Carnarvon Petroleum : 24 Jan 2017 Quarterly Report Dec 31 2016

Q2 Quarterly Report 31 December 2016 CARNARVON PETROLEUM LIMITED Quarter Highlights:

• Phoenix South-2 gas and condensate discovery

• Successful Roc-2 flow test exceeded pre-drill expectations

• Dorado prospect identified in the greater Phoenix area

• A$60 million held in cash

Ma na ging Dir e ctor' s C omments

The end of 2016 marked an exciting quarter for Carnarvon and completed what has been a very active year for the Company. The quarter began with a successful flow test in the Roc-2 well where the well flowed at levels which exceeded pre-drill expectations and was limited only by equipment constraints. There was also the fifth consecutive discovery for Carnarvon in the Phoenix South-2 well which discovered gas and condensate in the Caley Sandstone. I am thrilled with the string of successes in the greater Phoenix and Roc area as Carnarvon continues to advance this area of significant potential.

The Phoenix South-2 well intersected a definitive hydrocarbon-bearing zone as it approached the primary Caley target. The well experienced significant gas influx and elevated reservoir pore pressures which indicates a hydrocarbon body larger than we have previously experienced in the basin. Due to the significant amount of hydrocarbon bearing pressure encountered, it was not possible to continue drilling. A new well with a different well bore design is required to manage the elevated pressure and assess the Caley reservoir.

We look forward to releasing revised volume estimates and outlining the next steps for the Phoenix South- 2 discovery once the joint venture has had an opportunity to completely assess the results.

In addition to the Phoenix South-2 result, we had a game changing flow test in the Roc-2 well. The well flowed gas and condensate to surface at rates which were significantly greater than anticipated. The completion of the flow test clearly shows that the Caley Sandstone is capable of producing at commercial rates.

The joint venture is currently assessing the Roc and Phoenix South results achieved to date and will decide on the forward strategy to unlock the potential of the 22,000 km2 greater area. In the shorter term this is expected to include testing the Dorado prospect which was identified using the modern Capreolus 3D seismic data the joint venture has recently acquired. The Dorado prospect is located South of Roc and Phoenix South and has the potential to be the largest structure discovered in the area to date. The joint venture is currently preparing to drill the Dorado prospect in late 2017, however more news will be released on this in due course.

Concurrently, Carnarvon continues to develop prospects in its exciting exploration permits which have been targeted as a result of building one of the leading regional databases over the North-West Shelf of Australia. These permits have been acquired with minimal work program commitments and I look forward to providing more information on these prospects as we advance these projects further.

From a financial perspective, Carnarvon has maintained a strong cash balance of A$60 million. We continue to be prudent in managing our resources whilst being one of the most active oil and gas companies in Australia.

Adrian Cook Managing Director

CARNARVON PETROLEUM LIMITED

Phoenix South-2

(Carnarvon 20%, Quadrant Energy is the Operator)

The Phoenix South-2 well provided another positive step forward for Carnarvon and its partner as more gas and condensate was discovered in an interval at the top of the Caley Sandstone.

As the well approached the primary Caley target, an estimated 39 metre hydrocarbon-bearing zone between approximately 5,176 and 5,215 metres was intersected. At this point, a significant gas influx and elevated reservoir pore pressure was experienced leading to the decision to cease drilling. A further 185 metres of potential hydrocarbon bearing reservoir in the Phoenix South Caley remains to be assessed.

The reservoir pore pressure that the well intersected was much higher than expected which is very encouraging as higher formation pressures typically support both larger volumes and higher gas and condensate flow rates over a given reservoir. Further drilling into this reservoir will require a different well bore design from that used in this well. Accordingly, for safety reasons, no further drilling could occur in the current well bore. As such, the well was successfully and safely completed following the end of the quarter.

The Phoenix South-2 discovery of gas and condensate is a welcomed addition to the light oil discovery in the Phoenix South-1 well and is expected to provide the additional gas and condensate resources to those already discovered at Roc. Carnarvon is currently evaluating the Phoenix South-2 results and will provide an updated volumetric assessment once they are available.

With a string of hydrocarbon discoveries in the greater Phoenix area, the joint venture will now assess the encouraging results so far before deciding on the appropriate plan going forward.

Phoenix area discoveries and prospect map.

CARNARVON PETROLEUM LIMITED

Roc Gas and Condensate

(Carnarvon 20%, Quadrant Energy is the Operator)

Image of the Ocean Monarch flow testing at the Roc-2 well

In October 2016, a successful controlled flow test was completed in the Roc-2 well. This was a welcomed accompaniment to the gas and condensate discoveries in the Roc-1, Roc-2 and Phoenix South-2 wells.

The flow test achieved a peak flow rate of 51 million scf/day and 2,943 barrels of condensate per day, which is equivalent to approximately 11,500 barrels of oil equivalent* per day. These rates were achieved through an approximate 1 ½" choke and were equipment constrained flow rates; meaning the well flowed at the maximum rate possible with the equipment being used.

The flow test followed the discovery of a high-quality reservoir within the Caley section of the Roc-2 well, which is almost fully saturated with gas and condensate. Porosities of up to 15% were observed with an average of around 9%, which is an excellent result for a reservoir at this depth.

These results exceeded the pre-drill expectations by quite some margin and has resulted in a reassessment of the quality of the reservoir at different depths in the basin. These are positive implications on the capability of hydrocarbons to flow from quality reservoirs in the basin including not only the Roc gas and condensate discoveries but also for the Phoenix South-2 discovery and the chain of prospects in the greater exploration area.

The joint venture is currently interpreting the results and designing the forward strategy to maximise the potential of these discoveries. Forward planning being undertaken in 2017 is expected to include engineering studies to analyse the options to commercialise the Roc gas and condensate.

*Barrels of oil equivalent converted at 6,000 scf gas to 1 bbl oil.