The Company does not expect Kunlun Energy Co. Ltd., formerly CNPC (Hong Kong) Limited, the operator of the Bengara-II Block, to commence new drilling on the Block until 2011. The 3D portion of the 2010 seismic acquisition program has not yet been fully completed due to a series of continuing start/stop interruptions involving surface damage claims compensation with over 300 separate local shrimp farm owners, each of whose ponds will be impacted by the 3D portion, and some of the 2D portion, of the seismic survey. Surface damage claims in non shrimp pond areas have not been an issue.

Due to the complex nature of 3D seismic acquisition, it is essentially an all or nothing process and final shooting and recording must proceed according to the plan for the 3D survey to be meaningful. It cannot be reliably shot piecemeal. Kunlun has invested a substantial amount already in the 2010 seismic survey and preparations work, including line surveys, clearing right of way, cutting vegetation in line paths, installing bridging, and drilling of some shot holes in non-contentious areas outside the shrimp ponds is complete. Drilling shot-holes in the shrimp ponds will be followed by shooting/recording the lines as the last step in the process once the damage claims compensation issues are resolved.

The damage claims process is further complicated by many counterclaims and disputes of legal ownership amongst the claimants and the inability of many pond owners to prove title to the land on which their pond is purportedly built. The Company remains confident that Kunlun will resolve these issues as soon as possible and new drilling on the Block will commence in 2011.

Richard McAdoo
Chief Executive Officer
Continental Energy Corporation