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FREQUENTLY ASKED QUESTIONS

Given that Pryme Oil and Gas Limited is based in Australia, why did management choose to focus on the U.S. market?

Because Pryme can provide the Australian investor with access to U.S. oil and natural gas prices that generally result in higher operating income for oil because of lower production cost in the U.S. and generally higher U.S. market prices for natural gas. Although Pryme has its roots in Australia, the bulk of our management experience and expertise is located in this attractive U.S. Gulf Coast region. The majority of our team and partners are US-based.

For a more complete summary of our strategy and management credentials, please see the Strategy and Our People and Partners sections of our website.

What differentiates Pryme from other E&P companies in the region?

There are several factors that differentiate Pryme. First is our management team, which is comprised of seasoned young executives associated with well regarded industry leaders. Second is our access to lucrative projects. Pryme has been very successful at leveraging relationships in the region, enabling us to capitalize on project opportunities and overcome the relatively high barriers to entry in this market that other companies face. Third is our discipline in selecting the projects in which we choose to participate - our management team and associates collaborate to perform rigorous analysis of each opportunity. Finally our strong cash flow management enables us to have the resources on hand to quickly capitalize on opportunities in the region.

Who are your customers?

Our customers are oil and gas purchasers who own and maintain transportation networks in areas near our producing properties. These are typically subsidiaries of major oil and gas producers such as Shell, or listed NYSE class pipeline transportation companies or intermediate carriers.

How have operations been impacted by hurricane Katrina?

Due to the geographic location of our LaSalle Parish production, we did not experience any physical damage to our production or production facilities. There were some isolated power outages in the area which lasted two days that made doing business inconvenient. However, since the majority of our production equipment is fueled by produced solution gas, our well pumping systems remained unaffected.

What are you doing to address trends towards renewable energy?

One of Pryme's associates has past experience in hydroelectric, wind turbine and biomass power project co-development and finance.

The La Salle project is viable because of high prices, what if prices fall?

We consider it one of Pryme's prevailing mandates to find new ways to reduce or maintain low operating costs in the field. This ensures that the economic limit of our production can withstand low commodity prices as well as remain as profitable as possible. Pryme's LaSalle Parish Project can generate a field-level profit with oil prices at or above $25 per barrel. With respect to natural gas, our investment decisions are based on an economic limit derived from US$4/MMBtu.

What is the average turnaround time from exploration to production?

The time between exploration to production varies depending on target depth, completion methods and surface variables. They are typically divided into three groups; shallow, intermediate and deep. Shallow targets such as the ones found in our LaSalle Parish Project where the total depth is 5000 feet or shallower, wells can be drilled in two to four days, and completed in a matter of one to two weeks, subject to drilling rig availability. At intermediate depths between 5,000 and 12,000 feet, drilling time can take three to five weeks and completion and gas transportation infrastructure deployment can add another three weeks or more. The most difficult to predict are the wells drilled from 12,000 to 18,000 feet due to more complicated engineering constraints, and can take one to several months to bring to producing status.

Now that the Company's stock trades in the US, are there any plans to convert to US GAAP reporting and/or hold quarterly results conference calls?

We are committed to moving toward global best practice standards in our investor communications. While the conversion to US GAAP is not imminent, it is something we will consider further down the road. As we continue to grow our global shareholder base, we will consider implementing profitability and informational conference calls in order to keep the market up-to-date.

Are there any plans to move to a major US exchange?

At this time, the company does not qualify for the major US exchanges. However, we are optimistic that as we continue to grow our business we will be able to consider such a move in the near future.

Does Pryme pay a dividend?

No, Pryme Oil and Gas does not currently pay a dividend.

What does Pryme find attractive about Louisiana and any other areas of interest outside Texas?

Louisiana is of primary importance to us because of:

The very large number of commercially-productive conventional oil and natural gas zones that exist across the length and breadth of the State. These include relatively shallow objectives plus zones extending to intermediate and deeper depths.

All such targets are on land, making it unnecessary for Pryme to venture into more costly Gulf of Mexico waters in order to operate with significant results on less capital outlay at this stage in the Company's growth.

Also, the "conventional" label used here describes a production operations setting that takes advantage of high reservoir permeabilities that result in having to drill minimum wells in order to drain maximum reservoir rock at high rates of flow (i.e. one typical Louisiana conventional well will drain 160 - 640 acres).

The typical "resource plays" of low permeability in Rockies basins require as many as one well every 10 acres in order to adequately drain a reservoir. The differences in capital requirements are thus obvious, resulting in the capital cost to develop Pryme's Louisiana hydrocarbons being less due to the fewer physical number of wells and inherent lower cost to drain an oil or gas reservoir.

What opportunities do these regions offer a company such as Pryme?

Multiple drilling targets in and under the same acreage blocks, so the initial lease acquisition cost and often the drilling cost itself are spread over more than one objective.

High flow rates from oil and gas wells, which has the effect of reducing the cost of production operations, whether expressed in terms that apply to natural gas or the production of oil. For example, Pryme's historical production cost (or "lifting" cost expressed on a per-barrel basis) is usually no more than US$10.50. Our natural gas production costs seldom exceed US$1.85/MMBtu. You can see therefore that oil or gas prices would have to drop to precipitous lows in order for Pryme to lose money once production is established.

How competitive are these regions?

They are highly competitive, with oil and gas producers large and small "duking it out" for the best drilling opportunities.

Pryme has demonstrated the ability to undertake adequate earth science reconnaissance, select sensible objectives, tie up the relevant leasehold, then do the required detailed geological and geophysical studies in order to justify the drilling capital cost.

What will be Pryme's key to success in these regions?

The relationships that the officers of Pryme have developed, going back as far as 1974, with experienced players in the Gulf Coast region. These key people include oil and gas producers, surface equipment fabricators and suppliers and qualified oilfield service companies.

Pryme's "relationships" with other oil and gas producers have an exponential effect on the Company's access to drilling opportunities. This is because, as pointed out in the past, the better oil and gas projects seldom leave their city of origin before they are taken up between and among other members of this closely-bound producer group.

What qualities does Pryme look for in its target areas?

Geological extensions of existing trends that cover broad areas, such as the randomly distributed Frio gas horizons, the somewhat more limited yet still very large Cotton Valley formation, the Tuscaloosa sand, the Cockfield, Sparta and Middle-Wilcox oil sequences. Some or all of these objectives are located on the upper or lower Edwards Shelf, a geological event that extends from Central Texas eastward across all of Louisiana to the Gulf shores of the State of Mississippi.

As set out above, targets that are mostly of virgin reservoir pressure, possess high permeability and are relatively identifiable via the application of state-of-the-art geology and geophysics.

Ready access to markets which reduces the amount of capital required for transporting product to market. An example of this is that it is not always necessary to construct lengthy natural gas discharge pipelines and it is seldom necessary to do more than install petroleum storage tanks on producing oil leases, because the oil gatherers come to the oil producers in Louisiana.

What does Pryme consider to be the main differences between the search for hydrocarbons in Texas and Louisiana?

Louisiana geology, when compared with Texas, generally has similar stratigraphy (layers of sedimentary beds and their overall sequence) because it all started with the birth of the Gulf of Mexico millions of years ago.   In addition, the Gulf Coast of Texas is in the same vast Gulf Coast embayment that extends from the Texas-Mexico border to the southern tip of Florida.  The lithology however (the composition of the sedimentary beds – whether sandstone, shale, limestone or coal) differs quite a bit in a quite a few places in both states.

In Louisiana, the lithology and deposition of these beds in some parts of the state has been vastly affected by rivers such as the Mississippi and the advance and receding of salt water bodies.  For example, our LaSalle Parish, Louisiana project has as its primary objective the “Middle Wilcox” which is nothing more than very old Mississippi River delta.  Consequently, the sandstones and shales we drill through there are relatively soft and unconsolidated.  It is for this reason that we often “gravel-pack” our wells in LaSalle in order to enhance the stability of the producing formation and prevent the wells from producing this unconsolidated formation sand.

The postulated “source beds” (the kitchen where the oil and/or gas originated in the first place, then later migrated to porous sandstone or carbonates) of the Middle Wilcox are thought to be much deeper strata and the oil/gas hydrocarbons have migrated up large fault planes and filled up the old river delta sandstones.  While this has yet to be proven, it is the only plausible explanation because other source beds of Wilcox oil do not exist anywhere near the Middle Wilcox interval.

Louisiana geology also differs from Texas in many respects because of tectonic events that affected Louisiana more than they affected Texas.  Consequently, the geology of Louisiana is very generally more faulted and therefore more complex and requires more exacting geoscience in order to pinpoint a drillable prospect.  These same faults however, set up a lot of structure and trapping mechanisms for oil and gas.

An economic difference between the two states is the fact that Louisiana severance tax is about five percentage points higher than severance tax in Texas.  This has an effect on the overall economics; unless the Louisiana production rates are high enough and projects have long enough life to more than make up for this difference.  We think this to be the case with our Louisiana production, but of course the severance tax rate in Texas makes Texas projects look attractive from at least this one standpoint.

Except for the generalized differences pointed out above, there isn’t much else to highlight as setting apart the two states from an exploration and production standpoint.  They are the result of the same event of birth and both states have prolific oil and gas production and many more virgin reserves to locate and produce.  The oil and gas marketing infrastructure is also very pervasive in both states and selling produced product is relatively easy.

Which state is proving to be the most lucrative/beneficial for Pryme?

This question is a very early one to answer, because our first year of life as Pryme has been focused on Louisiana almost exclusively.  With the modest capital resources of the “junior” Pryme, continued drilling and production work in Louisiana for about another 1.5 years is a fait accompli because we have a significant amount of delineation, development and exploratory drilling to do there (in about that sequence) that has already been booked with our Raven, Turner Bayou and additional Middle Wilcox activities.  The good thing about this is that this immediate work should advance our earnings and therefore our share price.

Our “deal flow” is such that we are always evaluating new opportunities, which in recent months has included Texas prospects.

For what reasons do you believe companies are attracted to Texas? How does it compare to other states in terms of opportunities, cost, competitiveness etc?

The State of Texas land area is more than five times as large as Louisiana, (261,974 sq. mi. vs 51,843 sq. mi.) with approximately 6,680 additional Texas square miles covered with water represented by bays and otherwise geologically explorable areas.    There are sedimentary basins and sub-basins in nearly all parts of Texas which are capable of producing oil and gas in commercial quantities.

Beyond that, these sediments in Texas and Louisiana dip toward the south and into the Gulf of Mexico into very deep waters, with the productive zones existing in strata from 1500 feet in the land/water transition zone to in excess of 25,000 feet below the seabed in the deep Gulf.  Since Texas is so much larger than Louisiana, this regional geological dip attributable to both states has more extensive reach and greater volume of reservoirs in offshore Texas state waters by mathematic definition.

Oil and gas producers are attracted to Texas for many reasons having to do with favorable economics:

• The larger proportion of Texas’ producing and prospective oil & gas zones have higher permeability, porosity and hydrocarbon saturation than other states except Louisiana, but this latter state is again trumped by the geographic size comparison set out above.  Volumetrically, there are simply many more reservoirs to go after in Texas because of this size difference.
  
  
• Texas has grown since 1905 into a large combination of many interconnected, producing oil and gas provinces, which has resulted in a pervasive onshore and offshore network of oil gathering, transporting & refining and gas gathering & processing network that is unmatched anywhere in the U.S.   Such pipes transport Texas’ oil and gas production to many parts of the U.S., giving oil and gas producers access to a vast market.  Consequently, such producers needn’t go very far to sell their production.  Same as in Louisiana, but Texas is bigger.
  
  
• Compared to the Rocky Mountains, given the overall abundance of more permeable reservoirs in Texas, production cost is lower in Texas, fewer wells have to be drilled in Texas in order to drain equivalent ultimate recoveries of oil and gas, and the general weather conditions year round in Texas are conducive to more available well-drilling days.  All of these favorable attributes apply to Louisiana too, except for the size advantage of Texas.
  
  
• It is often said that oil and gas is “an expanding resource base”, meaning that as oil and gas prices escalate, it becomes more economic to drill deeper reservoirs, drill targets of lower permeability and to produce older existing reservoirs for longer periods of time before abandonment.   It happens that Texas is a rich source of “expanded resources” in this sense, as well as vast (five times bigger ‘n Louisiana!) to the extent of its untested prospective horizons extending from West Texas all the way to the deep Gulf of Mexico.