Carbon Energy UCG Projects

update

UCG Association London March 2011

Cliff Mallett Technical Director

Disclaimer

The information contained in this presentation is given without any liability whatsoever to Carbon Energy Ltd or any of its related entities or their respective directors or officers,and is not intended to constitute legal, tax or accounting advice or opinion. No representation or warranty, expressed or implied, is made as to the accuracy, completeness orthoroughness of the content of the information. The recipient should consult with its own legal, tax or accounting advisers as to the accuracy and application of the informationcontained herein and should conduct its own due diligence and other enquiries in relation to such information.

The information in this presentation has not been independently verified by Carbon Energy Ltd. Carbon Energy disclaims any responsibility for any errors or omissions in suchinformation, including the financial calculations, projections and forecasts set forth herein. No representation or warranty is made by or on behalf of Carbon Energy that anyprojection, forecast, calculation, forward-looking statement, assumption or estimate contained in this presentation should or will be achieved.

Please note that, in providing this presentation, Carbon Energy has not considered the objectives, financial position or needs of the recipient. The recipient should obtain and relyon its own professional advice from its tax, legal, accounting and other professional advisers in respect of the addressee’s objectives, financial position or needs.

This presentation does not carry any right of publication. This presentation is incomplete without reference to, and should be viewed solely in conjunction with, the oral briefingprovided by Carbon Energy. Neither this presentation nor any of its contents may be reproduced or used for any other purpose without the prior written consent of CarbonEnergy.

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Competent Person

The information in this presentation (where it relates to resources) is based on information compiled by Dr C. W. Mallett, Executive Director Carbon Energy Limited who is amember of the Australian Institute of Mining and Metallurgy. Dr Mallett has sufficient experience which is relevant to the style of mineralization and type of deposit underconsideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the “Australasian Code for Reporting of ExplorationResults, Mineral Resources and Ore Reserves”. Dr Mallett consents to the inclusion in the presentation of the matters based onhis information in the form and context in which it appears.

The reserve estimates used in this document were compiled by Mr Timothy Hower of MHA Petroleum Consultants, Colorado, USA, a qualified person under ASX Listing Rule 5.11.Mr Hower has consented to the use of the reserve information contained within this document in the form and context in which itappears.

Important Statements

Carbon Energy is… Building a global energy company

• CORE BUSINESS Converting coal into syngas underground (UCG)

• Generating multiple uses for syngas – e.g. power generation, fertiliser production and gas-to-liquids (GTL) projects

• Creating global projects – based on resources, markets, partnerships

• Active in Australia, Chile, US, Turkey, India

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Carbon Energy Unique (originally) UCG Design

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Controlledin-panelreaction

Utilisingdeep coal

Produces Syngas for energy or feedstock

5MW power

station

Monitoring wells

Office & infrastructure

UCG panel

Underground

Aerial photo of CEL’s Bloodwood Creek UCG site

Accommodation

Steam +

O2

Product gas

to Main FLARE

Vertical injection well

STEAM & O2 INJECTION

Phase

January 2009

Reactor Growth during tests

Reactor position verified

DAY 140

late Feb 2009

BURN THROUGH

of monitoring

well No 6

Confirms reactor

position

Ground temperature

Cross-section line

BURN THROUGH

of monitoring

well No 6

Confirms reactor

position

Temperatures around cavity in 24 mths operation

REACTOR CAVITY

>50oC

26.5oC to 50oC

Temperature sensor

ZERO effect50m west of cavity

ZERO effect 60mabove cavity

ZERO effect50m east of cavity

Greater than 100oC12m above cavity asreactor passed under

Scale 30m

scale

70oC after 24 monthsIn reactor wall

<2oC rise after 20 mths10m east of reactor

coal seam

Ambient temperature ~ 26oC

coal seam coal seam

No effect 12m below seam

RL top of seam

UCG

Panel

RMS Amplitude

Amplitude

Anomaly

Over UCG

cavity

3D Seismic exploration

After – Peters T, Rich N, Strong S, 2010 Seismic reflection: A useful tool to assist UCG

Proceedings of the Bowen Basin Geologist’s Group Conference October 2010

Detail of 3D Seismic SurveyRMS Amplitude anomaly over UCG cavity

Monitoring wells

Design cavity

The anomaly is centered on the UCG cavity, but does not show edges precisely

Water Monitoring

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Bloodwood Creek• Over 50 monitoring devices in 30 water monitoring bores within an area of less than ½ square mile

• Monitor:- Water Quality- Groundwater Pressure- Gas Composition- Microseismic signals- Temperature

• 3 monitoring layers provide security in controlling the gasification process, maintaining operational parameters and preserving groundwater quality

Queensland resourcesInterest in 2,000 km2 of EPC’s but

drilled only small part

668 Mt

450 Mt Inferred

218 Mt indicated

(2m cut-off)

JORC compliant coal

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JORC practice

Proven

ore

Reserves(Recovery plan)

Measured mineral

resource

Indicated mineral resource

Inferred mineral resource

4km<250m <1kmCutoffs

for

grades

and

thickness

Petroleum Resources Management System

Discovered

petroleum

In

place

commercial

sub-

commercial

RESERVES

1P 2P 3P

Proven Probable Possible

Other undiscovered and unrecoverable classes

Contingent resources

1C 2C 3C

UCG Reserves Certification

Area Category Gross Gas PJ

Bloodwood Creek 1P Reserve (proven) 11.0

EPC 867 including 2P Reserve (proven + probable 743.9

MDL 374 3P Reserve (proven + probable+ possible) 1042.8

Additional resources 2C (Contingent) of 1927.7 PJ have also been identified in both

Bloodwood Creek EPC867 and Kogan EPC 869 areas

Independent certification – MHA Petroleum Consultants

for EPC 867 and EPC 869

In accordance with Society of Petroleum Engineers (SPE) guidelines the reserves are:

Key criteria- PRMS assessment

Coal resource base is JORC– 1P 2P 3P resource based on seams >5m

– 2C resource based on seams >2m

Active production requirement– Syngas and energy produced per tonne coal gasified

– Percentage of coal accessed by UCG required

– 1P only for existing UCG panel +2

Commercial requirement– Must have offtake/sales contract

Significant discount for UCG from 17300PJ insitu in coal

to PRMS syngas 2P of 744PJ and 3P 1043PJ + 2C 1928PJ

Current Domestic Operations – Kogan, Queensland

5MW Power Station (Phase 1)

• Commissioning of Panel 2• Commissioning of Gas Engines• Electricity Generation – power our site• Electricity connection into local Grid• Commissioning of Panel 3

25MW Power Station (Phase 2)

• Development Agreement already in place with Arcadia Energy Trading

• Power Purchase Agreement under negotiation• Project planning already commenced

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191919

3Power Generation

Blue Gum Energy Park Phase

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Chile – Mulpun Project

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• Agreement with Antofagasta Minerals S.A. to jointly assess and develop a coal deposit in Mulpun (near Valdivia)

• Located in southern central Chile, 800km south of Santiago

• Focusing on Power Generation

- Chilean electricity demand growing by 8% p.a.

- Currently reliant on imported coal, LNG and Diesel

• Environmental Approval Obtained for Pilot Project

Mulpun UCG site

Mainly cleared pastoral land and exotic forestry

Small remnants native forest

Water courses

Drill rig

Summary

• CEL demonstrating leading UCG technology developed by CSIRO

• Pilot was endorsed after exhaustive government scrutiny

• Development pathway for Bloodwood Creek site

• Projects and partnerships being developed globally

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Kogan, Queensland

Cliff Mallett

Technical Director