through to 1998, over \$200 million was spent on CSM exploration and development in Australia. Since then, more than \$150 million has been raised in new equity and over 20 companies are now active in the sector. Companies are primarily active in the Bowen and Surat basins in Queensland, but there are also several projects well advanced in their development in the Sydney and Gunnedah basins in New South Wales and in the Otway Basin in Victoria. CSM is becoming an increasingly important source of gas in Australia. CSM now provides 30% of Queensland's gas requirements and is forecast to increase its presence in the Queensland market.

$2.4$ Coal Seam Methane Activity in New South Wales

New South Wales has major coal-bearing basins with potentially extensive resources of CSM. However, New South Wales coal basins have been relatively underexplored for CSM to date. The focus of activity has been in the Sydney Basin with other projects underway in the Gunnedah Basin. The Geological Survey of New South Wales conducted by the New South Wales Government has estimated that the Sydney, Gunnedah and Clarence-Moreton Basins are highly prospective for CSM. The survey has estimated that these basins have potentially recoverable CSM reserves as follows:

Table 2.1 Potentially Recoverable CSM Reserves in NSW Basins (20% recovery factor)

a kara kara kara ya Ma nasa . .
Sydney Basin .
. . Gunnedah Basin
Clarence-Moreton Basin

The Metgasco project is located in the Clarence Moreton Basin in northern New South Wales.

3.0 The Eastern States Energy Market

$3.1$ The New South Wales and Queensland Gas Markets

The New South Wales and Queensland gas markets currently consume around 276 PJ of gas per year and demand for gas is forecast to increase to 412 PJ per year by 2020. The growth in demand for gas is due to the growth in the use of gas for industrial applications and also increasing demand for gas for power generation purposes.

Most gas supplied to the eastern Australian gas market is sourced from the Cooper-Eromanga basin in South Australia / Queensland and the Gippsland Basin in the Bass Strait. Additional gas is available from the North West Shelf. Timor Sea and Papua New Guinea gas fields. However each of these fields require pipelines to be constructed to enable delivery of gas, so are not currently available to consumers in eastern Australia. The cost of these pipelines is expected to act as a barrier for these fields to supply the east coast gas markets in the short to medium term.

Government Policy Encourages Gas Usage $3.2$

Community concern with respect to greenhouse gas emissions has led various State and Federal Governments to encourage gas fired electricity generation. In May 2000, the Queensland Government released its "Cleaner Energy Strategy" with the key aim of encouraging the use of gas in the electricity system and to reduce growth in greenhouse gas emissions. A key component of the strategy is that electricity retailers in Queensland source at least 13% of future requirements from gas-derived or other non-coal sources. The scheme will commence on 1 January 2005 and will remain in place until 31 December 2019. This initiative is likely to create demand for gas fired power from Queensland based electricity retailers.

In December 2001, the New South Wales government introduced greenhouse gas emission benchmarks for electricity retailers and other liable parties. The benchmark is set as a 5 per cent reduction in per person greenhouse gas emissions from the 1989-90 level by 2007. This implies a per person target of 7.27 tonnes of carbon dioxide equivalent (CO²-e) in 2007. The scheme commenced on 1 January 2003 with a benchmark of 8.65 tonnes of CO²-e for the year and annual targets have been announced which are intended to result in the benchmark of 7.27 tonnes of CO²-e in 2007. The scheme is intended to be maintained at this level until at least 2012.

The New South Wales Government announced its intention to impose penalties on electricity retailers which do not achieve targeted reductions in greenhouse gas emissions. Penalties are based on a dollar amount per excess tonne of CO²-e emitted per year. Coal seam methane gas fired electricity generation releases substantially less greenhouse gases than coal fired power and will therefore assist NSW power retailers in meeting their targets to reduce greenhouse gas emissions. A new generator fueled by CSM will qualify for NSW Greenhouse Abatement Certificates ("NGAC"s) where electricity that is produced has a lower CO²-e than the NSW power pool. NGACs are tradable certificates which may be used by NSW electricity retailers to meet their required CO²-e reductions.

Queensland Gas Market $3.3$

Gas consumption in Queensland has grown rapidly over the past decade and is now around 100PJ per annum. Currently, total consumption is about 45PJ per annum in the Brisbane area, 20 PJ in the Gladstone area and 30 PJ in Mt Isa. A number of new potential gas users have emerged in recent years with potential demand now estimated by ACIL Tasman to be in excess of 300PJ per annum within twenty years. Much of this new potential demand is for industrial and power generation opportunities that are uncertain in terms of timing and gas requirements.

The Energy Market in Northern New South Wales $3.4$

Metgasco's property is well located to provide gas and electricity to the fast growing regions of northern New South Wales and southern Queensland. This area has the highest population growth in Australia and represents a high growth market for energy suppliers.

Electricity to the area is currently provided by coal fired generators located in Queensland or in the Hunter Valley in NSW. In either case power must be transported long distances to reach the consumers of northern New South Wales. An embedded generation project has the potential to capture benefits in the form of a pass-through of avoided transmission use of system charges. The project would also deliver a reduction in greenhouse gas emissions through substitution of coal fired power for gas fired power.

Currently there is no gas supply in the area other than bottled LPG gas. Metgasco has identified market opportunities to supply gas to certain customers in the area. In the longer term, opportunities may exist to develop gas reticulation infrastructure and supply gas to homes and business in the area. Currently there is no gas transportation infrastructure in the region.

4.0 Business Profile

4.1 Overview of Project

Metgasco has been engaged in CSM exploration in New South Wales since 1999. The Company holds 100% of the rights to Petroleum Exploration License ("PEL") 16 in the Clarence Moreton Basin near Lismore in northern New South Wales. This tenement covers approximately 800 square kilometres of the Basin. Drilling and analytical work completed to date has allowed the Company to estimate that the tenement contains approximately 1,000 PJ of Gas-in-Place. By comparison, the annual combined demand for gas in both New South Wales and Queensland is 276 PJ.

Gas resources in PEL 16 are well located to supply both gas and gas fired power to northern New South Wales and southern Queensland, Northern New South Wales is an area which has no local electricity generation or gas supply. The Metgasco project is located 70km south of Coolangatta. The location of the Casino gas project is shown below:

Figure 4.1 Location of PEL16 and General Geology of the Clarence Moreton Basin

Background to the Project $4.2$

The tenement was secured by the Company and field activities on the Project commenced in 1999. This included examination of previous petroleum exploration data in the area, an investigation of the Surat Basin coal mines where the Walloon Coals are mined and investigations of Walloon Coal Measure outcrops in the area of PEL 16. Research was also conducted on comparative analyses with CSM producing regions of the United States. Shallow drilling for coal sampling and analysis was carried out as well as an experimental high resolution seismic survey together with reprocessing of pre-existing seismic.

This work led to the establishment of a Joint Venture with Sunoco Inc. a subsidiary of Suncor (Canada) which is listed on the Toronto and New York Stock Exchanges. In 2001, the Joint Venture undertook a 3 well stratigraphic program to provide an increased understanding of stratigraphy and structure, to determine the presence and thickness of Walloon coals and to investigate other CSM relevant parameters such as coal rank and permeability.

In late 2001, Sunoco Inc ceased all activities in Australia and Metgasco resumed operatorship in late 2002. At that time, Sunoco had spent \$545,000 to earn rights to a 26.46% interest in PEL 16. However, by agreement with Sunoco Inc, Metgasco has resumed 100% ownership of PEL 16 and Sunoco's interest has been converted to a 5% gross override royalty which may be acquired for a fixed sum of \$1,000,000 at Metgasco's option.

In early 2004, Metgasco drilled South Casino #2 to obtain more quantitative information on gas content, composition, permeability and water quality. Results from South Casino #2, which are described further in this Section, have provided sufficient confidence for Metgasco to proceed with a production test project to establish deliverability.

Geological Overview $4.3$

Metgasco has targeted exploration in the Jurassic age Walloon Coal Measures ("WCM") of the Clarence Moreton Basin. The WCM have recently become the focus of considerable CSM exploration activity by other Australian explorers. The Company believes the WCM share some similar characteristics to some of the more productive CSM basins in the USA.

The Clarence Moreton Basin is a mid Triassic to early Cretaceous Basin approximately 400 kilometres long by approximately 120 kilometres wide and covers an area of more than 40,000 square kilometres. The Basin reaches a maximum depth of approximately 3,500 metres. In the area of PEL 16, the Basin exhibits an asymmetric character with axial trace just west of Lismore. There is interpreted to have been uplift from the Cretaceous period as well as further orogenic activity including volcanism during the Tertiary.

The WCM consist of a sequence of fluvial, lithic-rich sandstones, interbedded with shales, carbonaceous shales and coals. The coals are characterised as high-medium volatile bituminous coals. Drilling has indicated coal packages at the top and bottom of the WCM sequence. In the immediate area of PEL 16, the WCM occur at a depth of between 200 metres to 800 metres and are up to 670 metres thick.

Characteristics of the Coal Seams in PEL16 $4.4$

Factors which influence the ability of a coal seam to produce commercial quantities of gas include:

• the depth and thickness of the coal seams;
• structural characteristics such as fracturing;
• coal rank:
• gas content and composition: and $\bullet$
• the permeability and reservoir pressure.

Depth and Thickness: Prior to grant of PEL 16, the area had no history of CSM exploration and had only been lightly explored for conventional oil and gas accumulations. Metgasco has drilled three stratigraphic and one core well (South Casino #2) in PEL16. The WCM have been found to occur at a depth of 200 to 800 metres with an average net coal thickness of 10.5m. In drilling at South Casino, eight coal seam intervals have been identified with two dominant intervals between 500 and 650 metres.

Structural Characteristics: The coal seams consist of thin beds of mudstone, carbonaceous mudstone, dull high-ash coals ranging to bright coals, lesser stony coals and siltstone. Extensive sampling was undertaken for coal quality testing. The clean bright coals are often brightly banded with face cleats 1 to 3 millimeters apart and penetrating up to 100% of the coal, and butt cleats about 4mm apart, also penetrating up to 100% of the coal. Cleats within coals provide a network through which water and gas can flow if they are well connected and the coals are extensive. This cleat density should be considered favourable because it facilitates the flow of gas through the coal. Carbonate mineralisation in the cleats ranges from zero to 80%, though is often less than 10%. Dull coals make up a lesser proportion of the coal and have a similar cleat system.

Coal Rank: Coals in the northern New South Wales and Southern Queensland area have a general rank increase eastwards from the Surat Basin to the Clarence Moreton Basin as described below:

Figure 4.2 Coal Rank in the Clarence Moreton Basin

The rank of coal is a description of the stage the coal has reached during its coalification. The coals are ranked as high-medium volatile bituminous coals. Coals need to be within a certain thermal maturity window in order to generate gas and evolve the structure and chemistry necessary for gas storage capacity. Gas sorption increases with thermal maturity and should ideally be between 0.7% to 2% vitrinite reflectance (Vro), with peak maturity for gas production around 1.2% VRo. The coals in PEL 16 have VRo values ranging between 0.8% and 1.4%. This is higher than the values of 0.35% to 0.52% in the Surat Basin of Queensland.

Gas content: Earth Data Pty Ltd ("Earth Data"), a geological and earth science consultancy specialising in coal bed methane, has analysed gas content at the South Casino #2 site for Metgasco. This analysis comprised desorption testing, lithological assessment of the coals and other technical analyses of the coals. Desorption testing by Earth Data has determined gas content to be approximately 575 standard cubic feet per short ton on a dry ash free basis at South Casino #2. The following table compares gas content from PEL 16 with publically available data from other Australian CSM projects.

Figure 4.3 Australian CSM Projects - Gas Content

Source: Langusch & Associates (Metgasco data additional)

Gas Composition: Gas samples have been collected from major coal seams encountered at South Casino #2. Samples from the main seam intervals were sent to two independent laboratories for gas composition testing. Both laboratories found high methane (CH4) content of 97% or over in their testing. Samples were also tested for the presence of carbon dioxide and ethane. Low levels of these components were found.

Permeability: Well testing was undertaken on the main coal seams encountered in South Casino #2. The testing included stress testing, production buildup tests, injection falloff tests and step rate tests to provide a range of data including permeability data. The presence of free gas within the intervals tested impacted the quality of data to varying degrees. Analysis to date shows in situ permeabilities in the range of 1.4-3.37mD for South Casino #2. A comparison of these permeabilities with literature available references for other CSM areas is shown in the following table:

Figure 4.4 Comparable Permeability Data

Coal			[1] [[1] Basin Maximum (mD) [1] General Estimate [1] Basin Minimum (mD) [1] General Estimate [1] Minimum (mD)
Australia
Clarence Moreton MSCO#2 (in situ) $\sqrt{1.4.4 - 3.37}$ Maximum $\sqrt{a}$ Maximum $\sqrt{a}$ Maximum $\sqrt{a}$
Moranbah	nía	-0.1	-250
Camden			--------------------------------------
Dawson River	2.5.	n/a	n/a
Territoria e constituidade da provincia e a constituidade do constituído constituída e constituída e constituí Surat
United States
Powder River Product Constitution of the Constitution of Product Constitution 2,430 Product Constitution 2,430 Product Constitution 2,430 Product Constitution 2,430 Product Constitution 2,430 Product Constitution 2,430
Black Warrior	n/a	-0.7
Pittsburgh	******		realitiitiiti oo ka hiiniin
Piceance	n/a	0.2	-20
San Juan-	1-10	0.5	60
Raton			20

Reservoir Pressure: Preliminary estimates from well testing at South Casino #2 are that the coal seam reservoirs are overpressured. The reservoir pressures measured between 14 to 23psi above hydrostatic. Cedar Point #1, in the north of PEL 16 also displayed overpressuring. Overpressuring allows the coals to hold a higher gas content and assists the delivery of gas from the coal seam to the production well. For example, the high productivity nature of the San Juan Fairway region is attributed largely to overpressuring.

4.5 Water Quality and Volumes

Water samples were collected from the Walloon Coal Measures and overlying strata during the drilling of South Casino #2. The samples were tested for total dissolved solids (TDS), pH, trace elements and major cations and anions. All samples were slightly alkaline 7.4 to 8.0 and showed very low concentrations of heavy metals analysed. Those samples taken from the Kangaroo Creek Sandstone during drilling with air, indicated TDS of 1500 to 2000 ppm. The Walloon Coal Measures were drilled with a circulating fluid that contained 5% potassium chloride. This fluid and its effects are evident in the water samples subsequently collected from the coal seams and its presence prevents a conclusive assessment of the quality of those samples.

The volumes of groundwater that may be produced in association with CSM production in PEL 16 cannot be definitively estimated at this time. It is the Company's intention to undertake detailed water management planning in the course of production testing.

4.6 Estimate of Gas In Place

Earth Data has estimated Gas In Place of 51mmcf/Ha (5.14 BCF/km2) at South Casino # 2. Earth Data has developed this Gas In Place estimate using a net coal thickness of 11.105m and estimated relative density cutoff of 2.23g/cm3. The Company has applied this relative density cutoff to data from other exploration holes within or close to PEL 16 to calculate an average net coal thickness of 10.50m. For coals within the area of the tenement for which both geological and seismic data exists, the Company has determined a Gas In Place estimate of 1.06 TCF, equating to approximately 1,000 PJ. The area for which this Gas In Place estimate applies represents approximately 27% of the entire tenement area of PEL 16. Estimates of what may be ultimately recovered and certified as reserves cannot currently be determined and will require substantial further work commencing with drilling of production test wells at South Casino.

Potential for Conventional Gas Reservoir $47 -$

The area remains underexplored from the perspective of conventionally reservoired gas. Prior analysis undertaken by the Australian Geological Survey Organisation and the NSW Department of Mineral Resources has correlated key units between the conventional gas producing Surat Basin and the Clarence Moreton Basin and which are present at depth in PEL 16 as follows:

	Figure 4.5 Comparison of Surat and Clarence Moreton Basins
--	------------------------------------------------------------	--	--	--	--

	Surat Basin Member Clarence Moreton Equivalent Clarence Moreton Oil/Gas Show
Walloon Coal Measures	Wallcon Coal Measures	Gas Show
	Hutton Sandstone. Mark Koukandowie Formation (Bundamba Group) (Milli Gas / Oil Show Heifer Ck member
Evergreen Formation	Ma Ma Ck member (Bundamba Group) Gatton Sandstone Calamia Member	Gas Show
Precipice Sandstone	Woogaroo	Gas Show

The Company intends to further evaluate the potential for conventional gas reservoirs in the area of PEL 16.

4.8 Business Strategy

The Company's strategy is to prove the commercial potential of its identified gas resource by drilling, completing and flow testing between five to eight production test wells. The primary goal of this activity is to obtain independent certification of gas reserves.

If sufficient gas reserves are proven, the Company will be able to achieve early cash flow for the Project by developing a small scale power project with proposed sales to energy retailer Country Energy. The primary focus of the Company is to make additional gas sales to the southern Queensland and regional New South Wales markets. Sale of gas into these markets will require the construction of a pipeline of approximately 150km to connect to the Queensland gas grid. Once this connection is made, Metgasco would be able to compete for gas sale contracts in the Eastern Australian gas market. This pipeline may be constructed by Metgasco or third parties.

Metgasco has developed a staged commercialisation strategy.

• Stage 1: Drilling, Appraisal and Reserve Certification.
• Stage 2: Develop a 12 Megawatt gas fired power generation project.
• Pursue gas sale opportunities in the Queensland gas market and northern New Stage 3: South Wales.
• Stage 4: Pursue opportunities to develop additional power generation facilities.

This staged development strategy ensures progressive commercialisation of Metgasco's resources while avoiding the need for early investment in large scale capital items such as pipelines or high voltage power transmission lines. The proposed timetable for commercialisation of gas resources is outlined as follows:

Figure 4.6 Proposed Timetable

4.8.1 Stage 1: Drilling and Appraisal

The Company intends to undertake a staged drilling plan which will allow each well to be appraised before the next well is drilled. The drilling program will entail drilling a vertical well to the coal seam, installing a water lift pump down the well and pumping water to reduce the hydrostatic pressure on the coal seam. This allows free and adsorbed gas to flow to the wellhead. Wells are then completed by installing a wellhead. The Company intends to drill between five and eight wells over a period of several months. It is intended that these wells will be drilled to attempt to draw down the hydrostatic pressure in the drainage area of the producing wells. Gas and water separation facilities will be installed at the surface. It is intended that water will be contained within a holding dam. The wells will be flow tested for the required time to allow reserve certification studies to be undertaken. During the process of gas reserves being established, gas will be piped to a flaring facility and burnt. The following provides a schematic for the production testing program.

4.8.2 Stage 2: Power Project

The Company's objective is to develop a 12 MW gas fired power station which, subject to entering into a power sale agreement, will generate power for Country Energy. Country Energy is a leading Australian energy services corporation owned by the NSW Government.

Metgasco has entered into a Co-operative Agreement with Country Energy regarding the sale of gas fired power and is currently in negotiations on the detailed terms and conditions of a power sale and other agreements. The Agreement contemplates that Metgasco will negotiate a power sale agreement under which it will sell all power output and NSW Greenhouse Abatement Certificates produced by the project to Country Energy. The supply of gas fired power to Country Energy will assist it to meet its annual required reductions in greenhouse gas emissions by substituting gas fired power for coal fired power. Metgasco is close to existing power transmission and distribution infrastructure.

The Company has undertaken considerable work in scoping and costing the power project as well as identifying and negotiating with equipment, service providers and construction contractors. The project is likely to comprise twelve 1MW gas fired, reciprocating engines and construction of a high voltage switchvard. The Company has received an offer to lease, install, operate and maintain generation equipment from a large multinational power equipment supplier. Commissioning of the plant is expected to occur twelve months after reserve certification and is conditional upon obtaining all necessary development approvals. Project management will be under the direct control of Metaasco supported by Burns and Roe Worley who will be acting for Metgasco as Engineer and Project Manager. Metgasco has entered into a Heads of Agreement with Burns and Roe and Worley for the management of all engineering, procurement and construction contracts and to provide overall engineering design support in relation to this project. Metgasco is currently in discussions with various construction firms regarding the construction of the high voltage switchyard required for the project.

It is expected that Metgasco will require additional funding to complete this stage of the project. It is presently the intention of the Company to seek to predominantly fund this project using debt finance which the Company expects to be able to access once reserve certification and a power sale agreement are in place

4.8.3 Stage 3: Pursuit of Gas Sale Opportunities

Additional gas sales may be achieved by connecting to the Gold Coast gas grid at Coolangatta. PEL16 is located approximately 70km from the Gold Coast. Metgasco considers that a pipeline from PEL16 to the Gold Coast could be constructed. This pipeline would be located to pick up available regional gas loads and is estimated to be approximately 150km in length. On this basis, Metgasco would be able to deliver competitively priced gas into the South East Queensland market.

4.8.4 Stage 4: Pursuit of Regional Power Sale Opportunities

The regional power market is supplied by power transported north from power stations in the Hunter Valley in NSW or south from power stations located in south Queensland. High voltage electricity transmission links pass through the tenement area covered by Metgasco. Both the NSW and Queensland Governments have introduced incentives for the installation of gas fired power plant through the NSW Greenhouse Gas Abatement Certificate program and the Gas Electricity Certificate program respectively.

ACILTasman has estimated that approximately 450MW of generation capacity is required to meet demand in the northern NSW area within 100km of PEL16. ACILTasman has estimated that an additional 200MW of installed generation capacity will be required over the next 5 years to service this market.

Metgasco is well positioned to supply gas to third party developers of gas fired power plant to meet this market requirement or to develop such plant themselves. Additional gas wells would be required to be drilled to supply such proposed gas sales. Additional financing would be required to fund the cost of this drillina.

Overview of Key Relationships and Alliances 4.9

Metgasco has established a number of alliances and key business relationships which bring additional skills and expertise to the project. These relationships include:

• Power Sales: Country Energy is a leading Australian energy services corporation and owns and operates the largest power supply network in Australia. It has more than 750,000 customers, more than 3,000 employees and annual revenue of around \$1.5 billion. Country Energy is wholly owned by the State Government of New South Wales. Metgasco has entered into a Co-operative Agreement to potentially develop a power project with Country Energy.
• Drilling and Completion: BaCBM Associates Pty Ltd is a CSM consultancy for Mr Malcolm Bocking. Mr Bocking has 18 years of CSM experience in Australia, primarily working for Pacific Power Limited. Mr Bocking has managed the drilling program for South Casino #2 well for Metgasco. BaCBM is primarily responsible for planning of the pilot production program, including submissions for regulatory consents.
• Power Plant: Burns and Roe Worley provides specialised engineering services to the power and water industries. The firm has been operating in Australia for over 75 years and has a proven track record of delivering complex engineering solutions. Metgasco has entered into an agreement with Burns and Roe Worley where the firm will provide project management services for the construction of the power project including: management of engineering, procurement and construction contracts, detailed engineering design and preparation of all technical documentation.

Metgasco has received an offer to lease, install, operate and maintain twelve, 1MW gas reciprocating engines from a global, multinational equipment supplier.

4.10 Financing Plan

In order to pursue further stages of our proposed development plan, Metgasco intends to raise additional debt and equity finance as required. Metgasco intends to seek to raise debt finance to fund the development and construction of the proposed 12 MW power plant.

The Company is registered with Auslndustry to receive the R&D Tax Offset Concession for research and development activities conducted into the effective extraction of coal seam gas from the Walloon Coals in the Clarence Moreton Basin. The Company has received a refundable tax offset for research and development activities completed over the past 2 years and has made an application for the concession for the financial year ending 30 June 2004.

5.0 Board and Corporate Governance

$51$ Board of Directors

Dr Peter Power - B. Sc. Ph.D. Non Executive Chairman

Dr Peter Power has over 40 years experience in hydrocarbon exploration worldwide in senior management positions with major international companies. He was previously Managing Director of Ampolex Limited prior to its acquisition by Mobil. Dr Power was the foundation Head of Geology at the Western Australian Institute of Technology (now Curtin University). He was a member of the Bureau of Mineral Resources Review in 1984 and the Australian Geological Survey Organisation Review in 1993, a member of the Advisory Council for the National Centre for Petroleum Geology and Geophysics from 1985 - 90. He has served as President of the Australian Geoscience Council and as a councillor and Chairman of the Australian Petroleum Production and Exploration Association, which has awarded him both the Lewis G. Weeks and Reg Sprigg Gold medals and honorary life membership. He has been a consultant since 1997 and is currently a non-executive Director of Petsec Limited.

David WG Johnson - B.App.Sc(Geol), MBA, MAusIMM Managing Director

David Johnson has 20 years experience in the minerals and petroleum sectors. His initial experience was working as a field geologist in exploration for gold in the south west Pacific. Subsequently, he worked in Australia, Africa, New Zealand and South America on a range of commodity types. Between 1992 and 1996 he also worked in corporate finance for resource related projects and companies. Since 1996 Mr Johnson has worked mainly in the area of project generation and development including that of the coalseam methane potential of the Clarence Moreton Basin.

Glenda McLoughlin - B.Ec. MBA Chief Financial Officer

Glenda McLoughlin has over 20 years experience in investment banking, management consulting and industry policy working in Australia and internationally. Most recently she was the Head of the Utilities and Infrastructure group of Barclays Capital, the investment banking division of Barclays Bank plc. Prior to this Ms McLoughlin was a Vice President of international investment bank Morgan Stanley based in Melbourne and Singapore. Ms McLoughlin brings specialist skills in corporate financial advice and debt and equity capital raisings. She has been involved in major energy sector transactions and has provided financial advice to corporations and Governments on energy sector restructurings, acquisitions, divestments and financings.

Rick Wood - B Eng(Mining) Director, Engineering & Operations

Rick Wood has over 30 years experience in engineering and operations in the upstream oil and gas industries. Mr Wood spent 18 years with Esso including drilling, production and project assignments in the Bass Strait, USA and Japan. He subsequently joined Ampolex Limited. As General Manager Operations for Ampolex he completed a number of major assignments including the planning and development of the Lufung offshore petroleum field in China, the development of the Wandoo offshore petroleum field in Western Australia and acting Joint Venture representative for the development of the Kutubu oil field in Papua New Guinea. Since that time he has acted as a project management consultant for a number of companies including Exxon/Mobil, Hitachi Zosen in Japan, ROC Oll Pty Ltd, Worley Ltd and Keppel Fels in Singapore.

$5.2$ Corporate Governance

The Directors are committed to the principles underpinning the best practice in corporate governance. The Directors have noted the recent guidance on the principles of corporate governance issued by the ASX and support the intent of these principles. The Directors note that some allowance is required in their practical application given the limited size and scope of the Company at this time.

The Directors' overriding objective is to increase shareholder value within an appropriate framework that protects the rights and enhances the interests of shareholders and ensures the Company is properly managed. A description of the Company's main corporate governance practices is set out below.

5.2.1 Board Responsibility

The Board of Directors ultimately takes responsibility for corporate governance and operates in accordance with the Company's Constitution. Directors are appointed by the Board subject to election by shareholders at the next annual general meeting with one-third of the board being subject to re-election at each subsequent annual general meeting.

The Chairman is to be elected by the Board and the performance of Directors is to be reviewed on an ongoing basis. Directors have the right, in connection with their duties and responsibility as Directors, to seek independent professional advice at the Company's expense. Prior approval of the Chairman is required which will not be unreasonably withheld.

The Board accepts that it is responsible for ensuring the Company is effectively managed and directed, that appropriate internal control procedures are established and complied with, and that risks are monitored and assessed by the Company.

5.2.2 Committees

Due to the small size of the Board and the Company, the Board will meet as a committee of the whole to deal with each of these matters.

5.2.3 Audit and Risks

The Board will ensure that it meets its responsibilities relating to the Company's financial statements, financial and market reporting processes, internal accounting and financial control systems, internal audit, external audit, risk management and other such matters. The Board will ensure the following:

• The adequacy and effectiveness of the Company's accounting and financial policies and controls, and risk management systems and compliance with relevant regulatory and statutory requirements;
• The completeness of the Company's financial and other reporting to Shareholders;
• The appointment of the external auditor:
• The scope plan for external audit; $\bullet$
• The risk management framework; of the Company, and review of relevant risk management reports:
• That free and open communications; with the external auditors and management are maintained; and
• That full access to the Company's records, personnel and any required external support is maintained.

5.2.4 Remuneration

The Board will determine and review compensation arrangements for the Directors, Managing Director and Senior Management. In addition the Board will determine and review any incentive programs and contractual arrangements established with Senior Executives and Directors and the performance of Senior Executives and Directors.

5.2.5 Continuous Disclosure

The Directors are committed to keeping the market fully informed of material developments to ensure compliance with ASX Listing Rules and the Corporations Act. At each Board meeting specific consideration is to be given as to whether any matters should be disclosed under the Company's continuous disclosure policy.

5.2.6 Share Trading

Directors, management and other employees as nominated will normally be permitted to trade in securities during a four week period commencing immediately after the announcement to ASX of the half yearly and annual results and after the conclusion of the Company's annual general meeting, provided that the person is not in possession of price sensitive information and the trading is not for short term or speculative gain. Any trading outside these periods can only be conducted with the prior written approval of the Chairman.

5.2.7 Related Party Matters

Directors and senior management will be required to advise the Chairman of any related party contract or potential contract. The Chairman will inform the Board and the reporting party will be required to remove himself/herself from all discussions and decisions involving the matter. The Board may, in extreme cases, take further action.

5.2.8 Shareholder Relations

The Directors aim to ensure that the shareholders, on behalf of whom they act, are informed of all information necessary to assess the performance of the Company. Information on all major developments affecting the Company is to be communicated to the shareholders through:

• * The Annual Report:
• The half yearly report;
• The Annual General Meeting and other meetings called to obtain approval for Board action as appropriate. All shareholders who are unable to attend these meetings will be encouraged to communicate issues or ask questions by writing to the Company;
• The Company's web site; and
• Continuous disclosure to the ASX

6.0 Risk Factors

The Shares offered under this Prospectus should be considered speculative because of the inherent risks associated with CSM and conventional gas exploration, production, appraisal, development, production, transportation and sales. There are also various risks associated with investing in any form of business and with investing in the share market generally.

The Shares offered under this Prospectus carry no quarantee in respect of profitability, dividends, return of capital, or the price at which they may trade on the ASX. Therefore the risks outlined in this Section, in addition to other matters described in this Prospectus, should be carefully considered before any decision is made to apply for Shares. The risks identified by Directors are not exhaustive and prospective investors should read the whole of this Prospectus in order to fully appreciate such matters and consult with their own professional advisors prior to making a decision to subscribe for Shares.

The principal risk factors applicable to the future activity of the Company include, but are not limited to, the following:

$6.1$ General Risks

Economic Factors: Factors such as inflation, currency fluctuation, interest rates, supply and demand and industrial disruption have an impact on operating costs, commodity prices and stock market prices. The Company's future possible profitability and the market price of its quoted securities can be affected by these factors, which are beyond the control of the Company and its Directors.

Share Market Conditions: Share market conditions may affect the value of the Company's quoted securities regardless of the Company's operating performance. Share market conditions are affected by many factors such as general economic outlook, interest rates and inflation rates, currency fluctuations, commodity price fluctuations, changes in investor sentiment toward particular market sectors, changes in Government, taxation or other policy changes, the demand for, and supply of, capital, terrorism or other hostilities. In addition, specific factors over which Metgasco has no control may influence sentiment towards the Company. These factors may include: actions of competitors, valuations and opinions of security analysts and conditions in the Australian gas and electricity markets.

$6.2$ Specific Risks

Exploration and Appraisal Risk: CSM exploration, appraisal and development involves significant risks, which even a combination of experience, knowledge and careful evaluation may not be able to overcome. Investment by Metgasco in exploration, appraisal and production does not provide any certainty that commercially viable natural gas reserves can be proven and produced. Metgasco can not be certain that its recent drilling success can be replicated. Gas drilling activities are subject to numerous risks such as unexpected drilling conditions, unexpected conditions in the geological nature of the drilling area, accidents, equipment failure, industrial action, weather conditions and lack of rig performance which may adversely impact the exploration and appraisal program. The future drilling activities of Metgasco may not be successful, nor can Metgasco be certain that its overall drilling success rate will not decline. Unsuccessful drilling activities could have a material adverse effect on the Company's operations and financial conditions.

Operating and Production Risks: CSM operations and production activities require the design and construction of efficient recovery and processing facilities, competent operational and managerial performance and effective sales and marketing skills in order to be effective. Operations may be curtailed, delayed or cancelled as a result of weather conditions, mechanical difficulties, industrial disputes and accidents. They may also be affected by shortages; delays or cost increases in the provision of staff, plant, equipment, consumables and services and other unforeseen events. Should the Company proceed to develop and operate a CSM resource, additional risks may include: lack of market demand, ability to manage water disposals, failure to achieve projected development timetable, unreliable gas flow rates, variability in production levels, ability to manage water disposal, inability to secure acceptable gas prices, and changes in government regulations.

Changes in Capital and Operating Costs: Development capital costs are a function of the well deliverability, well pressures and the nature of the produced gas. These variables will affect for example the number of wells and the requirement to fracture the coals, to pump water, to dispose of water, install compression facilities at the well head, compression, design and sizing of surface gas treatment facilities. Capital costs have been developed by Metgasco in consultation with industry experts. Any such estimates, which are made prior to the commencement of work. are subject to uncertainties and actual costs may vary from estimates. There is also a risk that operating expenditures may vary from those forecast by the Company. Such variations may have an adverse impact on the financial performance of Metgasco.

Estimates of Resource Size: Metgasco has developed an estimate of the Gas in Place in PEL16 of approximately 1,000 PJ in Section 4.6. Additional drilling and testing of flow rates is required to determine the producible reserve. There are numerous uncertainties associated with estimating volumes of proved and probable gas reserves and the commercial viability of producing these reserves.

Limited Operating History: While the Company's Directors and officers have significant experience in gas exploration, appraisal and production, the Company has a limited operating history and therefore limited information is available upon which to base an assumption that the Company will be able to successfully implement its business plans. The Company's ability to achieve its growth objectives depends on the ability of its Directors and officers to implement current plans and to respond to any unforeseen circumstances which require changes to those plans.

Tenement Tenure: Metgasco holds exploration rights to PEL16 granted under the Petroleum (Onshore) Act 1991 (NSW). The renewal of tenements under the Act is at the discretion of the New South Wales Minister for Mineral Resources. The loss of tenement tenure is likely to have a materially adverse impact on Metgasco's financial position.

Competition in Gas Sales: The pursuit of the Company's strategy to achieve gas sales in New South Wales and into the Queensland gas market will require the construction of a pipeline. Metgasco cannot guarantee that the construction of this pipeline will be completed on a timely basis. The sale of gas into the Queensland market may result in Metgasco competing directly with other gas producers which may have greater financial and other resources. There are a number of existing and potential new gas suppliers into the Queensland market and various CSM projects are being developed in Queensland. In addition, proposals exist to deliver gas into the Queensland market from Papua New Guinea, the Timor Sea and the North West Shelf. These projects may be able to produce and deliver large volumes of gas at or below the price at which Metgasco can produce gas. Development of these proposals may have a material adverse impact on the financial position, financial performance, cash flows and growth prospects of Metgasco,

Gas and Power Prices: Metgasco's future revenues, operating results and profitability rely heavily upon the future price of gas and electricity in the Eastern Australian energy market. A decline in the price of gas or power could have a detrimental effect on the future financial performance of the Company.

Ability to Access Financing: Metgasco is reliant upon external financing in order to achieve its business plan. Given the limited operating history of the Company there can be no assurance that such funding will be forthcoming. Lack of funding for the project will have a materially adverse impact on the ability of Metgasco to achieve its financial performance.

Access to Land: Delays may be experienced in gaining access to land on PEL 16. Most of the area in which Metgasco wished to undertake drilling activity is on freehold title. The Company has been able to negotiate access to land to date.

Insurance Risks: The Company intends to adequately insure its operations in accordance with industry practice. However, in certain circumstances the Company's insurance may not be of a nature or level to provide adequate insurance cover. The occurrence of an event that is not covered or fully covered by insurance could have a material adverse effect on the business, financial condition and results of the Company, Insurance of all risks associated with petroleum exploration and production is not always available and where available the costs can be prohibitive. There is a risk that insurance premiums may increase to a level where the Company considers it is unreasonable or not in its interests to maintain insurance cover or not to a level of coverage which is in accordance with industry practice. The Company will insure the risks it considers appropriate for the Company's need and for its circumstances. Insurance cover will not be available for every risk faced by the Company. In addition, the Company may elect to not insure certain risks on the ground that the amount of premium payable for that risk is excessive when compared to the potential benefit to the Company of the insurance cover.

Reliance on Key Personnel: The success of Metgasco largely depends upon the skills and competencies of its Directors and other technical personnel including those employed on a contractual basis. The loss of services of these personnel could have a materially adverse effect on the continued operational and financial performance of Metgasco.

Construction: If the Company completes reserve certification it intends to construct a small scale power project. The development of such a power project will entail risks associated with the timely acquisition of equipment, management of construction and safe completion. Metgasco will work closely with recognised industry experts to ensure the successful construction completion. Power project construction is subject to a number of uncertainties including: procurement and delivery of equipment, suitable design and safety standards. Failure of the Company to complete construction of the power projects in a timely and effective manner may have a materially adverse impact on the future financial performance of the Company.

Change in Government Policy and Legislation: The Company's business may be affected by new and changing Government policies, including taxation, royalties, environmental regulation, land access and economic regulation relating to the electricity and gas industries, pipeline regulation and access and policies and legislation relating to greenhouse gas emissions. In particular, Metgasco is reliant upon the receipt of NSW Greenhouse Abatement Certificates for some aspects of its development plan.

Environmental Risks: The exploration for and production of natural gas involves certain operating hazards which may result in environmental damage. The Company intends to conduct its activities in an environmentally responsible manner. However, the Company could be subject to liability due to risks inherent to its activities, such as: accidental spills, leakages, well blowouts, explosions, fires, pipeline spills or other unforeseen circumstances. Any of these hazards could result in the Company incurring substantial costs for environmental rehabilitation, damage control, or losses by third parties should they occur. The Company is subject to environmental laws and requiations in connection with all its operations. As with all exploration and development projects, the Company's activities are expected to have a variety of environmental impacts. The Company may require approval from the relevant authorities before it can undertake activities, which are likely to impact the environment. Failure to obtain such approvals would prevent the Company from undertaking its desired activities. The Company is unable to predict the effect of future environmental legislation and regulations or the manner in which these may be enforced. In particular the Company cannot comment on whether it might, in the future, be obliged to incur significant expenses and undertake significant investments as a result of legislative or policy changes, which could have a material adverse effect on the Company's business, financial performance and operational results.

Native Title: The effect of the Native Title Act 1993 (Commonwealth) and ensuing State Native Title legislation and subsequent legislative amendments is that new petroleum exploration and production tenement applications and existing tenements in Australia may be affected by Native Title claims or procedures. This may preclude or delay granting of exploration and mining tenements and considerable expense may be incurred in negotiating and resolving issues. As a consequence of the decision of the High Court in the Mabo Case the possibility that native title may affect the Tenement must be taken into account. The relevance of the native title has been increased by the decision of the High Court in the Wik case, which has indicated that certain land tenures such as pastoral leases previously thought to have been capable of extinguishing native title, may not necessarily have done so. For further information on the risks of native title refer to the Solicitor's Report in Section 10 of this prospectus. The Solicitor's Report indicates that native title claims presently do affect land covered by the Tenement. Further claims could be made in the future over any of the lands covered by the Tenement. The Company has not undertaken the legal, historical and anthropological research, or the investigations that would be necessary to enable it to form an opinion as to whether any claim for native title could be upheld over any particular parcel of land covered by the Tenement. Future additions or amendments to Native Title legislation may impact upon the Company's ability to conduct exploration and production activities on its petroleum tenements, or may impact upon the cost of such activities.

2 November 2004

The Directors Metgasco Limited 10/402 New South Head Road Double Bay NSW, 2028

Dear Sirs.

Independent Consulting Geologist's Report

$7.1$ Introduction

In correspondence dated 8 September 2004, Metgasco Limited (Metgasco) requested that MBA Petroleum Consultants (MBA) prepare an Independent Consulting Geologist's report for inclusion in a Prospectus dated on or about 10th November 2004 for the issue by Metgasco of 25,000,000 fully paid shares at an issue price of A\$0.20 per share. The new shares are to be listed on the Australian Stock Exchange.

Metgasco has, in that correspondence and in subsequent meetings, requested that MBA address the following issues:

• a) Confirm that Metgasco has title to the permit claimed in the prospectus.
• b) Examine the exploration strategy and the quality of the plays in the permit.
• c) Discuss the risks involved for exploration in the permit and comment on the proposed exploration/appraisal program to be employed by Metgasco.

7.2 Summary

As requested, MBA has reviewed the coal seam gas (CSG) interests of Metgasco. MBA has confirmed that the company has title to Petroleum Exploration Licence 16 (PEL 16) in the NSW portion of the Clarence Moreton Basin and is satisfied that the coals in the permit are gascharged and worthy of further exploration and testing for their gas potential. The exploration appraisal program planned by Metgasco should adequately achieve this goal.

7.3 Overview

a) Metgasco has title to PEL 16 in northern New South Wales (NSW) where the focus is on CSG exploration of the Walloon Coal Measures (WCM) in the Clarence Moreton Basin.

b) Metgasco holds 100% of the interest. Suncor Energy Inc (Suncor), through its wholly owned subsidiary Sunoco Inc (Sunoco), holds a 5% convertible gross overriding royalty interest (ORRI) based on 100% of the petroleum substances produced.

c) Metgasco, as operator, twinned the South Casino-1 well with a core hole, South Casino-2. in 2004 in order to determine gas content and cleat development of the coals using the cores, and permeability by running step-rate tests.

d) Though there is still some technical analysis (isotherm analysis) to be carried out, gas contents appear high $(17.87$ cubic meters per tonne $(m³/t))$ and the coals are probably saturated or oversaturated.

e) Permeability and net coal analysis are, in MBA's opinion, the main technical risks of the project.

f) Metgasco plans to drill a test well near South Casino 1 and 2 to conduct extensive testing of the potential water and gas flow rates from the upper WCM coal seam (509 Seam) in order to determine if economic gas flow rates can be achieved and sustained.

g) Water production rates will be determined in the proposed test well. Metgasco will need to consider strategies for water handling, which will depend on the water volumes and water chemistry.

h) Subsequent wells will be contingent on the results of the first and may be required to test the performance of other seams. If testing shows poor results, commitment production test wells may become part of the exploration work.

i) In parallel, Metgasco plans further exploration by reviewing the past seismic data and may drill more exploration core holes. Acquisition of new hi-res (high resolution) seismic data is being considered. Exploration activity is likely to be concentrated in the south western half of the permit where Metgasco believes that seams may be thicker and at shallower depths.

$7.4$ Metgasco - Exploration Interests

Metgasco holds 100% of and is operator of PEL16, located in the Clarence-Moreton Basin of northern NSW, details of which are listed in Table 7.1 and shown in Figure 7.1.

Table 7.1 Metgasco's Permit Interests

	Permit Gross Area (Sq Km) Interest State Basin			Play-Type Property and Communication
PEL16 833		- 100% -		- NSW - Clarence-Moreton - Wallbon Coal Measures Coal Seam Gas

PEL 16 was first granted to Carlita Holdings Limited (Carlita) in November 1996. In August 1999, the entire ownership of the tenement was transferred from Carlita to Metgasco Limited. In July 1999, Sunoco (subsidiary of Suncor) entered into Farm In and Joint Venture Agreements with Metgasco to undertake CSG exploration of PEL 16. In late 2001 Suncor made a decision to

concentrate its CSG activities in North America and pulled out of Australia, at which point it had earned a 26.46% working interest in PEL 16 after expending \$545,000. In August 2002 Metgasco and Suncor agreed to amend the Farm In Agreement, such that by incurring further expenditure, Metgasco would resume Sunoco's working interest in return for granting Sunoco a 5% gross RRI.

PEL 16 - Permit Status $7.5$

PEL16 is currently in the eighth year of a ten year term (Table 7.2). The NSW Department of Mineral Resources (DMR) has recently confirmed that the work commitment for the current licence term has been fully satisfied. The government has agreed to Metgasco's request that the forward commitments for the period up to 12 November 2005 will be the drilling of five (5) production test wells. Further renewal will be subject to renegotiation with the Department.

Table 7.2 Government Commitments

	Permit New York Program Commitment (William Work Program Commitment )
	Casino South-2.
Year 8 & 9 I	. Production Test Wells
'ear 10	Optional / Negotiable i

MBA has contacted the DMR and it would appear that a "production test well" is, in the department's opinion, any well, appraisal or exploration, on which an extended production test is undertaken over a period of at least some days. Production testing, as a minimum, is the running of a pump and testing equipment in a well. MBA believes that a typical well will need to be cased above the coals and then pump tested.

$7.6$ General Geology

PEL16 covers part of the Clarence Moreton Basin. This basin is mid-Triassic to early Cretaceous in age and extends from near Nymbolda in the south to Ipswich in the north, a distance of over 400 kilometres (Wells & O'Brien, 1994) (Figure 7.1). It is up to 120 kilometres wide, covers an area of more than 40,000 square kilometres and reaches a maximum depth of about 3,500m. The basin developed as a broad intracratonic sag in the middle to late Triassic. The sequences shown in Figure 7.2 were deposited before the opening of the Tasman Sea in the Early Cretaceous, when the basin was uplifted and eroded.

Figure 7.2 Clarence-Moreton Basin Stratigraphic Column

There have been two major phases of coal deposition in the basin. The first was in the Early Triassic with the deposition of the Nymboida Coal Measures and the second during the mid to late Jurassic when the WCM was deposited over a wide area of the basin. Volcanic rocks of both Cretaceous and Tertlary age are present within and overlying the sediments of the basin. The north-eastern half of the permit is covered by volcanic flows.

The coals of the WCM are undergoing extensive testing by several companies in a number of areas, mainly in the Queensland portion of the Surat Basin, and have achieved results that suggest there will be commercial success for some of these projects. However, though they have the same formation name and were deposited coincidentally as a continuous sequence, the Clarence Moreton WCM has had a subtly different depositional history and a different tectonic history to those of the Surat Basin.

The WCM consists of a sequence of fluvial, lithic-rich sandstones, interbedded with shales, carbonaceous shales and coals. The coals have vitrinite reflectance (VRo) values ranging between 0.8% and 1.4%. This is higher than the values of about 0.35% to 0.52% in the Surat Basin of Queensland (Scott, et al, 2004). This is as a result of greater heating of the Clarence Moreton WCM coals. PEL16 overlies a central basin area, including the Braemar Syncline. The Braemar Syncline trends north-northwest to south-southeast. Dips are steeper on the eastern limb than the western limb.

To date, a number of wells have been drilled in the Clarence-Moreton Basin in the search for oil and gas in sandstone reservoirs and gas in the coal seams. There has been limited success with exploration of conventional sandstone reservoirs, though there have been gas flows of up to 500 thousand cubic feet a day (mcfd) in Hogarth-2, attesting to the fact that hydrocarbon generation and entrapment has occurred. CSG exploration is fairly new in the basin and may yet be successful, as in the Sydney Basin where there are no conventional gas fields, though, there is now production of gas from coal seams.

$7.7$ Coals of the WCM in PEL16

Within PEL16, the WCM is up to 670m thick. The top of the WCM lies at a depth of between approximately 200m in the western portion of the tenement and 600m in the south eastern portion of the tenement (Figure 7.3).

Figure 7.3 Clarence-Moreton Basin, Depth to Top Walloon Coal Measures

The Metgasco-Suncor (operator) JV drilled three exploration wells in 2001 that lie within the current permit boundary (Cedar Point-1, North Casino-1 and South Casino-1) and Suncor drilled one well that lies south of the current permit boundary (Tatham-1). The wells were drilled to investigate the thickness and areal extent of WCM coals. Wireline logs were acquired, though no cores were taken.

In early 2004, Metgasco drilled a core hole, South Casino-2, approximately 100m southeast of the South Casino-1 well.

Coring of seams within the upper WCM was undertaken in this well. A simplified cross-section from Cedar Point-1 in the north to Tatham-1 in the south is presented as Figure 7.4. Only the gamma-ray (GR) and density (DEN) logs are displayed. Care should be taken when comparing the interval in Cedar Point-1 below about 550m with the other wells as the hole is severely washed out and the quality of the density log is poor. Also, there may be a mixture of different processing strategies applied to logs in different wells, so that absolute values of GR and DEN on the crosssection may not be directly comparable. The cross-section was constructed by MBA and the correlations should be considered as tentative.

Figure 7.4 Cedar Point-1 to Tatham-1, Stratigraphic Cross-section

There are numerous coal seams in the wells and these are of varying quality. The upper seam, at 509 meters in South Casino-2 and informally termed the 509 Seam by MBA, appears to be continuous from north to south across the permit. This seam is the main target of future testing and analysis by Metgasco. The 600 Seam (informal name by MBA) lies at approximately 600m in South Casino-2 and is more difficult to correlate. It may extend as far south as Tatham-1, though is not present as far north as North Casino-1. The 620 Seam is also difficult to correlate. This uncertainty in the correlations is fairly typical of the coals of the WCM. These three seams were sampled by coring in South Casino-2 and were also tested for permeability. The test intervals are shown on Figure 7.4.

The coal seams consist of thin beds of mudstone, carbonaceous mudstone, dull high-ash coals, ranging to bright coals, lesser stony coals and siltstone. The coal ply may range up to 0.75 m thick in any one well, but are usually less than 0.3m thick. The coals have been described by Earth Data (2004). The clean bright coals are often bright banded with face cleats 1 to 3 millimeters (mm) apart and penetrating up to 100% of the coal, and butt cleats about 4mm apart, also penetrating up to 100% of the coal. Carbonate mineralisation in the cleats ranges from zero to 80%, though is often less than 10%. Dull coals make up a lesser proportion of the coal and have a similar cleat system.

Proximate analysis of canister samples taken for desorption show that the coals have high ash content, averaging about 33% and a moisture content averaging about 1.8% (float 1.90). It is worth noting that net coal cutoff parameters in relation to CSG potential for many coals in many basins have been difficult to determine and are still being debated. Further high quality sampling and permeability testing are required to refine the cuttoffs in the Clarence-Moreton WCM.

Extent of the WCM coals - Seismic Data $7.8$

Within PEL 16 there is a sparse, irregular grid of seismic data that has been acquired mostly between 1982 and 1985 (Figure 7.3). These data were collected more than twenty years ago and the surveys were designed to image the deeper horizons in the search for oil and gas in sandstone reservoirs. The lines are often crooked and appear to have been laid out along roads and other areas of easy access. The seismic is concentrated in the southwest, with a few short lines in thenorth-eastern corner. Elsewhere, outcropping volcanic flows appear to have prevented the acquisition of seismic.

Paper copies of most relevant sections were available for study by MBA. The WCM in PEL 16 is shallow and contained, in general, within the first 400 milli-seconds (msec) interval of the seismic data. The frequency content at this shallow level and seismic fold (coverage) are low. The WCM can be readily mapped using seismic both within and outside the area of PEL 16 (the extent is well documented in well bores). However, individual coal seams cannot be confidently identified and correlated and no comment can be made regarding coal thickness or quality.

$7.9$ PEL 16 - WCM Coal Gas Content

Twenty samples of core from the South Casino-2 well were placed in canisters at the wellsite and have been extensively tested for desorbed gas by Earth Data (2004). All techniques applied are sound. It has been found that initial desorption rates are fairly high and total desorbable gas is also high, with a weighted average of 17.87 cubic meters per tonne (m³/t) on a dry, ash-free basis (daf) over the interval 509 to 620m (Earth Data, 2004). The results are high when compared to the WCM of the Surat Basin and even the Permian Bandanna coals of the Bowen Basin, which are of similar rank (VRo). MBA has reviewed Permian Bandanna coals in the Bowen Basin where gas contents are often in the range of 8 to 17 m³/t, daf, at about 500m depth. The Surat Basin WCM coals typically have gas contents of about 2.5 to 10 m³/t, daf, at about 500m depth (Scott, et al, 2004).

The fact that some gas was noticed bubbling from the South Casino-1 well during drilling may infer that the coals are at or near saturation levels. However, some gas will separate from the water in sandstones and coals, so that the source of the gas shows in the well remains uncertain.

Metgasco is still to commission isotherm analysis of the coals that were sampled in South Casino-2. This data will be very important to determine the gas saturation of the coals and for determining the production performance of future wells. This type of analysis is available in offset wells, however, details of coal quality and other parameters were not available to MBA to make direct comparison.

$7.10$ Gas Composition

Gas samples were collected during testing of South Casino-2. Produced gas contains a high proportion of methane. Typical analyses are shown in Table 7.3.

Table 7.3 Gas Composition

			Seam San Methane Company Seamer Seamer Company (Carbon Dioxide Department of the Seamer
	99.7	.125.
600*		1.07
	-97 3

"Laboratory = Simtars

""Laboratory = Amdel

7.11 Permeability Testing South Casino #2

Cleats within coals provide a network through which water and gas can flow if they are well connected and the coals are extensive. In order to begin to determine this, permeability testing was undertaken on South Casino-2 by Metgasco and, previously, on Cedar Point-1 by Suncor (Figure 7.4). However, this coal interval is not being targeted by Metgasco.

MBA requested Kamenar and Associates Pty Ltd (Kamenar), a specialist engineering consultancy, carry out a review of the permeability test data acquired in the South Casino-2 well (Kamenar, 2004). This review was conducted by Alberto Kamenar, who is a past Chairman of the Society of Petroleum Engineers - Queensland Section. Mr. Kamenar has over 25 years of experience in the petroleum industry and holds a Bachelor Degree in Industrial Engineering. To carry out this review, Kamenar relied on the data provided by Metgasco, via MBA and has no reason to believe that this data is incomplete.

The main document within this data set is the "Permeability Report, Metgasco Limited, Borehole MSC02, Casino, New South Wales", prepared by D. A. Casey & Associates (Casey, 2004). The methodology and approach used by Casey in the evaluation of these tests is reasonable and of good industry standards.

The DST tools used by Casey and Stratatek Pty Ltd (Stratatek) are specifically designed to test coal bed methane (cbm) boreholes, like the South Casino-2 of Metgasco, drilled near Casino in New South Wales. A series of tests were carried out to measure a number of properties, including permeability, reservoir pressure, radius of investigation and skin damage. A brief description of these tests is presented below. DST's include a pre-flow, build up (BU), main flow and main BU. The BU analysis studies the pressure recovery in the coal seam after a short production, to measure the coal properties. The injection fall off test applies similar principles. Clean water is injected slowly into the reservoir to then study the pressure fall off when the injection stops. Draw down (DD) is the study of the pressure decline while the production is undertaken. It is also used to define reservoir properties, and it is normally followed by a build up. The presence of free gas in the three intervals tested complicates the analysis, however, the various tests presented in Table 7.4 provide an adequate range of values.

Three distinct intervals were tested and the results were extracted from the Casey report and are included as Table 7.4.

Table 7.4 South Casino #2 Permeability Test Results Summary

509 Seam
Test Interval Test Type Depth $(m)$				$\mathcal{L}(\mathsf{md}) \rightarrow \mathcal{L}(\mathsf{md})$	Analysis Model Kh (md.m) Permeability Reservoir Water Skin Factor The Pressure (1998) [1998] (m) [1998]
					$\sim$ (kpa)
507.3-518.16	DST	BH.	11.8	2.83	5107.01	-15.5	0.06
h=4.175m		BU 1
		Inj/Falloff. Semi-log1 2.34.16 2.1.1.00 2.2.24				$\sim$ - $\sim$ $-1.22$
		Semi-log2	2.39	0.57	- 5605.42		-1.92
	DD 2	Semi-log	5.48	1.31			-5.15
	ÐD	RHL	$\cdots$ 2.73	0.65	5062.86		0.99
	BU	Semi-loa	2.58	0.62	4478.87		-0.5

600 Seam

					Test Interval [1] Test Type [1] Analysis Model [1Kh (md.m) Permeability Reservoir Water 1988 Skin Factor Carl Avenue
Depth (m)
597.5-608.36	łni/Falloff	RМ	לממח ר 1.11111111111111111111111111111111111	6065.69	-1.43
h=2.065m−			ገ ሰሪነፍ።	7821 O.B

620 Seam

		Test Interval . Hest Type standards Model Montage Remeability Reservoir Nater Montage Skin Factor
		$\begin{picture}(150,10) \put(0,0){\vector(1,0){100}} \put(0,0){\vector(1,0){100}} \put(0,0){\vector(1,0){100}} \put(0,0){\vector(1,0){100}} \put(0,0){\vector(1,0){100}} \put(0,0){\vector(1,0){100}} \put(0,0){\vector(1,0){100}} \put(0,0){\vector(1,0){100}} \put(0,0){\vector(1,0){100}} \put(0,0){\vector(1,0){100}} \put(0,0){\vector(1,0){100}} \put(0,0){\vector($
				$\frac{1}{2}$ (kpa)
609.4-620.26	DST	– BH	0.001	0.0005	6064.5 11.2 -2.43
h=2.536m		BU 2 2000000 Semi-log 2000000000000000000000000000000000000
		Ini/Falloff				TV - 2007년 12.47 - 2007년
				0.02 0.007	7388.88	- 0.9
	DD 3.	RМ	8.54	3.37		7.82
		Semi-loc	7.84	3.09		6.9
	DD	Semi-loa	0.23	0.09	4299.48	$-2.85$

The DST provides the total conductivity (permeability x height (kh)) and, with an estimate of h from wireline logs and cores, the k is calculated. Hence, for a range of h there is a corresponding range of k. Because the cutoff parameters for net producible coal have not yet been determined, It is difficult to estimate the height (thickness) component. When a number of coals are present in the test interval the measured kh is the average for all the coals included in the test.

Permeability in these coals was estimated at approximately 1.4 md for the upper coals (509 Seam) and about 3.1 md for the lower seam (620 Seam). The 600 Seam was very tight (low permeability). Due to the uncertainty of the data, particularly height, these estimates will have to be used with caution. When deriving permeability, Casey (2004) included all coals in the calculation of h. Total coal in the 509 Seam is 4.175m and in the 620 Seam is 2.535m. It is MBA's opinion that net coal will be less than the total coal thickness.

Permeability is a key component of any cbm pilot success and it is advantageous to have sufficient permeability to trigger well interference between pilot wells. A low permeability will require a very long time for a pilot to deliver gas at attractive rates. Also, low permeability wells require fracture stimulation to increase the well deliverability.

Finally the well test results suggest that the skin is negligible. That is, the wellbore is in good condition and the test was not impeded by formation damage near the well bore.

7.12 Water Disposal

Production of large volumes of water can be a significant operational challenge for CSG producers, due to the volume itself, the water chemistry and restrictions on water use. A number of proven technologies are available and new methods are being explored.

Aside from volume, the main issues associated with the co-produced waters are salinity and chemistry, with high sodium content being one of the main concerns. The ratio of sodium to magnesium and calcium is called the sodium adsorption ratio (SAR). When too high in water it can eventually damage soil profiles.

CSG waters in Queensland can range in salinity from fresh to brackish, usually <1,000ppm to 10,000ppm total dissolved salts. This means that some of the waters can be used for stock and some plants, such as sorghum and cotton, which are salt tolerant, though for the most part, the water needs to be either treated, evaporated and/or re-injected into the ground.

A number of water samples were obtained from the WCM coals in the South Casino-2 well. The water samples were tested for total dissolved solids, trace elements, pH, electrical conductivity, alkalinity and major cations and anions. The results show contamination by potassium chloride from the mud system and, according to Metgasco, this may also have reacted with carbonates in the formation. Drilling of a new test well by Metgasco will help resolve any potential water disposal issues.

Many methods of disposal that have been used successfully in the US and are being employed in Australia. Each of these has its own problems and limitations, or is hampered by high cost. Large evaporation ponds are currently favoured, although some companies are trialling reverse osmosis combined with evaporation ponds and other chemical treatments in order to produce water that may then be used for irrigation.

Water disposal remains a significant challenge for large-scale production of CSG.

7.13 Statements

7.13.1 Limitations

MBA has primarily relied on data supplied by Metgasco. This information consisted of interpreted technical studies, well completion reports, seismic data and other technical reports and papers. These were compiled and written by various industry and government bodies as well as consultants to and staff members of Metgasco. The material was reviewed for its quality, accuracy and validity and was considered to be acceptable, in addition, farmin agreements and title documents were provided by Metaasco. It is believed that the information received from Metaasco is both reliable and sufficient and there is no reason to believe that any important material facts have been withheld. However, no warranty can be given that this review has analysed all of the matters which an extensive examination might reveal.

This report or any reference thereto, may not be included in any other document or distributed for any other purpose without the prior written consent of MBA.

The opinions and statements in this report are made in good faith and in the belief that such opinions and statements are not misleading.

7.13.2 Declaration

MBA Petroleum Consultants has not had and, at the date of this report, does not have any relationship with Metgasco, or its subsidiary companies. A fee will be received for the preparation of this report and this is not contingent on the outcome of the Prospectus. No other benefit will be received by MBA. Neither Wal Muir nor Doug Barrenger has any pecuniary or other interest that could be regarded as capable of affecting their ability to provide an unbiased opinion in relation to the Prospectus. Advance copies of this report were provided to the Directors of Metgasco and minor changes were made as a consequence. There have been no material changes made to the report.

7.13.3 Qualifications of the Authors

Douglas Barrenger

Doug Barrenger received a BSc degree (geology) from the Australian National University and a Graduate Diploma in Computing Science from the Queensland University of Technology. He has more than 20 years of experience in the petroleum industry and has undertaken all facets of geological work, from wellsite and operations geology to prospect evaluation, risk analysis, reserve assessment, basin analysis, portfolio valuation and project management for both operated permits and new-venture roles and for development and exploration projects. He has worked on all Australian petroleum basins, including coal seam gas, and has overseas experience in SE Asia and Italy. Doug is a founding partner of MBA Petroleum Consultants, a member of the Petroleum Exploration Society of Australia and a twenty-year, Active Member of the American Association of Petroleum Geologists.

Wal Muir

Wal Muir has a B.Sc. (Hons) degree from the University of New South Wales (1978) with a double major in Geology, a major in Pure Mathematics and Honours in Geophysics. He has a Master of Business Administration (1989) from the University of Queensland. Mr Muir has 25 years of experience in the petroleum exploration and production industry, both within Australia and overseas. His principal expertise is in geophysical interpretation, prospect and permit evaluation, reserves assessment and economic evaluations. He has worked for seven companies during his career, rising to Exploration Manager. Since setting up MBA Petroleum Consultants in 2001 he has undertaken projects for many clients in Australia and overseas. Wal is a member of the Australian Society of Exploration Geophysicists, Queensland Petroleum Exploration and is a Distinguished Member of the Petroleum Exploration Society of Australia (PESA). He has filled all the executive positions at PESA Queensland, and was Federal President of PESA from 1997 until 1999.

T^a Greenweiterspielender v

Doug Barrenger Partner

$\rho$ J $\gamma$ kon $/$ .

Wal Muir Partner

$7.14$ References

Casey, D. A., 2004: Permeability Report, Metgasco Limited, Borehole MSCo2, Casino, New South Wales. Unpublished report for Metgasco Limited Earth Data Pty Ltd, 2004: Metgasco, South Casino-2, Gas Desorption Analysis Report, Unpublished report for Metgasco Limited,

Kamenar, A. 2004: Comments on Permeability Report on well MSC02 (South Casino-2), prepared by D. A. Casey & Associates. Unpublished report for MBA Petroleum Consultants. Metgasco. 2003: Metgasco Pty Ltd (ACN 106 092 577), Information Memorandum, Unpublished Report.

Scott, S., Anderson, B., Crosdale, P., Dingwall, J. and Leblang, G., 2004: Revised Geology and Coal Seam Gas Characteristics of the Walloon Subgroup - Surat Basin, Queensland, In Eds: Boult, P. J., Johns, D. R. and Lang, S. C., 2004: PESA Eastern Australian Basins Symposium II. Sydney Gas, 2004: Annual Report, the Growing Power in Natural Energy.

Wells, A. T. & O'Brien, P. E., 1994: Geology and Petroleum Potential of the Clarence-Moreton Basin, New South Wales and Queensland. Australian Geological Survey Organisation, Bulletin $241.$

ACIL Tasman Economics Policy Strategy

8.0 Independent Energy Market Consultant's Report

$8.1$ Introduction

ACIL Tasman Pty Ltd has been engaged by Metgasco to prepare an independent report on the market outlook for coal seam gas (CSG) produced from the company's exploration interest PEL16 Casino South, in the Clarence-Moreton Basin of northern New South Wales. This report has been prepared for inclusion in a Prospectus dated on or about 10th November 2004 for the issue by Metgasco of 25,000,000 fully paid shares at an issue price of A\$0.20 per share.

The report uses a high-level economic modelling approach to assess the capacity of the Project:

• to support gas-fired power generation developments in northeast New South Wales, and
• to supply gas to markets in the northeast New South Wales, and potentially in other regions - particularly the Gold Coast and southeast Queensland.

8.2 Overview of Australian energy markets and the role of gas

8.2.1 Primary energy consumption trends in Australia

Figure 8.1 Australia historical and forecast primary energy demand, by fuel type (PJ)

Data source: Based on ABARE historical data, ABARE 2004 "Australian Energy: national and state projections to 2019-20", ABARE eReport 04.11 (Asigust 2004).

Over the past 30 years total energy and in Australia has grown steadily (see Fig 8.1)

Independent report on market outlook for CSG from Casino South

Independent Energy Market Consultant's Report

In absolute terms, total consumption of primary energy has grown from around 2,600 PJ/a in 1973-74 to almost 4,000 PJ/a in 1989-90, and to 5,000 PJ/a by year 2000-01. Consumption is forecast by the Australian Bureau of Agricultural and Resource Economics (ABARE) to reach more than 6,160 PJ per year by 2009-10 and more than 7,500PJ per year by 2019-20.

The rate of growth of Australia's energy demand has declined over time as a result of structural changes in the national economy, as well as technological changes leading to improved energy efficiency. Average annual growth rates have declined from 3.8% over the period 1970-80, to 2.5% over the 1990-00 period. ABARE expects the rate of growth to continue at approximately 2.5% per year until 2009 before declining to 2.1% over the long term (2010-2020) JABARE, 2004: Australian Energy - National and state projections to 2019-20].

8.2.2 The role of gas

Natural gas now accounts for 20% of primary energy demand

Energy demand in Australia has grown steadily

over the past 30

Rate of growth of

energy demand is

years

slowing

Natural gas consumption in Eastern Australia has risen from a virtually zerobase in 1970 to about 600 PJ at present. Gas presently accounts for around 20% of Australia's primary energy demand. Other non-coal energy sources make only a modest contribution to total energy supply: biomass (4.5% of primary energy) accounts for the major part of the "renewables" category. Hydro accounts for around 1% of primary energy, but a little over 8% of electricity generation. Solar and wind energy are relatively minor contributors.

8.2.3 Future gas demand in Eastern Australia

Figure 8.2 Forecast Eastern Australia gas consumption

Data source: ABARE 2004

New industrial and power generation developments will determine rate of gas demand growth

ABARE's latest energy forecasts anticipate that gas demand in the Eastern Australian States, including Northern Territory, will rise to around 1,050 PJ/a by 2014-15 and to 1,200 PJ/a by 2019-20 (Figure 8.2).

The market's appetite for gas will be influenced by growth within particular geographical regions and market sectors. For example, large industrial projects

Independent Energy Market Consultant's Report

slated for development in central Queensland have the potential to drive strong gas demand growth, but the timing of these developments and their level of gas demand (given the availability of alternative fuels such as coal liquid fuel or LPG) are uncertain. Future government environment policy in relation to greenhouse gas emission reductions may also impact on the longterm demand for natural gas, particularly in electricity generation.

8.2.4 NSW gas demand

New South Wales currently consumes around 130 PJ of natural gas annually. ACIL Tasman estimates that by 2020, maximum potential demand in NSW could range from a low of 160PJ/a to as much as 250PJ/a. This broad range reflects a level of uncertainty as to how much gas will be used in new electricity generation plants. This in turn depends on availability of competitively priced gas as well as government policy in relation to greenhouse gas abatement and the fuel mix for electricity generation.

The Sydney area presently accounts for 65% of total natural gas demand in NSW. Newcastle, Wollongong and other regional towns in the central part of the state account for most of the remainder.

Around three-quarters of gas sold in NSW is used in the industrial market. More than 40 PJ/a is sold to the 20 largest industrial customers. The balance is supplied to smaller customers. Demand has been relatively flat in the industrial sector over the last several years. The commercial sector in NSW consumes around 7 PJ/a. Growth in this sector has been strong. However, the remaining penetrable market is small and future growth is expected to slow significantly.

Natural gas consumption growth in the residential sector in NSW has been particularly strong since the mid-1990s. Only about 25% of NSW households are currently connected to natural gas and there is scope for increased uptake of gas by residential consumers.

8.2.5 Queensland gas demand

In Queensland, gas consumption is presently around 100 PJ/a, having grown rapidly from a low base of 40PJ/a a decade ago. The main regional gas markets are Brisbane/ Southeast Queensland (about 45 PJ/a at present), Gladstone/Rockhampton (about 20PJ/a, but with very strong growth potential), Mount Isa/Cannington (currently about 30PJ/a) and Townsville, which will have access to natural gas for the first time from early 2005 and a potential market of around 40PJ/a.

Industrial and power generation developments will be the key drivers of gas demand growth in Queensland

Queensland gas demand has

growth rapidly

over the past

decade

Demand in Queensland is expected to grow strongly over the next 20 years. However, much of this potential demand is associated with large volume, lowpriced industrial and power generation opportunities that are uncertain both in terms of timing and gas requirements. As a result, actual gas demand in Queensland by year 2020 could vary within a broad range from less than 200 up to about 300PJ/a.

8.3 Supply side factors

8.3.1 Australia's gas-bearing basins

The locations of the main gas-bearing basins in Australia, their sizes in terms of known gas resources, and positions relative to existing and proposed pipeline

In NSW, electricity generation is a key driver of potential gas demand growth ... greenhouse policy is therefore important

infrastructure, are illustrated in Figure 8.3.

Figure 8.3 Major Supply Basins, Markets, and Pipelines

The largest reserves are contained in fields located off the north-west coast of Western Australia (Carnarvon and Browse Basins) and offshore from the Northern Territory (Timor Sea/Bonaparte Basin), The Carnaryon Basin is the main source of supply for Western Australia's domestic markets, as well as providing the gas for the North West Shelf LNG export project. However the large resources of the Carnarvon and Browse Basins are not currently available to consumers in Eastern Australia.

Most of the current gas supply to southeastern Australia comes from the Cooper/ Eromanga Basin in South Australia/Queensland and the Gippsland Basin in the Bass Strait (offshore Victoria). A small volume is produced in the onshore Otway Basin.

8.3.2 Coal seam gas

Coal seam gas (CSG) is rapidly emerging as an important part of the eastern Australia gas supply mix. As at mid-2004, estimated proven and probable (2P) reserves of CSG in Eastern Australia stood at around 2,000PJ, About 900PJ were subject to some form of sales agreement [Information compiled by ACIL Tasman from company reports and other published sources]. The proven resource base is growing steadily as CSG exploration companies push ahead with drilling and production demonstration programs. Several CSG projects in Queensland and New South Wales are selling, or have contracted to sell, commercial quantities of gas. Other CSG explorers have conditional gas sales agreements subject to further technical evaluation and feasibility studies.

Total production of CSG in Queensland now stands at about 30 PJ/a, and in NSW about 1 PJ/a from non-mine associated sources and 6PJ/a from coal mine methane recovery. If current plans and contract commitments are realised, production will increase to around 80 PJ/a in Queensland and 15 to 20 PJ/a in NSW over the next three years.

CSG is emerging rapidly as a significant part of the eastern Australian gas supply mix

Data source: Reserves data - Geoscience Australia

8.3.3 Northern Gas

In the longer term, natural gas from PNG, Timor Sea or possibly the North West Shelf/Browse Basin region could be made available to the southeast Australian market. A PNG connection is possible as early as 2008/2009 following the October 2004 decision by the Highlands Gas Project participants to move into detailed frontend engineering and design.

8.4 Environmental policy issues

Driven primarily by concerns regarding climate change and greenhouse gas emissions, governments at both Federal and State level have recognised natural gas as the fuel-of-choice for new power generation.

Both the New South Wales and Queensland governments have provided explicit policy support for gasfired power generation. New South Wales has introduced an abatement scheme (the NSW Greenhouse Benchmark Scheme) under which mandatory emissions reduction targets apply to electricity retailers through the mechanism of NSW Greenhouse Gas Abatement Certificates (NGAC's). The scheme is targeting a 5% reduction in per capita emissions from the electricity sector, over 1990 levels, by 2007. Each NGAC is equivalent to 1 tonne of avoided CO2 emission, and the penalty faced by retailers for failing to meet their emission reduction targets is \$10.50 per NGAC.

The Queensland Government has adopted a broadly similar policy. The "Cleaner Energy Policy" requires at least 13% gas-generated electricity from 2005. The policy, which operates through a Gas Electricity Certificate (GEC) scheme including penalties for non-compliance, has also imposed a conditional moratorium on the construction of new coal-fired power stations.

These State-level environmental policies will increase the demand for gas, particularly for use in electricity generation. Because abatement certificates are tradable instruments. NGAC's and GEC's will have significant commercial value. Gas-fired generators that create NGAC's and GEC's will be able to sell them to energy retailers, who will require the certificates to demonstrate achievement of their targets. Abatement certificates will be tradable and, depending on the levels of supply and demand, prices may range from zero up to the relevant (after tax) penalty rate. Certificate values will in turn be reflected in the sustainable price of gas for electricity generation.

8.4.1 Gas-fired electricity and the role of embedded generation

The greenhouse gas abatement policies described above establish clear incentives for the installation of more gas-fired power plant. However, for large generators participating in the National Electricity Market there is strong competition from low cost coal-fired generators. In the absence of the financial incentives created by the certificate schemes, the gas-fired generators could not compete with coal for intermediate and base load dispatch; they would be relegated to the role of peaking plant.

However, smaller gas-fired generators offer commercial advantages when they are able to be located at or very close to the areas of electricity demand (for example, in the case of CSG in northern NSW and southern Queensland). Such plant is often

The NSW Greenhouse Benchmark Scheme creates incentives for aasfired electricity generation

Queensland has a broadly similar policy to promote gas-fired generation

Independent Energy Market Consultant's Report

Embedded generation offers commercial advantages through avoided transmission costs referred to as "embedded generation" because it is effectively embedded in the transmission/distribution supply system. By locating generation facilities at the gas fields and close to electricity demand sites, cost of gas transportation and electricity transmission can be minimised.

8.5 The Metgasco Casino South CSG Project

8.5.1 Project concept

Metgasco's Casino South project area is located in the Casino-Lismore area of northern New South Wales (Figure 8.4). The project is close to the fast-growing regions of northern New South Wales and southern Queensland.

The company is targeting production of CSG gas from the Walloon Coal Measures of the Clarence Moreton Basin. These coal measures are geologically similar to those being targeted by a number of CSG explorers in the Surat Basin of Queensland.

Figure 8.4 Location of the Project

8.5.2 Commercialisation Plan

Metgasco has developed a staged plan of development that would initially see supply of CSG to a small gas-fired generator for supply to the local grid. This demonstration phase would be followed by further gas-fired generation developments as well as gas sales to the immediate region. The project is targeting development of embedded generation in the northeast NSW area, with generators located at the Casino South CSG field, close to demand centres.

Potential benefits include:

• opportunities for the project to capture pass through of transmission-useof-system (TUoS) charges; and
• contribution to the retailer's achievement of greenhouse gas emissions targets under the NSW Greenhouse Benchmark Scheme, by substituting gas-fired electricity for coal-fired electricity, in the process creating NGAC's.

A gas transmission pipeline to service NE NSW and SE Queensland markets is also envisaged

Subsequent development could (subject to feasibility study) see construction of a gas pipeline to service customers in the northeast NSW coastal area, and potentially tying into the existing southeast Queensland gas distribution system at Tweed Heads.

8.6 Market analysis

This section of the report examines the electricity and gas market potential of the target market area in Northern New South Wales (illustrated in Figure 8.5 and including the population centres of Casino, Lismore, Ballina, Brunswick Heads/ Ocean Shores, Murwillumbah and the South Tweed Region). This area has no local electricity generation or gas supply. The target market area is based on an assumed gas pipeline corridor runningfrom Casino east to Ballina, then north along the highway corridor to Tweed Heads - a total of approximately 150km. Given the regional population distribution this is considered to be an appropriate market definition for gas sales. However, for electricity sales there is potential to extend the market south at least to the Clarence River (Grafton and east to Maclean, Yamba and Iluka), and to this extent the adopted definition of the target market area is conservative.

8.6.1 Demographics of the target market area

Total population in the region is some 151,300 people (2001 data), with around 57,500 households and 16.100 business establishments [Based on registered entities with Australian Business Numbersl, Towns with more than 5,000 residents in the target market area include Tweed Heads, Lismore, Ballina, Casino, Murwillumbah, Byron Bay, Lennox Heads and Brunswick Heads/Ocean Shores.

Floure 8.5 Potential interconnection to gas transmission network

Data Source: ACIL Tasman databases.

The target market area has a population of over 150,000, with over 16,000 business

establishments

8.6.2 Market assessment methodology

The size of the potential market for electricity and natural gas in northeast NSW has been estimated by ACIL Tasman by drawing on various data sources:

• Recent aggregated data compiled by the Electricity Supply Association of Australia (ESSA) on customer numbers and electricity consumption for different customer classes in New South Wales and Queensland:
• Demographic analysis of the Target Market Area based on ABS data. ø.
• Comparison of the demographics in the target market area with the ø. demographics of the Queensland South Coast gas reticulation area, for which reasonable estimates of gas market size can be made based on actual experience of market development and historical data compiled by the Australian Gas Association on customer consumption rates.

8.6.3 Electricity demand in the target market area

Average rates of electricity consumption for residential and business customers in NSW and Queensland have been applied to the demographic data for the target market area in order to estimate electricity demand and demand growth rates in the region. This state-level data indicates that the average residential household in northern NSW consumes between 7.2 and 7.6 MWh per year, and the average business customer between 131 and 170 MWh per year. On this basis, the estimated electrical energy demand in the target market area in 2001/02 was 2,663 GWh. In order to supply this energy, an estimated 454MW of generation capacity would be required [Based on an average system capacity factor of 67%].

Generation capacity required to meet electricity demand in the target market area was around 450MW in 2001 ...

... and is expected to grow at more than 4%pa over the decade to 2010

For NSW as a whole, peak generation requirements have grown at an average 2.9%pa over the period 1999 to 2005. The corresponding growth rate for Queensland overall is significantly higher at 5.4%pa. An average peak capacity growth rate of 4.1% pa for the target market area in northern NSW has been assumed. The resultant growth in generation capacity required to meet demand in the target market area over the period to 2010 is summarised in Figure 8.6.

Figure 8.6 Target Market Area electricity demand and generation capacity outlook

Data source: Metgasco

Independent Energy Market Consultant's Report

Around 200MW of additional generating capacity will be required

By 2010, it is estimated that about 650MW of installed generation capacity will be required to service electricity consumers in the target market area - some 200MW more than the plant requirements in 2001.

8.6.4 Natural gas demand

In the project area Potential gas demand in the project area is considered in two part: gas for electricity generation and other potential gas markets.

8.6.5 Gas for electricity generation

The growth in electricity generation capacity identified in the preceding section represents a substantial market opportunity for the supply gas for electricity generation within the region. If operated as base load plant, each 10MW of new gasfired capacity would require around 0.75PJ of gas per year. The estimated growth requirement of 200MW over the decade to 2010 therefore represents a potential gas demand of up to 15PJ/a.

8.6.6 Other potential gas markets

There is presently no natural gas supply infrastructure servicing the NSW North Coast region. In order to estimate the potential natural gas demand in the target market area, comparisons have been made with the southeast Queensland market which, for reasons of demographic and climatic similarity, provides a closer analogue than NSW. The southeast Queensland natural gas distribution network includes areas from Brisbane to the Gold Coast, extending south to Benora Point (Tweed Heads).

This distribution network is connected to the high-pressure gas transmission network at the Brisbane City Gate on the city's western outskirts, ACIL Tasman's analysis suggests that the Gold Coast segment of this retail franchise area represents a total market of about 1.8PJ/a, including 0.3PJ/a of commercial and residential sales and 1.5PJ/a industrial use.

By comparing the demographics of the target market area with those of the Gold Coast region, ACIL Tasman's analysis has identified a relatively limited opportunity for direct gas sales to retail customers within the target market area, potentially of the order of 0.6 PJ/a. This comprises 0.1PJ/a in the residential/commercial sector and 0.5PJ/a in the retail industrial sector. These results are based on assumed achievement of a 10% connection rate, in line with experience in the Queensland retail market. The potential market size would be larger if a higher connection rate could be achieved.

The size of the potential market for pipeline gas could be significantly increase by:

• Identifying one or more larger industrial customers, such as a cogeneration facility associated with a food processing plant, sugar mill or other energy intensive process: and/or
• Extending the market reach to include supply to customers in the Gold ¢ Coast and/or greater Brisbane area.

If one or more large industrial customers can be identified in the target market area, they could potentially provide foundation loads for the necessary transmission pipeline infrastructure and would provide the economies of scale to support competitively priced gas supply in the northern NSW coastal region.

Potential gas demand to growth in electricity generation in the region is up to $15PJ/a$

Estimates of potential retail gas sales in the target market area are based on comparisons with the Gold Coast market

Potential retail gas demand in the target market area is estimated to be only about 0.6PJ/a $\ddot{\phantom{a}}$

... but the total market for pipeline gas could be significantly larger

Independent Energy Market Consultant's Report

A pipeline connection to Tweed Heads would allow the Casino South project to compete for supply into SE Queensland

Construction of a transmission pipeline connecting the Casino South project with Tweed Heads would offer the opportunity to supply CSG into the Gold Coast and/or Brisbane market. This may be a commercially attractive option for the local retailer since it would provide a means of meeting growth opportunities while avoiding the need for capital enhancements to the transmission system south of the Brisbane City Gate (Bellbird Park) that may be required to allow increased gas delivery from sources to the west of Brisbane.

8.7 Conclusions

There are significant market opportunities in northern NSW and southeast Queensland for placement of CSG produced from the Casino South project. ACIL Tasman estimates that the amount of additional electricity generating plant required to meet energy demand growth in northern NSW over the decade to 2010 will be around 200MW. This growth in electricity demand, if supplied by gas-fired plant, would stimulate gas demand of around 15PJ/a. Factors that should positively affect the commerciality of the electricity generation components of the project include:

• $\ddot{\mathbf{a}}$ The pass through of avoided TUoS charges associated with delivery from existing suppliers in Queensland and/or NSW Hunter Valley to the project;
• Possibility of reducing or deferring capital costs associated with transmission system enhancements required to meet in northeast NSW demand growth; and
• Creation of commercially valuable NGAC's, required to acquit retailer's obligations under the NSW Greenhouse Benchmark Scheme.

Potential natural gas demand in the non-electricity retail sector of the target market area is unlikely to be sufficient to justify the cost of pipeline infrastructure - ACIL Tasman estimates a potential market of around 0.6PJ/a at present. However, if one or more large-volume foundation customers can be identified within the region, the economies of scale necessary to support new distribution infrastructure could be realised.

There may also be opportunities to expand the target market area to include deliveries into the Gold Coast and greater Brisbane region. Such a development would potentially allow the local retailer to satisfy increased market demand in southeast Queensland without the need for capital expenditure to increase transmission pipeline capacity.

8.8 Qualifications

ACIL Tasman has extensive experience in policy development, market analysis and the provision of economic and commercial advice to public and private sector clients in the gas industry, both in Australia and internationally.

The scope of the company's analytical and advisory services to the gas industry encompasses the entire supply chain - from gas producers, pipeline operators, gas distributors and retailers - to major customers such as power stations and industrial facilities, as well as investors, developers and financiers.

The principal author of the report Paul Balfe is a graduate of the University of Queensland (B.Sc. (Hons 1) in Geology and Mineralogy 1976; MBA 1988). He

Significant market potential for gas supply to embedded power generation

Retail sales potential alone appears to be too small to justify building a pipeline $\ddot{\phantom{a}}$

... but greater market volumes could be aggregated with a connection to SE Queensland

has over 25 years experience working in the mining and energy sector in Australia as a geologist, government administrator and consultant. He commenced his career working as a petroleum and coal geologist with the Geological Survey of Queensland. Subsequently he held various managerial roles in energy resource development in the Queensland Department of Mines & Energy (QDME).

In 1995 he left the position of Director of Energy in QDME to join ACIL Economics & Policy, a national firm with a substantial consultancy practice in the area of energy markets and energy policy. Over the past eight years, Mr Balfe has consulted extensively on gas industry matters, particularly gas policy reform issues, gas market analysis, pipeline developments, acquisitions and disposals, and gas project commercial analysis. He has also worked extensively in the Queensland coal seam gas industry as an adviser to both government and corporate sector clients on requlatory, technical, economic and commercial aspects of CSG development,

Reliance and Disclaimer

The professional analysis and advice in this report has been prepared by ACIL Tasman for the exclusive use of the party or parties to whom it is addressed (the addressee) and for the purposes specified in it. This report is supplied in good faith and reflects the knowledge, expertise and experience of the consultants involved. The report must not be published, quoted or disseminated to any other party without ACIL Tasman's prior written consent. ACIL Tasman accepts no responsibility whatsoever for any loss occasioned by any person acting or refraining from action as a result of reliance on the report, other than the addressee, considers is the best information available at the date of publication, including information supplied by the addressee. Unless stated otherwise, ACIL Tasman does not warrant the accuracy of any forecast or prediction in the report. Although ACIL Tasman exercises reasonable care when making forecasts or predictions, factors in the process, such as future market behaviour, are inherently uncertain and cannot be forecast or predicted reliably. ACIL Tasman shall not be liable in respect of any claim arising out of the failure of a client investment to perform to the advantage of the client or to the advantage of the client to the degree suggested or assumed in any advice or forecast given by ACIL Tasman.

Conclusions

In conducting the analysis in this report ACIL Tasman has endeavoured to use what it considers is the best information available at the date of publication, including information supplied by the addressee. Unless stated otherwise, ACIL Tasman does not warrant the accuracy of any forecast or prediction in the report. Although ACIL Tasman exercises reasonable care when making forecasts or predictions, factors in the process, such as future market behaviour, are inherently uncertain and cannot be forecast or predicted reliably. ACIL Tasman shall not be liable in respect of any claim arising out of the failure of a client investment to perform to the advantage of the client or to the advantage of the client to the degree suggested or assumed in any advice or forecast given by ACIL Tasman.

Independent Energy Market Consultant's Report

ACIL Tasman Pty Ltd

ABN 68 102 652 148 internet www.aciltasman.com.au Melbourne office Level 6, 224-236 Queen Street Melbourne VIC 3000 Telephone (+61 3) 9600 3144 Facsimile (+61 3) 9600 3155 Email melbourne@aciltasman.com.au

Canberra office

103-105 Northbourne Avenue Turner ACT 2612 GPO Box 1322 Canberra ACT 2601 Telephone (+61 2) 6249 8055 Facsimile (+61 2) 6257 4170 $(+612)62497455$ Email canberra@aciltasman.com.au

Brisbane office

Level 15, 127 Creek Street Brisbane QLD 4000 GPO Box 32 Brisbane QLD 4001 Telephone (+61 7) 3236 3966 Facsimile (+61-7) 3236 3499 Email brisbane@aciltasman.com.au

Darwin office

Suite 1/63 Marina Boulevard Cullen Bay NT 0820 GPO Box 1000 Darwin NT 0801 Telephone (+61-8) 8981-2101 Facsimile (+61 8) 8981 2702 Email darwin@aciltasman.com.au

Perth office

Level 12, 191 St Georges Terrace Perth WA 6000 PO Box 7035 Cloisters Square Perth WA 6850 Telephone (+61 8) 9485 0300 Facsimile (+61-8) 9485 0500 Email perth@aciltasman.com.au

Sydney office

PO Box 170 Northbridge NSW 1560 Telephone (+61-2) 9958 6644 Facsimile (+61-2) 8080 8142 Email sydney@aciltasman.com.au

9.0 Independent Accountant's Report

9th November, 2004

The Directors Metgasco Limited Suite 10 402 New South Head Road Double Bay New South Wales 2028

Introduction

Dear Directors.

I have prepared this Independent Accountant's Report for based upon the audited historical financial information of Metgasco Limited ("the Company") for inclusion in a Prospectus dated on or about 10th November 2004 to be issued in relation a Public Offer to raise \$5,000,000 for the issue of 25,000,000 ordinary shares in the Company at an issue price of 20 cents each.

This is also the minimum subscription.

The prospectus also provides for the Company to accept oversubscriptions for the issue up to 10,000,000 additional shares at 20 cents each to raise up to \$2,000,000.

The Company will also issue the Broker to the Offer 2,000,000 unlisted options exercisable at 30 cents at any time up until 30th June, 2009.

Background

The Company was incorporated as a proprietary company in 22 June 1999 and on 28 June 2002 converted its status from proprietary to an unlisted public company.

I was appointed to act as statutory auditor to the Company on 26 July 2002 following the Company's change of status.

The Company was incorporated for the purpose of exploration and assessment of coal bed methane and holds an exploration permit to explore part of the Clarence Moreton Basin located within the exploration area PEL 16 located near Lismore in Northern New South Wales.

From 1999 to date, the Company has raised \$584, 154 seed funds for exploration and administration through private placements, and an Offer Information Statement issued in September 2002. The Directors of the Company have also contributed capital to the Company.

In June 1999 the Company had entered into a farm-in agreement with Sunoco Inc. ("Sunoco"). a publicly listed Canadian energy company. Under terms of an amendment to the farm-in agreement in 2002, after the Company expended \$300,000 on exploration Sunoco is required to assign its 26% working interest back to the Company in return for the Company undertaking to reserve Sunoco a 5% non-convertible gross overriding royalty based on 100% of the petroleum substances produced, marketed or deemed to have been produced within PEL 16.

The Company has now expended in excess of the sum provided for under this agreement.

The initial exploration programs have confirmed existence of coal bed methane within the PEL 16 exploration area, and the Company's objective in raising further funds through this public issue is to prove the coal bed methane as an economically sustainable resource.

Following this phase, it is likely that further funds will be raised to construct a production facility.

I have audited the Company's financial statements for the year ended 30 June 2004 and the 3 month period ended 30 September 2004. These Financial Statements disclose that the Company has now expended \$428,061 on exploration, excluding applicable research and development grants of \$9,923.

Scope

I have been requested by the Directors to provide professional services and prepare a report including the following:

• Audit the historical performance of the Company for the 3 month period ended 30 September 2004.
• The audited historical Statement of Financial Position of the Company as at 30 September 2004 and the Pro-forma Statement of Financial Position as at 30 September 2004. assuming the successful completion of the transactions as proposed in the Prospectus and which are set out in Appendix 1 to this report.

Review of Proforma Historical Information

The historical information set out on the attached Appendix 1 has been extracted from the audited Financial Statements of the Company as at 30 September 2004.

The Directors have the overall responsibility for the preparation of the Financial Statements, including advice on any adjustments thereto.

I have conducted my review of the historical Financial Statements under the guidance of the Australian Auditing and Assurance Standard AUS 902 "Review of Financial Reports". Through the exercise of professional ludgement, as considered reasonable in the circumstances I have made enquiries and performed financial procedures including:

• Analytical procedures on the audited financial performance of the Company for the period ended 30 September 2004:
• Review of accounting records, work papers and other financial particulars;
• Review of the assumptions used to compile the Proforma Statement of Financial Position:
• Review of adjustments made to the Proforma Historical information as at 30 September 2004:
• A comparison of the consistency in application of the recognition and measurement principles in Accounting Standards and other mandatory professional reporting requirements in Australia and the accounting policies adopted by the Company;
• Review and discussions with Directors and management of the financial implications of agreements in place at the date of this report;
• Discussions and enquiries of Directors and Management on the proposed exploration budget and whether in their opinion the minimum capital raised will be sufficient to

realistically achieve the program envisaged and budgeted for; and

$\ddot{\bullet}$ Make general enguiries of the Directors and Management.

I have also audited the Financial Statements of the Company to 30 September 2004.

My opinion in regard to the financial statements made up to this period was not qualified. However I also recognise the present business focus of Company is on exploration and proving the potential of the coal bed methane gas resource located within the exploration area designated as PEL 16. At this date, other than earning interest from any funds on deposit, or obtaining research and development grants through complying with Government requirements, the Company does not have any source of on going revenue.

While it is envisaged that revenue will eventually be obtained from the successful exploration and production process arising through the ongoing development of PEL 16, during the present exploration phase, the Company will rely on its ability to raise sufficient capital to arrive at a sustainable production point, accepting the associated risk with proving commercially viable reserves of coal hed methane.

Accordingly, in the event sufficient finance was not available, the company would be economically constrained in undertaking future envisaged development and eventual production of coal bed methane.

Conclusion

Review of Historical Information

Based upon my review and audit, nothing has come to my attention that caused me to believe that:

• 1. the Proforma Statement of Financial Position has not been properly prepared and reasonably accounts for the proforma transactions described in the attached Appendix 1.
• 1. The Historical Financial Information does not present fairly:
• the Historical Financial Performance of the Company for the period to 30 September 2004: and
• the Historical Statement of Financial Position of the Company as at 30 September 2004,

in accordance with the recognition and measurement principles as prescribed in Accounting Standards and other mandatory professional reporting requirements and accounting policies adopted by the Company.

Subsequent Events

Subsequent to the financial period ended 30th September 2004, following shareholder approval, the existing capital of the Company was restructured from 50 cent shares to 20 cent shares. This resulted in the issue of further shares to existing shareholders as at 20 October 2004 in proportion to the 50 cent shares held at that date. At the date of this prospectus there are 40,000,000 ordinary shares on issue.

The shareholder meeting also approved the issue of 14,561,870 options to Directors convertible at 30 cents on or before 30 June 2009.

Aside from matters dealt with in this report, and having regard to the scope of my report and relying on enquiries made and representations provided, to the best of my knowledge and belief and within the scope of my expertise, no material transactions or events outside of the ordinary business of the Company have come to my attention that require comment or adjustment to the information referred to in my report or would cause this information to be misleading or deceptive.

Transactions from 30 September 2004 to the date of this report relate to costs associated with preparation of this Prospectus, including agreements referred to in this Prospectus, the costs of issue of the Prospectus, the restructuring of the issued capital of the Company, the issue of Options to Directors and the costs associated with a meeting of Shareholders. To my knowledge there have been no other transactions.

Independence and Disclosure of interest

Neither Gregory McLeay nor any entity associated with him, has any interest in the outcome of this issue other than reimbursement for costs based upon normal professional fees associated with the preparation of this report and acting as continuing auditor of the Company following completion of the proposed transactions.

Yours faithfully,

enmanner of the Contract of Contract of Contract of Contract of Contract of Contract of Contract of Contract o
المستعملين

G.G. McLeav

	Audited Statement of Financial Position as at 30th September 2004 (\$)	Adjustment Note 1 ( \$)	Proforma Minimum Subscription $\langle \$ \rangle$	Adjustment Note 2.33	Proforma Maximum Subscription $(\mathbb{S})$
блиевизнеств
Cash	123.789	4,527,600	4,651,389	1,878,400	6,529,789
Receivables	6,014		6,014		6.014
Total Current assets			4,657,403		6.535,803
Nenerge State
Exploration and evaluation	418,138		418,138		418,138
Security bond deposits	25,000		25,000		25,000
Total noncurrent assets	443,138		443,138		443,138
Total assets	572,941		5,100,541		6,978,941
Critical Profites:
Payables	36,402		36,402		36,402
Total liabilities	36,402		36,402		36.402
Net assets	536,539		5,064,139		6,942,539
ESTIN
Contributed equity	584,154	5,000,000	5,584,154	2,000,000	7,584,154
Accumulated losses	47,615	472,400	520,015	121,600	641,615
Total equity	536,539		5.064.139		6.942.539

Metgasco Limited Proforma Statement of Financial Position

Proforma adjustments

Note 1 - Minimum subscription

The public Issue of 25,000,000 shares of 20 cents each to raise \$5,000,000. The payment and write off of the costs of the public issue of \$472,400 against the share capital raised.

Costs associated with the shareholders meeting and the restructure of the capital subsequent to year end and prior to the issue of the prospectus are estimated at \$5,000 were accrued at 30th September 2004.

Note 2 - Maximum oversubscription

The Company has the right to accept a maximum oversubscription of 10,000,000 shares of 20 cents each to raise a further \$2,000,000. The payment and write off of costs of \$121,600 associated with the public issue of an additional 10,000,000 shares.

Summary of options on issue

Optio
Optio
to th
Total

Existing options on issue: And the contract of the contract of the contract of the contract of the contract of
Options issued to Directors after 30/9/04, but prior to the float	14,561,870
Options to be issued to Taylor Collison Limited as sponsoring broker 2,000,000
to the Public Issue:
Total options on issue after the public issue:	16.561.870

Appendix 1

Audited Statement of Financial Performance of Metgasco Limited for the 3 month period ended 30 September 2004

	المستشير المستشير المستشير المناصر المستشير المنافس المستقل المستخدم والمستخدم والمستخدم والمستخدم والمستخدم ال
Revenue from ordinary activities
	Interest income
Total Revenue	286
	Expenses from ordinary activities.
Interest paid
	Total expenses Executive Construction of the Construction Construction Construction Construction Construction
Loss for the period . Na kalendari kalendari katika katika matsa mana matsa.	10,275
Income tax expense
Net loss	10.275

Notes to the Statement of Financial Performance

The above has been extracted from the audited financial statements for Metgasco Limited for the 3 month period ended 30 September 2004.

Metgasco has been trading since incorporation on 22 June 1999, and the financial statements have been audited for the financial periods commencing 1 July 2002. As at 30 September 2004, and excluding the costs associated with the issue and shareholders meeting subsequent to year end, the company has accumulated losses of \$47,615.

10.0 Solicitor's Report

OTAGUS ITE

Our ref: SMA:12860

Level 2, 99 Frome Street Adelaide SA 5000 GPO Box 2410, Adelaide SA 5001 DX 56606, Grenfell Street SA

8th November 2004

The Directors Metgasco Ltd 10/402 New South Head Road Double Bay, NSW 2028

Dear Sirs

Prospectus - Solicitor's Report

This Report is prepared for inclusion in a Prospectus to be dated on or about 10th November 2004 ("Prospectus"), and issued by Metgasco Ltd ("Metgasco") offering for subscription 25,000,000 ordinary shares of \$0.20 cents each with a right to accept oversubscriptions.

The Report relates to:

• (i) the interest of Metgasco as the registered holder of Petroleum Exploration Licence 16 Petroleum (Onshore) Act 1991 ("PEL 16"), as set out in Schedule 1 to this Report;
• (ii) the contracts relating to PEL 16 which Metgasco has identified to us as being material contracts to which Metgasco is a party ("Material Contracts"), and which are summarised in Section 11.8 of this Prospectus;
• (iii) the application of native title to PEL 16; and
• (iv) legislation in Queensland and New South Wales relating to greenhouse gas certificates

10.1 Tenement

We have conducted searches of PEL 16 in the registers maintained by the Department of Mineral Resources (NSW) ("Department") pursuant to the Petroleum (Onshore) Act 1991 (NSW).

As a result of these searches and our perusal of the Material Contracts, we consider that this Report provides an accurate statement as to the status of, and of Metgasco's interests in, PEL 16 as at the date of this Report.

We have assumed the information in the registers maintained by the Department is accurate and up to date. The reference in Schedule 1 to the area of PEL 16 is taken from details shown on the Department's registers. No survey was conducted to verify the accuracy of these areas.

We have also assumed that PEL 16 has been validly granted and that the Minister and persons exercising delegated authority have acted within the scope of their powers and discretions.

Metgasco's interests in and rights in relation to PEL 16 are subject to Metgasco continuing to comply with the relevant provisions of the Petroleum (Onshore) Act 1991 (NSW) and Petroleum (Onshore) Regulations 2002 (NSW) ("Petroleum Act") and to the conditions subject to which PEL 16 is granted.

10.2 Material Contracts

We have examined the Material Contracts described in Section 11.8 of this Prospectus. The Material Contracts appear to have been duly executed and have been, or are, in the course of being stamped and lodged in compliance with the relevant legislation. We have assumed the authenticity of all seals and signatures, and that all of the Material Contracts are within the capacity and powers of, and have been validly authorised, executed and delivered by and are binding on each of the parties to them, comprise the entire agreement of the parties to each of them with respect to their respective subject matters, and that each party to each of the Material Contracts had, and has full corporate power and lawful authority to observe and perform all of its obligations there under.

It is our opinion, based upon an examination of the Material Contracts, that the description of them does not contain any statement or matter that is false in a material particular or is materially misleading in the form and context in which it appears. Metgasco has not identified to us any other material contracts relating to PEL 16.

10.3 Native Title

From enquiries we have made of the National Native Title Tribunal ("NNTT"), we are aware of certain native title claims which may impact on PEL 16. These are identified in Schedule 1.

It is possible that further claims may be made in the future. Where land is subject to native title, the Native Title Act 1993 ("NTA") imposes restrictions upon the grant of mining and petroleum tenements in relation to that land, including the requirement to negotiate with native title holders. The NTA defines "mine" to include exploring or prospecting for things that may be mined, or extraction of petroleum or gas from land or under waters. As such, subject to our comments below, the existence and determination of native title in relation to the land the subject of PEL 16 could inhibit exploration and production operations, or cause significant delays in relation to future conversion of licences and applications for assessment or production tenements over the subject land, or possibly challenge the validity of the grant of part or all of the rights conferred therein.

We have not undertaken the considerable legal, historical, anthropological and ethnographic research, which would be necessary to form an opinion as to whether the existing or any future claims for native title would succeed and, if so, what the implications would be for Metgasco. We have assumed the information in the registers maintained by NNTT is accurate and up to date.

10.4 State and Commonwealth Legislation

In 1992 the decision of the High Court in Mabo v Queensland recognised the concept of Aboriginal native title to land where those rights survived the acquisition of sovereignty by non-indigenous people. The NTA was enacted in response to the Mabo case to requiate dealings with native title lands, and its substantive provisions commenced on 1 January 1994.

The NTA was substantially amended in 1998 in response to the 1996 High Court decision of Wik y Queensland. The Wik case recognised that the granting of a pastoral lease did not necessarily extinguish all native title rights, some of which could co-exist with rights held under a pastoral lease. Accordingly, the NTA (as amended) now provides a legislative scheme which sets out how native title is validly extinguished, allows "past acts" (including certain mining and petroleum tenements and ancillary titles granted before 1 January 1994, which might otherwise be invalid due to the native title) and "intermediate period acts" which took place between 1 January 1994 and 23 December 1996 to be validated, authorises valid acts in relation to native title lands occurring after the introduction of the NTA, provides for a negotiation process between government, native title and non-native title parties in relation to certain future uses of native title lands, and provides for compensation to be claimed for the extinguishment or impairment of native title. The NTA also allows the States, amongst other things, to make laws for the validation of past acts and intermediate period acts which are attributable to that State.

In New South Wales, the NTA procedures apply in conjunction with the Native Title (New South Wales) Act 1994 and the Native Title (New South Wales) Amendment Act 1998. These Acts are consistent with the standards set by the NTA for future dealings affecting native title.

It remains to be seen whether recent important native title decisions of the High Court and Federal Court will result in further leaislative amendments.

10.4.1 Validity of Title

Future Acts

With some exceptions not relevant to Metgasco, the validity of titles, permits and approvals granted on or after 1 January 1994 (le including PEL16) depends, to the extent that the grant of the relevant title affects native title, upon compliance with the "future act" processes of the NTA. Under the NTA, the grant of a mining or petroleum tenement after 1 January 1994 is generally a "future act" if the grant extinguishes or is wholly or partly inconsistent with native title, and is only permitted where the future act procedures under the NTA, and in particular the right to negotiate process (or alternatively the provisions of the NTA relating to the entering into by the relevant parties of an indigenous land use agreement), have been complied with.

Under the NTA procedure, negotiations are initiated to obtain the agreement of relevant native title parties (being native title claimants whose claims have been accepted for registration at the relevant time) to the carrying out of the proposed future act on the native title land. The right to negotiate ("RTN") procedures consist of a statutory period of negotiation between the relevant Government party, the native title party and the grantee, during which time the parties must negotiate in good faith. If negotiations fail to resolve any dispute as to the grant of the relevant interest the NNTT (as the arbitral body) will make a determination as to whether the grant may proceed (and if so, on what conditions). Subject to Federal Ministerial intervention the agreement of the parties, or the decision of the NNTT, will determine whether the relevant interest is granted. Tenements which have been granted under the future act procedures of the NTA may be renewed provided there is no expansion of the rights granted and, in particular, no increase in the area, extension of the term or creation of new rights.

For future purposes, it is important to note that where it is proposed to convert all or any part of PEL 16 or any other petroleum exploration licence to an assessment or production lease it will. subject to our comments below, be necessary to go through the RTN process with any native title holders or claimants whose claims are accepted for registration at the relevant time.

The NTA provides for a right of compensation in favour of affected native title parties to the extent that the future acts extinguish or impair the relevant native title parties' rights to the continued enjoyment of their traditional rights over land comprised within the grants. The right to compensation, if any, only arises after the native title has been determined by the court to exist.

PEL 16

PEL 16 was initially granted on 13 November 1996 for a period of 3 years, and was subsequently renewed for a further 6 years on 13 November 1999. The initial grant, being between 1 January 1994 and 23 December 1996, is an "intermediate period act" for the purposes of the NTA. The NTA permits a State to validate certain "intermediate period acts". Under the NTA certain mining and petroleum tenements granted in New South Wales between 1 January 1994 and 23 December 1996 are deemed to be valid, and native title (if any exists over the area of the tenement) is suspended by their grant. To the extent that the exercise of native title rights and interests is inconsistent with the exercise of the rights conferred by such a tenement, the rights under the tenement will have priority for the term of the relevant grant.

Certain renewals and extensions of tenements will also be valid as a "future act" where the original tenement was created before 23 December 1996 (as in the case of PEL 16) or was granted in compliance with the "future act" processes, where the renewal or extension relates to the same area, with no additional rights created, and for a term not exceeding that of the original grant. We note that the current six year extension of PEL 16 is for a period twice that provided for under the original grant of three years. Accordingly, the grant of the current renewal commencing 13 November 1999 would have been subject to the RTN procedures in respect of any native title holders, if native title existed over any land within the tenement at that time (refer to our comments in paragraph 4.2 below). As such, the renewal of PEL 16 on 13 November 1999, being a tenement granted since 23 December 1996, to the extent that it may affect native title rights and interests is valid provided that the future act procedures set out in paragraph 4.1.1 above were followed by the relevant parties.

In terms of future renewals, if a tenement has been granted in accordance with those procedures where native title exists over the relevant area, then it may be renewed (subject to the qualifications set out above) without again requiring those procedures to be followed.

10.4.2 Native Title and PEL 16

The searches we have undertaken at NNTT indicate that the native title claims affecting the local government areas relevant to PEL 16 are as follows:-Claim No NC96/16 (Bandjalang People #1), Claim No NC98/19 (Bandjalang People #2), Claim No NC01/7 (Widjabul Aboriginal People) and Claim No NC 95/11 (The Githabul Peoples). However, from a review of plans identifying the claim areas it would appear that only Claim Nos NC98/19 and NC01/7 actually include PEL 16 within their area. Each of the above claims has been accepted for registration such that the claimants are entitled to the rights of negotiation provided for in the NTA.

PEL 16 falls within a region of New South Wales comprising predominantly freehold and other privately held land which is likely to have extinguished any native title which may have existed over the relevant land. We note that the area of PEL 16 expressly excludes land subject to any

national park, historic site, nature reserve, Aboriginal area, land subject to a State forest or flora reserve or land vested in the Commonwealth. To the extent that PEL 16 includes within its area land tenure in respect of which native title has not been extinguished the future act procedures referred to above will apply.

However, we have not been instructed to undertake the detailed underlying tenure investigations which would be necessary to conclusively establish the existence of native title in relation to PEL16 and our comments are of a general nature only.

10.4.3 General Comments

Petroleum Exploration Licence

A petroleum exploration licence ("PEL") provides the holder of the licence with an exclusive right to prospect for "petroleum" (which the Petroleum Act defines to include any naturally occuring hydrocarbon (or mixture thereof) whether in gaseous, liquid or solid state) on the land comprised in the licence. PELs are issued subject to standard terms and conditions under the Petroleum Act, together with any other conditions determined by the Minister. PELs commonly include conditions relating to the exploratory operations to be carried on within the licensed area in accordance with the work program, timetable for operations as specified in the licence conditions, expenditure obligations and lodgement of security. Compliance with the work programme and expenditure as approved by the Minister from time to time is a mandatory condition of a PEL. The Department has confirmed that the required security deposit of \$25,000.00 is currently held in relation to PEL 16.

The area of a PEL cannot exceed 140 blocks or be less than 1 block (as that term is defined under the Petroleum Act). A PEL is issued for an initial period fixed by the Minister not exceeding 6 years. A PEL may be renewed, subject to compliance with reporting and data requirements relating to the licence, for a period fixed by the Minister and which may be shorter than that of the original title. The Minister may refuse an application for renewal unless all required data and reports have been submitted, and on any ground on which the Minister may have originally refused to grant the tenement or cancelled it during its term. The size of the area over which the renewal of a PEL is granted must not exceed 75% of the size of the area over which the PEL was previously granted, unless the Minister otherwise determines.

If petroleum is discovered in land comprised in the PEL, the Minister may direct the holder of the licence to apply for a petroleum assessment lease ("PAL") or a petroleum production lease ("PPL"). If the holder of the licence does not apply for the PAL or PPL as directed by the Minister, the Minister may cancel the PEL.

Petroleum Assessment Lease

A holder of a PAL has the exclusive right to prospect for petroleum and to assess any petroleum deposit on the land comprised in the PAL. A PAL allows the holder to retain rights over an area in which a significant petroleum deposit has been identified, mining of which is not commercially viable in the short term, but where there is a reasonable prospect that it will be in the longer term, enabling the holder to continue prospecting operations and to recover petroleum in the course of assessing the viability of commercial mining. The area comprised in a PAL must not exceed 4 blocks and the initial term of a PAL is a term fixed by the Minister, not exceeding 6 years. An application may be made to renew a PAL for a term to be fixed by the Minister.

The Minister may direct the holder of a PAL to apply for a PPL in respect of such portion of the land within the PAL as is specified. If the holder of the lease does not apply for the PPL as

directed by the Minister, the Minister may cancel the PAL.

Petroleum Production Lease

The holder of a PPL has the exclusive right to conduct petroleum mining operations on the land within the PPL, together with associated works and activities as specified in the terms and conditions of the lease. A PPL may be granted only to an applicant who has held a PEL or a PAL over the relevant area, unless the Minister, by notice published in the Gazette, has invited applications for a PPL in respect of the area concerned. The area comprised in a PPL must not exceed 4 blocks and the initial term of a PPL is a term fixed by the Minister, not exceeding 21 years, which term may be renewed.

Other Obligations

The Petroleum Act also imposes obligations upon the holder of a petroleum title (whether a PEL. PAL or PPL) in relation to the following matters:

• a requirement to immediately inform the Minister of any discovery of petroleum in land comprised in a petroleum title.
• entry to and use of land, notice requirements and compensation to the landholder. Metaasco will need to give written notice to landholders of the relevant land (including native title holders), before entering the land for exploration purposes, and access arrangements are to be entered into in accordance with the requirements of the Act. The holder of a petroleum title is also required to compensate every person having any estate or interest in any land injuriously affected, or likely to be so affected, by reason of any operations conducted or other action taken in pursuance of the Petroleum Act or the title. and which includes persons holding native title in the relevant land. Compensation may be by agreement or else determined by the warden.
• compliance with environmental, conservation and heritage obligations, rehabilitation requirements, and excluding the carrying out of activities in an exempted area (including certain land reserved, dedicated or acquired for public purposes) unless with the consent of the Minister.
• annual royalties in respect of all petroleum recovered from the relevant land, which, unless otherwise specified, are imposed at a prescribed rate, increasing from 6% of the value of petroleum extracted at the well head for the 6^th year of commercial production to 10% for the 10^th and subsequent years of commercial production (there is no royalty prescribed for the first 5 years of commercial production). PEL 16 is expressed to be subject to the prescribed royalties: and
• a registrable dealing with an interest in a title under the Petroleum Act requires the $\pmb{\Phi}$ Minister's prior consent.

10.4.4 Other Applicable Legislation

Other State and Commonwealth legislation applicable to Metgasco's operations on PEL16 includes:

The Aboriginal and Torres Strait Islander Heritage Protection Act 1984 (Cth) provides for $\bullet$ the preservation of areas and objects which are of particular significance to Aboriginals in accordance with Aboriginal tradition, and may have the potential to halt exploration

activities in the event that the Minister makes a declaration for protection and preservation of an area of Aboriginal significance under the Act.

• . In New South Wales the Heritage Act 1977 (NSW) includes provision for aboriginal heritage issues, and protection for Aboriginal places and relics is also provided for under the National Parks and Wildlife Act 1974 (NSW).
• The provisions of New South Wales environmental protection and planning legislation applicable to Metgasco's operations on PEL 16 are set out in the Protection of the Environment Operations Act 1997 (NSW) and the Environmental Planning and Assessment Act 1979 (NSW).

10.5 Greenhouse Gas Certificates

New South Wales Abatement Certificates

• Abatement certificates are issued under Part 8A of the Electricity Supply Act 1995 (NSW). The object of this part is to reduce greenhouse gas emissions associated with the production and use of electricity and to encourage participation in activities to offset the production of greenhouse gas emissions (section 97A(1)).
• To achieve these objects the Act establishes State greenhouse gas benchmarks (section 97B) and individual greenhouse gas benchmarks (section 97BC) for the reduction of greenhouse gas emissions that are to be met by retail suppliers, electricity generators, market customers and certain other persons who supply or consume electricity ("Benchmark Participants") (section 97BB).
• The compliance by a Benchmark Participant with its benchmark in any year is determined by subtracting the Benchmark Participant's greenhouse gas benchmark from the number of tonnes of carbon dioxide equivalent of greenhouse gas emissions in that year for which the Benchmark Participant is responsible (section 97BD(1)).
• The number of tonnes of carbon dioxide equivalent of greenhouse gas emissions in that year for which the Benchmark Participant is responsible is determined:

(a) by multiplying the total number of megawatt hours of electricity supplied or purchased by the participant in that year by the NSW pool coefficient for greenhouse gas emissions arising out of that electricity for that year; and

(b) by subtracting from that number the number of tonnes of carbon dioxide equivalent of greenhouse gas emissions abated by the Benchmark Participant in that vear. (section 97BD(2)).

• The number of tonnes of carbon dioxide equivalent of greenhouse gas emissions abated by a benchmark participant in a year is the total number of tonnes attributable to any abatement certificates surrendered by the participant for that year and any renewable energy certificates of the participant counted for that year (section 97BD(3)).
• If the result obtained is more than zero, the Benchmark Participant has failed to comply with the Benchmark Participant's greenhouse gas benchmark. If the result obtained is zero or less than zero, the Benchmark Participant has complied with the participant's greenhouse gas benchmark (sections 97BD(4) and (5)).
• A person may create an abatement certificate only if the person is an accredited

abatement certificate provider (section 97D(1)). In general, such a person may create an abatement certificate in respect of activities which result in reduced consumption of electricity (sections 97EB and 97EC). Each abatement certificate represents one tonne of carbon dioxide equivalent to greenhouse gas emissions abated by the activity in respect of which it was created (section 97EA).

Benchmark Participants must submit an annual greenhouse gas benchmark statement to the Independent Pricing and Regulatory Tribunal ("the Tribunal") (section 97CB(1)). The statement details their emissions and any abatement certificates being surrendered to the Tribunal to meet their greenhouse gas benchmark (section 97CB(2)). Excess emissions remaining after the surrender of abatement certificates is called a greenhouse shortfall and currently attracts a penalty of \$10.50 per tonne of carbon dioxide (section 97CA(2)). A greenhouse shortfall can be carried forward to the following year but must be abated in that year or the greenhouse penalty must be paid (section 97BE).

10.5.2 Queensland Gas Electricity Certificates

• The Electricity Amendment Bill 2004 (Qld) has been introduced into Queensland parliament to amend the Electricity Act 1994 (Qid). The Bill had its first and second reading on 19 October 2004. It has not yet been enacted.
• The objectives of the Bill are to:

(a) reduce the growth in greenhouse gases associated with electricity use in Queensland:

(b) contribute to the diversification of Queensland's energy mix towards the greater use of gas in electricity generation; and

(c) encourage the development of new gas sources and gas infrastructure to meet Queensland's future energy requirements, (proposed section 135A)

The main purposes of the Bill are achieved by providing for a certificate based scheme ("the Scheme"). The Scheme consists of:

(a) persons ("Accredited Generators") who generate particular gas-fired electricity that supports Queensland's electricity load; and

(b) persons ("Liable Persons"), most of whom are retail entities and others who sell or use electricity in Queensland, who have a liability under the Scheme, (proposed sections 135AA(1) and (2)).

Under the Scheme:

(a) Accredited Generators can create gas electricity certificates ("GEC") for each megawatt hour of particular gas-fired electricity generated by the accredited power station;

(b) Accredited Generators may sell GECs to Liable Persons and anyone else registered as a Scheme participant who wishes to trade in GECs;

(c) Liable Persons must surrender to the regulator the number of GECs that, in

general terms, equates to 13% of the electricity sold or used by them for each year from 2005 to 2019; and

(d) Accredited Generators and persons registered as Scheme participants may sell, transfer or surrender their GECs, (proposed section 135AA).

$10.6$ Consent and Declarations

The partners of O'Loughlins and the staff involved in the preparation of this Report have no interest in or financial relationship with Metgasco Ltd. Other than a time based fee for the preparation of this Report, no pecuniary or other benefit, direct or indirect, has been received by O'Loughlins in connection with the making of this Report.

In providing this Report we have relied on (and have not sought to verify) the accuracy of information provided to us by the Department and the NNTT in response to our searches of their records and registers. In reliance upon this information, we believe this Report does not contain anything which is false in a material particular or which is materially misleading in the form and context in which it appears. We have not undertaken any additional searches of other government agencies or of courts or tribunals.

We have given, and have not, before the lodgement of the Prospectus of which this Report forms part, withdrawn our consent to the issue of the Prospectus with this Report in the form and context in which it is included.

Yours faithfully

O'Loughlins

Solicitor's Report

Schedule 1 - Tenement

	Experience Contact Location		Granted	Tenement Name / Status Date Status Renewal Expiry. Area Namilli Registered Material Status Title Status Date	.	Holder	Contracts	Claims
PEL 16	Casino	Granted/ Current	13/11/96	12/11/05	ti biocks	Metaasco Ptv I Ltd	11.8.3	NC96/16. NC98/19. NCC1/7. NC95/11.

Notes

1. In NSW certain tenement areas are described by reference to graticular sections (or parts thereof), and the area of these vary slightly.

2. PEL 16 was originally granted to Carlita Holdings Pty Ltd for an initial term of 3 years commencing on 13/11/96 and expiring on 12/11/99, and was then renewed for a further 6 years from 13/11/99. By transfer registered 11/8/99, the tenement was transferred to Metgasco.

3. The title includes expenditure requirements totalling \$1.5 million. By correspondence from the Department dated 25th October 2004, Metgasco has received confirmation that PEL 16 is due to expire on 12th November 2005 and the work commitment for the current licence term has already been satisfied. The Department has also confirmed its support for Metgasco's proposal to drill five production test wells commencing in February 2005, with approval of the proposed drilling program subject to the necessary reports and notifications being made to the Department.

4. On 18/12/03 the security required under the PEL was increased from \$15,000 to \$25,000 to cover rehabilitation of Casino No 2 Well.

5. Pursuant to the Farm-In Agreement dated 28th June 1999 made between Metgasco and Sunoco Inc, as amended by letter agreement dated 6th August 2002, referred to in Section 11.8.3 of this Prospectus, Sunoco Inc is entitled to receive a 5% gross overriding royalty.

6. PEL 16 includes a condition that the licence holder must not prospect on any native title land or waters in the licence area without the prior written consent of the Minister.

7. The Department's records have not vet been updated to reflect the conversion of Metgasco to a public company on 28 June 2002.

Summary of Native Title Claims

	NO96/16 Submit Accepted for registration Social Million Bandjalang People #1 Social Million		.
NC98/19 for a strain and	Accepted for registration	Bandialang People #2
NC01/7	. Accepted for registration	Widjabul Aboriginal People	.
NC95/11	Accepted for registration	The Githabui Peoples

11.0 Additional Information

11.1 Incorporation

Metaasco Ltd was incorporated on 22 June 1999 and converted to a public company on 28 June 2002.

11.2 Tax Status

Metgasco Ltd will be taxed as an Australian resident company at the prevailing corporate tax rate which is currently 30%.

11.3 Litigation

The Directors are not aware of any legal proceedings which have been threatened or actually commenced against the Company.

11.4 Directors' Relevant Interests

11.4.1 Interests in Securities

The table appearing below shows the interest of each Director and his/her associates in securities of the Company.

All Options issued to Directors or their associates were issued for no consideration as and by way of an incentive in relation to the performance of their duties.

Director Mumber Mumber (1999), Number (1999), Number (1999), Number (1999), Number (1999), Number (1999), Number (1999), Number (1999), Number (1999), Number (1999), Number (1999), Number (1999), Number (1999), Number (19
Peter Power	933.454	4.480.575
David Johnson Production Product 2,269,399
Gienda McLoughlin	5.787.971	4,480,575
. Richard Wood	$\gamma_{\rm c}$ . Note that the continuous continuous continuous continuous continuous continuous continuous continuous continuous continuous continuous continuous continuous continuous continuous continuous continuous continuo	1.120.144	appropriate and a construction of the con- $\label{eq:2.1} \mathcal{M}{\mathcal{A}}(x,y) = \mathcal{M}{\mathcal{A}}(x,y) + \mathcal{M}{\mathcal{A}}(x,y) + \mathcal{M}{\mathcal{A}}(x,y) + \mathcal{M}{\mathcal{A}}(x,y) + \mathcal{M}{\mathcal{A}}(x,y)$

The terms and conditions attaching to the Options are set out in Section 11.10.2 of this Prospectus.

11.4.2 Interests of Directors

Except as disclosed in this Prospectus, no Director (whether individually or in consequence of a Director's association with any company or firm or in any material contract entered into by the Company) has now, or has had, in the two year period ending on the date of this Prospectus, any interest in:

• the formation or promotion of the Company; or
• property acquired or proposed to be acquired by the Company in connection with its formation or promotion or the Offer of the Shares: or
• the Offer of the Shares $\bullet$

Except as disclosed in this Prospectus, no amounts of any kind (whether in cash, Shares, Options or otherwise) have been paid or given or agreed to be paid or given to any Director or to any company or firm with which a Director is associated between to induce him to become, or to qualify as, a Director, or otherwise for services rendered by him or any company or firm with

which the Director is associated in connection with the formation or promotion of the Company or the Offer of the Shares.

The Options referred to in the table set out in section 11.4.1 of this Prospectus were granted to the Directors as an incentive in relation to the performance of their duties. The following Shares were issued to the Directors in lieu of remuneration for services rendered by them for the Company.

Director Communication Communication Director Communication	. . .
Peter Power	NB
	David Johnson Communication (1,493,525
Glenda McLoughlin .	2,240,288
. Richard Wood

11.4.3 Remuneration of Directors

David Johnson, the Managing Director of the Company, has entered into an Employment Agreement with the Company details of which are set out in Section 11.8.4.

Glenda McLoughlin, the Chief Financial Officer of the Company, has entered into an Employment Agreement with the Company details of which are set out in Section 11.8.4.

Richard Wood, the Director, Engineering of the Company, has entered into an Employment Agreement with the Company details of which are set out in Section 11.8.4.

The aggregate remuneration of non-executive Directors has been fixed at a maximum sum of \$200,000 per annum to be apportioned among the non-executive Directors in such manner as the Board determines.

Directors are also entitled to be reimbursed for expenses properly incurred by them in the performance of their duties as Directors.

11.4.4 Insurance

The Company intends to effect and maintain a Directors' and Officers' Liability and Company Reimbursement Insurance Policy.

11.5 Interests of Named Persons

Except as disclosed in this Prospectus, no expert, promoter or any other person named in this Prospectus as performing a function in a professional advisory or other capacity in connection with the preparation or distribution of the Prospectus, or any firm in which any of those persons is or was a partner nor any company with which any of those persons is or was associated, has now, or has had, in the two year period ending on the day of this Prospectus, any interest in:

• the formation or promotion of the Company; or
• property acquired or proposed to be acquired by the Company in connection with its formation or promotion or the Offer under this Prospectus; or
• the Offer under this Prospectus. $\pmb{\omega}$

Except as disclosed in this Prospectus, no amounts of any kind (whether in cash, Shares, Options or otherwise) have been paid or given or agreed to be paid or given to any expert, promoter or any other person named in this Prospectus as performing a function in a professional advisory or other capacity in connection with the preparation or distribution of the Prospectus, or to any firm in which any of those persons is or was a partner or to any company which any of those persons is or was associated with, for services rendered by that person in connection with the formation or promotion of the Company or the Offer under this Prospectus.

Taylor Collison Ltd has agreed to act as Broker to the Offer. The fees and other remuneration payable to it are described in Section 1.14 of this Prospectus.

McLeay Chartered Accountants ("McLeay's") have acted as the Independent Accountants in relation to the Offer. As Independent Accountants, McLeay's have been involved in undertaking due diligence in relation to financial and taxation matters and preparing financial accounts and have prepared the Independent Accountants Report set out in Section 9 of this Prospectus. The Company has agreed to pay McLeay's a total of \$15,000 for these services. McLeay's are the auditors of the Company and, in that capacity, have received \$11,800 for audit services provided to the Company over the two year period ending on the date of this Prospectus.

O'Loughlins Lawyers ("O'Loughlins") have acted as the solicitors to the Company in relation to the Offer and have prepared the Solicitors Report which has been included in this Prospectus. O'Loughlins have assisted the Company in undertaking due diligence and have provided legal advice to the Company in relation to the Offer.

The Company has agreed to pay O'Loughlins \$40,000 for these services up to the date of this Prospectus. O'Loughlins has or may receive professional fees at their normal rates for other legal work performed for the Company.

MBA Petroleum Consultants will receive \$15,000 for preparing and providing the Independent Consulting Geologist's Report set out in Section 7 of this Prospectus.

ACIL Tasman Pty Ltd will receive \$18,000 for preparing and providing the Independent Energy Market Consultant's Report set out in Section 8 of this Prospectus.

11.6 Expenses of the Offer

The estimated expenses connected with the Offer, which are payable by the Company are as follows:

المتماث المتوارث والمستحيل والمستحدث والمستحدث والمستحدث Minimum	Subscription	- Maximum
Broker to the Offer Fees and Expenses	\$300,000	\$420,000
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Independent Accountant	\$15,000	\$15,000
Independent Consulting Geologist	$\frac{11}{215,000}$ st5,000 Manufature 15,000
Independent Energy Marketing Consultant	\$18,000	\$18,000
Printing, Postage and Miscellaneous Offer costs www.w\$50, 000-		. \$50,000
ASX Listing fees	\$34,400	\$36,000
Totai	\$472, 400	\$594,000

11.7 Consents

Each of the parties referred to in this Section 11.7:

• does not make, or purport to make, any statement in this Prospectus or on which a $\bullet$ statement made in the Prospectus is based, other than as specified in this Section 11.7; and
• to the maximum extent permitted by law, expressly disclaims and takes no responsibility for any part of this Prospectus other than a reference to its name and a statement included in this Prospectus with the consent of that party as specified in this section.

Taylor Collison Ltd has given and as at the date hereof has not withdrawn its written consent before lodgment of this Prospectus with ASIC, to be named in this Prospectus as the Broker to the Offer in the form and context in which it is named. It has had no involvement in the preparation of any part of this Prospectus, other than recording of its name as Broker to the Offer.

MBA Petroleum Consultants has given its written consent to the inclusion in Section 7 of this Prospectus of its Independent Consulting Geologist's Report and has not withdrawn such consent before lodgment of this Prospectus with ASIC.

ACIL Tasman Pty Ltd has given its written consent to the inclusion in Section 8 of this Prospectus of its Independent Energy Market Consultant's Report and to all statements referring to that report in the form and context in which they appear and has not withdrawn such consent before lodament of this Prospectus with ASIC.

McLeay Chartered Accountants have given their written consent to the inclusion in Section 9 of this Prospectus of their Independent Accountants Report and to all statements referring to that report in the form and context in which they appear and have not withdrawn such consent before lodgment of this Prospectus with ASIC. Gregory McLeay and McLeay Chartered Accountants have also consented in writing to being named in this Prospectus as the auditors of the Company and as the Independent Accountant and have not withdrawn such consent prior to the lodgment of this Prospectus with ASIC.

O'Loughlins Lawyers have given their written consent to the inclusion in Section 10 of this Prospectus of their Solicitors Report and to all statements referring to that report in the form and context in which they appear and have not withdrawn such consent before lodgment of this Prospectus with ASIC. O'Loughlins have also consented in writing to being named in the Prospectus as the solicitors to the Company and have not withdrawn such consent prior to the lodgment of this Prospectus with ASIC.

Computershare Investor Services Pty Limited has given and, as at the date hereof, has not withdrawn its written consent to be named as Share Registrar in the form and context in which it is named. It has had no involvement in the preparation of any part of this Prospectus other than being named as Share Registrar to the Company. It has not authorised or caused the issue of, and expressly disclaims and takes no responsibility for, any part of this Prospectus.

Earth Data has given and as at the date hereof has not withdrawn its written consent to the references to it in Section 4 of this Prospectus, in the form and context in which these references appear. It has had no involvement in the preparation of any part of this Prospectus. It has not authorised or caused the issue of, and expressly disdains and takes no responsibility, for any part of this Prospectus.

Copies of the consents to the issue of this Prospectus are available for inspection, without charge, at the registered office of the Company.

11.8 Material Contracts

This Section contains summaries of the more important provisions of contracts to which the Company is a party and which are or may be material in terms of the Offer or the operations of the Company or otherwise are or may be material to an investor who is contemplating the Offer.

To fully understand all rights and obligations in the material contracts it is necessary to read them in full. A copy of each of these contracts may be inspected during normal business hours at the registered office of the Company.

11.8.1 Country Energy Co-Operative Agreement

Metgasco Ltd and Country Energy ABN 3742 8185 226 are parties to a Co-operative Agreement dated 21 May 2004. Pursuant to the Agreement:

• the parties agree that when a Project has been designated they will: ø
• (a) co-operate with each other on an exclusive basis for the purposes of establishing the feasibility and the terms and conditions of a power purchase agreement in relation to the Project; and
• (b) share their efforts in developing the Project;
• the relationship between the parties is collaborative; $\bullet$
• Metgasco must provide, either directly or indirectly, financing, investment and $\bullet$ development expertise and resources for the purposes of assessing the feasibility of a Project and it is also responsible for the development of a Project; and
• $\bullet$ the Agreement is operative for a term of 2 years from the date of the Agreement.

11.8.2 Burns and Roe Worley Agreement

Metgasco Ltd and Burns and Roe Worley are parties to a Heads of Agreement dated 26th July 2004. Pursuant to the Agreement:

• Burns and Roe Worley agree that prior to the lodgement by Metgasco of a Prospectus $\bullet$ for a capital raising Burns and Roe Worley will provide on an at risk basis 200 hours of engineering support in relation to Metgasco's proposed 12 megawatt gas engine based power plant. Payment for this work will be at a 50% premium to Burns and Roe Worley's normal charge rates if Metgasco's capital raising is successful.
• $\bullet$ Burns and Roe Worley agree that after Metgasco has completed a capital raising it will provide project management services under its standard terms and conditions and at its normal charge rates.

11.8.3 Sunoco Agreement

Metgasco Ltd and Sunoco Inc ARBN 077 738704 are parties to a Letter Agreement dated 28 June 1999. The Agreement provides for Sunoco to farm into PEL 16 and to earn up to a 75% interest by sole funding expenditure on the tenement of up to \$5,400,000 over a 3 stage earning process. The other provisions of the Agreement are usual for farm in agreements of this nature.

By Letter Agreement dated 24 July 2000, the Agreement was amended so as to provide that upon completion of Stage 1 of the earning period (which required total exploration expenditure of

\$500,000). Sunoco shall be deemed to have earned a 26% interest in PEL16.

By Letter Agreement dated 6 August 2002 the Letter Agreement dated 28 June 1999 (as amended by Letter Agreement dated 24 July 2000) was replaced by an agreement which provided as follows:

• Subject to Metgasco sole funding the next \$300,000 of exploration expenditure on $\bullet$ PEL16. Sunoco would assign its 26% interest in PEL16 to Metgasco and convert such interest into a 5% gross overriding royalty based on 100% of the petroleum substances produced, marketed or deemed to have been produced from PEL16;
• Sunoco had the right to take its royalty share of petroleum substances in kind; $\bullet$
• Metgasco was entitled to deduct from Sunoco's royalty share 5% of gathering, $\bullet$ compression and transportation costs; and
• $\bullet$ Metgasco has the option to purchase Sunoco's royalty entitlement at a cost of \$1 million such option being exercisable at any time on or before 23 July 2009.

11.8.4 Employment Agreements

The Company has entered into Employment Agreements with David Johnson (Managing Director), Glenda McLoughlin (Chief Financial Officer) and Richard Wood (Director, Engineering and Operations).

Each of these agreements is for a term of three (3) years and cannot be terminated by the Company without cause on less than twelve (12) calendar months' notice or payment in lieu thereof.

The remuneration payable under these agreements is as follows:

David Johnson - \$200,000 per annum Glenda McLoughlin - \$170,000 per annum Richard Wood - \$150,000 per annum

Plus statutory superannuation contributions.

11.9 Rights Attaching to Shares

The Shares to be issued under this Prospectus will rank equally with the fully paid ordinary shares in the Company. The rights attaching to shares are set out in the Company's Constitution, and, in certain circumstances, are regulated by the Corporations Act, the ASX Listing Rules and general law. The Constitution of the Company may be inspected during normal business hours at the registered office of the Company.

The following is a summary of the more significant rights of the holders of ordinary shares of the Company. This summary is not exhaustive nor does it constitute a definitive statement of the rights and liabilities of the Company's members. The summary assumes that the Company is admitted to the Official List of ASX.

11.9.1 General Meeting

Each member is entitled to receive notice of, and to attend and vote at, general meetings of the Company and to receive all notices, accounts and other documents required to be sent to members under the Company's Constitution, the Corporations Act or the Listing Rules.

11.9.2 Votina

Subject to any rights or restrictions for the time being attached to any class or classes of shares whether by the terms of their issue, the Constitution, the Corporations Act or the ASX Listing Rules, at a general meeting of the Company every holder of fully paid ordinary shares present in person or by a representative has one vote on a show of hands and every such holder present in person or by a representative, proxy or attorney has one vote per share on a poll. A person who holds an ordinary share which is not fully paid is entitled, on a poll, to a fraction of a vote equal to the proportion which the amount paid bears to the total issue price of the share. A member is not entitled to vote unless all calls and other sums presently payable by the member in respect of shares in the Company have been paid. Where there are two or more joint holders of the share and more than one of them is present at a meeting and tenders a vote in respect of the share (whether in person or by proxy or attorney), the Company will count only the vote cast by the member whose name appears before the other(s) in the Company's register of members.

11.9.3 Issues of Further Shares

The Directors may, on behalf of the Company, issue, grant options over or otherwise dispose of unissued shares to any person on the terms, with the rights, and at the times that the Directors decide. However, the Directors must act in accordance with the restrictions imposed by the Company's Constitution, the ASX Listing Rules, the Corporations Act and any rights for the time being attached to the shares in special classes of shares.

11.9.4 Variation of Rights

At present, the Company has on issue one class of shares only, namely ordinary shares. The rights attached to the shares in any class may be altered only by a special resolution of the Company and a special resolution passed at a separate meeting of the holders of the issued shares of the affected class, or with the written consent of the holders of at least three quarters of the issued shares of the affected class.

11.9.5 Transfer of Shares

Subject to the Company's Constitution, the Corporations Act, the SCH Business Rules and the ASX Listing Rules, ordinary shares are freely transferable.

The shares may be transferred by a proper transfer effected in accordance with SCH Business Rules, by any other method of transferring or dealing introduced by ASX and as otherwise permitted by the Corporations Act or by a written instrument of transfer in any usual form or in any other form approved by the Directors that is permitted by the Corporations Act. The Company may decline to register a transfer of shares in the circumstances described in the Company's Constitution and where permitted to do so under the ASX Listing Rules. If the Company declines to register a transfer, the Company must, within five business days after the transfer is lodged with the Company, give the lodging party written notice of the refusal and the reasons for refusal. The Directors must decline to register a transfer of shares when required by law, by the ASX Listing Rules or by the SCH Business Rules.

11.9.6 Partly Paid Shares

The Directors may, subject to compliance with the Company's Constitution, the Corporations Act and the ASX Listing Rules, issue partly paid shares upon which amounts are or may become payable at a future time(s) in satisfaction of all or part of the unpaid issue price.

11.9.7 Dividends

The Company in general meeting may declare a dividend if the Directors have recommended a dividend, and a dividend shall not exceed the amount recommended by the Directors. The Directors may authorise the payment to the members of such interim dividends as appear to the Directors to be justified by the Company's profits and for that purpose may declare such interim dividends.

Subject to the rights of members entitled to shares with special rights as to dividend (if any), all dividends in respect of shares (including ordinary shares) are to be declared and paid proportionally to the amount paid or credited as paid up on the shares.

11.9.8 Winding Up

Subject to the rights of holders of shares with special rights in a winding up, if the Company is wound up, members (including holders of ordinary shares) will be entitled to participate in any surplus assets of the Company in proportion to the shares held by them respectively irrespective of the amount paid up or credited as paid up on the shares.

11.9.9 Dividend Plans

The Directors or the members of the Company, in general meeting, may establish and maintain dividend plans under which (among other things) a member may elect that dividends payable by the Company be reinvested by way of subscription for shares in the Company or a member may elect to forego any dividends that may be payable on all or some of the shares held by that member and to receive instead some other entitlement, including the issue of shares.

11.9.10 Directors

The Company's Constitution states that the minimum number of directors is three (3).

11.9.11 Powers of the Board

The Directors have power to manage the business of the Company and may exercise that power to the exclusion of the members, except as otherwise required by the Corporations Act, any other law, the ASX Listing Rules or the Company's Constitution.

11.10 Options

11.10.1 Employees and Officers Option Plan

The Company has established the Metgasco Ltd Employees and Officers Option Plan ("Plan") to assist in the attraction, retention and motivation of employees or officers of the Company and its related bodies corporate ("Group"). No options have been granted under the Plan as at the date of this Prospectus.

A summary of the Rules of the Plan is set out below. All employees or officers (full and part-time) and consultants will be eligible to participate in the Plan after a qualifying period of 12 months' employment by a member of the Group (or, in the case of a consultant to a Group Company, having provided consulting services on a continuous basis for at least 12 months), although the Board may waive this requirement.

The allocation of options to each employee, officer or consultant is in the discretion of the Board. If permitted by the Board, options may be issued to an employee's, officer's or consultant's nominee (for example, a spouse or family company). Each option is to subscribe for one fully paid ordinary share in the Company and will expire 5 years from its date of issue. An option is exercisable at any time from its date of issue.

Options will be issued free. The exercise price of options will be determined by the Board, subject to a minimum price equal to the market value of the Company's shares at the time the Board resolves to offer those options. The total number of shares the subject of options issued under the Plan, when aggregated with issues during the previous 5 years pursuant to the Plan and any other employee or officer share plan, must not exceed 5% of the Company's issued share capital.

If a person dies, the options held by that person will be exercisable by that person's legal representative. Options cannot be transferred other than to the legal personal representative of a deceased optionholder. The Company will not apply for official quotation of any options.

Shares issued as a result of the exercise of options will rank equally with the Company's previously issued shares.

Option holders may only participate in new issues of securities by first exercising their options. If there is a bonus share issue to the holders of shares, the number of shares over which an option is exercisable will be increased by the number of shares which the optionholder would have received if the option had been exercised before the record date for the bonus issue.

If there is a pro rata issue (other than a bonus share issue) to the holders of shares, the exercise price of an option will be reduced to take account of the effect of the pro rata issue as per the formula in (h) of Section 11.10.2 of this Prospectus.

If there is a reorganisation of the issued capital of the Company, unexercised options will be reorganised in accordance with the ASX Listing Rules.

The Board may amend the Plan Rules subject to the requirements of the ASX Listing Rules.

11.10.2 Option Terms and Conditions

The Options which have already been issued prior to the date of this Prospectus to Directors were granted on the following terms and conditions.

• (a) The Optionholder is entitled on payment of 30 cents per share ("the Exercise Price") to be allotted one ordinary fully paid share in the Company for each Option exercised (subject to possible adjustments referred to below).
• (b) The Options held by the Optionholder are exercisable in whole or in part at any time on or before 30 June 2009 ("Exercise Period"). Options not exercised before the expiry of the Exercise Period will lapse.
• (c) Options are exercisable by notice in writing to the Board delivered to the registered office of the Company and payment of the Exercise Price in cleared funds.
• (d) The Company will not apply for official quotation on ASX of the Options. The Company will make application for official quotation on ASX of new shares allotted on exercise of the Options. Those Shares will participate equally in all respects with existing issued ordinary shares, and in particular new shares allotted on exercise of the Options will qualify for dividends declared after the date of their allotment.
• (e) Subject to any restriction agreement, Options are freely transferable.
• (f) An Optionholder may only participate in new issues of securities to holders of ordinary shares in the Company if the Option has been exercised and shares allotted in respect of the Option before the record date for determining entitlements to the issue. The Company must give prior notice to the Optionholder of any new issue before the record date for

determining entitlements to the issue in accordance with the ASX Listing Rules.

• (a) If there is a bonus issue to the holders of ordinary shares in the capital of the Company. the number of ordinary shares over which the Option is exercisable will be increased by the number of ordinary shares which the holder of the Options would have received if the Option had been exercised before the record date for the bonus issue.
• (h) If the Company makes a rights issue (other than a bonus issue), the exercise price of Options on issue will be reduced according to the following formula:

$$
A = \frac{O - E[P - (S + D)]}{(N + 1)}
$$

Where:

• $A =$ the new exercise price of the Option;
• $Q =$ the old exercise price of the Option;
• $E =$ the number of underlying ordinary shares into which on Option is exercisable:
• $P =$ the average closing sale price per ordinary share (weighted by reference to volume) recorded on the stockmarket of ASX during the 5 trading days immediately preceding the ex rights date or ex entitlements date (excluding special crossings and overnight sales and exchange traded option exercise);
• $S =$ the subscription price for a security under the pro rata issue;
• $D =$ the dividend due but not yet paid on existing underlying securities (except those to be issued under the pro rata issue); and
• the number of securities with rights or entitlements that must be held to $N =$ receive a right to one new security;
• (i) If, during the currency of the Options the issued capital of the Company is reorganised, those Options will be reorganised to the extent necessary to comply with ASX Listing Rules.

The options to be issued to Taylor Collison Ltd will be on substantially the same terms and conditions as those set out above for existing Options.

11.11 Electronic Prospectus

Pursuant to Class Order 00/44, ASIC has exempted compliance with certain provisions of the Corporations Act to allow distribution of an electronic prospectus on the basis of a paper prospectus lodged with ASIC and the issue of securities in response to an electronic application form subject to compliance with certain provisions.

If you have received this Prospectus as an electronic prospectus please ensure that you have received the entire Prospectus accompanied by the Application Form. If you have not, please email the Company at www.metgasco.com.au and the Company will send to you, for free, either a hard copy or a further electronic copy of the Prospectus or both.

Metgasco Ltd reserves the right not to accept an Application Form from a person if it has reason to believe that when that person was given access to the electronic Application Form, it was not provided together with the Prospectus and any relevant supplementary or replacement prospectus or any of those documents were incomplete or altered. In such case, the Application Monies received will be dealt with in accordance with Section 722 of the Corporations Act.

11.12 Directors' Responsibility Statement and Consent

The Directors state that they have made all reasonable enquiries and on that basis have reasonable grounds to believe that any statements by the Directors in this Prospectus are not misleading or deceptive and that with respect to any other statements made in this Prospectus by persons other than Directors, the Directors have made reasonable enquiries and on that basis have reasonable grounds to believe that persons making those other statements were competent to make such statements and each of those persons have given their consent to the issue of this Prospectus and have not withdrawn that consent, before lodgment of this Prospectus with ASIC, or to the Directors' knowledge, before any issue of Shares pursuant to this Prospectus. The Prospectus is prepared on the basis that certain matters may be reasonably expected to be known to likely investors or their professional advisers.

Each Director has consented in writing to the lodgment of the Prospectus with ASIC and has not withdrawn that consent

Signed for and on behalf of Metgasco Ltd on 11th November 2004

David William Granger Johnson - Managing Director

12 Defined Terms

ABARE	Australian Bureau of Agricultural and Resource Economics
ACIL Tasman	ACILTasman Pty Ltd ABN 68-102-652-148, Independent Energy Market Consultants
Application Form	the application form attached to and forming part of this Prospectus
Application Monies	Means the number of shares in respect of which the Application is made multiplied by
	20 cents
ASIO	Australian Securities & Investments Commission
ASX	Australian Stock Exchange Limited
ASX Listing Rules	Official listing rules of ASX
Board or Board of Directors	Board of Directors of the Company
Broker to the Offer	Taylor Collison Ltd ABN 31 075 963 352
Burns and Roe Worley	Burns and Roe Worley Ltd ABN 17096090158, Consulting Engineers to Metgasco
Business Day	has the meaning ascribed to it in the ASX Listing Rules.
CHESS	Clearing House Electronic Subregister System
Closing Date	5.00pm Sydney time on 15th December 2004 (or such date as determined by the Company)
Corporations Act	Corporations Act 2001 (cth)
Country Energy.	Country Energy ABN 37 428 185 226
Directors	Directors of the Company at the date of this Prospectus
Dollar or \$	Australian Dollars unless otherwise stated
Earth Data	Earth Data Pty Ltd ACN 093 229 086
Escrow Period	The period for which the ASX requires as a condition of admitting the Company to the Official List of ASX, that the Company enters into restriction agreements with certain shareholders under Chapter 9 of the Listing Rules.
MBA Petroleum Consultants	Muir & Associates Pty Ltd ACN 096157908 ATF the Muir Family Trust in partnership with Barrenger & Associates Pty Ltd ACN 068427896 ATF the Barrenger Family Trust, trading as MBA Petroluem Consultants ABN 93 331 805 926, Independent Consulting Geologist
McLeay Chartered Accountants	McLeay Chartered Accountants ABN 32 675 774815, Independent Accountant and Auditor
Metgasco or the Company	Metgasco Ltd ACN 074 917 990
NGAC	New South Wales Greenhouse Abatement Certificate
Offer	the invitation to the public made in this Prospectus to subscribe for Shares
Official List	the official list of the ASX
Official Quotation	official quotation of the Shares and Options by the ASX
O'Loughlins Lawyers	O'Loughlins Lawyers
Option	An option to subscribe for a Share on specific terms. Further details on Metgasco options are set out in Section 11.10 of this Prospectus
PEL	Petroleum Exploration License
PEL 16	Petroleum Exploration License Number 16
Petroleum Act	Petroleum (Onshore) Act (1991 (NSW) and Petroleum (Onshore) Regulations 2002. (NSW)
Prospectus	this Prospectus dated 11th November 2004
	ASX Settlement and Transfer Corporation Pty Ltd ACN 008504532 being the Securities Clearing House of ASX
Section	a section of this Prospectus
Share	a fully paid ordinary share in the capital of the Company
Shareholders	holders of Shares
Solicitors	O'Loughlins Lawyers
Tenement	Title to explore for and/or produce petroleum granted pursuant to the Petroleum Act

Gas Industry Definitions

Adsorption	The attraction exerted by the surface of coal for a liquid on gas with which there is contact
Ash	In coal, the inorganic residue after burning
Basin	A segment of the earth's crust that has down-warped and in which sediments have accumulated
Bcf	Billion cubic feet (10° cubic feet)
Bituminous	Coal that contains between 15% and 20% volatile matter
Cleat	A joint or system of joints along coal fractures
CO 2	Carbon Dioxíde
Core	A cylindrical piece of rock taken as a sample
CSM-	Coal Seam Methane. Also known as coal bed methane (CBM) Natural Gas contained within coals
Clarence Moreton Basin	A sedimentary basin containing early Triassic and mid to late Jurassic sediments
DAF	Dry ash free
Desorption	The process of the loss of gas previously adsorbed on coal
Fracture	Any break in a rock caused by mechanical stress
Gas-in-Place or GIP	A technical estimate of potential gas volumes contained within a defined area
GJ	Gigajoule (10 s joules)
Hydrostatic head	Pressure exerted by a fluid at rest
Isotherm	A graph derived from measurements taken over a time at a constant temperature
Joule	A unit of energy
Jurassic	A period of geological time approximately195 to 135 million years ago
Km	Käometre
Km 2	Square kilometre
McL	Thousand cubic feet (10 3 cubic feet)
mD	Millidarcy (unit measurement of permeability)
MMcf	Million cubic feet (10 6 cubic feet)
MW or Megawatt	One million watts of power
MWh	Megawatt hour
Permeability	The capacity of a rock (coal) to transmit fluid -
PJ	Petajoule (10 18 joules)
Rank	A classification of coal based on the degree of heating and pressure undergone.
Resource	The volume of gas stored in coal
Scf/t	Standard cubic feet per tonne
Sef/ton	Standard cubic feet per short (US) ton (1scf/ton = 1.1 scf/t)
Seismic	The gathering of data on the subsurface by a particular geophysical method which. uses shock waves ________
Tof	Trillion Cubic Feet
ŦJ	Terajoule (10 -2 joules)
Walloon Coal Measures	A formation in the Clarence Moreton Basin which contains coal and is of middle Jurassic age
Standard Metric Prefixes
kilo	10 3 (thousand)
mega	$\ldots$ 10 6 (million)
giga	10° (1000 million)
tera	⊡
peta	1016
	Conventional Conversions (Natural Gas Volume to Energy Content)
1 mef	= 1.1 Gigajoule
1 mmof	$= 1.1$ Terajoule
1 bef	$= 1.1$ Petajoule

Application Form

Ž

This Application Form is important. If you are in doubt as to how to deal with it, please
contact your stockbroker or professional adviser without delay. You should read the entire prospectus carefully before completing this form. To meet the requirements of
the Cornorations Act, this Application Form must not be distributed unless

entire prospectus carefully before completing this form. To meet the requirements of the Corporations Act, this Application Form must not be distributed unless included in, or accompanied by, the prospectus. Please note on pages 78-79 of the prospectus paragraphs (a) - (e) of section 11.10.2 have been inserted.
I/we apply for		圓	I/we lodge full Application Money
		A\$		B
Number of Shares in Metgasco Ltd at \$0.20 per share or such lesser number of shares which may be allocated to me/us
Individual/Joint applications - refer to naming standards overleaf for correct forms of registrable title(s)
Title or Company Name Given Name(s)			Surname
manalinnanilmanninnanilmann Joint Applicant 2 or Account Designation
Joint Applicant 3 or Account Designation
,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,
Enter your postal address - include State and Postcode
Street Nomber Ud	Street Name or PO Box /Other Information
City / Suburb / Town			Slate	Postcode
Enter your contact details
Contact Name			Telephone Number - Business Hours / After Hours
CHESS Participant
Heider Identification Number (HIN)			Please note that if you supply a CHESS Hilvi but the name and address details on your form do not
X				correspond exactly with the registration details held at CHESS, your application will be deemed to be made without the CHESS HIN, and any securities issued as a result of the IPO will be held on the Issuer Sponsored
		subregister.
			Cheque details - Make your cheque or bank draft payable to Metgasco Ltd Float Account
Drawer	Cheque Number	BSB Number	Account Number	Amount of cheque
				A\$
Drawer	Cheque Number	BSB Number	Account Number	Amount of cheque
				AS

Registry Use Only

Broker Code

Adviser Code

By submitting this Application Form, I/we declare that this application is completed and lodged according to the Prospectus and the declarations/statements on the reverse of this Application form and I/we declare that all I/we agree to be bound by the Constitution of the Company. See back of form for completion guidelines

$M E L$

How to complete this form

Shares Applied for 顟

Enter the number of Shares you wish to apply for. The application must be for a minimum of 10,000 Shares. Applications for greater than 10,000 Shares must be in multiples of 1,000 Shares.

Application Monies

にちょう

Enter the amount of Application Monies. To calculate the amount, multiply the number of Shares by the price per \$0.20.

œ Applicant Name(s)

Enter the full name you wish to appear on the statement of share holding. This must be either your own name or the name of a company. Up to 3 joint Applicants may register. You should refer to the table below for the correct forms of registrable title. Applications using the wrong form of names may be rejected. Clearing House Electronic Subregister System (CHESS) participants should complete their name identically to that presently registered in the CHESS system.

Postal Address 靧

Enter your postal address for all correspondence. All communications to you from the Registry will be mailed to the person(s) and address as shown. For joint Applicants, only one address can be entered.

Contact Details I3

Enter your contact details. These are not compulsory but will assist us if we need to contact you.

CHESS ▓€

Metgasco Limited (the Company) will apply to the ASX to participate in CHESS, operated by ASX Settlement and Transfer Corporation Pty Ltd, a wholly owned subsidiary of Australian Stock Exchange Limited. In CHESS, the company will operate an electronic CHESS Subregister of security holdings and an electronic Issuer Sponsored Subregister of security holdings. Together the two Subregisters will make up the Company's principal register of securities. The Company will not be issuing certificates to applicants in respect of Shares allotted. If you are a CHESS participant (or are sponsored by a CHESS participant) and you wish to hold Shares allotted to you under this Application on the CHESS Subregister, enter your CHESS HIN. Otherwise, leave this section blank and on allotment, you will be sponsored by the Company and allocated a Securityholder Reference Number (SRN).

Payment 0

Make your cheque or bank draft payable to Metgasco Limited Float Account in Australian currency and cross it Not Negotiable. Your cheque or bank draft must be drawn on an Australian Bank.

Complete the cheque details in the boxes provided. The total amount must agree with the amount shown in box B.

Cheques will be processed on the day of receipt and as such, sufficient cleared funds must be held in your account as cheques returned unpaid may not be re-presented and may result in your Application being rejected. Pin (do not staple) your cheque(s) to the Application Form where indicated. Cash will not be accepted. Receipt for payment will not be forwarded.

Before completing the Application Form the applicant(s) should read this prospectus to which this application relates. By lodging the Application Form, the applicant agrees that this application for Shares in Metgasco Limited is upon and subject to the terms of the prospectus and the Constitution of Metgasco Limited, agrees to take any number of Shares that may be allotted to the Applicant(s) pursuant to the prospectus and declares that all details and statements made are complete and accurate. It is not necessary to sign the Application Form.

Lodgement of Application

Application Forms must be received at the Sydney office of Computershare Investor Services Pty Limited by no later than 5pm Eastern Summer Time on the 15th December 2004. Return the Application Form with cheque(s) attached to:

Computershare Investor Services Pty Limited OR GPO Box 7115 Sydney NSW 2001

Computershare Investor Services Pty Limited Level 3, 60 Carrington Street Sydney NSW 2000

Privacy Statement

Personal information is collected on this form by Computershare Investor Services Pty Limited ("CIS"), as registrar for securities issuers ("the issuer"), for the purpose of maintaining registers of securityholders, facilitating distribution payments and other corporate actions and communications. Your personal information may be disclosed to our related bodies corporate, to external service companies such as print or mail service providers, or as otherwise required or permitted by law. If you would like details of your personal information held by CIS, or you would like to correct information that is inaccurate, incorrect or out of date, please contact CIS. In accordance with the Corporations Act 2001, you may be sent material (including marketing material) approved by the issuer in addition to general corporate communications. You may elect not to receive marketing material by contacting CIS. You can contact CIS using the details provided on the front of this form or E-mail privacy@computershare.com.au

If you have any enquiries concerning your application, please contact Metgasco on 02 9363 9605

Correct forms of registrable title(s)

Note that ONLY legal entities are allowed to hold Shares. Applications must be made in the name(s) of natural persons, companies or other legal entities in accordance with the Corporations Act. At least one full given name and the surname is required for each natural person. The name of the beneficial owner or any other registrable name may be included by way of an account designation if completed exactly as described in the examples of correct forms of registrable title(s) below.

type of lavestor	Correct Form of Registration	Incorrect Form of Registration
Individual - Use given name(s) in full, not initials.	Mr. John Alfred Smith	J.A Smith
Joint - Use given name(s) in full, not initials.	Mr. John Alfred Smith & Mrs Janet Marie Smith	John Alfred & Janet Marie 266188
Company - Use company title, not abbreviations	ABC Pty Ltd	ABC PA ABC Co
Trusts - Use trustee(s) personal name(s) - Do not use the name of the trust	Ms Pearry Smith	Peacy Smith Family Trust ISMASS CONSIDE
Deceased Estates - Use executor(s) personal name(s) - Do not use the name of the deceased	Mr Michael Smith	Estate of Late John Smith
Minor (a person under the age of 18). - Use the name of a responsible adult wife an appropriate designation.	Mr John Alfred Smith	Peter Smith	0 ռ
Partnerships - Use partners personal name(s) - Do not use the name of the partnership	Mr. John Smith & Mr Michael Smith	John Smith & Son
Clubs/Unincorporated Bodies/Business Names - Use office bearer(s) personal name(s). - Do not use the name of the club etc.	Mrs Jariet Smith	ABC: Tensis Association .
Superamnuation Funds - Use the name of trustee of the fand - Do not use the name of the fund	John Smith Pty Ltd	John Smith Pty Etd Superanneation Fund	ш Ξ

Application Form

$\mathcal{F}$

This Application Form is important. If you are in doubt as to how to deal with it, please
contact your stockbroker or professional adviser without delay. You should read the
entire prospectus carefully before completing th included in, or accompanied by, the prospectus. Please note on pages 78-79 of the prospectus paragraphs (a) - (e) of section 11.10.2 have been inserted.

	$\frac{1}{2}$ I/we apply for							Щ			I/we lodge full Application Money
									A\$								Ķ
	Number of Shares in Metgasco Ltd at \$0.20 per share or such lesser number of shares which may be allocated to me/us
Ø	Individual/Joint applications - refer to naming standards overleaf for correct forms of registrable title(s)
	Title or Conssany Name		Given Name(s)							Sumame
	Joint Applicant 2 or Account Designation
	Joint Applicant 3 or Account Designation
Ð	Enter your postal address - include State and Postcode Ual	Street Nomber		Street Name or PO Box /Other Information
	City / Suburb / Town												Slate			Postcode
S	Enter your contact details Contact Name													Telephone Number - Business Hours / After Hours
閮	CHESS Participant Holder Identification Number (HIN)
	X						subregister.										Please note that if you supply a CHESS Hill but the name and address details on your form do not correspond exactly with the registration details held at CHESS, your application will be deemed to be made without the CHESS HIN, and any securities issued as a result of the IPO will be held on the Issuer Sponsored
	Cheque details - Make your cheque or bank draft payable to Metgasco Ltd Float Account
G	Drawer				Cheque Number		BSB Number				Account Number					Amount of cheque

Registry Use Only

Broker Code

Adviser Code

,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,
Irauna	Cheque Number .	BSB Namber	Account Number	Amount of cheaue
,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,	,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,		,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,
By submitting this Application Form, I/we declare that this application is completed and lodged according to the Prospectus and the declarations/statements on the reverse of this

Application form and I/we declare that all details and statements made by me/us (including the declaration on the reverse of this Application Form) are complete and accurate. I/we agree to be bound by the Constitution of the Company. See back of form for completion guidelines

$M E L$

How to complete this form

Shares Applied for n

Enter the number of Shares you wish to apply for. The application must be for a minimum of 10,000 Shares. Applications for greater than 10,000 Shares must be in multiples of 1,000 Shares.

Application Monies 盯

Enter the amount of Application Monies. To calculate the amount, multiply the number of Shares by the price per \$0.20.

Applicant Name(s) 歌手

Enter the full name you wish to appear on the statement of share holding. This must be either your own name or the name of a company. Up to 3 joint Applicants may register. You should refer to the table below for the correct forms of registrable title. Applications using the wrong form of names may be rejected. Clearing House Electronic Subregister System (CHESS) participants should complete their name identically to that presently registered in the CHESS system.

Postal Address 畤

Enter your postal address for all correspondence. All communications to you from the Registry will be mailed to the person(s) and address as shown. For joint Applicants, only one address can be entered.

Contact Details 譚

Enter your contact details. These are not compulsory but will assist us if we need to contact you.

CHESS ▓■激

Metgasco Limited (the Company) will apply to the ASX to participate in CHESS, operated by ASX Settlement and Transfer Corporation Pty Ltd, a wholly owned subsidiary of Australian Stock Exchange Limited. In CHESS, the company will operate an electronic CHESS Subregister of security holdings and an electronic Issuer Sponsored Subregister of security holdings. Together the two Subregisters will make up the Company's principal register of securities. The Company will not be issuing certificates to applicants in respect of Shares allotted. If you are a CHESS participant (or are sponsored by a CHESS participant) and you wish to hold Shares allotted to you under this Application on the CHESS Subregister, enter your CHESS HIN. Otherwise, leave this section blank and on allotment, you will be sponsored by the Company and allocated a Securityholder Reference Number (SRN).

Payment

Make your cheque or bank draft payable to Metgasco Limited Float Account in Australian currency and cross it Not Negotiable. Your cheque or bank draft must be drawn on an Australian Bank.

Complete the cheque details in the boxes provided. The total amount must agree with the amount shown in box B.

Cheques will be processed on the day of receipt and as such, sufficient cleared funds must be held in your account as cheques returned unpaid may not be re-presented and may result in your Application being rejected. Pin (do not staple) your cheque(s) to the Application Form where indicated. Cash will not be accepted. Receipt for payment will not be forwarded.

2

Before completing the Application Form the applicant(s) should read this prospectus to which this application relates. By lodging the Application Form, the applicant agrees that this application for Shares in Metgasco Limited is upon and subject to the terms of the prospectus and the Constitution of Metgasco Limited, agrees to take any number of Shares that may be allotted to the Applicant(s) pursuant to the prospectus and declares that all details and statements made are complete and accurate. It is not necessary to sign the Application Form.

Lodgement of Application

Application Forms must be received at the Sydney office of Computershare Investor Services Pty Limited by no later than 5pm Eastern Summer Time on the 15th December 2004. Return the Application Form with cheque(s) attached to:

Computershare Investor Services Pty Limited GPO Box 7115 Sydney NSW 2001

Computershare Investor Services Pty Limited Level 3, 60 Carrington Street Sydney NSW 2000

Privacy Statement

Personal information is collected on this form by Computershare Investor Services Pty Limited ("CIS"), as registrar for securities issuers ("the issuer"), for the purpose of maintaining registers of securityholders, facilitating distribution payments and other corporate actions and communications. Your personal information may be disclosed to our related bodies corporate, to external service companies such as print or mail service providers, or as otherwise required or permitted by law. If you would like details of your personal information held by CIS, or you would like to correct information that is inaccurate, incorrect or out of date, please contact CIS. In accordance with the Corporations Act 2001, you may be sent material (including marketing material) approved by the issuer in addition to general corporate communications. You may elect not to receive marketing material by contacting CIS. You can contact CIS using the details provided on the front of this form or E-mail privacy@computershare.com.au

If you have any enquiries concerning your application, please contact Metgasco on 02 9363 9605

OR

Correct forms of registrable title(s)

Note that ONLY legal entities are allowed to hold Shares. Applications must be made in the name(s) of natural persons, companies or other legal entities in accordance with the Corporations Act. At least one full given name and the surname is required for each natural person. The name of the beneficial owner or any other registrable name may be included by way of an account designation if completed exactly as described in the examples of correct forms of registrable title(s) below.

Type of Investor	Correct Form of Registration	Incorrect Form of Registration
Individual - Use given name(s) in full, not initials.	Mr John Alfred Smith	J.A. Smålh Representation
Joint - Use given name(s) in full, not initials.	Mr. John Alfred Smith & Mrs Janet Marie Smith	John Alfred & Janet Marie Smith
Company - Use company title, not abbreviations	ABC Pty Ltd	ABC P/L ABC Co
Trusts - Use trustee(s) personal name(s) - Do not use the name of the trust	Ms Pearry Smith	Peany Smith Family Trust
Deceased Estates - Use executor(s) personal name(s) - Do not use the name of the deceased	Mr Michael Smith	Estate of Late John Smith
Minor (a person under the age of 18). - Use the name of a responsible adult with an appropriate designation.	Mr. John Alfred Smith	Peter Smith
Partnerships - Use partners personal name(s) - Do not use the name of the partnership	Mr. John Smith & Mr Michael Smith	John Smith & Son
Clubs/Unincorporated Bodies/Business Names - Use office bearer(s) personal name(s) - Do not use the name of the club etc.	Mrs Jariet Smith	ABC Tensis Association burku
Superannuation Funds - Use the name of titastee of the fand - Do not use the name of the fund	John Smith Pty Ltd	John Smith Ptv Etd Superannuation Fund

Corporate Directory

Principal and Registered Office

Metgasco Limited ACN: 088 196 383 10/402 New South Head Road Double Bay, NSW 2028 Tel: 02-9363 9605 Facsimile: 02-9327 4765 Email: info@metgasco.com.au Website: www.metgasco.com.au

ASX symbol: MEL

Directors

Dr Peter Edward Power (Chairman) David William Granger Johnson Glenda Ann McLoughlin Richard Orme Wood

Company Secretary

Glenda McLoughlin

Broker to the Offer

Tavlor Collison Ltd Level 2, 55 Hunter St SYDNEY, NSW 2000 Tel: 02-9232 1688

Level 2, 12 Pirie St ADELAIDE, SA, 5000 Tel: 08-8212 2688

Solicitors to the Offer

O'Loughlins Lawvers Level 2, 55 Hunter St SYDNEY, NSW 2000 Tel: 02-9232 1444

Level 2, 99 Frome St ADELAIDE, SA, 5000 Tel: 08-8111 1499

Independent Consulting Geologist

MBA Petroleum Consultants Level 2, 2 Park Rd Milton, Qld, 4064 Tel: 07-3367 3822

Independent Energy Market Consultant

ACIL Tasman Pty Ltd Level 15, 127 Creek St Brisbane, Old. 4000 Tel: 07-3236 3966

Auditors and Independent Accountants

McLeay Chartered Accountants Suite 201, 105 Pitt St SYDNEY, NSW, 2000 Tel: 02-9235 3800

Share Registry

Computershare Investor Services Pty Limited GPO BOX 7115 Sydney NSW, 2001