Medco Farms Out Stake in Yapen Block Offshore Indonesia

Continental Energy has entered into farm out and joint operating agreements involving its Yapen Block exploration concession area in Indonesia.

Under the terms of the farm out agreement, Continental's partner company in its Yapen Block production sharing contract area offshore Papua, Indonesia, Medco E&P (Yapen) Ltd. is farming out 75% of its Yapen Block interest to Maraja (Yapen) Energy Ltd. Medco retains a 15% stake in the Yapen Block.

Maraja will also assume daily operations of the Yapen Block from Medco. Under an arrangement with Maraja, Continental will manage exploration activities on the Yapen Block, and Maraja will provide financial management.

The farm out agreement requires the drilling of at least two exploration wells prior to September 27, 2005 on the highly prospective 2.4 million acre Yapen Block, located offshore Papua (Irian Jaya). Estimated cost to drill the two exploration wells is in excess of (US) $10 million.

Continental's 60% owned subsidiary, Continental-GeoPetro (Yapen) Ltd., owns a 10% carried interest in the Yapen Block, and its share of exploration costs are carried to first discovery by Medco and Maraja. Continental-GeoPetro (Yapen) Ltd.'s interest is otherwise unaffected by the farm out and change of Yapen Block operatorship.

Maraja is a business unit of a privately owned Indonesian based company with a wide range of oil and gas production and transport businesses internationally.

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