TALIUS GROUP LIMITED — Capital/Financing Update 2009

Oct 13, 2009

==> picture [195 x 171] intentionally omitted <==

ASX ANNOUNCEMENT

14 October 2009

CORPORATE UPDATE

At a general meeting of shareholders on 13 October approval was obtained to raise up to $20 million by way of a listed convertible note issue. Attached is a corporate update that will be used in the marketing of this issue.

FOR FURTHER INFORMATION CONTACT

Mr Anthony Short (Managing Director) or Mr David Ballantyne (Company Secretary) Telephone: 08 9486 1122 Facsimile: 08 9486 1011

ABOUT ADVANCE ENERGY LIMITED

Advance Energy Limited is focused on the acquisition and development of oil and gas producing assets in Texas USA. The company aims to acquire assets with a combination of debt and equity that have current production and cash flow and to enhance production and cash flow through the further development of these assets. Once a property has reached its full productive potential and/or has achieved economic payout to Advance Energy, the Company looks to on sell all or part of its interest. It is the aim of the Company to develop a portfolio of assets which will be developed and traded to maximise returns on funds invested.

ADVANCE ENERGY LIMITED Corporate Update

==> picture [57 x 95] intentionally omitted <==

==> picture [58 x 95] intentionally omitted <==

==> picture [58 x 95] intentionally omitted <==

==> picture [11 x 95] intentionally omitted <==

About Advance Energy

Advance Energy Ltd ( A SX:AVD), an establishe d Australian S tock Excha n ge listed co m pany, has a team with over 30 years c o mbined exp e rience in a c quiring and optimising o i l and gas p r oducing ass e ts in Texas, U S A.

Focusing on established fields in T exas, USA t hat are clos e to existing infrastructur e , Advance E nergy buys und e rperforming assets and r e -evaluates e xisting data to identify an d develop untapped recov e rable reserves.

By cuttin g costs, suc c essfully res t oring well p r oductivity a n d undertaki n g additional drilling to i d entify further capacity, Adva n ce Energy m aximises po t ential produ c tivity and ca s h flow, befo r e looking to d ivest the asset at a premiu m once the ini t ial investme n t is returned . The Boar d of Advance Energy is ta r geting a market capitalis a tion of $100 m by 2012 for the compan y .

Business Model

==> picture [13 x 126] intentionally omitted <==

==> picture [58 x 126] intentionally omitted <==

----- Start of picture text -----

4. Exit
----- End of picture text -----

==> picture [59 x 126] intentionally omitted <==

----- Start of picture text -----

1. Acquire
2.
3.Produce
----- End of picture text -----

==> picture [54 x 126] intentionally omitted <==

----- Start of picture text -----

evelop
----- End of picture text -----

The busi n ess model i n volves the acquisition of producing pr o perties with immediate cash flow that have upside p o tential throu g h enhancement and exp a nsion. When producing a s sets are acquired, the ai m is to increase p roduction fr o m producing wells through a series of workovers a n d enhancement program s , infill and step o ut drilling, a n d the re-interpretation of 3 D seismic d a ta.

Through t he successf u l application of the busin e ss model, it is the intent o f the company to invest in and trade producing prop e rties, achie v ing paybac k of its development cos t s within 18-36 months b efore divesting projects at a premium to t h e acquisitio n price.

Advance Energy is fo c used on ide n tifying oil and gas produ c ing assets t h at have dev e lopment pot e ntial, acquiring these asse t s at a co m petitive pric e and then realising ex t ra value fr o m the ass e ts by reinterpr e ting data, cu t ting costs an d further dev e loping the a s sets.

==> picture [17 x 80] intentionally omitted <==

==> picture [58 x 80] intentionally omitted <==

==> picture [58 x 80] intentionally omitted <==

==> picture [12 x 80] intentionally omitted <==

==> picture [45 x 80] intentionally omitted <==

==> picture [59 x 80] intentionally omitted <==

==> picture [37 x 80] intentionally omitted <==

==> picture [20 x 80] intentionally omitted <==

==> picture [58 x 80] intentionally omitted <==

==> picture [58 x 80] intentionally omitted <==

Corporate U pdate – Octobe r 2009

1

==> picture [180 x 95] intentionally omitted <==

Board of Directors

Alex Bajada (Chairman) B Econ (UWA)

• Corporate consultant with over 30 years experience in the corporate sector and management of ASX listed companies.

• Chairman of Excalibur Mining Corporation Limited, AXG Mining Limited and Odin Energy Limited.

• Independent director of large WA based superannuation fund for the last 16 years and served as chairman for over ten years.

Anthony Short (Managing Director) BPE, BComm, Grad Dip Fin, MAICD

• 18 years experience in the administration and management of listed public companies.

• Extensive experience at board level in the management and formation of public companies in oil and gas, drilling and gold mining.

Gordon Sklenka (Non-Executive Director) BComm (UWA)

• Over 17 years corporate finance experience in the areas of capital raisings, IPOs, acquisitions and project finance in the resources and technology sectors.

• Worked with a number of listed public companies in both Australia and Canada and developed extensive experience in company formation, capital raising and project acquisition.

Kip I Plankinton (Non-Executive Director) BA, JD

• Oil and gas attorney with over 19 years experience in the oil and gas industry.

• Board Certified in Oil, Gas and Mineral Law by the Texas Board of Legal Specialization.

• Previously served as in-house counsel for ExxonMobil, Colorado Interstate Gas Company, Texaco and Marathon Oil Company.

Paul Berresford (Non-Executive Director) CA FTIA SSA

• 25 years public practice and financial services experience delivering professional services to businesses operating across a broad range of industries.

• Chartered Accountant, fellow of Taxation Institute of Australia, member of the Securities Institute of Australia and registered company auditor.

Corporate Update – October 2009

2

==> picture [180 x 94] intentionally omitted <==

Company Growth Strategy

Advance will achieve growth by building the company’s production and reserve base, through a program of acquiring producing properties and enhancing or expanding the existing reserve base.

Advance’s strategy has always been to achieve this growth through a combination of equity and interestbearing securities and has demonstrated that excellent returns can be achieved with leveraged projects. To date, this has been achieved through senior debt provided by the Sterling Bank of Texas and by the issue of unlisted convertible notes.

In June 2009, Advance announced that it had reached an agreement to issue 5,000,000 $1.00 unlisted convertible notes, with funds to be drawn down on the execution of a Purchase and Sale Agreement (PSA) to acquire a new project. This agreement was successfully executed in September 2009 upon the acquisition of the Martin West Project.

In August 2009, Advance announced its intention to raise up to $20m through the issue of listed Convertible Notes paying 9.5% per annum and maturing in five years. The proceeds of this issue will be used to acquire and develop properties similar to the Martin West project.

In the event that acquisition costs increase to the extent that Advance can deploy these funds more effectively elsewhere, extensive development opportunities exist with current projects that it expects will add to production and reserves as detailed in the table below. As the majority working interest holder, Advance can control the timing and cost of each of these development activities and will ensure that sufficient Working Capital is retained to service note interest until development has been completed.

Table 1: Advance Energy Ltd – Cost of Potential Development Activities for Current Projects

Potential Development Activities (Current Projects)	Potential Development Activities (Current Projects)
	Cost per Activity (US$)	Number	Total (US$)
Martin West Behind Pipe Workovers	$200,000	10	$2,000,000
Martin West PUD Drill and Multistage Frac	$1,200,000	10	$12,000,000
ML1 Behind Pipe Wolfcamp Workovers	$231,250	2	$562,500
ML1 Drill and Complete Graham #2	$1,300,000	1	$1,300,000
MLIII Drill and Multistage Frac	$750,000	2	$1,500,000
PK – Fragg#2 Re-entry	$123,750	1	$123,750
TOTAL			$17,486.250

Corporate Update – October 2009

3

==> picture [180 x 95] intentionally omitted <==

Asset Acquisition Criteria

A strategic approach to asset acquisition, as set out in the table below, ensures that any new funding raised or committed company expenditure is applied in a cost effective way. The recent Martin West project acquisition is a clear demonstration of these criteria in practice and Advance aims to replicate this type of transaction.

Specifically, the Martin West Project was acquired for a price below the prevailing production and reserves multiples, and was already cash flow positive. The acquisition price was justified by the value of the producing properties alone but it had substantial, low risk ‘behind pipe’ reserves that could be brought into production with modest investment. Furthermore, the project had extensive proved undeveloped reserves ( PUD’s) which could also be brought into production from the enhanced cash flow.

Table 2: Advance Energy Ltd’s Asset Acquisition Criteria

Table 2: Advance Energy Ltd’s Asset Acquisition Criteria	Table 2: Advance Energy Ltd’s Asset Acquisition Criteria
Asset Acquisition Criteria
Criterion	Preferred Parameters
Price Range	$2,500,000 - $7,500,000
Location	Permian Basin
Nature	Production with behind pipe reserves
Working Interests	Operating only (50%+)
Oil/Gas mix	Min 70% Oil on a BOE basis
Purchase Price Multiples	Discount to recent reserve and production multiples
Cash Flows	Cash Flow Positive including interest costs
Payback	Payback of PBP expenditure <12 months Payback of PUD expenditure <24 years
Current Operations	Potential for rapid enhancement, development upside and/or cost reduction

==> picture [146 x 108] intentionally omitted <==

==> picture [143 x 108] intentionally omitted <==

==> picture [145 x 108] intentionally omitted <==

Corporate Update – October 2009

4

==> picture [180 x 95] intentionally omitted <==

Listed Convertible Note Investor Opportunity

Advance Energy offers investors the opportunity to take advantage of accelerating world energy demand in an environment of diminishing supply, and benefit from the continued application of a proven business model aimed at maximising investor returns.

Funds raised via the listed convertible note offer will be used to pursue the strategic asset acquisition focus described, and to further develop and grow the Company’s profitable operations around an increasing portfolio of producing assets in the Permian Basin of Texas.

SUMMARY OF LISTED CONVERTIBLE NOTE TERMS

Description	Listed Convertible Notes in Advance Energy Ltd, convertible into new fully paid ordinary shares or redeemed for face value upon term expiry
Coupon	9.5% pa payable quarterly in arrears
Term	5 years
Issue Size	Up to $20 million
Face Value	$1.00
Maximum Number of Convertible Notes	Up to 20,000,000
Minimum Investment	$2,000
Conversion	Convertible at the greater of $0.08 or 15% discount to 30 Day VWAP immediately prior to notice
Conversion Period	After 2 years from the issue date, the Note holder will have a biannual opportunity to convert to fully ordinary paid shares in the Company on; • 30 thJune; or • 31 stDecember
Redemption	Redeemed Convertible Notes will be redeemed for the face value upon term expiry
Independent Trustee	The Trustee is responsible for administering the Convertible Notes under the Trust Deed
Company Buy Back Option	The Company may at any time purchase Convertible Notes in the open market, by private treaty or by tender, to be cancelled or re-sold at the option of the Company.
Transferring Notes	The Convertible Notes are transferrable in accordance with the Trust Deed
Official Quotation	The Company will apply to ASX for official quotation of the Convertible Notes

Corporate Update – October 2009

5

==> picture [180 x 95] intentionally omitted <==

Demonstrated Business Model

Lone Camp Project, Palo Pinto County, Fort Worth Basin: Divestiture – December 2008

• Sold in December 2008 for US$2m , acquired for US$1.25m in November 2005

• Produced approximately158,000MCF of gas and US$1.2m of net revenues

• Increased daily production from 225MCFPD to 412 MCFPD, funded from project cash flow

• Internal Rate of Return (IRR) of 102%, with 50% debt funding

• Divestment completed at a time when both oil and gas prices were significantly below the highs achieved in mid-2008

• Demonstrates the capacity to add value to assets and the ability to market projects even in adverse market conditions.

Mother Lode II Project, Martin County, Permian Basin: Divestiture – October 2009

• Sold in October 2009 for US$2.015m

• Identified from 3D seismic acquired as part of Mother Lode Phase 1 in June 2006

• Delivered net revenues of US$1.77m

• Initial 12.5% working interest in six producing wells, before drilling an additional six wells

• Project IRR of approximately 25%, based on $2.7m acquisition and development cost of which 36% debt funded

• At divestiture production was 24 barrels of oil equivalent per day (BOEPD), equating to a sale price multiple of approximately US$84,000 BOEPD.

Martin West Project, Martin County, Permian Basin: Acquisition – September 2009

• Acquired operating interest in ten producing wells covering 1,600 acres in Martin County for US$2.625m

• 87.5% working interest in each of 8 wells and 100% working interest in the remaining 2 wells

• Currently producing 71 barrels of oil per day (BOPD) and 101 thousand cubic feet per day (MCFPD) with net monthly cash flow of approximately $54,000

• Possibility for production to be increased by 20% and operating costs reduced by 30% with competent management

• Ten behind pipe prospects each expected to contribute an additional 30 BOEPD and a further ten Proven Undeveloped (PUD’s) targets, each of which could contribute a further production

• Project acquired for a purchase price multiple of approximately $54,000 BOEPD, in contract to the sale price multiple of approximately US$84,000 BOEPD achieved for MLII

Corporate Update – October 2009

6

==> picture [57 x 95] intentionally omitted <==

==> picture [58 x 95] intentionally omitted <==

==> picture [58 x 95] intentionally omitted <==

==> picture [10 x 95] intentionally omitted <==

Operational Overview

Advance Energy has a portfolio of p roducing oil and gas ass e ts, with the m ajority of production wells and reserves l ocated in M a rtin County, E astern Tex a s within the p rolific Permi a n Oil Basin. T he balance of the company’s assets are located in the gas produ c ing Palo Pin t o County, F o rt Worth Ba s in in north c entral Texas. T h e Oil and G as producin g assets are held by wh o lly-owned s u bsidiaries of Advance Energy Limited, w hich are inc o rporated in T exas. F igure 1: Loca t ion of Advan ce Energy Ltd’ s Operations, T exas, USA

==> picture [351 x 267] intentionally omitted <==

----- Start of picture text -----

F o rt Worth Ba s in
P a lo Pinto Cou n ty
Per m ian Basin
Mar t in County
----- End of picture text -----

Area of Focus - P e rmian Oil B asin

The Per m ian Oil Ba s in is Advan c e’s primary operating a r ea, where t h e company has consid e rable operating experience a nd extensiv e 3D seismic d ata.

The Per m ian Basin underlies an ar e a approxim a tely 250 mil e s long by 30 0 miles wide i n the south w est of Texas an d East of Ne w Mexico and is characterised by long l i fe, low decli n e wells.

The first c ommercial o il well was c ompleted to a depth of 2 ,498 feet in 1921 in Mit c hell County a nd a number o f relatively s h allow disco v eries were m ade throug h out the 192 0 s. Deeper wells were drilled in the 1930 s and 1940s resulting in a number of new featur e s including the Spraberr y Trend which has since be e n shown to be productive across a wid t h of up to 35 miles.

Significa n t production, storage a n d transport a tion infrastr u cture has been constru c ted with re g ional operation s focusing o n Midland-O d essa. Exten s ive petroch e mical plants have also b e en establis h ed in the basin . Oil output had exceede d 45 billion b a rrels by 200 6 , with billions of barrels s till to be ext r acted through m odern techn o logy, such as carbon dio x ide flooding a nd horizont a l drilling.[1 ] 1 Energy Int e lligence Group Inc “Oil Daily” 20 June 2006

Corporate U pdate – Octobe r 2009

7

==> picture [180 x 94] intentionally omitted <==

Current Production & Development Assets

Mother Lode 1 Project, Martin County

Advance has an average 92.5% working interest in the Mother Lode 1 project in Martin County. The project currently comprises of five producing wells with current daily production of 45 barrels of oil per day (BOPD) and 169 thousand cubic feet per day (MCFPD).

The operator will shortly be undertaking a fracture of the Cazares-1 well. Based on the performance of similar operations, the operator is targeting an initial additional production of 30 BOPD and 60 MCFPD. It will then undertake behind pipe workover of the Cazares-1 and 2 wells bringing up to an additional 20 BOPD and 40 MCFPD net production to Advance.

Possum Kingdom Project, Palo Pinto County

The Possum Kingdom project was acquired in 2007 and comprises of nine wells and 1,015 acres held by production and lease. It currently produces 225 MCFPD and 14 BOPD net to Advance. The wells produce from the Bend Conglomerate reservoirs at an average depth of 4,100 feet.

Mother Lode III Project, Martin County

In 2007, Advance acquired a 50% working interest in the Mother Lode III project which comprises 48,000 acres of 3D seismic data. Drilling has yet to commence but the project contains significant reserves. Two of the eight identified prospects, Northampton and Greene, are fully-leased and ready to drill. The Northampton and Greene Prospects each comprise eleven potential wells, which could have a total proven, probable and possible reserve base in the order of 965,000 barrels of oil and over 2 billion cubic feet of gas based on current estimates of available data.

Martin West Project, Martin County

In September 2009 Advance acquired an operating interest in ten producing wells covering 1,600 acres in Martin County. The acquisition comprises an 87.5% working interest in 8 wells and 100% working interest in the remaining two wells.

The properties are currently producing at 71 BOPD and 101 MCFPD with net monthly cash flow of approximately US$54,000. It is expected that production can be increased by 20% and operating costs reduced by up to 30% by a prudent operations management strategy, as the properties have been neglected by the previous owner.

There are ten behind pipe prospects that can be brought into production at a cost of approximately US$200,000 each with each expected to contribute an additional 30 BOEPD that would pay back development costs in 6-8 months. There are also a further ten Proven Undeveloped well targets, each of which could contribute a further production.

Corporate Update – October 2009

8

==> picture [180 x 95] intentionally omitted <==

Current Reserves and Resources

The following table summarises Advance’s net Proved, Probable and Possible Reserves as at September 2009. Proved Producing and Behind Pipe/Non-Producing Reserves were independently verified by W D Von Gonten & Associates on behalf of Sterling Bank of Texas in August 2009.

Table 3: Advance Energy Ltd’s Net Reserves October 2009

Net Reserves October 2009
	Oil (MBO)	Gas (MMCF)
Proved Producing	355.90	1,807.20
Proved Behind Pipe/ Non-Producing	331.40	805.20
Proved Undeveloped	639.49	1,837.30
Total Proved (1P)	1,326.30	4,449.70
Probable*	760.70	1,436.80
Total Proved and Probable (2P)	2,087.49	5,886.50
Possible*	118.40	516.80
Total Proved, Probable and Possible (3P)	2,205.89	6,403.30

*Probable and Possible Reserves have only been included for the Greene and Northampton prospects in Mother Lode III.

==> picture [296 x 7] intentionally omitted <==

----- Start of picture text -----

Cazares#2 well, Mother Lode 1 Project Mabee Ranch#2 well, Martin West Project
----- End of picture text -----

==> picture [196 x 123] intentionally omitted <==

==> picture [197 x 123] intentionally omitted <==

Corporate Update – October 2009

9

==> picture [180 x 95] intentionally omitted <==

Commodity and Market Outlook

Oil Prices

Oil Prices have recovered from lows of less than $40/barrel earlier this year and are now trading in a range of $60-70/bbl. The US Government’s Energy Information Agency (EIA) expects the price of West Texas Intermediate (WTI) crude oil to stay roughly flat at an average of $70/bbl in the fourth quarter of 2009. The WTI spot price is projected to rise slowly as economic conditions improve, to an average of about $72/bbl in 2010.

Figure 2: Historical and Forecast Crude Oil Prices as at September 2009

==> picture [350 x 217] intentionally omitted <==

Source: Energy Information Administration (www.eia.doe.gov/steo)

In the longer term, NYMEX Light Sweet Crude futures indicate an expectation that US oil and gas prices will steadily increase to over $85/bbl by 2015.

Gas Prices

Gas Prices are highly seasonal and location-specific. In the US, gas prices typically fall during the summer months and increase as winter approaches. Gas is not as transportable as oil and, consequently, prices are highly dependent on local demand and supply. Gas storage facilities are currently at close to full capacity in the US and, consequently, the prevailing gas price is very low. This has resulted in a significant decrease in active rigs which will in turn result in a reduction of production and decrease of stored gas reserves. IEA projects that the Henry Hub price will increase from an average of $3.92 per Mcf in 2009 to an average of $5.48 per Mcf in 2010.

Corporate Update – October 2009

10

==> picture [180 x 95] intentionally omitted <==

The following chart shows the NYMEX natural gas forward curve for the next 36 months as at 3[rd] and 17[th] September 2009. The chart clearly shows seasonal fluctuations and a return to $6-7/Mcf gas from late 2010.

Figure 3: NYMEX Forward Natural Gas Prices as at 3[rd] and 17[th] September 2009

==> picture [372 x 223] intentionally omitted <==

----- Start of picture text -----

Natural Gas Forward Curve ‐ 36 Months
$8.000
$7.000
$6.000
$5.000
$4.000
$3.000
$2.000
Price ‐ 17/9/2009 Price ‐ 3/9/2009
----- End of picture text -----

Source: NYMEX

Higher energy prices will support higher transaction metrics and underwrite the divestment value of Advance’s remaining production and reserves.

DISCLAIMER:

The reserve and resource estimates provided in this document represent a best judgment and are based upon engineering best practices and available data at the time of preparation. It should be realised that hydrocarbon reserves actually recovered could be more or less than the amounts estimated in this table. No representation, guaranty or warranty is made by Advance Energy Ltd, as to the accuracy or completeness of any information contained herein. The technical information contained in this document was prepared by Mr Embry Canterbury, BSc (Petroleum Engineering), SPE, who has had more than 13 years experience in the practice of petroleum engineering. Mr Canterbury consents to the inclusion in this report of the information in the form and context in which it appears.

This document may include statements about expected future events and/or financial results that are forward-looking in nature that are subject to risk factors associated with oil and gas businesses. The commodity pricing outlook is market opinion and is included for informational purposes only.

It is believed that the expectations reflected in this document are realistic, but they may be affected by a variety of variables and changes in underlying assumptions which could cause actual results or trends to differ, including but not limited to: price fluctuations, currency fluctuations, actual demand, drilling and production results, reserve estimates, loss of market, industry competition, environmental risks, physical risks, legislative, fiscal and regulatory developments, political risks, economic and financial market conditions in various countries and regions, project delay or advancement, approvals and cost estimates.

Corporate Update – October 2009

11