prospectus - po valley · this prospectus is dated 1 november 2004 and was lodged with the...

P O V A L L E Y E N E R G Y L I M I T E D

P R O S P E C T U S

ABN 33 087 741 571

P O VA L L E Y E N E R G Y

I M P O R T A N T N O T E S A N D S T A T E M E N T S

Before deciding to invest in the Company, potential investors should read the Prospectus in its entirety.

This Prospectus is dated 1 November 2004 and was lodged with the Australian Securities and InvestmentCommission ("ASIC") on that date. Neither the ASIC nor Australian Stock Exchange Limited ("ASX") takes anyresponsibility for the contents of this Prospectus. No securities will be allotted or issued on the basis of thisProspectus later than thirteen months after the date of this Prospectus. Securities allotted or issued pursuant to thisProspectus will be allotted or issued on the terms and conditions set out in this Prospectus.

Applicants should read this document in its entirety and, if in any doubt, consult with their professional advisersbefore deciding whether to apply for Shares. There are risks associated with an investment in the Company andthe Shares offered under this Prospectus must be regarded as a speculative investment. The Shares offered carryno guarantee with respect to return on capital investment, payment of dividends or the future value of the Shares.

This Offer should be considered speculative and read in conjunction with the risk factors outlined in this Prospectus.

No person is authorised to give any information or to make any representation in connection with the Offerdescribed in this Prospectus, which is not contained in this Prospectus. Any information or representation not socontained may not be relied on as having been authorised by the Company in connection with the Offer.

No action has been taken to register or qualify the Offer, or otherwise permit a public offering of Shares, in anyjurisdiction outside Australia.

Certain terms and abbreviations used in this Prospectus have defined meanings, which are explained in theDefinitions section at the end of this Prospectus.

Electronic ProspectusThis Prospectus is available in electronic form on the Internet at:

www.povalley.com ("Electronic Prospectus")

The offer of securities under this Prospectus is made in Australia only and pursuant to the Australian CorporationsAct. Access to this Prospectus by persons outside of Australia is not permitted. The Company is entitled to refusean application for securities under this Prospectus if it believes that the applicant did not receive the offer inAustralia.

Any person receiving this Prospectus electronically will be sent a paper copy of the Prospectus (and attachedApplication Form) by the Underwriter, free of charge, on request during the period of the Offer.

Applications must be made by completing a paper copy of the Application Form. The Company will not acceptApplication Forms electronically.

The Application Form may only be distributed if it is attached to a complete and unaltered copy of the Prospectus.The Application Form attached to this Prospectus contains a declaration that the investor has personally receivedthe complete and unaltered Prospectus prior to completing the Application Form.

Exposure PeriodThe Company will not accept Applications under this Prospectus during the period of seven days after theLodgement Date, or such other period (not exceeding 14 days after the Lodgement Date) as the ASIC may require.No preference will be conferred on Applications received during this period. The purpose of this period is toenable this Prospectus to be examined by market participants prior to the raising of funds. This examination mayresult in the identification of deficiencies in the Prospectus and, in that circumstance, any Application that has beenreceived may need to be dealt with in accordance with Section 724 of the Corporations Act.

Overseas InvestorsThis Prospectus does not constitute an offer or invitation in any place in which, or to any person to whom, it wouldnot be lawful to make such an offer or invitation. The distribution of this Prospectus in jurisdictions outside Australiamay be restricted by law and persons who come into possession of this Prospectus should seek advice on andobserve any such restrictions. Any failure to comply with such restrictions may constitute a violation of applicablesecurities laws.

The Offer, pursuant to the electronic Prospectus, is only available to persons receiving an electronic version of thisProspectus within Australia.

Currency ConversionThe exchange rate used throughout this document is $1.00 = Eur 0.58.

I M P O R T A N T N O T E S A N D S T A T E M E N T S

S U M M A R Y O F T H E O F F E R

Key Offer StatisticsOffer price per Share $1.00

Amount to be raised under the Offer $20,000,000

Number of Shares to be issued pursuant to the Offer 20,000,000

Number of Shares on issue following Offer 70,000,000

Market capitalisation at the Offer Price $70,000,000

Important DatesProspectus lodged with the ASIC 1 November 2004

Offer opens 16 November 2004

Closing date (5:00pm EST) for Offer 6 December 2004

Anticipated date for allotment of Shares 10 December 2004

Anticipated date for date of dispatch of holding statements 13 December 2004

Anticipated date for trading of Shares on ASX 16 December 2004

The Directors, in conjunction with the Underwriter, reserve the right to close the Offer earlyor to extend it, with consequent effect on the other dates in the timetable.


T A B L E O F C O N T E N T S

IMPORTANT NOTES AND STATEMENTS

SUMMARY OF THE OFFER

LETTER FROM THE CHAIRMAN

1 INVESTMENT HIGHLIGHTS 6

2 DETAILS OF THE OFFER 8

3 OVERVIEW OF THE ITALIAN GAS MARKET 12

4 COMPANY AND PROJECT OVERVIEW 16

5 BOARD AND MANAGEMENT 23

6 CORPORATE GOVERNANCE 25

7 INVESTIGATING ACCOUNTANT’S REPORT 29

8 CONSULTING GEOLOGIST’S REPORT 41

9 INDEPENDENT EXPERT’S REPORT 63

10 LEGAL REPORT ON PERMITS 67

11 RISK FACTORS 75

12 MATERIAL AGREEMENTS 78

13 ADDITIONAL INFORMATION 83

GLOSSARY OF TERMS 89

CORPORATE DIRECTORY 91

APPLICATION FORMS 93


L E T T E R F R O M T H E C H A I R M A NP O VA L L E Y E N E R G Y

Dear Investor,

On behalf of the board of directors of Po Valley Energy Limited (PVE), I invite you to consider investing in this initial publicoffering of shares in the Company.

PVE was established in 2002 to acquire, explore and develop hydrocarbon prospects in Northern Italy. It now holds aportfolio of gas interests in the Po Valley that comprise development projects and exploration targets. The Po Valley is asignificant hydrocarbon province. The Company has several projects that it is seeking to drill and, if viable, initiate gasproduction in late 2005. Exploration of other targets offers the potential to increase the Company’s reserve base.

The Italian gas market offers producers a distinct commercial opportunity. Italy is a net importer of gas and onshoresources of gas with viable production volumes and qualities find a ready market at some of the highest prices in Europe.

PVE has interests in four exploration permits (covering a total area of approximately 640 km2 ) and one exploration permitapplication (covering an area of 220 km2) in the Po Valley hydrocarbon province. Planned development projects withinthese areas contain estimated total proved, probable and possible (3P) remaining reserves of approximately 106 Bcf(PVE’s equity share, approximately 84 Bcf), with additional exploration and development potential.

PVE will use funds raised in this offering to explore and develop its three most prospective gas fields:

• Santa Maddalena has estimated total remaining (3P) reserves of approximately 44.2 Bcf (PVE’s equity shareapproximately 22.1 Bcf). In a 50:50 joint venture with Edison Gas S.p.A. (one of the largest gas companies in Italy),the first well in this field was successfully drilled in June 2004. The first well is planned to be brought into productionin the second half of 2005;

• Sillaro has estimated total remaining 3P reserves of 53.4 Bcf with two wells planned to be drilled early in 2005; and

• Vitalba has estimated total remaining 3P reserves of 8.6 Bcf with one well planned to be drilled early in 2005.

Preparations for drilling the Sillaro and Vitalba gas fields are well advanced and the majority of approvals have beengranted. PVE plans to drill these three wells back-to-back commencing early in 2005.

In addition to these gas fields, PVE intends to further explore its three remaining gas field targets which are the subject ofgranted exploration permits.

Investment in gas exploration and development companies including PVE is subject to many risks and uncertainties andmust be considered as speculative. There is no guarantee of commercial success or future profitability within any giventime frame. Investors should therefore consider carefully the risk factors set out in this Prospectus before investing.

PVE has a board and management team with broad exploration, commercial and financial expertise, and hands-on gasexploration experience in the Po Valley region. The board and management are committed to realise the full potential ofthe Company’s assets for the benefit of all shareholders. I look forward to welcoming you as a new shareholder.

Yours faithfully,

GRAHAM BRADLEY Chairman

P O V A L L E Y E N E R G Y P R O S P E C T U S6

I N V E S T M E N T H I G H L I G H T S

The information in this section is intended to be a summary only and should be read in conjunction with the moredetailed information appearing elsewhere in this Prospectus. Investors should read this entire Prospectus, includingthe risk factors in Section 11, in order to make an informed assessment of the investment merits of the Offer.

Company objectivesPVE has a strategy focussed on exploring and developing shallow onshore gas prospects located in or nearestablished gas production fields or areas subject to previous drilling programs.

The Company’s short-term objectives are to:

• bring its three development fields (Santa Maddalena, Sillaro and Vitalba) into production and cashflow as soonas possible; and

• then progress development of its other exploration prospects (Pandino, Malerba, Clodo and Castrocaro).

The Company’s longer-term objectives are:

• to build a portfolio of new development and exploration projects in the Po Valley through applications, farm-inagreements and, if appropriate, selective acquisitions; and

• to identify additional shallow gas opportunities with a similar risk profile outside the Po Valley.

It is the Company’s intention to fund future developments from cashflow generated from the production of itsexisting properties and from other funding sources. Funds surplus to these requirements may be returned toshareholders in the most tax effective means or retained to acquire and develop new projects and opportunities.

Gas reservesThe Company’s estimated equity share of remaining reserves are as set out in the following table:

The current estimated equity share of additional prospective recoverable resources from the Company’s explorationprospects are set out below. Additional work is under way to further refine these estimates.

1

PVE’s equity share of Remaining Reserves (Bcf)

Field Name Exploration Permit PVE interest Proven Probable Possible Total

1. Santa Maddalena San Vincenzo 50% 6.5 7.1 8.6 22.22. Sillaro Crocetta 100% 0.0 38.9 14.5 53.43. Vitalba Cascina san Pietro 100% 3.6 5.1 0.0 8.6

Total 10.1 51.1 23.2 84.2

Development Fields

Field Name Exploration Permit PVE interest Low Best High Estimate Estimate Estimate

1. Pandino Cascina san Pietro 100% 1.3 – 5.32. Clodo Casone della Sacca 55.55% – – 7.83. Malerba Casone della Sacca 55.55% – – –4. Castrocaro Terra del Sole** 100% – – –

Total 1.3 – 13.1

Gas Prospects in PVE Licences (Bcf)

* Source of reserves and resource estimates – Consulting Geologist’s Report **Exploration permit application

I N V E S T M E N T H I G H L I G H T S

Italian Gas IndustryItaly is one of the 10 largest economies in the world, and has the third largest industrial output in Europe. Italy hasthe third largest gas consumption in the European market, driven by both its large industrial base in Northern Italyand strong residential consumption.

Italy currently imports over 80% of its gas. The largely import supplied Italian gas market is characterised by fewdomestic upstream suppliers, regulated open access distribution, and multiple end-users including industrial users,power generators and retailers.

Demand for gas has been growing in recent years at approximately 4.6% per annum, driven primarily by demandgrowth for gas fired generators. Demand growth, together with tight supply conditions have resulted in Italy havingsome of the highest gas prices in Europe. The current wholesale price for gas in Italy is approximately $8.00 perthousand cubic feet of gas, significantly higher than Australian wholesale gas prices.

PVE’s reserves are all located in shallow (2,500 metres or less) onshore gas fields within the Po Valley and in veryclose proximity to the pipeline grid and major consumers. The Po Valley, located between the Alps and theApennines, is the industrial heartland of Northern Italy and the major area of domestic gas production.

In the opinion of the Directors the combination of attractive local gas prices, negligible transportation costs andrelatively low development costs provides attractive commercial opportunities for gas producers in the region.

Development and Exploration TimetableUpon completion of the Offer, the Company expects its development and exploration timetable to be as set outbelow (subject to obtaining all necessary approvals):

Marketing and TransportPVE’s gas reservoirs lie beneath one of the most highly industrialised regions in Europe. As a result an extensivegas pipeline grid is in place in close proximity to PVE’s gas fields. Gas transportation is under a regulated, openaccess regime and its access costs are relatively low. There are a number of potential customers for PVE gasproduction including local gas distributors and power generators.

Management TeamPVE has an experienced management team. The Chief Executive Officer, Michael Masterman, has experience inestablishing and building new resources companies and in project finance. Technical Director, Dietmar Greil, is anexperienced reservoir engineer with over 30 years experience in exploration and development in the oil industry.Chief Geologist, Franco Benelli, was formerly Vice President of Exploration for AGIP (a division of ENI) and hasover 45 years experience working with ENI.

P O V A L L E Y E N E R G Y P R O S P E C T U S 7

Field Name Environmental Approval Expected Drilling ExpectedCommencement Production Concession

Santa Maddalena Granted Completed Mid 2005Sillaro Granted Post IPO Late 2005Vitalba Granted Post IPO Late 2005Pandino Expected 3rd Qtr 2005 TBD TBDClodo/Malerba Expected 4th Qtr 2005 TBD TBD

Description of the OfferPursuant to this Prospectus, the Company offers forsubscription 20,000,000 Shares at an issue price of$1.00 per Share, payable in full on application toraise $20,000,000. All Shares offered under thisProspectus will rank equally with the current Shares onissue. A summary of the rights and liabilities attachingto Shares are set out in Section 13 of this Prospectus.

UnderwritingThe Offer is conditionally underwritten by EquityCapital Markets Limited. The terms and conditions ofthe Underwriting Agreement which may affect theobligations of the Underwriter and the Company areset out in more detail in Section 12 of this Prospectus.

Key DatesProspectus lodgement 1 November 2004

Offer opens 16 November 2004

Offer closes (5:00pm EST) 6 December 2004

Anticipated date forallotment of Shares 10 December 2004

Anticipated date for date of dispatchof holding statements 13 December 2004

Anticipated date for trading of Shareson ASX 16 December 2004

The timetable is indicative only. All times are EST. TheCompany, in conjunction with the Underwriter, reservesthe right to vary any of the above dates without notice.

Purpose of the Offer and Useof FundsThe Company’s business objectives are set out inSection 4 of this Prospectus.

The purpose of the Offer is to:

• provide the Company with the necessary funds toenable it to carry out its proposed development andexploration program as detailed in Section 4 of thisProspectus; and

• achieve listing on ASX, fund future developmentactivities, administration and working capital.

It is intended that the funds raised by the Offer will beutilised as follows:

For more detailed information on the use of funds,please refer to the Company and Project Overview inSection 4 of this Prospectus as well as the ConsultingGeologist’s Report in Section 8.

In the opinion of the Directors following completion of theOffer, the Company will have sufficient working capital tocarry out its stated objectives.

2


D E T A I L S O F T H E O F F E R

Funds $m

Total raised in the Offer 20.0Application

Development and exploration expenditure 13.0

Administrative costs 3.7

Estimated costs of the Offer 1.5

General Working Capital 1.8

TOTAL 20.0


There are currently 4,700,000 Options on issue.These Options have been issued to various executivesand employees. The terms and conditions of theOptions are set out in Section 13 of this Prospectus.

Minimum SubscriptionThe minimum amount to be raised pursuant to thisProspectus is $20,000,000. This amount is fullyunderwritten.

If the minimum amount is not achieved within fourmonths after the date of issue of this Prospectus, allApplications will be dealt with in accordance with theCorporations Act.

ASX ListingThe Company will apply to ASX within seven days fromthe date of this Prospectus for the Company to beadmitted to the Official List and for Official Quotationof the Shares offered under this Prospectus.

If ASX does not grant permission for Official Quotationof the Shares within three months after the date of thisProspectus, or such longer period as is permitted by theCorporations Act, none of the Shares offered by thisProspectus will be allotted or issued. In thatcircumstance, all Applications will be dealt with inaccordance with the Corporations Act.

CHESSThe Company will apply to participate in CHESS.CHESS is operated by ASX Settlement and TransferCorporation Pty Ltd (ASTC), a wholly owned subsidiaryof ASX, in accordance with the Listing Rules and theASTC Settlement Rules.

Under CHESS, the Company will not issue certificatesto investors. Instead, shareholders will receive astatement of their holdings in the Company. If aninvestor is broker sponsored, ASTC will send a CHESSstatement. Following the distribution of these initialholding statements, a holding statement will only beprovided to shareholders periodically. Holders mayalso request statements at any other time (although theCompany or ASTC may charge a fee for suchstatements).

Restricted SecuritiesSubject to the Company being admitted to the OfficialList, certain Shares and Options on issue prior to theOffer are likely to be classified by ASX as restrictedsecurities and will be required to be held in escrow.


Pre Completion Post CompletionShares Number of Shares % Number of Shares %

Michael Masterman 21,339,242 43% 21,339,242 30%

Beronia Investments Pty Ltd2 12,010,821 24% 12,010,821 17%

Joan Masterman 4,788,444 10% 4,788,444 7%

Other Shareholders 11,861,493 24% 11,861,493 17%

Shares to be issued under this Prospectus 20,000,000 29%

TOTAL ORDINARY SHARES 50,000,000 100% 70,000,000 100%

1 Refer to the Investigating Accountant’s Report in Section 7 of this Prospectus for further information.2 Company associated with Byron Pirola, a Director.

Capital StructureThe capital structure of the Company immediately prior to and post completion of the Offer is set out below:1


AcceptancesIf you wish to participate in the Offer, you mustcomplete the Application Form accompanying thisProspectus in accordance with the instructions set outon the reverse of the Application Form. The board, inconjunction with the Underwriter, reserves the right toaccept any Application in whole or in part, or to rejectany Application.

Completed Application Forms and accompanyingcheques should, at any time after the Opening Date be:

Posted to:

Po Valley Energy Limited C/- ASX Perpetual Registrars LimitedLocked Bag A14 Sydney SouthNSW 1235

OR

Delivered to:Po Valley Energy LimitedLevel 8 580 George StSydney NSW 2000

Cheques must be made payable to "Po Valley FloatAccount" and crossed "Not Negotiable".

Applications must be for a minimum of 2,000 Sharesrepresenting a minimum investment of $2,000.Applications for more than 2,000 Shares must be inmultiplies of 200.

Application MoniesApplication monies will be held in trust in a separatebank account on behalf of Applicants until the Sharesare issued. If any Application is rejected (in whole orin part), the amount tendered in respect of Shares thathave not been issued will be repaid to the unsuccessfulApplicant, without interest.

Allotment of SharesIf the Company decides to accept your Application andissue the Shares, either in whole or in part, it will issuethe Shares and dispatch a holding statement to you assoon as practicable after the Closing Date togetherwith any application monies received in excess of thenumber of Shares issued. The issue of Shares pursuantto this Prospectus is subject to ASX granting OfficialQuotation and the minimum subscription being raised.

It is the responsibility of Applicants to determine theirallocation prior to trading in Shares. Applicants whosell Shares before they receive their holding statementswill do so at their own risk.

Non-residentsThis Prospectus does not constitute an offer of Shares inany jurisdiction where, or to any person to whom, itwould not be lawful to issue the Prospectus or make theOffer. It is the responsibility of any Applicant who isresident outside Australia to ensure compliance with alllaws of any country relevant to their Application, andany such Applicant should consult their professionaladvisors as to whether any government or otherconsents are required, or whether any formalities needto be observed to enable them to apply for and beallotted Shares.

No action has been taken by the Company to registeror qualify the Shares or the Offer or otherwise topermit a public offering of the Shares in anyjurisdiction outside Australia.

Electronic ProspectusThis Prospectus is available online atwww.povalley.com.

Dividend PolicyThe Company anticipates that significant expenditurewill be incurred in the development of its projects. Thisactivity is expected to dominate the two year periodfollowing issue of this Prospectus. Accordingly, theCompany does not presently intend to declare anydividends.




Privacy DisclosureThe Company collects information in relation to eachApplicant as provided on an Application Form(Information) for the purposes of processing theApplication Form and, should the Application besuccessful, to administer the Applicant’s securityholding in the Company (Purposes).

The Company may use the Information for the Purposesand the Company may disclose the Information for thePurposes to the Underwriter, the Share Registry, relatedbodies corporate, agents, contractors and third partyservice providers, and to ASX, ASIC and otherregulatory authorities.

The Information may also be used and disclosed topersons inspecting the register, including bidders foryour securities in the context of a takeover, licensedsecurity dealers, mail houses and regulatory bodiesincluding the Australian Tax Office.

Risk FactorsProspective investors in the Company should be awarethat subscribing for Shares under this Prospectusinvolves a number of risks. These risks are set out inSection 11 of this Prospectus and investors are urged toconsider those risks carefully (and if necessary, consulttheir professional adviser) before deciding whether toinvest in the Company.

*Drilling at Santa Maddalena

3


O V E R V I E W O F T H E I T A L I A N G A S M A R K E T

3.1 Demand For Natural Gas And Structural TrendsThe Italian market for natural gas is the third largest in Europe by overall volumes after the UK and Germany.Annual consumption of gas in Italy was approximately 2,719 Bcf in 2003. The annual consumption of gas inWestern Europe is approximately 18,000 Bcf of which Italy’s demand represents approximately 15%.

Demand for gas in Italy has grown at a compound average growth rate of approximately 4.6% between 1996and 2003, compared to overall European demand growth of approximately 2.7% over the same period. Thelargest contributor to this increase in demand is Italy’s growth in thermoelectric power generation, which has morethan offsett slightly declining industrial gas consumption.

Natural Gas Consumption in Western Europe 1996 - 2003

3,000

2,500

2,000

1,500

1,000

500

0

1996 1997 1998 1999 2000 2001 2002 2003Residential and Commercial Use Industrial Use Thermoelectric production Other

Natural Gas Consumption in Italy 1996 - 2003

3,000

2,500

2,000

1,500

1,000

500

0

1996 1997 1998 1999 2000 2001 2002 2003Residential and Commercial Use Industrial Use Thermoelectric production Other

Bcf

Bcf

Source: ENI – "la Congiuntura Economica ed Energetica June 2004"



Thermoelectric generation has largely shifted from a dominance of fuel oil and other oil derivatives to anincreasingly gasfired power generation. Enel S.p.A, Italy’s largest generator, fired 35.4% of its capacity withnatural gas in 2003. This percentage compares with Italy’s overall proportion of 39.4% of natural gas firedelectricity generation. This proportion is expected to keep growing due to the multiple gas fired generators thatare currently being constructed across the country.

3.2 Sources Of Natural Gas To The Italian MarketGiven its structurally high consumption and the relative scarcity of hydrocarbon resources, the Italian energy markethas relied on imports for a large part of its natural gas volumes. As demand for gas is increasing and domesticsources of gas resources are declining, increasing demand and stress is occurring in the import segment of gas supply.

The prolonged decline in domestic production of natural gas increased during the 1990’s, due to the reduction indomestic gas reserves. Reserves of natural gas are mainly located in the Po Valley and the Adriatic Sea.National production of natural gas has decreased from its peak of approximately 741.6 Bcf in the mid 1990’s andis forecast to decline to approximately 274.5 Bcf by 2010.


Trends in Natural Gas Italian Market 1997 - 2003

140,000

120,000

100,000

80,000

60,000

40,000

20,000

_

1997 1998 1999 2000 2001 2002 2003 Oil Products Natural Gas Coal Other combustibiles

Trend of Natural Gas Production in the Italian Market 1996 - 2003

Local Production Imports

3,000

2,500

2,000

1,500

1,000

500

–

1996 1997 1998 1999 2000 2001 2002 2003

Gw

hBc

f




Italy is expected to increasingly rely on imports for its supplies, from approximately 65% in 1996, to 82% in2003, and an expected 92% in 2010.

As illustrated above, imports of natural gas account for more than 80% of Italy’s total supply. Despite its strategicimportance, import infrastructure appears to be insufficient to fully satisfy projected growth of Italy’s increasing gasdemands. Of the five access points into the Italian gas network:

• three are currently operating at 100% capacity.

• one is approaching 98% capacity; and

• one is operating at 87% capacity.

Several new projects for new import infrastructure are currently under authorisation or execution with the objectiveof increasing the import capacity to match the expected demand for gas. Historically, the authorisation process fornew LNG facilities has proved lengthy. This, together with the high capital intensity of building new gas importinfrastructure explains the current deficit of import capacity.


Trend of Natural Gas Production in the Italian Market 1950 - 2010

800

600

400

200

0

1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010

Production35.1%

Imports64.9%

Production17.8%

Imports82.2%

Production8.3%

Imports91.7%

Bcf


1996 2003 2010

Source: AEEG Elaborations


3.3 PricesAs a consequence of the various demand and supply factors described in the previous sub-sections, Italy has someof the highest gas prices in Europe. This is true for both the residential consumer sector and the industrial sector,where 2003 net prices exceeded European averages by approximately 50%, and approximately 25% respectively.

The current price for gas in Italy being achieved by independent natural gas producers is approximately $8.00 perthousand cubic feet of gas, materially higher than Australian wholesale gas prices.

3.4 Gas Transport AccessItaly has an extensive gas pipeline grid in place that transports gas within the country between producers,importers and consumers. These infrastructure assets are operated under a regulated, open access regime andaccess costs are relatively low. PVE’s gas fields are located in close proximity to accessible gas pipelines.


Residential Natural Gas Price at July 2003

2.00

1.50

1.00

0.50

0.00Italy Netherlands Germany Spain European France Belgium UK Average Price

Net of Taxes Taxes

Industrial Natural Gas Prices at July 2003

1.20

1.00

0.80

0.60

0.40

0.20

0.00Germany Italy France European Belgium Spain UK Average Price

Net of Taxes Taxes

EUR

Cen

ts/C

fEU

R C

ents/

Cf

Source: AEEG elaborations on Eurostat data

Source: AEEG elaborations on Eurostat data

4.1 Company OverviewThe Company was incorporated in 2002 as anAustralian holding company for the development of gasfields in Italy. In March 2002, PVE acquired a 50.5%interest in North Sun Italia S.p.A. (NSI).

NSI was established with the objective of participatingin the deregulation of the Italian hydrocarbonexploration and production market. Following theabolition of the monopoly held by the ENI Group overItalian oil and gas exploration and productionactivities, NSI applied in 1998 for the assignment ofexploration permits (formerly controlled and operatedby the ENI Group) in gas fields located in the Po Valleyregion of Italy. In the allocation, NSI was confirmed asthe applicant for four exploration permits being SanVincenzo, Crocetta, Casone della Sacca and Cascinasan Pietro. In 2001, NSI was granted explorationpermits from the Ministry of Productive Activities.

PVE has since acquired the remaining 49.5% interest inNSI and as part of an intercompany transaction withNSI, now holds a 100% interest in Po ValleyOperations Pty Ltd (formerly Petroz (Italy) Pty Ltd).Previously, NSI had acquired a 100% interest in PVO.

As a result of these transactions, the corporate structureof the group is as follows:

4.2 Corporate StrategyPVE has a strategy focussed on exploring anddeveloping shallow onshore gas prospects located inor near established gas production fields or areassubject to previous drilling programs.

The Company’s short-term objectives are to:

• bring its three development fields (SantaMaddalena, Sillaro and Vitalba) into productionand cashflow as soon as possible; and

• then progress development of its other explorationprospects (Pandino, Malerba, Clodo andCastrocaro).

The Company’s longer-term objectives are:

• to build a portfolio of new development andexploration projects in the Po Valley throughapplications, farm-in agreements and, ifappropriate, selective acquisitions; and

• to identify similar low risk and shallow gasopportunities with a similar risk profile outside thePo Valley.

It is the Company’s intention to fund future gas fielddevelopments from cashflow generated from theproduction of its existing properties and other sources.Funds surplus to these requirements may be returned toshareholders in the most tax effective manner orretained (in full or in part) to acquire and develop newprojects and opportunities identified by the Company.

4


C O M P A N Y A N D P R O J E C T O V E R V I E W

100%

Italian unlisted company Australian unlisted company

Holding company Australian public company

PO Valley Energy Limited

North Sun Italia S.p.A. PO Valley Operations Pty Ltd

100%


4.3 Permit Locations PVE has interests in four exploration permits and oneexploration permit application, all located near Bolognaand Milan in Italy. Details of the permits andgeographical location are set out above.

4.4 Development ProgramA summary of the development and explorationprojects is set out below.

Development Projects

Santa Maddalena, in the San Vincenzo permit, containsestimated total remaining 3P reserves of approximately44.2 Bcf (PVE, equity share 22.1 Bcf). PVE holds a 50%interest in this permit through its subsidiaries, NSI andPVO. Edision is the operator and 50% holder of thepermit. The first well was completed in July 2004 andproduction tests confirming gas reserves and commercialflow rates were completed in August 2004. Aproduction concession application is being preparedand, when granted, the Company plans to completesurface plant and connection to the SRG pipelinenetwork. Subject to the granting of a productionconcession, the first well is planned to be in productionand generating cashflow in the second half of 2005.Based on estimated reserves and the geologicalstructure, additional wells will be required in SantaMaddalena to optimally produce from the field. This fieldand its development plan are discussed in detail below.

Sillaro, in the Crocetta permit, contains estimated totalremaining 3P reserves approximately 53.4 Bcf and is100% held by PVE. All environmental approvals havebeen granted for the drilling of two wells and contractswith the drilling contractor and other service providersare being negotiated. This field and its developmentplan are discussed in detail below.

Vitalba, in the Cascina san Pietro permit, containsestimated total remaining 3P reserves of approximately 8.6Bcf and is 100% held by PVE. All environmental approvalshave been granted for the drilling of one well and contractswith the drilling contractor and other service providers arebeing negotiated. Located only 23 km east of Milan,Vitalba may also have the potential to be developed as astorage facility for major gas consumers. This field and itsdevelopment plan are discussed in detail below.

Exploration Projects

PVE has interests in three exploration projects locatedwithin granted exploration permit areas (Pandino,Malerba and Clodo) and one located within anexploration permit application (Castrocaro). The fourexploration projects are discussed in more detail inSection 4.5.


Field Name Ownership Exploration Permit Location

Santa Maddalena 50% San Vincenzo ~25 km N of BolognaSillaro 100% Crocetta ~30 km E of BolognaVitalba 100% Cascina san Pietro ~20 km E of MilanPandino 100% Cascina san Pietro ~20 km E of MilanMalerba 55.55% Casone della Sacca ~40 km NE of BolognaClodo 55.55% Casone della Sacca ~40 km NE of BolognaCastrocaro 100% Terra del Sole (Application) ~60 km S of Bologna



GIP Recovery Remaining Level Production Remaining factor Recoverable Reserves Total

Proven Probable PossiblePL-1 14.3 31.5 75% 8.7 7.2 7.8 23.7

PL-2 3.4 27.4 75% 4.2 6.9 9.4 20.5

TOTAL 17.7 58.9 75% 12.9 14.1 17.2 44.2*PVE Equity Share 6.4 7.0 8.6 22.1

* PVE has a 50% interest in the Santa Maddalena field, representing approximately 22.1 Bcf of the estimated total remaining recoverable reserves.

Santa Maddalena - Reserves (Bcf)

DEVELOPMENT AND EXPLORATION PROGRAM

ACTIVITY Status 1st Quarter 2005 2nd Quarter 2005 3rd Quarter 2005 4th Quarter 2005 1st Quarter 2006

The Company’s strategy focuses primarily on bringingits three development fields (Santa Maddalena, Vitalbaand Sillaro) into production. Set out above is theDirectors’ estimate of the reasonable time frames forachieving this strategy by December 2005. It must benoted that numerous tasks, including the permittingprocess, are subject to receiving the necessaryapprovals from the relevant Italian regulatoryauthorities, landowners, and joint venture partners

where applicable. The timing and receipt of theseapprovals are not within the control of the Company.Progressing Vitalba and Sillaro to production is subjectto the success of the results of the appraisal wells andproduction tests. Accordingly, the Directors cannotguarantee that this timetable or the steps within thetimetable will be met within the anticipated timeperiods or at all.

Santa Maddalena #1

Civil Works Complete

Drilling Complete

Completion Complete

Production Concession Application

Surface plant construction and grid connection

Commercial Gas Sales

Sillaro

UNMIG, Defence Approvals Pending

Agreement with land owner Pending

Civil Works

Drilling Sillaro #1

Completion Sillaro #1


Drilling Sillaro #2 (optional)

Completion Sillaro #2



Vitalba

UNMIG, Defence Approvals Pending

Agreement with land owner Complete

Civil Works

Drilling

Completion





Santa Maddalena – San Vincenzo Permit

Santa Maddalena is a large, multipool reservoircontaining gas reserves in both the thick sands and inthin beds of sands and clays. Twenty four wells weredrilled by ENI in Santa Maddalena between 1957 and1986 with a total commercial production of 17.7 Bcf.In early 2003 PVE, through NSI, signed an agreementfor Edison to farm into the San Vincenzo permit anddrill, at Edison’s cost, the first well – Santa Maddalena(SM#1). Edison earned a 50% interest in this permitby completing its drilling expenditure obligations inAugust 2004.

KEY DATALicence Area: 58.7 km2

Primary Target: Santa Maddalena

Ownership: 50% PVE 50% Edison

Operator: Edison

Original Discovery: 1957

Wells Previously Drilled: 24

Depth: 900-1,500 metres

Prior Production: 17.7 Bcf

The first appraisal well (SM#1) was successfully drilledin June 2004. Well logging show extensive gascolumns in three main zones. The well was cased todepth of 1,005 metres and was completed with asingle production string and gravel packing covering16.5 metres in July 2004. A 6 day production testwas carried out in July 2004 that indicated an initialdaily production rate of 4mcf for each of the two levelstested with no liquids, high permeability (~900 md).

The estimated cost to complete SM#1 well is $6.9m(Eur4.0m). Under the farm-in agreement with Edison,Edison is required to pay the first $4.3m (Eur2.5m) ofthe costs of the well and PVE is required to pay 50% ofthe budgeted costs above that amount. In addition,under the agreement, PVE is required to pay a further$0.86m (Eur0.5m), on commencement of commercialproduction from Santa Maddalena.

As joint venture partners, Edison and PVE are workingto bring SM#1 into commercial production. Key tasksto achieve this objective comprise:

• Conversion of the current exploration permit to aproduction concession. This involves applicationbeing made to the Ministry of Productive Activitiesand includes a required environmental review.Based on statutory periods and similar concessionapplications, the Directors estimate that theproduction concession should be granted beforeSeptember 2005.

• Construction of surface plant to process gas prior toentry into the SRG pipeline network. While theproduction test showed the gas quality to be 99.5%methane with an absence of liquids, it is plannedthat the surface plant will include a separator in theevent that water levels rise over time.

• Connection to the SRG pipeline network which is ata distance of approximately 800 metres.

Edison’s estimated capital cost to complete theseactivities is $2.8m (Eur1.6m), PVE’s share being $1.4m.

The Company believes that full development of SantaMaddalena field may support up to four additionalproduction wells. There also remains scope for thediscovery of additional gas reserves elsewhere in theSan Vincenzo permit area. A remaining gas potentialexists in the lower Pliocene main reservoir. Additionalreserves may be identified in tested or untested layersof the thick sands and thin-beds sequences (in themiddle-upper Pliocene and Pleistocene). Additionalplays (pinch-outs, sub-thrusts) may be explored alongthe limbs of the main anticline.



Sillaro – Crocetta permit

The Sillaro field, located approximately 30 km East ofBologna, comprises two large anticline structurescontaining total remaining 3P reserves of 53.4 Bcf.The reservoir is split into two levels, with remainingrecoverable reserves of 12 Bcf at the 2,100 metreslevel (PL-2 reservoir) and 41 Bcf at the 2,500 metreslevel (MI-3 reservoir).

Seven wells were drilled in Sillaro by ENI between1955 and 1982. ENI’s production activities focusedon the 2,500 metres level and encountered technical,drilling and flow rate difficulties.


Ownership: 100% PVE

Operator: PVE

Original Discovery: 1955

Previous Wells Drilled: 7

Depth: 2,000-2,500 metres

Prior Production: 0.4 Bcf (0.06% of GIP)

The 2,100 metres level PL-2 reservoir is validated by 4previous wells and prior production test data indicateshigh flow rates. This level is the principal focus ofPVE’s initial development activities.

Two wells are planned to be drilled early in 2005 withthe primary objective of establishing commercialproduction from the PL-2 zone. The wells will be drilledinto the Miocene for evaluation. Environmental approvalfor both wells has been granted. Subject to the successof the proposed drilling programme, the field wouldthen require conversion of the exploration permit to aproduction concession, installation of surface plant andnetwork connections. It is anticipated that this processwill take six to nine months from completion ofproduction testing. The planned Sillaro #1 and #2 arelocated 50 metres from the SRG pipeline network.

The total cost of the two wells is estimated to be $7.9m(Eur4.6m). Drilling of the two wells in sequencereduces overall development costs and approval risks.

Following the completion of the two initial developmentwells, a field optimisation study will be completed todetermine how best to develop the entire PL-2 reservoir.An evaluation plan to determine the potential forcommercial production from the MI-3 zone will be acomponent of this study. Although the previousoperator was unable to establish sustainableproduction in the 1960’s, the Consulting Geologist isof the opinion that with careful reservoir managementand use of modern well completion technologythe Company has a good probability of achievingcommercial production rates.


GIP Recovery Remaining Level Remaining Factor Recoverable Reserves Total

Proven Probable PossiblePL-2 17.8 70% 0.0 12.5 0 12.5

MI-3 76.3 70% 0.0 26.4 14.5 40.9

TOTAL 94.1 70% 0.0 38.9 14.5 53.4

Sillaro - Reserves (Bcf)


Vitalba – Cascina San Pietro permit

Vitalba is located 23km East of Milan. The field, underits previous name, Agnadello, was discovered in 1978and was a successful production field for ENI producingover 12.6 Bcf of gas from one production well over anine year period. The reservoir has two gas bearingzones in the Argille del Santerno formation.


Ownership: 100% PVE

Operator: PVE

Discovery: 1978

Previous Wells Drilled: 1

Depth: 1,300-2,000 metres

Prior Production: 12.6 Bcf (Agnadello)

The estimated original gas in place (OGIP) of 16.2 Bcfwas at a depth of between 1,420 metres and 1,455meters in a stratigraphic trap trending South North. Apotential updip of this stratigraphic trap has beenidentified from the latest seismic surveys conducted in1987. The related prospect is at a depth ofapproximately 1,500 metres and the remaining reservesare estimated to be 8.6 Bcf.

A new well (Vitalba #1) is planned to be drilled into theupdip of the former Agnadello production field to recoverthe remaining reserves in this structure. Environmentalapproval for Vitalba #1 has been received.

Assuming success, the field would then requireconversion of the exploration permit to a productionconcession, installation of surface plant and SRGpipeline network connections. It is anticipated that thiswill take six to nine months from completion ofproduction testing. Vitalba #1, is located approximately100 metres from the SRG pipeline network.

The cost of the Vitalba #1 well is estimated to be$3.7m (Eur2.16m). Due to the good petrophysicalfeatures of the reservoir, high flow rates are expectedand it is anticipated that only one well will be requiredto optimally exploit this field.

Vitalba may also have the potential to be developed asa storage facility for major gas consumers and isstrategically located close to the main entry points forgas imports into Northern Italy.

4.5 Exploration ProgramPVE has to date acquired its gas permit areas byidentifying former ENI gas production fields that havepotentially valuable recoverable reserves. This reserveacquisition strategy (either by application or purchase)will remain a core component of PVE’s business plan.Key to executing this strategy is:

• detailed knowledge of the Po Valley hydrocarbonprovince. The Company’s senior executives havesuch expertise; and

• an active program to generate a portfolio ofpotential projects that can move from explorationpermit application, through environmental approval,to drilling approval. PVE’s management team has atrack record of success in managing this process.


GIP Recovery Remaining Level Production Remaining factor Recoverable Reserves Total

Proven Probable PossibleSan A1 8.0 4.0 80% 0.4 1.2 0 1.6

San A2 4.6 10.0 80% 3.2 3.8 0 7.0

TOTAL 12.6 14.0 80% 3.6 5.0 0 8.6

Vitalba - Reserves (Bcf)


In addition to the above three development projects,PVE has a number of exploration and developmenttargets including:

• Three prospects under granted exploration permits

Pandino – located outside Milan;

Marlerba – located east of Bologna; and

Clodo – located east of Bologna.

• One prospect (Castrocaro) under an explorationpermit application (Terra del Sole) – located southof Bologna.

• Further exploration targets located in Northern Italythat the Company intends to apply for followingcompletion of this Offer.

4.6 Funding RequirementsThe information set out in the table below is astatement of present intention as at the date of thisProspectus. The actual application of funds to beexpended by the Company on any particular item willbe dependent on many factors which cannot beascertained with complete accuracy. For moreinformation on the use of funds, please refer to theproject individual descriptions in this section and theConsulting Geologist’s Report in Section 8.

The estimated capital requirements for this program areas follows:

4.7 ForecastsThe Company intends to bring its development fieldsinto production and cash flow as soon as possible.Given the speculative nature of gas appraisal anddevelopment there are significant uncertaintiesassociated with the future revenue earning potential ofthe Company, timing and sustainability of cash flow.On this basis, the Directors believe that reliableforecasts cannot be prepared and accordingly havenot included forecasts in this Prospectus.


Gas field $mSanta Maddalena- Completion of SM #1 1.2

Sillaro- Drilling of exploration wells Sillaro #1 and # 2 7.9

Vitalba- Drilling of exploration well Vitalba #1 3.7

Exploration projects- Geological and Geophysical studies 0.1- Environmental Approvals 0.1

TOTAL 13.0

B O A R D A N D M A N A G E M E N T

PVE has a board and management team having stronginternational financial expertise and experience in oiland gas reservoir development.

5.1 Directors The board is composed of a majority of non-executiveDirectors, including the Chairman. The Chairman ofthe board is elected by the board and is anindependent director.

Graham Bradley — ChairmanBA, LLB (Hons), LLM, FAICD, Age 56

Graham joined PVE as a director and Chairman inSeptember 2004 and is based in Sydney. He is anexperienced Chief Executive Officer and listed publiccompany director. Graham previously served as ChiefExecutive Officer of one of Australia’s major listedfunds management and financial services groups,Perpetual Trustees Australia. He was Managing Partnerand Chief Executive Officer of a national law firm,Blake Dawson Waldron and was a senior Partner ofMcKinsey & Company. Mr Bradley is currently adirector of HSBC Bank Australia Limited, MBFAustralia, the Garvan Institute of Medical Research,Stockland Corporation, Singapore Telecommunicationsand Queensland Investment Corporation. He isChairman of Proteome Systems and Film FinanceCorporation Australia.

Michael Masterman — Director and CEO BEcHons, Age 41

Michael is a co-founder of PVE and is based in Europe.Michael took up the position of Executive Chairmanand CEO of PVE and NSI in 2002. Prior to joiningPVE he was CFO and Executive Director of AnacondaNickel. Michael oversaw the financing of the US$1billion Murrin project in Western Australia, involvingthe negotiation of a US$220m joint venture agreementwith Glencore International and the raising ofUS$420m in project finance from a US capital marketsissues – the first of its kind for a green fields miningproject. Prior to joining Anaconda Nickel, he spent 8years at McKinsey & Company serving majorinternational resources companies principally in thearea of strategy and development. He is alsoExecutive Chairman of Caspian Holdings Plc, acompany with oil interests in Kazakhstan.

David McEvoy — Non Executive DirectorBSc, Grad Diploma (Appl. Geophysics), Age 57 years

David joined PVE as a Director in September 2004 andis based in Sydney.

He has over 35 years experience in the oil and gasindustry since joining Esso Australia Limited in 1969.Key positions held within Exxon affiliates included EssoAustralia Limited’s Exploration General Manager,Exploration and Development Vice President for EssoResources Canada and Regional Vice President of ExxonExploration Company responsible for Exxon’s explorationactivities in the Far East, USA, Canada and SouthAmerica. He was recently the Business Development VicePresident and member of the Management Committee ofExxon (subsequently ExxonMobil) Exploration Company,responsible for new exploration and developmentopportunities worldwide. He is currently a Non-ExecutiveDirector of Innamincka Petroleum.

Byron Pirola — Non Executive DirectorBSc, PhD, Age 44 years

Byron is a co-founder of PVE and is based in Sydney.He is currently a Director of Port Jackson PartnersLimited, a Sydney based strategy managementconsulting firm. Prior to joining Port Jackson Partners in1992, Byron spent six years with McKinsey &Company working out of the Sydney, New York andLondon Offices and across the Asian Region. He hasextensive experience in advising CEOs and boards ofboth large public and small developing companiesacross a wide range of industries and geographies.

P O V A L L E Y E N E R G Y P R O S P E C T U S

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B O A R D A N D M A N A G E M E N T

5.2 Senior Management

Dietmar Greil — Technical Director

Dietmar is a highly experienced Reservoir engineer withover 30 years experience in Exploration andDevelopment in the Oil industry. Mr Greil began hiscareer in the oil industry with senior positions at Statoil,Chevron and Pruesagg. Following Pruesagg, Mr Greilworked in the Former Soviet Union for 15 years andwas responsible for drilling over 40 wells, as well asbuilding the Rosscor Int BV equipment supply business.He has extensive experience in organising developmentof oil fields in Russia and other former Soviet Republicsas well as experience in structuring and managing JointVentures. Following Rosscor, Mr Greil founded NSIwhere he was the initial CEO. Under Mr Greil’sleadership NSI was successful in acquiring four mediumsized gas field Exploration Licences in Italy – the mostsuccessful of the new companies entering Italy followingderegulation of the ENI monopoly in 1998.

Franco Benelli — Consulting Geologist

Franco has over 45 years experience working for ENIas an oil exploration and development geologist. MrBenelli has worked extensively in Italy, South Americaand the Middle East and had an exceptional trackrecord as an exploration geologist. He wasresponsible for leading AGIP’s (an ENI subsidiary)exploration programs in Italy and in the Middle East.Mr Benelli was formerly Vice President of Explorationfor AGIP.

Dom Del Borrello — Company Secretary

Dom has over 15 years experience in Corporate Financeand Treasury, having held senior positions with a number ofAustralian based public companies with overseas interests.

During this time he also spent a number of years workingfor investment bank, Goldman Sachs in London. During1998 to 2001, he was Treasurer of Anaconda Nickel andhas significant experience in project finance, debt/equityraising, structured transactions, and commercial negotiationsin the mining industry. He is currently Group Manager,Treasury & Risk for global Titanium minerals and Zirconproducer Iluka Resources Limited.

5.3 Management StructureThe board believes that PVE has a management teamwith the skills and experience needed by the Companyat this stage of its development. Its four key executives(including the CEO) together provide the breadth ofskills needed to achieve the short and long-termobjectives of the Company. The Company has securedthe services of key executives through executive servicecontracts and other appropriate arrangements on terms(including remuneration) that the board considerssuitable to the needs of the Company.

Through the individual service arrangements, the CEOand each of the executives have less than full-time rolesin the Company. The terms of the service contractsrequire each executive to be available to the Companyfor a minimum time commitment deemed appropriate totheir role and, when needed each will be available ona full-time basis. The executive remuneration structuresare designed to provide appropriate incentives to keyexecutives to contribute fully to the success of theCompany. The board also notes that the CEO has asignificant shareholding in the Company.

The board will review these arrangements as theCompany develops, and will expand the number andskill mix of the executive group as it judges appropriate.


C O R P O R A T E G O V E R N A N C E

The Directors are committed to the principlesunderpinning the best practice in corporate governance.The Directors have noted carefully the recent guidanceon the principles of corporate governance issued by theASX. The Directors support the intent of theseprinciples, noting that some recognition is required intheir practical application given the limited size andscope of the Company at this time.

The Directors’ overriding objective is to increaseshareholder value within an appropriate frameworkthat protects the rights and enhances the interests ofShareholders and ensures the Company is properlymanaged.

A description of the Company’s main corporategovernance practices is set out below.

The BoardThe board ultimately takes responsibility for corporategovernance and operates in accordance with theCompany’s Constitution. Directors are initiallyappointed by the board subject to election byShareholders at the next annual general meeting withone-third of the board being subject to re-election ateach subsequent annual general meeting.

The board comprises four directors; three non-executivedirectors and one executive director (the CEO). Twodirectors, including the Chairman, are independentnon-executive directors. The board believes that this isan appropriate composition for a company at thisstage of its development.

Directors have the right, in connection with their dutiesand responsibility as Directors, to seek independentprofessional advice at the Company’s expense. Priorapproval of the Chairman is required which will not beunreasonably withheld.

The board accepts that it has the responsibility forinternal control procedures within the Company.Compliance with these procedures covering financialreporting, quality and integrity of personnel andoperation control is to be regularly monitored. Anumber of areas are to be subject to regular reportingto the board such as finance, trade practices, industrialrelations, environmental compliance, workplace healthand safety and insurance matters.

All Directors, managers and employees are expected toact with the utmost integrity and objectivity, striving atall times to enhance the reputation and performance ofthe Company.

The external auditor will be requested to attend annualgeneral meetings, and be available to answerquestions from the shareholders.

Audit and Risk CommitteeThe Audit and Risk Committee provides advice andassistance to the board in fulfilling the board’sresponsibilities relating to the Company’s financialstatements, financial and market reporting processes,internal accounting and financial control systems, internalaudit, external audit, risk management and such othermatters as the board may request from time to time.

Responsibilities

• Standards and Quality: The Committee oversees theadequacy and effectiveness of the Company’saccounting and financial policies and controls, andrisk management systems, including periodicdiscussions with management and external auditors,and seeks assurance of compliance with relevantregulatory and statutory requirements.

• Financial Reports: The Committee oversees theCompany’s financial reporting process and reports onthe results of its activities to the board. Specifically,the Committee reviews, with management and theexternal auditor, the Company’s annual and interimfinancial statements and reports to Shareholders,seeking assurance that the external auditor is satisfiedwith the disclosures and content of those financialstatements.

• External Audit: The Committee discusses with theexternal auditors the overall scope and plans fortheir audit activities, including staffing, contractualarrangements and fees. It reviews all audit reportsprovided by the external auditor. The Committeealso specifically reviews any proposed activity orservice by the providers of the external auditunrelated to external audit assurance activities.


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• Appointment of External Auditor: The boardappoints the external auditor. The Committeereviews the performance of the external auditorannually, and can recommend to the board anychanges to selection it deems appropriate.

• Internal Control: The Committee examines theadequacy of the nature, extent and effectiveness ofthe internal control processes of the Company.

• Risk Management: The Committee oversees the riskmanagement framework of the Company, andreviews risk management reports.

Processes

• Communications: The Committee maintains free andopen communications with the external auditors andmanagement. The Committee regularly meets withthe external auditors without representatives ofmanagement to discuss the adequacy of theCompany’s disclosures and policies, and to satisfyitself regarding the external auditors independencefrom management.

• Reporting: The issues discussed at each Committeemeeting are reported at the next board meeting

• Access: In exercising its oversight role, theCommittee may investigate any matter relevant to itscharter or relating to its role and scope, and for thispurpose has full access to the Company’s financialreporting and practices.

• Charter: The Committee reviews and reassesses thisCharter at least annually, and recommends anychanges it considers appropriate to the board.

The Committee may also undertake any other specialduties as requested by the board.

The current members of the committee areGraham Bradley, Byron Pirola and David McEvoy.

Remuneration Committee

The Remuneration Committee must have a majorityof non-executive directors. The current members of thecommittee are Byron Pirola and Graham Bradley.

The main role of the Remuneration Committee is to:

• review the performance and remuneration of theChief Executive Officer, and in conjunction with theChief Executive Officer, review the engagement,performance and remuneration of senior executivesof the Company; and

• recommend to the board appropriate terms andconditions of engagement and remuneration ofDirectors within the aggregate limits approved byShareholders.

In assessing the performance of the Chief Executive Officerand senior executives, the Committee gives considerableweight to the contribution of the employee towards theachievement of key performance indicators of theCompany. Where necessary the committee can obtainexternal advice in respect to the structure and level ofremuneration packages.

Nominations Committee

The role of the Nominations Committee is to providerecommendations to the board on matters including:

• composition of the board and competencies ofboard members;

• appointment and evaluation of the Chief ExecutiveOfficer;

• succession planning for board members and seniormanagement; and

• processes for the evaluation of the performance ofthe Chief Executive Officers and Directors.

The current members of the committee are Byron Pirolaand Graham Bradley.



Standards and Codes of Conduct

All executives and employees are required to abide bylaws and regulations, to respect confidentiality and theproper handling of information and act with the higheststandards of honesty, integrity, objectivity and ethics inall dealings with each other, the Company, customers,suppliers and the community.

The codes of conduct will be regularly reviewed andupdated as necessary to ensure they reflect the higheststandards of behaviour and professionalism.

Continuous disclosure

The Directors are committed to keeping the market fullyinformed of material developments to ensure compliancewith the Listing Rules and the Corporations Act. At eachboard meeting specific consideration is to be given asto whether any matters should be disclosed under theCompany’s continuous disclosure policy.

Share Trading

Directors, management and other employees asnominated will normally be permitted to trade insecurities during an eight week period commencingtwo business days after the announcement to ASX ofthe half yearly and annual results and after theconclusion of the Company’s annual general meeting,provided that the person is not in possession of pricesensitive information and the trading is not for shortterm or speculative gain.

Any trading outside these periods can only be conductedwith the prior written approval of the Chairman.

Related party matters

Directors and senior management will be required toadvise the Chairman of any related party contract orpotential contract. The Chairman will inform the boardand the reporting party will be required to removehimself/herself from all discussions and decisionsinvolving the matter. The board may, whenappropriate, take further steps to avoid conflicts ofinterest in related party matters.

Shareholder relations

The Directors aim to ensure that the shareholders, onbehalf of whom they act, are informed of allinformation necessary to assess the performance of theCompany.

Information on all major developments affecting thecompany is to be communicated to the shareholdersthrough:

• the Annual Report;

• half yearly reports;

• the Annual General Meeting and other meetingscalled to obtain approval for board action asappropriate; and

• the Company’s web site.


1 November 2004

The DirectorsPo Valley Energy Limited Suite 1, Level 21 York StreetSydney NSW 2000

To the Board of Directors,

INVESTIGATING ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION

1. INTRODUCTIONThis report has been prepared at your request for inclusion in the Prospectus dated on or about 1 November 2004relating to a listing (the Offer) of 20,000,000 ordinary shares at $1 per share in Po Valley Energy Limited ("PVE").

References to PVE and other terminology used in this report have the same meaning as defined in the Glossary.

2. BACKGROUND INFORMATION

PVE was established to acquire, explore and develop hydrocarbon prospects in Northern Italy. PVE has interestsin the following development gas fields:

• Santa Maddalena – a 50% joint venture with Edison Gas SpA;

• Sillaro (100% Po Valley); and

• Vitalba (100% Po Valley).

In addition to these development gas fields, PVE has other exploration prospects covering other prospective gasfields in its portfolio.

Appendix 1 of this report sets out the actual historical information of PVE as at 31 December 2003 and a proforma statement of financial position prepared based on transactions that have taken place subsequent to 31December 2003 and prior to listing of PVE and proposed transactions expected to take place on the listing of PVE.

I N V E S T I G A T I N G A C C O U N T A N T ’ S R E P O R T


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3. FINANCIAL INFORMATION

Appendix 1 of this report contains the historical financial information of PVE comprising:

• consolidated statement of financial performance and statement of cashflows for the period from 1 January to 31December 2003;

• consolidated statement of financial position at 31 December 2003;

• the pro forma consolidated statement of financial position as at 31 December 2003; and

• notes to the historical financial information.

The above is referred to collectively as the "historical financial information".

4. REVIEW OF HISTORICAL FINANCIAL INFORMATION

Scope

The Directors of PVE are responsible for the preparation of the historical financial information included in Appendix1 of this report. This includes responsibility for the maintenance of adequate accounting records and internalcontrols that are designed to prevent and detect fraud and error, and for the accounting policies and accountingestimates inherent in the financial information.

The historical financial information has been extracted from the audited consolidated financial statements of PVE forthe financial year ended 31 December 2003, which were audited by Deloitte Touche Tohmatsu and on which weissued a qualified audit opinion due to a limitation on the scope of our audit. We did not express an opinion onthe results of the company’s and consolidated entity’s operations and cash flows for the financial year ended 31December 2003 because we were unable to obtain sufficient appropriate audit evidence to enable us to form anopinion on the recorded amounts of assets, liabilities and equity as at 1 January 2003, being the first day of the2003 financial year. We have been able to obtain sufficient appropriate evidence at this time to enable us tomake an unqualified review statement for the purposes of this report.

For the purposes of this report, we have reviewed the historical financial information of PVE in order to statewhether, on the basis of the procedures described, anything has come to our attention that would indicate that thehistorical financial information is not presented fairly in accordance with the basis of preparation and theaccounting policies included in Appendix 1 of this report.

Our review of the historical financial information has been conducted in accordance with Australian AuditingStandards applicable to review engagements. Our review was limited primarily to enquiries of PVE and itsadvisers, examination of audited financial statements, review of the pro forma adjustments and supportingdocumentation, analytical procedures applied to the financial data and the evaluation of accounting policies.

These procedures do not provide all the evidence that would be required in an audit, thus the level of assuranceprovided is less than given in an audit. We have not performed an audit and accordingly, we do not express anaudit opinion.



Review Statement on the Historical Financial Information

Based on our review, which is not an audit, nothing has come to our attention that causes us to believe that thehistorical financial information of PVE does not present fairly the:

• consolidated statement of financial performance and statement of cashflows for the period from 1 January to 31December 2003;

• consolidated statement of financial position at 31 December 2003;

• the pro forma consolidated statement of financial position as at 31 December 2003; and

• notes to the historical financial information,

in accordance with the basis of preparation and the accounting policies as included in Appendix 1 of this report.

5. SUBSEQUENT EVENTS

Nothing has come to our attention that would cause us to believe that matters arising after 31 December 2003,other than the matters dealt with in this report, would require comment on, or adjustment to, the informationcontained in this report, or would cause such information to be misleading or deceptive or result in an omission ofthe financial or accounting matters required to be disclosed in this report.

6. DISCLOSURE

Deloitte Touche Tohmatsu does not have any pecuniary interests that could reasonably be regarded as beingcapable of affecting its’ ability to give an unbiased opinion in this matter. Deloitte Touche Tohmatsu provides duediligence and other advisory services to PVE and will receive a professional fee for the preparation of this report.

Yours faithfully,

DELOITTE TOUCHE TOHMATSU

J A LeottaPartnerChartered Accountants



APPENDIX 1

HISTORICAL FINANCIAL INFORMATION OF PO VALLEY ENERGY LIMITEDPo Valley Energy Limited Consolidated Statement of Financial Performance for the year ended 31 December 2003

ACTUAL (REVIEWED)CONSOLIDATED

31.12.03

$

Revenue from ordinary activities 567,232

Loss from ordinary activities before income tax expense (710,258)

Income tax expense -

Loss from ordinary activities after income tax expense (710,258)

Net loss attributable to outside equity interest (18,145)

Net loss attributable to members of Po Valley Energy Limited (692,113)

Po Valley Energy Limited Consolidated Statement of Cash Flows for the year ended 31 December 2003

ACTUAL (REVIEWED)CONSOLIDATED

31.12.03$

Net cash outflow from operating activities (719,658)

Net cash inflow from investing activities 49,673

Net cash inflow from financing activities 518,187

Net decrease in cash held (151,798)

Cash at the beginning of the financial year 234,025

Effects of exchange rate changes on cash (12,330)

Cash at the end of the financial year 69,897



PRO FORMA FINANCIAL INFORMATION OF PO VALLEY ENERGY LIMITEDThe Statement of Financial Position as at 31 December 2003 and the Pro Forma Statement of Financial Position asat 31 December 2003 set out below have been prepared in order to provide intending investors and their advisorswith information to assist in their assessment of the assets and liabilities of the consolidated entity.

Po Valley Energy Limited Consolidated Statement of Financial Position

NOTES ACTUAL (REVIEWED) PRO FORMACONSOLIDATED (REVIEWED)AS AT 31.12.03 CONSOLIDATED

AS AT 31.12.03$ $

Current AssetsCash Assets 3 69,897 19,452,402Receivables 76,601 76,601Other Assets 51,755 51,755

Total Current Assets 198,253 19,580,758

Non-Current AssetsProperty, Plant and Equipment 21,191 21,191Resource Property 4 7,936,133 10,360,219Total Non-Current Assets 7,957,324 10,381,410

Total Assets 8,155,577 29,962,167

Current LiabilitiesPayables 5 1,229,241 294,088Sundry Creditor 7,949 7,949Provisions 11,028 11,028

Total Current Liabilities 1,248,218 313,065

Non-Current LiabilitiesInterest Bearing Liabilities 6 865,384 500,000Total Non-Current Liabilities 865,384 500,000

Total Liabilities 2,113,602 813,065

Net Assets 6,041,975 29,149,103

EquityContributed Equity 7 6,409,352 30,013,789Reserves 19,023 19,023Accumulated Losses (439,961) (883,709)

Parent Entity Interest 5,988,414 29,149,103

Outside Equity Interest 53,561 0Total Equity 6,041,975 29,149,103



Notes to the Historical Financial Information

1 SIGNIFICANT ACCOUNTING POLICIESThe financial report has been prepared in accordance with the recognition and measurement requirementsspecified in all Accounting Standards and UIG Consensus Views. The disclosure requirements of thosepronouncements have been complied with to the extent considered necessary.

Accounting policies are selected and applied in a manner which ensures that the resulting financial informationsatisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactionsand other events is reported.

The following significant accounting policies have been adopted in the preparation and presentation of thefinancial report:

(a) PRINCIPLES OF CONSOLIDATION

The consolidated financial statements incorporate the assets and liabilities of all entities controlled by Po ValleyEnergy Limited ("parent entity") as at 31 December 2003 and the results of all controlled entities for the year thenended. Po Valley Energy Limited and its controlled entities together are referred to in this financial report as theconsolidated entity.

The effects of all transactions between entities in the consolidated entity are eliminated in full. Outside equityinterests in the results and equity of controlled entities are shown separately in the consolidated statement offinancial performance and statement of financial position respectively.

When control of an entity is obtained during the financial year, its results are included in the consolidatedstatement of financial performance from the date on which control commences.

(b) INCOME TAX

The liability method of tax effect accounting procedures are followed whereby the income tax expense is matchedwith the accounting profit after allowing for permanent differences. The future income tax benefit relating to taxlosses is not carried forward as an asset unless realisation of the benefit can be regarded as being virtually certain.

(c) CASH

For purposes of the statement of cash flows, cash includes short term deposits less bank overdrafts which arereadily convertible to cash on hand and which are used in the cash management function on a day-to-day basis.

(d) RECOVERABLE AMOUNT OF NON-CURRENT ASSETS

Non current assets are written down to recoverable amount where the carrying value of any non current assetexceeds recoverable amount. In determining the recoverable amount of non current assets, the expected net cashflows have not been discounted to their present value.

(e) DEPRECIATION

Depreciation is calculated on a straight line basis so as to write off the net cost of each item of plant andequipment over its expected useful life.

(f) INVESTMENTS

Investments in controlled entities are valued in the parent entity’s financial statements at cost less amounts written offfor permanent diminution in the value of investments.

(g) PAYABLES

Trade payables and other accounts payable are recognised when the consolidated entity becomes obliged to makefuture payments resulting from the purchase of goods and services.



(h) RESOURCE PROPERTIES

Resource properties include the cost of acquiring and developing resource properties, mineral rights andexploration, evaluation and development expenditure relating to production and exploration areas.

Resource properties are amortised using the unit of production basis over the economically recoverable reserves.Amortisation of resource properties commences from the date when commercial production commences. Whenthere is little likelihood of a mineral right being exploited, or the value of the exploitable mineral right hasdiminished below cost, the asset is written down to its recoverable amount.

(i) EXPLORATION EXPENDITURE

Exploration expenditure is carried forward when it is incurred in relation to separate areas of interest for whichrights of tenure are current and in respect of which:

(i) the expenditure is expected to be recouped by the company through successful development of thearea; or

(ii) exploration activities in the area have not yet reached a stage which permits a reasonable assessmentof the existence or otherwise of economically recoverable mineral reserves, and that active and significantoperations in, or in relation to, the area are continuing.

Cumulative exploration expenditure which no longer satisfies the above policy is no longer carried forward as anasset, but is charged against, and shown as a deduction from operating profit.

(j) REVENUE RECOGNITION

Revenue from the sale of goods (gas) and disposal of other assets is recognised when the consolidated entity haspassed control of the goods or other assets to the buyer.

(k) RECEIVABLES

Trade receivables and other receivables are recorded at amounts due less any allowance for doubtful debts.

(l) EMPLOYEE BENEFITS

Provision is made for benefits accruing to employees in respect of wages and salaries, annual leave, long service leave,and sick leave when it is probable that settlement will be required and they are capable of being measured reliably.

Provisions made in respect of wages and salaries, annual leave, sick leave, and other employee benefits expectedto be settled within 12 months, are measured at their nominal values using the remuneration rate expected to applyat the time of settlement.

Provisions made in respect of other employee benefits which are not expected to be settled within 12 months aremeasured as the present value of the estimated future cash outflows to be made by the consolidated entity inrespect of services provided by employees up to reporting date.

(m) FOREIGN CURRENCY

Foreign Currency Transactions

All foreign currency transactions during the financial year are brought to account using the monthly averageexchange rate. Foreign currency monetary items at reporting date are translated at the exchange rate existing atthat date.

Exchange differences are recognised in net profit or loss in the period in which they arise except exchangedifferences on transactions entered into in order to hedge the purchase or sale of specific goods and services aredeferred and included in the measurement of the purchase or sale.



Foreign Operations

Exchange differences relating to foreign currency monetary items forming part of the net investment in a self-sustaining foreign operation are transferred on consolidation to the foreign currency translation reserve.

Financial statements of self-sustaining foreign controlled entities are translated at reporting date using the currentrate method and exchange differences are taken directly to the foreign currency translation reserve.

(n) INTEREST-BEARING LIABILITIES

Bank loans and other loans are recorded at an amount equal to the net proceeds received. Interest expense isrecognised on an accrual basis.

(o) ACQUISITION OF ASSETS

Assets acquired are recorded at the cost of acquisition, being the purchase consideration determined as at the dateof acquisition plus costs incidental to the acquisition. The excess of the cost of acquisition over the fair value of theidentifiable net assets acquired, is classified as resource property.

(p) IMPACTS OF ADOPTING AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTINGSTANDARDS (IFRS)

Background

PVE will be required to comply with the Australian equivalents to International Financial Reporting Standards("A-IFRS") for its financial year ended 31 December 2005. A-IFRS encompasses Australian equivalents toInternational Financial Reporting Standards, International Accounting Standards ("IAS") and Interpretations issuedby the International Accounting Standards Board. For reporting periods beginning on or after 1 January 2005,compliance of financial reports with A-IFRS will become a legal requirement for all Australian entities.

The following is a summary of the significant differences between Australian generally accepted accountingpractices ("A GAAP") and A-IFRS applicable to the historical financial information.

Income Taxes: PVE is required to adopt a balance sheet approach under which temporary tax differences areidentified for each asset and liability rather than accounting for the effects of timing and permanent differencesbetween taxable income and accounting profit. The effect of this change will be to increase the amount of deferredtax assets and liabilities recorded in the Statement of Financial Position.

Carry forward tax losses will be recognised in full to the extent that it is "probable" that future taxable income willbe available to utilise the tax losses rather than being "virtually certain" that they will be utilised.

Rehabilitation Expenses: PVE incurs site rehabilitation obligations in its operations and under A-IFRS, the fullliability will need to be recorded in the Statement of Financial Position at the discounted present value of the futureliability. This amount will also be recognised as a future cost attributable to the rehabilitation of the consolidatedentity’s operations that will be amortised on a unit of production basis. The unwinding of the discount (associatedwith the liability) will be recorded as interest expense in the Statement of Financial Performance.

Impairment of Assets: PVE currently assesses whether assets are impaired by determining the recoverable amountof the asset on the basis of undiscounted future cash flows. Under A-IFRS, PVE will be required to determine therecoverable amount as the higher of fair value less costs to sell and "value in use", being the discounted value offuture cash flows. An impairment exists when the carrying amount of an asset exceeds its recoverable amount.

Share-based Payments: PVE provides share options as part compensation to certain employees and the cost of thisunder A-IFRS will be required to be recognised as an expense in the Statement of Financial Performance in respectof the services received.



Exploration and Evaluation Expenditure: No accounting standard exists under A-IFRS for the extractive industries.The International Accounting Standards Board (IASB) proposal in the area of exploration and evaluationexpenditure is likely to have a material impact on PVE’s accounting policies. An exposure draft ED 6 "Explorationfor and Evaluation of Mineral Resources" was issued during January 2004 by IASB, setting out a limited revision tothe relevant existing accounting framework pending the completion of a more wide-ranging review. The IASB is stillconsidering the responses received to the exposure draft, with an interim IFRS not expected to be available beforelate in calendar 2004. As a consequence, the eventual requirements of the resulting international standard remainuncertain at this point in time.

It is likely that the IFRS standard will require companies to apply impairment tests to exploration and evaluationassets where there is an indication of impairment. Where an indication of impairment exists, the recoverableamount of the exploration and evaluation assets would be required to be determined and compared to thecarrying amount of the assets. IAS 36 Impairment of Assets (IAS 36) requires the recoverable amount of an assetto be determined as the higher of its value in use and fair value less cost to sell. If the requirements of IAS 36were applied without modification, it is possible that a significant impairment of exploration and evaluation assetscould result. However, the IASB has recognised the difficulties of applying the IAS 36 impairment test toexploration and evaluation assets if the future is uncertain.

The effect of the IASB’s proposals and its subsequent redeliberation of them currently indicate that in the Australiancontext, existing national GAAP on accounting for exploration and evaluation will effectively be ‘grandfathered’.

From the Australian perspective, the Australian Accounting Standards Board ("AASB") has considered a draft ofAASB 6 Exploration for and Evaluation of Mineral Resources (AASB 6), which is based on a draft of IFRS 6Exploration for and Evaluation of Mineral Resources. Consistent with the AASB’s decisions in October 2004, draftAASB 6 includes "area of interest" accounting requirements and guidance from the existing AASB 1022Accounting for the Extractive Industries to the extent it relates to exploration and evaluation costs.

A final draft of AASB 6 is expected to be considered by the AASB at its November 11 2004 meeting with theStandard expected to be made in late November or early December. The Standard will have application from 1January 2005.

2. BASIS OF PREPARATION OF THE PRO FORMA CONSOLIDATEDSTATEMENT OF FINANCIAL POSITION

The pro forma consolidated statement of financial position as at 31 December 2003 has been prepared byreflecting in the consolidated financial statements of PVE the following actual transactions that have taken placesubsequent to 31 December 2003 and prior to the listing of PVE:

• For the period from 1 January 2004 to 31 August 2004, PVE pays cash of $430,958 for operating expensesand $329,836 for capital expenditure incurred;

• For the period 1 January 2004 to 31 August 2004 PVE records interest accrued on shareholder loans of $29,625;

• During the period January 2004 to March 2004, PVE issues in separate tranches 210,000 ordinary shares toseed investors at $5 each raising $1,050,000 and repays shareholder loans of $50,000;

• On 15 May 2004, PVE purchases 100% of the ordinary shares of Po Valley Operations Pty Limited fromNorthsun Italia SpA for $764,957 (Eur 449,435) resulting in a net cash outflow of $29,539;

• On 18 August 2004, PVE issues 525,000 shares at $1 per share and 195,000 shares at $1.30 per share toseed investors as a result of 720,000 options being exercised, raising $778,500;

• On 8 October 2004, PVE issues 30,500 shares to seed investors at $9 per share and repays shareholderloans of $70,509;



• On 8 October 2004, PVE issues 100,000 shares to seed investors at $9 per share raising $900,000;

• On 8 October 2004, PVE issues 233,493 shares to Michael Masterman at $9 per share as consideration forthe purchase of the remaining 6.1% minority interest shareholding in Northsun Italia SpA (comprising 4% IssuedCapital and 2.1% options) resulting in the recognition of resource property costs of $2,094,250;

• On 15 October 2004, PVE undertakes a share split in the ratio 1:12.9593 increasing the existing number ofshares on issue to 50,000,000;

In addition to the above, the following proposed transactions have been reflected in the pro forma consolidatedstatement of financial position as if the transactions had taken place at 31 December 2003:

• PVE repays trade payable to a third party supplier (ENI) of $935,153;

• PVE issues 20,000,000 shares under the Offer, raising $20,000,000; and

• PVE pays offer costs of $1,500,000.

The above transactions reflect the use and intended use of proceeds received from shares issued before and afterthe Offer. The Offer costs are estimates and accordingly, the amounts included in the pro forma consolidatedstatement of financial position are subject to change.

3. Cash Assets $

Cash at Bank

Reconciliation of movement in cash assets

Cash assets at 31 December 2003 69,897

Proceeds from the issue of shares to seed investors 1,950,000

Proceeds from the issue of shares to seed investors on the exercise of options 778,500

Purchase of the minority interest in Po Valley Operations Pty Limited (29,539)

Payments for operating expenses and capital commitments (760,794)

Repayment of third party payable to ENI (935,153)

Repayment of shareholder loans (120,509)

Payment of offer costs (1,500,000)

Proceeds from the issue of shares following the Offer 20,000,000

Proforma cash assets at December 2003 19,452,402

4. Property, Plant and Equipment $

Resource Property

Reconciliation of movement in resource property

Resource property at 31 December 2003 7,936,133

Capital expenditure 329,836

Resource property costs recognised on the purchase of the 6.1% minority interest

shareholding in Northsun Italia SpA at 8 October 2004 2,094,250

Proforma resource property at 31 December 2003 10,360,219



Resource property costs includes an amount for the acquisition of the 6.1% minority interest in Northsun Italia SpA.The resource property amount will depend on the book value of the net assets of Northsun Italia SpA at theacquisition date. In calculating the resource property costs in the pro forma, the amount was calculated byreference to the net assets of Northsun Italia SpA as at 31 August 2004 and amounted to $2,094,250.

The actual resource property amount at the acquisition date will be calculated by reference to the net assets ofNorthsun Italia SpA as at 8 October 2004. The actual resource property amount will differ from that calculated forthe pro forma.

5. Payables $

Payables

Reconciliation of movement in payables

Payables at 31 December 2003 1,229,241

Repayment of third party payable to ENI (935,153)

Pro forma payables at 31 December 2003 294,088

6. Interest Bearing Liabilities $

Interest Bearing Liabilities

Reconciliation of movement in interest bearing liabilities

Interest bearing liabilities at 31 December 2003 865,384

Issue of shares to seed investors (274,500)

Interest accrued from 1 January 2004 to 31 August 2004 29,625

Repayment of Shareholder loans (120,509)

Proforma interest bearing liabilities at 31 December 2003 500,000

7. Contributed Equity $

Contributed equity

Reconciliation of movement in contributed equity

Contributed Equity at 31 December 2003 6,409,352

Issue of shares to seed investors 2,224,500

Exercise of founder options 778,500

Issue of shares for the purchase of minority interests in Northsun Italia SpA 2,101,437

Transaction costs under the Offer (1,500,000)

Issue of shares under the Offer 20,000,000

Proforma contributed equity at 31 December 2003 30,013,789



Contributed equity No.

Reconciliation of movement in contributed equity

Contributed Equity at 31 December 2003 2,564,254

Issue of shares to seed investors 340,500

Issue of shares to seed investors on exercise of options 720,000

Issue of shares for purchase of minority interests in Northsun Italia SpA 233,493

Total number of shares pre-share split # 3,858,247

Total number of shares post share split # 50,000,000

Issue of shares under the Offer 20,000,000

Proforma contributed equity 70,000,000# On 15 October 2004, PVE undertook a 1:12.9593 share split.

8. Share Options

No. of options Trigger Price Exercise Price Exercise Date

Non Executive Directors

Graham Bradley 1,000,000 $1.25 $1.00 31/10/08

Byron Pirola 200,000 $1.25 $1.00 31/10/08

David McEvoy 500,000 $1.25 $1.00 31/10/08

Executives

Michael Masterman 1,500,000 – $1.25 31/10/08

Other employees or consultants 1,500,000 – $1.25 31/10/08

The material terms and conditions of:• Executive options are outlined in Section 13 Rights attaching to Options.• Non Executive options are outlined in Section 13 Rights attaching to Options.

I N D E P E N D E N T A C C O U N T A N T ’ S R E P O R T


EXECUTIVE SUMMARY 42

1. INTRODUCTION 42

2. ECOPETROL DESCRIPTION 44

2.1 Specific Experience of ECOPETROL in Po Valley

Exploration and Reservoir Studies 45

3. PETROLEUM RESERVES DEFINITIONS 45

4. PVE GAS FIELDS 45

4.1 Santa Maddalena Field – San Vincenzo Licence 48

4.2 Sillaro Field – Crocetta Licence Area 51

4.3 Vitalba Field – Cascina San Pietro Licence 55

4.4 Exploration & Appraisal Projects 58

5. DECLARATION 60

5.1 Previous Geological Reports 60

5.2 Site Inspection 60

5.3 Risk and Limitations 60

5.4 Qualifications 60

5.5 Disclosure and Independence 60

5.6 Consent 60

5.7 References 60

C O N S U L T I N G G E O L O G I S T ’ S R E P O R T


8

41

EVALUATION OF CERTAIN GAS F IELDS, ONSHORE ITALYFOR PO VALLEY ENERGY L IMITED OCTOBER 2004

DISCLAIMER All interpretations and conclusions presented herein are opinions based on inferences from geological,geophysical, engineering and petrophysical data, and/or any other kind of informations. The report represents Ecopetrol’s

best professional judgement and should not be considered a guarantee and prediction of positive or negative results.Ecopetrol’s estimates of reserves are based on data provided by Po Valley and its partners. Ecopetrol cannot accept

any liability either direct or consequential, for the validity of such data.

Executive SummaryPo Valley Energy owns Northsun Italia and Po Valley Operations (PVE Group). PVE Group owns:

• 50% of San Vincenzo which contains the Santa Maddalena field

• 100% of Crocetta which contains the Sillaro gas field

• 100% of Cascina San Pietro which contains the Vitalba and Pandino fields

• 55.55% of Casone della Sacca which contains the Malerba prospect and Clodo gas field

• 100% of the Terra del Sol Application which contains the Castrocaro prospect

Ecopetrol has reviewed the portfolio of assets and conducted detailed reserve estimates for Santa Maddalena,Sillaro and Vitalba. The total reserves are estimated at 106 Bcf as set out in the following summary table1:

1. IntroductionThis report has been prepared for inclusion in a Prospectus for Po Valley Energy Limited ("PVE") to be dated on orabout 1 November 2004 for an issue to the public (the "Issue") of 20 million shares at an issue price of $1.00.

Ecopetrol was commissioned as the consulting geologist to review and assess the oil and gas exploration anddevelopment interests held by PVE and to comment on the appropriateness of the proposed exploration anddevelopment programs.

The object of the Issue is to raise funds for the exploration and development of gas fields in the licences set out inTable 1 on page 43. It should be noted that the plans of PVE referred to in this report are dependent on the successof the Issue and, depending on exploration results, on further fund-raising or the farm-out or sale of licence interests.

The definitions and abbreviations used throughout this report are defined in the sections headed "Definitions" and"Glossary" contained within the Prospectus.

Ecopetrol is an independent, Italian-owned and managed oil and gas consultancy, specialising, inter alia, in theappraisal and valuation of oil and gas resources and projects. In preparing this report, professional staff andassociates of Ecopetrol provided expert opinion on matters related to their specific expertise.

Except for the provision of professional services on a fee paid basis, neither Ecopetrol, nor any of its employees,consultants or associates used by them in connection with the preparation of this report, has any commercialarrangement with any persons or company involved in the interests which are the subject of this report.



Remaining Reserves as at 30 June 2004 (Bcf)

New Field Names Concession Permit 1P 2P 3P

1. Santa Maddalena San Vincenzo 12.9 27.0 44.22. Sillaro Crocetta 0.0 38.9 53.43. Vitalba Cascina san Pietro 3.6 8.6 8.6

Total (Bscf) 16.5 74.5 106.3Total Bscf PVE Equity Share 10.1 61.04 84.21 Columns in some tables throughout this report may not sum precisely due to rounding errors.

Ecopetrol has reviewed the portfolio of oil and gas acreage held by PVE and is satisfied that:

1. each of the licence areas has conventional oil and gas worthy of exploration and development at the expenditurelevels contemplated by PVE, and each licence has the potential for the commercial production of gas;

2. PVE’s exploration and development programs are consistent and appropriate with the current levels ofunderstanding of the gas reserves of each of its licence areas;

3. PVE has the resources to manage the risk and uncertainty of exploration and development in its licences ateach stage of the development program by farm-in, farm-out, new acreage applications and acreagerelinquishments.

A summary schedule of the interests of PVE in the licences and proposed work programs and expenditures for thelicences is included in the Projected Development Budget in Section 4 of this Prospectus. Ecopetrol has notindependently verified the validity of the titles, encumbrances to titles and the status of work program commitments.

The examination of the oil and gas potential of the PVE prospects and licences has been made on the basis ofinformation supplied by the company as well as published information. Ecopetrol is satisfied that sufficient datawas available to adequately examine the areas.

Please note that in the following sections:

• The term "PVE" refers to Po Valley Energy and all its subsidiaries;

• The term "NSI" refers to NorthSun Italia SpA and all its subsidiaries;

• Unless stated otherwise, the interests shown assume that all events, acquisitions, and so on, envisaged anddescribed in the Prospectus proceed as planned;

• For more complete details of agreements relating to each licence, see Sections 10 and 12 of the Prospectus.

PVE, either directly or through subsidiaries has interests in the Hydrocarbon Licences located as shown in the frontof the Prospectus and detailed in Table 1 below.



Licence Area Basin Expiry PVE LicenceDate Equity Area km2

San Vincenzo Po Valley Feb 07 50% 58.7

Crocetta Po Valley Feb 07 100% 51.6

Cascina San Pietro Po Valley Feb 07 100% 152.2

Casone della Sacca Po Valley Feb 07 55.55% 379.4

Terra del Sole (Application) Po Valley Est. 2010 100% 220.0

TOTAL 861.9

Table 1 – Schedule of Interests

This report is based primarily on:

• Confidential data made available by PVE;

• Non-confidential data in the files of Ecopetrol;

• Publicly available data.

Although PVE has advised that it has provided all relevant data in its possession to Ecopetrol, Ecopetrol is not in aposition to guarantee the accuracy or completeness of such data available to it in the preparation of this report.

2. Ecopetrol DescriptionEcopetrol was founded in 1988 by four former General Managers of the four main oil companies operating inItaly: Agip, Fiat Rimi, Fina Italiana and Montedison.

During its 15 years of operation, Ecopetrol has grown organically as a result of its continuing success. Ecopetrolhas received a certificate of quality and is present on the vendor lists of all the main oil companies.

Ecopetrol’s staff comprises qualified and experienced personnel. These personnel have come from oil companies and/or first order consultancies, and are specialised in all the various branches of oil & gas exploration and production.

The main aim of Ecopetrol is to supply a range of services related to the oil and gas exploration and productionindustry.

1. Ecopetrol undertakes 2D and 3D Seismic Interpretation on workstations (using Landmark® or GeoQuest®

software), time and depth mapping, well data correlation and geological synthesis, well location planning, andhydrocarbon reserves studies.

2. Ecopetrol prepares Geological Reports for permit applications and Reservoir Studies for concession applications.

3. Ecopetrol prepares Environmental Reports for applications, geophysical surveys, drilling consents, and so on.

4. Ecopetrol undertakes 2D & 3D Static and Dynamic Reservoir Studies, for economical and/or technical evaluations.

5. Ecopetrol undertakes complete Studies for Gas Storage Projects.

6. Ecopetrol undertakes Technical and Economical Evaluations for Prospect Evaluations and Exploration Projects.

7. Ecopetrol prepares Evaluations of Areas with Potential and Regional Geological Studies.

8. Ecopetrol undertakes all kinds of Data Management, including changes of storage media (taps, cartridge, CD),change of format, transcription, reproduction, and so on.

9. Ecopetrol participates in Data Room Evaluations in Italy and abroad.

10.Ecopetrol provides extensive Support Services to exploration and production operators, including filing andtreatment of recorded data.

This report has been prepared by a team of Ecopetrol petroleum geoscientists and reservoir engineers. Each teammember has extensive experience (more than 30 years) in hydrocarbon exploration and production, havingworked with primary international oil companies in Italy (Po Valley in particular) and abroad.

Ecopetrol’s works for the major Oil & Gas company in Italy.

Ecopetrol has collaborated on international projects supplying experience, professionalism, organisation andadvanced technology.

Ecopetrol’s Head Office is located at Mazzo di RHO (Milan, Italy), Telephone +39 (0)2-93900325,Fax +39 (0)2-93900341, e-mail: [email protected], website http://pwhux.tin.it/ecoweb/.





2.1 Specific Experience of Ecopetrol in Po Valley Exploration and Reservoir Studies

The senior personnel at Ecopetrol have worked extensively on the Po Valley region from the onset of explorationefforts, and have been involved in many gas and oil discoveries. The Geophysicists have collaborated on theseismic interpretation of the whole area and the Geologists have developed geological models for the basinevolution and tectonic setting.

Before the liberalisation of ENI’s Exclusive Area (Po Valley), Ecopetrol prepared many Reservoir Studies, Gas & OilReserves Evaluations, as well as Estimates of Remaining Potential in Hydrocarbon Fields, including 26 Onshoreand 6 Offshore fields in the Po Valley area.

3. Petroleum Reserves DefinitionsThe reserves definitions use herein are those of the SPE/WPC , the summary definitions of which are as follows:

A. Proved Reserves.

"Proved reserves are those quantities of petroleum which, by analysis of geological and engineering data, can beestimated with reasonable certainty to be commercially recoverable, from a given date forward, from knownreservoirs and under current economic conditions, operating methods, and government regulations. Provedreserves can be categorised as developed or undeveloped."

B. Probable Reserves.

"Probable reserves are those unproved reserves which analysis of geological and engineering data suggests aremore likely than not to be recoverable."

C. Possible Reserves.

"Possible reserves are those unproved reserves which analysis of geological and engineering data suggests areless likely to be recoverable than probable reserves."

Note that only deterministic methods were used for all the following reserves estimates. We also use herein thenomenclature "1P" for Proved, "2P" for Proved plus Probable, and "3P" for Proved + Probable + Possible.

Reserves derived under these definitions rely on the integrity, skill and judgement of the evaluator and are affectedby the geological complexity, stage of development, degree of depletion of the reservoirs and amount of availabledata. Moreover, reserves estimating remains imprecise as a result of the inherent uncertainties in, and the limitednature of, the data used which may be indirect or analogical in character rather than direct or deductive. This isdiscussed at length in the SPE’s companion publication to the reserves definitions, "Auditing Standards for Reserves".

4. PVE Gas FieldsPo Valley Energy operates in Italy through its 100% owned subsidiaries NorthSun Italia and Po Valley Operations.The PVE Group has four exploration licences and one licence application in the Po Valley in Italy. The PVE focusesexclusively on onshore gas and oil fields in Italy. The fields are located around the cities of Bologna and Milan.These licences are summarized in Table 2.

Historical drilling has identified gas resources in all of the fields with nearly 100 wells drilled and hundreds ofkilometres of seismic acquired by ENI in the combined licence areas. Gas fields in the San Vincenzo, Crocettaand Cascina San Pietro licences have produced nearly 1 bm3 (billion cubic metres) of gas.

Ecopetrol has conducted detailed reserve estimates of the Santa Maddalena Gas Field in San Vincenzo, the Sillarogas field in Crocetta and the Vitalba/Agnadello gas field in Cascina San Pietro. A summary of the gas reserves inthese fields is shown in Table 3.



Figure 1

LOCATION OF THE GASFIELDS

Licence Equity Location Previous Name New Name*

San Vincenzo 50% 25 km N of Bologna San Pietro in Casale Santa MaddalenaCascina San Pietro 100% 20 km E of Milan Agnadello Vitalba

Pandino TBD

Crocetta 100% 30 km E of Bologna Budrio Est SillaroCasone della Sacca 55.55% 40 km NE of Bologna Bando Clodo

Malerba

Terra Del Sole (Application) 100% 60 km S of Bologna Castrocaro TBD

Table 2 – PVE’s Licences in the Po Valley

* Under Italian protocol, former gas fields need to be renamed for re-development; for example, the Budrio East field has been renamedSillaro. New names will be used from here onwards in this report. The location of these licences is shown in Figure 1 below.

In estimating these reserves Ecopetrol had access to, and incorporated, the following data:

• Sets of gas well logs;• Selective seismic data;• Structural depth maps;• Production data.

Industry-standard methods have been used for the estimation of gas in place and recoverable reserves, and theseare described in more detail below, along with a more detailed description of the major development projects:Santa Maddalena, Sillaro and Vitalba follows.



New (& Old) Concession Production Remaining Remaining Recoverable ReservesField Names Permit to Date Gas in Place as at 30 June 2004 (106 m3)

(106 m3) (106 m3) 1P 2P 3PSanta Maddalena(S. Pietro in Casale) San Vincenzo 502.0 1,669.5 365.7 765.2 1,252.1

Sillaro (Budrio) Crocetta 10.5 2,161.6 0.0 1,100.8 1,513.2

Vitalba (Agnadello) Cascina San Pietro 357.8 395.6(2p) 101.2 244.9 244.9

TOTAL (MM m3) 870.3 4,226.7 466.9 2,110.9 3,010.2

TOTAL (Bcf) (*) 30.7 149.3 16.5 74.5 106.3

TOTAL PVE 10.1 61.2 84.2

Table 3 – Summary of PVE’s Gas Reserves in Re-Development Projects

(*) All volumetric units are at standard conditions (nominally 14.7 psia and 60°F) unless stated otherwise and cubic feet (cf) have been

obtained from cubic metres (m3) using the conversion factor 35.3147.

New (& Old) Concession Production Remaining or Original Remaining Recoverable ResourcesField Names Permit to Date Gas in Place as at 30 June 2004 (106 m3)

(106 m3) (106 m3) 1P 2P 3PPandino Cascina San Pietro 149.0 201.0 38.3 38.3 150.8Clodo Casone Della Sacca - 571.0 0.0 0.0 399.7Castrocaro Terra Del Sole - – – – –TOTAL (MM m3) 149.0 772.0 38.3 38.3 550.5TOTAL (Bcf) (*) 5.3 34.3 1.3 1.3 19.4TOTAL PVE Equity Share 1.3 1.3 13.1

Table 4 – Summary of PVE Gas Reserves in Exploration/Appraisal Projects

4.1 Santa Maddalena Field – San Vincenzo Licence

Santa Maddalena is a large, compartmentalised reservoir containing gas reserves in both massive sands and inthin, interbeded sands and clays. Ecopetrol has estimated recoverable reserves of 1.25 billion m3.All environmental clearances have been received to commence drilling activities.

Geology and Reserves

Twenty-four wells were drilled in Santa Maddalena (formerly called the Pietro in Casale field) from 1957 to 1986;14 were productive, 3 had gas shows and 7 were dry, with total production of 502 million m3 to date.

The geological structure is that of an anticline with the main fold axis oriented WNW-ESE. The northern flank isdelimited by a fault with a throw of 200-300 m down to the North. The anticline affects the Miocene and LowerPliocene layers, truncated at the top by the Upper Pliocene unconformity.

The structure is crossed by normal faults that divide it into six hydro-dynamically independent blocks. The mainblock, BLC-5, still has some remaining reserves that are worth developing. A new well was drilled by NorthSunand Edison, Santa Maddalena–1, was located on a structural high between the SPC-1 and SPC-8 wells. Thereservoir fluid, typical of the Po Valley, is a biogenic gas consisting of over 99 mol% methane with a negligibleliquid yield.

In BLC-3, to the East of SPC-5 well, there is a structural higher position suitable for locating a new productive step-out, with both Miocene and Pliocene targets.

On the South flank of the structure some wells have found pinch-outs of Middle Pliocene (Porto Garibaldi sands)gas bearing (SPC-13, 17, 18, 20). The exploration of this flank remains a valid secondary target.

The lithology is shown in Figure 2 and a top structure depth map is shown in Figure 3. A seismic section throughthe field is shown in Figure 4.

Reserves were estimated using industry-standard methods as follows. Gas in place was calculated from a grossrock volume (in turn calculated from the contours of the top structure depth map and the trapezoidal rule), andaverage petrophysical properties derived from logs. The recoverable reserves were estimated using observedrecovery factors from adjacent fields in the basin. The estimated reserves for Santa Maddalena in the SanVincenzo Licence are shown in Table 5, split between the two main Pliocene layers.



Production RemainingTo Date Gas In Place RF% Proved Probable Possible 3P

PL-1 406.03 894.65 75% 246.5 203.5 221.0 671.0

PL-2 95.97 774.86 75% 119.2 196.0 265.9 581.1

TOTAL 502.0 1,669.5 365.7 399.5 486.9 1,252.1TOTAL (Bcf) 17.7 59.0 12.9 14.1 17.2 44.2

PVE Equity 6.4 7.0 8.6 22.1

Table 5 – Estimated reserves for the Santa Maddalena Field (106 m3)



Figure 2

PO VALLEY ENERGY LTD

Lith t ti hi C l f

Sands and shaley sands

Grey weakly silty shales

Interlayed of sands shales. Thin levelsShaley sands and shales

Interlayed sands and shales

Interlayed sands and shales

Sands with interbeddings shales. Thin layers on the top

Prevalently sands, sometimesshaley sands with interbeddings shales

Sands and shaley sands

QUM-A

QUM-B

PL2-B,CPL2-E+F

PL1-HPLt-11+12

PL1-13

PL1-L

LITHOLOGY DEPTHG.L. LITHOLOGICAL DESCRIPTION LEVELS FMN AGES OBJ.

185

778

840865900925

963

1040

1000

500

0SSL

AL

LU

V.

HO

LO

C.

SA

BB

IE D

I S

TI

PL

EIS

TO

CE

NE

PL

IOC

.M

idd

leP

LIO

CE

NE

Lo

wer

*?

*?

*?

****

Arg.SANT.

P. toGARIB.

P. toCORSIN.

L ITHOSTRATIGRAPHICCOLUMN OF WELL SPC-1

Development Plan

The development plan involves:

1. Drilling the first well in June 2004 – successfully completed;2. The addition of surface equipment and the start of commercial gas sales; and3. The drilling of an additional 4-5 wells to maximise production from the field.

The capital cost for the completed first well was estimated at Eur4.0 million ($6.9m). Edison Gas is the operator ofthe field.

Recent Development Results

The well Santa Maddalena-1 and its sidetrack were drilled in the period June-July 2004. The results confirmedexpectations, finding over 30 m of gas-bearing sands.

Two Production Tests were performed in the well, which flowed dry gas at up to about 110,000 m3/d (4 millionscf/d) for each shotted layer at a WHFP of 76 psi through a 3⁄8" choke.



Figure 3

Figure 4

TOP STRUCTURE DEPTHMAP FROM SANTA MADDALENA

SEISMIC SECT IONTHROUGH SANTA MADDALENA F IELD

4.2 Sillaro Field – Crocetta Licence Area


Sillaro comprises two large anticline structures containing total estimated recoverable reserves of 1.51 billion m3

from remaining GIP of 2.16 billion m3. The reservoir is split into two levels, with Probable plus PossibleRecoverable Reserves of 352.8 million m3 at the 2,100 m level and 1,160.4 million m3 at the 2,500 m level. The2,100 m level has very high permeability and the structure is very well defined by previous ENI drilling programs– this level is the principal focus of NorthSun’s initial development activities.

Seven wells were drilled in Sillaro (previously called the Budrio East gas field) from 1955 to 1982. The BUD-2and BUD-3/3d wells proved productive; BUD-4 was not tested over the producing layers, but is expected to be gasbearing; the BUD-6/6d well had mechanical problems after a gas blow-out; the BUD-5 well was dry.

The structure is a reverse-faulted anticline, with the main axis oriented NW-SE. The reservoir is divided in twolevels: the lower one composed of Upper Miocene (MI3-R+Q) sandstone; the upper one composed of thin layers ofalternating sands and clays belonging to the "Porto Garibaldi" Formation (Middle Pliocene: PL2-B). This latterhorizon has never been put on production, although it has proven permeability. Reservoir continuity is very goodin the two tested wells (BUD-2,3d). The bottom structure depth map is shown in Figure 5 and the general lithologyof Sillaro is shown in Figure 6.



TOP M13-R DEPTH STRUCTURE MAPSILLARO F IELD

Figure 5



Figure 6

PO VALLEY ENERGY LTD

Lith t ti hi C l f th

LITHOLOGY LITHOLOGICAL DESCRIPTION AGESSSL FMN

1000

0

2000

3000

Mainly gravel and clayey sands

Thin and very thin sands containing quartz and mica,alternating to grey clays pyrite marks

Silt grey shales with some very thin silty sand layers

Thin quartzose sand banks alternating to thin grey clay layers

Clear grey silty shales with very thin layers of very fine sands

Marls and clays with thin inter-beding of fine sand with pyrite marksBanks of fine quartz-micaceous sands alternating to thin shale layers

Thick alternating of fine quartz-micaceous sands and gey shales

325

1494

1779

2290

24842560

2673

PL

EIS

TO

CE

NE

HOLO

CENE

PL

IOC

EN

EM

IDD

LE/U

PP

ER

UP

PE

RL/

M

SAN

T-ER

NO

MIO

CE

NE

TO

RT

IAN

O

Marn

oso

-Are

nacea

DEPTHG.L.

3600

P.G

ari

bald

iSa

nter

noA

sti

Sa

nd

sFl

ood

Gas shows

THE GENERAL L ITHOLOGYOF THE S I LLARO F IELD



The reserves in this field are classified as Probable even though there is a high degree of confidence in theestimate. The main reason for this conservative approach, with respect to the MI3-R level, is the very shortproducing life of the wells and the very low recovery factor achieved to date. It is suspected that completion andproduction parameters were not suitable for the Miocene formation, and in addition the extent and continuity of thelayer needs to be confirmed to the east (BUD- 6,6d).

The results of a well test or an early production test are required before giving a Proved classification to PL2-B Reserves.

ENI’s production activities were focused on the 2,500 m level where they encountered technical, drilling anddeliverability issues and challenges. Subsequent re-evaluation of the well and seismic data (by NorthSun in 2002)identified a 400 million m3 GOIP reservoir at 2,100 m (Figure 7).

Figure 7 - Well Correlation and Gas Bearing Layers

L ITHO-STRATIGRAPHIC AND ELECTRIC CORRELAT IONBUDRIO F IELD

The PL-2 reservoir has been validated by four wells. Production test data indicated high flow rates, but nopermeability values are available.

GOIP and reserves were estimated in a similar fashion to those for the Santa Maddalena field. The estimatedreserves for Sillaro are:

The development plan fore the Sillaro field involves:

1. Environmental and other regulatory clearances – complete;

2. The drilling of two development wells from the same drill site – the second well being deviated to optimiseproduction and target the 2,500 m level;

3. Adding surface equipment and pipeline connections (50m);

4. Start commercial gas sales.



Layer Remaining Recovery Proved Probable Possible 3PGas In Place

PL-2 504.0 70% 0.0 352.8 0.0 352.8MI-3 1,657.6 70% 0.0 748.0 412.4 1,160.4Total 2,161.6 0.0 1,100.8 412.4 1,513.2Total Bcf 76.3 0.0 38.9 14.6 53.4

Table 6 – Estimated Reserves for the Sillaro Field (106 m3)

Figure 8

TOP PL2-B DEPTH STRUCTURE MAPSILLARO F IELD



Ecopetrol’s initial evaluation suggests that a two well development should be sufficient to allow the recovery of 300million m3 over five years. Drilling the two wells in sequence will reduce development costs and approval risks,and should ensure the principal development work (in the two wells) is completed in a timely manner.

Following the drilling of the initial development wells, a field optimisation study will be completed to develop theentire reservoir including the larger MI-3 reservoir at the 2,500 m level.

The Miocene appears to have dual porosity with higher flow rates at the bottom of the structure and low flow ratesat the top. We would expect that with careful reservoir management and use of modern well completiontechnology that Po Valley has a good probability to achieve commercial production rates.

The estimated capital cost for the development of the PL-2 level at 2,100 m is Eur4.5 million ($7.9m).

4.3 Vitalba Field – Cascina San Pietro LicenceVitalba (previously called Agnadello) is strategically located 23 km outside Milan, close to the main entry points for gasimports into Northern Italy. The field was a highly productive field for ENI, producing 358 million m3 from oneproduction well during a ten year period. On the basis of seismic evidence, the Vitalba structure has updip potential,and contains estimated remaining reserves of 130 million m3.

Assessments to date indicate that Vitalba/Agnadello may be well suited to be a gas storage field, with thecapability for injecting and withdrawing gas to meet consumers’ daily and seasonal gas usage requirements.

Given Italy’s high reliance on gas imports, problematic electricity infrastructure and rapidly growing gas demand,operation of Vitalba as a gas storage field – after its producing life is over - could prove profitable and this optionwill be retained for future consideration.


The Vitalba gas field was discovered by AGIP in 1978. One well was drilled, Agnadello #1 and this well wasdual-completed. From 1981 to 1989 the Agnadello #1 well produced 358 million m3 of gas (the well’s productionhistory is shown in Figure 9).

Figure 9

90

80

70

60

50

40

30

20

10

01981 1982 1983 1984 1985 1986 1987 1988 1989

Mill

ions

m3

AGNADELLO #1PRODUCTION HISTORY



Figure 10

SCHEMATIC GEOLOGICAL SECT IONTHROUGH VITALBA F IELD

The reservoir has two gas-bearing zones in the Argille del Santerno Formation (see Figure 10 below). The originalestimated gas in place of 460 million m3 (AGIP) was at a depth between 1420m and 1455m in a stratigraphictrap trending South-North. The well was abandoned 1991 as a result of water incursion.

An updip extension of this stratigraphic trap seems evident from the latest seismic interpretation. This prospect isaround 1,500 m deep for which the estimated Proved plus Probable reserves are 245 million m3.

A well is planned to be drilled in late 2004 updip of the former Agnadello #1 well. The aim of this well is torecover the remaining reserves in the structure.

The recoverable reserves are set out in Table 7 and the top structure depth map is shown in Figure 11:



Layer GOIP GOIP GP GIP GIP R.F. Remaining RemainingIP 2P* Gas IP 2P Total Reserves Reserves

Produced *** 1P 2PSan A1 297.15 42.47 227.4 69.8 112.2 80% 10.3 44.3

San A2 276.54 137.25 130.4 146.1 283.4 80% 90.8 200.6

Total 573.69 179.715 357.8 215.9 395.6 101.1 244.9Total Bcf 20.3 26.6 12.6 7.6 14.0 3.6 8.6

Table 7 – Estimated Reserves for the Vitabla Field (106 m3)

* Probable is the difference between the GOIP calculated with NORTHSUN’s area extension and GOIP calculated with AGIP’s area extension*** R.F. total is taken slightly higher than almost depleted San A1

Figure 11

TOP PL2-SAN A1 DEPTH STRUCTURE MAPAGNADELLO/VITALBA F IELD

Development Plan

Preparation of a development plan is currently underway.

Environmental approval for the first development well Vitalba #1 has been received. The ongoing developmentplan involves:

1. Drilling Vitalba #1 in the last quarter of 2004.

2. Based on the results of Vitalba #1, determine the timings of the production and storage phases of the project.

The development cost of Vitalba #1 is estimated to be Eur1.9 million ($3.7m).

4.4 Exploration & Appraisal Projects

In addition to the three main development assets, PVE has undeveloped discoveries and good explorationprospects within the large Cascina san Pietro licence, Casone della Sacca licence, and Terra del Sole licenceapplication areas.

4.4.1 Cascina San Pietro

A second gas field, named Pandino, was discovered (March 1955) in the same Permit, close to the Vitalba gasfield. Thirteen wells were drilled, of which 9 were productive and 4 dry. From 1956 to 1963 the field produced149 million m3 of gas. The gas was present in a structural high at a depth of 1,800–2,000 m in Middle/LowerPliocene sand and gravel layers. The remaining gas in place is estimated at about 201 million m3.

Some other Prospects, represented by stratigraphic traps of Pliocene sands, require the acquisition of new seismicdata to be fully defined.

4.4.2 Casone della Sacca

This Permit covers a tectonically complex area, segmented into several NE-SW trends by reverse faults. Theprospective sedimentary sequence is constituted by Upper Miocene (Messinian) sands of the Dosso degli AngeliFormation, and Lower Pliocene turbidites of the Porto Corsini Formation.

From 1943 to 1990, a large amount of seismic data (720 km) was recorded and 28 wells were drilled, of which8 had positive results, having encountered gas bearing layers. The remaining wells were dry. The main fields andprospects are briefly described below.

A small gas field, named Bando, was discovered in 1943 at the depth of 359 m. Eight wells were drilled, but onlyfour produced gas from the Porto Corsini Formation; Bando 7, drilled in 1986, produced gas at low rates from theDosso degli Angeli Formation.

The wells Ponteverrara-1 and Travasona-1 discovered the presence of gas in the Dosso degli Angeli Formation atthe depth of 1,200 m. The other wells on the same structures did not confirm hydrocarbons.





Based on the seismic data there are two other prospects: "Malerba", a stratigraphic trap created by the CarolaFormation on-lapping the unconformity surface at about 900 m; and "Saline", a folded anticline structure (PortoCorsini Formation), on the same trend as Travasona, with a culmination at a depth of about 500 m.

Initial estimates of Possible Reserves are in the region of 400 million m3.

4.4.3 Terra del Sole Application

Located near the Apennine chain overthrust, this area appears to have good potential for finding structural traps inthe Messinian – Quaternary sequence. A secondary objective may be constituted by traps involved in theoverthrust. In this area Terra del Sole-1 and Terra del Sole-1 Dev were drilled in 1960, but both were dry. In1984 Castrocaro T-1X was drilled, finding gas at the depth of about 650 m.

The estimated Probable Reserves are 150 million m3, based on the results from Castrocaro T-1X.

The location of these exploration permits and applications is shown in Figure 12.

Figure 12

I TALYPERMIT LOCATION

Figure 12

I TALYPERMIT LOCATION



5. Declaration

5.1 Previous Geological Reports

The Directors of PVE have advised that the Company has commissioned no prior Independent Geological Reportsrelating to the areas which are the subject of this Report and the issue of shares relating to this public offering.

5.2 Site Inspection

As is customary in the case of the evaluation of oil and gas properties, it has not been deemed necessary toconduct field inspections of any PVE oil and gas acreage assets.

5.3 Risk and Limitations

In preparing this Report we have relied upon information made available to us by PVE and NSI together withcertain public domain data. A draft of this Report was supplied to PVE for comment regarding errors of fact. It is tobe emphasised that exploration for oil and gas is inherently risky.

There is as yet no direct means by which commercial quantities of oil or gas can be detected from the surfacewithout the necessity for drilling an exploration well. There is always the risk that the geological trap targeted byan exploration well does not contain hydrocarbons, or contains non-commercial quantities of hydrocarbons,because of the failure of any one of the key geological factors required for success.

These include, but are not necessarily limited to: ineffective seal, trap formation post-dating the time of hydrocarbonmigration, lack of trap exposure to hydrocarbon migration, breaching of trap due to faulting, absence of suitablereservoir quality rocks.



5.4 Qualifications

All Ecopetrol‘s staff are highly qualified with University Degrees and personal professional experience (over 35Years). This experience has been acquired with major oil and gas companies and encompasses all facets ofexploration, reservoir engineering and production in Italy, (Po Valley in particular) and overseas.

5.5 Disclosure and Independence

Ecopetrol, nor any of its employees or Associates has any direct or indirect interest in the permits that are thesubject of this Report, nor in any adjacent permit or pending permit, or in the securities of any of the publiccompanies involved. Ecopetrol will be paid a fee about 20,000 AUD for the preparation of this report.

5.6 Consent

Ecopetrol’s consent to the inclusion of this Report in PVE’s Prospectus dated on or about 1 November 2004, in theform and context in which it has been prepared.

5.7 References

Ecopetrol recent reports completed:

• "Amelia" 3D Reservoir Study; ENI Client• "Correggio" Po Valley Gas Field, Static and Dynamic Study; ENI Client• "Cornegliano" and "Cotignola" Storage Reservoir Study; CISPEL Client• Worldwide Well Data Collection and Formation Revision; SCHLUMBERGER Client

Natale MartiniPresident of Ecopetrol

I N D E P E N D E N T E X P E R T ’ S R E P O R T 9

The DirectorsPo Valley Energy Ltd.Level 21 York Street Sydney 2000

Date: 1 November 2004

Dear Sirs:

EXPERT’S REVIEW OF A CONSULTING GEOLOGIST’S REPORT

Introduction

This report has been prepared at your request for inclusion in the Prospectus dated on or about 1 November 2004relating to a Public Offer (the Offer) of 20,000,000 ordinary shares at A$1.00 in Po Valley Energy Limited("Po Valley").

References to Po Valley and other terminology used in this report have the same meaning as defined in theGlossary.

Scope of Report

You have instructed us to undertake an independent and expert review of the report prepared by Ecopetrol datedOctober 2004 ("Ecopetrol’s Report") for inclusion in this Prospectus and to specifically review and report on thefollowing issues:

• to opine on the methods used by Ecopetrol in its report and their appropriateness for the purposes for whichthey are used, specifically the methodology used for gas reserves estimation;

• to review the technical work undertaken by Ecopetrol on Po Valley’s portfolio of development gas fields; and

• to review the appropriateness of that actual work carried out by Ecopetrol and that its report is of a competentnature on which potential investors may rely.

You have instructed us not to review or opine on the views and conclusions of exploration tenements in Po Valley’sportfolio contained in Ecopetrol’s Report.

To perform this work, a two-man ECL team consisting of an engineer and geologist, both with over 20 years ofinternational experience, met with Ecopetrol staff to discuss their methods and results. Subsequent analysis andreview was carried out in ECL’s U.K. office.

Review of Ecopetrol Report

Po Valley, through its ownership in NorthSun Italia SpA, has a portfolio of gas properties located in Italy andwhich are detailed in Ecopetrol’s Report. The subject portfolio consists of various properties – a total of six licencesat various stages of approval - in the prolific Po Valley Basin of Northern Italy. The key properties representing thepotential for development and near-term cashflow to Po Valley are:


• The Santa Maddalena gas field in the San Vincenzo licence;

• The Sillaro gas field in the Crocetta licence; and

• The Vitalba gas field in the Cascina San Pietro licence.

Ecopetrol has taken the raw and interpreted data and calculated from first principles the gas initially in place inthese accumulations using standard volumetric methods. Subtracting the previously produced volumes then allowsestimation of the gas remaining in place at the effective date (June 30, 2004 in this case). We can confirm thatthese calculations have been performed using industry-standard methods and, in general, a conservative approachhas been used.

The field re-development plans reviewed by Ecopetrol are quite simple, consisting of the addition of new wells andtie-in to new or existing facilities and infrastructure of the region; the reservoir fluid is a dry gas in each case, sothe facilities are relatively simple. The recoverable reserves have been estimated using industry-standard,analytical methods, backed up by observed recovery factors from nearby, analogous fields and this approach isperfectly adequate. Ecopetrol has used the reserves definitions and guidelines of the SPE & WPC, two of theindustry’s governing bodies from a technical standpoint. Ecopetrol has not been asked to place an economic valueon these projects.

Opinion

It is our opinion that the Ecopetrol Report:

• applies methodologies that are appropriate for the purposes for which they are used, including themethodology used for gas reserve estimation;

• appropriately and accurately describes that actual work carried out by Ecopetrol; and

• is of a competent nature on which potential investors may rely, notwithstanding the inherent uncertainty andsubjectivity in reserves estimation.

There are a number of conditions to be met before Po Valley’s proposed work and development programme canproceed, none of which is considered a major impediment. These include but may not be limited to the following:

• the receipt of all necessary Governmental and environmental approvals;

• the tendering and award of contracts for the equipment and services required;

• partner liaison and approval (where appropriate); and of course

• the raising of sufficient finance to cover these works.

I N D E P E N D E N T E X P E R T ’ S R E P O R T


ECL Expertise

ECL is an independent consultant to the international oil and gas industry performing technical and commercialevaluations from its offices in the U.K., Canada, U.S.A. and Australia as well as project-specific offices in othercountries. Recent oil and gas projects undertaken by ECL include:

• An evaluation of the giant Temane & Pande area gas fields, onshore Mozambique, with hydrocarbons in placeof several Tcf (reference: Mr. Larry Williams, General Director, Sasol Petroleum Temane Limitada);

• Reserves audit and certification of all of the producing fields offshore Republic of South Africa, including 8(eight) gas fields and 3 (three) oil fields using both analytical and numerical methods (reference: Mr. DanMarokane, Chief Reservoir Engineer);

• Competent Person’s Report for the Evaluation of the assets of Energy Africa in support of Tullow Oil plc’ssuccessful acquisition of same;

• Technical Advice on evaluation and development planning issues for gas fields, onshore Europe, carried out foran independent oil and gas company.

Yours faithfully,

R.T. Kelly C.Eng.

Petroleum Engineering Director

I N D E P E N D E N T E X P E R T ’ S R E P O R T


Rome, 1 November 2004

To: The DirectorsPo Valley EnergyLevel 2, 1 York StreetSydney NSW 2004

Dear Sirs,

Re: Report on NSI and PVO Permits

IntroductionThis report ("Report") has been prepared upon your request for inclusion in the Prospectus to be dated on or about1 November 2004 and issued by Po Valley Energy Limited ("PVE") in connection with the offering for subscriptionof 20,000,000.00 new shares.

This Report (i) sets forth the results of our searches conducted from 21 April 2004 up to 31 May 2004 at theadministration office of NorthSun Italia S.p.A. ("NSI"), a company incorporated under the laws of Italy, and ofPetroz (Italy) PTY Ltd, a company incorporated under the laws of Australia ("PVO" and together with NSI the"Companies") in Rome, Via del Gesù, 89 Italy – with respect to the exploration permits of NSI and PVO referredto below (the "Permits") and (ii) describes certain agreements, deemed relevant by Po Valley, entered into by NSIand Petroz.

L E G A L R E P O R T O N P E R M I T S


10

67

For the purpose of this Report we have examined the following legislation:

(i) Royal Decree No. 1443 of 29 July 1927, as amended and supplemented;

(ii) Law No. 6 of 11 January 1957, as amended and supplemented;

(iii) Law No. 613 of 21 July 1967;

(iv) Law No. 221 of 30 July 1990;

(v) Law No. 9 of 9 January 1991;

(vi) Ministerial Decree of 6 August 1991;

(vii) Presidential Decree No. 382 of 18 April 1994;

(viii) Presidential Decree No. 484 of 18 April 1994;

(ix) Presidential Decree No. 526 of 18 April 1994;

(x) Legislative Decree No. 625 of 25 November 1996;

(xi) Legislative Decree No. 164 of 23 May 2000;

(xii) Law No. 239 of 23 August 2004 (the legislation from (i) to (xii) above is hereinafter referred to as the"Relevant Legislation").

We have also examined the following legislation: Presidential Decree No. 128 of 9 April 1959; PresidentialDecree No. 886 of 24 May 1979; Law No. 431 of 8 August 1985; Decree of the President of the GovernmentNo. 377 of 10 August 1988; Law No. 394 of 6 December 1991; Legislative Decree No. 626 of 19 September1994; Legislative Decree No. 624 of 25 November 1996; Presidential Decree of 12 April 1996; LegislativeDecree No. 22 of 5 February 1997; Legislative Decree No. 112 of 31 March 1998; Legislative Decree No. 152of 11 May 1999; Presidential Decree of the President of the Government (DPCM) of 3 September 1999;Legislative Decree No. 490 of 29 October 1999, the relevant amendments and supplements, any other provisionsof law referred to therein and those which we deemed it necessary (hereinafter the "Ancillary Legislation").

Assumptions This Report is based on the assumptions indicated in Schedule 1 attached hereto.

Exploration Permits and Applications

1. Permits. The Companies are the registered holders of the following participations in exploration permits:

"San Vincenzo" Permit: NSI 32.5%; PVO 17.5%;"Crocetta" Permit: NSI 65%; PVO 35%;"Cascina San Pietro" Permit: NSI 100%;"Casone della Sacca" Permit: NSI 36.1%; PVO 19.45%.

All the foregoing Permits are located in the Republic of Italy and better detailed in Schedule 2 attached hereto.



2. Applications. The Companies also applied for other permits in the Republic of Italy, which have not yet beengranted, as better detailed hereinafter.

On 18 May 2000 NSI (70%) and Petrorep Italiana S.p.A. (30%) applied for an exploration permit called"Sabbioni" in the region of Veneto, provinces of Rovigo and Padova within the Region of Veneto; suchapplication has been rejected by the Region of Veneto on 8 August 2003 and as a consequence by the Ministryof Productive Activities ("Ministry"). Against both decisions (of the Region of Veneto and of the Ministry) arecourse has been presented before the Rome Administrative Tribunal (Tribunale Amministrativo Regionale delLazio). Should such recourse be successful, NSI may return to the situation immediately prior to the decisions ofrejecting the application, i.e. a situation where NSI has not been granted any exploration permit..

On 30 October 2002, NSI (85%) and PVO (15%) applied for an exploration permit called "Terra del Sole" inthe territory of the provinces of Ravenna and Forlì within the Region of Emilia Romagna. No decision appearsto have been published and taken in respect to such application.

There is no assurance that such permits will be granted, and this Report does not, in any way, address orassess the likelihood or probability of the grant by the Republic of Italy of any such permits to the Companies.In addition, as far as the Sabbioni proceeding is concerned, this report does not assess the likelihood orprobability that the recourse filed by NSI may be successful.

3. Certain Aspects relating to third party rights and usi civici. The Permits have been granted regarding lands thatare subject to third party rights. Nevertheless, the rights of the Companies under the Permits are not affected bysuch third party rights, pursuant to Article 10 of Italian Royal Decree (the "Decree") No. 1443 of 29 July 1927.The Decree establishes that the owners or holders of lands located in the area where a permit is granted cannotobject to the exploration activity. Nevertheless, the registered holder of the permit shall compensate the owner orholder of the land for the damages caused by the exploration activity conducted on such lands. The owner orholder of the land is also entitled to the benefit of a bond posted by the holder of the permit. In case of adisagreement between the owner of the land and the holder of the permit, the amount of damages is quantifiedby the competent Italian court.

On the basis of court precedents, it may be reasonably inferred that the Decree does not apply to usi civici,which are rights to which local communities, usually rural, are entitled in respect of certain areas of the territoryof the Republic of Italy. Such rights may only be abolished with the cooperation of the competent Italian publicadministration authorities.

Qualifications

This Report is qualified as indicated in Schedule 3 attached hereto.

Yours faithfully,

Giulio Tognazzi



Schedule 1

Assumptions

For the purposes of giving this Report we have assumed:

(i) Genuineness of Signatures and Completeness of Documents: the genuineness of all signatures, stamps and seals,the legal capacity of natural persons signatories of any document, the authenticity, the exhaustiveness andcompleteness of all documents submitted to us as originals, the exhaustiveness, completeness and conformity tothe original documents of all specimen and/or all documents submitted to us as certified or photocopies ortransmitted to us by fax or e-mail, and the authenticity of the originals of such documents.

(ii) Draft or Specimen Form: that where a document has been examined by us in draft or specimen form, it will beor has been executed in the form of that draft or specimen.

(iii) Statements True and Accurate: the truth, accuracy and completeness at all relevant times of each of thestatements of matters of facts made to us or contained in any document or certificate given to us certifying ordisclosing or otherwise dealing with any matter of fact which is material to this Report.

(iv) Absence of Other Documents: the absence of any other document or agreement, which modifies or supersedesany of the documents given to us.

(v) Disclosure of Material Facts: that there are no facts, circumstances or matters which may be material to thisReport which have not been disclosed to us.

(vi) Documents and Declarations delivered to the Ministry of Productive Activities: that all documents anddeclarations delivered by each of the Companies to the Ministry and/or any other Italian competent publicauthority were true, correct, accurate, not misleading and complete.

(vii) Compliance with the Italian legislation: that each of the Companies has fully and timely observed and compliedwith any relevant Italian legislation, including, inter alia, the Relevant Legislation and the Ancillary Legislation.

(viii) Compliance with Italian Administrative Provisions: that all relevant Italian administrative authorisations whetherpreliminary or subsequent, or administrative provisions, including, inter alia, those contained in the decrees of theMinistry granting the Permits (with particular reference to the time within which to start the drilling activity) and inthe decrees issued by the competent Region in relation to the environmental impact, which may impose certainobligations on the Companies, have been fully and timely observed and complied with by the Companies.

(ix)No Usi Civici and No Particular Environmental, Archeological and Monumental Conditions: that the Permits havebeen granted on lands which are not subject to Usi Civici and which are not subject to particularenvironmental, archeological and/or monumental conditions, or constitute national parks or sea reserves.

(x) Technical and Financial Capacity: that each of the Companies had, at the time each of the Permits was granted andmaintained thereafter, adequate technical and financial capacities, as required by Law No. 9 of 9 January 1991.

(xi) Performance by the Companies of Contractual Obligations - Risk of Loss of Title: that each of the Companies arein compliance with all relevant provisions contained in the agreements to which it is a party (i.e. theagreements relating to the San Vincenzo and Casone della Sacca Permits), with particular reference to clause8.3.7 (defaults) of the joint venture agreements (contratti operativi).

(xii) No Waivers to the Permits: that each of the Companies did not send any notice which waives any of the Permits.





Titles of Permits granted San Vincenzo Crocetta Cascina San Pietro Casone della SaccaParticipation percentages NSI 32.5% NSI 65% NSI 100% NSI 36.1%

PVO 17.5% PVO 35% PVO 19.45%Other registered holdersand relevant percentages Edison2 50% Not applicable Not applicable Eni3 44,45%Permit Area 58.7 km2 51.58 km2 152.22 km2 379.4 km2

in the Region of in the Region of in the Region of in the Region ofEmilia Romagna Emilia Romagna Lombardy Emilia Romagna

Province of Province of Province of Province ofBologna Bologna Cremona Bologna

Begamo, Lodi Ravenna andand Milan Ferrara

Date of the Permit 19 February 2001 19 February 2001 20 February 2001 19 February 2001

Exhibition Dateof the Permit 19 February 2007 19 February 2007 20 February 2007 19 February 2007

Annual Rental Fees 10,000 ITL / km2 10,000 ITL/ km2 10,000 ITL/ km2 10,000 ITL/ km2

Joint Venture Agreement(Contratto Operativo) Yes No No Yes

(xiii) Start of Works Within the Established Periods: that each of the Companies started the exploration and drillingworks within the respective dates indicated in the Permits, or in the absence of any express time limit withinthe time provided by the law.

(xiv) Annual Rental: that each of the Companies timely complied with all payment obligations of annual rentals duefor the Permits.

(xv) Performance of Work Programmes: that each of the Companies has always complied with any and allprogrammes indicated or referred to in the decrees of Ministry granting any of the Permits and with theprovisions issued by the mining authority (autorità mineraria).

(xvi) Suspension of Works Without Authorisation: that each of the Companies did not suspend the works withoutthe previous authorisation from the competent Italian authority and any that such Company is not persisting insuch suspension.

(xvii) Transfer of the Permits Without Authorisation: that each of the Companies did not transfer the Permits withouthaving previously obtained any required authorisations for such transfer.

(xviii) Drilling and Utilisation of Minerals Without Authorisation: that each of the Companies did not commence itsdrilling and gas production activities without having previously obtained the relevant authorisations.

(xix) PVE Control: that both the Companies are controlled by PVE.

Schedule 2

Permit Schedule

Schedule 3

Qualifications

This Report is subject to the following qualifications:

(i) Further Developments: by issuing this Report we do not assume any obligations to notify or inform you of anydevelopments subsequent to the of this Report date that may render its content untrue or inaccurate in whole orin part.

(ii) Research, Enquiries, Investigations and Verifications: we have not researched, enquired about, investigatedverified the accuracy of any fact, circumstance or matter of fact.

(iii) Documents and Declarations delivered to the Ministry: any omission or inaccuracy in any document ordeclaration delivered by each of the Companies to the Ministry and/or to any other Italian competent publicauthority may lead to the revocation or reduction of the Permit in relation to which the omission or inaccuracywas made.

(iv) Compliance with the Italian Legislation: certain violations of the provisions of the Italian legislation, including,inter alia, the Relevant Legislation and the Ancillary Legislation may lead to the revocation of the relevant Permitto which the violation refers to.

(v) Compliance with Italian Administrative Provisions: certain violations of the relevant Italian administrativeauthorisations and provisions, with particular reference to those contained in the decrees of the Ministrygranting the Permits (particularly, the date within which the drilling activity is due to commence) and in thedecrees issued by the competent Region in relation to the environmental impact, which may impose certainobligations on the Companies may lead to the revocation of the relevant Permit to which the violation refers to.

(vi) Default and Risk of Loss of Title: if any of the Companies is in a default under the provisions contained in theagreements to which it is a party and particularly under clause 8.3.7 of the joint venture agreements (contrattioperativi), i.e. in case of default or delay in the payments due under the such agreements within 90 days fromthe initial default date, such Company shall be deemed to have waived its participation in the relevant Permit.

(vii) Usi Civici: In case any of the Permits has been granted regarding lands which are subject to Usi Civici, suchPermit may be prejudiced by such Usi civici, since the removal of such Usi Civici requires the cooperation ofthe competent Italian public administration authorities and there is no assurance that such authorities cooperatein such process.

(viii) Particular Environmental, Archeological and Monumental Conditions: In case any of the Permits has beengranted on lands which are subject to particular environmental, archeological and/or monumental conditions,such Permits may be revoked, pursuant to Law No. 9 of 9 January 1991.



(ix) Technical and Financial Capacity: Any failure by any of the Companies to maintain an adequate technical andfinancial capacity, as required by Law No. 9 of 9 January 1991, may lead to the revocation, in respect of suchCompany, of its Permits.

(x) Annual Rental: Any failure by any of the Companies to timely pay annual rentals due for the Permits may leadto the revocation in respect of such Company of the Permits and/or such Company to forfeit its rightsthereunder.

(xi) Start of Works Within the Established Periods: Any failure by any of the Companies to start the exploration anddrilling works within the dates expressly indicated in the Permits, or in the absence of express time limits, withinthe deadline set forth by law may lead to the revocation in respect of such Company of the relevant Permitand/or such Company to forfeit its rights thereunder.

(xii) Performance of Work Programmes: Any failure by any of the Companies to comply with any and allprogrammes indicated or referred to in the decrees of the Ministry granting the Permits and any failure by anyof the Companies to comply with the provisions issued by the mining authority (autorità mineraria) may lead tothe revocation in respect of such Company of the Permits and/or such Company to forfeit its rights thereunder.

(xiii) Suspension of Works Without Authorisation: Any persistent suspension of the works without the previousauthorisation may lead to the revocation in respect of such Company of the relevant Permit and/or suchCompany to forfeit its rights thereunder.

(xiv) Production Concession: Any failure by any of the Companies to apply for the production concession within theterms prescribed by law may lead to the revocation in respect of such Company of the Permits and/or suchCompany to forfeit its rights thereunder.

(xv) Transfer of the Permits Without Authorisation: Any transfer of any Permit without having previously obtainedany required authorisations may lead to the revocation in respect of such Company of the relevant Permitand/or such Company to forfeit its rights thereunder.

(xvi) Drilling and Production of Gas Without Authorisation: Any unauthorised drilling and production activities ofgas may lead to the revocation in respect of such Company of the Permits and/or such Company to forfeit itsrights thereunder.



R I S K F A C T O R S

There are numerous risks associated with investing inany form of business and with investing in the sharemarket generally. There are also a range of specificrisks associated with the Company’s business and itsinvolvement in the gas industry.

This section identifies areas the Directors regard asmajor risks associated with an investment in theCompany. Investors should be aware that an investmentin the Company involves many risks, which may behigher than the risks associated with an investment inother companies. Intending Applicants should read thewhole of this Prospectus in order to fully appreciate suchmatters and the manner in which the Company intendsto operate before any decision is made to subscribe forShares pursuant to this Prospectus.

Applicants should be aware that there are risksassociated with any share investment. The prices atwhich the Shares trade may be above or below theissue price under this Prospectus. The trading price ofthe Shares could be volatile and subject to widefluctuations in response to factors such as additions ordepartures of key personnel, litigation, newspaper andother media reports, the results of exploration activity,actual or anticipated variations in the Company’soperating result or new discoveries by the Company orits competitors.

The Shares allotted under this Prospectus carry noguarantee in respect of profitability, dividends, return ofcapital, or the price at which they may trade on ASX.

The Shares offered under this Prospectus should beregarded as speculative. Gas exploration, developmentand production have inherent risks, which may have amaterial effect on the Company’s future performance andthe value of its securities. Investors should considerwhether the speculative securities offered by thisProspectus are a suitable investment having regard totheir own individual investment objectives, financialcircumstances, and the risk factors set out below. This listis not exhaustive and, if in any doubt, investors shouldconsult their professional advisers before decidingwhether to apply for securities pursuant to this Prospectus.

Specific Risk Factors

Exploration and Development Risk

Gas exploration involves significant risks, which even acombination of experience, knowledge and carefulevaluation may not be able to overcome.

There is a risk that gas discoveries fail to realise theirestimated recoverable reserves. Even if gas isdiscovered in those areas, there is no assurance thatcommercial quantities of gas can be recovered. Noassurances can be given that if commercial reservesare discovered by the Company, it will be able tocommercialise any such reserves as intended.

Drilling and Operating Risks

Gas appraisal and development drilling activities aresubject to numerous risks, many of which are beyondthe control of the Company.

The Company’s operations may be curtailed, delayedor cancelled as a result of weather conditions,mechanical difficulties, shortage or delays in thedelivery of equipment, cost overruns, compliance withrelevant governmental requirement and legislation andother unforeseen contingencies.

The Company may encounter hazards inherent in gasappraisal and production well drilling. Examples ofsuch hazards include the risk of unusual or unexpectedformations and disruptions, pressures, ineffective sealsand unexpected gas migration.

The occurrence of fire, explosions, blow-outs, pipefailure, abnormally pressured formations andenvironmental hazards such as accidental spills orleakage, ruptures or discharges of toxic gases, couldcause the Company substantial loss due to the cost ofpersonal injury or loss of life, damage to or destructionof property and the environment, cleanupresponsibilities, regulatory investigation and penalties.Any of these events might also give rise to claimsagainst the Company.

Currency Risks

The majority of the Company’s costs will be incurred inItaly and therefore will be denominated in Euros. Atthe date of this Prospectus, it has been assumed thatthe relevant exchange rate is Eur0.58 to $1.00.Adverse movements in the exchange rate will materiallyimpact the income and expenditure of the Company inAustralian dollars.


11

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Forward looking statements

Certain statements in this Prospectus constitute forward-looking statements that are subject to risks anduncertainties, which may cause the actual expenditure ofPVE to be different from the expectations both expressedand or implied in this Prospectus.

Insurance Risks

The Company intends to adequately insure its operationsin accordance with industry practice. However, incertain circumstances, the Company’s insurance may notbe of a nature or level to provide adequate insurancecover. The occurrence of an event that is not covered orfully covered by insurance could have a material adverseeffect on the business, financial condition and results ofthe Company.

Insurance of all risks associated with oil and gasexploration and production is not always available andwhere available the costs can be prohibitive.

Commercialisation Risks

Even if the Company discovers commercial quantitiesof gas, there is a risk the Company will not achieve acommercial return. The Company may not be able totransport the gas at a reasonable cost or may not beable to sell the gas to customers at a rate which wouldcover its operating and capital costs. The Companyhas to receive regulatory and environmental approvalto convert its exploration permits into productionconcessions. There is a risk that these approvals maynot be obtained.

Competition Risk

The industry in which the Company will be involved issubject to domestic and global competition. While theCompany will undertake all reasonable due diligence inits business decisions and operations, the Company willhave no influence or control over the activities or actionsof its competitors, which activities or actions may,positively or negatively, affect the operating and financialperformance of the Company’s projects and business.

No Profit to Date

The Company has incurred losses since its inception andit is therefore not possible to evaluate its prospects basedon past performance. Since the Company intends tocontinue investing in its exploration and developmentprogram the Directors anticipate making further losses inthe foreseeable future.

While the Directors have confidence in the futurerevenue-earning potential of the Company, there canbe no certainty that the Company will achieve orsustain profitability or achieve or sustain positive cashflow from its operating activities.

Future Capital Needs

Further funding of projects and cash calls in theCompany’s Joint Ventures with other companies may berequired by the Company to support its ongoingactivities and operations. There can be no assurancethat such funding will be available on satisfactory termsor at all. Any inability to obtain funding will adverselyaffect the business and financial condition of theCompany and, consequently, its performance. A failureto meet cash calls would result in default in jointventure obligations which, if not remedied, could resultin forfeiture of permits or concessions.

Reliance on Key Personnel

The loss of any one or more of the Directors ormanagement could have an adverse impact on theperformance and the prospects of the Company.

Various other activities relating to the Company’sprojects require personnel with appropriate industryexperience and qualifications and, in some cases, theloss of such key personnel may have an impact on therelevant activities of the Company. The Company willendeavour to appropriately secure and retain theservices of key personnel on competitive market terms.

Italian Natural Gas Prices

PVE’s future revenues, operating results, profitability, futurerate of growth and the carrying value of its assets relyheavily on prevailing Italian market prices for natural gasor prices that can be contracted in any future gas supplyagreements that the Company may enter into. A declinein the price of natural gas in Italy or a decline in the priceat which PVE supplies gas may have a material adverseeffect on financial position, financial performance, cashflows, growth prospects and Share price of PVE.



Factors beyond the control of PVE which may affect pricesof natural gas or prices at which PVE supplies gas include:

• supplies of natural gas;• economic conditions;• marketability of production;• consumer demand;• competition and cost base of competitors;• the price, availability and acceptance of alternative

fuels;• the availability of pipeline capacity;• weather conditions; and• actions of federal, state, local and foreign

authorities in Australia and Italy.

Government and Regulatory Risks

Government action or policy change (either Australianor Italian governments), particularly in relation toaccess to lands and infrastructure, compliance withenvironmental regulations, taxation and royalties, mayadversely affect the Company’s operations andfinancial performance.

Most of the PVE’s operations are governed by a seriesof Italian laws, regulations and decrees, some of whichare as recent as the "Marzano Law" approved on 23August 2004 and which reforms the energy sector.Breaches or non-compliance with these laws,regulations and decrees can result in penalties andother liabilities for violation or breach including,without limitation, withdrawal of the relevant permit.These may have a material adverse impact on thefinancial position, financial performance, cashflows,growth prospects and share price for PVE.

These laws, regulations and decrees may be amendedfrom time to time which may also have a materialadverse impact on the financial position, financialperformance, cashflows, growth prospects and shareprice for PVE.

While the Company is familiar with the Italian regulatoryregime and will undertake all reasonable due diligencein assessing and managing the risks associated withinvesting and having gas operations in Italy (and othercountries in which it may invest), the legal and politicalconditions of the country and any changes thereto areoutside the control of the Company.

Environmental Risks

Oil and gas exploration, development and productioncan be hazardous to the environment. The Companymay incur substantial costs for environmentalrehabilitation, damage control and losses by thirdparties resulting from its operations.

The Company’s operations are subject to the relevantenvironmental risks inherent in the oil and gas industry.The Company is subject to relevant environmental lawsand regulations in connection with all its operations.

The Company intends to conduct its activities in anenvironmentally responsible manner. However, theCompany could be subject to liability due to risksinherent to its activities, such as accidental spills,leakages or other unforeseen circumstances.

Permit Rights

PVE has interests in various exploration permits andhas applied for the grant of additional explorationpermits. There are inherent risks associated with thegrant of any permit which are applications or renewaland/or conversion of permits upon expiry of currentterms or otherwise.

If a permit is not granted or renewed for any reason, theCompany may suffer significant damage through the lossof the opportunity to develop and discover gas reserves.

General Risk Factors

Share Market

Share market conditions may affect the value of theCompany’s quoted securities regardless of theCompany’s operating performance.

Share market conditions are affected by many factorssuch as:

• general economic outlook;• interest rates and inflation rates;• currency fluctuations;• oil and gas price fluctuations;• changes in investor sentiment toward particular

market sectors;• the demand for, and supply of, capital; and• terrorism or other hostilities.


This section contains a summary of certain contractswhich have been entered into by the Company andwhich have been identified as material and relevant topotential investors. To fully understand all rights andobligations of a material contract it would be necessaryto review it in full and the summaries should be read inthat light.

Joint Operating Agreements

The Company has entered into two joint operatingagreements (contratti operativi) in relation to San VincenzoPermit with Edison Gas S.p.A. ("Edison") and in relation toCasone della Sacca Permit with ENI S.p.A. ("Eni").

Such agreements are based on the Italian IndustryAssociation, Assomineraria, hydrocarbon standardagreement and contain the normal clauses andfinancial and operations procedures common to ItalianHydrocarbon joint operating agreements.

There are no material differences between the twoagreements, other than (i) the parties thereto and therelevant participation quotas, (ii) the fact that Edison isthe operator of San Vincenzo Permit and ENI is theoperator of Casone della Sacca Permit and (iii) twoadditional clauses in article 24 of the joint ventureagreement relating to Casone della Sacca relating tohealth, safety and environment and undertaking not toeffect payment, financing and gifts to publicadministrators.

The joint operating agreements have the followingmajor terms and/or features:

a) The agreements remain in place to the extent atleast two joint venturers share the relevant Permit;

b) The day to day operations are conducted by anoperator appointed by the joint venturers (Edison isthe operator of San Vincenzo and ENI is theoperator of Casone della Sacca). Each operator isappointed as agent without signing powers(mandatario senza rappresentanza), except asrequired under Italian law (the operator representsthe non operating joint venturers vis à vis the publicadministration and third parties, provided that allthe joint venturers will be jointly liable towards thepublic administration and third parties). Eachoperator is responsible towards the non operating

joint venturers for wilful misconduct and grossnegligence. The operator may resign (any transferor waiver of its share in the permit will be deemedto constitute a resignation) and be replaced in caseof its wilful misconduct and gross negligence byunanimous resolution of the non operating jointventurers (after an arbitral award has confirmed thewilful misconduct or gross negligence). The operatorshall respect certain contractual obligations oftransparency in entering into contracts with thirdparties and in keeping the records of its activity.The operator shall disclose certain information tonon-operating joint venturers.

c) The operating activity of the operator shall respectcertain indications and is subject to the overallcontrol of an operating committee formed byrepresentatives of the joint venturers. The operatingcommittee resolves on (i) the budget, which setsforth the forecasted expenses and the constitutesapproval by the joint venturers to incur suchexpenses and (ii) on the operating programme. Theoperator shall comply with both the budget and theoperating programme. Nevertheless, the operatorhas leeway to incur expenditure without prioroperating committee approval (i) for the purpose ofimplementing an operating programme alreadyapproved, for an amount which is not higher than10%, than the amount allowed for in the relevantapproved budget provided that the cumulative totalof all over expenditures in a calendar year shall notexceed 5% of the total work programme andbudget; and (ii) for an overall amount notexceeding 60,000.00 Euro, as may be adjustedpursuant to inflation, and (iii) in case of emergency,to the extent necessary to protect human lives orgoods. Most decisions of the operating committeerequire the affirmative vote of not less than 86% (incase of two joint venturers) or 65% and thefavourable vote of at least two non related parties(in case of more than two joint venturers). Certaindecisions, including voluntarily surrender of anypart or parts of the permit, must be unanimous.

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M A T E R I A L A G R E E M E N T S



d) The activity of the operating committee is assistedby a technical committee.

e) Each joint venturer will bear a share of costs of jointoperations and share in proportion equal to itsproportional participating interest from time to time.

f) The operator can call on the non-operators toadvance their share of estimated cost requirementsfor the succeeding month’s operations.

g) Non-operators have the right to audit the jointaccounts.

h) The operator, in addition to the direct costs it incursin carrying out operations, has the right to chargeto the joint operating accounts an administrativeoverhead charge, based on an operatingagreement of Eur 37,000.00, as may be adjustedsince such amount is indexed to inflation.

i) Clause 8.3.4 states that all amounts not paid by adefaulting party when due shall bear interest fromthe due date until paid at certain annual ratesapplicable during the period in question (thespecific rates are different in each of the twoagreements).

j) Clause 8.3.5 sets forth that any defaulting partyloses its rights (including the right of vote in thecommittees and to obtain information) under thejoint operating agreements until the default is cured.

k) Clause 8.3.7 sets forth that the default by one partyto pay any amounts due under the same joint ventureagreement within 90 days from the date when suchpayment was due shall be deemed to represent awaiver by such defaulting party to its participation inthe relevant permit. In addition, notwithstanding anytermination of the joint venture agreement, thedefaulting party shall remain liable towards the nondefaulting parties for any amounts due (includinginterest thereon) and to compensate any damagesderiving from its contractual breach, if any.

l) Non defaulting parties to the permit may berequired by the operator to pay, in proportion totheir participation interest, any amount not paid.Certain other consequences are provided in case aproduction activity is taking place.

m) Parties to the joint venture agreements can not grantmortgages or privileges on their share of permitwithout the prior written approval of the other parties.

n) The agreements are governed by Italian law andlitigations are submitted to the decision of one ormore arbitrators.

o) Any and all data and information acquired by theparties during the hydrocarbon activity shall be keptconfidential for a period of 2 years starting from theexpiration date (including – if any – prorogationperiods) of the relevant exploration permit orproduction concession, except for under certainspecific circumstances therein provided (Clause13.3) such as in case of prospective buyers of thepermit quota.

San Vincenzo Farm in AgreementWith respect to the San Vincenzo Permit, Edison,Northsun and Petroz entered into a farm in agreement.

As consideration for the transfer of a 50% participationin the San Vincenzo Permit Edison agreed to(i) pay Euro 90,000.00 to Northsun and Petroz and(ii) reimburse Northsun and Petroz of the expenditureincurred in order to implement the operating activityfrom 1 August 2002 until the time of communication ofthe preliminary authorisation of the transfer bythe Ministry.

Edison undertook to complete the first well, paying therelevant costs up to a maximum amount of Euro2,500,000.00. Any cost in excess of such thresholdwill be paid by the joint venturers in proportion equalto its proportional participating interest in the Permit.

If the well is not successful, Edison will payabandonment costs and there are no furtherobligations. If the well is successful, Northsun andPetroz will pay 20% of the first well costs, as defined indetail in the farm in agreement, on the commencementof commercial gas sales.

This agreement is subject to certain conditionsprecedent, including the preliminary authorisation tothe transfer to Edison of the 50% share in the Permit,which has been met and others relating to factualmatters, which, as we have been told by Po Valley,have been met.

The agreements are governed by Italian law andlitigations are submitted to the decision of one ormore arbitrators.

Underwriting AgreementBy an agreement dated 1 November 2004, theUnderwriter has agreed to underwrite the Offer.

Pursuant to the Underwriting Agreement, the Companyhas agreed to pay a financial and corporate advisoryfee of 1%, an underwriting commission of 4% and amanagement fee of 0.75% of the amount to be raisedunder the Offer.

The Company has also agreed to reimburse theUnderwriter for all reasonable costs and expensesincurred in connection with the underwriting.

The Underwriting Agreement is subject to a conditionprecedent which requires the Company to entervoluntary escrow agreements for existing shareholders,pursuant to which at least 90% of existing shares (notsubject to ASX escrow) are escrowed for a period of 9months after the Shares have been admitted to theOfficial List or 10 trading days after the release of thelast of the ASX announcements regarding the completeresults of the proposed two well Sillaro gas field drillingand testing program (or as that program is otherwisemodified by the board), whichever is the earlier.

The Underwriter may terminate by notice to theCompany at any time before Completion if theUnderwriter becomes aware of the happening of anyone or more of the following events (terms used beloware as defined in the Underwriting Agreement):

(a) Company default: the Company fails to perform anobligation under this document;

(b) breach of warranty: a warranty on the part of theCompany under this document is or becomes untrueor incorrect;

(c) Prospectus: the Prospectus:

(i) contains a statement which is misleading ordeceptive; or

(ii) omits a matter required under the Corporations Act;

(d) Due Diligence Report: the Due Diligence Report orother information made available by or on behalf ofthe Company to the Underwriter in relation to theCompany, the Group, any entity in the Group or theOffer is misleading or deceptive;

(e) Insolvency Event: an Insolvency Event occurs inrelation to the Company or a Subsidiary ofthe Company;

(f) other change: at any time after the Prospectus isissued, a new circumstance arises, whereinformation about that new circumstance wouldhave been required under the Corporations Act tobe included in the Prospectus if it had arisen beforethe Prospectus was lodged and where that newcircumstance has a material adverse effect on theOffer as determined by the Underwriter in itsreasonable discretion;

(g) hostilities: hostilities start, or escalate, involving anyone or more of Australia, Italy, the United States ofAmerica, the Commonwealth of Independent States,the United Kingdom, Japan, North Korea or thePeoples Republic of China whether or not war hasbeen declared, where such hostilities have amaterial adverse effect on the Offer as determinedby the Underwriter in its reasonable discretion;

(h) All Ordinaries Index: the All Ordinaries Index ofthe ASX remains at an amount that is at least 10%below the level of that Index as at the close oftrading on the date of this document;

(i) S&P/ASX 200 Energy Index: the S&P/ASX 200Energy Index of the ASX remains at an amount thatis at least 10% below the level of that Index as atthe close of trading on the date of this document;

(j) change of Law: a new law or a policy of aGovernment Agency is introduced or proposedwhich prohibits or regulates the principal businessof the Company, the Offer, Australian capital issuesgenerally or Australian stock markets generally or islikely to do so, where such law or policy has amaterial adverse effect on the Offer as determinedby the Underwriter in its reasonable discretion;

(k) indictable offence: a director of the Company ischarged with an indictable offence;

(l) death: a director of the Company dies;

(m) contravention: the Company or an entity in theGroup contravenes the Corporations Act, itsconstitution or any of the Listing Rules whichcontravention has a material adverse effect on theOffer as determined by the Underwriter in itsreasonable discretion;





(n) official quotation: approval to the official quotation ofall the Offer Shares on the ASX is refused, not grantedor granted subject to a condition which is unacceptableto the Underwriter on or before the Quotation ApprovalDate;

(o) approval withdrawn: approval is withdrawn beforeCompletion to the official quotation of any of the OfferShares on the ASX;

(p) ASIC Order: ASIC:

(i) issues an order about the Offer under Section 739of the Corporations Act;

(ii) indicates an intention to issue an order described inparagraph (i); or

(iii) examines a person or requires a person to producedocuments about the Offer or the Company underSections 19 or 30 to 33 of the Australian SecuritiesCommission Act;

(q) notice: a person gives a notice under Section 730 ofthe Corporations Act in relation to the Prospectus;

(r) Material Contracts varied: any of the MaterialContracts is varied without first getting theUnderwriter’s written consent, which variation has amaterial adverse effect on the Offer as determined bythe Underwriter in its reasonable discretion;

(s) Material Contracts terminated: any of the MaterialContracts is repudiated, rescinded or terminated withoutfirst getting the Underwriter’s written consent;

(t) litigation: any litigation, arbitration or other legalproceeding is commenced against any entity in theGroup which has a material adverse effect on theOffer as determined by the Underwriter in itsreasonable discretion;

(u) withdrawal of consent: any person who consented tobeing named in the Prospectus withdraws that consent inaccordance with section 733(3) of the Corporations Act;

(v) supplementary or replacement prospectus: theUnderwriter reasonably forms the view that asupplementary or replacement prospectus should belodged with ASIC for any of the reasons referred to insection 719(1) of the Corporations Act and either:

(i) the event or discovery triggering that view may inthe Underwriter’s reasonable opinion have amaterial adverse effect on the likelihood of personsapplying for Offer Shares or otherwise on theoutcome of the Offer; or

(ii) the Company fails to lodge a supplementary orreplacement prospectus in such form, and with suchcontent and within such time frame as theUnderwriter reasonably requires.

Employment Agreement withMichael MastermanThe Company has entered into an agreement with MichaelMasterman under which Michael Masterman is employedas the Chief Executive Officer.

Under the agreement, Michael Masterman will be paid asalary of $240,000 (including superannuation) per annumfor the first two years of the agreement and from then onfor the duration of the agreement an amount determinedby the company following an annual review.

The agreement is for a period of two years commencing onthe company being admitted to the Official List. Theagreement may be terminated at any time by either theCompany or Michael Masterman upon three months noticein writing to the other party.

The agreement also contains standard termination rights inthe event a material breach has been committed.

Deeds of Indemnity and Access

The Company has entered into, or will enter into, a deedof indemnity and access with each of its directors and thecompany secretary.

Under these deeds, the Company will indemnify eachofficer to the extent permitted by the Corporations Actagainst any liability as a result of the officer acting as anofficer of the Company. The Company will be requiredunder the deeds to maintain insurance policies for thebenefit of the relevant officer for the term of appointmentand for a period of seven (7) years after retirement orresignation.

The deeds will also provide for the right to accessboard papers.

A D D I T I O N A L I N F O R M A T I O N


13

83

Rights attaching to Sharesand OptionsFor details of the rights attaching to the Shares andOptions, potential investors should refer to theCompany’s Constitution and to the summary of thematerial terms of the Shares and Options set out in thissection. A copy of the Constitution is available forinspection at the Company’s registered office. Therights attaching to the Shares and Options aresummarised in this section. This summary does notpurport to be exhaustive or to constitute a definitivestatement of the rights and liabilities of Shareholders orOption holders.

Rights attaching to SharesSet out below is a summary of the more importantrights and liabilities attaching to the Shares offered forsubscription by this Prospectus.

(a) Voting Rights

At a general meeting, subject to any rights orrestrictions attached to any Shares, every Shareholderpresent in person or by proxy, attorney orrepresentative, has one vote on a show of hands and,on a poll, has one vote for each fully paid Share held.

(b) Dividend Rights

The Directors may, before declaring a dividend, setaside out of the profits of the Company, such sums asthey think proper as reserves to be applied, at thediscretion of the Directors, for any purpose for whichthe profits of the Company may be properly applied.

Subject to the rights of persons (if any) entitled toShares with special rights as to dividends, a dividendpayable on Shares will be paid according to theproportion that the amount paid is of the total amountpaid and payable for the Share, disregarding anyamount credited as paid.

Dividends may only be paid out of the profits of theCompany.

The Directors may authorise payment by the Company ofsuch dividends, including interim dividends, as theDirectors consider are justified by the profits of theCompany. The payment of these dividends does notrequire the sanction of the Shareholders.

(c) Rights on Winding Up

Upon the Company being wound up, the liquidatormay, with the approval by way of special resolution ofthe members:

• divide among contributories, includingShareholders, in specie or in kind, any part of theassets of the Company; and

• invest any part of the assets of the Company in trustupon any trusts for the benefit of all or any of thecontributories, including Shareholders.

(d) Transfer of Shares

There are no restrictions on the transfer, in proper form,of Shares and Options, except as imposed by theCorporations Act, the Listing Rules or the ASTCSettlement Rules. Until the Company is admitted to theofficial list of ASX, the Company may, in the board’sdiscretion, refuse to register any transfer of Shares orOptions. Once it is admitted to the official list of ASX,the Company may only refuse to register a transfer ofShares or Options where the Listing Rules or ASTCSettlement Rules require or permit the Company to do so.

(e) Issue of Shares

Except as provided by contract or the Company’sConstitution, all issues of Shares are under the control ofthe Directors who may allot them with such rights andrestrictions as to dividends, voting, return of capital orotherwise and on such terms and conditions as theDirectors determine. Directors may also grant Options totake up unissued Shares in the Company in such mannerand on such terms as the Directors see fit.


(f) Variation of Rights

If the share capital of the Company is divided intodifferent classes, the rights attaching to Shares in thatclass may, subject to the terms of issue of Shares of thatclass and the Listing Rules, be altered with the approvalof a resolution passed at a meeting of the holders ofShares in that class by a three quarters majority of suchholders as, being entitled to do so, vote at thatmeeting, or with the written consent of the holders of atleast 75% of the vote in that class on issue.

(g) General Meetings

Every Shareholder is entitled to receive notice of everygeneral meeting.

Rights attaching to Options

On 15 October 2004 the Company issued 4,700,000Options to the non Executive Directors, MichaelMasterman and other key executives.

The material terms and conditions of the ExecutiveOptions are as follows:

(a) each Executive Option entitles the holder, whenexercised, to one (1) Share in the Company;

(b) subject to paragraph (c) below, the Executive Optionsare exercisable at any time on or prior to 5.00pm(WST) on 31 October 2008 (Expiry Date) bycompleting an option exercise form and delivering ittogether with the payment for the number of Sharesin respect of which the Executive Options areexercised to the registered office of the Company;

(c) the Executive Options will vest as follows:

(i) 50% on that date which is 12 months after thedate the securities of the Company are admittedto trading on the official list of ASX; and

(ii) 50% on that date which is 24 months after thedate the securities of the Company are admittedto trading on the official list of ASX;

(d) the exercise price is $1.25 per Executive Option;

(e) an Executive Option does not confer the right to achange in exercise price or a change in the numberof underlying securities over which the ExecutiveOption can be exercised;

(f) the Executive Options are not transferable;

(g) all Shares issued upon exercise of the ExecutiveOptions will rank pari passu in all respects with theCompany’s then issued Shares. The Company willapply for quotation of all Shares issued uponexercise of the Executive Options on ASX. TheExecutive Options will not be quoted on ASX;

(h) there are no participating rights or entitlementsinherent in the Executive Options and holders willnot be entitled to participate in new issues ofcapital offered to Shareholders during the currencyof the Executive Options. However, the Companywill ensure that for the purposes of determiningentitlements to any such issue, the record date willbe at least 7 Business Days after the issue isannounced. This will give Executive Option holdersthe opportunity to exercise their Executive Optionsprior to the date for determining entitlements toparticipate in any such issue; and

(i) if at any time the issued capital of the Company isreconstructed, all rights of a Executive Optionholder are to be changed in a manner consistentwith the Corporations Act and the Listing Rules.

The Non Executive Options have been issued on thesame terms as those set out above other thanparagraph (c) and (d), in place of which the followingterms apply:

(j) the Non Executive Options will vest upon theweighted average closing price of the Company’sShares on ASX for a period of 60 consecutive tradingdays being equal to or greater than $1.25; and

(k) the exercise price is $1.00 per Non Executive Option.



Litigation

As at the date of this Prospectus, the Company was notinvolved in any significant legal or arbitrationproceedings nor, so far as the Directors are aware, areany such proceedings pending or threatened.

Disclosure of Interests

As at the date of this Prospectus, the Directors haverelevant interest in securities of the Company as set outin the table below:

* Non Executive Options** Executive Options

Directors’ Remuneration

Under the Company’s Constitution, the Directors areentitled to be paid such remuneration as is authorisedby an ordinary resolution of the Company in generalmeeting (excluding remuneration of Managing orExecutive Directors). The amount that the Companyhas currently authorised the Directors to receive is amaximum of $200,000 plus statutory superannuationto be divided between them as Director’s fees.

The Directors have agreed that their remuneration will notstart to accrue or be payable until the Company isadmitted to the official list of ASX and that the amount thenon-executive directors will receive from the Company inthe first 12 months following admission to the official listwill be $140,000 exclusive of statutory superannuation tobe divided between them as they agree.

Michael Masterman is entitled to $240,000 per annum(inclusive of superannuation) for his services pursuant tothe Service Agreement which becomes operative upona successful listing of the Company on the official list ofASX. A summary of this agreement is set out in Section12. Currently, Mr Masterman receives $70,000 perannum (inclusive of superannuation) for his services.

If a Director undertakes any work additional to theordinary duties of a Director, or undertakes travel forthe Company’s business at the request of the board, theDirectors may decide to pay that Director additionalremuneration which is not included in the above limits.Directors are also entitled to reasonable travelling,accommodation and other expenses for attendingmeetings while engaged in the Company’s business.

If the Directors appoint any CEO or Executive Director,they will determine the remuneration payable to thatperson for his or her services, which will be additionalto the amount that the Company has authorised theDirectors to receive.

On or about 8 October 2004 the Company issued233,493 Shares to Michael Masterman (and nominees)in consideration for the acquisition of a minority interestin NSI. The Company now controls 100% of the issuedcapital of NSI.

The Directors (through associated entities) have alsoparticipated in previous Share issues (with otherunrelated seed investors) to raise working capital for theCompany. The current interests of each of the Directorsis as set out in this Prospectus.

The Directors may subscribe for Shares under thisProspectus.


Director Number Numberof Shares of Options

Graham Bradley 323,981 1,000,000*

David McEvoy 129,593 500,000*

Byron Pirola 12,010,821 200,000*

Michael Masterman 21,339,242 1,500,000**


Fees and Benefits

Other than as set out below or elsewhere in thisProspectus, no:

(a) director of the Company;

(b) person named in this Prospectus as performing afunction in a professional, advisory or othercapacity in connection with the preparation ordistribution of this Prospectus;

(c) promoter of the Company; or

(d) underwriter,

has, or had within 2 years before lodgment of thisProspectus with the ASIC, any interest in:

(a) the formation or promotion of the Company;

(b) any property acquired or proposed to be acquiredby the Company in connection with its formation orpromotion or in connection with the offer ofsecurities under this Prospectus; or

(c) the offer of securities under this Prospectus,

and no amounts have been paid or agreed to be paidand no benefits have been given or agreed to be givento any of those persons as an inducement to become,or to qualify as, a director of the Company or forservices rendered in connection with the formation orpromotion of the Company or the offer of securitiesunder this Prospectus.

Ecopetrol S.r.l has prepared the Consulting Geologist’sReport. The Company estimates it will pay EcopetrolS.p.A a total of $20,000 for these services. During the24 months preceding lodgement of this Prospectus withthe ASIC, Ecopetrol S.p.A has received approximately$120,000 for other services.

Exploration Consultants Ltd has prepared theIndependent Expert’s Report. The Company estimates itwill pay Exploration Consultants Ltd a total of $12,000for these services. Subsequently fees will be charged inaccordance with normal charge out rates.

Deloitte Touche Tohmatsu have acted as the InvestigatingAccountant in relation to the Offer. As InvestigatingAccountants, Deloitte Touche Tohmatsu have assisted inthe preparation of the actual and pro forma financialaccounts and have prepared an InvestigatingAccountant’s Report which has been included in thisProspectus. The Company estimates it will pay DeloitteTouche Tohmatsu a total of $90,000 for these services.Subsequently, fees will be charged in accordance withnormal charge out rates. During the 24 monthspreceding lodgement of this Prospectus with the ASIC,Deloitte Touche Tohmatsu has not received any otherfees from the Company.

Chiomenti Studio Legale have prepared the LegalReport on Permits. The Company estimates it will payChiomenti Studio Legale a total of $25,000 for theseservices. During the 24 months preceding lodgement ofthis Prospectus with the ASIC, Chiomenti Studio Legalehas received fees of approximately $25,000.

Equity Capital Markets Limited has acted as thefinancial adviser and underwriter in relation to theOffer. The Company estimates it will pay Equity CapitalMarkets Limited $1,150,000 for these services. Duringthe 24 months preceding lodgement of this Prospectuswith the ASIC, Equity Capital Markets Limited has notreceived any other fees from the Company.

Steinepreis Paganin have acted as solicitors to the Offerand assisted with the associated due diligence process. TheCompany estimates it will pay Steinepreis Paganin a totalof $70,000 for these services. Subsequently, fees will becharged in accordance with normal charge out rates.During the 24 months preceding lodgement of thisProspectus with the ASIC, Steinepreis Paganin havereceived fees of approximately $15,000 for other services.



Consents

Each of the parties referred to in this section:

(a) does not make, or purport to make, any statementin this Prospectus other than those referred to in thissection; and

(b) to the maximum extent permitted by law, expresslydisclaim and take no responsibility for any part ofthis Prospectus other than a reference to its nameand a statement included in this Prospectus with theconsent of that party as specified in this section.

The following parties have given, and have not beforethe lodgment of this Prospectus, withdrawn consents inthe terms specified:

• Ecopetrol S.r.l has given its consent to the inclusion ofthe Consulting Geologist’s Report in this Prospectus inthe form and context in which it is included.

• Exploration Consultants Ltd has given its consent tothe inclusion of the Independent Expert’s Report inthis Prospectus in the form and context in whichit is included.

• Deloitte Touche Tohmatsu have given their consent tobeing named as Auditors and to the inclusion of theInvestigating Accountant’s Report in this Prospectusin the form and context in which it is included.

• Chiomenti Studio Legale have given their consent tothe inclusion of their Legal Report on Permits in thisProspectus in the form and context in which thereport is included.

• Equity Capital Markets Limited has given its consentto being named as the Underwriter to the ShareOffer in this Prospectus.

• Steinepreis Paganin have given their consent to benamed as Solicitors to the Company in thisProspectus.

• ASX Perpetual Registrars Limited has given theirconsent to be named as the Share Registry in thisProspectus

• Macquarie Equities Limited has given its writtenconsent to being named as Broker to the Offer.

Expenses of Offer

All expenses in connection with the Offer are payableby the Company including underwriting and issuemanagement fees, corporate advisory fees, accountingfees, legal fees, share registry fees, printing anddistribution costs and miscellaneous expenses. Theseexpenses are estimated to be $1,500,000.

Authorisation

This Prospectus is issued by the Company and its issuehas been authorised by a resolution of the Directors. Inaccordance with Section 720 of the Corporations Act,each Director has consented to the lodgement of theProspectus with the ASIC.

For and on behalf ofPo Valley Energy Limited



G L O S S A R Y O F T E R M S

1P Proved gas reserves

2P Proved plus probable gas reserves

3P Proved plus probable plus possible gas reserves

$, A$ or cents Australian dollars and cents unless otherwise stated.

Applicant A person or entity who submits an Application Form.

Application A valid application to subscribe for a specified number of Shares under this Prospectus.

Application Form The application form accompanying this Prospectus.

ASIC The Australian Securities and Investments Commission.

ASTC Settlement Rules The settlement rules that apply while the company is a participant in CHESS (as amendedfrom time to time).

ASX Australian Stock Exchange Limited (ABN 98 008 624 691).

B or b Billion.

Bcf or Bscf Billion Cubic Feet (109 cubic feet)

Board or Boardof Directors The board of directors of the Company.

CCGT Combined Cycle Gas Turbine

cf A common symbol for the cubic foot

Closing Date The closing date of the Offer, being 5pm (EST) 6 December 2004 or such other date maybe determined.

Company or PVE Po Valley Energy Limited (ABN 33 087 741 571).

Consulting Geologist’s Ecopetrol S.r.l.

Corporations Act The Corporations Act 2001 (Cth) as amended.

D or Darcy A unit of permeability

Director A director of the Company.

Edison Edison Gas S.p.A.

ENI ENI S.p.A.

ENI Group ENI Group of companies.

EST Eastern Australian Standard Time.

Eur Euro currency.

Gwh Giga watt hour, a measure of energy equal to one billion (109) watt hours

Hydrocarbon A naturally occurring organic compound comprising hydrogen and carbon in varyingquantities, occurring as a gas, liquid or solid.

Issue Price $1.00 being the subscription amount for the issue of each Share under this Prospectus.

J or Joule A unit of work or energy

Listing Rules The official listing rules of ASX.

Lodgement Date The day that this Prospectus is lodged with the ASIC.

M Million.

mcf Thousand cubic feet (103 cubic feet)

G L O S S A R Y O F T E R M S

md or Millidarcy One one thousandth of a Darcy

M3 Cubic Metre

NSI or North Sun North Sun Italia S.p.A.

Offer The Offer of Shares under this Prospectus.

Official List Official List of ASX

Option An Executive Option or Non Executive Option (as the case may be) and having the termsset out in Section 13 of this Prospectus.

Original Gas in A quantity of gas which is estimated, on a given date, to be contained in knownPlace or OGIP accumulations, plus those quantities already produced there from

Permeability The ability, or reservoir rocks ability to transmit fluids, typically measured in darcies ormilllidarcies.

Porosity Porosity is a measure of the void space in a rock in which reservoir fluids occur.

Possible Possible reserves are those unproved reserves which analysis of geological andengineering data suggests are less likely to be recoverable than probable reserves.

Prospectus This Prospectus dated 1 November 2004 and including an electronic version of thisProspectus.

Probable Probable reserves are those unproved reserves which analysis of geological andengineering data suggests are more likely than not to be recoverable.

Proved Proved reserves are those quantities of petroleum which, by analysis of geological andengineering data, can be estimated with reasonable certainty to be commerciallyrecoverable, from a given date forward, from known reservoirs and under currenteconomic conditions, operating methods and government regulations. Proved reservescan be categorised as developed or undeveloped.

PVO Po Valley Operations Pty Ltd (ABN 46 083 354 269)

Quotation The grant by ASX of official quotation of the Shares.

Share An ordinary fully paid share in the capital of the Company.

SRG Snam Rete Gas.

Underwriter Equity Capital Markets Limited (ABN 19 091 360 556).

Underwriting The Underwriting Agreement between the Company and the Underwriter the materialAgreement terms of which are set out in Section 12 of this Prospectus.

Well casing Steel lining used to exclude unwanted fluids; control well pressures; and supportsides of well bore.


C O R P O R A T E D I R E C T O R Y

DIRECTORSGraham BradleyNon Executive Chairman

Michael MastermanDirector and Chief Executive Officer

Byron PirolaNon Executive Director

David McEvoyNon Executive Director

COMPANY SECRETARYDom Del Borrello

BUSINESS OFFICEVia del Gesù 8900186 Rome ItalyPh: (39) 06 6992 5154Fax: (39) 06 6929 4644Web: www.povalley.com

REGISTERED OFFICEC/- Mitchell & PartnersLevel 2, 1 York StreetSydney NSW 2000Ph: (02) 9251 3838Fax: (02) 9251 3008

STOCK EXCHANGEThe Company will apply for its securities to bequoted on the official list of AUSTRALIAN STOCKEXCHANGE LIMITED

SHARE REGISTRYASX Perpetual Registrars LimitedLevel 8, 580 George StreetSydney NSW 2000Ph: (02) 8280 7424Fax: (02) 9287 0303Web: www.asxperpetual.com.au

AUDITORS AND INVESTIGATING ACCOUNTANTDeloitte Touche Tohmatsu225 George StreetSydney NSW 2000

SOLICITORS TO THE OFFERSteinepreis PaganinLevel 14, Citibank House37 St Georges TerracePerth WA 6000

SOLICITORS REPORTING ON TITLEChiomenti Studio Legale Via XXIV Maggio, 4300187 Rome Italy

CONSULTING GEOLOGISTEcopetrol S.r.lVia Buzzi, 420017 Mazzo di Rho Milan Italy

INDEPENDENT EXPERTExploration Consultants LtdLevel 1610 Murray StreetWest Perth WA 6005

UNDERWRITEREquity Capital Markets LimitedLevel 2Johnson’s Building225 George StSydney NSW 2000Website: www.ecmlimited.com

BROKER TO THE OFFERMacquarie Equities Limited20 Bond StreetSydney NSW 2000


This page has been intentionally left blank

This Application Form must not be handed to another person unless attached to or accompanied by the prospectus dated1 November 2004 and a person who gives another person access to this application form must at the same time and bythe same means give the other person access to the Prospectus. The Company will send you a free paper copy of theProspectus if you have received an electronic Prospectus and you ask for a paper copy before the Prospectus expires on1 December 2005.

APPLICATION FORM

Pin cheque hereDo not staple

Broker Stamp

Broker Code

Adviser Code

LODGEMENT INSTRUCTIONS You must return your application so it is received before 5.00pm on 6 December 2004 to:ASX Perpetual Registrars Limited, Locked Bag A14, Sydney South, NSW, 1235

Firm applicants should complete and lodge the General Application Form, together with a cheque(s) for the Application Payments, inaccordance with the instructions of the Underwriter from whom the firm allocation of Shares was received.

A

C

D

E

F

G

H

Number of shares applied for Offer price per share I/We lodge full application money

at B A$(minimum 2,000 shares, thereafter in multiples of 200 shares).

PLEASE COMPLETE YOUR DETAILS BELOW (refer overleaf for correct forms of registrable names)ApplicantSurname/Company Name

Title First Name Middle Name

Joint Applicant #2Surname


Designated account e.g. <Super Fund> (or Joint Applicant #3)

PLEASE COMPLETE ADDRESS DETAILSPO Box/RMB/Locked Bag/Care of (c/-) Property name/Building name (if applicable)

Unit Number/Level Street Number Street Name

Suburb/City or Town State Postcode

Email address (only for purpose of electronic communication of shareholder information)

CHESS HIN (if you want to add this holding to a specific CHESS holder, write the number here)

TFN/ABN Exemption CodeFirst Applicant Joint Applicant #2 Joint Applicant #3

TFN/ABN type - if not an individual, please mark the appropriate box Company Partnership Trust Super Fund

Telephone Number where you can be contacted during business hours Contact Name (PRINT)

( )Cheque or money orders should be made payable to “PO Valley Float Account” in Australian currency and crossed “ Not Negotiable”Cheque or Money Order Number BSB Account Number

-

X

A$1.00 0 0

+

+

PVE IPO001

A Insert the number of units you wish to apply for. The Application must be fora minimum of 2,000 shares and thereafter in multiples of 200 shares. Youmay be issued all of the shares applied for or a lesser number.

B Insert the relevant amount of application monies. To calculate yourApplication monies, multiply the number of units applied for by the issueprice. Amounts should be in Australian dollars. Please make sure theamount of your cheque(s) equals this amount.

C Write the full name you wish to appear on the statement of units. This mustbe either your own name or the name of a company. Up to three jointapplicants may register. You should refer to the table below for the correctregistrable title.

D Please enter your postal address for all correspondence.E If you are already a CHESS participant or sponsored by a CHESS

participant, write your Holder Identification Number (HIN) here.F Enter your Tax File Number (TFN) or exemption category. Business enterprises

may alternatively quote their Australian Business Number (ABN). Whereapplicable, please enter the TFN or ABN for each joint applicant. Collectionof TFN(s) and ABN(s) is authorised by taxation laws. Quotation of TFN(s) andABN(s) is not compulsory and will not affect your application. However, ifthese are not provided, PO Valley will be required to deduct tax at the highestmarginal rate of tax (including the Medicare Levy) from payments.

G Please enter your telephone number(s), area code and contact name.H Please complete cheque details and make it payable to PO Valley Float

Account as follows:• Make your cheques payable to PO Valley Energy Limited in Australian

currency and cross it “Not Negotiable”. Your cheque must be drawn onan Australian Bank.

• The amount should agree with the amount shown in Section B.• Sufficient cleared funds should be held in your account, as cheques

returned unpaid are likely to result in your application being rejected.• Pin (do not staple) your cheque(s) to the Application Form where indicated.

ASX Perpetual Registrars Limited advise that once you become a shareholder inPO Valley Energy Limited, Chapter 2C of the Corporations Act 2001 requiresinformation about you (including your name, address and details of the unitsyou hold) to be included in PO Valley Energy Limited’s public register. Thisinformation must continue to be included in PO Valley Energy Limited’s publicregister if you cease to be a shareholder. These statutory obligations are notaltered by the Privacy Amendment (Private Sector) Act 2000. Information iscollected to administer your security holding and if some or all of theinformation is not collected then it might not be possible to administer yoursecurity holding. Our privacy policy is available on our website(www.asxperpetual.com.au)

Your Guide to the Application Forms

Please complete all relevant white sections of the Application Form in BLOCK LETTERS, using black or blue ink. These instructions are cross-referenced to eachsection of the form.

The securities to which this Application Form relates are PO Valley Energy Limited (PO Valley) fully paid ordinary shares (“shares”). Further details about theshares are contained in the Prospectus dated 1 November 2004 issued by PO Valley Energy Limited. The Prospectus will expire on 1 December 2005. Whilethe Prospectus is current, PO Valley will send paper copies of the Prospectus, any supplementary document and the Application Form, free of charge on request.

The Australian Securities and Investment Commission requires that a person who provides access to an electronic application form must provide access, by thesame means and at the same time, to the relevant Prospectus. This Application Form is included in the Prospectus.

The Prospectus contains Important Information about investing in the shares. You should read the Prospectus before applying for units.

CORRECT FORMS OF REGISTRABLE NAMES

Note that ONLY legal entities are allowed to hold shares. Applications must be in the name(s) of natural persons or companies. At least one full given nameand the surname is required for each natural person. The name of the beneficiary or any other non-registrable name may be included by way of an accountdesignation if completed exactly as described in the examples of correct forms below.

• Put the name(s) of any joint applicant(s) and/or account description using < > as indicated above in designated spaces at section C on the Application.

TYPE OF INVESTOR CORRECT FORM OF REGISTRATION INCORRECT FORM OF REGISTRATION

Individual

Use given names in full, not initials Mrs Katherine Clare Edwards K C Edwards

Company

Use Company’s full title, not abbreviations Liz Biz Pty Ltd Liz Biz P/L or Liz Biz Co.

Joint Holdings

Use full and complete names Mr Peter Paul Tranche & Peter Paul &Ms Mary Orlando Tranche Mary Tranche

Trusts

Use the trustee(s) personal name(s) Mrs Alessandra Herbert Smith Alessandra Smith<Alessandra Smith A/C> Family Trust

Deceased EstatesUse the executor(s) personal name(s) Ms Sophia Garnet Post & Estate of late Harold Post

Mr Alexander Traverse Post or<Est Harold Post A/C> Harold Post Deceased

Minor (a person under the age of 18 years)Use the name of a responsible adult with an appropriate designation Mrs Sally Hamilton Master Henry Hamilton

<Henry Hamilton>

PartnershipsUse the partners’ personal names Mr Frederick Samuel Smith & Fred Smith & Son

Mr Samuel Lawrence Smith<Fred Smith & Son A/C>

Long Names Mr Hugh Adrian John Smith-Jones Mr Hugh A J Smith Jones

Clubs / Unincorporated Bodies / Business NamesUse office bearer(s) personal name(s) Mr Alistair Edward Lilley Vintage Wine Club

<Vintage Wine Club A/C>

Superannuation Funds XYZ Pty Ltd XYZ Pty LtdUse the name of the trustee of the fund <Super Fund A/C> Superannuation Fund

This Application Form must not be handed to another person unless attached to or accompanied by the prospectus dated1 November 2004 and a person who gives another person access to this application form must at the same time and bythe same means give the other person access to the Prospectus. The Company will send you a free paper copy of theProspectus if you have received an electronic Prospectus and you ask for a paper copy before the Prospectus expires on1 December 2005.

APPLICATION FORM

Pin cheque hereDo not staple

Broker Stamp

Broker Code

Adviser Code

LODGEMENT INSTRUCTIONS You must return your application so it is received before 5.00pm on 6 December 2004 to:ASX Perpetual Registrars Limited, Locked Bag A14, Sydney South, NSW, 1235

Firm applicants should complete and lodge the General Application Form, together with a cheque(s) for the Application Payments, inaccordance with the instructions of the Underwriter from whom the firm allocation of Shares was received.

A

C

D

E

F

G

H

Number of shares applied for Offer price per share I/We lodge full application money

at B A$(minimum 2,000 shares, thereafter in multiples of 200 shares).

PLEASE COMPLETE YOUR DETAILS BELOW (refer overleaf for correct forms of registrable names)ApplicantSurname/Company Name


Joint Applicant #2Surname


Designated account e.g. <Super Fund> (or Joint Applicant #3)

PLEASE COMPLETE ADDRESS DETAILSPO Box/RMB/Locked Bag/Care of (c/-) Property name/Building name (if applicable)

Unit Number/Level Street Number Street Name

Suburb/City or Town State Postcode

Email address (only for purpose of electronic communication of shareholder information)

CHESS HIN (if you want to add this holding to a specific CHESS holder, write the number here)

TFN/ABN Exemption CodeFirst Applicant Joint Applicant #2 Joint Applicant #3

TFN/ABN type - if not an individual, please mark the appropriate box Company Partnership Trust Super Fund

Telephone Number where you can be contacted during business hours Contact Name (PRINT)

( )Cheque or money orders should be made payable to “PO Valley Float Account” in Australian currency and crossed “ Not Negotiable”Cheque or Money Order Number BSB Account Number

-

X

A$1.00 0 0

+

+

PVE IPO001

A Insert the number of units you wish to apply for. The Application must be fora minimum of 2,000 shares and thereafter in multiples of 200 shares. Youmay be issued all of the shares applied for or a lesser number.

B Insert the relevant amount of application monies. To calculate yourApplication monies, multiply the number of units applied for by the issueprice. Amounts should be in Australian dollars. Please make sure theamount of your cheque(s) equals this amount.

C Write the full name you wish to appear on the statement of units. This mustbe either your own name or the name of a company. Up to three jointapplicants may register. You should refer to the table below for the correctregistrable title.

D Please enter your postal address for all correspondence.E If you are already a CHESS participant or sponsored by a CHESS

participant, write your Holder Identification Number (HIN) here.F Enter your Tax File Number (TFN) or exemption category. Business enterprises

may alternatively quote their Australian Business Number (ABN). Whereapplicable, please enter the TFN or ABN for each joint applicant. Collectionof TFN(s) and ABN(s) is authorised by taxation laws. Quotation of TFN(s) andABN(s) is not compulsory and will not affect your application. However, ifthese are not provided, PO Valley will be required to deduct tax at the highestmarginal rate of tax (including the Medicare Levy) from payments.

G Please enter your telephone number(s), area code and contact name.H Please complete cheque details and make it payable to PO Valley Float

Account as follows:• Make your cheques payable to PO Valley Energy Limited in Australian

currency and cross it “Not Negotiable”. Your cheque must be drawn onan Australian Bank.

• The amount should agree with the amount shown in Section B.• Sufficient cleared funds should be held in your account, as cheques

returned unpaid are likely to result in your application being rejected.• Pin (do not staple) your cheque(s) to the Application Form where indicated.

ASX Perpetual Registrars Limited advise that once you become a shareholder inPO Valley Energy Limited, Chapter 2C of the Corporations Act 2001 requiresinformation about you (including your name, address and details of the unitsyou hold) to be included in PO Valley Energy Limited’s public register. Thisinformation must continue to be included in PO Valley Energy Limited’s publicregister if you cease to be a shareholder. These statutory obligations are notaltered by the Privacy Amendment (Private Sector) Act 2000. Information iscollected to administer your security holding and if some or all of theinformation is not collected then it might not be possible to administer yoursecurity holding. Our privacy policy is available on our website(www.asxperpetual.com.au)

Your Guide to the Application Forms

Please complete all relevant white sections of the Application Form in BLOCK LETTERS, using black or blue ink. These instructions are cross-referenced to eachsection of the form.

The securities to which this Application Form relates are PO Valley Energy Limited (PO Valley) fully paid ordinary shares (“shares”). Further details about theshares are contained in the Prospectus dated 1 November 2004 issued by PO Valley Energy Limited. The Prospectus will expire on 1 December 2005. Whilethe Prospectus is current, PO Valley will send paper copies of the Prospectus, any supplementary document and the Application Form, free of charge on request.

The Australian Securities and Investment Commission requires that a person who provides access to an electronic application form must provide access, by thesame means and at the same time, to the relevant Prospectus. This Application Form is included in the Prospectus.

The Prospectus contains Important Information about investing in the shares. You should read the Prospectus before applying for units.

CORRECT FORMS OF REGISTRABLE NAMES

Note that ONLY legal entities are allowed to hold shares. Applications must be in the name(s) of natural persons or companies. At least one full given nameand the surname is required for each natural person. The name of the beneficiary or any other non-registrable name may be included by way of an accountdesignation if completed exactly as described in the examples of correct forms below.

• Put the name(s) of any joint applicant(s) and/or account description using < > as indicated above in designated spaces at section C on the Application.

TYPE OF INVESTOR CORRECT FORM OF REGISTRATION INCORRECT FORM OF REGISTRATION

Individual

Use given names in full, not initials Mrs Katherine Clare Edwards K C Edwards

Company

Use Company’s full title, not abbreviations Liz Biz Pty Ltd Liz Biz P/L or Liz Biz Co.

Joint Holdings

Use full and complete names Mr Peter Paul Tranche & Peter Paul &Ms Mary Orlando Tranche Mary Tranche

Trusts

Use the trustee(s) personal name(s) Mrs Alessandra Herbert Smith Alessandra Smith<Alessandra Smith A/C> Family Trust

Deceased EstatesUse the executor(s) personal name(s) Ms Sophia Garnet Post & Estate of late Harold Post

Mr Alexander Traverse Post or<Est Harold Post A/C> Harold Post Deceased

Minor (a person under the age of 18 years)Use the name of a responsible adult with an appropriate designation Mrs Sally Hamilton Master Henry Hamilton

<Henry Hamilton>

PartnershipsUse the partners’ personal names Mr Frederick Samuel Smith & Fred Smith & Son

Mr Samuel Lawrence Smith<Fred Smith & Son A/C>

Long Names Mr Hugh Adrian John Smith-Jones Mr Hugh A J Smith Jones

Clubs / Unincorporated Bodies / Business NamesUse office bearer(s) personal name(s) Mr Alistair Edward Lilley Vintage Wine Club

<Vintage Wine Club A/C>

Superannuation Funds XYZ Pty Ltd XYZ Pty LtdUse the name of the trustee of the fund <Super Fund A/C> Superannuation Fund

Produced by:

0410 435 659