thoughts on current events

Hi all,

Well, it's been a long time since I've posted here, but for what it's worth I just couldn't hold my 2 cents back on the current events. If speculation is correct, without doubt this is the most significant event to happen at Central Petroleum since its listing in 2006. Over the past 6 years as a shareholder, I've watched this company go up, down,sideways and every other possible direction. However the outcome of current actions will play a fundamental role in the Company's future, its ability unlock its assets, deliver real shareholder value, and hopefully get it moving in the right direction to the benefit of 8000+ shareholders.

Looking at the recent announcements in order.

a) On Friday 23rd March 2012, the company announced a trading halt relating to 'changes in the Company's key management personnel.' On Monday 26th March 2012, it was announced that the company has 'terminated the employment of John Heugh...Mr Heugh remains a Non-Executive Director of the company.'

b) On Tuesday 27th March 2012, an announcement was released with the heading 'Operations Update'. This announcement updated shareholders on the status of Surprise and the EPT, however a final paragraph had also been slipped in to state that 'Central has also recently implemented a new initiative to expedite and promote our farm-in opportunities so as to spread risk and reduce expenditure, with encouraging results to date.' (IMO this announcement was purely made to the market for this last paragraph).

c) On Wednesday 28th March, an announcement was made titled 'Speculation and Clarification.' This announcement referred to speculation relating to a shareholder movement to remove of Henry Askin, Bill Dunmore and Richard Faull from the Board of CTP and the replacement of these members with Peter Cockcroft, John Jetter and Colin Goodall. It also states that 'the company confirms that it has not received a requisition to call and arrange a general meeting.'

d) Later, to a lesser importance, on Wednesday 28th March a research report was provided by Patersons, and a few key words I picked up on were 'sell down CTP's high asset position' and 'transfer operatorship.'

Based on this chain of events / announcements which commenced last week, along with information which is in public arena on various forums, a few concerns have come to my mind.

Comment 1: The Removal of John Heugh and potential Board upheaval.

Where do I start! Well, information posted on the threads has suggested that the Board received a letter advising that Henry, Bill and Richard should stand down from the Board of Central Petroleum or a group of shareholders will act to remove them via an EGM. There's enough evidence in public forums to make me believe this is true.

Several days after receiving the alleged stand down notification, and after removing John from his role as MD, on Wednesday 28/03/12 the company announced that they had NOT received a requisition for an EGM. This might be technically right. However they may not be telling the full story. They had allegedly received a notification of a PENDING shareholder movement and EGM, and I think it's only fair and transparent that shareholders should have been advised of this in the announcement aswell.

Initially, looking at these dates and circumstances, it's quite odd that only a few days after receiving this notice, these 3 directors removed John Heugh as MD, particularly when there was a shareholder movement bubbling away which in fact sought to remove and replace THEM and not John. If his removal turns out to be unfounded, I'd be concerned as a holder as it undermines the governance of this company, which is there to work in the best interests of its 8000+ shareholders.

Fundamentally, I believe that the action to remove John from a key role in this Company is NOT in the best interests of shareholders. I know there are a handful of people who do not agree with John as MD due to where the company currently is, but it needs to be understood that although he was both an MD and Director, I doubt he would have had the authority to call all the shots as he saw fit.

The decisions are made BY THE BOARD comprised of Henry, Bill, Richard and John. Four members. The role of the MD / CEO is to execute the decisions made by the Board, and as the face of CTP, IMO it's likely that John has been unduly criticised whilst the others hid in the background. All board members are responsible for the company's position. If one man called all the shots this would be more akin to a dictatorship, and there would be no purpose in having a board and governance structure.

The reason I say John's removal as MD is detrimental for the shareholders of this company is because he arguably maintains the strongest cross-sectional knowledge of its assets and operations, and over the years (contrary to what some believe) has provided a very strong strategic direction for this company which has often been overlooked. Off the top of my head and looking at handful of strategic initiatives only, this the person who sought to create the CTP vision some 15 years ago, knowing there was value in the assets of Central Australia when no other firms considered it. On paper, this vision has now paid of - we as shareholders now own one of the largest and most diverse packages of exploration acreage under single operatorship in the world.

In conjunction with Greg Ambrose (who I think is an absolute legend of a geologist), John was the first person to promote unconventional oil and gas in Australia, several years in advance of the others. IMO, the unconventional game is going to redefine Australia's energy industry in the next 5-10 years and through this foresight, shareholders have once again been left well placed for this boom. At a much higher level, other initiatives such as Central Green (forestry) and the Central Geothermal were also added as longer term strategies, but with potential to have strong underpinning economic and environmental credentials / offsets for the business moving forward.

This accompanies a range of other key strategic and value adding decisions over the years, and IMO removing his intimate technical knowledge, perseverance and strategy from the front line of this company would be a massive loss. In my view, it's like taking 'the twiggy' out of FMG. IMO looking back, the current composition, determination and decision making process of the board has not been congruent with that of a junior resource firm, and subsequently its failure to ensure a timely realisation of this asset.

Comment 2: Why 'expedite' farmins now?

As frustrating as it has been over the years waiting to see a reasonable farm-in to this package, the recent announcements have made me question the SUDDEN change of tune and objective by the board, practically overnight. As I stated earlier, farm in decisions are BOARD decisions. This Board has had 6 years to develop a strategy, be proactive and execute farmins in the best interests of shareholders.

So why only now is there a big push on 'new initiatives', 'expedite', 'reduce expenditure'... particularly after making a discovery and raising capital, which can underpin their overhead and cost requirements in the near term.

Well, looking at the chain of events, and this is purely speculation, it came to my attention that with the looming s249 to remove the current Board, is it possible the Board may now be 'rushing' (or as they've put it 'expediting') a plan to select and close a farm in deal to given the impression they have achieved something during their time at the helm? Why? This may potentially win votes with some holders, but I'd say mainly new ones who are not aware of the previous issues.

Regardless of this, I'd be interested in understanding what process is being run to ensure shareholders attain the best deal from our assets - is it an internationally competitive process with numerous tenderers? The biggest issue I see with the sudden change of tone is that there is a VERY REAL RISK that if they move to 'expedite' farmouts, they may sell OUR company's assets on less than desirable farm out conditions. IMO, it would be an absolute disaster to see a rushed and / or uncompetitive farm out deal of our asset. Sure we have massive acreage and can possible spare a bit, but if we were to give up a majority stake and / or operatorship across a broad area, or sell our crown jewel EP115 without a COMPETITIVE process in place,. it would be destroying longer term shareholder value.

Will be watching this space closely.

Comment 3: Proposed board members announced on Wednesday
After doing some research on the proponents to the board, my initial reaction was that the 3 proposed candidates is a significant cut above the 3 board members who currently represent shareholder interests.

Initially looking at John Jetta, this is a person who has held various Board, CEO and MD positions within JP Morgan, one of the world's leading financial institutions. Basically you don't climb too much higher in the world of corporate finance than this. IMO getting John on board will bring second to none commerce and transaction experience to this Board which we have lacked to date. He also brings with him experience in ASX listed exploration firms through his involvement in OEL and VMS.

I haven't really been too familiar with Peter's Cockcroft's track record, other than his name bouncing around when trawling investments over the years and industry events. But after spending some time searching the net and talking to people - he seems to be quite shrewd. I guess you would have to be with a CV that sates he was previously the Indonesian Country Manager for BHP Billiton, CEO of European Gas, Managing Director for Premier - Shell in Pakistan and currently chairs Blue Energy. Not bad.

Colin Goodall is another one with a credible CV. Former Chief of Staff for BP, CFO for BP in (Europe), Director and Chairman of Dana Petroleum (now owned by KNOC) and several other chair and director positions with finance and sustainable energy groups. I'm familiar with Colin's persona (mainly via Dana Petroleum). He seems to be a very astute person and has a commendable working record to back it up.

For CTP it's one thing having a massive asset, but an asset is only as good as the people behind it, and in the 6 years of holding I must admit that I have provided 'benefit of the doubt' that current board would come through. To me it's pretty clear the new proponents to the board are a much better combination to take this business forward and hopefully unlock the value embedded in this asset. But that said I've been wrong before and would be interested to hear others thoughts on the above candidates. I'll support the s249 if it is to go through.


Comment 4: Patersons Report

Although this is only minor, I really had to comment on this. Out of left field, the Patersons report is stating that the company now has flexibility to 'sell down CTP's high asset position' and 'transfer operatorship' now that the CEO / MD has changed. What a load of bollocks!

The fact the CEO / MD has changed has limited weight in this process, and this report is not a true representation of how things are and should be governed. Did someone tell the author to write this? The only way that the company can attain this so called 'flexibility' is if the BOARD changes its tune on how it does and wants to do business, the CEO in this case is not on the Board and as such will have limited influence on the Boards decisions.

As I've stated before, the CEO is there to execute the Boards decisions, and in the preceding 6 years the Board of CTP has governed how farm-ins should proceed - if they do not want to be 'flexible' the CEO can’t do anything. Nothing against Dalton here either, I think highly of his capability. Just pointing out that governance should work as expected.

As much as I respect the Patersons brand, that was a very poorly formulated argument with an amateur knowledge of how corporate governance works or should work.

Furthermore the company has never stated that they will 'sell down' their assets, so if true this implies a different strategy and shareholders should be informed of this change. CTP is a company that only holds its value from its asset holdings - and 'selling down' these assets compromises its future growth potential. This is possibly an incorrect choice of words though, as 'selling down' implies to me 'selling down its licences / holdings’ as opposed to 'farming out'.

Comment 5: Other approaches to business

The board turmoil aside, I thought I would put my 2 cents in on how I would prefer to see this company move forward.

The surprise discovery has the opportunity to underpin operational cost / revenue requirements for the company in the near term. This structure has been mapped to potentially host anywhere from 3 - 116mmbls, but my best guess would be in the order of 5mmbls...let's not get too excited here!

I must say I was extremely disturbed by the move of the board to undertake 3D seismic at surprise with the recently raised money from shareholders (myself included), whilst a rig with horizontal gear was sitting there on site ready to drill another well. Mobilisation costs and rig availability aside, the need for 3D seismic is not gospel. This is something the majors such as Shell might do without question, but as a junior we need revenue, so I would have much rather seen the company drill a second well with an available rig, as we know the oil is there (how much is the question), increase production to say 1000 - 1500 bpd and utilise these funds for ongoing cost requirements. IMO this would have raised in the order of $12M - $15M per annum with no need to tap investors for more cash. Whilst I'm at it, there is no reason they have to delay the EPT whilst the 3D seismic is shot aswell (as per the announcement on 27/03/12). This just delays the revenue generation! This drilling approach is debatable from a technical and risk management perspective but happy to discuss this in another thread as it could keep going, particularly as there are ways to manage this risk profile.

Secondly, I would have utilised this revenue to engage a major global institution to tender an international search to leading oil and gas companies to farm into our acreage across the unconventional and conventional assets, basins, and / or licences. The company could define a set of parameters and a deadline for bids, they provide an offer.

As part of this process, to limit the amount of funds paid to the institution upfront and protect our capital, I would have offered them a commission based fee calculated as a percentage of the executed contract with the successful bidder. If there were multiple tenders awarded, the institution would receive a percentage of each successful tender. This could be pretty lucrative for the institution, particularly given the size of the asset. This ensures that the institution is searching for the best deal (in line with our expectations), and therefore pressing the right buttons with the right candidates.

Ideally I'd prefer to see at least 2 packages let from the search if warranted, and from each package a director from this company added to the board to provide their expertise whilst balancing the voting power. Alternatively additional independent directors may be an option to make it more robust. The next steps would be to just get on with an aggressive drilling campaign to get the revenue up.

Anyway! That's my 2 cents and reading through my post I've babbled on for much longer than anticipated... like I said I had alot to say! But importantly, I urge all shareholders to think about what they want from this as a company and investment, and make an INFORMED decision on their own, without putting too much emphasis on what is being posted around on forums (including my thoughts above). You could have 500 votes, or 5M votes - but every vote is a voice to the direction that this company will take.

R/

Sav

Ps -As a note,the comments above are in my view as a shareholder,and based on publically available material. Happy to respond to this post, but apologies in advance if I don’t respond straight away.