The December quarter 2011 was one in which we built on our successes in the Western Flank Oil Fairway and developed our opportunities in our Wet Gas business.

Further, the period saw ever increasing interest in the shale gas potential of the Cooper Basin. Our peers as well as global oil and gas players are increasingly recognising the benefits of shale gas exploration in the Basin due to its developed infrastructure network.

During the quarter, we continued to see successful results from our development program on the Western Flank Oil Fairway in PEL 91. The Joint Venture progressed the development of the Bauer Oil Discovery with the completion of three new production wells making it one of the largest oil discoveries in the Western Flank Oil Fairway. We also experienced success at Basham-1 with the discovery of a new oil field marking the fifth new oil discovery in the Western Flank Oil Fairway and an 89% success rate in this current drilling campaign.

An independent Reserves review of the PEL 91 Oil Discoveries is underway with completion expected by the end of the March quarter 2012. To build on our success in the Western Flank Oil Fairway and following the completion of 2D and two 3D seismic surveys, we have commenced planning for a new exploration campaign.

In our Wet Gas business, we signed a Gas Sales Agreement with the South Australian Cooper Basin Joint Venture. This milestone Agreement, for an initial rate of 25 mmscfd raw gas, allowed for the immediate commercialisation of our existing Wet Gas discoveries at Middleton and Brownlow. With
construction completed at the Pilot Project, post 31 December 2011, the Joint Venture announced production had commenced at PEL 106B.

Encouragingly, the Pilot Project not only generates revenue for Drillsearch but also provides important production performance data to support higher value, longer term plans.

Drillsearch Energy Ltd is pleased to announce that QGC Pty Limited, a BG Group business, has given notice that it will exercise options it holds to subscribe for 31,622,454 DLS shares at 62 cents per share, raising $19.6 million of additional funding for Drillsearch. Following the issue of these shares, QGC will hold approximately 9.4 percent of the issued ordinary shares of DLS. - issuance of the shares to QGC is expected to be completed by 15 Feb 2012.

The Options were granted as part of Drillsearch and QGC forming a strategic alliance to explore and develop unconventional shale and tight gas resources in the Cooper Basin.