ferret's stock to watch

Australia is in the forefront of developing coal bed methane
and coal mine methane projects around the globe.
European Gas Ltd (EPG), formerly known as Kimberley Oil NL, aims
to become a major coal bed methane producer from its highly prospective
hydrocarbon permits in France and Italy.
It has been attracting a lot of attention, particularly in the
stock market where price movements have brought a please explain from the
ASX this week.
Prices have been relatively modest, say from 42.5c to 31c on
nine million shares for the rolling week while the month turned over 53.9
million shares with prices between 42.5c and 19.5c.
One of the best reviews on the company has been produced by
research analyst Mario Maia at Martin Place Securities.
He is convinced the company is travelling in the right direction
and it is only a matter of time before European investors latch onto the
company's potential.
European Gas is now a hydrocarbon explorer/developer with
projects in western Europe.
The principal strategy of the company is to develop coal bed
methane and coal mine methane projects, in particular, in France where
the company holds a significant competitive advantage with major
holdings under licence.
The European natural gas market is substantial with advanced
infrastructure, including extensive pipeline networks and a free and
open market.
The company also holds over 30,000 square kilometres of
hydrocarbon exploration permits and production licences in the Canning
Basin of Western Australia.
These assets are currently undergoing divestment.
On January 24, the company changed its name from Kimberley Oil NL
to European Gas Ltd which was also the name of its wholly owned European
subsidiary.
The changes were approved by shareholders at the company's
annual general meeting held last November.
The name European Gas Ltd more accurately reflected the main
business of the company, shifting its focus from exploration and
production in the Canning Basin to the acquisition, evaluation and
development of high potential coal bed methane and coal mine methane.

SHARE PRICE MOVEMENTS
*********************

Shares of EPG yesterday slipped 1.5c to 39.5c. Rolling year to
date has been 42.5c and low 4.5c. The company has 139.9 million shares on
issue with a modest market cap of $57.3 million.
The company has changed its strategic focus from the Canning
Basin to the much more attractive European natural gas market.
The Bleue Lorraine Project in France (EPG earning 75 per cent)
has attributable gas-in-place resource of 743BCF for an in-situ value of
$8.9 billion.
The current resource covers 68 square kilometres or 15 per cent
of the permit of 460 square kms and comprises the Alsting and Saint Avold
areas, where net coal averages 35 metres from depths between 500 to
1,500m.
Core drilling is planned for the June quarter with a pilot
production program scheduled for the second half of this year.
Other European projects include 7,729 square kms acreage holding
comprising 6 granted permits and three under application licences in
France and Italy.
Several licences cover the entirety of historic coal mining
regions and potential exists for both coal bed methane and coal mine
methane.
EPG'S Australian portfolio comprises 30,000 square kms in
exploration permits, two production licences, rights over the Kolascai
oil solidification process and some petroleum infrastructure.
TSX-listed Golden Dynasty Resources to acquire up to 80 per cent
of EPG's subsidiary Terratek by spending $3.5 million over the next 24
months in a JV.
EPG is in process of divesting or reducing its exposure to all
other Australian exploration assets.
Researcher Maia points out there are growing concerns towards
energy supply security and Europe's increasing dependence on Russian
natural gas generates good opportunity for smaller players to supply
local markets, particularly from gassy coal seams within large historic
mining areas.
Mr Maia emphasises there are major risks for project success,
which include exploration, CBM properties, water disposal and commercial
development.
Further analysis, including gas content determination, core
drilling and well testing, is required to properly map the reservoir,
start pilot production and determine the percentage of the Lorraine
resource that can be commercially recovered.
Considering the likelihood of EPG achieving its exploration
and development goals, MPS Research has valued the company at $133
million or 91c per share fully diluted.
This valuation considers the recovery of only 20 per cent of
EPG's GIP estimate and does not incorporate any value for all the other
CBM/CMM projects in Europe.
Mr Maia believes EPG has an attractive portfolio of growth assets
where, despite the recent share price re-rating, there is still scope for
significant capital appreciation.

BACKGROUND
**********

Listed on the ASX in March 1998 as Kimberley Oil NL, the
company was primarily focused on hydrocarbon exploration and oil
production from five oilfields and 30,000 square kms in tenement holdings
within the Canning Basin.
In late 2003, the company made its first move towards entering
the coal bed/mine methane (CBM/CMM) in Europe, with three applications
lodged for permits in France and one in Italy.
In November 2004, the company was granted permits for the Bleue
Lorraine, Gaz de Gardanne and Gaz de Saint Etienne permits. Each permit
grants the rights to all the hydrocarbons within the permit including CBM
and CMM. The company has the right to earn up to 75 per cent
interest in each permit from UK-based Heritage Petroleum Plc.
Following its decision to focus on the European permits, the
company changed its name to European Gas Ltd in January.
EPG's asset portfolio now encompasses six granted permits,
three licences under application and 991BCF (100 per cent) of
gas-in-place resources within 8,189 square kms of tenements in France and
Italy.
The company is in process of divesting its exploration and
production assets in Australia to focus solely on its CBM & CMM European
prospects.