ImageAnnual Report

QUARTERLY REPORT FOR THE PERIOD ENDING 30 SEPTEMBER 2006

HIGHLIGHTS FOR THE QUARTER

Exploration Activity - Australia and USA

  1. Commencement of ten well exploration program over next six months in South Australian and Queensland Cooper Basin where Victoria Petroleum holds largest gross and net acreage exploration area in 14 permits with average 30% interest.
  2. First up oil discovery at Growler-1 in South Australian Cooper Basin in September, the first of ten well exploration drilling program in five Queensland and South Australian Cooper Basin permits over the next six months. .
  3. In the South Australian Cooper Basin permits, up to further five wells are to be drilled over next six months with Wirraway-1 to commence drilling in PEL 111 in early December 2006 targeting up to 8 million barrels of oil, if oil is present. Adjacent Growler-1 oil discovery provides encouragement for chance of drilling success at Wirraway-1.
  4. Ascender-1 exploration well in adjacent permit PEL 111 to follow after Wirraway-1. Ascender-1 is targeting a prospect with the potential to contain up to 9 million barrels of oil, if oil is present.
  5. One of the other three exploration wells in South Australia, Tomcat-1 is planned to be drilled in late December 2006 up dip to well with "oil show" of 780 barrels of oil per day. to test a target straddling PEL 115 and PPL 93 with up to 6 million barrel oil potential, if oil is present. Tomcat-1 is being drilled by Santos under farmin agreement with Santos.
  6. In southwest Queensland Cooper Basin permits, up to five wells to be drilled with first exploration well in late December 2006, Marracoonda-2 to be followed by Nora and Gamma testing cumulative recoverable oil potential up to 18 million barrels, if oil is present. All drilling is adjacent to Santos oil production and infrastructure.
  7. Completion of drilling of Primero-1 exploration well by White Sands Petroleum with testing program of 2.8 million cubic feet per day gas zone to be carried out in fourth quarter 2006. Victoria Petroleum has a 40% free carried interest through the drilling, testing and completion of the well.
  8. Planned commencement of drilling in late December by White Sands Petroleum of horizontal appraisal well in gas bearing Triassic sands of the North Cherwondah well, central Queensland, targeting up to 125 billion cubic feet of gas. Victoria Petroleum has an 8% free carried interest through the drilling and completion of the well.
  9. Up to six gas exploration wells based on 3D seismic data are planned to commence drilling in the late fourth quarter 2006 on the Margarita onshore Texas Gulf Coast gas exploration project.
  10. Eighteen exploration and appraisal wells are planned over the next six months as per the attached drilling schedule with ten of the eighteen wells in the SA and Qld Cooper Basin.

    11. Development and Production Activity - Australia and USA

  11. Total gross production over the quarter was 226,860 barrels of oil equivalent with net 22,180 barrels of oil equivalent to Victoria Petroleum at an average production rate of 241 barrels of oil equivalent per day.
  12. High oil prices during the quarter provided estimated oil and gas sales net cash flow of $1.2 million. Production revenues are expected to increase during the next quarter with new oil production from Jingemia-8 in the Jingemia Oil Field, North Perth Basin.
  13. The successful drilling and completion in August 2006 of the Jingemia-8 development well to offset natural decline resulted in late October 2006 in the return of Jingemia Oil Field production from 1,700 barrels of oil per day to levels of up to 4,400 barrels of oil per day.
  14. The Mirage and Ventura oil fields in PEL 115, South Australian Cooper Basin continued production during the quarter at an average combined rate of 273 barrels of oil per day
  15. Successful completion of August 2006 fracture stimulation of Mirage-2 and Mirage-3 wells. Evaluation of the current combined production of approximately 70 barrels of oil per day on pump with associated formation water is in progress with a view to optimise future oil production for the fourth quarter 2006. The fracture stimulation has resulted in additional oil production for the Mirage Field and may result in the fracture stimulation of other wells in the Mirage-Ventura-Lightning Murta oil field.
  16. Preparation of the September Growler-1 oil discovery in the South Australian Cooper Basin for production testing during the fourth quarter to evaluate the recovery of 36 barrels of 49 degree API oil with no water from a 12 metre interval of the Birkhead formation during a two and a half hour open hole drill stem test.
  17. Production testing of Eagle North-1 appraisal well in California continued in August 2006 to test 177 metres of horizontal lower Mary Bellocchi oil sand. Efforts to retrieve the casing guns stuck in the casing to allow further testing of the known oil sand were not successful during the past quarter. The Eagle North-1 well has been suspended to allow for a future re-entry and side track to further appraise the Eagle Oil Pool with its potential to contain up to 34 million barrels of oil and 58 billion cubic feet of gas.
  18. Planned development drilling program on Flour Bluff Gas Field, Texas in the first quarter 2007 with aim to increase gas production within 12 months up to 10 million cubic feet per day.
  19. It is anticipated that by the end of calendar 2006 that with successful development drilling, the current and planned future Victoria Petroleum net oil and gas production will generate net cash flow estimated at $8 million for the year (calculated at US$65/ bbl and US$8/mcf), a 180% increase over calendar 2004 net cash flow from oil and gas sales of $4.4 million.
  20. Victoria Petroleum development and production activities in Australia and USA are being carried out against a background of historical high oil prices in the range of A$70-A$80 per barrel

    21. Other Assets

  21. 21. Victoria Petroleum N.L. has a 5.3% interest in Samson Oil & Gas Limited, an active oil and gas explorer and producer in North America listed on the Australian Stock Exchange.
  22. 22. Cash and current investments as at September 30, 2006 of $9.4 million to fund planned exploration and development drilling activities, as follows:
    23. Cash at bank and on deposit : $5,013,857
    Current investments in listed companies valued at market :$4,369,544
    Total :$9,383,401

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