Beach Increases Stake in New Bass Strait Oil & Gas Development

The expanding oil and gas reserves base of Beach Petroleum is set to receive a further boost with plans announced today for the Company to acquire an additional stake in a new Bass Strait development.

Beach Petroleum said it intends to exercise its pre-emptive right to acquire an additional 12.5% interest from Anzon Australia Limited in the Basker, Manta and Gummy ("BMG") oil and gas project in the Gippsland Basin, offshore eastern Victoria.

The acquisition of this interest will add a further 2.9 million barrels of 2P reserves to Beach Petroleum's reserves base, based on Operator's assessments.

The decision follows Beach Petroleum's acquisition late last year of a 25% interest in the project currently being developed under a Joint Operating Agreement (JOA) with Anzon.

Pre-emptive right

The additional interest – taking Beach Petroleum's holding to 37.5% - became available earlier this week when Anzon announced it had agreed to sell a 12.5% equity stake in the VIC RL 6, VIC RL 9 and VIC RL 10 Retention Leases to an unidentified third party.

This triggered the pre-emptive rights held by Beach Petroleum under the existing JOA with Anzon, giving Beach Petroleum until 8 August 2005 to exercise its right.

As well as the 37.5% interest in the project, Beach still has an option to acquire a further 12.5% farm-in interest and the Company also owns a direct shareholding in Anzon of approximately 10%.

Beach Petroleum also today announced details of a $76.8 million capital raising to fund acquisition of the additional 12.5% interest, strengthen the Company's balance sheet to take advantage of future corporate expansion opportunities.

The funds have been raised through the placement of 120 million fully paid ordinary shares at $0.64 per share to institutional and sophisticated clients of Euroz Securities Limited.

The placement will be made in two tranches. The first tranche of 49.6 million shares expected to be completed on 4 August 2005 and the second tranche of 70.4 million shares will be completed subject to Beach shareholders approving the issue of those shares at a general meeting to be held in Sydney on 1 September 2005.

The Company issued bonus options to shareholders on 31 March 2005, noting that Directors wished shareholders to get the benefits of the Company's ongoing investment in projects that offer the potential for increased value, such as the BMG project. These options, which expire on 30 June 2006, are exercisable at a price of 60 cents, which is at a discount to the placement price.

Beach has agreed to acquire the additional 12.5% interest from Anzon on the terms as set out in Anzon Australia Limited's announcement on Monday this week, being primarily $30 million in August 2005, and a further payment of $9 million in January 2006.

"Beach growth strategy" – Managing Director

"This additional key interest not only further consolidates our position in the Gippsland Basin but also represents substantial progress in the strategy of establishing Beach as a long-term, mid-tier Australian oil and gas producer," Beach Petroleum's Managing Director, Mr Reg Nelson, said today.

"Prior to our initial entry into this project, Beach's total oil reserves were around 5 million barrels," he said.

"This latest transaction will see that total oil reserves figure rise to nearly 14 million barrels and boost Beach's oil production potential to more than 3 million barrels per year in 2006-2007 (based on the operator's forecast).

"It is a most pleasing growth investment in a quality asset and follows our successful move to full ownership of Beach's flagship onshore Cooper Basin production assets, the Kenmore-Bodalla oil blocks."

Basker, Manta and Gummy fields development

Anzon acquired 100% of the Basker, Manta and Gummy (BMG) petroleum assets from Woodside Petroleum last year.

The fields have Proven and Probable (2P) recoverable oil reserves of 23.3 million barrels (mmb). In addition, a contingent gas/condensate resource of 19.2 million barrels of oil equivalent (mmboe) has been identified.

Earlier this month, the project achieved its first significant step in the development approvals process when the Victorian Government granted approval for the drilling of the appraisal well Basker-2.

The semi-submersible drilling rig, the Ocean Patriot, is expected to arrive at the Basker Field in early August to commence drilling Basker-2.

Basker-2 is expected to spud in early August and will be immediately completed and connected for extended production testing through the Crystal Ocean FPSO (Floating Production, Storage and Offtake vessel) with oil immediately transferred into the Basker Spirit tanker for storage and subsequent sale.

Production testing is expected to commence in October and continue for a period of approximately 6 months. Drilling of 3 further development wells and one gas injection well is expected to commence in December 2005, leading to the commencement of full field production in July 2006.