INTERVIEW WITH JOHN HEUGH, MANAGING DIRECTOR OF CENTRAL PETROLEUM LIMITED (CTP)

“Promising Results and Potential Partners”

http://www.brr.com.au/event/51684

WEDNESDAY, SEPTEMBER 24, 2008, 11:30 AM.

            BRR    Good afternoon and welcome to Boardroomradio. Today, we’re talking with John Heugh, Managing Director at Central Petroleum Limited. Good

10                    afternoon, John, thanks for your time.

            CTP     Good day there, Tom, thanks very much and my pleasure again as always.

            BRR    John, can you give me some more details on the recent mobilization to the Simpson 1 site?

15        CTP     Yes, sure Tom. Basically, we’ve completed the drilling at our first Coal Bed Methane well CBM93001 and as of, I believe yesterday morning, trucks were rolling down the road with the first shipments of stuff from the CBM93001 well down to Simpson. We anticipate spotting Simpson round about September 27th or 28th. We were affected with a major sandstorm followed by a

20                    rainstorm yesterday which slowed things down just a little bit but certainly by the 28th of September we’re anticipating spotting this well. It’s another exciting oil well for us in the Pedirka Basin.

                        We have drills now, the Blamore one well which showed evidence of live

25                    active petroleum systems and certainly we had a 50 feet residual oil column in the Algebuckina. Unfortunately, we’re not able to complete that well down the TD because of engineering difficulties associated with fluffing sediments from the Triassic well candy formation, but we have taken steps to prevent that happening in the Simpson well which is designed to test the Jurassic

30                    Algebuckina and Poolowanna formations, the Permian Tirrawarra formation and we’re hoping to be able to get deep enough depending upon how the depth is actually panned out in practice from the prognosis. We’re hoping to get deep enough to test the top (inaudible) (00:01:37) transgressive sands which we interpreted to overlay the major Devonian carbonate platform play

35                    that our Manager of Geology, Greg Ambrose has been mapping visually over the last six months that combining previously, which is the seismic, with the recently short seismic. We’ve got some very interesting results. I believe the undiscovered oil initially in place assessment in-house by our geology department has indicated high estimate of up to 190 million barrels of oil in

40                    place in the Simpson west prospect. It is in a different location to Blamore, although the general concept of drilling in the Jurassic and Permian sediments of the Pedirka are the same, we’ll be tapping into different source kitchens than we did in the Blamore well. So fundamentally it’s similar but there are also some important differences. We would hope to complete the

45                    drilling of this well within 28 days from spud. Our intention on this particular well is to fill the well as quickly as possible and with the use of downhaul motors and PDC bits, we’ll have drills stand test equipment on hand to do a bottom hole test on any interesting shales that we encounter whilst we’re drilling but we won’t be holding up the well by coring or by slow control drilling with the dry core bit as we did at Blamore. We’re beginning on down the bottom as quickly as we can and running a full suite of logs to assess the potential for the well to be a commercial producer as quickly as possible before any sign of formation damage can set in.

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            BRR    And John, can you tell us about the recent Coal Bed Methane results?

            CTP     Certainly, again very exciting results. As you know with the Blamore one well which was designed to test primarily oil, we ended up with about a 160 m of coal cumulative thickness with a lower cut-off from 0.2 m or 20 cm in coal

10                    thickness. Most of this coal was fairly gassy with representation from C1 right through the spectrum of gases to C5. We had a partner become involved with this well last moment who funded $600,000 to $700,000 straddle drill stem testing program to actually test the permeability of the coals at Blamore.

15                    We had run an MREX or a Nuclear Magnetic Resonance tool across these coals as part of the procedure at Blamore. We got empirical evidence of permeability but we weren’t able to bench test it or benchmark it against the known drill stem test permeability measurements because we had problems with package filing to seek properly and equipment malfunctions on the

20                    straddle testing that we try to do there. However, we have run this same MREX tool on the CBM93001 and we have managed to benchmark or calibrate it against known drill stem test data. We conducted two bottom hole drill stem tests on this last CBM well and we’re hoping to be able to extrapolate the calibrated MREX results from the CBM93001 to the

25                    uncalibrated MREX results we got at Blamore. What this means fundamentally is we think we may be able to analyse with the data we’ve already collected from Blamore as to the permeability of the coals we encountered.

30                    At the CBM93001 well we ended up with in excess of 140 m of coal, much of which was fairly gassy and again it had representation from C1 to C5 hydrocarbon gases, so again a very exciting result. We’re still analysing the drill stem test data, certainly decay age looks pretty good. We did get evidence of strong blows on initial opening and main flows for both the drill

35                    stem tests we carried out. We ended up with one coal, one single coal bed at the CBM93001 well which was in excess of 30 m in thickness.

                        So I think now applying the results of CBM93001 and the Blamore 1 well we’ve now established, we think that there’s a high likelihood that we have a

40                    package of coal around about 150 m thick that extends over a 50 km widths across our anticipated CBM fairway. So that particular line which we’ve got very good seismic over would be an obvious starting point for a much more advanced and active CBM well drilling program probably next year.

45        BRR    And finally John, are you able to tell us some more about the discussions you’ve been having with potential partners?

            CTP     Yes. We are bound by various confidentiality agreements and the only deal that has been finalized this stage is that one potential partner has paid essentially $600,000 option fee to gain an exclusive right to negotiate and execute a range of different business arrangements with us by October the 6th. The business arrangements on the discussion which has been announced before include joint venture participation in ’08 which along with our existing joint venture partners, Petroleum Exploration Australia and He

5                      Nuclear. The company concern… the design, the binding option agreement is also discussing with us a placement in the company so we would issue a parcel of shares, two of them as part of the business arrangement. Finally, there is also a potential gas sales contract for future reserves that may be proved up which is on the table. Now having said that, we are in discussion

10                    with a number of other parties at this stage. There are at least two other fairly large companies that are discussing similar deals with us but they’ll have to wait their turn until after the October the 6th deadline when, if we haven’t done a deal with the party that signed the option agreements, the door is still open for us to open serious negotiations with either one or both of these other

15                    two potential partners that I’ve described. That’s about all I can say without breaching confidentiality agreements but I will say that certainly the results we’ve got so far from the Pedirka Basin have proven to be exciting not only to us but also to the industry at large. These results, coupled with the other technical data that we’ve been releasing to the market over the last couple of

20                    years, has obviously excited the interest of some fairly substantial players in the energy sector. In particular, I could say without breaching confidentiality that we have a range of very exciting exploration concepts, plays, and prospects ready for attention and not the least of which is obviously the Coal Bed Methane but we also have a play called Horn Valley Siltstone, played the

25                    Amadeus Basin which we’re looking at. It’s never been tested before although it’s been drilled with probably 15 or 20 wells. We know that Horn Valley Siltstone ranges from an average thickness of 50 to about 250 m across 40,000 sq km. If the Amadeus Basin, generally speaking where it has been drilled before, it represents a source rock and perhaps a seal to the

30                    Ordovician Pacoota Sandstone underneath, which has been the main producing horizon from the Amadeus Basin to date. That concept is that the Horn Valley Siltstone itself may well be the exploration target via the drilling of areas of this particular rich source rock where it’s been naturally fractured by anticlinal earth movements or else where it may be artificially fractured. So,

35                    the general concept is along the lines of the backs to shale and the back-end shale sorts of place in America where we anticipate potentially the Amadeus to have a fractured shale or type Siltstone gas and fractured shale or type Siltstone oil place available for exploration. The numbers are quite large, the in-house estimates can give a range of potential gas in display but it is a wide

40                    range because it’s never been tested but somewhere between 12 and 90 TCF of undiscovered gas initially in place. In terms of the oil potential, the surface area of the play in the oil window is about 7,000 sq. km. and certainly it does have multi-billion barrel oil potential. In terms of undiscovered oil, initially in place at high estimate.

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            BRR    John, thanks for your time.

                        Listeners that was John Heugh, Managing Director at Central Petroleum Limited. If you have any questions for John or you’d like more information about this broadcast, please email at brr@brr.com.au. I’m Tom McKay. Thanks for listening to Boardroomradio.

INTERVIEW CONCLUDED

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