Primeline Energy Holdings Inc. - Petroleum Contract

Primeline's interest in Block 25/34 is held through the Petroleum Contract. Primeline and its affiliate company, PPC, are jointly designated as Contractors under the Petroleum Contract.

The Petroleum Contract originally provided for a seven-year exploration period, which commenced on 1st May 2005, and for a development and production period for each commercial development of 15 years, (extendable to 20 years). The exploration period has been extended by agreement with CNOOC to eight years, and is split into three phases of 4, 2 and 2 years respectively. The Contractors are responsible for all costs incurred during the exploration phases with the option to terminate the Petroleum Contract at the end of each phase. The Petroleum Contract is on favourable fiscal terms.

At the end of exploration phases one and two, the Contractors are required to relinquish 25% of the contract area of the Block. At the end of exploration phase three, the Contractors have to relinquish all of the remaining contract area except any appraisal/development/production areas which have been identified and agreed with CNOOC.

If a discovery is made inside the Block, under the terms of the Petroleum Contract, CNOOC has the right to participate in up to 51% of any commercial development by paying its pro rata share of the development costs. In the event that CNOOC elects to participate in any discovery, Primeline would remain as the operator but all three companies (CNOOC, Primeline and PPC) would be obliged to contribute to the development and production costs on a pro rata basis in their respective proportions of 51%, 36.75% and 12.25%.

Primeline elected to enter into the second phase of the exploration period for Block 25/34, which is for two years commencing 1st May 2009, with a commitment for two wells, including the one unfulfilled well commitment carried over from phase one. Pursuant to the Petroleum Contract, Primeline relinquished 25% of the exploration area at the expiration of the first phase of the exploration period and, as a result, the total concession area for Block 25/34 is now 5,221 sq km.



	Introduction Exploration History Lishui 36-1 Gas Field Development Lishui Gas Play Block 25/34 Petroleum Contract Dynamic Gas Market Gas Agreement and Overall Development Program Reserve Report	Primeline's interest in Block 25/34 is held through the Petroleum Contract. Primeline and its affiliate company, PPC, are jointly designated as Contractors under the Petroleum Contract. The Petroleum Contract originally provided for a seven-year exploration period, which commenced on 1st May 2005, and for a development and production period for each commercial development of 15 years, (extendable to 20 years). The exploration period has been extended by agreement with CNOOC to eight years, and is split into three phases of 4, 2 and 2 years respectively. The Contractors are responsible for all costs incurred during the exploration phases with the option to terminate the Petroleum Contract at the end of each phase. The Petroleum Contract is on favourable fiscal terms. At the end of exploration phases one and two, the Contractors are required to relinquish 25% of the contract area of the Block. At the end of exploration phase three, the Contractors have to relinquish all of the remaining contract area except any appraisal/development/production areas which have been identified and agreed with CNOOC. If a discovery is made inside the Block, under the terms of the Petroleum Contract, CNOOC has the right to participate in up to 51% of any commercial development by paying its pro rata share of the development costs. In the event that CNOOC elects to participate in any discovery, Primeline would remain as the operator but all three companies (CNOOC, Primeline and PPC) would be obliged to contribute to the development and production costs on a pro rata basis in their respective proportions of 51%, 36.75% and 12.25%. Primeline elected to enter into the second phase of the exploration period for Block 25/34, which is for two years commencing 1st May 2009, with a commitment for two wells, including the one unfulfilled well commitment carried over from phase one. Pursuant to the Petroleum Contract, Primeline relinquished 25% of the exploration area at the expiration of the first phase of the exploration period and, as a result, the total concession area for Block 25/34 is now 5,221 sq km.