Continental, GeoPetro Sign LOI for Indonesian Farm Out

Continental Energy Corp. along with its joint venture partner GeoPetro Resources Co., has entered into a letter of intent (LOI) with CNPC (Hong Kong) Limited (CNPC-HK) to farm-out a 70% stake in its Continental-GeoPetro (Bengara-II) Ltd. subsidiary and its Bengara-II Production Sharing Contract (PSC) in Indonesia.

The LOI calls for closing on July 31, 2006, pending a definitive farm-out agreement providing for the detailed commercial terms of the deal not already agreed in the LOI. In addition, it is subject to a joint operating agreement to provide for joint petroleum operations in the Bengara-II PSC. Closing is also subject to completion of remaining legal and financial due diligence and to obtaining all necessary approvals.

Principle farm-out terms, agreed in the LOI and to be incorporated in the definitive agreements, include:

--Continental-GeoPetro (Bengara-II) Ltd. (CGB2) owns a 100% interest in the 3,649-square-kilometer Bengara-II PSC in East Kalimantan, Indonesia. Continental owns 60% of CGB2 and GeoPetro owns 40%. After the farm out of 70% to CNPC-HK, Continental will retain 18%.

--CNPC-HK will pay an Earning Obligation in cash at closing in the amount of US$18.7 million into a jointly controlled CGB2 account. The funds shall be used exclusively to pay for work on the Bengara-II PSC area, including the drilling of four exploration wells included in CGB2's approved 2006 work program and budget.

--CNPC-HK will pay for and carry all of Continental and GeoPetro's shares of exploration and development work until the earlier of 1) an additional amount of US$41.3 million over and above the Earning Obligation funds has been expended or 2) the month after the first commercial lifting of crude oil from the Bengara-II PSC is delivered and sold.

--CNPC-HK will also pay directly to Continental and GeoPetro a US$5 million cash bonus contingent upon the first commercial oil or gas discovery within the Bengara-II PSC area.

CNPC-HK is a 52% owned subsidiary of Beijing-based China National Petroleum Co. The remaining 48% is publicly held.

San Francisco-based GeoPetro Resources Co. has been Continental's partner in CGB2 and the Bengara-II PSC since 2000, owning a 40% share.

Continental Energy Corp. is a small oil and gas exploration company, focused entirely on shareholder capital appreciation through making a major oil or gas discovery in Indonesia.

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