TALIUS GROUP LIMITED — Interim / Quarterly Report 2006

Oct 30, 2006

www.advanceenecovitd.com.au Suite 4, 16 Ord Street | tel: 08 9486 1122 West Perth, Australia | fax: 08 9486 1011 PO Box 1779, ACN 111 823 762 West Perth 6872

ASX Announcement 31 October 2006

SEPTEMBER 2006 QUARTERLY ACTIVITIES REPORT

OVERVIEW

Highlights for the quarter ended end September 2006:

• Acquired a 12.5% working interest in the 640 acre Totem Prospect in Martin County which $\bullet$ included one well (Strain 16-1) producing at 100 BOEPD and the right to participate in up to seven development wells.
• Participated in the drilling and completion of the Strain 16-2 well on the totem Prospect.
• Acquired a 12.5% interest and participated in the drilling and completion of the Prudie Brown No.10-1 well on the Key East Prospect.
• Completed 4 well workovers and stimulations on its Palo Pinto property, successfully $\bullet$ demonstrating significant increases in production.
• Subsequent to the end of the quarter, the company signed a Letter of Intent to acquire a 90% working interest in 9 wells producing in excess of 2,300 MCFEPD in Palo Pinto County, Texas.

OPERATIONS

Martin County-Motherlode Project

As at 1 July 2006 the project, located in Martin County Texas, consisted of a 22.5% working interest in five producing wells. During the quarter, the company was included in an eight well development program which was identified by its manager, North American energy, Inc (NAE). This project consists of the right to participate, on a well by well basis in the drilling, completion and production of up to eight proven undeveloped (PUD) wells. Estimated yields of 100,000 BOE ultimate recoverable reserves with US\$1,100,000 capital costs per well are expected.

In the first well under the program, the company committed to participate for a 12.5% working interest in the drilling of the Prudie Brown 10-1 well. This development well was completed and stimulated in September and is expected to be online by the end of November 2006. The well is anticipated to have an initial potential in excess of 100 BOEPD.

On 29 July 2006, the company announced that it had entered into a purchase and sale agreement to purchase a 12.5% working interest in the 640 acre Totem prospect for US\$360,000. This purchase included the rights to The Strain 16-1 well, currently producing 100 BOEPD and the drilling of up to seven additional wells. The Strain 16-2, which is a direct offset well to the Strain 16-1, was drilled and completed in during the quarter and is anticipated to be in production by the middle of November. This well is anticipated to have initial producing rates in excess of 150 BOEPD.

Palo Pinto

The Palo Pinto project is situated in Palo Pinto County 50 miles west of Fort Worth Texas and comprises a 71.5% working interest in a 1,200 acre land position, nine gas wells, two proven undeveloped drill locations ("PUD"), a five mile low pressure pipeline which has excess capacity to carry third party gas and 1,200 acres of rights to the Barnett Shale.

During June 2006 the company announced its intention to rework four of the nine producing wells on the property. By the end of the current quarter, all four had been successfully reworked, all showing significant increases in production.

AEPI Midstream Inc.

During September, the company incorporated AEPI MIDSTREAM INC. in the United States, a 100% owned subsidiary of its US operating company Advance Exploration & Production Inc (AEPI), to hold the Company's midstream assets. The Company will have the natural gas pipeline in the Palo Pinto project conveyed into it from AEPI. The decision to maintain a separate midstream company is based on the different risk profiles and management issues raised by midstream assets as opposed to oil and gas producing properties. This asset has the potential to derive US\$150,000 per month in revenue and has a current replacement cost of over US\$1,000,000.

Future activities

Subsequent to the quarter end, the company announced the acquisition of a second property in Palo Pinto County, Texas. The company has signed a letter of intent to acquire a 90% working interest in various assets. The nine currently producing wells have produced in excess of 1,000,000 mcf over the last two years and are currently producing 2,300 mcfpd. The company expects to be able to increase production to at least 4,200 mcfpd by drilling additional PUD wells and reworking additional wells.

The effects of the additional activity during the last two quarters are expected to filter through to production in the next quarter. The directors are confident that the company is creating sufficient funding alternatives with which to continue the expansion and prospects of the business in line with stated objectives.

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. One a property has reached its full productive potential and/or has achieved economic payout to AVD the Company would look 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 maximize returns on funds invested.

For further information contact:

Mr Lance Camacho Company Secretary Telephone: 08 9486 1122 Facsimile: 08 9486 1011

Rule 4.7B

Appendix 4C

Quarterly report for entities admitted on the basis of commitments

Introduced 31/3/2000, Amended 30/9/2001, 24/10/2005.

Name of entity

ADVANCE ENERGY LIMITED

ABN

111 823 762

Quarter ended ("current quarter") 30 September 2006

Consolidated statement of cash flows

		Current quarter	Year to date
	Cash flows related to operating activities	\$A'000	$(o \text{ months})$
			\$A'000
1.1	Receipts from customers	217	626
1.2	Payments for (a) staff costs	(35)	(58)
	(b) advertising and marketing	(11)	(11)
	(c) research and development
	(d) leased assets
	other working capital (e).	(461)	(1,716)
1.3	Dividends received
1.4	Interest and other items of a similar nature
	received	25	67
1.5	Interest and other costs of finance paid	(65)	(173)
1.6	Income taxes paid
1.7	Other (provide details if material)		21
	Net operating cash flows	(330)	(1,244)

⁺ See chapter 19 for defined terms.

		Current quarter	Year to date
		\$A'000	$(q$ months)
			SA'000
1.8	Net operating cash flows (carried forward)	(260)	(1,244)
	Cash flows related to investing activities
1.9	Payment for acquisition of:
	(a) businesses (item 5)
	(b) equity investments
	(c) intellectual property
	(d) physical non-current assets	(946)	(3,225)
	(e) other non-current assets
1.10	Proceeds from disposal of:
	(a) businesses (item 5)
	(b) equity investments
	(c) intellectual property
	(d) physical non-current assets
	(e) other non-current assets
1.11	Loans to other entities
1.12	Loans repaid by other entities
1.13	Other (provide details if material)
	Net investing cash flows	(946)	(3,225)
1.14	Total operating and investing cash flows	(1,276)	(4, 469)
	Cash flows related to financing activities
1.15	Proceeds from issues of shares, options, etc.	688	6,427
1.16	Proceeds from sale of forfeited shares
1.17	Proceeds from borrowings	17	1,504
1.18	Repayment of borrowings	(98)	(1,528)
1.19	Dividends paid
1.20	Other (provide details if material)
	Net financing cash flows	607	6,403
	Net increase (decrease) in cash held	(669)	1,934
1.21	Cash at beginning of quarter/year to date	3,715	1,108
1.22	Exchange rate adjustments to item 1.20		4
		3,046	3,046
1.23	Cash at end of quarter

⁺ See chapter 19 for defined terms.

Payments to directors of the entity and associates of the directors Payments to related entities of the entity and associates of the related entities

		Current quarter SA'000
1.24	Aggregate amount of payments to the parties included in item 1.2	193
1.25	Aggregate amount of loans to the parties included in item 1.11
1.26	Explanation necessary for an understanding of the transactions Payments relating to fees paid to directors and their associates

Non-cash financing and investing activities

• $2.1$ Details of financing and investing transactions which have had a material effect on consolidated assets and liabilities but did not involve cash flows N/A
• 2.2 Details of outlays made by other entities to establish or increase their share in businesses in which the reporting entity has an interest

$N/A$

Financing facilities available

Add notes as necessary for an understanding of the position, (See AASB 1026 paragraph 12.2).

	Amount available 1 SA'000	Amount used \$A'000
Loan facilities	USD 20,000	USD 950
Credit standby arrangements	nil	nı.

⁺ See chapter 19 for defined terms.

Reconciliation of cash

Reconciliation of cash at the end of the quarter (as shown in the consolidated statement of cash flows) to the related items in the accounts is as follows.		Current quarter \$A'000	Previous quarter \$A'000
4.1	Cash on hand and at bank	3,046	3,715
4.2	Deposits at call
4.3	Bank overdraft
4,4	Other (provide details)
	Total: cash at end of quarter (item 1.23)	3,046	3,715

Acquisitions and disposals of business entities

		Acquisitions (Item I.9(a))	Disposals (Item $1.10(a)$ )
5.I	Name of entity	N/A
5.2	Place of incorporation or registration
5.3	Consideration for acquisition or disposal
5.4	Total net assets
5.5	Nature of business

Compliance statement

• 1 This statement has been prepared under accounting policies which comply with accounting standards as defined in the Corporations Act (except to the extent that information is not required because of note 2) or other standards acceptable to ASX.
• $\overline{2}$ This statement does /does not* (delete one) give a true and fair view of the matters disclosed.

......

Sign here:

(Director/Company secretary)

......................................

Print name: Lance Camacho

⁺ See chapter 19 for defined terms.

Notes

• $\mathbf{L}$ The quarterly report provides a basis for informing the market how the entity's activities have been financed for the past quarter and the effect on its cash position. An entity wanting to disclose additional information is encouraged to do so, in a note or notes attached to this report.
• $2.$ The definitions in, and provisions of, AASB 1026: Statement of Cash Flows apply to this report except for the paragraphs of the Standard set out below.
• $6.2$ - reconciliation of cash flows arising from operating activities to operating profit or loss
• $9.2$ - itemised disclosure relating to acquisitions
• 9,4 - itemised disclosure relating to disposals
• $12.1(a)$ policy for classification of cash items
• $12.3$ - disclosure of restrictions on use of cash
• $13.1$ - comparative information
• $3₁$ Accounting Standards. ASX will accept, for example, the use of International Accounting Standards for foreign entities. If the standards used do not address a topic, the Australian standard on that topic (if any) must be complied with.

⁺ See chapter 19 for defined terms.