Pacific Energy Limited

Pacific Energy Limited ANNOUNCEMENT TO THE AUSTRALIAN SECURITIES EXCHANGE: 4 DECEMBER 2008 PACIFIC ENERGY ACQUIRES KALGOORLIE POWER SYSTEMS DELIVERING 100MW OF INSTALLED GENERATION Pacific Energy Limited (Pacific Energy or the Company) is pleased to announce that it has reached agreement to acquire the assets and undertakings of Kalgoorlie Power Systems (KPS or KPS Business). KPS owns power stations with total installed generation capacity of approximately 100MW plus another 50MW of spare generation plant and equipment available for future growth. The installed capacity is made up of 11 natural gas, diesel and dual fuelled power stations located at mine sites across Western Australia and Northern Territory. KPS is currently negotiating contractual arrangements to secure up to 20MW of new power station capacity for installation in 2009. The KPS Business has achieved significant profits for over 15 years and has a projected 2009 EBITDA of $17M. The acquisition of KPS expands the scale, capacity and capability of Pacific Energy and complements the Company s existing hydro-electric operations and advanced renewable energy development activities. Typical KPS Power Station Highlights: The highlights of the KPS acquisition include: Projected 2009 KPS EBITDA of $17M; Projected Pacific Energy 2009 NPAT of $10M and EPS of 6.7 cents; Provider of critical energy infrastructure; Conservative leverage Net Interest Cover in excess of 7 times; High margin business with significant barriers to entry; Contracted medium to long term revenues with take or pay terms; Vendor and employee capability and services retained; Established and proven track record with leading global and domestic mining clients; Significant cost structure advantage over its competitors; Market leader in power station reliability, availability and efficiency; Contracts typically rollover with life of mine extensions; Pacific Energy Limited ASX Release KPS Acquisition Page 1

Ability to redeploy assets upon cessation of mine operations; and Significant opportunity for both geographical and industry expansion. The commercial terms of the acquisition, which are subject to Pacific Energy shareholder approval include a net purchase price for the existing KPS Business of $77M comprising a net cash payment of $49.5M, vendor finance of $15.0M and Pacific Energy shares to the value of $12.5M issued at $0.25 per share. A funding package of $79M has been arranged subject to Pacific Energy shareholder approval and the achievement of certain conditions. This package comprises a $32M zero coupon exchangeable bond issue convertible into Pacific Energy shares at $0.275 per share, the issue of $10.5M of Pacific Energy shares at $0.25 per share and a $28M senior secured term loan facility. Additionally, Pacific Energy is entitled to the net operating cashflow of KPS from 1 August 2008 to settlement which is forecast to be $8.5M. At settlement, the KPS Business is forecast to have an $8.0M cash balance for working capital. The Notice of Meeting, Explanatory Statement and Independent Expert s Report to shareholders will be dispatched to shareholders within the next two weeks. Pacific Energy s Managing Director, Mr Adam Boyd said: The acquisition of KPS together with the Vendor becoming the largest shareholder of the Company is an extraordinary opportunity for Pacific Energy. The transaction represents an exciting, company making development through the acquisition of a significant power generation business with a diversified risk profile given the 11 discrete power stations that make up the existing KPS power station portfolio. The acquisition presents a compelling investment for Pacific Energy Shareholders. With forecast 2009 NPAT of $10M and Earnings Per Share of 6.7 cents, the Company will become highly profitable and able to utilise these earnings to further grow its business. KPS has an exceptional track record in delivering cost-effective reliable power to its extensive and highly credentialed client base. The opportunity for Pacific Energy to expand the reach of KPS to provide power infrastructure to resource and other supply applications across Australia and internationally with the ongoing assistance of the Vendor is compelling. Expansion opportunities also exist for KPS in the WA capacity market. The acquisition of KPS significantly enhances the scale and capacity of the Pacific Energy group. The Company s funding capacity will also be greatly enhanced, improving our project delivery credentials and complementing both our existing hydro-electric operations and our biomass renewable energy plans. Post acquisition Pacific Energy will emerge as a substantial energy utility company with significant and multiple growth prospects. Enquiries to Mr Adam Boyd Managing Director Contact Details: Telephone: (+61 8) 9214 7888 Mobile: (+61) 439 693 556 Facsimile: (+61 8) 9324 2888 Pacific Energy Limited ABN: 22 009 191 744 Level 5, 150 St Georges Terrace, PERTH Western Australia 6000 T: +61 8 9214 7888 F: +61 8 9324 2888 E: info@pacificenergy.com.au Page 2

Overview of KPS Acquisition The KPS Business was founded by the Vendor in 1981 and has its main office, workshops and storage facilities in Kalgoorlie, Western Australia. These premises will continue to be utilised by the KPS Business. Historically, KPS has focused its activities in the WA Goldfields, North West WA and Central Northern Territory. Pacific Energy intends to grow the KPS Business through the expansion of its geographical scope domestically and subsequently abroad. The 50MW of spare plant and equipment capacity acquired with the KPS Business and available for redeployment provides KPS with the ability to deliver responsively to existing and future client growth opportunities. Significant opportunities for expansion into new markets Leverage blue chip client relationships across their multiple projects WA North-West 1 power station 9MW active capacity NT Central 2 power stations 23MW active capacity International Expansion Opportunities WA Goldfields KPS Office and Workshop 8 power stations 70MW active capacity Domestic Expansion Opportunities The Company intends to maintain the existing KPS business model which includes each power station installation being supported by long term power supply contracts, structured on a take or pay basis for quality mining operations. A key competitive advantage of the KPS Business has been established and maintained through design and development improvements to its power supply solutions. This will continue to be an ongoing focus of KPS. KPS has approximately 20 personnel. The Vendor will become Pacific Energy s largest shareholder and continue to oversee and transition the KPS Business and activities. The forecast revenue exposure of the existing power station fleet by commodity for the period from 2009 to 2014 principally comprises 65% gold and 30% nickel (majority Cosmos and Sinclair). Pacific Energy Limited ASX Release KPS Acquisition Page 3

Consideration The net consideration for the purchase of the KPS Business is $77M. The following table summarises the consideration to be paid by Pacific Energy for the KPS Business. Description Note Cash Payment ($ M) PEA Equity ($ M) Total ($ M) Net Cash Consideration 1 49.5-49.5 Pacific Energy Shares 2-12.5 12.5 Vendor Converting Note 3-15.0 15.0 Vendor Options 4 - - - Total 49.5 27.5 77.0 Notes: 1. The effective date of the acquisition from which Pacific Energy receives the net operating cash flows is 1 August 2008. KPS net operating cash flow from 1 August 2008 to 31 January 2009 is forecast to be at least $8.5M. The KPS net operating cash flow effectively offsets part of the Cash Consideration of $58M. 2. 50M Pacific Energy shares at an issue price of $0.25 per share. 3. The Vendor is to be issued a $15M zero coupon, two year converting note with a $1M redemption premium, paid only if redeemed by Pacific Energy. Where not redeemed by Pacific Energy at maturity the Vendor Note automatically converts into PEA ordinary shares at the greater of: 10% discount to the 60-day VWAP at maturity; and $0.25 per share. 4. The Vendor will also receive 5M options to acquire Pacific Energy shares at an exercise price of $0.40 per share expiring at 31 December 2012. Contingent Consideration The Vendor will also be entitled to further deferred consideration up to a maximum of $20M, contingent upon the achievement of significant revenue and power supply contract growth outcomes during the 2- year period to 31 December 2010. The contingent consideration arrangements are to be paid 50% in cash and 50% Pacific Energy shares at an issue price of $0.25 and have been structured to further align the Vendor with the growth strategy of Pacific Energy for the KPS Business. Should contingent consideration be paid, the achievement of the relevant revenue hurdle will be EPS accretive for Pacific Energy. Funding Arrangements A total of $79.0M in cash funding has been arranged to finance the acquisition of the KPS Business by Pacific Energy subject to the satisfaction of conditions precedent. The financing has been structured to maximise the earnings per share outcomes for Pacific Energy shareholders without significant exposure to interest bearing debt. The following table outlines the sources and applications of funding for the KPS acquisition. Funding Required ($ M) Note Funding Sources ($ M) Note Upfront Vendor Payment 58.0 1 Senior Debt Facility 28.0 Transaction Costs 10.0 Zero Coupon Exchangeable Bonds 32.0 Working Capital 11.0 Ordinary Share Placement 10.5 KPS Net Operating Cash Flow 8.5 1 Total 79.0 Total 79.0 Note: 1. KPS net operating cash flow from 1 August 2008 to 31 January 2009 is forecast to be $8.5M. The $58M Upfront Vendor Payment less this $8.5M amount totals $49.5M. Pacific Energy Limited ASX Release KPS Acquisition Page 4

Senior Debt Pacific Energy is advancing final approval with a leading Australian bank to provide a 4-year $28M fully amortising senior debt facility. At 1.6 times forecast 2009 EBITDA, the senior debt component represents conservative gearing, particularly given the long-term contracted nature of KPS revenue. Exchangeable Bond Terms The zero coupon Exchangeable Bond issue has been structured to ensure the debt servicing obligations of Pacific Energy are limited to the senior debt interest and repayments in the 4-year period post acquisition. Pacific Energy has secured the following commitments to participate in the Exchangeable Bond issue subject to the satisfaction of conditions precedent: $17M Pacific Road Resources Funds; and $15M The Vendor The key terms of the Exchangeable Bonds include: Issuer Pacific Energy subsidiary Value/Security $32M, unsecured Term 4 Years Interest Rate Nil Redemption Premium 4% per annum accruing, paid only upon redemption Exchangeability Exchangeable at Face Value into PEA ordinary shares Face Value $0.275 Reset 18 months reset if 30 day VWAP is less than Face Value Reset Exchange Price Reset Price = 10% premium to 30 day VWAP subject to a minimum of $0.25. Placement of Shares As part of the financing Pacific Energy will undertake a placement of $10.5M at $0.25 per share. The capital raising will be cornerstoned by Pacific Road Resources Funds and Argonaut Equity Partners (as principal), who have committed to subscribe for $7M. Funding Arrangements Contingent Consideration The maximum cash component of the Deferred Contingent Consideration during the 2-year period to 31 December 2010 is $10M. The KPS Business is expected to generate sufficient free cash flow to fund the cash component of the potential deferred consideration. Argonaut Capital Limited is acting as Pacific Energy s corporate and financial advisor and has arranged all funding for the acquisition of KPS. Background The Pacific Road Resources Funds are private equity funds investing in the global mining industry. They provide exploration and buyout capital for mining projects, mining related infrastructure and mining services businesses located throughout resource-rich regions of the world. The Pacific Road Resources Funds are managed and advised by Pacific Road Capital Management Pty Limited ( PRCM ). The PRCM Team, located in Sydney Australia and San Francisco USA, is comprised of experienced mining investment professionals that have extensive experience in the mining, energy and infrastructure sectors, including considerable operating, project development, transactional and investment banking experience. For further information about the Pacific Road Resources Funds and PRCM, please go to their website at www.pacroad.com.au. End. Pacific Energy Limited ASX Release KPS Acquisition Page 5