QUARTERLY REPORT FOR THE PERIOD ENDING MARCH 31, 2001.

HIGHLIGHTS FOR THE QUARTER

1. Commencement of drilling operations 8 May 2001 in San Joaquin Basin, California on Eagle Oil Field appraisal well with horizontal drilling targeting potential reserve of up to 24 million barrels of oil and 62 billion cubic feet of gas, following up 223 barrels of oil per day and 0.7 million cubic feet gas per day 1986 discovery well.
2. Follow on drilling in early June 2001 of the Kingfisher Project targeting potential oil and gas reserve of up to 25 million barrels of oil and 189 billion cubic feet of gas, if oil and gas is present.
3. Follow on drilling program in the San Joaquin Basin, California of up to four wells over next nine months targeting potential reserves of up to 100 million barrels of oil and 495 billion cubic feet of gas, if oil and gas are present, subject to farmout and leasing.
4. Very high gas prices in San Joaquin Basin of up to US$15 per thousand cubic feet (A$29 per thousand cubic feet) with oil prices in excess of US$25/barrel (A$48/bbl) provide strong economic return potential for success in the Eagle horizontal appraisal well and the Kingfisher No. 1 well and any subsequent oil and gas discovery in the forthcoming planned San Joaquin Basin drilling program
5. The successful drilling with flows of gas to surface of the first Coalbed Methane well in Surat Basin permit ATP 574P by farminee Queensland Gas Company Ltd in January 2001 quarter targeting potential Coalbed Methane reserves in ATP 465P and ATP 574P of up to 1.2 trillion cubic feet.
6. Continuing gas production development activities in USA to increase gas production in the USA producing properties and in Greens Canyon Project, Green River Basin, Wyoming, by 18.4% owned Kestrel Energy Inc., a US NASDAQ public company (Code: KEST).
7. Net oil and gas production estimate for the December 2000 quarter of 15,013 barrels oil equivalent equal to 165 barrels of oil equivalent per day for 18.4%-owned Kestrel Energy, Inc.
8. Planned participation in a drilling program of up to fourteen wells in the next eight months as per the attached planned 2001 Drilling Schedule.
9. Cash position of $6.0 million to fund planned 2001 appraisal and exploration drilling program.

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