Arc Acquires Interests in Canning Basin Blocks

Arc Energy Limited has further consolidated its position in the Canning Basin with the acquisition of a significant portfolio of interests in the southern part of the basin. The new acquisition covers some 65,000 square kilometers, nearly doubling the size of Arc's existing total Canning Basin portfolio and providing access to new play types in a highly prospective area.

Arc has acquired interests in five blocks, consisting of 4 permits (EP 442, EP 443, EP 450 and EP 451) and one application area (App 9/98-9), all of which are currently held by a private unlisted company, New Standard Exploration Pty Ltd (NSE).


The newly acquired interests are mainly located in the Kidson Sub-basin of the Canning Basin. The Kidson Sub-basin contains a unique petroleum system not adequately covered by ARC's current Canning Basin interests. This farmin will provide an opportunity to systematically test the prospectivity of this petroleum system and the Kidson Sub-basin. Arc's structured exploration program in the greater Canning Basin covers each of the other major Sub-basin's, with this year's program targeting the Fitzroy Trough in the north of the basin where the Valentine well is currently being drilled.

The petroleum system in the Kidson Sub-basin has never been systematically tested, but several wells have encountered significant oil columns, and the Sub-basin contains a widespread salt horizon (the Mallowa Salt of the Carribuddy Formation) which provides a regional top seal to good source and reservoir rocks beneath. Similar petroleum systems in the Middle East are extremely prolific.

Farmin Program

In each of the blocks Arc has been assigned a 10% interest and operatorship and will earn another 35% in each of the blocks at the completion of the acquisition of a total of 1,000 kilometers of 2D seismic data over the blocks. The seismic data will be apportioned over the blocks so as to satisfy the government work commitments (a total of 800 kilometers) and to confirm prospects for drilling.

It is anticipated the seismic program will be acquired during the 2008 dry season. Arc may then earn up to a further 30% interest in all of the blocks by the drilling of up to three wells, with a 10% interest being earned upon the completion of each well. On completion of the three well earning program Arc will hold a 75% interest in each block. Together with the drilling associated with a farmin agreement that NSE has entered into with PetroSun for a sub-block from EP442, this program will substantially satisfy the Western Australian Government's work program commitments on the blocks.

Share Purchase

As part of the agreement with NSE, Arc has agreed to subscribe for 8,333,333 new ordinary shares in NSE with a total value of A$1.5 million. This will give Arc approximately 20% of NSE. NSE will also have the right to raise up to a further A$1.0 million with outside parties on the same terms as the Arc investment. On completion of the Arc purchase, Arc will have the right to nominate one director to the NSE board. Arc will also have a right of first refusal over future fund raisings undertaken by NSE.

Commenting on the acquisition, Arc Managing Director, Eric Streitberg, said:

"This transaction substantially completes Arc's acreage acquisition program in the greater Canning Basin. We have increased our holdings from some 75,000 square kilometers to some 140,000 square kilometers and now hold an acreage position in the Canning Basin that is twice the size of Tasmania! The NSE agreement gives us access to the Kidson Sub-basin, the last major Sub-basin that we have identified as being geologically prospective and having significant commercial potential. From what data we have, the Kidson looks very prospective for oil but exploration is at an early stage. We have designed the farmin program to systematically explore the Sub-basin as we have done with the other Canning Sub-basins and it should give us the best chance of making a discovery. We intend to commence work on the NSE acreage next year through a substantial seismic acquisition program and then progress the acreage from there."

We are well underway with our three year Canning Basin exploration program with the Fitzroy Trough Sub-basin program kicking off with the Valentine 1 well, which has had some very encouraging gas shows to date, and the 2007 seismic program anticipated to commence next week."

Arc Energy is one of Australia's pre-eminent energy companies, owning and operating oil and gas interests in the Perth, Canning and Bass basins, and internationally.


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