ORION PETROLEUM LIMITED ACTIVITIES REPORT FOR THE QUARTER ENDED 31 MARCH 2010 HIGHLIGHTS New Director and Chairman, Robert Willcocks, appointed. Former Chairman, Dennis Morton remains as a Non-executive Director. Proposed merger with Gas2Grid via a Scheme of Arrangement abandoned following revision of independent expert s opinion. Conditional scrip takeover bid announced by Octanex NL. Orion target s statement to be dispatched to shareholders around end-april. Eastern Star Gas completes Stages 1 and 2 of CSG farmin into PELs 6, 427 and 428. More CSG drilling planned for June. Toenda-1 exploration well in PEL 6 spudded post -end. CORPORATE New Chairman Appointed Orion was very pleased to announce the appointment of Mr Robert M Willcocks as an additional independent director to the Orion Board, effective from 16 April 2010. Mr Willcocks has also assumed the role of Non-executive Chairman of Orion. The former Chairman, Mr Dennis Morton, will remain on the Board as an independent Non-executive Director. Mr Willcocks is a former senior partner with Mallesons Stephen Jaques, the major Australian law firm, and is now a corporate adviser. Mr Willcocks has represented clients in the energy and mining sectors for more than 30 years. He is currently a Non-executive Director of CBH Resources Limited and Arc Exploration Limited (both listed on the ASX), APAC Resources Limited, a Hong Kong listed company (an investor in the resources industry) and Chairman of Trilogy Funds Management Limited, a Responsible Entity. He is also an Alternate Director of Mt Gibson Iron Limited. Given Mr Willcocks s background and wide corporate experience, the Orion Board believes that he will prove invaluable to the company as it moves forward.
Gas2Grid Merger The proposed merger of Orion Petroleum and Gas2Grid Limited (ASX: GGX) which was first announced on 15 October 2009 was abandoned on 11 March 2010. This action followed advice from the independent expert engaged by Orion that it would be revising its opinion on the fairness of the merger terms from advice previously sent to Orion shareholders. Under the original merger schedule, Orion shareholder approval was necessary to acquire Gas2Grid shares and options from the then-chairman, Dennis Morton and his associates, to allow the merger to proceed. A report prepared by BDO Securities (NSW-VIC) Pty Ltd contained in the Notice of General Meeting sent to Orion shareholders found that the proposed transaction was fair and reasonable to Orion shareholders whose votes were not to be disregarded (i.e. Dennis Morton s votes). Subsequently shareholders strongly approved the requisite resolution at a General Meeting held on 26 February 2010. However following the meeting, BDO advised that it would be required to change its conclusion based upon revisions to the technical expert s valuation which formed part of BDO s report. Given that the independent expert would no longer find the proposed deal fair, the Orion directors could no longer recommend the transaction and the merger plans were abandoned. Orion and Gas2Grid will continue to explore mutually beneficial opportunities to work together in the future and, should the opportunity arise to do so, the market will be kept fully informed. Takeover Bid by Octanex NL On 18 February 2010, Octanex NL (ASX: OXX) announced its intention to make a highly conditional scrip takeover bid for Orion. Subsequently Octanex filed its Bidder s Statement with the ASX and Orion on 1 April 2010 and was due to dispatch the document to Orion shareholders by 18 April 2010. Orion s lawyers raised a number of issues and deficiencies in the Bidder s Statement with Octanex which has resulted in Octanex filing a replacement Bidder s Statement on 16 April 2010. This latter document will now be sent to shareholders on Friday, 23 April 2010. Orion will be dispatching its Target s Statement to shareholders in response to Octanex s bid within 14 days following the mailout of the Octanex replacement Bidder s Statement. The Target s Statement will contain recommendations from the Orion directors. In the meantime shareholders should not act on any communications from Octanex. If shareholders have any questions concerning the Octanex bid for their shares they should call the Orion Shareholder Information Line on 1300 653 369 (toll free within Australia) or +61 2 8986 9329 (outside Australia), available Monday-Friday between 9,00 am and 5.00 pm (Sydney time). Orion Petroleum Limited 2 Quarterly Activities Report
OPERATIONS Surat-Bowen & Gunnedah Basins, NSW Figure 1: Orion s Surat-Bowen/Gunnedah Basin Licences PEL 6 (Conventional: 97.5%-95%; CSG: 22.5%-20%) The PEL 6 licence has been renewed for a further two year term dating from 8 December 2009 by Industry & Investment NSW without any relinquishment. The committed work program consists of seismic and drilling activity for both conventional petroleum and coal seam gas (CSG). During the March the Milguy-1 CSG corehole was drilled to a total depth (TD) of 933m. The well was cored over the primary Triassic Moolayember Formation target intersecting approximately 6m of gassy net coal. Coal samples have been dispatched for laboratory analysis and finalisation of desorption testing. Following penetration of the main coal section within the Moolayember Formation, the drill string parted. After a number of unsuccessful attempts to engage and retrieve the lower section of the coring drill string, a decision was made not to deepen the well for stratigraphic information. The well was subsequently plugged and abandoned by the operator, Eastern Star Gas (ASX: ESG). The well is located approximately 18km to the north-northwest of the previous Gwydir-1 corehole which was drilled to the east of the fault-bounded edge of the southern Taroom Trough. It confirmed the presence of the Moolayember target with improved coal development interpreted in the middle of the trough. Orion Petroleum Limited 3 Quarterly Activities Report
To progress evaluation of the Moolayember Formation a third well is planned for drilling approximately 17km to the west-southwest on the western edge of the southern Taroom Trough. This will twin an existing conventional petroleum well, Camurra-1, which intersected 8.9m of net coal in the Moolayember formation, including a 3.6m seam in the upper portion of the target. The Camurra-2 CSG corehole is expected to be drilled during the June. A fourth well in also under investigation to test for Permian age coal development in the southern portion of PEL 6 and follow-up on strong seismic amplitudes identified at favourable depths by 2009 Moree North Seismic Survey. The drilling of Milguy-1 completes the second phase of the Eastern Star Gas CSG farmin program into licence PEL 6. The interests held by each of the licence participants post-farmin are now as follows: Licence Block Conventional Joint Venture CSG Joint Venture PEL 6 Edendale 95.0% 20.0% Remainder 97.5% 22.5% PEL 427 75.0% 25.0% PEL 428 60.0% 20.0% PEL 455 100.0% 100.0% Table 1: Orion s Post-Farmout Licence Interests Drilling plans for the Toenda-1 conventional oil and gas exploration well progressed during the March. The well is targeting the Mid-Permian age Upper Back Creek Formation sandstones that were found to be oil-bearing in Willaroo-1 located approximately 13km from the Toenda-1 wellsite. The mapped Toenda trap is on the footwall of the major Moonie-Goondiwindi Fault where three-way structural closure is complemented by interpreted updip fault seal. Since the end of the the well was spudded on 11 April 2010 using Lucas Drilling s Rig DRS26. By 20 April the well had been drilled to a depth of 1,571m. Down to that depth the primary objective had not been intersected. A likely interpretation is that the well path may have crossed the fault. Accordingly the well is to be plugged back and sidetracked to attempt to intersect the objective sands on the downthrown side of the fault. Orion Petroleum Limited 4 Quarterly Activities Report
Figure 2: Toenda Permian Depth Structure Map (c.i. 20m) PEL 427 (Conventional: 75%; CSG: 25%) & PEL 428 (Conventional: 60%; CSG: 20%) The results of the Moree-4 (PEL 427) and Kurrabooma-1 (PEL 428) CSG coreholes were reviewed by the respective joint ventures during February meetings. In PEL 427 the focus for future CSG drilling activity is shifting to the Bellata Trough area in the southernmost portion of the licence where the existence of Permian coals is considered most likely. The key CSG play in this region is the Maules Creek Formation and also potentially the Black Jack Formation, both of which are prospective in Eastern Star s PEL 238 immediately south of PEL 427. The current Edgeroi-2 well being drilled by ESG in PEL 238 located only about 5km from the corner of PEL 427 will be watched with interest and, if successful, could enhance the prospectivity for Permian coal in the south of PEL 427. A Bellata-3 well is planned for later in 2010 following up on the 1988 Bellata-1 well which encountered 6m of coal in the Maules Creek Formation. PEL 455 (100% interest) No significant activity was undertaken in PEL 455 during the. Orion Petroleum Limited 5 Quarterly Activities Report
Darling Basin, NSW Figure 3: Darling Basin Licence Location Map PELs 422 & 424 (100% interest) Renewal applications for both licences have been submitted to Industry & Investment NSW after licence expires on 1 February. Although official renewal confirmation is still pending, Orion understands that the proposed work programs for each licence have been accepted by IINSW. These will include a 25% relinquishment, seismic acquisition and an exploration well in each permit within the next two years. PEL 471 (100% interest) PEL 471 located on the western side of the basin covering the entire Bancannia Trough was awarded in May 2009 on a relatively minimal work program which included acquiring 50km of seismic data. Three wells have been drilled by previous operators in the trough, but all failed to test a valid structural closure in a crestal position. Orion has identified the presence of a large faulted anticline updip of the 1969 Jupiter-1 well. The structure, known as the Rigel prospect, encompasses a large area of mapped closure. The company is continuing to assemble technical information for the purposes of a farmout campaign. Orion Petroleum Limited 6 Quarterly Activities Report
EXPLORATION EXPENDITURE Total expenditure on exploration activities during the ended 31 March 2010 was approximately $173,000. A summary of Orion s financial position, including cash flow, available funds and changes to its asset register is contained in the attached statement. Russell Langusch Managing Director 23 April 2010
Rule 5.3 Introduced 1/7/96. Origin: Appendix 8. Amended 1/7/97, 1/7/98, 30/9/2001. Name of entity ORION PETROLEUM LIMITED ABN Quarter ended ( current ) 82 125 394 667 31 March 2010 Consolidated statement of cash flows Cash flows related to operating activities 1.1 Receipts from product sales and related debtors Current Year to date (9 months) 1.2 Payments for (a) exploration and evaluation (b) development (c) production (d) administration (173) (298) (302) (1,377) 1.3 Dividends received 1.4 Interest and other items of a similar nature received 135 374 1.5 Interest and other costs of finance paid 1.6 Income taxes paid 1.7 Other Net Operating Cash Flows (336) (1,305) Cash flows related to investing activities 1.8 Payment for purchases of: (a) prospects (b) equity investments (c) other fixed assets (4) (4) 1.9 Proceeds from sale of: (a) prospects (b) equity investments (c) other fixed assets 1 1.10 Loans to other entities (650) (650) 1.11 Loans repaid by other entities 1.12 Other Net investing cash flows (654) (653) 1.13 Total operating and investing cash flows (carried forward) (990) (1,958) + See chapter 19 for defined terms. 30/9/2001 Page 1
Cash flows related to financing activities 1.14 Proceeds from issues of shares, options, etc. 650 650 1.15 Proceeds from sale of forfeited shares 1.16 Proceeds from borrowings 1.17 Repayment of borrowings 1.18 Dividends paid 1.19 Other (provide details if material) Net financing cash flows 650 650 Net increase (decrease) in cash held (340) (1,308) 1.20 Cash at beginning of /year to date 11,802 12,770 1.21 Exchange rate adjustments to item 1.20 1.22 Cash at end of 11,462 11,462 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 $A'000 1.23 Aggregate amount of payments to the parties included in item 1.2 105 1.24 Aggregate amount of loans to the parties included in item 1.10 650 1.25 Explanation necessary for an understanding of the transactions 1.23 Directors Fees and Managing Director s salary. 1.24 Loan to Managing Director re incentive shares issued to him (shares held in escrow and subject to performance hurdles) 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 2.2 Details of outlays made by other entities to establish or increase their share in projects in which the reporting entity has an interest + See chapter 19 for defined terms. Page 2 30/9/2001
Financing facilities available Add notes as necessary for an understanding of the position. 3.1 Loan facilities 3.2 Credit standby arrangements Amount available Amount used Estimated cash outflows for next 4.1 Exploration and evaluation 2,600 4.2 Development NIL Total 2600 Reconciliation of cash Reconciliation of cash at the end of the (as shown in the consolidated statement of cash flows) to the related items in the accounts is as follows. Current Previous 5.1 Cash on hand and at bank 50 102 5.2 Deposits at call 11,412 11,700 5.3 Bank overdraft 5.4 Other (provide details) Total: cash at end of (item 1.22) 11,462 11,802 Changes in interests in mining tenements Tenement reference Nature of interest (note (2)) Interest at beginning of Interest at end of 6.1 Interests in mining tenements relinquished, reduced or lapsed 6.2 Interests in mining tenements acquired or increased PEL 6 CSG rights farmed out ESG Edendale Remainder Orion retains its interests in conventional oil and gas in PEL 6. ESG = Eastern Star Gas CSG = Coal Seam Gas 45% 47.5% 20% 22.5% + See chapter 19 for defined terms. 30/9/2001 Page 3
Issued and quoted securities at end of current Description includes rate of interest and any redemption or conversion rights together with prices and dates. 7.1 Preference + securities (description) 7.2 Changes during (a) Increases through issues (b) Decreases through returns of capital, buybacks, redemptions 7.3 + Ordinary securities 7.4 Changes during (a) Increases through issues: Total number Number quoted Issue price per security (see note 3) (cents) 160,000,000 155,000,000 5,000,000 incentive shares issued to Managing Director and held in escrow Amount paid up per security (see note 3) (cents) (b) Decreases through returns of capital, buybacks 7.5 + Convertible debt securities (description) ( 7.6 Changes during (a) Increases through issues: (b) Decreases through securities matured, converted: + See chapter 19 for defined terms. Page 4 30/9/2001
7.7 Options (description and conversion factor) 7.8 Issued during 7.9 Exercised during 7.10 Expired during 7.11 Debentures (totals only) 7.12 Unsecured notes (totals only) 4,250,000 115,000,000 450,000 250,000 100,000 NIL 115,000,000 NIL NIL NIL Exercise price $0.30 $0.30 $0.13 $0.12 $0.15 Expiry date 30/09/2012 30/09/2010 04/07/2011 20/03/2012 23/07/2012 Compliance statement 1 This statement has been prepared under accounting policies which comply with accounting standards as defined in the Corporations Act or other standards acceptable to ASX (see note 4). 2 This statement does give a true and fair view of the matters disclosed. Sign here: Date: 23April 2010 (Director) Print name: Russell D Langusch + See chapter 19 for defined terms. 30/9/2001 Page 5
Notes 1 The ly report provides a basis for informing the market how the entity s activities have been financed for the past 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 Nature of interest (items 6.1 and 6.2) includes options in respect of interests in mining tenements acquired, exercised or lapsed during the reporting period. If the entity is involved in a joint venture agreement and there are conditions precedent which will change its percentage interest in a mining tenement, it should disclose the change of percentage interest and conditions precedent in the list required for items 6.1 and 6.2. 3 Issued and quoted securities The issue price and amount paid up is not required in items 7.1 and 7.3 for fully paid securities. 4 The definitions in, and provisions of, AASB 1022: Accounting for Extractive Industries and AASB 1026: Statement of Cash Flows apply to this report. 5 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. Page 6 30/9/2001