Corporate Governance

QUEENSLAND

Molopo has CBM production, appraisal and exploration assets in Queensland’s Bowen Basin. These assets are contained within four permit areas that collectively cover over 2,000km2 and extend north of the township of Taroom, through Moura and Blackwater, and stretching to the northeast of Emerald.

The Bowen Basin contains coals of Permian age, which are mined for coking and metallurgical coals and contain varying quantities of commercially recoverable methane.

The Company’s Queensland projects and their reserves and gas volumes are:

Reserves (Bscf)

Contingent
Resource

Total
Recovery

GIIP

1P

2P

3P

Greater Mungi

1500

21

58

143

207

350

Greater Harcourt

2500

0

37

318

400

718

Greater Timmy

2300

0

0

0

350

350

Lilyvale & Oak Park

1000

0

0

0

400

400

Sirius

200

0

0

0

100

100

Total

7500

21

95

461

1457

1918


Molopo has a 50% net equity share of the areas listed above. The other participants in the Queensland acreage are Anglo Coal (Moura) Limited (“Anglo”) with a 25.5% working interest and Operator, and Mitsui Investment Pty Ltd (“Mitsui”) with a 24.5% working interest.

Molopo believes that approximately 7.5 Tscf of
gas-in-place (“GIP”) exists in this Queensland acreage and much of our work to date has been directed at establishing reserves and production from the coals as well as drainage techniques to ensure gas production and recovery rates are optimised per dollar of capital expenditure. Molopo believes that up to 3,500 Bscf of this gas may be commercially recoverable using horizontal drilling techniques with current costs and prices. If the current pilot and drilling trials are successful then the recovery potential for the Queensland acreage could significantly increase those 2P levels certified by independent consultants.

Mungi Gas Field (PL-94) and Mungi West Area
(ATP-564P)

The Mungi Gas Field has total 3P certified reserves of
143 Bscf. Proven reserves are 21 Bscf, Proven and
Probable reserves are 58 Bscf. Molopo’s share of production during the year was 312.8 TJ, with cumulative
net sales of $609,140.

Molopo currently estimates that the GIP at Mungi is approximately 350 Bscf of which ultimately 160 Bscf may be recoverable. It is this large volume of potentially recoverable gas that Molopo is seeking to recover from the field using state of the art lateral drainage wells. In addition Molopo estimates that the Mungi West area contains a GIP of approximately 1,150 Bscf which contains a contingent resource potential of 190 Bscf of recoverable gas.

The Mungi Field commenced gas production in 2003 and has produced only a fraction of its potentially recoverable gas. To date, only a small portion of the field is developed with fourteen wells completed and connected to the gathering system for production. Thirteen of these are vertical, water fractured stimulated wells with one well a “surface to inseam” (“SIS”) or lateral well. Molopo has a 100% interest in nine of these wells drilled under sole risk provisions of the Joint Operating Agreement (“JOA”).

In reviewing the production profile of the Mungi wells, it became clear to Molopo that lateral wells had the
potential to significantly improve production and recovery rates for every dollar of capital expended. This has led Molopo to propose three new multi-lateral wells that
will seek to further optimise this technique for draining
gas at Mungi.

During the year Molopo successfully completed Mungi-22 as a triple lateral well with one lateral in the A seam and two laterals in the C seam. This well has commenced
de-watering. The next well in the programme, Mungi-20Va, is nearing completion and will test production from the B, C and D seams. Vertical drilling for the third well 20V and radius bend work for the next set of laterals has commenced.

Progress was slower than anticipated due to initial
drilling difficulties at Mungi-22 and delays during the first four months of 2008 due to flooding and heavy rains.

ATP564P/PLA210A
ATP564P/PLA210A contains the Harcourt Gas Field and Sirius Prospect in the Baralaba Coal Measures and the Lilyvale and Oak Park Prospects in the German Creek
Coal Measures.

The Harcourt area was the subject of an internal review by Molopo’s new technical team, which believes the 174km2 area contains in excess of 2,500 PJ of GIP. This represents a significant increase on earlier estimates.

An updated reserve report from Netherland Sewell & Associates (“NSAI”) was received during the year for the southern part of PLA 210A (Harcourt South), This revision estimated a Proven Plus Probable reserve of 37 Bscf and 3P total reserve of 318 Bscf based on a GIP of 1,100 Bscf. Molopo estimates the Harcourt North area to have a GIP of 1,400 Bscf and represents a contingent resource of some 400 Bscf of recoverable gas.

At Harcourt, Anglo drilled Harcourt 4 (a vertical drainage well) but failed to complete Harcourt 5 (a surface to inseam well) which was suspended in 2006 after Anglo encountered drilling difficulties. Additional work is planned in the future to complete this operation commencing with seismic data acquisition later in 2008.

At the Bindaree wells, to the north of the Mungi Gas Field, production testing of the Bindaree 1 and 2 vertical fracced appraisal wells continued. The workover on Bindaree 1 has been delayed.

The Bindaree wells are part of the Harcourt Gas Field, which is considered an extension of the Mungi Gas Field and lies on the northern boundary of PL94. The Joint Venture (“JV”) has applied for a Production Licence (“PL”) over Harcourt and it is anticipated that the Bindaree
wells will be tied into the Mungi gathering system when the PL is granted.

A mining group has conducted extensive evaluation
on an exploration licence (EP783) to evaluate the coal resource with a view to underground longwall mining
in an area which partly overlaps PLA210. Negotiations on co-operation and co-development issues continue.

No new field work was conducted at Lilyvale, Oak Park or Sirius during the year. Molopo’s new internal estimates of GIP at these Prospects are 1,200 Bscf. Molopo had previously received a reserves certification under the old reserves standards for the two areas of 248 Bscf at 2P and 558 Bscf at 3P. A revised certification is being sought under the new reserves guidelines and in the meantime Molopo has moved the current recovery estimates to contingent resources pending further clarification.

Figure A
Figure A Molopo's Australian Permits

Figure B
Figure B Queensland Permits and Prospects

Figure C
Figure C Mungi Gas Field

Figure D
Figure D Harcourt/Bindaree Project Area

Drilling Operations
Drilling operations at Mungi, Queensland


Figure E Lilyvale and Oak Park Prospects


Flow metre at Mungi, Queensland

Greater Timmy Area - ATP 602P and Southern ATP 564P
ATP 602P covers an area of 310km2 containing the Timmy Prospect and lies to the south of the Theodore Prospect in ATP564P.

The Greater Timmy area is estimated to have in excess of 2,300 Bscf of GIP following an internal review by Molopo’s technical team. This is a significant increase from earlier JV estimates of 150 PJ and represents a contingent resource of approximately 350 Bscf of recoverable gas.

The Timmy 1 well was placed on production test after a workover. Dewatering of the well and the monitoring of gas production continued throughout the remainder of the year. The well produced approximately 100,000 to 150,000 scf/d on test, unfortunately due to an equipment malfunction Anglo (the Operator) was unable to accurately record the actual peak flow and accurate rate readings were not re-established until after the peak gas rate had passed. Flow results were largely estimated from the gas flare height. Currently the well is awaiting a workover as pressure differentials suggest the laterals are blocked.

The Timmy well consists of two laterals, in separate seams, connected to the same vertical production well. Each lateral has been drilled nearly 1,000m in coal.

 

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