summary of discussion with anthony milewski

Hi All,

for many of us the last quarterly raised more questions than answers. For me personally I had a number of questions that needed further discussion and these questions were posed to Anthony on Friday.

He responded over the weekend with a conference call arranged for today to review the questions in more detail.

Below I've outlined the question Qx), Anthony's response (AM) and my subjective take on the situation (MB).

Note that I asked permission to post this information and I've highlighted where Anthony was unwilling to answer any of my questions due to sensitivity concerns.

Q1) The last quarterly update mentions that tenders have been tabled for UKL, UPL and EBA assessment. Do you have a view for when a contract maybe allocated?

(AM) No view at the moment. Have providers that we’re looking at. Regulators are now considerably more cautious making on the ground progress tough going.

(MB) For those of you who have been following the absolute shambles that is unraveling in Indo you'll be aware there is a plethora of corruption being uncovered with high ranking Indo O&G officials and other key industry players.

As someone who has run a business in Asia and seen the level of corruption that can play out in the flesh I don't view this as just as an excuse rather tough timing. Could Quest have done something different to get a drill in the ground by now? Undoubtedly. But with the likes of the head of Oil and Gas looking like he's about to be drawn and quartered all the decision makers have gone to ground for fear of exposure (rightly or wrongly).

For some more light reading on the current situation check out the following links -

http://www.bbc.co.uk/news/business-23691287

http://www.thejakartaglobe.com/news/rudis-arrest-only-the-first-in-skkmigas-corruption-scandal/

And one of many articles out there about Mobil reducing its Indonesia exposure due to "various reasons"...

http://www.thejakartapost.com/news/2013/01/03/govt-says-it-has-lost-face-demands-exxonmobil-replace-uncooperative-boss.html

2) The most intriguing statement within the last quarterly related to the "Expanded production strategy and strategic partnership" section. Specifically -

PREVIOUS QUARTERLY

Expanded Production Strategy and Strategic Partnership

The Company continues to receive and review proposals to participate in projects that could compliment the Company’s ambition to become a significant hydrocarbon producer.

CURRENT QUARTERLY

Expanded Production Strategy and Strategic Partnership

The Company has received and reviewed several proposals to participate in projects during the quarter that could compliment the Company’s ambition to become a significant hydrocarbon producer.

This seems to imply that Quest has reviewed some proposals and I can only presume the team has made a decision around whether these proposals are worth pursuing. To tie off this point are you planning on communicating exactly what these proposals were as I believe it to be of shareholder interest?

(AM) Don’t read anything into above. QPN are looking into partnership options but information is too sensitive to mention. Nothing has been agreed or the market would know about it.

(MB) Without question partnership discussions are happening but how progressed and the likelihood that these deals will materialise was undisclosed.

3) If I was to summarise the quarterly it would appear that the companies focus seems to be leaning toward putting a deal in place with a partner than forwarding drilling plans. If I'm reading this right can I assume that the only way QPN is going to move forward with the Ranau Block given the companies cash position is via a farm-in, or similar, agreement?

(AM) Can’t say one way or the other.

(MB) Response backs up the summary of the previous question. This was certainly an area that Anthony was unable to discuss in any detail.

4) The recent 3b announcement stipulates the following break-down in allocated shares -

25m employees
31m consultants

Are you able to break down who has received these shares and more importantly the nature of the work conducted by the aforementioned "consultants"?

(AM:) Directors can’t be allocated shares without shareholder approval that will happen at the next AGM (or EGM). Ken Bull and Jonathan White are good examples of employees who are taking a significant amount of shares as salary (exact amount was undisclosed but close to 100%).

(MB:) I pressed Anthony on who the aforementioned consultants are and when he wouldn't disclose this, for obvious reasons, I asked the nature of their business and again the answer was equally vague in that they are focused in the "technical space".

Now it would not be a push to expect that these consultants could be either a) helping Ken on the ground in Indo and/or b) helping Anthony fashion a partnership agreement. Regardless of what they are up to I believe it should be viewed as a vote of confidence as consultants do not do something for nothing and given they have taken shares in lieu of cash it seems to indicate that the end game, what ever that looks like, will allow them to recoup their expenses at the very least.

5) Thanks to the share allocation cash burn was down below 500k last quarter. That's great news and I fully support the share sacrifice scheme however in your opinion what will happen at the end of June when the scheme is reassessed? Again reading between the lines does this infer that this quarter is somewhat of a make or break for Quest and its attempt to secure a partnership?

(AM) Share salary scheme will continue beyond the 30th of June if required.

Finally I asked Anthony where he would like Quest to be in a couple of months time to which he responded -

(AM) To have a production enterprise up and running.

(MB) If I would attempt to summarise this discussion I'd say that there are three key out takes -

1) Trying to conduct O&G business in Indo at the moment is a nightmare.
2) Clearly there are deals being discussed in the background and whatever these deals are the 'consultants' are willing to take Quest shares in lieu of cash as are the likes of Ken Bull.
3) Cash burn is under control and on the improve. Appreciate this comes at the expense of share dilution however it's unlikely there would be similar operators in Indo running at a similar burn rate.

Anthony was very responsive and as candid as he could be. It was pretty clear from the call that he's just as pissed off with the lack of progress as the rest of us. Credit to him for taking the time to talk and approval for the conversation to be summarised and posted on HC.

Just to stress that comments prefaced with my initials above are subjective and from an investor that sees light at the end of the tunnel. Let's just hope that Anthony can pull some kind of a deal together so those of us who have been around for a while have something to show for our patience.

Note if you have any questions regarding the points above I'm in the UK so won't be able to respond until Tuesday arvo AU time.

Cheers,