QUARTERLY REPORT FOR THE PERIOD ENDING MARCH 31, 1997

EXPLORATION AND DEVELOPMENT

USA
AUSTRALIA
PAPUA NEW GUINEA
NEW CALEDONIA
EAST AFRICA AND MIDDLE EAST
KESTREL ENERGY, INC.

U.S.A

Victoria Petroleum N.L. and Kestrel Energy, Inc. through their respective U.S. subsidiaries each purchased from Ampolex (USA) Inc. in March 1997, a 50% interest in the petroleum exploration assets of the San Joaquin Basin Project (SJBP) area, located in the central San Joaquin Basin, California, USA.

Victoria Petroleum N.L. currently holds a 61.3% interest in Kestrel Energy, Inc. a U.S. Nasdaq listed company.

The petroleum exploration assets in the SJBP area, consists of petroleum leasehold exploration properties totalling 72 square kilometres in the San Joaquin Basin and a data base including approximately 25,000 kilometres of seismic and well data for 3,800 wells, both analog and digital over the SJBP area of 21,000 square kilometres.

The first two wells planned to be drilled in the SJBP area are on the Daisy Prospect and the Greer Prospect, 100 kilometres north of Bakersfield, California, subject to rig and lease availability and drilling approvals.

The Daisy Prospect is interpreted from seismic data to have the potential to contain up to 106 billion cubic feet of gas, if gas is present, in target Pliocene sands at a depth of 900 metres and is defined by a seismic amplitude anomaly. The seismic amplitude anomaly over the Daisy Prospect may indicate the presence of hydrocarbons within the target horizon and is of a similar nature to that observed over the nearby 200 BCF gas field producing from the same horizon as the target horizon for the Daisy Prospect.

Drilling of the Daisy Prospect is planned for July 1997, subject to rig and lease availability and drilling approvals. Victoria Petroleum N.L. has a 63.3% direct and indirect interest in the Daisy Prospect.

The Greer Prospect, planned to be drilled following the drilling of the Daisy Prospect is interpreted from seismic data to have the potential to contain up to 72 million barrels of oil, if oil is present and is defined by a major seismic amplitude anomaly. The seismic amplitude anomaly which may indicate the presence of hydrocarbons within the target Miocene sand horizon at a depth of 2,800 metres, is similar to the seismic amplitude anomaly observed in a nearby oil and gas field that has recovered 21 million barrels of oil and 30 billion cubic feet of gas.

Victoria Petroleum N.L. has a 63.3% direct and indirect in the Greer Prospect, planned to be drilled in late July 1997, subject to rig and lease availability and drilling approvals.

Victoria Petroleum N.L. considers it has acquired a significant position in the San Joaquin Basin which is highly prospective for oil and gas with 11 billion barrels of oil and 10 trillion cubic feet of gas discovered to date. The United States Geological Survey has estimated that the San Joaquin Basin has the potential to contain an additional 1.2 billion barrels of recoverable oil.

Entry into the San Joaquin Basin Project provides Victoria Petroleum N.L. with an interest in an extensive geological and geophysical data base which provides a major opportunity to explore the San Joaquin Basin. Geophysical and geological interpretation of the extensive data base of seismic and well data indicates the presence of an additional 30 prospects and leads defined to date by the latest seismic interpretation techniques with a total target size of up to 210 million barrels and 1.1 trillion cubic feet of gas, if hydrocarbons are present. These additional prospects form potential future drilling targets.

Exploration success in the San Joaquin Basin Project drilling program has the potential to significantly increase Victoria Petroleum N.L.'s asset and reserves base as a result of the high percentage equity Victoria Petroleum N.L. has in the prospects being drilled and the potential size of the drilling targets selected.

AUSTRALIA

Victoria Petroleum N.L. has a 10.5% direct and indirect interest in the predominantly offshore Carnarvon Basin Permit EP 325, following farmout to Petroz N.L.. EP 325 covers an area of 2,461 square kilometres in the Exmouth Sub-basin of the central Carnarvon Basin and contains the Rivoli Gas Field.

Exploration in EP 325 has focussed on the western area of EP 325 where several prospects and leads including White Opal, Cooper and Whalebone have been interpreted as present by the previous Operator, Mobil Exploration and Production Pty Ltd.

The White Opal Prospect, in the north western part of EP 325 is interpreted from seismic data to have the potential to contain up to 247 million barrels of oil or 880 million cubic feet of gas in the target Triassic sands, if hydrocarbons are present. An onshore drilling location for the Triassic White Opal Prospect has been defined, with the drilling of White Opal-1 to a depth of 2,900 metres planned for November 1997, subject to environmental approval.

The 1 trillion cubic feet Macedon Gas Field, 22 kilometres to the north, the 20 billion cubic feet Rivoli Gas Field, 18 kilometres to the south and the Leatherback Triassic oil discovery, 22 kilometres to the north-east respectively of the White Opal Prospect are encouraging for the presence of further Triassic gas and oil fields in the area.

The company, through a farmout to Petroz N.L., will have a 10.5% direct and indirect near free-carried interest through the drilling of White Opal-1.

Victoria Petroleum N.L. is the Operator of the EP 325 Joint Venture.

EP 359 covers an area of 1,954 square kilometres situated in the Carnarvon Basin predominantly onshore on the Cape Range Peninsula and partially offshore in the Exmouth Gulf.

Exploration of EP 359 has focussed on the interpretation of the 1995 Melinda Seismic Survey in the northern part of EP 359. The Melinda Seismic Survey has defined a drilling location on the Melanie Prospect which has been seismically interpreted to have the potential to contain up to 60 million barrels of oil or 74 billion cubic feet of gas in the target Cretaceous Birdrong Sandstone, if hydrocarbons are present. Melanie-1 is planned to be drilled to a depth of 1420 metres in October 1997, subject to environmental approval.

The Melanie Prospect is located onshore Cape Range Peninsula and on trend with the 1 trillion cubic feet Macedon Gas Field, 22 kilometres to the north and with the 20 billion cubic feet Rivoli Gas Field, 18 kilometres to the southeast. The Company will have a 25.74% direct and indirect near free-carried interest up to a total well cost of $750,000 for the drilling of Melanie-1 through farmout to Tap Oil NL, Griffin Coal and Sun Resources NL. Victoria Petroleum N.L. is the Operator of the EP 359 Joint Venture.

Following a review of the remaining prospects in EP 367, Victoria Petroleum N.L. has withdrawn from EP 367.

EP 41 covers an area of 794 square kilometres situated onshore and partially offshore in the Carnarvon Basin on the Cape Range Peninsula and Exmouth Gulf. The historically significant site of the first major oil flow in Australia, Rough Range-1, lies within EP 41.

The most recent exploration activity in EP 41 was the Rough Range East seismic survey carried out in mid 1995. Incorporation of this seismic survey into the existing seismic and geology data base of EP 41 indicates modest reserve size prospects are present on the Rough Range fault trend and its extension into the Exmouth Gulf. Further interpretation of the data is planned to determine future possible drilling locations in EP 41.

Victoria Petroleum N.L. is the Operator of the EP 41 Joint Venture.

Victoria Petroleum N.L. has a 7.1 % direct and indirect interest in the Part 2 Sage Block and a direct and indirect 4.6 % interest in the remaining area of WA-254-P.

The permit comprises four non-contiguous graticular blocks covering 322 square kilometres on the southern extension of the Legendre trend which contains the Legendre and Talisman Oil Fields. Three prospects and six leads have been interpreted as present in the permit.

Helicon-1 was drilled in July 1996 to a total depth of 3,100 metres and was plugged and abandoned. Although hydrocarbons were not encountered in the primary Jurassic sands, strong gas shows were observed in a 7 metre interval in the Cretaceous M.australis sandstone. This gas-bearing sand interval was cored but not tested as permeabilities were low.

The prospects for hydrocarbons in WA-254-P are considered very promising following the strong gas shows observed in the Helicon-1 M.australis sands. Future exploration efforts will focus on the Janus and Taurus Prospects and Sirius and Erebus leads.

The Sage Prospect in WA-254-P Part 2, lies 35 kilometres south of the 150 million barrel Wanaea Oil Field, and 4 kilometres to the north-east of the Saffron-1 oil and gas discovery in WA-1-P held by BHP / Woodside / Santos. The Sage Prospect is interpreted as a potential updip oil accumulation to the 9 metre interpreted residual oil column in Rosemary-1 and is interpreted to have the potential to contain within WA-254-P up to 27 million barrels of oil in target Cretaceous and Jurassic sands, if hydrocarbons are present. The Sage Prospect is considered mature for drilling.

Within WA-254-P Part 3, the Janus and Taurus Prospects have been interpreted from existing seismic data as prospects worthy of additional seismic exploration. Based on the existing seismic data, the Janus Prospect is interpreted to have the potential to contain up to 440 million barrels of oil in the target Jurassic sands, if hydrocarbons are present.

The Taurus Prospect is interpreted from the existing seismic data to have the potential to contain up to 110 million barrels of oil in target Cretaceous sands, if hydrocarbons are present. A 400 kilometre seismic program is planned for mid 1997 to further define the Janus and Taurus Prospects as possible future drilling targets in late 1997.

WA-261-P covering an area of 299 square kilometres is located immediately to the south and adjacent to the Apache Energy / Santos Limited Permit, WA-209-P containing the 45 million barrel Stag Oil Field.

The most recent appraisal well on the Stag Field, Stag - 6H located 5 kilometres north of WA-261-P tested approximately 6,300 barrels of oil per day. Several leads and prospects with targets at the same producing horizon as the Stag Oil Field are seismically interpreted to be present in WA-261-P.

A 250 kilometre seismic survey carried out in February 1996 by Apache Energy has defined the Longhorn Prospect as a farmin drilling target for drilling in 1997 by the WA-209-P Joint Venture of Apache Energy / Santos Limited / Globex. The WA-209-P Joint Venture farmin results in a 2.5% free-carried interest for Victoria Petroleum N.L. and a 2.5% free-carried interest for Kestrel Energy, Inc, through the drilling of a well in June 1997. The Longhorn Prospect is seismically interpreted to be a structural-stratigraphic trap with the potential to contain up 171 million barrels of oil in Cretaceous sands, productive at the Stag Field to the north, if oil is present.

Apache Energy is the Operator of the WA-261-P Joint Venture.

Following the experimental five kilometre seismic program carried out in June 1994, interpretation has shown that seismic has the potential to delineate the gas bearing sands of the Reids Dome Gas Field. A 25 kilometre seismic survey to extend the seismic coverage and to define additional shallow "gas sand" drilling locations was carried out in April 1995 and indicates the potential for a gas reserve of up to 20 billion cubic feet of gas, if gas is present.

A further two to three well program is planned for the third quarter of 1997, subject to farmout.

The presence of the State Gas Pipeline to Gladstone has improved the access to market from this field. The Reids Dome Gas Field lies just 60 kilometres from the State Gas Pipeline and requires an indicated minimum of 10 billion cubic feet of gas to be economic.

Future exploration in ATP 465 will focus on delineating the gas potential of the Cherwondah Anticline in the deeper Permian sands of the Gyranda Formation, the potential of horizontal drilling to enhance gas production rates in the Triassic tight-gas Clematis sandstones and the coal-bed methane potential of the north-eastern area of the permit adjacent to the adjoining CRA Peat Gas Field.

The Yarrabend No.5 gas well remains suspended with the Joint Venture considering a completion and testing program in the near future.

McIver-1 was drilled in May 1996 to a total depth of 1405 metres to test the McIver Prospect situated on the Canaway Ridge. Excellent reservoirs were drilled in the target Hutton and Basal Jurassic Sandstones, but hydrocarbons were not encountered. Further evaluation of the remaining prospects and leads in the McIver Block is planned.

Victoria Petroleum N.L. is the Operator for the McIver Block.

Victoria Petroleum N.L., by reimbursing past geophysical costs, can elect to acquire a 45% interest in the Ueleven Block which contains the Ueleven Prospect, subject to farmout.

The Ueleven Prospect is situated updip from the Bargie Oil Field, 25 kms to the west, and is seismically interpreted to have the potential to contain up to 46 million barrels of oil in the target Hutton Sandstone, if oil is present.

Ueleven-1 is planned to be drilled to a total depth of 1200 metres in September 1997 by the Ueleven Block Operator, Lakes Oil N.L., subject to farmout.

The ATP 589P Cooper/Eromanga Basin permit is adjacent to the MIM Petroleum permit containing the 9.4 million cubic feet per day Bunya-1 gas discovery and the OCA 4 million cubic feet per day Thylungra-1 gas and condensate discovery. The Springfield Gas Prospect, 22 kilometres northeast of Bunya-1, is estimated to have the potential to contain up to 45 billion cubic feet of gas and along with the 254 billion cubic feet Regeleigh Gas Prospect, 60 kilometres east of Springfield-1, have been identified as immediate drilling targets, and subject to farmout are planned to be drilled in the third quarter of 1997.

Significant Jurassic oil potential has also been interpreted as present in ATP 589P in the Barcoo Junction area, based on the oil shows seen in the numerous well drilled in the permit.

Jampot-1 was drilled in May 1996 to a total depth of 1610 metres to test the Jampot Prospect situated on the northern part of the Canaway Ridge. Excellent reservoirs were drilled in the target Hutton and Basal Jurassic sandstones but hydrocarbons were not encountered.

Barcoo Junction-2 was drilled in June 1996 to a total depth of 2620 metres to test the Barcoo Junction Prospect in the north-western area of ATP 589(1). Barcoo Junction-2 was prognosed prior to drilling as an updip test of the oil and gas shows observed in the Hutton and Basal Jurassic sands in Barcoo Junction-1, drilled in 1980.

Barcoo Junction-2 encountered good oil shows in the target Hutton and Basal Jurassic sandstones. Four drill stem tests were carried out over the zones of interests but were technical misruns and did not conclusively prove the presence or absence of hydrocarbons in the zones of interest.

Further geological and geophysical evaluation of the well results of Barcoo Junction-2 to determine the significance of the oil shows encountered in the Hutton and Basal Jurassic sandstones, indicates Barcoo Junction-1 and Barcoo Junction-2 were drilled out of depth closure. The Barcoo Junction North Prospect has been interpreted to be updip of Barcoo Junction-1 with the potential to contain up to 39 million barrels of oil in the target Hutton and Basal Jurassic sandstones, if oil is present.

The Moothandella-4 Westbourne Prospect has also been seismically identified to have the potential to contain up to 8 million barrels of oil in interpreted Westbourne channel sands, if the sands and oil are present.

The Trinidad North Prospect situated on the northern portion of the Canaway Ridge, has been seismically interpreted to have the potential to contain up to 19 million barrels of oil in target Hutton and Basal Jurassic sandstones in an anticlinal structure, if oil is present.

The Sedan oil prospect and Brightspot, Regeleigh and Springfield gas prospects offer significant follow up potential drilling targets within ATP 589P.

Up to five farmout wells may be drilled in ATP 589P with the first well Barcoo Junction North-1 commencing June 1997 subject to farmout.

The continuing Jurassic oil and Permian gas discoveries in this area of the Cooper / Eromanga Basin confirm the strategic exploration value of the acreage position that Victoria Petroleum N.L. holds in this area of the Cooper / Eromanga Basin.

Victoria Petroleum NL is the Operator for ATP 589P.

The primary targets in the permit are structural traps along the Merivale High trend which is the southern extension of the Merivale Fault system, along which the majority of the Denison Trough fields are located. Ten leads and prospects have been mapped along the Merivale High trend with potential reserves calculated at 84 million barrels, if hydrocarbons are present.

Interpretation of the existing seismic data in ATP 593P has identified the Heather Downs and Heather Downs West Prospects, as Hutton/Precipice sandstone four-way dip-closed structures updip to the strong residual oil shows in the Hutton/Precipice sandstones in Don Juan-1 and in Flaneur-1, 25 kilometres to the north.

The Heather Downs Prospect with the potential to contain up to 20 million barrels of oil, if oil is present, is ready for drilling, and subject to rig availability, will be drilled in May 1997. Victoria Petroleum N.L. has a direct and indirect free carried drilling interest of 24.1% in the Heather Downs Prospect.

Victoria Petroleum N.L. is the Operator for ATP 593P.

Victoria Petroleum N.L. was granted this permit and Operatorship on 30 November, 1994 and prior to farmout held a 60% interest in the whole permit. The permit is located on the western Surat Basin adjacent to several oil fields and includes the zero edge of the Boxvale Sandstone, the primary producing reservoir in the area. Several four-way dip closures are mapped and ready for drilling. Tarmoola-1 encountered an excellent Boxvale Sandstone target reservoir section without any hydrocarbon shows and was plugged and abandoned.

Future exploration will focus on the definition of those structures in the permit most likely to have been sited on past oil migration pathways in the permit. EPP 24 - Otway Basin, SA
Victoria Petroleum Interest - 7%

EPP 24 contains the Troas gas discovery which is interpreted to have up to several hundred billion cubic feet of gas in the Troas structure. Several other major structures remain untested in EPP 24. A data review of the hydrocarbon potential's of EPP 24 is currently in progress.

Victoria Petroleum N.L. considers the offshore Otway Basin to have all the parameters to be a future major oil and gas province.

Drilling of the McNicol Prospect was carried out in January 1997 with McNicol-1 drilled to a depth of 1,601 metres without encountering hydrocarbons in the target section.

The recent major gas discoveries by BHP in the adjacent offshore Otway Basin and the onshore Otway Basin by Cultus Resources N.L. are considered to have upgraded the hydrocarbon potential of the Otway Basin as a whole.

PAPUA NEW GUINEA

Delineation of the prospects present in PPL 106 continued during the quarter.

The Menga structure complex is interpreted to have updip potential of up to 60 million barrels. The Muir Prospect, 20 kilometres to the southwest of the Ok-Tedi mine has been interpreted to have the potential to contain up to 180 million barrels of oil, if hydrocarbons are present.

Future exploration work in PPL 106 will focus on the Tumuli Prospect, with the potential to contain up to 350 million barrels of oil, if oil is present. The Tumuli Prospect remains a target for drilling in the eastern portion of PPL 106 in 1998, following a late 1997 seismic program and subject to farmout.

NEW CALEDONIA

Victoria Petroleum N.L., by paying 50% of the October 1995, 49 kilometre seismic program over the Gouaro Anticline, has the option to earn a 50% interest in PRA 436 by paying 50% of the cost of drilling a well in the second half of 1997.

The Gouaro Anticline is a surface anticline estimated from seismic interpretation of the 1995 Gouaro Seismic data to have the potential to contain up to 362 billion cubic feet of gas or 207 million barrels of oil, if hydrocarbons are present.

Cadart-1 is planned to be drilled in the second half of 1997, subject to farmout.

A major ready market for gas of up to 55 million cubic feet per day is available in the adjacent industrial and Nickel refining operations in New Caledonia.

EAST AFRICA AND MIDDLE EAST

Victoria Petroleum N.L. has initiated the evaluation of petroleum exploration and development opportunities on the east coast of Africa in Mozambique and in the Middle East to add to Victoria Petroleum N.L.'s international exploration profile. This activity is at an early stage, with the aim of Victoria Petroleum N.L. to secure areas which will be candidates for future farmout drilling activity.

KESTREL ENERGY, INC.

Victoria Petroleum N.L., through its wholly owned subsidiary Victoria International Petroleum N.L. holds 61.3% of the Common Stock of Kestrel Energy, Inc.

Kestrel Energy, Inc. is an active publicly listed NASDAQ US oil and gas production and exploration company, NASDAQ code "KEST".

For the quarter ending December 30, 1996, estimated net oil and gas production from Victoria Exploration Inc. and Kestrel Energy, Inc.'s United States operations was 59 million cubic feet of gas and 8,200 barrels of oil. Total estimated Kestrel and Victoria Exploration Inc. oil and gas production for the quarter was 18,000 barrels of oil equivalent.

Average Kestrel and Victoria Exploration Inc. estimated daily production was 0.66 million cubic feet of gas and 91 barrels of oil, amounting to 200 barrels of oil equivalent per day.

Index
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