Beach Petroleum Moves into European Energy Market

Beach Petroleum announced its first foray into the European Oil and Gas industry by moving into Spain's energy sector in a bid to become a long-term supplier to Europe's high demand, high paying power markets.

The move is the first to be executed by Beach resulting from its decision, some 12 months ago, to expand its exploration activities outside of Australia and New Zealand. As part of this strategy, Beach expects to announce further international transactions in the near term.

The move will propel the top ranked mid-cap ASX-listed oil and gas company into Europe's energy industry for the first time, adding to Beach's exposure to substantial onshore and offshore oil, gas, coal seam gas and geothermal interests throughout Australia and New Zealand.

"Beach is setting its ambitions on now becoming more active outside of its traditional areas of interest. The first result of this team looks very compelling and demonstrates the worth of our people to find good quality opportunities and exploit them."

"We have seen a number of prospective areas close to prolific hydrocarbon production where modern seismic technology can be used to unlock hidden opportunities," said Beach Petroleum Managing Director, Reg Nelson.

One such area in Spain is Beach's initial focus. A previously less demanding Spanish gas market and challenging seismic data quality have historically combined to deter exploration in some significantly prospective parts of the country. That has now changed with Spain emerging as one of the world's most rapidly expanding gas markets and improved seismic technology providing better images of the subsurface.

The initial entry cost into Spain of approximately $3 million to fund a seismic survey will deliver Beach a 25% stake in four highly prospective gas bearing tenements between Barcelona and Madrid with the remaining 75% held by Serica Energy plc. Serica is an international oil & gas exploration and production company with operations in the UK North Sea, Norway, Ireland, Spain, Indonesia and Vietnam.

Adelaide-based Beach describes the argument driving its European foray as "compelling," saying the Company is setting its sights on greater exposure to international energy assets and prices as a key plank to achieve long-term future growth and portfolio balance alongside its ongoing Australian focused endeavors. Its alliance with Serica builds on its increasing links with internationally based companies such as Itochu Corporation, now in joint venture with Beach in the BMG Project.

Beach Petroleum will acquire a 25% interest in four onshore tenements in the Ebro basin in Spain considered highly prospective for natural gas discoveries. The Ebro Basin lies in northeastern Spain, south of the Pyrenees Mountains, which separate it from the Aquitaine Basin in southwestern France. The Aquitaine Basin is a prolific oil and gas producing region with recoverable reserves presently estimated at around 11 trillion cubic feet (tcf) and 470 million barrels of oil. There are strong indications that the Ebro Basin is also prospective, "High gas prices (above $US8 per gigajoule) and very strong demand in the European market provide a powerful commercial incentive to explore for gas in this region," Mr. Nelson said.

Analysts believe that natural gas demand will rise significantly over the next 15 to 20 years in Western Europe. Without new discoveries the anticipated surge in gas demand will coincide with rapidly depleting supplies in Western Europe and increasing reliance on more remote supplies from Russia, North Africa and imports of LNG. Mr. Nelson said he expects that with liberalization of European gas markets and the development of gas hubs that there will be an increasing shift to long term contracts linked to spot gas price indexation – and strongly influenced by oil prices. The presence in the Ebro Basin of potentially very large structures and known hydrocarbon seeps indicate that this area has the potential to host natural gas fields with up to 1 tcf of recoverable volumes. Nearby gas fields include Serablo, approximately 10 km from the Beach tenements.

Improvements in seismic technology have improved the ability to image the complicated subsurface geology and presently three large targets (Torres, Fabregas and Casillas) have been identified for further seismic prior to drilling. Beach estimates that the largest of these could contain between 0.5 to 1 tcf of recoverable gas. Mr. Nelson said a major gas trunkline passes through the tenements and connects the region to Barcelona and other major centers in Spain providing ready access to markets for any new discovery.

A 330km 2D seismic program is already underway in the tenements, following a 15km test line acquired in July 2007. Exploration drilling, dependent upon the seismic results, is expected in financial year 2008/9, subject to rig availability.

"This new initiative is part of building a high impact exploration portfolio for Beach to match its now very strong production assets and to provide future growth", Mr. Nelson said.

"We believe that Australian domestic gas prices must move towards global prices in the next few years, but the ability to discover large gas fields internationally where demand is high and prices are two to three times greater is most compelling," he said.