QUARTERLY REPORT FOR THE PERIOD ENDING JUNE 30, 1996

EXPLORATION AND DEVELOPMENT

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

AUSTRALIA

Offshore Carnarvon Basin Permit WA-254-P comprises four non-contiguous graticular blocks on the southern extension of the Legendre Trend which contains the oil discoveries at Talisman and Legendre. Two prospects, Sage and Updip Orion have been interpreted as present in the blocks.

Helicon 1 was drilled in July 1996 to a total depth of 3100 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 M.australis. The 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 M.australis sands in the recently drilled Helicon 1. Future exploration efforts will focus on the Sage and Updip Orion Prospects and the M.australis trend.

The Sage Prospect in WA 254 P Part 2 lies 35 kilometres south of the 150 million barrel Wanaea Oil Field and is interpreted as a potential updip oil accumulation to Rosemary North-1, which has an interpreted residual oil column of 9 metres.

The Sage Prospect is interpreted to have the potential to contain within WA-254-P, up to 27 million barrels of oil in the target Cretaceous and Jurassic sands, if hydrocarbons are present. The Sage Prospect is considered mature for drilling and is four kilometres to the northeast of the recent Saffron-1 oil and gas discovery in WA-1-P, held by BHP / Woodside / Santos.

The drilling results of Saffron-1, which encountered a cumulative 36 metre gas and 8 metre oil column of 51 degree API oil, are considered highly encouraging for the presence of hydrocarbons in the Sage Prospect.

Victoria Petroleum N.L., as a member of the consortium of Victoria Petroleum N.L., Sun Resources N.L. and Capital Energy N.L. was awarded Exploration Licence WA-261-P on January 3rd, 1996.

WA-261-P, covering an area of 330 square kilometres is located immediately to the south and adjacent to the Apache Energy / Santos Limited permit WA-209-P, containing the Stag Oil Field.

The most recent appraisal well on the Stag Field, Stag-6H located 5 kilometres north of WA-261-P tested at 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 as present in WA-261-P.

A 250 kilometre seismic survey was carried out in February 1996 to define a drilling target for drilling in 1997, by Apache Energy under the terms of a seismic and drilling farmin option, which if exercised will result in a free carried 7.5% interest for Victoria Petroleum N.L. through the seismic and drilling of a well in early 1997. The Seismic Survey is currently being processed and interpreted by Apache Energy with final results expected in September 1996.

Victoria Petroleum N.L. is the Operator of the WA-261-P Joint Venture.

Exploration focus in EP 325 has shifted to the western area of EP 325 to define an onshore drilling location for the Triassic White Opal Prospect. Subject to Joint Venture approval, drilling of White Opal 1 to a depth of 2600 metres is planned for November 1996.

The White Opal Prospect is interpreted from seismic data to have the potential to contain up to 247 million barrels of oil or 880 billion cubic feet of gas in the target Triassic sands if hydrocarbons are present.

The Leatherback Triassic oil discovery, 22 kilometres to the northeast of the White Opal Prospect, is encouraging for the presence of further Triassic oil fields in the area. The planned drilling of Leatherback 2 in October 1996 to test for an 80 million barrel extension of the Leatherback Oil Field will provide a further evaluation of the Triassic oil targets in the area.

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

During the quarter on-going incorporation of well and seismic data into a comprehensive data-base for EP 41 was continued by the Operator, Ampolex Limited.

Further seismic mapping of recently acquired seismic data will be carried out to further define the prospects and leads in the Rough Range Fault area and other areas of EP 41 to determine possible drilling locations in 1997.

An economic evaluation of the merits of bringing the Rough Range Oil Field into production is planned for the forthcoming quarter.

Exploration of EP 359 has focussed on the interpretation of the 1996 Melinda Seismic Survey which has defined a drilling location on the Melanie Prospect.

The Melanie Prospect has been seismically interpreted by Victoria Petroleum N.L. 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 total depth of 1420 metres in October, 1996.

The Melanie Prospect is located on the onshore Cape Range Peninsula and on trend with the 1 TCF Macedon Gas Field, 22 kilometres to the north.

A seismic survey of 30 kms was carried out in May 1996 to define a drilling location on the Beadon Prospect, interpreted from seismic data to have the potential to contain up to 15 million barrels, if oil is present. Interpretation of the survey results are in progress.

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 attempt to define additional drilling locations was carried out in April 1995.

A further three well program is planned for the fourth quarter of 1996, subject to farmout.

The presence of the State Gas Pipeline to Gladstone has improved the access to market from this once-remote field. The Reids Dome Gas Field lies just 60 kilometres from the State Gas Pipeline.

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 discovery.

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 25% interest in the Ueleven Block which contains the Ueleven Prospect.

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 mid October by the ATP 560P Operator, Oil Wells Inc., to a total depth of 1200 metres.

Victoria Petroleum N.L. was granted this southwest Queensland permit in September, 1994, and holds a 60% interest and Operatorship. This 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 115 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 fourth quarter of 1996.

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 evaluation of the well results of Barcoo Junction 2 is in progress to determine the significance of the oil shows encountered in the Hutton and Basal Jurassic sandstones.

Several other prospects and leads have been identified in ATP 589P and are currently being evaluated as potential future drilling targets.

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 and Heather Downs West Prospects, with the potential to contain up to 14 million barrels of oil, if oil is present, are ready for drilling, and subject to future successful farmout and rig availability, will be drilled in the third quarter of 1996.

Victoria Petroleum N.L. was granted this permit and Operatorship in December, 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.

Integration of the results of Rosslyn 1 into the EP 111 geological data base is in progress along with an investigation of potential candidates for seismic and drilling in the future.

Victoria Petroleum N.L. is in the process of withdrawing from the permit.

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.

An evaluation of the petroleum potential of the northern part of PEL 57 involving seismic reprocessing has defined the McNicol Prospect, interpreted to contain up to 58 BCF of gas. Drilling of the McNicol Prospect is currently scheduled for the fourth quarter of 1996.

The recent major gas discoveries by BHP in the adjacent offshore Otway Basin 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 250 million barrels of oil, if oil is present. The Tumuli Prospect remains a target for drilling in the eastern portion of PPL 106 in 1997, 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 1996/1997.

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 166 billion cubic feet of gas or 95 million barrels of oil, if hydrocarbons are present.

Gwaaro 1 is planned to be drilled in mid 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.

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 March 1996, estimated net oil and gas production from Victoria Exploration Inc. and Kestrel Energy, Inc.’s United States operations was 73 million cubic feet of gas and 11,005 barrels of oil. Total estimated Kestrel and Victoria Exploration Inc. oil and gas production for the quarter was 23,194 barrels of oil equivalent.

Average Kestrel and Victoria Exploration Inc. estimated daily production was 0.8 million cubic feet of gas and 122 barrels of oil amounting to 244 barrels of oil equivalent per day.

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