Petsec to Take Stake in Additional OCS Leases

Petsec Energy reported a significant expansion of its leasehold position in the U.S. Gulf of Mexico with the formation of a new exploration joint venture covering 33 lease blocks in the Outer Central Shelf (OCS) waters of the Gulf.

Petsec will acquire a 50% interest in 28 lease blocks, a 25% interest in 5 additional lease blocks, and the right to participate in future MMS lease sales with the group for up to a 35% working interest.

Terms of the deal are US$9.8 million (A$13.0m) cash reimbursement to the sellers, plus retention of a 20% after payout back-in on the initial 33 leases. Petsec anticipates being named operator on a significant number of the leases.

Over 36 prospects have been mapped to date with an estimated net unrisked potential of 157 Bcf of gas and 29 million barrels of oil. Within this potential is an estimated 43 Bcfe of gas net, discovered by prior drilling. The leases, which have all been acquired at OCS lease sales in 2005 and 2006, are expected to be tested over the next two to three years. First drilling is targeted to commence by November 1, 2006 and will be a 2- to 5-well program in the Mobile Bay Area.

Commenting on the acquisition, Petsec's Executive Chairman, Mr. Terry Fern said "this transaction increases our leasehold position in the Gulf of Mexico from 17 to 50 leases and provides a substantial boost to our inventory of high quality drillable prospects with the potential to create significant growth for shareholders."

"In addition, the ongoing joint venture relationship will supplement our exploration program providing access to a steady stream of prospects ensuring a high level of drilling inventory."

The transaction is expected to close on August 17, 2006.

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