ASSET
OVERVIEW

ATP814P comprises 7 discrete and disconnected blocks in the Moranbah area of the Bowen Basin.

The Moranbah area is the centre of CSG production in the Bowen Basin as well as being a significant export coal mining precinct. Arrow Energy (a joint Venture between Shell and Petrochina) operates the Moranbah Gas Project which supplies gas to Townsville for power generation and industrial users. In addition Arrow is anticipated to utilise its acreage around Moranbah to supply feed gas for its proposed LNG project in Gladstone, and as such is expected to install significant gas export infrastructure in the Moranbah area over coming years.

The main CSG targets in ATP814P are late Permian aged coal sequences (the Rangal, Fort Cooper and Moranbah Coal Measures), which have proven to be gas producting through Arrow Energy's Moranbah activities. ATP814P has been the main focus of Blue Energy's exploration effort over the last 12 to 24 month period. This effort has identified a significant gas resource within three of the seven blocks. These three blocks have independently assessed Contingent Resources (2C and 3C), Possible Reserves (3P) and Prospective Resources as identified by Netherland, Sewell and Associates, as outlined in the table below.

The initial drilling in the Permit was directed at the Monslatt Block in the eastern part of the area (see Figure below). Following the drilling of several pilot production test wells, pilot production was commenced in earnest in the first quarter in calendar 2011, as a result of extensive delays caused by widespread regional flooding. Monslatt 8 was drilled in late 2010 as a lateral inseam well to intersect the Monslatt 7 vertical pilot well. Monslatt 7 was completed as a pilot production well and along with Monslatt 5 has been on production test since first quarter 2011. Monslatt 9 pilot production well was drilled in the southern part of the Monslatt Block in September, 2011 and along with the Monslatt 6 and 4 wells will be on production test by year end. The five pilot test wells are designed to establish a commercial gas flow rate from the P seam and build a reserve base over the full extent of the Monslatt Block. Testing operations and dewatering of these wells is ongoing.

Monslatt 9 was also drilled to evaluate the potential shale gas resource of the Block which is currently assessed as a prospective resource for the Monslatt Block. Data is now being interpreted to establish the significance of this resource.

Whilst most of the attention has been directed at Monslatt, the Sapphire Block has been the area where Blue Energy has achieved its maiden reserves. As a result of a data sharing agreement between NSAI, Blue Energy and several other CSG companies, NSAI has identified 39PJ of 3P reserves in the southern portion of the Sapphire Block, within the Fort Cooper and Rangal Coal Measures. The Sapphire 4 pilot production test well has been designed to assess this reserve and also evaluate the deeper Moranbah CM in the eastern part of the block.

The Central Block, where the Kerlong 1 CSG corehole was drilled in 2010, contains both Contingent Resources and Prospective Resources in the Rangal and Fort Cooper Coal Measures, whilst the deeper Moranbah seams are yet to be evaluated. These resources may be addressed with new program in the next 12 months.

As Operator of the Permit, Blue Energy has taken the lead role in negotiations with two Native Title Claimant Groups to secure Native Title Agreements which will facilitate award of excluded lands from ATP613P, plus facilitate award of two applications (ATP674A and 733A). The Agreement reached with both the Port Curtis Coral Coast People and the Butchulla Groups and will allow award by the State Government of these permits. Once awarded, Blue Energy will continue the exploration work program required under its farm-in agreement with Adelaide Energy. On completion of the work program, Blue Energy will have earned a 75% interest in all the Maryborough Basin acreage.

These permit and application areas lie within the Maryborough Basin which is located in the Maryborough -Bundaberg region of Queensland. The basin is approximately 150km south of the developing Gladstone export LNG hub. It is relatively un-explored with respect to hydrocarbons. However, there has been petroleum drilling in the Maryborough Basin dating back to approximately 1953 when conventional gas exploration wells were drilled on several large structural features, identified by field mapping. In addition, there is a long coal mining history in the basin, with coal mines at Howard and Torbanlea being worked from early last century through to the 1970's. These mines were principally targeting the Burrum Coal Measures in the Burrum Syncline.

The prospectivity of the Maryborough Basin has traditionally been restricted to conventional tight gas and more recently coal seam gas within the Burrum Syncline. However recent recognition of a shale gas play in the basin by the US Energy Information Agency (EAI) has further enhanced the prospectivity of this acreage. The EIA conducted a worldwide study of 42 sedimentary basins in 38 individual countries outside the United States and found that the Maryborough Basin contained the necessary components to host a valid shale gas source. In assessing the play further, Blue Energy discovered that at least one of the conventional exploration wells drilled has indeed identified gas bearing shale in the basal Maryborough Formation.

Blue Energy will have access to (upon grant of the application areas) approximately 2,940km2 of area within the Maryborough Basin, and to date, along with its Joint Venture partner Adelaide Energy holds a dominant basin position.

Exploration activities in pursuit of the shale gas potential may involve "proof of concept" activities including the drilling of a vertical well (or wells) to obtain basic core data from the target shale. This will allow determination of shale thickness, organic content, mineralogy, gas content and permeability of the section of interest.

Prior to any drilling being undertaken, Blue Energy will conduct a baseline water survey in the region to establish the distribution and status of aquifers in the region. In addition, several other surveys will be undertaken as part of the conditions of permits granted by the State Government to explore for petroleum.

ATP813P is located in the central Galilee Basin in central west Queensland. The permit covers a large area and to date Blue Energy has drilled 5 CSG coreholes to assess the potential of the Late Permian coal sequences that are known to be present in the basin.

The data set acquired from the core holes drilled by Blue was sent to NSAI who have independently assessed the areas around the wells to contain 554 PJ of Contingent Resource (recoverable) and a further 1,143PJ of Prospective Resource (recoverable). The delineation of the gas resource by NSAI pertains to only 25% of the permit area. Plans for additional drilling are being formulated to address the remaining 75% of the permit area. Operators of adjacent permits have also recently released gas resource numbers for their permits and there is now a growing gas resource base emerging in the central part of the Galilee Basin.

There is currently no CSG production from the basin (compared to the Surat and Bowen Basins). As a result, this gives operating companies the opportunity to develop robust baseline aquifer conditions to establish the state of the aquifers in the broader Galilee Basin. The geology of the Galilee Basin is different to that of the Surat Basin, and the target Coal Seams in the Galilee Basin are of Permian age, compared to the coal seams in the Surat which are Jurassic. Accordingly, the issues currently debated in the Surat Basin regarding aquifer interaction are not directly transferable to the Galilee Basin. However, it is clear that this issue requires a proactive approach, and given the lack of CSG production in the Galilee thus far, it offered an ideal opportunity to acquire data to determine the state of the aquifers across the basin. Once completed, this study, conducted by an independent specialist and funded by a consortium of operators in the Galilee Basin, will be provided to the Queensland Water Commission for scrutiny and use in their modelling of the Great Artesian Basin aquifer.

This permit is located in the south-eastern Surat Basin, bordering the western edge of the Clarence-Moreton Basin. It is located in close proximity to Arrow Energy's Tipton CSG project. Together with the adjacent ATP896P held by Blue Energy, it provides a good address for potential CSG resources.

The principle play in the permit is the Walloon Coal Measure CSG play and to date, activity in the area by Blue Energy has targeted the adjoining ATP896P permit where 3 exploration core holes have been drilled. These wells have been drilled in the areas in closest proximity to the Tipton CSG project, however the southern part of ATP 818P does warrant further standalone exploration.

In conjunction with ATP818P, this permit occupies an attractive location in the eastern Surat Basin in close proximity to the Tipton CSG field operated by Arrow Energy. Blue Energy's initial exploration program in the permit focussed on the Jurassic Walloon Coal Measures and drilled three wells in the western portion of the permit. The results were disappointing with low net coal and low gas contents recorded from all three wells. As a consequence of these well results, Blue Energy is in the process of reassessing the potential of these eastern permits.

This permit is located near the township of Injune in Central Queensland and is in close proximity to the Fairview and Spring Gully CSG Fields operated by Santos Ltd and Origin Energy Ltd respectively. The Wallumbilla to Gladstone gas pipeline is in the north of this permit.

The CSG plays present in this permit include both the Walloon Coal Measures together with the Late Permian CSG play which is productive at Spring Gully and Fairview.

To date Blue Energy has tested both plays by drilling core holes at Itude (Walloon target) and Cerulean (Permian target). The Walloon play in this permit is located towards the depositional edge of the Surat Basin for the Walloon Coal Measures and as such there was risk in intersecting sufficient net coal with reasonable gas content given the shallow intersection of the coals. Indeed, the Walloon Coals that were intersected by the Itude wells exhibited low gas content and low net coal intersection. The Permian play was tested by the Cerulean wells in early drilling (two coreholes plus a single well pilot production test well). This drilling established the presence of coal with good gas content. The Pilot production well however was not successful as sustained gas flow rates were not achieved. Consequently, additional program is planned to utilise a lateral well drilled to intersect the existing pilot production well at Cerulean 2. This will expose significantly more coal thickness than existed in the original vertical well and therefore give the best chance for this play to demonstrate economic flow rates. Timing of this new program is dependent on funding.

ATP817P is composed of 3 separate and non-contiguous blocks in the western Surat Basin and Denison Trough area. The closest townships to these blocks are Mitchell, Injune and Emerald in Queensland. ATP817P Central has been the focus of early CSG exploration by Blue Energy, however with little success. Coals that were intersected by the Azure wells displayed very low gas content for a Permian coal sequence. As a result further drilling in the Central Block has not yet been undertaken. A better understanding of the mechanism creating this low gas content is required before additional drilling is undertaken.

The northern area of ATP817P (ATP817P North) has access to Denison Trough conventional and unconventional gas plays. Blue Energy has not yet drilled in this Block, but is studying these plays and the potential prospectivity of this part of the permit. This Block is immediately west of the Arcturus conventional gas field, and is known to have structural closures within the Block. Coals are present within the Denison Trough stratigraphic sequence, most notably within the Mantuan Beds and the Reids Dome Beds.

The southern part of the permit Ð ATP817P South also has both conventional and unconventional potential. As yet this potential has not been quantified.

ATP819P is located in the western Surat Basin region around the St George district of Queensland. It covers a large area and has both conventional and unconventional hydrocarbon potential. Activity to date has been restricted to the drilling of the Ballangarry 1 well in 2010, which targeted the Cretaceous section. Geological and geophysical work is ongoing to establish the unconventional prospectivity of the permit.

These application areas lie in the northern part of the Cooper/Eromanga Basin area in western Queensland. Accordingly, they are within a major producing basin which is undergoing resurgence in activity, driven by historically high oil prices and the emerging shale gas play.

The grant of these permits is awaiting negotiation and execution of Native Title agreements. These areas will contain the conventional hydrocarbon plays of the Cooper Basin including oil and some Permian gas potential. Oil generated in the mature section of the Permian sequence may have been expelled from those source kitchens and migrated into overlying Jurassic reservoirs.

The application areas are also well situated, in close proximity to infrastructure, with the Carpentaria Gas pipeline from Ballera to Mt Isa passing through the application areas. In addition, the Inland oil field is adjacent to the application blocks.