US$ CASH ADVANCE AGREEMENT Borrower AUSTRAL PACIFIC ENERGY (NZ) LIMITED Guarantors KANUKA ENERGY LIMITED AUSTRAL PACIFIC ENERGY LTD. SOURCE ROCK HOLDINGS LIMITED Agent, arranger and security agent INVESTEC BANK (AUSTRALIA) LIMITED ABN 55 071 292 594...

Dated

2007

1.

DEFINITIONS AND INTERPRETATION

1

2.

FACILITY

19

3.

FEES AND OPTIONS

22

4.

CONDITIONS PRECEDENT

22

PART II – TRANCHE A

25

5.

ADVANCES

25

6.

INTEREST

25

7.

REPAYMENT

25

PART III – TRANCHE B

27

8.

ADVANCES

27

9.

INTEREST

27

10.

REPAYMENT

28

PART IV– TRANCHE C

29

11.

GUARANTEE FACILITY

29

PART V – GUARANTEE

30

12.

GUARANTEE

30

PART VI – PROVISIONS COMMON TO ALL TRANCHES

34

13.

PAYMENTS

34

14.

CANCELLATION AND PREPAYMENTS

35

15.

TAXATION

36

16.

CHANGES IN LAW

38

17.

REPRESENTATIONS AND WARRANTIES

40

18.

UNDERTAKINGS

43

19.

PROJECT ACCOUNTS

53

20.

HEDGING ARRANGEMENTS

59

21.

LENDERS’ CONSULTANTS

59

22.

EVENTS OF ▇▇▇▇▇▇▇

▇▇

▇▇.

INTEREST ON OVERDUE AMOUNTS

65

24.

PAYMENTS PRO RATA AND ▇▇▇▇▇▇▇▇▇▇▇▇▇

▇▇

▇▇.

RELATIONSHIP OF LENDERS TO AGENT

67

26.

INDEMNITIES

71

27.

ACCOUNTS

72

28.

EXPENSES

72

29.

TAXES AND DUTIES

73

30.

SET-OFF

73

31.

WAIVERS, REMEDIES CUMULATIVE

73

32.

SEVERABILITY OF PROVISIONS

73

33.

SURVIVAL OF REPRESENTATIONS AND INDEMNITIES

74

34.

MORATORIUM LEGISLATION

74

35.

CONSENTS AND OPINIONS

74

36.

ASSIGNMENTS

74

37.

CONFIDENTIALITY

75

38.

NOTICES

76

39.

AUTHORISED OFFICERS

77

40.

GOVERNING LAW

77

41.

COUNTERPARTS

77

42.

ACKNOWLEDGEMENT BY OBLIGORS

77

FIRST SCHEDULE

81

SECOND SCHEDULE

84

THIRD SCHEDULE

85

FOURTH SCHEDULE

87

FIFTH SCHEDULE

90

SIXTH SCHEDULE

91

SIXTH SCHEDULE

91

SEVENTH SCHEDULE

92

EIGHTH SCHEDULE

93

NINTH SCHEDULE

97

TENTH SCHEDULE

98

ANNEXURE A

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▇▇▇▇▇▇▇▇ ▇

▇▇▇

▇▇▇▇▇▇▇▇ ▇

103

PART B

▇▇▇

▇▇▇▇▇▇▇▇ ▇

▇▇▇

▇▇▇▇▇▇▇▇ TO RATIO CERTIFICATE

105

ANNEXURE D

106

DATED

2006

(1)

AUSTRAL PACIFIC ENERGY (NZ) LIMITED a duly incorporated company having its registered office in Wellington, as borrower (the Borrower);

(2)

KANUKA ENERGY LIMITED a duly incorporated company, having its registered office in Wellington, AUSTRAL PACIFIC ENERGY LTD. a duly incorporated overseas company having its registered office in Wellington and SOURCE ROCK HOLDINGS LIMITED a duly incorporated company having its registered office in Wellington, as guarantors (each a Guarantor);

(3)

INVESTEC BANK (AUSTRALIA) LIMITED ABN 55 071 292 594 in its capacity as agent, arranger and security agent (the Agent); and

(4)

THE FINANCIAL INSTITUTIONS NAMED IN THE SEVENTH SCHEDULE (together the Lenders and each a Lender).

A.

The Borrower has requested the Agent to arrange a facility under which cash advances and other financial accommodation of up to a maximum amount of the aggregate of US$23,000,000 and NZ$2,500,000 may be made available to the Borrower to fund, amongst other things, the Borrower’s interest in the Project.

B.

The Lenders have agreed to make the Facility available upon the terms and subject to the conditions contained in this Agreement.

1.

DEFINITIONS AND INTERPRETATION

1.1

Definitions

The following definitions apply unless the context requires otherwise:

“Account Bank” means the financial institution with which the Project Accounts are opened which, as at the date of this Agreement, is ASB Bank Limited;

“Account Bank Agreement” means the agreement dated on or about the date of this Agreement between the Borrower, the Account Bank and the Agent relating to the operation of the Project Accounts;

“Accounts” means statements of financial performance, statements of financial position and cash flow statements together with any statements, reports (including, without limitation, any directors’ and auditors’ reports) and notes attached to or intended to be read with any of them;

“Acquisition Agreement” means the agreement documenting the Borrower’s acquisition of all of the shares in Arrowhead Energy Limited;

“Advance” means each advance or other accommodation made or to be made available to or, at the request of, the Borrower under the Facility or, as the context may require, the principal amount thereof for the time being outstanding;

“Agreement” means this agreement together with any amendment, extension or variation to or of it in accordance with this agreement;

“Approved Issuer Levy” has the meaning given to that term in section 86F of the Stamp and Cheque Duties ▇▇▇ ▇▇▇▇;

“Authorisation” includes:

(a)

any consent, authorisation, registration, filing, lodgement, agreement, notarisation, certificate, permission, licence, approval, authority or exemption from, by or with a Governmental Agency (including, without limitation, any consent under the Resource Management Act 1991); or

(b)

in relation to anything which will be fully or partly prohibited or restricted by law if a Governmental Agency intervenes or acts in any way within a specified period after lodgement, filing, registration or notification, the expiry of that period without intervention or action;

“Authorised Officer” means:

(a)

in respect of the Borrower, any director or any person from time to time nominated as an Authorised Officer by the Borrower by a notice to the Agent accompanied by certified copies of signatures of all new persons so appointed; and

(b)

in respect of the Agent or a Lender, any person whose title or acting title includes the words “Director”, “Associate Director” or “Manager” or cognate expressions;

“Availability Period” means, in respect of each Tranche, the period commencing on the Commencement Date for that Tranche and expiring on 31 March 2007;

“Available Cash” means at any time the amount credited to the Proceeds Account following allocation of all amounts then due and payable pursuant to items (i) – (v) of the Cash Flow Sweep less any amounts representing the proceeds of amounts set out in the Base Case as sources of funds required to meet Project Outgoings and capital expenditure required under any Other JV Agreement in respect of any Other Permit;

“Available Facility” means, in relation to any Tranche on any date, the Tranche Amount for that Tranche less the Principal Outstanding under that Tranche and, in relation to the Facility on any date, the Facility Limit less the aggregate Principal Outstanding under the Facility;

“Base Case” means the financial cash flow model for the Project measuring the Project Company’s total cash inflows and cash outflows (on a quarterly basis) in US Dollars for a period corresponding to that detailed in the Field Development Plan and:

(a)

before any revision by the Agent in accordance with the Third Schedule, means the Base Case agreed between the Borrower and the Agent (a copy of which has been delivered to the Agent as a condition precedent pursuant to clause 4.1); and

(b)

after any revision by the Agent and the Borrower in accordance with the Third Schedule, the Base Case as most recently so revised;

“Borrower General Security Agreement” means the general security agreement dated on or about the date of this Agreement between the Borrower and the Agent under which the Borrower grants the Agent a first ranking Security Interest in all its assets other than its interest in Other Joint Ventures and Other Permits to secure repayment of the Secured Indebtedness;

“Business Day” means any day of the week other than a Saturday or a Sunday on which registered banks (within the meaning of the Reserve Bank of New Zealand Act 1989) generally are open for normal business in both Wellington and Auckland;

“CADS” means, for a period, the aggregate of all revenue of the Project for that period received or receivable by the Project Companies (or projected in accordance with the Base Case to be receivable by the Project Companies in respect of that period) less the aggregate of all Project Outgoings incurred (or projected to be incurred in accordance with the Base Case) during that period;

“Calculation Date” means:

(a)

the Completion Date; and

(b)

each Quarter Date during the term of the Facility; and

(c)

each Special Calculation Date;

“Capital Costs” means, at any time and in respect of any period, all costs and expenses of a capital nature properly incurred or to be incurred and paid by the Project Companies to the Operator in connection with the Project during such period but excluding Operating Costs, depreciation and Financing Costs;

“Cash Flow Sweep” means the operation of clause 19.3(f) (Cash Flow Sweep) to determine the manner in which the balance of the Proceeds Account is to be applied by the Borrower;

“Casualty Occurrence” means any event or series of related events in relation to the Project or any other asset of the Borrower which entitles the Borrower to claim under or to be entitled to receive payment of any insurance or any other compensation or payment for physical loss or damage in an amount which exceeds $50,000;

“Collateral Security” means each Security Interest, Guarantee or other document or agreement at any time created or entered into as security for any Secured Indebtedness in addition to the Borrower General Security Agreement, each Guarantor General Security Agreement and each Specific Security Agreement;

“Combined Project Life Ratio” means, at any date, the ratio of:

(a)

the Present Value of CADS for the period commencing on that date and ending on the Project End Date; to

(b)

the aggregate of the Principal Outstanding of both Tranche A and Tranche B less the balance of the Debt Service Reserve Account at that date and, in the event of a default (howsoever described) under a GSA which is continuing, plus the Principal Outstanding of Tranche C;

“Commencement Date” means:

(a)

in respect of Tranche A, the later of Financial Close and the date that Tranche B has been drawn down in full; and

(b)

in respect of Tranche B and Tranche C, Financial Close;

“Commitment” means in relation to each Lender and a Tranche, the amounts set out in the Seventh Schedule;

“Companies Act” means the Companies ▇▇▇ ▇▇▇▇;

“Completion Date” means the date on which the Agent has confirmed that the Completion Test has been satisfied;

“Completion Test” means the satisfaction of each of the requirements set out in the Second Schedule;

“Construction Contract” means the Cheal A Production Facility Construction Site Facilities Agreement to be entered into between the Operator and Independent Technology Limited;

“Contractors” mean Independent Technology Limited and each other contractor from time to time under the Construction Contract;

“Cost Overruns” means, in relation to a period, funding requirements of the Borrower or the Project Companies in respect of the Project in excess of those allocated for that period in the Base Case;

“Crown” has the meaning given to that term in the JV Agreement;

“Crown Minerals Act” means the Crown Minerals ▇▇▇ ▇▇▇▇;

“Debt Service” means, in respect of any period, the aggregate amounts paid or payable by the Borrower during that period, under this Agreement or any other Financing Document, in respect of:

(a)

Financing Costs accrued during the period; and

(b)

payments in reduction of the Principal Outstanding;

excluding:

(c)

any voluntary prepayments under this Agreement; and

(d)

any Mandatory Prepayments;

“Debt Service Reserve Account” means the account of that name opened and operated in accordance with clause 19.4(a) (Debt Service Reserve Account);

“Deed of Subordination” means each deed entered into from time to time between the Borrower or a Project Company, the Agent and any other person subordinating the obligations of the Borrower or the Project Company as the case may be in respect of Financial Indebtedness owed by the Borrower or the Project Company as the case may be to that person;

“Drawdown Date” means the date on which any Advance under this Agreement is, or is to be, drawn or made;

“Drawdown Notice” means a request substantially in the form of Annexure A (Drawdown Notice);

“Drilling Contract” means the Onshore Drilling Rig Contract #▇▇▇-▇▇▇▇-▇▇▇ dated 20 January 2006 between the Operator and Ensign International Energy Services Pty Limited, as amended from time to time;

“Environmental Law” means a provision of a law or a law, which relates to an aspect of the environment or health;

“Event of Default” means any of the events specified in clause 22.1 (Events of Default);

“Event of Review” means the events specified in clause 22.3 (Event of Review);

“Expiry Date” means, in relation to each Tranche, the earlier of:

(a)

the date four years from the date of this Agreement; and

(b)

the date the relevant Tranche has been repaid in full;

“Facility” means the US$ cash advance facility and NZ$ guarantee issue facility made available pursuant to this Agreement;

“Facility Limit” means the aggregate of US$23,000,000 and NZ$2,500,000 as this amount may be varied in accordance with this Agreement;

“Fees Letter” means each fees letter between the Borrower and the Agent dated on or about the date of this Agreement;

“Field Development Plan” means the field development plan as prepared (and updated from time to time) by the Operator in accordance with the JV Agreement (or, if not prepared by the Operator, the Borrower in consultation with the Agent based on all information available to the Borrower) and which plan models the expected development and extraction of the Petroleum resources from the Permit Area;

“Finance Parties” means each of the Agent, the Lenders, and the Hedge Counterparty;

“Financial Close” means the day on which, following execution of this Agreement, all the conditions precedent set out in the First Schedule are satisfied or waived by the Agent;

“Financial Indebtedness” means, in relation to any person:

(a)

indebtedness for moneys borrowed by that person;

(b)

indebtedness (actual or contingent) of that person under any guarantee, security or other commitment designed to assure any creditor against loss in respect of any Financial Indebtedness (as herein defined but excluding this paragraph (b)) of any third party;

(c)

any indebtedness under any acceptance credit opened on behalf of that person;

(d)

any indebtedness under any debenture, note, ▇▇▇▇ of exchange or commercial paper on which that person is liable as drawer, acceptor, endorser, issuer or otherwise;

(e)

any indebtedness for money owing in respect of any interest rate swap and/or cross currency swap option, cap, collar floor, any futures contract or any other derivatives contract entered into by that person; and

(f)

any rental payments under any lease entered into primarily for the purpose of raising or obtaining finance (whether in respect of land, machinery, equipment or otherwise) to which that person may for the time being and from time to time be subject;

“Financial Undertaking Matrix” means the financial undertakings matrix set out in the Fifth Schedule;

“Financing Costs” means, in respect of any period or as at any time, interest, fees, costs, expenses and all other amounts (after netting out the effect of any payments made and received under interest rate hedging arrangements) paid in that period or due and payable at that time by the Borrower under this Agreement or any other Financing Document (other than payments in reduction of the Principal Outstanding);

“Financing Documents” means this Agreement, the Hedging Documents, the Security Documents, the Account Bank Agreement, each Deed of Subordination, the Fees Letters and any other document or agreement entered into or provided under or in connection with any of the above or which the Borrower and the Agent agree to be a Financing Document for the purposes of this Agreement;

“Forward Combined Cover Ratio” means, at any date, in relation to the three month period commencing on that date, the ratio of:

(a)

projected CADS for that period (as set out in the Base Case); to

(b)

projected Debt Service for that period;

“Free Cash Flow” means, at any date, the balance of the Proceeds Account available for allocation as a Permitted Distribution, pursuant to the Cash Flow Sweep after paying or providing for all amounts ranking in priority, in accordance with clause 19.3 (Proceeds Account);

“Gas Prepayment and Sale Agreement” means the gas prepayment and sale agreement between International Resource Management Corporation and Vector Gas Limited (formerly NGC New Zealand Limited) dated 4 February 2004, as amended by the Deed of Assignment and Assumption Interests in Gas Prepayment and Sale Agreement dated 23 December 2005 assigning the rights of International Resource Management Corporation to Arrowhead Energy Limited;

“General Security Agreements” means each of the Borrower General Security Agreement and the Guarantor General Security Agreements;

“GSAs” means the Gas Sales Agreements that have or will be entered into between Arrowhead Energy Limited and Vector Gas Limited in respect of the Kahili oil well and the Cheal oil well and reference to a “GSA” means either of them;

“Governmental Agency” means any governmental, local government, council or local authority or any governmental, semi-governmental, Court or judicial entity or authority. It also includes any self-regulatory organisation established under statute or any stock exchange;

“Guarantee” means any guarantee, indemnity, letter of credit, legally binding letter of comfort or suretyship, or any other obligation or irrevocable offer (whatever called and of whatever nature):

(a)

to pay or to purchase;

(b)

to provide funds (whether by the advance of money, the purchase of or subscription for shares or other securities, the purchase of assets, rights or services, or otherwise) for the payment or discharge of;

(c)

to indemnify against the consequences of default in the payment of; or

(d)

to be responsible otherwise for,

an obligation or indebtedness of another person, a dividend, distribution, capital or premium on shares, stock or other interests, or the insolvency or financial condition of another person;

“Guarantor” means each person party to this Agreement as a guarantor at the date of this Agreement and each person who becomes a Guarantor pursuant to clause 18.5;

“Guarantor General Security Agreements” means the:

(a)

general security agreement dated on or about the date of this Agreement between Kanuka Energy Limited and the Agent under which that Project Company grants the Agent a first ranking Security Interest in all its assets to secure repayment of the Secured Indebtedness;

(b)

general security agreement between Arrowhead Energy Limited and the Agent under which that Project Company grants the Agent a first ranking (unless otherwise agreed) Security Interest in all its assets to secure repayment of the Secured Indebtedness; and

(c)

general security agreement dated on or about the date of this Agreement between the Sponsor and the Agent under which the Sponsor grants the Agent a first ranking Security Interest in all its assets to secure repayment of the Secured Indebtedness,

and Guarantor General Security Agreement means any of them;

“Hedge Counterparty” means, at the date of this Agreement, Investec Bank (Australia) Limited and any other person providing Hedging Arrangements to the Borrower or the Project Company from time to time;

“Hedging Arrangements” means oil hedging arrangements described in clause 20.1 (Mandatory Hedging Arrangement) and any other foreign exchange or interest rate hedging entered into by the Borrower and the Hedge Counterparty from time to time;

“Hedging Documents” means the ISDA Master Agreement dated on or about the date of this Agreement between the Borrower and the Hedge Counterparty, each confirmation entered into pursuant to that agreement, and each other document or agreement evidencing the Hedging Arrangements;

“Historic Combined Cover Ratio” means, at any date, in relation to the three month period ending on that date, the ratio of:

(a)

CADS for that period; to

(b)

Debt Service for that period;

“Interest Payment Date” means, in relation to an Interest Period, the last day of that Interest Period;

“Interest Period” means, in relation to an Advance, each period by reference to which interest is calculated and payable but so that:

(a)

the first Interest Period in relation to each Advance shall begin on the Drawdown Date for that Advance and each subsequent Interest Period shall begin on the expiry of the preceding Interest Period relating thereto;

(b)

an Interest Period which would otherwise end on a day which is not a Business Day shall end on the next succeeding Business Day unless the result of such extension would be to carry such Interest Period over into another calendar month in which event such Interest Period will end on the immediately preceding Business Day; and

(c)

no Interest Period may extend beyond the relevant Expiry Date and, if necessary, shall be shortened so as to end on the relevant Expiry Date;

“JV” means the joint venture established pursuant to the JV Agreement;

“JV Account” means each account opened and maintained by a Project Company with the Account Bank in accordance with clause 19.2(a) (JV Account);

“JV Account Sweep” means the operation of clause 19.2(d) (JV Account Sweep) to determine the manner in which the balance of each JV Account is to be applied by the Project Companies;

“JV Agreement” means together the Joint Venture Operating Agreement dated 16 December 2002 between PEP 38716 Limited and Cheal Petroleum Limited as subsequently amended and varied by a Variation Agreement dated 2 July 2004 between Rata Energy Limited, Cheal Petroleum Limited, International Resource Management Corporation and the Borrower to exclude deep and

provide for shallow interests in the permit area and the Coordination Agreement in respect of PEP 38738 dated 2 July 2004 between Rata Energy Limited, Cheal Petroleum Limited, International Resource Management Corporation, Cardiff Holdings No. 1 Limited, Cardiff Holdings No. 2 Limited and the Borrower;

“JV Participants” means the parties to the JV Agreement holding a Participating Interest in the JV and “JV Participant” means any of them;

“Land” means the land occupied by the Project being the land described in the Land Access Agreements and any other land from time to time occupied by the Project;

“Land Access Agreements” means:

(a)

the Short Term Agreement PEP 38738 Cheal B dated 30 December 2005 between the Operator and ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇;

(b)

any long term lease entered into pursuant to clause 6.2 of the Short Term Agreement referred to in (a) above;

(c)

the Memorandum of Lease dated 20 May 2005 between ▇▇▇▇▇ ▇▇▇ Lightoller, Raewyn ▇▇▇▇▇▇▇ Lightoller and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ as Lessors and the Operator as Lessee;

“Lenders’ Base Case Auditor” means KPMG or such other person as is appointed by the Agent in their place from time to time after consultation with the Borrower;

“Lenders’ Independent Engineer ” means ▇▇▇▇▇▇▇ International Limited or any other petroleum engineer appointed by the Agent from time to time for the purposes of this Agreement;

“Lenders’ Insurance Consultant” means any insurance consultant appointed by the Agent from time to time for the purposes of this Agreement;

“LIBOR” means, in relation to an Interest Period of an Advance:

(a)

the applicable Screen Rate; or

(b)

if no Screen Rate is available for US Dollars or the relevant Interest Period of that Advance (or overdue amount), the arithmetic mean (rounded upward to four decimal places) of the rates, as supplied to the Agent at its request, quoted by three reference banks selected by the Agent to leading banks in the London interbank market,

at or about 11.00am (London time) two London Business Days prior to the commencement of the relevant Interest Period for the offering of deposits in US Dollars for a period comparable to the Interest Period. Rates will be expressed as a yield percent per annum to maturity;

“Liquidation” includes statutory management, receivership, compromise, arrangement, amalgamation, administration, reconstruction, winding up, dissolution, assignment for the benefit of creditors, arrangement or compromise with creditors, bankruptcy or death or the appointment of any trustee, inspector, manager or similar officer;

“Loan Life Ratio” means, at any date:

(a)

in the period up to and including the Tranche A Expiry Date, the ratio of:

(i)

the Present Value of CADS for the period commencing on that date up to and including the Tranche A Expiry Date; to

(ii)

the aggregate of Principal Outstanding under Tranche A at that date less the balance of the Debt Service Reserve Account at that date and, in the event of a default (howsoever described) under a GSA which is continuing, plus the Principal Outstanding of Tranche C; and

(b)

in the period commencing the day immediately following the Tranche A Expiry Date and at all times thereafter, the ratio of:

(i)

the Present Value of CADS for the period commencing on that date up to and including the Tranche B Expiry Date; to

(ii)

the aggregate of the Principal Outstanding under Tranche B at that date less the balance of the Debt Service Reserve Account at that date and, in the event of a default (howsoever described) under a GSA which is continuing, plus the Principal Outstanding of Tranche C;

“London Business Day” means a day (other than a Saturday or a Sunday) on which banks are open for general business in London, England;

“Mandatory Prepayment” means a mandatory prepayment of the Principal Outstanding pursuant to clause 14.5 (Mandatory Prepayment);

“Mandatory Prepayment Percentage” as at any Calculation Date means that percentage determined with reference to the Financial Undertakings Matrix and the relevant Ratio Certificate delivered in respect of that Calculation Date to be applied by the Borrower in Mandatory Prepayment;

“Margin” means:

(a)

for Tranche A and Tranche C:

(i)

for the period from Financial Close to the Completion Date, 2.00% per annum; and

(ii)

thereafter, 1.75% per annum; and

(b)

for Tranche B:

(i)

for the period from Financial Close to the Completion Date, 4.00% per annum; and

(ii)

thereafter, 3.50% per annum;

“Material Adverse Effect” means in respect of the Obligors, in the reasonable opinion of the Agent, a material adverse effect on the financial condition or business (and/or as applicable, on the consolidated financial condition or business of the group of companies of which it forms part) of the

Obligors (as a group) and, in respect of any Obligor, in the reasonable opinion of the Agent, a material adverse effect on:

(a)

the ability or willingness of that person to perform its obligations under a Transaction Document; or

(b)

the enforceability or priority of any Security Documents or the Security Interests created therein; or

(c)

the validity or enforceability of any of the Financing Documents or the Project Documents,

and “material adverse change” shall be construed accordingly;

“Maturity Date” means the date on which the last Expiry Date occurs;

“Minimum Hedging Programme” has the meaning given to that term in clause 20.1 (Mandatory Hedging Arrangement);

“Mortgaged Property” means all the property subject to a Security Interest pursuant to the Security Documents;

“New Permits” means any petroleum exploration permit or petroleum mining permit issued under the Crown Minerals Act that the Borrower obtains a holding in or in which the Borrower obtains an interest after the date of this Agreement;

“Obligor” means each of:

(a)

the Borrower; and

(b)

the Guarantors; and

(c)

any other person who gives or creates a Guarantee or Security Interest which secures any Secured Indebtedness;

“Oil Sale Contracts” means each document or agreement entered into from time to time by or on behalf of the Borrower and/or the Project Companies relating to the processing, transportation and/or sale of Petroleum;

“Operating Costs” means, at any time in respect of any period, all costs and liabilities incurred and paid (or projected to be paid) by the Project Companies to the Operator in connection with the operation, management, maintenance and repair of the Project for that period including, without limitation payments on account of:

(a)

wages and salaries, maintenance costs, insurance premiums and deductibles and other administration and overhead costs;

(b)

payments on account of Tax (including income tax);

(c)

agency fees and fees of engineers, consultants and legal or financial advisors; and

(d)

other costs and expenses that the Borrower and the Agent agree are Operating Costs;

“Operator” has the meaning given to that term in the JV Agreement;

“Optional Prepayments” means a prepayment of any part of the Principal Outstanding in accordance with clauses 14.3 (Optional Prepayment) and 19.3(f)(viii) (Proceeds Account);

“Other Joint Ventures” means any joint venture relating to any Other Permit;

“Other Permits” means petroleum exploration permits 38738-02, 38741, 38745, 38746, 38748, 38765, 38766, 38524 and 38258 and petroleum mining permits 38156-02 and 38153 issued under the Crown Minerals Act and petroleum exploration ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ and PPL235 issued under the laws of Papua New Guinea held by the Borrower or in which the Borrower has an interest;

“Outstanding Money” means, on any date, in relation to all or any part of the Facility, as the case may be, the Principal Outstanding, interest (including default interest), fees, costs and all other amounts payable by the Borrower to the Lenders under the Financing Documents on such date;

“Participating Interest” has the meaning given to that term in the JV Agreement;

“Permits” has the meaning given to that term in the JV Agreement;

“Permit Area” means the area covered by any Permit;

“Permitted Distributions” means all amounts permitted to be withdrawn from the Proceeds Account to make a distribution pursuant to clause 19.5;

“Permitted Distributions Percentage” means, as at any Calculation Date, the percentage of Permitted Distributions determined with reference to the Financial Undertakings Matrix and the relevant Ratio Certificate delivered in respect of that Calculation Date;

“Permitted Security Interest” means:

(a)

a Security Interest created by a Project Company in favour of the other JV Participants under the JV Agreement;

(b)

a Security Interest in favour of a party to a joint venture agreement in relation to one of the Other Permits;

(c)

a Security Interest not securing Financial Indebtedness and which arises solely by operation of law or in the ordinary course of ordinary business so long as the indebtedness secured is not in default or is being contested in good faith and is not outstanding for more than 90 days;

(d)

a Security Interest consented to in writing by the Agent; and

(e)

a Security Interest arising under section 17(1)(b) of the PPSA provided that such Security Interest does not secure indebtedness or obligations;

“Petroleum” has the meaning given to that term in the JV Agreement;

“Potential Event of Default” means anything which with the giving of notice or passage of time or both, would become an Event of Default;

“PPSA” means the Personal Property Securities ▇▇▇ ▇▇▇▇;

“Present Value of CADS” means, at any date (the “calculation date”) and for any period, CADS for that period discounted back to the calculation date at the rate of interest which would be payable in relation to an Advance for that period in accordance with clauses 6.3 or 9.3. For the purpose of calculating the Present Value of CADS for the Combined Project Life Ratio the relevant interest rate shall be the rate of interest applicable to Tranche A and for any other calculation the relevant interest rate shall be the rate of interest applicable to either Tranche A or Tranche B, the Principal Outstanding under which is to be included in the denominator in the calculation of the relevant ratio;

“Principal Amount” means the principal amount of any Advance;

“Principal Outstanding” means, as at any date in respect of a Tranche, the total Principal Amount of all outstanding Advances owing by the Borrower to a Lender under that Tranche or, in respect of Tranche C, the Maximum Guaranteed Amount (as defined in clause 11.1) as at that date and, in respect of the Facility, means the total Principal Amount of all outstanding Advances under the Facility as at that date;

“Proceeds Account” means the account opened and maintained by the Borrower with the Account Bank in accordance with clause 19.3(a) (Proceeds Account);

“Project” means the Cheal Oil and Gas production joint venture pursuant to the JV Agreement located onshore Taranaki Basin, New Zealand;

“Project Accounts” means each of the bank accounts opened and maintained by the Borrower and the Project Company (where applicable) pursuant to clause 19 (Project Accounts);

“Project Companies” means Kanuka Energy Limited and, following completion of the acquisition contemplated by the Acquisition Agreement, Arrowhead Energy Limited, and “Project Company” means each of them;

“Project Documents” means each of:

(a)

the JV Agreement;

(b)

the Oil Sale Contracts;

(c)

the Construction Contract;

(d)

the Drilling Contract;

(e)

the Acquisition Agreement;

(f)

the Permits;

(g)

the Land Access Agreements;

(h)

all material Authorisations required to conduct the Project (including Resource Consents);

(i)

any other material agreement, deed or document in connection with the Project to which the Borrower or the Project Company becomes a party;

(j)

any other contract or document which the Borrower and the Agent agree in writing to treat as a Project Document for the purposes of this Agreement; and

(k)

each document or agreement entered into for the purpose of amending or novating any of the above;

“Project End Date” means the date on which the last unit of recoverable oil of the Reserves (at P90 as set out in the Base Case) will be extracted from the Project;

“Project Life Ratio” means, at any time:

(a)

in the period up to and including the Tranche A Expiry Date, the ratio of:

(i)

the Present Value of CADS for the period commencing on that date up to and including the Project End Date; to

(ii)

the aggregate of the Principal Outstanding under Tranche A at that date less the balance of the Debt Service Reserve Account at that date and, in the event of a default (howsoever described) under a GSA which is continuing, plus the Principal Outstanding of Tranche C; and

(b)

in the period commencing the day immediately following the Tranche A Expiry Date and at all times thereafter, the ratio of:

(i)

the Present Value of CADS for the period commencing on that date up to and including the Project End Date; to

(ii)

the aggregate of the Principal Outstanding under Tranche B at that date less the balance of the Debt Service Reserve Account at that date and, in the event of a default (howsoever described) under a GSA which is continuing, plus the Principal Outstanding of Tranche C;

“Project Outgoings” means, in any period, the aggregate of the Project Companies’ costs relating to the Project in that period in respect of (without duplication):

(a)

Operating Costs;

(b)

Capital Costs;

(c)

Royalties, commissions and other accounts payable in respect of Petroleum produced by the Project;

(d)

all Taxes paid or payable in connection with the Project;

(e)

all exploration and drilling costs payable in connection with the Project;

(f)

any other amount payable in connection with the Project; and

(g)

any other expenditures agreed between the Borrower and the Agent to be Project Outgoings;

“Quarter Date” means each of 31 March, 30 June, 30 September and 31 December in any year;

“Ratio Certificate” means a certificate in the form outlined in Annexure C (Ratio Certificate) signed by two directors of the Borrower and each Project Company certifying as to the matters set out therein together with supporting calculations as appropriate;

“Related Company” has the meaning given to the term “Related Company” in the Companies Act, but on the basis that “Subsidiary” has the meaning given in this Agreement and that “company” includes any entity or a trust;

“Repayment Date” means:

(a)

in relation to Tranche A, each Quarter Date from and including 30 June 2007;

(b)

in relation to Tranche B, each Quarter Date from and including 31 December 2009; and

(c)

the Expiry Date for the relevant Tranche;

“Repayment Schedule” means the indicative repayment schedule set out in the Sixth Schedule and as may be amended from time to time pursuant to this Agreement or to reflect agreed changes to the Base Case;

“Reserves” means the “reserves” as defined by Lenders’ Independent Engineer to be P90 reserves of the Permit Area (as set out in the initial Base Case);

“Reserve Tail” means:

(a)

in the period up to and including the Tranche A Expiry Date, the percentage of:

(i)

the recoverable oil to be produced by the Reserves during the period from the Tranche A Expiry Date to the Project End Date; divided by

(ii)

the total recoverable oil to be produced from the Reserves to the Project End Date (as set out in the Base Case); and

(b)

in the period commencing the day immediately following the Tranche A Expiry Date and at all times thereafter, the percentage of:

(i)

the recoverable oil to be produced by the Reserves during the period from the Tranche B Expiry Date to the Project End Date; divided by

(ii)

the total recoverable oil to be produced from the Reserves to the Project End Date (as set out in the Base Case);

“Resource Consents” means all consents and Authorisations under the Resource Management Act obtained and/or held by the JV relating to the Project except that, for the purposes of clause 18.3 (Undertakings Relating to the Project) only, “Resource Consent” has the meaning given to it by Section 2 of the Resource Management Act;

“Resource Management Act” means the Resource Management ▇▇▇ ▇▇▇▇;

“Royalties” means all royalties payable to the Crown under the Permit and the Crown Minerals Act in respect of Petroleum produced by the Project;

“Scheduled Repayment” means, in respect of a Tranche, the amount (or amounts) required to be repaid on a Repayment Date as set out in the Repayment Schedule;

“Screen Rate” means the British Bankers’ Association Interest Settlement Rate (if any) for US Dollars and the Interest Period displayed on the appropriate page of the Telerate screen selected by the Finance Parties. If the relevant page is replaced or the service ceases to be available, the Agent (after consultation with the Borrower) may specify another page or service displaying the appropriate rate;

“Secured Indebtedness” means all money which the Obligors (whether alone or with another person) is or at any time may become actually or contingently liable to pay to or for the account of the Finance Parties or any of them for any reason whatever under or in connection with a Financing Document. It includes, without limitation, money by way of principal, interest, fees, costs, indemnities, charges, duties or expenses or payment of liquidated or unliquidated damages under or in connection with a Financing Document, or as a result of a breach of or default under or in connection with a Financing Document. Where the Borrower or any other person would have been liable but for its Liquidation, it will be taken still to be liable;

“Security Documents” means each of the General Security Agreements, the Specific Security Agreements and any Collateral Security;

“Security Interest” means any mortgage, pledge, lien or charge (whether fixed or floating) encumbrance, financial lease, deferred purchase sale and repurchase, sale or leasehold, or any security interest (including a security interest as that term is defined in the PPSA) or preferential interest or arrangement of any kind or any other right of, or arrangement with, any creditor to have or which has the commercial effect of having its claims satisfied in priority to other creditors with, or from the proceeds of, any asset. Without limitation it includes retention of title and a deposit of money by way of security but it excludes a charge or lien arising in favour of a Governmental Agency by operation of statute (unless there is default in payment of moneys secured by that charge or lien) and rights or obligations of, or in the nature of, set off, netting, contribution or consolidation, banker’s lien or analogous rights or obligations;

“Special Calculation Date” has the meaning given to that term in clause 18.2(a)(iv) (Ratio Certificate);

“Specific Security Agreements” means:

(a)

the specific security agreement over Source Rock Holdings Limited’s shares in the Borrower granted by Source Rock Holdings Limited in favour of the Agent dated on or about the date of this Agreement; and

(b)

the specific security agreement over the Borrower’s shares in each of the Project Companies granted by the Borrower in favour of the Agent dated on or about the date of this Agreement;

and “Specific Security Agreement” means any of them;

“Specified Percentage” means the percentage amount corresponding to each Project Company’s Participating Interest;

“Sponsor” means Austral Pacific Energy Ltd.;

“Subordinated Debt” means all Financial Indebtedness of the Borrower that is subordinated to all Secured Indebtedness on terms and conditions satisfactory to the Agent;

“Subsidiary” has the meaning given in sections 5 and 6 of the Companies Act but so that:

(a)

a trust may be a Subsidiary, for the purposes of which a unit or other beneficial interest will be regarded as a share; and

(b)

a company or trust may be a Subsidiary of a trust if it would have been a Subsidiary if that trust were a company;

“Substitution Certificate” means a certificate in the form outlined in the Eighth Schedule;

“Tax” includes any tax, levy, impost, deduction, charge, rate, duty, Royalty, compulsory loan or withholding which is levied or imposed by a Governmental Agency, and any related interest, penalty, charge, fee or other amount;

“Total Cost to Complete” means the aggregate amount of all expenditure required to be incurred by the Borrower so that the Completion Test is able to be satisfied;

“Tranche” means Tranche A, Tranche B, and Tranche C (as the context requires) and “Tranches” means all of them;

“Tranche A” means the cash advance facility described in Part II;

“Tranche Amount” means:

(a)

in relation to Tranche A, US$18,000,000;

(b)

in relation to Tranche B, US$5,000,000;

(c)

in relation to Tranche C, NZ$2,500,000;

in each case as reduced from time to time by prepayment or cancellation in accordance with this Agreement;

“Tranche B” means the cash advance facility described in Part III;

“Tranche C” means the guarantee facility described in Part IV;

“Transaction Document” means each Project Document and each Financing Document;

“US$” and “US Dollars” means the lawful currency of the United States of America;

“Warrant” means an option to acquire one fully paid ordinary share in the capital of the Sponsor granted by the Sponsor to the Agent pursuant to clause 3.4 (Warrants); and

“Warrant Certificate” means the warrant certificate in respect of the Warrants substantially in the form set out in the Ninth Schedule.

1.2

Interpretation: Headings are for convenience only and do not affect interpretation. The following rules apply unless the context requires otherwise:

(a)

The singular includes the plural and the converse.

(b)

A gender includes all genders.

(c)

Where a word or phrase is defined, its other grammatical forms have a corresponding meaning.

(d)

A reference to a person, company, trust, partnership, unincorporated body or other entity includes any of the foregoing.

(e)

A reference to a clause, Part, Annexure or Schedule is a reference to a clause of, a part of, or annexure or schedule to, this Agreement.

(f)

A reference to a party to this Agreement or another agreement or document includes the party’s successors and permitted substitutes or assigns.

(g)

A reference to an agreement or document is to the agreement or document as amended, novated, supplemented or replaced from time to time, except to the extent prohibited by this Agreement.

(h)

A reference to legislation or to a provision of legislation includes a modification or re-enactment of it, a legislative provision substituted for it and a regulation or statutory instrument issued under it.

(i)

A reference to writing includes a facsimile transmission and any means of reproducing words in a tangible and permanently visible form.

(j)

A reference to conduct includes, without limitation, an omission, statement or undertaking, whether or not in writing.

(k)

A reference to an asset includes any real or personal, present or future, tangible or intangible property or asset (including, without limitation, intellectual property) and any right, interest, revenue or benefit in, under or derived from the property or asset.

(l)

An Event of Default subsists until it has been waived in writing by the Agent.

(m)

A reference to an amount for which a person is contingently liable includes, without limitation, an amount which that person may become actually or contingently liable to pay if a contingency occurs, whether or not that liability will actually arise.

(n)

A reference to dollars or to $ is a reference to US Dollars or its equivalent in any other relevant currency.

(o)

A reference to generally accepted accounting practice has the meaning given to that term in section 3 of the Financial Reporting ▇▇▇ ▇▇▇▇. A reference to an accounting term is to be interpreted according to those principles and practices.

(p)

A reference to a lease means:

(i)

any lease, charter, hire purchase or hiring arrangement of any property (including without limitation, a right to use intellectual property or a franchise);

(ii)

an agreement under which property is or may be used or operated by a person other than the owner; or

(iii)

an agreement or arrangement under which property is or may be managed or operated by a person other than the owner, and the operator or manager or its Related Company (whether in the same or another agreement or arrangement) is required to make or assure minimum, fixed and/or floating rate payments of a periodic nature.

(q)

A reference to a time of day is a reference to New Zealand time unless otherwise stated.

(r)

Except where inconsistent with the context, the expression “at any time” also means from time to time.

1.3

Determination, statement and certificate conclusive: Except where otherwise provided in this Agreement any determination, statement or certificate by the Agent or a Lender or an Authorised Officer of the Agent or a Lender provided for in this Agreement is, in the absence of manifest error, prima facie evidence of such on the parties.

1.4

Document or agreement: A reference to an “agreement” includes a Security Interest, Guarantee, undertaking, deed, agreement or legally enforceable arrangement whether or not in writing. A reference to a “document” includes an agreement (as so defined) in writing or a certificate, notice, instrument or document.

1.5

Listing requirements included as law: A listing rule or business rule of a stock exchange including, without limitation, the New Zealand Exchange Limited will be regarded as a law.

1.6

Inconsistency: In the event of any conflict or inconsistency between any provision of this Agreement and any provision of any other Financing Documents, this Agreement shall, to the extent of the inconsistency, prevail.

1.7

Borrower: A reference to the Borrower does not (unless expressly stated) include Austral Pacific Energy (NZ) Limited in its capacity as Operator, or as “operator” under any of the Other JV Agreements.

2.

FACILITY

2.1

Grant of Facility: The Lenders agree to make the Facility available to the Borrower on the terms and conditions contained in this Agreement.

2.2

Participation: Each Lender agrees to make its Commitment available to the Borrower on the terms of this Agreement.

2.3

Purpose:

(a)

The Borrower shall apply the proceeds of any Advance under Tranches A and B:

(i)

to fund the acquisition under the Acquisition Agreement;

(ii)

to finance the development of the Borrower’s and the Project Companies’ interest in the Project and any contingencies;

(iii)

to fund the Debt Service Reserve Account to the required balance pursuant to clause 19.4 (Debt Service Reserve Account);

(iv)

to fund the pre-Financial Close costs, fees, expenses incurred by the Borrower associated with the establishment of the Facility; and

(v)

for such other purposes approved by the Agent, including, if there are undrawn amounts available under the Facility after funding or projected to be for the purposes listed above, funding for the Borrower’s interest in any Other Joint Ventures as may be agreed between the Borrower and the Agent provided that, no amounts may be drawn down and no proceeds of any Advance may be applied for any such purpose until after the Completion Date other than for capital expenditure in relation to any Other Joint Venture not exceeding US$1,000,000 in aggregate (which is agreed); and

(b)

The Borrower may only request the issue of a guarantee under Tranche C to be granted by the Tranche C Lender in favour of Vector Gas Limited in respect of the obligations of Arrowhead Energy Limited under the Gas Prepayment and Sale Agreement.

2.4

Lenders’ obligations several: The obligations of each Lender under this Agreement are several. The failure of any Lender to carry out its obligations hereunder shall not relieve any other party to this Agreement of any of its or their respective obligations to the parties hereto. None of the Agent or the Lenders shall be responsible for the obligations of any other party hereunder.

2.5

Lenders’ rights several: Notwithstanding any other term of this Agreement the interests of each Lender are several and the aggregate of the amounts outstanding at any time under this Agreement from the Borrower to the Agent for its own account or to or for the account of any Lender shall be a separate and independent debt from the amount owing to any other party. The Agent and each Lender shall have the right to protect and enforce its rights arising out of, but subject to, this Agreement and it shall not be necessary for any Lender or the Agent to be joined as an additional party in any proceedings to this end.

2.6

Security: The Lenders acknowledge and agree that, subject to:

(a)

there being no Event of Default, Potential Event of Default or Event of Review subsisting at the relevant time;

(b)

the Completion Date having occurred; and

(c)

the Agent having received evidence (in a form and substance satisfactory to it) that:

(i)

any right claimed by Tag Oil (NZ) Limited or its subsidiaries or related companies to acquire a further or greater Participating Interest in the JV as a result of any default by Arrowhead Energy Limited under the JV Agreement or in relation to the acquisition of Arrowhead Energy Limited by the Borrower as set out in the Acquisition Agreement:

(1)

has been irrevocably surrendered and waived by Tag Oil (NZ) Limited or it has been judicially determined that such right does not exist; or

(2)

the right has been exercised and the Mandatory Prepayment in accordance with clause 14.5(c) has been made; and

(ii)

all consents required to the creation by Arrowhead Energy Limited of security over its Participating Interest in the JV have been obtained and such security has been granted;

the Agent will, at the request of the Borrower, release and discharge:

(iii)

the Security Interest created by the Borrower General Security Agreement over the Borrower’s shareholdings in other companies owning assets other than Participating Interests in the JV;

(iv)

the Security Interest created by the Guarantor General Security Agreement granted by Arrowhead Energy Limited over the Other Permits and Arrowhead Energy Limited’s interest in any Other Joint Ventures;

(v)

the Security Interest created by the Specific Security Agreement over Source Rock Holdings Limited’s shares in the Borrower;

(vi)

Source Rock Holdings Limited, as a Guarantor under this Agreement; and

(vii)

the Sponsor as a Guarantor under this Agreement and the Security Interest created by the Guarantor General Security Agreement granted by the Sponsor over all of the Sponsor’s present and after acquired personal property, provided that such release and discharge shall not in any way affect the obligations of the Sponsor to the Agent in relation to the Warrants,

provided that, if the events set out in clauses 2.6(a) and (b) have occurred but not the events set out in clause 2.6(c) the Agent agrees that the guarantee granted by the Sponsor to the Agent in clause 12 shall be amended so that the maximum liability of the Sponsor to the Agent shall be for the amount determined by the Agent (after consultation with the Borrower) by which the Mandatory Prepayment set out in clause 14.5(c) which would be payable exceeds the estimated purchase price paid or which may be payable by Tag Oil (NZ) Limited for the acquisition referred to in 2.6(c).

2.7

Arrowhead Security: Until such time as the Agent has received (in a form and substance satisfactory to it) the evidence required under clause 2.6(c)(i) or (ii), and consents required under clause 2.6(c)(ii) the property secured by the Guarantor General Security Agreement granted by Arrowhead Energy Limited shall be all Arrowhead Energy Limited’s present and after acquired personal property excluding Arrowhead Energy Limited’s Participating Interest in the JV

Agreement. The Borrower and, upon accession to this Agreement as Guarantor, Arrowhead Energy Limited shall each use its best endeavours to obtain the consent of Tag Oil (NZ) Limited and each other JV Participant required under the JV Agreement to grant full security over its Participating Interest in the JV as soon as practicable.

3.

FEES AND OPTIONS

3.1

Establishment fee: The Borrower shall pay to the Agent, for the account of each Lender, not later than the date of this Agreement an establishment fee, in USD, as set out in the Fees Letter.

3.2

Commitment fee: The Borrower shall pay to the Agent, for the account of each Lender, a commitment fee equal to 1.50% per annum of the Available Facility of each Tranche, which fee shall be payable in arrears on each Quarter Date in the period from the date of this Agreement up to the end of the relevant Availability Period.

3.3

Arrangement fee: The Borrower shall pay to the Agent for the account of each Lender an arrangement fee as set out in the Fees Letter.

3.4

Warrants: In consideration of the Tranche B Lenders providing the Facility, the Sponsor agrees to issue to the Agent on behalf of the Tranche B Lenders 2,500,000 Warrants on the terms set out in Warrant Certificate scheduled to this Agreement as the Ninth Schedule.

4.

CONDITIONS PRECEDENT

4.1

Conditions precedent to all Tranches: No Drawdown Notice may be given under any Tranche until the Agent has confirmed to the Borrower that it has received and found, in its sole discretion, to be in a form and substance satisfactory to it, the documents and evidence specified in the First Schedule.

4.2

Right to waive: The conditions precedent referred to in clause 4.1 are inserted for the sole benefit of the Lenders. Only the Agent, with the consent of the Lenders, may waive any obligations under clause 4.1.

4.3

Conditions precedent to Tranche A: No Drawdown Notice may be given under any Tranche A until the Agent has confirmed to the Borrower that Tranche B has been drawn down in full.

4.4

Conditions precedent to each Advance: The obligations of the Lenders to make available each Advance are subject to the further conditions being satisfied that:

(a)

Drawdown Date: the Drawdown Date is a Business Day during the relevant Availability Period;

(b)

Amount of Advance: the amount of the Advance under Tranche A or Tranche B is a minimum of US$1,000,000 and an integral multiple of US$1,000,000;

(c)

Available Facility:

(i)

the amount of the Advance, when aggregated with all other Advances (if any) intended to be made on the same day under the same Tranche, does not exceed the Available Facility;

(ii)

in the event that the acquisition pursuant to the Acquisition Agreement is not complete on or before Financial Close, or expected to be complete with the proceeds of the first drawdown, the Borrower may request a drawdown of an amount reduced in proportion to the Borrower’s existing Participating Interest in the JV and as agreed by the Agent (in its sole discretion); and

(iii)

until such time as the Construction Contract and the Oil Sales Contracts have been completed and executed to the satisfaction of the Agent, the maximum Available Facility under Tranche A will be US$13,000,000;

(d)

Representations and Warranties: the representations and warranties by each Obligor in the Financing Documents are true and correct as at the date of the relevant Drawdown Notice and the relevant Drawdown Date as though they had been made at that date in respect of the facts and circumstances then subsisting;

(e)

No Event of Default or Potential Event of Default: no Event of Default or Potential Event of Default has occurred or is subsisting at the date of the relevant Drawdown Notice and the relevant Drawdown Date nor will result from the provision of the Advance; and

(f)

All Necessary Authorisations: all necessary Authorisations required by the Borrower for the borrowing of that Advance have been obtained.

4.5

Conditions Subsequent: The obligation of the Lenders to make available any Advances are subject to:

(a)

the Borrower and the Sponsor procuring that Arrowhead Energy Limited accede to this Agreement pursuant to clause 18.5 and providing a Guarantor General Security Agreement and each other document required pursuant to clause 18.5 no later than the Business Day following the completion date under the Acquisition Agreement;

(b)

the Borrower completing and executing the Construction Contract in a form and substance consistent with the terms of such contract provided to the Agent prior to the date of this Agreement and otherwise agreed by the Agent no later than 31 January 2007;

(c)

the Borrower completing and executing the Oil Sale Contracts in a form and substance consistent with the terms of such contracts provided to the Agent prior to the date of this Agreement and otherwise agreed by the Agent no later than 28 February 2007;

(d)

receipt of a copy of the notice of assignment addressed to the Contractors under the Construction Contract pursuant to the Borrower General Security Agreement, duly acknowledged by the relevant counterparties no later than 31 January 2007;

(e)

confirmation from the Lenders’ Insurance Consultant of insurances implemented by the Borrower in its capacity as Operator in relation to the Project and confirming that all

insurance required by clause 18.4(a) (Insurance) is in place, such confirmation to be received no later than 28 February 2007;

(f)

evidence satisfactory to the Agent that, no later than 31 January 2007 the Security Interest granted by Arrowhead Energy Limited in favour of Vector Gas Limited has been subordinated to the Security Interest granted by Arrowhead Energy Limited in favour of the Agent on behalf of the Lenders;

(g)

verification that the details of the capital cost budget and construction schedule for the Project are acceptable to the Agent by a consultant appointed by the Agent; and

(h)

receipt of a warrant certificate for the Warrants to be issued by the Sponsor to the Agent together with a legal opinion from Lang ▇▇▇▇▇▇▇▇ LLP confirming the validity and enforceability of the Warrants no later than 31 January 2007.

Failure to satisfy the above conditions subsequent shall constitute an Event of Default.

5.

ADVANCES

5.1

Advances:

(a)

Availability: Subject to compliance with clause 4 (Conditions Precedent), the Tranche A Lenders shall make an Advance under Tranche A available to the Borrower if, no later than 10.30am two Business Days before the relevant Drawdown Date, the Agent has received from the Borrower a duly completed Drawdown Notice for the Advance such notice shall be irrevocable.

(b)

Drawdown: Subject to the provisions of this Agreement, the Tranche A Lenders shall, on the Drawdown Date for an Advance under Tranche A, make available to the Borrower the relevant Advance by credit to the Proceeds Account in immediately available funds by 2.00pm on the relevant Drawdown Date.

6.

INTEREST

6.1

Interest Period: The Borrower shall pay interest on each Advance under Tranche A by reference to successive Interest Periods. The duration of the first Interest Period in respect of each Advance shall commence on its Drawdown Date and end on the next Quarter Date and each subsequent Interest Period shall commence on the day following that Quarter Date and end on the next following Quarter Date or, if earlier, the Tranche A Expiry Date.

6.2

Interest Payment: On each Interest Payment Date, the Borrower shall pay the unpaid interest accrued on each Advance since the previous Interest Payment Date (or, in the case of the first Interest Payment Date, since the Drawdown Date) at the applicable rate of interest for each applicable Interest Period relating to that Advance.

6.3

Interest Payment Dates: The Borrower shall ensure that Advances having a principal amount not less than the amount required to be repaid on each Repayment Date shall have an Interest Period that ends on that Repayment Date.

6.4

Interest Rate: The rate of interest payable in respect of each Advance under Tranche A will be the sum of the Margin and LIBOR for the relevant Interest Period.

6.5

Calculation: Interest will accrue daily and will be calculated on the basis of a year of 360 days and the actual number of days elapsed.

7.

REPAYMENT

7.1

Repayment: Subject to clause 14.5 (Mandatory Payments), the Borrower shall repay the Tranche A Principal Outstanding by repaying on each Repayment Date the amount corresponding to that date in the Repayment Schedule.

7.2

Final Repayment: The Borrower shall repay by no later than 4.00pm on the Tranche A Expiry Date all Outstanding Money relating to Tranche A which is then unpaid.

7.3

No reborrowing: Amounts repaid under clause 7.1 (Repayment), clause 7.2 (Final Repayment) or clause 14.5 (Mandatory Repayment) will not be available for redrawing and the Tranche A Tranche Amount will be permanently reduced by the amount repaid.

8.

ADVANCES

8.1

Advances:

(a)

Availability: Subject to compliance with clause 4 (Conditions Precedent), the Tranche B Lenders shall make an Advance under Tranche B available to the Borrower if, no later than 10.30am two Business Days before the relevant Drawdown Date, the Agent has received from the Borrower a duly completed Drawdown Notice for that Advance such notice shall be irrevocable.