2010-2011 OPERATIOnS COnTInUEd fOR THE fInAnCIAL YEAR EndEd 30 jUnE 2011 Drilling Management  Equity Interests Bonaparte Basin Permit AC/P8 Equity Interests South America Brazil  During March 2008, Karoon was awarded 100% participation in five offshore exploration Blocks S-M-1037, S-M-1101, S-M-1102,  S-M-1165 and S-M-1166 in the Santos Basin, Brazil. The five blocks total 865 square kilometres. During August 2010, Karoon  signed joint venture agreements to acquire a 20% participation in Blocks S-M-1352 and S-M-1354, with the remaining 80%  interest owned by Petrobras, subject to Agencia Nacional do Petróleo, (‘ANP’) approval. Karoon is the Operator and 66.67% equity holder of AC/P8. Its joint venture partner is Talisman Oil & Gas (Australia) Pty Limited,  currently holding 33.33%.  The joint venture has the option to apply to surrender the permit before its third anniversary during October 2011. The joint  venture has agreed to surrender the permit and subsequent to the end of the financial year, the joint venture applied to the  relevant government authorities to surrender the permit. Although the AC/P8 permit is located in an existing oil and gas producing province and is close to several producing oilfields, the  joint venture has been unable to identify a prospect that offers a drilling target that would meet the joint venture’s minimum  economic and probability of success/risk criteria. During the financial year, Karoon completed the geological and geophysical evaluation of AC/P8 in preparation for a decision on  proceeding into the secondary term of the permit, which carries a commitment to drill an exploration well.  Karoon holds 40% of WA-315-P and WA-398-P, with ConocoPhillips retaining the other 60% interest. During November 2010, Karoon and ConocoPhillips executed an agreement whereby Karoon acquired an additional 50% interest  in WA-314-P, taking Karoon’s equity interest to 90%. ConocoPhillips will retain a 10% interest in the permit and also remain as  Operator. Karoon has the right to determine the final location, depth and target for the commitment well to be drilled on WA-314-P  in the upcoming drilling program.  The drilling campaign is expected to continue for up to two years and is designed to gain greater confidence in the contingent gas  resource base with a view to quickly moving forward to selection of a development concept and progressing to the next stage in  realising the potential of the Browse Basin acreage.  Subsequent to the financial year end, the semi-submersible drilling rig ‘Transocean Legend’ was secured for the drilling of a  minimum of five wells with options for three additional wells. The Transocean Legend is expected to commence drilling during  the fourth quarter of 2011, with at least one well to be drilled in WA-314-P during the drilling campaign. Throughout the financial year, the Operator conducted preparations to commence drilling, including the submission of the required  environmental approval requests to the Department of Sustainability, Environment, Water, Population and Communities  (‘DSEWPaC’). The DSEWPaC has now approved the EPBC Act Application for the phase-2 drilling campaign. 6 Karoon Gas Australia Ltd  Annual Report 2011