GIPPSLAND BASIN HISTORY

ACOR W.I. & ORRI AREAS

The history of oil production in the Gippsland Basin dates back to 1924 when Lake Bunga-1, intended to drill for water, was spudded near the township of Lakes Entrance. The well encountered a 13 meter oil column in glauconitic conglomerates (top Latrobe Group interval) and was followed by over 60 wells that, by 1941, had produced more than 8,000 barrels of heavy oil (40-60º API).

Extensive exploration in the Gippsland Basin did not commence before the mid-1960s, after seismic surveys had imaged the Central Deep and identified several anticlinal closures.

The first successful well, East Gippsland Shelf-1 (later known as Barracouta-1), was drilled by Esso in 1964/65 and discovered a 102.5 meter gas column at a depth of 1,060 meters. Following the subsequent major gas discovery at Marlin, the Gippsland Basin was initially perceived as a significant gas province.

However, when the Kingfish-1 was drilled in 1967 and encountered the largest Australian oil field known to date, the Gippsland Basin had gained international recognition.

In excess of 4 billion barrels of oil/condensate and 12 TCF gas reserves have been discovered in the basin since exploration drilling began in 1964, with remaining reserves estimated at 600 million barrels of oil and 5 trillion cubic feet of gas.

Despite its long history of extensive exploration, many parts of the basin, especially the eastern region, are still poorly understood. New players have entered the exploration scene and the amount of seismic data, particularly 3D, is increasing. For such a prolific basin, the Gippsland Basin is relatively unexplored and ACOR believes there is still considerable potential for significant discoveries.

Map of Gippsland Basin

ACOR's ORRI in Yellow

LIST OF ACOR OFFSHORE OVERRIDING ROYALTY INTEREST

VIC/P59 ORRI

About VIC/P59

VIC/P59 consists of 301,468 gross acres and is located offshore in the Gippsland Basin. VIC/P59 is adjoined by the Blackback Oil Field with estimated reserves of 80,000,000 barrels of oil.

Permit Vic/P59 is in shallow-to-deep water near the Blackback and Kingfish oil fields. Apache purchased 882 square kilometres of new 3D Seismic data in 2008.w 3D se

AREA VIC/P59

Area VIC/P59 consists of 18 blocks or part blocks (approximately1220 km2) and extending to the south from the Blackback Field where four exploration wells have been drilled (Fig. 2). The presence of major producing oilfields such as Kingfish, Halibut, Mackerel and Blackback in the immediate vicinity of VIC/P59 provides evidence of an active petroleum system and the good quality of the source rock. Migration is prognos-ticated to come from the basin depocentre (Kingfish kitchen) to the northwest.

The area is bisected by the present day continental shelf break. Water depth varies from less than 100 m in the northwest and southwest corners to in excess of 2200 m along its eastern boundary (Fig. 1). Deep present-day submarine canyons, including the Bass Canyon, are incised resulting in irregular seafloor topography.

The area is covered in whole or part by thirteen 2D and four 3D seismic surveys recorded since 1980, with most of the area now covered with a line spacing of 0.5 km or less (Fig. 3). Petrofina acquired the Angler 3D survey (GF88A) in 1988 and Esso/BHP acquired the large Billfish survey (G95B) in 1995. In 1998 BHP became operator of VIC/P34 (VIC/P59 now partially covers this old permit) and reprocessed some of its older seismic surveys (GC80, GUT83A and G95B).

A major difficulty in interpretation was caused by the inconsistent application of water replacement statics and by the irregular sea floor topography, which deteriorated seismic data quality and makes depth conversion difficult. Contemporary seismic data is important for exploring this area. For this reason Esso conducted the Tuskfish 3D surveyin their production license areas VIC/L20 and L6 and has extended part of it over VIC/P59. This data is propriertary data and will not be released before the closing date for the area.

Area VIC/P59Area VIC/P59 is located in the southeastern part of the Central Deep and lies immediately south of the Blackback oil field and east of the giant Kingfish field. Water depths vary considerably, ranging from 160m in the northwest of the block to over 2400 m in the east. Although over 50% of the block lies in water depths greater than1000 m, the area is considered to be highly prospective.

Objectives in this gazettal block include Halibut and Golden Beach subgroup plays as well astop-Latrobe erosional remnant plays, similar to Blackback. Depth conversion and seismic imaging in this area of steep bathymetry, canyons and channelling within the carbonates of the Seaspray Group are critical factors for exploration success.

Four exploration wells have been drilled in the block: Selene-1 and Athene-1 (both drilled by Phillips in 1982/83) failed to reach the Golden Beach Subgroup whereas Angler-1 (drilled by Petrofina in 1989) and the nearby Archer-1 and Anemone-1A wells intersected hydrocarbons within the Golden Beach Subgroup. The oil and gas-bearing sandstones are characterised by fluvial and coastal plain facies assemblages (Chimaera Formation) that interfinger with shallow marine sediments (Anemone Formation) and give rise to a series of stacked pays.Billfish-1 (drilled by BHP in 1997) was aimed at an erosional remnant play similar to the Blackback Field. However, depth conversion inaccuracies led to the well being 170 m deep to prognosis.

Post-drill depth mapping of the top-Latrobe Unconformity completed as part of the VIMP initiative (Fig. 7) suggests that Billfish was probably not a valid structure, However a number of untested top-Latrobe structures exist throughout the block and warrant further detailed study.

Seismic mapping also indicates the potential for lower Halibut and Golden Beach Subgroup plays analogous to the Angler discovery. Several leads have been identified in the block including the Oyster lead and those below the TD of the Selene-1 and Athene-1 wells.

ACOR owns a 1/20^th of 1% ORRI under VIC/P59.

smic data and will drill five wells in 2008.

VIC/P54 ORRI

Gas flaring at Longtom 3 Well

ACOR is Set to Receive It’s First Offshore Oil & Gas Stream of Revenue - Offshore Australia Longtom Gas Field on ACOR’s ORRI is Scheduled to Start Production Next Week

CISCO, Texas--(BUSINESS WIRE)--Australian-Canadian Oil Royalties Ltd. (herein called ACOR) (OTCBB:AUCAF) is pleased to announce that the operator states that the TSMarine Rem Etive dive support vessel had completed all hook-up activities for the pipeline and control systems for the Longtom Gas Field and tested the system.

Production is expected to start in the coming week following coordination of the start-up with Santos’s onshore Orbost gas plant. Santos has a gas contract in place, at an estimated value of approximately $1,000,000,000 (BILLION) to process and purchase up to 350 Petajoules (PJ) of gas and associated liquids from the Longtom Gas Field on ACOR’s ORRI located in the offshore Gippsland Basin.

The gas from the Longtom Gas Field will be transported via the newly-built pipeline by the operator to the end of Santos’s Patricia-Baleen pipeline, approximately 7.3 miles away. The raw gas would then continue along the Patricia-Baleen pipeline to shore where it would be processed at the Orbost gas plant.

The Longtom gas project has proved and probable reserves of approximately 350 BCF of gas and 4 million barrels of condensate. The daily production is estimated at a volume of approximately 11,000 - 12,000 barrels of oil equivalent per day (100% basis).

ACOR owns a 1/20^th of 1% ORRI under VIC/54 (including the Longtom Gas Field) covering approximately 155,676 gross acres.

About the Longtom Gas Field

The Longtom gas field is located in production license VIC/L29 in the Gippsland Basin, offshore Victoria. The field is approximately 12 miles from the coastline in approximately 183 feet of water depth.

In September 2006, the Longtom-3 well flowed at over 75 MMCF per day on test while bypassing the separator, confirming that it can also alone meet the contract requirements.

In September 2008, the Longtom-4 development well was successfully flow tested. The test of the primary production zone within the Admiral formation flowed at a rate of approximately 58 MMCF per day through a 64/64” choke on ACOR’s ORRI. The well flowed for 35 hours before being shut-in to monitor the pressure response from the reservoir.

The Longtom gas project is a significant long term infrastructure development that has the capacity to deliver over 10% of Victoria’s annual gas demand.

About The Gippsland Basin:

In excess of 4 billion barrels of oil/condensate and 12 TCF gas reserves have been discovered in the Basin since exploration drilling began in 1964, with remaining reserves estimated at 600 million barrels of oil and 5 trillion cubic feet of gas. Current production of the basin is around 140,000 barrels per day of crude and 570 million cubic feet per day of gas. At peak rates, the Gippsland Basin can deliver more than 1,000 million cubic feet a day.

Some of the very best oil production in the world is found in the Gippsland Basin. Take for example, the Halibut Oil Field. The average well in the Halibut Oil Field has produced 60,000,000 bbls of oil per well or $3,000,000,000 worth of oil per well, at current crude market prices.

VIC/L29 Development - Jan 10

VIC/P45 ORRI

These two fairways offer significant potential for the development of large structural-stratigraphic and stratigraphic traps within the Gippsland Basin sedimentary succession (Figure 3).

Shelf edge and slope lowstand prograding wedges

Lowstand wedges that occur along the shelf edge margin and slope are typically sandstone-rich, reflecting focused sedimentation via the funneling of fluvial sands to the wedges through incised-valley feeder systems during periods of lowstand as illustrated by the model in Figure 4. Their setting within slope and basinal shales creates ideal conditions for potential hydrocarbon migration and entrapment and are thus prime exploration targets wherever they can be located.

This play can be very prolific. In the Gulf of Mexico, most Miocene hydrocarbon production from originates from lowstand systems tracts (LST) containing these prograding lowstand wedges.

Interpretation of seismic facies and key surfaces in VIC/P45 reveals the presence of several prograding wedges in the Late Maastrichtian, Upper Volador Formation (equivalent to the prospective Roundhead Sandstone) on a SE-facing paleo-slope (Figures 5 and 6). The interpreted lowstand turbidite wedges thicken to the SE and form oval-shaped depositional “thicks” that dip to the SE and strike NE-SW.

The WI partner has announced the location for the next well to be drilled on VIC/P45. The location is called, the Scampi Prospect. The Scampi Prospect is based on stacked sands at the Top Latrobe level, with further stacked pay potential mapped down to a four-way dip closure at Top Golden Beach level. Scampi is considered by the operator to be a relatively low-risk play with an interpreted well-defined structural closure, the potential for high quality reservoirs and proximity to proven hydrocarbon charge. The primary target depth for Scampi is about 2700m.

The prospect has the potential to contain mean reserves of 34 million barrels of oil, if hydrocarbons are present at the Scampi prospect. There is further potential in the various deeper zones of this prospect. Both porosity and permeability at the Scampi location are assessed to be favorable, as evidenced by the same zones penetrated in the nearby oil discovery well, Archer-1, located to the immediate west, also in VIC/P45.

The WI partner stated that the purpose in drilling the Scampi prospect is two-fold:

To test the Scampi prospect’s ability to contain oil.
If Scampi does contain oil, then Scampi could form the nucleus for a hub of development of both the Scampi Prospect and the known Archer oil accumulation, and any other oil that might subsequently be discovered in the fault blocks in the vicinity of the known Archer discovery.

An extension of Year 3 of VIC/P45 to May 2006 has been received from the Designated Authority. The WI partner states that a well could be drilled on VIC/P45 by May 2006, subject to rig availability, joint venture and other necessary approvals.

VIC/P45 is located offshore in the most prolific oil-producing basin in Australia, approximately 1 ½ miles east of the Kingfish Oil Field in the Southern Gippsland Basin in the Bass Strait.

The Kingfish Oil Field, the largest oil field in Australia, has produced 1,100,000,000 barrels of oil since its discovery. There are currently (23) producing wells in the field. The permeability in the pay section ranges between 5,000 and 40,000 millidarcies, which is extremely high. On mapping there are 14 structures on VIC/P45, which includes one oil and gas field discovery with 16 pays and over 1,000 feet of pay section and a second with one gas pay section. This was a discovery well drilled off projected prospects.

Prospectivity

VIC/P45 is prospective for oil and gas at the top Latrobe and also at the deeper intra Latrobe and Golden Beach levels. A number of prospective features have been identified, several of which are analogous to existing Gippsland Basin discoveries. Almost the entire area of the 900 Kms2 permit is covered by a high quality 3D survey acquired and processed by BHP Billiton in early 2003 (replacement cost estimated at approx. $10 million). Further processing is proposed by the operator with respect to depth conversion calculations.

The wells drilled in the past in Vic/P45 have tested prospects in all three of the main play groups (top and intra-Latrobe and Golden Beach), with success in the intra-Latrobe and Golden Beach plays. The drilled wells are suitably positioned to help define the extent of the prospective section in the Vic/P45 area. The three hydrocarbon discoveries drilled at Anemone 1A, Archer 1 and Hermes 1 established the existence of working petroleum systems in the permit area.

Recent evaluation work, following 3D mapping by BHP Billiton, (the previous operator) has identified appraisal potential in the Archer Prospect.

Other targets include numerous structural and stratigraphic prospects and leads interpreted at intra-Latrobe, top Golden Beach and Emperor Subgroup level.

Of the approximately 15 prospects and leads identified by the operator, some four of these have been graded very high: Archer/Anemone, Scampi, Archaeopteryx and Saratoga.

Errol Lead

The Errol Lead margins one of the northern boundaries of VIC/P45 (Figure 2). . Its up-dip termination is marked by a strong, structurally concordant “bright spot” (Figure 7). This is interpreted as a direct hydrocarbon indicator (DHI) related to a possible gas accumulation. It implies the presence of an effective stratigraphic seal that provides an active stratigraphic trapping mechanism. The permit is located in a particularly “oily” part of the Gippsland Basin with significant potential for the presence an oil leg down-dip of the interpreted gas. The lead as presently defined encompasses 2.7 sq km, but its size could be substantially greater if the oil leg extends further down-dip.

Coastal barrier/shoreface sandstones

A recent paper by Bernecker and Partridge (2005) describes a series of straight to gently arcuate palaeoshorelines within the Paleocene and Eocene section of the petroliferous Latrobe Group. In the central part of VIC/P45, Exoil has identified similar shoreline sequences in the underlying mid- to Upper Cretaceous Volador Formation. These coastal barrier and shoreface sandstone sequences are defined by well and 3D seismic data as sediment thicks associated with several, large, NE-SW trending, coarsening-upwards sandstone bodies(Figures 5 and 8). The sands are also characterised by high amplitude reflections that appear to increase in amplitude up-dip.

The sandstone bodies are interpreted as laterally restricted, transgressive, coastal barrier to shoreface sandstones that display a SE transition into offshore sealing marine claystones. Vertical seal is provided by intraformational transgressive marine claystones. Sediments belonging to lagoonal and lower coastal plain environments are interpreted to the NW, in a landward position behind the barrier.

Neptune & Trident Leads

Neptune and Trident are two adjacent leads defined in the central part of VIC/P45 involving interpreted coastal barrier and shoreface sandstones in structural-stratigraphic traps (Figure 2).

Their“seismic” limits are defined by the extent of mappable high seismic amplitudes of an upper sandstone sequence (Figure 9). Sandstones thin and eventually pinch out to the NE and SE, sometimes terminating against NW-SE trending faults. The trap is a combination structural-stratigraphic trap with the major boundaries defined by stratigraphic pinchout. Interpreted facies development of barrier / shoreface and marine sediments related to a shoreline model and present-day Gippsland coastline is illustrated in Figure 10.

Based on the mapped extent of the upper sandstone, the Neptune Lead encompasses an area of 12.8 sq km and Triton some 9.6 sq km.

The upper sandstone was intersected by Helios-1 where a 55 m section is present. Although water wet in this down-dip well location, the sandstones exhibit excellent reservoir properties with high net-to-gross reservoir and porosities that range up to 29% and average between 23% and 25%.

The high amplitudes that characterise the interpreted barrier sandstone system of the Neptune and Trident leads are intriguing and could imply the presence of hydrocarbons. The 3D seismic requires additional processing and analysis for a better understanding of the cause of the high amplitude reflections associated with potential sandstone reservoirs. Proposed well calibrated inversion and AVO modeling should help determine the variable contributions of porosity, lithology (reservoir/seal) and fluids (oil, gas or formation water).

Archer and Anemone Prospects

The Archer /Anemone Prospects represent the existing oil and gas discoveries made by the Archer-1 and Anemone-1A wells, together with deeper untested potential reservoirs. The oil discovery made in Archer-1 will be the subject of investigation to determine whether there is potential for further oil in the Archer feature, and whether an economic oil development scenario may exist.

On the basis of the new 3D data, Anemone-1A is interpreted to have drilled into the Archer fault block. Overpressure and poor quality reservoirs encountered in Anemone-1A are now interpreted as being likely to result from drilling into the fault plane. Improvements in reservoir quality may occur up-dip and away from the fault zone.

Further potential resources are associated with shallower gas accumulations proven by the Archer-1 and Anemone-1A wells, as well as potential additional gas reservoirs not tested by either well. Deeper horizons in Archer provide the opportunity to explore, at relatively low risk, for a gas resource close to infrastructure and key markets.

BHP Billiton have assessed the ultimate recoverable reserves potential for gas and condensate in Archer Deep/Anemone to be from a lowside of 51 BCF and 3 MMB to a highside of 923 BCF and 96 MMB.

Scampi Lead

An oil prospect, Scampi is an upthrown fault block lead in stacked Cretaceous sands and a deeper 4-way dip closure at top Golden Beach.

BHP Billiton assessed reserves potential for the Cretaceous sands only (primary target) as 34 MMb of recoverable oil.

Archaeopteryx Lead

A further oil lead, Archaeopteryx is a low relief four-way dip closure set up by the palaeo-shelf break (Kingfish Field analogue). The main risks with this lead relate to the depth conversion and top seal.

BHP Billiton estimate recoverable reserves potential of 123 MMb.

Saratoga Lead

Saratoga is a lowside fault-dependent closure at the Golden Beach level with estimated reserves potential of 34 MMb.

Conclusion:

VIC/P45 contains a wealth of prospects yet to be drilled, nearly all of which are associated with existing hydrocarbon discoveries. We rank VIC/P45 very highly.

VIC/P53 ORRI

ACOR's ORRI under VIC/P53 is located in the prolific Gippsland Basin. VIC/P53 consists of 182,858 gross acres. VIC/P53 is also called the “Hole of The Donut” as VIC/P53 is surrounded by 9 giant oil & gas fields, leaving VIC/P53 in the middle.

The $200 Billion Dollar Neighborhood

When purchasing Real Estate you are always told, Location, Location, & Location. ACOR management feels VIC/P53 is located in a great neighborhood. For example, Some of the very best oil production in the world is the found in the Halibut Oil Field. The Halibut Oil Field is approx. 1.8 miles west of ACOR's VIC/P53, where the average well has produced 60,000,000 bbls of oil or $4,200,000,000 worth of oil per well, at today's prices.

The nine giant oil & gas fields that surround ACOR’s VIC/P53 have some very impressive production figures as shown below. The fields are still producing.

1. Kingfish Field has produced 1,100,000,000 barrels of oil or $70,000,000,000 at current market prices of $70.00 per barrel.

2. Bream Field has produced 88,000,000 barrels of oil or $6,160,000,000 at current market prices of $70.00 per barrel.

3. Barracouta Field has produced 1.1 TCF of gas or $2,750,000,000 at $2.50 per mcf gas prices.

4. Snapper Field has produced 630 BCF of gas or $1,575,000,000 at $2.50 per mcf gas prices.

5. Marlin Field has produced 2.4 TCF of gas or $6,000,000,000 at $2.50 per mcf gas prices.

6. Fortesque Field has produced 260,000,000 barrels of oil or $18,200,000,000 at current market prices of $70.00 per barrel.

7. Halibut Field has produced 820,000,000 barrels of oil or $57,400,000,000 at current market prices of $70.00 per barrel.

8. Cobia Field has produced 135,000,000 barrels of oil or $9,450,000,000 at current market prices of $70.00 per barrel.

9. Mackerel Field has produced 450,000,000 barrels of oil or $31,500,000,000 at current market prices of $70.00 per barrel.

The WI partner of VIC/P53 has completed the shooting of 524 square kilometers of high resolution 3D seismic data in VIC/P53 at an estimated cost of $US5,000,000. One of the prime purposes of the 3D seismic survey in VIC/P53 was to investigate the area to the east of the Veilfin-1 well, which produced oil and gas shows, referred to as the Bazzard Lead.

The WI partner is now processing the seismic data and will employ leading interpretation and depth conversion experts to interpret the data and to carry out detailed depth conversion calculations. By early 2006, the operator plans to have completed its studies and to be then ready to drill a well in the Permit.

Vic/P53 is considered prospective for oil and gas at the top Latrobe and also at deeper intra Latrobe levels. Vic/P53 is surrounded by the oil and gas producing fields held by EXXON/BHP. The location, adjacent to this infrastructure, and proximity to pipelines, processing facilities and major markets, offers potential advantage through infrastructure savings and gives encouragement to participation in Vic/P53. The hydrocarbons recorded at Veilfin-1 established the existence of a working petroleum system in the permit area.

Seismic Coverage

Vic/P53 is a complex block but, given its location, is inherently prospective, provided depth conversion complexities can be addressed using new 3D seismic data. Updip potential may exist in the permit to the east of Veilfin-1. Importantly, there has not been a well drilled within the area of Vic/P53 during the last 20 years. Likewise, no dedicated 3D survey has yet been shot in the block, apart from surveys shot in adjacent acreage which peripherally covered the edges of Vic/P53. Over this period, technology and the ability to deal with the complexities of depth conversion have improved dramatically. This aspect, when taken with the strategic geological location of Vic/P53, argues well for the development of top and intra Latrobe plays, once the new high resolution 3D seismic survey has been completed. A substantial part of the funds raised by this issue will be used for this purpose.

Work Program

The 470 kms2 3D seismic survey planned in early 2005 will highlight the potential of Vic/P53. Depth conversion work is anticipated to be enhanced through the use of the proposed new 3D seismic.