RED SKY ENERGY LIMITED ANNOUNCEMENTCentral Petroleum Limited...

RED SKY ENERGY LIMITED ANNOUNCEMENT

Central Petroleum Limited (ASX:CTP) (CTP) refers to Red Sky Energy Limiteds (ASX:ROG) (ROG) Australian Stock Exchange (ASX) announcement dated 17 December 2009 and titled Farm-in Dispute Resolved (ROG Announcement).
The ROG Announcement and further agreement referred to in the ROG Announcement are matters which CTP is currently investigating with both Petroleum Exploration Australia Limited and ROG and assessing its legal position.
Whilst CTP and its subsidiaries would welcome Red Sky Energy (NT) Pty Ltd ("Red Sky") as a member of the various joint ventures which form part of the farm-out arrangements as referred in CTPs ASX announcement dated 30 September 2009, CTP has some concerns arising from the content of the ROG Announcement.

CTP highlights the following matters in respect to the farm-out agreement with Red Sky Energy (NT) Pty Ltd and ROG (FOA):

(a)
Under the FOA, Red Sky is under positive obligations to pay certain percentages of the costs of certain works in order to retain the 10% farm-in interest. These payment obligations includes (but are not limited to): (i) 20% of the cumulative Seismic Works (as defined in the FOA), up to a cap of $3 million (which equals a cap of $600,000 for the 20% component); (ii) 20% of the costs of Coring Works (as defined in the FOA) in respect of non-conventional reservoir wells; and, (iii) 20% of the costs of Drilling Work (as defined in the FOA) in respect of the first 3 prospective drilling targets. Having said that, Red Sky may elect not to participate in the cost of the drilling of the second or third prospective drilling targets at the 20% contribution rate. However, these are the only joint venture costs in respect of which Red Sky is given a right to make an election as to whether it wishes to participate. CTP wishes to emphasise that Red Sky does not have any similar right of election in respect of the broader activities or costs of the joint venture.

(b)
Red Sky is not in a position to walk away from the joint venture or its FOA obligations at any time. Whilst it is true, as mentioned above, that under the FOA Red Sky may elect not to participate in the second or third prospective drilling targets, in such an event Red Sky is still obliged to pay CTP in respect of all other financial commitments under the FOA and any minimum payment obligations under the Joint Operating Agreement (JOA), including but not limited to Red Sky's promoted 20% share of the cumulative Seismic Works costs up to a cap of $3 million.

(c)
ROGs description of the right to elect not to participate as an option to participate on a permit-by-permit basis is erroneous. Firstly, Red Sky has a negative option to elect not to participate in the cost of the drilling of the second or third prospective drilling targets, not a positive call on participation permit-by-permit. The purpose of the JOA is cooperation and joint-participation in developing the permits and ROGs description of Red Sky's obligations under the FOA goes against this purpose. Secondly, the FOA right to elect not to participate in the second or third prospective drilling targets does not attach to each permit, but rather to the agreed work program and the prospective drilling dates.

(d)
Upon becoming a member of the joint venture, Red Sky is under a number of obligations under the JOA which is the foundation of the joint venture. Red Skys JOA obligations will include, inter alia, the obligation:

(i)
to assist the other joint venture members and do all things necessary to give effect to the JOA;
(ii)
maintain, and meet the proportionate costs of maintaining, each permit;
(iii)
to take product;
(iv)
to provide all reasonable assistance in the conduct of the joint venture and the obligation to make full, frank and immediate disclosure and give truthful explanations of all matters coming to its attention in respect of the joint venture operations;
(v)
to abide by operating committee resolutions; and
(vi)
answer and pay cash calls when they fall due.

These points are not intended to serve as a summary of the rights and liabilities of Red Sky under the FOA and the JOA, but rather only to clarify certain aspects of the ROG Announcement.

We trust the above clarifies CTPs position in respect to the ROG Announcement.

Sincerely
John Heugh Managing Director Central Petroleum Limited