CHAIRMAn’S REPORT The 2011 financial year can be summarised as busy technically and commercially with exciting outcomes  from seismic work and preparations for drilling getting underway. The year was spent assessing the  results of the three seismic acquisition programs completed in 2009-2010 in Australia, Brazil and Peru.  Karoon also farmed into Santos Basin Blocks with Petrobras, which led to participation in the light oil  discovery at Maruja-1. Preparations have also commenced for Karoon’s first Brazilian offshore drilling  campaign to start during calendar year 2012.  Results from the three different 3D seismic acquisitions conducted in 2009-2010 have been very encouraging. Interpretation of each seismic data set has added more leads and prospects to Karoon’s portfolio. This has the potential to significantly increase  the Company’s current risked prospective resources.  Seismic work has now progressed to a point where new drilling targets can be selected in Australia, Brazil and Peru and drilling  rigs have been contracted for Australia and Brazil. Karoon expects to have a rig secured for Peru in early calendar year 2012. In  preparation for the commencement of drilling in Brazil and Peru, Karoon is building a highly experienced drilling team of industry  experts with a history in the region. Well planning and logistical work for Brazil will be ongoing into calendar year 2012. Karoon was encouraged by the outstanding drill stem test at Kronos-1 in the Browse Basin northwest Australia. This test provided  legitimacy to the reservoirs in the greater Poseidon trend and this information, when viewed with the Poseidon 3D seismic data,  creates a better understanding of the greater Poseidon trend. There are now additional prospects in the immediate area around  Poseidon that have the potential to add to the prospectivity of the Poseidon trend.  After delays in obtaining necessary Australian environmental regulatory approvals, Karoon is progressing to the phase-2 drilling  campaign in the coming months. The Karoon/ConocoPhillips Joint Venture will be utilising the ‘Transocean Legend’ drilling rig, the  same rig that drilled and tested Kronos-1. The rig is contracted for five firm wells and three optional wells. This new drilling  campaign will be targeted at exploring further untested fault block culminations within the greater Poseidon structure, in  preparation for decision making on future development of the area. At the completion of this drilling campaign, Karoon is optimistic  that the program results will provide the necessary information and certainty to conduct gas sales negotiations and arrange  financing for a potential project. Karoon’s Brazilian operations have seen a large amount of activity over the financial year both in the corporate and geological  sense. While seismic processing and interpretation has yielded good results during the financial year, Karoon’s attempted initial  public offering (‘IPO’) of its South American assets was not successful due to a poor market environment. Karoon proposed to  list 30% of its South American asset base on the Brazilian Stock Exchange, the BM&FBOVESPA in São Paulo. However, market  conditions in the immediate period around the offering close date were not favourable, with a distinct change in sentiment as a  result of both a temporary over supply of Brazilian equities through the largest capital raising in market history and poor performance  of recent IPOs.  In the period around the IPO, Karoon moved to secure a specialist team in South America with excellent results. This team of advisers  and geotechnical staff have proven themselves and added significant depth of expertise and knowledge to the Karoon team.  Work on Karoon’s Santos Basin acreage data is continuing. Karoon has further confirmation of the majority of its existing prospects  and now has additional prospects and leads at the pre, sub and post salt levels.  The signing of the ‘Blackford Dolphin’ semi-submersible drilling rig contract to commence drilling in the Santos Basin in the first  half of calendar year 2012 for a firm commitment of three wells will allow Karoon to start testing the suite of prospects by  targeting the lowest risk, highest value targets.  During August 2010, Karoon signed a farm-in agreement with Petrobras in the Maruja Block. This agreement was the culmination  of a significant amount of work both commercially and technically. Two exploration wells and one appraisal well were drilled. The  outcome of these wells was the discovery, subsequent drill stem test and the first appraisal of the Maruja field. Karoon hopes to  have more news on the forward plan for the Maruja field in the coming months. 2 Karoon Gas Australia Ltd  Annual Report 2011