kea drilling programme

As announced today in London:

Drilling Programme

Rig Contracts

Subsequent to the last Chairman's statement, Kea has entered into a drilling rig contract for the shallow well programme with Drill Force. The Drill Force rig will be used for Kea's shallow well programmes including Puka-1, Angus-1 and Mauku-1 top hole. Kea has also secured access to rigs capable of carrying out the Company's deep drilling campaign.

Mauku-1

The Mauku-1 well in permit PEP381204 is on schedule to be drilled during the second quarter of this year. Road access and site preparations have commenced, after an extensive consent process covering landowners, councils and Maori interests.

The Drill Force rig is expected to drill the Mauku top hole in mid to late March, and the deep drill rig will be used to deepen the well to its target depth of 3,400m commencing mid April. These dates are subject to a number of variables including the release dates of the rigs from other jobs and any delays in access road construction and site preparation which can be affected by severe weather conditions. The deep drill rig should take approximately 45 days to reach its target depth. The site is very challenging from an access point of view, with an upgrade of 20 km of public road and construction of 4 km of new access road over private land, to a remote location by the sea.

The Mauku-1 well will test the Mangahewa Sands which constitute the producing reservoir interval in Shell's Pohokura gas and condensate field, along trend to the south. A gas-condensate discovery at Mauku would be capable of being developed expeditiously due to onshore development wells being easier to drill than offshore, coupled with access to the national pipeline system running 25 km south east of the prospect; or potentially, in the upside case of a major discovery, by a 70 km subsea pipeline direct to Methanex's methanol plant at Motonui.

Mauku is considered, by the Directors of the Company, to have an upside potential recoverable resource in excess of 1000 BCF of gas and 50 million barrels of condensate/oil, with a median resource estimate approximately 1/3 that figure. The well is expected to cost approximately US$15m before testing, of which Methanex New Zealand Limited, a subsidiary of Methanex Corporation of Canada ("Methanex") will contribute 50%, as previously announced. Kea expects to farm out an interest in this prospect to further reduce Kea's cost contribution, on terms such that the greater part of the permit equity remains in Kea's hands.

Douglas -1

The site for drilling Douglas-1 in permit PEP 51153 has now been prepared and it is planned that the NRG rig will commence drilling this well following the completion of Mauku -1. The Douglas Prospect is mapped as a Tikorangi Limestone target. Douglas-1 has a target depth of 3,000 m, and an expected total cost of the well of US$4m excluding testing.

The Company is in advanced discussions to farm out a proportion of this well. Oil has been produced at prolific rates from the Tikorangi Limestone reservoir in the adjacent Waihapa field, which abuts the Douglas trap at Tikorangi level. Kea has just completed a key seismic line over the Douglas Prospect; and the early results of this seismic appear to confirm Kea's mapping of this high-upside prospect, which could be brought into production without delay in the event of discovery. The cost of conducting the seismic was met 50/50 by Methanex.

Puka -1

Puka-1, also in permit PEP51153, is expected to spud shortly following site preparation. The well is located on PEP 51153 and is targeting the Mt Messenger sands. Total depth is approximately 1,600 m and the expected cost, excluding testing, is US$1.5m. The Mt Messenger plays are part of Kea's two pronged strategy of drilling both higher risk large deeper targets such as Mauku-1 and Douglas-1 as well as the shallower Mt Messenger sands. A considerable number of producing oil and gas pools have been discovered in onshore Taranaki within the Mt Messenger sands. The most recent is the nearby Copper Moki oil discovery, made by New Zealand Energy Corp; with several similar discoveries made by Tag Oil Ltd. Both companies' shares have reacted very positively to those discoveries, and we believe the Mt Messenger plays to be highly prospective. Kea has agreed in principle to farm out part of this well and a more detailed announcement will be made as soon as a formal agreement has been reached.

Angus -1

The Company also has an obligatory well commitment on PEP 51155 and has chosen to drill Angus-1 to a total depth of 1,500m. This is also a Mt Messenger target, although the available seismic data is less definitive than at Puka-1. A possible reason is that gas in the rock section above the Angus target is obscuring the seismic; given also that there are prominent surface gas seeps over Angus. This project is currently under consideration as a Kea-Methanex alliance agreement project. The overall cost, excluding testing is expected to be approximately US$1.5 million.

Mercury

Kea is presently in negotiation with various parties to share a seismic program over this offshore prospect. Mercury is regarded by Kea as one of the company's main assets with a potential of 300 m barrels of oil.